As filed with the Securities and Exchange Commission on December
22,1995 Registration No. 2-92633
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 X
POST-EFFECTIVE AMENDMENT NO. 20 X
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 X
AMENDMENT NO. 23 X
MANNING & NAPIER FUND, INC.
(Exact Name of Registrant as Specified in Charter)
1100 Chase Square, Rochester, New York 14604
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code (716) 325-6880
B. Reuben Auspitz or Barbara Lapple
c/o Manning & Napier Fund, Inc.
1100 Chase Square
Rochester, New York 14604
(Name and Address of Agent for Service)
Copies to:
Richard W. Grant, Esq.
Morgan, Lewis & Bockius
2000 One Logan Square
Philadelphia, PA 19103
It is proposed that this filing will become effective 60 days after
filing pursuant to paragraph (a) of Rule 485.
Registrant has registered an indefinite number of its shares under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940. Registrant's Rule 24f-2 Notice for its fiscal year ended December
31, 1994 was filed on February 25, 1995.
<PAGE>
MANNING & NAPIER FUND, INC.
Cross Reference Sheet
<TABLE>
<CAPTION>
Form N-1A item
- ---------------------------------------
Item Number
- ---------------------------------------
Part A Prospectus Caption
- --------------------------------------- ---------------------------------------------------------
<S> <C> <C>
1. Cover Page
2. *
3. Consolidated Financial Information
4. General Information; Cover Page; Investment Objective
and Policies; Principal Investment Restrictions
5. (a-b) Management
(c) *
(d) General Information
(e) Management
(f) *
6. (a-e) General Information
(f-g) Dividends and Tax Status
7. Subscriptions, Exchanges & Redemptions of Shares
8. Subscriptions, Exchanges & Redemptions of Shares
9. *
Part B Statement of Additional Information or Prospectus Caption (indicated by See Part A")
- ---------------------------------------
10. Cover Page
11. Cover Page
12. *
13. Investment Objective and Policies
14. Management
15. (a-b) See Part A--General Information
(c) Management
16. (a-c) Management
(d-g) *
(h) See Part A--General Information
(i) *
17. (a) Management--Portfolio Transactions and Brokerage
(b) *
(c) Management--Portfolio Transactions and Brokerage
18. See Part A--General Information
19. (a-b) See Part A--Offering of Shares
(c) See Part A-Redemption of Shares
(d) *
20. Dividends and Tax Status
21. *
22. *
23. Financial Statements
</TABLE>
Part C
- ---------------------------------------
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.
* Not Applicable
<PAGE>
WORLD OPPORTUNITIES SERIES
Manning & Napier Fund, Inc.
1100 Chase Square
Rochester, New York 14604
1-800-466-3863
Manning & Napier Fund, Inc. (the "Company"), is an open-end management
investment company consisting of multiple series, each a separate investment
portfolio having its own investment objectives and policies. This Prospectus
relates to the World Opportunities Series (the "Series") a series of the Fund.
The Series' investment objective is to seek long-term capital growth.
This Prospectus provides you with the basic information you should know
before investing in the Series. You should read this Prospectus and keep it
for future reference. A Statement of Additional Information, dated
XXXXXXXXXXXX 1995 containing additional information about the Fund has been
filed with the Securities and Exchange Commission and is incorporated by
reference in this Prospectus in its entirety. You may obtain a copy of the
Statement of Additional Information without charge by contacting the Fund at
the address or telephone number listed above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATIONS TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS XXXXXXXXXXX, 1995.
<PAGE>
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
(as a percentage of offering price)
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<S> <C>
Maximum Sales Charge Imposed on Purchases None
Redemption Fees(1) None
</TABLE>
(1) A wire charge, currently $15, will be deducted by the Transfer Agent from
the amount of a wire redemption payment made at the request of a shareholder.
Such amount is not included in the "Annual Operating Expenses" of the Series.
ANNUAL OPERATING EXPENSES
The following information provides (i) a tabular summary of expenses relating
to the annual operating expense of the Series and (ii) an example illustrating
the dollar cost of such expenses on a $1,000 investment.
<TABLE>
<CAPTION>
Annual Operating Expenses (as a percentage of average net assets):
World Opportunities
Series
--------------------
<S> <C>
Management Fees 1.00%
12b-1 Fees None
Other Expenses 0.50%
--------------------
Total Operating Expenses 1.50%
====================
</TABLE>
<TABLE>
<CAPTION>
Example:
You would pay the following expenses on a $1,000 investment, assuming a) 5%
annual return and b) redemptions at the end of each period:
<S> <C> <C>
1 year 3 years
------- --------
World Opportunities Series $ 15 $ 48
</TABLE>
purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in each Series. For a
more complete description of the various costs and expenses illustrated above,
please refer to the management section of the Prospectus.
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN ABOVE.
<PAGE>
THE FUND
The Fund is an open-end management investment company incorporated under
the laws of the State of Maryland on July 26, 1984. The Company offers
separate series of units of beneficial interest ("shares"). This Prospectus
relates to the World Opportunities Series, a series of the Company.
Information regarding the Company's other series is contained in separate
prospectuses that may be obtained from Manning & Napier Fund, Inc., P.O. Box
41118, Rochester, New York 14604 or by calling 1-800-466-3863.
Shares of the Series are offered directly to investors and to clients or
employees of the Advisor or its affiliates that have authorized investment in
the Fund as part of the discretionary account management services of the
Advisor or its affiliates. Investors may be charged a fee if they effect
transactions through a broker or agent.
Since the Series may be used under varying conditions and market prices,
the result for a given investor might differ from the result that would have
been obtained had the Series been used for only clients with the same
investment objective. However, the Advisor seeks to manage cash flows into
and out of the Series in the interest of the Fund and its clients so as to
minimize the effect on performance.
As a general rule, the investment in shares of the Series on behalf of
discretionary account clients is limited to a maximum of 5% -- or if the
Advisor believes that the opportunity to capture investment values or to
diversify risk among asset classes is particularly compelling, to a maximum of
10% -- of the client's portfolio.
RISK AND INVESTMENT OBJECTIVES AND POLICIES
GENERAL
The objective of the Series is to seek long-term capital growth. The
Series generally invests at least 65% of assets in common stocks of companies
domiciled in at least three different countries. The Advisor will emphasize
individual security selection to identify those issuers with excellent
long-term business prospects and attractive valuations in the Advisor's
opinion. It may invest up to 20% of assets in noninvestment-grade
convertibles and debt securities. The Series' investment objectives and
policies are not fundamental policies and may be changed without shareholder
approval; however, it is the Board of Directors' policy to notify shareholders
prior to any material change. There is no assurance that the Series will
achieve its investment objective.
The Series may also invest up to 35% of its assets in corporate debt
securities of foreign issuers and in obligations issued by foreign
governments, or their respective agencies and instrumentalities. The value of
debt securities usually fluctuates inversely to changes in interest rates.
The Series may invest in both exchange and over-the-counter traded securities.
The Series may invest in such securities without regard to term or rating and
may, from time to time, invest up to 20% of its assets in debt securities
rated below investment grade, i.e., rated lower than BBB by Standard & Poor's
Corporation ("S&P") or Baa by Moody's Investor Service, Inc. ("Moody's"), or
unrated securities of comparable quality as determined by the Advisor. These
securities are commonly known as junk bonds. Ratings of corporate bonds
including lower rated bonds are included in the Appendix. See "Additional
Investment Policies-High Yield Debt Securities".
In periods of unusual market conditions, when the Series' Advisor
consider it appropriate, the Series may invest all or any part of the Fund's
assets in cash, U.S. Government Securities, high quality commercial paper,
bankers' acceptances, repurchase agreements and certificates of deposit.
The Series is non-diversified portfolio under the Investment Company Act
--
(the "1940 Act"), which means that the Series is not limited by the 1940 Act
in the proportion of its assets that may be invested in the obligations of a
single issuer. Thus, the Series may invest a greater proportion of its assets
in the securities of a small number of issuers and as a result will be subject
to greater risk with respect to its securities. However, the Series intends
to comply with the diversification requirements imposed by the Internal
Revenue Code of 1986, as amended (the "Code") for qualification as a regulated
investment company.
For temporary defensive purposes during periods when the Advisor
determine that market conditions warrant, the Series may invest up to 100% of
its assets in money market instruments (including securities issued or
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 associations deemed to be creditworthy by the
Advisor, commercial paper rated A-1 by S&P or P-1 by Moody's, repurchase
agreements involving such securities and other investment companies investing
solely in such securities 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 and the Statement of Additional Information.
In addition, the Series may to varying degrees use certain techniques and
strategies discussed below under "Risk and Additional Investment Policies".
SPECIAL RISK AND ADDITIONAL INVESTMENT POLICIES
The Series may engage in the following investment policies and practices,
some of which are described in more detail in the Statement of Additional
Information.
FOREIGN INVESTMENTS
Investments in foreign securities have special risks related to political,
economic and legal conditions outside of the U.S., including the possibility
of unfavorable currency exchange rates, exchange control regulations
(including currency blockage), expropriation, nationalization, withholding
taxes on income and difficulties in enforcing judgments. Foreign securities
may be less liquid and more volatile than comparable U.S. securities. In
general, there may be limited public information with respect to foreign
issuers, and, some foreign issuers may also be subject to less comprehensive
accounting and disclosure requirements than similar U.S. issuers.
The Series investments in foreign securities may include investments in
countries whose economies or securities markets are not yet highly developed.
Special risks associated with these investments (in addition to the
considerations regarding foreign investments generally) may include, among
others, greater political uncertainties, an economy's dependence on revenues
from particular commodities or on international aid or development assistance,
currency transfer restrictions, highly limited numbers of potential buyers for
such securities and delays and disruptions in securities settlement
procedures.
INVESTING IN OTHER INVESTMENT COMPANIES
The Series may invest up to 10% of its total assets in closed-end investment
companies commonly referred to as "country funds". Such investments will
involve the payment of duplicate fees through the indirect payment of a
portion of the expenses, including
advisory fees, of such other investment companies.
SMALL COMPANIES
The Series may invest in smaller, less well established companies which may
offer greater opportunities for capital appreciation than larger, better
established companies. These stocks may also involve certain risks related to
limited product lines, markets or financial resources and dependence on a
small management group. Their securities may trade less frequently, in
smaller volumes and fluctuate more sharply in value than exchange listed
securities of larger companies.
U.S. GOVERNMENT SECURITIES
The Series may purchase securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. Direct obligations of the U.S.
Government include bills, notes and bonds issued by the U.S. Treasury and
obligations issued or guaranteed by U.S. agencies or instrumentalities. The
obligations of certain U.S. agencies (i.e., the Government National Mortgage
Association) are backed by the full faith and credit of the U.S. Government or
are supported by the agencies' rights to borrow from the U.S. Treasury. The
issues of other agencies are supported only by the credit of the agency (e.g.,
the Federal National Mortgage Association).
SHORT SALES
The Series 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 the Series owns securities equivalent to those sold short. No more
than 25% of the net assets (taken at current value) of the Series may be held
as collateral for such sales at any one time. Such short sales can be used as
a hedge and as a method of deferring realized capital gains from one taxable
year to the next for tax purposes.
ZERO-COUPON BONDS
Debt securities in which the Series may invest may also include
zero-coupon bonds. Zero-coupon bonds do not require the periodic payment of
interest and are issued at a significant discount from face value. The
discount approximates the total amount of interest the bonds will accrue and
compound over the period until maturity at a rate of interest reflecting the
market rate of the security at the time of issuance. Such investments benefit
the issuer by mitigating its need for cash to meet debt service, but also
require a higher rate of return to attract investors who are willing to defer
receipt of such cash. Such investments may experience greater volatility in
market value than debt obligations which make regular payments of interest.
The Series will accrue income on such investments for tax and accounting
purposes, which is distributable to shareholders. The Series may have to sell
other securities to raise cash to satisfy this distribution requirement.
VARIABLE AND FLOATING RATE INSTRUMENTS
Certain of the obligations purchased by the Series 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 some other reset period and may have a floor or ceiling on charges. There
is a risk that the current interest rate on such obligations may not
accurately reflect existing market interest rates.
HEDGING TECHNIQUES
The Series has reserved the right, subject to authorization by the Board
of Directors prior to implementation, to engage in certain strategies in an
attempt to hedge the Series' portfolio, that is, to reduce the overall level
of risk that normally would be expected to be associated with its investments.
The Series may write covered call options on common stocks; may purchase and
sell (on a secured basis) put options; and may engage in closing transactions
with respect to put and call options. The Series also may purchase forward
foreign currency exchange contracts to hedge currency exchange rate risk. In
addition, the Series is authorized to purchase and sell stock index futures
contracts and options on stock index futures contracts. The Series is also
authorized to conduct spot (i.e., cash basis) currency transactions or to use
currency futures contracts and options on futures contracts and foreign
currencies in order to protect against uncertainty in the future levels of
foreign currency exchange rates. These strategies are primarily used for
hedging purposes; nevertheless, there are risks associated with these
strategies as described below.
OPTIONS ON SECURITIES
A call option is a short-term contract pursuant to which the purchaser of
the option, in return for a premium, has the right to buy the security
underlying the option at a specified price at any time during the term of the
option. The writer of a call option, who receives the premium, has the
obligation, upon exercise during the option term, to deliver the underlying
security against payment of the exercise price. Conversely, a put option
gives its purchaser, in return for a premium, the right to sell the underlying
equity security at a specified price during the option term to the writer of
the put option, who receives the premium. The Series will sell call options
only on a "covered" basis, i.e., it will own the underlying security at all
times, and will write put options only on a secured basis, i.e., it will
maintain an amount equal to the exercise price in a segregated account at all
times. The Series may engage in option transactions for hedging purposes and
to realize a greater current return, through the receipt of premiums, than
would be earned on the underlying securities alone. Options traded in the
over-the-counter market will be considered illiquid unless the Series has
entered into arrangements with U.S. Government securities dealers to dispose
of such options at a formula price based on a multiple of the original premium
plus the amount by which the option is "in the money".
FUTURES CONTRACTS
The Series may purchase and sell financial futures contracts on debt
securities on a commodities exchange or board of trade for certain hedging,
return enhancement and risk management purposes in accordance with applicable
regulations. A financial futures contract is an agreement to purchase or sell
an agreed amount of securities at a set price for delivery in the future. The
Series may not purchase or sell futures contracts if immediately thereafter
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) would exceed 5% of the market value of the
Series' total assets. In addition, the value of all futures contracts sold
will not exceed the total market value of the Series' 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.
The Series' successful use of futures contracts depends on the Advisor's
ability to predict the direction of the market and is subject to various
additional risks. The correlation between movements in the prices of a
futures contract and the price of the securities being hedged is imperfect and
there is a risk that the value of the securities being hedged may increase or
decrease at a greater rate than the related futures contracts resulting in
losses to the Series. Certain futures exchanges or boards of trades have
established daily limits based on the amount of the previous day's settlement
price. These daily limits may restrict the Series' ability to repurchase for
sale certain futures contracts on any particular day.
STOCK INDEX FUTURES CONTRACTS AND OPTIONS ON STOCK INDEX FUTURES CONTRACTS
A stock index futures contract is a bilateral agreement pursuant to which
one party agrees to accept, and the other party agrees to make, delivery of an
amount of cash equal to a specified dollar amount times the difference between
the stock index value at the close of trading of the contract and the price at
which the futures contract is originally struck. No physical delivery of the
stocks comprising the index is made. Options on stock index futures contracts
gives the purchaser the right, in return for the premium paid, to assume a
long or short position in a futures contract.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Series' use of forward foreign currency contracts is limited to
hedging against movements in the value of foreign currencies relative to the
U.S. dollar in connection with specific portfolio transactions or with respect
to existing portfolio positions denominated in such currencies. A transaction
hedge involves the purchase or sale of a forward contract with respect to a
specific receivable or payable of the Series while a position hedge relates to
a specific portfolio holding. A forward foreign currency exchange contract
involves an obligation to purchase or sell a specified currency at a future
date at a price set at the time of the contract. Foreign currency exchange
contracts do not eliminate fluctuations in the values of portfolio securities
but rather allow the Fund to establish a rate of exchange for a future point
in time. 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. Based on
current legal interpretation, the Fund does not consider forward foreign
currency exchange contracts to be commodities or commodity contracts for
purposes of the Series' fundamental restrictions concerning investment in
commodities or commodity contracts, as set forth in the Statement of
Additional Information.
