<PAGE>
MANNING & NAPIER FUND
DEFENSIVE SERIES
BLENDED ASSET SERIES I
BLENDED ASSET SERIES II
MAXIMUM HORIZON SERIES
PROSPECTUS
NOVEMBER 14, 1997
<PAGE>
MANNING & NAPIER FUND, INC.
P.O. Box 41118
Rochester, New York 14604
1-800-466-3863
DEFENSIVE SERIES
BLENDED ASSET SERIES I
BLENDED ASSET SERIES II
MAXIMUM HORIZON SERIES
Manning & Napier Fund, Inc. (the "Fund"), is an open-end management
investment company that offers separate series, each a separate investment
portfolio having its own investment objective and policies. This Prospectus
relates to the Class A, B, C, D and E Shares (each a "Class" and collectively,
the "Classes") of the Defensive Series, Blended Asset Series I, Blended Asset
Series II, and the Maximum Horizon Series of the Fund (individually and
collectively, the "Series").
The primary objective of the Defensive Series is preservation of capital
(i.e. to minimize the risk of negative returns), with a secondary objective of
long-term growth. The Advisor will seek to achieve this objective by using a
conservative asset mix as well as conservative investment strategies within
those asset classes. This conservative investment approach which attempts to
protect capital while simultaneously seeking growth opportunities is what is
intended by use of the term "defensive".
The investment objective of the Blended Asset Series I is to seek with equal
emphasis long-term growth and preservation of capital. The Advisor seeks to
reduce the risk of negative returns while seeking to obtain capital growth when
it believes valuations and market conditions are favorable.
The primary objective of the Blended Asset Series II is to provide long-term
growth of capital. The secondary objective is the preservation of capital.
The primary objective of the Maximum Horizon Series is to achieve the high
level of long-term capital growth typically associated with the stock market.
This Prospectus provides you with the basic information you should know
before investing in the Series. The Fund's other series are offered through
separate prospectuses. You should read this Prospectus and keep it for future
reference. A Statement of Additional Information dated April 14, 1997, as
supplemented through November 14, 1997, containing additional information about
the Fund has been filed with the Securities and Exchange Commission and is
incorporated by reference into 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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS NOVEMBER 14, 1997.
<PAGE>
EXPENSES
- ---------
SHAREHOLDER TRANSACTION EXPENSES
(as a percentage of offering price)
<TABLE>
<CAPTION>
All Classes
-----------
<S> <C>
Maximum Sales Charge Imposed on Purchases........................... None
Redemption Fees(1).................................................. None
Exchange Fees(2).................................................... 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."
(2) A shareholder may effect up to four (4) exchanges in a twelve (12) month
period without change. Subsequent exchanges are subject to a fee of $15.
ANNUAL OPERATING EXPENSES - CLASS A SHARES
The following information provides (i) a tabular summary of expenses relating to
the annual operating expenses of the Class A Shares of the Series and (ii) an
example illustrating the dollar cost of such expenses on a $1,000 investment.
ANNUAL OPERATING EXPENSES OF THE CLASS A SHARES OF EACH SERIES
- ---------------------------------------------------------
(AS A PERCENTAGE OF AVERAGE NET ASSETS):
- ------------------------------------
<TABLE>
<CAPTION>
Maximum
Defensive Blended Asset Blended Asset Horizon
Series(1) Series I(1) Series II(1) Series(1)
------------ ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Management Fees After Reduction of Fees(2)..... 0.00% 0.89% 0.98% 0.00%
Rule 12b-1 Fees................................ None None None None
Other Expenses After Expense
Reimbursement(2)............................. 1.00 % 0.31 % 0.22 % 1.20 %
--- --- --- ---
Total Operating Expenses(2).................... 1.00 % 1.20 % 1.20 % 1.20 %
--- --- --- ---
--- --- --- ---
</TABLE>
(1) The Blended Asset Series I and Blended Asset Series II offered only Class A
Shares during the fiscal period ended October 31, 1996; Defensive Series and
Maximum Horizon Series offered only Class A Shares during the year ended
October 31, 1996; therefore, actual management fees and other expenses are
used above.
(2) The Advisor has agreed to waive its management fees and/or reimburse
expenses of the Series, if necessary, if such fees would cause the total
annual operating expenses of the Class A Shares of the Series, as a
percentage of average daily net assets, to exceed the percentages set forth
in the table above. The following sets forth, for Class A Shares of such
Series, (i) management fees absent fee waivers, (ii) other expenses absent
expense reimbursements and (iii) expected total operating expenses absent
fee waivers and/or expense reimbursements.
<TABLE>
<CAPTION>
Defensive Blended Asset Blended Asset Maximum
Class A Shares Series Series I Series II Horizon Series
- ----------------------------------------------- ----------- --------------- --------------- -----------------
<S> <C> <C> <C> <C>
Management Fees............................... 0.80% 1.00% 1.00% 1.00%
Other Expenses................................ 4.61% 0.31% 0.22% 5.62%
Total Operating Expenses...................... 5.41% 1.31% 1.22% 6.62%
</TABLE>
As a result of these reductions, the Management Fees stated above are lower
than contractual fees stated under "Management." The Advisor reserves the
right to terminate any of its fee waivers at any time in its sole
discretion. For further information on expenses, see "Management."
2
<PAGE>
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class A Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
EXAMPLE - CLASS A SHARES
- ---------------------
You would pay the following expenses on a $1,000 investment in Class A Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
----- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Defensive Series $ 10 $ 32 $ 55 $ 122
Blended Asset Series I 12 38 66 145
Blended Asset Series II 12 38 66 145
Maximum Horizon Series 12 38 66 145
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. The Advisor in its
discretion may terminate its voluntary fee waivers and/or reimbursements at any
time. Absent the waiver of fees or reimbursement of expenses, the amounts in the
examples above would be greater.
3
<PAGE>
ANNUAL OPERATING EXPENSES - CLASS B SHARES
The following information provides (i) a tabular summary of expenses relating to
the annual operating expenses of the Class B Shares of the Series and (ii) an
example illustrating the dollar cost of such expenses on a $1,000 investment.
ANNUAL OPERATING EXPENSES OF THE CLASS B SHARES OF EACH SERIES
- ---------------------------------------------------------
(AS A PERCENTAGE OF AVERAGE NET ASSETS):
- ------------------------------------
<TABLE>
<CAPTION>
Defensive Blended Asset Blended Asset Maximum
Series(1) Series I(1) Series II(1) Horizon Series(1)
----------- --------------- --------------- -----------------
<S> <C> <C> <C> <C>
Management Fees After Reduction of Fees(2)..... 0.00% 0.89% 0.98% 0.00%
Rule 12b-1 Fees(3)............................. 1.00% 1.00% 1.00% 1.00%
Other Expenses After Expense
Reimbursement(2)............................. 1.00% 0.31% 0.22% 1.20%
--- --- --- ---
Total Operating Expenses(2).................... 2.00% 2.20% 2.20% 2.20%
--- --- --- ---
--- --- --- ---
</TABLE>
(1) The Blended Asset Series I and Blended Asset Series II offered only Class A
Shares during the fiscal period ended October 31, 1996; Defensive Series and
Maximum Horizon Series offered only Class A Shares during the year ended
October 31, 1996; therefore, the actual management fees and other expenses
of Class A Shares of the Series are used above.
(2) The Advisor has agreed to waive its management fees and/or reimburse
expenses of the Series, if necessary, if such fees would cause the total
annual operating expenses of the Class B Shares of the Series, as a
percentage of average daily net assets, to exceed the percentages set forth
in the table above. The following sets forth, for Class B Shares of such
Series, (i) management fees absent fee waivers, (ii) other expenses absent
expense reimbursements and (iii) expected total operating expenses absent
fee waivers and/or expense reimbursements.
<TABLE>
<CAPTION>
Defensive Blended Asset Blended Asset Maximum
Class B Shares Series Series I Series II Horizon Series
- ----------------------------------------------- ----------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Management Fees............................... 0.80% 1.00% 1.00% 1.00%
Other Expenses................................ 4.61% 0.31% 0.22% 5.62%
Total Operating Expenses...................... 6.41% 2.31% 2.22% 7.62%
</TABLE>
As a result of these reductions, the Management Fees stated above are lower
than contractual fees stated under "Management." The Advisor reserves the
right to terminate any of its fee waivers at any time in its sole
discretion. For further information on expenses, see "Management."
(3) Of the Rule 12b-1 fees for the Class B shares, 0.25% represents shareholder
service fees.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class B Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
Due to the continuous nature of Rule 12b-1 fees, long-term shareholders may pay
more than the equivalent of the maximum front-end sales charges otherwise
permitted by the Conduct Rules of the National Association of Securities
Dealers, Inc. ("NASD").
4
<PAGE>
EXAMPLE - CLASS B SHARES
- ---------------------
You would pay the following expenses on a $1,000 investment in Class B Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
----- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Defensive Series $ 20 $ 63 $ 108 $ 233
Blended Asset Series I 22 69 118 253
Blended Asset Series II 22 69 118 253
Maximum Horizon Series 22 69 118 253
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. The Advisor in its
discretion may terminate its voluntary fee waivers and/or reimbursements at any
time. Absent the waiver of fees or reimbursement of expenses, the amounts in the
examples above would be greater.
5
<PAGE>
ANNUAL OPERATING EXPENSES - CLASS C SHARES
The following information provides (i) a tabular summary of expenses relating to
the annual operating expenses of the Class C Shares of the Series and (ii) an
example illustrating the dollar cost of such expenses on a $1,000 investment.
ANNUAL OPERATING EXPENSES OF THE CLASS C SHARES OF EACH SERIES
- ---------------------------------------------------------
(AS A PERCENTAGE OF AVERAGE NET ASSETS):
- ------------------------------------
<TABLE>
<CAPTION>
Defensive Blended Asset Blended Asset Maximum
Series(1) Series I(1) Series II(1) Horizon Series(1)
----------- --------------- --------------- -----------------
<S> <C> <C> <C> <C>
Management Fees After Reduction of Fees(2)..... 0.00% 0.89% 0.98% 0.00%
Rule 12b-1 Fees(3)............................. 0.75% 0.75% 0.75% 0.75%
Other Expenses After Expense
Reimbursement(2)............................. 1.00% 0.31% 0.22% 1.20%
--- --- --- ---
Total Operating Expenses(2).................... 1.75% 1.95% 1.95% 1.95%
--- --- --- ---
--- --- --- ---
</TABLE>
(1) The Blended Asset Series I and Blended Asset Series II offered only Class A
Shares during the fiscal period ended October 31, 1996; Defensive Series and
Maximum Horizon Series offered only Class A Shares during the year ended
October 31, 1996; therefore, the management fees and other expenses are used
above.
(2) The Advisor has agreed to waive its management fees and/or reimburse
expenses of the Series, if necessary, if such fees would cause the total
annual operating expenses of the Class C Shares of the Series, as a
percentage of average daily net assets, to exceed the percentages set forth
in the table above. The following sets forth, for Class C Shares of such
Series, (i) management fees absent fee waivers, (ii) other expenses absent
expense reimbursements and (iii) expected total operating expenses absent
fee waivers and/or expense reimbursements.
<TABLE>
<CAPTION>
Defensive Blended Asset Blended Asset Maximum Horizon
Class C Shares Series Series I Series II Series
- ----------------------------------------------- ----------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Management Fees............................... 0.80% 1.00% 1.00% 1.00%
Other Expenses................................ 4.61% 0.31% 0.22% 5.62%
Total Operating Expenses...................... 6.16% 2.06% 1.97% 7.37%
</TABLE>
As a result of these reductions, the Management Fees stated above are lower
than contractual fees stated under "Management." The Advisor reserves the
right to terminate any of its fee waivers at any time in its sole
discretion. For further information on expenses, see "Management."
(3) Of the Rule 12b-1 fees for the Class C shares, up to 0.25% represents
shareholder service fees.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class C Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
Due to the continuous nature of Rule 12b-1 fees, long-term shareholders may pay
more than the equivalent of the maximum front-end sales charges otherwise
permitted by the Conduct Rules of the NASD.
6
<PAGE>
EXAMPLE - CLASS C SHARES
- ---------------------
You would pay the following expenses on a $1,000 investment in Class C Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
----- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Defensive Series $ 18 $ 55 $ 95 $ 206
Blended Asset Series I 20 61 105 227
Blended Asset Series II 20 61 105 227
Maximum Horizon Series 20 61 105 227
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. The Advisor in its
discretion may terminate its voluntary fee waivers and/or reimbursements at any
time. Absent the waiver of fees or reimbursement of expenses, the amounts in the
examples above would be greater.
7
<PAGE>
ANNUAL OPERATING EXPENSES - CLASS D SHARES
The following information provides (i) a tabular summary of expenses relating to
the annual operating expenses of the Class D Shares of the Series and (ii) an
example illustrating the dollar cost of such expenses on a $1,000 investment.
ANNUAL OPERATING EXPENSES OF THE CLASS D SHARES OF EACH SERIES
- ---------------------------------------------------------
(AS A PERCENTAGE OF AVERAGE NET ASSETS):
- ------------------------------------
<TABLE>
<CAPTION>
Defensive Blended Asset Blended Asset Maximum
Series(1) Series I(1) Series II(1) Horizon Series(1)
----------- --------------- --------------- -----------------
<S> <C> <C> <C> <C>
Management Fees After Reduction of Fees(2)..... 0.00% 0.89% 0.98% 0.00%
Rule 12b-1 Fees(3)............................. 0.50% 0.50% 0.50% 0.50%
Other Expenses After Expense
Reimbursement(2)............................. 1.00% 0.31% 0.22% 1.20%
--- --- --- ---
Total Operating Expenses(2).................... 1.50% 1.70% 1.70% 1.70%
--- --- --- ---
--- --- --- ---
</TABLE>
(1) The Blended Asset Series I and Blended Asset Series II offered only Class A
Shares during the fiscal period ended October 31, 1996; Defensive Series and
Maximum Horizon Series offered only Class A Shares during the year ended
October 31, 1996; therefore, the actual management fees and other expenses
of Class A Shares of the Series are used above.
(2) The Advisor has agreed to waive its management fees and/or reimburse
expenses of the Series, if necessary, if such fees would cause the total
annual operating expenses of the Class D Shares of the Series, as a
percentage of average daily net assets, to exceed the percentages set forth
in the table above. The following sets forth, for Class D Shares of such
Series, (i) management fees absent fee waivers, (ii) other expenses absent
expense reimbursements and (iii) expected total operating expenses absent
fee waivers and/or expense reimbursements.
<TABLE>
<CAPTION>
Defensive Blended Asset Blended Asset Maximum Horizon
Class D Shares Series Series I Series II Series
- ----------------------------------------------- ----------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Management Fees............................... 0.80% 1.00% 1.00% 1.00%
Other Expenses................................ 4.61% 0.31% 0.22% 5.62%
Total Operating Expenses...................... 5.91% 1.81% 1.72% 7.12%
</TABLE>
As a result of these reductions, the Management Fees stated above are lower
than contractual fees stated under "Management." The Advisor reserves the
right to terminate any of its fee waivers at any time in its sole
discretion. For further information on expenses, see "Management."
(3) Of the Rule 12b-1 fees for the Class D shares, up to 0.25% represents
shareholder service fees.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class D Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
Due to the continuous nature of Rule 12b-1 fees, long-term shareholders may pay
more than the equivalent of the maximum front-end sales charges otherwise
permitted by the Conduct Rules of the NASD.
8
<PAGE>
EXAMPLE - CLASS D SHARES
- ---------------------
You would pay the following expenses on a $1,000 investment in Class D Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
----- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Defensive Series $ 15 $ 47 $ 82 $ 179
Blended Asset Series I 17 54 92 201
Blended Asset Series II 17 54 92 201
Maximum Horizon Series 17 54 92 201
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. The Advisor in its
discretion may terminate its voluntary fee waivers and/or reimbursements at any
time. Absent the waiver of fees or reimbursement of expenses, the amounts in the
examples above would be greater.
9
<PAGE>
ANNUAL OPERATING EXPENSES - CLASS E SHARES
The following information provides (i) a tabular summary of expenses relating to
the annual operating expenses of the Class E Shares of the Series and (ii) an
example illustrating the dollar cost of such expenses on a $1,000 investment.
ANNUAL OPERATING EXPENSES OF THE CLASS E SHARES OF EACH SERIES
- ---------------------------------------------------------
(AS A PERCENTAGE OF AVERAGE NET ASSETS):
- ------------------------------------
<TABLE>
<CAPTION>
Defensive Blended Asset Blended Asset Maximum
Series(1) Series I(1) Series II(1) Horizon Series(1)
----------- --------------- --------------- -----------------
<S> <C> <C> <C> <C>
Management Fees After Reduction of Fees(2)..... 0.00% 0.89% 0.98% 0.00%
Rule 12b-1 Fees(3)............................. 0.25% 0.25% 0.25% 0.25%
Other Expenses After Expense
Reimbursement(2)............................. 1.00% 0.31% 0.22% 1.20%
--- --- --- ---
Total Operating Expenses(2).................... 1.25% 1.45% 1.45% 1.45%
--- --- --- ---
--- --- --- ---
</TABLE>
(1) The Blended Asset Series I and Blended Asset Series II offered only Class A
Shares during the fiscal period ended October 31, 1996; Defensive Series and
Maximum Horizon Series offered only Class A Shares during the year ended
October 31, 1996; therefore, the actual management fees and other expenses
of Class A Shares of the Series are used above.
(2) The Advisor has agreed to waive its management fees and/or reimburse
expenses of the Series, if necessary, if such fees would cause the total
annual operating expenses of the Class E Shares of the Series, as a
percentage of average daily net assets, to exceed the percentages set forth
in the table above. The following sets forth, for Class E Shares of such
Series, (i) management fees absent fee waivers, (ii) other expenses absent
expense reimbursements and (iii) expected total operating expenses absent
fee waivers and/or expense reimbursements.
<TABLE>
<CAPTION>
Defensive Blended Asset Blended Asset Maximum Horizon
Class E Shares Series Series I Series II Series
- ----------------------------------------------- ----------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Management Fees............................... 0.80% 1.00% 1.00% 1.00%
Other Expenses................................ 4.61% 0.31% 0.22% 5.62%
Total Operating Expenses...................... 5.66% 1.56% 1.47% 6.87%
</TABLE>
As a result of these reductions, the Management Fees stated above are lower
than contractual fees stated under "Management." The Advisor reserves the
right to terminate any of its fee waivers at any time in its sole
discretion. For further information on expenses, see "Management."
(3) Of the Rule 12b-1 fees for the Class E Shares, up to 0.25% may represent
shareholder service fees.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class E Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
Due to the continuous nature of Rule 12b-1 fees, long-term shareholders may pay
more than the equivalent of the maximum front-end sales charges otherwise
permitted by the Conduct Rules of the NASD.
10
<PAGE>
EXAMPLE - CLASS E SHARES
- ---------------------
You would pay the following expenses on a $1,000 investment in Class E Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
----- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Defensive Series $ 13 $ 40 $ 69 $ 151
Blended Asset Series I 15 46 79 174
Blended Asset Series II 15 46 79 174
Maximum Horizon Series 15 46 79 174
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. The Advisor in its
discretion may terminate its voluntary fee waivers and/or reimbursements at any
time. Absent the waiver of fees or reimbursement of expenses, the amounts in the
examples above would be greater.
11
<PAGE>
FINANCIAL HIGHLIGHTS
- ---------------------
The following tables provide selected per share data and ratios for the Class A
Shares of the Blended Asset Series I, Blended Asset Series II, Defensive Series
and Maximum Horizon Series (for a share outstanding throughout the period for
the periods shown). The tables, except with respect to the unaudited interim
periods, are part of the Series' financial statements, which are incorporated by
reference into the Fund's Statement of Additional Information. The financial
highlights presented herein for the period ended April 30, 1997 are unaudited.
Deloitte & Touche LLP, the Fund's independent accountants, audited the Fund's
financial highlights for each of the other periods shown. Additional performance
information is contained in the Fund's 1997 Semi-Annual report to Shareholders
and its 1996 Annual Report to Shareholders and each is available upon request
and without charge by calling 1-800-466-3863. Because the Fund's Class B, C, D
and E Shares had not been introduced as of April 30, 1997, no financial
highlights are presented for the Class B, C, D or E Shares of the Series. These
tables should be read in conjunction with the Series' financial statements and
notes thereto.
DEFENSIVE SERIES - CLASS A SHARES
<TABLE>
<CAPTION>
For the Six
Months For the
Ended Year
4/30/97 Ended
(Unaudited) 10/31/96
----------- -----------
<S> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT THE
PERIOD):
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.29 $ 10.00
----------- -----------
Income from investment operations:
Net investment income 0.18 0.35
Net realized and unrealized gain (loss) on investments 0.02 0.14
----------- -----------
Total from investment operations 0.20 0.49
----------- -----------
Less distributions to shareholders:
From net investment income (0.18) (0.20)
From net realized gain on investments (0.07) -
----------- -----------
Total distribution to shareholders (0.25) (0.20)
----------- -----------
NET ASSET VALUE - END OF PERIOD $ 10.24 $ 10.29
----------- -----------
----------- -----------
Total return(1) 2.00% 4.94%
Ratios (to average net assets) / Supplemental Data:
Expenses* 1.00%(2) 1.00%
Net investment income* 4.56%(2) 4.26%
Portfolio turnover 21% 30%
Average commission rate paid $ 0.0514 $ 0.0691
NET ASSETS - END OF PERIOD (000's omitted) $ 1,577 $ 745
----------- -----------
----------- -----------
* The investment advisor did not impose its management fee and paid a portion of the Fund's
expenses. If these expenses had been incurred by the Fund, expenses would have been limited
to that allowed by state securities law and the net investment income per share and the
ratios would have been as follows:
Net investment income $ 0.12 $ 0.23
Ratios (to average net assets):
Expenses 2.50%(2) 2.50%
Net investment income 3.06%(2) 2.76%
</TABLE>
(1) Represents aggregate total return for the period indicated.
(2) Annualized.
12
<PAGE>
BLENDED ASSETS SERIES I - CLASS A SHARES
<TABLE>
<CAPTION>
For the
Period
9/15/93
For the Six (commencement
Months For the Ten For the For the of
Ended Months Year Year operations)
4/30/97 Ended Ended Ended to
(Unaudited) 10/31/96(3) 12/31/95 12/31/94 12/31/93
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING
THROUGHOUT EACH PERIOD):
NET ASSET VALUE - BEGINNING OF PERIOD $ 11.20 $ 10.72 $ 9.72 $ 10.05 $ 10.00
----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income 0.21 0.29 0.34 0.20 0.05
Net realized and unrealized gain
(loss) on investments 0.14 0.31 1.70 (0.28) 0.04
----------- ----------- ----------- ----------- -----------
Total from investment operations 0.35 0.60 2.04 (0.08) 0.09
----------- ----------- ----------- ----------- -----------
Less distributions to shareholders:
From net investment income (0.27) (0.09) (0.34) (0.20) (0.04)
In excess of net investment income - - (0.01) - -
From net realized gain on investments (0.15) (0.03) (0.69) (0.04) -
In excess of net realized gain - - - (0.01) -
----------- ----------- ----------- ----------- -----------
Total distributions to shareholders (0.42) (0.12) (1.04) (0.25) (0.04)
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE - END OF PERIOD $ 11.13 $ 11.20 $ 10.72 $ 9.72 $ 10.05
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Total return(1): 3.56% 5.64% 21.08% (0.80%) 0.93%
Ratios (to average net assets) /
Supplemental Data:
Expenses 1.20%(2)** 1.20%(2)** 1.20%** 1.20%* 1.20%(2)*
Net investment income 3.78%** 3.69%(2)** 3.64%** 3.40%* 2.47%(2)*
Portfolio turnover 16% 85% 72% 45% 1%
Average commission rate paid $ 0.0370 $ 0.0515 $ 0.0689 - -
NET ASSETS - END OF PERIOD
(000's omitted) $ 19,732 $ 17,794 $ 9,518 $ 4,519 $ 475
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
* The investment advisor did not impose its management fee and paid a portion
of the Fund's expenses. If these expenses had been incurred by the Fund,
expenses would have been limited to that allowed by state securities law.
** The investment advisor waived a portion of its management fee. If the full
expenses had been incurred by the Fund in either instance above, the net
investment income per share and the ratios would have been as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Net investment income $ 0.21 $ 0.28 $ 0.31 $ 0.12 $ 0.02
Ratios (to average net assets):
Expenses 1.24%(2) 1.31%(2) 1.53% 2.50% 2.50%(2)
Net investment income 3.74%(2) 3.58%(2) 3.31% 2.10% 1.17%(2)
</TABLE>
(1) Represents aggregate total return for the period indicated.
(2) Annualized.
(3) Effective January 1, 1996, the Series changed its fiscal year end from
December 31 to October 31.
13
<PAGE>
BLENDED ASSET SERIES II - CLASS A SHARES
<TABLE>
<CAPTION>
For the
Period
10/12/93
For the Six (commencement
Months For the For the For the of
Ended Ten Months Year Year operations)
4/30/97 Ended Ended Ended to
(Unaudited) 10/31/96(4) 12/31/95 12/31/94 12/31/93
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING
THROUGHOUT EACH PERIOD):
NET ASSET VALUE - BEGINNING OF PERIOD $ 13.04 $ 11.95 $ 10.12 $ 9.98 $ 10.00
----------- ----------- ----------- ----------- -----------
Income from investment operations:
Net investment income 0.18 0.23 0.24 0.11 0.01
Net realized and unrealized gain
(loss) on investments 0.62 0.96 3.05 0.24 (0.03)
----------- ----------- ----------- ----------- -----------
Total from investment operations 0.80 1.19 3.29 0.35 (0.02)
----------- ----------- ----------- ----------- -----------
Less distributions to shareholders:
From net investment income (0.25) (0.04) (0.24) (0.12) (0.00)(3)
From net realized gain on investments (0.41) (0.06) (1.22) (0.09) -
----------- ----------- ----------- ----------- -----------
Total distributions to shareholders (0.66) (0.10) (1.46) (0.21) (0.00)
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE - END OF PERIOD $ 13.18 $ 13.04 $ 11.95 $ 10.12 $ 9.98
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Total return(1) 6.27% 10.01% 32.64% 3.52% (0.18%)
Ratios (to average net assets) /
Supplemental Data:
Expenses 1.15%(2) 1.20%(2)** 1.20%** 1.20%* 1.20%(2)*
Net investment income 2.84%(2) 2.51%(2)** 2.53%** 2.12%* 1.94%(2)*
Portfolio turnover 26% 57% 63% 19% 0%
Average commission rate paid $ 0.0510 $ 0.0524 $ 0.0635 - -
NET ASSETS - END OF PERIOD (000's
omitted) $ 40,747 $ 32,999 $ 20,519 $ 7,214 $ 475
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
* The investment advisor did not impose its management fee and paid a portion of the Fund's expenses. If these expenses had
been incurred by the Fund for the period ended December 31, 1993, expenses would have been limited to that allowed by state
securities law.
** The investment advisor waived a portion of its management fee. If the full expenses had been incurred by the Fund in
either instance above, the net investment income per share and the ratios would have been as follows:
Net investment income N/A $ 0.23 $ 0.23 $ 0.05 $ 0.01
Ratios (to average net assets):
Expenses N/A 1.22%(2) 1.33% 2.31% 2.50%(2)
Net investment income N/A 2.49%(2) 2.40% 1.01% 0.64%(2)
</TABLE>
(1) Represents aggregate total return for the period indicated.
(2) Annualized.
(3) Distribution from net investment income amounted to $0.0017 per share.
(4) Effective January 1, 1996, the Series changed its fiscal year end from
December 31 to October 31.
14
<PAGE>
MAXIMUM HORIZON SERIES - CLASS A SHARES
<TABLE>
<CAPTION>
For the Six
Months For the
Ended Year
4/30/97 Ended
(Unaudited) 10/31/96
----------- -----------
<S> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD):
NET ASSET VALUE - BEGINNING OF PERIOD $ 11.38 $ 10.00
----------- -----------
Income from investment operations:
Net investment income 0.07 0.15
Net realized and unrealized gain (loss) on investments 0.98 1.36
----------- -----------
Total from investment operations 1.05 1.51
----------- -----------
Less distributions to shareholders:
From net investment income (0.04) (0.13)
From net realized gains (0.08) -
----------- -----------
Total distributions to shareholders (0.12) -
----------- -----------
NET ASSET VALUE - END OF PERIOD $ 12.31 $ 11.38
----------- -----------
----------- -----------
Total return(1) 9.28% 15.21%
Ratios (to average net assets) / Supplemental Data:
Expenses 1.20%(2)** 1.20%*
Net investment income 1.58%(2)** 1.71%*
Portfolio turnover 41% 95%
Average commission rate paid $ 0.0502 $ 0.0655
NET ASSETS - END OF PERIOD (000's omitted) $ 5,168 $ 1,574
----------- -----------
----------- -----------
* The investment advisor did not impose its management fee and paid a portion of the Fund's expenses. If these
expenses had been incurred by the Fund, expenses would have been limited to that allowed by state securities
law.
** The investment advisor waived a portion of it management fee. If the full expenses had been incurred in
either instance above, the net investment income per share and the ratios would have been as follows:
Net investment income $ 0.04 $ 0.04
Ratios (to average net assets):
Expenses 1.82%(2) 2.50%
Net investment income 0.96%(2) 0.41%
</TABLE>
(1) Represents aggregate total return for the period indicated.
(2) Annualized.
15
<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 Fund offers separate series
of units of beneficial interest ("shares"). This Prospectus relates to the
Defensive Series, Blended Asset Series I, Blended Asset Series II, and the
Maximum Horizon Series, each of which is offered through five separate classes
of shares, Class A, B, C, D and E Shares, respectively. Class A Shares of each
Series are offered to investors who purchase their shares directly from Manning
& Napier Investor Services, Inc. (the "Distributor"). Class B, C, D and E Shares
are offered only through financial intermediaries which provide to the Fund and
its shareholders varying levels of distribution and shareholder services as
described under "Distribution of Fund Shares" below. Information regarding the
Fund'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. The Defensive Series, Blended Asset Series I, Blended
Asset Series II, and Maximum Horizon Series are diversified funds.
RISK AND INVESTMENT OBJECTIVES AND POLICIES
- ---------------------------------------
DEFENSIVE SERIES
The primary objective of the Defensive Series is preservation of capital
(i.e. to minimize the risk of negative returns), with a secondary objective of
long-term growth. The Advisor will seek to achieve this objective by using a
conservative asset mix as well as conservative investment strategies within
those asset classes. This conservative investment approach which attempts to
protect capital while simultaneously seeking growth opportunities is what is
intended by use of the term "defensive". From time to time, the Advisor will
vary the proportions invested in common stocks, income-producing securities
(e.g., debt securities and preferred stock) or cash (including foreign currency)
and cash equivalents depending on its view of their relative attractiveness in
light of market and economic conditions. Because the Defensive Series'
investments fluctuate in value, the Series' shares will fluctuate in value. In
pursuit of its primary objective, the Defensive Series will, under normal
circumstances, invest a substantial portion of its assets in certain debt
securities, preferred stocks or common stocks whose principal characteristic is
income production rather than growth. Such securities afford less opportunity
for growth than traditional common stocks but they entail less risk of loss and
may also offer some opportunity for growth of capital as well as for income and
relative stability. There is no assurance that the Defensive Series will attain
its objective.
The Series' investment objective is not fundamental and may be changed by
the Board of Directors without shareholder approval; however, it is the Board of
Directors' policy to notify shareholders prior to any material change in a
Series' objective.
