EXETER FUND, INC.
Prospectus
April 20, 1998
<PAGE>
EXETER FUND, INC.
1100 Chase Square
Rochester, New York 14604
1-800-466-3863
Exeter Fund, Inc. (the "Fund"), is an open-end management investment company
consisting of multiple series, each a separate investment portfolio having its
own investment objective and policies. This Prospectus relates to the eight
series of the Fund described below (individually and collectively, the
"Series"). The investment objective of each Series, except for the Global
Fixed Income Series, is to provide long-term growth of capital. The Global
Fixed Income Series seeks long-term total return. The Series seek to achieve
their respective objectives by the following investment policies:
SMALL CAP SERIES - by investing principally in the equity securities of small
issuers.
ENERGY SERIES - by investing principally in the equity securities of companies
in the energy industry and in industries connected with, marketing the
products of, serving and/or supplying the energy industry or which use energy
extensively in their product development or operations.
TECHNOLOGY SERIES - by investing principally in the equity securities of
companies in science -and technology-based industries and in industries
connected with, marketing the products of, serving and/or supplying science
- -and technology-based industries or which use scientific and technological
advances extensively in their product development or operations.
FINANCIAL SERVICES SERIES - by investing principally in the equity securities
of companies in the financial services industry and in industries connected
with, marketing the products of, serving and/or supplying the financial
services industry or which use financial services extensively in their product
development or operations.
INTERNATIONAL SERIES - by investing principally in the equity securities of
non-United States issuers.
LIFE SCIENCES SERIES - by investing principally in the equity securities of
companies in industries based on the life sciences (such as pharmaceuticals,
biomedical technology, health care delivery and environmental services) and in
industries connected with, marketing the products of, serving and/or supplying
industries based on the life sciences.
GLOBAL FIXED INCOME SERIES - by investing principally in fixed income
securities issued by governments, banks, corporations and supranational
entities located anywhere in the world, including the United States.
WORLD OPPORTUNITIES SERIES - by investing principally in common stocks of
companies domiciled in at least three different countries. The Advisor will
emphasize individual security selection to identify those issuers which are
believed to have attractive long-term business prospects and valuations.
Prospectus provides you with the basic information you should know before
investing in the Series of the Fund named above. The Fund's other eleven
series are offered through separate prospectuses. You should read this
Prospectus and keep it for future reference. A Statement of Additional
Information, dated April 20, 1998, containing additional information about the
Fund has been filed with the Securities and Exchange Commission and is
incorporated by reference in this Prospectus in its entirety. You may obtain a
copy of the Statement of Additional Information without charge by contacting
the Fund at the address or telephone number listed above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS APRIL 20, 1998.
<PAGE>
EXETER FUND, INC.
SMALL CAP SERIES
ENERGY SERIES
TECHNOLOGY SERIES
FINANCIAL SERVICES SERIES
INTERNATIONAL SERIES
LIFE SCIENCES SERIES
GLOBAL FIXED INCOME SERIES
WORLD OPPORTUNITIES SERIES
No person has been authorized to give any information or to make
representations not contained in this Prospectus in connection with any
offering made by this Prospectus and, if given or made, such information must
not be relied upon as having been authorized by the Fund. This Prospectus
does not constitute an offering by the Fund in any jurisdiction in which such
offering may not lawfully be made.
<PAGE>
TABLE OF CONTENTS
Expenses 3
Condensed Financial Information 4
The Fund 10
Risk and Investment Objectives and Policies 10
Risk and Additional Information about Investment Policies 17
Special Risk and Additional Investment Policies
- -World Opportunities Series 22
Principal Investment Restrictions 23
Management 23
Offering of Shares 24
Net Asset Value ` 24
Yield and Total Return 25
Redemption of Shares 25
Dividends and Tax Status 26
General Information 27
Appendix 28
<PAGE>
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
(As a percentage of offering price)
Maximum Sales Charge Imposed on Purchases None
Redemption Fees None
ANNUAL OPERATING EXPENSES
The following information provides (i) a tabular summary of expenses relating
to the annual operating expense of the Series and (ii) an example illustrating
the dollar cost of such expenses on a $1,000 investment.
Annual Fund Operating Expenses (as a percentage of average daily net assets)
<TABLE>
<CAPTION>
<S> <C> <C>
Small
Technology Cap
Series 1 Series Class A 1
Management 1.00% 1.00%
12b-1 fees None None
Other expenses 0.07% 0.07%
Total fund operating expenses 1.07% 1.07%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
International Sciences
Series 1 Series 1
Management 1.00% 1.00%
12b-1 fees None None
Other expenses 0.08% 0.06%
Total fund operating expenses 1.08% 1.06%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Financial
Services Energy
Series 2 Series 2
Management 1.00% 1.00%
12b-1 fees None None
Other expenses 0.13% 0.13%
Total fund operating expenses 1.13% 1.13%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Fixed World
Income Opportunities
Series 1 Series
Class A 1
Management 1.00% 1.00%
12b-1 fees None None
Other expenses 0.09% 0.15%
Total fund operating expenses 1.09% 1.15%
</TABLE>
Example
You would pay the following expenses on a $1,000 investment, assuming a) 5.0%
annual return and b) redemptions at the end of each time period:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1 year 3 years 5 years 10 years
Technology Series 1 $ 11 $ 34 $ 59 $ 131
Small Cap Series Class A 1 11 34 59 131
International Series 1 11 34 60 132
Life Sciences Series 1 11 34 58 129
Energy Series 2 12 36 N/A N/A
Financial Services Series 2 12 36 N/A N/A
Global Fixed ncome Series 1 11 35 60 133
World Opportunities Series Class A 1 12 37 63 140
</TABLE>
1 The Life Sciences Series was engaged in active investment operations for the
period January 1, 1995 through September 21, 1995 and the Technology Series
was engaged in active investment operations for the period January 1, 1997 to
April 16, 1997. The Small Cap Series, the International Series, and the World
Opportunities Series were engaged in active investment operations for the
year ended December 31, 1997 and the Global Fixed Income Series was engaged in
active investment operations for the period October 31, 1997 (commencement of
operations) to December 31, 1997; therefore, actual management fees and other
expenses were used above.
2 As these Series have not commenced active investment operations, the "Annual
Fund Operating Expenses" percentages and the "Example" expenses presented are
estimates based upon expense and average net assets if the Series were in
active investment operations for an entire year. For this reason, the Series
have not calculated these expenses beyond the 3 year period shown.
The purpose of the above table is to assist the investor in understanding the
various costs and expenses associated with investing in the Series. For a
more complete description of the various costs and expenses illustrated above,
please refer to the Management sections of this Prospectus.
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables provide selected per share data and ratios for the Series
(for a share outstanding throughout the period over various periods shown).
The tables are part of each Series' audited financial statements, which are
incorporated by reference into the Funds Statement of Additional Information.
Coopers & Lybrand, the Funds independent accountants, audited each Series
financial highlights for each of the periods shown. Additional performance
information is contained in each Series 1997 Annual Report to Shareholders and
are available upon request and without charge by calling 1-800-466-3863.
Per share income and capital change information is presented for the Small Cap
Series, International Series, and World Opportunities Series as they remained
engaged in active investment operations for the year ended December 31, 1997.
Per share and capital change information is presented for the Global Fixed
Income Series for the period October 31, 1997 (commencement of operations) to
December 31, 1997. The information for the Life Sciences Series and the
Technology Series is presented for the time that each series was active. The
remaining Series have not commenced active investment operations; thus the per
share income and capital change information is not presented.
<TABLE>
<CAPTION>
<S> <C> <C>
TECHNOLOGY SERIES
For the period For the Year
Jan.1, 1997 ended
to Dec. 31, 1996
Apr. 16, 199723
(date of full
redemption)
Net asset value - Beginning
of period $ 12.58 $ 10.71
Income from investment operations
Net investment income (loss) 0.02 (0.02)
Net realized and unrealized
gain (loss) on investments (0.01) 2.19
Total from investment operations 0.01 2.17
Less distributions to shareholders
From net investment income (0.02) --
From net realized gain on
investments (3.35) (0.30)
Redemption of capital (9.22) --
Total distributions to shareholders (12.59) (0.30)
Net asset value - End of period $ -- $ 12.58
Total return 21 --23 20.90%
Ratios (to average net assets)/
Supplemental data:
Expenses 1.07%4, 23 1.04%
Net investment income 0.36%4, 23 (0.17%)
Portfolio Turnover 48% 107%
Average Commission Rate Paid 25 $ 0.0174 $ 0.0163
Net assets - End of period (000's
omitted) $ -- $112,432
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TECHNOLOGY SERIES
For the Year For the period
ended Aug. 29, 1994
Dec. 31, 1995 (recommencement
of operations)
to
Dec. 31, 1994
Net asset value - Beginning of
period $ 11.35 $ 10.0019
Income from investment operations
Net investment income (loss) 0.02 (0.01)
Net realized and unrealized
gain (loss) on investments 4.51 1.36
Total from investment 4.53 1.35
Less distributions to shareholders
From net investment income (0.01) --
From net realized gain on (5.16) --
investments
Redemption of capital --
Total distributions to shareholders (5.17) --
Net asset value - End of period $ 10.71 $ 11.35
Total return 21 40.25% 13.5%
Ratios (to average net assets)/
Supplemental data:
Expenses 1.12% 1.32%4
Net investment income 0.13% (0.40)%4
Portfolio Turnover 107% 5%
Average Commission Rate Paid 25 $ 0.0156 --
Net assets - End of period (000's
omitted) $ 53,147 $ 51,929
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TECHNOLOGY SERIES
For the period
Jan. 1, 1992 to
May 11, 199215 For the
(date of full Year ended
redemption) Dec. 31, 1991
Net asset value - Beginning of
period $ 10.25 $ 8.00
Income from investment operations
Net investment income (loss) 0.01 (0.04)
Net realized and unrealized
gain (loss) on investments 1.53 2.93
Total from investment operations 1.54 2.89
Less distributions to shareholders
From net investment income -- --
From net realized gain on
investments (1.94) (0.64)
Redemption of capital (9.85) --
Total distributions to shareholders (11.79) (0.64)
Net asset value - End of period $ -- $ 10.25
Total return 21 --15 36.10%
Ratios (to average net assets)/
Supplemental data:
Expenses 1.35%4, 15 1.13%
Net investment income 0.20%4, 15 (0.33)%
Portfolio Turnover --5 4%
Average Commission Rate Paid 25 -- --
Net assets - End of period (000's
omitted) $ -- $ 5,594
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
TECHNOLOGY SERIES
For the For the
Year ended Year ended
Dec. 31, 1990 Dec. 31, 1989
Net asset value - Beginning of
period $ 9.41 $ 10.28
Income from investment operations
Net investment income (loss) 0.02 (0.05)
Net realized and unrealized
gain (loss) on investments (0.83) (0.06)
Total from investment operations (0.81) (0.11)
Less distributions to shareholders
From net investment income (0.03) --2
From net realized gain on
investments (0.57) (0.76)
Redemption of capital -- --
Total distributions to shareholders (0.60) (0.76)
Net asset value - End of period $ 8.00 $ 9.41
Total return 21 (8.90)% (0.90)%
Ratios (to average net assets)/
Supplemental data:
Expenses 1.14% 1.11%
Net investment income 0.20%12 (0.49)%
Portfolio Turnover 25% --5
Average Commission Rate Paid 25 -- --
Net assets - End of period (000's
omitted) $ 5,835 $ 6,669
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
TECHNOLOGY SERIES
For the period
Nov. 4, 1988
(commencement
of operations) to
Dec. 31, 19883
Net asset value - Beginning of
period $ 10.00
Income from investment operations
Net investment income (loss) 0.01
Net realized and unrealized
gain (loss) on investments 0.28
Total from investment operations 0.29
Less distributions to shareholders
From net investment income (0.01)
From net realized gain on
investments --
Redemption of capital --
Total distributions to shareholders (0.01)
Net asset value - End of period $ 10.28
Total return 21 2.85%
Ratios (to average net assets)/
Supplemental data:
Expenses 1.22%4
Net investment income 0.81%4
Portfolio Turnover --5
Average Commission Rate Paid 25 --
Net assets - End of period (000's
omitted) $ 6,260
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
SMALL CAP SERIES CLASS A 7
For the For the
Year ended Year ended
Dec. 31, 1997 Dec. 31, 1996
Net asset value - Beginning
of period $ 12.09 $ 11.95
Income from investment
operations
Net investment income (loss) (0.01) 0.05
Net realized and unrealized
gain (loss) on investments 1.50 1.11
Total from investment operations 1.49 1.16
Less distributions to shareholders
From net investment income (0.01) (0.04)
From net realized gain on
investments (1.52) (0.89)
In excess of net realized gains -- (0.09)
Redemption of capital -- --
Total distributions to shareholders (1.53) (1.02)
Net asset value - End of period $ 12.05 $ 12.09
Total return 21 12.29% 10.06%
Ratios (to average net
assets) / Supplemental data:
Expenses9 1.07% 1.08%
Net investment income (0.12%) 0.29%
Portfolio Turnover 94% 31%
Average Commission Rate $ 0.0224 $ 0.0291
Paid 25
Net assets - End of period
(000's omitted) $ 121,600 $ 100,688
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
SMALL CAP SERIES CLASS A 7
For the For the
Year ended Year ended
Dec. 31, 1995 Dec. 31, 1994
Net asset value - Beginning of period $ 12.92 $ 12.52
Income from investment operations
Net investment income (loss) 0.00 (0.07)
Net realized and unrealized gain (loss)
on investments 1.93 1.05
Total from investment operations 1.93 0.98
Less distributions to shareholders
From net investment income -- --
From net realized gain on investments (2.90) (0.58)
In excess of net realized gains -- --
Redemption of capital -- --
Total distributions to shareholders (2.90) (.058)
Net asset value - End of period $ 11.95 $ 12.92
Total return 21 14.70% 8.01%
Ratios (to average net assets)
/ Supplemental data:
Expenses9 1.07% 1.10%
Net investment income (0.03)% (0.58)%
Portfolio Turnover 77% 31%
Average Commission Rate Paid 25 $ 0.0500 --
Net assets - End of period (000's omitted) $ 143,003 $ 105,522
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
SMALL CAP SERIES CLASS A 7
For the period
April 30, 1992
For the (recommence-
Year ended ment of oper.)
Dec. 31, 1993 to Dec. 31, 19926
Net asset value - Beginning
of period $ 11.24 $ 10.0017
Income from investment
operations
Net investment income (loss) (0.04) (0.02)
Net realized and unrealized
gain (loss) on investments 1.70 1.63
Total from investment operations 1.66 1.61
Less distributions to shareholders
From net investment income -- --
From net realized gain on
investments (0.38) (0.29)
In excess of net realized gains -- (0.08)16
Redemption of capital -- --
Total distributions to shareholders (0.38) (0.37)
Net asset value - End of period $ 12.52 $ 11.24
Total return 21 14.64% 16.20%
Ratios (to average net
assets) / Supplemental data:
Expenses9 1.13% 1.27%4, 13
Net investment income (0.43)% (0.26)%4, 13
Portfolio Turnover 12% 24%
Average Commission Rate Paid 25 -- --
Net assets - End of period
(000's omitted) $ 70,734 $ 33,079
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
SMALL CAP SERIES CLASS A 7
For the period
Jan. 1, 1989
July 24, 1989 For the
(date of full Year ended
redemption) Dec. 31, 19881
Net asset value - Beginning $ 8.96 $ 8.93
of period
Income from investment operations
Net investment income (loss) (0.39) 0.10
Net realized and unrealized
gain (loss) on investments -- (0.07)
Total from investment
operations (0.39) 0.03
Less distributions to shareholders
From net investment income -- --
From net realized gain on
investments -- --
In excess of net realized gains -- --
Redemption of capital (8.57) --
Total distributions to shareholders (8.57) --
Net asset value - End of period $ -- $ 8.96
Total return 21 --10 0.33%
Ratios (to average net
assets) / Supplemental data:
Expenses9 14.59%4, 10 1.34%
Net investment income (8.02)%4, 10 0.91%
Portfolio Turnover --5 --5
Average Commission Rate Paid 25 -- --
Net assets - End of period
(000's omitted) $ -- $ 90
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
SMALL CAP SERIES CLASS A 7
For the period
Jan. 6, 1986
For the (commencement
Year ended of operations) to
Dec. 31, 1987 Dec. 31, 1986 11
Net asset value - Beginning
of period $ 8.08 $ 10.00
Income from investment operations
Net investment income (loss) 0.13 (0.09)
Net realized and unrealized gain
(loss) on investments 0.75 (1.83)
Total from investment operations 0.88 (1.92)
Less distributions to shareholders
From net investment income -- --
From net realized gain on
investments (0.03) --
In excess of net realized gains -- --
Redemption of capital -- --
Total distributions to shareholders (0.03) --
Net asset value - End of period $ 8.93 $ 8.08
Total return 21 10.89% (19.44)%
Ratios (to average net
assets) / Supplemental data:
Expenses9 2.26% 9.08%4
Net investment income 0.95% (5.62)%4
Portfolio Turnover 76% --5
Average Commission Rate Paid 25 -- --
Net assets - End of period
(000's omitted) $ 36,193 $ 1,608
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
INTERNATIONAL SERIES
For the For the
Year ended Year ended
Dec. 31, 1997 Dec. 31, 1996
Net asset value - Beginning of period $ 11.54 $ 9.57
Income from investment operations
Net investment income (loss) 0.15 0.15
Net realized and unrealized
gain (loss) on investments8 2.99 1.98
Total from investment operations 3.14 2.13
Less distributions to shareholders:
From net investment income (0.15) (0.14)
From paid-in-capital -- --
From net realized gain on investment (1.45) (0.02)
In excess of net realized gains -- --
Total distributions to shareholders (1.60) (0.16)
Net asset value - End of period $ 13.08 $ 11.54
Total return 21 27.70% 22.35%
Ratio (to average net
assets)/Supplemental data:
Expenses 1.08% 1.12%
Net investment income 1.18% 1.46%
Portfolio Turnover 10% 2%
Average Commission Rate Paid 25 $ 0.0005 $ 0.0013
Net assets at end of period (000's omitted) $ 199,256 $ 149,331
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
INTERNATIONAL SERIES
For the
Year ended Year ended
Dec. 31, 1995 Dec. 31, 1994
Net asset value - Beginning of period $ 9.54 $ 11.33
Income from investment operations
Net investment income (loss) 0.13 0.14
Net realized and unrealized
gain (loss) on investments8 0.26 (1.78)
Total from investment operations 0.39 (1.64)
Less distributions to shareholders:
From net investment income (0.12) --
From paid-in-capital (0.16) --
From net realized gain on investment (0.08) (0.15)
In excess of net realized gains -- -
Total distributions to shareholders (0.36) (0.15)
Net asset value - End of period $ 9.57 $ 9.54
Total return 21 4.14% (14.48)%
Ratio (to average net
assets)/Supplemental data:
Expenses 1.20% 1.18%
Net investment income 1.42% 1.38%
Portfolio Turnover 14% 31%
Average Commission Rate Paid 25 $ 0.0021 --
Net assets at end of period (000's omitted) $ 128,294 $ 85,964
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
INTERNATIONAL SERIES
For the period
Aug. 27, 1992
to
For the (commencement
Year ended of operations)
Dec. 31, 1993 Dec. 31, 1992
Net asset value - Beginning of period $ 9.19 $ 10.0018
Income from investment operations
Net investment income (loss) 0.15 0.03
Net realized and unrealized
gain (loss) on investments8 2.24 0.57
Total from investment operations 2.39 0.60
Less distributions to shareholders:
From net investment income (0.25) (0.03)
From paid-in-capital -- --
From net realized gain on investment -- (1.24)
In excess of net realized gains -- (0.14)14
Total distributions to shareholders (0.25) (1.41)
Net asset value - End of period $ 11.33 $ 9.19
Total return 21 26.00% 6.01%
Ratio (to average net
assets)/Supplemental data:
Expenses 1.16% 1.33%4
Net investment income 1.39% 0.85%4
Portfolio Turnover 20% --5
Average Commission Rate Paid 25 -- --
Net assets at end of period (000's omitted) $ 92,012 $ 72,163
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
LIFE SCIENCES SERIES
For the period
Jan. 1, 1995 to
Sept. 21, 1995 For the
(date of complete Year ended
redemption)20 Dec. 31, 1994
Net asset value - Beginning of period $ 10.43 $ 10.18
Income from investment operations
Net investment income (loss) 0.06 0.02
Net realized and unrealized
gain (loss) on investments 4.02 1.02
Total from investment operations 4.08 1.04
Less distributions to shareholders:
From net investment income (0.06) (0.02)
In excess of net investment income -- --
From net realized gain on investments (6.59) (0.77)
Redemption of Capitalization (7.86) --
Total distributions to shareholders (14.51) (0.79)
Net asset value - End of period $ -- $ 10.43
Total return 21 41.07% 10.30%
Ratio (to average net
assets)/Supplemental data:
Expenses 1.06%4 1.07%
Net investment income 0.57%4 0.17%
Portfolio Turnover 28% 49%
Average Commission Rate Paid 25 $ 0.06 --
Net assets - End of period (000's omitted) $ -- $ 67,219
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
LIFE SCIENCES SERIES
For the period
Oct. 7, 1992
For the (commencement of
Year ended operations) to
Dec. 31, 1993 Dec. 31, 1992
Net asset value - Beginning of
period $ 10.12 $ 10.0018
Income from investment operations
Net investment income (loss) 0.02 0.02
Net realized and unrealized
gain (loss) on investments 0.30 0.18
Total from investment operations 0.32 0.20
Less distributions to shareholders:
From net investment income (0.02) (0.02)
In excess of net investment income (0.01) --
From net realized gain on investments (0.23) (0.06)
Redemption of Capitalization -- --
Total distributions to shareholders (0.26) (0.08)
Net asset value - End of period $ 10.18 $ 10.12
Total return 21 3.16% 1.95%
Ratio (to average net
assets)/Supplemental data:
Expenses 1.14% 1.83%4
Net investment income 0.20% 0.67%4
Portfolio Turnover 45% --5
Average Commission Rate Paid 25 -- --
Net assets - End of period $ 70,594 $ 13,210
(000's omitted)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
WORLD OPPORTUNITIES SERIES CLASS A
For the period
Sept. 1, 1996
(commencement
For the of
Year ended operations) to
Dec. 31, 1997 Dec. 31, 1996
Net asset value - Beginning of period $ 10.42 $ 10.0022
Income from investment operations
Net investment income (loss) 0.09 0.05
Net realized and unrealized
gain (loss) on investments 0.67 0.43
Total from investment operations 0.76 0.48
Less distributions to shareholders:
From net investment income (0.09) (0.05)
From net realized gain on
investments (1.33) (0.01)
Total distributions to shareholders (1.42) (0.06)
Net asset value - End of period $ 9.76 $ 10.42
Total return 21 7.81% 4.82%
Ratio (to average net assets)
/Supplemental data:
Expenses 1.15% 1.17%4
Net investment income 0.79% 1.54%4
Portfolio Turnover 62% 1%
Average Commission Rate Paid $ 0.0101 $ 0.0065
Net assets - End of period
(000's omitted) $ 95,215 $ 77,338
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
GLOBAL FIXED INCOME SERIES
For the period
Oct. 31, 1997
(commencement of
operations) to
Dec. 31, 1997
Net asset value - Beginning of period $ 10.00 24
Income from investment operations
Net investment income (loss) 0.08
Net realized and unrealized gain
(loss) on investments 0.12
Total from investment operations 0.20
Less distributions to shareholders:
From net investment income (0.08)
Net asset value - End of period $ 10.12
Total return 21 2.00%
Ratio (to average net
assets)/Supplemental data:
Expenses 1.09% 4
Net investment income 4.75% 4
Portfolio Turnover 3%
Net assets - End of period (000's omitted) $ 127,172
</TABLE>
Footnotes to Financial Highlights:
1 Per share data was determined using a monthly average of the shares
outstanding throughout the period.
2 On April 11, 1989, a $.004 dividend was distributed to shareholders of
record on April 11, 1989.
3 On November 4, 1988, the Technology Series commenced sales of it's shares to
persons who are investment advisory clients or employees of the Fund's
Advisor.
4 Annualized.
5 For these periods, there were no purchases of securities whose maturity or
expiration date was greater than one year from the acquisition date.
6 The investment practice of the Fund results in the active operation of the
Series for discrete periods. On April 30, 1992 the Fund resumed sales of
shares of the Small Cap Series to advisory clients and employees of the Fund's
Advisor. Previously, the Small Cap Series was in active operation from
November 11, 1986 to May 14, 1987 and from December 1, 1987 to April 13, 1988.
Other than those periods stated previously, the only shareholders of the
Small Cap Series were those of the Initial Shareholders. During periods when
the only shareholders of the Small Cap Series were the Initial Shareholders,
assets of the Fund were invested in U.S. Treasury securities. On July 11 and
24, 1989, the shares held by the Initial Shareholders were redeemed in full
and the Fund remained dormant until April 30, 1992.
7 Per share data for all period prior to May 18, 1988, have been restated to
reflect the 10 for 1 stock dividend effected on May 18, 1988.
8 This amount is mathematically derived as the difference between the changes
in net asset value for the year and net investment income. The amount shown
for the year ended December 31, 1988 does not agree with the net realized
gains and net decrease in unrealized appreciation for the year as shown on the
Statement of Operations because the average number of shares for the year used
to determine the above computations is significantly different than the number
of shares outstanding at the time of the April 13, 1988 redemption described
in Note (6) above.
9 Absent fee waivers, the ratios of expense to average daily net assets is as
follows: 1.27%(for the period 4/30/92 to 12/31/92); 15.57%(for the period
1/1/89 to 7/24/89); 1.34%(for the year ended 12/31/88); 2.27%(for the year
ended 12/31/87); and 9.34%(for the period 1/6/88(commencement of operation) to
12/31/86).
10 During the period January 1, 1989 to July 24, 1989(date of full
redemption), the only shareholders and resulting assets were those of the
Initial Shareholders who redeemed their shares on July 11 and 24, 1989.
Therefore, the ratios presented may not be representative of an actively
operated series.
11 On November 11, 1986, the Fund commenced sales of shares of the Small Cap
Series to persons who are investment advisory clients of the Fund's Advisor.
Prior to that date, the Small Cap Series did not engage in any business
operations other than to purchase and hold approximately $100,000 of U.S.
Treasury securities.
12 Investment income per share is comprised of recurring dividend and interest
income which amounted to $0.07 per share and special dividends from Bell
Industries and Tempest Technologies, Inc. which amounted to $0.03 and $0.02
per share, respectively.
13 For the period April 30, 1992 to December 31, 1992, the ratios for the
Small Cap Series were calculated using average daily net assets.
14 Distributions differ from net investment income and net realized capital
gains because of book/tax timing differences, due to the requirements of the
Internal Revenue Code (the "Code"). The Code requires the Series to treat
it's open forward currency contracts sold short as covered for their fair
market value at the end of the period. The Series recognized the gains on the
forward foreign currency contracts as unrealized for book purposes at the end
of the period.
15 The investment practice of the Fund results in the active operation of the
Series for discrete periods. On August 29, 1994, the Fund resumed sales of
shares of the Technology Series to advisory clients and employees of the
Fund's Advisor. Previously, the Technology Series was in active operations
from November 4, 1988 to May 11, 1992. On May 11, 1992, the Technology Series
redeemed all shares held, therefore, the ratios presented may not be
representative of an actively traded fund.
16 Distributions may differ from net investment income and net realized
capital gains because of book/tax timing differences, primarily the
requirement of the excise tax regulations enacted as part of the 1986 Tax
Reform Act. The regulations required the Series to measure capital gains
through October 31, 1992. The excise tax regulations also required the Series
to distribute those gains before December 31, 1992 to avoid payment of excise
tax.
17 Initial offering price upon recommencement of operations on April 30, 1992.
18 International Series and Life Sciences Series commenced operations on
August 27, 1992 and October 7, 1992, respectively. The initial offering price
upon commencement of operations was $10.00 per share.
19 Initial offering price upon recommencement of operations on August 29,
1994.
20 The investment practice of the Fund results in the active operation of the
Series for discrete periods. On September 21, 1995, the Life Sciences Series
redeemed all shares held, therefore, the ratios presented may not be
representative of an actively traded fund.
21 Represents aggregate total return for the period indicated.
22 Initial offering price upon commencement of operations on September 6,
1996.
23 The investment practice of the Fund results in the active operation of the
Series for discrete periods. Previously, the Technology Series was in active
operations from November 4, 1998 to May 11, 1992. On April 16, 1997, the
Technology Series redeemed all shares held, therefore, the ratios presented
may not be representative of an actively traded fund.
24 Initial offering price upon commencement of operation on October 31, 1997.
25 Average commission rate is calculated for Series with fiscal years
beginning on or after January 1, 1995.
<PAGE>
The Fund
The Fund is an open-end management investment company incorporated under
the laws of the State of Maryland on July 26, 1984. This Prospectus relates
to eight series of the Fund: the Small Cap Series, the Energy Series, the
Technology Series, the Financial Services Series, the International Series,
the Life Sciences Series, and the Global Fixed Income Series and the World
Opportunities Series. The Small Cap Series of the Fund is a diversified fund.
The Energy Series, the Technology Series, the Financial Services Series, the
International Series, the Life Sciences Series, and the Global Fixed Income
Series and the World Opportunities Series are non-diversified funds. The Small
Cap Series and World Opportunities Series are offered through five separate
classes of shares, Class A, B, C, D and E shares, respectively. This
Prospectus provides information with respect to the Class A shares only.
Shares of the Fund are offered to employees of the Advisor and to its
clients or those of its affiliates that have authorized investment in the Fund
as part of the discretionary account management services of the Advisor or its
affiliates and directly to investors. There are no fees or expenses charged
to any investor in connection with acquisition of Fund shares.
Historically, shares of the Fund were available only in connection with
certain strategies the Advisor employed on behalf of discretionary account
clients that had authorized the Advisor to acquire and dispose of Fund shares
on their behalf. These strategies entailed using one or more series of the
Fund as a means to capture opportunities in specific market or industry
sectors and to provide diversification among asset classes (e.g.,
international diversification or portfolio diversification among small-cap
stocks) that could not otherwise be captured efficiently and with sufficient
diversification. Once an investment opportunity was captured for a Series,
that Series would ordinarily be "collapsed" (i.e., securities sold and the
shares of the Series redeemed) and the proceeds returned to the individual
client accounts. Such Series might not be "collapsed", however, if it
continued to be a suitable vehicle for certain clients to diversify risk by
investing in a sector or asset class (e.g., small capitalization stocks or
international securities) the performance of which historically is not highly
correlated (i.e., is said to have a low "covariance" or be "non-covariant")
with other holdings in the client's advisory portfolio.
The Advisor may also make the shares of the Fund offered hereby available
in additional circumstances. First, Fund shares, including shares of series
offered through separate prospectuses, may be used in connection with a
discretionary account management service that uses Fund shares as the
principal underlying investment medium. In addition, shares are offered to
investors that are not discretionary account clients of the Advisor. Series
made available in this way could no longer be collapsed at the Advisor's sole
discretion. The Class A shares of the Small Cap Series and World Opportunities
Series are offered to investors who purchase their shares directly from
Manning & Napier Investor Services, Inc. (the Distributor).
Since a Series may be used under varying conditions and market prices,
the result for a given investor might differ from the result that would have
been obtained had the Series been used only for clients with the same
investment objective. However, the Advisor seeks to manage cash flows into
and out of the Series in the interests of the Fund and its clients so as to
minimize the effect on performance.
As a general rule, the investment in shares of a Series on behalf of
discretionary account clients is limited to a maximum of 5% -- or if the
Advisor believes that the opportunity to capture investment values or to
diversify risk among asset classes is particularly compelling, to a maximum of
10% -- of the client's portfolio. For clients who have selected a fixed
income investment objective, the Advisor may invest up to 25% of their
portfolio in the Global Fixed Income Series.
RISK AND INVESTMENT OBJECTIVES AND POLICIES
GENERAL
The objective of each Series is to provide long-term growth of capital
except for the Global Fixed Income Series which seeks long term total return.
The various Series of the Fund may become inactive during periods when the
Advisor believes that there are insufficient opportunities for growth in the
particular market or individual sector. However, each Series is designed to
provide an opportunity for long-term growth when used over an extended period
of time in conjunction with the Advisor's overall investment management
services. There is no assurance that a Series will attain its objective.
Each Series, except for the Global Fixed Income Series, will attempt to
achieve its objective by investing primarily in equity securities as described
below. Equity securities consist of common stocks and other securities having
some of the characteristics of common stocks, such as convertible preferred
stocks, convertible bonds and warrants. The Small Cap Series does not intend
to invest more than 5% of the value of its total net assets in warrants. In
the case of the International Series the equity securities may, and the World
Opportunities Series, the equity securities will primarily consist of
non-United States issuers. The principal factor in selecting convertible
bonds will be the potential opportunity to benefit from movement in the stock
price. There will be no minimum rating standards for debt aspects of such
securities. Convertible bonds purchased by a Series may be subject to the
risk of being called by the issuer. However, none of the Series will buy
bonds if they are in default as to payment of principal or interest. The
Global Fixed Income Series portfolio will consist primarily of government debt
securities (e.g., those of agencies, instrumentalities and political
subdivisions of U.S. and foreign governments) and of investment grade
corporate debt securities, bank obligations and supranational obligations
(rated BBB or better by Standard and Poor's Corporation ("S&P"), or by Moody's
Investors Service, Inc. ("Moody's") and high quality money market instruments
(e.g., commercial paper, T-bills, certificates and deposit and bankers
acceptances rated A-2 or better by S&P's or PRIME-2 or better by Moody's).
Each Series, except for the Global Fixed Income Series, expects to be
fully invested in equity securities under normal circumstances. The Global
Fixed Income Series expects to be fully invested in fixed income securities
under normal circumstances. During periods when economic conditions in the
primary investment industries or vehicles for each Series are unfavorable or
when market conditions suggest a temporary defensive position, a Series may
invest its assets in U.S. government securities (or in the case of the
International Series, the World Opportunities Series and the Global Fixed
Income Series, both U.S. and foreign government securities), corporate bonds
and money market instruments, including, but not limited to, commercial paper,
bankers' acceptances, certificates of deposit and repurchase agreements, rated
in one of the top two rating categories by a major rating service or, if
unrated, of comparable quality as determined by the Advisor (see the Appendix
for details). In addition, even under normal circumstances the Series may to
varying degrees invest in certain types of securities or use certain
techniques and strategies discussed below under "Risk and Additional
Information about Investment Policies".
SMALL CAP SERIES
The Small Cap Series seeks to achieve its investment objective by
investing principally in equity securities of small issuers. In general, a
small issuer is one which has a market capitalization less than $700 million,
or less than the median market capitalization of the S&P Midcap Index (the
median market capitalization of the S&P Midcap Index as of the close on
December 31, 1997 was approximately $1,834 million), whichever is greater at
the time of investment. The Small Cap Series will, under normal
circumstances, have at least 65% of the value of its total net assets invested
in such securities; the balance, if any, will be invested in equity securities
of other than small issuers considered appropriate by the Advisor. Current
income is not a factor in pursuing the Small Cap Series' objective. There can
be no assurance that the Series will attain its objective.
Investing in the equity securities of small companies involves greater
risk than investing in such securities of larger companies, because the equity
securities of small companies may have less marketability and may be subject
to more abrupt or erratic market movements than the equity securities of
larger companies.
Investing in the Series involves the risk that the anticipated changes in
the economic environment will not occur. Changes in sector allocation may
lead to significant portfolio turnover with attendant brokerage and (for
taxable investors) tax consequences (see Dividends and Tax Status section).
The Series expects that its portfolio turnover rate generally will be no more
than 250%. The Series' ability to dispose of securities may be restricted by
the requirements for qualification for a regulated investment company.
The Series investment objective and policies as described above are not
fundamental policies and may be changed without shareholder approval; however,
it is the Board of Directors' policy to notify shareholders prior to any
material change.
ENERGY SERIES
The Energy Series seeks to achieve its investment objective by investing
principally in the equity securities of companies in the energy industry and
in industries connected with, marketing the products of, serving and/or
supplying the energy industry or which use energy extensively in their product
development or operations (hereinafter referred to as "energy and related
industries"). An equity security will generally be considered appropriate for
investment by the Energy Series if, as determined by the Advisor, at least 50%
of the company's assets, revenues or net income are derived from or related to
the energy and related industries. Under normal circumstances, at least 65%
of the Series' total assets will be concentrated in securities of companies in
the energy and related industries. Current income is not a factor in pursuing
the Series' objective. There can be no assurance that the Series will attain
its objective.
The Series' policy as to concentration of investments in the securities
of companies in the energy and related industries may involve a higher degree
of risk than those of investment companies which are less concentrated in
their investments. The special risks associated with investing in companies
in the energy and related industries are that earnings and dividends of
companies in these industries are greatly affected by changes in the prices
and supplies of oil and other energy fuels. Prices and supplies can fluctuate
significantly over a short period of time due to changes in international
politics, policies of the Organization of Petroleum Exporting Countries
(OPEC), relationships among OPEC nations, energy conservation, the regulatory
environment, governmental tax policies and the economic growth and stability
of countries which consume large amounts of energy resources. While the
Series intends to invest in the securities of many different companies, in
theory the Series could invest in the securities of fewer than 15 companies
without violating the various restrictions now imposed on the Series'
investments by its fundamental investment policies because the Series is
"non-diversified". The fewer the companies the Series invested in, the
greater would be the effect of each portfolio holding on the Series'
performance. Given the industry concentration, an investment in the Series
cannot be considered, and is not intended to be, a complete investment
program. Rather, it will be one of a number of holdings in the portfolios of
the clients of the Advisor or its affiliates.
The investment objective and policies as to concentration and continued
use of its name are fundamental investment policies of the Energy Series.
Fundamental investment policies may not be changed without the approval by a
majority, as defined in the Investment Company Act of 1940 (the "1940 Act"),
of the outstanding voting securities of the Series.
TECHNOLOGY SERIES
The Technology Series seeks to achieve its investment objective by
investing principally in the equity securities of companies in science -and
technology-based industries and in industries connected with, marketing the
products of, serving and/or supplying science -and technology-based industries
or which use scientific and technological advances extensively in their
product development or operations (hereinafter referred to as "technology and
related industries"). Examples of companies involved in technology and
related industries include the following areas: biotechnology and health care;
communications; computers; electronics; factory and office automation;
metallurgical and other materials advances; and specialty chemicals, among
others. An equity security will generally be considered appropriate for
investment by the Technology Series if, as determined by the Advisor, at least
50% of the company's assets, revenues or net income are derived from or
related to technology and related industries. Under normal circumstances, at
least 65% of the Series' total assets will be concentrated in securities of
companies in technology and related industries. Current income is not a
factor in pursuing the Series' objective. There can be no assurance that the
Series will attain its objective.
The Technology Series' policy as to concentration of investments in the
securities of companies in technology and related industries may involve a
higher degree of risk than those of investment companies which are less
concentrated in their investments. The special risks associated with
investments in the stocks of technology and related industries are that the
earnings prospects of these companies may be particularly uncertain or
volatile for a variety of reasons. These companies may have limited product
lines, market or financial resources, or they may be dependent upon a limited
management group. Products and services they offer may not prove to be
commercially successful or may be rendered obsolete by advances in science and
technology. In addition, biotechnology and health care companies may be
subject to extensive regulatory requirements causing considerable expense and
delay. Hence, such stocks may exhibit relatively high price volatility and
involve a high degree of risk. While the Series intends to invest in the
securities of many different companies, in theory the Series could invest in
the securities of fewer than 15 companies without violating the various
restrictions now imposed on the Series' investments by its fundamental
investment policies because the Series is "non-diversified". The fewer the
companies the Series invested in, the greater would be the effect of each
portfolio holding on the Series' performance. Given the industry
concentration, an investment in the Series cannot be considered, and is not
intended to be, a complete investment program. Rather, it will be one of a
number of holdings in the portfolios of the clients of the Advisor or its
affiliates.
The investment objective and policies as to concentration and continued
use of its name are fundamental investment policies of the Technology Series.
Fundamental investment policies may not be changed without the approval by a
majority, as defined in the 1940 Act, of the outstanding voting securities of
the Series.
FINANCIAL SERVICES SERIES
The Financial Services Series seeks to achieve its investment objective
by investing principally in the equity securities of companies in the
financial services industry and in industries connected with, serving and/or
supplying the financial services industry or which use financial services
extensively in their product development or operations (hereinafter referred
to as "financial services and related industries"). Selected examples of
companies involved in financial services would include: banks; thrift
institutions; insurance companies and brokers; finance companies; stockbrokers
and investment managers; leasing companies; real estate services; credit card
services; and, certain vendors and customers of the above (e.g., financial
software companies). The Series may purchase securities of an issuer which
derived more than 15% of its gross revenues in its most recent fiscal year
from securities-related activities, subject to applicable SEC regulations as
set forth in the Statement of Additional Information. An equity security will
generally be considered appropriate for investment by the Financial Services
Series if, as determined by the Advisor, at least 50% of the company's assets,
revenues or net income are derived from or related to the financial services
and related industries. Under normal circumstances, at least 65% of the
Series' total assets will be concentrated in securities of companies in the
financial services and related industries. Current income is not a factor in
pursuing the Series' objective. There can be no assurance that the Series will
attain its objective.
The Series' policy as to concentration of investments in the securities
of companies in the financial services and related industries may involve a
higher degree of risk than those of investment companies which are less
concentrated in their investments. The special risks associated with
investments in financial services and related industries are that the earnings
prospects of these companies may be uncertain or volatile for a variety of
reasons. These companies may be subject to uncertainties from changes in:
interest rates; the rate of inflation; the quality of their loan or investment
portfolios; government policies involving regulation or taxation; the ability
or willingness of consumers, companies, and governments to repay loans; and
the economic growth and political stability of outstanding debtor nations.
Certain financial services companies may also have limited product lines,
markets or financial resources, or they may be dependent upon a limited
management group or be affected by severe price competition. While the Series
intends to invest in the securities of many different companies, in theory the
Series could invest in the securities of fewer than 15 companies without
violating the various restrictions now imposed on the Series' investments by
its fundamental investment policies because the Series is "non-diversified".
The fewer the companies the Series invested in, the greater would be the
effect of each portfolio holding on the Series' performance. Given the
industry concentration, an investment in the Series cannot be considered, and
is not intended to be, a complete investment program. Rather, it will be one
of a number of holdings in the portfolios of the clients of the Advisor or its
affiliates.
The investment objective and policies as to concentration and continued
use of its name are fundamental investment policies of the Financial Services
Series. Fundamental investment policies may not be changed without the
approval by a majority, as defined in the 1940 Act, of the outstanding voting
securities of the Series.
INTERNATIONAL SERIES
The International Series seeks to achieve its investment objective by
investing principally in equity securities of non-United States issuers. The
International Series will, under normal circumstances, have at least 65% of
the value of its total assets invested, and expects to be fully invested, in
equity securities issued by non-United States entities in three or more
countries including, but not limited to, France, Germany, the United Kingdom,
Spain, Italy, Switzerland, Belgium, the Netherlands, Denmark, Sweden, Norway,
Canada, Mexico, Japan, Singapore, Australia, and New Zealand. Current income
is not a factor in pursuing the Series' objective. There can be no assurance
that the Series will attain its objective.
While the International Series intends to invest in the securities of
many different companies, in theory the Series could be invested in the
securities of fewer than 15 companies without violating the various
restrictions now imposed on the Series' investments by its fundamental
investment policies because the Series is "non-diversified". The fewer the
companies the Series invests in, the greater would be the effect of each
portfolio holding on the Series' performance. Given the Series' status as
non-concentrated, no investment will be made that will result in more than 25%
of the Series' assets being invested in any one industry. A foreign
government and its agencies will be deemed separate industries for purposes of
this restriction. The Series should not be considered, and is not intended to
be, a complete investment program. Rather, it will be one of a number of
holdings in the portfolios of the clients of the Advisor or its affiliates.
See "Risk and Additional Information about Investment Policies - Foreign
Securities" for a further discussion of the risks associated with investments
in foreign securities.
LIFE SCIENCES SERIES
The Life Sciences Series seeks to achieve its investment objective by
investing principally in the equity securities of companies engaged in
research, development, production, or distribution of products and services
related to the life sciences. Examples of companies involved in the life
sciences and related industries include those in the following areas:
Pharmaceuticals, including ethical (prescription) and proprietary
(nonprescription) drugs, drug delivery systems, and chemical or biological
components used in diagnostic testing;
Biotechnology, including processes, products or services relevant to
human health care, veterinary medicine, agriculture, bioremediation, energy
systems or industrial manufacturing;
Medical Products and Supplies, including equipment used in chemical
analysis and diagnostic testing, surgical and medical instruments, and dental
and optical products;
Health Care Services, including owners/operations of acute care
hospitals, specialty treatment hospitals, health maintenance organizations,
nursing homes, outpatient care centers, and other services associated with
health care delivery; and
Environmental Services, including companies engaged in research,
development, manufacture or distribution of products, processes or services
related to waste management or pollution control.
An equity security will generally be considered appropriate for
investment by the Life Sciences Series if, as determined by the Advisor, at
least 50% of the company's assets, revenues, or net income are derived from or
related to the life sciences and related industries. Under normal
circumstances, at least 65% of the Series' total assets will be concentrated
in securities of companies in the life sciences and related industries.
Current income is not a factor in pursuing the Series' objective. There can
be no assurance that the Series will attain its objective.
The Life Sciences Series' policy as to concentration of investments in
the securities of companies in the life sciences and related industries may
involve a higher degree of risk than those of investment companies which are
less concentrated in their investments. The special risks associated with
investments in the life sciences and related industries are that the earnings
prospects of these companies may be uncertain or volatile for a variety of
reasons. For example, the Life Sciences Series' industries are subject to
substantial government regulation and, in some instances, funding or
subsidies. Accordingly, changes in government policies or regulations could
have a material effect on the demand and/or supply of products and services.
In addition, scientific and technological advances present the risk that
products and services may be subject to rapid obsolescence. Moreover, there
may be significant liability risks associated with medical or environmental
products and services. While the Series' portfolio will normally include
securities of established suppliers of traditional products and services, the
Series may also invest in smaller companies (including companies without
historical records of having earned profits) that may benefit from the
development of new products and services. These smaller companies may present
greater opportunities for capital appreciation, but may also involve greater
risks than large, established issuers. Such smaller companies may have
limited product lines, markets or financial resources, or may depend on a
limited management group. In addition, the price of their securities may
fluctuate more erratically and to a greater degree than those of larger, more
established companies since they may trade less frequently and in more limited
volume. While the Series intends to invest in the securities of many
different companies, in theory the Series could invest in the securities of
fewer than 15 companies without violating the various restrictions now imposed
on the Series' investments by its fundamental investment policies because the
Series is "non-diversified". The fewer the companies the Series invested in,
the greater would be the effect of each portfolio holding on the Series'
performance. Given the industry concentration, an investment in the Series
cannot be considered, and is not intended to be, a complete investment
program. Rather, it will be one of a number of holdings in the portfolios of
the clients of the Advisor or its affiliates.
The investment objective and policies as to concentration and continued
use of its name are fundamental investment policies of the Life Sciences
Series. Fundamental investment policies may not be changed without the
approval by a majority, as defined in the 1940 Act, of the outstanding voting
securities of the Series.
GLOBAL FIXED INCOME SERIES
The Global Fixed Income Series seeks to achieve its investment objective
by investing principally in fixed income securities issued by governments,
banks, corporations and supranational entities located anywhere in the world.
The Series will, under normal circumstances, have at least 65% of the value of
its total assets in fixed income securities of issuers located in three or
more countries, including, but not limited to, the United States, Western
Europe, Canada, Mexico, Japan, Australia and New Zealand. The portfolio may
invest in securities denominated in U.S. or foreign currencies. Securities of
issuers within a given country may be denominated in the currency of another
country. There is no limit on the amount the Series may invest in any one
country, or in securities denominated in the currency of any one country.
There can be no assurance that the Series will attain its objective.
The Series' investments in fixed income securities will include debt
securities issued or guaranteed by U.S. or foreign sovereign governments,
their agencies, instrumentalities or political subdivisions; debt securities
issued or guaranteed by independent international organizations created or
supported by multiple governmental entities ("supranational entities") such as
the World Bank; U.S. or foreign corporate debt including commercial paper,
notes and bonds; debt obligations of U.S. and foreign banks and bank holding
companies; money market instruments; mortgage-backed securities; and
repurchase agreements involving these securities. The Series' portfolio will
consist primarily of government debt securities and of investment grade
corporate debt securities, bank debt and money market securities as rated by
an established rating agency (i.e., BBB or A-2 or better by S&P or Baa or
PRIME-2 or better by Moody's ), or, if not rated, determined to be of
comparable quality by the Advisor. Bonds rated BBB or lower by S&P or Baa or
lower by Moody's are considered to have speculative characteristics. The
Series may invest up to 20% of its assets in lower-rated, high-risk debt
securities (those rated Ba or lower by Moody's or BB or lower by S&P) which
have poor protection of payment of principal and interest. These securities
are commonly known as junk bonds. These securities are often considered to
be speculative and involve greater risk of default or price changes due to
changes in the issuer's credit-worthiness. Securities in the lowest rating
category that the Series may purchase (securities rated D by S&P or C by
Moodys) may present a particular risk of default, or may be in default and in
arrears in payment of principal and interest. In addition, C- or D-rated
securities may be regarded as having extremely poor prospects of ever
attaining investment standing. Yields and market values of these bonds will
fluctuate over time, reflecting changing interest rates and the markets
perception of credit quality and the outlook for economic growth. When
economic conditions appear to be deteriorating, lower rated bonds may decline
in value, regardless of prevailing interest rates. Accordingly, adverse
economic developments, including a recession or a substantial period of rising
interest rates, may disrupt the high-yield bond market, affecting both the
value and liquidity of such bonds. 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. An economic downturn could
adversely affect the ability of issuers of such bonds to make payments of
principal and interest to a greater extent than issuers of higher rated bonds
might be affected. Ratings of corporate bonds including lower rated bonds are
included in the Appendix. In the event a security is downgraded below these
ratings after purchase, the Advisor will review and take appropriate
action with regard to the security. The following table provides a summary of
ratings assigned by S&P to debt obligations in the Series portfolio.
