-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JyABF6DOOjXtJNMrirzSSpLz9mKqFswKRYCdfkx4+4SSfmGVOodc6FOTwQeB435w vuYWDwuuUrACI4jj50UQNA== 0001047469-99-022147.txt : 19990624 0001047469-99-022147.hdr.sgml : 19990624 ACCESSION NUMBER: 0001047469-99-022147 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 18 FILED AS OF DATE: 19990525 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EXETER FUND INC /NY/ CENTRAL INDEX KEY: 0000751173 STANDARD INDUSTRIAL CLASSIFICATION: [] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 002-92633 FILM NUMBER: 99634231 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 811-04087 FILM NUMBER: 99634232 BUSINESS ADDRESS: STREET 1: ONE LINCOLN FIRST SQUARE CITY: ROCHESTER STATE: NY ZIP: 14604 BUSINESS PHONE: 7163256880 FORMER COMPANY: FORMER CONFORMED NAME: MANNING & NAPIER FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: MANNING & NAPIER SMALL CAP FUND INC DATE OF NAME CHANGE: 19860101 FORMER COMPANY: FORMER CONFORMED NAME: MANNING & NAPIER GROWTH FUND INC DATE OF NAME CHANGE: 19850609 485APOS 1 485APOS AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 25, 1999 Registration Nos. 2-92633 811-04087 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ] Post-Effective Amendment No.34 [X] and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ] Amendment No. 37 [X] EXETER FUND, INC. ------------------------------------------------- (Exact name of registrant as specified in charter) 1100 Chase Square Rochester, New York 14604 --------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code (716) 325-6880 B. Reuben Auspitz c/o Exeter Fund, Inc. 1100 Chase Square Rochester, NY 14604 (Name and Address of Agent For Service) Copies to: Richard W. Grant, Esquire Morgan, Lewis & Bockius, LLP 1701 Market Street Philadelphia, PA 19103 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- It is proposed that this filing will become effective: / / immediately upon filing pursuant to paragraph (b) / / on [ date ] pursuant to paragraph (b) / / 60 days after filing pursuant to paragraph (a) / / on [ date ] pursuant to paragraph (a) of Rule 485 /X/ 75 days after filing pursuant to paragraph (a)(2) / / on (date) pursuant to paragraph (a)(2) of Rule 485 If appropriate, check the following box: / / this post-effective amendment designates a new effective date for a previously filed post-effective amendment. Title of Securities Being Registered: Investment Company Shares - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Prospectus August __, 1999 EXETER FUND, INC. GOVERNMENT-ORIENTED FIXED INCOME SERIES UNRESTRICTED FIXED INCOME SERIES INDEX STOCK SERIES LARGE CAP STOCK SERIES SMALL CAP STOCK SERIES AGGRESSIVE STOCK SERIES INTERNATIONAL STOCK SERIES THE LIFECYCLE SERIES DEFENSIVE GROWTH SERIES GROWTH WITH REDUCED VOLATILITY SERIES LONG-TERM GROWTH SERIES MAXIMUM-TERM GROWTH SERIES THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY STATEMENT TO THE CONTRARY IS A CRIME.
CONTENTS PAGE Goals, Strategies, and Risks.................................................. Government-Oriented Fixed Income Series................................. Unrestricted Fixed Income Series........................................ Index Stock Series...................................................... Large Cap Stock Series.................................................. Small Cap Stock Series.................................................. Aggressive Stock Series................................................. International Stock Series.............................................. The Lifecycle Series.................................................... Defensive Growth Series.............................................. Growth with Reduced Volatility Series ............................... Long-Term Growth Series ............................................. Maximum-Term Growth Series........................................... More About the Series' Investments and Risks.................................. Management.................................................................... How to Buy, Exchange, and Redeem Shares....................................... Investment and Account Information............................................ Dividends, Distributions, and Taxes...........................................
THIS PROSPECTUS CONTAINS INFORMATION ABOUT 11 SERIES MANAGED BY ADVISORY ADVANTAGE CORPORATION ("AAC"). SEVEN OF THE SERIES ARE "ASSET CLASS" SERIES MANAGED BY ONE OR MORE SUB-ADVISORS SELECTED BY AAC AND APPROVED BY THE BOARD OF DIRECTORS. THESE SERIES ARE SUITABLE FOR INVESTORS WHO FEEL COMFORTABLE MAKING THEIR OWN ASSET ALLOCATION DECISIONS IN RELATION TO THEIR PERSONAL INVESTMENT OBJECTIVES AND THE CURRENT MARKET ENVIRONMENT. FOUR OF THE SERIES, THE LIFECYCLE SERIES, ARE "ASSET ALLOCATION" SERIES SUITABLE FOR INVESTORS WHO DO NOT FEEL THEY HAVE THE TIME, RESOURCES OR EXPERTISE TO TRANSLATE THEIR PERSONAL INVESTMENT OBJECTIVES TO A SPECIFIC ASSET ALLOCATION DECISION APPROPRIATE FOR THE CURRENT MARKET ENVIRONMENT. THESE SERIES REPRESENT DIFFERENT RISK/RETURN CATEGORIES FROM CONSERVATIVE TO AGGRESSIVE AND ALLOW INVESTORS TO HAVE THEIR INVESTMENTS MANAGED ACROSS THE SPECTRUM OF ASSET CLASSES UNDER THE SUPERVISION OF AAC. GOVERNMENT-ORIENTED FIXED INCOME SERIES GOALS, STRATEGIES, AND RISKS INVESTMENT GOAL To maximize total return by investing primarily in intermediate-term U.S. government fixed income securities. INVESTMENT STRATEGIES The Series will invest primarily in fixed income securities issued by the U.S. government and U.S. governmental agencies including mortgage-backed securities sponsored by U.S. governmental agencies. In managing the Series' assets, the Advisor will employ one or more Sub-Advisors that specialize in investing in U.S. government fixed income securities. Each Sub-Advisor will employ its own discipline in selecting individual fixed income securities for the Series. The Sub-Advisors will typically select fixed income securities with an average maturity of 3 to 10 years. PRINCIPAL RISKS OF INVESTING IN THE SERIES The value of your investment in the Series will vary from day to day based on the prices of the securities the Series holds. Because the Series invests principally in fixed income securities, the value of the Series' shares will change in response to economic and market factors and especially in response to changes in interest rates. This means that you could lose money on your investment in the Series or the Series could underperform if any of the following occurs: - Interest rates go up, which will make the price of fixed-income securities go down and reduce the value of the Series' portfolio. Longer-term fixed income securities will experience greater fluctuations than shorter-term fixed income securities in response to interest rate changes. - The Sub-Advisors' judgments about the attractiveness, relative value or potential appreciation of a particular sector or security prove to be incorrect. Mortgage-backed securities are also sensitive to changes in interest rates, but have special risks. Due to the possibility of pre-payments of the underlying mortgages or loans they may respond differently to changes in interest rates than other fixed income securities. Pre-payment risk may make it difficult to calculate the average maturity of a portfolio of these securities and, therefore, the ability to assess the volatility and risk of the portfolio. PAGE 1 FEES AND EXPENSES OF THE SERIES This table describes the fees and expenses you may pay if you invest in shares of the Series
CLASS A CLASS D CLASS E ------- ------- ------- SHAREHOLDER FEES (paid directly from your None None None investment) ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from assets of the Series) Management fee 0.55% 0.55% 0.55% Distribution and/or service (Rule 12b-1) None 0.50% 0.25% fees Other expenses 0.25% 0.25% 0.25% ---- ---- ---- TOTAL ANNUAL FUND OPERATING EXPENSES(1) 0.80% 1.30% 1.05% - -------------------------------------------------------------------------------------------
(1) The Advisor has contractually agreed to limit its fees and reimburse expenses to the extent necessary so that the Series' total annual operating expenses do not exceed 0.80% of the Class A shares' average daily net assets 1.30% of the Class D shares' average daily net assets and 1.05% of the Class E shares' average daily net assets. These contractual waivers will remain in effect until at least June 30, 2000 and may be extended. THE EXAMPLE BELOW ASSUMES THAT: - You invest $10,000 for the periods shown - The Series' operating expenses remain the same - Your investment has a 5% return each year This example is intended to help you compare the cost of investing in the Series with the cost of investing in other mutual funds. Although your actual costs may be higher or lower, under these assumptions your costs would be:
After After 1 YEAR 3 YEARS ------ ------- CLASS A.................... $ 82 $255 CLASS D.................... $132 $412 CLASS E.................... $107 $334
Because the Series was not active as of the date of this prospectus, the "Annual Fund Operating Expenses" presented are estimates based upon projections made by the Advisor. In addition, the Series has not calculated the expenses beyond the three-year period shown. PAGE 2 UNRESTRICTED FIXED INCOME SERIES GOALS, STRATEGIES, AND RISKS INVESTMENT GOAL To maximize total return by investing primarily in corporate and to a lesser degree U.S. government fixed-income securities. INVESTMENT STRATEGIES The Series invests primarily in investment grade fixed-income securities, including corporate bonds, U.S. government fixed-income securities and mortgage- and asset-backed securities. In managing the Series' assets, the Advisor employs one or more Sub-Advisors that specialize in fixed income investing. Each Sub-Advisor will employ its own discipline in selecting individual fixed income securities for the Series. The Sub-Advisors may select fixed-income securities with any maturity. The Sub-Advisors may, to a limited extent, invest in high-yield bonds. PRINCIPAL RISKS OF INVESTING IN THE SERIES The value of your investment in the Series will vary from day to day based on the prices of the securities the Series holds. Because the Series invests principally in fixed income securities, the value of the Series' shares will change in response to economic and market factors and especially in response to changes in interest rates. This means that you could lose money on your investment in the Series or the Series could underperform if any of the following occurs: - Interest rates go up, which will make fixed income securities prices go down and reduce the value of the Series' portfolio. Longer-term fixed income securities will experience greater fluctuations than shorter-term fixed income securities in response to interest rate changes. - The issuer of a fixed income security owned by the Series defaults on its obligation to pay principal and/or interest or has its credit rating downgraded. This risk is higher for lower quality fixed income securities. - The Sub-Advisors' judgments about the attractiveness, relative value or potential appreciation of a particular security or strategy prove to be incorrect. Mortgage-backed securities are sensitive to changes in interest rates, but have special risks. Due to the possibility of pre-payments of the underlying mortgages or loans they may respond differently to changes in interest rates than other fixed income securities. Pre-payment risk may make it difficult to calculate the average maturity of a portfolio of these securities and, therefore, the ability to assess the volatility and risk of the portfolio. In addition, the Series' investments in high-yield bonds may subject it to a substantial degree of credit risk. PAGE 3 FEES AND EXPENSES OF THE SERIES This table describes the fees and expenses you may pay if you invest in shares of the Series
CLASS A CLASS D CLASS E ------- ------- ------- SHAREHOLDER FEES (paid directly from your None None None investment) ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from assets of the Series) Management fee 0.75% 0.75% 0.75% Distribution and/or service (Rule 12b-1) fees None 0.50% 0.25% Other expenses 0.25% 0.25% 0.25% ----- ----- ----- TOTAL ANNUAL FUND OPERATING EXPENSES(1) 1.00% 1.50% 1.25% - ----------------------------------------------------------------------------------------------
(1) The Advisor has contractually agreed to limit its fees and reimburse expenses to the extent necessary so that the Series' total annual operating expenses do not exceed 1.00% of the Class A shares' average daily net assets, 1.50% of the Class D shares' average daily net assets and 1.25% of the Class E shares' average daily net assets. These contractual waivers will remain in effect until at least June 30, 2000 and may be extended. THE EXAMPLE BELOW ASSUMES THAT: - You invest $10,000 for the periods shown - The Series' operating expenses remain the same - Your investment has a 5% return each year This example is intended to help you compare the cost of investing in the Series with the cost of investing in other mutual funds. Although your actual costs may be higher or lower, under these assumptions your costs would be:
After After 1 YEAR 3 YEARS ------ ------- CLASS A........................ $102 $318 CLASS D........................ $153 $474 CLASS E........................ $127 $397
Because the Series was not active as of the date of this prospectus, the "Annual Fund Operating Expenses" presented are estimates based upon projections made by the Advisor. In addition, the Series has not calculated the expenses beyond the three-year period shown. PAGE 4 INDEX STOCK SERIES GOALS, STRATEGIES, AND RISKS INVESTMENT GOAL To achieve investment results which correlate with the growth and income performance of the common stocks represented in the Standard & Poor's 500 Stock Index ("S&P 500"). INVESTMENT STRATEGIES The Series primarily invests in common stocks that comprise the S&P 500. In managing the Series' assets, the Advisor employs a Sub-Advisor which specializes in index investing. Using a "replication" approach, the Sub-Advisor purchases all 500 stocks in the S&P 500 and holds them in a similar weight as each is assigned in the index. With this approach, the Sub-Advisor seeks an efficient and low-cost replication of the index. PRINCIPAL RISKS OF INVESTING IN THE SERIES The value of your investment in the Series will vary from day to day based on the prices of the securities the Series holds. Because the Series invests principally in common stocks, the value of the Series' shares will fluctuate in response to stock market movements. This means that you could lose money on your investment in the Series or the Series could underperform if any of the following occurs: - The stocks represented in the index go down due to a general market decline. - An adverse event, such as an unfavorable earnings report, depresses the value of one or more of the stocks in the index. In addition to general risks which come with investing in common stocks, there are special risks which are the result of investing in an index. Since the Series is a representation of the index, the Sub-Advisor will not be able to respond to a decline in the index by temporarily moving assets to investments not correlated with the index. PAGE 5 FEES AND EXPENSES OF THE SERIES This table describes the fees and expenses you may pay if you invest in shares of the Series
CLASS A CLASS D CLASS E ------- ------- ------- SHAREHOLDER FEES (paid directly from your None None None investment) ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from assets of the Series) Management fee 0.30% 0.30% 0.30% Distribution and/or service (Rule 12b-1) fees None 0.50% 0.25% Other expenses 0.25% 0.25% 0.25% ---- ----- ----- TOTAL ANNUAL FUND OPERATING EXPENSES(1) 0.55% 1.05% 0.80% - ----------------------------------------------------------------------------------------------
(1) The Advisor has contractually agreed to limit its fees and reimburse expenses to the extent necessary so that the Series' total annual operating expenses do not exceed 0.55% of the Class A shares' average daily net assets, 1.05% of the Class D shares' average daily net assets and 0.80% of the Class E shares' average daily net assets. These contractual waivers will remain in effect until at least June 30, 2000 and may be extended. THE EXAMPLE BELOW ASSUMES THAT: - You invest $10,000 for the periods shown - The Series' operating expenses remain the same - Your investment has a 5% return each year This example is intended to help you compare the cost of investing in the Series with the cost of investing in other mutual funds. Although your actual costs may be higher or lower, under these assumptions your costs would be:
After After 1 YEAR 3 YEARS ------ ------- CLASS A.................... $ 56 $176 CLASS D.................... $107 $334 CLASS E.................... $ 82 $255
Because the Series was not active as of the date of this prospectus, the "Annual Fund Operating Expenses" presented are estimates based upon projections made by the Advisor. In addition, the Series has not calculated the expenses beyond the three-year period shown. PAGE 6 LARGE CAP STOCK SERIES GOALS, STRATEGIES, AND RISKS INVESTMENT GOAL To maximize total return by investing primarily in common stocks of large capitalization companies. INVESTMENT STRATEGIES The Series primarily invests in common stocks of U.S. firms with market capitalizations of $3.5 billion or more. In managing the Series' assets, the Advisor employs one or more Sub-Advisors that specialize in large-cap investing. In selecting the Series' investments, each Sub-Advisor will employ its own investment discipline. Accordingly, the Series may be managed with one or more investment styles. The resulting portfolio will be diversified by industry and issuer. PRINCIPAL RISKS OF INVESTING IN THE SERIES The value of your investment in the Series will vary from day to day based on the prices of the securities the Series holds. Because the Series invests principally in common stocks, the value of the Series' Shares will fluctuate in response to stock market movements. This means that you could lose money on your investments in the Series or the Series could underperform if any of the following occurs: - U.S. stock markets go down. - An adverse event, such as an unfavorable earnings report, depresses the value of one or more of the Series' portfolio holdings. - The Sub-Advisors' judgments about the attractiveness, relative value and potential appreciation of a particular security or strategy prove to be incorrect. - Large company stocks go down in value or underperform smaller company stocks. PAGE 7 FEES AND EXPENSES OF THE SERIES This table describes the fees and expenses you may pay if you invest in shares of the Series
CLASS A CLASS D CLASS E ------- ------- ------- SHAREHOLDER FEES (paid directly from your None None None investment) ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from assets of the Series) Management fee 0.65% 0.65% 0.65% Distribution and/or service (Rule 12b-1) fees None 0.50% 0.25% Other expenses 0.25% 0.25% 0.25% ----- ----- ----- TOTAL ANNUAL FUND OPERATING EXPENSES(1) 0.90% 1.40% 1.15% - ----------------------------------------------------------------------------------------------
(1) The Advisor has contractually agreed to limit its fees and reimburse expenses to the extent necessary so that the Series' total annual operating expenses do not exceed 0.90% of the Class A shares' average daily net assets, 1.40% of the Class D shares' average daily net assets and 1.15% of the Class E shares' average daily net assets. These contractual waivers will remain in effect until at least June 30, 2000 and may be extended. THE EXAMPLE BELOW ASSUMES THAT: - You invest $10,000 for the periods shown - The Series' operating expenses remain the same - Your investment has a 5% return each year This example is intended to help you compare the cost of investing in the Series with the cost of investing in other mutual funds. Although your actual costs may be higher or lower, under these assumptions your costs would be:
After After 1 YEAR 3 YEARS ------ ------- CLASS A.................................... $ 92 $287 CLASS D.................................... $143 $443 CLASS E.................................... $117 $365
Because the Series was not active as of the date of this prospectus, the "Annual Fund Operating Expenses" presented are estimates based upon projections made by the Advisor. The Series has not calculated the expenses beyond the three-year period shown. PAGE 8 SMALL CAP STOCK SERIES GOALS, STRATEGIES, AND RISKS INVESTMENT GOAL To maximize total return by investing primarily in the common stocks of small capitalization companies. INVESTMENT STRATEGIES The Series invests primarily in the common stocks of U.S. firms with market capitalizations of $3.5 billion or less. In managing the Series' assets, the Advisor employs one or more Sub-Advisors that specialize in small-cap investing. In selecting the Series' investments, each Sub-Advisor will employ its own investment discipline. Accordingly, the Series may be managed with one or more investment styles. The resulting portfolio will be diversified by industry and issuer. PRINCIPAL RISKS OF INVESTING IN THE SERIES The value of your investment in the Series will vary from day to day based on the prices of the securities the Series holds. Because the Series invests principally in common stocks, the value of the Series' shares will fluctuate in response to stock market movements. This means that you could lose money on your investment in the Series or the Series could underperform if any of the following occurs: - U.S. stock markets go down. - An adverse event, such as an unfavorable earnings report, depresses the value of one or more of the Series' portfolio holdings. - The Sub-Advisors' judgments about the attractiveness, relative value or potential appreciation of a security or strategy prove to be incorrect. In addition to the general risks of stock funds, the Series has special risks due to its concentration in small company stocks. These risks include the following: - Small company stocks may go down in value or underperform larger company stocks. - The stocks of small companies may be subject to more abrupt or erratic market movements than the stocks of larger companies. - The stocks of small companies may be less marketable than the stocks of larger companies. - Small companies may have limited product lines, markets, or financial resources, and may depend on a small management group. As a result, small companies fail more often than larger companies. PAGE 9 FEES AND EXPENSES OF THE SERIES This table describes the fees and expenses you may pay if you invest in shares of the Series
CLASS A CLASS D CLASS E ------- ------- ------- SHAREHOLDER FEES (paid directly from your investment) None None None ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from assets of the Series) Management fee 0.80% 0.80% 0.80% Distribution and/or service (Rule 12b-1) fees None 0.50% 0.25% Other expenses 0.25% 0.25% 0.25% ----- ----- ---- TOTAL ANNUAL FUND OPERATING EXPENSES(1) 1.05% 1.55% 1.30% - ----------------------------------------------------------------------------------------------
(1) The Advisor has contractually agreed to limit its fees and reimburse expenses to the extent necessary so that the Series' total annual operating expenses do not exceed 1.05% of the Class A shares' average daily net assets, 1.55% of the Class D shares' average daily net assets and 1.30% of the Class E shares' average daily net assets. These contractual waivers will remain in effect until at least June 30, 2000 and may be extended. THE EXAMPLE BELOW ASSUMES THAT: - You invest $10,000 for the periods shown - The Series' operating expenses remain the same - Your investment has a 5% return each year This example is intended to help you compare the cost of investing in the Series with the cost of investing in other mutual funds. Although your actual costs may be higher or lower, under these assumptions your costs would be:
After After 1 YEAR 3 YEARS ------ ------- CLASS A.......................... $107 $334 CLASS D.......................... $158 $490 CLASS E.......................... $132 $412
Because the Series was not active as of the date of this prospectus, the "Annual Fund Operating Expenses" presented are estimates based upon projections made by the Advisor. In addition, the Series has not calculated the expenses beyond the three-year period shown. PAGE 10 AGGRESSIVE STOCK SERIES GOALS, STRATEGIES, AND RISKS INVESTMENT GOAL To maximize total return by investing primarily in common stocks of emerging growth companies. INVESTMENT STRATEGIES The Series primarily invests in common stocks of emerging growth companies. Emerging growth companies are companies which are early in their life cycle and display a potential for rapid growth. In managing the Series' assets, the Advisor employs one or more Sub-Advisors that specialize in investing in emerging growth companies. The Sub-Advisors will attempt to find companies with such characteristics as above-average earnings potential, strong management, and superior products or services. PRINCIPAL RISKS OF INVESTING IN THE SERIES The value of your investment in the Series will vary from day to day based on the prices of the securities the Series holds. Because the Series invests principally in common stocks, the value of the Series' shares will fluctuate in response to stock market movements. This means that you could lose money on your investment in the Series or the Series could underperform if any of the following occurs: - U.S. stock markets go down. - An adverse event, such as an unfavorable earnings report, depresses the value of one or more of the Series' portfolio holdings. - The Sub-Advisors' judgments about the attractiveness, relative value or potential appreciation of a security or strategy prove to be incorrect. In addition to the general risks of stock funds, the Series has special risks due to its concentration in stocks issued by smaller companies. These risks include the following: - Small company stocks may go down in value or underperform larger, more established company stocks. - The stocks of small companies may be subject to more abrupt or erratic market movements than the stocks of larger, more established companies. - The stocks of small companies may be less marketable than the stocks of larger, more established companies. - Small companies may have limited product lines, markets, or financial resources, and they may depend on a small management group. As a result, small companies fail more often than larger, more established companies. PAGE 11 FEES AND EXPENSES OF THE SERIES This table describes the fees and expenses you may pay if you invest in shares of the Series
CLASS A CLASS D CLASS E ------- ------- ------- SHAREHOLDER FEES (paid directly from your None None None investment) ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from assets of the Series) Management fee 0.70% 0.70% 0.70% Distribution and/or service (Rule 12b-1) fees None 0.50% 0.25% Other expenses 0.25% 0.25% 0.25% ----- ----- ----- TOTAL ANNUAL FUND OPERATING EXPENSES(1) 0.95% 1.45% 1.20% - -----------------------------------------------------------------------------------------------
(1) The Advisor has contractually agreed to limit its fees and reimburse expenses to the extent necessary so that the Series' total annual operating expenses do not exceed 0.95% of the Class A shares' average daily net assets, 1.45% of the Class D shares' average daily net assets and 1.20% of the Class E shares' average daily net assets. These contractual waivers will remain in effect until at least June 30, 2000 and may be extended. THE EXAMPLE BELOW ASSUMES THAT: - You invest $10,000 for the periods shown - The Series' operating expenses remain the same - Your investment has a 5% return each year This example is intended to help you compare the cost of investing in the Series with the cost of investing in other mutual funds. Although your actual costs may be higher or lower, under these assumptions your costs would be:
After After 1 YEAR 3 YEARS ------ ------- CLASS A.................... $ 97 $303 CLASS D.................... $148 $459 CLASS E.................... $122 $381
Because the Series was not active as of the date of this prospectus, the "Annual Fund Operating Expenses" presented are estimates based upon projections made by the Advisor. In addition, the Series has not calculated the expenses beyond the three-year period shown. PAGE 12 INTERNATIONAL STOCK SERIES GOALS, STRATEGIES, AND RISKS INVESTMENT GOAL To maximize total return by investing primarily in common stocks of foreign issuers. INVESTMENT STRATEGIES The Series primarily invests in common stocks of companies headquartered outside the U.S. In managing the Series' assets, the Advisor employs one or more Sub-Advisors that specialize in international equity investing. The Series will invest in both developed countries and emerging market countries. In selecting the Series' investments, each Sub-Advisor will use its own investment discipline to select common stocks issued by foreign companies. The resulting portfolio will be diversified by country, industry and issuer. PRINCIPAL RISKS OF INVESTING IN THE SERIES The value of your investment in the Series will vary from day to day based on the prices of the securities the Series holds. Because the Series invests principally in common stocks, the value of the Series' shares will fluctuate in response to stock market movements. This means that you could lose money on your investments in the Series or the Series could underperform if any of the following occurs: - Foreign stock markets go down. - An adverse event, such as an unfavorable earnings report, depresses the value of one or more of the Series' portfolio holdings. - The Sub-Advisors' judgments about the attractiveness, relative value or potential appreciation of a strategy or security prove to be incorrect. In addition to the general risks of stock funds, the Series has special risks due to its focus on foreign stocks. These risks include: - The prices of foreign common stocks may, at times, move in a different direction than the prices of U.S. common stocks. - Because the Series' investments are usually denominated in the currencies of the countries in which they are located, the value of the Series may be affected by changes in exchange rates between those foreign currencies and the U.S. dollar. - Investments in emerging market countries may be more volatile than investments in more developed markets. PAGE 13 FEES AND EXPENSES OF THE SERIES This table describes the fees and expenses you may pay if you invest in shares of the Series
CLASS A CLASS D CLASS E ------- ------- ------- SHAREHOLDER FEES (paid directly from your None None None investment) ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from assets of the Series) Management fee 0.75% 0.75% 0.75% Distribution and/or service (Rule 12b-1) fees None 0.50% 0.25% Other expenses 0.30% 0.30% 0.30% ----- ----- ----- TOTAL ANNUAL FUND OPERATING EXPENSES(1) 1.05% 1.55% 1.30% - ----------------------------------------------------------------------------------------------
(1) The Advisor has contractually agreed to limit its fees and reimburse expenses to the extent necessary so that the Series' total annual operating expenses do not exceed 1.05% of the Class A shares' average daily net assets, 1.55% of the Class D shares' average daily net assets and 1.30% of the Class E shares' average daily net assets. These contractual waivers will remain in effect until at least June 30, 2000 and may be extended. THE EXAMPLE BELOW ASSUMES THAT: - You invest $10,000 for the periods shown - The Series' operating expenses remain the same - Your investment has a 5% return each year This example is intended to help you compare the cost of investing in the Series with the cost of investing in other mutual funds. Although your actual costs may be higher or lower, under these assumptions your costs would be:
After After 1 YEAR 3 YEARS ------ ------- CLASS A..................................... $107 $334 CLASS D..................................... $158 $490 CLASS E..................................... $132 $412
Because the Series was not active as of the date of this prospectus, the "Annual Fund Operating Expenses" presented are estimates based upon projections made by the Advisor. The Series has not calculated the expenses beyond the three-year period shown. PAGE 14 LIFECYCLE DEFENSIVE GROWTH SERIES GOALS, STRATEGIES, AND RISKS INVESTMENT GOALS Primary: Preservation of Capital. Secondary: Long-Term Growth of Capital. INVESTMENT STRATEGIES The Series invests primarily in fixed income securities of the U.S. government and U.S. companies, although it may also invest in common stocks of U.S. companies. In managing the Series, the Advisor employs a Sub-Advisor that uses an asset allocation strategy in investing the Series' assets. The Sub-Advisor allocates the Series' investments among fixed income securities and common stocks. The exact proportion will depend on the Sub-Advisor's analysis of a variety of factors including economic conditions (e.g., inflation, interest rates) and market conditions (e.g., corporate earnings, stock valuations). Under normal circumstances, the Series will have approximately 75%-100% of its assets invested in bonds or cash and approximately 0%-25% invested in common stocks. In selecting investments for both the fixed income and equity portions of the Series, the Sub-Advisor will use its own investment disciplines to select individual securities. The fixed income securities purchased by the Series will typically be investment grade securities with short- to intermediate-term maturities. An asset allocation fund with the following features: - Approximately 75%-100% invested in bonds or cash, and 0%-25% in stocks. - Low risk, conservative return potential. - For conservative investors with an investment horizon of 3-5 years. PRINCIPAL RISKS OF INVESTING IN THE SERIES The value of your investment in the Series will vary from day to day based on the prices of the securities the Series holds. Because the Series invests principally in bonds, the value of the Series' shares will fluctuate with changes in interest rates. This means that you could lose money on your investment in the Series or the Series could underperform if any of the following occurs: - Interest rates go up, which will make bond prices go down and reduce the value of the Series' bond portfolio. Longer-term bonds will experience greater fluctuations than shorter-term bonds in response to interest rate changes. - The issuer of a bond owned by the Series defaults on its obligations to pay principal and/or interest or has its credit rating downgraded. This risk is higher for bonds with longer maturities and for lower quality bonds. Because the Series may also invest in common stocks, the Series carries additional risks. The value of your investment may decline if the U.S. and/or foreign stock markets decline or an adverse event, such as an unfavorable earnings report, depresses the value of a particular company's stock. The value of your investment may also decline if the Sub-Advisor's judgments about the attractiveness, relative value and potential appreciation of a particular sector, security or strategy, prove to be incorrect or the Sub-Advisor allocates the Series' assets less than optimally. PAGE 15 FEES AND EXPENSES OF THE SERIES This table describes the fees and expenses you may pay if you invest in shares of the Series
CLASS A CLASS D CLASS E ------- ------- ------- SHAREHOLDER FEES (paid directly from your None None None investment) ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from assets of the Series) Management fee 0.70% 0.70% 0.70% Distribution and/or service (Rule 12b-1) fees None 0.50% 0.25% Other expenses 0.25% 0.25% 0.25% ----- ----- ----- TOTAL ANNUAL FUND OPERATING EXPENSES(1) 0.95% 1.45% 1.20% - ----------------------------------------------------------------------------------------------
(1) The Advisor has contractually agreed to limit its fees and reimburse expenses to the extent necessary so that the Series' total annual operating expenses do not exceed 0.95% of the Class A shares' average daily net assets, 1.45% of the Class D shares' average daily net assets and 1.20% of the Class E shares' average daily net assets. These contractual waivers will remain in effect until at least June 30, 2000 and may be extended. THE EXAMPLE BELOW ASSUMES THAT: - You invest $10,000 for the periods shown - The Series' operating expenses remain the same - Your investment has a 5% return each year This example is intended to help you compare the cost of investing in the Series with the cost of investing in other mutual funds. Although your actual costs may be higher or lower, under these assumptions your costs would be:
After After 1 YEAR 3 YEARS ------ ------- CLASS A.................................................. $ 97 $303 CLASS D.................................................. $148 $459 CLASS E.................................................. $122 $381
Because the Series was not active as of the date of this prospectus, the "Annual Fund Operating Expenses" presented are estimates based upon projections made by the Advisor. In addition, the Series has not calculated the expenses beyond the three-year period shown. PAGE 16 LIFECYCLE GROWTH WITH REDUCED VOLATILITY SERIES GOALS, STRATEGIES AND RISKS INVESTMENT GOAL Long-term growth of capital and preservation of capital with equal emphasis. INVESTMENT STRATEGIES The Series invests primarily in both fixed income securities of the U.S. government and U.S. companies and in common stocks of U.S. companies. The Series may also invest in ADRs and other dollar denominated securities of foreign issuers, including those in emerging markets. In managing the Series, the Advisor employs a Sub-Advisor that uses an asset allocation strategy in investing the Series' assets. The Sub-Advisor allocates the Series' investments among bonds and stocks based on its analysis of a variety of factors including economic conditions (e.g., inflation, interest rates) and market conditions (e.g., corporate earnings, stock valuations). Under normal circumstances, the Series will have approximately 40%-80% of its assets invested in bonds and approximately 20%-60% of its assets invested in stocks. In selecting investments for both the fixed income and equity portions of the Series, the Sub-Advisor will use its own investment disciplines to select individual securities. The fixed income securities purchased by the Series will typically be investment grade securities with intermediate- to long-term maturities. An asset allocation fund with the following features: - Approximately 40%-80% invested in bonds, and 20%-60% in stocks. - Low to moderate risk, conservative to moderate return potential. - For investors with an investment horizon of 5-10 years. PRINCIPAL RISKS OF INVESTING IN THE SERIES The value of your investment in the Series will vary from day to day based on the prices of the securities the Series holds. Because the Series invests in both stocks and bonds, the value of the Series' shares will fluctuate in response to economic and market factors including stock market movements and changes in interest rates. This means that you could lose money on your investment in the Series or the Series could underperform if any of the following occurs: - U.S. and/or foreign stock or bond markets decline. - An adverse event, such as an unfavorable earnings report, depresses the value of one or more of the Series' portfolio holdings. - Interest rates go up, which will make bond prices go down and reduce the value of the Series' bond portfolio. Longer-term bonds will experience greater fluctuations than shorter-term bonds in response to interest rate changes. - The issuer of a bond owned by the Series defaults on its obligations to pay principal and/or interest or has its credit rating downgraded. This risk is higher for bonds with longer maturities and for lower quality bonds. Because the Series may invest in U.S. dollar-denominated securities of foreign issuers, the value of your investment may decline if prices of foreign securities go down because of foreign government actions, political instability or other political, economic or social factors affecting foreign issuers. These risks may be more severe in emerging markets. The value of your investment may also decline if the Sub-Advisors' judgments about the attractiveness, relative value and potential appreciation of a particular sector, security or strategy prove to be incorrect and the Series' assets are allocated less than optimally. PAGE 17 FEES AND EXPENSES OF THE SERIES This table describes the fees and expenses you may pay if you invest in shares of the Series
CLASS A CLASS D CLASS E ------- ------- ------- SHAREHOLDER FEES (paid directly from your None None None investment) ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from assets of the Series) Management fee 0.75% 0.75% 0.75% Distribution and/or service (Rule 12b-1) fees None 0.50% 0.25% Other expenses 0.25% 0.25% 0.25% ----- ----- ----- TOTAL ANNUAL FUND OPERATING EXPENSES(1) 1.00% 1.50% 1.25% - ----------------------------------------------------------------------------------------------
(1) The Advisor has contractually agreed to limit its fees and reimburse expenses to the extent necessary so that the Series' total annual operating expenses do not exceed 1.00% of the Class A shares' average daily net assets, 1.50% of the Class D shares' average daily net assets and 1.25% of the Class E shares' average daily net assets. These contractual waivers will remain in effect until at least June 30, 2000 and may be extended. THE EXAMPLE BELOW ASSUMES THAT: - You invest $10,000 for the periods shown - The Series' operating expenses remain the same - Your investment has a 5% return each year This example is intended to help you compare the cost of investing in the Series with the cost of investing in other mutual funds. Although your actual costs may be higher or lower, under these assumptions your costs would be:
After After 1 YEAR 3 YEARS ------ ------- CLASS A................................................... $102 $318 CLASS D................................................... $153 $474 CLASS E................................................... $127 $397
Because the Series was not active as of the date of this prospectus, the "Annual Fund Operating Expenses" presented are estimates based upon projections made by the Advisor. In addition, the Series has not calculated the expenses beyond the three-year period shown. PAGE 18 LIFECYCLE LONG-TERM GROWTH SERIES GOALS, STRATEGIES AND RISKS INVESTMENT GOALS Primary: Long-term growth of capital. Secondary: Preservation of capital. INVESTMENT STRATEGIES The Series invests most of its assets in common stocks of U.S. companies, but may also invest a substantial portion of its assets in long-term fixed income securities of the U.S. government and U.S. companies. The Series may also invest in ADRs and other dollar denominated securities of foreign issuers, including emerging markets. In managing the Series, the Advisor employs a Sub-Advisor that uses an asset allocation strategy in investing the Series' assets. The Sub-Advisor allocates the Series' investments among bonds and stocks based on its analysis of a variety of factors including economic conditions (e.g., inflation, interest rates) and market conditions (e.g., corporate earnings, stock valuations). Under normal circumstances, the Series will have approximately 30%-80% of its assets invested in stocks and approximately 20%-70% of its assets invested in bonds. In selecting investments for both the fixed income and equity portions of the Series, the Sub-Advisor will use its own investment disciplines to select individual securities. The fixed income securities purchased by the Series will typically be investment grade securities with long-term maturities. An asset allocation fund with the following features: - Approximately 30%-80% invested in stocks, and 20%-70% in bonds - Moderate risk, moderate return potential - For investors with an investment horizon of 7-20 years PRINCIPAL RISKS OF INVESTING IN THE SERIES The value of your investment in the Series will vary from day to day based on the prices of the securities the Series holds. Because the Series invests in both stocks and bonds, the value of the Series' shares will fluctuate in response to economic and market forces and changes in interest rates. This means that you could lose money on your investment in the Series or the Series could underperform if any of the following occurs: - U.S. and/or foreign stock or bond markets decline. - An adverse event, such as an unfavorable earnings report, depresses the value of one or more of the Series' portfolio holdings. - Interest rates go up, which will make bond prices go down and reduce the value of the Series' bond portfolio. - The issuer of a bond owned by the Series defaults on its obligations to pay principal and/or interest or has its credit rating downgraded. This risk is higher for bonds with longer maturities and for lower quality bonds. Because the Series may invest in U.S. dollar-denominated securities of foreign issuers, the value of your investment may decline if prices of foreign securities go down because of foreign government actions, political instability or other political, economic or social factors affecting foreign issuers. These risks may be more severe in emerging markets. The value of your investment may also decline if the Sub-Advisors' judgments about the attractiveness, relative value and potential appreciation of a particular sector or strategy prove to be incorrect and the Series' assets are allocated less than optimally. PAGE 19 FEES AND EXPENSES OF THE SERIES This table describes the fees and expenses you may pay if you invest in shares of the Series
CLASS A CLASS D CLASS E ------- ------- ------- SHAREHOLDER FEES (paid directly from your None None None investment) ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from assets of the Series) Management fee 0.75% 0.75% 0.75% Distribution and/or service (Rule 12b-1) fees None 0.50% 0.25% Other expenses 0.25% 0.25% 0.25% ----- ----- ----- TOTAL ANNUAL FUND OPERATING EXPENSES(1) 1.00% 1.50% 1.25% - -----------------------------------------------------------------------------------------------
(1) The Advisor has contractually agreed to limit its fees and reimburse expenses to the extent necessary so that the Series' total annual operating expenses do not exceed 1.00% of the Class A shares' average daily net assets, 1.50% of the Class D shares' average daily net assets and 1.25% of the Class E shares' average daily net assets. These contractual waivers will remain in effect until at least June 30, 2000 and may be extended. THE EXAMPLE BELOW ASSUMES THAT: - You invest $10,000 for the periods shown - The Series' operating expenses remain the same - Your investment has a 5% return each year This example is intended to help you compare the cost of investing in the Series with the cost of investing in other mutual funds. Although your actual costs may be higher or lower, under these assumptions your costs would be:
After After 1 YEAR 3 YEARS ------ ------- CLASS A.............................................. $102 $318 CLASS D.............................................. $153 $474 CLASS E.............................................. $127 $397
Because the Series was not active as of the date of this prospectus, the "Annual Fund Operating Expenses" presented are estimates based upon projections made by the Advisor. In addition, the Series has not calculated the expenses beyond the three-year period shown. PAGE 20 LIFECYCLE MAXIMUM-TERM GROWTH SERIES GOALS, STRATEGIES & RISKS INVESTMENT GOAL Long-term growth of capital. INVESTMENT STRATEGIES The Series invests primarily in common stocks, but may invest in U.S. government and corporate bonds. The Series may also invest in ADRs and other dollar denominated securities of foreign issuers, including emerging markets. In managing the Series, the Advisor employs a Sub-Advisor that uses an asset allocation strategy in managing the Series' assets. The Sub-Advisor allocates the Series' investments among bonds and stocks based on its analysis of a variety of factors including economic conditions (e.g., inflation, interest rates) and market conditions (e.g., corporate earnings, stock valuations). Under normal circumstances, the Series will have approximately 70%-100% of its assets invested in common stocks and approximately 0%-30% of its assets invested in bonds. In selecting investments for both the fixed income and equity portions of the Series, the Sub-Advisor will use its own investment disciplines to select individual securities. The fixed income securities purchased by the Series will typically be investment grade securities with long-term maturities. An asset allocation fund with the following features: - Approximately 70%-100% invested in stocks, and 0%-30% in bonds. - Moderate to high risk, moderate to high return potential. - For aggressive investors with an investment horizon of 15 years or more. PRINCIPAL RISKS OF INVESTING IN THE SERIES The value of your investment in the Series will vary from day to day based on the prices of the securities the Series holds. Because the Series invests principally in common stocks, the value of the Series' shares will fluctuate in response to market movements. This means that you could lose money on your investment in the Series or the Series could underperform if any of the following occurs: - U.S. and/or foreign stock or bond markets decline. - An adverse event, such as an unfavorable earnings report, depresses the value of one or more of the Series' portfolio holdings. Because the Series may also invest in bonds and U.S. dollar-denominated securities of foreign issuers, the Series carries additional risks. If interest rates go up, bond prices will generally go down and reduce the value of the Series' bond portfolio. This risk is higher for bonds with longer maturities and for lower quality bonds. Because the Series may invest in U.S. dollar-denominated securities of foreign issuers, the value of your investment may decline if prices of foreign securities go down because of foreign government actions, political instability or other political, economic or social factors affecting foreign issuers. These risks may be more severe in emerging markets. The value of your investment may also decline if the Sub-Advisors' judgments about the attractiveness, relative value and potential appreciation of a particular security or strategy prove to be incorrect and the Series' assets are allocated less than optimally. PAGE 21 FEES AND EXPENSES OF THE SERIES This table describes the fees and expenses you may pay if you invest in shares of the Series
CLASS A CLASS D CLASS E ------- ------- ------- SHAREHOLDER FEES (paid directly from your None None None investment) ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from assets of the Series) Management fee 0.75% 0.75% 0.75% Distribution and/or service (Rule 12b-1) fees None 0.50% 0.25% Other expenses 0.25% 0.25% 0.25% ----- ----- ----- TOTAL ANNUAL FUND OPERATING EXPENSES(1) 1.00% 1.50% 1.25% - -----------------------------------------------------------------------------------------------
(1) The Advisor has contractually agreed to limit its fees and reimburse expenses to the extent necessary so that the Series' total annual operating expenses do not exceed 1.00% of the Class A shares' average daily net assets, 1.50% of the Class D shares' average daily net assets and 1.25% of the Class E shares' average daily net assets. These contractual waivers will remain in effect until at least June 30, 2000 and may be extended. THE EXAMPLE BELOW ASSUMES THAT: - You invest $10,000 for the periods shown - The Series' operating expenses remain the same - Your investment has a 5% return each year This example is intended to help you compare the cost of investing in the Series with the cost of investing in other mutual funds. Although your actual costs may be higher or lower, under these assumptions your costs would be:
After After 1 YEAR 3 YEARS ------ ------- CLASS A................................................ $102 $318 CLASS D................................................ $153 $474 CLASS E................................................ $127 $397
Because the Series was not active as of the date of this prospectus, the "Annual Fund Operating Expenses" presented are estimates based upon projections made by the Advisor. In addition, the Series has not calculated the expenses beyond the three-year period shown. PAGE 22 MORE ABOUT THE SERIES' INVESTMENTS & RISKS EQUITY SECURITIES. Each of the Series, except the Government-Oriented Fixed Income Series and Unrestricted Fixed Income Series, invest in equity securities. These equity securities include primarily exchange-traded and over the counter (OTC) common stocks and may include preferred stocks, warrants, rights, convertible debt securities, trust certificates, partnership interests, and equity participations. The Index Stock Series will only invest in common stocks of those companies represented in the S&P 500. FIXED INCOME SECURITIES. The Government-Oriented Fixed Income Series, Unrestricted Fixed Income Series, Lifecycle Defensive Growth Series, Lifecycle Growth with Reduced Volatility Series, Lifecycle Long-Term Growth Series and Lifecycle Maximum-Term Growth Series invest in a variety of fixed income securities. These securities may be issued by the U.S. government or any of its agencies, foreign governments, supranational entities such as the World Bank, and U.S. and foreign companies. Investments in fixed income securities may have all types of interest rate payment and reset terms and may include mortgage-backed, asset-backed and derivative securities. FOREIGN SECURITIES. The International Stock Series invests primarily in the common stocks of foreign companies. In addition, the International Stock Series may invest in preferred stocks, convertible securities (including debentures), Global Depository Receipts (GDRs), country funds and warrants issued by companies headquartered outside the U.S. The International Series may also invest in American Depository Receipts (ADRs) and other U.S. dollar denominated securities of foreign issuers. The Lifecycle Growth with Reduced Volatility Series, Lifecycle Long-Term Growth Series, and Lifecycle Maximum-Term Growth Series invest a substantial portion of their assets in ADRs and a limited portion of their assets in foreign securities. The other Series may invest, to a limited extent, in foreign securities and in ADRs and other U.S. dollar denominated securities of foreign issuers. ADRs are securities that are listed and traded in the United States but represent an ownership interest in securities issued by a foreign issuer. Prices of foreign securities may go down because of foreign government actions, political instability or the more limited availability of accurate information about foreign companies. These risks may be more severe for securities of issuers in emerging markets. HIGH-YIELD BONDS. The Unrestricted Fixed Income Series, Lifecycle Defensive Growth Series, Lifecycle Growth with Reduced Volatility Series and Lifecycle Long-Term Growth Series invest in lower quality bonds, commonly known as "junk bonds." These securities offer a higher yield than other securities, but they carry a greater degree of risk and are considered speculative by the major credit rating agencies. High-yield securities may be issued by companies that are restructuring, are smaller and less creditworthy, or are more highly indebted than other companies. This means that the issuer may have more difficulty making scheduled payments of principal and interest. Compared to investment grade securities, high-yield bonds are influenced more by changes in the financial and business position of the issuing company than by changes in interest rates. ASSET-BACKED SECURITIES. The Unrestricted Fixed Income Series, Lifecycle Defensive Growth Series, Lifecycle Growth with Reduced Volatility Series and Lifecycle Long-Term Growth Series invest in asset-backed securities, which represent participations in, or are secured by and payable from, assets such as installment sales or loan contracts, leases, credit card receivables and other categories of receivables. MORTGAGE-BACKED SECURITIES. The Government-Oriented Fixed Income Series, Unrestricted Fixed Income Series, Lifecycle Defensive Growth Series, Lifecycle Growth with Reduced Volatility Series and Lifecycle Long-Term Growth Series invest in mortgage-backed securities. These securities may be issued by private companies or by agencies of the U.S. government. They represent direct or indirect participations in, or are collateralized by and payable from, mortgage loans secured by real property. Mortgage-backed securities are subject to special risks. They are sensitive to changes in interest rates, but may respond to these changes differently than other fixed income securities due to the possible pre-payment of the underlying loans. Because of pre-payments, it may not be possible to determine in advance the actual maturity of a mortgage-backed security. Rising interest rates tend to discourage refinancings, with the result that the average life and volatility of the security will increase and its market price will decrease. When interest rates fall, however, mortgage-backed securities may not gain as much in market value because of additional pre-payments that PAGE 23 must be re-invested at lower interest rates. Pre-payment risk may make it difficult to calculate the average maturity of a portfolio of these securities and, therefore, the ability to assess the volatility and risk of the portfolio. EMERGING MARKET SECURITIES. The International Stock Series, Aggressive Growth Series, Lifecycle Growth with Reduced Volatility Series, Lifecycle Long-Term Growth Series, and Lifecycle Maximum-Term Series invest in securities of issuers located in emerging markets countries. Emerging market countries are foreign countries that are generally considered to be less developed than the United States, Canada, Japan, Australia, New Zealand, and most of the nations in Western Europe. As a result, they may be more likely to experience political turmoil. In addition, the financial conditions of issuers in these countries may be more precarious than those in developed countries. These characteristics may result in greater price volatility for investments in emerging markets. This price volatility may be heightened by currency fluctuations relative to the U.S. dollar. DEFENSIVE INVESTING. The Series may depart from their principal investment strategies by taking temporary defensive positions in response to adverse market, economic or political conditions. If a Series takes a temporary defensive position, it may be unable to achieve its investment goals. THE SERIES' INVESTMENT GOALS. The Series' investment goals (described above under "Goals, Strategies, and Risks") are fundamental and may not be changed without obtaining the approval of the Series' shareholders. The Series might not succeed in achieving their goals. PAGE 24 MANAGEMENT THE ADVISOR The Series' Advisor is Manning & Napier Advisory Advantage Corporation ("AAC"), 1100 Chase Square, Rochester, New York 14604. The Advisor is responsible for the day-to-day operations of the Series and generally is responsible for supervision of the Series' overall business affairs, service providers and officers. Each Series will have one or more Sub-Advisors which manage the Series' assets and employs investment professionals and analysts. AAC acts as the "manager of managers." In this capacity, AAC is responsible for the allocation of the assets to each Sub-Advisor and recommends to the board of directors who the Sub-Advisors should be. This ultimately makes AAC responsible for the performance of the Series. The board of directors is responsible for the hiring and firing of the Sub-Advisors and making sure that the Advisor and Sub-Advisors adhere to the investment policies of the Series. The board of directors will pay each Sub-Advisor a portion of investment advisory fees as compensation for the Sub-Advisor providing advisory services to the Series which it was hired to manage. In return for the services it provides to the Series, the Advisor receives a management fee, which is computed daily and payable monthly as a percentage of each Series' average daily net assets. AAC may recommend one or more of its affiliates as a Sub-Advisor. ANNUAL MANAGEMENT FEES (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
SERIES MANAGEMENT FEE Government-Oriented Fixed Income Series 0.55% Unrestricted Fixed Income Series 0.75% Index Stock Series 0.30% Large Cap Stock Series 0.65% Small Cap Stock Series 0.80% Aggressive Stock Series 0.70% International Stock Series 0.75% The Lifecycle Series Defensive Growth Series 0.70% Growth with Reduced Volatility Series 0.75% Long-Term Growth Series 0.75% Maximum-Term Growth Series 0.75% The Advisor compensates the Sub-Advisors out of its management fee.