BLENDED ASSET SERIES I
The investment objective of the Blended Asset Series I is to seek with equal
emphasis long-term growth and preservation of capital. From time to time, the
Advisor will vary the proportions invested in common stocks, income-producing
securities (e.g., debt securities and preferred stock) or cash (including
foreign currency) and cash equivalents depending on its view of their relative
attractiveness in light of market and economic conditions. Because the Blended
Asset Series I's investments fluctuate in value, the Blended Assets Series I
shares will fluctuate in value. The Advisor seeks to reduce the risk of negative
returns while seeking to obtain capital growth when it believes valuations and
market conditions are favorable. In this process the Advisor will work to try to
dampen the year-to-year swings in the market value in order to generate a more
stable rate of growth for this portfolio relative to an investment in the
general stock market. There is no assurance that the Blended Asset Series I will
attain its objective.
The Series' investment objective is not fundamental and may be changed by
the Board of Directors without shareholder approval; however, it is the Board of
Directors' policy to notify shareholders prior to any material change in a
Series' objective.
16
<PAGE>
BLENDED ASSET SERIES II
The primary objective of the Blended Asset Series II is to provide long-term
growth of capital. The secondary objective of the Blended Asset Series II is the
preservation of capital. From time to time, the Advisor will vary the
proportions invested in common stocks, income-producing securities (e.g., debt
securities and preferred stock) or cash (including foreign currency) and cash
equivalents depending on its view of their relative attractiveness in light of
market and economic conditions. Because the Blended Asset Series II's
investments fluctuate in value, the Blended Asset Series II shares will
fluctuate in value. In pursuit of its primary objective, the Blended Asset
Series II will often invest more than 50% in common stocks, and securities
convertible into common stocks, of companies the Advisor believes have long-term
growth potential. However, in light of the secondary objective of the Blended
Asset Series II, it may, even under normal circumstances, invest a substantial
portion of its assets in certain debt securities, preferred stocks or common
stocks whose principal characteristic is income production rather than growth.
Such securities afford less opportunity for growth than common stocks but they
entail less risk of loss and may also offer some opportunity for growth of
capital as well as for income and relative stability. There is no assurance that
the Blended Asset Series II will attain its objective.
The Series' investment objective is not fundamental and may be changed by
the Board of Directors without shareholder approval; however, it is the Board of
Directors' policy to notify shareholders prior to any material change in a
Series' objective.
MAXIMUM HORIZON SERIES
The primary objective of Maximum Horizon Series is to achieve the high level
of long-term capital growth typically associated with the stock market. The
Advisor will normally concentrate the investments of the Series in common
stocks, but may also utilize income-producing securities (e.g., debt securities
and preferred stock) or cash (including foreign currency) and cash equivalents
depending on its view of their relative attractiveness in light of market and
economic conditions. Because the Maximum Horizon Series' investments fluctuate
in value, the shares of the Series will also fluctuate in value. There is no
assurance that the Maximum Horizon Series will attain its objective.
The Series' investment objective is not fundamental and may be changed by
the Board of Directors without shareholder approval; however, it is the Board of
Directors' policy to notify shareholders prior to any material change in a
Series' objective.
GENERAL
In pursuit of their investment objectives, the Series may invest in a wide
variety of equity and debt securities. Equity securities consist of common
stocks, securities convertible thereto, and warrants. None of the Series intends
to invest more than 5% of the value of its total net assets in warrants. The
principal factor in selecting convertible bonds will be the potential to benefit
from movement in the stock price. There will be no minimum rating standards for
the debt aspects of such securities. Convertible bonds purchased by a Series may
be subject to the risk of being called by the issuer.
The debt securities in which each Series may invest consist of corporate
debt securities, mortgage-backed securities and obligations issued or guaranteed
as to payment of principal and interest by the U.S. Government or its agencies
or instrumentalities. Each 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
corporate 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
"Risk and Additional Information about Investment Policies - High Yield Debt
Securities".
For temporary defensive purposes during periods when the Advisor determines
that market conditions warrant, each 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
17
<PAGE>
or savings and loan associations deemed creditworthy by the Advisor, commercial
paper rated A-1 by S&P or P-1 by Moody's, repurchase agreements involving such
securities and shares of other investment companies as permitted by applicable
law) and may hold a portion of its assets in cash. For a description of the
above ratings, see the Appendix and the Statement of Additional Information.
In addition, each of the Series may, to varying degrees, use certain
techniques and strategies discussed below under "Risk and Additional Information
about Investment Policies".
RISK AND ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
- ---------------------------------------------------
Set forth below is further information about certain types of securities in
which the Series may invest, as well as information about additional types of
investments and certain strategies the Series may pursue. Unless otherwise
noted, these policies have been voluntarily adopted by the Board of Directors
based upon current circumstances and may be changed or amended by action of the
Board of Directors without prior approval of the Series' shareholders.
Additional information concerning these strategies and their related risks is
contained in the Statement of Additional Information.
FOREIGN SECURITIES
Each Series may invest up to 25% of its assets in foreign securities which
are not publicly traded in the United States. Each Series will invest no more
than 25% of its assets in securities issued by any one foreign government. Each
Series may invest without limit in equity securities of foreign issuers that are
listed on a domestic securities exchange or are represented by American
Depository Receipts that are listed on a domestic securities exchange or are
traded in the United States on the over-the-counter market. Each Series'
restrictions on investment in foreign securities are fundamental policies that
cannot be changed without the approval of a majority, as defined in the
Investment Company Act of 1940 (the "1940 Act"), of the outstanding voting
securities of the Series.
With respect to the bond investments within each portfolio, each Series
generally emphasizes investments in U.S. Government securities and companies
domiciled in the United States; however, it may invest up to 25% of its assets
in foreign securities of the same types and quality as the domestic securities
in which the Series may invest when the anticipated performance of foreign
securities is believed by the Advisor to offer more potential than domestic
alternatives in keeping with the investment objective of the Series. Foreign
securities may be denominated either in U.S. dollars or foreign currencies.
There are risks in investing in foreign securities not typically involved in
domestic investing. An investment in foreign securities may be affected by
changes in currency rates and in exchange control regulations. Foreign companies
are frequently not subject to the accounting and financial reporting standards
applicable to domestic companies, and there may be less information available
about foreign issuers. There is frequently less government regulation of foreign
issuers than in the United States. In addition, investments in foreign countries
are subject to the possibility of expropriation or confiscatory taxation,
political or social instability or diplomatic developments that could adversely
affect the value of those investments. There may also be imposition of
withholding taxes. Foreign financial markets may have less volume and longer
settlement periods than U.S. markets which may cause liquidity problems for a
Series. In addition, costs associated with transactions on foreign markets are
generally higher than for transactions in the U.S.
Obligations of foreign governmental entities are subject to various types of
governmental support and may or may not be supported by the full faith and
credit of a foreign government.
REPURCHASE AGREEMENTS
Each Series may enter into repurchase agreements with respect to portfolio
securities. Under the terms of a repurchase agreement, the Series purchases
securities ("collateral") from various financial institutions such as banks and
broker-dealers (the "seller") which the Advisor deems to be creditworthy,
subject to the seller's agreement to repurchase them at a mutually
18
<PAGE>
agreed-upon date and price. The repurchase price generally equals the price paid
by the Series plus interest negotiated on the basis of current short-term rates
(which may be more or less than the rate on the underlying portfolio
securities).
The seller under a repurchase agreement is required to maintain the value of
the collateral held pursuant to the agreement at not less than 100% of the
repurchase price, and securities subject to repurchase agreements are held by
the Series' Custodian either directly or through a securities depository.
Default by the seller would, however, expose the Series to possible loss because
of adverse market action or delay in connection with the disposition of the
underlying securities. Repurchase agreements are considered to be loans by the
Series under the 1940 Act.
SECURITIES LENDING
Each 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 determines to make securities loans, the value of the securities loaned
would not exceed 30% of the value of the total assets of the Series.
U.S. GOVERNMENT SECURITIES
Each 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 (e.g., the Government National Mortgage
Association) are backed by the full faith and credit of the U.S. Government or
are supported by the agencies' right to borrow from the U.S. Treasury. The
issues of other agencies (e.g., Fannie Mae) are supported only by the credit of
the agency.
SHORT SALES
Each 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 a Series owns securities equivalent to those sold short. No more than
25% of the net assets (taken at current value) of a Series may be held as
collateral for such sales at any one time. Such short sales can be used as a
hedge.
FORWARD COMMITMENTS OR PURCHASES ON A WHEN-ISSUED BASIS
Each 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. Each Series will enter into these arrangements with the
intention of acquiring the securities in question and not for speculative
purposes and will maintain a segregated account with its custodian consisting of
liquid assets in an amount at least equal to the purchase price.
INTEREST RATE RISK
The value of the fixed income securities held by the Series will vary
inversely to changes in prevailing interest rates. Thus, if interest rates have
increased from the time a security was purchased, such security, if sold, might
be sold at a price less than its cost. Similarly, if interest rates have
declined from the time a security was purchased, such security, if sold, might
be sold at a price greater than its purchase cost. In either instance, if the
security was purchased at face value and held to maturity, no gain or loss would
be realized.
19
<PAGE>
MORTGAGE-BACKED SECURITIES
Each 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"), Fannie Mae, 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"). Each Series may purchase CMOs 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' value, which is 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. Because the prepayment
characteristics of the underlying mortgages vary, it is not possible to predict
accurately the average life or realized yield of a particular issue of
pass-through certificates. 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 reflect interest rates
prevailing at the time. Moreover, prepayment of mortgages which underlie
securities purchased at a premium could result in capital losses.
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 they are difficult to price at times because they are more thinly
traded and less liquid securities. Market prices may decline significantly in
periods of general economic difficulty which may follow periods of rising
interest rates. Securities in the lowest rating category may be in default. For
these reasons, it is the 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 own independent and ongoing review of credit
quality. In the event a security is downgraded below these ratings after
purchase, the Advisor will review and take appropriate action with regard to the
security. Each Series will also seek to minimize risk by diversifying its
holdings.
ZERO-COUPON BONDS
Some of the securities in which the Series invest may include so-called
"zero-coupon" bonds. Zero-coupon bonds are issued at a significant discount from
face value and pay interest only at maturity rather than at intervals during the
life of the security. Each Series is required to accrue and distribute income
from zero-coupon bonds on a current basis, even though it does not receive that
income currently in cash. Thus, the Series may have to sell investments to
obtain cash needed to make income distributions. The discount in the absence of
financial difficulties of the issuer decreases as the final maturity of the
security approaches. Zero-coupon bonds can be sold prior to their maturity date
in the secondary market at the then prevailing market value, which depends
primarily on the time remaining to maturity, prevailing level of interest rates
and the perceived credit quality of the issues. The market prices of zero-coupon
securities are subject to greater fluctuations in response to changes in market
interest rates than bonds which pay interest currently.
20
<PAGE>
VARIABLE AND FLOATING RATE INSTRUMENTS
Certain of the obligations purchased by a 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
at some other interval, and it may have a floor or ceiling rate. There is a risk
that the current interest rate on such obligations may not accurately reflect
existing market interest rates.
HEDGING TECHNIQUES
Each 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' portfolios, i.e. to reduce the overall level of risk that
normally would be expected to be associated with their investments. Each 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. Each Series also may purchase forward foreign currency
exchange contracts to hedge currency exchange rate risk. In addition, each
Series is authorized to purchase and sell stock index futures contracts and
options on stock index futures contracts. Each 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. Each 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. Each 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 Fund 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 for which the option
is "in the money".
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
give the purchaser the right, in return for the premium paid, to assume a long
or short position in a futures contract.
FUTURES CONTRACTS
Each 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. None of
the Series may purchase or sell futures contracts if immediately thereafter the
sum of the amount of initial
21
<PAGE>
margin deposits on any such futures (plus deposits on any other futures
contracts and premiums paid in connection with any options or futures contracts)
that do not constitute "bona fide hedging" under the Commodity Futures Trading
Commission ("CFTC") rules would exceed 5% of the liquidation value of a 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 futures contracts and will set aside cash and/or
high grade liquid securities in a segregated account with its custodian in the
amount prescribed.
A Series' successful use of futures contracts depends on the Advisor's
ability to accurately predict the direction of the market and is subject to
various additional risks. The correlation between movements in the price of a
futures contract and the price of the security being hedged is imperfect and
there is a risk that the value of the security being hedged may increase or
decrease at a greater rate than the related futures contract, resulting in a
loss to the Series. Certain futures exchanges or boards of trade have
established daily price limits based on the amount of the previous day's
settlement price. These daily limits may restrict the Series' ability to
repurchase or sell certain futures contracts on any particular day.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
A 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 Series
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 Series do 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
creates an 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 creates an obligation to acquire the foreign
currencies called for by the contract at a specified price on a specified date.
Each Series 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. None of the Series may 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)
that do not constitute "bona fide hedging" under CFTC rules would exceed 5% of
the liquidation value of a 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.
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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 accurately predict movements in the prices of
individual securities, fluctuations in domestic and foreign markets and currency
exchange rates, and movements in interest rates; (2) there may be an imperfect
correlation between the changes in market value of the securities held by the
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 "regulated 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.
PRINCIPAL INVESTMENT RESTRICTIONS
- -----------------------------
Each 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.
Each 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.
None of the Series may, with respect to 75% of its total assets, invest more
than 5% of the value of its total assets at the time of investment in securities
of any one issuer (other than obligations issued or guaranteed by the United
States Government, its agencies or its instrumentalities). None of the Series
may purchase more than 10% of the outstanding voting securities of any one
issuer.
None of the Series may invest 25% or more of the value of its total assets
in securities of issuers in any one industry (other than U.S. Government
Securities).
None of the Series will 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.
Each of the Series may purchase shares of closed-end investment companies
that are traded on national exchanges to the extent permitted by applicable law.
The Defensive Series and the Maximum Horizon Series may both invest assets
in securities of any other open-end investment company (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.
None of the Series may make loans, but each may invest in debt securities
and repurchase agreements and may engage in securities lending.
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Additional information about the Series' investment restrictions is
contained in the Statement of Additional Information.
MANAGEMENT
- -----------
The overall business and affairs of the Fund are managed by the Fund's Board
of Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, including the Fund's
agreements with their Investment Advisor, Custodian and Distributor. The
day-to-day operations of the Fund are delegated to the Fund'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
makes all the investment decisions for the Fund.
The Advisor acts as investment advisor to 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 Fund 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 Fund to serve as such.
As of the date of this Prospectus, the Advisor supervised over $7.0 billion
in assets of clients, including both individuals and institutions. For its
services to the Series under the Investment Advisory Agreement, the Fund pays
the Advisor a fee, computed daily and payable monthly, at an annual rate of .80%
for the Defensive Series and 1.00% for the Blended Asset Series I, Blended Asset
Series II, and the Maximum Horizon Series of the Series daily net assets. In
addition, the Advisor is separately compensated for acting as Transfer Agent for
the Series. The Fund 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, and Accounting Services Agent, if obtained for the Fund from an
entity other than the Advisor; (vii) expenses incidental to the issuance of its
shares, including issuance on the payment of, or reinvestment of, dividends and
capital gain distributions; (viii) fees and expenses incidental 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 with respect to which the Fund may have to
indemnify its Officers and Directors.
DISTRIBUTION OF FUND SHARES
- ------------------------
Manning & Napier Investor Services, Inc. (the "Distributor") acts as
distributor of Fund shares and is located at the same address as the Advisor and
the Fund. The Fund has adopted a Distribution Agreement with respect to each
Class of shares and related Plans of Distribution with respect to Class B, C, D
and E Shares (the "Plans") pursuant to Rule 12b-1 under the 1940 Act. Class A
Shares are offered to investors who purchase their shares directly from the
Distributor and are not subject to distribution or shareholder servicing fees.
Class B, C, D and E Shares are offered only by or through investment dealers,
banks or financial service firms that provide distribution, administrative
and/or shareholder services ("Financial Intermediaries").
The Distributor receives distribution and services fees, at the rates set
forth below, for providing distribution and/or shareholder services to the Class
B, C, D and E Shares. The Distributor expects to allocate most of its
distribution fees and shareholder service fees to Financial Intermediaries that
enter into shareholder servicing agreements ("Servicing Agreements") with the
Distributor. The different Classes permit the Fund to allocate an appropriate
amount of fees to a Financial Intermediary in accordance with the level of
services it agrees to provide under its Servicing Agreement.
As compensation for providing distribution and shareholders services for the
Class B Shares, the Distributor receives a distribution fee equal to .75% of the
Class B Shares' average daily net assets and a shareholder servicing fee equal
to .25% of the Class B Shares' average daily net assets. As compensation for
providing distribution and shareholder services for the Class C Shares, the
Distributor receives an aggregate distribution and shareholder servicing fee
equal to .75% of the Class C Shares' average daily net assets. As compensation
for providing distribution and shareholders service for the Class D Shares,
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<PAGE>
the Distributor receives an aggregate distribution and shareholder servicing fee
equal to .50% of the Class D Shares' average daily net assets. The shareholder
services component of the foregoing fees for Classes C and D is limited to .25%
of the average daily net assets of the respective class. As compensation for
providing distribution services for the Class E Shares, the Distributor receives
an aggregate distribution and shareholder servicing fee equal to .25% of the
average daily net assets of the Class E Shares. The Distributor may, in its
discretion, voluntarily waive from time to time all or any portion of its
distribution fee.
Payments under the Plans are made as described above regardless of the
Distributor's actual cost of providing distribution services and may be used to
pay the Distributor's overhead expenses. If the cost of providing distribution
services to the Fund is less than the payments received, the unexpended portion
of the distribution fees may be retained as profit by the Distributor. The
Distributor may from time to time and from its own resources pay or allow
additional discounts or promotional incentives in the form of cash or other
compensation (including merchandise or travel) to Financial Intermediaries and
it is free to make additional payments out of its own assets to promote the sale
of Fund shares. Similarly, the Advisor may, from its own resources, defray or
absorb costs related to distribution, including compensation of employees who
are involved in distribution.
YIELD AND TOTAL RETURN
- -------------------
From time-to-time each Series may advertise its yield and total return. BOTH
YIELD AND TOTAL RETURN FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE NOT
INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a Series refers
to the average annual compounded rates of return over one-, five-, and ten-year
periods or for the life of the Series (as stated in the advertisement) that
would equate an initial amount invested at the beginning of a stated period to
the ending redeemable value of the investment, assuming the reinvestment of all
dividend and capital gains distributions. The respective performance figures for
the Classes will differ because of the different distribution and/or shareholder
services fees charged to Class B, C, D and E Shares.
The "30-day yield" of a Series is calculated by dividing the net investment
income per share earned during a 30-day period by the net asset value per share
on the last day of the period. Net investment income includes interest and all
recurring and nonrecurring charges that have been applied to all shareholder
accounts. The yield calculation assumes that net investment income earned over
30 days is compounded monthly for six months and then annualized. Methods used
to calculate advertised yields are standardized for all stock and bond mutual
funds. However, these methods differ from the accounting methods used by a
Series to maintain its books and records, and so the advertised 30-day yield may
not fully reflect the income paid to your own account or the yield reported in a
Series' reports to shareholders.
PURCHASES, EXCHANGES AND REDEMPTIONS OF SHARES
- --------------------------------------------
Purchases and redemptions of shares of the Series may be made on any day the
New York Stock Exchange is open for trading.
PURCHASES
The minimum initial investment in each class of the Series is $2,000 and
subsequent purchases must be at least $100. The minimum initial investment is
waived for participants in the Automatic Investment Plan (see "Automatic
Investment Plan" below) and for shareholders who purchase shares through
Financial Intermediaries that provide sub-accounting services to the Fund. These
minimums may be waived at the Distributor's discretion. The Fund has the right
to refuse any order.
Payment may be made by check or readily available funds. A purchase order
will be effective as of the day the check is received by the Distributor if the
Distributor receives the check before the close of regular trading on the New
York Stock Exchange, normally 4:00 p.m., Eastern time. If payment is received by
wire, the purchase order will be effective the day
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<PAGE>
payment is received by the Series' custodian bank. The purchase price of shares
of each Class of a Series is the net asset value determined on the day the check
or wire is received.
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 in exchange for shares of a 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 approved by the Fund's Board of Directors.
AUTOMATIC INVESTMENT PLAN
Shareholders may purchase shares regularly through the Automatic Investment
Plan with a pre-authorized draft drawn on a checking account. Under this plan,
the shareholder may elect to have a specified amount invested on a regular
schedule. The minimum amount of each automatic investment is $25. The amount
specified by the shareholder will be withdrawn from the shareholder's bank
account using the pre-authorized draft. This amount will be invested at the
applicable share price determined on the date the amount is available for
investment. Participation in the Automatic Investment Plan may be discontinued
either by the Fund or the shareholder upon 30 days' prior written notice to the
other party. A shareholder who wishes to enroll in the Automatic Investment Plan
may do so by completing the applicable section of the Account Application Form
or contacting the Fund for an Automatic Investment Plan Form.
EXCHANGES BETWEEN SERIES
As permitted pursuant to any rule, regulation or order promulgated by the
Securities and Exchange Commission, some or all of the shares of a Class in an
account for which payment has been received by the Fund may be exchanged for
shares of the same Class of any of the other Series of the Manning & Napier
Fund, Inc. that offer that Class at the net asset value next determined after an
exchange order is effective. 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.
REDEMPTIONS
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 that 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
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<PAGE>
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) or through the Automatic Investment Plan,
payment of redemption proceeds may be delayed up to 15 days from the purchase
date in an effort to assure that such check or draft has cleared.
Subject to the Series' compliance with applicable regulations, each 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. The Fund has elected, however, to be governed by Rule 18f-1 under the 1940
Act as a result of which the Fund is obligated to redeem shares, with respect to
any one shareholder during any 90-day period, solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund at the beginning of the
period.
OTHER INFORMATION ABOUT PURCHASES AND REDEMPTIONS
Due to the relatively high cost of maintaining small accounts, the Series
reserve 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.
SHARE PRICE
- ----------
The share price or "net asset value" per share of each class of each Series
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, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
The net asset value per share of each Class of a Series is determined by
dividing the total value of its investments and other assets that are allocated
to that Class, less any liabilities that are allocated to that Class, by the
Class's total outstanding shares. 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.
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<PAGE>
DIVIDENDS AND TAX STATUS
- ----------------------
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Each Series intends to distribute to its shareholders on a semi-annual basis
dividends substantially equal to all of its net investment income. Each Series
also intends to distribute net realized short and long-term capital gains, if
any, taking into account any available capital loss carryforwards from prior
years at least 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 Fund, that payments
of either ordinary income dividends or capital gain distributions, or both, be
made in cash. The Fund will notify each non-corporate taxable 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 31% 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.
If a taxable shareholder invests shortly before the Series declares a
taxable dividend, a portion of the investment will be returned as a taxable
distribution (commonly referred to as "buying into a dividend"). This
distribution will be taxable regardless of whether you elected to reinvest your
distribution in additional shares or take the distribution in cash. If you would
like to avoid buying into a dividend, you may contact the Fund to find out when
the Series plans to declare a distribution and invest after that date.
TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a general summary of certain federal income tax
considerations affecting the Series and their 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. These Series are not managed with respect to tax outcomes
for their shareholders.
Under Subchapter M of the Internal Revenue Code of 1986, (the "Code") the
Series are treated as separate entities for tax purposes. The Series intend to
qualify each year as regulated investment companies under Subchapter M of the
Code. If the Series so qualify, they will not be subject to federal income taxes
on their net investment income and capital gains, if any, which they distribute
to their 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 loss) for the taxable year is distributed, and provided that
the Series meet 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 investment policy of the Maximum Horizon Series,
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 intend to
make sufficient distributions of their ordinary income and capital gain net
income prior to the end of each calendar year to avoid liability for this excise
tax.
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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.
GENERAL INFORMATION
- -----------------
The Fund 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. As of
September 22, 1997, National Financial Services Corporation, FBO Customers, 200
Liberty Street, New York, NY 10281-1003 owned 27.05% of the Defensive Series and
60.56% of the Maximum Horizon Series, and would be deemed under the 1940 Act to
be beneficial owners of each such Series.
Each share of a Series represents an identical interest in the investment
portfolio of that Series and has the same rights, except that (i) each class of
shares bears those distribution fees, service fees and administrative expenses
applicable to the respective class of shares as a result of its sales
arrangements, which will cause the different classes of shares to have different
expense ratios and to pay different rates of dividends, (ii) each class has
exclusive voting rights with respect to those provisions of the Series' Rule
12b-1 distribution plan which relate only to such class and (iii) the classes
have different exchange privileges. As a result of each class' differing Rule
12b-1 distribution and shareholder services plan, shares of different classes of
the same Series may have different net asset values per share.
The Fund does not expect to hold annual meetings of shareholders but special
meetings of shareholders may be held under certain circumstances. Shareholders
of the Fund retain the right, under certain circumstances, to request that a
meeting of shareholders be held for the purpose of considering the removal of a
Director from office, and if such a request is made, the Fund will assist with
shareholder communications in connection with the meeting. The shares of the
Fund have equal rights with regard to voting, redemption and liquidations. The
Fund's shareholders will vote in the aggregate and not by Series or Class 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 or a Class. Income, direct liabilities and direct operating expenses
of a Series will be allocated directly to the Series, and general liabilities
and expenses of the Fund will be allocated among the Series in proportion to the
total net assets of the 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.
All securities and cash are held by the custodian, Boston Safe Deposit and
Trust Company. Deloitte & Touche, LLP serves as independent accountants for the
Series and will audit their financial statements annually.
Manning & Napier Advisors, Inc. serves as the Fund's Transfer and Dividend
Disbursing Agent. Shareholder inquiries should be directed to Manning & Napier
Fund, Inc., P.O. Box 41118, Rochester, New York 14604.
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<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.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
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.
30
<PAGE>
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.
Debt rated BB, B, CCC and CC is regarded, on balance, as predominately
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
The C rating is reserved for income bonds on which no interest is being
paid.
Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
31
<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 for 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 - This rating is 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.
32
<PAGE>
MANNING & NAPIER FUND
FLEXIBLE YIELD SERIES I
FLEXIBLE YIELD SERIES II
FLEXIBLE YIELD SERIES III
PROSPECTUS
NOVEMBER 14, 1997
<PAGE>
MANNING & NAPIER FUND, INC.
P.O. Box 41118
Rochester, New York 14604
1-800-466-3863
FLEXIBLE YIELD SERIES I
FLEXIBLE YIELD SERIES II
FLEXIBLE YIELD SERIES III
Manning & Napier Fund, Inc. (the "Fund"), is an open-end management
investment company that offers separate series, each a separate investment
portfolio having its own investment objective and policies. This Prospectus
relates to the Class A, B, C, D and E Shares (each a "Class" and collectively,
the "Classes") of the Flexible Yield Series I, Flexible Yield Series II and the
Flexible Yield Series III (individually and collectively, the "Series") of the
Fund.
The primary objective of the Flexible Yield Series I is to seek the highest
level of total return in the form of income and capital appreciation consistent
with the preservation of capital by investing in fixed income securities with a
dollar-weighted average maturity of not more than 5 years.
The primary objective of the Flexible Yield Series II is to maximize total
return in the form of income and capital appreciation consistent with the
preservation of capital by investing in fixed income securities with a
dollar-weighted average maturity of not more than 10 years.
The primary objective of the Flexible Yield Series III is to maximize total
return in the form of income and capital appreciation consistent with the
preservation of capital by investing in fixed income securities without regard
to maturity.
This Prospectus provides you with the basic information you should know
before investing in the Series. The Fund's other series are offered through
separate prospectuses. You should read this Prospectus and keep it for future
reference. A Statement of Additional Information dated April 14, 1997, as
supplemented through November 14, 1997, containing additional information about
the Fund has been filed with the Securities and Exchange Commission and is
incorporated by reference into 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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS NOVEMBER 14, 1997.
<PAGE>
EXPENSES
- ---------
SHAREHOLDER TRANSACTION EXPENSES
(as a percentage of offering price)
<TABLE>
<CAPTION>
All Classes
-----------
<S> <C>
Maximum Sales Charge Imposed on Purchases........................... None
Redemption Fees(1).................................................. None
Exchange Fees(2).................................................... 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."
(2) A shareholder may effect up to four (4) exchanges in a twelve (12) month
period without change. Subsequent exchanges are subject to a fee of $15.
ANNUAL OPERATING EXPENSES - CLASS A SHARES
The following information provides (i) a tabular summary of expenses relating to
the annual operating expenses of the Class A Shares of the Series and (ii) an
example illustrating the dollar cost of such expenses on a $1,000 investment.
ANNUAL OPERATING EXPENSES OF CLASS A SHARES OF THE SERIES
- ----------------------------------------------------
(AS A PERCENTAGE OF AVERAGE NET ASSETS):
- ------------------------------------
<TABLE>
<CAPTION>
Flexible Yield Flexible Yield Flexible Yield
Series I(1) Series II(1) Series III(1)
-------------- -------------- --------------
<S> <C> <C> <C>
Management Fees After Reduction of Fees(2)................... 0.00% 0.00% 0.00%
Rule 12b-1 Fees.............................................. None None None
Other Expenses After Expense Reimbursement(2)................ 0.70 % 0.80 % 0.85 %
--- --- ---
Total Operating Expenses(2).................................. 0.70 % 0.80 % 0.85 %
--- --- ---
--- --- ---
</TABLE>
(1) The Flexible Yield Series I, Flexible Yield Series II, and Flexible Yield
Series III were engaged in active investment operations for the fiscal
period ended October 31, 1996; therefore, actual management fees and other
expenses are used above.
(2) The Advisor has agreed to waive its management fees and/or to reimburse
expenses of the Series, if necessary, if such fees would cause the total
annual operating expenses of the Class A Shares of the Series, as a
percentage of average daily net assets, to exceed the percentages set forth
in the table above. The following sets forth, for Class A Shares of such
Series, (i) management fees absent fee waivers, (ii) other expenses absent
expense reimbursements and (iii) expected total operating expenses absent
fee waivers and/or expense reimbursements.
<TABLE>
<CAPTION>
Flexible Yield Flexible Yield Flexible Yield
Class A Shares Series I Series II Series III
- ------------------------------------------------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
Management Fees............................................. 0.35% 0.45% 0.50%
Other Expenses.............................................. 6.10% 4.72% 2.24%
Total Operating Expenses.................................... 6.45% 5.17% 2.74%
</TABLE>
As a result of these reductions, the Management Fees stated above are lower
than contractual fees stated under "Management." The Advisor reserves the
right to terminate any of its fee waivers at any time in its sole
discretion. For further information on expenses, see "Management."
2
<PAGE>
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class A Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
EXAMPLE - CLASS A SHARES
- ---------------------
You would pay the following expenses on a $1,000 investment in Class A Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
----- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Flexible Yield Series I $ 7 $ 22 $ 39 $ 87
Flexible Yield Series II 8 26 44 99
Flexible Yield Series III 9 27 47 105
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. The Advisor in its
discretion may terminate its voluntary fee waivers and/or reimbursements at any
time. Absent the waiver of fees or reimbursement of expenses, the amounts in the
example above would be greater.
3
<PAGE>
ANNUAL OPERATING EXPENSES - CLASS B SHARES
The following information provides (i) a tabular summary of expenses relating to
the annual operating expenses of the Class B Shares of Series and (ii) an
example illustrating the dollar cost of such expenses on a $1,000 investment.