CURRENCY FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
A currency futures contract is an agreement for the purchase or sale for
future delivery of foreign currencies. A "sale" of a currency futures
contract means the obligation to deliver the foreign currencies called for by
the contract at a specified price on a specified date while a "purchase" of a
currency futures contract means the obligation to acquire the foreign
currencies called for by the contract at a specified price on a specified
date. The Fund will only enter into futures contracts which are traded on
national or foreign futures exchanges and which are standardized as to
maturity date and the underlying financial instrument. Options on currency
futures contracts give the purchaser the right, in return for the premium
paid, to assume a long or short position in the futures contract. The Fund
may not purchase or sell future contracts if immediately thereafter 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) would exceed 5% of the market value of the Series' total
assets. In addition, the value of all futures contracts sold will not exceed
the total market value of the Series' portfolio.
FOREIGN CURRENCY OPTIONS
A call option on a foreign currency is a short-term contract pursuant to
which the purchaser of the option, 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 a call option, who receives the
premium, has the obligation, upon exercise of the option during the option
term, to deliver the underlying currency against payment of the exercise
price. Conversely, a put option on a foreign currency gives its purchaser, in
return for a premium, the right to sell the underlying currency at a specified
price during the option term to the writer of the put option, who receives the
premium.
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 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 stocks held by the
Series 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 "registered investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"), may
restrict trading in forward currency contracts, options, futures contracts and
futures options.
FORWARD COMMITMENTS OR PURCHASES ON A WHEN-ISSUED BASIS
The Series 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 Series before
settlement. These securities are subject to market fluctuation due to changes
in market interest rates. The Series will maintain a separate account with a
segregated portfolio of high quality liquid debt instruments or cash in an
amount at least equal to the purchase price.
MORTGAGE-BACKED SECURITIES
The Series may purchase mortgage-backed securities which represent an
interest in a pool of mortgage loans. The primary government issuers or
guarantors of mortgage-backed securities are the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA"), and
the Federal Home Loan Mortgage Corporation. Mortgage-backed securities may
also be issued by other U.S. and foreign government agencies and
non-governmental entities which consist of collateralized mortgage obligations
("CMOs") and real estate mortgage investment conduits ("REMICs") that are
rated in one of the top two rating categories by S&P or Moody's. The
mortgages backing these securities include conventional thirty-year fixed rate
mortgages, graduated payment mortgages, and adjustable rate mortgages. CMOs
and REMICs backed solely by GNMA certificates or other mortgage pass-throughs
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities may be supported by various types of insurance. However,
the guarantees or insurance do not extend to the mortgage-backed securities'
values, which are likely to vary inversely with fluctuations in interest
rates.
Mortgage-backed securities are in most cases "pass-through" instruments,
through which the holder receives a share of all interest and principal
payments from the mortgages underlying the certificate. When the Advisor is
determining the maturity of pass-through certificates the Advisor will
consider the maturity to be equal to the average life rather than the stated
maturity. During periods of declining interest rates, prepayment of mortgages
underlying mortgage-backed securities can be expected to accelerate. When the
mortgage obligations are prepaid, the Series reinvests the prepaid amounts in
securities, the yield of which reflects interest rates prevailing at the time.
Moreover, prepayment of mortgages which underlie securities purchased at a
premium could result in capital losses.
SECURITIES LENDING
The Series 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 cash, cash equivalents or U.S. Treasury securities maintained on a current
basis at an amount at least equal to the market value of the securities
loaned. If the Advisor determine to make securities loans, the value of the
securities loaned would not exceed 30% of the value of the total assets of the
Series.
HIGH YIELD DEBT SECURITIES
High risk, high yield securities rated below BBB or lower by S&P or Baa
or lower by Moody's 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 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 Series' policy not
to rely primarily on ratings issued by established credit rating agencies, but
to utilize such ratings in conjunction with the Advisor's 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. The Series will also seek to minimize
risk by diversifying its holdings.
PRINCIPAL INVESTMENT RESTRICTIONS
The Series is subject to certain investment restrictions which are
fundamental policies that cannot be changed without the approval of the
holders of a majority, as defined in the 1940 Act, of the Series' outstanding
shares.
The Series may borrow money, but only from a bank for temporary or
emergency purposes in amounts not exceeding 10% of the Series' total assets
and the Series will not make additional investments while borrowings greater
than 5% of its total assets are outstanding.
The Series may not invest 25% or more of the value of its total assets in
securities of issuers in any one industry.
The Series may not invest more than 10% 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.
The Series may invest its assets in securities of any other investment
company (closed-end and open-end), (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.
The Series may not make loans, except through repurchase agreements.
Additional information about the Series' investment restrictions is
contained in the Statement of Additional Information.
MANAGEMENT
The overall business and affairs of the Company are managed by its Board
of Directors. The Board approves all significant agreements between the
Company and persons or companies furnishing services to the Company, including
the Company's agreements with its Investment Advisor and Custodian. The
day-to-day operations of the Company are delegated to the Company's officers
and to Manning & Napier Advisors, Inc. (the "Advisor"), 1100 Chase Square,
Rochester, New York 14604. A committee made up of investment professionals
and analysts make all the investment decisions for the Fund.
The Advisor acts as Investment Advisor to the Company and supervises and
arranges the purchase and sale of securities held in the portfolio of the
Fund. Mr. William Manning controls the Advisor by virtue of his ownership of
the securities of the Advisor. The Advisor also is generally responsible for
supervision of the overall business affairs of the Company including
supervision of service providers to the Fund and direction of the Advisor's
directors, officers or employees who may be elected as officers of the Company
to serve as such.
As of the date of this prospectus, the Advisor supervised approximately
$5 billion n assets of clients, including both individuals and institutions.
For its services to the Company under the Investment Advisory Agreement, the
Company pays the Advisor a fee, computed daily and payable monthly, at an
annual rate of 1% of the Company's daily net assets. This fee is higher than
the mean fee paid by all other mutual funds. The advisory fee charged by the
Advisor to its investment advisory clients will not include or be based on
assets of such clients held in shares of the Company. The Company is
responsible for its operating expenses, including: (i) interest and taxes;
(ii) brokerage commissions; (iii) insurance premiums; (iv) compensation and
expenses of its Directors other than those affiliated with the Advisor; (v)
legal and audit expenses; (vi) fees and expenses of the Fund's Custodian,
Shareholder Servicing or Transfer Agent and Accounting Services agent, if
obtained for the Fund from an entity other than the Advisor; (vii) expenses
incident to the issuance of its shares, including issuance on the payment of,
or reinvestment of, dividends and capital gain distributions; (viii) fees and
expenses incident to the registration under Federal or state securities laws
of the Fund or its shares; (ix) expenses of preparing, printing and mailing
reports and notices and proxy material to shareholders of the Fund; (x) all
other expenses incidental to holding meetings of the Fund's shareholders; (xi)
dues or assessments of or contributions to the Investment Company Institute or
any successor; and (xii) such non-recurring expenses as may arise, including
litigation affecting the Fund and the legal obligations which the Fund may
have to indemnify its officers and Directors.
--
PURCHASES, EXCHANGES AND REDEMPTIONS OF SHARES
The minimum initial investment in the Series is $2,000 and subsequent
purchases must be at least $100. The Distributor reserves the right to waive
these minimum initial or subsequent investment requirements in its sole
discretion. The Distributor has the right to refuse any order. The
Distributor may suspend offering shares to other than discretionary management
accounts of the Advisor.
Purchases and redemptions of shares of the Series may be made on any day
the New York Stock Exchange is open for trading.
A purchase order will be effective as of the day received by the
Distributor receives the order before 4:00 p.m., Eastern time. Payment may be
made by check or readily available funds. The purchase price of shares of the
Series is the net asset value next determined after a purchase order is
effective.
The shares of the Series may be purchased in exchange for securities to
be included in the Series, subject to the Advisor's determination that these
securities are acceptable. Securities accepted in an exchange will be valued
at market value. All accrued interest and purchase or other rights which are
reflected in the market price of accepted securities at the time of valuation
become the property of the Series and must be delivered by the shareholder to
the Series upon receipt from the issuer.
The Advisor will not accept securities for the Series unless (1) such
securities are appropriate in the Series at the time of the exchange; (2) the
shareholder represents and agrees that all securities offered to the Series
are not subject to any restrictions upon their sale by the Series under the
Securities Act of 1933, or otherwise; and (3) prices are available from an
independent pricing service provided by the Series' Board of Directors.
As permitted pursuant to any rule, regulation or order promulgated by the
Securities and Exchange Commission, some or all of the shares in a direct
investment account with the Fund for which payment has been received by the
Transfer Agent may be exchanged for shares of any of the other Manning &
Napier Fund, Inc. Series at the net asset value. Shareholders may effect up
to 4 exchanges in a 12-month period without charge. Subsequent exchanges are
subject to a fee of $15. Exchanges will be made after instructions in writing
or by telephone are received by the Transfer Agent in proper form (i.e., if in
writing - signed by the record owner(s) exactly as the shares are registered;
if by telephone - proper account identification is given by the shareholder)
and each exchange must involve either shares having an aggregate value of at
least $1,000 or all the shares in the account. A shareholder should read the
prospectus of the other Series and consider the differences in objectives and
policies before making any exchange. The exchange privilege may not be
available in all states. For federal and state income tax purposes, an
exchange is treated as a sale of the shares exchanged and therefore, an
exchange could result in a gain or loss to the shareholder making the
exchange. The Series may modify or terminate this exchange offer upon 60 days
notice to shareholders subject to applicable law.
If a shareholder desires to redeem his shares at their net asset value,
the shareholder must send a written request for redemption in "good order" to
the Transfer Agent. "Good Order" generally means that the written request for
redemption must be endorsed by the record owner(s) exactly as the shares are
registered and the signature(s) must be guaranteed by an "eligible guarantor
institution" as the term is defined under Rule 17Ad-15(a)(2) under the
Securities Exchange Act of 1934. Currently, such procedures generally permit
guarantees by a commercial bank or trust company, a member bank of the Federal
Reserve System, or a member firm of a national securities exchange.
Redemption requirements for corporations, other organizations, trusts,
fiduciaries, and retirement plans may require additional documentation.
Please contact the Transfer Agent at 1-800-466-3863 for more information. The
Transfer Agent may make certain de minimis exceptions to the above
requirements for redemption. Within three days after receipt of a redemption
request by the Transfer Agent in "good order", the Series will make payment in
cash, except as described below, of the net asset value of the shares next
determined after such redemption request was received, except during any
period in which the right of redemption is suspended or date of payment is
postponed because the New York Stock Exchange is closed or trading on such
Exchange is restricted or to the extent otherwise permitted by the 1940 Act if
an emergency exists. For shares purchased, or received in exchange for shares
purchased, by check (including certified checks or cashier's checks), payment
of redemption proceeds may be delayed up to 15 days from the purchase date in
an effort to assure that such check has cleared.
Subject to the Series' compliance with applicable regulations, the Series
has reserved the right to pay the redemption price either totally or partially
by a distribution in-kind of securities (instead of cash) from the Series'
portfolio. The securities distributed in such a distribution would be valued
at the same amount as that assigned to them in calculating the net asset value
for the shares being sold. If a shareholder received a distribution in-kind,
he could incur brokerage or transaction charges when converting the securities
to cash.
Due to the relatively high cost of maintaining small accounts, the Series
reserves the right to redeem shares in any account for their then-current
value (which will be promptly paid to the shareholder) if at any time the
total investment in such account drops below $1,000 because of redemptions
(but not due to changes in net asset value). Shareholders will be notified
that the value of their account is less than the minimum investment
requirement and allowed 60 days to make an additional investment before the
redemption is processed.
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. 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 related to distribution, including compensation of
employees who are involved in distribution.
NET ASSET VALUE
The Series' net asset value per share is determined as of the closing
time of the New York Stock Exchange or, in the absence of a closing time, 4:00
p.m. Eastern time on each day that the New York Stock Exchange is open for
trading. The exchange annually announces the days on which it will not be
open for trading; the most recent announcement indicates that it will not be
open on: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value per share is the value of the Series' assets, less
its liabilities, divided by the number of shares of the Series outstanding.
The value of the Series' portfolio securities will be the market value of such
securities as determined based on quotes provided by a pricing service (which
uses the methodology outlined in the "Net Asset Value" section of the
Statement of Additional Information) approved by the Board of Directors, or,
in the absence of market quotations, fair value as determined in good faith by
or under the direction and control of the Board of Directors. Short-term
investments which mature in less than 60 days are normally valued at amortized
cost. Assets initially expressed in foreign currencies will be converted into
U.S. dollars as of the exchange rates quoted by any major bank. If such
quotes are not available, the exchange rates will be determined in accordance
with policies established in good faith by the Board of Directors. See the
Statement of Additional Information for further information.
DIVIDENDS AND TAX STATUS
DIVIDENDS AND DISTRIBUTIONS
The Series expects to pay ordinary income dividends and capital gain
distributions, if any, annually. Dividends and distributions will be paid in
full and fractional shares of the Series, based on the net asset value per
share at the close of business on the record date, although a shareholder may,
prior to the record date, request, by writing or by telephone call to the
Series, that payments of either ordinary income dividends or capital gain
distributions, or both, be made in cash. The Fund will notify each
shareholder after the close of its fiscal year both of the dollar amount and
the tax status of that year's distributions. Generally, the Fund will be
required to impose backup withholding at the rate of 20% from ordinary income
dividends, capital gain distributions and redemption payments made to
non-corporate shareholders, if provisions of the law relating to the
furnishing of taxpayer identification numbers and reporting of dividends are
not complied with by such shareholders.
TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a general summary of certain tax considerations
affecting the Series and its shareholders. No attempt is made to present a
detailed explanation of the tax treatment of the Series or their shareholders,
and the discussion here is not intended as a substitute for careful tax
planning. The Fund is not managed with respect to tax outcomes for its
shareholders.
Under the Code, the Series is treated as a separate entity for tax
purposes. The Series which has been in operation has qualified and the Series
intends to qualify as a regulated investment company under Subchapter M of the
Code. If the Series so qualifies, it will not be subject to federal income
taxes on its net investment income and capital gains, if any, which the Series
distributes to its shareholders, provided that at least 90% of such Series'
"investment company taxable income" (generally, net investment income and the
excess of net short-term capital gain over net long-term capital loss) for the
taxable year is distributed, and provided that the Series meets certain other
requirements imposed by the Code. All dividends paid or distributed out of
investment company taxable income will be taxable as ordinary income to the
shareholders. Any "net capital gain" (the excess of net long-term capital
gain over net short-term capital loss) distributed to shareholders is taxable
as long-term capital gain to the shareholders, regardless of the length of
time a shareholder has owned his shares. Generally, such dividends and
distributions are taxable in the year in which received, but dividends and
distributions declared in October, November or December of any year to
shareholders of record on a date in such month are treated as paid on December
31 of such year if they are paid during January of the following calendar
year. Dividends and distributions are not taxable to shareholders that are not
otherwise subject to tax on their income, such as qualified employee benefit
plans. In view of the Series' investment policy, ordinary income dividends,
if any, are expected to be small.