YEAR 2000 ISSUE Information technology experts are concerned about computer systems' ability to process date-related information on and after January 1, 2000. This situation, commonly known as the "Year 2000" issue, could have an adverse impact on the Series. The cost of addressing the Year 2000 issue, if substantial, could adversely affect companies and governments that issue securities held by the Series. The Advisor, the transfer agent and the distributor are addressing the Year 2000 issue for their systems. The Fund has relationships with Sub-Advisors and other outside service providers. The Advisor has contacted these outside service providers and they have informed the Series that they are taking measures to address the Year 2000 problem. Although the Series does not expect the Year 2000 issue to adversely affect it, the Series cannot guarantee that the efforts of the Series or their service providers to correct the problem will be successful. PAGE 25 THE SUB-ADVISORS GOVERNMENT-ORIENTED FIXED INCOME SERIES STRONG CAPITAL MANAGEMENT: Strong Capital Management was founded in 1974. Roughly 50% of the firm's assets represent fixed income management. The 100% employee-owned investment advisor has over $32 billion in assets under management and employs more than 60 investment professionals. Thomas A. Sontag and Bradley C. Tank co-manage the Government Fixed Income Series. Mr. Sontag joined Strong Capital in November 1998 as a portfolio manager of the Strong Government Securities Fund. For 13 years prior to joining Strong Capital, Mr. Sontag worked at Bear Stearns & Co., most recently serving as a Managing Director in the Fixed Income Department from 1990 to November 1998. From September 1982 until December 1985, Mr. Sontag was employed in the Fixed Income Department at Goldman Sachs & Co. Mr. Tank has 15 years of investment experience. He joined Strong Capital as a portfolio manager in June 1990. He has managed or co-managed the Strong Capital Government Securities Fund since he joined Strong Capital. For eight years prior to joining Strong Capital he worked for Salomon Brothers Inc. He was a vice president and fixed income specialist for six years and for the two years prior to that, a fixed income specialist. UNRESTRICTED FIXED INCOME SERIES LOOMIS, SAYLES COMPANY: Loomis Sayles was founded in 1926 and is wholly owned by New England Investment Companies, L.P. Loomis Sayles has over $70 billion in assets under management, and its fixed income division portfolio managers have an average of 23 years experience. Mr. Daniel Fuss and Kathleen C. Gaffney co-manage the Unrestricted Fixed Income Series. Mr. Fuss is an executive vice president, director and managing partner of Loomis, Sayles. Prior to joining the company in 1976 he spent more than four years as a vice president with The Boston Company. He has also worked for the Endowment Management Research Company. Mr. Fuss has 40 years of investment experience. Ms. Gaffney is a portfolio manager with Loomis, Sayles, her employer since 1984. She has also served the firm as a fixed income trader specializing in convertables. Ms. Gaffney has 13 years of investment experience. INDEX STOCK SERIES STATE STREET GLOBAL ADVISORS: State Street Global Advisors was founded in 1978 and is the institutional asset management affiliate of State Street Bank & Trust Company. The firm manages over $490 billion in assets and is considered one of the world's largest index managers, employing over 150 investment professionals. Mr. James B. May is the lead manager for the Sub-Advisor of the Index Stock Series. Mr. May has been the lead portfolio manager for the State Street S&P 500 Index Fund since May 1995. Mr. May has been a portfolio manager in the US Structured Products Group of State Street since January 1994. He served as an Investment Support Analyst in the US Passive Services Group from 1991 to 1993. LARGE CAP STOCK SERIES SCUDDER KEMPER INVESTMENTS: Scudder Kemper Investments is an employee-owned investment advisor founded in 1919. The firm manages over $240 billion in assets and employs nearly 300 professionals. A team of investment professionals, who each plays an important role in the Series' management process, are responsible for the management of the Large Cap Stock Series. SMALL CAP STOCK SERIES DLJ INVESTMENTS: DLJ Investment Management Corporation is a wholly owned institutional asset management subsidiary of Donaldson, Lufkin & Jenerette. Established in 1996, DLJ is located in New York City and manages over $6 billion in assets. Mr. Roger W. Vogel manages the Small Cap Stock Series. He is responsible for DLJ's small cap equity product. Previously, Mr. Vogel spent his first 15 years after college as a portfolio manager with Manufacturers Hanover/Chemical Bank. Mr. Vogel is a senior member of DLJ Investment Management's Investment Committee as well as a member of the New York Society of Security Analysts. PAGE 26 AGGRESSIVE STOCK SERIES MFS INSTITUTIONAL ADVISORS: MFS Institutional Advisors has been managing investments since 1970 and is a 9% employee owned subsidiary of Sun Life Assurance of Canada. The MFS manages over $95 billion in assets and employs more than 100 investment professionals. John W. Ballen, President and Chief Investment Officer of the Sub-Advisor, and Stephen Pesek, Jr., a Vice President of the Sub-Advisor, are the portfolio managers of the Aggressive Stock Series. Mr. Ballen and Mr. Pesek have been employed as portfolio managers by the Sub-Advisor since 1984 and 1994, respectively. From 1987 to 1994, Mr. Pesek worked at Fidelity Investments as a research analyst. INTERNATIONAL STOCK SERIES BABSON-STEWART IVORY INTERNATIONAL: Babson-Stewart Ivory's investment decisions are driven by firm disciplines based on Stewart Ivory & Company's more than 100 years of international investment experience. Mr. John G.L. Wright is the portfolio manager of the International Stock Series. Mr. Wright has been the portfolio manager of the Babson-Stewart Ivory International Fund since its inception in 1988. He joined Stewart Fund Managers (which became Stewart Ivory) in 1971, and has 30 years of international investment management experience. LIFECYCLE DEFENSIVE GROWTH SERIES, LIFECYCLE GROWTH WITH REDUCED VOLATILITY SERIES, LIFECYCLE LONG-TERM GROWTH SERIES AND LIFECYCLE MAXIMUM-TERM GROWTH SERIES MANNING & NAPIER ADVISORS, INC.: Manning & Napier Advisors, Inc. has over twenty-five years of investment experience managing for "life cycle" type investment objectives. The 100% employee-owned firm employs a staff of over 200 and currently manages over $7.0 billion in assets. A team of investment professionals and analysts employed by the Sub-Advisor makes all of the Series' investment decisions. This team is composed of the Investment Policy Group, the Investment Research Group, and the Fixed Income Group. The Investment Policy Group conducts the asset allocation analysis, the Investment Research Group selects individual stocks, and the Fixed Income Group selects individual bonds. DISTRIBUTION Class A shares of the Series are offered to individual investors who purchase shares directly from the distributor. Class A shares of the Series are not subject to any distribution or shareholder servicing fees. Class A shares require individual investors to make a minimum investment of $50,000. This minimum may be waived at the discretion of the Fund's distributor. The Advisor may, from its own resources, defray or absorb costs relating to distribution, including compensation of employees who are involved in distribution. Class D shares are offered through financial intermediaries. Financial intermediaries include financial planners, investment advisors, broker-dealers, or other financial institutions with an agreement with the distributor. You may only purchase that class of shares that your financial intermediary sells or services. Class E shares are offered to 403(b) plans and other qualified retirement plans. The Series have adopted a Rule 12b-1 distribution plan for the Class D and Class E shares. Under the plan, the Class D shares pay distribution and/or shareholder services fees of 0.50% and the Class E shares pay shareholder services fees of 0.25%. These fees are an ongoing expense and over time may cost you more than other types of sales charges. The Advisor may use its own resources to engage in activities that may promote the sale of the Series, 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. PAGE 27 HOW TO BUY, EXCHANGE, AND REDEEM SHARES HOW TO The minimum initial investment in any class of BUY SHARES shares is $50,000. For all Classes the minimum for each additional investment is $5,000. The minimum investment requirements are lower for participants in the Automatic Investment Plan, which is described below. These investment minimums may be waived at the discretion of the Fund's distributor. Class D shares are only available through your financial intermediary. You may be subject to initial and subsequent minimums established by your financial intermediary for the purchase of shares. Class E shares are only available through plans operated by a plan administrator. Each Series reserves the right to reject purchase orders or to stop offering its shares without notice to shareholders. The Fund's distributor imposes no sales charge on purchases and redemptions of shares of the Series. However, if you purchase your shares through a financial intermediary, your financial intermediary may charge you a transaction fee on purchases and redemptions. If you purchase your shares directly from the Fund's distributor or if your financial intermediary does not provide account maintenance services, contact the Fund to purchase shares. All orders to purchase shares received in good order by the distributor, transfer agent or other agent before the close of trading on the New York Stock Exchange (NYSE) (generally 4:00 p.m., New York time) will be executed at that day's share price. Orders received in good order after that day's close will be executed at the next business day's price. All orders must include the required documentation and be accompanied by proper payment. The Series reserves the right to reject purchase orders or to stop offering its shares without notice to shareholders. BY MAIL OPENING AN ACCOUNT o Send a check payable to Exeter Fund, Inc. with the completed original account application. The address is: EXETER FUND, INC. P.O. BOX 41118 ROCHESTER, NY 14604 o To request an account application, call the Fund at 1-800-466-3863. ADDING TO AN ACCOUNT o Send a check payable to Exeter Fund, Inc. and a letter of instruction with the name of the Series to be purchased and the account name and number. BY WIRE OPENING OR ADDING TO AN ACCOUNT o After the Fund has received your completed account application, you may wire funds to open or add shares to your account. Before sending a wire, call 1-800-466-3863 for wire instructions. PAGE 28 AUTOMATIC You may participate in the Automatic Investment Plan INVESTMENT PLAN by completing the applicable section of the account application or contacting the Fund. Through the plan, you can authorize transfers of a specified amount from your bank account into the Series on a regular basis. The minimum amount of each investment is $25. If you have insufficient funds in your account to complete a transfer, your bank may charge you a fee. HOW TO You may exchange shares of a Series for shares of any EXCHANGE other Series of the Exeter Fund described in this SHARES Prospectus, if the registration of both accounts is identical. If received with proper documentation before the close of trading on the NYSE, exchange requests will be executed at that day's share prices. Otherwise, they will be executed at the prices determined on the next business day after receipt with proper documentation. A Series may refuse any exchange order and may alter, limit or suspend its exchange privilege on 60 days' notice. An exchange involves a taxable redemption of shares surrendered in the exchange. If your financial intermediary does not provide account maintenance services, contact the Fund to exchange shares. BY MAIL - Send a letter of instruction to Exeter Fund, Inc., at the address on the opposite page, signed by each registered account owner, exactly as your names appear on the account registration. - Provide the name of the current Series, Series to exchange into and dollar amount to be exchanged. - Provide both account numbers. BY TELEPHONE - Unless you have declined telephone privileges, call the Fund at 1-800-466-3863. - Provide the name of the current Series, Series to exchange into and dollar amount to be exchanged. - Provide both account numbers. - The Fund may ask for identification, and all telephone transactions are recorded. HOW TO REDEEM SHARES All orders to redeem shares received in good order by the distributor, transfer agent or other agent before the close of trading on the NYSE will be executed at that day's share price. Orders received in good order after the close of trading will be executed at the next business day's price. All redemption orders must include the required documentation and signatures. The Series may postpone payment of redemption proceeds for up to seven days, or suspend redemptions to the extent permitted by law. If you recently purchased your shares by check, your redemption proceeds will not be sent to you for 15 days. BY MAIL - Send a letter of instruction to Exeter Fund, Inc., at the address on the opposite page signed by each registered account owner. - State the name of the Series, the class and number of shares or dollar amount to be sold. o Provide the account number. - Signature guarantees may be required. - Additional documentation may be required (call the Fund for details). PAGE 29 INVESTMENT AND ACCOUNT INFORMATION ACCOUNTS WITH If your account falls below $10,000 due to the LOW BALANCES redemption of shares, the Fund may ask you to bring your account up to the minimum requirement. If your account is still below $10,000 after 60 days, the Fund may close your account and send you the redemption proceeds. This minimum requirement is waived for qualified retirement plans and 403(b) plans. IN-KIND Securities you own may be used to purchase shares of PURCHASES AND a Series. The Advisors will determine if acquiring REDEMPTIONS the securities is consistent with the Series' goals and policies. If accepted, the securities will be valued the same way the Series values securities it already owns. The Series may make payment for shares in part by giving you portfolio securities. As a redeeming shareholder, you will pay transaction costs to dispose of these securities. SIGNATURE A signature guarantee may be required for any written GUARANTEES request to sell shares, or to change the account registration. The transfer agent will accept signature guarantees from: - A member of the STAMP program or the NYSE's Medallion Signature Program. - A broker or securities dealer. - A federal savings, cooperative or other type of bank. - A savings and loan or other thrift institution. - A credit union. - A securities exchange or clearing agency. A NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE. VALUATION OF Each Series offers its shares at the net asset value SHARES (NAV) per share of each Series. NAV is calculated separately for each class of shares. Each Series calculates its NAV once daily as of the close of regular trading on the NYSE on each day the exchange is open. If the exchange closes early, the Series will accelerate the calculation of NAV and transaction deadlines to that time. Each Series values the securities in its portfolio on the basis of market quotations and valuations provided by independent pricing services. If quotations are not readily available, or the value of a security has been materially affected by events occurring after the closing of a foreign exchange, the Series values its assets by a method that the directors believe accurately reflects fair value. If the Series uses fair value to price securities, it may value those securities higher or lower than another Series that uses market quotations to price the same securities. The foreign securities held by the Series may be listed on foreign exchanges that trade on days when the NYSE is not open and the portfolios do not price their shares. As a result, the net asset value of a Series may change at a time when shareholders are not able to purchase or redeem shares. PAGE 30 DIVIDENDS, DISTRIBUTIONS, AND TAXES DIVIDENDS AND The Series generally: DISTRIBUTIONS - Pays dividends once a year, in December. - Makes capital gains distributions, if any, once a year, typically in December. The Series also may pay additional distributions and dividends at other times if necessary for the Series to avoid a federal tax. Capital gain distributions and dividends are reinvested in additional shares of the same class that you hold. Alternatively, you can instruct the transfer agent in writing or by telephone to have your capital gains and/or dividends paid in cash. You can change your choice at any time to be effective as of the next distribution or dividend, except that any change given to the transfer agent after the record date will not be effective until the next distribution or dividend is made. No interest will accrue on amounts represented by uncashed distribution or redemption checks.
TAXES TRANSACTION FEDERAL TAX STATUS Redemption or exchange of shares Usually taxable as capital gain or loss; long-term only if shares owned more than one year Long-term capital gain distributions Taxable as long-term capital gain Short-term capital gain distributions Taxable as ordinary income Dividends Taxable as ordinary income
If you are a taxable investor, you may want to avoid buying shares when the Series is about to declare a capital gain distribution or a dividend, because it will be taxable to you even though it may actually be a return of a portion of your investment. After the end of each year, the Series will provide you with information about the distributions and dividends that you received and any redemptions of shares during the previous year. Shareholders of the International Stock Series may be able to claim a credit or deduction on their income tax returns for their pro rata portion of qualified taxes paid by the Series to foreign countries. In calculating your gain or loss on any sale of shares, note that your tax basis in your shares is increased by the amounts of dividends and distributions that you have reinvested in the Series. Dividends and distributions are taxable as described above whether received in cash or reinvested. If you do not provide the Series with your correct taxpayer identification number and any required certifications, you may be subject to back-up withholding of 31% of your distributions, dividends, and redemption proceeds. Because each shareholder's circumstances are different and special tax rules may apply, you should consult with your tax advisor about your investment in the Series and your receipt of dividends, distributions or redemption proceeds. PAGE 31 PAGE 32 EXETER FUND, INC. GOVERNMENT-ORIENTED FIXED INCOME SERIES UNRESTRICTED FIXED INCOME SERIES INDEX STOCK SERIES LARGE CAP STOCK SERIES SMALL CAP STOCK SERIES AGGRESSIVE STOCK SERIES INTERNATIONAL STOCK SERIES LIFECYCLE DEFENSIVE GROWTH SERIES LIFECYCLE GROWTH WITH REDUCED VOLATILITY SERIES LIFECYCLE LONG-TERM GROWTH SERIES LIFECYCLE MAXIMUM-TERM GROWTH SERIES SHAREHOLDER Annual and semiannual reports to shareholders provide REPORTS AND THE additional information about the Series' investments. STATEMENT OF These reports discuss the market conditions and ADDITIONAL investment strategies that significantly affected the INFORMATION (SAI) Series' performance during its last fiscal year. The SAI provides more detailed information about the Series. It is incorporated by reference into this prospectus. HOW TO OBTAIN o You may obtain shareholder reports and the THESE REPORTS SAI or other information about the AND ADDITIONAL Series without charge, by calling INFORMATION 1-800-466-3863 or sending written requests to Exeter Fund, Inc., P.O. Box 41118, Rochester, New York 14604. o You may review shareholder reports, the prospectus and SAI at the Securities and Exchange Commission's Public Reference Room in Washington, D.C. You can get copies of these materials for a fee by writing to the Public Reference Section of the Commission, Washington, D.C. 20549-6009. Information about the public reference room may be obtained by calling 1-800- SEC-0330. You can get the same reports and information free from the SEC's Internet web site (http://www.sec.gov). If someone makes a statement that is not in this prospectus about the Series, you should not rely upon that information. Neither the Series nor their distributor are offering to sell shares of the Series to any person to whom the Series may not lawfully sell their shares. Investment Company Act file no. 811-04087 PAGE 33 EXETER FUND, INC. STATEMENT OF ADDITIONAL INFORMATION DATED AUGUST __, 1999 This Statement of Additional Information is not a prospectus, and it should be read in conjunction with the prospectus for each of the following Series of Exeter Fund, Inc. (the "Fund"): Government-Oriented Fixed Income Series, Unrestricted Fixed Income Series, Index Stock Series, Large Cap Stock Series, Small Cap Stock Series, Aggressive Stock Series, International Stock Series, Lifecycle Defensive Growth Series, Lifecycle Growth With Reduced Volatility Series, Lifecycle Long-Term Growth Series and Lifecycle Maximum-Term Growth Series (each a "Series"), copies of which may be obtained from Manning & Napier Advisory Advantage Corporation, 1100 Chase Square, Rochester, N.Y. 14604. TABLE OF CONTENTS
Page ---- Investment Goals................................................................... Investment Policies and Risks..................................................... Investment Restrictions........................................................... Portfolio Turnover................................................................. The Fund........................................................................... Management......................................................................... The Advisor and the Sub-Advisors................................................... Distribution of Fund Shares........................................................ The Plans.......................................................................... Custodian, Independent Accountant and Counsel...................................... Portfolio Transactions and Brokerage............................................... Net Asset Value.................................................................... Federal Tax Treatment of Dividends and Distributions............................... Yield and Total Return............................................................. Appendix - Description of Bond Ratings..........................................A-1
INVESTMENT GOALS Each of the Series' investment goals as well as its principal investment policies and strategies with respect to the composition of their respective portfolios are described in the prospectus. The following sections provide more information about those principal policies and strategies as well as information about other policies and strategies. Each Series' investment goal is fundamental. Fundamental investment policies may not be changed without the approval of a majority of the outstanding voting shares of the Series. Each Series is a diversified mutual fund. INVESTMENT POLICIES AND RISKS EQUITY INVESTMENTS COMMON STOCKS. Each Series may purchase common stocks. Common stocks are shares of a corporation or other entity that entitle the holder to a pro rata share of the profits of the corporation, if any, without preference over any other shareholder or class of shareholders, including holders of the entity's preferred stock and other senior equity. Common stock usually carries with it the right to vote and frequently an exclusive right to do so. PREFERRED STOCKS. Each Series may invest in preferred stocks. Preferred stocks may pay a dividend at a fixed rate, and may entitle the holder to acquire the issuer's stock by exchange or purchase for a predetermined rate. CONVERTIBLE SECURITIES. Each Series may invest in securities that are convertible at either a stated price or a stated rate into underlying shares of common stock, thus enabling the investor to benefit from increases in the market price of the common stock. Convertible securities provide higher yields than the underlying equity, but generally offer lower yields than non-convertible securities of similar quality. Like bonds, the value of convertible securities fluctuates in relation to changes in interest rates and, in addition, also fluctuates in relation to the underlying common stock. The principal factor in selecting convertible bonds is the potential to benefit from movement in the stock price. There is no minimum rating standard for the debt aspects of such securities. Convertible bonds purchased by a Series may be subject to the risk of being called by the issuer. WARRANTS. Each Series may purchase warrants. Warrants acquired by a Series entitle it to buy common stock from the issuer at a specified price and time. Warrants may be considered more speculative than certain other types of investments because they (1) do not carry rights to dividends or voting rights with respect to the securities which the warrant entitles the holder to purchase, and (2) do not represent any rights in the assets of the issuer. Warrants purchased by the Fund may or may not be listed on a national securities exchange. 2 REITS. Each Series may invest in shares of real estate investment trusts ("REITs"), which are pooled investment vehicles that invest in real estate or real estate loans or interests. Investing in REITs involves risks similar to those associated with investing in equity securities of small capitalization companies. REITs are dependent upon management skills, are not diversified, and are subject to risks of project financing, default by borrowers, self-liquidation, and the possibility of failing to qualify for the exemption from taxation on distributed amounts under the Internal Revenue Code of 1986, as amended (the "Code"). TRUST CERTIFICATES, PARTNERSHIP INTERESTS AND EQUITY PARTICIPATIONS. Each Series may invest in equity securities that are interests in non-corporate entities. These securities, which include trust certificates, partnership interests and equity participations, have different liability and tax characteristics than equity securities issued by a corporation, and thus may present additional risks to the Series. However, the investment characteristics of these securities are similar to those of traditional corporate equity securities. FIXED INCOME INVESTMENTS CORPORATE DEBT OBLIGATIONS. Each Series may invest in corporate debt obligations issued by financial institutions and corporations. Corporate debt obligations are subject to the risk of an issuer's inability to meet principal and interest payments on the obligations and may also be subject to price volatility due to such factors as market interest rates, market perception of the creditworthiness of the issuer and general market liquidity. U.S. GOVERNMENT SECURITIES. Each Series may invest in debt obligations of varying maturities issued or guaranteed by the U.S. Government, its agencies or instrumentalities. Direct obligations of the U.S. Treasury which are backed by the full faith and credit of the U.S. Government, include a variety of Treasury securities that differ only in their interest rates, maturities and dates of issuance. U.S. Government agencies or instrumentalities which issue or guarantee securities include, but are not limited to, the Federal Housing Administration, Federal National Mortgage Association, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration, Governmental National Mortgage Association, General Services Administration, Central Bank for Cooperatives, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal Intermediate Credit Banks, Federal Land Banks, Maritime Administration, the Tennessee Valley Authority, District of Columbia Armory Board and the Student Loan Marketing Association. Obligations of U.S. Government agencies and instrumentalities may or may not be supported by the full faith and credit of the United States. Some are backed by the right of the issuer to borrow from the U.S. Treasury; others by discretionary authority of the U.S. Government to purchase the agencies' obligations; while still others, such as the Student Loan Marketing Association, are supported only by the credit of the instrumentality. In the case of securities not backed by the full faith and credit of the United States, the investor must look principally to the 3 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 Series's investment advisor or sub-advisor (individually, the "Advisor," together, the "Advisors"), is satisfied that the credit risk with respect to any instrumentality is minimal. MORTGAGE-BACKED SECURITIES. Each Series may invest in mortgage-backed securities which represent an interest in a pool of mortgage loans. These securities are issued or guaranteed by U.S. Government agencies or instrumentalities such as the Government National Mortgage Association ("GNMA"), Fannie Mae, and the Federal Home Loan Mortgage Corporation ("FHLMC"). Obligations of GNMA are backed by the full faith and credit of the United States Government. Obligations of Fannie Mae and FHLMC are not backed by the full faith and credit of the United States Government but are considered to be of high quality since they are considered to be instrumentalities of the United States. The market value and interest yield of these mortgage-backed securities can vary due to market interest rate fluctuations and early prepayments of underlying mortgages. These securities represent ownership in a pool of federally insured mortgage loans with a maximum maturity of 30 years. However, due to scheduled and unscheduled principal payments on the underlying loans, these securities have a shorter average maturity and, therefore, less principal volatility than a comparable 30-year bond. Since prepayment rates vary widely, it is not possible to accurately predict the average maturity of a particular mortgage-backed security. The scheduled monthly interest and principal payments relating to mortgages in the pool will be "passed through" to investors. Government mortgage-backed securities differ from conventional bonds in that principal is paid back to the certificate holders over the life of the loan rather than at maturity. As a result, there will be monthly scheduled payments of principal and interest. In addition, there may be unscheduled principal payments representing prepayments on the underlying mortgages. Although these securities may offer yields higher than those available from other types of U.S. Government securities, mortgage-backed securities may be less effective than other types of securities as a means of "locking in" attractive long-term rates because of the prepayment feature. For instance, when interest rates decline, the value of these securities likely will not rise as much as comparable debt securities due to the prepayment feature. In addition, these prepayments can cause the price of a mortgage-backed security originally purchased at a premium to decline in price to its par value, which may result in a loss. Each Series may also invest in collateralized mortgage obligations ("CMOs") and real estate mortgage investment conduits ("REMICs"), which are rated in one of the two top categories by Standard & Poor's Corporation ("S&P") or Moody's Investors Service ("Moody's"). CMOs are securities collateralized by mortgages, mortgage pass-throughs, mortgage pay-through bonds (bonds representing an interest in a pool of mortgages where the cash flow generated from the mortgage collateral pool is dedicated to bond repayment), and mortgage-backed bonds (general obligations of the issuers payable out of the issuer's general funds and additionally secured by a 4 first lien on a pool of single family detached properties). Many CMOs are issued with a number of classes or Series which have different maturities and are retired in sequence. Investors purchasing such CMOs in the shortest maturities receive or are credited with their pro rata portion of the scheduled payments of interest and principal on the underlying mortgages plus all unscheduled prepayments of principal up to a predetermined portion of the total CMO obligation. Until that portion of such CMO obligation is repaid, investors in the longer maturities receive interest only. Accordingly, the CMOs in the longer maturity Series are less likely than other mortgage pass-throughs to be prepaid prior to their stated maturity. Although some of the mortgages underlying CMOs may be supported by various types of insurance, and some CMOs may be backed by GNMA certificates of other mortgage pass-throughs issued or guaranteed by U.S. government agencies or instrumentalities, the CMOs themselves are not generally guaranteed. REMICs, which were authorized under the Tax Reform Act of 1986, are private entities formed for the purpose of holding a fixed pool of mortgages secured by an interest in real property. REMICs are similar to CMOs in that they issue multiple classes of securities. ASSET-BACKED SECURITIES. Each Series may invest in asset-backed securities. These securities, issued by trusts and special purpose corporations, are backed by a pool of assets, such as credit card and automobile loan receivables, representing the obligations of a number of different parties. Asset-backed securities present certain risks. For instance, in the case of credit card receivables, these securities may not have the benefit of any security interest in the related collateral. Credit card receivables are generally unsecured and the debtors are entitled to the protection of a number of state and federal consumer credit laws, many of which give such debtors the right to set off certain amounts owed on the credit cards, thereby reducing the balance due. Most issuers of automobile receivables permit the servicers to retain possession of the underlying obligations. If the servicer were to sell these obligations to another party, there is a risk that the purchaser would acquire an interest superior to that of the holders of the related automobile receivables. In addition, because of the large number of vehicles involved in a typical issuance and technical requirements under state laws, the trustee for the holders of the automobile receivables may not have a proper security interest in all of the obligations backing such receivables. Therefore, there is the possibility that recoveries on repossessed collateral may not, in some cases, be available to support payments on these securities. Asset-backed securities are often backed by a pool of assets representing the obligations of a number of different parties. To lessen the effect of failures by obligors to make payments on underlying assets, the securities may contain elements of credit support which fall into two categories: (i) liquidity protection and (ii) protection against losses resulting from ultimate default by an obligor on the underlying assets. Liquidity protection refers to the provision of advances, generally by the entity administering the pool of assets, to ensure that the receipt of payments on the underlying pool occurs in a timely fashion. Protection against losses resulting 5 from ultimate default ensures payment through insurance policies or letters of credit obtained by the issuer or sponsor from third parties. The degree of credit support provided for each issue is generally based on historical information respecting the level of credit risk associated with the underlying assets. Delinquency or loss in excess of that anticipated or failure of the credit support could adversely affect the return on an instrument in such a security. The estimated life of an asset-backed security varies with the prepayment experience with respect to the underlying debt instruments. The rate of such prepayments, and hence the life of an asset-backed security, will be primarily a function of current market interest rates, although other economic and demographic factors may be involved. For example, falling interest rates generally result in an increase in the rate of prepayments of mortgage loans while rising interest rates generally decrease the rate of prepayments. Consequently, asset-backed securities are subject to call risk and extension risk (described below). BELOW INVESTMENT GRADE DEBT SECURITIES. The Unrestricted Fixed Income Series may invest up to 20% of its assets and the Lifecycle Defensive Growth Series, Lifecycle Growth With Reduced Volatility Series, Lifecycle Long-Term Growth Series, and Lifecycle Maximum-Term Growth Series may invest up to 10% of their assets in corporate debt securities rated below investment grade. High risk, high yield securities rated BBB or lower by S&P or Baa or lower by Moody's are "below investment grade" and are considered to have speculative characteristics and involve greater risk of default or price changes due to changes in the issuer's credit-worthiness. Market prices of these securities may fluctuate more than high-rated securities and they are difficult to price at times because they are more thinly traded and less liquid securities. Market prices may decline significantly in periods of general economic difficulty which may follow periods of rising interest rates. Securities in the lowest rating category may be in default. For these reasons, it is the Series' policy not to rely primarily on ratings issued by established credit rating agencies, but to utilize such ratings in conjunction with their Advisors' own independent and ongoing review of credit quality. In the event a security is downgraded below these ratings after purchase, each Advisor will review and take appropriate action with regard to the security. Each Series will also seek to minimize risk by diversifying its holdings. YANKEE BONDS. Each Series may invest in U.S. dollar-denominated bonds sold in the United States by non-U.S. issuers ("Yankee bonds"). As compared with bonds issued in the United States, such bond issues normally carry a higher interest rate but are less actively traded. 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 6 at the then prevailing market value, which depends primarily on the time remaining to maturity, prevailing level of interest rates and the perceived credit quality of the issues. The market prices of zero-coupon securities are subject to greater fluctuations in response to changes in market interest rates than bonds which pay interest currently. VARIABLE AND FLOATING RATE INSTRUMENTS. Certain of the obligations purchased by a Series may carry variable or floating rates of interest, may involve a conditional or unconditional demand feature and may include variable amount master demand notes. Such instruments bear interest at rates which are not fixed, but which vary with changes in specified market rates or indices, such as a Federal Reserve composite index. The interest rate on these securities may be reset daily, weekly, quarterly, or at some other interval, and it may have a floor or ceiling rate. There is a risk that the current interest rate on such obligations may not accurately reflect existing market interest rates. SHORT-TERM INVESTMENTS. For temporary defensive purposes during periods when the Advisors determine that market conditions warrant, each Series may depart from its investment goals and invest up to 100% of its assets in all types of money market instruments (including securities guaranteed by the U.S. Government, its agencies or instrumentalities, certificates of deposit, time deposits and bankers' acceptances issued by banks or savings and loan institutions deemed creditworthy by the Advisors, 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. RISKS OF FIXED INCOME SECURITIES. Investments in fixed income securities may subject the Series to risks, including the following: INTEREST RATE RISK. When interest rates decline, the market value of fixed income securities tends to increase. Conversely, when interest rates increase, the market value of fixed income securities tends to decline. The volatility of a security's market value will differ depending upon the security's duration, the issuer and the type of instrument. DEFAULT RISK/CREDIT RISK. Investments in fixed income securities are subject to the risk that the issuer of the security could default on its obligations, causing a Series to sustain losses on such investments. A default could impact both interest and principal payments. CALL RISK AND EXTENSION RISK. Fixed income securities may be subject to both call risk and extension risk. Call risk exists when the issuer may exercise its right to pay principal on an obligation earlier than scheduled, which would cause cash flows to be returned earlier than expected. This typically results when interest rates have declined and a Series will suffer from having to reinvest in lower yielding securities. Extension risk exists when the issuer may exercise its right to pay principal on an obligation later than scheduled, which would cause cash flows to be returned later than expected. This 7 typically results when interest rates have increased, and a Series will suffer from the inability to invest in higher yield securities. FOREIGN SECURITIES. The International Stock Series will, under normal circumstances, have at least 65% of the value of its total assets invested, and expects to be fully invested, in equity securities of foreign companies. Each other Series may invest up to 25% of its assets in foreign securities which are not publicly traded in the United States. Each Series may invest without limit in equity securities of foreign issuers that are listed on a domestic securities exchange or are represented by American Depository Receipts that are listed on a domestic securities exchange or are traded in the United States on the over-the-counter market. Foreign debt securities may be denominated either in U.S. dollars or foreign currencies. There are risks in investing in foreign securities not typically involved in domestic investing. An investment in foreign securities may be affected by changes in currency rates and in exchange control regulations. Foreign companies are frequently not subject to the accounting and financial reporting standards applicable to domestic companies, and there may be less information available about foreign issuers. There is frequently less government regulation of foreign issuers than in the United States. In addition, investments in foreign countries are subject to the possibility of expropriation or confiscatory taxation, political or social instability or diplomatic developments that could adversely affect the value of those investments. There may also be imposition of withholding taxes. Foreign financial markets may have less volume and longer settlement periods than U.S. markets which may cause liquidity problems for a Series. In addition, costs associated with transactions on foreign markets are generally higher than for transactions in the United States. Obligations of foreign governmental entities are subject to various types of governmental support and may or may not be supported by the full faith and credit of a foreign government. CURRENCY RISKS. The U.S. dollar value of securities denominated in a foreign currency will vary with changes in currency exchange rates, which can be volatile. Accordingly, changes in the value of the currency in which a Series' investments are denominated relative to the U.S. dollar will affect the Series' net asset value. Exchange rates are generally affected by the forces of supply and demand in the international currency markets, the relative merits of investing in different countries and the intervention or failure to intervene of U.S. or foreign governments and central banks. However, currency exchange rates may fluctuate based on factors intrinsic to a country's economy. Some emerging market countries also may have managed currencies, which are not free floating against the U.S. dollar. In addition, emerging markets are subject to the risk of restrictions upon the free conversion of their currencies into other currencies. Any devaluations relative to the U.S. dollar in the currencies in which a Series' securities are quoted would reduce the Series' net asset value per share. The initial phase of the introduction of a new European currency, the Euro, took place on January 1, 1999. The introduction of the Euro will require the redenomination of European debt and 8 equity securities over a period of time, which may result in various accounting differences and/or tax treatments that otherwise would not likely occur. Additional questions are raised by the fact that certain other EMU members, including the United Kingdom, have not officially implemented the Euro. If the introduction of the Euro does not take place as planned, there could be negative effects, such as severe currency fluctuations and market disruptions. SMALL COMPANY SECURITIES. Under normal circumstances, the Small Cap Stock Series will have at least 65% of the value of its total assets invested in the equity securities of small issuers, defined as companies with a market capitalization of less than $3.5 billion. In addition, the Aggressive Stock Series will invest a substantial portion of its assets in small company securities. Securities of small companies often have only a small proportion of their outstanding securities held by the general public. They may have limited trading markets that may be subject to wide price fluctuations. Small companies may have relatively small revenues and lack depth of management. Investments in such companies tend to be volatile and are therefore speculative. Small companies may have a small share of the market for their products or services and they may provide goods or services to a regional or limited market. They may be unable to internally generate funds necessary for growth or potential development or to generate such funds through external financing on favorable terms. In addition, they may be developing or marketing new products or services for which markets are not yet established and may never become established. Such companies may have or may develop only a regional market for products or services and thus be affected by local or regional market conditions. Moreover, small companies may have insignificant market share in their industries and may have difficulty maintaining or increasing their market share in competition with larger companies. Due to these and other factors, small companies may suffer significant losses. HEDGING (DERIVATIVE TRANSACTIONS) IN GENERAL. Each Series has reserved the right, subject to authorization by the Board of Directors prior to implementation, to engage in certain strategies in an attempt to hedge the Series' portfolios, that is, to reduce the overall level of risk that normally would be expected to be associated with their investments. Each Series may write covered call options on common stocks (fixed income securities in the case of the Government-Oriented Fixed Income Series, Unrestricted Fixed Income Series, Lifecycle Defensive Growth Series, Lifecycle Growth with Reduced Volatility Series, Lifecycle Long-Term Growth Series and Lifecycle Maximum-Term Growth Series; may purchase and sell (on a secured basis) put options) and may engage in closing transactions with respect to put and call options. Each Series also may purchase forward foreign currency exchange contracts to hedge currency exchange rate risk. In addition, each Series is authorized to purchase and sell stock index futures contracts and options on stock index futures contracts. Each Series is also authorized to conduct spot (i.e., cash basis) currency transactions or to use currency futures contracts and options on futures contracts and foreign currencies in order to protect against uncertainty in the future levels of foreign currency exchange rates. These strategies are primarily used for hedging purposes; nevertheless, there are risks associated with these strategies as described below. 9 OPTIONS ON SECURITIES. As a means of protecting its assets against market declines, and in an attempt to earn additional income, each Series may write covered call option contracts on its securities and may purchase call options for the purpose of terminating its outstanding obligations with respect to securities upon which covered call option contracts have been written. 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. Call options are issued by the Options Clearing Corporation ("OCC"), which also serves as the clearing house for transactions with respect to standardized or listed options. The price of a call option is paid to the writer without refund on expiration or exercise, and no portion of the price is retained by OCC or the exchanges listed above. Writers and purchasers of options pay the transaction costs, which may include commissions charged or incurred in connection with such option transactions. A Series may write only covered call options. A call option is considered to be covered if the option writer owns the security underlying the call or has an absolute and immediate right to acquire that security without payment of additional cash consideration (or for additional cash consideration held in a separate account) upon conversion or exchange of other securities. A call option is also considered to be covered if the writer holds on a unit-for-unit basis a call on the same security as the call written, has the same expiration date and the exercise price of the call purchased is equal to or less than the exercise price of the call written or greater than the exercise price of the call written if the difference is maintained in cash or other liquid securities in a separate account, and marked-to-market daily. A Series will not sell (uncover) the securities against which options have been written until after the option period has expired, the option has been exercised or a closing purchase has been executed. Options written by a Series will have exercise prices which may be below ("in-the-money"), equal to ("at-the-money") or above ("out-of-the-money") the market price of the underlying security at the time the options are written. However, a Series generally will not write so-called "deep-in-the-money" options. The market value of a call option generally reflects the market price of the underlying security. Other principal factors affecting market value include supply and demand, dividend yield and interest rates, the price volatility of the underlying security and the time remaining until the 10 expiration date. If a call option on a security expires unexercised, a Series will realize a gain in the amount of the premium on the option, less all commissions paid. Such a gain, however, may be offset by a decline in the value of the underlying security during the option period. If a call option is exercised, a Series will realize a gain or loss from the sale of the underlying security equal to the difference between the cost of the underlying security and the proceeds of the sale of the security (exercise price minus commission) plus the amount of the premium on the option, less all commissions paid. Call options may also be purchased by a Series, but only to terminate (entirely or in part) a Series' obligation as a writer of a call option. This is accomplished by making a closing purchase transaction, that is, the purchase of a call option on the same security with the same exercise price and expiration date as specified in the call option which had been written previously. A closing purchase transaction with respect to calls traded on a national securities exchange has the effect of extinguishing the obligation of the writer of a call option. A Series may enter into a closing purchase transaction, for example, to realize a profit on an option it had previously written, to enable it to sell the security which underlies the option, to free itself to sell another option or to prevent its portfolio securities from being purchased pursuant to the exercise of a call. A Series may also permit the call option to be exercised. A closing transaction cannot be effected with respect to an optioned security once a Series has received a notice that the option is to be exercised. The cost to a Series of such a closing transaction may be greater than the net premium received by a Series upon writing the original call option. A profit or loss from a closing purchase transaction will be realized depending on whether the amount paid to purchase a call to close a position is less or more than the amount received from writing the call. Any profit realized by a Series from the execution of a closing transaction may be partly or completely offset by a reduction in the market price of the underlying security. A Series may also write secured put options and enter into closing purchase transactions with respect to such options. A Series may write secured put options on national securities exchanges to obtain, through the receipt of premiums, a greater return than would be realized on the underlying securities alone. A put option gives the purchaser of the option the right to sell, and the writer has the obligation to buy, the underlying security at the stated exercise price during the option period. The secured put writer retains the risk of loss should the market value of the underlying security decline below the exercise price of the option. During the option period, the writer of a put option may be required at any time to make payment of the exercise price against delivery of the underlying security. The operation of put options in other respects is substantially identical to that of call options. The Fund will establish a separate account consisting of liquid assets equal to the amount of the Series assets that could be required to consummate the put options. For purposes of determining the adequacy of the securities in the account, the deposited assets will be valued at fair market value. If the value of such assets declines, additional cash or 11 assets will be placed in the account daily so that the value of the account will equal the amount of such commitments by the Series. A put option is secured if a Series maintains in a separate account liquid assets in an amount not less than the exercise price of the option at all times during the option period. A Series may write secured put options when the Advisor wishes to purchase the underlying security for a Series' portfolio at a price lower than the current market price of the security. In such event a Series would write a secured put option at an exercise price which, reduced by the premium received on the option, reflects the lower price it is willing to pay. The potential gain on a secured put option is limited to the income earned on the amount held in liquid assets plus the premium received on the option (less the commissions paid on the transaction) while the potential loss equals the difference between the exercise price of the option and the current market price of the underlying securities when the put is exercised, offset by the premium received (less the commissions paid on the transaction) and income earned on the amount held in liquid assets. A Series may purchase put options on national securities exchanges in an attempt to hedge against fluctuations in the value of its portfolio securities and to protect against declines in the value of individual securities. Purchasing a put option allows the purchaser to sell the particular security covered by the option at a certain price (the "exercise price") at any time up to a specified future date (the "expiration date"). 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. 12 RISKS FACTORS AND CERTAIN OTHER FACTORS RELATING TO OPTIONS. Positions in options on securities may be closed only by a closing transaction, which may be made only on an exchange which provides a liquid secondary market for such options. Although a Series will write options only when the Advisor believes a liquid secondary market will exist on an exchange for options of the same Series, there can be no assurance that a liquid secondary market will exist for any particular security option. If no liquid secondary market exists respecting an option position held, a Series may not be able to close an option position, which will prevent that Series from selling any security position underlying an option until the option expires and may have an adverse effect on its ability effectively to hedge its security positions. A secured put option writer who is unable to effect a closing purchase transaction would continue to bear the risk of decline in the market price of the underlying security until the option expires or is exercised. In addition, a secured put writer would be unable to use the amount held in liquid assets as security for the put option for other investment purposes until the exercise or expiration of the option. Possible reasons for the absence of a liquid secondary market on an exchange include the following: (i) insufficient trading; (ii) restrictions that may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions that may be imposed with respect to particular classes or Series of contracts, or underlying securities; (iv) unusual or unforeseen circumstances that may interrupt normal operations on an exchange; (v) the facilities of an exchange or a clearing corporation may not be adequate to handle unusual trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of contracts (or particular class or Series of contracts), in which event the secondary market on that exchange would cease to exist, although outstanding contracts on the exchange that had been issued by a clearing corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms. There is no assurance that higher than anticipated trading activity or other unforeseen events might not, at times, render certain of the facilities of any of the clearing corporations inadequate, and thereby result in the institution by an exchange of special procedures which may interfere with timely execution of customers' orders. Each of the exchanges on which options on securities are traded has established limitations on the number of options which may be written by any one investor or group of investors. These limitations apply regardless of whether the options are written in different accounts or through different brokers. It is possible that a Series and certain other accounts managed by the Advisor, may constitute such a group. If so, the options positions of the Series may be aggregated with those of other clients of the Advisor. If a Series writes an over-the-counter ("OTC") option, it will enter into an arrangement with a primary U.S. government securities dealer, which would establish a formula price at which the Series would have the absolute right to repurchase that OTC option. This formula price would generally be based on a multiple of the premium received for the option, plus the amount by which the option is exercisable below the marked price of the underlying security ("in-the-money"). For an OTC option a Series writes, it will treat as illiquid (for purposes of the 13 10% net asset limitation on illiquid securities) an amount of assets used to cover written OTC options, equal to the formula price for the repurchase of the OTC option less the amount by which the OTC option is "in-the-money". A Series will also treat as illiquid any OTC option held by it. The Securities and Exchange Commission ("SEC") is evaluating the general issue of whether or not the OTC options should be considered to be liquid securities, and the procedure described above could be affected by the outcome of that evaluation. Although the OCC has stated that it believes (based on forecasts provided by the exchanges on which options are traded), that its facilities are adequate to handle the volume of reasonably anticipated options transactions, and although each exchange has advised the OCC that it believes that its facilities will also be adequate to handle reasonably anticipated volume, there can be no assurance that higher than anticipated trading activity or order flow or other unforeseen events might not at times render certain of these facilities inadequate and thereby result in the institution of special trading procedures or restrictions. The Series will pay brokerage and other transaction costs to write and purchase options on securities, including any closing transactions which the Series may execute. Therefore, frequent writing and/or purchasing of options may increase the transaction costs borne by the Series. STOCK INDEX FUTURES CONTRACTS AND OPTIONS ON STOCK INDEX FUTURES CONTRACTS. Each Series may enter into stock index futures contracts to provide: (1) a hedge for a portion of the Series' portfolio; (2) a cash management tool; (3) as an efficient way to implement either an increase or decrease in portfolio market exposure in response to changing market conditions. The Series may also use stock index futures as a substitute for comparable market position in the underlying securities. Although techniques other than the sale and purchase of stock index futures contracts could be used to adjust the exposure or hedge the Series' portfolio, the Series may be able to do so more efficiently and at a lower cost through the use of stock index futures contracts. A stock index futures contract is a contract to buy or sell units of a stock index at a specified future date at a price agreed upon when the contract is made. Entering into a contract to buy units of a stock index is commonly referred to as buying or purchasing a contract or holding a long position in the index. Entering into a contract to sell units of a stock index is commonly referred to as selling a contract or holding a short position. A stock index future obligates the seller to deliver (and the purchaser to take) an amount of cash equal to a specific dollar amount times the difference between the value of a specific stock index at the close of the last trading day of the contract and the price at which the agreement is made. No physical delivery of the underlying stocks in the index is made. The Series intend to purchase and sell futures contracts on the stock index for which they can obtain the best price with consideration also given to liquidity. The Series will not enter into a stock index futures contract or option thereon if, as a result thereof, the sum of the amount of initial margin deposits on any such futures (plus deposits on any other futures contracts and premiums paid in connection with any options or futures 14 contracts) that do not constitute "bona fide hedging" under Commodity Futures Trading Commission ("CFTC") rules would exceed 5% of the liquidation value of the Series' total assets after taking into account unrealized profits and losses on such contracts. In addition, the value of all futures contracts sold will not exceed the total market value of the Series' portfolio. The Series will comply with guidelines established by the SEC with respect to the covering of obligations under future contracts and will set aside liquid assets in a separate account in the amount prescribed. Unlike the purchase or sale of an equity security, no price is paid or received by the Series upon the purchase or sale of a stock index futures contract. Upon entering into a Futures Contract, the Series would be required to deposit into a separate account in the name of the futures broker an amount of cash or liquid securities known as "initial margin." This amount is required by the rules of the exchanges and is subject to change. The nature of initial margin in futures transactions is different from that of margin in security transactions in that futures margin does not involve the borrowing of funds by the Series to finance the transactions. Rather, initial margin is in the nature of a performance bond or good faith deposit on the contract that is returned to the Series upon termination of the futures contract, assuming all contractual obligations have been satisfied. Subsequent payments, called "variation margin", to and from the futures broker, are made on a daily basis as the price of the underlying stock index fluctuates, making the long and short positions in the futures contract more or less valuable, a process known as "marking-to-market". For example, when the Series has purchased a stock index futures contract and the price of the underlying stock index has risen, that futures position will have increased in value and the Series will receive from the broker a variation margin payment equal to that increase in value. Conversely, when the Series has purchased a stock index futures contract and the price of the stock index has declined, the position would be less valuable and the Series would be required to make a variation payment to the broker. 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 15 offsetting transaction with respect to a particular stock index futures contract at a particular time. If the Series are not able to enter into an offsetting transaction, the Series will continue to be required to maintain the margin deposits on the stock index futures contract. The Series may elect to close out some or all of their futures positions at any time prior to expiration. The purpose of making such a move would be either to reduce equity exposure represented by long futures positions or increase equity exposure represented by short futures positions. The Series may close their positions by taking opposite positions which would operate to terminate the Series' position in the stock index futures contracts. Final determinations of variation margin would then be made, additional cash would be required to be paid or released to the Series, and the Series would realize a loss or a gain. Stock index futures contracts may be closed out only on the exchange or board of trade where the contracts were initially traded. Although the Series intend to purchase or sell stock index futures contracts only on exchanges or boards of trade where there appears to be an active market, there is no assurance that a liquid market on an exchange or board of trade will exist for any particular time. In such an event, it might not be possible to close a stock index futures contract, and in the event of adverse price movements, the Series would continue to be required to make daily cash payments of variation margin. However, in the event stock index futures contracts have been used to hedge portfolio securities, the Series would continue to hold securities subject to the hedge until the stock index futures contracts could be terminated. In such circumstances, an increase in the price of the securities, if any, might partially or completely offset losses on the stock index futures contract. However, as described below, there is no guarantee that the price of the securities will, in fact, correlate with price movements in the futures contract and thus provide an offset to losses on a stock index futures contract. There are several risks in connection with the use by the Series of stock index futures contracts as a hedging device. One risk arises because of the imperfect correlation between movements in the prices of the futures contracts and movements in the prices of securities which are the subject of the hedge. The Advisor will, however, attempt to reduce this risk by entering into stock index futures contracts on indices whose movements, in its judgment, will have a significant correlation with movements in the prices of the Series' portfolio securities sought to be hedged. Successful use of stock index futures contracts by the Series for hedging purposes is also subject to the Advisor's ability to correctly predict movements in the direction of the market. It is possible that, when the Series have sold futures to hedge their portfolios against a decline in the market, the index or indices on which the futures are written might advance and the value of securities held in the Series' portfolio might decline. If this were to occur, the Series would lose money on the futures and also would experience a decline in value in its portfolio securities. However, while this might occur to a certain degree, the Advisor believes that over time the value of the Series' portfolio will tend to move in the same direction as the securities underlying the futures, which are intended to correlate to the price movements of the portfolio securities sought to be hedged. It is also possible that if the Series were to hedge against the possibility of 16 a decline in the market (adversely affecting stocks held in their portfolios) and stock prices instead increased, the Series would lose part or all of the benefit of increased value of those stocks that it had hedged, because it would have offsetting losses in their futures positions. In addition, in such situations, if the Series had insufficient cash, they might have to sell securities to meet their daily variation margin requirements. Such sales of securities might be, but would not necessarily be, at increased prices (which would reflect the rising market). Moreover, the Series might have to sell securities at a time when it would be disadvantageous to do so. In addition to the possibility that there might be an imperfect correlation, or no correlation at all, between price movements in the stock index futures contracts and the portion of the portfolio to be hedged, the price movements in the futures contracts might not correlate perfectly with price movements in the underlying stock index due to certain market distortions. First, all participants in the futures market are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors might close stock index futures contracts through offsetting transactions which could distort the normal relationship between the index and futures markets. Second, the margin requirements in the futures market are less onerous than margin requirements in the securities markets. Due to the possibility of price distortion in the futures market and also because of the imperfect correlation between price movements in the stock index and movements in the prices of stock index futures contracts, even a correct forecast of general market trends by the Advisor might not result in a successful hedging transaction over a very short time period. Options on futures give the purchaser the right, in return for a premium paid, to assume a position in a futures contract (a long position if a call option and a short position if a put option), rather than to purchase or sell the stock index futures contract, at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the futures position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance in the writer's futures margin account which represents the amount by which the market price of the stock index futures contract, at exercise, exceeds (in the case of a call) or is less than (in the case of a put) the exercise price of the option on the futures contract. Alternatively, settlement may be made totally in cash. The Series may seek to close out an option position on an index by writing or buying an offsetting option covering the same index or contract and having the same exercise price and expiration date. The ability to establish and close out positions on such options will be subject to the development and maintenance of a liquid secondary market. It is not certain that this market will develop. See "Risk Factors and Certain Other Factors Relating to Options" above for possible reasons for the absence of a liquid secondary market on an exchange. 17 FUTURES ON SECURITIES. A futures contract on a security is a binding contractual commitment which, if held to maturity, will result in an obligation to make or accept delivery, during a particular month, of securities having a standardized face value and rate of return. Futures contracts by law are not permitted on individual corporate securities and municipal securities but instead are traded on exempt securities, such as government securities and broad-based indexes of securities. Accordingly, these futures contracts will primarily consist of futures based on government securities (i.e., Treasury Bonds). By purchasing futures on securities, the Fund will legally obligate itself to accept delivery of the underlying security and pay the agreed price; by selling futures on securities, it will legally obligate itself to make delivery of the security against payment of the agreed price. Open futures positions on securities are valued at the most recent settlement price, unless such price does not reflect the fair value of the contract, in which case the positions will be valued by or under the direction of the Board of Directors. Positions taken in the futures markets are not normally held to maturity, but are instead liquidated through offsetting transactions which may result in a profit or a loss. While the Series' futures contracts on securities will usually be liquidated in this manner, it may instead make or take delivery of the underlying securities whenever it appears economically advantageous for the Series to do so. However, the loss from investing in futures transactions is potentially unlimited. A clearing corporation associated with the exchange on which futures on securities or currency are traded guarantees that, if still open, the sale or purchase will be performed on the settlement date. FOREIGN CURRENCY TRANSACTIONS. In order to protect against a possible loss on investments resulting from a decline in a particular foreign currency against the U.S. dollar or another foreign currency, each Series is authorized to enter into forward foreign currency exchange contracts. In addition, each Series is authorized to conduct spot (i.e., cash basis) currency transactions or to use currency futures contracts, options on such futures contracts, and options on foreign currencies in order to protect against uncertainty in the future levels of currency exchange rates. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Forward foreign currency exchange contracts involve an obligation to purchase or sell a specified currency at a future date at a price set at the time of the contract. Forward currency contracts do not eliminate fluctuations in the values of portfolio securities but rather allow a Series to establish a rate of exchange for a future point in time. A Series may enter into forward foreign currency exchange contracts when deemed advisable by the Advisor under only two circumstances. First, when entering into a contract for the purchase or sale of a security in a foreign currency, a Series may enter into a forward foreign currency exchange contract for the amount of the purchase or sale price to protect against variations, between the date the security is purchased or sold and the date on which payment is made or received, in the value of the foreign currency relative to the U.S. dollar or other foreign currency. This hedging technique is known as "transaction hedging". 18 Second, when the Advisor anticipates that a particular foreign currency may decline substantially relative to the U.S. dollar or other leading currencies, in order to reduce risk, a Series may enter into a forward contract to sell, for a fixed amount, the amount of foreign currency approximating the value of some or all of its portfolio securities denominated in such foreign currency. This hedging technique is known as "position hedging". With respect to any such forward foreign currency contract, it will not generally be possible to match precisely the amount covered by that contract and the value of the securities involved due to the changes in the values of such securities resulting from market movements between the date the forward contract is entered into and the date it matures. In addition, while forward contracts may offer protection from losses resulting from declines in the value of a particular foreign currency, they also limit potential gains which might result from increases in the value of such currency. A Series will also incur costs in connection with forward foreign currency exchange contracts and conversions of foreign currencies and U.S. dollars. A separate account of each Series consisting of cash or liquid securities equal to the amount of that Series' assets that would be required to consummate forward contracts entered into under the second circumstance, as set forth above, will be established. For the purpose of determining the adequacy of the securities in the account, the deposited securities will be valued at market or fair value. If the market or fair value of such securities declines, additional cash or securities will be placed in the account daily so that the value of the account will equal the amount of such commitments by such Series. CURRENCY FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. Each Series is authorized to purchase and sell currency futures contracts and options thereon. Currency futures contracts involve entering into contracts for the purchase or sale for future delivery of foreign currencies. A "sale" of a currency futures contract (i.e., short) means the acquisition of a contractual obligation to deliver the foreign currencies called for by the contract at a specified price on a specified date. A "purchase" of a futures contract (i.e., long) means the acquisition of a contractual obligation to acquire the foreign currencies called for by the contract at a specified price on a specified date. These investment techniques will be used only to hedge against anticipated future changes in exchange rates which otherwise might either adversely affect the value of portfolio securities held by the Series or adversely affect the prices of securities which the Series intend to purchase at a later date. The loss from investing in futures transactions is potentially unlimited. To minimize this risk, such instruments will be used only in connection with permitted transaction or position hedging and not for speculative purposes. The Series will not enter in a currency futures contract or option thereon, if as a result thereof, the sum of the amount of initial margin deposits on any such futures (plus deposits on any other futures contracts and premiums paid in connection with any options or futures contracts) that do not constitute "bona fide hedging" under CFTC rules will not exceed 5% of the liquidation value of the Series' total assets after taking into account unrealized profits and losses on such contracts. In addition, the value of all futures contracts sold will not exceed the total market value of the Series' portfolio. The Series will comply with guidelines established by the SEC with respect to covering of obligations under future contracts and will set aside cash and/or liquid securities in a 19 separate account in the amount prescribed. Although the Series intend to purchase or sell futures contracts only if there is an active market for such contracts, no assurance can be given that a liquid market will exist for any particular contract at any particular time. In addition, due to the risk of an imperfect correlation between securities in the Series' portfolio that are the subject of a hedging transaction and the futures contract used as a hedging device, it is possible that the hedge will not be fully effective. For example, losses on the portfolio securities may be in excess of gains on the futures contract or losses on the futures contract may be in excess of the gains on the portfolio securities that were the subject of such hedge. Brokerage fees are incurred when a futures contract is bought or sold and margin deposits must be maintained for such contract. Although futures contracts typically require actual delivery of and payment for financial instruments or currencies, the contracts are usually closed out before the delivery date. Closing out an open futures contract sale or purchase is effected by entering into an offsetting futures contract purchase or sale, respectively, for the same aggregate amount of the identical type of financial instrument or currency and the same delivery date. If the offsetting purchase price is less than the original sale price, a Series realizes a gain; if it is more, a Series realizes a loss. Conversely, if the offsetting sale price is more than the original purchase price, a Series realizes a gain; if it is less, a Series realizes a loss. Transaction costs must also be included in these calculations. There can be no assurance, however, that a Series will be able to enter into an offsetting transaction with respect to a particular contract at a particular time. If a Series is not able to enter into an offsetting transaction, a Series will continue to be required to maintain the margin deposits on the contract. The ability to establish and close out positions on such options will be subject to the development and maintenance of a liquid secondary market. It is not certain that a liquid market will develop for any particular futures contracts. See "Certain Risk and Other Factors Respecting Options" above for possible reasons for the absence of a liquid secondary market on an exchange. An option on a futures contract gives the purchaser the right, in return for the premium paid, to assume a position in a futures contract (a long position if a call option and a short position if a put option) at a specified price at any time during the option exercise period. The writer of the option is required upon exercise to assume an offsetting futures position (a short position if a call option and a long position if a put option). Upon exercise of the option, the assumption of offsetting futures positions by the writer and holder of the option will be accompanied by delivery of the accumulated cash balance in the writer's futures margin account which represents the amount by which the market price of the futures contract, at exercise, exceeds, in the case of a call, or is less than, in the case of a put, the exercise price of the option on the futures contract. Call options sold by the Series with respect to futures contracts will be covered by, among other things, entering into a long position in the same contract at a price no higher than the strike price of the call option, or by ownership of the instruments underlying the futures contract, or the placement of liquid assets in a segregated account to fulfill the obligations undertaken by the 20 futures contract. A put option sold by the Series is covered when, among other things, liquid assets are placed in a segregated account to fulfill the obligations undertaken. FOREIGN CURRENCY OPTIONS. Each Series is authorized to purchase and write put and call options on foreign currencies. A call option is a contract whereby the purchaser, in return for a premium, has the right, but not the obligation, to buy the currency underlying the option at a specified price during the exercise period. The writer of the call option, who receives the premium, has the obligation, upon exercise of the option during the exercise period, to deliver the underlying currency against payment of the exercise price. A put option is a similar contract that gives its purchaser, in return for a premium, the right to sell the underlying currency at a specified price during the term of the option. The writer of the put option, who receives the premium, has the obligation, upon exercise of the option during the option period, to buy the underlying currency at the exercise price. The Series will use currency options only to hedge against the risk of fluctuations of foreign exchange rates related to securities held in its portfolio or which it intends to purchase, and to earn a high return by receiving a premium for writing options. Options on foreign currencies are affected by all the factors which influence foreign exchange rates and investments generally. RISKS ASSOCIATED WITH HEDGING STRATEGIES. There are risks associated with the hedging strategies described above, including the following: (1) the success of a hedging strategy may depend on the ability of the Advisor to accurately predict movements in the prices of individual securities, fluctuations in domestic and foreign markets and currency exchange rates, and movements in interest rates; (2) there may be an imperfect correlation between the changes in market value of the securities held by the Series and the prices of currency contracts, options, futures and options on futures; (3) there may not be a liquid secondary market for a currency contract, option, futures contract or futures option; (4) trading restrictions or limitations may be imposed by an exchange; and (5) government regulations, particularly requirements for qualification as a "regulated investment company" under the Code, may restrict trading in forward currency contracts, options, futures contracts and futures options. Even a small investment in derivative contracts can have a big impact on stock market, currency and interest rate exposure. Derivatives can also make a Series less liquid and harder to value, especially in declining markets. OTHER INVESTMENT POLICIES REPURCHASE AGREEMENTS. Each Series may enter into repurchase agreements with respect to portfolio securities. Under the terms of a repurchase agreement, the Series purchases securities ("collateral") from various financial institutions such as a bank or broker-dealer (a "seller") which the Advisor deems to be creditworthy, subject to the seller's agreement to repurchase them at a mutually agreed-upon date and price. The repurchase price generally equals the price paid by the Series plus interest negotiated on the basis of current short-term rates (which may be more or less than the rate on the underlying portfolio securities). 21 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 Advisors determine to make securities loans, the value of the securities loaned would not exceed 30% of the value of the total assets of the Series. SHORT SALES. Each Series may, within limits, engage in short sales "against the box". A short sale is the sale of borrowed securities; a short sale against the box means that a Series owns securities equivalent to those sold short. No more than 25% of the net assets (taken at current value) of a Series may be held as collateral for such sales at any one time. Such short sales can be used as a hedge. The Fund has no current intention to engage in short sales against the box. FORWARD COMMITMENTS OR PURCHASES ON A WHEN-ISSUED BASIS. Each Series may enter into forward commitments or purchase securities on a when-issued basis. These securities normally are subject to settlement within 45 days of the purchase date. The interest rate realized on these securities is fixed as of the purchase date and no interest accrues to the Series before settlement. These securities are subject to market fluctuation due to changes in market interest rates. Each Series will enter into these arrangements with the intention of acquiring the securities in question and not for speculative purposes and will maintain a separate account consisting of liquid assets in an amount at least equal to the purchase price. INVESTMENT IN RESTRICTED SECURITIES. Each Series may invest in "restricted securities" subject to the 15% net asset limitation regarding illiquid securities. Restricted securities are securities which were originally sold in private placements and which have not been registered under the Securities Act of 1933, as amended (the "1933 Act"). Such securities generally have been considered illiquid because they may be resold only subject to statutory restrictions and delays or if registered under the 1933 Act. The SEC adopted Rule 144A to provide for a safe harbor exemption from the registration requirements of the 1933 Act for resales of restricted securities to "qualified institutional buyers." The result has been the development of a more liquid and efficient institutional resale market for restricted securities. Rule 144A securities may be liquid if properly determined by the Board of Directors. 22 INVESTMENT RESTRICTIONS Each Series has adopted certain restrictions set forth below as fundamental policies, which may not be changed without the favorable vote of the holders of a "majority" of the Fund's outstanding voting securities, which means a vote of the holders of the lesser of (i) 67% of the shares represented at a meeting at which more than 50% of the outstanding shares are represented or (ii) more than 50% of the outstanding shares. None of the Series may: 1. Concentrate 25% or more of its total assets in securities of issuers in any one industry; provided, that (i) there are no limitations on the amount that may be invested in the securities of the U.S. Government, its agencies and instrumentalities; (ii) securities of open-end management investment companies; (iii) utility companies will be divided according to their services, for example, gas, gas transmission, electric and telephone will each be considered a separate industry; (iv) financial services companies will be classified according to the end users of their services, for example, automobile finance, bank finance and diversified finance will each be considered a separate industry; and (v) asset backed securities will be classified according to the underlying assets securing such securities; 2. With respect to 75% of its total assets, invest more than 5% of the value of its total assets in the securities of any single issuer or purchase more than 10% of the outstanding voting securities of any one issuer, except the U.S. Government, its agencies and instrumentalities and securities of open-end management investment companies; 3. Borrow money except for extraordinary or emergency purposes and then only from banks and in an amount not exceeding 33 1/3% of the value of the total assets of the Series at the time of such borrowing, provided that, while borrowings by the Series equaling 5% or more of the Series' total assets are outstanding, the Series will not purchase securities for investment; 4. Invest in real estate or mortgages on real estate although the Series may purchase and sell securities of companies that deal in real estate and may purchase and sell securities that are secured by interests in real estate; 5. Purchase or sell commodities or commodities contracts, unless acquired as a result of ownership of securities or other instruments (except this shall not prevent the Series from purchasing or selling financial futures contracts or options thereon or from investing in securities or other instruments backed by physical commodities); 6. Act as an underwriter of securities within the meaning of the Federal securities laws, except insofar as it might be deemed to be an underwriter upon disposition of certain portfolio securities acquired within the limitation on purchases of restricted securities; 23 7. Issue senior securities (as defined in the 1940 Act) except in connection with permitted borrowings as described above or as permitted by rule, regulation or order of the SEC. Restrictions on senior securities do not apply to certain techniques (such as reverse repurchase agreements), entered into in compliance with applicable laws and interpretations thereof; 8. Make loans, except that the Series may purchase or hold debt instruments and may enter into repurchase agreements and make loans of portfolio securities in accordance with its investment objective and policies; PORTFOLIO TURNOVER An annual portfolio turnover rate is, in general, the percentage computed by taking the lesser of purchases or sales of portfolio securities (excluding certain debt securities) for a year and dividing that amount by the monthly average of the market value of such securities during the year. Each Series expects that its long-term average turnover rate will be less than 100%. However, turnover will in fact be determined by market conditions and opportunities, and therefore it is impossible to estimate the turnover rate with confidence. THE FUND The Fund is an open-end management investment company incorporated under the laws of the State of Maryland on July 26, 1984. Prior to February 1998, the Fund was named Manning & Napier Fund, Inc. The Board of Directors may, at its own discretion, create additional Series of shares, each of which would have separate assets and liabilities. Each share of a Series represents an identical interest in the investment portfolio of that Series and has the same rights, except that (i) each class of shares bears those distribution fees, service fees and administrative expenses applicable to the respective class of shares as a result of its sales arrangements, which will cause the different classes of shares to have different expense ratios and to pay different rates of dividends, (ii) each class has exclusive voting rights with respect to those provisions of the Series' Rule 12b-1 distribution plan which relate only to such class and (iii) the classes have different exchange privileges. As a result of each class' differing Rule 12b- 1 distribution and shareholder services plan, shares of different classes of the same Series may have different net asset values per share. The Fund does not expect to hold annual meetings of shareholders but special meetings of shareholders may be held under certain circumstances. Shareholders of the Fund retain the right, under certain circumstances, to request that a meeting of shareholders be held for the purpose of considering the removal of a Director from office, and if such a request is made, the Fund will assist with shareholder communications in connection with the meeting. The shares of the Fund have equal rights with regard to voting, redemption and liquidations. The Fund's shareholders 24 will vote in the aggregate and not by Series or Class except as otherwise expressly required by law or when the Board of Directors determines that the matter to be voted upon affects only the interests of the shareholders of a Series or a Class. Income, direct liabilities and direct operating expenses of a Series will be allocated directly to the Series, and general liabilities and expenses of the Fund will be allocated among the Series in proportion to the total net assets of the Series by the Board of Directors. The holders of shares have no preemptive or conversion rights. Shares when issued are fully paid and non-assessable and do not have cumulative voting rights. MANAGEMENT The overall business and affairs of the Fund are managed by the Fund's Board of Directors. The Board approves all significant agreements between the Fund and persons or companies furnishing services to the Fund, including the Fund's agreements with its investment advisor, sub-advisors, custodian and distributor. The day-to-day operations of the Fund are delegated to the Fund's officers and to the Advisors. A committee made up of investment professionals and analysts makes all the investment decisions for the Fund. The Directors and officers of the Fund are: B. Reuben Auspitz* Vice President Executive Vice President, Manning & Napier 1100 Chase Square & Director Advisors, Inc. since 1993; President and Director, Rochester, NY 14604 Manning & Napier Investor Services, Inc. since 03/18/47 1990; Director, Chairman and Treasurer, Manning & Napier Advisory Advantage Corporation ("AAC") since 1990; Director, Manning & Napier Leveraged Investing Co., Inc. since 1994; Director and Chairman, Exeter Trust Co. since 1994; Member, Qualified Plan Services, L.L.C. (formerly known as Fiduciary Services, L.L.C.) since 1995; Member, Manning & Napier Associates, L.L.C. since 1995; Member, Manning & Napier Capital Co., L.L.C. since 1995; President and Director, Manning & Napier Insurance Fund, Inc. since 1995; Managing Director, Manning & Napier Advisors, Inc. from 1983-1992. Martin Birmingham Director Trustee, The Freedom Forum, 1980 - 1997; 21 Brookwood Road Advisory Director, ACC Corporation, 1997; Pittsford, NY 14534 Director, Emeritus, ACC Corporation, 1994 - 1997; 10/30/21 Director, Manning & Napier Insurance Fund, Inc. since 1995; Advisory Trustee, The Freedom Forum, since 1997.
