AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 24, 1998
REGISTRATION NOS. 2-92633
811-04087
====================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
POST-EFFECTIVE AMENDMENT NO.31 [X]
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 34 [X]
EXETER FUND, INC.
_________________________________________________
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
1100 CHASE SQUARE
ROCHESTER, NEW YORK 14604
___________________________________________________
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (716) 325-6880
B. REUBEN AUSPITZ
C/O EXETER FUND, INC.
1100 CHASE SQUARE
ROCHESTER, NY 14604
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPIES TO:
RICHARD W. GRANT, ESQUIRE
MORGAN, LEWIS & BOCKIUS, LLP
1701 Market Street
PHILADELPHIA, PA 19103
=====================================================================
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE:
/ / IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (B)
/ / ON [DATE] PURSUANT TO PARAGRAPH (B)
/ / 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)
/ X / ON FEBRUARY 28,1999 PURSUANT TO PARAGRAPH (A) OF RULE 485
/ / 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(2)
/ / ON (DATE) PURSUANT TO PARAGRAPH (A)(2) OF RULE 485
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
/ / THIS POST-EFFECTIVE AMENDMENT DESIGNATES A NEW EFFECTIVE DATE FOR A
PREVIOUSLY FILED POST-EFFECTIVE AMENDMENT.
TITLE OF SECURITIES BEING REGISTERED:
INVESTMENT COMPANY SHARES
.=============================================================================
<PAGE>
[LOGO]
PROSPECTUS
EXETER FUND, INC.
MARCH 1, 1999
DEFENSIVE SERIES
BLENDED ASSET SERIES I
BLENDED ASSET SERIES II
MAXIMUM HORIZON SERIES
CLASS A SHARES
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED ANY SERIES' SHARES AS
AN INVESTMENT OR DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE.
ANY STATEMENT TO THE CONTRARY IS A CRIME.
<PAGE>
[THIS PAGE INTENTIONALLY BLANK]
<PAGE>
CONTENTS
PAGE
EXETER ASSET MANAGEMENT IS A DIVISION OF MANNING & NAPIER ADVISORS, INC.,
WHICH WAS FOUNDED IN 1970 AND MANAGES OVER $7 BILLION FOR INDIVIDUAL AND
INSTITUTIONAL INVESTORS.
GOALS AND STRATEGIES 4
DEFENSIVE SERIES 6
BLENDED ASSET SERIES I 8
BLENDED ASSET SERIES II 10
MAXIMUM HORIZON SERIES 12
MORE ABOUT THE SERIES' INVESTMENTS 14
THE ADVISOR 15
HOW TO BUY SHARES 16
HOW TO EXCHANGE AND HOW TO REDEEM SHARES 17
INVESTMENT AND ACCOUNT INFORMATION 18
DIVIDENDS, DISTRIBUTIONS AND TAXES 19
FINANCIAL HIGHLIGHTS 20
YOU SHOULD KNOW
AN INVESTMENT IN A SERIES IS NOT A BANK DEPOSIT AND IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY.
<PAGE>
GOALS AND STRATEGIES
WHO MAY WANT TO INVEST
INVESTORS SHOULD CHOOSE WHICH SERIES IS RIGHT FOR THEM.
THE SERIES OFFER A RANGE OF INVESTMENT OPPORTUNITIES FROM FAIRLY CONSERVATIVE
TO FAIRLY AGGRESSIVE. AS YOU MOVE ACROSS THE INVESTMENT RISK SPECTRUM, THE
EMPHASIS ON GROWTH INCREASES WHILE THE FOCUS ON CAPITAL PRESERVATION DECLINES.
THIS MOVEMENT TOWARD GROWTH USUALLY INVOLVES A HIGHER PERCENTAGE OF THE
PORTFOLIO BEING INVESTED IN STOCKS AND THE PORTION OF THE PORTFOLIO INVESTED
IN BONDS GENERALLY CONTAINING LONGER TERM MATURITIES. EACH SERIES HAS ITS OWN
STRATEGY AND RISK PROFILE. YOU SHOULD CHOOSE WHICH STRATEGY IS RIGHT FOR YOU.
INVESTMENT RISK SPECTRUM
[LINE GRAPH REFLECTING THE INCREASING RETURN POTENTIAL (ON THE X-AXIS) AND THE
INCREASING VOLATILITY POTENTIAL (ON THE Y-AXIS) OF THE DEFENSIVE SERIES,
BLENDED ASSET SERIES I, BLENDED ASSET SERIES II AND MAXIMUM HORIZON SERIES.
USING A LINE WITH AN ARROW AT EACH END, THE RESULTS SHOW THE DEFENSIVE SERIES
WITH THE LEAST RETURN POTENTIAL AND THE LEAST VOLATILITY POTENTIAL; MOVING UP
THE LINE, THE BLENDED ASSET SERIES I AND BLENDED ASSET SERIES II, RESPECTIVLY,
ONE-THIRD AND TWO-THIRDS OF THE WAY UP THE LINE AND THE MAXIMUM HORIZON SERIES
AT THE TOP, WITH THE GREATEST RETURN POTENTIAL AND THE GREATEST VOLATILITY
POTENTIAL OF THE FOUR SERIES.]
THE ADVISOR'S INVESTMENT STRATEGIES
THE ADVISOR BELIEVES THAT THE MOST IMPORTANT FACTOR AFFECTING PORTFOLIO
PERFORMANCE IS ASSET ALLOCATION.
USING A MULTI-STRATEGY APPROACH, A TEAM OF INVESTMENT PROFESSIONALS MANAGES
EACH SERIES' PORTFOLIO. THE INVESTMENT POLICY GROUP ESTABLISHES POLICIES
REGARDING THE MIX OF STOCKS, BONDS AND CASH THAT IS APPROPRIATE IN LIGHT OF
THE INVESTMENT GOALS FOR THE SERIES YOU SELECT. THE INVESTMENT RESEARCH GROUP
AND THE FIXED INCOME GROUP SELECT INDIVIDUAL SECURITIES WITHIN PARAMETERS SET
BY THE INVESTMENT POLICY GROUP. THE INVESTMENT RESEARCH GROUP SEEKS TO SELECT
THE MOST ATTRACTIVE STOCKS AND THE FIXED INCOME GROUP SEEKS TO SELECT THE MOST
ATTRACTIVE BONDS FOR EACH SERIES. BY USING THIS MULTI-STRATEGY APPROACH, THE
ADVISOR SEEKS TO ADJUST EACH SERIES' PORTFOLIO TO PREVAILING MARKET
CONDITIONS. THE ADVISOR'S OBJECTIVE IS TO DELIVER VALUE-ADDED RESULTS OVER A
FULL RANGE OF RISING AND FALLING MARKET CONDITIONS.
THE DIAGRAM ON THE OPPOSITE PAGE SHOWS THE RELATIONSHIP BETWEEN THE THREE
GROUPS AND HOW THE TEAM CHANGES EACH SERIES' ASSET ALLOCATION IN RESPONSE TO
MARKET CONDITIONS, ECONOMIC CONDITIONS AND OTHER FACTORS.
<PAGE>
THE ADVISOR'S MULTI-STRATEGY APPROACH
[A CHART SHOWING THE FOLLOWING TEXT GROUPS CIRCLED AND ARROWS POINTING TO A
CENTRAL LOCATION WITH THE TEXT "PORTFOLIO" IN A BOX.]
INVESTMENT POLICY GROUP
THIS TEAM ESTABLISHES THE MAXIMUM AND MINIMUM
PERCENTAGES OF ASSETS EACH SERIES WILL INVEST IN U.S.
AND FOREIGN STOCKS, BONDS AND CASH EQUIVALENTS. THE
TEAM ALSO ESTABLISHES INVESTMENT POLICIES AND GUIDELINES
USED BY THE OTHER GROUP TO SET PRICES AT WHICH EACH
SERIES MAY PURCHASE AND SELL INDIVIDUAL SECURITIES. IN
MAKING THESE DECISIONS, THE ADVISOR FOCUSES ON:
A SERIES' RISK MANAGEMENT PRIORITIES
ECONOMIC FACTORS SUCH AS INFLATION, EMPLOYMENT AND INTEREST RATE
TRENDS THE OUTLOOK FOR CORPORATE EARNINGS
STOCK VALUATIONS (E.G., PRICE TO EARNINGS AND PRICE TO BOOK RATIOS)
SUPPLY AND DEMAND FOR VARIOUS ASSET CLASSES
INVESTMENT RESEARCH GROUP
THIS TEAM SELECTS INDIVIDUAL STOCKS BY LOOKING FOR
COMPANIES WITH ONE OR MORE OF THE FOLLOWING CHARACHTERISTICS:
STRONG STRATEGIC PROFILES (E.G., STRONG MARKET POSITION, BENEFITS
FROM TECHNOLOGY,
CAPITAL APPRECIATION IN A MATURE MARKET AND HIGH BARRIERS TO ENTRY)
IMPROVING MARKET SHARE IN CONSOLIDATING INDUSTRIES
LOW PRICE RELATIVE TO FUNDAMENTAL OR BREAKUP VALUE
FIXED INCOME GROUP
THIS TEAM SELECTS INDIVIDUAL BONDS EMPHASIZING BOND MARKET SECTORS AND
SECURITIES THAT IT BELIEVES OFFER YIELDS SUFFICIENT TO COMPENSATE THE
INVESTOR
FOR THE RISKS SPECIFIC TO THE SECTOR OR SECURITY. IN EVALUATING
BONDS, THE ADVISOR CONSIDERS:
INTEREST RATE SENSITIVITY OF PARTICULAR SECTORS AND SECURITIES
NARROWING OR WIDENING OF INTEREST RATE SPREADS BETWEEN SECTORS,
SECURITIES OF DIFFERENT CREDIT QUALITY OR SECURITIES OF DIFFERENT
MATURITIES FOR MORTGAGE-RELATED AND ASSET-BACKED SECURITIES,
ANTICIPATED CHANGES IN AVERAGE PREPAYMENT RATES
<PAGE>
DEFENSIVE SERIES
INVESTMENT GOALS
PRIMARY: PRESERVATION OF CAPITAL.
SECONDARY: LONG-TERM GROWTH OF CAPITAL.
KEY INVESTMENTS AND STRATEGIES
THE SERIES INVESTS PRIMARILY IN FIXED INCOME SECURITIES OF THE U.S. GOVERNMENT
AND U.S. COMPANIES, ALTHOUGH IT MAY ALSO INVEST IN EQUITY SECURITIES. THE
ADVISOR TYPICALLY FOCUSES ON FIXED INCOME SECURITIES WITH SHORT TO
INTERMEDIATE TERM MATURITIES OF 3 TO 5 YEARS BUT MAY ALSO INVEST TO A LIMITED
EXTENT IN LONGER TERM SECURITIES (SUCH AS BONDS WITH MATURITIES OF 10 YEARS OR
MORE) AND STOCKS. THE FUND MAY ALSO INVEST IN AMERICAN DEPOSITORY RECEIPTS
(ADRS) AND OTHER U.S. DOLLAR DENOMINATED SECURITIES OF FOREIGN ISSUERS,
INCLUDING THOSE IN EMERGING MARKETS. IN PURSUIT OF THE SERIES' PRIMARY GOAL,
THE ADVISOR SEEKS TO PROTECT CAPITAL WHILE GENERATING INCOME. THE ADVISOR MAY
SIMULTANEOUSLY SEEK GROWTH OPPORTUNITIES.
THE PIE CHARTS BELOW DEMONSTRATE HOW THE MAKE UP OF THE PORTFOLIO HAS VARIED
IN THE PAST. DEPENDING ON THE ADVISOR'S VIEW OF CURRENT OR ANTICIPATED MARKET
TRENDS, HOWEVER, THE SERIES' MAKE UP MAY VARY FROM THESE HISTORICAL HIGH AND
LOW STOCK EXPOSURES.
HISTORICAL HIGH & LOW STOCK EXPOSURES FROM 6/30/96 THROUGH 9/30/98:
[TWO PIE CHARTS, HIGH ON THE LEFT AND LOW ON THE RIGHT, REFLECTING THE PAST
HIGH AND LOW STOCK EXPOSURES DURING THE PERIOD 6/30/96 THROUGH 9/30/98. THE
RESULTS IN THE HIGH CHART SHOW BONDS AT 76.8%, CASH AT 3.8% AND STOCKS AT
19.4%. THE RESULTS IN THE LOW CHART SHOW BONDS AT 71.0%, CASH AT 22.8% AND
STOCKS AT 6.2%.]
SUMMARY OF PAST PERFORMANCE
THE BAR CHART AND TOTAL RETURN TABLE INDICATE THE RISKS OF INVESTING IN THE
SERIES. THE BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE CLASS A SHARES
OF THE SERIES FOR EACH FULL CALENDAR YEAR SINCE ITS INCEPTION. THE TOTAL
RETURN TABLE SHOWS HOW THE AVERAGE ANNUAL TOTAL RETURNS FOR THE CLASS A SHARES
FOR DIFFERENT CALENDAR PERIODS COMPARE TO THOSE OF THE LEHMAN BROTHERS
INTERMEDIATE BOND INDEX AND A BLENDED INDEX, 15% OF WHICH IS THE STANDARD &
POOR'S 500 COMPOSITE STOCK PRICE INDEX AND 85% OF WHICH IS THE LEHMAN BROTHERS
INTERMEDIATE BOND INDEX. SINCE THE SERIES' ASSET ALLOCATION WILL VARY OVER
TIME, THE SERIES' PORTFOLIO MAY NOT MATCH THE BENCHMARKS' PORTFOLIOS AT ANY
GIVEN TIME.
[BAR CHART SHOWING THE PERCENT TOTAL RETURN FOR THE DEFENSIVE SERIES FOR 1996,
1997 AND 1998, WITH CALENDAR YEARS ENDED DECEMBER 31ST. THE RESULTS ARE 3.44%
FOR 1996, 9.77% FOR 1997 AND NO RESULT FOR 1998, AS THE YEAR HAS NOT ENDED.]
THE LEHMAN BROTHERS INTERMEDIATE BOND INDEX IS AN UNMANAGED INDEX OF CORPORATE
AND GOVERNMENT BONDS WITH MATURITIES RANGING FROM ONE TO TEN YEARS.
THE S&P 500 INDEX IS AN UNMANAGED INDEX OF COMMON STOCKS.
<TABLE>
<CAPTION>
AVG. ANNUAL TOTAL RETURNS 1 YEAR SINCE INCEPTION ON 11/1/95
(FOR PERIODS ENDED 12/31/98)
<S> <C> <C>
CLASS A SHARES XX.XX% XX.XX%
- ---------------------------- ----------------- -------
INDICES:
LEHMAN BROTHERS INTERMED.
BOND INDEX XX.XX% XX.XX%
----------------- -------
15%-85% BLENDED INDEX XX.XX% XX.XX%
----------------- -------
QUARTERLY RETURNS
HIGHEST: X.XX% IN XX QUARTER 19XX
LOWEST: X.XX% IN XX QUARTER 19XX
- ---------------------------- -------------------------
</TABLE>
PAST PERFORMANCE DOES NOT NECESSARILY INDICATE HOW THE SERIES WILL PERFORM IN
THE FUTURE.
<PAGE>
GOALS AND STRATEGIES
DEFENSIVE SERIES
PRINCIPAL RISKS OF INVESTING IN THE SERIES
BECAUSE THE SERIES INVESTS PRINCIPALLY IN BONDS, THE VALUE OF YOUR INVESTMENT
WILL FLUCTUATE WITH CHANGES IN INTEREST RATES. THIS MEANS THAT YOU COULD LOSE
MONEY ON YOUR INVESTMENT IN THE SERIES OR THE SERIES COULD UNDERPERFORM IF ANY
OF THE FOLLOWING OCCURS:
INTEREST RATES GO UP, WHICH WILL MAKE BOND PRICES GO DOWN AND REDUCE THE
VALUE OF THE SERIES' BOND PORTFOLIO.
THE ISSUER OF A BOND OWNED BY THE SERIES DEFAULTS ON ITS OBLIGATION TO
PAY PRINCIPAL AND/OR INTEREST OR HAS ITS CREDIT RATING DOWNGRADED. THIS RISK
IS HIGHER FOR LOWER QUALITY BONDS.
BECAUSE THE SERIES MAY ALSO INVEST IN STOCKS AND U.S. DOLLAR DENOMINATED
SECURTIES OF FOREIGN ISSUERS, THE SERIES CARRIES ADDITIONAL RISKS. THE VALUE
OF YOUR INVESTMENT MAY DECLINE IF THE U.S. AND/OR FOREIGN STOCK MARKETS
DECLINE OR AN ADVERSE EVENT, SUCH AS AN UNFAVORABLE EARNINGS REPORT, DEPRESSES
THE VALUE OF A PARTICULAR COMPANY'S STOCK. PRICES OF FOREIGN SECURITIES MAY
GO DOWN BECAUSE OF FOREIGN GOVERNMENT ACTIONS, POLITICAL INSTABILITY OR THE
MORE LIMITED AVAILABILITY OF ACCURATE INFORMATION ABOUT FOREIGN COMPANIES.
THESE RISKS MAY BE MORE SEVERE FOR SECURITIES OF ISSUERS IN EMERGING MARKETS.
THE VALUE OF YOUR INVESTMENT MAY ALSO DECLINE IF THE ADVISOR'S JUDGMENTS ABOUT
THE ATTRACTIVENESS, RELATIVE VALUE OR POTENTIAL APPRECIATION OF A PARTICULAR
SECTOR, SECURITY, COUNTRY OR HEDGING STRATEGY PROVE TO BE INCORRECT.
FEES AND EXPENSES OF THE SERIES
THIS TABLE DESCRIBES THE FEES AND EXPENSES YOU MAY PAY IF YOU INVEST IN SHARES
OF THE SERIES.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 10/31/98 DEFENSIVE SERIES
<S> <C>
SHAREHOLDER FEES (PAID DIRECTLY FROM YOUR INVESTMENT) NONE
- ------------------------------------------------------- -----
ANNUAL FUND OPERATING EXPENSES
- -------------------------------------------------------
(EXPENSES THAT ARE DEDUCTED FROM ASSETS OF THE SERIES)
MANAGEMENT FEE 0.80%
-----
DISTRIBUTION AND SERVICE (RULE 12B-1) FEES NONE
-----
OTHER EXPENSES 0.93%
-----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.73%
-----
BECAUSE THE ADVISOR HAS AGREED TO LIMIT OPERATING
EXPENSES, ACTUAL EXPENSES WERE:
- -------------------------------------------------------
MANAGEMENT FEE 0.07%
- ------------------------------------------------------- -----
OTHER EXPENSES 0.93%
-----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.00%
- ----------------------------------------------------- -----
</TABLE>
THE ADVISOR MAY CHANGE OR ELIMINATE THESE EXPENSE LIMITS AT ANY TIME.
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
SERIES WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT:
YOU INVEST $10,000 FOR THE PERIODS SHOWN
YOU REDEEM AT THE END OF EACH PERIOD
THE FUND'S OPERATING EXPENSES REMAIN THE SAME
YOUR INVESTMENT HAS A 5% RETURN EACH YEAR
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, UNDER THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
AFTER AFTER AFTER AFTER
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------ -------- -------- ---------
$176 $ 545 $ 939 $ 2,041
-------- -------- ---------
WITH EXPENSE LIMITS, YOUR COSTS WOULD BE:
- ------------------------------------------
$102 $ 318 $ 552 $ 1,225
- ------------------------------------------ -------- -------- ---------
</TABLE>
BLENDED ASSET SERIES I
INVESTMENT GOALS
EQUAL EMPHASIS ON LONG-TERM GROWTH OF CAPITAL AND PRESERVATION OF CAPITAL.
KEY INVESTMENTS AND STRATEGIES
THE SERIES INVESTS PRIMARILY IN STOCKS AND INTERMEDIATE TO LONG-TERM, FIXED
INCOME SECURITIES OF THE U.S. GOVERNMENT AND U.S. COMPANIES. THE SERIES MAY
ALSO INVEST IN ADRS AND OTHER U.S. DOLLAR DENOMINATED SECURITIES OF FOREIGN
ISSUERS, INCLUDING THOSE IN EMERGING MARKETS. THE ADVISOR TYPICALLY FOCUSES
ON FIXED INCOME SECURITIES WITH MATURITIES OF 5 TO 10 YEARS BUT MAY INVEST IN
SECURITIES OF ANY MATURITY. THE ADVISOR SEEKS TO BALANCE CONFLICTING GOALS OF
GROWTH OF CAPITAL AND PRESERVATION OF CAPITAL IN ORDER TO GENERATE A MORE
STABLE RATE OF GROWTH FOR THIS PORTFOLIO RELATIVE TO AN INVESTMENT IN THE
GENERAL STOCK MARKET.
THE PIE CHARTS BELOW DEMONSTRATE HOW THE MAKE UP OF THE PORTFOLIO HAS VARIED
IN THE PAST. DEPENDING ON THE ADVISOR'S VIEW OF CURRENT OR ANTICIPATED MARKET
TRENDS, HOWEVER, THE SERIES' MAKE UP MAY VARY FROM THESE HISTORICAL HIGH AND
LOW STOCK EXPOSURES.
HISTORICAL HIGH & LOW STOCK EXPOSURES FROM 12/31/95 THROUGH 9/30/98
[TWO PIE CHARTS, HIGH ON THE LEFT AND LOW ON THE RIGHT, REFLECTING THE PAST
HIGH AND LOW STOCK EXPOSURES DURING THE PERIOD 12/31/95 THROUGH 9/30/98. THE
RESULTS IN THE HIGH CHART SHOW BONDS AT 47.6%, CASH AT 2.3% AND STOCKS AT
50.1%. THE RESULTS IN THE LOW CHART SHOW BONDS AT 64.9%, CASH AT 16.7% AND
STOCKS AT 18.4%.]
SUMMARY OF PAST PERFORMANCE
THE BAR CHART AND TOTAL RETURN TABLE INDICATE THE RISKS OF INVESTING IN THE
SERIES. THE BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE CLASS A SHARES
OF THE SERIES FOR EACH FULL CALENDAR YEAR SINCE ITS INCEPTION. THE TOTAL
RETURN TABLE SHOWS HOW THE AVERAGE ANNUAL TOTAL RETURNS FOR THE CLASS A SHARES
FOR DIFFERENT CALENDAR PERIODS COMPARE TO THOSE OF THE LEHMAN BROTHERS
INTERMEDIATE BOND INDEX AND A BLENDED INDEX, 30% OF WHICH IS THE STANDARD &
POOR'S 500 COMPOSITE STOCK PRICE INDEX AND 70% OF WHICH IS THE LEHMAN BROTHERS
INTERMEDIATE BOND INDEX. SINCE THE SERIES' ASSET ALLOCATION WILL VARY OVER
TIME, THE SERIES' PORTFOLIO MAY NOT MATCH THE BENCHMARKS' PORTFOLIOS AT ANY
GIVEN TIME.
THE LEHMAN BROTHERS INTERMEDIATE BOND INDEX IS AN UNMANAGED INDEX OF CORPORATE
AND GOVERNMENT BONDS WITH MATURITIES RANGING FROM ONE TO TEN YEARS.
THE S&P 500 INDEX IS AN UNMANAGED INDEX OF COMMON STOCKS.
[BAR CHART SHOWING THE PERCENT TOTAL RETURN FOR THE BLENDED ASSET SERIES I FOR
1994, 1995, 1996, 1997 AND 1998, WITH CALENDAR YEARS ENDED DECEMBER 31ST. THE
RESULTS ARE - 0.80% FOR 1994, 21.08% FOR 1995, 7.73% FOR 1996, 13.95% FOR 1997
AND NO RESULT FOR 1998, AS THE YEAR HAS NOT ENDED.]
<TABLE>
<CAPTION>
AVG. ANNUAL TOTAL RETURNS SINCE
(FOR PERIODS ENDED 12/31/98) 1 YEAR 5 YEARS INCEPTION
ON 9/15/93
<S> <C> <C> <C>
CLASS A SHARES XX.XX% XX.XX% XX.XX%
- ---------------------------- -------------------------- -------- -------
INDICES:
- ----------------------------
LEHMAN BROTHERS
INTERMED. BOND INDEX XX.XX% XX.XX% XX.XX%
-------------------------- -------- -------
30%-70% BLENDED INDEX XX.XX% XX.XX% XX.XX%
-------------------------- -------- -------
QUARTERLY RETURNS
HIGHEST: XX.XX% IN XX QUARTER 19XX
LOWEST: XX.XX% IN XX QUARTER 19XX
- ---------------------------- --------------------------
</TABLE>
PAST PERFORMANCE DOES NOT NECESSARILY INDICATE HOW THE SERIES WILL PERFORM IN
THE FUTURE.
<PAGE>
BLENDED ASSET SERIES I
PRINCIPAL RISKS OF INVESTING IN THE SERIES
BECAUSE THE SERIES INVESTS IN BOTH STOCKS AND BONDS, THE VALUE OF YOUR
INVESTMENT WILL FLUCTUATE IN RESPONSE TO STOCK MARKET MOVEMENTS AND CHANGES IN
INTEREST RATES. THIS MEANS THAT YOU COULD LOSE MONEY ON YOUR INVESTMENT IN
THE SERIES OR THE SERIES COULD UNDERPERFORM IF ANY OF THE FOLLOWING OCCURS:
U.S. AND/OR FOREIGN STOCK MARKETS DECLINE.
AN ADVERSE EVENT, SUCH AS AN UNFAVORABLE EARNINGS REPORT, DEPRESSES THE
VALUE OF A PARTICULAR COMPANY'S STOCK.
INTEREST RATES GO UP, WHICH WILL MAKE BOND PRICES GO DOWN AND REDUCE THE
VALUE OF THE SERIES' BOND PORTFOLIO.
THE ISSUER OF A BOND OWNED BY THE SERIES DEFAULTS ON ITS OBLIGATION TO
PAY PRINCIPAL AND/OR INTEREST OR HAS ITS CREDIT RATING DOWNGRADED. THIS RISK
IS HIGHER FOR LOWER QUALITY BONDS.
BECAUSE THE SERIES MAY INVEST IN U.S. DOLLAR DENOMINATED SECURITIES OF FOREIGN
ISSUERS, THE VALUE OF YOUR INVESTMENT MAY DECLINE IF PRICES OF FOREIGN
SECURITIES GO DOWN BECAUSE OF FOREIGN GOVERNMENT ACTIONS, POLITICAL
INSTABILITY OR THE MORE LIMITED AVAILABILITY OF ACCURATE INFORMATION ABOUT
FOREIGN COMPANIES. THESE RISKS MAY BE MORE SEVERE FOR SECURITIES OF ISSUERS
IN EMERGING MARKETS.
THE VALUE OF YOUR INVESTMENT MAY ALSO DECLINE IF THE ADVISOR'S JUDGMENTS ABOUT
THE ATTRACTIVENESS, RELATIVE VALUE OR POTENTIAL APPRECIATION OF A PARTICULAR
SECTOR, SECURITY, COUNTRY OR HEDGING STRATEGY PROVE TO BE INCORRECT.
FEES AND EXPENSES OF THE SERIES
THIS TABLE DESCRIBES THE FEES AND EXPENSES YOU MAY PAY IF YOU INVEST IN
SHARES OF THE SERIES.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 10/31/98 BLENDED
ASSET SERIES I
<S> <C>
SHAREHOLDER FEES (PAID DIRECTLY FROM YOUR INVESTMENT) NONE
- ------------------------------------------------------------ -------
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
- ------------------------------------------------------------
FROM ASSETS OF THE SERIES)
MANAGEMENT FEE 1.00%
-----
DISTRIBUTION AND SERVICE (RULE 12B-1) FEES NONE
-----
OTHER EXPENSES 0.23%
- ------------------------------------------------------------ -----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.23%
- ------------------------------------------------------------ -----
BECAUSE THE ADVISOR HAS AGREED TO LIMIT OPERATING EXPENSES, ACTUAL
EXPENSES WERE:
- -------------------------------------------------------------------
MANAGEMENT FEE 0.97%
- ------------------------------------------------------------ -----
OTHER EXPENSES 0.23%
-----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.20%
-----
</TABLE>
THE ADVISOR MAY CHANGE OR ELIMINATE THESE EXPENSE LIMITS AT ANY TIME.
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
SERIES WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT:
YOU INVEST $10,000 FOR THE PERIODS SHOWN
YOU REDEEM AT THE END OF EACH PERIOD
THE FUND'S OPERATING EXPENSES REMAIN THE SAME
YOUR INVESTMENT HAS A 5% RETURN EACH YEAR
<TABLE>
<CAPTION>
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, UNDER THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<S> <C> <C> <C>
AFTER AFTER AFTER AFTER
- ------- ----- -------- ---------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------- -------- -------- ---------
$125 $ 390 $ 676 $ 1,489
- --------- -------- -------- ---------
WITH EXPENSE LIMITS, YOUR COSTS WOULD BE:
- -------------------------------------
$122 $ 381 $ 660 $ 1,455
- ---------- ------- -------- ---------
</TABLE>
BLENDED ASSET SERIES II
INVESTMENT GOALS
PRIMARY: LONG-TERM GROWTH OF CAPITAL.
SECONDARY: PRESERVATION OF CAPITAL.
KEY INVESTMENTS AND STRATEGIES
THE SERIES INVESTS PRIMARILY IN STOCKS AND SECURITIES CONVERTIBLE INTO STOCK,
BUT MAY ALSO INVEST A SUBSTANTIAL PORTION OF ITS ASSETS IN LONG-TERM, FIXED
INCOME SECURITIES OF THE U.S. GOVERNMENT AND U.S. COMPANIES. THE SERIES MAY
ALSO INVEST IN ADRS AND OTHER U.S. DOLLAR DENOMINATED SECURITIES OF FOREIGN
ISSUERS, INCLUDING THOSE IN EMERGING MARKETS. THE ADVISOR TYPICALLY FOCUSES
ON FIXED INCOME SECURITIES WITH MATURITIES OF 7 TO 20 YEARS BUT MAY INVEST IN
SECURITIES OF ANY MATURITY. BY FOCUSING ON GROWTH OF CAPITAL AND, TO A LESSER
EXTENT ON PRESERVATION OF CAPITAL, THE ADVISOR SEEKS TO PARTICIPATE, OVER THE
LONG TERM, IN THE GROWTH OF THE STOCK MARKET, BUT WITH LESS VOLATILITY THAN IS
TYPICALLY ASSOCIATED WITH AN INVESTMENT IN THE GENERAL STOCK MARKET.
THE PIE CHARTS BELOW DEMONSTRATE HOW THE MAKE UP OF THE PORTFOLIO HAS VARIED
IN THE PAST. DEPENDING ON THE ADVISOR'S VIEW OF CURRENT OR ANTICIPATED MARKET
TRENDS, HOWEVER, THE SERIES' MAKE UP MAY VARY FROM THESE HISTORICAL HIGH AND
LOW STOCK EXPOSURES.
HISTORICAL HIGH & LOW STOCK EXPOSURES FROM 12/31/95 THROUGH 9/30/98:
[TWO PIE CHARTS, HIGH ON THE LEFT AND LOW ON THE RIGHT, REFLECTING THE PAST
HIGH AND LOW STOCK EXPOSURES DURING THE PERIOD 12/31/95 THROUGH 9/30/98. THE
RESULTS IN THE HIGH CHART SHOW BONDS AT 31.4%, CASH AT 2.6% AND STOCKS AT
66.0%. THE RESULTS IN THE LOW CHART SHOW BONDS AT 43.70%, CASH AT 11.2% AND
STOCKS AT 45.1%.]
SUMMARY OF PAST PERFORMANCE
THE BAR CHART AND TOTAL RETURN TABLE INDICATE THE RISKS OF INVESTING IN THE
SERIES. THE BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE CLASS A SHARES
OF THE SERIES FOR EACH FULL CALENDAR YEAR SINCE ITS INCEPTION. THE TOTAL
RETURN TABLE SHOWS HOW THE AVERAGE ANNUAL TOTAL RETURNS FOR THE CLASS A SHARES
FOR DIFFERENT CALENDAR PERIODS COMPARE TO THOSE OF THE LEHMAN BROTHERS
INTERMEDIATE BOND INDEX AND A BLENDED INDEX, 50% OF WHICH IS THE STANDARD &
POOR'S 500 COMPOSITE STOCK PRICE INDEX AND 50% OF WHICH IS THE LEHMAN BROTHERS
AGGREGATE BOND INDEX. SINCE THE SERIES' ASSET ALLOCATION WILL VARY OVER TIME,
THE SERIES' PORTFOLIO MAY NOT MATCH THE BENCHMARKS' PORTFOLIOS AT ANY GIVEN
TIME.
THE LEHMAN BROTHERS INTERMEDIATE BOND INDEX IS AN UNMANAGED INDEX OF CORPORATE
AND GOVERNMENT BONDS WITH MATURITIES RANGING FROM ONE TO TEN YEARS.
THE S&P 500 INDEX IS AN UNMANAGED INDEX OF COMMON STOCKS.
THE LEHMAN BROTHERS AGGREGAGE BOND INDEX IS AN UNMANAGED INDEX OF INVESTMENT
GRADE BONDS AND MORTGAGE-BACKED SECURITIES WITH
MATURITIES OF AT LEAST ONE YEAR.
[BAR CHART SHOWING THE PERCENT TOTAL RETURN FOR THE BLENDED ASSET SERIES II
FOR 1994, 1995, 1996, 1997 AND 1998, WITH CALENDAR YEARS ENDED DECEMBER 31ST.
THE RESULTS ARE 3.52% FOR 1994, 32.64% FOR 1995, 14.06% FOR 1996, 17.54% FOR
1997 AND NO RESULT FOR 1998, AS THE YEAR HAS NOT ENDED.]
<TABLE>
<CAPTION>
AVG. ANNUAL TOTAL RETURNS SINCE INCEPTION
(FOR PERIODS ENDED 12/31/98) 1 YEAR 5 YEARS ON 10/12/93
<S> <C> <C> <C>
CLASS A SHARES XX.XX% XX.XX% XX.XX%
- ---------------------------- ---------------- -------- ----------------
INDICES:
- ----------------------------
LEHMAN BROTHERS
INTERMED. BOND INDEX XX.XX% XX.XX% XX.XX%
---------------- -------- ----------------
50%-50% BLENDED INDEX XX.XX% XX.XX% XX.XX%
---------------- -------- ----------------
QUARTERLY RETURNS
HIGHEST: XX.XX% IN XX QUARTER 19XX
- ---------------------------- ---------------------------
LOWEST :XX.XX% IN XX QUARTER 19XX
- ---------------------------- ---------------------------
</TABLE>
PAST PERFORMANCE DOES NOT NECESSARILY INDICATE HOW THE SERIES WILL PERFORM IN
THE FUTURE.
<PAGE>
BLENDED ASSET SERIES II
PRINCIPAL RISKS OF INVESTING IN THE SERIES
BECAUSE THE SERIES INVESTS IN BOTH STOCKS AND BONDS, THE VALUE OF YOUR
INVESTMENT WILL FLUCTUATE IN RESPONSE TO STOCK MARKET MOVEMENTS AND CHANGES IN
INTEREST RATES. THIS MEANS THAT YOU COULD LOSE MONEY ON YOUR INVESTMENT IN
THE SERIES OR THE SERIES COULD UNDERPERFORM IF ANY OF THE FOLLOWING OCCURS:
U.S. AND/OR FOREIGN STOCK MARKETS DECLINE.
AN ADVERSE EVENT, SUCH AS AN UNFAVORABLE EARNINGS REPORT, DEPRESSES THE
VALUE OF A PARTICULAR COMPANY'S STOCK.
INTEREST RATES GO UP, WHICH WILL MAKE BOND PRICES GO DOWN AND REDUCE THE
VALUE OF THE SERIES' BOND PORTFOLIO. THE ISSUER OF A BOND OWNED BY THE
SERIES DEFAULTS ON ITS OBLIGATION TO PAY PRINCIPAL AND/OR INTEREST OR HAS ITS
CREDIT RATING DOWNGRADED. THIS RISK IS HIGHER FOR LOWER QUALITY BONDS.
BECAUSE THE SERIES MAY INVEST IN U.S. DOLLAR DENOMINATED SECURITIES OF FOREIGN
ISSUERS, THE VALUE OF YOUR INVESTMENT MAY DECLINE IF PRICES OF FOREIGN
SECURITIES GO DOWN BECAUSE OF FOREIGN GOVERNMENT ACTIONS, POLITICAL
INSTABILITY OR THE MORE LIMITED AVAILABILITY OF ACCURATE INFORMATION ABOUT
FOREIGN COMPANIES. THESE RISKS MAY BE MORE SEVERE FOR SECURITIES OF ISSUERS
IN EMERGING MARKETS.
THE VALUE OF YOUR INVESTMENT MAY ALSO DECLINE IF THE ADVISOR'S JUDGMENTS ABOUT
THE ATTRACTIVENESS, RELATIVE VALUE OR POTENTIAL APPRECIATION OF A PARTICULAR
SECTOR, SECURITY, COUNTRY OR HEDGING STRATEGY PROVE TO BE INCORRECT.
FEES AND EXPENSES OF THE SERIES
THIS TABLE DESCRIBES THE FEES AND EXPENSES YOU MAY PAY IF YOU INVEST IN SHARES
OF THE SERIES.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 10/31/98 BLENDED ASSET SERIES II
<S> <C>
SHAREHOLDER FEES (PAID DIRECTLY FROM YOUR INVESTMENT) NONE
- ------------------------------------------------------ -----
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM ASSETS OF THE
SERIES)
- -----------------------------------------------------------------------------
MANAGEMENT FEE 1.00%
-----
DISTRIBUTION AND SERVICE (RULE 12B-1) FEES NONE
-----
OTHER EXPENSES 0.15%
-----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.15%
- ------------------------------------------------------ -----
</TABLE>
THE ADVISOR HAS AGREED TO LIMIT OPERATING EXPENSES AT 1.20%. THE ADVISOR MAY
CHANGE OR ELIMINATE THESE EXPENSE LIMITS AT ANY TIME.
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
SERIES WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT:
YOU INVEST $10,000 FOR THE PERIODS SHOWN
YOU REDEEM AT THE END OF EACH PERIOD
THE FUND'S OPERATING EXPENSES REMAIN THE SAME
YOUR INVESTMENT HAS A 5% RETURN EACH YEAR
<TABLE>
<CAPTION>
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, UNDER THESE
ASSUMPTIONS YOUR COSTS WOULD BE:
<S> <C> <C> <C>
AFTER AFTER AFTER AFTER
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------- -------- -------- ---------
$117 $ 365 $ 633 $ 1,398
- ------------------------- -------- -------- ---------
</TABLE>
<PAGE>
MAXIMUM HORIZON SERIES
INVESTMENT GOALS
LONG-TERM GROWTH OF CAPITAL.
KEY INVESTMENTS AND STRATEGIES
THE SERIES INVESTS PRIMARILY IN COMMON STOCKS, BUT MAY INVEST TO A LIMITED
EXTENT IN FIXED INCOME SECURITIES OF THE U.S. GOVERNMENT AND U.S. COMPANIES.
THE SERIES MAY ALSO INVEST IN ADRS AND OTHER U.S. DOLLAR DENOMINATED
SECURITIES OF FOREIGN ISSUERS, INCLUDING THOSE IN EMERGING MARKETS. THE
ADVISOR SEEKS TO GENERATE THE HIGH LEVEL OF LONG-TERM CAPITAL GROWTH TYPICALLY
ASSOCIATED WITH AN INVESTMENT IN THE GENERAL STOCK MARKET FOR THIS PORTFOLIO.
THE PIE CHARTS BELOW DEMONSTRATE HOW THE MAKE UP OF THE PORTFOLIO HAS VARIED
IN THE PAST. DEPENDING ON THE ADVISOR'S VIEW OF CURRENT OR ANTICIPATED MARKET
TRENDS, HOWEVER, THE SERIES' MAKE UP MAY VARY FROM THESE HISTORICAL HIGH AND
LOW STOCK EXPOSURES.
HISTORICAL HIGH & LOW STOCK EXPOSURES FROM 6/30/96 THROUGH 9/30/98:
[TWO PIE CHARTS, HIGH ON THE LEFT AND LOW ON THE RIGHT, REFLECTING THE PAST
HIGH AND LOW STOCK EXPOSURES DURING THE PERIOD 6/30/96 THROUGH 9/30/98. THE
RESULTS IN THE HIGH CHART SHOW BONDS AT 2.2%, CASH AT 2.3% AND STOCKS AT
95.5%. THE RESULTS IN THE LOW CHART SHOW BONDS AT 27.3%, STOCKS AT 72.7% AND
CASH NOT REPRESENTED, AS IT WAS 0.00%.]
SUMMARY OF PAST PERFORMANCE
THE BAR CHART AND TOTAL RETURN TABLE INDICATE THE RISKS OF INVESTING IN THE
SERIES. THE BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE CLASS A SHARES
OF THE SERIES FOR EACH FULL CALENDAR YEAR SINCE ITS INCEPTION. THE TOTAL
RETURN TABLE SHOWS HOW THE AVERAGE ANNUAL TOTAL RETURNS FOR THE CLASS A SHARES
FOR DIFFERENT CALENDAR PERIODS COMPARE TO THOSE OF THE STANDARD & POOR'S 500
COMPOSITE STOCK PRICE INDEX. SINCE THE SERIES' ASSET ALLOCATION WILL VARY
OVER TIME, THE SERIES' PORTFOLIO MAY NOT MATCH THE BENCHMARK'S PORTFOLIO AT
ANY GIVEN TIME.
THE S&P 500 INDEX IS AN UNMANAGED INDEX OF COMMON STOCKS.
[BAR CHART SHOWING THE PERCENT TOTAL RETURN FOR THE MAXIMUM HORIZON SERIES FOR
1996, 1997 AND 1998, WITH CALENDAR YEARS ENDED DECEMBER 31ST. THE RESULTS ARE
17.57% FOR 1996, 20.39% FOR 1997 AND NO RESULT FOR 1998, AS THE YEAR HAS NOT
ENDED.]
<TABLE>
<CAPTION>
AVG. ANNUAL TOTAL RETURNS
(FOR PERIODS ENDED 12/31/98) 1 YEAR SINCE INCEPTION
ON 11/1/95
<S> <C> <C>
CLASS A SHARES XX.XX% XX.XX%
- ---------------------------- --------------------- ---------
S&P 500 INDEX XX.XX% XX.XX%
- ---------------------------- --------------------- ---------
QUARTERLY RETURNS
HIGHEST: XX.XX% IN XX QUARTER 19XX
- ---------------------------- --------------------------
LOWEST: XX.XX% IN XX QUARTER 19XX
- ---------------------------- --------------------------
</TABLE>
PAST PERFORMANCE DOES NOT NECESSARILY INDICATE HOW THE SERIES WILL PERFORM IN
THE FUTURE.
<PAGE>
MAXIMUM HORIZON SERIES
PRINCIPAL RISKS OF INVESTING IN THE SERIES
AS WITH ANY GROWTH FUND, THE VALUE OF YOUR INVESTMENT WILL FLUCTUATE IN
RESPONSE TO STOCK MARKET MOVEMENTS. THIS MEANS THAT YOU COULD LOSE MONEY ON
YOUR INVESTMENT IN THE SERIES OR THE SERIES COULD UNDERPERFORM IF ANY OF THE
FOLLOWING OCCURS:
U.S. AND/OR FOREIGN STOCK MARKETS DECLINE.
AN ADVERSE EVENT, SUCH AS AN UNFAVORABLE EARNINGS REPORT, DEPRESSES THE
VALUE OF A PARTICULAR COMPANY'S STOCK.
BECAUSE THE SERIES MAY ALSO INVEST IN BONDS AND U.S. DOLLAR DENOMINATED
SECURITIES OF FOREIGN ISSUERS, THE SERIES CARRIES ADDITIONAL RISKS. IF
INTEREST RATES GO UP, BOND PRICES WILL GENERALLY GO DOWN AND REDUCE THE VALUE
OF THE SERIES' BOND PORTFOLIO. PRICES OF FOREIGN SECURITIES MAY GO DOWN
BECAUSE OF FOREIGN GOVERNMENT ACTIONS, POLITICAL INSTABILITY OR THE MORE
LIMITED AVAILABILITY OF ACCURATE INFORMATION ABOUT FOREIGN COMPANIES. THESE
RISKS MAY BE MORE SEVERE FOR SECURITIES OF ISSUERS IN EMERGING MARKETS.
THE VALUE OF YOUR INVESTMENT MAY ALSO DECLINE IF THE ADVISOR'S JUDGMENTS ABOUT
THE ATTRACTIVENESS, RELATIVE VALUE AND POTENTIAL APPRECIATION OF A PARTICULAR
SECURITY OR STRATEGY PROVE TO BE INCORRECT.
FEES AND EXPENSES OF THE SERIES
THIS TABLE DESCRIBES THE FEES AND EXPENSES YOU MAY PAY IF YOU INVEST IN SHARES
OF THE SERIES.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 10/31/98 MAXIMUM HORIZON SERIES
<S> <C>
SHAREHOLDER FEES (PAID DIRECTLY FROM YOUR INVESTMENT) NONE
- -------------------------------------------------------- -----
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM ASSETS OF THE SERIES)
- ----------------------------------------------------------------
MANAGEMENT FEE 1.00%
-----
DISTRIBUTION AND SERVICE (RULE 12B-1) FEES NONE
-----
OTHER EXPENSES 0.32%
-----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.32%
- ------------------------------------------------------- -----
</TABLE>
BECAUSE THE ADVISOR HAS AGREED TO LIMIT OPERATING EXPENSES, ACTUAL EXPENSES
WERE:
<TABLE>
<CAPTION>
<S> <C>
MANAGEMENT FEE 0.88%
- ------------------------------------ -----
OTHER EXPENSES 0.32%
- ------------------------------------ -----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.20%
- ------------------------------------ -----
</TABLE>
THE ADVISOR MAY CHANGE OR ELIMINATE THESE EXPENSE LIMITS AT ANY TIME.
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
SERIES WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT:
YOU INVEST $10,000 FOR THE PERIODS SHOWN
YOU REDEEM AT THE END OF EACH PERIOD
THE FUND'S OPERATING EXPENSES REMAIN THE SAME
YOUR INVESTMENT HAS A 5% RETURN EACH YEAR
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, UNDER THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
AFTER AFTER AFTER AFTER
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------ -------- -------- ---------
$ 134 $ 418 $ 723 $ 1,590
-------- -------- ---------
WITH EXPENSE LIMITS, YOUR COSTS WOULD BE:
$122 $ 381 $ 660 $ 1,455
- ------------------------------------------ -------- -------- ---------
</TABLE>
MORE ABOUT THE SERIES' INVESTMENTS
PRINCIPAL INVESTMENTS
EQUITY EACH SERIES MAY INVEST IN EQUITY SECURITIES OF U.S. AND FOREIGN
COMPANIES. THESE INCLUDE EXCHANGE-TRADED AND OVER-THE-COUNTER (OTC) COMMON
AND PREFERRED STOCKS, WARRANTS, RIGHTS, CONVERTIBLE DEBT SECURITIES, TRUST
CERTIFICATES, PARTNERSHIP INTERESTS AND EQUITY PARTICIPATIONS.
FIXED INCOME EACH SERIES MAY INVEST IN FIXED INCOME SECURITIES OF ANY
MATURITY OR DURATION. THESE SECURITIES MAY BE ISSUED BY THE U.S. GOVERNMENT
OR ANY OF ITS AGENCIES, FOREIGN GOVERNMENTS, SUPRANATIONAL ENTITIES SUCH AS
THE WORLD BANK, AND U.S. AND FOREIGN COMPANIES.
INVESTMENTS IN FIXED INCOME SECURITIES MAY HAVE ALL TYPES OF INTEREST RATE
PAYMENT AND RESET TERMS AND MAY INCLUDE MORTGAGE-BACKED, ASSET-BACKED AND
DERIVATIVE SECURITIES. EACH SERIES INVESTS PRIMARILY IN INVESTMENT GRADE
SECURITIES BUT MAY INVEST UP TO 20% OF ASSETS IN LOWER QUALITY BONDS, COMMONLY
KNOWN AS "JUNK BONDS." THESE BONDS ARE CONSIDERED SPECULATIVE BECAUSE THEY
HAVE A HIGHER RISK OF ISSUER DEFAULT, ARE SUBJECT TO GREATER PRICE VOLATILITY
AND MAY BE ILLIQUID.
DERIVATIVE CONTRACTS
A DERIVATIVE CONTRACT WILL OBLIGATE OR ENTITLE A SERIES TO DELIVER OR RECEIVE
AN ASSET OR A CASH PAYMENT THAT IS BASED ON THE CHANGE IN VALUE OF A
DESIGNATED SECURITY, INDEX OR CURRENCY. THE SERIES MAY, BUT ARE NOT REQUIRED
TO, USE DERIVATIVE CONTRACTS FOR ANY OF THE FOLLOWING PURPOSES:
TO HEDGE AGAINST ADVERSE CHANGES IN THE MARKET VALUE OF SECURITIES HELD
BY OR TO BE BOUGHT FOR A SERIES. THESE CHANGES MAY BE CAUSED BY CHANGING
INTEREST RATES OR STOCK MARKET PRICES.
AS A SUBSTITUTE FOR PURCHASING OR SELLING SECURITIES.
TO SHORTEN OR LENGTHEN THE EFFECTIVE MATURITY OR DURATION OF A SERIES' FIXED
INCOME PORTFOLIO.
IN NON-HEDGING SITUATIONS, TO ATTEMPT TO PROFIT FROM ANTICIPATED MARKET
DEVELOPMENTS.
COUNTERPARTIES TO OTC DERIVATIVE CONTRACTS PRESENT THE SAME TYPES OF DEFAULT
RISK AS ISSUERS OF FIXED INCOME SECURITIES.
ADDITIONAL INVESTMENT RISKS
EXTENSION RISK AS INTEREST RATES INCREASE, SLOWER THAN EXPECTED PRINCIPAL
PAYMENTS MAY EXTEND THE AVERAGE LIFE OF FIXED INCOME SECURITIES, LOCKING IN
BELOW-MARKET INTEREST RATES AND REDUCING THE VALUE OF THESE SECURITIES.
PREPAYMENT OR CALL RISK. AS INTEREST RATES DECLINE, THE ISSUERS OF FIXED
INCOME SECURITIES HELD BY THE SERIES MAY PREPAY PRINCIPAL EARLIER THAN
SCHEDULED, FORCING THE SERIES TO REINVEST IN LOWER YIELDING SECURITIES.
CORRELATION RISK CHANGES IN THE VALUE OF DERIVATIVE CONTRACTS OR OTHER
HEDGING INSTRUMENTS MAY NOT MATCH OR FULLY OFFSET CHANGES IN THE VALUE OF THE
HEDGED PORTFOLIO SECURITIES.
DEFENSIVE INVESTING
EACH SERIES MAY DEPART FROM ITS PRINCIPAL INVESTMENT STRATEGIES BY TAKING
TEMPORARY DEFENSIVE POSITIONS IN RESPONSE TO ADVERSE MARKET, ECONOMIC OR
POLITICAL CONDITIONS. IF A SERIES TAKES A TEMPORARY DEFENSIVE POSITION, IT
MAY BE UNABLE TO ACHIEVE ITS INVESTMENT GOALS.
THE SERIES' INVESTMENT GOALS
THE SERIES' BOARD OF DIRECTORS MAY CHANGE EACH SERIES' INVESTMENT GOALS
(DESCRIBED ABOVE UNDER ABOVE "GOALS AND STRATEGIES") WITHOUT OBTAINING THE
APPROVAL OF THE SERIES' SHAREHOLDERS. A SERIES MIGHT NOT SUCCEED IN ACHIEVING
ITS GOALS.
<PAGE>
THE ADVISOR
THE ADVISOR
EACH SERIES' ADVISOR IS EXETER ASSET MANAGEMENT, A DIVISION OF MANNING &
NAPIER ADVISORS, INC., 1100 CHASE SQUARE, ROCHESTER, NEW YORK 14604. THE
ADVISOR IS RESPONSIBLE FOR THE DAY-TO-DAY OPERATIONS OF THE SERIES AND
GENERALLY IS RESPONSIBLE FOR SUPERVISION OF THE SERIES' OVERALL BUSINESS
AFFAIRS, SERVICE PROVIDERS AND OFFICERS.
A TEAM MADE UP OF INVESTMENT PROFESSIONALS AND ANALYSTS EMPLOYED BY THE
ADVISOR MAKES ALL OF THE SERIES' INVESTMENT DECISIONS.
MANAGEMENT FEES
IN RETURN FOR THE SERVICES IT PROVIDES TO EACH SERIES, THE ADVISOR RECEIVES A
MANAGEMENT FEE, WHICH IS COMPUTED DAILY AND PAYABLE MONTHLY BY THE SERIES AS
DESCRIBED BELOW.
THE ADVISOR HAS AGREED TO LIMIT THE SERIES' MANAGEMENT FEES AND OTHER
EXPENSES. THESE LIMITATIONS ARE TEMPORARY AND MAY BE CHANGED AT ANY TIME.
ANNUAL MANAGEMENT FEES (AS A PERCENTAGE OF DAILY NET ASSETS)
<TABLE>
<CAPTION>
<S> <C> <C>
ACTUAL MANAGEMENT FEE PAID CONTRACTUAL
FOR YEAR ENDED 10/31/98 MANAGEMENT FEE
SERIES
- -----------------------
DEFENSIVE SERIES 0.07% 0.80%
- ----------------------- ---------------- ----------------
BLENDED ASSET SERIES I 0.97% 1.00%
- ----------------------- ---------------- ----------------
BLENDED ASSET SERIES II 1.00% 1.00%
- ----------------------- ---------------- ----------------
MAXIMUM HORIZON SERIES 0.88% 1.00%
- ----------------------- ---------------- ----------------
<S> <C>
CURRENT EXPENSE LIMITATION
SERIES
- -----------------------
DEFENSIVE SERIES 1.00%
- ----------------------- ---------------------------
BLENDED ASSET SERIES I 1.20%
- ----------------------- ---------------------------
BLENDED ASSET SERIES II 1.20%
- ----------------------- --------------------------
MAXIMUM HORIZON SERIES 1.20%
- ----------------------- ---------------------------
</TABLE>
THE DISTRIBUTOR
THE DISTRIBUTOR OF THE SERIES' SHARES IS MANNING & NAPIER INVESTOR SERVICES,
INC. CLASS A SHARES ARE OFFERED TO INVESTORS WHO PURCHASE SHARES DIRECTLY
FROM THE DISTRIBUTOR OR THROUGH CERTAIN REGISTERED INVESTMENT ADVISERS. CLASS
A SHARES ARE NOT SUBJECT TO ANY DISTRIBUTION OR SHAREHOLDER SERVICING FEES.
YEAR 2000 ISSUE
INFORMATION TECHNOLOGY EXPERTS ARE CONCERNED ABOUT COMPUTER SYSTEMS' ABILITY
TO PROCESS DATE-RELATED INFORMATION ON AND AFTER JANUARY 1, 2000. THIS
SITUATION, COMMONLY KNOWN AS THE "YEAR 2000" ISSUE, COULD HAVE AN ADVERSE
IMPACT ON THE SERIES. THE ADVISOR, THE TRANSFER AGENT AND THE DISTRIBUTOR ARE
ADDRESSING THE YEAR 2000 ISSUE FOR THEIR SYSTEMS. THE SERIES HAVE BEEN
INFORMED BY THEIR OTHER SERVICE PROVIDERS THAT THEY ARE TAKING SIMILAR
MEASURES. ALTHOUGH THE SERIES DO NOT EXPECT THE YEAR 2000 ISSUE TO ADVERSELY
AFFECT THEM, THE SERIES CANNOT GUARANTEE THAT THE EFFORTS OF THE SERIES OR
THEIR SERVICE PROVIDERS TO CORRECT THE PROBLEM WILL BE SUCCESSFUL.
<PAGE>
HOW TO BUY SHARES
HOW TO BUY SHARES
THE MINIMUM INITIAL INVESTMENT IN EACH SERIES IS $2,000, AND THE MINIMUM FOR
EACH ADDITIONAL INVESTMENT IS $100. THE MINIMUM INVESTMENT REQUIREMENTS ARE
LOWER FOR PARTICIPANTS IN THE AUTOMATIC INVESTMENT PLAN, WHICH IS DESCRIBED
BELOW. THESE INVESTMENT MINIMUMS MAY BE WAIVED AT THE ADVISOR'S DISCRETION.
ALL ORDERS TO PURCHASE SHARES ACCEPTED BY THE DISTRIBUTOR, TRANSFER AGENT OR
OTHER AGENT BEFORE THE CLOSE OF TRADING ON THE NEW YORK STOCK EXCHANGE (NYSE)
WILL BE EXECUTED AT THAT DAY'S SHARE PRICE. ORDERS ACCEPTED AFTER THAT DAY'S
CLOSE WILL BE EXECUTED AT THE NEXT BUSINESS DAY'S PRICE. ALL ORDERS MUST
INCLUDE THE REQUIRED DOCUMENTATION AND BE ACCOMPANIED BY PROPER PAYMENT. EACH
SERIES RESERVES THE RIGHT TO REJECT PURCHASE ORDERS OR TO STOP OFFERING ITS
SHARES WITHOUT NOTICE TO SHAREHOLDERS.
BY MAIL
OPENING AN ACCOUNT
SEND A CHECK PAYABLE TO EXETER FUND, INC. WITH THE COMPLETED
ORIGINAL ACCOUNT APPLICATION. THE ADDRESS IS:
EXETER FUND, INC.
P.O. BOX 41118
ROCHESTER, NY 14604
TO REQUEST AN ACCOUNT APPLICATION, CALL THE FUND AT 1-800-466-3863.
ADDING TO AN ACCOUNT
SEND A CHECK PAYABLE TO EXETER FUND, INC. AND A LETTER OF
INSTRUCTION WITH THE NAME OF THE SERIES TO BE PURCHASED AND THE ACCOUNT NAME
AND NUMBER.
BY WIRE
OPENING AN ACCOUNT
OR
ADDING TO AN ACCOUNT
AFTER THE FUND HAS RECEIVED YOUR COMPLETED ACCOUNT APPLICATION, YOU
MAY WIRE FUNDS TO OPEN OR ADD SHARES TO YOUR ACCOUNT. BEFORE SENDING A WIRE,
CALL 1-800-466-3863 FOR WIRE INSTRUCTIONS.
AUTOMATIC INVESTMENT PLAN
YOU MAY PARTICIPATE IN THE AUTOMATIC INVESTMENT PLAN BY COMPLETING THE
APPLICABLE SECTION OF THE ACCOUNT APPLICATION OR CONTACTING THE FUND. THROUGH
THE PLAN, YOU CAN AUTHORIZE TRANSFERS OF A SPECIFIED AMOUNT FROM YOUR BANK
ACCOUNT INTO THE SERIES ON A REGULAR BASIS. THE MINIMUM AMOUNT OF EACH
INVESTMENT IS $25. IF YOU HAVE INSUFFICIENT FUNDS IN YOUR ACCOUNT TO COMPLETE
A TRANSFER, YOUR BANK MAY CHARGE YOU A FEE.
<PAGE>
HOW TO EXCHANGE AND HOW TO REDEEM SHARESHOW TO EXCHANGE AND HOW TO REDEEM
TO EXCHANGE AND HOW TO REDEEM SHARES
HOW TO EXCHANGE SHARES
YOU MAY EXCHANGE CLASS A SHARES OF A SERIES FOR CLASS A SHARES OF ANY OTHER
SERIES OF EXETER FUND, IF THE REGISTRATION OF BOTH ACCOUNTS IS IDENTICAL. IF
RECEIVED WITH PROPER DOCUMENTATION BEFORE THE CLOSE OF TRADING ON THE NYSE,
EXCHANGE REQUESTS WILL BE EXECUTED AT THAT DAY'S SHARE PRICES. OTHERWISE,
THEY WILL BE EXECUTED AT THE PRICES DETERMINED ON THE NEXT BUSINESS DAY AFTER
RECEIPT WITH PROPER DOCUMENTATION.
THE MINIMUM EXCHANGE AMOUNT IS $1,000 (OR ALL THE SHARES IN YOUR ACCOUNT, IF
LESS THAN $1,000). YOU MAY EXCHANGE UP TO 4 TIMES DURING ANY 12-MONTH PERIOD
WITHOUT PAYING A SALES CHARGE OR ANY OTHER FEE. FOR ANY ADDITIONAL EXCHANGES,
YOU MAY BE CHARGED $15 PER EXCHANGE. A SERIES MAY REFUSE ANY EXCHANGE ORDER
AND MAY ALTER, LIMIT OR SUSPEND ITS EXCHANGE PRIVILEGE ON 60 DAYS' NOTICE. AN
EXCHANGE INVOLVES A TAXABLE REDEMPTION OF SHARES SURRENDERED IN THE EXCHANGE.
BY MAIL
SEND A LETTER OF INSTRUCTION TO EXETER FUND, INC., AT THE ADDRESS ON THE
OPPOSITE PAGE, SIGNED BY EACH REGISTERED ACCOUNT OWNER, EXACTLY AS YOUR NAMES
APPEAR ON THE ACCOUNT REGISTRATION.
PROVIDE THE NAME OF THE CURRENT SERIES, CLASS OF SHARES, SERIES TO
EXCHANGE INTO AND DOLLAR AMOUNT TO BE EXCHANGED.
PROVIDE BOTH ACCOUNT NUMBERS.
BY TELEPHONE
UNLESS YOU HAVE DECLINED TELEPHONE PRIVILEGES, CALL THE FUND AT
1-800-466-3863.
PROVIDE THE NAME OF THE CURRENT SERIES, CLASS OF SHARES, SERIES TO
EXCHANGE INTO AND DOLLAR AMOUNT TO BE EXCHANGED.
PROVIDE BOTH ACCOUNT NUMBERS.
THE FUND MAY ASK FOR IDENTIFICATION, AND ALL TELEPHONE TRANSACTIONS ARE
RECORDED.
HOW TO REDEEM SHARES
ALL ORDERS TO REDEEM SHARES ACCEPTED BY THE DISTRIBUTOR, TRANSFER AGENT OR
OTHER AGENT BEFORE THE CLOSE OF TRADING ON THE NYSE WILL BE EXECUTED AT THAT
DAY'S SHARE PRICE. ORDERS ACCEPTED AFTER THE CLOSE OF TRADING WILL BE
EXECUTED AT THE NEXT BUSINESS DAY'S PRICE. ALL REDEMPTION ORDERS MUST INCLUDE
THE REQUIRED DOCUMENTATION AND SIGNATURES. EACH SERIES MAY POSTPONE PAYMENT
OF REDEMPTION PROCEEDS FOR UP TO SEVEN DAYS, OR SUSPEND REDEMPTIONS TO THE
EXTENT PERMITTED BY LAW. IF YOU RECENTLY PURCHASED YOUR SHARES BY CHECK, YOUR
REDEMPTION PROCEEDS WILL NOT BE SENT TO YOU FOR 15 DAYS.
BY MAIL
SEND A LETTER OF INSTRUCTION TO EXETER FUND, INC., AT THE ADDRESS ON THE
OPPOSITE PAGE SIGNED BY EACH REGISTERED ACCOUNT OWNER.
STATE THE NAME OF THE SERIES, THE CLASS AND NUMBER OF SHARES OR DOLLAR
AMOUNT TO BE SOLD.
PROVIDE THE ACCOUNT NUMBER.
SIGNATURE GUARANTEES MAY BE REQUIRED.
ADDITIONAL DOCUMENTATION MAY BE REQUIRED (CALL THE FUND FOR DETAILS).
INVESTMENT AND ACCOUNT INFORMATION
ACCOUNTS WITH LOW BALANCES
IF YOUR ACCOUNT FALLS BELOW $1,000 DUE TO THE REDEMPTION OF SHARES, THE FUND
MAY ASK YOU TO BRING YOUR ACCOUNT UP TO THE MINIMUM REQUIREMENT. IF YOUR
ACCOUNT IS STILL BELOW $1,000 AFTER 60 DAYS, THE FUND MAY CLOSE
YOUR ACCOUNT AND SEND YOU THE REDEMPTION PROCEEDS.
IN-KIND PURCHASES AND REDEMPTIONS
SECURITIES YOU OWN MAY BE USED TO PURCHASE SHARES OF A SERIES. THE ADVISOR
WILL DETERMINE IF ACQUIRING THE SECURITIES IS CONSISTENT WITH THE SERIES'
GOALS AND POLICIES. IF ACCEPTED, THE SECURITIES WILL BE VALUED THE SAME WAY
THE SERIES VALUES SECURITIES IT ALREADY OWNS.
A SERIES MAY MAKE PAYMENT FOR SHARES IN PART BY GIVING YOU PORTFOLIO
SECURITIES. AS A REDEEMING SHAREHOLDER, YOU WILL PAY TRANSACTION COSTS TO
DISPOSE OF THESE SECURITIES.
SIGNATURE GUARANTEES
A SIGNATURE GUARANTEE MAY BE REQUIRED FOR ANY WRITTEN REQUEST TO SELL SHARES,
OR TO CHANGE THE ACCOUNT REGISTRATION.
THE TRANSFER AGENT WILL ACCEPT SIGNATURE GUARANTEES FROM:
MEMBERS OF THE STAMP PROGRAM OR THE NYSE'S MEDALLION SIGNATURE PROGRAM.
A BROKER OR SECURITIES DEALER.
A FEDERAL SAVINGS, COOPERATIVE OR OTHER TYPE OF BANK.
A SAVINGS AND LOAN OR OTHER THRIFT INSTITUTION.
A CREDIT UNION.
A SECURITIES EXCHANGE OR CLEARING AGENCY.
A NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
VALUATION OF SHARES
EACH SERIES OFFERS ITS SHARES AT THE NET ASSET VALUE (NAV) PER SHARE OF THE
SERIES. EACH SERIES CALCULATES ITS NAV ONCE DAILY AS OF THE CLOSE OF REGULAR
TRADING ON THE NEW YORK STOCK EXCHANGE (GENERALLY AT 4:00 P.M., NEW YORK TIME)
ON EACH DAY THE EXCHANGE IS OPEN. IF THE EXCHANGE CLOSES EARLY, THE SERIES
WILL ACCELERATE THE CALCULATION OF NAV AND TRANSACTION DEADLINES TO THAT TIME.
EACH SERIES VALUES THE SECURITIES IN ITS PORTFOLIO ON THE BASIS OF MARKET
QUOTATIONS AND VALUATIONS PROVIDED BY INDEPENDENT PRICING SERVICES.
IF QUOTATIONS ARE NOT READILY AVAILABLE, OR THE VALUE OF A SECURITY HAS BEEN
MATERIALLY AFFECTED BY EVENTS OCCURRING AFTER THE CLOSING OF A FOREIGN
EXCHANGE, EACH SERIES VALUES ITS ASSETS BY A METHOD THAT THE DIRECTORS BELIEVE
ACCURATELY REFLECTS FAIR VALUE. A SERIES THAT USES FAIR VALUE TO PRICE
SECURITIES MAY VALUE THOSE SECURITIES HIGHER OR LOWER THAN ANOTHER SERIES
THAT USES MARKET QUOTATIONS TO PRICE THE SAME SECURITIES.
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
EACH SERIES GENERALLY:
PAYS DIVIDENDS TWICE A YEAR, IN JUNE AND DECEMBER.
MAKES CAPITAL GAINS DISTRIBUTIONS, IF ANY, ONCE A YEAR, TYPICALLY IN
DECEMBER.
A SERIES MAY PAY ADDITIONAL DISTRIBUTIONS AND DIVIDENDS AT OTHER TIMES IF
NECESSARY FOR THE SERIES TO AVOID A FEDERAL TAX.
CAPITAL GAIN DISTRIBUTIONS AND DIVIDENDS ARE REINVESTED IN ADDITIONAL SHARES
OF THE SAME CLASS THAT YOU HOLD. ALTERNATIVELY, YOU CAN INSTRUCT THE TRANSFER
AGENT IN WRITING OR BY TELEPHONE TO HAVE YOUR CAPITAL GAINS AND/OR DIVIDENDS
PAID IN CASH. YOU CAN CHANGE YOUR CHOICE AT ANY TIME TO BE EFFECTIVE AS OF
THE NEXT DISTRIBUTION OR DIVIDEND, EXCEPT THAT ANY CHANGE GIVEN TO THE
TRANSFER AGENT AFTER THE RECORD DATE WILL NOT BE EFFECTIVE UNTIL THE NEXT
DISTRIBUTION OR DIVIDEND IS MADE. NO INTEREST WILL ACCRUE ON AMOUNTS
REPRESENTED BY UNCASHED DISTRIBUTION OR REDEMPTION CHECKS.
TAXES
TRANSACTION FEDERAL TAX STATUS
REDEMPTION OR EXCHANGE OF SHARES USUALLY TAXABLE AS CAPITAL GAIN OR
LOSS; LONG-TERM ONLY IF SHARES
OWNED MORE THAN ONE YEAR
LONG-TERM CAPITAL GAIN DISTRIBUTIONS TAXABLE AS LONG-TERM CAPITAL
GAIN
SHORT-TERM CAPITAL GAIN DISTRIBUTIONS TAXABLE AS ORDINARY INCOME
DIVIDENDS TAXABLE AS ORDINARY INCOME
IF YOU ARE A TAXABLE INVESTOR, YOU MAY WANT TO AVOID BUYING SHARES WHEN THE
SERIES IS ABOUT TO DECLARE A CAPITAL GAIN DISTRIBUTION OR A DIVIDEND, BECAUSE
IT WILL BE TAXABLE TO YOU EVEN THOUGH IT MAY ACTUALLY BE A RETURN OF A PORTION
OF YOUR INVESTMENT.
AFTER THE END OF EACH YEAR, THE SERIES WILL PROVIDE YOU WITH INFORMATION ABOUT
THE DISTRIBUTIONS AND DIVIDENDS THAT YOU RECEIVED AND ANY REDEMPTIONS OF
SHARES DURING THE PREVIOUS YEAR. IN CALCULATING YOUR GAIN OR LOSS ON ANY SALE
OF SHARES, NOTE THAT YOUR TAX BASIS IN YOUR SHARES IS INCREASED BY THE AMOUNTS
OF DIVIDENDS AND DISTRIBUTIONS THAT YOU HAVE REINVESTED IN A SERIES.
DIVIDENDS AND DISTRIBUTIONS ARE TAXABLE AS DESCRIBED ABOVE WHETHER RECEIVED IN
CASH OR REINVESTED. IF YOU DO NOT PROVIDE THE SERIES WITH YOUR CORRECT
TAXPAYER IDENTIFICATION NUMBER AND ANY REQUIRED CERTIFICATIONS, YOU MAY BE
SUBJECT TO BACK-UP WITHHOLDING OF 31% OF YOUR DISTRIBUTIONS, DIVIDENDS AND
REDEMPTION PROCEEDS. BECAUSE EACH SHAREHOLDER'S CIRCUMSTANCES ARE DIFFERENT
AND SPECIAL TAX RULES MAY APPLY, YOU SHOULD CONSULT WITH YOUR TAX ADVISER
ABOUT YOUR INVESTMENT IN THE SERIES AND YOUR RECEIPT OF DIVIDENDS,
DISTRIBUTIONS OR REDEMPTION PROCEEDS.
<PAGE>
FINANCIAL HIGHLIGHTS
THE INFORMATION IN THE TABLES FOLLOWING WAS AUDITED BY DELOITTE & TOUCHE LLP,
INDEPENDENT ACCOUNTANTS, WHOSE REPORT, ALONG WITH EACH SERIES' FINANCIAL
STATEMENTS, ARE INCLUDED IN ITS ANNUAL REPORT (AVAILABLE UPON REQUEST).
CERTAIN INFORMATION REFLECTS FINANCIAL RESULTS FOR A SINGLE SHARE. TOTAL
RETURNS REPRESENT THE RATE THAT A SHAREHOLDER WOULD HAVE EARNED ON AN
INVESTMENT IN A CLASS (ASSUMING REINVESTMENT OF ALL DIVIDENDS AND
DISTRIBUTIONS).
