EXETER FUND, INC.
P.O. Box 41118
Rochester, New York 14604
1-800-466-3863
Defensive Series
Blended Asset Series I
Blended Asset Series II
Maximum Horizon Series
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 Defensive Series, Blended Asset Series I, Blended Asset
Series II, and the Maximum Horizon Series of the Fund (individually and
collectively, the "Series").
The primary objective of the Defensive Series is preservation of capital
(i.e., to minimize the risk of negative returns), with a secondary objective
of long-term growth. The Advisor will seek to achieve this objective by
using a conservative asset mix as well as conservative investment strategies
within those asset classes. This conservative investment approach which
attempts to protect capital while simultaneously seeking growth opportunities
is what is intended by use of the term defensive.
The investment objective of the Blended Asset Series I is to seek with
equal emphasis long-term growth and preservation of capital. The Advisor
seeks to reduce the risk of negative returns while seeking to obtain capital
growth when it believes valuations and market conditions are favorable.
The primary objective of the Blended Asset Series II is to provide
long-term growth of capital. The secondary objective is the preservation of
capital.
The primary objective of the Maximum Horizon Series is to achieve the
high level of long-term capital growth typically associated with the stock
market.
This Prospectus provides you with the basic information you should know
before investing in the Series. The Fund's other series are offered through
separate prospectuses. You should read this Prospectus and keep it for future
reference. A Statement of Additional Information dated February 27, 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 HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is February 27, 1998.
<PAGE>
EXETER FUND, INC.
Defensive Series
Blended Asset Series I
Blended Asset Series II
Maximum Horizon 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 2
Financial Highlights 12
The Fund 16
Risk and Investment Objectives and Policies 16
Risk and Additional Information about Investment Policies 18
Principal Investment Restrictions 22
Management 23
Distribution of Fund Shares 23
Yield and Total Return 24
Purchases, Exchanges and Redemptions of Shares 24
Share Price 26
Dividends and Tax Status 27
General Information 28
Appendix 29
<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 change. Subsequent exchanges are subject to a fee of $15.
Annual Operating Expenses - Class A Shares
The following information provides (i) a tabular summary of expenses relating
to the annual operating expenses of the Class A Shares of the Series and (ii)
an example illustrating the dollar cost of such expenses on a $1,000
investment.
Annual Operating Expenses of the Class A Shares of Each Series
(as a percentage of average net assets):
<TABLE>
<CAPTION>
Blended Blended Maximum
Defensive Asset Asset Horizon
Series 1 Series I 1 Series II 1 Series 1
<S> <C> <C> <C> <C>
Management Fees (After
Reduction of Fees) 0.00%2 0.96%2 1.00% 0.65%2
Rule 12b-1 Fees None None None None
Other Expenses(After
Expense Reimbursement) 1.00%2 0.24%2 0.15% 0.55%2
Total Operating Expenses
(After Fee Reductions
and Expense
Reimbursements) 1.00%2 1.20% 1.15%3 1.20%2
</TABLE>
1 The Defensive Series, Blended Asset Series I, Blended Asset Series II,
and Maximum Horizon Series offered only Class A Shares during the year
ended October 31, 1997; therefore, actual management fees and other
expenses are used above.
2 The Advisor has agreed to waive its management fees and/or reimburse
expenses of the Series, if necessary, if such fees would cause the total
annual operating expenses of the Class A Shares of the Series, as a
percentage of average daily net assets, to exceed the percentages set
forth in the table above. As a result of these reductions, the
Management Fees stated above are lower than contractual fees stated under
"Management." The Advisor reserves the right to terminate any of its fee
waivers at any time in its sole discretion. For further information on
expenses, see "Management." The following sets forth, for Class A Shares
of such Series, (i) management fees absent fee waivers, (ii) other
expenses absent expense reimbursements and (iii) expected total operating
expenses absent fee waivers and/or expense reimbursements.
<TABLE>
<CAPTION>
Class A Shares Defensive Blended Asset Maximum
Series SeriesI Horizon Series
<S> <C> <C> <C>
Management Fees...........0.80% 1.00% 1.00%
Other Expenses............1.79% 0.24% 0.55%
Total Operating Expenses..2.59% 1.24% 1.55%
</TABLE>
3 The Advisor has agreed to waive its management fees and/or reimburse
expenses of the Series, if necessary, if such fees would cause the
total annual operating expenses of the Class A Shares of the
Series, as a percentage of average daily net assets, to exceed 1.20%.
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.
<PAGE>
Example - Class A Shares
You would pay the following expenses on a $1,000 investment in Class A Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Defensive Series $ 10 $ 32 $ 55 $ 122
Blended Asset Series I 12 38 66 145
Blended Asset Series II 12 37 63 140
Maximum Horizon Series 12 38 66 145
</TABLE>
The example above should not be considered a representation of future
expenses. Actual expenses may be greater or lesser than those shown. The
Advisor in its discretion may terminate its voluntary fee waivers and/or
reimbursements at any time. Absent the waiver of fees or reimbursement of
expenses, the amounts in the examples above would be greater.
<PAGE>
Annual Operating Expenses - Class B Shares
The following information provides (i) a tabular summary of expenses relating
to the annual operating expenses of the Class B Shares of the Series and (ii)
an example illustrating the dollar cost of such expenses on a $1,000
investment.
Annual Operating Expenses of the Class B Shares of Each Series (as a
percentage of average net assets):
<TABLE>
<CAPTION>
Defensive Blended Asset Blended Asset Maximum
Series 1 Series I 1 Series II 1 Horizon Series 1
<S> <C> <C> <C> <C>
Management Fees
(After Reduction
of Fees).... 0.00%2 0.96%2 1.00% 0.65%2
Rule 12b-1 Fees3 1.00% 1.00% 1.00% 1.00%
Other Expenses
(After Expense
Reimbursement) 1.00%2 0.24%2 0.15% 0.55%2
Total Operating
Expenses (After Fee
Reductions and
Expense
Reimbursements) 2.00%2 2.20%2 2.15%4 2.20%2
</TABLE>
1 The Defensive Series, Blended Asset Series I , Blended Asset Series II,
and Maximum Horizon Series offered only Class A Shares during the year
ended October 31, 1997; therefore, the actual management fees and other
expenses of Class A Shares of the Series are used above.
2 The Advisor has agreed to waive its management fees and/or reimburse
expenses of the Series, if necessary, if such fees would cause the total
annual operating expenses of the Class B Shares of the Series, as a
percentage of average daily net assets, to exceed the percentages set
forth in the table above. As a result of these reductions, the Management
Fees stated above are lower than contractual fees stated under
"Management." The Advisor reserves the right to terminate any of its fee
waivers at any time in its sole discretion. For further information on
expenses, see "Management." The following sets forth, for Class B Shares
of such Series, (i) management fees absent fee waivers, (ii) other
expenses absent expense reimbursements, (iii) Rule 12b-1 fees and (iv)
expected total operating expenses absent fee waivers and/or expense
reimbursements.
<TABLE>
<CAPTION>
Class B Shares Defensive Blended Asset Maximum Horizon
Series Series I Series
<S> <C> <C> <C>
Management Fees........... 0.80% 1.00% 1.00%
Rule 12b-1 Fees........... 1.00% 1.00% 1.00%
Other Expenses............ 1.79% 0.24% 0.55%
Total Operating Expenses.. 3.59% 2.24% 2.55%
</TABLE>
3 Of the Rule 12b-1 fees for the Class B shares, 0.25% represents
shareholder service fees.
4 The Advisor has agreed to waive its management fees and/or reimburse
expenses of the Series, if necessary, if such fees would cause the total
annual operating expenses of the Class B Shares of the Series, as a
percentage of average daily net assets, to exceed 2.20%.
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").
<PAGE>
Example - Class B Shares
You would pay the following expenses on a $1,000 investment in Class B Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Defensive Series $20 $63 $108 $233
Blended Asset Series I 22 69 118 253
Blended Asset Series II 22 67 115 248
Maximum Horizon Series 22 69 118 253
</TABLE>
The example above should not be considered a representation of future
expenses. Actual expenses may be greater or lesser than those shown. The
Advisor in its discretion may terminate its voluntary fee waivers and/or
reimbursements at any time. Absent the waiver of fees or reimbursement of
expenses, the amounts in the examples above would be greater.
<PAGE>
Annual Operating Expenses - Class C Shares
The following information provides (i) a tabular summary of expenses relating
to the annual operating expenses of the Class C Shares of the Series and (ii)
an example illustrating the dollar cost of such expenses on a $1,000
investment.
Annual Operating Expenses of the Class C Shares of Each Series (as a
percentage of average net assets):
<TABLE>
<CAPTION>
Defensive Blended Asset Blended Asset Maximum
Series 1 Series I 1 Series II 1 Horizon
Series 1
<S> <C> <C> <C> <C>
Management Fees (After
Reduction of Fees)... 0.00%2 0.96%2 1.00% 0.65%2
Rule 12b-1 Fees 3.......0.75% 0.75% 0.75% 0.75%
Other Expenses( After
Expense Reimbursement)..1.00%2 0.24%2 0.15% 0.55%2
Total Operating Expenses
(After Fee Reductions
and Expense
Reimbursements).........1.75%2 1.95%2 1.90%4 1.95%2
</TABLE>
1 The Defensive Series, Blended Asset Series I, Blended Asset Series II,
and Maximum Horizon Series offered only Class A Shares during the year
ended October 31, 1997; therefore, the actual management fees and other
expenses of Class A Shares of the Series are used above.
2 The Advisor has agreed to waive its management fees and/or reimburse
expenses of the Series, if necessary, if such fees would cause the total
annual operating expenses of the Class C Shares of the Series, as a
percentage of average daily net assets, to exceed the percentages set
forth in the table above. As a result of these reductions, the Management
Fees stated above are lower than contractual fees stated under
"Management." The Advisor reserves the right to terminate any of its fee
waivers at any time in its sole discretion. For further information on
expenses, see "Management." The following sets forth, for Class C Shares
of such Series, (i) management fees absent fee waivers, (ii) other expense
absent expense reimbursements, (iii) Rule 12b-1 fees and (iv) expected
total operating expenses absent fee waivers and/or expense reimbursements.
<TABLE>
<CAPTION>
Class C Shares Defensive Blended Asset Maximum Horizon
Series Series I Series
<S> <C> <C> <C>
Management Fees........... 0.80% 1.00% 1.00%
Rule 12b-1 Fees........... 0.75% 0.75% 1.00%
Other Expenses............ 1.79% 0.24% 0.55%
Total Operating Expenses.. 3.34% 1.99% 2.30%
</TABLE>
3 Of the Rule 12b-1 fees for the Class C shares, up to 0.25% represents
shareholder service fees.
4 The Advisor has agreed to waive its management fees and/or reimburse
expenses of the Series, if necessary, if such fees would cause the total
annual operating expenses of the Class C Shares of the Series, as a
percentage of average daily net assets, to exceed 1.95%.
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.
<PAGE>
Example - Class C Shares
You would pay the following expenses on a $1,000 investment in Class C Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Defensive Series $18 $55 $ 95 $206
Blended Asset Series I 20 61 105 227
Blended Asset Series II 19 60 103 222
Maximum Horizon Series 20 61 105 227
</TABLE>
The example above should not be considered a representation of future
expenses. Actual expenses may be greater or lesser than those shown. The
Advisor in its discretion may terminate its voluntary fee waivers and/or
reimbursements at any time. Absent the waiver of fees or reimbursement of
expenses, the amounts in the examples above would be greater.
<PAGE>
Annual Operating Expenses - Class D Shares
The following information provides (i) a tabular summary of expenses relating
to the annual operating expenses of the Class D Shares of the Series and (ii)
an example illustrating the dollar cost of such expenses on a $1,000
investment.
Annual Operating Expenses of the Class D Shares of Each Series (as a
percentage of average net assets):
<TABLE>
<CAPTION>
Defensive Blended Asset Blended Asset Maximum
Series 1 Series I 1 Series II 1 Horizon Series 1
<S> <C> <C> <C> <C>
Management Fees
(After Reduction
of Fees) 0.00%2 0.96%2 1.00% 0.65%2
Rule 12b-1 Fees 3 0.50% 0.50% 0.50% 0.50%
Other Expenses
(After Expense
Reimbursement) 1.00%2 0.24%2 0.15% 0.55%2
Total Operating
Expenses (After
Fee Reductions and
Expense
Reimbursements) 1.50%2 1.70%2 1.65%4 1.70%2
</TABLE>
1 The Defensive Series, Blended Asset Series I, Blended Asset Series II,
and Maximum Horizon Series offered only Class A Shares during the year
ended October 31, 1997; therefore, the actual management fees and other
expenses of Class A Shares of the Series are used above.
2 The Advisor has agreed to waive its management fees and/or reimburse
expenses of the Series, if necessary, if such fees would cause the total
annual operating expenses of the Class D Shares of the Series, as a
percentage of average daily net assets, to exceed the percentages set
forth in the table above. As a result of these reductions, the
Management Fees stated above are lower than contractual fees stated under
"Management." The Advisor reserves the right to terminate any of its fee
waivers at any time in its sole discretion. For further information on
expenses, see "Management." The following sets forth, for Class D Shares
of such Series, (i) management fees absent fee waivers, (ii) other
expenses absent expense reimbursements, (iii) Rule 12b-1 fees and (iv)
expected total operating expenses absent fee waivers and/or expense
reimbursements.
<TABLE>
<CAPTION>
Class D Shares Defensive Blended Asset Maximum Horizon
Series Series I Series
<S> <C> <C> <C>
Management Fees...........0.80% 1.00% 1.00%
Rule 12b-1 Fees...........0.50% 0.50% 0.50%
Other Expenses............1.79% 0.24% 0.55%
Total Operating Expenses..3.09% 1.74% 2.05%
</TABLE>
3 Of the Rule 12b-1 fees for the Class D shares, up to 0.25% represents
shareholder service fees.
4 The Advisor has agreed to waive its management fees and/or reimburse
expenses of the Series, if necessary, if such fees would cause the total
annual operating expenses of the Class D Shares of the Series, as a
percentage of average daily net assets, to exceed 1.70%.
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.
<PAGE>
Example - Class D Shares
You would pay the following expenses on a $1,000 investment in Class D Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Defensive Series $15 $47 $82 $179
Blended Asset Series I 17 54 92 201
Blended Asset Series II 17 52 90 195
Maximum Horizon Series 17 54 92 201
</TABLE>
The example above should not be considered a representation of future
expenses. Actual expenses may be greater or lesser than those shown. The
Advisor in its discretion may terminate its voluntary fee waivers and/or
reimbursements at any time. Absent the waiver of fees or reimbursement of
expenses, the amounts in the examples above would be greater.
<PAGE>
Annual Operating Expenses - Class E Shares
The following information provides (i) a tabular summary of expenses relating
to the annual operating expenses of the Class E Shares of the Series and (ii)
an example illustrating the dollar cost of such expenses on a $1,000
investment.
Annual Operating Expenses of the Class E Shares of Each Series (as a
percentage of average net assets):
<TABLE>
<CAPTION>
Defensive Blended Asset Blended Asset Maximum
Series 1 Series I 1 Series II 1 Horizon Series 1
<S> <C> <C> <C> <C>
Management Fees (After
Reduction of Fees) 0.00%2 0.96%2 1.00% 0.65%2
Rule 12b-1 Fees 3 0.25% 0.25% 0.25% 0.25%
Other Expenses (After
Expense Reimbursement) 1.00%2 0.24%2 0.15% 0.55%2
Total Operating
Expenses (After Fee
Reductions and Expense
Reimbursements) 1.25%2 1.45%2 1.40%4 1.45%2
</TABLE>
1 The Defensive Series, Blended Asset Series I, Blended Asset Series II,
and Maximum Horizon Series offered only Class A Shares during the year
ended October 31, 1997; therefore, the actual management fees and other
expenses of Class A Shares of the Series are used above.
2 The Advisor has agreed to waive its management fees and/or reimburse
expenses of the Series, if necessary, if such fees would cause the total
annual operating expenses of the Class E Shares of the Series, as a
percentage of average daily net assets, to exceed the percentages set
forth in the table above. As a result of these reductions, the
Management Fees stated above are lower than contractual fees stated under
"Management." The Advisor reserves the right to terminate any of its fee
waivers at any time in its sole discretion. For further information on
expenses, see "Management." The following sets forth, for Class E Shares
of such Series, (i) management fees absent fee waivers, (ii) other
expenses absent expense reimbursements, (iii) Rule 12b-1 fees and (iv)
expected total operating expenses absent fee waivers and/or expense
reimbursements.
<TABLE>
<CAPTION>
Class E Shares Defensive Blended Asset Maximum Horizon
Series Series I Series
<S> <C> <C> <C>
Management Fees............0.80% 1.00% 1.00%
Rule 12b-1 Fees............0.25% 0.25% 0.25%
Other Expenses.............1.79% 0.24% 0.55%
Total Operating Expenses...2.84% 1.49% 1.80%
</TABLE>
3 Of the Rule 12b-1 fees for the Class E Shares, up to 0.25% may represent
shareholder service fees.
4 The Advisor has agreed to waive its management fees and/or reimburse
expenses of the Series, if necessary, if such fees would cause the total
annual operating expenses of the Class E Shares of the Series, as a
percentage of average daily net assets, to exceed 1.45%.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class E Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
Due to the continuous nature of Rule 12b-1 fees, long-term shareholders may
pay more than the equivalent of the maximum front-end sales charges otherwise
permitted by the Conduct Rules of the NASD.
Example - Class E Shares
You would pay the following expenses on a $1,000 investment in Class E Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
<S> <C> <C> <C> <C>
Defensive Series $13 $ 40 $69 $151
Blended Asset Series I 15 46 79 174
Blended Asset Series II 14 44 77 168
Maximum Horizon Series 15 46 79 174
</TABLE>
The example above should not be considered a representation of future
expenses. Actual expenses may be greater or lesser than those shown. The
Advisor in its discretion may terminate its voluntary fee waivers and/or
reimbursements at any time. Absent the waiver of fees or reimbursement of
expenses, the amounts in the examples above would be greater.
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables provide selected per share data and ratios for the Class
A Shares of the Defensive Series, Blended Asset Series I, Blended Asset Series
II, and Maximum Horizon Series (for a share outstanding throughout the period
for the periods shown). The tables are part of the Series financial
statements, which are incorporated by reference into the Funds Statement of
Additional Information. Deloitte & Touche LLP, 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 October 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.
DEFENSIVE SERIES - CLASS A SHARES
<TABLE>
<CAPTION>
For the Year For the Year
Ended Ended
10/31/97 10/31/96 1
Per share data (for a share outstanding
throughout the period):
<S> <C> <C>
Net asset value - Beginning of period $10.29 $10.00
Income from investment operations:
Net investment income 0.42 0.35
Net realized and unrealized gain
on investments 0.45 0.14
Total from investment operations 0.87 0.49
Less distributions to shareholders:
From net investment income (0.38) (0.20)
From net realized gain on investments (0.07) ----
Total distribution to shareholders (0.45) (0.20)
Net asset value - End of period $10.71 $10.29
Total return2 8.74% 4.94%
Ratios (to average net assets)
/ Supplemental Data:
Expenses* 1.00% 1.00%
Net investment income* 4.45% 4.26%
Portfolio turnover 166% 30%
Average commission rate paid $0.0590 $0.0691
Net assets - End of period
(000's omitted) $1,764 $ 745
*The investment advisor did not impose its management fee and paid a
portion of the Series' expenses. If these expenses had been incurred
by the Series, and had 1996 expenses been limited to that allowed by
state securities law, the net investment income per share and the
ratios would have been as follows:
Net investment income $ 0.27 $ 0.23
Ratios (to average net assets):
Expenses 2.59% 2.50%
Net investment income 2.86% 2.76%
1 The Series commenced operations on November 1, 1995.
2 Represents aggregate total return for the period indicated.
</TABLE>
<PAGE>
BLENDED ASSET SERIES I - CLASS A SHARES
<TABLE>
<CAPTION>
For the Year
Ended
10/31/97
Per share data (for a share outstanding
throughout each period):
<S> <C>
Net asset value - Beginning of period $11.20
Income from investment operations:
Net investment income 0.39
Net realized and unrealized gain
(loss) on investments 1.01
Total from investment operations 1.40
Less distributions to shareholders:
From net investment income (0.44)
In excess of net investment income --
From net realized gain on
investments (0.19)
In excess of net realized gain --
Total distributions to shareholders (0.63)
Net asset value - End of period $11.97
Total return1: 13.01%
Ratios (to average net assets)
/ Supplemental Data:
Expenses* 1.20%
Net investment income* 3.39%
Portfolio turnover 50%
Average commission rate paid 3 $0.0418
Net assets - End of period (000's omitted) $21,930
*The investment advisor did not impose all or a portion of
its management fee and in some periods paid a portion of
the Series' expenses. If these expenses had been incurred
by the Series, and had 1994 and 1993 expenses been limited
to that allowed by states securities law, the net investment
income per share and ratios would have been as follows:
Net investment income $ 0.39
Ratios (to average net assets):
Expenses 1.24%
Net investment income 3.35%
1 Represents aggregate total return for the period indicated.
2 Annualized
3 Average commission rate is calculated for Series with fiscal years
beginning on or after January 1, 1995.
</TABLE>
<TABLE>
<CAPTION>
For the Ten For the Year
Months Ended Ended
10/31/96 1 12/31/95
Per share data (for a share
outstanding throughout each period):
<S> <C> <C>
Net asset value - Beginning of period $10.72 $ 9.72
Income from investment operations:
Net investment income 0.29 0.34
Net realized and unrealized gain
(loss) on investments 0.31 1.70
Total from investment operations 0.60 2.04
Less distributions to shareholders:
From net investment income (0.09) (0.34)
In excess of net investment income -- (0.01)
From net realized gain on
investments (0.03) (0.69)
In excess of net realized gain -- --
Total distributions to shareholders (0.12) (1.04)
Net asset value - End of period $11.20 $10.72
Total return1: 5.64% 21.08%
Ratios (to average net assets)
/ Supplemental Data:
Expenses* 1.20%2 1.20%
Net investment income* 3.69%2 3.64%
Portfolio turnover 85% 72%
Average commission rate paid 3 $0.0515 $0.0689
Net assets - End of period
(000's omitted) $17,794 $ 9,518
*The investment advisor did not impose all or a portion of its management
fee and in some periods paid a portion of the Series' expenses. If
these expenses had been incurred by the Series, and had 1994 and 1993
expenses been limited to that allowed by states securities law, the net
investment income per share and ratios would have been as follows:
Net investment income $ 0.28 $ 0.31
Ratios (to average net assets):
Expenses 1.31%2 1.53%
Net investment income 3.58%2 3.31%
1 Represents aggregate total return for the period indicated.
2 Annualized
3 Average commission rate is calculated for Series with fiscal years
beginning on or after January 1, 1995.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
For the Year
Ended
12/31/94
Per share data (for a share outstanding
throughout each period):
<S> <C>
Net asset value - Beginning of period $10.05
Income from investment operations:
Net investment income 0.20
Net realized and unrealized gain
(loss) on investments (0.28)
Total from investment operations (0.08)
Less distributions to shareholders:
From net investment income (0.20)
In excess of net investment income --
From net realized gain on
investments (0.04)
In excess of net realized gain (0.01)
Total distributions to shareholders (0.25)
Net asset value - End of period $ 9.72
Total return1: (0.80%)
Ratios (to average net assets)
/ Supplemental Data:
Expenses* 1.20%
Net investment income* 3.40%
Portfolio turnover 45%
Average commission rate paid 3 --
Net assets - End of period (000's omitted) $4,519
*The investment advisor did not impose all or a portion of its
management fee and in some periods paid a portion of the Series'
expenses. If these expenses had been incurred by the Series,
and had 1994 and 1993 expenses been limited to that allowed by
states securities law, the net investment income per share and
ratios would have been as follows:
Net investment income $ 0.12
Ratios (to average net assets):
Expenses 2.50%
Net investment income 2.10%
</TABLE>
1 Represents aggregate total return for the period indicated.
2 Annualized
3 Average commission rate is calculated for Series with fiscal
years beginning on or after January 1, 1995.
<TABLE>
<CAPTION>
For the Period
9/15/93
(commencement
of operations)to
12/31/93
Per share data (for a share outstanding
throughout each period):
<S> <C>
Net asset value - Beginning of period $10.00
Income from investment operations:
Net investment income 0.05
Net realized and unrealized gain
(loss) on investments 0.04
Total from investment operations 0.09
Less distributions to shareholders:
From net investment income (0.04)
In excess of net investment income --
From net realized gain on
investments --
In excess of net realized gain --
Total distributions to shareholders (0.04)
Net asset value - End of period $10.05
Total return1: 0.93%
Ratios (to average net assets)
/ Supplemental Data:
Expenses* 1.20%2
Net investment income* 2.47%2
Portfolio turnover 1%
Average commission rate paid 3 --
Net assets - End of period (000's omitted) $475
*The investment advisor did not impose all or a portion of its
management fee and in some periods paid a portion of the Series'
expenses. If these expenses had been incurred by the Series,
and had 1994 and 1993 expenses been limited to that allowed by
states securities law, the net investment income per share and
ratios would have been as follows:
Net investment income $ 0.02
Ratios (to average net assets):
Expenses 2.50%2
Net investment income 1.17%2
1 Represents aggregate total return for the period indicated.
2 Annualized
3 Average commission rate is calculated for Series with fiscal years
beginning on or after January 1, 1995.
</TABLE>
<PAGE>
BLENDED ASSET SERIES II - CLASS A SHARES
<TABLE>
<CAPTION>
For the Year
Ended
10/31/97
Per share data (for a share outstanding
throughout each period):
<S> <C>
Net asset value - Beginning of period $13.04
Income from investment operations:
Net investment income 0.33
Net realized and unrealized gain (loss)
on investments 2.13
Total from investment operations 2.46
Less distributions to shareholders:
From net investment income (0.40)
From net realized gain on investments (0.41)
Total distributions to shareholders (0.81)
Net asset value - End of period $14.69
Total return2 19.69%
Ratios (to average net assets)
/ Supplemental Data:
Expenses 1.15%
Net investment income 2.45%
Portfolio turnover 63%
Average commission rate paid 4 $0.0436
Net assets - End of period (000's omitted) $50,922
* The investment advisor did not impose all or a portion of its
management fee and in some periods paid a portion of the Series
expenses. If these expenses had been incurred by the Series, and
had 1993 expenses been limited to that allowed by state securities
law, the net investment income per share and the ratios would have
been as follows:
Net investment income N/A
Ratios (to average net assets):
Expenses N/A
Net investment income N/A
1 Distribution from net investment income amounted to $0.0017 per share.
2 Represents aggregate total return for the period indicated.
3 Annualized.
4 Average commission rate is calculated for Series with fiscal years
beginning on or after January 1, 1995.
</TABLE>
<TABLE>
<CAPTION>
For the Ten
Months Ended
12/31/96
Per share data (for a share outstanding throughout
each period):
<S> <C>
Net asset value - Beginning of period $11.95
Income from investment operations:
Net investment income 0.23
Net realized and unrealized gain (loss)
on investments 0.96
Total from investment operations 1.19
Less distributions to shareholders:
From net investment income (0.04)
From net realized gain on investments (0.06)
Total distributions to shareholders (0.10)
Net asset value - End of period $13.04
Total return2 10.01%
Ratios (to average net assets)
/ Supplemental Data:
Expenses 1.20%3*
Net investment income 2.51%3*
Portfolio turnover 57%
Average commission rate paid 4 $0.0524
Net assets - End of period (000's omitted) $32,999
* The investment advisor did not impose all or a portion of its
management fee and in some periods paid a portion of the Series
expenses. If these expenses had been incurred by the Series, and
had 1993 expenses been limited to that allowed by state securities
law, the net investment income per share and the ratios would have
been as follows:
Net investment income $ 0.23
Ratios (to average net assets):
Expenses 1.22%2
Net investment income 2.49%2
1 Distribution from net investment income amounted to $0.0017 per share.
2 Represents aggregate total return for the period indicated.
3 Annualized.
4 Average commission rate is calculated for Series with fiscal years
beginning on or after January 1, 1995.
</TABLE>
<TABLE>
<CAPTION>
For the Year
Ended
12/31/95
Per share data (for a share outstanding throughout
each period):
<S> <C>
Net asset value - Beginning of period $10.12
Income from investment operations:
Net investment income 0.24
Net realized and unrealized gain (loss)
on investments 3.05
Total from investment operations 3.29
Less distributions to shareholders:
From net investment income (0.24)
From net realized gain on investments (1.22)
Total distributions to shareholders (1.46)
Net asset value - End of period $11.95
Total return2 32.64%
Ratios (to average net assets) /
Supplemental Data:
Expenses 1.20%*
Net investment income 2.53%*
Portfolio turnover 63%
Average commission rate paid 4 $0.0635
Net assets - End of period (000's omitted) $20,519
* The investment advisor did not impose all or a portion of its
management fee and in some periods paid a portion of the Series
expenses. If these expenses had been incurred by the Series,
and had 1993 expenses been limited to that allowed by state
securities law, the net investment income per share and the ratios
would have been as follows:
Net investment income $ 0.23
Ratios (to average net assets):
Expenses 1.33%
Net investment income 2.40%
1 Distribution from net investment income amounted to 0.0017 per share.
2 Represents aggregate total return for the period indicated.
3 Annualized.
4 Average commission rate is calculated for Series with fiscal years
beginning on or after January 1, 1995.
