485brep.rev
Blazzard, Grodd & Hasenauer, P.C.
943 Post Road East
Westport, CT 06880
(203) 226-7866
April 22, 1997
VIA EDGAR
Securities and Exchange Commission
Division of Investment Management
Office of Insurance Products
450 Fifth Street, N.W.
Washington, DC 20549
Re: Manning & Napier Insurance Fund, Inc.
Post-Effective Amendment No. 2 to Form N-1A
File Nos. 33-64667 and 811-07439
Dear Sir/Madam:
We have reviewed Post-Effective Amendment No. 2 for the above-referenced
Registrant. After review of such Post-Effective Amendment, we have concluded
that the changes made to the Prospectus and Statement of Additional
Information are non-material.
Therefore, we hereby represent that the amendment does not contain disclosure
which would render it ineligible to become effective pursuant to paragraph (b)
of Rule 485.
Sincerely,
BLAZZARD, GRODD & HASENAUER, P.C.
By: /S/ RAYMOND A. O'HARA III
____________________________________
Raymond A. O'Hara III
Registration Nos. 33_64667
811_07439
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM N_1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Post_Effective Amendment No. 2 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 3 [X]
(Check appropriate box or boxes.)
MANNING & NAPIER INSURANCE 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 Manning & Napier Insurance Fund, Inc.
1100 Chase Square
Rochester, NY 14604
(Name and Address of Agent For Service)
Copies to:
Judith A. Hasenauer, Esq.
Blazzard, Grodd & Hasenauer, P.C.
P.O. Box 5108
Westport, CT 06881
(203) 226_7866
It is proposed that this filing will become effective on May 1, 1997
pursuant to paragraph (b) of Rule 485.
Registrants Rule 24f-2 Notice for its fiscal year ended December 31, 1996 was
filed on February 21, 1997.
=============================================================================
MANNING & NAPIER INSURANCE FUND, INC.
CROSS REFERENCE SHEET
(as required by Rule 404(c))
PART A
N_1A
Location
Cover Page
Summary
Financial Highlights
Cover Page; The Fund;
Risk and Investment
Objectives; Appendix
Management
Sales and Redemptions;
Net Asset Value; Tax
Status, Dividends, and
Distributions; General
Information
The Fund; Net Asset
Value; Sales and
Redemptions
Sales and Redemptions;
Net Asset Value
Not Applicable
PART B
Cover Page
Cover Page
Not Applicable
Investment Objectives,
Policies and Restrictions
of the Fund;
Risk and Investment
Policies; Principal
Investment Restrictions;
Risks and Additional
Information about
Investment Policies;
<PAGE>
CROSS REFERENCE SHEET (CONT'D)
(as required by Rule 404(c))
N_1A
Location
Management
Control Persons and Principal Holders
Management
Investment Advisory and Other
Management; Custodian
Management
(Portfolio Transactions and Brokerage)
Redemption of Shares;
Net Asset Value; Taxes;
Dividends and
Distributions; Organiza_
tion and Capitalization
Purchase, Redemption and Pricing of
Net Asset Value;
Redemption of Shares
Taxes; Dividends and
Distributions
Not Applicable
Calculations of Yield Quotations of
Not Applicable
Financial Statements
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of the Registration Statement.
MANNING & NAPIER INSURANCE FUND, INC.
1100 CHASE SQUARE
ROCHESTER, NEW YORK 14604
1-800-466-3863
Manning & Napier Insurance Fund, Inc. (the "Fund"), is an open-end management
investment company that offers separate series, each a separate investment
portfolio having its own investment objective and policies. This Prospectus
relates to the six series of the Fund described below (the "Portfolios").
Manning & Napier Advisors, Inc. (the "Advisor") acts as investment advisor to
the Fund. Shares of the Fund are offered to life insurance companies ("Life
Companies") for allocation to certain of their variable separate accounts
established for the purpose of funding variable annuity contracts and variable
life insurance policies ("Variable Contracts"). The Portfolios and their
respective investment objectives are as follows:
MANNING & NAPIER MODERATE GROWTH PORTFOLIO - seeks with equal emphasis
long-term growth and preservation of capital.
MANNING & NAPIER GROWTH PORTFOLIO - seeks long-term growth of capital. The
secondary objective is the preservation of capital.
MANNING & NAPIER MAXIMUM HORIZON PORTFOLIO - seeks to achieve the high level
of long-term capital growth typically associated with the stock market.
MANNING & NAPIER SMALL CAP PORTFOLIO - seeks to achieve long-term growth of
capital by investing principally in the equity securities of small issuers.
MANNING & NAPIER EQUITY PORTFOLIO - seeks long-term growth of capital.
MANNING & NAPIER BOND PORTFOLIO - seeks to maximize total return in the form
of both income and capital appreciation by investing in fixed income
securities without regard to maturity.
This Prospectus provides you with the basic information you should know before
investing in the Fund. You should read this Prospectus and keep it for future
reference. A Statement of Additional Information, dated May 1, 1997 ,
containing additional information about the Fund has been filed with the
Securities and Exchange Commission and is incorporated by reference in this
Prospectus in its entirety. You may obtain a copy of the Statement of
Additional Information without charge by contacting the Fund at the address or
telephone number listed above.
INVESTMENTS IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK. SHARES OF THE FUND ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
GOVERNMENTAL AGENCY. AN INVESTMENT IN THE FUND IS SUBJECT TO RISK THAT MAY
CAUSE THE VALUE OF THE INVESTMENT TO FLUCTUATE, AND WHEN THE INVESTMENT IS
REDEEMED, THE VALUE MAY BE HIGHER OR LOWER THAN THE AMOUNT ORIGINALLY INVESTED
BY THE INVESTOR.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The purchaser of a Variable Contract should read this Prospectus in
conjunction with the prospectus for his or her Variable Contract.
The date of this Prospectus is May 1, 1997
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
PAGE
SUMMARY
RISK AND INVESTMENT OBJECTIVES 1
RISKS AND ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES 6
PRINCIPAL INVESTMENT RESTRICTIONS 13
MANAGEMENT 14
SALES AND REDEMPTIONS 15
NET ASSET VALUE 16
PERFORMANCE INFORMATION 17
TAX STATUS, DIVIDENDS, AND DISTRIBUTIONS 18
GENERAL INFORMATION 18
APPENDIX 20
</TABLE>
FINANCIAL HIGHLIGHTS
The following tables provide selected per share data and ratios for the Bond
Portfolio, Equity Portfolio, Small Cap Portfolio, Moderate Growth Portfolio,
Growth Portfolio, and Maximum Horizon Portfolio (for a share outstanding
throughout the period for the period November 1, 1996 (commencement of
operations) to December 31, 1996). The table is part of the Funds' financial
statements, which are included in the Statement of Additional Information
incorporated by reference into this Prospectus.
<TABLE>
<CAPTION>
MANNING & NAPIER INSURANCE FUND, INC.
---------------------------------------
Bond Equity
Portfolio Portfolio
Per share data (for a share outstanding
throughout each period):
<S> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.00 $ 10.00
Income from investment operations:
Net investment income 0.062 0.047
Net realized and unrealized gain (loss)
on investments (0.122) 0.513
Total from investment operations (0.060) 0.560
NET ASSET VALUE - END OF PERIOD $ 9.94 $ 10.56
Total return: 1 (0.60%) 5.60%
Ratios of expenses (to average net
assets) / Supplemental Data*:
Expenses 2 0.85% 1.20%
Net investment income 2 3.92% 2.84%
Portfolio turnover 0% 29%
Average commision rate paid -- $ 0.0061
NET ASSETS - END OF PERIOD $ 125,875 $ 136,267
* The investment advisor did not impose its management fee and paid a portion of the Fund's expenses. If these
expenses had been incurred by the Fund, expenses would have been limited by state securities law and the net
investment income per share and the ratios would have been as follows:
Net Investment Income $ 0.036 $ 0.025
Ratios (to average net assets):
Expenses 2 2.50% 2.50%
Net investment income 2 2.27% 1.54%
1 Total return represents aggregate total return for the period indicated.
2 Annualized.
Moderate Maximum
Small Cap Growth Growth Horizon
Portfolio Portfolio Portfolio Portfolio
Per share data (for a share outstanding
throughout each period):
<S> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.00 $ 10.00 $ 10.00 $ 10.00
Income from investment operations:
Net investment income 0.009 0.065 0.050 0.023
Net realized and unrealized gain (loss)
on investments 0.711 0.045 0.200 0.417
Total from investment operations 0.720 0.110 0.250 0.440
NET ASSET VALUE - END OF PERIOD $ 10.72 $ 10.11 $ 10.25 $ 10.44
Total return: 1 7.20% 1.10% 2.50% 4.40%
Ratios of expenses (to average net
assets) / Supplemental Data*:
Expenses 2 1.20% 1.20% 1.20% 1.20%
Net investment income 2 0.55% 4.08% 3.11% 1.43%
Portfolio turnover 9% 0% 3% 4%
Average commision rate paid $ 0.0356 $ 0.0700 $ 0.0696 $ 0.0691
NET ASSETS - END OF PERIOD $ 138,374 $ 128,104 $ 129,874 $ 132,216
* The investment advisor did not impose its management fee and paid a portion of the Fund's expenses. If these
expenses had been incurred by the Fund, expenses would have been limited by state securities law and the net
investment income per share and the ratios would have been as follows:
Net Investment Income ($0.012) $ 0.044 $ 0.029 $ 0.002
Ratios (to average net assets):
Expenses 2 2.50% 2.50% 2.50% 2.50%
Net investment income 2 (0.75%) 2.78% 1.81% 0.13%
1 Total return represents aggregate total return for the period indicated.
2 Annualized.
</TABLE>
<PAGE>
SUMMARY
THE FUND
The Fund is an open-end management investment company incorporated under the
laws of the State of Maryland on November 1, 1995. The Fund offers separate
series of units of beneficial interest ("shares"). The Fund is currently
comprised of six separate Portfolios: Manning & Napier Moderate Growth
Portfolio; Manning & Napier Growth Portfolio; Manning & Napier Maximum Horizon
Portfolio; Manning & Napier Small Cap Portfolio; Manning & Napier Equity
Portfolio; and Manning & Napier Bond Portfolio. The Directors may provide for
additional Portfolios from time to time. Each Portfolio offers a separate
class of shares.
RISK AND INVESTMENT OBJECTIVES
Each Portfolio of the Fund has a different investment objective which it
pursues through separate investment policies as described below. The risks and
opportunities of each Portfolio should be examined separately. The differences
in objectives and policies among the Portfolios can be expected to affect the
return of each Portfolio and the degree of market and financial risk of each
Portfolio.
MANNING & NAPIER MODERATE GROWTH PORTFOLIO
The investment objective of the Manning & Napier Moderate Growth Portfolio
(the "Moderate Growth Portfolio") is to seek with equal emphasis long-term
growth and preservation of capital. From time to time, the Advisor will vary
the proportions invested in common stocks, income-producing securities (e.g.,
debt securities and preferred stock) or cash (including foreign currency) and
cash equivalents depending on its view of their relative attractiveness in
light of market and economic conditions. Because the Moderate Growth
Portfolio's investments fluctuate in value, the Portfolio's shares will
fluctuate in value. The Advisor seeks to reduce the risk of negative returns
while seeking to obtain capital growth when it believes valuations and market
conditions are favorable. In this process the Advisor will work to try to
dampen the year-to-year swings in the market value in order to generate a more
stable rate of growth for this Portfolio relative to an investment in the
general stock market. There is no assurance that the Moderate Growth Portfolio
will attain its objective.
In pursuit of its investment objective, the Portfolio may invest in a wide
variety of equity and debt securities. Equity securities consist of common
stocks, securities convertible thereto, and warrants. The Portfolio does not
intend to invest more than 5% of the value of its total net assets in
warrants. The principal factor in selecting convertible bonds will be the
potential opportunity to benefit from movement in the stock price. There will
be no minimum rating standards for debt aspects of such securities.
Convertible bonds purchased by the Portfolio may be subject to the risk of
being called by the issuer. However, the Portfolio would not buy bonds if
they were in default as to payment of principal or interest.<R/>
The debt securities in which the Portfolio may invest consist of corporate
debt securities, mortgage-backed securities and obligations issued or
guaranteed as to payment of principal and interest by the U.S. Government or
its agencies or instrumentalities. The Portfolio may invest in such securities
<PAGE>regard to term or rating and may, from time to time, invest up to 20%
of its assets in corporate debt securities rated below investment grade, i.e.,
rated lower than BBB by Standard & Poor's Ratings Group ("S&P") or Baa by
Moody's Investors Service, Inc. ("Moody's"), or unrated securities of
comparable quality as determined by the Advisor. These securities are commonly
known as "junk bonds". Ratings of corporate bonds including lower rated bonds
are included in the Appendix. See "Risks and Additional Information about
Investment Policies - High Yield Debt Securities".
MANNING & NAPIER GROWTH PORTFOLIO
The primary investment objective of the Manning & Napier Growth Portfolio (the
"Growth Portfolio") is to provide long term growth of capital. The secondary
objective of the Growth Portfolio is the preservation of capital. From time to
time, the Advisor will vary the proportions invested in common stocks,
income-producing securities (e.g., debt securities and preferred stock) or
cash (including foreign currency) and cash equivalents depending on its view
of their relative attractiveness in light of market and economic conditions.
Because the Growth Portfolio's investments fluctuate in value, the Portfolio
shares will fluctuate in value. In pursuit of its primary objective, the
Growth Portfolio will often invest more than 50% in common stocks, and
securities convertible into common stocks, of companies the Advisor believes
have long-term growth potential. However, in light of the secondary objective
of the Growth Portfolio, it may, even under normal circumstances, invest a
substantial portion of its assets in certain debt securities, preferred stocks
or common stocks whose principal characteristic is income production rather
than growth. Such securities afford less opportunity for growth than common
stocks but they entail less risk of loss and may also offer some opportunity
for growth of capital as well as for income and relative stability. There is
no assurance that the Growth Portfolio will attain its objective.
In pursuit of its investment objective, the Growth Portfolio may invest in a
wide variety of equity and debt securities. Equity securities consist of
common stocks, securities convertible thereto, and warrants. The Portfolio
does not intend to invest more than 5% of the value of its total net assets in
warrants. The principal factor in selecting convertible bonds will be the
potential opportunity to benefit from movement in the stock price. There will
be no minimum rating standards for debt aspects of such securities.
Convertible bonds purchased by the Portfolio may be subject to the risk of
being called by the issuer.
However, the Portfolio would not buy bonds if
they were in default as to payment of principal or interest.
The debt securities in which the Portfolio may invest consist of corporate
debt securities, mortgage-backed securities and obligations issued or
guaranteed as to payment of principal and interest by the U.S. Government or
its agencies or instrumentalities. The Portfolio may invest in such securities
without regard to term or rating and may, from time to time, invest up to 20%
of its assets in corporate debt securities rated below investment grade, i.e.,
rated lower than BBB by S&P or Baa by Moody's, or unrated securities of
comparable quality as determined by the Advisor. These securities are commonly
known as "junk bonds". Ratings of corporate bonds including lower rated bonds
are included in the Appendix. See "Risks and Additional Information about
Investment Policies - High Yield Debt Securities".
MANNING & NAPIER MAXIMUM HORIZON PORTFOLIO
The primary objective of the Manning & Napier Maximum Horizon Portfolio (the
<PAGE>Horizon Portfolio") is to achieve the high level of long-term capital
growth typically associated with the stock market. The Advisor will normally
concentrate the investments of the Portfolio in common stocks, but may also
utilize income-producing securities (e.g., debt securities and preferred
stock) or cash (including foreign currency) and cash equivalents depending on
its view of their relative attractiveness in light of market and economic
conditions. Because the Maximum Horizon Portfolio's investments fluctuate in
value, the shares of the Portfolio will also fluctuate in value. There is no
assurance that the Maximum Horizon Portfolio will attain its objective.
In pursuit of its investment objective, the Maximum Horizon Portfolio may
invest in a wide variety of equity and debt securities. Equity securities
consist of common stocks, securities convertible thereto, and warrants. The
Portfolio does not intend to invest more than 5% of the value of its total net
assets in warrants. The Portfolio may purchase convertible securities when the
Advisor believes the securities will provide preservation of capital as a
result of their fixed income characteristics and have the potential to provide
long-term growth due to their equity conversion feature. There will be no
minimum rating standards for the debt aspects of such securities. Convertible
bonds purchased by the Portfolio may be subject to the risk of being called by
the issuer. However, the Portfolio would not buy bonds if they were in
default as to payment of principal or interest.
The debt securities in which the Portfolio may invest consist of corporate
debt securities, mortgage-backed securities and obligations issued or
guaranteed as to payment of principal and interest by the U.S. Government or
its agencies or instrumentalities. The Portfolio may invest in such securities
without regard to term or rating and may, from time to time, invest up to 20%
of its assets in corporate debt securities rated below investment grade, i.e.,
rated lower than BBB by S&P or Baa by Moody's, or unrated securities of
comparable quality as determined by the Advisor. These securities are commonly
known as "junk bonds". Ratings of corporate bonds including lower rated bonds
are included in the Appendix. See "Risks and Additional Information about
Investment Policies - High Yield Debt Securities".
MANNING & NAPIER SMALL CAP PORTFOLIO
The investment objective of the Manning & Napier Small Cap Portfolio (the
"Small Cap Portfolio") is to provide long-term growth of capital. The
Portfolio seeks to achieve its investment objective by investing principally
in equity securities of small issuers. In general, a small issuer is one which
has a market capitalization of less than $700 million, or less than the median
market capitalization of the S&P Midcap Index (the median market
capitalization of the S&P Midcap Index as of the close on December 31,
1996 was approximately $1,415.4 million), whichever is greater
at the time of investment. The Portfolio will, under normal circumstances,
have at least 65% of the value of its total net assets invested in such
securities; the balance, if any, will be invested in equity securities of
other than small issuers considered appropriate by the Advisor. Current income
is not a factor in pursuing the Small Cap Portfolio's objective. There is no
assurance that the Small Cap Portfolio will attain its objective.
The Portfolio will attempt to achieve its objective by investing primarily in
equity securities as described below. Equity securities consist of common
stocks and other securities having some of the characteristics of common
stocks, such as convertible preferred stocks, convertible bonds and warrants.
The Portfolio does not intend to invest more than 5% of the value of its total
<PAGE>assets in warrants. The principal factor in selecting convertible bonds
will be the potential opportunity to benefit from movement in the stock price.
There will be no minimum rating standards for debt aspects of such securities.
Convertible bonds purchased by the Portfolio may be subject to the risk of
being called by the issuer. However, the Portfolio would not buy bonds if they
were in default as to payment of principal or interest.
Investing in the equity securities of small companies involves greater risk
than investing in such securities of larger companies, because the equity
securities of small companies may have less marketability and may be subject
to more abrupt or erratic market movements than the equity securities of
larger companies. The debt securities in which the Portfolio may invest
consist of corporate debt securities, mortgage-backed securities and
obligations issued or guaranteed as to payment of principal and interest by
the U.S. Government or its agencies or instrumentalities. The Portfolio
may invest in such securities without regard to term or rating and may, from
time to time, invest up to 20% of its assets in corporate debt securities
rated below investment grade, i.e., rated lower than BBB by S&P or Baa by
Moody's, or unrated securities of comparable quality as determined by the
Advisor. These securities are commonly known as "junk bonds". Ratings of
corporate bonds including lower rated bonds are included in the Appendix. See
"Risks and Additional Information about Investment Policies - High Yield Debt
Securities".
MANNING & NAPIER EQUITY PORTFOLIO
The investment objective of the Manning & Napier Equity Portfolio (the "Equity
Portfolio") is long-term growth of capital. The Advisor will, under normal
circumstances, seek to increase shareholders' capital by investing principally
in common stocks of domestic and foreign issuers. The Portfolio will seek
investment opportunities principally in common stocks of domestic and foreign
issuers which the Advisor believes have the potential for above average and
predictable earnings growth or where the Advisor believes the investment is
under-valued for either company-specific, industry-specific, or macro-economic
reasons. Under normal circumstances, the Portfolio will seek to have a
minimum of 90% of its assets invested in equity securities. However, the
Portfolio would not buy bonds if they were in default as to payment of
principal or interest. There is no assurance that the Equity Portfolio
will attain its objective.
The Portfolio's investment program involves greater risks and share price
volatility than programs that invest in more conservative securities. Further,
the Portfolio does not follow a policy of active trading for short-term
profits. Therefore, the Portfolio may be more appropriate for investors with a
longer-range perspective. The debt securities in which the Portfolio may
invest consist of corporate debt securities, mortgage-backed securities and
obligations issued or guaranteed as to payment of principal and interest by
the U.S. Government or its agencies or instrumentalities. The Portfolio
may invest in such securities without regard to term or rating and may, from
time to time, invest up to 20% of its assets in corporate debt securities
rated below investment grade, i.e., rated lower than BBB by S&P or Baa by
Moody's, or unrated securities of comparable quality as determined by the
Advisor. These securities are commonly known as "junk bonds". Ratings of
corporate bonds including lower rated bonds are included in the Appendix. See
"Risks and Additional Information about Investment Policies - High Yield Debt
Securities".
<PAGE>& NAPIER BOND PORTFOLIO
The primary objective of the Manning & Napier Bond Portfolio (the "Bond
Portfolio") is to maximize total return in the form of income and capital
appreciation consistent with the preservation of capital by investing in fixed
income securities without regard to maturity. The Bond Portfolio will, under
normal circumstances, have at least 65% of the value of its total assets
invested in a diversified portfolio consisting of the following U.S.
dollar-denominated fixed income securities: non-convertible corporate debt
securities, mortgage backed securities and government obligations. Any
remaining assets in the Bond Portfolio may be held in cash or high quality
"money market securities," convertible debt, preferred stock, futures
contracts, and related options. However, the Portfolio would not buy bonds
if they were in default as to payment of principal or interest. There is
no assurance that the Bond Portfolio will attain its objective.
The Advisor may vary the maturities of the Bond Portfolio's securities without
restriction, depending on its evaluation of interest rate trends and other
factors affecting the fixed income markets. The Bond Portfolio will purchase
short-term securities when the risk of negative returns is high as determined
by the Advisor. Generally, the shorter the maturity of a fixed income security
the lower its yield and the lower its price volatility. The Bond Portfolio
will invest primarily in fixed income securities rated in the four highest
rating categories (Baa or higher by Moody's or BBB or higher by S&P) but may
invest up to 20% of its assets in lower-rated securities. These securities are
commonly known as "junk bonds". Securities rated Baa or BBB are considered
investment grade but may have speculative characteristics and changes in
economic conditions or circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with more
highly rated securities. See "Risks and Additional Information about
Investment Policies - High Yield Debt Securities".
GENERAL
For temporary defensive purposes during periods when the Advisor determines
that market conditions warrant, each Portfolio may invest up to 100% of its
assets in money market instruments (including securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities, certificates of
deposit, time deposits and bankers' acceptances issued by banks or savings and
loan associations deemed creditworthy by the Advisor, commercial paper rated
A-1 by S&P or P-1 by Moody's, repurchase agreements involving such securities
and other investment companies investing solely in such securities as
permitted by applicable law) and may hold a portion of its assets in cash. For
a description of the above ratings, see the Appendix and the Statement of
Additional Information.
In addition, the Portfolio may to varying degrees use certain techniques and
strategies discussed below under "Risks and Additional Information about
Investment Policies".
RISKS AND ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
Set forth below is further information about certain types of securities in
which the Portfolios may invest, as well as information about additional types
of investments and certain strategies the Portfolios may pursue. Unless
otherwise noted, these policies have been voluntarily adopted by the Board of
Directors based upon current circumstances and may be changed or amended by
<PAGE>of the Board of Directors without prior approval of the Portfolios'
shareholders. Additional information concerning these strategies and their
related risks is contained in the Statement of Additional Information.
FOREIGN SECURITIES
Each Portfolio may invest up to 25% of its assets in foreign securities which
are not publicly traded in the United States. While the Bond Portfolio and the
bond portion of the other Portfolios generally emphasize investments in U.S.
Government securities and companies domiciled in the United States, each may
invest up to 25% in foreign securities of the same types and quality as the
domestic securities in which each Portfolio 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 objectives
of each Portfolio. None of the Portfolios will invest more than 25% of its
assets in securities issued by any one foreign government. Each Portfolio 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 securities may be
denominated either in U.S. dollars or foreign currencies.
Each Portfolio's restriction on investment in foreign securities is a
fundamental policy that cannot be changed without the approval of a majority,
as defined in the Investment Company Act of 1940, as amended (the "1940 Act"),
of the outstanding voting securities of a Portfolio.
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 Portfolio. In addition, costs
associated with transactions on foreign markets are generally higher than for
transactions in the U.S.
Obligations of foreign governmental entities are subject to various types of
governmental support and may or may not be supported by the full faith and
credit of a foreign government.
REPURCHASE AGREEMENTS
Each Portfolio may enter into repurchase agreements with respect to portfolio
securities. Under the terms of a repurchase agreement, the Portfolio purchases
securities ("collateral") from financial institutions such as banks and
broker-dealers (the "seller") which the Advisor deems to be creditworthy,
subject to the seller's agreement to repurchase them at a mutually agreed-upon
date and price. The repurchase price generally equals the price paid by the
Portfolio plus interest negotiated on the basis of current short-term rates
(which may be more or less than the rate on the underlying portfolio
<PAGE>
The seller under a repurchase agreement is required to maintain the value of
the collateral held pursuant to the agreement at not less than 100% of the
repurchase price, and securities subject to repurchase agreements are held by
the Portfolio's Custodian either directly or through a securities depository.