DEFENSIVE SERIES - CLASS A SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED
10/31/98 10/31/97 10/31/961
PER SHARE DATA (FOR A SHARE OUTSTANDING
THROUGHOUT THE PERIOD):
- ----------------------------------------
NET ASSET VALUE - BEGINNING OF PERIOD $10.71 $10.29 $10.00
- ----------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
- ----------------------------------------
NET INVESTMENT INCOME* 0.35 0.42 0.35
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS 0.32 0.45 0.14
TOTAL FROM INVESTMENT OPERATIONS 0.67 0.87 0.49
LESS DISTRIBUTIONS TO SHAREHOLDERS:
FROM NET INVESTMENT INCOME (0.35) (0.38) (0.20)
FROM NET REALIZED GAIN ON INVESTMENTS (0.18) (0.07) -
TOTAL DISTRIBUTION TO SHAREHOLDERS (0.53) (0.45) (0.20)
NET ASSET VALUE - END OF PERIOD $10.85 $10.71 $10.29
TOTAL RETURN2 6.54% 8.74% 4.94%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
EXPENSES* 1.00% 1.00% 1.00%
NET INVESTMENT INCOME* 4.20% 4.45% 4.26%
PORTFOLIO TURNOVER 15% 60% 30%
NET ASSETS - END OF PERIOD (000'S OMITTED)$5,733 $1,764 $ 745
<FN>
*THE INVESTMENT ADVISOR DID NOT IMPOSE ALL OR A PORTION OF ITS MANAGEMENT
FEE AND IN SOME PERIODS PAID A PORTION OF THE SERIES' EXPENSES. IF THESE
EXPENSES HAD BEEN INCURRED BY THE SERIES, AND HAD 1996 EXPENSES BEEN LIMITED
TO THAT ALLOWED BY STATE SECURITIES LAW, THE NET INVESTMENT INCOME PER
SHARE AND THE RATIOS WOULD HAVE BEEN AS FOLLOWS:
RATIOS (TO AVERAGE NET ASSETS): $0.29 $0.27 $0.23
EXPENSES 1.73% 2.59% 2.50%
NET INVESTMENT INCOME 3.47% 2.86% 2.76%
1 THE SERIES COMMENCED OPERATIONS ON NOVEMBER 1, 1995.
2 REPRESENTS AGGREGATE TOTAL RETURN FOR THE PERIOD INDICATED.
</TABLE>
<PAGE>
BLENDED ASSET SERIES I - CLASS A SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FOR THE YEAR FOR THE YEAR FOR THE TEN FOR THE YEAR
ENDED ENDED MONTHS ENDED ENDED
10/31/98 10/31/97 10/31/96 12/31/95
PER SHARE DATA (FOR A
SHARE OUTSTANDING
THROUGHOUT EACH PERIOD):
- -------------------------
NET ASSET VALUE -
BEGINNING OF PERIOD $ 11.97 $ 11.20 $ 10.72 $ 9.72
- --------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
NET INVESTMENT INCOME* 0.36 0.39 0.29 0.34
- ------------------------- ------------ ------------ ------------ ----------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS 0.35 1.01 0.31 1.70
TOTAL FROM INVESTMENT
OPERATIONS 0.71 1.40 0.60 2.04
LESS DISTRIBUTIONS TO
SHAREHOLDERS:
- -----------------------
FROM NET INVESTMENT
INCOME (0.33) (0.44) (0.09) (0.34)
- ------------------------- -------------- ------------ --------- -------
IN EXCESS OF NET
INVESTMENT INCOME - - - (0.01)
FROM NET REALIZED
GAIN ON INVESTMENTS (0.76) (0.19) (0.03) (0.69)
- ------------------------
IN EXCESS OF NET
REALIZED GAIN - - - -
- -----------------------
TOTAL DISTRIBUTIONS TO (1.09) (0.63) (0.12) (1.04)
SHAREHOLDERS
NET ASSET VALUE -
END OF PERIOD $ 11.59 $ 11.97 $ 11.20 $ 10.72
TOTAL RETURN1 6.29% 13.01% 5.64% 21.08%
- ----------------------- ----------- ----------- ---------- -------
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
- ----------------------
EXPENSES* 1.20% 1.20% 1.20%2 1.20%
- ---------------------- --------- -------- ---------- --------
NET INVESTMENT INCOME* 3.25% 3.39% 3.69%2 3.64%
--------- -------- ---------- ---------
PORTFOLIO TURNOVER 60% 50% 85% 72%
- ----------------------
NET ASSETS - END OF $ 32,291 $ 21,930 $ 17,794 $ 9,518
PERIOD (000'S OMITTED)
- -------------------------
THE INVESTMENT ADVISOR DID NOT IMPOSE ALL OR A PORTION OF ITS MANAGEMENT
FEE AND IN SOME PERIODS PAID A PORTION OF THE SERIES' EXPENSES. IF THESE
EXPENSES HAD BEEN INCURRED BY THE SERIES, AND HAD THE 1994 EXPENSES BEEN
LIMITED TO THAT ALLOWED BY STATES SECURITIES LAW, THE NET INVESTMENT
INCOME PER SHARE AND RATIOS WOULD HAVE BEEN AS FOLLOWS:
INVESTMENT INCOME $0.35 $0.39 $0.28 $0.31
RATIOS (TO AVERAGE NET ASSETS):
EXPENSES 1.23% 1.24% 1.31%2 1.53%
NET INVESTMENT INCOME 3.22% 3.35% 3.58%2 3.31%
1 REPRESENTS AGGREGATE TOTAL RETURN FOR THE PERIOD INDICATED.
2 ANNUALIZED.
<S> <C> <C>
FOR THE YEAR FOR THE
ENDED PERIOD
12/31/94 9/15/93
(COMMENCEMENT
OF
OPERATIONS)
TO 12/31/93
PER SHARE DATA (FOR A SHARE
OUTSTANDING THROUGHOUT EACH
PERIOD):
- --------------------------------
NET ASSET VALUE - BEGINNING $ 10.05 $ 10.00
OF PERIOD
- --------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
- --------------------------------
NET INVESTMENT INCOME* 0.2 0.05
- -------------------------------- -------------- ----------
NET REALIZED AND UNREALIZED
GAIN (LOSS) (0.28) 0.04
ON INVESTMENTS
- --------------------------------
TOTAL FROM INVESTMENT OPERATIONS (0.08) 0.09
LESS DISTRIBUTIONS TO
SHAREHOLDERS:
- --------------------------------
FROM NET INVESTMENT INCOME (0.20) (0.04)
- -------------------------------- -------------- ---------------
IN EXCESS OF NET INVESTMENT - -
INCOME
FROM NET REALIZED GAIN ON (0.04) -
INVESTMENTS
- --------------------------------
IN EXCESS OF NET REALIZED (0.01) -
GAIN
- --------------------------------
TOTAL DISTRIBUTIONS TO (0.25) (0.04)
SHAREHOLDERS
NET ASSET VALUE - END OF PERIOD $ 9.72 $ 10.05
TOTAL RETURN1 (0.80%) 0.93%
- -------------------------------- -------------- ---------------
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
- --------------------------------
EXPENSES* 1.20% 1.20%2
- -------------------------------- -------------- ---------------
NET INVESTMENT INCOME* 3.40% 2.47%2
-------------- ---------------
PORTFOLIO TURNOVER 45% 1%
- --------------------------------
NET ASSETS - END OF PERIOD $ 4,519 $ 475
(000'S OMITTED)
- --------------------------------
<FN>
THE INVESTMENT ADVISOR DID NOT IMPOSE ALL OR A PORTION OF ITS MANAGEMENT
FEE AND IN SOME PERIODS PAID A PORTION OF THE SERIES' EXPENSES. IF THESE
EXPENSES HAD BEEN INCURRED BY THE SERIES, AND HAD THE 1994 EXPENSES BEEN
LIMITED TO THAT ALLOWED BY STATES SECURITIES LAW, THE NET INVESTMENT
INCOME PER SHARE AND RATIOS WOULD HAVE BEEN AS FOLLOWS:
INVESTMENT INCOME $0.12 $0.02
RATIOS (TO AVERAGE NET ASSETS):
EXPENSES 2.50% 2.50%2
NET INVESTMENT INCOME 2.10% 1.17%2
1 REPRESENTS AGGREGATE TOTAL RETURN FOR THE PERIOD INDICATED.
2 ANNUALIZED.
</TABLE>
<PAGE>
BLENDED ASSET SERIES II - CLASS A SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FOR THE FOR
FOR THE FOR THE TEN MONTHS THE YEAR
YEAR YEAR ENDED ENDED
ENDED ENDED 10/31/96 12/31/95
10/31/98 10/31/97
PER SHARE DATA (FOR A SHARE
OUTSTANDING THROUGHOUT EACH
PERIOD):
- ----------------------------------
NET ASSET VALUE - BEGINNING OF $ 14.69 $ 13.04 $ 11.95 $ 10.12
PERIOD
- ----------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
NET INVESTMENT INCOME 0.31 0.33 0.23* 0.24*
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON (0.38) 2.13 0.96 3.05
INVESTMENTS
TOTAL FROM INVESTMENT OPERATIONS (0.07) 2.46 1.19 3.29
LESS DISTRIBUTIONS TO
SHAREHOLDERS:
FROM NET INVESTMENT INCOME (0.29) (0.40) (0.04) (0.24)
FROM NET REALIZED GAIN ON (1.73) (0.41) (0.06) (1.22)
INVESTMENTS
TOTAL DISTRIBUTIONS TO (2.02) (0.81) (0.10) (1.46)
SHAREHOLDERS
NET ASSET VALUE - END OF PERIOD $12.60 $ 14.69 $13.04 $11.95
TOTAL RETURN2 (0.56%) 19.69% 10.01% 32.64%
RATIOS (TO AVERAGE NET
ASSETS)/SUPPLEMENTAL DATA:
EXPENSES 1.15% 1.15% 1.20%3* 1.20%*
NET INVESTMENT INCOME 2.45% 2.45% 2.51%3* 2.53%*
PORTFOLIO TURNOVER 61% 63% 57% 63%
NET ASSETS - END OF PERIOD (000'S $65,973 $ 50,922 $32,999 $ 20,519
OMITTED)
<FN>
THE INVESTMENT ADVISOR DID NOT IMPOSE ALL OR A PORTION OF ITS MANAGEMENT
FEE AND IN SOME PERIODS PAID A PORTION OF THE SERIES' EXPENSES. IF THESE
EXPENSES HAD BEEN INCURRED BY THE SERIES, AND HAD 1993 EXPENSES BEEN LIMITED
TO THAT ALLOWED BY STATE SECURITIES LAW, THE NET INVESTMENT INCOME PER SHARE
AND THE RATIOS WOULD HAVE BEEN AS FOLLOWS:
NET INVESTMENT INCOME N/A N/A $0.23 $0.23
RATIOS (TO AVERAGE NET ASSETS):
EXPENSES N/A N/A 1.22%3 1.33%
INVESTMENT INCOME N/A N/A 2.49%3 2.40%
1 DISTRIBUTION FROM NET INVESTMENT INCOME AMOUNTED TO $0.0017 PER SHARE.
2 REPRESENTS AGGREGATE TOTAL RETURN FOR THE PERIOD INDICATED.
3 ANNUALIZED.
<S> <C> <C>
FOR THE FOR THE
YEAR PERIOD
ENDED 10/12/93
12/31/94 (COMMENCEMENT
OF
OPERATIONS)
TO 12/31/93
PER SHARE DATA (FOR A SHARE
OUTSTANDING THROUGHOUT EACH
PERIOD):
- ----------------------------------
NET ASSET VALUE - BEGINNING OF $9.98 $ 10.00
PERIOD
- ----------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
NET INVESTMENT INCOME 0.11* 0.01*
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON 0.24 (0.03)
INVESTMENTS
TOTAL FROM INVESTMENT OPERATIONS 0.35 (0.02)
LESS DISTRIBUTIONS TO
SHAREHOLDERS:
FROM NET INVESTMENT INCOME (0.12) (0.00)1
FROM NET REALIZED GAIN ON (0.09) -
INVESTMENTS
TOTAL DISTRIBUTIONS TO (0.21) (0.00)
SHAREHOLDERS
NET ASSET VALUE - END OF PERIOD $10.12 $ 9.98
TOTAL RETURN2 3.52% (0.18%)
RATIOS (TO AVERAGE NET
ASSETS)/SUPPLEMENTAL DATA:
EXPENSES 1.20%* 1.20%3*
NET INVESTMENT INCOME 2.12%* 1.94%3*
PORTFOLIO TURNOVER 19% 0%
NET ASSETS - END OF PERIOD (000'S $7,214 $ 475
OMITTED)
<FN>
THE INVESTMENT ADVISOR DID NOT IMPOSE ALL OR A PORTION OF ITS MANAGEMENT
FEE AND IN SOME PERIODS PAID A PORTION OF THE SERIES' EXPENSES. IF THESE
EXPENSES HAD BEEN INCURRED BY THE SERIES, AND HAD 1993 EXPENSES BEEN LIMITED
TO THAT ALLOWED BY STATE SECURITIES LAW, THE NET INVESTMENT INCOME PER SHARE
AND THE RATIOS WOULD HAVE BEEN AS FOLLOWS:
NET INVESTMENT INCOME $0.05 $0.01
RATIOS (TO AVERAGE NET ASSETS):
2.31% 2.50%3
1.01% 0.64%3
1 DISTRIBUTION FROM NET INVESTMENT INCOME AMOUNTED TO $0.0017 PER SHARE.
2 REPRESENTS AGGREGATE TOTAL RETURN FOR THE PERIOD INDICATED.
3 ANNUALIZED.
</TABLE>
<PAGE>
MAXIMUM HORIZON SERIES - CLASS A SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FOR THE FOR THE FOR THE
YEAR YEAR YEAR
ENDED ENDED ENDED
10/31/98 10/31/97 10/31/96 1
PER SHARE DATA (FOR A SHARE
OUTSTANDING THROUGHOUT THE PERIOD):
- --------------------------------------
NET ASSET VALUE - BEGINNING OF PERIOD $ 14.24 $ 11.38 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME* 0.13 0.10 0.15
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (0.93) 2.92 1.36
TOTAL FROM INVESTMENT OPERATIONS (0.80) 3.02 1.51
LESS DISTRIBUTIONS TO SHAREHOLDERS:
FROM NET INVESTMENT INCOME (0.12) (0.08) (0.13)
FROM NET REALIZED GAIN ON INVESTMENTS (1.22) (0.08)
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (1.34) (0.16) (0.13)
NET ASSET VALUE - END OF PERIOD $12.10 $ 14.24 $ 11.38
TOTAL RETURN2 (5.99%) 26.77% 15.21%
- -------------------------------------- ----------- --------- ---------
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL
DATA:
- --------------------------------------
EXPENSES* 1.20% 1.20% 1.20%
----------- --------- ---------
NET INVESTMENT INCOME* 1.25% 0.94% 1.71%
---------- -------- ---------
PORTFOLIO TURNOVER 60% 115% 95%
---------- -------- ---------
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 18,705 $9,852 $1,574
<FN>
*THE INVESTMENT ADVISOR DID NOT IMPOSE ALL OR A PORTION OF ITS MANAGEMENT
FEE AND IN SOME PERIODS PAID A PORTION OF THE SERIES' EXPENSES. IF THESE
EXPENSES HAD BEEN INCURRED BY THE SERIES, AND HAD 1996 EXPENSES BEEN LIMITED
TO THAT ALLOWED BY STATE SECURITIES LAW, THE NET INVESTMENT INCOME PER
SHARE AND THE RATIOS WOULD HAVE BEEN AS FOLLOWS:
NET INVESTMENT INCOME $0.12 $0.06 $0.04
RATIOS (TO AVERAGE NET ASSETS):
EXPENSES 1.32% 1.55% 2.50%
NET INVESTMENT INCOME 1.13% 0.59% 0.41%
1 THE SERIES COMMENCED OPERATIONS ON NOVEMBER 1, 1995.
2 REPRESENTS AGGREGATE TOTAL RETURN FOR THE PERIOD INDICATED.
</TABLE>
<PAGE>
[BACK COVER PAGE]
EXETER FUND, INC.
DEFENSIVE SERIES
BLENDED ASSET SERIES I
BLENDED ASSET SERIES II
MAXIMUM HORIZON SERIES
SHAREHOLDER REPORTS AND THE STATEMENT OF ADDITIONAL INFORMATION (SAI). ANNUAL
AND SEMIANNUAL REPORTS TO SHAREHOLDERS PROVIDE ADDITIONAL INFORMATION ABOUT
EACH SERIES' INVESTMENTS. THESE REPORTS DISCUSS THE MARKET CONDITIONS AND
INVESTMENT STRATEGIES THAT SIGNIFICANTLY AFFECTED EACH SERIES' PERFORMANCE
DURING ITS LAST FISCAL YEAR. THE SAI PROVIDES MORE DETAILED INFORMATION ABOUT
EACH SERIES. IT IS INCORPORATED BY REFERENCE INTO THIS COMBINED PROSPECTUS.
HOW TO OBTAIN THESE REPORTS AND ADDITIONAL INFORMATION.
YOU MAY OBTAIN SHAREHOLDER REPORTS AND THE SAI OR OTHER INFORMATION ABOUT
THE FUND WITHOUT CHARGE, BY CALLING 1-800-466-3863 OR SENDING WRITTEN
REQUESTS TO EXETER FUND, INC., P.O. BOX 41118, ROCHESTER, NEW YORK 14604.
YOU MAY REVIEW SHAREHOLDER REPORTS, THE PROSPECTUS AND SAI AT THE
SECURITIES AND EXCHANGE COMMISSION'S PUBLIC REFERENCE ROOM IN WASHINGTON,
D.C. THE SEC CHARGES A FEE FOR THIS SERVICE. INFORMATION ABOUT THE PUBLIC
REFERENCE ROOM MAY BE OBTAINED BY CALLING 1-800-SEC-0330. YOU CAN GET THE
SAME REPORTS AND INFORMATION FREE FROM THE SEC'S INTERNET WEB SITE
(HTTP://WWW.SEC.GOV).
IF SOMEONE MAKES A STATEMENT THAT IS NOT IN THIS PROSPECTUS ABOUT ANY OF THE
SERIES, YOU SHOULD NOT RELY UPON THAT INFORMATION. NEITHER THE SERIES NOR
THEIR DISTRIBUTOR IS OFFERING TO SELL SHARES OF THE SERIES TO ANY PERSON TO
WHOM THE SERIES MAY NOT LAWFULLY SELL THEIR SHARES.
INVESTMENT COMPANY ACT FILE NO. 811-04087
<PAGE>
[LOGO]
PROSPECTUS
EXETER FUND, INC.
MARCH 1, 1999
DEFENSIVE SERIES
BLENDED ASSET SERIES I
BLENDED ASSET SERIES II
MAXIMUM HORIZON SERIES
CLASS B, C, D AND E SHARES
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED ANY SERIES' SHARES AS
AN INVESTMENT OR DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE.
ANY STATEMENT TO THE CONTRARY IS A CRIME.
<PAGE>
[THIS PAGE INTENTIONALLY BLANK]
<PAGE>
CONTENTS
EXETER ASSET MANAGEMENT IS A DIVISION OF MANNING & NAPIER ADVISORS, INC.,
WHICH WAS FOUNDED IN 1970 AND MANAGES OVER $7 BILLION FOR INDIVIDUAL AND
INSTITUTIONAL INVESTORS.
PAGE
GOALS AND STRATEGIES 4
DEFENSIVE SERIES 6
BLENDED ASSET SERIES I 8
BLENDED ASSET SERIES II 10
MAXIMUM HORIZON SERIES 12
MORE ABOUT THE SERIES' INVESTMENTS 14
THE ADVISOR 15
HOW TO BUY AND HOW TO REDEEM SHARES 16
HOW TO EXCHANGE SHARES 17
INVESTMENT AND ACCOUNT INFORMATION 18
DIVIDENDS, DISTRIBUTIONS AND TAXES 19
YOU SHOULD KNOW
AN INVESTMENT IN A SERIES IS NOT A BANK DEPOSIT AND IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY.
<PAGE>
GOALS AND STRATEGIES
WHO MAY WANT TO INVEST
INVESTORS SHOULD CHOOSE WHICH SERIES IS RIGHT FOR THEM.
THE SERIES OFFER A RANGE OF INVESTMENT OPPORTUNITIES FROM FAIRLY CONSERVATIVE
TO FAIRLY AGGRESSIVE. AS YOU MOVE ACROSS THE INVESTMENT RISK SPECTRUM, THE
EMPHASIS ON GROWTH INCREASES WHILE THE FOCUS ON CAPITAL PRESERVATION DECLINES.
THIS MOVEMENT TOWARD GROWTH USUALLY INVOLVES A HIGHER PERCENTAGE OF THE
PORTFOLIO BEING INVESTED IN STOCKS AND THE PORTION OF THE PORTFOLIO INVESTED
IN BONDS GENERALLY CONTAINING LONGER TERM MATURITIES. EACH SERIES HAS ITS OWN
STRATEGY AND RISK PROFILE. YOU SHOULD CHOOSE WHICH STRATEGY IS RIGHT FOR YOU.
INVESTMENT RISK SPECTRUM
[LINE GRAPH REFLECTING THE INCREASING RETURN POTENTIAL (ON THE X-AXIS) AND THE
INCREASING VOLATILITY POTENTIAL (ON THE Y-AXIS) OF THE DEFENSIVE SERIES, ,
BLENDED ASSET SERIES II AND MAXIMUM HORIZON SERIES. USING A LINE WITH AN
ARROW AT EACH END, THE RESULTS SHOW THE DEFENSIVE SERIES WITH THE LEAST RETURN
POTENTIAL AND THE LEAST VOLATILITY POTENTIAL; MOVING UP THE LINE, THE BLENDED
ASSET SERIES I AND BLENDED ASSET SERIES II, RESPECTIVLY, ONE-THIRD AND
TWO-THIRDS OF THE WAY UP THE LINE AND THE MAXIMUM HORIZON SERIES AT THE TOP,
WITH THE GREATEST RETURN POTENTIAL AND THE GREATEST VOLATILITY POTENTIAL OF
THE FOUR SERIES.]
THE ADVISOR'S INVESTMENT STRATEGIES
THE ADVISOR BELIEVES THAT THE MOST IMPORTANT FACTOR AFFECTING PORTFOLIO
PERFORMANCE IS ASSET ALLOCATION.
USING A MULTI-STRATEGY APPROACH, A TEAM OF INVESTMENT PROFESSIONALS MANAGES
EACH SERIES' PORTFOLIO. THE INVESTMENT POLICY GROUP ESTABLISHES POLICIES
REGARDING THE MIX OF STOCKS, BONDS AND CASH THAT IS APPROPRIATE IN LIGHT OF
THE INVESTMENT GOALS FOR THE SERIES YOU SELECT. THE INVESTMENT RESEARCH GROUP
AND THE FIXED INCOME GROUP SELECT INDIVIDUAL SECURITIES WITHIN PARAMETERS SET
BY THE INVESTMENT POLICY GROUP. THE INVESTMENT RESEARCH GROUP SEEKS TO SELECT
THE MOST ATTRACTIVE STOCKS AND THE FIXED INCOME GROUP SEEKS TO SELECT THE MOST
ATTRACTIVE BONDS FOR EACH SERIES. BY USING THIS MULTI-STRATEGY APPROACH, THE
ADVISOR SEEKS TO ADJUST EACH SERIES' PORTFOLIO TO PREVAILING MARKET
CONDITIONS. THE ADVISOR'S OBJECTIVE IS TO DELIVER VALUE-ADDED RESULTS OVER A
FULL RANGE OF RISING AND FALLING MARKET CONDITIONS.
THE DIAGRAM ON THE OPPOSITE PAGE SHOWS THE RELATIONSHIP BETWEEN THE THREE
GROUPS AND HOW THE TEAM CHANGES EACH SERIES' ASSET ALLOCATION IN RESPONSE TO
MARKET CONDITIONS, ECONOMIC CONDITIONS AND OTHER FACTORS.
<PAGE>
GOALS AND STRATEGIES
[A CHART SHOWING THE FOLLOWING TEXT GROUPS CIRCLED AND ARROWS POINTING TO A
CENTRAL LOCATION WITH THE TEXT "PORTFOLIO" IN A BOX.]
THE ADVISOR'S MULTI-STRATEGY APPROACH
INVESTMENT POLICY GROUP
THIS TEAM ESTABLISHES THE MAXIMUM AND MINIMUM PERCENTAGES OF ASSETS EACH
SERIES WILL INVEST IN U.S. AND FOREIGN STOCKS, BONDS AND CASH EQUIVALENTS.
THE TEAM ALSO ESTABLISHES INVESTMENT POLICIES AND GUIDELINES USED BY THE OTHER
GROUPS TO SET PRICES AT WHICH EACH SERIES MAY PURCHASE AND SELL INDIVIDUAL
SECURITIES. IN MAKING THESE DECISIONS, THE ADVISOR FOCUSES ON:
A SERIES' RISK MANAGEMENT PRIORITIES
ECONOMIC FACTORS SUCH AS INFLATION, EMPLOYMENT AND INTEREST RATE TRENDS
THE OUTLOOK FOR CORPORATE EARNINGS
STOCK VALUATIONS (E.G., PRICE TO EARNINGS AND PRICE TO BOOK RATIOS)
SUPPLY AND DEMAND FOR VARIOUS ASSET CLASSES
INVESTMENT RESEARCH GROUP
THIS TEAM SELECTS INDIVIDUAL STOCKS BY LOOKING FOR COMPANIES WITH ONE OR MORE
OF THE FOLLOWING CHARACTERISTICS:
STRONG STRATEGIC PROFILES (E.G., STRONG MARKET POSITION, BENEFITS FROM
TECHNOLOGY, CAPITAL APPRECIATION IN A MATURE MARKET AND HIGH BARRIERS TO
ENTRY)
IMPROVING MARKET SHARE IN CONSOLIDATING INDUSTRIES
LOW PRICE TO EARNINGS AND PRICE TO BOOK RATIOS, STRONG CASH FLOW AND
IMPROVING FUNDAMENTALS
FIXED INCOME GROUP
THIS TEAM SELECTS INDIVIDUAL BONDS EMPHASIZING BOND MARKET SECTORS AND
SECURITIES THAT IT BELIEVES OFFER YIELDS SUFFICIENT TO COMPENSATE THE INVESTOR
FOR THE RISKS SPECIFIC TO THE SECTOR OR SECURITY. IN EVALUATING BONDS, THE
ADVISOR CONSIDERS:
INTEREST RATE SENSITIVITY OF PARTICULAR SECTORS AND SECURITIES
NARROWING OR WIDENING OF INTEREST RATE SPREADS BETWEEN SECTORS,
SECURITIES OF DIFFERENT CREDIT QUALITY OR SECURITIES OF DIFFERENT MATURITIES
FOR MORTGAGE-RELATED AND ASSET-BACKED SECURITIES, ANTICIPATED CHANGES IN
AVERAGE PREPAYMENT RATES
<PAGE>
GOALS AND STRATEGIES
DEFENSIVE SERIES
INVESTMENT GOALS
PRIMARY: PRESERVATION OF CAPITAL.
SECONDARY: LONG-TERM GROWTH OF CAPITAL.
KEY INVESTMENTS AND STRATEGIES
THE SERIES INVESTS PRIMARILY IN FIXED INCOME SECURITIES OF THE U.S. GOVERNMENT
AND U.S. COMPANIES, ALTHOUGH IT MAY ALSO INVEST IN EQUITY SECURITIES. THE
ADVISOR TYPICALLY FOCUSES ON FIXED INCOME SECURITIES WITH SHORT TO
INTERMEDIATE TERM MATURITIES OF 3 TO 5 YEARS BUT MAY ALSO INVEST TO A LIMITED
EXTENT IN LONGER TERM SECURITIES (SUCH AS BONDS WITH MATURITIES OF 10 YEARS OR
MORE) AND STOCKS. THE FUND MAY ALSO INVEST IN AMERICAN DEPOSITORY RECEIPTS
(ADRS) AND OTHER U.S. DOLLAR DENOMINATED SECURITIES OF FOREIGN ISSUERS,
INCLUDING THOSE IN EMERGING MARKETS. IN PURSUIT OF THE SERIES' PRIMARY GOAL,
THE ADVISOR SEEKS TO PROTECT CAPITAL WHILE GENERATING INCOME. THE ADVISOR MAY
SIMULTANEOUSLY SEEK GROWTH OPPORTUNITIES.
THE PIE CHARTS BELOW DEMONSTRATE HOW THE MAKE UP OF THE PORTFOLIO HAS VARIED
IN THE PAST. DEPENDING ON THE ADVISOR'S VIEW OF CURRENT OR ANTICIPATED MARKET
TRENDS, HOWEVER, THE SERIES' MAKE UP MAY VARY FROM THESE HISTORICAL HIGH AND
LOW STOCK EXPOSURES.
HISTORICAL HIGH & LOW STOCK EXPOSURES FROM 6/30/96 THROUGH 9/30/98:
[TWO PIE CHARTS, HIGH ON THE LEFT AND LOW ON THE RIGHT, REFLECTING THE PAST
HIGH AND LOW STOCK EXPOSURES DURING THE PERIOD 6/30/96 THROUGH 9/30/98. THE
RESULTS IN THE HIGH CHART SHOW BONDS AT 76.8%, CASH AT 3.8% AND STOCKS AT
19.4%. THE RESULTS IN THE LOW CHART SHOW BONDS AT 71.0%, CASH AT 22.8% AND
STOCKS AT 6.2%.]
SUMMARY OF PAST PERFORMANCE
THE BAR CHART AND TOTAL RETURN TABLE INDICATE THE RISKS OF INVESTING IN CLASS
A SHARES OF THE SERIES. NO CLASS B, C, D OR E SHARES WERE OUTSTANDING DURING
THE PAST YEAR. CLASS B, C, D AND E SHARES WOULD HAVE DIFFERENT PERFORMANCE
DUE TO THEIR DIFFERENT EXPENSES. THE BAR CHART SHOWS CHANGES IN THE
PERFORMANCE OF THE CLASS A SHARES OF THE SERIES FOR EACH FULL CALENDAR YEAR
SINCE ITS INCEPTION. THE TOTAL RETURN TABLE SHOWS HOW THE AVERAGE ANNUAL
TOTAL RETURNS FOR THE CLASS A SHARES FOR DIFFERENT CALENDAR PERIODS COMPARE TO
THOSE OF THE LEHMAN BROTHERS INTERMEDIATE BOND INDEX AND A BLENDED INDEX, 15%
OF WHICH IS THE STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX AND 85% OF
WHICH IS THE LEHMAN BROTHERS INTERMEDIATE BOND INDEX. SINCE THE SERIES' ASSET
ALLOCATION WILL VARY OVER TIME, THE SERIES' PORTFOLIO MAY NOT MATCH THE
BENCHMARKS' PORTFOLIOS AT ANY GIVEN TIME.
THE LEHMAN BROTHERS INTERMEDIATE BOND INDEX IS AN UNMANAGED INDEX OF CORPORATE
AND GOVERNMENT BONDS WITH MATURITIES RANGING FROM ONE TO TEN YEARS.
THE S&P 500 INDEX IS AN UNMANAGED INDEX OF COMMON STOCKS.
[BAR CHART SHOWING THE PERCENT TOTAL RETURN FOR THE DEFENSIVE SERIES FOR 1996,
1997 AND 1998, WITH CALENDAR YEARS ENDED DECEMBER 31ST. THE RESULTS ARE 3.44%
FOR 1996, 9.77% FOR 1997 AND NO RESULT FOR 1998, AS THE YEAR HAS NOT ENDED.]
<TABLE>
<CAPTION>
AVG. ANNUAL TOTAL RETURNS
(FOR PERIODS ENDED 12/31/98) 1 YEAR SINCE INCEPTION ON 11/1/95
<S> <C> <C>
CLASS A SHARES XX.XX% XX.XX%
- --------------------------- ---------- ------
INDICES:
LEHMAN BROTHERS INTERMED.
BOND INDEX XX.XX% XX.XX%
----------------- ------
15%-85% BLENDED INDEX XX.XX% XX.XX%
----------------- ------
QUARTERLY RETURNS
HIGHEST: X.XX% IN XX QUARTER 19XX
- --------------------------- -------------------------
LOWEST: X.XX% IN XX QUARTER 19XX
- --------------------------- -------------------------
</TABLE>
PAST PERFORMANCE DOES NOT NECESSARILY INDICATE HOW THE SERIES WILL PERFORM IN
THE FUTURE.
<PAGE>
GOALS AND STRATEGIES
DEFENSIVE SERIES
PRINCIPAL RISKS OF INVESTING IN THE SERIES
BECAUSE THE SERIES INVESTS PRINCIPALLY IN BONDS, THE VALUE OF YOUR INVESTMENT
WILL FLUCTUATE WITH CHANGES IN INTEREST RATES. THIS MEANS THAT YOU COULD LOSE
MONEY ON YOUR INVESTMENT IN THE SERIES OR THE SERIES COULD UNDERPERFORM IF ANY
OF THE FOLLOWING OCCURS:
INTEREST RATES GO UP, WHICH WILL MAKE BOND PRICES GO DOWN AND REDUCE THE
VALUE OF THE SERIES' BOND PORTFOLIO.
THE ISSUER OF A BOND OWNED BY THE SERIES DEFAULTS ON ITS OBLIGATION TO
PAY PRINCIPAL AND/OR INTEREST OR HAS ITS CREDIT RATING DOWNGRADED. THIS RISK
IS HIGHER FOR LOWER QUALITY BONDS.
BECAUSE THE SERIES MAY ALSO INVEST IN STOCKS AND U.S. DOLLAR DENOMINATED
SECURITIES OF FOREIGN ISSUERS, THE SERIES CARRIES ADDITIONAL RISKS. THE VALUE
OF YOUR INVESTMENT MAY DECLINE IF THE U.S. AND/OR FOREIGN STOCK MARKETS
DECLINE OR AN ADVERSE EVENT, SUCH AS AN UNFAVORABLE EARNINGS REPORT, DEPRESSES
THE VALUE OF A PARTICULAR COMPANY'S STOCK. PRICES OF FOREIGN SECURITIES MAY
GO DOWN BECAUSE OF FOREIGN GOVERNMENT ACTIONS, POLITICAL INSTABILITY OR THE
MORE LIMITED AVAILABILITY OF ACCURATE INFORMATION ABOUT FOREIGN COMPANIES.
THESE RISKS MAY BE MORE SEVERE FOR SECURITIES OF ISSUERS IN EMERGING MARKETS.
THE VALUE OF YOUR INVESTMENT MAY ALSO DECLINE IF THE ADVISOR'S JUDGMENTS ABOUT
THE ATTRACTIVENESS, RELATIVE VALUE OR POTENTIAL APPRECIATION OF A PARTICULAR
SECTOR, SECURITY, COUNTRY OR HEDGING STRATEGY PROVE TO BE INCORRECT.
FEES AND EXPENSES OF THE SERIES
SINCE NO CLASS B, C, D OR E SHARES WERE OUTSTANDING DURING THE PAST YEAR,
OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT FISCAL YEAR.
THIS TABLE DESCRIBES THE FEES AND EXPENSES YOU MAY PAY IF YOU INVEST IN SHARES
OF THE SERIES.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 10/31/98 CLASS B CLASS C CLASS D
<S> <C> <C> <C>
SHAREHOLDER FEES (PAID
DIRECTLY FROM YOUR INVESTMENT) NONE NONE NONE
- ------------------------------ -------- -------- --------
ANNUAL FUND OPERATING EXPENSES
- ------------------------------
(EXPENSES THAT ARE DEDUCTED FROM
ASSETS OF THE SERIES)
MANAGEMENT FEE 0.80% 0.80% 0.80%
-------- -------- --------
DISTRIBUTION AND SERVICE 1.00% 0.75% 0.50%
-------- -------- --------
(RULE 12B-1) FEES
OTHER EXPENSES 0.93% 0.93% 0.93%
-------- -------- --------
TOTAL ANNUAL FUND OPERATING EXPENSES 2.73% 2.48% 2.23%
-------- -------- --------
BECAUSE THE ADVISOR HAS AGREED TO LIMIT OPERATING EXPENSES,
ACTUAL EXPENSES WOULD HAVE BEEN:
- ------------------------------------------------------------------
MANAGEMENT FEE 0.07% 0.07% 0.07%
- ------------------------------------ -------- -------- --------
DISTRIBUTION AND SERVICE 1.00% 0.75% 0.50%
-------- -------- --------
(RULE 12B-1) FEES
OTHER EXPENSES 0.93% 0.93% 0.93%
-------- -------- --------
TOTAL ANNUAL FUND OPERATING EXPENSES 2.00% 1.75% 1.50%
-------- -------- --------
THE ADVISOR MAY CHANGE OR ELIMINATE THESE EXPENSE LIMITS AT ANY TIME.
- ----------------------------------------------------------------------
FOR THE YEAR ENDED 10/31/98 CLASS E
<S> <C>
SHAREHOLDER FEES (PAID DIRECTLY FROM YOUR INVESTMENT) NONE
- -------------------------------------------------------- --------
ANNUAL FUND OPERATING EXPENSES
- --------------------------------------------------------
(EXPENSES THAT ARE DEDUCTED FROM ASSETS OF THE
SERIES)
MANAGEMENT FEE 0.80%
--------
DISTRIBUTION AND SERVICE 0.25%
--------
(RULE 12B-1) FEES
OTHER EXPENSES 0.93%
--------
TOTAL ANNUAL FUND OPERATING EXPENSES 1.98%
--------
BECAUSE THE ADVISOR HAS AGREED TO LIMIT OPERATING EXPENSES,
ACTUAL EXPENSES WOULD HAVE BEEN:
- ----------------------------------------------------------------------
MANAGEMENT FEE 0.07%
- ------------------------------------------------------- --------
DISTRIBUTION AND SERVICE 0.25%
--------
(RULE 12B-1) FEES
OTHER EXPENSES 0.93%
--------
TOTAL ANNUAL FUND OPERATING EXPENSES 1.25%
--------
THE ADVISOR MAY CHANGE OR ELIMINATE THESE EXPENSE LIMITS AT ANY TIME.
- ------------------------------------------------------------------------
</TABLE>
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
SERIES WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT:
YOU INVEST $10,000 FOR THE PERIODS SHOWN
YOU REDEEM AT THE END OF EACH PERIOD
THE FUND'S OPERATING EXPENSES REMAIN THE SAME
YOUR INVESTMENT HAS A 5% RETURN EACH YEAR
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, UNDER THESE ASSUMPTIONS
YOUR COSTS WOULD BE AFTER:
<TABLE>
<CAPTION>
CLASS B CLASS C CLASS D CLASS E
<S> <C> <C> <C> <C>
1 YEAR $276 $251 $226 $ 201
- ----------------------------------------- ---- ---- ---- ----
3 YEARS $847 $773 $697 $ 621
- ----------------------------------------- ---- ---- ---- ----
WITH EXPENSE LIMITS, YOUR COSTS WOULD BE:
- -----------------------------------------
1 YEAR $203 $178 $153 $ 127
---- ---- ---- -----
3 YEARS $627 $551 $474 $ 397
- ----------------------------------------- ---- ---- ---- -----
</TABLE>
<PAGE>
GOALS AND STRATEGIES
BLENDED ASSET SERIES I
INVESTMENT GOALS
EQUAL EMPHASIS ON LONG-TERM GROWTH OF CAPITAL AND PRESERVATION OF CAPITAL.
KEY INVESTMENTS AND STRATEGIES
THE SERIES INVESTS PRIMARILY IN STOCKS AND INTERMEDIATE TO LONG-TERM, FIXED
INCOME SECURITIES OF THE U.S. GOVERNMENT AND U.S. COMPANIES. THE SERIES MAY
ALSO INVEST IN ADRS AND OTHER U.S. DOLLAR DENOMINATED SECURITIES OF FOREIGN
ISSUERS, INCLUDING THOSE IN EMERGING MARKETS. THE ADVISOR TYPICALLY FOCUSES
ON FIXED INCOME SECURITIES WITH MATURITIES OF 5 TO 10 YEARS BUT MAY INVEST IN
SECURITIES OF ANY MATURITY. THE ADVISOR SEEKS TO BALANCE CONFLICTING GOALS OF
GROWTH OF CAPITAL AND PRESERVATION OF CAPITAL IN ORDER TO GENERATE A MORE
STABLE RATE OF GROWTH FOR THIS PORTFOLIO RELATIVE TO AN INVESTMENT IN THE
GENERAL STOCK MARKET.
THE PIE CHARTS BELOW DEMONSTRATE HOW THE MAKE UP OF THE PORTFOLIO HAS VARIED
IN THE PAST. DEPENDING ON THE ADVISOR'S VIEW OF CURRENT OR ANTICIPATED MARKET
TRENDS, HOWEVER, THE SERIES' MAKE UP MAY VARY FROM THESE HISTORICAL HIGH AND
LOW STOCK EXPOSURES.
HISTORICAL HIGH & LOW STOCK EXPOSURES FROM 12/31/95 THROUGH 9/30/98
[TWO PIE CHARTS, HIGH ON THE LEFT AND LOW ON THE RIGHT, REFLECTING THE PAST
HIGH AND LOW STOCK EXPOSURES DURING THE PERIOD 12/31/95 THROUGH 9/30/98. THE
RESULTS IN THE HIGH CHART SHOW BONDS AT 47.6%, CASH AT 2.3% AND STOCKS AT
50.1%. THE RESULTS IN THE LOW CHART SHOW BONDS AT 64.9%, CASH AT 16.7% AND
STOCKS AT 18.4%.]
SUMMARY OF PAST PERFORMANCE
THE BAR CHART AND TOTAL RETURN TABLE INDICATE THE RISKS OF INVESTING IN THE
CLASS A SHARES OF THE SERIES. NO CLASS B, C, D OR E SHARES WERE OUTSTANDING
DURING THE PAST YEAR. CLASS B, C, D AND E SHARES WOULD HAVE DIFFERENT
PERFORMANCE DUE TO THEIR DIFFERENT EXPENSES. THE BAR CHART SHOWS CHANGES IN
THE PERFORMANCE OF THE CLASS A SHARES OF THE SERIES FOR EACH FULL CALENDAR
YEAR SINCE ITS INCEPTION. THE TOTAL RETURN TABLE SHOWS HOW THE AVERAGE ANNUAL
TOTAL RETURNS FOR THE CLASS A SHARES FOR DIFFERENT CALENDAR PERIODS COMPARE TO
THOSE OF THE LEHMAN BROTHERS INTERMEDIATE BOND INDEX AND A BLENDED INDEX, 30%
OF WHICH IS THE STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX AND 70% OF
WHICH IS THE LEHMAN BROTHERS INTERMEDIATE BOND INDEX. SINCE THE SERIES' ASSET
ALLOCATION WILL VARY OVER TIME, THE SERIES' PORTFOLIO MAY NOT MATCH THE
BENCHMARKS' PORTFOLIOS AT ANY GIVEN TIME.
THE LEHMAN BROTHERS INTERMEDIATE BOND INDEX IS AN UNMANAGED INDEX OF CORPORATE
AND GOVERNMENT BONDS WITH MATURITIES RANGING FROM ONE TO TEN YEARS.
THE S&P 500 INDEX IS AN UNMANAGED INDEX OF COMMON STOCKS.
[BAR CHART SHOWING THE PERCENT TOTAL RETURN FOR THE BLENDED ASSET SERIES I FOR
1994, 1995, 1996, 1997 AND 1998, WITH CALENDAR YEARS ENDED DECEMBER 31ST. THE
RESULTS ARE - 0.80% FOR 1994, 21.08% FOR 1995, 7.73% FOR 1996, 13.95% FOR 1997
AND NO RESULT FOR 1998, AS THE YEAR HAS NOT ENDED.]
<TABLE>
<CAPTION>
AVG. ANNUAL TOTAL RETURNS
(FOR PERIODS ENDED 12/31/98) 1 YEAR 5 YEARS SINCE INCEPTION
ON 9/15/93
<S> <C> <C> <C>
CLASS A SHARES XX.XX% XX.XX% XX.XX%
- ---------------------------- ------------- -------- -----------
INDICES:
- ----------------------------
LEHMAN BROTHERS
INTERMED. BOND INDEX XX.XX% XX.XX% XX.XX%
------------- -------- -----------
30%-70% BLENDED INDEX XX.XX% XX.XX% XX.XX%
------------- -------- -----------
QUARTERLY RETURNS
HIGHEST: XX.XX% IN XX QUARTER 19XX
--------------------------
LOWEST: XX.XX% IN XX QUARTER 19XX
- ---------------------------- --------------------------
</TABLE>
PAST PERFORMANCE DOES NOT NECESSARILY INDICATE HOW THE SERIES WILL PERFORM IN
THE FUTURE.
<PAGE>
GOALS AND STRATEGIES
BLENDED ASSET SERIES I
PRINCIPAL RISKS OF INVESTING IN THE SERIES
BECAUSE THE SERIES INVESTS IN BOTH STOCKS AND BONDS, THE VALUE OF YOUR
INVESTMENT WILL FLUCTUATE IN RESPONSE TO STOCK MARKET MOVEMENTS AND CHANGES IN
INTEREST RATES. THIS MEANS THAT YOU COULD LOSE MONEY ON YOUR INVESTMENT IN
THE SERIES OR THE SERIES COULD UNDERPERFORM IF ANY OF THE FOLLOWING OCCURS:
U.S. AND/OR FOREIGN STOCK MARKETS DECLINE.
AN ADVERSE EVENT, SUCH AS AN UNFAVORABLE EARNINGS REPORT, DEPRESSES THE
VALUE OF A PARTICULAR COMPANY'S STOCK.
INTEREST RATES GO UP, WHICH WILL MAKE BOND PRICES GO DOWN AND REDUCE THE
VALUE OF THE SERIES' BOND PORTFOLIO.
THE ISSUER OF A BOND OWNED BY THE SERIES DEFAULTS ON ITS OBLIGATION TO
PAY PRINCIPAL AND/OR INTEREST OR HAS ITS CREDIT RATING DOWNGRADED. THIS RISK
IS HIGHER FOR LOWER QUALITY BONDS.
BECAUSE THE SERIES MAY INVEST IN U.S. DOLLAR DENOMINATED SECURITIES OF FOREIGN
ISSUERS, THE VALUE OF YOUR INVESTMENT MAY DECLINE IF PRICES OF FOREIGN
SECURITIES GO DOWN BECAUSE OF FOREIGN GOVERNMENT ACTIONS, POLITICAL
INSTABILITY OR THE MORE LIMITED AVAILABILITY OF ACCURATE INFORMATION ABOUT
FOREIGN COMPANIES. THESE RISKS MAY BE MORE SEVERE FOR SECURITIES OF ISSUERS
IN EMERGING MARKETS.
THE VALUE OF YOUR INVESTMENT MAY ALSO DECLINE IF THE ADVISOR'S JUDGMENTS ABOUT
THE ATTRACTIVENESS, RELATIVE VALUE OR POTENTIAL APPRECIATION OF A PARTICULAR
SECTOR, SECURITY, COUNTRY OR HEDGING STRATEGY PROVE TO BE INCORRECT.
FEES AND EXPENSES OF THE SERIES
SINCE NO CLASS B, C, D OR E SHARES WERE OUTSTANDING DURING THE PAST YEAR,
OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT FISCAL YEAR.
THIS TABLE DESCRIBES THE FEES AND EXPENSES YOU MAY PAY IF YOU INVEST IN SHARES
OF THE SERIES.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 10/31/98 CLASS B CLASS C CLASS D CLASS E
<S> <C> <C> <C> <C>
SHAREHOLDER FEES (PAID
DIRECTLY FROM YOUR INVESTMENT) NONE NONE NONE NONE
- ----------------------------------- -------- -------- -------- --------
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM
ASSETS OF THE SERIES)
- -----------------------------------
MANAGEMENT FEE 1.00% 1.00% 1.00% 1.00%
-------- -------- -------- --------
DISTRIBUTION AND SERVICE 1.00% 0.75% 0.50% 0.25%
-------- -------- -------- -------
(RULE 12B-1) FEES
OTHER EXPENSES 0.23% 0.23% 0.23% 0.23%
-------- -------- -------- -------
TOTAL ANNUAL FUND OPERATING EXPENSES 2.23% 1.98% 1.73% 1.48%
-------- -------- -------- --------
BECAUSE THE ADVISOR HAS AGREED TO LIMIT OPERATING
EXPENSES, ACTUAL EXPENSES WOULD HAVE BEEN:
MANAGEMENT FEE 0.97% 0.97% 0.97% 0.97%
-------- -------- -------- ------
DISTRIBUTION AND SERVICE 1.00% 0.75% 0.50% 0.25%
-------- -------- -------- -------
(RULE 12B-1) FEES
OTHER EXPENSES 0.23% 0.23% 0.23% 0.23%
-------- -------- -------- -------
TOTAL ANNUAL FUND OPERATING EXPENSES 2.20% 1.95% 1.70% 1.45%
-------- -------- -------- -------
THE ADVISOR MAY CHANGE OR ELIMINATE THESE EXPENSE LIMITS AT ANY TIME.
- ----------------------------------------------------------------------
</TABLE>
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
SERIES WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT:
YOU INVEST $10,000 FOR THE PERIODS SHOWN
YOU REDEEM AT THE END OF EACH PERIOD
THE FUND'S OPERATING EXPENSES REMAIN THE SAME
YOUR INVESTMENT HAS A 5% RETURN EACH YEAR
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, UNDER THESE ASSUMPTIONS
YOUR COSTS WOULD BE AFTER:
<TABLE>
<CAPTION>
CLASS B CLASS C CLASS D CLASS E
<S> <C> <C> <C> <C>
1 YEAR $226 $201 $176 $ 151
- ----------------------------------------- ---- ---- ---- -----
3 YEARS $697 $621 $545 $ 468
- ----------------------------------------- ---- ---- ---- -----
WITH EXPENSE LIMITS, YOUR COSTS WOULD BE:
- -----------------------------------------
1 YEAR $223 $198 $173 $ 148
- ----------------------------------------- ---- ---- ---- -----
3 YEARS $688 $612 $536 $ 459
- ----------------------------------------- ---- ---- ---- ----
</TABLE>
<PAGE>
GOALS AND STRATEGIES
BLENDED ASSET SERIES II
INVESTMENT GOALS
PRIMARY: LONG-TERM GROWTH OF CAPITAL.
SECONDARY: PRESERVATION OF CAPITAL.
KEY INVESTMENTS AND STRATEGIES
THE SERIES INVESTS PRIMARILY IN STOCKS AND SECURITIES CONVERTIBLE INTO STOCK,
BUT MAY ALSO INVEST A SUBSTANTIAL PORTION OF ITS ASSETS IN LONG-TERM, FIXED
INCOME SECURITIES OF THE U.S. GOVERNMENT AND U.S. COMPANIES. THE SERIES MAY
ALSO INVEST IN ADRS AND OTHER U.S. DOLLAR DENOMINATED SECURITIES OF FOREIGN
ISSUERS, INCLUDING THOSE IN EMERGING MARKETS. THE ADVISOR TYPICALLY FOCUSES
ON FIXED INCOME SECURITIES WITH MATURITIES OF 7 TO 20 YEARS BUT MAY INVEST IN
SECURITIES OF ANY MATURITY. BY FOCUSING ON GROWTH OF CAPITAL AND, TO A
LESSER
EXTENT ON PRESERVATION OF CAPITAL, THE ADVISOR SEEKS TO PARTICIPATE, OVER THE
LONG TERM, IN THE GROWTH OF THE STOCK MARKET, BUT WITH LESS VOLATILITY THAN IS
TYPICALLY ASSOCIATED WITH AN INVESTMENT IN THE GENERAL STOCK MARKET.
THE PIE CHARTS BELOW DEMONSTRATE HOW THE MAKE UP OF THE PORTFOLIO HAS VARIED
IN THE PAST. DEPENDING ON THE ADVISOR'S VIEW OF CURRENT OR ANTICIPATED MARKET
TRENDS, HOWEVER, THE SERIES' MAKE UP MAY VARY FROM THESE HISTORICAL HIGH AND
LOW STOCK EXPOSURES.
HISTORICAL HIGH & LOW STOCK EXPOSURES FROM 12/31/95 THROUGH 9/30/98:
[TWO PIE CHARTS, HIGH ON THE LEFT AND LOW ON THE RIGHT, REFLECTING THE PAST
HIGH AND LOW STOCK EXPOSURES DURING THE PERIOD 12/31/95 THROUGH 9/30/98. THE
RESULTS IN THE HIGH CHART SHOW BONDS AT 31.4%, CASH AT 2.6% AND STOCKS AT
66.0%. THE RESULTS IN THE LOW CHART SHOW BONDS AT 43.70%, CASH AT 11.2% AND
STOCKS AT 45.1%.]
SUMMARY OF PAST PERFORMANCE
THE BAR CHART AND TOTAL RETURN TABLE INDICATE THE RISKS OF INVESTING IN THE
CLASS A SHARES OF THE SERIES. NO CLASS B, C, D OR E SHARES WERE OUTSTANDING
DURING THE PAST YEAR. CLASS B, C, D AND E SHARES WOULD HAVE DIFFERENT
PERFORMANCE DUE TO THEIR DIFFERENT EXPENSES. THE BAR CHART SHOWS CHANGES IN
THE PERFORMANCE OF THE CLASS A SHARES OF THE SERIES FOR EACH FULL CALENDAR
YEAR SINCE ITS INCEPTION. THE TOTAL RETURN TABLE SHOWS HOW THE AVERAGE ANNUAL
TOTAL RETURNS FOR THE CLASS A SHARES FOR DIFFERENT CALENDAR PERIODS COMPARE TO
THOSE OF THE LEHMAN BROTHERS INTERMEDIATE BOND INDEX AND A BLENDED INDEX, 50%
OF WHICH IS THE STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX AND 50% OF
WHICH IS THE LEHMAN BROTHERS AGGREGATE BOND INDEX. SINCE THE SERIES' ASSET
ALLOCATION WILL VARY OVER TIME, THE SERIES' PORTFOLIO MAY NOT MATCH THE
BENCHMARKS' PORTFOLIOS AT ANY GIVEN TIME.
THE LEHMAN BROTHERS INTERMEDIATE BOND INDEX IS AN UNMANAGED INDEX OF CORPORATE
AND GOVERNMENT BONDS WITH MATURITIES RANGING FROM ONE TO TEN YEARS.
THE S&P 500 INDEX IS AN UNMANAGED INDEX OF COMMON STOCKS.
THE LEHMAN BROTHERS AGGREGAGE BOND INDEX IS AN UNMANAGED INDEX OF INVESTMENT
GRADE BONDS AND MORTGAGE-BACKED SECURITIES WITH
MATURITIES OF AT LEAST ONE YEAR.
[BAR CHART SHOWING THE PERCENT TOTAL RETURN FOR THE BLENDED ASSET SERIES II
FOR 1994, 1995, 1996, 1997 AND 1998, WITH CALENDAR YEARS ENDED DECEMBER 31ST.
THE RESULTS ARE 3.52% FOR 1994, 32.64% FOR 1995, 14.06% FOR 1996, 17.54% FOR
1997 AND NO RESULT FOR 1998, AS THE YEAR HAS NOT ENDED.]
<TABLE>
<CAPTION>
AVG. ANNUAL TOTAL RETURNS
(FOR PERIODS ENDED 12/31/98) 1 YEAR 5 YEARS SINCE INCEPTION
ON 10/12/93
<S> <C> <C> <C>
CLASS A SHARES XX.XX% XX.XX% XX.XX%
- ---------------------------- ------------- -------- ----------
INDICES:
- ----------------------------
INTERMED. BOND INDEX XX.XX% XX.XX% XX.XX%
------------- -------- ---------
50%-50% BLENDED INDEX XX.XX% XX.XX% XX.XX%
------------- -------- ---------
QUARTERLY RETURNS
HIGHEST: XX.XX% IN XX QUARTER 19XX
--------------------------
LOWEST: XX.XX% IN XX QUARTER 19XX
- ---------------------------- --------------------------
</TABLE>
PAST PERFORMANCE DOES NOT NECESSARILY INDICATE HOW THE SERIES WILL PERFORM IN
THE FUTURE.
<PAGE>
GOALS AND STRATEGIES
BLENDED ASSET SERIES II
PRINCIPAL RISKS OF INVESTING IN THE SERIES
BECAUSE THE SERIES INVESTS IN BOTH STOCKS AND BONDS, THE VALUE OF YOUR
INVESTMENT WILL FLUCTUATE IN RESPONSE TO STOCK MARKET MOVEMENTS AND CHANGES IN
INTEREST RATES. THIS MEANS THAT YOU COULD LOSE MONEY ON YOUR INVESTMENT IN
THE SERIES OR THE SERIES COULD UNDERPERFORM IF ANY OF THE FOLLOWING OCCURS:
U.S. AND/OR FOREIGN STOCK MARKETS DECLINE.
AN ADVERSE EVENT, SUCH AS AN UNFAVORABLE EARNINGS REPORT, DEPRESSES THE
VALUE OF A PARTICULAR COMPANY'S STOCK.
INTEREST RATES GO UP, WHICH WILL MAKE BOND PRICES GO DOWN AND REDUCE THE
VALUE OF THE SERIES' BOND PORTFOLIO.
THE ISSUER OF A BOND OWNED BY THE SERIES DEFAULTS ON ITS OBLIGATION TO
PAY PRINCIPAL AND/OR INTEREST OR HAS ITS CREDIT RATING DOWNGRADED. THIS RISK
IS HIGHER FOR LOWER QUALITY BONDS.
BECAUSE THE SERIES MAY INVEST IN U.S. DOLLAR DENOMINATED SECURITIES OF FOREIGN
ISSUERS, THE VALUE OF YOUR INVESTMENT MAY DECLINE IF PRICES OF FOREIGN
SECURITIES GO DOWN BECAUSE OF FOREIGN GOVERNMENT ACTIONS, POLITICAL
INSTABILITY OR THE MORE LIMITED AVAILABILITY OF ACCURATE INFORMATION ABOUT
FOREIGN COMPANIES. THESE RISKS MAY BE MORE SEVERE FOR SECURITIES OF ISSUERS
IN EMERGING MARKETS.
THE VALUE OF YOUR INVESTMENT MAY ALSO DECLINE IF THE ADVISOR'S JUDGMENTS ABOUT
THE ATTRACTIVENESS, RELATIVE VALUE OR POTENTIAL APPRECIATION OF A PARTICULAR
SECTOR, SECURITY, COUNTRY OR HEDGING STRATEGY PROVE TO BE INCORRECT.
FEES AND EXPENSES OF THE SERIES
SINCE NO CLASS B, C, D OR E SHARES WERE OUTSTANDING DURING THE PAST YEAR,
OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT FISCAL YEAR.
THIS TABLE DESCRIBES THE FEES AND EXPENSES YOU MAY PAY IF YOU INVEST IN SHARES
OF THE SERIES.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 10/31/98 CLASS B CLASS C CLASS D CLASS E
<S> <C> <C> <C> <C>
SHAREHOLDER FEES(PAID
DIRECTLY FROM YOUR INVESTMENT) NONE NONE NONE NONE
- ---------------------------------- ------- ------ ------- --------
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM
ASSETS OF THE SERIES)
- ------------------------------------
MANAGEMENT FEE 1.00% 1.00% 1.00% 1.00%
------ -------- -------- --------
DISTRIBUTION AND SERVICE 1.00% 0.75% 0.50% 0.25%
-------- -------- -------- --------
(RULE 12B-1) FEES
OTHER EXPENSES 0.15% 0.15% 0.15% 0.15%
-------- -------- -------- --------
TOTAL ANNUAL FUND OPERATING EXPENSES 2.15% 1.90% 1.65% 1.40%
- ------------------------------------ -------- -------- -------- --------
</TABLE>
THE ADVISOR HAS AGREED TO LIMIT OPERATING EXPENSES, EXCLUDING DISTRIBUTION AND
SERVICE (RULE 12B-1) FEES, AT 1.20%. THE ADVISOR MAY CHANGE OR ELIMINATE
THESE EXPENSE LIMITS AT ANY TIME.
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
SERIES WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT:
YOU INVEST $10,000 FOR THE PERIODS SHOWN
YOU REDEEM AT THE END OF EACH PERIOD
THE FUND'S OPERATING EXPENSES REMAIN THE SAME
YOUR INVESTMENT HAS A 5% RETURN EACH YEAR
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, UNDER THESE ASSUMPTIONS
YOUR COSTS WOULD BE AFTER:
<TABLE>
<CAPTION>
CLASS B CLASS C CLASS D CLASS E
<S> <C> <C> <C> <C>
1 YEAR $218 $193 $ 168 $ 143
- ------- ---- ---- -------- --------
3 YEARS $673 $597 $ 520 $ 443
- ------- ---- ---- -------- --------
</TABLE>
GOALS AND STRATEGIES
MAXIMUM HORIZON SERIES
INVESTMENT GOALS
LONG-TERM GROWTH OF CAPITAL.
KEY INVESTMENTS AND STRATEGIES
THE SERIES INVESTS PRIMARILY IN COMMON STOCKS, BUT MAY INVEST TO A LIMITED
EXTENT IN FIXED INCOME SECURITIES OF THE U.S. GOVERNMENT AND U.S. COMPANIES.
THE SERIES MAY ALSO INVEST IN ADRS AND OTHER U.S. DOLLAR DENOMINATED
SECURITIES OF FOREIGN ISSUERS, INCLUDING THOSE IN EMERGING MARKETS. THE
ADVISOR SEEKS TO GENERATE THE HIGH LEVEL OF LONG-TERM CAPITAL GROWTH TYPICALLY
ASSOCIATED WITH AN INVESTMENT IN THE GENERAL STOCK MARKET FOR THIS PORTFOLIO.
THE PIE CHARTS BELOW DEMONSTRATE HOW THE MAKE UP OF THE PORTFOLIO HAS VARIED
IN THE PAST. DEPENDING ON THE ADVISOR'S VIEW OF CURRENT OR ANTICIPATED MARKET
TRENDS, HOWEVER, THE SERIES' MAKE UP MAY VARY FROM THESE HISTORICAL HIGH AND
LOW STOCK EXPOSURES.
HISTORICAL HIGH & LOW STOCK EXPOSURES FROM 6/30/96 THROUGH 9/30/98:
[TWO PIE CHARTS, HIGH ON THE LEFT AND LOW ON THE RIGHT, REFLECTING THE PAST
HIGH AND LOW STOCK EXPOSURES DURING THE PERIOD 6/30/96 THROUGH 9/30/98. THE
RESULTS IN THE HIGH CHART SHOW BONDS AT 2.2%, CASH AT 2.3% AND STOCKS AT
95.5%. THE RESULTS IN THE LOW CHART SHOW BONDS AT 27.3%, STOCKS AT 72.7% AND
CASH NOT REPRESENTED, AS IT WAS 0.00%.]
SUMMARY OF PAST PERFORMANCE
THE BAR CHART AND TOTAL RETURN TABLE INDICATE THE RISKS OF INVESTING IN THE
CLASS A SHARES OF THE SERIES. NO CLASS B, C, D OR E SHARES WERE OUTSTANDING
DURING THE PAST YEAR. CLASS B, C, D AND E SHARES WOULD HAVE DIFFERENT
PERFORMANCE DUE TO THEIR DIFFERENT EXPENSES. THE BAR CHART SHOWS CHANGES IN
THE PERFORMANCE OF THE CLASS A SHARES OF THE SERIES FOR EACH FULL CALENDAR
YEAR SINCE ITS INCEPTION. THE TOTAL RETURN TABLE SHOWS HOW THE AVERAGE ANNUAL
TOTAL RETURNS FOR THE CLASS A SHARES FOR DIFFERENT CALENDAR PERIODS COMPARE TO
THOSE OF THE STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX. SINCE THE
SERIES' ASSET ALLOCATION WILL VARY OVER TIME, THE SERIES' PORTFOLIO MAY NOT
MATCH THE BENCHMARK'S PORTFOLIO AT ANY GIVEN TIME.
THE LEHMAN BROTHERS INTERMEDIATE BOND INDEX IS AN UNMANAGED INDEX OF CORPORATE
AND GOVERNMENT BONDS WITH MATURIES RANGING FROM ONE TO TEN YEARS.
THE LEHMAN BROTHERS AGGREGATE BOND INDEX IS AN UNMANAGED INDEX OF INVESTMENT
GRADE BONDS AND MORTGAGE-BACKED SECURITIES WITH MATURITIES OF AT LEAST ONE
YEAR.
THE S&P 500 INDEX IS AN UNMANAGED INDEX OF COMMON STOCKS.
[BAR CHART SHOWING THE PERCENT TOTAL RETURN FOR THE MAXIMUM HORIZON SERIES FOR
1996, 1997 AND 1998, WITH CALENDAR YEARS ENDED DECEMBER 31ST. THE RESULTS ARE
17.57% FOR 1996, 20.39% FOR 1997 AND NO RESULT FOR 1998, AS THE YEAR HAS NOT
ENDED.]
<TABLE>
<CAPTION>
AVG. ANNUAL TOTAL RETURNS
(FOR PERIODS ENDED 12/31/98) 1 YEAR SINCE INCEPTION ON 11/1/95
<S> <C> <C>
CLASS A SHARES XX.XX% XX.XX%
- ---------------------------- --------------- -------
S&P 500 INDEX XX.XX% XX.XX%
- ---------------------------- --------------- -------
QUARTERLY RETURNS
HIGHEST: XX.XX% IN XX QUARTER 19XX
--------------------------
LOWEST: XX.XX% IN XX QUARTER 19XX
- ---------------------------- --------------------------
</TABLE>
PAST PERFORMANCE DOES NOT NECESSARILY INDICATE HOW THE SERIES WILL PERFORM IN
THE FUTURE.
<PAGE>
GOALS AND STRATEGIES
MAXIMUM HORIZON SERIES
PRINCIPAL RISKS OF INVESTING IN THE SERIES
AS WITH ANY GROWTH FUND, THE VALUE OF YOUR INVESTMENT WILL FLUCTUATE IN
RESPONSE TO STOCK MARKET MOVEMENTS. THIS MEANS THAT YOU COULD LOSE MONEY ON
YOUR INVESTMENT IN THE SERIES OR THE SERIES COULD UNDERPERFORM IF ANY OF THE
FOLLOWING OCCURS:
U.S. AND/OR FOREIGN STOCK MARKETS DECLINE.
AN ADVERSE EVENT, SUCH AS AN UNFAVORABLE EARNINGS REPORT, DEPRESSES THE VALUE
OF A PARTICULAR COMPANY'S STOCK.
BECAUSE THE SERIES MAY ALSO INVEST IN BONDS AND U.S. DOLLAR DENOMINATED
SECURITIES OF FOREIGN ISSUERS, THE SERIES CARRIES ADDITIONAL RISKS. IF
INTEREST RATES GO UP, BOND PRICES WILL GENERALLY GO DOWN AND REDUCE THE VALUE
OF THE SERIES' BOND PORTFOLIO. PRICES OF FOREIGN SECURITIES MAY GO DOWN
BECAUSE OF FOREIGN GOVERNMENT ACTIONS, POLITICAL INSTABILITY OR THE MORE
LIMITED AVAILABILITY OF ACCURATE INFORMATION ABOUT FOREIGN COMPANIES. THESE
RISKS MAY BE MORE SEVERE FOR SECURITIES OF ISSUERS IN EMERGING MARKETS.
THE VALUE OF YOUR INVESTMENT MAY ALSO DECLINE IF THE ADVISOR'S JUDGMENTS ABOUT
THE ATTRACTIVENESS, RELATIVE VALUE AND POTENTIAL APPRECIATION OF A PARTICULAR
SECURITY OR STRATEGY PROVE TO BE INCORRECT.
FEES AND EXPENSES OF THE SERIES
SINCE NO CLASS B, C, D OR E SHARES WERE OUTSTANDING DURING THE PAST YEAR,
OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT FISCAL YEAR.
THIS TABLE DESCRIBES THE FEES AND EXPENSES YOU MAY PAY IF YOU INVEST IN SHARES
OF THE SERIES.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 10/31/98 CLASS B CLASS C CLASS D CLASS E
<S> <C> <C> <C> <C>
SHAREHOLDER FEES (PAID DIRECTLY
FROM YOUR INVESTMENT) NONE NONE NONE NONE
- ----------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT
ARE DEDUCTED FROM ASSETS OF THE SERIES)
- -----------------------------------------------
MANAGEMENT FEE 1.00% 1.00% 1.00% 1.00%
----- ----- -------- --------
DISTRIBUTION AND SERVICE 1.00% 0.75% 0.50% 0.25%
----- ----- -------- --------
(RULE 12B-1) FEES
OTHER EXPENSES 0.32% 0.32% 0.32% 0.32%
----- ----- -------- --------
TOTAL ANNUAL FUND OPERATING EXPENSES 2.32% 2.07% 1.82% 1.57%
----- ----- -------- --------
BECAUSE THE ADVISOR HAS AGREED TO LIMIT OPERATING EXPENSES,
ACTUAL EXPENSES WOULD HAVE BEEN:
- -----------------------------------------------------------
MANAGEMENT FEE 0.88% 0.88% 0.88% 0.88%
- ------------------------------------------- ----- ----- -------- --------
DISTRIBUTION AND SERVICE 1.00% 0.75% 0.50% 0.25%
----- ----- -------- --------
(RULE 12B-1) FEES
OTHER EXPENSES 0.32% 0.32% 0.32% 0.32%
----- ----- -------- --------
TOTAL ANNUAL FUND OPERATING EXPENSES 2.20% 1.95% 1.70% 1.45%
----- ----- -------- --------
THE ADVISOR MAY CHANGE OR ELIMINATE THESE EXPENSE LIMITS AT ANY TIME.
- --------------------------------------------------------------------
</TABLE>
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
SERIES WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT:
YOU INVEST $10,000 FOR THE PERIODS SHOWN
YOU REDEEM AT THE END OF EACH PERIOD
THE FUND'S OPERATING EXPENSES REMAIN THE SAME
YOUR INVESTMENT HAS A 5% RETURN EACH YEAR
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, UNDER THESE ASSUMPTIONS
YOUR COSTS WOULD BE AFTER:
<TABLE>
<CAPTION>
CLASS B CLASS C CLASS D CLASS E
<S> <C> <C> <C> <C>
1 YEAR $235 $210 $185 $160
- ----------------------------------------- ---- ---- ---- -----
3 YEARS $724 $649 $573 $496
- ----------------------------------------- ---- ---- ---- -----
WITH EXPENSE LIMITS, YOUR COSTS WOULD BE:
- -----------------------------------------
1 YEAR $223 $198 $173 $148
- ----------------------------------------- ---- ---- ---- ----
3 YEARS $688 $612 $536 $459
- ----------------------------------------- ---- ---- ---- ----
<PAGE>
MORE ABOUT THE SERIES' INVESTMENTS
PRINCIPAL INVESTMENTS
EQUITY EACH SERIES MAY INVEST IN EQUITY SECURITIES OF U.S. AND FOREIGN
COMPANIES. THESE INCLUDE EXCHANGE-TRADED AND OVER-THE-COUNTER (OTC) COMMON
AND PREFERRED STOCKS, WARRANTS, RIGHTS, CONVERTIBLE DEBT SECURITIES, TRUST
CERTIFICATES, PARTNERSHIP INTERESTS AND EQUITY PARTICIPATIONS.
FIXED INCOME EACH SERIES MAY INVEST IN FIXED INCOME SECURITIES OF ANY
MATURITY OR DURATION. THESE SECURITIES MAY BE ISSUED BY THE U.S. GOVERNMENT
OR ANY OF ITS AGENCIES, FOREIGN GOVERNMENTS, SUPRANATIONAL ENTITIES SUCH AS
THE WORLD BANK, AND U.S. AND FOREIGN COMPANIES.
INVESTMENTS IN FIXED INCOME SECURITIES MAY HAVE ALL TYPES OF INTEREST RATE
PAYMENT AND RESET TERMS AND MAY INCLUDE MORTGAGE-BACKED, ASSET-BACKED AND
DERIVATIVE SECURITIES. EACH SERIES INVESTS PRIMARILY IN INVESTMENT GRADE
SECURITIES BUT MAY INVEST UP TO 20% OF ASSETS IN LOWER QUALITY BONDS, COMMONLY
KNOWN AS "JUNK BONDS." THESE BONDS ARE CONSIDERED SPECULATIVE BECAUSE THEY
HAVE A HIGHER RISK OF ISSUER DEFAULT, ARE SUBJECT TO GREATER PRICE VOLATILITY
AND MAY BE ILLIQUID.
DERIVATIVE CONTRACTS
A DERIVATIVE CONTRACT WILL OBLIGATE OR ENTITLE A SERIES TO DELIVER OR RECEIVE
AN ASSET OR A CASH PAYMENT THAT IS BASED ON THE CHANGE IN VALUE OF A
DESIGNATED SECURITY, INDEX OR CURRENCY. THE SERIES MAY, BUT ARE NOT REQUIRED
TO, USE DERIVATIVE CONTRACTS FOR ANY OF THE FOLLOWING PURPOSES:
TO HEDGE AGAINST ADVERSE CHANGES IN THE MARKET VALUE OF SECURITIES HELD BY
OR TO BE BOUGHT FOR A SERIES. THESE CHANGES MAY BE CAUSED BY CHANGING
INTEREST RATES OR STOCK MARKET PRICES.
AS A SUBSTITUTE FOR PURCHASING OR SELLING SECURITIES.
TO SHORTEN OR LENGTHEN THE EFFECTIVE MATURITY OR DURATION OF A SERIES' FIXED
INCOME PORTFOLIO.
IN NON-HEDGING SITUATIONS, TO ATTEMPT TO PROFIT FROM ANTICIPATED MARKET
DEVELOPMENTS.
COUNTERPARTIES TO OTC DERIVATIVE CONTRACTS PRESENT THE SAME TYPES OF DEFAULT
RISK AS ISSUERS OF FIXED INCOME SECURITIES.
ADDITIONAL INVESTMENT RISKS
EXTENSION RISK AS INTEREST RATES INCREASE, SLOWER THAN EXPECTED PRINCIPAL
PAYMENTS MAY EXTEND THE AVERAGE LIFE OF FIXED INCOME SECURITIES, LOCKING IN
BELOW-MARKET INTEREST RATES AND REDUCING THE VALUE OF THESE SECURITIES.
PREPAYMENT OR CALL RISK. AS INTEREST RATES DECLINE, THE ISSUERS OF FIXED
INCOME SECURITIES HELD BY THE SERIES MAY PREPAY PRINCIPAL EARLIER THAN
SCHEDULED, FORCING THE SERIES TO REINVEST IN LOWER YIELDING SECURITIES.
CORRELATION RISK CHANGES IN THE VALUE OF DERIVATIVE CONTRACTS OR OTHER
HEDGING INSTRUMENTS MAY NOT MATCH OR FULLY OFFSET CHANGES IN THE VALUE OF THE
HEDGED PORTFOLIO SECURITIES.
DEFENSIVE INVESTING
EACH SERIES MAY DEPART FROM ITS PRINCIPAL INVESTMENT STRATEGIES BY TAKING
TEMPORARY DEFENSIVE POSITIONS IN RESPONSE TO ADVERSE MARKET, ECONOMIC OR
POLITICAL CONDITIONS. IF A SERIES TAKES A TEMPORARY DEFENSIVE POSITION, IT
MAY BE UNABLE TO ACHIEVE ITS INVESTMENT GOALS.
THE SERIES' INVESTMENT GOALS
THE SERIES' BOARD OF DIRECTORS MAY CHANGE EACH SERIES' INVESTMENT GOALS
(DESCRIBED ABOVE UNDER ABOVE "GOALS AND STRATEGIES") WITHOUT OBTAINING THE
APPROVAL OF THE SERIES' SHAREHOLDERS. A SERIES MIGHT NOT SUCCEED IN ACHIEVING
ITS GOALS.
<PAGE>
THE ADVISOR
THE ADVISOR
EACH SERIES' ADVISOR IS EXETER ASSET MANAGEMENT, A DIVISION OF MANNING &
NAPIER ADVISORS, INC., 1100 CHASE SQUARE, ROCHESTER, NEW YORK 14604. THE
ADVISOR IS RESPONSIBLE FOR THE DAY-TO-DAY OPERATIONS OF THE SERIES AND
GENERALLY IS RESPONSIBLE FOR SUPERVISION OF THE SERIES' OVERALL BUSINESS
AFFAIRS, SERVICE PROVIDERS AND OFFICERS.
A TEAM MADE UP OF INVESTMENT PROFESSIONALS AND ANALYSTS EMPLOYED BY THE
ADVISOR MAKES ALL OF THE SERIES' INVESTMENT DECISIONS.
MANAGEMENT FEES
IN RETURN FOR THE SERVICES IT PROVIDES TO EACH SERIES, THE ADVISOR RECEIVES A
MANAGEMENT FEE, WHICH IS COMPUTED DAILY AND PAYABLE MONTHLY BY THE SERIES AS
DESCRIBED BELOW.
THE ADVISOR HAS AGREED TO LIMIT THE SERIES' MANAGEMENT FEES AND OTHER
EXPENSES. THESE LIMITATIONS ARE TEMPORARY AND MAY BE CHANGED AT ANY TIME.