25 Harris H. Rusitzky Director President, Blimpie of Central New York and The One Grove Street Greening Group since 1994; Director, Manning & Pittsford, NY 14534 Napier Insurance Fund, Inc. since 1995. 01/09/35 Peter L. Faber Director Former Partner, Kaye, Scholer, Fierman, Hays & 50 Rockefeller Plaza Handler from 1984-1995; Partner, McDermott, Will New York, NY 10020-1605 & Emery since 1995; Director, Manning & Napier 04/29/38 Insurance Fund, Inc. since 1995. Stephen B. Ashley Director Chairman and Chief Executive Officer, The Ashley 600 Powers Building Group since 1997; Chairman and CEO, Sibley 16 West Main Street Mortgage Corp., 1975 to 1996; Chairman and CEO, Rochester, NY 14614 Sibley Real Estate Services, Inc., 1975 to 1997; 03/22/40 Director, Genesee Corp. since 1987; Director, Hahn Automotive since 1994; Director, Fannie Mae since 1995; Director, Manning & Napier Insurance Fund, Inc. since 1996. William Manning President President, Director and co-founder, Manning & 1100 Chase Square Napier Advisors, Inc. since 1970; President, Rochester, NY 14604 Director, Founder & CEO, Manning Ventures, Inc. 12/24/36 since 1992; President, Director, Founder & CEO, KSDS, Inc. since 1992; Chairman of the Board, Director, CEO, Kent Displays, Inc. since 1992; President, Director, Founder & CEO, Synmatix Corporation since 1993; President, Director, Founder & CEO, Manning Leasing, Inc. (dba Williams International Air, Inc.) since 1994; President and Treasurer, Manning & Napier Leveraged Investing Company, Inc. since 1994; Member, Manning & Napier Capital Co., L.L.C. since 1994; Member, Qualified Plan Services, L.L.C. (formerly known as Fiduciary Services, L.L.C.) since 1995; Member, Manning & Napier Associates, L.L.C. since 1995; Director, CEO, President and Founder, Burgandy Car Service, Inc. 1996 to 1997; Director, CEO, President and Founder, BCS Leasing, Inc. since 1996.
26 Beth H. Galusha, CPA Chief Financial Chief Financial Officer, Manning & Napier 1100 Chase Square & Accounting Advisors, Inc. since 1987; Treasurer, Manning & Rochester, NY 14604 Officer, Napier Investor Services, Inc. since 1990; Director, 06/23/61 Treasurer Manning & Napier Advisory Advantage Corporation since 1993; Treasurer, Exeter Trust Company since 1995; Member, Manning & Napier Capital Co., L.L.C. since 1995; Chief Financial & Accounting Officer, Treasurer, Manning & Napier Insurance Fund, Inc. since 1997. Jodi L. Hedberg Corporate Senior Compliance Administrator, Manning & 1100 Chase Square Secretary Napier Advisors, Inc. from 1994-1995; Compliance Rochester, NY 14604 Manager, Manning & Napier Advisors, Inc. since 11/26/67 1995; Corporate Secretary, Manning & Napier Insurance Fund, Inc. since 1997.
* Interested Director, within the meaning of the Investment Company Act of 1940 (the "1940 Act"). The only Committee of the Fund is an Audit Committee whose members are B. Reuben Auspitz, Harris H. Rusitzky and Stephen B. Ashley. Directors affiliated with the Advisors do not receive fees from the Fund. Each Director who is not affiliated with the Advisors shall receive an annual fee of $2,500. Annual fees will be calculated monthly and prorated. Each Director who is not affiliated with the Advisors shall receive $375 per Board Meeting attended for each active Series of the Fund, plus $500 for any Committee Meeting held on a day on which a Board Meeting is not held. Compensation Table for Fiscal Year Ended December 31, 1998
Position Est. Annual Total From Aggregate Benefits Upon Compensation Name Registrant Compensation Pension Retirement from Registrant - -------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------- B. Reuben Auspitz* Director $0 N/A N/A $0 Martin Birmingham Director $25,000 N/A N/A $25,000 Harris H. Rusitzky Director $25,500 N/A N/A $25,500 Peter L. Faber Director $25,000 N/A N/A $25,000 Stephen B. Ashley Director $25,500 N/A N/A $25,500
*Interested Director, within the meaning of the 1940 Act. 27 THE ADVISOR AND THE SUB-ADVISORS The Advisor, Manning & Napier Advisory Advantage Corporation, Inc. ("AAC"), acts as the Series' investment advisor. Mr. William Manning controls the Advisor by virtue of his ownership of the securities of AAC. The Advisor also is generally responsible for supervision of the overall business affairs of the Fund including supervision of service providers to the Fund and direction of the Advisor's directors, officers or employees who may be elected as officers of the Fund to serve as such. The Fund pays the Advisor for the services performed a fee which is computed daily and payable monthly as a percentage of each Series' average daily net assets. ANNUAL MANAGEMENT FEES (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
SERIES MANAGEMENT FEE - ------ -------------- Government-Oriented Fixed Income Series 0.55% Unrestricted Fixed Income Series 0.75% Index Stock Series 0.30% Large Cap Stock Series 0.65% Small Cap Stock Series 0.80% Aggressive Stock Series 0.70% International Stock Series 0.75% The Lifecycle Series Defensive Growth Series 0.70% Growth with Reduced Volatility Series 0.75% Long-Term Growth Series 0.75% Maximum-Term Growth Series 0.75%
As described below, the Advisor is separately compensated for acting as transfer agent for the Series. The Advisor has entered into agreements with various Sub-Advisors for such Sub-Advisors to provide day-to-day investment management services to particular Series. Each Sub-Advisor will have expertise in managing assets of the type in which the particular Series invests. The Advisor serves as the "manager or managers". Pursuant to these agreements, and subject to review by the Board of Directors, the Advisor may allocate and reallocate assets among the Sub-Advisors, make sure the Sub-Advisors follow investment guidelines, evaluate Sub-Advisor performance and recommend to the Board of Directors the hiring and firing of each Sub-Advisor. These duties make the Advisor responsible for the performance of the Series. The Exeter Fund, Inc. and the Advisor have applied for an exemptive order from the Securities and Exchange Commission (the "Commission") that will allow the Fund to retain unaffiliated Sub-Advisors without submitting the Sub-Advisors' agreements to a vote of the Fund's shareholders. 28 The Agreement provides that if the expenses for any Series for any fiscal year (including fees and other amounts payable to the Advisor, but excluding (i) interest; (ii) taxes; (iii) brokerage costs; (iv) litigation; and (v) and other extraordinary costs) as calculated every business day would exceed the expense limitations imposed on investment companies by any applicable statute or regulatory authority of any jurisdiction in which shares are qualified for offer and sale, the Adviser shall bear such excess cost. The Agreement provides that the Advisor shall (i) manage the investment assets; (ii) hire (subject to the approval of the Fund's Board of Directors) and supervise the investment activities of one or more Sub-Advisors deemed necessary to carry out the investment program of any Series of the Fund; (iii) continuously review, supervise and (where appropriate) administer the investment program of the Series; (iv) determine in its discretion (where appropriate, in consideration of the role of Sub-Advisors) the securities to be purchased or sold; (v) provide the Fund with records concerning the Advisor's activities which the Fund is required to maintain, and (vi) render regular reports to the Fund's officers and Directors concerning the Advisor's discharge of the foregoing responsibilities. The retention of one or more Sub-Advisors by the Advisor shall not relieve the Advisor of its responsibilities under the Agreement. The Advisor will perform these responsibilities subject to the control of the Board of Directors of the Fund and in compliance with such policies as the Directors may from time to time establish. The Advisor will also comply with the objectives, policies, and limitations for each such Series set forth in the Fund's prospectus and this Statement of Additional Information, each as amended from time to time, and applicable laws and regulations. The Fund will furnish the Advisor from time to time with copies of all amendments or supplements to the prospectus and this Statement of Additional Information, if any. The Agreement states that the duties of the Advisor shall be confined to those expressly set forth in the Agreement and no implied duties are assumed by or may be asserted against the Advisor under the Agreement. 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 will remain in effect for two years, and may be continued for periods of one year if approved by the vote of a majority of those Directors of the Fund who are not parties to this Agreement or interested persons of any such party, cast in person at a meeting called for the purpose of voting on such approval, and (b) by the Directors of the Fund or by vote of a majority 29 of the outstanding voting securities of each Series; provided, however, that if the shareholders of any Series fail to approve the Agreement the Advisor may continue to serve to the extent permitted by the 1940 Act. The Agreement may be terminated as to any Series at any time, without the payment of any penalty by vote of a majority of the Directors of the Fund or by vote of a majority of the outstanding voting securities of the Series on not less than 30 days nor more than 60 days written notice to the Advisor, or by the Advisor at any time without the payment of any penalty, on 90 days written notice to the Fund. The Agreement will automatically terminate in the event of its assignment. The Advisor accepts such employment and agrees, at its own expense, to render the services and to provide the office space, furnishings and equipment and the personnel (including any sub-advisors) required by it to perform the services on the terms and for the compensation stated in the Agreement. MNA, an affiliate of AAC, acts as transfer agent to the Series. For providing transfer agency services to the Series, MNA receives a fee of 0.024% of the Series average daily net assets. The manager profiles for the Sub-Advisor for each Series are as follows: GOVERNMENT-ORIENTED FIXED INCOME SERIES STRONG CAPITAL MANAGEMENT was founded in 1974. Roughly 50% of the firm's assets represent fixed income management. The 100% employee-owned investment advisor has over $32 billion in assets under management and employs more than 60 investment professionals. Strong Capital takes a team approach to fixed income management. Strong Capital's principal business address is 900 Heritage Reserve, Menomonee Falls, Wisconsin 53051. UNRESTRICTED FIXED INCOME SERIES LOOMIS SAYLES was founded in 1926 and is wholly owned by New England Investment Companies, L.P. Loomis Sayles has over $70 billion in assets under management, and its fixed income division portfolio managers have an average of 23 years experience. Proprietary research is the cornerstone of the firm's business, with an annual research budget of over $15 billion and just under 40 career research professionals. Loomis Sayles' principal business address is One Financial Center, Boston, Massachusetts 02111. INDEX STOCK SERIES STATE STREET GLOBAL ADVISORS was founded in 1978 and is the institutional asset management affiliate of State Street Bank & Trust Company. The firm manages over $490 billion in assets and is considered one of the world's largest index managers, employing over 150 investment 30 professionals. State Street utilizes a team approach in managing the S&P 500 index style, with investment decision driven by the firm's full replication approach to indexing. State Street's principal business address is One International Place, Boston, Massachusetts 02110. LARGE CAP STOCK SERIES SCUDDER KEMPER INVESTMENTS is an employee-owned investment advisor founded in 1919. The firm manages over $240 billion in assets and employs nearly 300 professionals. The core value approach is managed by a team of specialists and supported by the firm's entire research staff. The core value management team's lead portfolio manager is a veteran of Scudder since 1982. Scudder Kemper's principal business address is 345 Park Avenue, New York, New York 10154. SMALL CAP STOCK SERIES DLJ INVESTMENT MANAGEMENT CORPORATION is a wholly owned institutional asset management subsidiary of Donaldson, Lufkin & Jenerette. Established in 1996, DLJ is located in New York City and manages over $6 billion in assets. The small cap value team's lead portfolio manager has more than 20 years of experience managing small cap portfolios. Small cap value management represents the firm's only equity product and, therefore, all equity resources are allocated to small cap research. DLJ's principal address 277 Park Avenue, New York, New York 10172. AGGRESSIVE STOCK SERIES MFS INSTITUTIONAL ADVISORS has been managing investments since 1970 and is a 9% employee owned subsidiary of Sun Life Assurance of Canada. The MFS manages over $95 billion in assets and employs more than 100 investment professionals. The emerging growth equity team is led by a portfolio manager with roughly 14 years of investment experience and supported by a staff of equity research analysts. The principal business address of MFS is 500 Boylston Street, Boston, Massachusetts 02116. INTERNATIONAL STOCK SERIES BABSON-STEWART IVORY INTERNATIONAL is a partnership between David L. Babson & Company, Inc. and Stewart Ivory & Company, Ltd. The partnership was formed in 1987 with the intent of providing international investment management to U.S. clients. The partnership draws on the international investment experience of professionals from Stewart Ivory & Company, located in Edinburgh, Scotland, and marketing and client servicing support from U.S.-based David L. Babson & Company. Babson-Stewart Ivory utilizes a team approach to investment management, with investment decisions driven by firm disciplines based on Stewart Ivory & Company's more than 100 years of international investment experience. Babson-Stewart's principal business address is BMA Tower, 700 Karnes Blvd., Kansas City, Missouri 64108-3306 31 LIFE CYCLE SERIES MANNING & NAPIER ADVISORS, INC. has over twenty-five years of investment experience managing for "life cycle" type investment objectives. The 100% employee-owned firm employs a staff of over 200 and currently manages over $7.0 billion in assets. Manning & Napier is a strong advocate of active asset allocation and offers a team-based management approach to a high quality, total return investment style with objectives-based investment strategies that have been in place since the firm's inception in 1970. Manning & Napier's principal business address is 1100 Chase Square, Rochester, New York 14604-1999. 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 May 11, 1999 (the "Distribution Agreement") which applies to each Class of shares. The Distribution Agreement will remain in effect for a period of two years after the effective date of the agreement and is renewable annually. The Distribution Agreement may be terminated by the Distributor, by a majority vote of the Directors who are not interested persons and have no financial interest in the Distribution Agreement ("Independent 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 D and Class E shares (the "Plans"), pursuant to Rule 12b-1 under the 1940 Act. 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 Independent 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 Independent 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 32 services or assistance, which may include, but not be limited to, processing purchase and redemption transactions, establishing and maintaining shareholder accounts regarding the Fund, and such other services as may be agreed to from time to time and as may be permitted by applicable statute, rule or regulation. The Distributor may, in its discretion, voluntarily waive from time to time all or any portion of its distribution fee and the Distributor is free to make additional payments out of its own assets to promote the sale of Fund shares. The Distributor receives distribution and/or service fees, at the rates set forth below, for providing shareholder services to the Class E and distribution and/or shareholders services to the Class D shares. The Distributor expects to allocate most of its distribution fees and shareholder service fees to Financial Intermediaries that enter into shareholder servicing agreements ("Servicing Agreements") with the Distributor. The different Classes permit the Fund to allocate an appropriate amount of fees to a Financial Intermediary in accordance with the level of distribution and/or shareholder services it agrees to provide. As compensation for providing shareholders services for the Class E shares, the Distributor receives a shareholders servicing fee equal to 0.25% of the Class E shares' average daily net assets. As compensation for providing distribution and/or shareholder services for the Class D shares, the Distributor receives distribution and/or shareholder servicing fee equal to 0.50% of the Class D shares' average daily net assets. 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. CUSTODIAN, INDEPENDENT ACCOUNTANT AND COUNSEL The custodian for the Fund is Boston Safe Deposit and Trust Company, One Cabot Road, 3rd Floor, Medford, MA 02155-5159. Boston Safe Deposit and Trust Company may, at its own expense, employ one or more sub-custodians on behalf of the Fund, provided that Boston Safe Deposit and Trust Company shall remain liable for all its duties as custodian. The foreign sub-custodians will act as custodian for the foreign securities held by the Fund. Legal counsel for the Fund is Morgan, Lewis & Bockius LLP, 1701 Market Street, Philadelphia, PA 19103-2921. PricewaterhouseCoopers LLP, 160 Federal Street, Boston, MA 02110 is the independent accountant for the Series. 33 PORTFOLIO TRANSACTIONS AND BROKERAGE Under the Agreement, the Advisor will place orders pursuant to its investment determinations for the Series either directly with the issuer or with any broker or dealer. In executing portfolio transactions and selecting brokers or dealers ("brokers"), the Advisor will use its best efforts to seek on behalf of the Series the best overall terms available ("best execution"). In assessing the best overall terms available for any transaction, the Advisor shall consider all factors that it deems relevant, including the breadth of the market in the security, the price of the security, the financial condition and execution capability of the broker or dealer, and the reasonableness of the commission, if any, both for the specific transaction and on a continuing basis. In evaluating the best overall terms available, and in selecting the broker to execute a particular transaction the Advisor may also consider the brokerage and research services provided to the Series and/or other accounts over which the Advisor or an affiliate of the Advisor may exercise investment discretion. The Advisor is authorized, subject to the prior approval of the Fund's Board of Directors, to pay to a broker who provides such brokerage and research services a commission for executing a portfolio transaction for any of the Series which is in excess of the amount of commission another broker would have charged for effecting that transaction if, but only if, the Advisor determines in good faith that such commission was reasonable in relation to the value of the brokerage and research services provided by such broker -- viewed in terms of that particular transaction or terms of the overall responsibilities of the Advisor to the Series. In addition, the Advisor is authorized to allocate purchase and sale orders for portfolio securities to brokers (including brokers that are affiliated with the Advisor or the Fund's principal underwriter) to take into account the sale of shares of the Fund if the Advisor believes that the quality of the transaction and the commission are comparable to what they would be with other qualified firms. In no instance, however, will any Series' securities be purchased from or sold to the Advisor, any sub-advisor engaged with respect to that Series, the Fund's principal underwriter, or any affiliated person of either the Fund, the Advisor, and sub-advisor or the principal underwriter, acting as principal in the transaction, except to the extent permitted by the SEC and the 1940 Act. 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 Advisors receive for the Fund's brokerage commissions, whether or not useful to the Fund may be useful to the Advisors in managing the accounts of the Advisors' other advisory clients. Similarly, the research received for the commissions of such accounts may be useful to the Fund. Subject to the above considerations, the Board of Directors has authorized the Series to effect portfolio transactions through affiliates of the Sub-Advisors, if the one or more of the Sub-Advisors chooses to employ its affiliate in such a capacity. The Board has adopted policies and procedures based on the standards of Rule 17e-1 pursuant to the 1940 Act, which requires that commissions paid to affiliates of the Advisors be "reasonable and fair compared to the commission, fee or other renumeration received or to be received by 34 other brokers in connection with comparable transactions involving similar securities during a comparable period of time." Rule 17e-1 also requires the Advisors to furnish reports to the Board of Directors and to maintain records in connection with reviews of the arrangements by the Board of Directors. NET ASSET VALUE The net asset value is determined on each day that the New York Stock Exchange is open for trading. In determining the net asset value of the Fund's shares, common stocks that are listed on national securities exchanges or the NASDAQ National Market System are valued at the last sale price on the exchange on which each stock is principally traded as of the close of the New York Stock Exchange (generally 4:00 p.m., Eastern time), or, in the absence of recorded sales, at the closing bid prices on such exchanges or on such System. Unlisted securities that are not included in such National Market System are valued at the quoted bid prices in the over-the-counter market. All securities initially expressed in foreign currencies will be converted to U.S. dollars at the exchange rates quoted at the close of the New York markets. Short securities positions are accounted for at value, using the same method of valuation described above. Securities and other assets for which market quotations are not readily available are valued by appraisal at their fair value as determined in good faith by the Advisor under procedures established by and under the general supervision and responsibility of the Fund's Board of Directors. The Advisor may use a pricing service to obtain the value of the Fund's portfolio securities where the prices provided by such pricing service are believed to reflect the fair market value of such securities. The methods used by the pricing service and the valuations so established will be reviewed by the Advisor under the general supervision of the Fund's Board of Directors. Several pricing services are available, one or more of which may be used as approved by the Fund's Board of Directors. FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS The following is only a summary of certain tax considerations generally affecting a Series and its shareholders, and is not intended as a substitute for careful tax planning. Shareholders are urged to consult their tax advisers with specific reference to their own tax situations, including their state and local tax liabilities. The following discussion of certain federal income tax consequences is based on the Code, and the regulations issued thereunder as in effect on the date of this Statement of Additional Information. New legislation, certain administrative changes, or court decisions may significantly change the conclusions expressed herein, and may have a retroactive effect with respect to the transactions contemplated herein. It is the policy of each of the Series to qualify for the favorable tax treatment accorded regulated investment companies under Subchapter M of the Code. By following such policy, each of the Series expects to be relieved of federal income tax on investment company taxable income and net capital gain (the excess of net long-term capital gain over net short-term capital loss) 35 distributed to shareholders. In order to qualify as a regulated investment company each Series must, among other things, (1) derive at least 90% of its gross income each taxable year from dividends, interest, payments with respect to securities loans, gains from the sale or other disposition of stock, securities or foreign currencies, or other income (including gains from options, futures or forward contracts) derived with respect to its business of investing in stock, securities or currencies; and (2) diversify its holdings so that at the end of each quarter of each taxable year (i) at least 50% of the market value of the Series' total assets is represented by cash or cash items, U.S. government securities, securities of other regulated investment companies, and other securities limited, in respect of any one issuer, to a value not greater than 5% of the value of the Series' total assets and 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its assets is invested in the securities of any one issuer (other than U.S. government securities or securities of any other regulated investment company) or of two or more issuers that the Series controls and that are engaged in the same, similar, or related trades or businesses. These requirements may restrict the degree to which the Series may engage in 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 loss) and (b) 90% of its net exempt interest income (the excess of (i) its tax-exempt interest income over (ii) certain deductions attributable to that income). If for any taxable year, a Series does not qualify as a regulated investment company under Sub-chapter M of the Code, all of its taxable income will be subject to tax at regular corporate tax rates without any deduction for distributions to shareholders and all such distributions will be taxable to shareholders as ordinary dividends to the extent of the 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 capital gain net income (the excess of short and long term capital gains over short and long term capital losses) for the one-year period ending October 31 of that year (and any retained amount from the prior year), the Series will be subject to a nondeductible 4% federal excise tax on the undistributed amounts. The Series generally intend to make sufficient distributions to avoid imposition of this tax. Distributions declared in October, November, or December to shareholders of record during those months and paid during the following January are treated as if they were received by each shareholder on December 31 of the year in which they are declared for tax purposes. Any gain or loss recognized on a sale, exchange or redemption of shares of a Series by a 36 shareholder who is not a dealer in securities will generally, for individual shareholders, be treated as a long-term capital gain or loss if the shares have been held for more than one year and otherwise generally will be treated as short-term capital gain or loss. However, if shares on which a shareholder has received a net capital gain distribution are subsequently sold, exchanged or redeemed and such shares have been held for six months or less, any loss recognized will be treated as long-term capital loss to the extent of the net capital gain distribution. Long-term capital gains generally are currently taxed at a maximum rate of 20%, and short-term capital gains are currently taxed at ordinary income tax rates. In certain cases, a Series will be required to withhold and remit to the U.S. Treasury 31% of any taxable dividends, capital gain distributions and redemption proceeds paid to a shareholder (1) who has failed to provide a correct and properly certified 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 shareholder's U.S. federal income tax liability. Dividends paid to nonresident alien individuals and foreign entities are potentially subject to different tax treatment, including a possible U.S. federal income tax, required to be withheld by the applicable Series, at a 30% rate (or a lower rate provided by an applicable income tax treaty). Certification of foreign status by such shareholders also will generally be required to avoid backup withholding on capital gain distributions and redemption proceeds. A Series' transactions in certain futures contracts, options, forward contracts, foreign currencies, foreign debt securities, foreign entities treated as investment companies and certain other investment and hedging activities will be subject to special tax rules. In a given case, these rules may accelerate income to the Series, defer losses to the Series, cause adjustments in the holding periods of the 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. Certain distributions may qualify for a dividends received deduction for corporate shareholders, subject to holding period requirements and other limitations under the Code, if they are attributable to the qualifying dividend income a Series receives from a domestic corporation and are properly designated by that Series. However, information set forth in the Prospectuses and this Statement of Additional Information which relates to taxation is only a summary of some of the important tax considerations generally affecting purchasers of shares of the 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 37 their tax advisors with specific reference to their own tax situation. Distributions by the Fund to shareholders and the ownership of shares may be subject to state and local taxes. Therefore, shareholders are urged to consult with their tax advisors concerning the application of state and local taxes to investments in the Fund, which may differ from the federal income tax consequences. For example, under certain specified circumstances, state income tax laws may exempt from taxation distributions of a regulated investment company to the extent that such distributions are derived from interest on federal obligations. Shareholders are urged to consult with their tax advisors regarding whether, and under what conditions, such exemption is available. YIELD AND TOTAL RETURN From time-to-time each Series may advertise its yield and total return. Both yield and total return figures are based on historical earnings and are not intended to indicate future performance. The "total return" of a Series refers to the average annual compounded rates of return over one-, five-, and ten-year periods or for the life of the Series (as stated in the advertisement) that would equate an initial amount invested at the beginning of a stated period to the ending redeemable value of the investment, assuming the reinvestment of all dividend and capital gains distributions. The respective performance figures for the Classes will differ because of the different distribution and/or shareholder services fees charged. The "30-day yield" of the Government Fixed Income Series and Unrestricted Fixed Income 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. 38 APPENDIX - DESCRIPTION OF BOND RATINGS1/ Moody's Investors Service, Inc. ("Moody's") Short-Term Prime Rating System - Taxable Debt and Deposits Globally Moody's short-term debt ratings are opinions of the ability of issuers to repay punctually senior debt obligations. These obligations have an original maturity not exceeding one year, unless explicitly noted. Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment ability of rated issuers: Prime-1: Issuers rated Prime-1 (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics: Leading market positions in well-established industries. High rates of return on funds employed. Conservative capitalization structure with moderate reliance on debt and ample asset protection. Broad margins in earnings coverage of fixed financial charges and high internal cash generation. Well-established access to a range of financial markets and assured sources of alternate liquidity. Prime-2: Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. Prime-3: Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained. - -------- 1/ The ratings indicated herein are believed to be the most recent ratings available at the date of this statement of additional information for the securities listed. Ratings are generally given to securities at the time of issuance. While the rating agencies may from time to time revise such ratings, they undertake no obligation to do so, and the ratings indicated do not necessarily represent ratings which will be given to these securities on the date of the Fund's fiscal year-end. A-1 Not Prime: Issuers rated Not Prime do not fall within any of the Prime rating categories. Obligations of a branch of a bank are considered to be domiciled in the country in which the branch is located. Unless noted as an exception, Moody's rating on a bank's ability to repay senior obligations extends only to branches located in countries which carry a Moody's Sovereign Rating for Bank Deposits. Such branch obligations are rated at the lower of the bank's rating or Moody's Sovereign Rating for Bank Deposits for the country in which the branch is located. When the currency in which an obligation is denominated is not the same as the currency of the country in which the obligation is domiciled, Moody's ratings do not incorporate an opinion as to whether payment of the obligation will be affected by actions of the government controlling the currency of denomination. In addition, risks associated with bilateral conflicts between an investor's home country and either the issuer's home country or the country where an issuer's branch is located are not incorporated into Moody's short-term debt ratings. If an issuer represents to Moody's that its short-term debt obligations are supported by the credit of another entity or entities, then the name or names of such supporting entity or entities are listed within the parenthesis beneath the name of the issuer, or there is a footnote referring the reader to another page for the name or names of the supporting entity or entities. In assigning ratings to such issuers, Moody's evaluates the financial strength of the affiliated corporations, commercial banks, insurance companies, foreign governments or other entities, but only as one factor in the total rating assessment. MOODY'S MUNICIPAL AND CORPORATE BOND RATINGS Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa: Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long term risks appear somewhat larger than in Aaa securities. A: Bonds which are rated A possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. A-2 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. Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating classification from Aa through Caa. The modifier 1 indicated that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicated a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category. Moody's may also assign conditional ratings to municipal bonds. Bonds for which the security depends upon the completion of some act or the fulfillment of some condition are rated conditionally. These are bonds secured by (a) earnings of projects under construction, (b) earnings of projects unseasoned in operating experience, (c) rentals which begin when facilities are completed, or (d) payments to which some other limiting condition attaches. Parenthetical rating denotes probable credit stature upon completion of construction or elimination of basis of condition. STANDARD & POOR'S SHORT-TERM ISSUE CREDIT RATINGS A-1: A short-term obligation rated A-1 is rated in the highest category by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is strong. Within this category, certain obligations are designated with a plus sign (+). This indicates that the obligor's A-3 capacity to meet its financial commitment on these obligations is extremely strong. A-2: A short-term obligation rated A-2 is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. However, the obligor's capacity to meet its financial commitment on the obligation is satisfactory. A-3: A short-term obligation rated A-3 exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. B: A short-term obligation rated B is regarded as having significant speculative characteristics. The obligor currently has the capacity to meet its financial commitment on the obligation; however, it faces major ongoing uncertainties which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation. C: A short-term obligation rated C is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. D: A short-term obligation rated D is in payment default. The D rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's 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. STANDARD & POOR'S MUNICIPAL AND CORPORATE BOND RATINGS Aaa: An obligation rated Aaa has the highest rating assigned by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is extremely strong. AA: An obligation rated AA differs from the highest-rated obligations only in a small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong. A: An obligation rated A is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong. BBB: An obligation rated BBB exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. Obligations rated BB, B, CCC, CC, and C are regarded as having significant speculative A-4 characteristics. BB indicates the least degree of speculation and C the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions. BB: An obligation rated BB is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lead to the obligor's capacity to meet its financial commitment on the obligation. B: An obligation rated B is more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation. CCC: An obligation rated CCC is currently vulnerable to nonpayment and is dependent upon favorable business, financial and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation. CC: An obligation rated CC is currently highly vulnerable to nonpayment. C: The C rating may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on this obligation are being continued. D: An obligation rated D is in payment default. The D rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's 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 are jeopardized. Plus (+) or Minus (-): The rating from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major categories. Standard & Poor's ratings may also be indicated by "NR". This designation indicates that no rating has been requested, that there is insufficient information on which to base a rating, or that Standard & Poor's does not rate a particular type of obligation as a matter of policy. Standard & Poor's may also assign conditional ratings to municipal bonds. The letter "p" indicates that the rating is provisional. A provisional rating assumes the successful completion of the project being financed by the debt being rated and indicates that payment of debt service requirements is largely or entirely dependent upon the successful timely completion of the project. This rating, however, while addressing credit quality subsequent to completion of the project, makes no comment on the likelihood of, or the risk of default upon failure of, such A-5 completion. The investor should exercise his own judgment with respect to such likelihood and risk. r: This symbol is attached to the ratings of instruments with significant noncredit risks. It highlights risks to principal or volatility of expected returns which are not addressed in the credit rating. Examples include: obligations linked or indexed to equities, currencies, or commodities; obligations exposed to severe prepayment risk, such as interest-only or principal-only mortgage securities; and obligations with unusually risky interest terms, such as inverse floaters. A-6 The Prospectuses dated March 1, 1999 for the Defensive, Blended Asset I, Blended Asset II, Maximum Horizon, Tax Managed, Flexible Yield I, Flexible Yield II, and Flexible Yield III are incorporated herein by reference to the 497(c) filing to this registration statement filed on March 3, 1999 with Accession No. 000751173-99-000010. PROSPECTUS EXETER FUND, INC. SOCIALLY RESPONSIBLE SERIES CLASS A SHARES The Securities and Exchange Commission has not approved or disapproved these securities or determined whether this prospectus is accurate or complete. Any statement to the contrary is a crime. [LOGO] - ------------------------- EXETER FUND, INC. - ------------------------- P.O. BOX 41118 ROCHESTER, NEW YORK 14604 716-325-6880 800-466-3863 - ------------------------- [This page intentionally blank] PAGE 2 Exeter Asset Management is a division of Manning & Napier Advisors, Inc., which was founded in 1970 and manages over $7 billion for individual and institutional investors. CONTENTS PAGE Goals, Strategies, and Risks 4 More About the Series' Investments 6 Management 7 How to Buy, Exchange, and Redeem Shares 8 Investment and Account Information 10 Dividends, Distributions, and Taxes 11 PAGE 3 GOALS, STRATEGIES, AND RISKS INVESTMENT GOAL Provide long-term total return that is consistent with the broad U.S. stock market, as represented by the Russell 3000-Registered Trademark- Index, through investments that meet the socially responsible criteria of the Series. INVESTMENT STRATEGIES The Series invests primarily in the common stocks of companies represented in the Russell 3000-Registered Trademark- Index. The Advisor avoids the common stocks of companies failing to satisfy certain "socially responsible" investment criteria. In selecting stocks for the portfolio, the Advisor uses a screening process to eliminate stocks of companies in the index that do not meet the social criteria. After these companies have been removed from the stocks in the index, the Advisor builds a portfolio that has market-sector and risk characteristics that are similar to the index. With this approach, the Advisor attempts to match the return and volatility of the index. The Advisor periodically rebalances the Series' portfolio to keep its weightings in line with those of the index. THE RUSSELL 3000 INDEX MEASURES THE PERFORMANCE OF THE 3,000 LARGEST U.S. COMPANIES BASED ON TOTAL MARKET CAPITALIZATION. SELECTION PROCESS The screening process attempts to avoid investments in companies engaged in the following businesses: - Tobacco - Alcohol - Pornography - Gambling - Drugs or devices primarily used for abortion The Advisor uses a variety of outside sources and conducts its own research in determining which stocks meet the Series' selection criteria. PRINCIPAL RISKS OF INVESTING IN THE SERIES As with any stock fund, the value of your investment will fluctuate in response to stock market movements. You could lose money on your investment in the Series or the Series could underperform if any of the following occurs: - The U.S. stock markets go down. - An adverse event, such as an unfavorable earnings report, depresses the value of one or more of the Series' portfolio holdings. There are additional risks associated with the specific investment approach used in the management of this Series: - Because the Series attempts to match the return and volatility of the index its value will increase and decrease as the index increases and decreases. Because the Series is not actively managed, Advisor will not be able to respond to a decline in the index by temporarily moving assets to investments not correlated with the index. - By eliminating certain types of companies from the portfolio, the Series may not track the index as well as a true index fund. - The Series will incur expenses, such as advisory fees, trading and custody costs that do not apply to an index. PAGE 4 SUMMARY OF PAST PERFORMANCE This Series was not active as of the date of this prospectus; therefore, no performance information is provided. WHO MAY WANT TO INVEST The Series may be an appropriate investment if you: - Are seeking a socially responsible investment. - Are seeking a mutual fund for the equity portion of an asset allocation portfolio. - Have a long-term time horizon for your investment and are willing and able to accept the risk of short-term stock market swings. - Are willing to accept a potentially lower total return than might be possible if certain categories of stocks were not eliminated from consideration for the Series. FEES AND EXPENSES OF THE SERIES This table describes the fees and expenses you may pay if you invest in shares of the Series.
SOCIALLY RESPONSIBLE SERIES SHAREHOLDER FEES (paid directly from your investment) None ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from assets of the Series) Management fee 0.50% Distribution and service (Rule 12b-1) fees None Other expenses 0.20% ----- TOTAL ANNUAL FUND OPERATING EXPENSES(1),(2) 0.70% - -------------------------------------------------------------------------------
(1)The Advisor has contractually agreed to limit its fees and reimburse expenses to the extent necessary so that the Series' total annual fund operating expenses do not exceed 0.70% of the Series' average daily net assets. This contractual waiver will remain in effect until at least February 29, 2000 and may be extended. (2)A wire charge, currently $15, may be deducted by the transfer agent from the amount of a wire redemption payment made at the request of a shareholder. A shareholder may effect up to four exchanges in a twelve-month period without charge; subsequent exchanges are subject to a fee of $15. This example is intended to help you compare the cost of investing in the Series with the cost of investing in other mutual funds. THE EXAMPLE BELOW ASSUMES THAT: - You invest $10,000 for the periods shown - The Series' operating expenses remain the same - Your investment has a 5% return each year Although your actual costs may be higher or lower, under these assumptions your costs would be: After After 1 year 3 years ------ ------- $72 $224 Because the Series was not active as of the date of this prospectus, the "Annual Fund Operating Expenses" presented are estimates based upon projections made by the Advisor. In addition, the Series has not calculated these expenses beyond the three year period shown. PAGE 5 MORE ABOUT THE SERIES' INVESTMENTS PRINCIPAL INVESTMENTS EQUITY SECURITIES Equity securities in which the Series may invest include exchange-traded and over-the-counter (OTC) common and preferred stocks, warrants, rights, convertible debt securities, trust certificates, partnership interests and equity participations. THE SERIES' INVESTMENT GOAL The Series' board of directors may change the Series' investment goal (described above under "Goals, Strategies, and Risks") without obtaining the approval of the Series' shareholders. The Series might not succeed in achieving its goal. DERIVATIVE CONTRACTS The Series may, but is not required to, use derivative contracts as a substitute for purchasing or selling securities contained in the index. A derivative contract will obligate or entitle the Series to deliver or receive an asset or a cash payment that is based on the change in value of a designated security or index. PAGE 6 MANAGEMENT THE ADVISOR The Series' Advisor is Exeter Asset Management, a division of Manning & Napier Advisors, Inc., 1100 Chase Square, Rochester, New York 14604. Manning & Napier Advisors, Inc. was founded in 1970, and it manages over $7 billion for individual and institutional investors. The Advisor is responsible for the day-to-day operations of the Series and generally is responsible for supervision of the Series' overall business affairs, service providers and officers. A team made up of investment professionals and analysts makes all of the Series' investment decisions. THE DISTRIBUTOR The distributor of the Series' shares is Manning & Napier Investor Services, Inc. Class A shares are offered to investors who purchase shares directly from the distributor or through certain registered investment advisors. Class A shares are not subject to any distribution or shareholder servicing fees. The Advisor may, from its own resources, defray or absorb costs relating to distribution, including compensation of employees who are involved in distribution. MANAGEMENT FEES In return for the services it provides to the Series, the Advisor receives a management fee at a rate of 0.50%, which is computed daily and payable monthly by the Series. The Advisor has contractually agreed to limit the Series' total operating expenses to a total of 0.70%. This contractual waiver will remain in effect until at least February 29, 2000 and may be extended. The Advisor may use its own resources to engage in activities that may promote the sale of the Series, 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. YEAR 2000 ISSUE Information technology experts are concerned about computer systems' ability to process date-related information on and after January 1, 2000. This situation, commonly known as the "Year 2000" issue, could have an adverse impact on the Series. The cost of addressing the Year 2000 issue, if substantial, could adversely affect companies and governments that issue securities held by the Series. The Advisor, the transfer agent and the distributor are addressing the Year 2000 issue for their systems. The Series has been informed by its other service providers that they are taking similar measures. Although the Series does not expect the Year 2000 issue to adversely affect it, the Series cannot guarantee that the efforts of the Series or its service providers to correct the problem will be successful. PAGE 7 HOW TO BUY, EXCHANGE, AND REDEEM SHARES HOW TO BUY SHARES The minimum initial investment in the Series is $2,000, and the minimum for each additional investment is $100. The minimum investment requirements are lower for participants in the Automatic Investment Plan, which is described below. These investment minimums may be waived at the Advisor's discretion. All orders to purchase shares received in good order by the distributor, transfer agent or other agent before the close of trading on the New York Stock Exchange (NYSE), generally 4:00 pm New York time, will be executed at that day's share price. Orders received in good order after that day's close will be executed at the next business day's price. All orders must include the required documentation and be accompanied by proper payment. The Series reserves the right to reject purchase orders or to stop offering its shares without notice to shareholders. BY MAIL OPENING AN ACCOUNT - Send a check payable to Exeter Fund, Inc. with the completed original account application. The address is: EXETER FUND, INC. P.O. BOX 41118 ROCHESTER, NY 14604 - To request an account application, call the Fund at 1-800-466-3863. ADDING TO AN ACCOUNT - Send a check payable to Exeter Fund, Inc. and a letter of instruction with the name of the Series to be purchased and the account name and number. BY WIRE OPENING OR ADDING TO AN ACCOUNT - After the Fund has received your completed account application, you may wire funds to open or add shares to your account. Before sending a wire, call 1-800-466-3863 for wire instructions. AUTOMATIC INVESTMENT PLAN You may participate in the Automatic Investment Plan by completing the applicable section of the account application or contacting the Fund. Through the plan, you can authorize transfers of a specified amount from your bank account into the Series on a regular basis. The minimum amount of each investment is $25. If you have insufficient funds in your account to complete a transfer, your bank may charge you a fee. PAGE 8 HOW TO EXCHANGE SHARES You may exchange shares of a Series for shares of any other Series of the Exeter Fund, if the registration of both accounts is identical. If received with proper documentation before the close of trading on the NYSE, exchange requests will be executed at that day's share prices. Otherwise, they will be executed at the prices determined on the next business day after receipt with proper documentation. The minimum exchange amount is $1,000 (or all the shares in your account, if less than $1,000). You may exchange up to 4 times during any 12-month period without paying a sales charge or any other fee. For any additional exchanges, you may be charged $15 per exchange. A Series may refuse any exchange order and may alter, limit or suspend its exchange privilege on 60 days' notice. An exchange involves a taxable redemption of shares surrendered in the exchange. BY MAIL - Send a letter of instruction to Exeter Fund, Inc., at the address on the opposite page, signed by each registered account owner, exactly as your names appear on the account registration. - Provide the name of the current Series, Series to exchange into and dollar amount to be exchanged. - Provide both account numbers. BY TELEPHONE - Unless you have declined telephone privileges, call the Fund at 1-800-466-3863. - Provide the name of the current Series, Series to exchange into and dollar amount to be exchanged. - Provide both account numbers. - The Fund may ask for identification, and all telephone transactions are recorded. HOW TO REDEEM SHARES All orders to redeem shares received in good order by the distributor, transfer agent or other agent before the close of trading on the NYSE will be executed at that day's share price. Orders received in good order after the close of trading will be executed at the next business day's price. All redemption orders must include the required documentation and signatures. The Series may postpone payment of redemption proceeds for up to seven days, or suspend redemptions to the extent permitted by law. If you recently purchased your shares by check, your redemption proceeds will not be sent to you for 15 days. BY MAIL - Send a letter of instruction to Exeter Fund, Inc., at the address on the opposite page signed by each registered account owner. - State the name of the Series, and the number of shares or dollar amount to be sold. - Provide the account number. - Signature guarantees may be required. - Additional documentation may be required (call the Fund for details). PAGE 9 INVESTMENT AND ACCOUNT INFORMATION ACCOUNTS WITH LOW BALANCES If your account falls below $1,000 due to the redemption of shares, the Fund may ask you to bring your account up to the minimum requirement. If your account is still below $1,000 after 60 days, the Fund may close your account and send you the redemption proceeds. IN-KIND PURCHASES AND REDEMPTIONS Securities you own may be used to purchase shares of the Series. The Advisor will determine if acquiring the securities is consistent with the Series' goals and policies. If accepted, the securities will be valued the same way the Series values securities it already owns. The Series may make payment for shares in part by giving you portfolio securities. As a redeeming shareholder, you will pay transaction costs to dispose of these securities. SIGNATURE GUARANTEES A signature guarantee may be required for any written request to sell shares, or to change the account registration. The transfer agent will accept signature guarantees from: - A member of the STAMP program or the NYSE's Medallion Signature Program. - A broker or securities dealer. - A federal savings, cooperative or other type of bank. - A savings and loan or other thrift institution. - A credit union. - A securities exchange or clearing agency. A NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE. VALUATION OF SHARES The Series offers its shares at the net asset value (NAV) per share of the Series. The Series calculates its NAV once daily as of the close of regular trading on the NYSE (generally at 4:00 p.m., New York time) on each day the exchange is open. If the exchange closes early, the Series will accelerate the calculation of NAV and transaction deadlines to that time. The Series values the securities in its portfolio on the basis of market quotations and valuations provided by independent pricing services. If quotations are not readily available, the Series values its assets by a method that the directors believe accurately reflects fair value. A Series that uses fair value to price securities may value those securities higher or lower than another Series that uses market quotations to price the same securities. PAGE 10 DIVIDENDS, DISTRIBUTIONS, AND TAXES DIVIDENDS AND DISTRIBUTIONS The Series generally: - Pays dividends once a year, in December. - Makes capital gains distributions, if any, once a year, typically in December. The Series may pay additional distributions and dividends at other times if necessary for the Series to avoid a federal tax. Capital gain distributions and dividends are reinvested in additional shares of the same class that you hold. Alternatively, you can instruct the transfer agent in writing or by telephone to have your capital gains and/or dividends paid in cash. You can change your choice at any time to be effective as of the next distribution or dividend, except that any change given to the transfer agent after the record date will not be effective until the next distribution or dividend is made. No interest will accrue on amounts represented by uncashed distribution or redemption checks. TAXES TRANSACTION FEDERAL TAX STATUS Redemption or exchange of shares Usually taxable as capital gain or loss; long-term only if shares owned more than one year Long-term capital gain distributions Taxable as long-term capital gain Short-term capital gain distributions Taxable as ordinary income Dividends Taxable as ordinary income Tax Exempt Income Free of federal income tax If you are a taxable investor, you may want to avoid buying shares when the Series is about to declare a capital gain distribution or a dividend, because it will be taxable to you even though it may actually be a return of a portion of your investment. After the end of each year, the Series will provide you with information about the distributions and dividends that you received and any redemptions of shares during the previous year. In calculating your gain or loss on any sale of shares, note that your tax basis in your shares is increased by the amounts of dividends and distributions that you have reinvested in a Series. Dividends and distributions are taxable as described above whether received in cash or reinvested. If you do not provide the Series with your correct taxpayer identification number and any required certifications, you may be subject to back-up withholding of 31% of your distributions, dividends and redemption proceeds. Because each shareholder's circumstances are different and special tax rules may apply, you should consult with your tax adviser about your investment in the Series and your receipt of dividends, distributions or redemption proceeds. PAGE 11 EXETER FUND, INC. SOCIALLY RESPONSIBLE SERIES CLASS A SHARES SHAREHOLDER REPORTS AND THE STATEMENT OF ADDITIONAL INFORMATION (SAI) Annual and semiannual reports to shareholders provide additional information about the Series' investments. These reports discuss the market conditions and investment strategies that significantly affected the Series' performance during its last fiscal year. The SAI provides more detailed information about the Series. It is incorporated by reference into this prospectus. HOW TO OBTAIN THESE REPORTS AND ADDITIONAL INFORMATION - You may obtain shareholder reports and the SAI or other information about the Series without charge, by calling 1-800-466-3863 or sending written requests to Exeter Fund, Inc., P.O. Box 41118, Rochester, New York 14604. - You may review shareholder reports, the prospectus and SAI at the Securities and Exchange Commission's Public Reference Room in Washington, D.C. You can get copies of these materials for a fee by writing to the Public Reference Section of the Commission, Washington, D.C. 20549-6009. Information about the public reference room may be obtained by calling 1-800-SEC-0330. You can get the same reports and information free from the SEC's Internet web site (http://www.sec.gov). If someone makes a statement about the Series that is not in this prospectus, you should not rely upon that information. Neither the Series nor its distributor is offering to sell shares of the Series to any person to whom the Series may not lawfully sell its shares. Investment Company Act file no. 811-04087 PAGE 12 PROSPECTUS EXETER FUND, INC. SOCIALLY RESPONSIBLE SERIES CLASS B, C, D, AND E SHARES The Securities and Exchange Commission has not approved or disapproved these securities or determined whether this prospectus is accurate or complete. Any statement to the contrary is a crime. [LOGO] - ------------------------- EXETER FUND, INC. - ------------------------- P.O. BOX 41118 ROCHESTER, NEW YORK 14604 716-325-6880 800-466-3863 - ------------------------- [This page intentionally blank] PAGE 2 EXETER ASSET MANAGEMENT IS A DIVISION OF MANNING & NAPIER ADVISORS, INC., WHICH WAS FOUNDED IN 1970 AND MANAGES OVER $7 BILLION FOR INDIVIDUAL AND INSTITUTIONAL INVESTORS. CONTENTS PAGE Goals, Strategies, and Risks 4 More About the Series' Investments 6 How to Buy, Exchange, and Redeem Shares 8 Investment and Account Information 10 Dividends, Distributions, and Taxes 11 PAGE 3 GOALS, STRATEGIES, AND RISKS INVESTMENT GOAL Provide long-term total return that is consistent with the broad U.S. stock market, as represented by the Russell 3000-Registered Trademark- Index, through investments that meet the socially responsible criteria of the Series. INVESTMENT STRATEGIES The Series invests primarily in the common stocks of companies represented in the Russell 3000-Registered Trademark- Index. The Advisor avoids the common stocks of companies failing to satisfy certain "socially responsible" investment criteria. In selecting stocks for the portfolio, the Advisor uses a screening process to eliminate stocks of companies in the index that do not meet the social criteria. After these companies have been removed from the stocks in the index, the Advisor builds a portfolio that has market-sector and risk characteristics that are similar to the index. With this approach, the Advisor attempts to match the return and volatility of the index. The Advisor periodically rebalances the Series' portfolio to keep its weightings in line with those of the index. THE RUSSELL 3000 INDEX MEASURES THE PERFORMANCE OF THE 3,000 LARGEST U.S. COMPANIES BASED ON TOTAL MARKET CAPITALIZATION. SELECTION PROCESS The screening process attempts to avoid investments in companies engaged in the following businesses: - Tobacco - Alcohol - Pornography - Gambling - Drugs or devices primarily used for abortion The Advisor uses a variety of outside sources and conducts its own research in determining which stocks meet the Series' selection criteria. PRINCIPAL RISKS OF INVESTING IN THE SERIES As with any stock fund, the value of your investment will fluctuate in response to stock market movements. You could lose money on your investment in the Series or the Series could underperform if any of the following occurs: - The U.S. stock markets go down. - An adverse event, such as an unfavorable earnings report, depresses the value of one or more of the Series' portfolio holdings. There are additional risks associated with the specific investment approach used in the management of this Series: - Because the Series attempts to match the return and volatility of the index its value will increase and decrease as the index increases and decreases. Because the Series is not actively managed, the Advisor will not be able to respond to a decline in the index by temporarily moving assets to investments not correlated with the index. - By eliminating certain types of companies from the portfolio, the Series may not track the index as well as a true index fund. - The Series will incur expenses, such as advisory fees, trading and custody costs that do not apply to an index. PAGE 4 SUMMARY OF PAST PERFORMANCE This Series was not active as of the date of this prospectus; therefore, no performance information is provided. WHO MAY WANT TO INVEST The Series may be an appropriate investment if you: - Are seeking a socially responsible investment. - Are seeking a mutual fund for the equity portion of an asset allocation portfolio. - Have a long-term time horizon for your investment and are willing and able to accept the risk of short-term stock market swings. - Are willing to accept a potentially lower total return than might be possible if certain categories of stocks were not eliminated from consideration for the Series. FEES AND EXPENSES OF THE SERIES This table describes the fees and expenses you may pay if you invest in shares of the Series.
