MANNING & NAPIER FUND, INC.
SMALL CAP SERIES
ENERGY SERIES
TECHNOLOGY SERIES
FINANCIAL SERVICES SERIES
INTERNATIONAL SERIES
LIFE SCIENCES SERIES
GLOBAL FIXED INCOME SERIES
WORLD OPPORTUNITIES SERIES
No person has been authorized to give any information or to make
representations not contained in this Prospectus in connection with any
offering made by this Prospectus and, if given or made, such information must
not be relied upon as having been authorized by the Fund. This Prospectus
does not constitute an offering by the Fund in any jurisdiction in which such
offering may not lawfully be made.
TABLE OF CONTENTS
Annual Operating Expenses 3
Condensed Financial Information 4
The Fund 9
Risk and Investment Objectives and Policies 9
Risk and Additional Information about Investment Policies 15
Special Risk and Additional Investment Policies-World 19
Opportunities Series
Principal Investment Restrictions 20
Management 21
Yield and Total Return 21
Offering of Shares 21
Net Asset Value ` 22
Redemption of Shares 22
Dividends and Tax Status 23
General Information 24
Appendix 25
<PAGE>
MANNING & NAPIER FUND, INC.
1100 Chase Square
Rochester, New York 14604
1-800-466-3863
Manning & Napier Fund, Inc. (the "Fund"), is an open-end management investment
company consisting of multiple series, each a separate investment portfolio
having its own investment objective and policies. This Prospectus relates to
the eight series of the Fund described below (individually and
collectively, the "Series"). The investment objective of each Series, except
for the Global Fixed Income Series, is to provide long-term growth of capital.
The Global Fixed Income Series seeks long-term total return. The Series seek
to achieve their respective objectives by the following investment policies:
SMALL CAP SERIES - by investing principally in the equity securities of small
issuers.
ENERGY SERIES - by investing principally in the equity securities of companies
in the energy industry and in industries connected with, marketing the
products of, serving and/or supplying the energy industry or which use energy
extensively in their product development or operations.
TECHNOLOGY SERIES - by investing principally in the equity securities of
companies in science -and technology-based industries and in industries
connected with, marketing the products of, serving and/or supplying science
- -and technology-based industries or which use scientific and technological
advances extensively in their product development or operations.
FINANCIAL SERVICES SERIES - by investing principally in the equity securities
of companies in the financial services industry and in industries connected
with, marketing the products of, serving and/or supplying the financial
services industry or which use financial services extensively in their product
development or operations.
INTERNATIONAL SERIES - by investing principally in the equity securities of
non-United States issuers.
LIFE SCIENCES SERIES - by investing principally in the equity securities of
companies in industries based on the life sciences (such as pharmaceuticals,
biomedical technology, health care delivery and environmental services) and in
industries connected with, marketing the products of, serving and/or supplying
industries based on the life sciences.
GLOBAL FIXED INCOME SERIES - by investing principally in fixed income
securities issued by governments, banks, corporations and supranational
entities located anywhere in the world, including the United States.
WORLD OPPORTUNITIES SERIES - by investing principally in common stocks of
companies domiciled in at least three different countries. The Advisor will
emphasize individual security selection to identify those issuers which are
believed to have attractive long-term business prospects and valuations.
This Prospectus provides you with the basic information you should know before
investing in the Series of the Fund named above. The Fund's other eleven
series are offered through separate prospectus. You should read this
Prospectus and keep it for future reference. A Statement of Additional
Information, dated March 6, 1996, containing additional information
about the Fund has been filed with the Securities and Exchange Commission and
is incorporated by reference in this Prospectus in its entirety. You may
obtain a copy of the Statement of Additional Information without charge by
contacting the Fund at the address or telephone number listed above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MARCH 6, 1996.
<PAGE>
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
(As a percentage of offering price)
<S> <C>
Maximum Sales Charge Imposed on Purchases None
Redemption Fees None
</TABLE>
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES
The following information provides (i) a tabular summary of expenses relating to the annual operating expense of
the series and (ii) an example illustrating the dollar cost of such expenses on a $1,000 investment.
Annual Fund Operating Expenses (as a percentage of average net assets)
Small Life Financial Global World
Technology Cap International Sciences Services Energy Fixed Income Opportunities
Series (1) Series (1) Series (1) Series (1) Series (2) Series (2) Series (2) Series (2)
----------- ---------- -------------- ---------- ---------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
12b-1 fees None None None None None None None None
Other expenses 0.12% 0.07% 0.20% 0.06% 0.13% 0.13% 0.25% 0.50%
----------- ---------- -------------- ---------- ---------- ---------- ------------- --------------
Total fund operating
expenses 1.12% 1.07% 1.20% 1.06% 1.13% 1.13% 1.25% 1.50%
</TABLE>
You would pay the following expenses on a $1,000 investment, assuming a)
5.0% annual return and b) redemptions at the end of each time period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------- -------- -------- ---------
<S> <C> <C> <C> <C>
Technology Series (1) $ 11 $ 36 $ 62 $ 136
Small Cap Series (1) 11 34 59 131
International Series (1) 12 38 66 145
Life Sciences Series (1) 11 34 58 129
Energy Series (2) 12 36
Financial Services Series (2) 12 36
Global Fixed Income Series (2) 13 40
World Opportunities Series (2) 15 48
</TABLE>
(1) The Life Sciences Series was engaged in active investment operations
for the period January 1, 1995 through September 21, 1995. The Small Cap
Series, Technology Series and the International Series were engaged in
active investment operations for the year ended December 31, 1995;
therefore, actual management fees and other expenses were used above.
(2) As these Series have not commenced active investment operations, the
"Annual Fund Operating Expenses" percentages and the "Example" expenses
presented are estimates based upon expense and average net assets if the
Series were in active investment operations for an entire year.
The purpose of the above table is to assist the investor in understanding the
various costs and expenses associated with investing in the Fund. For a more
complete description of the various costs and expenses illustrated above,
please refer to the Management sections of this Prospectus.
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
2
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
The following tables provide selected per share data and ratios for the Series (for a share outstanding throughout the period
over various periods shown). The tables are part of each Series' audited financial statements, which are included in the
Statement of Additional Information incorporated by reference into this Prospectus. The Technology Series, Small Cap Series
and International Series financial statements are included in the Statement of Additional Information as they were engaged in
active investment operations for the year ended December 31, 1995. The Life Sciences Seriesfinancial statements are also
included in the Statement of Additional Information for the period January 1, 1995 through September 21, 1995 (date of
complete redemption). The remaining Series were not in active investment operations; thus financial statements are not
included.
Per share income and capital change information is presented for the Technology Series, Small Cap Series, and International
Series as they remain engaged in active investment operations. Per share and capital change information is presented for the
Life Sciences Series for the period January 1, 1995 through September 21, 1995 (date of complete redemption). The remaining
Series have not commenced active investment operations; thus the per share income and capital change information is not
presented.
TECHNOLOGY SERIES
For the For the period For the period For the
Year ended Aug. 29, 1994 Jan. 1, 1992 to Year ended
Dec. 31, 1995 to Dec. 31, 1994 May 11, 1992 (15) Dec. 31, 1991
<S> <C> <C> <C> <C> <C> <C>
Net asset value - $ 11.35 $ 10.00 (19) $ 10.25 $ 8.00
Beginning of period
Income from investment
operations
Net investment income (loss) 0.02 (0.01) 0.01 (0.04)
Net realized and un
realized gain (loss)
on investments 4.51 1.36 1.53 2.93
Total from investment operations 4.53 1.35 1.54 2.89
Less distributions declared
to shareholders
From net investment income (0.01) - - -
From net realized gain on (5.16) - (1.94) (0.64)
investments
Redemption of capital - (9.85) -
Total distributions declared (5.17) - (11.79) (0.64)
to shareholders
Net asset value - End of period $ 10.71 $ 11.35 $ - $ 10.25
Total Return 40.25% 44.70% (4) - (15) 36.10%
Ratios (to average net assets)/
Supplemental data:
Expenses 1.12% 1.32% (4) 1.35% (4)(15) 1.13%
Net investment income 0.13% (0.40)% (4) 0.20% (4)(15) (0.33)%
Portfolio Turnover 107% 5% - (5) 4%
Average Commission Rate Paid $ 0.02 - - -
Net assets - End of period $ 143,003 $ 105,522 $ 70,734 $ 33,079
(000's omitted)
TECHNOLOGY SERIES
For the For the For the period
Year ended Year ended Nov. 4, 1988 to
Dec. 31, 1990 Dec. 31, 1989 Dec. 31, 1988 (3)
<S> <C> <C> <C> <C> <C> <C>
Net asset value - $ 9.41 $ 10.28 $ 10.00
Beginning of period
Income from investment
operations
Net investment income (loss) 0.02 (0.05) 0.01
Net realized and un
realized gain (loss)
on investments (0.83) (0.06) 0.28
Total from investment operations (0.81) (0.11) 0.29
Less distributions declared
to shareholders
From net investment income (0.03) - (2) (0.01)
From net realized gain on (0.57) (0.76) -
investments
Redemption of capital - - -
Total distributions declared (0.60) (0.76) (0.01)
to shareholders
Net asset value - End of period $ 8.00 $ 9.41 $ 10.28
Total Return (8.90)% (0.90)% 19.40%
Ratios (to average net assets)/
Supplemental data:
Expenses 1.14% 1.11% 1.22% (4)
Net investment income 0.20% (12) (0.49)% 0.81% (4)
Portfolio Turnover 25% - (5) - (5)
Average Commission Rate Paid - - -
Net assets - End of period $ - $ 90 $ 36,193
(000's omitted)
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
SMALL CAP SERIES(7)
For the period
April 30, 1992
For the For the For the (recommence-
Year ended Year ended Year ended ment of oper.)
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 to Dec. 31, 1992 (6)
<S> <C> <C> <C> <C> <C>
Net asset value - $ 12.92 $ 12.52 $ 11.24 $ 10.00 (17)
Beginning of period
Income from
investment operations
Net investment Income (loss) 0.00 (0.07) (0.04) (0.02)
Net realized and
unrealized gain (loss)
on investments 1.93 1.05 1.70 1.63
Total from investment 1.93 0.98 1.66 1.61
operations
Less distributions
declared to shareholders
From net realized gain (2.90) (0.58) (0.38) (0.29)
on investments
In excess of net realized gains - - - (0.08) (16)
Redemption of capital - - - -
Total distributions declared (2.90) (.058) (0.38) (0.37)
to shareholders
Net asset value - End of period $ 11.95 $ 12.92 $ 12.52 $ 11.24
Total Return 14.70% 8.01% 14.64% 25.00% (4)
Ratios (to average
net assets) / Supplemental data:
Expenses(9) 1.07% 1.10% 1.13% 1.27% (4)(13)
Net investment income (0.03)% (0.58)% (0.43)% (0.26)% (4)(13)
Portfolio Turnover 77% 31% 12% 24%
Average Commission $ 0.05 - - -
Rate Paid
Net assets - End of period $ 143,003 $ 105,522 $ 70,734 $ 33,079
(000's omitted)
SMALL CAP SERIES(7)
For the period For the period
Jan. 1, 1989 Jan. 6, 1986
July 24, 1989 For the For the (commencement
(date of full Year ended Year ended of operations) to
redemption) Dec. 31, 1988 (1) Dec. 31, 1987 Dec. 31, 1986 (11)
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value - $ 8.96 $ 8.93 $ 8.08 $ 10.00
Beginning of period
Income from
investment operations
Net investment Income (loss) (0.39) 0.10 0.13 (0.09)
Net realized and
unrealized gain (loss)
on investments - (0.07) 0.75 (1.83)
Total from investment (0.39) 0.03 0.88 (1.92)
operations
Less distributions
declared to shareholders
From net realized gain - - (0.03) -
on investments
In excess of net realized gains - - - -
Redemption of capital (8.57) - - -
Total distributions declared (8.57) - (0.03) -
to shareholders
Net asset value - End of period $ - $ 8.96 $ 8.93 $ 8.08
Total Return - (10) 0.33% 10.89% (19.44)%(4)
Ratios (to average
net assets) / Supplemental data:
Expenses(9) 14.59% (4)(10) 1.34% 2.26% 9.08%(4)
Net investment income (8.02)% (4)(10) 0.91% 0.95% (5.62)%(4)
Portfolio Turnover - (5) - (5) 76% - (5)
Average Commission - - - -
Rate Paid
Net assets - End of period $ - $ 90 $ 36,193 $ 1,608
(000's omitted)
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL SERIES
For the For the For the For the period
Year ended Year ended Year ended Aug. 27, 1992 to
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $ 9.54 $ 11.33 $ 9.19 $ 10.00 (18)
Income from investment operations
Net investment income (loss) 0.13 0.14 0.15 0.03
Net realized and unrealized gain (loss)
on investments(8) 0.26 (1.78) 2.24 0.57
Total from investment operations 0.39 (1.64) 2.39 0.60
Less distributions declared to shareholders:
From net investment income (0.12) - (0.25) (0.03)
From paid-in-capital (0.16) - - -
From net realized gain on investment (0.08) (0.15) - (1.24)
In excess of net realized gains - - - (0.14) (14)
Total distributions declared to shareholders (0.36) (0.15) (0.25) (1.41)
Net asset value - End of period $ 9.57 $ 9.54 $ 11.33 $ 9.19
Total Return 4.14% (14.48)% 26.00% 18.40% (4)
Ratio (to average net assets)/Supplemental data:
Expenses 1.20% 1.18% 1.16% 1.33% (4)
Net investment income 1.42% 1.38% 1.39% 0.85% (4)
Portfolio Turnover 14% 31% 20% - (5)
Average Commission Rate Paid $ 0.0021 - - -
Net assets at end of period (000's omitted) $ 128,294 $ 85,964 $ 92,012 $ 72,163
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
LIFE SCIENCES SERIES
For the period For the period
Jan. 1, 1995 to Oct. 7, 1992
Sept. 21, 1995 For the For the (commencement of
(date of complete Year ended Year ended operations) to
redemption) (20) Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $ 10.43 $ 10.18 $ 10.12 $ 10.00
Income from investment operations
Net investment income (loss) 0.06 0.02 0.02 0.02
Net realized and unrealized gain (loss)
on investments 4.02 1.02 0.30 0.18
Total from investment operations 4.08 1.04 0.32 0.20
Less distributions declared to shareholders:
From net investment income (0.06) (0.02) (0.02) (0.02)
In excess of net investment income - - (0.01) -
From net realized gain on investments (6.59) (0.77) (0.23) (0.06)
Redemption of Capitalization (7.86) - - -
Total distributions declared to shareholders (14.51) (0.79) (0.26) (0.08)
Net asset value - End of period $ - $ 10.43 $ 10.18 $ 10.12
Total Return 60.91% (4) 10.30% 3.16% 8.60%
Ratio (to average net assets)/Supplemental data:
Expenses 1.06% (4) 1.07% 1.14% 1.83%
Net investment income 0.57% (4) 0.17% 0.20% 0.67%
Portfolio Turnover 28% 49% 45% -
Average Commission Rate Paid $ 0.06 - - -
Net assets - End of period (000's omitted) - $ 67,219 $ 70,594 $ 13,210
<S> <C>
Net asset value - Beginning of period (18)
Income from investment operations
Net investment income (loss)
Net realized and unrealized gain (loss)
on investments
Total from investment operations
Less distributions declared to shareholders:
From net investment income
In excess of net investment income
From net realized gain on investments
Redemption of Capitalization
Total distributions declared to shareholders
Net asset value - End of period
Total Return (4)
Ratio (to average net assets)/Supplemental data:
Expenses (4)
Net investment income (4)
Portfolio Turnover (5)
Average Commission Rate Paid
Net assets - End of period (000's omitted)
</TABLE>
6
<PAGE>
Footnotes to Per-Share Income and Capital Changes Tables:
(1)Per share data was determined using a monthly average of the
shares outstanding throughout the period.
(2)On April 11, 1989, a $.004 dividend was distributed to
shareholders of record on April 11, 1989.
(3)On November 4, 1988, the Technology Series commenced sales of
it's shares to persons who are investment advisory clients and employees
os the Fund's Advisor.
(4)Annualized.
(5)For these periods, there were no purchases of securities whose
maturity or expiration date was greater than one year from the
acquisition date.
(6)The investment practice of the Fund results in the active
operation of the investment portfolio for discrete periods. On April 30,
1992 the Fund resumed sales of shares of the Small Cap Series to advisory
clients and employees of the Fund's Advisor. Previously, the Small Cap
Series was inactive operation from November 11, 1986 to May 14, 1987 and
from December 1,1987 to April 13, 1988. Other than those periods stated
previously, the only shareholders of the Small Cap Series were those of
the Initial Shareholders. During period when the only shareholders of the
Small Cap Series were the Initial Shareholders, assets of the Fund were
invested in U.S. Treasury securities. On July 11 and 24, 1989, the shares
held by the Initial Shareholders were redeemed in full and the Fund
remained dormant until April 30, 1992.
(7)Per share data for all period prior to May 18, 1988, have been
restated to reflect the 10 for 1 stock dividend effected on May 18, 1988.
(8)This amount is mathematically derived as the difference between
the changes in net asset value for the year and net investment income.
The amount shown for the year ended December 31, 1988 does not agree with
the net realized gains and net decrease in unrealized appreciation for
the year as shown on the Statement of Operations because the average number
of shares for the year used to determine the above computations is
significantly different than the number of shares outstanding at the time of
the April 13, 1988 redemption described in Note (6) above.
(9) Absent fee waivers, the ratios of expense to average daily net
assets is as follows: 1.27%(for the period 4/30/92 to 12/31/92); 15.57%(for
the period 1/1/89 to 7/24/89); 1.34%(for the year ended 12/31/88); 2.27%(for
the year ended 12/31/87); and 9.34%(for the period 1/6/88(commencement of
operation) to 12/31/86).
(10)During the period January 1, 1989 to July 24, 1989(date of full
redemption), the only shareholders and resulting assets were those of the
Initial Shareholders who redeemed their shares on July 11 and 24, 1989.
Therefore, the ratios presented may not be representative of an actively
operated series.
(11)On November 11, 1986, the Fund commenced sales of shares of the
Small Cap Series to persons who are investment advisory clients of the Fund's
Advisor. Prior to that date, the Small Cap Series did not engage in any
business operations other than to purchase and hold approximately $100,000 of
U.S. Treasury securities.
(12) Investment income per share is comprised of recurring dividend
and interest income which amounted to $.07 per share and special dividends
from Bell Industries and Tempest Technologies, Inc. which amounted to $.03 and
$.02 per share, respectively.
(13) For the period April 30, 1992 to December 31, 1992, the ratios
for the Small Cap Series were calculated using average daily net assets.
(14) Distributions differ from net investment income and net realized
capital gains because of book/tax timing differences, primarily due to the
requirements of the Internal Revenue Code (the "Code"). The Code requires the
Fund to treat it's open forward currency contracts sold short as covered for
their fair market value at the end of the period. The Fund recognized the
gains on the forward foreign currency contracts as unrealized for book
purposes at the end of the period.
(15)The investment practice of the Fund results in the active
operation of the investment portfolios for discrete periods. On August 29,
1994, the Fund resumed sales of shares of the Technology Series to advisory
clients and employees of the Fund's Advisor. Previously, the Technology
Series was in active operations from November 4, 1988 to May 11, 1992. On May
11, 1992, the Technology Series redeemed all shares held, therefore, the
ratios presented may not be representative of an actively traded fund.
(16)Distributions may differ from net investment income and net
realized capital gains because of book/tax timing differences, primarily the
requirement of the excise tax regulations enacted as part of the 1986 Tax
Reform Act. The regulations required the Series to measure capital gains
through October 31, 1992. The excise tax regulations also required the Series
to distribute those gains before December 31, 1992 to avoid payment of excise
tax.
(17) Initial offering price upon recommencement of operations on
April 30, 1992.
(18) International Series and Life Sciences Series commenced
operations on August 27, 1992 and October 7, 1992, respectively. The initial
offering price upon commencement of operations was $10.00 per share.
(19) Initial offering price upon recommencement of operations on
August 29, 1994.
(20) The investment practice of the Fund results in the active
operation of the investment portfolios for discrete periods. On September 21,
1995, the Life Sciences Series redeemed all shares held, therefore, the ratios
presented may not be representative of an actively traded fund.
7
<PAGE>
THE FUND
The Fund is an open-end management investment company incorporated under
the laws of the State of Maryland on July 26, 1984. This Prospectus relates
to eight series of the Fund: the Small Cap Series, the Energy
Series, the Technology Series, the Financial Services Series, the
International Series, the Life Sciences Series, and the Global Fixed Income
Series and the World Opportunities Series. The Small Cap Series of
the Fund is a diversified fund. The Energy Series, the Technology Series, the
Financial Services Series, the International Series, the Life Sciences Series,
and the Global Fixed Income Series and the World Opportunities Series
are non-diversified funds.
Shares of the Fund are offered to employees of the Advisor and to its
clients or those of its affiliates that have authorized investment in the Fund
as part of the discretionary account management services of the Advisor or its
affiliates and directly to investors. There are no fees or expenses charged
to any investor in connection with acquisition of Fund shares.
Historically, shares of the Fund have been available only in connection
with certain strategies the Advisor employed on behalf of discretionary
account clients that had authorized the Advisor to acquire and dispose of Fund
shares on their behalf. These strategies entailed using one or more series of
the Fund as a means to capture opportunities in specific market or industry
sectors and to provide diversification among asset classes (e.g.,
international diversification or portfolio diversification among small-cap
stocks) that could not otherwise be captured efficiently and with sufficient
diversification. Once an investment opportunity was captured for a Series,
that Series would ordinarily be "collapsed" (i.e., securities sold and the
shares of the Series redeemed) and the proceeds returned to the individual
client accounts. Such Series might not be "collapsed", however, if it
continued to be a suitable vehicle for certain clients to diversify risk by
investing in a sector or asset class (e.g., small capitalization stocks or
international securities) the performance of which historically is not highly
correlated (i.e., is said to have a low "covariance" or be "non-covariant")
with other holdings in the client's advisory portfolio.
The Advisor may also make the shares of the Fund offered hereby available
in additional circumstances. First, Fund shares, including shares of series
offered through separate prospectuses, may be used in connection with a
discretionary account management service that uses Fund shares as the
principal underlying investment medium. In addition, shares are offered to
investors that are not discretionary account clients of the Advisor. Series
made available in this way could no longer be collapsed at the Advisor's sole
discretion.
Since a Series may be used under varying conditions and market prices,
the result for a given investor might differ from the result that would have
been obtained had the Series been used only for clients with the same
investment objective. However, the Advisor seeks to manage cash flows into
and out of the Series in the interests of the Fund and its clients so as to
minimize the effect on performance.
As a general rule, the investment in shares of a Series on behalf of
discretionary account clients is limited to a maximum of 5% -- or if the
Advisor believes that the opportunity to capture investment values or to
diversify risk among asset classes is particularly compelling, to a maximum of
10% -- of the client's portfolio. For clients who have selected a fixed
income investment objective, the Advisor may invest up to 25% of their
portfolio in the Global Fixed Income Series.
RISK AND INVESTMENT OBJECTIVES AND POLICIES
GENERAL
The objective of each Series is to provide long-term growth of capital
except for the Global Fixed Income Series which seeks long term total return.
The various Series of the Fund may become inactive during periods when the
Advisor believes that there are insufficient opportunities for growth in the
particular market or individual sector. However, each Series is designed to
provide an opportunity for long-term growth when used over an extended period
of time in conjunction with the Advisor's overall investment management
services. There is no assurance that a Series will attain its objective.
Each Series, except for the Global Fixed Income Series, will attempt to
achieve its objective by investing primarily in equity securities as described
below. Equity securities consist of common stocks and other securities having
some of the characteristics of common stocks, such as convertible preferred
stocks, convertible bonds and warrants. The Small Cap Series does
<PAGE> 8
intend to invest more than 5% of the value of its total net assets in
warrants. In the case of the International Series, the equity securities will
be of non-United States issuers. The principal factor in selecting
convertible bonds will be the potential opportunity to benefit from movement
in the stock price. There will be no minimum rating standards for debt
aspects of such securities. Convertible bonds purchased by a Series may be
subject to the risk of being called by the issuer. However, none of the
Series will buy bonds if they are in default as to payment of principal or
interest. In the case of the Global Fixed Income Series the portfolio
consists primarily of government debt securities (e.g., those of agencies,
instrumentalities and political subdivisions of U.S. and foreign governments)
and of investment grade corporate debt securities, bank obligations and
supranational obligations (rated BBB or better by Standard and Poor's
Corporation's ("S&P"), or by Moody's Investors Service, Inc. ("Moody's")and
high quality money market instruments (e.g., commercial paper, T-bills,
certificates and deposit and bankers acceptances rated A-2 or better by S&P's
or P-2 or better by Moody's).
Each Series, except for the Global Fixed Income Series, expects to be
fully invested in equity securities under normal circumstances. The Global
Fixed Income Series expects to be fully invested in fixed income securities
under normal circumstances. During periods when economic conditions in the
primary investment industries or vehicles for each Series are unfavorable or
when market conditions suggest a temporary defensive position, a Series may
invest its assets in U.S. government securities (or in the case of the
International Series and the Global Fixed Income Series, both U.S. and foreign
government securities), corporate bonds and money market instruments,
including, but not limited to, commercial paper, bankers' acceptances,
certificates of deposit and repurchase agreements, rated in one of the top two
rating categories by a major rating service or, if unrated, of comparable
quality as determined by the Advisor (see the Appendix for details). In
addition, even under normal circumstances the Series may to varying degrees
invest in certain types of securities or use certain techniques and strategies
discussed below under "Risk and Additional Information about Investment
Policies".
SMALL CAP SERIES
The Small Cap Series seeks to achieve its investment objective by
investing principally in equity securities of small issuers. In general, a
small issuer is one which has a market capitalization less than $700 million,
or less than the median market capitalization of the S&P Midcap Index (the
median market capitalization of the S&P Midcap Index as of the close on
December 31, 1995 was approximately $1,149.4 million),
whichever is greater at the time of investment. The Small Cap Series will,
under normal circumstances, have at least 65% of the value of its total net
assets invested in such securities; the balance, if any, will be invested in
equity securities of other than small issuers considered appropriate by the
Advisor. Current income is not a factor in pursuing the Small Cap Series'
objective. There can be no assurance that the Series will attain its
objective.
Investing in the equity securities of small companies involves greater
risk than investing in such securities of larger companies, because the equity
securities of small companies may have less marketability and may be subject
to more abrupt or erratic market movements than the equity securities of
larger companies.
Investing in the Series involves the risk that the anticipated changes in
the economic environment will not occur. Changes in sector allocation may
lead to significant portfolio turnover with attendant brokerage and (for
taxable investors) tax consequences (see Dividends and Tax Status section).
The Series expects that its portfolio turnover rate generally will be no more
than 250%. The Series' ability to dispose of securities may be restricted by
the requirements for qualification for a regulated investment company.
The Series' investment objective and policies as described above are not
fundamental policies and may be changed without shareholder approval;
however, it is the Board of Directors' policy to notify shareholders prior
to any material change.
ENERGY SERIES
The Energy Series seeks to achieve its investment objective by investing
principally in the equity securities of companies in the energy industry and
in industries connected with, marketing the products of, serving and/or
supplying the energy industry or which use energy extensively in their product
development or operations (hereinafter referred to as "energy and related
industries"). An equity security will generally be considered appropriate for
investment by the Energy Series if, as determined by the Advisor, at least 50%
of the company's assets, revenues or net income are derived from or related to
the energy and related industries. Under normal circumstances, at least 65%
<PAGE> 9
of the Series' total assets will be concentrated in securities of companies in
the energy and related industries. Current income is not a factor in pursuing
the Series' objective. There can be no assurance that the Series will attain
its objective.
The Series' policy as to concentration of investments in the securities
of companies in the energy and related industries may involve a higher degree
of risk than those of investment companies which are less concentrated in
their investments. The special risks associated with investing in companies
in the energy and related industries are that earnings and dividends of
companies in these industries are greatly affected by changes in the prices
and supplies of oil and other energy fuels. Prices and supplies can fluctuate
significantly over a short period of time due to changes in international
politics, policies of the Organization of Petroleum Exporting Countries
(OPEC), relationships among OPEC nations, energy conservation, the regulatory
environment, governmental tax policies and the economic growth and stability
of countries which consume large amounts of energy resources. While the
Series intends to invest in the securities of many different companies, in
theory the Series could invest in the securities of fewer than 15 companies
without violating the various restrictions now imposed on the Series'
investments by its fundamental investment policies because the Series is
"non-diversified". The fewer the companies the Series invested in, the
greater would be the effect of each portfolio holding on the Series'
performance. Given the industry concentration, an investment in the Series
cannot be considered, and is not intended to be, a complete investment
program. Rather, it will be one of a number of holdings in the portfolios of
the clients of the Advisor or its affiliates.
The investment objective and policies as to concentration and continued
use of its name are fundamental investment policies of the Energy Series.
Fundamental investment policies may not be changed without the approval by a
majority, as defined in the Investment Company Act of 1940 (the "1940 Act"),
of the outstanding voting securities of the Series.
TECHNOLOGY SERIES
The Technology Series seeks to achieve its investment objective by
investing principally in the equity securities of companies in science and
technology-based industries and in industries connected with, marketing the
products of, serving and/or supplying science and technology-based industries
or which use scientific and technological advances extensively in their
product development or operations (hereinafter referred to as "technology and
related industries"). Examples of companies involved in technology and
related industries include the following areas: biotechnology and health care;
communications; computers; electronics; factory and office automation;
metallurgical and other materials advances; and specialty chemicals, among
others. An equity security will generally be considered appropriate for
investment by the Technology Series if, as determined by the Advisor, at least
50% of the company's assets, revenues or net income are derived from or
related to technology and related industries. Under normal circumstances, at
least 65% of the
Series' total assets will be concentrated in securities of companies in
technology and related industries. Current income is not a factor in pursuing
the Series' objective. There can be no assurance that the Series will attain
its objective.
The Technology Series' policy as to concentration of investments in the
securities of companies in technology and related industries may involve a
higher degree of risk than those of investment companies which are less
concentrated in their investments. The special risks associated with
investments in the stocks of technology and related industries are that the
earnings prospects of these companies may be particularly uncertain or
volatile for a variety of reasons. These companies may have limited product
lines, market or financial resources, or they may be dependent upon a limited
management group. Products and services they offer may not prove to be
commercially successful or may be rendered obsolete by advances in science and
technology. In addition, biotechnology and health care companies may be
subject to extensive regulatory requirements causing considerable expense and
delay. Hence, such stocks may exhibit relatively high price volatility and
involve a high degree of risk. While the Series intends to invest in the
<PAGE> 10
securities of many different companies, in theory the Series could invest in
the securities of fewer than 15 companies without violating the various
restrictions now imposed on the Series' investments by its fundamental
investment policies because the Series is "non-diversified". The fewer the
companies the Series invested in, the greater would be the effect of each
portfolio holding on the Series' performance. Given the industry
concentration, an investment in the Series cannot be considered, and is not
intended to be, a complete investment program. Rather, it will be one of a
number of holdings in the portfolios of the clients of the Advisor or its
affiliates.
The investment objective and policies as to concentration and continued
use of its name are fundamental investment policies of the Technology Series.
Fundamental investment policies may not be changed without the approval by a
majority, as defined in the 1940 Act, of the outstanding voting securities of
the Series.
FINANCIAL SERVICES SERIES
The Financial Services Series seeks to achieve its investment objective
by investing principally in the equity securities of companies in the
financial services industry and in industries connected with, serving and/or
supplying the financial services industry or which use financial services
extensively in their product development or operations (hereinafter referred
to as "financial services and related industries"). Selected examples of
companies involved in financial services would include: banks; thrift
institutions; insurance companies and brokers; finance companies; stockbrokers
and investment managers; leasing companies; real estate services; credit card
services; and, certain vendors and customers of the above (e.g., financial
software companies). The Series may purchase securities of an issuer which
derived more than 15% of its gross revenues in its most recent fiscal year
from securities-related activities, subject to applicable SEC regulations as
set forth in the Statement of Additional Information. An equity security will
generally be considered appropriate for investment by the Financial Services
Series if, as determined by the Advisor, at least 50% of the company's assets,
revenues or net income are derived from or related to the financial services
and related industries. Under normal circumstances, at least 65% of the
Series' total assets will be concentrated in securities of companies in the
financial services and related industries. Current income is not a factor in
pursuing the Series' objective. There can be no assurance that the Series will
attain its objective.
The Series' policy as to concentration of investments in the securities
of companies in the financial services and related industries may involve a
higher degree of risk than those of investment companies which are less
concentrated in their investments. The special risks associated with
investments in financial services and related industries are that the earnings
prospects of these companies may be uncertain or volatile for a variety of
reasons. These companies may be subject to uncertainties from changes in:
interest rates; the rate of inflation; the quality of their loan or investment
portfolios; government policies involving regulation or taxation; the ability
or willingness of consumers, companies, and governments to repay loans; and
the economic growth and political stability of outstanding debtor nations.
Certain financial services companies may also have limited product lines,
markets or financial resources, or they may be dependent upon a limited
management group or be affected by severe price competition. While the Series
intends to invest in the securities of many different companies, in theory the
Series could invest in the securities of fewer than 15 companies without
violating the various restrictions now imposed on the Series' investments by
its fundamental investment policies because the Series is "non-diversified".
The fewer the companies the Series invested in, the greater would be the
effect of each portfolio holding on the Series' performance. Given the
industry concentration, an investment in the Series cannot be considered, and
is not intended to be, a complete investment program. Rather, it will be one
of a number of holdings in the portfolios of the clients of the Advisor or its
affiliates.
The investment objective and policies as to concentration and continued
use of its name are fundamental investment policies of the Financial Services
Series. Fundamental investment policies may not be changed without the
approval by a majority, as defined in the 1940 Act, of the outstanding voting
securities of the Series.
<PAGE> 11
INTERNATIONAL SERIES
The International Series seeks to achieve its investment objective by
investing principally in equity securities of non-United States issuers. The
International Series will, under normal circumstances, have at least 65% of
the value of its total assets invested, and expects to be fully invested, in
equity securities issued by non-United States entities in three or more
countries including, but not limited to, France, Germany, the United Kingdom,
Spain, Italy, Switzerland, Belgium, the Netherlands, Denmark, Sweden, Norway,
Canada, Mexico, Japan, Singapore, Australia, and New Zealand. Current income
is not a factor in pursuing the Series' objective. There can be no assurance
that the Series will attain its objective.
While the International Series intends to invest in the securities of
many different companies, in theory the Series could be invested in the
securities of fewer than 15 companies without violating the various
restrictions now imposed on the Series' investments by its fundamental
investment policies because the Series is "non-diversified". The fewer the
companies the Series invests in, the greater would be the effect of each
portfolio holding on the Series' performance. Given the Series' status as
non-concentrated, no investment will be made that will result in more than 25%
of the Series' assets being invested in any one industry. A foreign
government and its agencies will be deemed separate industries for purposes of
this restriction. The Series should not be considered, and is not intended to
be, a complete investment program. Rather, it will be one of a number of
holdings in the portfolios of the clients of the Advisor or its affiliates.
See "Risk and Additional Information about Investment Policies - Foreign
Securities" for a further discussion of the risks associated with investments
in foreign securities.
LIFE SCIENCES SERIES
The Life Sciences Series seeks to achieve its investment objective by
investing principally in the equity securities of companies engaged in
research, development, production, or distribution of products and services
related to the life sciences. Examples of companies involved in the life
sciences and related industries include those in the following areas:
Pharmaceuticals, including ethical (prescription) and proprietary
(nonprescription) drugs, drug delivery systems, and chemical or biological
components used in diagnostic testing.
Biotechnology, including processes, products or services relevant to
human health care, veterinary medicine, agriculture, bioremediation, energy
systems or industrial manufacturing.
Medical Products and Supplies, including equipment used in chemical
analysis and diagnostic testing, surgical and medical instruments, and dental
and optical products.
Health Care Services, including owners/operations of acute care
hospitals, specialty treatment hospitals, health maintenance organizations,
nursing homes, outpatient care centers, and other services associated with
health care delivery.
Environmental Services, including companies engaged in research,
development, manufacture or distribution of products, processes or services
related to waste management or pollution control.
An equity security will generally be considered appropriate for
investment by the Life Sciences Series if, as determined by the Advisor, at
least 50% of the company's assets, revenues, or net income are derived from or
related to the life sciences and related industries. Under normal
circumstances, at least 65% of the Series' total assets will be concentrated
in securities of companies in the life sciences and related industries.
Current income is not a factor in pursuing the Series' objective. There can
be no assurance that the Series will attain its objective.
The Life Sciences Series' policy as to concentration of investments in
the securities of companies in the life sciences and related industries may
involve a higher degree of risk than those of investment companies which are
less concentrated in their investments. The special risks associated with
investments in the life sciences and related industries are that the earnings
prospects of these companies may be uncertain or volatile for a variety of
reasons. For example, the Life Sciences Series' industries are subject to
substantial government regulation and, in some instances, funding or
<PAGE> 12
subsidies. Accordingly, changes in government policies or regulations could
have a material effect on the demand and/or supply of products and services.
In addition, scientific and technological advances present the risk that
products and services may be subject to rapid obsolescence. Moreover, there
may be significant liability risks associated with medical or environmental
products and services. While the Series' portfolio will normally include
securities of established suppliers of traditional products and services, the
Series may also invest in smaller companies (including companies without
historical records of having earned profits) that may benefit from the
development of new products and services. These smaller companies may present
greater opportunities for capital appreciation, but may also involve greater
risks than large, established issuers. Such smaller companies may have
limited product lines, markets or financial resources, or may depend on a
limited management group. In addition, the price of their securities may
fluctuate more erratically and to a greater degree than those of larger, more
established companies since they may trade less frequently and in more limited
volume. While the Series intends to invest in the securities of many
different companies, in theory the Series could invest in the securities of
fewer than 15 companies without violating the various restrictions now imposed
on the Series' investments by its fundamental investment policies because the
Series is "non-diversified". The fewer the companies the Series invested in,
the greater would be the effect of each portfolio holding on the Series'
performance. Given the industry concentration, an investment in the Series
cannot be considered, and is not intended to be, a complete investment
program. Rather, it will be one of a number of holdings in the portfolios of
the clients of the Advisor or its affiliates.
The investment objective and policies as to concentration and continued
use of its name are fundamental investment policies of the Life Sciences
Series. Fundamental investment policies may not be changed without the
approval by a majority, as defined in the 1940 Act, of the outstanding voting
securities of the Series.
GLOBAL FIXED INCOME SERIES
The Global Fixed Income Series seeks to achieve its investment objective
by investing principally in fixed income securities issued by governments,
banks, corporations and supranational entities located anywhere in the world.
The Series will, under normal circumstances, have at least 65% of the value of
its total assets in fixed income securities of issuers located in three or
more countries, including, but not limited to, the United States, Western
Europe, Canada, Mexico, Japan, Australia and New Zealand. The portfolio may
invest in securities denominated in U.S. or foreign currencies. Securities of
issuers within a given country may be denominated in the currency of another
country. There is no limit on the amount the Series may invest in any one
country, or in securities denominated in the currency of any one country.
There can be no assurance that the Series will attain its objective.
The Series' investments in fixed income securities will include debt
securities issued or guaranteed by U.S. or foreign sovereign governments,
their agencies, instrumentalities or political subdivisions; debt securities
issued or guaranteed by independent international organizations created or
supported by multiple governmental entities ("supranational entities") such as
the World Bank; U.S. or foreign corporate debt including commercial paper,
notes and bonds; debt obligations of U.S. and foreign banks and bank holding
companies; money market instruments; mortgage-backed securities; and
repurchase agreements involving these securities. The Series' portfolio will
consist primarily of government debt securities and of investment grade
corporate debt securities, bank debt and money market securities as rated by
an established rating agency (i.e., BBB or A-2 or better by S&P or Baa or P-2
or better by Moody's Investors Service, Inc. ("Moody's")), or, if not rated,
determined to be of comparable quality by the Advisor. Bonds rated BBB or
lower by S&P or Baa or lower by Moody's are considered to have speculative
characteristics. The Series may invest up to 20% of its assets in
lower-rated, high-risk debt securities (those rated Ba or lower by Moody's or
BB or lower by S&P) which have poor protection of payment of principal and
interest. These securities are commonly known as junk bonds. These
securities are often considered to be speculative and involve greater risk of
default or price changes due to changes in the issuer's credit-worthiness.
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. Ratings of corporate bonds including lower
rated bonds are included in the Appendix. In the event a security is
<PAGE> 13
downgraded below these ratings after purchase, the Advisor will review and
take appropriate action with regard to the security. The Series may invest up
to 5% of its total assets in debt securities convertible into equity
securities, although the Series has no current intention to convert such
securities or to hold them as equities after conversion. The maturity of debt
securities may be long-term (10 years or greater), intermediate (1 to 10
years), or short-term (12 months or less) and the proportion invested in each
category can be expected to vary depending on evaluations of market
conditions. The value of debt securities held by the Series, and therefore
the Series' total return, is significantly affected by movements in interest
rates and by changes in foreign currency exchange rates. In addition, the
effect of interest rate movements on the value of the Series' shares will be
affected by the Series' average weighted maturity since longer term securities
will experience greater fluctuations than shorter term securities. The value
of debt securities held by the Series will also be affected by changes in the
ratings of any securities and changes in the ability of the issuer to make
payments of principal and interest.
While the Series intends to invest in the securities of many different
companies, in theory the Series could invest in the securities of fewer than
15 companies without violating the various restrictions now imposed on the
Series' investments by its fundamental investment policies because the Series
is "non-diversified". The fewer the companies the Series invested in, the
greater would be the effect of each portfolio holding on the Series'
performance. The Global Fixed Income Series will not invest more than 25% in
any one foreign government. A foreign government and its agencies will be
deemed separate industries for purposes of this restriction. The Series
should not be considered, and is not intended to be, a complete investment
program. Rather, it will be one of a number of holdings in the portfolios of
the clients of the Advisor or its affiliates. See "Additional Investment
Policies--Foreign Securities" for a further discussion of the risks associated
with investments in foreign securities.
The investment objective and policies and the continued use of its name
are fundamental investment policies of the Global Fixed Income Series.
Fundamental investment policies may not be changed without the approval by a
majority, as defined in the 1940 Act, of the outstanding voting securities of
the Series.
WORLD OPPORTUNITIES SERIES
The World Opportunities Series seeks to attain its objective by
investing at least 65% of its assets in common stocks of companies domiciled
in at least three different countries. The Advisor will emphasize individual
security selection to identify those issuers which, in the Advisor's opinion,
have attractive long-term business prospects and valuations. It may invest up
to 20% of assets in noninvestment-grade convertibles and debt securities.
There can be no assurance that the Series will attain its objective.
The Series may also invest up to 35% of its assets in corporate debt
securities of foreign issuers and in obligations issued by foreign governments
or their respective agencies and instrumentalities. The value of debt
securities fluctuates inversely to changes in interest rates. The Series may
invest in both exchange and over-the-counter traded securities. The Series
may invest in such securities without regard to term or rating and may, from
time to time, invest up to 20% of its assets in debt securities rated below
investment grade, i.e., rated lower than BBB by Standard & Poor's Corporation
("S&P") or Baa by Moody's Investor Service, Inc. ("Moody's"), or unrated
securities of comparable quality as determined by the Advisor. These
securities are commonly known as junk bonds. Ratings of corporate bonds
including lower rated bonds are included in the Appendix. See "Special Risk
and Additional Investment Policies-World Opportunities Series Only".
In periods of unusual market conditions, when the Series' Advisor
considers it appropriate, the Series may invest all or any part of the Series'
assets in cash, U.S. Government Securities, high quality commercial paper,
bankers' acceptances, repurchase agreements and certificates of deposit.
The Series is a non-diversified portfolio under the Investment Company
Act of 1940 (the "1940 Act"), which means that the Series is not limited by
the 1940 Act in the proportion of its assets that may be invested in the
obligations of a single issuer. Thus, the Series may invest a greater
proportion of its assets in the securities of a small number of issuers and as
a result will be subject to greater risk with respect to its securities.
However, the Series intends to comply with the diversification requirements
<PAGE> 14
imposed by the internal Revenue Code of 1986, as amended (the "Code") for
qualification as a regulated investment company.
For temporary defensive purposes during periods when the Advisor
determines that market conditions warrant, the Series may invest up to 100% of
its assets in money market instruments (including securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities,
certificates of deposit, time deposits and bankers' acceptances issued by
banks or savings and loan associations deemed to be creditworthy by the
Advisor, commercial paper rated A-1 by S&P or P-1 by Moody's, repurchase
agreements involving such securities and other investment companies investing
solely in such securities as permitted by applicable law) and may hold a
portion of its assets in cash. For a description of the above ratings, see
the Appendix and the Statement of Additional Information.
Unless otherwise stated, the Series' investment policies are not
fundamental and may be changed without shareholder approval; however, it is
the Board of Directors' policy to notify shareholders prior to any material
change.
In addition, the Series may to varying degrees use certain techniques
and strategies discussed below under "Risk and Additional Information about
Investment Policies".
RISK AND ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
In attempting to achieve their objectives, the Series may follow a number
of investment strategies as described below. These strategies have been
voluntarily adopted by the Board of Directors based upon current circumstances
and may be changed or amended by action of the Board of Directors without
prior notice or approval of a Series' shareholders. Additional information
concerning these strategies and their related risks is contained in the
Statement of Additional Information.
FOREIGN SECURITIES
In seeking its objective, the International Series will invest primarily
in common stocks of non-United States issuers, while the World
Opportunities Series will invest 65% of its assets in common stocks of
companies domiciled in at least three different countries. The Global
Fixed Income Series will invest primarily in government and corporate fixed
income securities issued anywhere in the world, including the U.S. In
addition, the Life Sciences Series may invest up to 25% of its assets, and
each other Series may invest up to 10% of its assets, in foreign securities
which are not publicly traded in the United States. Each Series will invest
no more than 25% of its assets in any one foreign government. Each Series,
except for the Global Fixed Income Series, may invest without limit in equity
securities of foreign issuers that are listed on a domestic securities
exchange or are represented by American Depository Receipts that are listed on
a domestic securities exchange or are traded in the United States on the
over-the-counter market. Each Series' restriction on investment in foreign
securities is a fundamental policy that cannot be changed without the approval
of a majority, as defined in the 1940 Act, of the outstanding voting
securities of a Series.
There are risks in investing in foreign securities not typically involved
in domestic investing. An investment in foreign securities may be affected by
changes in currency rates and in exchange control regulations. Foreign
companies are frequently not subject to the accounting and financial reporting
standards applicable to domestic companies, and there may be less information
available about foreign issuers. There is frequently less government
regulation of foreign issuers than in the United States. In addition,
investments in foreign countries are subject to the possibility of
expropriation or confiscatory taxation, political or social instability or
diplomatic developments that could adversely affect the value of those
investments. There may also be imposition of withholding taxes. Foreign
financial markets may have less volume and longer settlement periods than U.S.
markets which may cause liquidity problems for a Series. In addition, costs
associated with transactions on foreign markets are generally higher than for
transactions in the U.S. The Global Fixed Income Series' policy under which
it has no limit on the amount it may invest in any one country may involve a
higher degree of risk than if the Fund were more diversified among countries.
The special risks associated with investing in just one country include a
greater effect on portfolio holdings of country-specific economic factors,
currency fluctuations and country-specific social or political factors.
<PAGE> 15
Obligations of foreign governmental entities are subject to various types
of governmental support and may or may not be supported by the full faith and
credit of a foreign government.
REPURCHASE AGREEMENTS
Each Series may enter into repurchase agreements with respect to
portfolio securities. Under the terms of a repurchase agreement, the Series
purchases securities ("collateral") from financial institutions such as banks
and broker-dealers (the "seller") which the Advisor deems to be creditworthy,
subject to the seller's agreement to repurchase them at a mutually agreed-upon
date and price. The repurchase price generally equals the price paid by the
Series plus interest negotiated on the basis of current short-term rates
(which may be more or less than the rate on the underlying portfolio
securities).
The seller under a repurchase agreement is required to maintain the value
of the collateral held pursuant to the agreement at not less than 100% of the
repurchase price, and securities subject to repurchase agreements are held by
the Fund's Custodian either directly or through a securities depository.
Default by the seller would, however, expose the Series to possible loss
because of adverse market action or delay in connection with the disposition
of the underlying securities. Repurchase agreements are considered to be
loans by the Series under the 1940 Act.
U.S. GOVERNMENT SECURITIES
Each Series may purchase securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. Direct obligations of the U.S.
Government include bills, notes and bonds issued by the U.S. Treasury and
obligations issued or guaranteed by U.S. agencies or instrumentalities. The
obligations of certain U.S. agencies (e.g., the Government National Mortgage
Association) are backed by the full faith and credit of the U.S. Government or
are supported by the agencies' rights to borrow from the U.S. Treasury. The
issues of other agencies are supported only by the credit of the agency (e.g.,
the Federal National Mortgage Association).
SHORT SALES
Each Series may, within limits, engage in short sales "against the box".
A short sale is the sale of borrowed securities; a short sale against the box
means that the Series owns securities equivalent to those sold short. No more
than 25% of the net assets (taken at current value) of a Series may be held as
collateral for such sales at any one time. Such short sales can be used as a
hedge and as a method of deferring realized capital gains from one taxable
year to the next for tax purposes.
FORWARD COMMITMENTS OR PURCHASES ON A WHEN-ISSUED BASIS
Each Series may enter into forward commitments or purchase securities on
a when-issued basis. These securities normally are subject to settlement
within 45 days of the purchase date. The interest rate realized on these
securities is fixed as of the purchase date and no interest accrues to the
Series before settlement. These securities are subject to market fluctuation
due to changes in market interest rates. The Series will maintain a separate
account with a segregated portfolio of high quality liquid debt instruments or
cash in an amount at least equal to the purchase price.
MORTGAGE-BACKED SECURITIES
Each Series may purchase mortgage-backed securities which represent an
interest in a pool of mortgage loans. The primary government issuers or
guarantors of mortgage-backed securities are the Government National Mortgage
Association ("GNMA"), 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") 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'
<PAGE> 16
values, which are likely to vary inversely with fluctuations in interest
rates.
Mortgage-backed securities are in most cases "pass-through" instruments,
through which the holder receives a share of all interest and principal
payments from the mortgages underlying the certificate. When the Advisor is
determining the maturity of pass-through certificates the Advisor will
consider the maturity to be equal to the average life rather than the stated
maturity. During periods of declining interest rates, prepayment of mortgages
underlying mortgage-backed securities can be expected to accelerate. When the
mortgage obligations are prepaid, the Series reinvests the prepaid amounts in
securities, the yield of which reflects interest rates prevailing at the time.
Moreover, prepayment of mortgages which underlie securities purchased at a
premium could result in capital losses.
To the extent that the Series purchases mortgage-related or
mortgage-backed securities at a premium, mortgage foreclosures and prepayments
of principal (which may be made at any time without penalty) may result in
some loss of the Series' principal investment to the extent of the premium
paid. The yield of the Series may be affected by reinvestment of prepayments
at higher or lower rates that the original investment. In addition, like
other debt securities, the value of mortgage-related securities, including
government and government-related mortgage pools, will generally fluctuate in
response to market interest rates.
ZERO-COUPON BONDS
Some of the securities in which the Series invests may include so-called
"zero-coupon" bonds. Zero-coupon bonds are issued at a significant discount
from face value and pay interest only at maturity rather than at intervals
during the life of the security. The Series is required to accrue and
distribute income from zero-coupon bonds on a current basis, even though it
does not receive that income currently in cash. Thus, the Series may have to
sell investments to obtain cash needed to make income distributions. The
discount in the absence of financial difficulties of the issuer decreases as
the final maturity of the security approaches. Zero-coupon bonds can be sold
prior to their maturity date in the secondary market at the then prevailing
market value, which depends primarily on the time remaining to maturity,
prevailing level of interest rates and the perceived credit quality of the
issues. The market prices of zero-coupon securities are subject to greater
fluctuations in response to changes in market interest rates than bonds which
pay interest currently.
VARIABLE AND FLOATING RATE INSTRUMENTS
Certain of the obligations purchased by each of the Series may carry
variable or floating rates of interest, may involve a conditional or
unconditional demand feature and may include variable amount master demand
notes. Such instruments bear interest at rates which are not fixed, but which
vary with changes in specified market rates or indices, such as a Federal
Reserve composite index. The interest rate on these securities may be reset
daily, weekly, quarterly, or some other reset period and may have a floor or
ceiling on charges. There is a risk that the current interest rate on such
obligations may not accurately reflect existing market interest rates.
HEDGING TECHNIQUES
Each Series has reserved the right, subject to authorization by the Board
of Directors prior to implementation, to engage in certain strategies in an
attempt to hedge the Series' portfolio, that is, to reduce the overall level
of risk that normally would be expected to be associated with its investments.
Each Series may write covered call options on common stocks (fixed income
securities for the Global Fixed Income Series); may purchase and sell (on a
secured basis) put options; and may engage in closing transactions with
respect to put and call options. Each Series also may purchase forward
foreign currency exchange contracts to hedge currency exchange rate risk. In
addition, each Series is authorized to purchase and sell stock index futures
contracts and options on stock index futures contracts. Each Series is also
authorized to conduct spot (i.e., cash basis) currency transactions or to use
currency futures contracts and options on futures contracts and foreign
currencies in order to protect against uncertainty in the future levels of
foreign currency exchange rates. These strategies are primarily used for
hedging purposes; nevertheless, there are risks associated with these
strategies as described below.
<PAGE> 17
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. A Series will sell call options only
on a "covered" basis, i.e., it will own the underlying security at all times,
and will write put options only on a secured basis, i.e., it will maintain an
amount equal to the exercise price in a segregated account at all times. The
Series may engage in option transactions for hedging purposes and to realize a
greater current return, through the receipt of premiums, than would be earned
on the underlying securities alone. Options traded in the over-the-counter
market will be considered illiquid unless the Fund has entered into
arrangements with U.S. Government securities dealers to dispose of such
options at a formula price based on a multiple of the original premium plus
the amount by which the option is "in the money".
STOCK INDEX FUTURES CONTRACTS AND OPTIONS ON STOCK INDEX FUTURES CONTRACTS
A stock index futures contract is a bilateral agreement pursuant to which
one party agrees to accept, and the other party agrees to make, delivery of an
amount of cash equal to a specified dollar amount times the difference between
the stock index value at the close of trading of the contract and the price at
which the futures contract is originally struck. No physical delivery of the
stocks comprising the index is made. Options on stock index futures contracts
give the purchaser the right, in return for the premium paid, to assume a long
or short position in a futures contract.
FUTURES CONTRACTS
Each Series may purchase and sell financial futures contracts on debt
securities on a commodities exchange or board of trade for certain hedging,
return enhancement and risk management purposes in accordance with applicable
regulations. A financial futures contract is an agreement to purchase or sell
an agreed amount of securities at a set price for delivery in the future. The
Series may not purchase or sell future contracts if immediately thereafter the
sum of the amount of initial margin deposits on any such futures (plus
deposits on any other futures contracts and premiums paid in connection with
any options or futures contracts) that do not constitute "bona fide
hedging" under the Commodity Futures Trading Commission ("CFTC") rules would
exceed 5% of the liquidation value of the Series' total assets after taking
into account unrealized profits and losses on such contracts. In
addition, the value of all futures contracts sold will not exceed the total
market value of the Series' portfolio. The Fund will comply with guidelines
established by the Securities and Exchange Commission with respect to covering
of obligations under futures contracts and will set aside cash and/or liquid
high grade securities in a segregated account with its custodian in the amount
prescribed.
The Series' successful use of futures contracts depends on the Advisor's
ability to predict the direction of the market and is subject to various
additional risks. The correlation between movements in the price of a futures
contract and the price of the securities being hedged is imperfect and there
is a risk that the value of the securities being hedged may increase or
decrease at a greater rate than the related futures contracts resulting in
losses to the Series. Certain futures exchanges or boards of trades have
established daily limits based on the amount of the previous day's settlement
price. These daily limits may restrict the Series' ability to repurchase for
sale certain futures contracts on any particular day.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
A Series' use of forward foreign currency contracts is limited to hedging
against movements in the value of foreign currencies relative to the U.S.
dollar in connection with specific portfolio transactions or with respect to
existing portfolio positions denominated in such currencies. A transaction
hedge involves the purchase or sale of a forward contract with respect to a
specific receivable or payable of a Series while a position hedge relates to a
specific portfolio holding. A forward foreign currency exchange contract
<PAGE> 18
involves an obligation to purchase or sell a specified currency at a future
date at a price set at the time of the contract. Foreign currency exchange
contracts do not eliminate fluctuations in the values of portfolio securities
but rather allow a Series to establish a rate of exchange for a future point
in time. With respect to any such forward foreign currency contract, it will
not generally be possible to match precisely the amount covered by that
contract and the value of the securities involved due to the changes in the
values of such securities resulting from market movements between the date the
forward contract is entered into and the date it matures. In addition, while
forward contracts may offer protection from losses resulting from declines in
the value of a particular foreign currency, they also limit potential gains
which might result from increases in the value of such currency. Based on
current legal interpretation, the Series do not consider forward foreign
currency exchange contracts to be commodities or commodity contracts for
purposes of the Series' fundamental restrictions concerning investment in
commodities or commodity contracts, as set forth in the Statement of
Additional Information.
CURRENCY FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
A currency futures contract is an agreement for the purchase or sale for
future delivery of foreign currencies. A "sale" of a currency futures
contract means the obligation to deliver the foreign currencies called for by
the contract at a specified price on a specified date while a "purchase" of a
currency futures contract means the obligation to acquire the foreign
currencies called for by the contract at a specified price on a specified
date. A Series will only enter into futures contracts which are traded on
national or foreign futures exchanges and which are standardized as to
maturity date and the underlying financial instrument. Options on currency
futures contracts gives the purchaser the right, in return for the premium
paid, to assume a long or short position in the futures contract. A Series
may not purchase or sell future contracts if immediately thereafter the sum of
the amount of initial margin deposits on any such futures (plus deposits on
any other futures contracts and premiums paid in connection with any options
or futures contracts) that do not constitute "bona fide hedging" under
CFTC rules would exceed 5% of the liquidation value of the Series' total
assets after taking into account unrealized profits and losses on such
contracts. In addition, the value of all futures contracts sold will not
exceed the total market value of each Series' portfolio.
FOREIGN CURRENCY OPTIONS
A call option on a foreign currency is a short-term contract pursuant to
which the purchaser of the option, in return for a premium, has the right to
buy the currency underlying the option at a specified price at any time during
the term of the option. The writer of a call option, who receives the
premium, has the obligation, upon exercise of the option during the option
term, to deliver the underlying currency against payment of the exercise
price. Conversely, a put option on a foreign currency gives its purchaser, in
return for a premium, the right to sell the underlying currency at a specified
price during the option term to the writer of the put option, who receives the
premium.
RISKS ASSOCIATED WITH HEDGING STRATEGIES
There are risks associated with the hedging strategies described above,
including the following: (1) the success of a hedging strategy may depend on
the ability of the Advisor to predict movements in the prices of individual
securities, fluctuations in domestic and foreign markets and currency exchange
rates, and movements in interest rates; (2) there may be an imperfect
correlation between the changes in market value of the stocks held by a Series
and the prices of currency contracts, options, futures and options on futures;
(3) there may not be a liquid secondary market for a currency contract,
option, futures contract or futures option; (4) trading restrictions or
limitations may be imposed by an exchange; and, (5) government regulations,
particularly requirements for qualification as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"), may
restrict trading in forward currency contracts, options, futures contracts and
futures options.
SPECIAL RISK AND ADDITIONAL INVESTMENT POLICIES--WORLD OPPORTUNITIES
SERIES ONLY
The World Opportunities Series may engage in the following investment
policies and practices, some of which are described in more detail in the
Statement of Additional Information.
<PAGE> 19
FOREIGN INVESTMENTS
Investments in foreign securities have special risks related to
political, economic and legal conditions outside of the U.S., including the
possibility of unfavorable currency exchange rates, exchange control
regulations (including currency blockage), expropriation, nationalization,
withholding taxes on income and difficulties in enforcing judgments. Foreign
securities may be less liquid and more volatile than comparable U.S.
securities. In general, there may be limited public information with respect
to foreign issuers, and some foreign issuers may also be subject to less
comprehensive accounting and disclosure requirements than similar U.S.
issuers.
The Series' investments in foreign securities may include investments
in countries whose economies or securities markets are not yet highly
developed. Special risks associated with these investments (in addition to
the considerations regarding foreign investments generally) may include, among
others, greater political uncertainties, an economy's dependence on revenues
from particular commodities or on international aid or development assistance,
currency transfer restrictions, highly limited numbers of potential buyers for
such securities and delays and disruptions in securities settlement
procedures.
INVESTING IN OTHER INVESTMENT COMPANIES
The Series may invest up to 10% of its total assets in closed-end
investment companies commonly referred to as "country funds". Such
investments will involve the payment of duplicate fees through the indirect
payment of a portion of the expenses, including advisory fees, of such other
investment companies.
SMALL COMPANIES
The Series may invest in smaller, less well established companies
which may offer greater opportunities for capital appreciation than larger,
better established companies. These stocks may also involve certain risks
related to limited product lines, markets or financial resources and
dependence on a small management group. Their securities may trade less
frequently, in smaller volumes and fluctuate more sharply in value than
exchange-listed securities of larger companies.
SECURITIES LENDING
The Series may seek to increase its income by lending portfolio
securities. Such loans will usually be made to member firms (and subsidiaries
thereof) of the New York Stock Exchange and to member banks of the Federal
Reserve System, and would be required to be secured continuously by collateral
in cash, cash equivalents or U.S. Treasury securities maintained on a current
basis at an amount at least equal to the market value of the securities
loaned. If the Advisor determines to make securities loans, the value of the
securities loaned would not exceed 30% of the value of the total assets of the
Series.
HIGH YIELD DEBT SECURITIES
High risk, high yield securities rated below BBB or lower by S&P or
Baa or lower by Moody's are considered to have speculative characteristics and
involve greater risk of default or price changes due to changes in the
issuer's credit-worthiness. Market prices of these securities may fluctuate
more than high-rated securities and they are difficult to price at times
because they are more thinly traded and less liquid securities. Market prices
may decline significantly in periods of general economic difficulty which may
follow periods of rising interest rates. Securities in the lowest rating
category may be in default. For these reasons, it is the Series' policy not
to rely primarily on ratings issued by established credit rating agencies, but
to utilize such ratings in conjunction with the Advisor's independent and
ongoing review of credit quality. In the event a security is downgraded below
these ratings after purchase, the Advisor will review and take appropriate
action with regard to the security. The Series will also seek to minimize
risk by diversifying its holdings.
PRINCIPAL INVESTMENT RESTRICTIONS
The Series are subject to certain investment restrictions which are
<PAGE> 20
fundamental policies that cannot be changed without the approval of the
holders of a majority, as defined in the 1940 Act, of a Series' outstanding
shares.
Each Series may borrow money, but only from a bank for temporary or
emergency purposes in amounts not exceeding 10% of the borrowing Series' total
assets and the borrowing Series will not make additional investments while
borrowings greater than 5% of its total assets are outstanding.
The Small Cap Series may not, with respect to 75% of its total assets,
invest more than 5% of the value of its total assets at the time of investment
in securities of any one issuer (other than obligations issued or guaranteed
by the U.S. Government, its agencies or its instrumentalities). The Series
may not purchase more than 10% of the outstanding voting securities of any one
issuer.
The Small Cap Series, the International Series, the Global Fixed Income
Series and the World Opportunities Series may not invest 25% or more
of the value of their total assets in securities of issuers in any one
industry.
No Series will invest more than 10% of its total net assets in securities
of issuers that are restricted from being sold to the public without
registration under the Securities Act of 1933 and illiquid securities,
including repurchase agreements with maturities of greater than seven days.
Each Series may purchase shares of closed-end (except for the World
Opportunities Series which may also purchase shares of open-end)
investment companies that are traded on national exchanges to the extent
permitted by applicable law.
No Series may make loans, except loans of portfolio securities
and through repurchase agreements.
Additional information about the Series' investment restrictions is
contained in the Statement of Additional Information.
MANAGEMENT
The overall business and affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, including the Fund's
agreements with its Investment Advisor and Custodian. The day-to-day
operations of the Fund are delegated to the Fund's officers and to Manning &
Napier Advisors, Inc. (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 and supervises and
arranges the purchase and sale of securities held in the portfolio of the
Fund. Mr. William Manning controls the Advisor by virtue of his ownership of
the securities of 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
over$5.5 billion in assets of clients, including both individuals
and institutions. For its services to the Fund under the Investment Advisory
Agreement, the Fund pays the Advisor a fee, computed daily and payable
monthly, at an annual rate of 1% of the Fund's daily net assets. This fee is
higher than the mean fee paid by all other mutual funds. The advisory fee
charged by the Advisor to its investment advisory clients will not include or
be based on assets of such clients held in shares of the Fund. The Fund is
responsible for its operating expenses, including: (i) interest and taxes;
(ii) brokerage commissions; (iii) insurance premiums; (iv) compensation and
expenses of its Directors other than those affiliated with the Advisor; (v)
legal and audit expenses; (vi) fees and expenses of the Fund's Custodian,
Shareholder Servicing or Transfer Agent and Accounting Services agent, if
obtained for the Fund from an entity other than the Advisor; (vii) expenses
incidental to the issuance of its shares, including issuance on the payment
of, or reinvestment of, dividends and capital gain distributions; (viii) fees
and expenses incidental to the registration under federal or state securities
<PAGE> 21
laws of the Fund or its shares; (ix) expenses of preparing, printing and
mailing reports and notices and proxy material to shareholders of the Fund;
(x) all other expenses incidental to holding meetings of the Fund's
shareholders; (xi) dues or assessments of or contributions to the Investment
Company Institute or any successor; and, (xii) such non-recurring expenses as
may arise, including litigation affecting the Fund and the legal obligations
with respect to which the Fund may have to indemnify its officers and
Directors.
The Advisor may use its own resources to engage in activities that may
promote the sale of the Fund, including payments to third parties who provide
shareholder support servicing and distribution assistance.
OFFERING OF SHARES
Shares of the Fund are offered to persons who are investment advisory
clients or employees of the Fund's Advisor or its affiliates and directly to
investors. The purchase price for shares will be the net asset value next
determined after receipt by the Fund of a duly completed purchase order
transmitted by the Advisor to the Fund either executed by the investor or by
the Advisor pursuant to a power of attorney and/or investment management
agreement granted by the client.
The minimum initial investment in the Fund is $2,000. The minimum
initial or subsequent investment in any Series of the Fund for accounts held
custody by the Advisor or its affiliates is $400. The Distributor reserves
the right to waive these minimum initial or subsequent investment requirements
in its sole discretion. The Distributor has the right to refuse any order.
The Distributor may suspend offering shares to other than discretionary
management accounts of the Advisor.
Manning & Napier Investor Services, Inc. acts as Distributor of the Fund
shares and is located at the same address as the Advisor and the Fund. There
will be no additional costs to clients for this service.
NET ASSET VALUE
The Fund's net asset value per share is determined as of the closing time
of the New York Stock Exchange or, in the absence of a closing time, 4:00 p.m.
Eastern standard time on each day that the New York Stock Exchange is open for
trading. The exchange annually announces the days on which it will not be
open for trading; the most recent announcement indicates that it will not be
open on: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value per share is the value of the Fund's assets, less its
liabilities, divided by the number of shares of the Fund outstanding. The
value of the Fund's portfolio securities will be the market value of such
securities as determined based on quotes provided by a pricing service (which
uses the methodology outlined in the "Net Asset Value" section of the
Statement of Additional Information) approved by the Board of Directors, or,
in the absence of market quotations, fair value as determined in good faith by
or under the direction and control of the Board of Directors. Short-term
investments which mature in less than 60 days are normally valued at amortized
cost. Assets initially expressed in foreign currencies will be converted
into U.S. dollars as of the exchange rates quoted by any major bank. If such
quotes are not available, the exchange rates will be determined in accordance
with policies established in good faith by the Board of Directors. See the
Statement of Additional Information for further information.
YIELD AND TOTAL RETURN
From time-to-time the Series may advertise its total return. Both
yield and total return figures are based on historical earnings and are not
intended to indicate future performance. The "total return" of a Series
refers to the average annual compounded rates of return over one-, five, and
ten-year periods or for the life of the Series (as stated in the
advertisement) that would equate an initial amount invested at the beginning
of a stated period to the ending redeemable value of the investment, assuming
the reinvestment of all dividend and capital gains distributions.
REDEMPTION OF SHARES
If a shareholder desires to redeem his shares at their net asset value,
the shareholder must send a written request for redemption in "good order" to
<PAGE> 22
the Transfer Agent. "Good Order" generally means that the written request for
redemption must be endorsed by the record owner(s) exactly as the shares are
registered and the signature(s) must be guaranteed by an "eligible guarantor
institution" as the term is defined under Rule 17Ad-15(a)(2) under the
Securities Exchange Act of 1934. Please contact the Transfer Agent at
1-800-466-3863 for more information. The Transfer Agent may make certain de
minimis exceptions to the above requirements for redemption. Within
three days after receipt of a redemption request by the Transfer
Agent in "good order", the Series will make payment in cash, except as
described below, of the net asset value of the shares next determined after
such redemption request was received, except during any period in which the
right of redemption is suspended or date of payment is postponed because the
New York Stock Exchange is closed or trading on such Exchange is restricted or
to the extent otherwise permitted by the 1940 Act if an emergency exists. For
shares purchased, or received in exchange for shares purchased, by check
(including certified checks or cashier's checks), payment of redemption
proceeds may be delayed up to 15 days from the purchase date in an effort to
assure that such check has cleared.