<TABLE>
<CAPTION>
<S> <C>
S & P Rating Average
AAA 47
AA 29
A 5
BBB 0
BB 19
</TABLE>
These figures are dollar-weighted averages of month-end portfolio holdings
during the fiscal year ended December 31, 1997, presented as a percentage of
total investment. These percentage are historical and are not necessarily
indicative of the quality of current or future portfolio holdings, which may
vary.
The Series may invest up to 5% of its total assets in debt securities
convertible into equity securities, although the Series has no current
intention to convert such securities or to hold them as equities after
conversion. The maturity of debt securities may be long-term (10 years or
greater), intermediate (1 to 10 years), or short-term (12 months or less) and
the proportion invested in each category can be expected to vary depending on
evaluations of market conditions. The value of debt securities held by the
Series, and therefore the Series' total return, is significantly affected by
movements in interest rates and by changes in foreign currency exchange rates.
In addition, the effect of interest rate movements on the value of the
Series' shares will be affected by the Series' average weighted maturity since
longer term securities will experience greater fluctuations than shorter term
securities. The value of debt securities held by the Series will also be
affected by changes in the ratings of any securities and changes in the
ability of the issuer to make payments of principal and interest.
While the Series intends to invest in the securities of many different
companies, in theory the Series could invest in the securities of fewer than
15 companies without violating the various restrictions now imposed on the
Series' investments by its fundamental investment policies because the Series
is "non-diversified". The fewer the companies the Series invested in, the
greater would be the effect of each portfolio holding on the Series'
performance. The Global Fixed Income Series will not invest more than 25% of
its total assets in any one foreign government. A foreign government and its
agencies will be deemed separate industries for purposes of this restriction.
The Series should not be considered, and is not intended to be, a complete
investment program. Rather, it will be one of a number of holdings in the
portfolios of the clients of the Advisor or its affiliates. See "Additional
Investment Policies--Foreign Securities" for a further discussion of the risks
associated with investments in foreign securities.
The investment objective and policies and the continued use of its name
are fundamental investment policies of the Global Fixed Income Series.
Fundamental investment policies may not be changed without the approval by a
majority, as defined in the 1940 Act, of the outstanding voting securities of
the Series.
WORLD OPPORTUNITIES SERIES
The World Opportunities Series seeks to attain its objective by
investing at least 65% of its assets in common stocks of companies domiciled in
at least three different countries. The Advisor will emphasize individual
security selection to identify those issuers which, in the Advisor's opinion,
have attractive long-term business prospects and valuations. It may invest up
to 20% of assets in noninvestment-grade convertibles and debt securities.
There can be no assurance that the Series will attain its objective.
The Series may also invest up to 35% of its assets in corporate debt
securities of foreign issuers and in obligations issued by foreign governments
or their respective agencies and instrumentalities. The value of debt
securities fluctuates inversely to changes in interest rates. The Series may
invest in both exchange and over-the-counter traded securities. The Series
may invest in such securities without regard to term or rating and may, from
time to time, invest up to 20% of its assets in debt securities rated below
investment grade, i.e., rated lower than BBB by S&P or Baa by Moody's, or
unrated securities of comparable quality as determined by the Advisor. These
securities are commonly known as junk bonds. Ratings of corporate bonds
including lower rated bonds are included in the Appendix. See "Special Risk
and Additional Investment Policies - World Opportunities Series Only".
The Series is a non-diversified portfolio under the 1940 Act which means
that the Series is not limited by the 1940 Act in the proportion of its assets
that may be invested in the obligations of a single issuer. Thus, the Series
may invest a greater proportion of its assets in the securities of a small
number of issuers and as a result will be subject to greater risk with respect
to its securities. However, the Series intends to comply with the
diversification requirements imposed by the Internal Revenue Code of 1986, as
amended (the "Code") for qualification as a regulated investment company.
For temporary defensive purposes during periods when the Advisor
determines that market conditions warrant, the Series may invest up to 100% of
its assets in money market instruments (including securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities,
certificates of deposit, time deposits and bankers' acceptances issued by
banks or savings and loan associations deemed to be creditworthy by the
Advisor, commercial paper rated A-1 by S&P or PRIME-1 by Moody's, repurchase
agreements involving such securities and other investment companies investing
solely in such securities as permitted by applicable law) and may hold a
portion of its assets in cash. For a description of the above ratings, see
the Appendix and the Statement of Additional Information.
Unless otherwise stated, the Series' investment policies are not
fundamental and may be changed without shareholder approval; however, it is
the Board of Directors' policy to notify shareholders prior to any material
change.
In addition, the Series may to varying degrees use certain techniques
and strategies discussed below under "Risk and Additional Information about
Investment Policies".
RISK AND ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
In attempting to achieve their objectives, the Series may follow a
number of investment strategies as described below. Unless otherwise noted,
these strategies have been voluntarily adopted by the Board of Directors based
upon current circumstances and may be changed or amended by action of the Board
of Directors without prior notice or approval of a Series' shareholders.
Additional information concerning these strategies and their related risks is
contained in the Statement of Additional Information.
FOREIGN SECURITIES
In seeking its objective, the International Series will invest primarily
in common stocks of non-United States issuers, while the World Opportunities
Series will invest 65% of its assets in common stocks of companies domiciled
in at least three different countries. The Global Fixed Income Series will
invest primarily in government and corporate fixed income securities issued
anywhere in the world, including the U.S. In addition, the Life Sciences
Series may invest up to 25% of its assets, and each other Series may invest up
to 10% of its assets in foreign securities which are not publicly traded in
the United States. Each Series will invest no more than 25% of its assets in
any one foreign government. Each Series, except for the Global Fixed Income
Series, may invest without limit in equity securities of foreign issuers that
are listed on a domestic securities exchange or are represented by American
Depository Receipts that are listed on a domestic securities exchange or are
traded in the United States on the over-the-counter market. Each Series'
restriction on investment in foreign securities is a fundamental policy that
cannot be changed without the approval of a majority, as defined in the 1940
Act, of the outstanding voting securities of a Series.
There are risks in investing in foreign securities not typically involved
in domestic investing. An investment in foreign securities may be affected by
changes in currency rates and in exchange control regulations. Foreign
companies are frequently not subject to the accounting and financial reporting
standards applicable to domestic companies, and there may be less information
available about foreign issuers. There is frequently less government
regulation of foreign issuers than in the United States. In addition,
investments in foreign countries are subject to the possibility of
expropriation or confiscatory taxation, political or social instability or
diplomatic developments that could adversely affect the value of those
investments. There may also be imposition of withholding taxes. Foreign
financial markets may have less volume and longer settlement periods than U.S.
markets which may cause liquidity problems for a Series. In addition, costs
associated with transactions on foreign markets are generally higher than for
transactions in the United States. The Global Fixed Income Series' policy
under which it has no limit on the amount it may invest in any one country may
involve a higher degree of risk than if the Fund were more diversified among
countries. The special risks associated with investing in just one country
include a greater effect on portfolio holdings of country-specific economic
factors, currency fluctuations and country-specific social or political
factors.
Obligations of foreign governmental entities are subject to various
types of governmental support and may or may not be supported by the full faith
and credit of a foreign government.
REPURCHASE AGREEMENTS
Each Series may enter into repurchase agreements with respect to
portfolio securities. Under the terms of a repurchase agreement, a Series
purchases securities ("collateral") from financial institutions such as banks
and broker-dealers (the "seller") which the Advisor deems to be creditworthy,
subject to the seller's agreement to repurchase them at a mutually agreed-upon
date and price. The repurchase price generally equals the price paid by the
Series plus interest negotiated on the basis of current short-term rates
(which may be more or less than the rate on the underlying portfolio
securities).
The seller under a repurchase agreement is required to maintain the
value of the collateral held pursuant to the agreement at not less than 100% of
the repurchase price, and securities subject to repurchase agreements are held
by the Fund's custodian either directly or through a securities depository.
Default by the seller would, however, expose the Series to possible loss
because of adverse market action or delay in connection with the disposition
of the underlying securities. Repurchase agreements are considered to be
loans by the Series under the 1940 Act.
U.S. GOVERNMENT SECURITIES
Each Series may purchase securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. Direct obligations of the U.S.
Government include bills, notes and bonds issued by the U.S. Treasury and
obligations issued or guaranteed by U.S. agencies or instrumentalities. The
obligations of certain U.S. agencies (e.g., the Government National Mortgage
Association) are backed by the full faith and credit of the U.S. Government or
are supported by the agencies' rights to borrow from the U.S. Treasury. The
issues of other agencies are supported only by the credit of the agency (e.g.,
Fannie Mae).
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 the Series owns securities equivalent to those sold short. No more
than 25% of the net assets (taken at current value) of a Series may be held as
collateral for such sales at any one time. Such short sales can be used as a
hedge.
FORWARD COMMITMENTS OR PURCHASES ON A WHEN-ISSUED BASIS
Each Series may enter into forward commitments or purchase securities on
a when-issued basis. These securities normally are subject to settlement
within 45 days of the purchase date. The interest rate realized on these
securities is fixed as of the purchase date and no interest accrues to the
Series before settlement. These securities are subject to market fluctuation
due to changes in market interest rates. The Series will maintain a separate
account with a segregated portfolio of liquid assets in an amount equal to the
purchase price.
MORTGAGE-BACKED SECURITIES
Each Series may purchase mortgage-backed securities which represent an
interest in a pool of mortgage loans. The primary government issuers or
guarantors of mortgage-backed securities are the Government National Mortgage
Association ("GNMA"), Fannie Mae, and the Federal Home Loan Mortgage
Corporation. Mortgage-backed securities may also be issued by other U.S. and
foreign government agencies and non-governmental entities which consist of
collateralized mortgage obligations ("CMOs") and real estate mortgage
ivestment conduits ("REMICs") that are rated in one of the top two rating
categories by S&P or Moody's. The mortgages backing these securities include
conventional thirty-year fixed rate mortgages, graduated payment mortgages,
and adjustable rate mortgages. CMOs and REMICs backed solely by GNMA
certificates or other mortgage pass-throughs issued or guaranteed by the U.S.
Government or its agencies and instrumentalities may be supported by various
types of insurance. However, the guarantees or insurance do not extend to the
mortgage-backed securities' values, which are likely to vary inversely with
fluctuations in interest rates.
Mortgage-backed securities are in most cases "pass-through" instruments,
through which the holder receives a share of all interest and principal
payments from the mortgages underlying the certificate. When the Advisor is
determining the maturity of pass-through certificates the Advisor will
consider the maturity to be equal to the average life rather than the stated
maturity. Because of the subjective nature of average life calculations, the
average maturity of a Series portfolio maybe difficult to monitor. During
periods of declining interest rates, prepayment of mortgages underlying
mortgage-backed securities can be expected to accelerate. When the mortgage
obligations are prepaid, the Series reinvests the prepaid amounts in
securities, the yield of which reflects interest rates prevailing at the time.
Moreover, prepayment of mortgages which underlie securities purchased at a
premium could result in capital losses.
To the extent that the Series purchases mortgage-related or
mortgage-backed securities at a premium, mortgage foreclosures and prepayments
of principal (which may be made at any time without penalty) may result in
some loss of the Series' principal investment to the extent of the premium
paid. The yield of the Series may be affected by reinvestment of prepayments
at higher or lower rates than the original investment. In addition, like
other debt securities, the value of mortgage-related securities, including
government and government-related mortgage pools, will generally fluctuate in
response to market interest rates.
ZERO-COUPON BONDS
Some of the securities in which the Series invests may include so-called
"zero-coupon" bonds. Zero-coupon bonds are issued at a significant discount
from face value and generally pay interest only at maturity rather than at
intervals during the life of the security. The Series is required to accrue
and distribute income from zero-coupon bonds on a current basis, even though
it does not receive that income currently in cash. Thus, the Series may have
to sell investments to obtain cash needed to make income distributions. The
discount in the absence of financial difficulties of the issuer decreases as
the final maturity of the security approaches. Zero-coupon bonds can be sold
prior to their maturity date in the secondary market at the then prevailing
market value, which depends primarily on the time remaining to maturity, the
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 each of the Series may carry
variable or floating rates of interest, may involve a conditional or
unconditional demand feature and may include variable amount master demand
notes. Such instruments bear interest at rates which are not fixed, but which
vary with changes in specified market rates or indices, such as a Federal
Reserve composite index. The interest rate on these securities may be reset
daily, weekly, quarterly, or at some other interval, and may have a floor or
ceiling rate. There is a risk that the current interest rate on such
obligations may not accurately reflect existing market interest rates.
HEDGING TECHNIQUES
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' portfolio, that is, to reduce the overall level
of risk that normally would be expected to be associated with its investments.
Each Series may write covered call options on common stocks (fixed income
securities for the Global Fixed Income Series); may purchase and sell (on a
secured basis) put options; and may engage in closing transactions with
respect to put and call options. Each Series also may purchase forward
foreign currency exchange contracts to hedge currency exchange rate risk. In
addition, each Series is authorized to purchase and sell stock index futures
contracts and options on stock index futures contracts. Each Series is also
authorized to conduct spot (i.e., cash basis) currency transactions or to use
currency futures contracts and options on futures contracts and foreign
currencies in order to protect against uncertainty in the future levels of
foreign currency exchange rates. These strategies are primarily used for
hedging purposes; nevertheless, there are risks associated with these
strategies as described below.
OPTIONS ON SECURITIES
A call option is a short-term contract pursuant to which the purchaser of
the option, in return for a premium, has the right to buy the security
underlying the option at a specified price at any time during the term of the
option. The writer of a call option, who receives the premium, has the
obligation, upon exercise during the option term, to deliver the underlying
security against payment of the exercise price. Conversely, a put option
gives its purchaser, in return for a premium, the right to sell the underlying
equity security at a specified price during the option term to the writer of
the put option, who receives the premium. Each Series will sell call options
only on a "covered" basis, i.e., it will own the underlying security at all
times, and will write put options only on a "covered basis", i.e., it will
maintain an amount equal to the exercise price in a segregated account at all
times. The Series may engage in option transactions for hedging purposes and
to realize a greater current return, through the receipt of premiums, than
would be earned on the underlying securities alone. Options traded in the
over-the-counter market will be considered illiquid unless the Fund has
entered into arrangements with U.S. Government securities dealers to dispose
of such options at a formula price based on a multiple of the original premium
plus the amount by which the option is "in the money".
STOCK INDEX FUTURES CONTRACTS AND OPTIONS ON STOCK INDEX FUTURES CONTRACTS
A stock index futures contract is a bilateral agreement pursuant to which
one party agrees to accept, and the other party agrees to make, delivery of an
amount of cash equal to a specified dollar amount times the difference between
the stock index value at the close of trading of the contract and the price at
which the futures contract is originally struck. No physical delivery of the
stocks comprising the index is made. Options on stock index futures contracts
give the purchaser the right, in return for the premium paid, to assume a long
or short position in a futures contract.
FUTURES CONTRACTS
Each Series may purchase and sell financial futures contracts on debt
securities on a commodities exchange or board of trade for certain hedging,
return enhancement and risk management purposes in accordance with applicable
regulations. A financial futures contract is an agreement to purchase or sell
an agreed amount of securities at a set price for delivery in the future. The
Series may not purchase or sell futures contracts if immediately thereafter
the sum of the amount of initial margin deposits on any such futures (plus
deposits on any other futures contracts and premiums paid in connection with
any options or futures contracts) that do not constitute "bona fide hedging"
under the Commodity Futures Trading Commission ("CFTC") rules would exceed 5%
of the liquidation value of the Series' total assets after taking into account
unrealized profits and losses on such contracts. In addition, the value of
all futures contracts sold will not exceed the total market value of the
Series' portfolio. The Fund will comply with guidelines established by the
Securities and Exchange Commission with respect to covering of obligations
under futures contracts and will set aside liquid assets in a segregated
account with its custodian in the amount prescribed.
The Series' successful use of futures contracts depends on the Advisor's
ability to accurately predict the direction of the market and is subject to
various additional risks. The correlation between movements in the price of a
futures contract and the price of the securities being hedged is imperfect and
there is a risk that the value of the securities being hedged may increase or
decrease at a greater rate than the related futures contracts resulting in
losses to the Series. Certain futures exchanges or boards of trades have
established daily limits based on the amount of the previous day's settlement
price. These daily limits may restrict the Series' ability to repurchase for
sale certain futures contracts on any particular day.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Series' use of forward foreign currency contracts is limited to
hedging against movements in the value of foreign currencies relative to the
U.S. dollar in connection with specific portfolio transactions or with respect
to existing portfolio positions denominated in such currencies. A transaction
hedge involves the purchase or sale of a forward contract with respect to a
specific receivable or payable of a Series while a position hedge relates to a
specific portfolio holding. A forward foreign currency exchange contract
involves an obligation to purchase or sell a specified currency at a future
date at a price set at the time of the contract. Foreign currency exchange
contracts do not eliminate fluctuations in the values of portfolio securities
but rather allow a Series to establish a rate of exchange for a future point
in time. With respect to any such forward foreign currency contract, it will
not generally be possible to match precisely the amount covered by that
contract and the value of the securities involved due to the changes in the
values of such securities resulting from market movements between the date the
forward contract is entered into and the date it matures. In addition, while
forward contracts may offer protection from losses resulting from declines in
the value of a particular foreign currency, they also limit potential gains
which might result from increases in the value of such currency. Based on
current legal interpretation, the Series do not consider forward foreign
currency exchange contracts to be commodities or commodity contracts for
purposes of the Series' fundamental restrictions concerning investment in
commodities or commodity contracts, as set forth in the Statement of
Additional Information.
CURRENCY FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
A currency futures contract is an agreement for the purchase or sale for
future delivery of foreign currencies. A "sale" of a currency futures
contract means the obligation to deliver the foreign currencies called for by
the contract at a specified price on a specified date while a "purchase" of a
currency futures contract means the obligation to acquire the foreign
currencies called for by the contract at a specified price on a specified
date. A Series will only enter into futures contracts which are traded on
national or foreign futures exchanges and which are standardized as to
maturity date and the underlying financial instrument. Options on currency
futures contracts give the purchaser the right, in return for the premium
paid, to assume a long or short position in the futures contract. A Series
may not purchase or sell future contracts if immediately thereafter the sum of
the amount of initial margin deposits on any such futures (plus deposits on
any other futures contracts and premiums paid in connection with any options
or futures contracts) that do not constitute "bona fide hedging" under CFTC
rules would exceed 5% of the liquidation value of the Series' total assets
after taking into account unrealized profits and losses on such contracts. In
addition, the value of all futures contracts sold will not exceed the total
market value of each Series' portfolio.
FOREIGN CURRENCY OPTIONS
A call option on a foreign currency is a short-term contract pursuant to
which the purchaser of the option, in return for a premium, has the right to
buy the currency underlying the option at a specified price at any time during
the term of the option. The writer of a call option, who receives the
premium, has the obligation, upon exercise of the option during the option
term, to deliver the underlying currency against payment of the exercise
price. Conversely, a put option on a foreign currency gives its purchaser, in
return for a premium, the right to sell the underlying currency at a specified
price during the option term to the writer of the put option, who receives the
premium.
RISKS ASSOCIATED WITH HEDGING STRATEGIES
There are risks associated with the hedging strategies described above,
including the following: (1) the success of a hedging strategy may depend on
the ability of the Advisor accurately to predict movements in the prices of
individual securities, fluctuations in domestic and foreign markets and
currency exchange rates, and movements in interest rates; (2) there may be an
imperfect correlation between the changes in market value of the stocks held
by a 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.
SPECIAL RISK AND ADDITIONAL INVESTMENT POLICIES--WORLD OPPORTUNITIES SERIES
ONLY
The World Opportunities Series may engage in the following investment
policies and practices, some of which are described in more detail in the
Statement of Additional Information.
FOREIGN INVESTMENTS
Investments in foreign securities have special risks related to
political, economic and legal conditions outside of the U.S., including the
possibility of unfavorable currency exchange rates, exchange control
regulations (including currency blockage), expropriation, nationalization,
withholding taxes on income and difficulties in enforcing judgments. Foreign
securities may be less liquid and more volatile than comparable U.S.
securities. In general, there may be limited public information with respect
to foreign issuers, and some foreign issuers may also be subject to less
comprehensive accounting and disclosure requirements than similar U.S.
issuers.
The Series' investments in foreign securities may include investments in
countries whose economies or securities markets are not yet highly developed.
Special risks associated with these investments (in addition to the
considerations regarding foreign investments generally) may include, among
others, greater political uncertainties, an economy's dependence on revenues
from particular commodities or on international aid or development assistance,
currency transfer restrictions, highly limited numbers of potential buyers for
such securities and delays and disruptions in securities settlement
procedures.
INVESTING IN OTHER INVESTMENT COMPANIES
The Series may invest up to 10% of its total assets in closed-end
investment companies commonly referred to as "country funds". Such
investments will involve the payment of duplicate fees through the indirect
payment of a portion of the expenses, including advisory fees, of such other
investment companies.
SMALL COMPANIES
The Series may invest in smaller, less well established companies which
may offer greater opportunities for capital appreciation than larger, better
established companies. These stocks may also involve certain risks related to
limited product lines, markets or financial resources and dependence on a
small management group. Their securities may trade less frequently, in
smaller volumes and fluctuate more sharply in value than exchange-listed
securities of larger companies.
SECURITIES LENDING
The Series may seek to increase its income by lending portfolio
securities. Such loans will usually be made to member firms (and subsidiaries
thereof) of the New York Stock Exchange and to member banks of the Federal
Reserve System, and would be required to be secured continuously by collateral
in 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.
HIGH YIELD DEBT SECURITIES
High risk, high yield securities rated below BBB or lower by S&P or Baa
or lower by Moody's are considered to have speculative characteristics and
involve greater risk of default or price changes due to changes in the
issuer's credit-worthiness. Market prices of these securities may fluctuate
more than high-rated securities and they are difficult to price at times
because they are more thinly traded and less liquid securities. Market prices
may decline significantly in periods of general economic difficulty which may
follow periods of rising interest rates. Securities in the lowest rating
category may be in default. For these reasons, it is the Series' policy not
to rely primarily on ratings issued by established credit rating agencies, but
to utilize such ratings in conjunction with the Advisor's independent and
ongoing review of credit quality. In the event a security is downgraded below
these ratings after purchase, the Advisor will review and take appropriate
action with regard to the security. The Series will also seek to minimize
risk by diversifying its holdings.
PRINCIPAL INVESTMENT RESTRICTIONS
The Series are subject to certain investment restrictions which are
fundamental policies that cannot be changed without the approval of the
holders of a majority, as defined in the 1940 Act, of a Series' outstanding
shares.
Each Series may borrow money, but only from a bank for temporary or
emergency purposes in amounts not exceeding 10% of the borrowing Series' total
assets and the borrowing Series will not make additional investments while
borrowings greater than 5% of its total assets are outstanding.
The Small Cap Series may not, with respect to 75% of its total assets,
invest more than 5% of the value of its total assets at the time of investment
in securities of any one issuer (other than obligations issued or guaranteed
by the U.S. Government, its agencies or its instrumentalities). The Series
may not purchase more than 10% of the outstanding voting securities of any one
issuer.
The Small Cap Series, the International Series, the Global Fixed Income
Series and the World Opportunities Series may not invest 25% or more of the
value of their total assets in securities of issuers in any one industry.
No Series will invest more than 10% of its total net assets in securities
of issuers that are restricted from being sold to the public without
registration under the Securities Act of 1933 and illiquid securities,
including repurchase agreements with maturities of greater than seven days.
Each Series may purchase shares of closed-end (except for the World
Opportunities Series which may also purchase shares of open-end) investment
companies that are traded on national exchanges to the extent permitted by
applicable law.
No Series may make loans, except loans of portfolio securities and
through repurchase agreements.
Additional information about the Series' investment restrictions is
contained in the Statement of Additional Information.
MANAGEMENT
The overall business and affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, including the Fund's
agreements with its investment advisor and custodian. The day-to-day
operations of the Fund are delegated to the Fund's officers and to Exeter
Asset Management (the Advisor), a division of Manning & Napier Advisors, Inc.
("MNA"), 1100 Chase Square, Rochester, New York 14604. A committee made up of
investment professionals and analysts makes all the investment decisions for
the Fund.
The Advisor acts as investment advisor to the Fund and supervises and
arranges the purchase and sale of securities held in the portfolio of the
Fund. Mr. William Manning controls the Advisor by virtue of his ownership of
the securities of 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.
As of the date of this Prospectus, the Advisor and MNA supervised over
$7.5 billion in assets of clients, including both individuals and
institutions. For its services to the Fund under the investment advisory
agreement, the Fund pays the Advisor a fee, computed daily and payable
monthly, at an annual rate of 1% of each Series daily net assets. The
advisory fee charged by the Advisor to its investment advisory clients will
not include or be based on assets of such clients held in shares of the Fund.
The Fund is responsible for its operating expenses, including: (i) interest
and taxes; (ii) brokerage commissions; (iii) insurance premiums; (iv)
compensation and expenses of its Directors other than those affiliated with
the Advisor; (v) legal and audit expenses; (vi) fees and expenses of the
Fund's custodian, shareholder servicing or transfer agent and accounting
services agent, if obtained for the Fund from an entity other than the
Advisor; (vii) expenses incidental to the issuance of its shares, including
issuance on the payment of, or reinvestment of, dividends and capital gain
distributions; (viii) fees and expenses incidental to the registration under
federal or state securities laws of the Fund or its shares; (ix) expenses of
preparing, printing and mailing reports and notices and proxy material to
shareholders of the Fund; (x) all other expenses incidental to holding
meetings of the Fund's shareholders; (xi) dues or assessments of or
contributions to the Investment Company Institute or any successor; and, (xii)
such non-recurring expenses as may arise, including litigation affecting the
Fund and the legal obligations with respect to which the Fund may have to
indemnify its officers and directors.
The Advisor may use its own resources to engage in activities that may
promote the sale of the Fund, including payments to third parties who provide
shareholder support servicing and distribution assistance.
OFFERING OF SHARES
Shares of the Series are offered to persons who are investment advisory
clients or employees of the Fund's Advisor or its affiliates and directly to
investors. Class A shares of the Small Cap Series and World Opportunities
Series are offered to investors who purchase the shares directly from the
Distributor. The purchase price for shares will be the net asset value next
determined after receipt by the Distributor of a duly completed purchase order
transmitted by the Advisor to the Distributor either executed by the investor
or by the Advisor pursuant to a power of attorney and/or investment management
agreement granted by the client.
The minimum initial investment in the Fund is $2,000. The minimum
initial or subsequent investment in any Series of the Fund for accounts held
custody by the Advisor or its affiliates is $400. The Distributor reserves
the right to waive these minimum initial or subsequent investment requirements
in its sole discretion. The Distributor has the right to refuse any order.
The Distributor may suspend offering shares to other than discretionary
management accounts of the Advisor.
Manning & Napier Investor Services, Inc. acts as Distributor of the Fund
shares and is located at the same address as the Advisor and the Fund. There
will be no additional costs to clients for this service.
NET ASSET VALUE
The Fund's net asset value per share is determined as of the closing time
of the New York Stock Exchange or, in the absence of a closing time, 4:00 p.m.
Eastern time on each day that the New York Stock Exchange is open for trading.
The exchange annually announces the days on which it will not be open for
trading; the most recent announcement indicates that it will not be open when
the following holidays are observed: New Year's Day, Martin Luther King Jr.,
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
The net asset value per share is the value of a Series assets, less its
liabilities, divided by the number of shares of the Fund outstanding. The
value of a Series portfolio securities will be the market value of such
securities as determined based on quotes provided by a pricing service (which
uses the methodology outlined in the "Net Asset Value" section of the
Statement of Additional Information) approved by the Board of Directors, or,
in the absence of market quotations, fair value as determined in good faith by
or under the direction and control of the Board of Directors. Short-term
investments which mature in less than 60 days are normally valued at amortized
cost. Assets initially expressed in foreign currencies will be converted into
U.S. dollars as of the exchange rates quoted by any major bank. If such
quotes are not available, the exchange rates will be determined in accordance
with policies established in good faith by the Board of Directors. See the
Statement of Additional Information for further information.
YIELD AND TOTAL RETURN
From time-to-time each Series may advertise its total return and the
Global Fixed Income Series may advertise its total return and yield. Both
total return and yield figures are based on historical earnings and are not
intended to indicate future performance. The "total return" of a Series
refers to the average annual compounded rates of return over one-, five, and
ten-year periods or for the life of the Series (as stated in the
advertisement) that would equate an initial amount invested at the beginning
of a stated period to the ending redeemable value of the investment, assuming
the reinvestment of all dividend and capital gains distributions.
The "30-day yield" of the Global Fixed Income Series is calculated by
dividing the net investment income per share earned during a 30-day period by
the maximum offering price per share on the last day of the period. Net
investment income includes interest and dividend income earned on the Series
securities; it is net of all expenses and all recurring and nonrecurring
charges that have been applied to all shareholder accounts. The yield
calculation assumes that net investment income earned over 30 days is
compounded monthly for six months and then annualized. Methods used to
calculate advertised yields are standardized for all stock and bond mutual
funds. However, these methods differ from the accounting methods used by the
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.
REDEMPTION OF SHARES
If a shareholder desires to redeem his shares at their net asset value,
the shareholder must send a written request for redemption in "good order" to
the Transfer Agent. "Good Order" generally means that the written request for
redemption must be endorsed by the record owner(s) exactly as the shares are
registered and the signature(s) must be guaranteed by an "eligible guarantor
institution" as the term is defined under Rule 17Ad-15(a)(2) under the
Securities Exchange Act of 1934. Please contact the Transfer Agent at
1-800-466-3863 for more information. The Transfer Agent may make certain de
minimis exceptions to the above requirements for redemption. Within three
days after receipt of a redemption request by the Transfer Agent in "good
order", the Series will make payment in cash, except as described below, of
the net asset value of the shares next determined after such redemption
request was received, except during any period in which the right of
redemption is suspended or date of payment is postponed because the New York
Stock Exchange is closed or trading on such Exchange is restricted or to the
extent otherwise permitted by the 1940 Act if an emergency exists. For shares
purchased, or received in exchange for shares purchased, by check (including
certified checks or cashier's checks), payment of redemption proceeds may be
delayed up to 15 days from the purchase date in an effort to assure that such
check has cleared.
Subject to the Series' compliance with applicable regulations, 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.
Due to the relatively high cost of maintaining small accounts, the Series
reserves the right to redeem shares in any account for their then-current
value (which will be promptly paid to the shareholder) if at any time the
total investment in such account drops below $1,000 because of redemptions
(but not due to changes in net asset value). Shareholders will be notified
that the value of their account is less than the minimum investment
requirement and allowed 60 days to make an additional investment before the
redemption is processed.
DIVIDENDS AND TAX STATUS
TAXES
The following summary of federal income tax consequences is based on the
current tax laws and regulations, which may be changed by legislative,
judicial or administrative action.
No attempt has been made to present a detailed explanation of the
federal, state, or local income tax treatment of the Series or its
shareholders, and these Series are not managed with respect to tax outcomes
for their shareholders. In addition, state and local tax consequences of an
investment in the Series may differ from the federal income tax consequences
described below. Accordingly, shareholders are urged to consult with their
tax advisers regarding specific questions as to federal, state and local
income taxes. Additional information concerning taxes is set forth in the
Statement of Additional Information.
TAX STATUS
Under the Internal Revenue Code of 1986, as amended (the Code), each
Series is treated as a separate entity for federal income tax purposes. Each
Series intends to qualify for the special tax treatment afforded regulated
investment companies as defined under Subchapter M of the Code, so as to be
relieved of federal income tax on that part of its net investment company
taxable income, and net capital gain (the excess of net long-term capital
gains over net short-term capital losses) distributed to shareholders.
TAX STATUS OF DISTRIBUTIONS
Dividends and distributions will be paid in full and fractional shares of
the Fund, based on the net asset value per share at the close of business on
the record date, although a shareholder may, prior to the record date,
request, by writing or by telephone call to the Fund, that payments of either
ordinary income dividends or capital gain distributions, or both, be made in
cash. If a shareholder has chosen to receive dividends and/or capital gain
distributions in cash, and the postal service is unable to deliver checks to
the shareholders address of record, or the shareholder does not respond to
mailing from the Fund concerning outstanding checks, that shareholders account
will be updated so that all future distributions will be reinvested in the
account. No interest will accrue on amounts represented by uncashed
distribution or redemption checks.
Each Series will distribute all of its net investment income (including
net short-term capital gains) to shareholders. Dividends from net investment
company taxable income are taxable to shareholders as ordinary income (whether
received in cash or in additional shares) to the extent of the Seriess
earnings and profits. Net capital gains will be distributed at least annually
and will be taxed to shareholders as a 20% rate gain distribution (generally
taxed at a rate of 20%) or a 28% rate gain distribution (generally taxed at a
rate of 28%), depending upon the designation by the Series (such designation
being dependent upon the holding period of the Series in the underlying asset
generating the net capital gain), regardless of how long the shareholders have
held their shares and regardless of whether the distributions are received in
cash or in additional shares. If no designation is made regarding a capital
gain dividend, it will be classified as a 28% rate gain distribution, and,
thus, taxed at a rate of 28%. Dividends and distributions of capital gains
paid by the Series do not qualify for the dividends received deduction for
corporate shareholders. The Series will provide annual reports to
shareholders of the federal income tax status of all distributions.
Dividends declared by the Series in October, November or December of any
year and payable to shareholders of record on a date in one of those months
will be deemed to have been paid by the Series and received by the
shareholders on December 31 of the year declared, if paid by the Series at any
time during the following January.
Investment income received directly by the Series on direct U.S.
Government obligations is exempt from income tax at the state level and may be
exempt, depending on the state, when received by a shareholder as income
dividends from the Series provided certain state-specific conditions are
satisfied. The Series will inform shareholders annually of the percentage of
income and distributions derived from direct U.S. Government obligations.
Shareholders should consult their tax advisers to determine whether any
portion of the income dividends received from the Series is considered tax
exempt in their particular states.
Each Series intends to make sufficient distributions prior to the end of
each calendar year to avoid liability for federal excise tax applicable to
regulated investment companies.
A sale, exchange or redemption of a Seriess shares generally is a taxable
transaction to the shareholder.
ADDITIONAL DIVIDEND AND TAX INFORMATION FOR THE INTERNATIONAL SERIES, THE
GLOBAL FIXED INCOME SERIES AND THE WORLD OPPORTUNITIES SERIES
Income, such as dividends and interest, received by the International
Series, the Global Fixed Income Series and the World Opportunities Series may
give rise to withholding taxes imposed by foreign countries, generally at
rates from 10% to 40%. Tax conventions and treaties between such countries
and the United States may reduce or eliminate such taxes.
If more than 50% of the value of the International Series', the Global
Fixed Income Series' and the World Opportunities Series' total assets at the
close of their fiscal year consists of stocks or securities of foreign
corporations, the Series will be eligible to file elections with the Internal
Revenue Service pursuant to which shareholders of the Series will be required
to include in gross income their respective pro rata portions of foreign taxes
paid by the Series, and either deduct such respective pro rata portions in
computing their taxable incomes or, alternatively, use such pro rata portions
as foreign tax credits against their U.S. income taxes. Investors should note
that Code Section 904 imposes significant limitations on a taxpayer's ability
to claim the foreign tax credit.
GENERAL INFORMATION
The Fund was incorporated on July 26, 1984 as a Maryland corporation.
The Board of Directors may, at its own discretion, create additional series of
shares, each of which would have separate assets and liabilities.
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,
dividends, distributions and liquidations. The Fund's shareholders will vote
in the aggregate and not by Series except as otherwise expressly required by
law or when the Board of Directors determines that the matter to be voted upon
affects only the interests of the shareholders of a Series. Income, direct
liabilities and direct operating expenses of each Series will be allocated
directly to each Series, and general liabilities and expenses of the Fund will
be allocated among the Series in proportion to the total net assets of each
Series by the Board of Directors. The holders of shares have no preemptive or
conversion rights. Shares when issued are fully paid and non-assessable and
do not have cumulative voting rights.
All securities and cash are held by the custodian, Boston Safe Deposit
and Trust Company. Coopers & Lybrand, L.L.P. has been selected as the
independent accountants of the Series and performs an annual audit of the
Series' accounts and reviews the Series' tax returns.
Manning & Napier Advisors, Inc. serves as the Funds transfer agent, and
dividend disbursing agent. Shareholder inquiries should be directed to Exeter
Fund, Inc., P.O. Box 41118, Rochester, New York 14604.
<PAGE>
APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
Moody's Investors Services, Inc.'s corporate bond ratings:
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred
to as gilt-edged. 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 risk appear somewhat larger than 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 some time in the
future.
Baa - Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a
rating in the lower end of that generic rating category.
Standard & Poor's Corporation's corporate bond ratings:
AAA - This is the highest rating assigned by Standard & Poor's to a
debt obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only to a small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than in higher rated categories.
<PAGE>
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's Investor Services, Inc.'s commercial paper ratings:
PRIME-1 - Issues 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.
Standard & Poor's Corporation's commercial paper ratings:
A-1 - This is the highest category and indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 - Capacity for timely payment on issues with this designation is
satisfactory and the obligation is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations
in higher rating categories.
A-3 - Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
B - Issues rated B are regarded as having significant speculative
characteristics for timely payment.
C - This rating is assigned to short-term debt obligations that are
currently vulnerable to nonpayment.
D - Debt rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. 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>
EXETER FUND, INC.
Small Cap Series
Prospectus
April 20, 1998
<PAGE>
EXETER FUND, INC.
P.O. Box 41118
Rochester, New York 14604
1-800- 466-3863
SMALL CAP SERIES
Exeter Fund, Inc. (the "Fund"), is an open-end management investment
company that offers separate series, each a separate investment portfolio
having its own investment objective and policies. This Prospectus relates to
the Class A, B, C, D and E Shares (each a Class and collectively, the Classes)
of the Small Cap Series of the Fund (the "Series"). The Series' investment
objective is to provide long-term growth of capital by investing principally
in the equity securities of small issuers.
This Prospectus provides you with the basic information you should know
before investing in the Series. The Fund's other series are offered through
separate prospectuses. You should read this Prospectus and keep it for future
reference. A Statement of Additional Information dated April 20, 1998,
containing additional information about the Fund has been filed with the
Securities and Exchange Commission and is incorporated by reference into this
Prospectus in its entirety. You may obtain a copy of the Statement of
Additional Information without charge by contacting the Fund at the address or
telephone number listed above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS APRIL 20, 1998.
<PAGE>
EXETER FUND, INC.
SMALL CAP SERIES
No person has been authorized to give any information or to make
representations not contained in this Prospectus in connection with any
offering made by this Prospectus and, if given or made, such information must
not be relied upon as having been authorized by the Fund. This Prospectus
does not constitute an offering by the Fund in any jurisdiction in which such
offering may not lawfully be made.
PROSPECTUS
TABLE OF CONTENTS
Annual Operating Expenses 3
Financial Highlights 7
The Fund 9
Risk and Investment Objectives and Policies 9
Risk and Additional Information about Investment Policies 10
Principal Investment Restrictions 14
Management 15
Distribution of Fund Shares 15
Total Return 16
Purchases, Exchanges and Redemptions of Shares 16
Redemption of Shares 18
Dividends and Tax Status 19
General Information 20
Appendix 21
<PAGE>
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
(as a percentage of offering price) ALL CLASSES
Maximum Sales Charge Imposed on Purchases None
Redemption Fees 1 None
Exchange Fees 2 None
1 A wire charge, currently $15, will be deducted by the Transfer Agent from
the amount of a wire redemption payment made at the request of a shareholder.
Such amount is not included in the "Annual Operating Expenses of the Series."
2 A shareholder may effect up to four (4) exchanges in a twelve (12) month
period without charge. Subsequent exchanges are subject to a fee of $15.
ANNUAL OPERATING EXPENSES - CLASS A SHARES
The following information provides (i) a tabular summary of expenses relating
to the annual operating expenses of the Class A Shares of the Series and (ii)
an example illustrating the dollar cost of such expenses on a $1,000
investment.
Annual Operating Expenses of the Class A Shares of the Series (as a percentage
of average daily net assets) 1:
Management Fees 1.00%
Rule 12b-1 Fees None
Other Expenses 0.07%
Total Operating Expenses 1.07%
1 The Small Cap Series offered Class A Shares during the year ended
December 31, 1997; therefore, actual management fees and other expenses are
used above.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class A Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
EXAMPLE - CLASS A SHARES
You would pay the following expenses on a $1,000 investment in Class A Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
1 year 3 years 5 years 10 years
Small Cap Series $11 $34 $59 $131
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
<PAGE>
Operating Expenses - CLASS B SHARES
The following information provides (i) a tabular summary of expenses relating
to the annual operating expenses of the Class B Shares of the Series and (ii)
an example illustrating the dollar cost of such expenses on a $1,000
investment.
Annual Operating Expenses of the Class B Shares of the Series (as a percentage
of average daily net assets) 1:
Management Fees 1.00%
Rule 12b-1 Fees 2 1.00%
Other Expenses 0.07%
Total Operating Expenses 2.07%
1 The Small Cap Series offered only Class A Shares during the fiscal year
ended December 31, 1997; therefore, actual management fees and other expenses
of Class A shares of the Series are used above.
2 Of the Rule 12b-1 fees for the Class B shares, 0.25% represents shareholder
service fees.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class B Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
Due to the continuous nature of Rule 12b-1 fees, long-term shareholders may
pay more than the equivalent of the maximum front-end sales charges otherwise
permitted by the Conduct Rules of the National Association of Securities
Dealers, Inc. (the NASD).
EXAMPLE - CLASS B SHARES
You would pay the following expenses on a $1,000 investment in Class B Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
1 year 3 years 5 years 10 years
Small Cap Series $21 $65 $111 $240
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
<PAGE>
Operating Expenses - CLASS C SHARES
The following information provides (i) a tabular summary of expenses relating
to the annual operating expenses of the Class C Shares of the Series and (ii)
an example illustrating the dollar cost of such expenses on a $1,000
investment.
Annual Operating Expenses of the Class C Shares of the Series (as a percentage
of average daily net assets) 1:
Management Fees 1.00%
Rule 12b-1 Fees 2 0.75%
Other Expenses 0.07%
Total Operating Expenses 1.82%
1 The Small Cap Series offered only Class A Shares during the fiscal year
ended December 31, 1997; therefore, actual management fees and other expenses
of Class A Shares of the Series are used above.
2 Of the Rule 12b-1 fees for the Class C shares, up to 0.25% represents
shareholder service fees.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class C Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
Due to the continuous nature of Rule 12b-1 fees, long-term shareholders may
pay more than the equivalent of the maximum front-end sales charges otherwise
permitted by the Conduct Rules of the NASD.
EXAMPLE - CLASS C SHARES
You would pay the following expenses on a $1,000 investment in Class C Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
1 year 3 years 5 years 10 years
Small Cap Series $18 $57 $99 $214
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
<PAGE>
Operating Expenses - CLASS D SHARES
The following information provides (i) a tabular summary of expenses relating
to the annual operating expenses of the Class D Shares of the Series and (ii)
an example illustrating the dollar cost of such expenses on a $1,000
investment.
Annual Operating Expenses of the Class D Shares of the Series (as a percentage
of average daily net assets) 1:
Management Fees 1.00%
Rule 12b-1 Fees 2 0.50%
Other Expenses 0.07%
Total Operating Expenses 1.57%
1 The Small Cap Series offered only Class A Shares during the fiscal year
ended December 31, 1997; therefore, actual management fees and other expenses
of Class A Shares of the Series are used above.
2 Of the Rule 12b-1 fees for the Class D shares, up to 0.25% represents
shareholder service fees.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class D Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
Due to the continuous nature of Rule 12b-1 fees, long-term shareholders may
pay more than the equivalent of the maximum front-end sales charges otherwise
permitted by the Conduct Rules of the NASD.
EXAMPLE - CLASS D SHARES
You would pay the following expenses on a $1,000 investment in Class D Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
1 year 3 years 5 years 10 years
Small Cap Series $16 $50 $86 $187
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
<PAGE>
Operating Expenses - CLASS E SHARES
The following information provides (i) a tabular summary of expenses relating
to the annual operating expenses of the Class E Shares of the Series and (ii)
an example illustrating the dollar cost of such expenses on a $1,000
investment.
Annual Operating Expenses of the Class E Shares of the Series (as a percentage
of average daily net assets) 1:
Management Fees 1.00%
Rule 12b-1 Fees 2 0.25%
Other Expenses 0.07%
Total Operating Expenses 1.32%
1 The Small Cap Series offered only Class A Shares during the fiscal year
ended December 31, 1997; therefore, actual management fees and other expenses
of Class A Shares of the Series are used above.
2 Of the Rule 12b-1 fees for the Class E Shares, up to 0.25% may represent
shareholder service fees.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class E Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
Due to the continuous nature of Rule 12b-1 fees, long-term shareholders may
pay more than the equivalent of the maximum front-end sales charges otherwise
permitted by the Conduct Rules of the NASD.
EXAMPLE - CLASS E SHARES
You would pay the following expenses on a $1,000 investment in Class E Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
1 year 3 years 5 years 10 years
Small Cap Series $13 $42 $72 $159
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The following table provides selected per share data and ratios for the Class
A Shares of the Small Cap Series (for a share outstanding throughout the
periods shown). The table is part of the Series' financial statements, which
are incorporated by reference into the Funds Statement of Additional
Information. Coopers & Lybrand, L.L.P. , the Funds independent accountants,
audited the Funds financial highlights for each of the periods shown.
Additional performance information is contained in the Funds 1997 Annual
Report to Shareholders and is available upon request and without charge by
calling 1-800-466-3863. Because the Funds Class B, C, D and E Shares had not
been introduced as of December 31, 1997, no financial highlights are presented
for the Class B, C, D or E Shares of the Series. This table should be read in
conjunction with the Series financial statements and notes thereto.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
For the year For the year For the year
ended ended ended
SMALL CAP SERIES 1, 2 - Dec. 31,1997 Dec. 31, 1996 Dec. 31, 1995
CLASS A SHARES
- -
Per share data (for a share outstanding
throughout each period):
Net asset value -
Beginning of period $ 12.09 $ 11.95 $ 12.92
Income from investment
operations
Net investment income
(loss) (0.01) 0.05 0.00
Net realized and
unrealized gain (loss)
on investments 1.50 1.11 1.93
Total from investment
operations 1.49 1.16 1.93
Less distributions
declared to shareholders
From net investment
income (0.01) (0.04) --
From net realized gain
on investments (1.52) (0.89) (2.90)
In excess of net
realized gains -- (0.09) --
Redemption of capital -- -- --
Total distributions
declared to shareholders (1.53) (1.02) (2.90)
Net asset value - End of
period $ 12.05 $ 12.09 $ 11.95
Total return11 12.29% 10.06% 14.70%
Ratios (to average net assets)/Supplemental data:
Financial Highlights
Small Cap Series - Class A
Shares (continued)
Expenses8 1.07% 1.08% 1.07%
Net investment income (0.12%) 0.29% (0.03)%
Portfolio Turnover 94% 31% 77%
Average Commission Rate Paid $ 0.0224 $ 0.0291 $ 0.05
Net assets - End of period
(000's omitted) $ 121,600 $ 100,688 $ 143,003
</TABLE>
Prior to July 8, 1993, the investment practice of the Fund resulted in the
active operation of the Series for discrete periods. On April 30,
1992, the Series resumed sales of shares to advisory clients and
employees of Manning & Napier Advisors, Inc. and its affiliates. On July 8,
1993, the Series began offering shares directly to investors.
Previously, the Series was in active operation from November 11, 1986
to May 14, 1987 and from December 1, 1987 to April 13, 1988.
During the period of January 6, 1986 to November 10, 1986, May 15, 1987 to
November 30, 1987 and April 14,1988 to July 24, 1989, the only shareholders of
the Fund were the shareholders who provided the initial capitalization for the
Series (the "Initial Shareholders"). During the periods when the only
shareholders of the Series were the Initial Shareholders, assets of
the Sereis were invested in U.S. Treasury securities. On July 11 and
24, 1989 the shares held by the Initial Shareholders were redeemed in full and
the Fund remained dormant until April 30, 1992.
2 Per share data for all period prior to May 18, 1988, have been restated to
reflect the 10 for 1 stock dividend effected on May 18, 1988.
3 Per share data was determined using a monthly average of the shares
outstanding throughout the period.
4 On November 11, 1986, the Fund commenced sales of shares of the Small Cap
Series to persons who were investment advisory clients of the Fund's Advisor.
Prior to that date, the Small Cap Series did not engage in any business
operations other than to purchase and hold approximately $100,000 of U.S.
Treasury securities.
5 Annualized.
6 For these periods, there were no purchases of securities whose maturities
or expiration dates were greater than one year from the acquisition date.
7 During the period January 1, 1989 to July 24, 1989, the only shareholders
and resulting assets were those of the Initial Shareholders, as described in
Note 1, who redeemed their shares on July 11 and 24, 1989; therefore, the
ratios and total return presented may not be representative of an actively
operating fund.