A 4% non-deductible Federal excise tax is imposed on a regulated
investment company that fails to distribute substantially all of its ordinary
income and capital gain net income for each calendar year. Currently the
Series intends to make sufficient distributions of its ordinary income and
capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
Future legislative changes may materially affect the tax consequences of
investing in the Series. Shareholders are urged to consult their tax advisors
for the application of these rules (and other potentially relevant rules) to
their particular circumstances. Shareholders are also urged to consult their
tax advisors concerning the application of state and local income taxes and of
foreign taxes to investments in the Series, which may differ from the U.S.
Federal income tax consequences described above.
ADDITIONAL DIVIDEND AND TAX INFORMATION
Income, such as dividends and interest, received by the Fund may give
rise to withholding taxes imposed by foreign countries, generally at rates
from 10% to 40%. Tax conventions and treaties between such countries and the
United States may reduce or eliminate such taxes.
If more than 50% of the value of the Fund's total assets at the close of
its fiscal year consists of stocks or securities of foreign corporations, the
Fund will be eligible to file elections with the Internal Revenue Service
pursuant to which shareholders of the Fund will be required to include in
gross income their respective pro rata portions of foreign taxes paid by the
Fund, and either deduct such respective pro rata portions in computing their
taxable incomes or, alternatively, use such pro rata portions as foreign tax
credits against their U.S. income taxes. Investors should note that Code
Section 904 imposes significant limitations on a taxpayer's ability to claim
the foreign tax credit.
GENERAL INFORMATION
The Company was incorporated on July 26, 1984 as a Maryland corporation.
The Board of Directors may, at its own discretion, create additional series of
shares, each of which would have separate assets and liabilities.
The Company 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
Company will assist with shareholder communications in connection with the
meeting. The shares of the Company have equal rights with regard to voting,
redemption, dividends, distributions and liquidations. The Company's
shareholders will vote in the aggregate and not by Series 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
Series. Income, direct liabilities and direct operating expenses of each
Series will be allocated directly to each Series, and general liabilities and
expenses of the Fund will be allocated among the Series in proportion to the
total net assets of each Series 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.
Coopers & Lybrand, L.L.P. has been selected as the independent
accountants of the Series and performs an annual audit of the Series' accounts
and review the Series' tax returns.
Boston Safe Deposit and Trust Company, acts as Custodian of the assets of
the Series. The Advisor, acting as Transfer Agent, maintains its own
shareholder account records, and shareholder inquiries should be directed to
Manning & Napier, P.O. Box 41118, Rochester, New York 14604.
<PAGE>
APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
Moody's Investors Services, Inc.'s corporate bond ratings:
Aaa - Bonds which are rated Aaa are judged to be of the best quality and
carry the smallest degree of investment risk. 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 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.
Moody's applies numerical modifiers "1", "2" and "3" to both the Aaa and
Aa rating classifications. The modifier "1" indicates that the security ranks
in the higher end of its generic rating category; the modifier "2" indicates a
mid-range ranking; and the modifier "3" indicates that the issue ranks in the
lower end of its generic rating category.
Standard & Poor's Corporation's corporate bond ratings:
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only to a small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than in higher rated categories.
<PAGE>
--
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's Investor Services, Inc.'s commercial paper ratings:
P-1 - Commercial papers which are rated P-1 are judged to 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.
P-2 - Commercial papers which are rated P-2 are judged to 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.
P-3 - Commercial papers which are rated P-3 are judged to 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.
Standard & Poor's Corporation's commercial paper ratings:
A-1 - This is the highest category and indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-3 - Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes
in circumstances than obligations carrying the higher designations.
B - Issues rated B are regarded as having only speculative capacity for
timely payment.
C - Commercial papers rated C are assigned to short-term debt obligations
with a doubtful capacity for payment.
D - Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due,
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period.
--
<PAGE>
MANNING & NAPIER FUND, INC.
Statement of Additional Information dated XXXXXX
This Statement of Additional Information is not a Prospectus, and it should be
read in conjunction with each Fund's Prospectus for the Small Cap Series,
Energy Series, Technology Series, Financial Services Series, International
Series, Life Sciences Series, Global Fixed Income Series, Blended Asset Series
I, Blended Asset Series II, Flexible Yield Series I, Flexible Yield Series II,
Flexible Yield Series III, New York Tax Exempt Series, Ohio Tax Exempt Series,
Diversified Tax Exempt Series, Tax Managed Series, Defensive Series, Maximum
Horizon Series and the World Opportunities Series copies of which may
be obtained from Manning & Napier Advisors, Inc., 1100 Chase Square,
Rochester, NY 14604.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
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<S> <C> <C>
Investment Objective, Policies and Restrictions of the Fund B-2
Risk and Investment Policies B-2
Investment Restrictions B-14
Portfolio Turnover B-16
Management B-16
The Advisor B-21
Custodian and Independent Accountant B-22
Portfolio Transactions and Brokerage B-22
Net Asset Value B-23
Redemption of Shares B-24
Payment for Shares Received B-24
Redemption in Kind B-24
Federal Tax Treatment of Dividends and Distributions B-24
Qualification as Regulated Investment Company B-24
Fund Distributions B-26
Other Considerations B-28
</TABLE>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS OF THE FUND
Each Series' portfolio and strategies with respect to the composition of
their respective portfolios are described in the prospectus. If there is a
change in the Series' investment objective, shareholders will be notified
thirty (30) days prior to any such change and will be advised to consider
whether the fund remains an appropriate investment in light of their then
current financial position and needs. Convertible bonds purchased by the
Series may have a call feature. Warrants purchased by the Fund may or may not
be listed on a national securities exchange. The Fund has no current
intention to engage in "short sales against the box". All of the series
policies regarding options discussed below are fundamental.
RISK AND INVESTMENT POLICIES
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 Series 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.
As described in the Prospectus, when a Series 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 Series
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 Series 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 Series 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.
A Series will write only covered call options which are traded on
national securities exchanges. Currently, call options on stocks 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 ("OCC"), which also serves as the clearing house
for transactions with respect to standardized or listed 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 OCC 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.
A Series 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, has 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, Treasury bills or other liquid high grade short-term
obligations in a segregated account with its custodian, and marked-to-market
daily. A Series will not 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 Series 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 Series 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 Series 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 Series 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 Series, but only to terminate
(entirely or in part) a Series' 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. A Series may enter into a closing purchase
transaction, for example, 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 Series may also permit
the call option to be exercised. A closing transaction cannot be effected
with respect to an optioned security once a Series has received a notice that
the option is to be exercised.
The cost to a Series of such a closing transaction may be greater than
the net premium received by a Series 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
Series 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 Series may also write secured put options and enter into closing
purchase transactions with respect to such options. A Series 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 with the Fund's custodian
consisting of cash or U.S. Government or other high grade liquid debt
obligations equal to the amount of the Series assets that could be required to
consummate the put options. For purposes of determining the adequacy of the
securities in the account, the deposited securities will be valued at fair
market value. If the 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 the Series.
A put option is secured if a Series maintains in a segregated account
with its Custodian cash or U.S. Government securities in an amount not less
than the exercise price of the option at all times during the option period.
A Series may write secured put options when the Advisor wishes to purchase the
underlying security for a Series' portfolio at a price lower than the current
market price of the security. In such event a Series 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 interest earned on the amount held in
U.S. Government securities 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 interest
earned on the amount held in U.S. Government securities.
A Series 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").
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 Series 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 Series 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 Series 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 Series, will be
reduced by the amount of premium paid for the put option. At the same time, a
Series will continue to own the security. Should the security decline in
value below the exercise price of the put option, however, a Series may elect
to exercise the option and "put" or sell the security to the party that sold
the put option to that Series, at the exercise price. In this case a Series
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
As stated in the Prospectus, 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 Series
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 Series may not be able to close an option position, which
will prevent that Series 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 cash or U.S. Government securities 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 for an option include the following: (a) insufficient trading
interest in certain options; (b) restrictions on transactions imposed by an
exchange; (c) trading halts, suspensions or other restrictions imposed with
respect to particular classes or series of options or underlying securities;
(d) inadequacy of the facilities of an exchange or OCC to handle trading
volume; or (e) a decision by one or more exchanges to discontinue the trading
of options or impose restrictions on types of orders.
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 Series and certain other accounts managed by
the Fund's Investment Advisor, Manning & Napier Advisors, Inc., may constitute
such a group. If so, the options positions of the Series may be aggregated
with those of other clients of the Advisor.
If Series writes an over-the-counter ("OTC") option, it will enter into
an arrangement with a primary U.S. government securities dealer, which would
establish a formula price at which the Series 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 10% net asset limitation on illiquid securities
stated in the Prospectus) 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 ("SEC") 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 OCC 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 OCC 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.
The Series will pay brokerage and other transaction costs to write and
purchase options on securities, including any closing transactions which the
Series may execute. The Fund's program of writing and/or purchasing such
options with respect to as much of its portfolio as possible will increase the
transaction costs borne by the Series.
Stock Index Futures Contracts and Options on Stock Index Futures Contracts
Each Series, except for the Fixed Income Series of the Fund, may enter
into Stock Index Futures Contracts to provide: (1) a hedge for a portion of
the Series' portfolio; (2) a cash management tool; (3) as an efficient way to
implement either an increase or decrease in portfolio market exposure in
response to changing market conditions. The Series may also use Stock Index
Futures as a substitute for 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 the
Series' portfolio, the Series may be able to do so more efficiently and at a
lower cost through the use of Stock Index Futures Contracts.
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. The
Series intend to purchase and sell futures contracts on the stock index for
which it can obtain the best price with consideration also given to liquidity.
The Series 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 CFTC rules would exceed 5% of the
liquidation value of the Series' 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
Series' portfolio. The Fund will comply with guidelines established by the
Securities and Exchange Commission with respect to the 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.
Unlike the purchase or sale of an equity security, no price is paid or
received by the Series upon the purchase or sale of a Stock Index Futures
Contract. Upon entering into a Futures Contract, the Series would be required
to deposit with its custodian in a segregated account in the name of the
futures broker an amount of cash or U.S. Treasury bills known as "initial
margin." This amount is required by the rules of the exchanges and is subject
to change. The nature of initial margin in futures transactions is different
from that of margin in security transactions in that futures margin does not
involve the borrowing of funds by the Series 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 Series upon termination of the
futures contract, assuming all contractual obligations have been satisfied.
Subsequent payments, called "variation margin", to and from the futures
broker, are 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-market". For example, when
the Series has purchased a Stock Index Futures Contract and the price of the
underlying stock index has risen, that futures position will have increased in
value and the Series will receive from the broker a variation margin payment
equal to that increase in value. Conversely, when the Series has purchased a
Stock Index Futures Contract and the price of the stock index has declined,
the position would be less valuable and the Series would be required to make a
variation payment to the broker.
The Series 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 Series may, however, purchase or sell Stock
Index Futures Contracts with respect to any stock index. Nevertheless, to
hedge the Series' 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
Series' 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 identical securities
with the same delivery date. If the offsetting purchase price is less than
the original sale price, the Series realize a gain; if it is more, the Series
realize a loss. Conversely, if the offsetting sale price is more than the
original purchase price, the Series realize a gain; if it is less, the Series
realize a loss. The Series 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 Series are not able to enter into an offsetting
transaction, the Series will continue to be required to maintain the margin
deposits on the Stock Index Futures Contract.
The Series may elect to close out some or all of their futures positions
at any time prior to 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 Series
may close their positions by taking opposite positions which would operate to
terminate the Series' 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 Series, and the Series 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 Series
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
Series 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 Series 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.
There are several risks in connection with the use by the Series 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 Series'
portfolio securities sought to be hedged.
Successful use of Stock Index Futures Contracts by the Series 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
Series 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 Series' portfolio might decline. If
this were to occur, the Series 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 Series' 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 Series 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 Series 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 Series 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). Moreover,
the Series 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. 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.
Options on Futures give the purchaser the right, in return for a premium
paid, to assume a position in a Futures Contract (a long position if a call
option and a short position if a put option), 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 Series 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. Reasons for the absence of a liquid secondary market on an
exchange include the following: (i) insufficient trading in certain options;
(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 options, 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 options (or particular class or series of options), in which event the
secondary market on that exchange would cease to exist, although outstanding
options 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.
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. Futures contracts, by law are not permitted on
individual corporate securities and municipal securities but instead are
traded on exempt securities, such as government securities and broad-based
indexes of securities.
these futures contracts will primarily consist of futures based on government
securities (i.e., Treasury Bonds). By purchasing futures on securities, the
Fund 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 Fund'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 Fund 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 Series except the Tax Exempt Series of the Fund is
authorized to enter into forward foreign currency exchange contracts. In
addition, each Series, 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.
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 Series
to establish a rate of exchange for a future point in time. A Series 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 Series 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 Series 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 Series
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 Series consisting of cash or high-grade liquid
securities equal to the amount of that Series' assets that would be required
to consummate forward contracts entered into under the second circumstance, as
set forth above, will be established with the Series' custodian. 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 Series.
Currency Futures Contracts and Options on Futures Contracts
Each Series, 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 (i.e., short) means the
acquisition of a contractual obligation to deliver the foreign currencies
called (i.e., long) 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 the Series or adversely affect the prices of
securities which the Series intend 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 Series will not enter
in a currency 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 CFTC rules will not exceed 5% of the liquidation value of the Series'
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 Series' 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 Series 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 Series' 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. 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 such hedge.
Brokerage fees are incurred when a futures contract is bought or sold and
margin deposits must be maintained for such contract. 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 Series realizes a gain; if it is
more, a Series realizes a loss. Conversely, if the offsetting sale price is
more than the original purchase price, a Series realizes a gain; if it is
less, a Series realizes a loss. Transaction costs must also be included in
these calculations. There can be no assurance, however, that a Series will be
able to enter into an offsetting transaction with respect to a particular
contract at a particular time. If a Series is not able to enter into an
offsetting transaction, a Series 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 a liquid market will
develop for any particular futures contracts. 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 futures contracts or
the underlying security or asset; (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 certain futures, in which event the secondary market on that exchange would
cease to exist, although outstanding options 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.
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 a call option and a short position if a put option) 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 a call option and a long position if a put option). 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 Series 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 high-grade liquid securities in a segregated account to fulfill the
obligations undertaken by the futures contract. A put option sold by the
Series is covered when, among other things, cash or high-grade liquid
securities are placed in a segregated account to fulfill the obligations
undertaken.
Foreign Currency Options
Each Series, except for the tax-exempt series of the Fund, are
authorized to purchase and write put and call options on foreign currencies.
A call option is a contract whereby the purchaser, in return for a premium,
has the right, but not the obligation, to buy the currency underlying the
option at a specified price during the exercise period. The writer of the
call option, who receives the premium, has the obligation, upon exercise of
the option during the exercise 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 Series will use currency options only 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 the factors which influence foreign exchange
rates and investments generally.
Obligations of Supranational Agencies
Currently, the Global Fixed Income Series, Flexible Yield Series I,
Flexible Yield Series II and the Flexible Series Yield III 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.
U.S. Government Securities
Each Series 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.
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 Series will invest in securities of such instrumentality only when the
Advisor is satisfied that the credit risk with
respect to any instrumentality is minimal.
Tax-exempt Securities
The New York Tax Exempt Series, the Ohio Tax Exempt Series and the
Diversified Tax Exempt Series may invest in tax-exempt securities issued by
New York, Ohio or any State of the United States, respectively, and such
State's political subdivisions, agencies and instrumentalities, the interest
from which is, in the opinion of bond counsel, exempt from federal income tax.
Each tax-exempt series is a "diversified" investment company under the
Investment Company Act of 1940. This means that with respect to 75% of its
total assets the Series may not invest more than 5% of its total assets in the
securities of any one issuer (except U.S. government securities). The other
25% of each Series' total assets may be in the securities of any one issuer.