Subject to the Series' compliance with applicable regulations, the Series
has reserved the right to pay the redemption price either totally or partially
by a distribution in-kind of securities (instead of cash) from the Series'
portfolio. The securities distributed in such a distribution would be valued
at the same amount as that assigned to them in calculating the net asset value
for the shares being sold. If a shareholder received a distribution in-kind,
he could incur brokerage or transaction charges when converting the securities
to cash.
Due to the relatively high cost of maintaining small accounts, the Series
reserves the right to redeem shares in any account for their then-current
value (which will be promptly paid to the shareholder) if at any time the
total investment in such account drops below $1,000 because of redemptions
(but not due to changes in net asset value). Shareholders will be notified
that the value of their account is less than the minimum investment
requirement and allowed 60 days to make an additional investment before the
redemption is processed.
DIVIDENDS AND TAX STATUS
DIVIDENDS AND DISTRIBUTIONS
Each Series expects to pay ordinary income dividends and capital gain
distributions, if any, annually. Dividends and distributions will be paid in
full and fractional shares of the particular Series, based on the net asset
value per share at the close of business on the record date, although a
shareholder may, prior to the record date, request, by writing or by telephone
call to the Fund, that payments of either ordinary income dividends or capital
gain distributions, or both, be made in cash. The Fund will notify each
non-corporate taxable shareholder after the close of its fiscal year
both of the dollar amount and the tax status of that year's distributions.
Generally, the Fund will be required to impose backup withholding at the rate
of 31% from ordinary income dividends, capital gain distributions and
redemption payments made to non-corporate shareholders, if provisions of the
law relating to the furnishing of taxpayer identification numbers and
reporting of dividends are not complied with by such shareholders.
TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a general summary of certain federal
income tax considerations affecting each Series and its shareholders. No
attempt is made to present a detailed explanation of the tax treatment of the
Series or their shareholders, and the discussion here is not intended as a
substitute for careful tax planning. None of the Series covered in this
Prospectus are managed with respect to shareholders' tax outcomes.
Under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), each Series is treated as a separate entity for federal
income tax purposes. Each Series of the Fund intends to qualify each
year as a regulated investment company under Subchapter M of the Code.
If a Series so qualifies, that Series will not be subject to federal income
taxes on its net investment income and capital gains, if any, which such
Series distributes to its shareholders, provided that at least 90% of such
Series' "investment company taxable income" (generally, net investment income
<PAGE> 23
and the excess of net short-term capital gain over net long-term capital loss)
for the taxable year is distributed, and provided that such Series meets
certain other requirements imposed by the Code. All dividends paid or
distributed out of investment company taxable income will be taxable as
ordinary income to the shareholders. Any "net capital gain" (the excess of
net long-term capital gain over net short-term capital loss) distributed to
shareholders is taxable as long-term capital gain to the shareholders,
regardless of the length of time a shareholder has owned his shares.
Generally, such dividends and distributions are taxable in the year in which
received, but dividends and distributions declared in October, November or
December of any year to shareholders of record on a date in such month are
treated as paid on December 31 of such year if they are paid during January of
the following calendar year. Dividends and distributions are not taxable to
shareholders that are not otherwise subject to tax on their income, such as
qualified employee benefit plans.
A 4% non-deductible federal excise tax is imposed on a regulated
investment company that fails to distribute substantially all of its ordinary
income and capital gain net income for each calendar year. Currently each
Series intends to make sufficient distributions of its ordinary income and
capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
Shareholders are also urged to consult their tax advisors concerning the
application of state and local income taxes and of foreign taxes to
investments in the Series, which may differ from the U.S. federal income tax
consequences described above.
ADDITIONAL DIVIDEND AND TAX INFORMATION FOR THE INTERNATIONAL SERIES, THE
GLOBAL FIXED INCOME SERIES AND THE WORLD OPPORTUNITIES SERIES
Income, such as dividends and interest, received by the International
Series, the Global Fixed Income Series and the World Opportunities
Series may give rise to withholding taxes imposed by foreign countries,
generally at rates from 10% to 40%. Tax conventions and treaties between such
countries and the United States may reduce or eliminate such taxes.
If more than 50% of the value of the International Series', the Global
Fixed Income Series' and the World Opportunities Series' total assets
at the close of their fiscal year consists of stocks or securities of foreign
corporations, the Series will be eligible to file elections with the Internal
Revenue Service pursuant to which shareholders of the Series will be required
to include in gross income their respective pro rata portions of foreign taxes
paid by the Series, and either deduct such respective pro rata portions in
computing their taxable incomes or, alternatively, use such pro rata portions
as foreign tax credits against their U.S. income taxes. Investors should note
that Code Section 904 imposes significant limitations on a taxpayer's ability
to claim the foreign tax credit.
GENERAL INFORMATION
The Fund was incorporated on July 26, 1984 as a Maryland corporation.
The Board of Directors may, at its own discretion, create additional series of
shares, each of which would have separate assets and liabilities.
The Fund does not expect to hold annual meetings of shareholders but
special meetings of shareholders may be held under certain circumstances.
Shareholders of the Fund retain the right, under certain circumstances, to
request that a meeting of shareholders be held for the purpose of considering
the removal of a Director from office, and if such a request is made, the Fund
will assist with shareholder communications in connection with the meeting.
The shares of the Fund have equal rights with regard to voting, redemption,
dividends, distributions and liquidations. The Fund's shareholders will vote
in the aggregate and not by Series except as otherwise expressly required by
law or when the Board of Directors determines that the matter to be voted upon
affects only the interests of the shareholders of a Series. Income, direct
liabilities and direct operating expenses of each Series will be allocated
directly to each Series, and general liabilities and expenses of the Fund will
be allocated among the Series in proportion to the total net assets of each
Series by the Board of Directors. The holders of shares have no preemptive or
conversion rights. Shares when issued are fully paid and non-assessable and
do not have cumulative voting rights.
Coopers & Lybrand, L.L.P. have been selected as the independent
accountants of the Series and performs an annual audit of the Series' accounts
and reviews the Series' tax returns.
<PAGE> 24
Fleet Bank acts as Custodian for the Energy Series, Financial Services
Series, Global Fixed Income Series and the domestic assets of the Technology
Series and Life Sciences Series. Boston Safe Deposit and Trust Company acts
as Custodian for the International Series, Small Cap Series, World
Opportunities Series and the foreign assets of the Life Sciences Series
and Technology Series. The Advisor, acting as Transfer Agent, maintains its
own shareholder account records, and shareholder inquiries should be directed
to Manning & Napier, Fund, Inc., P.O. Box 41118, Rochester, New York 14604.
APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
Moody's Investors Services, Inc.'s corporate bond ratings:
Aaa - Bonds which are rated Aaa are judged to be of the best quality 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 some time 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 principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
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 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 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.
Standard & Poor's Corporation's corporate bond ratings:
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
<PAGE> 25
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.
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's Investor Services, 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 of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
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 - This rating is 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.
<PAGE> 26
MANNING & NAPIER FUND, INC.
BLENDED ASSET SERIES I AND BLENDED ASSET SERIES II
No person has been authorized to give any information or to make
representations not contained in this Prospectus in connection with any
offering made by this Prospectus and, if given or made, such information must
not be relied upon as having been authorized by the Fund. This Prospectus
does not constitute an offering by the Fund in any jurisdiction in which such
offering may not lawfully be made.
TABLE OF CONTENTS
Annual Operating Expenses 3
Condensed Financial Information 4
The Fund 6
Risk and Investment Objectives and Policies 6
Risk and Additional Information about Investment Policies 7
Principal Investment Restrictions 12
Management 12
Yield and Total Return 13
Purchases, Exchanges and Redemptions of Shares 13
Net Asset Value 15
Dividends and Tax Status 15
General Information 16
Appendix 17
<PAGE>
MANNING & NAPIER FUND, INC.
P.O. Box 41118
Rochester, New York 14604
1-800-466-3863
BLENDED ASSET SERIES I
BLENDED ASSET SERIES II
Manning & Napier 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 Blended Asset Series I and the Blended Asset Series II of the
Fund (individually and collectively, the "Series").
The investment objective of the Blended Asset Series I is to seek with
equal emphasis long-term growth and preservation of capital. The Advisor
seeks to reduce the risk of negative returns while seeking to obtain capital
growth when it believes valuations and market conditions are favorable.
The primary objective of the Blended Asset Series II is to provide
long-term growth of capital. The secondary objective is the preservation of
capital.
This Prospectus provides you with the basic information you should know
before investing in the Series. You should read it and keep it for future
reference. A Statement of Additional Information dated, March 6,
1996, containing additional information about the Fund has been filed
with the Securities and Exchange Commission and is incorporated by reference
in this Prospectus in its entirety. You may obtain a copy of the Statement of
Additional Information without charge by contacting the Fund at the address or
telephone number listed above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MARCH 6, 1996.
<PAGE>
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
(as a percentage of offering price)
<S> <C>
Maximum Sales Charge Imposed on Purchases None
Redemption Fees (1) None
</TABLE>
(1) A wire charge, currently $15, will be deducted by the Transfer Agent
from the amount of a wire redemption payment made at the request of a
shareholder. Such amount is not included in the "Annual Operating
Expenses of the Series."
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES
The following information provides (i) a tabular summary of expenses relating to
the annual operating expenses of the Series and (ii) an example illustrating the
dollar cost of such expenses on a $1,000 investment.
Annual Operating Expenses of the Series (as a percentage of average net assets):
Blended Asset Blended Asset
Series I (2) Series II (2)
---------------- -----------------
<S> <C> <C>
Management Fees After Reduction of Fees (3) 0.67% 0.87%
12b-1 Fees None None
Other Expenses 0.53% 0.33%
---------------- --------------
Total Operating Expenses of the Series (3) 1.20% 1.20%
</TABLE>
<TABLE>
<CAPTION>
Example
You would pay the following expenses on a $1,000 investment, assuming a) 5.0%
annual return and b) redemptions at the end of each time period:
1 year 3 years 5 years 10 years
------- -------- -------- ---------
<S> <C> <C> <C> <C>
Blended Asset Series I $ 12 $ 38 $ 66 $ 145
Blended Asset Series II 12 38 66 145
</TABLE>
(2) Blended Asset Series I and Blended Asset Series II were engaged in
active investment operations for the year ended December 31, 1995;
therefore, actual management fees and other expenses are used above.
(3) The Investment Advisor waived a portion of its management fee. If the
full management fee of 1.00% had been incurred by the Funds, total
operating expenses, as a percentage of net assets, would have been 1.53%
for Blended Asset Series I, and 1.33% for Blended Asset Series II. Absent
the fee waiver and assumption of expenses, the expenses paid on a $1,000
investment would be:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------- -------- -------- ---------
<S> <C> <C> <C> <C>
Blended Asset Series I $ 16 $ 48 $ 83 $ 182
Blended Asset Series II 14 42 73 160
</TABLE>
The fee waiver and assumption of expenses by the Advisor is voluntary and may
be terminated at any time. However, the Advisor has agreed to continue
this fee waiver and assumption of expenses at least throughout the Series'
current fiscal year.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Series. For a
more complete description of the various costs and expenses illustrated
above, please refer to the Management section of this Prospectus.
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
2
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
The following tables provide selected per share data and ratios for the Blended Asset Series I and Blended Asset Series II
(for a share outstanding throughout the period for the periods shown). The tables are part of the Series' audited financial
statements,
which are included in the Statement of Additional Information incorporated by reference into this Prospectus.
BLENDED ASSET SERIES I
For the year For the year For the period
ended ended Sept. 15, 1993 to
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993
<S> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $ 9.72 $ 10.05 $ 10.00 (1)
Income from investment operations:
Net investment income 0.34 0.20 0.05
Net realized and unrealized gain (loss)
on investments 1.70 (0.28) 0.04
Total from investment operations 2.04 (0.08) 0.09
Less distributions declared to shareholders:
From net investment income (0.34) (0.20) (0.04)
In excess of net investment income (0.01) - -
From net realized gains on investments (0.69) (0.04) -
In excess of net realized gains - (0.01) -
Total distributions declared to shareholders (1.04) (0.25) (0.04)
Net asset value - End of period $ 10.72 $ 9.72 $ 10.05
Total Return 21.08% (0.80)% 3.18% (2)
Ratios ( to average net assets) / Supplemental Data:
Expenses 1.20% (4) 1.20% (3) 1.20% (2)(3)
Net investment income 3.64% (4) 3.40% (3) 2.47% (2)(3)
Portfolio turnover 72% 45% 1%
Average Commission Rate Paid $ 0.07 - -
Net assets - End of period (000's omitted) $ 9,518 $ 4,519 $ 475
(1) Initial offering price upon commencement of
operations on September 15, 1993.
(2) Annualized.
(3) 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
to that required by state securities law.
(4) The investment advisor waived a portion of its
management fee.
If the full expenses had been
incurred by the Fund in either instance above, the
net investment income per share and the ratios would
have been as follows:
Net investment income $ 0.31 $ 0.12 $ 0.02
Ratios(to average net assets):
Expenses 1.53% 2.50% 2.50% (2)
Net investment income 3.31% 2.10% 1.17% (2)
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
BLENDED ASSET SERIES II
For the year For the year For the period
ended ended Oct. 12, 1993 to
Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993
Net asset value - Beginning of period $ 10.12 $ 9.98 $ 10.00 (1)
Income from investment operations:
Net investment income 0.24 0.11 0.01
Net realized and unrealized gain (loss)
on investments 3.05 0.24 (0.03)
Total from investment operations 3.29 0.35 (0.02)
Less distributions declared to shareholders:
From net investment income (0.24) (0.12) 0.00 (2)
From net realized gains on investments (1.22) (0.09) -
Total distributions declared to shareholders (1.46) (0.21) 0.00
Net asset value - End of period $ 11.95 $ 10.12 $ 9.98
Total Return 32.64% 3.52% (0.82)% (3)
Ratios ( to average net assets) / Supplemental Data:
Expenses 1.20% (5) 1.20% (4) 1.20% (3)(4)
Net investment income 2.53% (5) 2.12% (4) 1.94% (3)(4)
Portfolio turnover 63% 19% 0%
Average Commission Rate Paid $ 0.06 - -
Net assets - End of period (000's omitted) $ 20,519 $ 7,214 $ 475
(1) Initial offering price upon commencement of
operations on October 12, 1993.
(2) Distribution from net investment income amounted
to $0.0017 per share.
(3) Annualized.
(4) The investment advisor did not impose its
management fee and paid a portion of the Fund's
expenses. If these expenseshad been incurred by the
Fund, expenses would have been limited to that
required by state securities law.
(5) The investment advisor waived a portion of its
management fee.
If the full expenses had been
incurred by the Fund in either instance above, the
net investment income per share and the ratios would
have been as follows:
Net investment income $ 0.23 $ 0.05 $ 0.01
Ratios(to average net assets):
Expenses 1.33% 2.31% 2.50% (3)
Net investment income 2.40% 1.01% 0.64% (3)
</TABLE>
4
<PAGE>
THE FUND
The Fund is an open-end management investment company incorporated under
the laws of the State of Maryland on July 26, 1984. The Fund offers separate
series of units of beneficial interest ("shares"). This Prospectus relates to
the Blended Asset Series I and Blended Asset Series II. Information regarding
the Fund's other series is contained in separate prospectuses that may be
obtained from Manning & Napier Fund, Inc., P.O. Box 41118, Rochester, New York
14604 or by calling 1-800-466-3863. The Blended Asset Series I and Blended
Asset Series II are diversified funds.
RISK AND INVESTMENT OBJECTIVES AND POLICIES
BLENDED ASSET SERIES I
The investment objective of the Blended Asset Series I is to seek with
equal emphasis long-term growth and preservation of capital. From time to
time, the Advisor will vary the proportions invested in common stocks,
income-producing securities (e.g., debt securities and preferred stock) or
cash (including foreign currency) and cash equivalents depending on its view
of their relative attractiveness in light of market and economic conditions.
Because the Blended Asset Series I investment, fluctuate in value, the Blended
Assets Series I shares will fluctuate in value. The Advisor seeks to reduce
the risk of negative returns while seeking to obtain capital growth when it
believes valuations and market conditions are favorable. In this process the
Advisor will work to try to dampen the year-to-year swings in the market value
in order to generate a more stable rate of growth for this portfolio relative
to an investment in the general stock market. There is no assurance that the
Blended Asset Series I will attain its objective.
BLENDED ASSET SERIES II
The primary objective of the Blended Asset Series II is to provide
long-term growth of capital. The secondary objective of the Blended Asset
Series II is the preservation of capital. From time to time, the Advisor will
vary the proportions invested in common stocks, income-producing securities
(e.g., debt securities and preferred stock) or cash (including foreign
currency) and cash equivalents depending on its view of their relative
attractiveness in light of market and economic conditions. Because the
Blended Asset Series II investments fluctuate in value, the Blended Asset
Series II shares will fluctuate in value. In pursuit of its primary
objective, the Blended Asset Series II will often invest more than 50% in
common stocks, and securities convertible into common stocks, of companies the
Advisor believes have long_term growth potential. However, in light of the
secondary objective of the Blended Asset Series II, it may, even under normal
circumstances, invest a substantial portion of its assets in certain debt
securities, preferred stocks or common stocks whose principal characteristic
is income production rather than growth. Such securities afford less
opportunity for growth than common stocks but they entail less risk of loss
and may also offer some opportunity for growth of capital as well as for
income and relative stability. There is no assurance that the Blended Asset
Series II will attain its objective.
5
<PAGE>
GENERAL
In pursuit of their investment objectives, the Series may invest in a
wide variety of equity and debt securities. Equity securities consist of
common stocks, securities convertible thereto, and warrants neither Series
intends to invest more than 5% of the value of its total net assets in
warrants. The principal factor in selecting convertible bonds will be the
potential to benefit from movement in the stock price. There will be no
minimum rating standards for debt aspects of such securities. Convertible
bonds purchased by a Series may be subject to the risk of being called by the
issuer.
The debt securities in which the Series may invest in consist of
corporate debt securities, mortgage-backed securities and obligations issued
or guaranteed as to payment of principal and interest by the U.S. Government
or its agencies or instrumentalities. Each Series may invest in such
securities without regard to term or rating and may, from time to time, invest
up to 20% of its assets in corporate debt securities rated below investment
grade, i.e., rated lower than BBB by Standard & Poor's Corporation ("S&P") or
Baa by Moody's Investor Service, Inc. ("Moody's"), or unrated securities of
comparable quality as determined by the Advisor. These securities are
commonly known as junk bonds. Ratings of corporate bonds including lower
rated bonds are included in the Appendix. See Additional Information about
Investment Policies-High Yield Debt Securities.
For temporary defensive purposes during periods when the Advisor
determines that market conditions warrant, the Series may invest up to 100% of
its assets in money market instruments (including securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities,
certificates of deposit, time deposits and bankers' acceptances issued by
banks or savings and loan associations deemed creditworthy by the Advisor,
commercial paper rated A-1 by S&P or 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, each of the Series may, to varying degrees, use certain
techniques and strategies discussed below under "Risk and Additional
Information about Investment Policies".
RISK AND ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
Set forth below is further information about certain types of securities
in which the Series may invest, as well as information about additional types
of investments and certain strategies the Series may pursue. These policies
have been voluntarily adopted by the Board of Directors based upon current
circumstances and may be changed or amended by action of the Board of
Directors without prior approval of the Series' shareholders. Additional
information concerning these strategies and their related risks is contained
in the Statement of Additional Information.
FOREIGN SECURITIES
Each Series may invest up to 25% of its assets in foreign securities
which are not publicly traded in the United States. Each Series will invest
no more than 25% of its assets in securities issued by any one foreign
government. Each Series may invest without limit in equity securities of
foreign issuers that are listed on a domestic securities exchange or are
represented by American Depository Receipts that are listed on a domestic
securities exchange or are traded in the United States on the over-the-counter
market. Series' restrictions on investment in foreign securities are
fundamental policies that cannot be changed without the approval of each
majority, as defined in the Investment Company Act of 1940 (the "1940 Act)",
of the outstanding voting securities of the Series.
While each Series generally emphasizes investments in U.S. Government
securities and companies domiciled in the United States, it may invest up to
25% of its assets in foreign securities of the same types and quality as the
domestic securities in which the Series may invest when the anticipated
performance of foreign securities is believed by the Advisor to offer more
potential than domestic alternatives in keeping with the investment objective
of the Series. Foreign securities may be denominated either in U.S. dollars
or foreign currencies.
There are risks in investing in foreign securities not typically involved
in domestic investing. An investment in foreign securities may be affected by
6
<PAGE>
hanges in currency rates and in exchange control regulations. Foreign
companies are frequently not subject to the accounting and financial reporting
standards applicable to domestic companies, and there may be less information
available about foreign issuers. There is frequently less government
regulation of foreign issuers than in the United States. In addition,
investments in foreign countries are subject to the possibility of
expropriation or confiscatory taxation, political or social instability or
diplomatic developments that could adversely affect the value of those
investments. There may also be imposition of withholding taxes. Foreign
financial markets may have less volume and longer settlement periods than U.S.
markets which may cause liquidity problems for a Series. In addition, costs
associated with transactions on foreign markets are generally higher than for
transactions in the U.S.
Obligations of foreign governmental entities are subject to various types
of governmental support and may or may not be supported by the full faith and
credit of a foreign government.
REPURCHASE AGREEMENTS
Each Series may enter into repurchase agreements with respect to
portfolio securities. Under the terms of a repurchase agreement, the Series
purchases securities ("collateral") from financial institutions such as banks
and broker-dealers (the "seller") which the Advisor deems to be creditworthy,
subject to the seller's agreement to repurchase them at a mutually agreed-upon
date and price. The repurchase price generally equals the price paid by the
Series plus interest negotiated on the basis of current short-term rates
(which may be more or less than the rate on the underlying portfolio
securities).
The seller under a repurchase agreement is required to maintain the value
of the collateral held pursuant to the agreement at not less than 100% of the
repurchase price, and securities subject to repurchase agreements are held by
the Series' Custodian either directly or through a securities depository.
Default by the seller would, however, expose the Series to possible loss
because of adverse market action or delay in connection with the disposition
of the underlying securities. Repurchase agreements are considered to be
loans by the Series under the 1940 Act.
SECURITIES LENDING
Each Series may seek to increase its income by lending portfolio
securities. Such loans will usually be made to member firms (and subsidiaries
thereof) of the New York Stock Exchange and to member banks of the Federal
Reserve System and would be required to be secured continuously by collateral
in cash, cash equivalents or U.S. Treasury securities maintained on a current
basis at an amount at least equal to the market value of the securities
loaned. If the Advisor determines to make securities loans, the value of the
securities loaned would not exceed 30% of the value of the total assets of the
Series.
U.S. GOVERNMENT SECURITIES
Each Series may purchase securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. Direct obligations of the U.S.
Government include bills, notes and bonds issued by the U.S. Treasury and
obligations issued or guaranteed by U.S. agencies or instrumentalities. The
obligations of certain U.S. agencies (e.g., the Government National Mortgage
Association) are backed by the full faith and credit of the U.S. Government or
are supported by the agencies' right to borrow from the U.S. Treasury. The
issues of other agencies are supported only by the credit of the agency (e.g.,
the Federal National Mortgage Association).
SHORT SALES
Each Series may within limits engage in short sales "against the box". A
short sale is the sale of borrowed securities; a short sale against the box
means that a Series owns securities equivalent to those sold short. No more
than 25% of the net assets (taken at current value) of a Series may be held as
collateral for such sales at any one time. Such short sales can be used as a
hedge and as a method of deferring realized capital gains from one taxable
year to the next for tax purposes.
7
<PAGE>
FORWARD COMMITMENTS OR PURCHASES ON A WHEN-ISSUED BASIS
Each Series may enter into forward commitments or purchase securities on
a when-issued basis. These securities normally are subject to settlement
within 45 days of the purchase date. The interest rate realized on these
securities is fixed as of the purchase date and no interest accrues to the
Series before settlement. These securities are subject to market fluctuation
due to changes in market interest rates. Each Series will enter into these
arrangements with the intention of acquiring the securities in question and
not for speculative purposes and will maintain a separate account with a
segregated portfolio of high quality liquid debt instruments or cash in an
amount at least equal to the purchase price.
INTEREST RATE RISK
The value of the fixed income securities held by the Series will vary
inversely to changes in prevailing interest rates. Thus, if interest rates
have increased from the time a security was purchased, such security, if sold,
might be sold at a price less than its cost. Similarly, if interest rates
have declined from the time a security was purchased, such security, if sold,
might be sold at a price greater than its purchase cost. In either instance,
if the security was purchased at face value and held to maturity, no gain or
loss would be realized.
MORTGAGE-BACKED SECURITIES
Each Series may purchase mortgage-backed securities which represent an
interest in a pool of mortgage loans. The primary government issuers or
guarantors of mortgage-backed securities are the Government National Mortgage
Association ("GNMA"), 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 Series
may purchase CMOs that are rated in one of the top two rating categories by
S&P or Moody's. The mortgages backing these securities include conventional
thirty-year fixed rate mortgages, graduated payment mortgages, and adjustable
rate mortgages. CMOs and REMICs backed solely by GNMA certificates or other
mortgage pass-throughs issued or guaranteed by the U.S. Government or its
agencies and instrumentalities may be supported by various types of insurance.
However, the guarantees or insurance do not extend to the mortgage-backed
securities' value, which is likely to vary inversely with fluctuations in
interest rates.
Mortgage-backed securities are in most cases "pass-through" instruments,
through which the holder receives a share of all interest and principal
payments from the mortgages underlying the certificate. Because the
prepayment characteristics of the underlying mortgages vary, it is not
possible to predict accurately the average life or realized yield of a
particular issue of pass-through certificates. During periods of declining
interest rates, prepayment of mortgages underlying mortgage-backed securities
can be expected to accelerate. When the mortgage obligations are prepaid, the
Series reinvests the prepaid amounts in securities, the yield of which reflect
interest rates prevailing at the time. Moreover, prepayment of mortgages
which underlie securities purchased at a premium could result in capital
losses.
HIGH YIELD DEBT SECURITIES
High risk, high yield securities rated below BBB or lower by S&P or Baa
or lower by Moody's are considered to have speculative characteristics and
involve greater risk of default or price changes due to changes in the
issuer's credit-worthiness. Market prices of these securities may fluctuate
more than high-rated securities and they are difficult to price at times
because they are more thinly traded and less liquid securities. Market prices
may decline significantly in periods of general economic difficulty which may
follow periods of rising interest rates. Securities in the lowest rating
category may be in default. For these reasons, it is the Series' policy not
to rely primarily on ratings issued by established credit rating agencies, but
to utilize such ratings in conjunction with the Advisor's own independent and
ongoing review of credit quality. In the event a security is downgraded below
these ratings after purchase, the Advisor will review and take appropriate
action with regard to the security. Each Series will also seek to minimize
risk by diversifying its holdings.
8
<PAGE>
ZERO-COUPON BONDS
Some of the securities in which the Series invests may include so-called
"zero-coupon" bonds. Zero-coupon bonds are issued at a significant discount
from face value and pay interest only at maturity rather than at intervals
during the life of the security. The Series is required to accrue and
distribute income from zero-coupon bonds on a current basis, even though it
does not receive that income currently in cash. Thus, the Series may have to
sell investments to obtain cash needed to make income distributions. The
discount in the absence of financial difficulties of the issuer decreases as
the final maturity of the security approaches. Zero-coupon bonds can be sold
prior to their maturity date in the secondary market at the then prevailing
market value, which depends primarily on the time remaining to maturity,
prevailing level of interest rates and the perceived credit quality of the
issues. The market prices of zero-coupon securities are subject to greater
fluctuations in response to changes in market interest rates than bonds which
pay interest currently.
VARIABLE AND FLOATING RATE INSTRUMENTS
Certain of the obligations purchased by a Series may carry variable or
floating rates of interest, may involve a conditional or unconditional demand
feature and may include variable amount master demand notes. Such instruments
bear interest at rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index.
The interest rate on these securities may be reset daily, weekly, quarterly,
or some other reset period and may have a floor or ceiling rate. There is a
risk that the current interest rate on such obligations may not accurately
reflect existing market interest rates.
HEDGING TECHNIQUES
Each Series has reserved the right, subject to authorization by the Board
of Directors prior to implementation, to engage in certain strategies in an
attempt to hedge the Series' portfolio, to reduce the overall level of risk
that normally would be expected to be associated with its investments. The
Series may write covered call options on common stocks; may purchase and sell
(on a secured basis) put options; and may engage in closing transactions with
respect to put and call options. Each Series also may purchase forward
foreign currency exchange contracts to hedge currency exchange rate risk. In
addition, the Series are authorized to purchase and sell stock index futures
contracts and options on stock index futures contracts. Each Series is also
authorized to conduct spot (i.e., cash basis) currency transactions or to use
currency futures contracts and options on futures contracts and foreign
currencies in order to protect against uncertainty in the future levels of
foreign currency exchange rates. These strategies are primarily used for
hedging purposes; nevertheless, there are risks associated with these
strategies as described below.
OPTIONS ON SECURITIES
A call option is a short-term contract pursuant to which the purchaser of
the option, in return for a premium, has the right to buy the security
underlying the option at a specified price at any time during the term of the
option. The writer of a call option, who receives the premium, has the
obligation, upon exercise during the option term, to deliver the underlying
security against payment of the exercise price. Conversely, a put option
gives its purchaser, in return for a premium, the right to sell the underlying
equity security at a specified price during the option term to the writer of
the put option, who receives the premium. Each Series will sell call options
only on a "covered" basis, i.e., it will own the underlying security at all
times, and will write put options only on a secured basis, i.e., it will
maintain an amount equal to the exercise price in a segregated account at all
times. Each Series may engage in option transactions for hedging purposes and
to realize a greater current return, through the receipt of premiums, than
would be earned on the underlying securities alone. Options traded in the
over-the-counter market will be considered illiquid unless the Fund has
entered into arrangements with U.S. Government securities dealers to dispose
of such options at a formula price based on a multiple of the original premium
plus the amount for which the option is "in the money".
STOCK INDEX FUTURES CONTRACTS AND OPTIONS ON STOCK INDEX FUTURES CONTRACTS
A stock index futures contract is a bilateral agreement pursuant to which
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one party agrees to accept, and the other party agrees to make, delivery of an
amount of cash equal to a specified dollar amount times the difference between
the stock index value at the close of trading of the contract and the price at
which the futures contract is originally struck. No physical delivery of the
stocks comprising the index is made. Options on stock index futures contracts
give the purchaser the right, in return for the premium paid, to assume a long
or short position in a futures contract.
FUTURES CONTRACTS
Each Series may purchase and sell financial futures contracts on debt
securities on a commodities exchange or board of trade for certain hedging,
return enhancement and risk management purposes in accordance with applicable
regulations. A financial futures contract is an agreement to purchase or sell
an agreed amount of securities at a set price for delivery in the future.
Neither Series may purchase or sell futures contracts if immediately
thereafter the sum of the amount of initial margin deposits on any such
futures (plus deposits on any other futures contracts and premiums paid in
connection with any options or futures contracts) that do not constitute "bona
fide hedging" under the Commodity Futures Trading Commission ("CFTC") rules
would exceed 5% of the liquidation value of the Series' total assets after
taking into account unrealized profits and losses on such contracts. In
addition, the value of all futures contracts sold will not exceed the total
market value of the Series' portfolio. The Fund will comply with guidelines
established by the Securities and Exchange Commission with respect to covering
of obligations under futures contracts and will set aside cash and/or liquid
high grade securities in a segregated account with its custodian in the amount
prescribed.
A Series' successful use of futures contracts depends on the Advisor's
ability to predict the direction of the market and is subject to various
additional risks. The correlation between movements in the price of a futures
contract and the price of the securities being hedged is imperfect and there
is a risk that the value of the securities being hedged may increase or
decrease at a greater rate than the related futures contracts, resulting in
losses to the Series. Certain futures exchanges or boards of trade have
established daily limits based on the amount of the previous day's settlement
price. These daily limits may restrict the Series' ability to repurchase or
sell certain futures contracts on any particular day.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
A Series' use of forward foreign currency contracts is limited to hedging
against movements in the value of foreign currencies relative to the U.S.
dollar in connection with specific portfolio transactions or with respect to
existing portfolio positions denominated in such currencies. A transaction
hedge involves the purchase or sale of a forward contract with respect to a
specific receivable or payable of the Series while a position hedge relates to
a specific portfolio holding. A forward foreign currency exchange contract
involves an obligation to purchase or sell a specified currency at a future
date at a price set at the time of the contract. Foreign currency exchange
contracts do not eliminate fluctuations in the values of portfolio securities
but rather allow the Series to establish a rate of exchange for a future point
in time. With respect to any such forward foreign currency contract, it will
not generally be possible to match precisely the amount covered by that
contract and the value of the securities involved due to the changes in the
values of such securities resulting from market movements between the date the
forward contract is entered into and the date it matures. In addition, while
forward contracts may offer protection from losses resulting from declines in
the value of a particular foreign currency, they also limit potential gains
which might result from increases in the value of such currency. Based on
current legal interpretation, the Series do not consider forward foreign
currency exchange contracts to be commodities or commodity contracts for
purposes of the Series' fundamental restrictions concerning investment in
commodities or commodity contracts, as set forth in the Statement of
Additional Information.
CURRENCY FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
A currency futures contract is an agreement for the purchase or sale for
future delivery of foreign currencies. A "sale" of a currency futures
contract creates an obligation to deliver the foreign currencies called for by
the contract at a specified price on a specified date while a "purchase" of a
currency futures contract creates an obligation to acquire the foreign
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currencies called for by the contract at a specified price on a specified
date. Each Series will only enter into futures contracts which are traded on
national or foreign futures exchanges and which are standardized as to
maturity date and the underlying financial instrument. Options on currency
futures contracts give the purchaser the right, in return for the premium
paid, to assume a long or short position in the futures contract. Neither
Series may purchase or sell future contracts if immediately thereafter the sum
of the amount of initial margin deposits on any such futures (plus deposits on
any other futures contracts and premiums paid in connection with any options
or futures contracts) that do not constitute "bona fide hedging" under CFTC
rules would exceed 5% of the liquidation value of the Series' total assets
after taking into account unrealized profits and losses on such contracts. In
addition, the value of all futures contracts sold will not exceed the total
market value of the Series' portfolio.
FOREIGN CURRENCY OPTIONS
A call option on a foreign currency is a short-term contract pursuant to
which the purchaser of the option, in return for a premium, has the right to
buy the currency underlying the option at a specified price at any time during
the term of the option. The writer of a call option, who receives the
premium, has the obligation, upon exercise of the option during the option
term, to deliver the underlying currency against payment of the exercise
price. Conversely, a put option on a foreign currency gives its purchaser, in
return for a premium, the right to sell the underlying currency at a specified
price during the option term to the writer of the put option, who receives the
premium.
RISKS ASSOCIATED WITH HEDGING STRATEGIES
There are risks associated with the hedging strategies described above,
including the following: (1) the success of a hedging strategy may depend on
the ability of the Advisor to predict movements in the prices of individual
securities, fluctuations in domestic and foreign markets and currency exchange
rates, and movements in interest rates; (2) there may be an imperfect
correlation between the changes in market value of the securities held by the
Series and the prices of currency contracts, options, futures and options on
futures; (3) there may not be a liquid secondary market for a currency
contract, option, futures contract or futures option; (4) trading restrictions
or limitations may be imposed by an exchange; and, (5) government regulations,
particularly requirements for qualification as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"), may
restrict trading in forward currency contracts, options, futures contracts and
futures options.
PRINCIPAL INVESTMENT RESTRICTIONS
Each Series is subject to certain investment restrictions which are
fundamental policies that cannot be changed without the approval of the
holders of a majority, as defined in the 1940 Act, of the Series' outstanding
shares.
Each Series may borrow money, but only from a bank for temporary or
emergency purposes in amounts not exceeding 10% of its total assets, and the
Series will not make additional investments while borrowings greater than 5%
of its total assets are outstanding.
Neither Series may, with respect to 75% of its total assets, invest more
than 5% of the value of its total assets at the time of investment in
securities of any one issuer (other than obligations issued or guaranteed by
the United States Government, its agencies or its instrumentalities). Neither
Series may purchase more than 10% of the outstanding voting securities of any
one issuer.
Neither Series may invest 25% or more of the value of its total assets in
securities of issuers in any one industry (other than U.S. Government
Securities).
Neither Series will invest more than 10% of its total net assets in
securities of issuers that are restricted from being sold to the public
without registration under the Securities Act of 1933 and illiquid securities,
including repurchase agreements with maturities of greater than seven days.
Each Series may purchase shares of closed-end investment companies that
are traded on national exchanges to the extent permitted by applicable law.
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Neither Series may make loans, except that each may invest in debt
securities and repurchase agreements and may engage in securities lending.
Additional information about the Series' investment restrictions is
contained in the Statement of Additional Information.
MANAGEMENT
The overall business and affairs of the Series are managed by its Board
of Directors. The Board approves all significant agreements between the
Series and persons or companies furnishing services to the Series, including
the Series' agreements with their Investment Advisor and Custodian. The
day-to-day operations of the Fund are delegated to the Fund's officers and to
Manning & Napier Advisors, Inc. (the "Advisor"), 1100 Chase Square, Rochester,
New York 14604. A committee made up of investment professionals and analysts
make all the investment decisions for the Fund.
The Advisor acts as investment advisor to the Fund. Mr. William Manning
controls the Advisor by virtue of his ownership of the securities of the
Advisor. The Advisor also is generally responsible for supervision of the
overall business affairs of the Series including supervision of service
providers to the Series and direction of the Advisor's directors, officers or
employees who may be elected as officers of the Fund to serve as such.
As of the date of this Prospectus, the Advisor supervised over
$5.5 billion in assets of clients, including both individuals and
institutions. For its services to the Fund under the Investment Advisory
Agreement, the Fund pays the Advisor a fee, computed daily and payable
monthly, at an annual rate of 1% of the Fund's daily net assets. This fee is
higher than the mean fee paid by all other mutual funds. In addition, the
Advisor is separately compensated for acting as Transfer Agent for the Series.
The Fund is responsible for its operating expenses, including: (i) interest
and taxes; (ii) brokerage commissions; (iii) insurance premiums; (iv)
compensation and expenses of its Directors other than those affiliated with
the Advisor; (v) legal and audit expenses; (vi) fees and expenses of the
Fund's Custodian, and Accounting Services Agent, if obtained for the Fund from
an entity other than the Advisor; (vii) expenses incidental to the issuance of
its shares, including issuance on the payment of, or reinvestment of,
dividends and capital gain distributions; (viii) fees and expenses incidental
to the registration under federal or state securities laws of the Fund or its
shares; (ix) expenses of preparing, printing and mailing reports and notices
and proxy material to shareholders of the Fund; (x) all other expenses
incidental to holding meetings of the Fund's shareholders; (xi) dues or
assessments of or contributions to the Investment Company Institute or any
successor; and, (xii) such non-recurring expenses as may arise, including
litigation affecting the Fund and the legal obligations with respect to which
the Fund may have to indemnify its officers and Directors.
The Advisor may use its own resources to engage in activities that
may promote the sale of the Fund, including payments to third parties who
provide shareholder support servicing and distribution assistance. Investors
may be charged a fee if they effect transactions through a broker
or agent.
YIELD AND TOTAL RETURN
From time-to-time the Series may advertise its total return.Both
yield and total return figures are based on historical earnings and are not
intended to indicate future performance. The "total return" of a Series
refers to the average annual compounded rates of return over one-, five-, and
ten-year periods or for the life of the Series (as stated in the
advertisement) that would equate an initial amount invested at the beginning
of a stated period to the ending redeemable value of the investment, assuming
the reinvestment of all dividend and capital gains distributions.
PURCHASES, EXCHANGES AND REDEMPTIONS OF SHARES
The minimum initial investment in the Series is $2,000 and subsequent
purchases must be at least $100. These minimums may be waived at the
Distributor's discretion. The Fund has the right to refuse any order.
Purchases and redemptions of shares of the Series may be made on any day
the New York Stock Exchange is open for trading.
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A purchase order will be effective as of the day received by the
Distributor, Transfer Agent, or its agents, if the order is received
before 4:00 p.m., Eastern Standard time by the Distributor, Transfer Agent, or
its agents. Payment may be made by check or readily available funds. The
purchase price of shares of the Series is the net asset value next determined
after a purchase order is effective.
The shares of the Series may be purchased in exchange for securities to
be included in the Series, subject to the Advisor's determination that these
securities are acceptable. Securities accepted in an exchange will be valued
at market value. All accrued interest and purchase or other rights which are
reflected in the market price of accepted securities at the time of valuation
become the property of the Series and must be delivered by the shareholder to
the Series upon receipt from the issuer.
The Advisor will not accept securities for a Series unless: (1) such
securities are appropriate in the Series at the time of the exchange; (2) the
shareholder represents and agrees that all securities offered to the Series
are not subject to any restrictions upon their sale by the Series under the
Securities Act of 1933, or otherwise; and, (3) prices are available from an
independent pricing service approved by the Series' Board of Directors.
Shareholders may purchase shares regularly through the Automatic
Investment Plan with a pre-authorized draft drawn on their checking or
statement savings accounts. Under this plan, the shareholder may elect to
have a specified amount invested on a regular schedule. The amount specified
by the shareholder will be withdrawn from the shareholder's bank account using
the pre-authorized draft. This amount will be invested at the applicable
share price determined on the date the amount is available for investment.
Participation in the Automatic Investment Plan may be discontinued either by
the Fund or the Shareholder upon 30 days' prior written notice to the other
party. A shareholder who wishes to enroll in the Automatic Investment Plan
may do so by completing the applicable section of the Account Application Form
or contacting the Fund for an Automatic Investment Plan Form.
As permitted pursuant to any rule, regulation or order promulgated by the
Securities and Exchange Commission, some or all of the shares in an account
for which payment has been received by the Fund may be exchanged for shares of
any of the other Manning & Napier Fund, Inc. Series at the net asset value
next determined after an exchange order is effective. Shareholders may effect
up to 4 exchanges in a 12-month period without charge. Subsequent exchanges
are subject to a fee of $15. Exchanges will be made after instructions in
writing or by telephone are received by the Transfer Agent in proper form
(i.e., if in writing - signed by the record owner(s) exactly as the shares are
registered; if by telephone - proper account identification is given by the
shareholder) and each exchange must involve either shares having an aggregate
value of at least $1,000 or all the shares in the account. A shareholder
should read the prospectus of the other Series and consider the differences in
objectives and policies before making any exchange. The exchange
privilege may not be available in all states. For federal and state
income tax purposes, an exchange is treated as a sale of the shares exchanged,
and therefore an exchange could result in a gain or loss to the shareholder
making the exchange. Each Series may modify or terminate this exchange offer
upon 60 days notice to shareholders subject to applicable law.
If a shareholder desires to redeem his shares at their net asset value,
the shareholder must send a written request for redemption in "Good Order" to
the Transfer Agent. "Good Order" generally means that the written request for
redemption must be endorsed by the record owner(s) exactly as the shares are
registered and the signature(s) must be guaranteed by an "eligible guarantor
institution" as that term is defined under Rule 17Ad-15(a)(2) under the
Securities Exchange Act of 1934. Currently, such procedures generally permit
guarantees by a commercial bank or trust company, a member bank of the Federal
Reserve System, or a member firm of a national securities exchange.
Redemption requirements for corporations, other organizations, trusts,
fiduciaries, and retirement plans may require additional documentation.
Please contact the Transfer Agent at 1-800-466-3863 for more information. The
Transfer Agent may make certain de minimis exceptions to the above
requirements for redemption. Within three days after receipt of a
redemption request by the Transfer Agent in "good order", the Series will make
payment in cash, except as described below, of the net asset value of the
shares next determined after such redemption request was received, except
during any period in which the right of redemption is suspended or date of
payment is postponed because the New York Stock Exchange is closed or trading
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on such Exchange is restricted or to the extent otherwise permitted by the
1940 Act if an emergency exists. For shares purchased, or received in
exchange for shares purchased, by check (including certified checks or
cashier's checks), payment of redemption proceeds may be delayed up to 15 days
from the purchase date in an effort to assure that such check has cleared.
Subject to the Series' compliance with applicable regulations, each
Series has reserved the right to pay the redemption price either totally or
partially by a distribution in-kind of securities (instead of cash) from the
Series' portfolio. The securities distributed in such a distribution would be
valued at the same amount as that assigned to them in calculating the net
asset value for the shares being sold. If a shareholder received a
distribution in-kind, he could incur brokerage or transaction charges when
converting the securities to cash.
Due to the relatively high cost of maintaining small accounts, the Series
reserves the right to redeem shares in any account for their then-current
value (which will be promptly paid to the shareholder) if at any time the
total investment in such account drops below $1,000 because of redemptions
(but not due to changes in net asset value). Shareholders will be notified
that the value of their account is less than the minimum investment
requirement and allowed 60 days to make an additional investment before the
redemption is processed.
Manning & Napier Investor Services, Inc. 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.
NET ASSET VALUE
Each Series' net asset value per share is determined as of the closing
time of the New York Stock Exchange or, in the absence of a closing time, 4:00
p.m. Eastern standard time on each day that the New York Stock Exchange is
open for trading. The exchange annually announces the days on which it will
not be open for trading; the most recent announcement indicates that it will
not be open on: New Year's Day, Presidents Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value per share is the value of the Series' assets, less
its liabilities, divided by the number of shares of the Series outstanding.
The value of the Series' portfolio securities will be the market value of such
securities as determined based on quotes provided by a pricing service (which
uses the methodology outlined in the "Net Asset Value" section of the
Statement of Additional Information) approved by the Board of Directors, or,
in the absence of market quotations, fair value as determined in good faith by
or under the direction and control of the Board of Directors. Short-term
investments which mature in less than 60 days are normally valued at amortized
cost. Assets initially expressed in foreign currencies will be converted into
U.S. dollars as of the exchange rates quoted by any major bank. If such
quotes are not available, the exchange rates will be determined in accordance
with policies established in good faith by the Board of Directors. See the
Statement of Additional Information for further information.
DIVIDENDS AND TAX STATUS
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Each Series intends to distribute to its shareholders on a semi-annual
basis dividends substantially equal to all of its net investment income. Each
Series also intends to distribute net realized short and long-term capital
gains, if any, taking into account any available capital loss carryforwards
from prior years at least annually. Dividends and distributions will be paid
in full and fractional shares of the Series, based on the net asset value per
share at the close of business on the record date, although a shareholder may,
prior to the record date, request, by writing or by telephone call to the
Fund, that payments of either ordinary income dividends or capital gain
distributions, or both, be made in cash. The Fund will notify each
non-corporate taxable shareholder after the close of its fiscal year
both of the dollar amount and the tax status of that year's distributions.
Generally, the Fund will be required to impose backup withholding at the rate
of 31% from ordinary income dividends, capital gain distributions and
redemption payments made to non-corporate shareholders, if provisions of the
law relating to the furnishing of taxpayer identification numbers and
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reporting of dividends are not compiled with by such shareholders.
TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a general summary of certain federal
income tax considerations affecting the Series and its shareholders. No
attempt is made to present a detailed explanation of the tax treatment of the
Series or their shareholders, and the discussion here is not intended as a
substitute for careful tax planning. These Series are not managed with
respect to tax outcomes for their shareholders.
Under Subchapter M of the Internal Revenue Code of 1986, (the
"Code"), the Series is treated as a separate entity for federal
income tax purposes. The Series intends to qualify each year as a
regulated investment company under Subchapter M of the Code. If the Series so
qualifies, it will not be subject to federal income taxes on its net
investment income and capital gains, if any, which the Series distributes to
its shareholders, provided that at least 90% of such Series "investment
company taxable income" (generally, net investment income and the excess of
net short-term capital loss) for the taxable year is distributed, and provided
that the Series meets certain other requirements imposed by the Code. All
dividends paid or distribution out of investment company taxable income will
be taxable as ordinary income to the shareholders. Any "net capital gain"
(the excess of net long-term capital gain over net short-term capital loss)
distributed to shareholders is taxable as long-term capital gain to the
shareholders, regardless of the length of time a shareholder has owned his
shares. Generally, such dividends and distributions are taxable in the year
in which received, but dividends and distributions declared in October,
November or December of any year to shareholders of record on a date in such
month are treated as paid on December 31 of such year if they are paid during
January of the following calendar year. Dividends and distributions are not
taxable to shareholders that are not otherwise subject to tax on their income,
such as qualified employee benefit plans.
A 4% non-deductible federal excise tax is imposed on a regulated
investment company that fails to distribute substantially all of its ordinary
income and capital gain net income for each calendar year. Currently, the
Series intends to make sufficient distributions of its ordinary income and
capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
Future legislative changes may materially affect the tax consequences of
investing in the Series. Shareholders are urged to consult their tax advisors
for the application of these rules (and other potentially relevant rules) to
their particular circumstances. Shareholders are also urged to consult their
tax advisors concerning the application of state and local income taxes and of
foreign taxes to investments in the Series, which may differ from the U.S.
federal income tax consequences described above.
GENERAL INFORMATION
The Fund was incorporated on July 26, 1984 as a Maryland corporation.
The Board of Directors may, at its own discretion, create additional series of
shares, each of which would have separate assets and liabilities.
The Fund does not expect to hold annual meetings of shareholders but
special meetings of shareholders may be held under certain circumstances.
Shareholders of the Fund retain the right, under certain circumstances, to
request that a meeting of shareholders be held for the purpose of considering
the removal of a Director from office, and if such a request is made, the Fund
will assist with shareholder communications in connection with the meeting.
The shares of the Fund have equal rights with regard to voting, redemption,
dividends, distributions and liquidations. The Fund's shareholders will vote
in the aggregate and not by Series except as otherwise expressly required by
law or when the Board of Directors determines that the matter to be voted upon
affects only the interests of the shareholders of a Series. Income, direct
liabilities and direct operating expenses of a Series will be allocated
directly to the Series, and general liabilities and expenses of the Fund will
be allocated among the Series in proportion to the total net assets of the
Series by the Board of Directors. The holders of shares have no preemptive or
conversion rights. Shares when issued are fully paid and non-assessable and
do not have cumulative voting rights.
All securities and cash are held by Boston Safe Deposit and Trust
Company. Deloitte & Touche, LLP serves as independent accountants for the
Series and will audit its financial statements annually.
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Manning & Napier Advisors, Inc. serves as the Fund's Transfer and
Dividend Disbursing Agent. Shareholder inquiries should be directed to
Manning & Napier Fund, Inc., P.O. Box 41118, Rochester, New York 14604.
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APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
Moody's Investors Services, Inc.'s corporate bond ratings:
Aaa - Bonds which are rated Aaa are judged to be of the best quality 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 principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
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 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.
Standard & Poor's Corporation's corporate bond ratings:
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only to a small degree.
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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.
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's Investor Services, 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.
& 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 - This rating is 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.
18
<PAGE>
MANNING & NAPIER FUND, INC.
FLEXIBLE YIELD SERIES I, FLEXIBLE YIELD SERIES II
AND FLEXIBLE YIELD SERIES III
No person has been authorized to give any information or to make
representations not contained in this Prospectus in connection with any
offering made by this Prospectus and, if given or made, such information must
not be relied upon as having been authorized by the Fund. This Prospectus
does not constitute an offering by the Fund in any jurisdiction in which such
offering may not lawfully be made.
TABLE OF CONTENTS
Annual Operating Expenses 3
Condensed Financial Information 4
The Fund 7
Risk and Investment Objectives and Policies 7
Risk and Additional Information about Investment Policies 8
Principal Investment Restrictions 12
Management 13
Yield and Total Return 14
Purchases, Exchanges and Redemptions of Shares 14
Net Asset Value 15
Dividends and Tax Status 16
General Information 16
Appendix 18
<PAGE>
MANNING & NAPIER FUND, INC.
P.O. Box 41118
Rochester, New York 14604
1-800-466-3863
FLEXIBLE YIELD SERIES I
FLEXIBLE YIELD SERIES II
FLEXIBLE YIELD SERIES III
Manning & Napier 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 Flexible Yield Series I, Flexible Yield Series II and the
Flexible Yield Series III of the Fund (individually and collectively, the
"Series").
The primary objective of the Flexible Yield Series I is to seek the
highest level of total return in the form of income and capital appreciation
consistent with the preservation of capital by investing in fixed income
securities with a dollar- weighted average maturity of not more than 5 years.
The primary objective of the Flexible Yield Series II is to maximize
total return in the form of income and capital appreciation consistent with
the preservation of capital by investing in fixed income securities with a
dollar-weighted average maturity of not more than 10 years.
The primary objective of the Flexible Yield Series III is to maximize
total return in the form of income and capital appreciation consistent with
the preservation of capital by investing in fixed income securities without
regard to maturity.
This Prospectus provides you with the basic information you should know
before investing in the Series. You should read it and keep it for future
reference. A Statement of Additional Information, dated March 6,
1996, containing additional information about the Fund has been filed
with the Securities and Exchange Commission and is incorporated by reference
in this Prospectus in its entirety. You may obtain a copy of the Statement of
Additional Information without charge by contacting the Fund at the address or
telephone number listed above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MARCH 6, 1996.
<PAGE>
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
(as a percentage of offering price)
<S> <C>
Maximum Sales Charge Imposed on Purchases None
Redemption Fees (1) None
</TABLE>
(1) A wire charge, currently $15, will be deducted by the Transfer Agent
from the amount of a wire redemption payment made at the request of a
shareholder. Such amount is not included in the "Annual Operating
Expenses of the Series."
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES
The following information provides (i) a tabular summary of expenses relating to the annual
operating expenses of the Series and (ii) an example illustrating the dollar cost of such
expenses on a $1,000 investment.
Annual Operating Expenses of the Series (as a percentage of average net assets):
Flexible Yield Flexible Yield Flexible Yield
Series I (2) Series II (2) Series III (2)
---------------- ---------------- ----------------
<S> <C> <C> <C>
Management Fees After Reduction
of Fees (3) 0.00% 0.00% 0.00%
12b-1 Fees None None None
Other Expenses After Expense
Reimbursement 0.70% 0.80% 0.85%
---------------- ---------------- ----------------
Total Operating Expenses of the Series (3) 0.70% 0.80% 0.85%
</TABLE>
You would pay the following expenses on a $1,000 investment, assuming a) 5.0%
annual return and b) redemptions at the end of each time period:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------- -------- -------- ---------
<S> <C> <C> <C> <C>
Flexible Yield Series I $ 7 $ 22 $ 39 $ 87
Flexible Yield Series II 8 26 44 99
Flexible Yield Series III 9 27 47 105
</TABLE>
(2) Flexible Yield Series I, Flexible Yield Series II, and Flexible Yield
Series III were engaged in active investment operations for the year ended
December 31, 1995; therefore, actual management fees and other expenses
are used above.
(3) 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 Funds, expenses would have been 2.50%, for Flexible Yield Series I and
Flexible Yield Series II, the limit imposed by state securities law, and
2.46% for Flexible Yield Series III. Absent the fee waiver and assumption
of expenses, the expenses paid on a $1,000 investment would have been:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------- -------- -------- ---------
<S> <C> <C> <C> <C>
Flexible Yield Series I $ 25 $ 78 $ 133 $ 284
Flexible Yield Series II 25 78 133 284
Flexible Yield Series III 25 77 131 280
</TABLE>
The fee waiver and assumption of expenses by the Advisor is voluntary and may
be terminated at any time. However, the Advisor has agreed to continue this
fee waiver and assumption of expenses at least through the Series' current
fiscal year.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Series. For a
more complete description of the various costs and expenses illustrated above,
please refer to the Management section of this Prospectus.
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
2
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
The following tables provides selected per share data and ratios for the Flexible Yield Series
I, Flexible Yield Series II, and Flexible Yield Series III (for a share outstanding throughout
the period for the period shown). The tables are part of the Series' financial statements,
which are included in the Statement of Additional Information incorporated by reference into
this Prospectus.
FLEXIBLE YIELD SERIES I
For the year For the period
ended Feb. 15, 1994 to
Dec. 31, 1995 Dec. 31, 1994
<S> <C> <C> <C>
Net asset value - Beginning of period $ 9.69 $ 10.00 (1)
Income from investment operations:
Net investment income 0.46 0.24
Net realized and unrealized gain/(loss)
on investments 0.57 (0.32)
Total from investment operations 1.03 (0.08)
Less distributions declared to shareholders:
From net investment income (0.46) (0.23)
Net asset value - End of period $ 10.26 $ 9.69
Total return 10.79% (0.86)% (2)
Ratios (to average net assets)/Supplemental Data:
Expenses (3) 0.70% 0.70% (2)
Net investment income (3) 4.99% 4.41% (2)
Portfolio turnover 60% 38%
Net assets - End of period (000's omitted) $ 256 $ 231
(1) Initial offering price upon commencement of
operations on February 15, 1994.
(2) Annualized.
(3) The investment advisor did not impose its
management fee and paid a portion of the Fund's
expenses. If these expenseshad been incurred
by the Fund, expenses would have been limited
to that required by state securities law and the net
investment income per share and the ratios would
have been as follows:
Net investment income $ 0.38 $ 0.18
Ratios(to average net assets):
Expenses 2.50% 2.50% (2)
Net investment income 3.68% 3.70% (2)
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
FLEXIBLE YIELD SERIES II
For the year For the period
ended Feb. 15, 1994 to
Dec. 31, 1995 Dec. 31, 1994
<S> <C> <C> <C>
Net asset value - Beginning of period $ 9.27 $ 10.00 (1)
Income from investment operations:
Net investment income 0.56 0.27
Net realized and unrealized gain/(loss)
on investments 1.02 (0.74)
Total from investment operations 1.58 (0.47)
Less distributions declared to shareholders:
From net investment income (0.55) (0.26)
Net asset value - End of period $ 10.30 $ 9.27
Total return 17.33% (5.33 )% (2)
Ratios (to average netassets)/Supplemental Data:
Expenses(3) 0.80% 0.80% (2)
Net investment income(3) 5.38% 5.40% (2)
Portfolio turnover 35% 0%
Net assets - End of period (000's omitted) $ 438 $ 396
(1) Initial offering price upon commencement of
operations on February 15, 1994.
(2) Annualized.
(3) The investment advisor did not impose its
management fee and paid a portion of the Fund's
expenses. If these expenseshad been incurred by
the Fund, expenses would have been limited to that
required by state securities law and the net
investment income per share and the ratios would
have been as follows:
Net investment income $ 0.38 $ 0.18
Ratios(to average net assets):
Expenses 2.50% 2.50% (2)
Net investment income 3.68% 3.70% (2)
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
FLEXIBLE YIELD SERIES III
For the year For the year
ended ended
Dec. 31, 1995 Dec. 31, 1994
<S> <C> <C>
Net asset value - Beginning of period $ 9.11 $ 9.95
Income from investment operations:
Net investment income 0.58 0.26
Net realized and unrealized gain/(loss)
on investments 1.40 (0.84)
Total from investment operations 1.98 (0.58)
Less distributions declared to shareholders:
From net investment income (0.58) (0.26)
Net asset value - End of period $ 10.51 $ 9.11
Total return 22.09% (5.83)%
Ratios (to average net assets)/Supplemental Data:
Expenses (3) 0.85% 0.85%
Net investment income (3) 6.13% 6.22%
Portfolio turnover 6% 1%
Net assets end of period (000's omitted) $ 1,159 $ 748
(1) Initial offering price upon commencement of
operations on December 20, 1993.
(2) Annualized.
(3) 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 for the periods ended December 31,
1993 and December 31, 1994, expenses would have
been limited to that required by state securities law.
If the full expenses allowed by state securities law
had been incurred by the Fund, the net investment
income per share and the ratios would have been
as follows:
Net investment income $ 0.43 $ 0.19
Ratios(to average net assets):
Expenses 2.46% 2.50%
Net investment income 4.52% 4.57%
FLEXIBLE YIELD SERIES III
For the period
Dec. 20, 1993 to
Dec. 31, 1993
<S> <C> <C>
Net asset value - Beginning of period $ 10.00 (1)
Income from investment operations:
Net investment income 0.01
Net realized and unrealized gain/(loss)
on investments (0.05)
Total from investment operations (0.04)
Less distributions declared to shareholders:
From net investment income (0.01)
Net asset value - End of period $ 9.95
Total return (12.41)% (2)
Ratios (to average net assets)/Supplemental Data:
Expenses (3) 0.85% (2)
Net investment income (3) 3.85% (2)
Portfolio turnover 0%
Net assets end of period (000's omitted) $ 75
(1) Initial offering price upon commencement of
operations on December 20, 1993.
(2) Annualized.
(3) 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 for the periods ended December 31, 1993 and
December 31, 1994, expenses would have been limited to
that required by state securities law.
If the full expenses allowed by state securities law
ad been incurred by the Fund, the net investment
income per share and the ratios would have been
as follows:
</TABLE>
<TABLE>
<CAPTION>
<BTB>
<S> <C> <C> <C>
Net investment income $ 0.43 $0.19 $0.01
Ratio(to average net assets):
Expenses 2.46% 2.50% 2.50% (2)
Net investment income 4.52% 4.57% 2.20% (2)
</TABLE>
5
<PAGE>
THE FUND
The Fund is an open-end management investment company incorporated under
the laws of the State of Maryland on July 26, 1984. The Fund offers separate
series of units of beneficial interest ("shares"). This Prospectus relates to
the Flexible Yield Series I, Flexible Yield Series II and Flexible Yield
Series III. Information regarding the Fund's other series is contained in
separate prospectuses that may be obtained from Manning & Napier Fund, Inc.,
P.O. Box 41118, Rochester, New York 14604 or by calling 1-800-466-3863. The
Flexible Yield Series I, Flexible Yield Series II and Flexible Yield Series
III are diversified funds.
RISK AND INVESTMENT OBJECTIVES AND POLICIES
FLEXIBLE YIELD SERIES I
The objective of the Flexible Yield Series I is to seek the highest level
of total return in the form of income and capital appreciation consistent with
the preservation of capital by investing in fixed income securities with a
dollar weighted average maturity of not more than 5 years. The Flexible Yield
Series I will, under normal circumstances, have at least 65% of the value of
its total assets invested in a diversified portfolio consisting of the
following U.S. dollar-denominated fixed income securities: non-convertible
corporate debt securities, mortgage-backed securities and Government
obligations. Any remaining assets in the Flexible Yield Series I may be held
in cash or high quality "money market securities", convertible debt, preferred
stock, futures contracts, and related options. There can be no assurance that
the investment objective will be met.
The Advisor may vary the maturities of the Series' securities depending
on its evaluation of interest rate trends and other factors affecting the
fixed income markets. This Flexible Yield Series I will purchase short-term
securities when the risk of negative returns are high as determined by the
Advisor. Generally, the shorter the maturity of a fixed income security, the
lower its yield and the lower its price volatility. The Flexible Yield Series
I will invest primarily in fixed income securities rated in the four highest
rating categories (Baa or higher by Moody's Investors Service, Inc. or BBB or
higher by Standard & Poor's Corporation) 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
Additional Information about Investment Policies-High Yield Debt Securities.
FLEXIBLE YIELD SERIES II
The primary objective of the Flexible Yield Series II is to maximize
total return in the form of income and capital appreciation consistent with
the preservation of capital by investing in fixed income securities with a
dollar-weighted average maturity of not more than 10 years. The Flexible
Yield Series II will, under normal circumstances, have at least 65% of the
value of its total assets invested in a diversified portfolio consisting of
the following U.S. dollar-denominated fixed income securities:
non-convertible corporate debt securities, mortgage backed securities and
Government obligations. Any remaining assets in the Flexible Yield Series II
may be held in cash or high quality "money market securities", convertible
debt, preferred stock, futures contracts, and related options. There can be
no assurance that the investment objective will be met.
<PAGE> 6
The Advisor may vary the maturities of the Series' securities depending
on its evaluation of interest rate trends and other factors affecting the
fixed income markets. This Flexible Yield Series II will purchase short-term
securities when the risk of negative returns are high as determined by the
Advisor. Generally, the shorter the maturity of a fixed income security, the
lower its yield and the lower its price volatility. The Flexible Yield Series
II will invest primarily in fixed income securities rated in the four highest
rating categories (Baa or higher by Moody's Investors Service, Inc. or BBB or
higher by Standard & Poor's Corporation) 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
Additional Information about Investment Policies-High Yield Debt Securities.
FLEXIBLE YIELD SERIES III
The primary objective of the Flexible Yield Series III is to maximize
total return in the form of income and capital appreciation consistent with
the preservation of capital by investing in fixed income securities without
regard to maturity. The Flexible Yield Series III will, under normal
circumstances, have at least 65% of the value of its total assets invested in
a diversified portfolio consisting of the following U.S. dollar-denominated
fixed income securities: non-convertible corporate debt securities, mortgage
backed securities and Government obligations. Any remaining assets in the
Series may be held in cash or, high quality "money market securities",
convertible debt, preferred stock, futures contracts, and related options.
There can be no assurance that the investment objective will be met.
The Advisor may vary the maturities of the Series' securities without
restriction, depending on its evaluation of interest rate trends and other
factors affecting the fixed income markets. The Flexible Yield Series III
will purchase short_term securities when the risk of negative returns are high
as determined by the Advisor. Generally, the shorter the maturity of a fixed
income security the lower its yield and the lower its price volatility. The
Flexible Yield Series III will invest primarily in fixed income securities
rated in the four highest rating categories (Baa or higher by Moody's
Investors Service, Inc. or BBB or higher by Standard & Poor's Corporation) but
may invest up to 20% of its assets in lower-rated securities. These
securities are commonly known as junk bonds. Securities rated Baa or BBB are
considered investment grade but may have speculative characteristics and
changes in economic conditions or circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case
with more highly rated securities. See Risk and Additional Information about
Investment Policies-High Yield Debt Securities.
GENERAL
For temporary defensive purposes during periods when the Advisor
determines that market conditions warrant, a Series may invest up to 100% of
its assets in money market instruments (consisting of securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities,
certificates of deposit, time deposits and bankers' acceptances issued by
banks or savings and loan associations deemed creditworthy by the Advisor,
commercial paper rated A-1 by S&P or P-1 by Moody's, repurchase agreements
involving such securities and other shares of investment companies investing
solely in such securities as permitted by applicable law) and may hold a
portion of its assets in cash.
For a description of the above ratings, see the Appendix and the
Statement of Additional Information.
RISK AND ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
Set forth below is further information about certain types of securities,
in which each Series may invest, as well as information about additional types
of investments and certain strategies each Series may pursue. These policies
have been voluntarily adopted by the Board of Directors based upon current
circumstances and may be changed or amended by action of the Board of
Directors without prior approval of a Series' shareholders. Additional
information concerning these strategies and their related risks is contained
in the Statement of Additional Information.
<PAGE> 7
FOREIGN SECURITIES
While each Series generally emphasizes investments in U.S. Government
securities and companies domiciled in the United States, it may invest up to
25% in foreign securities of the same types and quality as the domestic
securities in which the Series may invest when the anticipated performance of
foreign securities is believed by the Advisor to offer more potential than
domestic alternatives in keeping with the investment objective of the Series.
Foreign securities may be denominated either in U.S. dollars or foreign
currencies. Each Series will invest no more than 25% of its assets in
securities issued by any one foreign government. Each Series may invest
without limit in securities of foreign issuers that are listed on a domestic
securities exchange or are traded in the United States on the over-the-counter
market. The Series' restriction on investment in foreign securities is a
fundamental policy that cannot be changed without the approval of a majority,
as defined in the Investment Company Act of 1940 (the "1940 Act"), of the
outstanding voting securities of a Series.
There are risks in investing in foreign securities not typically involved
in domestic investing. An investment in foreign securities may be affected by
changes in currency rates and in exchange control regulations. Foreign
companies are frequently not subject to the accounting and financial reporting
standards applicable to domestic companies, and there may be less information
available about foreign issuers. There is frequently less government
regulation of foreign issuers than in the United States. In addition,
investments in foreign countries are subject to the possibility of
expropriation or confiscatory taxation, political or social instability or
diplomatic developments that could adversely affect the value of those
investments. There may also be imposition of withholding taxes. Foreign
financial markets may have less volume and longer settlement periods than U.S.
markets which may cause liquidity problems for a Series. In addition, costs
associated with transactions on foreign markets are generally higher than for
transactions in the U.S.
Obligations of foreign governmental entities are subject to various types
of governmental support and may or may not be supported by the full faith and
credit of a foreign government.
REPURCHASE AGREEMENTS
Each Series may enter into repurchase agreements with respect to
portfolio securities. Under the terms of a repurchase agreement, the Series
purchases securities ("collateral") from financial institutions such as banks
and broker-dealers (the "seller") which the Advisor deems to be creditworthy,
subject to the seller's agreement to repurchase them at a mutually agreed-upon
date and price. The repurchase price generally equals the price paid by the
Series plus interest negotiated on the basis of current short-term rates
(which may be more or less than the rate on the underlying portfolio
securities).
The seller under a repurchase agreement is required to maintain the value
of the collateral held pursuant to the agreement at not less than 100% of the
repurchase price, and securities subject to repurchase agreements are held by
the Series' Custodian either directly or through a securities depository.
Default by the seller would, however, expose the Series to possible loss
because of adverse market action or delay in connection with the disposition
of the underlying securities. Repurchase agreements are considered to be
loans by the Series under the 1940 Act.
SECURITIES LENDING
Each Series may seek to increase its income by lending portfolio
securities. Such loans will usually be made to member firms (and subsidiaries
thereof) of the New York Stock Exchange and to member banks of the Federal
Reserve System and 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 will not exceed 30% of the value of the total assets of the
Series.
U.S. GOVERNMENT SECURITIES
Each Series may purchase securities issued or guaranteed by the U.S.
8
<PAGE>
Government, its agencies or instrumentalities. Direct obligations of the U.S.