ANNUAL MANAGEMENT FEES (AS A PERCENTAGE OF DAILY NET ASSETS)
</TABLE>
<TABLE>
<CAPTION>
SERIES CONTRACTUAL MANAGEMENT FEE
<S> <C>
DEFENSIVE SERIES 0.80%
- ----------------------- ---------------------------
BLENDED ASSET SERIES I 1.00%
- ----------------------- ---------------------------
BLENDED ASSET SERIES II 1.00%
---------------------------
MAXIMUM HORIZON SERIES 1.00%
- ----------------------- ---------------------------
</TABLE>
THE DISTRIBUTOR
THE DISTRIBUTOR OF THE SERIES' SHARES IS MANNING & NAPIER INVESTOR SERVICES,
INC. CLASS B, C, D AND E SHARES ARE OFFERED ONLY THROUGH A FINANCIAL
INTERMEDIARY. FINANCIAL INTERMEDIARIES INCLUDE FINANCIAL PLANNERS, INVESTMENT
ADVISERS, BROKER-DEALERS OR OTHER FINANCIAL INSTITUTIONS WITH AN AGREEMENT
WITH THE DISTRIBUTOR. YOU MAY ONLY PURCHASE THAT CLASS OF SHARES WHICH YOUR
FINANCIAL INTERMEDIARY SELLS OR SERVICES.
CLASS B SHARES ARE ONLY AVAILABLE THROUGH BROKER-DEALERS WHO MAINTAIN AN
OMNIBUS ACCOUNT WITH THE DISTRIBUTOR ON BEHALF OF INVESTORS. CLASS C SHARES
ARE AVAILABLE ONLY THROUGH FINANCIAL INTERMEDIARIES WHO ETABLISH INDIVIDUAL
SHAREHOLDER ACCOUNTS WITH THE FUND IN THE NAME OF INVESTORS OR MAINTAIN
CERTAIN TYPES OF OMNIBUS ACCOUNTS WITH THE DISTRIBUTOR. CLASS E SHARES ARE
ONLY AVAILABLE THROUGH FINANCIAL INTERMEDIARIES WHO PROVIDE CERTAIN
SHAREHOLDER SERVICES TO THE FUND. CLASS D SHARES ARE NOT CURRENTLY AVAILABLE.
YOUR FINANCIAL INTERMEDIARY CAN TELL YOU WHICH CLASS OF SHARES IS AVAILABLE
THROUGH THE INTERMEDIARY.
DISTRIBUTION PLANS
THE FUND HAS ADOPTED RULE 12B-1 DISTRIBUTION PLANS FOR THE CLASS B, C, D AND E
SHARES OF EACH SERIES. UNDER THE PLANS, THE CLASS B, C, D AND E SHARES PAY
DISTRIBUTION AND/OR SERVICE FEES (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
EQUAL TO: 1.00%, 0.75%, 0.50%, AND 0.25%, RESPECTIVELY. THESE FEES ARE AN
ONGOING EXPENSE AND OVER TIME MAY COST YOU MORE THAN OTHER TYPES OF SALES
CHARGES.
<PAGE>
HOW TO BUY AND HOW TO REDEEM SHARES
HOW TO BUY SHARES
CLASS B, C, D OR E SHARES ARE ONLY AVAILABLE THROUGH YOUR FINANCIAL
INTERMEDIARY. YOU MAY BE SUBJECT TO INITIAL AND SUBSEQUENT MINIMUMS
ESTABLISHED BY YOUR FINANCIAL INTERMEDIARY FOR THE PURCHASE OF SHARES. EACH
SERIES RESERVES THE RIGHT TO REJECT PURCHASE ORDERS OR TO STOP OFFERING ITS
SHARES WITHOUT NOTICE TO SHAREHOLDERS.
THE SERIES' DISTRIBUTOR IMPOSES NO SALES CHARGE ON PURCHASES AND REDEMPTIONS
OF SHARES OF A SERIES. HOWEVER, YOUR FINANCIAL INTERMEDIARY MAY CHARGE YOU A
TRANSACTION FEE ON PURCHASES AND REDEMPTIONS.
THROUGH THE FUND
BY MAIL
IF YOUR FINANCIAL INTERMEDIARY DOES NOT PROVIDE ACCOUNT MAINTENANCE SERVICES,
CONTACT THE FUND TO PURCHASE SHARES.
OPENING AN ACCOUNT
SEND A CHECK PAYABLE TO EXETER FUND, INC., WITH THE COMPLETED ORIGINAL
ACCOUNT APPLICATION. THE ADDRESS IS:
EXETER FUND, INC.
P.O. BOX 41118
ROCHESTER, NY 14604
TO REQUEST AN ACCOUNT APPLICATION, CALL THE FUND AT 1-800-466-3863.
ADDING TO AN ACCOUNT
BY WIRE
SEND A CHECK PAYABLE TO EXETER FUND, INC. AND A LETTER OF INSTRUCTION
WITH THE NAME OF THE SERIES TO BE PURCHASED AND THE ACCOUNT NAME AND NUMBER.
OPENING OR ADDING TO AN ACCOUNT
AFTER THE FUND HAS RECEIVED YOUR COMPLETED ACCOUNT APPLICATION, YOU MAY
WIRE FUNDS TO OPEN OR ADD SHARES TO YOUR ACCOUNT. BEFORE SENDING A WIRE,
CALL 1-800-466-3863 FOR WIRE INSTRUCTIONS.
THROUGH THE AUTOMATIC INVESTMENT PLAN
YOU MAY PARTICIPATE IN THE AUTOMATIC INVESTMENT PLAN BY COMPLETING THE
APPLICABLE SECTION OF THE ACCOUNT APPLICATION OR CONTACTING YOUR FINANCIAL
INTERMEDIARY OR THE FUND. THROUGH THE PLAN, YOU CAN AUTHORIZE TRANSFERS OF A
SPECIFIED AMOUNT FROM YOUR BANK ACCOUNT INTO THE SERIES ON A REGULAR BASIS.
THE MINIMUM AMOUNT OF EACH INVESTMENT IS $25. IF YOU HAVE INSUFFICIENT FUNDS
IN YOUR ACCOUNT TO COMPLETE A TRANSFER, YOUR BANK MAY CHARGE YOU A FEE.
HOW TO REDEEM SHARES
THROUGH THE FUND
BY MAIL
IF YOUR FINANCIAL INTERMEDIARY PROVIDES ACCOUNT MAINTENANCE SERVICES, CONTACT
YOUR FINANCIAL INTERMEDIARY TO REDEEM SHARES. IF NOT:
SEND A LETTER OF INSTRUCTION TO EXETER FUND, INC., AT THE ADDRESS ABOVE,
SIGNED BY EACH REGISTERED ACCOUNT OWNER.
STATE THE NAME OF THE SERIES, THE CLASS AND NUMBER OF SHARES OR DOLLAR
AMOUNT TO BE SOLD.
PROVIDE THE ACCOUNT NUMBER.
SIGNATURE GUARANTEES MAY BE REQUIRED.
ADDITIONAL DOCUMENTATION MAY BE REQUIRED (CALL THE FUND FOR DETAILS).
EACH SERIES MAY POSTPONE PAYMENT OF REDEMPTION PROCEEDS FOR UP TO SEVEN DAYS,
OR SUSPEND REDEMPTIONS TO THE EXTENT PERMITTED BY LAW. IF YOU RECENTLY
PURCHASED YOUR SHARES BY CHECK, YOUR REDEMPTION PROCEEDS WILL NOT BE SENT TO
YOU FOR 15 DAYS.
<PAGE>
HOW TO EXCHANGE SHARES
MORE ABOUT PURCHASES AND REDEMPTIONS
ALL ORDERS TO PURCHASE OR REDEEM SHARES ACCEPTED BY THE DISTRIBUTOR, TRANSFER
AGENT OR OTHER AGENT BEFORE THE CLOSE OF TRADING ON THE NEW YORK STOCK
EXCHANGE (NYSE) WILL BE EXECUTED AT THAT DAY'S SHARE PRICE. ORDERS ACCEPTED
AFTER THAT DAY'S CLOSE WILL BE EXECUTED AT THE NEXT BUSINESS DAY'S PRICE. ALL
ORDERS MUST INCLUDE THE REQUIRED DOCUMENTATION AND SIGNATURES, AND ALL
PURCHASE ORDERS MUST BE ACCOMPANIED BY PROPER PAYMENT.
THE FUND HAS AUTHORIZED SEVERAL FINANCIAL INTERMEDIARIES TO ACCEPT PURCHASE
AND REDEMPTION ORDERS ON ITS BEHALF, AND THESE INTERMEDIARIES ARE AUTHORIZED
TO DESIGNATE OTHER INTERMEDIARIES TO ACCEPT PURCHASE AND REDEMPTION ORDERS ON
THE FUND'S BEHALF. THE FUND WILL BE DEEMED TO HAVE RECEIVED AN ORDER WHEN AN
AUTHORIZED FINANCIAL INTERMEDIARY OR ITS AUTHORIZED DESIGNEEE ACCEPTS THE
ORDER, AND ORDERS PLACED WITH AN AUTHORIZED FINANCIAL INTERMEDIARY WILL BE
PROCESSED AT THE SHARE PRICE OF THE APPLICABLE SERIES NEXT COMPUTED AFTER THEY
ARE ACCEPTED BY THE FINANCIAL INTERMEDIARY OR ITS DESIGNEE.
HOW TO EXCHANGE SHARES
YOU MAY EXCHANGE SHARES OF A SERIES FOR THE SAME CLASS OF SHARES OF ANY OTHER
SERIES OF EXETER FUND, IF THE REGISTRATION OF BOTH ACCOUNTS IS IDENTICAL. IF
RECEIVED WITH PROPER DOCUMENTATION BEFORE THE CLOSE OF TRADING ON THE NYSE,
EXCHANGE REQUESTS WILL BE EXECUTED AT THAT DAY'S SHARE PRICES. OTHERWISE,
THEY WILL BE EXECUTED AT THE PRICES DETERMINED ON THE NEXT BUSINESS DAY AFTER
RECEIPT WITH PROPER DOCUMENTATION.
THE MINIMUM EXCHANGE AMOUNT IS $1,000 (OR ALL THE SHARES IN YOUR ACCOUNT, IF
LESS THAN $1,000). YOU MAY EXCHANGE UP TO 4 TIMES DURING ANY 12-MONTH PERIOD
WITHOUT PAYING A SALES CHARGE OR ANY OTHER FEE. FOR ANY ADDITIONAL EXCHANGES,
YOU MAY BE CHARGED $15 PER EXCHANGE. A SERIES MAY REFUSE ANY EXCHANGE ORDER
AND MAY ALTER, LIMIT OR SUSPEND ITS EXCHANGE PRIVILEGE ON 60 DAYS' NOTICE. AN
EXCHANGE INVOLVES A TAXABLE REDEMPTION OF SHARES SURRENDERED IN THE EXCHANGE.
THROUGH THE FUND
IF YOUR FINANCIAL INTERMEDIARY DOES NOT PROVIDE ACCOUNT MAINTENANCE SERVICES,
CONTACT THE FUND TO EXCHANGE SHARES.
BY MAIL
SEND A LETTER OF INSTRUCTION TO EXETER FUND, INC., AT P.O. BOX 41118,
ROCHESTER, NY 14604, SIGNED BY EACH REGISTERED ACCOUNT OWNER, EXACTLY AS
YOUR NAMES APPEAR ON THE ACCOUNT REGISTRATION.
PROVIDE THE NAME OF THE CURRENT SERIES, CLASS OF SHARES, SERIES TO
EXCHANGE INTO AND DOLLAR AMOUNT TO BE EXCHANGED.
PROVIDE BOTH ACCOUNT NUMBERS.
BY TELEPHONE
UNLESS YOU HAVE DECLINED TELEPHONE PRIVILEGES, CALL THE FUND AT
1-800-466-3863.
PROVIDE THE NAME OF THE CURRENT SERIES, CLASS OF SHARES, SERIES TO
EXCHANGE INTO AND DOLLAR AMOUNT TO BE EXCHANGED.
PROVIDE BOTH ACCOUNT NUMBERS.
THE FUND MAY ASK FOR IDENTIFICATION, AND ALL TELEPHONE TRANSACTIONS ARE
RECORDED.
<PAGE>
INVESTMENT AND ACCOUNT INFORMATION
ACCOUNTS WITH LOW BALANCES
IF YOUR ACCOUNT FALLS BELOW $1,000 DUE TO THE REDEMPTION OF SHARES, THE FUND
MAY ASK YOU TO BRING YOUR ACCOUNT UP TO THE MINIMUM REQUIREMENT. IF YOUR
ACCOUNT IS STILL BELOW
$1,000 AFTER 60 DAYS, THE FUND MAY CLOSE YOUR ACCOUNT AND SEND YOU THE
REDEMPTION PROCEEDS.
IN-KIND PURCHASES AND REDEMPTIONS
SECURITIES YOU OWN MAY BE USED TO PURCHASE SHARES OF A SERIES. THE ADVISOR
WILL DETERMINE IF ACQUIRING THE SECURITIES IS CONSISTENT WITH THE SERIES'
GOALS AND POLICIES. IF ACCEPTED, THE SECURITIES WILL BE VALUED THE SAME WAY
THE
SERIES VALUES SECURITIES IT ALREADY OWNS.
A SERIES MAY MAKE PAYMENT FOR SHARES IN PART BY GIVING YOU PORTFOLIO
SECURITIES. AS A REDEEMING SHAREHOLDER, YOU WILL PAY TRANSACTION COSTS TO
DISPOSE OF THESE SECURITIES.
SIGNATURE GUARANTEES
A SIGNATURE GUARANTEE MAY BE REQUIRED FOR ANY WRITTEN REQUEST TO SELL SHARES,
OR TO CHANGE THE ACCOUNT REGISTRATION.
THE TRANSFER AGENT WILL ACCEPT SIGNATURE GUARANTEES FROM:
MEMBERS OF THE STAMP PROGRAM OR THE NYSE'S MEDALLION SIGNATURE PROGRAM.
A BROKER OR SECURITIES DEALER.
A FEDERAL SAVINGS, COOPERATIVE OR OTHER TYPE OF BANK.
A SAVINGS AND LOAN OR OTHER THRIFT INSTITUTION.
A CREDIT UNION.
A SECURITIES EXCHANGE OR CLEARING AGENCY.
A NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
VALUATION OF SHARES
EACH SERIES OFFERS ITS SHARES AT THE NET ASSET VALUE (NAV) PER SHARE OF THE
SERIES. NAV IS CALCULATED SEPARATELY FOR EACH CLASS OF SHARES. EACH SERIES
CALCULATES ITS NAV ONCE DAILY AS OF THE CLOSE OF REGULAR TRADING ON THE NEW
YORK STOCK EXCHANGE (GENERALLY AT 4:00 P.M., NEW YORK TIME) ON EACH DAY THE
EXCHANGE IS OPEN. IF THE EXCHANGE CLOSES EARLY, THE SERIES WILL ACCELERATE
THE CALCULATION OF NAV AND TRANSACTION DEADLINES TO THAT TIME.
EACH SERIES VALUES THE SECURITIES IN ITS PORTFOLIO ON THE BASIS OF MARKET
QUOTATIONS AND VALUATIONS PROVIDED BY INDEPENDENT PRICING SERVICES. IF
QUOTATIONS ARE NOT READILY AVAILABLE, OR THE VALUE OF A SECURITY HAS BEEN
MATERIALLY AFFECTED BY EVENTS OCCURRING AFTER THE CLOSING OF A FOREIGN
EXCHANGE, EACH SERIES VALUES ITS ASSETS BY A METHOD THAT THE DIRECTORS BELIEVE
ACCURATELY REFLECTS FAIR VALUE. A SERIES THAT USES FAIR VALUE TO PRICE
SECURITIES MAY VALUE THOSE SECURITIES HIGHER OR LOWER THAN ANOTHER SERIES THAT
USES MARKET QUOTATIONS TO PRICE THE SAME SECURITIES.
YEAR 2000 ISSUE
INFORMATION TECHNOLOGY EXPERTS ARE CONCERNED ABOUT COMPUTER SYSTEMS' ABILITY
TO PROCESS DATE-RELATED INFORMATION ON AND AFTER JANUARY 1, 2000. THIS
SITUATION, COMMONLY KNOWN AS THE "YEAR 2000" ISSUE, COULD HAVE AN ADVERSE
IMPACT ON THE SERIES. THE ADVISOR, THE TRANSFER AGENT AND THE DISTRIBUTOR ARE
ADDRESSING THE YEAR 2000 ISSUE FOR THEIR SYSTEMS. THE SERIES HAVE BEEN
INFORMED BY THEIR OTHER SERVICE PROVIDERS THAT THEY ARE TAKING SIMILAR
MEASURES. ALTHOUGH THE SERIES DO NOT EXPECT THE YEAR 2000 ISSUE TO ADVERSELY
AFFECT THEM, THE SERIES CANNOT GUARANTEE THAT THE EFFORTS OF THE SERIES OR
THEIR SERVICE PROVIDERS TO CORRECT THE PROBLEM WILL BE SUCCESSFUL.
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
EACH SERIES GENERALLY:
PAYS DIVIDENDS TWICE A YEAR, IN JUNE AND DECEMBER.
MAKES CAPITAL GAINS DISTRIBUTIONS, IF ANY, ONCE A YEAR, TYPICALLY IN
DECEMBER.
A SERIES MAY PAY ADDITIONAL DISTRIBUTIONS AND DIVIDENDS AT OTHER TIMES IF
NECESSARY FOR THE SERIES TO AVOID A FEDERAL TAX.
CAPITAL GAIN DISTRIBUTIONS AND DIVIDENDS ARE REINVESTED IN ADDITIONAL SHARES
OF THE SAME CLASS THAT YOU HOLD. ALTERNATIVELY, YOU CAN INSTRUCT YOUR
FINANCIAL INTERMEDIARY OR, THE TRANSFER AGENT IN WRITING OR BY TELEPHONE, TO
HAVE YOUR CAPITAL GAINS AND/OR DIVIDENDS PAID IN CASH. YOU CAN CHANGE YOUR
CHOICE AT ANY TIME TO BE EFFECTIVE AS OF THE NEXT DISTRIBUTION OR DIVIDEND,
EXCEPT THAT ANY CHANGE GIVEN TO THE FUND AFTER THE RECORD DATE WILL NOT BE
EFFECTIVE UNTIL THE NEXT DISTRIBUTION OR DIVIDEND IS MADE. NO INTEREST WILL
ACCRUE ON AMOUNTS REPRESENTED BY UNCASHED DISTRIBUTION OR REDEMPTION CHECKS.
TAXES
TRANSACTION FEDERAL TAX STATUS
REDEMPTION OR EXCHANGE OF SHARES USUALLY TAXABLE AS CAPITAL GAIN OR LOSS;
LONG-TERM ONLY IF SHARES OWNED MORE THAN ONE
YEAR
LONG-TERM CAPITAL GAIN DISTRIBUTIONS TAXABLE AS LONG-TERM CAPITAL GAIN
SHORT-TERM CAPITAL GAIN DISTRIBUTIONS TAXABLE AS ORDINARY INCOME
DIVIDENDS TAXABLE AS ORDINARY INCOME
IF YOU ARE A TAXABLE INVESTOR, YOU MAY WANT TO AVOID BUYING SHARES WHEN THE
SERIES IS ABOUT TO DECLARE A CAPITAL GAIN DISTRIBUTION OR A DIVIDEND, BECAUSE
IT WILL BE TAXABLE TO YOU EVEN THOUGH IT MAY ACTUALLY BE A RETURN OF A PORTION
OF YOUR INVESTMENT.
AFTER THE END OF EACH YEAR, THE SERIES WILL PROVIDE YOU WITH INFORMATION ABOUT
THE DISTRIBUTIONS AND DIVIDENDS THAT YOU RECEIVED AND ANY REDEMPTIONS OF
SHARES DURING THE PREVIOUS YEAR. IN CALCULATING YOUR GAIN OR LOSS ON ANY SALE
OF SHARES, NOTE THAT YOUR TAX BASIS IN YOUR SHARES IS INCREASED BY THE AMOUNTS
OF DIVIDENDS AND DISTRIBUTIONS THAT YOU HAVE REINVESTED IN A SERIES.
DIVIDENDS AND DISTRIBUTIONS ARE TAXABLE AS DESCRIBED ABOVE WHETHER RECEIVED IN
CASH OR REINVESTED. IF YOU DO NOT PROVIDE THE SERIES WITH YOUR CORRECT
TAXPAYER IDENTIFICATION NUMBER AND ANY REQUIRED CERTIFICATIONS, YOU MAY BE
SUBJECT TO BACK-UP WITHHOLDING OF 31% OF YOUR DISTRIBUTIONS, DIVIDENDS AND
REDEMPTION PROCEEDS. BECAUSE EACH SHAREHOLDER'S CIRCUMSTANCES ARE DIFFERENT
AND SPECIAL TAX RULES MAY APPLY, YOU SHOULD CONSULT WITH YOUR TAX ADVISER
ABOUT YOUR INVESTMENT IN THE SERIES AND YOUR RECEIPT OF DIVIDENDS,
DISTRIBUTIONS OR REDEMPTION PROCEEDS.
<PAGE>
EXETER FUND, INC.
DEFENSIVE SERIES
BLENDED ASSET SERIES I
BLENDED ASSET SERIES II
MAXIMUM HORIZON SERIES
SHAREHOLDER REPORTS AND THE STATEMENT OF ADDITIONAL INFORMATION (SAI). ANNUAL
AND SEMIANNUAL REPORTS TO SHAREHOLDERS PROVIDE ADDITIONAL INFORMATION ABOUT
EACH SERIES' INVESTMENTS. THESE REPORTS DISCUSS THE MARKET CONDITIONS AND
INVESTMENT STRATEGIES THAT SIGNIFICANTLY AFFECTED EACH SERIES' PERFORMANCE
DURING ITS LAST FISCAL YEAR. THE SAI PROVIDES MORE DETAILED INFORMATION ABOUT
EACH SERIES. IT IS INCORPORATED BY REFERENCE INTO THIS COMBINED PROSPECTUS.
HOW TO OBTAIN THESE REPORTS AND ADDITIONAL INFORMATION.
YOU MAY OBTAIN SHAREHOLDER REPORTS AND THE SAI OR OTHER INFORMATION
ABOUT THE FUND WITHOUT CHARGE, BY CALLING 1-800-466-3863 OR SENDING WRITTEN
REQUESTS TO EXETER FUND, INC., P.O. BOX 41118, ROCHESTER, NEW YORK 14604.
YOU MAY REVIEW SHAREHOLDER REPORTS, THE PROSPECTUS AND SAI AT THE
SECURITIES AND EXCHANGE COMMISSION'S PUBLIC REFERENCE ROOM IN WASHINGTON,
D.C. THE SEC CHARGES A FEE FOR THIS SERVICE. INFORMATION ABOUT THE PUBLIC
REFERENCE ROOM MAY BE OBTAINED BY CALLING 1-800-SEC-0330. YOU CAN GET THE
SAME REPORTS AND INFORMATION FREE FROM THE SEC'S INTERNET WEB SITE
(HTTP://WWW.SEC.GOV).
IF SOMEONE MAKES A STATEMENT THAT IS NOT IN THIS PROSPECTUS ABOUT ANY OF THE
SERIES, YOU SHOULD NOT RELY UPON THAT INFORMATION. NEITHER THE SERIES NOR
THEIR DISTRIBUTOR IS OFFERING TO SELL SHARES OF THE SERIES TO ANY PERSON TO
WHOM THE SERIES MAY NOT LAWFULLY SELL THEIR SHARES.
INVESTMENT COMPANY ACT FILE NO. 811-04087
<PAGE>
[LOGO]
PROSPECTUS
EXETER FUND, INC.
MARCH 1, 1999
FLEXIBLE YIELD SERIES I
FLEXIBLE YIELD SERIES II
FLEXIBLE YIELD SERIES III
CLASS A SHARES
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED ANY SERIES' SHARES AS
AN INVESTMENT OR DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE.
ANY STATEMENT TO THE CONTRARY IS A CRIME.
<PAGE>
CONTENTS
EXETER ASSET MANAGEMENT IS A DIVISION OF MANNING & NAPIER ADVISORS, INC.,
WHICH WAS FOUNDED IN 1970 AND MANAGES OVER $7 BILLION FOR INDIVIDUAL AND
INSTITUTIONAL INVESTORS.
PAGE
GOALS AND STRATEGIES 3
FLEXIBLE YIELD SERIES I 4
FLEXIBLE YIELD SERIES II 6
FLEXIBLE YIELD SERIES III 8
MORE ABOUT THE SERIES' INVESTMENTS 10
THE ADVISOR 11
HOW TO BUY SHARES 12
HOW TO EXCHANGE AND HOW TO REDEEM SHARES 13
INVESTMENT AND ACCOUNT INFORMATION 14
DIVIDENDS, DISTRIBUTIONS AND TAXES 15
FINANCIAL HIGHLIGHTS 16
YOU SHOULD KNOW
AN INVESTMENT IN A SERIES IS NOT A BANK DEPOSIT AND IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY.
<PAGE>
GOALS AND STRATEGIES
WHO MAY WANT TO INVEST
THE SERIES MAY BE APPROPRIATE FOR INVESTORS WHO:
ARE SEEKING A REGULAR STREAM OF INCOME.
ARE SEEKING HIGHER POTENTIAL RETURNS THAN MONEY MARKET FUNDS AND ARE
WILLING TO ACCEPT MODERATE RISK OF VOLATILITY.
WANT TO DIVERSIFY THEIR PORTFOLIOS.
ARE SEEKING A MUTUAL FUND FOR THE INCOME PORTION OF AN ASSET ALLOCATION
PORTFOLIO.
INVESTORS SHOULD CHOOSE WHICH SERIES IS RIGHT FOR THEM.
EACH SERIES INVESTS PRIMARILY IN FIXED INCOME SECURITIES. IN GENERAL, THE
VALUE OF A FIXED INCOME SECURITY WILL GO DOWN AS INTEREST RATES GO UP AND VICE
VERSA. THE SHORTER THE MATURITY OF A FIXED INCOME INVESTMENT, THE LESS ITS
VALUE WILL INCREASE OR DECREASE IN RESPONSE TO CHANGES IN INTEREST RATES.
THEREFORE, SHORTER MATURITY INVESTMENTS HAVE LESS SENSITIVITY TO INTEREST
RATES BUT LESS POTENTIAL FOR CAPITAL APPRECIATION. LONGER MATURITY
INSTRUMENTS TEND TO HAVE GREATER POTENTIAL FOR CAPITAL APPRECIATION BUT MORE
VOLATILITY.
IN COMPARING THE GROWTH AND RISK CHARACTERISTICS OF THE THREE FUNDS BELOW, YOU
SHOULD NOTE THAT THE AVERAGE MATURITY FOR FLEXIBLE YIELD SERIES II CAN BE
LONGER THAN THAT OF FLEXIBLE YIELD SERIES I. UNDER NORMAL CONDITIONS, THIS
WILL RESULT IN LOWER YIELDS FOR FLEXIBLE YIELD SERIES I, BUT A LOWER DEGREE OF
PRICE VOLATILITY IN RESPONSE TO CHANGES IN INTEREST RATES. FLEXIBLE YIELD
SERIES III HAS NO STATED MATURITY TARGET. RATHER, THE MATURITY IS ADJUSTED TO
CAPTURE WHAT THE ADVISOR BELIEVES TO BE THE MOST ATTRACTIVE SEGMENT OF THE
MARKET. THIS COULD RESULT IN GREATER VOLATILITY AS WELL AS GREATER POTENTIAL
GROWTH.
INVESTMENT RISK SPECTRUM
[LINE GRAPH REFLECTING THE INCREASING RETURN POTENTIAL (ON THE X-AXIS) AND THE
INCREASING VOLATILITY POTENTIAL (ON THE Y-AXIS) OF THE FLEXIBLE YIELD SERIES
I, FLEXIBLE YIELD SERIES II AND THE FLEXIBLE YIELD SERIES III. USING A LINE
WITH AN ARROW AT EACH END, THE RESULTS SHOW THE FLEXIBLE YIELD SERIES I WITH
THE LEAST RETURN POTENTIAL AND THE LEAST VOLATILITY POTENTIAL; MOVING UP THE
LINE, THE FLEXIBLE YIELD SERIES II IN THE MIDDLE OF THE LINE AND THE FLEXIBLE
YIELD SERIES III AT THE TOP, WITH THE GREATEST RETURN POTENTIAL AND THE
GREATEST VOLATILITY POTENTIAL OF THE THREE SERIES.]
THE ADVISOR WILL SELECT SHORTER MATURITY SECURITIES WHEN IT EXPECTS INTEREST
RATES TO RISE OR WHEN IT BELIEVES THE YIELDS ON LONGER TERM SECURITIES DO NOT
JUSTIFY THE ADDITIONAL RISKS INVOLVED. THE ADVISOR WILL BUY LONGER MATURITY
SECURITIES WHEN IT EXPECTS INTEREST RATES TO GO DOWN OR WHEN IT BELIEVES THAT
HIGHER YIELDS JUSTIFY THE ADDITIONAL RISKS.
<PAGE>
GOALS AND STRATEGIES
YIELD SERIES I
INVESTMENT GOAL
THE HIGHEST LEVEL OF TOTAL RETURN (E.G., A COMBINATION OF INCOME AND CAPITAL
APPRECIATION) CONSISTENT WITH PRESERVATION OF CAPITAL.
KEY INVESTMENTS AND STRATEGIES
THE SERIES INVESTS PRIMARILY IN FIXED INCOME SECURITIES OF GOVERNMENTAL AND
CORPORATE ISSUERS LOCATED IN THE UNITED STATES. THESE INCLUDE MORTGAGE-BACKED
SECURITIES.
MATURITY
THE FUND GENERALLY MAINTAINS A DOLLAR-WEIGHTED AVERAGE MATURITY OF NOT MORE
THAN 5 YEARS BUT MAY INVEST IN INDIVIDUAL SECURITIES HAVING ANY MATURITY.
CREDIT QUALITY
THE FUND INVESTS PRIMARILY IN INVESTMENT GRADE SECURITIES BUT MAY INVEST UP TO
20% OF ASSETS IN LOWER QUALITY BONDS, COMMONLY KNOWN AS "JUNK BONDS."
BOND SELECTION PROCESS
THE ADVISOR EMPHASIZES THOSE BOND MARKET SECTORS AND SELECTS FOR THE SERIES
THOSE SECURITIES THAT IT BELIEVES OFFER YIELDS SUFFICIENT TO COMPENSATE THE
INVESTOR FOR THE RISKS SPECIFIC TO THE SECTOR OR SECURITY. IN ANALYZING THE
RELATIVE ATTRACTIVENESS OF SECTORS AND INDIVIDUAL SECURITIES, THE ADVISOR
CONSIDERS:
INTEREST RATE SENSITIVITY OF PARTICULAR SECTORS AND SECURITIES.
NARROWING OR WIDENING OF INTEREST RATE SPREADS BETWEEN SECTORS,
SECURITIES OF DIFFERENT CREDIT QUALITY OR SECURITIES OF DIFFERENT MATURITIES.
FOR MORTGAGE-BACKED AND ASSET-BACKED SECURITIES, ANTICIPATED CHANGES IN
AVERAGE PREPAYMENT RATES.
SUMMARY OF PAST PERFORMANCE
THE BAR CHART AND TOTAL RETURN TABLE INDICATE THE RISKS OF INVESTING IN THE
SERIES. THE BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE CLASS A SHARES
OF THE SERIES FOR EACH FULL CALENDAR YEAR SINCE ITS INCEPTION. THE TOTAL
RETURN TABLE SHOWS HOW THE AVERAGE ANNUAL TOTAL RETURNS FOR THE CLASS A SHARES
FOR DIFFERENT CALENDAR PERIODS COMPARE TO THOSE OF THE MERRILL LYNCH U.S.
TREASURY SHORT-TERM INDEX, A MARKET VALUE WEIGHTED MEASURE OF APPROXIMATELY 59
U.S. TREASURY SECURITIES.
THE MERRILL LYNCH U.S. TREASURY SHORT-TERM INDEX IS AN UNMANAGED INDEX OF U.S.
TREASURY SECURITIES WITH MATURITIES RANGING FROM GREATER THAN ONE YEAR BUT
LESS THAN THREE YEARS.
[BAR CHART SHOWING THE PERCENT TOTAL RETURN FOR THE FLEXIBLE YIELD SERIES I
FOR 1995, 1996, 1997 AND 1998, WITH CALENDAR YEARS ENDED DECEMBER 31ST. THE
RESULTS ARE 10.79% FOR 1995, 3.65% FOR 1996, 6.41% FOR 1997 AND NO RESULT FOR
1998. AS THE YEAR HAS NOT ENDED.]
<TABLE>
<CAPTION>
AVG. ANNUAL TOTAL RETURNS
(FOR PERIODS ENDED 12/31/98) 1 YEAR SINCE INCEPTION ON 2/15/94
<S> <C> <C>
CLASS A SHARES XX.XX% XX.XX%
- ---------------------------- -------------- ------
INDEX:
MERRILL LYNCH U.S.
TREASURY
SHORT-TERM INDEX XX.XX% XX.XX%
-------------- -------
QUARTERLY RETURNS
HIGHEST: X.XX% IN XX QUARTER 19XX
- ---------------------------- -------------------------
LOWEST: X.XX% IN XX QUARTER 19XX
- ---------------------------- -------------------------
</TABLE>
PAST PERFORMANCE DOES NOT NECESSARILY INDICATE HOW THE SERIES WILL PERFORM IN
THE FUTURE.
<PAGE>
FLEXIBLE YIELD SERIES I
PRINCIPAL RISKS OF INVESTING IN THE SERIES
AS WITH MOST BOND FUNDS, THE VALUE OF YOUR INVESTMENT WILL FLUCTUATE WITH
CHANGES IN INTEREST RATES. THIS MEANS THAT YOU COULD LOSE MONEY ON YOUR
INVESTMENT IN THE SERIES OR THE SERIES COULD UNDERPERFORM IF ANY OF THE
FOLLOWING OCCURS:
INTEREST RATES GO UP, WHICH WILL MAKE BOND PRICES GO DOWN AND REDUCE THE
VALUE OF THE SERIES' PORTFOLIO.
THE ISSUER OF A BOND OWNED BY THE SERIES DEFAULTS ON ITS OBLIGATION TO
PAY PRINCIPAL AND/OR INTEREST OR HAS ITS CREDIT RATING DOWNGRADED. THIS RISK
IS HIGHER FOR LOWER QUALITY BONDS.
AS INTEREST RATES DECLINE, THE ISSUERS OF SECURITIES HELD BY THE SERIES
MAY PREPAY PRINCIPAL EARLIER THAN SCHEDULED, FORCING THE SERIES TO REINVEST IN
LOWER YIELDING SECURITIES (PREPAYMENT OR CALL RISK).
AS INTEREST RATES INCREASE, SLOWER THAN EXPECTED PRINCIPAL PAYMENTS MAY
EXTEND THE AVERAGE LIFE OF FIXED INCOME SECURITIES, LOCKING IN BELOW-MARKET
INTEREST RATES AND REDUCING THE VALUE OF THOSE SECURITIES (EXTENSION RISK).
THE ADVISOR'S JUDGMENTS ABOUT THE ATTRACTIVENESS, RELATIVE VALUE OR
POTENTIAL APPRECIATION OF A PARTICULAR SECTOR, SECURITY OR HEDGING STRATEGY
PROVE TO BE INCORRECT.
THE ADVISOR'S EMPHASIS ON SECURITIES WITH SHORT-TERM MATURITIES WILL GENERALLY
RESULT IN THE SERIES HAVING A LOWER YIELD AND LOWER PRICE VOLATILITY.
FEES AND EXPENSES OF THE SERIES
THIS TABLE DESCRIBES THE FEES AND EXPENSES YOU MAY PAY IF YOU INVEST IN SHARES
OF THE SERIES.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 10/31/98 FLEXIBLE YIELD SERIES I
<S> <C>
SHAREHOLDER FEES (PAID DIRECTLY
FROM YOUR INVESTMENT) NONE
- ----------------------------------- ----------------
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM
ASSETS OF THE SERIES)
- -------------------------------------
MANAGEMENT FEE 0.35%
----------------
DISTRIBUTION AND SERVICE (RULE 12B-1) FEES NONE
-----------------
OTHER EXPENSES 4.14%
-----------------
TOTAL ANNUAL FUND OPERATING EXPENSES 4.49%
-----------------
BECAUSE THE ADVISOR HAS AGREED TO LIMIT
OPERATING EXPENSES, ACTUAL
EXPENSES WERE:
- ----------------------------------------
MANAGEMENT FEE 0.00%
- ---------------------------------------- ------------------
OTHER EXPENSES 0.70%
------------------
TOTAL ANNUAL FUND OPERATING EXPENSES 0.70%
------------------
THE ADVISOR MAY CHANGE OR ELIMINATE THESE EXPENSE LIMITS AT ANY TIME.
- ---------------------------------------------------------------------
</TABLE>
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
SERIES WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT:
YOU INVEST $10,000 FOR THE PERIODS SHOWN
YOU REDEEM AT THE END OF EACH PERIOD
THE FUND'S OPERATING EXPENSES REMAIN THE SAME
YOUR INVESTMENT HAS A 5% RETURN EACH YEAR
<TABLE>
<CAPTION>
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER,
UNDER THESE ASSUMPTIONS YOUR COSTS WOULD BE:
<S> <C> <C> <C>
AFTER AFTER AFTER AFTER
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------- -------- -------- ---------
$450 $ 1,357 $ 2,274 $ 4,606
- -------------------------------- -------- -------- ---------
WITH EXPENSE LIMITS, YOUR COSTS WOULD BE:
- ------------------------------------------
$72 $ 224 $ 390 $ 871
- ------------------------------ -------- -------- ---------
</TABLE>
<PAGE>
GOALS AND STRATEGIES
YIELD SERIES II
INVESTMENT GOAL
MAXIMIZE TOTAL RETURN (E.G., A COMBINATION OF INCOME AND CAPITAL APPRECIATION)
CONSISTENT WITH PRESERVATION OF CAPITAL.
KEY INVESTMENTS AND STRATEGIES
THE SERIES INVESTS PRIMARILY IN FIXED INCOME SECURITIES OF GOVERNMENTAL AND
CORPORATE ISSUERS LOCATED IN THE UNITED STATES. THESE INCLUDE MORTGAGE-BACKED
SECURITIES.
MATURITY
THE FUND GENERALLY MAINTAINS A DOLLAR-WEIGHTED AVERAGE MATURITY OF NOT MORE
THAN 10 YEARS BUT MAY INVEST IN INDIVIDUAL SECURITIES HAVING ANY MATURITY.
CREDIT QUALITY
THE FUND INVESTS PRIMARILY IN INVESTMENT GRADE SECURITIES BUT MAY INVEST UP TO
20% OF ASSETS IN LOWER QUALITY BONDS, COMMONLY KNOWN AS "JUNK BONDS."
BOND SELECTION PROCESS
THE ADVISOR EMPHASIZES THOSE BOND MARKET SECTORS AND SELECTS FOR THE SERIES
THOSE SECURITIES THAT ITS BELIEVES OFFER YIELDS SUFFICIENT TO COMPENSATE THE
INVESTOR FOR THE RISKS SPECIFIC TO THE SECTOR OR SECURITY. IN ANALYZING THE
RELATIVE ATTRACTIVENESS OF SECTORS AND INDIVIDUAL SECURITIES, THE ADVISOR
CONSIDERS:
INTEREST RATE SENSITIVITY OF PARTICULAR SECTORS AND SECURITIES.
NARROWING OR WIDENING OF INTEREST RATE SPREADS BETWEEN SECTORS,
SECURITIES OF DIFFERENT CREDIT QUALITY OR SECURITIES OF DIFFERENT MATURITIES.
FOR MORTGAGE-BACKED AND ASSET-BACKED SECURITIES, ANTICIPATED CHANGES IN
AVERAGE PREPAYMENT RATES.
SUMMARY OF PAST PERFORMANCE
THE BAR CHART AND TOTAL RETURN TABLE INDICATE THE RISKS OF INVESTING IN THE
SERIES. THE BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE CLASS A SHARES
OF THE SERIES FOR EACH FULL CALENDAR YEAR SINCE ITS INCEPTION. THE TOTAL
RETURN TABLE SHOWS HOW THE AVERAGE ANNUAL TOTAL RETURNS FOR THE CLASS A SHARES
FOR DIFFERENT CALENDAR PERIODS COMPARE TO THOSE OF THE MERRILL LYNCH
CORPORATE/GOVERNMENT INTERMEDIATE INDEX, A MARKET VALUE WEIGHTED MEASURE OF
APPROXIMATELY 4,561 CORPORATE AND GOVERNMENT BONDS.
THE MERRILL LYNCH CORPORATE/GOVERNMENT INTERMEDIATE INDEX IS AN UNMANAGED
INDEX OF INVESTMENT GRADE BONDS WITH MATURITIES GREATER THAN ONE YEAR BUT LESS
THAN 10 YEARS.
[BAR CHART SHOWING THE PERCENT TOTAL RETURN FOR THE FLEXIBLE YIELD SERIES II
FOR 1995, 1996, 1997 AND 1998, WITH CALENDAR YEARS ENDED DECEMBER 31ST. THE
RESULTS ARE 17.33% FOR 1995, 1.92% FOR 1996, 8.24% FOR 1997 AND NO RESULT FOR
1998. AS THE YEAR HAS NOT ENDED.]
<TABLE>
<CAPTION>
AVG. ANNUAL TOTAL RETURNS
(FOR PERIODS ENDED 12/31/98) 1 YEAR SINCE INCEPTION ON 2/15/94
<S> <C> <C>
CLASS A SHARES XX.XX% XX.XX%
- ---------------------------- ------------ -------
INDEX:
- ----------------------------
MERRILL LYNCH CORPORATE/
GOVERNMENT INTERMED. INDEX XX.XX% XX.XX%
------------ -------
QUARTERLY RETURNS
HIGHEST: XX.XX% IN XX QUARTER 19XX
LOWEST: XX.XX% IN XX QUARTER 19XX
- ---------------------------- --------------------------
</TABLE>
PAST PERFORMANCE DOES NOT NECESSARILY INDICATE HOW THE SERIES WILL PERFORM IN
THE FUTURE.
<PAGE>
FLEXIBLE YIELD SERIES II
PRINCIPAL RISKS OF INVESTING IN THE SERIES
AS WITH MOST BOND FUNDS, THE VALUE OF YOUR INVESTMENT WILL FLUCTUATE WITH
CHANGES IN INTEREST RATES. THIS MEANS THAT YOU COULD LOSE MONEY ON YOUR
INVESTMENT IN THE SERIES OR THE SERIES COULD UNDERPERFORM IF ANY OF THE
FOLLOWING OCCURS:
INTEREST RATES GO UP, WHICH WILL MAKE BOND PRICES GO DOWN AND REDUCE THE
VALUE OF THE SERIES' PORTFOLIO.
THE ISSUER OF A BOND OWNED BY THE SERIES DEFAULTS ON ITS OBLIGATION TO
PAY PRINCIPAL AND/OR INTEREST OR HAS ITS CREDIT RATING DOWNGRADED. THIS RISK
IS HIGHER FOR LOWER QUALITY BONDS.
AS INTEREST RATES DECLINE, THE ISSUERS OF SECURITIES HELD BY THE SERIES
MAY PREPAY PRINCIPAL EARLIER THAN SCHEDULED, FORCING THE SERIES TO REINVEST IN
LOWER YIELDING SECURITIES (PREPAYMENT OR CALL RISK).
AS INTEREST RATES INCREASE, SLOWER THAN EXPECTED PRINCIPAL PAYMENTS MAY
EXTEND THE AVERAGE LIFE OF FIXED INCOME SECURITIES, LOCKING IN BELOW-MARKET
INTEREST RATES AND REDUCING THE VALUE OF THOSE SECURITIES (EXTENSION RISK).
THE ADVISOR'S JUDGMENTS ABOUT THE ATTRACTIVENESS, RELATIVE VALUE OR
POTENTIAL APPRECIATION OF A PARTICULAR SECTOR, SECURITY OR HEDGING STRATEGY
PROVE TO BE INCORRECT.
THE ADVISOR'S EMPHASIS ON SECURITIES WITH INTERMEDIATE MATURITIES WILL
GENERALLY RESULT IN THE SERIES EXPERIENCING MODERATE PRICE VOLATILITY IN
REACTION TO CHANGING INTEREST RATES.
FEES AND EXPENSES OF THE SERIES
THIS TABLE DESCRIBES THE FEES AND EXPENSES YOU MAY PAY IF YOU INVEST IN SHARES
OF THE SERIES.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 10/31/98 FLEXIBLE
YIELD
SERIES II
<S> <C>
SHAREHOLDER FEES (PAID DIRECTLY FROM YOUR INVESTMENT) NONE
- --------------------------------------------------------------- -----
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM ASSETS OF THE SERIES)
- ---------------------------------------------------------------
MANAGEMENT FEE 0.45%
-----
DISTRIBUTION AND SERVICE (RULE 12B-1) FEES NONE
-----
OTHER EXPENSES 4.25%
-----
TOTAL ANNUAL FUND OPERATING EXPENSES 4.70%
-----
BECAUSE THE ADVISOR HAS AGREED TO LIMIT OPERATING EXPENSES,
ACTUAL EXPENSES WERE:
- ---------------------------------------------------------------
MANAGEMENT FEE 0.00%
OTHER EXPENSES 0.80%
- --------------------------------------------------------------- -----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.80%
-----
THE ADVISOR MAY CHANGE OR ELIMINATE THESE EXPENSE LIMITS AT ANY TIME.
- ----------------------------------------------------------------------
</TABLE>
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
SERIES WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT:
YOU INVEST $10,000 FOR THE PERIODS SHOWN
YOU REDEEM AT THE END OF EACH PERIOD
THE FUND'S OPERATING EXPENSES REMAIN THE SAME
YOUR INVESTMENT HAS A 5% RETURN EACH YEAR
<TABLE>
<CAPTION>
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER,
UNDER THESE ASSUMPTIONS YOUR COSTS WOULD BE:
<S> <C> <C> <C>
AFTER AFTER AFTER AFTER
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------- -------- -------- ---------
$471 $ 1,416 $ 2,368 $ 4,771
WITH EXPENSE LIMITS, YOUR COSTS WOULD BE:
- ------------------------------------------
$82 $ 255 $ 444 $ 990
- -------- -------- -------- ---------
</TABLE>
<PAGE>
FLEXIBLE YIELD SERIES III
INVESTMENT GOAL
MAXIMIZE TOTAL RETURN (E.G., A COMBINATION OF INCOME AND CAPITAL APPRECIATION)
CONSISTENT WITH PRESERVATION OF CAPITAL.
KEY INVESTMENTS AND STRATEGIES
THE SERIES INVESTS PRIMARILY IN FIXED INCOME SECURITIES OF GOVERNMENTAL AND
CORPORATE ISSUERS LOCATED IN THE UNITED STATES. THESE INCLUDE MORTGAGE-BACKED
SECURITIES.
MATURITY
THE FUND IS NOT SUBJECT TO ANY MATURITY RESTRICTIONS BUT WILL VARY ITS AVERAGE
DOLLAR-WEIGHTED PORTFOLIO MATURITY DEPENDING ON THE ADVISOR'S OUTLOOK FOR
INTEREST RATES.
CREDIT QUALITY
THE FUND INVESTS PRIMARILY IN INVESTMENT GRADE SECURITIES BUT MAY INVEST UP TO
20% OF ASSETS IN LOWER QUALITY BONDS, COMMONLY KNOWN AS "JUNK BONDS."
BOND SELECTION PROCESS
THE ADVISOR EMPHASIZES THOSE BOND MARKET SECTORS AND SELECTS FOR THE SERIES
THOSE SECURITIES THAT IT BELIEVES OFFER YIELDS SUFFICIENT TO COMPENSATE THE
INVESTOR FOR THE RISKS SPECIFIC TO THE SECTOR OR SECURITY. IN ANALYZING THE
RELATIVE ATTRACTIVENESS OF SECTORS AND INDIVIDUAL SECURITIES, THE ADVISOR
CONSIDERS:
INTEREST RATE SENSITIVITY OF PARTICULAR SECTORS AND SECURITIES.
NARROWING OR WIDENING OF INTEREST RATE SPREADS BETWEEN SECTORS,
SECURITIES OF DIFFERENT CREDIT QUALITY OR SECURITIES OF DIFFERENT MATURITIES.
FOR MORTGAGE-BACKED AND ASSET-BACKED SECURITIES, ANTICIPATED CHANGES IN
AVERAGE PREPAYMENT RATES.
SUMMARY OF PAST PERFORMANCE
THE BAR CHART AND TOTAL RETURN TABLE INDICATE THE RISKS OF INVESTING IN THE
SERIES. THE BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE CLASS A SHARES
OF THE SERIES FOR EACH FULL CALENDAR YEAR SINCE ITS INCEPTION. THE TOTAL
RETURN TABLE SHOWS HOW THE AVERAGE ANNUAL TOTAL RETURNS FOR THE CLASS A SHARES
FOR DIFFERENT CALENDAR PERIODS COMPARE TO THOSE OF THE MERRILL LYNCH
CORPORATE/GOVERNMENT BOND INDEX, A MARKET VALUE WEIGHTED MEASURE OF
APPROXIMATELY 6,378 CORPORATE AND GOVERNMENT BONDS.
THE MERRILL LYNCH CORPORATE/GOVERNMENT BOND INDEX IS AN UNMANAGED INDEX OF
INVESTMENT GRADE CORPORATE AND GOVERNMENT BONDS WITH MATURITIES GREATER THAN
ONE YEAR.
[BAR CHART SHOWING THE PERCENT TOTAL RETURN FOR THE FLEXIBLE YIELD SERIES III
FOR 1994, 1995, 1996, 1997 AND 1998, WITH CALENDAR YEARS ENDED DECEMBER 31ST.
THE RESULTS ARE - 5.83% FOR 1994, 22.09% FOR 1995, 0.45% FOR 1996, 11.17% FOR
1997 AND NO RESULT FOR 1998. AS THE YEAR HAS NOT ENDED.]
<TABLE>
<CAPTION>
AVG. ANNUAL TOTAL RETURNS
(FOR PERIODS ENDED 12/31/98) 1 YEAR 5 YEARS SINCE INCEPTION ON 12/20/93
<S> <C> <C> <C>
CLASS A SHARES XX.XX% XX.XX% X.XX%
- ---------------------------- ------- -------- --------
INDEX:
MERRILL LYNCH
CORPORATE/GOVERNMENT
BOND INDEX XX.XX% XX.XX% XX.XX%
------- -------- --------
QUARTERLY RETURNS
HIGHEST: X.XX% IN XX QUARTER 19XX
LOWEST: X.XX% IN XX QUARTER 19XX
- ---------------------------- -------------------------
</TABLE>
PAST PERFORMANCE DOES NOT NECESSARILY INDICATE HOW THE SERIES WILL PERFORM IN
THE FUTURE.
<PAGE>
FLEXIBLE YIELD SERIES III
PRINCIPAL RISKS OF INVESTING IN THE SERIES
AS WITH MOST BOND FUNDS, THE VALUE OF YOUR INVESTMENT WILL FLUCTUATE WITH
CHANGES IN INTEREST RATES. THIS MEANS THAT YOU COULD LOSE MONEY ON YOUR
INVESTMENT IN THE SERIES OR THE SERIES COULD UNDERPERFORM IF ANY OF THE
FOLLOWING OCCURS:
INTEREST RATES GO UP, WHICH WILL MAKE BOND PRICES GO DOWN AND REDUCE THE
VALUE OF THE SERIES' PORTFOLIO.
THE ISSUER OF A BOND OWNED BY THE SERIES DEFAULTS ON ITS OBLIGATION TO
PAY PRINCIPAL AND/OR INTEREST OR HAS ITS CREDIT RATING DOWNGRADED. THIS RISK
IS HIGHER FOR LOWER QUALITY BONDS.
AS INTEREST RATES DECLINE, THE ISSUERS OF SECURITIES HELD BY THE SERIES
MAY PREPAY PRINCIPAL EARLIER THAN SCHEDULED, FORCING THE SERIES TO REINVEST IN
LOWER YIELDING SECURITIES (PREPAYMENT OR CALL RISK).
AS INTEREST RATES INCREASE, SLOWER THAN EXPECTED PRINCIPAL PAYMENTS MAY
EXTEND THE AVERAGE LIFE OF FIXED INCOME SECURITIES, LOCKING IN BELOW-MARKET
INTEREST RATES AND REDUCING THE VALUE OF THOSE SECURITIES (EXTENSION RISK).
THE ADVISOR'S JUDGMENTS ABOUT THE ATTRACTIVENESS, RELATIVE VALUE OR
POTENTIAL APPRECIATION OF A PARTICULAR SECTOR, SECURITY OR HEDGING STRATEGY
PROVE TO BE INCORRECT.
SINCE THE SERIES HAS NO STATED MATURITY TARGET, THE SERIES MAY EXPERIENCE
GREATER PRICE VOLATILITY IN REACTION TO CHANGING INTEREST RATES.
FEES AND EXPENSES OF THE SERIES
THIS TABLE DESCRIBES THE FEES AND EXPENSES YOU MAY PAY IF YOU INVEST IN SHARES
OF THE SERIES.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 10/31/98 FLEXIBLE
YIELD
SERIES III
<S> <C>
SHAREHOLDER FEES (PAID DIRECTLY FROM YOUR INVESTMENT) NONE
- -------------------------------------------------------------- ----------
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM
ASSETS OF THE SERIES)
- ----------------------------------------------------------------
MANAGEMENT FEE 0.50%
----------
DISTRIBUTION AND SERVICE (RULE 12B-1) FEES NONE
----------
OTHER EXPENSES 1.85%
----------
TOTAL ANNUAL FUND OPERATING EXPENSES 2.35%
----------
BECAUSE THE ADVISOR HAS AGREED TO LIMIT OPERATING EXPENSES,
ACTUAL EXPENSES WERE:
- -------------------------------------------------------------
MANAGEMENT FEE 0.00%
- ------------------------------------------------------------- ---------
OTHER EXPENSES 0.85%
---------
TOTAL ANNUAL FUND OPERATING EXPENSES 0.85%
---------
THE ADVISOR MAY CHANGE OR ELIMINATE THESE EXPENSE LIMITS AT ANY TIME.
- ----------------------------------------------------------------------
</TABLE>
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
SERIES WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT:
YOU INVEST $10,000 FOR THE PERIODS SHOWN
YOU REDEEM AT THE END OF EACH PERIOD
THE FUND'S OPERATING EXPENSES REMAIN THE SAME
YOUR INVESTMENT HAS A 5% RETURN EACH YEAR
<TABLE>
<CAPTION>
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER,
UNDER THESE ASSUMPTIONS YOUR COSTS WOULD BE:
<S> <C> <C> <C>
AFTER AFTER AFTER AFTER
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------- --------- -------- --------
$238 $ 733 $ 1,255 $ 2,686
WITH EXPENSE LIMITS, YOUR COSTS WOULD BE:
- ------------------------------------------
$87 $ 271 $ 471 $ 1,049
- -------- -------- -------- ---------
</TABLE>
<PAGE>
ABOUT THE SERIES' INVESTMENTS
PRINCIPAL INVESTMENTS
FIXED INCOME EACH SERIES MAY INVEST IN A VARIETY OF FIXED INCOME
SECURITIES. THESE SECURITIES MAY BE ISSUED BY THE U.S. GOVERNMENT OR ANY OF
ITS AGENCIES, FOREIGN GOVERNMENTS, SUPRANATIONAL ENTITIES SUCH AS THE WORLD
BANK, AND U.S. AND FOREIGN COMPANIES.
INVESTMENTS IN FIXED INCOME SECURITIES MAY BE OF ANY CREDIT QUALITY AND HAVE
ALL TYPES OF INTEREST RATE PAYMENT AND RESET TERMS, INCLUDING FIXED RATE,
ADJUSTABLE RATE, ZERO COUPON AND PAY IN KIND. LOWER QUALITY BONDS, COMMONLY
KNOWN AS "JUNK BONDS," ARE CONSIDERED SPECULATIVE BECAUSE THEY HAVE A HIGHER
RISK OF ISSUER DEFAULT, ARE SUBJECT TO GREATER PRICE VOLATILITY AND MAY BE
ILLIQUID.
MORTGAGE-BACKED SECURITIES MORTGAGE-BACKED SECURITIES MAY BE ISSUED BY
PRIVATE COMPANIES OR BY AGENCIES OF THE U.S. GOVERNMENT. MORTGAGE-BACKED
SECURITIES REPRESENT DIRECT OR INDIRECT PARTICIPATIONS IN, OR ARE
COLLATERALIZED BY AND PAYABLE FROM, MORTGAGE LOANS SECURED BY REAL PROPERTY.
FOR MORTGAGE DERIVATIVES AND STRUCTURED SECURITIES THAT HAVE IMBEDDED LEVERAGE
FEATURES, SMALL CHANGES IN INTEREST OR PREPAYMENT RATES MAY CAUSE LARGE AND
SUDDEN PRICE MOVEMENTS. MORTGAGE DERIVATIVES CAN ALSO BECOME ILLIQUID AND
HARD TO VALUE IN DECLINING MARKETS.
DERIVATIVE CONTRACTS
A DERIVATIVE CONTRACT WILL OBLIGATE OR ENTITLE A SERIES TO DELIVER OR RECEIVE
AN ASSET OR A CASH PAYMENT THAT IS BASED ON THE CHANGE IN VALUE OF A
DESIGNATED SECURITY, INDEX OR CURRENCY. THE SERIES MAY, BUT ARE NOT REQUIRED
TO, USE DERIVATIVE CONTRACTS FOR ANY OF THE FOLLOWING PURPOSES:
TO HEDGE AGAINST ADVERSE CHANGES IN THE MARKET VALUE OF SECURITIES HELD BY
OR TO BE BOUGHT FOR A SERIES. THESE CHANGES MAY BE CAUSED BY CHANGING
INTEREST RATES.
AS A SUBSTITUTE FOR PURCHASING OR SELLING SECURITIES.
TO SHORTEN OR LENGTHEN THE EFFECTIVE MATURITY OR DURATION OF A SERIES' FIXED
INCOME PORTFOLIO.
IN NON-HEDGING SITUATIONS, TO ATTEMPT TO PROFIT FROM ANTICIPATED MARKET
DEVELOPMENTS.
EVEN A SMALL INVESTMENT IN DERIVATIVE CONTRACTS CAN HAVE A BIG IMPACT ON
CURRENCY AND INTEREST RATE EXPOSURE. COUNTERPARTIES TO OVER-THE-COUNTER (OTC)
DERIVATIVE CONTRACTS PRESENT THE SAME TYPES OF DEFAULT RISK AS ISSUERS OF
FIXED INCOME SECURITIES. DERIVATIVES CAN ALSO MAKE A SERIES LESS LIQUID AND
HARDER TO VALUE, ESPECIALLY IN DECLINING MARKETS.
ADDITIONAL INVESTMENTS AND RISKS
FOREIGN SECURITIES EACH SERIES MAY INVEST IN U.S. DOLLAR DENOMINATED
SECURITIES OF FOREIGN ISSUERS (I.E., YANKEE BONDS). PRICES OF FOREIGN
SECURITIES MAY GO DOWN BECAUSE OF FOREIGN GOVERNMENT ACTIONS, POLITICAL
INSTABILITY OR THE MORE LIMITED AVAILABILITY OF ACCURATE INFORMATION ABOUT
FOREIGN COMPANIES. THESE RISKS MAY BE MORE SEVERE FOR SECURITIES OF ISSUERS
IN EMERGING MARKETS.
ASSET-BACKED SECURITIES ASSET-BACKED SECURITIES REPRESENT PARTICIPATIONS
IN, OR ARE SECURED BY AND PAYABLE FROM, ASSETS SUCH AS INSTALLMENT SALES OR
LOAN CONTRACTS, LEASES, CREDIT CARD RECEIVABLES AND OTHER CATEGORIES OF
RECEIVABLES.
CORRELATION RISK CHANGES IN THE VALUE OF DERIVATIVE CONTRACTS OR OTHER
HEDGING INSTRUMENTS MAY NOT MATCH OR FULLY OFFSET CHANGES IN THE VALUE OF THE
HEDGED PORTFOLIO SECURITIES.
<PAGE>
DEFENSIVE INVESTING
EACH SERIES MAY DEPART FROM ITS PRINCIPAL INVESTMENT STRATEGIES BY TAKING
TEMPORARY DEFENSIVE POSITIONS IN RESPONSE TO ADVERSE MARKET, ECONOMIC OR
POLITICAL CONDITIONS. IF A SERIES TAKES A TEMPORARY DEFENSIVE POSITION, IT
MAY BE UNABLE TO ACHIEVE ITS INVESTMENT GOAL.
THE SERIES' INVESTMENT GOALS
THE SERIES' BOARD OF DIRECTORS MAY CHANGE EACH SERIES' INVESTMENT GOAL
(DESCRIBED ABOVE UNDER "GOALS AND STRATEGIES") WITHOUT OBTAINING THE APPROVAL
OF THE SERIES' SHAREHOLDERS. A SERIES MIGHT NOT SUCCEED IN ACHIEVING ITS
GOAL.
ADVISOR
THE ADVISOR
EACH SERIES' ADVISOR IS EXETER ASSET MANAGEMENT, A DIVISION OF MANNING &
NAPIER ADVISORS, INC., 1100 CHASE SQUARE, ROCHESTER, NEW YORK 14604. THE
ADVISOR IS RESPONSIBLE FOR THE DAY-TO-DAY OPERATIONS OF THE SERIES AND
GENERALLY IS RESPONSIBLE FOR SUPERVISION OF THE SERIES' OVERALL BUSINESS
AFFAIRS, SERVICE PROVIDERS AND OFFICERS.
A TEAM MADE UP OF INVESTMENT PROFESSIONALS AND ANALYSTS EMPLOYED BY THE
ADVISOR MAKES ALL OF THE SERIES' INVESTMENT DECISIONS.
MANAGEMENT FEES
IN RETURN FOR THE SERVICES IT PROVIDES TO EACH SERIES, THE ADVISOR RECEIVES A
MANAGEMENT FEE, WHICH IS COMPUTED DAILY AND PAYABLE MONTHLY BY THE SERIES AS
DESCRIBED BELOW.
THE ADVISOR HAS AGREED TO LIMIT THE SERIES' MANAGEMENT FEES AND OTHER
EXPENSES. THESE LIMITATIONS ARE TEMPORARY AND MAY BE CHANGED AT ANY TIME.
<TABLE>
<CAPTION>
ANNUAL MANAGEMENT FEES (AS A PERCENTAGE OF DAILY NET ASSETS)
SERIES ACTUAL
MANAGEMENT CONTRACTUAL CURRENT
FEE PAID FOR MANAGEMENT EXPENSE
LIMITATION
FEE
YEAR ENDED 10/31/98
<S> <C> <C> <C>
FLEXIBLE YIELD SERIES I 0.00% 0.35% 0.70%
- ------------------------- ------------ ------------ --------
FLEXIBLE YIELD SERIES II 0.00% 0.45% 0.80%
- ------------------------ ------------ ------------ --------
FLEXIBLE YIELD SERIES III 0.00% 0.50% 0.85%
- ------------------------- ----------- ------------ --------
</TABLE>
THE DISTRIBUTOR
THE DISTRIBUTOR OF THE SERIES' SHARES IS MANNING & NAPIER INVESTOR SERVICES,
INC. CLASS A SHARES ARE OFFERED TO INVESTORS WHO PURCHASE SHARES DIRECTLY
FROM THE DISTRIBUTOR OR THROUGH CERTAIN REGISTERED INVESTMENT ADVISERS. CLASS
A SHARES ARE NOT SUBJECT TO ANY DISTRIBUTION OR SHAREHOLDER SERVICING FEES.
YEAR 2000 ISSUE
INFORMATION TECHNOLOGY EXPERTS ARE CONCERNED ABOUT COMPUTER SYSTEMS' ABILITY
TO PROCESS DATE-RELATED INFORMATION ON AND AFTER JANUARY 1, 2000. THIS
SITUATION, COMMONLY KNOWN AS THE "YEAR 2000" ISSUE, COULD HAVE AN ADVERSE
IMPACT ON THE SERIES. THE ADVISOR, THE TRANSFER AGENT AND THE DISTRIBUTOR ARE
ADDRESSING THE YEAR 2000 ISSUE FOR THEIR
SYSTEMS. THE SERIES HAVE BEEN INFORMED BY THEIR OTHER SERVICE PROVIDERS THAT
THEY ARE TAKING SIMILAR MEASURES. ALTHOUGH THE SERIES DO NOT EXPECT THE YEAR
2000 ISSUE TO ADVERSELY AFFECT THEM, THE SERIES CANNOT GUARANTEE THAT THE
EFFORTS OF THE SERIES OR THEIR SERVICE PROVIDERS TO CORRECT THE PROBLEM WILL
BE SUCCESSFUL.
<PAGE>
TO BUY SHARES
HOW TO BUY SHARES
THE MINIMUM INITIAL INVESTMENT IN EACH SERIES IS $2,000, AND THE MINIMUM FOR
EACH ADDITIONAL INVESTMENT IS $100. THE MINIMUM INVESTMENT REQUIREMENTS ARE
LOWER FOR PARTICIPANTS IN THE AUTOMATIC INVESTMENT PLAN, WHICH IS DESCRIBED
BELOW. THESE INVESTMENT MINIMUMS MAY BE WAIVED AT THE ADVISOR'S DISCRETION.
ALL ORDERS TO PURCHASE SHARES ACCEPTED BY THE DISTRIBUTOR, TRANSFER AGENT OR
OTHER AGENT BEFORE THE CLOSE OF TRADING ON THE NEW YORK STOCK EXCHANGE (NYSE)
WILL BE EXECUTED AT THAT DAY'S SHARE PRICE. ORDERS ACCEPTED AFTER THAT DAY'S
CLOSE WILL BE EXECUTED AT THE NEXT BUSINESS DAY'S PRICE. ALL ORDERS MUST
INCLUDE THE REQUIRED DOCUMENTATION AND BE ACCOMPANIED BY PROPER PAYMENT. EACH
SERIES RESERVES THE RIGHT TO REJECT PURCHASE ORDERS OR TO STOP OFFERING ITS
SHARES WITHOUT NOTICE TO SHAREHOLDERS.
BY MAIL
OPENING AN ACCOUNT
SEND A CHECK PAYABLE TO EXETER FUND, INC., WITH THE COMPLETED ORIGINAL
ACCOUNT APPLICATION. THE ADDRESS IS:
EXETER FUND, INC.
P.O. BOX 41118
ROCHESTER, NY 14604
TO REQUEST AN ACCOUNT APPLICATION, CALL THE FUND AT 1-800-466-3863.
ADDING TO AN ACCOUNT
SEND A CHECK PAYABLE TO EXETER FUND, INC. AND A LETTER OF INSTRUCTION
WITH THE NAME OF THE SERIES TO BE PURCHASED AND THE ACCOUNT NAME AND NUMBER.
BY WIRE
OPENING AN ACCOUNT
OR
ADDING TO AN ACCOUNT
AFTER THE FUND HAS RECEIVED YOUR COMPLETED ACCOUNT APPLICATION, YOU MAY
WIRE FUNDS TO OPEN OR ADD SHARES TO YOUR ACCOUNT. BEFORE SENDING A WIRE,
CALL 1-800-466-3863 FOR WIRE INSTRUCTIONS.
AUTOMATIC INVESTMENT PLAN
YOU MAY PARTICIPATE IN THE AUTOMATIC INVESTMENT PLAN BY COMPLETING THE
APPLICABLE SECTION OF THE ACCOUNT APPLICATION OR CONTACTING THE FUND. THROUGH
THE PLAN, YOU CAN AUTHORIZE TRANSFERS OF A SPECIFIED AMOUNT FROM YOUR BANK
ACCOUNT INTO THE SERIES ON A REGULAR BASIS. THE MINIMUM AMOUNT OF EACH
INVESTMENT IS $25. IF YOU HAVE INSUFFICIENT FUNDS IN YOUR ACCOUNT TO COMPLETE
A TRANSFER, YOUR BANK MAY CHARGE YOU A FEE.
<PAGE>
HOW TO EXCHANGE AND HOW TO REDEEM SHARESHOW TO EXCHANGE AND HOW TO REDEEM
TO EXCHANGE AND HOW TO REDEEM SHARES
HOW TO EXCHANGE SHARES
YOU MAY EXCHANGE CLASS A SHARES OF A SERIES FOR CLASS A SHARES OF ANY OTHER
SERIES OF EXETER FUND, IF THE REGISTRATION OF BOTH ACCOUNTS IS IDENTICAL. IF
RECEIVED WITH PROPER DOCUMENTATION BEFORE THE CLOSE OF TRADING ON THE NYSE,
EXCHANGE REQUESTS WILL BE EXECUTED AT THAT DAY'S SHARE PRICES. OTHERWISE,
THEY WILL BE EXECUTED AT THE PRICES DETERMINED ON THE NEXT BUSINESS DAY AFTER
RECEIPT WITH PROPER DOCUMENTATION.
THE MINIMUM EXCHANGE AMOUNT IS $1,000 (OR ALL THE SHARES IN YOUR ACCOUNT, IF
LESS THAN $1,000). YOU MAY EXCHANGE UP TO 4 TIMES DURING ANY 12-MONTH PERIOD
WITHOUT PAYING A SALES CHARGE OR ANY OTHER FEE. FOR ANY ADDITIONAL EXCHANGES,
YOU MAY BE CHARGED $15 PER EXCHANGE. A SERIES MAY REFUSE ANY EXCHANGE ORDER
AND MAY ALTER, LIMIT OR SUSPEND ITS EXCHANGE PRIVILEGE ON 60 DAYS' NOTICE. AN
EXCHANGE INVOLVES A TAXABLE REDEMPTION OF SHARES SURRENDERED IN THE EXCHANGE.
BY MAIL
SEND A LETTER OF INSTRUCTION TO EXETER FUND, INC., AT THE ADDRESS ON THE
OPPOSITE PAGE, SIGNED BY EACH REGISTERED ACCOUNT OWNER, EXACTLY AS YOUR NAMES
APPEAR ON THE ACCOUNT REGISTRATION.
PROVIDE THE NAME OF THE CURRENT SERIES, CLASS OF SHARES, SERIES TO
EXCHANGE INTO AND DOLLAR AMOUNT TO BE EXCHANGED.
PROVIDE BOTH ACCOUNT NUMBERS.
BY TELEPHONE
UNLESS YOU HAVE DECLINED TELEPHONE PRIVILEGES, CALL THE FUND AT
1-800-466-3863.
PROVIDE THE NAME OF THE CURRENT SERIES, CLASS OF SHARES, SERIES TO
EXCHANGE INTO AND DOLLAR AMOUNT TO BE EXCHANGED.
PROVIDE BOTH ACCOUNT NUMBERS.
THE FUND MAY ASK FOR IDENTIFICATION, AND ALL TELEPHONE TRANSACTIONS ARE
RECORDED.
HOW TO REDEEM SHARES
ALL ORDERS TO REDEEM SHARES ACCEPTED BY THE DISTRIBUTOR, TRANSFER AGENT OR
OTHER AGENT BEFORE THE CLOSE OF TRADING ON THE NYSE WILL BE EXECUTED AT THAT
DAY'S SHARE PRICE. ORDERS ACCEPTED AFTER THE CLOSE OF TRADING WILL BE
EXECUTED AT THE NEXT BUSINESS DAY'S PRICE. ALL REDEMPTION ORDERS MUST INCLUDE
THE REQUIRED DOCUMENTATION AND SIGNATURES. EACH SERIES MAY POSTPONE PAYMENT
OF REDEMPTION PROCEEDS FOR UP TO SEVEN DAYS, OR SUSPEND REDEMPTIONS TO THE
EXTENT PERMITTED BY LAW. IF YOU RECENTLY PURCHASED YOUR SHARES BY CHECK, YOUR
REDEMPTION PROCEEDS WILL NOT BE SENT TO YOU FOR 15 DAYS.
BY MAIL
SEND A LETTER OF INSTRUCTION TO EXETER FUND, INC., AT THE ADDRESS ON THE
OPPOSITE PAGE SIGNED BY EACH REGISTERED ACCOUNT OWNER.
STATE THE NAME OF THE SERIES, THE CLASS AND NUMBER OF SHARES OR DOLLAR
AMOUNT TO BE SOLD.
PROVIDE THE ACCOUNT NUMBER.
SIGNATURE GUARANTEES MAY BE REQUIRED.
ADDITIONAL DOCUMENTATION MAY BE REQUIRED (CALL THE FUND FOR DETAILS).
<PAGE>
AND ACCOUNT INFORMATION
ACCOUNTS WITH LOW BALANCES
IF YOUR ACCOUNT FALLS BELOW $1,000 DUE TO THE REDEMPTION OF SHARES, THE FUND
MAY ASK YOU TO BRING YOUR ACCOUNT UP TO THE MINIMUM REQUIREMENT. IF YOUR
ACCOUNT IS STILL BELOW $1,000 AFTER 60 DAYS, THE FUND MAY CLOSE YOUR ACCOUNT
AND SEND YOU THE REDEMPTION PROCEEDS.
IN-KIND PURCHASES AND REDEMPTIONS
SECURITIES YOU OWN MAY BE USED TO PURCHASE SHARES OF A SERIES. THE ADVISOR
WILL DETERMINE IF ACQUIRING THE SECURITIES IS CONSISTENT WITH THE SERIES' GOAL
AND POLICIES. IF ACCEPTED, THE SECURITIES WILL BE VALUED THE SAME WAY THE
SERIES VALUES SECURITIES IT ALREADY OWNS.
A SERIES MAY MAKE PAYMENT FOR SHARES IN PART BY GIVING YOU PORTFOLIO
SECURITIES. AS A REDEEMING SHAREHOLDER, YOU WILL PAY TRANSACTION COSTS TO
DISPOSE OF THESE SECURITIES.
SIGNATURE GUARANTEES
A SIGNATURE GUARANTEE MAY BE REQUIRED FOR ANY WRITTEN REQUEST TO SELL SHARES,
OR TO CHANGE THE ACCOUNT REGISTRATION.
THE TRANSFER AGENT WILL ACCEPT SIGNATURE GUARANTEES FROM:
MEMBERS OF THE STAMP PROGRAM OR THE NYSE'S MEDALLION SIGNATURE PROGRAM.
A BROKER OR SECURITIES DEALER.