SOCIALLY RESPONSIBLE SERIES CLASS B CLASS C CLASS D CLASS E SHAREHOLDER FEES (paid directly from your investment) None(1) None(1) None(1) None(1) ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from assets of the Series) Management fee 0.50% 0.50% 0.50% 0.50% Distribution and service (Rule 12b-1) fees 1.00% 0.75% 0.50% 0.25% Other expenses 0.20% 0.20% 0.20% 0.20% ----- ---- ----- ----- TOTAL ANNUAL FUND OPERATING EXPENSES(2) 1.70% 1.45% 1.20% 0.95% - --------------------------------------------------------------------------------------------------------------
(1)A wire charge, currently $15, may be deducted by the transfer agent from the amount of a wire redemption payment made at the request of a shareholder. A shareholder may effect up to four exchanges in a twelve-month period without charge; subsequent exchanges are subject to a fee of $15. (2)The Advisor has contractually agreed to limit its fees and reimburse expenses to the extent necessary so that the Series' total annual fund operating expenses do not exceed 1.70% of the Series' average daily net assets for Class B, 1.45% for Class C, 1.20% for Class D, and 0.95% for Class E. This example is intended to help you compare the cost of investing in the Series with the cost of investing in other mutual funds. THE EXAMPLE BELOW ASSUMES THAT: - You invest $10,000 for the periods shown - The Series' operating expenses remain the same - Your investment has a 5% return each year Although your actual costs may be higher or lower, under these assumptions your costs would be after:
Class B Class C Class D Class E 1 year $173 $148 $122 $97 3 years $536 $459 $381 $303
Because the Series was not active as of the date of this prospectus, the "Annual Fund Operating Expenses" presented are estimates based upon projections made by the Advisor. In addition, the Series has not calculated these expenses beyond the three year period shown. PAGE 5 MORE ABOUT THE SERIES' INVESTMENTS PRINCIPAL INVESTMENTS EQUITY SECURITIES Equity securities in which the Series may invest include exchange-traded and over-the-counter (OTC) common and preferred stocks, warrants, rights, convertible debt securities, trust certificates, partnership interests and equity participations. THE SERIES' INVESTMENT GOAL The Series' investment goal (described above under "Goals, Strategies, and Risks") board of directors may change the Series' without obtaining the approval of the Series' shareholders. The Series might not succeed in achieving its goal. DERIVATIVE CONTRACTS The Series may, but is not required to, use derivative contracts as a substitute for purchasing or selling securities contained in the index. A derivative contract will obligate or entitle the Series to deliver or receive an asset or a cash payment that is based on the change in value of a designated security or index. PAGE 6 MANAGEMENT THE ADVISOR The Series' Advisor is Exeter Asset Management, a division of Manning & Napier Advisors, Inc., 1100 Chase Square, Rochester, New York 14604. Manning & Napier Advisors, Inc. was founded in 1970, and it manages over $7 billion for individual and institutional investors. The Advisor is responsible for the day-to-day operations of the Series and generally is responsible for supervision of the Series' overall business affairs, service providers and officers. A team made up of investment professionals and analysts makes all of the Series' investment decisions. MANAGEMENT FEES In return for the services it provides to the Series, the Advisor receives a management fee at a rate of 0.50%, which is computed daily and payable monthly by the Series. The Advisor has contractually agreed to limit the Series' total operating expenses to a total of 1.70% of the Series' average daily net assets for Class B, 1.45% for Class C, 1.20% for Class D, and 0.95% for Class E. This limit is subject to annual renewal. The Advisor may use its own resources to engage in activities that may promote the sale of the Series, 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. THE DISTRIBUTOR The distributor of the Series' shares is Manning & Napier Investor Services, Inc. Class A shares of the Series are offered to investors who purchase shares directly from the distributor or through certain registered investment advisors. Class B, C, D, and E shares are offered only through a financial intermediary. Financial intermediaries include financial planners, investment advisers, broker-dealers, or other financial institutions with an agreement with the distributor. You may only purchase that class of shares that your financial intermediary sells or services. Class B shares are only available through broker-dealers who maintain an omnibus account with the distributor on behalf of investors. Class C shares are available only through financial intermediaries who establish individual shareholder accounts with the distributor in the name of investors or maintain certain types of omnibus accounts with the distributor. Class E shares are only available through financial intermediaries who provide certain shareholder services to the Fund. Class D shares are not currently available. Your financial intermediary can tell you which class of shares is available through the intermediary. DISTRIBUTION PLANS The Fund has adopted Rule 12b-1 distribution plans for the Class B, C, D, and E shares of the Series. Under the plans, the Class B, C, D, and E shares pay distribution and/or service fees (as a percentage of average daily net assets) equal to: 1.00%, 0.75%, 0.50%, and 0.25%, respectively. These fees are an ongoing expense and over time may cost you more than other types of sales charges. YEAR 2000 ISSUE Information technology experts are concerned about computer systems' ability to process date-related information on and after January 1, 2000. This situation, commonly known as the "Year 2000" issue, could have an adverse impact on the Series. The cost of addressing the Year 2000 issue, if substantial, could adversely affect companies and governments that issue securities held by the Series. The Advisor, the transfer agent and the distributor are addressing the Year 2000 issue for their systems. Its other service providers have informed the Series that they are taking similar measures. Although the Series does not expect the Year 2000 issue to adversely affect it, the Series cannot guarantee that the efforts of the Series or its service providers to correct the problem will be successful. PAGE 7 HOW TO BUY, EXCHANGE, AND REDEEM SHARES HOW TO BUY SHARES Class B, C, D or E shares are offered only through your financial intermediary. You may be subject to initial and subsequent minimums established by your financial intermediary for the purchase of shares. The Series reserves the right to reject purchase orders or to stop offering its shares without notice to shareholders. All orders to purchase shares received in good order by the distributor, transfer agent or other agent before the close of trading on the New York Stock Exchange (NYSE), generally 4:00 pm New York time, will be executed at that day's share price. Orders received in good order after that day's close will be executed at the next business day's price. All orders must include the required documentation and be accompanied by proper payment. The Series' distributor imposes no sales charge on purchases and redemptions of shares of the Series. However, your financial intermediary may charge you a transaction fee on purchases and redemptions. THROUGH THE FUND If your financial intermediary does not provide account maintenance services, contact the fund to purchase shares. BY MAIl OPENING AN ACCOUNT - Send a check payable to Exeter Fund, Inc. with the completed original account application. The address is: EXETER FUND, INC. P.O. BOX 41118 ROCHESTER, NY 14604 - To request an account application, call the Fund at 1-800-466-3863. ADDING TO AN ACCOUNT - Send a check payable to Exeter Fund, Inc. and a letter of instruction with the name of the Series to be purchased and the account name and number. BY WIRE OPENING OR ADDING TO AN ACCOUNT - After the Fund has received your completed account application, you may wire funds to open or add shares to your account. Before sending a wire, call 1-800-466-3863 for wire instructions. AUTOMATIC INVESTMENT PLAN You may participate in the Automatic Investment Plan by completing the applicable section of the account application or contacting your financial intermediary or the Fund. Through the plan, you can authorize transfers of a specified amount from your bank account into the Series on a regular basis. The minimum amount of each investment is $25. If you have insufficient funds in your account to complete a transfer, your bank may charge you a fee. PAGE 8 HOW TO REDEEM SHARES THROUGH THE FUND If your financial intermediary does not provide account maintenance services, contact the Fund to redeem shares. BY MAIL - Send a letter of instruction to Exeter Fund, Inc., at the address on the opposite page signed by each registered account owner. - State the name of the Series, the class and number of shares or dollar amount to be sold. - Provide the account number. - Signature guarantees may be required. - Additional documentation may be required (call the Fund for details). The Series may postpone payment of redemption proceeds for up to seven days, or suspend redemptions to the extent permitted by law. If you recently purchased your shares by check, your redemption proceeds will not be sent to you for 15 days. MORE ABOUT PURCHASES AND REDEMPTIONS All orders to purchase or redeem shares received in good order by the distributor, transfer agent or other agent before the close of trading on the New York Stock Exchange (NYSE) will be executed at that day's share price. Orders received in good order after that day's close will be executed at the next business day's price. All orders must include the required documentation and signatures, and all purchase orders must be accompanied by proper payment. The Fund has authorized several financial intermediaries to accept purchase and redemption orders on its behalf, and these intermediaries are authorized to designate other intermediaries to accept purchase and redemption orders on the Fund's behalf. The Fund will be deemed to have received an order when an authorized financial intermediary or its authorized designee accepts the order, and orders placed with an authorized financial intermediary will be processed at the share price of the Series next computed after they are received in good order by the financial intermediary or its designee. HOW TO EXCHANGE SHARES THROUGH THE FUND You may exchange shares of the Series for the same class of shares of any other Series of the Exeter Fund, if the registration of both accounts is identical. If received with proper documentation before the close of trading on the NYSE, exchange requests will be executed at that day's share prices. Otherwise, they will be executed at the prices determined on the next business day after receipt with proper documentation. The minimum exchange amount is $1,000 (or all the shares in your account, if less than $1,000). You may exchange up to 4 times during any 12-month period without paying a sales charge or any other fee. For any additional exchanges, you may be charged $15 per exchange. The Series may refuse any exchange order and may alter, limit or suspend its exchange privilege on 60 days' notice. An exchange involves a taxable redemption of shares surrendered in the exchange. THROUGH THE FUND If your financial intermediary provides account maintenance services, contact your financial intermediary to redeem shares. If not: BY MAIL - Send a letter of instruction to Exeter Fund, Inc., at the address on the opposite page, signed by each registered account owner, exactly as your names appear on the account registration. - Provide the name of the current Series, Series to exchange into and dollar amount to be exchanged. - Provide both account numbers. BY TELEPHONE - Unless you have declined telephone privileges, call the Fund at 1-800-466-3863. - Provide the name of the current Series, Series to exchange into and dollar amount to be exchanged. - Provide both account numbers. - The Fund may ask for identification, and all telephone transactions are recorded. PAGE 9 INVESTMENT AND ACCOUNT INFORMATION ACCOUNTS WITH LOW BALANCES If your account falls below $1,000 due to the redemption of shares, the Fund may ask you to bring your account up to the minimum requirement. If your account is still below $1,000 after 60 days, the Fund may close your account and send you the redemption proceeds. IN-KIND PURCHASES AND REDEMPTIONS Securities you own may be used to purchase shares of the Series. The Advisor will determine if acquiring the securities is consistent with the Series' goals and policies. If accepted, the securities will be valued the same way the Series values securities it already owns. The Series may make payment for shares in part by giving you portfolio securities. As a redeeming shareholder, you will pay transaction costs to dispose of these securities. SIGNATURE GUARANTEES A signature guarantee may be required for any written request to sell shares, or to change the account registration. The transfer agent will accept signature guarantees from: - A member of the STAMP program or the NYSE's Medallion Signature Program. - A broker or securities dealer. - A federal savings, cooperative or other type of bank. - A savings and loan or other thrift institution. - A credit union. - A securities exchange or clearing agency. A NOTARY PUBLIC CANNOT PROVIDE A SIGNATURE GUARANTEE. VALUATION OF SHARES The Series offers its shares at the net asset value (NAV) per share of the Series. The Series calculates its NAV once daily as of the close of regular trading on the NYSE (generally at 4:00 p.m., New York time) on each day the exchange is open. If the exchange closes early, the Series will accelerate the calculation of NAV and transaction deadlines to that time. The Series values the securities in its portfolio on the basis of market quotations and valuations provided by independent pricing services. If quotations are not readily available, the Series values its assets by a method that the directors believe accurately reflects fair value. A Series that uses fair value to price securities may value those securities higher or lower than another Series that uses market quotations to price the same securities. PAGE 10 DIVIDENDS, DISTRIBUTIONS, AND TAXES DIVIDENDS AND DISTRIBUTIONS The Series generally: - Pays dividends once a year, in December. - Makes capital gains distributions, if any, once a year, typically in December. The Series may pay additional distributions and dividends at other times if necessary for the Series to avoid a federal tax. Capital gain distributions and dividends are reinvested in additional shares of the same class that you hold. Alternatively, you can instruct the transfer agent in writing or by telephone to have your capital gains and/or dividends paid in cash. You can change your choice at any time to be effective as of the next distribution or dividend, except that any change given to the transfer agent after the record date will not be effective until the next distribution or dividend is made. No interest will accrue on amounts represented by uncashed distribution or redemption checks. TAXES TRANSACTION FEDERAL TAX STATUS Redemption or exchange of shares Usually taxable as capital gain or loss; long-term only if shares owned more than one year Long-term capital gain distributions Taxable as long-term capital gain Short-term capital gain distributions Taxable as ordinary income Dividends Taxable as ordinary income Tax Exempt Income Free of federal income tax If you are a taxable investor, you may want to avoid buying shares when the Series is about to declare a capital gain distribution or a dividend, because it will be taxable to you even though it may actually be a return of a portion of your investment. After the end of each year, the Series will provide you with information about the distributions and dividends that you received and any redemptions of shares during the previous year. In calculating your gain or loss on any sale of shares, note that your tax basis in your shares is increased by the amounts of dividends and distributions that you have reinvested in a Series. Dividends and distributions are taxable as described above whether received in cash or reinvested. If you do not provide the Series with your correct taxpayer identification number and any required certifications, you may be subject to back-up withholding of 31% of your distributions, dividends and redemption proceeds. Because each shareholder's circumstances are different and special tax rules may apply, you should consult with your tax adviser about your investment in the Series and your receipt of dividends, distributions or redemption proceeds. PAGE 11 EXETER FUND, INC. SOCIALLY RESPONSIBLE SERIES CLASS B, C, D, AND E SHARES SHAREHOLDER REPORTS AND THE STATEMENT OF ADDITIONAL INFORMATION (SAI) Annual and semiannual reports to shareholders provide additional information about the Series' investments. These reports discuss the market conditions and investment strategies that significantly affected the Series' performance during its last fiscal year. The SAI provides more detailed information about the Series. It is incorporated by reference into this prospectus. HOW TO OBTAIN THESE REPORTS AND ADDITIONAL INFORMATION - You may obtain shareholder reports and the SAI or other information about the Series without charge, by calling 1-800-466-3863 or sending written requests to Exeter Fund, Inc., P.O. Box 41118, Rochester, New York 14604. - You may review shareholder reports, the prospectus and SAI at the Securities and Exchange Commission's Public Reference Room in Washington, D.C. You can get copies of these materials for a fee by writing to the Public Reference Section of the Commission, Washington, D.C. 20549-6009. Information about the public reference room may be obtained by calling 1-800-SEC-0330. You can get the same reports and information free from the SEC's Internet web site (http://www.sec.gov). If someone makes a statement about the Series that is not in this prospectus, you should not rely upon that information. Neither the Series nor its distributor is offering to sell shares of the Series to any person to whom the Series may not lawfully sell its shares. Investment Company Act file no. 811-04087 PAGE 12 EXETER FUND, INC. STATEMENT OF ADDITIONAL INFORMATION DATED , 1999 This Statement of Additional Information is not a Prospectus, and it should be read in conjunction with the Prospectus for each of the following series of Exeter Fund, Inc. (the "Fund"): Blended Asset Series I, Blended Asset Series II, Flexible Yield Series I, Flexible Yield Series II, Flexible Yield Series III, Tax Managed Series, Defensive Series, Maximum Horizon Series, and Socially Responsible Series (each a "series"), copies of which may be obtained from Exeter Asset Management, 1100 Chase Square, Rochester, NY 14604. This SAI relates to the Class A, B, C, D and E Shares of each series. TABLE OF CONTENTS
Page ---- Investment Goals.................................................B-2 Investment Policies and Risks....................................B-2 Investment Restrictions..........................................B-23 Portfolio Turnover...............................................B-26 The Fund.........................................................B-26 Management.......................................................B-28 The Advisor......................................................B-34 Distribution of Fund Shares......................................B-36 Custodian, Independent Accountants and Counsel...................B-38 Purchases and Redemptions........................................B-38 Portfolio Transactions and Brokerage.............................B-38 Net Asset Value..................................................B-40 Federal Tax Treatment of Dividends and Distributions.............B-40 Performance Information..........................................B-44 Financial Statements.............................................B-45 Appendix - Description of Bond Ratings...........................B-46
INVESTMENT GOALS Each of the series' investment goals as well as its principal investment policies and strategies with respect to the composition of their respective portfolios are described in the prospectus. The following sections provide more information about those principal policies and strategies as well as information about other policies and strategies. Each series' investment goal is not fundamental and may be changed by the Board of Directors without shareholder approval. If there is a change in a series' investment objective, shareholders will be notified thirty (30) days prior to any such change and will be advised to consider whether the fund remains an appropriate investment in light of their then current financial position and needs. Each of the series is a diversified mutual fund. INVESTMENT POLICIES AND RISKS EQUITY INVESTMENTS COMMON STOCKS. Each series may purchase common stocks. Common stocks are shares of a corporation or other entity that entitle the holder to a pro rata share of the profits of the corporation, if any, without preference over any other shareholder or class of shareholders, including holders of the entity's preferred stock and other senior equity. Common stock usually carries with it the right to vote and frequently an exclusive right to do so. PREFERRED STOCKS. Each series may invest in preferred stocks. Preferred stocks may pay a dividend at a fixed rate, and may entitle the holder to acquire the issuer's stock by exchange or purchase for a predetermined rate. CONVERTIBLE SECURITIES. Each series may invest in securities that are convertible at either a stated price or a stated rate into underlying shares of common stock, thus enabling the investor to benefit from increases in the market price of the common stock. Convertible securities provide higher yields than the underlying equity, but generally offer lower yields than non-convertible securities of similar quality. Like bonds, the value of convertible securities fluctuates in relation to changes in interest rates and, in addition, also fluctuates in relation to the underlying common stock. The principal factor in selecting convertible bonds is the potential to benefit from movement in the stock price. There is no minimum rating standard for the debt aspects of such securities. Convertible bonds purchased by a series may be subject to the risk of being called by the issuer. WARRANTS. Each series may purchase warrants. Warrants acquired by a series entitle it to buy common stock from the issuer at a specified price and time. Warrants may be considered more speculative than certain other types of investments because they (1) do not carry rights to dividends or voting rights with respect to the securities which the warrant entitles the holder to purchase, and (2) do not represent any rights in the assets of the issuer. Warrants purchased by the Fund may or may not be listed on a national securities exchange. As a fundamental investment policy, none of the series (except for the Flexible Yield Series I, Flexible Yield Series II, and the Flexible Yield Series III) may invest more than 5% of the value of its total net assets in warrants. Included within that amount, but not to exceed 2% of 2 the value of the series' net assets, may be warrants which are not listed on the New York or American Stock Exchange. REITS. Each series may invest in shares of real estate investment trusts ("REITs"), which are pooled investment vehicles that invest in real estate or real estate loans or interests. Investing in REITs involves risks similar to those associated with investing in equity securities of small capitalization companies. REITs are dependent upon management skills, are not diversified, and are subject to risks of project financing, default by borrowers, self-liquidation, and the possibility of failing to qualify for the exemption from taxation on distributed amounts under the Internal Revenue Code of 1986, as amended (the "Code"). TRUST CERTIFICATES, PARTNERSHIP INTERESTS AND EQUITY PARTICIPATIONS. Each series may invest in equity securities that are interests in non-corporate entities. These securities, which include trust certificates, partnership interests and equity participations, have different liability and tax characteristics than equity securities issued by a corporation, and thus may present additional risks to the series. However, the investment characteristics of these securities are similar to those of traditional corporate equity securities. FIXED INCOME INVESTMENTS CORPORATE DEBT OBLIGATIONS. Each series may invest in corporate debt obligations issued by financial institutions and corporations. Corporate debt obligations are subject to the risk of an issuer's inability to meet principal and interest payments on the obligations and may also be subject to price volatility due to such factors as market interest rates, market perception of the creditworthiness of the issuer and general market liquidity. U.S. GOVERNMENT SECURITIES. Each series may invest in debt obligations of varying maturities issued or guaranteed by the U.S. Government, its agencies or instrumentalities. Direct obligations of the U.S. Treasury which are backed by the full faith and credit of the U.S. Government, include a variety of Treasury securities that differ only in their interest rates, maturities and dates of issuance. U.S. Government agencies or instrumentalities which issue or guarantee securities include, but are not limited to, the Federal Housing Administration, Federal National Mortgage Association, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration, Governmental National Mortgage Association, General Services Administration, Central Bank for Cooperatives, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, Federal Intermediate Credit Banks, Federal Land Banks, Maritime Administration, the Tennessee Valley Authority, District of Columbia Armory Board and the Student Loan Marketing Association. Obligations of U.S. Government agencies and instrumentalities may or may not be supported by the full faith and credit of the United States. Some are backed by the right of the issuer to borrow from the U.S. Treasury; others by discretionary authority of the U.S. Government to purchase the agencies' obligations; while still others, such as the Student Loan Marketing Association, are supported only by the credit of the instrumentality. In the case of securities not backed by the full faith and credit of the United States, the investor must look principally to the agency or instrumentality 3 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 Fund's investment advisor, Exeter Asset Management (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 which represent an interest in a pool of mortgage loans. These securities are issued or guaranteed by U.S. Government agencies or instrumentalities such as the Government National Mortgage Association ("GNMA"), Fannie Mae, and the Federal Home Loan Mortgage Corporation ("FHLMC"). Obligations of GNMA are backed by the full faith and credit of the United States Government. Obligations of Fannie Mae and FHLMC are not backed by the full faith and credit of the United States Government but are considered to be of high quality since they are considered to be instrumentalities of the United States. The market value and interest yield of these mortgage-backed securities can vary due to market interest rate fluctuations and early prepayments of underlying mortgages. These securities represent ownership in a pool of federally insured mortgage loans with a maximum maturity of 30 years. However, due to scheduled and unscheduled principal payments on the underlying loans, these securities have a shorter average maturity and, therefore, less principal volatility than a comparable 30-year bond. Since prepayment rates vary widely, it is not possible to accurately predict the average maturity of a particular mortgage-backed security. The scheduled monthly interest and principal payments relating to mortgages in the pool will be "passed through" to investors. Government mortgage-backed securities differ from conventional bonds in that principal is paid back to the certificate holders over the life of the loan rather than at maturity. As a result, there will be monthly scheduled payments of principal and interest. In addition, there may be unscheduled principal payments representing prepayments on the underlying mortgages. Although these securities may offer yields higher than those available from other types of U.S. Government securities, mortgage-backed securities may be less effective than other types of securities as a means of "locking in" attractive long-term rates because of the prepayment feature. For instance, when interest rates decline, the value of these securities likely will not rise as much as comparable debt securities due to the prepayment feature. In addition, these prepayments can cause the price of a mortgage-backed security originally purchased at a premium to decline in price to its par value, which may result in a loss. Each series may also invest in collateralized mortgage obligations ("CMOs") and real estate mortgage investment conduits ("REMICs"), which are rated in one of the two top categories by Standard & Poor's Corporation ("S&P") or Moody's Investors Service ("Moody's"). CMOs are securities collateralized by mortgages, mortgage pass-throughs, mortgage pay-through bonds (bonds representing an interest in a pool of mortgages where the cash flow generated from the mortgage collateral pool is dedicated to bond repayment), and mortgage-backed bonds (general obligations of the issuers payable out of the issuer's general funds and additionally secured by a first lien on a pool of single family detached properties). Many CMOs are issued with a number of classes or series which have different maturities and are retired in sequence. 4 Investors purchasing such CMOs in the shortest maturities receive or are credited with their pro rata portion of the scheduled payments of interest and principal on the underlying mortgages plus all unscheduled prepayments of principal up to a predetermined portion of the total CMO obligation. Until that portion of such CMO obligation is repaid, investors in the longer maturities receive interest only. Accordingly, the CMOs in the longer maturity series are less likely than other mortgage pass-throughs to be prepaid prior to their stated maturity. Although some of the mortgages underlying CMOs may be supported by various types of insurance, and some CMOs may be backed by GNMA certificates of other mortgage pass-throughs issued or guaranteed by U.S. government agencies or instrumentalities, the CMOs themselves are not generally guaranteed. REMICs, which were authorized under the Tax Reform Act of 1986, are private entities formed for the purpose of holding a fixed pool of mortgages secured by an interest in real property. REMICs are similar to CMOs in that they issue multiple classes of securities. ASSET-BACKED SECURITIES. Each series may invest in asset-backed securities. These securities, issued by trusts and special purpose corporations, are backed by a pool of assets, such as credit card and automobile loan receivables, representing the obligations of a number of different parties. Asset-backed securities present certain risks. For instance, in the case of credit card receivables, these securities may not have the benefit of any security interest in the related collateral. Credit card receivables are generally unsecured and the debtors are entitled to the protection of a number of state and federal consumer credit laws, many of which give such debtors the right to set off certain amounts owed on the credit cards, thereby reducing the balance due. Most issuers of automobile receivables permit the servicers to retain possession of the underlying obligations. If the servicer were to sell these obligations to another party, there is a risk that the purchaser would acquire an interest superior to that of the holders of the related automobile receivables. In addition, because of the large number of vehicles involved in a typical issuance and technical requirements under state laws, the trustee for the holders of the automobile receivables may not have a proper security interest in all of the obligations backing such receivables. Therefore, there is the possibility that recoveries on repossessed collateral may not, in some cases, be available to support payments on these securities. Asset-backed securities are often backed by a pool of assets representing the obligations of a number of different parties. To lessen the effect of failures by obligors to make payments on underlying assets, the securities may contain elements of credit support which fall into two categories: (i) liquidity protection and (ii) protection against losses resulting from ultimate default by an obligor on the underlying assets. Liquidity protection refers to the provision of advances, generally by the entity administering the pool of assets, to ensure that the receipt of payments on the underlying pool occurs in a timely fashion. Protection against losses resulting from ultimate default ensures payment through insurance policies or letters of credit obtained by the issuer or sponsor from third parties. The degree of credit support provided for each issue is generally based on historical information respecting the level of credit risk associated with the underlying assets. 5 Delinquency or loss in excess of that anticipated or failure of the credit support could adversely affect the return on an instrument in such a security. The estimated life of an asset-backed security varies with the prepayment experience with respect to the underlying debt instruments. The rate of such prepayments, and hence the life of an asset-backed security, will be primarily a function of current market interest rates, although other economic and demographic factors may be involved. For example, falling interest rates generally result in an increase in the rate of prepayments of mortgage loans while rising interest rates generally decrease the rate of prepayments. Consequently, asset-backed securities are subject to call risk and extension risk (described below). BELOW INVESTMENT GRADE DEBT SECURITIES. Each series may invest up to 20% of its assets in corporate debt securities rated below investment grade. High risk, high yield securities rated below BBB or lower by S&P or Baa or lower by Moody's are "below investment grade" and are considered to have speculative characteristics and involve greater risk of default or price changes due to changes in the issuer's credit-worthiness. Market prices of these securities may fluctuate more than high-rated securities and they are difficult to price at times because they are more thinly traded and less liquid securities. Market prices may decline significantly in periods of general economic difficulty which may follow periods of rising interest rates. Securities in the lowest rating category may be in default. For these reasons, it is the series' policy not to rely primarily on ratings issued by established credit rating agencies, but to utilize such ratings in conjunction with the Advisor's own independent and ongoing review of credit quality. In the event a security is downgraded below these ratings after purchase, the Advisor will review and take appropriate action with regard to the security. Each series will also seek to minimize risk by diversifying its holdings. YANKEE BONDS. Each series may invest in U.S. dollar-denominated bonds sold in the United States by non-U.S. issuers ("Yankee bonds"). As compared with bonds issued in the United States, such bond issues normally carry a higher interest rate but are less actively traded. OBLIGATIONS OF SUPRANATIONAL AGENCIES. Currently, the Flexible Yield Series I, Flexible Yield Series II and the Flexible Yield Series III may purchase securities issued or guaranteed by supranational agencies including, but not limited to, the following: Asian Development Bank, Inter-American Development Bank, International Bank for Reconstruction and Development (World Bank), African Development Bank, European Coal and Steel Community, European Economic Community, European Investment Bank and the Nordic Investment Bank. For concentration purposes, supranational entities are considered an industry. Investment in these entities is subject to the series' other restrictions on investments in foreign securities, described below. ZERO-COUPON BONDS. Some of the securities in which the series invest may include so-called "zero-coupon" bonds. Zero-coupon bonds are issued at a significant discount from face value and generally pay interest only at maturity rather than at intervals during the life of the security. Each series is required to accrue and distribute income from zero-coupon bonds on a current basis, even though it does not receive that income currently in cash. Thus, the series may have to sell investments to obtain cash needed to make 6 income distributions. The discount in the absence of financial difficulties of the issuer decreases as the final maturity of the security approaches. Zero-coupon bonds can be sold prior to their maturity date in the secondary market at the then prevailing market value, which depends primarily on the time remaining to maturity, prevailing level of interest rates and the perceived credit quality of the issues. The market prices of zero-coupon securities are subject to greater fluctuations in response to changes in market interest rates than bonds which pay interest currently. VARIABLE AND FLOATING RATE INSTRUMENTS. Certain of the obligations purchased by a series may carry variable or floating rates of interest, may involve a conditional or unconditional demand feature and may include variable amount master demand notes. Such instruments bear interest at rates which are not fixed, but which vary with changes in specified market rates or indices, such as a Federal Reserve composite index. The interest rate on these securities may be reset daily, weekly, quarterly, or at some other interval, and it may have a floor or ceiling rate. There is a risk that the current interest rate on such obligations may not accurately reflect existing market interest rates. SHORT-TERM INVESTMENTS. For temporary defensive purposes during periods when the Advisor determines that market conditions warrant, each series may depart from its investment goals and invest up to 100% of its assets in all types of money market instruments (including securities guaranteed by the U.S. Government, its agencies or instrumentalities, certificates of deposit, time deposits and bankers' acceptances issued by banks or savings and loan institutions deemed creditworthy by the Advisor, commercial paper rated A-1 by S&P or Prime-1 by Moody's, repurchase agreements involving such securities and shares of other investment companies as permitted by applicable law) and may hold a portion of its assets in cash. For a description of the above ratings, see the Appendix. RISKS OF FIXED INCOME SECURITIES. Investments in fixed income securities may subject the series to risks, including the following: INTEREST RATE RISK. When interest rates decline, the market value of fixed income securities tends to increase. Conversely, when interest rates increase, the market value of fixed income securities tends to decline. The volatility of a security's market value will differ depending upon the security's duration, the issuer and the type of instrument. DEFAULT RISK/CREDIT RISK. Investments in fixed income securities are subject to the risk that the issuer of the security could default on its obligations, causing a series to sustain losses on such investments. A default could impact both interest and principal payments. CALL RISK AND EXTENSION RISK. Fixed income securities may be subject to both call risk and extension risk. Call risk exists when the issuer may exercise its right to pay principal on an obligation earlier than scheduled, which would cause cash flows to be returned earlier than expected. This typically results when interest rates have declined and a series will suffer from having to reinvest in lower yielding securities. Extension risk exists when the issuer may exercise its right to pay principal on an obligation later than scheduled, which 7 would cause cash flows to be returned later than expected. This typically results when interest rates have increased, and a series will suffer from the inability to invest in higher yield securities. HEDGING (DERIVATIVE TRANSACTIONS) ALL OF THE SERIES' POLICIES REGARDING OPTIONS DISCUSSED BELOW ARE FUNDAMENTAL, AND MAY ONLY BE CHANGED BY A SHAREHOLDER VOTE. IN GENERAL. Each series has reserved the right, subject to authorization by the Board of Directors prior to implementation, to engage in certain strategies in an attempt to hedge the series' portfolios, that is, to reduce the overall level of risk that normally would be expected to be associated with their investments. Each series may write covered call options on common stocks; may purchase and sell (on a secured basis) put options; and may engage in closing transactions with respect to put and call options. Each series also may purchase forward foreign currency exchange contracts to hedge currency exchange rate risk. In addition, each series is authorized to purchase and sell stock index futures contracts and options on stock index futures contracts. Each series is also authorized to conduct spot (i.e., cash basis) currency transactions or to use currency futures contracts and options on futures contracts and foreign currencies in order to protect against uncertainty in the future levels of foreign currency exchange rates. These strategies are primarily used for hedging purposes; nevertheless, there are risks associated with these strategies as described below. OPTIONS ON SECURITIES. As a means of protecting its assets against market declines, and in an attempt to earn additional income, each series may write covered call option contracts on its securities and may purchase call options for the purpose of terminating its outstanding obligations with respect to securities upon which covered call option contracts have been written. 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 8 purchasers of options pay the transaction costs, which may include commissions charged or incurred in connection with such option transactions. A series may write only covered call options. A call option is considered to be covered if the option writer owns the security underlying the call or has an absolute and immediate right to acquire that security without payment of additional cash consideration (or for additional cash consideration held in a separate account) upon conversion or exchange of other securities. A call option is also considered to be covered if the writer holds on a unit-for-unit basis a call on the same security as the call written, has the same expiration date and the exercise price of the call purchased is equal to or less than the exercise price of the call written or greater than the exercise price of the call written if the difference is maintained in cash or other liquid securities in a separate account, and marked-to-market daily. A series will not sell (uncover) the securities against which options have been written until after the option period has expired, the option has been exercised or a closing purchase has been executed. Options written by a series will have exercise prices which may be below ("in-the-money"), equal to ("at-the-money") or above ("out-of-the-money") the market price of the underlying security at the time the options are written. However, a series generally will not write so-called "deep-in-the-money" options. The market value of a call option generally reflects the market price of the underlying security. Other principal factors affecting market value include supply and demand, dividend yield and interest rates, the price volatility of the underlying security and the time remaining until the expiration date. If a call option on a security expires unexercised, a series will realize a gain in the amount of the premium on the option, less all commissions paid. Such a gain, however, may be offset by a decline in the value of the underlying security during the option period. If a call option is exercised, a series will realize a gain or loss from the sale of the underlying security equal to the difference between the cost of the underlying security and the proceeds of the sale of the security (exercise price minus commission) plus the amount of the premium on the option, less all commissions paid. 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. 9 The cost to a series of such a closing transaction may be greater than the net premium received by a series upon writing the original call option. A profit or loss from a closing purchase transaction will be realized depending on whether the amount paid to purchase a call to close a position is less or more than the amount received from writing the call. Any profit realized by a series from the execution of a closing transaction may be partly or completely offset by a reduction in the market price of the underlying security. A series may also write secured put options and enter into closing purchase transactions with respect to such options. A series may write secured put options on national securities exchanges to obtain, through the receipt of premiums, a greater return than would be realized on the underlying securities alone. A put option gives the purchaser of the option the right to sell, and the writer has the obligation to buy, the underlying security at the stated exercise price during the option period. The secured put writer retains the risk of loss should the market value of the underlying security decline below the exercise price of the option. During the option period, the writer of a put option may be required at any time to make payment of the exercise price against delivery of the underlying security. The operation of put options in other respects is substantially identical to that of call options. The Fund will establish a separate account consisting of liquid assets equal to the amount of the series assets that could be required to consummate the put options. For purposes of determining the adequacy of the securities in the account, the deposited assets will be valued at fair market value. If the value of such assets declines, additional cash or assets will be placed in the account daily so that the value of the account will equal the amount of such commitments by the series. A put option is secured if a series maintains in a separate account liquid assets in an amount not less than the exercise price of the option at all times during the option period. A series may write secured put options when the Advisor wishes to purchase the underlying security for a series' portfolio at a price lower than the current market price of the security. In such event a series would write a secured put option at an exercise price which, reduced by the premium received on the option, reflects the lower price it is willing to pay. The potential gain on a secured put option is limited to the income earned on the amount held in liquid assets plus the premium received on the option (less the commissions paid on the transaction) while the potential loss equals the difference between the exercise price of the option and the current market price of the underlying securities when the put is exercised, offset by the premium received (less the commissions paid on the transaction) and income earned on the amount held in liquid assets. A series may purchase put options on national securities exchanges in an attempt to hedge against fluctuations in the value of its portfolio securities and to protect against declines in the value of individual securities. Purchasing a put option allows the purchaser to sell the particular security covered by the option at a certain price (the "exercise price") at any time up to a specified future date (the "expiration date"). 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 10 return available on the individual security should that security continue to appreciate in value. In return for the premium paid, a series protects itself against substantial losses should the security suffer a sharp decline in value. In contrast to covered call option writing, where one obtains greater current income at the risk of foregoing potential future gains, one purchasing put options is in effect foregoing current income in return for reducing the risk of potential future losses. A series will purchase put options as a means of "locking in" profits on securities held in the portfolio. Should a security increase in value from the time it is initially purchased, a series may seek to lock in a certain profit level by purchasing a put option. Should the security thereafter continue to appreciate in value the put option will expire unexercised and the total return on the security, if it continues to be held by a series, will be reduced by the amount of premium paid for the put option. At the same time, a series will continue to own the security. Should the security decline in value below the exercise price of the put option, however, a series may elect to exercise the option and "put" or sell the security to the party that sold the put option to that series, at the exercise price. In this case a series would have a higher return on the security than would have been possible if a put option had not been purchased. RISKS FACTORS AND CERTAIN OTHER FACTORS RELATING TO OPTIONS. Positions in options on securities may be closed only by a closing transaction, which may be made only on an exchange which provides a liquid secondary market for such options. Although a series will write options only when the Advisor believes a liquid secondary market will exist on an exchange for options of the same series, there can be no assurance that a liquid secondary market will exist for any particular security option. If no liquid secondary market exists respecting an option position held, a series may not be able to close an option position, which will prevent that series from selling any security position underlying an option until the option expires and may have an adverse effect on its ability effectively to hedge its security positions. A secured put option writer who is unable to effect a closing purchase transaction would continue to bear the risk of decline in the market price of the underlying security until the option expires or is exercised. In addition, a secured put writer would be unable to use the amount held in liquid assets as security for the put option for other investment purposes until the exercise or expiration of the option. Possible reasons for the absence of a liquid secondary market on an exchange include the following: (i) insufficient trading; (ii) restrictions that may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions that may be imposed with respect to particular classes or series of contracts, or underlying securities; (iv) unusual or unforeseen circumstances that may interrupt normal operations on an exchange; (v) the facilities of an exchange or a clearing corporation may not be adequate to handle unusual trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of contracts (or particular class or series of contracts), in which event the secondary market on that exchange would cease to exist, although outstanding contracts on the exchange that had been issued by a clearing corporation as a result of trades on that exchange would continue to be exercisable in 11 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. Each of the exchanges on which options on securities are traded has established limitations on the number of options which may be written by any one investor or group of investors. These limitations apply regardless of whether the options are written in different accounts or through different brokers. It is possible that a series and certain other accounts managed by the Advisor, may constitute such a group. If so, the options positions of the series may be aggregated with those of other clients of the Advisor. If a series writes an over-the-counter ("OTC") option, it will enter into an arrangement with a primary U.S. government securities dealer, which would establish a formula price at which the series would have the absolute right to repurchase that OTC option. This formula price would generally be based on a multiple of the premium received for the option, plus the amount by which the option is exercisable below the marked price of the underlying security ("in-the-money"). For an OTC option a series writes, it will treat as illiquid (for purposes of the 10% net asset limitation on illiquid securities) an amount of assets used to cover written OTC options, equal to the formula price for the repurchase of the OTC option less the amount by which the OTC option is "in-the-money". A series will also treat as illiquid any OTC option held by it. The Securities and Exchange Commission ("SEC") is evaluating the general issue of whether or not the OTC options should be considered to be liquid securities, and the procedure described above could be affected by the outcome of that evaluation. Although the OCC has stated that it believes (based on forecasts provided by the exchanges on which options are traded), that its facilities are adequate to handle the volume of reasonably anticipated options transactions, and although each exchange has advised the OCC that it believes that its facilities will also be adequate to handle reasonably anticipated volume, there can be no assurance that higher than anticipated trading activity or order flow or other unforeseen events might not at times render certain of these facilities inadequate and thereby result in the institution of special trading procedures or restrictions. The series will pay brokerage and other transaction costs to write and purchase options on securities, including any closing transactions which the series may execute. Therefore, frequent writing and/or purchasing of options may increase the transaction costs borne by the series. STOCK INDEX FUTURES CONTRACTS AND OPTIONS ON STOCK INDEX FUTURES CONTRACTS. Each series, except for Flexible Yield Series I, Flexible Yield Series II and Flexible Yield Series III of the Fund, may enter into stock index futures contracts to provide: (1) a hedge for a portion of the series' portfolio; (2) a cash management tool; (3) as an efficient way to implement either an increase or decrease in portfolio market exposure in response to changing market conditions. The series may also use stock index futures as a substitute for comparable market position in the underlying securities. Although techniques other than the sale and purchase of stock index futures 12 contracts could be used to adjust the exposure or hedge the series' portfolio, the series may be able to do so more efficiently and at a lower cost through the use of stock index futures contracts. A stock index futures contract is a contract to buy or sell units of a stock index at a specified future date at a price agreed upon when the contract is made. Entering into a contract to buy units of a stock index is commonly referred to as buying or purchasing a contract or holding a long position in the index. Entering into a contract to sell units of a stock index is commonly referred to as selling a contract or holding a short position. A stock index future obligates the seller to deliver (and the purchaser to take) an amount of cash equal to a specific dollar amount times the difference between the value of a specific stock index at the close of the last trading day of the contract and the price at which the agreement is made. No physical delivery of the underlying stocks in the index is made. The series intend to purchase and sell futures contracts on the stock index for which they can obtain the best price with consideration also given to liquidity. The series will not enter into a stock index futures contract or option thereon if, as a result thereof, the sum of the amount of initial margin deposits on any such futures (plus deposits on any other futures contracts and premiums paid in connection with any options or futures contracts) that do not constitute "bona fide hedging" under Commodity Futures Trading Commission ("CFTC") rules would exceed 5% of the liquidation value of the series' total assets after taking into account unrealized profits and losses on such contracts. In addition, the value of all futures contracts sold will not exceed the total market value of the series' portfolio. The series will comply with guidelines established by the Securities and Exchange Commission with respect to the covering of obligations under future contracts and will set aside liquid assets in a separate account in the amount prescribed. Unlike the purchase or sale of an equity security, no price is paid or received by the series upon the purchase or sale of a stock index futures contract. Upon entering into a Futures Contract, the series would be required to deposit into a separate account in the name of the futures broker an amount of cash or liquid securities known as "initial margin." This amount is required by the rules of the exchanges and is subject to change. The nature of initial margin in futures transactions is different from that of margin in security transactions in that futures margin does not involve the borrowing of funds by the series to finance the transactions. Rather, initial margin is in the nature of a performance bond or good faith deposit on the contract that is returned to the series upon termination of the futures contract, assuming all contractual obligations have been satisfied. Subsequent payments, called "variation margin", to and from the futures broker, are made on a daily basis as the price of the underlying stock index fluctuates, making the long and short positions in the futures contract more or less valuable, a process known as "marking-to-market". For example, when the series has purchased a stock index futures contract and the price of the underlying stock index has risen, that futures position will have increased in value and the series will receive from the broker a variation margin payment equal to that increase in value. Conversely, when the series has purchased a stock index futures contract and the price of the stock index has declined, 13 the position would be less valuable and the series would be required to make a variation payment to the broker. The loss from investing in futures transactions is potentially unlimited. To limit such risk, the series will not enter into stock index futures contracts for speculation and will only enter into futures contracts which are traded on established futures markets. The series may, however, purchase or sell stock index futures contracts with respect to any stock index. Nevertheless, to hedge the series' portfolio successfully, the Advisor must sell stock index futures contracts with respect to indices whose movements will, in its judgment, have a significant correlation with movements in the prices of the series' portfolio securities. Closing out an open stock index futures contract sale or purchase is effected by entering into an offsetting stock index futures contract purchase or sale, respectively, for the same aggregate amount of identical securities with the same delivery date. If the offsetting purchase price is less than the original sale price, the series realize a gain; if it is more, the series realize a loss. Conversely, if the offsetting sale price is more than the original purchase price, the series realize a gain; if it is less, the series realize a loss. The series must also be able to enter into an offsetting transaction with respect to a particular stock index futures contract at a particular time. If the series are not able to enter into an offsetting transaction, the series will continue to be required to maintain the margin deposits on the stock index futures contract. 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. 14 There are several risks in connection with the use by the series of stock index futures contracts as a hedging device. One risk arises because of the imperfect correlation between movements in the prices of the futures contracts and movements in the prices of securities which are the subject of the hedge. The Advisor will, however, attempt to reduce this risk by entering into stock index futures contracts on indices whose movements, in its judgment, will have a significant correlation with movements in the prices of the series' portfolio securities sought to be hedged. Successful use of stock index futures contracts by the series for hedging purposes is also subject to the Advisor's ability to correctly predict movements in the direction of the market. It is possible that, when the series have sold futures to hedge their portfolios against a decline in the market, the index or indices on which the futures are written might advance and the value of securities held in the series' portfolio might decline. If this were to occur, the series would lose money on the futures and also would experience a decline in value in its portfolio securities. However, while this might occur to a certain degree, the Advisor believes that over time the value of the series' portfolio will tend to move in the same direction as the securities underlying the futures, which are intended to correlate to the price movements of the portfolio securities sought to be hedged. It is also possible that if the series were to hedge against the possibility of a decline in the market (adversely affecting stocks held in their portfolios) and stock prices instead increased, the series would lose part or all of the benefit of increased value of those stocks that it had hedged, because it would have offsetting losses in their futures positions. In addition, in such situations, if the series had insufficient cash, they might have to sell securities to meet their daily variation margin requirements. Such sales of securities might be, but would not necessarily be, at increased prices (which would reflect the rising market). Moreover, the series might have to sell securities at a time when it would be disadvantageous to do so. In addition to the possibility that there might be an imperfect correlation, or no correlation at all, between price movements in the stock index futures contracts and the portion of the portfolio to be hedged, the price movements in the Futures Contracts might not correlate perfectly with price movements in the underlying stock index due to certain market distortions. First, all participants in the futures market are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors might close stock index futures contracts through offsetting transactions which could distort the normal relationship between the index and futures markets. Second, the margin requirements in the futures market are less onerous than margin requirements in the securities markets. Due to the possibility of price distortion in the futures market and also because of the imperfect correlation between price movements in the stock index and movements in the prices of stock index futures contracts, even a correct forecast of general market trends by the Advisor might not result in a successful hedging transaction over a very short time period. Options on futures give the purchaser the right, in return for a premium paid, to assume a position in a futures contract (a long position if a call option and a short position if a put option), rather than to purchase or sell the stock index futures contract, at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the 15 futures position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance in the writer's futures margin account which represents the amount by which the market price of the stock index futures contract, at exercise, exceeds (in the case of a call) or is less than (in the case of a put) the exercise price of the option on the futures contract. Alternatively, settlement may be made totally in cash. Each series may seek to close out an option position on an index by writing or buying an offsetting option covering the same index or contract and having the same exercise price and expiration date. The ability to establish and close out positions on such options will be subject to the development and maintenance of a liquid secondary market. It is not certain that this market will develop. See "Risk Factors and Certain Other Factors Relating to Options" above for possible reasons for the absence of a liquid secondary market on an exchange. FUTURES ON SECURITIES. A futures contract on a security is a binding contractual commitment which, if held to maturity, will result in an obligation to make or accept delivery, during a particular month, of securities having a standardized face value and rate of return. Futures contracts, by law are not permitted on individual corporate securities and municipal securities but instead are traded on exempt securities, such as government securities and broad-based indexes of securities. Accordingly, these futures contracts will primarily consist of futures based on government securities (i.e., Treasury Bonds). By purchasing futures on securities, the Fund will legally obligate itself to accept delivery of the underlying security and pay the agreed price; by selling futures on securities, it will legally obligate itself to make delivery of the security against payment of the agreed price. Open futures positions on securities are valued at the most recent settlement price, unless such price does not reflect the fair value of the contract, in which case the positions will be valued by or under the direction of the Board of Directors. Positions taken in the futures markets are not normally held to maturity, but are instead liquidated through offsetting transactions which may result in a profit or a loss. While the series' futures contracts on securities will usually be liquidated in this manner, it may instead make or take delivery of the underlying securities whenever it appears economically advantageous for the series to do so. However, the loss from investing in futures transactions is potentially unlimited. A clearing corporation associated with the exchange on which futures on securities or currency are traded guarantees that, if still open, the sale or purchase will be performed on the settlement date. FOREIGN CURRENCY TRANSACTIONS. In order to protect against a possible loss on investments resulting from a decline in a particular foreign currency against the U.S. dollar or another foreign currency, each series is authorized to enter into forward foreign currency exchange contracts. In addition, each series is authorized to conduct spot (i.e., cash basis) currency transactions or to use currency futures contracts, options on such futures contracts, and options on foreign currencies in order to protect against uncertainty in the future levels of currency exchange rates. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Forward foreign currency exchange contracts involve an obligation to purchase or sell a specified 16 currency at a future date at a price set at the time of the contract. Forward currency contracts do not eliminate fluctuations in the values of portfolio securities but rather allow a series to establish a rate of exchange for a future point in time. A series may enter into forward foreign currency exchange contracts when deemed advisable by the Advisor under only two circumstances. First, when entering into a contract for the purchase or sale of a security in a foreign currency, a series may enter into a forward foreign currency exchange contract for the amount of the purchase or sale price to protect against variations, between the date the security is purchased or sold and the date on which payment is made or received, in the value of the foreign currency relative to the U.S. dollar or other foreign currency. This hedging technique is known as "transaction hedging". Second, when the Advisor anticipates that a particular foreign currency may decline substantially relative to the U.S. dollar or other leading currencies, in order to reduce risk, a series may enter into a forward contract to sell, for a fixed amount, the amount of foreign currency approximating the value of some or all of its portfolio securities denominated in such foreign currency. This hedging technique is known as "position hedging". With respect to any such forward foreign currency contract, it will not generally be possible to match precisely the amount covered by that contract and the value of the securities involved due to the changes in the values of such securities resulting from market movements between the date the forward contract is entered into and the date it matures. In addition, while forward contracts may offer protection from losses resulting from declines in the value of a particular foreign currency, they also limit potential gains which might result from increases in the value of such currency. A series will also incur costs in connection with forward foreign currency exchange contracts and conversions of foreign currencies and U.S. dollars. A separate account of each series consisting of cash or liquid securities equal to the amount of that series' assets that would be required to consummate forward contracts entered into under the second circumstance, as set forth above, will be established. For the purpose of determining the adequacy of the securities in the account, the deposited securities will be valued at market or fair value. If the market or fair value of such securities declines, additional cash or securities will be placed in the account daily so that the value of the account will equal the amount of such commitments by such series. CURRENCY FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. Each series, is authorized to purchase and sell currency futures contracts and options thereon. Currency futures contracts involve entering into contracts for the purchase or sale for future delivery of foreign currencies. A "sale" of a currency futures contract (i.e., short) means the acquisition of a contractual obligation to deliver the foreign currencies called for by the contract at a specified price on a specified date. A "purchase" of a futures contract (i.e., long) means the acquisition of a contractual obligation to acquire the foreign currencies called for by the contract at a specified price on a specified date. These investment techniques will be used only to hedge against anticipated future changes in exchange rates which otherwise might either adversely affect the value of portfolio securities held by the series 17 or adversely affect the prices of securities which the series intend to purchase at a later date. The loss from investing in futures transactions is potentially unlimited. To minimize this risk, such instruments will be used only in connection with permitted transaction or position hedging and not for speculative purposes. The series will not enter in a currency futures contract or option thereon, if as a result thereof, the sum of the amount of initial margin deposits on any such futures (plus deposits on any other futures contracts and premiums paid in connection with any options or futures contracts) that do not constitute "bona fide hedging" under CFTC rules will not exceed 5% of the liquidation value of the series' total assets after taking into account unrealized profits and losses on such contracts. In addition, the value of all futures contracts sold will not exceed the total market value of the series' portfolio. The series will comply with guidelines established by the SEC with respect to covering of obligations under future contracts and will set aside cash and/or liquid securities in a separate account in the amount prescribed. Although the series intend to purchase or sell futures contracts only if there is an active market for such contracts, no assurance can be given that a liquid market will exist for any particular contract at any particular time. In addition, due to the risk of an imperfect correlation between securities in the series' portfolio that are the subject of a hedging transaction and the futures contract used as a hedging device, it is possible that the hedge will not be fully effective. For example, losses on the portfolio securities may be in excess of gains on the futures contract or losses on the futures contract may be in excess of the gains on the portfolio securities that were the subject of such hedge. Brokerage fees are incurred when a futures contract is bought or sold and margin deposits must be maintained for such contract. Although futures contracts typically require actual delivery of and payment for financial instruments or currencies, the contracts are usually closed out before the delivery date. Closing out an open futures contract sale or purchase is effected by entering into an offsetting futures contract purchase or sale, respectively, for the same aggregate amount of the identical type of financial instrument or currency and the same delivery date. If the offsetting purchase price is less than the original sale price, a series realizes a gain; if it is more, a series realizes a loss. Conversely, if the offsetting sale price is more than the original purchase price, a series realizes a gain; if it is less, a series realizes a loss. Transaction costs must also be included in these calculations. There can be no assurance, however, that a series will be able to enter into an offsetting transaction with respect to a particular contract at a particular time. If a series is not able to enter into an offsetting transaction, a series will continue to be required to maintain the margin deposits on the contract. The ability to establish and close out positions on such options will be subject to the development and maintenance of a liquid secondary market. It is not certain that a liquid market will develop for any particular futures contracts. See "Certain Risk and Other Factors Respecting Options" above for possible reasons for the absence of a liquid secondary market on an exchange. 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 18 any time during the option exercise period. The writer of the option is required upon exercise to assume an offsetting futures position (a short position if a call option and a long position if a put option). Upon exercise of the option, the assumption of offsetting futures positions by the writer and holder of the option will be accompanied by delivery of the accumulated cash balance in the writer's futures margin account which represents the amount by which the market price of the futures contract, at exercise, exceeds, in the case of a call, or is less than, in the case of a put, the exercise price of the option on the futures contract. Call options sold by the series with respect to futures contracts will be covered by, among other things, entering into a long position in the same contract at a price no higher than the strike price of the call option, or by ownership of the instruments underlying the futures contract, or the placement of liquid assets in a segregated account to fulfill the obligations undertaken by the futures contract. A put option sold by the series is covered when, among other things, liquid assets are placed in a segregated account to fulfill the obligations undertaken. FOREIGN CURRENCY OPTIONS. Each series is authorized to purchase and write put and call options on foreign currencies. A call option is a contract whereby the purchaser, in return for a premium, has the right, but not the obligation, to buy the currency underlying the option at a specified price during the exercise period. The writer of the call option, who receives the premium, has the obligation, upon exercise of the option during the exercise period, to deliver the underlying currency against payment of the exercise price. A put option is a similar contract that gives its purchaser, in return for a premium, the right to sell the underlying currency at a specified price during the term of the option. The writer of the put option, who receives the premium, has the obligation, upon exercise of the option during the option period, to buy the underlying currency at the exercise price. The series will use currency options only to hedge against the risk of fluctuations of foreign exchange rates related to securities held in its portfolio or which it intends to purchase, and to earn a high return by receiving a premium for writing options. Options on foreign currencies are affected by all the factors which influence foreign exchange rates and investments generally. RISKS ASSOCIATED WITH HEDGING STRATEGIES. There are risks associated with the hedging strategies described above, including the following: (1) the success of a hedging strategy may depend on the ability of the Advisor to accurately predict movements in the prices of individual securities, fluctuations in domestic and foreign markets and currency exchange rates, and movements in interest rates; (2) there may be an imperfect correlation between the changes in market value of the securities held by the series and the prices of currency contracts, options, futures and options on futures; (3) there may not be a liquid secondary market for a currency contract, option, futures contract or futures option; (4) trading restrictions or limitations may be imposed by an exchange; and (5) government regulations, particularly requirements for qualification as a "regulated investment company" under the Code, may restrict trading in forward currency contracts, options, futures contracts and futures options. 