ANNUAL OPERATING EXPENSES OF THE CLASS B SHARES OF EACH SERIES
- ---------------------------------------------------------
(AS A PERCENTAGE OF AVERAGE NET ASSETS):
- ------------------------------------
<TABLE>
<CAPTION>
Flexible Yield Flexible Yield Flexible Yield
Series I(1) Series II(1) Series III(1)
--------------- --------------- ---------------
<S> <C> <C> <C>
Management Fees After Reduction of Fees(2)................... 0.00% 0.00% 0.00%
Rule 12b-1 Fees(3)........................................... 1.00% 1.00% 1.00%
Other Expenses After Expense Reimbursement(2)................ 0.70% 0.80% 0.85%
--- --- ---
Total Operating Expenses(2).................................. 1.70% 1.80% 1.85%
--- --- ---
--- --- ---
</TABLE>
(1) The Flexible Yield Series I, Flexible Yield Series II, and Flexible Yield
Series III offered only Class A Shares during the fiscal period ended
October 31, 1996; therefore, actual management fees and other expenses of
Class A Shares of the Series are used above.
(2) The Advisor has agreed to waive its management fees and/or to reimburse
expenses of the Series, if necessary, if such fees would cause the total
annual operating expenses of the Class B Shares of the Series, as a
percentage of average daily net assets, to exceed the percentages set forth
in the table above. The following sets forth, for Class B Shares of such
Series, (i) management fees absent fee waivers, (ii) other expenses absent
expense reimbursements and (iii) expected total operating expenses absent
fee waivers and/or expense reimbursements.
<TABLE>
<CAPTION>
Flexible Yield Flexible Yield Flexible Yield
Class B Shares Series I Series II Series III
- ------------------------------------------------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
Management Fees............................................. 0.35% 0.45% 0.50%
Other Expenses.............................................. 6.10% 4.72% 2.24%
Total Operating Expenses.................................... 7.45% 6.17% 3.74%
</TABLE>
As a result of these reductions, the Management Fees stated above are lower
than contractual fees stated under "Management." The Advisor reserves the
right to terminate any of its fee waivers at any time in its sole
discretion. For further information on expenses, see "Management."
(3) Of the Rule 12b-1 fees for the Class B shares, 0.25% represents shareholder
service fees.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class B Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
Due to the continuous nature of Rule 12b-1 fees, long-term shareholders may pay
more than the equivalent of the maximum front-end sales charges otherwise
permitted by the Conduct Rules of the National Association of Securities
Dealers, Inc. (the "NASD").
EXAMPLE - CLASS B SHARES
- ---------------------
You would pay the following expenses on a $1,000 investment in Class B Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
----- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Flexible Yield Series I $ 17 $ 54 $ 92 $ 201
Flexible Yield Series II 18 57 97 212
Flexible Yield Series III 19 58 100 217
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. The Advisor in its
discretion may terminate its voluntary fee waivers and/or reimbursements at any
time. Absent the waiver of fees or reimbursement of expenses, the amounts in the
example above would be greater.
4
<PAGE>
ANNUAL OPERATING EXPENSES - CLASS C SHARES
The following information provides (i) a tabular summary of expenses relating to
the annual operating expenses of the Class C Shares of Series and (ii) an
example illustrating the dollar cost of such expenses on a $1,000 investment.
ANNUAL OPERATING EXPENSES OF THE CLASS C SHARES OF EACH SERIES
- ---------------------------------------------------------
(AS A PERCENTAGE OF AVERAGE NET ASSETS):
- ------------------------------------
<TABLE>
<CAPTION>
Flexible Yield Flexible Yield Flexible Yield
Series I(1) Series II(1) Series III(1)
--------------- --------------- ---------------
<S> <C> <C> <C>
Management Fees After Reduction of Fees(2)................... 0.00% 0.00% 0.00%
Rule 12b-1 Fees(3)........................................... 0.75% 0.75% 0.75%
Other Expenses After Expense Reimbursement(2)................ 0.70% 0.80% 0.85%
--- --- ---
Total Operating Expenses(2).................................. 1.45% 1.55% 1.60%
--- --- ---
--- --- ---
</TABLE>
(1) The Flexible Yield Series I, Flexible Yield Series II, and Flexible Yield
Series III offered only Class A Shares during the fiscal period ended
October 31, 1996; therefore, actual management fees and other expenses of
Class A Shares of the Series are used above.
(2) The Advisor has agreed to waive its management fees and/or to reimburse
expenses of the Series, if necessary, if such fees would cause the total
annual operating expenses of the Class C Shares of the Series, as a
percentage of average daily net assets, to exceed the percentages set forth
in the table above. The following sets forth, for Class C Shares of such
Series, (i) management fees absent fee waivers, (ii) other expenses absent
expense reimbursements and (iii) expected total operating expenses absent
fee waivers and/or expense reimbursements.
<TABLE>
<CAPTION>
Flexible Yield Flexible Yield Flexible Yield
Class C Shares Series I Series II Series III
- ------------------------------------------------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
Management Fees............................................. 0.35% 0.45% 0.50%
Other Expenses.............................................. 6.10% 4.72% 2.24%
Total Operating Expenses.................................... 7.20% 5.92% 3.49%
</TABLE>
As a result of these reductions, the Management Fees stated above are lower
than contractual fees stated under "Management." The Advisor reserves the
right to terminate any of its fee waivers at any time in its sole
discretion. For further information on expenses, see "Management."
(3) Of the Rule 12b-1 fees for the Class C shares, up to 0.25% may represent
shareholder service fees.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class C Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
Due to the continuous nature of Rule 12b-1 fees, long-term shareholders may pay
more than the equivalent of the maximum front-end sales charges otherwise
permitted by the Conduct Rules of the NASD.
EXAMPLE - CLASS C SHARES
- ---------------------
You would pay the following expenses on a $1,000 investment in Class C Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
----- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Flexible Yield Series I $ 15 $ 46 $ 79 $ 174
Flexible Yield Series II 16 49 84 185
Flexible Yield Series III 16 50 87 190
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. The Advisor in its
discretion may terminate its voluntary fee waivers and/or reimbursements at any
time. Absent the waiver of fees or reimbursement of expenses, the amounts in the
example above would be greater.
5
<PAGE>
ANNUAL OPERATING EXPENSES - CLASS D SHARES
The following information provides (i) a tabular summary of expenses relating to
the annual operating expenses of the Class D Shares of Series and (ii) an
example illustrating the dollar cost of such expenses on a $1,000 investment.
ANNUAL OPERATING EXPENSES OF THE CLASS D SHARES OF EACH SERIES
- ---------------------------------------------------------
(AS A PERCENTAGE OF AVERAGE NET ASSETS):
- ------------------------------------
<TABLE>
<CAPTION>
Flexible Yield Flexible Yield Flexible Yield
Series I(1) Series II(1) Series III(1)
--------------- --------------- ---------------
<S> <C> <C> <C>
Management Fees After Reduction of Fees(2)................... 0.00% 0.00% 0.00%
Rule 12b-1 Fees(3)........................................... 0.50% 0.50% 0.50%
Other Expenses After Expense Reimbursement(2)................ 0.70% 0.80% 0.85%
--- --- ---
Total Operating Expenses(2).................................. 1.20% 1.30% 1.35%
--- --- ---
--- --- ---
</TABLE>
(1) The Flexible Yield Series I, Flexible Yield Series II, and Flexible Yield
Series III offered only Class A Shares during the fiscal period ended
October 31, 1996; therefore, actual management fees and other expenses of
Class A Shares of the Series are used above.
(2) The Advisor has agreed to waive its management fees and/or to reimburse
expenses of the Series, if necessary, if such fees would cause the total
annual operating expenses of the Class D Shares of the Series, as a
percentage of average daily net assets, to exceed the percentages set forth
in the table above. The following sets forth, for Class D Shares of such
Series, (i) management fees absent fee waivers, (ii) other expenses absent
expense reimbursements and (iii) expected total operating expenses absent
fee waivers and/or expense reimbursements.
<TABLE>
<CAPTION>
Flexible Yield Flexible Yield Flexible Yield
Class D Shares Series I Series II Series III
- ------------------------------------------------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
Management Fees............................................. 0.35% 0.45% 0.50%
Other Expenses.............................................. 6.10% 4.72% 2.24%
Total Operating Expenses.................................... 6.95% 5.67% 3.24%
</TABLE>
As a result of these reductions, the Management Fees stated above are lower
than contractual fees stated under "Management." The Advisor reserves the
right to terminate any of its fee waivers at any time in its sole
discretion. For further information on expenses, see "Management."
(3) Of the Rule 12b-1 fees for the Class D shares, up to 0.25% may represent
shareholder service fees.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class D Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
Due to the continuous nature of Rule 12b-1 fees, long-term shareholders may pay
more than the equivalent of the maximum front-end sales charges otherwise
permitted by the Conduct Rules of the NASD.
EXAMPLE - CLASS D SHARES
- ---------------------
You would pay the following expenses on a $1,000 investment in Class D Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
----- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Flexible Yield Series I $ 12 $ 38 $ 66 $ 145
Flexible Yield Series II 13 41 71 157
Flexible Yield Series III 14 43 74 162
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. The Advisor in its
discretion may terminate its voluntary fee waivers and/or reimbursements at any
time. Absent the waiver of fees or reimbursement of expenses, the amounts in the
example above would be greater.
6
<PAGE>
ANNUAL OPERATING EXPENSES - CLASS E SHARES
The following information provides (i) a tabular summary of expenses relating to
the annual operating expenses of the Class E Shares of Series and (ii) an
example illustrating the dollar cost of such expenses on a $1,000 investment.
ANNUAL OPERATING EXPENSES OF THE CLASS E SHARES OF EACH SERIES
- ---------------------------------------------------------
(AS A PERCENTAGE OF AVERAGE NET ASSETS):
- ------------------------------------
<TABLE>
<CAPTION>
Flexible Yield Flexible Yield Flexible Yield
Series I(1) Series II(1) Series III(1)
--------------- --------------- ---------------
<S> <C> <C> <C>
Management Fees After Reduction of Fees(2)................... 0.00% 2.00% 0.00%
Rule 12b-1 Fees(3)........................................... 0.25% 0.25% 0.25%
Other Expenses After Expense Reimbursement(2)................ 0.70% 0.80% 0.85%
--- --- ---
Total Operating Expenses(2).................................. 0.95% 1.05% 1.10%
--- --- ---
--- --- ---
</TABLE>
(1) The Flexible Yield Series I, Flexible Yield Series II, and Flexible Yield
Series III offered only Class A Shares during the fiscal period ended
October 31, 1996; therefore, actual management fees and other expenses of
Class A Shares of the Series are used above.
(2) The Advisor has agreed to waive its management fees and/or to reimburse
expenses of the Series, if necessary, if such fees would cause the total
annual operating expenses of the Class E Shares of the Series, as a
percentage of average daily net assets, to exceed the percentages set forth
in the table above. The following sets forth, for Class E Shares of such
Series, (i) management fees absent fee waivers, (ii) other expenses absent
expense reimbursement and (iii) expected total operating expenses absent fee
waivers and/or expense reimbursements.
<TABLE>
<CAPTION>
Flexible Yield Flexible Yield Flexible Yield
Class E Shares Series I Series II Series III
- ------------------------------------------------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
Management Fees............................................. 0.35% 0.45% 0.50%
Other Expenses.............................................. 6.10% 4.72% 2.24%
Total Operating Expenses.................................... 6.70% 5.42% 2.99%
</TABLE>
As a result of these reductions, the Management Fees stated above are lower
than contractual fees stated under "Management." The Advisor reserves the
right to terminate any of its fee waivers at any time in its sole
discretion. For further information on expenses, see "Management."
(3) Of the Rule 12b-1 fees for the Class E Shares, up to 0.25% may represent
shareholder service fees.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class E Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
Due to the continuous nature of Rule 12b-1 fees, long-term shareholders may pay
more than the equivalent of the maximum front-end sales charges otherwise
permitted by the Conduct Rules of the NASD.
EXAMPLE - CLASS E SHARES
- ---------------------
You would pay the following expenses on a $1,000 investment in Class E Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
----- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Flexible Yield Series I $ 10 $ 30 $ 53 $ 117
Flexible Yield Series II 11 3 58 128
Flexible Yield Series III 11 35 61 34
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. The Advisor in its
discretion may terminate its voluntary fee waivers and/or reimbursements at any
time. Absent the waiver of fees or reimbursement of expenses, the amounts in the
example above would be greater.
7
<PAGE>
FINANCIAL HIGHLIGHTS
- ---------------------
The following tables provide selected per share data and ratios for the Class A
Shares of the Flexible Yield Series I, Flexible Yield Series II, and Flexible
Yield Series III (for a share outstanding throughout the period for the periods
shown). The tables, except with respect to the unaudited interim periods, are
part of the Series' financial statements, which are incorporated by reference
into the Fund's Statement of Additional Information. The financial highlights
presented herein for the period ended April 30, 1997 are unaudited. Deloitte &
Touche LLP, the Fund's independent accountants, audited the Fund's financial
highlights for each of the other periods shown. Additional performance
information is contained in the Fund's 1997 Semi-Annual Report to Shareholders
and its 1996 Annual Report to Shareholders and each is available upon request
and without charge by calling 1-800-466-3863. Because the Fund's Class B, C, D
and E Shares had not been introduced as of April 30, 1997, no financial
highlights are presented for the Class B, C, D or E Shares of the Series. These
tables should be read in conjunction with the Series' financial statements and
notes thereto.
FLEXIBLE YIELD SERIES I - CLASS A SHARES
<TABLE>
<CAPTION>
For the Period
12/15/94
For the Six (commencement
Months Ended For the Ten For the Year of operations)
4/30/97 Months Ended Ended to
(Unaudited) 10/31/96(3) 12/31/95 12/31/94
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD):
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.27 $ 10.26 $ 9.69 $ 10.00
------ ------ ------ ------
Income from investment operations:
Net investment income 0.22 0.41 0.46 0.24
Net realized and unrealized gain (loss) on
investments (0.06) (0.10) 0.57 (0.32)
------ ------ ------ ------
Total from investment operations 0.16 0.31 1.03 (0.08)
------ ------ ------ ------
Less distributions to shareholders:
From net investment income (0.26) (0.30) (0.46) (0.23)
From net realized gain on investments (0.03) - - -
------ ------ ------ ------
Total distributions to shareholders (0.29) (0.30) (0.46) (0.23)
------ ------ ------ ------
NET ASSET VALUE - END OF PERIOD $ 10.14 $ 10.27 $ 10.26 $ 9.69
------ ------ ------ ------
------ ------ ------ ------
Total return(1) 1.52% 3.11% 10.79% (0.76%)
Ratios (to average net assets)/Supplemental Data:
Expenses* 0.70%(2) 0.70%(2) 0.70% 0.70%(2)
Net investment income* 5.32%(2) 5.25%(2) 4.99% 4.41%(2)
Portfolio turnover 29% 36% 60% 38%
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 603 $ 493 $ 256 $ 231
------ ------ ------ ------
------ ------ ------ ------
* The Advisor did not impose its management fee and paid a portion of the Fund's expenses. If these expenses
had been incurred by the Fund, expenses would have been limited to that allowed by state securities law and the
net investment income per share and the ratios would have been as follows:
Net investment income $ 0.10 $ 0.27 $ 0.30 $ 0.14
Ratios (to average net assets):
Expenses 3.46%(2) 2.50%(2) 2.50% 2.50%(2)
Net investment income 2.56%(2) 3.45%(2) 3.19% 2.61%(2)
</TABLE>
(1) Represents aggregate total return for the period indicated.
(2) Annualized.
(3) Effective January 1, 1996, the Series changed its fiscal year end from
December 31 to October 31.
8
<PAGE>
FLEXIBLE YIELD SERIES II - CLASS A SHARES
<TABLE>
<CAPTION>
For the Period
2/15/94
For the Six (commencement
Months Ended For the Ten For the Year of operations)
4/30/97 Months Ended Ended to
(Unaudited) 10/31/96(3) 12/31/95 12/31/94
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD):
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.10 $ 10.30 $ 9.27 $ 10.00
------ ------ ------ ------
Income from investment operations:
Net investment income 0.24 0.45 0.56 0.27
Net realized and unrealized gain (loss) on
investments (0.11) (0.32) 1.02 (0.74)
------ ------ ------ ------
Total from investment operations 0.13 0.13 1.58 (0.47)
------ ------ ------ ------
Less distributions to shareholders:
From net investment income (0.38) (0.27) (0.55) (0.26)
From net realized gain on investments (0.01) (0.06) - -
------ ------ ------ ------
Total distributions to shareholders (0.39) (0.33) (0.55) (0.26)
------ ------ ------ ------
NET ASSET VALUE - END OF PERIOD $ 9.84 $ 10.10 $ 10.30 $ 9.27
------ ------ ------ ------
------ ------ ------ ------
Total return(1) 1.26% 1.38% 17.33% (4.69%)
Ratios (to average net assets)/Supplemental Data:
Expenses* 0.80%(2) 0.80%(2) 0.80%(2) 0.80%(2)
Net investment income* 5.52%(2) 5.55%(2) 5.38% 5.40%(2)
Portfolio turnover 41% 5% 35% 0%
NET ASSETS - END OF PERIOD (000's omitted) $ 678 $ 481 $ 438 $ 396
------ ------ ------ ------
------ ------ ------ ------
* The Advisor did not impose its management fee and paid a portion of the Fund's expenses. If these expenses
had been incurred by the Fund, expenses would have been limited to that allowed by state securities law and the
net investment income per share and the ratios would have been as follows:
Net Investment Income $ 0.12 $ 0.31 $ 0.38 $ 0.18
Ratios (to average net assets):
Expenses 3.64%(2) 2.50%(2) 2.50% 2.50%(2)
Net Investment Income 2.68%(2) 3.85%(2) 3.68% 3.70%(2)
</TABLE>
(1) Represents aggregate total return for the period indicated.
(2) Annualized.
(3) Effective January 1, 1996, each Series changed its fiscal year end from
December 31 to October 31.
9
<PAGE>
FLEXIBLE YIELD SERIES III - CLASS A SHARES
<TABLE>
<CAPTION>
For the Period
12/20/93
For the Six For the For the For the (commencement
Months Ended Ten Months Year Year of operations)
4/30/97 Ended Ended Ended to
(Unaudited) 10/31/96(3) 12/31/95 12/31/94 12/31/93
------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD):
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.13 $ 10.51 $ 9.11 $ 9.95 $ 10.00
------ ------ ------ ------ ------
Income from investment operations:
Net investment income 0.28 0.50 0.58 0.26 0.01
Net realized and unrealized gain (loss) on
investments (0.23) (0.53) 1.39 (0.84) (0.05)
------ ------ ------ ------ ------
Total from investment operations 0.05 (0.03) 1.97 (0.58) (0.04)
------ ------ ------ ------ ------
Less distributions to shareholders:
From net investment income (0.37) (0.35) (0.57) (0.26) (0.01)
From net realized gain on investments (0.04) - - - -
------ ------ ------ ------ ------
Total distributions to shareholders (0.41) (0.35) (0.57) (0.26) (0.01)
------ ------ ------ ------ ------
NET ASSET VALUE - END OF PERIOD $ 9.77 $ 10.13 $ 10.51 $ 9.11 $ 9.95
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Total return(1) 0.54% (0.18%) 22.09% (5.83%) (0.40%)
Ratios (to average net assets)/
Supplemental Data:
Expenses* 0.85%(2) 0.85%(2) 0.85% 0.85% 0.85%(2)
Net investment income* 5.85%(2) 5.98%(2) 6.13% 6.22% 3.85%(2)
Portfolio turnover 18% 5% 6% 1% 0%
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 1,443 $ 1,098 $ 1,159 $ 748 $ 75
------ ------ ------ ------ ------
------ ------ ------ ------ ------
* The Advisor did not impose its management fee and paid a portion of the Fund's expenses. If these expenses had been incurred
by the Fund, expenses would have been limited to that allowed by state securities law and the net investment income per share
and the ratios would have been as follows:
Net investment income $ 0.22 $ 0.36 $ 0.43 $ 0.19 $ 0.01
Ratios (to average net assets):
Expenses 2.20%(2) 2.50%(2) 2.46% 2.50% 2.50%(2)
Net investment income 4.50%(2) 4.33%(2) 4.52% 4.57% 2.20%(2)
</TABLE>
(1) Represents aggregate total return for the period indicated.
(2) Annualized.
(3) Effective January 1, 1996, the Series changed its fiscal year end from
December 31 to October 31.
10
<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 Fund offers separate series
of units of beneficial interest ("shares"). This Prospectus relates to the
Flexible Yield Series I, Flexible Yield Series II and Flexible Yield Series III,
each of which is offered through five separate classes of shares, Class A, B, C,
D and E Shares, respectively. Class A Shares of each Series are offered to
investors who purchase their shares directly from Manning & Napier Investor
Services, Inc. (the "Distributor"). Class B, C, D and E Shares are offered only
through financial intermediaries which provide to the Fund and its shareholders
varying levels of distribution and shareholder services as described under
"Distribution of Fund Shares" below. Information regarding the Fund'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. The Flexible Yield Series I, Flexible Yield Series II and
Flexible Yield Series III are diversified funds.
RISK AND INVESTMENT OBJECTIVES AND POLICIES
- ---------------------------------------
FLEXIBLE YIELD SERIES I
The objective of the Flexible Yield Series I is to seek the highest level of
total return in the form of income and capital appreciation consistent with the
preservation of capital by investing in fixed income securities with a dollar
weighted average maturity of not more than 5 years. The Flexible Yield Series I
will, under normal circumstances, have at least 65% of the value of its total
assets invested in a diversified portfolio consisting of the following U.S.
dollar-denominated fixed income securities: non-convertible corporate debt
securities, mortgage-backed securities and Government obligations. Any remaining
assets in the Flexible Yield Series I may be held in cash or high quality "money
market securities," convertible debt, preferred stock, futures contracts, and
related options. There can be no assurance that the investment objective will be
met.
Manning & Napier Advisors, Inc. (the "Advisor") may vary the maturities of
the Series' securities depending on its evaluation of interest rate trends and
other factors affecting the fixed income markets. This Flexible Yield Series I
will purchase short-term securities when the risk of negative returns is high as
determined by the Advisor. Generally, the shorter the maturity of a fixed income
security, the lower its yield and the lower its price volatility. The Flexible
Yield Series I will invest primarily in fixed income securities rated in the
four highest rating categories (Baa or higher by Moody's Investors Service, Inc.
("Moody's") or BBB or higher by Standard & Poor's Corporation ("S&P") but may
invest up to 20% of its assets in lower-rated securities. These securities are
commonly known as junk bonds. Securities rated Baa or BBB are considered
investment grade but may have speculative characteristics and changes in
economic conditions or circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with more
highly rated securities. See "Risk and Additional Information about Investment
Policies - High Yield Debt Securities."
FLEXIBLE YIELD SERIES II
The primary objective of the Flexible Yield Series II is to maximize total
return in the form of income and capital appreciation consistent with the
preservation of capital by investing in fixed income securities with a
dollar-weighted average maturity of not more than 10 years. The Flexible Yield
Series II will, under normal circumstances, have at least 65% of the value of
its total assets invested in a diversified portfolio consisting of the following
U.S. dollar-denominated fixed income securities: non-convertible corporate debt
securities, mortgage backed securities and Government obligations. Any remaining
assets in the Flexible Yield Series II may be held in cash or high quality
"money market securities," convertible debt, preferred stock, futures contracts,
and related options. There can be no assurance that the investment objective
will be met.
The Advisor may vary the maturities of the Series' securities depending on
its evaluation of interest rate trends and other factors affecting the fixed
income markets. This Flexible Yield Series II will purchase short-term
securities when the risk of negative returns is high as determined by the
Advisor. Generally, the shorter the maturity of a fixed income security, the
lower its yield and the lower its price volatility. The Flexible Yield Series II
will invest primarily in fixed income securities rated in the four highest
rating categories (Baa or higher by Moody's or BBB or higher by S&P) but may
invest up to 20% of its assets in
11
<PAGE>
lower-rated securities. These securities are commonly known as junk bonds.
Securities rated Baa or BBB are considered investment grade but may have
speculative characteristics and changes in economic conditions or circumstances
are more likely to lead to a weakened capacity to make principal and interest
payments than is the case with more highly rated securities. See "Risk and
Additional Information about Investment Policies - High Yield Debt Securities."
FLEXIBLE YIELD SERIES III
The primary objective of the Flexible Yield Series III is to maximize total
return in the form of income and capital appreciation consistent with the
preservation of capital by investing in fixed income securities without regard
to maturity. The Flexible Yield Series III will, under normal circumstances,
have at least 65% of the value of its total assets invested in a diversified
portfolio consisting of the following U.S. dollar-denominated fixed income
securities: non-convertible corporate debt securities, mortgage-backed
securities and Government obligations. Any remaining assets in the Series may be
held in cash or high quality "money market securities," convertible debt,
preferred stock, futures contracts, and related options. There can be no
assurance that the investment objective will be met.
The Advisor may vary the maturities of the Series' securities without
restriction, depending on its evaluation of interest rate trends and other
factors affecting the fixed income markets. The Flexible Yield Series III will
purchase short-term securities when the risk of negative returns is high as
determined by the Advisor. Generally, the shorter the maturity of a fixed income
security the lower its yield and the lower its price volatility. The Flexible
Yield Series III will invest primarily in fixed income securities rated in the
four highest rating categories (Baa or higher by Moody's or BBB or higher by
S&P) but may invest up to 20% of its assets in lower-rated securities. These
securities are commonly known as junk bonds. Securities rated Baa or BBB are
considered investment grade but may have speculative characteristics and changes
in economic conditions or circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with more
highly rated securities. See "Risk and Additional Information about Investment
Policies - High Yield Debt Securities."
GENERAL
For temporary defensive purposes during periods when the Advisor determines
that market conditions warrant, a Series may invest up to 100% of its assets in
money market instruments (consisting of 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 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
shares of 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.
RISK AND ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
- ---------------------------------------------------
Set forth below is further information about certain types of securities, in
which each Series may invest, as well as information about additional types of
investments and certain strategies each Series may pursue. These policies have
been voluntarily adopted by the Fund's Board of Directors based upon current
circumstances and may be changed or amended by action of the Board of Directors
without prior approval of a Series' shareholders. Additional information
concerning these strategies and their related risks is contained in the
Statement of Additional Information.
FOREIGN SECURITIES
While each Series generally emphasizes investments in U.S. Government
securities and companies domiciled in the United States, it may invest up to 25%
in foreign securities of the same types and quality as the domestic securities
in which the Series may invest when the anticipated performance of foreign
securities is believed by the Advisor to offer more potential than domestic
alternatives in keeping with the investment objective of the Series. Foreign
securities may be denominated either in
12
<PAGE>
U.S. dollars or foreign currencies. Each Series will invest no more than 25% of
its assets in securities issued by any one foreign government. Each Series may
invest without limit in securities of foreign issuers that are listed on a
domestic securities exchange or are traded in the United States on the
over-the-counter market. The Series' restriction on investment in foreign
securities is a fundamental policy that cannot be changed without the approval
of a majority, as defined in the Investment Company Act of 1940 (the "1940
Act"), of the outstanding voting securities of a Series.
There are risks in investing in foreign securities not typically involved in
domestic investing. An investment in foreign securities may be affected by
changes in currency rates and in exchange control regulations. Foreign companies
are frequently not subject to the accounting and financial reporting standards
applicable to domestic companies, and there may be less information available
about foreign issuers. There is frequently less government regulation of foreign
issuers than in the United States. In addition, investments in foreign countries
are subject to the possibility of expropriation or confiscatory taxation,
political or social instability or diplomatic developments that could adversely
affect the value of those investments. There may also be imposition of
withholding taxes. Foreign financial markets may have less volume and longer
settlement periods than U.S. markets which may cause liquidity problems for a
Series. In addition, costs associated with transactions on foreign markets are
generally higher than for transactions in the U.S.
Obligations of foreign governmental entities are subject to various types of
governmental support and may or may not be supported by the full faith and
credit of a foreign government.
REPURCHASE AGREEMENTS
Each Series may enter into repurchase agreements with respect to portfolio
securities. Under the terms of a repurchase agreement, the Series purchases
securities ("collateral") from financial institutions such as banks and
broker-dealers (the "seller") which the Advisor deems to be creditworthy,
subject to the seller's agreement to repurchase them at a mutually agreed-upon
date and price. The repurchase price generally equals the price paid by the
Series plus interest negotiated on the basis of current short-term rates (which
may be more or less than the rate on the underlying portfolio securities).
The seller under a repurchase agreement is required to maintain the value of
the collateral held pursuant to the agreement at not less than 100% of the
repurchase price, and securities subject to repurchase agreements are held by
the Series' Custodian either directly or through a securities depository.
Default by the seller would, however, expose the Series to possible loss because
of adverse market action or delay in connection with the disposition of the
underlying securities. Repurchase agreements are considered to be loans by the
Series under the 1940 Act.
SECURITIES LENDING
Each 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 will 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 determines to make securities loans, the value of the securities loaned
will not exceed 30% of the value of the total assets of the Series.
U.S. GOVERNMENT SECURITIES
Each 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 (e.g., 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.,
Fannie Mae).
13
<PAGE>
SHORT SALES
Each 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 a Series owns securities equivalent to those sold short. No more than
25% of the net assets (taken at current value) of a Series may be held as
collateral for such sales at any one time. Such short sales can be used as a
hedge.
FORWARD COMMITMENTS OR PURCHASES ON A WHEN-ISSUED BASIS
Each 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. Each Series will enter into these arrangements with the
intention of acquiring the securities in question and not for speculative
purposes and will maintain a separate account with a segregated portfolio of
liquid assets in an amount at least equal to the purchase price.
MORTGAGE-BACKED SECURITIES
Each 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"), Fannie Mae, 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"). Each Series may purchase CMOs 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.
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 they are difficult to price at times because they are more thinly
traded and less liquid securities. Market prices may decline significantly in
periods of general economic difficulty which may follow periods of rising
interest rates. Securities in the lowest rating category may be in default. For
these reasons, it is the 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 own independent and ongoing review of credit
quality. In the event a security is downgraded below these ratings after
purchase, the Advisor will review and take appropriate action with regard to the
security. Each Series will also seek to minimize risk by diversifying its
holdings.
14
<PAGE>
ZERO-COUPON BONDS
Some of the securities in which the Series invest may include so-called
"zero-coupon" bonds. Zero-coupon bonds are issued at a significant discount from
face value and pay interest only at maturity rather than at intervals during the
life of the security. Each Series is required to accrue and distribute income
from zero-coupon bonds on a current basis, even though it does not receive that
income currently in cash. Thus, the Series may have to sell investments to
obtain cash needed to make income distributions. The discount in the absence of
financial difficulties of the issuer decreases as the final maturity of the
security approaches. Zero-coupon bonds can be sold prior to their maturity date
in the secondary market at the then prevailing market value, which depends
primarily on the time remaining to maturity, prevailing level of interest rates
and the perceived credit quality of the issues. The market prices of zero-coupon
securities are subject to greater fluctuations in response to changes in market
interest rates than bonds which pay interest currently.
VARIABLE AND FLOATING RATE INSTRUMENTS
Certain of the obligations purchased by a 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
at some other interval and it 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
Each 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' portfolios, that is, to reduce the overall level of risk
that normally would be expected to be associated with their 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. Each Series also may purchase forward foreign
currency exchange contracts to hedge currency exchange rate risk. In addition,
each Series is authorized to purchase and sell stock index futures contracts and
options on stock index futures contracts. Each 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. Each 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. Each 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 Fund 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 for which the option
is "in the money."
15
<PAGE>
FUTURES CONTRACTS
Each 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. None of
the Series may 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) that do not constitute "bona fide hedging" under Commodity
Futures Trading Commission ("CFTC") rules would exceed 5% of the liquidation
value of a 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 Series will
comply with guidelines established by the Securities and Exchange Commission
with respect to covering of obligations under futures contracts and will set
aside cash and/or liquid high grade securities in a segregated account with its
Custodian in the amount prescribed.