A FEDERAL SAVINGS, COOPERATIVE OR OTHER TYPE OF BANK.
A SAVINGS AND LOAN OR OTHER THRIFT INSTITUTION.
A CREDIT UNION.
A SECURITIES EXCHANGE OR CLEARING AGENCY.
A NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
VALUATION OF SHARES
EACH SERIES OFFERS ITS SHARES AT THE NET ASSET VALUE (NAV) PER SHARE OF THE
SERIES. EACH SERIES CALCULATES ITS NAV ONCE DAILY AS OF THE CLOSE OF REGULAR
TRADING ON THE NEW YORK STOCK EXCHANGE (GENERALLY AT 4:00 P.M., NEW YORK TIME)
ON EACH DAY THE EXCHANGE IS OPEN. IF THE EXCHANGE CLOSES EARLY, THE SERIES
WILL ACCELERATE THE CALCULATION OF NAV AND TRANSACTION DEADLINES TO THAT TIME.
EACH SERIES VALUES THE SECURITIES IN ITS PORTFOLIO ON THE BASIS OF MARKET
QUOTATIONS AND VALUATIONS PROVIDED BY INDEPENDENT PRICING SERVICES. IF
QUOTATIONS ARE NOT READILY AVAILABLE, OR THE VALUE OF A SECURITY HAS BEEN
MATERIALLY AFFECTED BY EVENTS OCCURRING AFTER THE CLOSING OF A FOREIGN
EXCHANGE, EACH SERIES VALUES ITS ASSETS BY A METHOD THAT THE DIRECTORS BELIEVE
ACCURATELY REFLECTS FAIR VALUE. A SERIES THAT USES FAIR VALUE TO PRICE
SECURITIES MAY VALUE THOSE SECURITIES HIGHER OR LOWER THAN ANOTHER SERIES THAT
USES MARKET QUOTATIONS TO PRICE THE SAME SECURITIES.
<PAGE>
DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
THE SERIES EACH GENERALLY:
PAY DIVIDENDS QUARTERLY, IN MARCH, JUNE, SEPTEMBER AND DECEMBER.
MAKES CAPITAL GAINS DISTRIBUTIONS, IF ANY, ONCE A YEAR, TYPICALLY IN
DECEMBER.
A SERIES MAY PAY ADDITIONAL DISTRIBUTIONS AND DIVIDENDS AT OTHER TIMES IF
NECESSARY FOR THE SERIES TO AVOID A FEDERAL TAX. CAPITAL GAIN DISTRIBUTIONS
AND DIVIDENDS ARE REINVESTED IN ADDITIONAL SHARES OF THE SAME CLASS THAT YOU
HOLD. ALTERNATIVELY, YOU CAN INSTRUCT THE TRANSFER AGENT IN WRITING OR BY
TELEPHONE TO HAVE YOUR CAPITAL GAINS AND/OR DIVIDENDS PAID IN CASH. YOU CAN
CHANGE YOUR CHOICE AT ANY TIME TO BE EFFECTIVE AS OF THE NEXT DISTRIBUTION OR
DIVIDEND, EXCEPT THAT ANY CHANGE GIVEN TO THE TRANSFER AGENT AFTER THE RECORD
DATE WILL NOT BE EFFECTIVE UNTIL THE NEXT DISTRIBUTION OR DIVIDEND IS MADE.
NO INTEREST WILL ACCRUE ON AMOUNTS REPRESENTED BY UNCASHED DISTRIBUTION OR
REDEMPTION CHECKS.
TAXES
TRANSACTION FEDERAL TAX STATUS
REDEMPTION OR EXCHANGE OF SHARES USUALLY TAXABLE AS CAPITAL GAIN OR LOSS;
LONG-TERM ONLY IF SHARES OWNED
MORE THAN ONE YEAR
LONG-TERM CAPITAL GAIN DISTRIBUTIONS TAXABLE AS LONG-TERM CAPITAL GAIN
SHORT-TERM CAPITAL GAIN DISTRIBUTIONS TAXABLE AS ORDINARY INCOME
DIVIDENDS TAXABLE AS ORDINARY INCOME
IF YOU ARE A TAXABLE INVESTOR, YOU MAY WANT TO AVOID BUYING SHARES WHEN THE
SERIES IS ABOUT TO DECLARE A CAPITAL GAIN DISTRIBUTION OR A DIVIDEND, BECAUSE
IT WILL BE TAXABLE TO YOU EVEN THOUGH IT MAY ACTUALLY BE A RETURN OF A PORTION
OF YOUR INVESTMENT.
AFTER THE END OF EACH YEAR, THE SERIES WILL PROVIDE YOU WITH INFORMATION ABOUT
THE DISTRIBUTIONS AND DIVIDENDS THAT YOU RECEIVED AND ANY REDEMPTIONS OF
SHARES DURING THE PREVIOUS YEAR. IN CALCULATING YOUR GAIN OR LOSS ON ANY SALE
OF SHARES, NOTE THAT YOUR TAX BASIS IN YOUR SHARES IS INCREASED BY THE AMOUNTS
OF DIVIDENDS AND DISTRIBUTIONS THAT YOU HAVE REINVESTED IN A SERIES.
DIVIDENDS AND DISTRIBUTIONS ARE TAXABLE AS DESCRIBED ABOVE WHETHER RECEIVED IN
CASH OR REINVESTED. IF YOU DO NOT PROVIDE THE SERIES WITH YOUR CORRECT
TAXPAYER IDENTIFICATION NUMBER AND ANY REQUIRED CERTIFICATIONS, YOU MAY BE
SUBJECT TO BACK-UP WITHHOLDING OF 31% OF YOUR DISTRIBUTIONS, DIVIDENDS AND
REDEMPTION PROCEEDS. BECAUSE EACH SHAREHOLDER'S CIRCUMSTANCES ARE DIFFERENT
AND SPECIAL TAX RULES MAY APPLY, YOU SHOULD CONSULT WITH YOUR TAX ADVISER
ABOUT YOUR INVESTMENT IN THE SERIES AND YOUR RECEIPT OF DIVIDENDS,
DISTRIBUTIONS OR REDEMPTION PROCEEDS.
HIGHLIGHTS
THE INFORMATION IN THE TABLES FOLLOWING WAS AUDITED BY DELOITTE & TOUCHE LLP,
INDEPENDENT ACCOUNTANTS, WHOSE REPORT, ALONG WITH EACH SERIES' FINANCIAL
STATEMENTS, ARE INCLUDED IN ITS ANNUAL REPORT (AVAILABLE UPON REQUEST).
CERTAIN INFORMATION REFLECTS FINANCIAL RESULTS FOR A SINGLE SHARE. TOTAL
RETURNS REPRESENT THE RATE THAT A SHAREHOLDER WOULD HAVE EARNED ON AN
INVESTMENT IN A CLASS (ASSUMING REINVESTMENT OF ALL DIVIDENDS AND
DISTRIBUTIONS).
FLEXIBLE YIELD SERIES I - CLASS A SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FOR THE FOR THE FOR THE FOR THE
YEAR YEAR TEN YEAR
ENDED ENDED MONTHS ENDED ENDED
10/31/98 10/31/97 10/31/96 12/31/95
PER SHARE DATA (FOR A
SHARE OUTSTANDING
THROUGHOUT EACH PERIOD):
- ----------------------------
NET ASSET VALUE -
BEGINNING OF PERIOD $ 10.39 $ 10.27 $ 10.26 $ 9.69
INCOME FROM INVESTMENT
OPERATIONS:
- -----------------------------
NET INVESTMENT INCOME* 0.47 0.50 0.41 0.46
- ----------------------------- --------- -------- ---------- -------
NET REALIZED AND
UNREALIZED GAIN (LOSS) 0.29 0.10 (0.10) 0.57
ON INVESTMENTS
- -----------------------------
TOTAL FROM INVESTMENT
OPERATIONS 0.76 0.60 0.31 1.03
LESS DISTRIBUTIONS
TO SHAREHOLDERS:
- -----------------------------
FROM NET INVESTMENT INCOME (0.57) (0.45) (0.30) (0.46)
- ---------------------------- ---------- --------- --------- --------
FROM NET REALIZED
GAIN ON INVESTMENTS - (0.03) - -
- ------------------------------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS (0.57) (0.48) (0.30) (0.46)
NET ASSET VALUE -
END OF PERIOD $ 10.58 $ 10.39 $ 10.27 $ 10.26
TOTAL RETURN1 7.57% 6.07% 3.11% 10.79%
- ------------------------------ ------- --------- -------- --------
RATIOS (TO AVERAGE NET ASSETS)
/SUPPLEMENTAL DATA:
- -----------------------------
EXPENSES* 0.70% 0.70% 0.70%2 0.70%
- ---------------------------- ------- -------- -------- -------
NET INVESTMENT INCOME* 5.04% 5.29% 5.25%2 4.99%
- --------------------------- ------- -------- -------- --------
PORTFOLIO TURNOVER 53% 77% 36% 60%
- ---------------------------
NET ASSETS - END OF PERIOD
(000'S OMITTED) $ 1,144 $ 650 $ 493 $ 256
- ---------------------------
<FN>
THE INVESTMENT ADVISOR DID NOT IMPOSE ITS MANAGEMENT FEE AND PAID A PORTION
OF THE SERIES' EXPENSES. IF THESE EXPENSES HAD BEEN INCURRED BY THE SERIES,
AND HAD THE 1994, 1995 AND 1996 EXPENSES BEEN LIMITED TO THAT ALLOWED BY
STATES SECURITIES LAW, THE NET INVESTMENT INCOME PER SHARE AND RATIOS WOULD
HAVE BEEN AS FOLLOWS:
INVESTMENT INCOME $0.12 $0.21 $0.27 $0.30
RATIOS (TO AVERAGE NET ASSETS):
EXPENSES 4.49% 3.83% 2.50%2 2.50%
INVESTMENT INCOME 1.25% 2.16% 3.45%2 3.19%
1 REPRESENTS AGGREGATE TOTAL RETURN FOR THE PERIOD INDICATED.
2 ANNUALIZED.
<S> <C>
FOR THE PERIOD
2/15/94
(COMMENCEMENT OF
OPERATIONS) TO
12/31/94
PER SHARE DATA (FOR A SHARE
OUTSTANDING THROUGHOUT EACH PERIOD):
- --------------------------------------------------
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
- --------------------------------------------------
NET INVESTMENT INCOME* 0.24
- -------------------------------------------------- ------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) (0.32)
ON INVESTMENTS
- --------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS (0.08)
LESS DISTRIBUTIONS TO SHAREHOLDERS:
- --------------------------------------------------
FROM NET INVESTMENT INCOME (0.23)
- -------------------------------------------------- ------------------
FROM NET REALIZED GAIN ON -
INVESTMENTS
- --------------------------------------------------
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (0.23)
NET ASSET VALUE - END OF PERIOD $ 9.69
TOTAL RETURN1 (0.76)%
- -------------------------------------------------- ------------------
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
- --------------------------------------------------
EXPENSES* 0.70%2
- -------------------------------------------------- ------------------
NET INVESTMENT INCOME* 4.41%2
- -------------------------------------------------- ------------------
PORTFOLIO TURNOVER 38%
- --------------------------------------------------
NET ASSETS - END OF PERIOD (000'S $ 231
OMITTED)
- --------------------------------------------------
<FN>
THE INVESTMENT ADVISOR DID NOT IMPOSE ITS MANAGEMENT FEE AND PAID A PORTION
OF THE SERIES' EXPENSES. IF THESE EXPENSES HAD BEEN INCURRED BY THE SERIES,
AND HAD THE 1994, 1995 AND 1996 EXPENSES BEEN LIMITED TO THAT ALLOWED BY
STATES SECURITIES LAW, THE NET INVESTMENT INCOME PER SHARE AND RATIOS WOULD
HAVE BEEN AS FOLLOWS:
$0.14
RATIOS (TO AVERAGE NET ASSETS):
2.50%2
2.61%2
1 REPRESENTS AGGREGATE TOTAL RETURN FOR THE PERIOD INDICATED.
2 ANNUALIZED.
</TABLE>
<PAGE>
FLEXIBLE YIELD SERIES II - CLASS A SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FOR THE
FOR THE FOR THE YEAR TEN MONTHS
YEAR ENDED ENDED
ENDED 10/31/97 10/31/96
10/31/98
PER SHARE DATA (FOR A SHARE OUTSTANDING
THROUGHOUT EACH PERIOD):
- -----------------------------------------
NET ASSET VALUE - BEGINNING OF PERIOD $10.23 $ 10.10 $10.30
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME* 0.57 0.53 0.45
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 0.38 0.21 (0.32)
TOTAL FROM INVESTMENT OPERATIONS 0.95 0.74 0.13
LESS DISTRIBUTIONS TO SHAREHOLDERS:
FROM NET INVESTMENT INCOME (0.59) (0.60) (0.27)
FROM NET REALIZED GAIN ON INVESTMENTS (0.09) (0.01) (0.06)
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (0.68) (0.61) (0.33)
NET ASSET VALUE - END OF PERIOD $ 10.50 $ 10.23 $10.10
TOTAL RETURN1 9.78% 7.61% 1.38%
RATIOS (TO AVERAGE NET
ASSETS)/SUPPLEMENTAL DATA:
EXPENSES* 0.80% 0.80% 0.80%2
NET INVESTMENT INCOME* 5.21% 5.46% 5.55%2
PORTFOLIO TURNOVER 31% 58% 5%
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 699 $ 718 $ 481
<FN>
THE INVESTMENT ADVISOR DID NOT IMPOSE ITS MANAGEMENT FEE AND PAID A PORTION
OF THE SERIES' EXPENSES. IF THESE EXPENSES HAD BEEN INCURRED BY THE SERIES,
AND HAD 1994, 1995 AND 1996 EXPENSES BEEN LIMITED TO THAT ALLOWED BY STATE
SECURITIES LAW, THE NET INVESTMENT INCOME PER SHARE AND THE RATIOS WOULD
HAVE BEEN AS FOLLOWS:
NET INVESTMENT INCOME $0.15 $0.24 $0.31
RATIOS (TO AVERAGE NET ASSETS):
EXPENSES 4.70% 3.72% 2.50%2
INVESTMENT INCOME 1.31% 2.54% 3.85%2
1 REPRESENTS AGGREGATE TOTAL RETURN FOR THE PERIOD INDICATED.
2 ANNUALIZED.
<S> <C> <C>
FOR THE YEAR FOR THE
ENDED PERIOD
12/31/95 2/15/94
(COMMENCEMENT
OF OPERATIONS)
TO 12/31/94
PER SHARE DATA (FOR A SHARE OUTSTANDING
THROUGHOUT EACH PERIOD):
- ------------------------------------------
NET ASSET VALUE - BEGINNING OF PERIOD $ 9.27 $ 10.00
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME* 0.56 0.27
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
1.02 (0.74)
TOTAL FROM INVESTMENT OPERATIONS 1.58 (0.47)
LESS DISTRIBUTIONS TO SHAREHOLDERS:
FROM NET INVESTMENT INCOME (0.55) (0.26)
FROM NET REALIZED GAIN ON INVESTMENTS - -
TOTAL DISTRIBUTIONS TO SHAREHOLDERS (0.55) (0.26)
NET ASSET VALUE - END OF PERIOD $ 10.30 $ 9.27
TOTAL RETURN1 17.33% (4.69)%
RATIOS (TO AVERAGE NET
ASSETS)/SUPPLEMENTAL DATA:
EXPENSES* 0.80% 0.80%2
NET INVESTMENT INCOME* 5.38% 5.40%2
PORTFOLIO TURNOVER 35% 0%
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 438 $ 396
<FN>
THE INVESTMENT ADVISOR DID NOT IMPOSE ITS MANAGEMENT FEE AND PAID A PORTION
OF THE SERIES' EXPENSES. IF THESE EXPENSES HAD BEEN INCURRED BY THE SERIES,
AND HAD 1994, 1995 AND 1996 EXPENSES BEEN LIMITED TO THAT ALLOWED BY STATE
SECURITIES LAW, THE NET INVESTMENT INCOME PER SHARE AND THE RATIOS WOULD
HAVE BEEN AS FOLLOWS:
NET INVESTMENT INCOME $0.38 $0.18
RATIOS (TO AVERAGE NET ASSETS):
EXPENSES 2.50% 2.50%2
INVESTMENT INCOM 3.68% 3.70%2
1 REPRESENTS AGGREGATE TOTAL RETURN FOR THE PERIOD INDICATED.
2 ANNUALIZED.
</TABLE>
<PAGE>
FLEXIBLE YIELD SERIES III - CLASS A SHARES
<TABLE>
<CAPTION>
<S> <C> <C>
FOR THE YEAR FOR THE YEAR
ENDED 10/31/98 ENDED 10/31/97
PER SHARE DATA (FOR A SHARE
OUTSTANDING THROUGHOUT THE
PERIOD):
- ----------------------------------
NET ASSET VALUE - BEGINNING OF $10.41 $ 10.13
PERIOD
- ----------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
NET INVESTMENT INCOME* 0.53 0.58
NET REALIZED AND UNREALIZED 0.69 0.36
GAIN (LOSS) ON
INVESTMENTS
- ---------------------------------------------------------------
TOTAL FROM INVESTMENT OPERATIONS 1.22 0.94
LESS DISTRIBUTIONS TO
SHAREHOLDERS:
FROM NET INVESTMENT INCOME (0.56) (0.61)
FROM NET REALIZED GAIN ON
INVESTMENTS (0.01) (0.05)
TOTAL DISTRIBUTIONS TO (0.57) (0.66)
SHAREHOLDERS
- -----------------------------------
NET ASSET VALUE - END OF PERIOD $ 11.06 $ 10.41
TOTAL RETURN1 12.15% 9.73%
- ----------------------------- ---------------- ----------------
RATIOS (TO AVERAGE NET
ASSETS)/SUPPLEMENTAL DATA:
- --------------------------------
EXPENSES* 0.85% 0.85%
---------------- ----------------
NET INVESTMENT INCOME* 5.25% 5.82%
---------------- ----------------
PORTFOLIO TURNOVER 20% 51%
- ------------------------------ ---------------- ----------------
NET ASSETS - END OF PERIOD $ 1,749 $1,345
(000'S OMITTED)
- ---------------------------------------------------------------
<FN>
*THE INVESTMENT ADVISOR DID NOT IMPOSE ITS MANAGEMENT FEE AND
PAID A PORTION OF THE SERIES' EXPENSES. IF THESE EXPENSES HAD BEEN INCURRED
BY THE SERIES, AND HAD 1993, 1994 AND 1996 EXPENSES BEEN LIMITED TO THAT
ALLOWED BY STATE SECURITIES LAW, THE NET INVESTMENT INCOME PER SHARE AND
THE RATIOS WOULD HAVE BEEN AS FOLLOWS:
NET INVESTMENT INCOME $0.38 $0.44
RATIOS (TO AVERAGE NET ASSETS):
EXPENSES 2.35% 2.28%
INVESTMENT INCOME 3.75% 4.39%
1 REPRESENTS AGGREGATE TOTAL RETURN FOR THE PERIOD INDICATED.
2 ANNUALIZED.
<S> <C> <C> <C> <C>
FOR THE FOR THE FOR THE FOR THE
TEN MONTHS YEAR YEAR PERIOD
ENDED ENDED ENDED 12/20/93
10/31/96 10/31/95 12/31/94 (COMMENCEMENT
OF OPERATIONS)
TO 12/31/93
PER SHARE DATA (FOR A SHARE
OUTSTANDING THROUGHOUT THE
PERIOD):
- ---------------------------
NET ASSET VALUE - BEGINNING
OF PERIOD $10.51 $ 9.11 $ 9.95 $10.00
- -----------------------------
INCOME FROM INVESTMENT
OPERATIONS:
NET INVESTMENT INCOME* 0.50 0.58 0.26 0.01
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (0.53) 1.39 (0.84) (0.05)
- -----------------------------
TOTAL FROM INVESTMENT OPERATIONS (0.03) 1.97 (0.58) (0.04)
LESS DISTRIBUTIONS TO
SHAREHOLDERS:
FROM NET INVESTMENT INCOME (0.35) (0.57) (0.26) (0.01)
FROM NET REALIZED GAIN ON
INVESTMENTS - - - -
TOTAL DISTRIBUTIONS TO (0.35) (0.57) (0.26) (0.01)
SHAREHOLDERS
- --------------------------------
NET ASSET VALUE - END OF PERIOD $ 10.13 $ 10.51 $9.11 $ 9.95
TOTAL RETURN1 (0.18)% 22.09% (5.83)% (0.40)%
- ------------------------------- ---------- ------ -------- --------
RATIOS (TO AVERAGE NET
ASSETS)/SUPPLEMENTAL DATA:
- --------------------------------
EXPENSES* 0.85%2 0.85% 0.85% 0.85%2
--------- ------ ------- --------
NET INVESTMENT INCOME* 5.98%2 6.13% 6.22% 3.85%2
--------- ------ ------- ---------
PORTFOLIO TURNOVER 5% 6% 1% 0%
- --------------------
NET ASSETS - END OF PERIOD $ 1,098 $ 1,159 $ 748 $ 75
(000'S OMITTED)
- ---------------------------
<FN>
*THE INVESTMENT ADVISOR DID NOT IMPOSE ITS MANAGEMENT FEE AND PAID
A PORTION OF THE SERIES' EXPENSES. IF THESE EXPENSES HAD BEEN INCURRED BY
THE SERIES, AND HAD 1993, 1994 AND 1996 EXPENSES BEEN LIMITED TO THAT
ALLOWED BY STATE SECURITIES LAW, THE NET INVESTMENT INCOME PER SHARE AND
THE RATIOS WOULD HAVE BEEN AS FOLLOWS:
NET INVESTMENT INCOME $0.36 $0.43 $0.19 $0.01
RATIOS (TO AVERAGE NET ASSETS):
EXPENSES 2.50%2 2.46% 2.50% 2.50%2
INVESTMENT INCOME 4.33%2 4.52% 4.57% 2.20%2
</TABLE>
1 REPRESENTS AGGREGATE TOTAL RETURN FOR THE PERIOD INDICATED.
2 ANNUALIZED.
<PAGE>
[BACK COVER PAGE]
EXETER FUND, INC.
FLEXIBLE YIELD SERIES I
FLEXIBLE YIELD SERIES II
FLEXIBLE YIELD SERIES III
SHAREHOLDER REPORTS AND THE STATEMENT OF ADDITIONAL INFORMATION (SAI). ANNUAL
AND SEMIANNUAL REPORTS TO SHAREHOLDERS PROVIDE ADDITIONAL INFORMATION ABOUT
EACH SERIES' INVESTMENTS. THESE REPORTS DISCUSS THE MARKET CONDITIONS AND
INVESTMENT STRATEGIES THAT SIGNIFICANTLY AFFECTED EACH SERIES' PERFORMANCE
DURING ITS LAST FISCAL YEAR. THE SAI PROVIDES MORE DETAILED INFORMATION ABOUT
EACH SERIES. IT IS INCORPORATED BY REFERENCE INTO THIS COMBINED PROSPECTUS.
HOW TO OBTAIN THESE REPORTS AND ADDITIONAL INFORMATION.
YOU MAY OBTAIN SHAREHOLDER REPORTS AND THE SAI OR OTHER INFORMATION ABOUT
THE FUND WITHOUT CHARGE, BY CALLING 1-800-466-3863 OR SENDING WRITTEN
REQUESTS TO EXETER FUND, INC., P.O. BOX 41118, ROCHESTER, NEW YORK 14604.
YOU MAY REVIEW SHAREHOLDER REPORTS, THE PROSPECTUS AND SAI AT THE
SECURITIES AND EXCHANGE COMMISSION'S PUBLIC REFERENCE ROOM IN WASHINGTON,
D.C. THE SEC CHARGES A FEE FOR THIS SERVICE. INFORMATION ABOUT THE PUBLIC
REFERENCE ROOM MAY BE OBTAINED BY CALLING 1-800-SEC-0330. YOU CAN GET THE
SAME REPORTS AND INFORMATION FREE FROM THE SEC'S INTERNET WEB SITE
(HTTP://WWW.SEC.GOV).
IF SOMEONE MAKES A STATEMENT THAT IS NOT IN THIS PROSPECTUS ABOUT ANY OF THE
SERIES, YOU SHOULD NOT RELY UPON THAT INFORMATION. NEITHER THE SERIES NOR
THEIR DISTRIBUTOR IS OFFERING TO SELL SHARES OF THE SERIES TO ANY PERSON TO
WHOM THE SERIES MAY NOT LAWFULLY SELL THEIR SHARES.
INVESTMENT COMPANY ACT FILE NO. 811-04087
<PAGE>
[LOGO]
PROSPECTUS
EXETER FUND, INC.
MARCH 1, 1999
FLEXIBLE YIELD SERIES I
FLEXIBLE YIELD SERIES II
FLEXIBLE YIELD SERIES III
CLASS B, C, D AND E SHARES
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED ANY SERIES' SHARES AS
AN INVESTMENT OR DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE.
ANY STATEMENT TO THE CONTRARY IS A CRIME.
<PAGE>
CONTENTS
EXETER ASSET MANAGEMENT IS A DIVISION OF MANNING & NAPIER ADVISORS, INC.,
WHICH WAS FOUNDED IN 1970 AND MANAGES OVER $7 BILLION FOR INDIVIDUAL AND
INSTITUTIONAL INVESTORS.
PAGE
GOALS AND STRATEGIES 3
FLEXIBLE YIELD SERIES I 4
FLEXIBLE YIELD SERIES II 6
FLEXIBLE YIELD SERIES III 8
MORE ABOUT THE SERIES' INVESTMENTS 10
THE ADVISOR 11
HOW TO BUY AND HOW TO REDEEM SHARES 12
HOW TO EXCHANGE SHARES 13
INVESTMENT AND ACCOUNT INFORMATION 14
DIVIDENDS, DISTRIBUTIONS AND TAXES 15
YOU SHOULD KNOW
AN INVESTMENT IN A SERIES IS NOT A BANK DEPOSIT AND IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY.
<PAGE>
GOALS AND STRATEGIES
WHO MAY WANT TO INVEST
THE SERIES MAY BE APPROPRIATE FOR INVESTORS WHO:
ARE SEEKING A REGULAR STREAM OF INCOME.
ARE SEEKING HIGHER POTENTIAL RETURNS THAN MONEY MARKET FUNDS AND ARE
WILLING TO ACCEPT MODERATE RISK OF VOLATILITY.
WANT TO DIVERSIFY THEIR PORTFOLIOS.
ARE SEEKING A MUTUAL FUND FOR THE INCOME PORTION OF AN ASSET ALLOCATION
PORTFOLIO.
INVESTORS SHOULD CHOOSE WHICH SERIES IS RIGHT FOR THEM.
EACH SERIES INVESTS PRIMARILY IN FIXED INCOME SECURITIES. IN GENERAL, THE
VALUE OF A FIXED INCOME SECURITY WILL GO DOWN AS INTEREST RATES GO UP AND VICE
VERSA. THE SHORTER THE MATURITY OF A FIXED INCOME INVESTMENT, THE LESS ITS
VALUE WILL INCREASE OR DECREASE IN RESPONSE TO CHANGES IN INTEREST RATES.
THEREFORE, SHORTER MATURITY INVESTMENTS HAVE LESS SENSITIVITY TO INTEREST
RATES BUT LESS POTENTIAL FOR CAPITAL APPRECIATION. LONGER MATURITY
INSTRUMENTS TEND TO HAVE GREATER POTENTIAL FOR CAPITAL APPRECIATION BUT MORE
VOLATILITY.
IN COMPARING THE GROWTH AND RISK CHARACTERISTICS OF THE THREE FUNDS BELOW, YOU
SHOULD NOTE THAT THE AVERAGE MATURITY FOR FLEXIBLE YIELD SERIES II CAN BE
LONGER THAN THAT OF FLEXIBLE YIELD SERIES I. UNDER NORMAL CONDITIONS, THIS
WILL RESULT IN LOWER YIELDS FOR FLEXIBLE YIELD SERIES I, BUT A LOWER DEGREE OF
PRICE VOLATILITY IN RESPONSE TO CHANGES IN INTEREST RATES. FLEXIBLE YIELD
SERIES III HAS NO STATED MATURITY TARGET. RATHER, THE MATURITY IS ADJUSTED TO
CAPTURE WHAT THE ADVISOR BELIEVES TO BE THE MOST ATTRACTIVE SEGMENT OF THE
MARKET. THIS COULD RESULT IN GREATER VOLATILITY AS WELL AS GREATER POTENTIAL
GROWTH.
INVESTMENT RISK SPECTRUM
[LINE GRAPH REFLECTING THE INCREASING RETURN POTENTIAL (ON THE X-AXIS) AND THE
INCREASING VOLATILITY POTENTIAL (ON THE Y-AXIS) OF THE FLEXIBLE YIELD SERIES
I, FLEXIBLE YIELD SERIES II AND THE FLEXIBLE YIELD SERIES III. USING A LINE
WITH AN ARROW AT EACH END, THE RESULTS SHOW THE FLEXIBLE YIELD SERIES I WITH
THE LEAST RETURN POTENTIAL AND THE LEAST VOLATILITY POTENTIAL; MOVING UP THE
LINE, THE FLEXIBLE YIELD SERIES II IN THE MIDDLE OF THE LINE AND THE FLEXIBLE
YIELD SERIES III AT THE TOP, WITH THE GREATEST RETURN POTENTIAL AND THE
GREATEST VOLATILITY POTENTIAL OF THE THREE SERIES.]
THE ADVISOR WILL SELECT SHORTER MATURITY SECURITIES WHEN IT EXPECTS INTEREST
RATES TO RISE OR WHEN IT BELIEVES THE YIELDS ON LONGER TERM SECURITIES DO NOT
JUSTIFY THE ADDITIONAL RISKS INVOLVED. THE ADVISOR WILL BUY LONGER MATURITY
SECURITIES WHEN IT EXPECTS INTEREST RATES TO GO DOWN OR WHEN IT BELIEVES THAT
HIGHER YIELDS JUSTIFY THE ADDITIONAL RISKS.
<PAGE>
GOALS & STRATEGIES
FLEXIBLE YIELD SERIES I
INVESTMENT GOAL
THE HIGHEST LEVEL OF TOTAL RETURN (E.G., A COMBINATION OF INCOME AND CAPITAL
APPRECIATION) CONSISTENT WITH PRESERVATION OF CAPITAL.
KEY INVESTMENTS AND STRATEGIES
THE SERIES INVESTS PRIMARILY IN FIXED INCOME SECURITIES OF GOVERNMENTAL AND
CORPORATE ISSUERS LOCATED IN THE UNITED STATES. THESE INCLUDE MORTGAGE-BACKED
SECURITIES.
MATURITY
THE FUND GENERALLY MAINTAINS A DOLLAR-WEIGHTED AVERAGE MATURITY OF NOT MORE
THAN 5 YEARS BUT MAY INVEST IN INDIVIDUAL SECURITIES HAVING ANY MATURITY.
CREDIT QUALITY
THE FUND INVESTS PRIMARILY IN INVESTMENT GRADE SECURITIES BUT MAY INVEST UP TO
20% OF ASSETS IN LOWER QUALITY BONDS, COMMONLY KNOWN AS "JUNK BONDS."
BOND SELECTION PROCESS
THE ADVISOR EMPHASIZES THOSE BOND MARKET SECTORS AND SELECTS FOR THE SERIES
THOSE SECURITIES THAT IT BELIEVES OFFER YIELDS SUFFICIENT TO COMPENSATE THE
INVESTOR FOR THE RISKS SPECIFIC TO THE SECTOR OR SECURITY. IN ANALYZING THE
RELATIVE ATTRACTIVENESS OF SECTORS AND INDIVIDUAL SECURITIES, THE ADVISOR
CONSIDERS:
INTEREST RATE SENSITIVITY OF PARTICULAR SECTORS AND SECURITIES.
NARROWING OR WIDENING OF INTEREST RATE SPREADS BETWEEN SECTORS,
SECURITIES OF DIFFERENT CREDIT QUALITY OR SECURITIES OF DIFFERENT MATURITIES.
FOR MORTGAGE-BACKED AND ASSET-BACKED SECURITIES, ANTICIPATED CHANGES IN
AVERAGE PREPAYMENT RATES.
SUMMARY OF PAST PERFORMANCE
THE BAR CHART AND TOTAL RETURN TABLE INDICATE THE RISKS OF INVESTING IN THE
CLASS A SHARES OF THE SERIES. NO CLASS B, C, D OR E SHARES WERE OUTSTANDING
DURING THE PAST YEAR. CLASS B, C, D AND E SHARES WOULD HAVE DIFFERENT
PERFORMANCE DUE TO THEIR DIFFERENT EXPENSES. THE BAR CHART SHOWS CHANGES IN
THE PERFORMANCE OF THE CLASS A SHARES OF THE SERIES FOR EACH FULL CALENDAR
YEAR SINCE ITS INCEPTION. THE TOTAL RETURN TABLE SHOWS HOW THE AVERAGE ANNUAL
TOTAL RETURNS FOR THE CLASS A SHARES FOR DIFFERENT CALENDAR PERIODS COMPARE TO
THOSE OF THE MERRILL LYNCH U.S. TREASURY SHORT-TERM INDEX, A MARKET VALUE
WEIGHTED MEASURE OF APPROXIMATELY 59 U.S. TREASURY SECURITIES.
THE MERRILL LYNCH U.S. TREASURY SHORT-TERM INDEX IS AN UNMANAGED INDEX OF U.S.
TREASURY SECURITIES WITH MATURITIES RANGING FROM GREATER THAN ONE YEAR BUT
LESS THAN THREE YEARS.
[Bar chart showing the percent total return for the Flexible Yield Series I
for 1995, 1996, 1997 and 1998, with calendar years ended December 31st. The
results are 10.79% for 1995, 3.65% for 1996, 6.41% for 1997 and no result for
1998. As the year has not ended.]
<TABLE>
<CAPTION>
AVG. ANNUAL TOTAL RETURNS
(FOR PERIODS ENDED 12/31/98) 1 YEAR SINCE INCEPTION ON 2/15/94
<S> <C> <C>
CLASS A SHARES XX.XX% XX.XX%
- ------------------------------ ---------------- ------
INDEX:
- ------------------------------
MERRILL LYNCH U.S. TREASURY
SHORT-TERM INDEX XX.XX% XX.XX%
---------------- ------
QUARTERLY RETURNS
HIGHEST: X.XX% IN XX QUARTER 19XX
- ------------------------------ -------------------------
LOWEST: X.XX% IN XX QUARTER 19XX
- ------------------------------ -------------------------
</TABLE>
PAST PERFORMANCE DOES NOT NECESSARILY INDICATE HOW THE SERIES WILL PERFORM IN
THE FUTURE.
<PAGE>
GOALS AND STRATEGIES
FLEXIBLE YIELD SERIES I
PRINCIPAL RISKS OF INVESTING IN THE SERIES
AS WITH MOST BOND FUNDS, THE VALUE OF YOUR INVESTMENT WILL FLUCTUATE WITH
CHANGES IN INTEREST RATES. THIS MEANS THAT YOU COULD LOSE MONEY ON YOUR
INVESTMENT IN THE SERIES OR THE SERIES COULD UNDERPERFORM IF ANY OF THE
FOLLOWING OCCURS:
INTEREST RATES GO UP, WHICH WILL MAKE BOND PRICES GO DOWN AND REDUCE THE
VALUE OF THE SERIES' PORTFOLIO.
THE ISSUER OF A BOND OWNED BY THE SERIES DEFAULTS ON ITS OBLIGATION TO
PAY PRINCIPAL AND/OR INTEREST OR HAS ITS CREDIT RATING DOWNGRADED. THIS RISK
IS HIGHER FOR LOWER QUALITY BONDS.
AS INTEREST RATES DECLINE, THE ISSUERS OF SECURITIES HELD BY THE SERIES
MAY PREPAY PRINCIPAL EARLIER THAN SCHEDULED, FORCING THE SERIES TO REINVEST IN
LOWER YIELDING SECURITIES (PREPAYMENT OR CALL RISK).
AS INTEREST RATES INCREASE, SLOWER THAN EXPECTED PRINCIPAL PAYMENTS MAY
EXTEND THE AVERAGE LIFE OF FIXED INCOME SECURITIES, LOCKING IN BELOW-MARKET
INTEREST RATES AND REDUCING THE VALUE OF THOSE SECURITIES (EXTENSION RISK).
THE ADVISOR'S JUDGMENTS ABOUT THE ATTRACTIVENESS, RELATIVE VALUE OR
POTENTIAL APPRECIATION OF A PARTICULAR SECTOR, SECURITY OR HEDGING STRATEGY
PROVE TO BE INCORRECT.
THE ADVISOR'S EMPHASIS ON SECURITIES WITH SHORT-TERM MATURITIES WILL GENERALLY
RESULT IN THE SERIES HAVING A LOWER YIELD AND LOWER PRICE VOLATILITY.
FEES AND EXPENSES OF THE SERIES
SINCE NO CLASS B, C, D OR E SHARES WERE OUTSTANDING DURING THE PAST YEAR,
OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT FISCAL YEAR.
THIS TABLE DESCRIBES THE FEES AND EXPENSES YOU MAY PAY IF YOU INVEST IN SHARES
OF THE SERIES.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 10/31/98 CLASS B CLASS C CLASS D CLASS E
<S> <C> <C> <C> <C>
SHAREHOLDER FEES (PAID DIRECTLY
FROM YOUR INVESTMENT) NONE NONE NONE NONE
- -------------------------------------- -------- ----- -------- -----
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM
ASSETS OF THE SERIES)
- --------------------------------------
MANAGEMENT FEE 0.35% 0.35% 0.35% 0.35%
-------- ----- -------- -----
DISTRIBUTION AND SERVICE
(RULE 12B-1) FEES 1.00% 0.75% 0.50% 0.25%
-------- ----- -------- -----
OTHER EXPENSES 4.14% 4.14% 4.14% 4.14%
-------- ----- -------- -----
TOTAL ANNUAL FUND OPERATING EXPENSES 5.49% 5.24% 4.99% 4.74%
------- ----- -------- -----
BECAUSE THE ADVISOR HAS AGREED TO LIMIT OPERATING EXPENSES,
ACTUAL EXPENSES WOULD HAVE BEEN:
- ------------------------------------------------------------
MANAGEMENT FEE 0.00% 0.00% 0.00% 0.00%
- -------------------- -------- ----- -------- -----
DISTRIBUTION AND SERVICE
(RULE 12B-1) FEES 1.00% 0.75% 0.50% 0.25%
-------- ----- -------- -----
OTHER EXPENSES 0.70% 0.70% 0.70% 0.70%
-------- ----- -------- -----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.70% 1.45% 1.20% 0.95%
- ------------------------------------ -------- ----- -------- -----
</TABLE>
THE ADVISOR MAY CHANGE OR ELIMINATE THESE EXPENSE LIMITS AT ANY TIME.
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
SERIES WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT:
YOU INVEST $10,000 FOR THE PERIODS SHOWN
YOU REDEEM AT THE END OF EACH PERIOD
THE FUND'S OPERATING EXPENSES REMAIN THE SAME
YOUR INVESTMENT HAS A 5% RETURN EACH YEAR
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, UNDER THESE ASSUMPTIONS
YOUR COSTS WOULD BE AS FOLLOWS:
<TABLE>
<CAPTION>
CLASS B CLASS C CLASS D CLASS E
<S> <C> <C> <C> <C>
1 YEAR $ 548 $ 523 $ 499 $ 475
- --------------------------------------- -------- -------- -------- ------
3 YEARS $ 1,635 $ 1,566 $ 1,497 $1,428
- --------------------------------------- -------- -------- -------- ------
WITH EXPENSE LIMITS, YOUR COSTS WOULD BE:
- -----------------------------------------
1 YEAR $ 173 $ 148 $ 122 $ 97
- --------------------------------------- -------- -------- -------- ------
3 YEARS $ 536 $ 459 $ 381 $ 303
- --------------------------------------- -------- -------- -------- ------
</TABLE>
<PAGE>
GOALS AND STRATEGIES
FLEXIBLE YIELD SERIES II
INVESTMENT GOAL
MAXIMIZE TOTAL RETURN (E.G., A COMBINATION OF INCOME AND CAPITAL APPRECIATION)
CONSISTENT WITH PRESERVATION OF CAPITAL.
KEY INVESTMENTS AND STRATEGIES
THE SERIES INVESTS PRIMARILY IN FIXED INCOME SECURITIES OF GOVERNMENTAL AND
CORPORATE ISSUERS LOCATED IN THE UNITED STATES. THESE INCLUDE MORTGAGE-BACKED
SECURITIES.
MATURITY
THE FUND GENERALLY MAINTAINS A DOLLAR-WEIGHTED AVERAGE MATURITY OF NOT MORE
THAN 10 YEARS BUT MAY INVEST IN INDIVIDUAL SECURITIES HAVING ANY MATURITY.
CREDIT QUALITY
THE FUND INVESTS PRIMARILY IN INVESTMENT GRADE SECURITIES BUT MAY INVEST UP TO
20% OF ASSETS IN LOWER QUALITY BONDS, COMMONLY KNOWN AS "JUNK BONDS."
BOND SELECTION PROCESS
THE ADVISOR EMPHASIZES THOSE BOND MARKET SECTORS AND SELECTS FOR THE SERIES
THOSE SECURITIES THAT ITS BELIEVES OFFER YIELDS SUFFICIENT TO COMPENSATE THE
INVESTOR FOR THE RISKS SPECIFIC TO THE SECTOR OR SECURITY. IN ANALYZING THE
RELATIVE ATTRACTIVENESS OF SECTORS AND INDIVIDUAL SECURITIES, THE ADVISOR
CONSIDERS:
INTEREST RATE SENSITIVITY OF PARTICULAR SECTORS AND SECURITIES.
NARROWING OR WIDENING OF INTEREST RATE SPREADS BETWEEN SECTORS,
SECURITIES OF DIFFERENT CREDIT QUALITY OR SECURITIES OF DIFFERENT MATURITIES.
FOR MORTGAGE-BACKED AND ASSET-BACKED SECURITIES, ANTICIPATED CHANGES IN
AVERAGE PREPAYMENT RATES.
SUMMARY OF PAST PERFORMANCE
THE BAR CHART AND TOTAL RETURN TABLE INDICATE THE RISKS OF INVESTING IN THE
CLASS A SHARES OF THE SERIES. NO CLASS B, C, D OR E SHARES WERE OUTSTANDING
DURING THE PAST YEAR. CLASS B, C, D AND E SHARES WOULD HAVE DIFFERENT
PERFORMANCE DUE TO THEIR DIFFERENT EXPENSES. THE BAR CHART SHOWS CHANGES IN
THE PERFORMANCE OF THE CLASS A SHARES OF THE SERIES FOR EACH FULL CALENDAR
YEAR SINCE ITS INCEPTION. THE TOTAL RETURN TABLE SHOWS HOW THE AVERAGE ANNUAL
TOTAL RETURNS FOR THE CLASS A SHARES FOR DIFFERENT CALENDAR PERIODS COMPARE TO
THOSE OF THE MERRILL LYNCH CORPORATE/GOVERNMENT INTERMEDIATE INDEX, A MARKET
VALUE WEIGHTED MEASURE OF APPROXIMATELY 4,561 CORPORATE AND GOVERNMENT BONDS.
THE MERRILL LYNCH CORPORATE/GOVERNMENT INTERMEDIATE INDEX IS AN UNMANAGED
INDEX OF INVESTMENT GRADE BONDS WITH MATURITIES GREATER THAN ONE YEAR BUT LESS
THAN 10 YEARS.
[Bar chart showing the percent total return for the Flexible Yield Series II
for 1995, 1996, 1997 and 1998, with calendar years ended December 31st. The
results are 17.33% for 1995, 1.92% for 1996, 8.24% for 1997 and no result for
1998. As the year has not ended.]
<TABLE>
<CAPTION>
AVG. ANNUAL TOTAL RETURNS
(FOR PERIODS ENDED 12/31/98) 1 YEAR SINCE INCEPTION ON 2/15/94
<S> <C> <C>
CLASS A SHARES XX.XX% XX.XX%
- ------------------------------ --------- ------
INDEX:
- ------------------------------
MERRILL LYNCH CORPORATE/
GOVERNMENT INTERMED. INDEX XX.XX% XX.XX%
--------- ------
QUARTERLY RETURNS
HIGHEST: XX.XX% IN XX QUARTER 19XX
LOWEST: XX.XX% IN XX QUARTER 19XX
- ------------------------------ --------------------------
</TABLE>
PAST PERFORMANCE DOES NOT NECESSARILY INDICATE HOW THE SERIES WILL PERFORM IN
THE FUTURE.
<PAGE>
GOALS AND STRATEGIES
FLEXIBLE YIELD SERIES II
PRINCIPAL RISKS OF INVESTING IN THE SERIES
AS WITH MOST BOND FUNDS, THE VALUE OF YOUR INVESTMENT WILL FLUCTUATE WITH
CHANGES IN INTEREST RATES. THIS MEANS THAT YOU COULD LOSE MONEY ON YOUR
INVESTMENT IN THE SERIES OR THE SERIES COULD UNDERPERFORM IF ANY OF THE
FOLLOWING OCCURS
INTEREST RATES GO UP, WHICH WILL MAKE BOND PRICES GO DOWN AND REDUCE THE
VALUE OF THE SERIES' PORTFOLIO.
THE ISSUER OF A BOND OWNED BY THE SERIES DEFAULTS ON ITS OBLIGATION TO
PAY PRINCIPAL AND/OR INTEREST OR HAS ITS CREDIT RATING DOWNGRADED. THIS RISK
IS HIGHER FOR LOWER QUALITY BONDS.
AS INTEREST RATES DECLINE, THE ISSUERS OF SECURITIES HELD BY THE SERIES
MAY PREPAY PRINCIPAL EARLIER THAN SCHEDULED, FORCING THE SERIES TO REINVEST IN
LOWER YIELDING SECURITIES (PREPAYMENT OR CALL RISK).
AS INTEREST RATES INCREASE, SLOWER THAN EXPECTED PRINCIPAL PAYMENTS MAY
EXTEND THE AVERAGE LIFE OF FIXED INCOME SECURITIES, LOCKING IN BELOW-MARKET
INTEREST RATES AND REDUCING THE VALUE OF THOSE SECURITIES (EXTENSION RISK).
THE ADVISOR'S JUDGMENTS ABOUT THE ATTRACTIVENESS, RELATIVE VALUE OR
POTENTIAL APPRECIATION OF A PARTICULAR SECTOR, SECURITY OR HEDGING STRATEGY
PROVE TO BE INCORRECT.
THE ADVISOR'S EMPHASIS ON SECURITIES WITH INTERMEDIATE MATURITIES WILL
GENERALLY RESULT IN THE SERIES EXPERIENCING MODERATE PRICE VOLATILITY IN
REACTION TO CHANGING INTEREST RATES.
FEES AND EXPENSES OF THE SERIES
SINCE NO CLASS B, C, D OR E SHARES WERE OUTSTANDING DURING THE PAST YEAR,
OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT FISCAL YEAR.
THIS TABLE DESCRIBES THE FEES AND EXPENSES YOU MAY PAY IF YOU INVEST IN SHARES
OF THE SERIES.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 10/31/98 CLASS B CLASS C CLASS D CLASS E
<S> <C> <C> <C> <C>
SHAREHOLDER FEES (PAID DIRECTLY
FROM YOUR INVESTMENT) NONE NONE NONE NONE
- ---------------------------------------- ----- -------- -------- --------
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM
ASSETS OF THE SERIES)
- ----------------------------------------------------------------
MANAGEMENT FEE 0.45% 0.45% 0.45% 0.45%
----- -------- -------- --------
DISTRIBUTION AND SERVICE
(RULE 12B-1) FEES 1.00% 0.75% 0.50% 0.25%
----- -------- -------- --------
OTHER EXPENSES 4.25% 4.25% 4.25% 4.25%
----- -------- -------- --------
TOTAL ANNUAL FUND OPERATING EXPENSES 5.70% 5.455% 5.20% 4.95%
----- -------- -------- --------
BECAUSE THE ADVISOR HAS AGREED TO LIMIT OPERATING EXPENSES,
ACTUAL EXPENSES WOULD HAVE BEEN:
- ---------------------------------------------------------
MANAGEMENT FEE 0.00% 0.00% 0.00% 0.00%
- ---------------------------------------- ----- -------- -------- --------
DISTRIBUTION AND SERVICE
(RULE 12B-1) FEES 1.00% 0.75% 0.50% 0.25%
----- -------- -------- --------
OTHER EXPENSES 0.80% 0.80% 0.80% 0.80%
----- -------- -------- --------
TOTAL ANNUAL FUND OPERATING EXPENSES 1.80% 1.55% 1.30% 1.05%
- ---------------------------------------- ----- -------- -------- --------
</TABLE>
THE ADVISOR MAY CHANGE OR ELIMINATE THESE EXPENSE LIMITS AT ANY TIME.
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
SERIES WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT:
YOU INVEST $10,000 FOR THE PERIODS SHOWN
YOU REDEEM AT THE END OF EACH PERIOD
THE FUND'S OPERATING EXPENSES REMAIN THE SAME
YOUR INVESTMENT HAS A 5% RETURN EACH YEAR
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, UNDER THESE ASSUMPTIONS
YOUR COSTS WOULD BE AS FOLLOWS:
<TABLE>
<CAPTION>
CLASS B CLASS C CLASS D CLASS E
<S> <C> <C> <C> <C>
1 YEAR $ 568 $ 544 $ 519 $ 495
- ----------------------------------------- ------ ------ ------ --------
3 YEARS $1,692 1,624 $1,555 $ 1,486
- ----------------------------------------- ------ ------ ------ --------
WITH EXPENSE LIMITS, YOUR COSTS WOULD BE:
- -----------------------------------------
1 YEAR $ 183 $ 158 $ 132 $ 107
- ----------------------------------------- ------ ------ ------ --------
3 YEARS $ 566 $ 490 $ 412 $ 334
- ----------------------------------------- ------ ------ ------ --------
</TABLE>
<PAGE>
GOALS AND STRATEGIES
FLEXIBLE YIELD SERIES IIIFLEXIBLE YIELD SERIES III
INVESTMENT GOAL
MAXIMIZE TOTAL RETURN (E.G., A COMBINATION OF INCOME AND CAPITAL APPRECIATION)
CONSISTENT WITH PRESERVATION OF CAPITAL.
KEY INVESTMENTS AND STRATEGIES
THE SERIES INVESTS PRIMARILY IN FIXED INCOME SECURITIES OF GOVERNMENTAL AND
CORPORATE ISSUERS LOCATED IN THE UNITED STATES. THESE INCLUDE MORTGAGE-BACKED
SECURITIES.
MATURITY
THE FUND IS NOT SUBJECT TO ANY MATURITY RESTRICTIONS BUT WILL VARY ITS AVERAGE
DOLLAR-WEIGHTED PORTFOLIO MATURITY DEPENDING ON THE ADVISOR'S OUTLOOK FOR
INTEREST RATES.
CREDIT QUALITY
THE FUND INVESTS PRIMARILY IN INVESTMENT GRADE SECURITIES BUT MAY INVEST UP TO
20% OF ASSETS IN LOWER QUALITY BONDS, COMMONLY KNOWN AS "JUNK BONDS."
BOND SELECTION PROCESS
THE ADVISOR EMPHASIZES THOSE BOND MARKET SECTORS AND SELECTS FOR THE SERIES
THOSE SECURITIES THAT IT BELIEVES OFFER YIELDS SUFFICIENT TO COMPENSATE THE
INVESTOR FOR THE RISKS SPECIFIC TO THE SECTOR OR SECURITY. IN ANALYZING THE
RELATIVE ATTRACTIVENESS OF SECTORS AND INDIVIDUAL SECURITIES, THE ADVISOR
CONSIDERS:
INTEREST RATE SENSITIVITY OF PARTICULAR SECTORS AND SECURITIES.
NARROWING OR WIDENING OF INTEREST RATE SPREADS BETWEEN SECTORS,
SECURITIES OF DIFFERENT CREDIT QUALITY OR SECURITIES OF DIFFERENT MATURITIES.
FOR MORTGAGE-BACKED AND ASSET-BACKED SECURITIES, ANTICIPATED CHANGES IN
AVERAGE PREPAYMENT RATES.
SUMMARY OF PAST PERFORMANCE
THE BAR CHART AND TOTAL RETURN TABLE INDICATE THE RISKS OF INVESTING IN THE
CLASS A SHARES OF THE SERIES. NO CLASS B, C, D OR E SHARES WERE OUTSTANDING
DURING THE PAST YEAR. CLASS B, C, D AND E SHARES WOULD HAVE DIFFERENT
PERFORMANCE DUE TO THEIR DIFFERENT EXPENSES. THE BAR CHART SHOWS CHANGES IN
THE PERFORMANCE OF THE CLASS A SHARES OF THE SERIES FOR EACH FULL CALENDAR
YEAR SINCE ITS INCEPTION. THE TOTAL RETURN TABLE SHOWS HOW THE AVERAGE ANNUAL
TOTAL RETURNS FOR THE CLASS A SHARES FOR DIFFERENT CALENDAR PERIODS COMPARE TO
THOSE OF THE MERRILL LYNCH CORPORATE/GOVERNMENT BOND INDEX, A MARKET VALUE
WEIGHTED MEASURE OF APPROXIMATELY 6,378 CORPORATE AND GOVERNMENT BONDS.
THE MERRILL LYNCH CORPORATE/GOVERNMENT BOND INDEX IS AN UNMANAGED INDEX OF
INVESTMENT GRADE CORPORATE AND GOVERNMENT BONDS WITH MATURITIES GREATER THAN
ONE YEAR.
[Bar chart showing the percent total return for the Flexible Yield Series III
for 1994, 1995, 1996, 1997 and 1998, with calendar years ended December 31st.
The results are - 5.83% for 1994, 22.09% for 1995, 0.45% for 1996, 11.17% for
1997 and no result for 1998. As the year has not ended.]
<TABLE>
<CAPTION>
AVG. ANNUAL TOTAL RETURNS
(FOR PERIODS ENDED 12/31/98) 1 YEAR 5 YEARS SINCE INCEPTION ON 12/20/93
<S> <C> <C> <C>
CLASS A SHARES XX.XX% XX.XX% X.XX%
- ---------------------------- ------- -------- -------------
INDEX:
- ----------------------------
MERRILL LYNCH
CORPORATE/GOVERNMENT
BOND INDEX XX.XX% XX.XX% XX.XX%
------- -------- -------------
QUARTERLY RETURNS
HIGHEST: X.XX% IN XX QUARTER 19XX
- ---------------------------- -------------------------
LOWEST: X.XX% IN XX QUARTER 19XX
- ---------------------------- -------------------------
</TABLE>
PAST PERFORMANCE DOES NOT NECESSARILY INDICATE HOW THE SERIES WILL PERFORM IN
THE FUTURE.
<PAGE>
GOALS AND STRATEGIES
FLEXIBLE YIELD SERIES III
PRINCIPAL RISKS OF INVESTING IN THE SERIES
AS WITH MOST BOND FUNDS, THE VALUE OF YOUR INVESTMENT WILL FLUCTUATE WITH
CHANGES IN INTEREST RATES. THIS MEANS THAT YOU COULD LOSE MONEY ON YOUR
INVESTMENT IN THE SERIES OR THE SERIES COULD UNDERPERFORM IF ANY OF THE
FOLLOWING OCCURS:
INTEREST RATES GO UP, WHICH WILL MAKE BOND PRICES GO DOWN AND REDUCE THE
VALUE OF THE SERIES' PORTFOLIO.
THE ISSUER OF A BOND OWNED BY THE SERIES DEFAULTS ON ITS OBLIGATION TO
PAY PRINCIPAL AND/OR INTEREST OR HAS ITS CREDIT RATING DOWNGRADED. THIS RISK
IS HIGHER FOR LOWER QUALITY BONDS.
AS INTEREST RATES DECLINE, THE ISSUERS OF SECURITIES HELD BY THE SERIES
MAY PREPAY PRINCIPAL EARLIER THAN SCHEDULED, FORCING THE SERIES TO REINVEST IN
LOWER YIELDING SECURITIES (PREPAYMENT OR CALL RISK).
AS INTEREST RATES INCREASE, SLOWER THAN EXPECTED PRINCIPAL PAYMENTS MAY
EXTEND THE AVERAGE LIFE OF FIXED INCOME SECURITIES, LOCKING IN BELOW-MARKET
INTEREST RATES AND REDUCING THE VALUE OF THOSE SECURITIES (EXTENSION RISK).
THE ADVISOR'S JUDGMENTS ABOUT THE ATTRACTIVENESS, RELATIVE VALUE OR
POTENTIAL APPRECIATION OF A PARTICULAR SECTOR, SECURITY OR HEDGING STRATEGY
PROVE TO BE INCORRECT.
SINCE THE SERIES HAS NO STATED MATURITY TARGET, THE SERIES MAY EXPERIENCE
GREATER PRICE VOLATILITY IN REACTION TO CHANGING INTEREST RATES.
FEES AND EXPENSES OF THE SERIES
SINCE NO CLASS B, C, D OR E SHARES WERE OUTSTANDING DURING THE PAST YEAR,
OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT FISCAL YEAR.
THIS TABLE DESCRIBES THE FEES AND EXPENSES YOU MAY PAY IF YOU INVEST IN SHARES
OF THE SERIES.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 10/31/98 CLASS B CLASS C CLASS D CLASS E
<S> <C> <C> <C> <C>
SHAREHOLDER FEES (PAID DIRECTLY
FROM YOUR INVESTMENT) NONE NONE NONE NONE
- ---------------------------------------- ----- ----- ----- -----
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM ASSETS OF THE SERIES)
- ---------------------------------------------------------------------
MANAGEMENT FEE 0.50% 0.50% 0.50% 0.50%
----- ----- ----- -----
DISTRIBUTION AND SERVICE
(RULE 12B-1) FEES 1.00% 0.75% 0.50% 0.25%
----- ----- ----- -----
OTHER EXPENSES 1.85% 1.85% 1.85% 1.85%
----- ----- ----- -----
TOTAL ANNUAL FUND OPERATING EXPENSES 3.35% 3.10% 2.85% 2.60%
----- ----- ----- -----
BECAUSE THE ADVISOR HAS AGREED TO LIMIT OPERATING EXPENSES,
ACTUAL EXPENSES WOULD HAVE BEEN:
- -----------------------------------------------------------
MANAGEMENT FEE 0.00% 0.00% 0.00% 0.00%
- -------------------------------------- ----- ----- ----- -----
DISTRIBUTION AND SERVICE
(RULE 12B-1) FEES 1.00% 0.75% 0.50% 0.25%
----- ----- ----- -----
OTHER EXPENSES 0.85% 0.85% 0.85% 0.85%
----- ----- ----- -----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.85% 1.60% 1.35% 1.10%
- --------------------------------------- ----- ----- ----- -----
</TABLE>
THE ADVISOR MAY CHANGE OR ELIMINATE THESE EXPENSE LIMITS AT ANY TIME.
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
SERIES WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT:
YOU INVEST $10,000 FOR THE PERIODS SHOWN
YOU REDEEM AT THE END OF EACH PERIOD
THE FUND'S OPERATING EXPENSES REMAIN THE SAME
YOUR INVESTMENT HAS A 5% RETURN EACH YEAR
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, UNDER THESE ASSUMPTIONS
YOUR COSTS WOULD BE AS FOLLOWS:
<TABLE>
<CAPTION>
CLASS B CLASS C CLASS D CLASS E
<S> <C> <C> <C> <C>
1 YEAR $ 338 $313 $288 $ 263
- ----------------------------------------- ------ ---- ---- ------
3 YEARS $1,030 $957 $883 $ 808
- ----------------------------------------- ------ ---- ---- ------
WITH EXPENSE LIMITS, YOUR COSTS WOULD BE:
- -----------------------------------------
1 YEAR $ 188 $163 $137 $ 112
- ----------------------------------------- ------ ---- ---- ------
3 YEARS $ 582 $505 $428 $ 350
- ----------------------------------------- ------ ---- ---- ------
</TABLE>
<PAGE>
MORE ABOUT THE SERIES' INVESTMENTS
PRINCIPAL INVESTMENTS
FIXED INCOME EACH SERIES MAY INVEST IN A VARIETY OF FIXED INCOME
SECURITIES. THESE SECURITIES MAY BE ISSUED BY THE U.S. GOVERNMENT OR ANY OF
ITS AGENCIES, FOREIGN GOVERNMENTS, SUPRANATIONAL ENTITIES SUCH AS THE WORLD
BANK, AND U.S. AND FOREIGN COMPANIES.
INVESTMENTS IN FIXED INCOME SECURITIES MAY BE OF ANY CREDIT QUALITY AND HAVE
ALL TYPES OF INTEREST RATE PAYMENT AND RESET TERMS, INCLUDING FIXED RATE,
ADJUSTABLE RATE, ZERO COUPON AND PAY IN KIND. LOWER QUALITY BONDS, COMMONLY
KNOWN AS "JUNK BONDS," ARE CONSIDERED SPECULATIVE BECAUSE THEY HAVE A HIGHER
RISK OF ISSUER DEFAULT, ARE SUBJECT TO GREATER PRICE VOLATILITY AND MAY BE
ILLIQUID.
MORTGAGE-BACKED SECURITIES MORTGAGE-BACKED SECURITIES MAY BE ISSUED BY
PRIVATE COMPANIES OR BY AGENCIES OF
THE U.S. GOVERNMENT. MORTGAGE-BACKED SECURITIES REPRESENT DIRECT OR INDIRECT
PARTICIPATIONS IN, OR ARE COLLATERALIZED BY AND PAYABLE FROM, MORTGAGE LOANS
SECURED BY REAL PROPERTY.
FOR MORTGAGE DERIVATIVES AND STRUCTURED SECURITIES THAT HAVE IMBEDDED LEVERAGE
FEATURES, SMALL CHANGES IN INTEREST OR PREPAYMENT RATES MAY CAUSE LARGE AND
SUDDEN PRICE MOVEMENTS. MORTGAGE DERIVATIVES CAN ALSO BECOME ILLIQUID AND
HARD TO VALUE IN DECLINING MARKETS.
DERIVATIVE CONTRACTS
A DERIVATIVE CONTRACT WILL OBLIGATE OR ENTITLE A SERIES TO DELIVER OR RECEIVE
AN ASSET OR A CASH PAYMENT THAT IS BASED ON THE CHANGE IN VALUE OF A
DESIGNATED SECURITY, INDEX OR CURRENCY. THE SERIES MAY, BUT ARE NOT REQUIRED
TO, USE DERIVATIVE CONTRACTS FOR ANY OF THE FOLLOWING PURPOSES:
TO HEDGE AGAINST ADVERSE CHANGES IN THE MARKET VALUE OF SECURITIES HELD BY
OR TO BE BOUGHT FOR A SERIES. THESE CHANGES MAY BE CAUSED BY CHANGING
INTEREST RATES.
AS A SUBSTITUTE FOR PURCHASING OR SELLING SECURITIES.
TO SHORTEN OR LENGTHEN THE EFFECTIVE MATURITY OR DURATION OF A SERIES' FIXED
INCOME PORTFOLIO.
IN NON-HEDGING SITUATIONS, TO ATTEMPT TO PROFIT FROM ANTICIPATED MARKET
DEVELOPMENTS.
EVEN A SMALL INVESTMENT IN DERIVATIVE CONTRACTS CAN HAVE A BIG IMPACT ON
CURRENCY AND INTEREST RATE EXPOSURE. COUNTERPARTIES TO OVER-THE-COUNTER (OTC)
DERIVATIVE CONTRACTS PRESENT THE SAME TYPES OF DEFAULT RISK AS ISSUERS OF
FIXED INCOME SECURITIES. DERIVATIVES CAN ALSO MAKE A SERIES LESS LIQUID AND
HARDER TO VALUE, ESPECIALLY IN DECLINING MARKETS.
ADDITIONAL INVESTMENTS AND RISKS
FOREIGN SECURITIES EACH SERIES MAY INVEST IN U.S. DOLLAR DENOMINATED
SECURITIES OF FOREIGN ISSUERS (I.E., YANKEE BONDS). PRICES OF FOREIGN
SECURITIES MAY GO DOWN BECAUSE OF FOREIGN GOVERNMENT ACTIONS, POLITICAL
INSTABILITY OR THE MORE LIMITED AVAILABILITY OF ACCURATE INFORMATION ABOUT
FOREIGN COMPANIES. THESE RISKS MAY BE MORE SEVERE FOR SECURITIES OF ISSUERS
IN EMERGING MARKETS.
ASSET-BACKED SECURITIES ASSET-BACKED SECURITIES REPRESENT PARTICIPATIONS
IN, OR ARE SECURED BY AND PAYABLE FROM, ASSETS SUCH AS INSTALLMENT SALES OR
LOAN CONTRACTS, LEASES, CREDIT CARD RECEIVABLES AND OTHER CATEGORIES OF
RECEIVABLES.
CORRELATION RISK CHANGES IN THE VALUE OF DERIVATIVE CONTRACTS OR OTHER
HEDGING INSTRUMENTS MAY NOT MATCH OR FULLY OFFSET CHANGES IN THE VALUE OF THE
HEDGED PORTFOLIO SECURITIES.
DEFENSIVE INVESTING
EACH SERIES MAY DEPART FROM ITS PRINCIPAL INVESTMENT STRATEGIES BY TAKING
TEMPORARY DEFENSIVE POSITIONS IN RESPONSE TO ADVERSE MARKET, ECONOMIC OR
POLITICAL CONDITIONS. IF A SERIES TAKES A TEMPORARY DEFENSIVE POSITION, IT
MAY BE UNABLE TO ACHIEVE ITS INVESTMENT GOAL.
THE SERIES' INVESTMENT GOALS
THE SERIES' BOARD OF DIRECTORS MAY CHANGE EACH SERIES' INVESTMENT GOAL
(DESCRIBED ABOVE UNDER "GOALS AND STRATEGIES") WITHOUT OBTAINING THE APPROVAL
OF THE SERIES' SHAREHOLDERS. A SERIES MIGHT NOT SUCCEED IN ACHIEVING ITS
GOAL.
<PAGE>
THE ADVISOR
THE ADVISOR
EACH SERIES' ADVISOR IS EXETER ASSET MANAGEMENT, A DIVISION OF MANNING &
NAPIER ADVISORS, INC., 1100 CHASE SQUARE, ROCHESTER, NEW YORK 14604. THE
ADVISOR IS RESPONSIBLE FOR THE DAY-TO-DAY OPERATIONS OF THE SERIES AND
GENERALLY IS RESPONSIBLE FOR SUPERVISION OF THE SERIES' OVERALL BUSINESS
AFFAIRS, SERVICE PROVIDERS AND OFFICERS.
A TEAM MADE UP OF INVESTMENT PROFESSIONALS AND ANALYSTS EMPLOYED BY THE
ADVISOR MAKES ALL OF THE SERIES' INVESTMENT DECISIONS.
MANAGEMENT FEES
IN RETURN FOR THE SERVICES IT PROVIDES TO EACH SERIES, THE ADVISOR RECEIVES A
MANAGEMENT FEE, WHICH IS COMPUTED DAILY AND PAYABLE MONTHLY BY THE SERIES AS
DESCRIBED BELOW.
THE ADVISOR HAS AGREED TO LIMIT THE SERIES' MANAGEMENT FEES AND OTHER
EXPENSES. THESE LIMITATIONS ARE TEMPORARY AND MAY BE CHANGED AT ANY TIME.
ANNUAL MANAGEMENT FEES
(AS A PERCENTAGE OF DAILY NET ASSETS)
SERIES CONTRACTUAL MANAGEMENT FEE
FLEXIBLE YIELD SERIES I 0.35%
FLEXIBLE YIELD SERIES II 0.45%
FLEXIBLE YIELD SERIES III 0.50%
THE DISTRIBUTOR
THE DISTRIBUTOR OF THE SERIES' SHARES IS MANNING & NAPIER INVESTOR SERVICES,
INC. CLASS B, C, D AND E SHARES ARE OFFERED ONLY THROUGH A FINANCIAL
INTERMEDIARY. FINANCIAL INTERMEDIARIES INCLUDE FINANCIAL PLANNERS, INVESTMENT
ADVISERS, BROKER-DEALERS OR OTHER FINANCIAL INSTITUTIONS WITH AN AGREEMENT
WITH THE DISTRIBUTOR. YOU MAY ONLY PURCHASE THAT CLASS OF SHARES WHICH YOUR
FINANCIAL INTERMEDIARY SELLS OR SERVICES.
CLASS B SHARES ARE ONLY AVAILABLE THROUGH BROKER-DEALERS WHO MAINTAIN AN
OMNIBUS ACCOUNT WITH THE DISTRIBUTOR ON BEHALF OF INVESTORS. CLASS C SHARES
ARE AVAILABLE ONLY THROUGH FINANCIAL INTERMEDIARIES WHO ESTABLISH INDIVIDUAL
SHAREHOLDER ACCOUNTS WITH THE FUND IN THE NAME OF INVESTORS OR MAINTAIN
CERTAIN TYPES OF OMNIBUS ACCOUNTS WITH THE DISTRIBUTOR. CLASS E SHARES ARE
ONLY AVAILABLE THROUGH FINANCIAL INTERMEDIARIES WHO PROVIDE CERTAIN
SHAREHOLDER SERVICES TO THE FUND. CLASS D SHARES ARE NOT CURRENTLY AVAILABLE.
YOUR FINANCIAL INTERMEDIARY CAN TELL YOU WHICH CLASS OF SHARES IS AVAILABLE
THROUGH THE INTERMEDIARY.
DISTRIBUTION PLANS
THE FUND HAS ADOPTED RULE 12B-1 DISTRIBUTION PLANS FOR THE CLASS B, C, D AND E
SHARES OF EACH SERIES. UNDER THE PLANS, THE CLASS B, C, D AND E SHARES PAY
DISTRIBUTION AND/OR SERVICE FEES (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
EQUAL TO: 1.00%, 0.75%, 0.50%, AND 0.25%, RESPECTIVELY. THESE FEES ARE AN
ONGOING EXPENSE AND OVER TIME MAY COST YOU MORE THAN OTHER TYPES OF SALES
CHARGES.
<PAGE>
HOW TO BUY AND HOW TO REDEEM SHARES
HOW TO BUY SHARES
CLASS B, C, D OR E SHARES ARE ONLY AVAILABLE THROUGH YOUR FINANCIAL
INTERMEDIARY. YOU MAY BE SUBJECT TO INITIAL AND SUBSEQUENT MINIMUMS
ESTABLISHED BY YOUR FINANCIAL INTERMEDIARY FOR THE PURCHASE OF SHARES. EACH
SERIES RESERVES THE RIGHT TO REJECT PURCHASE ORDERS OR TO STOP OFFERING ITS
SHARES WITHOUT NOTICE TO SHAREHOLDERS.
THE SERIES' DISTRIBUTOR IMPOSES NO SALES CHARGE ON PURCHASES AND REDEMPTIONS
OF SHARES OF A SERIES. HOWEVER, YOUR FINANCIAL INTERMEDIARY MAY CHARGE YOU A
TRANSACTION FEE ON PURCHASES AND REDEMPTIONS.
THROUGH THE FUND
BY MAIL
IF YOUR FINANCIAL INTERMEDIARY DOES NOT PROVIDE ACCOUNT MAINTENANCE SERVICES,
CONTACT THE FUND TO PURCHASE SHARES.
OPENING AN ACCOUNT
SEND A CHECK PAYABLE TO EXETER FUND, INC., WITH THE COMPLETED ORIGINAL
ACCOUNT APPLICATION. THE ADDRESS IS:
EXETER FUND, INC.
P.O. BOX 41118
ROCHESTER, NY 14604
TO REQUEST AN ACCOUNT APPLICATION, CALL THE FUND AT 1-800-466-3863.
ADDING TO AN ACCOUNT
BY WIRE
SEND A CHECK PAYABLE TO EXETER FUND, INC. AND A LETTER OF INSTRUCTION
WITH THE NAME OF THE SERIES TO BE PURCHASED AND THE ACCOUNT NAME AND NUMBER.
OPENING OR ADDING TO AN ACCOUNT
AFTER THE FUND HAS RECEIVED YOUR COMPLETED ACCOUNT APPLICATION, YOU MAY
WIRE FUNDS TO OPEN OR ADD SHARES TO YOUR ACCOUNT. BEFORE SENDING A WIRE,
CALL 1-800-466-3863 FOR WIRE INSTRUCTIONS.
THROUGH THE AUTOMATIC INVESTMENT PLAN
YOU MAY PARTICIPATE IN THE AUTOMATIC INVESTMENT PLAN BY COMPLETING THE
APPLICABLE SECTION OF THE ACCOUNT APPLICATION OR CONTACTING YOUR FINANCIAL
INTERMEDIARY OR THE FUND. THROUGH THE PLAN, YOU CAN AUTHORIZE TRANSFERS OF A
SPECIFIED AMOUNT FROM YOUR BANK ACCOUNT INTO THE SERIES ON A REGULAR BASIS.
THE MINIMUM AMOUNT OF EACH INVESTMENT IS $25. IF YOU HAVE INSUFFICIENT FUNDS
IN YOUR ACCOUNT TO COMPLETE A TRANSFER, YOUR BANK MAY CHARGE YOU A FEE.
HOW TO REDEEM SHARES
IF YOUR FINANCIAL INTERMEDIARY PROVIDES ACCOUNT MAINTENANCE SERVICES, CONTACT
YOUR FINANCIAL INTERMEDIARY TO REDEEM SHARES. IF NOT:
THROUGH THE FUND
BY MAIL
SEND A LETTER OF INSTRUCTION TO EXETER FUND, INC., AT THE ADDRESS ABOVE,
SIGNED BY EACH REGISTERED ACCOUNT OWNER.
STATE THE NAME OF THE SERIES, THE CLASS AND NUMBER OF SHARES OR DOLLAR
AMOUNT TO BE SOLD.
PROVIDE THE ACCOUNT NUMBER.
SIGNATURE GUARANTEES MAY BE REQUIRED.
ADDITIONAL DOCUMENTATION MAY BE REQUIRED (CALL THE FUND FOR DETAILS).
EACH SERIES MAY POSTPONE PAYMENT OF REDEMPTION PROCEEDS FOR UP TO SEVEN DAYS,
OR SUSPEND REDEMPTIONS TO THE EXTENT PERMITTED BY LAW. IF YOU RECENTLY
PURCHASED YOUR SHARES BY CHECK, YOUR REDEMPTION PROCEEDS WILL NOT BE SENT TO
YOU FOR 15 DAYS.