</TABLE>
<PAGE>
<TABLE>
For the
<CAPTION> Period
10/12/93
For the Year (commencement
Ended of operations) to
12/31/94 12/31/93
Per share data (for a share outstanding
throughout each period):
<S> <C> <C>
Net asset value - Beginning of period $ 9.98 $10.00
Income from investment operations:
Net investment income 0.11 0.01
Net realized and unrealized gain
(loss) on investments 0.24 (0.03)
Total from investment operations 0.35 (0.02)
Less distributions to shareholders:
From net investment income (0.12) (0.00)1
From net realized gain on investments (0.09) --
Total distributions to shareholders (0.21) (0.00)
Net asset value - End of period $10.12 $9.98
Total return2 3.52% (0.18%)
Ratios (to average net assets) /
Supplemental Data:
Expenses 1.20%* 1.20%3*
Net investment income 2.12%* 1.94%3*
Portfolio turnover 19% 0%
Average commission rate paid 4 -- --
Net assets - End of period (000's omitted) $7,214 $ 475
* The investment advisor did not impose all or a portion of its management
fee and in some periods paid a portion of the Series expenses. If these
expenses had been incurred by the Series, and had 1993 expenses been
limited to that allowed by state securities law, the net investment income
per share and the ratios would have been as follows:
Net investment income $ 0.05 $ 0.01
Ratios (to average net assets):
Expenses 2.31% 2.50%3
Net investment income 1.01% 0.64%3
1 Distribution from net investment income amounted to $0.0017 per share.
2 Represents aggregate total return for the period indicated.
3 Annualized.
4 Average commission rate is calculated for Series with fiscal years
beginning on or after January 1, 1995.
</TABLE>
<PAGE>
MAXIMUM HORIZON SERIES - CLASS A SHARES
<TABLE>
<CAPTION>
For the Year For the Year
Ended Ended
10/31/97 10/31/96 1
Per share data (for a share outstanding
throughout the period):
<S> <C> <C>
Net asset value - Beginning of period $11.38 $10.00
Income from investment operations:
Net investment income 0.10 0.15
Net realized and unrealized gain
on investments 2.92 1.36
Total from investment operations 3.02 1.51
Less distributions to shareholders:
From net investment income (0.08) (0.13)
From net realized gains (0.08) --
Total distributions to shareholders (0.16) (0.13)
Net asset value - End of period $14.24 $11.38
Total return2 26.77% 15.21%
Ratios (to average net assets) /
Supplemental Data:
Expenses* 1.20% 1.20%
Net investment income* 0.94% 1.71%
Portfolio turnover 115% 95%
Average commission rate paid $0.0486 $0.0655
Net assets - End of period (000's omitted)$ 9,852 $ 1,574
*The investment advisor did not impose all or a portion of its
management fee and paid a portion of the Series' expenses. If
these expenses had been incurred by the Series, and had 1996
expenses been limited to that allowed by state securities law,
the net investment income per share and the ratios would have
been as follows:
Net investment income $ 0.06 $ 0.04
Ratios (to average net assets):
Expenses 1.55% 2.50%
Net investment income 0.59% 0.41%
1 The Series commenced operations on November 1, 1995.
2 Represents aggregate total return for the period indicated.
</TABLE>
<PAGE>
The Fund
The Fund is an open-end management investment company incorporated under
the laws of the State of Maryland on July 26, 1984. The Fund offers separate
series of units of beneficial interest ("shares"). This Prospectus relates
to the Defensive Series, Blended Asset Series I, Blended Asset Series II, and
the Maximum Horizon Series, each of which is offered through five separate
classes of shares, Class A, B, C, D and E Shares, respectively. Class A
Shares of each Series are offered to investors who purchase their shares
directly from Manning & Napier Investor Services, Inc. (the "Distributor").
Class B, C, D and E Shares are offered only through financial intermediaries
which provide to the Fund and its shareholders varying levels of distribution
and shareholder services as described under "Distribution of Fund Shares"
below. Information regarding the 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
Defensive Series, Blended Asset Series I, Blended Asset Series II, and Maximum
Horizon Series are diversified funds.
Risk and Investment Objectives and Policies
Defensive Series
The primary objective of the Defensive Series is preservation of capital
(i.e., to minimize the risk of negative returns), with a secondary objective
of long-term growth. Exeter Asset Management (the "Advisor") will seek to
achieve this objective by using a conservative asset mix as well as
conservative investment strategies within those asset classes. This
conservative investment approach which attempts to protect capital while
simultaneously seeking growth opportunities is what is intended by use of the
term "defensive". From time to time, the Advisor will vary the proportions
invested in common stocks, income-producing securities (e.g., debt securities
and preferred stock) or cash (including foreign currency) and cash equivalents
depending on its view of their relative attractiveness in light of market and
economic conditions. Because the Defensive Series' investments fluctuate in
value, the Series' shares will fluctuate in value. In pursuit of its primary
objective, the Defensive Series will, under normal circumstances, invest a
substantial portion of its assets in certain debt securities, preferred stocks
or common stocks whose principal characteristic is income production rather
than growth. Such securities afford less opportunity for growth than
traditional common stocks but they entail less risk of loss and may also offer
some opportunity for growth of capital as well as for income and relative
stability. There is no assurance that the Defensive Series will attain its
objective.
The Series' investment objective is not fundamental and may be changed by
the Board of Directors without shareholder approval; however, it is the Board
of Directors' policy to notify shareholders prior to any material change in a
Series' objective.
Blended Asset Series I
The investment objective of the Blended Asset Series I is to seek with
equal emphasis long-term growth and preservation of capital. From time to
time, the Advisor will vary the proportions invested in common stocks,
income-producing securities (e.g., debt securities and preferred stock) or
cash (including foreign currency) and cash equivalents depending on its view
of their relative attractiveness in light of market and economic conditions.
Because the Blended Asset Series Is investments fluctuate in value, the
Blended Assets Series I shares will fluctuate in value. The Advisor seeks to
reduce the risk of negative returns while seeking to obtain capital growth
when it believes valuations and market conditions are favorable. In this
process the Advisor will work to try to dampen the year-to-year swings in the
market value in order to generate a more stable rate of growth for this
portfolio relative to an investment in the general stock market. There is no
assurance that the Blended Asset Series I will attain its objective.
The Series' investment objective is not fundamental and may be changed by
the Board of Directors without shareholder approval; however, it is the Board
of Directors' policy to notify shareholders prior to any material change in a
Series' objective.
<PAGE>
Blended Asset Series II
The primary objective of the Blended Asset Series II is to provide
long-term growth of capital. The secondary objective of the Blended Asset
Series II is the preservation of capital. From time to time, the Advisor will
vary the proportions invested in common stocks, income-producing securities
(e.g., debt securities and preferred stock) or cash (including foreign
currency) and cash equivalents depending on its view of their relative
attractiveness in light of market and economic conditions. Because the
Blended Asset Series IIs investments fluctuate in value, the Blended Asset
Series II shares will fluctuate in value. In pursuit of its primary
objective, the Blended Asset Series II will often invest more than 50% in
common stocks, and securities convertible into common stocks, of companies the
Advisor believes have long-term growth potential. However, in light of the
secondary objective of the Blended Asset Series II, it may, even under normal
circumstances, invest a substantial portion of its assets in certain debt
securities, preferred stocks or common stocks whose principal characteristic
is income production rather than growth. Such securities afford less
opportunity for growth than common stocks but they entail less risk of loss
and may also offer some opportunity for growth of capital as well as for
income and relative stability. There is no assurance that the Blended Asset
Series II will attain its objective.
The Series' investment objective is not fundamental and may be changed by
the Board of Directors without shareholder approval; however, it is the Board
of Directors' policy to notify shareholders prior to any material change in a
Series' objective.
Maximum Horizon Series
The primary objective of Maximum Horizon Series is to achieve the high
level of long-term capital growth typically associated with the stock market.
The Advisor will normally concentrate the investments of the Series in common
stocks, but may also utilize income-producing securities (e.g., debt
securities and preferred stock) or cash (including foreign currency) and cash
equivalents depending on its view of their relative attractiveness in light of
market and economic conditions. Because the Maximum Horizon Series
investments fluctuate in value, the shares of the Series will also fluctuate
in value. There is no assurance that the Maximum Horizon Series will attain
its objective.
The Series' investment objective is not fundamental and may be changed by
the Board of Directors without shareholder approval; however, it is the Board
of Directors' policy to notify shareholders prior to any material change in a
Series' objective.
General
In pursuit of their investment objectives, the Series may invest in a
wide variety of equity and debt securities. Equity securities consist of
common stocks, securities convertible thereto, and warrants. None of the
Series intends to invest more than 5% of the value of its total net assets in
warrants. The principal factor in selecting convertible bonds will be the
potential to benefit from movement in the stock price. There will be no
minimum rating standards for the debt aspects of such securities. Convertible
bonds purchased by a Series may be subject to the risk of being called by the
issuer.
The debt securities in which each Series may invest consist of corporate
debt securities, mortgage-backed securities and obligations issued or
guaranteed as to payment of principal and interest by the U.S. Government or
its agencies or instrumentalities. Each Series may invest in such securities
without regard to term or rating and may, from time to time, invest up to 20%
of its assets in corporate debt securities rated below investment grade, i.e.,
rated lower than BBB by Standard & Poor's Corporation ("S&P") or Baa by Moody's
Investor Service, Inc.("Moody's"), or unrated securities of comparable quality
as determined by the Advisor. These securities are commonly known as junk
bonds. Ratings of corporate bonds including lower rated bonds are included in
the Appendix. See "Risk and Additional Information about Investment Policies -
High Yield Debt Securities."
For temporary defensive purposes during periods when the Advisor
determines that market conditions warrant, each Series may invest up to 100%
of its assets in money market instruments (including securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities,
certificates of deposit, time deposits and bankers acceptances issued by banks
or savings and loan associations deemed creditworthy by the Advisor,
commercial paper rated A-1 by S&P or Prime-1 by Moody's, repurchase agreements
involving such securities and shares of other investment companies as
permitted by applicable law) and may hold a portion of its assets in cash.
For a description of the above ratings, see the Appendix and the Statement of
Additional Information.
In addition, each of the Series may, to varying degrees, use certain
techniques and strategies discussed below under Risk and Additional
Information about Investment Policies.
<PAGE>
It is anticipated that the long-term average annual portfolio turnover
rate for each Series will not exceed 100%; however, there may be times that
the Advisor will sell securities depending on market conditions and
opportunities, and the portfolio turnover rate for each Series may reach
higher levels. Higher portfolio turnover may increase the distributions which
a Series is required to make to shareholders, and therefore lead to higher tax
liability for shareholders with taxable accounts (see "Dividends and Tax
Status"). Higher levels of portfolio turnover will also lead to higher trading
costs, which are reflected in each Series operating expenses (see "Financial
Highlights" and "Management").
Risk and Additional Information about Investment Policies
Set forth below is further information about certain types of securities
in which the Series may invest, as well as information about additional types
of investments and certain strategies the Series may pursue. Unless otherwise
noted, these policies have been voluntarily adopted by the Board of Directors
based upon current circumstances and may be changed or amended by action of
the Board of Directors without prior approval of the Series' shareholders.
Additional information concerning these strategies and their related risks is
contained in the Statement of Additional Information.
Foreign Securities
Each Series may invest up to 25% of its assets in foreign securities
which are not publicly traded in the United States. Each Series will invest
no more than 25% of its assets in securities issued by any one foreign
government. Each Series may invest without limit in equity securities of
foreign issuers that are listed on a domestic securities exchange or are
represented by American Depository Receipts that are listed on a domestic
securities exchange or are traded in the United States on the over-the-counter
market. Each Series' restrictions on investment in foreign securities are
fundamental policies that cannot be changed without the approval of a
majority, as defined in the Investment Company Act of 1940 (the "1940 Act"), of
the outstanding voting securities of the Series.
With respect to the bond investments within each portfolio, each Series
generally emphasizes investments in U.S. Government securities and companies
domiciled in the United States; however, it may invest up to 25% of its assets
in foreign securities of the same types and quality as the domestic securities
in which the Series may invest when the anticipated performance of foreign
securities is believed by the Advisor to offer more potential than domestic
alternatives in keeping with the investment objective of the Series. Foreign
securities may be denominated either in U.S. dollars or foreign currencies.
There are risks in investing in foreign securities not typically involved
in domestic investing. An investment in foreign securities may be affected by
changes in currency rates and in exchange control regulations. Foreign
companies are frequently not subject to the accounting and financial reporting
standards applicable to domestic companies, and there may be less information
available about foreign issuers. There is frequently less government
regulation of foreign issuers than in the United States. In addition,
investments in foreign countries are subject to the possibility of
expropriation or confiscatory taxation, political or social instability or
diplomatic developments that could adversely affect the value of those
investments. There may also be imposition of withholding taxes. Foreign
financial markets may have less volume and longer settlement periods than U.S.
markets which may cause liquidity problems for a Series. In addition, costs
associated with transactions on foreign markets are generally higher than for
transactions in the U.S.
Obligations of foreign governmental entities are subject to various types
of governmental support and may or may not be supported by the full faith and
credit of a foreign government.
Repurchase Agreements
Each Series may enter into repurchase agreements with respect to
portfolio securities. Under the terms of a repurchase agreement, the Series
purchases securities ("collateral") from various financial institutions such as
banks and broker-dealers (the "seller") which the Advisor deems to be
creditworthy, subject to the sellers 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).
<PAGE>
The seller under a repurchase agreement is required to maintain the value
of the collateral held pursuant to the agreement at not less than 100% of the
repurchase price, and securities subject to repurchase agreements are held by
the Series' custodian either directly or through a securities depository.
Default by the seller would, however, expose the Series to possible loss
because of adverse market action or delay in connection with the disposition
of the underlying securities. Repurchase agreements are considered to be
loans by the Series under the 1940 Act.
Securities Lending
Each Series may seek to increase its income by lending portfolio
securities. Such loans will usually be made to member firms (and subsidiaries
thereof) of the New York Stock Exchange and to member banks of the Federal
Reserve System, and would be required to be secured continuously by collateral
in liquid securities maintained on a current basis at an amount at least equal
to the market value of the securities loaned. If the Advisor determines to
make securities loans, the value of the securities loaned would not exceed 30%
of the value of the total assets of the Series.
U.S. Government Securities
Each Series may purchase securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. Direct obligations of the U.S.
Government include bills, notes and bonds issued by the U.S. Treasury and
obligations issued or guaranteed by U.S. agencies or instrumentalities. The
obligations of certain U.S. agencies (e.g., the Government National Mortgage
Association) are backed by the full faith and credit of the U.S. Government or
are supported by the agencies right to borrow from the U.S. Treasury. The
issues of other agencies (e.g., Fannie Mae) are supported only by the credit
of the agency.
Short Sales
Each Series may within limits engage in short sales "against the box."
A short sale is the sale of borrowed securities; a short sale against the box
means that a Series owns securities equivalent to those sold short. No more
than 25% of the net assets (taken at current value) of a Series may be held as
collateral for such sales at any one time. Such short sales can be used as a
hedge.
Forward Commitments or Purchases on a When-Issued Basis
Each Series may enter into forward commitments or purchase securities on
a when-issued basis. These securities normally are subject to settlement
within 45 days of the purchase date. The interest rate realized on these
securities is fixed as of the purchase date and no interest accrues to the
Series before settlement. These securities are subject to market fluctuation
due to changes in market interest rates. Each Series will enter into these
arrangements with the intention of acquiring the securities in question and
not for speculative purposes and will maintain a segregated account with its
custodian consisting of liquid assets in an amount at least equal to the
purchase price.
Interest Rate Risk
The value of the fixed income securities held by the Series will vary
inversely to changes in prevailing interest rates. Thus, if interest rates
have increased from the time a security was purchased, such security, if sold,
might be sold at a price less than its cost. Similarly, if interest rates
have declined from the time a security was purchased, such security, if sold,
might be sold at a price greater than its purchase cost. In either instance,
if the security was purchased at face value and held to maturity, no gain or
loss would be realized.
<PAGE>
Mortgage-Backed Securities
Each Series may purchase mortgage-backed securities which represent an
interest in a pool of mortgage loans. The primary government issuers or
guarantors of mortgage-backed securities are the Government National Mortgage
Association ("GNMA"), Fannie Mae, and the Federal Home Loan Mortgage
Corporation. Mortgage-backed securities may also be issued by other U.S. and
foreign government agencies and non-governmental entities which consist of
collateralized mortgage obligations ("CMOs") and real estate mortgage
investment conduits ("REMICs"). Each Series may purchase CMOs that are rated
in one of the top two rating categories by S&P or Moody's. The mortgages
backing these securities include conventional thirty-year fixed rate
mortgages, graduated payment mortgages, and adjustable rate mortgages.
CMOs and REMICs backed solely by GNMA certificates or other mortgage
pass-throughs issued or guaranteed by the U.S. Government or its agencies and
instrumentalities may be supported by various types of insurance. However, the
guarantees or insurance do not extend to the mortgage-backed securities value,
which is likely to vary inversely with fluctuations in interest rates.
Mortgage-backed securities are in most cases pass-through instruments,
through which the holder receives a share of all interest and principal
payments from the mortgages underlying the certificate. Because the
prepayment characteristics of the underlying mortgages vary, it is not
possible to predict accurately the average life or realized yield of a
particular issue of pass-through certificates. During periods of declining
interest rates, prepayment of mortgages underlying mortgage-backed securities
can be expected to accelerate. When the mortgage obligations are prepaid, the
Series reinvests the prepaid amounts in securities, the yield of which
reflects interest rates prevailing at the time. Moreover, prepayment of
mortgages which underlie securities purchased at a premium could result in
capital losses.
High Yield Debt Securities
High risk, high yield securities rated below BBB or lower by S&P or Baa
or lower by Moody's are considered to have speculative characteristics and
involve greater risk of default or price changes due to changes in the 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 own independent and
ongoing review of credit quality. In the event a security is downgraded below
these ratings after purchase, the Advisor will review and take appropriate
action with regard to the security. Each Series will also seek to minimize
risk by diversifying its holdings.
Zero-Coupon Bonds
Some of the securities in which the Series invest may include so-called
"zero-coupon" bonds. Zero-coupon bonds are issued at a significant discount
from face value and generally pay interest only at maturity rather than at
intervals during the life of the security. Each Series is required to accrue
and distribute income from zero-coupon bonds on a current basis, even though
it does not receive that income currently in cash. Thus, the Series may have
to sell investments to obtain cash needed to make income distributions. The
discount in the absence of financial difficulties of the issuer decreases as
the final maturity of the security approaches. Zero-coupon bonds can be sold
prior to their maturity date in the secondary market at the then prevailing
market value, which depends primarily on the time remaining to maturity,
prevailing level of interest rates and the perceived credit quality of the
issues. The market prices of zero-coupon securities are subject to greater
fluctuations in response to changes in market interest rates than bonds which
pay interest currently.
Variable and Floating Rate Instruments
Certain of the obligations purchased by a Series may carry variable or
floating rates of interest, may involve a conditional or unconditional demand
feature and may include variable amount master demand notes. Such instruments
bear interest at rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index.
The interest rate on these securities may be reset daily, weekly, quarterly,
or at some other interval, and it may have a floor or ceiling rate. There is
a risk that the current interest rate on such obligations may not accurately
reflect existing market interest rates.
<PAGE>
Hedging Techniques
Each Series has reserved the right, subject to authorization by the Board
of Directors prior to implementation, to engage in certain strategies in an
attempt to hedge the Series portfolios, i.e., to reduce the overall level of
risk that normally would be expected to be associated with their investments.
Each Series may write covered call options on common stocks; may purchase and
sell (on a secured basis) put options; and may engage in closing transactions
with respect to put and call options. Each Series also may purchase forward
foreign currency exchange contracts to hedge currency exchange rate risk. In
addition, each Series is authorized to purchase and sell stock index futures
contracts and options on stock index futures contracts. Each Series is also
authorized to conduct spot (i.e., cash basis) currency transactions or to use
currency futures contracts and options on futures contracts and foreign
currencies in order to protect against uncertainty in the future levels of
foreign currency exchange rates. These strategies are primarily used for
hedging purposes; nevertheless, there are risks associated with these
strategies as described below.
Options on Securities
A call option is a short-term contract pursuant to which the purchaser of
the option, in return for a premium, has the right to buy the security
underlying the option at a specified price at any time during the term of the
option. The writer of a call option, who receives the premium, has the
obligation, upon exercise during the option term, to deliver the underlying
security against payment of the exercise price. Conversely, a put option
gives its purchaser, in return for a premium, the right to sell the underlying
equity security at a specified price during the option term to the writer of
the put option, who receives the premium. Each Series will sell call options
only on a "covered basis", i.e., it will own the underlying security at all
times, and will write put options only on a secured basis, i.e., it will
maintain an amount equal to the exercise price in a segregated account at all
times. Each Series may engage in option transactions for hedging purposes and
to realize a greater current return, through the receipt of premiums, than
would be earned on the underlying securities alone. Options traded in the
over-the-counter market will be considered illiquid unless the Fund has
entered into arrangements with U.S. Government securities dealers to dispose
of such options at a formula price based on a multiple of the original premium
plus the amount for which the option is "in the money."
Stock Index Futures Contracts and Options on Stock Index Futures Contracts
A stock index futures contract is a bilateral agreement pursuant to which
one party agrees to accept, and the other party agrees to make, delivery of an
amount of cash equal to a specified dollar amount times the difference between
the stock index value at the close of trading of the contract and the price at
which the futures contract is originally struck. No physical delivery of the
stocks comprising the index is made. Options on stock index futures contracts
give the purchaser the right, in return for the premium paid, to assume a long
or short position in a futures contract.
Futures Contracts
Each Series may purchase and sell financial futures contracts on debt
securities on a commodities exchange or board of trade for certain hedging,
return enhancement and risk management purposes in accordance with applicable
regulations. A financial futures contract is an agreement to purchase or sell
an agreed amount of securities at a set price for delivery in the future.
None of the Series may purchase or sell futures contracts if immediately
thereafter the sum of the amount of initial margin deposits on any such
futures (plus deposits on any other futures contracts and premiums paid in
connection with any options or futures contracts) that do not constitute bona
fide hedging under the Commodity Futures Trading Commission (CFTC) rules would
exceed 5% of the liquidation value of a Series' total assets after taking into
account unrealized profits and losses on such contracts. In addition, the
value of all futures contracts sold will not exceed the total market value of
the Series portfolio. The Fund will comply with guidelines established by the
Securities and Exchange Commission with respect to covering of obligations
under futures contracts and will set aside cash and/or liquid securities in a
segregated account with its custodian in the amount prescribed.
<PAGE>
A Series' successful use of futures contracts depends on the Advisor's
ability to accurately predict the direction of the market and is subject to
various additional risks. The correlation between movements in the price of a
futures contract and the price of the security being hedged is imperfect and
there is a risk that the value of the security being hedged may increase or
decrease at a greater rate than the related futures contract, resulting in a
loss to the Series. Certain futures exchanges or boards of trade have
established daily price limits based on the amount of the previous days
settlement price. These daily limits may restrict the Series ability to
repurchase or sell certain futures contracts on any particular day.
Forward Foreign Currency Exchange Contracts
A Series' use of forward foreign currency contracts is limited to hedging
against movements in the value of foreign currencies relative to the U.S.
dollar in connection with specific portfolio transactions or with respect to
existing portfolio positions denominated in such currencies. A transaction
hedge involves the purchase or sale of a forward contract with respect to a
specific receivable or payable of the Series while a position hedge relates to
a specific portfolio holding. A forward foreign currency exchange contract
involves an obligation to purchase or sell a specified currency at a future
date at a price set at the time of the contract. Foreign currency exchange
contracts do not eliminate fluctuations in the values of portfolio securities
but rather allow the Series to establish a rate of exchange for a future point
in time. With respect to any such forward foreign currency contract, it will
not generally be possible to match precisely the amount covered by that
contract and the value of the securities involved due to the changes in the
values of such securities resulting from market movements between the date the
forward contract is entered into and the date it matures. In addition, while
forward contracts may offer protection from losses resulting from declines in
the value of a particular foreign currency, they also limit potential gains
which might result from increases in the value of such currency. Based on
current legal interpretation, the Series do not consider forward foreign
currency exchange contracts to be commodities or commodity contracts for
purposes of the Series fundamental restrictions concerning investment in
commodities or commodity contracts, as set forth in the Statement of
Additional Information.
Currency Futures Contracts and Options on Futures Contracts
A currency futures contract is an agreement for the purchase or sale for
future delivery of foreign currencies. A "sale" of a currency futures contract
creates an obligation to deliver the foreign currencies called for by the
contract at a specified price on a specified date while a "purchase" of a
currency futures contract creates an obligation to acquire the foreign
currencies called for by the contract at a specified price on a specified
date. Each Series will only enter into futures contracts which are traded on
national or foreign futures exchanges and which are standardized as to
maturity date and the underlying financial instrument. Options on currency
futures contracts give the purchaser the right, in return for the premium
paid, to assume a long or short position in the futures contract. None of the
Series may purchase or sell future contracts if immediately thereafter the sum
of the amount of initial margin deposits on any such futures (plus deposits on
any other futures contracts and premiums paid in connection with any options
or futures contracts) that do not constitute "bona fide hedging" under CFTC
rules would exceed 5% of the liquidation value of a Series' total assets after
taking into account unrealized profits and losses on such contracts. In
addition, the value of all futures contracts sold will not exceed the total
market value of the Series portfolio.
Foreign Currency Options
A call option on a foreign currency is a short-term contract pursuant to
which the purchaser of the option, in return for a premium, has the right to
buy the currency underlying the option at a specified price at any time during
the term of the option. The writer of a call option, who receives the
premium, has the obligation, upon exercise of the option during the option
term, to deliver the underlying currency against payment of the exercise
price. Conversely, a put option on a foreign currency gives its purchaser, in
return for a premium, the right to sell the underlying currency at a specified
price during the option term to the writer of the put option, who receives the
premium.
Risks Associated with Hedging Strategies
There are risks associated with the hedging strategies described above,
including the following: (1) the success of a hedging strategy may depend on
the ability of the Advisor to accurately predict movements in the prices of
individual securities, fluctuations in domestic and foreign markets and
currency exchange rates, and movements in interest rates; (2) there may be an
imperfect correlation between the changes in market value of the securities
held by the Series and the prices of currency contracts, options, futures and
options on futures; (3) there may not be a liquid secondary market for a
currency contract, option, futures contract or futures option; (4) trading
restrictions or limitations may be imposed by an exchange; and (5) government
regulations, particularly requirements for qualification as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"), may restrict trading in forward currency contracts, options, futures
contracts and futures options.
<PAGE>
Principal Investment Restrictions
Each Series is subject to certain investment restrictions which are
fundamental policies that cannot be changed without the approval of the
holders of a majority, as defined in the 1940 Act, of the Series outstanding
shares.
Each Series may borrow money, but only from a bank for temporary or
emergency purposes in amounts not exceeding 10% of the Series' total assets,
and the Series will not make additional investments while borrowings greater
than 5% of its total assets are outstanding.
None of the Series may, with respect to 75% of its total assets, invest
more than 5% of the value of its total assets at the time of investment in
securities of any one issuer (other than obligations issued or guaranteed by
the United States Government, its agencies or its instrumentalities). None of
the Series may purchase more than 10% of the outstanding voting securities of
any one issuer.
None of the Series may invest 25% or more of the value of its total
assets in securities of issuers in any one industry (other than U.S.
Government Securities).
None of the Series will invest more than 10% of its total net assets in
securities of issuers that are restricted from being sold to the public
without registration under the Securities Act of 1933 and illiquid securities,
including repurchase agreements with maturities of greater than seven days.
Each of the Series may purchase shares of closed-end investment companies
that are traded on national exchanges to the extent permitted by applicable
law.
The Defensive Series and the Maximum Horizon Series may both invest
assets in securities of any other open-end investment company (1) by purchase
in the open market involving only customary brokers' commissions, (2) in
connection with mergers, acquisitions of assets, or consolidation, or (3) as
otherwise permitted by law, including the 1940 Act.
None of the Series may make loans, but each may invest in debt securities
and repurchase agreements and may engage in securities lending.
Additional information about the Series' investment restrictions is
contained in the Statement of Additional Information.
Management
The overall business and affairs of the Fund are managed by the Fund's
Board of Directors. The Board approves all significant agreements between the
Fund and persons or companies furnishing services to the Fund, including the
Fund's agreements with 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 makes all the
investment decisions for the Fund.
The Advisor acts as investment advisor to the Fund. Mr. William Manning
controls the Advisor by virtue of his ownership of the securities of 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.
<PAGE>
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 its investment advisory
agreement, the Fund pays the Advisor a fee, computed daily and payable
monthly, at an annual rate of .80% for the Defensive Series and 1.00% for the
Blended Asset Series I, Blended Asset Series II, and the Maximum Horizon
Series of the Series' daily net assets. In addition, the Advisor is separately
compensated for acting as transfer agent (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, and accounting services agent, if obtained for the Fund from an
entity other than the Advisor; (vii) expenses incidental to the issuance of
its shares, including issuance on the payment of, or reinvestment of,
dividends and capital gain distributions; (viii) fees and expenses incidental
to the registration under federal or state securities laws of the Fund or its
shares; (ix) expenses of preparing, printing and mailing reports and notices
and proxy material to shareholders of the Fund; (x) all other expenses
incidental to holding meetings of the Fund's shareholders; (xi) dues or
assessments of or contributions to the Investment Company Institute or any
successor; and (xii) such non-recurring expenses as may arise, including
litigation affecting the Fund and the legal obligations with respect to which
the Fund may have to indemnify its officers and directors.
Distribution of Fund Shares
Manning & Napier Investor Services, Inc. (the "Distributor") acts
as distributor of Fund shares and is located at the same address as the Advisor
and the Fund. The Fund has adopted a distribution agreement with respect to
each Class of shares and related plans of distribution with respect to Class
B, C, D and E Shares (the "Plans") pursuant to Rule 12b-1 under the 1940 Act.
Class A Shares are offered to investors who purchase their shares directly
from the Distributor and are not subject to distribution or shareholder
servicing fees. Class B, C, D and E Shares are offered only by or through
investment dealers, banks or financial service firms that provide
distribution, administrative and/or shareholder services ("Financial
Intermediaries").