Default by the seller would, however, expose the Portfolio 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 Portfolio under the 1940 Act.
SECURITIES LENDING
Each Portfolio may seek to increase its income by lending portfolio
securities. Such loans will usually be made to member firms (and subsidiaries
thereof) of the New York Stock Exchange and to member banks of the Federal
Reserve System, and will be required to be secured continuously by collateral
in cash, cash equivalents or U.S. Treasury securities maintained on a current
basis at an amount at least equal to the market value of the securities
loaned. If the Advisor determines to make securities loans, the value of the
securities loaned would not exceed 30% of the value of the total assets of the
Portfolio.
U.S. GOVERNMENT SECURITIES
Each Portfolio may purchase securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. Direct obligations of the U.S.
Government include bills, notes and bonds issued by the U.S. Treasury and
obligations issued or guaranteed by U.S. agencies or instrumentalities. The
obligations of certain U.S. agencies (e.g., the Government National Mortgage
Association) are backed by the full faith and credit of the U.S. Government or
are supported by the agencies' right to borrow from the U.S. Treasury. The
issues of other agencies (e.g., the Federal National Mortgage Association) are
supported only by the credit of the agency.
SHORT SALES
Each Portfolio 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 Portfolio owns securities equivalent to those sold short. No more
than 25% of the net assets (taken at current value) of a Portfolio may be held
as collateral for such sales at any one time. Such short sales can be used as
a hedge.
FORWARD COMMITMENTS OR PURCHASES ON A WHEN-ISSUED BASIS
Each Portfolio 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 Portfolio
before settlement. These securities are subject to market fluctuation due to
changes in market interest rates. Each Portfolio will enter into these
arrangements with the intention of acquiring the securities in question and
not for speculative purposes and will maintain a separate account with a
segregated portfolio of high quality liquid debt instruments or cash in an
amount at least equal to the purchase price.
<PAGE>
MORTGAGE-BACKED SECURITIES
Each Portfolio may purchase mortgage-backed securities which represent an
interest in a pool of mortgage loans. The primary government issuers or
guarantors of mortgage-backed securities are the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA"), and
the Federal Home Loan Mortgage Corporation. Mortgage-backed securities may
also be issued by other U.S. and foreign government agencies and
non-governmental entities which consist of collateralized mortgage obligations
("CMOs") and real estate mortgage investment conduits ("REMICs"). Each
Portfolio may purchase CMOs that are rated in one of the top two rating
categories by S&P or Moody's. The mortgages backing these securities include
conventional thirty-year fixed rate mortgages, graduated payment mortgages,
and adjustable rate mortgages. CMOs and REMICs backed solely by GNMA
certificates or other mortgage pass-throughs issued or guaranteed by the U.S.
Government or its agencies and instrumentalities may be supported by various
types of insurance. However, the guarantees or insurance do not extend to the
mortgage-backed securities' value, which are likely to vary inversely with
fluctuations in interest rates.
Mortgage-backed securities are in most cases "pass-through" instruments,
through which the holder receives a share of all interest and principal
payments from the mortgages underlying the certificate. Because the prepayment
characteristics of the underlying mortgages vary, it is not possible to
predict accurately the average life or realized yield of a particular issue of
pass-through certificates. During periods of declining interest rates,
prepayment of mortgages underlying mortgage-backed securities can be expected
to accelerate. When the mortgage obligations are prepaid, the Portfolio
reinvests the prepaid amounts in securities, the yield of which reflects
interest rates prevailing at the time. Moreover, prepayment of mortgages which
underlie securities purchased at a premium could result in capital losses.
HIGH YIELD DEBT SECURITIES
High risk, high yield securities rated below BBB or lower by S&P or Baa or
lower by Moody's are considered to have speculative characteristics and
involve greater risk of default or price changes due to changes in the
issuer's creditworthiness. 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 each Portfolio's 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 Portfolio will also seek
to minimize risk by diversifying its holdings.
ZERO-COUPON BONDS
Debt securities in which the Portfolios may invest also include zero-coupon
bonds. Zero-coupon bonds do not require the periodic payment of interest and
are issued at a significant discount from face value. The discount
approximates the total amount of interest the bonds will accrue and compound
<PAGE>
over the period until maturity at a rate of interest reflecting the market
rate of the security at the time of issuance. Such investments benefit the
issuer by mitigating its need for cash to meet debt service, but also require
a higher rate of return to attract investors who are willing to defer receipt
of such cash. Such investments may experience greater volatility in market
value than debt obligations which make regular payments of interest. Each
Portfolio will accrue income on such investments for tax and accounting
purposes; this income is distributable to shareholders. Each Portfolio may
have to sell other securities to raise cash to satisfy this distribution
requirement.
VARIABLE AND FLOATING RATE INSTRUMENTS
Certain of the obligations purchased by a Portfolio may carry variable or
floating rates of interest, may involve a conditional or unconditional demand
feature and may include variable amount master demand notes. Such instruments
bear interest at rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index.
The interest rate on these securities may be reset daily, weekly, quarterly,
or at some other interval, and it may have a floor or ceiling rate.
There is a risk that the current interest rate on such obligations may not
accurately reflect existing market interest rates.
HEDGING TECHNIQUES
Each Portfolio 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 Portfolio's portfolio, to reduce the overall level of
risk that normally would be expected to be associated with its investments.
Each Portfolio 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 Portfolio also may
purchase forward foreign currency exchange contracts to hedge currency
exchange rate risk. In addition, each Portfolio is authorized to purchase and
sell stock index futures contracts and options on stock index futures
contracts. Each Portfolio is also authorized to conduct spot (i.e., cash
basis) currency transactions or to use currency futures contracts and options
on futures contracts and foreign currencies in order to protect against
uncertainty in the future levels of foreign currency exchange rates. These
strategies are primarily used for hedging purposes; nevertheless, there are
risks associated with these strategies as described below.
OPTIONS ON SECURITIES
A call option is a short-term contract pursuant to which the purchaser of the
option, in return for a premium, has the right to buy the security underlying
the option at a specified price at any time during the term of the option. The
writer of a call option, who receives the premium, has the obligation, upon
exercise during the option term, to deliver the underlying security against
payment of the exercise price. Conversely, a put option gives its purchaser,
in return for a premium, the right to sell the underlying equity security at a
specified price during the option term to the writer of the put option, who
receives the premium. Each Portfolio will sell call options only on a
"covered" basis, i.e., it will own the underlying security at all times, and
will write put options only on a secured basis, i.e., it will maintain an
amount equal to the exercise price in a segregated account at all times. Each
Portfolio may engage in option transactions for hedging purposes and to
<PAGE>
realize a greater current return, through the receipt of premiums, than would
be earned on the underlying securities alone. Options traded in the
over-the-counter market will be considered illiquid unless the Fund has
entered into arrangements with U.S. Government securities dealers to dispose
of such options at a formula price based on a multiple of the original premium
plus the amount for which the option is "in the money".
STOCK INDEX FUTURES CONTRACTS AND OPTIONS ON STOCK INDEX FUTURES CONTRACTS
Each Portfolio, except the Bond Portfolio, may invest in stock index futures
contracts and options on stock index futures contracts. A stock index futures
contract is a bilateral agreement pursuant to which one party agrees to
accept, and the other party agrees to make, delivery of an amount of cash
equal to a specified dollar amount times the difference between the stock
index value at the close of trading of the contract and the price at which the
futures contract is originally struck. No physical delivery of the stocks
comprising the index is made. Options on stock index futures contracts give
the purchaser the right, in return for the premium paid, to assume a long or
short position in a futures contract.
FUTURES CONTRACTS
Each Portfolio may purchase and sell financial futures contracts on debt
securities on a commodities exchange or board of trade for certain hedging,
return enhancement and risk management purposes in accordance with applicable
regulations. A financial futures contract is an agreement to purchase or sell
an agreed amount of securities at a set price for delivery in the future. None
of the Portfolios may purchase or sell futures contracts if immediately
thereafter the sum of the amount of initial margin deposits on any such
futures (plus deposits on any other futures contracts and premiums paid in
connection with any options or futures contracts) that do not constitute "bona
fide hedging" under the Commodity Futures Trading Commission ("CFTC") rules
would exceed 5% of the liquidation value of the Portfolio's 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 Portfolio's portfolio. The Fund will comply with
guidelines established by the Securities and Exchange Commission with respect
to covering of obligations under futures contracts and will set aside cash
and/or liquid high grade securities in a segregated account with its custodian
in the amount prescribed.
A Portfolio's successful use of futures contracts depends on the Advisor's
ability to predict the direction of the market and is subject to various
additional risks. The correlation between movements in the price of a futures
contract and the price of the security being hedged is imperfect and there is
a risk that the value of the security being hedged may increase or decrease at
a greater rate than the related futures contract, resulting in losses to the
Portfolio. Certain futures exchanges or boards of trade have established daily
limits based on the amount of the previous day's settlement price. These daily
limits may restrict the Portfolio's ability to repurchase or sell certain
futures contracts on any particular day.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
A Portfolio's use of forward foreign currency contracts is limited to hedging
against movements in the value of foreign currencies relative to the U.S.
dollar in connection with specific portfolio transactions or with respect to
<PAGE>
existing portfolio positions denominated in such currencies. A transaction
hedge involves the purchase or sale of a forward contract with respect to a
specific receivable or payable of the Portfolio while a position hedge relates
to a specific portfolio holding. A forward foreign currency exchange contract
involves an obligation to purchase or sell a specified currency at a future
date at a price set at the time of the contract. Foreign currency exchange
contracts do not eliminate fluctuations in the values of portfolio securities
but rather allow the Portfolio to establish a rate of exchange for a future
point in time. With respect to any such forward foreign currency contract, it
will not generally be possible to match precisely the amount covered by that
contract and the value of the securities involved due to the changes in the
values of such securities resulting from market movements between the date the
forward contract is entered into and the date it matures. In addition, while
forward contracts may offer protection from losses resulting from declines in
the value of a particular foreign currency, they also limit potential gains
which might result from increases in the value of such currency. Based on
current legal interpretation, the Portfolios do not consider forward foreign
currency exchange contracts to be commodities or commodity contracts for
purposes of the Portfolios' fundamental restrictions concerning investment in
commodities or commodity contracts, as set forth in the Statement of
Additional Information.
CURRENCY FUTURES CONTRACTS AND OPTIONS ON CURRENCY FUTURES CONTRACTS
A currency futures contract is an agreement for the purchase or sale for
future delivery of foreign currencies. A "sale" of a currency futures contract
creates an obligation to deliver the foreign currencies called for by the
contract at a specified price on a specified date while a "purchase" of a
currency futures contract creates an obligation to acquire the foreign
currencies called for by the contract at a specified price on a specified
date. Each Portfolio will only enter into futures contracts which are traded
on national or foreign futures exchanges and which are standardized as to
maturity date and the underlying financial instrument. Options on currency
futures contracts give the purchaser the right, in return for the premium
paid, to assume a long or short position in the futures contract. None of the
Portfolios may purchase or sell futures contracts if immediately thereafter
the sum of the amount of initial margin deposits on any such futures (plus
deposits on any other futures contracts and premiums paid in connection with
any options or futures contracts) that do not constitute "bona fide hedging"
under CFTC rules would exceed 5% of the liquidation value of the Portfolio's
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 Portfolio's portfolio.
FOREIGN CURRENCY OPTIONS
A call option on a foreign currency is a short-term contract pursuant to which
the purchaser of the option, in return for a premium, has the right to buy the
currency underlying the option at a specified price at any time during the
term of the option. The writer of a call option, who receives the premium, has
the obligation, upon exercise of the option during the option term, to deliver
the underlying currency against payment of the exercise price. Conversely, a
put option on a foreign currency gives its purchaser, in return for a premium,
the right to sell the underlying currency at a specified price during the
option term to the writer of the put option, who receives the premium.
<PAGE>
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 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 a
Portfolio 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 "registered investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"), may
restrict trading in forward currency contracts, options, futures contracts and
futures options.
PRINCIPAL INVESTMENT RESTRICTIONS
Each Portfolio is subject to certain investment restrictions which are
fundamental policies that cannot be changed without the approval of the
holders of a majority, as defined in the 1940 Act, of a Portfolio's
outstanding shares.
Each Portfolio may borrow money, but only from a bank for temporary or
emergency purposes in amounts not exceeding 10% of the Portfolio's total
assets and a borrowing Portfolio will not make additional investments while
borrowings greater than 5% of its total assets are outstanding.
None of the Portfolios may, with respect to 75% of its total assets, invest
more than 5% of the value of its total assets at the time of investment in
securities of any one issuer (other than obligations issued or guaranteed by
the United States Government, its agencies or its instrumentalities). None of
the Portfolios may purchase more than 10% of the outstanding voting securities
of any one issuer.
None of the Portfolios may invest 25% or more of the value of its total assets
in securities of issuers in any one industry (other than U.S. Government
securities).
None of the Portfolios will invest more than 15% of its total net assets in
securities of issuers that are restricted from being sold to the public
without registration under the Securities Act of 1933 and illiquid securities,
including repurchase agreements with maturities of greater than seven days.
Each Portfolio may invest its assets in securities of any other investment
company (closed-end or open-end) (1) by purchase in the open market involving
only customary brokers' commissions, (2) in connection with mergers,
acquisitions of assets, or consolidation, or (3) as otherwise permitted by
law, including the 1940 Act. Each of the Portfolios may purchase shares of
closed-end investment companies that are traded on national exchanges to the
extent permitted by applicable law.
None of the Portfolios may make loans, except that each Portfolio may invest
in debt securities and repurchase agreements and may engage in securities
lending.
<PAGE>information about the Portfolios' investment restrictions is contained
in the Statement of Additional Information.
MANAGEMENT
The overall business and affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, including the Fund's
agreements with its Investment Advisor and Custodian. The day-to-day
operations of the Fund are delegated to the Fund's officers and to the
Advisor, 1100 Chase Square, Rochester, New York 14604. A committee made up of
investment professionals and analysts makes all the investment decisions for
the Fund.
The Advisor acts as investment advisor to the Fund. Mr. William Manning
controls the Advisor by virtue of his ownership of the securities of the
Advisor. The Advisor also is generally responsible for supervision of the
overall business affairs of the Fund including supervision of service
providers to the Fund and direction of the Advisor's directors, officers or
employees who may be elected as officers of the Fund to serve as such.
As of the date of this Prospectus, the Advisor supervised approximately
$6.5 billion in assets of clients, including both individuals and
institutions. For its services to the Fund under the Investment Advisory
Agreement, the Portfolios pay the Advisor the following fees, computed daily
and payable monthly:
<TABLE>
<CAPTION>
PORTFOLIO PER ANNUM EXPENSE CAP
<S> <C> <C>
Moderate Growth Portfolio 1.00%* 1.2%
Growth Portfolio 1.00%* 1.2%
Maximum Horizon Portfolio 1.00%* 1.00%* 1.2%
Small Cap Portfolio 1.2%
Equity Portfolio 1.00%* 1.2%
Bond Portfolio .50% .85%
</TABLE>
*This fee is higher than the mean fee paid by all other mutual funds.
The Fund is responsible for its operating expenses, including: (i) interest
and taxes; (ii) brokerage commissions; (iii) insurance premiums; (iv)
compensation and expenses of its Directors other than those affiliated with
the Advisor; (v) legal and audit expenses; (vi) fees and expenses of the
Fund's Custodian, and Accounting Services Agent, if obtained for the Fund from
an entity other than the Advisor; (vii) expenses incident to the issuance of
its shares, including issuance on the payment of, or reinvestment of,
dividends and capital gain distributions; (viii) fees and expenses incident to
the registration under federal or state securities laws of the Fund or its
shares; (ix) expenses of preparing, printing and mailing reports and notices
and proxy material to shareholders of the Fund; (x) all other expenses
incidental to holding meetings of the Fund's shareholders; (xi) dues or
<PAGE>of or contributions to the Investment Company Institute or any
successor; and (xii) such non-recurring expenses as may arise, including
litigation affecting the Fund and the legal obligations with respect to which
the Fund may have to indemnify its officers and Directors.
The Advisor may use its own resources to engage in activities that may promote
the sale of the Fund, including payments to third-parties who provide
shareholder support servicing and distribution assistance.
SALES AND REDEMPTIONS
The separate accounts of the Life Companies place orders to purchase and
redeem shares of each Portfolio based on, among other things, the amount of
premium payments to be invested and surrender and transfer requests to be
effected on that day pursuant to the Variable Contracts issued by the Life
Companies. Orders received by the Fund are effected on days on which the New
York Stock Exchange is open for trading, at the net asset value per share next
determined after receipt of the order. Orders received before the close
of regular trading on the New York Stock Exchange, normally 4:00 p.m.
Eastern time, are effected at the respective net asset values per share
determined as of 4:00 p.m. Eastern time on that day. See "Net Asset Value",
below and "Determination of Net Asset Value" in the Fund's Statement of
Additional Information. Payment for redemptions will be made within three
days after receipt of a redemption request in good order. No fee is charged
the separate accounts of the Life Companies when they redeem Portfolio shares.
The Fund may suspend the sale of shares at any time and may refuse any order
to purchase shares.
The Fund may suspend the right of redemption of shares of any Portfolio and
may postpone payment for any period: (i) during which the New York Stock
Exchange is closed other than for customary weekend and holiday closings or
during which trading on the New York Stock Exchange is restricted; (ii) when
the Securities and Exchange Commission determines that a state of emergency
exists which makes the sale of portfolio securities or the determination of
net asset value not reasonably practicable; (iii) as the Securities and
Exchange Commission may by order permit for the protection of the security
holders of the Fund; or (iv) at any time when the Fund may, under applicable
laws and regulations, suspend payment on the redemption of its shares.
Subject to each Portfolios compliance with applicable regulations, each
Portfolio has reserved the right to pay the redemption price either totally or
partially by a distribution in-kind of securities (instead of cash) from the
Portfolios portfolio. The securities distributed in such a distribution would
be valued at the same amount as that assigned to them in calculating the net
asset value for the shares being sold. If a shareholder received a
distribution in-kind, it could incur brokerage or transaction charges when
converting the securities to cash.
Manning & Napier Investor Services, Inc. acts as Distributor of the Fund
shares and is located at the same address as the Advisor and the Fund. The
Distributor receives no fee from the Fund and there are no additional costs to
shareholders for this service. The Advisor may, from its own resources,
defray or absorb costs related to distribution, including compensation of
employees who are involved in distribution.
The Fund does not foresee any disadvantage to Variable Contract owners arising
out of the fact that the Fund offers its shares for products offered by the
<PAGE>Companies which may or may not be affiliated with each other.
Nevertheless, the Fund's Board of Directors intends to monitor events in order
to identify any material irreconcilable conflicts which may possibly arise and
to determine what action, if any, should be taken in response thereto. If
such a conflict were to occur, one or more insurance company separate accounts
might withdraw its investment in the Fund. This might force the Fund to sell
portfolio securities at disadvantageous prices.
NET ASSET VALUE
Each Portfolio calculates the net asset value of a share by dividing the total
value of its assets, less liabilities, by the number of shares outstanding.
Shares are valued as of the closing time of the New York Stock Exchange,
or in the absence of a closing time, 4:00 p.m. Eastern time on each day
the New York Stock Exchange is open for trading.
The net asset value per share is the value of the Portfolios assets, less its
liabilities, divided by the number of shares of the Portfolio outstanding.
The value of each Portfolios portfolio securities will be the market value of
such securities as determined based on quotes provided by a pricing service
(which uses the methodology outlined in the "Net Asset Value" section of the
Statement of Additional Information) approved by the Board of Directors, or,
in the absence of market quotations, fair value as determined in good faith by
or under the direction and control of the Board of Directors. Short-term
investments which mature in less than 60 days are normally valued at amortized
cost. Assets initially expressed in foreign currencies will be converted into
U.S. dollars as of the exchange rates quoted by any major bank. If such
quotes are not available, the exchange rates will be determined in accordance
with policies established in good faith by the Board of Directors. See the
Statement of Additional Information for further information.
PERFORMANCE INFORMATION
Performance information for each of the Portfolios may be presented from time
to time in advertisements and sales literature. The Portfolios may advertise
several types of performance information. These are the "yield," "average
annual total return" and "aggregate total return". Each of these figures is
based upon historical results and is not necessarily representative of the
future performance of any Portfolio.
The yield of a Portfolio's shares is determined by annualizing net investment
income earned per share for a stated period (normally one month or thirty
days) and dividing the result by the net asset value per share at the end of
the valuation period. The average annual total return and aggregate total
return figures measure both the net investment income generated by, and the
effect of any realized or unrealized appreciation or depreciation of the
underlying investments in, the Portfolio's portfolio for the period in
question, assuming the reinvestment of all dividends. Thus, these figures
reflect the change in the value of an investment in a Portfolio's shares
during a specified period. Average annual total return will be quoted for at
least the one, five and ten year periods ending on a recent calendar quarter
(or if such periods have not yet elapsed, at the end of a shorter period
corresponding to the life of the Portfolio). Average annual total return
figures are annualized and, therefore, represent the average annual percentage
change over the period in question. Total return figures are not annualized
and represent the aggregate percentage or dollar value change over the period
<PAGE>question. For more information regarding the computation of yield,
average annual total return and aggregate total return, see "Performance
Information" in the Statement of Additional Information.
Any Fund performance information presented will also include performance
information for the insurance company separate accounts investing in the Fund
which will take into account insurance-related charges and expenses under such
insurance policies and contracts.
Advertisements concerning the Fund may from time to time compare the
performance of one or more Portfolios to various indices. Advertisements may
also contain the performance rankings assigned certain Portfolios or the
Advisor by various publications and statistical services, including, for
example, SEI, Lipper Analytical Services Mutual Funds Survey, Lipper Variable
Insurance Products Performance Analysis Service, Morningstar, Intersec
Research Survey of Non-U.S. Equity Fund Returns, Frank Russell International
Universe, Kiplinger's Personal Finance, and Financial Services Week. Any such
comparisons or rankings are based on past performance and the statistical
computations performed by publications and services, and are not necessarily
indications of future performance. Because the Portfolios are managed
investment vehicles investing in a wide variety of securities, the securities
owned by a Portfolio will not match those making up an index.
TAX STATUS, DIVIDENDS, AND DISTRIBUTIONS
Each Portfolio of the Fund intends to qualify and elect to be treated as a
regulated investment company that is taxed under the rules of Subchapter M of
the Code. As such an electing regulated investment company, a Portfolio will
not be subject to federal income tax on its net ordinary income and net
realized capital gains to the extent such income and gains are distributed to
the separate accounts of the Life Companies which hold its shares. For
further information concerning federal income tax consequences for the holders
of the Variable Contracts of the Life Companies, investors should consult the
prospectus used in connection with the issuance of their Variable Contracts.
Each of the Portfolios will declare and distribute dividends from net ordinary
income at least annually and will distribute its net realized capital gains,
if any, at least annually. Distributions of ordinary income and capital gains
will be made in shares of such Portfolios unless an election is made on behalf
of a separate account to receive distributions in cash. The Life Companies
will be informed at least annually about the amount and character of
distributions from the Fund for federal income tax purposes.
See the Statement of Additional Information for a further discussion of taxes.
GENERAL INFORMATION
The Fund was incorporated on November 1, 1995 as a Maryland corporation. The
Board of Directors may, at its own discretion, create additional series of
shares, each of which would have separate assets and liabilities. As of
April 9., 1997, Variable Account A, a segregated asset account of Keyport Life
Insurance Company, 125 High Street, Boston, MA 02110 owns: 100% of the
Moderate Growth Portfolio; 100% of the Growth Portfolio; 100% of the Maximum
Horizon Portfolio; 100% of the Small Cap Portfolio; 100% of the Equity
Portfolio; and 100% of the Bond Portfolio.
<PAGE>
Fund does not expect to hold annual meetings of shareholders but special
meetings of shareholders may be held under certain circumstances.
Shareholders of the Fund retain the right, under certain circumstances, to
request that a meeting of shareholders be held for the purpose of considering
the removal of a Director from office, and if such a request is made, the Fund
will assist with shareholder communications in connection with the meeting.
The shares of the Fund have equal rights with regard to voting, redemption,
dividends, distributions and liquidations. The Fund's shareholders will vote
in the aggregate and not by Portfolio 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 Portfolio. Income,
direct liabilities and direct operating expenses of a Portfolio will be
allocated directly to the Portfolio, and general liabilities and expenses of
the Fund will be allocated among the Portfolios in proportion to the total net
assets of the Fund 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.
Coopers & Lybrand, L.L.P. has been selected as the independent accountants of
each Portfolio and performs an annual audit of the Portfolios' accounts and
reviews the Fund's tax returns.
Boston Safe Deposit and Trust Company is the Fund's Custodian. The Advisor,
acting as Transfer Agent, maintains its own shareholder account records, and
shareholder inquiries should be directed to Manning & Napier Fund Services,
P.O. Box 40610, Rochester, New York 14604.
APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
Moody's Investors Service, Inc.'s corporate bond ratings:
Aaa - Bonds which are rated Aaa are judged to be of the best quality and carry
the smallest degree of investment risk. Interest payments are protected by a
large or by an exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of
such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
<PAGE>security appear adequate for the present but certain protective elements
may be lacking or may be characteristically unreliable over any great length
of time. Such bonds lack outstanding investment characteristics and in fact
have speculative characteristics as well.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's applies numerical modifiers "1", "2" and "3" to both the Aaa and Aa
rating classifications. The modifier "1" indicates that the security ranks in
the higher end of its generic rating category; the modifier "2" indicates a
mid-range ranking; and the modifier "3" indicates that the issue ranks in the
lower end of its generic rating category.