Each Series will not invest more than 25% of its total assets in any
industry. Governmental issuers of tax-exempt securities are not considered
part of any "industry." However, Tax Exempt Securities backed only by the
assets and revenues of nongovernmental users may for this purpose (and for the
diversification purposes discussed above) be deemed to be issued by such
nongovernmental users, and the 25% limitation would apply to such obligations.
Each of the tax-exempt series believes that in general the secondary
market for tax-exempt securities is less liquid than that for taxable
fixed-income securities. Accordingly, the ability of the Series to buy and
sell securities may, at any particular time and with respect to any particular
securities, be limited.
It is nonetheless possible that a Series may invest more than 25% of its
assets in a broader segment of the market (but not in one industry) for
tax-exempt securities, such as revenue obligations of hospitals and other
health care facilities, housing agency revenue obligations, or transportation
revenue obligations. This would be the case only if the Advisor determined
that the yields available from obligations in a particular segment of the
market justified the additional risks associated with such concentration.
Although such obligations could be supported by the credit of governmental
users or by the credit of nongovernmental users engaged in a number of
industries, economic, business, political and other developments generally
affecting the revenues of issuers (for example, proposed legislation or
pending court decisions affecting the financing of such projects and market
factors affecting the demand for their services or products) may have a
general adverse effect on all tax-exempt securities in such a market segment.
Housing revenue bonds typically are issued by a state, county or local
housing authority and are secured only by the revenues of mortgages originated
by the authority using the proceeds of the bond issue. Because of the
impossibility of precisely predicting demand for mortgages from the proceeds
of such an issue, there is a risk that the proceeds of the issue will be in
excess of demand, which would result in early retirement of the bonds by the
issuer. Moreover, such housing revenue bonds depend for their repayment in
part upon the cash flow from the underlying mortgages, which cannot be
precisely predicted when the bonds are issued. The financing of multi-family
housing projects is affected by a variety of factors, including satisfactory
completion of construction, a sufficient level of occupancy, sound management,
adequate rent to cover operating expenses, changes in applicable laws and
governmental regulations and social and economic trends.
Health care facilities include life care facilities, nursing homes and
hospitals. Bonds to finance these facilities are issued by various
authorities. The bonds are typically secured by the revenues of each facility
and not be state or local government tax payments. The projects must maintain
adequate occupancy levels to be able to provide revenues adequate to maintain
debt service payments. Moreover, in the case of life care facilities, since a
portion of housing, medical care and other services may be financed by an
initial deposit, there may be risk if the facility does not maintain adequate
financial reserves to secure future liabilities. Life care facilities and
nursing homes may be affected by regulatory cost restrictions applied to
health care delivery in general, restrictions imposed by medical insurance
companies and competition from alternative health care or conventional housing
facilities. Hospital bond ratings are often based on feasibility studies
which contain projections of expenses, revenues and occupancy levels. A
hospital's income available to service its debt may be influenced by demand
for hospital services, management capabilities, the service area economy,
efforts by insurers and government agencies to limit rates and expenses,
competition, availability and expense of malpractice insurance, and Medicaid
and Medicare funding.
In recent years, nationally recognized rating organizations have reduced
their ratings of a substantial number of the obligations of issuers in the
health care sector of the tax exempt securities market. Reform of the health
care system is a topic of increasing discussion in the United States, with
proposals ranging from reform of the existing employer-based system of
insurance to a single-payer, public program. Depending upon their terms,
certain reform proposals could have an adverse impact on certain health care
sector issuers of tax-exempt securities. Because the outcome of current
discussions concerning health care, including the deliberations of President
Clinton's task force on health care reform, is highly uncertain, the Advisor
cannot predict the likely impact of reform initiatives.
Mortgage-Backed Securities
Each Series, except for the Tax Exempt Series, 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.
Each Series, except for the Tax Exempt Series, 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 ("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 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.
Risk Factors Relating to New York Tax Exempt Securities
General. The following information as to certain New York risk factors
have been provided in view of the New York Tax Exempt Series' policy of
concentrating in New York Municipal Securities. This information constitutes
only a brief summary, does not purport to be a complete description of New
York risk factors, and is principally drawn from official statements relating
to securities offerings of the State of New York that have come to the
Portfolio's attention and were available as of the date of this Statement of
Additional Information. The New York Tax Exempt Series has not independently
verified any of the information contained in the official statement, but is
not aware of any fact which would render such information inaccurate.
The economy of New York is diverse with a comparatively large share of
the nation's finance, insurance, transportation, communications and services
employment, and a comparatively small share of the nation's farming and mining
activity. In the calendar years of 1984 through 1991, the State's rate of
economic expansion was somewhat slower than that of the nation. Accordingly,
unemployment in the State rose drastically in the late 1980's and early
1990's. However, since early 1993, employment growth resumed and the State
has gained approximately 100,000 jobs.
Revenues and Expenditures. New York's Governmental Funds receive over
54% of their revenues from taxes levied by the State. Investment income, fees
and assessments, abandoned property collections, and other varied resources
supply the balance of the receipts for these funds. New York's major
expenditures are grants to local governments, which are projected to account
for 69%, or $4.7 billion, of all Governmental Funds expenditures in fiscal
1994. These grants include disbursements for elementary, secondary and higher
education, social services, drug abuse control, and mass transportation
programs.
Fiscal 1994. The State completed its 1994 fiscal year with a cash-basis
General Fund (the major operating fund of the State) positive balance of
$1.026 billion. The State's 1994-1995 Financial Plan projects a balanced
General Fund.
State Debt. Under the State Constitution, the State may not, with
limited exceptions for emergencies, undertake long term borrowing (i.e.,
borrowing for more than one year) unless the borrowing is authorized in a
specific amount for a single work or purpose by the Legislature and approved
by the voters. There is no limitation on the amount of long term debt that
may be so authorized and subsequently incurred by the State. The State may
undertake short term borrowings without voter approval (i) in the anticipation
of the receipt of taxes and revenues, by issuing tax and revenue anticipation
notes, and (ii) in anticipation of the receipt of proceeds from the sale of
duly authorized by unissued bonds, by issuing bond anticipation notes. The
State Constitution provides that the State may guarantee the repayment of
certain borrowings to carry out designated projects by the New York State
Thruway Authority, the Job Development Authority and the Port Authority of New
York and New Jersey.
Debt Ratings. Due primarily to the deteriorating economy and recurring
deficits, Moody's lowered its ratings on New York State general obligations in
1990 from A1 to A. In January 1992, Moody's lowered the ratings on a
substantial number of the State's appropriation-backed debt from A to Baa1,
and stated that it had put the State's general obligations under review for
possible downgrade in the future. S&P lowered its ratings on the State's
general obligations in March 1990 from AA- to A, and in January 1992, S&P
further lowered the rating to A-. In January 1992, S&P also downgraded to A-
various agency debt, State moral obligations, contractual obligations, lease
purchase obligations, guarantees and school district debt. S&P currently
assesses the rating outlook for New York obligations as "negative". Fitch
maintains an A+ rating for New York State general obligations. Future
negative rating actions would tend to increase the State's borrowing costs as
well as to negatively effect the prices of bonds held by the New York Tax
Exempt Series.
Litigation. Certain litigation is pending against New York that could
adversely affect the financial condition of the State in fiscal 1995 or
thereafter. These legal proceedings involve State finances, State programs
and miscellaneous tort, real property, and contract claims in which the State
is defendant and the monetary damages sought are substantial.
Adverse developments in these proceedings or the initiation of new proceedings
could affect the ability of the State to maintain a balanced 1995 State
Financial Plan.
New York City. The fiscal health of the State is closely related to the
fiscal health of its localities, particularly the City, which has required and
continues to require significant financial assistance from the State. The
City achieved balanced operating results for the 1993 fiscal year as reported
in accordance with GAAP. On July 8, 1994, the City submitted a financial plan
for the 1994 fiscal year which projects a balanced budget for the 1994 fiscal
year. The projections for the 1994 fiscal year reflect proposed actions to
close a previously projected gap of approximately $2.3 billion.
Convertible Securities
Convertible Securities in which the Series' invest may be converted 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.
Warrants
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 it entitles the holder to purchase, and
(2) do not represent any rights in the assets of the issuer.
Investment in Restricted Securities
Each Series may invest in "restricted securities" subject to the 10% net
asset 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.
INVESTMENT RESTRICTIONS
Each Series has adopted certain restrictions set forth below (in addition
to those indicated in the prospectus) as fundamental policies, which may not
be changed without the favorable vote of the holders of a "majority" of the
Fund's outstanding voting securities, which means a vote of the holders of the
lesser of (i) 67% of the shares represented at a meeting at which more than
50% of the outstanding shares are represented or (ii) more than 50% of the
outstanding shares.
A Series may not:
1. Purchase securities on margin (but a Series may obtain such
short-term credits as may be necessary for the clearance of transactions);
2. 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 Series' net assets (taken at a current value) are held
as collateral for such sales at any one time;
3. Issue senior securities or pledge its assets, except that each
Series, may invest in futures contracts and related options;
4. Buy or sell commodities or commodity contracts (the Small Cap
Series, Energy Series, Technology Series, Financial Services Series,
International Series, Life Sciences Series, Global Fixed Income Series, Tax
Managed Series and the World Opportunities Series , also expressly
provide that forward foreign currency contracts are not considered commodities
or commodity contracts for purposes of this restriction) or real estate or
interest 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. The Blended Asset Series I, Blended Asset Series II, Flexible
Yield Series I, Flexible Yield Series II, Flexible Yield Series III, Defensive
Series, and the Maximum Horizon Series may not buy or sell commodities or
commodity contracts, provided that the Series 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.
5. 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;
6. Make investments for the purpose of exercising control or
management;
7. Participate on a joint or joint and several basis in any trading
account in securities;
8. Under the Investment Company Act of 1940 and the rules and
regulations thereunder, each Series is prohibited from acquiring the
securities of other investment companies if, as a result of such acquisition,
such Series owns more than 3% of the total voting stock of the company;
securities issued by any one investment company represent more than 5% of its
total assets; or securities (other than treasury stock) issued by all
investment companies represent more than 10% of the total assets of a Series.
These investment companies typically incur fees that are separate from those
fees incurred directly by the Series. A Series' purchase of such investment
companies would indirectly bear a proportionate share of the operating
expenses of such investment companies, including advisory fees. All Series,
Except the Tax Managed Series and World Opportunities Series , will not
purchase or retain securities issued by open-end investment companies (other
than money market funds for temporary investment).
9. 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;
10. Purchase foreign securities if as a result of the purchase of such
securities more than 10% of a Series' assets (25% in the case of the Tax
Managed Series, Life Sciences Series, Blended Asset Series I, Blended Asset
Series II, Flexible Yield Series I, Flexible Yield Series II, Flexible Yield
Series III, Defensive Series, Maximum Horizon Series and 100% in the case of
the International Series, Global Fixed Income Series and World
Opportunities Series ) 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.
11. The Fund's investment policies with respect to options on
securities and with respect to stock index and currency futures and related
options are subject to the following fundamental limitations: (1) with
respect to any Series, 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 Series; (2) a Series 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 Series; (3) the aggregate margin deposits required on
all futures or options thereon held at any time by a Series will not exceed 5%
of the total assets of the Series; (4) the security underlying the put or call
is within the investment policies of each Series and the option is issued by
the Options Clearing Corporations; and (5) the Series 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.
12. The Fund will not purchase or retain securities of an issuer if an
officer or director of such issuer is an officer or director of the Fund or
its investment adviser and one or more of such officers or directors of the
Fund or its investment adviser owns beneficially more than 1/2% of the shares
or securities of such issuer and all such directors and officers owning more
than 1/2% of such shares or securities together own more than 5% of such
shares or securities.
13. The Fund will not purchase securities of any company which has
(with predecessors) a record of less than three years continuous operation if
as a result more than 5% of the Portfolio's assets would be invested in
securities of such companies.
14. Invest more than 5% of the value of its total net assets in
warrants (except for the Flexible Yield Series I, Flexible Yield Series II,
Flexible Yield Series III, Global Fixed Income Series, New York Tax Exempt
Series, Ohio Tax Exempt Series and the Diversified Series). Included within
that amount, but not to exceed 2% of the value of the Series' net assets, may
be warrants which are not listed on the New York or American Stock
Exchange.
Two Series are subject to the following investment limitations which are
not fundamental:
1. In the case of the Energy Series, the Public Utility Holding Company
Act of 1935 ("PUHCA") places certain restrictions on affiliates of public
utility companies as defined in PUHCA. The Energy Series will not acquire 5%
or more of the outstanding voting securities of a public utility in order to
avoid imposition of these restrictions.
2. The Financial Services Series may purchase securities of an issuer
which derived more than 15% of its gross revenues in its most recent fiscal
year from securities-related activities, subject to the following conditions
and applicable SEC regulations:
a. the purchase cannot cause more than 5% of the Series' total assets
to be invested in all securities of that issuer;
b. for an equity security--(i) the purchase cannot result in the
Series' owning more than 5% of the issuer's outstanding securities in that
class; and (ii) at the time of purchase, the security must meet the Federal
Reserve Board's definition of a margin security (i.e., registration on a
national securities exchange or listing by the Federal Reserve Board of
Governors on the current OTC Margin Stock list).
c. for a debt security--(i) the purchase cannot result in the Series
owning more than 10% of the outstanding principal amount of the issuers debt
securities; and (ii) at the time of purchase, the security must be of at least
investment grade quality (i.e., at least BBB/Baa as determined by one of the
major rating services or, if not rated, judged to be equivalent by the Series'
Directors). See the Appendix to the Prospectus for an explanation of these
ratings.
All of the above percentage limitations, as well as the issuer's gross
revenue test, are applicable at the time of purchase. With respect to
warrants, rights, and convertible securities, a determination of compliance
with the above limitations shall be made as though such warrant, right, or
conversion privilege had been exercised. The Financial Services Series will
not be required to divest its holdings of a particular issuer when
circumstances subsequent to the purchase would cause one of the above
conditions to not be met. The purchase of a general partnership interest in a
securities-related business is prohibited.
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. Each Series
expects that its turnover rate will be less than 100%, except for the Tax
Managed Series which expects its turnover rate will be no more than 50%.
However, turnover will in fact be determined by market conditions and
opportunities, and therefore it is impossible to estimate the turnover rate
with confidence.
MANAGEMENT
The Directors and officers of the Fund are:
<TABLE>
<CAPTION>
<S> <C> <C>
Position Principal occupations
Name and address with Fund During past five years
- --------------------------- ----------- ----------------------------------------------
B. Reuben Auspitz* Vice Executive Vice President, Manning & Napier
1100 Chase Square President & Advisors, Inc.
Rochester, NY 14604 Director Director, President and Treasurer, Manning
& Napier Advisory Advantage Corporation
Director and President, Manning & Napier
Investor Services, Inc.