The Distributor receives distribution and services fees, at the rates set
forth below, for providing distribution and/or shareholder services to the
Class B, C, D and E Shares. The Distributor expects to allocate most of its
distribution fees and shareholder service fees to Financial Intermediaries
that enter into shareholder servicing agreements ("Servicing Agreements") with
the Distributor. The different Classes permit the Fund to allocate an
appropriate amount of fees to a Financial Intermediary in accordance with the
level of services it agrees to provide under its Servicing Agreement.
As compensation for providing distribution and shareholders services for
the Class B Shares, the Distributor receives a distribution fee equal to .75%
of the Class B Shares' average daily net assets and a shareholder servicing fee
equal to .25% of the Class B Shares' average daily net assets. As compensation
for providing distribution and shareholder services for the Class C Shares,
the Distributor receives an aggregate distribution and shareholder servicing
fee equal to .75% of the Class C Shares' average daily net assets. As
compensation for providing distribution and shareholders service for the Class
D Shares, the Distributor receives an aggregate distribution and shareholder
servicing fee equal to .50% of the Class D Shares'average daily net assets.
The shareholder services component of the foregoing fees for Classes C and D
is limited to .25% of the average daily net assets of the respective class.
As compensation for providing distribution services for the Class E Shares,
the Distributor receives an aggregate distribution and shareholder servicing
fee equal to .25% of the average daily net assets of the Class E Shares. The
Distributor may, in its discretion, voluntarily waive from time to time all or
any portion of its distribution fee.
Payments under the Plans are made as described above regardless of the
Distributor's actual cost of providing distribution services and may be used to
pay the Distributor's overhead expenses. If the cost of providing distribution
services to the Fund is less than the payments received, the unexpended
portion of the distribution fees may be retained as profit by the Distributor.
The Distributor may from time to time and from its own resources pay or
allow additional discounts or promotional incentives in the form of cash or
other compensation (including merchandise or travel) to Financial
Intermediaries and it is free to make additional payments out of its own
assets to promote the sale of Fund shares. Similarly, the Advisor may, from
its own resources, defray or absorb costs related to distribution, including
compensation of employees who are involved in distribution.
<PAGE>
Yield and Total Return
From time-to-time each Series may advertise its yield and total return.
Both yield and total return figures are based on historical earnings and are
not intended to indicate future performance. The "total return" of a Series
refers to the average annual compounded rates of return over one-, five-, and
ten-year periods or for the life of the Series (as stated in the
advertisement) that would equate an initial amount invested at the beginning
of a stated period to the ending redeemable value of the investment, assuming
the reinvestment of all dividend and capital gains distributions. The
respective performance figures for the Classes will differ because of the
different distribution and/or shareholder services fees charged to Class B, C,
D and E Shares.
The "30-day yield" of a Series is calculated by dividing the net investment
income per share earned during a 30-day period by the net asset value per
share on the last day of the period. Net investment income includes interest
and all recurring and nonrecurring charges that have been applied to all
shareholder accounts. The yield calculation assumes that net investment
income earned over 30 days is compounded monthly for six months and then
annualized. Methods used to calculate advertised yields are standardized for
all stock and bond mutual funds. However, these methods differ from the
accounting methods used by a Series to maintain its books and records, and so
the advertised 30-day yield may not fully reflect the income paid to your own
account or the yield reported in a Series' reports to shareholders.
Purchases, Exchanges and Redemptions of Shares
Purchases and redemptions of shares of the Series may be made on any day
the New York Stock Exchange is open for trading.
Purchases
The minimum initial investment in each class of the Series is $2,000 and
subsequent purchases must be at least $100. The minimum initial investment is
waived for participants in the Automatic Investment Plan (see "Automatic
Investment Plan" below) and for shareholders who purchase shares through
Financial Intermediaries that provide sub-accounting services to the Fund.
The Distributor reserves the right to waive these minimum initial or
subsequent investment requirements in its sole discretion. The Distributor
has the right to refuse any order.
A purchase order will be effective as of the day received by the
Distributor, Transfer Agent, or its agents, if the order is received before
the time that the Fund calculates net asset values (normally, 4:00 p.m.
Eastern time) by the Distributor, Transfer Agent, or its agents. Payment may
be made by check or readily available funds. The purchase price of shares of
each Class of the Series is the net asset value next determined after a
purchase order is effective.
The shares of the Series may be purchased in exchange for securities to
be included in the Series, subject to the Advisor's determination that these
securities are acceptable. Securities accepted in an exchange will be valued
at market value. All accrued interest and purchase or other rights which are
reflected in the market price of accepted securities at the time of valuation
become the property of the Series and must be delivered by the shareholder to
the Series upon receipt from the issuer.
The Advisor will not accept securities in exchange for shares of a Series
unless (1) such securities are appropriate in the Series at the time of the
exchange; (2) the shareholder represents and agrees that all securities
offered to the Series are not subject to any restrictions upon their sale by
the Series under the Securities Act of 1933, or otherwise; and (3) prices are
available from an independent pricing service approved by the Funds Board of
Directors.
Automatic Investment Plan
Shareholders may purchase shares regularly through the Automatic
Investment Plan with a pre-authorized draft drawn on a checking account.
Under this plan, the shareholder may elect to have a specified amount invested
on a regular schedule. The minimum amount of each automatic investment is
$25. The amount specified by the shareholder will be withdrawn from the
shareholder's bank account using the pre-authorized draft. This amount will be
invested at the applicable share price determined on the date the amount is
available for investment. Participation in the Automatic Investment Plan may
be discontinued either by the Fund or the shareholder upon 30 days' prior
written notice to the other party. A shareholder who wishes to enroll in the
Automatic Investment Plan may do so by completing the applicable section of
the Account Application Form or contacting the Fund for an Automatic
Investment Plan Form.
<PAGE>
Exchanges between Series
As permitted pursuant to any rule, regulation or order promulgated by the
Securities and Exchange Commission, some or all of the shares of a Class in an
account for which payment has been received by the Fund may be exchanged for
shares of the same Class of any of the other Series of the Exeter Fund, Inc.
that offer that Class at the net asset value next determined after an exchange
order is effective. Shareholders may effect up to 4 exchanges in a 12-month
period without charge. Subsequent exchanges are subject to a fee of $15.
Exchanges will be made after instructions in writing or by telephone are
received by the Transfer Agent in proper form (i.e., if in writing - signed by
the record owner(s) exactly as the shares are registered; if by telephone -
proper account identification is given by the shareholder) and each exchange
must involve either shares having an aggregate value of at least $1,000 or all
the shares in the account. A shareholder must have received, and should read
carefully, the prospectus of the other Series and consider the differences in
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 1940 Act if an emergency exists. For
shares purchased, or received in exchange for shares purchased, by check
(including certified checks or cashiers checks) or through the Automatic
Investment Plan, payment of redemption proceeds may be delayed up to 15 days
from the purchase date in an effort to assure that such check or draft has
cleared.
Subject to the Series' compliance with applicable regulations, each Series
has reserved the right to pay the redemption price either totally or partially
by a distribution in-kind of securities (instead of cash) from the Series
portfolio. The securities distributed in such a distribution would be valued
at the same amount as that assigned to them in calculating the net asset value
for the shares being sold. If a shareholder received a distribution in-kind,
he could incur brokerage or transaction charges when converting the securities
to cash. The Fund has elected, however, to be governed by Rule 18f-1 under
the 1940 Act as a result of which the Fund is obligated to redeem shares, with
respect to any one shareholder during any 90-day period, solely in cash up to
the lesser of $250,000 or 1% of the net asset value of the Fund at the
beginning of the period.
Other Information about Purchases and Redemptions
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 order on the Fund's behalf.
The Fund will be deemed to have received a purchase or redemption order when
an authorized broker or its authorized designee accepts the order, and orders
placed with an authorized broker will be processed at the share price of the
appropriate Series next computed after they are accepted by the authorized
broker or its designee.
Due to the relatively high cost of maintaining small accounts, the Series
reserve the right to redeem shares in any account for their then-current value
(which will be promptly paid to the shareholder) if at any time the total
investment in such account drops below $1,000 because of redemptions (but not
due to changes in net asset value). Shareholders will be notified that the
value of their account is less than the minimum investment requirement and
allowed 60 days to make an additional investment before the redemption is
processed.
<PAGE>
Share Price
The share price or "net asset value" per share of each class of each
Series is determined as of the closing time of the New York Stock Exchange or,
in the absence of a closing time, 4:00 p.m. Eastern time on each day that the
New York Stock Exchange is open for trading. The exchange annually announces
the days on which it will not be open for trading; the most recent announcement
indicates that it will not be open when the following holidays are observed:
New Year's Day, Martin Luther King, Jr. Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value per share of each Class of a Series is determined by
dividing the total value of its investments and other assets that are
allocated to that Class, less any liabilities that are allocated to that
Class, by the Class's total outstanding shares. The value of the Serie's
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 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"), 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 shareholder's 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 Serie's 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.
<PAGE>
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 a Series's 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. As of
February 2, 1998, National Financial Services Corporation, FBO Customers, 200
Liberty Street, New York, NY 10281-1003 owned 40.27% of the Defensive Series
and 63.53% of the Maximum Horizon Series, and would be deemed under the 1940
Act to be a controlling person of each such Series.
Each share of a Series represents an identical interest in the investment
portfolio of that Series and has the same rights, except that (i) each class
of shares bears those distribution fees, service fees and administrative
expenses applicable to the respective class of shares as a result of its sales
arrangements, which will cause the different classes of shares to have
different expense ratios and to pay different rates of dividends, (ii) each
class has exclusive voting rights with respect to those provisions of the
Series' Rule 12b-1 distribution plan which relate only to such class and (iii)
the classes have different exchange privileges. As a result of each class'
differing Rule 12b-1 distribution and shareholder services plan, shares of
different classes of the same Series may have different net asset values per
share.
The Fund does not expect to hold annual meetings of shareholders but
special meetings of shareholders may be held under certain circumstances.
Shareholders of the Fund retain the right, under certain circumstances, to
request that a meeting of shareholders be held for the purpose of considering
the removal of a Director from office, and if such a request is made, the Fund
will assist with shareholder communications in connection with the meeting.
The shares of the Fund have equal rights with regard to voting, redemption and
liquidations. The 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 a Series will be allocated
directly to the Series, and general liabilities and expenses of the Fund will
be allocated among the Series in proportion to the total net assets of the
Series by the Board of Directors. The holders of shares have no preemptive or
conversion rights. Shares when issued are fully paid and non-assessable and
do not have cumulative voting rights.
All securities and cash are held by the custodian, Boston Safe Deposit
and Trust Company. Deloitte & Touche, LLP serves as independent accountants
for the Series and will audit their financial statements annually.
Manning & Napier Advisors, Inc. serves as the Fund's transfer and
dividend disbursing agent. Shareholder inquiries should be directed to
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.
Debt rated BB, B, CCC, CC and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
may be outweighed by large uncertainties or major risk exposures to adverse
conditions.
The C rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments on this
obligation are being continued.
Debt rated D is in payment default. The D rating category is used when
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless 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 a
obligation are jeopardized.
<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.
P.O. Box 41118
Rochester, New York 14604
1-800-466-3863
Flexible Yield Series I
Flexible Yield Series II
Flexible Yield Series III
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 Flexible Yield Series I, Flexible Yield Series II and the
Flexible Yield Series III (individually and collectively, the "Series") of
the Fund.
The primary objective of the Flexible Yield Series I is to seek the
highest level of total return in the form of income and capital appreciation
consistent with the preservation of capital by investing in fixed income
securities with a dollar-weighted average maturity of not more than 5 years.
The primary objective of the Flexible Yield Series II is to maximize
total return in the form of income and capital appreciation consistent with
the preservation of capital by investing in fixed income securities with a
dollar-weighted average maturity of not more than 10 years.
The primary objective of the Flexible Yield Series III is to maximize
total return in the form of income and capital appreciation consistent with
the preservation of capital by investing in fixed income securities without
regard to maturity.
This Prospectus provides you with the basic information you should know
before investing in the Series. The Fund's other series are offered through
separate prospectuses. You should read this Prospectus and keep it for future
reference. A Statement of Additional Information dated February 27, 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 HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is February 27, 1998.
<PAGE>
EXETER FUND, INC.
Flexible Yield Series I
Flexible Yield Series II
Flexible Yield Series III
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 2
Financial Highlights 8
The Fund 11
Risk and Investment Objectives and Policies 11
Risk and Additional Information about Investment Policies 12
Principal Investment Restrictions 16
Management 17
Distribution of Fund Shares 18
Yield and Total Return 18
Purchases, Exchanges and Redemptions of Shares 19
Share Price 20
Dividends and Tax Status 21
General Information 22
Appendix 23
<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 change. Subsequent exchanges are subject to a fee of
$15.
Annual Operating Expenses - Class A Shares
The following information provides (i) a tabular summary of expenses relating
to the annual operating expenses of the Class A Shares of the Series and
(ii) an example illustrating the dollar cost of such expenses on a $1,000
investment.
Annual Operating Expenses of Class A Shares of the Series (as a percentage of
average net assets):
<TABLE>
<CAPTION>
Flexible Yield Flexible Yield Flexible Yield
Series I 1 Series II 1 Series III 1
<S> <C> <C> <C>
Management Fees( After
Reduction of Fees)2.....0.00% 0.00% 0.00%
Rule 12b-1 Fees.........None None None
Other Expenses (After
Expense Reimbursement)2.0.70% 0.80% 0.85%
Total Operating Expenses
(After Fee Reductions
and Expense
Reimbursements)2........0.70% 0.80% 0.85%
</TABLE>
1 The Flexible Yield Series I, Flexible Yield Series II, and Flexible
Yield Series III offered only Class A shares during the year ended
October 31, 1997; therefore, actual management fees and other expenses
are used above.
2 The Advisor has agreed to waive its management fees and/or to reimburse
expenses of the Series, if necessary, if such fees would cause the total
annual operating expenses of the Class A Shares of the Series, as a
percentage of average daily net assets, to exceed the percentages set
forth in the table above. As a result of these reductions, the Management
Fees stated above are lower than contractual fees stated under
"Management." The Advisor reserves the right to terminate any of its fee
waivers at any time in its sole discretion. For further information on
expenses, see "Management." The following sets forth, for Class A Shares
of such Series, (i) management fees absent fee waivers, (ii) other
expenses absent expense reimbursements and (iii) expected total operating
expenses absent fee waivers and/or expense reimbursements.
<TABLE>
<CAPTION>
Class A Shares Flexible Yield Flexible Yield Flexible Yield
Series I Series II Series III
<S> <C> <C> <C>
Management Fees...........0.35% 0.45% 0.50%
Other Expenses ...........3.48% 3.27% 1.78%
Total Operating Expenses..3.83% 3.72% 2.28%
</TABLE>
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class A Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
Example - Class A Shares
You would pay the following expenses on a $1,000 investment in Class A Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Flexible Yield Series I $ 7 $22 $39 $ 87
Flexible Yield Series II 8 26 44 99
Flexible Yield Series III 9 27 47 105
</TABLE>
The example above should not be considered a representation of future
expenses. Actual expenses may be greater or lesser than those shown. The
Advisor in its discretion may terminate its voluntary fee waivers and/or
reimbursements at any time. Absent the waiver of fees or reimbursement of
expenses, the amounts in the example above would be greater.
<PAGE>
Annual Operating Expenses - Class B Shares
The following information provides (i) a tabular summary of expenses relating
to the annual operating expenses of the Class B Shares of Series and (ii) an
example illustrating the dollar cost of such expenses on a $1,000 investment.
<TABLE>
<CAPTION>
Annual Operating Expenses of the Class B Shares of Each Series
(as a percentage of average net assets):
Flexible Yield Flexible Yield Flexible Yield
Series I 1 Series II 1 Series III 1
<S> <C> <C> <C>
Management Fees (After
Reduction of Fees)2.............0.00% 0.00% 0.00%
Rule 12b-1 Fees 3...............1.00% 1.00% 1.00%
Other Expenses (After Expense
Reimbursement) 2................0.70% 0.80% 0.85%
Total Operating Expenses
(After Fee Reductions and
Expense Reimbursements)2........1.70% 1.80% 1.85%
</TABLE>
1 The Flexible Yield Series I, Flexible Yield Series II, and Flexible
Yield Series III offered only Class A Shares during the year ended
October 31, 1997; therefore, actual management fees and other expenses
of Class A Shares of the Series are used above.
2 The Advisor has agreed to waive its management fees and/or to reimburse
expenses of the Series, if necessary, if such fees would cause the total
annual operating expenses of the Class B Shares of the Series, as a
percentage of average daily net assets, to exceed the percentages set
forth in the table above. As a result of these reductions, the
Management Fees stated above are lower than contractual fees stated under
"Management." The Advisor reserves the right to terminate any of its fee
waivers at any time in its sole discretion. For further information on
expenses, see "Management." The following sets forth, for Class B Shares
of such Series, (i) management fees absent fee waivers, (ii) other
expenses absent expense reimbursements, (iii) Rule 12b-1 fees and (iv)
expected total operating expenses absent fee waivers and/or expense
reimbursements.
<TABLE>
<CAPTION>
Class B Shares Flexible Yield Flexible Yield Flexible Yield
Series I Series II Series III
<S> <C> <C> <C>
Management Fees ...........0.35% 0.45% 0.50%
Rule 12b-1 Fees............1.00% 1.00% 1.00%
Other Expenses.............3.48% 3.27% 1.78%
Total Operating Expenses...4.83% 4.72% 3.28%
</TABLE>
3 Of the Rule 12b-1 fees for the Class B shares, 0.25% represents
shareholder service fees.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class B Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
Due to the continuous nature of Rule 12b-1 fees, long-term shareholders may
pay more than the equivalent of the maximum front-end sales charges otherwise
permitted by the Conduct Rules of the National Association of Securities
Dealers, Inc. (the "NASD").
Example - Class B Shares
You would pay the following expenses on a $1,000 investment in Class B Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Flexible Yield Series I $17 $54 $92 $201
Flexible Yield Series II 18 57 97 212
Flexible Yield Series III 19 58 100 217
</TABLE>
The example above should not be considered a representation of future
expenses. Actual expenses may be greater or lesser than those shown. The
Advisor in its discretion may terminate its voluntary fee waivers and/or
reimbursements at any time. Absent the waiver of fees or reimbursement of
expenses, the amounts in the example above would be greater.
<PAGE>
Annual Operating Expenses - Class C Shares
The following information provides (i) a tabular summary of expenses relating
to the annual operating expenses of the Class C Shares of Series and (ii) an
example illustrating the dollar cost of such expenses on a $1,000 investment.
Annual Operating Expenses of the Class C Shares of Each Series
(as a percentage of average net assets):
<TABLE>
<CAPTION>
Flexible Yield Flexible Yield Flexible Yield
Series I 1 Series II 1 Series III 1
<S> <C> <C> <C>
Management Fees (After
Reduction of Fees)2 .......... 0.00% 0.00% 0.00%
Rule 12b-1 Fees3 ............. 0.75% 0.75% 0.75%
Other Expenses (After Expense
Reimbursement) 2.............. 0.70% 0.80% 0.85%
Total Operating Expenses
(After Fee Reductions and
Reimbursements)2.............. 1.45% 1.55% 1.60%
</TABLE>
1 The Flexible Yield Series I, Flexible Yield Series II, and Flexible
Yield Series III offered only Class A Shares during the year ended
October 31, 1997; therefore, actual management fees and other expenses
of Class A Shares of the Series are used above.
2 The Advisor has agreed to waive its management fees and/or to reimburse
expenses of the Series, if necessary, if such fees would cause the total
annual operating expenses of the Class C Shares of the Series, as a
percentage of average daily net assets, to exceed the percentages set
forth in the table above. As a result of these reductions, the Management
Fees stated above are lower than contractual fees stated under
"Management." The Advisor reserves the right to terminate any of its fee
waivers at any time in its sole discretion. For further information on
expenses, see "Management." The following sets forth, for Class C Shares
of such Series, (i) management fees absent fee waivers, (ii) other
expenses absent expense reimbursements, (iii) Rule 12b-1 fees and (iv)
expected total operating expenses absent fee waivers and/or expense
reimbursements.
<TABLE>
<CAPTION>
Class C Shares Flexible Yield Flexible Yield Flexible Yield
Series I Series II Series III
<S> <C> <C> <C>
Management Fees ............0.35% 0.45% 0.50%
Rule 12b-1 Fees.............0.75% 0.75% 0.75%
Other Expenses..............3.48% 3.27% 1.78%
Total Operating Expenses....4.58% 4.47% 3.03%
</TABLE>
3 Of the Rule 12b-1 fees for the Class C shares, up to 0.25% may represent
shareholder service fees.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class C Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
Due to the continuous nature of Rule 12b-1 fees, long-term shareholders may
pay more than the equivalent of the maximum front-end sales charges otherwise
permitted by the Conduct Rules of the NASD.
Example - Class C Shares
You would pay the following expenses on a $1,000 investment in Class C Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Flexible Yield Series I $15 $46 $79 $174
Flexible Yield Series II 16 49 84 185
Flexible Yield Series III 16 50 87 190
</TABLE>
The example above should not be considered a representation of future
expenses. Actual expenses may be greater or lesser than those shown. The
Advisor in its discretion may terminate its voluntary fee waivers and/or
reimbursements at any time. Absent the waiver of fees or reimbursement of
expenses, the amounts in the example above would be greater.
<PAGE>
Annual Operating Expenses - Class D Shares
The following information provides (i) a tabular summary of expenses relating
to the annual operating expenses of the Class D Shares of Series and (ii) an
example illustrating the dollar cost of such expenses on a $1,000 investment.
Annual Operating Expenses of the Class D Shares of Each Series
(as a percentage of average net assets):
<TABLE>
<CAPTION>
Flexible Yield Flexible Yield Flexible Yield
Series I 1 Series II 1 Series III 1
<S> <C> <C> <C>
Management Fees (After
Reduction of Fees)2.............0.00% 0.00% 0.00%
Rule 12b-1 Fees 3 ..............0.50% 0.50% 0.50%
Other Expenses (After
Expense Reimbursement) 2........0.70% 0.80% 0.85%
Total Operating Expenses
(After Fee Reductions and
Expense Reimbursements) 2.......1.20% 1.30% 1.35%
</TABLE>
1 The Flexible Yield Series I, Flexible Yield Series II, and Flexible
Yield Series III offered only Class A Shares during the year ended
October 31, 1997; therefore, actual management fees and other expenses
of Class A Shares of the Series are used above.
2 The Advisor has agreed to waive its management fees and/or to reimburse
expenses of the Series, if necessary, if such fees would cause the total
annual operating expenses of the Class D Shares of the Series, as a
percentage of average daily net assets, to exceed the percentages set
forth in the table above. As a result of these reductions, the Management
Fees stated above are lower than contractual fees stated under
"Management." The Advisor reserves the right to terminate any of its fee
waivers at any time in its sole discretion. For further information on
expenses, see "Management." The following sets forth, for Class D Shares
of such Series, (i) management fees absent fee waivers, (ii) other
expenses absent expense reimbursements, (iii) Rule 12b-1 fees and (iv)
expected total operating expenses absent fee waivers and/or expense
reimbursements.
<TABLE>
<CAPTION>
Class D Shares Flexible Yield Flexible Yield Flexible Yield
Series I Series II Series III
<S> <C> <C> <C>
Management Fees ..........0.35% 0.45% 0.50%
Rule 12b-1 Fees...........0.50% 0.50% 0.50%
Other Expenses............3.48% 3.27% 1.78%
Total Operating Expenses..4.33% 4.22% 2.78%
</TABLE>
3 Of the Rule 12b-1 fees for the Class D shares, up to 0.25% may represent
shareholder service fees.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class D Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
Due to the continuous nature of Rule 12b-1 fees, long-term shareholders may
pay more than the equivalent of the maximum front-end sales charges otherwise
permitted by the Conduct Rules of the NASD.
Example - Class D Shares
You would pay the following expenses on a $1,000 investment in Class D Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Flexible Yield Series I $12 $38 $66 $145
Flexible Yield Series II 13 41 71 157
Flexible Yield Series III 14 43 74 162
</TABLE>
<TABLE>
<CAPTION>
Flexible Yield Flexible Yield Flexible Yield
Series I 1 Series II 1 Series III 1
<S> <C> <C> <C>
Management Fees (After
Reduction of Fees)2 .......0.00% 0.00% 0.00%
Rule 12b-1 Fees 3 .........0.25% 0.25% 0.25%
Other Expenses (After
Expense Reimbursement) 2...0.70% 0.80% 0.85%
Total Operating Expenses
(After Fee Reductions and
Expense Reimbursements)2...0.95% 1.05% 1.10%
</TABLE>
1 The Flexible Yield Series I, Flexible Yield Series II, and Flexible
Yield Series III offered only Class A Shares during the year ended
October 31, 1997; therefore, actual management fees and other expenses
of Class A Shares of the Series are used above.
2 The Advisor has agreed to waive its management fees and/or to reimburse
expenses of the Series, if necessary, if such fees would cause the total
annual operating expenses of the Class E Shares of the Series, as a
percentage of average daily net assets, to exceed the percentages set
forth in the table above. As a result of these reductions, the Management
Fees stated above are lower than contractual fees stated under
"Management." The Advisor reserves the right to terminate any of its fee
waivers at any time in its sole discretion. For further information on
expenses, see "Management." The following sets forth, for Class E Shares
of such Series, (i) management fees absent fee waivers, (ii) other
expenses absent expense reimbursements, (iii) Rule 12b-1 fees and (iv)
expected total operating expenses absent fee waivers and/or expense
reimbursements.
<TABLE>
<CAPTION>
Class E Shares Flexible Yield Flexible Yield Flexible Yield
Series I Series II Series III
<S> <C> <C> <C>
Management Fees ..........0.35% 0.45% 0.50%
Rule 12b-1 Fees...........0.25% 0.25% 0.25%
Other Expenses............3.48% 3.27% 1.78%
Total Operating Expenses..4.08% 3.97% 2.53%
</TABLE>
3 Of the Rule 12b-1 fees for the Class E Shares, up to 0.25% may represent
shareholder service fees.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class E Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
Due to the continuous nature of Rule 12b-1 fees, long-term shareholders may
pay more than the equivalent of the maximum front-end sales charges otherwise
permitted by the Conduct Rules of the NASD.
Example - Class E Shares
You would pay the following expenses on a $1,000 investment in Class E Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Flexible Yield Series I $10 $30 $53 $117
Flexible Yield Series II 11 33 58 128
Flexible Yield Series III 11 35 61 134
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
The following tables provide selected per share data and ratios for the Class
A Shares of the Flexible Yield Series I, Flexible Yield Series II, and
Flexible Yield Series III (for a share outstanding throughout the period for
the periods shown). The tables are part of the Series' financial statements,
which are incorporated by reference into the Fund's Statement of Additional
Information. Deloitte & Touche LLP, the Fund's independent accountants,
audited the Fund's 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 Fund's Class B, C, D and E Shares had not
been introduced as of October 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.