<PAGE>
<PAGE>
Standard & Poor's Ratings Group's corporate bond ratings:
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only to a small degree.
A - Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than in higher rated categories.
Debt rated BB, B, CCC and CC is regarded, on balance, as predominately
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB indicates the lowest degree
of speculation and CC the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed
by large uncertainties or major risk exposures to adverse conditions.
The C rating is reserved for income bonds on which no interest is being paid.
Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
<PAGE>
<PAGE>
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's Investors Service, Inc.'s commercial paper ratings:
P-1 - Commercial papers which are rated P-1 are judged to have a superior
ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics:
- - -Leading market positions in well-established industries.
- - -High rates of return on funds employed.
- - -Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
- - -Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- - -Well-established access to a range of financial markets and assured sources
of alternate liquidity.
P-2 - Commercial papers which are rated P-2 are judged to have a strong
ability for repayment for senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
P-3 - Commercial papers which are rated P-3 are judged to have an acceptable
ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level
of debt protection measurements and may require relatively high financial
leverage. Adequate alternate liquidity is maintained.
Standard & Poor's Corporation's commercial paper ratings:
A-1 - This is the highest category and indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issuers designated A-1.
A-3 - Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes
in circumstances than obligations carrying the higher designations.
B - Issues rated B are regarded as having only speculative capacity for timely
payment.
C - Commercial papers rated C are assigned to short-term debt obligations with
a doubtful capacity for payment.
D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due, even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.
MANNING & NAPIER INSURANCE FUND, INC.
Statement of Additional Information dated May 1, 1997
This Statement of Additional Information is not a Prospectus, and it should be
read in conjunction with the Fund's Prospectus dated May 1, 1997 ,
copies of which may be obtained from Manning & Napier Advisors, Inc., 1100
Chase Square, Rochester, NY 14604.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Page
- - -----------------------------------------------------------------------------
DEFINITIONS B-1
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS OF THE FUND B-1
RISK AND INVESTMENT POLICIES B-2
INVESTMENT RESTRICTIONS B-15
MANAGEMENT B-17
NET ASSET VALUE B-20
REDEMPTION OF SHARES B-21
TAXES B-21
SPECIAL CONSIDERATIONS B-23
DIVIDENDS AND DISTRIBUTIONS B-23
PERFORMANCE INFORMATION B-23
SHAREHOLDER COMMUNICATIONS B-24
ORGANIZATION AND CAPITALIZATION B-24
FINANCIAL STATEMENTS B-25
</TABLE>
DEFINITIONS
The "Fund" - Manning & Napier Insurance Fund, Inc.
"Advisor" - Manning & Napier Advisors, Inc., The Fund's investment advisor.
INVESTMENT OBJECTIVES, POLICIES AND RESTRICTIONS OF THE FUND
The Fund currently offers shares of beneficial interest of six Portfolios
(the "Portfolios") with separate investment objectives and policies. The
investment objectives and policies of each of the Portfolios of the Fund
are described in the Prospectus. This Statement contains additional
information concerning certain investment practices and investment
restrictions of the Fund.
Except as described below under "Investment Restrictions", the
investment objectives and policies described in the Prospectus and in this
Statement of Additional Information are not fundamental, and the Directors
may change the investment objectives and policies of a Portfolio without an
affirmative vote of shareholders of the Portfolio.
<PAGE> B-1
Except as otherwise noted below, the following descriptions of
certain investment policies and techniques are applicable to all of the
Portfolios.
Convertible bonds purchased by the Portfolios may have a call
feature. Warrants purchased by each Portfolio may or may not be listed on a
national securities exchange. None of the portfolios currently intends to
engage in "short sales against the box". All of the Portfolios' policies
regarding options discussed below are fundamental.
RISK AND INVESTMENT POLICIES
WRITING COVERED CALL AND SECURED PUT OPTIONS
As a means of protecting their assets against market declines, and
in an attempt to earn additional income, each Portfolio may write covered
call option contracts on its securities and may purchase call options
for the purpose of terminating its outstanding obligations with
respect to securities upon which covered call option contracts have been
written.
As described in the Prospectus, when a Portfolio 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
Portfolio 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 Portfolio 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 Portfolio 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.
Each Portfolio will write only covered call options which are traded on
national securities exchanges. Currently, call options on a stock 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, which also serves as the clearing house for
transactions with respect to 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 the Options Clearing Corporation 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.
Each Portfolio may write only covered call options. A call option is
considered to be covered if the option writer owns the security
underlying the call or has an absolute and immediate right to acquire
that security without payment of additional cash consideration (or for
additional cash consideration held in a segregated account by its
custodian) upon conversion or exchange of other securities. A call option
is also considered to be covered if the writer holds on a unit-for-unit
basis a call on the same security as the call written, has the same
expiration date and the exercise price of the call purchased is equal to
or less than the exercise price of the call written or greater than the
exercise price of the call written if the difference is maintained in
cash, Treasury bills or other liquid high grade short-term obligations in
a segregated account with its custodian, and marks the same to market
daily, all in accordance with the rules of the clearing corporations and
of the exchanges and securities laws.
<PAGE> B-2
None of the Portfolios will 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 Portfolio 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 Portfolio 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 Portfolio will realize
a short-term capital gain in the amount of the premium on the option, less
all commissions paid. Such a gain, however, may be offset by a decline in
the value of the underlying security during the option period. If a call
option is exercised, a Portfolio 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 Portfolio, but only to terminate
(entirely or in part) a Portfolio's 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. For example, a Portfolio may enter into a
closing purchase transaction 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 Portfolio may also
permit the call option to be exercised. A closing transaction cannot be
effected with respect to an optioned security once a Portfolio has received
a notice that the option is to be exercised.
The cost to a Portfolio of such a closing transaction may be greater than the
net premium received by a Portfolio 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 Portfolio 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 Portfolio may also write secured put options and enter into closing purchase
transactions with respect to such options. A Portfolio 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.
<PAGE> B-3
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. A separate account is established with the
Fund's custodian with securities consisting of cash or U.S. Government or other
high grade liquid debt obligations equal to the amount of the assets that could
be required to consummate put options. 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 the
Fund.
A put option is secured if a Portfolio maintains in a segregated account with
the Funds Custodian cash or U.S. Government securities in an amount not less
than the exercise price of the option at all times during the option period.
A Portfolio may write secured put options when the Advisor wishes to
purchase the underlying security for a Portfolio's portfolio at a price
lower than the current market price of the security. In such event a
portfolio 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
interest earned on the amount held in U.S. Government securities 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 interest earned on the amount
held in U.S. Government securities.
A Portfolio 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 Portfolio 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 Portfolio 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 Portfolio 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 Portfolio,
will be reduced by the amount of premium paid for the put option. At the same
time, a Portfolio will continue to own the security. Should the security
decline in value below the exercise price of the put option, however, a
Portfolio may elect to exercise the option and "put" or sell the security to
the party that sold the put option to that Portfolio, at the exercise price.
In this case a Portfolio would have a higher return on the security than
would have been possible if a put option had not been purchased.
<PAGE> B-4
CERTAIN RISK AND OTHER FACTORS RESPECTING OPTIONS
As stated in the Prospectus, positions in options on securities may be closed
only by a closing transaction, which may be made only on an exchange which
provides a liquid secondary market for such options. Although a Portfolio will
write options only when the Advisor believes a liquid secondary market will
exist on an exchange for options of the same Portfolio, 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 Portfolio may not be able to close an option position, which will
prevent that Portfolio 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 cash or U.S. Government securities
as security for the put option for other investment purposes until the exercise
or expiration of the option.
Possible reasons for the absence of a liquid secondary market on an exchange
for an option include the following: (a) insufficient trading interest in
certain options; (b) restrictions on transactions imposed by an exchange;
(c) trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities; (d)
inadequacy of the facilities of an exchange or the Options Clearing Corporation
to handle trading volume; or (e) a decision by one or more exchanges to
discontinue the trading of options or impose restrictions on types of orders.
Each of the exchanges on which options on securities are traded has
established limitations on the number of options which may be written by any
one investor or group of investors. These limitations apply regardless of
whether the options are written in different accounts or through different
brokers. It is possible that a Portfolio and certain other accounts managed by
the Advisor may constitute such a group. If so, the options positions of the
Portfolio may be aggregated with those of other clients of the Advisor.
When the Portfolio writes an over-the-counter ("OTC") option, it will enter
into a arrangement with a primary U.S. government securities dealer, which
would establish a formula price at which the Portfolio would have the absolute
right to repurchase that OTC option. This formula price would generally be
based on a multiple of the premium received for the option, plus the amount by
which the option is exercisable below the marked price of the underlying
security ("in-the-money"). For an OTC option the Fund writes, it will treat as
illiquid (for purposes of the 15% of net assets restriction on illiquid
securities, stated in the Prospectus) an amount of assets used to cover written
OTC options, equal to the formula price for the repurchase of the OTC option
less the amount by which the OTC option is "in-the-money". The Fund will also
treat as illiquid any OTC option held by it. The Securities and Exchange
Commission 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
Options Clearing Corporation 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 Options Clearing
Corporation 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.
<PAGE> B-5
Each Portfolio will pay brokerage and other transaction costs to write and
purchase options on securities, including any closing transactions which the
Portfolio may execute. A Portfolio's program of writing and/or purchasing
such options with respect to as much of its portfolio as possible will
increase the transaction costs borne by the Portfolio.
STOCK INDEX FUTURES CONTRACTS AND OPTIONS ON STOCK INDEX FUTURES CONTRACTS
Each Portfolio, except for the Bond Portfolio, may enter into Stock Index
Futures Contracts to provide a hedge for a portion of the Portfolio's
portfolio, as a cash management tool, or as an efficient way to implement
either an increase or decrease in portfolio market exposure in response to
changing market conditions. A Portfolio may also use Index Futures as a
substitute of a 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 a Portfolio's portfolio,
a Portfolio may be able to do so more effectively and, perhaps, 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.
Each Portfolio intends to purchase and sell futures contracts on the stock
index for which it can obtain the best price with consideration also given
to liquidity.
A Portfolio 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 the Commodity Futures Trading
Commission (CFTC) rules would exceed 5% of the liquidation value of the
Portfolio's 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 Portfolio's portfolio.
Each Fund will comply with guidelines established by the Securities and
Exchange Commission with respect to covering of obligations under future
contracts and will set aside cash and/or liquid high grade securities in a
segregated account with the Funds custodian in the amount prescribed.
Unlike when the Portfolios purchase or sell an equity security, no price would
be paid or received by the Portfolios upon the purchase or sale of a Stock
Index Futures Contract. Upon entering into a Futures Contract, the Portfolio
would be required to deposit with the Funds custodian in a segregated account
in the name of the futures broker an amount of cash or U.S. Treasury bills
known as "initial margin". The amount of initial margin required by the
rules of the exchanges is subject to change. The nature of initial margin
in futures transactions is different from that of margin in security
transactions in that a Futures Contract margin does not involve the
borrowing of Funds by the Portfolio to finance the transactions. Rather,
nitial margin is in the nature of a performance bond or good faith deposit
on the contract that is returned to the Portfolio upon termination of the
futures contract, assuming all contractual obligations have been satisfied.
Subsequent payments, called "variation margin", to and from the futures
<PAGE> B-6
broker, would be 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 the market". For example,
when the Portfolio has purchased a Stock Index Futures Contract and the price
of that underlying stock index has risen, that futures position will have
increased in value and the Portfolio will receive from the broker a variation
margin payment equal to that increase in value. Conversely, when the Portfolio
has purchased a Stock Index Futures Contract and the price of the stock index
has declined, the position would be less valuable and the Portfolio would be
required to make a variation margin payment to the broker.
A Portfolio 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 Portfolio may, however, purchase or sell Stock Index
Futures Contracts with respect to any stock index. Nevertheless, to hedge a
Portfolio's 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
Portfolio's 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 the identical securities and
the same delivery date. If the offsetting purchase price is less than the
original sale price, the Portfolio realizes a gain; if it is more, the
Portfolio realizes a loss. Conversely, if the offsetting sale price is more
than the original purchase price, the Portfolio realizes a gain; if it is less,
the Portfolio realizes a loss. The Portfolios 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 Portfolios are not able to enter into an
offsetting transaction, the Portfolios will continue to be required to maintain
the margin deposits on the Stock Index Futures Contract.
The Portfolios may elect to close out some or all of their futures positions
at any time prior to their 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
Portfolios may close their positions by taking opposite positions which would
operate to terminate the Portfolios' 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 Portfolio, and
the Portfolio 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 Portfolios
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 Portfolio 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 Portfolio 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 Portfolios of Stock
<PAGE> B-7
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 Portfolio's
portfolio securities sought to be hedged.
Successful use of Stock Index Futures Contracts by the Portfolios 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
Portfolios 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 Portfolio's portfolio might
decline. If this were to occur, the Portfolio 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 Portfolio's 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 Portfolios 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 Portfolios 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 Portfolios 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). The Portfolios 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, and as a result the futures market might
attract more speculators than the stock market does. Increased
participation by speculators in the futures market might also cause
temporary price distortions. 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 the premium
paid, to assume a position in a Futures Contract (a long position if
the option is call and a short position if the option is a put),
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,
<PAGE> B-8
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 Portfolios may seek to close out an option position on an index by writing
or buying an offsetting option covering the same index or contract and
having the same exercise price and expiration date. The ability to
establish and close out positions on such options will be subject to the
development and maintenance of a liquid secondary market. It is not
certain that this market will develop. Reasons for the absence of a liquid
secondary market on an exchange include the following: (i) there may be
insufficient trading in certain options; (ii) restrictions may be imposed
by an exchange on opening transactions or closing transactions or both;
(iii) trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of options, or underlying
securities; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which
event the secondary market on that exchange would cease to exist, although
outstanding options on the exchange that had been issued by a clearing
corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms. There is no assurance that
higher than anticipated trading activity or other unforeseen events might
not, at times, render certain of the facilities of any of the clearing
corporations inadequate, and thereby result in the institution by an
exchange of special procedures which may interfere with timely execution
of customers' orders.
FUTURES ON SECURITIES
A futures contract on a security is a binding contractual commitment which, if
held to maturity, will result in an obligation to make or accept delivery,
during a particular month, of securities having a standardized face value
and rate of return. By purchasing futures on securities, a Portfolio 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 Portfolio's futures
contracts on securities will usually be liquidated in this manner,
it may instead make or take delivery of the underlying securities
whenever it appears economically advantageous for the Portfolio to
do so. 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 Portfolio is authorized to enter into forward
foreign currency exchange contracts. In addition, each Portfolio 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
<PAGE> B-9
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
Portfolio to establish a rate of exchange for a future point in time.
A Portfolio 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 Portfolio 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 Portfolio 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 Portfolio 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 Portfolio consisting of cash or liquid securities
equal to the amount of that Portfolio's assets that would be required to
consummate forward contracts entered into under the second circumstance, as
set forth above, will be established with the Fund's custodian. For the
purpose of determining the adequacy of the securities in the account, the
deposited securities will be valued at market or fair value. If the market
or
fair value of such securities declines, additional cash or securities will be
placed in the account daily so that the value of the account will equal
the amount of such commitments by such Portfolios.
CURRENCY FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
Each Portfolio 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 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 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 a Portfolio or adversely affect the prices
of securities which a Portfolio intends to purchase at a later date.
Such instruments will be used only in connection with permitted
transaction or
<PAGE> B-10
position hedging and not for speculative purposes. 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 a
Portfolio's 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 a Portfolio's
portfolio. The Fund will comply with guidelines established by the
Securities and Exchange Commission with respect to covering of
obligations under future contracts and will set aside cash and/or
liquid high grade securities in a segregated account with its
custodian in the amount prescribed.
Although the Portfolios 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 Portfolio's 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 in that, 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 the hedge.
Brokerage fees are incurred when a futures contract is bought or sold and
margin deposits must be maintained. 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 Portfolio realizes a gain; if it is
more, a
Portfolio realizes a loss. Conversely, if the offsetting sale price is more
than the original purchase price, a Portfolio realizes a gain; if it
is less, a Portfolio realizes a loss. The transaction costs must
also be included in these calculations. There can be no assurance,
however, that a Portfolio will be able to enter into an offsetting
transaction with respect to a particular contract at a particular
time. If a Portfolio is not able to enter into an offsetting
transaction, a Portfolio 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 this market will develop. Reasons for the absence of a
liquid secondary market on an exchange include the following: (i)
there may be insufficient trading in certain options; (ii)
restrictions may be imposed by an exchange on opening transactions
or closing transactions or both; (iii) trading halts, suspensions or
other restrictions may be imposed with respect to particular classes
or series of options, or underlying securities;(iv) unusual or
unforeseen circumstances may interrupt normal operations on an
exchange; (v) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle current
trading volume; or (vi) one or more exchanges could, for economic or
other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class or series
of options), in which event the secondary market on that exchange
would cease to exist, although outstanding options on the exchange
that had been issued by a clearing corporation as a result of trades
on that exchange would continue to be exercisable in accordance with
their terms. There is no assurance that higher than anticipated
trading activity or other unforeseen events might not, at times,
render certain of the facilities of any of the clearing corporations
inadequate, and thereby result in the institution by an exchange of
special
procedures which may interfere with timely execution of customers' orders.
<PAGE> B-11
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 the option is a call and a short position if the option is a
put) 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 the option is a call and a long
position if the option is a put). 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 Portfolios 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 cash or liquid securities in a segregated account to
fulfill the obligations undertaken by the futures contract. A put option
sold by the Portfolio is covered when, among other things, cash or liquid
securities are placed in a segregated account to fulfill the obligations
undertaken.
FOREIGN CURRENCY OPTIONS
Each Portfolio is authorized to purchase and write put and call options on
foreign currencies. A call option is a short-term contract pursuant to
which the purchaser, in return for a premium, has the right to buy the
currency
underlying the option at a specified price at any time during the term of the
option. The writer of the call option, who receives the premium,
has the obligation, upon exercise of the option during the option
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
Portfolio will use currency options only in order 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 of those
factors which influence foreign exchange rates and investments
generally.
OBLIGATIONS OF SUPRANATIONAL AGENCIES
Currently, the Bond Portfolio and the Equity Portfolio may purchase securities
issued or guaranteed by supranational agencies including, but not
limited to, the following: Asian Development Bank, Inter-American
Development Bank, International Bank for Reconstruction and
Development (World Bank), African Development Bank, European Coal
and Steel Community, European Economic Community, European
Investment Bank and the Nordic Investment Bank. For concentration
purposes, supranational entities are considered an industry.
U.S. GOVERNMENT SECURITIES
Each Portfolio 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
<PAGE> B-12
of the United States, Small Business Administration, Governmental National
Mortgage Association, General Services Administration, Central Bank for
Cooperatives, Federal Home Loan Banks, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks, Federal Land Banks,
Maritime Administration, the Tennessee Valley Authority, District of
Columbia Armory Board and the Student Loan Marketing Association.
Obligations of U.S. Government agencies and instrumentalities may or may not
be supported by the full faith and credit of the United States.
Some are backed by the right of the issuer to borrow from the U.S.
Treasury; others by discretionary authority of the U.S. Government
to purchase the agencies' obligations; while still others, such as
the Student Loan Marketing Association, are supported only by the
credit of the instrumentality. In the case of securities not
backed by the full faith and credit of the United States, the
investor must look principally to the agency or instrumentality
issuing or guaranteeing the obligation for ultimate repayment, and
may not be able to assert a claim against the United States itself
in the event the agency or instrumentality does not meet its
commitment. A Portfolio will invest in securities of such
instrumentality only when the Advisor is satisfied that the credit
risk with respect to any instrumentality is minimal.
MORTGAGE-BACKED SECURITIES
Each Portfolio may invest in mortgage-backed securities issued or guaranteed
by U.S. Government agencies or instrumentalities such as the Government
National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA"), 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 FNMA 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 Portfolio 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, Inc. ("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
<PAGE> B-13
flow generated from the mortgage collateral pool is dedicated to bond
repayment), and mortgage-backed bonds (general obligations of the issuers
payable out of the issuer's general funds and additionally secured by a
first lien on a pool of single family detached properties). Many CMOs are
issued with a number of classes or series which have different maturities
and are retired in sequence. Investors purchasing such CMOs in the
shortest maturities receive or are credited with their pro rata portion
of the scheduled payments of interest and principal on the underlying
mortgages plus all unscheduled prepayments of principal up to a
predetermined portion of the total CMO obligation. Until that portion of
such CMO obligation is repaid, investors in the longer maturities receive
interest only. Accordingly, the CMOs in the longer maturity series are
less likely than other mortgage pass-throughs to be prepaid prior to
their stated maturity. Although some of the mortgages underlying CMOs may
be supported by various types of insurance, and some CMOs may be backed
by GNMA certificates of other mortgage pass-throughs issued or guaranteed
by U.S. Government agencies or instrumentalities, the CMOs themselves are
not generally guaranteed.
REMICs, which were authorized under the Tax Reform Act of 1986, are private
entities formed for the purpose of holding a fixed pool of mortgages secured
by an interest in real property. REMICs are similar to CMOs in that they issue
multiple classes of securities.
CONVERTIBLE SECURITIES
Convertible Securities in which the Portfolios invest may be converted at
either a stated price or stated rate into underlying shares of common stock
thus enabling the investor to benefit from increases in the market price of
the common stock. Convertible securities provide higher yields than the
underlying equity, but generally offer lower yields than non-convertible
securities of similar quality. Like bonds, the value of convertible securities
fluctuates in relation to changes in interest rates and, in addition, also
fluctuates in relation to the underlying common stock.
WARRANTS
Warrants may be considered more speculative than certain other types of
investments because they (1) do not carry rights to dividends or voting rights
with respect to the securities which they entitle the holder to purchase, and
(2) do not represent any rights in the assets of the issuer.
INVESTMENT IN RESTRICTED SECURITIES
Each Portfolio may invest in "restricted securities" subject to the 15% of net
assets limitation regarding illiquid securities. Restricted securities are
securities which were originally sold in private placements and which have not
been registered under the Securities Act of 1933, as amended (the "1933 Act").
Such securities generally have been considered illiquid because they may be
resold only subject to statutory restrictions and delays or if registered
under the 1933 Act. The Securities and Exchange Commission ("SEC") adopted
Rule 144A to provide for a safe harbor exemption from the registration
requirements of the 1933 Act for resales of restricted securities to
"qualified institutional buyers". The result has been the development of a
more liquid and efficient institutional resale market for restricted
securities. Rule 144A securities may be liquid if properly determined by the
Board of Directors.
The expenses of registration of restricted securities will be negotiated at
the time the securities are purchased by a Portfolio. When registration is
required, a considerable period may elapse between a decision to sell the
securities and the time the sale would be permitted. Thus, a Portfolio may not
be able to obtain as favorable a price as that prevailing at the time of the
<PAGE> B-14
decision to sell. A Portfolio may also acquire through private placements
securities having contractual resale restrictions, which might prevent the
sale of such securities at a time when such a sale otherwise would be
desirable.
INVESTMENT RESTRICTIONS
The following investment restrictions are fundamental and may not be changed
with respect to any Portfolio without the approval of a majority of the
outstanding voting securities of that Portfolio. Under the Investment Company
Act of 1940 and the rules thereunder, "majority of the outstanding voting
securities" of a Portfolio means the lesser of (1) 67% of the shares of that
Portfolio present at a meeting if the holders of more than 50% of the
outstanding shares of that Portfolio are present in person or by proxy, and
(2) more than 50% of the outstanding shares of that Portfolio. Any investment
restrictions which involve a maximum percentage of securities or assets shall
not be considered to be violated unless an excess over the percentage occurs
immediately after, and is caused by, an acquisition or encumbrance of
securities or assets of, or borrowings by or on behalf of, a Portfolio, as the
case may be.
The Fund may not, on behalf of a Portfolio:
1. Purchase securities on margin (but a Portfolio may obtain such
short-term credits as may be necessary for the clearance of transactions);
2. Make short sales of securities or maintain a short position, unless
at all times when a short position is open it owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short (short sale "against-the-box"), and
unless not more than 25% of a Portfolio's net assets (taken at a current
value) are held as collateral for such sales at any one time;
3. Issue senior securities or pledge its assets, except that each
Portfolio may invest in futures contracts and related options;
4. Buy or sell commodities or commodity contracts, provided that each
Portfolio may enter into all types of futures and forward contracts on
currency, securities, economic and other indices and may purchase and sell
options on such futures contracts, or buy or sell real estate or interests in
real estate, although it may purchase and sell securities which are secured by
real estate and securities of companies which invest or deal in real estate.
5. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter
under certain federal securities laws;
6. Make investments for the purpose of exercising control or management;
7. Participate on a joint or joint and several basis in any trading
account in securities;
8. Under the Investment Company Act of 1940 and the rules and
regulations thereunder, each Portfolio is prohibited from acquiring the
securities of other investment companies if, as a result of such acquisition,
such Portfolio will own more than 3% of the total voting stock of the company;
securities issued by any one investment company will represent more than 5% of
its total assets; or securities (other than treasury stock) issued by all
investment companies will represent more than 10% of the total assets of a
Portfolio. These investment companies typically incur fees that are separate
from those fees incurred directly by the Portfolio. A Portfolio's purchase of
B-12
such investment companies would indirectly bear a proportionate share of the
operating expenses of such investment companies, including advisory fees. The
Portfolios will not purchase or retain securities issued by open-end
investment companies (other than money market funds for temporary investment).
9. Invest in interests in oil, gas or other mineral exploration or
development programs, although it may invest in the common stocks of companies
which invest in or sponsor such programs;
10. Purchase foreign securities if as a result of the purchase of such
securities more than 25% of a Portfolio's 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.