<PAGE>
HOW TO EXCHANGE SHARES
MORE ABOUT PURCHASES AND REDEMPTIONS
ALL ORDERS TO PURCHASE OR REDEEM SHARES ACCEPTED BY THE DISTRIBUTOR, TRANSFER
AGENT OR OTHER AGENT BEFORE THE CLOSE OF TRADING ON THE NEW YORK STOCK
EXCHANGE (NYSE) WILL BE EXECUTED AT THAT DAY'S SHARE PRICE. ORDERS ACCEPTED
AFTER THAT DAY'S CLOSE WILL BE EXECUTED AT THE NEXT BUSINESS DAY'S PRICE. ALL
ORDERS MUST INCLUDE THE REQUIRED DOCUMENTATION AND SIGNATURES, AND ALL
PURCHASE ORDERS MUST BE ACCOMPANIED BY PROPER PAYMENT.
THE FUND HAS AUTHORIZED SEVERAL FINANCIAL INTERMEDIARIES TO ACCEPT PURCHASE
AND REDEMPTION ORDERS ON ITS BEHALF, AND THESE INTERMEDIARIES ARE AUTHORIZED
TO DESIGNATE OTHER INTERMEDIARIES TO ACCEPT PURCHASE AND REDEMPTION ORDERS ON
THE FUND'S BEHALF. THE FUND WILL BE DEEMED TO HAVE RECEIVED AN ORDER WHEN AN
AUTHORIZED FINANCIAL INTERMEDIARY OR ITS AUTHORIZED DESIGNEEE ACCEPTS THE
ORDER, AND ORDERS PLACED WITH AN AUTHORIZED FINANCIAL INTERMEDIARY WILL BE
PROCESSED AT THE SHARE PRICE OF THE APPLICABLE SERIES NEXT COMPUTED AFTER THEY
ARE ACCEPTED BY THE FINANCIAL INTERMEDIARY OR ITS DESIGNEE.
HOW TO EXCHANGE SHARES
YOU MAY EXCHANGE SHARES OF A SERIES FOR THE SAME CLASS OF SHARES OF ANY OTHER
SERIES OF EXETER FUND, IF THE REGISTRATION OF BOTH ACCOUNTS IS IDENTICAL. IF
RECEIVED WITH PROPER DOCUMENTATION BEFORE THE CLOSE OF TRADING ON THE NYSE,
EXCHANGE REQUESTS WILL BE EXECUTED AT THAT DAY'S SHARE PRICES. OTHERWISE,
THEY WILL BE EXECUTED AT THE PRICES DETERMINED ON THE NEXT BUSINESS DAY AFTER
RECEIPT WITH PROPER DOCUMENTATION.
THE MINIMUM EXCHANGE AMOUNT IS $1,000 (OR ALL THE SHARES IN YOUR ACCOUNT, IF
LESS THAN $1,000). YOU MAY EXCHANGE UP TO 4 TIMES DURING ANY 12-MONTH PERIOD
WITHOUT PAYING A SALES CHARGE OR ANY OTHER FEE. FOR ANY ADDITIONAL EXCHANGES,
YOU MAY BE CHARGED $15 PER EXCHANGE. A SERIES MAY REFUSE ANY EXCHANGE ORDER
AND MAY ALTER, LIMIT OR SUSPEND ITS EXCHANGE PRIVILEGE ON 60 DAYS' NOTICE. AN
EXCHANGE INVOLVES A TAXABLE REDEMPTION OF SHARES SURRENDERED IN THE EXCHANGE.
THROUGH THE FUND
IF YOUR FINANCIAL INTERMEDIARY DOES NOT PROVIDE ACCOUNT MAINTENANCE SERVICES,
CONTACT THE FUND TO EXCHANGE SHARES.
BY MAIL
SEND A LETTER OF INSTRUCTION TO EXETER FUND, INC., AT P.O. BOX 41118,
ROCHESTER, NY 14604, SIGNED BY EACH REGISTERED ACCOUNT OWNER, EXACTLY AS
YOUR NAMES APPEAR ON THE ACCOUNT REGISTRATION.
PROVIDE THE NAME OF THE CURRENT SERIES, CLASS OF SHARES, SERIES TO
EXCHANGE INTO AND DOLLAR AMOUNT TO BE EXCHANGED.
PROVIDE BOTH ACCOUNT NUMBERS.
BY TELEPHONE
UNLESS YOU HAVE DECLINED TELEPHONE PRIVILEGES, CALL THE FUND AT
1-800-466-3863.
PROVIDE THE NAME OF THE CURRENT SERIES, CLASS OF SHARES, SERIES TO
EXCHANGE INTO AND DOLLAR AMOUNT TO BE EXCHANGED.
PROVIDE BOTH ACCOUNT NUMBERS.
THE FUND MAY ASK FOR IDENTIFICATION, AND ALL TELEPHONE TRANSACTIONS ARE
RECORDED.
<PAGE>
INVESTMENT AND ACCOUNT INFORMATION
ACCOUNTS WITH LOW BALANCES
IF YOUR ACCOUNT FALLS BELOW $1,000 DUE TO THE REDEMPTION OF SHARES, THE FUND
MAY ASK YOU TO BRING YOUR ACCOUNT UP TO THE MINIMUM REQUIREMENT. IF YOUR
ACCOUNT IS STILL BELOW $1,000 AFTER 60 DAYS, THE FUND MAY CLOSE YOUR ACCOUNT
AND SEND YOU THE REDEMPTION PROCEEDS.
IN-KIND PURCHASES AND REDEMPTIONS
SECURITIES YOU OWN MAY BE USED TO PURCHASE SHARES OF A SERIES. THE ADVISOR
WILL DETERMINE IF ACQUIRING THE SECURITIES IS CONSISTENT WITH THE SERIES'
GOALS AND POLICIES. IF ACCEPTED, THE SECURITIES WILL BE VALUED THE SAME WAY
THE SERIES VALUES SECURITIES IT ALREADY OWNS.
A SERIES MAY MAKE PAYMENT FOR SHARES IN PART BY GIVING YOU PORTFOLIO
SECURITIES. AS A REDEEMING SHAREHOLDER, YOU WILL PAY TRANSACTION COSTS TO
DISPOSE OF THESE SECURITIES.
SIGNATURE GUARANTEES
A SIGNATURE GUARANTEE MAY BE REQUIRED FOR ANY WRITTEN REQUEST TO SELL SHARES,
OR TO CHANGE THE ACCOUNT REGISTRATION.
THE TRANSFER AGENT WILL ACCEPT SIGNATURE GUARANTEES FROM:
MEMBERS OF THE STAMP PROGRAM OR THE NYSE'S MEDALLION SIGNATURE PROGRAM.
A BROKER OR SECURITIES DEALER.
A FEDERAL SAVINGS, COOPERATIVE OR OTHER TYPE OF BANK.
A SAVINGS AND LOAN OR OTHER THRIFT INSTITUTION.
A CREDIT UNION.
A SECURITIES EXCHANGE OR CLEARING AGENCY.
A NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
VALUATION OF SHARES
EACH SERIES OFFERS ITS SHARES AT THE NET ASSET VALUE (NAV) PER SHARE OF THE
SERIES. NAV IS CALCULATED SEPARATELY FOR EACH CLASS OF SHARES. EACH SERIES
CALCULATES ITS NAV ONCE DAILY AS OF THE CLOSE OF REGULAR TRADING ON THE NEW
YORK STOCK EXCHANGE (GENERALLY AT 4:00 P.M., NEW YORK TIME) ON EACH DAY THE
EXCHANGE IS OPEN. IF THE EXCHANGE CLOSES EARLY, THE SERIES WILL ACCELERATE
THE CALCULATION OF NAV AND TRANSACTION DEADLINES TO THAT TIME.
EACH SERIES VALUES THE SECURITIES IN ITS PORTFOLIO ON THE BASIS OF MARKET
QUOTATIONS AND VALUATIONS PROVIDED BY INDEPENDENT PRICING SERVICES. IF
QUOTATIONS ARE NOT READILY AVAILABLE, OR THE VALUE OF A SECURITY HAS BEEN
MATERIALLY AFFECTED BY EVENTS OCCURRING AFTER THE CLOSING OF A FOREIGN
EXCHANGE, EACH SERIES VALUES ITS ASSETS BY A METHOD THAT THE DIRECTORS BELIEVE
ACCURATELY REFLECTS FAIR VALUE. A SERIES THAT USES FAIR VALUE TO PRICE
SECURITIES MAY VALUE THOSE SECURITIES HIGHER OR LOWER THAN ANOTHER SERIES THAT
USES MARKET QUOTATIONS TO PRICE THE SAME SECURITIES.
YEAR 2000 ISSUE
INFORMATION TECHNOLOGY EXPERTS ARE CONCERNED ABOUT COMPUTER SYSTEMS' ABILITY
TO PROCESS DATE-RELATED INFORMATION ON AND AFTER JANUARY 1, 2000. THIS
SITUATION, COMMONLY KNOWN AS THE "YEAR 2000" ISSUE, COULD HAVE AN ADVERSE
IMPACT ON THE SERIES. THE ADVISOR, THE TRANSFER AGENT AND THE DISTRIBUTOR ARE
ADDRESSING THE YEAR 2000 ISSUE FOR THEIR
SYSTEMS. THE SERIES HAVE BEEN INFORMED BY THEIR OTHER SERVICE PROVIDERS THAT
THEY ARE TAKING SIMILAR MEASURES. ALTHOUGH THE SERIES DO NOT EXPECT THE YEAR
2000 ISSUE TO ADVERSELY AFFECT THEM, THE SERIES CANNOT GUARANTEE THAT THE
EFFORTS OF THE SERIES OR THEIR SERVICE PROVIDERS TO CORRECT THE PROBLEM WILL
BE SUCCESSFUL.
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
THE SERIES EACH GENERALLY:
PAY DIVIDENDS QUARTERLY, IN MARCH, JUNE, SEPTEMBER AND DECEMBER.
MAKES CAPITAL GAINS DISTRIBUTIONS, IF ANY, ONCE A YEAR, TYPICALLY IN
DECEMBER.
A SERIES MAY PAY ADDITIONAL DISTRIBUTIONS AND DIVIDENDS AT OTHER TIMES IF
NECESSARY FOR THE SERIES TO AVOID A FEDERAL TAX.
CAPITAL GAIN DISTRIBUTIONS AND DIVIDENDS ARE REINVESTED IN ADDITIONAL SHARES
OF THE SAME CLASS THAT YOU HOLD. ALTERNATIVELY, YOU CAN INSTRUCT YOUR
FINANCIAL INTERMEDIARY OR, THE TRANSFER AGENT IN WRITING OR BY TELEPHONE, TO
HAVE YOUR CAPITAL GAINS AND/OR DIVIDENDS PAID IN CASH. YOU CAN CHANGE YOUR
CHOICE AT ANY TIME TO BE EFFECTIVE AS OF THE NEXT DISTRIBUTION OR DIVIDEND,
EXCEPT THAT ANY CHANGE GIVEN TO THE FUND AFTER THE RECORD DATE WILL NOT BE
EFFECTIVE UNTIL THE NEXT DISTRIBUTION OR DIVIDEND IS MADE. NO INTEREST WILL
ACCRUE ON AMOUNTS REPRESENTED BY UNCASHED DISTRIBUTION OR REDEMPTION CHECKS.
TAXES
TRANSACTION FEDERAL TAX STATUS
REDEMPTION OR EXCHANGE OF SHARES USUALLY TAXABLE AS CAPITAL GAIN
OR LOSS; LONG-TERM ONLY IF SHARES
OWNED MORE THAN ONE YEAR
LONG-TERM CAPITAL GAIN DISTRIBUTIONS TAXABLE AS LONG-TERM CAPITAL GAIN
SHORT-TERM CAPITAL GAIN DISTRIBUTIONS TAXABLE AS ORDINARY INCOME
DIVIDENDS TAXABLE AS ORDINARY INCOME
IF YOU ARE A TAXABLE INVESTOR, YOU MAY WANT TO AVOID BUYING SHARES WHEN THE
SERIES IS ABOUT TO DECLARE A CAPITAL GAIN DISTRIBUTION OR A DIVIDEND, BECAUSE
IT WILL BE TAXABLE TO YOU EVEN THOUGH IT MAY ACTUALLY BE A RETURN OF A PORTION
OF YOUR INVESTMENT.
AFTER THE END OF EACH YEAR, THE SERIES WILL PROVIDE YOU WITH INFORMATION ABOUT
THE DISTRIBUTIONS AND DIVIDENDS THAT YOU RECEIVED AND ANY REDEMPTIONS OF
SHARES DURING THE PREVIOUS YEAR. IN CALCULATING YOUR GAIN OR LOSS ON ANY SALE
OF SHARES, NOTE THAT YOUR TAX BASIS IN YOUR SHARES IS INCREASED BY THE AMOUNTS
OF DIVIDENDS AND DISTRIBUTIONS THAT YOU HAVE REINVESTED IN A SERIES.
DIVIDENDS AND DISTRIBUTIONS ARE TAXABLE AS DESCRIBED ABOVE WHETHER RECEIVED IN
CASH OR REINVESTED. IF YOU DO NOT PROVIDE THE SERIES WITH YOUR CORRECT
TAXPAYER IDENTIFICATION NUMBER AND ANY REQUIRED CERTIFICATIONS, YOU MAY BE
SUBJECT TO BACK-UP WITHHOLDING OF 31% OF YOUR DISTRIBUTIONS, DIVIDENDS AND
REDEMPTION PROCEEDS. BECAUSE EACH SHAREHOLDER'S CIRCUMSTANCES ARE DIFFERENT
AND SPECIAL TAX RULES MAY APPLY, YOU SHOULD CONSULT WITH YOUR TAX ADVISER
ABOUT YOUR INVESTMENT IN THE SERIES AND YOUR RECEIPT OF DIVIDENDS,
DISTRIBUTIONS OR REDEMPTION PROCEEDS.
<PAGE>
[BACK COVER PAGE]
EXETER FUND, INC.
FLEXIBLE YIELD SERIES I
FLEXIBLE YIELD SERIES II
FLEXIBLE YIELD SERIES III
SHAREHOLDER REPORTS AND THE STATEMENT OF ADDITIONAL INFORMATION (SAI). ANNUAL
AND SEMIANNUAL REPORTS TO SHAREHOLDERS PROVIDE ADDITIONAL INFORMATION ABOUT
EACH SERIES' INVESTMENTS. THESE REPORTS DISCUSS THE MARKET CONDITIONS AND
INVESTMENT STRATEGIES THAT SIGNIFICANTLY AFFECTED EACH SERIES' PERFORMANCE
DURING ITS LAST FISCAL YEAR. THE SAI PROVIDES MORE DETAILED INFORMATION ABOUT
EACH SERIES. IT IS INCORPORATED BY REFERENCE INTO THIS COMBINED PROSPECTUS.
HOW TO OBTAIN THESE REPORTS AND ADDITIONAL INFORMATION.
YOU MAY OBTAIN SHAREHOLDER REPORTS AND THE SAI OR OTHER INFORMATION ABOUT
THE FUND WITHOUT CHARGE, BY CALLING 1-800-466-3863 OR SENDING WRITTEN
REQUESTS TO EXETER FUND, INC., P.O. BOX 41118, ROCHESTER, NEW YORK 14604.
YOU MAY REVIEW SHAREHOLDER REPORTS, THE PROSPECTUS AND SAI AT THE
SECURITIES AND EXCHANGE COMMISSION'S PUBLIC REFERENCE ROOM IN WASHINGTON,
D.C. THE SEC CHARGES A FEE FOR THIS SERVICE. INFORMATION ABOUT THE PUBLIC
REFERENCE ROOM MAY BE OBTAINED BY CALLING 1-800-SEC-0330. YOU CAN GET THE
SAME REPORTS AND INFORMATION FREE FROM THE SEC'S INTERNET WEB SITE
(HTTP://WWW.SEC.GOV).
IF SOMEONE MAKES A STATEMENT THAT IS NOT IN THIS PROSPECTUS ABOUT ANY OF THE
SERIES, YOU SHOULD NOT RELY UPON THAT INFORMATION. NEITHER THE SERIES NOR
THEIR DISTRIBUTOR IS OFFERING TO SELL SHARES OF THE SERIES TO ANY PERSON TO
WHOM THE SERIES MAY NOT LAWFULLY SELL THEIR SHARES.
INVESTMENT COMPANY ACT FILE NO. 811-04087
<PAGE>
[LOGO]
PROSPECTUS
MARCH 1, 1999
EXETER FUND, INC.
TAX MANAGED SERIES
CLASS A SHARES
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED THE SERIES' SHARES AS
AN INVESTMENT OR DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE.
ANY STATEMENT TO THE CONTRARY IS A CRIME.
<PAGE>
[INTENTIONALLY LEFT BLANK]
<PAGE>
CONTENTS
EXETER ASSET MANAGEMENT IS A DIVISION OF MANNING AND NAPIER ADVISORS, INC.,
WHICH WAS FOUNDED IN 1970, AND MANAGES OVER $7 BILLION FOR INDIVIDUAL AND
INSTITUTIONAL INVESTORS.
PAGE
GOAL AND STRATEGIES 4
MORE ABOUT THE SERIES' INVESTMENTS 6
THE ADVISOR 7
HOW TO BUY SHARES 8
HOW TO EXCHANGE AND HOW TO REDEEM SHARES 9
INVESTMENT AND ACCOUNT INFORMATION 10
DIVIDENDS, DISTRIBUTIONS AND TAXES 11
FINANCIAL HIGHLIGHTS 12
YOU SHOULD KNOW
AN INVESTMENT IN THE SERIES IS NOT A BANK DEPOSIT AND IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY.
<PAGE>
GOAL AND STRATEGIES
INVESTMENT GOAL
MAXIMIZE LONG-TERM GROWTH WHILE ATTEMPTING TO MINIMIZE THE IMPACT OF TAXES ON
THE SERIES' TOTAL RETURN.
KEY INVESTMENTS
THE SERIES INVESTS PRIMARILY IN COMMON STOCKS AND OTHER EQUITY SECURITIES.
THE SERIES MAY ALSO INVEST IN AMERICN DEPOSITARY RECEIPTS (ADRS) AND OTHER
U.S. DOLLAR DENOMINATED SECURITIES OF FOREIGN ISSUERS.
INVESTMENT STRATEGIES
THE ADVISOR USES A "BOTTOM-UP" STRATEGY, FOCUSING ON INDIVIDUAL SECURITY
SELECTION BASED ON ITS PROPRIETARY INVESTMENT STRATEGIES AND DISCIPLINES. THE
ADVISOR USES FUNDAMENTAL ANALYSIS TO SELECT INDIVIDUAL SECURITIES OF COMPANIES
THAT IT BELIEVES WILL MAKE ATTRACTIVE LONG-TERM INVESTMENTS. THE ADVISOR
LOOKS FOR ONE OR MORE OF THE FOLLOWING CHARACTERISTICS:
STRONG STRATEGIC PROFILES (E.G., STRONG MARKET POSITION, BENEFITS FROM
TECHNOLOGY, CAPITAL APPRECIATION IN A MATURE MARKET AND HIGH BARRIERS TO
ENTRY).
IMPROVING MARKET SHARE IN CONSOLIDATING INDUSTRIES.
LOW PRICE RELATIVE TO FUNDAMENTAL OR BREAKUP VALUE.
TAX MANAGEMENT STRATEGIES
WHILE PURSUING ITS GOAL OF LONG-TERM GROWTH, THE ADVISOR ALSO ATTEMPTS TO
MINIMIZE THE IMPACT OF TAXES ON THE SERIES' TOTAL RETURN BY:
INVESTING PRIMARILY IN LOW DIVIDEND, CAPITAL APPRECIATION ORIENTED
STOCKS. IN GENERAL, THESE STOCKS GENERATE LOWER CURRENT TAXABLE INCOME THAN
MOST FIXED INCOME SECURITIES AND HIGH DIVIDEND STOCKS.
AVOIDING SALES OF APPRECIATED SECURITIES THAT RESULT IN CAPITAL GAIN,
EXCEPT WHEN THERE ARE COMPELLING INVESTMENT REASONS FOR THE SALE.
WHEN SELLING A POSITION IN A SECURITY, FOCUSING ON THE HIGHEST COST LOT
OF THAT SECURITY FIRST, WHICH REDUCES THE AMOUNT OF CAPITAL GAIN (OR
INCREASES THE AMOUNT OF LOSS) REALIZED BY THE SERIES.
WHEN APPROPRIATE, FAVORING THE SALE OF SECURITIES PRODUCING LONG-TERM
GAIN TO THOSE PRODUCING SHORT-TERM GAIN.
WHEN APPROPRIATE, SELLING DEPRECIATED SECURITIES TO REALIZE LOSSES TO
OFFSET REALIZED CAPITAL GAINS.
WHEN APPROPRIATE, USING A PERMITTED TAX ACCOUNTING METHODOLOGY TO
MINIMIZE TAXABLE DISTRIBUTIONS.
SUMMARY OF PAST PERFORMANCE
THE BAR CHART AND TOTAL RETURN TABLE INDICATE THE RISKS OF INVESTING IN THE
SERIES. THE BAR CHART SHOWS CHANGES IN THE PERFORMANCE OF THE CLASS A SHARES
OF THE SERIES FOR EACH FULL CALENDAR YEAR SINCE ITS INCEPTION. THE TOTAL
RETURN TABLE SHOWS HOW THE AVERAGE ANNUAL TOTAL RETURNS FOR THE CLASS A SHARES
FOR DIFFERENT CALENDAR PERIODS COMPARE TO THOSE OF THE STANDARD & POOR'S 500
COMPOSITE STOCK PRICE INDEX, AN UNMANAGED INDEX OF COMMON STOCKS.
[BAR CHART SHOWING THE PERCENT TOTAL RETURN FOR THE TAX MANAGED SERIES FOR
1996, 1997 AND 1998, WITH CALENDAR YEARS ENDED DECEMBER 31ST. THE RESULTS ARE
22.98 % FOR 1996, 21.76% FOR 1997 AND NO RESULT FOR 1998, AS THE YEAR HAS NOT
ENDED.]
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(FOR PERIODS ENDED 12/31/98) 1 YEAR SINCE INCEPTION ON 11/1/95
<S> <C> <C>
CLASS A SHARES XX.XX% XX.XX%
- ----------------------------- --------- -------
S&P 500 INDEX XX.XX% XX.XX%
- ----------------------------- --------- -------
QUARTERLY RETURNS
HIGHEST: XX.XX% IN XX QUARTER 199X
LOWEST: -XX.XX% IN XX QUARTER 199X
- ----------------------------- ---------------------------
</TABLE>
PAST PERFORMANCE DOES NOT NECESSARILY INDICATE HOW THE SERIES WILL PERFORM IN
THE FUTURE.
<PAGE>
PRINCIPAL RISKS OF INVESTING IN THE SERIES
YOU COULD LOSE MONEY ON YOUR INVESTMENT IN THE SERIES OR THE SERIES COULD
UNDERPERFORM IF ANY OF THE FOLLOWING OCCURS:
THE U.S. AND/OR FOREIGN STOCK MARKET GOES DOWN.
LOWER-YIELDING, CAPITAL APPRECIATION ORIENTED STOCKS GO DOWN IN VALUE OR
UNDERPERFORM HIGHER-YIELDING STOCKS.
AN ADVERSE EVENT, SUCH AS AN UNFAVORABLE EARNINGS REPORT, DEPRESSES THE
VALUE OF A PARTICULAR COMPANY'S STOCK.
THE ADVISOR'S JUDGMENTS ABOUT THE ATTRACTIVENESS, RELATIVE VALUE OR
POTENTIAL APPRECIATION OF A SECURITY OR STRATEGY PROVE TO BE INCORRECT.
THE SERIES USES THE TAX MANAGEMENT STRATEGIES DESCRIBED ON THE OPPOSITE PAGE
TO MINIMIZE THE AMOUNT OF DISTRIBUTIONS SUBJECT TO STATE AS WELL AS FEDERAL
TAXATION. HOWEVER, THE ADVISOR DOES NOT ATTEMPT TO ADDRESS THE TAX LAWS OF
ANY PARTICULAR STATE. THE ADVISOR WILL FOLLOW TAX MANAGEMENT STRATEGIES ONLY
TO THE EXTENT THAT THEY DO NOT CONFLICT WITH THE SERIES' GOAL OF MAXIMIZING
LONG-TERM GROWTH OR THE OPERATION OF THE SERIES. THE SERIES MAY REALIZE
SHORT-TERM GAIN ON THE SALE OF A SECURITY IF THE ADVISOR BELIEVES IT WILL
DECLINE IN VALUE, TO INCREASE DIVERSIFICATION, OR TO RAISE CASH TO PAY
EXPENSES OR MEET REDEMPTION REQUESTS. IN ADDITION, SOME SECURITIES IN THE
SERIES' PORTFOLIO WILL REGULARLY GENERATE TAXABLE INCOME. AT TIMES, TAX
MANAGED FUNDS ARE MORE VOLATILE THAN OTHER FUNDS BECAUSE THEY TEND TO HOLD
STOCKS LONGER TO AVOID REALIZING GAIN DUE TO PORTFOLIO TURNOVER.
WHO MAY WANT TO INVEST
THE SERIES MAY BE AN APPROPRIATE INVESTMENT IF YOU ARE:
IN A HIGH FEDERAL TAX BRACKET AND ARE SEEKING HIGH AFTER-TAX RETURN.
SEEKING A LONG-TERM INVESTMENT (FIFTEEN YEARS OR MORE) AND ARE WILLING TO
ACCEPT THE RISK OF SHORT-TERM STOCK MARKET SWINGS.
SEEKING TO BALANCE YOUR PORTFOLIO BY ADDING AN EQUITY COMPONENT.
A CUSTODIAN FOR A MINOR CHILD'S UGMA/UTMA ACCOUNT, SEEKING FAVORABLE
CAPITAL GAIN RATES.
<TABLE>
<CAPTION>
FEES AND EXPENSES OF THE SERIES
THIS TABLE DESCRIBES THE FEES AND EXPENSES YOU MAY PAY IF YOU INVEST IN THE SERIES.
FOR THE YEAR ENDED 10/31/98 TAX MANAGED SERIES
<S> <C>
SHAREHOLDER FEES (PAID
DIRECTLY FROM YOUR INVESTMENT) NONE
- --------------------------------------------- -----
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE
DEDUCTED FROM ASSETS OF THE SERIES)
- --------------------------------------------
MANAGEMENT FEE 1.00%
-----
DISTRIBUTION AND SERVICE(RULE 12B-1) FEES NONE
-----
OTHER EXPENSES 4.17%
-----
TOTAL ANNUAL FUND OPERATING EXPENSES 5.17%
-----
BECAUSE THE ADVISOR HAS AGREED TO LIMIT OPERATING EXPENSES,
ACTUAL EXPENSES WERE:
- ------------------------------------------------------------
MANAGEMENT FEE 0.00%
- -------------------------------------- -----
OTHER EXPENSES 1.20%
-----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.20%
- --------------------------------------------- -----
</TABLE>
THE ADVISOR MAY CHANGE OR ELIMINATE THESE EXPENSE LIMITS AT ANY TIME.
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
SERIES WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT:
YOU INVEST $10,000 FOR THE PERIODS SHOWN
YOU REDEEM AT THE END OF EACH PERIOD
THE FUND'S OPERATING EXPENSES REMAIN THE SAME
YOUR INVESTMENT HAS A 5% RETURN EACH YEAR
<TABLE>
<CAPTION>
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER,
UNDER THESE ASSUMPTIONS YOUR COSTS WOULD BE:
<S> <C> <C> <C>
AFTER AFTER AFTER AFTER
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------- -------- -------- ---------
$517 $ 1,547 $ 2,574 $ 5,126
-------- -------- ---------
WITH EXPENSE LIMITS, YOUR COSTS WOULD BE:
- -----------------------------------------
$122 $ 381 $ 660 $ 1,455
- ------- -------- -------- ---------
</TABLE>
<PAGE>
ABOUT THE SERIES' INVESTMENTS
PRINCIPAL INVESTMENTS
EQUITY THE SERIES MAY INVEST IN EQUITY SECURITIES OF U.S. AND FOREIGN
COMPANIES. THESE SECURITIES INCLUDE EXCHANGE-TRADED AND OVER-THE-COUNTER
(OTC) COMMON AND PREFERRED STOCKS, WARRANTS, RIGHTS, CONVERTIBLE DEBT
SECURITIES, TRUST CERTIFICATES, PARTNERSHIP INTERESTS AND EQUITY
PARTICIPATIONS.
FOREIGN SECURITIES THE SERIES MAY INVEST IN ADRS AND OTHER U.S. DOLLAR
DENOMINATED SECURITIES OF FOREIGN ISSUERS. PRICES OF FOREIGN SECURITIES MAY GO
DOWN BECAUSE OF FOREIGN GOVERNMENT ACTIONS, POLITICAL INSTABILITY OR THE MORE
LIMITED AVAILABILITY OF ACCURATE INFORMATION ABOUT FOREIGN COMPANIES. THESE
RISKS MAY BE MORE SEVERE FOR SECURITIES OF ISSUERS IN EMERGING MARKETS.
FIXED INCOME THE SERIES MAY INVEST UP TO 35% OF ITS ASSETS IN FIXED INCOME
SECURITIES OF ANY MATURITY OR DURATION. THESE SECURITIES MAY BE ISSUED BY THE
U.S. GOVERNMENT OR ANY OF ITS AGENCIES, FOREIGN GOVERNMENTS, SUPRANATIONAL
ENTITIES SUCH AS THE WORLD BANK, AND U.S. AND FOREIGN COMPANIES.
INVESTMENTS IN FIXED INCOME SECURITIES MAY BE OF ANY CREDIT QUALITY AND MAY
HAVE ALL TYPES OF INTEREST RATE PAYMENT AND RESET TERMS. THEY MAY INCLUDE
MORTGAGE-BACKED, ASSET-BACKED AND DERIVATIVE SECURITIES AS WELL AS LOWER
QUALITY BONDS COMMONLY KNOWN AS "JUNK BONDS." THESE BONDS ARE CONSIDERED
SPECULATIVE BECAUSE THEY HAVE A HIGHER RISK OF ISSUER DEFAULT, ARE SUBJECT TO
GREATER PRICE VOLATILITY AND MAY BE ILLIQUID.
DERIVATIVE CONTRACTS
A DERIVATIVE CONTRACT WILL OBLIGATE OR ENTITLE THE SERIES TO DELIVER OR
RECEIVE AN ASSET OR A CASH PAYMENT THAT IS BASED ON THE CHANGE IN VALUE OF A
DESIGNATED SECURITY, INDEX OR CURRENCY. THE SERIES MAY, BUT IS NOT REQUIRED
TO, USE DERIVATIVE CONTRACTS FOR ANY OF THE FOLLOWING PURPOSES:
TO HEDGE AGAINST ADVERSE CHANGES IN THE MARKET VALUE OF SECURITIES HELD BY
OR TO BE BOUGHT FOR THE SERIES. THESE CHANGES MAY BE CAUSED BY CHANGING
INTEREST RATES OR STOCK MARKET PRICES.
AS A SUBSTITUTE FOR PURCHASING OR SELLING SECURITIES.
TO SHORTEN OR LENGTHEN THE EFFECTIVE MATURITY OR DURATION OF THE SERIES'
FIXED INCOME PORTFOLIO.
IN NON-HEDGING SITUATIONS, TO ATTEMPT TO PROFIT FROM ANTICIPATED MARKET
DEVELOPMENTS.
COUNTERPARTIES TO OTC DERIVATIVE CONTRACTS PRESENT THE SAME TYPES OF DEFAULT
RISK AS ISSUERS OF FIXED INCOME SECURITIES.
DEFENSIVE INVESTING
THE SERIES MAY DEPART FROM ITS PRINCIPAL INVESTMENT STRATEGIES BY TAKING
TEMPORARY DEFENSIVE POSITIONS IN RESPONSE TO ADVERSE MARKET, ECONOMIC OR
POLITICAL CONDITIONS. IF THE SERIES TAKES A TEMPORARY DEFENSIVE POSITION, IT
MAY BE UNABLE TO ACHIEVE ITS INVESTMENT GOAL.
THE SERIES' INVESTMENT GOAL
THE SERIES' BOARD OF DIRECTORS MAY CHANGE ITS INVESTMENT GOAL (DESCRIBED ABOVE
UNDER "GOALS AND STRATEGIES") WITHOUT OBTAINING THE APPROVAL OF THE
SHAREHOLDERS. THE SERIES MIGHT NOT SUCCEED IN ACHIEVING ITS GOAL.
<PAGE>
THE ADVISOR
THE ADVISOR
THE SERIES' ADVISOR IS EXETER ASSET MANAGEMENT, A DIVISION OF MANNING & NAPIER
ADVISORS, INC., 1100 CHASE SQUARE, ROCHESTER, NEW YORK, 14604. THE ADVISOR IS
RESPONSIBLE FOR THE DAY-TO-DAY OPERATIONS OF THE SERIES AND GENERALLY IS
RESPONSIBLE FOR SUPERVISION OF THE SERIES' OVERALL BUSINESS AFFAIRS, SERVICE
PROVIDERS AND OFFICERS.
A TEAM MADE UP OF INVESTMENT PROFESSIONALS AND ANALYSTS EMPLOYED BY THE
ADVISOR MAKES ALL OF THE SERIES' INVESTMENT DECISIONS.
MANAGEMENT FEES
IN RETURN FOR THE SERVICES IT PROVIDES TO THE SERIES, THE ADVISOR RECEIVES A
MANAGEMENT FEE, WHICH IS COMPUTED DAILY AND PAYABLE MONTHLY BY THE SERIES AS
DESCRIBED BELOW.
THE ADVISOR HAS AGREED TO LIMIT THE SERIES' MANAGEMENT FEES AND OTHER
EXPENSES. THESE LIMITATIONS ARE TEMPORARY AND MAY BE CHANGED AT ANY TIME.
ANNUAL MANAGEMENT FEES (AS A PERCENTAGE OF DAILY NET ASSETS)
<TABLE>
<CAPTION>
ACTUAL
MANAGEMENT CONTRACTUAL CURRENT
FEE PAID FOR MANAGEMENT EXPENSE
YEAR ENDED FEE LIMITATION
10/31/98
<S> <C> <C> <C>
TAX MANAGED SERIES 0.00% 1.00% 1.20%
- ------------------ ----- ----- -----
</TABLE>
THE DISTRIBUTOR
THE DISTRIBUTOR OF THE SERIES' SHARES IS MANNING & NAPIER INVESTOR SERVICES,
INC. CLASS A SHARES ARE OFFERED TO INVESTORS WHO PURCHASE SHARES DIRECTLY
FROM THE DISTRIBUTOR OR THROUGH CERTAIN REGISTERED INVESTMENT ADVISERS. CLASS
A SHARES ARE NOT SUBJECT TO ANY DISTRIBUTION OR SHAREHOLDER SERVICING FEES.
YEAR 2000 ISSUE
INFORMATION TECHNOLOGY EXPERTS ARE CONCERNED ABOUT COMPUTER SYSTEMS' ABILITY
TO PROCESS DATE-RELATED INFORMATION ON AND AFTER JANUARY 1, 2000. THIS
SITUATION, COMMONLY KNOWN AS THE "YEAR 2000" ISSUE, COULD HAVE AN ADVERSE
IMPACT ON THE SERIES. THE ADVISOR, THE TRANSFER AGENT AND THE DISTRIBUTOR ARE
ADDRESSING THE YEAR 2000 ISSUE FOR THEIR SYSTEMS. THE SERIES HAS BEEN
INFORMED BY ITS OTHER SERVICE PROVIDERS THAT THEY ARE TAKING SIMILAR MEASURES.
ALTHOUGH THE SERIES DOES NOT EXPECT THE YEAR 2000 ISSUE TO ADVERSELY AFFECT
IT, THE SERIES CANNOT GUARANTEE THAT THE EFFORTS OF THE SERIES OR ITS SERVICE
PROVIDERS TO CORRECT THE PROBLEM WILL BE SUCCESSFUL.
<PAGE>
HOW TO BUY SHARESHOW TO BUY SHARES
HOW TO BUY SHARES
THE MINIMUM INITIAL INVESTMENT IS $2,000, AND THE MINIMUM FOR EACH ADDITIONAL
INVESTMENT IS $100. THE MINIMUM INVESTMENT REQUIREMENTS ARE LOWER FOR
PARTICIPANTS IN THE AUTOMATIC INVESTMENT PLAN, WHICH IS DESCRIBED BELOW.
THESE INVESTMENT MINIMUMS MAY BE WAIVED AT THE ADVISOR'S DISCRETION.
ALL ORDERS TO PURCHASE SHARES ACCEPTED BY THE DISTRIBUTOR, TRANSFER AGENT OR
OTHER AGENT BEFORE THE CLOSE OF TRADING ON THE NEW YORK STOCK EXCHANGE (NYSE)
ON ANY DAY WILL BE EXECUTED AT THAT DAY'S SHARE PRICE. ORDERS ACCEPTED AFTER
THAT DAY'S CLOSE WILL BE EXECUTED AT THE NEXT BUSINESS DAY'S PRICE. ALL
ORDERS MUST INCLUDE THE REQUIRED DOCUMENTATION AND BE ACCOMPANIED BY PROPER
PAYMENT. EACH SERIES RESERVES THE RIGHT TO REJECT PURCHASE ORDERS OR TO STOP
OFFERING ITS SHARES WITHOUT NOTICE TO SHAREHOLDERS.
BY MAIL
OPENING AN ACCOUNT
SEND A CHECK PAYABLE TO EXETER FUND, INC., WITH THE COMPLETED ORIGINAL
ACCOUNT APPLICATION. THE ADDRESS IS:
EXETER FUND, INC.
P.O. BOX 41118
ROCHESTER, NY 14604
TO REQUEST AN ACCOUNT APPLICATION, CALL THE FUND AT 1-800-466-3863.
ADDING TO AN ACCOUNT
SEND A CHECK PAYABLE TO EXETER FUND, INC. AND A LETTER OF INSTRUCTION
WITH THE NAME OF THE SERIES TO BE PURCHASED
AND THE ACCOUNT NAME AND NUMBER.
BY WIRE
OPENING AN ACCOUNT
OR
ADDING TO AN ACCOUNT
AFTER THE FUND HAS RECEIVED YOUR COMPLETED ACCOUNT APPLICATION, YOU MAY
WIRE FUNDS TO OPEN OR ADD SHARES TO YOUR
ACCOUNT. BEFORE SENDING A WIRE, CALL 1-800-466-3863 FOR WIRE INSTRUCTIONS.
AUTOMATIC INVESTMENT PLAN
YOU MAY PARTICIPATE IN THE AUTOMATIC INVESTMENT PLAN BY COMPLETING THE
APPLICABLE SECTION OF THE ACCOUNT APPLICATION OR CONTACTING THE FUND. THROUGH
THE PLAN, YOU CAN AUTHORIZE TRANSFERS OF A SPECIFIED AMOUNT FROM YOUR BANK
ACCOUNT INTO THE SERIES ON A REGULAR BASIS. THE MINIMUM AMOUNT OF EACH
INVESTMENT IS $25. IF YOU HAVE INSUFFICIENT FUNDS IN YOUR ACCOUNT TO COMPLETE
A TRANSFER, YOUR BANK MAY CHARGE YOU A FEE.
<PAGE>
HOW TO EXCHANGE AND HOW TO REDEEM SHARESHOW TO EXCHANGE AND HOW TO REDEEM
SHARES
HOW TO EXCHANGE SHARES
YOU MAY EXCHANGE CLASS A SHARES OF THE SERIES FOR CLASS A SHARES OF ANY OTHER
SERIES OF EXETER FUND, IF THE REGISTRATION OF BOTH ACCOUNTS IS IDENTICAL. IF
RECEIVED WITH PROPER DOCUMENTATION BEFORE THE CLOSE OF TRADING ON THE NYSE,
EXCHANGE REQUESTS WILL BE EXECUTED AT THAT DAY'S SHARE PRICES. OTHERWISE,
THEY WILL BE EXECUTED AT THE PRICES DETERMINED ON THE NEXT BUSINESS DAY AFTER
RECEIPT WITH PROPER DOCUMENTATION.
THE MINIMUM EXCHANGE AMOUNT IS $1,000 (OR ALL THE SHARES IN YOUR ACCOUNT, IF
LESS THAN $1,000). YOU MAY EXCHANGE UP TO 4 TIMES DURING ANY 12-MONTH PERIOD
WITHOUT PAYING A SALES CHARGE OR ANY OTHER FEE. FOR ANY ADDITIONAL EXCHANGES,
YOU MAY BE CHARGED $15 PER EXCHANGE. THE SERIES MAY REFUSE ANY EXCHANGE ORDER
AND MAY ALTER, LIMIT OR SUSPEND ITS EXCHANGE PRIVILEGE ON 60 DAYS' NOTICE. AN
EXCHANGE INVOLVES A TAXABLE REDEMPTION OF SHARES SURRENDERED IN THE EXCHANGE.
BY MAIL
SEND A LETTER OF INSTRUCTION TO EXETER FUND, INC., AT THE ADDRESS ON THE
OPPOSITE PAGE, SIGNED BY EACH REGISTERED
ACCOUNT OWNER, EXACTLY AS YOUR NAMES APPEAR ON THE ACCOUNT REGISTRATION.
PROVIDE THE NAME OF THE CURRENT SERIES, CLASS OF SHARES, SERIES TO
EXCHANGE INTO AND DOLLAR AMOUNT TO BE EXCHANGED.
PROVIDE BOTH ACCOUNT NUMBERS.
BY TELEPHONE
UNLESS YOU HAVE DECLINED TELEPHONE PRIVILEGES, CALL THE FUND AT
1-800-466-3863.
PROVIDE THE NAME OF THE CURRENT SERIES, CLASS OF SHARES, SERIES TO
EXCHANGE INTO AND DOLLAR AMOUNT TO BE EXCHANGED.
PROVIDE BOTH ACCOUNT NUMBERS.
THE FUND MAY ASK FOR IDENTIFICATION, AND ALL TELEPHONE TRANSACTIONS ARE
RECORDED.
HOW TO REDEEM SHARES
ALL ORDERS TO REDEEM SHARES ACCEPTED BY THE DISTRIBUTOR, TRANSFER AGENT OR
OTHER AGENT BEFORE THE CLOSE OF TRADING ON THE NYSE ON ANY DAY WILL BE
EXECUTED AT THAT DAY'S SHARE PRICE. ORDERS ACCEPTED AFTER THE CLOSE OF
TRADING WILL BE EXECUTED AT THE NEXT BUSINESS DAY'S PRICE. ALL REDEMPTION
ORDERS MUST INCLUDE THE REQUIRED DOCUMENTATION AND SIGNATURES. THE SERIES MAY
POSTPONE PAYMENT OF REDEMPTION PROCEEDS FOR UP TO SEVEN DAYS, OR SUSPEND
REDEMPTIONS TO THE EXTENT PERMITTED BY LAW. IF YOU RECENTLY PURCHASED YOUR
SHARES BY CHECK, YOUR REDEMPTION PROCEEDS WILL NOT BE SENT TO YOU FOR 15 DAYS.
BY MAIL
SEND A LETTER OF INSTRUCTION TO EXETER FUND, INC., AT THE ADDRESS ON THE
OPPOSITE PAGE, SIGNED BY EACH REGISTERED ACCOUNT OWNER.
STATE THE NAME OF THE SERIES, THE CLASS AND NUMBER OF SHARES OR DOLLAR
AMOUNT TO BE SOLD.
PROVIDE THE ACCOUNT NUMBER.
SIGNATURE GUARANTEES MAY BE REQUIRED.
ADDITIONAL DOCUMENTATION MAY BE REQUIRED (CALL THE FUND FOR DETAILS).
<PAGE>
AND ACCOUNT INFORMATION
ACCOUNTS WITH LOW BALANCES
IF YOUR ACCOUNT FALLS BELOW $1,000 DUE TO THE REDEMPTION OF SHARES, THE FUND
MAY ASK YOU TO BRING YOUR ACCOUNT UP TO THE MINIMUM REQUIREMENT. IF YOUR
ACCOUNT IS STILL BELOW $1,000 AFTER 60 DAYS, THE FUND MAY CLOSE YOUR ACCOUNT
AND SEND YOU THE REDEMPTION PROCEEDS.
IN-KIND PURCHASES AND REDEMPTIONS
SECURITIES YOU OWN MAY BE USED TO PURCHASE SHARES OF THE SERIES. THE ADVISOR
WILL DETERMINE IF ACQUIRING THE SECURITIES IS CONSISTENT WITH THE SERIES' GOAL
AND POLICIES. IF ACCEPTED, THE SECURITIES WILL BE VALUED THE SAME WAY THE
SERIES VALUES SECURITIES IT ALREADY OWNS.
THE SERIES MAY MAKE PAYMENT FOR SHARES IN PART BY GIVING YOU PORTFOLIO
SECURITIES. AS A REDEEMING SHAREHOLDER, YOU WILL PAY TRANSACTION COSTS TO
DISPOSE OF THESE SECURITIES.
SIGNATURE GUARANTEES
A SIGNATURE GUARANTEE MAY BE REQUIRED FOR ANY WRITTEN REQUEST TO SELL SHARES,
OR TO CHANGE THE ACCOUNT REGISTRATION.
THE TRANSFER AGENT WILL ACCEPT SIGNATURE GUARANTEES FROM:
MEMBERS OF THE STAMP PROGRAM OR THE NYSE'S MEDALLION SIGNATURE PROGRAM.
A BROKER OR SECURITIES DEALER.
A FEDERAL SAVINGS, COOPERATIVE OR OTHER TYPE OF BANK.
A SAVINGS AND LOAN OR OTHER THRIFT INSTITUTION.
A CREDIT UNION.
A SECURITIES EXCHANGE OR CLEARING AGENCY.
A NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
VALUATION OF SHARES
THE SERIES OFFERS ITS SHARES AT ITS NET ASSET VALUE (NAV) PER SHARE. THE
SERIES CALCULATES ITS NAV ONCE DAILY AS OF THE CLOSE OF REGULAR TRADING ON THE
NEW YORK STOCK EXCHANGE (GENERALLY AT 4:00 P.M., NEW YORK TIME) ON EACH DAY
THE EXCHANGE IS OPEN. IF THE EXCHANGE CLOSES EARLY, THE SERIES WILL
ACCELERATE THE CALCULATION OF NAV AND TRANSACTION DEADLINES TO THAT TIME.
THE SERIES VALUES THE SECURITIES IN ITS PORTFOLIO ON THE BASIS OF MARKET
QUOTATIONS AND VALUATIONS PROVIDED BY INDEPENDENT PRICING SERVICES. IF
QUOTATIONS ARE NOT READILY AVAILABLE, OR THE VALUE OF A SECURITY HAS BEEN
MATERIALLY AFFECTED BY EVENTS OCCURRING AFTER THE CLOSING OF A FOREIGN
EXCHANGE, THE SERIES VALUES ITS ASSETS BY A METHOD THAT THE DIRECTORS BELIEVE
ACCURATELY REFLECTS FAIR VALUE. IF THE SERIES USES FAIR VALUE TO PRICE
SECURITIES, IT MAY VALUE THOSE SECURITIES HIGHER OR LOWER THAN ANOTHER MUTUAL
FUND THAT USES MARKET QUOTATIONS TO PRICE THE SAME SECURITIES.
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXESDIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
THE SERIES GENERALLY:
PAYS DIVIDENDS ONCE A YEAR, IN DECEMBER.
MAKES CAPITAL GAINS DISTRIBUTIONS, IF ANY, ONCE A YEAR, TYPICALLY IN
DECEMBER.
HOWEVER, BECAUSE THE SERIES MAY UTILIZE TAX EQUALIZATION AND OTHER METHODS TO
MINIMIZE TAXABLE DISTRIBUTIONS, IN SOME YEARS IT MAY PAY NO, OR ONLY MINIMAL
DIVIDENDS AND/OR DISTRIBUTIONS. THE SERIES ALSO MAY PAY ADDITIONAL
DISTRIBUTIONS AND DIVIDENDS AT OTHER TIMES IF NECESSARY FOR THE SERIES TO
AVOID A FEDERAL TAX.
CAPITAL GAIN DISTRIBUTIONS AND DIVIDENDS ARE REINVESTED IN ADDITIONAL SHARES
OF THE SAME CLASS THAT YOU HOLD. ALTERNATIVELY, YOU CAN INSTRUCT THE TRANSFER
AGENT IN WRITING OR BY TELEPHONE TO HAVE YOUR CAPITAL GAINS AND/OR DIVIDENDS
PAID IN CASH. YOU CAN CHANGE YOUR CHOICE AT ANY TIME TO BE EFFECTIVE AS OF
THE NEXT DISTRIBUTION OR DIVIDEND, EXCEPT THAT ANY CHANGE GIVEN TO THE
TRANSFER AGENT AFTER THE RECORD DATE WILL NOT BE EFFECTIVE UNTIL THE NEXT
DISTRIBUTION OR DIVIDEND IS MADE. NO INTEREST WILL ACCRUE ON AMOUNTS
REPRESENTED BY UNCASHED DISTRIBUTION OR REDEMPTION CHECKS.
TAXES
TRANSACTION FEDERAL TAX STATUS
REDEMPTION OR EXCHANGE OF SHARES USUALLY TAXABLE AS CAPITAL GAIN
OR LOSS; LONG-TERM ONLY IF SHARES
OWNED MORE THAN ONE YEAR
LONG-TERM CAPITAL GAIN DISTRIBUTIONS TAXABLE AS LONG-TERM CAPITAL GAIN
SHORT-TERM CAPITAL GAIN DISTRIBUTIONS TAXABLE AS ORDINARY INCOME
DIVIDENDS TAXABLE AS ORDINARY INCOME
IF YOU ARE A TAXABLE INVESTOR, YOU MAY WANT TO AVOID BUYING SHARES WHEN THE
SERIES IS ABOUT TO DECLARE A CAPITAL GAIN DISTRIBUTION OR A DIVIDEND, BECAUSE
IT WILL BE TAXABLE TO YOU EVEN THOUGH IT MAY ACTUALLY BE A RETURN OF A PORTION
OF YOUR INVESTMENT.
AFTER THE END OF EACH YEAR, THE SERIES WILL PROVIDE YOU WITH INFORMATION ABOUT
THE DISTRIBUTIONS AND DIVIDENDS THAT YOU RECEIVED AND ANY REDEMPTIONS OF
SHARES DURING THE PREVIOUS YEAR. IN CALCULATING YOUR GAIN OR LOSS ON ANY SALE
OF SHARES, NOTE THAT YOUR TAX BASIS IN YOUR SHARES IS INCREASED BY THE AMOUNTS
OF DIVIDENDS AND DISTRIBUTIONS THAT YOU HAVE REINVESTED IN THE SERIES.
DIVIDENDS AND DISTRIBUTIONS ARE TAXABLE AS DESCRIBED ABOVE WHETHER RECEIVED IN
CASH OR REINVESTED.
IF YOU DO NOT PROVIDE THE SERIES WITH YOUR CORRECT TAXPAYER IDENTIFICATION
NUMBER AND ANY REQUIRED CERTIFICATIONS, YOU MAY BE SUBJECT TO BACK-UP
WITHHOLDING OF 31% OF YOUR DISTRIBUTIONS, DIVIDENDS, AND REDEMPTION PROCEEDS.
BECAUSE EACH SHAREHOLDER'S CIRCUMSTANCES ARE DIFFERENT AND SPECIAL TAX RULES
MAY APPLY, YOU SHOULD CONSULT WITH YOUR TAX ADVISER ABOUT YOUR INVESTMENT IN
THE SERIES AND YOUR RECEIPT OF DIVIDENDS, DISTRIBUTIONS OR REDEMPTION
PROCEEDS.
<PAGE>
FINANCIAL HIGHLIGHTSFINANCIAL HIGHLIGHTS
THE INFORMATION IN THE TABLES FOLLOWING WAS AUDITED BY DELOITTE & TOUCHE LLP,
INDEPENDENT ACCOUNTANTS, WHOSE REPORT, ALONG WITH THE SERIES' FINANCIAL
STATEMENTS, ARE INCLUDED IN THE ANNUAL REPORT (AVAILABLE UPON REQUEST).
CERTAIN INFORMATION REFLECTS FINANCIAL RESULTS FOR A SINGLE SHARE. TOTAL
RETURNS REPRESENT THE RATE THAT A SHAREHOLDER WOULD HAVE EARNED ON AN
INVESTMENT IN A CLASS (ASSUMING REINVESTMENT OF ALL DIVIDENDS AND
DISTRIBUTIONS).
<TABLE>
<CAPTION>
TAX MANAGED SERIES - CLASS A SHARES
FOR THE FOR THE FOR THE
YEAR YEAR YEAR
ENDED ENDED ENDED
10/31/98 10/31/97 10/31/96
<S> <C> <C> <C>
PER SHARE DATA (FOR A SHARE
OUTSTANDING THROUGHOUT THE PERIOD):
- ----------------------------------------
NET ASSET VALUE - BEGINNING OF PERIOD $ 15.20 $ 11.63 $ 10.00
- ----------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME (LOSS)* 0.10 (0.01) (0.02)
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS (0.44) 3.58 1.65
TOTAL FROM INVESTMENT OPERATIONS (0.34) 3.57 1.63
LESS DISTRIBUTIONS TO SHAREHOLDERS:
FROM NET REALIZED GAIN ON INVESTMENTS (0.40) - -
NET ASSET VALUE - END OF PERIOD $ 14.46 $ 15.20 $ 11.63
TOTAL RETURN2 (4.27%) 30.70% 16.30%
RATIOS (TO AVERAGE NET ASSETS)/SUPPLEMENTAL DATA:
EXPENSES* 1.20% 1.20% 1.20%
NET INVESTMENT INCOME (LOSS)* 0.73% (0.09%) (0.21%)
PORTFOLIO TURNOVER 65% 103% 78%
NET ASSETS - END OF PERIOD (000'S OMITTED) $772 $ 524 $ 224
NET INVESTMENT INCOME (LOSS) ($0.43) ($0.62) ($0.14)
RATIOS (TO AVERAGE NET ASSETS):
- -----------------------------------
EXPENSES 5.17% 8.08% 2.50%
- -----------------------------------
NET INVESTMENT INCOME (LOSS) (3.24%) (6.97%) (1.51%)
- -----------------------------------
</TABLE>
<PAGE>
[BACK COVER PAGE]
EXETER FUND, INC.
TAX MANAGED SERIES
SHAREHOLDER REPORTS AND THE STATEMENT OF ADDITIONAL INFORMATION (SAI). ANNUAL
AND SEMIANNUAL REPORTS TO SHAREHOLDERS PROVIDE ADDITIONAL INFORMATION ABOUT
THE SERIES' INVESTMENTS. THESE REPORTS DISCUSS THE MARKET CONDITIONS AND
INVESTMENT STRATEGIES THAT SIGNIFICANTLY AFFECTED THE SERIES' PERFORMANCE
DURING ITS LAST FISCAL YEAR. THE SAI PROVIDES MORE DETAILED INFORMATION ABOUT
THE SERIES. IT IS INCORPORATED BY REFERENCE INTO THIS COMBINED PROSPECTUS.
HOW TO OBTAIN THESE REPORTS AND ADDITIONAL INFORMATION.
YOU MAY OBTAIN SHAREHOLDER REPORTS AND THE SAI OR OTHER INFORMATION ABOUT
THE SERIES WITHOUT CHARGE, BY CALLING 1-800-466-3863 OR SENDING WRITTEN
REQUESTS TO EXETER FUND, P.O. BOX 41118, ROCHESTER, NEW YORK 14604.
YOU MAY REVIEW SHAREHOLDER REPORTS, THE PROSPECTUS AND SAI AT THE
SECURITIES AND EXCHANGE COMMISSION'S PUBLIC REFERENCE ROOM IN WASHINGTON,
D.C. THE SEC CHARGES A FEE FOR THIS SERVICE. INFORMATION ABOUT THE PUBLIC
REFERENCE ROOM MAY BE OBTAINED BY CALLING 1-800-SEC-0330. YOU CAN GET THE
SAME REPORTS AND INFORMATION FREE FROM THE SEC'S INTERNET WEB SITE
(HTTP://WWW.SEC.GOV).
IF SOMEONE MAKES A STATEMENT ABOUT THE SERIES THAT IS NOT IN THIS PROSPECTUS,
YOU SHOULD NOT RELY UPON THAT INFORMATION. NEITHER THE SERIES NOR ITS
DISTRIBUTOR IS OFFERING TO SELL SHARES TO ANY PERSON TO WHOM IT MAY NOT
LAWFULLY SELL SHARES.
INVESTMENT COMPANY ACT FILE NO. 811-04087
<PAGE>
[LOGO]
PROSPECTUS
EXETER FUND, INC.
MARCH 1, 1999
TAX MANAGED SERIES
CLASS B, C, D AND E SHARES
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED THE SERIES' SHARES AS
AN INVESTMENT OR DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE.
ANY STATEMENT TO THE CONTRARY IS A CRIME.
<PAGE>
[INTENTIONALLY LEFT BLANK]
<PAGE>
CONTENTS
EXETER ASSET MANAGEMENT IS A DIVISION OF MANNING AND NAPIER ADVISORS, INC.,
WHICH WAS FOUNDED IN 1970, AND MANAGES OVER $7 BILLION FOR INDIVIDUAL AND
INSTITUTIONAL INVESTORS.
PAGE
GOALS AND STRATEGIES 4
MORE ABOUT THE SERIES' INVESTMENTS 6
THE ADVISOR 7
HOW TO BUY AND HOW TO REDEEM SHARES 8
HOW TO EXCHANGE SHARES 9
INVESTMENT AND ACCOUNT INFORMATION 10
DIVIDENDS, DISTRIBUTIONS AND TAXES 11
YOU SHOULD KNOW
AN INVESTMENT IN THE SERIES IS NOT A BANK DEPOSIT AND IS NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY.
<PAGE>
GOALS AND STRATEGIES
INVESTMENT GOAL
MAXIMIZE LONG-TERM GROWTH WHILE ATTEMPTING TO MINIMIZE THE IMPACT OF TAXES ON
THE SERIES' TOTAL RETURN.
KEY INVESTMENTS
THE SERIES INVESTS PRIMARILY IN COMMON STOCKS AND OTHER EQUITY SECURITIES.
THE SERIES MAY ALSO INVEST IN AMERICAN DEPOSITARY RECEIPTS (ADRS) AND OTHER
U.S. DOLLAR DENOMINATED SECURITIES OF FOREIGN ISSUERS.
INVESTMENT STRATEGIES
THE ADVISOR USES A "BOTTOM-UP" STRATEGY, FOCUSING ON INDIVIDUAL SECURITY
SELECTION BASED ON ITS PROPRIETARY INVESTMENT STRATEGIES AND DISCIPLINES. THE
ADVISOR USES FUNDAMENTAL ANALYSIS TO SELECT INDIVIDUAL SECURITIES OF COMPANIES
THAT IT BELIEVES WILL MAKE ATTRACTIVE LONG-TERM INVESTMENTS. THE ADVISOR
LOOKS FOR ONE OR MORE OF THE FOLLOWING CHARACTERISTICS:
STRONG STRATEGIC PROFILES (E.G., STRONG MARKET POSITION, BENEFITS FROM
TECHNOLOGY, CAPITAL APPRECIATION IN A MATURE MARKET AND HIGH BARRIERS TO
ENTRY).
IMPROVING MARKET SHARE IN CONSOLIDATING INDUSTRIES.
LOW PRICE TO EARNINGS AND PRICE TO BOOK RATIOS, STRONG CASH FLOW AND
IMPROVING FUNDAMENTALS.
TAX MANAGEMENT STRATEGIES
WHILE PURSUING ITS GOAL OF LONG-TERM GROWTH, THE ADVISOR ALSO ATTEMPTS TO
MINIMIZE THE IMPACT OF TAXES ON THE SERIES' TOTAL RETURN BY:
INVESTING PRIMARILY IN LOW DIVIDEND, CAPITAL APPRECIATION ORIENTED
STOCKS. IN GENERAL, THESE STOCKS GENERATE LOWER CURRENT TAXABLE INCOME THAN
MOST FIXED INCOME SECURITIES AND HIGH DIVIDEND STOCKS.
AVOIDING SALES OF APPRECIATED SECURITIES THAT RESULT IN CAPITAL GAIN,
EXCEPT WHEN THERE ARE COMPELLING INVESTMENT REASONS FOR THE SALE.
WHEN SELLING A POSITION IN A SECURITY, FOCUSING ON THE HIGHEST COST LOT
OF THAT SECURITY FIRST, WHICH REDUCES THE AMOUNT OF CAPITAL GAIN (OR
INCREASES THE AMOUNT OF LOSS) REALIZED BY THE SERIES.
WHEN APPROPRIATE, FAVORING THE SALE OF SECURITIES PRODUCING LONG-TERM
GAIN TO THOSE PRODUCING SHORT-TERM GAIN.
WHEN APPROPRIATE, SELLING DEPRECIATED SECURITIES TO REALIZE LOSSES TO
OFFSET REALIZED CAPITAL GAINS.
WHEN APPROPRIATE, USING A PERMITTED TAX ACCOUNTING METHODOLOGY TO
MINIMIZE TAXABLE DISTRIBUTIONS.
SUMMARY OF PAST PERFORMANCE
NO CLASS B, C, D OR E SHARES WERE OUTSTANDING DURING THE PAST YEAR. CLASS B,
C, D AND E SHARES WOULD HAVE DIFFERENT PERFORMANCE DUE TO THEIR DIFFERENT
EXPENSES.
THE BAR CHART AND TOTAL RETURN TABLE INDICATE THE RISKS OF INVESTING IN THE
CLASS A SHARES OF THE SERIES. THE BAR CHART SHOWS CHANGES IN THE PERFORMANCE
OF THE CLASS A SHARES OF THE SERIES FOR EACH FULL CALENDAR YEAR SINCE ITS
INCEPTION. THE TOTAL RETURN TABLE SHOWS HOW THE AVERAGE ANNUAL TOTAL RETURNS
FOR THE CLASS A SHARES FOR DIFFERENT CALENDAR PERIODS COMPARE TO THOSE OF THE
STANDARD & POOR'S 500 COMPOSITE STOCK PRICE INDEX, AN UNMANAGED INDEX OF
COMMON STOCKS.
[BAR CHART SHOWING THE PERCENT TOTAL RETURN FOR THE TAX MANAGED SERIES FOR
1996, 1997 AND 1998, WITH CALENDAR YEARS ENDED DECEMBER 31ST. THE RESULTS ARE
22.96 % FOR 1996, 21.76% FOR 1997 AND NO RESULT FOR 1998, AS THE YEAR HAS NOT
ENDED.]
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(FOR PERIODS ENDED 12/31/98) 1 YEAR SINCE INCEPTION ON 11/1/95
<S> <C> <C>
CLASS A SHARES XX.XX% XX.XX%
- ----------------------------- -------- -------
S&P 500 INDEX XX.XX% XX.XX%
- ----------------------------- -------- -------
QUARTERLY RETURNS
HIGHEST: XX.XX% IN XX QUARTER 199X
- ----------------------------- --------------------------
LOWEST: XX.XX% IN XX QUARTER 199X
- ----------------------------- --------------------------
</TABLE>
PAST PERFORMANCE DOES NOT NECESSARILY INDICATE HOW THE SERIES WILL PERFORM IN
THE FUTURE.
<PAGE>
GOAL AND STRATEGIES
PRINCIPAL RISKS OF INVESTING IN THE SERIES
YOU COULD LOSE MONEY ON YOUR INVESTMENT IN THE SERIES OR THE SERIES COULD
UNDERPERFORM IF ANY OF THE FOLLOWING OCCURS:
THE U.S. AND/OR FOREIGN STOCK MARKET GOES DOWN.
LOWER-YIELDING, CAPITAL APPRECIATION ORIENTED STOCKS GO DOWN IN VALUE OR
UNDERPERFORM HIGHER-YIELDING STOCKS.
AN ADVERSE EVENT, SUCH AS AN UNFAVORABLE EARNINGS REPORT, DEPRESSES THE
VALUE OF A PARTICULAR COMPANY'S STOCK.
THE ADVISOR'S JUDGMENTS ABOUT THE ATTRACTIVENESS, RELATIVE VALUE OR
POTENTIAL APPRECIATION OF A SECURITY OR STRATEGY PROVE TO BE INCORRECT.
THE SERIES USES THE TAX MANAGEMENT STRATEGIES DESCRIBED ON THE OPPOSITE PAGE
TO MINIMIZE THE AMOUNT OF DISTRIBUTIONS SUBJECT TO STATE AS WELL AS FEDERAL
TAXATION. HOWEVER, THE ADVISOR DOES NOT ATTEMPT TO ADDRESS THE TAX LAWS OF
ANY PARTICULAR STATE. THE ADVISOR WILL FOLLOW TAX MANAGEMENT STRATEGIES ONLY
TO THE EXTENT THAT THEY DO NOT CONFLICT WITH THE SERIES' GOAL OF MAXIMIZING
LONG-TERM GROWTH OR THE OPERATION OF THE SERIES. THE SERIES MAY REALIZE
SHORT-TERM GAIN ON THE SALE OF A SECURITY IF THE ADVISOR BELIEVES IT WILL
DECLINE IN VALUE, TO INCREASE DIVERSIFICATION, OR TO RAISE CASH TO PAY
EXPENSES OR MEET REDEMPTION REQUESTS. IN ADDITION, SOME SECURITIES IN THE
SERIES' PORTFOLIO WILL REGULARLY GENERATE TAXABLE INCOME. AT TIMES, TAX
MANAGED FUNDS ARE MORE VOLATILE THAN OTHER FUNDS BECAUSE THEY TEND TO HOLD
STOCKS LONGER TO AVOID REALIZING GAIN DUE TO PORTFOLIO TURNOVER.
WHO MAY WANT TO INVEST
THE SERIES MAY BE AN APPROPRIATE INVESTMENT IF YOU ARE:
IN A HIGH FEDERAL TAX BRACKET AND ARE SEEKING HIGH AFTER-TAX RETURN.
SEEKING A LONG-TERM INVESTMENT (FIFTEEN YEARS OR MORE) AND ARE WILLING TO
ACCEPT THE RISK OF SHORT-TERM STOCK MARKET SWINGS.
SEEKING TO BALANCE YOUR PORTFOLIO BY ADDING AN EQUITY COMPONENT.
A CUSTODIAN FOR A MINOR CHILD'S UGMA/UTMA ACCOUNT, SEEKING FAVORABLE
CAPITAL GAIN RATES.
FEES AND EXPENSES OF THE SERIES
SINCE NO CLASS B, C, D OR E SHARES WERE OUTSTANDING DURING THE PAST YEAR,
OTHER EXPENSES ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT FISCAL YEAR.
THIS TABLE DESCRIBES THE FEES AND EXPENSES YOU MAY PAY IF YOU INVEST IN SHARES
OF THE SERIES.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED 10/31/98
CLASS B CLASS C CLASS D CLASS E
<S> <C> <C> <C> <C>
SHAREHOLDER FEES (PAID DIRECTLY
FROM YOUR INVESTMENT) NONE NONE NONE NONE
- ------------------------------------- ----- ----- -------- --------
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED
FROM ASSETS OF THE SERIES)
- ---------------------------------------
MANAGEMENT FEE 1.00% 1.00% 1.00% 1.00%
----- ----- -------- --------
DISTRIBUTION AND SERVICE
(RULE 12B-1) FEES 1.00% 0.75% 0.50% 0.25%
----- ----- -------- --------
OTHER EXPENSES 4.17% 4.17% 4.17% 4.17%
----- ----- -------- --------
TOTAL ANNUAL FUND OPERATING EXPENSES 6.17% 5.92% 5.67% 5.42%
----- ----- -------- --------
BECAUSE THE ADVISOR HAS AGREED TO LIMIT OPERATING EXPENSES,
ACTUAL EXPENSES WOULD HAVE BEEN:
- ------------------------------------------------------------
MANAGEMENT FEE 0.00% 0.00% 0.00% 0.00%
- ----------------------------------------- ----- ----- -------- --------
DISTRIBUTION AND SERVICE
(RULE 12B-1) FEES 1.00% 0.75% 0.50% 0.25%
----- ----- -------- --------
OTHER EXPENSES 1.20% 1.20% 1.20% 1.20%
----- ----- -------- --------
TOTAL ANNUAL FUND OPERATING EXPENSES 2.20% 1.95% 1.70% 1.45%
- --------------------------------------- ----- ----- -------- --------
</TABLE>
THE ADVISOR MAY CHANGE OR ELIMINATE THESE EXPENSE LIMITS AT ANY TIME.
THIS EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN THE
SERIES WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS.
THE EXAMPLE ASSUMES THAT:
YOU INVEST $10,000 FOR THE PERIODS SHOWN
YOU REDEEM AT THE END OF EACH PERIOD
THE FUND'S OPERATING EXPENSES REMAIN THE SAME
YOUR INVESTMENT HAS A 5% RETURN EACH YEAR
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, UNDER THESE ASSUMPTIONS
YOUR COSTS WOULD BE AFTER:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CLASS B CLASS C CLASS D CLASS E
1 YEAR $613 $589 $565 $541
3 YEARS $1,819 $1,752 $1,684 $1,616
WITH EXPENSE LIMITS, YOUR COSTS WOULD BE:
1 YEAR $223 $198 $173 $148
3 YEARS $688 $612 $536 $459
</TABLE>
<PAGE>
MORE ABOUT THE SERIES' INVESTMENTS
PRINCIPAL INVESTMENTS
EQUITY THE SERIES MAY INVEST IN EQUITY SECURITIES OF U.S. AND FOREIGN
COMPANIES. THESE SECURITIES INCLUDE EXCHANGE-TRADED AND OVER-THE-COUNTER
(OTC) COMMON AND PREFERRED STOCKS, WARRANTS, RIGHTS, CONVERTIBLE DEBT
SECURITIES, TRUST CERTIFICATES, PARTNERSHIP INTERESTS AND EQUITY
PARTICIPATIONS.
FOREIGN SECURITIES THE SERIES MAY INVEST IN ADRS AND OTHER U.S. DOLLAR
DENOMINATED SECURITIES OF FOREIGN ISSUERS. PRICES OF FOREIGN SECURITIES MAY GO
DOWN BECAUSE OF FOREIGN GOVERNMENT ACTIONS, POLITICAL INSTABILITY OR THE MORE
LIMITED AVAILABILITY OF ACCURATE INFORMATION ABOUT FOREIGN COMPANIES. THESE
RISKS MAY BE MORE SEVERE FOR SECURITIES OF ISSUERS IN EMERGING MARKETS.
FIXED INCOME THE SERIES MAY INVEST UP TO 35% OF ITS ASSETS IN FIXED INCOME
SECURITIES OF ANY MATURITY OR DURATION. THESE SECURITIES MAY BE ISSUED BY THE
U.S. GOVERNMENT OR ANY OF ITS AGENCIES, FOREIGN GOVERNMENTS, SUPRANATIONAL
ENTITIES SUCH AS THE WORLD BANK, AND U.S. AND FOREIGN COMPANIES.
INVESTMENTS IN FIXED INCOME SECURITIES MAY BE OF ANY CREDIT QUALITY AND MAY
HAVE ALL TYPES OF INTEREST RATE PAYMENT AND RESET TERMS. THEY MAY INCLUDE
MORTGAGE-BACKED, ASSET-BACKED AND DERIVATIVE SECURITIES AS WELL AS LOWER
QUALITY BONDS COMMONLY KNOWN AS "JUNK BONDS." THESE BONDS ARE CONSIDERED
SPECULATIVE BECAUSE THEY HAVE A HIGHER RISK OF ISSUER DEFAULT, ARE SUBJECT TO
GREATER PRICE VOLATILITY AND MAY BE ILLIQUID.
DERIVATIVE CONTRACTS
A DERIVATIVE CONTRACT WILL OBLIGATE OR ENTITLE THE SERIES TO DELIVER OR
RECEIVE AN ASSET OR A CASH PAYMENT THAT IS BASED ON THE CHANGE IN VALUE OF A
DESIGNATED SECURITY, INDEX OR CURRENCY. THE SERIES MAY, BUT IS NOT REQUIRED
TO, USE DERIVATIVE CONTRACTS FOR ANY OF THE FOLLOWING PURPOSES:
TO HEDGE AGAINST ADVERSE CHANGES IN THE MARKET VALUE OF SECURITIES HELD BY
OR TO BE BOUGHT FOR THE SERIES. THESE CHANGES MAY BE CAUSED BY CHANGING
INTEREST RATES OR STOCK MARKET PRICES.
AS A SUBSTITUTE FOR PURCHASING OR SELLING SECURITIES.
TO SHORTEN OR LENGTHEN THE EFFECTIVE MATURITY OR DURATION OF THE SERIES'
FIXED INCOME PORTFOLIO.
IN NON-HEDGING SITUATIONS, TO ATTEMPT TO PROFIT FROM ANTICIPATED MARKET
DEVELOPMENTS.
COUNTERPARTIES TO OTC DERIVATIVE CONTRACTS PRESENT THE SAME TYPES OF DEFAULT
RISK AS ISSUERS OF FIXED INCOME SECURITIES.
DEFENSIVE INVESTING
THE SERIES MAY DEPART FROM ITS PRINCIPAL INVESTMENT STRATEGIES BY TAKING
TEMPORARY DEFENSIVE POSITIONS IN RESPONSE TO ADVERSE MARKET, ECONOMIC OR
POLITICAL CONDITIONS. IF THE SERIES TAKES A TEMPORARY DEFENSIVE POSITION, IT
MAY BE UNABLE TO ACHIEVE ITS INVESTMENT GOAL.
THE SERIES' INVESTMENT GOAL
THE SERIES' BOARD OF DIRECTORS MAY CHANGE ITS INVESTMENT GOAL (DESCRIBED ABOVE
UNDER "GOALS AND STRATEGIES") WITHOUT OBTAINING THE APPROVAL OF THE
SHAREHOLDERS. THE SERIES MIGHT NOT SUCCEED IN ACHIEVING ITS GOAL.
<PAGE>
THE ADVISOR
THE ADVISOR
THE SERIES' ADVISOR IS EXETER ASSET MANAGEMENT, A DIVISION OF MANNING & NAPIER
ADVISORS, INC., 1100 CHASE SQUARE, ROCHESTER, NEW YORK 14604. THE ADVISOR IS
RESPONSIBLE FOR THE DAY-TO-DAY OPERATIONS OF THE SERIES AND GENERALLY IS
RESPONSIBLE FOR SUPERVISION OF THE SERIES' OVERALL BUSINESS AFFAIRS, SERVICE
PROVIDERS AND OFFICERS.