Government include bills, notes and bonds issued by the U.S. Treasury and
obligations issued or guaranteed by U.S. agencies or instrumentalities. The
obligations of certain U.S. agencies (e.g., the Government National Mortgage
Association) are backed by the full faith and credit of the U.S. Government or
are supported by the agencies' rights to borrow from the U.S. Treasury. The
issues of other agencies are supported only by the credit of the agency (e.g.,
the Federal National Mortgage Association).
SHORT SALES
Each Series may, within limits, engage in short sales "against the box".
A short sale is the sale of borrowed securities; a short sale against the box
means that a Series owns securities equivalent to those sold short. No more
than 25% of the net assets (taken at current value) of a Series may be held as
collateral for such sales at any one time. Such short sales can be used as a
hedge and as a method of deferring realized capital gains from one taxable
year to the next for tax purposes.
FORWARD COMMITMENTS OR PURCHASES ON A WHEN-ISSUED BASIS
Each Series may enter into forward commitments or purchase securities on
a when-issued basis. These securities normally are subject to settlement
within 45 days of the purchase date. The interest rate realized on these
securities is fixed as of the purchase date and no interest accrues to the
Series before settlement. These securities are subject to market fluctuation
due to changes in market interest rates. Each Series will enter into these
arrangements with the intention of acquiring the securities in question and
not for speculative purposes and will maintain a separate account with a
segregated portfolio of high quality liquid debt instruments or cash in an
amount at least equal to the purchase price.
MORTGAGE-BACKED SECURITIES
Each Series may purchase mortgage-backed securities which represent an
interest in a pool of mortgage loans. The primary government issuers or
guarantors of mortgage-backed securities are the Government National Mortgage
Association ("GNMA"), 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 Series
may purchase CMOs that are rated in one of the top two rating categories by
S&P or Moody's. The mortgages backing these securities include conventional
thirty-year fixed rate mortgages, graduated payment mortgages, and adjustable
rate mortgages. CMOs and REMICs backed solely by GNMA certificates or other
mortgage pass-hroughs issued or guaranteed by the U.S. Government or its
agencies and instrumentalities may be supported by various types of insurance.
However, the guarantees or insurance do not extend to the mortgage-backed
securities' values, which are likely to vary inversely with fluctuations in
interest rates.
Mortgage-backed securities are in most cases "pass-through" instruments,
through which the holder receives a share of all interest and principal
payments from the mortgages underlying the certificate. When the Advisor is
determining the maturity of pass-through certificates the Advisor will consider
the maturity to be equal to the average life rather than the stated maturity.
During periods of declining interest rates, prepayment of mortgages underlying
mortgage-backed securities can be expected to accelerate. When the mortgage
obligations are prepaid, the Series reinvests the prepaid amounts in
securities, the yield of which reflects interest rates prevailing at the time.
Moreover, prepayment of mortgages which underlie securities purchased at a
premium could result in capital losses.
HIGH YIELD DEBT SECURITIES
High risk, high yield securities rated below BBB or lower by S&P or Baa
or lower by Moody's are considered to have speculative characteristics and
involve greater risk of default or price changes due to changes in the
issuer's credit-worthiness. Market prices of these securities may fluctuate
more than high-rated securities and they are difficult to price at times
because they are more thinly traded and less liquid securities. Market prices
may decline significantly in periods of general economic difficulty which may
follow periods of rising interest rates. Securities in the lowest rating
9
<PAGE>
category may be in default. For these reasons, it is the Series' policy not
to rely primarily on ratings issued by established credit rating agencies, but
to utilize such ratings in conjunction with the Advisor's own independent and
ongoing review of credit quality. In the event a security is downgraded below
these ratings after purchase, the Advisor will review and take appropriate
action with regard to the security. Each Series will also seek to minimize
risk by diversifying its holdings.
ZERO-COUPON BONDS
Some of the securities in which the Series invests may include so-called
"zero-coupon" bonds. Zero-coupon bonds are issued at a significant discount
from face value and pay interest only at maturity rather than at intervals
during the life of the security. The Series is required to accrue and
distribute income from zero-oupon bonds on a current basis, even though it
does not receive that income currently in cash. Thus, the Series may have to
sell investments to obtain cash needed to make income distributions. The
discount in the absence of financial difficulties of the issuer decreases as
the final maturity of the security approaches. Zero-coupon bonds can be sold
prior to their maturity date in the secondary market at the then prevailing
market value, which depends primarily on the time remaining to maturity,
prevailing level of interest rates and the perceived credit quality of the
issues. The market prices of zero-oupon securities are subject to greater
fluctuations in response to changes in market interest rates than bonds which
pay interest currently.
VARIABLE AND FLOATING RATE INSTRUMENTS
Certain of the obligations purchased by a Series may carry variable or
floating rates of interest, may involve a conditional or unconditional demand
feature and may include variable amount master demand notes. Such instruments
bear interest at rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index.
The interest rate on these securities may be reset daily, weekly, quarterly,
or some other reset period and may have a floor or ceiling on charges. There
is a risk that the current interest rate on such obligations may not
accurately reflect existing market interest rates.
HEDGING TECHNIQUES
Each Series has reserved the right, subject to authorization by the Board
of Directors prior to implementation, to engage in certain strategies in an
attempt to hedge the Series' portfolio, that is, to reduce the overall level
of risk that normally would be expected to be associated with its investments.
The Series may write covered call options on common stocks; may purchase and
sell (on a secured basis) put options; and may engage in closing transactions
with respect to put and call options. Each Series also may purchase forward
foreign currency exchange contracts to hedge currency exchange rate risk. In
addition, the Series is authorized to purchase and sell stock index futures
contracts and options on stock index futures contracts. Each Series is also
authorized to conduct spot (i.e., cash basis) currency transactions or to use
currency futures contracts and options on futures contracts and foreign
currencies in order to protect against uncertainty in the future levels of
foreign currency exchange rates. These strategies are primarily used for
hedging purposes; nevertheless, there are risks associated with these
strategies as described below.
OPTIONS ON SECURITIES
A call option is a short-term contract pursuant to which the purchaser of
the option, in return for a premium, has the right to buy the security
underlying the option at a specified price at any time during the term of the
option. The writer of a call option, who receives the premium, has the
obligation, upon exercise during the option term, to deliver the underlying
security against payment of the exercise price. Conversely, a put option
gives its purchaser, in return for a premium, the right to sell the underlying
equity security at a specified price during the option term to the writer of
the put option, who receives the premium. Each Series will sell call options
only on a "covered" basis, i.e., it will own the underlying security at all
times, and will write put options only on a secured basis, i.e., it will
maintain an amount equal to the exercise price in a segregated account at all
times. Each Series may engage in option transactions for hedging purposes and
to realize a greater current return, through the receipt of premiums, than
would be earned on the underlying securities alone. Options traded in the
over-the-counter market will be considered illiquid unless the Fund has
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entered into arrangements with U.S. Government securities dealers to dispose
of such options at a formula price based on a multiple of the original premium
plus the amount for which the option is "in the money".
FUTURES CONTRACTS
Each Series may purchase and sell financial futures contracts on debt
securities on a commodities exchange or board of trade for certain hedging,
return enhancement and risk management purposes in accordance with applicable
regulations. A financial futures contract is an agreement to purchase or sell
an agreed amount of securities at a set price for delivery in the future.
None of the Series may purchase or sell future contracts if immediately
thereafter the sum of the amount of initial margin deposits on any such
futures (plus deposits on any other futures contracts and premiums paid in
connection with any options or futures contracts) that do not constitute "bona
fide hedging" under Commodity Futures Trading Commission ("CFTC") rules would
exceed 5% of the liquidation value of the Series' total assets after taking
into account unrealized profits and losses on such contracts. In addition,
the value of all futures contracts sold will not exceed the total market value
of the Series' portfolio. The Series will comply with guidelines established
by the Securities and Exchange Commission with respect to covering of
obligations under futures contracts and will set aside cash and/or liquid high
grade securities in a segregated account with its Custodian in the amount
prescribed.
A Series' successful use of futures contracts depends on the Advisor's
ability to predict the direction of the market and is subject to various
additional risks. The correlation between movements in the price of a futures
contract and the price of the securities being hedged is imperfect and there
is a risk that the value of the securities being hedged may increase or
decrease at a greater rate than the related futures contracts, resulting in
losses to the Series. Certain futures exchanges or boards of trade have
established daily limits based on the amount of the previous day's settlement
price. These daily limits may restrict the Series' ability to repurchase for
sale certain futures contracts on any particular day.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
A Series' use of forward foreign currency contracts is limited to hedging
against movements in the value of foreign currencies relative to the U.S.
dollar in connection with specific portfolio transactions or with respect to
existing portfolio positions denominated in such currencies. A transaction
hedge involves the purchase or sale of a forward contract with respect to a
specific receivable or payable of the Series while a position hedge relates to
a specific portfolio holding. A forward foreign currency exchange contract
involves an obligation to purchase or sell a specified currency at a future
date at a price set at the time of the contract. Foreign currency exchange
contracts do not eliminate fluctuations in the values of portfolio securities
but rather allow the Series to establish a rate of exchange for a future point
in time. With respect to any such forward foreign currency contract, it will
not generally be possible to match precisely the amount covered by that
contract and the value of the securities involved due to the changes in the
values of such securities resulting from market movements between the date the
forward contract is entered into and the date it matures. In addition, while
forward contracts may offer protection from losses resulting from declines in
the value of a particular foreign currency, they also limit potential gains
which might result from increases in the value of such currency. Based on
current legal interpretation, the Series do not consider forward foreign
currency exchange contracts to be commodities or commodity contracts for
purposes of the Series' fundamental restrictions concerning investment in
commodities or commodity contracts, as set forth in the Statement of
Additional Information.
CURRENCY FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
A currency futures contract is an agreement for the purchase or sale for
future delivery of foreign currencies. A "sale" of a currency futures
contract means the obligation to deliver the foreign currencies called for by
the contract at a specified price on a specified date while a "purchase" of a
currency futures contract means the obligation to acquire the foreign
currencies called for by the contract at a specified price on a specified
date. A Series will only enter into futures contracts which are traded on
national or foreign futures exchanges and which are standardized as to
maturity date and the underlying financial instrument. Options on currency
futures contracts give the purchaser the right, in return for the premium
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paid, to assume a long or short position in the futures contract. None of the
Series may purchase or sell future contracts if immediately thereafter the sum
of the amount of initial margin deposits on any such futures (plus deposits on
any other futures contracts and premiums paid in connection with any options
or futures contracts) that do not constitute "bona fide hedging" under CFTC
rules would exceed 5% of the liquidation value of the Series' total assets
after taking into account unrealized profits and losses on such contracts. In
addition, the value of all futures contracts sold will not exceed the total
market value of the Series' portfolio.
FOREIGN CURRENCY OPTIONS
A call option on a foreign currency is a short-term contract pursuant to
which the purchaser of the option, in return for a premium, has the right to
buy the currency underlying the option at a specified price at any time during
the term of the option. The writer of a call option, who receives the
premium, has the obligation, upon exercise of the option during the option
term, to deliver the underlying currency against payment of the exercise
price. Conversely, a put option on a foreign currency gives its purchaser, in
return for a premium, the right to sell the underlying currency at a specified
price during the option term to the writer of the put option, who receives the
premium.
RISKS ASSOCIATED WITH HEDGING STRATEGIES
There are risks associated with the hedging strategies described above,
including the following: (1) the success of a hedging strategy may depend on
the ability of the Advisor to predict movements in the prices of individual
securities, fluctuations in domestic and foreign markets and currency exchange
rates, and movements in interest rates; (2) there may be an imperfect
correlation between the changes in market value of the securities held by the
Series and the prices of currency contracts, options, futures and options on
futures; (3) there may not be a liquid secondary market for a currency
contract, option, futures contract or futures option; (4) trading restrictions
or limitations may be imposed by an exchange; and, (5) government regulations,
particularly requirements for qualification as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"), may
restrict trading in forward currency contracts, options, futures contracts and
futures options.
PRINCIPAL INVESTMENT RESTRICTIONS
Each Series is subject to certain investment restrictions which are
fundamental policies that cannot be changed without the approval of the
holders of a majority, as defined in the 1940 Act, of the Series' outstanding
shares.
Each Series may borrow money, but only from a bank for temporary or
emergency purposes in amounts not exceeding 10% of the its total assets and
the Series will not make additional investments while borrowings greater than
5% of its total assets are outstanding.
None of the Series may, with respect to 75% of its total assets, invest
more than 5% of the value of its total assets at the time of investment in
securities of any one issuer (other than obligations issued or guaranteed by
the United States Government, its agencies or its instrumentalities). None of
the Series may purchase more than 10% of the outstanding voting securities of
any one issuer.
None of the Series may invest 25% or more of the value of its total
assets in securities of issuers in any one industry (other than U.S.
Government securities).
None of the Series will invest more than 10% of its total net assets in
securities of issuers that are restricted from being sold to the public
without registration under the Securities Act of 1933 and illiquid securities,
including repurchase agreements with maturities of greater than seven days.
Each Series may purchase shares of closed-end investment companies that
are traded on national exchanges to the extent permitted by applicable law.
None of the Series may make loans, except that each may invest in debt
securities and repurchase agreements and may engage in securities lending.
Additional information about the Series' investment restrictions is
contained in the Statement of Additional Information.
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MANAGEMENT
The overall business and affairs of the Series are managed by its Board
of Directors. The Board approves all significant agreements between the
Series and persons or companies furnishing services to the Series, including
the Series' agreements with its Investment Advisor and Custodian. The
day-to-day operations of the Series are delegated to the Fund's officers and
to Manning & Napier Advisors, Inc. (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 over
$5.5 billion in assets of clients, including both individuals and
institutions. For its services to the Fund under the Investment Advisory
Agreement, the Fund pays the Advisor a fee, computed daily and payable
monthly, at an annual rate of .35% for the Flexible Yield Series I, .45% for
the Flexible Yield Series II, and .50% for the Flexible Yield Series III of
the Fund's daily net assets. In addition , the Advisor is separately
compensated for acting as Transfer Agent for the Series. The Fund is
responsible for its operating expenses, including: (i) interest and taxes;
(ii) brokerage commissions; (iii) insurance premiums; (iv) compensation and
expenses of its Directors other than those affiliated with the Advisor; (v)
legal and audit expenses; (vi) fees and expenses of the Fund's Custodian, and
Accounting Services Agent, if obtained for the Fund from an entity other than
the Advisor; (vii) expenses incidental to the issuance of its shares,
including issuance on the payment of, or reinvestment of, dividends and
capital gain distributions; (viii) fees and expenses incidental to the
registration under federal or state securities laws of the Fund or its shares;
(ix) expenses of preparing, printing and mailing reports and notices and proxy
material to shareholders of the Fund; (x) all other expenses incidental to
holding meetings of the Fund's shareholders; (xi) dues or assessments of or
contributions to the Investment Company Institute or any successor; and, (xii)
such non-recurring expenses as may arise, including litigation affecting the
Fund and the legal obligations with respect to servicing or with respect to
which the Fund may have to indemnify its officers and Directors.
The Advisor may use its own resources to engage in activities that may
promote the sale of the Fund, including payments to third parties who provide
shareholder support servicing and distribution assistance. Investors may
be charged a fee if they effect transactions through a broker or agent.
YIELD AND TOTAL RETURN
From time-to-time the Series may advertise its total return.Both
yield and total return figures are based on historical earnings and are not
intended to indicate future performance. The "total return" of a Series
refers to the average annual compounded rates of return over one-, five-, and
ten-year periods or for the life of the Series (as stated in the
advertisement) that would equate an initial amount invested at the beginning
of a stated period to the ending redeemable value of the investment, assuming
the reinvestment of all dividend and capital gains distributions.
The "30-day yield" of a series is calculated by dividing the net
investment income per share earned during a 30-day period by the net asset
value per share on the last day of the period. Net investment income includes
interest and dividend income earned on a Series' securities; it is net of all
expenses and all recurring and nonrecurring charges that have been applied to
all shareholder accounts. The yield calculation assumes that net investment
income earned over 30 days is compounded monthly for six months and then
annualized. Methods used to calculate advertised yields are standardized for
all stock and bond mutual funds. However, these methods differ from the
accounting methods used by a Series to maintain its books and records, and so
the advertised 30-day yield may not fully reflect the income paid to your own
account or the yield reported in a Series' reports to shareholders.
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PURCHASES, EXCHANGES AND REDEMPTIONS OF SHARES
The minimum initial investment in the Series is $2,000 and subsequent
purchases must be at least $100. These minimums may be waived at the
Distributor's discretion. The Distributor has the right to refuse any order.
Purchases and redemptions of shares of the Series may be made on any day
the New York Stock Exchange is open for trading.
A purchase order will be effective as of the day received by the
Distributor, Transfer Agent, or its agents, if the order is received before
4:00 p.m., Eastern Standard time by the Distributor, Transfer Agent, or its
agents. Payment may be made by check or readily available funds. The
purchase price of shares of the Series is the net asset value next determined
after a purchase order is effective.
The shares of the Series may be purchased in exchange for securities to
be included in the Series, subject to the Advisor's determination that these
securities are acceptable. Securities accepted in an exchange will be valued
at market value. All accrued interest and purchase or other rights which are
reflected in the market price of accepted securities at the time of valuation
become the property of the Series and must be delivered by the shareholder to
the Series upon receipt from the issuer.
The Advisor will not accept securities for the Series unless: (1) such
securities are appropriate in the Series at the time of the exchange; (2) the
shareholder represents and agrees that all securities offered to the Series
are not subject to any restrictions upon their sale by the Series under the
Securities Act of 1933, or otherwise; and, (3) prices are available from an
independent pricing service approved by the Series' Board of Directors.
Shareholders may purchase shares regularly through the Automatic
Investment Plan with a pre-authorized draft drawn on their checking or
statement savings accounts. Under this plan, the shareholder may elect to
have a specified amount invested on a regular schedule. The amount specified
by the shareholder will be withdrawn from the shareholder's bank account using
the pre-authorized draft. This amount will be invested at the applicable
share price determined on the date the amount is available for investment.
Participation in the Automatic Investment Plan may be discontinued either by
the Fund or the Shareholder upon 30 days' prior written notice to the other
party. A shareholder who wishes to enroll in the Automatic Investment Plan
may do so by completing the applicable section of the Account Application Form
or contacting the Fund for an Automatic Investment Plan Form.
As permitted pursuant to any rule, regulation or order promulgated by the
Securities and Exchange Commission, some or all of the shares in an account
with the Fund for which payment has been received by the Fund may be exchanged
for shares of any of the other Manning & Napier Fund, Inc. Series at net asset
value. Shareholders may effect up to 4 exchanges in a 12-month period without
charge. Subsequent exchanges are subject to a fee of $15. Exchanges will be
made after instructions in writing or by telephone are received by the
Transfer Agent in proper form (i.e., if in writing - signed by the record
owner(s) exactly as the shares are registered; if by telephone - proper
account identification is given by the shareholder) and each exchange must
involve either shares having an aggregate value of at least $1,000 or all the
shares in the account. A shareholder should read the prospectus of the other
Series and consider the differences in objectives and policies before making
any exchange. The exchange privilege may not be available in all states.
For federal and state income tax purposes, an exchange is treated as a
sale of the shares exchanged, and therefore an exchange could result in a gain
or loss to the shareholder making the exchange. The Series may modify or
terminate this exchange offer upon 60 days notice to shareholders subject to
applicable law.
If a shareholder desires to redeem his shares at their net asset value,
the shareholder must send a written request for redemption in "Good Order" to
the Transfer Agent. "Good Order" generally means that the written request for
redemption must be endorsed by the record owner(s) exactly as the shares are
registered and the signature(s) must be guaranteed by an "eligible guarantor
institution" as the term is defined under Rule 17Ad-15(a)(2) under the
Securities Exchange Act of 1934. Currently, such procedures generally permit
guarantees by a commercial bank or trust company, a member bank of the Federal
Reserve System, or a member firm of a national securities exchange.
Redemption requirements for corporations, other organizations, trusts,
fiduciaries, and retirement plans may require additional documentation.
Please contact the Advisor at 1-800-466-3863 for more information. The
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Transfer Agent may make certain de minimis exceptions to the above
requirements for redemption. Within three days after receipt of a
redemption request by the Transfer Agent in "good order", the Series will make
payment in cash, except as described below, of the net asset value of the
shares next determined after such redemption request was received, except
during any period in which the right of redemption is suspended or date of
payment is postponed because the New York Stock Exchange is closed or trading
on such Exchange is restricted or to the extent otherwise permitted by the
1940 Act if an emergency exists. For shares purchased, or received in
exchange for shares purchased, by check (including certified checks or
cashier's checks), payment of redemption proceeds may be delayed up to 15 days
from the purchase date in an effort to assure that such check has cleared.
Subject to the Series' compliance with applicable regulations, each
Series has reserved the right to pay the redemption price either totally or
partially, by a distribution in-kind of securities (instead of cash) from the
Series' portfolio. The securities distributed in such a distribution would be
valued at the same amount as that assigned to them in calculating the net
asset value for the shares being sold. If a shareholder received a
distribution in-kind, he could incur brokerage or transaction charges when
converting the securities to cash.
Due to the relatively high cost of maintaining small accounts, the Series
reserves the right to redeem shares in any account for their then-current
value (which will be promptly paid to the shareholder) if at any time the
total investment in such account drops below $1,000 (but not due to changes in
net asset value). Shareholders will be notified that the value of their
account is less than the minimum investment requirement and allowed 60 days to
make an additional investment before the redemption is processed.
Manning & Napier Investor Services, Inc. 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.
NET ASSET VALUE
Each Series' net asset value per share is determined as of the closing
time of the New York Stock Exchange or, in the absence of a closing time, 4:00
p.m. Eastern Standard time on each day that the New York Stock Exchange is
open for trading. The exchange annually announces the days on which it will
not be open for trading; the most recent announcement indicates that it will
not be open on: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value per share is the value of the Series' assets, less
its liabilities, divided by the number of shares of the Series outstanding.
The value of the Series' portfolio securities will be the market value of such
securities as determined based on quotes provided by a pricing service (which
uses the methodology outlined in the "Net Asset Value" section of the
Statement of Additional Information) approved by the Board of Directors, or,
in the absence of market quotations, fair value as determined in good faith by
or under the direction and control of the Board of Directors. Short-term
investments which mature in less than 60 days are normally valued at amortized
cost. Assets initially expressed in foreign currencies will be converted into
U.S. dollars as of the exchange rates quoted by any major bank. If such
quotes are not available, the exchange rates will be determined in accordance
with policies established in good faith by the Board of Directors. See the
Statement of Additional Information for further information.
DIVIDENDS AND TAX STATUS
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Each Series intends to distribute to its shareholders on an quarterly
basis dividends substantially equal to all of its net investment income. Each
Series also intends to distribute net realized short and long-term capital
gains, if any, taking into account any available capital loss carryforwards
from prior years at least annually. Dividends and distributions will be paid
in full and fractional shares of the Series, based on the net asset value per
share at the close of business on the record date, although a shareholder may,
prior to the record date, request, by writing or by telephone call to the
Fund, that payments of either ordinary income dividends or capital gain
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distributions, or both, be made in cash. The Fund will notify each
non-corporate taxable shareholder after the close of its fiscal year
both of the dollar amount and the tax status of that year's distributions.
Generally, the Fund will be required to impose backup withholding at the rate
of 31% from ordinary income dividends, capital gain distributions and
redemption payments made to non-corporate shareholders, if provisions of the
law relating to the furnishing of taxpayer identification numbers and
reporting of dividends are not compiled with by such shareholders.
TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a general summary of certain federal
income tax considerations affecting the Series and its shareholders. No
attempt is made to present a detailed explanation of the tax treatment of the
Series or their shareholders, and the discussion here is not intended as a
substitute for careful tax planning. These Series are not managed with
respect to tax outcomes for their shareholders.
Under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), the Series is treated as a separate entity for
federal income tax purposes. The Series intends to qualify each year
as a regulated investment company under Subchapter M of the Code. If the
Series so qualifies, it will not be subject to federal income taxes on its net
investment income and capital gains, if any, which the Series distributes to
its shareholders, provided that at least 90% of such Series "investment
company taxable income" (generally, net investment income and the excess of
net short-term capital loss) for the taxable year is distributed, and provided
that the Series meets certain other requirements imposed by the Code. All
dividends paid or distribution out of investment company taxable income will
be taxable as ordinary income to the shareholders. Any "net capital gain"
(the excess of net long-term capital gain over net short-term capital loss)
distributed to shareholders is taxable as long-term capital gain to the
shareholders, regardless of the length of time a shareholder has owned his
shares. Generally, such dividends and distributions are taxable in the year
in which received, but dividends and distributions declared in October,
November or December of any year to shareholders of record on a date in such
month are treated as paid on December 31 of such year if they are paid during
January of the following calendar year. Dividends and distributions are not
taxable to shareholders that are not otherwise subject to tax on their income,
such as qualified employee benefit plans.
A 4% non-deductible federal excise tax is imposed on a regulated
investment company that fails to distribute substantially all of its ordinary
income and capital gain net income for each calendar year. Currently, the
Series intends to make sufficient distributions of its ordinary income and
capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
Future legislative changes may materially affect the tax consequences of
investing in the Series. Shareholders are urged to consult their tax advisors
for the application of these rules (and other potentially relevant rules) to
their particular circumstances. Shareholders are also urged to consult their
tax advisors concerning the application of state and local income taxes and of
foreign taxes to investments in the Series, which may differ from the U.S.
federal income tax consequences described above.
GENERAL INFORMATION
The Fund was incorporated on July 26, 1984 as a Maryland corporation.
The Board of Directors may, at its own discretion, create additional series of
shares, each of which would have separate assets and liabilities.
The Fund does not expect to hold annual meetings of shareholders but
special meetings of shareholders may be held under certain circumstances.
Shareholders of the Fund retain the right, under certain circumstances, to
request that a meeting of shareholders be held for the purpose of considering
the removal of a Director from office, and if such a request is made, the Fund
will assist with shareholder communications in connection with the meeting.
The shares of the Fund have equal rights with regard to voting, redemption,
dividends, distributions and liquidations. The Fund's shareholders will vote
in the aggregate and not by Series except as otherwise expressly required by
law or when the Board of Directors determines that the matter to be voted upon
affects only the interests of the shareholders of a Series. Income, direct
liabilities and direct operating expenses of a Series will be allocated
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directly to the Series, while general liabilities and expenses of the Fund
will be allocated among the Series. The holders of shares have no preemptive
or conversion rights. Shares when issued are fully paid and non-assessable
and do not have cumulative voting rights.
As of February 20, 1996 Manning & Napier Advisors, Inc.
beneficially owned 32.16% of the Flexible Yield Series II.
All securities and cash are held by Boston Safe Deposit and Trust
Company. Deloitte & Touche, LLP serves as independent accountants for the
Series and will audit its financial statements annually.
Manning & Napier Advisors, Inc. serves as the Fund's Transfer and
Dividend Disbursing Agent. Shareholder inquiries should be directed to
Manning & Napier Fund, Inc., P.O. Box 41118, Rochester, New York 14604.
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APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
Moody's Investors Services, Inc.'s corporate bond ratings:
Aaa - Bonds which are rated Aaa are judged to be of the best quality 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 principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
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 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.
Standard & Poor's Corporation's corporate bond ratings:
18
<PAGE>
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.
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's Investor Services, 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 of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
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.
19
<PAGE>
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 - This rating is 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.
20
<PAGE>
MANNING & NAPIER FUND, INC.
NEW YORK TAX EXEMPT SERIES
No person has been authorized to give any information or to make
representations not contained in this Prospectus in connection with any
offering made by this Prospectus and, if given or made, such information must
not be relied upon as having been authorized by the Fund. This Prospectus
does not constitute an offering by the Fund in any jurisdiction in which such
offering may not lawfully be made.
PROSPECTUS
TABLE OF CONTENTS
Annual Operating Expenses 3
Financial Highlights 4
The Fund 4
Risk and Investment Objectives and Policies 4
New York Tax Exempt Securities 5
Risk and Additional Information about Investment Policies 5
Management 10
Yield and Total Return 10
Purchases, Exchanges and Redemptions of Shares 11
Net Asset Value 13
Dividends and Tax Status 13
General Information 14
Appendix 16
<PAGE>
MANNING & NAPIER FUND, INC.
P.O. Box 41118
Rochester, New York 14604
1-800-466-3863
NEW YORK TAX EXEMPT SERIES
Manning & Napier Fund, Inc. (the "Fund"), is an open-end management
investment company that offers separate series, each a separate investment
portfolio having its own investment objective and policies. This Prospectus
relates to the New York Tax Exempt Series of the Fund (the "Series"). The
Series' investment objective is to seek a high level of current income exempt
from federal income tax and New York personal income tax, consistent with
preservation of capital.
This Prospectus provides you with the basic information you should know
before investing in the Series. You should read it and keep it for future
reference. A Statement of Additional Information, dated March 6,
1996, containing additional information about the Fund has been filed
with the Securities and Exchange Commission and is incorporated by reference
in this Prospectus in its entirety. You may obtain a copy of the Statement of
Additional Information without charge by contacting the Fund at the address or
telephone number listed above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MARCH 6, 1996.
<PAGE>
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
(as a percentage of offering price)
<S> <C>
Maximum Sales Charge Imposed on Purchases None
Redemption Fees (1) None
</TABLE>
(1) A wire charge, currently $15, will be deducted by the Transfer Agent
from the amount of a wire redemption payment made at the request of a
shareholder. Such amount is not included in the "Annual Operating
Expenses of the Series."
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES
The following information provides (i) a tabular summary of expenses relating
to the annual operating expenses of the Series and (ii) an example
illustrating the dollar cost of such expenses on a $1,000 investment.
Annual Operating Expenses of the Series (as a percentage of average net
assets):
<S> <C>
Management Fees (2) 0.50%
12b-1 Fees. None
Other Expenses (3) 0.15%
-----
Total Operating Expenses of the Series (3) 0.65%
</TABLE>
<TABLE>
<CAPTION>
Example
You would pay the following expenses on a $1,000 investment, assuming a) 5.0%
annual return and b) redemptions at the end of each time period:
1 year 3 years 5 years 10 years
------- -------- -------- ---------
<S> <C> <C> <C> <C>
New York Tax Exempt Series $ 7 $ 21 $ 36 $ 81
</TABLE>
(2) Clients who have entered into investment advisory agreements with
Manning & Napier Advisors, Inc. (the Fund's Advisor) will be separately
rebated by Manning & Napier an amount equal to the portion of their client
advisory fee attributable to the portion of their assets invested in the
Fund. See "Management."
(3) New York Tax Exempt Series was engaged in active investment operations
for the year ended December 31, 1995; therefore, actual management fees
and other expenses are used above.
(4) Should the total operating expenses for the Series exceed .85% of its
average net assets, the Advisor has voluntarily agreed to waive its fee
and pay other operating expenses in an amount that limits total operating
expenses to .85% of its average net assets. The fee waiver and the
assumption of expenses by the Advisor is voluntary and may be terminated
at any time. However, the Advisor has agreed to continue this assumption
of expenses at least through the Series' current fiscal year.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Series. For a
more complete description of the various costs and expenses illustrated above,
please refer to the Management section of this Prospectus.
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
2
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
The following table provides selected per share data and ratios for the New York Tax
Exempt Series (for a share outstanding throughout the period for the periods shown). The
table is part of the Series' audited financial statements, which are included in the
Statement of Additional Information incorporated by reference into this Prospectus.
For the year For the period
ended Jan. 17, 1994 to
Dec. 31, 1995 Dec. 31, 1994
<S> <C> <C> <C>
Net asset value - Beginning of period $ 8.98 $ 10.00 (1)
Income from investment operations:
Net investment income 0.40 0.34
Net realized and unrealized gain/(loss)
on investments 1.09 (1.02)
Total from investment operations 1.49 (0.68)
Less distributions declared to shareholders:
From net investment income (0.40) (0.34)
Net asset value - End of period $ 10.07 $ 8.98
Total return 16.78% (7.12)% (2)
Ratios (to average net assets)/Supplemental Data:
Expenses 0.65% 0.79% (2)
Net investment income 4.36% 3.82% (2)
Portfolio turnover 0% 6%
Net assets - End of period (000's omitted) $ 28,817 $ 17,301
(1) Initial offering price upon commencement of
operations on January 17, 1994.
(2) Annualized.
</TABLE>
3
<PAGE>
THE FUND
The Fund is an open-end management investment company incorporated under
the laws of the State of Maryland on July 26, 1984. The Fund offers separate
series of units of beneficial interest ("shares"). This Prospectus relates to
the New York Tax Exempt Series. Information regarding the Fund's other series
is contained in separate prospectuses that may be obtained from Manning &
Napier Fund, Inc., P.O. Box 41118, Rochester, New York 14604 or by calling
1-800-466-3863. The New York Tax Exempt Series is a diversified fund.
Shares of the Series are offered directly to investors and to employees
and clients of the Advisor or its affiliates that have authorized investment
in the Fund as part of the discretionary account management services of the
Advisor or its affiliates. There is no limitation on the investment in shares
of the Series on behalf of discretionary account clients unless otherwise
limited by a client agreement. There are no fees or expenses charged to any
investor in connection with acquisition of shares of the Series.
Since the Series may be used under varying conditions and market prices,
the result for a given investor might differ from the result that would have
been obtained had the Series been used only for clients with the same
investment objective. However, the Advisor seeks to manage cash flows into
and out of the Series in the interest of the Fund and its clients so as to
minimize the effect on performance.
4
<PAGE>
RISK AND INVESTMENT OBJECTIVES AND POLICIES
The Series' objective is to seek as high a level of current income exempt
from federal income tax and New York State personal income tax as the Advisor
believes is consistent with preservation of capital. The Investment Advisor
will attempt to balance the Fund's goals of high income and capital
preservation by building a portfolio of securities that in the aggregate
afford the opportunity to earn current income, but also have quality and other
characteristics that attempt to avoid permanent capital losses. However, the
Fund's portfolio securities and, therefore, its shares will inevitably
fluctuate in value to a certain extent. Under current law, to the extent
distributions by the Series are derived from interest on New York Tax Exempt
Securities (which are described below) and are designated as such, they are
exempt from federal and New York personal income taxes. The Series is not
intended to be a complete investment program, and there is no assurance it
will achieve its objective.
The Series seeks to achieve its objective by following the fundamental
investment policy of investing at least 80% of its net assets in New York Tax
Exempt Securities, except when investing for defensive purposes during times
of adverse market conditions. The Series may also invest in taxable
obligations described below under "Risk and Additional Information about
Investment Policies" to the extent permitted by its investment policies, or
hold its assets in money market instruments or in cash. The Series'
investments in New York Tax Exempt Securities and taxable obligations will be
limited to securities rated in the four highest categories assigned by Moody's
Investors Service, Inc. (Aaa, Aa, A, Baa) or Standard & Poor's Corporation
(AAA, AA, A, BBB). For a description of the above ratings, see the Appendix.
Securities rated Baa by Moody's or BBB by Standard & Poors are considered
investment grade but may have speculative characteristics and changes in
economic conditions or circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with more
highly rated securities.
When the Series invests in New York Tax Exempt Securities in the lower
rating categories, the achievement of the Series' goals is more dependent on
the Advisor's ability than would be the case if the Series were investing in
New York Tax Exempt Securities in the higher rating categories. The amount of
information about the financial condition of an issuer of New York Tax Exempt
Securities may not be as extensive as information about corporations whose
securities are publicly traded. In addition, tax considerations may limit the
Series' ability to vary its portfolio securities in response to developments
in interest rates and economic conditions. The Advisor seeks to minimize the
risks of investing in lower-rated securities through investment analysis and
attention to current developments in interest rates and economic conditions.
Interest income from certain types of New York Tax Exempt Securities may
be subject to federal alternative minimum tax. It is a fundamental policy of
the Series to exclude these securities from the term "New York Tax Exempt
Securities" for purposes of determining compliance with the 80% test described
above.
In pursuing its objective, the Series may to a limited extent buy and
sell futures contracts and options and may enter into repurchase agreements
and forward commitments. These incidental investment practices, which may
produce taxable capital gains and involve special risks, are described below.
The market value of the Series' investments will change in response to
changes in interest rates and other factors. During periods of falling
interest rates, the values of long-term, fixed-income securities generally
rise. Conversely, during periods of rising interest rates, the values of such
securities generally decline. Changes by recognized rating services in their
ratings of tax-exempt securities and in the ability of an issuer to make
payments of interest and principal will also affect the value of these
investments. Changes in the value of portfolio securities will not affect
interest income derived from those securities but will affect the Series' net
asset value.
During times when conditions in the markets for New York Tax Exempt
Securities suggest a temporary defensive position, the Advisor may temporarily
use alternative strategies, primarily designed to reduce fluctuations in the
value of the Series' assets. In implementing these "defensive" strategies,
the Series may invest in taxable obligations, including: obligations of the
U.S. Government, its agencies or instrumentalities; obligations issued by
governmental issuers in other states, the interest on which would be exempt
from federal income tax; other debt securities rated within the four highest
5
<PAGE>
categories by either Moody's or Standard & Poor's; commercial paper rated in
the highest category by either rating service (Prime-1 or A-1+, respectively);
certificates of deposit and bankers' acceptances; repurchase agreements with
respect to any of the foregoing investments; or any other fixed-income
securities that the Advisor considers consistent with such strategy. It is
impossible to predict when, or for how long, the Series will use such
alternative strategies. The limitations described above on the ability of the
Series to vary its portfolio securities may limit the Series' use of these
alternative investment strategies.
A change in the securities held by the Series is known as "portfolio
turnover". Portfolio turnover generally involves some expense to the Series,
including brokerage commissions or dealer mark-ups and other transaction costs
on the sale of securities and reinvestment in other securities. Such
transactions may result in realization of taxable capital gains. The Series
expects that its annual portfolio turnover rate will be no more than 100%.
NEW YORK TAX EXEMPT SECURITIES
New York Tax Exempt Securities are debt obligations issued by the State
of New York and its political subdivisions, agencies and instrumentalities,
the interest from which is, in the opinion of bond counsel, exempt from
federal income tax and New York personal income tax. These securities are
issued to obtain funds for various public purposes, such as the construction
of public facilities, the payment of general operating expenses or the
refunding of outstanding debts. They may also be issued to finance various
private activities, including the lending of funds to public or private
institutions for the construction of housing, educational or medical
facilities, and may also include certain types of private activity and
industrial development bonds or notes issued by public authorities to finance
privately owned or operated facilities or to fund short-term cash
requirements. Short-term New York Tax Exempt Securities are generally issued
as interim financing in anticipation of tax collections, revenue receipts or
bond sales to finance various public purposes. New York Tax Exempt Securities
also include debt obligations issued by other governmental entities (for
example, U.S. territories) if such debt obligations generate interest income
which is exempt from federal income tax and New York personal income tax.
The two principal classifications of New York Tax Exempt Securities are
general obligation and limited obligation (or revenue) securities. General
obligation securities involve the credit of an issuer possessing taxing power
and are payable from the issuer's general unrestricted revenues. Their
payment may depend on an appropriation by the issuer's legislative body. The
characteristics and methods of enforcement of general obligation securities
vary according to the law applicable to the particular issuer. Limited
obligation (or revenue) securities are payable only from the revenues derived
from a particular facility or class of facilities, or a specific revenue
source, and generally are not payable from the unrestricted revenues of the
issuer. So-called "private activity bonds" and "industrial development bonds"
are in most cases limited obligation securities, the credit quality of which
is directly related to the corporate user of the facilities.
The Series may also invest in securities representing interests in New
York Tax Exempt Securities, known as "inverse floating obligations" or
"residual interest bonds", paying interest rates that vary inversely to
changes in the interest rates of specified short-term tax exempt securities or
an index of short-term tax exempt securities. The interest rates on inverse
floating obligations or residual interest bonds will typically decline as
short-term market interest rates increase and increase as short-term market
rates decline. Such securities have the effect of providing a degree of
investment leverage, since they will generally increase or decrease in value
in response to changes in market interest rates at a rate which is a multiple
(typically two) of the rate at which fixed-rate long-term tax exempt
securities increase or decrease in response to such changes. As a result,
the market values of inverse floating obligations and residual interest bonds
will generally be more volatile than the market values of fixed-rate tax exempt
securities. To seek to limit the interest rate risk of these securities, the
Series may purchase inverse floating obligations with shorter-term maturities
or which contain limitations on the extent to which the interest rate may
vary. There is no limit on the percentage of assets that may be invested in
inverse floating obligations or residual interest bonds.
Certain risks are inherent in the Series' investments in New York Tax
Exempt Securities. These risks result from amendments to the New York
6
<PAGE>
Constitution and other statutes that limit the taxing and spending authority
of the State of New York, and a variety of New York laws and regulations that
may affect, directly or indirectly, New York Tax Exempt Securities. The
ability of issuers of municipal securities to pay interest on, or repay
principal of, municipal securities may be impaired as a result.
The Series' concentration in investments in New York Tax Exempt
Securities involves greater risks than if its investments were more
diversified. Because the Series invests primarily in New York Tax Exempt
Securities, investors should consider that the Series' yield and share price
are sensitive to political and economic developments within the State of New
York, and to the financial condition of the State, its public authorities, and
political subdivisions, particularly the City of New York.
RISK AND ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
Set forth below is further information about certain types of securities
in which the Series may invest as well as information about additional types
of investments and certain strategies the Series may pursue. These policies
have been voluntarily adopted by the Board of Directors based upon current
circumstances and may be changed or amended by action of the Board of
Directors without prior approval of the Series' shareholders. Additional
information concerning these strategies and their related risks is contained
in the Statement of Additional Information.
INVESTMENTS IN PREMIUM SECURITIES
During a period of declining interest rates, many of the Series'
portfolio investments will likely bear coupon rates which are higher than
current market rates, regardless of whether such securities were originally
purchased at a premium. Such securities would generally carry market values
greater than the principal amounts payable on maturity, which would be
reflected in the net asset value of the Series' shares. The value of such
"premium" securities tends to approach the principal amount as they approach
maturity (or call price in the case of securities approaching their call). As
a result, an investor who purchases shares of the Series during such periods
would initially receive higher distributions (derived from the higher coupon
rates payable on the Series' investments) than might be available from
alternative investments bearing current market interest rates, but may face an
increased risk of capital loss as these higher coupon securities approach
maturity (or call date). In evaluating the potential performance of an
investment in the Series, investors may find it useful to compare the Series'
current dividend rate with the Series' "yield", which is computed on a
yield-to-maturity basis in accordance with Securities and Exchange Commission
regulations and which reflects amortization of market premiums.
ZERO-COUPON BONDS
Some of the securities in which the Series invests may include so-called
"zero-coupon" bonds. Zero-coupon bonds are issued at a significant discount
from face value and pay interest only at maturity rather than at intervals
during the life of the security. The Series is required to accrue and
distribute income from zero-coupon bonds on a current basis, even though it
does not receive that income currently in cash. Thus, the Series may have to
sell investments to obtain cash needed to make income distributions. The
discount in the absence of financial difficulties of the issuer decreases as
the final maturity of the security approaches. Zero-coupon bonds can be sold
prior to their maturity date in the secondary market at the then prevailing
market value, which depends primarily on the time remaining to maturity,
prevailing level of interest rates and the perceived credit quality of the
issues. The market prices of zero-coupon securities are subject to greater
fluctuations in response to changes in market interest rates than bonds which
pay interest currently.
RISKS ASSOCIATED WITH THE SERIES' INVESTMENT PROGRAM
At times, a portion of the Series' assets may be invested in New York Tax
Exempt Securities as to which the Series, by itself or together with other
funds and accounts managed by the Advisor, holds a major portion or all of an
issue of such securities. Under adverse market or economic conditions or in
the event of adverse changes in the financial condition of the issuer, the
Series could find it more difficult to sell such securities when the Advisor
believes it advisable to do so or may be able to sell such securities only at
prices lower than if such securities were more widely held. Under such
circumstances, it may also be more difficult to determine the fair value of
7
<PAGE>
such securities for purposes of computing the Series' net asset value. In
order to enforce its rights in the event of a default under such securities,
the Series may be required to take possession of and manage assets securing
the issuer's obligations on such securities, which may increase the Series'
operating expenses and adversely affect the Series' net asset value. Any
income derived from the Series' ownership or operation of such assets would
not be tax-exempt.
Certain securities held by the Series may permit the issuer at its option
to "call", or redeem, its securities. If an issuer were to redeem securities
held by the Series during a time of declining interest rates, the Series may
not be able to reinvest the proceeds in securities providing the same
investment return as the securities redeemed.
Since the Series invests primarily in New York Tax Exempt Securities, the
value of its shares may be especially affected by factors pertaining to the
New York economy and other factors specifically affecting the ability of
issuers of New York Tax Exempt Securities to meet their obligations. As a
result, the value of the Series' shares may fluctuate more widely than the
value of shares of a portfolio investing in securities relating to a number of
different states. The ability of state, county, or local governments to meet
their obligations will depend primarily on the availability of tax and other
revenues to those governments and on their fiscal conditions generally. The
amounts of tax and other revenues available to governmental issuers of New
York Tax Exempt Securities may be affected from time to time by economic,
political, and demographic conditions within the particular state. In
addition, constitutional or statutory restrictions may limit a government's
power to raise revenues or increase taxes. The availability of federal,
state, and local aid to issuers of New York Tax Exempt Securities may also
affect their ability to meet their obligations. Payments of principal and
interest on limited obligation securities will depend on the economic
conditions of the facility or specific revenue source from whose revenues the
payments will be made, which in turn could be affected by economic, political,
and demographic conditions in the state. Any reduction in the actual or
perceived ability of an issuer of New York Tax Exempt Securities to meet its
obligations (including a reduction in the rating of its outstanding
securities) would likely affect adversely the market value and marketability
of its obligations and could affect adversely the values of other New York Tax
Exempt Securities as well.
Because of the relatively small number of issuers of New York Tax Exempt
Securities, the Series is more likely to invest a higher percentage of its
assets in the securities of a single issuer than an investment company which
invests in a broad range of tax-exempt securities. This practice involves an
increased risk of loss to the Series if the issuer is unable to make interest
or principal payments or if the market value of such securities declines.
FINANCIAL FUTURES AND OPTIONS
The Series may purchase and sell financial futures contracts for hedging
purposes. Futures contracts on a Municipal Bond Index are traded on the
Chicago Board of Trade. This Index is intended to represent a numerical
measure of market performance for long-term tax-exempt bonds. An "index
future" is a contract to buy or sell units of a particular securities index at
an agreed price on a specified future date. Depending on the change in value
of the index between the time when the Series enters into and closes its
futures position, the Series may realize a gain or loss. The Series may
purchase and sell futures contracts on the Index (or any other tax-exempt bond
index approved for trading by the Commodity Futures Trading Commission) to
hedge against general changes in market values of New York Tax Exempt
Securities which the Fund owns or expects to purchase. The Series may also
purchase and sell put and call options on index futures, and on the indices
directly, in addition or as an alternative to purchasing and selling financial
futures contracts.
The Series may also, for hedging purposes, purchase and sell futures
contracts and related options with respect to U.S. Government Securities,
including U.S. Treasury bills, notes and bonds ("U.S. Government Securities")
and options directly on U.S. Government Securities. The Advisor believes
that, under certain market conditions, price movements in U.S. Government
Securities futures and related options may correlate closely with price
movements in New York Tax Exempt Securities and may as a result provide
hedging opportunities for the Series. U.S. Government Securities futures and
related options would be used in a way similar to the Series' use of index
futures and related options. The Series will only purchase or sell U.S.
8
<PAGE>
Government Securities futures or related options when, in the opinion of the
Advisor, price movements in such futures and options will correlate closely
with price movements in the New York Tax Exempt Securities which are the
subject of the hedge.
The Series may purchase or sell future contracts if immediately
thereafter the sum of the amount of initial margin deposits on any such
futures (plus deposits on any other futures contracts and premiums paid in
connection with any options or futures contracts) that do not constitute "bona
fide hedging" under Commodity Futures Trading Commission ("CFTC") rules would
exceed 5% of the liquidation value of the Series' total assets after taking
into account unrealized profits and losses on such contracts. In addition,
the value of all futures contracts sold will not exceed the total market value
of the Series' portfolio. The Series will comply with guidelines established
by the Securities and Exchange Commission with respect to covering of
obligations under futures contracts and will set aside cash and/or liquid high
grade securities in a segregated account with its Custodian in the amount
prescribed.
The use of futures and options involves certain special risks and may
result in realization of taxable capital gains. Futures and options
transactions involve costs and may result in losses. Certain risks arise
because of the possibility of imperfect correlations between movements in the
prices of financial futures and options and movements in the prices of the
underlying bond index or U.S. Government Securities or the New York Tax Exempt
Securities which are the subject of the hedge. The successful use of futures
and options further depends on the Advisor's ability to forecast interest rate
movements correctly. Other risks arise from the Series' potential inability
to close out its futures or related options positions, and there can be no
assurance that a liquid secondary market will exist at a particular time.
Certain provisions of the Internal Revenue Code and other regulatory
requirements may limit the Series' ability to engage in futures and options
transactions.
A more detailed explanation of futures and options transactions,
including the risks associated with them, is included in the Statement of
Additional Information.
REPURCHASE AGREEMENTS AND FORWARD COMMITMENTS
The Series may enter into repurchase agreements on up to 25% of its
assets. These transactions must be fully collateralized at all times, but
involve some risk to the Series if the other party should default on its
obligation and the Series is delayed or prevented from recovering the
collateral. The Series may also purchase securities for future delivery,
which may increase its overall investment exposure and involves a risk of loss
if the value of the securities declines prior to the settlement date.
LIMITING INVESTMENT RISK
Specific investment restrictions help the Series limit investment risks
for its shareholders. These restrictions prohibit the Series from investing
more than: (a) (with respect to 75% of its total assets) 5% of its total
assets in the securities of any one issuer, other than U.S. Government
Securities;* (b) 5% of its net assets in securities of any issuer if the party
responsible for payment, together with any predecessor, has been in operation
for less than three years (except obligations of the U.S. Government or
agencies or instrumentalities and obligations backed by the faith, credit and
taxing power of any person authorized to issue New York Tax Exempt
Securities); (c) 10% of its net assets in securities restricted as to resale;
and (d) 10% of its net assets in any combination of securities that are not
readily marketable, in securities restricted as to resale (excluding Rule 144A
securities determined by the Series' Board of Directors [or the person
supervised by the Series' Board of Directors to make such determinations] to
be readily marketable), and repurchase agreements maturing in more than seven
days; (e) 25% or more of the value of its total assets in securities of
issuers in any one industry (other than U.S. Government Securities). In
addition, the Series may borrow money, but only from a bank for temporary or
emergency purposes in amounts not exceeding 10% of the Series' total assets.
Restrictions marked with an asterisk (*) above are summaries of
fundamental policies. See the Statement of Additional Information for the
full text of these policies and the Series' other fundamental policies.
Except for investment policies designated as fundamental in this Prospectus
or the Statement of Additional Information, the investment policies described
9
<PAGE>
in this Prospectus and in the Statement of Additional Information are not
fundamental policies. The Board of Directors may change any non-fundamental
investment policies without shareholder approval. As a matter of policy, the
Board of Directors would not materially change the Series' investment objective
without shareholder approval.
MANAGEMENT
The overall business and affairs of the Series are managed by its Board
of Directors. The Board approves all significant agreements between the
Series and persons or companies furnishing services to the Series, including
the Series' agreements with its Investment Advisor and Custodian. The
day-to-day operations of the Fund are delegated to the Fund's officers and to
Manning & Napier Advisors, Inc. (the "Advisor"), 1100 Chase Square, Rochester,
New York 14604. A committee made up of investment professionals and analysts
make all the investment decisions for the Fund.
The Advisor acts as investment advisor to the Fund. Mr. William Manning
controls the Advisor by virtue of his ownership of the securities of the
Advisor. The Advisor also is generally responsible for supervision of the
overall business affairs of the Series including supervision of service
providers to the Series and direction of the Advisor's directors, officers or
employees who may be elected as officers of the Fund to serve as such.
As of the date of this Prospectus, the Advisor supervised over
$5.5 billion in assets of clients, including both individuals and
institutions. For its services to the Fund under the Investment Advisory
Agreement, the Fund pays the Advisor a fee, computed daily and payable
monthly, at an annual rate of .50% of the Fund's daily net assets. Clients
for whom the Advisor provides advisory services pursuant to separate
investment advisory contracts will be separately rebated by the Advisor an
amount equal to the portion of their client advisory fee attributable to the
portion of their assets invested in the Fund. The Advisor has also
voluntarily agreed to assume or pay expenses of the Series, if necessary, so
that the total annual operating expenses of the Series do not exceed .85% of
the Series' average daily net assets. This assumption is voluntary and maybe
terminated at anytime. In addition, the Advisor is separately compensated for
acting as Transfer Agent for the Series. The Fund is responsible for its
operating expenses, including: (i) interest and taxes; (ii) brokerage
commissions; (iii) insurance premiums; (iv) compensation and expenses of its
Directors other than those affiliated with the Advisor; (v) legal and audit
expenses; (vi) fees and expenses of the Fund's Custodian, and Accounting
Services Agent, if obtained for the Fund from an entity other than the
Advisor; (vii) expenses incidental to the issuance of its shares, including
issuance on the payment of, or reinvestment of, dividends and capital gain
distributions; (viii) fees and expenses incidental to the registration under
federal or state securities laws of the Fund or its shares; (ix) expenses of
preparing, printing and mailing reports and notices and proxy material to
shareholders of the Fund; (x) all other expenses incidental to holding
meetings of the Fund's shareholders; (xi) dues or assessments of or
contributions to the Investment Company Institute or any successor; and, (xii)
such non-recurring expenses as may arise, including litigation affecting the
Fund and the legal obligations with respect to which the Fund may have to
indemnify its officers and Directors.
The Advisor may use its own resources to engage in activities that may
promote the sale of the Fund, including payments to third parties who provide
shareholder support servicing and distribution assistance. Investors may
be charged a fee if they effect transactions through a broker or agent.
YIELD AND TOTAL RETURN
From time-to-time the Series may advertise its total return.Both
yield and total return figures are based on historical earnings and are not
intended to indicate future performance. The "total return" of a Series
refers to the average annual compounded rates of return over one-, five-, and
ten-year periods or for the life of the Series (as stated in the
advertisement) that would equate an initial amount invested at the beginning
of a stated period to the ending redeemable value of the investment, assuming
the reinvestment of all dividend and capital gains distributions.
The "30-day yield" of a series is calculated by dividing the net
investment income per share earned during a 30-day period by the net asset
value per share on the last day of the period. Net investment income includes
interest and dividend income earned on a Series' securities; it is net of all
expenses and all recurring and nonrecurring charges that have been applied to
10
<PAGE>
all shareholder accounts. The yield calculation assumes that net investment
income earned over 30 days is compounded monthly for six months and then
annualized. Methods used to calculate advertised yields are standardized for
all stock and bond mutual funds. However, these methods differ from the
accounting methods used by a Series to maintain its books and records, and so
the advertised 30-day yield may not fully reflect the income paid to your own
account or the yield reported in a Series' reports to shareholders.
PURCHASES, EXCHANGES AND REDEMPTIONS OF SHARES
The minimum initial investment in the Series is $2,000 and subsequent
purchases must be at least $100. These minimums may be waived at the
Distributor's discretion. The Distributor has the right to refuse any order.
Purchases and redemptions of shares of the Series may be made on any day
the New York Stock Exchange is open for trading.
A purchase order will be effective as of the day received by the
Distributor, Transfer Agent, or its agents, if the order is received
before 4:00 p.m., Eastern Standard time by the Distributor, Transfer Agent or
its agents. Payment may be made by check or readily available funds.
The purchase price of shares of the Series is the net asset value next
determined after a purchase order is effective.
The shares of the Series may be purchased in exchange for securities to
be included in the Series, subject to the Advisor's determination that these
securities are acceptable. Securities accepted in an exchange will be valued
at market value. All accrued interest and purchase or other rights which are
reflected in the market price of accepted securities at the time of valuation
become the property of the Series and must be delivered by the shareholder to
the Series upon receipt from the issuer.
The Advisor will not accept securities for the Series unless: (1) such
securities are appropriate in the Series at the time of the exchange; (2) the
shareholder represents and agrees that all securities offered to the Series
are not subject to any restrictions upon their sale by the Series under the
Securities Act of 1933, or otherwise; and, (3) prices are available from an
independent pricing service approved by the Series' Board of Directors.
Shareholders may purchase shares regularly through the Automatic
Investment Plan with a pre-authorized draft drawn on their checking or
statement savings accounts. Under this plan, the shareholder may elect to
have a specified amount invested on a regular schedule. The amount specified
by the shareholder will be withdrawn from the shareholder's bank account using
the pre-authorized draft. This amount will be invested at the applicable
share price determined on the date the amount is available for investment.
Participation in the Automatic Investment Plan may be discontinued either by
the Fund or the Shareholder upon 30 days' prior written notice to the other
party. A shareholder who wishes to enroll in the Automatic Investment Plan
may do so by completing the applicable section of the Account Application Form
or contacting the Fund for an Automatic Investment Plan Form.
As permitted pursuant to any rule, regulation or order promulgated by the
Securities and Exchange Commission, some or all of the shares in a direct
investment account with the Fund for which payment has been received by the
Fund may be exchanged for shares of any of the other Manning & Napier Fund,
Inc. Series at the net asset value next determined after an exchange order is
effective. Shareholders may effect up to 4 exchanges in a 12-month period
without charge. Subsequent exchanges are subject to a fee of $15. Exchanges
will be made after instructions in writing or by telephone are received by the
Transfer Agent in proper form (i.e., if in writing - signed by the record
owner(s) exactly as the shares are registered; if by telephone - proper
account identification is given by the shareholder) and each exchange must
involve either shares having an aggregate value of at least $1,000 or all the
shares in the account. A shareholder should read the prospectus of the other
Series and consider the differences in objectives and policies before making
any exchange. The exchange privilege may not be available in all
states. For federal and state income tax purposes, an exchange is
treated as a sale of the shares exchanged and therefore, an exchange could
result in a gain or loss to the shareholder making the exchange. The Series
may modify or terminate this exchange offer upon 60 days notice to
shareholders subject to applicable law.
If shareholder desires to redeem his shares at their net asset value, the
shareholder must send a written request for redemption in "Good Order" to the
11
<PAGE>
Transfer Agent. "Good Order" generally means that the written request for
redemption must be endorsed by the record owner(s) exactly as the shares are
registered and the signature(s) must be guaranteed by an "eligible guarantor
institution" as that term is defined under Rule 17Ad-15(a)(2) under the
Securities Exchange Act of 1934. Currently, such procedures generally permit
guarantees by a commercial bank or trust company, a member bank of the Federal
Reserve System, or a member firm of a national securities exchange.
Redemption requirements for corporations, other organizations, trusts,
fiduciaries, and retirement plans may require additional documentation.
Please contact the Advisor at 1-800-466-3863 for more information. The
Transfer Agent may make certain de minimis exceptions to the above
requirements for redemption. Within three days after receipt of a
redemption request by the Transfer Agent in "Good Order", the Series will make
payment in cash, except as described below, of the net asset value of the
shares next determined after such redemption request was received, except
during any period in which the right of redemption is suspended or date of
payment is postponed because the New York Stock Exchange is closed or trading
on such Exchange is restricted or to the extent otherwise permitted by the
Investment Company Act of 1940 ("1940 Act") if an emergency exists. For
shares purchased, or received in exchange for shares purchased, by check
(including certified checks or cashier's checks) payment of redemption
proceeds may be delayed up to 15 days from the purchase date in an effort to
assure that such check has cleared.
Subject to the Series' compliance with applicable regulations, the Series
has reserved the right to pay the redemption price, either totally or
partially, by a distribution in-kind of securities (instead of cash) from the
Series' portfolio. The securities distributed in such a distribution would be
valued at the same amount as that assigned to them in calculating the net
asset value for the shares being sold. If a shareholder received a
distribution in-kind, he could incur brokerage or transaction charges when
converting the securities to cash.
Due to the relatively high cost of maintaining small accounts, the Series
reserves the right to redeem shares in any account for their then-current
value (which will be promptly paid to the shareholder) if at any time the
total investment in such account drops below $1,000 because of redemptions
(but not due to changes in net asset value). Shareholders will be notified
that the value of their account is less than the minimum investment
requirement and allowed 60 days to make an additional investment before the
redemption is processed.
Manning & Napier Investor Services, Inc. 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.
NET ASSET VALUE
The Series' net asset value per share is determined as of the closing
time of the New York Stock Exchange or, in the absence of a closing time, 4:00
p.m. Eastern Standard time on each day that the New York Stock Exchange is
open for trading. The exchange annually announces the days on which it will
not be open for trading; the most recent announcement indicates that it will
not be open on: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value per share is the value of the Series' assets, less
its liabilities, divided by the number of shares of the Series outstanding.
The value of the Series' portfolio securities will be the market value of such
securities as determined based on quotes provided by a pricing service, (which
uses the methodology outlined in the "Net Asset Value" section of the
Statement of Additional Information) approved by the Board of Directors, or,
in the absence of market quotations, fair value as determined in good faith by
or under the direction and control of the Board of Directors. Short-term
investments which mature in less than 60 days are normally valued at amortized
cost. 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.
12
<PAGE>
DIVIDENDS AND TAX STATUS
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
The Series intends to distribute to its shareholders on a quarterly basis
dividends substantially equal to all of its net investment income. The Series
also intends to distribute net realized short and long-term capital gains, if
any, taking into account any available capital loss carryforwards from prior
years at least annually. Dividends and distributions will be paid in full and
fractional shares of the Series, based on the net asset value per share at the
close of business on the record date, although a shareholder may, prior to the
record date, request, by writing or by telephone call to the Fund, that
payments of either ordinary income dividends or capital gain distributions, or
both, be made in cash. The Fund will notify each non-corporate
taxable shareholder after the close of its fiscal year both of the dollar
amount and the tax status of that year's distributions. Generally, the Fund
will be required to impose backup withholding at the rate of 31% from
ordinary income dividends, capital gain distributions and redemption payments
made to non-corporate shareholders, if provisions of the law relating to the
furnishing of taxpayer identification numbers and reporting of dividends are
not complied with by such shareholders.
TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a general summary of certain federal
income tax considerations affecting the Series and its shareholders. No
attempt is made to present a detailed explanation of the tax treatment of the
Series or its shareholders, and the discussion here is not intended as a
substitute for careful tax planning.
Under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), the Series is treated as a separate entity for federal
income tax purposes. The Series intends to qualify each year as
a regulated investment company under Subchapter M of the Code. If the Series
so qualifies, it will not be subject to federal income taxes on its net
investment income and capital gains, if any, which the Series distributes to
its shareholders, provided that at least 90% of such Series' exempt income and
90% of such Series' "investment company taxable income" (generally, net
investment income and the excess of net short-term capital gain over net
long-term capital loss) for the taxable year is distributed, and provided that
the Series meets certain other requirements imposed by the Code. All
dividends paid or distributed out of investment company taxable income will be
taxable as ordinary income to the shareholders. Any "net capital gain" (the
excess of net long-term capital gain over net short-term capital loss)
distributed to shareholders is taxable as long-term capital gain to the
shareholders, regardless of the length of time a shareholder has owned his
shares. Generally, such dividends and distributions are taxable in the year
in which received, but dividends and distributions declared in October,
November or December of any year to shareholders of record on a date in such
month are treated as paid on December 31 of such year if they are paid during
January of the following calendar year. Dividends and distributions are not
taxable to shareholders that are not otherwise subject to tax on their income,
such as qualified employee benefit plans.
A 4% non-deductible federal excise tax is imposed on a regulated
investment company that fails to distribute substantially all of its ordinary
income and capital gain net income for each calendar year. Currently the
Series intends to make sufficient distributions of its ordinary income and
capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
Future legislative changes may materially affect the tax consequences of
investing in the Series. Shareholders are urged to consult their tax advisors
for the application of these rules (and other potentially relevant rules) to
their particular circumstances. Shareholders are also urged to consult their
tax advisors concerning the application of state and local income taxes and of
foreign taxes to investments in the Series, which may differ from the U.S.
federal income tax consequences described above.
NEW YORK STATE AND LOCAL TAX
Under New York law, dividends paid by the Series are exempt from New York
State and New York City income tax for individuals who reside in New York to
the extent such dividends are excluded from gross income for federal income
tax purposes and are derived from interest payments on New York obligations.
Other distributions from the Series, including distributions derived from net
short-term and long-term capital gains, are generally not exempt from New York
State and City personal income tax.
13
<PAGE>
GENERAL INFORMATION
The Fund was incorporated on July 26, 1984 as a Maryland corporation.
The Board of Directors may, at its own discretion, create additional series of
shares, each of which would have separate assets and liabilities. The Fund
does not expect to hold annual meetings of shareholders but special meetings
of shareholders may be held under certain circumstances. Shareholders of the
Fund retain the right, under certain circumstances, to request that a meeting
of shareholders be held for the purpose of considering the removal of a
Director from office, and if such a request is made, the Fund will assist with
shareholder communications in connection with the meeting. The shares of the
Fund have equal rights with regard to voting, redemption, dividends,
distributions and liquidations. The Fund's shareholders will vote in the
aggregate and not by Series except as otherwise expressly required by law or
when the Board of Directors determines that the matter to be voted upon
affects only the interests of the shareholders of a Series. Income, direct
liabilities and direct operating expenses of the Series will be allocated
directly to the Series, while general liabilities and expenses of the Fund
will be allocated among each Series. The holders of shares have no preemptive
or conversion rights. Shares when issued are fully paid and non-assessable
and do not have cumulative voting rights.
All securities and cash are held by Boston Safe Deposit and Trust
Company. Coopers & Lybrand, L.L.P. serves as independent accountants for the
Series and will audit its financial statements annually.
Manning & Napier Advisors, Inc. serves as the Fund's Transfer and
Dividend Disbursing Agent. Shareholder inquiries should be directed to
Manning & Napier Fund, Inc., P.O. Box 41118, Rochester, New York 14604.
14
<PAGE>
APPENDIX
DESCRIPTION OF MUNICIPAL AND CORPORATE BOND RATINGS
Moody's Investors Services, Inc.'s municipal and corporate bond ratings:
Aaa - Bonds which are rated Aaa are judged to be of the best quality 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 principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
Moody's applies numerical modifiers "1", "2" and "3" to both the Aaa and
Aa rating classifications. The modifier "1" indicates that the security ranks
15
<PAGE>
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.
Moody's may also assign conditional ratings to municipal bonds. Bonds for
which the security depends upon the completion of some act or the fulfillment
of some condition are rated conditionally. These are bonds secured by (a)
earnings of projects under construction, (b) earnings of projects unseasoned
in operating experience, (c) rentals which begin when facilities are
completed, or (d) payments to which some other limiting condition attaches.
Parenthetical rating denotes probable credit stature upon completion of
construction or elimination of basis of condition.
Standard & Poor's Corporation's municipal and corporate bond ratings:
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only to a small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than in higher rated categories.
Standard & Poor's may modify the rating from "AA" to "B" by the addition of a
plus or minus sign to show relative standing within the major rating
categories. Standard & Poor's ratings may also be indicated by "NR". This
designation indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.
Standard & Poor's may also assign conditional ratings to municipal bonds. The
letter "p" indicates that the rating is provisional. A provisional rating
assumes the successful completion of the project being financed by the debt
being rated and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful timely completion of the project.
This rating, however, while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood of, or the risk of default
upon failure of, such completion. The investor should exercise his own
judgment with respect to such likelihood and risk.
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's Investor Services, 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.
16
<PAGE>
P-2 - Commercial papers which are rated P-2 are judged to have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
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 - This rating is 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.
17
<PAGE>
MANNING & NAPIER FUND, INC.
OHIO TAX EXEMPT SERIES
No person has been authorized to give any information or to make
representations not contained in this Prospectus in connection with any
offering made by this Prospectus and, if given or made, such information must
not be relied upon as having been authorized by the Fund. This Prospectus
does not constitute an offering by the Fund in any jurisdiction in which such
offering may not lawfully be made.
PROSPECTUS
TABLE OF CONTENTS
Annual Operating Expenses 3
Financial Highlights 4
The Fund 4
Risk and Investment Objectives and Policies 4
Ohio Tax Exempt Securities 5
Risk and Additional Information about Investment Policies 5
Management 10
Yield and Total Return 10
Purchases, Exchanges and Redemptions of Shares 11
Net Asset Value 13
Dividends and Tax Status 13
General Information 14
Appendix 16
<PAGE>
MANNING & NAPIER FUND, INC.
P.O. Box 41118
Rochester, New York 14604
1-800-466-3863
OHIO TAX EXEMPT SERIES
Manning & Napier Fund, Inc. (the "Fund"), is an open-end management
investment company that offers separate series, each a separate investment
portfolio having its own investment objective and policies. This Prospectus
relates to the Ohio Tax Exempt Series of the Fund (the "Series"). The Series'
investment objective is to seek a high level of current income exempt from
federal income tax and Ohio personal income tax, consistent with preservation
of capital.
This Prospectus provides you with the basic information you should know
before investing in the Series. You should read it and keep it for future
reference. A Statement of Additional Information, dated March 6,
1996, containing additional information about the Fund has been filed
with the Securities and Exchange Commission and is incorporated by reference
in this Prospectus in its entirety. You may obtain a copy of the Statement of
Additional Information without charge by contacting the Fund at the address or
telephone number listed above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MARCH 6, 1996.
<PAGE>
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
(as a percentage of offering price)
<S> <C>
Maximum Sales Charge Imposed on Purchases None
Redemption Fees (1) None
<FN>
(1) A wire charge, currently $15, will be deducted by the Transfer Agent
from the amount of a wire redemption payment made at the request of a
shareholder. Such amount is not included in the "Annual Operating
Expenses of the Series."