11. The Portfolio's investment policies with respect to options and with
respect to stock and currency futures and options on either are subject to the
following fundamental limitations: (1) with respect to any Portfolio, the
aggregate value of the securities underlying calls or obligations underlying
puts determined as of the date options are sold shall not exceed 25% of the
assets of the Portfolio; (2) a Portfolio 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 Portfolio; (3) the aggregate margin deposits required on all futures or
options thereon held at any time by a Portfolio will not exceed 5% of the
total assets of the Portfolio; (4) the security underlying the put or call is
within the investment policies of each Portfolio and the option is issued by
the Options Clearing Corporation; and (5) the Portfolio 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.
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. The Fund
expects that its turnover rate generally 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.
MANAGEMENT
<TABLE>
<CAPTION>
The Directors and officers of the Fund are:
<S> <C> <C>
Name, address and age Position Principal occupations
- - --------------------------------------------------------------------
with Fund During past five years
----------- ----------------------------------
B. Reuben Auspitz* President & Executive Vice President, Manning
1100 Chase Square Director & Napier Advisors, Inc. since
Rochester, NY 14604 1983; Vice President, Manning &
DOB: 3/18/47 Napier Fund, Inc. since 1985;
President and Director, Manning &
Napier Investor Services, Inc.
since 1990; Director, President
and Treasurer, Manning &
Napier Advisory Advantage
Corporation since 1990; Director,
Manning & Napier Leveraged
Investment Co. since 1994;
Director and Chairman of the
Board, Exeter Trust Co. since
1994; Member, Fiduciary Services,
L.L.C. since 1995; Member, Manning
& Napier Associates, L.L.C. since
1995;
Member, Manning & Napier Capital
Co., L.L.C. since 1995
Martin Birmingham Director Trustee, The Freedom Forum since
1600 Chase Square 1980; Director, Manning & Napier
Rochester, NY 14604 Fund, Inc. since 1994; Director
DOB: 10/30/21 Emeritus, ACC Corporation since
1994
Stephen B. Ashley Director Chairman and Chief Executive
600 Powers Building Officer
16 West Main Street Sibley Real Estate Services, Inc.
Rochester, NY 14604 since 1975; Chairman and Chief
DOB: 03/22/40 Executive Officer, Sibley Mortgage
Corp. from 1975 - 1996 ;
Director,Genesee Corp. since 1987;
Director,Hahn Automotive since
1994;Director, Fannie Mae since
1995;Director, Manning & Napier
Manning & Napier Leveraged Fund, Inc.
since 1996; Chairman Investment Co.
since 1994;and Chief Executive Officer,
The Director and Chairman of the Ashley
Group since 1997.
Board, Exeter Trust Co. since
Harris H. Rusitzky Director Formerly Director and Corporate
One Grove Street Executive, Serv-Rite Corporation
Pittsford, NY 14534 from 1965-1994; Director, Manning
DOB: 1/9/35 & Napier Fund, Inc. since 1985;
President, Blimpie of Central New
York and The Greening Group since
1994
Peter L. Faber* Director Former Partner, Kaye, Scholer,
1211 Avenue of the Fierman, Hays & Handler from 1984-
Americas 1995; Director, Manning & Napier
New York, New York 10036 Fund, Inc. since 1987; Partner,
DOB: 4/29/38 McDermott, Will & Emery since 1995
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Jodi Hedberg
Corporate
Administrative Clerk, Manning &
1100 Chase Square Secretary Napier Advisors, Inc. from 1/90 -
Rochester, New York[/R] 5/90; Reconciler, Manning & Napier
Advisors, Inc. from 5/90 - 3/91;
Compliance Administrator, Manning &
Napier Advisors, Inc., Manning &
Napier Advisory Advantage
Corporation, Manning & Napier Fund,
Inc., and Manning & Napier Investor
Services, Inc. from 4/91 - 11/94;
Senior Compliance Administrator,
Manning & Napier Advisors, Inc.,
Manning & Napier Advisory Advantage
Corporation, Manning & Napier Fund,
Inc., Manning & Napier Investor
Services, Inc. and Manning & Napier
Leveraged Investing Company, Inc.
from 11/94 - 11/95; Compliance
Manager, Manning & Napier Advisors,
Inc., Manning & Napier Fund, Inc.,
Manning & Napier Investor Services,
Inc., Manning & Napier Advisory
Advantage Corporation and Manning &
Napier Leveraged Investing Company
since 1995.[/R]
Timothy P. Mullaney, CPA Treasurer & Senior Tax Associate, Coopers &
1100 Chase Square Chief Lybrand L.L.P. from 1990-1994; Tax
Rochester, NY 14604 Financial Manager, Investors Bank & Trust
DOB: 1/29/68 Officer from 1/94 - 7/94; Mutual Fund
Chief Financial Officer, Manning &
Napier Advisors, Inc. since 1994
</TABLE>
* Interested Director of the Fund within the meaning of the Investment
Company Act of 1940 (the "1940 Act").
The only Committee of the Corporation is an Audit Committee whose members are
B. Reuben Auspitz, Harris H. Rusitzky and Stephen B. Ashley .
Directors affiliated with the Advisor do not receive fees from the Fund. Mr.
Faber is deemed to be an interested person of the investment advisor because
his firm provides legal services to the Advisor. Each Director who is not
affiliated with the Advisor shall receive an annual fee of $2,500. Annual
fees will be calculated monthly and prorated. Each Director who is not
affiliated with the Advisor shall receive $375 per Board Meeting attended for
each active Portfolio of the Fund, plus $500 for any Committee Meeting held on
a day on which a Board Meeting is not held.
<TABLE>
<CAPTION>
COMPENSATION TABLE for Fiscal Year Ended December 31, 1996
- - ----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Name Position Aggregate Pensi Est. Total
- - ---------------------------------------------------------- ---------- ----------- ----- ---------- -------------
from Compensati on Annual Compensation
---------- ----------- ----- ---------- -------------
Registrant on Benefits from
---------- ----------- ---------- -------------
upon Registrant
---------- -------------
Retirement
----------
B. Reuben Director $ -0- N/A N/A $ -0-
- - ---------------------------------------------------------- ---------- ----------- ----- ---------- -------------
Auspitz*
- - ----------------------------------------------------------
Martin Director $ 2,875 N/A N/A $ 2,875
- - ---------------------------------------------------------- ---------- ----------- ----- ---------- -------------
Birmingham
- - ----------------------------------------------------------
Harris H. Director $ 2,875 N/A N/A $ 2,875
- - ---------------------------------------------------------- ---------- ----------- ----- ---------- -------------
Rusitzky
- - ----------------------------------------------------------
Peter L. Director $ 2,875 N/A N/A $ 2,875
- - ---------------------------------------------------------- ---------- ----------- ----- ---------- -------------
Faber*
- - ----------------------------------------------------------
Stephen B. Director $ 2,875 N/A N/A $ 2,875
- - ---------------------------------------------------------- ---------- ----------- ----- ---------- -------------
Ashley
- - ----------------------------------------------------------
</TABLE>
THE ADVISOR
Manning & Napier Advisors, Inc. ("Advisor") acts as the Fund's investment
advisor. For the services performed, each Portfolio pays the Advisor a fee as
set forth in the Prospectus.
The Investment Advisory Agreement (the Agreement) between the Fund and the
Advisor states that the Advisor shall give the Fund the benefit of its best
judgment and effort in rendering services thereunder, but the Advisor shall
not be liable for any loss sustained by reason of the purchase, sale or
retention of any security, whether or not such purchase, sale or retention
shall have been based upon its own investigation and research or upon
<PAGE> B-15
investigation and research made by any other individual, firm or corporation,
if such purchase, sale or retention shall have been made and such other
individual, firm or corporation shall have been selected in good faith. The
Agreement also states that nothing contained therein shall, however, be
construed to protect the Advisor against any liability to the Fund or its
security holders by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of its reckless
disregard of its obligations and duties under the Agreement.
In the Agreement, the Fund agrees that the words "Manning & Napier" in its
name are derived from the name of the Advisor and are the property of the
Advisor for copyright and all other purposes and that therefore such words may
be freely used by the Advisor as to other investment companies or other
investment products; the Fund further agrees that, in the event that the
Advisor ceases to be the Fund's investment advisor for any reason, the Fund
will (unless the Advisor otherwise consents in writing) promptly take all
necessary steps to change its name to a name not including the words "Manning
& Napier". The Agreement also provides that it is agreed that the Advisor
shall have no responsibility or liability for the accuracy or completeness of
the Fund's Registration Statement under the 1940 Act or the Securities Act of
1933 except for information supplied by the Advisor for inclusion therein; the
Fund agrees to indemnify the Advisor to the full extent permitted by the
Fund's Articles of Incorporation. The Advisor is the Fund's Transfer Agent.
Manning & Napier Investor Services, Inc., acts as Distributor of the Fund
shares and is located at the same address as the Advisor and the Fund. There
will be no additional costs for this service.
CUSTODIAN AND INDEPENDENT ACCOUNTANT
The custodian is Boston Safe Deposit and Trust Company, One Cabot Road, 3rd
Floor, Medford, MA 02155-5159. Boston Safe Deposit and Trust Company may, at
its own expense, employ a sub-custodian on behalf of the foreign securities
held by the Fund, provided that Boston Safe Deposit and Trust Company shall
remain liable for all its duties as custodian. The Fund's independent
accountants are Coopers & Lybrand, L.L.P., One Post Office Square, Boston, MA
02109.
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 Portfolios of the Fund by
placing purchase and sale orders for the Fund, the Advisor shall select such
broker-dealers ("brokers") as shall, in the Advisor's judgment, implement the
policy of the Fund to achieve "best execution", i.e., prompt and efficient
execution at the most favorable securities price. In making such selection,
the Advisor is authorized in the Agreement to consider the reliability,
integrity and financial condition of the broker, the size and difficulty in
executing the order and the value of the expected contribution of the broker
to the investment performance of the Fund on a continuing basis. The Advisor
is also authorized to consider whether a broker provides brokerage and/or
research services to the Fund and/or other accounts of the Advisor. The Fund
understands that a substantial amount of its portfolio transactions may be
transacted with primary market makers acting as principal on a net basis, with
no brokerage commissions being paid by the Fund. Such principal transactions
may, however, result in a profit to market makers. In certain instances the
Advisor may make purchases of underwritten issues for the Fund at prices which
include underwriting fees. The Agreement states that the commissions paid to
such brokers may be higher than another broker would have charged if a good
faith determination is made by the Advisor that the commission is reasonable
in relation to the services provided, viewed in terms of either that
particular transaction or the Advisor's overall responsibilities as to the
<PAGE> B-16
accounts as to which it exercises investment discretion and that the Advisor
shall use its judgment in determining that the amount of commissions paid is
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 therefor.
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.
NET ASSET VALUE
The net asset value is determined on each day that the New York Stock Exchange
is open for trading. In determining the net asset value of the Fund's shares,
common stocks that are listed on national securities exchanges or the NASDAQ
National Market System are valued at the last sale price on the exchange on
which each stock is principally traded as of the close of the New York Stock
Exchange (which is currently 4:00 p.m., Eastern time), or, in the absence of
recorded sales, at the closing bid prices on such exchanges or on such System.
Unlisted securities that are not included in such NASDAQ are valued at the
quoted bid prices in the over-the-counter market. All securities initially
expressed in foreign currencies will be converted to U.S. dollars at the
exchange rates quoted at the close of the New York markets. Short securities
positions are accounted for at value, using the same method of valuation
described above. Securities and other assets for which market quotations are
not readily available are valued by appraisal at their fair value as
determined in good faith by the Advisor under procedures established by and
under the general supervision and responsibility of the Fund's Board of
Directors. The Advisor may use a pricing service to obtain the value of the
Fund's portfolio securities where the prices provided by such pricing service
are believed to reflect the fair market value of such securities. The methods
used by the pricing service and the valuations so established will be reviewed
by the Advisor under the general supervision of the Fund's Board of Directors.
Several pricing services are available, one or more of which may be used as
approved by the Fund's Board of Directors.
REDEMPTION OF SHARES
PAYMENT FOR SHARES REDEEMED
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.
<PAGE> B-17
REDEMPTION IN KIND
If the Board of Directors determines that it would be detrimental to the best
interests of the remaining shareholders of the Fund to make payment wholly or
partly in cash, the Fund may pay the redemption price in whole or in part by a
distribution in kind of securities from the portfolio of the Fund, in lieu of
cash in conformity with applicable rules of the Securities and Exchange
Commission. The Fund, however, has elected to be governed by Rule 18f-1 under
the 1940 Act pursuant to which the Portfolio is obligated to redeem shares
solely in cash up to the lesser of $250,000 or one per cent of the net asset
value of the Fund during any 90 day period for any one shareholder. Should
redemptions by any shareholder exceed such limitation, the Fund will have the
option of redeeming the excess in cash or in kind. If shares are redeemed in
kind, the redeeming shareholder might incur brokerage costs in converting the
assets into cash.
TAXES
Each Portfolio of the Fund intends to qualify each year and elect to be taxed
as a regulated investment company under Subchapter M of the United States
Internal Revenue Code of 1986, as amended (the "Code").
As a regulated investment company qualifying to have its tax liability
determined under Subchapter M, a Portfolio will not be subject to federal
income tax on any of its net investment income or net realized capital gains
that are distributed to the separate accounts of the Life Companies.
In order to qualify as a "regulated investment company," a Portfolio must,
among other things, (a) derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, gains from the
sale or other disposition of stock, securities, or foreign currencies, and
other income (including gains from options, futures, or forward contracts)
derived with respect to its business of investing in such stock, securities,
or currencies; (b) derive less than 30% of its gross income from the sale or
other disposition of certain assets (including stock and securities) held less
than three months; (c) diversify its holdings so that, at the close of each
quarter of its taxable year, (i) at least 50% of the value of its total assets
consists of cash, cash items, U.S. Government Securities, and other securities
limited generally with respect to any one issuer to not more than 5% of the
total assets of the Portfolio and not more than 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 issuer (other than U.S. Government
Securities). In order to receive the favorable tax treatment accorded
regulated investment companies and their shareholders, moreover, a Portfolio
must in general distribute at least 90% of its interest, dividends, net
short-term capital gains, and certain other income each year.
With respect to investment income and gains received by a Portfolio from
sources outside the United States, such income and gains may be subject to
foreign taxes which are withheld at the source. The effective rate of foreign
taxes in which a Portfolio will be subject depends on the specific countries
in which its assets will be invested and the extent of the assets invested in
each such country and therefore cannot be determined in advance.
A Portfolio's ability to use options, futures, and forward contracts and other
hedging techniques, and to engage in certain other transactions, may be
limited by tax considerations. A Portfolio's transactions in
foreign-currency-denominated debt instruments and its hedging activities will
likely produce a difference between its book income and its taxable income.
This difference may cause a portion of the Portfolio's distributions of book
income to constitute returns of capital for tax purposes or require the
Portfolio to
make distributions exceeding book income in order to permit the Portfolio to
<PAGE> B-18
continue to qualify, and be taxed under Subchapter M of the Code, as a
regulated investment company.
Under federal income tax law, a portion of the difference between the purchase
price of zero-coupon securities in which a Portfolio has invested and their
face value ("original issue discount") is considered to be income to the
Portfolio each year, even though the Portfolio will not receive cash interest
payments from these securities. This original issue discount (imputed income)
will comprise a part of the net investment income of the Portfolio which must
be distributed to shareholders in order to maintain the qualification of the
Portfolio as a regulated investment company and to avoid federal income tax at
the level of the Portfolio.
It is the policy of each of the Portfolios to meet the requirements of the
Code to qualify as a regulated investment company that is taxed pursuant to
Subchapter M of the Code. One of these requirements is that less than 30% of a
Portfolio's gross income must be derived from gains from sale or other
disposition of securities held for less than three months (with special rules
applying to so-called designated hedges). Accordingly, a Portfolio will be
restricted in selling securities held or considered under Code rules to have
been held less than three months, and in engaging in hedging or other
activities (including entering into options, futures, or short-sale
transactions) which may cause the Fund's holding period in certain of its
assets to be less than three months. This discussion of the federal income tax
and state tax treatment of the Fund and its shareholders is based on the law
as of the date of this Statement of Additional Information. It does not
describe in any respect the tax treatment of any insurance or other product
pursuant to which investments in the Fund may be made.
SPECIAL CONSIDERATIONS
The Portfolios serve as the underlying investments for Variable Contracts
issued through separate accounts of the Life Companies which may or may not be
affiliated.
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of segregated asset accounts that fund contracts such as the
Variable Contracts, which are in addition to the diversification requirements
imposed on the Portfolios by the 1940 Act and Subchapter M. Failure to satisfy
those standards would result in imposition of federal income tax on a Variable
Contract owner with respect to earnings allocable to the Variable Contract
prior to the receipt of payments thereunder. Section 817(h)(2) provides that a
segregated asset account that funds contracts such as the Variable Contracts
is treated as meeting the diversification standards if, as of the close of
each quarter, the assets in the account meet the diversification requirements
for a regulated investment company and no more than 55% of those assets
consist of cash, cash items, U.S. Government securities and securities of
other regulated investment companies. There is an exception for securities
issued by the Treasury Department in connection with variable life insurance
policies.
The Treasury Regulations amplify the diversification standards set forth in
Section 817(h) and provide an alternative to the provision described above.
Under the regulations, an investment portfolio will be deemed adequately
diversified if (i) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (ii) no more than 70% of such
value is represented by any two investments; (iii) no more than 80% of such
value is represented by any three investments; and (iv) no more than 90% of
such value is represented by any four investments. For purposes of these
Regulations all securities of the same issuer are treated as a single
investment, and each United States government agency or instrumentality shall
be treated as a separate issuer.
<PAGE> B-19
Each Portfolio will be managed in such a manner as to comply with these
diversification requirements. It is possible that, in order to comply with
these requirements, less desirable investment decisions may be made which
would affect the investment performance of a Portfolio.
DIVIDENDS AND DISTRIBUTIONS
Each of the Portfolios will declare and distribute dividends from net
investment income, if any, and will distribute its net realized capital gains,
if any, at least annually. Both dividends and capital gain distributions will
be made in shares of such Portfolios unless an election is made on behalf of a
separate account to receive dividends and capital gain distributions in cash.
PERFORMANCE INFORMATION
A Portfolio's yield is presented for a specified 30-day period (the "base
period"). Yield is based on the amount determined by (i) calculating the
aggregate of dividends and interest earned by the Portfolio during the base
period less expenses accrued for that period, and (ii) dividing that amount by
the product of (A) the average daily number of shares of the Portfolio
outstanding during the base period and entitled to receive dividends and (B)
the net asset value per share of the Portfolio on the last day of the base
period. The result is annualized on a compounding basis to determine the
Portfolio's yield. For this calculation, interest earned on debt obligations
held by a Portfolio is generally calculated using the yield to maturity (or
first expected call date) of such obligations based on their market values
(or, in the case of receivables-backed securities such as GNMAs, based on
cost). Dividends on equity securities are accrued daily at their stated
dividend rates.
Total return of a Portfolio for periods longer than one year is determined by
calculating the actual dollar amount of investment return on a $1,000
investment in the Portfolio made at the beginning of each period, then
calculating the average annual compounded rate of return which would produce
the same investment return on the $1,000 investment over the same period.
Total return for a period of one year or less is equal to the actual
investment return on a $1,000 investment in the Portfolio during that period.
Total return calculations assume that all Portfolio distributions are
reinvested at net asset value on their respective reinvestment dates.
From time to time, the Advisor may reduce its compensation or assume expenses
in respect of the operations of a Portfolio in order to reduce the Portfolio's
expenses. Any such waiver or assumption would increase a Portfolio's yield
and total return during the period of the waiver or assumption.
SHAREHOLDER COMMUNICATIONS
Owners of Variable Contracts issued by the Life Companies for which shares of
one or more Portfolios are the investment vehicle are entitled to receive from
the Life Companies unaudited semi-annual financial statements and audited
year-end financial statements certified by the Fund's independent public
accountants. Each report will show the investments owned by the Portfolios
and the market value thereof and will provide other information about the Fund
and its operations.
ORGANIZATION AND CAPITALIZATION
The Fund is an open-end investment company incorporated under the laws of the
State of Maryland on November 1, 1995.
Shares entitle their holders to one vote per share, with fractional shares
voting proportionally; however, a separate vote will be taken by each
<PAGE> B-20
Portfolio on matters affecting an individual Portfolio. For example, a change
in a fundamental investment policy for the Manning & Napier Growth Portfolio
would be voted upon only by shareholders of that Portfolio. Additionally,
approval of the Investment Advisory Agreement is a matter to be determined
separately by each Portfolio. Approval by the shareholders of one Portfolio is
effective as to that Portfolio. Shares have noncumulative voting rights.
Additional Portfolios may be created from time to time with different
investment objectives or for use as funding vehicles for different variable
life insurance policies or variable annuity contracts. Any additional
Portfolios may be managed by investment advisers other than the current
Advisor. In addition, the Directors have the right, subject to any necessary
regulatory approvals, to create more than one class of shares in a Portfolio,
with the classes being subject to different charges and expenses and having
such other different rights as the Directors may prescribe and to terminate
any Portfolio of the Fund.
FINANCIAL STATEMENTS
The audited financials of each of the Portfolios as of December 31,
1996 , and the report of Coopers & Lybrand LLP, Independent Accountants,
with respect thereto, are set forth below:
<PAGE> B-21
February 26, 1997
To Contract Owners of the Manning & Napier Variable Annuity:
Dear Contract Owners:
Enclosed is a copy of the consolidated Annual Report covering each of the
Portfolios of the Manning & Napier Insurance Fund. The report includes
information about each Portfolio's performance through December 31, 1996 as
well as portfolio listings as of that date.
Please contact our Fund Services department at 1-800-4MN-FUND (1-800-466-3863)
if you have any questions about your investment in the Manning & Napier
Variable Annuity.
Sincerely,
/s/ Amy J. Williams
Amy J. Williams
Fund Services Coordinator
<PAGE>
<PAGE>
Manning & Napier Insurance Fund, Inc.
Manning & Napier Bond Portfolio
Manning & Napier Equity Portfolio
Manning & Napier Small Cap Portfolio
Manning & Napier Moderate Growth Portoflio
Manning & Napier Growth Portfolio
Manning & Napier Maximum Horizon Portfolio
Annual Report
December 31, 1996
<PAGE>
Management Discussion & Analysis
Dear Contract Owners:
We are pleased to provide the first Annual Report of the Manning & Napier
Insurance Fund, which was launched on November 1, 1996. The portfolios of the
Insurance Fund are offered for separate account investments within the Manning
& Napier Variable Annuity, which was introduced on the same date. The
Insurance Fund is composed of six portfolios: three objectives-based
portfolios, two equity portfolios, and a bond portfolio. This Annual Report
will provide you with information on the performance of the portfolios of the
Manning & Napier Insurance Fund as well as portfolio listings as of the end of
the year.
The portfolios of the Manning & Napier Insurance Fund were active for only the
last two months of the year, but a look back at the markets in 1996 will help
set the stage for 1997.
For some time now, Manning & Napier's outlook has been for an economy with
moderate growth and stable inflation. Although final economic statistics for
the fourth quarter have not yet been released, currently available information
indicates that the economy continued to grow at a moderate pace and that
inflation stayed under control.
Following on the heels of its stellar returns in 1995, the stock market had
another extraordinary year in 1996. With stocks continuing to move higher
since the Funds inception, we have been building the stock portfolios
carefully as opportunities are identified. Looking ahead to 1997, we will
continue to approach the stock market cautiously. With valuations so high, a
market correction must be seen as a possibility, and volatility should be
expected. Our analysts, however, are still identifying good opportunities in
the stock market, and we are selectively adding to the stock portfolios.
1996 was a tougher year in the bond market, as inflation fears escalated
periodically, driving interest rates up and bond prices down. Our analysis
shows that factors pointing toward higher inflation are isolated and are
significantly outweighed by long-term economic trends, such as the growth of
global trade, which serve to limit inflationary pressures. We have positioned
the bond holdings in accordance with this long-term outlook.
Going forward into 1997, we continue to expect moderate growth, low inflation,
and stable or lower interest rates. We expect the markets to be challenging,
and we have positioned the portfolios in accordance with our outlook and with
their individual objectives.
We wish you a healthy, happy, and prosperous 1997.
Sincerely,
Manning & Napier Advisors, Inc.
1
<PAGE>
Performance Update as of December 31, 1996
BOND PORTFOLIO
During 1996, we saw several periods of rising interest rates when economic
reports indicating strong growth ignited inflation fears. Our analysis,
however, shows that these were short-term situations. We expect inflation to
remain low and for interest rates to be stable to lower. We have weighted the
portfolio toward the longer-end of the maturity spectrum, because long-term
bonds offer the most growth potential in a falling interest rate environment.
Manning & Napier places great emphasis on the quality of the bonds in the
Portfolio. Lower quality bonds may offer higher yields, but the additional
yield is not enough to outweigh the risk added by their increased volatility.