19 Even a small investment in derivative contracts can have a big impact on stock market, currency and interest rate exposure. Derivatives can also make a series less liquid and harder to value, especially in declining markets. OTHER INVESTMENT POLICIES FOREIGN SECURITIES. Each series may invest up to 25% of its assets in foreign securities which are not publicly traded in the United States. The series' investments in foreign securities will be of the same types and quality as the domestic securities in which the series may invest when the anticipated performance of foreign securities is believed by the Advisor to offer more potential than domestic alternatives in keeping with the investment goals of the series. Each series will invest no more than 25% of its assets in securities issued by any one foreign government. Each series may invest without limit in equity securities of foreign issuers that are listed on a domestic securities exchange or are represented by American Depository Receipts that are listed on a domestic securities exchange or are traded in the United States on the over-the-counter market. Foreign debt securities may be denominated either in U.S. dollars or foreign currencies. Each series' restrictions on investment in foreign securities are fundamental policies that cannot be changed without the approval of a majority, as defined in the Investment Company Act of 1940 (the "1940 Act"), of the outstanding voting securities of the series. There are risks in investing in foreign securities not typically involved in domestic investing. An investment in foreign securities may be affected by changes in currency rates and in exchange control regulations. Foreign companies are frequently not subject to the accounting and financial reporting standards applicable to domestic companies, and there may be less information available about foreign issuers. There is frequently less government regulation of foreign issuers than in the United States. In addition, investments in foreign countries are subject to the possibility of expropriation or confiscatory taxation, political or social instability or diplomatic developments that could adversely affect the value of those investments. There may also be imposition of withholding taxes. Foreign financial markets may have less volume and longer settlement periods than U.S. markets which may cause liquidity problems for a series. In addition, costs associated with transactions on foreign markets are generally higher than for transactions in the U.S. These risks generally are greater for investments in securities of companies in emerging markets, which are usually in the initial stages of their industrialization cycle. Obligations of foreign governmental entities are subject to various types of governmental support and may or may not be supported by the full faith and credit of a foreign government. CURRENCY RISKS. The U.S. dollar value of securities denominated in a foreign currency will vary with changes in currency exchange rates, which can be volatile. Accordingly, changes in the value of the currency in which a series' investments are denominated relative to the U.S. dollar will affect the series' net asset value. Exchange rates are generally affected by the forces of supply and demand in the international currency markets, the relative merits of investing in different countries and the intervention or 20 failure to intervene of U.S. or foreign governments and central banks. However, currency exchange rates may fluctuate based on factors intrinsic to a country's economy. Some emerging market countries also may have managed currencies, which are not free floating against the U.S. dollar. In addition, emerging markets are subject to the risk of restrictions upon the free conversion of their currencies into other currencies. Any devaluations relative to the U.S. dollar in the currencies in which a series' securities are quoted would reduce the series' net asset value per share. REPURCHASE AGREEMENTS. Each series may enter into repurchase agreements with respect to portfolio securities. Under the terms of a repurchase agreement, the series purchases securities ("collateral") from various financial institutions such as a bank or broker-dealer (a "seller") which the Advisor deems to be creditworthy, subject to the seller's agreement to repurchase them at a mutually agreed-upon date and price. The repurchase price generally equals the price paid by the series plus interest negotiated on the basis of current short-term rates (which may be more or less than the rate on the underlying portfolio securities). The seller under a repurchase agreement is required to maintain the value of the collateral held pursuant to the agreement at not less than 100% of the repurchase price, and securities subject to repurchase agreements are held by the series' custodian either directly or through a securities depository. Default by the seller would, however, expose the series to possible loss because of adverse market action or delay in connection with the disposition of the underlying securities. Repurchase agreements are considered to be loans by the series under the 1940 Act. SECURITIES LENDING. Each series may seek to increase its income by lending portfolio securities. Such loans will usually be made to member firms (and subsidiaries thereof) of the New York Stock Exchange and to member banks of the Federal Reserve System, and would be required to be secured continuously by collateral in liquid securities maintained on a current basis at an amount at least equal to the market value of the securities loaned. If the Advisor determines to make securities loans, the value of the securities loaned would not exceed 30% of the value of the total assets of the series. SHORT SALES. Each series may, within limits, engage in short sales "against the box". A short sale is the sale of borrowed securities; a short sale against the box means that a series owns securities equivalent to those sold short. No more than 25% of the net assets (taken at current value) of a series may be held as collateral for such sales at any one time. Such short sales can be used as a hedge. The Fund has no current intention to engage in short sales against the box. 21 FORWARD COMMITMENTS OR PURCHASES ON A WHEN-ISSUED BASIS. Each series may enter into forward commitments or purchase securities on a when-issued basis. These securities normally are subject to settlement within 45 days of the purchase date. The interest rate realized on these securities is fixed as of the purchase date and no interest accrues to the series before settlement. These securities are subject to market fluctuation due to changes in market interest rates. Each series will enter into these arrangements with the intention of acquiring the securities in question and not for speculative purposes and will maintain a separate account consisting of liquid assets in an amount at least equal to the purchase price. INVESTMENT IN RESTRICTED SECURITIES. Each series may invest in "restricted securities" subject to the 10% net asset limitation regarding illiquid securities. Restricted securities are securities which were originally sold in private placements and which have not been registered under the Securities Act of 1933, as amended (the "1933 Act"). Such securities generally have been considered illiquid because they may be resold only subject to statutory restrictions and delays or if registered under the 1933 Act. The SEC adopted Rule 144A to provide for a safe harbor exemption from the registration requirements of the 1933 Act for resales of restricted securities to "qualified institutional buyers." The result has been the development of a more liquid and efficient institutional resale market for restricted securities. Rule 144A securities may be liquid if properly determined by the Board of Directors. MANAGEMENT OF REALIZATION EVENTS (TAX MANAGED SERIES). The Tax Managed Series' portfolio will be actively managed to minimize both the number and amount of realization events. The following methods are used: SPECIFIC IDENTIFICATION OF SECURITY SHARES SOLD - Federal income tax law allows the series to specify which shares of stock the series will treat as being sold. The series will individually analyze which shares to sell. The following example will further explain the technique: During year 1, the series purchases 100 shares of XYZ Corp on two separate occasions. The first purchase of 100 shares cost $10/share and the second purchase of 100 shares cost $12.50/share. In year 2, the series decides to sell 100 shares of XYZ Corp at $15/share. If the series used a First-in, First-out (FIFO) method, the realized gain would be $500, but since the series analyzes each sale, the shares with a cost of $12.50/share would have been sold, resulting in a realized gain of only $250. This would have resulted in a deferral of tax of $99 using a marginal tax rate of 39.6%. Deferring amount of gain (or accelerating loss) realized on each sale is maximized by the use of the Highest-In, First-Out (HIFO) method of identifying which shares to sell. The expectation is that any capital gain is minimized (or capital loss is maximized) since the difference between the proceeds on the sale of the shares and the cost of those shares is also minimized. However, if the series has a loss to offset, low-cost securities may be sold for profit and may also then be reacquired in order to "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 22 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 (TAX MANAGED SERIES). The Tax Managed Series will minimize dividend distributions to the extent permitted to maintain regulated investment company status under the Code. The following methods are used: EQUALIZATION ACCOUNTING - Under current law, the series intends, for tax purposes, to treat as a distribution of investment company taxable income or net capital gain the portion of redemption proceeds paid to redeeming shareholders that represents the redeeming shareholders' portion of the series' undistributed investment company taxable income and net capital gain. This practice will have the effect of reducing the amount of income and gains that the series is required to distribute as dividends to shareholders in order for the series to avoid federal income and excise tax. This practice may also reduce the amount of 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. The series' use of equalization accounting will not affect the tax treatment of shareholders that redeem their shares with respect to such redemptions. DELIBERATE MINIMIZATION OF CASH DIVIDENDS - The series will minimize the amount it distributes as ordinary income dividends. It may not, therefore, distribute all investment company taxable income or ordinary income. It will, however, distribute dividends sufficient to maintain its status as a regulated investment company. In addition, the series may retain income for excise tax purposes (and then incur excise tax) if it anticipates such retention will enhance shareholders' after-tax total returns. INVESTMENT RESTRICTIONS Each series has adopted certain restrictions set forth below as fundamental policies, which may not be changed without the favorable vote of the holders of a "majority" of the Fund's outstanding voting securities, which means a vote of the holders of the lesser of (i) 67% of the shares represented at a meeting at which more than 50% of the outstanding shares are represented or (ii) more than 50% of the outstanding shares. None of the series may: 1. Borrow money, except from a bank for temporary or emergency purposes in amounts not exceeding 10% of the series' total assets, and the series will not 23 make additional investments while borrowings greater than 5% of its total assets are outstanding; 2. With respect to 75% of its total assets, invest more than 5% of the value of its total assets at the time of investment in securities of any one issuer (other than obligations issued or guaranteed by the United States Government, its agencies or its instrumentalities). None of the series may purchase more than 10% of the outstanding voting securities of any one issuer; 3. Invest 25% or more of the value of its total assets in securities of issuers in any one industry (other than U.S. government Securities); 4. Invest more than 10% of its total net assets in securities of issuers that are restricted from being sold to the public without registration under the Securities Act of 1933 and illiquid securities, including repurchase agreements with maturities of greater than seven days; 5. Purchase shares of closed-end investment companies that are traded on national exchanges, except to the extent permitted by applicable law; 6. Make loans, except that each may invest in debt securities and repurchase agreements and may engage in securities lending; 7. Purchase securities on margin (but a series may obtain such short-term credits as may be necessary for the clearance of transactions); 8. Make short sales of securities or maintain a short position, unless at all times when a short position is open it owns an equal amount of such securities or securities convertible into or exchangeable, without payment of any further consideration, for securities of the same issue as, and equal in amount to, the securities sold short (short sale against-the-box), and unless not more than 25% of a series' net assets (taken at a current value) are held as collateral for such sales at any one time; 9. Issue senior securities or pledge its assets, except that each series may invest in futures contracts and related options; 10. Buy or sell commodities or commodity contracts (the Tax Managed Series also expressly provides that forward foreign currency contracts are not considered commodities or commodity contracts for purposes of this restriction) or real estate or interest in real estate, although it may purchase and sell securities which are secured by real estate and securities of companies which invest or deal in real estate. The Blended Asset Series I, Blended Asset Series II, Flexible Yield Series I, Flexible Yield Series II, Flexible Yield Series III, Defensive Series, Maximum Horizon Series, and Socially Responsible 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. 24 11. Act as underwriter except to the extent that, in connection with the disposition of portfolio securities, it may be deemed to be an underwriter under certain federal securities laws; 12. Make investments for the purpose of exercising control or management; 13. Participate on a joint or joint and several basis in any trading account in securities; 14. Invest in interests in oil, gas or other mineral exploration or development programs, although it may invest in the common stocks of companies which invest in or sponsor such programs; 15. Purchase foreign securities if as a result of the purchase of such securities more than 25% of a series' assets would be invested in foreign securities provided that this restriction shall not apply to foreign securities that are listed on a domestic securities exchange or represented by American depository receipts that are traded either on a domestic securities exchange or in the United States on the over-the-counter market; 16. Invest more than 5% of the value of its total net assets in warrants (except for the Flexible Yield Series I, Flexible Yield Series II, and the Flexible Yield Series III). Included within that amount, but not to exceed 2% of the value of the series' net assets, may be warrants which are not listed on the New York or American Stock Exchange. In addition to the foregoing: 17. The Defensive Series, the Maximum Horizon Series, the Tax Managed Series, and the Socially Responsible Series may not invest assets in securities of any other open-end investment company, except (1) by purchase in the open market involving only customary brokers' commissions, (2) in connection with mergers, acquisitions of assets, or consolidation, or (3) as otherwise permitted by law, including the 1940 Act. 18. Under the Investment Company Act of 1940 and the rules and regulations thereunder, each series is prohibited from acquiring the securities of other investment companies if, as a result of such acquisition, such series owns more than 3% of the total voting stock of the company; securities issued by any one investment company represent more than 5% of its total assets; or securities (other than treasury stock) issued by all investment companies represent more than 10% of the total assets of a series. A series' purchase of such investment companies would indirectly bear a proportionate share of the operating expenses of such investment companies, including advisory fees. None of the series, except the Defensive Series, the Maximum Horizon Series, the Tax Managed Series, and the Socially Responsible Series will purchase or retain securities issued by open-end investment companies (other than money market funds for temporary investment). 19. The Fund's investment policies with respect to options on securities and with respect to stock index and currency futures and related options (except for the Socially Responsible Series) 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 25 the date options are sold shall not exceed 25% of the assets of the series; (2) a series will not enter into any option transaction if immediately thereafter, the aggregate premiums paid on all such options which are held at any time would exceed 20% of the total net assets of the series; (3) the aggregate margin deposits required on all futures or options thereon held at any time by a series will not exceed 5% of the total assets of the series; (4) the security underlying the put or call is within the investment policies of each series and the option is issued by the Options Clearing Corporations; and (5) the series may buy and sell puts and calls on securities and options on financial futures if such options are listed on a national securities or commodities exchange. 20. The Fund will not purchase or retain securities of an issuer if an officer or director of such issuer is an officer or director of the Fund or its investment adviser and one or more of such officers or directors of the Fund or its investment adviser owns beneficially more than 1/2% of the shares or securities of such issuer and all such directors and officers owning more than 1/2% of such shares or securities together own more than 5% of such shares or securities. 21. The Fund will not purchase securities of any company which has (with predecessors) a record of less than three years continuous operation if as a result more than 5% of the series' assets would be invested in securities of such companies. PORTFOLIO TURNOVER An annual portfolio turnover rate is, in general, the percentage computed by taking the lesser of purchases or sales of portfolio securities (excluding certain debt securities) for a year and dividing that amount by the monthly average of the market value of such securities during the year. Each series expects that its long-term average turnover rate will be less than 100%. However, turnover will in fact be determined by market conditions and opportunities, and therefore it is impossible to estimate the turnover rate with confidence. THE FUND The Fund is an open-end management investment company incorporated under the laws of the State of Maryland on July 26, 1984. Prior to February 1998, the Fund was named Manning & Napier Fund, Inc. The Board of Directors may, at its own discretion, create additional series of shares, each of which would have separate assets and liabilities. Each share of a series represents an identical interest in the investment portfolio of that series and has the same rights, except that (i) each class of shares bears those distribution fees, service fees and administrative expenses applicable to the respective class of shares as a result of its sales arrangements, which will cause the different classes of shares to have different expense ratios and to pay different rates of dividends, (ii) each class has exclusive voting rights with respect to those provisions of the series' Rule 12b-1 distribution plan which relate only to such class and (iii) the classes have different exchange privileges. As a result of each class' differing Rule 12b-1 distribution and shareholder services plan, shares of 26 different classes of the same series may have different net asset values per share. The Fund does not expect to hold annual meetings of shareholders but special meetings of shareholders may be held under certain circumstances. Shareholders of the Fund retain the right, under certain circumstances, to request that a meeting of shareholders be held for the purpose of considering the removal of a Director from office, and if such a request is made, the Fund will assist with shareholder communications in connection with the meeting. The shares of the Fund have equal rights with regard to voting, redemption and liquidations. The Fund's shareholders will vote in the aggregate and not by series or Class except as otherwise expressly required by law or when the Board of Directors determines that the matter to be voted upon affects only the interests of the shareholders of a series or a Class. Income, direct liabilities and direct operating expenses of a series will be allocated directly to the series, and general liabilities and expenses of the Fund will be allocated among the series in proportion to the total net assets of the series by the Board of Directors. The holders of shares have no preemptive or conversion rights. Shares when issued are fully paid and non-assessable and do not have cumulative voting rights. 27 MANAGEMENT The overall business and affairs of the Fund are managed by the Fund's Board of Directors. The Board approves all significant agreements between the Fund and persons or companies furnishing services to the Fund, including the Fund's agreements with its investment advisor, custodian and distributor. The day-to-day operations of the Fund are delegated to the Fund's officers and to the Advisor. A committee made up of investment professionals and analysts makes all the investment decisions for the Fund. The Directors and officers of the Fund are:
Position Principal occupations Name, address, date of birth with Fund during past five years - ---------------------------- --------- ---------------------- B. Reuben Auspitz* Vice Executive Vice President, Manning 1100 Chase Square President & & Napier Advisors, Inc. since 1983; Rochester, NY 14604 Director President and Director, Manning & 03/18/47 Napier Investor Services, Inc. since 1990; Director, Chairman and Treasurer, Manning & Napier Advisory Advantage Corporation since 1990; Director, Manning & Napier Leveraged Investing Co., Inc. since 1994; Director and Chairman, Exeter Trust Co. since 1994; Member, Qualified Plan Services, L.L.C. (formerly known as Fiduciary Services, L.L.C.)since 1995; Member, Manning & Napier Associates, L.L.C. since 1995; Member, Manning & Napier Capital Co., L.L.C. since 1995; President and Director, Manning & Napier Insurance Fund, Inc. since 1995; Managing Director, Manning & Napier Advisors, Inc. from 1983-1992 Martin Birmingham Director Trustee, The Freedom Forum, since 1980; 21 Brookwood Road Director, Emeritus, ACC Corporation Pittsford, NY 14534 since 1994; Director, Manning & Napier 10/30/21 Insurance Fund, Inc. since 1995 Harris H. Rusitzky Director President, Blimpie of Central New York and The Greening One Grove Street Group since 1994; Director, Manning & Napier Insurance Pittsford, NY 14534 Fund, Inc. since 1995 01/09/35 Peter L. Faber Director Former Partner, Kaye, Scholer, Fierman, 50 Rockefeller Plaza Hays & Handler from 1984-1995; Partner New York, New York 10020-1605 McDermott, Will & Emery since 1995; 04/29/38 Director, Manning & Napier Insurance Fund, Inc. since 1995
28 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 03/22/40 1994; Director, Fannie Mae since 1995; Director, Manning & Napier Insurance Fund, Inc. since 1996 William Manning President President, Director and co-founder, 1100 Chase Square Manning & Napier Advisors, Inc. since Rochester, NY 14604 1970; President, Director, 12/24/36 Founder & CEO, Manning Ventures, Inc. since 1992; President, Director, Founder & CEO, KSDS, Inc. since 1992; Chairman of the Board, Director, CEO, Kent Displays, Inc. since 1992; President, Director,Founder & CEO, Synmatix Corporation since 1993; President, Director, Founder & CEO, Manning Leasing, Inc.(dba Williams International Air, Inc.)since 1994; President and Treasurer, Manning & Napier Leveraged InvestingCompany, Inc. since 1994; Member, Manning & Napier Capital Co., L.L.C. since 1994; Member, Qualified Plan Services, L.L.C (formerly known as Fiduciary Services, L.L.C.) since 1995; Member, Manning & Napier Associates, L.L.C. since 1995; Director, CEO, President and Founder, Burgandy Car Service, Inc. 1996 to 1997;Director, CEO, President and Founder,BCS Leasing, Inc. since 1996 Beth H. Galusha, CPA Chief Chief Financial Officer, Manning & 1100 Chase Square Financial & Napier Advisors, Inc. since 1987; Rochester, NY 14604 Accounting Treasurer, Manning & Napier Investor 06/23/61 Officer, Services, Inc. since 1990; Director, Treasurer Manning & Napier Advisory Advantage Corporation since 1993; Treasurer, Exeter Trust Company since 1997; Chief Financial & Accounting Officer, Treasurer, Manning & Napier Insurance Fund, Inc. since 1997 Jodi L. Hedberg Corporate Senior Compliance Administrator, 1100 Chase Square Secretary Manning & Napier Advisors, Inc. from Rochester, NY 14604 1994-1995; Compliance Manager, Manning 11/26/67 & Napier Advisors, Inc. since 1995; Corporate Secretary, Manning & Napier Insurance Fund, Inc. since 1997.
29 * Interested Director, within the meaning of the Investment Company Act of 1940 (the "1940 Act"). The only Committee of the Fund is an Audit Committee whose members are B. Reuben Auspitz, Harris H. Rusitzky and Stephen B. Ashley. Directors affiliated with the Advisor do not receive fees from the Fund. Each Director who is not affiliated with the Advisor shall receive an annual fee of $2,500. Annual fees will be calculated monthly and prorated. Each Director who is not affiliated with the Advisor shall receive $375 per Board Meeting attended for each active series of the Fund, plus $500 for any Committee Meeting held on a day on which a Board Meeting is not held. COMPENSATION TABLE FOR FISCAL YEAR ENDED OCTOBER 31, 1998
Estimated Annual Total Benefits Compensation Position from Aggregate upon from Name Registrant Compensation Pension Retirement Registrant - ----------------------------------------------------------------------------------------------------------------- B. Reuben Auspitz* Director $0 N/A N/A $0 Martin Birmingham Director $25,000 N/A N/A $25,000 Harris H. Rusitzky Director $25,500 N/A N/A $25,500 Peter L. Faber Director $25,000 N/A N/A $25,000 Stephen B. Ashley Director $25,500 N/A N/A $25,500 - -----------------------------------------------------------------------------------------------------------------
*Interested Director, within the meaning of the Investment Company Act of 1940 (the "1940 Act"). The following persons were known by the Fund to be owner of record 5% or more of the outstanding voting securities of each series on December 1, 1998.
NAME AND ADDRESS OF HOLDER OF RECORD PERCENTAGE OF SERIES - ------------------------------------ -------------------- BLENDED ASSET SERIES I National Financial Services Corp. 16.22% FBO Customers 200 Liberty Street New York, NY 10281-1003
30 American Express Trustee for 14.22% Morton Mease Health Care Trust 1200 Northstar West Minneapolis, MN 55440-0534 Exeter Trust Co. 9.88% FBO Welch Foods, Inc. P.O. Box 41178 Rochester, NY 14604
BLENDED ASSET SERIES II National Financial Services Corp. 18.70% FBO Customers 200 Liberty Street New York, NY 10281-1003 FLEXIBLE YIELD SERIES I A.V. Durand Profit Sharing Plan 24.58% c/o Albert V. Durand 9 Landsdowne Lane Rochester, NY 14618 Mark A. Kronenberg 16.50% 7814 NewCo Drive Hamlin, NY 14464 Machined Products Co. 14.58% c/o Kathleen Saul P.O. Box 10428 Lancaster, PA 17605 Manning & Napier Advisors, Inc. 9.16% 1100 Chase Square Rochester, NY 14604 Endicott Machine and Tool Company, Inc. 7.36% c/o Wyoma Chambala 101 Delaware Avenue Endicott, NY 13760 John G. Napier 7.08% 33 Beard Avenue Buffalo, NY 14214 Berniece I. Gosnell 5.03% c/o Dawn Hilsinger 319 Dearcop Drive Rochester, NY 14624
31
FLEXIBLE YIELD SERIES II Manning & Napier Advisors, Inc. 25.52% 1100 Chase Square Rochester, NY 14604 Charles E. Lucas IRA Rollover 16.02% 9 Southland Avenue Lakewood, NY 14750 Penfield Fire Company 7.15% 1838 Penfield Road Penfield, NY 14526 Jerry J. Vasicek IRA Rollover 7.10% 65 Coventry Road Endicott, NY 13760 R. Sheldon and Marie E. Starr JTWROS 6.88% 798 Starr Avenue Chambersburg, PA 17201 June Dahlin & Richard Dahlin JTWROS 5.39% 1425 2nd Avenue Chula Vista, CA 91911 FLEXIBLE YIELD SERIES III Machined Products Co. 401(k) 13.07% c/o Kathleen Saul P.O. Box 10428 Lancaster, PA 17605 Manning & Napier Advisors, Inc. 12.03% 1100 Chase Square Rochester, NY 14604 Walter D. and Beth H. Kogut JTWROS 6.86% 8066 Irish Mist Lane Manlius, NY 13104 Hoselton Foundation 6.20% c/o Mr. David Hoselton 909 Fairport Rd. E. Rochester, NY 14445 Boy Scouts of America Troop 31 5.64% c/o Mr. David Hoselton 909 Fairport Rd. E. Rochester, NY 14445 Peter L. Kogut Jr. and Christine Kogut JTWROS 5.32%
32
77 Old Stonefield Way Pittsford, NY 14534 TAX MANAGED SERIES Manning & Napier Advisors, Inc. 22.11% 1100 Chase Square Rochester, NY 14604 Reuben A. Sheares 14.51% 762 Greenhurst Drive Westerville, OH 43082 Kay B. Sharp Bypass Trust 12.10% David P. Evans, Trustee 2732 Seneca Street P.O. Box 527 West Seneca, NY 14224 Jacob I. Rabin UTMA-OH 8.08% c/o Michael I. Rabin 938 Chestnut Run Gates Mills, OH 44040 DEFENSIVE SERIES National Financial Services Corp. 35.96% FBO Customers 200 Liberty Street New York, NY 10281-1003 Plumbers Local 55 Benevolent Fund 10.55% c/o James F. Sullivan 980 Keynote Circle Brooklyn Heights, OH 44131 Plumbers Local 55 S.U.B. Fund 6.69% c/o James F. Sullivan 980 Keynote Circle Brooklyn Heights, OH 44131 Manning & Napier Advisors, Inc. 6.38% 1100 Chase Square Rochester, NY 14604
33
MAXIMUM HORIZON SERIES National Financial Service Corp. 67.54% FBO Customers 200 Liberty Street New York, NY 10281-1003
THE ADVISOR The Advisor, Exeter Asset Management, which is a division of Manning & Napier Advisors, Inc. ("MNA"), acts as the Series' investment advisor. Mr. William Manning controls the Advisor by virtue of his ownership of the securities of MNA. The Advisor also is generally responsible for supervision of the overall business affairs of the Fund including supervision of service providers to the Fund and direction of the Advisor's directors, officers or employees who may be elected as officers of the Fund to serve as such. The Fund pays the Advisor for the services performed a fee at the annual rate of: 1.00% of the Fund's daily net assets for the Maximum Horizon Series, Tax Managed Series, Blended Asset Series I, and Blended Asset Series II; 0.80% for the Defensive Series; 0.35% for the Flexible Yield Series I; 0.45% for the Flexible Yield Series II; and 0.50% for the Flexible Yield Series III and Socially Responsible Series. As described below, the Advisor is separately compensated for acting as transfer agent for the series. Under the Investment Advisory Agreement (the "Agreement") between the Fund and the Advisor, the Fund is responsible for its operating expenses, including: (i) interest and taxes; (ii) brokerage commissions; (iii) insurance premiums; (iv) compensation and expenses of its Directors other than those affiliated with the Advisor; (v) legal and audit expenses; (vi) fees and expenses of the Fund's custodian, and accounting services agent, if obtained for the Fund from an entity other than the Advisor; (vii) expenses incidental to the issuance of its shares, including issuance on the payment of, or reinvestment of, dividends and capital gain distributions; (viii) fees and expenses incidental to the registration under federal or state securities laws of the Fund or its shares; (ix) expenses of preparing, printing and mailing reports and notices and proxy material to shareholders of the Fund; (x) all other expenses incidental to holding meetings of the Fund's shareholders; (xi) dues or assessments of or contributions to the Investment Company Institute or any successor; and (xii) such non-recurring expenses as may arise, including litigation affecting the Fund and the legal obligations with respect to which the Fund may have to indemnify its officers and directors. For periods ended October 31, (unless otherwise indicated), the aggregate total of advisory fees paid by the series to the Advisor were as follows: 34
- ----------------------------------------------------------------------------------------------------------------------------------- Series 1996 1997 1998 -------------------------------------------------------------------------------------------------------- Fees Paid Fees Waived Fees Paid Fees Waived Fees Paid Fees Waived - ----------------------------------------------------------------------------------------------------------------------------------- Blended Asset Series I $108,485 (1) $13,439(1) $192,773 $8,448 $274,475 $7,453 - ----------------------------------------------------------------------------------------------------------------------------------- Blended Asset Series II $222,302 (1) $3,528 (1) $422,101 N/A $633,708 N/A - ----------------------------------------------------------------------------------------------------------------------------------- Flexible Yield Series I N/A $1,057 (1) N/A $2,189 N/A $2,058 - ----------------------------------------------------------------------------------------------------------------------------------- Flexible Yield Series II N/A $1,688 (1) N/A $2,897 N/A $2,639 - ----------------------------------------------------------------------------------------------------------------------------------- Flexible Yield Series III N/A $4,454 (1) N/A $6,249 N/A $7,221 - ----------------------------------------------------------------------------------------------------------------------------------- Tax Managed N/A $1,867 (2) N/A $3,368 N/A $7,011 - ----------------------------------------------------------------------------------------------------------------------------------- Defensive N/A $3,940 (2) N/A $11,283 $2,742 $27,614 - ----------------------------------------------------------------------------------------------------------------------------------- Maximum Horizon N/A $4,377 (2) 36,471 $19,683 $137,521 $19,276 - -----------------------------------------------------------------------------------------------------------------------------------
(1) For the period January 1, 1996 to October 31, 1996. (2) For the period November 1, 1995 (Commencement of Operations) to October 31, 1996. The Agreement provides that in the event the expenses of the Fund (including the fee of the Advisor but excluding: (i)brokerage commissions; (ii) interest; (iii) taxes; and (iv) extraordinary expenses except for those incurred by the Fund as a result of litigation in connection with a suit involving a claim for recovery by the Fund, or as a result of litigation involving a defense against a liability asserted against the Fund, provided that, if the adviser made the decision or took the action which resulted in such claim the adviser acted in good faith without gross negligence or misconduct, and for any indemnification paid by the Fund to its officers, directors and advisers in accordance with applicable state and federal laws as a result of such litigation) for any fiscal year exceed the limits set by applicable regulations of state securities commissions, the Advisor will reduce its fee by the amount of such excess. Any such reductions or refunds are accrued and paid in the same manner as the Advisor's fee and are subject to readjustment during the year. The Agreement states that the Advisor shall give the Fund the benefit of its best judgment and effort in rendering services thereunder, but the Advisor shall not be liable for any loss sustained by reason of the purchase, sale or retention of any security, whether or not such purchase, sale or retention shall have been based upon its own investigation and research or upon investigation and research made by any other individual, firm or corporation, if such purchase, sale or retention shall have been made and such other individual, firm or corporation shall have been selected in good faith. The 35 Agreement also states that nothing contained therein shall, however, be construed to protect the Advisor against any liability to the Fund or its security holders by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties, or by reason of its reckless disregard of its obligations and duties under the Agreement. The Agreement also provides that it is agreed that the Advisor shall have no responsibility or liability for the accuracy or completeness of the Fund's Registration Statement under the 1940 Act or the Securities Act of 1933 except for information supplied by the Advisor for inclusion therein; the Fund agrees to indemnify the Advisor to the full extent permitted by the Fund's Articles of Incorporation. On April 30, 1993, the Advisor became the Fund's Transfer Agent. For servicing the Tax Managed Series, Defensive Series, Maximum Horizon Series, Blended Asset Series I, Blended Asset Series II, Flexible Yield Series I, Flexible Yield Series II, and the Flexible Yield Series III, in this capacity, for the fiscal years ended October 31, 1997 and 1998, the Advisor received $17,331 and $27,446 from the Fund. DISTRIBUTION OF FUND SHARES Manning & Napier Investor Services, Inc. (the "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 May 11, 1999 (the "Distribution Agreement") which applies to each Class of shares. The Distribution Agreement will remain in effect for a period of two years after the effective date of the agreement and is renewable annually. The Distribution Agreement may be terminated by the Distributor, by a majority vote of the Directors who are not interested persons and have no financial interest in the Distribution Agreement ("Qualified Directors") or by a majority of the outstanding shares of the Fund upon not more than 60 days' written notice by either party or upon assignment by the Distributor. The Distributor will not receive compensation for distribution of Class A shares of the Portfolio. The Fund has adopted Plans of Distribution with respect to the Class B, C, D and E Shares (the "Plans"), pursuant to Rule 12b-1 under the 1940 Act. The Advisor may impose separate requirements in connection with employee purchases of the Class A Shares of the series. THE PLANS The Fund has adopted each Plan in accordance with the provisions of Rule 12b-1 under the 1940 Act which regulates circumstances under which an investment company may directly or indirectly bear expenses relating to the distribution of its shares. Continuance of each Plan must be approved annually by a majority of the Directors of the Fund and by a majority of the Qualified Directors. Each Plan requires that quarterly written reports of amounts spent under the Plan and the purposes of such expenditures be furnished to and reviewed by the Directors. A Plan may not be amended to increase materially the amount which may be spent thereunder without approval by a majority of the outstanding shares of the respective class of the Fund. All material 36 amendments of a Plan will require approval by a majority of the Directors of the Fund and of the Qualified Directors. The Distributor expects to allocate most of its fee to investment dealers, banks or financial service firms that provide distribution, administrative and/or shareholder services ("Financial Intermediaries"). The Financial Intermediaries may provide for their customers or clients certain services or assistance, which may include, but not be limited to, processing purchase and redemption transactions, establishing and maintaining shareholder accounts regarding the Fund, and such other services as may be agreed to from time to time and as may be permitted by applicable statute, rule or regulation. The Distributor may, in its discretion, voluntarily waive from time to time all or any portion of its distribution fee and the Distributor is free to make additional payments out of its own assets to promote the sale of Fund shares. The Distributor receives distribution and/or service fees, at the rates set forth below, for providing distribution and/or shareholder services to the Class B, C, D and E Shares. The Distributor expects to allocate most of its distribution fees and shareholder service fees to Financial Intermediaries that enter into distribution and/or shareholder servicing agreements with the Distributor. The different Classes permit the Fund to allocate an appropriate amount of fees to a Financial Intermediary in accordance with the level of distribution and/or shareholder services it agrees to provide. As compensation for providing distribution and shareholders services for the Class B Shares, the Distributor receives a distribution fee equal to 0.75% of the Class B Shares' average daily net assets and a shareholder servicing fee equal to 0.25% of the Class B Shares' average daily net assets. As compensation for providing distribution and shareholder services for the Class C Shares, the Distributor receives an aggregate distribution and shareholder servicing fee equal to 0.75% of the Class C Shares' average daily net assets. As compensation for providing distribution and shareholders service for the Class D Shares, the Distributor receives an aggregate distribution and shareholder servicing fee equal to 0.50% of the Class D Shares' average daily net assets. The shareholder services component of the foregoing fees for Classes C and D is limited to 0.25% of the average daily net assets of the respective class. As compensation for providing distribution services for the Class E Shares, the Distributor receives an aggregate distribution and shareholder servicing fee equal to 0.25% of the average daily net assets of the Class E Shares. The Distributor may, in its discretion, voluntarily waive from time to time all or any portion of its distribution fee. Payments under the Plans are made as described above regardless of the Distributor's actual cost of providing distribution services and may be used to pay the Distributor's overhead expenses. If the cost of providing distribution services to the Fund is less than the payments received, the unexpended portion of the distribution fees may be retained as profit by the Distributor. The Distributor may from time to time and from its own resources pay or allow additional discounts or promotional incentives in the form of cash or other compensation (including merchandise or travel) to Financial Intermediaries and it is free to make additional payments out of its own assets to promote the sale of Fund shares. Similarly, the Advisor may, from its own resources, defray or absorb costs related to distribution, including compensation of employees who are involved in distribution. 37 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, INDEPENDENT ACCOUNTANTS, AND COUNSEL The custodian for the Fund is Boston Safe Deposit and Trust Company, One Cabot Road, 3rd Floor, Medford, MA 02155-5159. Boston Safe Deposit and Trust Company may, at its own expense, employ one or more sub-custodians on behalf of the Fund, provided that Boston Safe Deposit and Trust Company shall remain liable for all its duties as custodian. The foreign sub-custodians will act as custodian for the foreign securities held by the fund. Deloitte & Touche LLP, 125 Summer Street, Boston, MA 02110 are the independent accountants for all the series except the Socially Responsible Series. PricewaterhouseCoopers LLP, 160 Federal Street, Boston, MA 02110 are the independent accountants for the Socially Responsible Series. The Fund's counsel is Morgan, Lewis & Bockius LLP, 1701 Market Street, Philadelphia, PA 19103. PURCHASES AND REDEMPTIONS 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 weekend and holiday closings or (b) during which trading on the New York Stock Exchange is restricted; (2) for any period during which an emergency exists as a result of which (a) disposal by the Fund of securities owned by it is not reasonably practicable or (b) it is not reasonably practicable for the Fund to determine the value of its net assets; or (3) for such other periods as the Securities and Exchange Commission may by order permit. Other Information about Purchases and Redemptions. The Fund has authorized several brokers to accept purchase and redemption orders on its behalf, and these brokers are authorized to designate other intermediaries to accept purchase and redemption orders on the Fund's behalf. The Fund will be deemed to have received a purchase or redemption order when an authorized broker or its authorized designee accepts the order, and orders placed with an authorized broker will be processed at the share price of the appropriate series next computed after they are accepted by the authorized broker or its designee. 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 38 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:
- ------------------------------------------------------------------------------------------------------------- Series 1996 1997 1998 - ------------------------------------------------------------------------------------------------------------- Blended Asset Series I $13,656(1) $14,935 $36,215 - ------------------------------------------------------------------------------------------------------------- Blended Asset Series II $36,256(1) $48,030 $92,719 - ------------------------------------------------------------------------------------------------------------- Flexible Yield Series I $0 $0 $0 - ------------------------------------------------------------------------------------------------------------- Flexible Yield Series II $0 $0 $0 - ------------------------------------------------------------------------------------------------------------- Flexible Yield Series III $0 $0 $0 - ------------------------------------------------------------------------------------------------------------- Tax Managed $837(2) $883 $2,673 - ------------------------------------------------------------------------------------------------------------- Defensive $335(2) $570 $2,118 - ------------------------------------------------------------------------------------------------------------- Maximum Horizon $2,753(2) $20,570 $43,998 - --------------------------------------- ------------------------ ---------------------- ---------------------
(1) For the period January 1, 1996 to October 31, 1996. (2) For the period November 1, 1995 (Commencement of Operations) to October 31, 1996. 39 There were no brokerage commissions paid to affiliates during the last three fiscal years. NET ASSET VALUE The net asset value is determined on each day that the New York Stock Exchange is open for trading. In determining the net asset value of the Fund's shares, common stocks that are listed on national securities exchanges or the NASDAQ National Market System are valued at the last sale price on the exchange on which each stock is principally traded as of the close of the New York Stock Exchange (generally 4:00 p.m., Eastern time), or, in the absence of recorded sales, at the closing bid prices on such exchanges or on such System. Unlisted securities that are not included in such National Market System are valued at the quoted bid prices in the over-the-counter market. All securities initially expressed in foreign currencies will be converted to U.S. dollars at the exchange rates quoted at the close of the New York markets. Short securities positions are accounted for at value, using the same method of valuation described above. Securities and other assets for which market quotations are not readily available are valued by appraisal at their fair value as determined in good faith by the Advisor under procedures established by and under the general supervision and responsibility of the Fund's Board of Directors. The Advisor may use a pricing service to obtain the value of the Fund's portfolio securities where the prices provided by such pricing service are believed to reflect the fair market value of such securities. The methods used by the pricing service and the valuations so established will be reviewed by the Advisor under the general supervision of the Fund's Board of Directors. Several pricing services are available, one or more of which may be used as approved by the Fund's Board of Directors. FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS The following is only a summary of certain tax considerations generally affecting a series and its shareholders, and is not intended as a substitute for careful tax planning. Shareholders are urged to consult their tax advisers with specific reference to their own tax situations, including their state and local tax liabilities. The following discussion of certain federal income tax consequences is based on the Code, and the regulations issued thereunder as in effect on the date of this Statement of Additional Information. New legislation, certain administrative changes, or court decisions may significantly change the conclusions expressed herein, and may have a retroactive effect with respect to the transactions contemplated herein. It is the policy of each of the series to qualify for the favorable tax treatment accorded regulated investment companies under Subchapter M of the Code. By following such policy, each of the series expects to be relieved of federal income tax on investment company taxable income and net capital gain (the excess of net long-term capital gain over net short-term capital loss) distributed to shareholders. In order to qualify as a regulated investment company each series must, among other things, (1) derive at least 90% of its gross income each taxable year from dividends, interest, payments with respect to securities loans, gains 40 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 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 loss) and (b) 90% of its net exempt interest income (the excess of (i) its tax-exempt interest income over (ii) certain deductions attributable to that income). If for any taxable year, a series does not qualify as a regulated investment company under Sub-chapter M of the Code, all of its taxable income will be subject to tax at regular corporate tax rates without any deduction for distributions to shareholders and all such distributions will be taxable to shareholders as ordinary dividends to the extent of the 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 capital gain net income (the excess of short and long term capital gains over short and long term capital losses) for the one-year period ending October 31 of that year (and any retained amount from the prior year), the series will be subject to a nondeductible 4% federal excise tax on the undistributed amounts. The series generally intend to make sufficient distributions to avoid imposition of this tax, except that, as described above, the Tax Managed Series may choose to incur such tax if it anticipates that retaining income will enhance its Shareholders' after-tax total returns. Distributions declared in October, November, or December to shareholders of record during those months and paid during the following January are treated as if they were received by each shareholder on December 31 of the year in which they are declared for tax purposes. Any gain or loss recognized on a sale, exchange or redemption of shares of a series by a shareholder who is not a dealer in securities will generally, for individual shareholders, be treated as a long-term capital gain or loss if the shares have been held for more than one year and otherwise generally will be treated as short-term capital gain or loss. However, if shares on which a 41 shareholder has received a net capital gain distribution are subsequently sold, exchanged or redeemed and such shares have been held for six months or less, any loss recognized will be treated as long-term capital loss to the extent of the net capital gain distribution. Long-term capital gains generally are currently taxed at a maximum rate of 20%, and short-term capital gains are currently taxed at ordinary income tax rates. In certain cases, a series will be required to withhold and remit to the U.S. Treasury 31% of any taxable dividends, capital gain distributions and redemption proceeds paid to a shareholder (1) who has failed to provide a correct and properly certified 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 shareholder's U.S. federal income tax liability. Dividends paid to nonresident alien individuals and foreign entities are potentially subject to different tax treatment, including a possible U.S. federal income tax, required to be withheld by the applicable series, at a 30% rate (or a lower rate provided by an applicable income tax treaty). Certification of foreign status by such shareholders also will generally be required to avoid backup withholding on capital gain distributions and redemption proceeds. A series' transactions in certain futures contracts, options, forward contracts, foreign currencies, foreign debt securities, foreign entities treated as investment companies and certain other investment and hedging activities will be subject to special tax rules. In a given case, these rules may accelerate income to the series, defer losses to the series, cause adjustments in the holding periods of the 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. Certain distributions may qualify for a dividends received deduction for corporate shareholders, subject to holding period requirements and other limitations under the Code, if they are attributable to the qualifying dividend income a series receives from a domestic corporation and are properly designated by that Series. However, information set forth in the Prospectuses and this Statement of Additional Information which relates to taxation is only a summary of some of the important tax considerations generally affecting purchasers of shares of the 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 42 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. 43 PERFORMANCE INFORMATION The Fund may from time to time quote various performance figures to illustrate the Series' past performance. Performance quotations by investment companies are subject to rules adopted by the SEC, which require the use of standardized performance quotations. In the case of total return, non-standardized performance quotations may be furnished by the Fund but must be accompanied by certain standardized performance information computed as required by the SEC. Current yield and average annual compounded total return quotations used by the Fund are based on the standardized methods of computing performance mandated by the SEC. An explanation of those and other methods used by the Fund to compute or express performance follows. TOTAL RETURN From time to time each Series may advertise total return for each class of shares of the Portfolio. Total return figures are based on historical earnings and are not intended to indicate future performance. The average annual total return is determined by finding the average annual compounded rates of return over 1-, 5-, and 10-year periods (or over the life of the Series) that would equate an initial hypothetical $1,000 investment to its ending redeemable value. The calculation assumes that all dividends and distributions are reinvested when paid. The quotation assumes the amount was completely redeemed at the end of each 1-, 5-, and 10-year period (or over the life of the Series) and the deduction of all applicable Fund expenses on an annual basis. The average annual compounded rates of return (unless otherwise noted) for the Fund's Series for the periods ended October 31, 1998 are as follows:
Average Average Annual Inception One Annual Since Name of Portfolio Date Year Five Years Inception - ----------------- ---- ---- ---------- --------- Blended Asset Series I 9/15/93 6.29% 8.92% 8.75% Blended Asset Series II 10/12/93 -.56% 12.51% 12.26% Flexible Yield Series I 2/15/94 7.57% -- 5.61% Flexible Yield Series II 2/15/94 9.78% -- 6.39% Flexible Yield Series III 12/20/93 12.15% -- 7.26% Tax Managed Series 11/1/95 -2.34% -- 14.09% Defensive Series 11/1/95 6.54% -- 6.72% Maximum Horizon Series 11/1/95 -5.99% -- 11.13%
44 The Socially Responsible Series was not active on October 31, 1998; therefore, no performance information is shown. The above figures were calculated according to the following formula: P(1 +T)6= ERV where: P = a hypothetical initial payment of $1,000 T = average annual total return n = number of years ERV = ending redeemable value of hypothetical $1,000 payment made at the beginning of the l-, 5-, or 10- year periods at the end of the l-, 5-, or 10-year periods (or fractional portion thereof). CALCULATION OF YIELD From time to time certain of the Fund's Series may advertise yield. Current yield reflects the income per share earned by a Series' investments. Current yield is determined by dividing the net investment income per share earned during a 30-day base period by the maximum offering price per share on the last day of the period and annualizing the result. Expenses accrued for the period include any fees charged to all shareholders during the base period. The respective current yields for certain of the Series for the 30-day period ended October 31, 1998 were as follows:
Class A Portfolio Name Shares - -------------- ------ Flexible Yield Series I 3.76% Flexible Yield Series II 3.56% Flexible Yield Series III 3.80%
These figures were obtained using the following formula: 6 Yield = 2 [(a-b + 1) - 1] --- Cd FINANCIAL STATEMENTS The financial statements of the Series are incorporated herein by reference to the Series' 1998 Annual Reports to Shareholders. The financial statements with respect to the Series have been audited by Deloitte & Touche LLP, independent public accountants to such Series. Because the Socially Responsible Series was not active as of October 31, 1998, there are no financial statements for that Series. A copy of the 1998 Annual Reports to Shareholders must accompany the delivery of this Statement of Additional of Information. 45 APPENDIX - DESCRIPTION OF BOND RATINGS(1) MOODY'S INVESTORS SERVICE, INC. ("MOODY'S") SHORT-TERM PRIME RATING SYSTEM - TAXABLE DEBT AND DEPOSITS GLOBALLY Moody's short-term debt ratings are opinions of the ability of issuers to repay punctually senior debt obligations. These obligations have an original maturity not exceeding one year, unless explicitly noted. Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment ability of rated issuers: Prime-1: Issuers rated Prime-1 (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will often be evidenced by many of the following characteristics: Leading market positions in well-established industries. High rates of return on funds employed. Conservative capitalization structure with moderate reliance on debt and ample asset protection. Broad margins in earnings coverage of fixed financial charges and high internal cash generation. Well-established access to a range of financial markets and assured sources of alternate liquidity. Prime-2: Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. Prime-3: Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained. Not Prime: Issuers rated Not Prime do not fall within any of the Prime rating categories. Obligations of a branch of a bank are considered to be domiciled in the country in which the branch is located. Unless noted as an exception, Moody's rating on a bank's ability to repay senior obligations extends only to branches located in countries which carry a Moody's Sovereign Rating for Bank - ------------------------ (1) The ratings indicated herein are believed to be the most recent ratings available at the date of this statement of additional information for the securities listed. Ratings are generally given to securities at the time of issuance. While the rating agencies may from time to time revise such ratings, they undertake no obligation to do so, and the ratings indicated do not necessarily represent ratings which will be given to these securities on the date of the fund's fiscal year-end. 46 Deposits. Such branch obligations are rated at the lower of the bank's rating or Moody's Sovereign Rating for Bank Deposits for the country in which the branch is located. When the currency in which an obligation is denominated is not the same as the currency of the country in which the obligation is domiciled, Moody's ratings do not incorporate an opinion as to whether payment of the obligation will be affected by actions of the government controlling the currency of denomination. In addition, risks associated with bilateral conflicts between an investor's home country and either the issuer's home country or the country where an issuer's branch is located are not incorporated into Moody's short-term debt ratings. If an issuer represents to Moody's that its short-term debt obligations are supported by the credit of another entity or entities, then the name or names of such supporting entity or entities are listed within the parenthesis beneath the name of the issuer, or there is a footnote referring the reader to another page for the name or names of the supporting entity or entities. In assigning ratings to such issuers, Moody's evaluates the financial strength of the affiliated corporations, commercial banks, insurance companies, foreign governments or other entities, but only as one factor in the total rating assessment. Moody'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 edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa: Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long term risks appear somewhat larger than in Aaa securities. A: Bonds which are rated A possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa: Bonds which are rated Baa are considered as medium-grade obligations (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. 47 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. Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating classification from Aa through Caa. The modifier 1 indicated that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicated a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category. STANDARD & POOR'S SHORT-TERM ISSUE CREDIT RATINGS A-1: A short-term obligation rated A-1 is rated in the highest category by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is strong. Within this category, certain obligations are designated with a plus sign (+). This indicates that the obligor's capacity to meet its financial commitment on these obligations is extremely strong. A-2: A short-term obligation rated A-2 is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. However, the obligor's capacity to meet its financial commitment on the obligation is satisfactory. A-3: A short-term obligation rated A-3 exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. B: A short-term obligation rated B is regarded as having significant speculative characteristics. The obligor currently has the capacity to meet its financial commitment on the obligation; however, it faces major ongoing uncertainties which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation. 48 C: A short-term obligation rated C is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. D: A short-term obligation rated D is in payment default. The D rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's 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. STANDARD & POOR'S CORPORATE BOND RATINGS Aaa: An obligation rated Aaa has the highest rating assigned by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is extremely strong. AA: An obligation rated AA differs from the highest-rated obligations only in a small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong. A: An obligation rated A is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong. BBB: An obligation rated BBB exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. Obligations rated BB, B, CCC, CC, and C are regarded as having significant speculative characteristics. BB indicates the least degree of speculation and C the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions. BB: An obligation rated BB is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lead to the obligor's capacity to meet its financial commitment on the obligation. B: An obligation rated B is more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation. CCC: An obligation rated CCC is currently vulnerable to nonpayment and is dependent upon favorable business, financial and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation. 49 CC: An obligation rated CC is currently highly vulnerable to nonpayment. C: The C rating may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on this obligation are being continued. D: An obligation rated D is in payment default. The D rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's 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 are jeopardized. Plus (+) or Minus (-): The rating from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major categories. r: This symbol is attached to the ratings of instruments with significant noncredit risks. It highlights risks to principal or volatility of expected returns which are not addressed in the credit rating. Examples include: obligations linked or indexed to equities, currencies, or commodities; obligations exposed to severe prepayment risk, such as interest-only or principal-only mortgage securities; and obligations with unusually risky interest terms, such as inverse floaters. PART C - OTHER INFORMATION ITEM 23. EXHIBITS. (a) (1) Articles of Incorporation as filed with the State of Maryland on July 26, 1984 (incorporated by reference to Exhibit (1)(a) to Post-Effective Amendment No. 30 to the Registration Statement on Form N-1A filed on October 23, 1998 with Accession Number 0000751173-98-00050). (2) Articles of Amendment as filed with the State of Maryland on March 25, 1985 (incorporated by reference to Exhibit (1)(b) to Post-Effective Amendment No. 30 to the Registration Statement on Form N-1A filed on October 23, 1998 with Accession Number 0000751173-98-00050). (3) Articles of Amendment as filed with the State of Maryland on May 23, 1985 (incorporated by reference to Exhibit (1)(c) to Post-Effective Amendment No. 30 to the Registration Statement on Form N-1A filed on October 23, 1998 with Accession Number 0000751173-98-00050). (4) Articles of Amendment as filed with the State of Maryland on October 7, 1985 (incorporated by reference to Exhibit (1)(d) to Post-Effective Amendment No. 30 to the Registration Statement on Form N-1A filed on October 23, 1998 with Accession Number 0000751173-98-00050). (5) Articles of Amendment as filed with the State of Maryland on July 3, 1986 (incorporated by reference to Exhibit (1)(e) to Post-Effective Amendment No. 30 to the Registration Statement on Form N-1A filed on October 23, 1998 with Accession Number 0000751173-98-00050). (6) Articles of Amendment as filed with the State of Maryland on September 26, 1997 (incorporated by reference to Exhibit (1)(f) to Post-Effective Amendment No. 30 to the Registration Statement on Form N-1A filed on October 23, 1998 with Accession Number 0000751173-98-00050). (7) Certificate of Correction to Articles of Amendment as filed with the State of Maryland on February 5, 1998 (incorporated by reference to Exhibit (1)(g) to Post-Effective Amendment No. 30 to the Registration Statement on Form N-1A filed on October 23, 1998 with Accession Number 0000751173-98-00050). (8) Articles of Amendment as filed with the State of Maryland on February 26, 1998 (incorporated by reference to Exhibit (1)(h) to Post-Effective Amendment No. 30 to the Registration Statement on Form N-1A filed on October 23, 1998 with Accession Number 0000751173-98-00050). (9) Articles of Amendment as filed with the State of Maryland on April 14, 1999 are incorporated by reference to Exhibit (1)(i) to Post-Effective No. 34 to the Registration Statement on Form N-1A filed on April 19, 1999 with Accession Number 0000751173-99-000020). (b) By-Laws (incorporated by reference to Exhibit (2)(a) to Post- Effective Amendment No. 30 to the Registration Statement on Form N-1A filed on October 23, 1998 with Accession Number 0000751173-98-00050). (c) (1) Specimen Stock Certificate (incorporated by reference to Exhibit 1(a) (Articles of Incorporation) and Exhibit (2) (By-Laws) to Post-Effective Amendment No. 30 to the Registration Statement on Form N-1A filed on October 23, 1998 with Accession Number 0000751173-98-00050). (2) Articles Supplementary to the charter as filed with the State of Maryland on July 3, 1986 (incorporated by reference to Exhibit 4)(b) to Post-Effective Amendment No. 30 to the Registration Statement on Form N-1A filed on October 23, 1998 with Accession Number 0000751173-98-00050). (3) Articles Supplementary to the charter as filed with the State of Maryland on January 20, 1989 (incorporated by reference to Exhibit (4)(c) to Post-Effective Amendment No. 30 to the Registration Statement on Form N-1A filed on October 23, 1998 with Accession Number 000751173-98-00050). (4) Articles Supplementary to the charter as filed with the State of Maryland on September 22, 1989 (incorporated by reference to Exhibit (4)(d) to Post-Effective Amendment No. 30 to the Registration Statement on Form N-1A filed on October 23, 1998 with Accession Number 000751173-98-00050). (5) Articles Supplementary to the charter as filed with the State of Maryland on November 8, 1989 (incorporated by reference to Exhibit (4)(e) to Post-Effective Amendment No. 30 to the Registration Statement on Form N-1A filed on October 23, 1998 with Accession Number 000751173-98-00050). (6) Articles Supplementary to the charter as filed with the State of Maryland on January 30, 1991 (incorporated by reference to Exhibit (4)(f) to Post-Effective Amendment No. 30 to the Registration Statement on Form N-1A filed on October 23, 1998 with Accession Number 000751173-98-00050) (7) Articles Supplementary to the charter as filed with the State of Maryland on April 27, 1992 (incorporated by reference to Exhibit (4)(g) to Post-Effective Amendment No. 30 to the Registration Statement on Form N-1A filed on October 23, 1998 with Accession Number 0000751173-98-00050). (8) Articles Supplementary to the charter as filed with the State of Maryland on April 29, 1993 (incorporated by reference to Exhibit (4)(h) to Post-Effective Amendment No. 30 to the Registration Statement on Form N-1A filed on October 23, 1998 with Accession Number 0000751173-98-00050). (9) Articles Supplementary to the charter as filed with the State of Maryland on September 23, 1993 (incorporated by reference to Exhibit (4)(i) to Post-Effective Amendment No. 30 to the Registration Statement on Form N-1A filed on October 23, 1998 with Accession Number 0000751173-98-00050). (10) Articles Supplementary to the charter as filed with the State of Maryland on January 17, 1994 (incorporated by reference to Exhibit (4)(j) to Post-Effective Amendment No. 30 to the Registration Statement on Form N-1A filed on October 23, 1998 with Accession Number 0000751173-98-00050). (11) Articles Supplementary to the charter as filed with the State of Maryland on December 13, 1995 (incorporated by reference to Exhibit (4)(k) to Post-Effective Amendment No. 30 to the Registration Statement on Form N-1A filed on October 23, 1998 with Accession Number 0000751173-98-00050). (12) Articles Supplementary to the charter as filed with the State of Maryland on April 22, 1996 (incorporated by reference to Exhibit (4)(l) to Post-Effective Amendment No. 30 to the Registration Statement on Form N-1A filed on October 23, 1998 with Accession Number 0000751173-98-00050). (13) Articles Supplementary to the charter as filed with the State of Maryland on September 26, 1997 (incorporated by reference to Exhibit (4)(m) to Post-Effective Amendment No. 30 to the Registration Statement on Form N-1A filed on October 23, 1998 with Accession Number 0000751173-98-00050). (14) Certificate of Correction to Articles Supplementary to the charter filed with the State of Maryland on February 24, 1998 (incorporated by reference to Exhibit (4)(n) to Post-Effective Amendment No. 30 to the Registration Statement on Form N-1A filed on October 23, 1998 with Accession Number 0000751173-98-00050). (15) Articles Supplementary to the charter as filed with the State of Maryland on April 14, 1999 (incorporated by reference to Exhibit (4)(o) to Post-Effective No. 34 to the Registration Statement on Form N-1A filed on April 19, 1999 with Accession Number 0000751173-99-000020). (16) Articles Supplementary to the charter as filed with the State of Maryland on May 13, 1999 is filed herewith. (d) (1)Investment Advisory Agreement between Manning & Napier Advisors, Inc. and Exeter Fund, Inc.(incorporated by reference to Exhibit (5)(a) to Post-Effective Amendment No.30 to the Registration Statement on Form N-1A filed on October 23, 1998 with Accession Number 0000751173-98-00050). (a) Supplement to Schedule A of the Investment Advisory Agreement dated May 11, 1999 is filed herewith. (2)Investment Advisory Agreement between Manning & Napier Advisory Advantage Corporation and Exeter Fund, Inc. is filed herewith. (a) Form of Sub-Advisory Agreement between Manning & Napier Advisory Advantage Corporation and Strong Capital Management, Inc. is filed herewith. (b) Form of Sub-Advisory Agreement between Manning & Napier Advisory Advantage Corporation and Loomis, Sayles & Company, L.P. is filed herewith. (c) Form of Sub-Advisory Agreement between Manning & Napier Advisory Advantage Corporation and State Street Global Advisors, Inc. is filed herewith. (d) Form of Sub-Advisory Agreement between Manning & Napier Advisory Advantage Corporation and Scudder Kemper Investments, Inc. is filed herewith. (e) Form of Sub-Advisory Agreement between Manning & Napier Advisory Advantage Corporation and Babson-Stewart Ivory International is filed herewith. (f) Form of Sub-Advisory Agreement between Manning & Napier Advisory Advantage Corporation and DLJ Investment Management Corp. is filed herewith. (g) Form of Sub-Advisory Agreement between Manning & Napier Advisory Advantage Corporation and MFS Institutional Advisors, Inc. is filed herewith. (h) Form of Sub-Advisory Agreement between Manning & Napier Advisory Advantage Corporation and Manning & Napier Advisors, Inc. is filed herewith. (e) Amended and Restated Distribution Agreement dated May 11, 1999 is filed herewith. (f) Not Applicable. (g) Custodian Agreement is incorporated by reference to Exhibit (8)(a) to Post-Effective Amendment No. 30 to the Registration Statement on Form N-1A filed on October 23, 1998 with Accession Number 0000751173-98-00050. (h) (1) Transfer Agent Agreement (incorporated by reference to Exhibit (9)(a) to Post-Effective Amendment No. 30 to the Registration Statement on Form N-1A filed on October 23, 1998 with Accession Number 0000751173-98-00050). (a) Supplement to Schedule A of the Transfer Agent Agreement dated May 11, 1999 is filed herewith. (b) Supplement to Schedule B of the Transfer Agent Agreement dated May 11, 1999 is filed herewith. (2) Form of Dealer Agreement (incorporated by reference to Exhibit (9)(b) to Post-Effective Amendment No. 30 to the Registration Statement on Form N-1A filed on October 23, 1998 with Accession Number 0000751173-98-00050). (i) Opinion of Morgan, Lewis & Bockius is incorporated by reference to Exhibit (10) to Post Effective Amendment No. 31 to the Registration Statement on Form N-1A filed on December 24, 1998 with Accession Number 0000751173-98-000065. (j) Consent of Independent Auditors.(1) Consent of PricewaterhouseCoopers, LLP is filed herewith. (2) Consent of Deloitte & Touche LLP is filed herewith. (k) Not Applicable. (l) Investment letters (incorporated by reference to Exhibit (13) to Post-Effective Amendment No. 30 to the Registration Statement on Form N-1A filed on October 23, 1998 with Accession Number 0000751173-98-00050). (m) Form of 12b-1 Plan with respect to Class B Shares is incorporated by reference to Exhibit (15) to Post Effective Amendment No.31 to the Registration Statement on Form N-1A filed on December 24, 1998 with Accession Number 0000751173-98-000065. (n) Financial Data Schedules are not applicable. (o) (1)Rule 18f-3 Plan (incorporated by reference to Exhibit 18, to Post- Effective Amendment No. 27 to the Registration Statement on Form N-1A on October 22, 1997 with Accession Number 0001047469-97-001380). (2)Amended Rule 18f-3 Plan is filed herewith. ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT. Reference is made to Part B of the Registration Statement, under the heading "Management." ITEM 25. INDEMNIFICATION. Reference is made to subparagraph (b) of paragraph (7) of Article SEVENTH of Registrant's Articles of Incorporation, which reflects the positions taken in Investment Company Act Release 11330. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to trustees, officers and controlling persons of Registrant pursuant to the foregoing provisions, or otherwise, Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in that Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Registrant of expenses incurred or paid by a trustee, officer or controlling persons of Registrant in the successful defense of any action, suit or proceeding) is asserted by such trustee, officer or controlling person in connection with the securities being registered, Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The Directors and Officers of the Registrant are covered parties under a Directors & Officers/Errors & Omissions insurance policy with Gulf Insurance Company. The effect of such insurance is to insure against liability for any act, error, omission, misstatement, misleading statement, neglect or breach of duty by the insureds as directors and/or officers of the Registrant. ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR. Manning & Napier Advisors, Inc. (dba Exeter Asset Management) is the investment advisor of the Small Cap Series, World Opportunities Series, Commodity Series, Financial Services Series, Technology Series, International Series, Global Fixed Income Series, Life Sciences Series, Socially Responsible Series, Blended Asset Series I, Blended Asset Series II, Flexible Yield Series I, Flexible Yield Series II, Flexible Yield Series III, Defensive Series, Maximum Horizon Series, New York Tax Exempt Series, Ohio Tax Exempt Series and the Diversified Tax Exempt Series. For information as to the business, profession, vocation or employment of a substantial nature of Manning & Napier Advisors, Inc. its directors and officers, reference is made to Part B of this Registration Statement and to Form ADV as filed under the Investment Advisers Act of 1940 by Manning & Napier Advisors, Inc. Manning & Napier Advisory Advantage Corporation (dba Advisory Advantage) is the investment advisor of the Government-Oriented Fixed Income Series, Unrestricted Fixed Income Series, Index Stock Series, Large Cap Stock Series, Small Cap Stock Series, Aggressive Stock Series, International Stock Series, Defensive Growth Series, Growth with Reduced Volatility Series, Long-Term Growth Series and the Maximum-Growth Series. For information as to the business, profession, vocation or employment of a substantial nature of Manning & Napier Advisory Advantage Corporation its directors and officers, reference is made to Part B of this Registration Statement and to Form ADV as filed under the Investment Advisers Act of 1940 by Manning & Napier Advisory Advantage Corporation. ITEM 27. PRINCIPAL UNDERWRITERS. (a) Not Applicable (b) Manning & Napier Investor Services, Inc. is the Distributor for the Registrant's shares.