8 Absent fee waivers, the ratios of expenses to average daily net assets is
as follows: 1.27% (for the period 4/30/92 to 12/31/92); 15.57% (for the period
1/1/89 to 7/24/89);1.34% (for the year ended 12/31/88); 2.27% (for the year
ended 12/31/87); and 9.34% (for the period 1/6/88 (commencement of operations)
to 12/31/86).
9 Distributions differ from net investment income and net realized capital
gains because of book/tax timing differences, primarily due to the
requirements of the excise tax regulations enacted as part of the 1986 Tax
Reform Act. The regulations required the Series to measure capital gains
through October 31, 1992. The excise tax regulations also required the Series
to distribute those gains before December 31, 1992 to avoid payment of excise
tax.
10 Initial offering price upon recommencement of operations on April 30,
1992.
11 Represents aggregate total return for the period indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
FOR THE YEAR FOR THE YEAR
ENDED ENDED
SMALL CAP SERIES 1, 2 - DEC. 31, 1994 DEC. 31, 1993
CLASS A SHARES
- -
PER SHARE DATA (FOR A
SHARE OUTSTANDING
THROUGHOUT EACH PERIOD):
NET ASSET VALUE -
BEGINNING OF PERIOD $ 12.52 $ 11.24
INCOME FROM INVESTMENT
OPERATIONS
NET INVESTMENT INCOME (LOSS) (0.07) (0.04)
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS 1.05 1.70
TOTAL FROM INVESTMENT 0.98 1.66
OPERATIONS
LESS DISTRIBUTIONS
DECLARED TO SHAREHOLDERS
FROM NET INVESTMENT
INCOME -- --
FROM NET REALIZED GAIN
ON INVESTMENTS (0.58) (0.38)
IN EXCESS OF NET
REALIZED GAINS -- --
REDEMPTION OF CAPITAL -- --
TOTAL DISTRIBUTIONS (0.58) (0.38)
DECLARED TO SHAREHOLDERS
NET ASSET VALUE - END OF PERIOD $ 12.92 $ 12.52
TOTAL RETURN11 8.01% 14.64%
RATIOS (TO AVERAGE NET ASSETS)
/SUPPLEMENTAL DATA:
FINANCIAL HIGHLIGHTS
SMALL CAP SERIES - CLASS A
SHARES (CONTINUED)
EXPENSES8 1.10% 1.13%
NET INVESTMENT INCOME (0.58)% (0.43)%
PORTFOLIO TURNOVER 31% 12%
AVERAGE COMMISSION RATE PAID -- --
NET ASSETS - END OF PERIOD
(000'S OMITTED) $ 105,522 $ 70,734
</TABLE>
1 Prior to July 8, 1993, the investment practice of the Fund resulted in the
active operation of the Series for discrete periods. On April 30,
1992, the Series resumed sales of shares to advisory clients and
employees of Manning & Napier Advisors, Inc. and its affiliates. On July 8,
1993, the Series began offering shares directly to investors.
Previously, the Series was in active operation from November 11, 1986
to May 14, 1987 and from December 1, 1987 to April 13, 1988.
During the period of January 6, 1986 to November 10, 1986, May 15, 1987 to
November 30, 1987 and April 14,1988 to July 24, 1989, the only shareholders of
the Fund were the shareholders who provided the initial capitalization for the
Series (the "Initial Shareholders"). During the periods when the only
shareholders of the Series were the Initial Shareholders, assets of
the Sereis were invested in U.S. Treasury securities. On July 11 and
24, 1989 the shares held by the Initial Shareholders were redeemed in full and
the Fund remained dormant until April 30, 1992.
2 Per share data for all period prior to May 18, 1988, have been restated to
reflect the 10 for 1 stock dividend effected on May 18, 1988.
3 Per share data was determined using a monthly average of the shares
outstanding throughout the period.
4 On November 11, 1986, the Fund commenced sales of shares of the Small Cap
Series to persons who were investment advisory clients of the Fund's Advisor.
Prior to that date, the Small Cap Series did not engage in any business
operations other than to purchase and hold approximately $100,000 of U.S.
Treasury securities.
5 Annualized.
6 For these periods, there were no purchases of securities whose maturities
or expiration dates were greater than one year from the acquisition date.
7 During the period January 1, 1989 to July 24, 1989, the only shareholders
and resulting assets were those of the Initial Shareholders, as described in
Note 1, who redeemed their shares on July 11 and 24, 1989; therefore, the
ratios and total return presented may not be representative of an actively
operating fund.
8 Absent fee waivers, the ratios of expenses to average daily net assets is
as follows: 1.27% (for the period 4/30/92 to 12/31/92); 15.57% (for the period
1/1/89 to 7/24/89);1.34% (for the year ended 12/31/88); 2.27% (for the year
ended 12/31/87); and 9.34% (for the period 1/6/88 (commencement of operations)
to 12/31/86).
9 Distributions differ from net investment income and net realized capital
gains because of book/tax timing differences, primarily due to the
requirements of the excise tax regulations enacted as part of the 1986 Tax
Reform Act. The regulations required the Series to measure capital gains
through October 31, 1992. The excise tax regulations also required the Series
to distribute those gains before December 31, 1992 to avoid payment of excise
tax.
10 Initial offering price upon recommencement of operations on April 30,
1992.
11 Represents aggregate total return for the period indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
FOR THE PERIOD FOR THE PERIOD
APRIL 30, 1992 JAN. 1, 1989 TO
(RECOMMENCEMENT JULY 24, 1989
OF OPERATIONS) (DATE OF FULL
SMALL CAP SERIES 1, 2 - TO DEC. 31, 1992 REDEMPTION)
CLASS A SHARES
- -
PER SHARE DATA (FOR A SHARE
OUTSTANDING THROUGHOUT EACH
PERIOD):
NET ASSET VALUE -
BEGINNING OF PERIOD $ 10.0010 $ 8.96
INCOME FROM INVESTMENT
OPERATIONS
NET INVESTMENT INCOME
(LOSS) (0.02) (0.39)
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS 1.63 --
TOTAL FROM INVESTMENT 1.61 (0.39)
OPERATIONS
LESS DISTRIBUTIONS
DECLARED TO SHAREHOLDERS
FROM NET INVESTMENT INCOME -- --
FROM NET REALIZED GAIN (0.29) --
ON INVESTMENTS
IN EXCESS OF NET (0.08)9 --
REALIZED GAINS
REDEMPTION OF CAPITAL -- (8.57)
TOTAL DISTRIBUTIONS
DECLARED TO SHAREHOLDERS (0.37) (8.57)
NET ASSET VALUE - END OF
PERIOD $ 11.24 $ --
TOTAL RETURN11 16.2% - 7
RATIOS (TO AVERAGE NET ASSETS)
/SUPPLEMENTAL DATA:
FINANCIAL HIGHLIGHTS
SMALL CAP SERIES - CLASS A
SHARES (CONTINUED)
EXPENSES8 1.27%5 14.59%5, 7
NET INVESTMENT INCOME (0.26)%5 (8.02)%5, 7
PORTFOLIO TURNOVER 24% -- 6
AVERAGE COMMISSION RATE
PAID -- --
NET ASSETS - END OF PERIOD
(000'S OMITTED) $ 33,079 $ --
</TABLE>
1 Prior to July 8, 1993, the investment practice of the Fund resulted in the
active operation of the Series for discrete periods. On April 30,
1992, the Series resumed sales of shares to advisory clients and
employees of Manning & Napier Advisors, Inc. and its affiliates. On July 8,
1993, the Series began offering shares directly to investors.
Previously, the Series was in active operation from November 11, 1986
to May 14, 1987 and from December 1, 1987 to April 13, 1988.
During the period of January 6, 1986 to November 10, 1986, May 15, 1987 to
November 30, 1987 and April 14,1988 to July 24, 1989, the only shareholders of
the Fund were the shareholders who provided the initial capitalization for the
Series (the "Initial Shareholders"). During the periods when the only
shareholders of the Series were the Initial Shareholders, assets of
the Sereis were invested in U.S. Treasury securities. On July 11 and
24, 1989 the shares held by the Initial Shareholders were redeemed in full and
the Fund remained dormant until April 30, 1992.
2 Per share data for all period prior to May 18, 1988, have been restated to
reflect the 10 for 1 stock dividend effected on May 18, 1988.
3 Per share data was determined using a monthly average of the shares
outstanding throughout the period.
4 On November 11, 1986, the Fund commenced sales of shares of the Small Cap
Series to persons who were investment advisory clients of the Fund's Advisor.
Prior to that date, the Small Cap Series did not engage in any business
operations other than to purchase and hold approximately $100,000 of U.S.
Treasury securities.
5 Annualized.
6 For these periods, there were no purchases of securities whose maturities
or expiration dates were greater than one year from the acquisition date.
7 During the period January 1, 1989 to July 24, 1989, the only shareholders
and resulting assets were those of the Initial Shareholders, as described in
Note 1, who redeemed their shares on July 11 and 24, 1989; therefore, the
ratios and total return presented may not be representative of an actively
operating fund.
8 Absent fee waivers, the ratios of expenses to average daily net assets is
as follows: 1.27% (for the period 4/30/92 to 12/31/92); 15.57% (for the period
1/1/89 to 7/24/89);1.34% (for the year ended 12/31/88); 2.27% (for the year
ended 12/31/87); and 9.34% (for the period 1/6/88 (commencement of operations)
to 12/31/86).
9 Distributions differ from net investment income and net realized capital
gains because of book/tax timing differences, primarily due to the
requirements of the excise tax regulations enacted as part of the 1986 Tax
Reform Act. The regulations required the Series to measure capital gains
through October 31, 1992. The excise tax regulations also required the Series
to distribute those gains before December 31, 1992 to avoid payment of excise
tax.
10 Initial offering price upon recommencement of operations on April 30,
1992.
11 Represents aggregate total return for the period indicated.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SMALL CAP SERIES 1, 2 - FOR THE FOR THE FOR THE PERIOD
CLASS A SHARES YEAR ENDED YEAR ENDED JAN. 6, 1986
DEC. 31, 19883 DEC. 31, 1987 (COMMENCEMENT
OF OPERATIONS)
TO DEC. 31, 19864
- -
PER SHARE DATA (FOR A SHARE
OUTSTANDING THROUGHOUT EACH
PERIOD):
NET ASSET VALUE -
BEGINNING OF PERIOD $ 8.93 $ 8.08 $ 10.00
INCOME FROM INVESTMENT
OPERATIONS
NET INVESTMENT INCOME
(LOSS) 0.10 0.13 (0.09)
NET REALIZED AND
UNREALIZED GAIN (LOSS)
ON INVESTMENTS (0.07) 0.75 (1.83)
TOTAL FROM INVESTMENT 0.03 0.88 (1.92)
OPERATIONS
LESS DISTRIBUTIONS
DECLARED TO SHAREHOLDERS
FROM NET INVESTMENT
INCOME -- -- --
FROM NET REALIZED GAIN
ON INVESTMENTS -- (0.03) --
IN EXCESS OF NET
REALIZED GAINS -- -- --
REDEMPTION OF CAPITAL -- -- --
TOTAL DISTRIBUTIONS
DECLARED TO SHAREHOLDERS -- (0.03) --
NET ASSET VALUE - END OF
PERIOD $ 8.96 $ 8.93 $ 8.08
TOTAL RETURN11 0.33% 10.89% (19.44%)
RATIOS (TO AVERAGE NET
ASSETS)/SUPPLEMENTAL DATA:
FINANCIAL HIGHLIGHTS
SMALL CAP SERIES - CLASS A
SHARES (CONTINUED)
EXPENSES8 1.34% 2.26% 9.08%5
NET INVESTMENT INCOME 0.91% 0.95% (5.62%)5
PORTFOLIO TURNOVER -- 6 76% -- 6
AVERAGE COMMISSION RATE PAID -- -- --
NET ASSETS - END OF PERIOD
(000'S OMITTED) $ 90 $ 36,193 $ 1,608
</TABLE>
1 Prior to July 8, 1993, the investment practice of the Fund resulted in the
active operation of the Series for discrete periods. On April 30,
1992, the Series resumed sales of shares to advisory clients and
employees of Manning & Napier Advisors, Inc. and its affiliates. On July 8,
1993, the Series began offering shares directly to investors.
Previously, the Series was in active operation from November 11, 1986
to May 14, 1987 and from December 1, 1987 to April 13, 1988.
During the period of January 6, 1986 to November 10, 1986, May 15, 1987 to
November 30, 1987 and April 14,1988 to July 24, 1989, the only shareholders of
the Fund were the shareholders who provided the initial capitalization for the
Series (the "Initial Shareholders"). During the periods when the only
shareholders of the Series were the Initial Shareholders, assets of
the Sereis were invested in U.S. Treasury securities. On July 11 and
24, 1989 the shares held by the Initial Shareholders were redeemed in full and
the Fund remained dormant until April 30, 1992.
2 Per share data for all period prior to May 18, 1988, have been restated to
reflect the 10 for 1 stock dividend effected on May 18, 1988.
3 Per share data was determined using a monthly average of the shares
outstanding throughout the period.
4 On November 11, 1986, the Fund commenced sales of shares of the Small Cap
Series to persons who were investment advisory clients of the Fund's Advisor.
Prior to that date, the Small Cap Series did not engage in any business
operations other than to purchase and hold approximately $100,000 of U.S.
Treasury securities.
5 Annualized.
6 For these periods, there were no purchases of securities whose maturities
or expiration dates were greater than one year from the acquisition date.
7 During the period January 1, 1989 to July 24, 1989, the only shareholders
and resulting assets were those of the Initial Shareholders, as described in
Note 1, who redeemed their shares on July 11 and 24, 1989; therefore, the
ratios and total return presented may not be representative of an actively
operating fund.
8 Absent fee waivers, the ratios of expenses to average daily net assets is
as follows: 1.27% (for the period 4/30/92 to 12/31/92); 15.57% (for the period
1/1/89 to 7/24/89);1.34% (for the year ended 12/31/88); 2.27% (for the year
ended 12/31/87); and 9.34% (for the period 1/6/88 (commencement of operations)
to 12/31/86).
9 Distributions differ from net investment income and net realized capital
gains because of book/tax timing differences, primarily due to the
requirements of the excise tax regulations enacted as part of the 1986 Tax
Reform Act. The regulations required the Series to measure capital gains
through October 31, 1992. The excise tax regulations also required the Series
to distribute those gains before December 31, 1992 to avoid payment of excise
tax.
10 Initial offering price upon recommencement of operations on April 30,
1992.
11 Represents aggregate total return for the period indicated.
<PAGE>
THE FUND
The Fund is an open-end management investment company incorporated under
the laws of the State of Maryland on July 26, 1984. This Prospectus relates
to the Small Cap Series of the Fund (the "Series"), which is offered through
five separate classes of shares, Class A, B, C, D and E Shares, respectively.
Class A Shares of the Series are offered to investors who purchase their
shares directly from Manning & Napier Investor Services, Inc. (the
Distributor). Class B, C, D and E Shares are offered only through financial
intermediaries which provide to the Fund and its shareholders varying levels
of distribution and shareholder services as described under Distribution of
Fund Shares below. Information regarding the Funds other series is contained
in separate prospectuses that may be obtained from Exeter Fund, Inc., P.O. Box
41118, Rochester, New York 14604 or by calling 1-800-466-3863. The Series is
a diversified fund.
Shares of the Series are offered directly to investors and to employees
and clients of the Advisor or its affiliates that have authorized investment
in the Fund as part of the discretionary account management services of the
Advisor or its affiliates. Investors may be changed a fee if they effect
transactions through a broker or agent. Fund shares, including shares of
series offered through separate prospectuses, may also be used in connection
with a discretionary account management service that uses Fund shares as the
principal underlying investment medium.
Manning & Napier, in addition to providing investment advice to the Fund
through the Advisor, provides investment advice to other clients. Some of
these clients funds may be invested in the Series. From time to time, the
Series may experience relatively large purchases or redemptions due to assets
allocation decisions made by Manning & Napier for its clients. These
transactions may have a material effect on the Series, since Series that
experience redemptions as a result of reallocations may have to sell portfolio
securities and because Series that receive additional cash will have to invest
it. While it is impossible to predict the overall impact of these
transactions over time, there could be adverse effects on portfolio management
to the extent that the Series may be required to sell securities at times when
they would not otherwise do so, or receive cash that cannot be invested in an
expeditious manner. There may be tax consequences associated with purchases
and sales of securities, and such sales may also increase transaction costs.
Manning & Napier is committed to minimizing the impact of these transactions
on the Series to the extent it is consistent with pursuing the investment
objectives of its clients.
RISK AND INVESTMENT OBJECTIVES AND POLICIES
The Series seeks to achieve its investment objective by investing
principally in equity securities of small issuers. In general, a small issuer
is one which has a market capitalization less than $700 million, or less than
the median market capitalization of the S&P Midcap Index (the median market
capitalization of the S&P Midcap Index as of the close on December 31, 1997
was approximately $1,834 million), whichever is greater at the time of
investment. The Series will, under normal circumstances, have at least 65% of
the value of its total net assets invested in such securities; the balance, if
any, will be invested in equity securities of other than small issuers
considered appropriate by the Advisor. Current income is not a factor in
pursuing the Series' objective.
Investing in the equity securities of small companies involves greater
risk than investing in such securities of larger companies, because the equity
securities of small companies may have less marketability and may be subject
to more abrupt or erratic market movements than the equity securities of
larger companies.
The objective of the Series is to provide long-term growth of capital.
There is no assurance that the Series will attain its objective. The Series
will attempt to achieve its objective by investing primarily in equity
securities as described below. Equity securities consist of common stocks and
other securities having some of the characteristics of common stocks, such as
convertible preferred stocks, convertible bonds and warrants. The Series does
not intend to invest more than 5% of the value of its total net assets in
warrants. The principal factor in selecting convertible bonds will be the
potential opportunity to benefit from movement in the stock price. There will
be no minimum rating standards for debt aspects of such securities.
Convertible bonds purchased by the Series may be subject to the risk of being
called by the issuer. However, the Series will not buy bonds if they are in
default as to payment of principal or interest.
The Series expects to be fully invested in equity securities under normal
circumstances. During periods when economic conditions in the primary
investment industries or vehicles for the Series are unfavorable or when
market conditions suggest a temporary defensive position, the Series may
invest its assets in U.S. Government securities, corporate bonds and money
market instruments, including, but not limited to, commercial paper, bankers'
acceptances, certificates of deposit and repurchase agreements, rated in one
of the top two rating categories by a major rating service or, if unrated, of
comparable quality as determined by the Advisor (see the Appendix for
details). In addition, even under normal circumstances the Series may to
varying degrees invest in certain types of securities or use certain
techniques and strategies discussed below under "Risk and Additional
Information About Investment Policies".
The Series' investment objective and policies as described above are not
fundamental policies and may be changed without shareholder approval; however,
it is the Board of Directors' policy to notify shareholders prior to any
material change.
RISK AND ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
In attempting to achieve its objective, the Series may follow a number of
investment strategies as described below. These strategies have been
voluntarily adopted by the Board of Directors based upon current circumstances
and may be changed or amended by action of the Board of Directors without
prior notice or approval of the Series' shareholders. Additional information
concerning these strategies and their related risks is contained in the
Statement of Additional Information.
FOREIGN SECURITIES
In seeking its objective, the Series may invest up to 10% of its assets
in foreign securities which are not publicly traded in the United States.
The Series may invest without limit in equity securities of foreign issuers
that are listed on a domestic securities exchange or are represented by
American Depository Receipts that are listed on a domestic securities exchange
or are traded in the United States on the over-the-counter market. The
Series' restriction on investment in foreign securities is a fundamental
policy that cannot be changed without the approval of a majority, as defined
in the Investment Act of 1940 (the "1940 Act"), of the outstanding voting
securities of the Series.
There are risks in investing in foreign securities not typically involved
in domestic investing. An investment in foreign securities may be affected by
changes in currency rates and in exchange control regulations. Foreign
companies are frequently not subject to the accounting and financial reporting
standards applicable to domestic companies, and there may be less information
available about foreign issuers. There is frequently less government
regulation of foreign issuers than in the United States. In addition,
investments in foreign countries are subject to the possibility of
expropriation or confiscatory taxation, political or social instability or
diplomatic developments that could adversely affect the value of those
investments. There may also be imposition of withholding taxes. Foreign
financial markets may have less volume and longer settlement periods than U.S.
markets which may cause liquidity problems for the Series. In addition, costs
associated with transactions on foreign markets are generally higher than for
transactions in the U.S. Obligations of foreign governmental entities are
subject to various types of governmental support and may or may not be
supported by the full faith and credit of a foreign government.
REPURCHASE AGREEMENTS
The Series may enter into repurchase agreements with respect to portfolio
securities. Under the terms of a repurchase agreement, the Series purchases
securities ("collateral") from financial institutions such as banks and
broker-dealers (the "seller") which the Advisor deems to be creditworthy,
subject to the seller's agreement to repurchase them at a mutually agreed-upon
date and price. The repurchase price generally equals the price paid by the
Series plus interest negotiated on the basis of current short-term rates
(which may be more or less than the rate on the underlying portfolio
securities).
The seller under a repurchase agreement is required to maintain the value
of the collateral held pursuant to the agreement at not less than 100% of the
repurchase price, and securities subject to repurchase agreements are held by
the Series' custodian either directly or through a securities depository.
Default by the seller would, however, expose the Series to possible loss
because of adverse market action or delay in connection with the disposition
of the underlying securities. Repurchase agreements are considered to be
loans by the Series under the 1940 Act.
U.S. GOVERNMENT SECURITIES
The Series may purchase securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. Direct obligations of the U.S.
Government include bills, notes and bonds issued by the U.S. Treasury and
obligations issued or guaranteed by U.S. agencies or instrumentalities. The
obligations of certain U.S. agencies (e.g., the Government National Mortgage
Association) are backed by the full faith and credit of the U.S. Government or
are supported by the agencies' rights to borrow from the U.S. Treasury. The
issues of other agencies are supported only by the credit of the agency (e.g.,
Fannie Mae).
SHORT SALES
The Series may within limits, engage in short sales "against the box". A
short sale is the sale of borrowed securities; a short sale against the box
means that the Series owns securities equivalent to those sold short. No more
than 25% of the net assets (taken at current value) of the Series may be held
as collateral for such sales at any one time. Such short sales can be used as
a hedge.
FORWARD COMMITMENTS OR PURCHASES ON A WHEN-ISSUED BASIS
The Series may enter into forward commitments or purchase securities on a
when-issued basis. These securities normally are subject to settlement within
45 days of the purchase date. The interest rate realized on these securities
is fixed as of the purchase date and no interest accrues to the Series before
settlement. These securities are subject to market fluctuation due to changes
in market interest rates. The Series will maintain a separate account with a
segregated portfolio of liquid assets in an amount at least equal to the
purchase price.
MORTGAGE-BACKED SECURITIES
The Series may purchase mortgage-backed securities which represent an
interest in a pool of mortgage loans. The primary government issuers or
guarantors of mortgage-backed securities are the Government National Mortgage
Association ("GNMA"), Fannie Mae, and the Federal Home Loan Mortgage
Corporation. Mortgage-backed securities may also be issued by other U.S. and
foreign government agencies and non-governmental entities which consist of
collateralized mortgage obligations ("CMOs") and real estate mortgage
investment conduits ("REMICs") that are rated in one of the top two rating
categories by S&P or Moody's. The mortgages backing these securities include
conventional thirty-year fixed rate mortgages, graduated payment mortgages,
and adjustable rate mortgages. CMOs and REMICs backed solely by GNMA
certificates or other mortgage pass-throughs issued or guaranteed by the U.S.
Government or its agencies and instrumentalities may be supported by various
types of insurance. However, the guarantees or insurance do not extend to the
mortgage-backed securities' values, which are likely to vary inversely with
fluctuations in interest rates.
Mortgage-backed securities are in most cases "pass-through" instruments,
through which the holder receives a share of all interest and principal
payments from the mortgages underlying the certificate. When the Advisor is
determining the maturity of pass-through certificates the Advisor will
consider the maturity to be equal to the average life rather than the stated
maturity. Because of the subjective nature of average life calculations, the
maturity of the Series portfolio may be difficult to monitor. During periods
of declining interest rates, prepayment of mortgages underlying
mortgage-backed securities can be expected to accelerate. When the mortgage
obligations are prepaid, the Series reinvests the prepaid amounts in
securities, the yield of which reflects interest rates prevailing at the time.
Moreover, prepayment of mortgages which underlie securities purchased at a
premium could result in capital losses.
To the extent that the Series purchases mortgage-related or
mortgage-backed securities at a premium, mortgage foreclosures and prepayments
of principal (which may be made at any time without penalty) may result in
some loss of the Series principal investment to the extent of the premium
paid. The yield of the Series may be affected by reinvestment of prepayments
at higher or lower rates than the original investment. In addition, like
other debt securities, the value of mortgage-related securities, including
government and government-related mortgage pools, will generally fluctuate in
response to market interest rates.
ZERO-COUPON BONDS
Some of the securities in which the Series invests may include so-called
"zero-coupon" bonds. Zero-coupon bonds are issued at a significant discount
from face value and generally pay interest only at maturity rather than at
intervals during the life of the security. The Series is required to accrue
and distribute income from zero-coupon bonds on a current basis, even though
it does not receive that income currently in cash. Thus, the Series may have
to sell investments to obtain cash needed to make income distributions. The
discount in the absence of financial difficulties of the issuer decreases as
the final maturity of the security approaches. Zero-coupon bonds can be sold
prior to their maturity date in the secondary market at the then prevailing
market value, which depends primarily on the time remaining to the maturity,
prevailing level of interest rates and the perceived credit quality of the
issues. The market prices of zero-coupon securities are subject to greater
fluctuations in response to changes in market interest rates than bonds which
pay interest currently.
VARIABLE AND FLOATING RATE INSTRUMENTS
Certain of the obligations purchased by the Series may carry variable or
floating rates of interest, may involve a conditional or unconditional demand
feature and may include variable amount master demand notes. Such instruments
bear interest at rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index.
The interest rate on these securities may be reset daily, weekly, quarterly,
or at some other interval, and may have a floor or ceiling rate. There is a
risk that the current interest rate on such obligations may not accurately
reflect existing market interest rates.
HEDGING TECHNIQUES
The Series has reserved the right, subject to authorization by the Board
of Directors prior to implementation, to engage in certain strategies in an
attempt to hedge the Series' portfolio, that is, to reduce the overall level
of risk that normally would be expected to be associated with its investments.
The Series may write covered call options on common stocks; may purchase and
sell (on a secured basis) put options; and may engage in closing transactions
with respect to put and call options. The Series also may purchase forward
foreign currency exchange contracts to hedge currency exchange rate risk. In
addition, the Series is authorized to purchase and sell stock index futures
contracts and options on stock index futures contracts. The Series is also
authorized to conduct spot (i.e., cash basis) currency transactions or to use
currency futures contracts and options on futures contracts and foreign
currencies in order to protect against uncertainty in the future levels of
foreign currency exchange rates. These strategies are primarily used for
hedging purposes; nevertheless, there are risks associated with these
strategies as described below.
OPTIONS ON SECURITIES
A call option is a short-term contract pursuant to which the purchaser of
the option, in return for a premium, has the right to buy the security
underlying the option at a specified price at any time during the term of the
option. The writer of a call option, who receives the premium, has the
obligation, upon exercise during the option term, to deliver the underlying
security against payment of the exercise price. Conversely, a put option
gives its purchaser, in return for a premium, the right to sell the underlying
equity security at a specified price during the option term to the writer of
the put option, who receives the premium. The Series will sell call options
only on a "covered" basis, i.e., it will own the underlying security at all
times, and will write put options only on a "covered basis", i.e., it will
maintain an amount equal to the exercise price in a segregated account at all
times. The Series may engage in option transactions for hedging purposes and
to realize a greater current return, through the receipt of premiums, than
would be earned on the underlying securities alone. Options traded in the
over-the-counter market will be considered illiquid unless the Fund has
entered into arrangements with U.S. Government securities dealers to dispose
of such options at a formula price based on a multiple of the original premium
plus the amount by which the option is "in the money".
STOCK INDEX FUTURES CONTRACTS AND OPTIONS ON STOCK INDEX FUTURES CONTRACTS
A stock index futures contract is a bilateral agreement pursuant to which
one party agrees to accept, and the other party agrees to make, delivery of an
amount of cash equal to a specified dollar amount times the difference between
the stock index value at the close of trading of the contract and the price at
which the futures contract is originally struck. No physical delivery of the
stocks comprising the index is made. Options on stock index futures contracts
give the purchaser the right, in return for the premium paid, to assume a long
or short position in a futures contract.
FUTURES CONTRACTS
The Series may purchase and sell financial futures contracts on debt
securities on a commodities exchange or board of trade for certain hedging,
return enhancement and risk management purposes in accordance with applicable
regulations. A financial futures contract is an agreement to purchase or sell
an agreed amount of securities at a set price for delivery in the future. The
Series may not purchase or sell futures contracts if immediately thereafter
the sum of the amount of initial margin deposits on any such futures (plus
deposits on any other futures contracts and premiums paid in connection with
any options or futures contracts) that do not constitute "bona fide hedging"
under the Commodity Futures Trading Commission ("CFTC") rules would exceed 5%
of the liquidation value of the Series' total assets after taking into account
unrealized profits and losses on such contracts. In addition, the value of
all futures contracts sold will not exceed the total market value of the
Series' portfolio. The Fund will comply with guidelines established by the
Securities and Exchange Commission with respect to covering of obligations
under futures contracts and will set aside liquid assets in a segregated
account with its custodian in the amount prescribed.
The Series' successful use of futures contracts depends on the Advisor's
ability to accurately predict the direction of the market and is subject to
various additional risks. The correlation between movements in the price of a
futures contract and the price of the securities being hedged is imperfect and
there is a risk that the value of the securities being hedged may increase or
decrease at a greater rate than the related futures contracts resulting in
losses to the Series. Certain futures exchanges or boards of trades have
established daily limits based on the amount of the previous day's settlement
price. These daily limits may restrict the Series' ability to repurchase for
sale certain futures contracts on any particular day.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Series' use of forward foreign currency contracts is limited to
hedging against movements in the value of foreign currencies relative to the
U.S. dollar in connection with specific portfolio transactions or with respect
to existing portfolio positions denominated in such currencies. A transaction
hedge involves the purchase or sale of a forward contract with respect to a
specific receivable or payable of a Series while a position hedge relates to a
specific portfolio holding. A forward foreign currency exchange contract
involves an obligation to purchase or sell a specified currency at a future
date at a price set at the time of the contract. Foreign currency exchange
contracts do not eliminate fluctuations in the values of portfolio securities
but rather allow a Series to establish a rate of exchange for a future point
in time. With respect to any such forward foreign currency contract, it will
not generally be possible to match precisely the amount covered by that
contract and the value of the securities involved due to the changes in the
values of such securities resulting from market movements between the date the
forward contract is entered into and the date it matures. In addition, while
forward contracts may offer protection from losses resulting from declines in
the value of a particular foreign currency, they also limit potential gains
which might result from increases in the value of such currency. Based on
current legal interpretation, the Series does not consider forward foreign
currency exchange contracts to be commodities or commodity contracts for
purposes of the Series' fundamental restrictions concerning investment in
commodities or commodity contracts, as set forth in the Statement of
Additional Information.
CURRENCY FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
A currency futures contract is an agreement for the purchase or sale for
future delivery of foreign currencies. A "sale" of a currency futures
contract means the obligation to deliver the foreign currencies called for by
the contract at a specified price on a specified date while a "purchase" of a
currency futures contract means the obligation to acquire the foreign
currencies called for by the contract at a specified price on a specified
date. The Series will only enter into futures contracts which are traded on
national or foreign futures exchanges and which are standardized as to
maturity date and the underlying financial instrument. Options on currency
futures contracts give the purchaser the right, in return for the premium
paid, to assume a long or short position in the futures contract. The Series
may not purchase or sell futures contracts if immediately thereafter the sum
of the amount of initial margin deposits on any such futures (plus deposits on
any other futures contracts and premiums paid in connection with any options
or futures contracts) that do not constitute "bona fide hedging" under the
CFTC rules would exceed 5% of the liquidation value of the Series' total
assets after taking into account unrealized profits and losses on such
contracts. In addition, the value of all futures contracts sold will not
exceed the total market value of the Series' portfolio.
FOREIGN CURRENCY OPTIONS
A call option on a foreign currency is a short-term contract pursuant to
which the purchaser of the option, in return for a premium, has the right to
buy the currency underlying the option at a specified price at any time during
the term of the option. The writer of a call option, who receives the
premium, has the obligation, upon exercise of the option during the option
term, to deliver the underlying currency against payment of the exercise
price. Conversely, a put option on a foreign currency gives its purchaser, in
return for a premium, the right to sell the underlying currency at a specified
price during the option term to the writer of the put option, who receives the
premium.
RISKS ASSOCIATED WITH HEDGING STRATEGIES
There are risks associated with the hedging strategies described above,
including the following: (1) the success of a hedging strategy may depend on
the ability of the Advisor to accurately predict movements in the prices of
individual securities, fluctuations in domestic and foreign markets and
currency exchange rates, and movements in interest rates; (2) there may be an
imperfect correlation between the changes in market value of the stocks held
by the Series and the prices of currency contracts, options, futures and
options on futures; (3) there may not be a liquid secondary market for a
currency contract, option, futures contract or futures option; (4) trading
restrictions or limitations may be imposed by an exchange; and, (5) government
regulations, particularly requirements for qualification as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"), may restrict trading in forward currency contracts, options, futures
contracts and futures options.
PRINCIPAL INVESTMENT RESTRICTIONS
The Series is subject to certain investment restrictions which are
fundamental policies that cannot be changed without the approval of the
holders of a majority, as defined in the 1940 Act, of the Series' outstanding
shares.
The Series may borrow money, but only from a bank for temporary or
emergency purposes in amounts not exceeding 10% of the Series' total assets
and the Series will not make additional investments while borrowings greater
than 5% of its total assets are outstanding.
The Series may not, with respect to 75% of its total assets, invest more
than 5% of the value of its total assets at the time of investment in
securities of any one issuer (other than obligations issued or guaranteed by
the U.S. Government, its agencies or its instrumentalities). The Series may
not purchase more than 10% of the outstanding voting securities of any one
issuer.
The Series may not invest 25% or more of the value of its total assets
in securities of issuers in any one industry.
The Series may not invest more than 10% of its total net assets in
securities of issuers that are restricted from being sold to the public
without registration under the Securities Act of 1933 and illiquid securities,
including repurchase agreements with maturities of greater than seven days.
The Series may purchase shares of closed-end investment companies that
are traded on national exchanges to the extent permitted by applicable law.
The Series may not make loans, except through repurchase agreements.
Additional information about the Series' investment restrictions is
contained in the Statement of Additional Information.
MANAGEMENT
The overall business and affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, including the Fund's
agreements with its investment advisor, custodian and distributor. The
day-to-day operations of the Fund are delegated to the Fund's officers and to
Exeter Asset Management (the Advisor), a division of Manning & Napier
Advisors, Inc. ( "MNA"), 1100 Chase Square, Rochester, New York 14604. A
committee made up of investment professionals and analysts make all the
investment decisions for the Fund.
The Advisor acts as investment advisor to the Fund and supervises and
arranges the purchase and sale of securities held in the portfolio of the
Fund. Mr. William Manning controls the Advisor by virtue of his ownership of
the securities of 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.
As of the date of this prospectus, the Advisor and MNA supervised over
$7.5 billion in assets of clients, including both individuals and
institutions. For its services to the Fund under the investment advisory
agreement, the Fund pays the Advisor a fee, computed daily and payable
monthly, at an annual rate of 1% of the Series average daily net assets. The
advisory fee charged by the Advisor to its investment advisory clients will
not include or be based on assets of such clients held in shares of the
Series. The Fund is responsible for its operating expenses, including: (i)
interest and taxes; (ii) brokerage commissions; (iii) insurance premiums; (iv)
compensation and expenses of its Directors other than those affiliated with
the Advisor; (v) legal and audit expenses; (vi) fees and expenses of the
Fund's custodian, shareholder servicing or transfer agent and accounting
services agent, if obtained for the Fund from an entity other than the
Advisor; (vii) expenses incidental to the issuance of its shares, including
issuance on the payment of, or reinvestment of, dividends and capital gain
distributions; (viii) fees and expenses incidental to the registration under
federal or state securities laws of the Fund or its shares; (ix) expenses of
preparing, printing and mailing reports and notices and proxy material to
shareholders of the Fund; (x) all other expenses incidental to holding
meetings of the Fund's shareholders; (xi) dues or assessments of or
contributions to the Investment Company Institute or any successor; and, (xii)
such non-recurring expenses as may arise, including litigation affecting the
Fund and the legal obligations with respect to which the Fund may have to
indemnify its officers and directors.
DISTRIBUTION OF FUND SHARES
Manning & Napier Investor Services, Inc. (the Distributor) acts as
distributor of Fund shares and is located at the same address as the Advisor
and the Fund. The Fund has adopted a distribution agreement with respect to
each Class of shares and related plans of distribution with respect to Class
B, C, D and E Shares (the Plans) pursuant to Rule 12b-1 under the 1940 Act.
Class A Shares are offered to investors who purchase their shares directly
from the Distributor and are not subject to distribution or shareholder
servicing fees. Class B, C, D and E Shares are offered only by or through
investment dealers, banks or financial service firms that provide
distribution, administrative and/or shareholder services (Financial
Intermediaries).
The Distributor receives distribution and services fees, at the rates set
forth below, for providing distribution and/or shareholder services to the
Class B, C, D and E Shares. The Distributor expects to allocate most of its
distribution fees and shareholder service fees to Financial Intermediaries
that enter into shareholder servicing agreements (Servicing Agreements) with
the Distributor. The different Classes permit the Fund to allocate an
appropriate amount of fees to a Financial Intermediary in accordance with the
level of services it agrees to provide under its Servicing Agreement.
As compensation for providing distribution and shareholders services for
the Class B Shares, the Distributor receives a distribution fee equal to .75%
of the Class B Shares average daily net assets and a shareholder servicing fee
equal to .25% of the Class B Shares average daily net assets. As compensation
for providing distribution and shareholders service for the Class C Shares,
the Distributor receives an aggregate distribution and shareholder servicing
fee equal to .75% of the Class C Shares average daily net assets. As
compensation for providing distribution and shareholder services for the Class
D Shares, the Distributor receives an aggregate distribution and shareholder
servicing fee equal to .50% of the Class D Shares average daily net assets.
The shareholder services component of the foregoing fees for Classes C and D
is limited to .25% of the average daily net assets of the respective class.
As compensation for providing distribution services for the Class E Shares,
the Distributor receives an aggregate distribution and shareholder servicing
fee equal to .25% of the average daily net assets of the Class E Shares. The
Distributor may, in its discretion, voluntarily waive from time to time all or
any portion of its distribution fee.
Payments under the Plans are made as described above regardless of the
Distributors actual cost of providing distribution services and may be used to
pay the Distributors overhead expenses. If the cost of providing distribution
services to the Fund is less than the payments received, the unexpended
portion of the distribution fees may be retained as profit by the Distributor.
The Distributor may from time to time and from its own resources pay or allow
additional discounts or promotional incentives in the form of cash or other
compensation (including merchandise or travel) to Financial Intermediaries and
it is free to make additional payments out of its own assets to promote the
sale of Fund shares. Similarly, the Advisor may, from its own resources,
defray or absorb costs related to distribution, including compensation of
employees who are involved in distribution.
TOTAL RETURN
From time-to-time the Series may advertise its total return. Total
return figures are based on historical earnings and are not intended to
indicate future performance. The "total return" of the Series refers to the
average annual compounded rates of return over one-, five-, and ten-year
periods or for the life of the Series (as stated in the advertisement) that
would equate an initial amount invested at the beginning of a stated period to
the ending redeemable value of the investment, assuming the reinvestment of
all dividend and capital gains distributions. The respective performance
figures for the Classes will differ because of the different distribution
and/or shareholder services fees charged to Class B, C, D and E Shares.
PURCHASES, EXCHANGES AND REDEMPTIONS OF SHARES
Purchases 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. The Distributor may suspend offering
shares to other than discretionary management accounts of the Advisor.
A purchase order will be effective as of the day received by the
Distributor, Transfer Agent, or its agents, if the order is received before
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 for the Series unless: (1) such
securities are appropriate in the Series at the time of the exchange; (2) the
shareholder represents and agrees that all securities offered to the Series
are not subject to any restrictions upon their sale by the Series under the
Securities Act of 1933, or otherwise; and, (3) prices are available from an
independent pricing service approved by the Funds Board of Directors.
AUTOMATIC INVESTMENT PLAN
Shareholders may purchase shares regularly through the Automatic
Investment Plan with a pre-authorized draft drawn on their checking account.
Under this plan, the shareholders may elect to have a specified amount
invested on a regular schedule. The minimum amount of each automatic
investment is $25. The amount specified by the shareholder will be withdrawn
from the shareholder's bank account using the pre-authorized draft. This
amount will be invested at the applicable share price determined on the date
the amount is available for investment. Participation in the Automatic
Investment Plan may be discontinued either by the Fund or the Shareholder upon
30 days' prior written notice to the other party. A shareholder who wishes to
enroll in the Automatic Investment Plan may do so by completing the applicable
section of the Account Application Form or contacting the Fund for an
Automatic Investment Plan Form.
EXCHANGES BETWEEN SERIES
As permitted pursuant to any rule, regulation or order promulgated by the
Securities and Exchange Commission, some or all of the shares of a Class in a
direct investment account with the Fund for which payment has been received by
the Transfer Agent may be exchanged for shares of the same Class of any of the
other Exeter Fund, Inc. series that offers that Class at net asset value.
Shareholders may effect up to 4 exchanges in a 12-month period without charge.
Subsequent exchanges are subject to a fee of $15. Exchanges will be made
after instructions in writing or by telephone are received by the Transfer
Agent in proper form (i.e., if in writing - signed by the record owner(s)
exactly as the shares are registered; if by telephone - proper account
identification is given by the shareholder) and each exchange must involve
either shares having an aggregate value of at least $1,000 or all the shares
in the account. A shareholder must have received, and should read carefully,
the prospectus of the other series and consider the differences in objectives
and policies before making any exchange. The exchange privilege may not be
available in all states. For federal and state income tax purposes, an
exchange is treated as a sale of the shares exchanged, and therefore an
exchange could result in a gain or loss to the shareholder making the
exchange. The Series may modify or terminate this exchange offer upon 60
days' notice to shareholders subject to applicable law.
REDEMPTIONS
If a shareholder desires to redeem his shares at their net asset value,
the shareholder must send a written request for redemption in "good order" to
the Transfer Agent. "Good order" generally means that the written request for
redemption must be endorsed by the record owner(s) exactly as the shares are
registered and the signature(s) must be guaranteed by an "eligible guarantor
institution" as the term is defined under Rule 17Ad-15(a)(2) under the
Securities Exchange Act of 1934. Currently, such procedures generally permit
guarantees by a commercial bank or trust company, a member bank of the Federal
Reserve System, or a member firm of a national securities exchange.
Redemption requirements for corporations, other organizations, trusts,
fiduciaries, and retirement plans may require additional documentation.
Please contact the Transfer Agent at 1-800-466-3863 for more information. The
Transfer Agent may make certain de minimis exceptions to the above
requirements for redemption.
Within three days after receipt of a redemption request by the Transfer
Agent in "good order", the Series will make payment in cash, except as
described below, of the net asset value of the shares next determined after
such redemption request was received, except during any period in which the
right of redemption is suspended or date of payment is postponed because the
New York Stock Exchange is closed or trading on such Exchange is restricted or
to the extent otherwise permitted by the 1940 Act if an emergency exists. For
shares purchased, or received in exchange for shares purchased, by check
(including certified checks or cashier's checks), payment of redemption
proceeds may be delayed up to 15 days from the purchase date in an effort to
assure that such check has cleared.
Subject to the Series' compliance with applicable regulations, the Series
has reserved the right to pay the redemption price either totally or partially
by a distribution in-kind of securities (instead of cash) from the Series'
portfolio. The securities distributed in such a distribution would be valued
at the same amount as that assigned to them in calculating the net asset value
for the shares being sold. If a shareholder received a distribution in-kind,
he could incur brokerage or transaction charges when converting the securities
to cash. The Fund has elected, however, to be governed by Rule 18f-1 under
the 1940 Act as a result of which the Fund is obligated to redeem shares, with
respect to any one shareholder during any 90-day period, solely in cash up to
the lesser of $250,000 or 1% of the net asset value of the Fund at the
beginning of the period.
OTHER INFORMATION ABOUT PURCHASES
If a taxable shareholder invests shortly before the Series declares a
taxable dividend, a portion of the investment will be returned as a taxable
distribution (commonly referred to as buying into a dividend). This
distribution will be taxable regardless of whether you elected to reinvest
your distribution in additional shares or take the distribution in cash. If
you would like to avoid buying into a dividend, you may contact the Fund to
find out when the Series plans to declare a distribution and invest after that
date.
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 Funds 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
reserves the right to redeem shares in any account for their then-current
value (which will be promptly paid to the shareholder) if at any time the
total investment in such account drops below $1,000 because of redemptions
(but not due to changes in net asset value). Shareholders will be notified
that the value of their account is less than the minimum investment
requirement and allowed 60 days to make an additional investment before the
redemption is processed.
SHARE PRICE
The share price or net asset value per share of each Class of the Series
is determined as of the closing time of the New York Stock Exchange or, in the
absence of a closing time, 4:00 p.m. Eastern time on each day that the New
York Stock Exchange is open for trading. The exchange annually announces the
days on which it will not be open for trading; the most recent announcement
indicates that it will not be open when the following holidays are observed:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value per share of each Class of the Series is determined
by dividing the total value of its investments and other assets that are
allocated to that Class, less any liabilities that are allocated to that
Class, by the Classs total outstanding shares. The value of the Series'
portfolio securities will be the market value of such securities as determined
based on quotes provided by a pricing service (which uses the methodology
outlined in the "Net Asset Value" section of the Statement of Additional
Information) approved by the Board of Directors, or, in the absence of market
quotations, fair value as determined in good faith by or under the direction
and control of the Board of Directors. Short-term investments which mature in
less than 60 days are normally valued at amortized cost. Assets initially
expressed in foreign currencies will be converted into U.S. dollars as of the
exchange rates quoted by any major bank. If such quotes are not available,
the exchange rates will be determined in accordance with policies established
in good faith by the Board of Directors. See the Statement of Additional
Information for further information.
DIVIDENDS AND TAX STATUS
TAXES
The following summary of federal income tax consequences is based on the
current tax laws and regulations, which may be changed by legislative,
judicial or administrative action.
No attempt has been made to present a detailed explanation of the
federal, state, or local income tax treatment of the Series or its
shareholders, and the Series is not managed with respect to tax outcomes for
its shareholders. In addition, state and local tax consequences of an
investment in the Series may differ from the federal income tax consequences
described below. Accordingly, shareholders are urged to consult with their
tax advisers regarding specific questions as to federal, state and local
income taxes. Additional information concerning taxes is set forth in the
Statement of Additional Information.
TAX STATUS
Under the Internal Revenue Code of 1986, as amended (the Code), the
Series is treated as a separate entity for federal income tax purposes. The
Series intends to qualify for the special tax treatment afforded regulated
investment companies as defined under Subchapter M of the Code, so as to be
relieved of federal income tax on that part of its net investment company
taxable income, and net capital gain (the excess of net long-term capital
gains over net short-term capital losses) distributed to shareholders.
TAX STATUS OF DISTRIBUTIONS
Dividends and distributions will be paid in full and fractional shares of
the Series, based on the net asset value per share at the close of business on
the record date, although a shareholder may, prior to the record date,
request, by writing or by telephone call to the Fund, that payments of either
ordinary income dividends or capital gain distributions, or both, be made in
cash. If a shareholder has chosen to receive dividends and/or capital gain
distributions in cash, and the postal service is unable to deliver checks to
the shareholders address of record, or the shareholder does not respond to
mailing from the Fund concerning outstanding checks, that shareholders account
will be updated so that all future distributions will be reinvested in the
account. No interest will accrue on amounts represented by uncashed
distribution or redemption checks.
The Series will distribute all of its net investment income (including
net short-term capital gains) to shareholders. Dividends from net investment
company taxable income are taxable to shareholders as ordinary income (whether
received in cash or in additional shares) to the extent of the Series earnings
and profits. Net capital gains will be distributed at least annually and will
be taxed to shareholders as a 20% rate gain distribution (generally taxed at a
rate of 20%) or a 28% rate gain distribution (generally taxed at a rate of
28%), depending upon the designation by the Series (such designation being
dependent upon the holding period of the Series in the underlying asset
generating the net capital gain), regardless of how long the shareholders have
held their shares and regardless of whether the distributions are received in
cash or in additional shares. If no designation is made regarding a capital
gain dividend, it will be classified as a 28% rate gain distribution, and,
thus, taxed at a rate of 28%. Dividends and distributions of capital gains
paid by the Series do not qualify for the dividends received deduction for
corporate shareholders. The Series will provide annual reports to
shareholders of the federal income tax status of all distributions.
Dividends declared by the Series in October, November or December of any
year and payable to shareholders of record on a date in one of those months
will be deemed to have been paid by the Series and received by the
shareholders on December 31 of the year declared, if paid by the Series at any
time during the following January.
Investment income received directly by the Series on direct U.S.
Government obligations is exempt from income tax at the state level and may be
exempt, depending on the state, when received by a shareholder as income
dividends from the Series provided certain state-specific conditions are
satisfied. The Series will inform shareholders annually of the percentage of
income and distributions derived from direct U.S. Government obligations.