A TEAM MADE UP OF INVESTMENT PROFESSIONALS AND ANALYSTS EMPLOYED BY THE
ADVISOR MAKES ALL OF THE SERIES' INVESTMENT DECISIONS.
MANAGEMENT FEES
IN RETURN FOR THE SERVICES IT PROVIDES TO THE SERIES, THE ADVISOR RECEIVES A
MANAGEMENT FEE, WHICH IS COMPUTED DAILY AND PAYABLE MONTHLY BY THE SERIES AS
DESCRIBED BELOW.
THE ADVISOR HAS AGREED TO LIMIT THE SERIES' MANAGEMENT FEES AND OTHER
EXPENSES. THESE LIMITATIONS ARE TEMPORARY AND MAY BE CHANGED AT ANY TIME.
ANNUAL MANAGEMENT FEES
(AS A PERCENTAGE OF DAILY NET ASSETS)
<TABLE>
<CAPTION>
CONTRACTUAL
MANAGEMENT FEE
<S> <C>
TAX MANAGED SERIES 1.00%
- ------------------ -----
</TABLE>
THE DISTRIBUTOR
THE DISTRIBUTOR OF THE SERIES' SHARES IS MANNING & NAPIER INVESTOR SERVICES,
INC. CLASS B, C, D AND E SHARES ARE OFFERED ONLY THROUGH A FINANCIAL
INTERMEDIARY. FINANCIAL INTERMEDIARIES INCLUDE FINANCIAL PLANNERS, INVESTMENT
ADVISERS, BROKER-DEALERS OR OTHER FINANCIAL INSTITUTIONS WITH AN AGREEMENT
WITH THE DISTRIBUTOR. YOU MAY ONLY PURCHASE THAT CLASS OF SHARES WHICH YOUR
FINANCIAL INTERMEDIARY SELLS OR SERVICES.
CLASS B SHARES ARE ONLY AVAILABLE THROUGH BROKER-DEALERS WHO MAINTAIN AN
OMNIBUS ACCOUNT WITH THE DISTRIBUTOR ON BEHALF OF INVESTORS. CLASS C SHARES
ARE AVAILABLE ONLY THROUGH FINANCIAL INTERMEDIARIES WHO ESTABLISH INDIVIDUAL
SHAREHOLDER ACCOUNTS WITH THE FUND IN THE NAME OF INVESTORS OR MAINTAIN
CERTAIN TYPES OF OMNIBUS ACCOUNTS WITH THE DISTRIBUTOR. CLASS E SHARES ARE
ONLY AVAILABLE THROUGH FINANCIAL INTERMEDIARIES WHO PROVIDE CERTAIN
SHAREHOLDER SERVICES TO THE FUND. CLASS D SHARES ARE NOT CURRENTLY AVAILABLE.
YOUR FINANCIAL INTERMEDIARY CAN TELL YOU WHICH CLASS OF SHARES IS AVAILABLE
THROUGH THE INTERMEDIARY.
DISTRIBUTION PLANS
THE FUND HAS ADOPTED RULE 12B-1 DISTRIBUTION PLANS FOR THE CLASS B, C, D AND E
SHARES OF THE SERIES. UNDER THE PLANS, THE CLASS B, C, D AND E SHARES PAY
DISTRIBUTION AND/OR SERVICE FEES (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
EQUAL TO: 1.00%, 0.75%, 0.50%, AND 0.25%, RESPECTIVELY. THESE FEES ARE AN
ONGOING EXPENSE AND OVER TIME MAY COST YOU MORE THAN OTHER TYPES OF SALES
CHARGES.
<PAGE>
HOW TO BUY AND HOW TO REDEEM SHARES
HOW TO BUY SHARES
CLASS B, C, D OR E SHARES ARE OFFERED ONLY THROUGH YOUR FINANCIAL
INTERMEDIARY. YOU MAY BE SUBJECT TO INITIAL AND SUBSEQUENT MINIMUMS
ESTABLISHED BY YOUR FINANCIAL INTERMEDIARY FOR THE PURCHASE OF SHARES. THE
SERIES RESERVES THE RIGHT TO REJECT PURCHASE ORDERS OR TO STOP OFFERING ITS
SHARES WITHOUT NOTICE TO SHAREHOLDERS.
THE SERIES' DISTRIBUTOR IMPOSES NO SALES CHARGE ON PURCHASES AND REDEMPTIONS
OF SHARES OF THE SERIES. HOWEVER, YOUR FINANCIAL INTERMEDIARY MAY CHARGE YOU
A TRANSACTION FEE ON PURCHASES AND REDEMPTIONS.
THROUGH THE FUND
BY MAIL
IF YOUR FINANCIAL INTERMEDIARY DOES NOT PROVIDE ACCOUNT MAINTENANCE SERVICES,
CONTACT THE FUND TO PURCHASE SHARES.
OPENING AN ACCOUNT
SEND A CHECK PAYABLE TO EXETER FUND, INC., WITH THE COMPLETED ORIGINAL
ACCOUNT APPLICATION. THE ADDRESS IS:
EXETER FUND, INC.
P.O. BOX 41118
ROCHESTER, NY 14604
TO REQUEST AN ACCOUNT APPLICATION, CALL THE FUND AT 1-800-466-3863.
ADDING TO AN ACCOUNT
BY WIRE
SEND A CHECK PAYABLE TO EXETER FUND, INC. AND A LETTER OF INSTRUCTION
WITH THE NAME OF THE SERIES TO BE PURCHASED AND THE ACCOUNT NAME AND NUMBER.
OPENING OR ADDING TO AN ACCOUNT
AFTER THE FUND HAS RECEIVED YOUR COMPLETED ACCOUNT APPLICATION, YOU MAY
WIRE FUNDS TO OPEN OR ADD SHARES TO YOUR ACCOUNT. BEFORE SENDING A WIRE,
CALL 1-800-466-3863 FOR WIRE INSTRUCTIONS.
THROUGH THE AUTOMATIC INVESTMENT PLAN
YOU MAY PARTICIPATE IN THE AUTOMATIC INVESTMENT PLAN BY COMPLETING THE
APPLICABLE SECTION OF THE ACCOUNT APPLICATION OR CONTACTING YOUR FINANCIAL
INTERMEDIARY OR THE FUND. THROUGH THE PLAN, YOU CAN AUTHORIZE TRANSFERS OF A
SPECIFIED AMOUNT FROM YOUR BANK ACCOUNT INTO THE SERIES ON A REGULAR BASIS.
THE MINIMUM AMOUNT OF EACH INVESTMENT IS $25. IF YOU HAVE INSUFFICIENT FUNDS
IN YOUR ACCOUNT TO COMPLETE A TRANSFER, YOUR BANK MAY CHARGE YOU A FEE.
HOW TO REDEEM SHARES
IF YOUR FINANCIAL INTERMEDIARY PROVIDES ACCOUNT MAINTENANCE SERVICES, CONTACT
YOUR FINANCIAL INTERMEDIARY TO REDEEM SHARES. IF NOT:
THROUGH THE FUND
BY MAIL
SEND A LETTER OF INSTRUCTION TO EXETER FUND, INC., AT THE ADDRESS ABOVE,
SIGNED BY EACH REGISTERED ACCOUNT OWNER.
STATE THE NAME OF THE SERIES, THE CLASS AND NUMBER OF SHARES OR DOLLAR
AMOUNT TO BE SOLD.
PROVIDE THE ACCOUNT NUMBER.
SIGNATURE GUARANTEES MAY BE REQUIRED.
ADDITIONAL DOCUMENTATION MAY BE REQUIRED (CALL THE FUND FOR DETAILS).
THE SERIES MAY POSTPONE PAYMENT OF REDEMPTION PROCEEDS FOR UP TO SEVEN DAYS,
OR SUSPEND REDEMPTIONS TO THE EXTENT PERMITTED BY LAW. IF YOU RECENTLY
PURCHASED YOUR SHARES BY CHECK, YOUR REDEMPTION PROCEEDS WILL NOT BE SENT TO
YOU FOR 15 DAYS.
<PAGE>
HOW TO EXCHANGE SHARES
MORE ABOUT PURCHASES AND REDEMPTIONS
ALL ORDERS TO PURCHASE OR REDEEM SHARES ACCEPTED BY THE DISTRIBUTOR, TRANSFER
AGENT OR OTHER AGENT BEFORE THE CLOSE OF TRADING ON THE NEW YORK STOCK
EXCHANGE (NYSE) WILL BE EXECUTED AT THAT DAY'S SHARE PRICE. ORDERS ACCEPTED
AFTER THAT DAY'S CLOSE WILL BE EXECUTED AT THE NEXT BUSINESS DAY'S PRICE. ALL
ORDERS MUST INCLUDE THE REQUIRED DOCUMENTATION AND SIGNATURES, AND ALL
PURCHASE ORDERS MUST BE ACCOMPANIED BY PROPER PAYMENT.
THE FUND HAS AUTHORIZED SEVERAL FINANCIAL INTERMEDIARIES TO ACCEPT PURCHASE
AND REDEMPTION ORDERS ON ITS BEHALF, AND THESE INTERMEDIARIES ARE AUTHORIZED
TO DESIGNATE OTHER INTERMEDIARIES TO ACCEPT PURCHASE AND REDEMPTION ORDERS ON
THE FUND'S BEHALF. THE FUND WILL BE DEEMED TO HAVE RECEIVED AN ORDER WHEN AN
AUTHORIZED FINANCIAL INTERMEDIARY OR ITS AUTHORIZED DESIGNEEE ACCEPTS THE
ORDER, AND ORDERS PLACED WITH AN AUTHORIZED FINANCIAL INTERMEDIARY WILL BE
PROCESSED AT THE SHARE PRICE OF THE SERIES NEXT COMPUTED AFTER THEY ARE
ACCEPTED BY THE FINANCIAL INTERMEDIARY OR ITS DESIGNEE.
HOW TO EXCHANGE SHARES
YOU MAY EXCHANGE SHARES OF THE SERIES FOR THE SAME CLASS OF SHARES OF ANY
OTHER SERIES OF EXETER FUND, IF THE REGISTRATION OF BOTH ACCOUNTS IS
IDENTICAL. IF RECEIVED WITH PROPER DOCUMENTATION BEFORE THE CLOSE OF TRADING
ON THE NYSE, EXCHANGE REQUESTS WILL BE EXECUTED AT THAT DAY'S SHARE PRICES.
OTHERWISE, THEY WILL BE EXECUTED AT THE PRICES DETERMINED ON THE NEXT BUSINESS
DAY AFTER RECEIPT WITH PROPER DOCUMENTATION.
THE MINIMUM EXCHANGE AMOUNT IS $1,000 (OR ALL THE SHARES IN YOUR ACCOUNT, IF
LESS THAN $1,000). YOU MAY EXCHANGE UP TO 4 TIMES DURING ANY 12-MONTH PERIOD
WITHOUT PAYING A SALES CHARGE OR ANY OTHER FEE. FOR ANY ADDITIONAL EXCHANGES,
YOU MAY BE CHARGED $15 PER EXCHANGE. THE SERIES MAY REFUSE ANY EXCHANGE ORDER
AND MAY ALTER, LIMIT OR SUSPEND ITS EXCHANGE PRIVILEGE ON 60 DAYS' NOTICE. AN
EXCHANGE INVOLVES A TAXABLE REDEMPTION OF SHARES SURRENDERED IN THE EXCHANGE.
THROUGH THE FUND
IF YOUR FINANCIAL INTERMEDIARY DOES NOT PROVIDE ACCOUNT MAINTENANCE SERVICES,
CONTACT THE FUND TO EXCHANGE SHARES.
BY MAIL
SEND A LETTER OF INSTRUCTION TO EXETER FUND, INC., AT P.O. BOX 41118,
ROCHESTER, NY 14604, SIGNED BY EACH REGISTERED ACCOUNT OWNER, EXACTLY AS
YOUR NAMES APPEAR ON THE ACCOUNT REGISTRATION.
PROVIDE THE NAME OF THE CURRENT SERIES, CLASS OF SHARES, SERIES TO
EXCHANGE INTO AND DOLLAR AMOUNT TO BE EXCHANGED.
PROVIDE BOTH ACCOUNT NUMBERS.
BY TELEPHONE
UNLESS YOU HAVE DECLINED TELEPHONE PRIVILEGES, CALL THE FUND AT
1-800-466-3863.
PROVIDE THE NAME OF THE CURRENT SERIES, CLASS OF SHARES, SERIES TO
EXCHANGE INTO AND DOLLAR AMOUNT TO BE EXCHANGED.
PROVIDE BOTH ACCOUNT NUMBERS.
THE FUND MAY ASK FOR IDENTIFICATION, AND ALL TELEPHONE TRANSACTIONS ARE
RECORDED.
<PAGE>
INVESTMENT AND ACCOUNT INFORMATION
ACCOUNTS WITH LOW BALANCES
IF YOUR ACCOUNT FALLS BELOW $1,000 DUE TO THE REDEMPTION OF SHARES, THE FUND
MAY ASK YOU TO BRING YOUR ACCOUNT UP TO THE MINIMUM REQUIREMENT. IF YOUR
ACCOUNT IS STILL BELOW $1,000 AFTER 60 DAYS, THE FUND MAY CLOSE YOUR ACCOUNT
AND SEND YOU THE REDEMPTION PROCEEDS.
IN-KIND PURCHASES AND REDEMPTIONS
SECURITIES YOU OWN MAY BE USED TO PURCHASE SHARES OF THE SERIES. THE ADVISOR
WILL DETERMINE IF ACQUIRING THE SECURITIES IS CONSISTENT WITH THE SERIES'
GOALS AND POLICIES. IF ACCEPTED, THE SECURITIES WILL BE VALUED THE SAME WAY
THE
SERIES VALUES SECURITIES IT ALREADY OWNS.
THE SERIES MAY MAKE PAYMENT FOR SHARES IN PART BY GIVING YOU PORTFOLIO
SECURITIES. AS A REDEEMING SHAREHOLDER, YOU WILL PAY TRANSACTION COSTS TO
DISPOSE OF THESE SECURITIES.
SIGNATURE GUARANTEES
A SIGNATURE GUARANTEE MAY BE REQUIRED FOR ANY WRITTEN REQUEST TO SELL SHARES,
OR TO CHANGE THE ACCOUNT REGISTRATION.
THE TRANSFER AGENT WILL ACCEPT SIGNATURE GUARANTEES FROM:
MEMBERS OF THE STAMP PROGRAM OR THE NYSE'S MEDALLION SIGNATURE PROGRAM.
A BROKER OR SECURITIES DEALER.
A FEDERAL SAVINGS, COOPERATIVE OR OTHER TYPE OF BANK.
A SAVINGS AND LOAN OR OTHER THRIFT INSTITUTION.
A CREDIT UNION.
A SECURITIES EXCHANGE OR CLEARING AGENCY.
A NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE.
VALUATION OF SHARES
THE SERIES OFFERS ITS SHARES AT THE NET ASSET VALUE (NAV) PER SHARE OF THE
SERIES. NAV IS CALCULATED SEPARATELY FOR EACH CLASS OF SHARES. THE SERIES
CALCULATES ITS NAV ONCE DAILY AS OF THE CLOSE OF REGULAR TRADING ON THE NEW
YORK STOCK EXCHANGE (GENERALLY AT 4:00 P.M., NEW YORK TIME) ON EACH DAY THE
EXCHANGE IS OPEN. IF THE EXCHANGE CLOSES EARLY, THE SERIES WILL ACCELERATE
THE CALCULATION OF NAV AND TRANSACTION DEADLINES TO THAT TIME.
THE SERIES VALUES THE SECURITIES IN ITS PORTFOLIO ON THE BASIS OF MARKET
QUOTATIONS AND VALUATIONS PROVIDED BY INDEPENDENT PRICING SERVICES. IF
QUOTATIONS ARE NOT READILY AVAILABLE, OR THE VALUE OF A SECURITY HAS BEEN
MATERIALLY AFFECTED BY EVENTS OCCURRING AFTER THE CLOSING OF A FOREIGN
EXCHANGE, THE SERIES VALUES ITS ASSETS BY A METHOD THAT THE DIRECTORS BELIEVE
ACCURATELY REFLECTS FAIR VALUE. IF THE SERIES USES FAIR VALUE TO PRICE
SECURITIES, IT MAY VALUE THOSE SECURITIES HIGHER OR LOWER THAN ANOTHER SERIES
THAT USES MARKET QUOTATIONS TO PRICE THE SAME SECURITIES.
YEAR 2000 ISSUE
INFORMATION TECHNOLOGY EXPERTS ARE CONCERNED ABOUT COMPUTER SYSTEMS' ABILITY
TO PROCESS DATE-RELATED INFORMATION ON AND AFTER JANUARY 1, 2000. THIS
SITUATION, COMMONLY KNOWN AS THE "YEAR 2000" ISSUE, COULD HAVE AN ADVERSE
IMPACT ON THE SERIES. THE ADVISOR, THE TRANSFER AGENT AND THE DISTRIBUTOR ARE
ADDRESSING THE YEAR 2000 ISSUE FOR THEIR SYSTEMS. THE SERIES HAS BEEN
INFORMED BY ITS OTHER SERVICE PROVIDERS THAT THEY ARE TAKING SIMILAR MEASURES.
ALTHOUGH THE SERIES DOES NOT EXPECT THE YEAR 2000 ISSUE TO ADVERSELY AFFECT
IT, THE SERIES CANNOT GUARANTEE THAT THE EFFORTS OF THE SERIES OR ITS SERVICE
PROVIDERS TO CORRECT THE PROBLEM WILL BE SUCCESSFUL.
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
THE SERIES GENERALLY:
PAYS DIVIDENDS ONCE A YEAR, IN DECEMBER.
MAKES CAPITAL GAINS DISTRIBUTIONS, IF ANY, ONCE A YEAR, TYPICALLY IN
DECEMBER.
HOWEVER, BECAUSE THE SERIES MAY UTILIZE TAX EQUALIZATION AND OTHER METHODS TO
MINIMIZE TAXABLE DISTRIBUTIONS, IN SOME YEARS IT MAY PAY NO, OR ONLY MINIMAL
DIVIDENDS AND/OR DISTRIBUTIONS. THE SERIES ALSO MAY PAY ADDITIONAL
DISTRIBUTIONS AND DIVIDENDS AT OTHER TIMES IF NECESSARY FOR THE SERIES TO
AVOID A FEDERAL TAX.
CAPITAL GAIN DISTRIBUTIONS AND DIVIDENDS ARE REINVESTED IN ADDITIONAL SHARES
OF THE SAME CLASS THAT YOU HOLD. ALTERNATIVELY, YOU CAN INSTRUCT YOUR
FINANCIAL INTERMEDIARY OR, THE TRANSFER AGENT IN WRITING OR BY TELEPHONE, TO
HAVE YOUR CAPITAL GAINS AND/OR DIVIDENDS PAID IN CASH. YOU CAN CHANGE YOUR
CHOICE AT ANY TIME TO BE EFFECTIVE AS OF THE NEXT DISTRIBUTION OR DIVIDEND,
EXCEPT THAT ANY CHANGE GIVEN TO THE FUND AFTER THE RECORD DATE WILL NOT BE
EFFECTIVE UNTIL THE NEXT DISTRIBUTION OR DIVIDEND IS MADE. NO INTEREST WILL
ACCRUE ON AMOUNTS REPRESENTED BY UNCASHED DISTRIBUTION OR REDEMPTION CHECKS.
TAXES
TRANSACTION
FEDERAL TAX STATUS
REDEMPTION OR EXCHANGE OF SHARES USUALLY TAXABLE AS CAPITAL GAIN OR LOSS;
LONG-TERM ONLY IF SHARES OWNED MORE THAN ONE
YEAR
LONG-TERM CAPITAL GAIN DISTRIBUTIONS TAXABLE AS LONG-TERM CAPITAL GAIN
SHORT-TERM CAPITAL GAIN DISTRIBUTIONS TAXABLE AS ORDINARY INCOME
DIVIDENDS TAXABLE AS ORDINARY INCOME
IF YOU ARE A TAXABLE INVESTOR, YOU MAY WANT TO AVOID BUYING SHARES WHEN THE
SERIES IS ABOUT TO DECLARE A CAPITAL GAIN DISTRIBUTION OR A DIVIDEND, BECAUSE
IT WILL BE TAXABLE TO YOU EVEN THOUGH IT MAY ACTUALLY BE A RETURN OF A PORTION
OF YOUR INVESTMENT.
AFTER THE END OF EACH YEAR, THE SERIES WILL PROVIDE YOU WITH INFORMATION ABOUT
THE DISTRIBUTIONS AND DIVIDENDS THAT YOU RECEIVED AND ANY REDEMPTIONS OF
SHARES DURING THE PREVIOUS YEAR. IN CALCULATING YOUR GAIN OR LOSS ON ANY SALE
OF SHARES, NOTE THAT YOUR TAX BASIS IN YOUR SHARES IS INCREASED BY THE AMOUNTS
OF DIVIDENDS AND DISTRIBUTIONS THAT YOU HAVE REINVESTED IN THE SERIES.
DIVIDENDS AND DISTRIBUTIONS ARE TAXABLE AS DESCRIBED ABOVE WHETHER RECEIVED IN
CASH OR REINVESTED.
IF YOU DO NOT PROVIDE THE SERIES WITH YOUR CORRECT TAXPAYER IDENTIFICATION
NUMBER AND ANY REQUIRED CERTIFICATIONS, YOU MAY BE SUBJECT TO BACK-UP
WITHHOLDING OF 31% OF YOUR DISTRIBUTIONS, DIVIDENDS, AND REDEMPTION PROCEEDS.
BECAUSE EACH SHAREHOLDER'S CIRCUMSTANCES ARE DIFFERENT AND SPECIAL TAX RULES
MAY APPLY, YOU SHOULD CONSULT WITH YOUR TAX ADVISER ABOUT YOUR INVESTMENT IN
THE SERIES AND YOUR RECEIPT OF DIVIDENDS, DISTRIBUTIONS OR REDEMPTION
PROCEEDS.
<PAGE>
[BACK COVER PAGE]
EXETER FUND, INC.
TAX MANAGED SERIES
SHAREHOLDER REPORTS AND THE STATEMENT OF ADDITIONAL INFORMATION (SAI). ANNUAL
AND SEMIANNUAL REPORTS TO SHAREHOLDERS PROVIDE ADDITIONAL INFORMATION ABOUT
THE SERIES' INVESTMENTS. THESE REPORTS DISCUSS THE MARKET CONDITIONS AND
INVESTMENT STRATEGIES THAT SIGNIFICANTLY AFFECTED THE SERIES' PERFORMANCE
DURING ITS LAST FISCAL YEAR. THE SAI PROVIDES MORE DETAILED INFORMATION ABOUT
THE SERIES. IT IS INCORPORATED BY REFERENCE INTO THIS COMBINED PROSPECTUS.
HOW TO OBTAIN THESE REPORTS AND ADDITIONAL INFORMATION.
YOU MAY OBTAIN SHAREHOLDER REPORTS AND THE SAI OR OTHER INFORMATION ABOUT
THE SERIES WITHOUT CHARGE, BY CALLING 1-800-466-3863 OR SENDING WRITTEN
REQUESTS TO EXETER FUND, P.O. BOX 41118, ROCHESTER, NEW YORK 14604.
YOU MAY REVIEW SHAREHOLDER REPORTS, THE PROSPECTUS AND SAI AT THE
SECURITIES AND EXCHANGE COMMISSION'S PUBLIC REFERENCE ROOM IN WASHINGTON,
D.C. THE SEC CHARGES A FEE FOR THIS SERVICE. INFORMATION ABOUT THE PUBLIC
REFERENCE ROOM MAY BE OBTAINED BY CALLING 1-800-SEC-0330. YOU CAN GET THE
SAME REPORTS AND INFORMATION FREE FROM THE SEC'S INTERNET WEB SITE
(HTTP://WWW.SEC.GOV).
IF SOMEONE MAKES A STATEMENT ABOUT THE SERIES THAT IS NOT IN THIS PROSPECTUS,
YOU SHOULD NOT RELY UPON THAT INFORMATION. NEITHER THE SERIES NOR ITS
DISTRIBUTOR IS OFFERING TO SELL SHARES TO ANY PERSON TO WHOM IT MAY NOT
LAWFULLY SELL SHARES.
INVESTMENT COMPANY ACT FILE NO. 811-04087
<PAGE>
EXETER FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION DATED MARCH 1, 1999
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, AND IT
SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS FOR EACH OF THE FOLLOWING
SERIES OF EXETER FUND, INC. (THE "FUND"): 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 MAXIMUM HORIZON
SERIES (EACH A "SERIES"), COPIES OF WHICH MAY BE OBTAINED FROM EXETER ASSET
MANAGEMENT, 1100 CHASE SQUARE, ROCHESTER, NY 14604. THIS SAI RELATES TO THE
CLASS A, B, C, D AND E SHARES OF EACH SERIES.
TABLE OF CONTENTS
PAGE
INVESTMENT GOALS B-2
INVESTMENT POLICIES AND RISKS B-2
INVESTMENT RESTRICTIONS B-20
PORTFOLIO TURNOVER B-23
THE FUND B-23
MANAGEMENT B-24
THE ADVISOR B-29
DISTRIBUTION OF FUND SHARES B-31
CUSTODIAN AND INDEPENDENT ACCOUNTANT B-32
PORTFOLIO TRANSACTIONS AND BROKERAGE B-32
NET ASSET VALUE B-34
PURCHASES, EXCHANGES AND REDEMPTIONS OF SHARES B-34
FEDERAL TAX TREATMENT OF DIVIDENDS AND
DISTRIBUTIONS B-37
YIELD AND TOTAL RETURN B-39
FINANCIAL STATEMENTS B-39
APPENDIX - DESCRIPTION OF BOND RATINGS B-40
<PAGE>
INVESTMENT GOALS
EACH OF THE SERIES' INVESTMENT GOALS AS WELL AS ITS PRINCIPAL INVESTMENT
POLICIES AND STRATEGIES WITH RESPECT TO THE COMPOSITION OF THEIR RESPECTIVE
PORTFOLIOS ARE DESCRIBED IN THE PROSPECTUS. THE FOLLOWING SECTIONS PROVIDE
MORE INFORMATION ABOUT THOSE PRINCIPAL POLICIES AND STRATEGIES AS WELL AS
INFORMATION ABOUT OTHER POLICIES AND STRATEGIES. EACH SERIES' INVESTMENT GOAL
IS NOT FUNDAMENTAL AND MAY BE CHANGED BY THE BOARD OF DIRECTORS WITHOUT
SHAREHOLDER APPROVAL. 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. EACH OF THE
SERIES IS A DIVERSIFIED MUTUAL FUND.
INVESTMENT POLICIES AND RISKS
EQUITY INVESTMENTS
COMMON STOCKS. EACH SERIES MAY PURCHASE COMMON STOCKS. COMMON STOCKS ARE
SHARES OF A CORPORATION OR OTHER ENTITY THAT ENTITLE THE HOLDER TO A PRO RATA
SHARE OF THE PROFITS OF THE CORPORATION, IF ANY, WITHOUT PREFERENCE OVER ANY
OTHER SHAREHOLDER OR CLASS OF SHAREHOLDERS, INCLUDING HOLDERS OF THE ENTITY'S
PREFERRED STOCK AND OTHER SENIOR EQUITY. COMMON STOCK USUALLY CARRIES WITH IT
THE RIGHT TO VOTE AND FREQUENTLY AN EXCLUSIVE RIGHT TO DO SO.
PREFERRED STOCKS. EACH SERIES MAY INVEST IN PREFERRED STOCKS. PREFERRED
STOCKS MAY PAY A DIVIDEND AT A FIXED RATE, AND MAY ENTITLE THE HOLDER TO
ACQUIRE THE ISSUER'S STOCK BY EXCHANGE OR PURCHASE FOR A PREDETERMINED
RATE.
CONVERTIBLE SECURITIES. EACH SERIES MAY INVEST IN SECURITIES THAT ARE
CONVERTIBLE AT EITHER A STATED PRICE OR A STATED RATE INTO UNDERLYING SHARES
OF COMMON STOCK, THUS ENABLING THE INVESTOR TO BENEFIT FROM INCREASES IN THE
MARKET PRICE OF THE COMMON STOCK. CONVERTIBLE SECURITIES PROVIDE HIGHER
YIELDS THAN THE UNDERLYING EQUITY, BUT GENERALLY OFFER LOWER YIELDS THAN
NON-CONVERTIBLE SECURITIES OF SIMILAR QUALITY. LIKE BONDS, THE VALUE OF
CONVERTIBLE SECURITIES FLUCTUATES IN RELATION TO CHANGES IN INTEREST RATES
AND, IN ADDITION, ALSO FLUCTUATES IN RELATION TO THE UNDERLYING COMMON STOCK.
THE PRINCIPAL FACTOR IN SELECTING CONVERTIBLE BONDS IS THE POTENTIAL TO
BENEFIT FROM MOVEMENT IN THE STOCK PRICE. THERE IS NO MINIMUM RATING STANDARD
FOR THE DEBT ASPECTS OF SUCH SECURITIES. CONVERTIBLE BONDS PURCHASED BY A
SERIES MAY BE SUBJECT TO THE RISK OF BEING CALLED BY THE ISSUER.
WARRANTS. EACH SERIES MAY PURCHASE WARRANTS. WARRANTS ACQUIRED BY A
SERIES ENTITLE IT TO BUY COMMON STOCK FROM THE ISSUER AT A SPECIFIED PRICE AND
TIME. WARRANTS MAY BE CONSIDERED MORE SPECULATIVE THAN CERTAIN OTHER TYPES OF
INVESTMENTS BECAUSE THEY (1) DO NOT CARRY RIGHTS TO DIVIDENDS OR VOTING RIGHTS
WITH RESPECT TO THE SECURITIES WHICH THE WARRANT ENTITLES THE HOLDER TO
PURCHASE, AND (2) DO NOT REPRESENT ANY RIGHTS IN THE ASSETS OF THE ISSUER.
WARRANTS PURCHASED BY THE FUND MAY OR MAY NOT BE LISTED ON A NATIONAL
SECURITIES EXCHANGE. AS A FUNDAMENTAL INVESTMENT POLICY, NONE
OF THE SERIES (EXCEPT FOR THE FLEXIBLE YIELD SERIES I, FLEXIBLE YIELD SERIES
II, AND THE FLEXIBLE YIELD SERIES III) MAY INVEST MORE THAN 5% OF THE VALUE OF
ITS TOTAL NET ASSETS IN WARRANTS. 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.
<PAGE>
REITS. EACH SERIES MAY INVEST IN SHARES OF REAL ESTATE INVESTMENT TRUSTS
("REITS"), WHICH ARE POOLED INVESTMENT VEHICLES THAT INVEST IN REAL ESTATE OR
REAL ESTATE LOANS OR INTERESTS. INVESTING IN REITS INVOLVES RISKS SIMILAR TO
THOSE ASSOCIATED WITH INVESTING IN EQUITY SECURITIES OF SMALL CAPITALIZATION
COMPANIES. REITS ARE DEPENDENT UPON MANAGEMENT SKILLS, ARE NOT DIVERSIFIED,
AND ARE SUBJECT TO RISKS OF PROJECT FINANCING, DEFAULT BY BORROWERS,
SELF-LIQUIDATION, AND THE POSSIBILITY OF FAILING TO QUALIFY FOR THE EXEMPTION
FROM TAXATION ON DISTRIBUTED AMOUNTS UNDER THE INTERNAL REVENUE CODE OF 1986,
AS AMENDED (THE "CODE").
TRUST CERTIFICATES, PARTNERSHIP INTERESTS AND EQUITY PARTICIPATIONS. EACH
SERIES MAY INVEST IN EQUITY SECURITIES THAT ARE INTERESTS IN NON-CORPORATE
ENTITIES. THESE SECURITIES, WHICH INCLUDE TRUST CERTIFICATES, PARTNERSHIP
INTERESTS AND EQUITY PARTICIPATIONS, HAVE DIFFERENT LIABILITY AND TAX
CHARACTERISTICS THAN EQUITY SECURITIES ISSUED BY A CORPORATION, AND THUS MAY
PRESENT ADDITIONAL RISKS TO THE SERIES. HOWEVER, THE INVESTMENT
CHARACTERISTICS OF THESE SECURITIES ARE SIMILAR TO THOSE OF TRADITIONAL
CORPORATE EQUITY SECURITIES.
FIXED INCOME INVESTMENTS
CORPORATE DEBT OBLIGATIONS. EACH SERIES MAY INVEST IN CORPORATE DEBT
OBLIGATIONS ISSUED BY FINANCIAL INSTITUTIONS AND CORPORATIONS. CORPORATE DEBT
OBLIGATIONS ARE SUBJECT TO THE RISK OF AN ISSUER'S INABILITY TO MEET PRINCIPAL
AND INTEREST PAYMENTS ON THE OBLIGATIONS AND MAY ALSO BE SUBJECT TO PRICE
VOLATILITY DUE TO SUCH FACTORS AS MARKET INTEREST RATES, MARKET PERCEPTION OF
THE CREDITWORTHINESS OF THE ISSUER AND GENERAL MARKET LIQUIDITY.
U.S. GOVERNMENT SECURITIES. EACH SERIES MAY INVEST IN DEBT OBLIGATIONS OF
VARYING MATURITIES ISSUED OR GUARANTEED BY THE U.S. GOVERNMENT, ITS AGENCIES
OR INSTRUMENTALITIES. DIRECT OBLIGATIONS OF THE U.S. TREASURY WHICH ARE
BACKED BY THE FULL FAITH AND CREDIT OF THE U.S. GOVERNMENT, INCLUDE A VARIETY
OF TREASURY SECURITIES THAT DIFFER ONLY IN THEIR INTEREST RATES, MATURITIES
AND DATES OF ISSUANCE. U.S. GOVERNMENT AGENCIES OR INSTRUMENTALITIES WHICH
ISSUE OR GUARANTEE SECURITIES INCLUDE, BUT ARE NOT LIMITED TO, THE FEDERAL
HOUSING ADMINISTRATION, FEDERAL NATIONAL MORTGAGE ASSOCIATION, FARMERS HOME
ADMINISTRATION, EXPORT-IMPORT BANK OF THE UNITED STATES, SMALL BUSINESS
ADMINISTRATION, GOVERNMENTAL NATIONAL MORTGAGE ASSOCIATION, GENERAL SERVICES
ADMINISTRATION, CENTRAL BANK FOR COOPERATIVES, FEDERAL HOME LOAN BANKS,
FEDERAL HOME LOAN MORTGAGE CORPORATION, FEDERAL INTERMEDIATE CREDIT BANKS,
FEDERAL LAND BANKS, MARITIME ADMINISTRATION, THE TENNESSEE VALLEY AUTHORITY,
DISTRICT OF COLUMBIA ARMORY BOARD AND THE STUDENT LOAN MARKETING
ASSOCIATION.
OBLIGATIONS OF U.S. GOVERNMENT AGENCIES AND INSTRUMENTALITIES MAY OR MAY
NOT BE SUPPORTED BY THE FULL FAITH AND CREDIT OF THE UNITED STATES. SOME ARE
BACKED BY THE RIGHT OF THE ISSUER TO BORROW FROM THE U.S. TREASURY; OTHERS BY
DISCRETIONARY AUTHORITY OF THE U.S. GOVERNMENT TO PURCHASE THE AGENCIES'
OBLIGATIONS; WHILE STILL OTHERS, SUCH AS THE STUDENT LOAN MARKETING
ASSOCIATION, ARE SUPPORTED ONLY BY THE CREDIT OF THE INSTRUMENTALITY. IN THE
CASE OF SECURITIES NOT BACKED BY THE FULL FAITH AND CREDIT OF THE UNITED
STATES, THE INVESTOR MUST LOOK PRINCIPALLY TO THE AGENCY OR INSTRUMENTALITY
ISSUING OR GUARANTEEING THE OBLIGATION FOR ULTIMATE REPAYMENT, AND MAY NOT BE
ABLE TO ASSERT A CLAIM AGAINST THE UNITED STATES ITSELF IN THE EVENT THE
AGENCY OR INSTRUMENTALITY DOES NOT MEET ITS COMMITMENT.
<PAGE>
A SERIES WILL INVEST IN SECURITIES OF SUCH INSTRUMENTALITY ONLY WHEN THE
FUND'S INVESTMENT ADVISOR, EXETER ASSET MANAGEMENT (THE IS SATISFIED THAT THE
CREDIT RISK WITH RESPECT TO ANY INSTRUMENTALITY IS MINIMAL.
MORTGAGE-BACKED SECURITIES. EACH SERIES MAY INVEST IN MORTGAGE-BACKED
SECURITIES WHICH REPRESENT AN INTEREST IN A POOL OF MORTGAGE LOANS. THESE
SECURITIES ARE 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 MAY ALSO INVEST IN COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS")
AND REAL ESTATE MORTGAGE INVESTMENT CONDUITS ("REMICS"), WHICH ARE RATED IN
ONE OF THE TWO TOP CATEGORIES BY STANDARD & POOR'S CORPORATION ("S&P") OR
MOODY'S INVESTORS SERVICE ("MOODY'S"). CMOS ARE SECURITIES COLLATERALIZED BY
MORTGAGES, MORTGAGE PASS-THROUGHS, MORTGAGE PAY-THROUGH BONDS (BONDS
REPRESENTING AN INTEREST IN A POOL OF MORTGAGES WHERE THE CASH FLOW GENERATED
FROM THE MORTGAGE COLLATERAL POOL IS DEDICATED TO BOND REPAYMENT), AND
MORTGAGE-BACKED BONDS (GENERAL OBLIGATIONS OF THE ISSUERS PAYABLE OUT OF THE
ISSUER'S GENERAL FUNDS AND ADDITIONALLY SECURED BY A FIRST LIEN ON A POOL OF
SINGLE FAMILY DETACHED PROPERTIES). MANY CMOS ARE ISSUED WITH A NUMBER OF
CLASSES OR SERIES WHICH HAVE DIFFERENT MATURITIES AND ARE RETIRED IN SEQUENCE.
INVESTORS PURCHASING SUCH CMOS IN THE SHORTEST MATURITIES RECEIVE OR ARE
CREDITED WITH THEIR PRO RATA PORTION OF THE SCHEDULED PAYMENTS OF INTEREST AND
PRINCIPAL ON THE UNDERLYING MORTGAGES PLUS ALL UNSCHEDULED PREPAYMENTS OF
PRINCIPAL UP TO A PREDETERMINED PORTION OF THE TOTAL CMO OBLIGATION. UNTIL
THAT PORTION OF SUCH CMO OBLIGATION IS REPAID, INVESTORS IN THE LONGER
MATURITIES RECEIVE INTEREST ONLY. ACCORDINGLY, THE CMOS IN THE LONGER
MATURITY SERIES ARE LESS LIKELY THAN OTHER MORTGAGE PASS-THROUGHS TO BE
PREPAID PRIOR TO THEIR STATED MATURITY. ALTHOUGH SOME OF THE MORTGAGES
UNDERLYING CMOS MAY BE SUPPORTED BY VARIOUS TYPES OF INSURANCE, AND SOME CMOS
MAY BE BACKED BY GNMA CERTIFICATES OF OTHER MORTGAGE PASS-THROUGHS ISSUED OR
GUARANTEED BY U.S. GOVERNMENT AGENCIES OR INSTRUMENTALITIES, THE CMOS
THEMSELVES ARE NOT GENERALLY GUARANTEED.
<PAGE>
REMICS, WHICH WERE AUTHORIZED UNDER THE TAX REFORM ACT OF 1986, ARE PRIVATE
ENTITIES FORMED FOR THE PURPOSE OF HOLDING A FIXED POOL OF MORTGAGES SECURED
BY AN INTEREST IN REAL PROPERTY. REMICS ARE SIMILAR TO CMOS IN THAT THEY
ISSUE MULTIPLE CLASSES OF SECURITIES.
ASSET-BACKED SECURITIES. EACH SERIES MAY INVEST IN ASSET-BACKED
SECURITIES. THESE SECURITIES, ISSUED BY TRUSTS AND SPECIAL PURPOSE
CORPORATIONS, ARE BACKED BY A POOL OF ASSETS, SUCH AS CREDIT CARD AND
AUTOMOBILE LOAN RECEIVABLES, REPRESENTING THE OBLIGATIONS OF A NUMBER OF
DIFFERENT PARTIES.
ASSET-BACKED SECURITIES PRESENT CERTAIN RISKS. FOR INSTANCE, IN THE CASE
OF CREDIT CARD RECEIVABLES, THESE SECURITIES MAY NOT HAVE THE BENEFIT OF ANY
SECURITY INTEREST IN THE RELATED COLLATERAL. CREDIT CARD RECEIVABLES ARE
GENERALLY UNSECURED AND THE DEBTORS ARE ENTITLED TO THE PROTECTION OF A NUMBER
OF STATE AND FEDERAL CONSUMER CREDIT LAWS, MANY OF WHICH GIVE SUCH DEBTORS THE
RIGHT TO SET OFF CERTAIN AMOUNTS OWED ON THE CREDIT CARDS, THEREBY REDUCING
THE BALANCE DUE. MOST ISSUERS OF AUTOMOBILE RECEIVABLES PERMIT THE SERVICERS
TO RETAIN POSSESSION OF THE UNDERLYING OBLIGATIONS. IF THE SERVICER WERE TO
SELL THESE OBLIGATIONS TO ANOTHER PARTY, THERE IS A RISK THAT THE PURCHASER
WOULD ACQUIRE AN INTEREST SUPERIOR TO THAT OF THE HOLDERS OF THE RELATED
AUTOMOBILE RECEIVABLES. IN ADDITION, BECAUSE OF THE LARGE NUMBER OF VEHICLES
INVOLVED IN A TYPICAL ISSUANCE AND TECHNICAL REQUIREMENTS UNDER STATE LAWS,
THE TRUSTEE FOR THE HOLDERS OF THE AUTOMOBILE RECEIVABLES MAY NOT HAVE A
PROPER SECURITY INTEREST IN ALL OF THE OBLIGATIONS BACKING SUCH RECEIVABLES.
THEREFORE, THERE IS THE POSSIBILITY THAT RECOVERIES ON REPOSSESSED COLLATERAL
MAY NOT, IN SOME CASES, BE AVAILABLE TO SUPPORT PAYMENTS ON THESE
SECURITIES.
ASSET-BACKED SECURITIES ARE OFTEN BACKED BY A POOL OF ASSETS REPRESENTING
THE OBLIGATIONS OF A NUMBER OF DIFFERENT PARTIES. TO LESSEN THE EFFECT OF
FAILURES BY OBLIGORS TO MAKE PAYMENTS ON UNDERLYING ASSETS, THE SECURITIES MAY
CONTAIN ELEMENTS OF CREDIT SUPPORT WHICH FALL INTO TWO CATEGORIES: (I)
LIQUIDITY PROTECTION AND (II) PROTECTION AGAINST LOSSES RESULTING FROM
ULTIMATE DEFAULT BY AN OBLIGOR ON THE UNDERLYING ASSETS. LIQUIDITY PROTECTION
REFERS TO THE PROVISION OF ADVANCES, GENERALLY BY THE ENTITY ADMINISTERING THE
POOL OF ASSETS, TO ENSURE THAT THE RECEIPT OF PAYMENTS ON THE UNDERLYING POOL
OCCURS IN A TIMELY FASHION. PROTECTION AGAINST LOSSES RESULTING FROM ULTIMATE
DEFAULT ENSURES PAYMENT THROUGH INSURANCE POLICIES OR LETTERS OF CREDIT
OBTAINED BY THE ISSUER OR SPONSOR FROM THIRD PARTIES. THE DEGREE OF CREDIT
SUPPORT PROVIDED FOR EACH ISSUE IS GENERALLY BASED ON HISTORICAL INFORMATION
RESPECTING THE LEVEL OF CREDIT RISK ASSOCIATED WITH THE UNDERLYING ASSETS.
DELINQUENCY OR LOSS IN EXCESS OF THAT ANTICIPATED OR FAILURE OF THE CREDIT
SUPPORT COULD ADVERSELY AFFECT THE RETURN ON AN INSTRUMENT IN SUCH A
SECURITY.
THE ESTIMATED LIFE OF AN ASSET-BACKED SECURITY VARIES WITH THE PREPAYMENT
EXPERIENCE WITH RESPECT TO THE UNDERLYING DEBT INSTRUMENTS. THE RATE OF SUCH
PREPAYMENTS, AND HENCE THE LIFE OF AN ASSET-BACKED SECURITY, WILL BE PRIMARILY
A FUNCTION OF CURRENT MARKET INTEREST RATES, ALTHOUGH OTHER ECONOMIC AND
DEMOGRAPHIC FACTORS MAY BE INVOLVED. FOR EXAMPLE, FALLING INTEREST RATES
GENERALLY RESULT IN AN INCREASE IN THE RATE OF PREPAYMENTS OF MORTGAGE LOANS
WHILE RISING INTEREST RATES GENERALLY DECREASE THE RATE OF PREPAYMENTS.
CONSEQUENTLY, ASSET-BACKED SECURITIES ARE SUBJECT TO CALL RISK AND EXTENSION
RISK (DESCRIBED BELOW).
BELOW INVESTMENT GRADE DEBT SECURITIES. EACH SERIES MAY INVEST UP TO 20%
OF ITS ASSETS IN CORPORATE DEBT SECURITIES RATED BELOW INVESTMENT GRADE. HIGH
RISK, HIGH YIELD SECURITIES RATED BELOW BBB OR LOWER BY S&P OR BAA OR LOWER BY
MOODY'S ARE "BELOW INVESTMENT GRADE" AND ARE CONSIDERED TO HAVE SPECULATIVE
CHARACTERISTICS AND INVOLVE GREATER RISK OF DEFAULT OR PRICE CHANGES DUE TO
CHANGES IN THE ISSUER'S CREDIT-WORTHINESS. MARKET PRICES OF THESE SECURITIES
MAY FLUCTUATE MORE THAN HIGH-RATED SECURITIES AND THEY ARE DIFFICULT TO PRICE
AT TIMES BECAUSE THEY ARE MORE THINLY TRADED AND LESS LIQUID SECURITIES.
MARKET PRICES MAY DECLINE SIGNIFICANTLY IN PERIODS OF GENERAL ECONOMIC
DIFFICULTY WHICH MAY FOLLOW PERIODS OF RISING INTEREST RATES. SECURITIES IN
THE LOWEST RATING CATEGORY MAY BE IN DEFAULT. FOR THESE REASONS, IT IS THE
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.
<PAGE>
YANKEE BONDS. EACH SERIES MAY INVEST IN U.S. DOLLAR-DENOMINATED BONDS SOLD
IN THE UNITED STATES BY NON-U.S. ISSUERS ("YANKEE BONDS"). AS COMPARED WITH
BONDS ISSUED IN THE UNITED STATES, SUCH BOND ISSUES NORMALLY CARRY A HIGHER
INTEREST RATE BUT ARE LESS ACTIVELY TRADED.
OBLIGATIONS OF SUPRANATIONAL AGENCIES. CURRENTLY, THE FLEXIBLE YIELD
SERIES I, FLEXIBLE YIELD SERIES II AND THE FLEXIBLE YIELD SERIES 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.
INVESTMENT IN THESE ENTITIES IS SUBJECT TO THE SERIES' OTHER RESTRICTIONS ON
INVESTMENTS IN FOREIGN SECURITIES, DESCRIBED BELOW.
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 GENERALLY 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 RATE. THERE IS A RISK THAT THE CURRENT
INTEREST RATE ON SUCH OBLIGATIONS MAY NOT ACCURATELY REFLECT EXISTING MARKET
INTEREST RATES.
SHORT-TERM INVESTMENTS. FOR TEMPORARY DEFENSIVE PURPOSES DURING PERIODS
WHEN THE ADVISOR DETERMINES THAT MARKET CONDITIONS WARRANT, EACH SERIES MAY
DEPART FROM ITS INVESTMENT GOALS AND INVEST UP TO 100% OF ITS ASSETS IN ALL
TYPES OF MONEY MARKET INSTRUMENTS (INCLUDING SECURITIES GUARANTEED BY THE U.S.
GOVERNMENT, ITS AGENCIES OR INSTRUMENTALITIES, CERTIFICATES OF DEPOSIT, TIME
DEPOSITS AND BANKERS' ACCEPTANCES ISSUED BY BANKS OR SAVINGS AND LOAN
INSTITUTIONS DEEMED CREDITWORTHY BY THE ADVISOR, COMMERCIAL PAPER RATED A-1 BY
S&P OR PRIME-1 BY MOODY'S, REPURCHASE AGREEMENTS INVOLVING SUCH SECURITIES AND
SHARES OF OTHER INVESTMENT COMPANIES AS PERMITTED BY APPLICABLE LAW) AND MAY
HOLD A PORTION OF ITS ASSETS IN CASH. FOR A DESCRIPTION OF THE ABOVE RATINGS,
SEE THE APPENDIX.
<PAGE>
RISKS OF FIXED INCOME SECURITIES. INVESTMENTS IN FIXED INCOME SECURITIES
MAY SUBJECT THE SERIES TO RISKS, INCLUDING THE FOLLOWING:
INTEREST RATE RISK. WHEN INTEREST RATES DECLINE, THE MARKET VALUE OF FIXED
INCOME SECURITIES TENDS TO INCREASE. CONVERSELY, WHEN INTEREST RATES
INCREASE, THE MARKET VALUE OF FIXED INCOME SECURITIES TENDS TO DECLINE. THE
VOLATILITY OF A SECURITYMARKET VALUE WILL DIFFER DEPENDING UPON THE
SECURITYDURATION, THE ISSUER AND THE TYPE OF INSTRUMENT.
DEFAULT RISK/CREDIT RISK. INVESTMENTS IN FIXED INCOME SECURITIES ARE SUBJECT
TO THE RISK THAT THE ISSUER OF THE SECURITY COULD DEFAULT ON ITS OBLIGATIONS,
CAUSING A SERIES TO SUSTAIN LOSSES ON SUCH INVESTMENTS. A DEFAULT COULD
IMPACT BOTH INTEREST AND PRINCIPAL PAYMENTS.
CALL RISK AND EXTENSION RISK. FIXED INCOME SECURITIES MAY BE SUBJECT TO
BOTH CALL RISK AND EXTENSION RISK. CALL RISK EXISTS WHEN THE ISSUER MAY
EXERCISE ITS RIGHT TO PAY PRINCIPAL ON AN OBLIGATION EARLIER THAN
SCHEDULED, WHICH WOULD CAUSE CASH FLOWS TO BE RETURNED EARLIER THAN
EXPECTED. THIS TYPICALLY RESULTS WHEN INTEREST RATES HAVE DECLINED AND A
SERIES WILL SUFFER FROM HAVING TO REINVEST IN LOWER YIELDING SECURITIES.
EXTENSION RISK EXISTS WHEN THE ISSUER MAY EXERCISE ITS RIGHT TO PAY
PRINCIPAL ON AN OBLIGATION LATER THAN SCHEDULED, WHICH WOULD CAUSE CASH
FLOWS TO BE RETURNED LATER THAN EXPECTED. THIS TYPICALLY RESULTS WHEN
INTEREST RATES HAVE INCREASED, AND A SERIES WILL SUFFER FROM THE INABILITY TO
INVEST IN HIGHER YIELD SECURITIES.
HEDGING (DERIVATIVE TRANSACTIONS)
ALL OF THE SERIES' POLICIES REGARDING OPTIONS DISCUSSED BELOW ARE
FUNDAMENTAL, AND MAY ONLY BE CHANGED BY A SHAREHOLDER VOTE.
IN GENERAL. 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. 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. AS A MEANS OF PROTECTING ITS 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.
<PAGE>
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 SEPARATE ACCOUNT) UPON CONVERSION OR EXCHANGE OF OTHER SECURITIES. A CALL
OPTION IS ALSO CONSIDERED TO BE COVERED IF THE WRITER HOLDS ON A UNIT-FOR-UNIT
BASIS A CALL ON THE SAME SECURITY AS THE CALL WRITTEN, HAS THE SAME EXPIRATION
DATE AND THE EXERCISE PRICE OF THE CALL PURCHASED IS EQUAL TO OR LESS THAN THE
EXERCISE PRICE OF THE CALL WRITTEN OR GREATER THAN THE EXERCISE PRICE OF THE
CALL WRITTEN IF THE DIFFERENCE IS MAINTAINED IN CASH OR OTHER LIQUID
SECURITIES IN A SEPARATE ACCOUNT, 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 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.
<PAGE>
CALL OPTIONS MAY ALSO BE PURCHASED BY A SERIES, BUT ONLY TO TERMINATE
(ENTIRELY OR IN PART) A SERIES' OBLIGATION AS A WRITER OF A CALL OPTION. THIS
IS ACCOMPLISHED BY MAKING A CLOSING PURCHASE TRANSACTION, THAT IS, THE
PURCHASE OF A CALL OPTION ON THE SAME SECURITY WITH THE SAME EXERCISE PRICE
AND EXPIRATION DATE AS SPECIFIED IN THE CALL OPTION WHICH HAD BEEN WRITTEN
PREVIOUSLY. A CLOSING PURCHASE TRANSACTION WITH RESPECT TO CALLS TRADED ON A
NATIONAL SECURITIES EXCHANGE HAS THE EFFECT OF EXTINGUISHING THE OBLIGATION OF
THE WRITER OF A CALL OPTION. A SERIES MAY ENTER INTO A CLOSING PURCHASE
TRANSACTION, FOR EXAMPLE, TO REALIZE A PROFIT ON AN OPTION IT HAD PREVIOUSLY
WRITTEN, TO ENABLE IT TO SELL THE SECURITY WHICH UNDERLIES THE OPTION, TO FREE
ITSELF TO SELL ANOTHER OPTION OR TO PREVENT ITS PORTFOLIO SECURITIES FROM
BEING PURCHASED PURSUANT TO THE EXERCISE OF A CALL. A SERIES MAY ALSO PERMIT
THE CALL OPTION TO BE EXERCISED. A CLOSING TRANSACTION CANNOT BE EFFECTED
WITH RESPECT TO AN OPTIONED SECURITY ONCE A SERIES HAS RECEIVED A NOTICE THAT
THE OPTION IS TO BE EXERCISED.
THE COST TO A SERIES OF SUCH A CLOSING TRANSACTION MAY BE GREATER THAN THE
NET PREMIUM RECEIVED BY A SERIES UPON WRITING THE ORIGINAL CALL OPTION. A
PROFIT OR LOSS FROM A CLOSING PURCHASE TRANSACTION WILL BE REALIZED DEPENDING
ON WHETHER THE AMOUNT PAID TO PURCHASE A CALL TO CLOSE A POSITION IS LESS OR
MORE THAN THE AMOUNT RECEIVED FROM WRITING THE CALL. ANY PROFIT REALIZED BY A
SERIES FROM THE EXECUTION OF A CLOSING TRANSACTION MAY BE PARTLY OR COMPLETELY
OFFSET BY A REDUCTION IN THE MARKET PRICE OF THE UNDERLYING SECURITY.
A SERIES MAY ALSO WRITE SECURED PUT OPTIONS AND ENTER INTO CLOSING PURCHASE
TRANSACTIONS WITH RESPECT TO SUCH OPTIONS. A SERIES MAY WRITE SECURED PUT
OPTIONS ON NATIONAL SECURITIES EXCHANGES TO OBTAIN, THROUGH THE RECEIPT OF
PREMIUMS, A GREATER RETURN THAN WOULD BE REALIZED ON THE UNDERLYING SECURITIES
ALONE. A PUT OPTION GIVES THE PURCHASER OF THE OPTION THE RIGHT TO SELL, AND
THE WRITER HAS THE OBLIGATION TO BUY, THE UNDERLYING SECURITY AT THE STATED
EXERCISE PRICE DURING THE OPTION PERIOD. THE SECURED PUT WRITER RETAINS THE
RISK OF LOSS SHOULD THE MARKET VALUE OF THE UNDERLYING SECURITY DECLINE BELOW
THE EXERCISE PRICE OF THE OPTION. DURING THE OPTION PERIOD, THE WRITER OF A
PUT OPTION MAY BE REQUIRED AT ANY TIME TO MAKE PAYMENT OF THE EXERCISE PRICE
AGAINST DELIVERY OF THE UNDERLYING SECURITY. THE OPERATION OF PUT OPTIONS IN
OTHER RESPECTS IS SUBSTANTIALLY IDENTICAL TO THAT OF CALL OPTIONS. THE FUND
WILL ESTABLISH A SEPARATE ACCOUNT 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 SEPARATE ACCOUNT
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")
<PAGE>
PURCHASE OF A PUT OPTION CREATES A "HEDGE" AGAINST A DECLINE IN THE VALUE
OF THE UNDERLYING SECURITY BY CREATING THE RIGHT TO SELL THE SECURITY AT A
SPECIFIED PRICE. PURCHASE OF A PUT OPTION REQUIRES PAYMENT OF A PREMIUM TO
THE SELLER OF THAT OPTION. PAYMENT OF THIS PREMIUM NECESSARILY REDUCES THE
RETURN AVAILABLE ON THE INDIVIDUAL SECURITY SHOULD THAT SECURITY CONTINUE TO
APPRECIATE IN VALUE. IN RETURN FOR THE PREMIUM PAID, A 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.
RISKS FACTORS AND CERTAIN OTHER FACTORS RELATING TO OPTIONS. POSITIONS IN
OPTIONS ON SECURITIES MAY BE CLOSED ONLY BY A CLOSING TRANSACTION, WHICH MAY
BE MADE ONLY ON AN EXCHANGE WHICH PROVIDES A LIQUID SECONDARY MARKET FOR SUCH
OPTIONS. ALTHOUGH A 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 AS
SECURITY FOR THE PUT OPTION FOR OTHER INVESTMENT PURPOSES UNTIL THE EXERCISE
OR EXPIRATION OF THE OPTION.
POSSIBLE REASONS FOR THE ABSENCE OF A LIQUID SECONDARY MARKET ON AN
EXCHANGE INCLUDE THE FOLLOWING: (I) INSUFFICIENT TRADING ;
(II) RESTRICTIONS THAT MAY BE IMPOSED BY AN EXCHANGE ON OPENING TRANSACTIONS
OR CLOSING TRANSACTIONS OR BOTH; (III) TRADING HALTS, SUSPENSIONS OR OTHER
RESTRICTIONS THAT MAY BE IMPOSED WITH RESPECT TO PARTICULAR CLASSES OR SERIES
OF CONTRACTS, OR UNDERLYING SECURITIES; (IV) UNUSUAL OR UNFORESEEN
CIRCUMSTANCES THAT MAY INTERRUPT NORMAL OPERATIONS ON AN EXCHANGE; (V) THE
FACILITIES OF AN EXCHANGE OR A CLEARING CORPORATION MAY NOT BE
ADEQUATE TO HANDLE UNUSUAL TRADING VOLUME; OR (VI) ONE OR MORE
EXCHANGES COULD, FOR ECONOMIC OR OTHER REASONS, DECIDE OR BE COMPELLED AT SOME
FUTURE DATE TO DISCONTINUE THE TRADING OF CONTRACTS (OR PARTICULAR
CLASS OR SERIES OF CONTRACTS), IN WHICH EVENT THE SECONDARY MARKET ON THAT
EXCHANGE WOULD CEASE TO EXIST, ALTHOUGH OUTSTANDING CONTRACTS ON THE EXCHANGE
THAT HAD BEEN ISSUED BY A CLEARING CORPORATION AS A RESULT OF TRADES ON THAT
EXCHANGE WOULD CONTINUE TO BE EXERCISABLE IN ACCORDANCE WITH THEIR TERMS.
THERE IS NO ASSURANCE THAT HIGHER THAN ANTICIPATED TRADING ACTIVITY OR OTHER
UNFORESEEN EVENTS MIGHT NOT, AT TIMES, RENDER CERTAIN OF THE FACILITIES OF ANY
OF THE CLEARING CORPORATIONS INADEQUATE, AND THEREBY RESULT IN THE INSTITUTION
BY AN EXCHANGE OF SPECIAL PROCEDURES WHICH MAY INTERFERE WITH TIMELY EXECUTION
OF CUSTOMERS' ORDERS.
<PAGE>
EACH OF THE EXCHANGES ON WHICH OPTIONS ON SECURITIES ARE TRADED HAS
ESTABLISHED LIMITATIONS ON THE NUMBER OF OPTIONS WHICH MAY BE WRITTEN BY ANY
ONE INVESTOR OR GROUP OF INVESTORS. THESE LIMITATIONS APPLY REGARDLESS OF
WHETHER THE OPTIONS ARE WRITTEN IN DIFFERENT ACCOUNTS OR THROUGH DIFFERENT
BROKERS. IT IS POSSIBLE THAT A SERIES AND CERTAIN OTHER ACCOUNTS MANAGED BY
THE ADVISOR, 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 A 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 A SERIES WRITES, IT WILL TREAT AS
ILLIQUID (FOR PURPOSES OF THE 10% NET ASSET LIMITATION ON ILLIQUID
SECURITIES) AN AMOUNT OF ASSETS USED TO COVER WRITTEN OTC OPTIONS,
EQUAL TO THE FORMULA PRICE FOR THE REPURCHASE OF THE OTC OPTION LESS THE
AMOUNT BY WHICH THE OTC OPTION IS "IN-THE-MONEY". A SERIES 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 THE 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 THE 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. THEREFORE, FREQUENT WRITING AND/OR PURCHASING OF
OPTIONS MAY INCREASE THE TRANSACTION COSTS BORNE BY THE SERIES.
<PAGE>
STOCK INDEX FUTURES CONTRACTS AND OPTIONS ON STOCK INDEX FUTURES CONTRACTS.
EACH SERIES, EXCEPT FOR 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.
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 THEY 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 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 SERIES 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 SEPARATE ACCOUNT 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 INTO A SEPARATE ACCOUNT IN THE NAME OF THE FUTURES BROKER AN AMOUNT
OF CASH OR LIQUID SECURITIES 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.
<PAGE>
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.
<PAGE>
THERE ARE SEVERAL RISKS IN CONNECTION WITH THE USE BY THE SERIES OF STOCK
INDEX FUTURES CONTRACTS AS A HEDGING DEVICE. ONE RISK ARISES BECAUSE OF THE
IMPERFECT CORRELATION BETWEEN MOVEMENTS IN THE PRICES OF THE FUTURES CONTRACTS
AND MOVEMENTS IN THE PRICES OF SECURITIES WHICH ARE THE SUBJECT OF THE HEDGE.
THE ADVISOR WILL, HOWEVER, ATTEMPT TO REDUCE THIS RISK BY ENTERING INTO STOCK
INDEX FUTURES CONTRACTS ON INDICES WHOSE MOVEMENTS, IN ITS JUDGMENT, WILL HAVE
A SIGNIFICANT CORRELATION WITH MOVEMENTS IN THE PRICES OF THE SERIES'
PORTFOLIO SECURITIES SOUGHT TO BE HEDGED.
SUCCESSFUL USE OF STOCK INDEX FUTURES CONTRACTS BY THE SERIES FOR HEDGING
PURPOSES IS ALSO SUBJECT TO THE ADVISOR'S ABILITY TO CORRECTLY PREDICT
MOVEMENTS IN THE DIRECTION OF THE MARKET. IT IS POSSIBLE THAT, WHEN THE
SERIES HAVE SOLD FUTURES TO HEDGE THEIR PORTFOLIOS AGAINST A DECLINE IN THE
MARKET, THE INDEX OR INDICES ON WHICH THE FUTURES ARE WRITTEN MIGHT ADVANCE
AND THE VALUE OF SECURITIES HELD IN THE SERIES' PORTFOLIO MIGHT DECLINE. IF
THIS WERE TO OCCUR, THE SERIES WOULD LOSE MONEY ON THE FUTURES AND ALSO WOULD
EXPERIENCE A DECLINE IN VALUE IN ITS PORTFOLIO SECURITIES. HOWEVER, WHILE
THIS MIGHT OCCUR TO A CERTAIN DEGREE, THE ADVISOR BELIEVES THAT OVER TIME THE
VALUE OF THE SERIES' PORTFOLIO WILL TEND TO MOVE IN THE SAME DIRECTION AS THE
SECURITIES UNDERLYING THE FUTURES, WHICH ARE INTENDED TO CORRELATE TO THE
PRICE MOVEMENTS OF THE PORTFOLIO SECURITIES SOUGHT TO BE HEDGED. IT IS ALSO
POSSIBLE THAT IF THE SERIES WERE TO HEDGE AGAINST THE POSSIBILITY OF A DECLINE
IN THE MARKET (ADVERSELY AFFECTING STOCKS HELD IN THEIR PORTFOLIOS) AND STOCK
PRICES INSTEAD INCREASED, THE SERIES WOULD LOSE PART OR ALL OF THE BENEFIT OF
INCREASED VALUE OF THOSE STOCKS THAT IT HAD HEDGED, BECAUSE IT WOULD HAVE
OFFSETTING LOSSES IN THEIR FUTURES POSITIONS. IN ADDITION, IN SUCH
SITUATIONS, IF THE SERIES HAD INSUFFICIENT CASH, THEY MIGHT HAVE TO SELL
SECURITIES TO MEET THEIR DAILY VARIATION MARGIN REQUIREMENTS. SUCH SALES OF
SECURITIES MIGHT BE, BUT WOULD NOT NECESSARILY BE, AT INCREASED PRICES (WHICH
WOULD REFLECT THE RISING MARKET). MOREOVER, THE SERIES MIGHT HAVE TO SELL
SECURITIES AT A TIME WHEN IT WOULD BE DISADVANTAGEOUS TO DO SO.
IN ADDITION TO THE POSSIBILITY THAT THERE MIGHT BE AN IMPERFECT
CORRELATION, OR NO CORRELATION AT ALL, BETWEEN PRICE MOVEMENTS IN THE STOCK
INDEX FUTURES CONTRACTS AND THE PORTION OF THE PORTFOLIO TO BE HEDGED, THE
PRICE MOVEMENTS IN THE FUTURES CONTRACTS MIGHT NOT CORRELATE PERFECTLY WITH
PRICE MOVEMENTS IN THE UNDERLYING STOCK INDEX DUE TO CERTAIN MARKET
DISTORTIONS. FIRST, ALL PARTICIPANTS IN THE FUTURES MARKET ARE SUBJECT TO
MARGIN DEPOSIT AND MAINTENANCE REQUIREMENTS. RATHER THAN MEETING ADDITIONAL
MARGIN DEPOSIT REQUIREMENTS, INVESTORS MIGHT CLOSE STOCK INDEX FUTURES
CONTRACTS THROUGH OFFSETTING TRANSACTIONS WHICH COULD DISTORT THE NORMAL
RELATIONSHIP BETWEEN THE INDEX AND FUTURES MARKETS. SECOND, THE MARGIN
REQUIREMENTS IN THE FUTURES MARKET ARE LESS ONEROUS THAN MARGIN REQUIREMENTS
IN THE SECURITIES MARKETS. DUE TO THE POSSIBILITY OF PRICE DISTORTION IN THE
FUTURES MARKET AND ALSO BECAUSE OF THE IMPERFECT CORRELATION BETWEEN PRICE
MOVEMENTS IN THE STOCK INDEX AND MOVEMENTS IN THE PRICES OF STOCK INDEX
FUTURES CONTRACTS, EVEN A CORRECT FORECAST OF GENERAL MARKET TRENDS BY THE
ADVISOR MIGHT NOT RESULT IN A SUCCESSFUL HEDGING TRANSACTION OVER A VERY SHORT
TIME PERIOD.
<PAGE>
OPTIONS ON FUTURES GIVE THE PURCHASER THE RIGHT, IN RETURN FOR A PREMIUM
PAID, TO ASSUME A POSITION IN A FUTURES CONTRACT (A LONG POSITION IF A CALL
OPTION AND A SHORT POSITION IF A PUT OPTION), RATHER THAN TO PURCHASE OR SELL
THE STOCK INDEX FUTURES CONTRACT, AT A SPECIFIED EXERCISE PRICE AT ANY TIME
DURING THE PERIOD OF THE OPTION. UPON EXERCISE OF THE OPTION, THE DELIVERY OF
THE FUTURES POSITION BY THE WRITER OF THE OPTION TO THE HOLDER OF THE OPTION
WILL BE ACCOMPANIED BY DELIVERY OF THE ACCUMULATED BALANCE IN THE WRITER'S
FUTURES MARGIN ACCOUNT WHICH REPRESENTS THE AMOUNT BY WHICH THE MARKET PRICE
OF THE STOCK INDEX FUTURES CONTRACT, AT EXERCISE, EXCEEDS (IN THE CASE OF A
CALL) OR IS LESS THAN (IN THE CASE OF A PUT) THE EXERCISE PRICE OF THE OPTION
ON THE FUTURES CONTRACT. ALTERNATIVELY, SETTLEMENT MAY BE MADE TOTALLY IN
CASH.
EACH 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. SEE "RISK FACTORS AND CERTAIN OTHER FACTORS RELATING TO
OPTIONS" ABOVE FOR POSSIBLE REASONS FOR THE ABSENCE OF A LIQUID SECONDARY
MARKET ON AN EXCHANGE.
FUTURES ON SECURITIES. A FUTURES CONTRACT ON A SECURITY IS A BINDING
CONTRACTUAL COMMITMENT WHICH, IF HELD TO MATURITY, WILL RESULT IN AN
OBLIGATION TO MAKE OR ACCEPT DELIVERY, DURING A PARTICULAR MONTH, OF
SECURITIES HAVING A STANDARDIZED FACE VALUE AND RATE OF RETURN. 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.
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 SERIES' 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 SERIES 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 IS AUTHORIZED TO ENTER INTO FORWARD FOREIGN
CURRENCY EXCHANGE CONTRACTS. IN ADDITION, EACH SERIES IS AUTHORIZED TO CONDUCT
SPOT (I.E., CASH BASIS) CURRENCY TRANSACTIONS OR TO USE CURRENCY FUTURES
CONTRACTS, OPTIONS ON SUCH FUTURES CONTRACTS, AND OPTIONS ON FOREIGN
CURRENCIES IN ORDER TO PROTECT AGAINST UNCERTAINTY IN THE FUTURE LEVELS OF
CURRENCY EXCHANGE RATES.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS INVOLVE AN OBLIGATION TO
PURCHASE OR SELL A SPECIFIED CURRENCY AT A FUTURE DATE AT A PRICE SET AT THE
TIME OF THE CONTRACT. FORWARD CURRENCY CONTRACTS DO NOT ELIMINATE
FLUCTUATIONS IN THE VALUES OF PORTFOLIO SECURITIES BUT RATHER ALLOW A SERIES
TO ESTABLISH A RATE OF EXCHANGE FOR A FUTURE POINT IN TIME. A SERIES MAY
ENTER INTO FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS WHEN DEEMED ADVISABLE
BY THE ADVISOR UNDER ONLY TWO CIRCUMSTANCES.
FIRST, WHEN ENTERING INTO A CONTRACT FOR THE PURCHASE OR SALE OF A SECURITY
IN A FOREIGN CURRENCY, A SERIES MAY ENTER INTO A FORWARD FOREIGN CURRENCY
EXCHANGE CONTRACT FOR THE AMOUNT OF THE PURCHASE OR SALE PRICE TO PROTECT
AGAINST VARIATIONS, BETWEEN THE DATE THE SECURITY IS PURCHASED OR SOLD AND THE
DATE ON WHICH PAYMENT IS MADE OR RECEIVED, IN THE VALUE OF THE FOREIGN
CURRENCY RELATIVE TO THE U.S. DOLLAR OR OTHER FOREIGN CURRENCY. THIS HEDGING
TECHNIQUE IS KNOWN AS "TRANSACTION HEDGING".
SECOND, WHEN THE ADVISOR ANTICIPATES THAT A PARTICULAR FOREIGN CURRENCY MAY
DECLINE SUBSTANTIALLY RELATIVE TO THE U.S. DOLLAR OR OTHER LEADING CURRENCIES,
IN ORDER TO REDUCE RISK, A SERIES MAY ENTER INTO A FORWARD CONTRACT TO SELL,
FOR A FIXED AMOUNT, THE AMOUNT OF FOREIGN CURRENCY APPROXIMATING THE VALUE OF
SOME OR ALL OF ITS PORTFOLIO SECURITIES DENOMINATED IN SUCH FOREIGN CURRENCY.
THIS HEDGING TECHNIQUE IS KNOWN AS "POSITION HEDGING". WITH RESPECT TO ANY
SUCH FORWARD FOREIGN CURRENCY CONTRACT, IT WILL NOT GENERALLY BE POSSIBLE TO
MATCH PRECISELY THE AMOUNT COVERED BY THAT CONTRACT AND THE VALUE OF THE
SECURITIES INVOLVED DUE TO THE CHANGES IN THE VALUES OF SUCH SECURITIES
RESULTING FROM MARKET MOVEMENTS BETWEEN THE DATE THE FORWARD CONTRACT IS
ENTERED INTO AND THE DATE IT MATURES. IN ADDITION, WHILE FORWARD CONTRACTS
MAY OFFER PROTECTION FROM LOSSES RESULTING FROM DECLINES IN THE VALUE OF A
PARTICULAR FOREIGN CURRENCY, THEY ALSO LIMIT POTENTIAL GAINS WHICH MIGHT
RESULT FROM INCREASES IN THE VALUE OF SUCH CURRENCY. A SERIES WILL ALSO INCUR
COSTS IN CONNECTION WITH FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS AND
CONVERSIONS OF FOREIGN CURRENCIES AND U.S. DOLLARS.
A SEPARATE ACCOUNT OF EACH SERIES CONSISTING OF CASH OR 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 . 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.
<PAGE>
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 FOR BY THE
CONTRACT AT A SPECIFIED PRICE ON A SPECIFIED DATE. A "PURCHASE" OF A FUTURES
CONTRACT (I.E., LONG) 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 SERIES WILL COMPLY WITH GUIDELINES
ESTABLISHED BY THE SEC WITH RESPECT TO COVERING OF OBLIGATIONS UNDER FUTURE
CONTRACTS AND WILL SET ASIDE CASH AND/OR LIQUID SECURITIES IN A SEPARATE
ACCOUNT IN THE AMOUNT PRESCRIBED.
ALTHOUGH THE SERIES INTEND TO PURCHASE OR SELL FUTURES CONTRACTS ONLY IF
THERE IS AN ACTIVE MARKET FOR SUCH CONTRACTS, NO ASSURANCE CAN BE GIVEN THAT A
LIQUID MARKET WILL EXIST FOR ANY PARTICULAR CONTRACT AT ANY PARTICULAR TIME.