<TABLE>
<CAPTION>
Performance from inception 1
Total Return
Through Growth of $10,000 Average
12/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
Manning & Napier Bond Portfolio $ 9,940 -0.60% N/A
Merrill Lynch Corporate/
Government Bond Index 2 $ 10,076 0.76% N/A
</TABLE>
[GRAPHIC]
LINE CHART
Data for Line Chart to follow:
<TABLE>
<CAPTION>
Manning & Napier Merrill Lynch Corporate/
Date Bond Portfolio Government Bond Index
<S> <C> <C>
11/01/96 $ 10,000 $ 10,000
11/30/96 10,090 10,184
12/31/96 9,940 10,076
</TABLE>
[PIE CHART]
Portfolio Composition - Bond Porfolio - As of 12/31/96
U.S. Treasury Securities - 48%
U.S. Government Agencies - 45%
Cash, short-term investments
and other assets less liabilities - 7%
[PIE CHART]
Effective Maturity - Bond Portfolio - As of 12/31/96 *
1 - 3 Years - 21.4%
3 - 5 Years - 13.3%
5 - 10 Years - 39.2%
Over 10 Years - 26.1%
* As a percentage of Total Investments
Please see Page 8 for Footnotes
2
<PAGE>
Performance Update as of December 31, 1996
EQUITY PORTFOLIO
The Equity Portfolio is designed to provide long-term capital growth, without
regard to interim volatility. Stocks are chosen for inclusion in the
Portfolio through rigorous analysis by our team of stock analysts. We have
built the Portfolio selectively because in this highly-valued stock market
fewer stocks meet our investment strategies and pricing disciplines. Even in
this challenging market environment, our analysts continue to identify
attractively-valued stocks which we believe offer strong growth potential. As
of the end of the year, this Portfolio was approximately 83% invested in
stocks.
The Equity Portfolio has a significant weighting in technology stocks. We
expect the strong growth which this sector has experienced in recent years to
continue, as consumers and businesses expand their use of technology.
<TABLE>
<CAPTION>
Performance from inception 1
Total Return
Through Growth of $10,000 Average
12/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
Manning & Napier Equity Portfolio $ 10,560 5.60% N/A
Standard & Poor's (S&P) 500
Total Return Index 3 $ 10,542 5.42% N/A
</TABLE>
[GRAPHIC]
Line Chart
Data for Line Chart to follow:
<TABLE>
<CAPTION>
Manning & Napier S & P 500
Equity Portfolio Total Return Index
<S> <C> <C>
11/01/96 $ 10,000 $ 10,000
11/30/96 10,720 10,755
12/31/96 10,560 10,542
</TABLE>
[PIE CHART]
Portfolio Composition -Equity Portfolio - As of 12/31/96
Chemicals & Allied Products - 6.2%
Electromedical Apparatus - 4.0%
Electronics & Electrical Equipment - 12.9%
Health Services - 3.9%
Paper & Allied Products - 6.8%
Photographic Equipment & Supplies - 4.4%
Retail - 23.0%
Cash, short-term investments and
other assets less liabilities - 8.1%
U.S. Treasury Securities - 7.7%
Miscellaneous * - 23.0%
* Miscellaneous includes:
Air Transportation
Computer Equipment
Crude Petroleum & Natural Gas
Engineering Services
Fabricated Metal Products
Restaurants
Technical Instruments & Supplies
Utilities - Electric
Please see Page 8 for Footnotes
3
<PAGE>
Performance Updatas of December 31, 1996
SMALL CAP PORTFOLIO
Historically, small company stocks have earned higher returns than those of
larger companies, but they are also typically more volatile. In managing this
Portfolio, we adhere to Manning & Napier's traditional investment strategies
and pricing disciplines. Each stock in the Portfolio is individually selected
and reviewed by analysts with specific industry expertise. In addition to
searching for promising additions to the Portfolio, we continually reevaluate
the holdings in the portfolio to assess their fit with our investment
strategies. This strategy has proven quite successful for Manning & Napier's
clients over time.
As of December 31, approximately 26.8% of the Small Cap Portfolio was invested
in retail stocks. This sector of the market has been significantly
undervalued, and we took advantage of this opportunity to purchase the stocks
of some strong companies at attractive valuations; several of these holdings
made strong contributions to the Portfolios' return late in the year.
<TABLE>
<CAPTION>
Performance from inception 1
Total Return
Through Growth of $10,000 Average
12/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
Manning & Napier Small Cap Portfolio $ 10,720 7.20% N/A
Standard & Poor's (S&P)
500 Total Return Index 3 $ 10,542 5.42% N/A
</TABLE>
[GRAPHIC]
LINE CHART
Data for Line Chart to follow:
<TABLE>
<CAPTION>
Manning & Napier S & P 500
Small Cap Portfolio Total Return Index
<S> <C> <C>
11/01/96 $ 10,000 $ 10,000
11/30/96 10,380 10,755
12/31/96 10,720 10,542
</TABLE>
[PIE CHART]
Portfolio Composition - Small Cap Portfolio - As of 12/31/96
Fabricated Metal Products - 8.9%
Glass Products - 3.5%
Health Services - 4.7%
Primary Metal Industries - 6.8%
Restaurants - 4.3%
Retail - 26.8%
Software - 7.5%
Cash, short-term investments and
other assets less liabilites - 22.5%
Miscellaneous * - 15.0%
* Miscellaneous includes:
Computer Equipment
Food & Beverages
Holding Companies
Optical Supplies
Printing & Publishing
Surgical & Medical Instruments
Technical Instruments & Supplies
Telecommunication Equipment
Please see Page 8 for Footnotes
4
<PAGE>
Performance Update as of December 31, 1996
OBJECTIVES-BASED PORTFOLIOS
(Moderate Growth Portfolio, Growth Portfolio & Maximum
Horizon Portfolio)
The Insurance Fund includes three Objectives-Based portfolios: the Moderate
Growth Portfolio, the Growth Portfolio, and the Maximum Horizon Portfolio.
Each of these portfolios invests in a combination of stocks, bonds, and cash
with a specific objective relating to its emphasis on growth and tolerance
for short-term volatility. The specific allocation between asset classes, as
well as the individual security selection, is managed by Manning & Napier in
accordance with the objectives of each portfolio.
While our analysts continue to identify attractive long-term investment
opportunities in the stock market, we have positioned the Moderate Growth
Portfolio with a relatively low level of stocks, because this portfolio seeks
to dampen volatility. Given the historically high valuations of the stock
market, this is exactly what investors should expect. Because avoiding
volatility is only a secondary concern of the Growth Portfolio and is not an
objective of the Maximum Horizon Portfolio, these two Portfolios hold larger
stock allocations.
<TABLE>
<CAPTION>
Performance from inception 1
Total Return
Through Growth of $10,000 Average
12/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
Manning & Napier
Moderate Growth Portfolio $ 10,110 1.10% N/A
Lehman Brothers Intermediate
Bond Index 4 $ 10,067 0.67% N/A
30 - 70 Blended Index 5 $ 10,211 2.11% N/A
</TABLE>
[GRAPHIC]
LINE CHART
Data for Line Chart to follow:
<TABLE>
<CAPTION>
Manning & Napier Lehman Brothers 30 - 70 Blended
Moderate Growth Portfolio Intermediate Bond Index Index
<S> <C> <C> <C>
11/01/96 $ 10,000 $ 10,000 $ 10,000
11/30/96 10,200 10,132 10,319
12/31/96 10,110 10,067 10,211
</TABLE>
[PIE CHART]
Portfolio Composition - Moderate Growth Portfolio - As of 12/31/96
Stocks - 14.1%
Bonds - 82.2%
Cash, short-term investments
and other assets less liabilities - 3.7%
Please see Page 8 for Footnotes
5
<PAGE>
Performance Update as of December 31, 1996
OBJECTIVES-BASED PORTFOLIOS
(Moderate Growth Portfolio, Growth Portfolio & Maximum Horizon Portfolio)
<TABLE>
<CAPTION>
Performance from inception 1
Total Return
Through Growth of $10,000 Average
12/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
Manning & Napier Growth Portfolio $ 10,250 2.50% N/A
Lehman Brothers Intermediate
Bond Index 4 $ 10,067 0.67% N/A
50-50 Blended Index 6 $ 10,311 3.11% N/A
</TABLE>
[GRAPHIC]
LINE CHART
Data for Line Chart to follow:
<TABLE>
<CAPTION>
Manning & Napier Lehman Brothers 50-50 Blended
Growth Portfolio Intermediate Bond Index Index
<S> <C> <C> <C>
11/01/96 $ 10,000 $ 10,000 $ 10,000
11/30/96 10,350 10,132 10,463
12/31/96 10,250 10,067 10,311
</TABLE>
[PIE CHART]
Portfolio Composition - Growth Portfolio - As of 12/31/96
Stocks - 39.6%
Bonds - 58.2%
Cash, short-term investments
and other assets less liabilities - 2.2%
Please see Page 8 for Footnotes
6
<PAGE>
Performance Update as of December 31, 1996
OBJECTIVES-BASED PORTFOLIOS
(Moderate Growth Portfolio, Growth Portfolio & Maximum Horizon Portfolio)
<TABLE>
<CAPTION>
Performance from inception 1
Total Return
Through Growth of $10,000 Average
12/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
Manning & Napier
Maximum Horizon Portfolio $ 10,440 4.40% N/A
Standard & Poor's (S&P)
500 Total Return Index 3 $ 10,542 5.42% N/A
</TABLE>
[GRAPHIC]
LINE CHART
Data for Line Chart to follow:
<TABLE>
<CAPTION>
Manning & Napier S & P 500
Maximum Horizon Portfolio Total Return Index
<S> <C> <C>
11/01/96 $ 10,000 $ 10,000
11/30/96 10,640 10,755
12/31/96 10,440 10,542
</TABLE>
[PIE CHART]
Portfolio Composition - Maximum Horizon Portfolio - As of 12/31/96
Stocks - 75.1%
Bonds - 23.1%
Cash,short-term investments and other
and other assets less liabilities - 1.8%
Please see Page 8 for Footnotes
7
<PAGE>
Footnotes to Performance Update
1 Performance numbers for the Portfolios and Indices are calculated from
November 1, 1996, the Portfolios' inception date. The Portfolios'
performance is historical and may not be indicative of future results.
2 The Merrill Lynch Corporate/Government Bond Index is a market value
weighted measure of approximately 4,775 corporate and government bonds. The
Index is comprised of investment grade securities with maturities greater
than one year. The Index returns assume reinvestment of coupons and, unlike
Fund returns, do not reflect any fees or expenses.
3 The Standard & Poor's (S&P) 500 Total Return Index is an unmanaged
capitalization-weighted measure of 500 widely held common stocks listed on the
New York Stock Exchange, American Stock Exchange, and Over-the-Counter
market. The Index returns assume reinvestment of income and, unlike Fund
returns, do not reflect any fees or expenses.
4 The Lehman Brothers Intermediate Bond Index is a market value weighted
measure of approximately 3,500 corporate and government securities. The Index
is comprised of investment grade securities with maturities greater than one
year but less than ten years. The Index returns assume reinvestment of
income and, unlike Fund returns, do not reflect any fees or expenses.
5 The 30-70 Blended Index used for the Moderate Growth Portfolio is 30 % S&P
500 Total Return Index (see note 3) and 70% Lehman Brothers Intermediate
Bond Index (see note 4). The Index returns assume reinvestment of income
and, unlike Fund returns, do not reflect any fees or expenses.
6 The 50-50 Blended Index used for the Growth Portfolio is 50 % S&P 500
Total Return Index (see note 3) and 50% Lehman Brothers Aggregate Bond Index.
The Lehman Brothers Aggregate Bond Index is a market value weighted measure of
approximately 5,700 corporate, government, and mortgage backed securities.
The Index is comprised of investment grade securities with maturities greater
than one year. The Index returns assume reinvestment of income and, unlike
Fund returns, do not reflect any fees or expenses.
8
<PAGE>
Investment Porfolio - December 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
Manning & Napier Bond Portfolio AMOUNT/SHARES (NOTE 2)
U.S. TREASURY SECURITIES - 48.3%
<S> <C> <C>
U.S. TREASURY NOTES - 24.0%
U.S.Treasury Note, 6.50%, 10/15/2006 $ 30,000 $ 30,169
U.S. TREASURY BONDS - 24.3%
U.S. Treasury Bond, 6.875%, 8/15/2025 30,000 30,572
TOTAL U.S. TREASURY SECURITIES
(Identified Cost $61,886) 60,741
U.S. GOVERNMENT AGENCIES - 44.7%
Federal Home Loan Bank Bond, 5.905%, 10/23/1998 10,000 9,988
Federal Home Loan Mortgage, 6.130%, 8/19/1999 15,000 15,004
Federal National Mortage Association, 7.550%, 4/22/2002 15,000 15,741
Student Loan Marketing Association, 7.500%, 3/8/2000 15,000 15,556
TOTAL U.S. GOVERNMENT AGENCIES
(Identified Cost $56,716) 56,288
TOTAL INVESTMENTS - 93.0%
(Identified Cost $118,602) 117,029
OTHER ASSETS, LESS LIABILITIES - 7.0% 8,846
NET ASSETS - 100% $125,875
</TABLE>
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
At December 31, 1996, the net unrealized depreciation based on identified cost for
federal income tax purposes of $118,602 was as follows:
<S> <C>
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost $ -
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value (1,573)
UNREALIZED DEPRECIATION - NET $(1,573)
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
Investment Porfolio - December 31, 1996
<TABLE>
<CAPTION>
VALUE
Manning & Napier Equity Portfolio SHARES (NOTE 2)
COMMON STOCK - 83.4%
<S> <C> <C>
AIR TRANSPORTATION - 3.3%
Federal Express Corp.* 100 $ 4,450
CHEMICAL & ALLIED PRODUCTS - 6.2%
Alliance Pharmaceutical Corp.* 275 3,747
Colgate-Palmolive Co. 50 4,612
8,359
COMPUTER EQUIPMENT - 2.7%
Digital Equipment, Corp.* 100 3,638
CRUDE PETROLEUM & NATURAL GAS - 3.2%
YPF Sociedad Anonima - ADR (Note 7) 175 4,419
ELECTROMEDICAL APPARATUS - 4.0%
Nellcor Puritan Bennett, Inc.* 250 5,469
ELECTRONICS & ELECTRICAL EQUIPMENT - 12.9%
SEMICONDUCTORS - 8.3%
Intel Corp. 50 6,547
Texas Instruments, Inc. 75 4,781
11,328
TELECOMMUNICATION EQUIPMENT - 4.6%
BroadBand Technologies, Inc.* 150 2,212
DSC Communications Corp.* 225 4,022
6,234
17,562
ENGINERRING SERVICES - 3.0%
Jacobs Engineering Group, Inc.* 175 4,134
FABRICATED METAL PRODUCTS - 1.7%
Material Sciences Corp.* 125 2,250
HEALTH SERVICES - 3.9%
MedPartners, Inc.* 250 5,250
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Shares /
Principal VALUE
Manning & Napier Equity Portfolio (continued) Amount (NOTE 2)
<S> <C> <C>
PAPER & ALLIED PRODUCTS - 6.8%
Alco Standard Corp. 100 $ 5,162
Fort Howard Corp.* 150 4,153
9,315
PHOTOGRAPHIC EQUIPMENT & SUPPLIES - 4.4%
Eastman Kodak Co. 75 6,019
RESTAURANTS - 3.3%
McDonald's Corp. 100 4,525
RETAIL - 23.0%
RETAIL - DEPARTMENT STORES - 3.9%
Nordstrom, Inc. 150 5,316
RETAIL - SPECIALTY STORES - 15.1%
Fabri-Centers of America - Class B* 200 3,075
Hancock Fabrics, Inc. 450 4,669
Home Depot, Inc. 75 3,759
Office Depot, Inc.* 200 3,550
Tandy Corp. 125 5,500
20,553
RETAIL - WHOLESALE - 4.0%
Coleman Company, Inc.* 400 5,500
31,369
TECHNICAL INSTRUMENTS & SUPPLIES - 3.0%
Millipore Corp. 100 4,138
UTILITIES-ELECTRIC - 2.0%
Enersis S.A.- ADR (Note 7) 100 2,775
TOTAL COMMON STOCK
(Identified Cost $105,580) 113,672
U.S. TREASURY SECURITIES - 7.7%
U.S Treasury Bond, 7.25%, 8/15/2022 $ 10,000 10,578
(Identified Cost $10,611)
SHORT-TERM INVESTMENTS- 3.8%
Dreyfus U.S. Treasury Money Market Reserves
(Identified Cost $5,133 ) 5,133 5,133
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
VALUE
Manning & Napier Equity Portfolio (continues) (NOTE 2)
<S> <C>
TOTAL INVESTMENTS - 94.9%
(Identified Cost $121,324) $129,383
OTHER ASSETS, LESS LIABILITIES - 5.1% 6,884
NET ASSETS - 100% $136,267
</TABLE>
*Non-income producing security
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
At December 31, 1996, the net unrealized appreciation based on identified cost for
federal income tax purposes of $121,494 was as follows:
<S> <C>
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost $ 9,321
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value (1,432)
UNREALIZED APPRECIATION - NET $ 7,889
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
Investment Porfolio - December 31, 1996
<TABLE>
<CAPTION>
Value
Manning & Napier Small Cap Portfolio Shares (Note 2)
COMMON STOCK - 77.5%
<S> <C> <C>
COMPUTER EQUIPMENT- 1.3%
Varitronix International Ltd. (Note 7) 1,000 $ 1,810
FABRICATED METAL PRODUCTS - 8.9%
Keystone International, Inc. 300 6,037
Material Sciences Corp.* 350 6,300
12,337
FOOD & BEVERAGES - 2.1%
Canandaigua Wine Company, Inc. - Class A* 100 2,850
GLASS PRODUCTS - 3.5%
Libbey, Inc. 175 4,878
HEALTH SERVICES - 4.7%
RehabCare Group, Inc. 275 5,534
U. S. Physical Therapy, Inc.* 100 975
6,509
HOLDING COMPANIES - 0.9%
EK Chor China Motorcycle Co. Ltd. - ADR (Note 7) 175 1,291
OPTICAL SUPPLIES - 2.1%
Sola International, Inc.* 75 2,850
PRIMARY METAL INDUSTRIES - 6.8%
American Superconductor Corp.* 150 1,594
Gibraltar Steel Corp.* 300 7,875
9,469
PRINTING & PUBLISHING - 3.0%
Playboy Enterprises, Inc. - Class A* 125 1,266
Playboy Enterprises, Inc. - Class B* 150 1,462
Houghton Mifflin Co. 25 1,416
4,144
RESTAURANTS - 4.3%
Mortons Restaurant Group, Inc.* 350 5,906
</TABLE>
The accompanying notes are an integral part of the finacial statements.
13
<PAGE>
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Value
Manning & Napier Small Cap Portfolio(continued) Shares (Note 2)
<S> <C> <C>
RETAIL - 26.8%
RETAIL - HOME FURNISHING STORES - 5.7%
Pier 1 Imports, Inc. 450 $ 7,931
RETAIL - SPECIALTY STORES - 11.7%
Fabri-Centers of America - Class A* 575 9,272
Fabri-Centers of America - Class B* 250 3,844
Hancock Fabrics, Inc. 300 3,112
16,228
RETAIL - VARIETY STORES - 5.2%
Family Dollar Stores, Inc. 350 7,131
RETAIL - WHOLESALE - 4.2%
Coleman Company, Inc.* 425 5,844
37,134
SOFTWARE - 7.5%
Electronic Arts, Inc.* 100 2,994
Founder Hong Kong Ltd.* (Note 7) 4,000 1,539
Symantec Corp.* 400 5,800
10,333
SURGICAL & MEDICAL INSTRUMENTS - 2.0%
Allied Healthcare Products, Inc. 375 2,766
TECHNICAL INSTRUMENTS & SUPPLIES - 1.5%
Millipore Corp. 50 2,069
TELECOMMUNICATIONS EQUIPMENT - 2.1%
BroadBand Technologies, Inc.* 200 2,950
TOTAL COMMON STOCK
(Identified Cost $97,532) 107,296
</TABLE>
The accompanying notes are an integral part of the finacial statements.
14
<PAGE>
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Principal
Amount/ Value
Manning & Napier Small Cap Portfolio(continued) Shares (Note 2)
<S> <C> <C>
SHORT-TERM INVESTMENTS - 22.4%
Federal Farm Credit Bank Discount Note, 1/17/1997 $ 5,000 $ 4,988
Federal National Mortgage Corp. Discount Note,
1/17/1997 20,000 19,953
Dreyfus U.S. Treasury Money Market Reserves 6,018 6,018
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $ 30,959) 30,959
TOTAL INVESTMENTS - 99.9%
(Identified Cost $128,491) 138,255
OTHER ASSETS, LESS LIABILITIES - 0.1% 119
NET ASSETS - 100% $138,374
</TABLE>
*Non-income producing security
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
At December 31, 1996, the net unrealized appreciation based on identified cost for
federal income tax purposes of $128,491 was as follows:
<S> <C>
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost $12,325
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value (2,561)
UNREALIZED APPRECIATION - NET $ 9,764
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Shares/
Principal VALUE
Manning & Napier Moderate Growth Portfolio Amount (NOTE 2)
COMMON STOCK - 14.1%
<S> <C> <C>
AIR TRANSPORTATION- 1.7%
Federal Express Corp.* 50 $ 2,225
COMMUNICATIONS - 0.9%
Stet Societa' Finanziaria Telefonica S.p.A. - ADR (Note 7) 25 1,109
ELECTROMEDICAL APPARATUS - 2.1%
Nellcor Puritan Bennett, Inc.* 125 2,735
ENGINEERING SERVICES - 0.5%
Jacobs Engineering Group, Inc.* 25 591
HEALTH SERVICES - 1.2 %
MedPartners, Inc.* 75 1,575
PHOTOGRAPHIC EQUIPMENT & SUPPLIES - 1.6%
Eastman Kodak Co. 25 2,006
RESTAURANTS - 0.9%
McDonald's Corp. 25 1,131
RETAIL - SPECIALTY STORES - 4.8%
Fabri-Centers of America - Class A* 50 806
Fabri-Centers of America - Class B* 50 769
Fingerhut Companies, Inc. 125 1,531
Hancock Fabrics, Inc. 75 778
Tandy Corp. 50 2,200
6,084
TELECOMMUNICATION EQUIPMENT - 0.4%
General Instrument Corp.* 25 541
TOTAL COMMON STOCK
(Identified Cost $16,809) 17,997
U.S. TREASURY SECURITIES - 47.2%
U.S. TREASURY BONDS - 19.9%
U.S. Treasury Bond, 6.875%, 8/15/2025
(Identified Cost $25,616 ) $ 25,000 25,477
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Principal
Amount / VALUE
Manning & Napier Moderate Growth Portfolio(continued) Shares (NOTE 2)
<S> <C> <C>
U.S. TREASURY NOTES - 27.3%
U.S. Treasury Note, 6.500%, 10/15/2006 $ 5,000 $ 5,028
U.S. Treasury Note, 6.250%, 10,31,2001 25,000 25,016
U.S. Treasury Note, 5.875%, 10/31/1998 5,000 4,994
TOTAL U.S. TREAURY NOTES 35,038
(Identified Cost $ 35,286 )
TOTAL U.S. TREASURY SECURITIES
(Identified Cost $60,902) 60,515
U.S.GOVERNMENT AGENCIES - 35.0%
Federal Home Loan Bank Bond, 5.950%, 11/05/99 15,000 14,922
Federal National Mortgage Association, 5.375%, 6/10/98 15,000 14,897
Tennessee Valley Authority, 5.950%, 9/15/98 15,000 14,986
TOTAL U.S. GOVERNMENT AGENCIES
(Identified Cost $44,990) 44,805
SHORT-TERM INVESTMENTS - 2.6%
Dreyfus U.S. Treasury Money Market Reserves
(Identified Cost $3,309) 3,309 3,309
TOTAL INVESTMENTS - 98.9%
(Identified Cost $126,010) 126,626
OTHER ASSETS, LESS LIABILTIES - 1.1% 1,478
NET ASSETS - 100% $128,104
</TABLE>
* Non-income producing security
FEDERAL TAX INFORMATION:
At December 31, 1996, the net unrealized appreciation based on identified cost
for federal income tax purposes of $126,010 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost $1,544
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value (928)
UNREALIZED APPRECIATION - NET $616
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
VALUE
Manning & Napier Growth Portfolio SHARES (Note 2)
COMMON STOCK - 39.6%
<S> <C> <C>
AIR TRANSPORTATION- 3.4%
Federal Express Corp.* 100 $ 4,450
APPAREL- 2.6%
VF Corp. 50 3,375
COMMUNICATIONS- 3.0%
Stet Societa' Finanziaria Telefonica S.p.A. - ADR (Note 7) 50 2,219
Telefonica de Espana - ADR (Note 7) 25 1,731
3,950
CRUDE PETROLEUM & NATURAL GAS - 1.5%
YPF Sociedad Anonima - ADR (Note 7) 75 1,894
ELECTROMEDICAL APPARATUS- 2.1%
Nellcor Puritan Bennett, Inc.* 125 2,734
ENGINEERING SERVICES - 0.5%
Jacobs Engineering Group, Inc.* 25 591
HEALTH SERVICES- 2.8%
MedPartners, Inc.* 175 3,675
PAPER & ALLIED PRODUCTS - 1.1%
Fort Howard Corp.* 50 1,384
PHOTOGRAPHIC EQUIPMENT & SUPPLIES- 3.1%
Eastman Kodak Co. 50 4,013
SEMICONDUCTOR - 2.4%
Texas Instruments, Inc. 50 3,188
SOFTWARE - 0.8%
Oracle Corp.* 25 1,044
RESTAURANTS - 3.5%
McDonald's Corp. 100 4,525
</TABLE>
The accompanying notes are an integral part of the finacial statements.