Shareholders should consult their tax advisers to determine whether any
portion of the income dividends received from the Series is considered tax
exempt in their particular states.
The Series intends to make sufficient distributions prior to the end of
each calendar year to avoid liability for federal excise tax applicable to
regulated investment companies.
A sale, exchange or redemption of the Series shares generally is a
taxable transaction to the shareholder.
GENERAL INFORMATION
The Fund was incorporated on July 26, 1984 as a Maryland corporation.
The Board of Directors may, at its own discretion, create additional series of
shares, each of which would have separate assets and liabilities.
Each share of a series represents an identical interest in the investment
portfolio of that series and has the same rights, except that (i) each Class
of shares bears those distribution fees, service fees and administrative
expenses applicable to the respective Class of shares as a result of its sales
arrangements, which will cause the different classes of shares to have
different expense ratios and to pay different rates of dividends, (ii) each
Class has exclusive voting rights with respect to those provisions of the
series Rule 12b-1 distribution plan which relate only to such Class and (iii)
the Classes have different exchange privileges. As a result of each Class'
differing Rule 12b-1 distribution and shareholder services plan, shares of
different classes of the series may have different net asset values per share.
The Fund does not expect to hold annual meetings of shareholders but
special meetings of shareholders may be held under certain circumstances.
Shareholders of the Fund retain the right, under certain circumstances, to
request that a meeting of shareholders be held for the purpose of
considering the removal of a Director from office, and if such a request is
made, the Fund will assist with shareholder communications in connection with
the meeting. The shares of the Fund have equal rights with regard to voting,
redemption and liquidations. The Fund's shareholders will vote in the
aggregate and not by series or Class except as otherwise expressly required by
law or when the Board of Directors determines that the matter to be voted upon
affects only the interests of the shareholders of a series or a Class.
Income, direct liabilities and direct operating expenses of each Series will
be allocated directly to each series, and general liabilities and expenses of
the Fund will be allocated among the Series in proportion to the total net
assets of each series by the Board of Directors. The holders of shares have
no preemptive or conversion rights. Shares when issued are fully paid and
non-assessable and do not have cumulative voting rights.
All securities and cash are held by the custodian, Boston Safe Deposit
and Trust Company. Coopers & Lybrand, L.L.P. serves as independent
accountants for the Series and will audit its financial statements annually.
Manning & Napier Advisors, Inc. serves as the Fund's transfer and
dividend disbursing agent. Shareholder inquiries should be directed to Exeter
Fund, Inc., P.O. Box 41118, Rochester, New York 14604.
<PAGE>
APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
Moodys Investors Services, Inc.s corporate bond ratings:
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred
to as gilt-edged. 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 risk appear somewhat larger than 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 some time 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.
Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a
rating in the lower end of that generic rating category.
Standard & Poor's Corporation's corporate bond ratings:
AAA - This is the highest rating assigned by Standard & Poor's to a
debt obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only to a small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than in higher rated categories.
<PAGE>
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's Investor Services, Inc.'s commercial paper ratings:
PRIME-1 - Issues 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.
Standard & Poor's Corporation's commercial paper ratings:
A-1 - This is the highest category and indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 - Capacity for timely payment on issues with this designation is
satisfactory and the obligation is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations
in higher rating categories.
A-3 - Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
B - Issues rated B are regarded as having significant speculative
characteristics for timely payment.
C - This rating is assigned to short-term debt obligations that are
currently vulnerable to nonpayment.
D - Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. 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>
EXETER FUND, INC.
World Opportunities
Series
Prospectus
April 20, 1998
<PAGE>
EXETER FUND, INC.
P.O. Box 41118
Rochester, New York 14604
1-800-466-3863
WORLD OPPORTUNITIES SERIES
Exeter Fund, Inc. (the Fund), is an open-end management investment
company that offers separate series, each a separate investment portfolio
having its own investment objective and policies. This Prospectus relates to
the Class A, B, C, D and E Shares (each a Class and collectively, the Classes)
of the World Opportunities Series (the Series), a series of the Fund. The
Series investment objective is to seek long-term capital growth.
This Prospectus provides you with the basic information you should know
before investing in the Series. The Funds other series are offered through
separate prospectuses. You should read this Prospectus and keep it for future
reference. A Statement of Additional Information dated April 20, 1998,
containing additional information about the Fund has been filed with the
Securities and Exchange Commission and is incorporated by reference into this
Prospectus in its entirety. You may obtain a copy of the Statement of
Additional Information without charge by contacting the Fund at the address or
telephone number listed above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS APRIL 20, 1998.
<PAGE>
EXETER FUND, INC.
WORLD OPPORTUNITIES SERIES
No person has been authorized to give any information or to make
representations not contained in this Prospectus in connection with any
offering made by this Prospectus and, if given or made, such information must
not be relied upon as having been authorized by the Fund. This Prospectus
does not constitute an offering by the Fund in any jurisdiction in which such
offering may not lawfully be made.
PROSPECTUS
TABLE OF CONTENTS
Expenses 3
Financial Highlights 7
The Fund 8
Risk and Investment Objectives and Policies 8
Special Risk and Additional Investment Policies 9
Principal Investment Restrictions 14
Management 14
Distribution of Fund Shares 15
Total Return 16
Purchases, Exchanges and Redemptions of Shares 16
Share Price 18
Dividends and Tax Status 18
General Information 20
Appendix 21
<PAGE>
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
(as a percentage of offering price) ALL CLASSES
Maximum Sales Charge Imposed on Purchases None
Redemption Fees 1 None
Exchange Fees 2 None
1 A wire charge, currently $15, will be deducted by the Transfer Agent
from the amount of a wire redemption payment made at the request of a
shareholder. Such amount is not included in the Annual Operating Expenses
of the Series.
2 A shareholder may effect up to four (4) exchanges in a twelve (12) month
period without charge. Subsequent exchanges are subject to a fee of $15.
ANNUAL OPERATING EXPENSES - CLASS A SHARES
The following information provides (i) a tabular summary of expenses relating
to the annual operating expense of the Class A Shares of the Series and (ii)
an example illustrating the dollar cost of such expenses on a $1,000
investment.
Annual Operating Expenses of the Class A Shares of the Series (as a percentage
of average net assets) 1:
Management Fees 1.00%
Rule 12b-1 Fees None
Other Expenses 0.15%
Total Operating Expenses 1.15%
1 The World Opportunities Series offered Class A Shares during the year
ended December 31, 1997; therefore, actual management fees and other
expenses are used above.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class A Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
EXAMPLE - CLASS A SHARES
You would pay the following expenses on a $1,000 investment in Class A Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1 year 3 years 5 years 10 years
World Opportunities Series $12 $37 $63 $140
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
<PAGE>
ANNUAL OPERATING EXPENSES - CLASS B SHARES
The following information provides (i) a tabular summary of expenses relating
to the annual operating expense of the Class B Shares of the Series and (ii)
an example illustrating the dollar cost of such expenses on a $1,000
investment.
Annual Operating Expenses of the Class B Shares of the Series (as a percentage
of average net assets) 1:
Management Fees 1.00%
Rule 12b-1 Fees 2 1.00%
Other Expenses 0.15%
Total Operating Expenses 2.15%
1 The World Opportunities Series offered only Class A Shares during the
year ended December 31, 1997; therefore, actual management fees and other
expenses of Class A Shares of the Series are used above.
2 Of the Rule 12b-1 fees for the Class B shares, 0.25% represents
shareholder service fees.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class B Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
Due to the continuous nature of Rule 12b-1 fees, long-term shareholders may
pay more than the equivalent of the maximum front-end sales charges otherwise
permitted by the Conduct Rules of the National Association of Securities
Dealers, Inc. (the NASD).
EXAMPLE - CLASS B SHARES
You would pay the following expenses on a $1,000 investment in Class B Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1 year 3 years 5 years 10 years
World Opportunities Series $ 22 $ 67 $ 115 $ 248
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
<PAGE>
Operating Expenses - CLASS C SHARES
The following information provides (i) a tabular summary of expenses relating
to the annual operating expense of the Class C Shares of the Series and (ii)
an example illustrating the dollar cost of such expenses on a $1,000
investment.
Annual Operating Expenses of the Class C Shares of the Series (as a percentage
of average net assets) 1:
Management Fees 1.00%
Rule 12b-1 Fees 2 0.75%
Other Expenses 0.15%
Total Operating Expenses 1.90%
1 The World Opportunities Series offered only Class A Shares during the
year ended December 31, 1997; therefore, actual management fees and other
expenses are used above.
2 Of the Rule 12b-1 fees for the Class C shares, up to 0.25% represents
shareholder service fees.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class C Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
Due to the continuous nature of Rule 12b-1 fees, long-term shareholders may
pay more than the equivalent of the maximum front-end sales charges otherwise
permitted by the Conduct Rules of the NASD.
EXAMPLE - CLASS C SHARES
You would pay the following expenses on a $1,000 investment in Class C Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1 year 3 years 5 years 10 years
World Opportunities Series $ 19 $ 60 $ 103 $ 222
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
<PAGE>
Operating Expenses - CLASS D SHARES
The following information provides (i) a tabular summary of expenses relating
to the annual operating expense of the Class D Shares of the Series and (ii)
an example illustrating the dollar cost of such expenses on a $1,000
investment.
Annual Operating Expenses of the Class D Shares of the Series (as a percentage
of average net assets) 1:
Management Fees 1.00%
Rule 12b-1 Fees 2 0.50%
Other Expenses 0.15%
Total Operating Expenses 1.65%
1 The World Opportunities Series offered only Class A Shares during the
year ended December 31, 1997; therefore, actual management fees and other
expenses are used above.
2 Of the Rule 12b-1 fees for the Class D shares, up to 0.25% represents
shareholder service fees.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class D Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
Due to the continuous nature of Rule 12b-1 fees, long-term shareholders may
pay more than the equivalent of the maximum front-end sales charges otherwise
permitted by the Conduct Rules of the NASD.
EXAMPLE - CLASS D SHARES
You would pay the following expenses on a $1,000 investment in Class D Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1 year 3 years 5 years 10 years
World Opportunities Series $ 17 $ 52 $ 90 $ 195
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
<PAGE>
Operating Expenses - CLASS E SHARES
The following information provides (i) a tabular summary of expenses relating
to the annual operating expenses of the Class E Shares of the Series and (ii)
an example illustrating the dollar cost of such expenses on a $1,000
investment.
Annual Operating Expenses of the Class E Shares of the Series (as a percentage
of average net assets) 1:
Management Fees 1.00%
Rule 12b-1 Fees 2 0.25%
Other Expenses 0.15%
Total Operating Expenses 1.40%
1 The World Opportunities Series offered only Class A Shares during the
year ended December 31, 1997; therefore, actual management fees and other
expenses are used above.
2 Of the Rule 12b-1 fees for the Class E shares, up to 0.25% may represent
shareholder service fees.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class E Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
Due to the continuous nature of Rule 12b-1 fees, long-term shareholders may
pay more than the equivalent of the maximum front-end sales charges otherwise
permitted by the Conduct Rules of the NASD.
EXAMPLE - CLASS E SHARES
You would pay the following expenses on a $1,000 investment in Class E Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1 year 3 years 5 years 10 years
World Opportunities Series $ 14 $ 44 $ 77 $ 168
</TABLE>
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
<PAGE>
FINANCIAL HIGHLIGHTS
The following table provides selected per share data and ratios for the Class
A Shares of the World Opportunities Series (for a share outstanding throughout
the periods shown). The table is part of the Series financial statements,
which are incorporated by reference into the Funds Statement of Additional
Information. Coopers & Lybrand L.L.P., the Funds independent accountants,
audited the Funds financial highlights for each of the periods shown.
Additional performance information is contained in the Funds 1997 Annual
Report to Shareholders and is available upon request and without charge by
calling 1-800-466-3863. Because the Funds Class B, C, D and E Shares had not
been introduced as of December 31, 1997, no financial highlights are presented
for the Class B, C, D or E Shares of the Series. These tables should be read
in conjunction with the Series financial statements and notes thereto.
<PAGE>
WORLD OPPORTUNITIES SERIES - CLASS A SHARES
<TABLE>
<CAPTION>
<S> <C> <C>
For the period
9/6/96
For the Year (commencement of
Ended operations) to
12/31/97 12/31/96
Net asset value - Beginning of period $ 10.42 $ 10.003
Income from investment operations:
Net investment income 0.09 0.05
Net realized and unrealized gain
on investments 0.67 0.43
Total from investment operations 0.76 0.48
Less distributions to shareholders:
From net investment income (0.09) (0.05)
From net realized gain on investments (1.33) (0.01)
Total distributions to shareholders (1.42) (0.06)
Net asset value - End of period $ 9.76 $ 10.42
Total return 1 7.81% 4.82%
Ratio (to average net assets)/
Supplemental data:
Expenses 1.15% 1.17%2
Net investment income 0.79% 1.54%2
Portfolio Turnover 62% 1%
Average Commission Rate Paid $ 0.0101 $ 0.0065
NET ASSETS - END OF PERIOD (000's omitted) $ 95,215 $ 77,338
</TABLE>
1 Represents aggregate total return for the period indicated.
2 Annualized.
3 Initial offering price upon commencement of operations on September 6, 1996.
<PAGE>
THE FUND
The Fund is an open-end management investment company incorporated under
the laws of the State of Maryland on July 26, 1984. The Fund offers separate
series of units of beneficial interest (shares). This Prospectus relates to
the World Opportunities Series (the Series), which is offered through five
separate classes of shares, Class A, B, C, D and E Shares, respectively. Class
A Shares of each Series are offered to investors who purchase their shares
directly from Manning & Napier Investor Services, Inc. (the Distributor).
Class B, C, D and E Shares are offered only through financial intermediaries
which provide to the Fund and its shareholders varying levels of distribution
and shareholder services as described under Distribution of Fund Shares below.
Information regarding the Funds other series is contained in separate
prospectuses that may be obtained from Exeter Fund, Inc., P.O. Box 41118,
Rochester, New York 14604 or by calling 1-800-466-3863.
Shares of the Series are offered directly to investors and to employees
and clients of the Advisor or its affiliates that have authorized investment
in the Fund as part of the discretionary account management services of the
Advisor or its affiliates. Fund shares, including shares of series offered
through separate prospectuses, may be used in connection with a discretionary
account management service that uses Fund shares as the principal underlying
investment medium. Investors may be charged a fee if they effect transactions
through a broker or agent. Fund shares, including shares of series offered
through separate prospectuses, may also be used in connection with a
discretionary account management service that uses Fund shares as the
principal underlying investment medium.
Manning & Napier, in addition to providing investment advice to the Fund
through the Advisor, provides investment advice to other clients. Some of
these clients funds may be invested in the Series. From time to time, the
Series may experience relatively large purchases or redemptions due to assets
allocation decisions made by Manning & Napier for its clients. These
transactions may have a material effect on the Series, since Series that
experience redemptions as a result of reallocations may have to sell portfolio
securities and because Series that receive additional cash will have to invest
it. While it is impossible to predict the overall impact of these
transactions over time, there could be adverse effects on portfolio management
to the extent that the Series may be required to sell securities at times when
they would not otherwise do so, or receive cash that cannot be invested in an
expeditious manner. There may be tax consequences associated with purchases
and sales of securities, and such sales may also increase transaction costs
with purchases and sales of securities, and such sales may also increase
transactions costs. Manning & Napier is committed to minimizing the impact of
these transactions on the Series to the extent it is consistent with pursuing
the investment objectives of its clients.
RISK AND INVESTMENT OBJECTIVES AND POLICIES
The objective of the Series is to seek long-term capital growth. The
Series generally invests at least 65% of its assets in common stocks of
companies domiciled in at least three different countries. The Advisor will
emphasize individual security selection to identify those issuers which, in
the Advisors opinion, have attractive long-term business prospects and
valuations. It may invest up to 20% of assets in noninvestment-grade
convertibles and debt securities. Unless otherwise stated, the Series
investment policies are not fundamental and may be changed without shareholder
approval; however, it is the Board of Directors policy to notify shareholders
prior to any material change. There is no assurance that the Series will
achieve its investment objective.
The Series may also invest up to 35% of its assets in corporate debt
securities of foreign issuers and in obligations issued by foreign
governments, or their respective agencies and instrumentalities. The value of
debt securities fluctuates inversely to changes in interest rates. The Series
may invest in both exchange and over-the-counter traded securities. The
Series may invest in such securities without regard to term or rating and may,
from time to time, invest up to 20% of its assets in debt securities rated
below investment grade, i.e., rated lower than BBB by Standard & Poors
Corporation (S&P) or Baa by Moodys Investor Service, Inc. (Moody's), or
unrated securities of comparable quality as determined by the Advisor. These
securities are commonly known as junk bonds. Ratings of corporate bonds
including lower rated bonds are included in the Appendix. See Special Risk
and Additional Investment Policies-High Yield Debt Securities.
The Series is a non-diversified portfolio under the Investment Company
Act of 1940 (the 1940 Act), which means that the Series is not limited by the
1940 Act in the proportion of its assets that may be invested in the
obligations of a single issuer. Thus, the Series may invest a greater
proportion of its assets in the securities of a small number of issuers and as
a result will be subject to greater risk with respect to its securities.
However, the Series intends to comply with the diversification requirements
imposed by the Internal Revenue Code of 1986, as amended (the Code) for
qualification as a regulated investment company.
For temporary defensive purposes during periods when the Advisor
determines that market conditions warrant, the Series may invest up to 100% of
its assets in money market instruments (including securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities,
certificates of deposit, time deposits and bankers acceptances issued by banks
or savings and loan associations deemed to be creditworthy by the Advisor,
commercial paper rated A-1 by S&P or P-1 by Moodys, repurchase agreements
involving such securities and other investment companies investing solely in
such securities as permitted by applicable law) and may hold a portion of its
assets in cash. For a description of the above ratings, see the Appendix and
the Statement of Additional Information.
In addition, the Series may to varying degrees use certain techniques and
strategies discussed below under Special Risk and Additional Investment
Policies.
SPECIAL RISK AND ADDITIONAL INVESTMENT POLICIES
The Series may engage in the following investment policies and practices,
some of which are described in more detail in the Statement of Additional
Information.
<PAGE>
FOREIGN INVESTMENTS
Investments in foreign securities have special risks related to
political, economic and legal conditions outside of the U.S., including the
possibility of unfavorable currency exchange rates, exchange control
regulations (including currency blockage), expropriation, nationalization,
withholding taxes on income and difficulties in enforcing judgments. Foreign
securities may be less liquid and more volatile than comparable U.S.
securities. In general, there may be limited public information with respect
to foreign issuers, and some foreign issuers may also be subject to less
comprehensive accounting and disclosure requirements than similar U.S.
issuers.
The Series investments in foreign securities may include investments in
countries whose economies or securities markets are not yet highly developed.
Special risks associated with these investments (in addition to the
considerations regarding foreign investments generally) may include, among
others, greater political uncertainties, an economy's dependence on revenues
from particular commodities or on international aid or development assistance,
currency transfer restrictions, highly limited numbers of potential buyers for
such securities and delays and disruptions in securities settlement
procedures.
INVESTING IN OTHER INVESTMENT COMPANIES
The Series may invest up to 10% of its total assets in closed-end
investment companies commonly referred to as country funds. Such investments
will involve the payment of duplicate fees through the indirect payment of a
portion of the expenses, including advisory fees, of such other investment
companies.
SMALL COMPANIES
The Series may invest in smaller, less well-established companies which
may offer greater opportunities for capital appreciation than larger, better
established companies. These stocks may also involve certain risks related to
limited product lines, markets or financial resources and dependence on a
small management group. Their securities may trade less frequently, in
smaller volumes and fluctuate more sharply in value than exchange-listed
securities of larger companies.
U.S. GOVERNMENT SECURITIES
The Series may purchase securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. Direct obligations of the U.S.
Government include bills, notes and bonds issued by the U.S. Treasury and
obligations issued or guaranteed by U.S. agencies or instrumentalities. The
obligations of certain U.S. agencies (i.e., the Government National Mortgage
Association) are backed by the full faith and credit of the U.S. Government or
are supported by the agencies' rights to borrow from the U.S. Treasury. The
issues of other agencies are supported only by the credit of the agency (e.g.,
Fannie Mae).
SHORT SALES
The Series may, within limits, engage in short sales against the box. A
short sale is the sale of borrowed securities; a short sale against the box
means that the Series owns securities equivalent to those sold short. No more
than 25% of the net assets (taken at current value) of the Series may be held
as collateral for such sales at any one time. Such short sales can be used as
a hedge.
ZERO-COUPON BONDS
Some of the securities in which the Series invests may include so-called
zero-coupon bonds. Zero-coupon bonds are issued at a significant discount
from face value and generally pay interest only at maturity rather than at
intervals during the life of the security. The Series is required to accrue
and distribute income from zero-coupon bonds on a current basis, even though
it does not receive that income currently in cash. Thus, the Series may have
to sell investments to obtain cash needed to make income distributions. The
discount, in the absence of financial difficulties of the issuer, decreases as
the final maturity of the security approaches. Zero-coupon bonds can be sold
prior to their maturity date in the secondary market at the then prevailing
market value, which depends primarily on the time remaining to maturity, the
prevailing level of interest rates and the perceived credit quality of the
issues. The market prices of zero-coupon securities are subject to greater
fluctuations in response to changes in market interest rates than bonds which
pay interest currently.
VARIABLE AND FLOATING RATE INSTRUMENTS
Certain of the obligations purchased by the Series may carry variable or
floating rates of interest, may involve a conditional or unconditional demand
feature and may include variable amount master demand notes. Such instruments
bear interest at rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index.
The interest rate on these securities may be reset daily, weekly, quarterly,
or at some other interval, and may have a floor or ceiling rate. There is a
risk that the current interest rate on such obligations may not accurately
reflect existing market interest rates.
HEDGING TECHNIQUES
The Series has reserved the right, subject to authorization by the Board
of Directors prior to implementation, to engage in certain strategies in an
attempt to hedge the Series portfolio, that is, to reduce the overall level of
risk that normally would be expected to be associated with its investments.
The Series may write covered call options on common stocks; may purchase and
sell (on a secured basis) put options; and may engage in closing transactions
with respect to put and call options. The Series also may purchase forward
foreign currency exchange contracts to hedge currency exchange rate risk. In
addition, the Series is authorized to purchase and sell stock index futures
contracts and options on stock index futures contracts. The Series is also
authorized to conduct spot (i.e., cash basis) currency transactions or to use
currency futures contracts and options on futures contracts and foreign
currencies in order to protect against uncertainty in the future levels of
foreign currency exchange rates. These strategies are primarily used for
hedging purposes; nevertheless, there are risks associated with these
strategies as described below.
OPTIONS ON SECURITIES
A call option is a short-term contract pursuant to which the purchaser of
the option, in return for a premium, has the right to buy the security
underlying the option at a specified price at any time during the term of the
option. The writer of a call option, who receives the premium, has the
obligation, upon exercise during the option term, to deliver the underlying
security against payment of the exercise price. Conversely, a put option
gives its purchaser, in return for a premium, the right to sell the underlying
equity security at a specified price during the option term to the writer of
the put option, who receives the premium. The Series will sell call options
only on a covered basis, i.e., it will own the underlying security at all
times, and will write put options only on a secured basis, i.e., it will
maintain an amount equal to the exercise price in a segregated account at all
times. The Series may engage in option transactions for hedging purposes and
to realize a greater current return, through the receipt of premiums, than
would be earned on the underlying securities alone. Options traded in the
over-the-counter market will be considered illiquid unless the Series has
entered into arrangements with U.S. Government securities dealers to dispose
of such options at a formula price based on a multiple of the original premium
plus the amount by which the option is in the money.
FUTURES CONTRACTS
The Series may purchase and sell financial futures contracts on debt
securities on a commodities exchange or board of trade for certain hedging,
return enhancement and risk management purposes in accordance with applicable
regulations. A financial futures contract is an agreement to purchase or sell
an agreed amount of securities at a set price for delivery in the future. The
Series may not purchase or sell futures contracts if immediately thereafter
the sum of the amount of initial margin deposits on any such futures (plus
deposits on any other futures contracts and premiums paid in connection with
any options or futures contracts) that do not constitute bona fide hedging
under the Commodity Futures Trading Commission (CFTC) rules would exceed 5% of
the liquidation value of the Series total assets after taking into account
unrealized profits and losses on such contracts. In addition, the value of
all futures contracts sold will not exceed the total market value of the
Series portfolio. The Fund will comply with guidelines established by the
Securities and Exchange Commission with respect to covering of obligations
under futures contracts and will set aside liquid assets in a segregated
account with its custodian in the amount prescribed.
The Series successful use of futures contracts depends on the Advisors
ability to accurately predict the direction of the market and is subject to
various additional risks. The correlation between movements in the prices of
a futures contract and the price of the securities being hedged is imperfect
and there is a risk that the value of the securities being hedged may increase
or decrease at a greater rate than the related futures contracts, resulting in
losses to the Series. Certain futures exchanges or boards of trades have
established daily limits based on the amount of the previous day's settlement
price. These daily limits may restrict the Series ability to repurchase for
sale certain futures contracts on any particular day.
STOCK INDEX FUTURES CONTRACTS AND OPTIONS ON STOCK INDEX FUTURES CONTRACTS
A stock index futures contract is a bilateral agreement pursuant to which
one party agrees to accept, and the other party agrees to make, delivery of an
amount of cash equal to a specified dollar amount times the difference between
the stock index value at the close of trading of the contract and the price at
which the futures contract is originally struck. No physical delivery of the
stocks comprising the index is made. Options on stock index futures contracts
give the purchaser the right, in return for the premium paid, to assume a long
or short position in a futures contract.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Series use of forward foreign currency contracts is limited to
hedging against movements in the value of foreign currencies relative to the
U.S. dollar in connection with specific portfolio transactions or with respect
to existing portfolio positions denominated in such currencies. A transaction
hedge involves the purchase or sale of a forward contract with respect to a
specific receivable or payable of the Series while a position hedge relates to
a specific portfolio holding. A forward foreign currency exchange contract
involves an obligation to purchase or sell a specified currency at a future
date at a price set at the time of the contract. Foreign currency exchange
contracts do not eliminate fluctuations in the values of portfolio securities
but rather allow the Fund to establish a rate of exchange for a future point
in time. With respect to any such forward foreign currency contract, it will
not generally be possible to match precisely the amount covered by that
contract and the value of the securities involved due to the changes in the
values of such securities resulting from market movements between the date the
forward contract is entered into and the date it matures. In addition, while
forward contracts may offer protection from losses resulting from declines in
the value of a particular foreign currency, they also limit potential gains
which might result from increases in the value of such currency. Based on
current legal interpretation, the Fund does not consider forward foreign
currency exchange contracts to be commodities or commodity contracts for
purposes of the Series fundamental restrictions concerning investment in
commodities or commodity contracts, as set forth in the Statement of
Additional Information.
<PAGE>
CURRENCY FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
A currency futures contract is an agreement for the purchase or sale for
future delivery of foreign currencies. A sale of a currency futures contract
means the obligation to deliver the foreign currencies called for by the
contract at a specified price on a specified date while a purchase of a
currency futures contract means the obligation to acquire the foreign
currencies called for by the contract at a specified price on a specified
date. The Series will only enter into futures contracts which are traded on
national or foreign futures exchanges and which are standardized as to
maturity date and the underlying financial instrument. Options on currency
futures contracts give the purchaser the right, in return for the premium
paid, to assume a long or short position in the futures contract. The Series
may not purchase or sell futures contracts if immediately thereafter the sum
of the amount of initial margin deposits on any such futures (plus deposits on
any other futures contracts and premiums paid in connection with any options
or futures contracts) that do not constitute bona fide hedging under the CFTC
rules would exceed 5% of the unrealized profits and losses on such contracts.
In addition, the value of all futures contracts sold will not exceed the total
market value of the Series portfolio.
FOREIGN CURRENCY OPTIONS
A call option on a foreign currency is a short-term contract pursuant to
which the purchaser of the option, in return for a premium, has the right to
buy the currency underlying the option at a specified price at any time during
the term of the option. The writer of a call option, who receives the
premium, has the obligation, upon exercise of the option during the option
term, to deliver the underlying currency against payment of the exercise
price. Conversely, a put option on a foreign currency gives its purchaser, in
return for a premium, the right to sell the underlying currency at a specified
price during the option term to the writer of the put option, who receives the
premium.
RISKS ASSOCIATED WITH HEDGING STRATEGIES
There are risks associated with the hedging strategies described above,
including the following: (1) the success of a hedging strategy may depend on
the ability of the Advisor to accurately predict movements in the prices of
individual securities, fluctuations in domestic and foreign markets and
currency exchange rates, and movements in interest rates; (2) there may be an
imperfect correlation between the changes in market value of the stocks held
by the Series and the prices of currency contracts, options, futures and
options on futures; (3) there may not be a liquid secondary market for a
currency contract, option, futures contract or futures option; (4) trading
restrictions or limitations may be imposed by an exchange; and, (5) government
regulations, particularly requirements for qualification as a regulated
investment company under the Code, may restrict trading in forward currency
contracts, options, futures contracts, and futures options.
FORWARD COMMITMENTS OR PURCHASES ON A WHEN-ISSUED BASIS
The Series may enter into forward commitments or purchase securities on a
when-issued basis. These securities normally are subject to settlement within
45 days of the purchase date. The interest rate realized on these securities
is fixed as of the purchase date and no interest accrues to the Series before
settlement. These securities are subject to market fluctuation due to changes
in market interest rates. The Series will maintain a separate account with a
segregated portfolio of liquid assets in an amount at least equal to the
purchase price.
MORTGAGE-BACKED SECURITIES
The Series may purchase mortgage-backed securities which represent an
interest in a pool of mortgage loans. The primary government issuers or
guarantors of mortgage-backed securities are the Government National Mortgage
Association (GNMA), Fannie Mae, and the Federal Home Loan Mortgage
Corporation. Mortgage-backed securities may also be issued by other U.S. and
foreign government agencies and non-governmental entities which consist of
collateralized mortgage obligations (CMOs) and real estate mortgage investment
conduits (REMICs) that are rated in one of the top two rating categories by
S&P or Moodys. The mortgages backing these securities include conventional
thirty-year fixed rate mortgages, graduated payment mortgages, and adjustable
rate mortgages. CMOs and REMICs backed solely by GNMA certificates or other
mortgage pass-throughs issued or guaranteed by the U.S. Government or its
agencies and instrumentalities may be supported by various types of insurance.
However, the guarantees or insurance do not extend to the mortgage-backed
securities values, which are likely to vary inversely with fluctuations in
interest rates.
Mortgage-backed securities are in most cases pass-through instruments,
through which the holder receives a share of all interest and principal
payments from the mortgages underlying the certificate. When the Advisor is
determining the maturity of pass-through certificates the Advisor will
consider the maturity to be equal to the average life rather than the stated
maturity. Because of the subjective nature of average life calculations, the
average maturity of the Series portfolio may be difficult to monitor. During
periods of declining interest rates, prepayment of mortgages underlying
mortgage-backed securities can be expected to accelerate. When the mortgage
obligations are prepaid, the Series reinvests the prepaid amounts in
securities, the yield of which reflects interest rates prevailing at the time.
Moreover, prepayment of mortgages which underlie securities purchased at a
premium could result in capital losses.
To the extent that the Series purchases mortgage-related or
mortgage-backed securities at a premium, mortgage foreclosures and prepayments
of principal (which may be made at any time without penalty) may result in
some loss of the Series principal investment to the extent of the premium
paid. The yield of the Series may be affected by reinvestment of prepayments
at higher or lower rates than the original investment. In addition, like
other debt securities, the value of mortgage-related securities, including
government and government-related mortgage pools, will generally fluctuate in
response to market interest rates.
SECURITIES LENDING
The Series may seek to increase its income by lending portfolio
securities. Such loans will usually be made to member firms (and subsidiaries
thereof) of the New York Stock Exchange and to member banks of the Federal
Reserve System and would be required to be secured continuously by collateral
in cash, cash equivalents or U.S. Treasury securities maintained on a current
basis at an amount at least equal to the market value of the securities
loaned. If the Advisor determines to make securities loans, the value of the
securities loaned would not exceed 30% of the value of the total assets of the
Series.
HIGH YIELD DEBT SECURITIES
High risk, high yield securities rated below BBB or lower by S&P or Baa
or lower by Moodys are considered to have speculative characteristics and
involve greater risk of default or price changes due to changes in the issuers
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 Advisors independent and ongoing
review of credit quality. In the event a security is downgraded below these
ratings after purchase, the Advisor will review and take appropriate action
with regard to the security. The Series will also seek to minimize risk by
diversifying its holdings.
PRINCIPAL INVESTMENT RESTRICTIONS
The Series is subject to certain investment restrictions which are
fundamental policies that cannot be changed without the approval of the
holders of a majority, as defined in the 1940 Act, of the Series' outstanding
shares.
The Series may borrow money, but only from a bank for temporary or
emergency purposes in amounts not exceeding 10% of the Series total assets and
the Series will not make additional investments while borrowings greater than
5% of its total assets are outstanding.
The Series may not invest 25% or more of the value of its total assets in
securities of issuers in any one industry.
The Series may not invest more than 10% of its total net assets in
securities of issuers that are restricted from being sold to the public
without registration under the Securities Act of 1933 and illiquid securities,
including repurchase agreements with maturities of greater than seven days.
The Series may invest its assets in securities of any other investment
company (closed-end and open-end), (1) by purchase in the open market
involving only customary brokers commissions, (2) in connection with mergers,
acquisitions of assets, or consolidation, or (3) as otherwise permitted by
law, including the 1940 Act.
The Series may not make loans, except through loans of portfolio
securities and repurchase agreements.
Additional information about the Series investment restrictions is
contained in the Statement of Additional Information.
MANAGEMENT
The overall business and affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, including the Funds
agreements with its investment advisor, custodian and distributor. The
day-to-day operations of the Fund are delegated to the Funds officers and to
Exeter Asset Management (the Advisor), a division of Manning & Napier
Advisors, Inc. ( MNA), 1100 Chase Square, Rochester, New York 14604. A
committee made up of investment professionals and analysts make all the
investment decisions for the Fund.
The Advisor acts as investment advisor to the Fund and supervises and
arranges the purchase and sale of securities held in the portfolio of the
Fund. Mr. William Manning controls the Advisor by virtue of his ownership of
the securities of 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 Company to serve
as such.
As of the date of this Prospectus, the Advisor and MNA supervised over
$7.5 billion in assets of clients, including both individuals and
institutions. For its services to the Fund under the investment advisory
agreement, the Fund pays the Advisor a fee, computed daily and payable
monthly, at an annual rate of 1% of the Series average daily net assets. The
advisory fee charged by the Advisor to its investment advisory clients will
not include or be based on assets of such clients held in shares of the
Series.
The Fund is responsible for its operating expenses, including: (i)
interest and taxes; (ii) brokerage commissions; (iii) insurance premiums; (iv)
compensation and expenses of its Directors other than those affiliated with
the Advisor; (v) legal and audit expenses; (vi) fees and expenses of the Funds
custodian, shareholder servicing or transfer agent and accounting services
agent, if obtained for the Fund from an entity other than the Advisor; (vii)
expenses incidental to the issuance of its shares, including issuance on the
payment of, or reinvestment of, dividends and capital gain distributions;
(viii) fees and expenses incidental to the registration under federal or state
securities laws of the Fund or its shares; (ix) expenses of preparing,
printing and mailing reports and notices and proxy material to shareholders of
the Fund; (x) all other expenses incidental to holding meetings of the Funds
shareholders; (xi) dues or assessments of or contributions to the Investment
Company Institute or any successor; and, (xii) such non-recurring expenses as
may arise, including litigation affecting the Fund and the legal obligations
with respect to which the Fund may have to indemnify its officers and
directors.
DISTRIBUTION OF FUND SHARES
Manning & Napier Investor Services, Inc. (the Distributor) acts as
distributor of Fund shares and is located at the same address as the Advisor
and the Fund. The Fund has adopted a distribution agreement with respect to
each Class of shares and related plans of distribution with respect to Class
B, C, D and E Shares (the Plans) pursuant to Rule 12b-1 under the 1940 Act.
Class A Shares are offered to investors who purchase their shares directly
from the Distributor and are not subject to distribution or shareholder
servicing fees. Class B, C, D and E Shares are offered only by or through
investment dealers, banks or financial service firms that provide
distribution, administrative and/or shareholder services (Financial
Intermediaries).
The Distributor receives distribution and services fees, at the rates set
forth below, for providing distribution and/or shareholder services to the
Class B, C, D and E Shares. The Distributor expects to allocate most of its
distribution fees and shareholder service fees to Financial Intermediaries
that enter into shareholder servicing agreements (Servicing Agreements) with
the Distributor. The different Classes permit the Fund to allocate an
appropriate amount of fees to a Financial Intermediary in accordance with the
level of services it agrees to provide under its Servicing Agreement.
As compensation for providing distribution and shareholders services for
the Class B Shares, the Distributor receives a distribution fee equal to .75%
of the Class B Shares average daily net assets and a shareholder servicing fee
equal to .25% of the Class B Shares average daily net assets. As compensation
for providing distribution and shareholders service for the Class C Shares,
the Distributor receives an aggregate distribution and shareholder servicing
fee equal to .75% of the Class C Shares average daily net assets. As
compensation for providing distribution and shareholder services for the Class
D Shares, the Distributor receives an aggregate distribution and shareholder
servicing fee equal to .50% of the Class D Shares average daily net assets.
The shareholder services component of the foregoing fees for Classes C and D
is limited to .25% of the average daily net assets of the respective class.
As compensation for providing distribution services for the Class E Shares,
the Distributor receives an aggregate distribution and shareholder servicing
fee equal to .25% of the average daily net assets of the Class E Shares. The
Distributor may, in its discretion, voluntarily waive from time to time all or
any portion of its distribution fee and the Distributor is free to make
additional payments out of its own assets to promote the sale of Fund shares.
Payments under the Plans are made as described above regardless of the
Distributors actual cost of providing distribution services and may be used to
pay the Distributors overhead expenses. If the cost of providing distribution
services to the Fund is less than the payments received, the unexpended
portion of the distribution fees may be retained as profit by the Distributor.
The Distributor may from time to time and from its own resources pay or allow
additional discounts or promotional incentives in the form of cash or other
compensation (including merchandise or travel) to Financial Intermediaries.
Similarly, the Advisor may, from its own resources, defray or absorb costs
related to distribution, including compensation of employees who are involved
in distribution.
TOTAL RETURN
From time-to-time the Series may advertise its total return. Total
return figures are based on historical earnings and are not intended to
indicate future performance. The total return of the Series refers to the
average annual compounded rates of return over one-, five-, and ten-year
periods or for the life of the Series (as stated in the advertisement) that
would equate an initial amount invested at the beginning of a stated period to
the ending redeemable value of the investment, assuming the reinvestment of
all dividend and capital gains distributions. The respective performance
figures for the Classes will differ because of the different distribution
and/or shareholder services fees charged to Class B, C, D and E Shares.
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. The Distributor may suspend offering
shares to other than discretionary management accounts of the Advisor.
A purchase order will be effective as of the day received by the
Distributor, Transfer Agent, or its agents, if the order is received before
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 for the Series unless: (1) such
securities are appropriate in the Series at the time of the exchange; (2) the
shareholder represents and agrees that all securities offered to the Series
are not subject to any restrictions upon their sale by the Series under the
Securities Act of 1933, or otherwise; and, (3) prices are available from an
independent pricing service approved by the Funds Board of Directors.
AUTOMATIC INVESTMENT PLAN
Shareholders may purchase shares regularly through the Automatic
Investment Plan with a pre-authorized draft drawn on their checking account.
Under this plan, the shareholders may elect to have a specified amount
invested on a regular schedule. The minimum amount of each automatic
investment is $25. The amount specified by the shareholder will be withdrawn
from the shareholder's bank account using the pre-authorized draft. This
amount will be invested at the applicable share price determined on the date
the amount is available for investment. Participation in the Automatic
Investment Plan may be discontinued either by the Fund or the Shareholder upon
30 days' prior written notice to the other party. A shareholder who wishes to
enroll in the Automatic Investment Plan may do so by completing the applicable
section of the Account Application Form or contacting the Fund for an
Automatic Investment Plan Form.
EXCHANGES BETWEEN SERIES
As permitted pursuant to any rule, regulation or order promulgated by the
Securities and Exchange Commission, some or all of the shares of a Class in a
direct investment account with the Fund for which payment has been received by
the Transfer Agent may be exchanged for shares of the same Class of any of the
other Exeter Fund, Inc. series that offers that Class at net asset value.
Shareholders may effect up to 4 exchanges in a 12-month period without charge.
Subsequent exchanges are subject to a fee of $15. Exchanges will be made
after instructions in writing or by telephone are received by the Transfer
Agent in proper form (i.e., if in writing - signed by the record owner(s)
exactly as the shares are registered; if by telephone - proper account
identification is given by the shareholder) and each exchange must involve
either shares having an aggregate value of at least $1,000 or all the shares
in the account. A shareholder must have received, and should read carefully,
the prospectus of the other series and consider the differences in objectives
and policies before making any exchange. The exchange privilege may not be
available in all states. For federal and state income tax purposes, an
exchange is treated as a sale of the shares exchanged, and therefore an
exchange could result in a gain or loss to the shareholder making the
exchange. The Series may modify or terminate this exchange offer upon 60
days' notice to shareholders subject to applicable law.
REDEMPTIONS
If a shareholder desires to redeem his shares at their net asset value,
the shareholder must send a written request for redemption in "good order" to
the Transfer Agent. "Good order" generally means that the written request for
redemption must be endorsed by the record owner(s) exactly as the shares are
registered and the signature(s) must be guaranteed by an "eligible guarantor
institution" as the term is defined under Rule 17Ad-15(a)(2) under the
Securities Exchange Act of 1934. Currently, such procedures generally permit
guarantees by a commercial bank or trust company, a member bank of the Federal
Reserve System, or a member firm of a national securities exchange.
Redemption requirements for corporations, other organizations, trusts,
fiduciaries, and retirement plans may require additional documentation.
Please contact the Transfer Agent at 1-800-466-3863 for more information. The
Transfer Agent may make certain de minimis exceptions to the above
requirements for redemption.
Within three days after receipt of a redemption request by the Transfer
Agent in "good order", the Series will make payment in cash, except as
described below, of the net asset value of the shares next determined after
such redemption request was received, except during any period in which the
right of redemption is suspended or date of payment is postponed because the
New York Stock Exchange is closed or trading on such Exchange is restricted or
to the extent otherwise permitted by the 1940 Act if an emergency exists. For
shares purchased, or received in exchange for shares purchased, by check
(including certified checks or cashier's checks), payment of redemption
proceeds may be delayed up to 15 days from the purchase date in an effort to
assure that such check has cleared.
Subject to the Series' compliance with applicable regulations, the Series
has reserved the right to pay the redemption price either totally or partially
by a distribution in-kind of securities (instead of cash) from the Series'
portfolio. The securities distributed in such a distribution would be valued
at the same amount as that assigned to them in calculating the net asset value
for the shares being sold. If a shareholder received a distribution in-kind,
he could incur brokerage or transaction charges when converting the securities
to cash. The Fund has elected, however, to be governed by Rule 18f-1 under
the 1940 Act as a result of which the Fund is obligated to redeem shares, with
respect to any one shareholder during any 90-day period, solely in cash up to
the lesser of $250,000 or 1% of the net asset value of the Fund at the
beginning of the period.
OTHER INFORMATION ABOUT PURCHASES
If a taxable shareholder invests shortly before the Series declares a
taxable dividend, a portion of the investment will be returned as a taxable
distribution (commonly referred to as buying into a dividend). This
distribution will be taxable regardless of whether you elected to reinvest
your distribution in additional shares or take the distribution in cash. If
you would like to avoid buying into a dividend, you may contact the Fund to
find out when the Series plans to declare a distribution and invest after that
date.
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 Funds 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
reserves the right to redeem shares in any account for their then-current
value (which will be promptly paid to the shareholder) if at any time the
total investment in such account drops below $1,000 because of redemptions
(but not due to changes in net asset value). Shareholders will be notified
that the value of their account is less than the minimum investment
requirement and allowed 60 days to make an additional investment before the
redemption is processed.
SHARE PRICE
The share price or net asset value per share of each class of the Series
is determined as of the closing time of the New York Stock Exchange or, in the
absence of a closing time, 4:00 p.m. Eastern time on each day that the New
York Stock Exchange is open for trading. The exchange annually announces the
days on which it will not be open for trading; the most recent announcement
indicates that it will not be open when the following holidays are observed:
New Years Day, Martin Luther King, Jr. Day, Presidents Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value per share of each Class of the Series is determined
by dividing the total value of its investments and other assets that are
allocated to that Class, less any liabilities that are allocated to that
Class, by the Classs total outstanding shares. The value of the Series
portfolio securities will be the market value of such securities as determined
based on quotes provided by a pricing service (which uses the methodology
outlined in the Net Asset Value section of the Statement of Additional
Information) approved by the Board of Directors, or, in the absence of market
quotations, fair value as determined in good faith by or under the direction
and control of the Board of Directors. Short-term investments which mature in
less than 60 days are normally valued at amortized cost. Assets initially
expressed in foreign currencies will be converted into U.S. dollars as of the
exchange rates quoted by any major bank. If such quotes are not available,
the exchange rates will be determined in accordance with policies established
in good faith by the Board of Directors. See the Statement of Additional
Information for further information.
DIVIDENDS AND TAX STATUS
TAXES
The following summary of federal income tax consequences is based on the
current tax laws and regulations, which may be changed by legislative,
judicial or administrative action.
No attempt has been made to present a detailed explanation of the
federal, state, or local income tax treatment of the Series or its
shareholders, and this Series is not managed with respect to tax outcomes for
its shareholders. In addition, state and local tax consequences of an
investment in the Series may differ from the federal income tax consequences
described below. Accordingly, shareholders are urged to consult with their
tax advisers regarding specific questions as to federal, state and local
income taxes. Additional information concerning taxes is set forth in the
Statement of Additional Information.
TAX STATUS
Under the Internal Revenue Code of 1986, as amended (the Code), the
Series is treated as a separate entity for federal income tax purposes. The
Series intends to qualify for the special tax treatment afforded regulated
investment companies as defined under Subchapter M of the Code, so as to be
relieved of federal income tax on that part of its net investment company
taxable income, and net capital gain (the excess of net long-term capital
gains over net short-term capital losses) distributed to shareholders.
TAX STATUS OF DISTRIBUTIONS
Dividends and distributions will be paid in full and fractional shares of
the Series, based on the net asset value per share at the close of business on
the record date, although a shareholder may, prior to the record date,
request, by writing or by telephone call to the Fund, that payments of either
ordinary income dividends or capital gain distributions, or both, be made in
cash. If a shareholder has chosen to receive dividends and/or capital gain
distributions in cash, and the postal service is unable to deliver checks to
the shareholders address of record, or the shareholder does not respond to
mailing from the Fund concerning outstanding checks, that shareholders account
will be updated so that all future distributions will be reinvested in the
account. No interest will accrue on amounts represented by uncashed
distribution or redemption checks.
The Series will distribute all of its net investment income (including
net short-term capital gains) to shareholders. Dividends from net investment
company taxable income are taxable to shareholders as ordinary income (whether
received in cash or in additional shares) to the extent of the Series earnings
and profits. Net capital gains will be distributed at least annually and will
be taxed to shareholders as a 20% rate gain distribution (generally taxed at a
rate of 20%) or a 28% rate gain distribution (generally taxed at a rate of
28%), depending upon the designation by the Series (such designation being
dependent upon the holding period of the Series in the underlying asset
generating the net capital gain), regardless of how long the shareholders have
held their shares and regardless of whether the distributions are received in
cash or in additional shares. If no designation is made regarding a capital
gain dividend, it will be classified as a 28% rate gain distribution, and,
thus, taxed at a rate of 28%. Dividends and distributions of capital gains
paid by the Series do not qualify for the dividends received deduction for
corporate shareholders. The Series will provide annual reports to
shareholders of the federal income tax status of all distributions.
Dividends declared by the Series in October, November or December of any
year and payable to shareholders of record on a date in one of those months
will be deemed to have been paid by the Series and received by the
shareholders on December 31 of the year declared, if paid by the Series at any
time during the following January.
Investment income received directly by the Series on direct U.S.
Government obligations is exempt from income tax at the state level and may be
exempt, depending on the state, when received by a shareholder as income
dividends from the Series provided certain state-specific conditions are
satisfied. The Series will inform shareholders annually of the percentage of
income and distributions derived from direct U.S. Government obligations.
Shareholders should consult their tax advisers to determine whether any
portion of the income dividends received from the Series is considered tax
exempt in their particular states.
The Series intends to make sufficient distributions prior to the end of
each calendar year to avoid liability for federal excise tax applicable to
regulated investment companies.
A sale, exchange or redemption of the Series shares generally is a
taxable transaction to the shareholder.
ADDITIONAL DIVIDEND AND TAX INFORMATION
Income, such as dividends and interest, received by the Fund may give
rise to withholding taxes imposed by foreign countries, generally at rates
from 10% to 40%. Tax conventions and treaties between such countries and the
United States may reduce or eliminate such taxes.
If more than 50% of the value of the Series total assets at the close of
its fiscal year consists of stocks or securities of foreign corporations, the
Series will be eligible to file elections with the Internal Revenue Service
pursuant to which shareholders of the Series will be required to include in
gross income their respective pro rata portions of foreign taxes paid by the
Series, and either deduct such respective pro rata portions in computing their
taxable incomes or, alternatively, use such pro rata portions as foreign tax
credits against their U.S. income taxes. Investors should note that Code
Section 904 imposes significant limitations on a taxpayer's ability to claim
the foreign tax credit.