Name & Principal Positions & Offices Positions & Offices Business Address with Distributor with Registrant ---------------- ---------------- --------------- B. Reuben Auspitz President & Director Director & Vice 1100 Chase Square President Rochester, NY 14604 Julie Raschella Director N/A 1100 Chase Square Rochester, NY 14604 Beth H. Galusha Treasurer Chief Financial & 1100 Chase Square Accounting Officer, Rochester, NY 14604 Treasurer Amy Williams Corporate Secretary N/A 1100 Chase Square Rochester, NY 14604 George Nobiliski Director N/A 1100 Chase Square Rochester, NY 14604
(c) The Distributor does not receive any commissions or other form of compensation for its distribution services to the Registrant. ITEM 28. LOCATION OF ACCOUNTS AND RECORDS. The accounts, books and other documents required to be maintained by Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and the rules promulgated thereunder are in the possession of Registrant except for the records required by Rule 31a-1(b)(2)(a) and (b), which are in the possession of the Custodian. ITEM 29. MANAGEMENT SERVICES. Not Applicable. ITEM 30. UNDERTAKINGS. Not Applicable. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this Post-Effective Amendment No. 34 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Rochester and State of New York on the 24th day of May, 1999. Exeter Fund, Inc. (Registrant) By /s/ William Manning ------------------- William Manning President Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment No. 34 to the Registration Statement has been signed below by the following persons in the capacities and on the date indicated.
Signature Title Date --------- ----- ---- /s/ William Manning Principal Executive Officer May 24, 1999 --------------------------- ----------------- William Manning /s/ B. Reuben Auspitz Director and Officer May 24, 1999 --------------------------- ----------------- B. Reuben Auspitz /s/ Martin F. Birmingham Director May 24, 1999 --------------------------- ----------------- Martin F. Birmingham /s/ Harris H. Rusitzky Director May 24, 1999 --------------------------- ----------------- Harris H. Rusitzky /s/ Peter L. Faber Director May 24, 1999 --------------------------- ----------------- Peter L. Faber /s/ Stephen B. Ashley Director May 24, 1999 --------------------------- ----------------- Stephen B. Ashley /s/ Beth H. Galusha Chief Financial & Accounting May 24, 1999 --------------------------- Officer, Treasurer ----------------- Beth H. Galusha
EXHIBIT INDEX EX-99.C(16) Articles Supplementary to the Charter of Exeter Fund, Inc. EX-99.D(1)(a) Supplement to Schedule A of the Investment Advisory Agreement EX-99.D(2) Investment Advisory Agreement between Manning & Napier Advisory Advantage Corporation and Exeter Fund, Inc. EX-99.D(2)(a) Form of Sub-Advisory Agreement between Manning & Napier Advisory Advantage Corporation Advantage Corporation and Strong Capital Management, Inc. is filed herewith. EX-99.D(2)(b) Form of Sub-Advisory Agreement between Manning & Napier Advisory Advantage Corporation and Loomis, Sayles & Company, L.P. is filed herewith. EX-99.D(2)(c) Form of Sub-Advisory Agreement between Manning & Napier Advisory Advantage Corporation and State Street Global Advisors, Inc. is filed herewith. EX-99.D(2)(d) Form of Sub-Advisory Agreement between Manning & Napier Advisory Advantage Corporation and Scudder Kemper Investments, Inc. is filed herewith. EX-99.D(2)(e) Form of Sub-Advisory Agreement between Manning & Napier Advisory Advantage Corporation and Babson-Stewart Ivory International is filed herewith. EX-99.D(2)(f) Form of Sub-Advisory Agreement between Manning & Napier Advisory Advantage Corporation and DLJ Investment Management Corp. is filed herewith. EX-99.D(2)(g) Form of Sub-Advisory Agreement between Manning & Napier Advisory Advantage Corporation and MFS Institutional Advisors, Inc. is filed herewith. EX-99.D(2)(h) Form of Sub-Advisory Agreement between Manning & Napier Advisory Advantage Corporation and Manning & Napier Advisors, Inc. is filed herewith. EX-99.E Amended and Restated Distribution Agreement is filed herewith. EX-99.H(1)(a) Supplement to Schedule A of the Transfer Agent Agreement is filed herewith. EX-99.H(1)(b) Supplement to Schedule B of the Transfer Agent Agreement is filed herewith. EX-99.J(1) Consent of PricewaterhouseCoopers, LLP is filed herewith. EX-99.J(2) Consent of Deloitte & Touche LLP is filed herewith. EX-99.O(2) Amended Rule 18f-3 Plan EX-99.C(6) 2 EXHIBIT 99.C(6) EXETER FUND, INC. ARTICLES SUPPLEMENTARY EXETER FUND, INC. (the "Corporation"), a corporation organized under the laws of the State of Maryland, having its principal place of business at 1100 Chase Square, Rochester, New York 14604, does hereby file for record with the State of Department of Assessments and Taxation of Maryland the following Articles Supplementary to its Articles of Incorporation. FIRST: The Corporation is registered as an open-end investment company under the investment Company Act of 1940. As hereinafter set forth, the Corporation has increased the total number of common stock, par value $.01 from one billion (1,000,000,000) to one billion, seven hundred million (1,700,000,000) authorized, unissued and unclassified capital stock in accordance with Section 2-208 of the Maryland General Corporation Law and under authority contained in the Articles of Incorporation of the Corporation and has classified its authorized, unissued and unclassified capital stock in accordance with Section 2-105(c) of the Maryland General Corporation Law and under authority contained in the Articles of Incorporation of the Corporation. SECOND: Pursuant to the authority contained in Section 2-208 of the Maryland General Corporation Law and Article V of the Articles of Incorporation of the Corporation as amended, the Board of Directors of the Corporation, by a resolution adopted at a meeting held on May 11, 1999 authorized to designate and classify the additional shares as follows:
Type of Shares Number -------------- ------ Socially Responsible Series Class A 37,500,000 Socially Responsible Series Class B 2,500,000 Socially Responsible Series Class C 5,000,000 Socially Responsible Series Class D 2,500,000 Socially Responsible Series Class E 2,500,000 Government-Oriented Fixed Income Series Class A 25,000,000 Government-Oriented Fixed Income Series Class D 15,000,000 Government-Oriented Fixed Income Series Class E 10,000,000 Unrestricted Fixed Income Series Class A 25,000,000 Unrestricted Fixed Income Series Class D 15,000,000 Unrestricted Fixed Income Series Class E 10,000,000 Index Stock Series Class A 25,000,000 Index Stock Series Class D 15,000,000 Index Stock Series Class E 10,000,000 Large Cap Stock Series Class A 25,000,000 Large Cap Stock Series Class D 15,000,000 Large Cap Stock Series Class E 10,000,000 Small Cap Stock Series Class A 25,000,000 Small Cap Stock Series Class D 15,000,000 Small Cap Stock Series Class E 10,000,000 Aggressive Stock Series Class A 25,000,000 Aggressive Stock Series Class D 15,000,000 Aggressive Stock Series Class E 10,000,000 International Stock Series Class A 25,000,000 International Stock Series Class D 15,000,000 International Stock Series Class E 10,000,000 Defensive Growth Series Class A 25,000,000 Defensive Growth Series Class D 15,000,000 Defensive Growth Series Class E 10,000,000 Growth with Reduced Volatility Series Class A 25,000,000 Growth with Reduced Volatility Series Class D 15,000,000 Growth with Reduced Volatility Series Class E 10,000,000 Long-Term Growth Series Class A 25,000,000 Long-Term Growth Series Class D 15,000,000 Long-Term Growth Series Class E 10,000,000 Maximum-Growth Series Class A 25,000,000 Maximum-Growth Series Class D 15,000,000 Maximum-Growth Series Class E 10,000,000 Unclassified 100,000,000
THIRD: That the proper officers of the Fund, be, and they hereby are, authorized and directed to cause Articles Supplementary to the Fund's Articles of Incorporation, as amended, to be filed with the State of Maryland to effect the purposes of the foregoing resolutions. FOURTH: The officers of the Corporation be, and each of them hereby is, authorized and empowered to execute, seal and deliver any and all documents, instruments, papers and writings, including but not limited to Articles Supplementary to be filed with the State Department of Assessments and Taxation of Maryland, and to do any and all other acts, in the name of the Corporation and on its behalf, as may be necessary or desirable in connection with or in furtherance of the foregoing resolutions. FIFTH: The officers of the Fund be, and they hereby are, authorized to do any and all acts as may be necessary to cause the aforementioned shares to be registered with the Securities & Exchange Commission and any state authorities. SIXTH: The proper officers of the Fund are hereby authorized and directed to take or cause to be taken any and all action they may deem necessary or appropriate in connection with the continuous offer, sale and issuance of shares of the Socially Responsible Series Class A common stock with a par value of $.01 per share, at an initial offering price of $10.00 per share, and at the net asset value per share thereafter. SEVENTH: The proper officers of the Fund are hereby authorized and directed to take or cause to be taken any and all action they may deem necessary or appropriate in connection with the continuous offer, sale and issuance of shares of the Socially Responsible Series Class B common stock with a par value of $.01 per share, at an initial offering price of $10.00 per share, and at the net asset value per share thereafter. EIGHTH: The proper officers of the Fund are hereby authorized and directed to take or cause to be taken any and all action they may deem necessary or appropriate in connection with the continuous offer, sale and issuance of shares of the Socially Responsible Series Class C common stock with a par value of $.01 per share, at an initial offering price of $10.00 per share, and at the net asset value per share thereafter. NINTH: The proper officers of the Fund are hereby authorized and directed to take or cause to be taken any and all action they may deem necessary or appropriate in connection with the continuous offer, sale and issuance of shares of the Socially Responsible Series Class D common stock with a par value of $.01 per share, at an initial offering price of $10.00 per share, and at the net asset value per share thereafter. TENTH: The proper officers of the Fund are hereby authorized and directed to take or cause to be taken any and all action they may deem necessary or appropriate in connection with the continuous offer, sale and issuance of shares of the Socially Responsible Series Class E common stock with a par value of $.01 per share, at an initial offering price of $10.00 per share, and at the net asset value per share thereafter. ELEVENTH: The proper officers of the Fund are hereby authorized and directed to take or cause to be taken any and all action they may deem necessary or appropriate in connection with the continuous offer, sale and issuance of shares of the Government-Oriented Fixed Income Series Class A common stock with a par value of $.01 per share, at an initial offering price of $10.00 per share, and at the net asset value per share thereafter. TWELFTH: The proper officers of the Fund are hereby authorized and directed to take or cause to be taken any and all action they may deem necessary or appropriate in connection with the continuous offer, sale and issuance of shares of the Government-Oriented Fixed Income Series Class D common stock with a par value of $.01 per share, at an initial offering price of $10.00 per share, and at the net asset value per share thereafter. THIRTEENTH: The proper officers of the Fund are hereby authorized and directed to take or cause to be taken any and all action they may deem necessary or appropriate in connection with the continuous offer, sale and issuance of shares of the Government-Oriented Fixed Income Series Class E common stock with a par value of $.01 per share, at an initial offering price of $10.00 per share, and at the net asset value per share thereafter. FOURTEENTH: The proper officers of the Fund are hereby authorized and directed to take or cause to be taken any and all action they may deem necessary or appropriate in connection with the continuous offer, sale and issuance of shares of the Index Stock Series Class A common stock with a par value of $.01 per share, at an initial offering price of $10.00 per share, and at the net asset value per share thereafter. FIFTEENTH: The proper officers of the Fund are hereby authorized and directed to take or cause to be taken any and all action they may deem necessary or appropriate in connection with the continuous offer, sale and issuance of shares of the Index Stock Series Class D common stock with a par value of $.01 per share, at an initial offering price of $10.00 per share, and at the net asset value per share thereafter. SIXTEENTH: The proper officers of the Fund are hereby authorized and directed to take or cause to be taken any and all action they may deem necessary or appropriate in connection with the continuous offer, sale and issuance of shares of the Index Stock Series Class E common stock with a par value of $.01 per share, at an initial offering price of $10.00 per share, and at the net asset value per share thereafter. SEVENTEENTH: The proper officers of the Fund are hereby authorized and directed to take or cause to be taken any and all action they may deem necessary or appropriate in connection with the continuous offer, sale and issuance of shares of the Large Cap Stock Series Class A common stock with a par value of $.01 per share, at an initial offering price of $10.00 per share, and at the net asset value per share thereafter. EIGHTEENTH: The proper officers of the Fund are hereby authorized and directed to take or cause to be taken any and all action they may deem necessary or appropriate in connection with the continuous offer, sale and issuance of shares of the Large Cap Stock Series Class D common stock with a par value of $.01 per share, at an initial offering price of $10.00 per share, and at the net asset value per share thereafter. NINETEENTH: The proper officers of the Fund are hereby authorized and directed to take or cause to be taken any and all action they may deem necessary or appropriate in connection with the continuous offer, sale and issuance of shares of the Large Cap Stock Series Class E common stock with a par value of $.01 per share, at an initial offering price of $10.00 per share, and at the net asset value per share thereafter. TWENTIETH: The proper officers of the Fund are hereby authorized and directed to take or cause to be taken any and all action they may deem necessary or appropriate in connection with the continuous offer, sale and issuance of shares of the Small Cap Stock Series Class A common stock with a par value of $.01 per share, at an initial offering price of $10.00 per share, and at the net asset value per share thereafter. TWENTY-FIRST: The proper officers of the Fund are hereby authorized and directed to take or cause to be taken any and all action they may deem necessary or appropriate in connection with the continuous offer, sale and issuance of shares of the Small Cap Stock Series Class D common stock with a par value of $.01 per share, at an initial offering price of $10.00 per share, and at the net asset value per share thereafter. TWENTY-SECOND: The proper officers of the Fund are hereby authorized and directed to take or cause to be taken any and all action they may deem necessary or appropriate in connection with the continuous offer, sale and issuance of shares of the Small Cap Stock Series Class E common stock with a par value of $.01 per share, at an initial offering price of $10.00 per share, and at the net asset value per share thereafter. TWENTY-THIRD: The proper officers of the Fund are hereby authorized and directed to take or cause to be taken any and all action they may deem necessary or appropriate in connection with the continuous offer, sale and issuance of shares of the Aggressive Stock Series Class A common stock with a par value of $.01 per share, at an initial offering price of $10.00 per share, and at the net asset value per share thereafter. TWENTY-FOURTH: The proper officers of the Fund are hereby authorized and directed to take or cause to be taken any and all action they may deem necessary or appropriate in connection with the continuous offer, sale and issuance of shares of the Aggressive Stock Series Class D common stock with a par value of $.01 per share, at an initial offering price of $10.00 per share, and at the net asset value per share thereafter. TWENTY-FIFTH: The proper officers of the Fund are hereby authorized and directed to take or cause to be taken any and all action they may deem necessary or appropriate in connection with the continuous offer, sale and issuance of shares of the Aggressive Stock Series Class E common stock with a par value of $.01 per share, at an initial offering price of $10.00 per share, and at the net asset value per share thereafter. TWENTY-SIXTH: The proper officers of the Fund are hereby authorized and directed to take or cause to be taken any and all action they may deem necessary or appropriate in connection with the continuous offer, sale and issuance of shares of the International Stock Series Class A common stock with a par value of $.01 per share, at an initial offering price of $10.00 per share, and at the net asset value per share thereafter. TWENTY-SEVENTH: The proper officers of the Fund are hereby authorized and directed to take or cause to be taken any and all action they may deem necessary or appropriate in connection with the continuous offer, sale and issuance of shares of the International Stock Series Class D common stock with a par value of $.01 per share, at an initial offering price of $10.00 per share, and at the net asset value per share thereafter. TWENTY-EIGHTH: The proper officers of the Fund are hereby authorized and directed to take or cause to be taken any and all action they may deem necessary or appropriate in connection with the continuous offer, sale and issuance of shares of the International Stock Series Class E common stock with a par value of $.01 per share, at an initial offering price of $10.00 per share, and at the net asset value per share thereafter. TWENTY-NINTH: The proper officers of the Fund are hereby authorized and directed to take or cause to be taken any and all action they may deem necessary or appropriate in connection with the continuous offer, sale and issuance of shares of the Defensive Growth Series Class A common stock with a par value of $.01 per share, at an initial offering price of $10.00 per share, and at the net asset value per share thereafter. THIRTIETH: The proper officers of the Fund are hereby authorized and directed to take or cause to be taken any and all action they may deem necessary or appropriate in connection with the continuous offer, sale and issuance of shares of the Defensive Growth Series Class D common stock with a par value of $.01 per share, at an initial offering price of $10.00 per share, and at the net asset value per share thereafter. THIRTY-FIRST: The proper officers of the Fund are hereby authorized and directed to take or cause to be taken any and all action they may deem necessary or appropriate in connection with the continuous offer, sale and issuance of shares of the Defensive Growth Series Class E common stock with a par value of $.01 per share, at an initial offering price of $10.00 per share, and at the net asset value per share thereafter. THIRTY-SECOND: The proper officers of the Fund are hereby authorized and directed to take or cause to be taken any and all action they may deem necessary or appropriate in connection with the continuous offer, sale and issuance of shares of the Growth with Reduced Volatility Series Class A common stock with a par value of $.01 per share, at an initial offering price of $10.00 per share, and at the net asset value per share thereafter. THIRTY-THIRD: The proper officers of the Fund are hereby authorized and directed to take or cause to be taken any and all action they may deem necessary or appropriate in connection with the continuous offer, sale and issuance of shares of the Growth with Reduced Volatility Series Class D common stock with a par value of $.01 per share, at an initial offering price of $10.00 per share, and at the net asset value per share thereafter. THIRTY-FOURTH: The proper officers of the Fund are hereby authorized and directed to take or cause to be taken any and all action they may deem necessary or appropriate in connection with the continuous offer, sale and issuance of shares of the Growth with Reduced Volatility Series Class E common stock with a par value of $.01 per share, at an initial offering price of $10.00 per share, and at the net asset value per share thereafter. THIRTY-FIFTH: The proper officers of the Fund are hereby authorized and directed to take or cause to be taken any and all action they may deem necessary or appropriate in connection with the continuous offer, sale and issuance of shares of the Long-Term Growth Series Class A common stock with a par value of $.01 per share, at an initial offering price of $10.00 per share, and at the net asset value per share thereafter. THIRTY-SIXTH: The proper officers of the Fund are hereby authorized and directed to take or cause to be taken any and all action they may deem necessary or appropriate in connection with the continuous offer, sale and issuance of shares of the Long-Term Growth Series Class D common stock with a par value of $.01 per share, at an initial offering price of $10.00 per share, and at the net asset value per share thereafter. THIRTY-SEVENTH: The proper officers of the Fund are hereby authorized and directed to take or cause to be taken any and all action they may deem necessary or appropriate in connection with the continuous offer, sale and issuance of shares of the Long-Term Growth Series Class E common stock with a par value of $.01 per share, at an initial offering price of $10.00 per share, and at the net asset value per share thereafter. THIRTY-EIGHTH: The proper officers of the Fund are hereby authorized and directed to take or cause to be taken any and all action they may deem necessary or appropriate in connection with the continuous offer, sale and issuance of shares of the Maximum-Term Growth Series Class A common stock with a par value of $.01 per share, at an initial offering price of $10.00 per share, and at the net asset value per share thereafter. THIRTY-NINTH: The proper officers of the Fund are hereby authorized and directed to take or cause to be taken any and all action they may deem necessary or appropriate in connection with the continuous offer, sale and issuance of shares of the Maximum-Term Growth Series Class D common stock with a par value of $.01 per share, at an initial offering price of $10.00 per share, and at the net asset value per share thereafter. FORTIETH: The proper officers of the Fund are hereby authorized and directed to take or cause to be taken any and all action they may deem necessary or appropriate in connection with the continuous offer, sale and issuance of shares of the Maximum-Term Growth Series Class E common stock with a par value of $.01 per share, at an initial offering price of $10.00 per share, and at the net asset value per share thereafter. FORTY-FIRST: The aforesaid action by the Board of Directors of the Corporation was taken pursuant to authority and power contained in the Articles of Incorporation of the Corporation. IN WITNESS WHEREOF, EXETER FUND, INC. has caused these presents to be signed in its name and on its behalf by its Vice President and its corporate seal to be hereunto affixed and attested by its Secretary as of the 11th day of May, 1999. EXETER FUND, INC. By: /s/ B. Reuben Auspitz --------------------------------- B. Reuben Auspitz Vice President [Seal] Attest: /s/ Jodi L Hedberg - ----------------------- Jodi L Hedberg Secretary EX-99.D(1)(A) 3 EXHIBIT 99.D(1)(A) EXETER FUND, INC. FORM OF SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT SCHEDULE A DATED 5-11-99 Socially Responsible Series SUPPLEMENT TO INVESTMENT ADVISORY AGREEMENT (the "Agreement") dated as of April 30, 1993 between Exeter Fund, Inc. (the "Fund") and Manning & Napier Advisors, Inc. (the "Advisor"). RECITALS The Fund has executed and delivered the Investment Advisory Agreement dated as of April 30, 1993 (the "Agreement"), between the Fund and the Advisor. The Agreement sets forth the rights and obligation of the parties with respect to the management of the Series of the Fund. The Fund has created the Socially Responsible Series (the `Additional Series"). AGREEMENTS Now, therefore, the parties agree as follows: The following will be subject to the terms and conditions of the Agreement: SERIES PERCENTAGE ------ ---------- Socially Responsible Series .50% The parties below have executed this Agreement as of May 11, 1999. EXETER FUND, INC. /s/ William Manning --------------------------------- William Manning, President MANNING & NAPIER ADVISORS, INC. /s/ B. Reuben Auspitz --------------------------------- B. Reuben Auspitz, Executive V.P. EX-99.D(2) 4 EXHIBIT D(2) INVESTMENT ADVISORY AGREEMENT EXETER FUND, INC. AGREEMENT made this 11th day of May, 1999, by and between Exeter Fund, Inc. a Maryland corporation (the "Fund"), and Manning & Napier Advisory Advantage Corporation, (the "Adviser"). WHEREAS, the fund is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"), consisting of several portfolios of shares, each having its own investment policies; and WHEREAS, the Fund desires to retain the Adviser to render investment management services with respect to its Government-Oriented Fixed Income Series, Unrestricted Fixed Income Series, Index Stock Series, Large Cap Stock Series, Small Cap Stock Series, Aggressive Stock Series, International Stock Series, Defensive Growth Series, Growth with Reduced Volatility Series, Long-Term Growth Series and Maximum-Term Growth Series and such other portfolios as the Fund and the Adviser may agree upon (the "Series"), and the Adviser is willing to render such services: NOW, THEREFORE, in consideration of mutual covenants herein contained, the parties hereto agree as follows: 1. DUTIES OF THE ADVISER. The Fund employs the Adviser to manage the investment and reinvestment of the assets, to hire (subject to the approval of the Fund's Board of Directors and, except as otherwise permitted under the terms of any exemptive relief obtained by the Adviser from the Securities and Exchange Commission, or by rule or regulation, a majority of the outstanding voting securities of any affected Series) and thereafter supervise the investment activities of one or more sub-advisers deemed necessary to carry out the investment program of any Series of the Fund, and to continuously review, supervise and (where appropriate) administer the investment program of the Series, to determine in its discretion (where appropriate) the securities to be purchased or sold, to provide the Fund with records concerning the Adviser's activities which the Fund is required to maintain, and to render regular reports to the Fund's officers and Directors concerning the Adviser's discharge of the foregoing responsibilities. The retention of a sub-adviser by the Adviser shall not relieve the Adviser of its responsibilities under this Agreement. The Adviser shall discharge the foregoing responsibilities (as well as the determination of any sub-adviser) subject to the control of the Board of Directors of the Fund and in compliance with such policies as the Directors may from time to time establish, and in compliance with the objectives, policies, and limitations for each such Series set forth in the Fund's prospectus and statement of additional information, as amended from time to time (referred to collectively as the "Prospectus"), and applicable laws and regulations. The Fund will furnish the Adviser from time to time with copies of all amendments or supplements to the Prospectus, if any. The Adviser accepts such employment and agrees, at its own expense, to render the services and to provide the office space, furnishings and equipment and the personnel (including any sub-advisers) required by it to perform the services on the terms and for the compensation provided herein. The Adviser will not, however, pay for the cost of securities, commodities, and other investments (including brokerage commissions and other transaction charges, if any) purchased or sold for the Fund. 2. DELIVERY OF DOCUMENTS. The Fund has furnished Adviser with copies properly certified or authenticated of each of the following: (a) The Fund's Articles of Incorporation, as filed with the Secretary of State of the State of Maryland (such Articles of Incorporation, as presently in effect and as it shall from time to time be amended, is herein called the "Articles"); (b) By-Laws of the Fund (such By-Laws, as in effect on the date of this Agreement and as amended from time to time, are herein called the "By-Laws"); (c) Prospectus(es) of the Series. 3. OTHER COVENANTS. The Adviser agrees that it: (a) will comply with all applicable Rules and Regulations of the Securities and Exchange Commission and will in addition conduct its activities under this Agreement in accordance with other applicable law; (b) will place orders pursuant to its investment determinations for the Series either directly with the issuer or with any broker or dealer. In executing portfolio transactions and selecting brokers or dealers, the Adviser will use its best efforts to seek on behalf of the Series the best overall terms available. In assessing the best overall terms available for any transaction, the Adviser shall consider all factors that it deems relevant, including the breadth of the market in the security, the price of the security, the financial condition and execution capability of the broker or dealer, and the reasonableness of the commission, if any, both for the specific transaction and on a continuing basis. In evaluating the best overall terms available, and in selecting the broker-dealer to execute a particular transaction the Adviser may also consider the brokerage and research services (as those terms are defined in Section 28(3) of the Securities Exchange Act of 1934) provided to the Series and/or other accounts over which the Adviser or an affiliate of the Adviser may exercise investment discretion. The Adviser is authorized, subject to the prior approval of the Fund's Board of Directors, to pay to a broker or dealer who provides such brokerage and research services a commission for executing a portfolio transaction for any of the Series which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if, but only if, the Adviser determines in good faith that such commission was reasonable in relation to the value of the brokerage and research services provided by such broker or dealer -- viewed in terms of that particular transaction or terms of the overall responsibilities of the Adviser to the Series. In addition, the Adviser if authorized to allocate purchase and sale orders for portfolio securities to brokers or dealers (including brokers and dealers that are affiliated with the Adviser or the Fund's principal underwriter) to take into account the sale of shares of the Fund if the Adviser believes that the quality of the transaction and the commission are comparable to what they would be with other qualified firms. In no instance, however, will any Series' securities be purchased from or sold to the Adviser, any sub-adviser engaged with respect to that Series, the Fund's principal underwriter, or any affiliated person of either the Fund, the Adviser, and sub-adviser or the principal underwriter, acting as principal in the transaction, except to the extent permitted by the Securities and Exchange Commission and the 1940 Act. 4. COMPENSATION OF THE ADVISER. For the services to be rendered by the Adviser as provided in Sections 1 and 2 of this Agreement, the Fund shall pay to the Adviser compensation at the rate(s) specified in the Schedule(s) which are attached hereto and made a part of this Agreement. Such compensation shall be paid to the Adviser at the end of each month, and calculated by applying a daily rate, based on the annual percentage rates as specified in the attached Schedule(s), to the assets of the Series. The fee shall be based on the average daily net assets for the month involved. The Adviser may, in its discretion and from time to time, waive a portion of its fee. 5. EXCESS EXPENSES. If the expenses for any Series for any fiscal year (including fees and other amounts payable to the Adviser, but excluding interest, taxes, brokerage costs, litigation, and other extraordinary costs) as calculated every business day would exceed the expense limitations imposed on investment companies by any applicable statute or regulatory authority of any jurisdiction in which shares are qualified for offer and sale, the Adviser shall bear such excess cost. However, the Adviser will not bear expenses of the Fund or any Series which would result in the Fund's inability to qualify as a regulated investment company under provisions of the Internal Revenue Code. Payment of expenses by the Adviser pursuant to this Section 5 shall be settled on a monthly basis (subject to fiscal year end reconciliation) by a waiver of the Adviser's fees provided for hereunder, and such waiver shall be treated as a reduction in the purchase price of the Adviser's services. 6. REPORTS. The Fund and the Adviser agree to furnish to each other, if applicable, current prospectuses, proxy statements, reports to shareholders, certified copies of their financial statements, and such other information with regard to their affairs as each may reasonably request. The Adviser further agrees to furnish to the Fund, if applicable, the same such documents and information pertaining to any sub-adviser as the Fund may reasonably request. 7. STATUS OF THE ADVISER. The services of the Adviser to the Fund are not to be deemed exclusive, and the Adviser shall be free to render similar services to others so long as its services to the Fund are not impaired thereby. The Adviser shall be deemed to be an independent contractor and shall, unless otherwise expressly provided or authorized, have no authority to act for or represent the Fund in any way or otherwise be deemed an agent of the Fund. To the extent that the purchase or sale of securities or other investments of any issuer may be deemed by the Adviser to be suitable for two or more accounts managed by the Adviser, the available securities or investments may be allocated in a manner believed by the Adviser to be equitable to each account. It is recognized that in some cases this may adversely affect the price paid or received by the Fund or the size or position obtainable for or disposed by the Fund or any Series. 8. CERTAIN RECORDS. Any records required to be maintained and preserved pursuant to the provisions of Rule 31a-1 and Rule 31a-2 promulgated under the 1940 Act which are prepared or maintained by the Adviser (or any sub-adviser) on behalf of the Fund are the property of the Fund and will be surrendered promptly to the Fund on request. The Adviser further agrees to preserve for the periods prescribed in Rule 31a-2 under the 1940 Act the records required to be maintained under Rule 31a-1 under the 1940 Act. 9. LIMITATION OF LIABILITY OF THE ADVISER. The duties of the Adviser shall be confined to those expressly set forth herein, and no implied duties are assumed by or may be asserted against the Adviser hereunder. The Adviser shall not be liable for any error of judgment or mistake of law or for any loss arising out of any investment or for any act or omission in carrying out its duties hereunder, except a loss resulting from willful misfeasance, bad faith or gross negligence in the performance of its duties, or by reason of reckless disregard of its obligations and duties hereunder, except as may otherwise be provided under provisions of applicable state law which cannot be waived or modified hereby. (As used in this Section 9, the term "Adviser" shall include Directors, officers, employees and other corporate agents of the Adviser as well as that corporation itself). 10. PERMISSIBLE INTERESTS. Directors, agents, and shareholders of the Fund are or may be interested in the Adviser (or any successor thereof) as Directors, partners, officers, or shareholders, or otherwise; Directors, partners, officers, agents, and shareholders of the Adviser are or may be interested in the Fund as Directors, officers, shareholders or otherwise; and the Adviser (or any successor) is or may be interested in the Fund as a shareholder or otherwise subject to the provisions of applicable law. All such interests shall be fully disclosed between the parties on any ongoing basis and in the Fund's Prospectus as required by law. In addition, brokerage transactions for the Fund may be effected through affiliates of the Adviser or any sub-adviser if approved by the Board of Directors, subject to the rules and regulations of the Securities and Exchange Commission. 11. DURATION AND TERMINATION. This Agreement, unless sooner terminated as provided herein, shall remain in effect until two years from date of execution, and thereafter, for periods of one year so long as such continuance thereafter is specifically approved at least annually (a) by the vote of a majority of those Directors of the Fund who are not parties to this Agreement or interested persons of any such party, cast in person at a meeting called for the purpose of voting on such approval, and (b) by the Directors of the Fund or by vote of a majority of the outstanding voting securities of each Series; provided, however, that if the shareholders of any Series fail to approve the Agreement as provided herein, the Adviser may continue to serve hereunder in the manner and to the extent permitted by the 1940 Act and rules and regulations thereunder. The foregoing requirement that continuance of this Agreement be "specifically approved at least annually" shall be construed in a manner consistent with the 1940 Act and the rules and regulations thereunder. This Agreement may be terminated as to any Series at any time, without the payment of any penalty by vote of a majority of the Directors of the Fund or by vote of a majority of the outstanding voting securities of the Series on not less than 30 days nor more than 60 days written notice to the Adviser, or by the Adviser at any time without the payment of any penalty, on 90 days written notice to the Fund. This Agreement will automatically terminate in the event of its assignment. As used in this Section 11, the terms "assignment," "interested persons," and a "vote of a majority of the outstanding voting securities" shall have the respective meanings set forth in the 1940 Act and the rules and regulations thereunder, subject to such exemptions as may be granted by the Securities and Exchange Commission. 12. GOVERNING LAW. This Agreement shall be governed by the internal laws of the State of Maryland, without regard to conflict of law principles; provided, however, that nothing herein shall be construed as being inconsistent with the 1940 Act. 13. NOTICE. Any notice, advice or report to be given pursuant to this Agreement shall be deemed sufficient if delivered or mailed by registered, certified or overnight mail, postage prepaid addressed by the party giving notice to the other party at the last address furnished by the other party: To the Adviser at: Manning & Napier Advisory Advantage Corporation 1100 Chase Square Rochester, N.Y. 14604 To the Fund at: Exeter Fund, Inc. 1100 Chase Square Rochester, N.Y. 14604 14. SEVERABILITY. If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. 15. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and understanding between the parties hereto, and supersedes all prior agreements and understandings relating to this Agreement's subject matter. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but such counterparts shall, together, constitute only one instrument. A copy of the Articles of the Fund is on file with the Secretary of State of the State of Maryland, and notice is hereby given that this instrument is executed on behalf of the Directors of the Fund as Directors, and is not binding upon any of the Directors, officers, or shareholders of the Fund individually but binding only upon the assets and property of the Fund. No Series of the Fund shall be liable for the obligations of any other Series of the Fund. Without limiting the generality of the foregoing, the Adviser shall look only to the assets of a particular Series for payment of fees for services rendered to that Series. Where the effect of a requirement of the 1940 Act reflected in any provision of this Agreement is altered by a rule, regulation or order of the Commission, whether of special or general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first written above. Exeter Fund, Inc Manning & Napier Advisory Advantage Corporation By: /s/William Manning By: /s/ B. Reuben Auspitz Attest: /s/ Fonda L. Herrick Attest: /s/ Brenda F. Oathout SCHEDULE A TO THE INVESTMENT ADVISORY AGREEMENT BETWEEN EXETER FUND, INC. AND MANNING & NAPIER ADVISORY ADVANTAGE CORPORATION Pursuant to Article 4, the Adviser's fees shall be calculated at the following annual rates:
Multi-Manager Series Initial Sub-Advisor Fees - -------------------- ------------------- ---- Government-Oriented Fixed Strong Capital Management 0.80% on first $50 million Income 0.65% on next $50 million 0.60% thereafter Unrestricted Fixed Income Loomis Sayles 1.00% on first $20 million 0.90% on next $30 million 0.70% thereafter Index Stock State Street Global Advisors 0.55% on first $50 million 0.44% on next $50 million 0.42% thereafter Large Cap Stock Scudder Kemper Investments 0.90% on first $50 million 0.80% thereafter Small Cap Stock DLJ Investment Management 1.05% on first $50 million 0.95% on next $50 million 0.85% thereafter Aggressive Stock MFS Institutional Advisors 0.95% on first $50 million 0.85% on next $150 million 0.80% on next $300 million 0.75% thereafter International Stock Babson-Stewart Ivory 1.05% on first $50 million 0.95% on next $50 million 0.85% thereafter Maximum-Term Growth* Manning & Napier Advisors 1.00% on first $50 million 0.90% thereafter Long-Term Growth * Manning & Napier Advisors 1.00% on first $50 million 0.90% thereafter Growth with Reduced Volatility* Manning & Napier Advisors 1.00% on first $50 million 0.90% thereafter Defensive Growth* Manning & Napier Advisors 0.95% on first $50 million 0.85% thereafter
* The fee specified will be reduced by 0.05% for those assets in excess of a total of $500 million managed by Manning & Napier Advisors EX-99.D(2)(A) 5 EXHIBIT 99.D(2)(A) INVESTMENT SUB-ADVISORY AGREEMENT EXETER FUND, INC. AGREEMENT made this ____ day of May, 1999, between Manning & Napier Advisory Advantage Corporation, (the "Adviser") and Strong Capital Management, Inc. (the "Sub-Adviser"). WHEREAS, Exeter Fund, Inc., a Maryland corporation (the "Fund"), is registered as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, the Adviser has entered into an Investment Advisory Agreement dated May __, 1999 (the "Advisory Agreement") with the Fund, pursuant to which the Adviser will act as investment adviser to the Government-Oriented Fixed Income Series (the "Series"); and WHEREAS, the Adviser, with the approval of the Fund, desires to retain the Sub-Adviser to provide investment advisory services to the Adviser in connection with the management of the Series, and the Sub-Adviser is willing to render such investment advisory services. NOW, THEREFORE, the parties hereto agree as follows: 1. DUTIES OF THE SUB-ADVISER. Subject to supervision by the Adviser and the Fund's Board of Directors, the Sub-Adviser shall manage all of the securities and other assets of the Series entrusted to it hereunder (the "Assets"), including the purchase, retention and disposition of the Assets, in accordance with the Series' investment objectives, policies and restrictions as stated in the Series' prospectus and statement of additional information, as currently in effect and as amended or supplemented from time to time (referred to collectively as the "Prospectus"), and subject to the following: (a) The Sub-Adviser shall, in consultation with and subject to the direction of the Adviser, determine from time to time what Assets will be purchased, retained or sold by the Series, and what portion of the Assets will be invested or held uninvested in cash. (b) In the performance of its duties and obligations under this Agreement, the Sub-Adviser shall act in conformity with the Fund's Articles of Incorporation (as defined herein) and the Prospectus and with the instructions and directions of the Adviser and of the Board of Directors of the Fund and will conform to and comply with the requirements of the 1940 Act, the Internal Revenue Code of 1986, and all other applicable federal and state laws and regulations, as each is amended from time to time. (c) The Sub-Adviser shall determine the Assets to be purchased or sold by the Series as provided in subparagraph (a) and will place orders with or through such persons, brokers or dealers to carry out the policy with respect to brokerage set forth in the Series' Registration Statement (as defined herein) and Prospectus or as the Board of Directors or the Adviser may direct from time to time, in conformity with federal securities laws. In executing portfolio transactions and selecting brokers or dealers, the Sub-Adviser will use its best efforts to seek on behalf of the Series the best overall terms available. In assessing the best overall terms available for any transaction, the Sub-Adviser shall consider all factors that it deems relevant, including the breadth of the market in the security, the price of the security, the financial condition and execution capability of the broker or dealer, and the reasonableness of the commission, if any, both for the specific transaction and on a continuing basis. In evaluating the best overall terms available, and in selecting the broker-dealer to execute a particular transaction, the Sub-Adviser may also consider the brokerage and research services provided (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934). Consistent with any guidelines established by the Board of Directors of the Fund, the Sub-Adviser is authorized to pay to a broker or dealer who provides such brokerage and research services a commission for executing a Series transaction for the Series which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if, but only if, the Sub-Adviser determines in good faith that such commission was reasonable in relation to the value of the brokerage and research services provided by such broker or dealer -- viewed in terms of that particular transaction or terms of the overall responsibilities of the Sub-Adviser to the Series. In addition, the Sub-Adviser is authorized to allocate purchase and sale orders for securities to brokers or dealers (including brokers and dealers that are affiliated with the Adviser, Sub-Adviser or the Fund's principal underwriter) to take into account the sale of shares of the Fund if the Sub-Adviser believes that the quality of the transaction and the commission are comparable to what they would be with other qualified firms. In no instance, however, will the Series' Assets be purchased from or sold to the Adviser, Sub-Adviser, the Fund's principal underwriter, or any affiliated person of either the Fund, Adviser, the Sub-Adviser or the principal underwriter, acting as principal in the transaction, except to the extent permitted by the Securities and Exchange Commission ("SEC") and the 1940 Act. (d) The Sub-Adviser shall maintain all books and records with respect to transactions involving the Assets required by subparagraphs (b)(5), (6), (7), (9), (10) and (11) and paragraph (f) of Rule 31a-1 under the 1940 Act. The Sub-Adviser shall provide to the Adviser or the Board of Directors such periodic and special reports, balance sheets or financial information, and such other information with regard to its affairs as the Adviser or Board of Directors may reasonably request. The Sub-Adviser shall keep the books and records relating to the Assets required to be maintained by the Sub-Adviser under this Agreement and shall timely furnish to the Adviser all information relating to the Sub-Adviser's services under this Agreement needed by the Adviser to keep the other books and records of the Series required by Rule 31a-1 under the 1940 Act. The Sub-Adviser shall also furnish to the Adviser any other information relating to the Assets that is required to be filed by the Adviser or the Fund with the SEC or sent to shareholders under the 1940 Act (including the rules adopted thereunder) or any exemptive or other relief that the Adviser or the Fund obtains from the SEC. The Sub-Adviser agrees that all records that it maintains on behalf of the Series are property of the Series and the Sub-Adviser will surrender promptly to the Series any of such records upon the Series' request; provided, however, that the Sub-Adviser may retain a copy of such records. In addition, for the duration of this Agreement, the Sub-Adviser shall preserve for the periods prescribed by Rule 31a-2 under the 1940 Act any such records as are required to be maintained by it pursuant to this Agreement, and shall transfer said records to any successor sub-adviser upon the termination of this Agreement (or, if there is no successor sub-adviser, to the Adviser). (e) The Sub-Adviser shall provide the Series' custodian on each business day with information relating to all transactions concerning the Series' Assets and shall provide the Adviser with such information upon request of the Adviser. (f) The investment management services provided by the Sub-Adviser under this Agreement are not to be deemed exclusive and the Sub-Adviser shall be free to render similar services to others, as long as such services do not impair the services rendered to the Adviser or the Fund. (g) The Sub-Adviser shall promptly notify the Adviser of any financial condition that is likely to impair the Sub-Adviser's ability to fulfill its commitment under this Agreement. (h) The Sub-Adviser shall review all proxy solicitation materials and be responsible for voting and handling all proxies in relation to the securities held in the Series. The Adviser shall instruct the custodian and other parties providing services to the Series to promptly forward misdirected proxies to the Sub-Adviser. Services to be furnished by the Sub-Adviser under this Agreement may be furnished through the medium of any of the Sub-Adviser's partners, officers or employees. 2. DUTIES OF THE ADVISER. The Adviser shall continue to have responsibility for all services to be provided to the Series pursuant to the Advisory Agreement and shall oversee and review the Sub-Adviser's performance of its duties under this Agreement; provided, however, that in connection with its management of the Assets, nothing herein shall be construed to relieve the Sub-Adviser of responsibility for compliance with the Fund's Articles of Incorporation (as defined herein), the Prospectus, the instructions and directions of the Board of Directors of the Fund, the requirements of the 1940 Act, the Internal Revenue Code of 1986, and all other applicable federal and state laws and regulations, as each is amended from time to time. 3. DELIVERY OF DOCUMENTS. The Adviser has furnished the Sub-Adviser with copies properly certified or authenticated of each of the following documents: (a) The Fund's Articles of Incorporation, as filed with the Secretary of State of the State of Maryland (such Articles of Incorporation, as in effect on the date of this Agreement and as amended from time to time, herein called the "Articles"); (b) By-Laws of Maryland (such By-Laws, as in effect on the date of this Agreement and as amended from time to time, are herein called the "By-Laws"); (c) Prospectus(es) of the Series. 4. COMPENSATION TO THE SUB-ADVISER. For the services to be provided by the Sub-Adviser pursuant to this Agreement, the Adviser will pay the Sub-Adviser, and the Sub-Adviser agrees to accept as full compensation therefor, a sub-advisory fee at the rate specified in the Schedule(s) which is attached hereto and made part of this Agreement. The fee will be calculated based on the average monthly market value of the Assets under the Sub-Adviser s management and will be paid to the Sub-Adviser monthly. Except as may otherwise be prohibited by law or regulation (including any then current SEC staff interpretation), the Sub-Adviser may, in its discretion and from time to time, waive a portion of its fee. 5. INDEMNIFICATION. The Sub-Adviser shall indemnify and hold harmless the Adviser from and against any and all claims, losses, liabilities or damages (including reasonable attorney's fees and other related expenses) howsoever arising from or in connection with the performance of the Sub-Adviser s obligations under this Agreement; provided, however, that the Sub-Adviser s obligation under this Section 5 shall be reduced to the extent that the claim against, or the loss, liability or damage experienced by the Adviser, is caused by or is otherwise directly related to the Adviser's own willful misfeasance, bad faith or negligence, or to the reckless disregard of its duties under this Agreement. 6. DURATION AND TERMINATION. This Agreement shall become effective upon its approval by the Fund's Board of Directors and by the vote of a majority of the outstanding voting securities of the Series; provided, however, that at any time the Adviser shall have obtained exemptive relief from the Securities and Exchange Commission permitting it to engage a Sub-Adviser without first obtaining approval of the Agreement from a majority of the outstanding voting securities of the Series involved, the Agreement shall become effective upon its approval by the Fund's Board of Directors. Any Sub-Adviser so selected and approved shall be without the protection accorded by shareholder approval of an investment adviser's receipt of compensation under Section 36(b) of the 1940 Act. This Agreement shall continue in effect for a period of more than two years from the date hereof only so long as continuance is specifically approved at least annually in conformance with the 1940 Act; provided, however, that this Agreement may be terminated with respect to the Series (a) by the Series at any time, without the payment of any penalty, by the vote of a majority of Directors of the Fund or by the vote of a majority of the outstanding voting securities of the Series, (b) by the Adviser at any time, without the payment of any penalty, on not more than 60 days' nor less than 30 days' written notice to the Sub-Adviser, or (c) by the Sub-Adviser at any time, without the payment of any penalty, on 90 days' written notice to the Adviser. This Agreement shall terminate automatically and immediately in the event of its assignment, or in the event of a termination of the Adviser's agreement with the Fund. As used in this Section 6, the terms "assignment" and "vote of a majority of the outstanding voting securities" shall have the respective meanings set forth in the 1940 Act and the rules and regulations thereunder, subject to such exceptions as may be granted by the SEC under the 1940 Act. 7. VENUE AND GOVERNING LAW. This Agreement shall be governed by the internal laws of the State of Maryland, without regard to conflict of law principles; provided, however, that nothing herein shall be construed as being inconsistent with the 1940 Act. Any claim, action, proceeding, suit or dispute relating directly or indirectly to this Agreement, shall be litigated in courts located in Monroe County, New York. Sub-Adviser hereby agrees and consents to jurisdiction in any court of competent jurisdiction in New York. 8. SEVERABILITY. Should any part of this Agreement be held invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors. 9. NOTICE: Any notice, advice or report to be given pursuant to this Agreement shall be deemed sufficient if delivered or mailed by registered, certified or overnight mail, postage prepaid addressed by the party giving notice to the other party at the last address furnished by the other party: To the Adviser at: Manning & Napier Advisory Advantage Corporation 1100 Chase Square Rochester, N.Y. 14604 Attn: Corporate Secretary To the Sub-Adviser at: Strong Capital Management, Inc. 100 Heritage Reserve Menomoncee, Wisconsin 53201 Attn: General Counsel 10. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and understanding between the parties hereto, and supersedes all prior agreements and understandings relating to this Agreement's subject matter. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but such counterparts shall, together, constitute only one instrument. A copy of the Articles is on file with the Secretary of State of the State of Maryland, and notice is hereby given that the obligations of this instrument are not binding upon any of the Directors, officers or shareholders of the Series or the Fund. Where the effect of a requirement of the 1940 Act reflected in any provision of this Agreement is altered by a rule, regulation or order of the SEC, whether of special or general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers designated below as of the day and year first written above. Manning & Napier Advisory Advantage Strong Capital Management, Inc. Corporation By: By: -------------------------------- ---------------------------------- Name: Name: ------------------------------ -------------------------------- Title: Title: ----------------------------- ------------------------------- SCHEDULE A TO THE SUB-ADVISORY AGREEMENT BETWEEN MANNING & NAPIER ADVISORY ADVANTAGE CORPORATION AND STRONG CAPITAL MANAGEMENT, INC.__ Pursuant to Article 4, the Adviser shall pay the Sub-Adviser compensation at an annual rate as follows: On the first $50 million 0.30% On the next $50 million 0.25% Thereafter 0.20%