IN ADDITION, DUE TO THE RISK OF AN IMPERFECT CORRELATION BETWEEN SECURITIES IN
THE SERIES' PORTFOLIO THAT ARE THE SUBJECT OF A HEDGING TRANSACTION AND THE
FUTURES CONTRACT USED AS A HEDGING DEVICE, IT IS POSSIBLE THAT THE HEDGE WILL
NOT BE FULLY EFFECTIVE. FOR EXAMPLE, LOSSES ON THE PORTFOLIO SECURITIES MAY
BE IN EXCESS OF GAINS ON THE FUTURES CONTRACT OR LOSSES ON THE FUTURES
CONTRACT MAY BE IN EXCESS OF THE GAINS ON THE PORTFOLIO SECURITIES THAT WERE
THE SUBJECT OF SUCH HEDGE.
BROKERAGE FEES ARE INCURRED WHEN A FUTURES CONTRACT IS BOUGHT OR SOLD AND
MARGIN DEPOSITS MUST BE MAINTAINED FOR SUCH CONTRACT. ALTHOUGH FUTURES
CONTRACTS TYPICALLY REQUIRE ACTUAL DELIVERY OF AND PAYMENT FOR FINANCIAL
INSTRUMENTS OR CURRENCIES, THE CONTRACTS ARE USUALLY CLOSED OUT BEFORE THE
DELIVERY DATE. CLOSING OUT AN OPEN FUTURES CONTRACT SALE OR PURCHASE IS
EFFECTED BY ENTERING INTO AN OFFSETTING FUTURES CONTRACT PURCHASE OR SALE,
RESPECTIVELY, FOR THE SAME AGGREGATE AMOUNT OF THE IDENTICAL TYPE OF FINANCIAL
INSTRUMENT OR CURRENCY AND THE SAME DELIVERY DATE. IF THE OFFSETTING PURCHASE
PRICE IS LESS THAN THE ORIGINAL SALE PRICE, A SERIES REALIZES A GAIN; IF IT IS
MORE, A SERIES REALIZES A LOSS. CONVERSELY, IF THE OFFSETTING SALE PRICE IS
MORE THAN THE ORIGINAL PURCHASE PRICE, A SERIES REALIZES A GAIN; IF IT IS
LESS, A SERIES REALIZES A LOSS. TRANSACTION COSTS MUST ALSO BE INCLUDED IN
THESE CALCULATIONS. THERE CAN BE NO ASSURANCE, HOWEVER, THAT A SERIES WILL BE
ABLE TO ENTER INTO AN OFFSETTING TRANSACTION WITH RESPECT TO A PARTICULAR
CONTRACT AT A PARTICULAR TIME. IF A SERIES IS NOT ABLE TO ENTER INTO AN
OFFSETTING TRANSACTION, A SERIES WILL CONTINUE TO BE REQUIRED TO MAINTAIN THE
MARGIN DEPOSITS ON THE CONTRACT. THE ABILITY TO ESTABLISH AND CLOSE OUT
POSITIONS ON SUCH OPTIONS WILL BE SUBJECT TO THE DEVELOPMENT AND MAINTENANCE
OF A LIQUID SECONDARY MARKET. IT IS NOT CERTAIN THAT A LIQUID MARKET WILL
DEVELOP FOR ANY PARTICULAR FUTURES CONTRACTS. SEE "CERTAIN RISK AND OTHER
FACTORS RESPECTING OPTIONS" ABOVE FOR POSSIBLE REASONS FOR THE ABSENCE OF A
LIQUID SECONDARY MARKET ON AN EXCHANGE.
<PAGE>
AN OPTION ON A FUTURES CONTRACT GIVES THE PURCHASER THE RIGHT, IN RETURN FOR
THE PREMIUM PAID, TO ASSUME A POSITION IN A FUTURES CONTRACT (A LONG POSITION
IF A CALL OPTION AND A SHORT POSITION IF A PUT OPTION) AT A SPECIFIED PRICE AT
ANY TIME DURING THE OPTION EXERCISE PERIOD. THE WRITER OF THE OPTION IS
REQUIRED UPON EXERCISE TO ASSUME AN OFFSETTING FUTURES POSITION (A SHORT
POSITION IF A CALL OPTION AND A LONG POSITION IF A PUT OPTION). UPON EXERCISE
OF THE OPTION, THE ASSUMPTION OF OFFSETTING FUTURES POSITIONS BY THE WRITER
AND HOLDER OF THE OPTION WILL BE ACCOMPANIED BY DELIVERY OF THE ACCUMULATED
CASH BALANCE IN THE WRITER'S FUTURES MARGIN ACCOUNT WHICH REPRESENTS THE
AMOUNT BY WHICH THE MARKET PRICE OF THE FUTURES CONTRACT, AT EXERCISE,
EXCEEDS, IN THE CASE OF A CALL, OR IS LESS THAN, IN THE CASE OF A PUT, THE
EXERCISE PRICE OF THE OPTION ON THE FUTURES CONTRACT.
CALL OPTIONS SOLD BY THE SERIES WITH RESPECT TO FUTURES CONTRACTS WILL BE
COVERED BY, AMONG OTHER THINGS, ENTERING INTO A LONG POSITION IN THE SAME
CONTRACT AT A PRICE NO HIGHER THAN THE STRIKE PRICE OF THE CALL OPTION, OR BY
OWNERSHIP OF THE INSTRUMENTS UNDERLYING THE FUTURES CONTRACT, OR THE PLACEMENT
OF 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 IS 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.
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.
EVEN A SMALL INVESTMENT IN DERIVATIVE CONTRACTS CAN HAVE A BIG IMPACT ON
STOCK MARKET, CURRENCY AND INTEREST RATE EXPOSURE. DERIVATIVES CAN ALSO MAKE
A SERIES LESS LIQUID AND HARDER TO VALUE, ESPECIALLY IN DECLINING MARKETS.
<PAGE>
OTHER INVESTMENT POLICIES
FOREIGN SECURITIES. EACH SERIES MAY INVEST UP TO 25% OF ITS ASSETS IN
FOREIGN SECURITIES WHICH ARE NOT PUBLICLY TRADED IN THE UNITED STATES. THE
SERIES' INVESTMENTS IN FOREIGN SECURITIES WILL BE 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
GOALS OF THE SERIES. 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. FOREIGN DEBT SECURITIES MAY
BE DENOMINATED EITHER IN U.S. DOLLARS OR FOREIGN CURRENCIES.
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.
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. THESE RISKS GENERALLY ARE GREATER FOR INVESTMENTS IN
SECURITIES OF COMPANIES IN EMERGING MARKETS, WHICH ARE USUALLY IN THE INITIAL
STAGES OF THEIR INDUSTRIALIZATION CYCLE.
OBLIGATIONS OF FOREIGN GOVERNMENTAL ENTITIES ARE SUBJECT TO VARIOUS TYPES
OF GOVERNMENTAL SUPPORT AND MAY OR MAY NOT BE SUPPORTED BY THE FULL FAITH AND
CREDIT OF A FOREIGN GOVERNMENT.
CURRENCY RISKS. THE U.S. DOLLAR VALUE OF SECURITIES DENOMINATED IN A
FOREIGN CURRENCY WILL VARY WITH CHANGES IN CURRENCY EXCHANGE RATES, WHICH CAN
BE VOLATILE. ACCORDINGLY, CHANGES IN THE VALUE OF THE CURRENCY IN WHICH A
SERIES' INVESTMENTS ARE DENOMINATED RELATIVE TO THE U.S. DOLLAR WILL AFFECT
THE SERIES' NET ASSET VALUE. EXCHANGE RATES ARE GENERALLY AFFECTED BY THE
FORCES OF SUPPLY AND DEMAND IN THE INTERNATIONAL CURRENCY MARKETS, THE
RELATIVE MERITS OF INVESTING IN DIFFERENT COUNTRIES AND THE INTERVENTION OR
FAILURE TO INTERVENE OF U.S. OR FOREIGN GOVERNMENTS AND CENTRAL BANKS.
HOWEVER, CURRENCY EXCHANGE RATES MAY FLUCTUATE BASED ON FACTORS INTRINSIC TO A
COUNTRYECONOMY. SOME EMERGING MARKET COUNTRIES ALSO MAY HAVE MANAGED
CURRENCIES, WHICH ARE NOT FREE FLOATING AGAINST THE U.S. DOLLAR. IN ADDITION,
EMERGING MARKETS ARE SUBJECT TO THE RISK OF RESTRICTIONS UPON THE FREE
CONVERSION OF THEIR CURRENCIES INTO OTHER CURRENCIES. ANY DEVALUATIONS
RELATIVE TO THE U.S. DOLLAR IN THE CURRENCIES IN WHICH A SERIES' SECURITIES
ARE QUOTED WOULD REDUCE THE SERIES' NET ASSET VALUE PER SHARE.
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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 A BANK OR BROKER-DEALER (A "SELLER") WHICH THE
ADVISOR DEEMS TO BE CREDITWORTHY, SUBJECT TO THE SELLER'S AGREEMENT TO
REPURCHASE THEM AT A MUTUALLY AGREED-UPON DATE AND PRICE. THE REPURCHASE
PRICE GENERALLY EQUALS THE PRICE PAID BY THE 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 LIQUID SECURITIES MAINTAINED ON A CURRENT BASIS AT AN AMOUNT
AT LEAST EQUAL TO THE MARKET VALUE OF THE SECURITIES LOANED. IF THE ADVISOR
DETERMINES TO MAKE SECURITIES LOANS, THE VALUE OF THE SECURITIES LOANED WOULD
NOT EXCEED 30% OF THE VALUE OF THE TOTAL ASSETS OF THE SERIES.
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. THE FUND HAS NO CURRENT INTENTION TO ENGAGE IN
SHORT SALES AGAINST THE BOX.
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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 CONSISTING OF LIQUID ASSETS IN
AN AMOUNT AT LEAST EQUAL TO THE PURCHASE PRICE.
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 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.
MANAGEMENT OF REALIZATION EVENTS (TAX MANAGED SERIES). THE TAX MANAGED
SERIESPORTFOLIO WILL BE ACTIVELY MANAGED TO MINIMIZE BOTH THE NUMBER AND
AMOUNT OF REALIZATION EVENTS. THE FOLLOWING METHODS ARE USED:
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. 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 A FIRST-IN,
FIRST-OUT (FIFO) METHOD, 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 UPTHE 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.
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MANAGEMENT OF DIVIDEND DISTRIBUTIONS (TAX MANAGED SERIES). THE TAX MANAGED
SERIES WILL MINIMIZE DIVIDEND DISTRIBUTIONS TO THE EXTENT PERMITTED TO
MAINTAIN REGULATED INVESTMENT COMPANY STATUS UNDER THE CODE. THE FOLLOWING
METHODS ARE USED:
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 SHAREHOLDERSPORTION OF THE
SERIESUNDISTRIBUTED 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 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 SERIESSHARES, THE TOTAL RETURN ON A
SHAREHOLDERINVESTMENT WILL NOT BE REDUCED AS A RESULT OF THE
SERIESDISTRIBUTION 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. THE SERIES'
USE OF EQUALIZATION ACCOUNTING WILL NOT AFFECT THE TAX TREATMENT OF
SHAREHOLDERS THAT REDEEM THEIR SHARES WITH RESPECT TO SUCH REDEMPTIONS.
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 SHAREHOLDERSAFTER-TAX TOTAL RETURNS.
INVESTMENT RESTRICTIONS
EACH SERIES HAS ADOPTED CERTAIN RESTRICTIONS SET FORTH BELOW 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.
NONE OF THE SERIES MAY:
1. BORROW MONEY, EXCEPT 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;
2. WITH RESPECT TO 75% OF ITS TOTAL ASSETS, INVEST MORE THAN 5% OF THE
VALUE OF ITS TOTAL ASSETS AT THE TIME OF INVESTMENT IN SECURITIES OF ANY ONE
ISSUER (OTHER THAN OBLIGATIONS ISSUED OR GUARANTEED BY THE UNITED STATES
GOVERNMENT, ITS AGENCIES OR ITS INSTRUMENTALITIES). NONE OF THE SERIES MAY
PURCHASE MORE THAN 10% OF THE OUTSTANDING VOTING SECURITIES OF ANY ONE
ISSUER;
3. INVEST 25% OR MORE OF THE VALUE OF ITS TOTAL ASSETS IN SECURITIES
OF ISSUERS IN ANY ONE INDUSTRY (OTHER THAN U.S. GOVERNMENT SECURITIES);
4. INVEST MORE THAN 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;
<PAGE>
5. PURCHASE SHARES OF CLOSED-END INVESTMENT COMPANIES THAT ARE TRADED
ON NATIONAL EXCHANGES, EXCEPT TO THE EXTENT PERMITTED BY APPLICABLE LAW;
6. MAKE LOANS, EXCEPT THAT EACH MAY INVEST IN DEBT SECURITIES AND
REPURCHASE AGREEMENTS AND MAY ENGAGE IN SECURITIES LENDING;
7. PURCHASE SECURITIES ON MARGIN (BUT A SERIES MAY OBTAIN SUCH SHORT-TERM
CREDITS AS MAY BE NECESSARY FOR THE CLEARANCE OF TRANSACTIONS);
8. MAKE SHORT SALES OF SECURITIES OR MAINTAIN A SHORT POSITION, UNLESS AT
ALL TIMES WHEN A SHORT POSITION IS OPEN IT OWNS AN EQUAL AMOUNT OF SUCH
SECURITIES OR SECURITIES CONVERTIBLE INTO OR EXCHANGEABLE, WITHOUT PAYMENT OF
ANY FURTHER CONSIDERATION, FOR SECURITIES OF THE SAME ISSUE AS, AND EQUAL IN
AMOUNT TO, THE SECURITIES SOLD SHORT (SHORT SALE AGAINST-THE-BOX), AND UNLESS
NOT MORE THAN 25% OF A SERIES' NET ASSETS (TAKEN AT A CURRENT VALUE) ARE HELD
AS COLLATERAL FOR SUCH SALES AT ANY ONE TIME;
9. ISSUE SENIOR SECURITIES OR PLEDGE ITS ASSETS, EXCEPT THAT EACH SERIES
MAY INVEST IN FUTURES CONTRACTS AND RELATED OPTIONS;
10. BUY OR SELL COMMODITIES OR COMMODITY CONTRACTS (THE TAX MANAGED
SERIES ALSO EXPRESSLY PROVIDES 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.
11. ACT AS UNDERWRITER EXCEPT TO THE EXTENT THAT, IN CONNECTION WITH THE
DISPOSITION OF PORTFOLIO SECURITIES, IT MAY BE DEEMED TO BE AN UNDERWRITER
UNDER CERTAIN FEDERAL SECURITIES LAWS;
12. MAKE INVESTMENTS FOR THE PURPOSE OF EXERCISING CONTROL OR
MANAGEMENT;
13. PARTICIPATE ON A JOINT OR JOINT AND SEVERAL BASIS IN ANY TRADING
ACCOUNT IN SECURITIES;
14. 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;
15. PURCHASE FOREIGN SECURITIES IF AS A RESULT OF THE PURCHASE OF SUCH
SECURITIES MORE THAN 25% OF A SERIES' ASSETS WOULD BE INVESTED IN FOREIGN
SECURITIES PROVIDED THAT THIS RESTRICTION SHALL NOT APPLY TO FOREIGN
SECURITIES THAT ARE LISTED ON A DOMESTIC SECURITIES EXCHANGE OR REPRESENTED BY
AMERICAN DEPOSITORY RECEIPTS THAT ARE TRADED EITHER ON A DOMESTIC SECURITIES
EXCHANGE OR IN THE UNITED STATES ON THE OVER-THE-COUNTER MARKET;
<PAGE>
16. 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, AND THE
FLEXIBLE YIELD SERIES III). 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.
IN ADDITION TO THE FOREGOING:
17. THE DEFENSIVE SERIES, THE MAXIMUM HORIZON SERIES AND THE TAX
MANAGED SERIES MAY NOT INVEST ASSETS IN SECURITIES OF ANY OTHER OPEN-END
INVESTMENT COMPANY, EXCEPT (1) BY PURCHASE IN THE OPEN MARKET INVOLVING ONLY
CUSTOMARY BROKERS' COMMISSIONS, (2) IN CONNECTION WITH MERGERS, ACQUISITIONS
OF ASSETS, OR CONSOLIDATION, OR (3) AS OTHERWISE PERMITTED BY LAW, INCLUDING
THE 1940 ACT.
18. 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. NONE OF THE SERIES, EXCEPT THE DEFENSIVE SERIES, THE
MAXIMUM HORIZON SERIES AND THE TAX MANAGED SERIES, WILL PURCHASE OR RETAIN
SECURITIES ISSUED BY OPEN-END INVESTMENT COMPANIES (OTHER THAN MONEY MARKET
FUNDS FOR TEMPORARY INVESTMENT).
19. 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.
20. 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.
21. 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 SERIESASSETS WOULD BE INVESTED IN SECURITIES OF
SUCH COMPANIES.
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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 LONG-TERM AVERAGE TURNOVER RATE WILL BE LESS THAN
100%. HOWEVER, TURNOVER WILL IN FACT BE DETERMINED BY MARKET
CONDITIONS AND OPPORTUNITIES, AND THEREFORE IT IS IMPOSSIBLE TO ESTIMATE THE
TURNOVER RATE WITH CONFIDENCE.
THE FUND
THE FUND IS AN OPEN-END MANAGEMENT INVESTMENT COMPANY INCORPORATED UNDER
THE LAWS OF THE STATE OF MARYLAND ON JULY 26, 1984. PRIOR TO FEBRUARY 1998,
THE FUND WAS NAMED MANNING & NAPIER FUND, INC. THE BOARD OF DIRECTORS MAY, AT
ITS OWN DISCRETION, CREATE ADDITIONAL 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, 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.
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 ITS INVESTMENT ADVISOR, CUSTODIAN AND DISTRIBUTOR. THE
DAY-TO-DAY OPERATIONS OF THE FUND ARE DELEGATED TO THE FUND'S OFFICERS AND TO
THE ADVISOR. A COMMITTEE MADE UP OF INVESTMENT PROFESSIONALS AND ANALYSTS
MAKES ALL THE INVESTMENT DECISIONS FOR THE FUND.
THE DIRECTORS AND OFFICERS OF THE FUND ARE:
NAME, ADDRESS, POSITION PRINCIPAL OCCUPATIONS
DATE OF BIRTH WITH FUND DURING PAST FIVE YEARS
B. REUBEN AUSPITZ* VICE EXECUTIVE VICE PRESIDENT,
1100 CHASE SQUARE PRESIDENT MANNING & NAPIER ADVISORS,
ROCHESTER, NY 14604 & INC. SINCE 1993;
03/18/47 DIRECTOR PRESIDENT AND DIRECTOR, MANNING
& NAPIER INVESTOR SERVICES,
INC. SINCE 1990; DIRECTOR,
CHAIRMAN AND TREASURER,
MANNING & NAPIER ADVISORY
ADVANTAGE CORPORATION SINCE 1990;
DIRECTOR, MANNING & NAPIER LEVERAGED
INVESTING CO., INC. SINCE 1994;
DIRECTOR AND CHAIRMAN, EXETER TRUST CO.
SINCE 1994; MEMBER, QUALIFIED PLAN
SERVICES, L.L.C. (FORMERLY KNOWN AS
FIDUCIARY SERVICES, L.L.C.) SINCE
1995; MEMBER, MANNING & NAPIER
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; MANAGING DIRECTOR,
MANNING & NAPIER ADVISORS, INC. FROM
1983-1992[/R]
MARTIN BIRMINGHAM DIRECTOR TRUSTEE, THE FREEDOM FORUM, SINCE 1980;
21 BROOKWOOD ROAD DIRECTOR, EMERITUS, ACC CORPORATION
PITTSFORD, NY 14534 SINCE 1994; DIRECTOR, MANNING & NAPIER
10/30/21 INSURANCE FUND, INC. SINCE 1995
HARRIS H. RUSITZKY DIRECTOR PRESIDENT, BLIMPIE OF CENTRAL
ONE GROVE STREET NEW YORK AND THE GREENING GROUP SINCE
PITTSFORD, NY 14534 1994; DIRECTOR, MANNING & NAPIER
01/09/35 INSURANCE FUND, INC. SINCE 1995
PETER L. FABER DIRECTOR FORMER PARTNER, KAYE, SCHOLER,FIERMAN,
50 ROCKEFELLER PLAZA HAYS & HANDLER FROM 1984-1995; PARTNER
NEW YORK, NEW YORK 10020-1605 MCDERMOTT, WILL & EMERY SINCE 1995;
04/29/38 DIRECTOR, MANNING & NAPIER INSURANCE
FUND, INC. SINCE 1995
STEPHEN B. ASHLEY DIRECTOR CHAIRMAN AND CHIEF EXECUTIVE OFFICER,
600 POWERS BUILDING THE ASHLEY GROUP SINCE 1975;
16 WEST MAIN STREET DIRECTOR, GENESEE CORP. SINCE
ROCHESTER, NEW YORK 146141987; DIRECTOR, HAHN AUTOMOTIVE SINCE
03/22/40 1994; DIRECTOR, FANNIE MAE SINCE 1995;
DIRECTOR, MANNING & NAPIER INSURANCE
FUND, INC. SINCE 1996
WILLIAM MANNING PRESIDENT PRESIDENT, DIRECTOR AND CO-FOUNDER,
1100 CHASE SQUARE MANNING & NAPIER ADVISORS, INC. SINCE
ROCHESTER, NY 14604 1970;PRESIDENT, DIRECTOR,
12/24/36 FOUNDER & CEO, MANNING VENTURES, INC.
SINCE 1992; PRESIDENT, DIRECTOR,
FOUNDER & CEO, KSDS, INC. SINCE 1992;
CHAIRMAN OF THE BOARD, DIRECTOR, CEO,
KENT DISPLAYS, 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 AND TREASURER, MANNING &
NAPIER LEVERAGED INVESTINGCOMPANY, INC.
SINCE 1994; MEMBER, MANNING & NAPIER
CAPITAL CO., L.L.C. SINCE 1994; MEMBER,
QUALIFIED PLAN SERVICES, L.L.C
(FORMERLY KNOWN AS FIDUCIARY SERVICES,
L.L.C.) SINCE 1995; MEMBER, MANNING &
NAPIER ASSOCIATES, L.L.C. SINCE 1995;
DIRECTOR, CEO, PRESIDENT AND FOUNDER,
BURGANDY CAR SERVICE, INC. 1996 TO 1997;
DIRECTOR, CEO, PRESIDENT AND FOUNDER,
BCS LEASING, INC. SINCE 1996
BETH H. GALUSHA, CPA CHIEF CHIEF FINANCIAL OFFICER, MANNING &
1100 CHASE SQUARE FINANCIAL & NAPIER ADVISORS, INC. SINCE 1987;
ROCHESTER, NY 14604 ACCOUNTING TREASURER, MANNING & NAPIER INVESTOR
06/23/61 OFFICER, SERVICES, INC. SINCE 1990; DIRECTOR,
TREASURER MANNING & NAPIER ADVISORY ADVANTAGE
CORPORATION SINCE 1993;
TREASURER, EXETER TRUST COMPANY SINCE
1997; CHIEF FINANCIAL & ACCOUNTING
OFFICER, TREASURER, MANNING & NAPIER
INSURANCE FUND, INC. SINCE 1997[/R]
JODI L. HEDBERG CORPORATE SENIOR COMPLIANCE ADMINISTRATOR,
1100 CHASE SQUARE SECRETARY MANNING & NAPIER ADVISORS, INC. FROM
ROCHESTER, NY 14604 1994-1995; COMPLIANCE MANAGER, MANNING
11/26/67 & 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").
THE ONLY COMMITTEE OF THE FUND IS AN AUDIT COMMITTEE WHOSE MEMBERS ARE B.
REUBEN AUSPITZ, HARRIS H. RUSITZKY AND STEPHEN B. ASHLEY.
DIRECTORS AFFILIATED WITH THE ADVISOR DO NOT RECEIVE FEES FROM THE FUND.
EACH DIRECTOR WHO IS NOT AFFILIATED WITH THE ADVISOR SHALL RECEIVE AN ANNUAL
FEE OF $2,500. ANNUAL FEES WILL BE CALCULATED MONTHLY AND PRORATED. EACH
DIRECTOR WHO IS NOT AFFILIATED WITH THE ADVISOR SHALL RECEIVE $375 PER BOARD
MEETING ATTENDED FOR EACH ACTIVE 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 OCTOBER 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
NAME POSITION AGGREGATE PENSION EST. ANNUAL TOTAL
FROM COMPENSATION BENEFITS UPON COMPENSATION
REGISTRANT RETIREMENT FROM
REGISTRANT
B. REUBEN DIRECTOR $ 0 N/A N/A $ 0
AUSPITZ*
MARTIN DIRECTOR $25,000 N/A N/A $25,000
BIRMINGHAM
HARRIS H. DIRECTOR $25,500 N/A N/A $25,500
RUSITZKY
PETER L. DIRECTOR $25,000 N/A N/A $25,000
FABER
STEPHEN B. DIRECTOR $25,500 N/A N/A $25,500
ASHLEY
</TABLE>
*INTERESTED DIRECTOR, WITHIN THE MEANING OF THE INVESTMENT COMPANY ACT OF 1940
(THE "1940 ACT").
THE FOLLOWING PERSONS WERE KNOWN BY THE FUND TO BE OWNER OF RECORD 5% OR
MORE OF THE OUTSTANDING VOTING SECURITIES OF EACH SERIES ON DECEMBER 1,
1998.
<PAGE>
NAME AND ADDRESS OF HOLDER OF RECORD PERCENTAGE OF SERIES
BLENDED ASSET SERIES I
AMERICAN EXPRESS TRUSTEE FOR 12.89%
MORTON MEASE HEALTH CARE TRUST
1200 NORTHSTAR WEST
MINNEAPOLIS, MN 55440-0534
NATIONAL FINANCIAL SERVICES CORP. 16.46%
FBO CUSTOMERS
200 LIBERTY STREET
NEW YORK, NY 10281-1003
EXETER TRUST CO. 10.55%
FBO WELCH FOODS, INC.
P.O. BOX 41178
ROCHESTER, NY 14604
BLENDED ASSET SERIES II
NATIONAL FINANCIAL SERVICES CORP. 18.66%
FBO CUSTOMERS
200 LIBERTY STREET
NEW YORK, NY 10281-1003
FLEXIBLE YIELD SERIES I
MACHINED PRODUCTS CO. 18.94%
C/O KATHLEEN SAUL
P.O. BOX 10428
LANCASTER, PA 17605
MARK A. KRONENBERG 17.66%
7814 NEWCO DRIVE
HAMLIN, NY 14464
MANNING & NAPIER ADVISORS, INC. 12.03%
1100 CHASE SQUARE
ROCHESTER, NY 14604
BERNIECE I. GOSNELL 7.61%
C/O DAWN HILSINGER
319 DEARCOP DRIVE
ROCHESTER, NY 14624
JOHN G. NAPIER 7.54%
33 BEARD AVENUE
BUFFALO, NY 14214
<PAGE>
FLEXIBLE YIELD SERIES II
PATRICK S. BAGLIORE IRA ROLLOVER 13.07%
276 OAKDALE DRIVE
WEBSTER, NY 14580
R. SHELDON AND MARIE E. STARR JTWROS 6.49%
798 STARR AVENUE
CHAMBERSBURG, PA 17201
MANNING & NAPIER ADVISORS, INC. 23.91%
1100 CHASE SQUARE
ROCHESTER, NY 14604
CHARLES E. LUCAS IRA ROLLOVER 15.23%
9 SOUTHLAND AVENUE
LAKEWOOD, NY 14750
PENFIELD FIRE COMPANY 6.70%
1838 PENFIELD ROAD
PENFIELD, NY 14526
JERRY J. VASICEK IRA ROLLOVER 6.65%
65 COVENTRY ROAD
ENDICOTT, NY 13760
JUNE DAHLIN & RICHARD DAHLIN JTWROS 5.05%
1425 2ND AVENUE
CHULA VISTA, CA 91911
FLEXIBLE YIELD SERIES III
SNYDER TANK CORPORATION 6.05
SAVINGS & SECURITY PLAN
3774 LAKESHORE ROAD
BUFFALO, NY 14219
MANNING & NAPIER ADVISORS, INC. 7.89%
1100 CHASE SQUARE
ROCHESTER, NY 14604
MACHINED PRODUCTS CO. 401(K) 9.01%
C/O KATHLEEN SAUL
P.O. BOX 10428
LANCASTER, PA 17605
MURATA ELECTRONICS P/S RETIREMENT 23.59%
C/O MR. HOWARD WHITEHEAD
2200 LAKE PARK DRIVE
SMYRNA, GA 30080
TAX MANAGED SERIES
KAY B. SHARP BYPASS TRUST 13.41%
DAVID P. EVANS, TRUSTEE
2732 SENECA STREET
P.O. BOX 527
WEST SENECA, NY 14224
REUBEN A. SHEARES 12.89%
762 GREENHURST DRIVE
WESTERVILLE, OH 43082
MANNING & NAPIER ADVISORS, INC. 24.06%
1100 CHASE SQUARE
ROCHESTER, NY 14604
WBLK BROADCASTING CORPORATION 17.91%
5571 STRICKER ROAD
CLARENCE, NY 14031
<PAGE>
DEFENSIVE SERIES
NATIONAL FINANCIAL SERVICES CORP. 34.52%
FBO CUSTOMERS
200 LIBERTY STREET
NEW YORK, NY 10281-1003
MANNING & NAPIER ADVISORS, INC. 6.58%
1100 CHASE SQUARE
ROCHESTER, NY 14604
PLUMBERS LOCAL 55 BENEVOLENT FUND 10.89%
C/O JAMES F. SULLIVAN
980 KEYNOTE CIRCLE
BROOKLYN HEIGHTS, OH 44131
PLUMBERS LOCAL 55 S.U.B. FUND 6.90%
C/O JAMES F. SULLIVAN
980 KEYNOTE CIRCLE
BROOKLYN HEIGHTS, OH 44131
MAXIMUM HORIZON SERIES
NATIONAL FINANCIAL SERVICE CORP. 67.27%
FBO CUSTOMERS
200 LIBERTY STREET
NEW YORK, NY 10281-1003
THE ADVISOR
THE ADVISOR, EXETER ASSET MANAGEMENT, WHICH IS A DIVISION OF MANNING &
NAPIER ADVISORS, INC. (ACTS AS THE FUND'S INVESTMENT ADVISOR. MR. WILLIAM
MANNING CONTROLS THE ADVISOR BY VIRTUE OF HIS OWNERSHIP OF THE SECURITIES OF
MNA. 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.
THE FUND PAYS THE ADVISOR FOR THE SERVICES PERFORMED A FEE AT THE ANNUAL
RATE OF: 1.00% OF THE FUND'S DAILY NET ASSETS FOR THE MAXIMUM HORIZON SERIES,
TAX MANAGED SERIES, BLENDED ASSET SERIES I, AND BLENDED ASSET SERIES II; 0.80%
FOR THE DEFENSIVE SERIES; 0.35% FOR THE FLEXIBLE YIELD SERIES I; 0.45% FOR THE
FLEXIBLE YIELD SERIES II; AND 0.50% FOR THE FLEXIBLE YIELD SERIES III. AS
DESCRIBED BELOW, THE ADVISOR IS SEPARATELY COMPENSATED FOR ACTING AS TRANSFER
AGENT FOR THE SERIES.
<PAGE>
UNDER THE INVESTMENT ADVISORY AGREEMENT (THE "AGREEMENT") BETWEEN THE FUND
AND THE ADVISOR, 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.
FOR PERIODS ENDED OCTOBER 31, (UNLESS OTHERWISE INDICATED), THE AGGREGATE
TOTAL OF ADVISORY FEES PAID BY THE SERIES TO THE ADVISOR WERE AS FOLLOWS:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
SERIES
1996 1997 1998
------------- --------- ------------
FEES PAID FEES WAIVED FEES PAID FEES FEES PAID FEES WAIVED
WAIVED
BLENDED
ASSET
SERIES I $ 108,485(1) $ 13,439(1) $ 192,773 $ 8,448 $ 274,475 $ 7,453
------------ ----------- --------- ------- ---------- ------
BLENDED
ASSET
SERIES II $ 222,302(1) $ 3,528(1) $ 422,101 N/A $ 633,708 N/A
------------ ----------- --------- -------- ---------- -------
FLEXIBLE
YIELD
SERIES I N/A $ 1,057(1) N/A $ 2,189 N/A $ 2,058
------------ ---------- --------- -------- -------- -------
FLEXIBLE
YIELD
SERIES II N/A $ 1,688(1) N/A $2,897 N/A $ 2,639
------------ ---------- --------- -------- -------- -------
FLEXIBLE
YIELD
SERIES III N/A $ 4,454(1) N/A $ 6,249 N/A $ 7,221
----------- ---------- -------- ------ -------- --------
TAX
MANAGED
SERIES N/A $ 1,867(2) N/A $ 3,368 N/A $ 7,011
----------- ----------- --------- ------- -------- -------
DEFENSIVE N/A $ 3,940(2) N/A $ 11,283 $ 2,742 $ 27,614
SERIES ------------ ----------- --------- ------- ------ -------
MAXIMUM
HORIZON
SERIES N/A $ 4,377(2) $ 36,471 $ 19,683 $ 137,521 $ 19,276
- ---------------- ------------ ----------- --------- --------- ----------
</TABLE>
(1) FOR THE PERIOD JANUARY 1, 1996 TO OCTOBER 31, 1996.
(2) FOR THE PERIOD NOVEMBER 1, 1995 (COMMENCEMENT OF OPERATIONS) TO
OCTOBER 31, 1996.
<PAGE>
THE AGREEMENT PROVIDES THAT IN THE EVENT THE EXPENSES OF THE FUND
(INCLUDING THE FEE OF THE ADVISOR BUT EXCLUDING: (I)BROKERAGE COMMISSIONS;
(II) INTEREST; (III) TAXES; AND (IV) EXTRAORDINARY EXPENSES EXCEPT FOR THOSE
INCURRED BY THE FUND AS A RESULT OF LITIGATION IN CONNECTION WITH A SUIT
INVOLVING A CLAIM FOR RECOVERY BY THE FUND, OR AS A RESULT OF LITIGATION
INVOLVING A DEFENSE AGAINST A LIABILITY ASSERTED AGAINST THE FUND, PROVIDED
THAT, IF THE ADVISER MADE THE DECISION OR TOOK THE ACTION WHICH RESULTED IN
SUCH CLAIM THE ADVISER ACTED IN GOOD FAITH WITHOUT GROSS NEGLIGENCE OR
MISCONDUCT, AND FOR ANY INDEMNIFICATION PAID BY THE FUND TO ITS OFFICERS,
DIRECTORS AND ADVISERS IN ACCORDANCE WITH APPLICABLE STATE AND FEDERAL LAWS AS
A RESULT OF SUCH LITIGATION) FOR ANY FISCAL YEAR EXCEED THE LIMITS SET BY
APPLICABLE REGULATIONS OF STATE SECURITIES COMMISSIONS, THE ADVISOR WILL
REDUCE ITS FEE BY THE AMOUNT OF SUCH EXCESS. ANY SUCH REDUCTIONS OR REFUNDS
ARE ACCRUED AND PAID IN THE SAME MANNER AS THE ADVISOR'S FEE AND ARE SUBJECT
TO READJUSTMENT DURING THE YEAR.
THE AGREEMENT STATES THAT THE ADVISOR SHALL GIVE THE FUND THE BENEFIT OF ITS
BEST JUDGMENT AND EFFORT IN RENDERING SERVICES THEREUNDER, BUT THE ADVISOR
SHALL NOT BE LIABLE FOR ANY LOSS SUSTAINED BY REASON OF THE PURCHASE, SALE OR
RETENTION OF ANY SECURITY, WHETHER OR NOT SUCH PURCHASE, SALE OR RETENTION
SHALL HAVE BEEN BASED UPON ITS OWN INVESTIGATION AND RESEARCH OR UPON
INVESTIGATION AND RESEARCH MADE BY ANY OTHER INDIVIDUAL, FIRM OR CORPORATION,
IF SUCH PURCHASE, SALE OR RETENTION SHALL HAVE BEEN MADE AND SUCH OTHER
INDIVIDUAL, FIRM OR CORPORATION SHALL HAVE BEEN SELECTED IN GOOD FAITH. THE
AGREEMENT ALSO STATES THAT NOTHING CONTAINED THEREIN SHALL, HOWEVER, BE
CONSTRUED TO PROTECT THE ADVISOR AGAINST ANY LIABILITY TO THE FUND OR ITS
SECURITY HOLDERS BY REASON OF WILLFUL MISFEASANCE, BAD FAITH OR GROSS
NEGLIGENCE IN THE PERFORMANCE OF ITS DUTIES, OR BY REASON OF ITS RECKLESS
DISREGARD OF ITS OBLIGATIONS AND DUTIES UNDER THE AGREEMENT.
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 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 CAPACITY,
FOR THE FISCAL YEARS ENDED OCTOBER 31, 1997 AND 1998, THE ADVISOR RECEIVED
$17,331 AND $27,446 FROM THE FUND.
DISTRIBUTION OF FUND SHARES
MANNING & NAPIER INVESTOR SERVICES, INC. (THE 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 AGREEMENTWHICH 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 (DIRECTORSOR 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 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.
<PAGE>
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 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.
THE DISTRIBUTOR RECEIVES DISTRIBUTION AND/OR SERVICE 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 DISTRIBUTION AND/OR SHAREHOLDER SERVICES IT AGREES TO PROVIDE.
AS COMPENSATION FOR PROVIDING DISTRIBUTION AND SHAREHOLDERS SERVICES FOR
THE CLASS B SHARES, THE DISTRIBUTOR RECEIVES A DISTRIBUTION FEE EQUAL TO 0.75%
OF THE CLASS B SHARES' AVERAGE DAILY NET ASSETS AND A SHAREHOLDER SERVICING
FEE EQUAL TO 0.25% 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 0.75% 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 0.50% 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 0.25% 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 0.25% 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.
CLASS B, C, D AND E SHARES WERE NOT OFFERED PRIOR TO THE END OF THE
SERIESRESPECTIVE FISCAL YEAR ENDS AND THEREFORE THE DISTRIBUTOR RECEIVED NO
COMPENSATION FROM THE SERIES FOR SUCH PERIODS.
<PAGE>
CUSTODIAN AND INDEPENDENT ACCOUNTANT
THE CUSTODIAN FOR THE FUND 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 ONE OR MORE SUB-CUSTODIANS ON BEHALF
OF THE FUND, PROVIDED THAT BOSTON SAFE DEPOSIT AND TRUST COMPANY SHALL
REMAIN LIABLE FOR ALL ITS DUTIES AS CUSTODIAN. THE FOREIGN SUB-CUSTODIANS
WILL ACT AS CUSTODIAN FOR THE FOREIGN SECURITIES HELD BY THE FUND.
DELOITTE & TOUCHE LLP, 125 SUMMER STREET, BOSTON, MA 02110 ARE THE INDEPENDENT
ACCOUNTANTS FOR THE SERIES.
PORTFOLIO TRANSACTIONS AND BROKERAGE
THE AGREEMENT STATES THAT IN CONNECTION WITH ITS DUTIES TO ARRANGE FOR THE
PURCHASE AND THE SALE OF SECURITIES HELD IN THE PORTFOLIO OF THE FUND BY
PLACING PURCHASE AND SALE ORDERS FOR THE FUND, THE ADVISOR SHALL SELECT SUCH
BROKER-DEALERS ("BROKERS") AS SHALL, IN THE ADVISOR'S JUDGMENT, IMPLEMENT THE
POLICY OF THE FUND TO ACHIEVE "BEST EXECUTION", I.E., PROMPT AND EFFICIENT
EXECUTION AT THE MOST FAVORABLE SECURITIES PRICE. IN MAKING SUCH SELECTION,
THE ADVISOR IS AUTHORIZED IN THE AGREEMENT TO CONSIDER THE RELIABILITY,
INTEGRITY AND FINANCIAL CONDITION OF THE BROKER, THE SIZE AND DIFFICULTY IN
EXECUTING THE ORDER AND THE VALUE OF THE EXPECTED CONTRIBUTION OF THE BROKER
TO THE INVESTMENT PERFORMANCE OF THE FUND ON A CONTINUING BASIS. THE ADVISOR
IS ALSO AUTHORIZED TO CONSIDER WHETHER A BROKER PROVIDES BROKERAGE AND/OR
RESEARCH SERVICES TO THE FUND AND/OR OTHER ACCOUNTS OF THE ADVISOR. THE FUND
UNDERSTANDS THAT A SUBSTANTIAL AMOUNT OF ITS PORTFOLIO TRANSACTIONS MAY BE
TRANSACTED WITH PRIMARY MARKET MAKERS ACTING AS PRINCIPAL ON A NET BASIS, WITH
NO BROKERAGE COMMISSIONS BEING PAID BY THE FUND. SUCH PRINCIPAL TRANSACTIONS
MAY, HOWEVER, RESULT IN A PROFIT TO MARKET MAKERS. IN CERTAIN INSTANCES THE
ADVISOR MAY MAKE PURCHASES OF UNDERWRITTEN ISSUES FOR THE FUND AT PRICES WHICH
INCLUDE UNDERWRITING FEES. THE AGREEMENT STATES THAT THE COMMISSIONS PAID TO
SUCH BROKERS MAY BE HIGHER THAN ANOTHER BROKER WOULD HAVE CHARGED IF A GOOD
FAITH DETERMINATION IS MADE BY THE ADVISOR THAT THE COMMISSION IS REASONABLE
IN RELATION TO THE SERVICES PROVIDED, VIEWED IN TERMS OF EITHER THAT
PARTICULAR TRANSACTION OR THE ADVISOR'S OVERALL RESPONSIBILITIES AS TO THE
ACCOUNTS AS TO WHICH IT EXERCISES INVESTMENT DISCRETION AND THAT THE ADVISOR
SHALL USE ITS JUDGMENT IN DETERMINING THAT THE AMOUNT OF COMMISSIONS PAID ARE
REASONABLE IN RELATION TO THE VALUE OF BROKERAGE AND RESEARCH SERVICES
PROVIDED. THE ADVISOR IS FURTHER AUTHORIZED TO ALLOCATE THE ORDERS PLACED BY
IT ON BEHALF OF THE FUND TO SUCH BROKERS OR DEALERS WHO ALSO PROVIDE RESEARCH
OR STATISTICAL MATERIAL, OR OTHER SERVICES, TO THE FUND, THE ADVISOR, OR ANY
AFFILIATE OF EITHER. SUCH ALLOCATION SHALL BE IN SUCH AMOUNTS AND PROPORTIONS
AS THE ADVISOR SHALL DETERMINE, AND THE ADVISOR SHALL REPORT ON SUCH
ALLOCATIONS REGULARLY TO THE FUND, INDICATING THE BROKER-DEALERS TO WHOM SUCH
ALLOCATIONS HAVE BEEN MADE AND THE BASIS THEREFORE.
THE RESEARCH SERVICES DISCUSSED ABOVE MAY BE IN WRITTEN FORM OR THROUGH DIRECT
CONTACT WITH INDIVIDUALS AND MAY INCLUDE INFORMATION AS TO PARTICULAR
COMPANIES AND SECURITIES AS WELL AS MARKET ECONOMIC OR INSTITUTIONAL AREAS AND
INFORMATION ASSISTING THE FUND IN THE VALUATION OF ITS INVESTMENTS. THE
RESEARCH WHICH THE ADVISOR RECEIVES FOR THE FUND'S BROKERAGE COMMISSIONS,
WHETHER OR NOT USEFUL TO THE FUND MAY BE USEFUL TO THE ADVISOR IN MANAGING THE
ACCOUNTS OF THE ADVISOR'S OTHER ADVISORY CLIENTS. SIMILARLY, THE RESEARCH
RECEIVED FOR THE COMMISSIONS OF SUCH ACCOUNTS MAY BE USEFUL TO THE FUND.
FOR YEARS ENDED OCTOBER 31, (UNLESS OTHERWISE INDICATED), THE AGGREGATE
TOTAL BROKERAGE COMMISSIONS PAID BY THE SERIES WERE AS FOLLOWS:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SERIES 1996 1997 1998
BLENDED ASSET SERIES I $ 13,656(1) $14,935 $36,215
- ------------------------- ------------- ------- -------
$48,030 $92,719
BLENDED ASSET SERIES II $ 36,256(1)
-------------
FLEXIBLE YIELD SERIES I $ 0 $ 0 $ 0
------------- ------- -------
FLEXIBLE YIELD SERIES II $ 0 $ 0 $ 0
------------- ------- -------
FLEXIBLE YIELD SERIES III $ 0 $ 0 $ 0
------------- ------- -------
TAX MANAGED $ 837(2) $ 883 $ 2,673
------------- ------- -------
DEFENSIVE $ 335(2) $ 570 $ 2,118
------------- ------- -------
MAXIMUM HORIZON $ 2,753(2) $20,570 $43,998
------------- ------- -------
</TABLE>
(1) FOR THE PERIOD JANUARY 1, 1996 TO OCTOBER 31, 1996.
(2) FOR THE PERIOD NOVEMBER 1, 1995 (COMMENCEMENT OF OPERATIONS) TO
OCTOBER 31, 1996.
THERE WERE NO BROKERAGE COMMISSIONS PAID TO AFFILIATES DURING THE LAST THREE
FISCAL YEARS.
NET ASSET VALUE
THE NET ASSET VALUE IS DETERMINED ON EACH DAY THAT THE NEW YORK STOCK
EXCHANGE IS OPEN FOR TRADING. IN DETERMINING THE NET ASSET VALUE OF THE
FUND'S SHARES, COMMON STOCKS THAT ARE LISTED ON NATIONAL SECURITIES EXCHANGES
OR THE NASDAQ NATIONAL MARKET SYSTEM ARE VALUED AT THE LAST SALE PRICE ON THE
EXCHANGE ON WHICH EACH STOCK IS PRINCIPALLY TRADED AS OF THE CLOSE OF THE NEW
YORK STOCK EXCHANGE (GENERALLY 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.
<PAGE>
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. 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.
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
THE TIME THAT THE FUND CALCULATES NET ASSET VALUES (NORMALLY, 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.
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.
<PAGE>
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 EXETER 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 MUST HAVE
RECEIVED, AND SHOULD READ CAREFULLY, THE PROSPECTUS OF THE OTHER SERIES AND
CONSIDER THE DIFFERENCES IN GOALS 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 IS ENDORSED BY THE RECORD OWNER(S) EXACTLY AS
THE SHARES ARE REGISTERED AND THE SIGNATURE(S) ARE 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 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. 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.
<PAGE>
PAYMENT FOR SHARES REDEEMED. PAYMENT FOR SHARES PRESENTED FOR REDEMPTION MAY
BE DELAYED MORE THAN THREE DAYS ONLY FOR (1) ANY PERIOD (A) DURING WHICH THE
NEW YORK STOCK EXCHANGE IS CLOSED OTHER THAN CUSTOMARY WEEK-END AND HOLIDAY
CLOSINGS OR (B) DURING WHICH TRADING ON THE NEW YORK STOCK EXCHANGE IS
RESTRICTED; (2) FOR ANY PERIOD DURING WHICH AN EMERGENCY EXISTS AS A RESULT OF
WHICH (A) DISPOSAL BY THE FUND OF SECURITIES OWNED BY IT IS NOT REASONABLY
PRACTICABLE OR (B) IT IS NOT REASONABLY PRACTICABLE FOR THE FUND TO DETERMINE
THE VALUE OF ITS NET ASSETS; OR (3) FOR SUCH OTHER PERIODS AS THE SECURITIES
AND EXCHANGE COMMISSION MAY BY ORDER PERMIT.
OTHER INFORMATION ABOUT PURCHASES AND REDEMPTIONS. THE FUND HAS AUTHORIZED
SEVERAL BROKERS TO ACCEPT PURCHASE AND REDEMPTION ORDERS ON ITS BEHALF, AND
THESE BROKERS ARE AUTHORIZED TO DESIGNATE OTHER INTERMEDIARIES TO ACCEPT
PURCHASE AND REDEMPTION ORDERS ON THE FUND'S BEHALF. THE FUND WILL BE DEEMED
TO HAVE RECEIVED A PURCHASE OR REDEMPTION ORDER WHEN AN AUTHORIZED BROKER OR
ITS AUTHORIZED DESIGNEE ACCEPTS THE ORDER, AND ORDERS PLACED WITH AN
AUTHORIZED BROKER WILL BE PROCESSED AT THE SHARE PRICE OF THE APPROPRIATE
SERIES NEXT COMPUTED AFTER THEY ARE ACCEPTED BY THE AUTHORIZED BROKER OR ITS
DESIGNEE.
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.
<PAGE>
FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
THE FOLLOWING IS ONLY A SUMMARY OF CERTAIN TAX CONSIDERATIONS GENERALLY
AFFECTING A SERIES AND ITS SHAREHOLDERS, AND IS NOT INTENDED AS A SUBSTITUTE
FOR CAREFUL TAX PLANNING. SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX
ADVISERS WITH SPECIFIC REFERENCE TO THEIR OWN TAX SITUATIONS, INCLUDING THEIR
STATE AND LOCAL TAX LIABILITIES.
THE FOLLOWING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS
BASED ON THE CODE, AND THE REGULATIONS ISSUED THEREUNDER AS IN EFFECT ON THE
DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION. NEW LEGISLATION, CERTAIN
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.
IT IS THE POLICY OF EACH OF THE SERIES TO QUALIFY FOR THE FAVORABLE TAX
TREATMENT ACCORDED REGULATED INVESTMENT COMPANIES UNDER SUBCHAPTER M OF THE
CODE. BY FOLLOWING SUCH POLICY, EACH OF THE SERIES EXPECTS TO BE RELIEVED OF
FEDERAL INCOME TAX ON INVESTMENT COMPANY TAXABLE INCOME AND NET
CAPITAL GAIN (THE EXCESS OF NET LONG-TERM CAPITAL GAIN OVER NET SHORT-TERM
CAPITAL LOSS) DISTRIBUTED TO SHAREHOLDERS.
IN ORDER TO QUALIFY AS A REGULATED INVESTMENT COMPANY EACH SERIES MUST,
AMONG OTHER THINGS, (1) DERIVE AT LEAST 90% OF ITS GROSS INCOME EACH TAXABLE
YEAR FROM DIVIDENDS, INTEREST, PAYMENTS WITH RESPECT TO SECURITIES LOANS,
GAINS FROM THE SALE OR OTHER DISPOSITION OF STOCK, SECURITIES OR FOREIGN
CURRENCIES, OR OTHER INCOME (INCLUDING GAINS FROM OPTIONS, FUTURES OR FORWARD
CONTRACTS) DERIVED WITH RESPECT TO ITS BUSINESS OF INVESTING IN STOCK,
SECURITIES OR CURRENCIES; AND (2) DIVERSIFY ITS HOLDINGS SO THAT AT THE END OF
EACH QUARTER OF EACH TAXABLE YEAR (I) AT LEAST 50% OF THE MARKET VALUE OF THE
SERIESTOTAL ASSETS IS REPRESENTED BY CASH OR CASH ITEMS, U.S. GOVERNMENT
SECURITIES, SECURITIES OF OTHER REGULATED INVESTMENT COMPANIES, AND OTHER
SECURITIES LIMITED, IN RESPECT OF ANY ONE ISSUER, TO A VALUE NOT GREATER THAN
5% OF THE VALUE OF THE SERIESTOTAL ASSETS AND 10% OF THE OUTSTANDING VOTING
SECURITIES OF SUCH ISSUER, AND (II) NOT MORE THAN 25% OF THE VALUE OF ITS
ASSETS IS INVESTED IN THE SECURITIES OF ANY ONE ISSUER (OTHER THAN U.S.
GOVERNMENT SECURITIES OR SECURITIES OF ANY OTHER REGULATED INVESTMENT COMPANY)
OR OF TWO OR MORE ISSUERS THAT THE SERIES CONTROLS AND THAT ARE ENGAGED IN THE
SAME, SIMILAR, OR RELATED TRADES OR BUSINESSES. THESE REQUIREMENTS MAY
RESTRICT THE DEGREE TO WHICH THE SERIES MAY ENGAGE IN CERTAIN HEDGING
TRANSACTIONS AND MAY LIMIT THE RANGE OF THE SERIESINVESTMENTS. IF A SERIES
QUALIFIES AS A REGULATED INVESTMENT COMPANY, IT WILL NOT BE SUBJECT TO FEDERAL
INCOME TAX ON THE PART OF ITS NET INVESTMENT INCOME AND NET REALIZED CAPITAL
GAINS, IF ANY, WHICH IT DISTRIBUTES EACH YEAR TO THE SHAREHOLDERS, PROVIDED
THE SERIES DISTRIBUTES AT LEAST (A) 90% OF ITS COMPANY TAXABLE
INCOME(GENERALLY, NET INVESTMENT INCOME PLUS THE EXCESS, IF ANY, OF NET
SHORT-TERM CAPITAL GAIN OVER NET LONG-TERM CAPITAL LOSS) AND (B) 90% OF ITS
NET EXEMPT INTEREST INCOME (THE EXCESS OF (I) ITS TAX-EXEMPT INTEREST INCOME
OVER (II) CERTAIN DEDUCTIONS ATTRIBUTABLE TO THAT INCOME).
IF FOR ANY TAXABLE YEAR, A SERIES DOES NOT QUALIFY AS A REGULATED
INVESTMENT COMPANY UNDER SUB-CHAPTER M OF THE CODE, ALL OF ITS TAXABLE INCOME
WILL BE SUBJECT TO TAX AT REGULAR CORPORATE TAX RATES WITHOUT ANY DEDUCTION
FOR DISTRIBUTIONS TO SHAREHOLDERS AND ALL SUCH DISTRIBUTIONS WILL BE TAXABLE
TO SHAREHOLDERS AS ORDINARY DIVIDENDS TO THE EXTENT OF THE SERIESCURRENT OR
ACCUMULATED EARNINGS AND PROFITS. SUCH DISTRIBUTIONS WILL GENERALLY QUALIFY
FOR THE CORPORATE DIVIDENDS RECEIVED DEDUCTION FOR CORPORATE SHAREHOLDERS.
IF A SERIES FAILS TO DISTRIBUTE IN A CALENDAR YEAR AT LEAST 98% OF ITS
ORDINARY INCOME FOR THE YEAR AND 98% OF ITS CAPITAL GAIN NET INCOME (THE
EXCESS OF SHORT AND LONG TERM CAPITAL GAINS OVER SHORT AND LONG TERM CAPITAL
LOSSES) FOR THE ONE-YEAR PERIOD ENDING OCTOBER 31 OF THAT YEAR (AND ANY
RETAINED AMOUNT FROM THE PRIOR YEAR), THE SERIES WILL BE SUBJECT TO A
NONDEDUCTIBLE 4% FEDERAL EXCISE TAX ON THE UNDISTRIBUTED AMOUNTS. THE SERIES
GENERALLY INTEND TO MAKE SUFFICIENT DISTRIBUTIONS TO AVOID IMPOSITION OF THIS
TAX, EXCEPT THAT, AS DESCRIBED ABOVE, THE TAX MANAGED SERIES MAY CHOOSE TO
INCUR SUCH TAX IF IT ANTICIPATES THAT RETAINING INCOME WILL ENHANCE ITS
SHAREHOLDERS' AFTER-TAX TOTAL RETURNS.
<PAGE>
DISTRIBUTIONS DECLARED IN OCTOBER, NOVEMBER, OR DECEMBER TO SHAREHOLDERS OF
RECORD DURING THOSE MONTHS AND PAID DURING THE FOLLOWING JANUARY ARE TREATED
AS IF THEY WERE RECEIVED BY EACH SHAREHOLDER ON DECEMBER 31 OF THE YEAR IN
WHICH THEY ARE DECLARED FOR TAX PURPOSES.
ANY GAIN OR LOSS RECOGNIZED ON A SALE, EXCHANGE OR REDEMPTION OF SHARES OF
A SERIES BY A SHAREHOLDER WHO IS NOT A DEALER IN SECURITIES WILL GENERALLY,
FOR INDIVIDUAL SHAREHOLDERS, BE TREATED AS A LONG-TERM CAPITAL GAIN OR LOSS IF
THE SHARES HAVE BEEN HELD FOR MORE THAN ONE YEAR AND OTHERWISE GENERALLY WILL
BE TREATED AS SHORT-TERM CAPITAL GAIN OR LOSS. HOWEVER, IF SHARES ON WHICH A
SHAREHOLDER HAS RECEIVED A NET CAPITAL GAIN DISTRIBUTION ARE SUBSEQUENTLY
SOLD, EXCHANGED OR REDEEMED AND SUCH SHARES HAVE BEEN HELD FOR SIX MONTHS OR
LESS, ANY LOSS RECOGNIZED WILL BE TREATED AS LONG-TERM CAPITAL LOSS TO THE
EXTENT OF THE NET CAPITAL GAIN DISTRIBUTION. LONG-TERM CAPITAL GAINS
GENERALLY ARE CURRENTLY TAXED AT A MAXIMUM RATE OF 20%, AND SHORT-TERM CAPITAL
GAINS ARE CURRENTLY TAXED AT ORDINARY INCOME TAX RATES.
IN CERTAIN CASES, A SERIES WILL BE REQUIRED TO WITHHOLD AND REMIT TO THE
U.S. TREASURY 31% OF ANY TAXABLE DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND
REDEMPTION PROCEEDS PAID TO A SHAREHOLDER (1) WHO HAS FAILED TO PROVIDE A
CORRECT AND PROPERLY CERTIFIED AXPAYER IDENTIFICATION NUMBER, (2) WHO IS
SUBJECT TO BACKUP WITHHOLDING BY THE INTERNAL REVENUE SERVICE, OR (3) WHO HAS
NOT CERTIFIED TO THE FUND THAT SUCH SHAREHOLDER IS NOT SUBJECT TO BACKUP
WITHHOLDING. THIS BACKUP WITHHOLDING IS NOT AN ADDITIONAL TAX, AND ANY
AMOUNTS WITHHELD MAY BE CREDITED AGAINST THE SHAREHOLDERU.S. FEDERAL INCOME
TAX LIABILITY.
DIVIDENDS PAID TO NONRESIDENT ALIEN INDIVIDUALS AND FOREIGN ENTITIES ARE
POTENTIALLY SUBJECT TO DIFFERENT TAX TREATMENT, INCLUDING A POSSIBLE U.S.
FEDERAL INCOME TAX, REQUIRED TO BE WITHHELD BY THE APPLICABLE SERIES, AT A 30%
RATE (OR A LOWER RATE PROVIDED BY AN APPLICABLE INCOME TAX TREATY).
CERTIFICATION OF FOREIGN STATUS BY SUCH SHAREHOLDERS ALSO WILL GENERALLY BE
REQUIRED TO AVOID BACKUP WITHHOLDING ON CAPITAL GAIN DISTRIBUTIONS AND
REDEMPTION PROCEEDS.
A SERIES TRANSACTIONS IN CERTAIN FUTURES CONTRACTS, OPTIONS, FORWARD
CONTRACTS, FOREIGN CURRENCIES, FOREIGN DEBT SECURITIES, FOREIGN ENTITIES
TREATED AS INVESTMENT COMPANIES AND CERTAIN OTHER INVESTMENT AND HEDGING
ACTIVITIES WILL BE SUBJECT TO SPECIAL TAX RULES. IN A GIVEN CASE, THESE RULES
MAY ACCELERATE INCOME TO THE SERIES, DEFER LOSSES TO THE SERIES, CAUSE
ADJUSTMENTS IN THE HOLDING PERIODS OF THE SERIESASSETS, CONVERT SHORT-TERM
CAPITAL LOSSES INTO LONG-TERM CAPITAL LOSSES, OR OTHERWISE AFFECT THE
CHARACTER OF THE SERIESINCOME. THESE RULES COULD THEREFORE AFFECT THE AMOUNT,
TIMING, AND CHARACTER OF DISTRIBUTIONS TO SHAREHOLDERS. EACH SERIES WILL
ENDEAVOR TO MAKE ANY AVAILABLE ELECTIONS PERTAINING TO SUCH TRANSACTIONS IN A
MANNER BELIEVED TO BE IN THE BEST INTEREST OF THE SERIES.
<PAGE>
SHAREHOLDERS WILL BE ADVISED ANNUALLY AS TO THE FEDERAL INCOME TAX
CONSEQUENCES OF DISTRIBUTIONS MADE DURING THE YEAR. CERTAIN DISTRIBUTIONS
MAY QUALIFY FOR A DIVIDENDS RECEIVED DEDUCTION FOR CORPORATE SHAREHOLDERS,
SUBJECT TO HOLDING PERIOD REQUIREMENTS AND OTHER LIMITATIONS UNDER THE CODE,
IF THEY ARE ATTRIBUTABLE TO THE QUALIFYING DIVIDEND INCOME A SERIES RECEIVES
FROM A DOMESTIC CORPORATION AND ARE PROPERLY DESIGNATED BY THAT SERIES.
HOWEVER, INFORMATION SET FORTH IN THE PROSPECTUSES AND THIS STATEMENT OF
ADDITIONAL INFORMATION WHICH RELATES TO TAXATION IS ONLY A SUMMARY OF SOME OF
THE IMPORTANT TAX CONSIDERATIONS GENERALLY AFFECTING PURCHASERS OF SHARES OF
THE FUNDSERIES. NO ATTEMPT HAS BEEN MADE TO PRESENT A DETAILED EXPLANATION OF
THE TAX TREATMENT OF THE FUND OR ITS SHAREHOLDERS, AND THIS DISCUSSION IS NOT
INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING. ACCORDINGLY, POTENTIAL
PURCHASERS OF SHARES OF A SERIES ARE URGED TO CONSULT THEIR TAX ADVISORS WITH
SPECIFIC REFERENCE TO THEIR OWN TAX SITUATION.
DISTRIBUTIONS BY THE FUND TO SHAREHOLDERS AND THE OWNERSHIP OF SHARES MAY BE
SUBJECT TO STATE AND LOCAL TAXES. THEREFORE, SHAREHOLDERS ARE URGED TO
CONSULT WITH THEIR TAX ADVISORS CONCERNING THE APPLICATION OF STATE AND LOCAL
TAXES TO INVESTMENTS IN THE FUND, WHICH MAY DIFFER FROM THE FEDERAL INCOME TAX
CONSEQUENCES. FOR EXAMPLE, UNDER CERTAIN SPECIFIED CIRCUMSTANCES, STATE
INCOME TAX LAWS MAY EXEMPT FROM TAXATION DISTRIBUTIONS OF A REGULATED
INVESTMENT COMPANY TO THE EXTENT THAT SUCH DISTRIBUTIONS ARE DERIVED FROM
INTEREST ON FEDERAL OBLIGATIONS. SHAREHOLDERS ARE URGED TO CONSULT WITH THEIR
TAX ADVISORS REGARDING WHETHER, AND UNDER WHAT CONDITIONS, SUCH EXEMPTION IS
AVAILABLE.
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.
FINANCIAL STATEMENTS FINANCIAL STATEMENTS
THE FINANCIAL STATEMENTS OF THE FUND ARE INCORPORATED BY REFERENCE INTO
THIS STATEMENT OF ADDITIONAL INFORMATION. THE FINANCIAL STATEMENTS WITH
RESPECT TO THE SERIES HAVE BEEN AUDITED BY DELOITTE & TOUCHE LLP, INDEPENDENT
PUBLIC ACCOUNTANTS TO SUCH SERIES. THE FUNDANNUAL REPORT(S) ARE INCORPORATED
HEREIN BY REFERENCE IN RELIANCE UPON THEIR AUTHORITY AS EXPERTS IN ACCOUNTING
AND AUDITING. A COPY OF THE 1998 ANNUAL REPORT(S) TO SHAREHOLDERS MUST
ACCOMPANY THE DELIVERY OF THIS STATEMENT OF ADDITIONAL OF INFORMATION.
<PAGE>
APPENDIX - DESCRIPTION OF BOND RATINGS
MOODYINVESTORS SERVICE, INC. (SHORT-TERM PRIME RATING SYSTEM - TAXABLE DEBT
AND DEPOSITS GLOBALLY
MOODYSHORT-TERM DEBT RATINGS ARE OPINIONS OF THE ABILITY OF ISSUERS TO
REPAY PUNCTUALLY SENIOR DEBT OBLIGATIONS. THESE OBLIGATIONS HAVE AN ORIGINAL
MATURITY NOT EXCEEDING ONE YEAR, UNLESS EXPLICITLY NOTED.
MOODYEMPLOYS THE FOLLOWING THREE DESIGNATIONS, ALL JUDGED TO BE INVESTMENT
GRADE, TO INDICATE THE RELATIVE REPAYMENT ABILITY OF RATED ISSUERS:
PRIME-1: ISSUERS RATED PRIME-1 (OR SUPPORTING INSTITUTIONS) HAVE A SUPERIOR
ABILITY FOR REPAYMENT OF SENIOR SHORT-TERM DEBT OBLIGATIONS. PRIME-1 REPAYMENT
ABILITY WILL OFTEN BE EVIDENCED BY MANY OF THE FOLLOWING CHARACTERISTICS:
LEADING MARKET POSITIONS IN WELL-ESTABLISHED INDUSTRIES.
HIGH RATES OF RETURN ON FUNDS EMPLOYED.
CONSERVATIVE CAPITALIZATION STRUCTURE WITH MODERATE RELIANCE ON DEBT AND AMPLE
ASSET PROTECTION.
BROAD MARGINS IN EARNINGS COVERAGE OF FIXED FINANCIAL CHARGES AND HIGH
INTERNAL CASH GENERATION.
WELL-ESTABLISHED ACCESS TO A RANGE OF FINANCIAL MARKETS AND ASSURED SOURCES OF
ALTERNATE LIQUIDITY.
PRIME-2: ISSUERS RATED PRIME-2 (OR SUPPORTING INSTITUTIONS) HAVE A STRONG
ABILITY FOR REPAYMENT OF SENIOR SHORT-TERM DEBT OBLIGATIONS. THIS WILL
NORMALLY BE EVIDENCED BY MANY OF THE CHARACTERISTICS CITED ABOVE BUT TO A
LESSER DEGREE. EARNINGS TRENDS AND COVERAGE RATIOS, WHILE SOUND, MAY BE MORE
SUBJECT TO VARIATION. CAPITALIZATION CHARACTERISTICS, WHILE STILL APPROPRIATE,
MAY BE MORE AFFECTED BY EXTERNAL CONDITIONS. AMPLE ALTERNATE LIQUIDITY IS
MAINTAINED.
PRIME-3: ISSUERS RATED PRIME-3 (OR SUPPORTING INSTITUTIONS) HAVE AN
ACCEPTABLE ABILITY FOR REPAYMENT OF SENIOR SHORT-TERM OBLIGATIONS. THE EFFECT
OF INDUSTRY CHARACTERISTICS AND MARKET COMPOSITIONS MAY BE MORE PRONOUNCED.
VARIABILITY IN EARNINGS AND PROFITABILITY MAY RESULT IN CHANGES IN THE LEVEL
OF DEBT PROTECTION MEASUREMENTS AND MAY REQUIRE RELATIVELY HIGH FINANCIAL
LEVERAGE. ADEQUATE ALTERNATE LIQUIDITY IS MAINTAINED.
NOT PRIME: ISSUERS RATED NOT PRIME DO NOT FALL WITHIN ANY OF THE PRIME
RATING CATEGORIES.
<PAGE>
OBLIGATIONS OF A BRANCH OF A BANK ARE CONSIDERED TO BE DOMICILED IN THE
COUNTRY IN WHICH THE BRANCH IS LOCATED. UNLESS NOTED AS AN EXCEPTION,
MOODYRATING ON A BANKABILITY TO REPAY SENIOR OBLIGATIONS EXTENDS ONLY TO
BRANCHES LOCATED IN COUNTRIES WHICH CARRY A MOODYSOVEREIGN RATING FOR BANK
DEPOSITS. SUCH BRANCH OBLIGATIONS ARE RATED AT THE LOWER OF THE BANKRATING OR
MOODYSOVEREIGN RATING FOR BANK DEPOSITS FOR THE COUNTRY IN WHICH THE BRANCH IS
LOCATED.
WHEN THE CURRENCY IN WHICH AN OBLIGATION IS DENOMINATED IS NOT THE SAME AS
THE CURRENCY OF THE COUNTRY IN WHICH THE OBLIGATION IS DOMICILED, MOODYRATINGS
DO NOT INCORPORATE AN OPINION AS TO WHETHER PAYMENT OF THE OBLIGATION WILL BE
AFFECTED BY ACTIONS OF THE GOVERNMENT CONTROLLING THE CURRENCY OF
DENOMINATION. IN ADDITION, RISKS ASSOCIATED WITH BILATERAL CONFLICTS BETWEEN
AN INVESTORHOME COUNTRY AND EITHER THE ISSUERHOME COUNTRY OR THE COUNTRY WHERE
AN ISSUERBRANCH IS LOCATED ARE NOT INCORPORATED INTO MOODYSHORT-TERM DEBT
RATINGS.
IF AN ISSUER REPRESENTS TO MOODYTHAT ITS SHORT-TERM DEBT OBLIGATIONS ARE
SUPPORTED BY THE CREDIT OF ANOTHER ENTITY OR ENTITIES, THEN THE NAME OR NAMES
OF SUCH SUPPORTING ENTITY OR ENTITIES ARE LISTED WITHIN THE PARENTHESIS
BENEATH THE NAME OF THE ISSUER, OR THERE IS A FOOTNOTE REFERRING THE READER TO
ANOTHER PAGE FOR THE NAME OR NAMES OF THE SUPPORTING ENTITY OR ENTITIES. IN
ASSIGNING RATINGS TO SUCH ISSUERS, MOODYEVALUATES THE FINANCIAL STRENGTH OF
THE AFFILIATED CORPORATIONS, COMMERCIAL BANKS, INSURANCE COMPANIES, FOREIGN
GOVERNMENTS OR OTHER ENTITIES, BUT ONLY AS ONE FACTOR IN THE TOTAL RATING
ASSESSMENT.
THE RATINGS INDICATED HEREIN ARE BELIEVED TO BE THE MOST RECENT RATINGS
AVAILABLE AT THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION FOR THE
SECURITIES LISTED. RATINGS ARE GENERALLY GIVEN TO SECURITIES AT THE TIME OF
ISSUANCE. WHILE THE RATING AGENCIES MAY FROM TIME TO TIME REVISE SUCH
RATINGS, THEY UNDERTAKE NO OBLIGATION TO DO SO, AND THE RATINGS INDICATED DO
NOT NECESSARILY REPRESENT RATINGS WHICH WILL BE GIVEN TO THESE SECURITIES ON
THE DATE OF THE FUNDFISCAL YEAR-END.
<PAGE>
MOODYCORPORATE BOND RATINGS
AAA: BONDS WHICH ARE RATED AAA ARE JUDGED TO BE OF THE BEST QUALITY. THEY
CARRY THE SMALLEST DEGREE OF INVESTMENT RISK AND ARE GENERALLY REFERRED TO AS
EDGE.INTEREST PAYMENTS ARE PROTECTED BY A LARGE OR BY AN EXCEPTIONALLY STABLE
MARGIN AND PRINCIPAL IS SECURE. WHILE THE VARIOUS PROTECTIVE ELEMENTS ARE
LIKELY TO CHANGE, SUCH CHANGES AS CAN BE VISUALIZED ARE MOST UNLIKELY TO
IMPAIR THE FUNDAMENTALLY STRONG POSITION OF SUCH ISSUES.
AA: BONDS WHICH ARE RATED AA ARE JUDGED TO BE OF HIGH QUALITY BY ALL
STANDARDS. TOGETHER WITH THE AAA GROUP THEY COMPRISE WHAT ARE GENERALLY KNOWN
AS HIGH GRADE BONDS. THEY ARE RATED LOWER THAN THE BEST BONDS BECAUSE MARGINS
OF PROTECTION MAY NOT BE AS LARGE AS IN AAA SECURITIES OR FLUCTUATION OF
PROTECTIVE ELEMENTS MAY BE OF GREATER AMPLITUDE OR THERE MAY BE OTHER ELEMENTS
PRESENT WHICH MAKE THE LONG TERM RISKS APPEAR SOMEWHAT LARGER THAN IN AAA
SECURITIES.
A: BONDS WHICH ARE RATED A POSSESS MANY FAVORABLE INVESTMENT ATTRIBUTES AND
ARE TO BE CONSIDERED AS UPPER-MEDIUM-GRADE OBLIGATIONS. FACTORS GIVING
SECURITY TO PRINCIPAL AND INTEREST ARE CONSIDERED ADEQUATE, BUT ELEMENTS MAY
BE PRESENT WHICH SUGGEST A SUSCEPTIBILITY TO IMPAIRMENT SOMETIME IN THE
FUTURE.
BAA: BONDS WHICH ARE RATED BAA ARE CONSIDERED AS MEDIUM-GRADE OBLIGATIONS
(I.E., THEY ARE NEITHER HIGHLY PROTECTED NOR POORLY SECURED). INTEREST
PAYMENTS AND PRINCIPAL SECURITY APPEAR ADEQUATE FOR THE PRESENT BUT CERTAIN
PROTECTIVE ELEMENTS MAY BE LACKING OR MAY BE CHARACTERISTICALLY UNRELIABLE
OVER ANY GREAT LENGTH OF TIME. SUCH BONDS LACK OUTSTANDING INVESTMENT
CHARACTERISTICS AND IN FACT HAVE SPECULATIVE CHARACTERISTICS AS WELL.
BA: BONDS WHICH ARE RATED BA ARE JUDGED TO HAVE SPECULATIVE ELEMENTS; THEIR
FUTURE CANNOT BE CONSIDERED AS WELL ASSURED. OFTEN THE PROTECTION OF INTEREST
AND PRINCIPAL PAYMENTS MAY BE VERY MODERATE AND THEREBY NOT WELL SAFEGUARDED
DURING BOTH GOOD AND BAD TIMES OVER THE FUTURE. UNCERTAINTY OF POSITION
CHARACTERIZES BONDS IN THIS CLASS.
B: BONDS WHICH ARE RATED B GENERALLY LACK CHARACTERISTICS OF THE DESIRABLE
INVESTMENT. ASSURANCE OF INTEREST AND PRINCIPAL PAYMENTS OR OF MAINTENANCE OF
OTHER TERMS OF THE CONTRACT OVER ANY LONG PERIOD OF TIME MAY BE SMALL.
CAA: BONDS WHICH ARE RATED CAA ARE OF POOR STANDING. SUCH ISSUES MAY BE IN
DEFAULT OR THERE MAY BE PRESENT ELEMENTS OF DANGER WITH RESPECT TO PRINCIPAL
OR INTEREST.