GENERAL INFORMATION
The Fund was incorporated on July 26, 1984 as a Maryland corporation.
The Board of Directors may, at its own discretion, create additional series of
shares, each of which would have separate assets and liabilities.
Each share of a series represents an identical interest in the investment
portfolio of that series and has the same rights, except that (i) each Class
of shares bears those distribution fees, service fees and administrative
expenses applicable to the respective Class of shares as a result of its sales
arrangements, which will cause the different classes of shares to have
different expense ratios and to pay different rates of dividends, (ii) each
Class has exclusive voting rights with respect to those provisions of the
series Rule 12b-1 distribution plan which relate only to such Class and (iii)
the Classes have different exchange privileges. As a result of each Class'
differing Rule 12b-1 distribution and shareholder services plan, shares of
different Classes, of the Series may have different net asset values per
share.
The Fund does not expect to hold annual meetings of shareholders but
special meetings of shareholders may be held under certain circumstances.
Shareholders of the Fund retain the right, under certain circumstances, to
request that a meeting of shareholders be held for the purpose of considering
the removal of a Director from office, and if such a request is made, the Fund
will assist with shareholder communications in connection with the meeting.
The shares of the Fund have equal rights with regard to voting, redemption and
liquidations. The Funds shareholders will vote in the aggregate and not by
series or Class except as otherwise expressly required by law or when the
Board of Directors determines that the matter to be voted upon affects only
the interests of the shareholders of a series or a Class. Income, direct
liabilities and direct operating expenses of each Series will be allocated
directly to each Series, and general liabilities and expenses of the Fund will
be allocated among the series in proportion to the total net assets of each
series by the Board of Directors. The holders of shares have no preemptive or
conversion rights. Shares when issued are fully paid and non-assessable and
do not have cumulative voting rights.
All securities and cash are held by the custodian, Boston Safe Deposit
and Trust Company. Coopers & Lybrand, L.L.P. serves as independent
accountants for the Series and will audit its financial statements annually.
Manning & Napier Advisors, Inc. serves as the Funds transfer and dividend
disbursing agent. Shareholder inquiries should be directed to Exeter Fund,
Inc., P.O. Box 41118, Rochester, New York 14604.
<PAGE>
APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
Moodys Investors Services, Inc.s corporate bond ratings:
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred
to as gilt-edged. 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 risk appear somewhat larger than 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 some time in the
future.
Baa - Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.
Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
applies numerical modifiers 1, 2 and 3 in each generic rating classification
from Aa through B. The modifier 1 indicates that the obligation ranks in the
higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates a rating in the lower end of
that generic rating category.
Standard & Poor's Corporation's corporate bond ratings:
AAA - This is the highest rating assigned by Standard & Poor's to a
debt obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only to a small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than in higher rated categories.
<PAGE>
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's Investor Services, Inc.'s commercial paper ratings:
PRIME-1 - Issues 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.
Standard & Poor's Corporation's commercial paper ratings:
A-1 - This is the highest category and indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 - Capacity for timely payment on issues with this designation is
satisfactory and the obligation is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations
in higher rating categories.
A-3 - Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
B - Issues rated B are regarded as having significant speculative
characteristics for timely payment.
C - This rating is assigned to short-term debt obligations that are
currently vulnerable to nonpayment.
D - Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. 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>
EXETER FUND, INC.
DIVERSIFIED TAX
EXEMPT SERIES
PROSPECTUS
APRIL 20, 1998
<PAGE>
EXETER FUND, INC.
P.O. Box 41118
Rochester, New York 14604
1-800-466-3863
DIVERSIFIED TAX EXEMPT SERIES
Exeter Fund, Inc. (the "Fund"), is an open-end management investment
company that offers separate series, each a separate investment portfolio
having its own investment objective and policies. This Prospectus relates to
the Diversified Tax Exempt Series of the Fund (the "Series"). The Series'
investment objective is to seek a high level of current income exempt from
federal income tax, consistent with preservation of capital.
This Prospectus provides you with the basic information you should know
before investing in the Series. You should read it and keep it for future
reference. A Statement of Additional Information, dated April 20, 1998,
containing additional information about the Fund has been filed with the
Securities and Exchange Commission and is incorporated by reference in this
Prospectus in its entirety. You may obtain a copy of the Statement of
Additional Information without charge by contacting the Fund at the address or
telephone number listed above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS APRIL 20, 1998.
<PAGE>
EXETER FUND, INC.
DIVERSIFIED TAX EXEMPT SERIES
No person has been authorized to give any information or to make
representations not contained in this Prospectus in connection with any
offering made by this Prospectus and, if given or made, such information must
not be relied upon as having been authorized by the Fund. This Prospectus
does not constitute an offering by the Fund in any jurisdiction in which such
offering may not lawfully be made.
PROSPECTUS
TABLE OF CONTENTS
Annual Operating Expenses 3
Financial Highlights 4
The Fund 5
Risk and Investment Objectives and Policies 5
Tax Exempt Securities 6
Risk and Additional Information about Investment Policies 7
Management 9
Yield and Total Return 10
Purchases, Exchanges and Redemptions of Shares 10
Net Asset Value 13
Dividends and Tax Status 13
General Information 15
Appendix 16
<PAGE>
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
(as a percentage of offering price)
Maximum Sales Charge Imposed on Purchases None
Redemption Fees 1 None
Exchange Fees2 None
1 A wire charge, currently $15, will be deducted by the Transfer Agent
from the amount of a wire redemption payment made at the request of a
shareholder. Such amount is not included in the "Annual Operating Expenses
of the Series."
2 A shareholder may effect up to four (4) exchanges in a twelve (12) month
period without charge. Subsequent exchanges are subject to a fee of $15.
ANNUAL OPERATING EXPENSES
The following information provides (i) tabular summary of expenses relating to
the annual operating expenses of the Series and (ii) an example illustrating
the dollar cost of such expenses on a $1,000 investment.
Annual Operating Expenses of the Series (as a percentage of average daily net
assets):
Management Fees 3,4,5, 0.50%
12b-1 Fees. None
Other Expenses 4 0.19%
Total Operating Expenses 5 0.69%
Example
You would pay the following expenses on a $1,000 investment, assuming a) 5.0%
annual return and b) redemptions at the end of each time period4:
1 year 3 years 5 years 10 years
Diversified Tax Exempt Series $7 $22 $38 $86
3Clients who have entered into investment advisory agreements with Manning &
Napier Advisors, Inc. (Manning & Napier) will be separately rebated by Manning
& Napier an amount equal to the portion of their client advisory fee
attributable to the portion of their assets invested in the Fund. See
"Management."
4Diversified Tax Exempt Series was engaged in active investment operations for
the year ended December 31, 1997; therefore, actual management fees and other
expenses are used above.
5Should the total operating expenses for the Series exceed 0.85% of its
average daily net assets, the Advisor has voluntarily agreed to waive its fee
and pay other operating expenses in an amount that limits total operating
expenses to 0.85% of its average daily net assets. The fee waiver and the
assumption of expenses by the Advisor is voluntary and may be terminated at
any time. However, the Advisor has agreed to continue this assumption of
expenses at least through the Series' current fiscal year.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Series. For a
more complete description of the various costs and expenses illustrated above,
please refer to the ] section of this Prospectus.
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
<PAGE>
FINANCIAL HIGHLIGHTS
The following table provides selected per share data and ratios for the
Diversified Tax Exempt Series (for a share outstanding throughout the periods
shown). The table is part of the Series' audited financial statements, which
are incorporated by reference into the Funds Statement of Additional
Information. Coopers & Lybrand L.L.P., the Funds independent accountants,
audited the Series' financial highlights for each of the periods shown.
Additional performance information is contained in the Funds 1997 Annual
Report to Shareholders and is available upon request and without charge by
calling 1-800-466-3863. This table should be read in conjunction with the
Series financial statements and notes thereto.
<TABLE>
<CAPTION>
<S> <C> <C>
For the year For the year
ended ended
Dec. 31, 1997 Dec. 31, 1996
Net asset value - Beginning of period $ 10.23 $ 10.32
Income from investment operations:
Net investment income 0.43 0.43
Net realized and unrealized
gain/(loss) on investments 0.36 (0.10)
Total from investment operations 0.79 0.33
Less distributions to shareholders:
From net investment income (0.43) (0.42)
NET ASSET VALUE - END OF PERIOD $ 10.59 $ 10.23
Total return 1 7.92% 3.33%
Ratios (to average net assets)/Supplemental
Data:
Expenses 0.69% 0.70%
Net investment income 4.41% 4.44%
Portfolio turnover 1% 2%
NET ASSETS - END OF PERIOD (000's omitted) $ 23,651 $ 16,949
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
For the year For the period
ended Feb. 14, 1994
to
Dec. 31, 1995 Dec. 31, 1994
Net asset value - Beginning of period $ 9.26 $ 10.004
Income from investment operations:
Net investment income 0.43 0.21
Net realized and unrealized
gain/(loss) on investments 1.06 (0.75)
Total from investment operations 1.49 (0.54)
Less distributions to shareholders:
From net investment income (0.43) (0.20)
NET ASSET VALUE - END OF PERIOD $ 10.32 $ 9.26
Total return 1 16.29% (5.39)%
Ratios (to average net assets)/
Supplemental Data:
Expenses 0.79% 0.85%2, 3
Net investment income 4.52% 3.71%2, 3
Portfolio turnover 5% 4%
NET ASSETS - END OF PERIOD (000's omitted) $ 12,452 $ 8,481
</TABLE>
1 Represents aggregate total return for the period indicated.
2 Annualized.
3 The investment advisor waived a portion of its management fee. If the full
fee had been incurred by the Fund, the net investment income per share would
have been $0.186, and the annualized ratios would have been as follows:
Expenses: 1.29%; Net investment income: 3.27%.
4 Initial offering price upon commencement of operations on February 14, 1994.
<PAGE>
THE FUND
The Fund is an open-end management investment company incorporated under
the laws of the State of Maryland on July 26, 1984. The Fund offers separate
series of units of beneficial interest ("shares"). This Prospectus relates to
the Diversified Tax Exempt Series. Information regarding the Fund's other
series is contained in separate prospectuses that may be obtained from Exeter
Fund, Inc., P.O. Box 41118, Rochester, New York 14604 or by calling
1-800-466-3863. The Diversified Tax Exempt Series is a diversified fund.
Shares of the Series are offered directly to investors and to employees
and clients of the Advisor or its affiliates that have authorized investment
in the Fund as part of the discretionary account management services of the
Advisor or its affiliates. There is no limitation on the investment in shares
of the Series on behalf of discretionary account clients unless otherwise
limited by a client agreement. There are no fees or expenses charged to any
investor in connection with acquisition of shares of the Series.
Manning & Napier, in addition to providing investment advice to the Fund
through the Advisor, provides investment advice to other clients. Some of
these clients funds may be invested in the Series. From time to time, the
Series may experience relatively large purchases or redemptions due to assets
allocation decisions made by Manning & Napier for its clients. These
transactions may have a material effect on the Series, since Series that
experience redemptions as a result of reallocations may have to sell portfolio
securities and because Series that receive additional cash will have to invest
it. While it is impossible to predict the overall impact of these
transactions over time, there could be adverse effects on portfolio management
to the extent that the Series may be required to sell securities at times when
they would not otherwise do so, or receive cash that cannot be invested in an
expeditious manner. There may be tax consequences associated with purchases
and sales of securities, and such sales may also increase transaction costs.
Manning & Napier is committed to minimizing the impact of these transactions
on the Series to the extent it is consistent with pursuing the investment
objectives of its clients.
RISK AND INVESTMENT OBJECTIVES AND POLICIES
The Series' objective is to seek as high a level of current income exempt
from federal income tax as the Advisor believes is consistent with
preservation of capital. The Advisor will attempt to balance the Series
goals of high income and capital preservation by building a portfolio of
securities that in the aggregate afford the opportunity to earn current income
but also have quality and other characteristics that attempt to avoid
permanent capital losses. However, the Series portfolio securities and,
therefore, its shares will inevitably fluctuate in value to a certain extent.
Under current law, to the extent distributions by the Series are derived from
interest on Tax Exempt Securities (which are described below) and are
designated as such, they are exempt from federal income tax. The Series is
not intended to be a complete investment program, and there is no assurance it
will achieve its objective.
The Series seeks its objective by following the fundamental investment
policy of investing at least 80% of its net assets in Tax Exempt Securities,
except when investing for defensive purposes during times of adverse market
conditions. The Series may also invest in taxable obligations described below
under "Risk and Additional Information about Investment Policies" to the
extent permitted by its investment policies, or hold its assets in money
market instruments or in cash. The Series' investments in Tax Exempt
Securities and taxable obligations will be limited to securities rated in the
four highest categories assigned by Moody's Investors Service, Inc. (Moodys)
(Aaa, Aa, A, Baa) or Standard & Poor's Corporation (S&P) (AAA, AA, A, BBB).
For a description of the above ratings, see the Appendix.
When the Series invests in Tax Exempt Securities in the lower rating
categories, the achievement of the Series' goals is more dependent on the
Advisor's ability than would be the case if the Series were investing in Tax
Exempt Securities in the higher rating categories. The amount of information
about the financial condition of an issuer of Tax Exempt Securities may not be
as extensive as information about corporations whose securities are publicly
traded. In addition, tax considerations may limit the Series' ability to vary
its portfolio securities in response to developments in interest rates and
economic conditions. The Advisor seeks to minimize the risks of investing in
lower-rated securities through investment analysis and attention to current
developments in interest rates and economic conditions.
Interest income from certain types of Tax Exempt Securities may be
subject to federal alternative minimum tax. It is a fundamental policy of the
Series to exclude these securities from the term "Tax Exempt Securities" for
purposes of determining compliance with the 80% test described above.
In pursuing its objective, the Series may to a limited extent buy and
sell futures contracts and options and may enter into repurchase agreements
and forward commitments. These incidental investment practices, which may
produce taxable capital gains and involve special risks, are described below.
The market value of the Series' investments will change in response to
changes in interest rates and other factors. During periods of falling
interest rates, the values of long-term, fixed-income securities generally
rise. Conversely, during periods of rising interest rates, the values of such
securities generally decline. Changes by recognized rating services in their
ratings of Tax Exempt Securities and in the ability of an issuer to make
payments of interest and principal will also affect the value of these
investments. Changes in the value of portfolio securities will not affect
interest income derived from those securities but will affect the Series' net
asset value.
During times when conditions in the markets for Tax Exempt Securities
suggest a temporary defensive position, the Advisor may temporarily use
alternative strategies, primarily designed to reduce fluctuations in the value
of the Series' assets. In implementing these "defensive" strategies, the
Series may invest in taxable obligations, including: obligations of the U.S.
government, its agencies or instrumentalities; other debt securities rated
within the four highest categories by either Moody's or S&P; commercial paper
rated in the highest category by either rating service (Prime-1 or A-1+,
respectively); certificates of deposit and bankers' acceptances; repurchase
agreements with respect to any of the foregoing investments; or any other
fixed-income securities that the Advisor considers consistent with such
strategy. It is impossible to predict when, or for how long, the Series will
use such alternative strategies. The limitations described above on the
ability of the Series to vary its portfolio securities may limit the Series'
use of these alternative investment strategies.
The Advisor believes that in general the secondary market for Tax Exempt
Securities is less liquid than that for taxable fixed-income securities.
Accordingly, the ability of the Series to buy and sell securities may, at any
particular time and with respect to any particular security, be limited.
TAX EXEMPT SECURITIES
Tax Exempt Securities are debt obligations issued by a state and its
political subdivisions, agencies and instrumentalities, the interest from
which is, in the opinion of bond counsel, exempt from federal income tax.
These securities are issued to obtain funds for various public purposes, such
as the construction of public facilities, the payment of general operating
expenses or the refunding of outstanding debts. They may also be issued to
finance various private activities, including the lending of funds to public
or private institutions for the construction of housing, educational or
medical facilities. They may also include certain types of private activity
and industrial development bonds or notes issued by public authorities to
finance privately owned or operated facilities or to fund short-term cash
requirements. Short-term Tax Exempt Securities are generally issued as
interim financing in anticipation of tax collections, revenue receipts or bond
sales to finance various public purposes. Tax Exempt Securities also include
debt obligations issued by other governmental entities (for example, U.S.
territories) if such debt obligations generate interest income which is exempt
from federal income tax.
The two principal classifications of Tax Exempt Securities are general
obligation and limited obligation (or revenue) securities. General obligation
securities involve the credit of an issuer possessing taxing power and are
payable from the issuer's general unrestricted revenues. Their payment may
depend on an appropriation by the issuer's legislative body. The
characteristics and methods of enforcement of general obligation securities
vary according to the law applicable to the particular issuer. Limited
obligation (or revenue) securities are payable only from the revenues derived
from a particular facility or class of facilities, or a specific revenue
source, and generally are not payable from the unrestricted revenues of the
issuer. So-called "private activity bonds" and "industrial development bonds"
are in most cases limited obligation securities, the credit quality of which
is directly related to the corporate user of the facilities.
The Series may also invest in securities representing interests in Tax
Exempt Securities, known as "inverse floating obligations" or "residual
interest bonds", paying interest rates that vary inversely to changes in the
interest rates of specified short-term tax exempt securities or an index of
short-term tax exempt securities. The interest rates on inverse floating
obligations or residual interest bonds will typically decline as short-term
market interest rates increase and increase as short-term market rates
decline. Such securities have the effect of providing a degree of investment
leverage, since they will generally increase or decrease in value in response
to changes in market interest rates at a rate which is a multiple (typically
two) of the rate at which fixed-rate long-term tax exempt securities increase
or decrease in response to such changes. As a result, the market values of
inverse floating obligations and residual interest bonds will generally be
more volatile than the market values of fixed-rate Tax Exempt Securities. To
seek to limit the interest rate risk of these securities, the Series may
purchase inverse floating obligations with shorter-term maturities or which
contain limitations on the extent to which the interest rate may vary. There
is no limit on the percentage of assets that may be invested in inverse
floating obligations or residual interest bonds.
RISK AND ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
Set forth below is further information about certain types of securities
in which the Series may invest, as well as information about additional types
of investments and certain strategies the Series may pursue. These policies
have been voluntarily adopted by the Board of Directors based upon current
circumstances and may be changed or amended by action of the Board of
Directors without prior approval of the Series' shareholders. Additional
information concerning these strategies and their related risks is contained
in the Statement of Additional Information.
INVESTMENTS IN PREMIUM SECURITIES
During a period of declining interest rates, many of the Series'
portfolio investments will likely bear coupon rates which are higher than
current market rates, regardless of whether such securities were originally
purchased at a premium. Such securities would generally carry market values
greater than the principal amounts payable on maturity, which would be
reflected in the net asset value of the Series' shares. The value of such
"premium" securities tends to approach the principal amount as they approach
maturity (or call price in the case of securities approaching their call
date). As a result, an investor who purchases shares of the Series during
such periods would initially receive higher monthly distributions (derived
from the higher coupon rates payable on the Series' investments) than might be
available from alternative investments bearing current market interest rates,
but may face an increased risk of capital loss as these higher coupon
securities approach maturity (or call date). In evaluating the potential
performance of an investment in the Series, investors may find it useful to
compare the Series' current dividend rate with the Series' "yield", which is
computed on a yield-to-maturity basis in accordance with Securities and
Exchange Commission regulations and which reflects amortization of market
premiums.
ZERO-COUPON BONDS
Some of the securities in which the Series invests may include so-called
"zero-coupon" bonds. Zero-coupon bonds are issued at a significant discount
from face value and generally pay interest only at maturity rather than at
intervals during the life of the security. The Series is required to accrue
and distribute income from zero-coupon bonds on a current basis, even though
it does not receive that income currently in cash. Thus, the Series may have
to sell investments to obtain cash needed to make income distributions. The
discount in the absence of financial difficulties of the issuer decreases as
the final maturity of the security approaches. Zero-coupon bonds can be sold
prior to their maturity date in the secondary market at the then prevailing
market value, which depends primarily on the time remaining to maturity, the
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.
RISKS ASSOCIATED WITH THE SERIES' INVESTMENT PROGRAM
At times, a portion of the Series' assets may be invested in Tax Exempt
Securities as to which the Series, by itself or together with other funds and
accounts managed by the Advisor, holds a major portion or all of an issue of
such securities. Under adverse market or economic conditions or in the event
of adverse changes in the financial condition of the issuer, the Series could
find it more difficult to sell such securities when the Advisor believes it
advisable to do so or may be able to sell such securities only at prices lower
than if such securities were more widely held. Under such circumstances, it
may also be more difficult to determine the fair value of such securities for
purposes of computing the Series' net asset value. In order to enforce its
rights in the event of a default under such securities, the Series may be
required to take possession of and manage assets securing the issuer's
obligations on such securities, which may increase the Series' operating
expenses and adversely affect the Series' net asset value. Any income derived
from the Series' ownership or operation of such assets would not be
tax-exempt. Securities rated Baa by Moody's or BBB by S&P are considered
investment grade but may have speculative characteristics and changes in
economic conditions or circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with more
highly rated securities.
Certain securities held by the Series may permit the issuer at its option
to "call", or redeem, its securities. If an issuer were to redeem securities
held by the Series during a time of declining interest rates, the Series may
not be able to reinvest the proceeds in securities providing the same
investment return as the securities redeemed.
FINANCIAL FUTURES AND OPTIONS
The Series may purchase and sell financial futures contracts for hedging
purposes. Futures contracts on a Municipal Bond Index are traded on the
Chicago Board of Trade. This Index is intended to represent a numerical
measure of market performance for long-term tax exempt bonds. An "index
future" is a contract to buy or sell units of a particular securities index at
an agreed price on a specified future date. Depending on the change in value
of the index between the time when the Series enters into and terminates an
index future, the Series realizes a gain or loss. The Series may purchase and
sell futures contracts on the Index (or any other tax exempt bond index
approved for trading by the Commodity Futures Trading Commission) to hedge
against general changes in market values of Tax Exempt Securities which the
Fund owns or expects to purchase. The Series may also purchase and sell put
and call options on index futures, and on the indices directly, in addition or
as an alternative to purchasing and selling financial futures contracts.
The Series may also, for hedging purposes, purchase and sell futures
contracts and related options with respect to U.S. government securities,
including U.S. Treasury bills, notes and bonds ("U.S. Government Securities")
and options directly on U.S. Government Securities. The Advisor believes
that, under certain market conditions, price movements in U.S. Government
Securities futures and related options may correlate closely with price
movements in Tax Exempt Securities and may as a result provide hedging
opportunities for the Series. U.S. Government Securities futures and related
options would be used in a way similar to the Series' use of index futures and
related options. The Series will only purchase or sell U.S. Government
Securities futures or related options when, in the opinion of the Advisor,
price movements in such futures and options will correlate closely with price
movements in the Tax Exempt Securities which are the subject of the hedge.
The Series may not purchase or sell futures contracts if immediately
thereafter the sum of the amount of initial margin deposits on any such
futures (plus deposits on any other futures contracts and premiums paid in
connection with any options or futures contracts) that do not constitute
"bona fide hedging" under 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 covering
of obligations under futures contracts and will set aside liquid assets in a
segregated account with its custodian in the amount prescribed.
The use of futures and options involves certain special risks and may
result in realization of taxable capital gains. Futures and options
transactions involve costs and may result in losses. Certain risks arise
because of the possibility of imperfect correlations between movements in the
prices of financial futures and options and movements in the prices of the
underlying bond index or U.S. Government Securities or the Tax Exempt
Securities which are the subject of the hedge. The successful use of futures
and options further depends on the Advisor's ability to forecast interest rate
movements correctly. Other risks arise from the Series' potential inability
to close out its futures or related options positions, and there can be no
assurance that a liquid secondary market will exist at a particular time.
Certain provisions of the Internal Revenue Code and other regulatory
requirements may limit the Series' ability to engage in futures and options
transactions.
A more detailed explanation of futures and options transactions,
including the risks associated with them, is included in the Statement of
Additional Information.
REPURCHASE AGREEMENTS AND FORWARD COMMITMENTS
The Series may enter into repurchase agreements on up to 25% of its
assets. These transactions must be fully collateralized at all times but
involve some risk to the Series if the other party should default on its
obligation and the Series is delayed or prevented from recovering the
collateral. The Series may also purchase securities for future delivery,
which may increase its overall investment exposure and involves a risk of loss
if the value of the securities declines prior to the settlement date.
LIMITING INVESTMENT RISK
Specific investment restrictions help the Series limit investment risks
for its shareholders. These restrictions prohibit the Series from investing
more than: (a) (with respect to 75% of its total assets) 5% of its total
assets in the securities of any one issuer, other than U.S. Government
Securities;* (b) 5% of its net assets in securities of any issuer if the party
responsible for payment, together with any predecessor, has been in operation
for less than three years (except obligations of the U.S. Government or
agencies or instrumentalities and obligations backed by the faith, credit and
taxing power of any person authorized to issue Tax Exempt Securities); (c) 10%
of its net assets in securities restricted as to resale; and (d) 10% of its
net assets in any combination of securities that are not readily marketable,
in securities restricted as to resale (excluding Rule 144A securities
determined by the Series' Board of Directors [or the person supervised by the
Series' Board of Directors to make such determinations] to be readily
marketable), and repurchase agreements maturing in more than seven days; (e)
25% or more of the value of its total assets in securities of issuers in any
one industry (other than U.S. Government Securities). In addition, the Series
may borrow money, but only from a bank for temporary or emergency purposes in
amounts not exceeding 10% of the Series' total assets.
The restriction marked with an asterisk (*) above is a summary of a
fundamental policy. See the Statement of Additional Information for the full
text of this policy and the Series' other fundamental policies. Except for
investment policies designated as fundamental in this Prospectus or the
Statement of Additional Information, the investment policies described in this
Prospectus and in the Statement of Additional Information are not fundamental
policies. The Board of Directors may change any non-fundamental investment
policies without shareholder approval. As a matter of policy, the Board of
Directors would not materially change the Series' investment objective without
shareholder approval.
MANAGEMENT
The overall business and affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, including the Funds
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
Exeter Asset Management (the Advisor), a division of Manning & Napier
Advisors, Inc.("MNA"), 1100 Chase Square, Rochester, New York 14604. A
committee made up of investment professionals and analysts make all the
investment decisions for the Fund.
The Advisor acts as investment advisor to the Fund. 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 Series including supervision of service providers to the Series
and direction of the Advisor's directors, officers or employees who may be
elected as officers of the Fund to serve as such.
As of the date of this Prospectus, the Advisor and MNA supervised over
$7.5 billion in assets of clients, including both individuals and
institutions. For its services to the Series under the investment advisory
agreement, the Fund pays the Advisor a fee, computed daily and payable
monthly, at an annual rate of .50% of the Series average daily net assets.
Clients for whom the Advisor provides advisory services pursuant to separate
investment advisory contracts will be separately rebated by the Advisor an
amount equal to the portion of their client advisory fee attributable to the
portion of their assets invested in the Fund. In addition, the Advisor is
separately compensated for acting as transfer agent (the Transfer Agent) for
the Series.
The Fund is responsible for its operating expenses, including: (i)
interest and taxes; (ii) brokerage commissions; (iii) insurance premiums; (iv)
compensation and expenses of its Directors other than those affiliated with
the Advisor; (v) legal and audit expenses; (vi) fees and expenses of the
Fund's custodian, shareholder servicing or transfer agent, and accounting
services agent, if obtained for the Fund from an entity other than the
Advisor; (vii) expenses incidental to the issuance of its shares, including
issuance on the payment of, or reinvestment of, dividends and capital gain
distributions; (viii) fees and expenses incidental to the registration under
federal or state securities laws of the Fund or its shares; (ix) expenses of
preparing, printing and mailing reports and notices and proxy material to
shareholders of the Fund; (x) all other expenses incidental to holding
meetings of the Fund's shareholders; (xi) dues or assessments of or
contributions to the Investment Company Institute or any successor; and, (xii)
such non-recurring expenses as may arise, including litigation affecting the
Fund and the legal obligations with respect to which the Fund may have to
indemnify its officers and directors.
The Advisor may use its own resources to engage in activities that may
promote the sale of the Fund, including payments to third parties who provide
shareholder support servicing and distribution assistance. Investors may be
charged a fee if they effect transactions through a broker or agent.
YIELD AND TOTAL RETURN
From time-to-time the Series may advertise total return and yield. Both
total return and yield figures are based on historical earnings and are not
intended to indicate future performance. The "total return" of the Series
refers to the average annual compounded rates of return over one-, five-, and
ten-year periods or for the life of the Series (as stated in the
advertisement) that would equate an initial amount invested at the beginning
of a stated period to the ending redeemable value of the investment, assuming
the reinvestment of all dividend and capital gains distributions.
The "30-day yield" of a series is calculated by dividing the net
investment income per share earned during a 30-day period by the maximum
offering price per share on the last day of the period. Net investment income
includes interest and dividend income earned on the Series' securities; it is
net of all expenses and all recurring and nonrecurring charges that have been
applied to all shareholder accounts. The yield calculation assumes that net
investment income earned over 30 days is compounded monthly for six months and
then annualized. Methods used to calculate advertised yields are standardized
for all stock and bond mutual funds. However, these methods differ from the
accounting methods used by the 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 the Series' reports to shareholders.
PURCHASES, EXCHANGES AND REDEMPTIONS OF SHARES
Purchases and redemptions of shares of the Series may be made on any day
the New York Stock Exchange is open for trading.
PURCHASES
The minimum initial investment in 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. The Distributor may suspend offering shares to other
than discretionary management accounts of the Advisor.
A purchase order will be effective as of the day received by the
Distributor, Transfer Agent, or its agents, if the order is received before
the time 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 the
Series is the net asset value next determined after a purchase order is
effective.
The shares of the Series may be purchased in exchange for securities to
be included in the Series, subject to the Advisor's determination that these
securities are acceptable. Securities accepted in an exchange will be valued
at market value. All accrued interest and purchase or other rights which are
reflected in the market price of accepted securities at the time of valuation
become the property of the Series and must be delivered by the shareholder to
the Series upon receipt from the issuer.
The Advisor will not accept securities for the Series unless: (1) such
securities are appropriate in the Series at the time of the exchange; (2) the
shareholder represents and agrees that all securities offered to the Series
are not subject to any restrictions upon their sale by the Series under the
Securities Act of 1933, or otherwise; and, (3) prices are available from an
independent pricing service provided by the Series' Board of Directors.
AUTOMATIC INVESTMENT PLAN
Shareholders may purchase shares regularly through the Automatic
Investment Plan with a pre-authorized draft drawn on their checking account.
Under this plan, the shareholder may elect to have a specified amount invested
on a regular schedule. The minimum amount of each automatic investment is
$25. The amount specified by the shareholder will be withdrawn from the
shareholder's bank account using the pre-authorized draft. This amount will
be invested at the applicable share price determined on the date the amount is
available for investment. Participation in the Automatic Investment Plan may
be discontinued either by the Fund or the Shareholder upon 30 days' prior
written notice to the other party. A shareholder who wishes to enroll in the
Automatic Investment Plan may do so by completing the applicable section of
the Account Application Form or contacting the Fund for an Automatic
Investment Plan Form.
EXCHANGES BETWEEN SERIES
As permitted pursuant to any rule, regulation or order promulgated by the
Securities and Exchange Commission, some or all of the shares of a Class in a
direct investment account with the Fund for which payment has been received by
the Fund may be exchanged for shares of the same Class of any of the other
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 objectives and policies before making any
exchange. The exchange privilege may not be available in all states. For
federal and state income tax purposes, an exchange is treated as a sale of the
shares exchanged and therefore, an exchange could result in a gain or loss to
the shareholder making the exchange. The Series may modify or terminate this
exchange offer upon 60 days' notice to shareholders subject to applicable law.
REDEMPTIONS
If a shareholder desires to redeem his shares at their net asset value,
the shareholder must send a written request for redemption in "Good Order" to
the Transfer Agent. "Good Order" generally means that the written request for
redemption must be endorsed by the record owner(s) exactly as the shares are
registered and the signature(s) must be guaranteed by an "eligible guarantor
institution" as that term is defined under Rule 17Ad-15(a)(2) under the
Securities Exchange Act of 1934. Currently, such procedures generally permit
guarantees by a commercial bank or trust company, a member bank of the Federal
Reserve System, or a member firm of a national securities exchange.
Redemption requirements for corporations, other organizations, trusts,
fiduciaries, and retirement plans may require additional documentation.
Please contact the Transfer Agent 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 Investment Company Act of 1940 if an
emergency exists. For shares purchased, or received in exchange for shares
purchased, by check (including certified checks or cashier's checks) payment
of redemption proceeds may be delayed up to 15 days from the purchase date in
an effort to assure that such check has cleared.
Subject to the Series' compliance with applicable regulations, the Series
has reserved the right to pay the redemption price either totally or partially
by a distribution in-kind of securities (instead of cash) from the Series'
portfolio. The securities distributed in such a distribution would be valued
at the same amount as that assigned to them in calculating the net asset value
for the shares being sold. If a shareholder received a distribution in-kind,
he could incur brokerage or transaction charges when converting the securities
to cash. The Fund has elected, however, to be governed by Rule 18f-1 under the
1940 Act as a result of which the Fund is obligated to redeem shares, with
respect to any one shareholder during any 90-day period, solely in cash up to
the lesser of $250,000 or 1% of the net asset value of the Series at the
beginning of the period.
OTHER INFORMATION ABOUT PURCHASES AND REDEMPTIONS
If a taxable shareholder invests shortly before the Series declares a
taxable dividend, a portion of the investment will be returned as a taxable
distribution (commonly referred to as buying into a dividend). This
distribution will be taxable regardless of whether your elected to reinvest
you distribution in additional shares or take the distribution in cash. If
you would like to avoid buying into a dividend, you may contact the Fund to
find out when the Series plans to declare a distribution and invest after that
date.
The Fund may authorize brokers to accept purchase and redemption orders
on its behalf, and these brokers will be authorized to designate other
intermediaries to accept purchase and redemption orders on the Funds 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
Series next computed after it is accepted by the authorized broker or its
designee.
Due to the relatively high cost of maintaining small accounts, the Series
reserves the right to redeem shares in any account for their then-current
value (which will be promptly paid to the shareholder) if at any time the
total investment in such account drops below $1,000 because of redemptions
(but not due to changes in net asset value). Shareholders will be notified
that the value of their account is less than the minimum investment
requirement and allowed 60 days to make an additional investment before the
redemption is processed.
Manning & Napier Investor Services, Inc. (the Distributor) acts as
distributor of the Fund shares and is located at the same address as the
Advisor and the Fund. The Distributor receives no fee from the Fund and there
are no additional costs to shareholders for this service. The Advisor may,
from its own resources, defray or absorb costs related to distribution,
including compensation of employees who are involved in distribution.
SHARE PRICE
The Series' share price or net asset value per share is determined as of
the closing time of the New York Stock Exchange or, in the absence of a
closing time, 4:00 p.m. Eastern time on each day that the New York Stock
Exchange is open for trading. The exchange annually announces the days on
which it will not be open for trading; the most recent announcement indicates
that it will not be open when the following holidays are observed: New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value per share is the value of the Series' assets, less
its liabilities, divided by the number of shares of the Series outstanding.
The value of the Series' portfolio securities will be the market value of such
securities as determined based on quotes provided by a pricing service (which
uses the methodology outlined in the "Net Asset Value" section of the
Statement of Additional Information) approved by the Board of Directors, or,
in the absence of market quotations, fair value as determined in good faith by
or under the direction and control of the Board of Directors. Short-term
investments which mature in less than 60 days are normally valued at amortized
cost. See the Statement of Additional Information for further information.
DIVIDENDS AND TAX STATUS
TAXES
The following summary of federal income tax consequences is based on the
current tax laws and regulations, which may be changed by legislative,
judicial or administrative action.
No attempt has been made to present a detailed explanation of the
federal, state, or local income tax treatment of the Series or its
shareholders. In addition, state and local tax consequences of an investment
in the Series may differ from the federal income tax consequences described
below. Accordingly, shareholders are urged to consult with their tax advisers
regarding specific questions as to federal, state and local income taxes.
Additional information concerning taxes is set forth in the Statement of
Additional Information.
TAX STATUS
Under the Internal Revenue Code of 1986, as amended (the Code), the
Series is treated as a separate entity for federal income tax purposes. The
Series intends to qualify for the special tax treatment afforded regulated
investment companies as defined under Subchapter M of the Code, so as to be
relieved of federal income tax on that part of its net investment company
taxable income, and net capital gain (the excess of net long-term capital
gains over net short-term capital losses) distributed to shareholders.
TAX STATUS OF DISTRIBUTIONS
Dividends and distributions will be paid in full and fractional shares of
the Series, based on the net asset value per share at the close of business on
the record date, although a shareholder may, prior to the record date,
request, by writing or by telephone call to the Fund, that payments of either
ordinary income dividends or capital gain distributions, or both, be made in
cash. If a shareholder has chosen to receive dividends and/or capital gain
distributions in cash, and the postal service is unable to deliver checks to
the shareholders address of record, or the shareholder does not respond to
mailing from the Fund concerning outstanding checks, that shareholders account
will be updated so that all future distributions will be reinvested in the
account. No interest will accrue on amounts represented by uncashed
distribution or redemptions checks.
The Series will distribute all of its net investment income (including
net short-term capital gains) to shareholders. Dividends from net investment
company taxable income are taxable to shareholders as ordinary income (whether
received in cash or in additional shares) to the extent of the Series earnings
and profits. Net capital gains will be distributed at least annually and will
be taxed to shareholders as a 20% rate gain distribution (generally taxed at a
rate of 20%) or a 28% rate gain distribution (generally taxed at a rate of
28%), depending upon the designation by the Series (such designation being
dependent upon the holding period of the Series in the underlying asset
generating the net capital gain), regardless of how long the shareholders have
held their shares and regardless of whether the distributions are received in
cash or in additional shares. If no designation is made regarding a capital
gain dividend, it will be classified as a 28% rate gain distribution, and,
thus, taxed at a rate of 28%. Dividends and distributions of capital gains
paid by the Series do not qualify for the dividends received deduction for
corporate shareholders. The Series will provide annual reports to
shareholders of the federal income tax status of all distributions.
If, at the close of each quarter of its taxable year, at least 50% of the
value of the Diversified Tax Exempt Series assets consist of obligations the
interest on which is excludable from gross income for federal tax purposes,
the Series may pay exempt-interest dividends to its shareholders. Those
dividends constitute the portion of the aggregate dividends as designated by
the Series equal to the excess of the excludable interest over certain amounts
disallowed as deductions. Exmept-interest dividends are excludable from a
shareholders gross income for regular federal income tax purposes, but may
have certain collateral federal income tax consequences, including alternative
minimum tax. See the Statment of Additional Informaiton.
Current federal law limits the types and volume of bonds qualifying for
the federal income tax exemption of interest, which may have an effect on the
ability of the Diversified Tax Exempt Series to purchase sufficient amounts of
tax-exempt securities to satisfy the Codes requirements for the payment of
exempt-interest dividends.
Dividends declared by the Series in October, November or December of any
year and payable to shareholders of record on a date in one of those months
will be deemed to have been paid by the Series and received by the
shareholders on December 31 of the year declared, if paid by the Series at any
time during the following January.
Investment income received directly by the Series on direct U.S.
Government obligations is exempt from income tax at the state level and may be
exempt, depending on the state, when received by a shareholder as income
dividends from the Series provided certain state-specific conditions are
satisfied. The Series will inform shareholders annually of the percentage of
income and distributions derived from direct U.S. Government obligations.
Shareholders should consult their tax advisers to determine whether any
portion of the income dividends received from the Series is considered tax
exempt in their particular states.
The Series intends to make sufficient distributions prior to the end of
each calendar year to avoid liability for federal excise tax applicable to
regulated investment companies.
A sale, exchange or redemption of the Series shares generally is a
taxable transaction to the shareholder.
STATE AND LOCAL TAXES
Depending upon the extent of the Series' activities in those states and
localities in which its offices are maintained or in which its agents or
independent contractors are located, the Series may be subject to the tax laws
of such states or localities. In addition, the exemption of interest income
for federal income tax purposes does not necessarily result in exemption under
the income or other tax laws of any state or local taxing authority. The laws
of the several states and local taxing authorities vary with respect to the
taxation of such interest income, and each holder of shares of the Series is
advised to consult his own tax advisor in that regard. The Series will report
annually the percentage of interest income received during the preceding year
on tax exempt obligations, and on a state-by-state basis, the source of such
income.
GENERAL INFORMATION
The Fund was incorporated on July 26, 1984 as a Maryland corporation.
The Board of Directors may, at its own discretion, create additional series of
shares, each of which would have separate assets and liabilities.
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,
dividends, distributions and liquidations. The Fund's shareholders will vote
in the aggregate and not by series except as otherwise expressly required by
law or when the Board of Directors determines that the matter to be voted upon
affects only the interests of the shareholders of a series. Income, direct
liabilities and direct operating expenses of the series will be allocated
directly to the series, and general liabilities and expenses of the Fund will
be allocated among the series in proportion to the total net assets of the
series by the Board of Directors. The holders of shares have no preemptive or
conversion rights. Shares when issued are fully paid and non-assessable and
do not have cumulative voting rights.
All securities and cash are held by Boston Safe Deposit and Trust
Company. Coopers & Lybrand, L.L.P. serves as independent accountants for the
Series and will audit its financial statements annually.
Manning & Napier Advisors, Inc. serves as the Fund's transfer and
dividend disbursing agent. Shareholder inquiries should be directed to Exeter
Fund, Inc., P.O. Box 41118, Rochester, New York 14604.
<PAGE>
APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
Moody's Investors Services, Inc.'s municipal and corporate bond ratings:
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred
to as gilt-edged. 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 risk appear somewhat larger than 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 some time 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.
Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a
rating in the lower end of that generic rating category.
Moody's may also assign conditional ratings to municipal bonds. Bonds for
which the security depends upon the completion of some act or the fulfillment
of some condition are rated conditionally. These are bonds secured by (a)
earnings of projects under construction, (b) earnings of projects unseasoned
in operating experience, (c) rentals which begin when facilities are
completed, or (d) payments to which some other limiting condition attaches.
Parenthetical rating denotes probable credit stature upon completion of
construction or elimination of basis of condition.
Standard & Poor's Corporation's municipal and corporate bond ratings:
AAA - This is the highest rating assigned by Standard & Poor's to a
debt obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only to a small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than in higher rated categories.
Standard & Poor's may modify the rating from "AA" to "B" by the addition of a
plus or minus sign to show relative standing within the major rating
categories. Standard & Poor's ratings may also be indicated by "NR". This
designation indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.
Standard & Poor's may also assign conditional ratings to municipal bonds. The
letter "p" indicates that the rating is provisional. A provisional rating
assumes the successful completion of the project being financed by the debt
being rated and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful timely completion of the project.
This rating, however, while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood of, or the risk of default
upon failure of, such completion. The investor should exercise his own
judgment with respect to such likelihood and risk.
<PAGE>
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's Investor Services, Inc.'s commercial paper ratings:
PRIME-1 - Issues 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.
Standard & Poor's Corporation's commercial paper ratings:
A-1 - This is the highest category and indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 - Capacity for timely payment on issues with this designation is
satisfactory and the obligation is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations
in higher rating categories.
A-3 - Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
B - Issues rated B are regarded as having significant speculative
characteristics for timely payment.
C - This rating is assigned to short-term debt obligations that are
currently vulnerable to nonpayment.
D - Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. 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>
EXETER FUND, INC.
Ohio Tax
Exempt Series
Prospectus
April 20, 1998
<PAGE>
EXETER FUND, INC.
P.O. Box 41118
Rochester, New York 14604
1-800-466-3863
OHIO TAX EXEMPT SERIES
Exeter Fund, Inc. (the "Fund"), is an open-end management investment
company that offers separate series, each a separate investment portfolio
having its own investment objective and policies. This Prospectus relates to
the Ohio Tax Exempt Series of the Fund (the "Series"). The Series' investment
objective is to seek a high level of current income exempt from federal income
tax and Ohio personal income tax, consistent with preservation of capital.
This Prospectus provides you with the basic information you should know
before investing in the Series. You should read it and keep it for future
reference. A Statement of Additional Information, dated April 20, 1998,
containing additional information about the Fund has been filed with the
Securities and Exchange Commission and is incorporated by reference in this
Prospectus in its entirety. You may obtain a copy of the Statement of
Additional Information without charge by contacting the Fund at the address or
telephone number listed above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS APRIL 20, 1998.
<PAGE>
EXETER FUND, INC.
OHIO TAX EXEMPT SERIES
No person has been authorized to give any information or to make
representations not contained in this Prospectus in connection with any
offering made by this Prospectus and, if given or made, such information must
not be relied upon as having been authorized by the Fund. This Prospectus
does not constitute an offering by the Fund in any jurisdiction in which such
offering may not lawfully be made.
PROSPECTUS
TABLE OF CONTENTS
Annual Operating Expenses 3
Financial Highlights 4
The Fund 5
Risk and Investment Objectives and Policies 5
Ohio Tax Exempt Securities 6
Risk and Additional Information about Investment Policies 7
Management 10
Yield and Total Return 11
Purchases, Exchanges and Redemptions of Shares 11
Net Asset Value 13
Dividends and Tax Status 13
General Information 15
Appendix 16
<PAGE>
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
(as a percentage of offering price)
Maximum Sales Charge Imposed on Purchases None
Redemption Fees1 None
Exchange Fees 2 None
1 A wire charge, currently $15, will be deducted by the Transfer Agent
from the amount of a wire redemption payment made at the request of a
shareholder. Such amount is not included in the "Annual Operating Expenses
of the Series."
2 A shareholder may effect up to four (4) exchanges in a twelve (12)
month period without charge. Subsequent exchanges are subject to a fee
of $15.
ANNUAL OPERATING EXPENSES
The following information provides (i) a tabular summary of expenses relating
to the annual operating expenses of the Series and (ii) an example
illustrating the dollar cost of such expenses on a $1,000 investment.
Annual Operating Expenses of the Series (as a percentage of average daily net
assets):
Management Fees After Reduction of Fees 3,4,5 0.50%
12b-1 Fees None
Other Expenses 4 0.29%
Total Operating Expenses 5 0.79%
Example
You would pay the following expenses on a $1,000 investment, assuming b) 5.0%
annual return and b) redemptions at the end of each time period4:
1 year 3 years 5 years 10 years
Ohio Tax Exempt Series $8 $25 $44 $98
3 Clients who have entered into investment advisory agreements with Manning &
Napier Advisors, Inc. (Manning & Napier) will be separately rebated by Manning
& Napier an amount equal to the portion of their client advisory fee
attributable to the portion of their assets invested in the Fund. See
"Management."
4 Ohio Tax Exempt Series was engaged in active investment operations for the
year ended December 31, 1997; therefore, actual management fees and other
expenses are used above.
5Should the total operating expenses for the Series exceed 0.85% of its
average net assets, the Advisor has voluntarily agreed to waive its fee and
pay other operating expenses in an amount that limits total operating expenses
to 0.85% of its average net assets. The fee waiver and the assumption of
expenses by the Advisor is voluntary and may be terminated at any time.
However, the Advisor has agreed to continue this assumption of expenses at
least through the Series' current fiscal year.
purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Series. For a
more complete description of the various costs and expenses illustrated above,
please refer to the Management section of this Prospectus.
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
<PAGE>
FINANCIAL HIGHLIGHTS
The following table provides selected per share data and ratios for the Ohio
Tax Exempt Series (for a share outstanding throughout the periods shown).
The table is part of the Series' audited financial statements, which are
incorporated by reference into the Funds Statement of Additional Information.
Coopers & Lybrand L.L.P., the Funds independent accountants, audited the
Seriess financial highlights for each of the periods shown. Additional
performance information is contained in the Funds 1997 Annual Report to
Shareholders and is available upon request and without charge by calling
1-800-466-3863. This table should be read in conjunction with the Series
financial statements and notes thereto.
<TABLE>
<CAPTION>
<S> <C> <C>
For the year For the year
ended ended
Dec.31, 1997 Dec. 31, 1996
Net asset value - Beginning of period $ 10.18 $ 10.31
Income from investment operations:
Net investment income 0.45 0.44
Net realized and unrealized
gain/(loss) on investments 0.34 (0.13)
Total from investment operations 0.79 0.31
Less distributions to shareholders:
From net investment income (0.44) (0.44)
From net realized gain on investments -- (0.00)4
Total distributions to shareholders (0.44) (0.44)
Net asset value - End of period $ 10.53 $ 10.18
Total return1 7.92% 3.16%
Ratios (to average net assets)/
Supplemental Data:
Expenses* 0.79% 0.85%
Net investment income* 4.37% 4.40%
Portfolio turnover 12% 2%
Net assets - End of period (000's omitted) $ 9,306 $ 7,698
* The Advisor did not impose all or a portion of its management fee and in
some periods paid a portion of the Funds expenses. If these expenses had been
incurred by the Fund, the net investment income per share and the ratios would
have been as follows:
Net investment income N/A $ 0.437
Ratios(to average net assets):
Expenses N/A 0.87%
Net investment income N/A 4.38%
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
For the year For the
period
ended Feb. 14, 1994
to
Dec. 31, 1995 Dec. 31, 1994
Net asset value - Beginning of period $ 9.18 $ 10.003
Income from investment operations:
Net investment income 0.42 0.21
Net realized and unrealized
gain/(loss)on investments 1.14 (0.83)
Total from investment operations 1.56 (0.62)
Less distributions to shareholders:
From net investment income (0.43) (0.20)
From net realized gain on investments -- --
Total distributions shareholders (0.43) (0.20)
Net asset value - End of period $ 10.31 $ 9.18
Total return1 17.14% (6.23)%
Ratios (to average net assets)/
Supplemental Data:
Expenses* 0.85% 0.85%2
Net investment income* 4.50% 4.03%2
Portfolio turnover 1% 2%
Net assets - End of period (000's omitted) $ 6,144 $ 3,901
* The Advisor did not impose all or a portion of its management fee and in
some periods paid a portion of the Funds expenses. If these expenses had been
incurred by the Fund, the net investment income per share and the ratios would
have been as follows:
Net investment income $ 0.41 $ 0.14
Ratios(to average net assets):
Expenses 0.94% 2.07%2
Net investment income 4.41% 2.81%2
</TABLE>
1 Represents aggregate total return for the period indicated.
2 Annualized.
3 Initial offering price upon commencement of operations on February 14, 1994.
4 Dividend amounted to $0.002 per share from net realized gain on investments.
THE FUND
The Fund is an open-end management investment company incorporated under
the laws of the State of Maryland on July 26, 1984. The Fund offers separate
series of units of beneficial interest ("shares"). This Prospectus relates to
the Ohio Tax Exempt Series (the "Series"). Information regarding the Fund's
other series is contained in separate prospectuses that may be obtained from
Exeter Fund, Inc., P.O. Box 41118, Rochester, New York 14604 or by calling
1-800-466-3863. The Ohio Tax Exempt Series is a diversified fund.