EX-99.D(2)(B) 6 EXHIBIT 99.D(2)(B) INVESTMENT SUB-ADVISORY AGREEMENT EXETER FUND, INC. AGREEMENT made this ____ day of May, 1999, between Manning & Napier Advisory Advantage Corporation, (the "Adviser") and Loomis, Sayles & Company, L.P. (the "Sub-Adviser"). WHEREAS, Exeter Fund, Inc., a Maryland corporation (the "Fund"), is registered as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, the Adviser has entered into an Investment Advisory Agreement dated May __, 1999 (the "Advisory Agreement") with the Fund, pursuant to which the Adviser will act as investment adviser to the Unrestricted Fixed Income Series (the "Series"); and WHEREAS, the Adviser, with the approval of the Fund, desires to retain the Sub-Adviser to provide investment advisory services to the Adviser in connection with the management of the Series, and the Sub-Adviser is willing to render such investment advisory services. NOW, THEREFORE, the parties hereto agree as follows: 1. DUTIES OF THE SUB-ADVISER. Subject to supervision by the Adviser and the Fund's Board of Directors, the Sub-Adviser shall manage all of the securities and other assets of the Series entrusted to it hereunder (the "Assets"), including the purchase, retention and disposition of the Assets, in accordance with the Series' investment objectives, policies and restrictions as stated in the Series' prospectus and statement of additional information, as currently in effect and as amended or supplemented from time to time (referred to collectively as the "Prospectus"), and subject to the following: (a) The Sub-Adviser shall, in consultation with and subject to the direction of the Adviser, determine from time to time what Assets will be purchased, retained or sold by the Series, and what portion of the Assets will be invested or held uninvested in cash. (b) In the performance of its duties and obligations under this Agreement, the Sub-Adviser shall act in conformity with the Fund's Articles of Incorporation (as defined herein) and the Prospectus and with the instructions and directions of the Adviser and of the Board of Directors of the Fund and will conform to and comply with the requirements of the 1940 Act, the Internal Revenue Code of 1986, and all other applicable federal and state laws and regulations, as each is amended from time to time. (c) The Sub-Adviser shall determine the Assets to be purchased or sold by the Series as provided in subparagraph (a) and will place orders with or through such persons, brokers or dealers to carry out the policy with respect to brokerage set forth in the Series' Registration Statement (as defined herein) and Prospectus or as the Board of Directors or the Adviser may direct from time to time, in conformity with federal securities laws. In executing portfolio transactions and selecting brokers or dealers, the Sub-Adviser will use its best efforts to seek on behalf of the Series the best overall terms available. In assessing the best overall terms available for any transaction, the Sub-Adviser shall consider all factors that it deems relevant, including the breadth of the market in the security, the price of the security, the financial condition and execution capability of the broker or dealer, and the reasonableness of the commission, if any, both for the specific transaction and on a continuing basis. In evaluating the best overall terms available, and in selecting the broker-dealer to execute a particular transaction, the Sub-Adviser may also consider the brokerage and research services provided (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934). Consistent with any guidelines established by the Board of Directors of the Fund, the Sub-Adviser is authorized to pay to a broker or dealer who provides such brokerage and research services a commission for executing a Series transaction for the Series which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if, but only if, the Sub-Adviser determines in good faith that such commission was reasonable in relation to the value of the brokerage and research services provided by such broker or dealer -- viewed in terms of that particular transaction or terms of the overall responsibilities of the Sub-Adviser to the Series. In addition, the Sub-Adviser is authorized to allocate purchase and sale orders for securities to brokers or dealers (including brokers and dealers that are affiliated with the Adviser, Sub-Adviser or the Fund's principal underwriter) to take into account the sale of shares of the Fund if the Sub-Adviser believes that the quality of the transaction and the commission are comparable to what they would be with other qualified firms. In no instance, however, will the Series' Assets be purchased from or sold to the Adviser, Sub-Adviser, the Fund's principal underwriter, or any affiliated person of either the Fund, Adviser, the Sub-Adviser or the principal underwriter, acting as principal in the transaction, except to the extent permitted by the Securities and Exchange Commission ("SEC") and the 1940 Act. (d) The Sub-Adviser shall maintain all books and records with respect to transactions involving the Assets required by subparagraphs (b)(5), (6), (7), (9), (10) and (11) and paragraph (f) of Rule 31a-1 under the 1940 Act. The Sub-Adviser shall provide to the Adviser or the Board of Directors such periodic and special reports, balance sheets or financial information, and such other information with regard to its affairs as the Adviser or Board of Directors may reasonably request. The Sub-Adviser shall keep the books and records relating to the Assets required to be maintained by the Sub-Adviser under this Agreement and shall timely furnish to the Adviser all information relating to the Sub-Adviser's services under this Agreement needed by the Adviser to keep the other books and records of the Series required by Rule 31a-1 under the 1940 Act. The Sub-Adviser shall also furnish to the Adviser any other information relating to the Assets that is required to be filed by the Adviser or the Fund with the SEC or sent to shareholders under the 1940 Act (including the rules adopted thereunder) or any exemptive or other relief that the Adviser or the Fund obtains from the SEC. The Sub-Adviser agrees that all records that it maintains on behalf of the Series are property of the Series and the Sub-Adviser will surrender promptly to the Series any of such records upon the Series' request; provided, however, that the Sub-Adviser may retain a copy of such records. In addition, for the duration of this Agreement, the Sub-Adviser shall preserve for the periods prescribed by Rule 31a-2 under the 1940 Act any such records as are required to be maintained by it pursuant to this Agreement, and shall transfer said records to any successor sub-adviser upon the termination of this Agreement (or, if there is no successor sub-adviser, to the Adviser). (e) The Sub-Adviser shall provide the Series' custodian on each business day with information relating to all transactions concerning the Series' Assets and shall provide the Adviser with such information upon request of the Adviser. (f) The investment management services provided by the Sub-Adviser under this Agreement are not to be deemed exclusive and the Sub-Adviser shall be free to render similar services to others, as long as such services do not impair the services rendered to the Adviser or the Fund. (g) The Sub-Adviser shall promptly notify the Adviser of any financial condition that is likely to impair the Sub-Adviser's ability to fulfill its commitment under this Agreement. (h) The Sub-Adviser shall review all proxy solicitation materials and be responsible for voting and handling all proxies in relation to the securities held in the Series. The Adviser shall instruct the custodian and other parties providing services to the Series to promptly forward misdirected proxies to the Sub-Adviser. Services to be furnished by the Sub-Adviser under this Agreement may be furnished through the medium of any of the Sub-Adviser's partners, officers or employees. 2. DUTIES OF THE ADVISER. The Adviser shall continue to have responsibility for all services to be provided to the Series pursuant to the Advisory Agreement and shall oversee and review the Sub-Adviser's performance of its duties under this Agreement; provided, however, that in connection with its management of the Assets, nothing herein shall be construed to relieve the Sub-Adviser of responsibility for compliance with the Fund's Articles of Incorporation (as defined herein), the Prospectus, the instructions and directions of the Board of Directors of the Fund, the requirements of the 1940 Act, the Internal Revenue Code of 1986, and all other applicable federal and state laws and regulations, as each is amended from time to time. 3. DELIVERY OF DOCUMENTS. The Adviser has furnished the Sub-Adviser with copies properly certified or authenticated of each of the following documents: (a) The Fund's Articles of Incorporation, as filed with the Secretary of State of the State of Maryland (such Articles of Incorporation, as in effect on the date of this Agreement and as amended from time to time, herein called the "Articles"); (b) By-Laws of Maryland (such By-Laws, as in effect on the date of this Agreement and as amended from time to time, are herein called the "By-Laws"); (c) Prospectus(es) of the Series. 4. COMPENSATION TO THE SUB-ADVISER. For the services to be provided by the Sub-Adviser pursuant to this Agreement, the Adviser will pay the Sub-Adviser, and the Sub-Adviser agrees to accept as full compensation therefor, a sub-advisory fee at the rate specified in the Schedule(s) which is attached hereto and made part of this Agreement. The fee will be calculated based on the average monthly market value of the Assets under the Sub-Adviser s management and will be paid to the Sub-Adviser monthly. Except as may otherwise be prohibited by law or regulation (including any then current SEC staff interpretation), the Sub-Adviser may, in its discretion and from time to time, waive a portion of its fee. 5. INDEMNIFICATION. The Sub-Adviser shall indemnify and hold harmless the Adviser from and against any and all claims, losses, liabilities or damages (including reasonable attorney's fees and other related expenses) howsoever arising from or in connection with the performance of the Sub-Adviser s obligations under this Agreement; provided, however, that the Sub-Adviser s obligation under this Section 5 shall be reduced to the extent that the claim against, or the loss, liability or damage experienced by the Adviser, is caused by or is otherwise directly related to the Adviser's own willful misfeasance, bad faith or negligence, or to the reckless disregard of its duties under this Agreement. 6. DURATION AND TERMINATION. This Agreement shall become effective upon its approval by the Fund's Board of Directors and by the vote of a majority of the outstanding voting securities of the Series; provided, however, that at any time the Adviser shall have obtained exemptive relief from the Securities and Exchange Commission permitting it to engage a Sub-Adviser without first obtaining approval of the Agreement from a majority of the outstanding voting securities of the Series involved, the Agreement shall become effective upon its approval by the Fund's Board of Directors. Any Sub-Adviser so selected and approved shall be without the protection accorded by shareholder approval of an investment adviser's receipt of compensation under Section 36(b) of the 1940 Act. This Agreement shall continue in effect for a period of more than two years from the date hereof only so long as continuance is specifically approved at least annually in conformance with the 1940 Act; provided, however, that this Agreement may be terminated with respect to the Series (a) by the Series at any time, without the payment of any penalty, by the vote of a majority of Directors of the Fund or by the vote of a majority of the outstanding voting securities of the Series, (b) by the Adviser at any time, without the payment of any penalty, on not more than 60 days' nor less than 30 days' written notice to the Sub-Adviser, or (c) by the Sub-Adviser at any time, without the payment of any penalty, on 90 days' written notice to the Adviser. This Agreement shall terminate automatically and immediately in the event of its assignment, or in the event of a termination of the Adviser's agreement with the Fund. As used in this Section 6, the terms "assignment" and "vote of a majority of the outstanding voting securities" shall have the respective meanings set forth in the 1940 Act and the rules and regulations thereunder, subject to such exceptions as may be granted by the SEC under the 1940 Act. 7. VENUE AND GOVERNING LAW. This Agreement shall be governed by the internal laws of the State of Maryland, without regard to conflict of law principles; provided, however, that nothing herein shall be construed as being inconsistent with the 1940 Act. Any claim, action, proceeding, suit or dispute relating directly or indirectly to this Agreement, shall be litigated in courts located in Monroe County, New York. Sub-Adviser hereby agrees and consents to jurisdiction in any court of competent jurisdiction in New York. 8. SEVERABILITY. Should any part of this Agreement be held invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors. 9. NOTICE: Any notice, advice or report to be given pursuant to this Agreement shall be deemed sufficient if delivered or mailed by registered, certified or overnight mail, postage prepaid addressed by the party giving notice to the other party at the last address furnished by the other party: To the Adviser at: Manning & Napier Advisory Advantage Corporation 1100 Chase Square Rochester, N.Y. 14604 Attn: Corporate Secretary To the Sub-Adviser at: Loomis, Sayles & Company, L.P.. One Financial Center Boston, MA 02111 Attn: Mr. Joe Whitebread With copy to: Legal Department (same address) 10. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and understanding between the parties hereto, and supersedes all prior agreements and understandings relating to this Agreement's subject matter. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but such counterparts shall, together, constitute only one instrument. A copy of the Articles is on file with the Secretary of State of the State of Maryland, and notice is hereby given that the obligations of this instrument are not binding upon any of the Directors, officers or shareholders of the Series or the Fund. Where the effect of a requirement of the 1940 Act reflected in any provision of this Agreement is altered by a rule, regulation or order of the SEC, whether of special or general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers designated below as of the day and year first written above. Manning & Napier Advisory Advantage Loomis, Sayles & Company, L.P. Corporation By: By: ----------------------------------- -------------------------------- Name: Name: --------------------------------- ------------------------------ Title: Title: -------------------------------- ----------------------------- SCHEDULE A TO THE SUB-ADVISORY AGREEMENT BETWEEN MANNING & NAPIER ADVISORY ADVANTAGE CORPORATION AND LOOMIS, SAYLES & COMPANY, L.P. Pursuant to Article 4, the Adviser shall pay the Sub-Adviser compensation at an annual rate as follows: On the first $20 million 0.50% On the next $30 million 0.40% Thereafter 0.30%
EX-99.D(2)(C) 7 EXHIBIT 99.D(2)(C) INVESTMENT SUB-ADVISORY AGREEMENT EXETER FUND, INC. AGREEMENT made this ____ day of May, 1999, between Manning & Napier Advisory Advantage Corporation, (the "Adviser") and State Street Global Advisors, Inc. (the "Sub-Adviser"). WHEREAS, Exeter Fund, Inc., a Maryland corporation (the "Fund"), is registered as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, the Adviser has entered into an Investment Advisory Agreement dated May __, 1999 (the "Advisory Agreement") with the Fund, pursuant to which the Adviser will act as investment adviser to the Index Stock Series (the "Series"); and WHEREAS, the Adviser, with the approval of the Fund, desires to retain the Sub-Adviser to provide investment advisory services to the Adviser in connection with the management of the Series, and the Sub-Adviser is willing to render such investment advisory services. NOW, THEREFORE, the parties hereto agree as follows: 1. DUTIES OF THE SUB-ADVISER. Subject to supervision by the Adviser and the Fund's Board of Directors, the Sub-Adviser shall manage all of the securities and other assets of the Series entrusted to it hereunder (the "Assets"), including the purchase, retention and disposition of the Assets, in accordance with the Series' investment objectives, policies and restrictions as stated in the Series' prospectus and statement of additional information, as currently in effect and as amended or supplemented from time to time (referred to collectively as the "Prospectus"), and subject to the following: (a) The Sub-Adviser shall, in consultation with and subject to the direction of the Adviser, determine from time to time what Assets will be purchased, retained or sold by the Series, and what portion of the Assets will be invested or held uninvested in cash. (b) In the performance of its duties and obligations under this Agreement, the Sub-Adviser shall act in conformity with the Fund's Articles of Incorporation (as defined herein) and the Prospectus and with the instructions and directions of the Adviser and of the Board of Directors of the Fund and will conform to and comply with the requirements of the 1940 Act, the Internal Revenue Code of 1986, and all other applicable federal and state laws and regulations, as each is amended from time to time. (c) The Sub-Adviser shall determine the Assets to be purchased or sold by the Series as provided in subparagraph (a) and will place orders with or through such persons, brokers or dealers to carry out the policy with respect to brokerage set forth in the Series' Registration Statement (as defined herein) and Prospectus or as the Board of Directors or the Adviser may direct from time to time, in conformity with federal securities laws. In executing portfolio transactions and selecting brokers or dealers, the Sub-Adviser will use its best efforts to seek on behalf of the Series the best overall terms available. In assessing the best overall terms available for any transaction, the Sub-Adviser shall consider all factors that it deems relevant, including the breadth of the market in the security, the price of the security, the financial condition and execution capability of the broker or dealer, and the reasonableness of the commission, if any, both for the specific transaction and on a continuing basis. In evaluating the best overall terms available, and in selecting the broker-dealer to execute a particular transaction, the Sub-Adviser may also consider the brokerage and research services provided (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934). Consistent with any guidelines established by the Board of Directors of the Fund, the Sub-Adviser is authorized to pay to a broker or dealer who provides such brokerage and research services a commission for executing a Series transaction for the Series which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if, but only if, the Sub-Adviser determines in good faith that such commission was reasonable in relation to the value of the brokerage and research services provided by such broker or dealer -- viewed in terms of that particular transaction or terms of the overall responsibilities of the Sub-Adviser to the Series. In addition, the Sub-Adviser is authorized to allocate purchase and sale orders for securities to brokers or dealers (including brokers and dealers that are affiliated with the Adviser, Sub-Adviser or the Fund's principal underwriter) to take into account the sale of shares of the Fund if the Sub-Adviser believes that the quality of the transaction and the commission are comparable to what they would be with other qualified firms. In no instance, however, will the Series' Assets be purchased from or sold to the Adviser, Sub-Adviser, the Fund's principal underwriter, or any affiliated person of either the Fund, Adviser, the Sub-Adviser or the principal underwriter, acting as principal in the transaction, except to the extent permitted by the Securities and Exchange Commission ("SEC") and the 1940 Act. (d) The Sub-Adviser shall maintain all books and records with respect to transactions involving the Assets required by subparagraphs (b)(5), (6), (7), (9), (10) and (11) and paragraph (f) of Rule 31a-1 under the 1940 Act. The Sub-Adviser shall provide to the Adviser or the Board of Directors such periodic and special reports, balance sheets or financial information, and such other information with regard to its affairs as the Adviser or Board of Directors may reasonably request. The Sub-Adviser shall keep the books and records relating to the Assets required to be maintained by the Sub-Adviser under this Agreement and shall timely furnish to the Adviser all information relating to the Sub-Adviser's services under this Agreement needed by the Adviser to keep the other books and records of the Series required by Rule 31a-1 under the 1940 Act. The Sub-Adviser shall also furnish to the Adviser any other information relating to the Assets that is required to be filed by the Adviser or the Fund with the SEC or sent to shareholders under the 1940 Act (including the rules adopted thereunder) or any exemptive or other relief that the Adviser or the Fund obtains from the SEC. The Sub-Adviser agrees that all records that it maintains on behalf of the Series are property of the Series and the Sub-Adviser will surrender promptly to the Series any of such records upon the Series' request; provided, however, that the Sub-Adviser may retain a copy of such records. In addition, for the duration of this Agreement, the Sub-Adviser shall preserve for the periods prescribed by Rule 31a-2 under the 1940 Act any such records as are required to be maintained by it pursuant to this Agreement, and shall transfer said records to any successor sub-adviser upon the termination of this Agreement (or, if there is no successor sub-adviser, to the Adviser). (e) The Sub-Adviser shall provide the Series' custodian on each business day with information relating to all transactions concerning the Series' Assets and shall provide the Adviser with such information upon request of the Adviser. (f) The investment management services provided by the Sub-Adviser under this Agreement are not to be deemed exclusive and the Sub-Adviser shall be free to render similar services to others, as long as such services do not impair the services rendered to the Adviser or the Fund. (g) The Sub-Adviser shall promptly notify the Adviser of any financial condition that is likely to impair the Sub-Adviser's ability to fulfill its commitment under this Agreement. (h) The Sub-Adviser shall review all proxy solicitation materials and be responsible for voting and handling all proxies in relation to the securities held in the Series. The Adviser shall instruct the custodian and other parties providing services to the Series to promptly forward misdirected proxies to the Sub-Adviser. Services to be furnished by the Sub-Adviser under this Agreement may be furnished through the medium of any of the Sub-Adviser's partners, officers or employees. 2. DUTIES OF THE ADVISER. The Adviser shall continue to have responsibility for all services to be provided to the Series pursuant to the Advisory Agreement and shall oversee and review the Sub-Adviser's performance of its duties under this Agreement; provided, however, that in connection with its management of the Assets, nothing herein shall be construed to relieve the Sub-Adviser of responsibility for compliance with the Fund's Articles of Incorporation (as defined herein), the Prospectus, the instructions and directions of the Board of Directors of the Fund, the requirements of the 1940 Act, the Internal Revenue Code of 1986, and all other applicable federal and state laws and regulations, as each is amended from time to time. 3. DELIVERY OF DOCUMENTS. The Adviser has furnished the Sub-Adviser with copies properly certified or authenticated of each of the following documents: (a) The Fund's Articles of Incorporation, as filed with the Secretary of State of the State of Maryland (such Articles of Incorporation, as in effect on the date of this Agreement and as amended from time to time, herein called the "Articles"); (b) By-Laws of Maryland (such By-Laws, as in effect on the date of this Agreement and as amended from time to time, are herein called the "By-Laws"); (c) Prospectus(es) of the Series. 4. COMPENSATION TO THE SUB-ADVISER. For the services to be provided by the Sub-Adviser pursuant to this Agreement, the Adviser will pay the Sub-Adviser, and the Sub-Adviser agrees to accept as full compensation therefor, a sub-advisory fee at the rate specified in the Schedule(s) which is attached hereto and made part of this Agreement. The fee will be calculated based on the average monthly market value of the Assets under the Sub-Adviser s management and will be paid to the Sub-Adviser monthly. Except as may otherwise be prohibited by law or regulation (including any then current SEC staff interpretation), the Sub-Adviser may, in its discretion and from time to time, waive a portion of its fee. 5. INDEMNIFICATION. The Sub-Adviser shall indemnify and hold harmless the Adviser from and against any and all claims, losses, liabilities or damages (including reasonable attorney's fees and other related expenses) howsoever arising from or in connection with the performance of the Sub-Adviser s obligations under this Agreement; provided, however, that the Sub-Adviser s obligation under this Section 5 shall be reduced to the extent that the claim against, or the loss, liability or damage experienced by the Adviser, is caused by or is otherwise directly related to the Adviser's own willful misfeasance, bad faith or negligence, or to the reckless disregard of its duties under this Agreement. 6. DURATION AND TERMINATION. This Agreement shall become effective upon its approval by the Fund's Board of Directors and by the vote of a majority of the outstanding voting securities of the Series; provided, however, that at any time the Adviser shall have obtained exemptive relief from the Securities and Exchange Commission permitting it to engage a Sub-Adviser without first obtaining approval of the Agreement from a majority of the outstanding voting securities of the Series involved, the Agreement shall become effective upon its approval by the Fund's Board of Directors. Any Sub-Adviser so selected and approved shall be without the protection accorded by shareholder approval of an investment adviser's receipt of compensation under Section 36(b) of the 1940 Act. This Agreement shall continue in effect for a period of more than two years from the date hereof only so long as continuance is specifically approved at least annually in conformance with the 1940 Act; provided, however, that this Agreement may be terminated with respect to the Series (a) by the Series at any time, without the payment of any penalty, by the vote of a majority of Directors of the Fund or by the vote of a majority of the outstanding voting securities of the Series, (b) by the Adviser at any time, without the payment of any penalty, on not more than 60 days' nor less than 30 days' written notice to the Sub-Adviser, or (c) by the Sub-Adviser at any time, without the payment of any penalty, on 90 days' written notice to the Adviser. This Agreement shall terminate automatically and immediately in the event of its assignment, or in the event of a termination of the Adviser's agreement with the Fund. As used in this Section 6, the terms "assignment" and "vote of a majority of the outstanding voting securities" shall have the respective meanings set forth in the 1940 Act and the rules and regulations thereunder, subject to such exceptions as may be granted by the SEC under the 1940 Act. 7. VENUE AND GOVERNING LAW. This Agreement shall be governed by the internal laws of the State of Maryland, without regard to conflict of law principles; provided, however, that nothing herein shall be construed as being inconsistent with the 1940 Act. Any claim, action, proceeding, suit or dispute relating directly or indirectly to this Agreement, shall be litigated in courts located in Monroe County, New York. Sub-Adviser hereby agrees and consents to jurisdiction in any court of competent jurisdiction in New York. 8. SEVERABILITY. Should any part of this Agreement be held invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors. 9. NOTICE: Any notice, advice or report to be given pursuant to this Agreement shall be deemed sufficient if delivered or mailed by registered, certified or overnight mail, postage prepaid addressed by the party giving notice to the other party at the last address furnished by the other party: To the Adviser at: Manning & Napier Advisory Advantage Corporation 1100 Chase Square Rochester, N.Y. 14604 Attn: Corporate Secretary To the Sub-Adviser at: State Street Global Advisors, Inc. One International Place Boston, MA 02110 Attn: Compliance Officer 10. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and understanding between the parties hereto, and supersedes all prior agreements and understandings relating to this Agreement's subject matter. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but such counterparts shall, together, constitute only one instrument. A copy of the Articles is on file with the Secretary of State of the State of Maryland, and notice is hereby given that the obligations of this instrument are not binding upon any of the Directors, officers or shareholders of the Series or the Fund. Where the effect of a requirement of the 1940 Act reflected in any provision of this Agreement is altered by a rule, regulation or order of the SEC, whether of special or general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers designated below as of the day and year first written above. Manning & Napier Advisory Advantage State Street Global Advisors, Inc. Corporation By: By: -------------------------------- ------------------------------------- Name: Name: ------------------------------ ----------------------------------- Title: Title: ----------------------------- ---------------------------------- SCHEDULE A TO THE SUB-ADVISORY AGREEMENT BETWEEN MANNING & NAPIER ADVISORY ADVANTAGE CORPORATION AND STATE STREET GLOBAL ADVISORS, INC. Pursuant to Article 4, the Adviser shall pay the Sub-Adviser compensation at an annual rate as follows: On the first $50 million 0.05% On the next $50 million 0.04% Thereafter 0.02%
EX-99.D(2)(D) 8 EXHIBIT 99.D(2)(D) INVESTMENT SUB-ADVISORY AGREEMENT EXETER FUND, INC. AGREEMENT made this ____ day of May, 1999, between Manning & Napier Advisory Advantage Corporation, (the "Adviser") and Scudder Kemper Investments, Inc. (the "Sub-Adviser"). WHEREAS, Exeter Fund, Inc., a Maryland corporation (the "Fund"), is registered as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, the Adviser has entered into an Investment Advisory Agreement dated May __, 1999 (the "Advisory Agreement") with the Fund, pursuant to which the Adviser will act as investment adviser to the Large Cap Stock Series (the "Series"); and WHEREAS, the Adviser, with the approval of the Fund, desires to retain the Sub-Adviser to provide investment advisory services to the Adviser in connection with the management of the Series, and the Sub-Adviser is willing to render such investment advisory services. NOW, THEREFORE, the parties hereto agree as follows: 1. DUTIES OF THE SUB-ADVISER. Subject to supervision by the Adviser and the Fund's Board of Directors, the Sub-Adviser shall manage all of the securities and other assets of the Series entrusted to it hereunder (the "Assets"), including the purchase, retention and disposition of the Assets, in accordance with the Series' investment objectives, policies and restrictions as stated in the Series' prospectus and statement of additional information, as currently in effect and as amended or supplemented from time to time (referred to collectively as the "Prospectus"), and subject to the following: (a) The Sub-Adviser shall, in consultation with and subject to the direction of the Adviser, determine from time to time what Assets will be purchased, retained or sold by the Series, and what portion of the Assets will be invested or held uninvested in cash. (b) In the performance of its duties and obligations under this Agreement, the Sub-Adviser shall act in conformity with the Fund's Articles of Incorporation (as defined herein) and the Prospectus and with the instructions and directions of the Adviser and of the Board of Directors of the Fund and will conform to and comply with the requirements of the 1940 Act, the Internal Revenue Code of 1986, and all other applicable federal and state laws and regulations, as each is amended from time to time. (c) The Sub-Adviser shall determine the Assets to be purchased or sold by the Series as provided in subparagraph (a) and will place orders with or through such persons, brokers or dealers to carry out the policy with respect to brokerage set forth in the Series' Registration Statement (as defined herein) and Prospectus or as the Board of Directors or the Adviser may direct from time to time, in conformity with federal securities laws. In executing portfolio transactions and selecting brokers or dealers, the Sub-Adviser will use its best efforts to seek on behalf of the Series the best overall terms available. In assessing the best overall terms available for any transaction, the Sub-Adviser shall consider all factors that it deems relevant, including the breadth of the market in the security, the price of the security, the financial condition and execution capability of the broker or dealer, and the reasonableness of the commission, if any, both for the specific transaction and on a continuing basis. In evaluating the best overall terms available, and in selecting the broker-dealer to execute a particular transaction, the Sub-Adviser may also consider the brokerage and research services provided (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934). Consistent with any guidelines established by the Board of Directors of the Fund, the Sub-Adviser is authorized to pay to a broker or dealer who provides such brokerage and research services a commission for executing a Series transaction for the Series which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if, but only if, the Sub-Adviser determines in good faith that such commission was reasonable in relation to the value of the brokerage and research services provided by such broker or dealer -- viewed in terms of that particular transaction or terms of the overall responsibilities of the Sub-Adviser to the Series. In addition, the Sub-Adviser is authorized to allocate purchase and sale orders for securities to brokers or dealers (including brokers and dealers that are affiliated with the Adviser, Sub-Adviser or the Fund's principal underwriter) to take into account the sale of shares of the Fund if the Sub-Adviser believes that the quality of the transaction and the commission are comparable to what they would be with other qualified firms. In no instance, however, will the Series' Assets be purchased from or sold to the Adviser, Sub-Adviser, the Fund's principal underwriter, or any affiliated person of either the Fund, Adviser, the Sub-Adviser or the principal underwriter, acting as principal in the transaction, except to the extent permitted by the Securities and Exchange Commission ("SEC") and the 1940 Act. (d) The Sub-Adviser shall maintain all books and records with respect to transactions involving the Assets required by subparagraphs (b)(5), (6), (7), (9), (10) and (11) and paragraph (f) of Rule 31a-1 under the 1940 Act. The Sub-Adviser shall provide to the Adviser or the Board of Directors such periodic and special reports, balance sheets or financial information, and such other information with regard to its affairs as the Adviser or Board of Directors may reasonably request. The Sub-Adviser shall keep the books and records relating to the Assets required to be maintained by the Sub-Adviser under this Agreement and shall timely furnish to the Adviser all information relating to the Sub-Adviser's services under this Agreement needed by the Adviser to keep the other books and records of the Series required by Rule 31a-1 under the 1940 Act. The Sub-Adviser shall also furnish to the Adviser any other information relating to the Assets that is required to be filed by the Adviser or the Fund with the SEC or sent to shareholders under the 1940 Act (including the rules adopted thereunder) or any exemptive or other relief that the Adviser or the Fund obtains from the SEC. The Sub-Adviser agrees that all records that it maintains on behalf of the Series are property of the Series and the Sub-Adviser will surrender promptly to the Series any of such records upon the Series' request; provided, however, that the Sub-Adviser may retain a copy of such records. In addition, for the duration of this Agreement, the Sub-Adviser shall preserve for the periods prescribed by Rule 31a-2 under the 1940 Act any such records as are required to be maintained by it pursuant to this Agreement, and shall transfer said records to any successor sub-adviser upon the termination of this Agreement (or, if there is no successor sub-adviser, to the Adviser). (e) The Sub-Adviser shall provide the Series' custodian on each business day with information relating to all transactions concerning the Series' Assets and shall provide the Adviser with such information upon request of the Adviser. (f) The investment management services provided by the Sub-Adviser under this Agreement are not to be deemed exclusive and the Sub-Adviser shall be free to render similar services to others, as long as such services do not impair the services rendered to the Adviser or the Fund. (g) The Sub-Adviser shall promptly notify the Adviser of any financial condition that is likely to impair the Sub-Adviser's ability to fulfill its commitment under this Agreement. (h) The Sub-Adviser shall review all proxy solicitation materials and be responsible for voting and handling all proxies in relation to the securities held in the Series. The Adviser shall instruct the custodian and other parties providing services to the Series to promptly forward misdirected proxies to the Sub-Adviser. Services to be furnished by the Sub-Adviser under this Agreement may be furnished through the medium of any of the Sub-Adviser's partners, officers or employees. 2. DUTIES OF THE ADVISER. The Adviser shall continue to have responsibility for all services to be provided to the Series pursuant to the Advisory Agreement and shall oversee and review the Sub-Adviser's performance of its duties under this Agreement; provided, however, that in connection with its management of the Assets, nothing herein shall be construed to relieve the Sub-Adviser of responsibility for compliance with the Fund's Articles of Incorporation (as defined herein), the Prospectus, the instructions and directions of the Board of Directors of the Fund, the requirements of the 1940 Act, the Internal Revenue Code of 1986, and all other applicable federal and state laws and regulations, as each is amended from time to time. 3. DELIVERY OF DOCUMENTS. The Adviser has furnished the Sub-Adviser with copies properly certified or authenticated of each of the following documents: (a) The Fund's Articles of Incorporation, as filed with the Secretary of State of the State of Maryland (such Articles of Incorporation, as in effect on the date of this Agreement and as amended from time to time, herein called the "Articles"); (b) By-Laws of Maryland (such By-Laws, as in effect on the date of this Agreement and as amended from time to time, are herein called the "By-Laws"); (c) Prospectus(es) of the Series. 4. COMPENSATION TO THE SUB-ADVISER. For the services to be provided by the Sub-Adviser pursuant to this Agreement, the Adviser will pay the Sub-Adviser, and the Sub-Adviser agrees to accept as full compensation therefor, a sub-advisory fee at the rate specified in the Schedule(s) which is attached hereto and made part of this Agreement. The fee will be calculated based on the average monthly market value of the Assets under the Sub-Adviser s management and will be paid to the Sub-Adviser monthly. Except as may otherwise be prohibited by law or regulation (including any then current SEC staff interpretation), the Sub-Adviser may, in its discretion and from time to time, waive a portion of its fee. 5. INDEMNIFICATION. The Sub-Adviser shall indemnify and hold harmless the Adviser from and against any and all claims, losses, liabilities or damages (including reasonable attorney's fees and other related expenses) howsoever arising from or in connection with the performance of the Sub-Adviser s obligations under this Agreement; provided, however, that the Sub-Adviser s obligation under this Section 5 shall be reduced to the extent that the claim against, or the loss, liability or damage experienced by the Adviser, is caused by or is otherwise directly related to the Adviser's own willful misfeasance, bad faith or negligence, or to the reckless disregard of its duties under this Agreement. 6. DURATION AND TERMINATION. This Agreement shall become effective upon its approval by the Fund's Board of Directors and by the vote of a majority of the outstanding voting securities of the Series; provided, however, that at any time the Adviser shall have obtained exemptive relief from the Securities and Exchange Commission permitting it to engage a Sub-Adviser without first obtaining approval of the Agreement from a majority of the outstanding voting securities of the Series involved, the Agreement shall become effective upon its approval by the Fund's Board of Directors. Any Sub-Adviser so selected and approved shall be without the protection accorded by shareholder approval of an investment adviser's receipt of compensation under Section 36(b) of the 1940 Act. This Agreement shall continue in effect for a period of more than two years from the date hereof only so long as continuance is specifically approved at least annually in conformance with the 1940 Act; provided, however, that this Agreement may be terminated with respect to the Series (a) by the Series at any time, without the payment of any penalty, by the vote of a majority of Directors of the Fund or by the vote of a majority of the outstanding voting securities of the Series, (b) by the Adviser at any time, without the payment of any penalty, on not more than 60 days' nor less than 30 days' written notice to the Sub-Adviser, or (c) by the Sub-Adviser at any time, without the payment of any penalty, on 90 days' written notice to the Adviser. This Agreement shall terminate automatically and immediately in the event of its assignment, or in the event of a termination of the Adviser's agreement with the Fund. As used in this Section 6, the terms "assignment" and "vote of a majority of the outstanding voting securities" shall have the respective meanings set forth in the 1940 Act and the rules and regulations thereunder, subject to such exceptions as may be granted by the SEC under the 1940 Act. 7. VENUE AND GOVERNING LAW. This Agreement shall be governed by the internal laws of the State of Maryland, without regard to conflict of law principles; provided, however, that nothing herein shall be construed as being inconsistent with the 1940 Act. Any claim, action, proceeding, suit or dispute relating directly or indirectly to this Agreement, shall be litigated in courts located in Monroe County, New York. Sub-Adviser hereby agrees and consents to jurisdiction in any court of competent jurisdiction in New York. 8. SEVERABILITY. Should any part of this Agreement be held invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors. 9. NOTICE: Any notice, advice or report to be given pursuant to this Agreement shall be deemed sufficient if delivered or mailed by registered, certified or overnight mail, postage prepaid addressed by the party giving notice to the other party at the last address furnished by the other party: To the Adviser at: Manning & Napier Advisory Advantage Corporation 1100 Chase Square Rochester, N.Y. 14604 Attn: Corporate Secretary To the Sub-Adviser at: Scudder Kemper Investments, Inc. Two International Place Boston, MA 02110 Attn: Mr. Nick Griparich 10. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and understanding between the parties hereto, and supersedes all prior agreements and understandings relating to this Agreement's subject matter. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but such counterparts shall, together, constitute only one instrument. A copy of the Articles is on file with the Secretary of State of the State of Maryland, and notice is hereby given that the obligations of this instrument are not binding upon any of the Directors, officers or shareholders of the Series or the Fund. Where the effect of a requirement of the 1940 Act reflected in any provision of this Agreement is altered by a rule, regulation or order of the SEC, whether of special or general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers designated below as of the day and year first written above. Manning & Napier Advisory Advantage Scudder Kemper Investments, Inc. Corporation By: By: -------------------------------- ------------------------------------- Name: Name: ------------------------------ ----------------------------------- Title: Title: ----------------------------- ---------------------------------- SCHEDULE A TO THE SUB-ADVISORY AGREEMENT BETWEEN MANNING & NAPIER ADVISORY ADVANTAGE CORPORATION AND SCUDDER KEMPER INVESTMENTS, INC. Pursuant to Article 4, the Adviser shall pay the Sub-Adviser compensation at an annual rate as follows: On all assets invested in the Large Cap Stock Series 0.40%
EX-99.D(2)(E) 9 EXHIBIT 99.D(2)(E) INVESTMENT SUB-ADVISORY AGREEMENT EXETER FUND, INC. AGREEMENT made this ____ day of May, 1999, between Manning & Napier Advisory Advantage Corporation, (the "Adviser") and Babson-Stewart Ivory International (the "Sub-Adviser"). WHEREAS, Exeter Fund, Inc., a Maryland corporation (the "Fund"), is registered as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, the Adviser has entered into an Investment Advisory Agreement dated May __, 1999 (the "Advisory Agreement") with the Fund, pursuant to which the Adviser will act as investment adviser to the International Stock Series (the "Series"); and WHEREAS, the Adviser, with the approval of the Fund, desires to retain the Sub-Adviser to provide investment advisory services to the Adviser in connection with the management of the Series, and the Sub-Adviser is willing to render such investment advisory services. NOW, THEREFORE, the parties hereto agree as follows: 1. DUTIES OF THE SUB-ADVISER. Subject to supervision by the Adviser and the Fund's Board of Directors, the Sub-Adviser shall manage all of the securities and other assets of the Series entrusted to it hereunder (the "Assets"), including the purchase, retention and disposition of the Assets, in accordance with the Series' investment objectives, policies and restrictions as stated in the Series' prospectus and statement of additional information, as currently in effect and as amended or supplemented from time to time (referred to collectively as the "Prospectus"), and subject to the following: (a) The Sub-Adviser shall, in consultation with and subject to the direction of the Adviser, determine from time to time what Assets will be purchased, retained or sold by the Series, and what portion of the Assets will be invested or held uninvested in cash. (b) In the performance of its duties and obligations under this Agreement, the Sub-Adviser shall act in conformity with the Fund's Articles of Incorporation (as defined herein) and the Prospectus and with the instructions and directions of the Adviser and of the Board of Directors of the Fund and will conform to and comply with the requirements of the 1940 Act, the Internal Revenue Code of 1986, and all other applicable federal and state laws and regulations, as each is amended from time to time. (c) The Sub-Adviser shall determine the Assets to be purchased or sold by the Series as provided in subparagraph (a) and will place orders with or through such persons, brokers or dealers to carry out the policy with respect to brokerage set forth in the Series' Registration Statement (as defined herein) and Prospectus or as the Board of Directors or the Adviser may direct from time to time, in conformity with federal securities laws. In executing portfolio transactions and selecting brokers or dealers, the Sub-Adviser will use its best efforts to seek on behalf of the Series the best overall terms available. In assessing the best overall terms available for any transaction, the Sub-Adviser shall consider all factors that it deems relevant, including the breadth of the market in the security, the price of the security, the financial condition and execution capability of the broker or dealer, and the reasonableness of the commission, if any, both for the specific transaction and on a continuing basis. In evaluating the best overall terms available, and in selecting the broker-dealer to execute a particular transaction, the Sub-Adviser may also consider the brokerage and research services provided (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934). Consistent with any guidelines established by the Board of Directors of the Fund, the Sub-Adviser is authorized to pay to a broker or dealer who provides such brokerage and research services a commission for executing a Series transaction for the Series which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if, but only if, the Sub-Adviser determines in good faith that such commission was reasonable in relation to the value of the brokerage and research services provided by such broker or dealer -- viewed in terms of that particular transaction or terms of the overall responsibilities of the Sub-Adviser to the Series. In addition, the Sub-Adviser is authorized to allocate purchase and sale orders for securities to brokers or dealers (including brokers and dealers that are affiliated with the Adviser, Sub-Adviser or the Fund's principal underwriter) to take into account the sale of shares of the Fund if the Sub-Adviser believes that the quality of the transaction and the commission are comparable to what they would be with other qualified firms. In no instance, however, will the Series' Assets be purchased from or sold to the Adviser, Sub-Adviser, the Fund's principal underwriter, or any affiliated person of either the Fund, Adviser, the Sub-Adviser or the principal underwriter, acting as principal in the transaction, except to the extent permitted by the Securities and Exchange Commission ("SEC") and the 1940 Act. (d) The Sub-Adviser shall maintain all books and records with respect to transactions involving the Assets required by subparagraphs (b)(5), (6), (7), (9), (10) and (11) and paragraph (f) of Rule 31a-1 under the 1940 Act. The Sub-Adviser shall provide to the Adviser or the Board of Directors such periodic and special reports, balance sheets or financial information, and such other information with regard to its affairs as the Adviser or Board of Directors may reasonably request. The Sub-Adviser shall keep the books and records relating to the Assets required to be maintained by the Sub-Adviser under this Agreement and shall timely furnish to the Adviser all information relating to the Sub-Adviser's services under this Agreement needed by the Adviser to keep the other books and records of the Series required by Rule 31a-1 under the 1940 Act. The Sub-Adviser shall also furnish to the Adviser any other information relating to the Assets that is required to be filed by the Adviser or the Fund with the SEC or sent to shareholders under the 1940 Act (including the rules adopted thereunder) or any exemptive or other relief that the Adviser or the Fund obtains from the SEC. The Sub-Adviser agrees that all records that it maintains on behalf of the Series are property of the Series and the Sub-Adviser will surrender promptly to the Series any of such records upon the Series' request; provided, however, that the Sub-Adviser may retain a copy of such records. In addition, for the duration of this Agreement, the Sub-Adviser shall preserve for the periods prescribed by Rule 31a-2 under the 1940 Act any such records as are required to be maintained by it pursuant to this Agreement, and shall transfer said records to any successor sub-adviser upon the termination of this Agreement (or, if there is no successor sub-adviser, to the Adviser). (e) The Sub-Adviser shall provide the Series' custodian on each business day with information relating to all transactions concerning the Series' Assets and shall provide the Adviser with such information upon request of the Adviser. (f) The investment management services provided by the Sub-Adviser under this Agreement are not to be deemed exclusive and the Sub-Adviser shall be free to render similar services to others, as long as such services do not impair the services rendered to the Adviser or the Fund. (g) The Sub-Adviser shall promptly notify the Adviser of any financial condition that is likely to impair the Sub-Adviser's ability to fulfill its commitment under this Agreement. (h) The Sub-Adviser shall review all proxy solicitation materials and be responsible for voting and handling all proxies in relation to the securities held in the Series. The Adviser shall instruct the custodian and other parties providing services to the Series to promptly forward misdirected proxies to the Sub-Adviser. Services to be furnished by the Sub-Adviser under this Agreement may be furnished through the medium of any of the Sub-Adviser's partners, officers or employees. 2. DUTIES OF THE ADVISER. The Adviser shall continue to have responsibility for all services to be provided to the Series pursuant to the Advisory Agreement and shall oversee and review the Sub-Adviser's performance of its duties under this Agreement; provided, however, that in connection with its management of the Assets, nothing herein shall be construed to relieve the Sub-Adviser of responsibility for compliance with the Fund's Articles of Incorporation (as defined herein), the Prospectus, the instructions and directions of the Board of Directors of the Fund, the requirements of the 1940 Act, the Internal Revenue Code of 1986, and all other applicable federal and state laws and regulations, as each is amended from time to time. 3. DELIVERY OF DOCUMENTS. The Adviser has furnished the Sub-Adviser with copies properly certified or authenticated of each of the following documents: (a) The Fund's Articles of Incorporation, as filed with the Secretary of State of the State of Maryland (such Articles of Incorporation, as in effect on the date of this Agreement and as amended from time to time, herein called the "Articles"); (b) By-Laws of Maryland (such By-Laws, as in effect on the date of this Agreement and as amended from time to time, are herein called the "By-Laws"); (c) Prospectus(es) of the Series. 4. COMPENSATION TO THE SUB-ADVISER. For the services to be provided by the Sub-Adviser pursuant to this Agreement, the Adviser will pay the Sub-Adviser, and the Sub-Adviser agrees to accept as full compensation therefor, a sub-advisory fee at the rate specified in the Schedule(s) which is attached hereto and made part of this Agreement. The fee will be calculated based on the average monthly market value of the Assets under the Sub-Adviser s management and will be paid to the Sub-Adviser monthly. Except as may otherwise be prohibited by law or regulation (including any then current SEC staff interpretation), the Sub-Adviser may, in its discretion and from time to time, waive a portion of its fee. 5. INDEMNIFICATION. The Sub-Adviser shall indemnify and hold harmless the Adviser from and against any and all claims, losses, liabilities or damages (including reasonable attorney's fees and other related expenses) howsoever arising from or in connection with the performance of the Sub-Adviser s obligations under this Agreement; provided, however, that the Sub-Adviser s obligation under this Section 5 shall be reduced to the extent that the claim against, or the loss, liability or damage experienced by the Adviser, is caused by or is otherwise directly related to the Adviser's own willful misfeasance, bad faith or negligence, or to the reckless disregard of its duties under this Agreement. 6. DURATION AND TERMINATION. This Agreement shall become effective upon its approval by the Fund's Board of Directors and by the vote of a majority of the outstanding voting securities of the Series; provided, however, that at any time the Adviser shall have obtained exemptive relief from the Securities and Exchange Commission permitting it to engage a Sub-Adviser without first obtaining approval of the Agreement from a majority of the outstanding voting securities of the Series involved, the Agreement shall become effective upon its approval by the Fund's Board of Directors. Any Sub-Adviser so selected and approved shall be without the protection accorded by shareholder approval of an investment adviser's receipt of compensation under Section 36(b) of the 1940 Act. This Agreement shall continue in effect for a period of more than two years from the date hereof only so long as continuance is specifically approved at least annually in conformance with the 1940 Act; provided, however, that this Agreement may be terminated with respect to the Series (a) by the Series at any time, without the payment of any penalty, by the vote of a majority of Directors of the Fund or by the vote of a majority of the outstanding voting securities of the Series, (b) by the Adviser at any time, without the payment of any penalty, on not more than 60 days' nor less than 30 days' written notice to the Sub-Adviser, or (c) by the Sub-Adviser at any time, without the payment of any penalty, on 90 days' written notice to the Adviser. This Agreement shall terminate automatically and immediately in the event of its assignment, or in the event of a termination of the Adviser's agreement with the Fund. As used in this Section 6, the terms "assignment" and "vote of a majority of the outstanding voting securities" shall have the respective meanings set forth in the 1940 Act and the rules and regulations thereunder, subject to such exceptions as may be granted by the SEC under the 1940 Act. 7. VENUE AND GOVERNING LAW. This Agreement shall be governed by the internal laws of the State of Maryland, without regard to conflict of law principles; provided, however, that nothing herein shall be construed as being inconsistent with the 1940 Act. Any claim, action, proceeding, suit or dispute relating directly or indirectly to this Agreement, shall be litigated in courts located in Monroe County, New York. Sub-Adviser hereby agrees and consents to jurisdiction in any court of competent jurisdiction in New York. 8. SEVERABILITY. Should any part of this Agreement be held invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors. 9. NOTICE: Any notice, advice or report to be given pursuant to this Agreement shall be deemed sufficient if delivered or mailed by registered, certified or overnight mail, postage prepaid addressed by the party giving notice to the other party at the last address furnished by the other party: To the Adviser at: Manning & Napier Advisory Advantage Corporation 1100 Chase Square Rochester, N.Y. 14604 Attn: Corporate Secretary To the Sub-Adviser at: Babson-Stewart Ivory International One Memorial Drive Cambridge, MA 02142 Attn: Mr. Harlan Strader, Senior Vice-President 10. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and understanding between the parties hereto, and supersedes all prior agreements and understandings relating to this Agreement's subject matter. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but such counterparts shall, together, constitute only one instrument. A copy of the Articles is on file with the Secretary of State of the State of Maryland, and notice is hereby given that the obligations of this instrument are not binding upon any of the Directors, officers or shareholders of the Series or the Fund. Where the effect of a requirement of the 1940 Act reflected in any provision of this Agreement is altered by a rule, regulation or order of the SEC, whether of special or general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers designated below as of the day and year first written above. Manning & Napier Advisory Advantage Babson-Stewart Ivory International Corporation By: By: -------------------------------- ------------------------------------- Name: Name: ------------------------------ ----------------------------------- Title: Title: ----------------------------- ---------------------------------- SCHEDULE A TO THE SUB-ADVISORY AGREEMENT BETWEEN MANNING & NAPIER ADVISORY ADVANTAGE CORPORATION AND BABSON-STEWART IVORY INTERNATIONAL Pursuant to Article 4, the Adviser shall pay the Sub-Adviser compensation at an annual rate as follows: On the first $100 million 0.50% Thereafter 0.40%
EX-99.D(2)(F) 10 EXHIBIT 99.D(2)(F) INVESTMENT SUB-ADVISORY AGREEMENT EXETER FUND, INC. AGREEMENT made this ____ day of May, 1999, between Manning & Napier Advisory Advantage Corporation, (the "Adviser") and DLJ Investment Management Corp. (the "Sub-Adviser"). WHEREAS, Exeter Fund, Inc., a Maryland corporation (the "Fund"), is registered as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, the Adviser has entered into an Investment Advisory Agreement dated May __, 1999 (the "Advisory Agreement") with the Fund, pursuant to which the Adviser will act as investment adviser to the Small Cap Stock Series (the "Series"); and WHEREAS, the Adviser, with the approval of the Fund, desires to retain the Sub-Adviser to provide investment advisory services to the Adviser in connection with the management of the Series, and the Sub-Adviser is willing to render such investment advisory services. NOW, THEREFORE, the parties hereto agree as follows: 1. DUTIES OF THE SUB-ADVISER. Subject to supervision by the Adviser and the Fund's Board of Directors, the Sub-Adviser shall manage all of the securities and other assets of the Series entrusted to it hereunder (the "Assets"), including the purchase, retention and disposition of the Assets, in accordance with the Series' investment objectives, policies and restrictions as stated in the Series' prospectus and statement of additional information, as currently in effect and as amended or supplemented from time to time (referred to collectively as the "Prospectus"), and subject to the following: (a) The Sub-Adviser shall, in consultation with and subject to the direction of the Adviser, determine from time to time what Assets will be purchased, retained or sold by the Series, and what portion of the Assets will be invested or held uninvested in cash. (b) In the performance of its duties and obligations under this Agreement, the Sub-Adviser shall act in conformity with the Fund's Articles of Incorporation (as defined herein) and the Prospectus and with the instructions and directions of the Adviser and of the Board of Directors of the Fund and will conform to and comply with the requirements of the 1940 Act, the Internal Revenue Code of 1986, and all other applicable federal and state laws and regulations, as each is amended from time to time. (c) The Sub-Adviser shall determine the Assets to be purchased or sold by the Series as provided in subparagraph (a) and will place orders with or through such persons, brokers or dealers to carry out the policy with respect to brokerage set forth in the Series' Registration Statement (as defined herein) and Prospectus or as the Board of Directors or the Adviser may direct from time to time, in conformity with federal securities laws. In executing portfolio transactions and selecting brokers or dealers, the Sub-Adviser will use its best efforts to seek on behalf of the Series the best overall terms available. In assessing the best overall terms available for any transaction, the Sub-Adviser shall consider all factors that it deems relevant, including the breadth of the market in the security, the price of the security, the financial condition and execution capability of the broker or dealer, and the reasonableness of the commission, if any, both for the specific transaction and on a continuing basis. In evaluating the best overall terms available, and in selecting the broker-dealer to execute a particular transaction, the Sub-Adviser may also consider the brokerage and research services provided (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934). Consistent with any guidelines established by the Board of Directors of the Fund, the Sub-Adviser is authorized to pay to a broker or dealer who provides such brokerage and research services a commission for executing a Series transaction for the Series which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if, but only if, the Sub-Adviser determines in good faith that such commission was reasonable in relation to the value of the brokerage and research services provided by such broker or dealer -- viewed in terms of that particular transaction or terms of the overall responsibilities of the Sub-Adviser to the Series. In addition, the Sub-Adviser is authorized to allocate purchase and sale orders for securities to brokers or dealers (including brokers and dealers that are affiliated with the Adviser, Sub-Adviser or the Fund's principal underwriter) to take into account the sale of shares of the Fund if the Sub-Adviser believes that the quality of the transaction and the commission are comparable to what they would be with other qualified firms. In no instance, however, will the Series' Assets be purchased from or sold to the Adviser, Sub-Adviser, the Fund's principal underwriter, or any affiliated person of either the Fund, Adviser, the Sub-Adviser or the principal underwriter, acting as principal in the transaction, except to the extent permitted by the Securities and Exchange Commission ("SEC") and the 1940 Act. (d) The Sub-Adviser shall maintain all books and records with respect to transactions involving the Assets required by subparagraphs (b)(5), (6), (7), (9), (10) and (11) and paragraph (f) of Rule 31a-1 under the 1940 Act. The Sub-Adviser shall provide to the Adviser or the Board of Directors such periodic and special reports, balance sheets or financial information, and such other information with regard to its affairs as the Adviser or Board of Directors may reasonably request. The Sub-Adviser shall keep the books and records relating to the Assets required to be maintained by the Sub-Adviser under this Agreement and shall timely furnish to the Adviser all information relating to the Sub-Adviser's services under this Agreement needed by the Adviser to keep the other books and records of the Series required by Rule 31a-1 under the 1940 Act. The Sub-Adviser shall also furnish to the Adviser any other information relating to the Assets that is required to be filed by the Adviser or the Fund with the SEC or sent to shareholders under the 1940 Act (including the rules adopted thereunder) or any exemptive or other relief that the Adviser or the Fund obtains from the SEC. The Sub-Adviser agrees that all records that it maintains on behalf of the Series are property of the Series and the Sub-Adviser will surrender promptly to the Series any of such records upon the Series' request; provided, however, that the Sub-Adviser may retain a copy of such records. In addition, for the duration of this Agreement, the Sub-Adviser shall preserve for the periods prescribed by Rule 31a-2 under the 1940 Act any such records as are required to be maintained by it pursuant to this Agreement, and shall transfer said records to any successor sub-adviser upon the termination of this Agreement (or, if there is no successor sub-adviser, to the Adviser). (e) The Sub-Adviser shall provide the Series' custodian on each business day with information relating to all transactions concerning the Series' Assets and shall provide the Adviser with such information upon request of the Adviser. (f) The investment management services provided by the Sub-Adviser under this Agreement are not to be deemed exclusive and the Sub-Adviser shall be free to render similar services to others, as long as such services do not impair the services rendered to the Adviser or the Fund. (g) The Sub-Adviser shall promptly notify the Adviser of any financial condition that is likely to impair the Sub-Adviser's ability to fulfill its commitment under this Agreement. (h) The Sub-Adviser shall review all proxy solicitation materials and be responsible for voting and handling all proxies in relation to the securities held in the Series. The Adviser shall instruct the custodian and other parties providing services to the Series to promptly forward misdirected proxies to the Sub-Adviser. Services to be furnished by the Sub-Adviser under this Agreement may be furnished through the medium of any of the Sub-Adviser's partners, officers or employees. 2. DUTIES OF THE ADVISER. The Adviser shall continue to have responsibility for all services to be provided to the Series pursuant to the Advisory Agreement and shall oversee and review the Sub-Adviser's performance of its duties under this Agreement; provided, however, that in connection with its management of the Assets, nothing herein shall be construed to relieve the Sub-Adviser of responsibility for compliance with the Fund's Articles of Incorporation (as defined herein), the Prospectus, the instructions and directions of the Board of Directors of the Fund, the requirements of the 1940 Act, the Internal Revenue Code of 1986, and all other applicable federal and state laws and regulations, as each is amended from time to time. 3. DELIVERY OF DOCUMENTS. The Adviser has furnished the Sub-Adviser with copies properly certified or authenticated of each of the following documents: (a) The Fund's Articles of Incorporation, as filed with the Secretary of State of the State of Maryland (such Articles of Incorporation, as in effect on the date of this Agreement and as amended from time to time, herein called the "Articles"); (b) By-Laws of Maryland (such By-Laws, as in effect on the date of this Agreement and as amended from time to time, are herein called the "By-Laws"); (c) Prospectus(es) of the Series. 4. COMPENSATION TO THE SUB-ADVISER. For the services to be provided by the Sub-Adviser pursuant to this Agreement, the Adviser will pay the Sub-Adviser, and the Sub-Adviser agrees to accept as full compensation therefor, a sub-advisory fee at the rate specified in the Schedule(s) which is attached hereto and made part of this Agreement. The fee will be calculated based on the average monthly market value of the Assets under the Sub-Adviser s management and will be paid to the Sub-Adviser monthly. Except as may otherwise be prohibited by law or regulation (including any then current SEC staff interpretation), the Sub-Adviser may, in its discretion and from time to time, waive a portion of its fee. 5. INDEMNIFICATION. The Sub-Adviser shall indemnify and hold harmless the Adviser from and against any and all claims, losses, liabilities or damages (including reasonable attorney's fees and other related expenses) howsoever arising from or in connection with the performance of the Sub-Adviser s obligations under this Agreement; provided, however, that the Sub-Adviser s obligation under this Section 5 shall be reduced to the extent that the claim against, or the loss, liability or damage experienced by the Adviser, is caused by or is otherwise directly related to the Adviser's own willful misfeasance, bad faith or negligence, or to the reckless disregard of its duties under this Agreement. 6. DURATION AND TERMINATION. This Agreement shall become effective upon its approval by the Fund's Board of Directors and by the vote of a majority of the outstanding voting securities of the Series; provided, however, that at any time the Adviser shall have obtained exemptive relief from the Securities and Exchange Commission permitting it to engage a Sub-Adviser without first obtaining approval of the Agreement from a majority of the outstanding voting securities of the Series involved, the Agreement shall become effective upon its approval by the Fund's Board of Directors. Any Sub-Adviser so selected and approved shall be without the protection accorded by shareholder approval of an investment adviser's receipt of compensation under Section 36(b) of the 1940 Act. This Agreement shall continue in effect for a period of more than two years from the date hereof only so long as continuance is specifically approved at least annually in conformance with the 1940 Act; provided, however, that this Agreement may be terminated with respect to the Series (a) by the Series at any time, without the payment of any penalty, by the vote of a majority of Directors of the Fund or by the vote of a majority of the outstanding voting securities of the Series, (b) by the Adviser at any time, without the payment of any penalty, on not more than 60 days' nor less than 30 days' written notice to the Sub-Adviser, or (c) by the Sub-Adviser at any time, without the payment of any penalty, on 90 days' written notice to the Adviser. This Agreement shall terminate automatically and immediately in the event of its assignment, or in the event of a termination of the Adviser's agreement with the Fund. As used in this Section 6, the terms "assignment" and "vote of a majority of the outstanding voting securities" shall have the respective meanings set forth in the 1940 Act and the rules and regulations thereunder, subject to such exceptions as may be granted by the SEC under the 1940 Act. 7. VENUE AND GOVERNING LAW. This Agreement shall be governed by the internal laws of the State of Maryland, without regard to conflict of law principles; provided, however, that nothing herein shall be construed as being inconsistent with the 1940 Act. Any claim, action, proceeding, suit or dispute relating directly or indirectly to this Agreement, shall be litigated in courts located in Monroe County, New York. Sub-Adviser hereby agrees and consents to jurisdiction in any court of competent jurisdiction in New York. 8. SEVERABILITY. Should any part of this Agreement be held invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors. 9. NOTICE: Any notice, advice or report to be given pursuant to this Agreement shall be deemed sufficient if delivered or mailed by registered, certified or overnight mail, postage prepaid addressed by the party giving notice to the other party at the last address furnished by the other party: To the Adviser at: Manning & Napier Advisory Advantage Corporation 1100 Chase Square Rochester, N.Y. 14604 Attn: Corporate Secretary To the Sub-Adviser at: DLJ Investment Management Corp. 277 Park Avenue, 25th Floor New York, New York 10172 Attn: Mr. Donald L. Rigoni, Jr. 10. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and understanding between the parties hereto, and supersedes all prior agreements and understandings relating to this Agreement's subject matter. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but such counterparts shall, together, constitute only one instrument. A copy of the Articles is on file with the Secretary of State of the State of Maryland, and notice is hereby given that the obligations of this instrument are not binding upon any of the Directors, officers or shareholders of the Series or the Fund. Where the effect of a requirement of the 1940 Act reflected in any provision of this Agreement is altered by a rule, regulation or order of the SEC, whether of special or general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers designated below as of the day and year first written above. Manning & Napier Advisory Advantage DLJ Investment Management Corp. Corporation By: By: -------------------------------- ------------------------------------- Name: Name: ------------------------------ ----------------------------------- Title: Title: ----------------------------- ---------------------------------- SCHEDULE A TO THE SUB-ADVISORY AGREEMENT BETWEEN MANNING & NAPIER ADVISORY ADVANTAGE CORPORATION AND DLJ INVESTMENT MANAGEMENT CORP. Pursuant to Article 4, the Adviser shall pay the Sub-Adviser compensation at an annual rate as follows: On the first $100 million 0.55% Thereafter 0.45%