18
<PAGE>
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Shares /
Principal Value
Manning & Napier Growth Portfolio (continued) Amount (Note 2)
<S> <C> <C>
RETAIL - 8.1%
Fabri-Centers of America - Class A* 50 $ 806
Fabri-Centers of America - Class B* 50 769
Fingerhut Companies, Inc. 125 1,531
Hancock Fabrics, Inc. 75 778
Home Depot, Inc. 50 2,506
Office Depot, Inc.* 50 888
Tandy Corp. 75 3,300
10,578
TELECOMMUNICATIONS EQUIPMENT - 3.6%
General Instrument Corp.* 75 1,622
Motorola, Inc. 50 3,068
4,690
UTILITIES-ELECTRIC- 1.1%
Enersis S.A.- ADR (Note 7) 50 1,388
TOTAL COMMON STOCK
(Identified Cost $48,426) 51,479
U.S. TREASURY SECURITIES- 46.7%
U.S. TREASURY BONDS - 27.5%
U.S. Treasury Bond, 6.875%, 8/15/2025
(Identified Cost $35,862) $35,000 35,667
U.S. TREASURY NOTES - 19.2%
U.S. Treasury Note, 5.875%, 10/31/1998 10,000 9,988
U.S. Treasury Note, 6.25%, 10/15/2001 15,000 15,009
TOTAL U.S. TREASURY NOTES
(Identified Cost $25,154) 24,997
TOTAL U.S. TREASURY SECURITIES
(Identified Cost $61,016) 60,664
</TABLE>
The accompanying notes are an integral part of the finacial statements.
19
<PAGE>
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Principal
Amount/ Value
Manning & Napier Growth Portfolio (continued) SHARES (Note 2)
<S> <C> <C>
U.S. GOVERNMENT AGENCY - 11.5%
Federal Home Loan Mortgage Corporation, 5.95%,
11/5/1999 (Identified Cost $15,027) $ 15,000 $ 14,922
SHORT-TERM INVESTMENTS - 1.1%
Dreyfus U.S. Treasury Money Market Reserves
(Identified Cost $1,401) 1,401 1,401
TOTAL INVESTMENTS - 98.9%
(Identified Cost $125,870) 128,466
OTHER ASSETS, LESS LIABILITIES - 1.1% 1,408
NET ASSETS - 100% $129,874
</TABLE>
*Non-income producing security
FEDERAL TAX INFORMATION:
At December 31, 1996, the net unrealized appreciation based on identified cost
for federal income tax purposes of $125,870 was as follows:
Aggregate gross unrealized appreciation for all investments
in which ther was an excess of value over tax cost $3,903
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value (1,307)
UNREALIZED APPRECIATION - NET $2,596
The accompanying notes are an integral part of the finacial statements.
20
<PAGE>
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
VALUE
Manning & Napier Maximum Horizon Portfolio SHARES (NOTE 2)
COMMON STOCK - 75.1%
<S> <C> <C>
AIR TRANSPORTATION- 3.4%
Federal Express Corp.* 100 $ 4,450
APPAREL - 3.8%
VF Corp. 75 5,063
CHEMICAL & ALLIED PRODUCTS - 6.3%
Alliance Pharmaceutical Corp.* 25 341
Procter & Gamble Co. 75 8,062
8,403
COMMUNICATIONS - 5.1%
Stet Societa' Finanziaria Telefonica S.p.A. - ADR (Note 7) 75 3,328
Telefonica de Espana - ADR (note 7) 50 3,462
6,790
CRUDE PETROLEUM & NATURAL GAS - 2.9%
YPF Sociedad Anonima - ADR (Note 7) 150 3,788
ELECTROMEDICAL APPARATUS - 4.1%
Nellcor Puritan Bennett, Inc.* 250 5,469
ENGINEERING SERVICES - 0.5%
Jacobs Engineering Group, Inc.* 25 591
HEALTH SERVICES - 3.6%
MedPartners, Inc.* 225 4,725
PAPER & ALLIED PRODUCTS - 5.0%
Alco Standard Corp. 75 3,872
Fort Howard Corp.* 100 2,769
6,641
PHOTOGRAPHIC EQUIPMENT & SUPPLIES - 4.6%
Eastman Kodak Co. 75 6,019
RESTAURANTS - 4.3%
McDonald's Corp. 125 5,656
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
VALUE
Manning & Napier Maximum Horizon Portfolio(continued) SHARES (NOTE 2)
<S> <C> <C>
RETAIL - 18.7%
RETAIL - DEPARTMENT STORES - 4.0%
Nordstom, Inc. 150 $ 5,316
RETAIL - SPECIALTY STORES - 10.8%
Fabri-Centers of America - Class A* 50 806
Fabri-Centers of America - Class B* 50 769
Fingerhut Companies, Inc. 125 1,531
Hancock Fabrics, Inc 100 1,037
Home Depot, Inc. 75 3,759
Office Depot, Inc* 50 888
Tandy Corp. 125 5,500
14,290
RETAIL - WHOLESALE - 3.9%
Coleman Company, Inc.* 375 5,156
24,762
SEMICONDUCTORS - 3.6%
Texas Instruments, Inc. 75 4,781
SOFTWARE - 2.4%
Oracle Corp.* 75 3,131
TECHNICAL INSTRUMENTS & SUPPLIES - 1.6%
Millipore Corp. 50 2,069
TELECOMMUNICATIONS EQUIPMENT - 3.1%
Genreal Instrument Corp.* 50 1,081
Motorola, Inc. 50 3,069
4,150
UTILITIES-ELECTRIC - 2.1%
Enersis S.A. - ADR (Note 7) 100 2,775
TOTAL COMMON STOCK
(Identified Cost $93,743) 99,263
</TABLE>
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Principal
Amount/ VALUE
Manning & Napier Maximum Horizon Portfolio(continued) SHARES (NOTE 2)
<S> <C> <C>
U.S. TREASURY SECURITIES - 23.1%
U.S. Treasury Note, 6.250%, 10/31/2001 $ 5,000 $ 5,003
U.S. Treasury Bond, 6.875%, 8/15/2025 25,000 25,476
TOTAL U.S. TREASURY SECURITIES
(Identified Cost $30,656) 30,479
SHORT-TERM INVESTMENTS - 1.2%
Dreyfus U.S. Treasury Money Market Reserves
(Idenfied Cost $1,608) 1,608 1,608
TOTAL INVESTMENTS - 99.4%
(Idendified Cost $126,007) 131,350
OTHER ASSETS, LESS LIABILITIES - 0.6% 866
NET ASSETS - 100% $132,216
</TABLE>
*Non-income producing security
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
At December 31, 1996, the net unrealized appreciation based on identified cost for
federal income tax purposes of $126,007 was as follows:
<S> <C>
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost $ 6,840
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value (1,497)
UNREALIZED APPRECIATION - NET $ 5,343
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
Statement of Assets and Liabilities
December 31, 1996
<TABLE>
<CAPTION>
MANNING & NAPIER INSURANCE FUND, INC.
---------------------------------------
Moderate
Bond Equity Small Cap Growth Growth
Portfolio Portfolio Portfolio Portfolio Portfolio
ASSETS:
<S> <C> <C> <C> <C> <C>
Investments in securities (Note 2):
At identified cost $ 118,602 $ 121,324 $ 128,491 $ 126,010 $ 125,870
At value $ 117,029 $ 129,383 $ 138,255 $ 126,626 $ 128,466
Cash 6,730 -- -- -- --
Dividends receivable -- 613 67 26 49
Interest receivable 2,223 274 -- 1,491 1,311
Receivable for securities sold -- 5,940 -- -- --
Receivable from investment advisor 6,585 6,500 6,504 6,513 6,510
TOTAL ASSETS 132,567 142,710 144,826 134,656 136,336
LIABILITIES:
Accrued Directors' fees (Note 3) 1,917 1,917 1,917 1,917 1,917
Audit fee payable 4,000 4,000 4,000 4,000 4,000
Custodian fee payable 50 50 50 50 50
Other payables and accrued expenses 725 476 485 585 495
TOTAL LIABILITIES 6,692 6,443 6,452 6,552 6,462
NET ASSETS $ 125,875 $ 136,267 $ 138,374 $ 128,104 $ 129,874
NET ASSETS CONSIST OF:
Capital stock $ 127 $ 129 $ 129 $ 127 $ 127
Additional paid-in-capital 126,540 129,064 129,052 126,540 126,540
Undistributed net investment income 781 602 113 821 634
Accumulated net realized gain (loss)
on investments -- (1,587) (684) -- (23)
Net unrealized appreciation
(depreciation) on investments (1,573) 8,059 9,764 616 2,596
TOTAL NET ASSETS $ 125,875 $ 136,267 $ 138,374 $ 128,104 $ 129,874
SHARES OUTSTANDING 12,667 12,907 12,913 12,667 12,667
NET ASSET VALUE PER SHARE $ 9.94 $ 10.56 $ 10.72 $ 10.11 $ 10.25
Maximum
Horizon
Portfolio
ASSETS:
<S> <C>
Investments in securities (Note 2):
At identified cost $ 126,007
At value $ 131,350
Cash --
Dividends receivable 80
Interest receivable 703
Receivable for securities sold --
Receivable from investment advisor 6,505
TOTAL ASSETS 138,638
LIABILITIES:
Accrued Directors' fees (Note 3) 1,917
Audit fee payable 4,000
Custodian fee payable 50
Other payables and accrued expenses 455
TOTAL LIABILITIES 6,422
NET ASSETS $ 132,216
NET ASSETS CONSIST OF:
Capital stock $ 127
Additional paid-in-capital 126,540
Undistributed net investment income 296
Accumulated net realized gain (loss)
on investments (90)
Net unrealized appreciation
(depreciation) on investments 5,343
TOTAL NET ASSETS $ 132,216
SHARES OUTSTANDING 12,667
NET ASSET VALUE PER SHARE $ 10.44
</TABLE>
Tha accompanying notes are an integral part of the financial statements.
24
<PAGE>
Statement of Operations
For the Period November 1, 1996 (commencement of operations) to December 31,1996
<TABLE>
<CAPTION>
MANNING & NAPIER INSURANCE FUND, INC.
---------------------------------------
Moderate
Bond Equity Small Cap Growth
Portfolio Portfolio Portfolio Portfolio
INVESTMENT INCOME:
<S> <C> <C> <C> <C>
Interest $ 950 $ 145 $ 212 $ 1,035
Dividends -- 711 150 28
Total Investment Income 950 856 362 1,063
EXPENSES:
Management fees (Note 3) 99 212 208 201
Directors' fees (Note 3) 1,917 1,917 1,917 1,917
Custodian fee 112 361 352 253
Audit fee 4,000 4,000 4,000 4,000
Miscellaneous 725 476 484 585
Total Expenses 6,853 6,966 6,961 6,956
Less Reduction of Expenses (Note 3) (6,684) (6,712) (6,712) (6,714)
Net Expenses 169 254 249 242
NET INVESTMENT INCOME 781 602 113 821
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments
(identified cost basis) -- (1,587) (684) --
Net change in unrealized appreciation
(depreciation) on investments (1,573) 8,059 9,764 616
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (1,573) 6,472 9,080 616
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS $ (792) $ 7,074 $ 9,193 $ 1,437
Maximum
Growth Horizon
Portfolio Portfolio
INVESTMENT INCOME:
<S> <C> <C>
Interest $ 775 $ 345
Dividends 103 200
Total Investment Income 878 545
EXPENSES:
Management fees (Note 3) 203 207
Directors' fees (Note 3) 1,917 1,917
Custodian fee 342 382
Audit fee 4,000 4,000
Miscellaneous 495 455
Total Expenses 6,957 6,961
Less Reduction of Expenses (Note 3) (6,713) (6,712)
Net Expenses 244 249
NET INVESTMENT INCOME 634 296
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:
Net realized gain (loss) on investments
(identified cost basis) (23) (90)
Net change in unrealized appreciation
(depreciation) on investments 2,596 5,343
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS 2,573 5,253
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS $ 3,207 $ 5,549
</TABLE>
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
Statement of Changes in Net Assets
For the Period November 1, 1996 (commencement of operations) to December 31,
1996
<TABLE>
<CAPTION>
MANNING & NAPIER INSURANCE FUND, INC.
---------------------------------------
Moderate
Bond Equity Small Cap Growth Growth
Portfolio Portfolio Portfolio Portfolio Portfolio
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
<S> <C> <C> <C> <C> <C>
Net investment income $ 781 $ 602 $ 113 $ 821 $ 634
Net realized loss on investments -- (1,587) (684) -- (23)
Net change in unrealized appreciation
(depreciation) on investments (1,573) 8,059 9,764 616 2,596
Net increase (decrease) in net assets
from operations (792) 7,074 9,193 1,437 3,207
CAPITAL STOCK ISSUED AND
REDEEMED:
Net increase from capital share
transactions (Note 5) 126,667 129,193 129,181 126,667 126,667
Net increase in net assets 125,875 136,267 138,374 128,104 129,874
NET ASSETS:
Beginning of period -- -- -- -- --
End of period $ 125,875 $ 136,267 $ 138,374 $ 128,104 $ 129,874
Maximum
Horizon
Portfolio
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
<S> <C>
Net investment income $ 296
Net realized loss on investments (90)
Net change in unrealized appreciation
(depreciation) on investments 5,343
Net increase (decrease) in net assets
from operations 5,549
CAPITAL STOCK ISSUED AND
REDEEMED:
Net increase from capital share
transactions (Note 5) 126,667
Net increase in net assets 132,216
NET ASSETS:
Beginning of period --
End of period $ 132,216
</TABLE>
The accompanying notes are an integral part of the financial statements.
26
<PAGE>
<TABLE>
<CAPTION>
MANNING & NAPIER INSURANCE FUND, INC.
---------------------------------------
Moderate
Bond Equity Small Cap Growth
Portfolio Portfolio Portfolio Portfolio
Per share data (for a share outstanding
throughout each period):
<S> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.00 $ 10.00 $ 10.00 $ 10.00
Income from investment operations:
Net investment income 0.062 0.047 0.009 0.065
Net realized and unrealized gain (loss)
on investments (0.122) 0.513 0.711 0.045
Total from investment operations (0.060) 0.560 0.720 0.110
NET ASSET VALUE - END OF PERIOD $ 9.94 $ 10.56 $ 10.72 $ 10.11
Total return: 1 (0.60%) 5.60% 7.20% 1.10%
Ratios of expenses (to average net
assets) / Supplemental Data*:
Expenses 2 0.85% 1.20% 1.20% 1.20%
Net investment income 2 3.92% 2.84% 0.55% 4.08%
Portfolio turnover 0% 29% 9% 0%
Average commision rate paid -- $ 0.0061 $ 0.0356 $ 0.0700
NET ASSETS - END OF PERIOD $ 125,875 $ 136,267 $ 138,374 $ 128,104
* The investment advisor did not impose its management fee and paid a portion
of the Fund's expenses. If these expenses had been incurred by the Fund,
expenses would habe been limited by state securities law and the net
investment income per share and the ratios would have been as follows:
Net Investment Income $ 0.036 $0.025 ($0.012) $0.044
Ratios (to average net assets):
Expenses 2 2.50% 2.50% 2.50% 2.50%
Net investment income 2 2.27% 1.54% (0.75%) 2.78%
1 Total return represents aggregate total return for the period indicated.
2 Annualized.
Maximum
Growth Horizon
Portfolio Portfolio
Per share data (for a share outstanding
throughout each period):
<S> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.00 $ 10.00
Income from investment operations:
Net investment income 0.050 0.023
Net realized and unrealized gain (loss)
on investments 0.200 0.417
Total from investment operations 0.250 0.440
NET ASSET VALUE - END OF PERIOD $ 10.25 $ 10.44
Total return: 1 2.50% 4.40%
Ratios of expenses (to average net
assets) / Supplemental Data*:
Expenses 2 1.20% 1.20%
Net investment income 2 3.11% 1.43%
Portfolio turnover 3% 4%
Average commision rate paid $ 0.0696 $ 0.0691
NET ASSETS - END OF PERIOD $ 129,874 $ 132,216
* The investment advisor did not impose its management fee and paid a portion
of the Fund's expenses. If these expenses had been incurred by the Fund,
expenses would have been limited by state securities law and the net
investment income per share and the ratios would have been as follows:
Net Investment Income $0.029 $0.002
Ratios (to average net assets):
Expenses 2 2.50% 2.50%
Net investment income 2 1.81% 0.13%
</TABLE>
1 Total return represents aggregate total return for the period indicated.
2 Annualized.
The accompanying notes are an integral part of the financial statements.
27
<PAGE>
Notes to Financial Statements
1. ORGANIZATION
Manning & Napier Bond Portfolio (Bond Portfolio), Manning & Napier Equity
Portfolio (Equity Portfolio), Manning & Napier Small Cap Portfolio (Small Cap
Portfolio), Manning & Napier Moderate Growth Portfolio (Moderate Growth
Portfolio), Manning & Napier Growth Portfolio (Growth Portfolio), and Manning
& Napier Maximum Horizon Portfolio (Maximum Horizon Portfolio) are no-load
diversified series funds (collectively the Funds) of Manning & Napier
Insurance Fund, Inc. (the "Corporation"). The Corporation is organized in
Maryland and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company. It was established for
the purpose of providing a vehicle for the investment of assets of various
separate accounts established exclusively for the purpose of providing an
investment vehicle for variable annuity contracts. Currently, shares of the
Corporation are offered only to separate accounts funding variable annuity
contracts issued by Keyport Life Insurance Company.
The total authorized capital stock of the Corporation consists of 550 million
shares of common stock each having a par value of $0.01. As of December 31,
1996, the shares are currently classified into six classes of shares, of
which 50 million have been designated for each of the folllowing: Class A -
Moderate Growth Portfolio, Class B - Growth Portfolio, Class C - Maximum
Horizon Portfolio, Class D - Equtiy Portfolio, Class E - Small Cap Portfolio,
and Class F - Bond Portfolio.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Portfolio securities, including domestic equities, foreign equities, options
and corporate bonds, listed on an exchange are valued at the last quoted sales
price of the exchange on which the security is primarily traded. Securities
not traded on valuation date or securities not listed on an exchange are
valued at the latest quoted bid price.
Debt securities, including government bonds and mortgage backed securities,
will normally be valued on the basis of evaluated bid prices.
Securities for which representative prices are not available from the Fund's
pricing service are valued at 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.
Short-term investments that mature in sixty (60) days or less are valued at
amortized cost which apprixates market value.
28
<PAGE>
Notes to Financail Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
SECURITY TRANSACTIONS, INVESTMENT INCOME AND EXPENSES
Security transactions are accounted for on the date the securities are
purchased or sold. Dividend income is recorded on the ex-dividend date.
Interest income and expenses are recorded on an accrual basis.
Most expenses of the Corporation can be attributed to a specific fund.
Expenses which cannot be directly attributed are apportioned among the funds
in the Corporation.
FEDERAL INCOME TAXES
The Funds policy is to comply with the provisions of the Internal Revenue Code
applicable to regulated investment companies. The Funds are not subject to
federal income tax to the extent the Funds qualify as Regulated Investment
Companies as defined in Subchapter M in the Internal Revenue Code and the
Funds distribute to shareholders each year their taxable incomes, including
any net realized gains on investments in accordance with requirements of the
Internal Revenue Code. Accordingly, no provision for federal income taxes
have been made in the financial statements.
The Funds use the identified cost method for determining realized gains or
losses on investments for both financial statement and federal income tax
reporting purposes.
At December 31, 1996, the following Funds have capital loss carry forwards,
for federal income tax purposes, which will expire on December 31, 2004:
Equity Portfolio $ 1,417
Small Cap Portfolio $ 684
Growth Portfolio $ 23
Maximum Horizon Portfolio $ 90
DISTRIBUTION OF INCOME AND GAINS
Distributions to shareholders of net investment income are made annually.
Distributions are recorded on the ex-dividend date. Distributions of net
realized gains are distributed annually. Additional distributions may be
necessary to avoid taxation of the Funds.
The timing and characterization of certain income and capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. The differences may be a
result of deferral of certain losses, foreign denominated investments or
character reclassification between net income and net gains. As a result, net
investment income (loss) and net investment gain (loss) on investment
transactions for a reporting period may differ significantly from
distributions to shareholders during such period. As a result, the Funds may
periodically make reclassification among their capital accounts without
impacting the Funds net asset value.
29
<PAGE>
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
FOREIGN CURRENCY TRANSLATION
The accounting records of the Funds are maintained in U.S. dollars. Foreign
currency amounts are translated into U.S. dollars on the following basis: a)
investment securities, other assets and liabilities are converted to U.S.
dollars based upon current exchange rates; and b) purchase and sales of
securities and income and expenses are converted into U.S. dollars based upon
the currency exchange rates prevailing on the respective dates of such
transactions.
Gains and losses attributable to foreign currency exchange rates are recorded
for financial statement purposes as net realized gains and losses on
investments. The portion of both realized and unrealized gains and losses on
investments that results from fluctuations in foreign currency exchange rates
is not separately stated.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Funds may purchase or sell forward foreign currency contracts in order to
hedge a portfolio position or specific transaction. Risks may arise if the
counterparties to a contract are unable to meet the terms of the contract or
if the value of the foreign currency moves unfavorably.
At December 31, 1996, the Funds had no open foreign currency exchange
contracts.
OTHER
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets ans liabilities at the date of the financial statements
and the reported amounts of the revenues and expenses during the repoting
period. Actual results could differ from those estimates.
3. TRANSACTIONS WITH AFFILIATES
The Funds have an investment advisory agreement with Manning & Napier
Advisors, Inc. (the "Advisor"), for which the Fund pays the Advisor a fee,
computed daily and payable monthly, at an annual rate based upon the following
percentages of average daily net assets: 0.50% for Bond Portfolio and 1.00%
for the Equity Portfolio, Small Cap Portfolio, Moderate Growth Portfolio,
Growth Portfolio, and the Maximum Horizon Portfolio. For the period November
1, 1996 (commencement of operations) to December 31, 1996, the fees amounted
to: $99 for the Bond Portfolio; $212 for the Equity Portfolio; $208 for the
Small Cap Portfolio; $201 for the Moderate Growth Portfolio; $203 for the
Growth Portfolio; and $207 for the Maximum Horizon Portfolio.
30
<PAGE>
Notes to Financial Statements
3. TRANSACTIONS WITH AFFILIATES (continued)
Under the Funds Investment Advisory Agreement (the "Agreement"), personnel of
the Advisor provide the Funds with advice and assistance in the choice of
investments and the execution of securities transactions, and otherwise
maintain the Funds organization. The Advisor also provides the Funds with
necessary office space and portfolio accounting and bookkeeping services. The
salaries of all officers of the Funds and of all Directors who are "affiliated
persons" of the Funds or of the Advisor, and all personnel of the Funds or of
the Advisor performing services relating to research, statistical and
investment activities are paid by the Advisor.
The Advisor has voluntarily agreed to waive its fee and, if necessary, pay
other expenses of the Funds in order to maintain total expenses for the Equity
Portfolio, Small Cap Portfolio, Moderate Growth Portfolio, Growth Portfolio,
and Maximum Horizon Portfolio at no more than 1.20%, and for the Bond
Portfolio at no more than 0.85% of average daily net assets each year.
Accordingly, the Advisor did not impose any of its fee and paid expenses
amounting to $6,585 for the Bond Portfolio, $6,500 for the Equity Portfolio,
$6,504 for the Small Cap Portfolio, $6,513 for the Moderate Growth Portfolio,
$6,510 for the Growth Portfolio, and $6,505 for the Maximum Horizon Portfolio,
for the period November 1, 1996 (commencement of operations) to December 31,
1996.
The Advisor also acts as the transfer, dividend paying and shareholder
servicing agent for the Funds. These services are provided at no additional
cost to the Funds.
Manning & Napier Investor Services, Inc., a registered broker-dealer affiliate
of the Advisor, acts as distributor for the Funds shares. The services of
Manning & Napier Investor Services, Inc. are provided at no additional cost to
the Funds.
The compensation of the non-affiliated Directors totaled $1,917 for each Fund
for the period November 1, 1996 (commencement of operations) to December 1,
1996.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term securities, for the
period November 1, 1996 (commencement of operations) to December 1, 1996, were
as follows:
<TABLE>
<CAPTION>
Purchases Sales
Fund Other Issuers Government Other Issuers Government
<S> <C> <C> <C> <C>
Bond Portfolio -- $ 118,656 -- --
Equity Portfolio $ 132,041 $ 10,613 $ 24,874 --
Small Cap Portfolio $ 104,258 -- $ 6,042 --
Moderate Growth Portfolio $ 16,809 $ 105,906 -- --
Growth Portfolio $ 50,648 $ 76,042 $ 2,199 --
Maximum Horizon Portfolio $ 97,084 $ 30,658 $ 3,251 --
</TABLE>
31
<PAGE>
Notes to Financial Statements
5. CAPITAL STOCK TRANSACTIONS
Transactions in capital shares of Funds were as follows for the period
November 1, 1996 (commencement of operations) to December 31, 1996:
<TABLE>
<CAPTION>
Fund Shares Sold
Fund Shares Amount
<S> <C> <C>
Bond Portfolio 12,667 $126,667
Equity Portfolio 12,907 $129,193
Small Cap Portfolio 12,913 $129,181
Moderate Growth Portfolio 12,667 $126,667
Growth Portfolio 12,667 $126,667
Maximum Horizon Portfolio 12,667 $126,667
</TABLE>
There were no repurchases during the period November 1, 1996 to December 31,
1996.
The Advisor owns 12,667 shares of each of the above funds as of December 31,
1996.
6. FINANCIAL INSTRUMENTS
The Funds may trade in financial instruments with off-balance sheet risk in
the normal course of their investing activities to assist in managing exposure
to various market risks. These financial instruments include written options,
forward foreign currency exchange contracts, and futures contracts and may
involve, to varying degrees, elements of risk in excess of the amounts
recognized for financial statement purposes. No such investments were held by
the Funds on December 31, 1996.