A Series' successful use of futures contracts depends on the Advisor's
ability to accurately predict the direction of the market and is subject to
various additional risks. The correlation between movements in the price of a
futures contract and the price of the security being hedged is imperfect and
there is a risk that the value of the security being hedged may increase or
decrease at a greater rate than the related futures contract, resulting in a
loss to the Series. Certain futures exchanges or boards of trade 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.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
A 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 Series
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 Series do 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. A Series
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. None of the Series may 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) that do not
constitute "bona fide hedging" under CFTC rules would exceed
16
<PAGE>
5% of the liquidation value of a 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.
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 accurately predict movements in the prices of
individual securities, fluctuations in domestic and foreign markets and currency
exchange rates, and movements in interest rates; (2) there may be an imperfect
correlation between the changes in market value of the securities held by the
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 "regulated 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.
PRINCIPAL INVESTMENT RESTRICTIONS
Each 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.
Each Series may borrow money, but only from a bank for temporary or
emergency purposes in amounts not exceeding 10% of its total assets and the
Series will not make additional investments while borrowings greater than 5% of
its total assets are outstanding.
None of the Series may, with respect to 75% of its total assets, invest more
than 5% of the value of its total assets at the time of investment in securities
of any one issuer (other than obligations issued or guaranteed by the United
States Government, its agencies or its instrumentalities). None of the Series
may purchase more than 10% of the outstanding voting securities of any one
issuer.
None of the Series may invest 25% or more of the value of its total assets
in securities of issuers in any one industry (other than U.S. Government
securities).
None of the Series will 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.
Each Series may purchase shares of closed-end investment companies that are
traded on national exchanges to the extent permitted by applicable law.
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None of the Series may make loans, except that each may invest in debt
securities and repurchase agreements and may engage in securities lending.
Additional information about the Series' investment restrictions is
contained in the Statement of Additional Information.
MANAGEMENT
- -----------
The overall business and affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Series, including the Fund's
agreements with its Investment Advisor, Custodian and Distributor. The
day-to-day operations of the Series are delegated to the Fund'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
makes all the investment decisions for the Fund.
The Advisor acts as Investment Advisor to 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 Fund 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 Fund to serve as such.
As of the date of this Prospectus, the Advisor supervised over $7.0 billion
in assets of clients, including both individuals and institutions. For its
services to the Fund under the Investment Advisory Agreement, the Fund pays the
Advisor a fee, computed daily and payable monthly, at an annual rate of .35% for
the Flexible Yield Series I, .45% for the Flexible Yield Series II, and .50% for
the Flexible Yield Series III of the Fund's daily net assets. In addition , the
Advisor is separately compensated for acting as Transfer Agent for the Series.
The Fund 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, and
Accounting Services Agent, if obtained for the Fund from an entity other than
the Advisor; (vii) expenses incidental to the issuance of its shares, including
issuance on the payment of, or reinvestment of, dividends and capital gain
distributions; (viii) fees and expenses incidental 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 with respect to servicing or with respect to which the Fund may have
to indemnify its officers and directors.
The Advisor may use its own resources to engage in activities that may
promote the sale of the Fund, including payments to third parties who provide
shareholder support servicing and distribution assistance. Investors may be
charged a fee if they effect transactions through a broker or agent.
DISTRIBUTION OF FUND SHARES
- ------------------------
Manning & Napier Investor Services, Inc. (the "Distributor") acts as
distributor of Fund shares and is located at the same address as the Advisor and
the Fund. The Fund has adopted a Distribution Agreement with respect to each
Class of shares and related Plans of Distribution with respect to Class B, C, D
and E Shares (the "Plans") pursuant to Rule 12b-1 under the 1940 Act. Class A
Shares are offered to investors who purchase their shares directly from the
Distributor and are not subject to distribution or shareholder servicing fees.
Class B, C, D and E Shares are offered only by or through investment dealers,
banks or financial service firms that provide distribution, administrative
and/or shareholder services ("Financial Intermediaries").
The Distributor receives distribution and services fees, at the rates set
forth below, for providing distribution and/or shareholder services to the Class
B, C, D and E Shares. The Distributor expects to allocate most of its
distribution fees and
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shareholder service fees to Financial Intermediaries that enter into shareholder
servicing agreements ("Servicing Agreements") with the Distributor. The
different Classes permit the Fund to allocate an appropriate amount of fees to a
Financial Intermediary in accordance with the level of services it agrees to
provide under its Servicing Agreement.
As compensation for providing distribution and shareholders services for the
Class B Shares, the Distributor receives a distribution fee equal to .75% of the
Class B Shares' average daily net assets and a shareholder servicing fee equal
to .25% of the Class B Shares' average daily net assets. As compensation for
providing distribution and shareholder services for the Class C Shares, the
Distributor receives an aggregate distribution and shareholder servicing fee
equal to .75% of the Class C Shares' average daily net assets. As compensation
for providing distribution and shareholders service for the Class D Shares, the
Distributor receives an aggregate distribution and shareholder servicing fee
equal to .50% of the Class D Shares' average daily net assets. The shareholder
services component of the foregoing fees for Classes C and D is limited to .25%
of the average daily net assets of the respective class. As compensation for
providing distribution services for the Class E Shares, the Distributor receives
an aggregate distribution and shareholder servicing fee equal to .25% of the
average daily net assets of the Class E Shares. The Distributor may, in its
discretion, voluntarily waive from time to time all or any portion of its
distribution fee.
Payments under the Plans are made as described above regardless of the
Distributor's actual cost of providing distribution services and may be used to
pay the Distributor's overhead expenses. If the cost of providing distribution
services to the Fund is less than the payments received, the unexpended portion
of the distribution fees may be retained as profit by the Distributor. The
Distributor may from time to time and from its own resources pay or allow
additional discounts or promotional incentives in the form of cash or other
compensation (including merchandise or travel) to Financial Intermediaries and
it is free to make additional payments out of its own assets to promote the sale
of Fund shares. Similarly, the Advisor may, from its own resources, defray or
absorb costs related to distribution, including compensation of employees who
are involved in distribution.
YIELD AND TOTAL RETURN
- -------------------
From time-to-time each Series may advertise its yield and total return. BOTH
YIELD AND TOTAL RETURN FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE NOT
INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a Series refers
to the average annual compounded rates of return over one-, five-, and ten-year
periods or for the life of the Series (as stated in the advertisement) that
would equate an initial amount invested at the beginning of a stated period to
the ending redeemable value of the investment, assuming the reinvestment of all
dividend and capital gains distributions.
The "30-day yield" of a Series is calculated by dividing the net investment
income per share earned during a 30-day period by the net asset value per share
on the last day of the period. Net investment income includes interest and
dividend income earned on a Series' securities; it is net of all expenses and
all recurring and nonrecurring charges that have been applied to all shareholder
accounts. The yield calculation assumes that net investment income earned over
30 days is compounded monthly for six months and then annualized. Methods used
to calculate advertised yields are standardized for all stock and bond mutual
funds. However, these methods differ from the accounting methods used by a
Series to maintain its books and records, and so the advertised 30-day yield may
not fully reflect the income paid to your own account or the yield reported in a
Series' reports to shareholders.
The respective performance figures for the Classes will differ because of
the different distribution and/or shareholders services fees charged to Class B,
C, D and E Shares.
PURCHASES, EXCHANGES AND REDEMPTIONS OF SHARES
- --------------------------------------------
Purchases and redemptions of shares of the Series may be made on any day the
New York Stock Exchange is open for trading.
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PURCHASES
The minimum initial investment in each class of the Series is $2,000 and
subsequent purchases must be at least $100. The minimum initial investment is
waived for participants in the Automatic Investment Plan (see "Automatic
Investment Plan" below) and for shareholders who purchase shares through
Financial Intermediaries that provide sub-accounting services to the Fund. These
minimums may also be waived at the Distributor's discretion. The Fund has the
right to refuse any order.
Payment may be made by check or readily available funds. A purchase order
will be effective as of the day the check is received by the Distributor if the
Distributor receives the check before the close of regular trading on the New
York Stock Exchange, normally 4:00 p.m., Eastern time. If payment is received by
wire, the purchase order will be effective the day the payment is received by
the Series' custodian bank. The purchase price of shares of each Class of a
Series is the net asset value determined on the day the check or wire is
received.
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 approved by the Fund's Board of Directors.
AUTOMATIC INVESTMENT PLAN
Shareholders may purchase shares regularly through the Automatic Investment
Plan with a pre-authorized draft drawn on a checking account. Under this plan,
the shareholder may elect to have a specified amount invested on a regular
schedule. The minimum amount of each automatic investment is $25. The amount
specified by the shareholder will be withdrawn from the shareholder's bank
account using the pre-authorized draft. This amount will be invested at the
applicable share price determined on the date the amount is available for
investment. Participation in the Automatic Investment Plan may be discontinued
either by the Fund or the Shareholder upon 30 days' prior written notice to the
other party. A shareholder who wishes to enroll in the Automatic Investment Plan
may do so by completing the applicable section of the Account Application Form
or contacting the Fund for an Automatic Investment Plan Form.
EXCHANGES BETWEEN SERIES
As permitted pursuant to any rule, regulation or order promulgated by the
Securities and Exchange Commission, some or all of the shares of a Class in an
account with the Fund for which payment has been received by the Fund may be
exchanged for shares of the same Class of any of the other Manning & Napier
Fund, Inc. Series that offers that Class at 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.
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REDEMPTIONS
If a shareholder desires to redeem 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), or through the Automatic Investment Plan,
payment of redemption proceeds may be delayed up to 15 days from the purchase
date in an effort to assure that such check or draft has cleared.
Subject to the Series' compliance with applicable regulations, each 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. The Fund has elected, however, to be governed by Rule 18f-1 under the 1940
Act as a result of which the Fund is obligated to redeem shares, with respect to
any one shareholder during any 90-day period, solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund at the beginning of the
period.
OTHER INFORMATION ABOUT PURCHASES AND REDEMPTIONS
Due to the relatively high cost of maintaining small accounts, the Series
reserve 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 (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.
SHARE PRICE
- ----------
The share price or "net asset value" per share of each class of each series
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 Standard 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, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
The net asset value per share of each Class of a Series is determined by
dividing the total value of its investments and other assets that are allocated
to that Class, less any liabilities that are allocated to that Class, by the
Class's total outstanding shares. 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
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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 CAPITAL GAIN DISTRIBUTIONS
Each Series intends to distribute to its shareholders on an quarterly basis
dividends substantially equal to all of its net investment income. Each Series
also intends to distribute net realized short and long-term capital gains, if
any, taking into account any available capital loss carryforwards from prior
years at least 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 Fund, that payments
of either ordinary income dividends or capital gain distributions, or both, be
made in cash. The Fund will notify each non-corporate taxable 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 31% 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.
If a taxable shareholder invests shortly before the Series declares a
taxable dividend, a portion of the investment will be returned as a taxable
distribution (commonly referred to as "buying into a dividend"). This
distribution will be taxable regardless of whether you elected to reinvest your
distribution in additional shares or take the distribution in cash. If you would
like to avoid buying into a dividend, you may contact the Fund to find out when
the Series plans to declare a distribution and invest after that date.
TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a general summary of certain federal income tax
considerations affecting the Series and their 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. These Series are not managed with respect to tax outcomes
for their shareholders.
Under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), the Series is treated as a separate entity for federal income tax
purposes. The Series intend to qualify each year as regulated investment
companies under Subchapter M of the Code. If the Series so qualify, they will
not be subject to federal income taxes on their net investment income and
capital gains, if any, which the Series distribute to their 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 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.
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 intend to
make sufficient
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distributions of their 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.
GENERAL INFORMATION
- -----------------
The Fund 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.
Each share of a Series represents an identical interest in the investment
portfolio of that Series and has the same rights, except that (i) each class of
shares bears those distribution fees, service fees and administrative expenses
applicable to the respective class of shares as a result of its sales
arrangements, which will cause the different classes of shares to have different
expense ratios and to pay different rates of dividends, (ii) each class has
exclusive voting rights with respect to those provisions of the Series' Rule
12b-1 distribution plan which relate only to such class and (iii) the classes
have different exchange privileges. As a result of each class' differing Rule
12b-1 distribution and shareholder services plan, shares of different classes of
the same Series may have different net asset values per share.
The Fund does not expect to hold annual meetings of shareholders but special
meetings of shareholders may be held under certain circumstances. Shareholders
of the Fund retain the right, under certain circumstances, to request that a
meeting of shareholders be held for the purpose of considering the removal of a
Director from office, and if such a request is made, the Fund will assist with
shareholder communications in connection with the meeting. The shares of the
Fund have equal rights with regard to voting, redemption and liquidations. The
Fund's shareholders will vote in the aggregate and not by Series or Class 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 or a Class. Income, direct liabilities and direct operating expenses
of a Series will be allocated directly to the Series, while general liabilities
and expenses of the Fund will be allocated among the Series. 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.
All securities and cash are held by the custodian, Boston Safe Deposit and
Trust Company. Deloitte & Touche, LLP serves as independent accountants for the
Series and will audit their financial statements annually.
Manning & Napier Advisors, Inc. serves as the Fund's Transfer and Dividend
Disbursing Agent. Shareholder inquiries should be directed to Manning & Napier
Fund, Inc., P.O. Box 41118, Rochester, New York 14604.
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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.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
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.
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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.
Debt rated BB, B, CCC and CC is regarded, on balance, as predominately
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
The C rating is reserved for income bonds on which no interest is being
paid.
Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
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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 - This rating is 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.
26
<PAGE>
MANNING & NAPIER FUND
SMALL CAP
SERIES
PROSPECTUS
NOVEMBER 14, 1997
<PAGE>
MANNING & NAPIER FUND, INC.
P.O. Box 41118
Rochester, New York 14604
1-800-466-3863
SMALL CAP SERIES
Manning & Napier Fund, Inc. (the "Fund"), is an open-end management
investment company that offers separate series, each a separate investment
portfolio having its own investment objective and policies. This Prospectus
relates to the Class A, B, C, D and E Shares (each a "Class" and collectively,
the "Classes") of the Small Cap Series of the Fund (the "Series"). The Series'
investment objective is to provide long-term growth of capital by investing
principally in the equity securities of small issuers.
This Prospectus provides you with the basic information you should know
before investing in the Series. The Fund's other series are offered through
separate prospectuses. You should read this Prospectus and keep it for future
reference. A Statement of Additional Information dated April 14, 1997, as
supplemented through November 14 ,1997, containing additional information about
the Fund has been filed with the Securities and Exchange Commission and is
incorporated by reference into 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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS NOVEMBER 14, 1997.
<PAGE>
(This page has been left blank intentionally.)
2
<PAGE>
EXPENSES
- ---------
SHAREHOLDER TRANSACTION EXPENSES
(as a percentage of offering price)
<TABLE>
<CAPTION>
All Classes
-----------
<S> <C>
Maximum Sales Charge Imposed on Purchases........................... None
Redemption Fees(1).................................................. None
Exchange Fees(2).................................................... 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."
(2) A shareholder may effect up to four (4) exchanges in a twelve (12) month
period without charge. Subsequent exchanges are subject to a fee of $15.
ANNUAL OPERATING EXPENSES - CLASS A SHARES
The following information provides (i) a tabular summary of expenses relating to
the annual operating expenses of the Class A Shares of the Series and (ii) an
example illustrating the dollar cost of such expenses on a $1,000 investment.
ANNUAL OPERATING EXPENSES OF THE CLASS A SHARES OF THE SERIES
- --------------------------------------------------------
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)(1):
- -----------------------------------------
<TABLE>
<S> <C>
Management Fees........................................................................... 1.00%
Rule 12b-1 Fees........................................................................... None
Other Expenses............................................................................ 0.08%
---
Total Operating Expenses.................................................................. 1.08%
---
---
</TABLE>
(1) The Small Cap Series offered Class A Shares during the year ended December
31, 1996; therefore, actual management fees and other expenses are used
above.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class A Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
EXAMPLE - CLASS A SHARES
- ---------------------
You would pay the following expenses on a $1,000 investment in Class A Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
----- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Small Cap Series $ 11 $ 34 $ 60 $ 137
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
3
<PAGE>
ANNUAL OPERATING EXPENSES - CLASS B SHARES
The following information provides (i) a tabular summary of expenses relating to
the annual operating expenses of the Class B Shares of the Series and (ii) an
example illustrating the dollar cost of such expenses on a $1,000 investment.
ANNUAL OPERATING EXPENSES OF THE CLASS B SHARES OF THE SERIES
- --------------------------------------------------------
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)(1):
- -----------------------------------------
<TABLE>
<S> <C>
Management Fees............................................................................. 1.00%
Rule 12b-1 Fees(2).......................................................................... 1.00%
Other Expenses.............................................................................. 0.08%
---
Total Operating Expenses.................................................................... 2.08%
---
---
</TABLE>
(1) The Small Cap Series offered only Class A Shares during the fiscal year
ended December 31, 1996; therefore, actual management fees and other
expenses of Class A shares of the Series are used above.
(2) Of the Rule 12b-1 fees for the Class B shares, 0.25% represents shareholder
service fees.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class B Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
Due to the continuous nature of Rule 12b-1 fees, long-term shareholders may pay
more than the equivalent of the maximum front-end sales charges otherwise
permitted by the Conduct Rules of the National Association of Securities
Dealers, Inc. ("NASD").
EXAMPLE - CLASS B SHARES
- ---------------------
You would pay the following expenses on a $1,000 investment in Class B Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
----- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Small Cap Series $ 21 $ 66 $ 115 $ 262
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
4
<PAGE>
ANNUAL OPERATING EXPENSES - CLASS C SHARES
The following information provides (i) a tabular summary of expenses relating to
the annual operating expenses of the Class C Shares of the Series and (ii) an
example illustrating the dollar cost of such expenses on a $1,000 investment.
ANNUAL OPERATING EXPENSES OF THE CLASS C SHARES OF THE SERIES
- --------------------------------------------------------
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)(1):
- -----------------------------------------
<TABLE>
<S> <C>
Management Fees........................................................................... 1.00%
Rule 12b-1 Fees(2)........................................................................ 0.75%
Other Expenses............................................................................ 0.08%
---
Total Operating Expenses.................................................................. 1.83%
---
---
</TABLE>
(1) The Small Cap Series offered only Class A Shares during the fiscal year
ended December 31, 1996; therefore, actual management fees and other
expenses of Class A Shares of the Series are used above.
(2) Of the Rule 12b-1 fees for the Class C shares, up to 0.25% represents
shareholder service fees.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class C Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
Due to the continuous nature of Rule 12b-1 fees, long-term shareholders may pay
more than the equivalent of the maximum front-end sales charges otherwise
permitted by the Conduct Rules of the NASD.
EXAMPLE - CLASS C SHARES
- ---------------------
You would pay the following expenses on a $1,000 investment in Class C Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
----- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Small Cap Series $ 18 $ 58 $ 101 $ 230
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
5
<PAGE>
ANNUAL OPERATING EXPENSES - CLASS D SHARES
The following information provides (i) a tabular summary of expenses relating to
the annual operating expenses of the Class D Shares of the Series and (ii) an
example illustrating the dollar cost of such expenses on a $1,000 investment.
ANNUAL OPERATING EXPENSES OF THE CLASS D SHARES OF THE SERIES
- --------------------------------------------------------
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)(1):
- -----------------------------------------
<TABLE>
<S> <C>
Management Fees........................................................................... 1.00%
Rule 12b-1 Fees(2)........................................................................ 0.50%
Other Expenses............................................................................ 0.08%
---
Total Operating Expenses.................................................................. 1.58%
---
---
</TABLE>
(1) The Small Cap Series offered only Class A Shares during the fiscal year
ended December 31, 1996; therefore, actual management fees and other
expenses of Class A Shares of the Series are used above.
(2) Of the Rule 12b-1 fees for the Class D shares, up to 0.25% represents
shareholder service fees.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class D Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
Due to the continuous nature of Rule 12b-1 fees, long-term shareholders may pay
more than the equivalent of the maximum front-end sales charges otherwise
permitted by the Conduct Rules of the NASD.
EXAMPLE - CLASS D SHARES
- ---------------------
You would pay the following expenses on a $1,000 investment in Class D Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
----- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Small Cap Series $ 16 $ 50 $ 87 $ 193
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
6
<PAGE>
ANNUAL OPERATING EXPENSES - CLASS E SHARES
The following information provides (i) a tabular summary of expenses relating to
the annual operating expenses of the Class E Shares of the Series and (ii) an
example illustrating the dollar cost of such expenses on a $1,000 investment.
ANNUAL OPERATING EXPENSES OF THE CLASS E SHARES OF THE SERIES
- --------------------------------------------------------
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)(1):
- -----------------------------------------
<TABLE>
<S> <C>
Management Fees........................................................................... 1.00%
Rule 12b-1 Fees(2)........................................................................ 0.25%
Other Expenses............................................................................ 0.08%
---
Total Operating Expenses.................................................................. 1.33%
---
---
</TABLE>
(1) The Small Cap Series offered only Class A Shares during the fiscal year
ended December 31, 1996; therefore, actual management fees and other
expenses of Class A Shares of the Series are used above.
(2) Of the Rule 12b-1 fees for the Class E Shares, up to 0.25% may represent
shareholder service fees.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class E Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
Due to the continuous nature of Rule 12b-1 fees, long-term shareholders may pay
more than the equivalent of the maximum front-end sales charges otherwise
permitted by the Conduct Rules of the NASD.
EXAMPLE - CLASS E SHARES
- ---------------------
You would pay the following expenses on a $1,000 investment in Class E Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
----- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Small Cap Series $ 13 $ 42 $ 73 $ 167
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
7
<PAGE>
FINANCIAL HIGHLIGHTS
- -----------------
The following table provides selected per share data and ratios for the Class A
Shares of the Small Cap Series (for a share outstanding throughout the period
for the periods shown). The table, except with respect to the unaudited interim
periods, is part of the Series' financial statements, which are incorporated by
reference into the Fund's Statement of Additional Information. The financial
highlights presented herein for the period ended June 30, 1997 are unaudited.
Coopers & Lybrand, L.L.P. , the Fund's independent accountants, audited the
Fund's financial highlights for each of the other periods shown. Additional
performance information is contained in the Fund's 1997 Semi-Annual Report to
Shareholders and its 1996 Annual Report to Shareholders and is available upon
request and without charge by calling 1-800-466-3863. Because the Fund's Class
B, C, D and E Shares had not been introduced as of June 30, 1997, no financial
highlights are presented for the Class B, C, D or E Shares of the Series. This
table should be read in conjunction with the Series' financial statements and
notes thereto.
SMALL CAP SERIES (1),(2) - Class A Shares
<TABLE>
<CAPTION>
For the six
months ended For the year For the year For the year
June 30, 1997 ended Dec. ended Dec. ended Dec.
(Unaudited) 31, 1996 31, 1995 31, 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING
THROUGHOUT EACH PERIOD)
NET ASSET VALUE - BEGINNING OF PERIOD $ 12.09 $ 11.95 $ 12.92 $ 12.52
------------- ------------- ------------- -------------
Income from investment operations
Net investment income (loss) 0.01 0.05 0.00 (0.07)
Net realized and unrealized gain
(loss) on investments 2.13 1.11 1.93 1.05
------------- ------------- ------------- -------------
Total from investment operations 2.14 1.16 1.93 0.98
------------- ------------- ------------- -------------
Less distributions declared to
shareholders
From net investment income - (0.04) - -
From net realized gain on investments - (0.89) (2.90) (0.58)
In excess of net realized gains - (0.09) - -
Redemption of capital - - - -
------------- ------------- ------------- -------------
Total distributions declared to
shareholders - (1.02) (2.90) (0.58)
------------- ------------- ------------- -------------
NET ASSET VALUE - END OF PERIOD $ 14.23 $ 12.09 $ 11.95 $ 12.92
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Total return(11) 17.70% 10.06% 14.70% 8.01%
Ratios (to average net assets) /
Supplemental data:
Expenses(8) 1.08%(5) 1.08% 1.07% 1.10%
Net investment income 0.22%(5) 0.29% (0.03%) (0.58%)
Portfolio Turnover 53% 31% 77% 31%
Average Commission Rate Paid $ 0.0315 $ 0.0291 $ 0.05 -
NET ASSETS - END OF PERIOD (000's
omitted) $ 122,419 $ 100,688 $ 143,003 $ 105,522
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
8
<PAGE>
FINANCIAL HIGHLIGHTS
SMALL CAP SERIES (1), (2) - Class A Shares (Continued)
<TABLE>
<CAPTION>
For the period
April 30, 1992 For the period
(recommencement Jan. 1, 1989
For the year of operations) to July 24, 1989 For the year For the year
ended Dec. to Dec. 31, (date of full ended Dec. ended Dec.
31, 1993 1992 redemption) 31, 1988(3) 31, 1987
------------- --------------- ------------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING
THROUGHOUT EACH PERIOD)
NET ASSET VALUE - BEGINNING OF PERIOD $ 11.24 $ 10.00(10) $ 8.96 $ 8.93 $ 8.08
------------- ------- ------ ------------- -------------
Income from investment operations
Net investment income (loss) (0.04) (0.02) (0.39) 0.10 0.13
Net realized and unrealized gain
(loss) on investments 1.70 1.63 - (0.07) 0.75
------------- ------- ------ ------------- -------------
Total from investment operations 1.66 1.61 (0.39) 0.03 0.88
------------- ------- ------ ------------- -------------
Less distributions declared to
shareholders
From net investment income - - - - -
From net realized gain on investments (0.38) (0.29) - - (0.03)
In excess of net realized gains - (0.08)(9) - - -
Redemption of capital - - (8.57) - -
------------- ------- ------ ------------- -------------
Total distributions declared to
shareholders (0.38) (0.37) (8.57) - (0.03)
------------- ------- ------ ------------- -------------
NET ASSET VALUE - END OF PERIOD $ 12.52 $ 11.24 $ - $ 8.96 $ 8.93
------------- ------- ------ ------------- -------------
------------- ------- ------ ------------- -------------
Total return(11) 14.64% 16.2% -- (7) 0.33% 10.89%
Ratios (to average net assets) /
Supplemental data:
Expenses(8) 1.13% 1.27%(5) 14.59%(5,7) 1.34% 2.26%
Net investment income (0.43%) (0.26%)(5) (8.02%)(5,7) 0.91% 0.95%
Portfolio Turnover 12% 24% - (6) - (6) 76%
Average Commission Rate Paid - - - - -
NET ASSETS - END OF PERIOD (000's
omitted) $ 70,734 $ 33,079 $ - $ 90 $ 36,193
------------- ------- ------ ------------- -------------
------------- ------- ------ ------------- -------------
<CAPTION>
For the period
Jan. 6, 1986
(commencement
of operations)
to
Dec. 31,
1986(4)
---------------
<S> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING
THROUGHOUT EACH PERIOD)
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.00
-------
Income from investment operations
Net investment income (loss) (0.09)
Net realized and unrealized gain
(loss) on investments (1.83)
-------
Total from investment operations (1.92)
-------
Less distributions declared to
shareholders
From net investment income -
From net realized gain on investments -
In excess of net realized gains -
Redemption of capital -
-------
Total distributions declared to
shareholders -
-------
NET ASSET VALUE - END OF PERIOD $ 8.08
-------
-------
Total return(11) (19.2%)
Ratios (to average net assets) /
Supplemental data:
Expenses(8) 9.08%(5)
Net investment income (5.62%)(5)
Portfolio Turnover - (6)
Average Commission Rate Paid -
NET ASSETS - END OF PERIOD (000's
omitted) $ 1,608
-------
-------
</TABLE>
9
<PAGE>
(1) Prior to July 8, 1993, the investment practice of the Fund resulted in the
active operation of the investment portfolio for discrete periods. On April
30, 1992, the Fund resumed sales of shares to advisory clients and employees
of Manning & Napier Advisors, Inc. and its affiliates. On July 8, 1993, the
Fund began offering shares directly to investors. Previously, the Fund was
in active operation from November 11, 1986 to May 14, 1987 and from December
1, 1987 to April 13, 1988.
During the period of January 6, 1986 to November 10, 1986, May 15, 1987 to
November 30, 1987 and April 14,1988 to July 24, 1989, the only shareholders
of the Fund were the shareholders who provided the initial capitalization
for the Fund (the "Initial Shareholders"). During the periods when the only
shareholders of the Fund were the Initial Shareholders, assets of the Fund
were invested in U.S. Treasury securities. On July 11 and 24, 1989 the
shares held by the Initial Shareholders were redeemed in full and the Fund
remained dormant until April 30, 1992.
(2) Per share data for all period prior to May 18, 1988, have been restated to
reflect the 10 for 1 stock dividend effected on May 18, 1988.
(3) Per share data was determined using a monthly average of the shares
outstanding throughout the period.
(4) On November 11, 1986, the Fund commenced sales of shares of the Small Cap
Series to persons who were investment advisory clients of the Fund's
Advisor. Prior to that date, the Small Cap Series did not engage in any
business operations other than to purchase and hold approximately $100,000
of U.S. Treasury securities.
(5) Annualized.
(6) For these periods, there were no purchases of securities whose maturities or
expiration dates were greater than one year from the acquisition date.
(7) During the period January 1, 1989 to July 24, 1989, the only shareholders
and resulting assets were those of the Initial Shareholders, as described in
Note 1, who redeemed their shares on July 11 and 24, 1989; therefore, the
ratios and total return presented may not be representative of an actively
operating fund.
(8) Absent fee waivers, the ratios of expenses to average daily net assets is as
follows: 1.27% (for the period 4/30/92 to 12/31/92); 15.57% (for the period
1/1/89 to 7/24/89);1.34% (for the year ended 12/31/88); 2.27% (for the year
ended 12/31/87); and 9.34% (for the period 1/6/88 (commencement of
operations) to 12/31/86).
(9) Distributions differ from net investment income and net realized capital
gains because of book/tax timing differences, primarily due to the
requirements of the excise tax regulations enacted as part of the 1986 Tax
Reform Act. The regulations required the Series to measure capital gains
through October 31, 1992. The excise tax regulations also required the
Series to distribute those gains before December 31, 1992 to avoid payment
of excise tax.
(10) Initial offering price upon recommencement of operations on April 30, 1992.
(11) Represents aggregate total return for the period indicated.
10
<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. This Prospectus relates to the
Small Cap Series of the Fund (the "Series"), which is offered through five
separate classes of shares, Class A, B, C, D and E Shares, respectively. Class A
Shares of the Series are offered to investors who purchase their shares directly
from Manning & Napier Investor Services, Inc. (the "Distributor"). Class B, C, D
and E Shares are offered only through financial intermediaries which provide to
the Fund and its shareholders varying levels of distribution and shareholder
services as described under "Distribution of Fund Shares" below. Information
regarding the Fund'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. The Series is a diversified fund.
Historically, shares of the Fund were available only in connection with
certain strategies Manning & Napier Advisors, Inc. (the "Advisor") employed on
behalf of discretionary account clients that had authorized the Advisor to
acquire and dispose of Fund shares on their behalf. These strategies entailed
using one or more series of the Fund as a means to capture opportunities in
specific market or industry sectors and to provide diversification among asset
classes (e.g., international diversification or portfolio diversification among
small-cap stocks) that could not otherwise be captured efficiently and with
sufficient diversification. Once an investment opportunity was captured for a
Series, that Series would ordinarily be "collapsed" (i.e., securities sold and
the shares of the Series redeemed) and the proceeds returned to the individual
client accounts.