</TABLE>
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES
The following information provides (i) a tabular summary of expenses relating
to the annual operating expenses of the Series and (ii) an example
illustrating the dollar cost of such expenses on a $1,000 investment.
Annual Operating Expenses of the Series (as a percentage of average net
assets):
<S> <C>
Management Fees After Reduction of Fees (2)(4) 0.41%
12b-1 Fees None
Other Expenses (3) 0.44%
-----
Total Operating Expenses of the Series (3) 0.85%
</TABLE>
<TABLE>
<CAPTION>
Example
You would pay the following expenses on a $1,000 investment, assuming b) 5.0%
annual return and b) redemptions at the end of each time period:
1 year 3 years 5 years 10 years
------- -------- -------- ---------
<S> <C> <C> <C> <C>
Ohio Tax Exempt Series $ 9 $ 27 $ 47 $ 105
</TABLE>
(2)Clients who have entered into investment advisory agreements with
Manning & Napier Advisors, Inc. (the Fund's Advisor) will be separately
rebated by Manning & Napier an amount equal to the portion of their client
advisory fee attributable to the portion of their assets invested in the
Fund. See "Management."
(3)Ohio Tax Exempt Series was engaged in active investment operations for
the year ended December 31, 1995; therefore, actual management fees and
other expenses are used above.
(4)The Advisor has voluntarily agreed to waive its fee and, if necessary,
pay other operating expenses of the Series in an amount that operates to
limit total operating expenses for the Series to not more than .85% of its
average net assets. Absent the fee waiver and assumption of expenses,
management fees and total operating expenses as a percentage of net
assets, respectively, would be .50% and .94% for the Series. Absent
the fee waiver and assumption of expenses, expenses paid on a $1,000
investment would have been:
<TABLE>
<CAPTION>
1 year 3 years 5 years 10 years
------- -------- -------- ---------
<S> <C> <C> <C> <C>
Ohio Tax Exempt Series $ 10 $ 30 $ 52 $ 115
</TABLE>
The fee waiver and assumption of expenses by the Advisor is voluntary and may
be terminated at any time. However, the Advisor has agreed to continue this
fee waiver and assumption of expenses at least through the Series' current
fiscal year.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Series. For a
more complete description of the various costs and expenses illustrated above,
please refer to the Management section of this Prospectus.
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
2
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
The following table provides selected per share data and ratios for the Ohio Tax Exempt Series (for a share
outstanding throughout the period for the periods shown). The tables are part of the Series' financial
statements, which are included in the Statement of Additional Information incorporated by reference into this
Prospectus.
For the year For the period
ended Feb. 14, 1994 to
Dec. 31, 1995 Dec. 31, 1994
<S> <C> <C> <C> <C>
Net asset value - Beginning of period $ 9.18 $ 10.00 (1)
Income from investment operations:
Net investment income 0.42 0.21
Net realized and unrealized gain/(loss)
on investments 1.14 (0.83)
Total from investment operations 1.56 (0.62)
Less distributions declared to shareholders:
From net investment income (0.43) (0.20)
Net asset value - End of period $ 10.31 $ 9.18
Total return 17.14% (7.05)% (2)
Ratios (to averagenetassets)/Supplemental Data:
Expenses 0.85% (4) 0.85% (2)(3)
Net investment income 4.50% (4) 4.03% (2)(3)
Portfolio turnover 1% 2%
Net assets - End of period (000's omitted) $ 6,144 $ 3,901
(1) Initial offering price upon commencement of operations
on February 14, 1994.
(2) Annualized.
(3) The investment advisor did not impose its
management fee and paid a portion of the Fund's expenses.
(4) The investment advisor waived a portion of its
management fee.
If these expenses had been incurred
by the Fund in either instance above, the net investment
income per share and the ratios would have been as follows:
Net investment income $ 0.41 $ 0.14
Ratios(to average net assets):
Expenses 0.94% 2.07% (2)
Net investment income 4.41% 2.81% (2)
</TABLE>
3
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<PAGE>
THE FUND
The Fund is an open-end management investment company incorporated under
the laws of the State of Maryland on July 26, 1984. The Fund offers separate
series of units of beneficial interest ("shares"). This Prospectus relates to
the Ohio Tax Exempt Series (the "Series"). Information regarding the Fund's
other series is contained in separate prospectuses that may be obtained from
Manning & Napier Fund, Inc., P.O. Box 41118, Rochester, New York 14604 or by
calling 1-800-466-3863. The Ohio Tax Exempt Series is a diversified fund.
Shares of the Series are offered directly to investors and to employees
and clients of the Advisor or its affiliates that have authorized investment
in the Fund as part of the discretionary account management services of the
Advisor or its affiliates. Investment in shares of the Series on behalf of
discretionary account clients is limited to 10% of the account unless
otherwise this limit has been waived by a client agreement. There are no fees
or expenses charged to any investor in connection with acquisition of shares
of the Series.
Since the Series may be used under varying conditions and market prices,
the result for a given investor might differ from the result that would have
been obtained had the Series been used only for clients with the same
investment objective. However, the Advisor seeks to manage cash flows into
and out of the Series in the interest of the Fund and its clients so as to
minimize the effect on performance.
RISK AND INVESTMENT OBJECTIVES AND POLICIES
The Series' objective is to seek as high a level of current income exempt
from federal income tax and Ohio State personal income tax as the Advisor
believes is consistent with preservation of capital. The Investment Advisor
will attempt to balance the Series' goals of high income and capital
preservation by building a portfolio of securities that in the aggregate
afford the opportunity to earn current income, but also have quality and other
characteristics that attempt to avoid permanent capital losses. However, the
Series' portfolio securities and, therefore, its shares will inevitably
fluctuate in value to a certain extent. Under current law, to the extent
distributions by the Series are derived from interest on Ohio Tax Exempt
Securities (which are described below) and are designated as such, they are
exempt from federal and Ohio personal income taxes. The Series is not
intended to be a complete investment program, and there is no assurance it
will achieve its objective.
The Series seeks to achieve its objective by following the fundamental
investment policy of investing at least 80% of its net assets in Ohio Tax
Exempt Securities, except when investing for defensive purposes during times
of adverse market conditions. The Series may also invest in taxable
obligations described below under "Ohio Tax Exempt Securities" to the extent
permitted by its investment policies, or hold its assets in money market
instruments or in cash. The Series' investments in Ohio Tax Exempt Securities
and taxable obligations will be limited to securities rated in the four
highest categories assigned by Moody's Investors Service, Inc. (Aaa, Aa, A,
Baa) or Standard & Poor's Corporation (AAA, AA, A, BBB). For a description of
the above ratings, see the Appendix. Securities rated Baa by Moody's or BBB
by Standard & Poor's are considered investment grade but may have speculative
4
<PAGE>
characteristics and changes in economic conditions or circumstances are more
likely to lead to a weakened capacity to make principal and interest payments
than is the case with more highly rated securities. When the Series invests
in Ohio Tax Exempt Securities in the lower rating categories, the achievement
of the Series' goals is more dependent on the Advisor's ability than would be
the case if the Series were investing in Ohio Tax Exempt Securities in the
higher rating categories. The amount of information about the financial
condition of an issuer of Ohio Tax Exempt Securities may not be as extensive
as information about corporations whose securities are publicly traded. In
addition, tax considerations may limit the Series' ability to vary its
portfolio securities in response to developments in interest rates and
economic conditions. The Advisor seeks to minimize the risks of investing in
lower-rated securities through investment analysis and attention to current
developments in interest rates and economic conditions.
Interest income from certain types of Ohio Tax Exempt Securities may be
subject to federal alternative minimum tax. It is a fundamental policy of the
Series to exclude these securities from the term "Ohio Tax Exempt Securities"
for purposes of determining compliance with the 80% test described above.
In pursuing its objective, the Series may, to a limited extent, buy and
sell futures contracts and options and may enter into repurchase agreements
and forward commitments. These incidental investment practices, which may
produce taxable capital gains and involve special risks, are described below.
The market value of the Series' investments will change in response to
changes in interest rates and other factors. During periods of falling
interest rates, the values of long-term, fixed-income securities generally
rise. Conversely, during periods of rising interest rates, the values of such
securities generally decline. Changes by recognized rating services in their
ratings of tax-exempt securities and in the ability of an issuer to make
payments of interest and principal will also affect the value of these
investments. Changes in the value of portfolio securities will not affect
interest income derived from those securities but will affect the Series' net
asset value.
During times when conditions in the markets for Ohio Tax Exempt
Securities suggest a temporary defensive position the Advisor may temporarily
use alternative strategies, primarily designed to reduce fluctuations in the
value of the Series' assets. In implementing these "defensive" strategies,
the Series may invest in taxable obligations, including: obligations of the
U.S. Government, its agencies or instrumentalities; obligations issued by
governmental issuers in other states, the interest on which would be exempt
from federal income tax; other debt securities rated within the four highest
categories by either Moody's or Standard & Poor's; commercial paper rated in
the highest category by either rating service (Prime-1 or A-1+, respectively);
certificates of deposit and bankers' acceptances; repurchase agreements with
respect to any of the foregoing investments; or any other fixed-income
securities that the Advisor considers consistent with such strategy. It is
impossible to predict when, or for how long, the Series will use such
alternative strategies. The limitations described above on the ability of the
Series to vary its portfolio securities may limit the Series' use of these
alternative investment strategies.
A change in the securities held by the Series is known as "portfolio
turnover". Portfolio turnover generally involves some expense to the Series,
including brokerage commissions or dealer mark-ups and other transaction costs
on the sale of securities and reinvestment in other securities. Such
transactions may result in realization of taxable capital gains. The Series
expects that its annual portfolio turnover rate will be no more than 100%.
OHIO TAX EXEMPT SECURITIES
Ohio Tax Exempt Securities are debt obligations issued by the State of
Ohio and its political subdivisions, agencies and instrumentalities, the
interest from which is, in the opinion of bond counsel, exempt from federal
income tax and Ohio personal income tax. These securities are issued to
obtain funds for various public purposes, such as the construction of public
facilities, the payment of general operating expenses or the refunding of
outstanding debts. They may also be issued to finance various private
activities, including the lending of funds to public or private institutions
for the construction of housing, educational or medical facilities and may
also include certain types of private activity and industrial development
bonds or notes issued by public authorities to finance privately owned or
operated facilities or to fund short-term cash requirements. Short-term Ohio
5
<PAGE>
Tax Exempt Securities are generally issued as interim financing in
anticipation of tax collections, revenue receipts or bond sales to finance
various public purposes. Ohio Tax Exempt Securities also include debt
obligations issued by other governmental entities (for example, U.S.
territories) if such debt obligations generate interest income which is exempt
from federal income tax and Ohio personal income tax.
The two principal classifications of Ohio Tax Exempt Securities are
general obligation and limited obligation (or revenue) securities. General
obligation securities involve the credit of an issuer possessing taxing power
and are payable from the issuer's general unrestricted revenues. Their
payment may depend on an appropriation by the issuer's legislative body. The
characteristics and methods of enforcement of general obligation securities
vary according to the law applicable to the particular issuer. Limited
obligation (or revenue) securities are payable only from the revenues derived
from a particular facility or class of facilities, or a specific revenue
source, and generally are not payable from the unrestricted revenues of the
issuer. So-called "private activity bonds" and "industrial development bonds"
are in most cases limited obligation securities, the credit quality of which
is directly related to the corporate user of the facilities.
The Series may also invest in securities representing interests in Ohio
Tax Exempt Securities, known as "inverse floating obligations" or "residual
interest bonds", paying interest rates that vary inversely to changes in the
interest rates of specified short-term tax exempt securities or an index of
short-term tax exempt securities. The interest rates on inverse floating
obligations or residual interest bonds will typically decline as short-term
market interest rates increase and increase as short-term market rates
decline. Such securities have the effect of providing a degree of investment
leverage, since they will generally increase or decrease in value in response
to changes in market interest rates at a rate which is a multiple (typically
two) of the rate at which fixed-rate long-term tax exempt securities increase
or decrease in response to such changes. As a result, the market values of
inverse floating obligations and residual interest bonds will generally be
more volatile than the market values of fixed-rate tax exempt securities. To
seek to limit the interest rate risk of these securities, the Series may
purchase inverse floating obligations with shorter-term maturities or which
contain limitations on the extent to which the interest rate may vary. There
is no limit on the percentage of assets that may be invested in inverse
floating obligations or residual interest bonds.
The Series' concentration in investments in Ohio Tax Exempt Securities
involves greater risks than if its investments were more diversified. Because
the Series invests primarily in Ohio Tax Exempt Securities, investors should
consider that the Series' yield and share price are sensitive to political and
economic developments within the State of Ohio. If either Ohio or any of its
local governmental entities is unable to meet its financial obligations, there
could be an adverse effect on the income derived by the Series, the ability to
preserve or realize appreciation of the Series' capital and the Series'
liquidity. A more complete description of these risks is contained in the
Statement of Additional Information.
RISK AND ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
Set forth below is further information about certain types of securities
in which the Series may invest, as well as information about additional types
of investments and certain strategies the Series may pursue. These policies
have been voluntarily adopted by the Board of Directors based upon current
circumstances and may be changed or amended by action of the Board of
Directors without prior approval of the Series' shareholders. Additional
information concerning these strategies and their related risks is contained
in the Statement of Additional Information.
INVESTMENTS IN PREMIUM SECURITIES
During a period of declining interest rates, many of the Series'
portfolio investments will likely bear coupon rates which are higher than
current market rates, regardless of whether such securities were originally
purchased at a premium. Such securities would generally carry market values
greater than the principal amounts payable on maturity, which would be
reflected in the net asset value of the Series' shares. The value of such
"premium" securities tends to approach the principal amount as they approach
maturity (or call price in the case of securities approaching their call
date). As a result, an investor who purchases shares of the Series during
such periods would initially receive higher distributions (derived from the
6
<PAGE>
higher coupon rates payable on the Series' investments) than might be
available from alternative investments bearing current market interest rates,
but may face an increased risk of capital loss as these higher coupon
securities approach maturity (or call date). In evaluating the potential
performance of an investment in the Series, investors may find it useful to
compare the Series' current dividend rate with the Series' "yield", which is
computed on a yield-to-maturity basis in accordance with Securities and
Exchange Commission regulations and which reflects amortization of market
premiums.
ZERO-COUPON BONDS
Some of the securities in which the Series invests may include so-called
"zero-coupon" bonds. Zero-coupon bonds are issued at a significant discount
from face value and pay interest only at maturity rather than at intervals
during the life of the security. The Series is required to accrue and
distribute income from zero-coupon bonds on a current basis, even though it
does not receive that income currently in cash. Thus, the Series may have to
sell investments to obtain cash needed to make income distributions. The
discount in the absence of financial difficulties of the issuer decreases as
the final maturity of the security approaches. Zero-coupon bonds can be sold
prior to their maturity date in the secondary market at the then prevailing
market value, which depends primarily on the time remaining to maturity,
prevailing level of interest rates and the perceived credit quality of the
issues. The market prices of zero-coupon securities are subject to greater
fluctuations in response to changes in market interest rates than bonds which
pay interest currently.
RISKS ASSOCIATED WITH THE SERIES' INVESTMENT PROGRAM
At times, a portion of the Series' assets may be invested in Ohio Tax
Exempt Securities as to which the Series, by itself or together with other
funds and accounts managed by the Advisor, holds a major portion or all of an
issue of such securities. Under adverse market or economic conditions or in
the event of adverse changes in the financial condition of the issuer, the
Series could find it difficult to sell such securities when the Advisor
believes it advisable to do so or may be able to sell such securities only at
prices lower than if such securities were more widely held. Under such
circumstances, it may also be more difficult to determine the fair value of
such securities for purposes of computing the Series' net asset value. In
order to enforce its rights in the event of a default under such securities,
the Series may be required to take possession of and manage assets securing
the issuer's obligations on such securities, which may increase the Series'
operating expenses and adversely affect the Series' net asset value. Any
income derived from the Series' ownership or operation of such assets would
not be tax-exempt.
Certain securities held by the Series may permit the issuer at its option
to "call", or redeem, its securities. If an issuer were to redeem securities
held by the Series during a time of declining interest rates, the Series may
not be able to reinvest the proceeds in securities providing the same
investment return as the securities redeemed.
Since the Series invests primarily in Ohio Tax Exempt Securities, the
value of its shares may be especially affected by factors pertaining to the
Ohio economy and other factors specifically affecting the ability of issuers
of Ohio Tax Exempt Securities to meet their obligations. As a result, the
value of the Series' shares may fluctuate more widely than the value of shares
of a portfolio investing in securities relating to a number of different
states. The ability of state, county, or local governments to meet their
obligations will depend primarily on the availability of tax and other
revenues to those governments and on their fiscal conditions generally. The
amounts of tax and other revenues available to governmental issuers of Ohio
Tax Exempt Securities may be affected from time to time by economic,
political, and demographic conditions within the particular state. In
addition, constitutional or statutory restrictions may limit a government's
power to raise revenues or increase taxes. The availability of federal,
state, and local aid to issuers of Ohio Tax Exempt Securities may also affect
their ability to meet their obligations. Payments of principal and interest
on limited obligation securities will depend on the economic conditions of the
facility or specific revenue source from whose revenues the payments will be
made, which in turn could be affected by economic, political, and demographic
conditions in the state. Any reduction in the actual or perceived ability of
an issuer of Ohio Tax Exempt Securities to meet its obligations (including a
reduction in the rating of its outstanding securities) would likely affect
7
<PAGE>
adversely the market value and marketability of its obligations and could
affect adversely the values of other Ohio Tax Exempt Securities as well.
Because of the relatively small number of issuers of Ohio Tax Exempt
Securities, the Series is more likely to invest a higher percentage of its
assets in the securities of a single issuer than an investment company which
invests in a broad range of tax-exempt securities. This practice involves an
increased risk of loss to the Series if the issuer is unable to make interest
or principal payments or if the market value of such securities declines.
FINANCIAL FUTURES AND OPTIONS
The Series may purchase and sell financial futures contracts for hedging
purposes. Futures contracts on a Municipal Bond Index are traded on the
Chicago Board of Trade. This Index is intended to represent a numerical
measure of market performance for long-term tax-exempt bonds. An "index
future" is a contract to buy or sell units of a particular securities index at
an agreed price on a specified future date. Depending on the change in value
of the index between the time when the Series enters into and closes its
futures position, the Series may realize a gain or loss. The Series may
purchase and sell futures contracts on the Index (or any other tax-exempt bond
index approved for trading by the Commodity Futures Trading Commission) to
hedge against general changes in market values of Ohio Tax Exempt Securities
which the Fund owns or expects to purchase. The Series may also purchase and
sell put and call options on index futures, and on the indices directly, in
addition or as an alternative to purchasing and selling financial futures
contracts.
The Series may, for hedging purposes, purchase and sell futures contracts
and related options with respect to U.S. Government securities, including U.S.
Treasury bills, notes and bonds ("U.S. Government Securities") and options
directly on U.S. Government Securities. The Advisor believes that, under
certain market conditions, price movements in U.S. Government Securities
futures and related options may correlate closely with price movements in Ohio
Tax Exempt Securities and may as a result provide hedging opportunities for
the Series. U.S. Government Securities futures and related options would be
used in a way similar to the Series' use of index futures and related options.
The Series will only purchase or sell U.S. Government Securities futures or
related options when, in the opinion of the Advisor, price movements in such
futures and options will correlate closely with price movements in the Ohio
Tax Exempt Securities which are the subject of the hedge.
The Series may purchase or sell future contracts if immediately
thereafter the sum of the amount of initial margin deposits on any such
futures (plus deposits on any other futures contracts and premiums paid in
connection with any options or futures contracts) that do not constitute "bona
fide hedging" under Commodity Futures Trading Commission ("CFTC") rules would
exceed 5% of the liquidation value of the Series' total assets after taking
into account unrealized profits and losses on such contracts. In addition,
the value of all futures contracts sold will not exceed the total market value
of the Series' portfolio. The Series will comply with guidelines established
by the Securities and Exchange Commission with respect to covering of
obligations under futures contracts and will set aside cash and/or liquid high
grade 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.
The use of futures and options involves certain special risks and may
result in realization of taxable capital gains. Futures and options
transactions involve costs and may result in losses. Certain risks arise
because of the possibility of imperfect correlations between movements in the
prices of financial futures and options and movements in the prices of the
underlying bond index or U.S. Government Securities or the Ohio Tax Exempt
Securities which are the subject of the hedge. The successful use of futures
and options further depends on the Advisor's ability to forecast interest rate
movements correctly. Other risks arise from the Series' potential inability
to close out its futures or related options positions, and there can be no
assurance that a liquid secondary market will exist at a particular time.
Certain provisions of the Internal Revenue Code and other regulatory
requirements may limit the Series' ability to engage in futures and options
transactions.
A more detailed explanation of futures and options transactions,
including the risks associated with them, is included in the Statement of
Additional Information.
8
<PAGE>
REPURCHASE AGREEMENTS AND FORWARD COMMITMENTS
The Series may enter into repurchase agreements on up to 25% of its
assets. These transactions must be fully collateralized at all times, but
involve some risk to the Series if the other party should default on its
obligation and the Series is delayed or prevented from recovering the
collateral. The Series may also purchase securities for future delivery,
which may increase its overall investment exposure and involves a risk of loss
if the value of the securities declines prior to the settlement date.
LIMITING INVESTMENT RISK
Specific investment restrictions help the Series limit investment risks
for its shareholders. These restrictions prohibit the Series from investing
more than: (a) (with respect to 75% of its total assets) 5% of its total
assets in the securities of any one issuer, other than U.S. Government
Securities;* (b) 5% of its net assets in securities of any issuer if the party
responsible for payment, together with any predecessor, has been in operation
for less than three years (except obligations of the U.S. Government or
agencies or instrumentalities and obligations backed by the faith, credit and
taxing power of any person authorized to issue Ohio Tax Exempt Securities);
(c) 10% of its net assets in securities restricted as to resale; and (d) 10%
of its net assets in any combination of securities that are not readily
marketable, in securities restricted as to resale (excluding Rule 144A
securities determined by the Series' Board of Directors [or the person
supervised by the Series' Board of Directors to make such determinations] to
be readily marketable), and repurchase agreements maturing in more than seven
days; (e) 25% or more of the value of its total assets in securities of
issuers in any one industry (other than U.S. Government Securities). In
addition, the Series may borrow money, but only from a bank for temporary or
emergency purposes in amounts not exceeding 10% of the Series' total assets.
Restrictions marked with an asterisk (*) above are summaries of
fundamental policies. See the Statement of Additional Information for the
full text of these policies and the Series' other fundamental policies.
Except for investment policies designated as fundamental in this Prospectus or
the Statement of Additional Information, the investment policies described in
this Prospectus and in the Statement are not fundamental policies. The Board
of Directors may change any non-fundamental investment policies without
shareholder approval. As a matter of policy, the Board of Directors would not
materially change the Series' investment objective without shareholder
approval.
MANAGEMENT
The overall business and affairs of the Series are managed by its Board
of Directors. The Board approves all significant agreements between the
Series and persons or companies furnishing services to the Series, including
the Series' agreements with its Investment Advisor and Custodian. The
day-to-day operations of the Fund are delegated to the Fund's officers and to
Manning & Napier Advisors, Inc. (the "Advisor"), 1100 Chase Square, Rochester,
New York 14604. A committee made up of investment professionals and analysts
make all the investment decisions for the Fund.
The Advisor acts as investment advisor to the Fund. Mr. William Manning
controls the Advisor by virtue of his ownership of the securities of the
Advisor. The Advisor also is generally responsible for supervision of the
overall business affairs of the Series including supervision of service
providers to the Series and direction of the Advisor's directors, officers or
employees who may be elected as officers of the Fund to serve as such.
As of the date of this Prospectus, the Advisor supervised over
$5.5 billion in assets of clients, including both individuals and
institutions. For its services to the Fund under the Investment Advisory
Agreement, the Fund pays the Advisor a fee, computed daily and payable
monthly, at an annual rate of .50% of the Fund's daily net assets. Clients
for whom the Advisor provides advisory services pursuant to separate
investment advisory contracts will be separately rebated by the Advisor an
amount equal to the portion of their client advisory fee attributable to the
portion of their assets invested in the Fund. In addition, the Advisor is
separately compensated for acting as Transfer Agent for the Series. The Fund
is responsible for its operating expenses, including: (i) interest and taxes;
(ii) brokerage commissions; (iii) insurance premiums; (iv) compensation and
expenses of its Directors other than those affiliated with the Advisor; (v)
9
<PAGE>
legal and audit expenses; (vi) fees and expenses of the Fund's Custodian, and
Accounting Services Agent, if obtained for the Fund from an entity other than
the Advisor; (vii) expenses incidental to the issuance of its shares,
including issuance on the payment of, or reinvestment of, dividends and
capital gain distributions; (viii) fees and expenses incidental to the
registration under federal or state securities laws of the Fund or its shares;
(ix) expenses of preparing, printing and mailing reports and notices and proxy
material to shareholders of the Fund; (x) all other expenses incidental to
holding meetings of the Fund's shareholders; (xi) dues or assessments of or
contributions to the Investment Company Institute or any successor; and, (xii)
such non-recurring expenses as may arise, including litigation affecting the
Fund and the legal obligations with respect to which the Fund may have to
indemnify its officers and Directors.
The Advisor may use its own resources to engage in activities that may
promote the sale of the Fund, including payments to third parties who provide
shareholder support servicing and distribution assistance. Investors may
be charged a fee if they effect transactions through a broker or agent.
YIELD AND TOTAL RETURN
From time-to-time the Series may advertise its total return.Both
yield and total return figures are based on historical earnings and are not
intended to indicate future performance.The "total return" of a Series
refers to the average annual compounded rates of return over one-, five-, and
ten-year periods or for the life of the Series (as stated in the
advertisement) that would equate an initial amount invested at the beginning
of a stated period to the ending redeemable value of the investment, assuming
the reinvestment of all dividend and capital gains distributions.
The "30-day yield" of a Series is calculated by dividing the net
investment income per share earned during a 30-day period by the net asset
value per share on the last day of the period. Net investment income includes
interest and dividend income earned on a Series' securities; it is net of all
expenses and all recurring and nonrecurring charges that have been applied to
all shareholder accounts. The yield calculation assumes that net investment
income earned over 30 days is compounded monthly for six months and then
annualized. Methods used to calculate advertised yields are standardized for
all stock and bond mutual funds. However, these methods differ from the
accounting methods used by a Series to maintain its books and records, and so
the advertised 30-day yield may not fully reflect the income paid to your own
account or the yield reported in a Series' reports to shareholders.
PURCHASES, EXCHANGES AND REDEMPTIONS OF SHARES
The minimum initial investment in the Series is $2,000 and subsequent
purchases must be at least $100. These minimums may be waived at the
Distributor's discretion. The Distributor has the right to refuse any order.
Purchases and redemptions of shares of the Series may be made on any day
the New York Stock Exchange is open for trading.
A purchase order will be effective as of the day received by the
Distributor, Transfer Agent, or its agents, if the order is received
before 4:00 p.m., Eastern Standard time by the Distributor, Transfer Agent, or
its agents. Payment may be made by check or readily available funds.
The purchase price of shares of the Series is the net asset value next
determined after a purchase order is effective.
The shares of the Series may be purchased in exchange for securities to
be included in the Series, subject to the Advisor's determination that these
securities are acceptable. Securities accepted in an exchange will be valued
at market value. All accrued interest and purchase or other rights which are
reflected in the market price of accepted securities at the time of valuation
become the property of the Series and must be delivered by the shareholder to
the Series upon receipt from the issuer.
The Advisor will not accept securities for the Series unless: (1) such
securities are appropriate in the Series at the time of the exchange; (2) the
shareholder represents and agrees that all securities offered to the Series
are not subject to any restrictions upon their sale by the Series under the
Securities Act of 1933, or otherwise; and, (3) prices are available from an
independent pricing service provided by the Series' Board of Directors.
Shareholders may purchase shares regularly through the Automatic
Investment Plan with a pre-authorized draft drawn on their checking or
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statement savings accounts. Under this plan, the shareholder may elect to
have a specified amount invested on a regular schedule. The amount specified
by the shareholder will be withdrawn from the shareholder's bank account using
the pre-authorized draft. This amount will be invested at the applicable
share price determined on the date the amount is available for investment.
Participation in the Automatic Investment Plan may be discontinued either by
the Fund or the Shareholder upon 30 days' prior written notice to the other
party. A shareholder who wishes to enroll in the Automatic Investment Plan
may do so by completing the applicable section of the Account Application Form
or contacting the Fund for an Automatic Investment Plan Form.
As permitted pursuant to any rule, regulation or order promulgated by the
Securities and Exchange Commission, some or all of the shares in a direct
investment account with the Fund for which payment has been received by the
Fund may be exchanged for shares of any of the other Manning & Napier Fund,
Inc. Series which are offered to direct investors at the net asset value next
determined after an exchange order is effective. Shareholders may effect up
to 4 exchanges in a 12-month period without charge. Subsequent exchanges are
subject to a fee of $15. Exchanges will be made after instructions in writing
or by telephone are received by the Transfer Agent in proper form (i.e., if in
writing - signed by the record owner(s) exactly as the shares are registered;
if by telephone - proper account identification is given by the shareholder)
and each exchange must involve either shares having an aggregate value of at
least $1,000 or all the shares in the account. A shareholder should read the
prospectus of the other Series and consider the differences in objectives and
policies before making any exchange. The exchange privilege may not be
available in all states. For federal and state income tax purposes, an
exchange is treated as a sale of the shares exchanged, and therefore an
exchange could result in a gain or loss to the shareholder making the
exchange. The Series may modify or terminate this exchange offer upon 60 days
notice to shareholders subject to applicable law.
If shareholder desires to redeem his shares at their net asset value, the
shareholder must send a written request for redemption in "Good Order" to the
Transfer Agent. "Good Order" generally means that the written request for
redemption must be endorsed by the record owner(s) exactly as the shares are
registered and the signature(s) must be guaranteed by an "eligible guarantor
institution" as that term is defined under Rule 17Ad-15(a)(2) under the
Securities Exchange Act of 1934. Currently, such procedures generally permit
guarantees by a commercial bank or trust company, a member bank of the Federal
Reserve System, or a member firm of a national securities exchange.
Redemption requirements for corporations, other organizations, trusts,
fiduciaries, and retirement plans may require additional documentation.
Please contact the Advisor at 1-800-466-3863 for more information. The
Transfer Agent may make certain de minimis exceptions to the above
requirements for redemption. Within three days after receipt of a
redemption request by the Transfer Agent in "Good Order", the Series will make
payment in cash, except as described below, of the net asset value of the
shares next determined after such redemption request was received, except
during any period in which the right of redemption is suspended or date of
payment is postponed because the New York Stock Exchange is closed or trading
on such Exchange is restricted or to the extent otherwise permitted by the
Investment Company Act of 1940 ("1940 Act") if an emergency exists. For
shares purchased, or received in exchange for shares purchased, by check
(including certified checks or cashier's checks) payment of redemption
proceeds may be delayed up to 15 days from the purchase date in an effort to
assure that such check has cleared.
Subject to the Series' compliance with applicable regulations, the Series
has reserved the right to pay the redemption price either totally or
partially, by a distribution in-kind of securities (instead of cash) from the
Series' portfolio. The securities distributed in such a distribution would be
valued at the same amount as that assigned to them in calculating the net
asset value for the shares being sold. If a shareholder received a
distribution in-kind, he could incur brokerage or transaction charges when
converting the securities to cash.
Due to the relatively high cost of maintaining small accounts, the Series
reserves the right to redeem shares in any account for their then-current
value (which will be promptly paid to the shareholder) if at any time the
total investment in such account drops below $1,000 because of redemptions
(but not due to changes in net asset value). Shareholders will be notified
that the value of their account is less than the minimum investment
requirement and allowed 60 days to make an additional investment before the
redemption is processed.
11
<PAGE>
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.
NET ASSET VALUE
The Series' net asset value per share is determined as of the closing
time of the New York Stock Exchange or, in the absence of a closing time, 4:00
p.m. Eastern Standard time on each day that the New York Stock Exchange is
open for trading. The exchange annually announces the days on which it will
not be open for trading; the most recent announcement indicates that it will
not be open on: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value per share is the value of the Series' assets, less
its liabilities, divided by the number of shares of the Series outstanding.
The value of the Series' portfolio securities will be the market value of such
securities as determined based on quotes provided by a pricing service (which
uses the methodology outlined in the "Net Asset Value" section of the
Statement of Additional Information) approved by the Board of Directors, or,
in the absence of market quotations, fair value as determined in good faith by
or under the direction and control of the Board of Directors. Short-term
investments which mature in less than 60 days are normally valued at amortized
cost. See the Statement of Additional Information for further information.
DIVIDENDS AND TAX STATUS
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
The Series intends to distribute to its shareholders on an quarterly
basis dividends substantially equal to all of its net investment income. The
Series also intends to distribute net realized short and long-term capital
gains, if any, taking into account any available capital loss carryforwards
from prior years at least annually. Dividends and distributions will be paid
in full and fractional shares of the Series, based on the net asset value per
share at the close of business on the record date, although a shareholder may,
prior to the record date, request, by writing or by telephone call to the
Fund, that payments of either ordinary income dividends or capital gain
distributions, or both, be made in cash. The Fund will notify each
non-corporate taxable shareholder after the close of its fiscal year
both of the dollar amount and the tax status of that year's distributions.
Generally, the Fund will be required to impose backup withholding at the rate
of 31% from ordinary income dividends, capital gain distributions and
redemption payments made to non-corporate shareholders, if provisions of the
law relating to the furnishing of taxpayer identification numbers and
reporting of dividends are not complied with by such shareholders.
TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a general summary of certain federal income
tax considerations affecting the Series and its shareholders. No attempt is
made to present a detailed explanation of the tax treatment of the Series or
its shareholders, and the discussion here is not intended as a substitute for
careful tax planning.
Under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), the Series is treated as a separate entity for federal
income tax purposes. The Series intends to qualify each year as
a regulated investment company under Subchapter M of the Code. If the Series
so qualifies, it will not be subject to federal income taxes on its net
investment income and capital gains, if any, which the Series distributes to
its shareholders, provided that at least 90% of such Series' exempt income and
90% of such Series' "investment company taxable income" (generally, net
investment income and the excess of net short-term capital gain over net
long-term capital loss) for the taxable year is distributed, and provided that
the Series meets certain other requirements imposed by the Code. All
dividends paid or distributed out of investment company taxable income will be
taxable as ordinary income to the shareholders. Any "net capital gain" (the
excess of net long-term capital gain over net short-term capital loss)
12
<PAGE>
distributed to shareholders is taxable as long-term capital gain to the
shareholders, regardless of the length of time a shareholder has owned his
shares. Generally, such dividends and distributions are taxable in the year
in which received, but dividends and distributions declared in October,
November or December of any year to shareholders of record on a date in such
month are treated as paid on December 31 of such year if they are paid during
January of the following calendar year. Dividends and distributions are not
taxable to shareholders that are not otherwise subject to tax on their income,
such as qualified employee benefit plans.
A 4% non-deductible federal excise tax is imposed on a regulated
investment company that fails to distribute substantially all of its ordinary
income and capital gain net income for each calendar year. Currently the
Series intends to make sufficient distributions of its ordinary income and
capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
Future legislative changes may materially affect the tax consequences of
investing in the Series. Shareholders are urged to consult their tax advisors
for the application of these rules (and other potentially relevant rules) to
their particular circumstances. Shareholders are also urged to consult their
tax advisors concerning the application of state and local income taxes and of
foreign taxes to investments in the Series, which may differ from the U.S.
federal income tax consequences described above.
OHIO STATE TAX
Distributions received from Ohio Tax Exempt Series are exempt from Ohio
personal income tax, Ohio school district income taxes and Ohio municipal
income taxes to the extent they are derived from interest on obligations
issued by the State of Ohio or its political subdivisions or authorities
("Ohio State Securities"). It is assumed for purposes of this discussion of
Ohio taxation that these requirements will be satisfied, provided that the
Series continues to qualify as a regulated investment company for federal
income tax purposes and that at all times at least 50% of the value of the
total assets of the Series consists of Ohio State Securities or similar
obligations of other states or their subdivisions. All distributions received
from the Series are exempt from the net income base of the Ohio corporation
franchise tax to the extent that they are either exempt from federal income
tax or derived from interest on Ohio State Securities, but the Series' shares
will be included in the computation of net worth for purposes of such tax.
Distributions of capital gains with respect to shares of the Series will
be exempt from Ohio personal income tax, Ohio school district income taxes,
Ohio municipal income taxes and the net income base of the Ohio corporation
franchise tax to the extent that such distributions are attributable to profit
made on the sale, exchange or other disposition by the Series of Ohio State
Securities.
Distributions that are attributable to interest on obligations of the
United States or of any authority, commission, or instrumentality of the
United States ("Federal Securities") or obligations of Puerto Rico, the Virgin
Islands, or Guam or their authorities or instrumentalities ("Territorial
Securities") are exempt from Ohio personal income tax, Ohio school district
income taxes, and Ohio municipal income taxes and are excluded from the net
income base of the Ohio corporation franchise tax to the same extent that such
interest would be so exempt or excluded if the obligations were held directly
by the shareholders.
GENERAL INFORMATION
The Fund was incorporated on July 26, 1984 as a Maryland corporation.
The Board of Directors may, at its own discretion, create additional series of
shares, each of which would have separate assets and liabilities.
The Fund does not expect to hold annual meetings of shareholders but
special meetings of shareholders may be held under certain circumstances.
Shareholders of the Fund retain the right, under certain circumstances, to
request that a meeting of shareholders be held for the purpose of considering
the removal of a Director from office, and if such a request is made, the Fund
will assist with shareholder communications in connection with the meeting.
The shares of the Fund have equal rights with regard to voting, redemption,
dividends, distributions and liquidations. The Fund's shareholders will vote
in the aggregate and not by Series except as otherwise expressly required by
law or when the Board of Directors determines that the matter to be voted upon
13
<PAGE>
affects only the interests of the shareholders of a Series. Income, direct
liabilities and direct operating expenses of the Series will be allocated
directly to the Series, while general liabilities and expenses of the Fund
will be allocated among each Series. The holders of shares have no preemptive
or conversion rights. Shares when issued are fully paid and non-assessable
and do not have cumulative voting rights.
All securities and cash are held by Boston Safe Deposit and Trust
Company. Coopers & Lybrand, L.L.P. serves as independent accountants for the
Series and will audit its financial statements annually.
Manning & Napier Advisors, Inc. serves as the Fund's Transfer and
Dividend Disbursing Agent. Shareholder inquiries should be directed to
Manning & Napier Fund, Inc., P.O. Box 41118, Rochester, New York 14604.
14
<PAGE>
APPENDIX
DESCRIPTION OF MUNICIPAL AND CORPORATE BOND RATINGS
Moody's Investors Services, Inc.'s municipal and corporate bond ratings:
Aaa - Bonds which are rated Aaa are judged to be of the best quality 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 principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
Moody's applies numerical modifiers "1", "2" and "3" 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.
Moody's may also assign conditional ratings to municipal bonds. Bonds for
which the security depends upon the completion of some act or the fulfillment
of some condition are rated conditionally. These are bonds secured by (a)
earnings of projects under construction, (b) earnings of projects unseasoned
in operating experience, (c) rentals which begin when facilities are
completed, or (d) payments to which some other limiting condition attaches.
Parenthetical rating denotes probable credit stature upon completion of
construction or elimination of basis of condition.
Standard & Poor's Corporation's municipal and corporate bond ratings:
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only to a small degree.
15
<PAGE>
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than in higher rated categories.
Standard & Poor's may modify the rating from "AA" to "B" by the addition of a
plus or minus sign to show relative standing within the major rating
categories. Standard & Poor's ratings may also be indicated by "NR". This
designation indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.
Standard & Poor's may also assign conditional ratings to municipal bonds. The
letter "p" indicates that the rating is provisional. A provisional rating
assumes the successful completion of the project being financed by the debt
being rated and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful timely completion of the project.
This rating, however, while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood of, or the risk of default
upon failure of, such completion. The investor should exercise his own
judgment with respect to such likelihood and risk.
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's Investor Services, 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.
& 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
issues 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 - This rating is 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.
16
<PAGE>
MANNING & NAPIER FUND, INC.
DIVERSIFIED TAX EXEMPT SERIES
No person has been authorized to give any information or to make
representations not contained in this Prospectus in connection with any
offering made by this Prospectus and, if given or made, such information must
not be relied upon as having been authorized by the Fund. This Prospectus
does not constitute an offering by the Fund in any jurisdiction in which such
offering may not lawfully be made.
PROSPECTUS
TABLE OF CONTENTS
Annual Operating Expenses 3
Financial Highlights 4
The Fund 4
Risk and Investment Objectives and Policies 4
Tax Exempt Securities 5
Risk and Additional Information about Investment Policies 5
Management 10
Yield and Total Return 10
Purchases, Exchanges and Redemptions of Shares 11
Net Asset Value 13
Dividends and Tax Status 13
General Information 14
Appendix 16
<PAGE>
MANNING & NAPIER FUND, INC.
P.O. Box 41118
Rochester, New York 14604
1-800-466-3863
DIVERSIFIED TAX EXEMPT SERIES
Manning & Napier Fund, Inc. (the "Fund"), is an open-end management
investment company that offers separate series, each a separate investment
portfolio having its own investment objective and policies. This Prospectus
relates to the Diversified Tax Exempt Series of the Fund (the "Series"). The
Series' investment objective is to seek a high level of current income exempt
from federal income tax, consistent with preservation of capital.
This Prospectus provides you with the basic information you should know
before investing in the Series. You should read it and keep it for future
reference. A Statement of Additional Information, dated March 6,
1996, containing additional information about the Fund has been filed
with the Securities and Exchange Commission and is incorporated by reference
in this Prospectus in its entirety. You may obtain a copy of the Statement of
Additional Information without charge by contacting the Fund at the address or
telephone number listed above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MARCH 6, 1996.
<PAGE>
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
(as a percentage of offering price)
<S> <C>
Maximum Sales Charge Imposed on Purchases None
Redemption Fees (1) None
<FN>
(1) A wire charge, currently $15, will be deducted by the Transfer Agent
from the amount of a wire redemption payment made at the request of a
shareholder. Such amount is not included in the "Annual Operating
Expenses of the Series."
</TABLE>
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES
The following information provides (i) tabular summary of expenses relating to
the annual operating expenses of the Series and (ii) an example illustrating
the dollar cost of such expenses on a $1,000 investment.
Annual Operating Expenses of the Series (as a percentage of average net
assets):
<S> <C>
Management Fees (2) 0.50%
12b-1 Fees. None
Other Expenses (3) 0.29%
-----
Total Operating Expenses of the Series (3) 0.79%
</TABLE>
<TABLE>
<CAPTION>
Example
You would pay the following expenses on a $1,000 investment, assuming a) 5.0%
annual return and b) redemptions at the end of each time period:
1 year 3 years 5 years 10 years
------- -------- -------- ---------
<S> <C> <C> <C> <C>
Diversified Tax Exempt Series $ 8 $ 25 $ 44 $ 98
</TABLE>
(2)Clients who have entered into investment advisory agreements with
Manning & Napier Advisors, Inc. (the Fund's Advisor) will be separately
rebated by Manning & Napier an amount equal to the portion of their client
advisory fee attributable to the portion of their assets invested in the
Fund. See "Management."
(3) Diversified Tax Exempt Series was engaged in active investment
operations for the year ended December 31, 1995; therefore, actual
management fees and other expenses are used above.
(4) Should the total operating expenses for the Series exceed .85% of its
average net assets, the Advisor has voluntarily agreed to waive its fee
and pay other operating expenses in an amount that limits total operating
expenses to .85% of its average net assets. The fee waiver and the
assumption of expenses by the Advisor is voluntary and may be terminated
at any time. However, the Advisor has agreed to continue this assumption
of expenses at least through the Series' current fiscal year.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Series. For a
more complete description of the various costs and expenses illustrated above,
please refer to the Management section of this Prospectus.
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
2
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
The following table provides selected per share data and ratios for the Diversified Tax Exempt
Series (for a share outstanding throughout the period for the periods shown). The table is
part of the Series' audited financial statements which are included in the Statement of
Additional Information incorporated by reference into this Prospectus.
For the year For the period
ended Feb. 14, 1994 to
Dec. 31, 1995 Dec. 31, 1994
<S> <C> <C> <C>
Net asset value - Beginning of period $ 9.26 $ 10.00 (1)
Income from investment operations:
Net investment income 0.43 0.21
Net realized and unrealized gain/(loss)
on investments 1.06 (0.75)
Total from investment operations 1.49 (0.54)
Less distributions declared to shareholders:
From net investment income (0.43) (0.20)
Net asset value - End of period $ 10.32 $ 9.26
Total return 16.29% (6.10)% (2)
Ratios (to average net assets)/Supplemental Data:
Expenses 0.79% 0.85% (2)(3)
Net investment income 4.52% 3.71% (2)(3)
Portfolio turnover 5% 4%
Net assets - End of period (000's omitted) $ 12,452 $ 8,481
(1) Initial offering price upon commencement
of operations on February 14, 1994.
(2) Annualized.
(3) The investment advisor waived a portion
of its management fee. If the full fee had
been incurred by the Fund, the net
investment income per share and the
ratios would have been as follows:
Net investment income - $ 0.19
Ratios(to average net assets):
Expenses - 1.29% (2)
Net investment income - 3.27% (2)
</TABLE>
3
<PAGE>
<PAGE>
THE FUND
The Fund is an open-end management investment company incorporated under
the laws of the State of Maryland on July 26, 1984. The Fund offers separate
series of units of beneficial interest ("shares"). This Prospectus relates to
the Diversified Tax Exempt Series. Information regarding the Fund's other
series is contained in separate prospectuses that may be obtained from Manning
& Napier Fund, Inc., P.O. Box 41118, Rochester, New York 14604 or by calling
1-800-466-3863. The Diversified Tax Exempt Series is a diversified fund.
Shares of the Series are offered directly to investors and to employees
and clients of the Advisor or its affiliates that had authorized investment in
the Fund as part of the discretionary account management services of the
Advisor or its affiliates. Investment in shares of the Series on behalf of
discretionary account clients is limited to 10% of the account unless this
limit has been waived by a client agreement. There are no fees or expenses
charged to any investor in connection with acquisition of shares of the
Series.
Since the Series may be used under varying conditions and market prices,
the result for a given investor might differ from the result that would have
been obtained had the Series been used only for clients with the same
investment objective. However, the Advisor seeks to manage cash flows into
and out of the Series in the interest of the Fund and its clients so as to
minimize the effect on performance.
RISK AND INVESTMENT OBJECTIVES AND POLICIES
The Series' objective is to seek as high a level of current income exempt
from federal income tax as the Advisor believes is consistent with
preservation of capital. The Investment Advisor will attempt to balance the
Fund's goals of high income and capital preservation by building a portfolio
of securities that in the aggregate afford the opportunity to earn current
income but also have quality and other characteristics that attempt to avoid
permanent capital losses. However, the Fund's portfolio securities and,
therefore, its shares will inevitably fluctuate in value to a certain extent.
Under current law, to the extent distributions by the Series are derived from
interest on Tax Exempt Securities (which are described below) and are
designated as such, they are exempt from federal income tax. The Series is
not intended to be a complete investment program, and there is no assurance it
will achieve its objective.
The Series seeks its objective by following the fundamental investment
policy of investing at least 80% of its net assets in Tax Exempt Securities,
except when investing for defensive purposes during times of adverse market
conditions. The Series may also invest in taxable obligations described below
under "Risk and Additional Information about Investment Policies" to the
extent permitted by its investment policies, or hold its assets in money
market instruments or in cash. The Series' investments in Tax Exempt
Securities and taxable obligations will be limited to securities rated in the
four highest categories assigned by Moody's Investors Service, Inc. (Aaa, Aa,
A, Baa) or Standard & Poor's Corporation (AAA, AA, A, BBB). For a description
of the above ratings, see the Appendix.
When the Series invests in Tax Exempt Securities in the lower rating
categories, the achievement of the Series' goals is more dependent on the
Advisors' ability than would be the case if the Series were investing in Tax
Exempt Securities in the higher rating categories. The amount of information
about the financial condition of an issuer of Tax Exempt Securities may not be
as extensive as information about corporations whose securities are publicly
traded. In addition, tax considerations may limit the Series' ability to vary
its portfolio securities in response to developments in interest rates and
economic conditions. The Advisor seeks to minimize the risks of investing in
lower-rated securities through investment analysis and attention to current
developments in interest rates and economic conditions.
Interest income from certain types of Tax Exempt Securities may be
subject to federal alternative minimum tax. It is a fundamental policy of the
Series to exclude these securities from the term "Tax Exempt Securities" for
purposes of determining compliance with the 80% test described above.
In pursuing its objective, the Series may to a limited extent buy and
sell futures contracts and options and may enter into repurchase agreements
and forward commitments. These incidental investment practices, which may
produce taxable capital gains and involve special risks, are described below.
The market value of the Series' investments will change in response to
changes in interest rates and other factors. During periods of falling
interest rates, the values of long-term, fixed-income securities generally
rise. Conversely, during periods of rising interest rates, the values of such
securities generally decline. Changes by recognized rating services in their
ratings of tax-exempt securities and in the ability of an issuer to make
4
<PAGE>
payments of interest and principal will also affect the value of these
investments. Changes in the value of portfolio securities will not affect
interest income derived from those securities but will affect the Series' net
asset value.
During times when conditions in the markets for Tax Exempt Securities
suggest a temporary defensive position, the Advisor may temporarily use
alternative strategies, primarily designed to reduce fluctuations in the value
of the Series' assets. In implementing these "defensive" strategies, the
Series may invest in taxable obligations, including: obligations of the U.S.
government, its agencies or instrumentalities; other debt securities rated
within the four highest categories by either Moody's or Standard & Poor's;
commercial paper rated in the highest category by either rating service
(Prime-1 or A-1+, respectively); certificates of deposit and bankers'
acceptances; repurchase agreements with respect to any of the foregoing
investments; or any other fixed-income securities that the Advisor considers
consistent with such strategy. It is impossible to predict when, or for how
long, the Series will use such alternative strategies. The limitations
described above on the ability of the Series to vary its portfolio securities
may limit the Series' use of these alternative investment strategies.
A change in the securities held by the Series is known as "portfolio
turnover". Portfolio turnover generally involves some expense to the Series,
including brokerage commissions or dealer mark-ups and other transaction costs
on the sale of securities and reinvestment in other securities. Such
transactions may result in realization of taxable capital gains. The Series
believes that in general the secondary market for Tax Exempt Securities is
less liquid than that for taxable fixed-income securities. Accordingly, the
ability of the Series to buy and sell securities may, at any particular time
and with respect to any particular security, be limited. The Series expects
that its annual portfolio turnover rate will be no more than 100%.
TAX EXEMPT SECURITIES
Tax Exempt Securities are debt obligations issued by a state and its
political subdivisions, agencies and instrumentalities, the interest from
which is, in the opinion of bond counsel, exempt from federal income tax.
These securities are issued to obtain funds for various public purposes, such
as the construction of public facilities, the payment of general operating
expenses or the refunding of outstanding debts. They may also be issued to
finance various private activities, including the lending of funds to public
or private institutions for the construction of housing, educational or
medical facilities. They may also include certain types of private activity
and industrial development bonds or notes issued by public authorities to
finance privately owned or operated facilities or to fund short-term cash
requirements. Short-term Tax Exempt Securities are generally issued as
interim financing in anticipation of tax collections, revenue receipts or bond
sales to finance various public purposes. Tax Exempt Securities also include
debt obligations issued by other governmental entities (for example, U.S.
territories) if such debt obligations generate interest income which is exempt
from federal income tax.
The two principal classifications of Tax Exempt Securities are general
obligation and limited obligation (or revenue) securities. General obligation
securities involve the credit of an issuer possessing taxing power and are
payable from the issuer's general unrestricted revenues. Their payment may
depend on an appropriation by the issuer's legislative body. The
characteristics and methods of enforcement of general obligation securities
vary according to the law applicable to the particular issuer. Limited
obligation (or revenue) securities are payable only from the revenues derived
from a particular facility or class of facilities, or a specific revenue
source, and generally are not payable from the unrestricted revenues of the
issuer. So-called "private activity bonds" and "industrial development bonds"
are in most cases limited obligation securities, the credit quality of which
is directly related to the corporate user of the facilities.
The Series may also invest in securities representing interests in Tax
Exempt Securities, known as "inverse floating obligations" or "residual
interest bonds", paying interest rates that vary inversely to changes in the
interest rates of specified short-term tax exempt securities or an index of
short-term tax exempt securities. The interest rates on inverse floating
obligations or residual interest bonds will typically decline as short-term
market interest rates increase and increase as short-term market rates
decline. Such securities have the effect of providing a degree of investment
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leverage, since they will generally increase or decrease in value in response
to changes in market interest rates at a rate which is a multiple (typically
two) of the rate at which fixed-rate long-term tax exempt securities increase
or decrease in response to such changes. As a result, the market values of
inverse floating obligations and residual interest bonds will generally be
more volatile than the market values of fixed-rate tax exempt securities. To
seek to limit the interest rate risk of these securities, the Series may
purchase inverse floating obligations with shorter-term maturities or which
contain limitations on the extent to which the interest rate may vary. There
is no limit on the percentage of assets that may be invested in inverse
floating obligations or residual interest bonds.
RISK AND ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
Set forth below is further information about certain types of securities
in which the Series may invest, as well as information about additional types
of investments and certain strategies the Series may pursue. These policies
have been voluntarily adopted by the Board of Directors based upon current
circumstances and may be changed or amended by action of the Board of
Directors without prior approval of the Series' shareholders. Additional
information concerning these strategies and their related risks is contained
in the Statement of Additional Information.
INVESTMENTS IN PREMIUM SECURITIES
During a period of declining interest rates, many of the Series'
portfolio investments will likely bear coupon rates which are higher than
current market rates, regardless of whether such securities were originally
purchased at a premium. Such securities would generally carry market values
greater than the principal amounts payable on maturity, which would be
reflected in the net asset value of the Series' shares. The value of such
"premium" securities tends to approach the principal amount as they approach
maturity (or call price in the case of securities approaching their call
date). As a result, an investor who purchases shares of the Series during
such periods would initially receive higher monthly distributions (derived
from the higher coupon rates payable on the Series' investments) than might be
available from alternative investments bearing current market interest rates,
but may face an increased risk of capital loss as these higher coupon
securities approach maturity (or call date). In evaluating the potential
performance of an investment in the Series, investors may find it useful to
compare the Series' current dividend rate with the Series' "yield", which is
computed on a yield-to-maturity basis in accordance with Securities and
Exchange Commission regulations and which reflects amortization of market
premiums.
ZERO-COUPON BONDS
Some of the securities in which the Series invests may include so-called
"zero-coupon" bonds. Zero-coupon bonds are issued at a significant discount
from face value and pay interest only at maturity rather than at intervals
during the life of the security. The Series is required to accrue and
distribute income from zero-coupon bonds on a current basis, even though it
does not receive that income currently in cash. Thus, the Series may have to
sell investments to obtain cash needed to make income distributions. The
discount in the absence of financial difficulties of the issuer decreases as
the final maturity of the security approaches. Zero-coupon bonds can be sold
prior to their maturity date in the secondary market at the then prevailing
market value, which depends primarily on the time remaining to maturity,
prevailing level of interest rates and the perceived credit quality of the
issues. The market prices of zero-coupon securities are subject to greater
fluctuations in response to changes in market interest rates than bonds which
pay interest currently. may respond to a greater degree to fluctuations in
interest rates than do comparable non-zero-coupon securities.
RISKS ASSOCIATED WITH THE SERIES' INVESTMENT PROGRAM
At times, a portion of the Series' assets may be invested in Tax Exempt
Securities as to which the Series, by itself or together with other funds and
accounts managed by the Advisor, holds a major portion or all of an issue of
such securities. Under adverse market or economic conditions or in the event
of adverse changes in the financial condition of the issuer, the Series could
find it more difficult to sell such securities when the Advisor believes it
advisable to do so or may be able to sell such securities only at prices lower
than if such securities were more widely held. Under such circumstances, it
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may also be more difficult to determine the fair value of such securities for
purposes of computing the Series' net asset value. In order to enforce its
rights in the event of a default under such securities, the Series may be
required to take possession of and manage assets securing the issuer's
obligations on such securities, which may increase the Series' operating
expenses and adversely affect the Series' net asset value. Any income derived
from the Series' ownership or operation of such assets would not be
tax-exempt. Securities rated Baa by Moody's or BBB by Standard & Poors are
considered investment grade but may have speculative characteristics and
changes in economic conditions or circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case
with more highly rated securities.
Certain securities held by the Series may permit the issuer at its option
to "call", or redeem, its securities. If an issuer were to redeem securities
held by the Series during a time of declining interest rates, the Series may
not be able to reinvest the proceeds in securities providing the same
investment return as the securities redeemed.
FINANCIAL FUTURES AND OPTIONS
The Series may purchase and sell financial futures contracts for hedging
purposes. Futures contracts on a Municipal Bond Index are traded on the
Chicago Board of Trade. This Index is intended to represent a numerical
measure of market performance for long-term tax exempt bonds. An "index
future" is a contract to buy or sell units of a particular securities index at
an agreed price on a specified future date. Depending on the change in value
of the index between the time when the Series enters into and terminates an
index future, the Series realizes a gain or loss. The Series may purchase and
sell futures contracts on the Index (or any other tax exempt bond index
approved for trading by the Commodity Futures Trading Commission) to hedge
against general changes in market values of Tax Exempt Securities which the
Fund owns or expects to purchase. The Series may also purchase and sell put
and call options on index futures, and on the indices directly, in addition or
as an alternative to purchasing and selling financial futures contracts.
The Series may also, for hedging purposes, purchase and sell futures
contracts and related options with respect to U.S. government securities,
including U.S. Treasury bills, notes and bonds ("U.S. Government Securities")
and options directly on U.S. Government Securities. The Advisor believes
that, under certain market conditions, price movements in U.S. Government
Securities futures and related options may correlate closely with price
movements in Tax Exempt Securities and may as a result provide hedging
opportunities for the Series. U.S. Government Securities futures and related
options would be used in a way similar to the Series' use of index futures and
related options. The Series will only purchase or sell U.S. Government
Securities futures or related options when, in the opinion of the Advisor,
price movements in such futures and options will correlate closely with price
movements in the Tax Exempt Securities which are the subject of the hedge.
The Series may purchase or sell future contracts if immediately
thereafter the sum of the amount of initial margin deposits on any such
futures (plus deposits on any other futures contracts and premiums paid in
connection with any options or futures contracts) that do not constitute
"bona fide hedging" under Commodity Futures Trading Commission ("CFTC") rules
would exceed 5% of the liquidation value of the Series' total assets after
taking into account unrealized profits and losses on such contracts. In
addition, the value of all futures contracts sold will not exceed the total
market value of the Series' portfolio. The Series will comply with guidelines
established by the Securities and Exchange Commission with respect to covering
of obligations under futures contracts and will set aside cash and/or liquid
high grade securities in a segregated account with its Custodian in the amount
prescribe.
The use of futures and options involves certain special risks and may
result in realization of taxable capital gains. Futures and options
transactions involve costs and may result in losses. Certain risks arise
because of the possibility of imperfect correlations between movements in the
prices of financial futures and options and movements in the prices of the
underlying bond index or U.S. Government Securities or the Tax Exempt
Securities which are the subject of the hedge. The successful use of futures
and options further depends on the Advisor's ability to forecast interest rate
movements correctly. Other risks arise from the Series' potential inability
to close out its futures or related options positions, and there can be no
assurance that a liquid secondary market will exist at a particular time.
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Certain provisions of the Internal Revenue Code and other regulatory
requirements may limit the Series' ability to engage in futures and
options transactions.
A more detailed explanation of futures and options transactions,
including the risks associated with them, is included in the Statement of
Additional Information.
REPURCHASE AGREEMENTS AND FORWARD COMMITMENTS
The Series may enter into repurchase agreements on up to 25% of its
assets. These transactions must be fully collateralized at all times but
involve some risk to the Series if the other party should default on its
obligation and the Series is delayed or prevented from recovering the
collateral. The Series may also purchase securities for future delivery,
which may increase its overall investment exposure and involves a risk of loss
if the value of the securities declines prior to the settlement date.
LIMITING INVESTMENT RISK
Specific investment restrictions help the Series limit investment risks
for its shareholders. These restrictions prohibit the Series from investing
more than: (a) (with respect to 75% of its total assets) 5% of its total
assets in the securities of any one issuer, other than U.S. Government
Securities;* (b) 5% of its net assets in securities of any issuer if the party
responsible for payment, together with any predecessor, has been in operation
for less than three years (except obligations of the U.S. Government or
agencies or instrumentalities and obligations backed by the faith, credit and
taxing power of any person authorized to issue Tax Exempt Securities); (c) 10%
of its net assets in securities restricted as to resale; and (d) 10% of its
net assets in any combination of securities that are not readily marketable,
in securities restricted as to resale (excluding Rule 144A securities
determined by the Series' Board of Directors [or the person supervised by the
Series' Board of Directors to make such determinations] to be readily
marketable), and repurchase agreements maturing in more than seven days; (e)
25% or more of the value of its total assets in securities of issuers in any
one industry (other than U.S. Government Securities). In addition, the Series
may borrow money, but only from a bank for temporary or emergency purposes in
amounts not exceeding 10% of the Series' total assets.
Restrictions marked with an asterisk (*) above are summaries of
fundamental policies. See the Statement of Additional Information for the
full text of these policies and the Series' other fundamental policies.
Except for investment policies designated as fundamental in this Prospectus or
the Statement of Additional Information, the investment policies described in
this Prospectus and in the Statement of Additional Information are not
fundamental policies. The Board of Directors may change any non-fundamental
investment policies without shareholder approval. As a matter of policy, the
Board of Directors would not materially change the Series' investment
objective without shareholder approval.
MANAGEMENT
The overall business and affairs of the Series are managed by its Board
of Directors. The Board approves all significant agreements between the
Series and persons or companies furnishing services to the Series, including
the Series' agreements with its Investment Advisor and Custodian. The
day-to-day operations of the Fund are delegated to the Fund's officers and to
Manning & Napier Advisors, Inc. (the "Advisor"), 1100 Chase Square, Rochester,
New York 14604. A committee made up of investment professionals and analysts
make all the investment decisions for the Fund.
The Advisor acts as investment advisor to the Fund. Mr. William Manning
controls the Advisor by virtue of his ownership of the securities of the
Advisor. The Advisor also is generally responsible for supervision of the
overall business affairs of the Series including supervision of service
providers to the Series and direction of the Advisor's directors, officers or
employees who may be elected as officers of the Fund to serve as such.
As of the date of this Prospectus, the Advisor supervised over
$5.5 billion in assets of clients, including both individuals and
institutions. For its services to the Fund under the Investment Advisory
Agreement, the Fund pays the Advisor a fee, computed daily and payable
monthly, at an annual rate of .50% of the Fund's daily net assets. Clients
for whom the Advisor provides advisory services pursuant to separate
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investment advisory contracts will be separately rebated by the Advisor an
amount equal to the portion of their client advisory fee attributable to the
portion of their assets invested in the Fund. In addition, the Advisor is
separately compensated for acting as Transfer Agent for the Series. The Fund
is responsible for its operating expenses, including: (i) interest and taxes;
(ii) brokerage commissions; (iii) insurance premiums; (iv) compensation and
expenses of its Directors other than those affiliated with the Advisor; (v)
legal and audit expenses; (vi) fees and expenses of the Fund's custodian, and
accounting services agent, if obtained for the Fund from an entity other than
the Advisor; (vii) expenses incidental to the issuance of its shares,
including issuance on the payment of, or reinvestment of, dividends and
capital gain distributions; (viii) fees and expenses incidental to the
registration under federal or state securities laws of the Fund or its shares;
(ix) expenses of preparing, printing and mailing reports and notices and proxy
material to shareholders of the Fund; (x) all other expenses incidental to
holding meetings of the Fund's shareholders; (xi) dues or assessments of or
contributions to the Investment Company Institute or any successor; and, (xii)
such non-recurring expenses as may arise, including litigation affecting the
Fund and the legal obligations with respect to which the Fund may have to
indemnify its officers and Directors.
The Advisor may use its own resources to engage in activities that may
promote the sale of the Fund, including payments to third parties who provide
shareholder support servicing and distribution assistance. Investors may
be charged a fee if they effect transactions through a broker or agent.
YIELD AND TOTAL RETURN
From time-to-time the Series may advertise total return.Both yield
and total return figures are based on historical earnings and are not intended
to indicate future performance.The "total return" of a Series refers to the
average annual compounded rates of return over one-, five-, and ten-year
periods or for the life of the Series (as stated in the advertisement) that
would equate an initial amount invested at the beginning of a stated period to
the ending redeemable value of the investment, assuming the reinvestment of
all dividend and capital gains distributions.
The "30-day yield" of a series is calculated by dividing the net
investment income per share earned during a 30-day period by the net asset
value per share on the last day of the period. Net investment income includes
interest and dividend income earned on a Series' securities; it is net of all
expenses and all recurring and nonrecurring charges that have been applied to
all shareholder accounts. The yield calculation assumes that net investment
income earned over 30 days is compounded monthly for six months and then
annualized. Methods used to calculate advertised yields are standardized for
all stock and bond mutual funds. However, these methods differ from the
accounting methods used by a Series to maintain its books and records, and so
the advertised 30-day yield may not fully reflect the income paid to your own
account or the yield reported in a Series' reports to shareholders.
PURCHASES, EXCHANGES AND REDEMPTIONS OF SHARES
The minimum initial investment in the Series is $2,000 and subsequent
purchases must be at least $100. These minimums may be waived at the Fund's
discretion. The Distributor has the right to refuse any order.
Purchases and redemptions of shares of the Series may be made on any day
the New York Stock Exchange is open for trading.
A purchase order will be effective as of the day received by the
Distributor, Transfer Agent, or its agents, if the order is received
before 4:00 p.m., Eastern Standard time by the Distributor, Transfer Agent, or
its agents. Payment may be made by check or readily available funds.
The purchase price of shares of the Series is the net asset value next
determined after a purchase order is effective.
The shares of the Series may be purchased in exchange for securities to
be included in the Series, subject to the Advisor's determination that these
securities are acceptable. Securities accepted in an exchange will be valued
at market value. All accrued interest and purchase or other rights which are
reflected in the market price of accepted securities at the time of valuation
become the property of the Series and must be delivered by the shareholder to
the Series upon receipt from the issuer.
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The Advisor will not accept securities for the Series unless: (1) such
securities are appropriate in the Series at the time of the exchange; (2) the
shareholder represents and agrees that all securities offered to the Series
are not subject to any restrictions upon their sale by the Series under the
Securities Act of 1933, or otherwise; and, (3) prices are available from an
independent pricing service provided by the Series' Board of Directors.
Shareholders may purchase shares regularly through the Automatic
Investment Plan with a pre-authorized draft drawn on their checking or
statement savings accounts. Under this plan, the shareholder may elect to
have a specified amount invested on a regular schedule. The amount specified
by the shareholder will be withdrawn from the shareholder's bank account using
the pre-authorized draft. This amount will be invested at the applicable
share price determined on the date the amount is available for investment.
Participation in the Automatic Investment Plan may be discontinued either by
the Fund or the Shareholder upon 30 days' prior written notice to the other
party. A shareholder who wishes to enroll in the Automatic Investment Plan
may do so by completing the applicable section of the Account Application Form
or contacting the Fund for an Automatic Investment Plan Form.
As permitted pursuant to any rule, regulation or order promulgated by the
Securities and Exchange Commission, some or all of the shares in a direct
investment account with the Fund for which payment has been received by the
Fund may be exchanged for shares of any of the other Manning & Napier Fund,
Inc. Series at the net asset value next determined after an exchange order is
effective. Shareholders may effect up to 4 exchanges in a 12-month period
without charge. Subsequent exchanges are subject to a fee of $15. Exchanges
will be made after instructions in writing or by telephone are received by the
Transfer Agent in proper form (i.e., if in writing - signed by the record
owner(s) exactly as the shares are registered; if by telephone - proper
account identification is given by the shareholder) and each exchange must
involve either shares having an aggregate value of at least $1,000 or all the
shares in the account. A shareholder should read the prospectus of the other
Series and consider the differences in objectives and policies before making
any exchange. The exchange privilege may not be available in all
states. For federal and state income tax purposes, an exchange is
treated as a sale of the shares exchanged and therefore, an exchange could
result in a gain or loss to the shareholder making the exchange. The Series
may modify or terminate this exchange offer upon 60 days notice to
shareholders subject to applicable law.
If a shareholder desires to redeem his shares at their net asset value,
the shareholder must send a written request for redemption in "Good Order" to
the Transfer Agent. "Good Order" generally means that the written request for
redemption must be endorsed by the record owner(s) exactly as the shares are
registered and the signature(s) must be guaranteed by an "eligible guarantor
institution" as that term is defined under Rule 17Ad-15(a)(2) under the
Securities Exchange Act of 1934. Currently, such procedures generally permit
guarantees by a commercial bank or trust company, a member bank of the Federal
Reserve System, or a member firm of a national securities exchange.
Redemption requirements for corporations, other organizations, trusts,
fiduciaries, and retirement plans may require additional documentation.
Please contact the Advisor at 1-800-466-3863 for more information. The
Transfer Agent may make certain de minimis exceptions to the above
requirements for redemption. Within three days after receipt of a
redemption request by the Transfer Agent in "Good Order", the Series will make
payment in cash, except as described below, of the net asset value of the
shares next determined after such redemption request was received, except
during any period in which the right of redemption is suspended or date of
payment is postponed because the New York Stock Exchange is closed or trading
on such Exchange is restricted or to the extent otherwise permitted by the
Investment Company Act of 1940 if an emergency exists. For shares purchased,
or received in exchange for shares purchased, by check (including certified
checks or cashier's checks) payment of redemption proceeds may be delayed up
to 15 days from the purchase date in an effort to assure that such checks has
cleared.