CA: BONDS WHICH ARE RATED CA REPRESENT OBLIGATIONS WHICH ARE SPECULATIVE IN
A HIGH DEGREE. SUCH ISSUES ARE OFTEN IN DEFAULT OR HAVE OTHER MARKED
SHORTCOMINGS.
<PAGE>
C: BONDS WHICH ARE RATED C ARE THE LOWEST RATED CLASS OF BONDS, AND ISSUES
SO RATED CAN BE REGARDED AS HAVING EXTREMELY POOR PROSPECTS OF EVER ATTAINING
ANY REAL INVESTMENT STANDING.
NOTE: MOODYAPPLIES NUMERICAL MODIFIERS 1, 2 AND 3 IN EACH GENERIC RATING
CLASSIFICATION FROM AA THROUGH CAA. THE MODIFIER 1 INDICATED THAT THE
OBLIGATION RANKS IN THE HIGHER END OF ITS GENERIC RATING CATEGORY; THE
MODIFIER 2 INDICATED A MID-RANGE RANKING; AND THE MODIFIER 3 INDICATES A
RANKING IN THE LOWER END OF THAT GENERIC RATING CATEGORY.
STANDARD & POORSHORT-TERM ISSUE CREDIT RATINGS
A-1: A SHORT-TERM OBLIGATION RATED A-1 IS RATED IN THE HIGHEST CATEGORY BY
STANDARD & POORTHE OBLIGORCAPACITY TO MEET ITS FINANCIAL COMMITMENT ON THE
OBLIGATION IS STRONG. WITHIN THIS CATEGORY, CERTAIN OBLIGATIONS ARE DESIGNATED
WITH A PLUS SIGN (+). THIS INDICATES THAT THE OBLIGORCAPACITY TO MEET ITS
FINANCIAL COMMITMENT ON THESE OBLIGATIONS IS EXTREMELY STRONG.
A-2: A SHORT-TERM OBLIGATION RATED A-2 IS SOMEWHAT MORE SUSCEPTIBLE TO THE
ADVERSE EFFECTS OF CHANGES IN CIRCUMSTANCES AND ECONOMIC CONDITIONS THAN
OBLIGATIONS IN HIGHER RATING CATEGORIES. HOWEVER, THE OBLIGORCAPACITY TO MEET
ITS FINANCIAL COMMITMENT ON THE OBLIGATION IS SATISFACTORY.
A-3: A SHORT-TERM OBLIGATION RATED A-3 EXHIBITS ADEQUATE PROTECTION
PARAMETERS. HOWEVER, ADVERSE ECONOMIC CONDITIONS OR CHANGING CIRCUMSTANCES ARE
MORE LIKELY TO LEAD TO A WEAKENED CAPACITY OF THE OBLIGOR TO MEET ITS
FINANCIAL COMMITMENT ON THE OBLIGATION.
B: A SHORT-TERM OBLIGATION RATED B IS REGARDED AS HAVING SIGNIFICANT
SPECULATIVE CHARACTERISTICS. THE OBLIGOR CURRENTLY HAS THE CAPACITY TO MEET
ITS FINANCIAL COMMITMENT ON THE OBLIGATION; HOWEVER, IT FACES MAJOR ONGOING
UNCERTAINTIES WHICH COULD LEAD TO THE OBLIGORINADEQUATE CAPACITY TO MEET ITS
FINANCIAL COMMITMENT ON THE OBLIGATION.
C: A SHORT-TERM OBLIGATION RATED C IS CURRENTLY VULNERABLE TO NONPAYMENT
AND IS DEPENDENT UPON FAVORABLE BUSINESS, FINANCIAL, AND ECONOMIC CONDITIONS
FOR THE OBLIGOR TO MEET ITS FINANCIAL COMMITMENT ON THE OBLIGATION.
D: A SHORT-TERM OBLIGATION RATED D IS IN PAYMENT DEFAULT. THE D RATING
CATEGORY IS USED WHEN PAYMENTS ON AN OBLIGATION ARE NOT MADE ON THE DATE DUE
EVEN IF THE APPLICABLE GRACE PERIOD HAS NOT EXPIRED, UNLESS STANDARD &
POORBELIEVES THAT SUCH PAYMENTS WILL BE MADE DURING SUCH GRACE PERIOD. THE D
RATING ALSO WILL BE USED UPON THE FILING OF A BANKRUPTCY PETITION OR THE
TAKING OF A SIMILAR ACTION IF PAYMENTS ON AN OBLIGATION ARE JEOPARDIZED.
<PAGE>
STANDARD & POORCORPORATE BOND RATINGS
AAA: AN OBLIGATION RATED AAA HAS THE HIGHEST RATING ASSIGNED BY STANDARD &
POORTHE OBLIGORCAPACITY TO MEET ITS FINANCIAL COMMITMENT ON THE OBLIGATION IS
EXTREMELY STRONG.
AA: AN OBLIGATION RATED AA DIFFERS FROM THE HIGHEST-RATED OBLIGATIONS ONLY
IN A SMALL DEGREE. THE OBLIGORCAPACITY TO MEET ITS FINANCIAL COMMITMENT ON THE
OBLIGATION IS VERY STRONG.
A: AN OBLIGATION RATED A IS SOMEWHAT MORE SUSCEPTIBLE TO THE ADVERSE
EFFECTS OF CHANGES IN CIRCUMSTANCES AND ECONOMIC CONDITIONS THAN OBLIGATIONS
IN HIGHER-RATED CATEGORIES. HOWEVER, THE OBLIGORCAPACITY TO MEET ITS FINANCIAL
COMMITMENT ON THE OBLIGATION IS STILL STRONG.
BBB: AN OBLIGATION RATED BBB EXHIBITS ADEQUATE PROTECTION PARAMETERS.
HOWEVER, ADVERSE ECONOMIC CONDITIONS OR CHANGING CIRCUMSTANCES ARE MORE LIKELY
TO LEAD TO A WEAKENED CAPACITY OF THE OBLIGOR TO MEET ITS FINANCIAL COMMITMENT
ON THE OBLIGATION.
OBLIGATIONS RATED BB, B, CCC, CC, AND C ARE REGARDED AS HAVING SIGNIFICANT
SPECULATIVE CHARACTERISTICS. BB INDICATES THE LEAST DEGREE OF SPECULATION AND
C THE HIGHEST. WHILE SUCH OBLIGATIONS WILL LIKELY HAVE SOME QUALITY AND
PROTECTIVE CHARACTERISTICS, THESE MAY BE OUTWEIGHED BY LARGE UNCERTAINTIES OR
MAJOR EXPOSURES TO ADVERSE CONDITIONS.
BB: AN OBLIGATION RATED BB IS LESS VULNERABLE TO NONPAYMENT THAN OTHER
SPECULATIVE ISSUES. HOWEVER, IT FACES MAJOR ONGOING UNCERTAINTIES OR EXPOSURE
TO ADVERSE BUSINESS, FINANCIAL OR ECONOMIC CONDITIONS WHICH COULD LEAD TO THE
OBLIGORCAPACITY TO MEET ITS FINANCIAL COMMITMENT ON THE OBLIGATION.
B: AN OBLIGATION RATED B IS MORE VULNERABLE TO NONPAYMENT THAN OBLIGATIONS
RATED BB, BUT THE OBLIGOR CURRENTLY HAS THE CAPACITY TO MEET ITS FINANCIAL
COMMITMENT ON THE OBLIGATION. ADVERSE BUSINESS, FINANCIAL, OR ECONOMIC
CONDITIONS WILL LIKELY IMPAIR THE OBLIGORCAPACITY OR WILLINGNESS TO MEET ITS
FINANCIAL COMMITMENT ON THE OBLIGATION.
CCC: AN OBLIGATION RATED CCC IS CURRENTLY VULNERABLE TO NONPAYMENT AND IS
DEPENDENT UPON FAVORABLE BUSINESS, FINANCIAL AND ECONOMIC CONDITIONS FOR THE
OBLIGOR TO MEET ITS FINANCIAL COMMITMENT ON THE OBLIGATION. IN THE EVENT OF
ADVERSE BUSINESS, FINANCIAL OR ECONOMIC CONDITIONS, THE OBLIGOR IS NOT LIKELY
TO HAVE THE CAPACITY TO MEET ITS FINANCIAL COMMITMENT ON THE OBLIGATION.
<PAGE>
CC: AN OBLIGATION RATED CC IS CURRENTLY HIGHLY VULNERABLE TO
NONPAYMENT.
C: THE C RATING MAY BE USED TO COVER A SITUATION WHERE A BANKRUPTCY
PETITION HAS BEEN FILED OR SIMILAR ACTION HAS BEEN TAKEN, BUT PAYMENTS ON THIS
OBLIGATION ARE BEING CONTINUED.
D: AN OBLIGATION RATED D IS IN PAYMENT DEFAULT. THE D RATING CATEGORY IS
USED WHEN PAYMENTS ON AN OBLIGATION ARE NOT MADE ON THE DATE DUE EVEN IF THE
APPLICABLE GRACE PERIOD HAS NOT EXPIRED, UNLESS STANDARD & POORBELIEVES THAT
SUCH PAYMENTS WILL BE MADE DURING SUCH GRACE PERIOD. THE D RATING ALSOWILL BE
USED UPON THE FILING OF A BANKRUPTCY PETITION OR THE TAKING OF A SIMILAR
ACTION IF PAYMENTS ARE JEOPARDIZED.
PLUS (+) OR MINUS (-): THE RATING FROM AA TO CCC MAY BE MODIFIED BY THE
ADDITION OF A PLUS OR MINUS SIGN TO SHOW RELATIVE STANDING WITHIN THE MAJOR
CATEGORIES.
R: THIS SYMBOL IS ATTACHED TO THE RATINGS OF INSTRUMENTS WITH SIGNIFICANT
NONCREDIT RISKS. IT HIGHLIGHTS RISKS TO PRINCIPAL OR VOLATILITY OF EXPECTED
RETURNS WHICH ARE NOT ADDRESSED IN THE CREDIT RATING. EXAMPLES INCLUDE:
OBLIGATIONS LINKED OR INDEXED TO EQUITIES, CURRENCIES, OR COMMODITIES;
OBLIGATIONS EXPOSED TO SEVERE PREPAYMENT RISK, SUCH AS INTEREST-ONLY OR
PRINCIPAL-ONLY MORTGAGE SECURITIES; AND OBLIGATIONS WITH UNUSUALLY RISKY
INTEREST TERMS, SUCH AS INVERSE FLOATERS.
<PAGE>
PART C - OTHER INFORMATION
ITEM 23. EXHIBITS.
(A)
ARTICLES OF INCORPORATION AS FILED WITH THE STATE OF MARYLAND ON JULY 26,
1984
(INCORPORATED BY REFERENCE TO EXHIBIT (1)(A) TO POST-EFFECTIVE
AMENDMENT NO. 30 TO THE REGISTRATION STATEMENT ON FORM N-1A FILED ON
OCTOBER 23, 1998 WITH ACCESSION NUMBER 0000751173-98-00050).
(2) ARTICLES OF AMENDMENT AS FILED WITH THE STATE OF MARYLAND ON MARCH 25,
1985 (INCORPORATED BY REFERENCE TO EXHIBIT (1)(B) TO POST-EFFECTIVE
AMENDMENT NO. 30 TO THE REGISTRATION STATEMENT ON FORM N-1A FILED ON OCTOBER
23, 1998 WITH ACCESSION NUMBER 0000751173-98-00050).
(3) ARTICLES OF AMENDMENT AS FILED WITH THE STATE OF MARYLAND ON MAY 23,
1985 (INCORPORATED BY REFERENCE TO EXHIBIT (1)(C) TO POST-EFFECTIVE
AMENDMENT NO. 30 TO THE REGISTRATION STATEMENT ON FORM N-1A FILED ON OCTOBER
23, 1998 WITH ACCESSION NUMBER 0000751173-98-00050).
(4) ARTICLES OF AMENDMENT AS FILED WITH THE STATE OF MARYLAND ON OCTOBER
7, 1985 (INCORPORATED BY REFERENCE TO EXHIBIT (1)(D) TO POST-EFFECTIVE
AMENDMENT NO. 30 TO THE REGISTRATION STATEMENT ON FORM N-1A FILED ON OCTOBER
23, 1998 WITH ACCESSION NUMBER 0000751173-98-00050).
(5) ARTICLES OF AMENDMENT AS FILED WITH THE STATE OF MARYLAND ON JULY 3, 1986
(INCORPORATED BY REFERENCE TO EXHIBIT (1)(E) TO POST-EFFECTIVE AMENDMENT
NO. 30 TO THE REGISTRATION STATEMENT ON FORM N-1A FILED ON OCTOBER 23, 1998
WITH ACCESSION NUMBER 0000751173-98-00050).
(6) ARTICLES OF AMENDMENT AS FILED WITH THE STATE OF MARYLAND ON SEPTEMBER
26, 1997 (INCORPORATED BY REFERENCE TO EXHIBIT (1)(F) TO POST-EFFECTIVE
AMENDMENT NO. 30 TO THE REGISTRATION STATEMENT ON FORM N-1A FILED ON OCTOBER
23, 1998 WITH ACCESSION NUMBER 0000751173-98-00050).
(7) CERTIFICATE OF CORRECTION TO ARTICLES OF AMENDMENT AS FILED WITH THE
STATE OF MARYLAND ON FEBRUARY 5, 1998 (INCORPORATED BY REFERENCE TO
EXHIBIT (1)(G) TO POST-EFFECTIVE AMENDMENT NO. 30 TO THE
REGISTRATION STATEMENT ON FORM N-1A FILED ON OCTOBER 23, 1998 WITH
ACCESSION NUMBER 0000751173-98-00050).
(8)ARTICLES OF AMENDMENT AS FILED WITH THE STATE OF MARYLAND ON FEBRUARY 26,
1998 (INCORPORATED BY REFERENCE TO EXHIBIT (1)(H) TO POST-EFFECTIVE
AMENDMENT NO. 30 TO THE REGISTRATION STATEMENT ON FORM N-1A FILED ON
OCTOBER 23, 1998 WITH ACCESSION NUMBER 0000751173-98-00050).
<PAGE>
(b) BY-LAWS (INCORPORATED BY REFERENCE TO EXHIBIT (2)(A) TO POST-
EFFECTIVE AMENDMENT NO. 30 TO THE REGISTRATION STATEMENT ON FORM N-1A FILED
ON OCTOBER 23, 1998 WITH ACCESSION NUMBER 0000751173-98-00050).
(c) (1) SPECIMEN STOCK CERTIFICATE (INCORPORATED BY REFERENCE TO
EXHIBIT 1(A) (ARTICLES OF INCORPORATION) AND EXHIBIT (2) (BY-LAWS) TO POST-
EFFECTIVE AMENDMENT NO. 30 TO THE REGISTRATION STATEMENT ON FORM N-1A
FILED ON OCTOBER 23, 1998 WITH ACCESSION NUMBER 0000751173-98-00050).
(2) ARTICLES SUPPLEMENTARY TO THE CHARTER AS FILED WITH THE STATE OF
MARYLAND ON JULY 3, 1986 (INCORPORATED BY REFERENCE TO EXHIBIT
(4)(B) TO POST-EFFECTIVE AMENDMENT NO. 30 TO THE REGISTRATION
STATEMENT ON FORM N-1A FILED ON OCTOBER 23, 1998 WITH ACCESSION NUMBER
0000751173-98-00050).
(3) ARTICLES SUPPLEMENTARY TO THE CHARTER AS FILED WITH THE STATE OF
MARYLAND ON JANUARY 20, 1989 (INCORPORATED BY REFERENCE TO
EXHIBIT (4)(C) to Post-Effective Amendment No. 30 to the
Registration Statement on Form N-1A filed on October 23, 1998 with
Accession Number 0000751173-98-00050).
(4) Articles Supplementary to the charter as filed with the State of
Maryland on September 22, 1989 (incorporated by reference to
Exhibit (4)(d) to Post-Effective Amendment No. 30 to the
Registration Statement on Form N-1A filed on October 23, 1998 with
Accession Number 0000751173-98-00050).
(5) Articles Supplementary to the charter as filed with the State of
MARYLAND ON NOVEMBER 8, 1989 (INCORPORATED BY REFERENCE TO
EXHIBIT (4)(E) TO POST-EFFECTIVE AMENDMENT NO. 30 TO THE
REGISTRATION STATEMENT ON FORM N-1A FILED ON OCTOBER 23, 1998 WITH
ACCESSION NUMBER 0000751173-98-00050).
(6) ARTICLES SUPPLEMENTARY TO THE CHARTER AS FILED WITH THE STATE OF
Maryland on January 30, 1991 (incorporated by reference to
Exhibit (4)(f) TO POST-EFFECTIVE AMENDMENT NO. 30 TO THE
REGISTRATION STATEMENT ON FORM N-1A FILED ON OCTOBER 23, 1998 WITH
ACCESSION NUMBER 0000751173-98-00050).
(7) Articles supplementary to the charter as filed with the State of
MARYLAND ON APRIL 27, 1992 (INCORPORATED BY REFERENCE TO EXHIBIT
(4)(G) TO POST-EFFECTIVE AMENDMENT NO. 30 TO THE REGISTRATION
STATEMENT ON FORM N-1A FILED ON OCTOBER 23, 1998 WITH ACCESSION NUMBER
0000751173-98-00050).
(8) ARTICLES SUPPLEMENTARY TO THE CHARTER AS FILED WITH THE STATE OF
MARYLAND ON APRIL 29, 1993 (INCORPORATED BY REFERENCE TO EXHIBIT
(4)(H) TO POST-EFFECTIVE AMENDMENT NO. 30 TO THE REGISTRATION
STATEMENT ON FORM N-1A FILED ON OCTOBER 23, 1998 WITH ACCESSION NUMBER
0000751173-98-00050).
(9) ARTICLES SUPPLEMENTARY TO THE CHARTER AS FILED WITH THE STATE OF
MARYLAND ON SEPTEMBER 23, 1993 (INCORPORATED BY REFERENCE TO
EXHIBIT (4)(I) TO POST-EFFECTIVE AMENDMENT NO. 30 TO THE REGISTRATION
STATEMENT ON FORM N-1A FILED ON OCTOBER 23, 1998 WITH ACCESSION
NUMBER 0000751173-98-00050).
(10) ARTICLES SUPPLEMENTARY TO THE CHARTER AS FILED WITH THE STATE OF
MARYLAND ON JANUARY 17, 1994 (INCORPORATED BY REFERENCE TO EXHIBIT
(4)(J) TO POST-EFFECTIVE AMENDMENT NO. 30 TO THE REGISTRATION
STATEMENT ON FORM N-1A FILED ON OCTOBER 23, 1998 WITH ACCESSION NUMBER
0000751173-98-00050).
<PAGE>
(11) ARTICLES SUPPLEMENTARY TO THE CHARTER AS FILED WITH THE STATE OF
MARYLAND ON DECEMBER 13, 1995 (INCORPORATED BY REFERENCE TO EXHIBIT
(4)(K) TO POST-EFFECTIVE AMENDMENT NO. 30 TO THE REGISTRATION STATEMENT
ON FORM N-1A FILED ON OCTOBER 23, 1998 WITH ACCESSION NUMBER
0000751173-98-00050).
(12) ARTICLES SUPPLEMENTARY TO THE CHARTER AS FILED WITH THE STATE OF
MARYLAND ON APRIL 22, 1996 (INCORPORATED BY REFERENCE TO EXHIBIT
(4)(L) TO POST-EFFECTIVE AMENDMENT NO. 30 TO THE REGISTRATION
STATEMENT ON FORM N-1A FILED ON OCTOBER 23, 1998 WITH ACCESSION NUMBER
0000751173-98-00050).
(13) ARTICLES SUPPLEMENTARY TO THE CHARTER AS FILED WITH THE STATE OF
MARYLAND ON SEPTEMBER 26, 1997 (INCORPORATED BY REFERENCE TO
EXHIBIT (4)(M) TO POST-EFFECTIVE AMENDMENT NO. 30 TO THE REGISTRATION
STATEMENT ON FORM N-1A FILED ON OCTOBER 23, 1998 WITH ACCESSION NUMBER
0000751173-98-00050) .
(14) CERTIFICATE OF CORRECTION TO ARTICLES SUPPLEMENTARY TO THE CHARTER
FILED WITH THE STATE OF MARYLAND ON FEBRUARY 24, 1998 (INCORPORATED BY
REFERENCE TO EXHIBIT (4)(N) TO POST-EFFECTIVE AMENDMENT NO. 30 TO THE
REGISTRATION STATEMENT ON FORM N-1A FILED ON OCTOBER 23, 1998 WITH ACCESSION
NUMBER 0000751173-98-00050) .
(D) INVESTMENT ADVISORY AGREEMENT (INCORPORATED BY REFERENCE TO
EXHIBIT (5)(A) TO POST-EFFECTIVE AMENDMENT NO.30 TO THE REGISTRATION
STATEMENT ON FORM N-1A FILED ON OCTOBER 23, 1998 WITH ACCESSION NUMBER
0000751173-98-00050) .
(E) AMENDED AND RESTATED DISTRIBUTION AGREEMENT (INCORPORATED BY
REFERENCE TO EXHIBIT (6)(A) TO POST-EFFECTIVE AMENDMENT NO. 30 TO THE
REGISTRATION STATEMENT ON FORM N-1A FILED ON OCTOBER 23, 1998 WITH ACCESSION
NUMBER 0000751173-98-00050) .
F) NOT APPLICABLE.
G) CUSTODIAN AGREEMENT IS INCORPORATED BY REFERENCE TO EXHIBIT (8)
(A) TO POST-EFFECTIVE AMENDMENT NO. 30 TO THE REGISTRATION STATEMENT ON
FORM N-1A FILED ON OCTOBER 23, 1998 WITH ACCESSION NUMBER
0000751173-98-00050) .
H) (1) TRANSFER AGENT AGREEMENT (INCORPORATED BY REFERENCE TO EXHIBIT
(9)(A) TO POST-EFFECTIVE AMENDMENT NO. 30 TO THE REGISTRATION STATEMENT ON
FORM N-1A FILED ON OCTOBER 23, 1998 WITH ACCESSION NUMBER
0000751173-98-00050) .
(2)FORM OF DEALER AGREEMENT (INCORPORATED BY REFERENCE TO EXHIBIT
(9)(B) TO POST-EFFECTIVE AMENDMENT NO. 30 TO THE REGISTRATION STATEMENT
ON FORM N-1A FILED ON OCTOBER 23, 1998 WITH ACCESSION NUMBER
0000751173-98-00050) .
I) (OPINION OF MORGAN, LEWIS & BOCKIUS IS FILED HEREWITH.
J) CONSENT OF INDEPENDENT AUDITORS.(A)CONSENT OF DELOITTE & TOUCHE
LLP IS FILED HEREWITH
<PAGE>
K)NOT APPLICABLE.
L) INVESTMENT LETTERS (INCORPORATED BY REFERENCE TO EXHIBIT (13) TO
POST-EFFECTIVE AMENDMENT NO. 30 TO THE REGISTRATION STATEMENT ON
FORM N-1A FILED ON OCTOBER 23, 1998 WITH ACCESSION NUMBER
0000751173-98-00050) .
M) FORM OF 12B-1 PLAN WITH RESPECT TO CLASS B SHARES IS FILED HEREWITH
. RULE 12B-1 PLANS FOR CLASS C, CLASS D AND CLASS E SHARES HAVE BEEN
OMITTED BECAUSE THEY ARE SUBSTANTIALLY IDENTICAL TO THE CLASS B SHARES
PLAN AND DIFFER FROM THE CLASS B SHARES PLAN ONLY IN REFERENCE TO
THE CLASS TO WHICH THE PLAN RELATES.
(N) FINANCIAL DATA SCHEDULES ARE FILED HEREWITH.
(O) RULE 18F-3 PLAN (INCORPORATED BY REFERENCE TO EXHIBIT 18, TO POST-
EFFECTIVE AMENDMENT NO. 27 TO THE REGISTRATION STATEMENT ON FORM N-1A
ON OCTOBER 22, 1997 WITH ACCESSION NUMBER 0001047469-97-001380).
ITEM 24.
PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
REFERENCE IS MADE TO PART B OF THE REGISTRATION STATEMENT, UNDER THE HEADING
"MANAGEMENT."
ITEM 25.
INDEMNIFICATION.
REFERENCE IS MADE TO SUBPARAGRAPH (B) OF PARAGRAPH (7) OF ARTICLE SEVENTH OF
REGISTRANT'S ARTICLES OF INCORPORATION, WHICH REFLECTS THE POSITIONS TAKEN IN
INVESTMENT COMPANY ACT RELEASE 11330.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT OF
1933 MAY BE PERMITTED TO TRUSTEES, OFFICERS AND CONTROLLING PERSONS OF
REGISTRANT PURSUANT TO THE FOREGOING PROVISIONS, OR OTHERWISE, REGISTRANT HAS
BEEN ADVISED THAT IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION
SUCH INDEMNIFICATION IS AGAINST PUBLIC POLICY AS EXPRESSED IN THAT ACT AND IS,
THEREFORE, UNENFORCEABLE. IN THE EVENT THAT A CLAIM FOR INDEMNIFICATION
AGAINST SUCH LIABILITIES (OTHER THAN THE PAYMENT BY REGISTRANT OF EXPENSES
INCURRED OR PAID BY A TRUSTEE, OFFICER OR CONTROLLING PERSONS OF REGISTRANT IN
THE SUCCESSFUL DEFENSE OF ANY ACTION, SUIT OR PROCEEDING) IS ASSERTED BY SUCH
TRUSTEE, OFFICER OR CONTROLLING PERSON IN CONNECTION WITH THE SECURITIES BEING
REGISTERED, REGISTRANT WILL, UNLESS IN THE OPINION OF ITS COUNSEL THE MATTER
HAS BEEN SETTLED BY CONTROLLING PRECEDENT, SUBMIT TO A COURT OF APPROPRIATE
JURISDICTION THE QUESTION WHETHER SUCH INDEMNIFICATION BY IT IS AGAINST PUBLIC
POLICY AS EXPRESSED IN THE ACT AND WILL BE GOVERNED BY THE FINAL ADJUDICATION
OF SUCH ISSUE.
THE DIRECTORS AND OFFICERS OF THE REGISTRANT ARE COVERED PARTIES UNDER A
DIRECTORS & OFFICERS/ERRORS & OMISSIONS INSURANCE POLICY WITH GULF INSURANCE
COMPANY. THE EFFECT OF SUCH INSURANCE IS TO INSURE AGAINST LIABILITY FOR ANY
ACT, ERROR, OMISSION, MISSTATEMENT, MISLEADING STATEMENT, NEGLECT OR BREACH OF
DUTY BY THE INSUREDS AS DIRECTORS AND/OR OFFICERS OF THE REGISTRANT.
<PAGE>
ITEM 26.
BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR.
MANNING & NAPIER ADVISORS, INC. (DBA EXETER ASSET MANAGEMENT) IS THE
INVESTMENT ADVISOR OF THE REGISTRANT. FOR INFORMATION AS TO THE BUSINESS,
PROFESSION, VOCATION OR EMPLOYMENT OF A SUBSTANTIAL NATURE OF MANNING & NAPIER
ADVISORS, INC. ITS DIRECTORS AND OFFICERS, REFERENCE IS MADE TO PART B OF THIS
REGISTRATION STATEMENT AND TO FORM ADV AS FILED UNDER THE INVESTMENT ADVISERS
ACT OF 1940 BY MANNING & NAPIER ADVISORS, INC.
ITEM 27.
PRINCIPAL UNDERWRITERS.
(A) NOT APPLICABLE
(B) MANNING & NAPIER INVESTOR SERVICES, INC. IS THE DISTRIBUTOR FOR THE
REGISTRANT'S SHARES.
<TABLE>
<CAPTION>
NAME & PRINCIPAL POSITIONS & OFFICES POSITIONS & OFFICES
BUSINESS ADDRESS WITH DISTRIBUTOR WITH REGISTRANT
<S> <C> <C>
B. REUBEN AUSPITZ PRESIDENT & DIRECTOR DIRECTOR & VICE PRESIDENT
1100 CHASE SQUARE
ROCHESTER, NY 14604
JULIE RASCHELLA DIRECTOR N/A
1100 CHASE SQUARE
ROCHESTER, NY 14604
BETH H. GALUSHA TREASURER CHIEF FINANCIAL & ACCOUNTING
1100 CHASE SQUARE OFFICER, TREASURER
ROCHESTER, NY 14604
AMY WILLIAMS CORPORATE SECRETARY N/A
1100 CHASE SQUARE
ROCHESTER, NY 14604
GEORGE NOBILISKI DIRECTOR N/A
1100 CHASE SQUARE
ROCHESTER, NY 14604
</TABLE>
(C) THE DISTRIBUTOR DOES NOT RECEIVE ANY COMMISSIONS OR OTHER FORM OF
COMPENSATION FOR ITS DISTRIBUTION SERVICES TO THE REGISTRANT.
ITEM 28.
LOCATION OF ACCOUNTS AND RECORDS.
THE ACCOUNTS, BOOKS AND OTHER DOCUMENTS REQUIRED TO BE MAINTAINED BY
REGISTRANT PURSUANT TO SECTION 31(A) OF THE INVESTMENT COMPANY ACT OF 1940 AND
THE RULES PROMULGATED THEREUNDER ARE IN THE POSSESSION OF REGISTRANT EXCEPT
FOR THE RECORDS REQUIRED BY RULE 31A-1(B)(2)(A) AND (B), WHICH ARE IN THE
POSSESSION OF THE CUSTODIAN.
ITEM 29.
MANAGEMENT SERVICES.
NOT APPLICABLE.
ITEM 30.
UNDERTAKINGS.
NOT APPLICABLE.
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT HAS DULY CAUSED THIS
POST-EFFECTIVE AMENDMENT NO. 31 TO THE REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
ROCHESTER AND STATE OF NEW YORK ON THE 24th DAY OF DECEMBER, 1998.
<TABLE>
<CAPTION>
<S> <C>
EXETER FUND, INC.
(REGISTRANT)
------------------------
BY: /S/ WILLIAM MANNING
WILLIAM MANNING
PRESIDENT
------------------------
</TABLE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
POST-EFFECTIVE AMENDMENT NO. 31 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED
BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE TITLE DATE
/S/ WILLIAM MANNING PRINCIPAL EXECUTIVE DECEMBER 24,1998
WILLIAM MANNING OFFICER
/S/ B. REUBEN AUSPITZ DIRECTOR AND OFFICER DECEMBER 24,1998
B. REUBEN AUSPITZ
/S/ MARTIN F. BIRMINGHAM DIRECTOR DECEMBER 24,1998
MARTIN F. BIRMINGHAM
/S/ HARRIS H. RUSITZKY DIRECTOR DECEMBER 24,1998
HARRIS H. RUSITZKY
/S/ PETER L. FABER DIRECTOR DECEMBER 24,1998
PETER L. FABER
/S/ STEPHEN B. ASHLEY DIRECTOR DECEMBER 24,1998
STEPHEN B. ASHLEY
/S/ BETH H. GALUSHA CHIEF FINANCIAL & DECEMBER 24,1998
BETH HENDERSHOT GALUSHA ACCOUNTING OFFICER,
TREASURER
</TABLE>
<PAGE>
EXHIBIT INDEX
EX-99.B10 OPINION OF MORGAN, LEWIS & BOCKIUS, LLP.
EX-99.B11 CONSENT OF INDEPENDENT AUDITORS
CONSENT OF DELOITTE & TOUCHE, LLP.
EX-99.B15 FORM OF RULE 12B-1 PLAN WITH RESPECT TO CLASS B SHARES. RULE
12B-1 PLANS FOR CLASS C, D AND E SHARES HAVE BEEN OMITTED BECAUSE
THEY ARE SUBSTANTIALLY IDENTICAL TO THE CLASS B SHARES PLAN AND
DIFFER FROM THE CLASS B PLAN ONLY IN REFERENCES TO THE CLASS TO
WHICH THE PLAN RELATES.
EX-99.B17 FINANCIAL DATA SCHEDULES.
<PAGE>
DECEMBER 23, 1998
EXETER FUND, INC.
1100 CHASE SQUARE
ROCHESTER, NEW YORK 14604
LADIES AND GENTLEMEN:
WE HAVE ACTED AS COUNSEL TO YOU IN CONNECTION WITH THE PREPARATION
OF POST-EFFECTIVE AMENDMENT NO. 31 TO THE REGISTRATION STATEMENT ON FORM N-1A
(FILE NOS. 2-92633 AND 811-04087) OF EXTER FUND, INC. (THE "FUND") UNDER THE
SECURITIES ACT OF 1933 AND THE INVESTMENT COMPANY ACT OF 1940 (HEREINAFTER,
THE "REGISTRATION STATEMENT"). THE FUND IS AN OPEN-END MANAGEMENT INVESTMENT
COMPANY WITH DIVERSIFIED AND NON-DIVERSIFIED PORTFOLIOS REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION UNDER THE INVESTMENT COMPANY ACT OF 1940.
HAVING REVIEWED THE ARTICLES OF INCORPORATION, THE ARTICLES OF
AMENDMENT AND ARTICLES SUPPLEMENTARY THERETO, AND THE BY-LAWS AND AMENDMENTS
THERETO, OF THE FUND AND SUCH OTHER DOCUMENTS AS WE HAVE DETERMINED NECESSARY,
AND HAVING ASSISTED IN THE PREPARATION OF THE REGISTRATION STATEMENT RELATING
TO THE OFFERING OF THE SHARES OF ITS COMMON STOCK, AND HAVING ASSISTED IN THE
PREPARATION OF OTHER RELATED DOCUMENTS, WE ARE OF THE OPINION THAT:
1. THE FUND IS A MARYLAND CORPORATION VALIDLY ORGANIZED AND IN
GOOD STANDING UNDER THE LAWS OF THAT STATE, AUTHORIZED TO ISSUE UP TO ONE
BILLION (1,000,000,000) SHARES OF ITS COMMON STOCK, PAR VALUE $.01 PER SHARE
AND OF THE AGGREGATE PAR VALUE OF TEN MILLION DOLLARS ($10,000,000),
DESIGNATED AND CLASSIFIED AS FOLLOWS:
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
<C>
TYPE OF SHARES NUMBER
SMALL CAP SERIES CLASS A 37,500,000 SHARES
SMALL CAP SERIES CLASS B 2,500,000 SHARES
SMALL CAP SERIES CLASS C 5,000,000 SHARES
SMALL CAP SERIES CLASS D 2,500,000 SHARES
SMALL CAP SERIES CLASS E 2,500,000 SHARES
MAXIMUM HORIZON SERIES CLASS A 75,000,000 SHARES
MAXIMUM HORIZON SERIES CLASS B 5,000,000 SHARES
MAXIMUM HORIZON SERIES CLASS C 10,000,000 SHARES
MAXIMUM HORIZON SERIES CLASS D 5,000,000 SHARES
MAXIMUM HORIZON SERIES CLASS E 5, 000,000 SHARES
ENERGY SERIES CLASS A 20,000,000 SHARES
TECHNOLOGY SERIES CLASS A 50,000,000 SHARES
DEFENSIVE SERIES CLASS A 37,500,000 SHARES
DEFENSIVE SERIES CLASS B 2,500,000 SHARES
DEFENSIVE SERIES CLASS C 5,000,000 SHARES
DEFENSIVE SERIES CLASS D 2,500,000 SHARES
DEFENSIVE SERIES CLASS E 2,500,000 SHARES
FINANCIAL SERVICES SERIES CLASS A 20,000,000 SHARES
INTERNATIONAL SERIES CLASS A 50,000,000 SHARES
TAX MANAGED SERIES CLASS A 37,500,000 SHARES
TAX MANAGED SERIES CLASS B 2,500,000 SHARES
TAX MANAGED SERIES CLASS C 5,000,000 SHARES
TAX MANAGED SERIES CLASS D 2,500,000 SHARES
TAX MANAGED SERIES CLASS E 2,500,000 SHARES
LIFE SCIENCES SERIES CLASS A 50,000,000 SHARES
GLOBAL FIXED INCOME SERIES CLASS A 50,000,000 SHARES
BLENDED ASSET SERIES I CLASS A 37,500,000 SHARES
BLENDED ASSET SERIES I CLASS B 2,500,000 SHARES
BLENDED ASSET SERIES I CLASS C 5,000,000 SHARES
BLENDED ASSET SERIES I CLASS D 2,500,000 SHARES
BLENDED ASSET SERIES I CLASS E 2,500,000 SHARES
BLENDED ASSET SERIES II CLASS A 37,500,000 SHARES
BLENDED ASSET SERIES II CLASS B 2,500,000 SHARES
BLENDED ASSET SERIES II CLASS C 5,000,000 SHARES
BLENDED ASSET SERIES II CLASS D 2,500,000 SHARES
BLENDED ASSET SERIES II CLASS E 2,500,000 SHARES
FLEXIBLE YIELD SERIES I CLASS A 37,500,000 SHARES
FLEXIBLE YIELD SERIES I CLASS B 2,500,000 SHARES
FLEXIBLE YIELD SERIES I CLASS C 5,000,000 SHARES
FLEXIBLE YIELD SERIES I CLASS D 2,500,000 SHARES
FLEXIBLE YIELD SERIES I CLASS E 2,500,000 SHARES
FLEXIBLE YIELD SERIES II CLASS A 37,500,000 SHARES
FLEXIBLE YIELD SERIES II CLASS B 2,500,000 SHARES
FLEXIBLE YIELD SERIES II CLASS C 5,000,000 SHARES
FLEXIBLE YIELD SERIES II CLASS D 2,500,000 SHARES
FLEXIBLE YIELD SERIES II CLASS E 2,500,000 SHARES
FLEXIBLE YIELD SERIES III CLASS A 37,500,000 SHARES
FLEXIBLE YIELD SERIES III CLASS B 2,500,000 SHARES
FLEXIBLE YIELD SERIES III CLASS C 5,000,000 SHARES
FLEXIBLE YIELD SERIES III CLASS D 2,500,000 SHARES
FLEXIBLE YIELD SERIES III CLASS E 2,500,000 SHARES
NEW YORK TAX EXEMPT SERIES CLASS A 50,000,000 SHARES
OHIO TAX EXEMPT SERIES CLASS A 50,000,000 SHARES
DIVERSIFIED TAX EXEMPT SERIES CLASS A 50,000,000 SHARES
WORLD OPPORTUNITIES SERIES CLASS A 37,500,000 SHARES
WORLD OPPORTUNITIES SERIES CLASS B 2,500,000 SHARES
WORLD OPPORTUNITIES SERIES CLASS C 5,000,000 SHARES
WORLD OPPORTUNITIES SERIES CLASS D 2,500,000 SHARES
WORLD OPPORTUNITIES SERIES CLASS E 2,500,000 SHARES
UNCLASSIFIED 60,000,000 SHARES
- ------------------------------------- -----------------
</TABLE>
<PAGE>
2. UPON EFFECTIVENESS OF THE REGISTRATION STATEMENT, YOU, IN
JURISDICTIONS WHERE THE SHARES ARE QUALIFIED FOR SALE, ARE AUTHORIZED TO MAKE
A PUBLIC OFFERING OF SHARES PURSUANT TO THE TERMS OF THE OFFERING AS DESCRIBED
IN THE PROSPECTUS FILED AS PART OF THE REGISTRATION STATEMENT, AND THE SHARES,
WHEN ISSUED UPON RECEIPT OF PAYMENT THEREFORE AS DESCRIBED IN THE PROSPECTUS,
WILL BE VALIDLY ISSUED, FULLY PAID AND NON-ASSESSABLE BY THE FUND.
WE HAVE NOT REVIEWED THE SECURITIES LAWS OF ANY STATE OR TERRITORY
IN CONNECTION WITH THE PROPOSED OFFERING OF SHARES AND WE EXPRESS NO OPINION
AS TO THE LEGALITY OF ANY OFFER OF SALE OF SHARES UNDER ANY SUCH STATE OR
TERRITORIAL SECURITIES LAWS.
THIS OPINION IS INTENDED ONLY FOR YOU USE IN CONNECTION WITH THE
OFFERING OF SHARES AND MAY NOT BE RELIED UPON BY ANY OTHER PERSON.
WE HEREBY CONSENT TO THE INCLUSION OF THIS OPINION AS AN EXHIBIT TO
THE REGISTRATION STATEMENT TO BE FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION.
VERY TRULY YOURS,
MORGAN, LEWIS & BOCKIUS LLP
<PAGE>
1 -
INDEPENDENT AUDITORS' CONSENT
WE CONSENT TO THE INCORPORATION BY REFERENCE IN THIS POST-EFFECTIVE AMENDMENT
NO. 31 TO THE REGISTRATION STATEMENT ON FORM N-1A OF EXETER FUND, INC. (FILE
NO. 2-92633) OF OUR REPORTS EACH DATED DECEMBER 4, 1998 APPEARING IN THE
ANNUAL REPORTS TO SHAREHOLDERS FOR THE YEAR ENDED OCTOBER 31, 1998, OF THE
DEFENSIVE SERIES, TAX MANAGED SERIES, MAXIMUM HORIZON SERIES, BLENDED ASSETS
SERIES I, BLENDED ASSETS SERIES II, FLEXIBLE YIELD SERIES I, FLEXIBLE YIELD
SERIES II AND FLEXIBLE YIELD SERIES III, AND TO THE REFERENCES TO US UNDER THE
HEADINGS "FINANCIAL HIGHLIGHTS" IN THE PROSPECTUSES AND "CUSTODIAN AND
INDEPENDENT ACCOUNTANT" AND "FINANCIAL STATEMENTS" IN THE STATEMENT OF
ADDITIONAL INFORMATION, ALL OF WHICH ARE PART OF THIS REGISTRATION STATEMENT.
DELOITTE & TOUCHE LLP
BOSTON, MASSACHUSETTS
DECEMBER 22, 1998
<PAGE>
FORM OF CLASS B PLAN OF DISTRIBUTION PURSUANT TO RULE 12B-1
OF
EXETER FUND, INC.
WHEREAS, EXETER FUND, INC. (THE "FUND") INTENDS TO ENGAGE IN BUSINESS AS
AN OPEN-END MANAGEMENT INVESTMENT COMPANY AND IS REGISTERED AS SUCH UNDER THE
INVESTMENT COMPANY ACT OF 1940, AS AMENDED (THE "1940 ACT");
WHEREAS, THE FUND DESIRES TO ADOPT A PLAN OF DISTRIBUTION PURSUANT TO
RULE 12B-1 UNDER THE ACT (THE "PLAN") WITH RESPECT TO SHARES OF ITS COMMON
STOCK, PAR VALUE $.01 PER SHARE, THAT ARE CLASSIFIED AND ALLOCATED (THE
"SHARES") TO ITS CLASS B SHARES (THE "CLASS"), AND SUCH OTHER SERIES OF THE
FUND AS MAY ADD SUCH CLASS B SHARES AND LISTED ON APPENDIX A ATTACHED HERETO;
WHEREAS, THE BOARD OF DIRECTORS HAS DETERMINED THAT THERE IS A REASONABLE
LIKELIHOOD THAT ADOPTION OF THE PLAN WILL BENEFIT THE FUND AND ITS
SHAREHOLDERS;
WHEREAS, THE FUND INTENDS TO EMPLOY MANNING & NAPIER INVESTOR SERVICES,
INC. (AS DISTRIBUTOR OF THE SHARES; AND
WHEREAS, THE FUND AND THE DISTRIBUTOR INTEND TO ENTER INTO A SEPARATE
DISTRIBUTION AGREEMENT WITH THE FUND FOR SHARES, PURSUANT TO WHICH THE FUND
WILL EMPLOY THE DISTRIBUTOR AS DISTRIBUTOR FOR THE CONTINUOUS OFFERING OF
SHARES;
NOW, THEREFORE, THE DIRECTORS OF THE FUND HAVE ADOPTED, AND THE
DISTRIBUTOR HEREBY AGREES TO THE TERMS OF, THE PLAN WITH RESPECT TO THE CLASS
IN ACCORDANCE WITH RULE 12B-1 UNDER THE ACT ON THE FOLLOWING TERMS AND
CONDITIONS:
1. THE PLAN. THIS PLAN IS A WRITTEN PLAN AS DESCRIBED IN RULE 12B-1
(THE UNDER THE 1940 ACT. OTHER CAPITALIZED TERMS HEREIN HAVE THE MEANING
GIVEN TO THEM IN THE FUNDPROSPECTUS.
2. PAYMENTS AUTHORIZED.
(A) MNIS IS AUTHORIZED, PURSUANT TO THIS PLAN, TO ACCEPT PAYMENTS
MADE TO IT AND TO MAKE PAYMENTS ON BEHALF OF THE FUND TO ANY SHAREHOLDER
SERVICING AGENT WITH WHICH IT HAS ENTERED INTO A SHAREHOLDER SERVICING
AGREEMENT OR TO ANY PARTICIPATING BROKER/DEALER WITH WHICH IT HAS ENTERED INTO
A BROKER AGREEMENT.
<PAGE>
(B) THE FUND WILL PAY MNIS AN ANNUAL FEE, CALCULATED ON AN AVERAGE
DAILY NET BASIS AND PAID MONTHLY, FOR EACH CLASS B SHARE OF EACH SERIES OF THE
FUND AT THE ANNUAL RATE SPECIFIED ON APPENDIX A DETAILED HERETO, FOR SERVICES
AS DISTRIBUTOR OF THE SHARES. SUCH AMOUNT MAY BE SPENT BY MNIS ON ANY
ACTIVITIES OR EXPENSES PRIMARILY INTENDED TO RESULT IN THE SALE OF SHARES,
INCLUDING, BUT NOT LIMITED TO: (I) COMPENSATION TO AND EXPENSES, INCLUDING
OVERHEAD AND TELEPHONE EXPENSES, OF EMPLOYEES OF THE DISTRIBUTOR WHO ENGAGE IN
OR SUPPORT DISTRIBUTION OF THE SHARES; (II) PRINTING OF PROSPECTUSES AND
REPORTS FOR OTHER THAN EXISTING STOCKHOLDERS;
(III) PREPARATION, PRINTING AND DISTRIBUTION OF SALES LITERATURE AND
ADVERTISING MATERIALS; AND
(IV) COMPENSATION TO BROKER/DEALERS AND SHAREHOLDER SERVICING AGENTS WHO SELL
SHARES. MNIS MAY NEGOTIATE WITH ANY SUCH BROKER/DEALER AND OTHER THIRD
PARTIES THE SERVICES TO BE PROVIDED BY THE BROKER/DEALER TO SHAREHOLDERS IN
CONNECTION WITH THE SALE OF SHARES, AND ALL OR ANY PORTION OF THE COMPENSATION
PAID TO MNIS UNDER THIS PARAGRAPH MAY BE REALLOCATED BY MNIS TO BROKER/DEALERS
WHO SELL SHARES.
3. SHAREHOLDER SERVICE FEE.
(A) THE FUND IS AUTHORIZED TO PAY MNIS AN ANNUAL FEE THAT IS
CALCULATED DAILY AND PAID MONTHLY FOR SHAREHOLDER SERVICES PROVIDED TO
SHAREHOLDERS OF THE CLASS DESCRIBED ON APPENDIX A, AT AN ANNUAL RATE OF UP TO
.25% OF THE AVERAGE DAILY NET ASSETS OF THE CLASS.
(B) IN ADDITION TO THE DISTRIBUTION SERVICES SET FORTH IN PARAGRAPH 2
ABOVE, MNIS WILL PROVIDE SHAREHOLDER SERVICES TO ACCOUNTS OF THE CLASS,
INCLUDING, BUT NOT LIMITED TO, THE FOLLOWING: (I) TELEPHONE SERVICE TO
STOCKHOLDERS, INCLUDING THE ACCEPTANCE OF TELEPHONE INQUIRIES AND TRANSACTION
REQUESTS; ACCEPTANCE AND PROCESSING OF WRITTEN CORRESPONDENCE, NEW ACCOUNT
APPLICATIONS AND SUBSEQUENT PURCHASES BY CHECK; (II) MAILING OF CONFIRMATIONS,
STATEMENTS AND TAX FORMS DIRECTLY TO STOCKHOLDERS; AND (III) ACCEPTANCE OF
PAYMENT FOR TRADES BY CHECK, FEDERAL RESERVE WIRE OR AUTOMATED CLEARING HOUSE
PAYMENT. IN ADDITION, MNIS SHALL PERFORM OR SUPERVISE THE PERFORMANCE BY
OTHERS OF OTHER SHAREHOLDER SERVICES IN CONNECTION WITH THE OPERATIONS OF THE
CLASS, AS AGREED FROM TIME TO TIME.
4. THIS PLAN SHALL NOT TAKE EFFECT UNTIL IT HAS BEEN APPROVED BY A
VOTE OF AT LEAST A MAJORITY OF THE OUTSTANDING SHARES (AS DEFINED IN THE ACT).
5. IN ADDITION TO THE APPROVAL REQUIRED BY PARAGRAPH 4 ABOVE, THIS
PLAN SHALL NOT TAKE EFFECT UNTIL IT HAS BEEN APPROVED, TOGETHER WITH ANY
RELATED AGREEMENTS, BY VOTES OF A MAJORITY OF BOTH (A) THE BOARD OF DIRECTORS
OF THE FUND AND (B) THOSE DIRECTORS OF THE FUND WHO ARE NOT "INTERESTED
PERSONS" OF THE FUND (AS DEFINED IN THE ACT) AND HAVE NO DIRECT OR INDIRECT
FINANCIAL INTEREST IN THE OPERATION OF THIS PLAN OR ANY AGREEMENTS RELATED TO
IT (THE "RULE 12B-1 DIRECTORS"), CAST IN PERSON AT A MEETING (OR MEETINGS)
CALLED FOR THE PURPOSE OF VOTING ON THIS PLAN AND SUCH RELATED AGREEMENTS.
<PAGE>
6. THIS PLAN SHALL BE ADOPTED FOR THE CLASS EFFECTIVE ON THE DATE THE
CLASS COMMENCES OPERATION. THIS PLAN SHALL CONTINUE IN EFFECT FOR ONE YEAR
FROM THE DATE OF ITS ADOPTION AND THEREAFTER, THE PLAN SHALL CONTINUE IN
EFFECT FOR SO LONG AS SUCH CONTINUANCE IS SPECIFICALLY APPROVED AT LEAST
ANNUALLY IN THE MANNER PROVIDED FOR APPROVAL OF THIS PLAN IN PARAGRAPH 5.
7. MNIS SHALL PROVIDE TO THE BOARD OF DIRECTORS OF THE FUND AND THE
BOARD OF DIRECTORS SHALL REVIEW, AT LEAST QUARTERLY, A WRITTEN REPORT OF THE
AMOUNTS EXPENDED PURSUANT TO THIS PLAN AND THE PURPOSES FOR WHICH SUCH
EXPENDITURES WERE MADE, INCLUDING COMMISSIONS, ADVERTISING, PRINTING,
INTEREST, CARRYING CHARGES AND ALLOCATED OVERHEAD EXPENSES.
8. THIS PLAN MAY BE TERMINATED AT ANY TIME BY VOTE OF A MAJORITY OF
THE RULE 12B-1 DIRECTORS, OR BY A VOTE OF A MAJORITY OF THE OUTSTANDING
SHARES.
9. THIS PLAN MAY NOT BE AMENDED TO INCREASE MATERIALLY THE AMOUNT OF
COMPENSATION PROVIDED FOR IN PARAGRAPH 2 HEREOF UNLESS SUCH AMENDMENT IS
APPROVED IN THE MANNER PROVIDED FOR INITIAL APPROVAL IN PARAGRAPH 4 HEREOF,
AND NO MATERIAL AMENDMENT TO THE PLAN OF ANY KIND, INCLUDING AN AMENDMENT
WHICH WOULD INCREASE MATERIALLY THE AMOUNT OF SUCH COMPENSATION, SHALL BE MADE
UNLESS APPROVED IN THE MANNER PROVIDED FOR APPROVAL AND ANNUAL RENEWAL IN
PARAGRAPHS 5 AND 6 HEREOF.
10. WHILE THIS PLAN IS IN EFFECT, THE SELECTION AND NOMINATION OF
DIRECTORS WHO ARE NOT INTERESTED PERSONS (AS DEFINED IN THE ACT) OF THE FUND
SHALL BE COMMITTED TO THE DISCRETION OF THE THEN CURRENT DIRECTORS WHO ARE NOT
INTERESTED PERSONS (AS DEFINED IN THE ACT) OF THE FUND.
11. THE FUND SHALL PRESERVE COPIES OF THIS PLAN AND ANY RELATED
AGREEMENTS AND ALL REPORTS MADE PURSUANT TO PARAGRAPH 7 HEREOF FOR A PERIOD OF
NOT LESS THAN SIX YEARS FROM THE DATE OF THIS PLAN, SUCH AGREEMENTS OR SUCH
REPORTS, AS THE CASE MAY BE, TO BE KEPT FOR THE FIRST TWO YEARS IN AN EASILY
ACCESSIBLE PLACE.
<PAGE>
APPENDIX A
SUBJECT TO ANY LIMITATIONS IMPOSED BY RULE 2830 OF THE NASD'S CONDUCT RULES,
MNIS SHALL RECEIVE RULE 12B-1 FEES, WHICH SHALL BE PAID ON A MONTHLY BASIS.
THESE FEES WILL BE CALCULATED BASED ON A MAXIMUM ANNUAL RATE AS SET FORTH
BELOW, AS APPLIED TO THE AVERAGE DAILY NET ASSETS OF THE RESPECTIVE SERIES.
<PAGE>
SERIES CLASS OF SHARES FEE
SMALL CAP SERIES B 75BP
WORLD OPPORTUNITIES SERIES B 75BP
BLENDED ASSET SERIES I B 75BP
BLENDED ASSET SERIES II B 75BP
MAXIMUM HORIZON SERIES B 75BP
DEFENSIVE SERIES B 75BP
FLEXIBLE YIELD SERIES I B 75BP
FLEXIBLE YIELD SERIES II B 75BP
FLEXIBLE YIELD SERIES III B 75BP
TAX MANAGED SERIES B 75BP
<PAGE>
APPENDIX A
SUBJECT TO ANY LIMITATIONS IMPOSED BY RULE 2830 OF THE NASD'S CONDUCT RULES,
MNIS SHALL RECEIVE RULE 12B-1 FEES, WHICH SHALL BE PAID ON A MONTHLY BASIS.
THESE FEES WILL BE CALCULATED BASED ON A MAXIMUM ANNUAL RATE AS SET FORTH
BELOW, AS APPLIED TO THE AVERAGE DAILY NET ASSETS OF THE RESPECTIVE SERIES.
SERIES CLASS OF SHARES FEE
SMALL CAP SERIES C 75BP
WORLD OPPORTUNITIES SERIES C 75BP
BLENDED ASSET SERIES I C 75BP
BLENDED ASSET SERIES II C 75BP
MAXIMUM HORIZON SERIES C 75BP
DEFENSIVE SERIES C 75BP
FLEXIBLE YIELD SERIES I C 75BP
FLEXIBLE YIELD SERIES II C 75BP
FLEXIBLE YIELD SERIES III C 75BP
TAX MANAGED SERIES
<PAGE>
APPENDIX A
SUBJECT TO ANY LIMITATIONS IMPOSED BY RULE 2830 OF THE NASD'S CONDUCT RULES,
MNIS SHALL RECEIVE RULE 12B-1 FEES, WHICH SHALL BE PAID ON A MONTHLY BASIS.
THESE FEES WILL BE CALCULATED BASED ON A MAXIMUM ANNUAL RATE AS SET FORTH
BELOW, AS APPLIED TO THE AVERAGE DAILY NET ASSETS OF THE RESPECTIVE SERIES.
SERIES CLASS OF SHARES FEE
SMALL CAP SERIES D 50BP
WORLD OPPORTUNITIES SERIES D 50BP
BLENDED ASSET SERIES I D 50BP
BLENDED ASSET SERIES II D 50BP
MAXIMUM HORIZON SERIES D 50BP
DEFENSIVE SERIES D 50BP
FLEXIBLE YIELD SERIES I D 50BP
FLEXIBLE YIELD SERIES II D 50BP
FLEXIBLE YIELD SERIES III D 50BP
TAX MANAGED SERIES D 50BP
<PAGE>
APPENDIX A
SUBJECT TO ANY LIMITATIONS IMPOSED BY RULE 2830 OF THE NASD'S CONDUCT RULES,
MNIS SHALL RECEIVE RULE 12B-1 FEES, WHICH SHALL BE PAID ON A MONTHLY BASIS.
THESE FEES WILL BE CALCULATED BASED ON A MAXIMUM ANNUAL RATE AS SET FORTH
BELOW, AS APPLIED TO THE AVERAGE DAILY NET ASSETS OF THE RESPECTIVE SERIES.
SERIES CLASS OF SHARES FEE
SMALL CAP SERIES E 25BP
WORLD OPPORTUNITIES SERIES E 25BP
BLENDED ASSET SERIES I E 25BP
BLENDED ASSET SERIES II E 25BP
MAXIMUM HORIZON SERIES E 25BP
DEFENSIVE SERIES E 25BP
FLEXIBLE YIELD SERIES I E 25BP
FLEXIBLE YIELD SERIES II E 25BP
FLEXIBLE YIELD SERIES III E 25BP
TAX MANAGED SERIES E 25BP
<PAGE>
[ARTICLE] 6
[LEGEND]
[RESTATED]
[CIK] 0000751173
[NAME] EXETER FUND, INC.
[SERIES]
[NAME] DEFENSIVE SERIES
[NUMBER] 2
[MULTIPLIER] 1
[CURRENCY] 1
[FISCAL-YEAR-END] OCT-31-1998
[PERIOD-START] NOV-01-1997
[PERIOD-END] OCT-31-1998
[PERIOD-TYPE] YEAR
[EXCHANGE-RATE] 1
[INVESTMENTS-AT-COST] 5,597,523
[INVESTMENTS-AT-VALUE] 5,678,617
[RECEIVABLES] 59,963
[ASSETS-OTHER] 45,817
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 5,784,397
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 51,238
[TOTAL-LIABILITIES] 51,238
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 5,544,910
[SHARES-COMMON-STOCK] 528,593
[SHARES-COMMON-PRIOR] 164,649
[ACCUMULATED-NII-CURRENT] 99,985
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 7,170
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 81,094
[NET-ASSETS] 5,733,159
[DIVIDEND-INCOME] 11,587
[INTEREST-INCOME] 185,863
[OTHER-INCOME] 0
[EXPENSES-NET] 37,945
[NET-INVESTMENT-INCOME] 159,505
[REALIZED-GAINS-CURRENT] 13,980
[APPREC-INCREASE-CURRENT] 55,114
[NET-CHANGE-FROM-OPS] 228,599
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 91,449
[DISTRIBUTIONS-OF-GAINS] 34,079
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 442,590
[NUMBER-OF-SHARES-REDEEMED] 90,651
[SHARES-REINVESTED] 12,005
[NET-CHANGE-IN-ASSETS] 3,969,123
[ACCUMULATED-NII-PRIOR] 31,890
[ACCUMULATED-GAINS-PRIOR] 27,308
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 30,356
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 65,559
[AVERAGE-NET-ASSETS] 3,794,542
[PER-SHARE-NAV-BEGIN] 10.71
[PER-SHARE-NII] 0.347
[PER-SHARE-GAIN-APPREC] 0.327
[PER-SHARE-DIVIDEND] 0.352
[PER-SHARE-DISTRIBUTIONS] 0.182
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 10.85
[EXPENSE-RATIO] 1.00
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
[ARTICLE] 6
[LEGEND]
[RESTATED]
[CIK] 0000751173
[NAME] EXETER FUND, INC.
[SERIES]
[NAME] BLENDED ASSET SERIES I
[NUMBER] 11
[MULTIPLIER] 1
[CURRENCY] 1
[FISCAL-YEAR-END] OCT-31-1998
[PERIOD-START] NOV-01-1997
[PERIOD-END] OCT-31-1998
[PERIOD-TYPE] YEAR
[EXCHANGE-RATE] 1
[INVESTMENTS-AT-COST] 32,026,006
[INVESTMENTS-AT-VALUE] 31,723,372
[RECEIVABLES] 616,996
[ASSETS-OTHER] 72,767
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 32,413,135
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 121,918
[TOTAL-LIABILITIES] 121,918
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 30,323,782
[SHARES-COMMON-STOCK] 2,785,586
[SHARES-COMMON-PRIOR] 1,831,743
[ACCUMULATED-NII-CURRENT] 502,925
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 1,767,144
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] (302,634)
[NET-ASSETS] 32,291,217
[DIVIDEND-INCOME] 280,752
[INTEREST-INCOME] 974,806
[OTHER-INCOME] 0
[EXPENSES-NET] 339,370
[NET-INVESTMENT-INCOME] 916,188
[REALIZED-GAINS-CURRENT] 1,773,717
[APPREC-INCREASE-CURRENT] (1,033,391)
[NET-CHANGE-FROM-OPS] 1,656,514
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 693,293
[DISTRIBUTIONS-OF-GAINS] 1,427,315
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 1,438,207
[NUMBER-OF-SHARES-REDEEMED] 671,472
[SHARES-REINVESTED] 187,108
[NET-CHANGE-IN-ASSETS] 10,360,727
[ACCUMULATED-NII-PRIOR] 274,768
[ACCUMULATED-GAINS-PRIOR] 1,426,004
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 281,928
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 346,823
[AVERAGE-NET-ASSETS] 28,192,798
[PER-SHARE-NAV-BEGIN] 11.97
[PER-SHARE-NII] 0.357
[PER-SHARE-GAIN-APPREC] 0.349
[PER-SHARE-DIVIDEND] 0.328
[PER-SHARE-DISTRIBUTIONS] 0.758
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 11.59
[EXPENSE-RATIO] 1.20
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
[ARTICLE] 6
[LEGEND]
[RESTATED]
[CIK] 0000751173
[NAME] EXETER FUND, INC.
[SERIES]
[NAME] BLENDED ASSET SERIES II
[NUMBER] 12
[MULTIPLIER] 1
[CURRENCY] 1
[FISCAL-YEAR-END] OCT-31-1998
[PERIOD-START] NOV-01-1997
[PERIOD-END] OCT-30-1998
[PERIOD-TYPE] YEAR
[EXCHANGE-RATE] 1
[INVESTMENTS-AT-COST] 67,026,727
[INVESTMENTS-AT-VALUE] 63,055,142
[RECEIVABLES] 3,093,090
[ASSETS-OTHER] 116,924
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 66,265,156
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 292,134
[TOTAL-LIABILITIES] 292,134
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 65,185,769
[SHARES-COMMON-STOCK] 5,234,961
[SHARES-COMMON-PRIOR] 3,466,675
[ACCUMULATED-NII-CURRENT] 798,686
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 3,960,153
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] (3,971,586)
[NET-ASSETS] 65,973,586
[DIVIDEND-INCOME] 772,650
[INTEREST-INCOME] 1,509,035
[OTHER-INCOME] 0
[EXPENSES-NET] 729,598
[NET-INVESTMENT-INCOME] 1,552,087
[REALIZED-GAINS-CURRENT] 3,960,798
[APPREC-INCREASE-CURRENT] (6,481,268)
[NET-CHANGE-FROM-OPS] (968,383)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 1,191,632
[DISTRIBUTIONS-OF-GAINS] 6,231,121
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 2,076,628
[NUMBER-OF-SHARES-REDEEMED] 887,579
[SHARES-REINVESTED] 579,237
[NET-CHANGE-IN-ASSETS] 15,050,656
[ACCUMULATED-NII-PRIOR] 437,931
[ACCUMULATED-GAINS-PRIOR] 6,230,776
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 633,708
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 729,598
[AVERAGE-NET-ASSETS] 63,370,804
[PER-SHARE-NAV-BEGIN] 14.69
[PER-SHARE-NII] 0.312
[PER-SHARE-GAIN-APPREC] (0.385)
[PER-SHARE-DIVIDEND] 0.286
[PER-SHARE-DISTRIBUTIONS] 1.731
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 12.60
[EXPENSE-RATIO] 1.15
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
[ARTICLE] 6
[LEGEND]
[RESTATED]
[CIK] 0000751173
[NAME] EXETER FUND, INC.
[SERIES]
[NAME] MAXIMUM HORIZON SERIES
[NUMBER] 5
[MULTIPLIER] 1
[CURRENCY] 1
[FISCAL-YEAR-END] OCT-31-1998
[PERIOD-START] NOV-01-1997
[PERIOD-END] OCT-31-1998
[PERIOD-TYPE] YEAR
[EXCHANGE-RATE] 1
[INVESTMENTS-AT-COST] 20,398,305
[INVESTMENTS-AT-VALUE] 17,924,109
[RECEIVABLES] 809,853
[ASSETS-OTHER] 53,874
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 18,787,836
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 83,279
[TOTAL-LIABILITIES] 83,279
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 20,188,903
[SHARES-COMMON-STOCK] 1,546,424
[SHARES-COMMON-PRIOR] 691,741
[ACCUMULATED-NII-CURRENT] 107,296
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 882,554
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] (2,474,196)
[NET-ASSETS] 18,704,557
[DIVIDEND-INCOME] 272,330
[INTEREST-INCOME] 111,518
[OTHER-INCOME] 0
[EXPENSES-NET] 188,156
[NET-INVESTMENT-INCOME] 195,692
[REALIZED-GAINS-CURRENT] 983,037
[APPREC-INCREASE-CURRENT] (2,448,394)
[NET-CHANGE-FROM-OPS] (1,269,665)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 141,415
[DISTRIBUTIONS-OF-GAINS] 1,010,011
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 1,001,792
[NUMBER-OF-SHARES-REDEEMED] 237,720
[SHARES-REINVESTED] 90,611
[NET-CHANGE-IN-ASSETS] 8,852,863
[ACCUMULATED-NII-PRIOR] 29,439
[ACCUMULATED-GAINS-PRIOR] 1,006,980
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 156,797
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 207,432
[AVERAGE-NET-ASSETS] 15,679,652
[PER-SHARE-NAV-BEGIN] 14.24
[PER-SHARE-NII] 0.134
[PER-SHARE-GAIN-APPREC] (0.935)
[PER-SHARE-DIVIDEND] 0.123
[PER-SHARE-DISTRIBUTIONS] 1.216
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 12.10
[EXPENSE-RATIO] 1.20
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
[ARTICLE] 6
[LEGEND]
[RESTATED]
[CIK] 0000751173
[NAME] EXETER FUND, INC.
[SERIES]
[NAME] FLEXIBLE YIELD SERIES I
[NUMBER] 13
[MULTIPLIER] 1
[CURRENCY] 1
[FISCAL-YEAR-END] OCT-31-1998
[PERIOD-START] NOV-01-1997
[PERIOD-END] OCT-31-1998
[PERIOD-TYPE] YEAR
[EXCHANGE-RATE] 1
[INVESTMENTS-AT-COST] 1,113,259
[INVESTMENTS-AT-VALUE] 1,127,272
[RECEIVABLES] 19,621
[ASSETS-OTHER] 20,248
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 1,167,141
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 23,272
[TOTAL-LIABILITIES] 23,272
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 1,118,714
[SHARES-COMMON-STOCK] 108,126
[SHARES-COMMON-PRIOR] 62,539
[ACCUMULATED-NII-CURRENT] 8,180
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 2,962
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 14,013
[NET-ASSETS] 1,143,869
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 33,731
[OTHER-INCOME] 0
[EXPENSES-NET] 4,117
[NET-INVESTMENT-INCOME] 29,614
[REALIZED-GAINS-CURRENT] 5,788
[APPREC-INCREASE-CURRENT] 6,173
[NET-CHANGE-FROM-OPS] 41,575
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 32,409
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 139,912
[NUMBER-OF-SHARES-REDEEMED] 97,485
[SHARES-REINVESTED] 3,160
[NET-CHANGE-IN-ASSETS] 494,037
[ACCUMULATED-NII-PRIOR] 10,842
[ACCUMULATED-GAINS-PRIOR] (2,963)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 2,058
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 26,423
[AVERAGE-NET-ASSETS] 588,088
[PER-SHARE-NAV-BEGIN] 10.39
[PER-SHARE-NII] 0.468
[PER-SHARE-GAIN-APPREC] 0.289
[PER-SHARE-DIVIDEND] 0.567
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.58
[EXPENSE-RATIO] 0.70
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
[ARTICLE] 6
[LEGEND]
[RESTATED]
[CIK] 0000751173
[NAME] EXETER FUND, INC.
[SERIES]
[NAME] FLEXIBLE YIELD SERIES II
[NUMBER] 14
[MULTIPLIER] 1
[CURRENCY] 1
[FISCAL-YEAR-END] OCT-31-1998
[PERIOD-START] NOV-01-1997
[PERIOD-END] OCT-30-1998
[PERIOD-TYPE] YEAR
[EXCHANGE-RATE] 1
[INVESTMENTS-AT-COST] 645,780
[INVESTMENTS-AT-VALUE] 691,735
[RECEIVABLES] 10,817
[ASSETS-OTHER] 20,268
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 722,820
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 23,491
[TOTAL-LIABILITIES] 23,491
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 640,827
[SHARES-COMMON-STOCK] 66,609
[SHARES-COMMON-PRIOR] 70,205
[ACCUMULATED-NII-CURRENT] 7,807
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 4,740
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 45,955
[NET-ASSETS] 699,329
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 35,263
[OTHER-INCOME] 0
[EXPENSES-NET] 4,693
[NET-INVESTMENT-INCOME] 30,570
[REALIZED-GAINS-CURRENT] 5,805
[APPREC-INCREASE-CURRENT] 18,765
[NET-CHANGE-FROM-OPS] 55,140
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 31,969
[DISTRIBUTIONS-OF-GAINS] 4,875
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 21,299
[NUMBER-OF-SHARES-REDEEMED] 28,563
[SHARES-REINVESTED] 3,668
[NET-CHANGE-IN-ASSETS] (18,895)
[ACCUMULATED-NII-PRIOR] 8,569
[ACCUMULATED-GAINS-PRIOR] 4,447
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 2,639
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 27,560
[AVERAGE-NET-ASSETS] 586,543
[PER-SHARE-NAV-BEGIN] 10.23
[PER-SHARE-NII] 0.575
[PER-SHARE-GAIN-APPREC] 0.378
[PER-SHARE-DIVIDEND] 0.589
[PER-SHARE-DISTRIBUTIONS] 0.094
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 10.50
[EXPENSE-RATIO] 0.80
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
[ARTICLE] 6
[LEGEND]
[RESTATED]
[CIK] 0000751173
[NAME] EXETER FUND, INC.
[SERIES]
[NAME] FLEXIBLE YIELD SERIES III
[NUMBER] 15
[MULTIPLIER] 1
[CURRENCY] 1
[FISCAL-YEAR-END] OCT-31-1998
[PERIOD-START] NOV-01-1997
[PERIOD-END] OCT-31-1998
[PERIOD-TYPE] YEAR
[EXCHANGE-RATE] 1
[INVESTMENTS-AT-COST] 1,483,506
[INVESTMENTS-AT-VALUE] 1,621,399
[RECEIVABLES] 19,575
[ASSETS-OTHER] 131,468
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 1,772,442
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 23,771
[TOTAL-LIABILITIES] 23,771
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 1,554,014
[SHARES-COMMON-STOCK] 158,052
[SHARES-COMMON-PRIOR] 129,274
[ACCUMULATED-NII-CURRENT] 16,515
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 40,249
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 137,893
[NET-ASSETS] 1,748,671
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 88,119
[OTHER-INCOME] 0
[EXPENSES-NET] 12,275
[NET-INVESTMENT-INCOME] 75,844
[REALIZED-GAINS-CURRENT] 41,155
[APPREC-INCREASE-CURRENT] 51,301
[NET-CHANGE-FROM-OPS] 168,300
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 77,682
[DISTRIBUTIONS-OF-GAINS] 763
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 64,913
[NUMBER-OF-SHARES-REDEEMED] 42,333
[SHARES-REINVESTED] 6,198
[NET-CHANGE-IN-ASSETS] 403,390
[ACCUMULATED-NII-PRIOR] 17,515
[ACCUMULATED-GAINS-PRIOR] 695
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 7,221
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 33,990
[AVERAGE-NET-ASSETS] 1,444,152
[PER-SHARE-NAV-BEGIN] 10.41
[PER-SHARE-NII] 0.531
[PER-SHARE-GAIN-APPREC] 0.692
[PER-SHARE-DIVIDEND] 0.567
[PER-SHARE-DISTRIBUTIONS] 0.006
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 11.06
[EXPENSE-RATIO] 0.85
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
[ARTICLE] 6
[LEGEND]
[RESTATED]
[CIK] 0000751173
[NAME] EXETER FUND, INC.
[SERIES]
[NAME] TAX MANAGED SERIES
[NUMBER] 8
[MULTIPLIER] 1
[CURRENCY] 1
[FISCAL-YEAR-END] OCT-31-1998
[PERIOD-START] NOV-01-1997
[PERIOD-END] OCT-31-1998
[PERIOD-TYPE] YEAR
[EXCHANGE-RATE] 1
[INVESTMENTS-AT-COST] 725,715
[INVESTMENTS-AT-VALUE] 778,188
[RECEIVABLES] 481
[ASSETS-OTHER] 21,418
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 800,087
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 28,341
[TOTAL-LIABILITIES] 28,341
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 715,002
[SHARES-COMMON-STOCK] 53,364
[SHARES-COMMON-PRIOR] 34,491
[ACCUMULATED-NII-CURRENT] 5,151
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (880)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 52,473
[NET-ASSETS] 771,746
[DIVIDEND-INCOME] 11,029
[INTEREST-INCOME] 2,535
[OTHER-INCOME] 0
[EXPENSES-NET] 8,413
[NET-INVESTMENT-INCOME] 5,151
[REALIZED-GAINS-CURRENT] (878)
[APPREC-INCREASE-CURRENT] (37,135)
[NET-CHANGE-FROM-OPS] (32,862)
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 0
[DISTRIBUTIONS-OF-GAINS] 14,205
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 33,205
[NUMBER-OF-SHARES-REDEEMED] 15,294
[SHARES-REINVESTED] 962
[NET-CHANGE-IN-ASSETS] 247,549
[ACCUMULATED-NII-PRIOR] 0
[ACCUMULATED-GAINS-PRIOR] 14,203
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 7,011
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 36,267
[AVERAGE-NET-ASSETS] 701,391
[PER-SHARE-NAV-BEGIN] 15.20
[PER-SHARE-NII] 0.097
[PER-SHARE-GAIN-APPREC] (0.440)
[PER-SHARE-DIVIDEND] 0.00
[PER-SHARE-DISTRIBUTIONS] 0.397
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 14.46
[EXPENSE-RATIO] 1.20
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