The Advisor may also make the shares of the Fund offered hereby available in
additional circumstances. First, Fund shares, including shares of series offered
through separate prospectuses, may be used in connection with a discretionary
account management service that uses Fund shares as the principal underlying
investment medium. In addition, shares are offered to investors that are not
discretionary account clients of the Advisor. Series made available in this way
could no longer be collapsed at the Advisor's sole discretion.
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 only for clients with the same investment
objective. However, the Advisor seeks to manage cash flows into and out of the
Series in the interests of the Fund and its clients so as to minimize the effect
on performance.
RISK AND INVESTMENT OBJECTIVES AND POLICIES
- ---------------------------------------
The Series seeks to achieve its investment objective by investing
principally in equity securities of small issuers. In general, a small issuer is
one which has a market capitalization less than $700 million, or less than the
median market capitalization of the S&P Midcap Index (the median market
capitalization of the S&P Midcap Index as of the close on December 31, 1996 was
approximately $1,415.4 million), whichever is greater at the time of investment.
The Series will, under normal circumstances, have at least 65% of the value of
its total net assets invested in such securities; the balance, if any, will be
invested in equity securities of other than small issuers considered appropriate
by the Advisor. Current income is not a factor in pursuing the Series'
objective.
Investing in the equity securities of small companies involves greater risk
than investing in such securities of larger companies, because the equity
securities of small companies may have less marketability and may be subject to
more abrupt or erratic market movements than the equity securities of larger
companies.
The objective of the Series is to provide long-term growth of capital. There
is no assurance that the Series will attain its objective. The Series will
attempt to achieve its objective by investing primarily in equity securities as
described below. Equity securities consist of common stocks and other securities
having some of the characteristics of common stocks, such as convertible
preferred stocks, convertible bonds and warrants. The Series does not intend to
invest more than 5% of the value of its total net assets in warrants. The
principal factor in selecting convertible bonds will be the potential
opportunity to benefit from movement in the stock price. There will be no
minimum rating standards for debt aspects of such securities. Convertible
11
<PAGE>
bonds purchased by the Series may be subject to the risk of being called by the
issuer. However, the Series will not buy bonds if they are in default as to
payment of principal or interest.
The Series expects to be fully invested in equity securities under normal
circumstances. During periods when economic conditions in the primary investment
industries or vehicles for the Series are unfavorable or when market conditions
suggest a temporary defensive position, the Series may invest its assets in U.S.
Government securities, corporate bonds and money market instruments, including,
but not limited to, commercial paper, bankers' acceptances, certificates of
deposit and repurchase agreements, rated in one of the top two rating categories
by a major rating service or, if unrated, of comparable quality as determined by
the Advisor (see the Appendix for details). In addition, even under normal
circumstances the Series may to varying degrees invest in certain types of
securities or use certain techniques and strategies discussed below under "Risk
and Additional Information About Investment Policies".
The Series' investment objective and policies as described above 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.
RISK AND ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
- ---------------------------------------------------
In attempting to achieve its objective, the Series may follow a number of
investment strategies as described below. These strategies have been voluntarily
adopted by the Board of Directors based upon current circumstances and may be
changed or amended by action of the Board of Directors without prior notice or
approval of the Series' shareholders. Additional information concerning these
strategies and their related risks is contained in the Statement of Additional
Information.
FOREIGN SECURITIES
In seeking its objective, the Series may invest up to 10% of its assets in
foreign securities which are not publicly traded in the United States. The
Series may invest without limit in equity securities of foreign issuers that are
listed on a domestic securities exchange or are represented by American
Depository Receipts that are listed on a domestic securities exchange or are
traded in the United States on the over-the-counter market. The Series'
restriction on investment in foreign securities is a fundamental policy that
cannot be changed without the approval of a majority, as defined in the
Investment Act of 1940 (the "1940 Act"), of the outstanding voting securities of
the Series.
There are risks in investing in foreign securities not typically involved in
domestic investing. An investment in foreign securities may be affected by
changes in currency rates and in exchange control regulations. Foreign companies
are frequently not subject to the accounting and financial reporting standards
applicable to domestic companies, and there may be less information available
about foreign issuers. There is frequently less government regulation of foreign
issuers than in the United States. In addition, investments in foreign countries
are subject to the possibility of expropriation or confiscatory taxation,
political or social instability or diplomatic developments that could adversely
affect the value of those investments. There may also be imposition of
withholding taxes. Foreign financial markets may have less volume and longer
settlement periods than U.S. markets which may cause liquidity problems for the
Series. In addition, costs associated with transactions on foreign markets are
generally higher than for transactions in the U.S. Obligations of foreign
governmental entities are subject to various types of governmental support and
may or may not be supported by the full faith and credit of a foreign
government.
REPURCHASE AGREEMENTS
The Series may enter into repurchase agreements with respect to portfolio
securities. Under the terms of a repurchase agreement, the Series purchases
securities ("collateral") from financial institutions such as banks and
broker-dealers (the "seller") which the Advisor deems to be creditworthy,
subject to the seller's agreement to repurchase them at a mutually agreed-upon
date and price. The repurchase price generally equals the price paid by the
Series plus interest negotiated on the basis of current short-term rates (which
may be more or less than the rate on the underlying portfolio securities).
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The seller under a repurchase agreement is required to maintain the value of
the collateral held pursuant to the agreement at not less than 100% of the
repurchase price, and securities subject to repurchase agreements are held by
the Series' Custodian either directly or through a securities depository.
Default by the seller would, however, expose the Series to possible loss because
of adverse market action or delay in connection with the disposition of the
underlying securities. Repurchase agreements are considered to be loans by the
Series under the 1940 Act.
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 (e.g., 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.,
Fannie Mae).
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.
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 liquid assets 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"), Fannie Mae, 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.
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To the extent that the Series purchases mortgage-related or mortgage-backed
securities at a premium, mortgage foreclosures and prepayments of principal
(which may be made at any time without penalty) may result in some loss of the
Series' principal investment to the extent of the premium paid. The yield of the
Series may be affected by reinvestment of prepayments at higher or lower rates
than the original investment. In addition, like other debt securities, the value
of mortgage-related securities, including government and government-related
mortgage pools, will generally fluctuate in response to market interest rates.
ZERO-COUPON BONDS
Some of the securities in which the Series invests may include so-called
"zero-coupon" bonds. Zero-coupon bonds are issued at a significant discount from
face value and pay interest only at maturity rather than at intervals during the
life of the security. The Series is required to accrue and distribute income
from zero-coupon bonds on a current basis, even though it does not receive that
income currently in cash. Thus, the Series may have to sell investments to
obtain cash needed to make income distributions. The discount in the absence of
financial difficulties of the issuer decreases as the final maturity of the
security approaches. Zero-coupon bonds can be sold prior to their maturity date
in the secondary market at the then prevailing market value, which depends
primarily on the time remaining to maturity, prevailing level of interest rates
and the perceived credit quality of the issues. The market prices of zero-coupon
securities are subject to greater fluctuations in response to changes in market
interest rates than bonds which pay interest currently.
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
at some other interval, and may have a floor or ceiling rate. There is a risk
that the current interest rate on such obligations may not accurately reflect
existing market interest rates.
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
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options only on a "covered 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 Fund 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".
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
give the purchaser the right, in return for the premium paid, to assume a long
or short position in a futures contract.
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 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) that do not constitute "bona fide hedging" under the
Commodity Futures Trading Commission ("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 covering of obligations under futures
contracts and will set aside liquid assets 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 accurately predict the direction of the market and is subject to
various additional risks. The correlation between movements in the price 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.
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 a 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 a Series 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
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the value of such currency. Based on current legal interpretation, the Series
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 Series
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 Series 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) that do not
constitute "bona fide hedging" under the 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.
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 accurately predict movements in the prices of
individual securities, fluctuations in domestic and foreign markets and currency
exchange rates, and movements in interest rates; (2) there may be an imperfect
correlation between the changes in market value of the 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 "regulated 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.
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.
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The Series may not, with respect to 75% of its total assets, invest more
than 5% of the value of its total assets at the time of investment in securities
of any one issuer (other than obligations issued or guaranteed by the U.S.
Government, its agencies or its instrumentalities). The Series may not purchase
more than 10% of the outstanding voting securities of any one issuer.
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 purchase shares of closed-end investment companies that are
traded on national exchanges to the extent permitted by applicable law.
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 Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, including the Fund's
agreements with its Investment Advisor, Custodian and Distributor. The
day-to-day operations of the Fund are delegated to the Fund'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 Fund 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 Fund 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 Fund to serve as such.
As of the date of this prospectus, the Advisor supervised over $7.0 billion
in assets of clients, including both individuals and institutions. For its
services to the Fund under the Investment Advisory Agreement, the Fund pays the
Advisor a fee, computed daily and payable monthly, at an annual rate of 1% of
the Fund's average daily net assets. 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 Fund. The Fund 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 incidental to the issuance of its shares, including
issuance on the payment of, or reinvestment of, dividends and capital gain
distributions; (viii) fees and expenses incidental 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.
DISTRIBUTION OF FUND SHARES
- ------------------------
Manning & Napier Investor Services, Inc. (the "Distributor") acts as
distributor of Fund shares and is located at the same address as the Advisor and
the Fund. The Fund has adopted a Distribution Agreement with respect to each
Class of shares and related Plans of Distribution with respect to Class B, C, D
and E Shares (the "Plans") pursuant to Rule 12b-1 under the 1940 Act. Class A
Shares are offered to investors who purchase their shares directly from the
Distributor and are not subject to
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distribution or shareholder servicing fees. Class B, C, D and E Shares are
offered only by or through investment dealers, banks or financial service firms
that provide distribution, administrative and/or shareholder services
("Financial Intermediaries").
The Distributor receives distribution and services fees, at the rates set
forth below, for providing distribution and/or shareholder services to the Class
B, C, D and E Shares. The Distributor expects to allocate most of its
distribution fees and shareholder service fees to Financial Intermediaries that
enter into shareholder servicing agreements ("Servicing Agreements") with the
Distributor. The different Classes permit the Fund to allocate an appropriate
amount of fees to a Financial Intermediary in accordance with the level of
services it agrees to provide under its Servicing Agreement.
As compensation for providing distribution and shareholders services for the
Class B Shares, the Distributor receives a distribution fee equal to .75% of the
Class B Shares' average daily net assets and a shareholder servicing fee equal
to .25% of the Class B Shares' average daily net assets. As compensation for
providing distribution and shareholders service for the Class C Shares, the
Distributor receives an aggregate distribution and shareholder servicing fee
equal to .75% of the Class C Shares' average daily net assets. As compensation
for providing distribution and shareholder services for the Class D Shares, the
Distributor receives an aggregate distribution and shareholder servicing fee
equal to .50% of the Class D Shares' average daily net assets. The shareholder
services component of the foregoing fees for Classes C and D is limited to .25%
of the average daily net assets of the respective class. As compensation for
providing distribution services for the Class E Shares, the Distributor receives
an aggregate distribution and shareholder servicing fee equal to .25% of the
average daily net assets of the Class E Shares. The Distributor may, in its
discretion, voluntarily waive from time to time all or any portion of its
distribution fee.
Payments under the Plans are made as described above regardless of the
Distributor's actual cost of providing distribution services and may be used to
pay the Distributor's overhead expenses. If the cost of providing distribution
services to the Fund is less than the payments received, the unexpended portion
of the distribution fees may be retained as profit by the Distributor. The
Distributor may from time to time and from its own resources pay or allow
additional discounts or promotional incentives in the form of cash or other
compensation (including merchandise or travel) to Financial Intermediaries and
it is free to make additional payments out of its own assets to promote the sale
of Fund shares. Similarly, the Advisor may, from its own resources, defray or
absorb costs related to distribution, including compensation of employees who
are involved in distribution.
TOTAL RETURN
- ----------
From time-to-time the Series may advertise its total return. TOTAL RETURN
FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE
PERFORMANCE. The "total return" of the Series refers to the average annual
compounded rates of return over one-, five-, and ten-year periods or for the
life of the Series (as stated in the advertisement) that would equate an initial
amount invested at the beginning of a stated period to the ending redeemable
value of the investment, assuming the reinvestment of all dividend and capital
gains distributions. The respective performance figures for the Classes will
differ because of the different distribution and/or shareholder services fees
charged to Class B, C, D and E Shares.
PURCHASES, EXCHANGES AND REDEMPTIONS OF SHARES
- --------------------------------------------
PURCHASES
Purchases and redemptions of shares of the Series may be made on any day the
New York Stock Exchange is open for trading.
The minimum initial investment in each class of the Series is $2,000 and
subsequent purchases must be at least $100. The minimum initial investment is
waived for participants in the Automatic Investment Plan and for shareholders
who purchase shares through Financial Intermediaries that provide sub-accounting
services to the Fund. 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.
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A purchase order will be effective as of the day received by the
Distributor, Transfer Agent, or its agents, if the order is received before 4:00
p.m. Eastern time by the Distributor, Transfer Agent or its agents. Payment may
be made by check or readily available funds. The purchase price of shares of
each Class of the Series is the net asset value next determined after a purchase
order is effective.
Shareholders may purchase shares regularly through the Automatic Investment
Plan with a pre-authorized draft drawn on their checking account. Under this
plan, the shareholders may elect to have a specified amount invested on a
regular schedule. The amount specified by the shareholder will be withdrawn from
the shareholder's bank account using the pre-authorized draft. This amount will
be invested at the applicable share price determined on the date the amount is
available for investment. Participation in the Automatic Investment Plan may be
discontinued either by the Fund or the Shareholder upon 30 days' prior written
notice to the other party. A shareholder who wishes to enroll in the Automatic
Investment Plan may do so by completing the applicable section of the Account
Application Form or contacting the Fund for an Automatic Investment Plan Form.
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 approved by the Fund's Board of Directors.
EXCHANGES BETWEEN SERIES
As permitted pursuant to any rule, regulation or order promulgated by the
Securities and Exchange Commission, some or all of the shares of a Class in a
direct investment account with the Fund for which payment has been received by
the Transfer Agent may be exchanged for shares of the same Class of any of the
other Manning & Napier Fund, Inc. Series that offers that Class at 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.
REDEMPTIONS
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.
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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. The Fund has elected, however, to be governed by Rule 18f-1 under the 1940
Act as a result of which the Fund is obligated to redeem shares, with respect to
any one shareholder during any 90-day period, solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund at the beginning of the
period.
OTHER INFORMATION ABOUT PURCHASES
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.
SHARE PRICE
- ----------
The share price or "net asset value" per share of each Class of the Series
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, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
The net asset value per share of each Class of a Series is determined by
dividing the total value of its investments and other assets that are allocated
to that Class, less any liabilities that are allocated to that Class, by the
Class's total outstanding shares. 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 intends to distribute 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
20
<PAGE>
Fund, that payments of either ordinary income dividends or capital gain
distributions, or both, be made in cash. The Fund will notify each non-corporate
taxable 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 31% 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.
If a taxable shareholder invests shortly before the Series declares a
taxable dividend, a portion of the investment will be returned as a taxable
distribution (commonly referred to as "buying into a dividend"). This
distribution will be taxable regardless of whether you elected to reinvest your
distribution in additional shares or take the distribution in cash. If you would
like to avoid buying into a dividend, you may contact the Fund to find out when
the Series plans to declare a distribution and invest after that date.
TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a general summary of certain federal income 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 its
shareholders, and the discussion here is not intended as a substitute for
careful tax planning. The Series is not managed with respect to tax outcomes for
its shareholders.
Under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), the Series is treated as a separate entity for federal income tax
purposes. The Series intends to qualify each year 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.
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.
GENERAL INFORMATION
- -----------------
The Fund 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.
21
<PAGE>
Each share of a Series represents an identical interest in the investment
portfolio of that Series and has the same rights, except that (i) each class of
shares bears those distribution fees, service fees and administrative expenses
applicable to the respective class of shares as a result of its sales
arrangements, which will cause the different classes of shares to have different
expense ratios and to pay different rates of dividends, (ii) each class has
exclusive voting rights with respect to those provisions of the Series' Rule
12b-1 distribution plan which relate only to such class and (iii) the classes
have different exchange privileges. As a result of each class' differing Rule
12b-1 distribution and shareholder services plan, shares of different classes of
the Series may have different net asset values per share.
The Fund does not expect to hold annual meetings of shareholders but special
meetings of shareholders may be held under certain circumstances. Shareholders
of the Fund retain the right, under certain circumstances, to request that a
meeting of shareholders be held for the purpose of considering the removal of a
Director from office, and if such a request is made, the Fund will assist with
shareholder communications in connection with the meeting. The shares of the
Fund have equal rights with regard to voting, redemption and liquidations. The
Fund's shareholders will vote in the aggregate and not by Series or Class 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 or a Class. 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.
All securities and cash are held by the custodian, Boston Safe Deposit and
Trust Company. Coopers & Lybrand, L.L.P. serves as independent accountants for
the Series and will audit its financial statements annually.
Manning & Napier Advisors, Inc. serves as the Fund's Transfer and Dividend
Disbursing Agent. Shareholder inquiries should be directed to Manning & Napier
Fund, Inc., P.O. Box 41118, Rochester, New York 14604.
22
<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.
23
<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 - This rating is 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.
24
<PAGE>
MANNING & NAPIER FUND
TAX MANAGED
SERIES
PROSPECTUS
NOVEMBER 14, 1997
<PAGE>
MANNING & NAPIER FUND, INC.
P.O. Box 41118
Rochester, New York 14604
1-800-466-3863
TAX MANAGED SERIES
Manning & Napier Fund, Inc. (the "Fund") is an open-end management
investment company consisting of multiple Series, each a separate portfolio
having its own investment objective and policies. This Prospectus relates to the
Class A, B, C, D and E Shares (each a "Class" and collectively, the "Classes")
of the Tax Managed Series (the "Series"), a series of the Fund.
The Series seeks to achieve its objective by a) investing primarily in
equity securities which by nature generate a lower level of current income than
most fixed income securities; b) minimizing portfolio turnover which limits the
amount of realized gains; and c) reducing distributions of taxable income as
permitted by the Internal Revenue Code (the "Code"). The Advisor anticipates
this strategy will result in tax efficiencies (i.e., a lower percentage of the
return is subject to taxes) that are superior to other mutual funds. The Series
is designed only for long-term investors who expect to own shares of the Series
for five years or more. The Series is not intended to provide investors with a
means of speculating on short-term market movements. Investors who engage in
excessive account activity generate additional costs and may cause the Series to
recognize capital gains which are borne by the Series' remaining shareholders.
The Prospectus is designed to provide you with information you should know
before investing in the Series. The Fund's other series are offered through
separate prospectuses. You should read this Prospectus and keep it for future
reference.
The Series is a continuously offered, diversified mutual fund.
A Statement of Additional Information dated April 14, 1997, as supplemented
through November 14, 1997 for the Series, containing additional information
about the Fund has been filed with the Securities and Exchange Commission and is
incorporated by reference into 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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS NOVEMBER 14, 1997.
<PAGE>
EXPENSES
- ---------
SHAREHOLDER TRANSACTION EXPENSES
(as a percentage of offering price)
<TABLE>
<CAPTION>
All Classes
-----------
<S> <C>
Maximum Sales Charge Imposed on Purchases........................... None
Redemption Fees(1).................................................. None
Exchange Fees(2).................................................... 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."
(2) A shareholder may effect up to four (4) exchanges in a twelve (12) month
period without change. Subsequent exchanges are subject to a fee of $15.
ANNUAL OPERATING EXPENSES - CLASS A SHARES
The following information provides (i) a tabular summary of expenses relating to
the annual operating expenses of the Class A Shares of the Series and (ii) an
example illustrating the dollar cost of such expenses on a $1,000 investment.
ANNUAL OPERATING EXPENSES OF THE CLASS A SHARES OF THE SERIES(1)
- --------------------------------------------------------
(AS A PERCENTAGE OF AVERAGE NET ASSETS):
- ------------------------------------
<TABLE>
<S> <C>
Management Fees After Reduction of Fees(2)................................................ 0.00%
Rule 12b-1 Fees........................................................................... None
Other Expenses After Expense Reimbursement(2)............................................. 1.20%
---
Total Operating Expenses(2)............................................................... 1.20%
---
---
</TABLE>
(1) The Tax Managed Series offered Class A Shares during the year ended October
31, 1996; therefore, actual management fees and other expenses are used
above.
(2) The Adviser has agreed to waive its management fees and/or reimburse
expenses of the Series, if necessary, if such fees would cause the total
annual operating expenses of the Class A Shares of the Series, as a
percentage of average daily net assets, to exceed the percentages set forth
in the table above. The following sets forth, for Class A Shares of such
Series, (i) management fees absent fee waivers, (ii) other expenses absent
expense reimbursements and (iii) expected total operating expenses absent
fee waivers and/or expense reimbursements.
<TABLE>
<CAPTION>
Class A Shares
---------------
<S> <C>
Management Fees................................................................... 1.00%
Other Expenses.................................................................... 14.66%
Total Operating Expenses.......................................................... 15.66%
</TABLE>
As a result of these reductions, the Management Fees stated above are lower
than contractual fees stated under "Management." The Adviser reserves the
right to terminate any of its fee waivers at any time in its sole
discretion. For further information on expenses, see "Management."
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class A Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
2
<PAGE>
EXAMPLE - CLASS A SHARES
- ---------------------
You would pay the following expenses on a $1,000 investment in Class A Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
----- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Tax Managed Series $ 12 $ 38 $ 66 $ 145
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. The Adviser in its
discretion may terminate its voluntary fee waivers and/or reimbursements at any
time. Absent the waiver of fees or reimbursement of expenses, the amounts in the
examples above would be greater.
3
<PAGE>
ANNUAL OPERATING EXPENSES - CLASS B SHARES
The following information provides (i) a tabular summary of expenses relating to
the annual operating expenses of the Class B Shares of the Series and (ii) an
example illustrating the dollar cost of such expenses on a $1,000 investment.
ANNUAL OPERATING EXPENSES OF THE CLASS B SHARES OF THE SERIES(1)
- --------------------------------------------------------
(AS A PERCENTAGE OF AVERAGE NET ASSETS):
- ------------------------------------
<TABLE>
<S> <C>
Management Fees After Reduction of Fees(2).................................................. 0.00%
Rule 12b-1 Fees(3).......................................................................... 1.00%
Other Expenses After Expense Reimbursement(2)............................................... 1.20%
---
Total Operating Expenses(2)................................................................. 2.20%
---
---
</TABLE>
(1) The Tax Managed Series offered only Class A Shares during the year ended
October 31, 1996; therefore, actual management fees and other expenses of
Class A Shares of the Series are used above.
(2) The Adviser has agreed to waive its management fees and/or reimburse
expenses of the Series, if necessary, if such fees would cause the total
annual operating expenses of the Class B Shares of the Series, as a
percentage of average daily net assets, to exceed the percentages set forth
in the table above. The following sets forth, for Class B Shares of such
Series, (i) management fees absent fee waivers, (ii) other expenses absent
expense reimbursements and (iii) expected total operating expenses absent
fee waivers and/or expense reimbursements.
<TABLE>
<CAPTION>
Class B Shares
---------------
<S> <C>
Management Fees................................................................... 1.00%
Other Expenses.................................................................... 14.66%
Total Operating Expenses.......................................................... 16.66%
</TABLE>
As a result of these reductions, the Management Fees stated above are lower
than contractual fees stated under "Management." The Adviser reserves the
right to terminate any of its fee waivers at any time in its sole
discretion. For further information on expenses, see "Management."
(3) Of the Rule 12b-1 fees for the Class B shares, 0.25% represents shareholder
service fees.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class B Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
Due to the continuous nature of Rule 12b-1 fees, long-term shareholders may pay
more than the equivalent of the maximum front-end sales charges otherwise
permitted by the Conduct Rules of the National Association of Securities
Dealers, Inc. ("NASD").
EXAMPLE - CLASS B SHARES
- ---------------------
You would pay the following expenses on a $1,000 investment in Class B Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
----- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Tax Managed Series $ 22 $ 69 $ 118 $ 253
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. The Adviser in its
discretion may terminate its voluntary fee waivers and/or reimbursements at any
time. Absent the waiver of fees or reimbursement of expenses, the amounts in the
examples above would be greater.
4
<PAGE>
ANNUAL OPERATING EXPENSES - CLASS C SHARES
The following information provides (i) a tabular summary of expenses relating to
the annual operating expenses of the Class C Shares of the Series and (ii) an
example illustrating the dollar cost of such expenses on a $1,000 investment.
ANNUAL OPERATING EXPENSES OF THE CLASS C SHARES OF THE SERIES(1)
- --------------------------------------------------------
(AS A PERCENTAGE OF AVERAGE NET ASSETS):
- ------------------------------------
<TABLE>
<S> <C>
Management Fees After Reduction of Fees(2).................................................. 0.00%
Rule 12b-1 Fees(3).......................................................................... 0.75%
Other Expenses After Expense Reimbursement(2)............................................... 1.20%
---
Total Operating Expenses(2)................................................................. 1.95%
---
---
</TABLE>
(1) The Tax Managed Series offered only Class A Shares during the year ended
October 31, 1996; therefore, actual management fees and other expenses of
Class A Shares of the Series are used above.
(2) The Adviser has agreed to waive its management fees and/or reimburse
expenses of the Series, if necessary, if such fees would cause the total
annual operating expenses of the Class C Shares of the Series, as a
percentage of average daily net assets, to exceed the percentages set forth
in the table above. The following sets forth, for Class C Shares of such
Series, (i) management fees absent fee waivers, (ii) other expenses absent
expense reimbursements and (iii) expected total operating expenses absent
fee waivers and/or expense reimbursements.
<TABLE>
<CAPTION>
Class C Shares
---------------
<S> <C>
Management Fees................................................................... 1.00%
Other Expenses.................................................................... 14.66%
Total Operating Expenses.......................................................... 16.41%
</TABLE>
As a result of these reductions, the Management Fees stated above are lower
than contractual fees stated under "Management." The Adviser reserves the
right to terminate any of its fee waivers at any time in its sole
discretion. For further information on expenses, see "Management."
(3) Of the Rule 12b-1 fees for the Class C shares, up to 0.25% represents
shareholder service fees.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class C Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
Due to the continuous nature of Rule 12b-1 fees, long-term shareholders may pay
more than the equivalent of the maximum front-end sales charges otherwise
permitted by the Conduct Rules of the NASD.
EXAMPLE - CLASS C SHARES
- ---------------------
You would pay the following expenses on a $1,000 investment in Class C Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
----- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Tax Managed Series $ 20 $ 61 $ 105 $ 227
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. The Adviser in its
discretion may terminate its voluntary fee waivers and/or reimbursements at any
time. Absent the waiver of fees or reimbursement of expenses, the amounts in the
examples above would be greater.
5
<PAGE>
ANNUAL OPERATING EXPENSES - CLASS D SHARES
The following information provides (i) a tabular summary of expenses relating to
the annual operating expenses of the Class D Shares of the Series and (ii) an
example illustrating the dollar cost of such expenses on a $1,000 investment.
ANNUAL OPERATING EXPENSES OF THE CLASS D SHARES OF THE SERIES(1)
- ---------------------------------------------------------
(AS A PERCENTAGE OF AVERAGE NET ASSETS):
- ------------------------------------
<TABLE>
<S> <C>
Management Fees After Reduction of Fees(2).................................................. 0.00%
Rule 12b-1 Fees(3).......................................................................... 0.50%
Other Expenses After Expense Reimbursement(2)............................................... 1.20%
---
Total Operating Expenses(2)................................................................. 1.70%
---
---
</TABLE>
(1) The Tax Managed Series offered only Class A Shares during the year ended
October 31, 1996; therefore, actual management fees and other expenses are
used above.
(2) The Adviser has agreed to waive its management fees and/or reimburse
expenses of the Series, if necessary, if such fees would cause the total
annual operating expenses of the Class D Shares of the Series, as a
percentage of average daily net assets, to exceed the percentages set forth
in the table above. The following sets forth, for Class D Shares of such
Series, (i) management fees absent fee waivers, (ii) other expenses absent
expense reimbursements and (iii) expected total operating expenses absent
fee waivers and/or expense reimbursements.
<TABLE>
<CAPTION>
Class D Shares
---------------
<S> <C>
Management Fees................................................................... 1.00%
Other Expenses.................................................................... 14.66%
Total Operating Expenses.......................................................... 16.16%
</TABLE>
As a result of these reductions, the Management Fees stated above are lower
than contractual fees stated under "Management." The Adviser reserves the
right to terminate any of its fee waivers at any time in its sole
discretion. For further information on expenses, see "Management."
(3) Of the Rule 12b-1 fees for the Class D shares, up to 0.25% represents
shareholder service fees.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class D Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
Due to the continuous nature of Rule 12b-1 fees, long-term shareholders may pay
more than the equivalent of the maximum front-end sales charges otherwise
permitted by the Conduct Rules of the NASD.
EXAMPLE - CLASS D SHARES
- ---------------------
You would pay the following expenses on a $1,000 investment in Class D Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
----- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Tax Managed Series $ 17 $ 54 $ 92 $ 201
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. The Adviser in its
discretion may terminate its voluntary fee waivers and/or reimbursements at any
time. Absent the waiver of fees or reimbursement of expenses, the amounts in the
examples above would be greater.
6
<PAGE>
ANNUAL OPERATING EXPENSES - CLASS E SHARES
The following information provides (i) a tabular summary of expenses relating to
the annual operating expenses of the Class E Shares of the Series and (ii) an
example illustrating the dollar cost of such expenses on a $1,000 investment.
ANNUAL OPERATING EXPENSES OF THE CLASS E SHARES OF THE SERIES(1)
- --------------------------------------------------------
(AS A PERCENTAGE OF AVERAGE NET ASSETS):
- ------------------------------------
<TABLE>
<S> <C>
Management Fees After Reduction of Fees(2).................................................. 0.00%
Rule 12b-1 Fees(3).......................................................................... 0.25%
Other Expenses After Expense Reimbursement(2)............................................... 1.20%
---
Total Operating Expenses(2)................................................................. 1.45%
---
---
</TABLE>
(1) The Tax Managed Series offered only Class A Shares during the year ended
October 31, 1996; therefore, actual management fees and other expenses of
Class A Shares of the Series are used above.
(2) The Adviser has agreed to waive its management fees and/or reimburse
expenses of the Series, if necessary, if such fees would cause the total
annual operating expenses of the Class E Shares of the Series, as a
percentage of average daily net assets, to exceed the percentages set forth
in the table above. The following sets forth, for Class E Shares of such
Series, (i) management fees absent fee waivers, (ii) other expenses absent
expense reimbursements and (iii) expected total operating expenses absent
fee waivers and/or expense reimbursements.
<TABLE>
<CAPTION>
Class E Shares
---------------
<S> <C>
Management Fees................................................................... 1.00%
Other Expenses.................................................................... 14.66%
Total Operating Expenses.......................................................... 15.91%
</TABLE>
As a result of these reductions, the Management Fees stated above are lower
than contractual fees stated under "Management." The Adviser reserves the
right to terminate any of its fee waivers at any time in its sole
discretion. For further information on expenses, see "Management."
(3) Of the Rule 12b-1 fees for the Class E Shares, up to 0.25% may represent
shareholder service fees.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class E Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
Due to the continuous nature of Rule 12b-1 fees, long-term shareholders may pay
more than the equivalent of the maximum front-end sales charges otherwise
permitted by the Conduct Rules of the NASD.
EXAMPLE - CLASS E SHARES
- ---------------------
You would pay the following expenses on a $1,000 investment in Class E Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
----- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Tax Managed Series $ 15 $ 46 $ 79 $ 174
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. The Adviser in its
discretion may terminate its voluntary fee waivers and/or reimbursements at any
time. Absent the waiver of fees or reimbursement of expenses, the amounts in the
examples above would be greater.