Director, Manning & Napier Leveraged
Investing Company, Inc., since 1994
Director, Chairman of the Board &
Treasurer, Exeter Trust Company, since 1994
President and Director, Manning &
Napier Insurance Fund, Inc., since 1995
Martin Birmingham Director Trustee, The Freedom Forum, since 1980
Lincoln Tower, 16th Floor Director, Manning & Napier Insurance
Rochester, NY 14604 Fund, Inc., since 1995
Harris H. Rusitzky Director Director and member of the Executive
One Grove Street Committee of Vari-Care, Inc. (chain of
Pittsford, NY 14534 nursing homes) from 1970-1993
President, The Greening Group, since 1994
Director and Corporate Executive, Serve-
Rite Corporation, from 1965-1994
Director, Manning & Napier Insurance
Fund, Inc., since 1995
Peter L. Faber* Director Partner - Kay, Scholer, Fierman, Hays &
1211 Avenue of the Americas Handler (law firm) from 1984-1995
New York, New York 10036 Partner - McDermott, Will & Emery (law
firm) since October 1, 1995
Director, Manning & Napier Insurance Fund,
Inc., since 1995
William Manning President President and co-founder, Manning & Napier
1100 Chase Square Advisors, Inc. since 1970
Rochester, NY 14604 President, Director, Founder & CEO,
Manning Ventures, Inc. since 1992
President, Director, Founder & CEO, KSDS,
Inc. since 1992
President, Kent Digital Signs, L.P. since 1992
President, Director, Founder & CEO,
Synmatix since 1993
President, Director, co-founder & CEO,
Manning Leasing since 1994
President/Treasurer, Manning & Napier
Leveraged Investing Company, Inc., since 1994
Timothy P. Mullaney, CPA Treasurer & Principal, Marketing Opportunity Group
1100 Chase Square Chief Fin. (self-employed) since 1990
Rochester, NY 14604 Officer Mutual Fund Chief Financial Officer
Manning & Napier Advisors, Inc., since 1994
Treasurer and Chief Financial Officer,
Manning & Napier Insurance Fund, Inc.,
since 1995
Barbara A. Lapple Corporate Compliance Officer, Manning & Napier
1100 Chase Square Secretary Advisors, Inc., since 1984
Rochester, NY 14604 Corporate Secretary & Compliance Officer,
Manning & Napier Investor Services, Inc.,
since 1990
Corporate Secretary, Manning & Napier
Leveraged Investing Company, Inc., since 1994
Corporate Secretary, Manning & Napier
Insurance Fund, Inc., since 1995
</TABLE>
* Interested Director, 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 and Harris H. Rusitzky.
Directors affiliated with the Advisor do not receive fees from the Fund.
Mr. Faber is deemed to be an interested person of the investment advisor
because his firm provides legal services to the Advisor. Each Director who is
not affiliated with the Advisor shall receive an annual fee of $5,000. Annual
fees will be calculated monthly and prorated. Each Director who is not
affiliated with the Advisor shall receive $500 per Board Meeting attended for
each active Series of the Fund, plus $500 for any Committee Meeting held on a
day on which a Board Meeting is not held.
<TABLE>
<CAPTION>
COMPENSATION TABLE FOR FISCAL YEAR ENDED DECEMBER 31, 1994
<S> <C> <C> <C> <C>
Name Position Aggregate Pension Est. Annual
from Registrant Compensation Benefits upon
Retirement
B. Reuben Director $ 0 $ 0 $ 0
Auspitz*
Martin Director $ 14,500 $ 0 $ 0
Birmingham
Harris H. Director $ 28,500 $ 0 $ 0
Rusitzky
Peter L. Director $ 28,500 $ 0 $ 0
Faber*
COMPENSATION TABLE FOR FISCAL YEAR ENDED DECEMBER 31, 1994
<S> <C>
Name Total
Compensation
from Registrant
B. Reuben $ 0
Auspitz*
Martin $ 14,500
Birmingham
Harris H. $ 28,500
Rusitzky
Peter L. $ 28,500
Faber*
</TABLE>
*Interested Director, within the meaning of the Investment Company Act of 1940
(the "1940 Act").
The following persons were known by the Fund to own of record 5% or more
of the outstanding voting securities of each Series on December 14,
1995:
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE
- -------------------------------------------- --------------
OF HOLDER OF RECORD OF SERIES
- -------------------------------------------- --------------
<S> <C>
Blended Asset Series I
- --------------------------------------------
Custody First 6.61%
FBO Mitchell Pierson, Jr. Inc. 401(k) Plan
P.O. Box 41178
Rochester, New York 14604
Blended Asset Series II
- --------------------------------------------
Custody First 6.02%
FBO NAMIC 401(k) Plan & Trust
P.O. Box 41178
Rochester, New York 14604
Custody First 5.37%
FBO Travelong Profit Sharing & Thrift Plan
P.O. Box 41178
Rochester, New York 14604
Flexible Yield Series I
- --------------------------------------------
Custody First 9.72%
FBO Homemakers Upstate Group Inc. Retirement
Plan & Trust
P.O. Box 41178
Rochester, New York 14604
Elaine P. Tecler IRA Rollover 8.34%
132 Clintwood Court
Rochester, New York 14620
Stuart R. Kornreich IRA Rollover 9.53%
426 Rankin Avenue
Warren, Pennsylvania 16365
Penfield Fire Company 10.55%
1838 Penfield Road
Penfield, New York 14526
Manning & Napier Advisors, Inc. 11.54%
1100 Chase Square
Rochester, New York 14604
Douglas Miller IRA 14.68%
222 North Via Las Palmas
Palm Springs, CA 92262
Romine A. Webster IRA 9.56%
222 North Via Las Palmas
Palm Springs, CA 92262
Flexible Yield Series II
- --------------------------------------------
Kent H. Hudson IRA Rollover 6.43%
508 Jackson Avenue
Warren, Pennsylvania 16365
June Dahlin & Richard Dahlin JTWROS 6.64%
1425 2nd Avenue
Apt. 206
Chula Vista, California 91911
Penfield Fire Company 8.81%
1838 Penfield Road
Penfield, New York 14526
Charles E. Lucas IRA Rollover 19.93%
505 Fairmount Avenue WE
Jamestown, New York 14701
Jerry J. Vasicck IRA Rollover 8.74%
65 Coventry Road
Endicott, NY 13760
Manning & Napier Advisors, Inc. 31.45%
1100 Chase Square
Rochester, New York 14604
Flexible Yield Series III
- --------------------------------------------
Synder Tank Savings & Security Plan 6.37%
3774 Lakeshore Road
Buffalo, New York 14219
Boy Scouts of America Troop 31 8.82%
909 Fairport Road
East Rochester, New York 14445
Manning & Napier Advisors, Inc. 9.41%
1100 Chase Square
Rochester, New York 14604
George T. & Jacqueline A. Golebiewski JTWROS 17.74%
4693 Pinecrest Terrace
Eden, New York 14057
Wanda Kogut 18.81%
264 Clinton Street
Whitesboro, New York 13492
New York Tax Exempt Series
- --------------------------------------------
Manning & Napier Advisors, Inc. 6.96%
FBO William B. Hale
1100 Chase Square
Rochester, New York 14604
Ohio Tax Exempt Series
- --------------------------------------------
Allen Thorley Delloyd Inc. 5.59%
5201 Abbe Road
Elyria, Ohio 44035
Manning & Napier Advisors, Inc. 14.91%
FBO Franklin Eck
1100 Chase Square
Rochester, New York 14604
Manning & Napier Advisors, Inc. 15.77%
FBO Ms. Nancy Peterson Trust
1100 Chase Square
Rochester, New York 14604
Diversified Tax Exempt Series
- --------------------------------------------
Manning & Napier Advisors, Inc. 5.65%
FBO TDS Company, Inc.
1100 Chase Square
Rochester, New York 14604
Manning & Napier Advisors, Inc. 5.02%
FBO Sara B. Dorn
1100 Chase Square
Rochester, New York 14604
International Series
- --------------------------------------------
Manning & Napier Advisors, Inc. 6.48%
FBO American Electric Power Co. Pension Plan
1100 Chase Square
Rochester, New York 14604
Technology Series
- --------------------------------------------
Manning & Napier Advisors, Inc. 8.44%
FBO American Electric Power Co. Pension Plan
1100 Chase Square
Rochester, New York 14604
Defensive Series
- --------------------------------------------
Brook Anco Corporation 401(k) Plan 11.44%
3495 Winton Place, Building B
Rochester, New York 14623
Updike, Kelly & Spellacy, PC Profit 13.12%
Sharing Plan & Trust
One State Street
P.O. Box 231277
Hartford, Connecticut 06123-1277
Manning & Napier Advisors, Inc. 28.83%
1100 Chase Square
Rochester, New York 14604
Conklin Instrument Corporation 46.59%
Profit Sharing Plan
West Road
Pleasant Valley, New York 12569
Maximum Horizon Series
- --------------------------------------------
Manning & Napier Advisors, Inc. 9.57%
1100 Chase Square
Rochester, New York 14604
Tax Managed Series
- --------------------------------------------
Manning & Napier Advisors, Inc. 98.31%
1100 Chase Square
Rochester, New York 14604
</TABLE>
The Advisor
Manning & Napier Advisors, Inc. acts as the Fund's investment advisor.
The Fund pays the Advisor for the services performed a fee at the annual rate
of 1% of the Fund's daily net assets for the Small Cap Series, Energy Series,
Technology Series, Maximum Horizon Series, Financial Services Series,
International Series, Tax Managed Series, Life Sciences Series, Global Fixed
Income Series, Blended Asset Series I, Blended Asset Series II, World
Opportunities Series ,.80% for the Defensive Series, .35% for the Flexible
Yield Series I, .45% for the Flexible Yield Series II, .50% for the Flexible
Yield Series III, New York Tax Exempt Series, Ohio Tax Exempt Series and the
Diversified Tax Exempt Series. For fiscal years ended 1987, 1988, 1989,
1992, 1993 and 1994, the aggregate total of fees paid by the Small Cap Series
to the Advisor were $34,211, $114,125, $0, $184,465, $582,365 and $931,789
respectively. For the period November 4, 1988, (Commencement of Investment
Operations) to December 31, 1988 and for the fiscal years ended 1989, 1990,
1991, and 1992, the aggregate total of fees paid by the Technology Series to
the Advisor were $87,931, $660,878 $573,333, $603,370, and $249,485
respectively and for the period August 29, 1994 (Commencement of Operations)
to December 31, 1994 a total of $151,936. For the period August 27, 1992,
(Commencement of Investment Operations) to December 31, 1992 and for the
fiscal years ended 1993 and 1994, the aggregate total fees paid by the
International Series to the Advisor were $282,754, $868,462 and $870,103. For
the period October 7, 1992, (Commencement of Investment Operations) to
December 31, 1992 and for the fiscal year ended 1993 and 1994 , the aggregate
total fees paid by the Life Sciences Series to the Advisor were $30,001,
$560,977 and $749,795. For the fiscal years ended 1987, 1988 and 1989, the
advisory fees waived by the Advisor for the Small Cap Series were $500, $707,
and $489 respectively. For the period September 15, 1993, (Commencement of
Operations) to December 31, 1993 and for the fiscal year ended 1994, the
advisory fees waived by the Advisor for the Blended Asset Series I were $891
and $26,034. For the period October 12, 1993, (Commencement of Operations) to
December 31, 1993 and for the fiscal year ended 1994, the advisory fees waived
by the Advisor for the Blended Asset Series II were $393 and $37,315. For the
period February 15, 1994 (Commencement of Operations) to December 31, 1994,
the advisory fees waived by the Advisor for the Flexible Yield Series II was
$905. For the period February 15, 1994 (Commencement of Operations) to
December 31, 1994, the advisory fees waived by the Advisor for the Flexible
Yield Series I was $443. For the period December 20, 1993, (Commencement of
Operations) to December 31, 1993 and for the fiscal year ended 1994, the
advisory fees waived by the Advisor for the Flexible Yield Series III were $11
and $1,683. For the period January 17, 1994 (Commencement of Operations) to
December 31, 1994, the advisory fees paid to the Advisor for the New York Tax
Exempt Series was $82,497. For the period February 14, 1994 (Commencement of
Operations) to December 31, 1994, the advisory fees waived by the Advisor for
the Ohio Tax Exempt Series was $11,101. For the period February 14, 1994
(Commencement of Operations) to December 31, 1994, advisory fees waived by the
Advisor for the Diversified Tax Exempt Series was $22,494 and the aggregate
total fees paid was $2,983. The Investment Advisory Agreement (the
"Agreement") between the Fund and the Advisor provides that in the event the
expenses of the Fund (including the fee of the Advisor but excluding:
(i)brokerage commissions; (ii) interest; (iii) taxes; and (iv) extraordinary
expenses except for those incurred by the Fund as a result of litigation in
connection with a suit involving a claim for recovery by the Fund, or as a
result of litigation involving a defense against a liability asserted against
the Fund, provided that, if the adviser made the decision or took the action
which resulted in such claim the adviser acted in good faith without gross
negligence or misconduct, and for any indemnification paid by the Fund to its
officers, directors and advisers in accordance with applicable state and
federal laws as a result of such litigation) for any fiscal year exceed the
limits set by applicable regulations of state securities commissions, the
Advisor will reduce its fee by the amount of such excess. Any such reductions
or refunds are accrued and paid in the same manner as the Advisor's fee and
are subject to readjustment during the year.
The Agreement 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.
In the Agreement, the Fund agrees that the words "Manning & Napier" in
its name is derived from the name of the Advisor and is the property of the
Advisor for copyright and all other purposes and that therefore such word 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.
On April 30, 1993, the Advisor became the Fund's Transfer Agent. For
servicing the Blended Asset Series I , Blended Asset Series II, Flexible Yield
Series I, Flexible Yield Series II, Flexible Yield Series III, New York Tax
Exempt Series, Ohio Tax Exempt Series and the Diversified Tax Exempt Series in
this capacity, for the fiscal years ended 1993 and 1994, the Advisor received
$29.87 and $7,396 from the Fund. The Advisor will not charge for its Transfer
Agent services to the other Series.
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 to clients for this service. The Advisor may
impose separate requirements in connection with employee purchases of the
Fund.
Custodian and Independent Accountant
The custodian for the Energy Series, the Technology Series, the Financial
Services Series, the Life Sciences Series, and the Global Fixed Income Series
is Fleet Bank, N.A., 45 East Avenue, Rochester, N.Y. 14604, with the exception
of the foreign securities held by the Fund, whose custodian is Boston Safe
Deposit and Trust Company, One Cabot Road, 3rd Floor, Medford, MA 02155-5159.
The custodian for the Small Cap Series, International Series, Blended Asset
Series I, Blended Asset Series II, Flexible Yield Series I, Flexible Yield
Series II, Flexible Yield Series III, New York Tax Exempt Series, Ohio Tax
Exempt Series, Diversified Tax Exempt Series, Tax Managed Series, Defensive
Series, Maximum Horizon Series and the World Opportunities Series 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. Coopers & Lybrand, One Post Office Square,
Boston, MA 02109 are the Fund's independent accountants for the Fund, with the
exception of the Blended Asset Series I, Blended Asset Series II, Flexible
Yield Series I, Flexible Yield Series II, Flexible Yield Series III, Tax
Managed Series, Defensive Series, Maximum Horizon Series and the World
Opportunities Series where the independent accountants are Deloitte &
Touche, L.L.P., 125 Summer Street, Boston, MA 02110.
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 portfolio 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 are
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. For
the fiscal years ending 1987, 1988, 1989, ,1992 and 1993 and 1994, the
brokerage commissions incurred by the Small Cap Series were $90,216, $82,149,
$0, $42,285, $60,820 and $90,860 , respectively. For the period November 4,
1988 (Commencement of Operations) to December 31, 1988 and the fiscal years
ended 1989, 1990, 1991 and 1992, the brokerage commissions incurred by the
Technology Series were $123,896, $80,326, $11,415, $5,795 and $137,000,
respectively and for the period August 29, 1994 (Commencement of Operations)
to December 31, 1994 was $13,693. For the period August 27, 1992
(Commencement of Operations) to December 31, 1992 and the fiscal years ended
1993 and 1994, the brokerage commissions incurred by the International Series
were $219,814, $49,000 and $151,987. For the period October 7, 1992
(Commencement of Operations) to December 31, 1992 and the fiscal years ended
1993 and 1994, the brokerage commissions incurred by the Life Sciences Series
were $10,670, $144,225 and $85,230. For the period September 15, 1993
(Commencement of Operations) to December 31, 1993 and for the fiscal year
ended 1994, the brokerage commissions incurred by the Blended Asset Series I
were $431 and $4,270. For the period October 12, 1993 (Commencement of
Operations) to December 31, 1993 and for the fiscal year ended 1994, the
brokerage commissions incurred by the Blended Asset Series II were $506 and
$8,525. For the period February 15, 1994 (Commencement of Operations) to
December 31, 1994, there were no brokerage commissions incurred by the
Flexible Yield Series I. For the period February 15, 1994 (Commencement of
Operations) to December 31, 1994, there were no brokerage commissions incurred
by the Flexible Yield Series II. For the period December 20, 1993
(Commencement of Operations) to December 31, 1993 and for the fiscal year
ended 1994, there were no brokerage commissions incurred by the Flexible Yield
Series III. For the period January 17, 1994 (Commencement of Operations) to
December 31, 1994, there were no brokerage commissions incurred by the New
York Tax Exempt Series. For the period February 14, 1994 (Commencement of
Operations) to December 31, 1994, there were no brokerage commissions incurred
by the Ohio Tax Exempt Series. For the period February 14, 1994 (Commencement
of Operations) to December 31, 1994, there were no brokerage commissions
incurred by the Diversified Tax Exempt Series. There were no brokerage
commissions paid to affiliates during the last five 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. Unlisted securities that are not included in such National
Market System 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.