EX-99.D(2)(G) 11 EXHIBIT 99.D(2)(G) INVESTMENT SUB-ADVISORY AGREEMENT EXETER FUND, INC. AGREEMENT made this ____ day of May, 1999, between Manning & Napier Advisory Advantage Corporation, (the "Adviser") and MFS Institutional Advisors, Inc. (the "Sub-Adviser"). WHEREAS, Exeter Fund, Inc., a Maryland corporation (the "Fund"), is registered as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, the Adviser has entered into an Investment Advisory Agreement dated May __, 1999 (the "Advisory Agreement") with the Fund, pursuant to which the Adviser will act as investment adviser to the Aggressive Stock Series (the "Series"); and WHEREAS, the Adviser, with the approval of the Fund, desires to retain the Sub-Adviser to provide investment advisory services to the Adviser in connection with the management of the Series, and the Sub-Adviser is willing to render such investment advisory services. NOW, THEREFORE, the parties hereto agree as follows: 1. DUTIES OF THE SUB-ADVISER. Subject to supervision by the Adviser and the Fund's Board of Directors, the Sub-Adviser shall manage all of the securities and other assets of the Series entrusted to it hereunder (the "Assets"), including the purchase, retention and disposition of the Assets, in accordance with the Series' investment objectives, policies and restrictions as stated in the Series' prospectus and statement of additional information, as currently in effect and as amended or supplemented from time to time (referred to collectively as the "Prospectus"), and subject to the following: (a) The Sub-Adviser shall, in consultation with and subject to the direction of the Adviser, determine from time to time what Assets will be purchased, retained or sold by the Series, and what portion of the Assets will be invested or held uninvested in cash. (b) In the performance of its duties and obligations under this Agreement, the Sub-Adviser shall act in conformity with the Fund's Articles of Incorporation (as defined herein) and the Prospectus and with the instructions and directions of the Adviser and of the Board of Directors of the Fund and will conform to and comply with the requirements of the 1940 Act, the Internal Revenue Code of 1986, and all other applicable federal and state laws and regulations, as each is amended from time to time. (c) The Sub-Adviser shall determine the Assets to be purchased or sold by the Series as provided in subparagraph (a) and will place orders with or through such persons, brokers or dealers to carry out the policy with respect to brokerage set forth in the Series' Registration Statement (as defined herein) and Prospectus or as the Board of Directors or the Adviser may direct from time to time, in conformity with federal securities laws. In executing portfolio transactions and selecting brokers or dealers, the Sub-Adviser will use its best efforts to seek on behalf of the Series the best overall terms available. In assessing the best overall terms available for any transaction, the Sub-Adviser shall consider all factors that it deems relevant, including the breadth of the market in the security, the price of the security, the financial condition and execution capability of the broker or dealer, and the reasonableness of the commission, if any, both for the specific transaction and on a continuing basis. In evaluating the best overall terms available, and in selecting the broker-dealer to execute a particular transaction, the Sub-Adviser may also consider the brokerage and research services provided (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934). Consistent with any guidelines established by the Board of Directors of the Fund, the Sub-Adviser is authorized to pay to a broker or dealer who provides such brokerage and research services a commission for executing a Series transaction for the Series which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if, but only if, the Sub-Adviser determines in good faith that such commission was reasonable in relation to the value of the brokerage and research services provided by such broker or dealer -- viewed in terms of that particular transaction or terms of the overall responsibilities of the Sub-Adviser to the Series. In addition, the Sub-Adviser is authorized to allocate purchase and sale orders for securities to brokers or dealers (including brokers and dealers that are affiliated with the Adviser, Sub-Adviser or the Fund's principal underwriter) to take into account the sale of shares of the Fund if the Sub-Adviser believes that the quality of the transaction and the commission are comparable to what they would be with other qualified firms. In no instance, however, will the Series' Assets be purchased from or sold to the Adviser, Sub-Adviser, the Fund's principal underwriter, or any affiliated person of either the Fund, Adviser, the Sub-Adviser or the principal underwriter, acting as principal in the transaction, except to the extent permitted by the Securities and Exchange Commission ("SEC") and the 1940 Act. (d) The Sub-Adviser shall maintain all books and records with respect to transactions involving the Assets required by subparagraphs (b)(5), (6), (7), (9), (10) and (11) and paragraph (f) of Rule 31a-1 under the 1940 Act. The Sub-Adviser shall provide to the Adviser or the Board of Directors such periodic and special reports, balance sheets or financial information, and such other information with regard to its affairs as the Adviser or Board of Directors may reasonably request. The Sub-Adviser shall keep the books and records relating to the Assets required to be maintained by the Sub-Adviser under this Agreement and shall timely furnish to the Adviser all information relating to the Sub-Adviser's services under this Agreement needed by the Adviser to keep the other books and records of the Series required by Rule 31a-1 under the 1940 Act. The Sub-Adviser shall also furnish to the Adviser any other information relating to the Assets that is required to be filed by the Adviser or the Fund with the SEC or sent to shareholders under the 1940 Act (including the rules adopted thereunder) or any exemptive or other relief that the Adviser or the Fund obtains from the SEC. The Sub-Adviser agrees that all records that it maintains on behalf of the Series are property of the Series and the Sub-Adviser will surrender promptly to the Series any of such records upon the Series' request; provided, however, that the Sub-Adviser may retain a copy of such records. In addition, for the duration of this Agreement, the Sub-Adviser shall preserve for the periods prescribed by Rule 31a-2 under the 1940 Act any such records as are required to be maintained by it pursuant to this Agreement, and shall transfer said records to any successor sub-adviser upon the termination of this Agreement (or, if there is no successor sub-adviser, to the Adviser). (e) The Sub-Adviser shall provide the Series' custodian on each business day with information relating to all transactions concerning the Series' Assets and shall provide the Adviser with such information upon request of the Adviser. (f) The investment management services provided by the Sub-Adviser under this Agreement are not to be deemed exclusive and the Sub-Adviser shall be free to render similar services to others, as long as such services do not impair the services rendered to the Adviser or the Fund. (g) The Sub-Adviser shall promptly notify the Adviser of any financial condition that is likely to impair the Sub-Adviser's ability to fulfill its commitment under this Agreement. (h) The Sub-Adviser shall review all proxy solicitation materials and be responsible for voting and handling all proxies in relation to the securities held in the Series. The Adviser shall instruct the custodian and other parties providing services to the Series to promptly forward misdirected proxies to the Sub-Adviser. Services to be furnished by the Sub-Adviser under this Agreement may be furnished through the medium of any of the Sub-Adviser's partners, officers or employees. 2. DUTIES OF THE ADVISER. The Adviser shall continue to have responsibility for all services to be provided to the Series pursuant to the Advisory Agreement and shall oversee and review the Sub-Adviser's performance of its duties under this Agreement; provided, however, that in connection with its management of the Assets, nothing herein shall be construed to relieve the Sub-Adviser of responsibility for compliance with the Fund's Articles of Incorporation (as defined herein), the Prospectus, the instructions and directions of the Board of Directors of the Fund, the requirements of the 1940 Act, the Internal Revenue Code of 1986, and all other applicable federal and state laws and regulations, as each is amended from time to time. 3. DELIVERY OF DOCUMENTS. The Adviser has furnished the Sub-Adviser with copies properly certified or authenticated of each of the following documents: (a) The Fund's Articles of Incorporation, as filed with the Secretary of State of the State of Maryland (such Articles of Incorporation, as in effect on the date of this Agreement and as amended from time to time, herein called the "Articles"); (b) By-Laws of Maryland (such By-Laws, as in effect on the date of this Agreement and as amended from time to time, are herein called the "By-Laws"); (c) Prospectus(es) of the Series. 4. COMPENSATION TO THE SUB-ADVISER. For the services to be provided by the Sub-Adviser pursuant to this Agreement, the Adviser will pay the Sub-Adviser, and the Sub-Adviser agrees to accept as full compensation therefor, a sub-advisory fee at the rate specified in the Schedule(s) which is attached hereto and made part of this Agreement. The fee will be calculated based on the average monthly market value of the Assets under the Sub-Adviser s management and will be paid to the Sub-Adviser monthly. Except as may otherwise be prohibited by law or regulation (including any then current SEC staff interpretation), the Sub-Adviser may, in its discretion and from time to time, waive a portion of its fee. 5. INDEMNIFICATION. The Sub-Adviser shall indemnify and hold harmless the Adviser from and against any and all claims, losses, liabilities or damages (including reasonable attorney's fees and other related expenses) howsoever arising from or in connection with the performance of the Sub-Adviser s obligations under this Agreement; provided, however, that the Sub-Adviser s obligation under this Section 5 shall be reduced to the extent that the claim against, or the loss, liability or damage experienced by the Adviser, is caused by or is otherwise directly related to the Adviser's own willful misfeasance, bad faith or negligence, or to the reckless disregard of its duties under this Agreement. 6. DURATION AND TERMINATION. This Agreement shall become effective upon its approval by the Fund's Board of Directors and by the vote of a majority of the outstanding voting securities of the Series; provided, however, that at any time the Adviser shall have obtained exemptive relief from the Securities and Exchange Commission permitting it to engage a Sub-Adviser without first obtaining approval of the Agreement from a majority of the outstanding voting securities of the Series involved, the Agreement shall become effective upon its approval by the Fund's Board of Directors. Any Sub-Adviser so selected and approved shall be without the protection accorded by shareholder approval of an investment adviser's receipt of compensation under Section 36(b) of the 1940 Act. This Agreement shall continue in effect for a period of more than two years from the date hereof only so long as continuance is specifically approved at least annually in conformance with the 1940 Act; provided, however, that this Agreement may be terminated with respect to the Series (a) by the Series at any time, without the payment of any penalty, by the vote of a majority of Directors of the Fund or by the vote of a majority of the outstanding voting securities of the Series, (b) by the Adviser at any time, without the payment of any penalty, on not more than 60 days' nor less than 30 days' written notice to the Sub-Adviser, or (c) by the Sub-Adviser at any time, without the payment of any penalty, on 90 days' written notice to the Adviser. This Agreement shall terminate automatically and immediately in the event of its assignment, or in the event of a termination of the Adviser's agreement with the Fund. As used in this Section 6, the terms "assignment" and "vote of a majority of the outstanding voting securities" shall have the respective meanings set forth in the 1940 Act and the rules and regulations thereunder, subject to such exceptions as may be granted by the SEC under the 1940 Act. 7. VENUE AND GOVERNING LAW. This Agreement shall be governed by the internal laws of the State of Maryland, without regard to conflict of law principles; provided, however, that nothing herein shall be construed as being inconsistent with the 1940 Act. Any claim, action, proceeding, suit or dispute relating directly or indirectly to this Agreement, shall be litigated in courts located in Monroe County, New York. Sub-Adviser hereby agrees and consents to jurisdiction in any court of competent jurisdiction in New York. 8. SEVERABILITY. Should any part of this Agreement be held invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors. 9. NOTICE: Any notice, advice or report to be given pursuant to this Agreement shall be deemed sufficient if delivered or mailed by registered, certified or overnight mail, postage prepaid addressed by the party giving notice to the other party at the last address furnished by the other party: To the Adviser at: Manning & Napier Advisory Advantage Corporation 1100 Chase Square Rochester, N.Y. 14604 Attn: Corporate Secretary To the Sub-Adviser at: MFS institutional Advisors, Inc. 500 Boylston Street Boston, MA 02116-6624 Attn: Counsel's Office 10. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and understanding between the parties hereto, and supersedes all prior agreements and understandings relating to this Agreement's subject matter. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but such counterparts shall, together, constitute only one instrument. A copy of the Articles is on file with the Secretary of State of the State of Maryland, and notice is hereby given that the obligations of this instrument are not binding upon any of the Directors, officers or shareholders of the Series or the Fund. Where the effect of a requirement of the 1940 Act reflected in any provision of this Agreement is altered by a rule, regulation or order of the SEC, whether of special or general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers designated below as of the day and year first written above. Manning & Napier Advisory Advantage MFS Institutional Advisors, Inc. Corporation By: By: -------------------------------- ------------------------------------- Name: Name: ------------------------------ ----------------------------------- Title: Title: ----------------------------- ---------------------------------- SCHEDULE A TO THE SUB-ADVISORY AGREEMENT BETWEEN MANNING & NAPIER ADVISORY ADVANTAGE CORPORATION AND MFS INSTITUTIONAL ADVISORS, INC. Pursuant to Article 4, the Adviser shall pay the Sub-Adviser compensation at an annual rate as follows: On the first $200 million 0.45% On the next $300 million 0.40% Thereafter 0.35%
EX-99.D(2)(H) 12 EXHIBIT 99.D(2)(H) INVESTMENT SUB-ADVISORY AGREEMENT EXETER FUND, INC. AGREEMENT made this ____ day of May, 1999, between Manning & Napier Advisory Advantage Corporation, (the "Adviser") and Manning & Napier Advisors, Inc. (the "Sub-Adviser"). WHEREAS, Exeter Fund, Inc., a Maryland corporation (the "Fund"), is registered as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, the Adviser has entered into an Investment Advisory Agreement dated May __, 1999 (the "Advisory Agreement") with the Fund, pursuant to which the Adviser will act as investment adviser to the Life Cycle Series, namely Maximum-Term Growth Series, Long-Term Growth Series, Growth with Reduced Volatility Series and Defensive Growth Series (collectively the "Series"); and WHEREAS, the Adviser, with the approval of the Fund, desires to retain the Sub-Adviser to provide investment advisory services to the Adviser in connection with the management of the Series, and the Sub-Adviser is willing to render such investment advisory services. NOW, THEREFORE, the parties hereto agree as follows: 1. DUTIES OF THE SUB-ADVISER. Subject to supervision by the Adviser and the Fund's Board of Directors, the Sub-Adviser shall manage all of the securities and other assets of the Series entrusted to it hereunder (the "Assets"), including the purchase, retention and disposition of the Assets, in accordance with the Series' investment objectives, policies and restrictions as stated in the Series' prospectus and statement of additional information, as currently in effect and as amended or supplemented from time to time (referred to collectively as the "Prospectus"), and subject to the following: (a) The Sub-Adviser shall, in consultation with and subject to the direction of the Adviser, determine from time to time what Assets will be purchased, retained or sold by the Series, and what portion of the Assets will be invested or held uninvested in cash. (b) In the performance of its duties and obligations under this Agreement, the Sub-Adviser shall act in conformity with the Fund's Articles of Incorporation (as defined herein) and the Prospectus and with the instructions and directions of the Adviser and of the Board of Directors of the Fund and will conform to and comply with the requirements of the 1940 Act, the Internal Revenue Code of 1986, and all other applicable federal and state laws and regulations, as each is amended from time to time. (c) The Sub-Adviser shall determine the Assets to be purchased or sold by the Series as provided in subparagraph (a) and will place orders with or through such persons, brokers or dealers to carry out the policy with respect to brokerage set forth in the Series' Registration Statement (as defined herein) and Prospectus or as the Board of Directors or the Adviser may direct from time to time, in conformity with federal securities laws. In executing portfolio transactions and selecting brokers or dealers, the Sub-Adviser will use its best efforts to seek on behalf of the Series the best overall terms available. In assessing the best overall terms available for any transaction, the Sub-Adviser shall consider all factors that it deems relevant, including the breadth of the market in the security, the price of the security, the financial condition and execution capability of the broker or dealer, and the reasonableness of the commission, if any, both for the specific transaction and on a continuing basis. In evaluating the best overall terms available, and in selecting the broker-dealer to execute a particular transaction, the Sub-Adviser may also consider the brokerage and research services provided (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934). Consistent with any guidelines established by the Board of Directors of the Fund, the Sub-Adviser is authorized to pay to a broker or dealer who provides such brokerage and research services a commission for executing a Series transaction for the Series which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if, but only if, the Sub-Adviser determines in good faith that such commission was reasonable in relation to the value of the brokerage and research services provided by such broker or dealer -- viewed in terms of that particular transaction or terms of the overall responsibilities of the Sub-Adviser to the Series. In addition, the Sub-Adviser is authorized to allocate purchase and sale orders for securities to brokers or dealers (including brokers and dealers that are affiliated with the Adviser, Sub-Adviser or the Fund's principal underwriter) to take into account the sale of shares of the Fund if the Sub-Adviser believes that the quality of the transaction and the commission are comparable to what they would be with other qualified firms. In no instance, however, will the Series' Assets be purchased from or sold to the Adviser, Sub-Adviser, the Fund's principal underwriter, or any affiliated person of either the Fund, Adviser, the Sub-Adviser or the principal underwriter, acting as principal in the transaction, except to the extent permitted by the Securities and Exchange Commission ("SEC") and the 1940 Act. (d) The Sub-Adviser shall maintain all books and records with respect to transactions involving the Assets required by subparagraphs (b)(5), (6), (7), (9), (10) and (11) and paragraph (f) of Rule 31a-1 under the 1940 Act. The Sub-Adviser shall provide to the Adviser or the Board of Directors such periodic and special reports, balance sheets or financial information, and such other information with regard to its affairs as the Adviser or Board of Directors may reasonably request. The Sub-Adviser shall keep the books and records relating to the Assets required to be maintained by the Sub-Adviser under this Agreement and shall timely furnish to the Adviser all information relating to the Sub-Adviser's services under this Agreement needed by the Adviser to keep the other books and records of the Series required by Rule 31a-1 under the 1940 Act. The Sub-Adviser shall also furnish to the Adviser any other information relating to the Assets that is required to be filed by the Adviser or the Fund with the SEC or sent to shareholders under the 1940 Act (including the rules adopted thereunder) or any exemptive or other relief that the Adviser or the Fund obtains from the SEC. The Sub-Adviser agrees that all records that it maintains on behalf of the Series are property of the Series and the Sub-Adviser will surrender promptly to the Series any of such records upon the Series' request; provided, however, that the Sub-Adviser may retain a copy of such records. In addition, for the duration of this Agreement, the Sub-Adviser shall preserve for the periods prescribed by Rule 31a-2 under the 1940 Act any such records as are required to be maintained by it pursuant to this Agreement, and shall transfer said records to any successor sub-adviser upon the termination of this Agreement (or, if there is no successor sub-adviser, to the Adviser). (e) The Sub-Adviser shall provide the Series' custodian on each business day with information relating to all transactions concerning the Series' Assets and shall provide the Adviser with such information upon request of the Adviser. (f) The investment management services provided by the Sub-Adviser under this Agreement are not to be deemed exclusive and the Sub-Adviser shall be free to render similar services to others, as long as such services do not impair the services rendered to the Adviser or the Fund. (g) The Sub-Adviser shall promptly notify the Adviser of any financial condition that is likely to impair the Sub-Adviser's ability to fulfill its commitment under this Agreement. (h) The Sub-Adviser shall review all proxy solicitation materials and be responsible for voting and handling all proxies in relation to the securities held in the Series. The Adviser shall instruct the custodian and other parties providing services to the Series to promptly forward misdirected proxies to the Sub-Adviser. Services to be furnished by the Sub-Adviser under this Agreement may be furnished through the medium of any of the Sub-Adviser's partners, officers or employees. 2. DUTIES OF THE ADVISER. The Adviser shall continue to have responsibility for all services to be provided to the Series pursuant to the Advisory Agreement and shall oversee and review the Sub-Adviser's performance of its duties under this Agreement; provided, however, that in connection with its management of the Assets, nothing herein shall be construed to relieve the Sub-Adviser of responsibility for compliance with the Fund's Articles of Incorporation (as defined herein), the Prospectus, the instructions and directions of the Board of Directors of the Fund, the requirements of the 1940 Act, the Internal Revenue Code of 1986, and all other applicable federal and state laws and regulations, as each is amended from time to time. 3. DELIVERY OF DOCUMENTS. The Adviser has furnished the Sub-Adviser with copies properly certified or authenticated of each of the following documents: (a) The Fund's Articles of Incorporation, as filed with the Secretary of State of the State of Maryland (such Articles of Incorporation, as in effect on the date of this Agreement and as amended from time to time, herein called the "Articles"); (b) By-Laws of Maryland (such By-Laws, as in effect on the date of this Agreement and as amended from time to time, are herein called the "By-Laws"); (c) Prospectus(es) of the Series. 4. COMPENSATION TO THE SUB-ADVISER. For the services to be provided by the Sub-Adviser pursuant to this Agreement, the Adviser will pay the Sub-Adviser, and the Sub-Adviser agrees to accept as full compensation therefor, a sub-advisory fee at the rate specified in the Schedule(s) which is attached hereto and made part of this Agreement. The fee will be calculated based on the average monthly market value of the Assets under the Sub-Adviser s management and will be paid to the Sub-Adviser monthly. Except as may otherwise be prohibited by law or regulation (including any then current SEC staff interpretation), the Sub-Adviser may, in its discretion and from time to time, waive a portion of its fee. 5. INDEMNIFICATION. The Sub-Adviser shall indemnify and hold harmless the Adviser from and against any and all claims, losses, liabilities or damages (including reasonable attorney's fees and other related expenses) howsoever arising from or in connection with the performance of the Sub-Adviser s obligations under this Agreement; provided, however, that the Sub-Adviser s obligation under this Section 5 shall be reduced to the extent that the claim against, or the loss, liability or damage experienced by the Adviser, is caused by or is otherwise directly related to the Adviser's own willful misfeasance, bad faith or negligence, or to the reckless disregard of its duties under this Agreement. 6. DURATION AND TERMINATION. This Agreement shall become effective upon its approval by the Fund's Board of Directors and by the vote of a majority of the outstanding voting securities of the Series; provided, however, that at any time the Adviser shall have obtained exemptive relief from the Securities and Exchange Commission permitting it to engage a Sub-Adviser without first obtaining approval of the Agreement from a majority of the outstanding voting securities of the Series involved, the Agreement shall become effective upon its approval by the Fund's Board of Directors. Any Sub-Adviser so selected and approved shall be without the protection accorded by shareholder approval of an investment adviser's receipt of compensation under Section 36(b) of the 1940 Act. This Agreement shall continue in effect for a period of more than two years from the date hereof only so long as continuance is specifically approved at least annually in conformance with the 1940 Act; provided, however, that this Agreement may be terminated with respect to the Series (a) by the Series at any time, without the payment of any penalty, by the vote of a majority of Directors of the Fund or by the vote of a majority of the outstanding voting securities of the Series, (b) by the Adviser at any time, without the payment of any penalty, on not more than 60 days' nor less than 30 days' written notice to the Sub-Adviser, or (c) by the Sub-Adviser at any time, without the payment of any penalty, on 90 days' written notice to the Adviser. This Agreement shall terminate automatically and immediately in the event of its assignment, or in the event of a termination of the Adviser's agreement with the Fund. As used in this Section 6, the terms "assignment" and "vote of a majority of the outstanding voting securities" shall have the respective meanings set forth in the 1940 Act and the rules and regulations thereunder, subject to such exceptions as may be granted by the SEC under the 1940 Act. 7. VENUE AND GOVERNING LAW. This Agreement shall be governed by the internal laws of the State of Maryland, without regard to conflict of law principles; provided, however, that nothing herein shall be construed as being inconsistent with the 1940 Act. Any claim, action, proceeding, suit or dispute relating directly or indirectly to this Agreement, shall be litigated in courts located in Monroe County, New York. Sub-Adviser hereby agrees and consents to jurisdiction in any court of competent jurisdiction in New York. 8. SEVERABILITY. Should any part of this Agreement be held invalid by a court decision, statute, rule or otherwise, the remainder of this Agreement shall not be affected thereby. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors. 9. NOTICE: Any notice, advice or report to be given pursuant to this Agreement shall be deemed sufficient if delivered or mailed by registered, certified or overnight mail, postage prepaid addressed by the party giving notice to the other party at the last address furnished by the other party: To the Adviser at: Manning & Napier Advisory Advantage Corporation 1100 Chase Square Rochester, N.Y. 14604 Attn: Corporate Secretary To the Sub-Adviser at: 1100 Chase Square Rochester, N.Y. 14604 Attn: Corporate Secretary 10. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and understanding between the parties hereto, and supersedes all prior agreements and understandings relating to this Agreement's subject matter. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but such counterparts shall, together, constitute only one instrument. A copy of the Articles is on file with the Secretary of State of the State of Maryland, and notice is hereby given that the obligations of this instrument are not binding upon any of the Directors, officers or shareholders of the Series or the Fund. Where the effect of a requirement of the 1940 Act reflected in any provision of this Agreement is altered by a rule, regulation or order of the SEC, whether of special or general application, such provision shall be deemed to incorporate the effect of such rule, regulation or order. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers designated below as of the day and year first written above. Manning & Napier Advisory Advantage Manning & Napier Advisors, Inc. Corporation By: By: -------------------------------- ------------------------------------- Name: Name: ------------------------------ ----------------------------------- Title: Title: ----------------------------- ---------------------------------- SCHEDULE A TO THE SUB-ADVISORY AGREEMENT BETWEEN MANNING & NAPIER ADVISORY ADVANTAGE CORPORATION AND MANNING & NAPIER ADVISORS, INC. Pursuant to Article 4, the Adviser shall pay the Sub-Adviser compensation at an annual rate as follows:
Life Cycle Fund Name Fees Maximum-Term Growth Series 0.50%* Long-Term Growth Series 0.50%* Growth with Reduced Volatility Series 0.50%* Defensive Growth Series 0.45%*
* The fee specified will be reduced by 0.05% for those assets in excess of a total of $500 million managed by Manning & Napier Advisors, Inc. EX-99.E 13 EXHIBIT 99.E EXETER FUND, INC. AMENDED AND RESTATED DISTRIBUTION AGREEMENT THIS AGREEMENT is made as of the 11th day of May, 1999 by and between Exeter Fund, Inc., a Maryland corporation (the "Fund"), and Manning & Napier Investor Services, Inc., a New York corporation (the "Broker"). R E C I T A L S WHEREAS, the Fund is registered as an open-end, diversified, management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"); and WHEREAS, the Broker is registered as a broker dealer under the Securities Exchange Act of 1934, as amended; and WHEREAS, the Fund and the Broker desire to enter an agreement to provide distribution services for the common stock shares of the Fund's Series (collectively, the "Series Shares") listed on Schedule A hereto, on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the receipt whereof is hereby acknowledged, the parties hereto agree as follows: 1. APPOINTMENT. The Fund hereby appoints the Broker as Distributor of the Series Shares for the period and on the terms set forth in this Agreement. The Broker accepts such appointment and agrees to render the services herein set forth. 2. DUTIES AS DISTRIBUTOR. The Broker shall give the Fund the benefit of its best judgment, efforts and facilities in rendering its services as Distributor. The Broker will act as Distributor subject to the supervision of the Fund's Board of Directors and the following understanding: (i) nothing herein contained shall be deemed to relieve or deprive the Board of Directors of the Fund of its responsibility for and control of the conduct of the Fund's affairs; and (ii) in all matters relating to the performance of this Agreement, the Broker will act in conformity with the Articles, By-laws and Prospectus and SAI of the Fund and with the instructions and directions of the Fund's Board of 1 Directors and will conform to and comply with the requirements of the 1940 Act and all other applicable Federal or state laws and regulations. In carrying out its obligations hereunder, the Broker shall: (a) receive orders for the purchase of the Series Shares, accept or reject such orders on behalf of the Fund in accordance with the Fund's currently effective Prospectus and SAI and transmit such orders as are so accepted to the Fund's or its transfer agent as promptly as possible; (b) receive requests for redemption from holders of the Portfolio Shares and transmit such redemption requests to the Fund's or its transfer agent as promptly as possible; and (c) respond to inquiries from the holders of the Series Shares concerning the status of their accounts with the Fund. 3. DISTRIBUTION OF SERIES SHARES. The Broker shall be exclusive distributor of the Series Shares. It is mutually understood and agreed that the Broker does not undertake to sell all or any specific portion of Series Shares. The Fund shall not sell any of its Series Shares except through the Broker. Notwithstanding the provisions of the foregoing sentence: (a) the Fund may issue its Series Shares at their net asset value to any shareholder of the Fund purchasing such shares with dividends or other cash distributions received from the Fund pursuant to an offer made to all shareholders of the Series Shares; (b) the Broker may, and when requested by the Fund shall, suspend its efforts to effectuate sales of the Series Shares at any time when in the opinion of the Broker or of the Fund no sales should be made because of market or other economic considerations or abnormal circumstances of any kind; (c) the Fund may withdraw the offering of the Series Shares: (i) at any time with the consent of the Broker, or (ii) without such consent when so required by the provisions of any statute or of any order, rule or regulation of any governmental body having jurisdiction; and 2 (d) the price at which the Series Shares may be sold (the "offering price") shall be the net asset value per share, which shall be determined in the manner established from time to time by the Fund's Board of Directors and as set forth in the Fund's then current Prospectus and SAI. 4. CONTROL BY BOARD OF DIRECTORS. Any distribution activities undertaken by the Broker pursuant to this Agreement, as well as any other activities undertaken by the Broker on behalf of the Fund pursuant thereto, shall at all times be subject to any applicable directives of the Board of Directors of the Fund. 5. COMPLIANCE WITH APPLICABLE REQUIREMENTS. In carrying out its obligations under this Agreement, the Broker shall at all times conform to: (a) all applicable provisions of the 1940 Act and any rules and regulations adopted thereunder; (b) the provisions of the Registration Statement of the Fund under the Securities Act of 1933 and the 1940 Act; (c) the provisions of the Articles of the Fund; (d) the provisions of the By-laws of the Fund; (e) the rules and regulations of the National Association of Securities Dealers, Inc. ("NASD") and all other self-regulatory organizations applicable to the sale of investment company shares; and (f) any other applicable provisions of state and Federal law. 6. EXPENSES. The expenses connected with the Series shares shall be allocable between the Fund and the Broker as follows: (a) The Broker shall furnish, at its expense and without cost to the Fund, the services of personnel to the extent that such services are required to carry out its obligations under this Agreement. 3 (b) The Fund assumes and shall pay or cause to be paid all other expenses of the Fund (other than those expressly assumed by the Fund's investment advisor and sub-advisor), including, without limitation: the fees of the Fund's investment advisor; any custodian or depository appointed by the Fund for the safekeeping of its cash, portfolio securities and other property, and any transfer, divided or accounting agent or agents appointed by the Fund; brokers' commissions chargeable to the Fund in connection with portfolio securities transactions to which the Fund is a party; all taxes, including securities issuance and transfer taxes, and fees payable by the Fund to Federal, state or other governmental agencies; the costs and expenses of engraving or printing of certificates representing shares of the Fund; all costs and expenses in connection with the registration and maintenance of registration of the Fund and its shares with the SEC and various states and other jurisdictions (including filing fees, legal fees and disbursements of counsel); the costs and expenses of printing, including typesetting, and distributing Prospectuses and SAI of the Fund and supplements thereto to the Fund's shareholders; all expenses of shareholders' and directors' meetings and of preparing, printing and mailing of proxy statements and reports to shareholders; fees and travel expenses of directors or director members of any advisory board or committee; all expenses incident to the payment of any dividend, distribution, withdraw or redemption, whether in shares or in cash; charges and expenses of any outside services used for pricing of the Fund's shares; fees and expense of legal counsel and of independent accountants, in connection with any matter relating to the fund; membership dues of industry associations; interest payable on Fund borrowings; postage; insurance premiums on property or personnel (including officers and directors) of the Fund which insure to its benefit; extraordinary expenses (including, but not limited to, legal claims and liabilities and litigation costs and any indemnification related thereto); and all other charges and costs of the Fund's operation unless otherwise explicitly provided herein. 7. DELEGATION OF RESPONSIBILITIES. The Broker may, but shall not be under any duty to, perform services on behalf of the Fund which are not required by this 4 Agreement upon the request of the Fund's Board of Directors. Such services will be performed on behalf of the Fund and the Broker's charge in rendering such services may be billed monthly to the Fund. Payment or assumption by the Broker of any Fund expense that the Broker is not required to pay or assume under this Agreement shall not relieve the Broker of any of its obligations to the Fund nor obligate the Broker to pay or assume any similar Fund expenses on any subsequent occasions. 8. COMPENSATION. The Broker shall receive from the Fund: (1) all distribution and service fees, as applicable, at the rate and under the terms and conditions set forth in each Distribution Plan (collectively, "Plans") adopted by the appropriate class of Series Shares, as such Plans may be amended from time to time, and subject to any further limitations on such fees as the Board of Directors may impose; (2) all deferred sales charges ("DSCs"), if any, applied on redemptions of the applicable class(es) of Series Shares on the terms and subject to such waivers as are described in the Fund's Registration Statement and current prospectuses, as amended from time to time, or as otherwise required pursuant to applicable law; and (3) all front-end sales charges, if any, on purchases of the applicable Series Shares sold subject to such charges as described in the Fund's Registration Statement and current prospectuses, as amended from time to time. The Broker, or brokers, dealers and other financial institutions and intermediaries that have entered into sub-distribution or dealer agreements with the Distributor, may collect the gross proceeds derived from the sale of such class(es) of Shares, remit the net asset value thereof to the fund upon receipt of the proceeds and retain the applicable sales charge. The Broker may reallow any or all of the distribution or service fee, contingent deferred sales charges and front-end sales charges which it is paid by the fund to such brokers, dealers and other financial institutions and intermediaries as the Broker may from time to time determine. 5 9. NON-EXCLUSIVITY. The services of the Broker to the Fund are not to be deemed to be exclusive, and the Broker shall be free to render distribution or other services to others (including other investment companies) and to engage in other activities. It is understood and agreed that officers or directors of the Broker may serve as officers or directors of the Fund, and that officers or directors of the Fund may serve as officers or directors of the Broker to the extent permitted by law; and that the officers and directors of the Broker are not prohibited from engaging in any other business activity or from rendering services to any other person, or from serving as partners, officers, trustees or directors of any other firm, trust or corporation, including other investment companies. 10. TERM. This Agreement shall become effective at the close of business on the date hereof and shall continue in force and effect, subject to Section 12 hereof, for two years from the date hereof. 11. RENEWAL. Following the expiration of its initial two-year term, this Agreement shall continue in force and effect from year to year, provided that such continuance is specifically approved at least annually: (a)(i) by the Fund's Board of Directors or (ii) by the vote of a majority of the outstanding voting securities of the Series Shares (as defined in Section 2(a)(42) of the 1940 Act, and (b) by the affirmative vote of a majority of the directors who are not parties to this Agreement or "interested persons" (as defined by the 1940 Act) of any such party and have no direct or indirect financial interest in the operation of this Agreement or any agreement related to this Agreement, by votes cast in person at a meeting specifically called for the purpose of voting on such approval. Notwithstanding any provision of this paragraph to the contrary, if the holders of any one series of the Series Shares of the Fund fail to approve this Agreement, the Broker may continue to serve as distributor to the other Series Shares of the Fund whose holders approved this Agreement and, in the manner and to the extent permitted by the 1940 Act, to the series of Series Shares of the Fund which did not approve this Agreement. 6 12. TERMINATION. This Agreement may be terminated at any time, without the payment of any penalty, by vote of the Fund's Board of Directors or by vote of a majority of the members of the Board of Directors of the Fund who are not "interested persons" of the Fund and have no direct or indirect financial interest in the operation of this Agreement or in any agreement related to this Agreement, by vote of a majority of the Series Shares of the Fund's outstanding voting securities (as defined in Section 2(a)(42) of the 1940 Act), or by the Broker, on sixty (60) days' written notice to the other party. The notice provided for herein may be waived by either party. This Agreement shall automatically terminate in the event of its assignment, the term "assignment" having the meaning defined in Section 2(a)(4) of the 1940 Act. 13. AMENDMENTS. This Agreement may be amended by the parties hereto only if such amendment is specifically approved (I) by the Board of Directors of the Fund or by the vote of a majority of outstanding voting securities of the Series Shares, and (ii) by a majority of those directors who are not parties to this Agreement or "interested persons" of any such party, which vote must be cast in person at a meeting called for the purpose of voting on such approval. 14. LIABILITY OF THE DISTRIBUTOR. In the performance of its duties hereunder, the Broker shall be obligated to exercise care and diligence and to act in good faith and to use its best efforts within reasonable limits to ensure the accuracy of all services performed under this Agreement, but the Broker shall not be liable for any act or omission which loss does not constitute willful misfeasance, bad faith or gross negligence on the part of the Broker or reckless disregard by the Broker of its duties under this Agreement. 15. NOTICES. Any notices under this Agreement shall be in writing, addressed and delivered or mailed postage paid to the other party at such address as such other party may designate for the receipt of such notice. Until further notice to the other party, it is agreed that the address of the Fund for this purpose and that of the Broker shall be 1100 Chase Square, Rochester, New York 14604. 16. QUESTIONS OF INTERPRETATION. This Agreement shall be implemented and continued in a manner consistent with the provisions of the 1940 Act. Any question of interpretation of any term or provision of this Agreement having a counterpart in or 7 otherwise derived from a term or provision of the 1940 Act, shall be resolved by reference to such term or provision of the 1940 Act and to interpretations thereof, if any, by the United States Courts or, in the absence of any controlling decision of any such court, by rules, regulations or orders of the SEC issued pursuant to said Act. In addition, where the effect of a requirement of the 1940 reflected in any provision of this Agreement is revised by rule, regulation or order of the SEC, such provision shall be deemed to incorporate the effect of such rule, regulation or order. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in duplicate by their respective officers on the day and year first written above. EXETER FUND, INC. By:/s/ William Manning William Manning, President MANNING & NAPIER INVESTOR SERVICES, INC. By:/s/ B. Reuben Auspitz B. Reuben Auspitz, President 8 SCHEDULE A NAME OF SERIES Small Cap Series Maximum Horizon Series Energy Series Technology Series Defensive Series Financial Services Series International Series Tax Managed Series Life Sciences Series Global Fixed Income Series Blended Asset Series I Blended Asset Series II Flexible Yield Series I Flexible Yield Series II Flexible Yield Series III New York Tax Exempt Series Ohio Tax Exempt Series Diversified Tax Exempt Series World Opportunities Series Socially Responsible Series Government-Oriented Fixed Income Series Unrestricted Fixed Income Series Index Stock Series Large Cap Stock Series Small Cap Stock Series International Stock Series Defensive Growth Series Growth with Reduced Volatility Series Long-Term Growth Series Maximum-Term Growth Series 9 EX-99.H(1)(A) 14 EXHIBIT 99.H(1)(A) EXETER FUND, INC. FORM OF SUPPLEMENT TO TRANSFER AGENT AGREEMENT SCHEDULE A DATED 5-11-99 SUPPLEMENT TO TRANSFER AGENT AGREEMENT (the "Agreement") dated as of April 30, 1993 between Exeter Fund, Inc. (the "Fund") and Manning & Napier Advisors, Inc. (the "Advisor"). RECITALS The Fund has executed and delivered the Transfer Agent Agreement dated as of April 30, 1993 (the "Agreement"), between the Fund and the Transfer Agent. The Agreement sets forth the rights and obligation of the parties with respect to the transfer agency functions of the Series of the Fund. The Fund has created the Socially Responsible Series, Government-Oriented Fixed Income Series, Unrestricted Fixed Income Series, Index Stock Series, Large Cap Stock Series, Small Cap Stock Series, Aggressive Stock Series, International Stock Series, Defensive Growth Series, Growth with Reduced Volatility Series, Long-Term Growth Series, Maximum-Term Growth Series (the "Additional Series"). AGREEMENTS Now, therefore, the parties agree as follows: The following will be subject to the terms and conditions of the Agreement: Socially Responsible Series Government-Oriented Fixed Income Series Unrestricted Fixed Income Series Index Stock Series Large Cap Stock Series Small Cap Stock Series Aggressive Stock Series International Stock Series Defensive Growth Series Growth with Reduced Volatility Series Long-Term Growth Series Maximum-Term Growth Series The parties below have executed this Agreement as of May 11, 1999. EXETER FUND, INC. /s/ William Manning ---------------------------------------- William Manning, President MANNING & NAPIER ADVISORS, INC. /s/ B. Reuben Auspitz ---------------------------------------- B. Reuben Auspitz, Executive V.P. EX-99.H(1)(B) 15 EXHIBIT 99.H(1)(B) EXETER FUND, INC. FORM OF SUPPLEMENT TO TRANSFER AGENT AGREEMENT SCHEDULE B DATED 5-11-99 SUPPLEMENT TO TRANSFER AGENT AGREEMENT (the "Agreement") dated as of April 30, 1993 between Exeter Fund, Inc. (the "Fund") and Manning & Napier Advisors, Inc. (the "Advisor"). RECITALS The Fund has executed and delivered the Transfer Agent Agreement dated as of April 30, 1993 (the "Agreement"), between the Fund and the Transfer Agent. The Agreement sets forth the rights and obligation of the parties with respect to the transfer agency functions of the Series of the Fund. The Fund has created the Socially Responsible Series, Government-Oriented Fixed Income Series, Unrestricted Fixed Income Series, Index Stock Series, Large Cap Stock Series, Small Cap Stock Series, Aggressive Stock Series, International Stock Series, Defensive Growth Series, Growth with Reduced Volatility Series, Long-Term Growth Series, Maximum-Term Growth Series (the "Additional Series"). AGREEMENTS Now, therefore, the parties agree as follows: The percentage rate in Schedule B of the Agreement with respect to the Additional Series is set forth below:
SERIES PERCENTAGE ------ ---------- Socially Responsible Series 0.024% Government-Oriented Fixed Income Series 0.024% Unrestricted Fixed Income 0.024% Index Stock Series 0.024% Large Cap Stock Series 0.024% Small Cap Stock Series 0.024% Aggressive Stock Series 0.024% International Stock Series 0.024% Defensive Growth Series 0.024% Growth with Reduced Volatility Series 0.024% Long-Term Growth Series 0.024% Maximum-Term Growth Series 0.024%
The parties below have executed this Agreement as of May 11, 1999. EXETER FUND, INC. /s/ William Manning ----------------------------------------- William Manning, President MANNING & NAPIER ADVISORS, INC. /s/ B. Reuben Auspitz ----------------------------------------- B. Reuben Auspitz, Executive V.P. EX-99.J(1) 16 EXHIBIT 99.J(1) To the Board of Directors of Exeter Fund, Inc.: We hereby consent to the reference to our firm under the heading "Custodian, Independent Accountants and Counsel" in the Statement of Additional Information with respect to Post-effective Amendment No. 34 to the Registration Statement on Form N-1A (File No. 2-92633) under the Securities Act of 1933, as amended, of Exeter Fund, Inc. (formerly Manning & Napier Fund, Inc.). /s/ PricewaterhouseCoopers LLP Boston, Massachusetts May 25, 1999 EX-99.J(2) 17 EXHIBIT 99.J(2) INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Post-Effective Amendment No. 34 to the Registration Statement on Form N-1A of Exeter Fund, Inc. (File No. 2-92633) of our reports each dated December 4, 1998 appearing in the annual reports to shareholders for the year ended October 31, 1998, of the Defensive Series, Tax Managed Series, Maximum Horizon Series, Blended Assets Series I, Blended Assets Series II, Flexible Yield Series I, Flexible Yield Series II and Flexible Yield Series III, and to the references to us under the headings "Financial Highlights" in the Prospectuses and "Custodian, Independent Accountants and Counsel" and "Financial Statements" in the Statement of Additional Information, all of which are part of this Registration Statement. /s/ Deloitte & Touche LLP Boston, Massachusetts May 20, 1999 EX-99.0(2) 18 EXHIBIT 99.0(2) EXETER FUND, INC. AMENDED RULE 18F-3 MULTIPLE CLASS PLAN MAY 11, 1999 I. INTRODUCTION. A. AUTHORITY. This Amended Rule 18f-3 Multiple Class Plan (the "Plan") has been adopted by the Board of Directors (the "Board") of the Exeter Fund, Inc. (the "Fund"), including a majority of the Directors of the Fund who are not "interested persons" of the Fund (the "Independent Directors") pursuant to Rule 18f-3 under the Investment Company Act of 1940, as amended (the "1940 Act"). The Plan sets forth the differences among series, including shareholder services, distribution arrangements, expense allocations, and conversion or exchange options. The Small Cap Series, World Opportunities Series, Blended Asset Series I, Blended Asset Series II, Maximum Horizon Series, Defensive Series, Flexible Yield Series I, Flexible Yield Series II, Flexible Yield Series III, Tax Managed Series, Socially Responsible Series, Government-Oriented Fixed Income Series, Unrestricted Fixed Income Series, Index Stock Series, Large Cap Stock Series, Small Cap Stock Series, Aggressive Stock Series, International Stock Series, Defensive Growth Series, Growth with Reduced Volatility Series, Long-Term Growth Series and Maximum-Term Growth Series (each a "Series" and, collectively, the "Series"), of the Fund have elected to rely on Rule 18f-3 of the 1940 Act in offering multiple classes of shares in each Series. The multiple class distribution arrangement will be effective on the date of effectiveness of the Fund's registration statement or any post-effective amendment thereto that incorporates the arrangement. The multi-class distribution arrangement will apply to all existing and future classes of Fund shares. B. ADOPTION OF PLAN; AMENDMENT OF PLAN; AND PERIODIC REVIEW. Pursuant to Rule 18f-3, the Fund is required to create a written plan specifying all of the differences among the Fund's classes, including shareholder services, distribution arrangements, expense allocations, and any related conversion features or exchange options. The Board has created the Plan to meet this requirement. The Board, including a majority of the Independent Directors, must periodically review the Plan for its continued appropriateness, and must approve any material amendment of the Plan as it relates to any class of any Series covered by the Plan. For each additional class of shares approved by the Fund's Board of Directors after the date hereof, the appropriate officers of the Fund will attest the resolutions approving such class as an exhibit hereto. Before any material amendment of the Plan, the Fund is required to obtain a finding by a majority of the Board, and a majority of the Independent Directors, that the Plan as proposed to be amended, including the expense allocations, is in the best interests of each class individually and the Fund as a whole. 1 II. ATTRIBUTES OF SHARE CLASSES A. The rights of each existing class of the Fund are not being changed hereby, and the rights, obligations and features of each of the classes of the Fund shall be as set forth in the Fund's Articles of Incorporation and By-laws, as each such document is amended or restated to date, the resolutions that are adopted with respect to the classes of the Fund and that are adopted pursuant to the Plan to date, and related materials of the Board, as set forth in Exhibit A hereto. B. With respect to any class of shares of a Series, the following requirements shall apply. Each share of a particular Series shall represent an equal PRO RATA interest in the Series and shall have identical voting, dividend, liquidation and other rights, preferences, powers, restrictions, limitations, qualifications, designations and terms and conditions, except that (I) each class shall have a different class designation (E.G., Class A, Class B, Class C, etc.); (ii) each class of shares shall separately bear any distribution expenses in connection with the plan adopted pursuant to Rule 12b-1 under the 1940 Act (a "Rule 12b-1 Plan"), if any, for such class (and any other costs relating to obtaining shareholder approval of the Rule 12b-1 Plan for such class, or an amendment of such plan) and shall separately bear any expenses associated with any non-Rule 12b-1 Plan service payments ("service fees") that are made under any servicing agreement, if any, entered into with respect to that class; (iii) holders of the shares of the class shall have exclusive voting rights regarding the Rule 12b-1 Plan relating to such class (E.G., the adoption, amendment or termination of a Rule 12b-1 Plan), regarding the servicing agreements relating to such class and regarding any matter submitted to shareholders in which the interests of that class differ from the interests of any other class; (iv) each new class of shares may bear, to the extent consistent with rulings and other published statements of position by the Internal Revenue Service, the expenses of the Fund's operation that are directly attributable to such class ("Class Expenses") (1); and (v) each class may have conversion features unique to such class, permitting conversion of shares of such class to shares of another class, subject to the - ------------------- (1) Class Expenses are limited to any or all of the following: (I) transfer agent fees identified as being attributable to a specific class of shares, (ii) stationery, printing, postage, and delivery expenses related to preparing and distributing materials such as shareholder reports, prospectuses, and proxy statements to current shareholders of a specific class, (iii) Blue Sky registration fees incurred by a class of shares, (iv) SEC registration fees incurred by a class of shares, (v) expenses of administrative personnel and services as required to support the shareholders of a specific class, (vi) directors' fees or expenses incurred as a result of issues relating solely to a class of shares, (vii) account expenses relating solely to a class of shares, (viii) auditors' fees, litigation expenses, and legal fees and expenses relating solely to a class of shares, and (ix) expenses incurred in connection with shareholder meetings as a result of issues relating solely to a class of shares. 2 requirements set forth in Rule 18f-3. III. EXPENSE ALLOCATIONS Expenses of each class created after the date hereof must be allocated as follows: (I) distribution and shareholder servicing payments associated with any Rule 12b-1 Plan or servicing agreement, if any, relating to each respective class of shares (including any costs relating to implementing such plans or any amendment thereto) will be borne exclusively by that class; (ii) any incremental transfer agency fees relating to a particular class will be borne exclusively by that class; and (iii) Class Expenses relating to a particular class will be borne exclusively by that class. The methodology and procedures for calculating the net asset value and dividends and distributions of the various classes of shares of the Fund and the proper allocation of income and expenses among the various classes of shares of the Fund are required to comply with the Fund's internal control structure pursuant to applicable auditing standards, including Statement on Auditing Standards No. 55, and to be reviewed as part of the independent accountants' review of such internal control structure. The independent accountants' report on the Fund's system of internal controls required by Form N-SAR, Item 77B, is not required to refer expressly to the procedures for calculating the classes' net asset values. 3 EXHIBIT A Exhibits to Registrant's 18f-3 Plan 1. Form of Articles of Incorporation. 2. Form of By-Laws. 3. Form of Amended and Restated Distribution Agreement dated May 11, 1999 between Registrant and Manning & Napier Investor Services, Inc. 4. Distribution Plan with respect to the Class B, Class C, Class D and Class E Shares for the Small Cap Series, World Opportunities Series, Blended Asset Series I, Blended Asset Series II, Maximum Horizon Series, Defensive Series, Flexible Yield Series I, Flexible Yield Series II, Flexible Yield Series III, Tax Managed Series and Socially Responsible Series. Distribution Plan with respect to the Class D and Class E Shares for the Government-Oriented Fixed Income Series, Unrestricted Fixed Income Series, Index Stock Series, Large Cap Stock Series, Small Cap Stock Series, Aggressive Stock Series, International Stock Series, Defensive Growth Series, Growth with Reduced Volatility Series, Long-Term Growth Series and Maximum-Term Growth Series. 5. Form of Dealer Agreement between Manning & Napier Investor Services, Inc. and transmitting brokers. 6. Prospectus relating to Registrant's Shares. 4 -----END PRIVACY-ENHANCED MESSAGE-----