7
<PAGE>
FINANCIAL HIGHLIGHTS
- ---------------------
The following table provides selected per share data and ratios for the Class A
Shares of the Series (for a share outstanding throughout the period for the
periods shown). The table, except with respect to the unaudited interim periods,
is part of the Series' financial statements, which are incorporated by reference
into the Fund's Statement of Additional Information. The financial highlights
presented herein for the period ended April 30, 1997 are unaudited. Deloitte &
Touche LLP, the Fund's independent accountants, audited the Fund's financial
highlights for the other period shown. Additional performance information is
contained in the Fund's 1997 Semi-Annual Report to Shareholders and its 1996
Annual Report to Shareholders and each is available upon request and without
charge by calling 1-800-466-3863. Because the Fund's Class B, C, D and E Shares
had not been introduced as of April 30, 1997, no financial highlights are
presented for the Class B, C, D or E Shares of the Series. These tables should
be read in conjunction with the Series' financial statements and notes thereto.
TAX MANAGED SERIES - CLASS A SHARES
<TABLE>
<CAPTION>
For the Six
Months Ended For the Year
4/30/97 Ended
(Unaudited) 10/31/96
------------ ------------
<S> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD):
NET ASSET VALUE - BEGINNING OF PERIOD $ 11.63 $ 10.00
------------ ------------
Income from investment operations:
Net investment income (loss) 0.01 (0.02)
Net realized and unrealized gain (loss) on investment 1.53 1.65
------------ ------------
Total from investment operations 1.54 1.63
------------ ------------
NET ASSET VALUE - END OF PERIOD $ 13.17 $ 11.63
------------ ------------
------------ ------------
Total return(1) 13.24% 16.30%
Ratios (to average net assets) / Supplemental Data:
Expenses* 1.20%(2) 1.20%
Net investment income (loss)* 0.16%(2) (0.21%)
Portfolio turnover 51% 78%
Average commission rate paid $0.0641 $0.0757
NET ASSETS - END OF PERIOD (000's omitted) $ 298 $ 224
------------ ------------
------------ ------------
* The Advisor did not impose its management and fee paid a portion of the Fund's expenses.If these expenses had been
incurred by the Fund, expenses would have been limited to that allowed by state securities law and the net investment
income (loss) per share and the ratios would have been as follows:
Net investment loss $ (0.42) $ (0.14)
Ratios (to average net assets):
Expenses 8.73%(2) 2.50%
Net investment loss (7.37%)(2) (1.51%)
</TABLE>
(1) Represents aggregate total return for the period indicated.
(2) Annualized.
8
<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. This Prospectus relates to the
Tax Managed Series of the Fund (the "Series"), which is offered through five
separate classes of shares, Class A, B, C, D and E Shares, respectively. Class A
Shares of the Series are offered to investors who purchase their shares directly
from Manning & Napier Investor Services, Inc. (the "Distributor"). Class B, C, D
and E Shares are offered only through financial intermediaries which provide to
the Fund and its shareholders varying levels of distribution and shareholder
services as described under "Distribution of Fund Shares" below. Information
regarding the Fund'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.
The Series is an open-end diversified investment company designed for
investors seeking long term growth while minimizing the impact of state and
federal taxes. The Series utilizes an active management approach towards
investment management.
RISK AND INVESTMENT OBJECTIVES AND POLICIES
- ---------------------------------------
INVESTMENT OBJECTIVE
The Series seeks to maximize long term growth while minimizing the impact of
taxes on the Series' total return. The Series will attempt to meet its objective
by a) investing primarily in equity securities which by nature generate a lower
level of current income than most fixed income securities; b) minimizing
portfolio turnover which limits the amount of realized gains; and c) reducing
distributions of taxable income as permitted by the Internal Revenue Code ("the
Code"). The Advisor anticipates this strategy will result in tax efficiencies
(i.e. a lower percentage of the return is subject to taxes) that are superior to
other mutual funds. The Series is designed only for long-term investors who
expect to own shares of the Series for five years or more. The Series is not
intended to provide investors with a means of speculating on short-term market
movements. Investors who engage in excessive account activity generate
additional costs and may cause the Series to recognize capital gains which are
borne by the Series' remaining shareholders.
There is no assurance that the Series will achieve its stated objective. The
Series from time to time will declare dividends to ensure its continued
qualification as a regulated investment company. These dividends will result in
taxable income to the shareholders. However, the Advisor anticipates dividend
distributions made to shareholders will be small compared to the distributions
paid by managed or indexed funds investing in similar securities. These
dividends will be smaller because of the active approach the Advisor takes to
minimizing tax liability when managing the Series. The active approach will
consist of the items outlined in the sections "Management of Realization Events"
and "Management of Dividend Distributions".
The Series' investment objective is not fundamental and may be changed by
the Board of Directors without shareholder approval; however, it is the Board of
Directors' policy to notify shareholders prior to a material change in the
Series' objective.
INVESTMENT POLICIES
The Series will invest primarily in equity securities of companies which the
Advisor believes have attractive long term growth potential and attractive
valuations. The Advisor's intent is to identify those companies that will make
attractive long term investments, and as a result offer the potential for
attractive returns while limiting the need for continual portfolio turnover. The
Series may invest (up to 35% of its assets) in other than equity securities. See
"Risk and Additional Information about Investment Policies" for a description of
these securities and their associated risks. The Series may invest in securities
of issuers outside the United States. The Series may invest a portion of its
assets in put and call options on securities, futures contracts and related
options thereon and various foreign currency transactions, including forward
contracts, futures and options. The Series may also lend its securities or sell
securities short "against the box".
9
<PAGE>
In order to minimize the impact of taxes on investors' returns, the Advisor
will seek to reduce the amount of gains realized and dividends that must be
distributed. Generally speaking, the Advisor will keep portfolio turnover low
and utilize certain tax strategies available to mutual funds under the Code. See
"Management of Realization Events" and "Management of Dividend Distributions".
The Series employs an active management strategy which seeks to maximize
shareholders' after-tax returns through a combination of individual security
selection and the use of the unique tax strategies allowed mutual funds under
the Code.
The Series investment policies are not fundamental policies and may be
changed by the Board of Directors without shareholder approval. It is the Board
of Directors' policy to notify shareholders prior to any material change.
GENERAL
In pursuit of its investment objective, the Series intends to invest
predominantly in equity securities that the Advisor believes offer attractive
long term potential. Equity securities consist of common stocks, securities
convertible thereto, and warrants. The Series does not intend to invest more
than 5% of the value of its total net assets in warrants. Additionally, the
Series may invest in a variety of non-equity securities either for defensive
purposes or when the Advisor believes that the potential incremental return of
such investments outweighs their tax implications.
The debt securities in which the Series may invest in consist of corporate
debt securities, mortgage-backed securities and obligations issued or guaranteed
as to payment of principal and interest by the U.S. Government or its agencies
or instrumentalities. 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
corporate 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 Information about Investment Policies - High Yield Debt Securities.
For temporary defensive purposes during periods when the Advisor determines
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 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.
WHO SHOULD INVEST
- ----------------
LONG-TERM TAXABLE INVESTORS SEEKING TO MINIMIZE TAXABLE DISTRIBUTIONS
The Series is designed for long-term taxable investors who seek to minimize
receipt of taxable distributions. The Series may not be suitable for Individual
Retirement Accounts (IRAs) or other tax-deferred retirement plans such as
Keoghs, 401(k), 403(b), or money purchase plans.
The Series is designed for investors seeking current low taxable
distributions, with the potential for favorable long term appreciation.
The share price of the Series is expected to be volatile, and investors
should be able to tolerate sudden, sometimes substantial fluctuations in the
value of their investments. No assurance can be given that the Series will
achieve its stated objectives or that shareholders will be protected from the
risks inherent in the markets in which they invest. Investors may wish to
purchase shares on a regular, periodic basis (dollar-cost averaging) rather than
investing in one lump sum in order to reduce the risk of investing at a
particularly unfavorable time.
10
<PAGE>
The Series is designed only for long-term investors who expect to own shares
of the Series for five years or more. The Series is not intended to provide
investors with a means of speculating on short-term market movements. Investors
who engage in excessive account activity generate additional costs and may cause
the Series to recognize capital gains which are borne by the Series' remaining
shareholders.
The Series reserves the right to suspend the offering of its shares.
Investors should not consider the Series a complete investment program, but
should maintain holdings of securities with different risk
characteristics-including common stocks, bonds and money market instruments.
Investors may also wish to complement an investment in the Series with other
types of common stock investments.
MANAGEMENT OF REALIZATION EVENTS
- ------------------------------
The Series' portfolio will be actively managed to minimize both the number
and amount of realization events.
LOW PORTFOLIO TURNOVER - It is anticipated that the long-term average annual
portfolio turnover rate for the Series will not exceed 50%. By minimizing
portfolio turnover, the Series will attempt to defer the realization of capital
gains, thereby reducing or deferring the distribution of capital gains which are
taxable to the shareholders. While the Series intends to minimize portfolio
turnover, there may be times that the Advisor will sell securities to realize
losses or gains depending on the particular circumstances confronting the
Series. These losses will offset any current or future capital gains thereby
reducing the Series' requirement to distribute such capital gains.
SPECIFIC IDENTIFICATION OF SECURITY SHARES SOLD - Federal Income tax law
allows the Series to specify which shares of stock the Series will treat as
being sold. While most mutual funds use First-in, First-out (FIFO), the Series
will individually analyze which shares to sell. The following example will
further explain the technique:
During year 1, the Series purchases 100 shares of XYZ Corp on two separate
occasions. The first purchase of 100 shares cost $10/share and the second
purchase of 100 shares cost $12.50/share. In year 2, the Series decides to
sell 100 shares of XYZ Corp at $15/share. If the Series used FIFO, the
realized gain would be $500, but since the Series analyzes each sale, the
shares with a cost of $12.50/share would have been sold, resulting in a
realized gain of only $250. This would have resulted in a deferral of tax of
$99 using a marginal tax rate of 39.6%.
Deferring amount of gain (or accelerating loss) realized on each sale is
maximized by the use of the Highest-In, First-Out (HIFO) method of identifying
which shares to sell. The expectation is that any capital gain is minimized (or
capital loss is maximized) since the difference between the proceeds on the sale
of the shares and the cost of those shares is also minimized. However, if the
Series has a loss to offset, low-cost securities may be sold for profit and may
also then be reacquired in order to "step up" the basis in those securities.
There will be times when it will be more advantageous for the Series to identify
shares without the highest cost. This may occur, for example, when shares with
the highest cost result in the realization of short-term capital gains while
shares with a lower cost result in a long-term gain. Since short-term capital
gains are generally subject to higher rates of tax, the lower cost may be chosen
due to the tax benefits of the lower tax rate.
MANAGEMENT OF DIVIDEND DISTRIBUTIONS
- ---------------------------------
The Series will minimize dividend distributions to the extent permitted to
maintain regulated investment company status under the Code.
EQUALIZATION ACCOUNTING - Under current law, the Series intends, for tax
purposes, to treat as a distribution of investment company taxable income or net
capital gain the portion of redemption proceeds paid to redeeming shareholders
that represents the redeeming shareholders' portion of the Series' undistributed
investment company taxable income and net capital gain. This practice will have
the effect of reducing the amount of income and gains that the Series is
required to distribute as dividends to shareholders in order for the Series to
avoid federal income and excise tax. This practice may also reduce the amount of
11
<PAGE>
distributions required to be made to non-redeeming shareholders and defer the
recognition of taxable income by such shareholders. However, since the amount of
any undistributed income will be reflected in the value of the Series' shares,
the total return on a shareholder's investment will not be reduced as a result
of the Series' distribution policy. Under the Code, equalization payments may be
used in lieu of dividend distributions of either ordinary taxable income or net
capital gains. The Series will designate equalization payments as being made in
lieu of ordinary taxable dividends before net capital gains.
DELIBERATE MINIMIZATION OF CASH DIVIDENDS - The Series will minimize the
amount it distributes as ordinary income dividends. It may not, therefore,
distribute all investment company taxable income or ordinary income. It will,
however, distribute dividends sufficient to maintain its status as a regulated
investment company. In addition, the Series may retain income for excise tax
purposes (and then incur excise tax) if it anticipates such retention will
enhance shareholders' after-tax total returns.
MANAGEMENT
- -----------
The overall business and affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, including the Fund's
agreements with its Investment Advisor, Custodian and Distributor. The
day-to-day operations of the Series are delegated to the Fund'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
makes all investment decisions for the Series. The Advisor acts as the
investment advisor to the Series. 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
Series including supervision of service providers of the Series and the
direction of the Advisor's directors, officers or employees who may be elected
as officers of the Series to serve as such.
As of the date of this Prospectus, the Advisor supervise over $7.0 billion
in assets of clients, including both individuals and institutions. For its
services to the Series under the Investment Advisory Agreement, the Series pays
the Advisor a fee, computed daily and payable monthly, at an annual rate of 1%
of the Series daily net assets. In addition, the Advisor is separately
compensated for acting as Transfer Agent for the Series. The Fund 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, 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 with respect to which
the Fund may have to indemnify its officers and directors.
DISTRIBUTION OF FUND SHARES
- ------------------------
Manning & Napier Investor Services, Inc. (the "Distributor") acts as
distributor of Fund shares and is located at the same address as the Advisor and
the Fund. The Fund has adopted a Distribution Agreement with respect to each
Class of shares and related Plans of Distribution with respect to Class B, C, D
and E Shares (the "Plans") pursuant to Rule 12b-1 under the 1940 Act. Class A
Shares are offered to investors who purchase their shares directly from the
Distributor and are not subject to distribution or shareholder servicing fees.
Class B, C, D and E Shares are offered only by or through investment dealers,
banks or financial service firms that provide distribution, administrative
and/or shareholder services ("Financial Intermediaries").
The Distributor receives distribution and services fees, as the rates set
forth below, for providing distribution and/or shareholder services to the Class
B, C, D and E Shares. The Distributor expects to allocate most of its
distribution fees and
12
<PAGE>
shareholder service fees to Financial Intermediaries that enter into shareholder
servicing agreements ("Servicing Agreements") with the Distributor. The
different Classes permit the Fund to allocate an appropriate amount of fees to a
Financial Intermediary in accordance with the level of services it agrees to
provide under its Servicing Agreement.
As compensation for providing distribution and shareholders services for the
Class B Shares, the Distributor receives a distribution fee equal to .75% of the
Class B Shares' average daily net assets and a shareholder servicing fee equal
to .25% of the Class B Shares' average daily net assets. As compensation for
providing distribution and shareholders service for the Class C Shares, the
Distributor receives an aggregate distribution and shareholder servicing fee
equal to .75% of the Class C Shares' average daily net assets. As compensation
for providing distribution and shareholder services for the Class D Shares, the
Distributor receives an aggregate distribution and shareholder servicing fee
equal to .50% of the Class D Shares' average daily net assets. The shareholder
services component of the foregoing fees for classes C and D is limited to .25%
of the average daily net assets of the respective class. As compensation for
providing distribution services for the Class E Shares, the Distributor receives
an aggregate distribution and shareholder servicing fee equal to .25% of the
average daily net assets of the Class E Shares. The Distributor may, in its
discretion, voluntarily waive from time to time all or any portion of its
distribution fee.
Payments under the Plans are made as described above regardless of the
Distributor's actual cost of providing distribution services and may be used to
pay the Distributor's overhead expenses. If the cost of providing distribution
services to the Fund is less than the payments received, the unexpended portion
of the distribution fees may be retained as profit by the Distributor. The
Distributor may from time to time and from its own resources pay or allow
additional discounts or promotional incentives in the form of cash or other
compensation (including merchandise or travel) to Financial Intermediaries and
it is free to make additional payments out of its own assets to promote the sale
of Fund shares. Similarly, the Advisor may, from its own resources, defray or
absorb costs related to distribution, including compensation of employees who
are involved in distribution.
RISKS AND ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
- ----------------------------------------------------
Set forth below is further information regarding certain types of securities
the Series may invest in, as well as information about additional types of
investment strategies the Series may pursue. These policies have been
voluntarily adopted by the Board of Directors based upon current circumstances
and may be changed or amended by action of the Board of Directors without prior
approval of the Series' shareholders. Additional information concerning these
strategies and their related risks is contained in the Statement of Additional
Information.
FOREIGN SECURITIES
While the Series generally emphasizes investments in companies domiciled in
the United States, it may invest up to 25% of its assets in foreign securities
of the same types and quality as the domestic securities in which the Series may
invest when the anticipated performance of foreign securities is believed by the
Advisor to offer more potential than domestic alternatives in keeping with the
investment objective of the Series. Foreign securities may be denominated either
in U.S. dollars or foreign currencies.
The Series may invest without limit in equity securities of foreign issuers
that are listed on a domestic securities exchange or are represented by American
Depository Receipts that are listed on a domestic securities exchange or are
traded in the United States on the over-the-counter market. The Series'
restrictions on investment in foreign securities are not fundamental policies
and may be changed by the Board of Directors without shareholder approval;
however, it is the Board of Directors' policy to notify shareholders prior to
any material change.
There are risks in investing in foreign securities not typically involved in
domestic investing. An investment in foreign securities may be affected by
changes in currency rates and in exchange control regulations. Foreign companies
are frequently not subject to the accounting and financial reporting standards
applicable to domestic companies, and there may be less information available
about foreign issuers. There is frequently less government regulation of foreign
issuers than in the United
13
<PAGE>
States. In addition, investments in foreign countries are subject to the
possibility of expropriation or confiscatory taxation, political or social
instability or diplomatic developments that could adversely affect the value of
those investments. There may also be imposition of withholding taxes. Foreign
financial markets may have less volume and longer settlement periods than U.S.
markets which may cause liquidity problems for a Series. In addition, costs
associated with transactions on foreign markets are generally higher than for
transactions in the U.S.
Obligations of foreign governmental entities are subject to various types of
governmental support and may or may not be supported by the full faith and
credit of a foreign government.
REPURCHASE AGREEMENTS
The Series may enter into repurchase agreements with respect to portfolio
securities. Under the terms of a repurchase agreement, the Series purchases
securities ("collateral") from financial institutions such as banks and
broker-dealers (the "seller") which the Advisor deems to be credit-worthy,
subject to the seller's agreement to repurchase them at a mutually agreed-upon
date and price. The repurchase price generally equals the price paid by the
Series plus interest negotiated on the basis of current short-term rates (which
may be more or less than the rate on the underlying portfolio securities).
The seller under a repurchase agreement is required to maintain the value of
the collateral held pursuant to the agreement at not less than 100% of the
repurchase price, and securities subject to repurchase agreements are held by
the Series' Custodian either directly or through a securities depository.
Default by the seller would, however, expose the Series to possible loss because
of adverse market action or delay in connection with the disposition of the
underlying securities. Repurchase agreements are considered to be loans by the
Series under the 1940 Act.
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 (e.g., the Government National Mortgage
Association) are backed by the full faith and credit of the U.S. Government or
are supported by the agencies' right to borrow from the U.S. Treasury. The
issues of other agencies are supported only by the credit of the agency (e.g.,
Fannie Mae).
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"), Fannie Mae, 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"). The Series may purchase CMOs 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' value, which is 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. Because the prepayment
characteristics of the underlying mortgages vary, it is not possible to predict
accurately the average life or realized yield of a particular issue of
pass-through certificates. 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
14
<PAGE>
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.
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 they are difficult to price at times because they are more thinly
traded and less liquid securities. Market prices may decline significantly in
periods of general economic difficulty which may follow periods of rising
interest rates. Securities in the lowest rating category may be in default. For
these reasons, it is the 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 own independent and ongoing review of credit
quality. In the event a security is downgraded below these ratings after
purchase, the Advisor will review and take appropriate action with regard to the
security. The Series will also seek to minimize risk by diversifying its
holdings.
ZERO-COUPON BONDS
Some of the securities in which the Series invests may include so-called
"zero-coupon" bonds. Zero-coupon bonds are issued at a significant discount from
face value and pay interest only at maturity rather than at intervals during the
life of the security. The Series is required to accrue and distribute income
from zero-coupon bonds on a current basis, even though it does not receive that
income currently in cash. Thus, the Series may have to sell investments to
obtain cash needed to make income distributions. The discount in the absence of
financial difficulties of the issuer decreases as the final maturity of the
security approaches. Zero-coupon bonds can be sold prior to their maturity date
in the secondary market at the then prevailing market value, which depends
primarily on the time remaining to maturity, prevailing level of interest rates
and the perceived credit quality of the issues. The market prices of zero-coupon
securities are subject to greater fluctuations in response to changes in market
interest rates than bonds which pay interest currently.
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
at some other interval, and it may have a floor or ceiling rate. There is a risk
that the current interest rate on such obligations may not accurately reflect
existing market interest rates.
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 determines to make securities loans, the value of the securities loaned
would not exceed 30% of the value of the total assets of the Series.
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.
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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 enter into these arrangements with the
intention of acquiring the securities in question and not for speculative
purposes and will maintain a separate account with its custodian consisting of
liquid assets in an amount at least equal to the purchase price.
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, 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 Fund 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 for which the option
is "in the money".
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.
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
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deposits on any such futures (plus deposits on any other futures contracts and
premiums paid in connection with any options or futures contracts) that do not
constitute "bona fide hedging" under the Commodity Futures Trading Commission
("CFTC") rules would exceed 5% of the liquidation value of the 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 futures 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 accurately predict the direction of the market and is subject to
various additional risks. The correlation between movements in the price of a
futures contract and the price of the security being hedged is imperfect and
there is a risk that the value of the security being hedged may increase or
decrease at a greater rate than the related futures contract, resulting in a
loss to the Series. Certain futures exchanges or boards of trade have
established daily price limits based on the amount of the previous day's
settlement price. These daily limits may restrict the Series' ability to
repurchase or sell certain futures contracts on any particular day.
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 Series
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 Series 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
creates an 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 creates an obligation to acquire the foreign
currencies called for by the contract at a specified price on a specified date.
The series 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 gives
the purchaser the right, in return for the premium paid, to assume a long or
short position in the futures contract. The Series 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)
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.
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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 accurately predict movements in the prices of
individual securities, fluctuations in domestic and foreign markets and currency
exchange rates, and movements in interest rates; (2) there may be an imperfect
correlation between the changes in market value of the securities held by the
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 "regulated investment company"
under the Code, may restrict trading in forward currency contracts, options,
futures contracts and futures options.
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, with respect to 75% of its total assets, invest more
than 5% of the value of its total assets at the time of investment in securities
of any one issuer (other than obligations issued or guaranteed by the United
States Government, its agencies or its instrumentalities). The series may not
purchase more than 10% of the outstanding voting securities of any one issuer.
The Series may not invest 25% or more of the value of its total assets in
securities of issuers in any one industry (other than U.S. Government
Securities).
The Series will not invest more than 10% of its 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, but it may invest in debt securities and
repurchase agreements and may engage in securities lending.
Additional information about the Series' investment restrictions is
contained in the Statement of Additional Information.
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TAXES AND DISTRIBUTIONS
- --------------------
The Series has elected to be treated, and intends to continue to qualify
each year as a regulated investment company under the Code. Accordingly, the
Series intends to satisfy certain requirements relating to sources of its income
and diversification of its assets and to distribute an amount of its net
investment income to ensure constant qualification.
While the Series seeks to minimize taxable distributions, the Series may
earn taxable income and gains that will be distributed to shareholders. These
distributions will be taxable to the shareholders. Distributions, if necessary,
will be made on an annual basis. Additional distributions will be made only if
necessary to comply with distribution requirements of the Code.
The Series' distributions may be reinvested in additional shares of the
Series or may be taken in cash. If you elect to receive distributions in cash,
instead of reinvesting them in additional shares, you are in effect reducing the
amount of capital at work for you in the Series. If you invest shortly before
the Series declares a dividend, a portion of your investment will be returned to
you as a taxable distribution (commonly referred to as "buying into a
dividend"). This distribution will be taxable regardless of whether you elected
to reinvest your distribution in additional shares or take the distribution in
cash. If you would like to avoid buying into a dividend, you may contact the
Fund to find out when the Series plans to declare a dividend and invest after
that date.
Your redemptions, including exchanges to other Manning & Napier Series, are
subject to capital gains tax. A capital gain or loss is the difference between
the proceeds from the sale of the shares and the amount you paid for such
shares.
Each January, the Series will send to non-corporate taxable shareholders
Form 1099-DIV to assist the shareholder in reporting their previous year's
distribution(s) on their federal and state income tax returns. The Series will
also send to shareholders who redeemed shares a copy of Form 1099-B showing the
total proceeds received by the shareholder. The shareholder will be responsible
for calculating the gain or loss as a result of the redemption.
TOTAL RETURN
- ----------
From time-to-time the Series may advertise its total return. TOTAL RETURN
FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE
PERFORMANCE. The "total return" of the Series refers to the average annual
compounded rates of return over one-, five-, and ten-year periods or for the
life of the Series (as stated in the advertisement) that would equate an initial
amount invested at the beginning of a stated period to the ending redeemable
value of the investment, assuming the reinvestment of all dividend and capital
gains distributions. The respective performance figures for the Classes will
differ because of the different distribution and/or shareholder services fees
charged to Class B, C, D and E Shares.
PURCHASES, EXCHANGES, AND REDEMPTIONS OF SHARES
- ---------------------------------------------
Purchases and redemptions of shares of the Series may be made on any day the
New York Stock Exchange is open for trading.
PURCHASES
The minimum initial investment in each class of the Series is $2,000 and
subsequent purchases must be at least $100. The minimum initial investment is
waived for participants in the Automatic Investment Plan (see "Automatic
Investment Plan" below) and for shareholders who purchase shares through
Financial Intermediaries that provide sub-accounting services to the Fund. These
minimums may be waived at the Distributor's discretion. The Fund has the right
to refuse any order.
Payment may be made by check or readily available funds. A purchase order
will be effective as of the day your check is received by the Distributor if the
Distributor receives the check before the close of regular trading on the New
York Stock Exchange, normally 4:00 p.m., Eastern time. If payment is received by
wire, the purchase order will be effective the day the
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payment is received by the Series' custodian bank. The purchase price of shares
of each Class of a Series is the net asset value determined on the day the wire
is received.
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 approved by the Fund's Board of Directors.
AUTOMATIC INVESTMENT PLAN
Shareholders may purchase shares regularly through the Automatic Investment
Plan with a pre-authorized draft drawn on a checking account. Under this plan,
the shareholder may elect to have a specified amount invested on a regular
schedule. The minimum amount of each automatic investment is $25. The amount
specified by the shareholder will be withdrawn from the shareholder's bank
account using the pre-authorized draft. This amount will be invested at the
applicable share price determined on the date the amount is available for
investment. Participation in the Automatic Investment Plan may be discontinued
either by the Fund or the Shareholder upon 30 days' prior written notice to the
other party. A shareholder who wishes to enroll in the Automatic Investment Plan
may do so by completing the applicable section of the Account Application Form
or contacting the Fund for an Automatic Investment Plan Form.
EXCHANGES BETWEEN SERIES
As permitted pursuant to any rule, regulation or order promulgated by the
Securities and Exchange Commission, some or all of the shares of a Class in an
account for which payment has been received by the Fund may be exchanged for
shares of the same Class of any of the other Manning & Napier Fund, Inc. Series
that offers that Class at the net asset value next determined after an exchange
order is effective. 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.
REDEMPTIONS
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 that 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
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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), or through the Automatic Investment Plan,
payment of redemption proceeds may be delayed up to 15 days from the purchase
date in an effort to assure that such check or draft 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. The Fund has elected, however, to be governed by Rule 18f-1 under the 1940
Act as a result of which the Fund is obligated to redeem shares, with respect to
any one shareholder during any 90-day period, solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund at the beginning of the
period.
OTHER INFORMATION ABOUT PURCHASES AND REDEMPTIONS
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.
SHARE PRICE
- ----------
Each Class of the Series' share price or "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, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
The net asset value per share of each Class of the Series is determined by
dividing the total value of its investments and other assets that are allocated
to that Class, less any liabilities that are allocated to that Class, by the
Class's total outstanding shares. The value of the Series' portfolio securities
that are listed on a securities exchange are valued at the last quoted sales
price on the day the valuation is made. Price information on listed securities
is taken from the exchange where the security is primarily traded by the
Portfolio. Securities which are listed on an exchange and which are not traded
on the valuation date are valued at the mean of the bid and ask prices. Unlisted
securities for which market quotations are not readily available are valued at
the latest quoted bid price. Temporary cash investments are valued at amortized
cost which approximates market value. Equity securities for which no current
quotations are readily available are valued at fair market value as determined
in good faith by or at the discretion of the Board of Directors. Equity
securities may be valued on the basis of prices provided by a pricing service
when such prices are believed to reflect the fair market value of such
securities.
When approved by the Board of Directors, bonds and other fixed income
securities may be valued on the basis of prices provided by a pricing service
when such prices are believed to reflect the fair market value of such
securities. (In estimating a security's price, a pricing service takes into
account institutional-size trading in similar groups of securities and any
developments related to specific securities.) The methods used by the pricing
service and the valuations so established are
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reviewed by the officers of the Fund under policies determined by the Directors.
There are a number of pricing services available and the Directors, as part of
an on-going evaluation of these services, may authorize the use of other pricing
services or discontinue the use of any service in whole or in part.
GENERAL INFORMATION
- -----------------
The Fund 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. As of
September 22, 1997 Manning & Napier Advisors, Inc., 1100 Chase Square,
Rochester, New York 14604 owned 39.71% of the Tax Managed Series and would be
deemed under the 1940 Act to be a beneficial owner of such Series.
Each share of a Series represents an identical interest in the investment
portfolio of that Series and has the same rights, except that (i) each class of
shares bears those distribution fees, service fees and administrative expenses
applicable to the
respective class of shares as a result of its sales arrangements, which will
cause the different classes of shares to have different expense ratios and to
pay different rates of dividends, (ii) each class has exclusive voting rights
with respect to those provisions of the Series' Rule 12b-1 distribution plan
which relate only to such class and (iii) the classes have different exchange
privileges. As a result of each class' differing Rule 12b-1 distribution and
shareholder services plan, shares of different classes of the Series may have
different net asset values per share.
The Fund does not expect to hold annual meetings of shareholders but special
meetings of shareholders may be held under certain circumstances. Shareholders
of the Fund retain the right, under certain circumstances, to request that a
meeting of shareholders be held for the purpose of considering the removal of a
Director from office, and if such a request is made, the Fund will assist with
shareholder communications in connection with the meeting. The shares of the
Fund have equal rights with regard to voting, redemption and liquidations. The
Fund's shareholders will vote in the aggregate and not by Series or Class 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 or a Class. Income, direct liabilities and direct operating expenses
of a Series will be allocated directly to the Series, and general liabilities
and expenses of the Fund will be allocated among the Series in proportion to the
total net assets of the 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.
All securities and cash are held by the custodian, Boston Safe Deposit and
Trust Company. Deloitte & Touche, LLP serves as independent accountants for the
Series and will audit its financial statements annually.
Manning & Napier Advisors, Inc. serves as the Fund's Transfer and Dividend
Disbursing Agent. Shareholder inquiries should be directed to Manning & Napier
Fund, Inc., P.O. Box 41118, Rochester, New York 14604.
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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.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
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.
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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.
Debt rated BB, B, CCC and CC is regarded, on balance, as predominately
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree of
speculation and CC the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
The C rating is reserved for income bonds on which no interest is being
paid.
Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
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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 for 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 - This rating is 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.
25
<PAGE>
MANNING & NAPIER FUND
WORLD OPPORTUNITIES
SERIES
PROSPECTUS
NOVEMBER 14, 1997
<PAGE>
MANNING & NAPIER FUND, INC.