Flexible Yield Series I - Class A Shares
<TABLE>
<CAPTION>
For the Year For the Ten
Ended Months Ended
10/31/97 10/31/96
Per share data (for a share
outstanding throughout each period):
<S> <C> <C>
Net asset value - Beginning
of period $10.27 $10.26
Income from investment
operations:
Net investment income 0.50 0.41
Net realized and unrealized
gain (loss) on investments 0.10 (0.10)
Total from investment
operations 0.60 0.31
Less distributions to
shareholders:
From net investment income (0.45) (0.30)
From net realized gain on
investments (0.03) --
Total distributions to
shareholders (0.48) (0.30)
Net asset value - End of period $10.39 $10.27
Total return1 6.07% 3.11%
Ratios (to average net assets)
/ Supplemental Data:
Expenses* 0.70% 0.70%2
Net investment income* 5.29% 5.25%2
Portfolio turnover 77% 36%
Net assets - End of period
(000's omitted) $ 650 $ 493
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Net investment income $ 0.21 $ 0.27
Ratios (to average net assets):
Expenses 3.83% 2.50%2
Net investment income 2.16% 3.45%2
</TABLE>
<TABLE>
<CAPTION>
For the Period
2/15/94
For the Year (commencement of
Ended operations) to
12/31/95 12/31/94
Per share data (for a share outstanding
throughout each period):
<S> <C> <C>
Net asset value - Beginning
of period $ 9.69 $10.00
Income from investment
operations:
Net investment income 0.46 0.24
Net realized and unrealized
gain (loss) on investments 0.57 (0.32)
Total from investment operations 1.03 (0.08)
Less distributions to shareholders:
From net investment income (0.46) (0.23)
From net realized gain on investments -- --
Total distributions to shareholders (0.46) (0.23)
Net asset value - End of period $10.26 $ 9.69
Total return1 10.79% (0.76)%
Ratios (to average net assets)
/ Supplemental Data:
Expenses* 0.70% 0.70%2
Net investment income* 4.99% 4.41%2
Portfolio turnover 60% 38%
Net assets - End of period (000's omitted) $ 256 $ 231
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Net investment income $0.30 $ 0.14
Ratios (to average net assets):
Expenses 2.50% 2.50%2
Net investment income 3.19% 2.61%2
</TABLE>
Flexible Yield Series II - Class A Shares
<TABLE>
<CAPTION>
For the For the Ten
Year Months
Ended Ended
10/31/97 10/31/96
Per share data (for a share outstanding
throughout each period):
<S> <C> <C>
Net asset value - Beginning of period $10.10 $10.30
Income from investment operations:
Net investment income 0.53 0.45
Net realized and unrealized gain (loss) on 0.21 (0.32)
investments
Total from investment operations 0.74 0.13
Less distributions to shareholders:
From net investment income (0.60) (0.27)
From net realized gain on investments (0.01) (0.06)
Total distributions to shareholders (0.61) (0.33)
Net asset value - End of period $10.23 $10.10
Total return1 7.61% 1.38%
Ratios (to average net assets) / Supplemental Data:
Expenses* 0.80% 0.80%2
Net investment income* 5.46% 5.55%2
Portfolio turnover 58% 5%
Net assets - End of period (000's omitted) $ 718 $ 481
</TABLE>
* The Advisor did not impose its management fee and paid a portion of the
Series' expenses. If these expenses had been incurred by the Series, and
had 1994, 1995, and 1996 expenses been limited to that allowed by state
securities law, the net investment income per share and the ratios would have
been as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Net Investment Income $ 0.24 $ 0.31
Ratios (to average net assets):
Expenses 3.72% 2.50%2
Net Investment Income 2.54% 3.85%2
</TABLE>
<TABLE>
<CAPTION> For the Period
For the 2/15/94
Year (commencement
Ended of operations)
12/31/95 to 12/31/94
Per share data (for a share outstanding
throughout each period):
<S> <C> <C>
Net asset value - Beginning of period $ 9.27 $10.00
Income from investment operations:
Net investment income 0.56 0.27
Net realized and unrealized
gain (loss) on investments 1.02 (0.74)
Total from investment operations 1.58 (0.47)
Less distributions to shareholders:
From net investment income (0.55) (0.26)
From net realized gain on investments -- --
Total distributions to shareholders (0.55) (0.26)
Net asset value - End of period $10.30 $ 9.27
Total return1 17.33% (4.69)%
Ratios (to average net assets)
/ Supplemental Data:
Expenses* 0.80% 0.80%2
Net investment income* 5.38% 5.40%2
Portfolio turnover 35% 0%
Net assets - End of period (000's omitted) $ 438 $ 396
</TABLE>
* The Advisor did not impose its management fee and paid a portion of
the Series' expenses. If these expenses had been incurred by the Series,
and had 1994, 1995, and 1996 expenses been limited to that allowed by
state securities law, the net investment income per share and the ratios
would have been as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Net Investment Income $0.38 $ 0.18
Ratios (to average net assets):
Expenses 2.50% 2.50%2
Net Investment Income 3.68% 3.70%2
</TABLE>
Flexible Yield Series III - Class A Shares
<TABLE>
<CAPTION>
For the For the Ten
Year Months
Ended Ended
10/31/97 10/31/96
Per share data (for a share outstanding
throughout each period):
<S> <C> <C>
Net asset value - Beginning of period $10.13 $10.51
Income from investment operations:
Net investment income 0.58 0.50
Net realized and unrealized
gain (loss) on investments 0.36 (0.53)
Total from investment operations 0.94 (0.03)
Less distributions to shareholders:
From net investment income (0.61) (0.35)
From net realized gain on investments (0.05) --
Total distributions to shareholders (0.66) (0.35)
Net asset value - End of period $10.41 $10.13
Total return1 9.73% (0.18)%
Ratios (to average net assets)
/Supplemental Data:
Expenses* 0.85% 0.85%2
Net investment income* 5.82% 5.98%2
Portfolio turnover 51% 5%
Net assets - End of period (000's omitted) $1,345 $1,098
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Net investment income $ 0.44 $ 0.36
Ratios (to average net assets):
Expenses 2.28% 2.50%2
Net investment income 4.39% 4.33%2
1 Represents aggregate total return for the period indicated.
2 Annualized.
</TABLE>
<TABLE>
<CAPTION>
For the Year
Ended
12/31/95
Per share data (for a share outstanding
throughout each period):
<S> <C>
Net asset value - Beginning of period $ 9.11
Income from investment operations:
Net investment income 0.58
Net realized and unrealized
gain (loss) on investments 1.39
Total from investment operations 1.97
Less distributions to shareholders:
From net investment income (0.57)
From net realized gain on investments --
Total distributions to shareholders (0.57)
Net asset value - End of period $10.51
Total return1 22.09%
Ratios (to average net assets)
/Supplemental Data:
Expenses* 0.85%
Net investment income* 6.13%
Portfolio turnover 6%
Net assets - End of period (000's omitted) $1,159
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Net investment income $ 0.43
Ratios (to average net assets):
Expenses 2.46%
Net investment income 4.52%
1 Represents aggregate total return for the period indicated.
2 Annualized.
</TABLE>
<TABLE>
<CAPTION>
For the Period
12/20/93
For the Year (commencement
Ended of operations)
12/31/94 to 12/31/93
Per share data (for a share outstanding
throughout each period):
<S> <C> <C>
Net asset value - Beginning of period $ 9.95 $10.00
Income from investment
operations:
Net investment income 0.26 0.01
Net realized and unrealized
gain (loss) on investments (0.84) (0.05)
Total from investment operations (0.58) (0.04)
Less distributions to shareholders:
From net investment income (0.26) (0.01)
From net realized gain on investments -- --
Total distributions to shareholders (0.26) (0.01)
Net asset value - End of period $ 9.11 $ 9.95
Total return1 (5.83)% (0.40)%
Ratios (to average net assets)
/Supplemental Data:
Expenses* 0.85% 0.85%2
Net investment income* 6.22% 3.85%2
Portfolio turnover 1% 0%
Net assets - End of period (000's omitted) $ 748 $ 75
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Net investment income $ 0.19 $ 0.01
Ratios (to average net
assets): Expenses 2.50% 2.50%2
Net investment income 4.57% 2.20%2
1 Represents aggregate total return for the period indicated.
2 Annualized.
</TABLE>
The Fund
The Fund is an open-end management investment company incorporated under
the laws of the State of Maryland on July 26, 1984. The Fund offers separate
series of units of beneficial interest ("shares"). This Prospectus relates to
the Flexible Yield Series I, Flexible Yield Series II and Flexible Yield
Series III, each of which is offered through five separate classes of shares,
Class A, B, C, D and E Shares, respectively. Class A Shares of each Series
are offered to investors who purchase their shares directly from Manning &
Napier Investor Services, Inc. (the "Distributor"). Class B, C, D and E
Shares are offered only through financial intermediaries which provide to the
Fund and its shareholders varying levels of distribution and shareholder
services as described under "Distribution of Fund Shares" below. Information
regarding the Fund's other series is contained in separate prospectuses that
may be obtained from Exeter Fund, Inc., P.O. Box 41118, Rochester, New York
14604 or by calling 1-800-466-3863. The Flexible Yield Series I, Flexible
Yield Series II and Flexible Yield Series III are diversified funds.
Risk and Investment Objectives and Policies
Flexible Yield Series I
The objective of the Flexible Yield Series I is to seek the highest level
of total return in the form of income and capital appreciation consistent with
the preservation of capital by investing in fixed income securities with a
dollar weighted average maturity of not more than 5 years. The Flexible Yield
Series I will, under normal circumstances, have at least 65% of the value of
its total assets invested in a diversified portfolio consisting of the
following U.S. dollar-denominated fixed income securities: non-convertible
corporate debt securities, mortgage-backed securities and Government
obligations. Any remaining assets in the Flexible Yield Series I may be held
in cash or high quality "money market securities", convertible debt,
preferred stock, futures contracts, and related options. There can be no
assurance that the Series' investment objective will be met.
Exeter Asset Management (the "Advisor") may vary the maturities of the
Series' securities depending on its evaluation of interest rate trends and
other factors affecting the fixed income markets. The Flexible Yield Series I
will purchase short-term securities when the risk of negative returns is high
as determined by the Advisor. Generally, the shorter the maturity of a fixed
income security, the lower its yield and the lower its price volatility. The
Flexible Yield Series I will invest primarily in fixed income securities rated
in the four highest rating categories (Baa or higher by Moody's Investors
Service, Inc. ("Moody's") or BBB or higher by Standard & Poor's Corporation
("S&P")) but may invest up to 20% of its assets in lower-rated securities.
These securities are commonly known as junk bonds. Securities rated Baa or
BBB are considered investment grade but may have speculative characteristics
and changes in economic conditions or circumstances are more likely to lead to
a weakened capacity to make principal and interest payments than is the case
with more highly rated securities. See "Risk and Additional Information about
Investment Policies - High Yield Debt Securities."
Flexible Yield Series II
The primary objective of the Flexible Yield Series II is to maximize
total return in the form of income and capital appreciation consistent with
the preservation of capital by investing in fixed income securities with a
dollar-weighted average maturity of not more than 10 years. The Flexible
Yield Series II will, under normal circumstances, have at least 65% of the
value of its total assets invested in a diversified portfolio consisting of
the following U.S. dollar-denominated fixed income securities:
non-convertible corporate debt securities, mortgage backed securities and
Government obligations. Any remaining assets in the Flexible Yield Series II
may be held in cash or high quality "money market securities", convertible
debt, preferred stock, futures contracts, and related options. There can be
no assurance that the investment objective will be met.
The Advisor may vary the maturities of the Series' securities depending
on its evaluation of interest rate trends and other factors affecting the fixed
income markets. The Flexible Yield Series II will purchase short-term
securities when the risk of negative returns is high as determined by the
Advisor. Generally, the shorter the maturity of a fixed income security, the
lower its yield and the lower its price volatility. The Flexible Yield Series
II will invest primarily in fixed income securities rated in the four highest
rating categories (Baa or higher by Moody's or BBB or higher by S&P) but may
invest up to 20% of its assets in lower-rated securities. These securities are
commonly known as junk bonds. Securities rated Baa or BBB are considered
investment grade but may have speculative characteristics and changes in
economic conditions or circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with more
highly rated securities. See "Risk and Additional Information about Investment
Policies - High Yield Debt Securities."
Flexible Yield Series III
The primary objective of the Flexible Yield Series III is to maximize
total return in the form of income and capital appreciation consistent with
the preservation of capital by investing in fixed income securities without
regard to maturity. The Flexible Yield Series III will, under normal
circumstances, have at least 65% of the value of its total assets invested in
a diversified portfolio consisting of the following U.S. dollar-denominated
fixed income securities: non-convertible corporate debt securities,
mortgage-backed securities and Government obligations. Any remaining assets
in the Series may be held in cash or high quality "money market securities",
convertible debt, preferred stock, futures contracts, and related options.
There can be no assurance that the investment objective will be met.
The Advisor may vary the maturities of the Series' securities without
restriction, depending on its evaluation of interest rate trends and other
factors affecting the fixed income markets. The Flexible Yield Series III
will purchase short-term securities when the risk of negative returns is high
as determined by the Advisor. Generally, the shorter the maturity of a fixed
income security the lower its yield and the lower its price volatility. The
Flexible Yield Series III will invest primarily in fixed income securities
rated in the four highest rating categories (Baa or higher by Moody's or BBB
or higher by S&P) but may invest up to 20% of its assets in lower-rated
securities. These securities are commonly known as junk bonds. Securities
rated Baa or BBB are considered investment grade but may have speculative
characteristics and changes in economic conditions or circumstances are more
likely to lead to a weakened capacity to make principal and interest payments
than is the case with more highly rated securities. See "Risk and Additional
Information about Investment Policies - High Yield Debt Securities."
General
For temporary defensive purposes during periods when the Advisor
determines that market conditions warrant, a Series may invest up to 100% of
its assets in money market instruments (consisting of securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities,
certificates of deposit, time deposits and bankers acceptances issued by banks
or savings and loan associations deemed creditworthy by the Advisor,
commercial paper rated A-1 by S&P or Prime-1 by Moody's, repurchase agreements
involving such securities and other shares of investment companies investing
solely in such securities as permitted by applicable law) and may hold a
portion of its assets in cash.
For a description of the above ratings, see the Appendix and the
Statement of Additional Information.
Risk and Additional Information about Investment Policies
Set forth below is further information about certain types of securities,
in which each Series may invest, as well as information about additional types
of investments and certain strategies each Series may pursue. These policies
have been voluntarily adopted by the Funds Board of Directors based upon
current circumstances and may be changed or amended by action of the Board of
Directors without prior approval of a Series shareholders. Additional
information concerning these strategies and their related risks is contained
in the Statement of Additional Information.
Foreign Securities
While each Series generally emphasizes investments in U.S. Government
securities and companies domiciled in the United States, it may invest up to
25% in foreign securities of the same types and quality as the domestic
securities in which the Series may invest when the anticipated performance of
foreign securities is believed by the Advisor to offer more potential than
domestic alternatives in keeping with the investment objective of the Series.
Foreign securities may be denominated either in U.S. dollars or foreign
currencies. Each Series will invest no more than 25% of its assets in
securities issued by any one foreign government. Each Series may invest
without limit in securities of foreign issuers that are listed on a domestic
securities exchange or are traded in the United States on the over-the-counter
market. The Series' restriction on investment in foreign securities is a
fundamental policy that cannot be changed without the approval of a majority,
as defined in the Investment Company Act of 1940 (the "1940 Act"), of the
outstanding voting securities of a Series.
There are risks in investing in foreign securities not typically involved
in domestic investing. An investment in foreign securities may be affected by
changes in currency rates and in exchange control regulations. Foreign
companies are frequently not subject to the accounting and financial reporting
standards applicable to domestic companies, and there may be less information
available about foreign issuers. There is frequently less government
regulation of foreign issuers than in the United States. In addition,
investments in foreign countries are subject to the possibility of
expropriation or confiscatory taxation, political or social instability or
diplomatic developments that could adversely affect the value of those
investments. There may also be imposition of withholding taxes. Foreign
financial markets may have less volume and longer settlement periods than U.S.
markets which may cause liquidity problems for a Series. In addition, costs
associated with transactions on foreign markets are generally higher than for
transactions in the U.S.
Obligations of foreign governmental entities are subject to various types
of governmental support and may or may not be supported by the full faith and
credit of a foreign government.
Repurchase Agreements
Each Series may enter into repurchase agreements with respect to
portfolio securities. Under the terms of a repurchase agreement, the Series
purchases securities ("collateral") from financial institutions such as banks
and broker-dealers (the "seller") which the Advisor deems to be creditworthy,
subject to the sellers agreement to repurchase them at a mutually agreed-upon
date and price. The repurchase price generally equals the price paid by the
Series plus interest negotiated on the basis of current short-term rates
(which may be more or less than the rate on the underlying portfolio
securities).
The seller under a repurchase agreement is required to maintain the value
of the collateral held pursuant to the agreement at not less than 100% of the
repurchase price, and securities subject to repurchase agreements are held by
the Series' custodian either directly or through a securities depository.
Default by the seller would, however, expose the Series to possible loss
because of adverse market action or delay in connection with the disposition
of the underlying securities. Repurchase agreements are considered to be
loans by the Series under the 1940 Act.
Securities Lending
Each Series may seek to increase its income by lending portfolio
securities. Such loans will usually be made to member firms (and subsidiaries
thereof) of the New York Stock Exchange and to member banks of the Federal
Reserve System and will be required to be secured continuously by collateral
in 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 will not exceed 30%
of the value of the total assets of the Series.
U.S. Government Securities
Each Series may purchase securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. Direct obligations of the U.S.
Government include bills, notes and bonds issued by the U.S. Treasury and
obligations issued or guaranteed by U.S. agencies or instrumentalities. The
obligations of certain U.S. agencies (e.g., the Government National Mortgage
Association) are backed by the full faith and credit of the U.S. Government or
are supported by the agencies' rights to borrow from the U.S. Treasury. The
issues of other agencies are supported only by the credit of the agency (e.g.,
Fannie Mae).
Short Sales
Each Series may, within limits, engage in short sales "against the box."
A short sale is the sale of borrowed securities; a short sale against the box
means that a Series owns securities equivalent to those sold short. No more
than 25% of the net assets (taken at current value) of a Series may be held as
collateral for such sales at any one time. Such short sales can be used as a
hedge.
Forward Commitments or Purchases on a When-Issued Basis
Each Series may enter into forward commitments or purchase securities on
a when-issued basis. These securities normally are subject to settlement
within 45 days of the purchase date. The interest rate realized on these
securities is fixed as of the purchase date and no interest accrues to the
Series before settlement. These securities are subject to market fluctuation
due to changes in market interest rates. Each Series will enter into these
arrangements with the intention of acquiring the securities in question and
not for speculative purposes and will maintain a separate account with a
segregated portfolio of liquid assets in an amount at least equal to the
purchase price.
Mortgage-Backed Securities
Each Series may purchase mortgage-backed securities which represent an
interest in a pool of mortgage loans. The primary government issuers or
guarantors of mortgage-backed securities are the Government National Mortgage
Association ("GNMA"), Fannie Mae, and the Federal Home Loan Mortgage
Corporation. Mortgage-backed securities may also be issued by other U.S. and
foreign government agencies and non-governmental entities which consist of
collateralized mortgage obligations ("CMOs") and real estate mortgage investment
conduits ("REMICs"). Each Series may purchase CMOs that are rated in one of the
top two rating categories by S&P or Moody's. The mortgages backing these
securities include conventional thirty-year fixed rate mortgages, graduated
payment mortgages, and adjustable rate mortgages. CMOs and REMICs backed
solely by GNMA certificates or other mortgage pass-throughs issued or
guaranteed by the U.S. Government or its agencies and instrumentalities may be
supported by various types of insurance. However, the guarantees or insurance
do not extend to the mortgage-backed securities values, which are likely to
vary inversely with fluctuations in interest rates.
Mortgage-backed securities are in most cases "pass-through" instruments,
through which the holder receives a share of all interest and principal
payments from the mortgages underlying the certificate. When the Advisor is
determining the maturity of pass-through certificates the Advisor will
consider the maturity to be equal to the average life rather than the stated
maturity. During periods of declining interest rates, prepayment of mortgages
underlying mortgage-backed securities can be expected to accelerate. When the
mortgage obligations are prepaid, the Series reinvests the prepaid amounts in
securities, the yield of which reflects interest rates prevailing at the time.
Moreover, prepayment of mortgages which underlie securities purchased at a
premium could result in capital losses.
High Yield Debt Securities
High risk, high yield securities rated below BBB or lower by S&P or Baa
or lower by Moody's are considered to have speculative characteristics and
involve greater risk of default or price changes due to changes in the issuer's
credit-worthiness. Market prices of these securities may fluctuate more than
high-rated securities and they are difficult to price at times because they
are more thinly traded and less liquid securities. Market prices may decline
significantly in periods of general economic difficulty which may follow
periods of rising interest rates. Securities in the lowest rating category
may be in default. For these reasons, it is the Series policy not to rely
primarily on ratings issued by established credit rating agencies, but to
utilize such ratings in conjunction with the Advisor's own independent and
ongoing review of credit quality. In the event a security is downgraded below
these ratings after purchase, the Advisor will review and take appropriate
action with regard to the security. Each Series will also seek to minimize
risk by diversifying its holdings.
Zero-Coupon Bonds
Some of the securities in which the Series invest may include so-called
"zero-coupon bonds." Zero-coupon bonds are issued at a significant discount
from face value and generally pay interest only at maturity rather than at
intervals during the life of the security. Each Series is required to accrue
and distribute income from zero-coupon bonds on a current basis, even though
it does not receive that income currently in cash. Thus, the Series may have
to sell investments to obtain cash needed to make income distributions. The
discount in the absence of financial difficulties of the issuer decreases as
the final maturity of the security approaches. Zero-coupon bonds can be sold
prior to their maturity date in the secondary market at the then prevailing
market value, which depends primarily on the time remaining to maturity,
prevailing level of interest rates and the perceived credit quality of the
issues. The market prices of zero-coupon securities are subject to greater
fluctuations in response to changes in market interest rates than bonds which
pay interest currently.
Variable and Floating Rate Instruments
Certain of the obligations purchased by a Series may carry variable or
floating rates of interest, may involve a conditional or unconditional demand
feature and may include variable amount master demand notes. Such instruments
bear interest at rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index.
The interest rate on these securities may be reset daily, weekly, quarterly,
or at some other interval and it may have a floor or ceiling rate. There is a
risk that the current interest rate on such obligations may not accurately
reflect existing market interest rates.
Hedging Techniques
Each Series has reserved the right, subject to authorization by the Board
of Directors prior to implementation, to engage in certain strategies in an
attempt to hedge the Series' portfolios, that is, to reduce the overall level
of risk that normally would be expected to be associated with their
investments. The Series may write covered call options on common stocks; may
purchase and sell (on a secured basis) put options; and may engage in closing
transactions with respect to put and call options. Each Series also may
purchase forward foreign currency exchange contracts to hedge currency
exchange rate risk. In addition, each Series is authorized to purchase and
sell stock index futures contracts and options on stock index futures
contracts. Each Series is also authorized to conduct spot (i.e., cash basis)
currency transactions or to use currency futures contracts and options on
futures contracts and foreign currencies in order to protect against
uncertainty in the future levels of foreign currency exchange rates. These
strategies are primarily used for hedging purposes; nevertheless, there are
risks associated with these strategies as described below.
Options on Securities
A call option is a short-term contract pursuant to which the purchaser of
the option, in return for a premium, has the right to buy the security
underlying the option at a specified price at any time during the term of the
option. The writer of a call option, who receives the premium, has the
obligation, upon exercise during the option term, to deliver the underlying
security against payment of the exercise price. Conversely, a put option
gives its purchaser, in return for a premium, the right to sell the underlying
equity security at a specified price during the option term to the writer of
the put option, who receives the premium. Each Series will sell call options
only on a "covered" basis, i.e., it will own the underlying security at all
times, and will write put options only on a secured basis, i.e., it will
maintain an amount equal to the exercise price in a segregated account at all
times. Each Series may engage in option transactions for hedging purposes and
to realize a greater current return, through the receipt of premiums, than
would be earned on the underlying securities alone. Options traded in the
over-the-counter market will be considered illiquid unless the Fund has
entered into arrangements with U.S. Government securities dealers to dispose
of such options at a formula price based on a multiple of the original premium
plus the amount for which the option is "in the money."
Futures Contracts
Each Series may purchase and sell financial futures contracts on debt
securities on a commodities exchange or board of trade for certain hedging,
return enhancement and risk management purposes in accordance with applicable
regulations. A financial futures contract is an agreement to purchase or sell
an agreed amount of securities at a set price for delivery in the future.
None of the Series may purchase or sell future contracts if immediately
thereafter the sum of the amount of initial margin deposits on any such
futures (plus deposits on any other futures contracts and premiums paid in
connection with any options or futures contracts) that do not constitute "bona
fide hedging" under Commodity Futures Trading Commission ("CFTC") rules would
exceed 5% of the liquidation value of a Series' total assets after taking into
account unrealized profits and losses on such contracts. In addition, the
value of all futures contracts sold will not exceed the total market value of
the Series' portfolio. The Series will comply with guidelines established by
the Securities and Exchange Commission with respect to covering of obligations
under futures contracts and will set aside cash and/or liquid securities in a
segregated account with its Custodian in the amount prescribed.
A Series successful use of futures contracts depends on the Advisor's
ability to accurately predict the direction of the market and is subject to
various additional risks. The correlation between movements in the price of a
futures contract and the price of the security being hedged is imperfect and
there is a risk that the value of the security being hedged may increase or
decrease at a greater rate than the related futures contract, resulting in a
loss to the Series. Certain futures exchanges or boards of trade have
established daily limits based on the amount of the previous day's settlement
price. These daily limits may restrict the Series' ability to repurchase for
sale certain futures contracts on any particular day.
Forward Foreign Currency Exchange Contracts
A Series' use of forward foreign currency contracts is limited to hedging
against movements in the value of foreign currencies relative to the U.S.
dollar in connection with specific portfolio transactions or with respect to
existing portfolio positions denominated in such currencies. A transaction
hedge involves the purchase or sale of a forward contract with respect to a
specific receivable or payable of the Series while a position hedge relates to
a specific portfolio holding. A forward foreign currency exchange contract
involves an obligation to purchase or sell a specified currency at a future
date at a price set at the time of the contract. Foreign currency exchange
contracts do not eliminate fluctuations in the values of portfolio securities
but rather allow the Series to establish a rate of exchange for a future point
in time. With respect to any such forward foreign currency contract, it will
not generally be possible to match precisely the amount covered by that
contract and the value of the securities involved due to the changes in the
values of such securities resulting from market movements between the date the
forward contract is entered into and the date it matures. In addition, while
forward contracts may offer protection from losses resulting from declines in
the value of a particular foreign currency, they also limit potential gains
which might result from increases in the value of such currency. Based on
current legal interpretation, the Series do not consider forward foreign
currency exchange contracts to be commodities or commodity contracts for
purposes of the Series' fundamental restrictions concerning investment in
commodities or commodity contracts, as set forth in the Statement of
Additional Information.
Currency Futures Contracts and Options on Futures Contracts
A currency futures contract is an agreement for the purchase or sale for
future delivery of foreign currencies. A "sale" of a currency futures contract
means the obligation to deliver the foreign currencies called for by the
contract at a specified price on a specified date while a "purchase" of a
currency futures contract means the obligation to acquire the foreign
currencies called for by the contract at a specified price on a specified
date. A Series will only enter into futures contracts which are traded on
national or foreign futures exchanges and which are standardized as to
maturity date and the underlying financial instrument. Options on currency
futures contracts give the purchaser the right, in return for the premium
paid, to assume a long or short position in the futures contract. None of the
Series may purchase or sell future contracts if immediately thereafter the sum
of the amount of initial margin deposits on any such futures (plus deposits on
any other futures contracts and premiums paid in connection with any options
or futures contracts) that do not constitute "bona fide hedging" under CFTC
rules would exceed 5% of the liquidation value of a Series' total assets after
taking into account unrealized profits and losses on such contracts. In
addition, the value of all futures contracts sold will not exceed the total
market value of the Series' portfolio.
Foreign Currency Options
A call option on a foreign currency is a short-term contract pursuant to
which the purchaser of the option, in return for a premium, has the right to
buy the currency underlying the option at a specified price at any time during
the term of the option. The writer of a call option, who receives the
premium, has the obligation, upon exercise of the option during the option
term, to deliver the underlying currency against payment of the exercise
price. Conversely, a put option on a foreign currency gives its purchaser, in
return for a premium, the right to sell the underlying currency at a specified
price during the option term to the writer of the put option, who receives the
premium.
Risks Associated with Hedging Strategies
There are risks associated with the hedging strategies described above,
including the following: (1) the success of a hedging strategy may depend on
the ability of the Advisor to accurately predict movements in the prices of
individual securities, fluctuations in domestic and foreign markets and
currency exchange rates, and movements in interest rates; (2) there may be an
imperfect correlation between the changes in market value of the securities
held by the Series and the prices of currency contracts, options, futures and
options on futures; (3) there may not be a liquid secondary market for a
currency contract, option, futures contract or futures option; (4) trading
restrictions or limitations may be imposed by an exchange; and, (5) government
regulations, particularly requirements for qualification as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"), may restrict trading in forward currency contracts, options, futures
contracts and futures options.
Principal Investment Restrictions
Each Series is subject to certain investment restrictions which are
fundamental policies that cannot be changed without the approval of the
holders of a majority, as defined in the 1940 Act, of the Series' outstanding
shares.
Each Series may borrow money, but only from a bank for temporary or
emergency purposes in amounts not exceeding 10% of its total assets and the
Series will not make additional investments while borrowings greater than 5%
of its total assets are outstanding.
None of the Series may, with respect to 75% of its total assets, invest
more than 5% of the value of its total assets at the time of investment in
securities of any one issuer (other than obligations issued or guaranteed by
the United States Government, its agencies or its instrumentalities). None of
the Series may purchase more than 10% of the outstanding voting securities of
any one issuer.
None of the Series may invest 25% or more of the value of its total
assets in securities of issuers in any one industry (other than U.S.
Government securities).
None of the Series will invest more than 10% of its total net assets in
securities of issuers that are restricted from being sold to the public
without registration under the Securities Act of 1933 and illiquid securities,
including repurchase agreements with maturities of greater than seven days.
Each Series may purchase shares of closed-end investment companies that
are traded on national exchanges to the extent permitted by applicable law.
None of the Series may make loans, except that each may invest in debt
securities and repurchase agreements and may engage in securities lending.
Additional information about the Series' investment restrictions is
contained in the Statement of Additional Information.
Management
The overall business and affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Series, including the Fund's
agreements with its investment advisor, custodian and distributor. The
day-to-day operations of the Series are delegated to the 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 makes all the
investment decisions for the Fund.
The Advisor acts as investment advisor to the Fund. Mr. William Manning
controls the Advisor by virtue of his ownership of the securities of 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 its investment advisory
agreement, the Fund pays the Advisor a fee, computed daily and payable
monthly, at an annual rate of .35% for the Flexible Yield Series I, .45% for
the Flexible Yield Series II, and .50% for the Flexible Yield Series III of
the Series daily net assets. 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, and accounting services agent, if obtained for the Fund from an
entity other than the Advisor; (vii) expenses incidental to the issuance of
its shares, including issuance on the payment of, or reinvestment of,
dividends and capital gain distributions; (viii) fees and expenses incidental
to the registration under federal or state securities laws of the Fund or its
shares; (ix) expenses of preparing, printing and mailing reports and notices
and proxy material to shareholders of the Fund; (x) all other expenses
incidental to holding meetings of the Fund's shareholders; (xi) dues or
assessments of or contributions to the Investment Company Institute or any
successor; and, (xii) such non-recurring expenses as may arise, including
litigation affecting the Fund and the legal obligations with respect to
servicing or with respect to which the Fund may have to indemnify its officers
and directors.
The Advisor may use its own resources to engage in activities that may
promote the sale of the Fund, including payments to third parties who provide
shareholder support servicing and distribution assistance. Investors may be
charged a fee if they effect transactions through a broker or agent.
Distribution of Fund Shares
Manning & Napier Investor Services, Inc. (the "Distributor") acts as
distributor of Fund shares and is located at the same address as the Advisor
and the Fund. The Fund has adopted a distribution agreement with respect to
each Class of shares and related plans of distribution with respect to Class
B, C, D and E Shares (the "Plans") pursuant to Rule 12b-1 under the 1940 Act.