7. FOREIGN SECURITIES
Investing in securities of foreign companies and foreign governments involves
special risks and considerations not typically associated with investing in
securities of U.S. companies and the United States government. These risks
include revaluation of currencies and future adverse political and economic
developments. Moreover, securities of foreign companies and foreign
governments may be less liquid and their prices more volatile than securities
of comparable U.S. companies and the United States government.
32
<PAGE>
Report of Independent Accountants
To the Shareholders and Board of Directors of Manning & Napier Insurance Fund,
Inc.:
We have audited the accompanying statements of assets and liabilities of
Manning & Napier Insurance Fund, Inc. (comprising, respectively, Manning &
Napier Bond Portfolio, Manning & Napier Equity Portfolio, Manning & Napier
Small Cap Portfolio, Manning & Napier Moderate Growth Portfolio, Manning &
Napier Growth Portfolio, and Manning & Napier Maximum Horizon Portfolio - the
"Funds"), including the schedules of portfolio investments, as of December 31,
1996, and the related statemenst of operations, the statements of changes in
net assets, and the financial highlights for the period November 1, 1996
(commencement of operations) to December 31, 1996. These financial statements
and financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the finacial statements and financial
highlights are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statement. Our procedures included confirmation of securities owned as of
December 31, 1996 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provides a reasonable
basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
each of the respective Funds constituting Manning & Napier Insurance Fund,
Inc. as of December 31, 1996, the results of the Funds' operations, the changes
in the Funds' net assets, and the financial highlights for the period November
1, 1996 (commencement of operations) to December 31, 1996 in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
January 23, 1997
33
PART C
OTHER INFORMATION
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS: (INCLUDED IN PART A)
Audited Financial Highlights for the Moderate Growth Portfolio, Growth
Portfolio, Maximum Horizon Portfolio, Small Cap Portfolio, Equity Portfolio
and the Bond Portfolio for the fiscal period ended December 31, 1996.
FINANCIAL STATEMENTS: (INCLUDED IN PART B)
The following audited Financial Statements for the Moderate Growth
Portfolio, Growth Portfolio, Maximum Horizon Portfolio, Small Cap Portfolio,
Equity Portfolio and the Bond Portfolio for the fiscal period ended December
31, 1996, including the following:
Statements of Assets and Liabilities
Statements of Operations
Statements of Changes in Net Assets
Financial Highlights
Portfolio of Investments
Notes to Financial Statements
Report of Independent Accountants
(B) EXHIBITS
(1) (a) Articles of Incorporation. (Incorporated by reference to
Registrants Registration Statement on Form N-1A Filed on December 1, 1995.)
(b) Articles Supplementary. (Incorporated by reference to Registrants
Registration Statement on Form N-1A Filed on June 27, 1996.)
(2) By-Laws. (Incorporated by reference to Registrants Registration
Statement on Form N-1A Filed on December 1, 1995.)
(3) Not Applicable.
(4) Not Applicable.
(5) Form of Investment Advisory Agreement. (Incorporated by reference
to Registrants Registration Statement on Form N-1A Filed on June 27,
1996.)
(6) Form of Distribution Agreement. (Incorporated by reference to
Registrants Registration Statement on Form N-1A Filed on June 27, 1996.)
(7) Not Applicable.
(8) Form of Custodian Agreement. (Incorporated by reference to
Registrants Registration Statement on Form N-1A Filed on June 27, 1996.)
(9)(a) Form of Transfer Agent Agreement between the Registrant and
Manning & Napier Advisors, Inc. (Incorporated by reference to Registrants
Registration Statement on Form N-1A Filed on June 27, 1996.)
(b) Fund Participation Agreement between Manning & Napier Insurance
Fund, Inc., Manning & Napier Investor Services, Inc., Manning & Napier
Advisors, Inc. And Keyport Life Insurance Company. Filed Herewith.
(10) Opinion and Consent of Blazzard, Grodd & Hasenauer, P.C. Filed
Herewith.
(11) Opinion and Consent of Independent Accountants. Filed
Herewith.
(12) Not Applicable.
(13) Purchase Agreement. (Incorporated by reference to Registrants
Registration Statement on Form N-1A Filed on June 27, 1996.)
(14) Not Applicable.
(15) Not Applicable.
(16) Schedule of Computation of each performance quotation. Filed
Herewith.
(27) Financial Data Schedules. Filed Herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of April 9, 1997:
<TABLE>
<CAPTION>
(1) (2)
- - --------------- ---
Title of Class Number of record holders
- - --------------- ------------------------
<S> <C> <C> <C>
Class A 1
- - --------------- -----
Class B 1
- - --------------- -----
Class C 1
- - --------------- -----
Class D 1
- - --------------- -----
Class E 1
- - --------------- -----
Class F 1
- - --------------- -----
</TABLE>
ITEM 27. 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 No. 11330. Insofar as indemnification for
liability arising under the Securities Act of 1933 may be permitted to
trustees, officers and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a trustee, officer or controlling person of the 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, the 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.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER AND
SUB_ADVISERS
Manning & Napier Advisors, Inc. is the investment advisor of the Registrant.
For information as to the business, profession, vocation or employment of a
substantial nature of Manning & Napier Advisors, Inc., its directors and
officers, reference is made to Part B of this Registration Statement and to
Form ADV (File No. 801-10733) as filed under the Investment Advisers Act of
1940 by Manning & Napier Advisors, Inc.
ITEM 29. PRINCIPAL UNDERWRITER
(a) Not Applicable
(b) Manning & Napier Investor Services, Inc. is the Distributor
of the Registrant's shares.
<TABLE>
<CAPTION>
Name & Principal Positions & Offices Positions & Offices
Business Address with Distributor with Registrant
- - ------------------------------- -------------------------- -------------------
<S> <C> <C>
B. Reuben Auspitz President & Director Director
1100 Chase Square
Rochester, NY 14604
Julie Raschella Director N/A
1100 Chase Square
Rochester, NY 14604
Beth Hendershot Galusha Treasurer N/A
- - -------------------------------
1100 Chase Square
Rochester, NY 14604
Amy Williams
Corporate Secretary N/A
1100 Chase Square
Rochester, NY 14604[/R]
George Nobiliski Director N/A
1100 Chase Square
Rochester, NY 14604
</TABLE>
ITEM 30. 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 31. MANAGEMENT SERVICES
Other than as set forth in Parts A and B of this Registration Statement, the
Registrant is not a party to any management_related service contract.
ITEM 32. UNDERTAKINGS
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment No. 2 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 28th day of April, 1997.
Manning & Napier Insurance Fund, Inc.
(Registrant)
By:/s/B. Reuben Auspitz
B. Reuben Auspitz
President
Pursuant to the requirements of the Securities Act of 1933, this
Post_Effective Amendment No. 2 to the Registration Statement has been
signed below by the following persons in the capacities and on the date
indicated.
<TABLE>
<CAPTION>
Signature Title Date
- - ----------------------- ------------------------------------- ----
<S> <C> <C>
/s/B. Reuben Auspitz Principal Executive 4/28/97
- - ----------------------- Officer and Director
B. Reuben Auspitz
/s/Martin F. Birmingham Director 4/28/97
- - -----------------------
Martin F. Birmingham
/s/Harris H. Rusitzky Director 4/28/97
- - -----------------------
Harris H. Rusitzky
/s/Peter L. Faber Director 4/28/97
- - -----------------------
Peter L. Faber
/s/Stephen B. Ashley Director 4/28/97
- - -----------------------
Stephen B. Ashley
/s/Timothy P. Mullaney Chief Financial & 4/28/97
- - ----------------------- Accounting Officer,
Timothy P. Mullaney Treasurer
</TABLE>
EXHIBITS
TO
FORM N_1A
FOR
MANNING & NAPIER INSURANCE FUND, INC.
<PAGE>
INDEX TO EXHIBITS
EX-99.B(9) Fund Participation Agreement
EX-99.B(10) Opinion and Consent of Blazzard, Grodd & Hasenauer, P.C.
EX-99.B(11) Opinion and Consent of Independent Accountants
EX-99.B(16) Schedule of Computation of each performance quotation
EX-99.B(27) Financial Data Schedules
PARTICIPATION AGREEMENT
AMONG
MANNING & NAPIER INSURANCE FUND, INC.
MANNING & NAPIER INVESTOR SERVICES, INC.
MANNING & NAPIERS ADVISORS, INC.
AND
KEYPORT LIFE INSURANCE COMPANY
This Agreement, made and entered into this 20th day of September, 1996 by
and among Keyport Life Insurance Company, a Rhode Island corporation,
(referred to as the "Company"), each on its own behalf and on behalf of its
Separate Account, which is a segregated asset account of the Company; Manning
& Napier Insurance Fund, Inc. (the "Fund"), a Maryland Corporation; Manning &
Napier Investor Services, Inc. ("Distributor"), a New York corporation; and
Manning & Napier Advisors, Inc. ("Advisor"), a New York corporation.
WHEREAS, the Fund engages in business as an open-end investment
manage-ment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and
variable annuity contracts ("Variable Insurance Products") to be offered by
insurance companies which have entered into participation agreements with the
Fund and Distributor substantially identical to this Agreement (hereinafter
"Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares (such series being hereinafter referred to individually as a
"Portfolio" or collectively as the "Portfolios") as shown on Schedule A
attached hereto; and
WHEREAS, the Fund currently intends to apply for an order from the
Securities and Exchange Commission ("SEC"), granting Participating Insurance
Companies and variable annuity and variable life insurance separate accounts
exemptions from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of
the Investment Company Act of 1940, as amended (hereinafter the "1940 Act")
and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder to the extent necessary to
permit shares of the Fund to be sold to and held by variable annuity separate
and variable life insurance accounts of both affiliated and unaffiliated life
insurance companies (hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end investment management
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Manning & Napier Advisors, Inc. (the "Advisor") is duly
registered as an investment advisor under the federal Investment Advisors Act
of 1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain Variable
Insurance Products under the 1933 Act; and
WHEREAS, the Company has established a duly organized, and validly
existing segregated asset account as shown on Schedule B attached hereto (the
"Separate Ac-count") established by resolution of the Boards of Directors of
the Company, and divided such Separate Account into subaccounts to set aside
and invest assets attributable to aforesaid variable annuity contracts; and
WHEREAS, the Company has registered or will register the certain Separate
Account as a unit investment trust under the 1940 Act; and
WHEREAS, Distributor is registered as a broker-dealer with the SEC under
the Securities Exchange Act of 1934, as amended, (hereinafter the "1934 Act"),
and is a member in good standing of the National Association of Securities
Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, Keyport Financial Services Corporation ("KFSC") the underwriter
for the individual variable annuity and the variable life policies, is
registered as a broker-dealer with the SEC under the 1934 Act and is a member
in good standing of the NASD; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on
behalf of the Separate Account to fund certain Variable Insurance Products.
Distributor is authorized to sell such shares to unit investment trusts such
as the Separate Account at net asset value, and acts as distributor of the
Portfolio shares.
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Distributor agree as follows:
ARTICLE I. Sale of Fund Shares
1.1 Distributor shall sell to the Company those shares of the Fund
which the Separate Account orders, executing such orders on a daily basis at
the net asset value next computed after receipt by the Fund or its designee of
the order for shares of the Fund. For purposes of this Section 1.1, the
Company shall be the designee of the Fund for receipt of such orders from the
Separate Account and receipt by such designee shall constitute receipt by the
Fund provided that the Company receives the order by 4:00 p.m. New York time
and the Fund receives notice from the Company, as the Company and Fund may
agree, by 9:00 a.m. New York time on the next Business Day. "Business Day"
shall mean any day on which the New York Stock Exchange is open for regular
trading and on which the Fund calculates its net asset value pursuant to the
rules of the SEC.
1.2 The Fund agrees subject to the terms of this Agreement, to make
its shares available indefinitely for purchase at the applicable net asset
value per share by the Company and its Separate Account on those days on which
the Fund calculates its net asset value pursuant to rules of the SEC. The Fund
shall use reasonable efforts to calculate such net asset value on each day on
which the New York Stock Exchange is open for trading. Notwithstanding the
foregoing, the Board of Directors of the Fund (hereinafter the "Board") may
refuse to sell shares of any Portfolio to any person, or suspend or terminate
the offering of shares of any Portfolio if such action is required by law or
by regulatory authorities having jurisdiction or is, in the sole discretion of
the Board acting in good faith and in light of its fiduciary duties under
federal and any applicable state laws, necessary in the best interests of the
shareholders of such Portfolio.
1.3 The Fund agrees that shares of the Fund will be sold only to
Participating Insurance Companies and their separate accounts which have
agreed to participate in the Fund to fund their Separate Accounts and/or
certain qualified plans, all in accordance with the requirements of Section
817(h) of the Internal Revenue Code of 1986, as amended (hereinafter "Code")
and Treasury Regulation 1.817-5. No shares of any Portfolio will be sold to
the general public.
1.4 The Fund and Distributor will not sell Fund shares to any
insurance company or separate account unless an agreement contain-ing
substantially similar provisions as Articles I, III, V, VI and Sections 2.5 of
Article II of this Agreement is in effect to govern such sales.
1.5 The Fund will redeem for cash, on the Company's request, any full
or fractional shares of the Fund held by the Company, executing such requests
on a daily basis at the net asset value next computed after receipt by the
Fund or its designee of redemption requests. For purposes of this Section
1.5, the Company shall be the designee of the Fund for receipt of requests for
redemption from the Separate Account, and receipt by such designee should
constitute receipt by the Fund; provided that the Company receives the request
for redemption by 4:00 p.m. New York time, and the Fund receives notice from
the Company, as the Company and Fund may agree, by 9:00 a.m. New York time on
the next Business Day.
Subject to the applicable rules and regulations, if any, of the SEC, the
Fund may pay the redemption price for shares of any Portfolio in whole or in
part by a distribution in kind of securi-ties from the Portfolio of the Fund
allocated to such Portfolio in lieu of money, valuing such securities at their
value employed for determining net asset value governing such redemption
price, and selecting such securities in a manner the Board may determine in
good faith to be fair and equitable.
1.6 The Fund may suspend the redemption of any full or fractional
shares of the Fund (1) for 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 fairly to determine the value of its
net assets; or (3) for such other periods as the SEC may by order permit for
the protection of shareholders of the Fund.
1.7 The Company will purchase and redeem the shares of each Portfolio
offered by the then current prospectus of the Fund in accordance with the
provisions of such prospectus and statement of additional information ("SAI")
(collectively referred to as "Prospectus," unless otherwise provided). The
Company agrees that all net amounts available under the Variable Insurance
Products with the form number(s) that are listed on Schedule B attached hereto
and incorporated herein by this reference, as such Schedule B may be amended
from time to time hereafter by mutual written agreement of all the parties
hereto (the "Contracts"), shall be invested in the Fund, in such other Funds
advised by Stein, Roe & Farnham Incorporated or the Advisor as may be mutually
agreed to in writing by the parties hereto, or in the Company's general
accounts, or in such other funds as the parties hereto agree in writing.
1.8 The Company shall pay for Fund shares on the same Business Day as
an order to purchase Fund shares is made in accordance with the provisions of
Section 1.1 hereof. Payment shall be in federal funds transmitted by wire, or
may otherwise be provided by separate agreement. For purpose of Section 2.10
and 2.11, upon receipt by the Fund of the federal funds so wired, such funds
shall cease to be the responsibility of the Company and shall become the
responsibility of the Fund.
1.9 Issuance and transfer of the Funds' shares will be by book entry
only. Stock certificates will not be issued to the Company or the Separate
Account. Shares ordered from the Fund will be recorded in an appropriate
title for the Separate Account or the appropriate subaccount of the Separate
Account.
1.10 The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income dividends or
capital gain distributions payable on the shares of any Portfolio. The Company
hereby elects to receive all such income dividends and capital gain
distributions as are payable on the Portfolio shares in additional shares of
that Portfolio. The Company reserves the right to revoke this election and to
receive all such income, dividends and capital gain distributions in cash.
The Fund shall notify the Company of the number of shares so issued as payment
of such income, dividends and capital gains distributions.
1.11 The Fund shall make the net asset value per share for each Series
available to the Company on a daily basis as soon as reasonably practical
after the net asset value per share is calculated and shall use its best
efforts to make such net asset value per share available by 7 p.m., New York
time.
ARTICLE II. Representations and Warranties
2.1 The Company represents and warrants that the Contracts are or
will be registered under the 1933 Act to the extent required by the 1933 Act;
that the Contracts will be issued and distributed in compliance in all
material respects with all applicable federal and state laws and that the sale
of the Contracts shall comply in all material respects with state insurance
suitability requirements. The Company further represents and warrants that it
is an insurance company duly organized and in good standing under applicable
law and that prior to any issuance or sale of any Contract it has legally and
validly established the Separate Account as a segregated asset account under
the applicable state insurance laws and has registered or, prior to any
issuance or sale of the Contracts, will register the Separate Account as a
unit investment trust in accordance with the provisions of the 1940 Act to
serve as a segregated investment account for the Contracts.
2.2 The Company represents and warrants that KFSC, the underwriter
for the individual variable annuity and the variable life policies, is a
member in good standing of the NASD and is a registered broker-dealer with the
SEC. The Company represents and warrants that the Company and KFSC will issue
and distribute such policies in accordance in all material respects with all
applicable state and federal securities laws, including without limitation the
1933 Act, the 1934 Act, and the 1940 Act.
2.3 The Fund represents and warrants that Fund shares sold pursuant
to this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Maryland and all
applicable federal and any state securities laws and that the Fund is and
shall remain registered under the 1940 Act. The Fund shall amend the
registration statement for its shares under the 1933 Act and the 1940 Act from
time to time as required in order to effect the continuous offering of its
shares. The Fund shall register and qualify the shares for sale in accordance
with the laws of the various states only if and to the extent deemed advisable
by the Fund or Distributor.
2.4 The Fund represents that it intends to qualify as a Regulated
Investment Company under Subchapter M of the Code and that it will make every
effort to maintain such qualification (under Subchapter M or any successor or
similar provision) and that it will notify the Company immediately upon having
a reasonable basis for believing that it has ceased to so qualify or that it
might not so qualify in the future. The Fund represents and warrants that each
Portfolio will comply with the diversification requirements set forth in
Section 817(h) of the Code, and the rules and regulations thereunder,
including without limitation Treasury Regulation 1.817-5, and will notify the
Company immediately upon having a reasonable basis for believing any Fund has
ceased to comply or might not so comply and will immediately take all
reasonable steps to adequately diversify the Fund to achieve compliance within
the grace period afforded by Regulation 1.817-5. The Fund acknowledges that
any failure to qualify as a Regulated Investment Company will eliminate the
ability of the subaccounts to avail themselves of the "look through"
provisions of section 817(h) of the Code, and that as a result the Contracts
will almost certainly fail to qualify as annuity contracts under section
817(h) of the Code.
2.5 The Company represents that the Contracts are currently treated
as endowment or annuity contracts under applicable provisions of the Code and
that it will make every effort to maintain such treatment and that it will
notify the Fund and Distributor immediately upon having a reasonable basis for
believing that the Contracts have ceased to be so treated or that they might
not be so treated in the future.
2.6 The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various
states except that the Fund represents that it is currently in compliance and
shall at all times remain in compliance with the applicable insurance laws of
the domiciliary states of the Participating Insurance Companies to the extent
that the Participating Insurance Companies advise the Fund, in writing, of
such laws or any changes in such laws.
2.7 Distributor represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC.
Distributor further represents that it will sell and distribute the Fund's
shares in accordance with applicable state and federal securities laws,
including without limitation the 1933 Act, the 1934 Act, and the 1940 Act.
2.8 The Fund represents that it is lawfully organized and validly
existing under the laws of the State of Maryland and that it does and will
comply in all material respects with the 1940 Act.
2.9 The Fund represents and warrants that the Advisor is and shall
remain duly registered under all applicable federal and state securities laws
and that the Advisor shall perform its obligations for the Fund in compliance
in all material respects with the applicable laws of the State of New York and
any applicable state and federal securities laws.
2.10 The Fund represents and warrants that all of its Directors,
officers, employees, investment advisors, and other individuals/entities
dealing with the money and/or to securities of the Fund are and shall continue
to be at all times covered by a blanket fidelity bond or similar coverage in
an amount not less than the minimal coverage as required currently by Rule
17g-(1) of the 1940 Act or related provisions as may be promulgated from time
to time. The aforesaid bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company.
2.11 The Company represents and warrants that all of its directors,
officers, employees, investment advisors, and other individuals/entities
dealing with the money and/or securities of the Fund are covered by a blanket
fidelity bond or similar coverage for the benefit of the Fund, in an amount
not less than ten million dollars ($10,000,000) with no deductible amount.
The aforesaid bond shall include coverage for larceny and embezzlement and
shall be issued by a reputable fidelity insurance company. The Company agrees
to make all reasonable efforts to see that this bond or another bond
containing these provisions is always in effect, and agrees to notify the Fund
and Distributor in the event such coverage no longer applies.
ARTICLE III. Prospectus and Proxy Statements; Voting
3.1 The Fund and the Advisor shall provide the Company with as many
copies of the Fund's current prospectus and Statement of Additional
Information as the Company may reasonably request in connection with delivery
of the prospectus to shareholders and purchasers of Variable Insurance
Products. If requested by Company in lieu thereof, the Fund or the Advisor
shall provide such documentation (including a "camera ready" copy of the new
prospectus as set in type or, at the request of Company, as a diskette in the
form sent to the financial printer) and other assistance as is reasonably
necessary in order for the parties hereto once a year (or more frequently if
the prospectus for the shares is supplemented or amended) to have the
prospectus for the Variable Insurance Products and the prospectus for the Fund
shares printed together in one document. The expenses of such printing will be
apportioned between the Company and the Fund as the parties agree to in
writing. In the event that the Company requests that the Fund or the Advisor
provide the Fund's prospectus in a "camera ready" or diskette format, the Fund
shall be responsible for providing the prospectus in the format in which it is
accustomed to formatting prospectuses and shall bear the expense of providing
the prospectus in such format (e.g. typesetting expenses) and the Company
shall bear the expense of adjusting or changing the format to conform with any
of its prospectus.
3.2 The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from Distributor and the
Company, and at its expense, shall provide a final copy of such Statement of
Additional Information to Distributor for duplication and provision to any
Owner of a Variable Insurance Product or prospective owner who requests it.
3.3 The Fund, at its expense, shall provide the Company with copies
of its proxy materials, reports to shareholders and other communications
(except for prospectus and Statements of Additional Information, which are
covered in Section 3.1) to shareholders in such quantity as the Company shall
reasonably require for distribution to owners of Variable Insurance Products
(hereinafter "Owners").
3.4 If and to the extent required by law the Company shall:
(i) solicit voting instructions from Owners;
(ii) vote the Fund shares in accordance with instructions
received from Owners; and
(iii) vote Fund shares for which no instructions have been
received in a particular Separate Account in the same proportion as Fund
shares of such Portfolio for which instructions have been received in that
Separate Account,
so long and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners. The
Company reserves the right to vote Fund shares held in any segregated asset
account in its own right, to the extent permitted by law. Participating
Insurance Companies shall be responsible for assuring that each of their
Separate Accounts participating in the Fund calculates voting privileges in a
manner consistent with the standards to be provided in writing to the
Participating Insurance Companies.
3.5 The Fund shall comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular the Fund will either
provide for annual meetings or comply with Section 16(c) of the 1940 Act
(although the Fund is not one of the trusts described in Section 16(c) of that
Act) as well as with Section 16(a) and, if and when applicable, 16(b).
Further, the Fund will act in accordance with the SEC's interpretation of the
requirements of Section 16(a) with respect to periodic elections of directors
and with whatever rules the Commission may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1 The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, the form of each piece of sales literature or other
promotional material in which the Fund or its investment advisor is named, at
least ten (10) Business Days prior to its use. No such material shall be used
if the Fund or its designee reasonably objects to such use within five (5)
Business Days after receipt of its material.
4.2 The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of Variable Insurance Products other than the
information or representations contained in the registration statement or
Prospectus for the Fund shares, as such registration statement and Prospectus
may be amended or supplemented from time to time, or in reports or proxy
statements for the Fund, or in sales literature or other promotional material
approved by the Fund or its designee, except with the permission of the Fund
or its designee.
4.3 The Fund or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company and/or its Separate
Account(s), are named at least ten (10) Business Days prior to its use. No
such material shall be used if the Company or its designee reasonably objects
to such use within five (5) Business Days after receipt of such material.
4.4 The Fund shall not give any information or make any
representations or statements on behalf of the Company or concerning the
Company, each Separate Account, or the Variable Insurance Products other than
the information or representations contained in or accurately derived from a
registration statement or prospectus for such Variable Insurance Products, as
such registration statement and prospectus may be amended or supplemented from
time to time, or in published reports for such Separate Account which are in
the public domain or approved by the Company for distribution to Owners, or in
sales literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5 The Fund shall provide to the Company at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and
all amendments to any of the above, that relate to the Fund or its shares,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
4.6 The Company shall provide to the Fund at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for
no-action letters, and all amendments to any of the above, that relate to the
Variable Insurance Products or any Separate Account, contemporaneously with
the filing of such document with the SEC or other regulatory authorities.
4.7 For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational
or training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, Statements of Additional Information, share-hold-er reports, and
proxy materials and any other material constituting sales literature or
advertising under the 1933 Act, the 1940 Act or NASD rules.