P.O. Box 41118
Rochester, New York 14604
1-800-466-3863
WORLD OPPORTUNITIES SERIES
Manning & Napier Fund, Inc. (the "Fund"), is an open-end management
investment company that offers separate series, each a separate investment
portfolio having its own investment objective and policies. This Prospectus
relates to the Class A, B, C, D and E Shares (each a "Class" and collectively,
the "Classes") of 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. The Fund's other series are offered through
separate prospectuses. You should read this Prospectus and keep it for future
reference. A Statement of Additional Information dated April 14, 1997, as
supplemented through November 14, 1997, containing additional information about
the Fund has been filed with the Securities and Exchange Commission and is
incorporated by reference into 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 NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS NOVEMBER 14, 1997.
<PAGE>
EXPENSES
- ---------
SHAREHOLDER TRANSACTION EXPENSES
(as a percentage of offering price)
All Classes
------
Maximum Sales Charge Imposed on Purchases......... None
Redemption Fees(1)................................ None
Exchange Fees(2).................................. None
(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.
(2) A shareholder may effect up to four (4) exchanges in a twelve (12) month
period without charge. Subsequent exchanges are subject to a fee of $15.
ANNUAL OPERATING EXPENSES - CLASS A SHARES
The following information provides (i) a tabular summary of expenses relating to
the annual operating expense of the Class A Shares of Series and (ii) an example
illustrating the dollar cost of such expenses on a $1,000 investment.
ANNUAL OPERATING EXPENSES OF THE CLASS A SHARES OF THE SERIES
- ---------------------------------------------------------
(AS A PERCENTAGE OF AVERAGE NET ASSETS)(1):
- ------------------------------------
Management Fees................................... 1.00%
Rule 12b-1 Fees................................... None
Other Expenses.................................... 0.17%
---
Total Operating Expenses.......................... 1.17%
---
---
(1) The World Opportunities Series offered Class A Shares during the period
September 6, 1996 through December 31, 1996; therefore, actual management
fees and other expenses are used above.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class A Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
EXAMPLE - CLASS A SHARES
- ---------------------
You would pay the following expenses on a $1,000 investment in Class A Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
----- ----------- ----------- -----------
<S> <C> <C> <C> <C>
World Opportunities Series $ 12 $ 37 $ 64 $ 142
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
2
<PAGE>
ANNUAL OPERATING EXPENSES - CLASS B SHARES
The following information provides (i) a tabular summary of expenses relating to
the annual operating expense of the Class B Shares of Series and (ii) an example
illustrating the dollar cost of such expenses on a $1,000 investment.
ANNUAL OPERATING EXPENSES OF THE CLASS B SHARES OF THE SERIES
- ---------------------------------------------------------
(AS A PERCENTAGE OF AVERAGE NET ASSETS)(1):
- ------------------------------------
Management Fees................................... 1.00%
Rule 12b-1 Fees(2)................................ 1.00%
Other Expenses.................................... 0.17%
---
Total Operating Expenses.......................... 2.17%
---
---
(1) The World Opportunities Series offered only Class A Shares during the year
ended December 31, 1996; therefore, actual management fees and other
expenses of Class A Shares of the Series are used above.
(2) Of the Rule 12b-1 fees for the Class B shares, 0.25% represents shareholder
service fees.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class B Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
Due to the continuous nature of Rule 12b-1 fees, long-term shareholders may pay
more than the equivalent of the maximum front-end sales charges otherwise
permitted by the Conduct Rules of the National Association of Securities
Dealers, Inc. ("NASD").
EXAMPLE - CLASS B SHARES
- ---------------------
You would pay the following expenses on a $1,000 investment in Class B Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
----- ----------- ----------- -----------
<S> <C> <C> <C> <C>
World Opportunities Series $ 22 $ 66 $ 116 $ 263
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
3
<PAGE>
ANNUAL OPERATING EXPENSES - CLASS C SHARES
The following information provides (i) a tabular summary of expenses relating to
the annual operating expense of the Class C Shares of Series and (ii) an example
illustrating the dollar cost of such expenses on a $1,000 investment.
ANNUAL OPERATING EXPENSES OF THE CLASS C SHARES OF THE SERIES
- --------------------------------------------------------
(AS A PERCENTAGE OF AVERAGE NET ASSETS)(1):
- ------------------------------------
Management Fees................................... 1.00%
Rule 12b-1 Fees(2)................................ 0.75%
Other Expenses.................................... 0.17%
---
Total Operating Expenses.......................... 1.92%
---
---
(1) The World Opportunities Series offered only Class A Shares during the year
ended December 31, 1996; therefore, actual management fees and other
expenses are used above.
(2) Of the Rule 12b-1 fees for the Class C shares, up to 0.25% represents
shareholder service fees.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class C Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
Due to the continuous nature of Rule 12b-1 fees, long-term shareholders may pay
more than the equivalent of the maximum front-end sales charges otherwise
permitted by the Conduct Rules of the NASD.
EXAMPLE - CLASS C SHARES
- ---------------------
You would pay the following expenses on a $1,000 investment in Class C Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
----- ----------- ----------- -----------
<S> <C> <C> <C> <C>
World Opportunities Series $ 19 $ 59 $ 102 $ 231
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
4
<PAGE>
ANNUAL OPERATING EXPENSES - CLASS D SHARES
The following information provides (i) a tabular summary of expenses relating to
the annual operating expense of the Class D Shares of Series and (ii) an example
illustrating the dollar cost of such expenses on a $1,000 investment.
ANNUAL OPERATING EXPENSES OF THE CLASS D SHARES OF THE SERIES
- --------------------------------------------------------
(AS A PERCENTAGE OF AVERAGE NET ASSETS)(1):
- ------------------------------------
Management Fees................................... 1.00%
Rule 12b-1 Fees(2)................................ 0.50%
Other Expenses.................................... 0.17%
---
Total Operating Expenses.......................... 1.67%
---
---
(1) The World Opportunities Series offered only Class A Shares during the year
ended December 31, 1996; therefore, actual management fees and other
expenses are used above.
(2) Of the Rule 12b-1 fees for the Class D shares, up to 0.25% represents
shareholder service fees.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class D Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
Due to the continuous nature of Rule 12b-1 fees, long-term shareholders may pay
more than the equivalent of the maximum front-end sales charges otherwise
permitted by the Conduct Rules of the NASD.
EXAMPLE - CLASS D SHARES
- ---------------------
You would pay the following expenses on a $1,000 investment in Class D Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
----- ----------- ----------- -----------
<S> <C> <C> <C> <C>
World Opportunities Series $ 17 $ 53 $ 92 $ 210
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
5
<PAGE>
ANNUAL OPERATING EXPENSES - CLASS E SHARES
The following information provides (i) a tabular summary of expenses relating to
the annual operating expenses of the Class E Shares of the Series and (ii) an
example illustrating the dollar cost of such expenses on a $1,000 investment.
ANNUAL OPERATING EXPENSES OF THE CLASS E SHARES OF THE SERIES
- --------------------------------------------------------
(AS A PERCENTAGE OF AVERAGE NET ASSETS)(1):
- ------------------------------------
Management Fees................................... 1.00%
Rule 12b-1 Fees(2)................................ 0.25%
Other Expenses.................................... 0.17%
---
Total Operating Expenses.......................... 1.42%
---
---
(1) The World Opportunities Series offered only Class A Shares during the year
ended December 31, 1996; therefore, actual management fees and other
expenses are used above.
(2) Of the Rule 12b-1 fees for the Class E shares, up to 0.25% may represent
shareholder service fees.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class E Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
Due to the continuous nature of Rule 12b-1 fees, long-term shareholders may pay
more than the equivalent of the maximum front-end sales charges otherwise
permitted by the Conduct Rules of the NASD.
EXAMPLE - CLASS E SHARES
- ---------------------
You would pay the following expenses on a $1,000 investment in Class E Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
----- ----------- ----------- -----------
<S> <C> <C> <C> <C>
World Opportunities Series $ 14 $ 45 $ 78 $ 172
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
6
<PAGE>
FINANCIAL HIGHLIGHTS
- ---------------------
The following table provides selected per share data and ratios for the Class A
Shares of the World Opportunities Series (for a share outstanding throughout the
period for the periods shown). The table, except with respect to the unaudited
interim periods, is part of the Series' financial statements, which are
incorporated by reference into the Fund's Statement of Additional Information.
The financial highlights presented herein for the period ended June 30, 1997 are
unaudited. Coopers & Lybrand L.L.P., the Fund's independent accountants, audited
the Fund's financial highlights for each of the other periods shown. Additional
performance information is contained in the Fund's 1997 Semi-Annual Report to
Shareholders and its 1996 Annual Report to Shareholders and each is available
upon request and without charge by calling 1-800-466-3863. Because the Fund's
Class B, C, D and E Shares had not been introduced as of June 30, 1997, no
financial highlights are presented for the Class B, C, D or E Shares of the
Series. These tables should be read in conjunction with the Series' financial
statements and notes thereto.
WORLD OPPORTUNITIES SERIES - CLASS A SHARES
<TABLE>
<CAPTION>
For the Period
For the Six 9/6/96
Months Ended (commencement of
6/30/97 operations) to
(Unaudited) 12/31/96
--------------- ----------------
<S> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD):
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.42 $ 10.00(3)
------- -------
Income from investment operations
Net investment income (loss) 0.06 0.05
Net realized and unrealized gain (loss) on investments 2.31 0.43
------- -------
Total from investment operations 2.37 0.48
------- -------
Less distributions declared to shareholders:
From net investment income - (0.05)
From net realized gain on investments - (0.01)
------- -------
Total distributions declared to shareholders - (0.06)
------- -------
NET ASSET VALUE - END OF PERIOD $ 12.79 $ 10.42
------- -------
------- -------
Total return(1) 22.74% 4.82%
Ratio (to average net assets) / Supplemental data:
Expenses 1.17%(2) 1.17%(2)
Net investment income 1.08%(2) 1.54%(2)
Portfolio Turnover 45% 1%
Average Commission Rate Paid $ 0.0111 $ 0.0065
NET ASSETS - END OF PERIOD (000's omitted) $ 98,773 $ 77,338
------- -------
------- -------
</TABLE>
(1) Represents aggregate total return for the period indicated.
(2) Annualized.
(3) Initial offering price upon commencement of operations on September 6, 1996.
7
<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 Fund offers separate series
of units of beneficial interest ("shares"). This Prospectus relates to the World
Opportunities Series (the "Series"), which is offered through five separate
classes of shares, Class A, B, C, D and E Shares, respectively. Class A Shares
of each Series are offered to investors who purchase their shares directly from
Manning & Napier Investor Services, Inc. (the "Distributor"). Class B, C, D and
E Shares are offered only through financial intermediaries which provide to the
Fund and its shareholders varying levels of distribution and shareholder
services as described under "Distribution of Fund Shares" below. Information
regarding the Fund'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 employees and
clients of Manning & Napier Advisors, Inc. (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 only for 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.
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 its assets in common stocks of companies
domiciled in at least three different countries. The Advisor will emphasize
individual security selection to identify those issuers which, in the Advisor's
opinion, have attractive long-term business prospects and valuations. It may
invest up to 20% of assets in noninvestment-grade convertibles and debt
securities. Unless otherwise stated, the Series' investment policies are not
fundamental 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
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 "Special Risk and Additional Investment Policies-High Yield Debt
Securities".
The Series is a non-diversified portfolio under the Investment Company Act
of 1940 (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 determines
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.
8
<PAGE>
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 "Special 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).
9
<PAGE>
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.
ZERO-COUPON BONDS
Some of the securities in which the Series invests may include so-called
"zero-coupon" bonds. Zero-coupon bonds are issued at a significant discount from
face value and pay interest only at maturity rather than at intervals during the
life of the security. The Series is required to accrue and distribute income
from zero-coupon bonds on a current basis, even though it does not receive that
income currently in cash. Thus, the Series may have to sell investments to
obtain cash needed to make income distributions. The discount, in the absence of
financial difficulties of the issuer, decreases as the final maturity of the
security approaches. Zero-coupon bonds can be sold prior to their maturity date
in the secondary market at the then prevailing market value, which depends
primarily on the time remaining to maturity, prevailing level of interest rates
and the perceived credit quality of the issues. The market prices of zero-coupon
securities are subject to greater fluctuations in response to changes in market
interest rates than bonds which pay interest currently.
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
at some other interval, and may have a floor or ceiling rate. There is a risk
that the current interest rate on such obligations may not accurately reflect
existing market interest rates.
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.
10
<PAGE>
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) that do not constitute "bona fide hedging" under the
Commodity Futures Trading Commission ("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 covering of obligations under futures
contracts and will set aside liquid assets 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 accurately 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
give 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
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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) that do not
constitute "bona fide hedging" under the CFTC rules would exceed 5% of the
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.
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 accurately predict movements in the prices of
individual securities, fluctuations in domestic and foreign markets and currency
exchange rates, and movements in interest rates; (2) there may be an imperfect
correlation between the changes in market value of the 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 "regulated 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 liquid assets 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
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("GNMA"), Fannie Mae, 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.
To the extent that the Series purchases mortgage-related or mortgage-backed
securities at a premium, mortgage foreclosures and prepayments of principal
(which may be made at any time without penalty) may result in some loss of the
Series' principal investment to the extent of the premium paid. The yield of the
Series may be affected by reinvestment of prepayments at higher or lower rates
than the original investment. In addition, like other debt securities, the value
of mortgage-related securities, including government and government-related
mortgage pools, will generally fluctuate in response to market interest rates.
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 determines 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 they are difficult to price at times because they are more thinly
traded and less liquid securities. Market prices may decline significantly in
periods of general economic difficulty which may follow periods of rising
interest rates. Securities in the lowest rating category may be in default. For
these reasons, it is the 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.
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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 loans of portfolio securities
and 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 Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, including the Fund's
agreements with its Investment Advisor, Custodian and Distributor. The
day-to-day operations of the Fund are delegated to the Fund'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 over $7.0 billion
in assets of clients, including both individuals and institutions. For its
services to the Fund under the Investment Advisory Agreement, the Fund pays the
Advisor a fee, computed daily and payable monthly, at an annual rate of 1% of
the Fund's average daily net assets. 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 Fund. The Fund 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 incidental to the issuance of its shares, including
issuance on the payment of, or reinvestment of, dividends and capital gain
distributions; (viii) fees and expenses incidental 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 with respect to which the Fund may have to indemnify its officers
and Directors.
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DISTRIBUTION OF FUND SHARES
- ------------------------
Manning & Napier Investor Services, Inc. (the "Distributor") acts as
distributor of Fund shares and is located at the same address as the Advisor and
the Fund. The Fund has adopted a Distribution Agreement with respect to each
Class of shares and related Plans of Distribution with respect to Class B, C, D
and E Shares (the "Plans") pursuant to Rule 12b-1 under the 1940 Act. Class A
Shares are offered to investors who purchase their shares directly from the
Distributor Series and are not subject to distribution or shareholder servicing
fees. Class B, C, D and E Shares are offered only by or through investment
dealers, banks or financial service firms that provide distribution,
administrative and/or shareholder services ("Financial Intermediaries").
The Distributor receives distribution and services fees, at the rates set
forth below, for providing distribution and/or shareholder services to the Class
B, C, D and E Shares. The Distributor expects to allocate most of its
distribution fees and shareholder service fees to Financial Intermediaries that
enter into shareholder servicing agreements ("Servicing Agreements") with the
Distributor. The different Classes permit the Fund to allocate an appropriate
amount of fees to a Financial Intermediary in accordance with the level of
services it agrees to provide under its Servicing Agreement.
As compensation for providing distribution and shareholders services for the
Class B Shares, the Distributor receives a distribution fee equal to .75% of the
Class B Shares' average daily net assets and a shareholder servicing fee equal
to .25% of the Class B Shares' average daily net assets. As compensation for
providing distribution and shareholders service for the Class C Shares, the
Distributor receives an aggregate distribution and shareholder servicing fee
equal to .75% of the Class C Shares' average daily net assets. As compensation
for providing distribution and shareholder services for the Class D Shares, the
Distributor receives an aggregate distribution and shareholder servicing fee
equal to .50% of the Class D Shares' average daily net assets. The shareholder
services component of the foregoing fees for Classes C and D is limited to .25%
of the average daily net assets of the respective class. As compensation for
providing distribution services for the Class E Shares, the Distributor receives
an aggregate distribution and shareholder servicing fee equal to .25% of the
average daily net assets of the Class E Shares. The Distributor may, in its
discretion, voluntarily waive from time to time all or any portion of its
distribution fee and the Distributor is free to make additional payments out of
its own assets to promote the sale of Fund shares.
Payments under the Plans are made as described above regardless of the
Distributor's actual cost of providing distribution services and may be used to
pay the Distributor's overhead expenses. If the cost of providing distribution
services to the Fund is less than the payments received, the unexpended portion
of the distribution fees may be retained as profit by the Distributor. The
Distributor may from time to time and from its own resources pay or allow
additional discounts or promotional incentives in the form of cash or other
compensation (including merchandise or travel) to Financial Intermediaries.
Similarly, the Advisor may, from its own resources, defray or absorb costs
related to distribution, including compensation of employees who are involved in
distribution.
TOTAL RETURN
- ----------
From time-to-time the Series may advertise its total return. TOTAL RETURN
FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE
PERFORMANCE. The "total return" of the Series refers to the average annual
compounded rates of return over one-, five-, and ten-year periods or for the
life of the Series (as stated in the advertisement) that would equate an initial
amount invested at the beginning of a stated period to the ending redeemable
value of the investment, assuming the reinvestment of all dividend and capital
gains distributions. The respective performance figures for the Classes will
differ because of the different distribution and/or shareholder services fees
charged to Class B, C, D and E Shares.
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PURCHASES, EXCHANGES AND REDEMPTIONS OF SHARES
- --------------------------------------------
PURCHASES
Purchases and redemptions of shares of the Series may be made on any day the
New York Stock Exchange is open for trading.
The minimum initial investment in each class of the Series is $2,000 and
subsequent purchases must be at least $100. The minimum initial investment is
waived for participants in the Automatic Investment Plan and for shareholders
who purchase shares through Financial Intermediaries that provide sub-accounting
services to the Fund. 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.
A purchase order will be effective as of the day received by the
Distributor, Transfer Agent, or its agents, if the order is received before 4:00
p.m. Eastern time by the Distributor, Transfer Agent or its agents. Payment may
be made by check or readily available funds. The purchase price of shares of
each Class of the Series is the net asset value next determined after a purchase
order is effective.
Shareholders may purchase shares regularly through the Automatic Investment
Plan with a pre-authorized draft drawn on their checking account. Under this
plan, the shareholders may elect to have a specified amount invested on a
regular schedule. The amount specified by the shareholder will be withdrawn from
the shareholder's bank account using the pre-authorized draft. This amount will
be invested at the applicable share price determined on the date the amount is
available for investment. Participation in the Automatic Investment Plan may be
discontinued either by the Fund or the Shareholder upon 30 days' prior written
notice to the other party. A shareholder who wishes to enroll in the Automatic
Investment Plan may do so by completing the applicable section of the Account
Application Form or contacting the Fund for an Automatic Investment Plan Form.
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 approved by the Fund's Board of Directors.
EXCHANGES BETWEEN SERIES
As permitted pursuant to any rule, regulation or order promulgated by the
Securities and Exchange Commission, some or all of the shares of a Class in a
direct investment account with the Fund for which payment has been received by
the Transfer Agent may be exchanged for shares of the same Class of any of the
other Manning & Napier Fund, Inc. Series that offers that Class at 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.
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<PAGE>
REDEMPTIONS
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. The Fund has elected, however, to be governed by Rule 18f-1 under the 1940
Act as a result of which the Fund is obligated to redeem shares, with respect to
any one shareholder during any 90-day period, solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund at the beginning of the
period.
OTHER INFORMATION ABOUT PURCHASES
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.
SHARE PRICE
- ----------
The share price or "net asset value" per share of each class of the Series
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, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
The net asset value per share of each Class of a Series is determined by
dividing the total value of its investments and other assets that are allocated
to that Class, less any liabilities that are allocated to that Class, by the
Class's total outstanding shares. 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
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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 Fund, that
payments of either ordinary income dividends or capital gain distributions, or
both, be made in cash. The Fund will notify each non-corporate taxable
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 31% 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.
If a taxable shareholder invests shortly before the Series declares a
taxable dividend, a portion of the investment will be returned as a taxable
distribution (commonly referred to as "buying into a dividend"). This
distribution will be taxable regardless of whether you elected to reinvest your
distribution in additional shares or take the distribution in cash. If you would
like to avoid buying into a dividend, you may contact the Fund to find out when
the Series plans to declare a distribution and invest after that date.
TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a general summary of certain federal income 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 its
shareholders, and the discussion here is not intended as a substitute for
careful tax planning. This Series is not managed with respect to tax outcomes
for its shareholders.
Under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), the Series is treated as a separate entity for federal income tax
purposes. The Series intends to qualify each year 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
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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 Fund 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.
Each share of a Series represents an identical interest in the investment
portfolio of that Series and has the same rights, except that (i) each class of
shares bears those distribution fees, service fees and administrative expenses
applicable to the respective class of shares as a result of its sales
arrangements, which will cause the different classes of shares to have different
expense ratios and to pay different rates of dividends, (ii) each class has
exclusive voting rights with respect to those provisions of the Series' Rule
12b-1 distribution plan which relate only to such class and (iii) the classes
have different exchange privileges. As a result of each class' differing Rule
12b-1 distribution and shareholder services plan, shares of different classes of
the Series may have different net asset values per share.
The Fund does not expect to hold annual meetings of shareholders but special
meetings of shareholders may be held under certain circumstances. Shareholders
of the Fund retain the right, under certain circumstances, to request that a
meeting of shareholders be held for the purpose of considering the removal of a
Director from office, and if such a request is made, the Fund will assist with
shareholder communications in connection with the meeting. The shares of the
Fund have equal rights with regard to voting, redemption and liquidations. The
Fund's shareholders will vote in the aggregate and not by Series or Class 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 or a Class. 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.
All securities and cash are held by the custodian, Boston Safe Deposit and
Trust Company. Coopers & Lybrand, L.L.P. serves as independent accountants for
the Series and will audit its financial statements annually.
Manning & Napier Advisors, Inc. serves as the Fund's Transfer and Dividend
Disbursing Agent. Shareholder inquiries should be directed to Manning & Napier
Fund, Inc., P.O. Box 41118, Rochester, New York 14604.
19
<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.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds rated Caa represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
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.
20
<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 - This rating is 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.
21
<PAGE>
MANNING & NAPIER FUND, INC.
SMALL CAP SERIES
ENERGY SERIES
TECHNOLOGY SERIES
FINANCIAL SERVICES SERIES
INTERNATIONAL SERIES
LIFE SCIENCES SERIES
GLOBAL FIXED INCOME SERIES
WORLD OPPORTUNITIES SERIES
(THE "SERIES")
Supplement dated November 14, 1997 to the Prospectus dated April 14, 1997
THE PROSPECTUS IS AMENDED AND SUPPLEMENTED TO REFLECT; (I) UNAUDITED FINANCIAL
INFORMATION FOR THE SMALL CAP, INTERNATIONAL AND WORLD OPPORTUNITIES SERIES;
(II) AUDITED FINANCIAL INFORMATION FOR THE TECHNOLOGY SERIES; (III) FOUR
ADDITIONAL CLASSES OF SHARES OF THE SMALL CAP AND WORLD OPPORTUNITIES SERIES;
AND (IV) THE NAME OF THE SERIES' CUSTODIAN.
------------------------
The following tables include unaudited financial information for the Small Cap,
International and World Opportunities Series and audited financial information
for the Technology Series for the periods indicated. Coopers & Lybrand L.L.P.,
the Fund's independent accountants, audited the Technology Series' financial
highlights. Additional performance information for each Series is contained in
the Fund's 1997 Semi-Annual Report to Shareholders and its 1996 Annual Report to
Shareholders and each is available upon request and without charge by calling
1-800-466-3863. Because the Fund's Class B, C, D and E Shares had not been
introduced as of June 30, 1997, no financial highlights are presented for the
Class B, C, D or E Shares of the Series. These tables should be read in
conjunction with the Series' financial statements and notes thereto.
<TABLE>
<CAPTION>
WORLD
SMALL CAP TECHNOLOGY INTERNATIONAL OPPORTUNITIES
SERIES SERIES SERIES SERIES
------------ -------------- ------------ ------------
For the Six For the Period For the Six For the Six
Months Ended 1/1/97 to Months Ended Months Ended
6/30/97 4/16/97(1) 6/30/97 6/30/97
(Unaudited) (Audited) (Unaudited) (Unaudited)
------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD):
NET ASSET VALUE - BEGINNING OF PERIOD $ 12.09 $ 12.58 $ 11.54 $ 10.42
------------ ------- ------------ ------------
Income from investment operations:
Net investment income 0.01 0.02 0.15 0.06
Net realized and unrealized gain (loss) on
investments 2.13 (0.01) 2.22 2.31
------------ ------- ------------ ------------
Total from investment operations 2.14 0.01 2.37 2.37
------------ ------- ------------ ------------
Less distributions to shareholders:
From net investment income - (0.02) - -
From net realized gain on investments - (3.35) - -
Redemption of capital - (9.22) - -
------------ ------- ------------ ------------
Total distributions to shareholders - (12.59) - -
------------ ------- ------------ ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
WORLD
SMALL CAP TECHNOLOGY INTERNATIONAL OPPORTUNITIES
SERIES SERIES SERIES SERIES
------------ -------------- ------------ ------------
For the Six For the Period For the Six For the Six
Months Ended 1/1/97 to Months Ended Months Ended
6/30/97 4/16/97(1) 6/30/97 6/30/97
(Unaudited) (Audited) (Unaudited) (Unaudited)
------------ -------------- ------------ ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE - END OF PERIOD $ 14.23 $ 0.00 $ 13.91 $ 12.79
------------ ------- ------------ ------------
------------ ------- ------------ ------------
Total return(2) 17.70% - (3) 20.54% 22.74%
Ratios (to average net assets) / Supplemental
Data:
Expenses 1.08%(4) 1.07%(3,4) 1.09%(4) 1.17%(4)
Net investment income 0.22%(4) 0.36%(3,4) 2.35%(4) 1.08%(4)
Portfolio turnover 53% 48% 2% 45%
Average commission rate paid $ 0.0315 $0.0174 $ 0.0046 $0.0111
NET ASSETS - END OF PERIOD (000's omitted) $122,419 - $182,392 $98,773
------------ ------- ------------ ------------
------------ ------- ------------ ------------
</TABLE>
(1) Date of complete redemption.
(2) Represents aggregate total return for the period indicated.
(3) The Series ceased investment operations on April 16, 1997; therefore ratios
and total return would not be representative of an actively operating
series.
(4) Annualized.
------------------------
The second sentence of the first paragraph under the section "The Fund" on page
10 of the Prospectus is deleted and replaced with the following three sentences:
This Prospectus relates to the Class A Shares ("Shares") of eight series
of the Fund: the Small Cap Series, the Energy Series, the Technology
Series, the Financial Services Series, the International Series, the Life
Sciences Series, the Global Fixed Income Series and the World
Opportunities Series. The Small Cap and World Opportunities Series are
also offered through four additional classes. Information regarding the
other classes of the Small Cap and World Opportunities Series and the
Fund'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.
------------------------
The first sentence of the second paragraph under the section "Net Asset Value"
on page 23 of the Prospectus is deleted and replaced with the following
sentence:
The net asset value per share of each Series (or Class thereof) is
determined by dividing the total value of its investments and other
assets that are allocated to that Series (or Class), less any liabilities
that are allocated to that Series (or Class), by the Series' (or Class's)
total outstanding shares.
------------------------
The first two sentences of the final paragraph on page 25 of the Prospectus are
deleted and replaced with the following sentence:
All securities and cash are held by the custodian, Boston Safe Deposit
and Trust Company.
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE
<PAGE>
MANNING & NAPIER FUND, INC.
OHIO TAX EXEMPT SERIES
(THE "SERIES")
Supplement dated November 14, 1997 to the Prospectus dated April 14, 1997
THE PROSPECTUS IS AMENDED AND SUPPLEMENTED TO REFLECT THE ADDITION OF UNAUDITED
FINANCIAL INFORMATION FOR THE SERIES.
------------------------
The following tables include unaudited financial information for the Series for
the period ended June 30, 1997 and supplement the financial highlights on page 4
of the Prospectus.
<TABLE>
<CAPTION>
For the Six
Months Ended
6/30/97
(Unaudited)
-----------------
<S> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH
PERIOD):
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.18
------
Income from investment operations:
Net investment income 0.22
Net realized and unrealized gain (loss) on investments 0.03
------
Total from investment operations 0.25
------
Less distributions to shareholders:
From net investment income (0.19)
From net realized gain on investments -
------
Total distributions to shareholders (0.19)
------
NET ASSET VALUE - END OF PERIOD $ 10.24
------
------
Total return(1) 2.48%
Ratios (to average net assets) / Supplemental Data:
Expenses 0.82%(2)
Net investment income 4.44%(2)
Portfolio turnover 1%
NET ASSETS - END OF PERIOD (000's omitted) $ 8,281
------
------
</TABLE>
(1) Represents aggregate total return for the period indicated.
(2) Annualized.
------------------------
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE
<PAGE>
MANNING & NAPIER FUND, INC.
NEW YORK TAX EXEMPT SERIES
(THE "SERIES")
Supplement dated November 14, 1997 to the Prospectus dated April 14, 1997
THE PROSPECTUS IS AMENDED AND SUPPLEMENTED TO REFLECT THE ADDITION OF UNAUDITED
FINANCIAL INFORMATION FOR THE SERIES.
------------------------
The following tables include unaudited financial information for the Series for
the period ended June 30, 1997 and supplement the financial highlights on page 4
of the Prospectus.
<TABLE>
<CAPTION>
For the Six
Months
Ended 6/30/97
(Unaudited)
-----------------
<S> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH
PERIOD):
NET ASSET VALUE - BEGINNING OF PERIOD $ 9.98
-------
Income from investment operations:
Net investment income 0.22
Net realized and unrealized gain (loss) on investments 0.04
-------
Total from investment operations 0.26
-------
Less distributions to shareholders:
From net investment income (0.19)
-------
NET ASSET VALUE - END OF PERIOD $ 10.05
-------
-------
Total return(1) 2.62%
Ratios (to average net assets) / Supplemental Data:
Expenses 0.61%(2)
Net investment income 4.48%(2)
Portfolio turnover 0%
NET ASSETS - END OF PERIOD (000's omitted) $ 40,610
-------
-------
</TABLE>
(1) Represents aggregate total return for the period indicated.
(2) Annualized.
------------------------
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE
<PAGE>
MANNING & NAPIER FUND, INC.
DIVERSIFIED TAX EXEMPT SERIES
(THE "SERIES")
Supplement dated November 14, 1997 to the Prospectus dated April 14, 1997
THE PROSPECTUS IS AMENDED AND SUPPLEMENTED TO REFLECT THE ADDITION OF UNAUDITED
FINANCIAL INFORMATION FOR THE SERIES.
------------------------
The following tables include unaudited financial information for the Series for
the period ended June 30, 1997 and supplement the financial highlights on page 4
of the Prospectus.
<TABLE>
<CAPTION>
For the Six
Months
Ended 6/30/97
(Unaudited)
-----------------
<S> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT EACH
PERIOD):
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.23
-------
Income from investment operations:
Net investment income 0.22
Net realized and unrealized gain (loss) on investments 0.03
-------
Total from investment operations 0.25
-------
Less distributions to shareholders:
From net investment income (0.19)
-------
NET ASSET VALUE - END OF PERIOD $ 10.29
-------
-------
Total return(1) 2.46%
Ratios (to average net assets) / Supplemental Data:
Expenses 0.69%(2)
Net investment income 4.49%(2)
Portfolio turnover 0%
NET ASSETS - END OF PERIOD (000's omitted) $ 18,585
-------
-------
</TABLE>
(1) Represents aggregate total return for the period indicated.