Class A Shares are offered to investors who purchase their shares directly
from the Distributor and are not subject to distribution or shareholder
servicing fees. Class B, C, D and E Shares are offered only by or through
investment dealers, banks or financial service firms that provide
distribution, administrative and/or shareholder services ("Financial
Intermediaries").
The Distributor receives distribution and services fees, at the rates set
forth below, for providing distribution and/or shareholder services to the
Class B, C, D and E Shares. The Distributor expects to allocate most of its
distribution fees and shareholder service fees to Financial Intermediaries
that enter into shareholder servicing agreements ("Servicing Agreements") with
the Distributor. The different Classes permit the Fund to allocate an
appropriate amount of fees to a Financial Intermediary in accordance with the
level of services it agrees to provide under its Servicing Agreement.
As compensation for providing distribution and shareholders services for
the Class B Shares, the Distributor receives a distribution fee equal to .75%
of the Class B Shares' average daily net assets and a shareholder servicing fee
equal to .25% of the Class B Shares' average daily net assets. As compensation
for providing distribution and shareholder services for the Class C Shares,
the Distributor receives an aggregate distribution and shareholder servicing
fee equal to .75% of the Class C Shares' average daily net assets. As
compensation for providing distribution and shareholders service for the Class
D Shares, the Distributor receives an aggregate distribution and shareholder
servicing fee equal to .50% of the Class D Shares' average daily net assets.
The shareholder services component of the foregoing fees for Classes C and D
is limited to .25% of the average daily net assets of the respective class.
As compensation for providing distribution services for the Class E Shares,
the Distributor receives an aggregate distribution and shareholder servicing
fee equal to .25% of the average daily net assets of the Class E Shares. The
Distributor may, in its discretion, voluntarily waive from time to time all or
any portion of its distribution fee.
Payments under the Plans are made as described above regardless of the
Distributor's actual cost of providing distribution services and may be used to
pay the Distributor's overhead expenses. If the cost of providing distribution
services to the Fund is less than the payments received, the unexpended
portion of the distribution fees may be retained as profit by the Distributor.
The Distributor may from time to time and from its own resources pay or allow
additional discounts or promotional incentives in the form of cash or other
compensation (including merchandise or travel) to Financial Intermediaries
and it is free to make additional payments out of its own assets to promote
the sale of Fund shares. Similarly, the Advisor may, from its own resources,
defray or absorb costs related to distribution, including compensation of
employees who are involved in distribution.
Yield and Total Return
From time-to-time each Series may advertise its yield and total return.
Both yield and total return figures are based on historical earnings and are
not intended to indicate future performance. The "total return" of a Series
refers to the average annual compounded rates of return over one-, five-, and
ten-year periods or for the life of the Series (as stated in the
advertisement) that would equate an initial amount invested at the beginning
of a stated period to the ending redeemable value of the investment, assuming
the reinvestment of all dividend and capital gains distributions.
The "30-day yield" of a Series is calculated by dividing the net investment
income per share earned during a 30-day period by the net asset value per
share on the last day of the period. Net investment income includes interest
and dividend income earned on a Series securities; it is net of all expenses
and all recurring and nonrecurring charges that have been applied to all
shareholder accounts. The yield calculation assumes that net investment
income earned over 30 days is compounded monthly for six months and then
annualized. Methods used to calculate advertised yields are standardized for
all stock and bond mutual funds. However, these methods differ from the
accounting methods used by a Series to maintain its books and records, and so
the advertised 30-day yield may not fully reflect the income paid to your own
account or the yield reported in a Series' reports to shareholders.
The respective performance figures for the Classes will differ because of
the different distribution and/or shareholders services fees charged to Class
B, C, D and E Shares.
Purchases, Exchanges and Redemptions of Shares
Purchases and redemptions of shares of the Series may be made on any day
the New York Stock Exchange is open for trading.
Purchases
The minimum initial investment in each class of the Series is $2,000 and
subsequent purchases must be at least $100. The minimum initial investment is
waived for participants in the Automatic Investment Plan (see "Automatic
Investment Plan" below) and for shareholders who purchase shares through
Financial Intermediaries that provide sub-accounting services to the Fund. The
Distributor reserves the right to waive these minimum initial or subsequent
investment requirements in its sole discretion. The Distributor has the right
to refuse any order.
A purchase offer will be effective as of the day received by the
Distributor, Transfer Agent, or its agents, if the order is received by 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 Fund's Board of Directors.
Automatic Investment Plan
Shareholders may purchase shares regularly through the Automatic
Investment Plan with a pre-authorized draft drawn on a checking account.
Under this plan, the shareholder may elect to have a specified amount invested
on a regular schedule. The minimum amount of each automatic investment is
$25. The amount specified by the shareholder will be withdrawn from the
shareholder's bank account using the pre-authorized draft. This amount will be
invested at the applicable share price determined on the date the amount is
available for investment. Participation in the Automatic Investment Plan may
be discontinued either by the Fund or the Shareholder upon 30 days' prior
written notice to the other party. A shareholder who wishes to enroll in the
Automatic Investment Plan may do so by completing the applicable section of
the Account Application Form or contacting the Fund for an Automatic
Investment Plan Form.
Exchanges between Series
As permitted pursuant to any rule, regulation or order promulgated by the
Securities and Exchange Commission, some or all of the shares of a Class in an
account with the Fund for which payment has been received by the Fund may be
exchanged for shares of the same Class of any of the other 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 shares at their net asset value, the
shareholder must send a written request for redemption in "good order" to the
Transfer Agent. "Good order" generally means that the written request for
redemption must be endorsed by the record owner(s) exactly as the shares are
registered and the signature(s) must be guaranteed by an "eligible guarantor
institution" as the term is defined under Rule 17Ad-15(a)(2) under the
Securities Exchange Act of 1934. Currently, such procedures generally permit
guarantees by a commercial bank or trust company, a member bank of the Federal
Reserve System, or a member firm of a national securities exchange.
Redemption requirements for corporations, other organizations, trusts,
fiduciaries, and retirement plans may require additional documentation.
Please contact the Transfer Agent at 1-800-466-3863 for more information. The
Transfer Agent may make certain de minimis exceptions to the above
requirements for redemption.
Within three days after receipt of a redemption request by the Transfer
Agent in "good order", the Series will make payment in cash, except as described
below, of the net asset value of the shares next determined after such
redemption request was received, except during any period in which the right
of redemption is suspended or date of payment is postponed because the New
York Stock Exchange is closed or trading on such Exchange is restricted or to
the extent otherwise permitted by the 1940 Act if an emergency exists. For
shares purchased, or received in exchange for shares purchased, by check
(including certified checks or cashier's checks), or through the Automatic
Investment Plan, payment of redemption proceeds may be delayed up to 15 days
from the purchase date in an effort to assure that such check or draft has
cleared.
Subject to the Series' compliance with applicable regulations, each Series
has reserved the right to pay the redemption price either totally or partially
by a distribution in-kind of securities (instead of cash) from the Series'
portfolio. The securities distributed in such a distribution would be valued
at the same amount as that assigned to them in calculating the net asset value
for the shares being sold. If a shareholder received a distribution in-kind,
he could incur brokerage or transaction charges when converting the securities
to cash. The Fund has elected, however, to be governed by Rule 18f-1 under
the 1940 Act as a result of which the Fund is obligated to redeem shares, with
respect to any one shareholder during any 90-day period, solely in cash up to
the lesser of $250,000 or 1% of the net asset value of the Fund at the
beginning of the period.
Other Information about Purchases and Redemptions
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
reserve the right to redeem shares in any account for their then-current value
(which will be promptly paid to the shareholder) if at any time the total
investment in such account drops below $1,000 (but not due to changes in net
asset value). Shareholders will be notified that the value of their account
is less than the minimum investment requirement and allowed 60 days to make an
additional investment before the redemption is processed.
Share Price
The share price or "net asset value" per share of each class of each
series is determined as of the closing time of the New York Stock Exchange or,
in the absence of a closing time, 4:00 p.m. Eastern Standard time on each day
that the New York Stock Exchange is open for trading. The exchange annually
announces the days on which it will not be open for trading; the most recent
announcement indicates that it will not be open when the following holidays
are observed: New Year's Day, Martin Luther King, Jr. Day, President's Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
The net asset value per share of each Class of a Series is determined by
dividing the total value of its investments and other assets that are
allocated to that Class, less any liabilities that are allocated to that
Class, by the Class's total outstanding shares. The value of the Series'
portfolio securities will be the market value of such securities as determined
based on quotes provided by a pricing service (which uses the methodology
outlined in the "Net Asset Value" section of the Statement of Additional
Information) approved by the Board of Directors, or, in the absence of market
quotations, fair value as determined in good faith by or under the direction
and control of the Board of Directors. Short-term investments which mature in
less than 60 days are normally valued at amortized cost. Assets initially
expressed in foreign currencies will be converted into U.S. dollars as of the
exchange rates quoted by any major bank. If such quotes are not available,
the exchange rates will be determined in accordance with policies established
in good faith by the Board of Directors. See the Statement of Additional
Information for further information.
Dividends and Tax Status
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"), 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.
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 a Series's 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. As of
February 2, 1998, Manning & Napier Advisors, Inc., 1100 Chase Square,
Rochester, New York 14604 owned 28.62% of the Flexible Yield Series II and
would be deemed under the 1940 Act to be a controlling person of such Series.
Each share of a Series represents an identical interest in the investment
portfolio of that Series and has the same rights, except that (i) each class
of shares bears those distribution fees, service fees and administrative
expenses applicable to the respective class of shares as a result of its sales
arrangements, which will cause the different classes of shares to have
different expense ratios and to pay different rates of dividends, (ii) each
class has exclusive voting rights with respect to those provisions of the
Series Rule 12b-1 distribution plan which relate only to such class and (iii)
the classes have different exchange privileges. As a result of each class'
differing Rule 12b-1 distribution and shareholder services plan, shares of
different classes of the same Series may have different net asset values per
share.
The Fund does not expect to hold annual meetings of shareholders but
special meetings of shareholders may be held under certain circumstances.
Shareholders of the Fund retain the right, under certain circumstances, to
request that a meeting of shareholders be held for the purpose of considering
the removal of a Director from office, and if such a request is made, the Fund
will assist with shareholder communications in connection with the meeting.
The shares of the Fund have equal rights with regard to voting, redemption and
liquidations. The Fund's shareholders will vote in the aggregate and not by
Series or Class except as otherwise expressly required by law or when the
Board of Directors determines that the matter to be voted upon affects only
the interests of the shareholders of a Series or a Class. Income, direct
liabilities and direct operating expenses of a Series will be allocated
directly to the Series, while general liabilities and expenses of the Fund
will be allocated among the Series. The holders of shares have no preemptive
or conversion rights. Shares when issued are fully paid and non-assessable
and do not have cumulative voting rights.
All securities and cash are held by the custodian, Boston Safe Deposit
and Trust Company. Deloitte & Touche, LLP serves as independent accountants
for the Series and will audit their financial statements annually.
Manning & Napier Advisors, Inc. serves as the Fund's transfer and dividend
disbursing agent. Shareholder inquiries should be directed to Exeter Fund,
Inc., P.O. Box 41118, Rochester, New York 14604.
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.
Debt rated BB, B, CCC, CC and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
may be outweighed by large uncertainties or major risk exposures to adverse
conditions.
The C rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments on this
obligation are being continued.
Debt rated D is in payment default. The D rating category is used when
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless 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 a
obligation are jeopardized.
<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.
P.O. Box 41118
Rochester, New York 14604
1-800-466-3863
Tax Managed Series
Exeter Fund, Inc. (the "Fund") is an open-end management investment
company consisting of multiple Series, each a separate portfolio having its own
investment objective and policies. This Prospectus relates to the Class A, B,
C, D and E Shares (each a "Class" and collectively, the "Classes") of the Tax
Managed Series (the "Series"), a series of the Fund.
The Series seeks to achieve its objective by: a) investing primarily in
equity securities which by nature generate a lower level of current income; b)
minimizing portfolio turnover which limits the amount of realized gains; and
c) reducing distributions of taxable income as permitted by the Internal
Revenue Code (the "Code"). The Advisor anticipates this strategy will result
in tax efficiencies (i.e., a lower percentage of the return is subject to
taxes) that are superior to other mutual funds. The Series is designed only
for long-term investors who expect to own shares of the Series for five years
or more. The Series is not intended to provide investors with a means of
speculating on short-term market movements. Investors who engage in excessive
account activity generate additional costs and may cause the Series to
recognize capital gains which are borne by the Series remaining shareholders.
The Prospectus is designed to provide you with information you should
know before investing in the Series. The Funds other series are offered
through separate prospectuses. You should read this Prospectus and keep it
for future reference.
The Series is a continuously offered, diversified mutual fund.
A Statement of Additional Information date February 27, 1998, for the
Series, containing additional information about the Fund has been filed with
the Securities and Exchange Commission and is incorporated by reference into
this Prospectus in its entirety. You may obtain a copy of the Statement of
Additional Information without charge by contacting the Fund at the address or
telephone number listed above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is February 27, 1998.
<PAGE>
EXETER FUND, INC.
Tax Managed 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 2
Financial Highlights 8
The Fund 9
Risk and Investment Objectives and Policies 9
Who Should Invest 10
Management of Realization of Events 11
Management of Dividend Distributions 11
Management 12
Distribution of Fund Shares 12
Risk and Additional Information about Investment Policies 13
Principal Investment Restrictions 17
Taxes and Distributions 18
Total Return 18
Purchases, Exchanges, and Redemptions of Shares 18
Share Price 20
General Information 21
Appendix 22
<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 change. Subsequent exchanges are subject to a fee of $15.
Annual Operating Expenses - Class A Shares
The following information provides (i) a tabular summary of expenses relating
to the annual operating expenses of the Class A Shares of the Series and (ii)
an example illustrating the dollar cost of such expenses on a $1,000
investment.
<TABLE>
<CAPTION>
Annual Operating Expenses of the Class A Shares of the Series 1
(as a percentage of average net assets):
<S> <C>
Management Fees (After Reduction of Fees) 2 0.00%
Rule 12b-1 Fees None
Other Expenses (After Expense Reimbursement) 2 1.20%
Total Operating Expenses (After Fee Reductions
and Expense Reimbursements) 2 1.20%
</TABLE>
1 The Tax Managed Series offered Class A Shares during the year ended
October 31, 1997; therefore, actual management fees and other expenses
are used above.
2 The Advisor has agreed to waive its management fees and/or reimburse
expenses of the Series, if necessary, if such fees would cause the total
annual operating expenses of the Class A Shares of the Series, as a
percentage of average daily net assets, to exceed the percentages set
forth in the table above. As a result of these reductions, the
Management Fees stated above are lower than contractual fees stated under
"Management." The Advisor reserves the right to terminate any of its fee
waivers at any time in its sole discretion. For further information on
expenses, see "Management." The following sets forth, for Class A Shares
of such Series, (i) management fees absent fee waivers, (ii) other
expenses absent expense reimbursements and (iii) expected total operating
expenses absent fee waivers and/or expense reimbursements.
<TABLE>
<CAPTION>
<S> <C>
Class A Shares
Management Fees................ 1.00%
Other Expenses................. 7.08%
Total Operating Expenses....... 8.08%
</TABLE>
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
Tax Managed Series $12 $38 $66 $145
</TABLE>
The example above should not be considered a representation of future
expenses. Actual expenses may be greater or lesser than those shown. The
Advisor in its discretion may terminate its voluntary fee waivers and/or
reimbursements at any time. Absent the waiver of fees or reimbursement of
expenses, the amounts in the examples above would be greater.
<PAGE>
Annual Operating Expenses - Class B Shares
The following information provides (i) a tabular summary of expenses relating
to the annual operating expenses of the Class B Shares of the Series and (ii)
an example illustrating the dollar cost of such expenses on a $1,000
investment.
<TABLE>
<CAPTION>
Annual Operating Expenses of the Class B Shares of the Series 1
(as a percentage of average net assets):
<S> <C>
Management Fees (After Reduction of Fees) 2 0.00%
Rule 12b-1 Fees3 1.00%
Other Expenses (After Expense Reimbursement) 2 1.20%
Total Operating Expenses (After Fee Reductions
and Expense Reimbursements) 2 2.20%
</TABLE>
1 The Tax Managed Series offered only Class A Shares during the year ended
October 31, 1997; therefore, actual management fees and other expenses of
Class A Shares of the Series are used above.
2 The Advisor has agreed to waive its management fees and/or reimburse
expenses of the Series, if necessary, if such fees would cause the total
annual operating expenses of the Class B Shares of the Series, as a
percentage of average daily net assets, to exceed the percentages set
forth in the table above. As a result of these reductions, the Management
Fees stated above are lower than contractual fees stated under
"Management." The Advisor reserves the right to terminate any of its fee
waivers at any time in its sole discretion. For further information on
expenses, see "Management." The following sets forth, for Class B Shares
of such Series, (i) management fees absent fee waivers, (ii) other
expenses absent expense reimbursements, (iii) Rule 12b-1 fees and (iv)
expected total operating expenses absent fee waivers and/or expense
reimbursements.
<TABLE>
<CAPTION>
<S> <C>
Class B Shares
Management Fees...............1.00%
Rule 12b-1 Fees...............1.00%
Other Expenses................7.08%
Total Operating Expenses......9.08%
</TABLE>
3 Of the Rule 12b-1 fees for the Class B shares, 0.25% represents
shareholder service fees.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class B Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
Due to the continuous nature of Rule 12b-1 fees, long-term shareholders may
pay more than the equivalent of the maximum front-end sales charges otherwise
permitted by the Conduct Rules of the National Association of Securities
Dealers, Inc. (the "NASD").
<PAGE>
Example Class B Shares
You would pay the following expenses on a $1,000 investment in Class B Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1 year 3 years 5 years 10 years
Tax Managed Series $22 $69 $118 $253
</TABLE>
The example above should not be considered a representation of future
expenses. Actual expenses may be greater or lesser than those shown. The
Advisor in its discretion may terminate its voluntary fee waivers and/or
reimbursements at any time. Absent the waiver of fees or reimbursement of
expenses, the amounts in the examples above would be greater.
<PAGE>
Annual Operating Expenses - Class C Shares
The following information provides (i) a tabular summary of expenses relating
to the annual operating expenses of the Class C Shares of the Series and (ii)
an example illustrating the dollar cost of such expenses on a $1,000
investment.
<TABLE>
<CAPTION>
Annual Operating Expenses of the Class C Shares of the Series 1
(as a percentage of average net assets):
<S> <C>
Management Fees (After Reduction of Fees) 2 0.00%
Rule 12b-1 Fees 3 0.75%
Other Expenses (After Expense Reimbursement) 2 1.20%
Total Operating Expenses (After Fee Reductions
and Expense Reimbursements) 2 1.95%
1 The Tax Managed Series offered only Class A Shares during the year ended
October 31, 1997; therefore, actual management fees and other expenses of
Class A Shares of the Series are used above.
2 The Advisor has agreed to waive its management fees and/or reimburse
expenses of the Series, if necessary, if such fees would cause the total
annual operating expenses of the Class C Shares of the Series, as a
percentage of average daily net assets, to exceed the percentages set
forth in the table above. As a result of these reductions, the Management
Fees stated above are lower than contractual fees stated under
"Management." The Advisor reserves the right to terminate any of its
fee waivers at any time in its sole discretion. For further information
on expenses, see "Management." The following sets forth, for Class C
Shares of such Series, (i) management fees absent fee waivers, (ii) other
expenses absent expense reimbursements, (iii) Rule 12b-1 fees and (iv)
expected total operating expenses absent fee waivers and/or expense
reimbursements.
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Class C Shares
Management Fees...............1.00%
Rule 12b-1 Fees...............0.75%
Other Expenses...............7.08%
Total Operating Expenses......8.83%
</TABLE>
3 Of the Rule 12b-1 fees for the Class C shares, up to 0.25% represents
shareholder service fees.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class C Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
Due to the continuous nature of Rule 12b-1 fees, long-term shareholders may
pay more than the equivalent of the maximum front-end sales charges otherwise
permitted by the Conduct Rules of the NASD.
<PAGE>
Example - Class C Shares
You would pay the following expenses on a $1,000 investment in Class C Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1 year 3 years 5 years 10 years
Tax Managed Series $20 $61 $105 $227
</TABLE>
The example above should not be considered a representation of future
expenses. Actual expenses may be greater or lesser than those shown. The
Advisor in its discretion may terminate its voluntary fee waivers and/or
reimbursements at any time. Absent the waiver of fees or reimbursement of
expenses, the amounts in the examples above would be greater.
<PAGE>
Annual Operating Expenses - Class D Shares
The following information provides (i) a tabular summary of expenses relating
to the annual operating expenses of the Class D Shares of the Series and (ii)
an example illustrating the dollar cost of such expenses on a $1,000
investment.
<TABLE>
<CAPTION>
Annual Operating Expenses of the Class D Shares of the Series 1
(as a percentage of average net assets):
<S> <C>
Management Fees (After Reduction of Fees) 2 0.00%
Rule 12b-1 Fees 3 0.50%
Other Expenses (After Expense Reimbursement) 2 1.20%
Total Operating Expenses (After Fee Reductions
and Expense Reimbursements) 2 1.70%
1 The Tax Managed Series offered only Class A Shares during the year ended
October 31, 1997; therefore, actual management fees and other expenses
of Class A Shares of the Series are used above.
2 The Advisor has agreed to waive its management fees and/or reimburse
expenses of the Series, if necessary, if such fees would cause the total
annual operating expenses of the Class D Shares of the Series, as a
percentage of average daily net assets, to exceed the percentages set
forth in the table above. As a result of these reductions, the
Management Fees stated above are lower than contractual fees stated under
"Management." The Advisor reserves the right to terminate any of its fee
waivers at any time in its sole discretion. For further information on
expenses, "see Management." The following sets forth, for Class D Shares
of such Series, (i) management fees absent fee waivers, (ii) other
expenses absent expense reimbursement, (iii) Rule 12b-1 fees and (iv)
expected total operating expenses absent fee waivers and/or expense
reimbursements.
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Class D Shares
Management Fees.........................1.00%
Rule 12b-1 Fees.........................0.50%
Other Expenses..........................7.08%
Total Operating Expenses................8.58%
</TABLE>
3 Of the Rule 12b-1 fees for the Class D shares, up to 0.25% represents
shareholder service fees.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class D Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
Due to the continuous nature of Rule 12b-1 fees, long-term shareholders may
pay more than the equivalent of the maximum front-end sales charges otherwise
permitted by the Conduct Rules of the NASD.
<PAGE>
Example - Class D Shares
You would pay the following expenses on a $1,000 investment in Class D Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1 year 3 years 5 years 10 years
Tax Managed Series $ 17 $ 54 $ 92 $201
</TABLE>
The example above should not be considered a representation of future
expenses. Actual expenses may be greater or lesser than those shown. The
Advisor in its discretion may terminate its voluntary fee waivers and/or
reimbursements at any time. Absent the waiver of fees or reimbursement of
expenses, the amounts in the examples above would be greater.
<PAGE>
Annual Operating Expenses - Class E Shares
The following information provides (i) a tabular summary of expenses relating
to the annual operating expenses of the Class E Shares of the Series and (ii)
an example illustrating the dollar cost of such expenses on a $1,000
investment.
<TABLE>
<CAPTION>
Annual Operating Expenses of the Class E Shares of the Series 1
(as a percentage of average net assets):
<S> <C>
Management Fees (After Reduction of Fees) 2 0.00%
Rule 12b-1 Fees 3 0.25%
Other Expenses (After Expense Reimbursement)2 1.20%
Total Operating Expenses (After Fee Reductions
and Reimbursements) 2 1.45%
1 The Tax Managed Series offered only Class A Shares during the year ended
October 31, 1997; therefore, actual management fees and other expenses
of Class A Shares of the Series are used above.
2 The Advisor has agreed to waive its management fees and/or reimburse
expenses of the Series, if necessary, if such fees would cause the total
annual operating expenses of the Class E Shares of the Series, as a
percentage of average daily net assets, to exceed the percentages set
forth in the table above. As a result of these reductions, the
Management Fees stated above are lower than contractual fees stated
under "Management." The Advisor reserves the right to terminate any of
its fee waivers at any time in its sole discretion. For further
information on expenses, see "Management." The following sets forth, for
Class E Shares of such Series, (i) management fees absent fee waivers
and, (ii) other expenses absent expense reimbursements, (iii) Rule 12b-1
fees and (iv) expected total operating expenses absent fee waivers and/or
expense reimbursements.
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Class E Shares
Management Fees..................1.00%
Rule 12b-1 Fees..................0.25%
Other Expenses...................7.08%
Total Operating Expenses.........8.33%
</TABLE>
3 Of the Rule 12b-1 fees for the Class E Shares, up to 0.25% may represent
shareholder service fees.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Class E Shares of
the Series. For a more complete description of the various costs and expenses
illustrated above, please refer to the Management section of this Prospectus.
Due to the continuous nature of Rule 12b-1 fees, long-term shareholders may
pay more than the equivalent of the maximum front-end sales charges otherwise
permitted by the Conduct Rules of the NASD.
<PAGE>
Example - Class E Shares
You would pay the following expenses on a $1,000 investment in Class E Shares,
assuming a) 5.0% annual return and b) redemptions at the end of each time
period:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1 year 3 years 5 years 10 years
Tax Managed Series $ 15 $ 46 $ 79 $174
</TABLE>
The example above should not be considered a representation of future
expenses. Actual expenses may be greater or lesser than those shown. The
Advisor in its discretion may terminate its voluntary fee waivers and/or
reimbursements at any time. Absent the waiver of fees or reimbursement of
expenses, the amounts in the examples above would be greater.
<PAGE>
FINANCIAL HIGHLIGHTS
The following table provides selected per share data and ratios for the Class
A Shares of the Series (for a share outstanding throughout the period for the
periods shown). The table is part of the Series' financial statements, which
are incorporated by reference into the Fund's Statement of Additional
Information. Deloitte & Touche LLP, the Fund's independent accountants audited
the Fund's financial highlights for each of the years 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 Fund's Class B, C, D and E Shares had not been
introduced as of October 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.
<TABLE>
<CAPTION>
TAX MANAGED SERIES - CLASS A SHARES
For the Year For the Year
Ended Ended
10/31/97 10/31/96 1
Per share data (for a share outstanding
throughout the period)
<S> <C> <C>
Net asset value - Beginning of period $11.63 $10.00
Income from investment operations:
Net investment loss (0.01) (0.02)
Net realized and unrealized
gain on investment 3.58 1.65
Total from investment operations 3.57 1.63
Net asset value - End of period $ 15.20 $11.63
Total return2 30.70% 16.30%
Ratios (to average net assets)
/ Supplemental Data:
Expenses* 1.20% 1.20%
Net investment income (loss)* (0.09)% (0.21%)
Portfolio turnover 103% 78%
Average commission rate paid $0.0625 $0.0757
Net assets - End of period (000s omitted) $ 524 $ 224
* The Advisor did not impose its management and fee paid a portion of the
Series' expenses. If these expenses had been incurred by the Series, and had
1996 expenses been limited to that allowed by state securities law, the net
investment loss per share and the ratios would have been as follows:
Net investment loss ($0.62) ($0.14)
Ratios (to average net assets):
Expenses 8.08% 2.50%
Net investment loss (6.97)% (1.51%)
</TABLE>
1 The Series commenced operations on November 1, 1995.
2 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 Tax Managed Series of the Fund (the Series'), which is offered through
five separate classes of shares, Class A, B, C, D and E Shares, respectively.
Class A Shares of the Series are offered to investors who purchase their
shares directly from Manning & Napier Investor Services, Inc. (the
"Distributor"). Class B, C, D and E Shares are offered only through financial
intermediaries which provide to the Fund and its shareholders varying levels
of distribution and shareholder services as described under "Distribution of
Fund" Shares below. Information regarding the Fund's other series is contained
in separate prospectuses that may be obtained from Exeter Fund, Inc., P.O. Box
41118, Rochester, New York 14604 or by calling 1-800-466-3863.
The Series is an open-end diversified investment company designed for
investors seeking long term growth while minimizing the impact of state and
federal taxes. The Series utilizes an active management approach towards
investment management.
Risk and Investment Objectives and Policies
Investment Objective
The Series seeks to maximize long term growth while minimizing the impact
of taxes on the Series' total return. The Series will attempt to meet its
objective by: a) investing primarily in equity securities which by nature
generate a lower level of current income than most fixed income securities; b)
minimizing portfolio turnover which limits the amount of realized gains; and
c) reducing distributions of taxable income as permitted by the Internal
Revenue Code (the "Code"). Exeter Asset Management Division (the "Advisor")
anticipates this strategy will result in tax efficiencies (i.e., a lower
percentage of the return is subject to taxes) that are superior to other
mutual funds. The Series is designed only for long-term investors who expect
to own shares of the Series for five years or more. The Series is not
intended to provide investors with a means of speculating on short-term market
movements. Investors who engage in excessive account activity generate
additional costs and may cause the Serie's to recognize capital gains which
are borne by the Series remaining shareholders.
There is no assurance that the Series will achieve its stated objective.
The Series from time to time will declare dividends to ensure its continued
qualification as a regulated investment company. These dividends will result
in taxable income to the shareholders. However, the Advisor anticipates
dividend distributions made to shareholders will be small compared to the
distributions paid by managed or indexed funds investing in similar
securities. These dividends will be smaller because of the active approach
the Advisor takes to minimizing tax liability when managing the Series. The
active approach will consist of the items outlined in the sections "Management
of Realization Events" and 'Management of Dividend Distributions."
The Series' investment objective is not fundamental and may be changed by
the Board of Directors without shareholder approval; however, it is the Board
of Directors' policy to notify shareholders prior to a material change in the
Series' objective.
Investment Policies
The Series will invest primarily in equity securities of companies which
the Advisor believes have attractive long term growth potential and attractive
valuations. The Advisor's intent is to identify those companies that will make
attractive long term investments, and as a result offer the potential for
attractive returns while limiting the need for continual portfolio turnover.