Subject to the Series' compliance with applicable regulations, the Series
has reserved the right to pay the redemption price either totally or partially
by a distribution in-kind of securities (instead of cash) from the Series'
portfolio. The securities distributed in such a distribution would be valued
at the same amount as that assigned to them in calculating the net asset value
for the shares being sold. If a shareholder received a distribution in-kind,
he could incur brokerage or transaction charges when converting the securities
to cash.
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Due to the relatively high cost of maintaining small accounts, the Series
reserves the right to redeem shares in any account for their then-current
value (which will be promptly paid to the shareholder) if at any time the
total investment in such account drops below $1,000 because of redemptions
(but not due to changes in net asset value). Shareholders will be notified
that the value of their account is less than the minimum investment
requirement and allowed 60 days to make an additional investment before the
redemption is processed.
Manning & Napier Investor Services, Inc. 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.
NET ASSET VALUE
The Series' net asset value per share is determined as of the closing
time of the New York Stock Exchange or, in the absence of a closing time, 4:00
p.m. Eastern Standard time on each day that the New York Stock Exchange is
open for trading. The exchange annually announces the days on which it will
not be open for trading; the most recent announcement indicates that it will
not be open on: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value per share is the value of the Series' assets, less
its liabilities, divided by the number of shares of the Series outstanding.
The value of the Series' portfolio securities will be the market value of such
securities as determined based on quotes provided by a pricing service (which
uses the methodology outlined in the "Net Asset Value" section of the
Statement of Additional Information) approved by the Board of Directors, or,
in the absence of market quotations, fair value as determined in good faith by
or under the direction and control of the Board of Directors. Short-term
investments which mature in less than 60 days are normally valued at amortized
cost. See the Statement of Additional Information for further information.
DIVIDENDS AND TAX STATUS
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
The Series intends to distribute to its shareholders on an quarterly
basis dividends substantially equal to all of its net investment income. The
Series also intends to distribute net realized short and long-term capital
gains, if any, taking into account any available capital loss carryforwards
from prior years at least annually. Dividends and distributions will be paid
in full and fractional shares of the Series, based on the net asset value per
share at the close of business on the record date, although a shareholder may,
prior to the record date, request, by writing or by telephone call to the
Fund, that payments of either ordinary income dividends or capital gain
distributions, or both, be made in cash. The Fund will notify each
non-corporate taxable shareholder after the close of its fiscal year
both of the dollar amount and the tax status of that year's distributions.
Generally, the Fund will be required to impose backup withholding at the rate
of 31% from ordinary income dividends, capital gain distributions and
redemption payments made to non-corporate shareholders, if provisions of the
law relating to the furnishing of taxpayer identification numbers and
reporting of dividends are not complied with by such shareholders.
TAX STATUS
The following is only a general summary of certain federal
income tax considerations affecting the Series and its shareholders. No
attempt is made to present a detailed explanation of the tax treatment of the
Series or its shareholders, and the discussion here is not intended as a
substitute for careful tax planning.
The following summary of federal income tax consequences is based on
current tax laws and regulations, which may be changed by legislative,
judicial or administrative action.
Under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), the Series of the Fund is treated as a separate entity for
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federal income tax purposes. The Series intends to qualify each
year as a regulated investment company under Subchapter M of the Code. If
the Series qualifies, the Series will not be subject to federal income taxes
on its net investment income and net capital gain, if any, which the Series
distributes to its shareholders, provided that at least 90% of such Series'
exempt income and 90% of the Series' "investment company taxable income"
(generally, net investment income and the excess of net short-term capital
gain over net long-term capital loss) for the taxable year is distributed and
provided that such Series meets certain other requirements imposed by the
Code. All dividends paid or distributed out of investment company taxable
income (other than exempt interest dividends) will be taxable as ordinary
income to the shareholders. Any "net capital gain" (the excess of net
long-term capital gain over short-term capital loss) distributed to
shareholders is taxable as long-term capital gain to the shareholders,
regardless of the length of time a shareholder has owned his shares.
Generally, such dividends and distributions are taxable in the year in which
received, but dividends and distributions declared in October, November or
December of any year to shareholders of record on a date in such month are
treated as paid on December 31 of such year if they are paid during January of
the following calendar year. Distributions designated by the Series as
"exempt-interest dividends" are not generally subject to federal income tax.
However, if you receive Social Security and railroad retirement benefits, you
should consult your tax adviser to determine what effect, if any, an
investment in the Series may have on the taxation of your benefits. In
addition, an investment in the Series may result in liability for federal
alternative minimum tax and for state and local taxes, both for individual and
corporate shareholders.
A 4% non-deductible federal excise tax is imposed on a regulated
investment company that fails to distribute substantially all of its ordinary
income and capital gain net income for each calendar year. Currently the
Series intends to make sufficient distributions of its ordinary income and
capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
Shareholders are also urged to consult their tax advisors concerning the
application of state and local income taxes and of foreign taxes to investment
in the Series, which may differ from the U.S. federal income tax consequences
described above.
STATE AND LOCAL TAXES
Depending upon the extent of the Series' activities in those states and
localities in which its offices are maintained or in which its agents or
independent contractors are located, the Series may be subject to the tax laws
of such states or localities. In addition, the exemption of interest income
for federal income tax purposes does not necessarily result in exemption under
the income or other tax laws of any state or local taxing authority. The laws
of the several states and local taxing authorities vary with respect to the
taxation of such interest income, and each holder of shares of the Series is
advised to consult his own tax adviser in that regard. The Series will report
annually the percentage of interest income received during the preceding year
on tax exempt obligations, and on a state-by-state basis, the source of such
income.
GENERAL INFORMATION
The Fund was incorporated on July 26, 1984 as a Maryland corporation.
The Board of Directors may, at its own discretion, create additional series of
shares, each of which would have separate assets and liabilities. The Fund
does not expect to hold annual meetings of shareholders but special meetings
of shareholders may be held under certain circumstances. Shareholders of the
Fund retain the right, under certain circumstances, to request that a meeting
of shareholders be held for the purpose of considering the removal of a
Director from office, and if such a request is made, the Fund will assist with
shareholder communications in connection with the meeting. The shares of the
Fund have equal rights with regard to voting, redemption, dividends,
distributions and liquidations.
The Fund's shareholders will vote in the aggregate and not by Series
except as otherwise expressly required by law or when the Board of Directors
determines that the matter to be voted upon affects only the interests of the
shareholders of a Series. Income, direct liabilities and direct operating
expenses of the Series will be allocated directly to the Series, and general
liabilities and expenses of the Fund will be allocated among the Series in
proportion to the total net assets of the Series by the Board of Directors.
The holders of shares have no preemptive or conversion rights. Shares when
issued are fully paid and non-assessable and do not have cumulative voting
rights.
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All securities and cash are held by Boston Safe Deposit and Trust
Company. Coopers & Lybrand, L.L.P. serves as independent accounts for the
Series and will audit its financial statements annually.
Manning & Napier Advisors, Inc. serves as the Fund's Transfer and
Dividend Disbursing Agent. Shareholder inquiries should be directed to
Manning & Napier Fund, Inc., P.O. Box 41118, Rochester, New York 14604.
14
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APPENDIX
DESCRIPTION OF MUNICIPAL AND CORPORATE BOND RATINGS
Moody's Investors Services, Inc.'s municipal and corporate bond ratings:
Aaa - Bonds that 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 that 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 that 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 that are rated Baa are considered medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Moody's applies numerical modifiers "1", "2" and "3" 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.
Moody's may also assign conditional ratings to municipal bonds. Bonds for
which the security depends upon the completion of some act or the fulfillment
of some condition are rated conditionally. These are bonds secured by (a)
earnings of projects under construction, (b) earnings of projects unseasoned
in operating experience, (c) rentals which when facilities are completed, or
(d) payments to which some other limiting condition attaches. Parenthetical
rating denotes probable credit stature upon completion of construction or
elimination of basis of condition.
Standard & Poor's Corporation's municipal and corporate bond ratings:
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
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AA - Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only to a small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than in higher rated categories.
Standard & Poor's may modify the rating from "AA" to "B" by the addition of a
plus or minus sign to show relative standing within the major rating
categories. Standard & Poor's ratings may also be indicated by "NR". This
designation indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.
Standard & Poor's may also assign conditional ratings to municipal bonds. The
letter "p" indicates that the rating is provisional. A provisional rating
assumes the successful completion of the project being financed by the debt
being rated and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful timely completion of the project.
This rating, however, while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood of, or the risk of default
upon failure of, such completion. The investor should exercise his own
judgment with respect to such likelihood and risk.
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's Investor Services, 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 of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
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
issues 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 - This rating is 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.
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MANNING & NAPIER FUND, INC.
WORLD OPPORTUNITIES SERIES
No person has been authorized to give any information or to make
representations not contained in this Prospectus in connection with any
offering made by this Prospectus and, if given or made, such information must
not be relied upon as having been authorized by the Fund. This Prospectus
does not constitute an offering by the Fund in any jurisdiction in which such
offering may not lawfully be made.
PROSPECTUS
TABLE OF CONTENTS
Annual Operating Expenses 3
The Fund 4
Risk and Investment Objectives and Policies 4
Special Risk and Additional Investment Policies 5
Principal Investment Restrictions 9
Management 10
Yield and Total Return 10
Purchases, Exchanges and Redemptions of Shares 11
Net Asset Value 13
Dividends and Tax Status 13
General Information 14
Appendix 16
<PAGE>
MANNING & NAPIER FUND, INC.
P.O. Box 41118
Rochester, New York 14604
1-800-466-3863
WORLD OPPORTUNITIES SERIES
Manning & Napier Fund, Inc. (the "Fund"), is an open-end management
investment company consisting of multiple series, each a separate investment
portfolio having its own investment objectives and policies. This Prospectus
relates to the World Opportunities Series (the "Series"), a series of the
Fund. The Series' investment objective is to seek long-term capital growth.
This Prospectus provides you with the basic information you should know
before investing in the Series. You should read this Prospectus and keep it
for future reference. A Statement of Additional Information, dated March 6,
1996, containing additional information about the Fund has been filed with the
Securities and Exchange Commission and is incorporated by reference in this
Prospectus in its entirety. You may obtain a copy of the Statement of
Additional Information without charge by contacting the Fund at the address or
telephone number listed above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MARCH 6, 1996.
<PAGE>
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
(as a percentage of offering price)
Maximum Sales Charge Imposed on
Purchases.....................................None
Redemption
Fees(1).......................................None
(1) A wire charge, currently $15, will be deducted by the Transfer Agent from
the amount of a wire redemption payment made at the request of a shareholder.
Such amount is not included in the "Annual Operating Expenses" of the Series.
ANNUAL OPERATING EXPENSES
The following information provides (i) a tabular summary of expenses relating
to the annual operating expense of the Series and (ii) an example illustrating
the dollar cost of such expenses on a $1,000 investment.
Annual Operating Expenses (as a percentage of average net assets):
Management Fees 1.00%
12b-1 Fees None
Other Expenses 0.50%
Total Operating Expenses 1.50%
Example:
You would pay the following expenses on a $1,000 investment, assuming a) 5%
annual return and b) redemptions at the end of each period:
1 year 3 years
World Opportunities Series $15 $48
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in each Series. For a
more complete description of the various costs and expenses illustrated above,
please refer to the Management section of the Prospectus.
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN ABOVE.
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THE FUND
The Fund is an open-end management investment company incorporated under
the laws of the State of Maryland on July 26, 1984. The Fund offers separate
series of units of beneficial interest ("shares"). This Prospectus relates to
the World Opportunities Series, a series of the Fund. Information regarding
the Fund's other series is contained in separate prospectuses that may be
obtained from Manning & Napier Fund, Inc., P.O. Box 41118, Rochester, New York
14604 or by calling 1-800-466-3863.
Shares of the Series are offered directly to investors and to employees
and clients of the Advisor or its affiliates that have authorized investment
in the Fund as part of the discretionary account management services of the
Advisor or its affiliates. Investors may be charged a fee if they effect
transactions through a broker or agent.
Since the Series may be used under varying conditions and market prices,
the result for a given investor might differ from the result that would have
been obtained had the Series been used only for clients with the same
investment objective. However, the Advisor seeks to manage cash flows into
and out of the Series in the interest of the Fund and its clients so as to
minimize the effect on performance.
As a general rule, the investment in shares of the Series on behalf of
discretionary account clients is limited to a maximum of 5% -- or if the
Advisor believes that the opportunity to capture investment values or to
diversify risk among asset classes is particularly compelling, to a maximum of
10% -- of the client's portfolio.
RISK AND INVESTMENT OBJECTIVES AND POLICIES
GENERAL
The objective of the Series is to seek long-term capital growth. The
Series generally invests at least 65% of its assets in common stocks of
companies domiciled in at least three different countries. The Advisor will
emphasize individual security selection to identify those issuers which, in
the Advisor's opinion, have attractive long-term business prospects and
valuations. It may invest up to 20% of assets in noninvestment-grade
convertibles and debt securities. Unless, otherwise stated, the Series'
investment policies are not fundamental and may be changed without shareholder
approval; however, it is the Board of Directors' policy to notify shareholders
prior to any material change. There is no assurance that the Series will
achieve its investment objective.
The Series may also invest up to 35% of its assets in corporate debt
securities of foreign issuers and in obligations issued by foreign
governments, or their respective agencies and instrumentalities. The value of
debt securities fluctuates inversely to changes in interest rates. The Series
may invest in both exchange and over-the-counter traded securities. The
Series may invest in such securities without regard to term or rating and may,
from time to time, invest up to 20% of its assets in debt securities rated
below investment grade, i.e., rated lower than BBB by Standard & Poor's
Corporation ("S&P") or Baa by Moody's Investor Service, Inc. ("Moody's"), or
unrated securities of comparable quality as determined by the Advisor. These
securities are commonly known as junk bonds. Ratings of corporate bonds
including lower rated bonds are included in the Appendix. See "Special Risk
and Additional Investment Policies-High Yield Debt Securities".
In periods of unusual market conditions, when the Series' Advisor
considers it appropriate, the Series may invest all or any part of the Series'
assets in cash, U.S. Government Securities, high quality commercial paper,
bankers' acceptances, repurchase agreements and certificates of deposit.
The Series is a non-diversified portfolio under the Investment Company
Act of 1940 (the "1940 Act"), which means that the Series is not limited by
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the 1940 Act in the proportion of its assets that may be invested in the
obligations of a single issuer. Thus, the Series may invest a greater
proportion of its assets in the securities of a small number of issuers and as
a result will be subject to greater risk with respect to its securities.
However, the Series intends to comply with the diversification requirements
imposed by the Internal Revenue Code of 1986, as amended (the "Code") for
qualification as a regulated investment company.
For temporary defensive purposes during periods when the Advisor
determines that market conditions warrant, the Series may invest up to 100% of
its assets in money market instruments (including securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities,
certificates of deposit, time deposits and bankers' acceptances issued by
banks or savings and loan associations deemed to be creditworthy by the
Advisor, commercial paper rated A-1 by S&P or P-1 by 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 Series may to varying degrees use certain techniques and
strategies discussed below under "Special Risk and Additional Investment
Policies".
SPECIAL RISK AND ADDITIONAL INVESTMENT POLICIES
The Series may engage in the following investment policies and practices,
some of which are described in more detail in the Statement of Additional
Information.
FOREIGN INVESTMENTS
Investments in foreign securities have special risks related to political,
economic and legal conditions outside of the U.S., including the possibility
of unfavorable currency exchange rates, exchange control regulations
(including currency blockage), expropriation, nationalization, withholding
taxes on income and difficulties in enforcing judgments. Foreign securities
may be less liquid and more volatile than comparable U.S. securities. In
general, there may be limited public information with respect to foreign
issuers, and some foreign issuers may also be subject to less comprehensive
accounting and disclosure requirements than similar U.S. issuers.
The Series' investments in foreign securities may include investments in
countries whose economies or securities markets are not yet highly developed.
Special risks associated with these investments (in addition to the
considerations regarding foreign investments generally) may include, among
others, greater political uncertainties, an economy's dependence on revenues
from particular commodities or on international aid or development assistance,
currency transfer restrictions, highly limited numbers of potential buyers for
such securities and delays and disruptions in securities settlement
procedures.
INVESTING IN OTHER INVESTMENT COMPANIES
The Series may invest up to 10% of its total assets in closed-end investment
companies commonly referred to as "country funds". Such investments will
involve the payment of duplicate fees through the indirect payment of a
portion of the expenses, including advisory fees, of such other investment
companies.
SMALL COMPANIES
The Series may invest in smaller, less well-established companies which may
offer greater opportunities for capital appreciation than larger, better
established companies. These stocks may also involve certain risks related to
limited product lines, markets or financial resources and dependence on a
small management group. Their securities may trade less frequently, in
smaller volumes and fluctuate more sharply in value than exchange-listed
securities of larger companies.
U.S. GOVERNMENT SECURITIES
The Series may purchase securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. Direct obligations of the U.S.
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Government include bills, notes and bonds issued by the U.S. Treasury and
obligations issued or guaranteed by U.S. agencies or instrumentalities. The
obligations of certain U.S. agencies (i.e., the Government National Mortgage
Association) are backed by the full faith and credit of the U.S. Government or
are supported by the agencies' rights to borrow from the U.S. Treasury. The
issues of other agencies are supported only by the credit of the agency (e.g.,
the Federal National Mortgage Association).
SHORT SALES
The Series may, within limits, engage in short sales "against the box".
A short sale is the sale of borrowed securities; a short sale against the box
means that the Series owns securities equivalent to those sold short. No more
than 25% of the net assets (taken at current value) of the Series may be held
as collateral for such sales at any one time. Such short sales can be used as
a hedge and as a method of deferring realized capital gains from one taxable
year to the next for tax purposes.
ZERO-COUPON BONDS
Some of the securities in which the Series invests may include so-called
"zero-coupon" bonds. Zero-coupon bonds are issued at a significant discount
from face value and pay interest only at maturity rather than at intervals
during the life of the security. The Series is required to accrue and
distribute income from zero-coupon bonds on a current basis, even though it
does not receive that income currently in cash. Thus, the Series may have to
sell investments to obtain cash needed to make income distributions. The
discount in the absence of financial difficulties of the issuer decreases as
the final maturity of the security approaches. Zero-coupon bonds can be sold
prior to their maturity date in the secondary market at the then prevailing
market value, which depends primarily on the time remaining to maturity,
prevailing level of interest rates and the perceived credit quality of the
issues. The market prices of zero-coupon securities are subject to greater
fluctuations in response to changes in market interest rates than bonds which
pay interest currently.
VARIABLE AND FLOATING RATE INSTRUMENTS
Certain of the obligations purchased by the Series may carry variable or
floating rates of interest, may involve a conditional or unconditional demand
feature and may include variable amount master demand notes. Such instruments
bear interest at rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index.
The interest rate on these securities may be reset daily, weekly, quarterly,
or some other reset period and may have a floor or ceiling on charges. There
is a risk that the current interest rate on such obligations may not
accurately reflect existing market interest rates.
HEDGING TECHNIQUES
The Series has reserved the right, subject to authorization by the Board
of Directors prior to implementation, to engage in certain strategies in an
attempt to hedge the Series' portfolio, that is, to reduce the overall level
of risk that normally would be expected to be associated with its investments.
The Series may write covered call options on common stocks; may purchase and
sell (on a secured basis) put options; and may engage in closing transactions
with respect to put and call options. The Series also may purchase forward
foreign currency exchange contracts to hedge currency exchange rate risk. In
addition, the Series is authorized to purchase and sell stock index futures
contracts and options on stock index futures contracts. The Series is also
authorized to conduct spot (i.e., cash basis) currency transactions or to use
currency futures contracts and options on futures contracts and foreign
currencies in order to protect against uncertainty in the future levels of
foreign currency exchange rates. These strategies are primarily used for
hedging purposes; nevertheless, there are risks associated with these
strategies as described below.
OPTIONS ON SECURITIES
A call option is a short-term contract pursuant to which the purchaser of
the option, in return for a premium, has the right to buy the security
underlying the option at a specified price at any time during the term of the
option. The writer of a call option, who receives the premium, has the
obligation, upon exercise during the option term, to deliver the underlying
security against payment of the exercise price. Conversely, a put option
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<PAGE>
gives its purchaser, in return for a premium, the right to sell the underlying
equity security at a specified price during the option term to the writer of
the put option, who receives the premium. The Series will sell call options
only on a "covered" basis, i.e., it will own the underlying security at all
times, and will write put options only on a secured basis, i.e., it will
maintain an amount equal to the exercise price in a segregated account at all
times. The Series may engage in option transactions for hedging purposes and
to realize a greater current return, through the receipt of premiums, than
would be earned on the underlying securities alone. Options traded in the
over-the-counter market will be considered illiquid unless the Series has
entered into arrangements with U.S. Government securities dealers to dispose
of such options at a formula price based on a multiple of the original premium
plus the amount by which the option is "in the money".
FUTURES CONTRACTS
The Series may purchase and sell financial futures contracts on debt
securities on a commodities exchange or board of trade for certain hedging,
return enhancement and risk management purposes in accordance with applicable
regulations. A financial futures contract is an agreement to purchase or sell
an agreed amount of securities at a set price for delivery in the future. The
Series may not purchase or sell futures contracts if immediately thereafter
the sum of the amount of initial margin deposits on any such futures (plus
deposits on any other futures contracts and premiums paid in connection with
any options or futures contracts) that do not constitute "bona fide hedging"
under the Commodity Futures Trading Commission ("CFTC") rules would exceed 5%
of the liquidation value of the Series' total assets after taking into account
unrealized profits and losses on such contracts. In addition, the value of
all futures contracts sold will not exceed the total market value of the
Series' portfolio. The Fund will comply with guidelines established by the
Securities and Exchange Commission with respect to covering of obligations
under futures contracts and will set aside cash and/or liquid high grade
securities in a segregated account with its custodian in the amount
prescribed.
The Series' successful use of futures contracts depends on the Advisor's
ability to predict the direction of the market and is subject to various
additional risks. The correlation between movements in the prices of a
futures contract and the price of the securities being hedged is imperfect and
there is a risk that the value of the securities being hedged may increase or
decrease at a greater rate than the related futures contracts, resulting in
losses to the Series. Certain futures exchanges or boards of trades have
established daily limits based on the amount of the previous day's settlement
price. These daily limits may restrict the Series' ability to repurchase for
sale certain futures contracts on any particular day.
STOCK INDEX FUTURES CONTRACTS AND OPTIONS ON STOCK INDEX FUTURES CONTRACTS
A stock index futures contract is a bilateral agreement pursuant to which
one party agrees to accept, and the other party agrees to make, delivery of an
amount of cash equal to a specified dollar amount times the difference between
the stock index value at the close of trading of the contract and the price at
which the futures contract is originally struck. No physical delivery of the
stocks comprising the index is made. Options on stock index futures contracts
give the purchaser the right, in return for the premium paid, to assume a long
or short position in a futures contract.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Series' use of forward foreign currency contracts is limited to
hedging against movements in the value of foreign currencies relative to the
U.S. dollar in connection with specific portfolio transactions or with respect
to existing portfolio positions denominated in such currencies. A transaction
hedge involves the purchase or sale of a forward contract with respect to a
specific receivable or payable of the Series while a position hedge relates to
a specific portfolio holding. A forward foreign currency exchange contract
involves an obligation to purchase or sell a specified currency at a future
date at a price set at the time of the contract. Foreign currency exchange
contracts do not eliminate fluctuations in the values of portfolio securities
but rather allow the Fund to establish a rate of exchange for a future point
in time. With respect to any such forward foreign currency contract, it will
not generally be possible to match precisely the amount covered by that
contract and the value of the securities involved due to the changes in the
values of such securities resulting from market movements between the date the
forward contract is entered into and the date it matures. In addition, while
6
<PAGE>
forward contracts may offer protection from losses resulting from declines in
the value of a particular foreign currency, they also limit potential gains
which might result from increases in the value of such currency. Based on
current legal interpretation, the Fund does not consider forward foreign
currency exchange contracts to be commodities or commodity contracts for
purposes of the Series' fundamental restrictions concerning investment in
commodities or commodity contracts, as set forth in the Statement of
Additional Information.
CURRENCY FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
A currency futures contract is an agreement for the purchase or sale for
future delivery of foreign currencies. A "sale" of a currency futures
contract means the obligation to deliver the foreign currencies called for by
the contract at a specified price on a specified date while a "purchase" of a
currency futures contract means the obligation to acquire the foreign
currencies called for by the contract at a specified price on a specified
date. The Fund will only enter into futures contracts which are traded on
national or foreign futures exchanges and which are standardized as to
maturity date and the underlying financial instrument. Options on currency
futures contracts give the purchaser the right, in return for the premium
paid, to assume a long or short position in the futures contract. The Fund
may not purchase or sell future contracts if immediately thereafter the sum of
the amount of initial margin deposits on any such futures (plus deposits on
any other futures contracts and premiums paid in connection with any options
or futures contracts) that do not constitute "bona fide hedging" under the
CFTC rules would exceed 5% unrealized profits and losses on such contracts.
In addition, the value of all futures contracts sold will not exceed the total
market value of the Series' portfolio.
FOREIGN CURRENCY OPTIONS
A call option on a foreign currency is a short-term contract pursuant to
which the purchaser of the option, in return for a premium, has the right to
buy the currency underlying the option at a specified price at any time during
the term of the option. The writer of a call option, who receives the
premium, has the obligation, upon exercise of the option during the option
term, to deliver the underlying currency against payment of the exercise
price. Conversely, a put option on a foreign currency gives its purchaser, in
return for a premium, the right to sell the underlying currency at a specified
price during the option term to the writer of the put option, who receives the
premium.
RISKS ASSOCIATED WITH HEDGING STRATEGIES
There are risks associated with the hedging strategies described above,
including the following: (1) the success of a hedging strategy may depend on
the ability of the Advisor to predict movements in the prices of individual
securities, fluctuations in domestic and foreign markets and currency exchange
rates, and movements in interest rates; (2) there may be an imperfect
correlation between the changes in market value of the stocks held by the
Series and the prices of currency contracts, options, futures and options on
futures; (3) there may not be a liquid secondary market for a currency
contract, option, futures contract or futures option; (4) trading restrictions
or limitations may be imposed by an exchange; and, (5) government regulations,
particularly requirements for qualification as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"), may
restrict trading in forward currency contracts, options, futures contracts,
and futures options.
FORWARD COMMITMENTS OR PURCHASES ON A WHEN-ISSUED BASIS
The Series may enter into forward commitments or purchase securities on a
when-issued basis. These securities normally are subject to settlement within
45 days of the purchase date. The interest rate realized on these securities
is fixed as of the purchase date and no interest accrues to the Series before
settlement. These securities are subject to market fluctuation due to changes
in market interest rates. The Series will maintain a separate account with a
segregated portfolio of high quality liquid debt instruments or cash in an
amount at least equal to the purchase price.
MORTGAGE-BACKED SECURITIES
The Series may purchase mortgage-backed securities which represent an
interest in a pool of mortgage loans. The primary government issuers or
guarantors of mortgage-backed securities are the Government National Mortgage
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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") that are
rated in one of the top two rating categories by S&P or Moody's. The
mortgages backing these securities include conventional thirty-year fixed rate
mortgages, graduated payment mortgages, and adjustable rate mortgages. CMOs
and REMICs backed solely by GNMA certificates or other mortgage pass-throughs
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities may be supported by various types of insurance. However,
the guarantees or insurance do not extend to the mortgage-backed securities'
values, which are likely to vary inversely with fluctuations in interest
rates.
Mortgage-backed securities are in most cases "pass-through" instruments,
through which the holder receives a share of all interest and principal
payments from the mortgages underlying the certificate. When the Advisor is
determining the maturity of pass-through certificates the Advisor will
consider the maturity to be equal to the average life rather than the stated
maturity. During periods of declining interest rates, prepayment of mortgages
underlying mortgage_backed securities can be expected to accelerate. When the
mortgage obligations are prepaid, the Series reinvests the prepaid amounts in
securities, the yield of which reflects interest rates prevailing at the time.
Moreover, prepayment of mortgages which underlie securities purchased at a
premium could result in capital losses.
To the extent that the Series purchases mortgage-related or
mortgage-backed securities at a premium, mortgage foreclosures and prepayments
of principal (which may be made at any time without penalty) may result in
some loss of the Series' principal investment to the extent of the premium
paid. The yield of the Series may be affected by reinvestment of prepayments
at higher or lower rates than the original investment. In addition, like
other debt securities, the value of mortgage-related securities, including
government and government-related mortgage pools, will generally fluctuate in
response to market interest rates.
SECURITIES LENDING
The Series may seek to increase its income by lending portfolio
securities. Such loans will usually be made to member firms (and subsidiaries
thereof) of the New York Stock Exchange and to member banks of the Federal
Reserve System and would be required to be secured continuously by collateral
in cash, cash equivalents or U.S. Treasury securities maintained on a current
basis at an amount at least equal to the market value of the securities
loaned. If the Advisor determines to make securities loans, the value of the
securities loaned would not exceed 30% of the value of the total assets of the
Series.
HIGH YIELD DEBT SECURITIES
High risk, high yield securities rated below BBB or lower by S&P or Baa
or lower by Moody's are considered to have speculative characteristics and
involve greater risk of default or price changes due to changes in the
issuer's credit-worthiness. Market prices of these securities may fluctuate
more than high-rated securities and they are difficult to price at times
because they are more thinly traded and less liquid securities. Market prices
may decline significantly in periods of general economic difficulty which may
follow periods of rising interest rates. Securities in the lowest rating
category may be in default. For these reasons, it is the Series' policy not
to rely primarily on ratings issued by established credit rating agencies, but
to utilize such ratings in conjunction with the Advisor's independent and
ongoing review of credit quality. In the event a security is downgraded below
these ratings after purchase, the Advisor will review and take appropriate
action with regard to the security. The Series will also seek to minimize
risk by diversifying its holdings.
PRINCIPAL INVESTMENT RESTRICTIONS
The Series is subject to certain investment restrictions which are
fundamental policies that cannot be changed without the approval of the
holders of a majority, as defined in the 1940 Act, of the Series' outstanding
shares.
The Series may borrow money, but only from a bank for temporary or
8
<PAGE>
emergency purposes in amounts not exceeding 10% of the Series' total assets
and the Series will not make additional investments while borrowings greater
than 5% of its total assets are outstanding.
The Series may not invest 25% or more of the value of its total assets in
securities of issuers in any one industry.
The Series may not invest more than 10% of its total net assets in
securities of issuers that are restricted from being sold to the public
without registration under the Securities Act of 1933 and illiquid securities,
including repurchase agreements with maturities of greater than seven days.
The Series may invest its assets in securities of any other investment
company (closed-end and open-end), (1) by purchase in the open market
involving only customary brokers' commissions, (2) in connection with mergers,
acquisitions of assets, or consolidation, or (3) as otherwise permitted by
law, including the 1940 Act.
The Series may not make loans, except through loans of portfolio
securities and repurchase agreements.
Additional information about the Series' investment restrictions is
contained in the Statement of Additional Information.
MANAGEMENT
The overall business and affairs of the Company are managed by its Board
of Directors. The Board approves all significant agreements between the
Company and persons or companies furnishing services to the Company, including
the Company's agreements with its Investment Advisor and Custodian. The
day-to-day operations of the Company are delegated to the Company's officers
and to Manning & Napier Advisors, Inc. (the "Advisor"), 1100 Chase Square,
Rochester, New York 14604. A committee made up of investment professionals
and analysts make all the investment decisions for the Fund.
The Advisor acts as Investment Advisor to the Company and supervises and
arranges the purchase and sale of securities held in the portfolio of the
Fund. Mr. William Manning controls the Advisor by virtue of his ownership of
the securities of the Advisor. The Advisor also is generally responsible for
supervision of the overall business affairs of the Company including
supervision of service providers to the Fund and direction of the Advisor's
directors, officers, or employees who may be elected as officers of the
Company to serve as such.
As of the date of this Prospectus, the Advisor supervised over $5.5
billion in assets of clients, including both individuals and institutions.
For its services to the Company under the Investment Advisory Agreement, the
Company pays the Advisor a fee, computed daily and payable monthly, at an
annual rate of 1% of the Company's daily net assets. This fee is higher than
the mean fee paid by all other mutual funds. The advisory fee charged by the
Advisor to its investment advisory clients will not include or be based on
assets of such clients held in shares of the Company. The Company is
responsible for its operating expenses, including: (i) interest and taxes;
(ii) brokerage commissions; (iii) insurance premiums; (iv) compensation and
expenses of its Directors other than those affiliated with the Advisor; (v)
legal and audit expenses; (vi) fees and expenses of the Fund's Custodian,
Shareholder Servicing or Transfer Agent and Accounting Services agent, if
obtained for the Fund from an entity other than the Advisor; (vii) expenses
incidental to the issuance of its shares, including issuance on the payment
of, or reinvestment of, dividends and capital gain distributions; (viii) fees
and expenses incidental to the registration under federal or state securities
laws of the Fund or its shares; (ix) expenses of preparing, printing and
mailing reports and notices and proxy material to shareholders of the Fund;
(x) all other expenses incidental to holding meetings of the Fund's
shareholders; (xi) dues or assessments of or contributions to the Investment
Company Institute or any successor; and, (xii) such non-recurring expenses as
may arise, including litigation affecting the Fund and the legal obligations
with respect to which the Fund may have to indemnify its officers and
Directors.
The Advisor may use its own resources to engage in activities that my
promote the sale of the Fund, including payments to third parties who provide
shareholder support servicing and distribution assistance. Investors may be
charged a fee if they effect transactions through a broker or agent.
9
<PAGE>
YIELD AND TOTAL RETURN
From time-to-time the Series may advertise its total return. Both
yield and total return figures are based on historical earnings and are not
intended to indicate future performance. The "total return" of a Series
refers to the average annual compounded rates of return over one-, five-, and
ten-year periods or for the life of the Series (as stated in the
advertisement) that would equate an initial amount invested at the beginning
of a stated period to the ending redeemable value of the investment, assuming
the reinvestment of all dividend and capital gains distributions.
PURCHASES, EXCHANGES AND REDEMPTIONS OF SHARES
The minimum initial investment in the Series is $2,000 and subsequent
purchases must be at least $100. The Distributor reserves the right to waive
these minimum initial or subsequent investment requirements in its sole
discretion. The Distributor has the right to refuse any order. The
Distributor may suspend offering shares to other than discretionary management
accounts of the Advisor.
Purchases and redemptions of shares of the Series may be made on any day
the New York Stock Exchange is open for trading.
A purchase order will be effective as of the day received by the
Distributor, Transfer Agent, or its agents, if the order is received before
4:00 p.m., Eastern Standard time by the Distributor, Transfer Agent, of its
agents. Payment may be made by check or readily available funds. The
purchase price of shares of the Series is the net asset value next determined
after a purchase order is effective.
The shares of the Series may be purchased in exchange for securities to
be included in the Series, subject to the Advisor's determination that these
securities are acceptable. Securities accepted in an exchange will be valued
at market value. All accrued interest and purchase or other rights which are
reflected in the market price of accepted securities at the time of valuation
become the property of the Series and must be delivered by the shareholder to
the Series upon receipt from the issuer.
The Advisor will not accept securities for the Series unless: (1) such
securities are appropriate in the Series at the time of the exchange; (2) the
shareholder represents and agrees that all securities offered to the Series
are not subject to any restrictions upon their sale by the Series under the
Securities Act of 1933, or otherwise; and, (3) prices are available from an
independent pricing service provided by the Series' Board of Directors.
Shareholders may purchase shares regularly through the Automatic
Investment Plan with a pre-authorized draft drawn on their checking or
statement savings accounts. Under this plan, the shareholder may elect to
have a specified amount invested on a regular schedule. The amount specified
by the shareholder will be withdrawn from the shareholder's bank account using
the pre-authorized draft. This amount will be invested at the applicable
share price determined on the date the amount is available for investment.
Participation in the Automatic Investment Plan may be discontinued either by
the Fund or the Shareholder upon 30 days' prior written notice to the other
party. A shareholder who wishes to enroll in the Automatic Investment Plan
may do so by completing the applicable section of the Account Application Form
or contacting the Fund for an Automatic Investment Plan Form.
As permitted pursuant to any rule, regulation or order promulgated by the
Securities and Exchange Commission, some or all of the shares in a direct
investment account with the Fund for which payment has been received by the
Transfer Agent may be exchanged for shares of any of the other Manning &
Napier Fund, Inc. Series at the net asset value. Shareholders may effect up
to 4 exchanges in a 12-month period without charge. Subsequent exchanges are
subject to a fee of $15. Exchanges will be made after instructions in writing
or by telephone are received by the Transfer Agent in proper form (i.e., if in
writing - signed by the record owner(s) exactly as the shares are registered;
if by telephone - proper account identification is given by the shareholder)
and each exchange must involve either shares having an aggregate value of at
least $1,000 or all the shares in the account. A shareholder should read the
prospectus of the other Series and consider the differences in objectives and
policies before making any exchange. The exchange privilege may not be
available in all states. For federal and state income tax purposes, an
exchange is treated as a sale of the shares exchanged, and therefore an
10
<PAGE>
exchange could result in a gain or loss to the shareholder making the
exchange. The Series may modify or terminate this exchange offer upon 60 days
notice to shareholders subject to applicable law.
If a shareholder desires to redeem his shares at their net asset value,
the shareholder must send a written request for redemption in "good order" to
the Transfer Agent. "Good Order" generally means that the written request for
redemption must be endorsed by the record owner(s) exactly as the shares are
registered and the signature(s) must be guaranteed by an "eligible guarantor
institution" as the term is defined under Rule 17Ad-15(a)(2) under the
Securities Exchange Act of 1934. Currently, such procedures generally permit
guarantees by a commercial bank or trust company, a member bank of the Federal
Reserve System, or a member firm of a national securities exchange.
Redemption requirements for corporations, other organizations, trusts,
fiduciaries, and retirement plans may require additional documentation. Please
contact the Transfer Agent at 1-800-466-3863 for more information. The
Transfer Agent may make certain de minimis exceptions to the above
requirements for redemption. Within three days after receipt of a redemption
request by the Transfer Agent in "good order", the Series will make payment in
cash, except as described below, of the net asset value of the shares next
determined after such redemption request was received, except during any
period in which the right of redemption is suspended or date of payment is
postponed because the New York Stock Exchange is closed or trading on such
Exchange is restricted or to the extent otherwise permitted by the 1940 Act if
an emergency exists. For shares purchased, or received in exchange for shares
purchased, by check (including certified checks or cashier's checks), payment
of redemption proceeds may be delayed up to 15 days from the purchase date in
an effort to assure that such check has cleared.
Subject to the Series' compliance with applicable regulations, the Series
has reserved the right to pay the redemption price either totally or partially
by a distribution in-kind of securities (instead of cash) from the Series'
portfolio. The securities distributed in such a distribution would be valued
at the same amount as that assigned to them in calculating the net asset value
for the shares being sold. If a shareholder received a distribution in-kind,
he could incur brokerage or transaction charges when converting the securities
to cash.
Due to the relatively high cost of maintaining small accounts, the Series
reserves the right to redeem shares in any account for their then-current
value (which will be promptly paid to the shareholder) if at any time the
total investment in such account drops below $1,000 because of redemptions
(but not due to changes in net asset value). Shareholders will be notified
that the value of their account is less than the minimum investment
requirement and allowed 60 days to make an additional investment before the
redemption is processed.
Manning & Napier Investor Services, Inc. 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.
NET ASSET VALUE
The Series' net asset value per share is determined as of the closing
time of the New York Stock Exchange or, in the absence of a closing time, 4:00
p.m. Eastern standard time on each day that the New York Stock Exchange is
open for trading. The exchange annually announces the days on which it will
not be open for trading; the most recent announcement indicates that it will
not be open on: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value per share is the value of the Series' assets, less
its liabilities, divided by the number of shares of the Series outstanding.
The value of the Series' portfolio securities will be the market value of such
securities as determined based on quotes provided by a pricing service (which
uses the methodology outlined in the "Net Asset Value" section of the
Statement of Additional Information) approved by the Board of Directors, or,
in the absence of market quotations, fair value as determined in good faith by
or under the direction and control of the Board of Directors. Short-term
investments which mature in less than 60 days are normally valued at amortized
cost. Assets initially expressed in foreign currencies will be converted into
11
<PAGE>
U.S. dollars as of the exchange rates quoted by any major bank. If such
quotes are not available, the exchange rates will be determined in accordance
with policies established in good faith by the Board of Directors. See the
Statement of Additional Information for further information.
DIVIDENDS AND TAX STATUS
DIVIDENDS AND DISTRIBUTIONS
The Series expects to pay ordinary income dividends and capital gain
distributions, if any, annually. Dividends and distributions will be paid in
full and fractional shares of the Series, based on the net asset value per
share at the close of business on the record date, although a shareholder may,
prior to the record date, request, by writing or by telephone call to the
Fund, that payments of either ordinary income dividends or capital gain
distributions, or both, be made in cash. The Fund will notify each
non-corporate taxable shareholder after the close of its fiscal year both of
the dollar amount and the tax status of that year's distributions. Generally,
the Fund will be required to impose backup withholding at the rate of 31%
from ordinary income dividends, capital gain distributions, and redemption
payments made to non_corporate shareholders, if provisions of the law relating
to the furnishing of taxpayer identification numbers and reporting of
dividends are not complied with by such shareholders.
TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a general summary of certain federal income tax
considerations affecting the Series and its shareholders. No attempt is made
to present a detailed explanation of the tax treatment of the Series or its
shareholders, and the discussion here is not intended as a substitute for
careful tax planning. This Series is not managed with respect to tax outcomes
for its shareholders.
Under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), the Series is treated as a separate entity for federal income tax
purposes. The Series intends to qualify each year as a regulated investment
company under Subchapter M of the Code. If the Series so qualifies, it will
not be subject to federal income taxes on its net investment income and
capital gains, if any, which the Series distributes to its shareholders,
provided that at least 90% of such Series' "investment company taxable income"
(generally, net investment income and the excess of net short-term capital
gain over net long-term capital loss) for the taxable year is distributed, and
provided that the Series meets certain other requirements imposed by the Code.
All dividends paid or distributed out of investment company taxable income
will be taxable as ordinary income to the shareholders. Any "net capital
gain" (the excess of net long-term capital gain over net short-term capital
loss) distributed to shareholders is taxable as long-term capital gain to the
shareholders, regardless of the length of time a shareholder has owned his
shares. Generally, such dividends and distributions are taxable in the year
in which received, but dividends and distributions declared in October,
November or December of any year to shareholders of record on a date in such
month are treated as paid on December 31 of such year if they are paid during
January of the following calendar year. Dividends and distributions are not
taxable to shareholders that are not otherwise subject to tax on their income,
such as qualified employee benefit plans. In view of the Series' investment
policy, ordinary income dividends, if any, are expected to be small.
A 4% non-deductible federal excise tax is imposed on a regulated
investment company that fails to distribute substantially all of its ordinary
income and capital gain net income for each calendar year. Currently, the
Series intends to make sufficient distributions of its ordinary income and
capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
Future legislative changes may materially affect the tax consequences of
investing in the Series. Shareholders are urged to consult their tax advisors
for the application of these rules (and other potentially relevant rules) to
their particular circumstances. Shareholders are also urged to consult their
tax advisors concerning the application of state and local income taxes and of
foreign taxes to investments in the Series, which may differ from the U.S.
federal income tax consequences described above.
ADDITIONAL DIVIDEND AND TAX INFORMATION
Income, such as dividends and interest, received by the Fund may give
rise to withholding taxes imposed by foreign countries, generally at rates
from 10% to 40%. Tax conventions and treaties between such countries and the
12
<PAGE>
United States may reduce or eliminate such taxes.
If more than 50% of the value of the Fund's total assets at the close of
its fiscal year consists of stocks or securities of foreign corporations, the
Fund will be eligible to file elections with the Internal Revenue Service
pursuant to which shareholders of the Fund will be required to include in
gross income their respective pro rata portions of foreign taxes paid by the
Fund, and either deduct such respective pro rata portions in computing their
taxable incomes or, alternatively, use such pro rata portions as foreign tax
credits against their U.S. income taxes. Investors should note that Code
Section 904 imposes significant limitations on a taxpayer's ability to claim
the foreign tax credit.
GENERAL INFORMATION
The Company was incorporated on July 26, 1984 as a Maryland corporation.
The Board of Directors may, at its own discretion, create additional series of
shares, each of which would have separate assets and liabilities.
The Company 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
Company will assist with shareholder communications in connection with the
meeting. The shares of the Company have equal rights with regard to voting,
redemption, dividends, distributions and liquidations. The Company's
shareholders will vote in the aggregate and not by Series except as otherwise
expressly required by law or when the Board of Directors determines that the
matter to be voted upon affects only the interests of the shareholders of a
Series. Income, direct liabilities and direct operating expenses of each
Series will be allocated directly to each Series, and general liabilities and
expenses of the Fund will be allocated among the Series in proportion to the
total net assets of each Series by the Board of Directors. The holders of
shares have no preemptive or conversion rights. Shares when issued are fully
paid and non-assessable and do not have cumulative voting rights.
All securities and cash are held by Boston Safe Deposit and Trust
Company. Coopers & Lybrand, L.L.P. serves as independent accountants for the
Series and will audit its financial statements annually.
Manning & Napier Advisors, Inc. serves as the Fund's Transfer and
Dividend Disbursing Agent. Shareholder inquiries should be directed to
Manning & Napier Fund, Inc., P.O. Box 41118, Rochester, New York 14604.
13
<PAGE>
APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
Moody's Investors Services, Inc.'s corporate bond ratings:
Aaa - Bonds which are rated Aaa are judged to be of the best quality 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 principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
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 rated Caa represent obligations which are speculative in a
high degree. Such issues are often in default of have other marked
shortcomings.
C - Bonds which are rated C are 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.
Standard & Poor's Corporation's corporate bond ratings:
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only to a small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than in higher rated categories.
14
<PAGE>
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's Investor Services, 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 of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
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
issues 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 - This rating is 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.
15
<PAGE>
MANNING & NAPIER FUND, INC.
SMALL CAP SERIES
No person has been authorized to give any information or to make
representations not contained in this Prospectus in connection with any
offering made by this Prospectus and, if given or made, such information must
not be relied upon as having been authorized by the Fund. This Prospectus
does not constitute an offering by the Fund in any jurisdiction in which such
offering may not lawfully be made.
PROSPECTUS
TABLE OF CONTENTS
Annual Operating Expenses 3
Condensed Financial Information 4
The Fund 5
Risk and Investment Objectives and Policies 5
Risk and Additional Information about Investment Policies 6
Principal Investment Restrictions 10
Management 10
Yield and Total Return 11
Purchases, Exchanges and Redemptions of Shares 11
Net Asset Value 13
Dividends and Tax Status 13
General Information 14
Appendix 15
<PAGE>
MANNING & NAPIER FUND, INC.
P.O. Box 41118
Rochester, New York 14604
(800) 466-3863
SMALL CAP SERIES
Manning & Napier Fund, Inc. (the "Fund"), is an open-end management
investment company consisting of multiple series, each a separate investment
portfolio having its own investment objective and policies. This Prospectus
relates to the Small Cap Series of the Fund (the "Series"). The Series'
investment objective is to provide long-term growth of capital by investing
principally in the equity securities of small issuers.
This Prospectus provides you with the basic information you should know
before investing in the Series. The Fund's other series are offered through
separate prospectus. You should read this Prospectus and keep it for future
reference. A Statement of Additional Information, dated March 6, 1996,
containing additional information about the Fund has been filed with the
Securities and Exchange Commission and is incorporated by reference in this
Prospectus in its entirety. You may obtain a copy of the Statement of
Additional Information without charge by contacting the Fund at the address or
telephone number listed above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MARCH 6, 1996.
<PAGE>
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
(as a percentage of offering price)
<S> <C>
Maximum Sales Charge Imposed on Purchases None
Redemption Fees (1) None
</TABLE>
(1) A wire charge, currently $15, will be deducted by the Transfer Agent
from the amount of a wire redemption payment made at the request of a
shareholder. Such amount is not included in the "Annual Operating
Expenses of the Series."
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES
The following information provides (i) a tabular summary of expenses relating
to the annual operating expenses of the Series and (ii) an example
illustrating the dollar cost of such expenses on a $1,000 investment.
2
<PAGE>
Annual Operating Expenses of the Series (as a percentage of average net
assets):
<S> <C>
Management Fees 1.00%
12b-1 Fees None
Other Expenses 0.07%
-----
Total Operating Expenses of the Series 1.07%
</TABLE>
<TABLE>
<CAPTION>
Example
You would pay the following expenses on a $1,000 investment, assuming a) 5.0%
annual return and b) redemptions at the end of each time period:
1 year 3 years 5 years 10 years
------- -------- -------- ---------
<S> <C> <C> <C> <C>
Small Cap Series $ 11 $ 34 $ 59 $ 131
</TABLE>
(2)The Small Cap Series was engaged in active investment operations
for the year ended December 31, 1995; therefore, actual management fees and
other expenses are used above.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Series. For a
more complete description of the various costs and expenses illustrated above,
please refer to the Management section of this Prospectus.
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
<TABLE>
<CAPTION>
Financial Highlights
The following table provides selected per share data and ratios for the Small Cap Series (for a share outstanding
throughout the period over the various periods shown). The table is part of the Series' audited
financial statements, which are included in the Statement of Additional Information incorporated by reference
into this Prospectus.
For the period
April 30, 1992
For the year For the year For the year (recommencement
ended ended ended of operations)
SMALL CAP SERIES (1)(2) Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993 to Dec. 31, 1992
<S> <C> <C> <C> <C> <C>
3
<PAGE>
Net asset value - $ 12.92 $ 12.52 $ 11.24 $ 10.00 (10)
Beginning of period
Income from investment
operations
Net investment 0.00 (0.07) (0.04) (0.02)
income (loss)
Net realized and unrealized
gain (loss)
on investments 1.93 1.05 1.70 1.63
Total from investment 1.93 0.98 1.66 1.61
operations
Less distributions declared
to shareholders
From net realized gain (2.90) (0.58) (0.38) (0.29)
on investments
In excess of net realized gains - - - (0.08) (9)
Redemption of capital - - - -
Total distributions declared (2.90) (0.58) (0.38) (0.37)
to shareholders
Net asset value - End of period $ 11.95 $ 12.92 $ 12.52 $ 11.24
Total Return 14.70% 8.01% 14.64% 25.00% (5)
Ratios (to average net assets)
/Supplemental data:
Expenses(8) 1.07% 1.10% 1.13% 1.27% (5)
Net investment income (0.03)% (0.58)% (0.43)% (0.26)% (5)
Portfolio Turnover 77% 31% 12% 24%
Average Commission Rate Paid $ 0.05 - - -
Net assets - End of period $ 143,003 $ 105,522 $ 70,734 $ 33,079
(000's omitted)
For the period For the period
Jan. 1, 1989 to Jan. 6, 1986
July 24, 1989 For the year For the year (commencement of
(date of full ended ended operations) to
SMALL CAP SERIES (1)(2) redemption) Dec. 31, 1988 (3) Dec. 31, 1987 Dec. 31, 1986 (4)
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value - $ 8.96 $ 8.93 $ 8.08 $ 10.00
Beginning of period
Income from investment
operations
Net investment (0.39) 0.10 0.13 (0.09)
income (loss)
Net realized and unrealized
gain (loss)
on investments - (0.07) 0.75 (1.83)
Total from investment (0.39) 0.03 0.88 (1.92)
operations
4
<PAGE>
Less distributions declared
to shareholders
From net realized gain - - (0.03) -
on investments
In excess of net realized gains - - - -
Redemption of capital (8.57) - - -
Total distributions declared (8.57) - (0.03) -
to shareholders
Net asset value - End of period $ - $ 8.96 $ 8.93 $ 8.08
Total Return - (7) 0.33% 10.89% -19.44% (5)
Ratios (to average net assets)
/Supplemental data:
Expenses(8) 14.59% (5)(7) 1.34% 2.26% 9.08% (5)
Net investment income (8.02)% (5)(7) 0.91% 0.95% -5.62% (5)
Portfolio Turnover - (6) - (6) 76% - (6)
Average Commission Rate Paid - - - -
Net assets - End of period $ - $ 90 $ 36,193 $ 1,608
(000's omitted)
</TABLE>
(1) Prior to July 8, 1993, the investment practice of the Fund
resulted in the active operation of the investment portfoliofor discrete
periods. On April 30, 1992, the Fund resumed sales of shares to advisory
clients and employees of Manning & Napier Advisors, Inc. and its affiliates.
On July 8, 1993, the Fund began offering shares directly toinvestors.
Previously, the Fund was in active operation from November 11, 1986 to May 14,
1987 and from December 1, 1987 to April 13, 1988.
During the period of January 6, 1986 to November 10, 1986, May 15, 1987 to
November 30, 1987 and April 14,1988 to July 24, 1989, the only shareholder of
the Fund were the shareholders who provided the initialcapitalization for the
Fund (the "Initial Shareholders"). During the periods when the only
shareholders of the Fund were the Initial Shareholders, assets of the Fund
were invested in U.S. Treasury securities. On July 11 and 24, 1989the shares
held by the Initial Shareholders were redeemed in full and the Fund remained
dormant until April 30, 1992.
(2) Per share data for all period prior to May 18, 1988, have been restated to
reflect the 10 for 1 stock dividend effectedon May 18, 1988.
(3) Per share data was determined using a monthly average of the shares
outstanding throughout the period.
(4) On November 11, 1986, the Fund commenced sales of shares of the Small Cap
Series to persons who wereinvestment advisory clients of the Fund's Advisor.
Prior to that date, the Small Cap Series did not engage in any business
operations other than to purchase and hold approximately $100,000 of U.S.
Treasury securities.
(5) Annualized.
(6) For these periods, there were no purchases of securities whose
maturities or expiration
dates were greater than one year from the acquisition date.
(7) During the period January 1, 1989 to July 24, 1989, the only shareholders
and resulting
assets were those of the Initial Shareholders, as described in Note 1, who
redeemed their shares on July 11 and 24, 1989; therefore, the ratios and total
return presented may not be representative of an actively operating fund.
5
<PAGE>
(8) Absent fee waivers, the ratios of expenses to average daily net assets is
as follows:1.27% (for the period 4/30/92 to 12/31/92); 15.57% (for the period
1/1/89 to 7/24/89);1.34% (for the year ended 12/31/88); 2.27% (for the year
ended 12/31/87); and 9.34%(for the period 1/6/88 (commencement of operations)
to 12/31/86).
(9) Distributions differ from net investment income and net realized capital
gains because of book/tax timing differences, primarily due to the
requirements of the excise tax required the Series to measure capital gains
through October 31, 1992. The excise tax regulations also required the Series
to distribute those gains before December 31, 1992 to avoid
payment of excise tax.
(10) Initial offering price upon recommencement of operations on April 30,
1992.
6
<PAGE>
THE FUND
The Fund is an open-end management investment company incorporated under
the laws of the State of Maryland on July 26, 1984. This prospectus relates
to the Small Cap Series of the Fund (the "Series"). The Series is a
diversified fund.
Shares of the Series are offered directly to investors and to employees
and clients of the Advisor or its affiliates that have authorized investment
in the Fund as part of the discretionary account management services of the
Advisor or its affiliates. There are no fees or expenses charged to any
investor in connection with acquisition of Fund shares.
Historically, shares of the Fund were available only in connection with
certain strategies the Advisor employed on behalf of discretionary account
clients that had authorized the Advisor to acquire and dispose of Fund shares
on their behalf. These strategies entailed using one or more series of the
Fund as a means to capture opportunities in specific market or industry
sectors and to provide diversification among asset classes (e.g.,
international diversification or portfolio diversification among small-cap
stocks) that could not otherwise be captured efficiently and with sufficient
diversification. Once an investment opportunity was captured for a Series,
that Series would ordinarily be "collapsed" (i.e., securities sold and the
shares of the Series redeemed) and the proceeds returned to the individual
client accounts.
The Advisor may also make the shares of the Fund offered hereby available
in additional circumstances. First, Fund shares, including shares of series
offered through separate prospectuses, may be used in connection with a
discretionary account management service that uses Fund shares as the
principal underlying investment medium. In addition, shares are offered to
investors that are not discretionary account clients of the Advisor. Series
made available in this way could no longer be collapsed at the Advisor's sole
discretion.
Since the Series may be used under varying conditions and market prices,
the result for a given investor might differ from the result that would have
been obtained had the Series been used only for clients with the same
investment objective. However, the Advisor seeks to manage cash flows into
and out of the Series in the interests of the Fund and its clients so as to
minimize the effect on performance.
As a general rule, the investment in shares of a Series on behalf of
discretionary account clients is limited to a maximum of 5% -- or if the
Advisor believes that the opportunity to capture investment values or to
diversify risk among asset classes is particularly compelling, to a maximum of
10% -- of the client's portfolio.
RISK AND INVESTMENT OBJECTIVES AND POLICIES
The objective of the Series is to provide long-term growth of capital.
7
<PAGE>
There is no assurance that the Series will attain its objective. The Series
will attempt to achieve its objective by investing primarily in equity
securities as described below. Equity securities consist of common stocks and
other securities having some of the characteristics of common stocks, such as
convertible preferred stocks, convertible bonds and warrants. The Series does
not intend to invest more than 5% of the value of its total net assets in
warrants. The principal factor in selecting convertible bonds will be the
potential opportunity to benefit from movement in the stock price. There will
be no minimum rating standards for debt aspects of such securities.
Convertible bonds purchased by the Series may be subject to the risk of being
called by the issuer. However, the Series will not buy bonds if they are in
default as to payment of principal or interest.
The Series expects to be fully invested in equity securities under normal
circumstances. During periods when economic conditions in the primary
investment industries or vehicles for the Series are unfavorable or when
market conditions suggest a temporary defensive position, the Series may
invest its assets in U.S. Government securities, corporate bonds and money
market instruments, including, but not limited to, commercial paper, bankers'
acceptances, certificates of deposit and repurchase agreements, rated in one
of the top two rating categories by a major rating service or, if unrated, of
comparable quality as determined by the Advisor (see the Appendix for
details). In addition, even under normal circumstances the Series may to
varying degrees invest in certain types of securities or use certain
techniques and strategies discussed below under "Risk and Additional
Information About Investment Policies".
The Series seeks to achieve its investment objective by investing
principally in equity securities of small issuers. In general, a small issuer
is one which has a market capitalization less than $700 million, or less than
the median market capitalization of the S&P Midcap Index (the median market
capitalization of the S&P Midcap Index as of the close on December 31, 1995
was approximately $1,149.4million), whichever is greater at the time of
investment. The Series will, under normal circumstances, have at least 65% of
the value of its total net assets invested in such securities; the balance, if
any, will be invested in equity securities of other than small issuers
considered appropriate by the Advisor. Current income is not a factor in
pursuing the Series' objective.
Investing in the equity securities of small companies involves greater
risk than investing in such securities of larger companies, because the equity
securities of small companies may have less marketability and may be subject
to more abrupt or erratic market movements than the equity securities of
larger companies.
The Series' investment objective and policies as described above are not
fundamental policies and may be changed without shareholder approval; however,
it is the Board of Directors' policy to notify shareholders prior to any
material change.
RISK AND ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
In attempting to achieve its objective, the Series may follow a number of
investment strategies as described below. These strategies have been
voluntarily adopted by the Board of Directors based upon current circumstances
and may be changed or amended by action of the Board of Directors without
prior notice or approval of the Series' shareholders. Additional information
concerning these strategies and their related risks is contained in the
Statement of Additional Information.
FOREIGN SECURITIES
In seeking its objective, the Series may invest up to 10% of its assets
in foreign securities which are not publicly traded in the United States.
The Series may invest without limit in equity securities of foreign issuers
that are listed on a domestic securities exchange or are represented by
American Depository Receipts that are listed on a domestic securities exchange
or are traded in the United States on the over-the-counter market. The
Series' restriction on investment in foreign securities is a fundamental
policy that cannot be changed without the approval of a majority, as defined
in the Investment Act of 1940 (the "1940 Act"), of the outstanding voting
securities of the Series.
There are risks in investing in foreign securities not typically involved
8
<PAGE>
in domestic investing. An investment in foreign securities may be affected by
changes in currency rates and in exchange control regulations. Foreign
companies are frequently not subject to the accounting and financial reporting
standards applicable to domestic companies, and there may be less information
available about foreign issuers. There is frequently less government
regulation of foreign issuers than in the United States. In addition,
investments in foreign countries are subject to the possibility of
expropriation or confiscatory taxation, political or social instability or
diplomatic developments that could adversely affect the value of those
investments. There may also be imposition of withholding taxes. Foreign
financial markets may have less volume and longer settlement periods than U.S.
markets which may cause liquidity problems for the Series. In addition, costs
associated with transactions on foreign markets are generally higher than for
transactions in the U.S. Obligations of foreign governmental entities are
subject to various types of governmental support and may or may not be
supported by the full faith and credit of a foreign government.
REPURCHASE AGREEMENTS
The Series may enter into repurchase agreements with respect to portfolio
securities. Under the terms of a repurchase agreement, the Series purchases
securities ("collateral") from financial institutions such as banks and
broker-dealers (the "seller") which the Advisor deems to be creditworthy,
subject to the seller's agreement to repurchase them at a mutually agreed-upon
date and price. The repurchase price generally equals the price paid by the
Series plus interest negotiated on the basis of current short-term rates
(which may be more or less than the rate on the underlying portfolio
securities).
The seller under a repurchase agreement is required to maintain the value
of the collateral held pursuant to the agreement at not less than 100% of the
repurchase price, and securities subject to repurchase agreements are held by
the Series' Custodian either directly or through a securities depository.
Default by the seller would, however, expose the Series to possible loss
because of adverse market action or delay in connection with the disposition
of the underlying securities. Repurchase agreements are considered to be
loans by the Series under the 1940 Act.
U.S. GOVERNMENT SECURITIES
The Series may purchase securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. Direct obligations of the U.S.
Government include bills, notes and bonds issued by the U.S. Treasury and
obligations issued or guaranteed by U.S. agencies or instrumentalities. The
obligations of certain U.S. agencies (i.e., the Government National Mortgage
Association) are backed by the full faith and credit of the U.S. Government or
are supported by the agencies' rights to borrow from the U.S. Treasury. The
issues of other agencies are supported only by the credit of the agency (e.g.,
the Federal National Mortgage Association).
SHORT SALES
The Series may within limits, engage in short sales "against the box". A
short sale is the sale of borrowed securities; a short sale against the box
means that the Series owns securities equivalent to those sold short. No more
than 25% of the net assets (taken at current value) of the Series may be held
as collateral for such sales at any one time. Such short sales can be used as
a hedge and as a method of deferring realized capital gains from one taxable
year to the next for tax purposes.
FORWARD COMMITMENTS OR PURCHASES ON A WHEN-ISSUED BASIS
The Series may enter into forward commitments or purchase securities on a
when-issued basis. These securities normally are subject to settlement within
45 days of the purchase date. The interest rate realized on these securities
is fixed as of the purchase date and no interest accrues to the Series before
settlement. These securities are subject to market fluctuation due to changes
in market interest rates. The Series will maintain a separate account with a
segregated portfolio of high quality liquid debt instruments or cash in an
amount at least equal to the purchase price.
MORTGAGE-BACKED SECURITIES
The Series may purchase mortgage-backed securities which represent an
interest in a pool of mortgage loans. The primary government issuers or
9
<PAGE>
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") that are
rated in one of the top two rating categories by S&P or Moody's. The
mortgages backing these securities include conventional thirty-year fixed rate
mortgages, graduated payment mortgages, and adjustable rate mortgages. CMOs
and REMICs backed solely by GNMA certificates or other mortgage pass-throughs
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities may be supported by various types of insurance. However,
the guarantees or insurance do not extend to the mortgage-backed securities'
values, which are likely to vary inversely with fluctuations in interest
rates. Mortgage-backed securities are in most cases "pass-through"
instruments, through which the holder receives a share of all interest and
principal payments from the mortgages underlying the certificate. When the
Advisor is determining the maturity of pass-through certificates the Advisor
will consider the maturity to be equal to the average life rather than the
stated maturity. During periods of declining interest rates, prepayment of
mortgages underlying mortgage-backed securities can be expected to accelerate.
When the mortgage obligations are prepaid, the Series reinvests the prepaid
amounts in securities, the yield of which reflects interest rates prevailing
at the time. Moreover, prepayment of mortgages which underlie securities
purchased at a premium could result in capital losses.
ZERO-COUPON BONDS
Some of the securities in which the Series invests may include so-called
"zero-coupon" bonds. Zero-coupon bonds are issued at a significant discount
from face value and pay interest only at maturity rather than at intervals
during the life of the security. The Series is required to accrue and
distribute income from zero-coupon bonds on a current basis, even though it
does not receive that income currently in cash. Thus, the Series may have to
sell investments to obtain cash needed to make income distributions. The
discount in the absence of financial difficulties of the issuer decreases as
the final maturity of the security approaches. Zero-coupon bonds can be sold
prior to their maturity date in the secondary market at the then prevailing
market value, which depends primarily on the time remaining to maturity,
prevailing level of interest rates and the perceived credit quality of the
issues. The market prices of zero-coupon securities are subject to greater
fluctuations in response to changes in market interest rates than bonds which
pay interest currently.
VARIABLE AND FLOATING RATE INSTRUMENTS
Certain of the obligations purchased by the Series may carry variable or
floating rates of interest, may involve a conditional or unconditional demand
feature and may include variable amount master demand notes. Such instruments
bear interest at rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index.
The interest rate on these securities may be reset daily, weekly, quarterly,
or some other reset period and may have a floor or ceiling on charges. There
is a risk that the current interest rate on such obligations may not
accurately reflect existing market interest rates.
HEDGING TECHNIQUES
The Series has reserved the right, subject to authorization by the Board
of Directors prior to implementation, to engage in certain strategies in an
attempt to hedge the Series' portfolio, that is, to reduce the overall level
of risk that normally would be expected to be associated with its investments.
The Series may write covered call options on common stocks; may purchase and
sell (on a secured basis) put options; and may engage in closing transactions
with respect to put and call options. The Series also may purchase forward
foreign currency exchange contracts to hedge currency exchange rate risk. In
addition, the Series is authorized to purchase and sell stock index futures
contracts and options on stock index futures contracts. The Series is also
authorized to conduct spot (i.e., cash basis) currency transactions or to use
currency futures contracts and options on futures contracts and foreign
currencies in order to protect against uncertainty in the future levels of
foreign currency exchange rates. These strategies are primarily used for
hedging purposes; nevertheless, there are risks associated with these
strategies as described below.
10
<PAGE>
OPTIONS ON SECURITIES
A call option is a short-term contract pursuant to which the purchaser of
the option, in return for a premium, has the right to buy the security
underlying the option at a specified price at any time during the term of the
option. The writer of a call option, who receives the premium, has the
obligation, upon exercise during the option term, to deliver the underlying
security against payment of the exercise price. Conversely, a put option
gives its purchaser, in return for a premium, the right to sell the underlying
equity security at a specified price during the option term to the writer of
the put option, who receives the premium. The Series will sell call options
only on a "covered" basis, i.e., it will own the underlying security at all
times, and will write put options only on a secured basis, i.e., it will
maintain an amount equal to the exercise price in a segregated account at all
times. The Series may engage in option transactions for hedging purposes and
to realize a greater current return, through the receipt of premiums, than
would be earned on the underlying securities alone. Options traded in the
over-the-counter market will be considered illiquid unless the Fund has
entered into arrangements with U.S. Government securities dealers to dispose
of such options at a formula price based on a multiple of the original premium
plus the amount by which the option is "in the money".
STOCK INDEX FUTURES CONTRACTS AND OPTIONS ON STOCK INDEX FUTURES CONTRACTS
A stock index futures contract is a bilateral agreement pursuant to which
one party agrees to accept, and the other party agrees to make, delivery of an
amount of cash equal to a specified dollar amount times the difference between
the stock index value at the close of trading of the contract and the price at
which the futures contract is originally struck. No physical delivery of the
stocks comprising the index is made. Options on stock index futures contracts
give the purchaser the right, in return for the premium paid, to assume a long
or short position in a futures contract.
FUTURES CONTRACTS
The Series may purchase and sell financial futures contracts on debt
securities on a commodities exchange or board of trade for certain hedging,
return enhancement and risk management purposes in accordance with applicable
regulations. A financial futures contract is an agreement to purchase or sell
an agreed amount of securities at a set price for delivery in the future. The
Series may not purchase or sell future contracts if immediately thereafter the
sum of the amount of initial margin deposits on any such futures (plus
deposits on any other futures contracts and premiums paid in connection with
any options or futures contracts) that do not constitute "bona fide hedging"
under the Commodity Futures Trading Commission ("CFTC") rules would exceed 5%
of the liquidation value of the Series' total assets after taking into account
unrealized profits and losses on such contracts. In addition, the value of
all futures contracts sold will not exceed the total market value of the
Series' portfolio. The Fund will comply with guidelines established by the
Securities and Exchange Commission with respect to covering of obligations
under futures contracts and will set aside cash and/or liquid high grade
securities in a segregated account with its custodian in the amount
prescribed.