Shares of the Series are offered directly to investors and to employees
and clients of the Advisor or its affiliates that have authorized investment
in the Fund as part of the discretionary account management services of the
Advisor or its affiliates. There is no limitation on the investment in shares
of the Series on behalf of discretionary account clients unless otherwise
limited by a client agreement. There are no fees or expenses charged to any
investor in connection with acquisition of shares of the Series.
Manning & Napier, in addition to providing investment advice to the Fund
through the Advisor, provides investment advice to other clients. Some of
these clients funds may be invested in the Series. From time to time, the
Series may experience relatively large purchases or redemptions due to assets
allocation decisions made by Manning & Napier for its clients. These
transactions may have a material effect on the Series, since Series that
experience redemptions as a result of reallocations may have to sell portfolio
securities and because Series that receive additional cash will have to invest
it. While it is impossible to predict the overall impact of these
transactions over time, there could be adverse effects on portfolio management
to the extent that the Series may be required to sell securities at times when
they would not otherwise do so, or receive cash that cannot be invested in an
expeditious manner. There may be tax consequences associated with purchases
and sales of securities, and such sales may also increase transaction costs.
Manning & Napier is committed to minimizing the impact of these transactions
on the Series to the extent it is consistent with pursuing the investment
objectives of its clients.
RISK AND INVESTMENT OBJECTIVES AND POLICIES
The Series' objective is to seek as high a level of current income exempt
from federal income tax and Ohio State personal income tax as the Advisor
believes is consistent with preservation of capital. The Advisor will
attempt to balance the Series' goals of high income and capital preservation
by building a portfolio of securities that in the aggregate afford the
opportunity to earn current income, but also have quality and other
characteristics that attempt to avoid permanent capital losses. However, the
Series' portfolio securities and, therefore, its shares will inevitably
fluctuate in value to a certain extent. Under current law, to the extent
distributions by the Series are derived from interest on Ohio Tax Exempt
Securities (which are described below) and are designated as such, they are
exempt from federal and Ohio personal income taxes. The Series is not
intended to be a complete investment program, and there is no assurance it
will achieve its objective.
The Series seeks to achieve its objective by following the fundamental
investment policy of investing at least 80% of its net assets in Ohio Tax
Exempt Securities, except when investing for defensive purposes during times
of adverse market conditions. The Series may also invest in taxable
obligations described below under "Ohio Tax Exempt Securities" to the extent
permitted by its investment policies, or hold its assets in money market
instruments or in cash. The Series' investments in Ohio Tax Exempt Securities
and taxable obligations will be limited to securities rated in the four
highest categories assigned by Moody's Investors Service, Inc. (Moodys) (Aaa,
Aa, A, Baa) or Standard & Poor's Corporation (S&P) (AAA, AA, A, BBB). For a
description of the above ratings, see the Appendix. Securities rated Baa by
Moody's or BBB by S&P's are considered investment grade but may have
speculative characteristics and changes in economic conditions or
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with more highly rated securities.
When the Series invests in Ohio Tax Exempt Securities in the lower rating
categories, the achievement of the Series' goals is more dependent on the
Advisor's ability than would be the case if the Series were investing in Ohio
Tax Exempt Securities in the higher rating categories. The amount of
information about the financial condition of an issuer of Ohio Tax Exempt
Securities may not be as extensive as information about corporations whose
securities are publicly traded. In addition, tax considerations may limit the
Series' ability to vary its portfolio securities in response to developments
in interest rates and economic conditions. The Advisor seeks to minimize the
risks of investing in lower-rated securities through investment analysis and
attention to current developments in interest rates and economic conditions.
Interest income from certain types of Ohio Tax Exempt Securities may be
subject to federal alternative minimum tax. It is a fundamental policy of the
Series to exclude these securities from the term "Ohio Tax Exempt Securities"
for purposes of determining compliance with the 80% test described above.
In pursuing its objective, the Series may, to a limited extent, buy and
sell futures contracts and options and may enter into repurchase agreements
and forward commitments. These incidental investment practices, which may
produce taxable capital gains and involve special risks, are described below.
The market value of the Series' investments will change in response to
changes in interest rates and other factors. During periods of falling
interest rates, the values of long-term, fixed-income securities generally
rise. Conversely, during periods of rising interest rates, the values of such
securities generally decline. Changes by recognized rating services in their
ratings of tax-exempt securities and in the ability of an issuer to make
payments of interest and principal will also affect the value of these
investments. Changes in the value of portfolio securities will not affect
interest income derived from those securities but will affect the Series' net
asset value.
During times when conditions in the markets for Ohio Tax Exempt
Securities suggest a temporary defensive position the Advisor may temporarily
use alternative strategies, primarily designed to reduce fluctuations in the
value of the Series' assets. In implementing these "defensive" strategies,
the Series may invest in taxable obligations, including: obligations of the
U.S. Government, its agencies or instrumentalities; obligations issued by
governmental issuers in other states, the interest on which would be exempt
from federal income tax; other debt securities rated within the four highest
categories by either Moody's or S&Ps; commercial paper rated in the highest
category by either rating service (Prime-1 or A-1+, respectively);
certificates of deposit and bankers' acceptances; repurchase agreements with
respect to any of the foregoing investments; or any other fixed-income
securities that the Advisor considers consistent with such strategy. It is
impossible to predict when, or for how long, the Series will use such
alternative strategies. The limitations described above on the ability of the
Series to vary its portfolio securities may limit the Series' use of these
alternative investment strategies.
OHIO TAX EXEMPT SECURITIES
Ohio Tax Exempt Securities are debt obligations issued by the State of
Ohio and its political subdivisions, agencies and instrumentalities, the
interest from which is, in the opinion of bond counsel, exempt from federal
income tax and Ohio personal income tax. These securities are issued to
obtain funds for various public purposes, such as the construction of public
facilities, the payment of general operating expenses or the refunding of
outstanding debts. They may also be issued to finance various private
activities, including the lending of funds to public or private institutions
for the construction of housing, educational or medical facilities and may
also include certain types of private activity and industrial development
bonds or notes issued by public authorities to finance privately owned or
operated facilities or to fund short-term cash requirements. Short-term Ohio
Tax Exempt Securities are generally issued as interim financing in
anticipation of tax collections, revenue receipts or bond sales to finance
various public purposes. Ohio Tax Exempt Securities also include debt
obligations issued by other governmental entities (for example, U.S.
territories) if such debt obligations generate interest income which is exempt
from federal income tax and Ohio personal income tax.
The two principal classifications of Ohio Tax Exempt Securities are
general obligation and limited obligation (or revenue) securities. General
obligation securities involve the credit of an issuer possessing taxing power
and are payable from the issuer's general unrestricted revenues. Their
payment may depend on an appropriation by the issuer's legislative body. The
characteristics and methods of enforcement of general obligation securities
vary according to the law applicable to the particular issuer. Limited
obligation (or revenue) securities are payable only from the revenues derived
from a particular facility or class of facilities, or a specific revenue
source, and generally are not payable from the unrestricted revenues of the
issuer. So-called "private activity bonds" and "industrial development bonds"
are in most cases limited obligation securities, the credit quality of which
is directly related to the corporate user of the facilities.
The Series may also invest in securities representing interests in Ohio
Tax Exempt Securities, known as "inverse floating obligations" or "residual
interest bonds", paying interest rates that vary inversely to changes in the
interest rates of specified short-term tax exempt securities or an index of
short-term tax exempt securities. The interest rates on inverse floating
obligations or residual interest bonds will typically decline as short-term
market interest rates increase and increase as short-term market rates
decline. Such securities have the effect of providing a degree of investment
leverage, since they will generally increase or decrease in value in response
to changes in market interest rates at a rate which is a multiple (typically
two) of the rate at which fixed-rate long-term tax exempt securities increase
or decrease in response to such changes. As a result, the market values of
inverse floating obligations and residual interest bonds will generally be
more volatile than the market values of fixed-rate tax exempt securities. To
seek to limit the interest rate risk of these securities, the Series may
purchase inverse floating obligations with shorter-term maturities or which
contain limitations on the extent to which the interest rate may vary. There
is no limit on the percentage of assets that may be invested in inverse
floating obligations or residual interest bonds.
The Series' concentration in investments in Ohio Tax Exempt Securities
involves greater risks than if its investments were more diversified. Because
the Series invests primarily in Ohio Tax Exempt Securities, investors should
consider that the Series' yield and share price are sensitive to political and
economic developments within the State of Ohio. If either Ohio or any of its
local governmental entities is unable to meet its financial obligations, there
could be an adverse effect on the income derived by the Series, the ability to
preserve or realize appreciation of the Series' capital and the Series'
liquidity. A more complete description of these risks is contained in the
Statement of Additional Information.
RISK AND ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
Set forth below is further information about certain types of securities
in which the Series may invest, as well as information about additional types
of investments and certain strategies the Series may pursue. These policies
have been voluntarily adopted by the Board of Directors based upon current
circumstances and may be changed or amended by action of the Board of
Directors without prior approval of the Series' shareholders. Additional
information concerning these strategies and their related risks is contained
in the Statement of Additional Information.
INVESTMENTS IN PREMIUM SECURITIES
During a period of declining interest rates, many of the Series'
portfolio investments will likely bear coupon rates which are higher than
current market rates, regardless of whether such securities were originally
purchased at a premium. Such securities would generally carry market values
greater than the principal amounts payable on maturity, which would be
reflected in the net asset value of the Series' shares. The value of such
"premium" securities tends to approach the principal amount as they approach
maturity (or call price in the case of securities approaching their call
date). As a result, an investor who purchases shares of the Series during
such periods would initially receive higher distributions (derived from the
higher coupon rates payable on the Series' investments) than might be
available from alternative investments bearing current market interest rates,
but may face an increased risk of capital loss as these higher coupon
securities approach maturity (or call date). In evaluating the potential
performance of an investment in the Series, investors may find it useful to
compare the Series' current dividend rate with the Series' "yield", which is
computed on a yield-to-maturity basis in accordance with Securities and
Exchange Commission regulations and which reflects amortization of market
premiums.
ZERO-COUPON BONDS
Some of the securities in which the Series invests may include so-called
"zero-coupon" bonds. Zero-coupon bonds are issued at a significant discount
from face value and generally pay interest only at maturity rather than at
intervals during the life of the security. The Series is required to accrue
and distribute income from zero-coupon bonds on a current basis, even though
it does not receive that income currently in cash. Thus, the Series may have
to sell investments to obtain cash needed to make income distributions. The
discount in the absence of financial difficulties of the issuer decreases as
the final maturity of the security approaches. Zero-coupon bonds can be sold
prior to their maturity date in the secondary market at the then prevailing
market value, which depends primarily on the time remaining to maturity, the
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.
RISKS ASSOCIATED WITH THE SERIES' INVESTMENT PROGRAM
At times, a portion of the Series' assets may be invested in Ohio Tax
Exempt Securities as to which the Series, by itself or together with other
funds and accounts managed by the Advisor, holds a major portion or all of an
issue of such securities. Under adverse market or economic conditions or in
the event of adverse changes in the financial condition of the issuer, the
Series could find it difficult to sell such securities when the Advisor
believes it advisable to do so or may be able to sell such securities only at
prices lower than if such securities were more widely held. Under such
circumstances, it may also be more difficult to determine the fair value of
such securities for purposes of computing the Series' net asset value. In
order to enforce its rights in the event of a default under such securities,
the Series may be required to take possession of and manage assets securing
the issuer's obligations on such securities, which may increase the Series'
operating expenses and adversely affect the Series' net asset value. Any
income derived from the Series' ownership or operation of such assets would
not be tax-exempt.
Certain securities held by the Series may permit the issuer at its option
to "call", or redeem, its securities. If an issuer were to redeem securities
held by the Series during a time of declining interest rates, the Series may
not be able to reinvest the proceeds in securities providing the same
investment return as the securities redeemed.
Since the Series invests primarily in Ohio Tax Exempt Securities, the
value of its shares may be especially affected by factors pertaining to the
Ohio economy and other factors specifically affecting the ability of issuers
of Ohio Tax Exempt Securities to meet their obligations. As a result, the
value of the Series' shares may fluctuate more widely than the value of shares
of a portfolio investing in securities relating to a number of different
states. The ability of state, county, or local governments to meet their
obligations will depend primarily on the availability of tax and other
revenues to those governments and on their fiscal conditions generally. The
amounts of tax and other revenues available to governmental issuers of Ohio
Tax Exempt Securities may be affected from time to time by economic,
political, and demographic conditions within the particular state. In
addition, constitutional or statutory restrictions may limit a government's
power to raise revenues or increase taxes. The availability of federal,
state, and local aid to issuers of Ohio Tax Exempt Securities may also affect
their ability to meet their obligations. Payments of principal and interest
on limited obligation securities will depend on the economic conditions of the
facility or specific revenue source from whose revenues the payments will be
made, which in turn could be affected by economic, political, and demographic
conditions in the state. Any reduction in the actual or perceived ability of
an issuer of Ohio Tax Exempt Securities to meet its obligations (including a
reduction in the rating of its outstanding securities) would likely affect
adversely the market value and marketability of its obligations and could
affect adversely the values of other Ohio Tax Exempt Securities as well.
Because of the relatively small number of issuers of Ohio Tax Exempt
Securities, the Series is more likely to invest a higher percentage of its
assets in the securities of a single issuer than an investment company which
invests in a broad range of tax-exempt securities. This practice involves an
increased risk of loss to the Series if the issuer is unable to make interest
or principal payments or if the market value of such securities declines.
FINANCIAL FUTURES AND OPTIONS
The Series may purchase and sell financial futures contracts for hedging
purposes. Futures contracts on a Municipal Bond Index are traded on the
Chicago Board of Trade. This Index is intended to represent a numerical
measure of market performance for long-term tax-exempt bonds. An "index
future" is a contract to buy or sell units of a particular securities index at
an agreed price on a specified future date. Depending on the change in value
of the index between the time when the Series enters into and closes its
futures position, the Series may realize a gain or loss. The Series may
purchase and sell futures contracts on the Index (or any other tax-exempt bond
index approved for trading by the Commodity Futures Trading Commission) to
hedge against general changes in market values of Ohio Tax Exempt Securities
which the Fund owns or expects to purchase. The Series may also purchase and
sell put and call options on index futures, and on the indices directly, in
addition or as an alternative to purchasing and selling financial futures
contracts.
The Series may, for hedging purposes, purchase and sell futures contracts
and related options with respect to U.S. Government securities, including U.S.
Treasury bills, notes and bonds ("U.S. Government Securities") and options
directly on U.S. Government Securities. The Advisor believes that, under
certain market conditions, price movements in U.S. Government Securities
futures and related options may correlate closely with price movements in Ohio
Tax Exempt Securities and may as a result provide hedging opportunities for
the Series. U.S. Government Securities futures and related options would be
used in a way similar to the Series' use of index futures and related options.
The Series will only purchase or sell U.S. Government Securities futures or
related options when, in the opinion of the Advisor, price movements in such
futures and options will correlate closely with price movements in the Ohio
Tax Exempt Securities which are the subject of the hedge.
The Series may not purchase or sell future contracts if immediately
thereafter the sum of the amount of initial margin deposits on any such
futures (plus deposits on any other futures contracts and premiums paid in
connection with any options or futures contracts) that do not constitute "bona
fide hedging" under 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 covering of
obligations under futures contracts and will set aside liquid assets in a
segregated account with its custodian in the amount prescribed.
The use of futures and options involves certain special risks and may
result in realization of taxable capital gains. Futures and options
transactions involve costs and may result in losses. Certain risks arise
because of the possibility of imperfect correlations between movements in the
prices of financial futures and options and movements in the prices of the
underlying bond index or U.S. Government Securities or the Ohio Tax Exempt
Securities which are the subject of the hedge. The successful use of futures
and options further depends on the Advisor's ability to forecast interest rate
movements correctly. Other risks arise from the Series' potential inability
to close out its futures or related options positions, and there can be no
assurance that a liquid secondary market will exist at a particular time.
Certain provisions of the Internal Revenue Code and other regulatory
requirements may limit the Series' ability to engage in futures and options
transactions.
A more detailed explanation of futures and options transactions,
including the risks associated with them, is included in the Statement of
Additional Information.
REPURCHASE AGREEMENTS AND FORWARD COMMITMENTS
The Series may enter into repurchase agreements on up to 25% of its
assets. These transactions must be fully collateralized at all times, but
involve some risk to the Series if the other party should default on its
obligation and the Series is delayed or prevented from recovering the
collateral. The Series may also purchase securities for future delivery,
which may increase its overall investment exposure and involves a risk of loss
if the value of the securities declines prior to the settlement date.
LIMITING INVESTMENT RISK
Specific investment restrictions help the Series limit investment risks
for its shareholders. These restrictions prohibit the Series from investing
more than: (a) (with respect to 75% of its total assets) 5% of its total
assets in the securities of any one issuer, other than U.S. Government
Securities;* (b) 5% of its net assets in securities of any issuer if the party
responsible for payment, together with any predecessor, has been in operation
for less than three years (except obligations of the U.S. Government or
agencies or instrumentalities and obligations backed by the faith, credit and
taxing power of any person authorized to issue Ohio Tax Exempt Securities);
(c) 10% of its net assets in securities restricted as to resale; and (d) 10%
of its net assets in any combination of securities that are not readily
marketable, in securities restricted as to resale (excluding Rule 144A
securities determined by the Series' Board of Directors [or the person
supervised by the Series' Board of Directors to make such determinations] to
be readily marketable), and repurchase agreements maturing in more than seven
days; (e) 25% or more of the value of its total assets in securities of
issuers in any one industry (other than U.S. Government Securities). In
addition, the Series may borrow money, but only from a bank for temporary or
emergency purposes in amounts not exceeding 10% of the Series' total assets.
The restriction marked with an asterisk (*) above is a summary of a
fundamental policy. See the Statement of Additional Information for the full
text of this policy and the Series' other fundamental policies. Except for
investment policies designated as fundamental in this Prospectus or the
Statement of Additional Information, the investment policies described in this
Prospectus and in the Statement of Additional Information are not fundamental
policies. The Board of Directors may change any non-fundamental investment
policies without shareholder approval. As a matter of policy, the Board of
Directors would not materially change the Series' investment objective without
shareholder approval.
MANAGEMENT
The overall business and affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, including the Funds
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
Exeter Asset Management (the Advisor), a division of Manning & Napier
Advisors, Inc. ("MNA"), 1100 Chase Square, Rochester, New York 14604. A
committee made up of investment professionals and analysts make all the
investment decisions for the Fund.
The Advisor acts as investment advisor to the Fund. 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 Series including supervision of service providers to the Series
and direction of the Advisor's directors, officers or employees who may be
elected as officers of the Fund to serve as such.
As of the date of this Prospectus, the Advisor and MNA supervised over
$7.5 billion in assets of clients, including both individuals and
institutions. For its services to the Series under the investment advisory
agreement, the Fund pays the Advisor a fee, computed daily and payable
monthly, at an annual rate of .50% of the Fund's average daily net assets.
Clients for whom the Advisor provides advisory services pursuant to separate
investment advisory contracts will be separately rebated by the Advisor an
amount equal to the portion of their client advisory fee attributable to the
portion of their assets invested in the Fund. In addition, the Advisor is
separately compensated for acting as transfer agent (the Transfer Agent) for
the Series.
The Fund is responsible for its operating expenses, including: (i)
interest and taxes; (ii) brokerage commissions; (iii) insurance premiums; (iv)
compensation and expenses of its Directors other than those affiliated with
the Advisor; (v) legal and audit expenses; (vi) fees and expenses of the
Fund's custodian, shareholder servicing or transfer agent, and accounting
services agent, if obtained for the Fund from an entity other than the
Advisor; (vii) expenses incidental to the issuance of its shares, including
issuance on the payment of, or reinvestment of, dividends and capital gain
distributions; (viii) fees and expenses incidental to the registration under
federal or state securities laws of the Fund or its shares; (ix) expenses of
preparing, printing and mailing reports and notices and proxy material to
shareholders of the Fund; (x) all other expenses incidental to holding
meetings of the Fund's shareholders; (xi) dues or assessments of or
contributions to the Investment Company Institute or any successor; and, (xii)
such non-recurring expenses as may arise, including litigation affecting the
Fund and the legal obligations with respect to which the Fund may have to
indemnify its officers and directors.
The Advisor may use its own resources to engage in activities that may
promote the sale of the Fund, including payments to third parties who provide
shareholder support servicing and distribution assistance. Investors may be
charged a fee if they effect transactions through a broker or agent.
YIELD AND TOTAL RETURN
From time-to-time the Series may advertise its total return and yield.
Both total return and yield figures are based on historical earnings and are
not intended to indicate future performance. The "total return" of a Series
refers to the average annual compounded rates of return over one-, five-, and
ten-year periods or for the life of the Series (as stated in the
advertisement) that would equate an initial amount invested at the beginning
of a stated period to the ending redeemable value of the investment, assuming
the reinvestment of all dividend and capital gains distributions.
The "30-day yield" of a Series is calculated by dividing the net
investment income per share earned during a 30-day period by the maximum
offering price per share on the last day of the period. Net investment income
includes interest and dividend income earned on a Series' securities; it is
net of all expenses and all recurring and nonrecurring charges that have been
applied to all shareholder accounts. The yield calculation assumes that net
investment income earned over 30 days is compounded monthly for six months and
then annualized. Methods used to calculate advertised yields are standardized
for all stock and bond mutual funds. However, these methods differ from the
accounting methods used by a Series to maintain its books and records, and so
the advertised 30-day yield may not fully reflect the income paid to your own
account or the yield reported in a Series' reports to shareholders.
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 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. The Distributor may suspend offering shares to
other than discretionary management accounts of the Advisor.
A purchase order will be effective as of the day received by the
Distributor, Transfer Agent, or its agents, if the order is received before
the time 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 the
Series is the net asset value next determined after a purchase order is
effective.
The shares of the Series may be purchased in exchange for securities to
be included in the Series, subject to the Advisor's determination that these
securities are acceptable. Securities accepted in an exchange will be valued
at market value. All accrued interest and purchase or other rights which are
reflected in the market price of accepted securities at the time of valuation
become the property of the Series and must be delivered by the shareholder to
the Series upon receipt from the issuer.
The Advisor will not accept securities for the Series unless: (1) such
securities are appropriate in the Series at the time of the exchange; (2) the
shareholder represents and agrees that all securities offered to the Series
are not subject to any restrictions upon their sale by the Series under the
Securities Act of 1933, or otherwise; and, (3) prices are available from an
independent pricing service provided by the Series' Board of Directors.
AUTOMATIC INVESTMENT PLAN
Shareholders may purchase shares regularly through the Automatic
Investment Plan with a pre-authorized draft drawn on their checking account.
Under this plan, the shareholder may elect to have a specified amount invested
on a regular schedule. The minimum amount of each automatic investment is $25.
The amount specified by the shareholder will be withdrawn from the
shareholder's bank account using the pre-authorized draft. This amount will
be invested at the applicable share price determined on the date the amount is
available for investment. Participation in the Automatic Investment Plan may
be discontinued either by the Fund or the Shareholder upon 30 days' prior
written notice to the other party. A shareholder who wishes to enroll in the
Automatic Investment Plan may do so by completing the applicable section of
the Account Application Form or contacting the Fund for an Automatic
Investment Plan Form.
EXCHANGES BETWEEN SERIES
As permitted pursuant to any rule, regulation or order promulgated by the
Securities and Exchange Commission, some or all of the shares of a Class in a
direct investment account with the Fund for which payment has been received by
the Fund may be exchanged for shares of the same Class of any of the other
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 objectives and policies before making any
exchange. The exchange privilege may not be available in all states. For
federal and state income tax purposes, an exchange is treated as a sale of the
shares exchanged, and therefore an exchange could result in a gain or loss to
the shareholder making the exchange. The Series may modify or terminate this
exchange offer upon 60 days' notice to shareholders subject to applicable law.
REDEMPTIONS
If a shareholder desires to redeem his shares at their net asset value,
the shareholder must send a written request for redemption in "Good Order" to
the Transfer Agent. "Good Order" generally means that the written request for
redemption must be endorsed by the record owner(s) exactly as the shares are
registered and the signature(s) must be guaranteed by an "eligible guarantor
institution" as that term is defined under Rule 17Ad-15(a)(2) under the
Securities Exchange Act of 1934. Currently, such procedures generally permit
guarantees by a commercial bank or trust company, a member bank of the Federal
Reserve System, or a member firm of a national securities exchange.
Redemption requirements for corporations, other organizations, trusts,
fiduciaries, and retirement plans may require additional documentation.
Please contact the Transfer Agent 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 Investment Company Act of 1940 ("1940
Act") if an emergency exists. For shares purchased, or received in exchange
for shares purchased, by check (including certified checks or cashier's
checks) payment of redemption proceeds may be delayed up to 15 days from the
purchase date in an effort to assure that such check has cleared.
Subject to the Series' compliance with applicable regulations, the Series
has reserved the right to pay the redemption price either totally or
partially, by a distribution in-kind of securities (instead of cash) from the
Series' portfolio. The securities distributed in such a distribution would be
valued at the same amount as that assigned to them in calculating the net
asset value for the shares being sold. If a shareholder received a
distribution in-kind, he could incur brokerage or transaction charges when
converting the securities to cash. The Fund has elected, however, to be
governed by Rule 18f-1 under the 1940 Act as a result of which the Fund is
obligated to redeem shares, with respect to any one shareholder during any
90-day period, solely in cash up to the lesser of $250,000 or 1% of the net
asset value of the Fund at the beginning of the period.
OTHER INFORMATION ABOUT PURCHASES AND REDEMPTIONS
If a taxable shareholder invests shortly before the Series declares a
taxable dividend, a portion of the investment will be returned as a taxable
distribution (commonly referred to as buying into a dividend). This
distribution will be taxable regardless of whether you elected to reinvest
your distribution in additional shares or take the distribution in cash. If
you would like to avoid buying into a dividend, you may contact the Fund to
find out when the Series plans to declare a distribution and invest after that
date.
The Fund may authorize brokers to accept purchase and redemption orders
on its behalf, and these brokers will be authorized to designate other
intermediaries to accept purchase and redemption orders on the Funds 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
Series next computed after it is accepted by the authorized broker or its
designee.
Due to the relatively high cost of maintaining small accounts, the Series
reserves the right to redeem shares in any account for their then-current
value (which will be promptly paid to the shareholder) if at any time the
total investment in such account drops below $1,000 because of redemptions
(but not due to changes in net asset value). Shareholders will be notified
that the value of their account is less than the minimum investment
requirement and allowed 60 days to make an additional investment before the
redemption is processed.
Manning & Napier Investor Services, Inc. (the Distributor) acts as
distributor of the Fund shares and is located at the same address as the
Advisor and the Fund. The Distributor receives no fee from the Fund and there
are no additional costs to shareholders for this service. The Advisor may,
from its own resources, defray or absorb costs related to distribution,
including compensation of employees who are involved in distribution.
SHARE PRICE
The Series' share price or net asset value per share is determined as of
the closing time of the New York Stock Exchange or, in the absence of a
closing time, 4:00 p.m. Eastern time on each day that the New York Stock
Exchange is open for trading. The exchange annually announces the days on
which it will not be open for trading; the most recent announcement indicates
that it will not be open when the following holidays are observed: New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value per share is the value of the Series' assets, less
its liabilities, divided by the number of shares of the Series outstanding.
The value of the Series' portfolio securities will be the market value of such
securities as determined based on quotes provided by a pricing service (which
uses the methodology outlined in the "Net Asset Value" section of the
Statement of Additional Information) approved by the Board of Directors, or,
in the absence of market quotations, fair value as determined in good faith by
or under the direction and control of the Board of Directors. Short-term
investments which mature in less than 60 days are normally valued at amortized
cost. See the Statement of Additional Information for further information.
DIVIDENDS AND TAX STATUS
TAXES
The following summary of federal income tax consequences is based on the
current tax laws and regulations, which may be changed by legislative,
judicial or administrative action.
No attempt has been made to present a detailed explanation of the
federal, state, or local income tax treatment of the Series or its
shareholders. In addition, state and local tax consequences of an investment
in the Series may differ from the federal income tax consequences described
below. Accordingly, shareholders are urged to consult with their tax advisers
regarding specific questions as to federal, state and local income taxes.
Additional information concerning taxes is set forth in the Statement of
Additional Information.
TAX STATUS
Under the Internal Revenue Code of 1986, as amended (the Code), the
Series is treated as a separate entity for federal income tax purposes. The
Series intends to qualify for the special tax treatment afforded regulated
investment companies as defined under Subchapter M of the Code, so as to be
relieved of federal income tax on that part of its net investment company
taxable income, and net capital gain (the excess of net long-term capital
gains over net short-term capital losses) distributed to shareholders.
TAX STATUS OF DISTRIBUTIONS
Dividends and distributions will be paid in full and fractional shares of
the Series, based on the net asset value per share at the close of business on
the record date, although a shareholder may, prior to the record date,
request, by writing or by telephone call to the Fund, that payments of either
ordinary income dividends or capital gain distributions, or both, be made in
cash. If a shareholder has chosen to receive dividends and/or capital gain
distributions in cash, and the postal service is unable to deliver checks to
the shareholders address of record, or the shareholder does not respond to
mailing from the Fund concerning outstanding checks, that shareholders account
will be updated so that all future distributions will be reinvested in the
account. No interest will accrue on amounts represented by uncashed
distribution or redemption checks.
The Series will distribute all of its net investment income (including
net short-term capital gains) to shareholders. Dividends from net investment
company taxable income are taxable to shareholders as ordinary income (whether
received in cash or in additional shares) to the extent of the Series earnings
and profits. Net capital gains will be distributed at least annually and will
be taxed to shareholders as a 20% rate gain distribution (generally taxed at a
rate of 20%) or a 28% rate gain distribution (generally taxed at a rate of
28%), depending upon the designation by the Series (such designation being
dependent upon the holding period of the Series in the underlying asset
generating the net capital gain), regardless of how long the shareholders have
held their shares and regardless of whether the distributions are received in
cash or in additional shares. If no designation is made regarding a capital
gain dividend, it will be classified as a 28% rate gain distribution, and,
thus, taxed at a rate of 28%. Dividends and distributions of capital gains
paid by the Series do not qualify for the dividends received deduction for
corporate shareholders. The Series will provide annual reports to
shareholders of the federal income tax status of all distributions.
If at the close of each quarter of its taxable year, at least 50% of the
value of the Ohio Tax Exempt Series assets consist of obligations the interest
on which is excludable from gross income for federal tax purposes, the Series
may pay exempt-interest dividends to its shareholders. Those dividends
constitute the portion of the aggregate dividends as designated by the Series
equal to the excess of the excludable interest over certain amounts disallowed
as deductions. Exempt-interest dividends are excludable from a shareholders
gross income for regular federal income tax purposes, but may have certain
collateral federal income tax consequences, including alternative minimum tax.
See the Statement of Additional Information.
Current federal law limits the types and volume of bonds qualifying for
the federal income tax exemption of interest, which may have an effect on the
ability of the Ohio Tax Exempt Series to purchase sufficient amounts of
tax-exempt securities to satisfy the Codes requirements for the payment of
exempt-interest dividends.
Dividends declared by the Series in October, November or December of any
year and payable to shareholders of record on a date in one of those months
will be deemed to have been paid by the Series and received by the
shareholders on December 31 of the year declared, if paid by the Series at any
time during the following January.
Investment income received directly by the Series on direct U.S.
Government obligations is exempt from income tax at the state level and may be
exempt, depending on the state, when received by a shareholder as income
dividends from the Series provided certain state-specific conditions are
satisfied. The Series will inform shareholders annually of the percentage of
income and distributions derived from direct U.S. Government obligations.
Shareholders should consult their tax advisers to determine whether any
portion of the income dividends received from the Series is considered tax
exempt in their particular states.
The Series intends to make sufficient distributions prior to the end of
each calendar year to avoid liability for federal excise tax applicable to
regulated investment companies.
A sale, exchange or redemption of the Series shares generally is a
taxable transaction to the shareholder.
OHIO STATE TAX
Distributions received from Ohio Tax Exempt Series are exempt from Ohio
personal income tax, Ohio school district income taxes and Ohio municipal
income taxes to the extent they are derived from interest on obligations
issued by the State of Ohio or its political subdivisions or authorities
("Ohio State Securities"). It is assumed for purposes of this discussion of
Ohio taxation that these requirements will be satisfied, provided that the
Series continues to qualify as a regulated investment company for federal
income tax purposes and that at all times at least 50% of the value of the
total assets of the Series consists of Ohio State Securities or similar
obligations of other states or their subdivisions. All distributions received
from the Series are exempt from the net income base of the Ohio corporation
franchise tax to the extent that they are either exempt from federal income
tax or derived from interest on Ohio State Securities, but the Series' shares
will be included in the computation of net worth for purposes of such tax.
Distributions of capital gains with respect to shares of the Series will
be exempt from Ohio personal income tax, Ohio school district income taxes,
Ohio municipal income taxes and the net income base of the Ohio corporation
franchise tax to the extent that such distributions are attributable to profit
made on the sale, exchange or other disposition by the Series of Ohio State
Securities.
Distributions that are attributable to interest on obligations of the
United States or of any authority, commission, or instrumentality of the
United States ("Federal Securities") or obligations of Puerto Rico, the Virgin
Islands, or Guam or their authorities or instrumentalities ("Territorial
Securities") are exempt from Ohio personal income tax, Ohio school district
income taxes, and Ohio municipal income taxes and are excluded from the net
income base of the Ohio corporation franchise tax to the same extent that such
interest would be so exempt or excluded if the obligations were held directly
by the shareholders.
GENERAL INFORMATION
The Fund was incorporated on July 26, 1984 as a Maryland corporation.
The Board of Directors may, at its own discretion, create additional series of
shares, each of which would have separate assets and liabilities.
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,
dividends, distributions and liquidations. The Fund's shareholders will vote
in the aggregate and not by series except as otherwise expressly required by
law or when the Board of Directors determines that the matter to be voted upon
affects only the interests of the shareholders of a series. Income, direct
liabilities and direct operating expenses of the Series will be allocated
directly to the series, while general liabilities and expenses of the Fund
will be allocated among each series. The holders of shares have no preemptive
or conversion rights. Shares when issued are fully paid and non-assessable
and do not have cumulative voting rights.
All securities and cash are held by Boston Safe Deposit and Trust
Company. Coopers & Lybrand, L.L.P. serves as independent accountants for the
Series and will audit its financial statements annually.
Manning & Napier Advisors, Inc. serves as the Fund's transfer and
dividend disbursing agent. Shareholder inquiries should be directed to Exeter
Fund, Inc., P.O. Box 41118, Rochester, New York 14604.
<PAGE>
APPENDIX
DESCRIPTION OF MUNICIPAL AND CORPORATE BOND RATINGS
Moody's Investors Services, Inc.'s municipal and corporate bond ratings:
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred
to as gilt-edged. 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 risk appear somewhat larger than 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 some time 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.
Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a
rating in the lower end of that generic rating category.
Moody's may also assign conditional ratings to municipal bonds. Bonds for
which the security depends upon the completion of some act or the fulfillment
of some condition are rated conditionally. These are bonds secured by (a)
earnings of projects under construction, (b) earnings of projects unseasoned
in operating experience, (c) rentals which begin when facilities are
completed, or (d) payments to which some other limiting condition attaches.
Parenthetical rating denotes probable credit stature upon completion of
construction or elimination of basis of condition.
Standard & Poor's Corporation's municipal and corporate bond ratings:
AAA - This is the highest rating assigned by Standard & Poor's to a
debt obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only to a small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than in higher rated categories.
Standard & Poor's may modify the rating from "AA" to "B" by the addition of a
plus or minus sign to show relative standing within the major rating
categories. Standard & Poor's ratings may also be indicated by "NR". This
designation indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.
Standard & Poor's may also assign conditional ratings to municipal bonds. The
letter "p" indicates that the rating is provisional. A provisional rating
assumes the successful completion of the project being financed by the debt
being rated and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful timely completion of the project.
This rating, however, while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood of, or the risk of default
upon failure of, such completion. The investor should exercise his own
judgment with respect to such likelihood and risk.
<PAGE>
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's Investor Services, Inc.'s commercial paper ratings:
PRIME-1 - Issues 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.
Standard & Poor's Corporation's commercial paper ratings:
A-1 - This is the highest category and indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 - Capacity for timely payment on issues with this designation is
satisfactory and the obligation is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations
in higher rating categories.
A-3 - Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
B - Issues rated B are regarded as having significant speculative
characteristics for timely payment.
C - This rating is assigned to short-term debt obligations that are
currently vulnerable to nonpayment.
D - Debt rated D is in payment default. The D rating category is
used when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period. 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>
EXETER FUND, INC.
New York Tax
Exempt Series
Prospectus
April 20, 1998
<PAGE>
EXETER FUND, INC.
P.O. Box 41118
Rochester, New York 14604
1-800-466-3863
NEW YORK TAX EXEMPT SERIES
Exeter Fund, Inc. (the "Fund"), is an open-end management investment
company that offers separate series, each a separate investment portfolio
having its own investment objective and policies. This Prospectus relates to
the New York Tax Exempt Series of the Fund (the "Series"). The Series'
investment objective is to seek a high level of current income exempt from
federal income tax and New York personal income tax, consistent with
preservation of capital.
This Prospectus provides you with the basic information you should know
before investing in the Series. You should read it and keep it for future
reference. A Statement of Additional Information, dated April 20, 1998,
containing additional information about the Fund has been filed with the
Securities and Exchange Commission and is incorporated by reference in this
Prospectus in its entirety. You may obtain a copy of the Statement of
Additional Information without charge by contacting the Fund at the address or
telephone number listed above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS APRIL 20, 1998.
<PAGE>
EXETER FUND, INC.
NEW YORK TAX EXEMPT SERIES
No person has been authorized to give any information or to make
representations not contained in this Prospectus in connection with any
offering made by this Prospectus and, if given or made, such information must
not be relied upon as having been authorized by the Fund. This Prospectus
does not constitute an offering by the Fund in any jurisdiction in which such
offering may not lawfully be made.
PROSPECTUS
TABLE OF CONTENTS
Annual Operating Expenses 3
Financial Highlights 4
The Fund 5
Risk and Investment Objectives and Policies 5
New York Tax Exempt Securities 6
Risk and Additional Information about Investment Policies 7
Management 10
Yield and Total Return 11
Purchases, Exchanges and Redemptions of Shares 11
Net Asset Value 13
Dividends and Tax Status 14
General Information 15
Appendix 16
<PAGE>
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
(as a percentage of offering price)
Maximum Sales Charge Imposed on Purchases None
Redemption Fees 1 None
Exchange Fees 2 None
1 A wire charge, currently $15, will be deducted by the Transfer Agent
from the amount of a wire redemption payment made at the request of a
shareholder. Such amount is not included in the "Annual Operating Expenses
of the Series."
2 A shareholder may effect up to four (4) exchanges in a twelve (12) month
period without charge. Subsequent exchanges are subject to a fee of $15.
ANNUAL OPERATING EXPENSES
The following information provides (i) a tabular summary of expenses relating
to the annual operating expenses of the Series and (ii) an example
illustrating the dollar cost of such expenses on a $1,000 investment.
Annual Operating Expenses of the Series (as a percentage of average daily net
assets):
Management Fees 3,4,5 0.50%
12b-1 Fees. None
Other Expenses 4 0.11%
Total Operating Expenses 5 0.61%
Example
You would pay the following expenses on a $1,000 investment, assuming a) 5.0%
annual return and b) redemptions at the end of each time period4:
1 year 3 years 5 years 10 years
New York Tax Exempt Series $6 $20 $34 $76
3Clients who have entered into investment advisory agreements with Manning &
Napier Advisors, Inc. (Manning & Napier) will be separately rebated by Manning
& Napier an amount equal to the portion of their client advisory fee
attributable to the portion of their assets invested in the Fund. See
"Management."
4New York Tax Exempt Series was engaged in active investment operations for
the year ended December 31, 1997; therefore, actual management fees and other
expenses are used above.
5Should the total operating expenses for the Series exceed 0.85% of its
average net assets, the Advisor has voluntarily agreed to waive its fee and
pay other operating expenses in an amount that limits total operating expenses
to 0.85% of its average net assets. The fee waiver and the assumption of
expenses by the Advisor is voluntary and may be terminated at any time.
However, the Advisor has agreed to continue this assumption of expenses at
least through the Series' current fiscal year.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Series. For a
more complete description of the various costs and expenses illustrated above,
please refer to the Management section of this Prospectus.
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
<PAGE>
FINANCIAL HIGHLIGHTS
The following table provides selected per share data and ratios for the New
York Tax Exempt Series (for a share outstanding throughout the periods shown).
The table is part of the Series' audited financial statements, which are
incorporated by reference into the Funds Statement of Additional Information.
Coopers & Lybrand L.L.P., the Funds independent accountants, audited the
Series financial highlights for each of the periods shown. Additional
performance information is contained in the Funds 1997 Annual Report to
Shareholders and is available upon request and without charge by calling
1-800-466-3863. This table should be read in conjunction with the Series
financial statements and notes thereto.
<TABLE>
<CAPTION>
<S> <C> <C>
For the year For the year
ended ended
Dec. 31, 1997 Dec. 31, 1996
Net asset value - Beginning of period $ 9.98 $ 10.07
Income from investment operations:
Net investment income 0.43 0.42
Net realized and unrealized
gain/(loss) on investments 0.38 (0.10)
Total from investment operations 0.81 0.32
Less distributions to shareholders:
From net investment income (0.42) (0.41)
Net asset value - End of period $ 10.37 $ 9.98
Total return 1 8.33% 3.32%
Ratios (to average net assets)
/Supplemental Data:
Expenses 0.61% 0.61%
Net investment income 4.36% 4.41%
Portfolio turnover 2% 6%
Net assets - End of period (000's omitted) $ 45,681 $ 37,325
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
For the year For the period
ended Jan. 17, 1994 to
Dec. 31, 1995 Dec. 31, 1994
Net asset value - Beginning of period $ 8.98 $ 10.003
Income from investment
operations:
Net investment income 0.40 0.34
Net realized and unrealized
gain/(loss) on investments 1.09 (1.02)
Total from investment operations 1.49 (0.68)
Less distributions to shareholders:
From net investment income (0.40) (0.34)
Net asset value - End of period $ 10.07 $ 8.98
Total return 1 16.78% (6.82)%
Ratios (to average net assets)
/Supplemental Data:
Expenses 0.65% 0.79%2
Net investment income 4.36% 3.82%2
Portfolio turnover 0% 6%
Net assets - End of period (000's omitted)$ 28,817 $ 17,301
</TABLE>
1 Represents aggregate total return for the period indicated.
2 Annualized.
3 Initial offering price upon commencement of operations on January 17, 1994.
THE FUND
The Fund is an open-end management investment company incorporated under
the laws of the State of Maryland on July 26, 1984. The Fund offers separate
series of units of beneficial interest ("shares"). This Prospectus relates to
the New York Tax Exempt Series. Information regarding the Fund's other series
is contained in separate prospectuses that may be obtained from Exeter Fund,
Inc., P.O. Box 41118, Rochester, New York 14604 or by calling 1-800-466-3863.
The New York Tax Exempt Series is a diversified fund.
Shares of the Series are offered directly to investors and to employees
and clients of the Advisor or its affiliates that have authorized investment
in the Fund as part of the discretionary account management services of the
Advisor or its affiliates. There is no limitation on the investment in shares
of the Series on behalf of discretionary account clients unless otherwise
limited by a client agreement. There are no fees or expenses charged to any
investor in connection with acquisition of shares of the Series.
Manning & Napier, in addition to providing investment advice to the Fund
through the Advisor, provides investment advice to other clients. Some of
these clients funds may be invested in the Series. From time to time, the
Series may experience relatively large purchases or redemptions due to assets
allocation decisions made by Manning & Napier for its clients. These
transactions may have a material effect on the Series, since Series that
experience redemptions as a result of reallocations may have to sell portfolio
securities and because Series that receive additional cash will have to invest
it. While it is impossible to predict the overall impact of these
transactions over time, there could be adverse effects on portfolio management
to the extent that the Series may be required to sell securities at times when
they would not otherwise do so, or receive cash that cannot be invested in an
expeditious manner. There may be tax consequences associated with purchases
and sales of securities, and such sales may also increase transaction costs.
Manning & Napier is committed to minimizing the impact of these transactions
on the Series to the extent it is consistent with pursuing the investment
objectives of its clients.
RISK AND INVESTMENT OBJECTIVES AND POLICIES
The Series' objective is to seek as high a level of current income exempt
from federal income tax and New York State personal income tax as the Advisor
believes is consistent with preservation of capital. The Advisor will
attempt to balance the Fund's goals of high income and capital preservation by
building a portfolio of securities that in the aggregate afford the
opportunity to earn current income, but also have quality and other
characteristics that attempt to avoid permanent capital losses. However, the
Fund's portfolio securities and, therefore, its shares will inevitably
fluctuate in value to a certain extent. Under current law, to the extent
distributions by the Series are derived from interest on New York Tax Exempt
Securities (which are described below) and are designated as such, they are
exempt from federal and New York personal income taxes. The Series is not
intended to be a complete investment program, and there is no assurance it
will achieve its objective.
The Series seeks to achieve its objective by following the fundamental
investment policy of investing at least 80% of its net assets in New York Tax
Exempt Securities, except when investing for defensive purposes during times
of adverse market conditions. The Series may also invest in taxable
obligations described below under "Risk and Additional Information about
Investment Policies" to the extent permitted by its investment policies, or
hold its assets in money market instruments or in cash. The Series'
investments in New York Tax Exempt Securities and taxable obligations will be
limited to securities rated in the four highest categories assigned by Moody's
Investors Service, Inc. (Moodys) (Aaa, Aa, A, Baa) or Standard & Poor's
Corporation (S&P) (AAA, AA, A, BBB). For a description of the above ratings,
see the Appendix. Securities rated Baa by Moody's or BBB by S&P are
considered investment grade but may have speculative characteristics and
changes in economic conditions or circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case
with more highly rated securities.
When the Series invests in New York Tax Exempt Securities in the lower
rating categories, the achievement of the Series' goals is more dependent on
the Advisor's ability than would be the case if the Series were investing in
New York Tax Exempt Securities in the higher rating categories. The amount of
information about the financial condition of an issuer of New York Tax Exempt
Securities may not be as extensive as information about corporations whose
securities are publicly traded. In addition, tax considerations may limit the
Series' ability to vary its portfolio securities in response to developments
in interest rates and economic conditions. The Advisor seeks to minimize the
risks of investing in lower-rated securities through investment analysis and
attention to current developments in interest rates and economic conditions.
Interest income from certain types of New York Tax Exempt Securities may
be subject to federal alternative minimum tax. It is a fundamental policy of
the Series to exclude these securities from the term "New York Tax Exempt
Securities" for purposes of determining compliance with the 80% test described
above.
In pursuing its objective, the Series may to a limited extent buy and
sell futures contracts and options and may enter into repurchase agreements
and forward commitments. These incidental investment practices, which may
produce taxable capital gains and involve special risks, are described below.
The market value of the Series' investments will change in response to
changes in interest rates and other factors. During periods of falling
interest rates, the values of long-term, fixed-income securities generally
rise. Conversely, during periods of rising interest rates, the values of such
securities generally decline. Changes by recognized rating services in their
ratings of tax-exempt securities and in the ability of an issuer to make
payments of interest and principal will also affect the value of these
investments. Changes in the value of portfolio securities will not affect
interest income derived from those securities but will affect the Series' net
asset value.
During times when conditions in the markets for New York Tax Exempt
Securities suggest a temporary defensive position, the Advisor may temporarily
use alternative strategies, primarily designed to reduce fluctuations in the
value of the Series' assets. In implementing these "defensive" strategies,
the Series may invest in taxable obligations, including: obligations of the
U.S. Government, its agencies or instrumentalities; obligations issued by
governmental issuers in other states, the interest on which would be exempt
from federal income tax; other debt securities rated within the four highest
categories by either Moody's or S&P; commercial paper rated in the highest
category by either rating service (Prime-1 or A-1+, respectively);
certificates of deposit and bankers' acceptances; repurchase agreements with
respect to any of the foregoing investments; or any other fixed-income
securities that the Advisor considers consistent with such strategy. It is
impossible to predict when, or for how long, the Series will use such
alternative strategies. The limitations described above on the ability of the
Series to vary its portfolio securities may limit the Series' use of these
alternative investment strategies.