The Series may invest (up to 35% of its assets) in other than equity
securities. See "Risk and Additional Information about Investment Policies"
for a description of these securities and their associated risks. The Series
may invest in securities of issuers outside the United States. The Series may
invest a portion of its assets in put and call options on securities, futures
contracts and related options thereon and various foreign currency
transactions, including forward contracts, futures and options. The Series
may also lend its securities or sell securities short "against the box."
In order to minimize the impact of taxes on investors' returns, the
Advisor will seek to reduce the amount of gains realized and dividends that
must be distributed. Generally speaking, the Advisor will attempt to keep
portfolio turnover low and utilize certain tax strategies available to mutual
funds under the Code. See "Management of Realization Events" and "Management
of Dividend Distributions." The Series employs an active management strategy
which seeks to maximize shareholders after-tax returns through a combination
of individual security selection and the use of the unique tax strategies
allowed mutual funds under the Code.
The Series' investment policies are not fundamental policies and may be
changed by the Board of Directors without shareholder approval. It is the
Board of Directors' policy to notify shareholders prior to any material change.
General
In pursuit of its investment objective, the Series intends to invest
predominantly in equity securities that the Advisor believes offer attractive
long term potential. Equity securities consist of common stocks, securities
convertible thereto, and warrants. The Series does not intend to invest more
than 5% of the value of its total net assets in warrants. Additionally, the
Series may invest in a variety of non-equity securities either for defensive
purposes or when the Advisor believes that the potential incremental return of
such investments outweighs their tax implications.
The debt securities in which the Series may invest consist of corporate
debt securities, mortgage-backed securities and obligations issued or
guaranteed as to payment of principal and interest by the U.S. Government or
its agencies or instrumentalities. The Series may invest in such securities
without regard to term or rating and may, from time to time, invest up to 20%
of its assets in corporate debt securities rated below investment grade, i.e.,
rated lower than BBB by Standard & Poor's Corporation ("S&P") or Baa by Moody's
Investor Service, Inc.("Moody's"), or unrated securities of comparable quality
as determined by the Advisor. These securities are commonly known as junk
bonds. Ratings of corporate bonds including lower rated bonds are included in
the Appendix. See "Additional Information about Investment Policies - High
Yield Debt Securities."
For temporary defensive purposes during periods when the Advisor
determines that market conditions warrant, the Series may invest up to 100% of
its assets in money market instruments (including securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities,
certificates of deposit, time deposits and bankers acceptances issued by banks
or savings and loan associations deemed creditworthy by the Advisor,
commercial paper rated A-1 by S&P or Prime-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.
Who Should Invest
Long-term taxable investors seeking to minimize taxable distributions
The Series is designed for long-term taxable investors who seek to
minimize receipt of taxable distributions. The Series may not be suitable for
Individual Retirement Accounts (IRAs) or other tax-deferred retirement plans
such as Keoghs, 401(k), 403(b), or money purchase plans.
The Series is designed for investors seeking current low taxable
distributions, with the potential for favorable long term appreciation.
The share price of the Series is expected to be volatile, and investors
should be able to tolerate sudden, sometimes substantial fluctuations in the
value of their investments. No assurance can be given that the Series will
achieve its stated objectives or that shareholders will be protected from the
risks inherent in the markets in which they invest. Investors may wish to
purchase shares on a regular, periodic basis (dollar-cost averaging) rather
than investing in one lump sum in order to reduce the risk of investing at a
particularly unfavorable time.
The Series is designed only for long-term investors who expect to own
shares of the Series for five years or more. The Series is not intended to
provide investors with a means of speculating on short-term market movements.
Investors who engage in excessive account activity generate additional costs
and may cause the Series to recognize capital gains which are borne by the
Series remaining shareholders.
The Series reserves the right to suspend the offering of its shares.
Investors should not consider the Series a complete investment program,
but should maintain holdings of securities with different risk
characteristics-including common stocks, bonds and money market instruments.
Investors may also wish to complement an investment in the Series with other
types of common stock investments.
Management of Realization Events
The Series' portfolio will be actively managed to minimize both the number
and amount of realization events.
Low portfolio turnover - It is anticipated that the long-term average
annual portfolio turnover rate for the Series will not exceed 50%. By
minimizing portfolio turnover, the Series will attempt to defer the
realization of capital gains, thereby reducing or deferring the distribution
of capital gains which are taxable to the shareholders. While the Series
intends to minimize portfolio turnover, there may be times that the Advisor
will sell securities to realize losses or gains depending on the particular
circumstances confronting the Series, and the portfolio turnover rate may
reach higher levels. Higher portfolio turnover may increase the distributions
which the Series is required to make to shareholders, and therefore lead to
higher tax liability (see "Taxes and Distributions"). If possible, however,
losses may be taken to offset any current or future capital gains in order to
reduce the Series' requirement to distribute such capital gains. Higher levels
of portfolio turnover will also lead to higher trading costs, which are
reflected in the Series operating expenses (see "Financial Highlights" and
"Management").
Specific Identification of Security Shares Sold - Federal income tax law
allows the Series to specify which shares of stock the Series will treat as
being sold. While most mutual funds use First-in, First-out (FIFO), the
Series will individually analyze which shares to sell. The following example
will further explain the technique:
During year 1, the Series purchases 100 shares of XYZ Corp on two separate
occasions. The first purchase of 100 shares cost $10/share and the second
purchase of 100 shares cost $12.50/share. In year 2, the Series decides to
sell 100 shares of XYZ Corp at $15/share. If the Series used FIFO, the
realized gain would be $500, but since the Series analyzes each sale, the
shares with a cost of $12.50/share would have been sold, resulting in a
realized gain of only $250. This would have resulted in a deferral of tax of
$99 using a marginal tax rate of 39.6%.
Deferring amount of gain (or accelerating loss) realized on each sale is
maximized by the use of the Highest-In, First-Out (HIFO) method of identifying
which shares to sell. The expectation is that any capital gain is minimized
(or capital loss is maximized) since the difference between the proceeds on
the sale of the shares and the cost of those shares is also minimized.
However, if the Series has a loss to offset, low-cost securities may be sold
for profit and may also then be reacquired in order to "step up" the basis in
those securities. There will be times when it will be more advantageous for
the Series to identify shares without the highest cost. This may occur, for
example, when shares with the highest cost result in the realization of
short-term capital gains while shares with a lower cost result in a long-term
gain. Since short-term capital gains are generally subject to higher rates of
tax, the lower cost may be chosen due to the tax benefits of the lower tax
rate.
Management of Dividend Distributions
The Series will minimize dividend distributions to the extent permitted
to maintain regulated investment company status under the Code.
Equalization Accounting - Under current law, the Series intends, for tax
purposes, to treat as a distribution of investment company taxable income or
net capital gain the portion of redemption proceeds paid to redeeming
shareholders that represents the redeeming shareholder's portion of the Series'
undistributed investment company taxable income and net capital gain. This
practice will have the effect of reducing the amount of income and gains that
the Series is required to distribute as dividends to shareholders in order for
the Series to avoid federal income and excise tax. This practice may also
reduce the amount of distributions required to be made to non-redeeming
shareholders and defer the recognition of taxable income by such shareholders.
However, since the amount of any undistributed income will be reflected in
the value of the Series' shares, the total return on a shareholder's investment
will not be reduced as a result of the Series' distribution policy. Under the
Code, equalization payments may be used in lieu of dividend distributions of
either ordinary taxable income or net capital gains. The Series will
designate equalization payments as being made in lieu of ordinary taxable
dividends before net capital gains.
Deliberate Minimization of Cash Dividends - The Series will minimize the
amount it distributes as ordinary income dividends. It may not, therefore,
distribute all investment company taxable income or ordinary income. It will,
however, distribute dividends sufficient to maintain its status as a regulated
investment company. In addition, the Series may retain income for excise tax
purposes (and then incur excise tax) if it anticipates such retention will
enhance shareholders' after-tax total returns.
Management
The overall business and affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, including the Fund's
agreements with its investment advisor, custodian and distributor. The
day-to-day operations of the Series are delegated to the Fund's officers and to
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
investment decisions for the Series.
The Advisor acts as the investment advisor to the Series. Mr. William
Manning controls the Advisor by virtue of his ownership of the securities of
MNA. The Advisor also is generally responsible for supervision of the overall
business affairs of the Series including supervision of service providers of
the Series and the direction of the Advisor's directors, officers or employees
who may be elected as officers of the Series to serve as such.
As of the date of this Prospectus, the Advisor and MNA supervised over
$7.5 billion in assets of clients, including both individuals and
institutions. For its services to the Series under its investment advisory
agreement, the Series pays the Advisor a fee, computed daily and payable
monthly, at an annual rate of 1% of the Series daily net assets. In addition,
the Advisor is separately compensated for acting as transfer agent (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, and accounting services agent,
if obtained for the Fund from an entity other than the Advisor; (vii) expenses
incident to the issuance of its shares, including issuance on the payment of,
or reinvestment of, dividends and capital gain distributions; (viii) fees and
expenses incident to the registration under federal or state securities laws
of the Fund or its shares; (ix) expenses of preparing, printing and mailing
reports and notices and proxy material to shareholders of the Fund; (x) all
other expenses incidental to holding meetings of the Fund's shareholders; (xi)
dues or assessments of or contributions to the Investment Company Institute or
any successor; and (xii) such non-recurring expenses as may arise, including
litigation affecting the Fund and the legal obligations with respect to which
the Fund may have to indemnify its officers and directors.
Distribution of Fund Shares
Manning & Napier Investor Services, Inc. (the Distributor) acts as
distributor of Fund shares and is located at the same address as the Advisor
and the Fund. The Fund has adopted a distribution agreement with respect to
each Class of shares and related plans of distribution with respect to Class
B, C, D and E Shares (the "Plans") pursuant to Rule 12b-1 under the 1940 Act.
Class A Shares are offered to investors who purchase their shares directly
from the Distributor and are not subject to distribution or shareholder
servicing fees. Class B, C, D and E Shares are offered only by or through
investment dealers, banks or financial service firms that provide
distribution, administrative and/or shareholder services ("Financial
Intermediaries").
The Distributor receives distribution and services fees, as the rates set
forth below, for providing distribution and/or shareholder services to the
Class B, C, D and E Shares. The Distributor expects to allocate most of its
distribution fees and shareholder service fees to Financial Intermediaries
that enter into shareholder servicing agreements ("Servicing Agreements") with
the Distributor. The different Classes permit the Fund to allocate an
appropriate amount of fees to a Financial Intermediary in accordance with the
level of services it agrees to provide under its Servicing Agreement.
As compensation for providing distribution and shareholders services for
the Class B Shares, the Distributor receives a distribution fee equal to .75%
of the Class B Shares average daily net assets and a shareholder servicing fee
equal to .25% of the Class B Shares' average daily net assets. As compensation
for providing distribution and shareholders service for the Class C Shares,
the Distributor receives an aggregate distribution and shareholder servicing
fee equal to .75% of the Class C Shares' average daily net assets. As
compensation for providing distribution and shareholder services for the Class
D Shares, the Distributor receives an aggregate distribution and shareholder
servicing fee equal to .50% of the Class D Shares' average daily net assets.
The shareholder services component of the foregoing fees for Classes C and D
is limited to .25% of the average daily net assets of the respective class.
As compensation for providing distribution services for the Class E Shares,
the Distributor receives an aggregate distribution and shareholder servicing
fee equal to .25% of the average daily net assets of the Class E Shares. The
Distributor may, in its discretion, voluntarily waive from time to time all or
any portion of its distribution fee.
Payments under the Plans are made as described above regardless of the
Distributor's actual cost of providing distribution services and may be used to
pay the Distributor's overhead expenses. If the cost of providing distribution
services to the Fund is less than the payments received, the unexpended
portion of the distribution fees may be retained as profit by the Distributor.
The Distributor may from time to time and from its own resources pay or allow
additional discounts or promotional incentives in the form of cash or other
compensation (including merchandise or travel) to Financial Intermediaries and
it is free to make additional payments out of its own assets to promote the
sale of Fund shares. Similarly, the Advisor may, from its own resources,
defray or absorb costs related to distribution, including compensation of
employees who are involved in distribution.
Risks and Additional Information about Investment Policies
Set forth below is further information regarding certain types of
securities the Series may invest in, as well as information about additional
types of investment strategies the Series may pursue. These policies have
been voluntarily adopted by the Board of Directors based upon current
circumstances and may be changed or amended by action of the Board of
Directors without prior approval of the Series' shareholders. Additional
information concerning these strategies and their related risks is contained
in the Statement of Additional Information.
Foreign Securities
While the Series generally emphasizes investments in companies domiciled
in the United States, it may invest up to 25% of its assets in foreign
securities of the same types and quality as the domestic securities in which
the Series may invest when the anticipated performance of foreign securities
is believed by the Advisor to offer more potential than domestic alternatives
in keeping with the investment objective of the Series. Foreign securities
may be denominated either in U.S. dollars or foreign currencies.
The Series may invest without limit in equity securities of foreign
issuers that are listed on a domestic securities exchange or are represented
by American Depository Receipts that are listed on a domestic securities
exchange or are traded in the United States on the over-the-counter market.
The Series' restrictions on investment in foreign securities are not
fundamental policies and may be changed by the Board of Directors without
shareholder approval; however, it is the Board of Directors' policy to notify
shareholders prior to any material change.
There are risks in investing in foreign securities not typically involved
in domestic investing. An investment in foreign securities may be affected by
changes in currency rates and in exchange control regulations. Foreign
companies are frequently not subject to the accounting and financial reporting
standards applicable to domestic companies, and there may be less information
available about foreign issuers. There is frequently less government
regulation of foreign issuers than in the United States. In addition,
investments in foreign countries are subject to the possibility of
expropriation or confiscatory taxation, political or social instability or
diplomatic developments that could adversely affect the value of those
investments. There may also be imposition of withholding taxes. Foreign
financial markets may have less volume and longer settlement periods than U.S.
markets which may cause liquidity problems for a Series. In addition, costs
associated with transactions on foreign markets are generally higher than for
transactions in the U.S.
Obligations of foreign governmental entities are subject to various types
of governmental support and may or may not be supported by the full faith and
credit of a foreign government.
Repurchase Agreements
The Series may enter into repurchase agreements with respect to portfolio
securities. Under the terms of a repurchase agreement, the Series purchases
securities ("collateral") from financial institutions such as banks and
broker-dealers (the "seller") which the Advisor deems to be credit-worthy,
subject to the sellers agreement to repurchase them at a mutually agreed-upon
date and price. The repurchase price generally equals the price paid by the
Series plus interest negotiated on the basis of current short-term rates
(which may be more or less than the rate on the underlying portfolio
securities).
The seller under a repurchase agreement is required to maintain the value
of the collateral held pursuant to the agreement at not less than 100% of the
repurchase price, and securities subject to repurchase agreements are held by
the Series custodian either directly or through a securities depository.
Default by the seller would, however, expose the Series to possible loss
because of adverse market action or delay in connection with the disposition
of the underlying securities. Repurchase agreements are considered to be
loans by the Series under the 1940 Act.
U.S. Government Securities
The Series may purchase securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. Direct obligations of the U.S.
Government include bills, notes and bonds issued by the U.S. Treasury and
obligations issued or guaranteed by U.S. agencies or instrumentalities. The
obligations of certain U.S. agencies (e.g., the Government National Mortgage
Association) are backed by the full faith and credit of the U.S. Government or
are supported by the agencies right to borrow from the U.S. Treasury. The
issues of other agencies are supported only by the credit of the agency (e.g.,
Fannie Mae).
Mortgage-Backed Securities
The Series may purchase mortgage-backed securities which represent an
interest in a pool of mortgage loans. The primary government issuers or
guarantors of mortgage-backed securities are the Government National Mortgage
Association ("GNMA"), Fannie Mae, and the Federal Home Loan Mortgage
Corporation. Mortgage-backed securities may also be issued by other U.S. and
foreign government agencies and non-governmental entities which consist of
collateralized mortgage obligations ("CMOs") and real estate mortgage investment
conduits ("REMICs"). The Series may purchase CMOs that are rated in one of the
top two rating categories by S&P or 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 value, which is likely to vary
inversely with fluctuations in interest rates.
Mortgage-backed securities are in most cases "pass-through" instruments,
through which the holder receives a share of all interest and principal
payments from the mortgages underlying the certificate. Because the
prepayment characteristics of the underlying mortgages vary, it is not
possible to predict accurately the average life or realized yield of a
particular issue of pass-through certificates. During periods of declining
interest rates, prepayment of mortgages underlying mortgage-backed securities
can be expected to accelerate. When the mortgage obligations are prepaid, the
Series reinvests the prepaid amounts in securities, the yield of which
reflects interest rates prevailing at the time. Moreover, prepayment of
mortgages which underlie securities purchased at a premium could result in
capital losses.
High Yield Debt Securities
High risk, high yield securities rated below BBB or lower by S&P or Baa
or lower by Moody's are considered to have speculative characteristics and
involve greater risk of default or price changes due to changes in the issuer's
credit-worthiness. Market prices of these securities may fluctuate more than
high-rated securities and they are difficult to price at times because they
are more thinly traded and less liquid securities. Market prices may decline
significantly in periods of general economic difficulty which may follow
periods of rising interest rates. Securities in the lowest rating category
may be in default. For these reasons, it is the Series' policy not to rely
primarily on ratings issued by established credit rating agencies, but to
utilize such ratings in conjunction with the Advisor's own independent and
ongoing review of credit quality. In the event a security is downgraded below
these ratings after purchase, the Advisor will review and take appropriate
action with regard to the security. The Series will also seek to minimize
risk by diversifying its holdings.
Zero-Coupon Bonds
Some of the securities in which the Series invests may include so-called
"zero-coupon" bonds. Zero-coupon bonds are issued at a significant discount
from face value and 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,
prevailing level of interest rates and the perceived credit quality of the
issues. The market prices of zero-coupon securities are subject to greater
fluctuations in response to changes in market interest rates than bonds which
pay interest currently.
Variable and Floating Rate Instruments
Certain of the obligations purchased by the Series may carry variable or
floating rates of interest, may involve a conditional or unconditional demand
feature and may include variable amount master demand notes. Such instruments
bear interest at rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index.
The interest rate on these securities may be reset daily, weekly, quarterly,
or at some other interval, and it may have a floor or ceiling rate. There is
a risk that the current interest rate on such obligations may not accurately
reflect existing market interest rates.
Securities Lending
The Series may seek to increase its income by lending portfolio
securities. Such loans will usually be made to member firms (and subsidiaries
thereof) of the New York Stock Exchange and to member banks of the Federal
Reserve System, and would be required to be secured continuously by collateral
in cash, cash equivalents or U.S. Treasury securities maintained on a current
basis at an amount at least equal to the market value of the securities
loaned. If the Advisor determines to make securities loans, the value of the
securities loaned would not exceed 30% of the value of the total assets of the
Series.
Short Sales
The Series may, within limits, engage in short sales "against the box."
A short sale is the sale of borrowed securities; a short sale against the box
means that the Series owns securities equivalent to those sold short. No more
than 25% of the net assets (taken at current value) of the Series may be held
as collateral for such sales at any one time. Such short sales can be used as
a hedge.
Forward Commitments or Purchases on a When-Issued Basis
The Series may enter into forward commitments or purchase securities on a
when-issued basis. These securities normally are subject to settlement within
45 days of the purchase date. The interest rate realized on these securities
is fixed as of the purchase date and no interest accrues to the Series before
settlement. These securities are subject to market fluctuation due to changes
in market interest rates. The series will enter into these arrangements with
the intention of acquiring the securities in question and not for speculative
purposes and will maintain a separate account with its custodian consisting of
liquid assets in an amount at least equal to the purchase price.
Hedging Techniques
The Series has reserved the right, subject to authorization by the Board
of Directors prior to implementation, to engage in certain strategies in an
attempt to hedge the Series' portfolio, to reduce the overall level of risk
that normally would be expected to be associated with its investments. The
Series may write covered call options on common stocks; may purchase and sell
(on a secured basis) put options; and may engage in closing transactions with
respect to put and call options. The Series also may purchase forward foreign
currency exchange contracts to hedge currency exchange rate risk. In
addition, the Series is authorized to purchase and sell stock index futures
contracts and options on stock index futures contracts. The Series is also
authorized to conduct spot (i.e., cash basis) currency transactions or to use
currency futures contracts and options on futures contracts and foreign
currencies in order to protect against uncertainty in the future levels of
foreign currency exchange rates. These strategies are primarily used for
hedging purposes; nevertheless, there are risks associated with these
strategies as described below.
Options on Securities
A call option is a short-term contract pursuant to which the purchaser of
the option, in return for a premium, has the right to buy the security
underlying the option at a specified price at any time during the term of the
option. The writer of a call option, who receives the premium, has the
obligation, upon exercise during the option term, to deliver the underlying
security against payment of the exercise price. Conversely, a put option
gives its purchaser, in return for a premium, the right to sell the underlying
equity security at a specified price during the option term to the writer of
the put option, who receives the premium. The Series will sell call options
only on a "covered" basis, i.e., it will own the underlying security at all
times, and will write put options only on a secured basis, i.e., it will
maintain an amount equal to the exercise price in a segregated account at all
times. The Series may engage in option transactions for hedging purposes and
to realize a greater current return, through the receipt of premiums, than
would be earned on the underlying securities alone. Options traded in the
over-the-counter market will be considered illiquid unless the Fund has
entered into arrangements with U.S. Government securities dealers to dispose
of such options at a formula price based on a multiple of the original premium
plus the amount for which the option is in the money.
Stock Index Futures Contracts and Options on Stock Index Futures Contracts
A stock index futures contract is a bilateral agreement pursuant to which
one party agrees to accept, and the other party agrees to make, delivery of an
amount of cash equal to a specified dollar amount times the difference between
the stock index value at the close of trading of the contract and the price at
which the futures contract is originally struck. No physical delivery of the
stocks comprising the index is made. Options on stock index futures contracts
gives the purchaser the right, in return for the premium paid, to assume a
long or short position in a futures contract.
Futures Contracts
The Series may purchase and sell financial futures contracts on debt
securities on a commodities exchange or board of trade for certain hedging,
return enhancement and risk management purposes in accordance with applicable
regulations. A financial futures contract is an agreement to purchase or sell
an agreed amount of securities at a set price for delivery in the future. The
Series may not purchase or sell futures contracts if immediately thereafter
the sum of the amount of initial margin deposits on any such futures (plus
deposits on any other futures contracts and premiums paid in connection with
any options or futures contracts) that do not constitute bona fide hedging
under the Commodity Futures Trading Commission (CFTC) rules would exceed 5% of
the liquidation value of the Series total assets after taking into account
unrealized profits and losses on such contracts. In addition, the value of
all futures contracts sold will not exceed the total market value of the
Series' portfolio. The Fund will comply with guidelines established by the
Securities and Exchange Commission with respect to covering of obligations
under futures contracts and will set aside cash and/or liquid securities 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 price of a
futures contract and the price of the security being hedged is imperfect and
there is a risk that the value of the security being hedged may increase or
decrease at a greater rate than the related futures contract, resulting in a
loss to the Series. Certain futures exchanges or boards of trade have
established daily price limits based on the amount of the previous days
settlement price. These daily limits may restrict the Series ability to
repurchase or sell certain futures contracts on any particular day.
Forward Foreign Currency Exchange Contracts
The Series' use of forward foreign currency contracts is limited to
hedging against movements in the value of foreign currencies relative to the
U.S. dollar in connection with specific portfolio transactions or with respect
to existing portfolio positions denominated in such currencies. A transaction
hedge involves the purchase or sale of a forward contract with respect to a
specific receivable or payable of the Series while a position hedge relates to
a specific portfolio holding. A forward foreign currency exchange contract
involves an obligation to purchase or sell a specified currency at a future
date at a price set at the time of the contract. Foreign currency exchange
contracts do not eliminate fluctuations in the values of portfolio securities
but rather allow the Series to establish a rate of exchange for a future point
in time. With respect to any such forward foreign currency contract, it will
not generally be possible to match precisely the amount covered by that
contract and the value of the securities involved due to the changes in the
values of such securities resulting from market movements between the date the
forward contract is entered into and the date it matures. In addition, while
forward contracts may offer protection from losses resulting from declines in
the value of a particular foreign currency, they also limit potential gains
which might result from increases in the value of such currency. Based on
current legal interpretation, the Series does not consider forward foreign
currency exchange contracts to be commodities or commodity contracts for
purposes of the Series' fundamental restrictions concerning investment in
commodities or commodity contracts, as set forth in the Statement of
Additional Information.
Currency Futures Contracts and Options on Futures Contracts
A currency futures contract is an agreement for the purchase or sale for
future delivery of foreign currencies. A "sale" of a currency futures contract
creates an obligation to deliver the foreign currencies called for by the
contract at a specified price on a specified date while a "purchase" of a
currency futures contract creates an obligation to acquire the foreign
currencies called for by the contract at a specified price on a specified
date. The Series will only enter into futures contracts which are traded on
national or foreign futures exchanges and which are standardized as to
maturity date and the underlying financial instrument. Options on currency
futures contracts gives the purchaser the right, in return for the premium
paid, to assume a long or short position in the futures contract. The Series
may not purchase or sell future contracts if immediately thereafter the sum of
the amount of initial margin deposits on any such futures (plus deposits on
any other futures contracts and premiums paid in connection with any options
or futures contracts) that do not constitute "bona fide hedging" under CFTC
rules would exceed 5% of the liquidation value of the Series' total assets
after taking into account unrealized profits and losses on such contracts. In
addition, the value of all futures contracts sold will not exceed the total
market value of the Series' portfolio.
Foreign Currency Options
A call option on a foreign currency is a short-term contract pursuant to
which the purchaser of the option, in return for a premium, has the right to
buy the currency underlying the option at a specified price at any time during
the term of the option. The writer of a call option, who receives the
premium, has the obligation, upon exercise of the option during the option
term, to deliver the underlying currency against payment of the exercise
price. Conversely, a put option on a foreign currency gives its purchaser, in
return for a premium, the right to sell the underlying currency at a specified
price during the option term to the writer of the put option, who receives the
premium.
Risks Associated with Hedging Strategies
There are risks associated with the hedging strategies described above,
including the following: (1) the success of a hedging strategy may depend on
the ability of the Advisor to accurately predict movements in the prices of
individual securities, fluctuations in domestic and foreign markets and
currency exchange rates, and movements in interest rates; (2) there may be an
imperfect correlation between the changes in market value of the securities
held by the Series and the prices of currency contracts, options, futures and
options on futures; (3) there may not be a liquid secondary market for a
currency contract, option, futures contract or futures option; (4) trading
restrictions or limitations may be imposed by an exchange; and (5) government
regulations, particularly requirements for qualification as a "regulated
investment company" under the Code, may restrict trading in forward currency
contracts, options, futures contracts and futures options.
Principal Investment Restrictions
The Series is subject to certain investment restrictions which are
fundamental policies that cannot be changed without the approval of the
holders of a majority, as defined in the 1940 Act, of the Series' outstanding
shares.
The Series may borrow money, but only from a bank for temporary or
emergency purposes in amounts not exceeding 10% of the Series' total assets,
and the Series will not make additional investments while borrowings greater
than 5% of its total assets are outstanding.
The Series may not, with respect to 75% of its total assets, invest more
than 5% of the value of its total assets at the time of investment in
securities of any one issuer (other than obligations issued or guaranteed by
the United States Government, its agencies or its instrumentalities). The
Series may not purchase more than 10% of the outstanding voting securities of
any one issuer.
The Series may not invest 25% or more of the value of its total assets in
securities of issuers in any one industry (other than U.S. Government
Securities).
The Series will not invest more than 10% of its net assets in securities
of issuers that are restricted from being sold to the public without
registration under the Securities Act of 1933 and illiquid securities,
including repurchase agreements with maturities of greater than seven days.
The Series may invest its assets in securities of any other investment
company (closed-end and open-end) (1) by purchase in the open market involving
only customary brokers' commissions, (2) in connection with mergers,
acquisitions of assets, or consolidation, or (3) as otherwise permitted by
law, including the 1940 Act.
The Series may not make loans, but it may invest in debt securities and
repurchase agreements and may engage in securities lending.
Additional information about the Series' investment restrictions is
contained in the Statement of Additional Information.
Taxes and Distributions
The Series has elected to be treated, and intends to continue to qualify
each year as a regulated investment company under the Code. Accordingly, the
Series intends to satisfy certain requirements relating to sources of its
income and diversification of its assets and to distribute an amount of its
net investment income to ensure constant qualification.
While the Series seeks to minimize taxable distributions, the Series may
earn taxable income and gains that will be distributed to shareholders. These
distributions will be taxable to the shareholders. Distributions, if
necessary, will be made on an annual basis. Additional distributions will be
made only if necessary to comply with distribution requirements of the Code.
The Series' distributions may be reinvested in additional shares of the
Series or may be taken in cash. If you elect to receive distributions in
cash, instead of reinvesting them in additional shares, you are in effect
reducing the amount of capital at work for you in the Series. If you invest
shortly before the Series declares a dividend, a portion of your investment
will be returned to you as a taxable distribution (commonly referred to as
"buying into a dividend"). This distribution will be taxable regardless of
whether you elected to reinvest your distribution in additional shares or take
the distribution in cash. If you would like to avoid buying into a dividend,
you may contact the Fund to find out when the Series plans to declare a
dividend and invest after that date.
Your redemptions, including exchanges to other Manning & Napier Series,
are subject to capital gains tax. A capital gain or loss is the difference
between the proceeds from the sale of the shares and the amount you paid for
such shares.
Each January, the Series will send to non-corporate taxable shareholders
Form 1099-DIV to assist the shareholder in reporting their previous years
distribution(s) on their federal and state income tax returns. The Series
will also send to shareholders who redeemed shares a copy of Form 1099-B
showing the total proceeds received by the shareholder. The shareholder will
be responsible for calculating the gain or loss as a result of the redemption.