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 week-end 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 Fund 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.
FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a summary of certain additional tax considerations
generally affecting the Fund and its shareholders that are not described in
the Fund's Prospectus. No attempt is made to present a detailed explanation
of the tax treatment of the Fund or its shareholders, and the discussion here
and in the Fund's Prospectus is not intended as a substitute for careful tax
planning.
The following discussion of federal income tax consequences is based on
the Internal Revenue Code of 1986, as amended (the "Code") and the regulations
issued thereunder as in effect on the date of this Statement of Additional
Information. New legislation, as well as administrative changes or court
decisions, may significantly change the conclusions expressed herein, and may
have a retroactive effect with respect to the transactions contemplated
herein.
Qualification as Regulated Investment Company
As a regulated investment company ("RIC") under Subchapter M of the Code,
each Series is exempt from federal income tax on its net investment income and
capital gains which it distributes to shareholders, provided that it
distributes at least 90% of its investment company taxable income (generally,
net investment income and the excess of net short-term capital gain over net
long-term capital loss) for the year (the "Distribution Requirement") and
satisfies certain other requirements of the Code that are described below.
Distributions of investment company taxable income made during the taxable
year will satisfy the Distribution Requirement.
In addition to satisfaction of the Distribution Requirement each Series
must derive at least 90% of its gross income from dividends, interest, certain
payments with respect to securities loans and gains from the sale or other
disposition of stocks, securities or foreign currencies, or from other income
(including but not limited to gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies ("Qualifying Income") and derive less than 30% of its
gross income from the sale or other disposition of stocks, securities and
certain other investments held for less than three months including foreign
currencies (or options, futures or forward contracts on foreign currencies)
but only if such currencies (or options, futures or forward contracts) are not
directly related to the Series' principal business of investing in stock or
securities or options and futures with respect to stocks or securities (the
so-called "Short-Short Gain Rule"). Moreover, at the close of each quarter
of its taxable year, at least 50% of the value of a Series' assets must
consist of cash and cash items, Government securities, securities of other
RICs, and securities of other issuers (as to which such Series has not
invested more than 5% of the value of its total assets in any one issuer and
as to which such Series does not hold more than 10% of the outstanding voting
securities of any one issuer), and no more than 25% of the value of its total
assets may be invested in the securities of any one issuer (other than
Government securities and securities of other RICs), or in two or more issuers
which the Fund controls and which are engaged in the same, similar or related
trades or businesses (the "Asset Diversification Test").
The foregoing requirements of the Code may inhibit the Series in their
efforts to achieve their investment objectives.
1. a. Qualifying Income
It is not clear to what extent income derived by a Series from foreign
currency gains will, under future Treasury regulations, be treated by the
Internal Revenue Service (the "Service") as Qualifying Income.
Consequently, each Series will take appropriate actions to limit such
transactions, where necessary, until such time as applicable U.S. Treasury
regulations are issued or a Series receives a satisfactory opinion of
counsel or private letter ruling from the Service that income from such
currency transactions constitutes Qualifying Income.
1. b. Currency Transactions
Transactions in forward currency contracts, currency futures
contracts, options on currencies, and certain other instruments are subject to
special rules which may affect the timing and character of distributions to
shareholders by accelerating income to the Series, deferring Series' losses,
causing adjustments in the holding periods of Series' securities, and
converting capital gains into ordinary income. For example, certain foreign
currency gains realized by a Series will be treated as ordinary income rather
than capital gain under Section 988 of the Code. The tax treatment of certain
foreign currency contracts, futures contracts, and options on futures
contracts entered into by a Series will be governed by Section 1256 of the
Code. In general, each such position held by the Series will be marked to
market (i.e., treated as if it were closed out on the last business day of
each taxable year of the Series), and all gain or loss associated with such
marking to market or other transactions in such positions will be treated as
60% long-term and 40% short-term capital gain or loss.
When a Series holds an option or contract governed by Section 1256
which substantially diminishes the Series' risk of loss with respect to
another position held by the Series which is not governed by Section 1256,
this combination of positions could be a "mixed straddle" that is generally
subject to Section 1092 of the Code in addition to Section 1256 of the Code.
The Series may make certain tax elections for its "mixed straddles" which
could eliminate the effects of Section 1256. In addition, a Series'
activities in foreign currency contracts, futures contracts and options may be
limited by the requirements for qualification as a regulated investment
company and by future legislative or regulatory changes in these
requirements.
2. Short-Short Gain Rule
Because of the Short-Short Gain Rule, a Series may have to:
(1) limit the sale of appreciated securities held for less than
three months;
(2) limit the short sale of, or the acquisition of put options on,
appreciated securities held for one year or less;
(3) limit the closing of call options or secured put options it has
written or of appreciated put options it has held for less than three months;
and
(4) limit writing options that expire in less than three months and
covered call options on securities that have been held for less than three
months and are likely to appreciate significantly during the option period.
To the extent a Series is able to identify and designate offsetting
positions as "hedges," increases and decreases in the value of such positions
will be netted for purposes of determining whether the Short-Short Gain Rule
has been satisfied. In addition, the Short-Short Gain Rule will not prevent a
Series from disposing of investments at a loss, since the recognition of a
loss before the expiration of the three-month holding period has no impact.
3. Asset Diversification Test
The Service has ruled (1) that the issuer of a call option written on a
security is the issuer of the underlying security and (2) that, where the
writer of a call option owns the underlying security, the Asset
Diversification Test will be applied solely to such security and that the
value of the option will not be counted.
The Service has informally ruled for purposes of the Asset
Diversification Test that (1) a put option on a security is itself a
"security", (2) the issuer of a put option on a security is the issuer of the
underlying security, (3) the market value of a purchased put option should be
the measure of the investment in the instrument as a "security", and (4) the
market value of the underlying security should be the measure of the
investment in a written put option as a "security".
By law, the Series may not rely on informal rulings of the Service.
Consequently, a Series may find it necessary to seek its own ruling from the
Service on these issues or to curtail its options trading in order to stay
within the limits of the Asset Diversification Test.
It is unclear under present law who should be treated as the issuer of
foreign currency exchange contracts, although it has been suggested that the
issuer in each case would be the foreign central bank or foreign government
backing the particular currency. A Series may find it necessary to curtail
trading in forward foreign currency contracts or seek a ruling on this issue.
A Series may also find it necessary to seek rulings with respect to other
financial instruments, or curtail trading therein, for purposes of the Asset
Diversification Test.
Fund Distributions
Investors should be careful to consider the tax implications of buying
shares of a Series just prior to the record date of an ordinary income
dividend or capital gain distribution. The price of shares purchased at that
time may reflect the amount of the forthcoming ordinary income dividend or
capital gain distribution. Those purchasing just prior to an ordinary income
dividend or capital gain distribution will nevertheless be taxable on the
entire amount of the distribution received.
In the event a Series elects to retain its net capital gain, it is
expected that such Series also will elect to have shareholders treated as
having received a distribution of such gain, with the result that they will be
required to report their respective shares of such gain on their returns as
long-term capital gain, will receive a refundable tax credit for their
allocable share of capital gain tax paid by such Series on the gain, and will
increase the tax basis for their shares by an amount equal to 65% of the
deemed distribution.
Investors should be aware that any loss realized upon the sale, exchange
or redemption of Series shares held for six months or less will be treated as
a long-term capital loss to the extent any capital gain distributions have
been paid with respect to such shares or any amounts have been treated as
long-term capital gains with respect to such shares pursuant to the election
described in the preceding paragraph. Investors should also be aware that the
maximum federal tax rate on long-term capital gains has been increased to 35%
for corporate taxpayers and to 28% for non-corporate taxpayers.
In some circumstances the Series' use of short sales, writing of covered
call options and acquisitions of put options to further its investment
objectives may reduce the portion of its distributions that qualify for the
corporate dividends received deduction.
Except in the case of the International Series and Global Fixed Income
Series, the Code allows a 70% dividends-received deduction (the "deduction")
to corporate shareholders of any Series. Special provisions are contained in
the Code as to the eligibility of payments to such shareholders for the
deduction. The extent to which the ordinary income dividends paid by a Series
are eligible for the deduction is determined by the ratio of the aggregate
dividends received by such Series from domestic corporations in any fiscal
year to the ordinary income dividends paid by such Series for that year. For
purposes of determining the deduction, a Series may not take into account any
amount received as a dividend with respect to any security unless such Series
has held the security with respect to which the dividend has been paid for a
minimum period, generally 46 days. Moreover, corporate taxpayers will have to
take into account the entire amount of any dividend received from a Series for
purposes of the alternative minimum tax and environmental tax. Capital gains
distributions are not eligible for the dividends received deduction.
As noted in the Prospectuses for the New York Tax Exempt Series, the Ohio
Tax Exempt Series and the Diversified Tax Exempt Series, exempt-interest
dividends are excludable from a shareholder's gross income for federal income
tax purposes. Exempt-interest dividends may nevertheless be subject to the
alternative minimum tax (the "Alternative Minimum Tax") imposed by Section 55
of the Code or the environmental tax (the "Environmental Tax") imposed by
Section 59A of the Code. The Alternative Minimum Tax is imposed at the rate
of 26% or 28% in the case of non-corporate taxpayers and at the rate of 20% in
the case of corporate taxpayers, to the extent it exceeds the taxpayer's
regular tax liability. The Environmental Tax is imposed at the rate of 0.12%
and applies only to corporate taxpayers. The Alternative Minimum Tax and the
Environmental Tax may be imposed in two circumstances. First, exempt-interest
dividends derived from certain "private activity bonds" issued after August 7,
1986, will generally be an item of tax preference and therefore potentially
subject to the Alternative Minimum Tax and the Environmental Tax. Each Tax
Exempt Series intends, when possible, to avoid investing in private activity
bonds. Second, in the case of exempt-interest dividends received by corporate
shareholders, all exempt-interest dividends, regardless of when the bonds from
which they are derived were issued or whether they are derived from private
activity bonds, will be included in the corporation's "adjusted current
earnings" as defined in Section 56(g) of the Code, in calculating the
corporation's alternative minimum taxable income for purposes of determining
the Alternative Minimum Tax and the Environmental Tax.
The percentage of income that constitutes "exempt-interest dividends"
will be determined for each year for each Tax Exempt Series will be applied
uniformly to all dividends declared with respect to the Series during that
year. This percentage may differ from the actual percentage for any
particular day.
Interest on indebtedness incurred by shareholders to purchase or carry
shares of a Tax Exempt Series will not be deductible for federal income tax
purposes. The deduction otherwise allowable to property and casualty
insurance companies for "losses incurred" will be reduced by an amount equal
to a portion of exempt-interest dividends received or accrued during any
taxable year. Foreign corporations engaged in a trade or business in the
United States will be subject to a "branch profits tax" on their "dividend
equivalent amount" for the taxable year, which will include exempt-interest
dividends. Certain Subchapter S corporations may also be subject to taxes on
their "passive investment income," which could include exempt-interest
dividends. Up to 85% of the Social Security benefits or railroad retirement
benefits received by an individual during any taxable year will be included in
the gross income of such individual if the individual's "modified adjusted
gross income" (which includes exempt-interest dividends) plus one-half of the
Social Security benefits or railroad retirement benefits received by such
individual during that taxable year exceeds the base amount described in
Section 86 of the Code.
Entities or persons who are "substantial users" (or persons related to
"substantial users") of facilities financed by industrial development bonds or
private activity bonds should consult their tax advisors before purchasing
shares of a Tax Exempt Series.
"Substantial user" is defined generally for these purposes as including a
"non-exempt person" who regularly uses in trade or business a part of a
facility financed from the proceeds of such bonds.
Issuers of bonds purchased by a Tax Exempt Series (or the beneficiary of
such bonds) may have made certain representations or covenants in connection
with the issuance of such bonds to satisfy certain requirements of the Code
that must be satisfied subsequent to the issuance of such bonds. Investors
should be aware that exempt-interest dividends derived from such bonds may
become subject to federal income taxation retroactively to the date thereof if
such representations are determined to have been inaccurate or if the issuer
of such bonds (or the beneficiary of such bonds) fails to comply with such
covenants.
From time to time, the Fund may present its performance in communications
to shareholders, sales literature, and advertising. Performance measurements
will be presented by average annual total return, total return, and/or
cumulative total return. All measurements will be based upon the change in
net assets resulting from all Fund operations, including the reinvestment of
dividends and distributions, if any, for the specified periods.
The Fund's performance will vary from time to time depending on market
conditions, the composition of its portfolio, and its level of operation
expenses. Consequently, any performance figures should not be considered
representative of the future performance of the Fund. The Fund may include in
performance advertisements rankings or similar information provided by
Morningstar or other organizations.
Other Considerations
A 4% non-deductible excise tax is imposed on RICs that fail to distribute
in each calendar year an amount equal to 98% of their ordinary income for the
calendar year and 98% of their "capital gain net income" (excess of capital
gains over capital losses) for the one-year period ending on October 31 of
such calendar year, even if they satisfy the Distribution Requirement. The
balance of such income must be distributed during the next calendar year.
Each Series intends to make sufficient distributions of its ordinary income
and capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax. However, investors should note that a Series
may in certain circumstances be required to liquidate portfolio investments in
order to make sufficient distributions to avoid excise tax liability.
For purposes of the excise tax, a RICs must (1) offset a net ordinary
loss for any calendar year in determining its capital gain net income, but
only to the extent the capital gain net income for the one-year period ending
on October 31 of such calendar year exceeds the net capital gains for said
period and (2) exclude certain foreign currency gains and losses incurred
after October 31 of any year in determining the amount of ordinary taxable
income for the current calendar year (and, instead include such gains and
losses in determining ordinary taxable income for the succeeding calendar
year).
Rules of state and local taxation of ordinary income dividends and
capital gain distributions from regulated investment companies often differ
from the rules for federal income taxation described above. Shareholders are
urged to consult their tax advisors for the application of the federal rules
outlined above to their particular circumstances and for the application of
state and local tax rules affecting investment in the Fund. Foreign
shareholders are urged to consult their own tax advisors concerning the
applicability of the United States withholding tax.
<PAGE>
PART C - OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements (incorporated by reference to the Post-Effective
No. 18 to the Registration Statement on Form N-1A filed on July 21, 1995):
(1) The following financial statements are included in the prospectus
constituting Part A of the Technology Series of the Registration
Statement: Financial Highlights for the years December 31, 1989 through
1991 (audited) and for the period November 4, 1988 (commencement of
operations) to December 31, 1988 (audited) and January 1, 1992 to May 11,
1992 (audited), and the period August 29, 1994 (commencement of
operations) to December 31, 1994 (audited). Statement of Additional
Information constituting Part B of the Technology Series of this
Registration Statement:
Report of Independent Certified Public Accountants dated January 30, 1995
Statement of Assets and Liabilities - December 31, 1994.