NEW YORK TAX EXEMPT SECURITIES
New York Tax Exempt Securities are debt obligations issued by the State
of New York and its political subdivisions, agencies and instrumentalities,
the interest from which is, in the opinion of bond counsel, exempt from
federal income tax and New York personal income tax. These securities are
issued to obtain funds for various public purposes, such as the construction
of public facilities, the payment of general operating expenses or the
refunding of outstanding debts. They may also be issued to finance various
private activities, including the lending of funds to public or private
institutions for the construction of housing, educational or medical
facilities, and may also include certain types of private activity and
industrial development bonds or notes issued by public authorities to finance
privately owned or operated facilities or to fund short-term cash
requirements. Short-term New York Tax Exempt Securities are generally issued
as interim financing in anticipation of tax collections, revenue receipts or
bond sales to finance various public purposes. New York Tax Exempt Securities
also include debt obligations issued by other governmental entities (for
example, U.S. territories) if such debt obligations generate interest income
which is exempt from federal income tax and New York personal income tax.
The two principal classifications of New York Tax Exempt Securities are
general obligation and limited obligation (or revenue) securities. General
obligation securities involve the credit of an issuer possessing taxing power
and are payable from the issuer's general unrestricted revenues. Their
payment may depend on an appropriation by the issuer's legislative body. The
characteristics and methods of enforcement of general obligation securities
vary according to the law applicable to the particular issuer. Limited
obligation (or revenue) securities are payable only from the revenues derived
from a particular facility or class of facilities, or a specific revenue
source, and generally are not payable from the unrestricted revenues of the
issuer. So-called "private activity bonds" and "industrial development bonds"
are in most cases limited obligation securities, the credit quality of which
is directly related to the corporate user of the facilities.
The Series may also invest in securities representing interests in New
York Tax Exempt Securities, known as "inverse floating obligations" or
"residual interest bonds", paying interest rates that vary inversely to
changes in the interest rates of specified short-term tax exempt securities or
an index of short-term tax exempt securities. The interest rates on inverse
floating obligations or residual interest bonds will typically decline as
short-term market interest rates increase and increase as short-term market
rates decline. Such securities have the effect of providing a degree of
investment leverage, since they will generally increase or decrease in value
in response to changes in market interest rates at a rate which is a multiple
(typically two) of the rate at which fixed-rate long-term tax exempt
securities increase or decrease in response to such changes. As a result,
the market values of inverse floating obligations and residual interest
bonds will generally be more volatile than the market values of fixed-rate tax
exempt securities. To seek to limit the interest rate risk of these securities,
the Series may purchase inverse floating obligations with shorter-term
maturities or which contain limitations on the extent to which the interest rate
may vary. There is no limit on the percentage of assets that may be invested in
inverse floating obligations or residual interest bonds.
Certain risks are inherent in the Series' investments in New York Tax
Exempt Securities. These risks result from amendments to the New York
Constitution and other statutes that limit the taxing and spending authority
of the State of New York, and a variety of New York laws and regulations that
may affect, directly or indirectly, New York Tax Exempt Securities. The
ability of issuers of municipal securities to pay interest on, or repay
principal of, municipal securities may be impaired as a result.
The Series' concentration in investments in New York Tax Exempt
Securities involves greater risks than if its investments were more
diversified. Because the Series invests primarily in New York Tax Exempt
Securities, investors should consider that the Series' yield and share price
are sensitive to political and economic developments within the State of New
York, and to the financial condition of the State, its public authorities, and
political subdivisions, particularly the City of New York.
RISK AND ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
Set forth below is further information about certain types of securities
in which the Series may invest as well as information about additional types
of investments and certain strategies the Series may pursue. These policies
have been voluntarily adopted by the Board of Directors based upon current
circumstances and may be changed or amended by action of the Board of
Directors without prior approval of the Series' shareholders. Additional
information concerning these strategies and their related risks is contained
in the Statement of Additional Information.
INVESTMENTS IN PREMIUM SECURITIES
During a period of declining interest rates, many of the Series'
portfolio investments will likely bear coupon rates which are higher than
current market rates, regardless of whether such securities were originally
purchased at a premium. Such securities would generally carry market values
greater than the principal amounts payable on maturity, which would be
reflected in the net asset value of the Series' shares. The value of such
"premium" securities tends to approach the principal amount as they approach
maturity (or call price in the case of securities approaching their call). As
a result, an investor who purchases shares of the Series during such periods
would initially receive higher distributions (derived from the higher coupon
rates payable on the Series' investments) than might be available from
alternative investments bearing current market interest rates, but may face an
increased risk of capital loss as these higher coupon securities approach
maturity (or call date). In evaluating the potential performance of an
investment in the Series, investors may find it useful to compare the Series'
current dividend rate with the Series' "yield", which is computed on a
yield-to-maturity basis in accordance with Securities and Exchange Commission
regulations and which reflects amortization of market premiums.
ZERO-COUPON BONDS
Some of the securities in which the Series invests may include so-called
"zero-coupon" bonds. Zero-coupon bonds are issued at a significant discount
from face value and generally pay interest only at maturity rather than at
intervals during the life of the security. The Series is required to accrue
and distribute income from zero-coupon bonds on a current basis, even though
it does not receive that income currently in cash. Thus, the Series may have
to sell investments to obtain cash needed to make income distributions. The
discount in the absence of financial difficulties of the issuer decreases as
the final maturity of the security approaches. Zero-coupon bonds can be sold
prior to their maturity date in the secondary market at the then prevailing
market value, which depends primarily on the time remaining to maturity, the
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.
RISKS ASSOCIATED WITH THE SERIES' INVESTMENT PROGRAM
At times, a portion of the Series' assets may be invested in New York Tax
Exempt Securities as to which the Series, by itself or together with other
funds and accounts managed by the Advisor, holds a major portion or all of an
issue of such securities. Under adverse market or economic conditions or in
the event of adverse changes in the financial condition of the issuer, the
Series could find it more difficult to sell such securities when the Advisor
believes it advisable to do so or may be able to sell such securities only at
prices lower than if such securities were more widely held. Under such
circumstances, it may also be more difficult to determine the fair value of
such securities for purposes of computing the Series' net asset value. In
order to enforce its rights in the event of a default under such securities,
the Series may be required to take possession of and manage assets securing
the issuer's obligations on such securities, which may increase the Series'
operating expenses and adversely affect the Series' net asset value. Any
income derived from the Series' ownership or operation of such assets would
not be tax-exempt.
Certain securities held by the Series may permit the issuer at its option
to "call", or redeem, its securities. If an issuer were to redeem securities
held by the Series during a time of declining interest rates, the Series may
not be able to reinvest the proceeds in securities providing the same
investment return as the securities redeemed.
Since the Series invests primarily in New York Tax Exempt Securities, the
value of its shares may be especially affected by factors pertaining to the
New York economy and other factors specifically affecting the ability of
issuers of New York Tax Exempt Securities to meet their obligations. As a
result, the value of the Series' shares may fluctuate more widely than the
value of shares of a portfolio investing in securities relating to a number of
different states. The ability of state, county, or local governments to meet
their obligations will depend primarily on the availability of tax and other
revenues to those governments and on their fiscal conditions generally. The
amounts of tax and other revenues available to governmental issuers of New
York Tax Exempt Securities may be affected from time to time by economic,
political, and demographic conditions within the particular state. In
addition, constitutional or statutory restrictions may limit a government's
power to raise revenues or increase taxes. The availability of federal,
state, and local aid to issuers of New York Tax Exempt Securities may also
affect their ability to meet their obligations. Payments of principal and
interest on limited obligation securities will depend on the economic
conditions of the facility or specific revenue source from whose revenues the
payments will be made, which in turn could be affected by economic, political,
and demographic conditions in the state. Any reduction in the actual or
perceived ability of an issuer of New York Tax Exempt Securities to meet its
obligations (including a reduction in the rating of its outstanding
securities) would likely affect adversely the market value and marketability
of its obligations and could affect adversely the values of other New York Tax
Exempt Securities as well.
Because of the relatively small number of issuers of New York Tax Exempt
Securities, the Series is more likely to invest a higher percentage of its
assets in the securities of a single issuer than an investment company which
invests in a broad range of tax-exempt securities. This practice involves an
increased risk of loss to the Series if the issuer is unable to make interest
or principal payments or if the market value of such securities declines.
FINANCIAL FUTURES AND OPTIONS
The Series may purchase and sell financial futures contracts for hedging
purposes. Futures contracts on a Municipal Bond Index are traded on the
Chicago Board of Trade. This Index is intended to represent a numerical
measure of market performance for long-term tax-exempt bonds. An "index
future" is a contract to buy or sell units of a particular securities index at
an agreed price on a specified future date. Depending on the change in value
of the index between the time when the Series enters into and closes its
futures position, the Series may realize a gain or loss. The Series may
purchase and sell futures contracts on the Index (or any other tax-exempt bond
index approved for trading by the Commodity Futures Trading Commission) to
hedge against general changes in market values of New York Tax Exempt
Securities which the Fund owns or expects to purchase. The Series may also
purchase and sell put and call options on index futures, and on the indices
directly, in addition or as an alternative to purchasing and selling financial
futures contracts.
The Series may also, for hedging purposes, purchase and sell futures
contracts and related options with respect to U.S. Government Securities,
including U.S. Treasury bills, notes and bonds ("U.S. Government Securities")
and options directly on U.S. Government Securities. The Advisor believes
that, under certain market conditions, price movements in U.S. Government
Securities futures and related options may correlate closely with price
movements in New York Tax Exempt Securities and may as a result provide
hedging opportunities for the Series. U.S. Government Securities futures and
related options would be used in a way similar to the Series' use of index
futures and related options. The Series will only purchase or sell U.S.
Government Securities futures or related options when, in the opinion of the
Advisor, price movements in such futures and options will correlate closely
with price movements in the New York Tax Exempt Securities which are the
subject of the hedge.
The Series may not purchase or sell futures contracts if immediately
thereafter the sum of the amount of initial margin deposits on any such
futures (plus deposits on any other futures contracts and premiums paid in
connection with any options or futures contracts) that do not constitute "bona
fide hedging" under 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 covering of
obligations under futures contracts and will set aside liquid assets in a
segregated account with its custodian in the amount prescribed.
The use of futures and options involves certain special risks and may
result in realization of taxable capital gains. Futures and options
transactions involve costs and may result in losses. Certain risks arise
because of the possibility of imperfect correlations between movements in the
prices of financial futures and options and movements in the prices of the
underlying bond index or U.S. Government Securities or the New York Tax Exempt
Securities which are the subject of the hedge. The successful use of futures
and options further depends on the Advisor's ability to forecast interest rate
movements correctly. Other risks arise from the Series' potential inability
to close out its futures or related options positions, and there can be no
assurance that a liquid secondary market will exist at a particular time.
Certain provisions of the Internal Revenue Code and other regulatory
requirements may limit the Series' ability to engage in futures and options
transactions.
A more detailed explanation of futures and options transactions,
including the risks associated with them, is included in the Statement of
Additional Information.
REPURCHASE AGREEMENTS AND FORWARD COMMITMENTS
The Series may enter into repurchase agreements on up to 25% of its
assets. These transactions must be fully collateralized at all times, but
involve some risk to the Series if the other party should default on its
obligation and the Series is delayed or prevented from recovering the
collateral. The Series may also purchase securities for future delivery,
which may increase its overall investment exposure and involves a risk of loss
if the value of the securities declines prior to the settlement date.
LIMITING INVESTMENT RISK
Specific investment restrictions help the Series limit investment risks
for its shareholders. These restrictions prohibit the Series from investing
more than: (a) (with respect to 75% of its total assets) 5% of its total
assets in the securities of any one issuer, other than U.S. Government
Securities;* (b) 5% of its net assets in securities of any issuer if the party
responsible for payment, together with any predecessor, has been in operation
for less than three years (except obligations of the U.S. Government or
agencies or instrumentalities and obligations backed by the faith, credit and
taxing power of any person authorized to issue New York Tax Exempt
Securities); (c) 10% of its net assets in securities restricted as to resale;
and (d) 10% of its net assets in any combination of securities that are not
readily marketable, in securities restricted as to resale (excluding Rule 144A
securities determined by the Series' Board of Directors [or the person
supervised by the Series' Board of Directors to make such determinations] to
be readily marketable), and repurchase agreements maturing in more than seven
days; (e) 25% or more of the value of its total assets in securities of
issuers in any one industry (other than U.S. Government Securities). In
addition, the Series may borrow money, but only from a bank for temporary or
emergency purposes in amounts not exceeding 10% of the Series' total assets.
The restrictions marked with an asterisk (*) above is a summary of a
fundamental policy. See the Statement of Additional Information for the full
text of this policy and the Series' other fundamental policies. Except for
investment policies designated as fundamental in this Prospectus or the
Statement of Additional Information, the investment policies described in this
Prospectus and in the Statement of Additional Information are not fundamental
policies. The Board of Directors may change any non-fundamental investment
policies without shareholder approval. As a matter of policy, the Board of
Directors would not materially change the Series' investment objective without
shareholder approval.
MANAGEMENT
The overall business and affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, including the Funds
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
Exeter Asset Management (the Advisor), a division of Manning & Napier
Advisors, Inc. ("MNA"), 1100 Chase Square, Rochester, New York 14604. A
committee made up of investment professionals and analysts make all the
investment decisions for the Fund.
The Advisor acts as investment advisor to the Fund. 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 Series including supervision of service providers to the Series
and direction of the Advisor's directors, officers or employees who may be
elected as officers of the Fund to serve as such.
As of the date of this Prospectus, the Advisor and MNA supervised over
$7.5 billion in assets of clients, including both individuals and
institutions. For its services to the Fund under the investment advisory
agreement, the Fund pays the Advisor a fee, computed daily and payable
monthly, at an annual rate of .50% of the Series average daily net assets.
Clients for whom the Advisor provides advisory services pursuant to separate
investment advisory contracts will be separately rebated by the Advisor an
amount equal to the portion of their client advisory fee attributable to the
portion of their assets invested in the Series. The Advisor has also
voluntarily agreed to assume or pay expenses of the Series, if necessary, so
that the total annual operating expenses of the Series do not exceed .85% of
the Series' average daily net assets. This assumption is voluntary and maybe
terminated at anytime. In addition, the Advisor is separately compensated for
acting as transfer agent (the Transfer Agent) for the Series.
The Fund is responsible for its operating expenses, including: (i)
interest and taxes; (ii) brokerage commissions; (iii) insurance premiums; (iv)
compensation and expenses of its Directors other than those affiliated with
the Advisor; (v) legal and audit expenses; (vi) fees and expenses of the
Fund's custodian, shareholder servicing or transfer agent and accounting
services agent, if obtained for the Fund from an entity other than the
Advisor; (vii) expenses incidental to the issuance of its shares, including
issuance on the payment of, or reinvestment of, dividends and capital gain
distributions; (viii) fees and expenses incidental to the registration under
federal or state securities laws of the Fund or its shares; (ix) expenses of
preparing, printing and mailing reports and notices and proxy material to
shareholders of the Fund; (x) all other expenses incidental to holding
meetings of the Fund's shareholders; (xi) dues or assessments of or
contributions to the Investment Company Institute or any successor; and, (xii)
such non-recurring expenses as may arise, including litigation affecting the
Fund and the legal obligations with respect to which the Fund may have to
indemnify its officers and directors.
The Advisor may use its own resources to engage in activities that may
promote the sale of the Fund, including payments to third parties who provide
shareholder support servicing and distribution assistance. Investors may be
charged a fee if they effect transactions through a broker or agent.
YIELD AND TOTAL RETURN
From time-to-time the Series may advertise its total return and yield.
Both total return and yield figures are based on historical earnings and are
not intended to indicate future performance. The "total return" of the Series
refers to the average annual compounded rates of return over one-, five-, and
ten-year periods or for the life of the Series (as stated in the
advertisement) that would equate an initial amount invested at the beginning
of a stated period to the ending redeemable value of the investment, assuming
the reinvestment of all dividend and capital gains distributions.
The "30-day yield" of the series is calculated by dividing the net
investment income per share earned during a 30-day period by the maximum
offering price per share on the last day of the period. Net investment income
includes interest and dividend income earned on the Series' securities; it is
net of all expenses and all recurring and nonrecurring charges that have been
applied to all shareholder accounts. The yield calculation assumes that net
investment income earned over 30 days is compounded monthly for six months and
then annualized. Methods used to calculate advertised yields are standardized
for all stock and bond mutual funds. However, these methods differ from the
accounting methods used by the 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 the Series' reports to shareholders.
PURCHASES, EXCHANGES AND REDEMPTIONS OF SHARES
Purchases and redemptions of shares of the Series may be made on any day
the New York Stock Exchange is open for trading.
PURCHASES
The minimum initial investment in 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. The Distributor may suspend offering shares to other than
discretionary management accounts of the Advisor.
A purchase order will be effective as of the day received by the
Distributor, Transfer Agent, or its agents, if the order is received before
the time 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 the
Series is the net asset value next determined after a purchase order is
effective.
The shares of the Series may be purchased in exchange for securities to
be included in the Series, subject to the Advisor's determination that these
securities are acceptable. Securities accepted in an exchange will be valued
at market value. All accrued interest and purchase or other rights which are
reflected in the market price of accepted securities at the time of valuation
become the property of the Series and must be delivered by the shareholder to
the Series upon receipt from the issuer.
The Advisor will not accept securities for the Series unless: (1) such
securities are appropriate in the Series at the time of the exchange; (2) the
shareholder represents and agrees that all securities offered to the Series
are not subject to any restrictions upon their sale by the Series under the
Securities Act of 1933, or otherwise; and, (3) prices are available from an
independent pricing service approved by the Series' Board of Directors.
AUTOMATIC INVESTMENT PLAN
Shareholders may purchase shares regularly through the Automatic
Investment Plan with a pre-authorized draft drawn on their 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 plan. The amount
specified by the shareholder will be withdrawn from the shareholder's bank
account using the pre-authorized draft. This amount will be invested at the
applicable share price determined on the date the amount is available for
investment. Participation in the Automatic Investment Plan may be
discontinued either by the Fund or the Shareholder upon 30 days' prior written
notice to the other party. A shareholder who wishes to enroll in the
Automatic Investment Plan may do so by completing the applicable section of
the Account Application Form or contacting the Fund for an Automatic
Investment Plan Form.
EXCHANGES BETWEEN SERIES
As permitted pursuant to any rule, regulation or order promulgated by the
Securities and Exchange Commission, some or all of the shares of a Class in a
direct investment account with the Fund for which payment has been received by
the Fund may be exchanged for shares of the same Class of any of the other
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 objectives and policies before making any
exchange. The exchange privilege may not be available in all states. For
federal and state income tax purposes, an exchange is treated as a sale of the
shares exchanged and therefore, an exchange could result in a gain or loss to
the shareholder making the exchange. The Series may modify or terminate this
exchange offer upon 60 days' notice to shareholders subject to applicable law.
REDEMPTIONS
If a shareholder desires to redeem his shares at their net asset value,
the shareholder must send a written request for redemption in "Good Order" to
the Transfer Agent. "Good Order" generally means that the written request for
redemption must be endorsed by the record owner(s) exactly as the shares are
registered and the signature(s) must be guaranteed by an "eligible guarantor
institution" as that term is defined under Rule 17Ad-15(a)(2) under the
Securities Exchange Act of 1934. Currently, such procedures generally permit
guarantees by a commercial bank or trust company, a member bank of the Federal
Reserve System, or a member firm of a national securities exchange.
Redemption requirements for corporations, other organizations, trusts,
fiduciaries, and retirement plans may require additional documentation.
Please contact the Transfer Agent 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 Investment
Company Act of 1940 ("1940 Act") if an emergency exists. For shares
purchased, or received in exchange for shares purchased, by check (including
certified checks or cashier's checks) payment of redemption proceeds may be
delayed up to 15 days from the purchase date in an effort to assure that such
check has cleared.
Subject to the Series' compliance with applicable regulations, the Series
has reserved the right to pay the redemption price, either totally or
partially, by a distribution in-kind of securities (instead of cash) from the
Series' portfolio. The securities distributed in such a distribution would be
valued at the same amount as that assigned to them in calculating the net
asset value for the shares being sold. If a shareholder received a
distribution in-kind, he could incur brokerage or transaction charges when
converting the securities to cash. The Fund has elected, however, to be
governed by Rule 18f-1 under the 1940 Act as a result of which the Fund is
obligated to redeem shares, with respect to any one shareholder during any
90-day period, solely in cash up to the lesser of $250,000 or 1% of the net
asset value of the Fund at the beginning of the period.
OTHER INFORMATION ABOUT PURCHASES AND REDEMPTIONS
If a taxable shareholder invests shortly before the Series declares a
taxable dividend, a portion of the investment will be returned as a taxable
distribution (commonly referred to as buying into a dividend). This
distribution will be taxable regardless of whether you elected to reinvest
your distribution in additional shares or take the distribution in cash. If
you would like to avoid buying into a dividend, you may contact the Fund to
find out when the Series plans to declare a distribution and invest after that
date.
The Fund may authorize brokers to accept purchase and redemption orders
on its behalf, and these brokers will be authorized to designate other
intermediaries to accept purchase and redemption orders on the Funds 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
Series next computed after it is accepted by the authorized broker or its
designee.
Due to the relatively high cost of maintaining small accounts, the Series
reserves the right to redeem shares in any account for their then-current
value (which will be promptly paid to the shareholder) if at any time the
total investment in such account drops below $1,000 because of redemptions
(but not due to changes in net asset value). Shareholders will be notified
that the value of their account is less than the minimum investment
requirement and allowed 60 days to make an additional investment before the
redemption is processed.
Manning & Napier Investor Services, Inc. (the Distributor) acts as
distributor of the Fund shares and is located at the same address as the
Advisor and the Fund. The Distributor receives no fee from the Fund and there
are no additional costs to shareholders for this service. The Advisor may,
from its own resources, defray or absorb costs related to distribution,
including compensation of employees who are involved in distribution.
SHARE PRICE
The Series' share price or net asset value per share is determined as of
the closing time of the New York Stock Exchange or, in the absence of a
closing time, 4:00 p.m. Eastern time on each day that the New York Stock
Exchange is open for trading. The exchange annually announces the days on
which it will not be open for trading; the most recent announcement indicates
that it will not be open when the following holidays are observed: New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value per share is the value of the Series' assets, less
its liabilities, divided by the number of shares of the Series outstanding.
The value of the Series' portfolio securities will be the market value of such
securities as determined based on quotes provided by a pricing service, (which
uses the methodology outlined in the "Net Asset Value" section of the
Statement of Additional Information) approved by the Board of Directors, or,
in the absence of market quotations, fair value as determined in good faith by
or under the direction and control of the Board of Directors. Short-term
investments which mature in less than 60 days are normally valued at amortized
cost. See the Statement of Additional Information for further information.
DIVIDENDS AND TAX STATUS
TAXES
The following summary of federal income tax consequences is based on the
current tax laws and regulations, which may be changed by legislative,
judicial or administrative action.
No attempt has been made to present a detailed explanation of the
federal, state, or local income tax treatment of the Series or its
shareholders. In addition, state and local tax consequences of an investment
in the Series may differ from the federal income tax consequences described
below. Accordingly, shareholders are urged to consult with their tax advisers
regarding specific questions as to federal, state and local income taxes.
Additional information concerning taxes is set forth in the Statement of
Additional Information.
TAX STATUS
Under the Internal Revenue Code of 1986, as amended (the Code), the
Series is treated as a separate entity for federal income tax purposes. The
Series intends to qualify for the special tax treatment afforded regulated
investment companies as defined under Subchapter M of the Code, so as to be
relieved of federal income tax on that part of its net investment company
taxable income, and net capital gain (the excess of net long-term capital
gains over net short-term capital losses) distributed to shareholders.
TAX STATUS OF DISTRIBUTIONS
Dividends and distributions will be paid in full and fractional shares of
the Series, based on the net asset value per share at the close of business on
the record date, although a shareholder may, prior to the record date,
request, by writing or by telephone call to the Fund, that payments of either
ordinary income dividends or capital gain distributions, or both, be made in
cash. If a shareholder has chosen to receive dividends and/or capital gain
distributions in cash, and the postal service is unable to deliver checks to
the shareholders address of record, or the shareholder does not respond to
mailing from the Fund concerning outstanding checks, that shareholders account
will be updated so that all future distributions will be reinvested in the
account. No interest will accrue on amounts represented by uncashed
distribution or redemptions checks.
The Series will distribute all of its net investment income (including
net short-term capital gains) to shareholders. Dividends from net investment
company taxable income are taxable to shareholders as ordinary income (whether
received in cash or in additional shares) to the extent of the Series earnings
and profits. Net capital gains will be distributed at least annually and will
be taxed to shareholders as a 20% rate gain distribution (generally taxed at a
rate of 20%) or a 28% rate gain distribution (generally taxed at a rate of
28%), depending upon the designation by the Series (such designation being
dependent upon the holding period of the Series in the underlying asset
generating the net capital gain), regardless of how long the shareholders have
held their shares and regardless of whether the distributions are received in
cash or in additional shares. If no designation is made regarding a capital
gain dividend, it will be classified as a 28% rate gain distribution, and,
thus, taxed at a rate of 28%. Dividends and distributions of capital gains
paid by the Series do not qualify for the dividends received deduction for
corporate shareholders. The Series will provide annual reports to
shareholders of the federal income tax status of all distributions.
If, at the close of each quarter of its taxable year, at least 50% of the
value of the New York Tax Exempt Series assets consist of obligations the
interest on which is excludable from gross income for federal tax purposes,
the Series may pay exempt-interest dividends to its shareholders. Those
dividends constitute the portion of the aggregate dividends as designated by
the Series equal to the excess of the excludable interest over certain amounts
disallowed as deductions. Exempt-interest dividends are excludable from a
shareholders gross income for regular federal income tax purposes, but may
have certain collateral federal income tax consequences, including alternative
minimum tax. See the Statement of Additional Information.
Current federal law limits the types and volume of bonds qualifying for
the federal income tax exemption of interest, which may have an effect on the
ability of the New York Tax Exempt Series to purchase sufficient amounts of
tax-exempt securities to satisfy the Codes requirements for the payment of
exempt-interest dividends.
Dividends declared by the Series in October, November or December of any
year and payable to shareholders of record on a date in one of those months
will be deemed to have been paid by the Series and received by the
shareholders on December 31 of the year declared, if paid by the Series at any
time during the following January.
Investment income received directly by the Series on direct U.S.
Government obligations is exempt from income tax at the state level and may be
exempt, depending on the state, when received by a shareholder as income
dividends from the Series provided certain state-specific conditions are
satisfied. The Series will inform shareholders annually of the percentage of
income and distributions derived from direct U.S. Government obligations.
Shareholders should consult their tax advisors to determine whether any
portion of the income dividends received from the Series is considered tax
exempt in their particular states.
The Series intends to make sufficient distributions prior to the end of
each calendar year to avoid liability for federal excise tax applicable to
regulated investment companies.
A sale, exchange or redemption of the Series shares generally is a
taxable transaction to the shareholder.
NEW YORK STATE AND LOCAL TAX
Under New York law, dividends paid by the Series are exempt from New York
State and New York City income tax for individuals who reside in New York to
the extent such dividends are excluded from gross income for federal income
tax purposes and are derived from interest payments on New York obligations.
Other distributions from the Series, including distributions derived from net
short-term and long-term capital gains, are generally not exempt from New York
State and City personal income tax.
GENERAL INFORMATION
The Fund was incorporated on July 26, 1984 as a Maryland corporation.
The Board of Directors may, at its own discretion, create additional series of
shares, each of which would have separate assets and liabilities.
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,
dividends, distributions and liquidations. The Fund's shareholders will vote
in the aggregate and not by series except as otherwise expressly required by
law or when the Board of Directors determines that the matter to be voted upon
affects only the interests of the shareholders of a series. Income, direct
liabilities and direct operating expenses of the Series will be allocated
directly to the series, while general liabilities and expenses of the Fund
will be allocated among each series. The holders of shares have no preemptive
or conversion rights. Shares when issued are fully paid and non-assessable
and do not have cumulative voting rights.
All securities and cash are held by Boston Safe Deposit and Trust
Company. Coopers & Lybrand, L.L.P. serves as independent accountants for the
Series and will audit its financial statements annually.
Manning & Napier Advisors, Inc. serves as the Fund's transfer and
dividend disbursing agent. Shareholder inquiries should be directed to Exeter
Fund, Inc., P.O. Box 41118, Rochester, New York 14604.
APPENDIX
DESCRIPTION OF MUNICIPAL AND CORPORATE BOND RATINGS
Moody's Investors Services, Inc.'s municipal and corporate bond ratings:
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred
to as gilt-edged. 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 risk appear somewhat larger than 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 some time 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.
Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B. The modifier 1 indicates that the
obligation ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a
rating in the lower end of that generic rating category.
Moody's may also assign conditional ratings to municipal bonds. Bonds for
which the security depends upon the completion of some act or the fulfillment
of some condition are rated conditionally. These are bonds secured by (a)
earnings of projects under construction, (b) earnings of projects unseasoned
in operating experience, (c) rentals which begin when facilities are
completed, or (d) payments to which some other limiting condition attaches.
Parenthetical rating denotes probable credit stature upon completion of
construction or elimination of basis of condition.
Standard & Poor's Corporation's municipal and corporate bond ratings:
AAA - This is the highest rating assigned by Standard & Poor's to a
debt obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only to a small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than in higher rated categories.
Standard & Poor's may modify the rating from "AA" to "B" by the addition of a
plus or minus sign to show relative standing within the major rating
categories. Standard & Poor's ratings may also be indicated by "NR". This
designation indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.
Standard & Poor's may also assign conditional ratings to municipal bonds. The
letter "p" indicates that the rating is provisional. A provisional rating
assumes the successful completion of the project being financed by the debt
being rated and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful timely completion of the project.
This rating, however, while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood of, or the risk of default
upon failure of, such completion. The investor should exercise his own
judgment with respect to such likelihood and risk.
<PAGE>
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's Investor Services, Inc.'s commercial paper ratings:
PRIME-1 - Issues 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.
Standard & Poor's Corporation's commercial paper ratings:
A-1 - This is the highest category and indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 - Capacity for timely payment on issues with this designation is
satisfactory and the obligation is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations
in higher rating categories.
A-3 - Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
B - Issues rated B are regarded as having significant speculative
characteristics for timely payment.
C - This rating is assigned to short-term debt obligations that are
currently vulnerable to nonpayment.
D - Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. 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>
EXETER FUND, INC.
Statement of Additional Information dated April 20, 1998.
This STATEMENT OF ADDITIONAL INFORMATION is not a Prospectus, and it should
be read in conjunction with each Series Prospectus for the Small Cap Series,
Energy Series, Technology Series, Financial Services Series, International
Series, Life Sciences Series, Global Fixed Income Series, New York Tax Exempt
Series, Ohio Tax Exempt Series, Diversified Tax Exempt Series and the World
Opportunities Series, copies of which may be obtained from Exeter Asset
Management, 1100 Chase Square, Rochester, NY 14604.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Investment Objectives, Policies and Restrictions of the Series B-2
Risk and Investment Policies B-2
Investment Restrictions B-22
Portfolio Turnover B-25
The Fund B-25
Management B-25
The Advisor B-29
The Plans B-31
Distribution of Fund Shares B-31
Custodian and Independent Accountant B-32
Portfolio Transactions and Brokerage B-32
Net Asset Value B-34
Redemption of Shares B-34
Payment for Shares Received B-34
Redemption in Kind B-34
Federal Tax Treatment of Dividends and Distributions B-35
Financial Statements B-40
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS OF THE SERIES
Each Series portfolio and strategies are described in the prospectus.
If there is a change in a Series investment objective, shareholders will be
notified thirty (30) days prior to any such change and will be advised to
consider whether the Series remains an appropriate investment in light of
their then current financial position and needs. Convertible bonds purchased
by the Series may have a call feature. Warrants purchased by the Series may
or may not be listed on a national securities exchange. The Fund has no
current intention to engage in short sales against the box. All of the Series
policies regarding options discussed below are fundamental.
RISK AND INVESTMENT POLICIES
Year 2000 Technology Risk
Like most investment companies, the Fund and the Series rely on
computers in conducting daily business and processing information. There is a
concern that on January 1, 2000 some computer programs will be unable to
recognize the new year and as a consequence computer malfunctions will occur.
The Administrator is taking steps that it believes are reasonably designed to
address this potential problem and to obtain satisfactory assurance from other
service providers to the Fund and Series that they are also taking steps to
address the issue. There can, however, be no assurance that these steps will
be sufficient to avoid any adverse impact of the Fund, the Series or
shareholders.
Writing Covered Call and Secured Put Options
As a means of protecting their assets against market declines, and in an
attempt to earn additional income, each Series may write covered call option
contracts on its securities and may purchase call options for the purpose of
terminating its outstanding obligations with respect to securities upon which
covered call option contracts have been written.
As described in the Prospectus, when a Series writes a call option on
securities which it owns, it gives the purchaser of the option the right to
buy the securities at an exercise price specified in the option at any time
prior to the expiration of the option. If any option is exercised, a Series
will realize the gain or loss from the sale of the underlying security and the
proceeds of the sale will be increased by the net premium originally received
on the sale of the option. By writing a covered call option, a Series may
forego, in exchange for the net premium, the opportunity to profit from an
increase in the price of the underlying security above the options 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.
<PAGE>
A Series will write only covered call options which are traded on
national securities exchanges. Currently, call options on stocks may be
traded on the Chicago Board Options Exchange and the New York, American,
Pacific and Philadelphia Stock Exchanges. Call options are issued by the
Options Clearing Corporation (OCC), which also serves as the clearing house
for transactions with respect to standardized or listed options. The price of
a call option is paid to the writer without refund on expiration or exercise,
and no portion of the price is retained by OCC or the exchanges listed above.
Writers and purchasers of options pay the transaction costs, which may include
commissions charged or incurred in connection with such option transactions.
A Series may write only covered call options. A call option is
considered to be covered if the option writer owns the security underlying the
call or has an absolute and immediate right to acquire that security without
payment of additional cash consideration (or for additional cash consideration
held in a segregated account by its custodian) upon conversion or exchange of
other securities. A call option is also considered to be covered if the
writer holds on a unit-for-unit basis a call on the same security as the call
written, with the same expiration date and the exercise price of the call
purchased is equal to or less than the exercise price of the call written or
greater than the exercise price of the call written if the difference is
maintained in cash, Treasury bills or other liquid high grade short-term
obligations in a segregated account with its custodian, and marked-to-market
daily. A Series will not sell (uncover) the securities against which options
have been written until after the option period has expired, the option has
been exercised or a closing purchase has been executed.
Options written by a Series will have exercise prices which may be below
(in-the-money), equal to (at-the-money) or above (out-of-the-money") the
market price of the underlying security at the time the options are written.
However, a Series generally will not write so-called deep-in-the-money
options.
The market value of a call option generally reflects the market price of
the underlying security. Other principal factors affecting market value
include supply and demand, dividend yield and interest rates, the price
volatility of the underlying security and the time remaining until the
expiration date.
If a call option on a security expires unexercised, a Series will realize
a short-term capital gain in the amount of the premium on the option, less all
commissions paid. Such a gain, however, may be offset by a decline in the
value of the underlying security during the option period. If a call option
is exercised, a Series will realize a gain or loss from the sale of the
underlying security equal to the difference between the cost of the underlying
security and the proceeds of the sale of the security (exercise price minus
commission) plus the amount of the premium on the option, less all commissions
paid.
<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 with the Funds custodian
consisting of liquid assets equal to the amount of the Series assets that
could be required to consummate the put options. For purposes of determining
the adequacy of the securities in the account, the deposited assets will be
valued at fair market value. If the value of such assets declines, additional
cash or assets will be placed in the account daily so that the value of the
account will equal the amount of such commitments by the Series.
<PAGE>
A put option is secured if a Series maintains in a segregated account
with its Custodian liquid assets in an amount not less than the exercise price
of the option at all times during the option period. A Series may write
secured put options when the Advisor wishes to purchase the underlying
security for a Series' portfolio at a price lower than the current market
price of the security. In such event a Series would write a secured put
option at an exercise price which, reduced by the premium received on the
option, reflects the lower price it is willing to pay. The potential gain on
a secured put option is limited to the income earned on the amount held in
liquid assets plus the premium received on the option (less the commissions
paid on the transaction) while the potential loss equals the difference
between the exercise price of the option and the current market price of the
underlying securities when the put is exercised, offset by the premium
received (less the commissions paid on the transaction) and income earned on
the amount held in liquid assets.
A Series may purchase put options on national securities exchanges in an
attempt to hedge against fluctuations in the value of its portfolio securities
and to protect against declines in the value of individual securities.
Purchasing a put option allows the purchaser to sell the particular security
covered by the option at a certain price (the exercise price) at any time up
to a specified future date (the expiration date).
Purchase of a put option creates a hedge against a decline in the value
of the underlying security by creating the right to sell the security at a
specified price. Purchase of a put option requires payment of a premium to
the seller of that option. Payment of this premium necessarily reduces the
return available on the individual security should that security continue to
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.
<PAGE>
Certain Risk and Other Factors Respecting Options
As stated in the Prospectus, positions in options on securities may be
closed only by a closing transaction, which may be made only on an exchange
which provides a liquid secondary market for such options. Although a Series
will write options only when the Advisor believes a liquid secondary market
will exist on an exchange for options of the same series, there can be no
assurance that a liquid secondary market will exist for any particular
security option. If no liquid secondary market exists respecting an option
position held, a Series may not be able to close an option position, which
will prevent that Series from selling any security position underlying an
option until the option expires and may have an adverse effect on its ability
effectively to hedge its security positions. A secured put option writer who
is unable to effect a closing purchase transaction would continue to bear the
risk of decline in the market price of the underlying security until the
option expires or is exercised. In addition, a secured put writer would be
unable to use the amount held in liquid assets securities as security for the
put option for other investment purposes until the exercise or expiration of
the option.
Possible reasons for the absence of a liquid secondary market on an
exchange for an option include the following: (a) insufficient trading
interest in certain options; (b) restrictions on transactions imposed by an
exchange; trading halts, suspensions or other restrictions imposed with
respect to particular classes or series of options or underlying securities;
(d) inadequacy of the facilities of an exchange or OCC to handle trading
volume; or (e) a decision by one or more exchanges to discontinue the trading
of options or impose restrictions on types of orders.
Each of the exchanges on which options on securities are traded has
established limitations on the number of options which may be written by any
one investor or group of investors. These limitations apply regardless of
whether the options are written in different accounts or through different
brokers. It is possible that a Series and certain other accounts managed by
the Funds investment advisor, Exeter Asset Management (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 Series writes an over-the-counter (OTC) option, it will enter into an
arrangement with a primary U.S. government securities dealer, which would
establish a formula price at which the Series would have the absolute right to
repurchase that OTC option. This formula price would generally be based on a
multiple of the premium received for the option, plus the amount by which the
option is exercisable below the marked price of the underlying security
(in-the-money). For an OTC option the Fund writes, it will treat as illiquid
(for purposes of the 10% net asset limitation on illiquid securities stated in
the Prospectus) an amount of assets used to cover written OTC options, equal
to the formula price for the repurchase of the OTC option less the amount by
which the OTC option is in-the-money. The Fund will also treat as illiquid
any OTC option held by it. The Securities and Exchange Commission (SEC) is
evaluating the general issue of whether or not the OTC options should be
considered to be liquid securities, and the procedure described above could be
affected by the outcome of that evaluation.
<PAGE>
Although OCC has stated that it believes (based on forecasts provided by
the exchanges on which options are traded), that its facilities are adequate
to handle the volume of reasonably anticipated options transactions, and
although each exchange has advised OCC that it believes that its facilities
will also be adequate to handle reasonably anticipated volume, there can be no
assurance that higher than anticipated trading activity or order flow or other
unforeseen events might not at times render certain of these facilities
inadequate and thereby result in the institution of special trading procedures
or restrictions.
The Series will pay brokerage and other transaction costs to write and
purchase options on securities, including any closing transactions which the
Series may execute. The Funds program of writing and/or purchasing such
options with respect to as much of its portfolio as possible will increase the
transaction costs borne by the Series.
Stock Index Futures Contracts and Options on Stock Index Futures Contracts
Each Series may enter into Stock Index Futures Contracts to provide: (1)
a hedge for a portion of the Series portfolio; (2) a cash management tool; (3)
as an efficient way to implement either an increase or decrease in portfolio
market exposure in response to changing market conditions. The Series may
also use Stock Index Futures as a substitute for comparable market position in
the underlying securities. Although techniques other than the sale and
purchase of Stock Index Futures Contracts could be used to adjust the exposure
or hedge the Series portfolio, the Series may be able to do so more
efficiently and at a lower cost through the use of Stock Index Futures
Contracts.
A Stock Index Futures Contract is a contract to buy or sell units of a
stock index at a specified future date at a price agreed upon when the
contract is made. Entering into a contract to buy units of a stock index is
commonly referred to as buying or purchasing a contract or holding a long
position in the index. Entering into a contract to sell units of a stock
index is commonly referred to as selling a contract or holding a short
position. A stock index future obligates the seller to deliver (and the
purchaser to take) an amount of cash equal to a specific dollar amount times
the difference between the value of a specific stock index at the close of the
last trading day of the contract and the price at which the agreement is made.
No physical delivery of the underlying stocks in the index is made. The
Series intend to purchase and sell futures contracts on the stock index for
which it can obtain the best price with consideration also given to liquidity.
<PAGE>
The Series will not enter into a Stock Index Futures Contract or option
thereon if, as a result thereof, the sum of the amount of initial margin
deposits on any such futures (plus deposits on any other futures contracts and
premiums paid in connection with any options or futures contracts) that do not
constitute bona fide hedging under CFTC rules would exceed 5% of the
liquidation value of the Series total assets after taking into account
unrealized profits and losses on such contracts. In addition, the value of
all futures contracts sold will not exceed the total market value of the
Series portfolio. The Fund will comply with guidelines established by the
Securities and Exchange Commission with respect to the covering of obligations
under future contracts and will set aside liquid assets in a segregated
account with its custodian in the amount prescribed.
Unlike the purchase or sale of an equity security, no price is paid or
received by the Series upon the purchase or sale of a Stock Index Futures
Contract. Upon entering into a Futures Contract, the Series would be required
to deposit with its custodian in a segregated account in the name of the
futures broker an amount of cash or U.S. Treasury bills known as initial
margin. This amount is required by the rules of the exchanges and is subject
to change. The nature of initial margin in futures transactions is different
from that of margin in security transactions in that futures margin does not
involve the borrowing of funds by the Series to finance the transactions.
Rather, initial margin is in the nature of a performance bond or good faith
deposit on the contract that is returned to the Series upon termination of the
futures contract, assuming all contractual obligations have been satisfied.
Subsequent payments, called variation margin, to and from the futures
broker, are made on a daily basis as the price of the underlying stock index
fluctuates, making the long and short positions in the futures contract more
or less valuable, a process known as marking-to-market. For example, when the
Series has purchased a Stock Index Futures Contract and the price of the
underlying stock index has risen, that futures position will have increased in
value and the Series will receive from the broker a variation margin payment
equal to that increase in value. Conversely, when the Series has purchased a
Stock Index Futures Contract and the price of the stock index has declined,
the position would be less valuable and the Series would be required to make a
variation payment to the broker.
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.
<PAGE>
The Series may elect to close out some or all of their futures positions
at any time prior to expiration. The purpose of making such a move would be
either to reduce equity exposure represented by long futures positions or
increase equity exposure represented by short futures positions. The Series
may close their positions by taking opposite positions which would operate to
terminate the Series position in the Stock Index Futures Contracts. Final
determinations of variation margin would then be made, additional cash would
be required to be paid or released to the Series, and the Series would realize
a loss or a gain.
Stock Index Futures Contracts may be closed out only on the exchange or
board of trade where the contracts were initially traded. Although the Series
intend to purchase or sell Stock Index Futures Contracts only on exchanges or
boards of trade where there appears to be an active market, there is no
assurance that a liquid market on an exchange or board of trade will exist for
any particular time. In such an event, it might not be possible to close a
Stock Index Futures Contract, and in the event of adverse price movements, the
Series would continue to be required to make daily cash payments of variation
margin. However, in the event Stock Index Futures Contracts have been used to
hedge portfolio securities, the Series would continue to hold securities
subject to the hedge until the Stock Index Futures Contracts could be
terminated. In such circumstances, an increase in the price of the
securities, if any, might partially or completely offset losses on the Stock
Index Futures Contract. However, as described below, there is no guarantee
that the price of the securities will, in fact, correlate with price movements
in the Futures Contract and thus provide an offset to losses on a Stock Index
Futures Contract.
There are several risks in connection with the use by the Series of Stock
Index Futures Contracts as a hedging device. One risk arises because of the
imperfect correlation between movements in the prices of the Futures Contracts
and movements in the prices of securities which are the subject of the hedge.
The Advisor will, however, attempt to reduce this risk by entering into Stock
Index Futures Contracts on indices whose movements, in its judgment, will have
a significant correlation with movements in the prices of the Series portfolio
securities sought to be hedged.
Successful use of Stock Index Futures Contracts by the Series for hedging
purposes is also subject to the Advisors 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.
<PAGE>
In addition to the possibility that there might be an imperfect
correlation, or no correlation at all, between price movements in the Stock
Index Futures Contracts and the portion of the portfolio to be hedged, the
price movements in the Futures Contracts might not correlate perfectly with
price movements in the underlying stock index due to certain market
distortions. First, all participants in the futures market are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors might close Stock Index Futures
Contracts through offsetting transactions which could distort the normal
relationship between the index and futures markets. Second, the margin
requirements in the futures market are less onerous than margin requirements
in the securities markets. Due to the possibility of price distortion in the
futures market and also because of the imperfect correlation between price
movements in the stock index and movements in the prices of Stock Index
Futures Contracts, even a correct forecast of general market trends by the
Advisor might not result in a successful hedging transaction over a very short
time period.
Options on Futures give the purchaser the right, in return for a premium
paid, to assume a position in a Futures Contract (a long position if a call
option and a short position if a put option), rather than to purchase or sell
the Stock Index Futures Contract, at a specified exercise price at any time
during the period of the option. Upon exercise of the option, the delivery of
the Futures position by the writer of the option to the holder of the option
will be accompanied by delivery of the accumulated balance in the writers
Futures margin account which represents the amount by which the market price
of the Stock Index Futures Contract, at exercise, exceeds (in the case of a
call) or is less than (in the case of a put) the exercise price of the option
on the Futures Contract. Alternatively, settlement may be made totally in
cash.
The Series may seek to close out an option position on an index by
writing or buying an offsetting option covering the same index or contract and
having the same exercise price and expiration date. The ability to establish
and close out positions on such options will be subject to the development and
maintenance of a liquid secondary market. It is not certain that this market
will develop. Reasons for the absence of a liquid secondary market on an
exchange include the following: (i) insufficient trading in certain options;
(ii) restrictions that may be imposed by an exchange on opening transactions
or closing transactions or both; (iii) trading halts, suspensions or other
restrictions that may be imposed with respect to particular classes or series
of options, or underlying securities; (iv) unusual or unforeseen circumstances
that may interrupt normal operations on an exchange; (v) the facilities of an
exchange or a clearing corporation may not be adequate to handle unusual
trading volume; or (vi) one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of options (or particular class or series of options), in which event the
secondary market on that exchange would cease to exist, although outstanding
options on the exchange that had been issued by a clearing corporation as a
result of trades on that exchange would continue to be exercisable in
accordance with their terms. There is no assurance that higher than
anticipated trading activity or other unforeseen events might not, at times,
render certain of the facilities of any of the clearing corporations
inadequate, and thereby result in the institution by an exchange of special
procedures which may interfere with timely execution of customers orders.
<PAGE>
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 Funds futures contracts on securities will
usually be liquidated in this manner, it may instead make or take delivery of
the underlying securities whenever it appears economically advantageous for
the Fund to do so. However, the loss from investing in futures transactions
is potentially unlimited. A clearing corporation associated with the exchange
on which futures on securities or currency are traded guarantees that, if
still open, the sale or purchase will be performed on the settlement date.
<PAGE>
Foreign Currency Transactions
In order to protect against a possible loss on investments resulting from
a decline in a particular foreign currency against the U.S. dollar or another
foreign currency, each Series except the Tax Exempt Series of the Fund is
authorized to enter into forward foreign currency exchange contracts. In
addition, each Series, is authorized to conduct spot (i.e., cash basis)
currency transactions or to use currency futures contracts, options on such
futures contracts, and options on foreign currencies in order to protect
against uncertainty in the future levels of currency exchange rates.
Forward Foreign Currency Exchange Contracts
Forward foreign currency exchange contracts involve an obligation to
purchase or sell a specified currency at a future date at a price set at the
time of the contract. Forward currency contracts do not eliminate
fluctuations in the values of portfolio securities but rather allow a Series
to establish a rate of exchange for a future point in time. A Series may
enter into forward foreign currency exchange contracts when deemed advisable
by the Advisor under only two circumstances.
First, when entering into a contract for the purchase or sale of a
security in a foreign currency, a Series may enter into a forward foreign
currency exchange contract for the amount of the purchase or sale price to
protect against variations, between the date the security is purchased or sold
and the date on which payment is made or received, in the value of the foreign
currency relative to the U.S. dollar or other foreign currency. This hedging
technique is known as transaction hedging.