Total Return
From time-to-time the Series may advertise its total return. Total
return figures are based on historical earnings and are not intended to
indicate future performance. The "total return" of the Series refers to the
average annual compounded rates of return over one-, five-, and ten-year
periods or for the life of the Series (as stated in the advertisement) that
would equate an initial amount invested at the beginning of a stated period to
the ending redeemable value of the investment, assuming the reinvestment of
all dividend and capital gains distributions. The respective performance
figures for the Classes will differ because of the different distribution
and/or shareholder services fees charged to Class B, C, D and E Shares.
Purchases, Exchanges, and Redemptions of Shares
Purchases and redemptions of shares of the Series may be made on any day
the New York Stock Exchange is open for trading.
Purchases
The minimum initial investment in each class of the Series is $2,000 and
subsequent purchases must be at least $100. The minimum initial investment is
waived for participants in the Automatic Investment Plan (see "Automatic
Investment Plan" below) and for shareholders who purchase shares through
Financial Intermediaries that provide sub-accounting services to the Fund. The
Distributor reserves the right to waive these minimum initial or subsequent
investment requirements in its sole discretion. The Distributor has the right
to refuse any order.
A purchase order will be effective as of the day received by the
Distributor, Transfer Agent, or its agents, if the order is received before
the time that the Fund calculates net asset values (normally, 4:00 p.m.
Eastern time) by the Distributor, Transfer Agent, or its agents. Payment may
be made by check or readily available funds. The purchase price of shares of
each Class of the Series is the net asset value next determined after a
purchase order is effective.
The shares of the Series may be purchased in exchange for securities to
be included in the Series, subject to the Advisor's determination that these
securities are acceptable. Securities accepted in an exchange will be valued
at market value. All accrued interest and purchase or other rights which are
reflected in the market price of accepted securities at the time of valuation
become the property of the Series and must be delivered by the shareholder to
the Series upon receipt from the issuer.
The Advisor will not accept securities for the Series unless (1) such
securities are appropriate in the Series at the time of the exchange; (2) the
shareholder represents and agrees that all securities offered to the Series
are not subject to any restrictions upon their sale by the Series under the
Securities Act of 1933, or otherwise; and (3) prices are available from an
independent pricing service approved by the Fund's Board of Directors.
Automatic Investment Plan
Shareholders may purchase shares regularly through the Automatic
Investment Plan with a pre-authorized draft drawn on a checking account.
Under this plan, the shareholder may elect to have a specified amount invested
on a regular schedule. The minimum amount of each automatic investment is
$25. The amount specified by the shareholder will be withdrawn from the
shareholder's bank account using the pre-authorized draft. This amount will be
invested at the applicable share price determined on the date the amount is
available for investment. Participation in the Automatic Investment Plan may
be discontinued either by the Fund or the Shareholder upon 30 days' prior
written notice to the other party. A shareholder who wishes to enroll in the
Automatic Investment Plan may do so by completing the applicable section of
the Account Application Form or contacting the Fund for an Automatic
Investment Plan Form.
Exchanges between Series
As permitted pursuant to any rule, regulation or order promulgated by the
Securities and Exchange Commission, some or all of the shares of a Class in an
account for which payment has been received by the Fund may be exchanged for
shares of the same Class of any of the other Exeter Fund, Inc. Series that
offers that Class at the net asset value next determined after an exchange
order is effective. Shareholders may effect up to 4 exchanges in a 12-month
period without charge. Subsequent exchanges are subject to a fee of $15.
Exchanges will be made after instructions in writing or by telephone are
received by the Transfer Agent in proper form (i.e., if in writing - signed by
the record owner(s) exactly as the shares are registered; if by telephone -
proper account identification is given by the shareholder) and each exchange
must involve either shares having an aggregate value of at least $1,000 or all
the shares in the account. A shareholder 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 1940 Act if an emergency exists. For
shares purchased, or received in exchange for shares purchased, by check
(including certified checks or cashier's checks), or through the Automatic
Investment Plan, payment of redemption proceeds may be delayed up to 15 days
from the purchase date in an effort to assure that such check or draft has
cleared.
Subject to the Series' compliance with applicable regulations, the Series
has reserved the right to pay the redemption price either totally or partially
by a distribution in-kind of securities (instead of cash) from the Series
portfolio. The securities distributed in such a distribution would be valued
at the same amount as that assigned to them in calculating the net asset value
for the shares being sold. If a shareholder received a distribution in-kind,
he could incur brokerage or transaction charges when converting the securities
to cash. The Fund has elected, however, to be governed by Rule 18f-1 under
the 1940 Act as a result of which the Fund is obligated to redeem shares, with
respect to any one shareholder during any 90-day period, solely in cash up to
the lesser of $250,000 or 1% of the net asset value of the Fund at the
beginning of the period.
Other Information about Purchases and Redemptions
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
Each Class of the Series' share price or "net asset value" per share
is determined as of the closing time of the New York Stock Exchange or, in the
absence of a closing time, 4:00 p.m. Eastern time on each day that the New
York Stock Exchange is open for trading. The exchange annually announces the
days on which it will not be open for trading; the most recent announcement
indicates that it will not be open 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 Class total outstanding shares. The value of the Series'
portfolio securities that are listed on a securities exchange are valued at
the last quoted sales price on the day the valuation is made. Price
information on listed securities is taken from the exchange where the security
is primarily traded by the Portfolio. Securities which are listed on an
exchange and which are not traded on the valuation date are valued at the mean
of the bid and ask prices. Unlisted securities for which market quotations
are not readily available are valued at the latest quoted bid price.
Temporary cash investments are valued at amortized cost which approximates
market value. Equity securities for which no current quotations are readily
available are valued at fair market value as determined in good faith by or at
the discretion of the Board of Directors. Equity securities may be valued on
the basis of prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities.
When approved by the Board of Directors, bonds and other fixed income
securities may be valued on the basis of prices provided by a pricing service
when such prices are believed to reflect the fair market value of such
securities. (In estimating a security's price, a pricing service takes into
account institutional-size trading in similar groups of securities and any
developments related to specific securities.) The methods used by the pricing
service and the valuations so established are reviewed by the officers of the
Fund under policies determined by the Directors. There are a number of
pricing services available and the Directors, as part of an on-going
evaluation of these services, may authorize the use of other pricing services
or discontinue the use of any service in whole or in part.
General Information
The Fund was incorporated on July 26, 1984 as a Maryland corporation.
The Board of Directors may, at its own discretion, create additional series of
shares, each of which would have separate assets and liabilities. As of
February 2, 1998 Manning & Napier Advisors, Inc., 1100 Chase Square,
Rochester, New York 14604 owned 28.95% of the Tax Managed Series and would be
deemed under the 1940 Act to be a controlling person of such Series.
Each share of a Series represents an identical interest in the investment
portfolio of that Series and has the same rights, except that (i) each class
of shares bears those distribution fees, service fees and administrative
expenses applicable to the respective class of shares as a result of its sales
arrangements, which will cause the different classes of shares to have
different expense ratios and to pay different rates of dividends, (ii) each
class has exclusive voting rights with respect to those provisions of the
Series' Rule 12b-1 distribution plan which relate only to such class and (iii)
the classes have different exchange privileges. As a result of each class'
differing Rule 12b-1 distribution and shareholder services plan, shares of
different classes of the Series may have different net asset values per share.
The Fund does not expect to hold annual meetings of shareholders but
special meetings of shareholders may be held under certain circumstances.
Shareholders of the Fund retain the right, under certain circumstances, to
request that a meeting of shareholders be held for the purpose of considering
the removal of a Director from office, and if such a request is made, the Fund
will assist with shareholder communications in connection with the meeting.
The shares of the Fund have equal rights with regard to voting, redemption and
liquidations. The Fund's shareholders will vote in the aggregate and not by
Series or Class except as otherwise expressly required by law or when the
Board of Directors determines that the matter to be voted upon affects only
the interests of the shareholders of a Series or a Class. Income, direct
liabilities and direct operating expenses of a Series will be allocated
directly to the Series, and general liabilities and expenses of the Fund will
be allocated among the Series in proportion to the total net assets of the
Series by the Board of Directors. The holders of shares have no preemptive or
conversion rights. Shares when issued are fully paid and non-assessable and
do not have cumulative voting rights.
All securities and cash are held by the custodian, Boston Safe Deposit
and Trust Company. Deloitte & Touche, LLP serves as independent accountants
for the Series and will audit its financial statements annually.
Manning & Napier Advisors, Inc. serves as the Fund's transfer and dividend
disbursing agent. Shareholder inquiries should be directed to 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.
Debt rated BB, B, CCC, CC and C is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
may be outweighed by large uncertainties or major risk exposures to adverse
conditions.
The C rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments on this
obligation are being continued.
Debt rated D is in payment default. The D rating category is used when
payments on an obligation are not made on the date due even if the applicable
grace period has not expired, unless 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 a
obligation are jeopardized.
<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 February 27, 1998
This Statement of Additional Information is not a Prospectus, and it should be
read in conjunction with each Series' Prospectus for the Blended Asset Series
I, Blended Asset Series II, Flexible Yield Series I, Flexible Yield Series II,
Flexible Yield Series III, Tax Managed Series, Defensive Series and the
Maximum Horizon Series, copies of which may be obtained from Exeter Asset
Management, 1100 Chase Square, Rochester, NY 14604.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Investment Objectives, Policies and
Restrictions of the Fund B-2
Risk and Investment Policies B-2
Investment Restrictions B-17
Portfolio Turnover B-19
The Fund B-19
Management B-19
The Advisor B-26
Distribution of Fund Shares B-27
Custodian and Independent Accountant B-28
Portfolio Transactions and Brokerage B-29
Net Asset Value B-30
Redemption of Shares B-31
Federal Tax Treatment of Dividends and Distributions B-31
Financial Statements B-34
</TABLE>
<PAGE>
Investment Objectives, Policies and Restrictions of the Fund
Each Series' portfolio and strategies with respect to the composition of
their respective portfolios are described in the prospectus. If there is a
change in a Series' investment objective, shareholders will be notified thirty
(30) days prior to any such change and will be advised to consider whether the
fund remains an appropriate investment in light of their then current
financial position and needs. Convertible bonds purchased by the Series may
have a call feature. Warrants purchased by the Fund may or may not be listed
on a national securities exchange. The Fund has no current intention to
engage in "short sales against the box". All of the Series' policies
regarding options discussed below are fundamental.
Risk and Investment Policies
Writing Covered Call and Secured Put Options
As a means of protecting their assets against market declines, and in an
attempt to earn additional income, each Series may write covered call option
contracts on its securities and may purchase call options for the purpose of
terminating its outstanding obligations with respect to securities upon which
covered call option contracts have been written.
As described in the Prospectus, when a Series writes a call option on
securities which it owns, it gives the purchaser of the option the right to
buy the securities at an exercise price specified in the option at any time
prior to the expiration of the option. If any option is exercised, a Series
will realize the gain or loss from the sale of the underlying security and the
proceeds of the sale will be increased by the net premium originally received
on the sale of the option. By writing a covered call option, a Series may
forego, in exchange for the net premium, the opportunity to profit from an
increase in the price of the underlying security above the option's exercise
price. A Series will have kept the risk of loss if the price of the security
declines, but will have reduced the effect of that risk to the extent of the
premium it received when the option was written.
A Series will write only covered call options which are traded on
national securities exchanges. Currently, call options on stocks may be
traded on the Chicago Board Options Exchange and the New York, American,
Pacific and Philadelphia Stock Exchanges. Call options are issued by the
Options Clearing Corporation ("OCC"), which also serves as the clearing house
for transactions with respect to standardized or listed options. The price of
a call option is paid to the writer without refund on expiration or exercise,
and no portion of the price is retained by OCC or the exchanges listed above.
Writers and purchasers of options pay the transaction costs, which may include
commissions charged or incurred in connection with such option transactions.
<PAGE>
A Series may write only covered call options. A call option is
considered to be covered if the option writer owns the security underlying the
call or has an absolute and immediate right to acquire that security without
payment of additional cash consideration (or for additional cash consideration
held in a segregated account by its custodian) upon conversion or exchange of
other securities. A call option is also considered to be covered if the
writer holds on a unit-for-unit basis a call on the same security as the call
written, has the same expiration date and the exercise price of the call
purchased is equal to or less than the exercise price of the call written or
greater than the exercise price of the call written if the difference is
maintained in cash, Treasury bills or other liquid high grade short-term
obligations in a segregated account with its custodian, and marked-to-market
daily. A Series will not sell (uncover) the securities against which options
have been written until after the option period has expired, the option has
been exercised or a closing purchase has been executed.
Options written by a Series will have exercise prices which may be below
("in-the-money"), equal to ("at-the-money") or above ("out-of-the-money") the
market price of the underlying security at the time the options are written.
However, a Series generally will not write so-called "deep-in-the-money"
options.
The market value of a call option generally reflects the market price of
the underlying security. Other principal factors affecting market value
include supply and demand, dividend yield and interest rates, the price
volatility of the underlying security and the time remaining until the
expiration date.
If a call option on a security expires unexercised, a Series will realize
a short-term capital gain in the amount of the premium on the option, less all
commissions paid. Such a gain, however, may be offset by a decline in the
value of the underlying security during the option period. If a call option
is exercised, a Series will realize a gain or loss from the sale of the
underlying security equal to the difference between the cost of the underlying
security and the proceeds of the sale of the security (exercise price minus
commission) plus the amount of the premium on the option, less all commissions
paid.
Call options may also be purchased by a Series, but only to terminate
(entirely or in part) a Series' obligation as a writer of a call option. This
is accomplished by making a closing purchase transaction, that is, the
purchase of a call option on the same security with the same exercise price
and expiration date as specified in the call option which had been written
previously. A closing purchase transaction with respect to calls traded on a
national securities exchange has the effect of extinguishing the obligation of
the writer of a call option. A Series may enter into a closing purchase
transaction, for example, to realize a profit on an option it had previously
written, to enable it to sell the security which underlies the option, to free
itself to sell another option or to prevent its portfolio securities from
being purchased pursuant to the exercise of a call. A Series may also permit
the call option to be exercised. A closing transaction cannot be effected
with respect to an optioned security once a Series has received a notice that
the option is to be exercised.
<PAGE>
The cost to a Series of such a closing transaction may be greater than
the net premium received by a Series upon writing the original call option. A
profit or loss from a closing purchase transaction will be realized depending
on whether the amount paid to purchase a call to close a position is less or
more than the amount received from writing the call. Any profit realized by a
Series from the execution of a closing transaction may be partly or completely
offset by a reduction in the market price of the underlying security.
A Series may also write secured put options and enter into closing
purchase transactions with respect to such options. A Series may write
secured put options on national securities exchanges to obtain, through the
receipt of premiums, a greater return than would be realized on the underlying
securities alone. A put option gives the purchaser of the option the right to
sell, and the writer has the obligation to buy, the underlying security at the
stated exercise price during the option period. The secured put writer
retains the risk of loss should the market value of the underlying security
decline below the exercise price of the option. During the option period, the
writer of a put option may be required at any time to make payment of the
exercise price against delivery of the underlying security. The operation of
put options in other respects is substantially identical to that of call
options. The Fund will establish a separate account with the Fund's custodian
consisting of liquid assets equal to the amount of the Series assets that
could be required to consummate the put options. For purposes of determining
the adequacy of the securities in the account, the deposited assets will be
valued at fair market value. If the value of such assets declines, additional
cash or assets will be placed in the account daily so that the value of the
account will equal the amount of such commitments by the Series.
A put option is secured if a Series maintains in a segregated account
with its Custodian liquid assets in an amount not less than the exercise price
of the option at all times during the option period. A Series may write
secured put options when the Advisor wishes to purchase the underlying
security for a Series' portfolio at a price lower than the current market
price of the security. In such event a Series would write a secured put
option at an exercise price which, reduced by the premium received on the
option, reflects the lower price it is willing to pay. The potential gain on
a secured put option is limited to the income earned on the amount held in
liquid assets plus the premium received on the option (less the commissions
paid on the transaction) while the potential loss equals the difference
between the exercise price of the option and the current market price of the
underlying securities when the put is exercised, offset by the premium
received (less the commissions paid on the transaction) and income earned on
the amount held in liquid assets.
A Series may purchase put options on national securities exchanges in an
attempt to hedge against fluctuations in the value of its portfolio securities
and to protect against declines in the value of individual securities.
Purchasing a put option allows the purchaser to sell the particular security
covered by the option at a certain price (the "exercise price") at any time up
to a specified future date (the "expiration date").
<PAGE>
Purchase of a put option creates a "hedge" against a decline in the value
of the underlying security by creating the right to sell the security at a
specified price. Purchase of a put option requires payment of a premium to
the seller of that option. Payment of this premium necessarily reduces the
return available on the individual security should that security continue to
appreciate in value. In return for the premium paid, a Series protects itself
against substantial losses should the security suffer a sharp decline in
value. In contrast to covered call option writing, where one obtains greater
current income at the risk of foregoing potential future gains, one purchasing
put options is in effect foregoing current income in return for reducing the
risk of potential future losses.
A Series will purchase put options as a means of "locking in" profits on
securities held in the portfolio. Should a security increase in value from
the time it is initially purchased, a Series may seek to lock in a certain
profit level by purchasing a put option. Should the security thereafter
continue to appreciate in value the put option will expire unexercised and the
total return on the security, if it continues to be held by a Series, will be
reduced by the amount of premium paid for the put option. At the same time, a
Series will continue to own the security. Should the security decline in
value below the exercise price of the put option, however, a Series may elect
to exercise the option and "put" or sell the security to the party that sold
the put option to that Series, at the exercise price. In this case a Series
would have a higher return on the security than would have been possible if a
put option had not been purchased.
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.
<PAGE>
Each of the exchanges on which options on securities are traded has
established limitations on the number of options which may be written by any
one investor or group of investors. These limitations apply regardless of
whether the options are written in different accounts or through different
brokers. It is possible that a Series and certain other accounts managed by
the Fund's investment advisor, Exeter Asset Management Division (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.
Although OCC has stated that it believes (based on forecasts provided by
the exchanges on which options are traded), that its facilities are adequate
to handle the volume of reasonably anticipated options transactions, and
although each exchange has advised OCC that it believes that its facilities
will also be adequate to handle reasonably anticipated volume, there can be no
assurance that higher than anticipated trading activity or order flow or other
unforeseen events might not at times render certain of these facilities
inadequate and thereby result in the institution of special trading procedures
or restrictions.
The Series will pay brokerage and other transaction costs to write and
purchase options on securities, including any closing transactions which the
Series may execute. The Fund's program of writing and/or purchasing such
options with respect to as much of its portfolio as possible will increase the
transaction costs borne by the Series.
Stock Index Futures Contracts and Options on Stock Index Futures Contracts
Each Series, except for the Flexible Yield Series I, Flexible Yield
Series II and Flexible Yield Series III of the Fund, may enter into Stock
Index Futures Contracts to provide: (1) a hedge for a portion of the Series'
portfolio; (2) a cash management tool; (3) as an efficient way to implement
either an increase or decrease in portfolio market exposure in response to
changing market conditions. The Series may also use Stock Index Futures as a
substitute for comparable market position in the underlying securities.
Although techniques other than the sale and purchase of Stock Index Futures
Contracts could be used to adjust the exposure or hedge the Series' portfolio,
the Series may be able to do so more efficiently and at a lower cost through
the use of Stock Index Futures Contracts.
<PAGE>
A Stock Index Futures Contract is a contract to buy or sell units of a
stock index at a specified future date at a price agreed upon when the
contract is made. Entering into a contract to buy units of a stock index is
commonly referred to as buying or purchasing a contract or holding a long
position in the index. Entering into a contract to sell units of a stock
index is commonly referred to as selling a contract or holding a short
position. A stock index future obligates the seller to deliver (and the
purchaser to take) an amount of cash equal to a specific dollar amount times
the difference between the value of a specific stock index at the close of the
last trading day of the contract and the price at which the agreement is made.
No physical delivery of the underlying stocks in the index is made. The
Series intend to purchase and sell futures contracts on the stock index for
which it can obtain the best price with consideration also given to liquidity.
The Series will not enter into a Stock Index Futures Contract or option
thereon if, as a result thereof, the sum of the amount of initial margin
deposits on any such futures (plus deposits on any other futures contracts and
premiums paid in connection with any options or futures contracts) that do not
constitute "bona fide hedging" under CFTC rules would exceed 5% of the
liquidation value of the Series' total assets after taking into account
unrealized profits and losses on such contracts. In addition, the value of
all futures contracts sold will not exceed the total market value of the
Series' portfolio. The Fund will comply with guidelines established by the
Securities and Exchange Commission with respect to the covering of obligations
under future contracts and will set aside liquid assets in a segregated
account with its custodian in the amount prescribed.
Unlike the purchase or sale of an equity security, no price is paid or
received by the Series upon the purchase or sale of a Stock Index Futures
Contract. Upon entering into a Futures Contract, the Series would be required
to deposit with its custodian in a segregated account in the name of the
futures broker an amount of cash or U.S. Treasury bills known as "initial
margin." This amount is required by the rules of the exchanges and is subject
to change. The nature of initial margin in futures transactions is different
from that of margin in security transactions in that futures margin does not
involve the borrowing of funds by the Series to finance the transactions.
Rather, initial margin is in the nature of a performance bond or good faith
deposit on the contract that is returned to the Series upon termination of the
futures contract, assuming all contractual obligations have been satisfied.
Subsequent payments, called "variation margin", to and from the futures
broker, are made on a daily basis as the price of the underlying stock index
fluctuates, making the long and short positions in the futures contract more
or less valuable, a process known as "marking-to-market". For example, when
the Series has purchased a Stock Index Futures Contract and the price of the
underlying stock index has risen, that futures position will have increased in
value and the Series will receive from the broker a variation margin payment
equal to that increase in value. Conversely, when the Series has purchased a
Stock Index Futures Contract and the price of the stock index has declined,
the position would be less valuable and the Series would be required to make a
variation payment to the broker.
<PAGE>
The loss from investing in futures transactions is potentially unlimited.
To limit such risk, the Series will not enter into Stock Index Futures
Contracts for speculation and will only enter into Futures Contracts which are
traded on established futures markets. The Series may, however, purchase or
sell Stock Index Futures Contracts with respect to any stock index.
Nevertheless, to hedge the Series' portfolio successfully, the Advisor must
sell Stock Index Futures Contracts with respect to indices whose movements
will, in its judgment, have a significant correlation with movements in the
prices of the Series' portfolio securities.
Closing out an open Stock Index Futures Contract sale or purchase is
effected by entering into an offsetting Stock Index Futures Contract purchase
or sale, respectively, for the same aggregate amount of identical securities
with the same delivery date. If the offsetting purchase price is less than
the original sale price, the Series realize a gain; if it is more, the Series
realize a loss. Conversely, if the offsetting sale price is more than the
original purchase price, the Series realize a gain; if it is less, the Series
realize a loss. The Series must also be able to enter into an offsetting
transaction with respect to a particular Stock Index Futures Contract at a
particular time. If the Series are not able to enter into an offsetting
transaction, the Series will continue to be required to maintain the margin
deposits on the Stock Index Futures Contract.
The Series may elect to close out some or all of their futures positions
at any time prior to expiration. The purpose of making such a move would be
either to reduce equity exposure represented by long futures positions or
increase equity exposure represented by short futures positions. The Series
may close their positions by taking opposite positions which would operate to
terminate the Series' position in the Stock Index Futures Contracts. Final
determinations of variation margin would then be made, additional cash would
be required to be paid or released to the Series, and the Series would realize
a loss or a gain.
Stock Index Futures Contracts may be closed out only on the exchange or
board of trade where the contracts were initially traded. Although the Series
intend to purchase or sell Stock Index Futures Contracts only on exchanges or
boards of trade where there appears to be an active market, there is no
assurance that a liquid market on an exchange or board of trade will exist for
any particular time. In such an event, it might not be possible to close a
Stock Index Futures Contract, and in the event of adverse price movements, the
Series would continue to be required to make daily cash payments of variation
margin. However, in the event Stock Index Futures Contracts have been used to
hedge portfolio securities, the Series would continue to hold securities
subject to the hedge until the Stock Index Futures Contracts could be
terminated. In such circumstances, an increase in the price of the
securities, if any, might partially or completely offset losses on the Stock
Index Futures Contract. However, as described below, there is no guarantee
that the price of the securities will, in fact, correlate with price movements
in the Futures Contract and thus provide an offset to losses on a Stock Index
Futures Contract.
<PAGE>
There are several risks in connection with the use by the Series of Stock
Index Futures Contracts as a hedging device. One risk arises because of the
imperfect correlation between movements in the prices of the Futures Contracts
and movements in the prices of securities which are the subject of the hedge.
The Advisor will, however, attempt to reduce this risk by entering into Stock
Index Futures Contracts on indices whose movements, in its judgment, will have
a significant correlation with movements in the prices of the Series'
portfolio securities sought to be hedged.
Successful use of Stock Index Futures Contracts by the Series for hedging
purposes is also subject to the Advisor's ability to correctly predict
movements in the direction of the market. It is possible that, when the
Series have sold Futures to hedge their portfolios against a decline in the
market, the index or indices on which the Futures are written might advance
and the value of securities held in the Series' portfolio might decline. If
this were to occur, the Series would lose money on the Futures and also would
experience a decline in value in its portfolio securities. However, while
this might occur to a certain degree, the Advisor believes that over time the
value of the Series' portfolio will tend to move in the same direction as the
securities underlying the Futures, which are intended to correlate to the
price movements of the portfolio securities sought to be hedged. It is also
possible that if the Series were to hedge against the possibility of a decline
in the market (adversely affecting stocks held in their portfolios) and stock
prices instead increased, the Series would lose part or all of the benefit of
increased value of those stocks that it had hedged, because it would have
offsetting losses in their Futures positions. In addition, in such
situations, if the Series had insufficient cash, they might have to sell
securities to meet their daily variation margin requirements. Such sales of
securities might be, but would not necessarily be, at increased prices (which
would reflect the rising market). Moreover, the Series might have to sell
securities at a time when it would be disadvantageous to do so.
In addition to the possibility that there might be an imperfect
correlation, or no correlation at all, between price movements in the Stock
Index Futures Contracts and the portion of the portfolio to be hedged, the
price movements in the Futures Contracts might not correlate perfectly with
price movements in the underlying stock index due to certain market
distortions. First, all participants in the futures market are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors might close Stock Index Futures
Contracts through offsetting transactions which could distort the normal
relationship between the index and futures markets. Second, the margin
requirements in the futures market are less onerous than margin requirements
in the securities markets. Due to the possibility of price distortion in the
futures market and also because of the imperfect correlation between price
movements in the stock index and movements in the prices of Stock Index
Futures Contracts, even a correct forecast of general market trends by the
Advisor might not result in a successful hedging transaction over a very short
time period.
<PAGE>
Options on Futures give the purchaser the right, in return for a premium
paid, to assume a position in a Futures Contract (a long position if a call
option and a short position if a put option), rather than to purchase or sell
the Stock Index Futures Contract, at a specified exercise price at any time
during the period of the option. Upon exercise of the option, the delivery of
the Futures position by the writer of the option to the holder of the option
will be accompanied by delivery of the accumulated balance in the writer's
Futures margin account which represents the amount by which the market price
of the Stock Index Futures Contract, at exercise, exceeds (in the case of a
call) or is less than (in the case of a put) the exercise price of the option
on the Futures Contract. Alternatively, settlement may be made totally in
cash.
The Series may seek to close out an option position on an index by
writing or buying an offsetting option covering the same index or contract and
having the same exercise price and expiration date. The ability to establish
and close out positions on such options will be subject to the development and
maintenance of a liquid secondary market. It is not certain that this market
will develop. Reasons for the absence of a liquid secondary market on an
exchange include the following: (i) insufficient trading in certain options;
(ii) restrictions that may be imposed by an exchange on opening transactions
or closing transactions or both; (iii) trading halts, suspensions or other
restrictions that may be imposed with respect to particular classes or series
of options, or underlying securities; (iv) unusual or unforeseen circumstances
that may interrupt normal operations on an exchange; (v) the facilities of an
exchange or a clearing corporation may not be adequate to handle unusual
trading volume; or (vi) one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of options (or particular class or series of options), in which event the
secondary market on that exchange would cease to exist, although outstanding
options on the exchange that had been issued by a clearing corporation as a
result of trades on that exchange would continue to be exercisable in
accordance with their terms. There is no assurance that higher than
anticipated trading activity or other unforeseen events might not, at times,
render certain of the facilities of any of the clearing corporations
inadequate, and thereby result in the institution by an exchange of special
procedures which may interfere with timely execution of customers' orders.
Futures on Securities
A futures contract on a security is a binding contractual commitment
which, if held to maturity, will result in an obligation to make or accept
delivery, during a particular month, of securities having a standardized face
value and rate of return. Futures contracts, by law are not permitted on
individual corporate securities and municipal securities but instead are
traded on exempt securities, such as government securities and broad-based
indexes of securities.
Accordingly, these futures contracts will primarily consist of futures based
on government securities (i.e., Treasury Bonds). By purchasing futures on
securities, the Fund will legally obligate itself to accept delivery of the
underlying security and pay the agreed price; by selling futures on
securities, it will legally obligate itself to make delivery of the security
against payment of the agreed price. Open futures positions on securities are
valued at the most recent settlement price, unless such price does not reflect
the fair value of the contract, in which case the positions will be valued by
or under the direction of the Board of Directors.
<PAGE>
Positions taken in the futures markets are not normally held to maturity,
but are instead liquidated through offsetting transactions which may result in
a profit or a loss. While the Fund's futures contracts on securities will
usually be liquidated in this manner, it may instead make or take delivery of
the underlying securities whenever it appears economically advantageous for
the Fund to do so. However, the loss from investing in futures transactions
is potentially unlimited. A clearing corporation associated with the exchange
on which futures on securities or currency are traded guarantees that, if
still open, the sale or purchase will be performed on the settlement date.