ARTICLE V. Fees and Expenses
5.1 The Fund shall pay no fee or other compensation to the Company
under this Agreement (except for items covered in Article III), except that if
the Fund or any Portfolio adopts and implements a plan pursuant to Rule 12b-1
to finance distribution expenses, then Distributor may make payments to the
Company for the Variable Insurance Products if and in amounts agreed to by
Distributor in writing and such payments will be made out of existing fees
payable to Distributor, past profits of Distributor or other resources
available to Distributor. No such payments shall be made directly by the
Fund. Currently, no such payments are contemplated.
5.2 All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with
applicable federal law and if and to the extent deemed advisable by the Fund,
in accordance with applicable state laws prior to their sale. The Fund shall
bear the expenses of registration and qualification of the Fund's shares,
preparation and filing of the Fund's prospectus and registration statement,
proxy materials and reports, setting the prospectus in type, setting in type
and printing the proxy materials and reports to shareholders (including the
costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state
law, and all taxes on the issuance or transfer of the Fund's shares.
5.3 The Company shall bear the expenses of distributing the Fund's
proxy materials and reports to Owners.
ARTICLE VI. Potential Conflicts
6.1 The parties acknowledge that the Fund presently intends to file
an application with the SEC to request an order granting relief from various
provisions of the 1940 Act and the rules thereunder to the extent necessary to
permit the Fund shares to be sold to and held by variable annuity and variable
life insurance separate accounts of both affiliated and unaffiliated
Participating Insurance Companies and Qualified Plans. It is anticipated that
the Exemptive Order, when and if issued, shall require the Fund and each
Participating Insurance Company to comply with conditions and undertakings
substantially as provided in this Section 6. If the Exemptive Order imposes
conditions materially different from those provided for in this Section 6, the
conditions and undertakings imposed by the Exemptive Order shall govern this
Agreement and the parties hereto agree to amend this Agreement consistent with
the Exemptive Order. The Fund will not enter into a participation agreement
with any other Participating Insurance Company unless it imposed the same
conditions and undertakings as are imposed on the Company.
6.2 The Board shall monitor the Fund for the existence of any
material irreconcilable conflict between the interests of the Owners of
separate accounts of Participating Insurance Companies investing in the Fund.
A material irreconcilable conflict may arise for a variety of reasons,
including: (a) an action by any state insurance regulatory authority; (b) a
change in applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any Portfolio
are being managed; (e) a difference in voting instructions given by variable
annuity contract and variable life insurance policy Owners; (f) a decision by
an insurer to disregard the voting instructions of Owners; or (g) if
applicable, a decision of a Qualified Plan to disregard the voting
instructions of plan participants. The Board shall promptly inform the
Company if it determines that a material irreconcilable conflict exists and
the implications thereof.
6.3 The Company will report any potential or existing conflicts
(including the occurrence of any event specified in paragraph 6.1 which may
give rise to such a conflict) of which it is aware to the Board. The Company
will assist the Board in carrying out their responsibilities under the Shared
Funding Exemptive Order, by providing the Board with all information
reasonably necessary for the Board to consider any issues raised. This
includes, but is not limited to, an obligation by the Company to inform the
Board whenever Owner voting instructions are disregarded. The responsibilities
of the Company will be carried out with a view to the interests of the Owners.
6.4 If it is determined by a majority of the Board, or a majority of
its disinterested trustees, that a material irreconcil-able conflict exists,
the Company and other Participating Insurance Companies shall, at their
expense and to the extent reasonably practicable (as determined by a majority
of the disinterested directors), take whatever steps are necessary to remedy
or eliminate the material irreconcilable conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts of
Participating Insurance Companies from the Fund or any Portfolio and
reinvesting such assets in a different investment medium, including (but not
limited to) another Portfolio of the Fund, or submitting the question whether
such segregation should be implemented to a vote of all affected Owners and,
as appropriate, segregating the assets of any particular group (i.e., annuity
contract owners, life insurance contract owners, or variable contract owners
of one or more Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected Owners the option of making such a
change; and (2) establishing a new registered management investment company or
managed separate account.
6.5 If a material irreconcilable conflict arises because of a
decision by the Company to disregard Owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company shall be required, at the Fund's election, to withdraw the affected
Separate Account's (or subaccount's) investment in the Fund and terminate this
Agreement with respect to such Separate Account (or subaccount); provided,
however, that such withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as determined by a
majority of the disinterested members of the Board. The responsibility to take
such remedial action shall be carried out with a view only to the interests of
the Owners. Any such withdrawal and termination must take place within six (6)
months after the Fund gives written notice that this provision is being
implemented, and until the end of that six (6) month period Distributor and
the Fund shall continue to accept and implement orders by the Company for the
purchase and redemption of shares of the Fund.
6.6 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Separate Account's investment in the Fund and terminate this
Agreement within six (6) months after the Board informs the Company in writing
that it has determined that such decision has created a irreconcilable
material conflict; provided, however, that such withdrawal and termination
shall be limited to the extent required by the foregoing irreconcilable
material conflict as determined by a majority of the disinterested members of
the Board. Until the end of the foregoing six (6) month period, Distributor
and the Fund shall continue to accept and implement orders by the Company for
the purchase and redemption of shares of the Fund.
6.7 For purposes of Sections 6.4 through 6.7 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but
in no event will the Fund be required to establish a new funding medium for
the Variable Insurance Products. The Company shall not be required by Section
6.4 to establish a new funding medium for the Variable Insurance Products if
an offer to do so has been declined by vote of a majority of Owners materially
adversely affected by the irreconcilable material conflict. In the event that
the Board determines that any proposed action does not adequately remedy any
irreconcilable material conflict, then the Company shall withdraw the affected
Separate Account's investment in the Fund and terminate this Agreement within
six (6) months after the Board informs the Company in writing of the foregoing
determination; provided, however, that such withdrawal and termination shall
be limited to the extent required by any such material irreconcilable conflict
as determined by a majority of the disinterested Members of the Board.
6.8 If and to the extent that Rule 6e-2 or Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared Funding
Exemptive Order, then (a) the Fund and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the
extent such Rules are applicable; and (b) Sections 3.4, 3.5, 6.2, 6.3, 6.4,
6.5, and 6.6 of this Agreement shall continue in effect only to the extent
that terms and conditions substantially identical to such Sections are
contained in such Rule(s) as so amended or adopted.
ARTICLE VII. Indemnification
7.1 Indemnification By the Company
7.1(a) The Company shall indemnify and hold harmless the Distributor,
the Advisor, the Fund and each member of the Board and officers and each
person, if any, who controls the Fund within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" for purposes of this Section
7.1) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Company) or
litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof) or settlements are related to the sale of the
Variable Insurance Products and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the registration
statement or prospectus for the Variable Insurance Products or in the sales
literature for the Variable Insurance Products (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
provided that this Agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with information
furnished in writing to the Company by or on behalf of the Fund for use in
the registration statement or prospectus for the Variable Insurance Products
or in the sales literature (or any amendment or supplement) or otherwise for
use in connection with the sale of the Variable Insurance Products or Fund
shares; or
(ii) arise out of or are based upon statements or representations
(other than statements or representations contained in the Registration
Statement, prospectus or sales literature of the Fund not supplied by the
Company, or persons under its control) or wrongful conduct of the Company or
persons under its control, with respect to the sale or distribution of the
Variable Insurance Products; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a Registration Statement, prospectus, or sales
literature of the Fund or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading if
such a statement or omission was made in reliance upon information furnished
to the Fund by or on behalf of the Company; or
(iv) arise as a result from any failure by the Company to provide the
services and furnish the materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Company, as limited by and in accordance with the provisions of Sections
7.1(b) and 7.1(c) hereof.
7.1(b) The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation incurred or assessed against an Indemnified Party as such may arise
from such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties or by reason
of such Indemnified Party's reckless disregard of obligations or duties under
this Agreement or to the Fund, whichever is applicable.
7.1(c) The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify the Company of
any such claim shall not relieve the Company from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise
than on account of this indemnification provision. In case any such action is
brought against an Indemnified Party, the Company shall be entitled to
participate, at its own expense, in the defense of such action. The Company
also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from the Company
to such party of the election of one or both of the Company to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Company will not be liable to such
party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
7.1(d) The Indemnified Parties shall promptly notify the Company of
the commencement of any litigation or proceeding against them in connection
with the issuance or sale of Variable Insurance Products or the operation of
the Fund. This indemnification shall be in addition to any liability which the
Company may otherwise have.
7.2 Indemnification By the Advisor
7.2(a) The Advisor shall indemnify and hold harmless the Company, and
its directors and officers and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 7.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement
with the written consent of the Fund) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any
statute, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements are
related to the operations of the Fund and:
(i) arise out of or are based upon any untrue state-ments or alleged
untrue statements of any material fact contained in the registration
statement or prospectus or sales literature for the Fund (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
provided that this Agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with information
furnished in writing to the Advisor, Distributor or the Fund by or on behalf
of the Company for use in the registration statement or prospectus for the
Fund or in the sales literature (or any amendment or supplement) or otherwise
for use in connection with the sale of Fund shares;or
(ii) arise out of or are based upon statements or representations
(other than statements or representations contained in the Registration
Statement, prospectus or sales literature of the Variable Insurance Products
not supplied by the Advisor, Distributor or persons under its control) or
wrongful conduct of one or both of the Fund or the Advisor or persons under
its control, with respect to the sale or distribution of Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement, prospectus, or
sales literature of the Variable Insurance Products, or any amendment thereof
or supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or omission was made in
reliance upon and in conformity with information furnished to the Company by
or on behalf of the Fund; or
(iv) arise out of or result from any failure by the Advisor to
provide the services and furnish the materials under the terms of this
Agreement (including a failure to comply with the diversifica-tion
requirements specified in Article II of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Fund;
as limited by and in accordance with the provisions of Sections 7.2(b) and
7.2(c) hereof.
7.2(b) The Advisor shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation incurred or assessed against an Indemnified Party as such may arise
from such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties or by reason
of such Indemnified Party's reckless disregard of obligations and duties under
this Agreement or to the Company, the Fund, Distributor or each Separate
Account, whichever is applicable.
7.2(c) The Advisor shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Advisor in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have served upon such Indemnified
Party (or after such Indemnified Party shall have received notice of such
service on any designated agent), but failure to notify the Advisor of any
such claim shall not relieve the Advisor from any liability which it may have
to the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against and Indemnified Party, the Advisor will be entitled to participate, at
its own expense, in the defense thereof. The Advisor also shall be entitled
to assume the defense thereof, with counsel satisfactory to the party named in
the action. After notice from the Advisor to such party of the Advisor's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Advisor
will not be liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation.
7.2(d) The Company agrees promptly to notify the Advisor of the
commencement of any litigation or proceedings against it or any of its
officers or directors in connection with this Agreement, the issuance or sale
of the Variable Insurance Products or the operation of the Account. This
indemnification shall be in addition to any liability which the Advisor may
otherwise have.
7.3 Indemnification by the Distributor
7.3(a) The Distributor shall indemnify and hold harmless the Company,
and each of its directors and officers and each person, if any, who controls
the Company within the meaning of Section 15 of the 1933 Act (collectively,
the "Indemnified Parties" for purposes of this Section 7.3) against any and
all losses, claims, damages, liabilities or litigation (including legal and
other expenses) to which the Indemnified Parties may become subject under any
statute, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements are
related to the sale or acquisition of the Fund's shares and:
(i) arise out of or are based upon statements or representations
(other than statements or representations contained in the Registration
Statement, prospectus or sales literature for the Variable Insurance Products
not supplied by the Distributor, Advisor, Fund or persons under its control)
or wrongful conduct of the Distributor or persons under its control, with
respect to the sale or distribution of the Fund shares; or
(ii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in sales literature of the Variable Insurance
Products, or any amendment thereof or supplement thereto, or the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading if such a
statement or omission was made in reliance upon and in conformity with
information furnished to the Company by the Distributor, or
(iii) arise out of or result from any failure by the Distributor to
provide the services and furnish the materials under the terms of this
Agreement; or
(iv) arise out of or result from any material breach of any
representation and/or warranty made by the Distributor in this Agreement or
arise out of or result from any other material breach of this Agreement by
the Distributor;
as limited by and in accordance with the provi-sions of Sections 7.3(b) and
7.3(c) hereof.
7.3(b) The Distributor shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation to which an Indemnified Party would otherwise be subject by reason
of such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties or by reason
of such Indemnified Party's reckless disregard of obligations and duties under
this Agreement or to the Company or the Separate Account, whichever is
applicable.
7.3(c) The Distributor shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Distributor in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have served upon such Indemnified
Party (or after such Indemnified Party shall have received notice of such
service on any designated agent), but failure to notify the Distributor of any
such claim shall not relieve the Distributor from any liability which it may
have to the Indemnified Party against and whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against an Indemnified Party, the Distributor will be
entitled to participate, at its own expense, in the defense thereof. The
Distributor also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from the
Distributor to such party of the Distributor's election to assume the defense
thereof, the Indemni-fied Party shall bear the fees and expenses of any
additional counsel retained by it, and the Distributor will not be liable to
such party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
7.3(d) The Company agrees promptly to notify the Distributor of the
commencement of any litigation or proceedings against them or any of their
respective officers or directors in connection with this Agreement, the
issuance or sale of the Variable Insurance Products or the operation of either
Account. This indemnification shall be in addition to any liability which the
Distributor may otherwise have.
ARTICLE VIII. Applicable Law
8.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of New York.
8.2 This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
SEC may grant (including, but not limited to, the Shared Funding Exemptive
Order) and the terms hereof shall be interpreted and construed in accordance
therewith.
ARTICLE XI. Termination
9.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason by six months' advance
written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and the
Distributor with respect to any Portfolio based upon the Company's
determination that shares of such Portfolio are not reasonably available to
meet the requirements of the Contracts or not consistent with the Company's
obligations to Owners; or
(c) termination by the Company by written notice to the Fund and the
Distributor with respect to any Portfolio in the event any of the Portfolio's
shares are not registered, issued or sold in accordance with applicable state
and/or federal law or such law precludes the use of such shares as the
underlying investments media of the Variable Insurance Products issued or to
be issued by the Company; or
(d) termination by the Company by written notice to the Fund and the
Distributor with respect to any Portfolio in the event that such Portfolio
ceases to qualify as a Regulated Investment Company under Subchapter M of the
Code or any independent or resulting failure under Section 817 of the Code,
or under any successor or similar provision of either, or if the Company
reasonably believe that the Fund may fail to so qualify; or
(e) termination by either the Fund or the Distributor by written
notice to the Company, if either one or both of the Fund or the Distributor
respectively, shall determine, in their sole judgement exercised in good
faith, that the Company has suffered a material adverse change in their
business, operations, financial condition or prospects since the date of this
Agreement or are the subject of material adverse publicity; but no
termination shall be effective under this subsection (e) until the Company
has been afforded a reasonable opportunity to respond to a statement by the
Fund or the Distributor concerning the reason for notice of termination
hereunder; or
(f) termination by the Company by written notice to the Fund and the
Distributor, if the Company shall determine, in its sole judgement exercised
in good faith, that either the Fund or the Distributor has suffered a
material adverse change in its business, operations, financial condition or
prospects since the date of this Agreement or is the subject of material
adverse publicity; but no termination shall be effective under this
subsection (f) until the Company has been afforded a reasonable opportunity
to respond to a statement by the Fund or the Distributor concerning the
reason for notice of termination hereunder.
(g) At the option of the Fund if the Variable Insurance Products
cease to qualify as annuity contracts or life insurance contracts, as
applicable, under the Code, of if the Fund reasonably believes that the
Variable Insurance Products may fail to so qualify. Termination shall be
effective upon receipt of notice by the Company.
(h) At the option of the Company, upon the Fund's breach of any
material provision of this Agreement, which breach has not been cured to the
satisfaction of the Company within ten (10) days after written notice of such
breach is delivered to the Fund.
(i) At the option of the Fund, upon the Company's breach of any
material provision of this Agreement, which breach has not been cured to the
satisfaction of the Fund within ten (10) days after written notice of such
breach is delivered to the Company.
(j) At the option of the Company, if the Variable Insurance Products
are not sold in accordance with applicable federal and/or state law by the
Distributor. Termination shall be effective immediately upon such occurrence
without notice.
(k) At the option of the Fund, if the Variable Insurance Products are
not registered and issued in accordance with applicable federal and/or state
law. Termination shall be effective immediately upon such occurrence without
notice.
9.2 Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Distributor shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Variable Insurance Products in
effect on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts"). Specifically, without limitation, the
Owners of the Existing Contracts shall be permitted to reallocate investments
in the Fund, redeem investments in the Fund and/or invest in the Fund upon the
making of additional purchase payments under the Existing Contracts. The
parties agree that this Section 9.2 shall not apply to any terminations under
Article VI and the effect of such Article VI terminations shall be governed by
Article VI of this Agreement. However, in no event shall the Fund and
Distributor be required to make additional shares available to Existing
Contracts for more that six (6) months after the date of termination of the
Agreement.
9.3 The Company shall not redeem Fund shares attributable to the
Variable Insurance Products (as opposed to Fund shares attributable to the
Company's assets held in the Separate Account) except (i) as necessary to
implement Owner initiated or approved transactions, or (ii) as required by
state and/or federal laws or regulations or judicial or other legal precedent
of general application (hereinafter referred to as a "Legally Required
Redemption") or (iii) as permitted by an order of the SEC pursuant to Section
26(b) of the 1940 Act. Upon request, the Company will promptly furnish to the
Fund and the Distributor the opinion of counsel for the Company (which counsel
shall be reasonably satisfactory to the Fund and the Distributor) to the
effect that any redemption pursuant to the clause (ii) above is a Legally
Required Redemption. Furthermore, except in cases where permitted under the
terms of the Variable Insurance Products, and as may be in the best interests
of Owners, as determined by the Company, the Company shall not prevent Owners
from allocating payments to a Portfolio that was otherwise available under the
Contracts without first giving the Fund or the Distributor ninety (90) days
notice of its intention to do so.
9.4 Notwithstanding any termination of this Agreement for any reason,
the terms and conditions of the following provisions of this Agreement shall
remain in effect with respect to any Existing Contract, for so long as such
Existing Contract has assets invested in the Fund: Section 1.3 to 1.10 of
Article I (governing the pricing and redemption of shares); Article II
(Representations and Warranties); Sections 3.1 through 3.3 and 3.5 of Article
III (Prospectus and Proxy Statements, and Voting); Articles IV and VIII (Sales
Material and Information; Fees and Expenses, Diversification; Potential
Conflicts; Indemnification; and Applicable Law); Article X (Notices); and
Sections 11.1, 11.2, and 11.5 through 11.8 of Article XI (Miscellaneous).
Further, notwithstanding any termination of this Agreement for any reason, the
terms and conditions of the following provisions of this Agreement shall
remain in effect with regard to Variable Insurance Products previously
invested in the Fund: Article II (Representations and Warranties); and Article
VIII (Indemnification).
ARTICLE X. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in
writing to the other party.
If to the Fund:
c/o Manning & Napier Insurance Fund, Inc.
1100 Chase Square
Rochester, NY 14604
Attention: Corporate Secretary
If to the Company:
Keyport Life Insurance Company
125 High Street
Boston, MA 02110
Attention: General Counsel
If to Distributor:
Manning & Napier Investor Services, Inc.
1100 Chase Square
Rochester, NY 14604
Attention: Secretary
ARTICLE XI. Miscellaneous
11.1 All persons dealing with the Fund must look solely to the property
of the Fund for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders assume any personal liability for any
obligations entered into on behalf of the Fund.
11.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and
addresses of the Owners and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come
into the public domain without the express written consent of the affected
party.
11.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof
or otherwise affect their construction or effect.
11.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
11.5 If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
11.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC,
the NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
11.7 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to
under state and federal laws.
11.8 This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Distributor may assign the Agreement or
any rights or obligations hereunder to any affiliate of or company under
common control with the Distributor (but in such event the Distributor shall
continue to be liable under Article VII of this Agreement for any
indemni-fi-cation due to the Company, and assignee shall also be liable), if
such assignee is duly licensed and registered to perform the obligations of
the Distributor under this Agreement.
11.9 No provision of the Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by the
Fund, the Distributor and the Company.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
KEYPORT LIFE INSURANCE COMPANY
By its authorized officer,
By: /s/ John W. Rosensteel
Title: President and CEO
Date: September 25, 1996
MANNING & NAPIER INVESTOR SERVICES, INC.
By its authorized officer,
By: /s/ B. Reuben Auspitz
Title: President
Date: September 20, 1996
MANNING & NAPIER INSURANCE FUND, INC.
By its authorized officer,
By: /s/ B. Reuben Auspitz
Title: President
Date: September 20, 1996
MANNING & NAPIER ADVISORS, INC.
By its authorized officer,
By: /s/ William Manning
Title: President
Date: September 20, 1996
<PAGE>
Schedule A
Manning & Napier Insurance Fund
Manning & Napier Moderate Growth Portfolio
Manning & Napier Growth Portfolio
Manning & Napier Equity Portfolio
Manning & Napier Small Cap Portfolio
Manning & Napier Bond Portfolio
Manning & Napier Maximum Horizon Portfolio
<PAGE>
Schedule B
Separate Accounts Selected Funds
Variable Account J Manning & Napier Moderate Growth Portfolio
Manning & Napier Growth Portfolio
Manning & Napier Equity Portfolio
Manning & Napier Small Cap Portfolio
Manning & Napier Bond Portfolio
Manning & Napier Maximum Horizon Portfolio
_________________________________________________________________
Contract - Form Number
DVA(1) (Group Master Contract)
DVA(1)/CERT (Group Certificate)
DVA(1)/IND (Individual Contract)
1527OPIN.REV
Blazzard, Grodd & Hasenauer, P.C.
943 Post Road East
Westport, CT 06880
(203) 226-7866
April 22, 1997
Board of Directors
Manning & Napier Insurance Fund, Inc.
1100 Chase Square
Rochester, NY 14604
Re: Opinion of Counsel - Manning & Napier Insurance Fund, Inc.
Gentlemen:
You have requested our Opinion of Counsel in connection with the filing with
the Securities and Exchange Commission of Post-Effective Amendment No. 2 to a
Registration Statement on Form N-1A with respect to Manning & Napier Insurance
Fund, Inc.
We have made such examination of the law and have examined such records and
documents as in our judgment are necessary or appropriate to enable us to
render the opinions expressed below.
We are of the following opinions:
1. Manning & Napier Insurance Fund, Inc. ("Fund") is an open-end
management investment company.
2. The Fund is a corporation created and validly existing pursuant to
the Maryland Laws.
3. All of the prescribed Fund procedures for the issuance of the shares
have been followed, and, when such shares are issued in accordance with the
Prospectus contained in the Registration Statement for such shares, all state
requirements relating to such Fund shares will have been complied with.
4. Upon the acceptance of purchase payments made by shareholders in
accordance with the Prospectus contained in the Registration Statement and
upon compliance with applicable law, such shareholders will have
legally-issued, fully paid, non-assessable shares of the Fund.
You may use this opinion letter, or a copy thereof, as an exhibit to the
Registration.
Sincerely,
BLAZZARD, GRODD & HASENAUER, P.C.
By: /S/RAYMOND A. O'HARA III
________________________
Raymond A. O'Hara III
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion of Post-Effective Amendment No. 2 to the
Registration Statement on form N-1A (File No. 33-64667) of Manning & Napier
Insurance Fund, Inc. of our reports dated January 23, 1997, relating to the
financial statements and financial highlights of Manning & Napier Moderate
Growth Portfolio, Growth Portfolio, Maximum Horizon Portfolio, Small Cap
Portfolio, Equity Portfolio and the Bond Portfolio.
We also consent to the references to our Firm in the Prospectus and Statement
of Additional Information under the heading General Information.
/s/ Coopers & Lybrand L.L.P
Coopers & Lybrand
Boston, Massachusetts
April 28, 1997
G:
EXHIBIT 16
Below is the schedule of computation for each performance quotation. The
formula is as follows:
P (1 + T)n = ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5, or 10 year periods at the end of the 1, 5, or 10 year
periods
BOND PORTFOLIO. EQUITY PORTFOLIO.
For the period November 1, 1996 For the period November 1, 1996 -
- - - December 31, 1996: December 31, 1996:
T = (994.00 / 1,000.00)1/1 - 1 T = (1,056.00 / 1,000.00)1/1 - 1
T = (0.60)% T = 5.60%
Therefore, Therefore,
1,000.00 (1 - 0.60%)1 = 994.00 1,000.00 (1 + 5.60%)1 - 1 = 1,056.00
SMALL CAP PORTFOLIO. MODERATE GROWTH PORTFOLIO.
For the period November 1, 1996 - For the period November 1, 1996 -
December 31, 1996: December 31, 1996:
T = (1,072.00 / 1,000.00)1/1 - 1 T = (1,011.00 / 1,000.00)1/1 - 1
T = 7.20% T = 1.10%
Therefore, Therefore,
1,000.00 (1 + 7.20%)1 = 1,072.00 1,000.00 (1 + 1.10%)1 = 1,011.00
GROWTH PORTFOLIO. MAXIMUM HORIZON PORTFOLIO.
For the period November 1, 1996 For the period November 1, 1996 -
- - - December 31, 1996: December 31, 1996:
T = (1,025.00 / 1,000.00)1/1 - 1 T = (1,044.00 / 1,000.00)1/1 - 1
T = 2.50% T = 4.40%
Therefore, Therefore,
1,000.00 (1 + 2.50%) 1 = 1,025.00 1,000.00 (1 + 4.40%) 1 = 1,044.00
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