The Series' successful use of futures contracts depends on the Advisor's
ability to predict the direction of the market and is subject to various
additional risks. The correlation between movements in the price of a futures
contract and the price of the securities being hedged is imperfect and there
is a risk that the value of the securities being hedged may increase or
decrease at a greater rate than the related futures contracts resulting in
losses to the Series. Certain futures exchanges or boards of trades have
established daily limits based on the amount of the previous day's settlement
price. These daily limits may restrict the Series' ability to repurchase for
sale certain futures contracts on any particular day.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Series' use of forward foreign currency contracts is limited to
hedging against movements in the value of foreign currencies relative to the
U.S. dollar in connection with specific portfolio transactions or with respect
to existing portfolio positions denominated in such currencies. A transaction
hedge involves the purchase or sale of a forward contract with respect to a
specific receivable or payable of a Series while a position hedge relates to a
specific portfolio holding. A forward foreign currency exchange contract
11
<PAGE>
involves an obligation to purchase or sell a specified currency at a future
date at a price set at the time of the contract. Foreign currency exchange
contracts do not eliminate fluctuations in the values of portfolio securities
but rather allow a Series to establish a rate of exchange for a future point
in time. With respect to any such forward foreign currency contract, it will
not generally be possible to match precisely the amount covered by that
contract and the value of the securities involved due to the changes in the
values of such securities resulting from market movements between the date the
forward contract is entered into and the date it matures. In addition, while
forward contracts may offer protection from losses resulting from declines in
the value of a particular foreign currency, they also limit potential gains
which might result from increases in the value of such currency. Based on
current legal interpretation, the Series does not consider forward foreign
currency exchange contracts to be commodities or commodity contracts for
purposes of the Series' fundamental restrictions concerning investment in
commodities or commodity contracts, as set forth in the Statement of
Additional Information.
CURRENCY FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
A currency futures contract is an agreement for the purchase or sale for
future delivery of foreign currencies. A "sale" of a currency futures
contract means the obligation to deliver the foreign currencies called for by
the contract at a specified price on a specified date while a "purchase" of a
currency futures contract means the obligation to acquire the foreign
currencies called for by the contract at a specified price on a specified
date. The Series will only enter into futures contracts which are traded on
national or foreign futures exchanges and which are standardized as to
maturity date and the underlying financial instrument. Options on currency
futures contracts give the purchaser the right, in return for the premium
paid, to assume a long or short position in the futures contract. The Series
may not purchase or sell future contracts if immediately thereafter the sum of
the amount of initial margin deposits on any such futures (plus deposits on
any other futures contracts and premiums paid in connection with any options
or futures contracts) that do not constitute "bona fide hedging" under the
CFTC rules would exceed 5% of the liquidation value of the Series' total
assets after taking into account unrealized profits and losses on such
contracts. In addition, the value of all futures contracts sold will not
exceed the total market value of the Series' portfolio.
FOREIGN CURRENCY OPTIONS
A call option on a foreign currency is a short-term contract pursuant to
which the purchaser of the option, in return for a premium, has the right to
buy the currency underlying the option at a specified price at any time during
the term of the option. The writer of a call option, who receives the
premium, has the obligation, upon exercise of the option during the option
term, to deliver the underlying currency against payment of the exercise price.
Conversely, a put option on a foreign currency gives its purchaser, in return
for a premium, the right to sell the underlying currency at a specified price
during the option term to the writer of the put option, who receives the
premium.
RISKS ASSOCIATED WITH HEDGING STRATEGIES
There are risks associated with the hedging strategies described above,
including the following: (1) the success of a hedging strategy may depend on
the ability of the Advisor to predict movements in the prices of individual
securities, fluctuations in domestic and foreign markets and currency exchange
rates, and movements in interest rates; (2) there may be an imperfect
correlation between the changes in market value of the stocks held by a Series
and the prices of currency contracts, options, futures and options on futures;
(3) there may not be a liquid secondary market for a currency contract,
option, futures contract or futures option; (4) trading restrictions or
limitations may be imposed by an exchange; and, (5) government regulations,
particularly requirements for qualification as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"), may
restrict trading in forward currency contracts, options, futures contracts and
futures options.
PRINCIPAL INVESTMENT RESTRICTIONS
The Series is subject to certain investment restrictions which are
fundamental policies that cannot be changed without the approval of the
holders of a majority, as defined in the 1940 Act, of the Series' outstanding
shares.
12
<PAGE>
The Series may borrow money, but only from a bank for temporary or
emergency purposes in amounts not exceeding 10% of the Series' total assets
and the Series will not make additional investments while borrowings greater
than 5% of its total assets are outstanding.
The Series may not, with respect to 75% of its total assets, invest more
than 5% of the value of its total assets at the time of investment in
securities of any one issuer (other than obligations issued or guaranteed by
the U.S. Government, its agencies or its instrumentalities). The Series may
not purchase more than 10% of the outstanding voting securities of any one
issuer.
The Series may not invest 25% or more of the value of its total assets in
securities of issuers in any one industry.
The Series may not invest more than 10% of its total net assets in
securities of issuers that are restricted from being sold to the public
without registration under the Securities Act of 1933 and illiquid securities,
including repurchase agreements with maturities of greater than seven days.
The Series may purchase shares of closed-end investment companies that
are traded on national exchanges to the extent permitted by applicable law.
The Series may not make loans, except through repurchase agreements.
Additional information about the Series' investment restrictions is
contained in the Statement of Additional Information.
MANAGEMENT
The overall business and affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, including the Fund's
agreements with its Investment Advisor and Custodian. The day-to-day
operations of the Fund are delegated to the Fund's officers and to Manning &
Napier Advisors, Inc. (the "Advisor"), 1100 Chase Square, Rochester, New York
14604. A committee made up of investment professionals and analysts make all
the investment decisions for the Fund.
The Advisor acts as Investment Advisor to the Fund and supervises and
arranges the purchase and sale of securities held in the portfolio of the
Fund. Mr. William Manning controls the Advisor by virtue of his ownership of
the securities of 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 over $5.5
billion in assets of clients, including both individuals and institutions.
For its services to the Fund under the Investment Advisory Agreement, the Fund
pays the Advisor a fee, computed daily and payable monthly, at an annual rate
of 1% of the Fund's daily net assets. This fee is higher than the mean fee
paid by all other mutual funds. The advisory fee charged by the Advisor to
its investment advisory clients will not include or be based on assets of such
clients held in shares of the Fund. The Fund is responsible for its operating
expenses, including: (i) interest and taxes; (ii) brokerage commissions;
(iii) insurance premiums; (iv) compensation and expenses of its Directors
other than those affiliated with the Advisor; (v) legal and audit expenses;
(vi) fees and expenses of the Fund's Custodian, Shareholder Servicing or
Transfer Agent and Accounting Services agent, if obtained for the Fund from an
entity other than the Advisor; (vii) expenses incidental to the issuance of
its shares, including issuance on the payment of, or reinvestment of,
dividends and capital gain distributions; (viii) fees and expenses incidental
to the registration under federal or state securities laws of the Fund or its
shares; (ix) expenses of preparing, printing and mailing reports and notices
and proxy material to shareholders of the Fund; (x) all other expenses
incidental to holding meetings of the Fund's shareholders; (xi) dues or
assessments of or contributions to the Investment Company Institute or any
successor; and, (xii) such non-recurring expenses as may arise, including
litigation affecting the Fund and the legal obligations which the Fund may
have to indemnify its officers and Directors.
13
<PAGE>
The Advisor may use its own resources to engage in activities that may
promote the sale of the Fund, including payments to third parties who provide
shareholder support servicing and distribution assistance. Investors may be
charged a fee if they effect transactions through a broker or agent.
YIELD AND TOTAL RETURN
From time-to-time the Series may advertise its total return. Both yield
and total return figures are based on historical earnings and are not intended
to indicate future performance. The "total return" of a Series refers to the
average annual compounded rates of return over one-, five-, and ten-year
periods or for the life of the Series (as stated in the advertisement) that
would equate an initial amount invested at the beginning of a stated period to
the ending redeemable value of the investment, assuming the reinvestment of
all dividend and capital gains distributions.
PURCHASES, EXCHANGES AND REDEMPTIONS OF SHARES
The minimum initial investment in the Series is $2,000 and subsequent
purchases must be at least $100. The Distributor reserves the right to waive
these minimum initial or subsequent investment requirements in its sole
discretion. The Distributor has the right to refuse any order. The
Distributor may suspend offering shares to other than discretionary management
accounts of the Advisor.
Purchases and redemptions of shares of the Series may be made on any day
the New York Stock Exchange is open for trading.
A purchase order will be effective as of the day received by the
Distributor, Transfer Agent, or its agents, if the order is received before
4:00 p.m. Eastern Standard time by the Distributor, Transfer Agent or its
agents. Payment may be made by check or readily available funds. The
purchase price of shares of the Series is the net asset value next determined
after a purchase order is effective.
Shareholders may purchase shares regularly through the Automatic
Investment Plan with a pre-authorized draft drawn on their checking or
statement savings accounts. Under this plan, the shareholders may elect to
have a specified amount invested on a regular schedule. The amount specified
by the shareholder will be withdrawn from the shareholder's bank account using
the pre-authorized draft. This amount will be invested at the applicable
share price determined on the date the amount is available for investment.
Participation in the Automatic Investment Plan may be discontinued either by
the Fund or the Shareholder upon 30 days' prior written notice to the other
party. A shareholder who wishes to enroll in the Automatic Investment Plan
may do so by completing the applicable section of the Account Application Form
or contacting the Fund for an Automatic Investment Plan Form.
The shares of the Series may be purchased in exchange for securities to
be included in the Series, subject to the Advisor's determination that these
securities are acceptable. Securities accepted in an exchange will be valued
at market value. All accrued interest and purchase or other rights which are
reflected in the market price of accepted securities at the time of valuation
become the property of the Series and must be delivered by the shareholder to
the Series upon receipt from the issuer.
The Advisor will not accept securities for the Series unless: (1) such
securities are appropriate in the Series at the time of the exchange; (2) the
shareholder represents and agrees that all securities offered to the Series
are not subject to any restrictions upon their sale by the Series under the
Securities Act of 1933, or otherwise; and, (3) prices are available from an
independent pricing service approved by the Series' Board of Directors.
As permitted pursuant to any rule, regulation or order promulgated by the
Securities and Exchange Commission, some or all of the shares in a direct
investment account with the Fund for which payment has been received by the
Transfer Agent may be exchanged for shares of any of the other Manning &
Napier Fund, Inc. Series at net asset value. Shareholders may effect up to 4
exchanges in a 12-month period without charge. Subsequent exchanges are
subject to a fee of $15. Exchanges will be made after instructions in writing
or by telephone are received by the Transfer Agent in proper form (i.e., if in
writing - signed by the record owner(s) exactly as the shares are registered;
if by telephone - proper account identification is given by the shareholder)
and each exchange must involve either shares having an aggregate value of at
14
<PAGE>
least $1,000 or all the shares in the account. A shareholder should read the
prospectus of the other Series and consider the differences in objectives and
policies before making any exchange. The exchange privilege may not be
available in all states. For federal and state income tax purposes, an
exchange is treated as a sale of the shares exchanged and therefore, an
exchange could result in a gain or loss to the shareholder making the
exchange. The Series may modify or terminate this exchange offer upon 60 days
notice to shareholders subject to applicable law.
If a shareholder desires to redeem his shares at their net asset value,
the shareholder must send a written request for redemption in "good order" to
the Transfer Agent. "Good Order" generally means that the written request for
redemption must be endorsed by the record owner(s) exactly as the shares are
registered and the signature(s) must be guaranteed by an "eligible guarantor
institution" as the term is defined under Rule 17Ad-15(a)(2) under the
Securities Exchange Act of 1934. Currently, such procedures generally permit
guarantees by a commercial bank or trust company, a member bank of the Federal
Reserve System, or a member firm of a national securities exchange.
Redemption requirements for corporations, other organizations, trusts,
fiduciaries, and retirement plans may require additional documentation.
Please contact the Transfer Agent at 1-800-466-3863 for more information. The
Transfer Agent may make certain de minimis exceptions to the above
requirements for redemption. Within three days after receipt of a redemption
request by the Transfer Agent in "good order", the Series will make payment in
cash, except as described below, of the net asset value of the shares next
determined after such redemption request was received, except during any
period in which the right of redemption is suspended or date of payment is
postponed because the New York Stock Exchange is closed or trading on such
Exchange is restricted or to the extent otherwise permitted by the 1940 Act if
an emergency exists. For shares purchased, or received in exchange for shares
purchased, by check (including certified checks or cashier's checks), payment
of redemption proceeds may be delayed up to 15 days from the purchase date in
an effort to assure that such check has cleared.
Subject to the Series' compliance with applicable regulations, the Series
has reserved the right to pay the redemption price either totally or partially
by a distribution in-kind of securities (instead of cash) from the Series'
portfolio. The securities distributed in such a distribution would be valued
at the same amount as that assigned to them in calculating the net asset value
for the shares being sold. If a shareholder received a distribution in-kind,
he could incur brokerage or transaction charges when converting the securities
to cash.
Due to the relatively high cost of maintaining small accounts, the Series
reserves the right to redeem shares in any account for their then-current
value (which will be promptly paid to the shareholder) if at any time the
total investment in such account drops below $1,000 because of redemptions
(but not due to changes in net asset value). Shareholders will be notified
that the value of their account is less than the minimum investment
requirement and allowed 60 days to make an additional investment before the
redemption is processed.
Manning & Napier Investor Services, Inc. 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.
NET ASSET VALUE
The Series' net asset value per share is determined as of the closing
time of the New York Stock Exchange or, in the absence of a closing time, 4:00
p.m. Eastern time on each day that the New York Stock Exchange is open for
trading. The exchange annually announces the days on which it will not be
open for trading; the most recent announcement indicates that it will not be
open on: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value per share is the value of the Series' assets, less
its liabilities, divided by the number of shares of the Series outstanding.
The value of the Series' portfolio securities will be the market value of such
securities as determined based on quotes provided by a pricing service (which
uses the methodology outlined in the "Net Asset Value" section of the
Statement of Additional Information) approved by the Board of Directors, or,
in the absence of market quotations, fair value as determined in good faith by
or under the direction and control of the Board of Directors. Short-term
investments which mature in less than 60 days are normally valued at amortized
cost. 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.
15
<PAGE>
DIVIDENDS AND TAX STATUS
DIVIDENDS AND DISTRIBUTIONS
The Series expects to pay ordinary income dividends and capital gain
distributions, if any, annually. Dividends and distributions will be paid in
full and fractional shares of the Series, based on the net asset value per
share at the close of business on the record date, although a shareholder may,
prior to the record date, request, by writing or by telephone call to the
Fund, that payments of either ordinary income dividends or capital gain
distributions, or both, be made in cash. The Fund will notify each
non-corporate taxable shareholder after the close of its fiscal year both of
the dollar amount and the tax status of that year's distributions. Generally,
the Fund will be required to impose backup withholding at the rate of 31%
from ordinary income dividends, capital gain distributions and redemption
payments made to non-corporate shareholders, if provisions of the law relating
to the furnishing of taxpayer identification numbers and reporting of
dividends are not complied with by such shareholders.
TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a general summary of certain federal income tax
considerations affecting the Series and its shareholders. No attempt is made
to present a detailed explanation of the tax treatment of the Series or its
shareholders, and the discussion here is not intended as a substitute for
careful tax planning. The Series is not managed with respect to tax outcomes
for its shareholders.
Under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), the Series is treated as a separate entity for federal income tax
purposes. The Series intends to qualify each year as a regulated investment
company under Subchapter M of the Code. If the Series so qualifies, it will
not be subject to federal income taxes on its net investment income and
capital gains, if any, which the Series distributes to its shareholders,
provided that at least 90% of such Series' "investment company taxable income"
(generally, net investment income and the excess of net short-term capital
gain over net long-term capital loss) for the taxable year is distributed, and
provided that the Series meets certain other requirements imposed by the Code.
All dividends paid or distributed out of investment company taxable income
will be taxable as ordinary income to the shareholders. Any "net capital
gain" (the excess of net long-term capital gain over net short-term capital
loss) distributed to shareholders is taxable as long-term capital gain to the
shareholders, regardless of the length of time a shareholder has owned his
shares. Generally, such dividends and distributions are taxable in the year
in which received, but dividends and distributions declared in October,
November or December of any year to shareholders of record on a date in such
month are treated as paid on December 31 of such year if they are paid during
January of the following calendar year. Dividends and distributions are not
taxable to shareholders that are not otherwise subject to tax on their income,
such as qualified employee benefit plans.
A 4% non-deductible federal excise tax is imposed on a regulated
investment company that fails to distribute substantially all of its ordinary
income and capital gain net income for each calendar year. Currently, the
Series intends to make sufficient distributions of its ordinary income and
capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
Future legislative changes may materially affect the tax consequences of
investing in the Series. Shareholders are urged to consult their tax advisors
for the application of these rules (and other potentially relevant rules) to
their particular circumstances. Shareholders are also urged to consult their
tax advisors concerning the application of state and local income taxes and of
foreign taxes to investments in the Series, which may differ from the U.S.
federal income tax consequences described above.
16
<PAGE>
GENERAL INFORMATION
The Fund was incorporated on July 26, 1984 as a Maryland corporation.
The Board of Directors may, at its own discretion, create additional series of
shares, each of which would have separate assets and liabilities.
The Fund does not expect to hold annual meetings of shareholders but
special meetings of shareholders may be held under certain circumstances.
Shareholders of the Fund retain the right, under certain circumstances, to
request that a meeting of shareholders be held for the purpose of considering
the removal of a Director from office, and if such a request is made, the Fund
will assist with shareholder communications in connection with the meeting.
The shares of the Fund have equal rights with regard to voting, redemption,
dividends, distributions and liquidations. The Fund's shareholders will vote
in the aggregate and not by Series except as otherwise expressly required by
law or when the Board of Directors determines that the matter to be voted upon
affects only the interests of the shareholders of a Series. Income, direct
liabilities and direct operating expenses of each Series will be allocated
directly to each Series, and general liabilities and expenses of the Fund will
be allocated among the Series in proportion to the total net assets of each
Series by the Board of Directors. The holders of shares have no preemptive or
conversion rights. Shares when issued are fully paid and non_assessable and
do not have cumulative voting rights.
All securities and cash are held by Boston Safe Deposit and Trust
Company. Coopers & Lybrand, L.L.P. serves as independent accountants for the
Series and will audit its financial statements annually.
Manning & Napier Advisors, Inc. serves as the Fund's Transfer and
Dividend Disbursing Agent. Shareholder inquiries should be directed to
Manning & Napier Fund, Inc., P.O. Box 41118, Rochester, New York 14604.
17
<PAGE>
APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
Moody's Investors Services, Inc.'s corporate bond ratings:
Aaa - Bonds which are rated Aaa are judged to be of the best quality 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 principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Moody's applies numerical modifiers "1", "2" and "3" 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.
Standard & Poor's Corporation's corporate bond ratings:
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only to a small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than in higher rated categories.
18
<PAGE>
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's Investor Services, 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 of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
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
issues 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 - This rating is 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.
19
<PAGE>
MANNING & NAPIER FUND, INC.
Statement of Additional Information dated March 6, 1996
This Statement of Additional Information is not a Prospectus, and it should be
read in conjunction with each Series' Prospectus for the Small Cap Series,
Energy Series, Technology Series, Financial Services Series, International
Series, Life Sciences Series, Global Fixed Income Series, Blended Asset Series
I, Blended Asset Series II, Flexible Yield Series I, Flexible Yield Series II,
Flexible Yield Series III, New York Tax Exempt Series, Ohio Tax Exempt Series,
Diversified Tax Exempt Series, Tax Managed Series, Defensive Series, Maximum
Horizon Series and the World Opportunities Series, 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
----
Investment Objective, Policies and
Restrictions of the Fund B-2
Risk and Investment Policies B-2
Investment Restrictions B-14
Portfolio Turnover B-16
Management B-16
The Advisor B-20
Custodian and Independent Accountant B-21
Portfolio Transactions and Brokerage B-21
Net Asset Value B-22
Redemption of Shares B-23
Payment for Shares Received B-23
Redemption in Kind B-23
Federal Tax Treatment of Dividends and
Distributions B-23
Qualification as Regulated Investment
Company B-23
Fund Distributions B-25
Other Considerations B-27
</TABLE>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS OF THE FUND
Each Series' portfolio and strategies with respect to the composition of
their respective portfolios are described in the prospectus. If there is a
change in the Series' investment objective, shareholders will be notified
thirty (30) days prior to any such change and will be advised to consider
whether the fund remains an appropriate investment in light of their then
current financial position and needs. Convertible bonds purchased by the
Series may have a call feature. Warrants purchased by the Fund may or may not
be listed on a national securities exchange. The Fund has no current
intention to engage in "short sales against the box". All of the Series'
policies regarding options discussed below are fundamental.
<PAGE>
RISK AND INVESTMENT POLICIES
Writing Covered Call and Secured Put Options
As a means of protecting their assets against market declines, and in an
attempt to earn additional income, each Series may write covered call option
contracts on its securities and may purchase call options for the purpose of
terminating its outstanding obligations with respect to securities upon which
covered call option contracts have been written.
As described in the Prospectus, when a Series writes a call option on
securities which it owns, it gives the purchaser of the option the right to
buy the securities at an exercise price specified in the option at any time
prior to the expiration of the option. If any option is exercised, a Series
will realize the gain or loss from the sale of the underlying security and the
proceeds of the sale will be increased by the net premium originally received
on the sale of the option. By writing a covered call option, a Series may
forego, in exchange for the net premium, the opportunity to profit from an
increase in the price of the underlying security above the option's exercise
price. A Series will have kept the risk of loss if the price of the security
declines, but will have reduced the effect of that risk to the extent of the
premium it received when the option was written.
A Series will write only covered call options which are traded on
national securities exchanges. Currently, call options on stocks may be
traded on the Chicago Board Options Exchange and the New York, American,
Pacific and Philadelphia Stock Exchanges. Call options are issued by the
Options Clearing Corporation ("OCC"), which also serves as the clearing house
for transactions with respect to standardized or listed options. The price of
a call option is paid to the writer without refund on expiration or exercise,
and no portion of the price is retained by OCC or the exchanges listed above.
Writers and purchasers of options pay the transaction costs, which may include
commissions charged or incurred in connection with such option transactions.
A Series may write only covered call options. A call option is
considered to be covered if the option writer owns the security underlying the
call or has an absolute and immediate right to acquire that security without
payment of additional cash consideration (or for additional cash consideration
held in a segregated account by its custodian) upon conversion or exchange of
other securities. A call option is also considered to be covered if the
writer holds on a unit-for-unit basis a call on the same security as the call
written, has the same expiration date and the exercise price of the call
purchased is equal to or less than the exercise price of the call written or
greater than the exercise price of the call written if the difference is
maintained in cash, Treasury bills or other liquid high grade short_term
obligations in a segregated account with its custodian, and marked-to-market
daily. A Series will not sell (uncover) the securities against which options
have been written until after the option period has expired, the option has
been exercised or a closing purchase has been executed.
Options written by a Series will have exercise prices which may be below
("in-the-money"), equal to ("at-the-money") or above ("out-of-the-money") the
market price of the underlying security at the time the options are written.
However, a Series generally will not write so-called "deep-in-the-money"
options.
The market value of a call option generally reflects the market price of
the underlying security. Other principal factors affecting market value
include supply and demand, dividend yield and interest rates, the price
volatility of the underlying security and the time remaining until the
expiration date.
If a call option on a security expires unexercised, a Series will realize
a short-term capital gain in the amount of the premium on the option, less all
commissions paid. Such a gain, however, may be offset by a decline in the
value of the underlying security during the option period. If a call option
is exercised, a Series will realize a gain or loss from the sale of the
underlying security equal to the difference between the cost of the underlying
security and the proceeds of the sale of the security (exercise price minus
commission) plus the amount of the premium on the option, less all commissions
paid.
<PAGE> B-2
Call options may also be purchased by a Series, but only to terminate
(entirely or in part) a Series' obligation as a writer of a call option. This
is accomplished by making a closing purchase transaction, that is, the
purchase of a call option on the same security with the same exercise price
and expiration date as specified in the call option which had been written
previously. A closing purchase transaction with respect to calls traded on a
national securities exchange has the effect of extinguishing the obligation of
the writer of a call option. A Series may enter into a closing purchase
transaction, for example, to realize a profit on an option it had previously
written, to enable it to sell the security which underlies the option, to free
itself to sell another option or to prevent its portfolio securities from
being purchased pursuant to the exercise of a call. A Series may also permit
the call option to be exercised. A closing transaction cannot be effected
with respect to an optioned security once a Series has received a notice that
the option is to be exercised.
The cost to a Series of such a closing transaction may be greater than
the net premium received by a Series upon writing the original call option. A
profit or loss from a closing purchase transaction will be realized depending
on whether the amount paid to purchase a call to close a position is less or
more than the amount received from writing the call. Any profit realized by a
Series from the execution of a closing transaction may be partly or completely
offset by a reduction in the market price of the underlying security.
A Series may also write secured put options and enter into closing
purchase transactions with respect to such options. A Series may write
secured put options on national securities exchanges to obtain, through the
receipt of premiums, a greater return than would be realized on the underlying
securities alone. A put option gives the purchaser of the option the right to
sell, and the writer has the obligation to buy, the underlying security at the
stated exercise price during the option period. The secured put writer
retains the risk of loss should the market value of the underlying security
decline below the exercise price of the option. During the option period, the
writer of a put option may be required at any time to make payment of the
exercise price against delivery of the underlying security. The operation of
put options in other respects is substantially identical to that of call
options. The Fund will establish a separate account with the Fund's custodian
consisting of cash or U.S. Government or other high grade liquid debt
obligations equal to the amount of the Series assets that could be required to
consummate the put options. For purposes of determining the adequacy of the
securities in the account, the deposited securities will be valued at fair
market value. If the 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 Series.
A put option is secured if a Series maintains in a segregated account
with its 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 Series may write secured put options when the Advisor wishes to purchase the
underlying security for a Series' portfolio at a price lower than the current
market price of the security. In such event a Series would write a secured
put option at an exercise price which, reduced by the premium received on the
option, reflects the lower price it is willing to pay. The potential gain on
a secured put option is limited to the 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 Series may purchase put options on national securities exchanges in an
attempt to hedge against fluctuations in the value of its portfolio securities
and to protect against declines in the value of individual securities.
Purchasing a put option allows the purchaser to sell the particular security
covered by the option at a certain price (the "exercise price") at any time up
to a specified future date (the "expiration date").
Purchase of a put option creates a "hedge" against a decline in the value
of the underlying security by creating the right to sell the security at a
specified price. Purchase of a put option requires payment of a premium to
the seller of that option. Payment of this premium necessarily reduces the
<PAGE> B-3
return available on the individual security should that security continue to
appreciate in value. In return for the premium paid, a Series protects itself
against substantial losses should the security suffer a sharp decline in
value. In contrast to covered call option writing, where one obtains greater
current income at the risk of foregoing potential future gains, one purchasing
put options is in effect foregoing current income in return for reducing the
risk of potential future losses.
A Series will purchase put options as a means of "locking in" profits on
securities held in the portfolio. Should a security increase in value from
the time it is initially purchased, a Series may seek to lock in a certain
profit level by purchasing a put option. Should the security thereafter
continue to appreciate in value the put option will expire unexercised and the
total return on the security, if it continues to be held by a Series, will be
reduced by the amount of premium paid for the put option. At the same time, a
Series will continue to own the security. Should the security decline in
value below the exercise price of the put option, however, a Series may elect
to exercise the option and "put" or sell the security to the party that sold
the put option to that Series, at the exercise price. In this case a Series
would have a higher return on the security than would have been possible if a
put option had not been purchased.
Certain Risk and Other Factors Respecting Options
As stated in the Prospectus, positions in options on securities may be
closed only by a closing transaction, which may be made only on an exchange
which provides a liquid secondary market for such options. Although a Series
will write options only when the Advisor believes a liquid secondary market
will exist on an exchange for options of the same series, there can be no
assurance that a liquid secondary market will exist for any particular
security option. If no liquid secondary market exists respecting an option
position held, a Series may not be able to close an option position, which
will prevent that Series from selling any security position underlying an
option until the option expires and may have an adverse effect on its ability
effectively to hedge its security positions. A secured put option writer who
is unable to effect a closing purchase transaction would continue to bear the
risk of decline in the market price of the underlying security until the
option expires or is exercised. In addition, a secured put writer would be
unable to use the amount held in 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 OCC to handle trading
volume; or (e) a decision by one or more exchanges to discontinue the trading
of options or impose restrictions on types of orders.
Each of the exchanges on which options on securities are traded has
established limitations on the number of options which may be written by any
one investor or group of investors. These limitations apply regardless of
whether the options are written in different accounts or through different
brokers. It is possible that a Series and certain other accounts managed by
the Fund's Investment Advisor, Manning & Napier Advisors, Inc., may constitute
such a group. If so, the options positions of the Series may be aggregated
with those of other clients of the Advisor.
If Series writes an over-the-counter ("OTC") option, it will enter into
an arrangement with a primary U.S. government securities dealer, which would
establish a formula price at which the Series would have the absolute right to
repurchase that OTC option. This formula price would generally be based on a
multiple of the premium received for the option, plus the amount by which the
option is exercisable below the marked price of the underlying security
("in-the-money"). For an OTC option the Fund writes, it will treat as
illiquid (for purposes of the 10% net asset limitation on illiquid securities
stated in the Prospectus) an amount of assets used to cover written OTC
options, equal to the formula price for the repurchase of the OTC option less
the amount by which the OTC option is "in-the-money". The Fund will also
<PAGE> B-4
treat as illiquid any OTC option held by it. The Securities and Exchange
Commission ("SEC") is evaluating the general issue of whether or not the OTC
options should be considered to be liquid securities, and the procedure
described above could be affected by the outcome of that evaluation.
Although OCC has stated that it believes (based on forecasts provided by
the exchanges on which options are traded), that its facilities are adequate
to handle the volume of reasonably anticipated options transactions, and
although each exchange has advised OCC that it believes that its facilities
will also be adequate to handle reasonably anticipated volume, there can be no
assurance that higher than anticipated trading activity or order flow or other
unforeseen events might not at times render certain of these facilities
inadequate and thereby result in the institution of special trading procedures
or restrictions.
The Series will pay brokerage and other transaction costs to write and
purchase options on securities, including any closing transactions which the
Series may execute. The Fund's program of writing and/or purchasing such
options with respect to as much of its portfolio as possible will increase the
transaction costs borne by the Series.
Stock Index Futures Contracts and Options on Stock Index Futures Contracts
Each Series, except for the Flexible Yiels Series I, Flexible Yield Series
II and the Flexible Yield Series III of the Fund, may enter
into Stock Index Futures Contracts to provide: (1) a hedge for a portion of
the Series' portfolio; (2) a cash management tool; (3) as an efficient way to
implement either an increase or decrease in portfolio market exposure in
response to changing market conditions. The Series may also use Stock Index
Futures as a substitute for comparable market position in the underlying
securities. Although techniques other than the sale and purchase of Stock
Index Futures Contracts could be used to adjust the exposure or hedge the
Series' portfolio, the Series may be able to do so more efficiently and at a
lower cost through the use of Stock Index Futures Contracts.
A Stock Index Futures Contract is a contract to buy or sell units of a
stock index at a specified future date at a price agreed upon when the
contract is made. Entering into a contract to buy units of a stock index is
commonly referred to as buying or purchasing a contract or holding a long
position in the index. Entering into a contract to sell units of a stock
index is commonly referred to as selling a contract or holding a short
position. A stock index future obligates the seller to deliver (and the
purchaser to take) an amount of cash equal to a specific dollar amount times
the difference between the value of a specific stock index at the close of the
last trading day of the contract and the price at which the agreement is made.
No physical delivery of the underlying stocks in the index is made. The
Series intend to purchase and sell futures contracts on the stock index for
which it can obtain the best price with consideration also given to liquidity.
The Series will not enter into a Stock Index Futures Contract or option
thereon if, as a result thereof, the sum of the amount of initial margin
deposits on any such futures (plus deposits on any other futures contracts and
premiums paid in connection with any options or futures contracts) that do not
constitute "bona fide hedging" under CFTC rules would exceed 5% of the
liquidation value of the Series' total assets after taking into account
unrealized profits and losses on such contracts. In addition, the value of
all futures contracts sold will not exceed the total market value of the
Series' portfolio. The Fund will comply with guidelines established by the
Securities and Exchange Commission with respect to the covering of obligations
under future contracts and will set aside cash and/or liquid high grade
securities in a segregated account with its custodian in the amount
prescribed.
Unlike the purchase or sale of an equity security, no price is paid or
received by the Series upon the purchase or sale of a Stock Index Futures
Contract. Upon entering into a Futures Contract, the Series would be required
to deposit with its custodian in a segregated account in the name of the
futures broker an amount of cash or U.S. Treasury bills known as "initial
margin." This amount is required by the rules of the exchanges and is subject
to change. The nature of initial margin in futures transactions is different
from that of margin in security transactions in that futures margin does not
involve the borrowing of funds by the Series to finance the transactions.
<PAGE> B-5
Rather, initial margin is in the nature of a performance bond or good faith
deposit on the contract that is returned to the Series upon termination of the
futures contract, assuming all contractual obligations have been satisfied.
Subsequent payments, called "variation margin", to and from the futures
broker, are made on a daily basis as the price of the underlying stock index
fluctuates, making the long and short positions in the futures contract more
or less valuable, a process known as "marking-to-market". For example, when
the Series has purchased a Stock Index Futures Contract and the price of the
underlying stock index has risen, that futures position will have increased in
value and the Series will receive from the broker a variation margin payment
equal to that increase in value. Conversely, when the Series has purchased a
Stock Index Futures Contract and the price of the stock index has declined,
the position would be less valuable and the Series would be required to make a
variation payment to the broker.
The Series will not enter into Stock Index Futures Contracts for
speculation and will only enter into Futures Contracts which are traded on
established futures markets. The Series may, however, purchase or sell Stock
Index Futures Contracts with respect to any stock index. Nevertheless, to
hedge the Series' portfolio successfully, the Advisor must sell Stock Index
Futures Contracts with respect to indices whose movements will, in its
judgment, have a significant correlation with movements in the prices of the
Series' portfolio securities.
Closing out an open Stock Index Futures Contract sale or purchase is
effected by entering into an offsetting Stock Index Futures Contract purchase
or sale, respectively, for the same aggregate amount of identical securities
with the same delivery date. If the offsetting purchase price is less than
the original sale price, the Series realize a gain; if it is more, the Series
realize a loss. Conversely, if the offsetting sale price is more than the
original purchase price, the Series realize a gain; if it is less, the Series
realize a loss. The Series must also be able to enter into an offsetting
transaction with respect to a particular Stock Index Futures Contract at a
particular time. If the Series are not able to enter into an offsetting
transaction, the Series will continue to be required to maintain the margin
deposits on the Stock Index Futures Contract.
The Series may elect to close out some or all of their futures positions
at any time prior to expiration. The purpose of making such a move would be
either to reduce equity exposure represented by long futures positions or
increase equity exposure represented by short futures positions. The Series
may close their positions by taking opposite positions which would operate to
terminate the Series' position in the Stock Index Futures Contracts. Final
determinations of variation margin would then be made, additional cash would
be required to be paid or released to the Series, and the Series would realize
a loss or a gain.
Stock Index Futures Contracts may be closed out only on the exchange or
board of trade where the contracts were initially traded. Although the Series
intend to purchase or sell Stock Index Futures Contracts only on exchanges or
boards of trade where there appears to be an active market, there is no
assurance that a liquid market on an exchange or board of trade will exist for
any particular time. In such an event, it might not be possible to close a
Stock Index Futures Contract, and in the event of adverse price movements, the
Series would continue to be required to make daily cash payments of variation
margin. However, in the event Stock Index Futures Contracts have been used to
hedge portfolio securities, the Series would continue to hold securities
subject to the hedge until the Stock Index Futures Contracts could be
terminated. In such circumstances, an increase in the price of the
securities, if any, might partially or completely offset losses on the Stock
Index Futures Contract. However, as described below, there is no guarantee
that the price of the securities will, in fact, correlate with price movements
in the Futures Contract and thus provide an offset to losses on a Stock Index
Futures Contract.
There are several risks in connection with the use by the Series of Stock
Index Futures Contracts as a hedging device. One risk arises because of the
imperfect correlation between movements in the prices of the Futures Contracts
and movements in the prices of securities which are the subject of the hedge.
The Advisor will, however, attempt to reduce this risk by entering into Stock
<PAGE> B-6
Index Futures Contracts on indices whose movements, in its judgment, will have
a significant correlation with movements in the prices of the Series'
portfolio securities sought to be hedged.
Successful use of Stock Index Futures Contracts by the Series for hedging
purposes is also subject to the Advisor's ability to correctly predict
movements in the direction of the market. It is possible that, when the
Series have sold Futures to hedge their portfolios against a decline in the
market, the index or indices on which the Futures are written might advance
and the value of securities held in the Series' portfolio might decline. If
this were to occur, the Series would lose money on the Futures and also would
experience a decline in value in its portfolio securities. However, while
this might occur to a certain degree, the Advisor believes that over time the
value of the Series' portfolio will tend to move in the same direction as the
securities underlying the Futures, which are intended to correlate to the
price movements of the portfolio securities sought to be hedged. It is also
possible that if the Series were to hedge against the possibility of a decline
in the market (adversely affecting stocks held in their portfolios) and stock
prices instead increased, the Series would lose part or all of the benefit of
increased value of those stocks that it had hedged, because it would have
offsetting losses in their Futures positions.
In addition, in such situations, if the Series had insufficient cash, they
might have to sell securities to meet their daily variation margin
requirements. Such sales of securities might be, but would not necessarily
be, at increased prices (which would reflect the rising market). Moreover,
the Series might have to sell securities at a time when it would be
disadvantageous to do so.
In addition to the possibility that there might be an imperfect
correlation, or no correlation at all, between price movements in the Stock
Index Futures Contracts and the portion of the portfolio to be hedged, the
price movements in the Futures Contracts might not correlate perfectly with
price movements in the underlying stock index due to certain market
distortions. First, all participants in the futures market are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors might close Stock Index Futures
Contracts through offsetting transactions which could distort the normal
relationship between the index and futures markets. Second, the margin
requirements in the futures market are less onerous than margin requirements
in the securities markets. Due to the possibility of price distortion in the
futures market and also because of the imperfect correlation between price
movements in the stock index and movements in the prices of Stock Index
Futures Contracts, even a correct forecast of general market trends by the
Advisor might not result in a successful hedging transaction over a very short
time period.
Options on Futures give the purchaser the right, in return for a premium
paid, to assume a position in a Futures Contract (a long position if a call
option and a short position if a put option), rather than to purchase or sell
the Stock Index Futures Contract, at a specified exercise price at any time
during the period of the option. Upon exercise of the option, the delivery of
the Futures position by the writer of the option to the holder of the option
will be accompanied by delivery of the accumulated balance in the writer's
Futures margin account which represents the amount by which the market price
of the Stock Index Futures Contract, at exercise, exceeds (in the case of a
call) or is less than (in the case of a put) the exercise price of the option
on the Futures Contract. Alternatively, settlement may be made totally in
cash.
The Series may seek to close out an option position on an index by
writing or buying an offsetting option covering the same index or contract and
having the same exercise price and expiration date. The ability to establish
and close out positions on such options will be subject to the development and
maintenance of a liquid secondary market. It is not certain that this market
will develop. Reasons for the absence of a liquid secondary market on an
exchange include the following: (i) insufficient trading in certain options;
(ii) restrictions that may be imposed by an exchange on opening transactions
or closing transactions or both; (iii) trading halts, suspensions or other
restrictions that may be imposed with respect to particular classes or series
of options, or underlying securities; (iv) unusual or unforeseen circumstances
that may interrupt normal operations on an exchange; (v) the facilities of an
exchange or a clearing corporation may not be adequate to handle unusual
trading volume; or (vi) one or more exchanges could, for economic or other
<PAGE> B-7
reasons, decide or be compelled at some future date to discontinue the trading
of options (or particular class or series of options), in which event the
secondary market on that exchange would cease to exist, although outstanding
options on the exchange that had been issued by a clearing corporation as a
result of trades on that exchange would continue to be exercisable in
accordance with their terms. There is no assurance that higher than
anticipated trading activity or other unforeseen events might not, at times,
render certain of the facilities of any of the clearing corporations
inadequate, and thereby result in the institution by an exchange of special
procedures which may interfere with timely execution of customers' orders.
Futures on Securities
A futures contract on a security is a binding contractual commitment
which, if held to maturity, will result in an obligation to make or accept
delivery, during a particular month, of securities having a standardized face
value and rate of return. Futures contracts, by law are not permitted on
individual corporate securities and municipal securities but instead are
traded on exempt securities, such as government securities and broad-based
indexes of securities.
Accordingly, these futures contracts will primarily consist of futures based
on government securities (i.e., Treasury Bonds). By purchasing futures on
securities, the Fund will legally obligate itself to accept delivery of the
underlying security and pay the agreed price; by selling futures on
securities, it will legally obligate itself to make delivery of the security
against payment of the agreed price. Open futures positions on securities are
valued at the most recent settlement price, unless such price does not reflect
the fair value of the contract, in which case the positions will be valued by
or under the direction of the Board of Directors.
Positions taken in the futures markets are not normally held to maturity,
but are instead liquidated through offsetting transactions which may result in
a profit or a loss. While the Fund's futures contracts on securities will
usually be liquidated in this manner, it may instead make or take delivery of
the underlying securities whenever it appears economically advantageous for
the Fund to do so. A clearing corporation associated with the exchange on
which futures on securities or currency are traded guarantees that, if still
open, the sale or purchase will be performed on the settlement date.
Foreign Currency Transactions
In order to protect against a possible loss on investments resulting from
a decline in a particular foreign currency against the U.S. dollar or another
foreign currency, each Series except the Tax Exempt Series of the Fund is
authorized to enter into forward foreign currency exchange contracts. In
addition, each Series, is authorized to conduct spot (i.e., cash basis)
currency transactions or to use currency futures contracts, options on such
futures contracts, and options on foreign currencies in order to protect
against uncertainty in the future levels of currency exchange rates.
Forward Foreign Currency Exchange Contracts
Forward foreign currency exchange contracts involve an obligation to
purchase or sell a specified currency at a future date at a price set at the
time of the contract. Forward currency contracts do not eliminate
fluctuations in the values of portfolio securities but rather allow a Series
to establish a rate of exchange for a future point in time. A Series may
enter into forward foreign currency exchange contracts when deemed advisable
by the Advisor under only two circumstances.
First, when entering into a contract for the purchase or sale of a
security in a foreign currency, a Series may enter into a forward foreign
currency exchange contract for the amount of the purchase or sale price to
protect against variations, between the date the security is purchased or sold
and the date on which payment is made or received, in the value of the foreign
currency relative to the U.S. dollar or other foreign currency. This hedging
technique is known as "transaction hedging".
Second, when the Advisor anticipates that a particular foreign currency
may decline substantially relative to the U.S. dollar or other leading
currencies, in order to reduce risk, a Series may enter into a forward
<PAGE> B-8
contract to sell, for a fixed amount, the amount of foreign currency
approximating the value of some or all of its portfolio securities denominated
in such foreign currency. This hedging technique is known as "position
hedging". With respect to any such forward foreign currency contract, it will
not generally be possible to match precisely the amount covered by that
contract and the value of the securities involved due to the changes in the
values of such securities resulting from market movements between the date the
forward contract is entered into and the date it matures. In addition, while
forward contracts may offer protection from losses resulting from declines in
the value of a particular foreign currency, they also limit potential gains
which might result from increases in the value of such currency. A Series
will also incur costs in connection with forward foreign currency exchange
contracts and conversions of foreign currencies and U.S. dollars.
A separate account of each Series consisting of cash or high-grade liquid
securities equal to the amount of that Series' assets that would be required
to consummate forward contracts entered into under the second circumstance, as
set forth above, will be established with the Series' custodian. For the
purpose of determining the adequacy of the securities in the account, the
deposited securities will be valued at market or fair value. If the market
or fair value of such securities declines, additional cash or securities will
be placed in the account daily so that the value of the account will equal the
amount of such commitments by such Series.
Currency Futures Contracts and Options on Futures Contracts
Each Series, is authorized to purchase and sell currency futures
contracts and options thereon. Currency futures contracts involve entering
into contracts for the purchase or sale for future delivery of foreign
currencies. A "sale" of a currency futures contract (i.e., short) means the
acquisition of a contractual obligation to deliver the foreign currencies
called (i.e., long) for by the contract at a specified price on a specified
date. A "purchase" of a futures contract means the acquisition of a
contractual obligation to acquire the foreign currencies called for by the
contract at a specified price on a specified date. These investment
techniques will be used only to hedge against anticipated future changes in
exchange rates which otherwise might either adversely affect the value of
portfolio securities held by the Series or adversely affect the prices of
securities which the Series intend to purchase at a later date. Such
instruments will be used only in connection with permitted transaction or
position hedging and not for speculative purposes. The Series will not enter
in a currency futures contract or option thereon, if as a result thereof, the
sum of the amount of initial margin deposits on any such futures (plus
deposits on any other futures contracts and premiums paid in connection with
any options or futures contracts) that do not constitute "bona fide hedging"
under CFTC rules will not exceed 5% of the liquidation value of the Series'
total assets after taking into account unrealized profits and losses on such
contracts. In addition, the value of all futures contracts sold will not
exceed the total market value of the Series' portfolio. The Fund will comply
with guidelines established by the Securities and Exchange Commission with
respect to covering of obligations under future contracts and will set aside
cash and/or liquid high grade securities in a segregated account with its
custodian in the amount prescribed.
Although the Series intend to purchase or sell futures contracts only if
there is an active market for such contracts, no assurance can be given that a
liquid market will exist for any particular contract at any particular time.
In addition, due to the risk of an imperfect correlation between securities in
the Series' portfolio that are the subject of a hedging transaction and the
futures contract used as a hedging device, it is possible that the hedge will
not be fully effective. For example, losses on the portfolio securities may
be in excess of gains on the futures contract or losses on the futures
contract may be in excess of the gains on the portfolio securities that were
the subject of such hedge.
<PAGE> B-9
Brokerage fees are incurred when a futures contract is bought or sold and
margin deposits must be maintained for such contract. Although futures
contracts typically require actual delivery of and payment for financial
instruments or currencies, the contracts are usually closed out before the
delivery date. Closing out an open futures contract sale or purchase is
effected by entering into an offsetting futures contract purchase or sale,
respectively, for the same aggregate amount of the identical type of financial
instrument or currency and the same delivery date. If the offsetting purchase
price is less than the original sale price, a Series realizes a gain; if it is
more, a Series realizes a loss. Conversely, if the offsetting sale price is
more than the original purchase price, a Series realizes a gain; if it is
less, a Series realizes a loss. Transaction costs must also be included in
these calculations. There can be no assurance, however, that a Series will be
able to enter into an offsetting transaction with respect to a particular
contract at a particular time. If a Series is not able to enter into an
offsetting transaction, a Series will continue to be required to maintain the
margin deposits on the contract. The ability to establish and close out
positions on such options will be subject to the development and maintenance
of a liquid secondary market. It is not certain that a liquid market will
develop for any particular futures contracts. Reasons for the absence of a
liquid secondary market on an exchange include the following: (i) insufficient
trading; (ii) restrictions that may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions that may be imposed with respect to futures contracts or
the underlying security or asset; (iv) unusual or unforeseen circumstances
that may interrupt normal operations on an exchange; (v) the facilities of an
exchange or a clearing corporation may not be adequate to handle unusual
trading volume; or (vi) one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of certain futures, in which event the secondary market on that exchange would
cease to exist, although outstanding options on the exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms. There is no
assurance that higher than anticipated trading activity or other unforeseen
events might not, at times, render certain of the facilities of any of the
clearing corporations inadequate, and thereby result in the institution by an
exchange of special procedures which may interfere with timely execution of
customers' orders.
An option on a futures contract gives the purchaser the right, in return
for the premium paid, to assume a position in a futures contract (a long
position if a call option and a short position if a put option) at a specified
price at any time during the option exercise period. The writer of the option
is required upon exercise to assume an offsetting futures position (a short
position if a call option and a long position if a put option). Upon exercise
of the option, the assumption of offsetting futures positions by the writer
and holder of the option will be accompanied by delivery of the accumulated
cash balance in the writer's futures margin account which represents the
amount by which the market price of the futures contract, at exercise,
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option on the futures contract.
Call options sold by the Series with respect to futures contracts will be
covered by, among other things, entering into a long position in the same
contract at a price no higher than the strike price of the call option, or by
ownership of the instruments underlying the futures contract, or the placement
of cash or high-grade liquid securities in a segregated account to fulfill the
obligations undertaken by the futures contract. A put option sold by the
Series is covered when, among other things, cash or high-grade liquid
securities are placed in a segregated account to fulfill the obligations
undertaken.
Foreign Currency Options
Each Series, except for the tax-exempt series of the Fund, are
authorized to purchase and write put and call options on foreign currencies.
A call option is a contract whereby the purchaser, in return for a premium,
has the right, but not the obligation, to buy the currency underlying the
option at a specified price during the exercise period. The writer of the
call option, who receives the premium, has the obligation, upon exercise of
the option during the exercise period, to deliver the underlying currency
against payment of the exercise price. A put option is a similar contract
that gives its purchaser, in return for a premium, the right to sell the
underlying currency at a specified price during the term of the option. The
writer of the put option, who receives the premium, has the obligation, upon
exercise of the option during the option period, to buy the underlying
currency at the exercise price. The Series will use currency options only to
hedge against the risk of fluctuations of foreign exchange rates related to
securities held in its portfolio or which it intends to purchase, and to earn
a high return by receiving a premium for writing options. Options on foreign
currencies are affected by all the factors which influence foreign exchange
rates and investments generally.
<PAGE> B-10
Obligations of Supranational Agencies
Currently, the Global Fixed Income Series, Flexible Yield Series I,
Flexible Yield Series II and the Flexible Series Yield III may purchase
securities issued or guaranteed by supranational agencies including, but not
limited to, the following: Asian Development Bank, Inter-American Development
Bank, International Bank for Reconstruction and Development (World Bank),
African Development Bank, European Coal and Steel Community, European Economic
Community, European Investment Bank and the Nordic Investment Bank. For
concentration purposes, supranational entities are considered an industry.
U.S. Government Securities
Each Series may invest in debt obligations of varying maturities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities.
Direct obligations of the U.S. Treasury which are backed by the full faith and
credit of the U.S. Government, include a variety of Treasury securities that
differ only in their interest rates, maturities and dates of issuance. U.S.
Government agencies or instrumentalities which issue or guarantee securities
include, but are not limited to, the Federal Housing Administration, Federal
National Mortgage Association, Farmers Home Administration, Export-Import Bank
of the United States, Small Business Administration, Governmental National
Mortgage Association, General Services Administration, Central Bank for
Cooperatives, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation,
Federal Intermediate Credit Banks, Federal Land Banks, Maritime
Administration, the Tennessee Valley Authority, District of Columbia Armory
Board and the Student Loan Marketing Association.
Obligations of U.S. Government agencies and instrumentalities may or may
not be supported by the full faith and credit of the United States. Some are
backed by the right of the issuer to borrow from the U.S. Treasury; others by
discretionary authority of the U.S. Government to purchase the agencies'
obligations; while still others, such as the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. In the
case of securities not backed by the full faith and credit of the United
States, the investor must look principally to the agency or instrumentality
issuing or guaranteeing the obligation for ultimate repayment, and may not be
able to assert a claim against the United States itself in the event the
agency or instrumentality does not meet its commitment.
A Series will invest in securities of such instrumentality only when the
Advisor is satisfied that the credit risk with
respect to any instrumentality is minimal.
Tax-exempt Securities
The New York Tax Exempt Series, the Ohio Tax Exempt Series and the
Diversified Tax Exempt Series may invest in tax-exempt securities issued by
New York, Ohio or any State of the United States, respectively, and such
State's political subdivisions, agencies and instrumentalities, the interest
from which is, in the opinion of bond counsel, exempt from federal income tax.
Each tax-exempt series is a "diversified" investment company under the
Investment Company Act of 1940. This means that with respect to 75% of its
total assets the Series may not invest more than 5% of its total assets in the
securities of any one issuer (except U.S. government securities). The other
25% of each Series' total assets may be in the securities of any one issuer.
Each Series will not invest more than 25% of its total assets in any
industry. Governmental issuers of tax-exempt securities are not considered
part of any "industry." However, Tax Exempt Securities backed only by the
assets and revenues of nongovernmental users may for this purpose (and for the
diversification purposes discussed above) be deemed to be issued by such
nongovernmental users, and the 25% limitation would apply to such obligations.
Each of the tax-exempt series believes that in general the secondary
market for tax-exempt securities is less liquid than that for taxable
fixed-income securities. Accordingly, the ability of the Series to buy and
sell securities may, at any particular time and with respect to any particular
securities, be limited.
<PAGE> B-11
It is nonetheless possible that a Series may invest more than 25% of its
assets in a broader segment of the market (but not in one industry) for
tax-exempt securities, such as revenue obligations of hospitals and other
health care facilities, housing agency revenue obligations, or transportation
revenue obligations. This would be the case only if the Advisor determined
that the yields available from obligations in a particular segment of the
market justified the additional risks associated with such concentration.
Although such obligations could be supported by the credit of governmental
users or by the credit of nongovernmental users engaged in a number of
industries, economic, business, political and other developments generally
affecting the revenues of issuers (for example, proposed legislation or
pending court decisions affecting the financing of such projects and market
factors affecting the demand for their services or products) may have a
general adverse effect on all tax-exempt securities in such a market segment.
Housing revenue bonds typically are issued by a state, county or local
housing authority and are secured only by the revenues of mortgages originated
by the authority using the proceeds of the bond issue. Because of the
impossibility of precisely predicting demand for mortgages from the proceeds
of such an issue, there is a risk that the proceeds of the issue will be in
excess of demand, which would result in early retirement of the bonds by the
issuer. Moreover, such housing revenue bonds depend for their repayment in
part upon the cash flow from the underlying mortgages, which cannot be
precisely predicted when the bonds are issued. The financing of multi-family
housing projects is affected by a variety of factors, including satisfactory
completion of construction, a sufficient level of occupancy, sound management,
adequate rent to cover operating expenses, changes in applicable laws and
governmental regulations and social and economic trends.
Health care facilities include life care facilities, nursing homes and
hospitals. Bonds to finance these facilities are issued by various
authorities. The bonds are typically secured by the revenues of each facility
and not be state or local government tax payments. The projects must maintain
adequate occupancy levels to be able to provide revenues adequate to maintain
debt service payments. Moreover, in the case of life care facilities, since a
portion of housing, medical care and other services may be financed by an
initial deposit, there may be risk if the facility does not maintain adequate
financial reserves to secure future liabilities. Life care facilities and
nursing homes may be affected by regulatory cost restrictions applied to
health care delivery in general, restrictions imposed by medical insurance
companies and competition from alternative health care or conventional housing
facilities. Hospital bond ratings are often based on feasibility studies
which contain projections of expenses, revenues and occupancy levels. A
hospital's income available to service its debt may be influenced by demand
for hospital services, management capabilities, the service area economy,
efforts by insurers and government agencies to limit rates and expenses,
competition, availability and expense of malpractice insurance, and Medicaid
and Medicare funding.
In recent years, nationally recognized rating organizations have reduced
their ratings of a substantial number of the obligations of issuers in the
health care sector of the tax exempt securities market. Reform of the health
care system is a topic of increasing discussion in the United States, with
proposals ranging from reform of the existing employer-based system of
insurance to a single-payer, public program. Depending upon their terms,
certain reform proposals could have an adverse impact on certain health care
sector issuers of tax-exempt securities. Because the outcome of current
discussions concerning health care, including the deliberations of President
Clinton's task force on health care reform, is highly uncertain, the Advisor
cannot predict the likely impact of reform initiatives.
Mortgage-Backed Securities
Each Series, except for the Tax Exempt Series, may invest in
mortgage-backed securities issued or guaranteed by U.S. Government agencies or
instrumentalities such as the Government National Mortgage Association
("GNMA"), 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
<PAGE> B-12
interest yield of these mortgage-backed securities can vary due to market
interest rate fluctuations and early prepayments of underlying mortgages.
These securities represent ownership in a pool of federally insured mortgage
loans with a maximum maturity of 30 years. However, due to scheduled and
unscheduled principal payments on the underlying loans, these securities have
a shorter average maturity and, therefore, less principal volatility than a
comparable 30-year bond. Since prepayment rates vary widely, it is not
possible to accurately predict the average maturity of a particular
mortgage-backed security. The scheduled monthly interest and principal
payments relating to mortgages in the pool will be "passed through" to
investors. Government mortgage-backed securities differ from conventional
bonds in that principal is paid back to the certificate holders over the life
of the loan rather than at maturity. As a result, there will be monthly
scheduled payments of principal and interest. In addition, there may be
unscheduled principal payments representing prepayments on the underlying
mortgages. Although these securities may offer yields higher than those
available from other types of U.S. Government securities, mortgage-backed
securities may be less effective than other types of securities as a means of
"locking in" attractive long-term rates because of the prepayment feature.
For instance, when interest rates decline, the value of these securities
likely will not rise as much as comparable debt securities due to the
prepayment feature. In addition, these prepayments can cause the price of a
mortgage-backed security originally purchased at a premium to decline in price
to its par value, which may result in a loss.
Each Series, except for the Tax Exempt Series, may also invest in
collateralized mortgage obligations ("CMOs") and real estate mortgage
investment conduits ("REMICs"), which are rated in one of the two top
categories by Standard & Poor's Corporation ("S&P") or Moody's Investors
Service ("Moody's"). CMOs are securities collateralized by mortgages,
mortgage pass-throughs, mortgage pay-through bonds (bonds representing an
interest in a pool of mortgages where the cash flow generated from the
mortgage collateral pool is dedicated to bond repayment), and mortgage_backed
bonds (general obligations of the issuers payable out of the issuer's general
funds and additionally secured by a first lien on a pool of single family
detached properties). Many CMOs are issued with a number of classes or series
which have different maturities and are retired in sequence. Investors
purchasing such CMOs in the shortest maturities receive or are credited with
their pro rata portion of the scheduled payments of interest and principal on
the underlying mortgages plus all unscheduled prepayments of principal up to a
predetermined portion of the total CMO obligation. Until that portion of such
CMO obligation is repaid, investors in the longer maturities receive interest
only. Accordingly, the CMOs in the longer maturity series are less likely
than other mortgage pass-throughs to be prepaid prior to their stated
maturity. Although some of mortgages underlying CMOs may be supported by
various types of insurance, and some CMOs may be backed by GNMA certificates
of other mortgage pass-throughs issued or guaranteed by U.S. Government
agencies or instrumentalities, the CMOs themselves are not generally
guaranteed.
REMICs, which were authorized under the Tax Reform Act of 1986, are
private entities formed for the purpose of holding a fixed pool of mortgages
secured by an interest in real property. REMICs are similar to CMOs in that
they issue multiple classes of securities.
Risk Factors Relating to New York Tax Exempt Securities
General. The following information as to certain New York risk factors
have been provided in view of the New York Tax Exempt Series' policy of
concentrating in New York Municipal Securities. This information constitutes
only a brief summary, does not purport to be a complete description of New
York risk factors, and is principally drawn from official statements relating
to securities offerings of the State of New York that have come to the
Portfolio's attention and were available as of the date of this Statement of
Additional Information. The New York Tax Exempt Series has not independently
verified any of the information contained in the official statement, but is
not aware of any fact which would render such information inaccurate.
The economy of New York is diverse with a comparatively large share of
the nation's finance, insurance, transportation, communications and services
employment, and a comparatively small share of the nation's farming and mining
activity. In the calendar years of 1984 through 1991, the State's rate of
economic expansion was somewhat slower than that of the nation. Accordingly,
unemployment in the State rose drastically in the late 1980's and early
<PAGE> B-13
1990's. However, since November 1992,employment growth resumed and the
State has gained approximately 185,000 jobs. During recent years,
the State has been hindered by significant cutbacks in computers and
instrument manufacturing, utility, defensive and banking industries.
Revenues and Expenditures. New York's Governmental Funds receive over
52% of their revenues from the personal income tax levied by the
State. Investment income, feesand assessments, abandoned property collections,
and other varied resources supply the balance of the receipts for these funds.
New York's major expenditures are grants to local governments, which are
projected to account for 69%, or $22.910 billion, of all Governmental
Funds expenditures in fiscal 1994-1995. These grants include
disbursements for elementary, secondary and higher education, social services,
drug abuse control, and mass transportation programs. The State's 1996-1997
fiscal year budget reflects a continuing strategy of substantially reduced
State spending, including program restructurings, reductions in social welfare
spending and efficiency and productivity initiatives.
Fiscal 1994-1995. The State completed its 1994 fiscal year with a
cash-basis General Fund (the major operating fund of the State) in balance
on a cash-basis. The closing balance of $158 million reflected $157 million in
the Tax Stabilization Reserve Fund and $1 million in its Contingency Reserve
Fund. The State's 1995-1996 Financial Plan projects a balanced
General Fund. In addition, the State's 1996-1997 Financial Plan projects a
closing fund balance in the General Fund to be $272 million.
State Debt. Under the State Constitution, the State may not, with
limited exceptions for emergencies, undertake long term borrowing (i.e.,
borrowing for more than one year) unless the borrowing is authorized in a
specific amount for a single work or purpose by the Legislature and approved
by the voters. There is no limitation on the amount of long term debt that
may be so authorized and subsequently incurred by the State. The State may
undertake short term borrowings without voter approval (i) in the anticipation
of the receipt of taxes and revenues, by issuing tax and revenue anticipation
notes, and (ii) in anticipation of the receipt of proceeds from the sale of
duly authorized by unissued bonds, by issuing bond anticipation notes. The
State Constitution provides that the State may guarantee the repayment of
certain borrowings to carry out designated projects by the New York State
Thruway Authority, the Job Development Authority and the Port Authority of New
York and New Jersey.
Debt Ratings. Due primarily to the deteriorating economy and recurring
deficits, Moody's lowered its ratings on New York State general obligations in
1990 from A1 to A. In January 1992, Moody's lowered the ratings on a
substantial number of the State's appropriation-backed debt from A to Baa1,
and stated that it had put the State's general obligations under review for
possible downgrade in the future. S&P lowered its ratings on the State's
general obligations in March 1990 from AA- to A, and in January 1992, S&P
further lowered the rating to A-. In January 1992, S&P also downgraded to A-
various agency debt, State moral obligations, contractual obligations, lease
purchase obligations, guarantees and school district debt. S&P currently
assesses the rating outlook for New York obligations as "negative". Fitch
maintains an A+ rating for New York State general obligations. Future
negative rating actions would tend to increase the State's borrowing costs as
well as to negatively effect the prices of bonds held by the New York Tax
Exempt Series.
Litigation. Certain litigation is pending against New York that could
adversely affect the financial condition of the State in fiscal 1995 or
thereafter. These legal proceedings involve State finances, State programs
and miscellaneous tort, real property, and contract claims in which the State
is defendant and the monetary damages sought are substantial.
Adverse developments in these proceedings or the initiation of new proceedings
could affect the ability of the State to maintain a balanced 1995-1996
State Financial Plan.
New York City. The fiscal health of the State is closely related to the
fiscal health of its localities, particularly the City, which has required and
continues to require significant financial assistance from the State. The
City depends on State aid both to enable the City to balance it's budget
and to
<PAGE> B-14
meet its cash requirements. The City achieved balanced operating results
for the 1994-1995 fiscal year as reported in accordance with GAAP.
On January 31, 1996, the City published the Financial Plans for the fiscal
years 1996-1999, a modification to a financial plan submitted on July 11, 1995.
The financial plan projects balanced budget for the fiscal years 1996-1999.
The projections for its 1996 fiscal year reflect proposed actions to close a
previously projected gap of approximately $3.1 billion.
Convertible Securities
Convertible Securities in which the Series' invest may be converted at
either a stated price or stated rate into underlying shares of common stock
thus enabling the investor to benefit from increases in the market price of
the common stock. Convertible securities provide higher yields than the
underlying equity, but generally offer lower yields than non-convertible
securities of similar quality. Like bonds, the value of convertible
securities fluctuates in relation to changes in interest rates and, in
addition, also fluctuates in relation to the underlying common stock.
Warrants
Warrants may be considered more speculative than certain other types of
investments because they (1) do not carry rights to dividends or voting rights
with respect to the securities which it entitles the holder to purchase, and
(2) do not represent any rights in the assets of the issuer.
Investment in Restricted Securities
Each Series may invest in "restricted securities" subject to the 10% net
asset limitation regarding illiquid securities. Restricted securities are
securities which were originally sold in private placements and which have not
been registered under the Securities Act of 1933, as amended (the "1933 Act").
Such securities generally have been considered illiquid because they may be
resold only subject to statutory restrictions and delays or if registered
under the 1933 Act. The Securities and Exchange Commission ("SEC") adopted
Rule 144A to provide for a safe harbor exemption from the registration
requirements of the 1933 Act for resales of restricted securities to
"qualified institutional buyers". The result has been the development of a
more liquid and efficient institutional resale market for restricted
securities. Rule 144A securities may be liquid if properly determined by the
Board of Directors.
INVESTMENT RESTRICTIONS
Each Series has adopted certain restrictions set forth below (in addition
to those indicated in the prospectus) as fundamental policies, which may not
be changed without the favorable vote of the holders of a "majority" of the
Fund's outstanding voting securities, which means a vote of the holders of the
lesser of (i) 67% of the shares represented at a meeting at which more than
50% of the outstanding shares are represented or (ii) more than 50% of the
outstanding shares.
A Series may not:
1. Purchase securities on margin (but a Series may obtain such
short-term credits as may be necessary for the clearance of transactions);
2. Make short sales of securities or maintain a short position, unless
at all times when a short position is open it owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short (short sale against-the-box), and unless
not more than 25% of a Series' net assets (taken at a current value) are held
as collateral for such sales at any one time;
3. Issue senior securities or pledge its assets, except that each
Series, may invest in futures contracts and related options;
4. Buy or sell commodities or commodity contracts (the Small Cap
Series, Energy Series, Technology Series, Financial Services Series,
International Series, Life Sciences Series, Global Fixed Income Series, Tax
Managed Series and the World Opportunities Series, also expressly provide that
forward foreign currency contracts are not considered commodities or commodity
contracts for purposes of this restriction) or real estate or interest in real
<PAGE> B-15
estate, although it may purchase and sell securities which are secured by real
estate and securities of companies which invest or deal in real estate. The
Blended Asset Series I, Blended Asset Series II, Flexible Yield Series I,
Flexible Yield Series II, Flexible Yield Series III, Defensive Series, and the
Maximum Horizon Series may not buy or sell commodities or commodity contracts,
provided that the Series may enter into all types of futures and forward
contracts on currency, securities, economic and other indices and may purchase
and sell options on such futures contracts, or buy or sell real estate or
interests in real estate, although it may purchase and sell securities which
are secured by real estate and securities of companies which invest or deal in
real estate.
5. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter
under certain federal securities laws;
6. Make investments for the purpose of exercising control or
management;
7. Participate on a joint or joint and several basis in any trading
account in securities;
8. Under the Investment Company Act of 1940 and the rules and
regulations thereunder, each Series is prohibited from acquiring the
securities of other investment companies if, as a result of such acquisition,
such Series owns more than 3% of the total voting stock of the company;
securities issued by any one investment company represent more than 5% of its
total assets; or securities (other than treasury stock) issued by all
investment companies represent more than 10% of the total assets of a Series.
A Series' purchase of such investment companies would indirectly bear a
proportionate share of the operating expenses of such investment companies,
including advisory fees. All Series, Except the Tax Managed Series and World
Opportunities Series, will not purchase or retain securities issued by
open-end investment companies (other than money market funds for temporary
investment).
9. Invest in interests in oil, gas or other mineral exploration or
development programs, although it may invest in the common stocks of companies
which invest in or sponsor such programs;
10. Purchase foreign securities if as a result of the purchase of such
securities more than 10% of a Series' assets (25% in the case of the Tax
Managed Series, Life Sciences Series, Blended Asset Series I, Blended Asset
Series II, Flexible Yield Series I, Flexible Yield Series II, Flexible Yield
Series III, Defensive Series, Maximum Horizon Series and 100% in the case of
the International Series, Global Fixed Income Series and World Opportunities
Series) would be invested in foreign securities provided that this restriction
shall not apply to foreign securities that are listed on a domestic securities
exchange or represented by American depository receipts that are traded either
on a domestic securities exchange or in the United States on the
over-the-counter market.
11. The Fund's investment policies with respect to options on
securities and with respect to stock index and currency futures and related
options are subject to the following fundamental limitations: (1) with
respect to any Series, the aggregate value of the securities underlying calls
or obligations underlying puts determined as of the date options are sold
shall not exceed 25% of the assets of the Series; (2) a Series will not enter
into any option transaction if immediately thereafter, the aggregate premiums
paid on all such options which are held at any time would exceed 20% of the
total net assets of the Series; (3) the aggregate margin deposits required on
all futures or options thereon held at any time by a Series will not exceed 5%
of the total assets of the Series; (4) the security underlying the put or call
is within the investment policies of each Series and the option is issued by
the Options Clearing Corporations; and (5) the Series may buy and sell puts
and calls on securities and options on financial futures if such options are
listed on a national securities or commodities exchange.
12. The Fund will not purchase or retain securities of an issuer if an
officer or director of such issuer is an officer or director of the Fund or
its investment adviser and one or more of such officers or directors of the
Fund or its investment adviser owns beneficially more than 1/2% of the shares
or securities of such issuer and all such directors and officers owning more
<PAGE> B-16
than 1/2% of such shares or securities together own more than 5% of such
shares or securities.
13. The Fund will not purchase securities of any company which has
(with predecessors) a record of less than three years continuous operation if
as a result more than 5% of the Portfolio's assets would be invested in
securities of such companies.