Statement of Operations - For the period August 29, 1994 to December 31,
1994.
Statement of Changes in Net Assets for the period April 30, 1992 to
December 31, 1994. Notes to the Financial Statements.
(2) The following financial statements are included in the prospectus
constituting Part A of the Small Cap Series of the Registration Statement:
Financial Highlights for the period January 1, 1989 to July 24, 1989
(date of final redemption), for each of the two years in the period ended
December 31, 1988 and for the period January 6, 1986 (commencement of
operations) to December 31 1986, and the period April 30, 1992 to December
31, 1992 and for the fiscal years ended 1993 and 1994 (audited).
Statement of Additional Information constituting Part B of the Small Cap
Series
of this Registration Statement:
Report of Independent Certified Public Accountants dated January 30, 1995
Statement of Assets and Liabilities - December 31, 1994.
Statement of Operations - For the period April 30, 1992 to December 31,
1994.
Statement of Changes in Net Assets for the period April 30, 1992 to
December
31, 1994.
Notes to the Financial Statements.
Report of Independent Certified Public Accountants dated April 25, 1990.
Statement of Operations - For the period January 1, 1989 to July 24, 1989
(date of final redemption).
Statement of Changes in Net Assets for the period January 1, 1989 to July
24, 1989 (date of final redemption) and for the year ended December 31,
1988.
Notes to Financial Statements.
(3) The following financial statements are included in the prospectus
constituting Part A of the International Series of the Registration
Statement: Financial Highlights for the period August 28, 1992 to
December 31, 1992 and for the fiscal years ended 1993 and 1994 (audited).
Statement of Additional Information constituting Part B of the
International Series of this Registration Statement:
Report of Independent Certified Public Accountants dated January 30, 1995
Statement of Assets and Liabilities - December 31, 1994.
Statement of Operations - For the period August 28, 1992 to December 31,
1994.
Statement of Changes in Net Assets for the period August 28, 1992 to
December 31, 1994.
Notes to the Financial Statements.
(4) The following financial statements are included in the prospectus
constituting Part A of the Life Sciences Series of the Registration
Statement: Financial Highlights for the period October 7, 1992 to
December 31, 1992 and for the fiscal year ended 1993 and 1994 (audited).
Statement of Additional Information constituting Part B of the Life
Sciences Series of this Registration Statement:
Report of Independent Certified Public Accountants dated January 30, 1995
Statement of Assets and Liabilities - December 31, 1994.
Statement of Operations - For the period October 7, 1992 to December 31,
1994.
Statement of Changes in Net Assets for the period October 7, 1992 to
December 31, 1994.
Notes to the Financial Statements.
(5) The following financial statements are included in the prospectus
constituting Part A of the Blended Asset Series I of the Registration
Statement: Financial Highlights for the period September 15, 1993 to
December 31, 1993 (audited) and the fiscal year ended 1994 (audited).
Statement of Additional Information constituting Part B of the Blended
Asset Series I of this Registration Statement:
Report of Independent Certified Public Accountants dated January 27, 1995
Statement of Assets and Liabilities - December 31, 1994.
Statement of Operations - For the period September 15, 1993 to December
31, 1994. Statement of Changes in Net Assets for the period September 15,
1993 to December 31, 1994.
Notes to the Financial Statements.
(6) The following financial statements are included in the prospectus
constituting Part A of the Blended Asset Series II of the Registration
Statement: Financial Highlights for the period October 12, 1993 to
December 31, 1993 (audited) and for the fiscal year ended 1994 (audited).
Statement of Additional Information constituting Part B of the Blended
Asset Series II of this Registration Statement:
Report of Independent Certified Public Accountants dated January 27, 1995
Statement of Assets and Liabilities - December 31, 1994.
Statement of Operations - For the period October 12, 1993 to December 31,
1994.
Statement of Changes in Net Assets for the period October 12, 1993 to
December 31, 1994.
Notes to the Financial Statements.
(7) The following financial statements are included in the prospectus
constituting Part A of the Flexible Yield Series III of the Registration
Statement: Financial Highlights for the period December 20, 1993 to
December 31, 1993 (audited) and the fiscal year ended 1994 (audited).
Statement of Additional Information constituting Part B of the Flexible
Yield Series III of this Registration Statement:
Report of Independent Certified Public Accountants dated January 27, 1995
Statement of Assets and Liabilities - December 31, 1994.
Statement of Operations - For the period December 20, 1993 to December
31, 1994.
Statement of Changes in Net Assets for the period December 20, 1993 to
December 31, 1994.
Notes to the Financial Statements.
(8) The following financial statements are included in the prospectus
constituting Part A of the Flexible Yield Series I of the Registration
Statement: Financial Highlights for the period February 15, 1994 to
December 31, 1994 (audited).
Statement of Additional Information constituting Part B of the Flexible
Yield Series I of this Registration Statement:
Report of Independent Certified Public Accountants dated January 27, 1995
Statement of Assets and Liabilities - December 31, 1994.
Statement of Operations - For the period February 15, 1994 to December
31, 1994.
Statement of Changes in Net Assets for the period February 15, 1994 to
December 31, 1994.
Notes to the Financial Statements.
(9) The following financial statements are included in the prospectus
constituting Part A of the Flexible Yield Series II of the Registration
Statement: Financial Highlights for the period February 15, 1994 to
December 31, 1994 (audited).
Statement of Additional Information constituting Part B of the Flexible
Yield Series II of this Registration Statement:
Report of Independent Certified Public Accountants dated January 27, 1995
Statement of Assets and Liabilities - December 31, 1994.
Statement of Operations - For the period February 15, 1994 to December
31, 1994.
Statement of Changes in Net Assets for the period February 15, 1994 to
December 31, 1994.
Notes to the Financial Statements.
(10) The following financial statements are included in the prospectus
constituting Part A of the New York Tax Exempt Series of the Registration
Statement: Financial Highlights for the period January 17, 1994 to
December 31, 1994 (audited).
Statement of Additional Information constituting Part B of the New York
Tax Exempt Series of this Registration Statement:
Report of Independent Certified Public Accountants dated January 30, 1995
Statement of Assets and Liabilities - December 31, 1994.
Statement of Operations - For the period January 17, 1994 to December 31,
1994.
Statement of Changes in Net Assets for the period January 17, 1994 to
December 31, 1994.
Notes to the Financial Statements.
(11) The following financial statements are included in the prospectus
constituting Part A of the Ohio Tax Exempt Series of the Registration
Statement: Financial Highlights for the period February 14, 1994 to
December 31, 1994 (audited).
Statement of Additional Information constituting Part B of the Ohio Tax
Exempt Series of this Registration Statement:
Report of Independent Certified Public Accountants dated January 30, 1995
Statement of Assets and Liabilities - December 31, 1994.
Statement of Operations - For the period February 14, 1994 to December
31, 1994.
Statement of Changes in Net Assets for the period February 14, 1994 to
December 31, 1994.
Notes to the Financial Statements.
(12) The following financial statements are included in the prospectus
constituting Part A of the Diversified Tax Exempt Series of the
Registration Statement: Financial Highlights for the period February 14,
1994 to December 31, 1994 (audited).
Statement of Additional Information constituting Part B of the Ohio Tax
Exempt Series of this Registration Statement:
Report of Independent Certified Public Accountants dated January 30, 1995
Statement of Assets and Liabilities - December 31, 1994.
Statement of Operations - For the period February 14, 1994 to December
31, 1994.
Statement of Changes in Net Assets for the period February 14, 1994 to
December 31, 1994.
Notes to the Financial Statements.
All Series of the Fund other than the Small Cap Series, International
Series, Life Sciences Series, Technology Series, Blended Asset Series I,
Blended Asset Series II, Flexible Yield Series I, Flexible Yield Series II,
Flexible Yield Series IIl, Diversified Tax Exempt Series, Ohio Tax Exempt
Series and the New York Tax Exempt Series have not commenced operations.
Accordingly, no financial statements are being filed for these Series at this
time.
(b) Exhibits:
(1) (i) Articles of Incorporation (incorporated by reference to
Exhibit (1)(i) to the Registration Statement on Form N-1A (File No. 2-92633)
filed on August 7, 1984).
(ii) Articles of Amendment (incorporated by reference to Exhibit
(1)(ii) to Pre-Effective Amendment No. 2 to the Registration Statement on
Form N-1A filed on June 10, 1985).
(iii) Articles of Amendment (incorporated by reference to
Exhibit to Pre-Effective Amendment No. 3 to the Registration Statement on
Form N-1A filed on December 23, 1985).
(iv) Articles of Amendment (incorporated by reference to Exhibit
(1)(iv) to the Registration Statement on Form N-1A filed on July 17, 1986).
(2) (a) By-Laws (incorporated by reference to Exhibit (2) to the
Registration Statement on Form N-1A filed on August 7, 1984).
(b) Amendment to By-Laws adopted June 11, 1987 (incorporated by
reference to Exhibit 2 (b) on Post-Effective Amendment No. 4 to the
Registration Statement on Form N-1A (File No. 2-92633) filed on April 28,
1988).
(c) Amendment to By-Laws adopted October 19, 1990 (incorporated
by reference to Exhibit 2 (c) on Post-Effective Amendment No. 8 to the
Registration Statement on Form N-1A (File No. 2-92633) filed on January 30,
1991).
(3) Not Applicable.
(4) (a) Specimen Stock Certificate (incorporated by reference to
Exhibit (4a) to the Registration Statement on Form N-1A filed on July 17,
1986).
(b) Articles Supplementary to the charter as filed with the
State of Maryland on July 10, 1986 (incorporated by reference to Exhibit (4b)
to the Registration Statement on Form N-1A filed on July 17, 1986).
(c) Articles Supplementary to the charter as filed with the
State of Maryland on January 23, 1989 (incorporated by reference to Exhibit
4(c) to the Registration Statement on Form N-1A filed on April 28, 1989).
(d) Articles Supplementary to the charter filed with the State
of Maryland on September 25, 1989 (incorporated by reference to Exhibit 4(d)
to Post-Effective Amendment No. 5 to the Registration Statement on Form N-1A
filed October 6, 1989).
(e) Articles supplementary to the charter filed with the State
of Maryland on January 30, 1991 (incorporated by reference to Exhibit 4(e) to
Post-Effective Amendment No. 8 to the Registration Statement on Form N-1A
filed January 30, 1991).
(f) Articles supplementary to the charter filed with the State
of Maryland on April 27, 1992 (incorporated by reference to Exhibit 4(f) to
Post-Effective Amendment No. 10 to the Registration Statement on Form N-1A
filed May 6, 1992).
(g) Articles supplementary to the charter filed with the State
of Maryland on April 29, 1993 (incorporated by reference to Exhibit 4(g) to
Post-Effective Amendment No. 12 to the Registration Statement on Form N-1A
filed May 10, 1993).
(h) Articles supplementary to the charter filed with the State
of Maryland on September 23, 1993 (incorporated by reference to Exhibit 4(h)
to Post-Effective Amendment No. 13 to the Registration Statement on Form N-1A
filed September 30, 1993).
(i) Articles supplementary to the charter filed with the State
of Maryland on December 13, 1995 (incorporated by reference to Exhibit 4(i)
to Post-Effective Amendment No. 20 to the Registration Statement on Form N-1A
filed December 22, 1995).
(5) (a) Investment Advisory Agreement (incorporated by reference to
Exhibit 5(a) to the Registration Statement on Form N-1A filed on July 17,
1986).
(b) Investment Advisory Agreement (incorporated by reference to
Exhibit 5(b) to the Registration Statement on Form N-1A filed on May 10,
1993).
(c) Supplement to Schedule A of the Investment Advisory
Agreement (incorporated by reference to Exhibit 5(c) to the Registration
Statement on Form N-1A filed on September 30, 1993).
(d) Supplement to Schedule A of the Investment Advisory
Agreement (incorporated by reference to Exhibit 5(d) to the Registration
Statement on Form N-1A filed on July 21, 1995).
(e) Supplement to Schedule A of the Investment Advisory
Agreement (incorporated by reference to Exhibit 5(e) to the Registration
Statement on Form N-1A filed on December 22, 1995.
(6) (a) Distribution Agreement (incorporated by reference to Exhibit
6(a) to Post-Effective Amendment No. 8 to the Registration Statement on Form
N-1A filed January 30, 1991).
(b) Distribution Agreement (incorporated by reference to Exhibit
6(b) to Post-Effective Amendment No. 12 to the Registration Statement on Form
N-1A filed May 10, 1993).
(7) Not Applicable.
(8) (a) Custodian Agreement (incorporated by reference to Exhibit 8
to Pre-Effective Amendment No. 3 to the Registration Statement on Form N-1A
filed December 23, 1985).
(b) Custodian Agreement for International Series (incorporated
by reference to Exhibit 8 to Post-Effective Amendment No. 5 to the
Registration Statement on Form N-1A filed October 6, 1989).
(c) Custodian Agreement for all foreign securities held by the
Fund (incorporated by reference to Exhibit 8 to Post-Effective Amendment No.
10 to the Registration Statement on Form N-1A filed on May 6, 1992).
(9) (a) Transfer Agent Agreement (incorporated by reference to
Exhibit 9(a) to Pre-Effective Amendment No. 12 to the Registration Statement
on Form N-1A filed May 10, 1993).
(b) Transfer Agent Agreement (incorporated by reference to
Exhibit 9(b) to Post-Effective Amendment No. 13 to the Registration Statement
on Form N-1A filed September 30, 1993).
(c) Transfer Agent Agreement (incorporated by reference to
Exhibit 9(c) to Post-Effective Amendment No. 17 to the Registration Statement
on Form N-1A filed May 26, 1995).
(d) Transfer Agent Agreement (incorporated by reference to
Exhibit 9(d) to Post-Effective Amendment No. 18 to the Registration Statement
on Form N-1A filed July 21, 1995).
(e) Transfer Agent Agreement (incorporated by reference to
Exhibit 9(e) to Post-Effective Amendment No. 20 to the Registration Statement
on Form N-1A filed December 22, 1995).
(10) Opinion of Morgan, Lewis & Bockius was filed with Registrant's
Rule 24f-2 Notice relating to the fiscal year ending December 31, 1992 on
February 24, 1993. Registrant' intends to file its Rule 24f-2 Notice for its
fiscal year ended December 31, 1993 on or before February 28, 1994. Opinion
of Morgan, Lewis & Bockius was filed with Registrant's Rule 24f-2 Notice
relating to the fiscal year ending December 31, 1994 on February 24, 1995.
(11) Not Applicable.
(12) Not Applicable.
(13) Investment letters (incorporated by reference to Exhibit #13, to
Pre-Effective Amendment No. 3 to the Registration Statement on Form N-1A
filed on December 23, 1985).
(14) Not Applicable
(15) Not Applicable
(16) Schedule for computation of each performance quotation
(incorporated by reference to Exhibit #16, to Pre-Effective Amendment No. 16
to the Registration Statement on Form N-1A filed on April 26, 1995.
ITEM 25.
PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Reference is made to Part B of the Registration Statement, under
the heading "Management".
ITEM 26.
<TABLE>
<CAPTION>
NUMBER OF HOLDERS OF SECURITIES.
As of December 14, 1995:
(1) (2)
Title of Class Number of record holders
<C> <S> <C>
Class A 1,578
Class B 4
Class D 1,326
Class E 3
Class G 1,359
Class H 2
Class K 270
Class L 447
Class M 20
Class N 16
Class O 23
Class P 272
Class Q 65
Class R 122
</TABLE>
ITEM 27.
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 11330.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers and controlling
persons of Registrant pursuant to the foregoing provisions, or otherwise,
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in that
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Registrant
of expenses incurred or paid by a trustee, officer or controlling persons of
Registrant in the successful defense of any action, suit or proceeding)
asserted by such trustee, officer or controlling person in connection with the
securities being registered, 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.