Foreign Currency Transactions
In order to protect against a possible loss on investments resulting from
a decline in a particular foreign currency against the U.S. dollar or another
foreign currency, each Series 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.
<PAGE>
A separate account of each Series consisting of cash or high-grade liquid
securities equal to the amount of that Series' assets that would be required
to consummate forward contracts entered into under the second circumstance, as
set forth above, will be established with the Series' custodian. For the
purpose of determining the adequacy of the securities in the account, the
deposited securities will be valued at market or fair value. If the market
or fair value of such securities declines, additional cash or securities will
be placed in the account daily so that the value of the account will equal the
amount of such commitments by such Series.
Currency Futures Contracts and Options on Futures Contracts
Each Series, is authorized to purchase and sell currency futures
contracts and options thereon. Currency futures contracts involve entering
into contracts for the purchase or sale for future delivery of foreign
currencies. A "sale" of a currency futures contract (i.e., short) means the
acquisition of a contractual obligation to deliver the foreign currencies
called (i.e., long) for by the contract at a specified price on a specified
date. A "purchase" of a futures contract means the acquisition of a
contractual obligation to acquire the foreign currencies called for by the
contract at a specified price on a specified date. These investment
techniques will be used only to hedge against anticipated future changes in
exchange rates which otherwise might either adversely affect the value of
portfolio securities held by the Series or adversely affect the prices of
securities which the Series intend to purchase at a later date. The loss from
investing in futures transactions is potentially unlimited. To minimize this
risk, such instruments will be used only in connection with permitted
transaction or position hedging and not for speculative purposes. The Series
will not enter in a currency futures contract or option thereon, if as a
result thereof, the sum of the amount of initial margin deposits on any such
futures (plus deposits on any other futures contracts and premiums paid in
connection with any options or futures contracts) that do not constitute "bona
fide hedging" under CFTC rules will not exceed 5% of the liquidation value of
the Series' total assets after taking into account unrealized profits and
losses on such contracts. In addition, the value of all futures contracts
sold will not exceed the total market value of the Series' portfolio. The
Fund will comply with guidelines established by the Securities and Exchange
Commission with respect to covering of obligations under future contracts and
will set aside cash and/or liquid high grade securities in a segregated
account with its custodian in the amount prescribed.
<PAGE>
Although the Series intend to purchase or sell futures contracts only if
there is an active market for such contracts, no assurance can be given that a
liquid market will exist for any particular contract at any particular time.
In addition, due to the risk of an imperfect correlation between securities in
the Series' portfolio that are the subject of a hedging transaction and the
futures contract used as a hedging device, it is possible that the hedge will
not be fully effective. For example, losses on the portfolio securities may
be in excess of gains on the futures contract or losses on the futures
contract may be in excess of the gains on the portfolio securities that were
the subject of such hedge.
Brokerage fees are incurred when a futures contract is bought or sold and
margin deposits must be maintained for such contract. Although futures
contracts typically require actual delivery of and payment for financial
instruments or currencies, the contracts are usually closed out before the
delivery date. Closing out an open futures contract sale or purchase is
effected by entering into an offsetting futures contract purchase or sale,
respectively, for the same aggregate amount of the identical type of financial
instrument or currency and the same delivery date. If the offsetting purchase
price is less than the original sale price, a Series realizes a gain; if it is
more, a Series realizes a loss. Conversely, if the offsetting sale price is
more than the original purchase price, a Series realizes a gain; if it is
less, a Series realizes a loss. Transaction costs must also be included in
these calculations. There can be no assurance, however, that a Series will be
able to enter into an offsetting transaction with respect to a particular
contract at a particular time. If a Series is not able to enter into an
offsetting transaction, a Series will continue to be required to maintain the
margin deposits on the contract. The ability to establish and close out
positions on such options will be subject to the development and maintenance
of a liquid secondary market. It is not certain that a liquid market will
develop for any particular futures contracts. Reasons for the absence of a
liquid secondary market on an exchange include the following: (i) insufficient
trading; (ii) restrictions that may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions that may be imposed with respect to futures contracts or
the underlying security or asset; (iv) unusual or unforeseen circumstances
that may interrupt normal operations on an exchange; (v) the facilities of an
exchange or a clearing corporation may not be adequate to handle unusual
trading volume; or (vi) one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of certain futures, in which event the secondary market on that exchange would
cease to exist, although outstanding options on the exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms. There is no
assurance that higher than anticipated trading activity or other unforeseen
events might not, at times, render certain of the facilities of any of the
clearing corporations inadequate, and thereby result in the institution by an
exchange of special procedures which may interfere with timely execution of
customers' orders.
An option on a futures contract gives the purchaser the right, in return
for the premium paid, to assume a position in a futures contract (a long
position if a call option and a short position if a put option) at a specified
price at any time during the option exercise period. The writer of the option
is required upon exercise to assume an offsetting futures position (a short
position if a call option and a long position if a put option). Upon exercise
of the option, the assumption of offsetting futures positions by the writer
and holder of the option will be accompanied by delivery of the accumulated
cash balance in the writer's futures margin account which represents the
amount by which the market price of the futures contract, at exercise,
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option on the futures contract.
<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 is authorized to purchase and write put and call options on
foreign currencies. A call option is a contract whereby the purchaser, in
return for a premium, has the right, but not the obligation, to buy the
currency underlying the option at a specified price during the exercise
period. The writer of the call option, who receives the premium, has the
obligation, upon exercise of the option during the exercise period, to deliver
the underlying currency against payment of the exercise price. A put option
is a similar contract that gives its purchaser, in return for a premium, the
right to sell the underlying currency at a specified price during the term of
the option. The writer of the put option, who receives the premium, has the
obligation, upon exercise of the option during the option period, to buy the
underlying currency at the exercise price. The Series will use currency
options only to hedge against the risk of fluctuations of foreign exchange
rates related to securities held in its portfolio or which it intends to
purchase, and to earn a high return by receiving a premium for writing
options. Options on foreign currencies are affected by all the factors which
influence foreign exchange rates and investments generally.
Obligations of Supranational Agencies
Currently, the Flexible Yield Series I, Flexible Yield Series II and the
Flexible Yield Series III may purchase securities issued or guaranteed by
supranational agencies including, but not limited to, the following: Asian
Development Bank, Inter-American Development Bank, International Bank for
Reconstruction and Development (World Bank), African Development Bank,
European Coal and Steel Community, European Economic Community, European
Investment Bank and the Nordic Investment Bank. For concentration purposes,
supranational entities are considered an industry.
<PAGE>
U.S. Government Securities
Each Series may invest in debt obligations of varying maturities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities.
Direct obligations of the U.S. Treasury which are backed by the full faith and
credit of the U.S. Government, include a variety of Treasury securities that
differ only in their interest rates, maturities and dates of issuance. U.S.
Government agencies or instrumentalities which issue or guarantee securities
include, but are not limited to, the Federal Housing Administration, Federal
National Mortgage Association, Farmers Home Administration, Export-Import Bank
of the United States, Small Business Administration, Governmental National
Mortgage Association, General Services Administration, Central Bank for
Cooperatives, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation,
Federal Intermediate Credit Banks, Federal Land Banks, Maritime
Administration, the Tennessee Valley Authority, District of Columbia Armory
Board and the Student Loan Marketing Association.
Obligations of U.S. Government agencies and instrumentalities may or may
not be supported by the full faith and credit of the United States. Some are
backed by the right of the issuer to borrow from the U.S. Treasury; others by
discretionary authority of the U.S. Government to purchase the agencies'
obligations; while still others, such as the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. In the
case of securities not backed by the full faith and credit of the United
States, the investor must look principally to the agency or instrumentality
issuing or guaranteeing the obligation for ultimate repayment, and may not be
able to assert a claim against the United States itself in the event the
agency or instrumentality does not meet its commitment.
A Series will invest in securities of such instrumentality only when the
Advisor is satisfied that the credit risk with respect to any instrumentality
is minimal.
Mortgage-Backed Securities
Each 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.
<PAGE>
Each Series may also invest in collateralized mortgage obligations
("CMOs") and real estate mortgage investment conduits ("REMICs"), which are
rated in one of the two top categories by Standard & Poor's Corporation
("S&P") or Moody's Investors Service ("Moody's"). CMOs are securities
collateralized by mortgages, mortgage pass-throughs, mortgage pay-through
bonds (bonds representing an interest in a pool of mortgages where the cash
flow generated from the mortgage collateral pool is dedicated to bond
repayment), and mortgage-backed bonds (general obligations of the issuers
payable out of the issuer's general funds and additionally secured by a first
lien on a pool of single family detached properties). Many CMOs are issued
with a number of classes or series which have different maturities and are
retired in sequence. Investors purchasing such CMOs in the shortest
maturities receive or are credited with their pro rata portion of the
scheduled payments of interest and principal on the underlying mortgages plus
all unscheduled prepayments of principal up to a predetermined portion of the
total CMO obligation. Until that portion of such CMO obligation is repaid,
investors in the longer maturities receive interest only. Accordingly, the
CMOs in the longer maturity series are less likely than other mortgage
pass-throughs to be prepaid prior to their stated maturity. Although some of
mortgages underlying CMOs may be supported by various types of insurance, and
some CMOs may be backed by GNMA certificates of other mortgage pass-throughs
issued or guaranteed by U.S. Government agencies or instrumentalities, the
CMOs themselves are not generally guaranteed.
REMICs, which were authorized under the Tax Reform Act of 1986, are
private entities formed for the purpose of holding a fixed pool of mortgages
secured by an interest in real property. REMICs are similar to CMOs in that
they issue multiple classes of securities.
Convertible Securities
Convertible Securities in which the Series' investments 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.
<PAGE>
Warrants
Warrants may be considered more speculative than certain other types of
investments because they (1) do not carry rights to dividends or voting rights
with respect to the securities which it entitles the holder to purchase, and
(2) do not represent any rights in the assets of the issuer.
Investment in Restricted Securities
Each Series may invest in "restricted securities" subject to the 10% net
asset limitation regarding illiquid securities. Restricted securities are
securities which were originally sold in private placements and which have not
been registered under the Securities Act of 1933, as amended (the "1933 Act").
Such securities generally have been considered illiquid because they may be
resold only subject to statutory restrictions and delays or if registered
under the 1933 Act. The Securities and Exchange Commission ("SEC") adopted
Rule 144A to provide for a safe harbor exemption from the registration
requirements of the 1933 Act for resales of restricted securities to
"qualified institutional buyers". The result has been the development of a
more liquid and efficient institutional resale market for restricted
securities. Rule 144A securities may be liquid if properly determined by the
Board of Directors.
Investment Restrictions
Each Series has adopted certain restrictions set forth below (in addition
to those indicated in the prospectus) as fundamental policies, which may not
be changed without the favorable vote of the holders of a "majority" of the
Fund's outstanding voting securities, which means a vote of the holders of the
lesser of (i) 67% of the shares represented at a meeting at which more than
50% of the outstanding shares are represented or (ii) more than 50% of the
outstanding shares.
A Series may not:
1. Purchase securities on margin (but a Series may obtain such
short-term credits as may be necessary for the clearance of transactions);
2. Make short sales of securities or maintain a short position, unless
at all times when a short position is open it owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short (short sale against-the-box), and unless
not more than 25% of a Series' net assets (taken at a current value) are held
as collateral for such sales at any one time;
3. Issue senior securities or pledge its assets, except that each
Series may invest in futures contracts and related options;
<PAGE>
4. Buy or sell commodities or commodity contracts (the Tax Managed
Series also expressly provides that forward foreign currency contracts are not
considered commodities or commodity contracts for purposes of this
restriction) or real estate or interest in real estate, although it may
purchase and sell securities which are secured by real estate and securities
of companies which invest or deal in real estate. The Blended Asset Series I,
Blended Asset Series II, Flexible Yield Series I, Flexible Yield Series II,
Flexible Yield Series III, Defensive Series, and the Maximum Horizon Series
may not buy or sell commodities or commodity contracts, provided that the
Series may enter into all types of futures and forward contracts on currency,
securities, economic and other indices and may purchase and sell options on
such futures contracts, or buy or sell real estate or interests in real
estate, although it may purchase and sell securities which are secured by real
estate and securities of companies which invest or deal in real estate.
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 Tax Managed Series, will not
purchase or retain securities issued by open-end investment companies (other
than money market funds for temporary investment).
9. Invest in interests in oil, gas or other mineral exploration or
development programs, although it may invest in the common stocks of companies
which invest in or sponsor such programs;
10. Purchase foreign securities if as a result of the purchase of
such securities more than 25% of a Series' assets would be invested in
foreign securities provided that this restriction shall not apply to
foreign securities that are listed on a domestic securities exchange or
represented by American depository receipts that are traded either on a
domestic securities exchange or in the United States on the over-the-counter
market.
<PAGE>
11. The Fund's investment policies with respect to options on
securities and with respect to stock index and currency futures and related
options are subject to the following fundamental limitations: (1) with
respect to any Series, the aggregate value of the securities underlying calls
or obligations underlying puts determined as of the date options are sold
shall not exceed 25% of the assets of the Series; (2) a Series will not
enter into any option transaction if immediately thereafter, the aggregate
premiums paid on all such options which are held at any time would exceed 20%
of the total net assets of the Series; (3) the aggregate margin deposits
required on all futures or options thereon held at any time by a Series will
not exceed 5% of the total assets of the Series; (4) the security underlying
the put or call is within the investment policies of each Series and the option
is issued by the Options Clearing Corporations; and (5) the Series may buy
and sell puts and calls on securities and options on financial futures if
such options are listed on a national securities or commodities exchange.
12. The Fund will not purchase or retain securities of an issuer if an
officer or director of such issuer is an officer or director of the Fund or
its investment adviser and one or more of such officers or directors of the
Fund or its investment adviser owns beneficially more than 1/2% of the shares
or securities of such issuer and all such directors and officers owning more
than 1/2% of such shares or securities together own more than 5% of such
shares or securities.
13. The Fund will not purchase securities of any company which has
(with predecessors) a record of less than three years continuous operation if
as a result more than 5% of the Series assets would be invested in securities
of such companies.
14. Invest more than 5% of the value of its total net assets in
warrants (except for the Flexible Yield Series I, Flexible Yield Series II,
and the Flexible Yield Series III). Included within that amount, but not to
exceed 2% of the value of the Series' net assets, may be warrants which are
not listed on the New York or American Stock Exchange.
Portfolio Turnover
An annual portfolio turnover rate is, in general, the percentage computed
by taking the lesser of purchases or sales of portfolio securities (excluding
certain debt securities) for a year and dividing that amount by the monthly
average of the market value of such securities during the year. Each Series
expects that its long-term turnover rate will be less than 100%, except for
the Tax Managed Series which expects its average annual turnover rate will be
no more than 50%. However, turnover will in fact be determined by market
conditions and opportunities, and therefore it is impossible to estimate the
turnover rate with confidence.
The Fund
Prior to February 1998, the Fund was named Manning & Napier Fund, Inc.
<PAGE>
Management
The Directors and officers of the Fund are:
<TABLE>
<CAPTION>
Name and address Position Principal occupations
with Fund During past five years
<S> <C> <C>
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
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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
William Manning President President, Director and co-founder,
1100 Chase Square Manning & Napier Advisors, Inc. since
Rochester, NY 14604 1970; 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.
since 1994; Member, Qualified Plan
Services, L.L.C. since 1995; Director,
CEO, President and Founder, Burgandy
Car Service, Inc. 1996 to 1997;
Director, CEO, President and Founder,
BCS Leasing, Inc. since 1996
Beth 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
Jodi L. Hedberg Corporate Compliance Administrator, Manning &
1100 Chase Square Secretary Napier Advisors, Inc. from 1991-1994;
Rochester, NY 14604 Senior Compliance Administrator,
Manning & Napier Advisors, Inc. from
1994-1995; 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, 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
<PAGE>
<TABLE>
<CAPTION>
Compensation Table for Fiscal Year Ended December 31, 1997
Name Position Aggregate Pension Est. Annual Total
from Compensation Benefits Compensation
Registrant upon from
Retirement Registrant
<S> <C> <C> <C> <C> <C>
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>
<PAGE>
Blended Asset Series I
American Express Trustee for 15.44%
Morton Mease Health Care Trust
1200 Northstar West
Minneapolis, MN 55440-0534
National Financial Services Corp. 14.44%
FBO Customers
200 Liberty Street
New York, NY 10281-1003
Exeter Trust Co. 13.50%
FBO Welch Foods, Inc.
P.O. Box 41178
Rochester, New York 14604
Blended Asset Series II
National Financial Services Corp. 17.64%
FBO Customers
200 Liberty StreetYork, NY 10281-1003
Flexible Yield Series I
Manning & Napier Advisors, Inc. 20.87%
1100 Chase Square
Rochester, NY 14604
<PAGE>
J. Timothy French IRA Rollover 16.83%
231 Arlington Ct.
Shelbyville, KY 40065
John G. Napier 13.08%
33 Beard Avenue
Buffalo, NY 14214
William J. Leonard 8.52%
29767 Devonshire Oval
West Lake, OH 44145
John T. & Kim B. Dash 6.87%
JTWROS
8600 Stanley Road
E. Amherst, NY 14051
Penfield Fire Company 6.59%
1838 Penfield Road
Penfield, NY 14526
Elaine P. Tecler IRA Rollover 5.21%
132 Clintwood Ct.
Rochester, NY 14620
Richard Allocco 5.05%
100 Douglas Road
Rochester, NY 14610
Flexible Yield Series II
Manning & Napier Advisors, Inc. 28.62%
1100 Chase Square
Rochester, NY 14604
Charles E. Lucas IRA Rollover 18.14%
9 Southland Avenue
Lakewood, NY 14750
Geraldine A. Moner IRA 13.05%
8589 Scenic View Drive
Broadview Heights, OH 44147
Penfield Fire Company 8.02%
1838 Penfield Road
Penfield, NY 14526
<PAGE>
Jerry J. Vasicek IRA Rollover 7.96%
65 Coventry Road
Endicott, NY 13760
June Dahlin & Richard Dahlin JTWROS 6.05%
1425 2nd Avenue
Chula Vista, CA 91911
Kent H. Hudson IRA Rollover 5.29%
508 Jackson Avenue Ext.
Warren, PA 16365
Flexible Yield Series III
Linda E. Fresina NON-GST Trust 13.63%
10601 Hulser Road
Utica, NY 13502
Snyder Tank Corporation 9.95%
Savings & Security Plan
3774 Lakeshore Road
Buffalo, NY 14219
Manning & Napier Advisors, Inc. 8.96%
1100 Chase Square
Rochester, NY 14604
Exeter Trust Co. 8.42%
FBO Perry's Ice Cream Co., Inc.
Deferred Salary P/S - Bond
P.O. Box 41178
Rochester, NY 14604
Scouts of America 8.41%
Troop 31
909 Fairport Road
E. Rochester, NY 14445
Walter D. and Bethel H. Kogut JTWROS 5.11%
8066 Irish Mist Lane
Manlius, NY 13104
Tax Managed Series
Manning & Napier Advisors, Inc. 28.95%
1100 Chase Square
Rochester, NY 14604
WBLK Broadcasting Corporation 21.54%
5571 Stricker Road
Clarence, NY 14031
<PAGE>
William L.Owens NON-GST Trust 14.48%
176 Hampton Road
Frankfort, NY 13340
Defensive Series
National Financial Services Corp. 40.27%
FBO Customers
200 Liberty Street
New York, NY 10281-1003
Manning & Napier Advisors, Inc. 15.84%
1100 Chase Square
Rochester, NY 14604
Exeter Trust Co. 11.29%
FBO Conklin Instrument Corp.
Profit Sharing Trust - DG
P.O. Box 41178
Rochester, NY 14604
Local Union No. 56 Electrical 8.02%
Educational Trust Fund
185 Pennbriar Drive
Erie, PA 16509
Maximum Horizon Series
National Financial Service Corp. 63.53%
FBO Customers
200 Liberty Street
New York, NY 10281-1003
The Advisor
Exeter Asset Management(the "Advisor") a division of Manning & Napier
Advisors, Inc. ("MNA") acts as the Fund's investment advisor. The Fund pays
the Advisor for the services performed a fee at the annual rate of: 1% of the
Fund's daily net assets for the Maximum Horizon Series, Tax Managed Series,
Blended Asset Series I, and Blended Asset Series II; .80% for the Defensive
Series; .35% for the Flexible Yield Series I; .45% for the Flexible Yield
Series II; and .50% for the Flexible Yield Series III.
<PAGE>
For periods ended October 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>
Series 1995(1) 1996
Fees Paid Fees Waived Fees Paid Fees Waived
Blended Asset Series I $ 46,543 $ 23,407 $108,485 (2) $ 13,439(2)
Blended Asset Series II $ 114,026 $ 17,669 $222,302 (2) $ 3,528 (2)
Flexible Yield Series I N/A $ 1,221 N/A $ 1,057 (2)
Flexible Yield Series II N/A $ 2,106 N/A $ 1,688 (2)
Flexible Yield Series III N/A $ 4,767 N/A $ 4,454 (2)
Tax Managed N/A N/A N/A $ 1,867 (3)
Defensive N/A N/A N/A $ 3,940 (3)
Maximum Horizon N/A N/A N/A $ 4,377 (3)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Series 1997
Fees Paid Fees Waived
Blended Asset Series I $ 192,773 $ 8,448
Blended Asset Series II $ 422,101 N/A
Flexible Yield Series I N/A $ 2,189
Flexible Yield Series II N/A $ 2,897
Flexible Yield Series III N/A $ 6,249
Tax Managed N/A $ 3,368
Defensive N/A $ 11,283
Maximum Horizon $ 36,471 $ 19,683
</TABLE>
(1) For the year ended December 31, 1995.
(2) For the period January 1, 1996 to October 31, 1996.
(3) For the period November 1, 1995 (Commencement of Operations) to October
31, 1996.
The Investment Advisory Agreement (the "Agreement") between the Fund and
the Advisor provides that in the event the expenses of the Fund (including the
fee of the Advisor but excluding: (i)brokerage commissions; (ii) interest;
(iii) taxes; and (iv) extraordinary expenses except for those incurred by the
Fund as a result of litigation in connection with a suit involving a claim for
recovery by the Fund, or as a result of litigation involving a defense against
a liability asserted against the Fund, provided that, if the adviser made the
decision or took the action which resulted in such claim the adviser acted in
good faith without gross negligence or misconduct, and for any indemnification
paid by the Fund to its officers, directors and advisers in accordance with
applicable state and federal laws as a result of such litigation) for any
fiscal year exceed the limits set by applicable regulations of state
securities commissions, the Advisor will reduce its fee by the amount of such
excess. Any such reductions or refunds are accrued and paid in the same
manner as the Advisor's fee and are subject to readjustment during the year.
<PAGE>
The Agreement states that the Advisor shall give the Fund the benefit of
its best judgment and effort in rendering services thereunder, but the Advisor
shall not be liable for any loss sustained by reason of the purchase, sale or
retention of any security, whether or not such purchase, sale or retention
shall have been based upon its own investigation and research or upon
investigation and research made by any other individual, firm or corporation,
if such purchase, sale or retention shall have been made and such other
individual, firm or corporation shall have been selected in good faith. The
Agreement also states that nothing contained therein shall, however, be
construed to protect the Advisor against any liability to the Fund or its
security holders by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of its reckless
disregard of its obligations and duties under the Agreement.
The Agreement also provides that it is agreed that the Advisor shall have
no responsibility or liability for the accuracy or completeness of the Fund's
Registration Statement under the 1940 Act or the Securities Act of 1933 except
for information supplied by the Advisor for inclusion therein; the Fund agrees
to indemnify the Advisor to the full extent permitted by the Fund's Articles
of Incorporation.
On April 30, 1993, the Advisor became the Fund's Transfer Agent. For
servicing the Blended Asset Series I , Blended Asset Series II, Flexible Yield
Series I, Flexible Yield Series II, Flexible Yield Series III, in this
capacity, for the fiscal year ended December 31, 1995, the Advisor received
$14,322 from the Fund. For servicing the Tax Managed Series, Defensive
Series, Maximum Horizon Series, Blended Asset Series I, Blended Asset Series
II, Flexible Yield Series I, Flexible Yield Series II, and the Flexible Yield
Series III, in this capacity, for the fiscal years ended October 31, 1996 and
October 31, 1997, the Advisor received $8,990 and $17,331 from the Fund.
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 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. Deloitte &
Touche LLP, 125 Summer Street, Boston, MA 02110 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 Advisor's judgment, implement the
policy of the Fund to achieve "best execution", i.e., prompt and efficient
execution at the most favorable securities price. In making such selection,
the Advisor is authorized in the Agreement to consider the reliability,
integrity and financial condition of the broker, the size and difficulty in
executing the order and the value of the expected contribution of the broker
to the investment performance of the Fund on a continuing basis. The Advisor
is also authorized to consider whether a broker provides brokerage and/or
research services to the Fund and/or other accounts of the Advisor. The Fund
understands that a substantial amount of its portfolio transactions may be
transacted with primary market makers acting as principal on a net basis, with
no brokerage commissions being paid by the Fund. Such principal transactions
may, however, result in a profit to market makers. In certain instances the
Advisor may make purchases of underwritten issues for the Fund at prices which
include underwriting fees. The Agreement states that the commissions paid to
such brokers may be higher than another broker would have charged if a good
faith determination is made by the Advisor that the commission is reasonable
in relation to the services provided, viewed in terms of either that
particular transaction or the Advisor's overall responsibilities as to the
accounts as to which it exercises investment discretion and that the Advisor
shall use its judgment in determining that the amount of commissions paid are
reasonable in relation to the value of brokerage and research services
provided. The Advisor is further authorized to allocate the orders placed by
it on behalf of the Fund to such brokers or dealers who also provide research
or statistical material, or other services, to the Fund, the Advisor, or any
affiliate of either. Such allocation shall be in such amounts and proportions
as the Advisor shall determine, and the Advisor shall report on such
allocations regularly to the Fund, indicating the broker-dealers to whom such
allocations have been made and the basis therefore.
The research services discussed above may be in written form or through
direct contact with individuals and may include information as to particular
companies and securities as well as market economic or institutional areas and
information assisting the Fund in the valuation of its investments. The
research which the Advisor receives for the Fund's brokerage commissions,
whether or not useful to the Fund may be useful to the Advisor in managing the
accounts of the Advisor's other advisory clients. Similarly, the research
received for the commissions of such accounts may be useful to the Fund.
For years ended October 31, (unless otherwise indicated), the aggregate total
brokerage commissions paid by the Series were as follows:
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Series 1995(1) 1996 1997
Blended Asset Series I $ 8,775 $13,656(2) $14,935
Blended Asset Series II $23,410 $36,256(2) $48,030
Flexible Yield Series I $ 0 $ 0 $ 0
Flexible Yield Series II $ 0 $ 0 $ 0
Flexible Yield Series III $ 0 $ 0 $ 0
Tax Managed N/A $ 837(3) $ 883
Defensive N/A $ 335(3) $ 570
Maximum Horizon N/A $ 2,753(3) $20,570
</TABLE>
(1) For the year ended December 31, 1995.,
(2) For the period January 1, 1996 to October 31, 1996.
(3) For the period November 1, 1995 (Commencement of Operations) to October
31, 1996.
There were no brokerage commissions paid to affiliates during the last three
fiscal years.
Net Asset Value
The net asset value is determined on each day that the New York Stock
Exchange is open for trading. In determining the net asset value of the
Fund's shares, common stocks that are listed on national securities exchanges
or the NASDAQ National Market System are valued at the last sale price on the
exchange on which each stock is principally traded as of the close of the New
York Stock Exchange (which is currently 4:00 p.m., Eastern time), or, in the
absence of recorded sales, at the closing bid prices on such exchanges or on
such System. Unlisted securities that are not included in such National
Market System are valued at the quoted bid prices in the over-the-counter
market. All securities initially expressed in foreign currencies will be
converted to U.S. dollars at the exchange rates quoted at the close of the New
York markets. Short securities positions are accounted for at value, using
the same method of valuation described above. Securities and other assets for
which market quotations are not readily available are valued by appraisal at
their fair value as determined in good faith by the Advisor under procedures
established by and under the general supervision and responsibility of the
Fund's Board of Directors. The Advisor may use a pricing service to obtain
the value of the Fund's portfolio securities where the prices provided by such
pricing service are believed to reflect the fair market value of such
securities. The methods used by the pricing service and the valuations so
established will be reviewed by the Advisor under the general supervision of
the Fund's Board of Directors. Several pricing services are available, one or
more of which may be used as approved by the Fund's Board of Directors.
<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; or (3) for such other periods as the Securities and Exchange
Commission may by order permit.
Redemption in Kind
If the Board of Directors determines that it would be detrimental to the
best interests of the remaining shareholders of the Fund to make payment
wholly or partly in cash, the Fund may pay the redemption price in whole or in
part by a distribution in kind of securities from the portfolio of the Fund,
in lieu of cash in conformity with applicable rules of the Securities and
Exchange Commission. The Fund, however, has elected to be governed by Rule
18f-1 under the 1940 Act pursuant to which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or one percent 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.
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.
<PAGE>
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.
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.
<PAGE>
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.
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 Fund's 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.
<PAGE>
FINANCIAL STATEMENTS
The Fund
The financial statements of the Fund are incorporated by reference into
this Statement of Additional Information. The financial statements with
respect to the Series have been audited by Deloitte & Touche LLP, independent
public accountants to such Series. The Fund's annual report(s) are
incorporated herein by reference in reliance upon their authority as experts
in accounting and auditing. A copy of the 1997 Annual Report(s) to
Shareholders must accompany the delivery of this Statement of Additional of
Information.
<PAGE>