(2) Annualized.
------------------------
PLEASE RETAIN THIS SUPPLEMENT FOR FUTURE REFERENCE
<PAGE>
MANNING & NAPIER FUND, INC.
Statement of Additional Information dated April 14, 1997, as supplemented
through November 14, 1997
This Statement of Additional Information is not a Prospectus, and it should be
read in conjunction with each Series' 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 OF CONTENTS
Page
----
Investment Objectives, Policies and
Restrictions of the Fund B-2
Risk and Investment Policies B-2
Investment Restrictions B-23
Portfolio Turnover B-26
Management B-26
The Advisor B-33
Distribution of Fund Shares B-36
Custodian and Independent Accountant B-37
Portfolio Transactions and Brokerage B-37
Net Asset Value B-39
Redemption of Shares B-39
Payment for Shares Received B-39
Redemption in Kind B-40
Federal Tax Treatment of Dividends and
Distributions B-40
Qualification as Regulated Investment
Company B-40
Fund Distributions B-43
Other Considerations B-45
Financial Statements B-46
<PAGE>
INVESTMENT OBJECTIVES, 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 a 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
B-2
<PAGE>
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
B-3
<PAGE>
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 liquid
assets 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 assets will be valued at fair market
value. If the value of such assets declines, additional cash or assets will be
placed in the account daily so that the value of the account will equal the
amount of such commitments by the Series.
A put option is secured if a Series maintains in a segregated account with
its Custodian liquid assets 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 income earned on the amount held in liquid assets plus
the premium received on the option (less the commissions paid on the
transaction) while the potential loss equals the difference between the exercise
price of the option and the current market price of the underlying securities
when the put is exercised, offset by the premium received (less the commissions
paid on the transaction) and income earned on the amount held in liquid assets.
A 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
B-4
<PAGE>
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 liquid assets 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
B-5
<PAGE>
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 Flexible Yield Series I, Flexible Yield Series
II and Flexible Yield Series III 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.
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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 liquid assets 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.
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The loss from investing in futures transactions is potentially unlimited.
To limit such risk, 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
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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
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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.
Accordingly, 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.
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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. However, the loss from investing in futures transactions
is potentially unlimited. 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
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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. The loss
from investing in futures transactions is potentially unlimited. To minimize
this risk, 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
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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
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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 liquid assets 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, liquid assets 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
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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
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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
B-16
<PAGE>
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"),
Fannie Mae, 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 Fannie Mae 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
B-17
<PAGE>
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 November 1992, employment growth resumed and the State has gained
approximately 240,000 jobs. During recent years, the State has been hindered by
significant cutbacks in computers and instrument manufacturing, utility,
defensive and banking industries. Government downsizing has also moderated
these job gains.
Revenues and Expenditures. New York's Governmental Funds receive over 52%
of their revenues from the personal income tax 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.
B-18
<PAGE>
New York's major expenditures are grants to local governments, which are
projected to account for approximately 69%, of all Governmental Funds
expenditures in fiscal 1996-1997. These grants include disbursements for
elementary, secondary and higher education, social services, drug abuse control,
and mass transportation programs. The State's 1996-1997 fiscal year budget
reflects a continuing strategy of substantially reduced State spending,
including program restructurings, reductions in social welfare spending and
efficiency and productivity initiatives.
Projections of total State receipts are based on the State's tax structure in
effect during the fiscal year and on assumptions relating to basic economic
factors and their historical relationships to State tax receipts. In preparing
projections of State receipts, economic forecasts relating to personal income,
wages, consumption, profits and employment have been particularly important.
The projection of receipts from most tax or revenue sources is generally made by
estimating the change in yield of such tax or revenue source caused by economic
or other factors, rather than by estimating the total yield of such tax or
revenue source from its estimated tax base. The forecasting methodology,
however, ensures that State fiscal year estimates for taxes that are based on a
computation of annual liability, such as the business and personal income taxes,
are consistent with estimates of total liability under such taxes.
Projections of total State disbursements are based on assumptions relating to
economic and demographic factors, levels of disbursements for various services
provided by local governments, and the results of various administrative and
statutory mechanisms in controlling disbursements for State operations. Factors
that my affect the level of disbursements in the fiscal year include
uncertainties relating to the economy of the nation and the State, the policies
of the federal government, and changes in the demand for and use of State
services.
In recent years, State actions affecting the level of receipts and
disbursements, the relative strength of the State and regional economy, actions
of the federal government and other factors, have created structural gaps for
the State. These gaps resulted from a significant disparity between recurring
revenues and the costs of maintaining or increasing the level of support for
State programs. To address a potential imbalance in any given fiscal year, the
State would be required to take actions to increase receipts and/or reduce
disbursements as it enacts the budget for that year, and under the State
Constitution, the Governor is required to propose a balanced budget each year.
There can be no assurance, however, that the Legislature will enact the
Governor's proposals or that the State's actions will be sufficient to preserve
budgetary balance in a given fiscal year or to align recurring receipts and
disbursements in future fiscal years.
Fiscal 1995-1996. The State completed its 1995-1996 fiscal year with the
General Fund (the major operating fund of the State) in balance on a cash-basis.
For the 1996-1997 fiscal year, the State's General Fund was projected to be in
balanced on a cash basis. Receipts are projected to be $33.17 billion, an
increase of $365 million or 1.1%. Disbursements are projected to be $33.12
billion, an increase of $444 million or 1.3%.
B-19
<PAGE>
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.
As of March 31, 1996, the State has approximately $5.05 billion in general
obligation bonds, including $294 million in bond anticipation notes outstanding.
Principal and interest due on general obligation bonds and interest due on bond
anticipation notes were $735 million for the 1995-1996 fiscal year and are
estimated to be $719 million for the State's 1996-1997 fiscal year.
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". In October 1995, Moody's
reconfirmed its A rating on the State's general obligation long-term
indebtedness. 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.
Ratings reflect only the respective views of such organizations, and an
explanation of the significance of such ratings may be obtained from the rating
agency furnishing the same. There is no assurance that a particular rating will
continue for any given period of time or that any such rating will not be
revised downward or withdrawn entirely, if in the judgment of the agency
originally establishing the rating, circumstances so warrant.
Litigation. The State is a defendant in numerous legal proceedings
pertaining to matters incidental to the performance of routine governmental
operations. Such litigation includes, but is not limited to, claims asserted
against the State arising from alleged torts, breaches of contracts,
condemnation proceedings and other alleged violations of State and federal laws.
These proceedings could adversely affect the financial condition of the State in
the 1996-1997 fiscal year or thereafter.
B-20
<PAGE>
The State believes that the State Plan includes sufficient reserves for the
payment of judgments that may be required during the 1996-1997 fiscal year.
There can be no assurance, however, that an adverse decision in any of these
proceedings would not exceed the amount the State Plan reserves for the payment
of judgments and, therefore, could affect the ability of the State to maintain a
balanced 1996-1997 State Plan. In addition, the State is also a party to other
claims and litigations which its counsel has advised are not probable of adverse
court decisions. Although the amounts of potential losses, if any, are not
presently determinable, it is the State's opinion that its ultimate liability in
these cases is not expected to have a material adverse effect on the State's
financial position in the 1996-1997 fiscal year or thereafter.
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
depends on State aid both to enable the City to balance it's budget and to meet
its cash requirements. For each of 1981 through 1996 fiscal years, the City
achieved balanced operating results as reported in accordance with generally
accepted accounting principals. On November 14, 1996, the City published the
Financial Plans for the fiscal years 1997-2000, a modification to a financial
plan submitted on June 21, 1996. The financial plan projects deficits of $2.6
billion, $1.2 billion, $2.1 billion and $3.0 billion respectively for fiscal
years 1997-2000, with detailed actions to close the 1997 gap of $2.6 billion.
The City's financial plans have been the subject of extensive public
comment and criticism. On February 28, 1996, Fitch Investors Service, L.P.
("Fitch") placed the City's general obligation bonds on FitchAlert with negative
implications. On November 5, 1996, Fitch removed the City's general obligation
bonds from FitchAlert, although Fitch stated that the outlook remains negative.
Moody's has rated the City's general obligation bonds Baa1. Standard &
Poor's has rated the bonds BBB+. Fitch has rated the bonds A-. These ratings
do not reflect any bond insurance relating to any portion of the bonds. The
City expects that ratings on the Financial Guaranty Insured Bonds and the AMBAC
Insured Bonds will be received in early 1997. The ratings on the Financial
Guaranty Insured Bonds and the AMBAC Insured Bonds will be based on the
insurance policies to be issued by Financial Guaranty and AMBAC Indemnity,
respectively. Bonds insured to maturity by Financial Guaranty are rated "AAA"
by Standard & Poor's, "Aaa" by Moody's and "AAA" by Fitch. Such ratings reflect
only the views of Moody's, Standard & Poor's and Fitch, from which an
explanation of the significance of such ratings will continue for any given
period of time or that they will not be revised downward or withdrawn entirely.
Any such downward revision or withdrawal could have an adverse effect on the
market prices of the bonds.
The City is a defendant in lawsuits pertaining to material matters,
including claims asserted which are incidental to performing routine
governmental and other functions. This litigation includes, but is not limited
to, actions commenced and claims asserted against the City arising out
B-21
<PAGE>
of alleged torts, breaches of contracts, violations of law and condemnation
proceedings. As of June 30, 1996 and 1995, claims in excess of $380 billion and
$311 billion, respectively, were outstanding against the City for which the City
estimates its potential future liability to be $2.8 billion and $2.5 billion,
respectively.
Other Localities. Certain localities in addition to the City could have
financial problems leading to requests for additional State assistance during
the State's 1996-1997 fiscal year and thereafter. The potential impact on the
State of such actions by localities is not included in the projections of the
State receipts and disbursements in the State's 1996-1997 fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers") resulted
in the creation of the Financial Control Board for the City of Yonkers (the
"Yonkers Board") by the State in 1984. The Yonkers Board is charged with
oversight of the fiscal affairs of Yonkers. Future actions taken by the
Governor or the State Legislature to assist Yonkers could result in increased
State expenditures for extraordinary local assistance.
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.
B-22
<PAGE>
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;
B-23
<PAGE>
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. 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.
B-24
<PAGE>
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 Tax Exempt 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
B-25
<PAGE>
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:
Position Principal occupations
Name and address with Fund During past five years
- ---------------- --------- ----------------------
B. Reuben Auspitz* Vice Executive Vice President, Manning
1100 Chase Square President & Napier Advisors, Inc., since 1983;
Rochester, NY 14604 & Director President and Director, Manning &
Napier Investor Services, Inc. since
1990; Director, President and
Treasurer, Manning & Napier Advisory
Advantage Corporation, since 1990;
Director, Manning & Napier Leveraged
Investment Co., since 1994; Director
and Chairman, Exeter Trust, Co.,
since
1994; Member, Fiduciary Services,
L.L.C. since 1995; Member, Manning &
Napier Associates, L.L.C. since
1995; Member, Manning & Napier
Capital Co., L.L.C. since 1995;
President and Director, Manning &
Napier Insurance Fund, Inc. since
1995
Martin Birmingham Director Trustee, The Freedom Forum, since
Lincoln Tower, 16th FLR 1980;Director Emeritus, ACC
Rochester, NY 14604 Corporation since 1994; Director
Manning & Napier Insurance Fund, Inc.
since 1995
Harris H. Rusitzky Director Formerly Director and Corporate
One Grove Street Executive, Serv-Rite Corporation
Pittsford, NY 14534 from 1965-1994; President, Blimpie of
Central New York and The Greening
Group since 1994; Director, Manning &
Napier Insurance Fund, Inc., since
1995
B-26
<PAGE>
Peter L. Faber* Director Former Partner, Kaye, Scholer,
50 Rockefeller Plaza Fierman, Hays & Handler from
New York, New York 1984-1995; Partner McDermott,
10020-1605 Will & Emery since 1995; Director,
Manning & Napier Insurance Fund,
Inc., since 1995
Stephen B. Ashley Director Chairman and Chief Executive
600 Powers Building Officer, The Ashley Group since
116 West Main Street 1975; Director, Genesee Corp.
Rochester, New York 14614 since 1987; Director, Hahn Automotive
since 1994; Director, Fannie Mae
since 1995; Director, Manning &
Napier Insurance Fund, Inc. since
1996
William Manning President President, Director and
1100 Chase Square co-founder, Manning & Napier
Rochester, NY 14604 Advisors, Inc., since 1970;
President, Manning & Napier Fund,
Inc., since 1985; President,
Director, Founder & CEO, Manning
Ventures, Inc., since 1992;
President, Director, Founder & CEO,
KSDS, Inc., since 1992; President,
Kent Display, Inc., since 1992;
President, Director, Founder &
CEO, Synmatix Corporation, since
1993; President, Director, Founder &
CEO, Manning Leasing, Inc. (dba
Williams International Air, Inc.,
since 1994; President/Treasurer,
Manning & Napier Leveraged Investing
Company, Inc., since 1994; Member,
Manning & Napier Capital Co., L.L.C.,
since 1994; Member, Fiduciary
Services, L.L.C., since 1995
Beth Hendershot Galusha, Chief Chief Financial Officer, Manning &
CPA Financial & Napier Advisors, Inc. since 1987;
1100 Chase Square Accounting Treasurer, Fiduciary Broker
Rochester, NY 14604 Services, Inc. since 1990; Treasurer,
Officer, Manning & Napier Investor
Treasurer Services, Inc. since 1990; Director,
Manning & Napier Advisory Advantage
Corporation since 1993; Member,
Manning & Napier Capital Co., L.L.C.
since 1995; Treasurer, Exeter Trust
Company since 1997; Chief Financial
& Accounting Officer, Treasurer,
Manning & Napier Insurance Fund,
Inc. since 1997.
B-27
<PAGE>
Jodi L. Hedberg Corporate Administrative Clerk, Manning &
1100 Chase Square Secretary Napier Advisors, Inc. since 1990;
Rochester, NY 14604 Reconciler, Manning & Napier
Advisors, Inc. since 1990;
Compliance Administrator, Manning &
Napier Advisors, Inc. since 1991;
Senior Compliance Administrator,
Manning & Napier Advisors, Inc.
since 1994; Compliance Manager,
Manning & Napier Advisors, Inc.
since 1995; Corporate Secretary,
Manning & Napier Insurance Fund,
Inc. since 1997.* Interested
Director, within the meaning of the
Investment Company Act of 1940 (the
"1940 Act").
*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 and Stephen B. Ashley.
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 $2,500. Annual fees
will be calculated monthly and prorated. Each Director who is not affiliated
with the Advisor shall receive $375 per Board Meeting attended for each active
Series of the Fund, plus $500 for any Committee Meeting held on a day on which a
Board Meeting is not held.
COMPENSATION TABLE FOR FISCAL YEAR ENDED DECEMBER 31, 1996
Name Position Aggregate Pension Est. Annual Total
from Compensation Benefits Compensation
Registrant upon from
Retirement Registrant
- ----------------------------------------------------------------------------
B. Reuben Director $-0- N/A N/A $-0-
Auspitz*
Martin Director $24,250 N/A N/A $24,250
Birmingham
Harris H. Director $24,750 N/A N/A $24,750
Rusitzky
Peter L. Director $24,250 N/A N/A $24,250
Faber*
Stephen B. Director $24,250 N/A N/A $24,250
Ashley
*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
B-28
<PAGE>
more of the outstanding voting securities of each Series on September 22, 1997.
NAME AND ADDRESS OF HOLDER OF RECORD PERCENTAGE OF SERIES
- ------------------------------------ --------------------
SMALL CAP SERIES
Manning & Napier Advisors, Inc. 5.85%
FBO American Electric Power Co.
Pension Plan
1100 Chase Square
Rochester, NY 14604
INTERNATIONAL SERIES
Manning & Napier Advisors, Inc. 6.52%
FBO American Electric Power Co.
Pension Plan
1100 Chase Square
Rochester, NY 14604
BLENDED ASSET SERIES I
American Express Trustee for 18.67%
Morton Mease Health Care Trust
1200 Northstar West
Minneapolis, MN 55440-0534
National Financial Services Corp. 14.05%
FBO Customers
200 Liberty Street
New York, NY 10281-1003
FLEXIBLE YIELD SERIES I
E. Lawrence Hanson 19.60%
IRA Rollover
100 Highland Avenue
Providence, RI 02906
Manning & Napier Advisors, Inc. 18.77%
1100 Chase Square
Rochester, NY 14604
William J. Leonard 12.09%
29767 Devonshire Oval
West Lake, OH 44145
B-29
<PAGE>
John G. Napier 10.30%
33 Beard Avenue
Buffalo, NY 14214
John T. & Kim B. Dash 6.18%
JTWROS
8600 Stanley Road
E. Amherst, NY 14051
Penfield Fire Company 5.92%
1838 Penfield Road
Penfield, NY 14526
FLEXIBLE YIELD SERIES II
Future Unlimited, Inc. 22.59%
P/S Plan
8589 Scenicview Drive
Broadview Heights, OH 44147
Manning & Napier Advisors, Inc. 17.87%
1100 Chase Square
Rochester, NY 14604
Charles E. Lucas IRA Rollover 11.33%
9 Southland Avenue
Lakewood, NY 14750
Geraldine A. Moner IRA 8.15%
8589 Scenic View Drive
Broadview Heights, OH 44147
Phyllis Schiff 7.49%
Retained Annuity Trust
210 Ashley Drive
Rochester, NY 14620
Phyllis Schiff 7.49%
Unified Credit Irrevocable Trust
210 Ashley Drive
Rochester, NY 14620
Penfield Fire Company 5.00%
1838 Penfield Road
Penfield, NY 14526
B-30
<PAGE>
FLEXIBLE YIELD SERIES III
Linda E. Fresina NON-GST Trust 10.87%
10601 Hulser Road
Utica, NY 13502
Snyder Tank Corporation 9.47%
Savings & Security Plan
3774 Lakeshore Road
Buffalo, NY 14219
Manning & Napier Advisors, Inc. 8.90%
1100 Chase Square
Rochester, NY 14604
Boy Scouts of America 8.35%
Troop 31
909 Fairport Road
E. Rochester, NY 14445
Exeter Trust Co. 6.34%
FBO Perry's Ice Cream Co., Inc.
Deferred Salary P/S - Bond
P.O. Box 41178
Rochester, NY 14604
Exeter Trust Co. 5.65%
FBO Murata Electronics P/S Retirement
Fixed Income
P.O. Box 41178
Rochester, NY 14604
Walter D. and Bethel H. Kogut JTWROS 5.08%
8066 Irish Mist Lane
Manlius, NY 13104
Peter L. Kogut, Jr. and 5.07%
Christine Kogut JTWROS
77 Old Stonefield Way
Pittsford, NY 14534
TAX MANAGED SERIES
Manning & Napier Advisors, Inc. 39.71%
1100 Chase Square
Rochester, NY 14604
William L. Owens NON-GST Trust 10.99%
176 Hampton Road
Frankfort, NY 13340
B-31
<PAGE>
Jack V. Rozwadowski 5.15%
Revocable Trust
406 Wilkens Road
Erie, PA 16505
DEFENSIVE SERIES
National Financial Services Corp. 27.05%
FBO Customers
200 Liberty Street
New York, NY 10281-1003
Manning & Napier Advisors, Inc. 21.01%
1100 Chase Square
Rochester, NY 14604
Exeter Trust Co. 14.98%
FBO Conklin Instrument Corp.
Profit Sharing Trust - DG
P.O. Box 41178
Rochester, NY 14604
Local Union No. 56 Electrical 10.64%
Educational Trust Fund
185 Pennbriar Drive
Erie, PA 16509
OHIO TAX EXEMPT SERIES
Manning & Napier Advisors, Inc. 12.48%
FBO Ms. Nancy Peterson Trust
1100 Chase Square
Rochester, NY 14604
Manning & Napier Advisors, Inc. 9.38%
FBO Franklin Eck
3300 Riverside Drive
Columbus, OH 43221
Manning & Napier Advisory 8.45%
Advantage Corporation, Inc.
FBO Trust U/A Estelle B. Wright
FBO Jane W. Haynam
1100 Chase Square
Rochester, NY 14604
NEW YORK TAX EXEMPT SERIES
Manning & Napier Advisors, Inc. 5.36%
FBO Dolomite Products Company, Inc.
1100 Chase Square
Rochester, NY 14604
B-32
<PAGE>
MAXIMUM HORIZON SERIES
National Financial Service Corp. 60.56%
FBO Customers
200 Liberty Street
New York, NY 10281-1003
Marine Midland Bank, Trustee 5.97%
FBO International Imaging Materials, Inc.
Retirement & Investment Plan
P.O. Box 1329
Buffalo, NY 14240
BLENDED ASSET SERIES II
National Financial Service Corp. 7.72%
FBO Customers
200 Liberty Street
New York, NY 10281-1003
THE ADVISOR
Manning & Napier Advisors, Inc. (the "Advisor") 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 periods ended December 31, (unless otherwise indicated), the
aggregate total of fees paid by the Series to the Advisor were as follows:
B-33
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Series 1994 1995 1996
---------------------------------------------------------------------------------------
Fees Paid Fees Fees Paid Fees Fees Paid Fees
Waived Waived Waived
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Small Cap $931,789 N/A $1,296,858 N/A $1,204,107 N/A
- -------------------------------------------------------------------------------------------------------------------
Technology $151,936(1) N/A $557,701 N/A $938,964 N/A
- -------------------------------------------------------------------------------------------------------------------
International $870,103 N/A $1,084,583 N/A $1,363,591 N/A
- -------------------------------------------------------------------------------------------------------------------
World N/A N/A N/A N/A $224,344(2) $0(2)
Opportunities
- -------------------------------------------------------------------------------------------------------------------
Life Sciences $749,795 N/A $451,038 N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------
Blended Asset N/A $26,034 $46,543 $23,407 $108,485(3) $13,439(3)
Series I
- -------------------------------------------------------------------------------------------------------------------
Blended Asset N/A $37,315 $114,026 $17,669 $222,302(3) $3,528(3)
Series II
- -------------------------------------------------------------------------------------------------------------------
Flexible Yield N/A $443(4) N/A $1,221 N/A $1,057(3)
Series I
- -------------------------------------------------------------------------------------------------------------------
Flexible Yield N/A $905(4) N/A $2,160 N/A $1,688(3)
Series II
- -------------------------------------------------------------------------------------------------------------------
Flexible Yield N/A $1,683 N/A $4,767 N/A $4,454(3)
Series III
- -------------------------------------------------------------------------------------------------------------------
New York Tax $82,497(5) N/A $114,847 N/A $160,913 N/A
Exempt
- -------------------------------------------------------------------------------------------------------------------
Ohio Tax Exempt N/A $11,101(6) $19,239 $4,398 $33,382 $1,181
- -------------------------------------------------------------------------------------------------------------------
Diversified Tax $2,983(6) $22,494(6) $50,130 $0 $74,427 $0
Exempt
- -------------------------------------------------------------------------------------------------------------------
Tax Managed N/A N/A N/A N/A N/A $1,867(7)
- -------------------------------------------------------------------------------------------------------------------
Defensive N/A N/A N/A N/A N/A $3,940(7)
- -------------------------------------------------------------------------------------------------------------------
Maximum Horizon N/A N/A N/A N/A N/A $4,377(7)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the period August 29, 1994 (Commencement of Operations) to
December 31, 1994.
(2) For the Period September 6, 1996 (Commencement of Operations) to
December 31, 1996.
(3) For the fiscal year ended October 31, 1996.
(4) For the period February 15, 1994 (Commencement of Operations) to
December 31, 1994.
(5) For the period January 17, 1994 (Commencement of Operations) to
December 31, 1994.
(6) For the period February 14, 1994 (Commencement of Operations) to
December 31, 1994.
(7) For the period November 1, 1995 (Commencement of Operations) to
October 31, 1996.
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
B-34
<PAGE>
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 words may be freely
used by the Advisor as to other investment companies or other investment
products; the Fund further agrees that, in the event that the Advisor ceases to
be the Fund's investment advisor for any reason, the Fund will (unless the
Advisor otherwise consents in writing) promptly take all necessary steps to
change its name to a name not including the words "Manning & Napier." The
Agreement also provides that it is agreed that the Advisor shall have no
responsibility or liability for the accuracy or completeness of the Fund's
Registration Statement under the 1940 Act or the Securities Act of 1933 except
for information supplied by the Advisor for inclusion therein; the Fund agrees
to indemnify the Advisor to the full extent permitted by the Fund's Articles of
Incorporation.
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, Diversified Tax Exempt Series, in this
capacity, for the fiscal years ended December 31, 1993, December 31, 1994 and
December 31, 1995, the Advisor received $29.87, $7,396, and $14,322 from the
Fund. For servicing the Tax Managed Series, Defensive Series, Maximum Horizon
Series, Blended Asset Series I, Blended Asset Series II, Flexible Yield Series
I, Flexible Yield Series II, and the Flexible Yield Series III, in this
B-35
<PAGE>
capacity, for the fiscal year ended October 31, 1996, the Advisor received
$8,990 from the Fund. For servicing the Ohio Tax Exempt Series, New York Tax
Exempt Series and the Diversified Tax Exempt Series in this capacity, for the
fiscal year ended December 31, 1996, the Advisor received $12,960 from the Fund.
The Advisor will not charge for its Transfer Agent services to the other Series.
DISTRIBUTION OF FUND SHARES
Manning & Napier Investor Services, Inc. (the "Distributor") acts as
Distributor of the Fund shares and is located at the same address as the Advisor
and the Fund. The Distributor and the Fund are parties to a distribution
agreement dated September 25, 1997 (the "Distribution Agreement") which applies
to each Class of shares.
The Distribution Agreement will remain in effect for a period of two
years after the effective date of the agreement and is renewable annually. The
Distribution Agreement may be terminated by the Distributor, by a majority vote
of the Directors who are not interested persons and have no financial interest
in the Distribution Agreement ("Qualified Directors") or by a majority of the
outstanding shares of the Fund upon not more than 60 days' written notice by
either party or upon assignment by the Distributor. The Distributor will not
receive compensation for distribution of Class A shares of the Portfolio. The
Fund has adopted Plans of Distribution with respect to the Class B, C, D and E
Shares (the "Plans"), pursuant to Rule 12b-1 under the 1940 Act. The Advisor may
impose separate requirements in connection with employee purchases of the Class
A Shares of the Series.
THE PLANS
The Fund has adopted each Plan in accordance with the provisions of
Rule 12b-1 under the 1940 Act which regulates circumstances under which an
investment company may directly or indirectly bear expenses relating to the
distribution of its shares. Continuance of each Plan must be approved annually
by a majority of the Directors of the Fund and by a majority of the Qualified
Directors. Each Plan requires that quarterly written reports of amounts spent
under the Plan and the purposes of such expenditures be furnished to and
reviewed by the Directors. A Plan may not be amended to increase materially the
amount which may be spent thereunder without approval by a majority of the
outstanding shares of the respective class of the Fund. All material
amendments of a Plan will require approval by a majority of the Directors of the
Fund and of the Qualified Directors.
The Distributor expects to allocate most of its fee to investment
dealers, banks or financial service firms that provide distribution,
administrative and/or shareholder services ("Financial Intermediaries"). The
Financial Intermediaries may provide for their customers or clients certain
services or assistance, which may include, but not be limited to, processing
purchase and redemption transactions, establishing and maintaining shareholder
accounts regarding the Fund, and such other services as may be agreed to from
time to time and as may be permitted by applicable statute, rule or regulation.
The Distributor may, in its discretion, voluntarily waive from time to time all
B-36
<PAGE>
or any portion of its distribution fee and the Distributor is free to make
additional payments out of its own assets to promote the sale of Fund shares.
Class B, C, D and E shares were not offered prior to the end of the
Series' respective fiscal year ends and therefore the Distributor received no
compensation from the Series for such periods.
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 L.L.P, 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 and
the Maximum Horizon Series for which the independent accountants are Deloitte &
Touche LLP, 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
B-37
<PAGE>
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 periods ended December 31, (unless otherwise indicated), the
aggregate total brokerage commissions paid by the Series were as follows:
- --------------------------------------------------------------------------------
Series 1994 1995 1996
- --------------------------------------------------------------------------------
Small Cap $90,860 $327,763 $214,565
- --------------------------------------------------------------------------------
Technology $13,693(1) $73,963 $151,177
- --------------------------------------------------------------------------------
International $151,987 $157,084 $49,487
- --------------------------------------------------------------------------------
World Opportunities N/A N/A $205,556(2)
- --------------------------------------------------------------------------------
Life Sciences $85,230 $132,203 N/A
- --------------------------------------------------------------------------------
Blended Asset Series I $4,270 $8,775 $13,656
- --------------------------------------------------------------------------------
Blended Asset Series II $8,525 $23,410 $36,256
- --------------------------------------------------------------------------------
Flexible Yield Series I $0 $0 $0
- --------------------------------------------------------------------------------
Flexible Yield Series II $0 $0 $0
- --------------------------------------------------------------------------------
Flexible Yield Series III $0 $0 $0
- --------------------------------------------------------------------------------
New York Tax Exempt $0 $0 $0
- --------------------------------------------------------------------------------
Ohio Tax Exempt $0 $0 $0
- --------------------------------------------------------------------------------
Diversified Tax Exempt $0 $0 $0
- --------------------------------------------------------------------------------
Tax Managed N/A N/A $837(3)
- --------------------------------------------------------------------------------
Defensive N/A N/A $335(3)
- --------------------------------------------------------------------------------
Maximum Horizon N/A N/A $2,753(3)
- --------------------------------------------------------------------------------
(1) For the period August 29, 1994 (Commencement of Operations) to December 31,
1994.
(2) For the period September 6, 1996 (Commencement of Operations) to
December 31, 1996.
(3) For the period November 1, 1995 (Commencement of Operations) to October 31,
1996.
B-38
<PAGE>
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
B-39
<PAGE>
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.
B-40
<PAGE>
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, until the beginning of Series' 1998 fiscal
year, 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
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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.
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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
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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 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,"
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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
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sufficient distributions to avoid excise tax liability.
For purposes of the excise tax, a RIC 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.
FINANCIAL STATEMENTS
THE FUND
The financial statements of the Fund are incorporated by reference into this
Statement of Additional Information. The financial statements, if any, with
respect to the Tax Managed Series, Defensive Series, Blended Asset Series I,
Blended Asset Series II, Maximum Horizon Series, Flexible Yield Series I,
Flexible Yield Series II and Flexible Yield Series III have been audited by
Deloitte & Touche LLP, independent public accountants to such Series. The
financial statements, if any, with respect to the Small Cap Series, Energy
Series, Technology Series, Financial Services Series, International Series, Life
Sciences Series, Global Fixed Income Series, New York Tax Exempt Series, Ohio
Tax Exempt Series, Diversified Tax Exempt Series and World Opportunities Series
have been audited by Coopers & Lybrand L.L.P., independent public accountants to
such Series. The Fund's annual report(s) are incorporated herein by reference
in reliance upon their authority as experts in accounting and auditing. Also,
the Fund's semi-annual unaudited financial statements with respect to each of
the Series are incorporated by reference into this Statement of Additional
Information. A copy of the 1996 Annual Report(s) to Shareholders and the 1997
Semi-Annual Report(s) to Shareholders must accompany the delivery of this
Statement of Additional of Information.
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