Second, when the Advisor anticipates that a particular foreign currency
may decline substantially relative to the U.S. dollar or other leading
currencies, in order to reduce risk, a Series may enter into a forward
contract to sell, for a fixed amount, the amount of foreign currency
approximating the value of some or all of its portfolio securities denominated
in such foreign currency. This hedging technique is known as position hedging.
With respect to any such forward foreign currency contract, it will not
generally be possible to match precisely the amount covered by that contract
and the value of the securities involved due to the changes in the values of
such securities resulting from market movements between the date the forward
contract is entered into and the date it matures. In addition, while forward
contracts may offer protection from losses resulting from declines in the
value of a particular foreign currency, they also limit potential gains which
might result from increases in the value of such currency. A Series will also
incur costs in connection with forward foreign currency exchange contracts and
conversions of foreign currencies and U.S. dollars.
A separate account of each Series consisting of cash or high-grade liquid
securities equal to the amount of that Series assets that would be required to
consummate forward contracts entered into under the second circumstance, as
set forth above, will be established with the Series custodian. For the
purpose of determining the adequacy of the securities in the account, the
deposited securities will be valued at market or fair value. If the market
or fair value of such securities declines, additional cash or securities will
be placed in the account daily so that the value of the account will equal the
amount of such commitments by such Series.
<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 (i.e., long) for by the contract at a specified price on a specified
date. A purchase of a futures contract means the acquisition of a contractual
obligation to acquire the foreign currencies called for by the contract at a
specified price on a specified date. These investment techniques will be used
only to hedge against anticipated future changes in exchange rates which
otherwise might either adversely affect the value of portfolio securities held
by the Series or adversely affect the prices of securities which the Series
intend to purchase at a later date. The loss from investing in futures
transactions is potentially unlimited. To minimize this risk, such
instruments will be used only in connection with permitted transaction or
position hedging and not for speculative purposes. The Series will not enter
in a currency futures contract or option thereon, if as a result thereof, the
sum of the amount of initial margin deposits on any such futures (plus
deposits on any other futures contracts and premiums paid in connection with
any options or futures contracts) that do not constitute bona fide hedging
under CFTC rules will not exceed 5% of the liquidation value of the Series
total assets after taking into account unrealized profits and losses on such
contracts. In addition, the value of all futures contracts sold will not
exceed the total market value of the Series portfolio. The Fund will comply
with guidelines established by the Securities and Exchange Commission with
respect to covering of obligations under future contracts and will set aside
cash and/or liquid high grade securities in a segregated account with its
custodian in the amount prescribed.
Although the Series intend to purchase or sell futures contracts only if
there is an active market for such contracts, no assurance can be given that a
liquid market will exist for any particular contract at any particular time.
In addition, due to the risk of an imperfect correlation between securities in
the Series portfolio that are the subject of a hedging transaction and the
futures contract used as a hedging device, it is possible that the hedge will
not be fully effective. For example, losses on the portfolio securities may
be in excess of gains on the futures contract or losses on the futures
contract may be in excess of the gains on the portfolio securities that were
the subject of such hedge.
<PAGE>
Brokerage fees are incurred when a futures contract is bought or sold and
margin deposits must be maintained for such contract. Although futures
contracts typically require actual delivery of and payment for financial
instruments or currencies, the contracts are usually closed out before the
delivery date. Closing out an open futures contract sale or purchase is
effected by entering into an offsetting futures contract purchase or sale,
respectively, for the same aggregate amount of the identical type of financial
instrument or currency and the same delivery date. If the offsetting purchase
price is less than the original sale price, a Series realizes a gain; if it is
more, a Series realizes a loss. Conversely, if the offsetting sale price is
more than the original purchase price, a Series realizes a gain; if it is
less, a Series realizes a loss. Transaction costs must also be included in
these calculations. There can be no assurance, however, that a Series will be
able to enter into an offsetting transaction with respect to a particular
contract at a particular time. If a Series is not able to enter into an
offsetting transaction, a Series will continue to be required to maintain the
margin deposits on the contract. The ability to establish and close out
positions on such options will be subject to the development and maintenance
of a liquid secondary market. It is not certain that a liquid market will
develop for any particular futures contracts. Reasons for the absence of a
liquid secondary market on an exchange include the following: (i) insufficient
trading; (ii) restrictions that may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions that may be imposed with respect to futures contracts or
the underlying security or asset; (iv) unusual or unforeseen circumstances
that may interrupt normal operations on an exchange; (v) the facilities of an
exchange or a clearing corporation may not be adequate to handle unusual
trading volume; or (vi) one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of certain futures, in which event the secondary market on that exchange would
cease to exist, although outstanding options on the exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms. There is no
assurance that higher than anticipated trading activity or other unforeseen
events might not, at times, render certain of the facilities of any of the
clearing corporations inadequate, and thereby result in the institution by an
exchange of special procedures which may interfere with timely execution of
customers orders.
An option on a futures contract gives the purchaser the right, in return
for the premium paid, to assume a position in a futures contract (a long
position if a call option and a short position if a put option) at a specified
price at any time during the option exercise period. The writer of the option
is required upon exercise to assume an offsetting futures position (a short
position if a call option and a long position if a put option). Upon exercise
of the option, the assumption of offsetting futures positions by the writer
and holder of the option will be accompanied by delivery of the accumulated
cash balance in the writers 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.
<PAGE>
Call options sold by the Series with respect to futures contracts will be
covered by, among other things, entering into a long position in the same
contract at a price no higher than the strike price of the call option, or by
ownership of the instruments underlying the futures contract, or the placement
of liquid assets in a segregated account to fulfill the obligations undertaken
by the futures contract. A put option sold by the Series is covered when,
among other things, liquid assets are placed in a segregated account to
fulfill the obligations undertaken.
Foreign Currency Options
Each Series, except for the Tax-Exempt series of the Fund, are
authorized to purchase and write put and call options on foreign currencies.
A call option is a contract whereby the purchaser, in return for a premium,
has the right, but not the obligation, to buy the currency underlying the
option at a specified price during the exercise period. The writer of the
call option, who receives the premium, has the obligation, upon exercise of
the option during the exercise period, to deliver the underlying currency
against payment of the exercise price. A put option is a similar contract
that gives its purchaser, in return for a premium, the right to sell the
underlying currency at a specified price during the term of the option. The
writer of the put option, who receives the premium, has the obligation, upon
exercise of the option during the option period, to buy the underlying
currency at the exercise price. The Series will use currency options only to
hedge against the risk of fluctuations of foreign exchange rates related to
securities held in its portfolio or which it intends to purchase, and to earn
a high return by receiving a premium for writing options. Options on foreign
currencies are affected by all the factors which influence foreign exchange
rates and investments generally.
Obligations of Supranational Agencies
Currently the Global Fixed Income Series may purchase securities issued
or guaranteed by supranational agencies including, but not limited to, the
following: Asian Development Bank, Inter-American Development Bank,
International Bank for Reconstruction and Development (World Bank), African
Development Bank, European Coal and Steel Community, European Economic
Community, European Investment Bank and the Nordic Investment Bank. For
concentration purposes, supranational entities are considered an industry.
U.S. Government Securities
Each Series may invest in debt obligations of varying maturities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities.
Direct obligations of the U.S. Treasury which are backed by the full faith and
credit of the U.S. Government, include a variety of Treasury securities that
differ only in their interest rates, maturities and dates of issuance. U.S.
Government agencies or instrumentalities which issue or guarantee securities
include, but are not limited to, the Federal Housing Administration, Federal
National Mortgage Association, Farmers Home Administration, Export-Import Bank
of the United States, Small Business Administration, Governmental National
Mortgage Association, General Services Administration, Central Bank for
Cooperatives, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation,
Federal Intermediate Credit Banks, Federal Land Banks, Maritime
Administration, the Tennessee Valley Authority, District of Columbia Armory
Board and the Student Loan Marketing Association.
<PAGE>
Obligations of U.S. Government agencies and instrumentalities may or may
not be supported by the full faith and credit of the United States. Some are
backed by the right of the issuer to borrow from the U.S. Treasury; others by
discretionary authority of the U.S. Government to purchase the agencies
obligations; while still others, such as the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. In the
case of securities not backed by the full faith and credit of the United
States, the investor must look principally to the agency or instrumentality
issuing or guaranteeing the obligation for ultimate repayment, and may not be
able to assert a claim against the United States itself in the event the
agency or instrumentality does not meet its commitment.
A Series will invest in securities of such instrumentality only when the
Advisor is satisfied that the credit risk with respect to any instrumentality
is minimal.
Tax-exempt Securities
The New York Tax Exempt Series, the Ohio Tax Exempt Series and the
Diversified Tax Exempt Series (collectively, the Tax-Exempt Series) may invest
in tax-exempt securities issued by New York, Ohio or any State of the United
States, respectively, and such States political subdivisions, agencies and
instrumentalities, the interest from which is, in the opinion of bond counsel,
exempt from federal income tax.
Each tax-exempt series is a diversified investment company under the
Investment Company Act of 1940. This means that with respect to 75% of its
total assets the Series may not invest more than 5% of its total assets in the
securities of any one issuer (except U.S. government securities). The other
25% of each Series total assets may be in the securities of any one issuer.
Each Series will not invest more than 25% of its total assets in any
industry. Governmental issuers of tax-exempt securities are not considered
part of any industry. However, Tax Exempt Securities backed only by the
assets and revenues of nongovernmental users may for this purpose (and for the
diversification purposes discussed above) be deemed to be issued by such
nongovernmental users, and the 25% limitation would apply to such obligations.
Each of the tax-exempt series believes that in general the secondary
market for tax-exempt securities is less liquid than that for taxable
fixed-income securities. Accordingly, the ability of the Series to buy and
sell securities may, at any particular time and with respect to any particular
securities, be limited.
It is nonetheless possible that a Series may invest more than 25% of its
assets in a broader segment of the market (but not in one industry) for
tax-exempt securities, such as revenue obligations of hospitals and other
health care facilities, housing agency revenue obligations, or transportation
revenue obligations. This would be the case only if the Advisor determined
that the yields available from obligations in a particular segment of the
market justified the additional risks associated with such concentration.
Although such obligations could be supported by the credit of governmental
users or by the credit of nongovernmental users engaged in a number of
industries, economic, business, political and other developments generally
affecting the revenues of issuers (for example, proposed legislation or
pending court decisions affecting the financing of such projects and market
factors affecting the demand for their services or products) may have a
general adverse effect on all tax-exempt securities in such a market segment.
<PAGE>
Housing revenue bonds typically are issued by a state, county or local
housing authority and are secured only by the revenues of mortgages originated
by the authority using the proceeds of the bond issue. Because of the
impossibility of precisely predicting demand for mortgages from the proceeds
of such an issue, there is a risk that the proceeds of the issue will be in
excess of demand, which would result in early retirement of the bonds by the
issuer. Moreover, such housing revenue bonds depend for their repayment in
part upon the cash flow from the underlying mortgages, which cannot be
precisely predicted when the bonds are issued. The financing of multi-family
housing projects is affected by a variety of factors, including satisfactory
completion of construction, a sufficient level of occupancy, sound management,
adequate rent to cover operating expenses, changes in applicable laws and
governmental regulations and social and economic trends.
Health care facilities include life care facilities, nursing homes and
hospitals. Bonds to finance these facilities are issued by various
authorities. The bonds are typically secured by the revenues of each facility
and not be state or local government tax payments. The projects must maintain
adequate occupancy levels to be able to provide revenues adequate to maintain
debt service payments. Moreover, in the case of life care facilities, since a
portion of housing, medical care and other services may be financed by an
initial deposit, there may be risk if the facility does not maintain adequate
financial reserves to secure future liabilities. Life care facilities and
nursing homes may be affected by regulatory cost restrictions applied to
health care delivery in general, restrictions imposed by medical insurance
companies and competition from alternative health care or conventional housing
facilities. Hospital bond ratings are often based on feasibility studies
which contain projections of expenses, revenues and occupancy levels. A
hospitals income available to service its debt may be influenced by demand for
hospital services, management capabilities, the service area economy, efforts
by insurers and government agencies to limit rates and expenses, competition,
availability and expense of malpractice insurance, and Medicaid and Medicare
funding.
<PAGE>
In recent years, nationally recognized rating organizations have reduced
their ratings of a substantial number of the obligations of issuers in the
health care sector of the tax exempt securities market. Reform of the health
care system is a topic of increasing discussion in the United States, with
proposals ranging from reform of the existing employer-based system of
insurance to a single-payer, public program. Depending upon their terms,
certain reform proposals could have an adverse impact on certain health care
sector issuers of tax-exempt securities. Because the outcome of current
discussions concerning health care, including the deliberations of President
Clintons task force on health care reform, is highly uncertain, the Advisor
cannot predict the likely impact of reform initiatives.
Mortgage-Backed Securities
Each Series, except for the Tax Exempt Series, may invest in
mortgage-backed securities issued or guaranteed by U.S. Government agencies or
instrumentalities such as the Government National Mortgage Association (GNMA),
Fannie Mae, and the Federal Home Loan Mortgage Corporation (FHLMC).
Obligations of GNMA are backed by the full faith and credit of the United
States Government. Obligations of Fannie Mae and FHLMC are not backed by the
full faith and credit of the United States Government but are considered to be
of high quality since they are considered to be instrumentalities of the
United States. The market value and interest yield of these mortgage-backed
securities can vary due to market interest rate fluctuations and early
prepayments of underlying mortgages. These securities represent ownership in
a pool of federally insured mortgage loans with a maximum maturity of 30
years. However, due to scheduled and unscheduled principal payments on the
underlying loans, these securities have a shorter average maturity and,
therefore, less principal volatility than a comparable 30-year bond. Since
prepayment rates vary widely, it is not possible to accurately predict the
average maturity of a particular mortgage-backed security. The scheduled
monthly interest and principal payments relating to mortgages in the pool will
be passed through to investors. Government mortgage-backed securities differ
from conventional bonds in that principal is paid back to the certificate
holders over the life of the loan rather than at maturity. As a result, there
will be monthly scheduled payments of principal and interest. In addition,
there may be unscheduled principal payments representing prepayments on the
underlying mortgages. Although these securities may offer yields higher than
those available from other types of U.S. Government securities,
mortgage-backed securities may be less effective than other types of
securities as a means of locking in attractive long-term rates because of the
prepayment feature. For instance, when interest rates decline, the value of
these securities likely will not rise as much as comparable debt securities
due to the prepayment feature. In addition, these prepayments can cause the
price of a mortgage-backed security originally purchased at a premium to
decline in price to its par value, which may result in a loss.
Each Series, except for the Tax Exempt Series, may also invest in
collateralized mortgage obligations (CMOs) and real estate mortgage investment
conduits (REMICs), which are rated in one of the two top categories by
Standard & Poors Corporation (S&P) or Moodys Investors Service (Moodys). 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 issuers general funds and additionally secured by a first
lien on a pool of single family detached properties). Many CMOs are issued
with a number of classes or series which have different maturities and are
retired in sequence. Investors purchasing such CMOs in the shortest
maturities receive or are credited with their pro rata portion of the
scheduled payments of interest and principal on the underlying mortgages plus
all unscheduled prepayments of principal up to a predetermined portion of the
total CMO obligation. Until that portion of such CMO obligation is repaid,
investors in the longer maturities receive interest only. Accordingly, the
CMOs in the longer maturity series are less likely than other mortgage
pass-throughs to be prepaid prior to their stated maturity. Although some of
mortgages underlying CMOs may be supported by various types of insurance, and
some CMOs may be backed by GNMA certificates of other mortgage pass-throughs
issued or guaranteed by U.S. Government agencies or instrumentalities, the
CMOs themselves are not generally guaranteed.
<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.
Risk Factors Relating to New York Tax Exempt Securities
The New York Tax Exempt Series invests primarily in the obligations of
the New York state government, state agencies, state authorities and various
governments, including countries, cities, towns, special districts, and
authorities. In general, the credit quality and credit risk of any issuer's
debt depend on the state and local economy, the health of the issuer's
finances, the amount of the issuer's debt, the quality of management, and the
strength of legal provisions in debt documents that protect debt holders.
Credit risk is usually lower wherever the economy is strong, growing and
diversified; financial operations are sound; and the debt burden is
reasonable. Obligations of local issuers may have markedly different
capacities to repay their obligations. Although the following discussions
focuses primarily on the strength of New York state, investors should be aware
that the performance of the Series will also depend on the value of its
obligations issued by local issuers.
The average rating among American states for full faith and credit state
debt is "Aa" and "AA" by Moody's Investors Services, Inc. and Standard &
Poor's Corporation, respectively. Against this measure and the criteria
listed above, the credit risk associated with direct obligations of the State
of New York and State agencies and authorities, including general obligation
and revenue bonds, "moral obligation" bonds, lease debt, appropriation debt,
and notes, compares somewhat unfavorably. During most of the last two
decades, the State's general obligation bonds have been rated just below this
average by both rating agencies. Additionally, the State's credit quality
could be characterized as more volatile than that of other states, since the
State's credit rating has been upgraded and downgraded much more often than
usual. This rating has fluctuated between "Aa" and "A" since the early 1970s.
Nonetheless, during this period the State's obligations could still be
characterized as providing upper medium grade security, with a strong capacity
for timely repayment of debt.
The wealth of New York State, as well as the size and diversity of its
economy, serve to limit the credit risk of its securities. New York ranks
third among the states in per capita personal income, which is 19% above the
U.S. average. During most of the 1980's, economic indicators for New York,
including income and employment growth and unemployment rates, outperformed
the nation as a whole. The engine of growth for the State in the past decade
was the surge in financial and other services, especially in New York City.
Manufacturing centers in upstate New York, which more closely parallel the
Midwestern economy, suffered during the 1970s and early 1980s. The upstate
economy continues to be characterized by cities with aging populations and
aging manufacturing plants.
<PAGE>
Credit risk in New York State is heightened by a large and increasing
debt burden, historically marginal financial operations, limited
revenue-raising flexibility, and the uncertainty of the future credit quality
of New York City, which comprises 40% of the State's population and economy.
Combined state and local debt per capita is about 50% above the U.S. average,
and debt service expenditures have been growing as a claim on the state and
City budget. New York's debt structure is also complicated. To circumvent
voter approval, most state debt is issued by agencies, is not backed by the
State's full faith and credit and therefore has lower credit ratings. In the
past, the State had to rely on short-term borrowing to meet its obligations,
but this practice has ended.
Buoyed by rapid economic growth in the mid-1980s, the State's financial
operations generated surpluses. Beginning in 1988, however, unforseen
consequences of federal tax reform, combined with a weakening economy,
resulted in a series of state budget deficits. New York's heavy commitment to
local aid and social welfare programs allowed expenditure growth to exceed
available revenues. This lack of budgetary discipline caused the State's
credit rating to fall. Moreover, New York's ability to raise revenues is
limited, since combined state and local taxes are among the highest in the
nation as a percent of personal income. Recent state budgets have been
balanced, and constitute operating surpluses have been recorded although the
State continues to have a nearly $3 billion GAAP accumulated deficit. State
personal income tax cuts have been offset by strong revenue performance
emanating from Wall Street and by solid expenditure restraint.
New York State's future credit quality will be heavily influenced by the
future of New York City. As the City's economic boom in the 1980s lifted the
State, the severe downturn in the financial services and real estate sectors,
which are concentrated in the City, has been serving as a drag on the State's
economy. Stabilization or recovery in these areas is crucial to the economic
and fiscal health of the City and the State. Moreover, the City faces
daunting challenges in combating deteriorating infrastructure and serious
social problems of housing, health, education and public safety. So far, City
government has demonstrated an ability to keep abreast of these problems, but
the City's and the State's ability to meet these challenges will be a
continuing risk factor. Buoyed by Wall Street, the addition of 140,000
private sector jobs over the 1994-97 period and public sector workforce
attrition, the City has posted recurring operating surpluses. The largest,
$856 million, was projected for fiscal year 1997. The City will shortly be
creating a new vehicle to access the debt markets, called the Transitional
Finance Authority, as G.O. capacity is limited due to archaic statutory
issuing formulas.
<PAGE>
Major areas of credit strength continue to exist in localities in Long
Island, and north of New York City where affluent population bases continue to
exist.
Convertible Securities
Convertible Securities in which the Series invest may be converted at
either a stated price or stated rate into underlying shares of common stock
thus enabling the investor to benefit from increases in the market price of
the common stock. Convertible securities provide higher yields than the
underlying equity, but generally offer lower yields than non-convertible
securities of similar quality. Like bonds, the value of convertible
securities fluctuates in relation to changes in interest rates and, in
addition, also fluctuates in relation to the underlying common stock.
Warrants
Warrants may be considered more speculative than certain other types of
investments because they (1) do not carry rights to dividends or voting rights
with respect to the securities which it entitles the holder to purchase, and
(2) do not represent any rights in the assets of the issuer.
Investment in Restricted Securities
Each Series may invest in restricted securities subject to the 10% net
asset limitation regarding illiquid securities. Restricted securities are
securities which were originally sold in private placements and which have not
been registered under the Securities Act of 1933, as amended (the 1933 Act).
Such securities generally have been considered illiquid because they may be
resold only subject to statutory restrictions and delays or if registered
under the 1933 Act. The Securities and Exchange Commission (SEC) adopted Rule
144A to provide for a safe harbor exemption from the registration requirements
of the 1933 Act for resales of restricted securities to qualified
institutional buyers. The result has been the development of a more liquid
and efficient institutional resale market for restricted securities. Rule
144A securities may be liquid if properly determined by the Board of
Directors.
<PAGE>
INVESTMENT RESTRICTIONS
Each Series has adopted certain restrictions set forth below (in addition
to those indicated in the prospectus) as fundamental policies, which may not
be changed without the favorable vote of the holders of a majority of the
Funds outstanding voting securities, which means a vote of the holders of the
lesser of (i) 67% of the shares represented at a meeting at which more than
50% of the outstanding shares are represented or (ii) more than 50% of the
outstanding shares.
A Series may not:
1. Purchase securities on margin (but a Series may obtain such
short-term credits as may be necessary for the clearance of transactions);
2. Make short sales of securities or maintain a short position, unless
at all times when a short position is open it owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short (short sale against-the-box), and unless
not more than 25% of a Series net assets (taken at a current value) are held
as collateral for such sales at any one time;
3. Issue senior securities or pledge its assets, except that each
Series, may invest in futures contracts and related options;
4. Buy or sell commodities or commodity contracts (the Small Cap
Series, Energy Series, Technology Series, Financial Services Series,
International Series, Life Sciences Series, Global Fixed Income Series and
the World Opportunities Series, also expressly provide that forward foreign
currency contracts are not considered commodities or commodity contracts for
purposes of this restriction) or real estate or interest in real estate,
although it may purchase and sell securities which are secured by real estate
and securities of companies which invest or deal in real estate.
5. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter
under certain federal securities laws;
6. Make investments for the purpose of exercising control or
management;
7. Participate on a joint or joint and several basis in any trading
account in securities;
8. Under the Investment Company Act of 1940 and the rules and
regulations thereunder, each Series is prohibited from acquiring the
securities of other investment companies if, as a result of such acquisition,
such Series owns more than 3% of the total voting stock of the company;
securities issued by any one investment company represent more than 5% of its
total assets; or securities (other than treasury stock) issued by all
investment companies represent more than 10% of the total assets of a Series.
A Series purchase of such investment companies would indirectly bear a
proportionate share of the operating expenses of such investment companies,
including advisory fees. All Series, except the World Opportunities Series,
will not purchase or retain securities issued by open-end investment companies
(other than money market funds for temporary investment).
<PAGE>
9. Invest in interests in oil, gas or other mineral exploration or
development programs, although it may invest in the common stocks of companies
which invest in or sponsor such programs;
10. Purchase foreign securities if as a result of the purchase of such
securities more than 10% of a Series assets (25% in the case of the Life
Sciences Series and 100% in the case of the International Series, Global
Fixed Income Series and World Opportunities Series) would be invested in
foreign securities provided that this restriction shall not apply to foreign
securities that are listed on a domestic securities exchange or represented by
American depository receipts that are traded either on a domestic securities
exchange or in the United States on the over-the-counter market.
11. The Funds investment policies with respect to options on securities
and with respect to stock index and currency futures and related options are
subject to the following fundamental limitations: (1) with respect to any
Series, the aggregate value of the securities underlying calls or obligations
underlying puts determined as of the date options are sold shall not exceed
25% of the assets of the Series; (2) a Series will not enter into any option
transaction if immediately thereafter, the aggregate premiums paid on all such
options which are held at any time would exceed 20% of the total net assets of
the Series; (3) the aggregate margin deposits required on all futures or
options thereon held at any time by a Series will not exceed 5% of the total
assets of the Series; (4) the security underlying the put or call is within
the investment policies of each Series and the option is issued by the Options
Clearing Corporations; and (5) the Series may buy and sell puts and calls on
securities and options on financial futures if such options are listed on a
national securities or commodities exchange.
12. The Fund will not purchase or retain securities of an issuer if an
officer or director of such issuer is an officer or director of the Fund or
its investment adviser and one or more of such officers or directors of the
Fund or its investment adviser owns beneficially more than 1/2% of the shares
or securities of such issuer and all such directors and officers owning more
than 1/2% of such shares or securities together own more than 5% of such
shares or securities.
13. The Fund will not purchase securities of any company which has
(with predecessors) a record of less than three years continuous operation if
as a result more than 5% of the Portfolios assets would be invested in
securities of such companies.
<PAGE>
14. Invest more than 5% of the value of its total net assets in
warrants (except for the Global Fixed Income Series, New York Tax Exempt
Series, Ohio Tax Exempt Series and the Diversified Tax Exempt Series).
Included within that amount, but not to exceed 2% of the value of the Series
net assets, may be warrants which are not listed on the New York or American
Stock Exchange.
Two Series are subject to the following investment limitations which are
not fundamental:
1. In the case of the Energy Series, the Public Utility Holding Company
Act of 1935 (PUHCA) places certain restrictions on affiliates of public
utility companies as defined in PUHCA. The Energy Series will not acquire 5%
or more of the outstanding voting securities of a public utility in order to
avoid imposition of these restrictions.
2. The Financial Services Series may purchase securities of an issuer
which derived more than 15% of its gross revenues in its most recent fiscal
year from securities-related activities, subject to the following conditions
and applicable SEC regulations:
a. the purchase cannot cause more than 5% of the Series total assets to
be invested in all securities of that issuer;
b. for an equity security--(i) the purchase cannot result in the Series
owning more than 5% of the issuers outstanding securities in that class; and
(ii) at the time of purchase, the security must meet the Federal Reserve
Boards definition of a margin security (i.e., registration on a national
securities exchange or listing by the Federal Reserve Board of Governors on
the current OTC Margin Stock list).
c. for a debt security--(i) the purchase cannot result in the Series
owning more than 10% of the outstanding principal amount of the issuers debt
securities; and (ii) at the time of purchase, the security must be of at least
investment grade quality (i.e., at least BBB/Baa as determined by one of the
major rating services or, if not rated, judged to be equivalent by the Series
Directors). See the Appendix to the Prospectus for an explanation of these
ratings.
All of the above percentage limitations, as well as the issuers gross
revenue test, are applicable at the time of purchase. With respect to
warrants, rights, and convertible securities, a determination of compliance
with the above limitations shall be made as though such warrant, right, or
conversion privilege had been exercised. The Financial Services Series will
not be required to divest its holdings of a particular issuer when
circumstances subsequent to the purchase would cause one of the above
conditions to not be met. The purchase of a general partnership interest in a
securities-related business is prohibited.
<PAGE>
Portfolio Turnover
An annual portfolio turnover rate is, in general, the percentage computed
by taking the lesser of purchases or sales of portfolio securities (excluding
certain debt securities) for a year and dividing that amount by the monthly
average of the market value of such securities during the year. Each Series
expects that its turnover rate will be less than 100% on a long-term basis .
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
Prior to February, 1998, the Fund was named Manning & Napier Fund, Inc.
MANAGEMENT
The Directors and officers of the Fund are:
<TABLE>
<CAPTION>
<S> <C>
Position Principal occupations
Name and address with Fund During past five years
B. Reuben Auspitz* Vice Executive Vice President, Manning
1100 Chase Square President & Napier Advisors, Inc., since 1983;
Rochester, NY 14604 & Director President and Director, Manning &
Napier Investor Services, Inc. since
1990; Director, President and
Treasurer, Manning & Napier Advisory
Advantage Corporation, since 1990;
Director, Manning & Napier Leveraged
Investment Co., since 1994; Director
and Chairman, Exeter Trust, Co.,
since 1994; Member, Qualified Plan
Services, L.L.C. since 1995; Member,
Manning & Napier Associates, L.L.C.
since 1995; Member, Manning & Napier
Capital Co., L.L.C. since 1995;
President and Director, Manning &
Napier Insurance Fund, Inc. since
1995
Martin Birmingham Director Trustee, The Freedom Forum, since 1980;
21 Brookwood Road Director Emeritus, ACC Corporation
Pittsford, NY 14534 since 1994; Director Manning & Napier
Insurance Fund, Inc. since 1995
Harris H. Rusitzky Director Formerly Director and Corporate
One Grove Street Executive, Serv-Rite Corporation from
Pittsford, NY 14534 1965-1994; President, Blimpie of
Central New York and The Greening Group
since 1994; Director, Manning & Napier
Insurance Fund, Inc., since 1995.
<PAGE>
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;
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 14614 1987; Director, Hahn Automotive since
1994; Director, Fannie Mae since 1995;
Director, Manning & Napier Insurance
Fund, Inc. since 1996
William Manning President President, Director and co-founder,
1100 Chase Square Manning & Napier s, Inc., since
Rochester, NY 14604 1970; President, Manning & Napier Fund,
Inc., since 1985; President, Director,
Founder & CEO, Manning Ventures, Inc.,
since 1992; President, Director,
Founder & CEO, KSDS, Inc., since 1992;
President, Kent Display Systems, Inc.,
since 1992; President, Director,
Founder & CEO, Synmatix Corporation,
since 1993; President, Director,
Founder & CEO, Manning Leasing, Inc.
(dba Williams International Air, Inc.),
since 1994; President/Treasurer,
Manning & Napier Leveraged Investing
Company, Inc., since 1994; Member,
Manning & Napier Capital Co., L.L.C.
Qualified Plan Services, L.L.C.,since
1995; Director, CEO, President &
Founder, Burgandy Car Service, Inc.
1996 - 1997; Director, CEO, President &
Founder, BCS, Inc., since 1996.
Beth Hendershot Galusha, CPA Chief Chief Financial Officer, Manning &
1100 Chase Square Financial & Napier Advisors, Inc., since 1987;
Rochester, NY 14604 Accounting Treasurer, Manning & Napier Investor
Officer, Services, Inc. since 1990; Director,
Treasurer Manning & Napier Advisory Advantage
Corporation, since 1993; Member,
Manning & Napier Capital Co., L.L.C.,
since 1995; Treasurer, Exeter Trust
Company since 1995; Chief Financial &
Accounting Officer, Treasurer, Manning
& Napier Insurance Fund, Inc. since
1997.
<PAGE>
Jodi L. Hedberg Corporate Compliance Administrator,
1100 Chase Square Secretary Manning & Napier Advisors, Inc., since
Rochester, NY 14604 1991; Senior Compliance Administrator,
Manning & Napier Advisors, Inc., since
1994; Compliance Manager, Manning &
Napier Advisors, Inc., since 1995;
Corporate Secretary, Manning & Napier
Insurance Fund, Inc., since 1997.
</TABLE>
* 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 and 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 DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Name Position Aggregate Pension Est. Annual Total
from Registrant Compensation Benefits upon Compensation
Retirement From
Registrant
B. Reuben
Auspitz* Director $ -0- N/A N/A $ -0-
Martin
Birmingham Director $29,500 N/A N/A $29,500
Harris H.
Rusitzky Director $29,875 N/A N/A $29,875
Peter L.
Faber Director $29,500 N/A N/A $29,500
Stephen B.
Ashley Director $29,875 N/A N/A $29,875
</TABLE>
*Interested Director, within the meaning of the Investment Company Act of 1940
(the 1940 Act).
<PAGE>
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 March 23, 1998
NAME AND ADDRESS OF HOLDER OF RECORD PERCENTAGE OF SERIES
SMALL CAP SERIES
Manning & Napier Advisors, Inc. 5.82%
FBO American Electric Power Co.
Pension Plan
1100 Chase Square
Rochester, NY 14604
INTERNATIONAL SERIES
Manning & Napier Advisors, Inc. 6.42%
FBO American Electric Power Co.
Pension Plan
1100 Chase Square
Rochester, NY 14604
OHIO TAX EXEMPT SERIES
Manning & Napier Advisors, Inc. 11.12%
FBO Franklin Eck
3300 Riverside Drive
Columbus, OH 43221
Manning & Napier Advisory 6.84%
Advantage Corporation, Inc.
FBO Trust U/A Estelle B. Wright
FBO Jane W. Haynam
1100 Chase Square
Rochester, NY 14604
NEW YORK TAX EXEMPT SERIES
Manning & Napier Advisors, Inc. 5.51%
FBO Dolomite Products Company, Inc.
1100 Chase Square
Rochester, NY 14604
<PAGE>
The Advisor
Exeter Asset Management (the Advisor), a division of Manning & Napier
Advisors, Inc. (MNA), acts as the Funds investment advisor. The Fund pays the
Advisor for the services performed a fee at the annual rate of: 1% of the
daily net assets of the Small Cap Series, Energy Series, Technology Series,
Financial Services Series, International Series, Life Sciences Series, Global
Fixed Income Series, World Opportunities Series, and .50% of the daily net
assets of the New York Tax Exempt Series, Ohio Tax Exempt Series and the
Diversified Tax Exempt Series.
For periods ended December 31, (unless otherwise indicated), the aggregate
total of fees paid by the Series to the Advisor were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Series 1995 1996 1997
Fees Paid Fees Fees Paid Fees Fees Paid Fees
Waived Waived Waived
Small Cap $1,296,858 N/A $1,204,107 N/A $1,169,030 N/A
Technology $ 557,701 N/A $ 938,964 N/A $316,536(3) N/A
International $1,084,583 N/A $1,363,591 N/A $1,804,670 N/A
World
Opportunities N/A N/A $ 224,344(1) $ 0(1) $ 923,011 N/A
Life Sciences $ 451,038 N/A N/A N/A N/A N/A
New York Tax
Exempt $ 114,847 N/A $ 160,913 N/A $ 207,477 N/A
Ohio Tax Exempt $ 19,239 $4,398 $ 33,382 $ 1,181 $ 43,617 N/A
Diversified Tax
Exempt $ 50,130 $ 0 $ 74,427 $ 0 $ 96,872 N/A
Global Fixed
Income N/A N/A N/A N/A $209,630(2) N/A
</TABLE>
(1) For the period September 6, 1996 (Commencement of Operations) to December
31, 1996.
(2) For the period October 31, 1997 (Commencement of Operations) to December
31, 1997
(3) For the period January 1, 1997 to April 16, 1997 (Cessation of
Operations)
<PAGE>
The investment advisory agreement (the Agreement) between the Fund and
the Advisor states that the Advisor shall give the Fund the benefit of its
best judgment and effort in rendering services thereunder, but the Advisor
shall not be liable for any loss sustained by reason of the purchase, sale or
retention of any security, whether or not such purchase, sale or retention
shall have been based upon its own investigation and research or upon
investigation and research made by any other individual, firm or corporation,
if such purchase, sale or retention shall have been made and such other
individual, firm or corporation shall have been selected in good faith. The
Agreement also states that nothing contained therein shall, however, be
construed to protect the Advisor against any liability to the Fund or its
security holders by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of its reckless
disregard of its obligations and duties under the Agreement.
The Agreement also provides that it is agreed that the Advisor shall have
no responsibility or liability for the accuracy or completeness of the Funds
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 Funds Articles of
Incorporation.
On April 30, 1993, the Advisor became the Funds Transfer Agent. For
servicing the New York Tax Exempt Series, Ohio Tax Exempt Series, Diversified
Tax Exempt Series, in this capacity, for the fiscal year ended December 31,
1995, the Advisor received $9,054 from the Fund. For servicing the Ohio Tax
Exempt Series, New York Tax Exempt Series and the Diversified Tax Exempt
Series in this capacity, for the fiscal year ended December 31, 1996 and
December 31, 1997, the Advisor received $12,960 and $16,703, respectively
from the Fund. The Advisor will not charge for its Transfer Agent Services to
the other Series.
Distribution Of Fund Shares
Manning & Napier Investor Services, Inc. (the Distributor) acts as
Distributor of the Fund shares and is located at the same address as the
Advisor and the Fund. The Distributor and the Fund are parties to a
distribution agreement dated September 25, 1997 (the Distribution Agreement)
which applies to each Class of shares.
<PAGE>
The Distribution Agreement will remain in effect for a period of two
years after the effective date of the agreement and is renewable annually.
The Distribution Agreement may be terminated by the Distributor, by a majority
vote of the Directors who are not interested persons and have no financial
interest in the Distribution Agreement (Qualified Directors) or by a majority
of the outstanding shares of the Fund upon not more than 60 days written
notice by either party or upon assignment by the Distributor. The Distributor
will not receive compensation for distribution of Class A shares of the
Portfolio. The Fund has adopted Plans of Distribution with respect to the
Class B, C, D and E Shares (the Plans), pursuant to Rule 12b-1 under the 1940
Act. The Advisor may impose separate requirements in connection with employee
purchases of the Class A Shares of the Series.
The Plans
The Fund has adopted each Plan in accordance with the provisions of Rule
12b-1 under the 1940 Act which regulates circumstances under which an
investment company may directly or indirectly bear expenses relating to the
distribution of its shares. Continuance of each Plan must be approved
annually by a majority of the Directors of the Fund and by a majority of the
Qualified Directors. Each Plan requires that quarterly written reports of
amounts spent under the Plan and the purposes of such expenditures be
furnished to and reviewed by the Directors. A Plan may not be amended to
increase materially the amount which may be spent thereunder without approval
by a majority of the outstanding shares of the respective class of the Fund.
All material amendments of a Plan will require approval by a majority of the
Directors of the Fund and of the Qualified Directors.
The Distributor expects to allocate most of its fee to investment
dealers, banks or financial service firms that provide distribution,
administrative and/or shareholder services (Financial Intermediaries). The
Financial Intermediaries may provide for their customers or clients certain
services or assistance, which may include, but not be limited to, processing
purchase and redemption transactions, establishing and maintaining shareholder
accounts regarding the Fund, and such other services as may be agreed to from
time to time and as may be permitted by applicable statute, rule or
regulation. The Distributor may, in its discretion, voluntarily waive from
time to time all or any portion of its distribution fee and the Distributor is
free to make additional payments out of its own assets to promote the sale of
Fund shares.
Class B, C, D and E shares were not offered prior to the end of the
Series= respective fiscal year ends and therefore the Distributor received no
compensation from the Series for such periods.
Custodian and Independent Accountant
The custodian for the 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 a sub-custodian on
behalf of the foreign securities held by the Fund, provided that Boston Safe
Deposit and Trust Company shall remain liable for all its duties as custodian.
Coopers & Lybrand L.L.P., One Post Office Square, Boston, MA 02109 are the
independent accountants for the Series.
<PAGE>
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 Advisors 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 Advisors 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 Funds brokerage commissions,
whether or not useful to the Fund may be useful to the Advisor in managing the
accounts of the Advisors other advisory clients. Similarly, the research
received for the commissions of such accounts may be useful to the Fund.
<PAGE>
For periods ended December 31, (unless otherwise indicated), the aggregate
total brokerage commissions paid by the Series were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1995 1996 1997
Series
Small Cap $327,763 $ 214,565 $377,679
Technology $ 73,963 $ 151,177 $ 77,155
International $157,084 $ 49,487 $258,267
World Opportunities N/A $205,556(1) $342,033
Global Fixed Income N/A N/A N/A
Life Sciences $132,203 N/A N/A
New York Tax Exempt $ 0 $ 0 $ 0
Ohio Tax Exempt $ 0 $ 0 $ 0
Diversified Tax Exempt $ 0 $ 0 $ 0
</TABLE>
(1) For the period September 6, 1996 (Commencement of Operations) to December
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 Funds
shares, common stocks that are listed on national securities exchanges or the
NASDAQ National Market System are valued at the last sale price on the
exchange on which each stock is principally traded as of the close of the New
York Stock Exchange (which is currently 4:00 p.m., Eastern time), or, in the
absence of recorded sales, at the closing bid prices on such exchanges or on
such System. Unlisted securities that are not included in such National
Market System are valued at the quoted bid prices in the over-the-counter
market. All securities initially expressed in foreign currencies will be
converted to U.S. dollars at the exchange rates quoted at the close of the New
York markets. Short securities positions are accounted for at value, using
the same method of valuation described above. Securities and other assets for
which market quotations are not readily available are valued by appraisal at
their fair value as determined in good faith by the Advisor under procedures
established by and under the general supervision and responsibility of the
Funds Board of Directors. The Advisor may use a pricing service to obtain the
value of the Funds 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 Funds Board of Directors. Several pricing services are available, one or
more of which may be used as approved by the Funds Board of Directors.
<PAGE>
REDEMPTION OF SHARES
Payment for shares redeemed
Payment for shares presented for redemption may be delayed more than
three days only for (1) any period (A) during which the New York Stock
Exchange is closed other than customary 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; (3) as disclosed in the Prospectus; or (4) for such other periods as
the Securities and Exchange Commission may by order permit.
Redemption in Kind
If the Board of Directors determines that it would be detrimental to the
best interests of the remaining shareholders of the Fund to make payment
wholly or partly in cash, the Fund may pay the redemption price in whole or in
part by a distribution in kind of securities from the portfolio of the Fund,
in lieu of cash in conformity with applicable rules of the Securities and
Exchange Commission. The Fund, however, has elected to be governed by Rule
18f-1 under the 1940 Act pursuant to which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or one per cent of the net
asset value of the Fund during any 90 day period for any one shareholder.
Should redemptions by any shareholder exceed such limitation, the Fund will
have the option of redeeming the excess in cash or in kind. If shares are
redeemed in kind, the redeeming shareholder might incur brokerage costs in
converting the assets into cash.
Federal Tax Treatment of Dividends and Distributions
The following is only a summary of certain 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 Internal Revenue Code of 1986, as amended (the Code), and the
regulations issued thereunder as in effect on the date of this Statement of
Additional Information. New legislation, 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.
<PAGE>
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 expect to be relieved of
the federal income taxes on net 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
Series total 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 Series total 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 short-term trading and
in certain hedging transactions and may limit the range of the Series
investments. 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
investment company taxable income (generally, net investment income plus the
excess, if any, of net short-term capital gain over net long-term capital
losses) 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 Series current or
accumulated earnings and profits. Such distributions will generally qualify
for the corporate dividends received deduction for corporate shareholders.
<PAGE>
If a Series fails to distribute in a calendar year at least 98% of its
ordinary income for the year and 98% of its ordinary income for the year and
98% of its capital gain net income (the excess of short and long term capital
gain 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 intends to make sufficient distributions to
avoid imposition of this tax.
Distributions declared in October, November, or December to shareholders
or 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
prior year 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 eighteen months, mid-term capital gain
if the shares have been held for more than twelve months but not more than
eighteen months, and otherwise 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 extend of the net capital gain distribution.
Long-term capital gains are currently taxed at a maximum rate of 20%, mid-term
capital gains are currently taxed at a maximum rate of 28%, and short-term
capital gains are currently taxed at ordinary income tax rates.
In certain cases, the Fund 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 taxpayer 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 shareholders ultimate U.S. tax liability.
A Series transactions in certain futures contracts, options, forward
contracts, foreign currencies, foreign debt securities, 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 Series assets,
convert short-term capital losses into long-term capital losses, or otherwise
affect the character of the Series income. 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. 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 Funds Series.
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.
The following tax information relates specifically to certain of the
Fund's Series.
ADDITIONAL TAX INFORMATION CONCERNING THE NEW YORK TAX EXEMPT, OHIO TAX
EXEMPT AND DIVERSIFIED TAX EXEMPT SERIES -- As indicated in the Prospectuses
of the New York Tax Exempt Series, Ohio Tax Exempt Series and Diversified Tax
Exempt Series (the "Tax Exempt Series") are designed to provide shareholders
with current tax exempt interest income and is not intended to constitute a
balanced investment program. Certain recipients of Social Security and
railroad retirement benefits may be required to take into account income from
the Tax Exempt Series in determining the taxability of their benefits. In
addition, the Tax Exempt Series may not be an appropriate investment for
shareholders that are "substantial users" or persons related to such users of
facilities financed by private activity bonds or industrial revenue bonds. A
"substantial user" is defined generally to include certain persons who
regularly use a facility in their trade or business. Shareholders should
consult their tax advisers to determine the potential effect, if any, on their
tax liability of investing in the Tax Exempt Series.
<PAGE>
If, at the close of each quarter of its taxable year, at least 50% of the
value of a Tax Exempt Series' total assets consists of securities the interest
on which is excludable from gross income, such Series may pay "exempt-interest
dividends" to its shareholders. The policy of the Tax Exempt Series is to pay
each year as dividends substantially all of its interest income, net of
certain deductions. An exempt-interest dividend is any dividend or part
thereof (other than a capital gain dividend) paid by a Tax Exempt Series, and
designated by the Series as an exempt-interest dividend in a written notice
mailed to shareholders withing 60 days after the close of such Series' taxable
year. However, aggregate exempt-interest dividends for the taxable year may
not exceed the net interest from Municipal Securities and other securities
exempt from the regular Federal income tax received by the Tax Exempt Series
during the taxable year. The percentage of total dividends paid for any
taxable year which qualifies as Federal exempt-interest dividends will be the
same for all shareholders receiving dividends from the Tax Exempt Series
during such year, regardless of the period for which the shares were held.
Exempt-interest dividends may nevertheless be subject to the alternative
minimum tax (the "Alternative Minimum Tax") imposed by Section 55 of the Code
or the environmental tax (the "Environmental Tax") imposed by Section 59A of
the Code. The Environmental Tax is imposed at the rate of 0.12% and applies
only to corporate taxpayers. The Alternative Minimum Tax and the
Environmental Tax may be imposed in two circumstances. First, exempt-interest
dividends derived from certain "private activity bonds" issued after August 7,
1986, will generally be an item of tax preference (and therefore potentially
subject to the Alternative Minimum Tax and the Environmental Tax) for both
corporate shareholders, all exempt-interest dividends, regardless of when the
bonds from which they are derived were issued or whether they were derived
from private activity bonds, will be included in the corporation's "adjusted
current earnings", as defined in Section 56(g) of the Code, in calculating the
corporation's alternative minimum taxable income for purposes of determining
the Alternative Minimum Tax and the Environmental Tax.
The deduction otherwise allowable to property and casualty insurance
companies for "losses incurred" will be reduced by an amount equal to a
portion of exempt-interest dividends received or accrued during the taxable
year. Foreign corporations engaged in a trade or business in the United
States will be subject to a "branch profits tax" on their "dividend equivalent
amount" for the taxable year, which will include exempt-interest dividends.
Certain Subchapter S corporations may also be subject to taxes on their
"passive investment income", which could include exempt-interest dividends.
Issuers of bonds purchased by the Tax Exempt Series (or the beneficiary
of such bonds) may have made certain representations or covenants in
connection with the issuance of such bonds to satisfy certain requirements of
the Code that must be satisfied subsequent to the issuance of such bonds.
Investors should be aware that exempt-interest dividends derived from such
bonds may become subject to Federal income taxation retroactively to the date
thereof if such representations are determined to have been inaccurate or if
the issuer of such bonds (or the beneficiary of such bonds) fails to comply
with the covenants.
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Under the Code, if a shareholder receives an exempt-interest dividend
with respect to any share and such share is held for six months or less, any
loss on the sale or exchange of such share will be disallowed to the extent of
the amount of such exempt-interest dividend.
Although the Tax Exempt Series do not expect to earn any investment
company taxable income (as defined by the Code), any income earned on taxable
investments will be distributed and will be taxable to shareholders as
ordinary income. In general, "investment company taxable income" comprises
taxable net investment income plus the excess, if any, of and net short-term
capital gains over net long-term capital losses. The Tax Exempt Series would
be taxed on any undistributed investment company taxable income. Since any
such income will be distributed, it is anticipated that no such tax will be
paid by the Tax Exempt Series.
Although each Tax Exempt Series expects to qualify as a "regulated
investment company" and to be relieved of all or substantially all Federal
income taxes, depending upon the extent of its activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located, or in which it is otherwise deemed to be
conducting business, the Tax Exempt Series may be subject to the tax laws of
such states or localities. In addition, in those states and localities which
have income tax laws, the treatment of the Tax Exempt Series and their
shareholders under such laws may differ from their treatment under Federal
income tax laws. Shareholders are advised to consult their tax advisers
concerning the application of state and local taxes.
If for any taxable year a Tax Exempt Series does not qualify for the
special tax treatment afforded regulated investment companies, all of its
taxable income will be subject to Federal tax at regular corporate rates
(without any deduction for distributions to its shareholders). Moreover, upon
distribution to shareholders, the Tax Exempt Series' income, including
Municipal Securities interest income, will be taxable to shareholders to the
extent of such Series' current and/or accumulated earnings and profits.
FINANCIAL STATEMENTS
THE FUND
The financial statements of the Series are incorporated by reference into this
Statement of Additional Information. The financial statements, if any, with
respect to the Series have been audited by Coopers & Lybrand L.L.P.,
independent public accountants to such Series. The Series annual report(s)
are incorporated herein by reference in reliance upon their authority as
experts in accounting and auditing. A copy of the 1997 Annual Report(s) to
Shareholders must accompany the delivery of this Statement of Additional
Information.
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