The Directors and Officers of the Registrant are covered parties
under a Directors & Officers/Errors & Omissions insurance policy with Gulf
Insurance Company. The effect of such insurance is to insure against
liability for any act, error, omission, misstatement, misleading statement,
neglect or breach of duty by the insureds as directors and/or officers of the
Registrant.
ITEM 28.
BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR.
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 as filed under the Investment Advisers Act of 1940
by Manning & Napier Advisors, Inc.
ITEM 29.
<TABLE>
<CAPTION>
PRINCIPAL UNDERWRITERS.
(a) Not Applicable
(b) Manning & Napier Investor Services, Inc. is the Distributor for the
Registrant's shares.
Name & Principal Positions & Offices Positions & Offices
Business Address with Distributor with Registrant
- ------------------- -------------------- -------------------
<S> <C> <C>
B. Reuben Auspitz President & Director Director & Vice
1100 Chase Square President
Rochester, NY 14604
Julie Raschella Director N/A
1100 Chase Square
Rochester, NY 14604
Beth A. Hendershot Treasurer N/A
1100 Chase Square
Rochester, NY 14604
Barbara A. Lapple Corporate Secretary Corporate Secretary
1100 Chase Square
Rochester, NY 14604
George Nobiliski Director N/A
1100 Chase Square
Rochester, NY 14604
</TABLE>
(c) The Distributor does not receive any commissions or other form of
compensation for its distribution services to the Registrant.
Item 30.
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 Registrant except for the records required by Rule 31a-1(b)
(2)(a) and (b), which are in the possession of the Custodian.
Item 31.
Management Services.
Not Applicable.
Item 32.
Undertakings.
If requested to do so by the holders of at least 10% of the
registrant's outstanding shares, to call a meeting of shareholders for
the purpose of voting upon the question of removal of a director or
directors and to assist in communications with shareholders as required
by Section 16(c).
Also, to file within four to six months from the effective date
of this registration statement or commencement of operations, if later,
a post-effective amendment using financial statements which need not be
certified.
<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. 20 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 22nd day of
December, 1995.
Manning & Napier Fund, Inc.
(Registrant)
By:/s/William Manning
- ----------------------------
William Manning
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 20 to the Registration Statement has been signed
below by the following persons in the capacities and on the date indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
- ----------------------- --------------------- --------
/s/William Manning Principal Executive 12/22/95
- ----------------------- --------
William Manning Officer
/s/B. Reuben Auspitz Director and Officer 12/22/95
- ----------------------- --------
B. Reuben Auspitz
/s/Martin F. Birmingham Director 12/22/95
- ----------------------- --------
Martin F. Birmingham
/s/Harris H. Rusitzky Director 12/22/95
- ----------------------- --------
Harris H. Rusitzky
/s/Peter L. Faber Director 12/22/95
- ----------------------- --------
Peter L. Faber
/s/Timothy P. Mullaney Chief Financial 12/22/95
- ----------------------- --------
Timothy P. Mullaney & Accounting Officer,
Treasurer
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibits No.
(1) (i) Articles of Incorporation (incorporated by reference to Exhibit
(1)(i) to the Registration Statement on Form N-1A (File No. 2-92633) filed
on August 7, 1984).
(ii) Articles of Amendment (incorporated by reference to Exhibit
(1)(ii) to Pre-Effective Amendment No. 2 to the Registration Statement on
Form N-1A filed on June 10, 1985).
(iii) Articles of Amendment (incorporated by reference to Exhibit
(1)(iii) to Pre-Effective Amendment No. 3 to the Registration Statement on
Form N-1A filed on December 23, 1985).
(iv) Articles of Amendment (incorporated by reference to Exhibit
(1)(iv) to the Registration Statement on Form N-1A filed on July 17, 1986).
(2) (a) By-Laws (incorporated by reference to Exhibit (2) to the
Registration Statement on Form N-1A filed on August 7, 1984).
(b) Amendment to By-Laws adopted June 11, 1987 (incorporated by
reference to Exhibit 2 (b) on Post-Effective Amendment No. 4 to the
Registration Statement on Form N-1A (File No. 2-92633) filed on April 28,
1988).
(c) Amendment to By-Laws adopted October 19, 1990 (incorporated by
reference to Exhibit 2 (c) on Post -Effective Amendment No. 8 to the
Registration Statement on Form N-1A (File No. 2-92633) filed on January 30,
1991).
(3) Not Applicable.
(4) (a) Specimen Stock Certificate (incorporated by reference to Exhibit
4(a) to the Registration Statement on Form N-1A filed on July 17, 1986).
(b) Articles Supplementary to the charter as filed with the State of
Maryland on July 10, 1986 (incorporated by reference to Exhibit 4(b) to the
Registration Statement on Form N-1A filed on July 17, 1986).
(c) Articles Supplementary to the charter as filed with the State of
Maryland on January 23, 1989 (incorporated by reference to Exhibit 4(c) to
the Registration Statement on Form N-1A filed on April 28, 1989).
(d) Articles Supplementary to the charter filed with the State of
Maryland on September 25, 1989 (incorporated by reference to Exhibit 4(d) to
Post-Effective Amendment No. 5 to the Registration Statement on Form N-1A
filed October 6, 1989).
(e) Articles supplementary to the charter filed with the State of
Maryland on January 30, 1991 (incorporated by reference to Exhibit 4(e) to
the Registration Statement on Form N-1A filed on January 30, 1991).
(f) Articles supplementary to the charter filed with the State of
Maryland on April 27, 1992 (incorporated by reference to Exhibit 4(f) to
Post-Effective Amendment No. 10 to the Registration Statement on Form N-1A
filed May 6, 1992).
(g) Articles supplementary to the charter filed with the State of
Maryland on April 29, 1993 (incorporated by reference to Exhibit 4(g) to
Post-Effective Amendment No. 12 to the Registration Statement on Form N-1A
filed May 10, 1993).
(h) Articles supplementary to the charter filed with the State of
Maryland on September 23, 1993 (incorporated by reference to Exhibit 4(h) to
Post-Effective Amendment No. 13 to the Registration Statement on Form N-1A
filed on September 30, 1993).
(i) Articles supplementary to the charter filed with the State of
Maryland on December 13, 1995 (incorporated by reference to Exhibit 4(i) to
Post-Effective Amendment No. 20 to the Registration Statement on Form N-1A
filed on December 22, 1995.
(5) (a) Investment Advisory Agreement (incorporated by reference to
Exhibit 5(a) to the Registration Statement on Form N-1A filed on July 17,
1986).
(b) Investment Advisory Agreement (incorporated by reference to
Exhibit 5(b) to the Registration Statement on Form N-1A filed on May 10,
1993).
(c) Supplement to Schedule A of the Investment Advisory Agreement
(incorporated by reference to Exhibit 5(c) to the Registration Statement on
Form N-1A filed on September 30, 1993).
(d) Supplement to Schedule A of the Investment Advisory Agreement
(incorporated by reference to Exhibit 5(d) to the Registration Statement on
Form N-1A filed on July 21, 1995).
(e) Supplement to Schedule A of the Investment Advisory Agrement
(incorporated by reference to Exhibit 5(e) to the Registration Statement on
Form N-1A filed on December 22, 1995.
(6) (a) Distribution Agreement (incorporated by reference to Exhibit 6(a)
to the Registration Statement on Form N-1A filed on January 30, 1991).
(b) Distribution Agreement (incorporated by reference to Exhibit 6(b)
to the Registration Statement on Form N-1A filed on May 10, 1993).
(7) Not Applicable.
(8) (a) Custodian Agreement (incorporated by reference to Exhibit 8 to
Pre-Effective Amendment No. 3 to the Registration Statement on Form N-1A
filed December 23, 1985).
(b) Custodian Agreement for International Series (incorporated by
reference to Exhibit 8 to Post-Effective Amendment No. 5 to the Registration
Statement on Form N-1A filed October 6, 1989).
(c) Custodian Agreement for all foreign securities held by the Fund
(incorporated by reference to Exhibit 8 to Post-Effective Amendment No. 10 to
the Registration Statement on Form N-1A filed on May 6, 1992).
(9) (a) Transfer Agent Agreement (incorporated by reference to Exhibit
9(a) to Pre-Effective Amendment No. 12 to the Registration Statement on
Form N-1A filed May 10, 1993).
(b) Supplement to the Schedule A and B of the Transfer Agent
Agreement (incorporated by reference to Exhibit 9(b) to Pre-Effective
Amendment No. 13 to the Registration Statement on Form N-1A filed September
30, 1993).
(c) Supplement to the Schedule A and B of the Transfer Agent
Agreement (incorporated by reference to Exhibit 9(c) to Pre-Effective
Amendment No. 17 to the Registration Statement on Form N-1A filed May 26,
1995).
(d) Supplement to the Schedule A and B of the Transfer Agent
Agreement (incorporated by reference to Exhibit 9(d) to Pre-Effective
Amendment No. 18 to the Registration Statement on Form N-1A filed July 21,
1995).
(e) Supplement to the Schedule A and B of the Transfer Agent
Agreement (incorporated by reference to Exhibit 9(e) to Post-Effective
Amendment No. 20 to the Registration Statement on Form N-1A filed December
22, 1995).
(10) Opinion of Morgan, Lewis & Bockius was filed with Registrant's Rule
24f-2 Notice relating to the fiscal year ending December 31, 1992 on
February 24, 1993. Registrant' intends to file its Rule 24f-2 Notice for
its fiscal year ended December 31, 1993 on or before February 28, 1994.
Registrant' filed its Rule 24f-2 Notice relating to the fiscal year
ending December 31, 1994 on February 25, 1995.
(11) Not Applicable.
(12) Not Applicable.
(13) Investment letters (incorporated by reference to Exhibit #13, to
Pre-Effective Amendment No. 3 to the Registration Statement on Form N-1A
filed on December 23, 1985).
(14) Not Applicable.
(15) Not Applicable.
(16) Schedule for computation of each performance quotation (incorporated
by reference to Exhibit #16, to Pre-Effective Amendment No. 16 to the
Registration Statement on Form N-1A filed on April 26, 1995).
<PAGE>
MANNING & NAPIER FUND, INC.
ARTICLES SUPPLEMENTARY TO THE CHARTER
Manning & Napier Fund, Inc., a Maryland corporation having its principal
office in Baltimore City, Maryland (hereinafter called the Corporation),
hereby certifies to the State Department of Assessments and Taxation of
Maryland that:
FIRST: The Board of Directors of the Corporation, at a meeting duly
convened and held on December 13, 1995, adopted resolutions classifying: Fifty
million (50,000,000) of the unissued shares of the common stock of the
Corporation, par value $.01 per share, with an aggregate par value of Five
Hundred Thousand Dollars ($500,000) as Class U Common Stock, by setting before
the issuance of such shares, the preferences, rights, voting powers,
restrictions, limitations as to dividends, qualification or terms of
redemption of, and the conversion or other rights, thereof as hereinafter set
forth.
SECOND: A description of the shares so classified with the preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption as set or
changed by the Board of Directors of the Corporation is as follows:
A description, preference, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption of each class of common stock of the Corporation are
set forth in Article Fifth of the Corporation's Articles of Incorporation, as
amended, and have not been changed by the Board of Directors of the
Corporation.
THIRD: The shares aforesaid have been duly classified by the Board of
Directors pursuant to authority and power contained in the charter of the
Corporation.
IN WITNESS WHEREOF, Manning & Napier Fund, Inc. has caused these presents
to be signed in its name and on its behalf by its Vice President and attested
by its Secretary on December 13, 1995.
Manning & Napier Fund, Inc.
By:/s/B. Reuben Auspitz
B. Reuben Auspitz, Vice President
Attest:
/s/Barbara Lapple
Barbara Lapple, Secretary
THE UNDERSIGNED, Vice President of Manning & Napier Fund, Inc., who
executed on behalf of said Corporation the foregoing Articles Supplementary to
the Charter, of which this certificate is made a part, hereby acknowledges, in
the name and on behalf of said corporation, and further certifies that, to the
best of his knowledge, information and belief, the matters and facts set forth
therein with respect to the approval thereof are true in all material
respects, under the penalties of perjury.
/s/B. Reuben Auspitz
B. Reuben Auspitz
<PAGE>
MANNING & NAPIER FUND, INC.
FORM OF
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT
SCHEDULE A
World Opportunities Series
SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT (the "Agreement") dated as of
April 30, 1993 between Manning & Napier Fund, Inc. (the "Fund") and Manning &
Napier Advisors, Inc. (the "Advisor").
RECITALS
The Fund has executed and delivered the Investment Advisory Agreement
dated as of April 30, 1993 (the "Agreement"), between the Fund and the
Advisor. The Agreement sets forth the rights and obligation of the parties
with respect to the management of the Series of the Fund. The Fund has
created one additional Series: World Opportunities Series (the "Additional
Series").
AGREEMENTS
Now, therefore, the parties agree as follows:
The percentage rate in Schedule A of the Agreement with respect to the
Additional Series will be as set forth below:
SERIES PERCENTAGE
World Opportunities Series 1.00%
The parties below have executed this Agreement as of December 13, 1995.
MANNING & NAPIER FUND, INC.
/s/William Manning
William Manning, President
MANNING & NAPIER ADVISORS, INC.
/s/B. Reuben Auspitz
B. Reuben Auspitz, Executive V.P.
<PAGE>
MANNING & NAPIER FUND, INC.
FORM OF
SUPPLEMENT TO TRANSFER AGENT AGREEMENT
SCHEDULE A
DATED 12-13-95
World Opportunities Series
SUPPLEMENT TO TRANSFER AGENT AGREEMENT (the "Agreement") dated as of
April 30, 1993 between Manning & Napier Fund, Inc. (the "Fund") and Manning &
Napier Advisors, Inc. (the "Advisor").
RECITALS
The Fund has executed and delivered the Investment Advisory Agreement
dated as of April 30, 1993 (the "Agreement"), between the Fund and the
Transfer Agent. The Agreement sets forth the rights and obligation of the
parties with respect to the transfer agency functions of the Series of the
Fund. The Fund has created the World Opportunities Series (the "Additional
Series").
AGREEMENTS
Now, therefore, the parties agree as follows:
The following will be subject to the terms and conditions of the
Agreement:
World Opportunities Series
The parties below have executed this Agreement as of December 13, 1995.
MANNING & NAPIER FUND, INC.
/s/William Manning
William Manning, President
MANNING & NAPIER ADVISORS, INC.
/s/B. Reuben Auspitz
B. Reuben Auspitz, Executive V.P.
MANNING & NAPIER FUND, INC.
FORM OF
SUPPLEMENT TO TRANSFER AGENT AGREEMENT
SCHEDULE B
DATED 12-13-95
World Opportunities Series
SUPPLEMENT TO TRANSFER AGENT AGREEMENT (the "Agreement") dated as of
April 30, 1993 between Manning & Napier Fund, Inc. (the "Fund") and Manning &
Napier Advisors, Inc. (the "Advisor").
RECITALS
The Fund has executed and delivered the Investment Advisory Agreement
dated as of April 30, 1993 (the "Agreement"), between the Fund and the
Transfer Agent. The Agreement sets forth the rights and obligation of the
parties with respect to the transfer agency functions of the Series of the
Fund. The Fund has created the World Opportunities Series (the "Additional
Series").
AGREEMENTS
Now, therefore, the parties agree as follows:
The percentage rate in Schedule B of the Agreement with respect to the
Additional series is set forth below:
SERIES PERCENTAGE
World Opportunities Series .024%
The parties below have executed this Agreement as of December 13, 1995.
MANNING & NAPIER FUND, INC.
/s/William Manning
William Manning, President
MANNING & NAPIER ADVISORS, INC.
/s/B. Reuben Auspitz
B. Reuben Auspitz, Executive V.P.