14. Invest more than 5% of the value of its total net assets in
warrants (except for the Flexible Yield Series I, Flexible Yield Series II,
Flexible Yield Series III, Global Fixed Income Series, New York Tax Exempt
Series, Ohio Tax Exempt Series and the Diversified Series). Included within
that amount, but not to exceed 2% of the value of the Series' net assets, may
be warrants which are not listed on the New York or American Stock Exchange.
Two Series are subject to the following investment limitations which are
not fundamental:
1. In the case of the Energy Series, the Public Utility Holding Company
Act of 1935 ("PUHCA") places certain restrictions on affiliates of public
utility companies as defined in PUHCA. The Energy Series will not acquire 5%
or more of the outstanding voting securities of a public utility in order to
avoid imposition of these restrictions.
2. The Financial Services Series may purchase securities of an issuer
which derived more than 15% of its gross revenues in its most recent fiscal
year from securities-related activities, subject to the following conditions
and applicable SEC regulations:
a. the purchase cannot cause more than 5% of the Series' total assets
to be invested in all securities of that issuer;
b. for an equity security-(i) the purchase cannot result in the
Series' owning more than 5% of the issuer's outstanding securities in that
class; and (ii) at the time of purchase, the security must meet the Federal
Reserve Board's definition of a margin security (i.e., registration on a
national securities exchange or listing by the Federal Reserve Board of
Governors on the current OTC Margin Stock list).
c. for a debt security-(i) the purchase cannot result in the Series
owning more than 10% of the outstanding principal amount of the issuers debt
securities; and (ii) at the time of purchase, the security must be of at least
investment grade quality (i.e., at least BBB/Baa as determined by one of the
major rating services or, if not rated, judged to be equivalent by the Series'
Directors). See the Appendix to the Prospectus for an explanation of these
ratings.
All of the above percentage limitations, as well as the issuer's gross
revenue test, are applicable at the time of purchase. With respect to
warrants, rights, and convertible securities, a determination of compliance
with the above limitations shall be made as though such warrant, right, or
conversion privilege had been exercised. The Financial Services Series will
not be required to divest its holdings of a particular issuer when
circumstances subsequent to the purchase would cause one of the above
conditions to not be met. The purchase of a general partnership interest in a
securities-related business is prohibited.
Portfolio Turnover
An annual portfolio turnover rate is, in general, the percentage computed
by taking the lesser of purchases or sales of portfolio securities (excluding
certain debt securities) for a year and dividing that amount by the monthly
average of the market value of such securities during the year. Each Series
expects that its turnover rate will be less than 100%, except for the Tax
Managed Series which expects its turnover rate will be no more than 50%.
However, turnover will in fact be determined by market conditions and
opportunities, and therefore it is impossible to estimate the turnover rate
with confidence.
<PAGE> B-17
MANAGEMENT
<TABLE>
<CAPTION>
The Directors and Officers of the Fund are:
<S> <C> <C>
NAME AND ADDRESS POSITION PRINCIPAL OCCUPATIONS DURING PAST FIVE
- ------------------------------------------- --------- --------------------------------------
WITH FUND YEARS
--------- --------------------------------------
B. Reuben Auspitz* Vice President and Director, Manning &
1100 Chase Square President Napier Insurance Fund, Inc. since
Rochester, NY 14604 & 1995; Member, Manning & Napier
Director Capital Co.,L.L.C. since 1995; Member,
Manning & Napier Associates, L.L.C.
since 1995; Member, Fiduciary
Services, L.L.C. since 1995; Director,
Chairman and Treasurer, Exeter Trust
Co. since 1994; Director, Manning &
Napier Leveraged Investment Co. since
1994; Director, President and
Treasurer, Manning & Napier Advisory
Advantage Corporation since 1990;
President and Director, Manning &
Napier Investor Services, Inc. since
1990; Executive Vice President,
Manning & Napier Advisors, Inc. since
1983
Martin Birmingham Director Director, Manning & Napier Insurance
Lincoln Tower, 16th Floor Fund, Inc. since 1995; Director
Rochester, NY 14604 Emeritus, ACC Corporation since 1994;
Trustee, The Freedom Forum since 1980
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Harris H. Rusitzky Director Director, Manning & Napier Insurance
One Grove Street Fund, Inc. since 1995; President,
Pittsford, NY 14534 Blimpie of Central New York and The
Greening Group since 1994; Formerly
Director and Corporate Executive,
Serv-Rite Corporation 1965-94
Peter L. Faber* Director Partner, McDermott, Will & Emery since
1211 Avenue of the Americas 1995; Director, Manning & Napier
New York, New York 10036 Insurance Fund, Inc. since 1995;
Former Partner, Kaye, Scholer,
Fierman, Hays & Handler 1984-95
William Manning President Director, Mount Union College since
1100 Chase Square 1995; Director, NCADD since 1995;
Rochester, NY 14604 President, Director, Founder & CEO,
Manning Leasing, Inc. since 1994;
President & Treasurer, Manning &
Napier Leveraged Investing Co., Inc.
since 1994; President, Director,
Founder & CEO, Synmatix Corp. since
1993; President, Director, Founder
& CEO, Manning Ventures, Inc. since
1992; President, Director, & Founder
CEO, KSDS, Inc. since 1992; President,
Kent Display Systems, Inc. since 1992;
Director, YMCA since 1990; President,
Director and Co-Founder, Manning & Napier
Advisors, Inc. since 1970
Timothy P. Mullaney, CPA Treasurer Treasurer & Chief Financial Officer,
1100 Chase Square & Chief Manning & Napier Insurance Fund, Inc.
Rochester, NY 14604 Financial since 1995; Mutual Fund Chief
Officer Financial Officer, Manning & Napier
Advisors, Inc. since 1994; Tax
Manager, Investors Bank & Trust, 1/94-
7/94; Senior Tax Associate, Coopers &
Lybrand, LLP 1990-94
<PAGE> B-18
Barbara Lapple Corporate Corporate Secretary & Compliance Officer,
1100 Chase Square Secretary Manning & Napier Insurance Fund, Inc. since
Rochester, NY 14604 1995; Corporate Secretary & Compliance Officer,
Manning & Napier Leveraged Investing Company,
Inc. since 1994; Corporate Secretary & Compliance
Officer, Manning & Napier Investor Services, Inc.
since 1990; Compliance Officer, Manning & Napier
Advisors, Inc. since 1984
</TABLE>
* Interested Director, 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 and Harris H. Rusitzky.
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 $5,000. Annual
fees will be calculated monthly and prorated. Each Director who is not
affiliated with the Advisor shall receive $500 per Board Meeting attended for
each active Series of the Fund, plus $500 for any Committee Meeting held on a
day on which a Board Meeting is not held.
<TABLE>
<CAPTION>
COMPENSATION TABLE FOR FISCAL YEAR ENDED DECEMBER 31, 1995
<S> <C> <C> <C> <C> <C>
Name Position Aggregate Pension Est. Annual Total
from Registrant Compensation Benefits upon Compensation
Retirement from Registrant
B. Reuben Director $ 0 N/A N/A $ 0
Auspitz*
Martin Director $ 30,000 N/A N/A $ 30,000
Birmingham
Harris H. Director $ 30,000 N/A N/A $ 30,000
Rustizky
Peter L. Director $ 30,000 N/A N/A $ 30,000
Faber*
</TABLE>
*Interested Director, within the meaning of the Investment Company Act of 1940
(the "1940 Act").
The following persons were known by the Fund to own of record 5% or more
of the outstanding voting securities of each Series on February 20, 1996:
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENTAGE
- ------------------------------------------------------------
OF HOLDER OF RECORD OF SERIES
- -------------------------------------------------------------
<S> <C> <C> <C>
Defensive Series
- -----------------------------------------------------
<PAGE> B-19
Conklin Instrument Corporation 45.47%
P/S-DG
West Road
Pleasant Valley, NY 12569
Manning & Napier Advisors, Inc. 27.78%
1100 Chase Square
Rochester, NY 14604
Updike, Kelly & Spellacy, PC/PS 12.67%
One State Street
P.O. Box 231277
Hartford, CT 06123-1277
Brook Anco Corporation 401(k) Plan 11.23%
3495 Winton Place, Building B
Rochester, NY 14623
Technology Series
- ----------------------------------------------------
Manning & Napier Advisors, Inc. 8.25%
FBO American Electric Power Co.
Pension Plan
1100 Chase Square
Rochester, NY 14604
Maximum Horizon Series
- -----------------------------------------------------
Manning & Napier Advisors, Inc. 44.63%
1100 Chase Square
Rochster, NY 14604
Richard & Katherine Rowley 18.24%
JTWROS
2231 Hunt Club Drive
Castleton on Hudson, NY 12033
Grant C. McKnight IRA 11.02%
68 Longwell Drive
Grove City, PA 16127
Emily Ann McKnight 8.70%
600 Centerville Pike
Slippery Rock, PA 16057
Amanda Jill McKnight 8.70%
600 Centerville Pike
Slippery Rock, PA 16057
International Series
- -----------------------------------------------------
Manning & Napier Advisors, Inc. 6.46%
FBO American Electric Power Co.
Pension Plan
1100 Chase Square
Rochester, NY 14604
Tax Managed Series
- -----------------------------------------------------
Manning & Napier Advisors, Inc. 62.70%
1100 Chase Square
Rochester, NY 14604
Richard & Katherine Rowley 20.28%
JTWROS
2231 Hunt Club Drive
Castleton on Hudson, NY 12033
Emily Ann McKnight 6.31%
600 Centerville Pike
Slippery Rock, PA 16057
Amanda Jill McKnight 5.05%
600 Centerville Pike
Slippery Rock, PA 16057
Blended Asset Series I
- -----------------------------------------------------
Mitchell Pierson, Jr. Inc. 401(k) Plan 6.35%
Exeter Trust Company
1100 Chase Square
Rochester, NY 14604
Blended Asset Series II
- ------------------------------------------------------
NAMIC 401(k) Plan & Trust 5.33%
3601 Vincennes Road
Indianapolis, IN 46268
Flexible Yield Series I
- -----------------------------------------------------
Manning & Napier Advisors, Inc. 17.60%
1100 Chase Square
Rochester, NY 14604
Penfield Fire Company 16.10%
1838 Penfield Road
Penfield, NY 14526
<PAGE> B-20
Stuart R. Kornreich IRA 13.76%
426 Rankin Avenue
Warren, PA 16365
Elaine P. Tecler IRA 12.72%
132 Clintwood Circle
Rochester, NY 14620
James C. & Elaine C. Leitten 7.10%
JTWROS
16 Greenwood Drive
Orchard Park, NY 14127
Joyce J. Kendall IRA 5.00%
62 Green Knolls Drive
Apt. C
Rochester, NY 14620
Flexible Yield Series II
- -----------------------------------------------------
Manning & Napier Advisors, Inc. 32.16%
1100 Chase Square
Rochester, NY 14604
Charles E. Lucas IRA 20.38%
9 Southland Avenue
Lakewood, NY 14750
Penfield Fire Company 9.01%
1838 Penfield Foad
Penfield, NY 14526
Jerry J. Vasicek IRA 8.94%
65 Coventry Road
Endicott, NY 13760
June & Richard Dahlin JTWROS 6.79%
1425 2nd Avenue, Apt. 206
Chula Vista, CA 91911
Kent H. Hudson IRA 6.58%
508 Jackson Avenue ext.
Warren, PA 16365
Flexible Yield Series III
- -----------------------------------------------------
George T. & Jacqueline A. 18.26%
Golebiewski JTWROS
4693 Pinecrest Terrace
Eden, NY 14057-9757
Manning & Napier Advisors, Inc. 9.90%
1100 Chase Square
Rochester, NY 14604
Boy Scouts of America Troop 31 9.29%
909 Fairport Road
East Rochester, NY 14445
Walter D. & Bethel H. Kogut 7.18%
JTWROS
8066 Irish Mist Lane
Manilus, NY 13104
Peter L. Kogut Jr. & Christine Kogut 7.18%
JTWROS
77 Old Stonefield Way
Pittsford, NY 14534
Snyder Tank Corporation 6.96%
3774 Lakeshore Road
Buffalo, NY 14219
Perry's Ice Cream, Inc. Deferred 5.29%
Salary P/S Bond Fund
One Ice Cream Plaza
Akron, NY 14001
Hoselton Foundation 5.10%
909 Fairport Road
East Rochester, NY 14445
<PAGE> B-21
New York Tax Exempt Series
- ----------------------------------------------------
Manning & Napier Advisors, Inc. 6.56%
FBO William B. Hale
1100 Chase Square
Rochester, NY 14604
Ohio Tax Exempt Series
- -----------------------------------------------------
Manning & Napier Advisors, Inc. 15.13%
FBO Ms. Nancy Peterson
1100 Chase Square
Rochester, NY 14604
Manning & Napier Advisors, Inc. 14.29%
FBO Franklin Eck
1100 Chase Square
Rochester, NY 14604
Allen Thorley Delloyd Inc. 5.36%
5201 Abbe Road
Elyria, OH 44035
</TABLE>
The Advisor
Manning & Napier Advisors, Inc. acts as the Fund's investment advisor.
The Fund pays the Advisor for the services performed a fee at the annual rate
of 1% of the Fund's daily net assets for the Small Cap Series, Energy Series,
Technology Series, Maximum Horizon Series, Financial Services Series,
International Series, Tax Managed Series, Life Sciences Series, Global Fixed
Income Series, Blended Asset Series I, Blended Asset Series II, World
Opportunities Series, .80% for the Defensive Series, .35% for the Flexible
Yield Series I, .45% for the Flexible Yield Series II, .50% for the Flexible
Yield Series III, New York Tax Exempt Series, Ohio Tax Exempt Series and the
Diversified Tax Exempt Series. For fiscal years ended 1987, 1988, 1989,
1992, 1993, 1994 and 1995, the aggregate total of fees paid by the
Small Cap Series to the Advisor were $34,211, $114,125, $0, $184,465,
$582,365, $931,789 and $1,296,858, respectively. For the period
November 4, 1988, (Commencement of Investment Operations) to December 31, 1988
and for the fiscal years ended 1989, 1990, 1991, and 1992, the aggregate total
of fees paid by the Technology Series to the Advisor were $87,931, $660,878
$573,333, $603,370, and $249,485 respectively and for the period August 29,
1994 (Commencement of Operations) to December 31, 1994 and the fiscal year
ended 1995, the aggregate total fees were $151, 936 and $557,701,
respectively or the period August 27, 1992, (Commencement of Investment
Operations) to December 31, 1992 and for the fiscal years ended 1993, 1994 and
1995, the aggregate total fees paid by the International Series to the
Advisor were $282,754, $868,462, $870,103 and 84,583 or the period
October 7, 1992, (Commencement of Investment Operations) to December 31, 1992
and for the fiscal year ended 1993, 1994 and 1995, the aggregate total fees
paid by the Life Sciences Series to the Advisor were $30,001, $560,977,
$749,795 and $1,038. For the fiscal years ended 1987, 1988 and 1989,
the advisory fees waived by the Advisor for the Small Cap Series were $500,
$707, and $489 respectively. For the period September 15, 1993, (Commencement
of Operations) to December 31, 1993 and for the fiscal years ended 1994 and
1995, the advisory fees waived by the Advisor for the Blended Asset
Series I were $891, $26,034 and 23,407 and the aggregate total fees paid
for the fiscal year ended 1995 was $46,543. For the period October 12,
<PAGE> B-22
1993, (Commencement of Operations) to December 31, 1993 and for the fiscal
years ended 1994 and 1995, the advisory fees waived by the Advisor
for the Blended Asset Series II were $393, $37,315 and $17,669 and the
aggregate total fees paid for the fiscal year ended 1995 was $114,026
For the period February 15, 1994 (Commencement of Operations) to December 31,
1994 and the fiscal year ended 1995, the advisory fees waived by the
Advisor for the Flexible Yield Series II were $905 and $2,160. For
the period February 15, 1994 (Commencement of Operations) to December 31, 1994
and the fiscal year ended 1995, the advisory fees waived by the
Advisor for the Flexible Yield Series I were $443 and $1,221. For
the period December 20, 1993, (Commencement of Operations) to December 31,
1993 and for the fiscal years ended 1994 and 1995, the advisory fees
waived by the Advisor for the Flexible Yield Series III were $11, $1,683 and
$4,767. For the period January 17, 1994 (Commencement of
Operations) to December 31, 1994 and the fiscal year ended 1995, the
advisory fees paid to the Advisor for the New York Tax Exempt Series were
$82,497 and $114,847. For the period February 14, 1994 (Commencement
of Operations) to December 31, 1994 and the fiscal year ended 1995,
the advisory fees waived by the Advisor for the Ohio Tax Exempt Series were
$11,101 and $4,398 and the aggregate total fees paid for the fiscal year
ended 1995 was $19,239. For the period February 14, 1994 (Commencement
of Operations) to December 31, 1994 and the fiscal year ended 1995, advisory
fees waived by the Advisor for the Diversified Tax Exempt Series were $22,494
and $0 and the aggregate total fees paid were $2,983 and
$50,130. All fees are reported for the Series that have commenced
operations except, for the Tax Managed Series, Defensive Series and Maximum
Horizon Series which have not reached a reporting period. The Investment
Advisory Agreement (the "Agreement") between the Fund and the Advisor provides
that in the event the expenses of the Fund (including the fee of the Advisor
but excluding: (i)brokerage commissions; (ii) interest; (iii) taxes; and (iv)
extraordinary expenses except for those incurred by the Fund as a result of
litigation in connection with a suit involving a claim for recovery by the
Fund, or as a result of litigation involving a defense against a liability
asserted against the Fund, provided that, if the adviser made the decision or
took the action which resulted in such claim the adviser acted in good faith
without gross negligence or misconduct, and for any indemnification paid by
the Fund to its officers, directors and advisers in accordance with applicable
state and federal laws as a result of such litigation) for any fiscal year
exceed the limits set by applicable regulations of state securities
commissions, the Advisor will reduce its fee by the amount of such excess.
Any such reductions or refunds are accrued and paid in the same manner as the
Advisor's fee and are subject to readjustment during the year.
The Agreement states that the Advisor shall give the Fund the benefit of
its best judgment and effort in rendering services thereunder, but the Advisor
shall not be liable for any loss sustained by reason of the purchase, sale or
retention of any security, whether or not such purchase, sale or retention
shall have been based upon its own investigation and research or upon
investigation and research made by any other individual, firm or corporation,
if such purchase, sale or retention shall have been made and such other
individual, firm or corporation shall have been selected in good faith. The
Agreement also states that nothing contained therein shall, however, be
construed to protect the Advisor against any liability to the Fund or its
security holders by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of its reckless
disregard of its obligations and duties under the Agreement.
<PAGE> B-23
In the Agreement, the Fund agrees that the words "Manning & Napier" in
its name is derived from the name of the Advisor and is 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.
On April 30, 1993, the Advisor became the Fund's Transfer Agent. For
servicing the Blended Asset Series I , Blended Asset Series II, Flexible Yield
Series I, Flexible Yield Series II, Flexible Yield Series III, New York Tax
Exempt Series, Ohio Tax Exempt Series and Diversified Tax Exempt Series in
this capacity, for the fiscal years ended 1993, 1994 and 1995, the Advisor
received $29.87, $7,396 and $14,322 from the Fund. The Tax Managed
Series, Defensive Series and the Maximum Horizon Series are not included since
the series have not reached a reporting period. The Advisor will not
charge for its Transfer Agent services to the other Series.
Manning & Napier Investor Services, Inc., acts as Distributor of the Fund
shares and is located at the same address as the Advisor and the Fund. There
will be no additional costs to clients for this service. The Advisor may
impose separate requirements in connection with employee purchases of the
Fund.
Custodian and Independent Accountant
The custodian for the Energy Series, the Technology Series, the Financial
Services Series, the Life Sciences Series, and the Global Fixed Income Series
is Fleet Bank, N.A., 45 East Avenue, Rochester, N.Y. 14604, with the exception
of the foreign securities held by the Fund, whose custodian is Boston Safe
Deposit and Trust Company, One Cabot Road, 3rd Floor, Medford, MA 02155-5159.
The custodian for the Small Cap Series, International Series, Blended Asset
Series I, Blended Asset Series II, Flexible Yield Series I, Flexible Yield
Series II, Flexible Yield Series III, New York Tax Exempt Series, Ohio Tax
Exempt Series, Diversified Tax Exempt Series, Tax Managed Series, Defensive
Series, Maximum Horizon Series and the World Opportunities Series is Boston
Safe Deposit and Trust Company, One Cabot Road, 3rd Floor, Medford, MA
02155-5159. Boston Safe Deposit and Trust Company may, at its own expense,
employ a sub-custodian on behalf of the foreign securities held by the Fund,
provided that Boston Safe Deposit and Trust Company shall remain liable for
all its duties as custodian. Coopers & Lybrand L.L.P, One Post Office Square,
Boston, MA 02109 are the Fund's independent accountants for the Fund, with the
exception of the Blended Asset Series I, Blended Asset Series II, Flexible
Yield Series I, Flexible Yield Series II, Flexible Yield Series III, Tax
Managed Series, Defensive Series and the Maximum Horizon Series for which the
independent accountants are Deloitte & Touche LLP, 125 Summer Street, Boston,
MA 02110.
Portfolio Transactions and Brokerage
The Agreement states that in connection with its duties to arrange for
the purchase and the sale of securities held in the portfolio of the Fund by
placing purchase and sale orders for the Fund, the Advisor shall select such
broker-dealers ("brokers") as shall, in the Advisor's judgment, implement the
policy of the Fund to achieve "best execution", i.e., prompt and efficient
execution at the most favorable securities price. In making such selection,
the Advisor is authorized in the Agreement to consider the reliability,
integrity and financial condition of the broker, the size and difficulty in
executing the order and the value of the expected contribution of the broker
to the investment performance of the Fund on a continuing basis. The Advisor
is also authorized to consider whether a broker provides brokerage and/or
research services to the Fund and/or other accounts of the Advisor. The Fund
understands that a substantial amount of its portfolio transactions may be
transacted with primary market makers acting as principal on a net basis, with
no brokerage commissions being paid by the Fund. Such principal transactions
may, however, result in a profit to market makers. In certain instances the
Advisor may make purchases of underwritten issues for the Fund at prices which
include underwriting fees. The Agreement states that the commissions paid to
such brokers may be higher than another broker would have charged if a good
faith determination is made by the Advisor that the commission is reasonable
in relation to the services provided, viewed in terms of either that
<PAGE> B-24
particular transaction or the Advisor's overall responsibilities as to the
accounts as to which it exercises investment discretion and that the Advisor
shall use its judgment in determining that the amount of commissions paid are
reasonable in relation to the value of brokerage and research services
provided. The Advisor is further authorized to allocate the orders placed by
it on behalf of the Fund to such brokers or dealers who also provide research
or statistical material, or other services, to the Fund, the Advisor, or any
affiliate of either. Such allocation shall be in such amounts and proportions
as the Advisor shall determine, and the Advisor shall report on such
allocations regularly to the Fund, indicating the broker-dealers to whom such
allocations have been made and the basis therefore.
The research services discussed above may be in written form or through
direct contact with individuals and may include information as to particular
companies and securities as well as market economic or institutional areas and
information assisting the Fund in the valuation of its investments. The
research which the Advisor receives for the Fund's brokerage commissions,
whether or not useful to the Fund may be useful to the Advisor in managing the
accounts of the Advisor's other advisory clients. Similarly, the research
received for the commissions of such accounts may be useful to the Fund. For
the fiscal years ending 1987, 1988, 1989, ,1992 and 1993, 1994 and
1995, the brokerage commissions incurred by the Small Cap Series were
$90,216, $82,149, $0, $42,285, $60,820, $90,860 and $327,763,
respectively. For the period November 4, 1988 (Commencement of Operations) to
December 31, 1988 and the fiscal years ended 1989, 1990, 1991 and 1992, the
brokerage commissions incurred by the Technology Series were $123,896,
$80,326, $11,415, $5,795 and $137,000, respectively and for the period August
29, 1994 (Commencement of Operations) to December 31, 1994 and the fiscal
year ended 1995, were $13,693 and $73,963. For the period August 27,
1992 (Commencement of Operations) to December 31, 1992 and the fiscal years
ended 1993, 1994 and 1995, the brokerage commissions incurred by the
International Series were $219,814, $49,000, $151,987 and $157,084.
For the period October 7, 1992 (Commencement of Operations) to December 31,
1992 and the fiscal years ended 1993, 1994 and 1995, the brokerage
commissions incurred by the Life Sciences Series were $10,670, $144,225,
$85,230 and $132,203. For the period September 15, 1993 (Commencement of
Operations) to December 31, 1993 and for the fiscal years ended 1994 and
1995, the brokerage commissions incurred by the Blended Asset Series
I were $431, $4,270 and $8,775. For the period October 12, 1993
(Commencement of Operations) to December 31, 1993 and for the fiscal years
ended 1994 and 1995, the brokerage commissions incurred by the Blended Asset
Series II were $506, $8,525 and $23,410. For the period February 15, 1994
(Commencement of Operations) to December 31, 1994, and the fiscal year
ended 1995, there were no brokerage commissions incurred by the Flexible
Yield Series I. For the period February 15, 1994 (Commencement of Operations)
to December 31, 1994 and the fiscal year ended 1995, there were no
brokerage commissions incurred by the Flexible Yield Series II. For the
period December 20, 1993 (Commencement of Operations) to December 31, 1993 and
for the fiscal years ended 1994 and 1995, there were no brokerage
commissions incurred by the Flexible Yield Series III. For the period
January 17, 1994 (Commencement of Operations) to December 31, 1994 and the
fiscal year ended 1995, there were no brokerage commissions incurred by
the New York Tax Exempt Series.
For the period February 14, 1994 (Commencement of Operations) to December 31,
1994 and the fiscal year ended 1995, there were no brokerage
commissions incurred by the Ohio Tax Exempt Series. For the period February 14,
1994 (Commencement of Operations) to December 31, 1994 and the fiscal year
ended 1995, there were no brokerage commissions incurred by the
Diversified Tax Exempt Series. All brokerage commissions are reported for
all Series that have commenced operations except, for the Tax Managed Series,
Defensive Series and Maximum Horizon Series which have not reached a reporting
period. There were no brokerage commissions paid to affiliates during the
last five fiscal years.
NET ASSET VALUE
The net asset value is determined on each day that the New York Stock
Exchange is open for trading. In determining the net asset value of the
Fund's shares, common stocks that are listed on national securities exchanges
or the NASDAQ National Market System are valued at the last sale price on the
exchange on which each stock is principally traded as of the close of the New
York Stock Exchange (which is currently 4:00 p.m., Eastern time), or, in the
<PAGE> B-25
absence of recorded sales, at the closing bid prices on such exchanges or on
such System. Unlisted securities that are not included in such National
Market System are valued at the quoted bid prices in the over-the-counter
market. All securities initially expressed in foreign currencies will be
converted to U.S. dollars at the exchange rates quoted at the close of the New
York markets. Short securities positions are accounted for at value, using
the same method of valuation described above. Securities and other assets for
which market quotations are not readily available are valued by appraisal at
their fair value as determined in good faith by the Advisor under procedures
established by and under the general supervision and responsibility of the
Fund's Board of Directors. The Advisor may use a pricing service to obtain
the value of the Fund's portfolio securities where the prices provided by such
pricing service are believed to reflect the fair market value of such
securities. The methods used by the pricing service and the valuations so
established will be reviewed by the Advisor under the general supervision of
the Fund's Board of Directors. Several pricing services are available, one or
more of which may be used as approved by the Fund's Board of Directors.
REDEMPTION OF SHARES
Payment for shares redeemed
Payment for shares presented for redemption may be delayed more than
three days only for (1) any period (A) during which the New York Stock
Exchange is closed other than customary week-end and holiday closings or (B)
during which trading on the New York Stock Exchange is restricted; (2) for any
period during which an emergency exists as a result of which (A) disposal by
the Fund of securities owned by it is not reasonably practicable or (B) it is
not reasonably practicable for the Fund to determine the value of its net
assets; or (3) for such other periods as the Securities and Exchange
Commission may by order permit.
Redemption in Kind
If the Board of Directors determines that it would be detrimental to the
best interests of the remaining shareholders of the Fund to make payment
wholly or partly in cash, the Fund may pay the redemption price in whole or in
part by a distribution in kind of securities from the portfolio of the Fund,
in lieu of cash in conformity with applicable rules of the Securities and
Exchange Commission. The Fund, however, has elected to be governed by Rule
18f-1 under the 1940 Act pursuant to which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or one per cent of the net
asset value of the Fund during any 90 day period for any one shareholder.
Should redemptions by any shareholder exceed such limitation, the Fund will
have the option of redeeming the excess in cash or in kind. If shares are
redeemed in kind, the redeeming shareholder might incur brokerage costs in
converting the assets into cash.
FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a summary of certain additional tax considerations
generally affecting the Fund and its shareholders that are not described in
the Fund's Prospectus. No attempt is made to present a detailed explanation
of the tax treatment of the Fund or its shareholders, and the discussion here
and in the Fund's Prospectus is not intended as a substitute for careful tax
planning.
The following discussion of federal income tax consequences is based on
the Internal Revenue Code of 1986, as amended (the "Code") and the regulations
issued thereunder as in effect on the date of this Statement of Additional
Information. New legislation, as well as administrative changes or court
decisions, may significantly change the conclusions expressed herein, and may
have a retroactive effect with respect to the transactions contemplated
herein.
Qualification as Regulated Investment Company
As a regulated investment company ("RIC") under Subchapter M of the Code,
each Series is exempt from federal income tax on its net investment income and
capital gains which it distributes to shareholders, provided that it
distributes at least 90% of its investment company taxable income (generally,
net investment income and the excess of net short-term capital gain over net
long-term capital loss) for the year (the "Distribution Requirement") and
satisfies certain other requirements of the Code that are described below.
Distributions of investment company taxable income made during the taxable
year will satisfy the Distribution Requirement.
<PAGE> B-26
In addition to satisfaction of the Distribution Requirement each Series
must derive at least 90% of its gross income from dividends, interest, certain
payments with respect to securities loans and gains from the sale or other
disposition of stocks, securities or foreign currencies, or from other income
(including but not limited to gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies ("Qualifying Income") and derive less than 30% of its
gross income from the sale or other disposition of stocks, securities and
certain other investments held for less than three months including foreign
currencies (or options, futures or forward contracts on foreign currencies)
but only if such currencies (or options, futures or forward contracts) are not
directly related to the Series' principal business of investing in stock or
securities or options and futures with respect to stocks or securities (the
so-called "Short-Short Gain Rule"). Moreover, at the close of each quarter
of its taxable year, at least 50% of the value of a Series' assets must
consist of cash and cash items, Government securities, securities of other
RICs, and securities of other issuers (as to which such Series has not
invested more than 5% of the value of its total assets in any one issuer and
as to which such Series does not hold more than 10% of the outstanding voting
securities of any one issuer), and no more than 25% of the value of its total
assets may be invested in the securities of any one issuer (other than
Government securities and securities of other RICs), or in two or more issuers
which the Fund controls and which are engaged in the same, similar or related
trades or businesses (the "Asset Diversification Test").
The foregoing requirements of the Code may inhibit the Series in their
efforts to achieve their investment objectives.
1. a. Qualifying Income
It is not clear to what extent income derived by a Series from
foreign currency gains will, under future Treasury regulations,
be treated by the Internal Revenue Service (the "Service") as
Qualifying Income. Consequently, each Series will take
appropriate actions to limit such transactions, where necessary,
until such time as applicable U.S.Treasury regulations are issued
or a Series receives a satisfactory opinion of counsel or private
letter ruling from the Service that income from such currency
transactions constitutes Qualifying Income.
1. b. Currency Transactions
Transactions in forward currency contracts, currency futures
contracts, options on currencies, and certain other instruments
are subject to special rules which may affect the timing and
character of distributions to shareholders by accelerating income
to the Series, deferring Series' losses, causing adjustments in
the holding periods of Series' securities, and converting capital
gains into ordinary income. For example, certain foreign
currency gains realized by a Series will be treated as ordinary
income rather than capital gain under Section 988 of the Code.
The tax treatment of certain foreign currency contracts, futures
contracts, and options on futures contracts entered into by a
Series will be governed by Section 1256 of the Code. In general,
each such position held by the Series will be marked to market
(i.e., treated as if it were closed out on the last business day
of each taxable year of the Series), and all gain or loss
associated with such marking to market or other transactions in
such positions will be treated as 60% long-term and 40%
short-term capital gain or loss.
When a Series holds an option or contract governed by Section 1256
which substantially diminishes the Series' risk of loss with respect to
another position held by the Series which is not governed by Section 1256,
this combination of positions could be a "mixed straddle" that is generally
subject to Section 1092 of the Code in addition to Section 1256 of the Code.
The Series may make certain tax elections for its "mixed straddles" which
could eliminate the effects of Section 1256. In addition, a Series'
activities in foreign currency contracts, futures contracts and options may be
limited by the requirements for qualification as a regulated investment
company and by future legislative or regulatory changes in these requirements.
<PAGE> B-27
2. Short-Short Gain Rule
Because of the Short-Short Gain Rule, a Series may have to:
(1) limit the sale of appreciated securities held for less than
three months;
(2) limit the short sale of, or the acquisition of put options on,
appreciated securities held for one year or less;
(3) limit the closing of call options or secured put options it has
written or of appreciated put options it has held for less than
three months; and
(4) limit writing options that expire in less than three months and
covered call options on securities that have been held for less
than three months and are likely to appreciate significantly
during the option period.
To the extent a Series is able to identify and designate offsetting
positions as "hedges," increases and decreases in the value of such positions
will be netted for purposes of determining whether the Short-Short Gain Rule
has been satisfied. In addition, the Short-Short Gain Rule will not prevent a
Series from disposing of investments at a loss, since the recognition of a
loss before the expiration of the three-month holding period has no impact.
3. Asset Diversification Test
The Service has ruled (1) that the issuer of a call option written on a
security is the issuer of the underlying security and (2) that, where the
writer of a call option owns the underlying security, the Asset
Diversification Test will be applied solely to such security and that the
value of the option will not be counted.
The Service has informally ruled for purposes of the Asset
Diversification Test that (1) a put option on a security is itself a
"security", (2) the issuer of a put option on a security is the issuer of the
underlying security, (3) the market value of a purchased put option should be
the measure of the investment in the instrument as a "security", and (4) the
market value of the underlying security should be the measure of the
investment in a written put option as a "security".
By law, the Series may not rely on informal rulings of the Service.
Consequently, a Series may find it necessary to seek its own ruling from the
Service on these issues or to curtail its options trading in order to stay
within the limits of the Asset Diversification Test.
It is unclear under present law who should be treated as the issuer of
foreign currency exchange contracts, although it has been suggested that the
issuer in each case would be the foreign central bank or foreign government
backing the particular currency. A Series may find it necessary to curtail
trading in forward foreign currency contracts or seek a ruling on this issue.
A Series may also find it necessary to seek rulings with respect to other
financial instruments, or curtail trading therein, for purposes of the Asset
Diversification Test.
<PAGE> B-28
Fund Distributions
Investors should be careful to consider the tax implications of buying
shares of a Series just prior to the record date of an ordinary income
dividend or capital gain distribution. The price of shares purchased at that
time may reflect the amount of the forthcoming ordinary income dividend or
capital gain distribution. Those purchasing just prior to an ordinary income
dividend or capital gain distribution will nevertheless be taxable on the
entire amount of the distribution received.
In the event a Series elects to retain its net capital gain, it is
expected that such Series also will elect to have shareholders treated as
having received a distribution of such gain, with the result that they will be
required to report their respective shares of such gain on their returns as
long-term capital gain, will receive a refundable tax credit for their
allocable share of capital gain tax paid by such Series on the gain, and will
increase the tax basis for their shares by an amount equal to 65% of the
deemed distribution.
Investors should be aware that any loss realized upon the sale, exchange
or redemption of Series shares held for six months or less will be treated as
a long-term capital loss to the extent any capital gain distributions have
been paid with respect to such shares or any amounts have been treated as
long-term capital gains with respect to such shares pursuant to the election
described in the preceding paragraph. Investors should also be aware that the
maximum federal tax rate on long-term capital gains has been increased to 35%
for corporate taxpayers and to 28% for non-corporate taxpayers.
In some circumstances the Series' use of short sales, writing of covered
call options and acquisitions of put options to further its investment
objectives may reduce the portion of its distributions that qualify for the
corporate dividends received deduction.
Except in the case of the International Series and Global Fixed Income
Series, the Code allows a 70% dividends-received deduction (the "deduction")
to corporate shareholders of any Series. Special provisions are contained in
the Code as to the eligibility of payments to such shareholders for the
deduction. The extent to which the ordinary income dividends paid by a Series
are eligible for the deduction is determined by the ratio of the aggregate
dividends received by such Series from domestic corporations in any fiscal
year to the ordinary income dividends paid by such Series for that year. For
purposes of determining the deduction, a Series may not take into account any
amount received as a dividend with respect to any security unless such Series
has held the security with respect to which the dividend has been paid for a
minimum period, generally 46 days. Moreover, corporate taxpayers will have to
take into account the entire amount of any dividend received from a Series for
purposes of the alternative minimum tax and environmental tax. Capital gains
distributions are not eligible for the dividends received deduction.
As noted in the Prospectuses for the New York Tax Exempt Series, the Ohio
Tax Exempt Series and the Diversified Tax Exempt Series, exempt-interest
dividends are excludable from a shareholder's gross income for federal income
tax purposes. Exempt-interest dividends may nevertheless be subject to the
alternative minimum tax (the "Alternative Minimum Tax") imposed by Section 55
of the Code or the environmental tax (the "Environmental Tax") imposed by
Section 59A of the Code. The Alternative Minimum Tax is imposed at the rate
of 26% or 28% in the case of non-corporate taxpayers and at the rate of 20% in
the case of corporate taxpayers, to the extent it exceeds the taxpayer's
regular tax liability. The Environmental Tax is imposed at the rate of 0.12%
and applies only to corporate taxpayers. The Alternative Minimum Tax and the
Environmental Tax may be imposed in two circumstances. First, exempt-interest
dividends derived from certain "private activity bonds" issued after August 7,
1986, will generally be an item of tax preference and therefore potentially
subject to the Alternative Minimum Tax and the Environmental Tax. Each Tax
Exempt Series intends, when possible, to avoid investing in private activity
bonds. Second, in the case of exempt-interest dividends received by corporate
shareholders, all exempt-interest dividends, regardless of when the bonds from
which they are derived were issued or whether they are derived from private
activity bonds, will be included in the corporation's "adjusted current
earnings" as defined in Section 56(g) of the Code, in calculating the
corporation's alternative minimum taxable income for purposes of determining
the Alternative Minimum Tax and the Environmental Tax.
The percentage of income that constitutes "exempt-interest dividends"
will be determined for each year for each Tax Exempt Series will be applied
uniformly to all dividends declared with respect to the Series during that
year. This percentage may differ from the actual percentage for any
particular day.
Interest on indebtedness incurred by shareholders to purchase or carry
shares of a Tax Exempt Series will not be deductible for federal income tax
purposes. The deduction otherwise allowable to property and casualty
insurance companies for "losses incurred" will be reduced by an amount equal
to a portion of exempt-interest dividends received or accrued during any
taxable year. Foreign corporations engaged in a trade or business in the
<PAGE> B-29
United States will be subject to a "branch profits tax" on their "dividend
equivalent amount" for the taxable year, which will include exempt-interest
dividends. Certain Subchapter S corporations may also be subject to taxes on
their "passive investment income," which could include exempt-interest
dividends. Up to 85% of the Social Security benefits or railroad retirement
benefits received by an individual during any taxable year will be included in
the gross income of such individual if the individual's "modified adjusted
gross income" (which includes exempt-interest dividends) plus one-half of the
Social Security benefits or railroad retirement benefits received by such
individual during that taxable year exceeds the base amount described in
Section 86 of the Code.
Entities or persons who are "substantial users" (or persons related to
"substantial users") of facilities financed by industrial development bonds or
private activity bonds should consult their tax advisors before purchasing
shares of a Tax Exempt Series.
"Substantial user" is defined generally for these purposes as including a
"non-exempt person" who regularly uses in trade or business a part of a
facility financed from the proceeds of such bonds.
Issuers of bonds purchased by a Tax Exempt Series (or the beneficiary of
such bonds) may have made certain representations or covenants in connection
with the issuance of such bonds to satisfy certain requirements of the Code
that must be satisfied subsequent to the issuance of such bonds. Investors
should be aware that exempt-interest dividends derived from such bonds may
become subject to federal income taxation retroactively to the date thereof if
such representations are determined to have been inaccurate or if the issuer
of such bonds (or the beneficiary of such bonds) fails to comply with such
covenants.
From time to time, the Fund may present its performance in communications
to shareholders, sales literature, and advertising. Performance measurements
will be presented by average annual total return, total return, and/or
cumulative total return. All measurements will be based upon the change in
net assets resulting from all Fund operations, including the reinvestment of
dividends and distributions, if any, for the specified periods.
The Fund's performance will vary from time to time depending on market
conditions, the composition of its portfolio, and its level of operation
expenses. Consequently, any performance figures should not be considered
representative of the future performance of the Fund. The Fund may include in
performance advertisements rankings or similar information provided by
Morningstar or other organizations.
Other Considerations
A 4% non-deductible excise tax is imposed on RICs that fail to distribute
in each calendar year an amount equal to 98% of their ordinary income for the
calendar year and 98% of their "capital gain net income" (excess of capital
gains over capital losses) for the one-year period ending on October 31 of
such calendar year, even if they satisfy the Distribution Requirement. The
balance of such income must be distributed during the next calendar year.
Each Series intends to make sufficient distributions of its ordinary income
and capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax. However, investors should note that a Series
may in certain circumstances be required to liquidate portfolio investments in
order to make sufficient distributions to avoid excise tax liability.
For purposes of the excise tax, a RIC must (1) offset a net ordinary loss
for any calendar year in determining its capital gain net income, but only to
the extent the capital gain net income for the one-year period ending on
October 31 of such calendar year exceeds the net capital gains for said period
and (2) exclude certain foreign currency gains and losses incurred after
October 31 of any year in determining the amount of ordinary taxable income
for the current calendar year (and, instead include such gains and losses in
determining ordinary taxable income for the succeeding calendar year).
Rules of state and local taxation of ordinary income dividends and
capital gain distributions from regulated investment companies often differ
from the rules for federal income taxation described above. Shareholders are
urged to consult their tax advisors for the application of the federal rules
outlined above to their particular circumstances and for the application of
state and local tax rules affecting investment in the Fund. Foreign
shareholders are urged to consult their own tax advisors concerning the
applicability of the United States withholding tax.
<PAGE> B-30
[GRAPHIC]
[Pie Chart]
Portfolio Composition
Chemical & Allied Products - 4%
Crude Petroleum & Natural Gas - 2%
Educational Services - 3%
Electronics & Electrical Equipment - 10%
Fabricated Metal Products - 7%
Food - 2%
Glass Products - 1%
Health Services - 9%
Industrial & Commercial Machinery - 4%
Office & Business Equipment - 3%
Plastic Products - 3%
Business Services/Software - 15%
Amusement & Recreational Services - 1%
Cash & Cash Equivalents - 5%
Textiles - 1%
Television & Radio Broadcasting Stations - 1%
Technical Instruments & Supplies - 2%
Shoes - 3%
Retail - 20%
Restaurants - 2%
Printing & Publishing - 1%
Primary Metal Industries - 1%
B-31
<PAGE>
Performance Update as of December 31, 1995
The value of a $10,000 investment in the Manning & Napier Fund, Inc. - Small
Cap Series from its inception (4/30/92) to present (12/31/95) as compared to
the Standard & Poor's (S&P) 500 Total Return Index.1
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc. - Small Cap Series
Total Return
Through Growth of $10,000 Average
12/31/95 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 11,470 14.70% 14.70%
Inception2 $ 16,497 64.97% 14.60%
</TABLE>
<TABLE>
<CAPTION>
S& P 500 Total Return Index
Total Return
Through Growth of $10,000 Average
12/31/95 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 13,759 37.59% 37.59%
Inception2 $ 16,460 64.60% 14.53%
</TABLE>
1The Standard and 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.
S&P 500 Total Return Index returns assume reinvestment of dividends and,
unlike Fund returns, do not reflect any fees or expenses.
2The Fund and Index performance numbers are calculated from April 30, 1992,
the Fund's most recent inception date. The Fund's performance is historical
and may not be indicative of future results.
[GRAPHIC]
LINE CHART
Data for Line Chart to follow:
<TABLE>
<CAPTION>
Manning & Napier S&P 500 Total
Small Cap Series Return Index
<S> <C> <C>
30-Apr-92* 10,000 10,000
31-Dec-92 11,610 10,725
31-Dec-93 13,317 11,808
31-Dec-94 14,383 11,964
31-Dec-95 16,497 16,460
</TABLE>
* Inception date
B-32
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - December 31, 1995
Value
Shares (Note 2)
<S> <C> <C>
COMMON STOCK - 95.9%
Amusement & Recreational Services - 0.9%
Mountasia Entertainment International, Inc.* 260,000 $ 1,251,250
Business Services - 15.0%
Employment Services - 0.6%
Barrett Business Services, Inc.* 55,000 811,250
Software - 14.4%
Black Box Corp.* 170,000 2,783,750
Borland International, Inc.* 475,000 7,837,500
Caere Corp.* 138,000 983,250
Electronic Arts, Inc.* 79,000 2,063,875
Symantec Corp.* 300,000 6,975,000
20,643,375
21,454,625
Chemical & Allied Products - 4.6%
Alliance Pharmaceutical Corp.* 353,000 4,809,625
Penederm, Inc.* 154,000 1,751,750
6,561,375
Crude Petroleum & Natural Gas - 1.6%
Mesa, Inc.* 600,000 2,250,000
Educational Services - 3.4%
Westcott Communications, Inc.* 356,000 4,895,000
Electronics & Electrical Equipment - 10.3%
Electronic Components - 1.3%
Planar Systems, Inc.* 95,000 1,816,875
Lighting Equipment - 3.1%
Coleman Company, Inc.* 125,900 4,422,238
Telecommunication Equipment - 5.9%
BroadBand Technologies, Inc.* 225,000 3,656,250
General DataComm Industries, Inc.* 285,000 4,880,625
8,536,875
14,775,988
The accompanying notes are an intergral part of the financial statements.
B-33
<PAGE>
Investment Portfolio - December 31, 1995
Value
Shares (Note 2)
Fabricated Metal Products - 7.4%
Keystone International, Inc. 214,100 $ 4,282,000
Material Sciences Corp.* 350,000 5,206,250
Medalist Industries* 183,800 1,102,800
10,591,050
Food - 1.6%
J & J Snack Foods Corp.* 130,000 1,430,000
Grist Mill Co.* 116,800 861,400
2,291,400
Glass Products - 0.8%
Libbey, Inc. 50,000 1,125,000
Health Services - 9.3%
Doctors Offices & Clinics - 1.3%
Coastal Physician Group, Inc.* 133,000 1,795,500
Home Health Care Services - 4.9%
Health Management, Inc.* 448,600 5,943,950
Quantum Health Resources, Inc.* 106,000 1,040,125
6,984,075
Hospitals - 2.6%
Rehabcare Group Inc.* 195,000 3,753,750
Specialty Outpatient Services - 0.5%
U.S. Physical Therapy, Inc.* 65,000 747,500
13,280,825
Industrial & Commercial Machinery - 3.6%
Computer Peripheral Equipment - 1.0%
PSC, Inc.* 149,000 1,378,250
Printing Trades Equipment - 2.6%
Scitex Corp. 272,000 3,706,000
5,084,250
Office & Business Equipment - 3.1%
BT Office Products International, Inc.* 275,000 $ 4,400,000
The accompanying notes are an integral part of the financial statements.
B-34
<PAGE>
Investment Portfolio - December 31, 1995
Value
Shares (Note 2)
Plastic Products - 2.7%
Carlisle Plastics, Inc.* 274,000 1,233,000
Sun Coast Industries, Inc.* 390,000 2,632,500
3,865,500
Primary Metal Industries - 1.3%
American Superconductor Corp.* 115,000 1,667,500
Gibraltar Steel Corp.* 12,500 151,562
1,819,062
Printing & Publishing - 1.2%
Playboy Enterprises, Inc. - Class A* 93,000 813,750
Playboy Enterprises, Inc. - Class B* 107,000 896,125
1,709,875
Restaurants - 1.9%
Quantum Restaurant Group, Inc.* 249,000 2,801,250
Retail - 20.4%
Retail - Home Furnishing Stores - 3.6%
Pier 1 Imports, Inc. 449,500 5,113,063
Retail - Shoe Stores - 2.3%
Brown Group, Inc. 230,000 3,277,500
Retail - Specialty Stores - 12.2%
Fabri-Centers of America - Class A 414,400 5,490,800
Fabri-Centers of America - Class B 375,400 4,035,550
Gander Mountain, Inc.* 202,000 1,338,250
Hancock Fabrics, Inc. 427,500 3,847,500
Michaels Stores, Inc.* 195,000 2,681,250
17,393,350
Retail - Variety Stores - 2.3%
Family Dollar Stores, Inc. 250,000 3,437,500
29,221,413
Shoes - 3.0%
Wolverine World Wide, Inc. 134,550 4,238,325
Technical Instruments & Supplies - 1.9%
Allied Healthcare Products, Inc. 46,000 $ 736,000
SpaceLabs Medical, Inc.* 68,800 1,978,000
2,714,000
The accompanying notes are an integral part of the financial statements.
B-35
<PAGE>
Investment Portfolio - December 31, 1995
Principal Value
Amount/Shares (Note 2)
Television & Radio Broadcasting Stations - 0.5%
Childrens Broadcasting Corp.* 115,000 718,750
Textiles - 1.4%
Fieldcrest Cannon, Inc.* 125,000 2,078,125
TOTAL COMMON STOCK
(Identified Cost $139,279,661) 137,127,063
SHORT-TERM INVESTMENTS - 4.5%
Dreyfus U.S. Treasury Money Market Reserves 938,995 938,995
U.S. Treasury Bill, 2/8/96 $5,525,000 5,494,732
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $6,433,727) 6,433,727
TOTAL INVESTMENTS - 100.4%
(Identified Cost $145,713,388) 143,560,790
LIABILITIES, LESS OTHER ASSETS - (0.4%) (557,748)
NET ASSETS - 100% $143,003,042
</TABLE>
*Non - income producing security
<TABLE>
<CAPTION>
Federal Tax Information:
At December 31, 1995, the net unrealized depreciation based on identified cost
for federal income tax purposes of $145,713,388 was as follows:
<S> <C>
Aggregate gross unrealized appreciation for all
investments in which there was an excess of
value over tax cost $ 16,667,862
Aggregate gross unrealized depreciation for all
investments in which there was an excess of
tax cost over value (18,820,460)
Unrealized depreciation - net $ (2,152,598)
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-36
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
December 31, 1995
<S> <C>
ASSETS:
Investments, at value (Identified cost, $145,713,388) (Note 2) $143,560,790
Cash 100,710
Receivable for securities sold 1,323,407
Dividends receivable 124,629
Receivable for fund shares sold 24,130
Prepaid expense 7,334
TOTAL ASSETS 145,141,000
LIABILITIES:
Accrued management fees (Note 3) 120,883
Accrued Directors' fees (Note 3) 1,812
Payable for securities purchased 1,960,347
Audit fee payable 22,315
Payable for fund shares redeemed 14,303
Other payables and accrued expenses 18,298
TOTAL LIABILITIES 2,137,958
NET ASSETS FOR 11,966,048 SHARES
OUTSTANDING $143,003,042
NET ASSETS CONSIST OF:
Capital stock $ 119,660
Additional paid - in - capital 142,402,725
Accumulated net realized gain on investments 2,633,255
Net unrealized depreciation on investments (2,152,598)
TOTAL NET ASSETS $143,003,042
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($143,003,042/11,966,048 shares) $ 11.95
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-37
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations
For the Year Ended December 31, 1995
<S> <C>
INVESTMENT INCOME:
Dividends $ 692,143
Interest 657,354
Total Investment Income 1,349,497
EXPENSES:
Management fees (Note 3) 1,296,858
Directors fees (Note 3) 6,875
Custodian fees 31,450
Audit fee 26,412
Registration and filing fees 16,956
Miscellaneous 11,471
Total Expenses 1,390,022
NET INVESTMENT LOSS (40,525)
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investments (identified cost basis) 31,290,477
Net change in unrealized depreciation
on investments (15,430,101)
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS: 15,860,376
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 15,819,851
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-38
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
For The For The
Year Ended Year Ended
12/31/95 12/31/94
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment loss $ (40,525) $ (538,884)
Net realized gain on investments 31,290,477 4,818,711
Net change in unrealized appreciation
(depreciation) on investments (15,430,101) 2,413,995
Net increase in net assets from operations 15,819,851 6,693,822
DISTRIBUTIONS TO SHAREHOLDERS:
From net realized gains (28,009,998) (4,498,900)
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase in net assets from capital share
transactions (Note 5) 49,670,946 32,593,278
Net increase in net assets 37,480,799 34,788,200
NET ASSETS:
Beginning of period 105,522,243 70,734,043
End of period (including undistributed net investment
income of $0 and $0, respectively) $143,003,042 $105,522,243
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-39
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
For the Years Ended For the Periods
4/30/92(1) to 1/1/89 to
12/31/95 12/31/94 12/31/93 12/31/92 7/24/89(2)
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period)*
Net asset value -
Beginning of period $ 12.92 $ 12.52 $ 11.24 $ 10.00(3) $ 8.96
Income from investment operations:
Net investment income (loss) (0.004) (0.066) (0.040) (0.020) (0.390)
Net realized and unrealized gain (loss)
on investments 1.934 1.051 1.700 1.630 -
Total from investment operations 1.930 0.985 1.660 1.610 (0.390)
Less distributions declared to
shareholders:
From net realized gains (2.900) (0.585) (0.380) (0.290) -
In excess of net realized gains - - - (0.080)(4) -
Redemption of initial
capitalization* - - - - (8.570)
Total distributions declared to
shareholders (2.900) (0.585) (0.380) (0.370) (8.570)
Net asset value -End of period $ 11.95 $ 12.92 $ 12.52 $ 11.24 -
Total Return:(5) 14.70% 8.01% 14.64% 16.20% -(6)
Ratios (to average net assets)/
Supplemental data:
Expenses(7) 1.07% 1.10% 1.13% 1.27%(8) 14.59%(8)(6)
Net investment income (loss) (0.03)% (0.58)% (0.43)% (0.26)%(8) (8.02)%(8)(6)
Portfolio turnover 77% 31% 12% 24% 0%
Average Commission Rate Paid $ 0.0500 - - - -
Net Assets - End of period
(000's omitted) $ 143,003 $ 105,522 $ 70,734 $ 33,079 -
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-40
<PAGE>
Financial Highlights - Footnotes
*Prior to July 8, 1993, the investment practice of the Fund resulted in the
active operation of the investment portfolio for discrete periods. On April
30, 1992, the Fund resumed sales of shares to advisory clients and employees
of Manning & Napier Advisors, Inc. (the "Advisor") and its affiliates. On
July 8, 1993, the Fund began offering shares directly to investors.
Previously, the Fund was in active operation from November 11, 1986 to May 14,
1987 and from December 1, 1987 to April 13, 1988.
During the periods of January 6, 1986 to November 10, 1986, May 15, 1987 to
November 30, 1987 and April 14, 1988 to July 24, 1989 the only shareholders of
the Fund were the shareholders who provided the initial capitalization for the
Fund (the "Initial Shareholders"). During periods when the only shareholders
of the Fund were the Initial Shareholders, assets of the Fund were invested in
U.S. Treasury securities. On July 11 and 24, 1989 the shares held by the
Initial Shareholders were redeemed in full and the Fund remained dormant until
April 30, 1992.
Per share data for periods before May 18, 1988 were restated to reflect the 10
for 1 stock dividend effected on May 18, 1988.
1Recommencement of operations.
2Date of complete redemption.
3Initial offering price upon recommencement of operations on April 30, 1992.
4Distributions differ from net investment income and net realized capital
gains because of book/tax timing differences, primarily the requirements of
the excise tax regulations enacted as part of the 1986 Tax Reform Act. The
regulations required the Fund to measure capital gains through October 31,
1992. The excise tax regulations also required the Fund to distribute those
gains before December 31, 1992 to avoid payment of excise tax.
5Total return represents aggregate total return for the period indicated.
6During the period January 1, 1989 to July 24, 1989, the only shareholders and
resulting assets were those of the Initial Shareholders, as described in the
note with the asterisk, who redeemed their shares on July 11 and 24, 1989;
therefore, the ratios and total return presented may not be representative of
an actively operating fund.
7Absent waivers of investment advisory fees, the ratio of expenses to average
daily net assets is as follows: 15.57% (for the period 1/1/89 to 7/24/89);
2.27% (for the year ended 12/31/87); and 9.34% (for the period 1/6/86 -
commencement of operations to 12/31/86).
8Annualized.
B-41
<PAGE>
Notes to Financial Statements
1. ORGANIZATION
Small Cap Series (the "Fund") is a no-load diversified series of Manning
& Napier Fund, Inc. (the "Corporation"). The Corporation is organized as a
Maryland Corporation and is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company.
On April 30, 1992, the Fund resumed sales of shares to advisory clients
and employees of Manning & Napier Advisors, Inc. (the "Advisor") and its
affiliates. On July 8, 1993, the Fund began offering shares directly to
investors. Previously, the Fund was in active operation from November 11,
1986 to May 14, 1987 and from December 1, 1987 to April 13, 1988.
During the periods of January 6, 1986 to November 10, 1988, May 15, 1987
to November 30, 1987, and April 14, 1988 to July 24, 1989, the only
shareholders of the Fund were the shareholders who provided the initial
capitalization for the Fund (the "Initial Shareholders"). During periods
when the only shareholders of the Fund were the Initial Shareholders, assets
of the Fund were invested in U.S. Treasury securities. On July 11 and 24,
1989, the shares held by the Initial Shareholders were redeemed in full and
the Fund remained dormant until April 30, 1992.
The total authorized capital stock of the Corporation consists of one
billion shares of common stock each having a par value of $0.01. As of
December 31, 1995, 710 million shares have been designated in total among 18
series, of which 20 million have been designated as Small Cap Series Class A
Common Stock.
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 latest
quoted sales price of the exchange on which the security is traded most
extensively. 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 Fund's Board of Directors.
Short-term investments that mature in sixty (60) days or less are valued
at amortized cost.
B-42
<PAGE>
Notes to Financial 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 Fund's policy is to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies. The Fund is not
subject to federal income or excise tax to the extent the Fund distributes
to shareholders each year its taxable income, including any net realized
gains on investments in accordance with requirements of the Internal Revenue
Code. Accordingly, no provision for federal income taxes has been made in
the financial statements.
The Fund uses the identified cost method for determining realized gain or
loss on investments for both financial statement and federal income tax
reporting purposes.
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. An additional distribution may be
necessary to avoid taxation of the Fund.
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 Fund may
periodically make reclassification among its capital accounts without
impacting the Fund's net asset value.
The Fund hereby designates $23,663,611 as dividends from capital gains
for the year ended December 31, 1995.
B-43
<PAGE>
Notes to Financial Statements
3. TRANSACTIONS WITH AFFILIATES
The Fund has 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 of 1% of the Fund's
average daily net assets. The fee amounted to $1,296,858 for the year ended
December 31, 1995.
Under the Fund's Investment Advisory Agreement (the "Agreement"),
personnel of the Advisor provide the Fund with advice and assistance in the
choice of investments and the execution of securities transactions, and
otherwise maintain the Fund's organization. The Advisor also provides the
Fund with necessary office space and portfolio accounting and bookkeeping
services. The salaries of all officers of the Fund and of all Directors who
are "affiliated persons" of the Fund or of the Advisor, and all personnel of
the Fund or of the Advisor performing services relating to research,
statistical and investment activities are paid by the Advisor.
The Advisor has agreed that, in any fiscal year, if the expenses of the
Fund (including the advisory fee but excluding interest, taxes, brokerage
commissions, and extraordinary expenses) exceed the limits set by applicable
regulation of state securities commissions, the Advisor will reduce its fee
by the amount of such excess.
The Advisor also acts as the transfer, dividend paying and shareholder
servicing agent for the Fund. These services are provided at no additional
cost to the Fund.
Manning & Napier Investor Services, Inc., a registered broker-dealer
affiliate of the Advisor, acts as distributor for the Fund's shares. The
services of Manning & Napier Investor Services, Inc. are provided at no
additional cost to the Fund.
The compensation of the non-affiliated Directors totaled $6,875 for the
year ended December 31, 1995.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term securities, were
$107,067,286 and $89,354,571, respectively, for the year ended December 31,
1995.
B-44
<PAGE>
Notes to Financial Statements
5. CAPITAL STOCK TRANSACTIONS
<TABLE>
<CAPTION>
Transactions in shares of Small Cap Series Class A Common Stock were:
For the Year For the Year
Ended 12/31/95 Ended 12/31/94
Shares Amount Shares Amount
--------------- ------------ --------------- ------------
<S> <C> <C> <C> <C>
Sold 1,840,553 $26,713,110 2,378,055 $30,792,044
Reinvested 2,289,934 27,662,435 517,322 6,538,155
Redeemed (331,604) (4,704,599) (380,074) (4,736,921)
Total 3,798,883 $49,670,946 2,515,303 $32,593,278
</TABLE>
6. FINANCIAL INSTRUMENTS
The Fund may trade in financial instruments with off-balance sheet risk
in the normal course of its 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 a varying degree, elements of risk in excess
of the amounts recognized for financial statement purposes. No such
investments were held by the Fund on December 31, 1995.
B-45
<PAGE>
Report of Independent Accountants
To the Shareholders and Directors of
Manning & Napier Fund, Inc.-Small Cap Series:
We have audited the accompanying statement of assets and liabilities of
Manning & Napier Fund, Inc.- Small Cap Series, including the schedule of
portfolio investments, as of December 31, 1995, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended and the financial highlights
for each of the periods indicated in the financial highlights table herein.
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 financial 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 statements. Our procedures included confirmation of securities
owned as of December 31, 1995 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 provide 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 the
Manning & Napier Fund, Inc.-Small Cap Series as of December 31, 1995, the
results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended and the financial
highlights for each of the periods indicated in the financial highlights table
herein in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
January 26, 1996
B-46
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
International Series
Annual Report
December 31, 1995
<PAGE>
Management Discussion and Analysis
DEAR SHAREHOLDERS:
Foreign markets paled in comparison with U.S. stocks in 1995, but with the
extraordinary run-up in domestic stocks, the wisdom of looking abroad for
values is more compelling than ever.
As of December 31, 1995, the International Series was invested in Germany,
France, Italy, Spain, the United Kingdom, Mexico and Hong Kong at approximate
weightings of: 27%, 25%, 12%, 9%, 2%, 2% and 2% respectively.
In Europe, financial markets are being affected by the plans for monetary
union in 1998. Monetary and fiscal policies have been kept unusually tight
in Europe in the approach to monetary union. Fiscal constraints associated
with monetary union will force action on an easing in the monetary
environment, which should help maintain economic growth. Because monetary
policies will be aggregated after union, structural reform of economies become
more urgent in the interim. Reform of labor markets, welfare systems,
investment and educational incentives are all likely to occur in the near
future. All these factors should bode well for European markets in the year
ahead. To some extent, weve seen the pain that should lead to gain.
In addition to these broad influences in the European economies, there have
been specific changes in the economies of countries in which we invest.
Germany has recently resumed its short term interest rate cuts, and nearly all
European countries have followed their lead. France has enacted a reform of
the welfare system that will reduce the governments deficit and allow interest
rates to fall. Spains Socialist administration has enacted labor reforms that
will increase the flexibility of businesses and should increase prosperity for
the country as a whole, and we expect that the right wing party that is likely
to win the March 1996 election will take those reforms further.
In Mexico, a surprise devaluation in late 1994 led to a massive sell-off of
Mexican assets and the peso, leading Mexican stocks to fall by more than 70%
in US dollar terms. While this caused the values of many Mexican stocks to
decline sharply, there were some companies that did not share exposure to the
weaker peso, either because they did not have dollar-denominated liabilities,
or because they had significant dollar-denominated revenues. We took
advantage of the overall panic in the Mexican market to purchase stocks of
several of these companies. Strong market positions for these companies have
been improved as their financial situations remained intact while competitors
had to retrench in the face of financial difficulties. We believe that these
companies will remain well-positioned to benefit as the Mexican economy
recovers in 1996.
Because emerging markets can change rapidly, and because there is less
disclosure than in more mature markets, investors were shaken by the
devaluation in the Mexican peso. This, together with the fear that global
growth was slowing dramatically, caused investors to shy away from emerging
markets in 1995. Anytime a sector of the market is shunned, opportunities can
arise to buy stocks at bargain prices. In Hong Kong, with strong economic
growth being experienced in the Pacific Rim and in China in particular, there
were a handful of companies with strong product lines in good businesses that
hit attractive valuations due to the disfavor for emerging markets, and we
took advantage of the opportunity to add them to the portfolio. We expect
strong growth in the Pacific Rim to continue into 1996 and believe those
companies will benefit from that growth.
As we look to 1996, we believe the combination of easing monetary policies and
government reforms in many countries will provide a positive framework for
international investing.
We appreciate your continued confidence in us and wish you all the best in
1996.
Sincerely,
Manning & Napier Advisors, Inc.
B-47
<PAGE>
Performance Update as of December 31, 1995
The value of a $10,000 investment in the Manning & Napier Fund, Inc. -
International Series from its inception (8/27/92) to present (12/31/95) as
compared to the Standard & Poor's (S&P 500) Total Return Index and the Morgan
Stanley Capital International World Index.1
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc.
International Series
Total Return
Growth of
Through $10,000 Average
12/31/95 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 10,414 4.14% 4.14%
Inception2 $ 11,898 18.98% 5.33%
</TABLE>
<TABLE>
<CAPTION>
S&P 500 Total Return Index
Total Return
Growth of
Through $10,000 Average
12/31/95 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 13,759 37.59% 37.59%
Inception2 $ 16,334 63.34% 15.78%
</TABLE>
<TABLE>
<CAPTION>
Morgan Stanley
Capital International World Index
Total Return
Growth of
Through $10,000 Average
12/31/95 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 12,072 20.72% 20.72%
Inception2 $ 15,351 53.51% 13.66%
</TABLE>
1The Standard & Poor (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 Morgan Stanley Capital International World Index is a market
capitalization-weighted measure of the total return of 1,579 companies listed
on the stock exchanges of the United States, Europe, Canada, Australia, New
Zealand and the Far East. The Morgan Stanley Capital International World
Index is denominated in U.S. Dollars. The Indices' returns assume
reinvestment of dividends and, unlike Fund returns, do not reflect any fees or
expenses.
2The Fund and Indices performance numbers are calculated from August 27, 1992,
the Fund's inception date. The Fund's performance is historical and may not
be indicative of future results.
[GRAPHIC]
LINE CHART
Data for Line Chart to follow:
<TABLE>
<CAPTION>
Morgan Stanley
Manning & Napier S&P 500 Total Capital International
International Series Return Index World Index
<S> <C> <C> <C>
27-Aug-92* 10,000 10,000 10,000
31-Dec-92 10,598 10,643 9,880
31-Dec-93 13,359 11,717 12,103
31-Dec-94 11,425 11,872 12,717
31-Dec-95 11,898 16,334 15,351
</TABLE>
* Inception date
B-48
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - December 31, 1995
Value
Shares (Note 2)
<S> <C> <C>
COMMON STOCK - 77.40%
UNITED KINGDOM - 1.79%
Merchandising - 1.79%
Tesco plc 500,000 $ 2,301,750
TOTAL UNITED KINGDOM SECURITIES
(Identified Cost $2,210,890) 2,301,750
FRANCE - 25.12%
Aerospace & Military Technology - 0.24%
Thomson CSF 14,132 314,128
Automobiles - 0.77%
PSA Peugeot Citroen 7,545 993,048
Banking - 2.43%
Cie Financiere de Paribas 13,411 733,641
Compagnie de Suez SA 18,822 774,632
Credit Foncier de France 5,232 75,471
Societe Generale Paris 12,476 1,537,833
3,121,577
Beverage & Tobacco - 1.91%
LVMH (Louis Vuitton Moet-Hennessy) 11,764 2,444,745
Building Material & Components - 0.65%
Lafarge 12,949 832,365
Business & Public Services - 1.29%
Compagnie Generale des Eaux 16,665 1,659,983
Chemicals - 1.67%
L'Air Liquide 12,960 2,141,432
Construction & Housing - 0.28%
Bouygues 3,502 351,970
Electrical & Electronics - 1.41%
Alcatel Alsthom 21,010 1,807,269
The accompanying notes are an integral part of the financial statements.
B-49
<PAGE>
Investment Portfolio - December 31, 1995
Value
Shares (Note 2)
Energy Sources - 3.44%
Elf Aquitaine 37,335 $ 2,744,487
Total SA-B 24,733 1,665,431
4,409,918
Financial Services - 0.51%
Compagnie Bancaire SA 3,758 419,581
Societe Eurafrance SA 708 237,289
656,870
Food & Household Products - 1.31%
Groupe Danone 10,181 1,676,024
Health & Personal Care - 2.47%
L'Oreal 9,103 2,431,452
Sanofi SA 11,491 734,899
3,166,351
Industrial Components - 0.46%
Michelin - B 14,874 591,846
Leisure & Tourism - 0.47%
Accor SA 4,684 605,041
Machinery & Engineering - 0.36%
Schneider SA 13,384 456,478
Materials & Commodities - 1.31%
Compagnie de Saint-Gobain 15,232 1,682,034
Merchandising - 2.14%
Carrefour Supermarche 4,032 2,440,628
Casino Guichard-Perrachon 10,600 306,887
2,747,515
Multi-Industry - 2.00%
AXA 23,642 1,589,559
Chargeurs 1,235 245,330
Lyonnaise des Eaux-Dumez 7,655 735,369
2,570,258
TOTAL FRENCH SECURITIES
(Identified Cost $27,771,404) 32,228,852
The accompanying notes are an integral part of the financial statements.
B-50
<PAGE>
Investment Portfolio - December 31, 1995
Value
Shares (Note 2)
GERMANY - 26.68%
Airlines - 0.26%
Deutsche Lufthansa AG 2,370 $ 327,266
Automobiles - 4.81%
Daimler Benz AG 5,954 2,998,744
Volkswagen AG 9,484 3,173,428
6,172,172
Banking - 3.23%
Bayerische Vereinsbank AG 49,730 1,487,575
Dresdner Bank AG 99,090 2,650,441
4,138,016
Chemicals - 1.73%
Bayer AG 8,375 2,218,573
Construction & Housing - 0.75%
Hochtief AG 2,277 970,992
Electrical & Electronics - 3.60%
Siemens AG 8,423 4,617,268
Insurance - 3.52%
Allianz AG Holding 2,307 4,519,312
Machinery & Engineering - 2.04%
Mannesmann AG 5,725 1,818,060
M.A.N. AG 2,902 801,456
2,619,516
Materials & Commodities - 0.47%
Degussa AG 1,790 601,440
Multi-Industry - 1.66%
Viag AG 5,178 2,128,833
Utilities - Gas & Electric - 4.61%
RWE AG 7,581 2,750,254
VEBA AG 74,150 3,167,171
5,917,425
TOTAL GERMAN SECURITIES
(Identified Cost $26,619,764) 34,230,813
The accompanying notes are an integral part of the financial statements.
B-51
<PAGE>
Investment Portfolio - December 31, 1995
Value
Shares (Note 2)
HONG KONG - 1.94%
Energy Sources - Oil/Gas - 0.50%
Zhenhai Refining and Chemical Co. Ltd. 3,402,000 $ 637,952
Telecommunication - 0.35%
Champion Technology Holdings 4,300,738 450,520
Textiles & Apparel - 1.09%
Yizheng Chemical Fibre Co. Ltd. 6,224,000 1,400,570
TOTAL HONG KONG SECURITIES
(Identified Cost $3,647,794) 2,489,042
ITALY - 11.39%
Automobiles - 1.14%
Fiat S.p.A. 450,000 1,465,182
Building Material & Components - 0.39%
Italcementi S.p.A. 83,600 501,140
Construction & Housing - 0.39%
Sirti S.p.A. 86,500 486,867
Energy Sources - Oil/Gas - 0.35%
Edison S.p.A. 104,000 448,868
Financial Services - 1.42%
Banca Commerciale Italiana 242,000 517,660
Banco Ambrosiano Veneto S.p.A. 80,700 220,236
Credito Italiano S.p.A. 288,000 336,197
Istituto Bancario San Paolo di Torina S.p.A. 126,800 752,102
1,826,195
Food & Household Products - 0.16%
Parmalat Finanziaria S.p.A. 233,400 202,945
Insurance - 3.04%
Assicurazioni Generali S.p.A. 123,640 2,999,747
R.A.S. S.p.A. 43,250 492,462
S.A.I. 40,400 414,124
3,906,333
The accompanying notes are an integral part of the financial statements.
B-52
<PAGE>
Investment Portfolio - December 31, 1995
Value
Shares (Note 2)
Multi-Industry - 0.92%
Montedison S.p.A.* 1,211,000 $ 813,046
Pirelli S.p.A.* 288,000 372,542
1,185,588
Retail - Specialty Stores - 0.21%
La Rinascente S.p.A. 45,000 272,876
Telecommunication - 2.74%
Telecom Italia S.p.A. 1,060,000 1,652,084
Telecom Italia Mobile S.p.A.* 1,060,000 1,869,464
3,521,548
Textiles & Apparel - 0.27%
Benetton Group S.p.A. 28,800 343,284
Utilities - Gas & Electric - 0.36%
Italgas S.p.A. 150,000 457,160
TOTAL ITALIAN SECURITIES
(Identified Cost $16,384,697) 14,617,986
MEXICO - 2.02%
Beverage & Tobacco - 0.60%
Coca-Cola Femsa S.A.-Series L 400,000 769,790
Food-Processing - 0.51%
Grupo Industrial Maseca SA-Series B 1,075,000 657,876
Real Estate - 0.37%
Grupo Situr S.A.-Series B* 1,575,000 475,780
Retail - Department Store - 0.54%
Cifra S.A.-Series B 650,000 685,545
TOTAL MEXICAN SECURITIES
(Identified Cost $2,843,934) 2,588,991
SPAIN - 8.46%
Beverage & Tobacco - 0.13%
Tabacalera S.A.-A 4,266 161,345
The accompanying notes are an integral part of the financial statements.
B-53
<PAGE>
Investment Portfolio - December 31, 1995
Value
Shares (Note 2)
Construction & Housing - 0.26%
Dragados & Construcciones S.A. 11,988 $ 157,212
Fomento de Construcciones y Contratas S.A. 2,277 174,110
331,322
Energy Sources - Oil/Gas - 0.98%
Repsol S.A. 38,365 1,253,862
Financial Services - 2.32%
Banco Bilbao Vizcaya 28,290 1,016,464
Banco Central Hispanoamericano S.A. 18,888 382,031
Banco Santander S.A. 18,728 937,748
Corp. Bancaria de Espana S.A. (Argentaria) 15,512 637,698
2,973,941
Insurance - 0.12%
Corporacion Mapfre 2,823 157,601
Metals - Steel - 0.18%
Acerinox S.A. 2,343 236,371
Multi-Industry - 0.25%
Autopistas Concesionaria Espanola S.A. 28,443 322,725
Real Estate - 0.03%
Inmobiliaria Metropolitana Vasco Central S.A. 1,128 37,098
Telecommunication - 1.18%
Telefonica de Espana 110,009 1,519,550
Utilities - Gas & Electric - 3.01%
Empresa Nacional de Electridad (ENDESA) 29,210 1,649,931
Gas Natural SDG-E 4,993 775,891
Iberdrola S.A. 122,474 1,117,749
Union Electrica Fenosa S.A. 52,126 312,863
3,856,434
TOTAL SPANISH SECURITIES
(Identified Cost $9,484,497) 10,850,249
TOTAL COMMON STOCK
(Identified Cost $88,962,980) 99,307,683
The accompanying notes are an integral part of the financial statements.
B-54
<PAGE>
Investment Portfolio - December 31, 1995
Principal Value
Amount/Shares (Note 2)
SHORT-TERM INVESTMENTS - 19.67%
U.S. Treasury Bill, 1/11/96 15,000,000 $ 14,978,125
U.S. Treasury Bill, 2/8/96 7,500,000 7,463,847
Dreyfus U.S. Treasury Money Market 2,790,178 2,790,178
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $25,232,150) 25,232,150
TOTAL INVESTMENTS - 97.07%
(Identified Cost $114,195,130) 124,539,833
OTHER ASSETS, LESS LIABILITIES - 2.93% 3,754,024
NET ASSETS - 100% $128,293,857
</TABLE>
*Non-income producing securities.
<TABLE>
<CAPTION>
Federal Tax Information:
At December 31, 1995, the net unrealized appreciation based on identified cost
for federal income tax purposes of $114,199,747 was as follows:
<S> <C>
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost $16,282,015
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value (5,941,912)
Unrealized appreciation-net $10,340,103
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-55
<PAGE>
<TABLE>
<CAPTION>
Industry Concentration - December 31, 1995
Percent
of Net Assets
<S> <C>
INDUSTRY CONCENTRATION (as a percent of net assets)
Aerospace & Military Technology 0.24%
Airlines 0.26%
Automobiles 6.72%
Banking 5.66%
Beverage & Tobacco 2.64%
Building Material & Components 1.04%
Business & Public Services 1.29%
Chemical 3.40%
Construction & Housing 1.68%
Electrical & Electronics 5.01%
Energy Sources 5.27%
Financial Services 4.25%
Food & Household Products 1.47%
Food Processing 0.51%
Health & Personal Care 2.47%
Industrial Components 0.46%
Insurance 6.68%
Leisure & Tourism 0.47%
Machinery & Engineering 2.40%
Materials & Commodities 1.78%
Merchandising 3.93%
Metals - Steel 0.18%
Multi-Industry 4.83%
Real Estate 0.40%
Retail - Department Store 0.54%
Retail - Specialty Stores 0.21%
Telecommunication 4.27%
Textiles & Apparel 1.36%
Utilities - Gas & Electric 7.98%
TOTAL COMMON STOCK 77.40%
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-56
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
December 31, 1995
<S> <C>
ASSETS:
Investments, at value (Identified cost, $114,195,130) (Note 2) $124,539,833
Foreign currency, at value (cost $3,864,163) 3,844,574
Cash 8,813
Receivable for forward foreign currency exchange
contracts sold (Note 2) 64,616,200
Foreign tax reclaims receivable 367,749
Receivable for fund shares sold 41,710
Dividends receivable 10,147
Prepaid expense 6,037
TOTAL ASSETS 193,435,063
LIABILITIES:
Accrued management fees (Note 3) 105,446
Accrued Directors' fees (Note 3) 1,813
Payable for forward foreign currency contracts sold,
at value (Note 2) 64,974,404
Audit fees payable 32,476
Payable for fund shares redeemed 12,039
Other payables and accrued expenses 15,028
TOTAL LIABILITIES 65,141,206
NET ASSETS FOR 13,406,285 SHARES OUTSTANDING $128,293,857
NET ASSETS CONSIST OF:
Capital stock $ 134,062
Additional paid-in-capital 122,178,408
Accumulated net realized loss on investments (3,991,376)
Net unrealized appreciation on investments, foreign currency,
forward currency contracts, and other assets and liabilities 9,972,763
TOTAL NET ASSETS $128,293,857
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE PER
SHARE ($128,293,857/13,406,285 shares) $ 9.57
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-57
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations
For the Year Ended December 31, 1995
<S> <C>
INVESTMENT INCOME:
Dividends (net of withholding tax) $ 2,306,233
Interest 536,725
Total Investment Income 2,842,958
EXPENSES:
Management fees (Note 3) 1,084,583
Directors' fees (Note 3) 7,292
Custodian fees 140,184
Audit fees 32,800
Taxes 18,566
Miscellaneous 15,292
Total Expenses 1,298,717
NET INVESTMENT INCOME 1,544,241
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) -
On investments (identified cost basis) (769,200)
Foreign currency and forward foreign currency
exchange contracts (5,141,157)
Net realized loss on investments (5,910,357)
Net change in unrealized appreciation -
On investments 8,439,526
Foreign currency and forward currency contracts and other
assets and liabilities (5,562)
Net unrealized appreciation on investments 8,433,964
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 2,523,607
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 4,067,848
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-58
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
For the For the
Year Ended Year Ended
12/31/95 12/31/94
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 1,544,241 $ 1,196,416
Net realized loss on investments (5,910,357) (3,410,098)
Net change in unrealized appreciation (depreciation)
on investments 8,433,964 (11,502,063)
Net increase (decrease) in net assets from operations 4,067,848 (13,715,745)
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (1,539,988) -
From paid-in-capital (2,083,389) -
From net realized gain on investments (757,156) (1,311,651)
Total distributions to shareholders (4,380,533) (1,311,651)
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase in net assets from capital share
transactions (Note 5) 42,642,060 8,983,383
Net increase (decrease) in net assets 42,329,375 (6,044,013)
NET ASSETS:
Beginning of period 85,964,482 92,008,495
End of period (including undistributed net investment
income of $0 and $0, respectively) $128,293,857 $ 85,964,482
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-59
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
For the
Period 8/27/92
For The Year Ended (commencement
of operations)
12/31/95 12/31/94 12/31/93 to 12/31/92
<S> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout the period):
Net asset value - Beginning of period $ 9.54 $ 11.33 $ 9.19 $ 10.00
Income from investment operations:
Net investment income 0.123 0.143 0.150 0.030
Net realized and unrealized gain (loss)
on investments 0.262 (1.784) 2.240 0.570
Total from investment operations 0.385 (1.641) 2.390 0.600
Less distributions declared to shareholders:
From net investment income (0.118) - (0.250) (0.030)
From paid-in-capital (0.160) - - -
From net realized gains on investments (0.077) (0.149) - (1.240)
In excess of net realized gains - - - (0.140)(1)
Total distributions declared to
shareholders (0.355) (0.149) (0.250) (1.410)
Net asset value - End of period $ 9.57 $ 9.54 $ 11.33 $ 9.19
Total Return(2) 4.14% (14.48)% 26.00% 6.01%
Ratios (to average net assets)/Supplemental Data:
Expenses 1.20% 1.18% 1.16% 1.33%(3)
Net investment income 1.42% 1.38% 1.39% 0.85%(3)
Portfolio turnover 14% 31% 20% 0%
Average Commission Rate Paid $ 0.0021 - - -
Net Assets - End of period
(000's omitted) $ 128,294 $ 85,964 $ 92,012 $ 72,163
</TABLE>
1Distributions differ from net investment income and net realized capital
gains because of book/tax timing differences, primarily due to the
requirements of the Internal Revenue Code.
2Represents aggregate total return for the period indicated.
3Annualized.
The accompanying notes are an integral part of the financial statements
B-60
<PAGE>
Notes to Financial Statements
1. ORGANIZATION
International Series (the "Fund") is a no-load non-diversified series of
Manning & Napier Fund, Inc. (the "Corporation"). The Corporation is
organized as a Maryland Corporation and is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment
company.
Shares of the Fund are offered to clients and employees of Manning &
Napier Advisors, Inc. (the "Advisor") and its affiliates. The total
authorized capital stock of the Corporation consists of one billion shares
of common stock each having a par value of $0.01. As of December 31, 1995,
710 million shares have been designated in total among 18 series, of
which 20 million have been designated as International Series Class G Common
Stock.
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 latest
quoted sales price of the exchange on which the security is traded most
extensively. 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 Fund's Board of Directors.
Short-term investments that mature in sixty (60) days or less are valued
at amortized cost.
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 Fund's policy is to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies. The Fund is not
subject to federal income or excise tax to the extent the Fund distributes
to shareholders each year its taxable income, including any net realized
gains on investments in accordance with requirements of the Internal Revenue
Code. Accordingly, no provision for federal income taxes has been made in
the financial statements.
B-61
<PAGE>
Notes to financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
The Fund uses the identified cost method for determining realized gain or
loss on investments for both financial statement and federal income tax
reporting purposes.
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. An additional distribution may be
necessary to avoid taxation of the Fund.
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
Fund may periodically make reclassifications among its capital accounts
without impacting the Fund's net asset value.
The Fund hereby designates $757,156 as capital gains dividends for the
year ended December 31, 1995.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund 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) purchases 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 result from fluctuations in foreign currency
exchange rates is not separately stated.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund 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.
B-62
<PAGE>
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
All forward foreign currency contracts are adjusted daily by the exchange
rate of the underlying currency and, for financial statement purposes, any
gain or loss is recorded as unrealized gain or loss until a contract has
been closed. Realized and unrealized gain or loss arising from a
transaction is included in net realized and unrealized gain (loss) from
foreign currency and forward currency exchange contracts.
The Fund regularly trades forward foreign currency exchange contracts
with off-balance sheet risk in the normal course of its investing activities
to assist in managing exposure to changes in foreign currency exchange
rates.
The notional or contractual amount of these instruments represents the
investment the Fund has in forward foreign currency exchange contracts and
does not necessarily represent the amounts potentially at risk. The
measurement of the risks associated with forward foreign currency exchange
contracts is meaningful only when all related and offsetting transactions
are considered. A summary of obligations for forward currency exchange
contracts sold on December 31, 1995 is as follows:
<TABLE>
<CAPTION>
Net Unrealized
Settlement Contracts In Exchange Contracts Appreciation/
Date to Deliver For At Value (Depreciation)
- ---------- -------------- ------------ ----------- ----------------
<C> <S> <C> <C> <C>
1/24/96 Deutsche Marks $ 33,694,595 $33,784,285 $ (89,690)
1/24/96 French Francs $ 30,921,584 $31,190,121 $ (268,537)
</TABLE>
On December 31, 1995, the Fund had sufficient cash and/or securities to
cover any commitments under these contracts.
3. TRANSACTIONS WITH AFFILIATES
The Fund has 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 of 1% of the Fund's
average daily net assets. The fee amounted to $1,084,583 for the year ended
December 31, 1995.
Under the Fund's Investment Advisory Agreement (the "Agreement"),
personnel of the Advisor provide the Fund with advice and assistance in the
choice of investments and the execution of securities transactions, and
otherwise maintain the Fund's organization. The Advisor also provides the
Fund with necessary office space and portfolio accounting and bookkeeping
services. The salaries of all officers of the Fund and of all Directors who
are "affiliated persons" of the Fund or of the Advisor, and all personnel of
the Fund or of the Advisor performing services relating to research,
statistical and investment activities are paid by the Advisor.
B-63
<PAGE>
Notes to Financial Statements
3. TRANSACTIONS WITH AFFILIATES (continued)
The Advisor has agreed that, in any fiscal year, if the expenses of
the Fund (including the advisory fee but excluding interest, taxes,
brokerage commissions, and extraordinary expenses) exceed the limits set by
applicable regulation of state securities commissions, the Advisor will
reduce its fee by the amount of such excess.
The Advisor also acts as the transfer, dividend paying and shareholder
servicing agent for the Fund. These services are provided at no additional
cost to the Fund.
Manning & Napier Investor Services, Inc., a registered broker-dealer
affiliate of the Advisor, acts as distributor for the Fund's shares. The
services of Manning & Napier Investor Services, Inc. are provided at no
additional cost to the Fund.
The compensation of the non-affiliated Directors totaled $7,292 for the
year ended December 31, 1995.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term securities, were
$27,792,639 and $12,904,444, respectively, for the year ended December 31,
1995.
5. CAPITAL STOCK TRANSACTIONS
<TABLE>
<CAPTION>
Transactions in shares of International Series Class G Common Stock were:
For the Year For the Year
Ended 12/31/95 Ended 12/31/94
Shares Amount Shares Amount
--------------- -------------- ---------- ----------------
<S> <C> <C> <C> <C>
Sold 4,223,049 $ 41,054,909 1,057,221 $ 10,650,679
Reinvested 460,661 4,327,528 318,777 3,335,342
Redeemed (287,048) (2,740,377) (488,862) (5,002,638)
Total 4,396,662 $ 42,642,060 887,136 $ 8,983,383
</TABLE>
6. 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 many foreign companies
and foreign governments and their markets may be less liquid and their
prices more volatile than those of securities of comparable U.S. companies
and the United States government.
B-64
<PAGE>
Report of Independent Accountants
To the Shareholders and Directors of
Manning & Napier Fund, Inc. - International Series:
We have audited the accompanying statement of assets and liabilities of
Manning & Napier Fund, Inc. - International Series, including the schedule of
portfolio investments as of December 31, 1995, the related statement of
operations for the year then ended, the statement of changes in the net assets
for each of the two years in the period then ended and the financial
highlights for each of the periods indicated in the financial highlights table
herein. These financial statements and financial highlights are the
responsibility of the Fund's 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 financial 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 statements. Our procedures included confirmation of securities
owned as of December 31, 1995 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 provide 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 the
Manning & Napier Fund, Inc. - International Series as of December 31, 1995,
the results of its operations for the year then ended, the changes in its net
assets for each of the two years in the period then ended and the financial
highlights for each of the periods indicated in the financial highlights table
herein, in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
January 26, 1996
B-65
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
Life Sciences Series
Annual Report
For the period January 1, 1995
to September 21, 1995
(Date of Complete Redemption)
<PAGE>
Performance Update as of September 21, 1995
The value of a $10,000 investment in the Manning & Napier Fund, Inc. - Life
Sciences Series from its inception (10/7/92) to date of complete redemption
(9/21/95) as compared to the Standard & Poor's 500 Total Return Index.1
<TABLE>
<CAPTION>
Manning & Napier Life Sciences Series
Total Return
Through Growth of $10,000 Average
9/21/95 Investment Cumulative Annual
<S> <C> <C> <C>
Year to Date $ 14,107 41.07% 60.91%
Inception2 $ 16,344 63.44% 18.06%
</TABLE>
<TABLE>
<CAPTION>
S&P 500 Total Return Index
Total Return
Through Growth of $10,000 Average
9/21/95 Investment Cumulative Annual
<S> <C> <C> <C>
Year to Date $ 12,939 28.39% 42.79%
Inception2 $ 15,659 56.59% 16.36%
</TABLE>
1The 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.
S&P 500 Total Return Index returns assume reinvestment of dividends and,
unlike Fund returns, do not reflect any fees or expenses.
2The Fund and Index performance numbers are calculated from October 7, 1992,
the Fund's inception date. The Fund's performance is historical and is not
indicative of future results.
[GRAPHIC]
LINE CHART
Data for Line Chart to follow:
<TABLE>
<CAPTION>
Manning & Napier
Life Sciences S & P 500 Total
Series Return Index
<S> <C> <C>
07-Oct-92* 10,000 10,000
31-Dec-92 10,195 10,849
31-Dec-93 10,504 11,944
31-Dec-95 11,586 12,102
21-Sep-95** 16,344 15,659
</TABLE>
* Inception date
** Date of complete redemption
B-66
<PAGE>
Investment Portfolio - September 21, 1995
NOTE: Fund liquidated on September 21, 1995, therefore, there are no
investments held in the portolio.
The accompanying notes are an integral part of the financial statements.
B-67
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
September 21, 1995 (Date of Complete Redemption)
<S> <C>
ASSETS:
Cash $102,988
TOTAL ASSETS 102,988
LIABILITIES (Note 8):
Accrued management fees (Note 3) 78,901
Accrued Directors' fees (Note 3) 5,438
Audit fee payable 9,000
Other payables and accrued expenses 9,649
TOTAL LIABILITIES 102,988
NET ASSETS $ -0-
NET ASSSETS FOR -0- SHARES OUTSTANDING $ -0-
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE PER
SHARE ($-0-/-0- shares) $ -0-
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-68
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations
For the period January 1, 1995 to September 21, 1995 (Date of Complete
Redemption)
<S> <C>
INVESTMENT INCOME:
Dividends $ 394,934
Interest 338,921
Total Investment Income 733,855
EXPENSES:
Management fees (Note 3) 451,038
Directors' fees (Note 3) 5,022
Audit fees 9,000
Custodian fees 10,311
Miscellaneous 1,896
Total Expenses 477,267
NET INVESTMENT INCOME 256,588
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss)
Investments (identified cost basis) 23,334,107
Foreign currency (20,569)
Net realized gain on investments 23,313,538
Net change in unrealized appreciation of
investments (3,530,417)
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS 19,783,121
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $20,039,709
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-69
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
For the Period
1/1/95 to 9/21/95 For the
(date of complete Year Ended
redemption) 12/31/94
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 256,588 $ 125,225
Net realized gain on investments 23,313,538 9,060,905
Net change in unrealized depreciation
on investments (3,530,417) (985,393)
Net increase in net assets from operations 20,039,709 8,200,737
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (249,978) (125,225)
In excess of net investment income - (6,610)
From net realized gain on investments (27,772,191) (4,621,264)
Total distributions to shareholders (28,022,169) (4,753,099)
CAPITAL STOCK ISSUED AND REDEEMED:
Net decrease in net assets from capital share
transactions (Note 5) (59,236,231) (6,823,204)
Net decrease in net assets (67,218,691) (3,375,566)
NET ASSETS:
Beginning of period 67,218,691 70,594,257
End of period (including undistributed net investment
income of $0 and $(6,610), respectively) $ -0- $67,218,691
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-70
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
For the For the
Period 1/1/95 Period 10/7/92
to 9/21/95 (date For the For the (commencement
of complete Year Ended Year Ended of operations)
redemption) 12/31/94 12/31/93 to 12/31/92
------------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - Beginning of period $ 10.43 $ 10.18 $ 10.12 $ 10.001
Income from investment operations:
Net investment income 0.058 0.021 0.020 0.020
Net realized and unrealized gain on
investments 4.026 1.022 0.300 0.180
Total from investment operations 4.084 1.043 0.320 0.200
Less distributions declared to shareholders:
From net investment income (0.058) (0.021) (0.020) (0.020)
In excess of net investment income - (0.001) (0.010) -
From net realized gain on investment (6.592) (0.771) (0.230) (0.060)
Redemption of Capitalization (Note 8) (7.864) - - -
Total distributions declared to shareholders (14.514) (0.793) (0.260) (0.080)
NET ASSET VALUE - END OF PERIOD $ 0.00 $ 10.43 $ 10.18 $ 10.12
Total Return2 41.07% 10.30% 3.16% 1.95%
Ratios (to average net assets)/Supplemental data:
Expenses 1.06%3 1.07% 1.14% 1.83%3
Net investment income 0.57%3 0.17% 0.20% 0.67%3
Portfolio turnover 28% 49% 45% 0%
Average Commission Rate $ 0.0590 - - -
NET ASSETS - END OF PERIOD
(000's omitted) - $ 67,219 $ 70,594 $ 13,210
</TABLE>
1Initial offering price upon commencement of operations on October 7, 1992.
2Total return represents aggregate total return for the period indicated.
3Annualized
The accompanying notes are an integral part of the financial statements.
B-71
<PAGE>
Notes to Financial Statements
1. ORGANIZATION
Life Sciences Series (the "Fund") is a no-load non-diversified series of
Manning & Napier Fund, Inc. (the "Corporation"). The Corporation is
organized as a Maryland Corporation and is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment
company.
Shares of the Fund were offered to clients and employees of Manning &
Napier Advisors, Inc. (the "Advisor") and its affiliates. The total
authorized capital stock of the Corporation consists of one billion shares
of common stock each having a par value of $0.01. As of September 21, 1995,
710 million shares have been designated in total among 18 series, of
which 20 million have been designated as Life Sciences Series Class I Common
Stock.
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 latest
quoted sales price of the exchange on which the security is traded most
extensively. 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 Fund's Board of Directors.
Short-term investments that mature in sixty (60) days or less are valued
at amortized cost.
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.
B-72
<PAGE>
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
FEDERAL INCOME TAXES
The Fund's policy is to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies. The Fund is not
subject to federal income or excise tax to the extent the Fund distributes
to shareholders each year its taxable income, including any net realized
gains on investments in accordance with requirements of the Internal Revenue
Code. Accordingly, no provision for federal income taxes has been made in
the financial statements.
The Fund uses the identified cost method for determining realized gain or
loss on investments for both financial statement and federal income tax
reporting purposes.
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. An additional distribution may be
necessary to avoid taxation of the Fund.
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 Fund may
periodically make reclassification among its capital accounts without
impacting the Fund's net asset value.
The Fund hereby designates $16,340,147 as dividends from capital gains
for the period January 1, 1995 to September 21, 1995 (date of complete
redemption).
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund 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; b) purchases
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.
B-73
<PAGE>
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
FOREIGN CURRENCY TRANSLATION (continued)
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 result from fluctuations in foreign currency
exchange rates is not separately stated.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund 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 September 21, 1995, the Fund had no open forward currency exchange
contracts.
OPTION CONTRACTS
The Fund may write (sell) or buy call or put options on securities and
other financial instruments. When the Fund writes a call, the Fund gives
the purchaser the right to buy the underlying security from the Fund at the
price specified in the option contract (the "exercise price") at any time
during the option period. When the Fund writes a put option, the Fund gives
the purchaser the right to sell to the Fund the underlying security at the
exercise price at any time during the option period. The Fund will only
write options on a "covered basis." This means that the Fund will own the
underlying security when the Fund writes a call or the Fund will put aside
cash, U.S. Government securities, or other liquid assets in the amount not
less than the exercise price at all times the put option is outstanding.
When the Fund writes a call or put option, an amount equal to the premium
received is included in the Fund's "Statement of Assets and Liabilities" as
an asset and an equivalent liability. The amount of the liability is
subsequently marked-to-market to reflect the current market value of the
option. The current market value of the option is the closing price or, in
the absence of a closing price, the bid price.
If a written option expires on its stipulated expiration date or if the
Fund enters into a closing transaction, a gain or loss is realized on the
contract. When a gain or loss is realized, the liability related to such
option contract is extinguished. If a written call option is exercised, a
gain or loss is realized from the sale of the underlying security and the
premium received from the option is added to proceeds from the sale of the
underlying security thereby increasing the gain or decreasing the loss from
the sale of the underlying security. If a written put option is exercised,
the cost of the underlying security purchased by the Fund will be decreased
by the premium originally received.
B-74
<PAGE>
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
OPTION CONTRACTS (continued)
The measurement of the risks associated with option contracts is
meaningful only when all related and offsetting transactions are considered.
A summary of obligations for option contracts for the period January 1, 1995
to September 21, 1995 (date of complete redemption) are as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
------- ----------
<S> <C> <C>
Balance at December 31, 1994 0 $ 0
Options written during 1995 (1,260) (298,762)
Options expired during 1995 380 112,856
Options exercised during 1995 880 185,906
Balance at September 21, 1995 0 $ 0
</TABLE>
3. TRANSACTIONS WITH AFFILIATES
The Fund has 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 of 1% of the Fund's
average daily net assets. The fee amounted to $451,038 for the period
January 1, 1995 to September 21, 1995 (date of complete redemption).
Under the Fund's Investment Advisory Agreement (the "Agreement"),
personnel of the Advisor provide the Fund with advice and assistance in the
choice of investments and the execution of securities transactions, and
otherwise maintain the Fund's organization. The Advisor also provides the
Fund with necessary office space and portfolio accounting and bookkeeping
services. The salaries of all officers of the Fund and of all Directors who
are "affiliated persons" of the Fund or of the Advisor, and all personnel of
the Fund or of the Advisor performing services relating to research,
statistical and investment activities are paid by the Advisor.
The Advisor has agreed that, in any fiscal year, if the expenses of the
Fund (including the advisory fee but excluding interest, taxes, brokerage
commissions, and extraordinary expenses) exceed the limits set by applicable
regulation of state securities commissions, the Advisor will reduce its fee
by the amount of such excess.
The Advisor also acts as the transfer, dividend paying and shareholder
servicing agent of the Fund. These services are provided at no additional
cost to the Fund.
Manning & Napier Investor Services, Inc., a registered broker-dealer
affiliate of the Advisor, acts as distributor for the Fund's shares. The
services of Manning & Napier Investor Services, Inc. are provided at no
additional cost to the Fund.
The compensation of the non-affiliated Directors totaled $5,022 for the
period January 1, 1995 to September 21, 1995 (date of complete redemption).
B-75
<PAGE>
Notes to Financial Statements
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term securities, were
$12,140,895 and $97,015,802, respectively, for the period January 1, 1995 to
September 21, 1995 (date of complete redemption).
On August 31, 1995 the Fund sold securities at the day's closing value of
$10,477,200 to the Manning & Napier Fund, Inc. Small Cap Series. The Fund
completed the sale in accordance with rules established by the Securities
and Exchange Commission.
5. CAPITAL STOCK TRANSACTIONS
<TABLE>
<CAPTION>
Transactions in shares of Life Sciences Series Class I Common Stock were:
For the Period 1/1/95
to 9/21/95 (date For the Year
of complete redemption) Ended 12/31/94
Shares Amount Shares Amount
----------------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Sold 23,917 $ 279,564 686,035 $ 7,075,446
Reinvested 3,400,120 27,898,873 622,264 6,490,858
Redeemed (9,871,030) (87,414,668) (1,794,121) (20,389,508)
Total (6,446,993) $(59,236,231) (485,822) $ (6,823,204)
</TABLE>
6. 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 many foreign companies
and foreign governments and their markets may be less liquid and their
prices more volatile than those of securities of comparable U.S. companies
and the United States government.
7. LIFE SCIENCES SECURITIES
The Fund may focus its investments in certain related life sciences
industries; hence, the Fund may subject itself to a greater degree of risk
than a fund that is more diversified.
B-76
<PAGE>
Notes to Financial Statements
8. FUND REDEMPTION
The investment practice of the Fund results in the active operation of
the investment portfolio for discrete periods. The Fund has been in active
operation from October 7, 1992 to September 21, 1995. On September 21,1995,
the Fund redeemed all shares held based on the Fund's net asset value on
that date. Cash was left in the Fund to satisfy liabilities outstanding as
of the date of complete redemption. Shares of the Fund were held by persons
who were investment advisory clients and employees of the Fund's Advisor.
The ratios presented in the financial highlights table may not be
representative of an actively traded fund.
B-77
<PAGE>
Report of Independent Accountants
TO THE SHAREHOLDERS AND DIRECTORS OF
MANNING & NAPIER FUND, INC. - LIFE SCIENCES SERIES:
We have audited the accompanying statement of assets and liabilities of
Manning & Napier's Fund, Inc. - Life Sciences Series, as of September 21,
1995 (date of complete redemption), and the related statement of operations
for the period January 1, 1995 to September 21, 1995 (date of complete
redemption), the statement of changes in net assets for the period then ended
and for the year ended December 31, 1994, and the financial highlights for the
period January 1, 1995 to September 21, 1995 (date of complete redemption) and
for each of the two years in the period ended December 31, 1994 and for the
period from October 7, 1992 (commencement of operations) to December 31, 1992.
These financial statements and financial highlights are the responsibility of
the Fund's 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 financial 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 statements. Our procedures included confirmation of securities
owned as of September 21, 1995 (date of complete redemption) 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 provide 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 the
Manning & Napier Fund, Inc. - Life Sciences Series as of September 21, 1995
(date of complete redemption), the results of its operations for the period
January 1, 1995 to September 21, 1995 (date of complete redemption), the
changes in its net assets for the period then ended and for the year ended
December 31, 1994, and the financial highlights for the period January 1, 1995
to September 21, 1995 (date of complete redemption) and for each of the two
years in the period ended December 31, 1994 and for the period October 7, 1992
(commencement of operations) to December 31, 1992, in conformity with
generally accepted accounting principles.
As discussed in Note 8 of the financial statements of Manning & Napier Fund,
Inc. - Life Sciences Series, all shares of this Fund were redeemed on
September 21, 1995.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
December 8, 1995
B-78
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
TECHNOLOGY SERIES
Annual Report
December 31, 1995
<PAGE>
Management Discussion and Analysis
DEAR SHAREHOLDERS:
The Technology Series of the Manning & Napier Fund was able to take advantage
of an exceptional year among technology stocks, earning a total return of
40.25% for the year, compared with a return of 37.59% for the
S & P 500 for the year. While investors should be very pleased with this
return, they should also recognize that 1995 was indeed an exceptional year
both in the technology sector and the financial markets in general.
In the 1994 Annual Report and the Semi-Annual Report in June 1995, we
highlighted our three major areas of focus: the computer client/server market,
the consumer sector, and telecommunications infrastructure. Since June, we
have reduced holdings in the first two areas and increased the portion of the
Series invested in the telecommunications infrastructure.
Following strong returns of the Series in the first six months of 1995, we
reduced the size of the Series position in our clients accounts at
approximately the mid-year point. We decided to reduce exposure to the sector
due to the large gains that had already been realized from many of the stocks
that we owned. This defensive strategy proved successful given that many
technology stocks faltered toward year-end.
Besides reducing the size of the Series, we also took a more defensive stance
within the portfolio. We became especially negative on the near-term
fundamentals of the semiconductor, personal computer, and related areas due
primarily to the frothy nature of those stocks and our analysis of Windows 95.
We came to the conclusion that the Windows 95 product cycle was going to come
much slower than expected. Given the importance of the product to the
aforementioned sectors of technology, we felt that a move away from those
areas was prudent. We were able to put the money to work in other less
popular sectors such as the telecommunications infrastructure, which was and
we believe continues to be, undervalued.
Towards the end of the year, some of our larger positions reached prices at
which our analysis showed them to be fairly valued, and, as a result, these
stocks were sold. These sales left the Series with approximately 22% cash and
cash equivalents. Given that we still have a positive view of technology and
our belief that there are always opportunities in the sector, we will be
looking to find good values in order to put the money to work in early 1996.
We appreciate your continued confidence in us and wish you all the best in
1996.
Sincerely,
MANNING & NAPIER ADVISORS, INC.
B-79
<PAGE>
Performance Update as of December 31, 1995
The value of a $10,000 investment in the Manning & Napier Fund, Inc. -
Technology Series from its inception (8/29/94) to present (12/31/95) as
compared to the Standard & Poors (S&P) 500 Total Return Index.1
<TABLE>
<CAPTION>
MANNING & NAPIER FUND, INC. - TECHNOLOGY SERIES
TOTAL RETURN
THROUGH GROWTH OF $10,000 AVERAGE
12/31/95 INVESTMENT CUMULATIVE ANNUAL
<S> <C> <C> <C>
ONE YEAR $ 14,025 40.25% 40.25%
INCEPTION2 $ 15,918 59.18% 41.38%
</TABLE>
<TABLE>
<CAPTION>
S&P 500 TOTAL RETURN INDEX
TOTAL RETURN
THROUGH GROWTH OF $10,000 AVERAGE
12/31/95 INVESTMENT CUMULATIVE ANNUAL
<S> <C> <C> <C>
ONE YEAR $ 13,759 37.59% 37.59%
INCEPTION2 $ 13,447 34.47% 24.68%
</TABLE>
1The Standard and Poors (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.
S&P 500 Total Return Index returns assume reinvestment of dividends and,
unlike Fund returns, do not reflect any fees or expenses.
2The Fund and Index performance numbers are calculated from August 29, 1994,
the Fund's most recent inception date. The Fund's performance is historical
and may not be indicative of future results.
[GRAPHIC]
LINE CHART
Data for Line Chart to follow:
<TABLE>
<CAPTION>
Manning & Napier S&P 500 Total
Technology Series Return Index
<S> <C> <C>
29-Aug-94* 10,000 10,000
30-Sep-94 10,040 9,775
31-Dec-94 11,350 9,773
31-Mar-95 12,400 10,725
30-Jun-95 14,736 11,749
30-Sep-95 15,723 12,683
31-Dec-95 15,918 13,447
</TABLE>
* Inception date
B-80
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - December 31, 1995
Value
Shares (Note 2)
<S> <C> <C>
COMMON STOCK - 79.2%
COMMUNICATION EQUIPMENT - 33.3%
ADC Telecommunications, Inc.* 70,000 $ 2,555,000
BroadBand Technologies, Inc.* 130,000 2,112,500
ECI Telecommunications Ltd. 112,400 2,564,125
Champion Technology Hldgs. (Note 6) 3,583,948 375,433
General DataComm Industries, Inc.* 166,000 2,842,750
General Instrument Corp.* 76,000 1,776,500
Motorola, Inc. 31,000 1,767,000
Northern Telecom Ltd. 86,800 3,732,400
17,725,708
COMPUTER EQUIPMENT - 6.1%
Digital Equipment Corp.* 42,600 2,731,725
PSC, Inc.* 56,000 518,000
3,249,725
COMPUTER INTEGRATED SYSTEMS DESIGNS - 4.3%
Parametric Technology Corp.* 34,500 2,294,250
COMPUTER SOFTWARE - 22.8%
Borland International, Inc.* 140,000 2,310,000
Informix Corp.* 98,300 2,949,000
Oracle Corp.* 82,950 3,515,006
Symantec Corp.* 143,000 3,324,750
12,098,756
ELECTRONIC COMPONENTS - 4.0%
Planar Systems, Inc.* 112,000 2,142,000
PRINTING TRADES EQUIPMENT - 4.9%
Scitex Corp Ltd. 190,400 2,594,200
The accompanying notes are and integral part of the financial statements.
B-81
<PAGE>
Investment Portfolio - December 31, 1995
Value
Shares (Note 2)
SPECIAL INDUSTRIAL INSTRUMENTS - 3.8%
Measures Corp. 71,000 $ 2,005,750
TOTAL COMMON STOCK
(Identified Cost $36,759,079) 42,110,389
SHORT-TERM INVESTMENTS - 20.7%
Federal Home Loan Note 1/4/96 $5,000,000 4,997,646
Federal Home Loan Mortgage Corp. Discount
Note 1/16/96 6,000,000 5,985,900
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $10,983,546) 10,983,546
INVESTMENTS - 99.9%
(Identified Cost $47,742,625) 53,093,935
OTHER ASSETS, LESS LIABILITIES - 0.1% 53,108
NET ASSETS - 100% $53,147,043
</TABLE>
*Non-Income Producing Security
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
At December 31, 1995, the net unrealized appreciation based on identified cost
for federal income tax purposes of $47,874,724 was as follows:
<S> <C>
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost $ 8,137,173
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value (2,917,962)
Unrealized appreciation - net $ 5,219,211
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-82
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
December 31, 1995
<S> <C>
ASSETS:
Investments, at value (Identified cost, $47,742,625) (Note 2) $53,093,935
Cash and cash equivalents 565,962
Dividends receivable 19,253
Prepaid expense 3,438
TOTAL ASSETS 53,682,588
LIABILITIES:
Accrued management fees (Note 3) 44,240
Accrued Directors' fees (Note 3) 1,813
Payable for securities purchased 441,250
Audit fee payable 22,728
Registration and filing fees payable 15,507
Payable for fund shares redeemed 2,142
Other payables and accrued expenses 7,865
TOTAL LIABILITIES 535,545
NET ASSETS FOR 4,963,313 SHARES
OUTSTANDING $53,147,043
NET ASSETS CONSIST OF:
Capital stock $ 49,634
Additional paid-in-capital 45,374,674
Undistributed net investment income 37,295
Accumulated net realized gain on investments 2,334,128
Net unrealized appreciation on investments and other assets 5,351,312
TOTAL NET ASSETS $53,147,043
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($53,147,043/4,963,313 SHARES) $ 10.71
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-83
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
<S> <C>
INVESTMENT INCOME:
Dividends $ 306,385
Interest 390,061
Total Investment Income 696,446
EXPENSES:
Management fees (Note 3) 557,701
Directors fees (Note 3) 6,792
Audit fee 20,000
Registration and filing fees 19,059
Custodian fees 15,525
Miscellaneous 6,351
Total Expenses 625,428
NET INVESTMENT INCOME 71,018
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investments (identified cost basis) 19,400,886
Net change in unrealized appreciation on investments (268,944)
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS 19,131,942
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $19,202,960
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-84
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
For the Period 8/29/94
For the (recommencement
Year Ended of operations)
12/31/95 TO 12/31/94
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 71,018 $ (60,819)
Net realized gain on investments 19,400,886 384,233
Net change in unrealized appreciation
(depreciation) on investments (268,944) 5,620,256
Net increase in net assets from operations 19,202,960 5,943,670
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (33,723) -
From net realized gains (17,390,172) -
Total distributions to shareholders (17,423,895) -
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase (decrease) in net assets from capital share
transactions (Note 5) (561,295) 45,985,603
Net increase in net assets 1,217,770 51,929,273
NET ASSETS:
Beginning of period 51,929,273 -
End of period (including undistributed net investment
income of $37,295 and $0, respectively) $ 53,147,043 $ 51,929,273
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-85
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
For the For the Period For the Period For the For the
Year Ended 8/29/94(1) 1/1/92 to Year Ended Year Ended
12/31/95 to 12/31/94 5/11/92(2) 12/31/91 12/31/90
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding
throughout each period)*
Net asset value-Beginning of period $ 11.35 $ 10.00(3) $ 10.25 $ 8.00 $ 9.41
Income from investment operations:
Net investment income (loss) 0.018 (0.013) 0.010 (0.040) 0.020
Net realized and unrealized
gain (loss) on investments 4.515 1.363 1.530 2.930 (0.830)
Total from investment operations 4.533 1.350 1.540 2.890 (0.810)
Less distributions declared to shareholders:
From net investment income (0.010) - - - (0.030)
From net realized gain on investment (5.163) - (1.940) (0.640) (0.570)
Redemption of capital - - (9.850) - -
Total distributions declared to shareholders (5.173) - (11.790) (0.640) (0.600)
Net asset value - End of period $ 10.71 $ 11.35 $ 0.00 $ 10.25 $ 8.00
Total Return(4): 40.25% 13.5% -(5) 36.1% (8.9)%
Ratios of expenses (to average net assets)/
Supplemental Data:
Expenses 1.12% 1.32%(6) 1.35%(6)(5) 1.13% 1.14%
Net Investment Income (loss) 0.13% (0.40)%(6) 0.20%(6)(5) (0.33)% 0.20%(7)
Portfolio Turnover 107% 5% 0% 4% 25%
Average Commission Rate Paid $ 0.0156 - - - -
Net assets - End of period
(000's omitted) $ 53,147 $ 51,929 - $ 5,594 $ 5,835
</TABLE>
*The investment practice of the Fund results in the active operation of the
investment portolio for discrete periods. The Fund was in active operation
from November 4, 1988 to May 11, 1992. On May 11, 1992, the Fund redeemed all
shares held. The Fund recommenced investment operations on August 29, 1994.
1Recommencement of operations.
2Date of complete redemption.
3Initial offering price upon recommencement of operations on August 29, 1994.
4Total return represents aggregate total return for the period indicated.
5The Fund ceased investment operations on May 11, 1992; therefore, ratios and
total return would not be representative of an actively operating fund.
6Annualized
7Investment income per share is comprised of recurring dividends and interest
income which amounted to $.07 per share and special dividends from Bell
Industries and Tempest Technologies, Inc.
The accompanying notes are an integral part of the financial statements.
B-86
<PAGE>
Notes to Financial Statements
1. ORGANIZATION
Technology Series (the "Fund") is a no-load non-diversified series of
Manning & Napier Fund, Inc. (the "Corporation"). The Corporation is
organized as a Maryland Corporation and is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment
company.
Shares of the Fund are offered to clients and employees of Manning &
Napier Advisors, Inc. (the "Advisor") and its affiliates. The investment
practice of the Fund results in the active operation of the investment
portfolio for discrete periods. As of
December 31, 1995, the Fund has been in active operation from November 4,
1988 to May 11, 1992 and from August 29, 1994 to December 31, 1995. The
total authorized capital stock of the Corporation consists of one billion
shares of common stock each having a par value of $0.01. As of December
31, 1995, 710 million shares have been designated in total among 18 series,
of which 20 million have been designated as Technology Series Class D Common
Stock.
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 latest
quoted sales price of the exchange on which the security is traded most
extensively. 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 Fund's Board of Directors.
Short-term investments that mature in sixty (60) days or less are valued
at amortized cost.
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.
B-87
<PAGE>
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
FEDERAL INCOME TAXES
The Fund's policy is to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies. The Fund is not
subject to federal income or excise tax to the extent the Fund distributes
to shareholders each year its taxable income, including any net realized
gains on investments in accordance with requirements of the Internal Revenue
Code. Accordingly, no provision for federal income taxes has been made in
the financial statements.
The Fund uses the identified cost method for determining realized gain or
loss on investments for both financial statement and federal income tax
reporting purposes.
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. An additional distribution may be
necessary to avoid taxation of the Fund.
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 Fund may
periodically make reclassification among its capital accounts without
impacting the Fund's net asset value.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund 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)
purchases 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 result from fluctuations in foreign currency
exchange rates is not separately stated.
B-88
<PAGE>
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund 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, 1995, the Fund had no open foreign currency exchange
contracts.
OPTION CONTRACTS
The Fund may write (sell) or buy call or put options on securities and
other financial instruments. When the Fund writes a call, the Fund gives
the purchaser the right to buy the underlying security from the Fund at the
price specified in the option contract (the "exercise price") at any time
during the option period. When the Fund writes a put option, the Fund
gives the purchaser the right to sell to the Fund the underlying security
at the exercise price at any time during the option period. The Fund will
only write options on a "covered basis." This means that the Fund will own
the underlying security when the Fund writes a call or the Fund will put
aside cash, U.S. Government securities, or other liquid assets in the
amount not less than the exercise price at all times the put option is
outstanding.
When the Fund writes a call or put option, an amount equal to the premium
received is included in the Fund's "Statement of Assets and Liabilities" as
an asset and an equivalent liability. The amount of the liability is
subsequently marked-to-market to reflect the current market value of the
option. The current market value of the option is the closing price or, in
the absence of a closing price, the bid price.
If a written option expires on its stipulated expiration date or if the
Fund enters into a closing transaction, a gain or loss is realized on the
contract. When a gain or loss is realized, the liability related to such
option contract is extinguished. If a written call option is exercised, a
gain or loss is realized from the sale of the underlying security and the
premium received from the option is added to proceeds from the sale of the
underlying security thereby increasing the gain or decreasing the loss from
the sale of the underlying security. If a written put option is exercised,
the cost of the underlying security purchased by the Fund will be decreased
by the premium originally received.
The Fund may also purchase options in an attempt to hedge against
fluctuations in the value of its portfolio and to protect against declines
in the value of the securities. The premium paid by the Fund for the
purchase of a call or put option is included in the Fund's "Statement of
Assets and Liabilities" as an investment and subsequently marked-to-market
to reflect the current market value of the option. The current market value
of the option is the closing price or, in the absence of a closing price,
the bid price.
B-89
<PAGE>
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
OPTION CONTRACTS (continued)
If an option the Fund has purchased expires on the stipulated expiration
date, the Fund realizes a loss in the amount of the cost of the option. If
the Fund exercised a call option, the cost of the securities acquired by
exercising the call is increased by the premium paid to buy the call. If the
Fund exercises a put option, it realizes a gain or loss from the sale of the
underlying security and the proceeds from such a sale are decreased by the
premium originally paid.
The measurement of the risks associated with option contracts is
meaningful only when all related and offsetting transactions are considered.
A summary of obligations for option contracts for the year ended December 31,
1995 are as follows:
<TABLE>
<CAPTION>
WRITTEN CALL OPTIONS PURCHASED PUT OPTIONS
--------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
--------------------- --------- ---------------------- ----------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 0 $ 0 0 $ 0
Options entered into during 1995 (256) (37,943) 440 749,760
Options expired during 1995 0 0 (440) (749,760)
Options exercised during 1995 256 37,943 0 0
Balance at December 31, 1995 0 $ 0 0 $ 0
</TABLE>
3. TRANSACTIONS WITH AFFILIATES
The Fund has 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 of 1% of the Fund's
average daily net assets. The fee amounted to $557,701 for the year ended
December 31, 1995.
Under the Fund's Investment Advisory Agreement (the "Agreement"),
personnel of the Advisor provide the Fund with advice and assistance in the
choice of investments and the execution of securities transactions, and
otherwise maintain the Fund's organization. The Advisor also provides the
Fund with necessary office space and portfolio accounting and bookkeeping
services. The salaries of all officers of the Fund and of all Directors who
are "affiliated persons" of the Fund or of the Advisor, and all personnel of
the Fund or of the Advisor performing services relating to research,
statistical and investment activities are paid by the Advisor.
The Advisor has agreed that, in any fiscal year, if the expenses of the
Fund (including the advisory fee but excluding interest, taxes, brokerage
commissions, and extraordinary expenses) exceed the limits set by applicable
regulation of state securities commissions, the Advisor will reduce its fee
by the amount of such excess.
B-90
<PAGE>
Notes to Financial Statements
3. TRANSACTIONS WITH AFFILIATES (continued)
The Advisor also acts as the transfer, dividend paying and shareholder
servicing agent for the Fund. These services are provided at no additional
cost to the Fund.
Manning & Napier Investor Services, Inc., a registered broker-dealer
affiliate of the Advisor, acts as distributor for the Fund's shares. The
services of Manning & Napier Investor Services, Inc. are provided at no
additional cost to the Fund.
The compensation of the non-affiliated Directors totaled $6,792 for the
year ended December 31, 1995.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term securities, were
$51,042,907 and $78,279,548, respectively, for the year ended December 31,
1995.
5. CAPITAL STOCK TRANSACTIONS
<TABLE>
<CAPTION>
Transactions in shares of Technology Series Class D Common Stock were:
Fot the Year For the Period
Ended 12/31/95 8/29/94 TO 12/31/94
Shares Amount Shares Amount
--------------- -------------- -------------------- ------------
<S> <C> <C> <C> <C>
Sold 1,415,392 $ 17,145,335 4,627,553 $46,536,910
Reinvested 1,612,684 17,272,178 - -
Redeemed (2,641,988) (34,978,808) (50,328) (551,307)
Total 386,088 $ (561,295) 4,577,225 $45,985,603
</TABLE>
6. 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 many foreign companies
and foreign governments and their markets may be less liquid and their
prices more volatile than those of securities of comparable U.S. companies
and the United States government.
7. TECHNOLOGY SECURITIES
The Fund may focus its investments in certain related technology
industries; hence, the Fund may subject itself to a greater degree of risk
than a fund that is more diversified.
B-91
<PAGE>
Report of Independent Accountants
To the Shareholders and Directors of
Manning & Napier Fund, Inc. - Technology Series:
We have audited the accompanying statement of assets and liabilities of
Manning & Napier Fund, Inc. - Technology Series including the schedule of
portfolio investments, as of December 31, 1995, and the related statement of
operations for the year then ended, the statement of changes in net assets for
the year then ended and the period August 29, 1994 (Recommencement of
Operations) to December 31, 1994, and the financial highlights for each of the
periods indicated in the financial highlights table herein. 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 financial 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 statements. Our procedures included confirmation of securities
owned as of December 31, 1995 by correspondence with the custodian. 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 provide 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 the
Manning & Napier Fund, Inc. - Technology Series as of December 31, 1995, the
results of its operations for the year then ended, the changes in its net
assets for the year then ended and the period August 29, 1994 (Recommencement
of Operations) to December 31, 1994, and the financial highlights for each of
the periods indicated in the financial highlights table herein, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
January 26, 1996
B-92
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
BLENDED ASSET SERIES I
Annual Report
December 31, 1995
<PAGE>
Management Discussion and Analysis
DEAR SHAREHOLDERS:
1995 was a year that put smiles on many investors faces as both the stock and
bond markets had the best returns in many years. The slower growth,
non-inflationary environment helped to spur bond prices higher, as interest
rates declined. Corporate earnings rose at a slower rate in the second half
of the year than they had in the first six months, but it was enough to keep
the equity markets in a general upward trend. One explanation for the strong
financial returns in the United States is that the U.S. appeared to be the
safe haven when one considers the Mexican currency crisis and the declines in
many international markets at the end of 1994.
As we look to 1996, we expect the recent monetary easing by the major
developed countries to encourage economic growth. Emerging markets have been
making tough policy decisions throughout 1995 bringing some economies to
recession levels, but fostering the trust that is needed for long-term
investors. This positive environment is being reflected in the world
financial markets.
We believe the positive macro environment - slow growth and low inflation - is
likely to continue. Furthermore, the great budget debate has come down to not
whether we will balance the budget, but how. Finally, there is the growing
emphasis on the need to increase the savings rate. All of these big picture
factors lead us to a constructive view for investors. However, all of this
must be looked at in the context of a market that is trading near all time
highs. It is clear to us that individual security selection will become more
important going forward.
In our stock selection process we use fundamental analysis to find companies
that fit our strategies and whose stocks we believe represent good value.
While we do not deliberately concentrate our investments in specific sectors
of a market, it is often the case that prices of whole sectors will become
attractive investment situations at the same time. Technology, healthcare,
transportation, and utilities experienced strong returns in 1995, and the
Series portfolio had exposure to all of them. Guided by our pricing
strategies, we sold equities as the year progressed. For example, we reduced
exposure to the technology sector at mid-year as many of these stocks attained
what our analysis showed to be fair value. We selected some consumer-related
stocks in smaller position-sizes during this period as they met our pricing
criteria. These consumer companies have either strong international profiles
or particular domestic strength in an industry that is expected to
consolidate.
While many investors pay careful attention to the stocks in their portfolio,
academic studies have shown that an even more important factor in investment
returns is getting the asset allocation (i.e., the mixture of stocks, bonds,
and cash) correct. We feel that the best way to adjust your asset allocation
is to continually search for the best investment opportunities - whether in
stocks, bonds, or cash - and invest accordingly. If there are many stocks
B-93
<PAGE>
Management Discussion and Analysis (continued)
that meet our strategies, we will tend to have a higher percentage of our
portfolio in stocks; the bond portion of the portfolio is also a reflection of
what the values are in the market. If our opinion is that the markets, in
general, are not overflowing with values, we will tend to keep more of the
fund in cash and cash equivalents awaiting better opportunities.
As we have previously discussed, our asset allocation had become increasingly
conservative as the market rose through the latter half of 1995. We begin
1996 poised to capture opportunities that we believe will come to the surface
as investors begin to reconcile the stock market at new highs with signs of a
slowing economy. We will evaluate these opportunities - as we always have -
stock-by-stock and bond-by-bond, using the short-term fluctuations in the
market as a buying opportunity.
We appreciate your continued confidence in us and wish you all the best in
1996.
Sincerely,
MANNING & NAPIER ADVISORS, INC.
[PIE CHART]
Asset Allocation
Bond - 61%
Stocks - 25%
Cash & Equivalents - 14%
B-94
<PAGE>
Performance Update as of December 31, 1995
The value of a $10,000 investment in the Manning & Napier Fund, Inc.- Blended
Asset Series I from its inception (9/15/93) to present (12/31/95) as compared
to the Lehman Brothers Intermediate Bond Index and a Balanced Index.1
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc.
Blended Asset Series I
Total Return
Growth of
Through $10,000 Average
12/31/95 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 12,108 21.08% 21.08%
Inception2 $ 12,123 21.23% 8.75%
</TABLE>
<TABLE>
<CAPTION>
Lehman Brothers
Intermediate Bond Index
Total Return
Growth of
Through $10,000 Average
12/31/95 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 11,533 15.33% 15.33%
Inception2 $ 11,347 13.47% 5.66%
</TABLE>
<TABLE>
<CAPTION>
Balanced Index
Total Return
Growth of
Through $10,000 Average
12/31/95 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 11,273 12.73% 12.73%
Inception2 $ 12,150 21.50% 8.85%
</TABLE>
1The Lehman Intermediate Bond Index is a market value weighted measure of
approximately 3,250 corporate and government securities. The Index is
comprised of investment grade securities with maturities greater than one year
but less than ten years. The Balanced Index is 30% Standard & Poor's (S&P)
500 Total Return Index and 70% Lehman Brothers Intermediate Bond Index. The
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. Both Indices' returns assume
reinvestment of income and, unlike Fund returns, do not reflect any fees or
expenses.
2The Fund and Indices performance numbers are calculated from September 15,
1993, the Fund's inception date. The Fund's performance is historical and may
not be indicative of future results.
[GRAPHIC]
LINE CHART
Data for Line Chart to follow:
<TABLE>
<CAPTION>
Manning & Napier Lehman Brothers
Blended Asset Intermediate Bond
Series I Index Balanced Index
<S> <C> <C> <C>
15-Sep-93* 10,000 10,000 10,000
31-Dec-93 10,092 10,032 10,078
30-Jun-94 9,671 9,770 9,791
31-Dec-94 10,012 9,838 9,982
30-Jun-95 11,578 10,783 10,254
31-Dec-95 12,123 11,347 12,150
</TABLE>
* Inception date
B-95
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO - DECEMBER 31, 1995
Value
Shares (Note 2)
<S> <C> <C>
COMMON STOCK - 25.40%
Air Transportation - 2.04%
Federal Express Corp.* 2,625 $ 193,922
Amusement & Recreational Services - 0.04%
Mountasia Entertainment International, Inc.* 700 3,369
Apparel - 2.40%
VF Corp. 4,325 228,144
Business Services - 0.99%
Employment Services - 0.06%
Barrett Business Services, Inc.* 375 5,531
Software - 0.93%
Black Box Corp.* 525 8,597
Borland International, Inc.* 1,700 28,050
Caere Corp.* 325 2,315
Electronic Arts, Inc.* 300 7,837
Informix Corp.* 150 4,500
Oracle Corp.* 150 6,356
Parametric Technology Corp.* 75 4,988
Symantec Corp.* 1,125 26,156
88,799
94,330
Chemicals & Allied Products - 0.56%
Alliance Pharmaceutical Corp.* 1,100 14,987
International Specialty Products, Inc. 3,550 38,606
53,593
Communications - 3.49%
Radio Broadcasting Stations - 0.02%
Children's Broadcasting Corp.* 275 1,719
The accompanying notes are an integral part of the financial statements.
B-96
<PAGE>
INVESTMENT PORTFOLIO - DECEMBER 31, 1995
Value
Shares (Note 2)
Communications (continued)
Telephone Communications - 3.47%
BCE, Inc. 3,650 $ 125,925
Cable & Wireless Plc. - ADR 5,000 105,625
Telefonica de Espana - ADR 2,350 98,406
329,956
331,675
Crude Petroleum & Natural Gas - 0.07%
Mesa, Inc.* 1,825 6,844
Educational Services - 0.16%
Westcott Communications, Inc.* 1,125 15,469
Electronics & Electrical Equipment - 3.66%
Electronic Components - 0.10%
Planar Systems, Inc.* 500 9,563
Household Appliances - 2.37%
Sunbeam Corporation, Inc. 5,700 86,925
Whirlpool Corp. 2,600 138,450
225,375
Lighting Equipment - 0.15%
Coleman Company, Inc.*. 400 14,050
Telecommunication Equipment - 1.04%
ADC Telecommunications, Inc.* 100 3,650
BroadBand Technologies, Inc.* 850 13,812
ECI Telecommunications Ltd. 175 3,992
General DataComm Industries, Inc.* 1,350 23,119
General Instrument Corp.* 1,975 46,166
Motorola, Inc. 50 2,850
Northern Telecom Ltd. 125 5,375
98,964
347,952
Engineering Services - 0.49%
Jacobs Engineering Group, Inc.* 1,875 46,875
The accompanying notes are an integral part of the financial statements.
B-97
<PAGE>
INVESTMENT PORTFOLIO - DECEMBER 31, 1995
Value
Shares (Note 2)
Fabricated Metal Products - 0.35%
Keystone International, Inc. 700 $ 14,000
Material Sciences Corp.* 1,100 16,362
Medalist Industries* 600 3,600
33,962
Food - 0.06%
J & J Snack Foods Corp.* 300 3,300
Grist Mill Co.* 275 2,028
5,328
Glass Products - 1.28%
Corning, Inc. 3,725 119,200
Libbey, Inc. 125 2,812
122,012
Health Services - 2.35%
Doctors Offices & Clinics - 1.97%
Caremark International, Inc. 10,100 183,063
Coastal Physician Group, Inc.* 350 4,725
187,788
Home Health Care Services - 0.23%
Health Management, Inc.* 1,425 18,881
Quantum Health Resources, Inc.* 300 2,944
21,825
Hospitals - 0.13%
Rehabcare Corp.* 625 12,031
Specialty Outpatient Services - 0.02%
U.S. Physical Therapy, Inc.* 175 2,013
223,657
Industrial & Commercial Machinery - 0.26%
Computer Peripheral Equipment - 0.12%
Digital Equipment Corp.* 75 4,809
PSC, Inc.* 675 6,244
11,053
The accompanying notes are an integral part of the financial statements.
B-98
<PAGE>
INVESTMENT PORTFOLIO - DECEMBER 31, 1995
Value
Shares (Note 2)
Industrial & commercial Machinery (continued)
Printing Trades Equipment - 0.14%
Scitex Corp. 1,000 $ 13,625
24,678
Office & Business Equipment - 0.15%
BT Office Products International, Inc.* 900 14,400
Plastic Products - 0.12%
Carlisle Plastics, Inc.* 625 2,812
Sun Coast Industries, Inc.* 1,225 8,269
11,081
Primary Metal Industries - 0.16%
American Superconductor Corp.* 400 5,800
Gibraltar Steel Corp.* 750 9,094
14,894
Printing & Publishing - 0.04%
Playboy Enterprises, Inc. - Class A* 225 1,969
Playboy Enterprises, Inc. - Class B* 250 2,094
4,063
Restaurants - 0.09%
Quantum Restaurant Group, Inc.* 800 9,000
Retail - 4.24%
Retail Home Furnishing Stores - 0.17%
Pier 1 Imports, Inc. 1,463 16,642
Retail - Shoe Stores - 0.84%
Brown Group, Inc. 5,650 80,513
Retail Specialty Stores - 3.11%
Fabri-Centers of America - Class A* 750 9,937
Fabri-Centers of America - Class B* 750 8,062
Fingerhut Companies, Inc. 10,425 144,647
Gander Mountain, Inc.* 650 4,306
Hancock Fabrics, Inc. 6,100 54,900
Michaels Stores, Inc.* 5,375 73,906
295,758
The accompanying notes are an integral part of the financial statements.
B-99
<PAGE>
INVESTMENT PORTFOLIO - DECEMBER 31, 1995
Shares/
Principal Value
Amount (Note 2)
Retail (continued)
Retail Variety Stores - 0.12%
Family Dollar Stores, Inc. 800 $ 11,000
403,913
Shoes - 0.10%
Wolverine World Wide, Inc. 300 9,450
Social Services - 0.01%
Childrens Discovery Centers of America, Inc.* 150 769
Technical Instruments & Supplies - 2.23%
Industrial Instruments - 0.09%
Measurex Corp. 300 8,475
Photographic Equipment & Supplies - 2.08%
Eastman Kodak Co. 2,950 197,650
Surgical & Medical Instruments - 0.06%
Allied Healthcare Products, Inc. 125 2,000
SpaceLabs Medical, Inc.* 150 4,313
6,313
212,438
Textiles - 0.06%
Fieldcrest Cannon, Inc.* 350 5,819
TOTAL COMMON STOCK
(Identified Cost $2,459,855) 2,417,637
U.S. TREASURY SECURITIES - 69.94%
U.S. Treasury Bonds - 15.43%
U.S. Treasury Bond, 7.25%, 5/15/16 45,000 51,384
U.S. Treasury Bond, 7.50%, 11/15/24 1,180,000 1,417,475
Total U.S. Treasury Bonds
(Identifed Cost $1,240,014) 1,468,859
The accompanying notes are an integral part of the financial statements.
B-100
<PAGE>
INVESTMENT PORTFOLIO - DECEMBER 31, 1995
Principal Value
Amount (Note 2)
U.S. Treasury Securities (continued)
U.S. Treasury Notes - 53.99%
U.S. Treasury Note, 6.125%, 7/31/96 945,000 $ 949,725
U.S. Treasury Note, 6.50%, 4/30/97 250,000 254,219
U.S. Treasury Note, 5.375%, 11/30/97 1,200,000 1,203,750
U.S. Treasury Note, 6.875%, 8/31/99 450,000 472,781
U.S. Treasury Note, 7.75%, 12/31/99 20,000 21,713
U.S. Treasury Note, 7.125%, 2/29/00 1,775,000 1,890,375
U.S. Treasury Note, 6.50%, 5/15/05 325,000 346,328
Total U.S. Treasury Notes
(Identified Cost $5,044,892) 5,138,891
U.S. Treasury Bills - 0.52%
U.S. Treasury Bill, 1/11/96 (Identified Cost $49,958) 50,000 49,958
TOTAL U.S. TREASURY SECURITIES
(Identified Cost $6,334,864) 6,657,708
U.S. GOVERNMENT AGENCIES - 1.03%
Mortgage Backed Securities
GNMA Pool #174225, 9.50%, 8/15/16 6,028 6,467
GNMA Pool #385753, 9.00%, 7/15/24 86,525 91,636
TOTAL U.S. GOVERNMENT AGENCIES
(Identified Cost $96,091) 98,103
The accompanying notes are an integral part of the financial statements.
B-101
<PAGE>
INVESTMENT PORTFOLIO - DECEMBER 31, 1995
Value
Shares (Note 2)
SHORT-TERM INVESTMENTS - 3.10%
Dreyfus U.S. Treasury Money Market Reserves
(Identified Cost $294,979) 294,979 $ 294,979
TOTAL INVESTMENTS - 99.47%
(Identified Cost $9,185,789) 9,468,427
OTHER ASSETS, LESS LIABILITIES - 0.53% 50,068
NET ASSETS - 100% $9,518,495
* Non-income producing security
</TABLE>
<TABLE>
<CAPTION>
Federal Tax Information:
At December 31, 1995, the net unrealized appreciation based on identified cost
for federal income tax purposes of $9,192,228 was as follows:
<S> <C>
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost $ 495,253
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value (219,054)
Unrealized appreciation - net $ 276,199
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-102
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<S> <C>
ASSETS:
Investments, at value (Identified cost $9,185,789) (Note 2) $9,468,427
Cash 49,755
Interest receivable 101,869
Dividends receivable 6,197
Prepaid expense 336
TOTAL ASSETS 9,626,584
LIABILITIES:
Accrued management fees (Note 3) 21,543
Accrued Directors' fees (Note 3) 1,813
Transfer agent fees payable (Note 3) 191
Payable for fund shares redeemed 70,130
Audit fee payable 12,371
Other payables and accrued expenses 2,041
TOTAL LIABILITIES 108,089
NET ASSETS FOR 888,146 SHARES OUTSTANDING $9,518,495
NET ASSETS CONSIST OF:
Capital stock $ 8,882
Additional paid - in - capital 9,193,923
Accumulated net realized gains on investments 33,052
Net unrealized appreciation on investments 282,638
TOTAL NET ASSETS $9,518,495
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($9,518,495/888,146 shares) $ 10.72
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-103
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations
For the Year Ended December 31, 1995
<S> <C>
INVESTMENT INCOME
Interest $ 294,411
Dividends 44,454
Total Investment Income 338,865
EXPENSES:
Management fees (Note 3) 69,950
Directors fees (Note 3) 6,875
Transfer agent fees (Note 3) 1,679
Audit fee 14,625
Custodian fees 7,480
Registration and filing fees 6,384
Miscellaneous 354
Total Expenses 107,347
Less Waiver of Expenses (Note 3) (23,407)
Net Expenses 83,940
NET INVESTMENT INCOME 254,925
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on investments (identified cost basis) 608,702
Net change in unrealized appreciation on investments 341,625
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS 950,327
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $1,205,252
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-104
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
For the For the
Year Ended Year Ended
12/31/95 12/31/94
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 254,925 $ 88,876
Net realized gain on investments 608,702 18,293
Net change in unrealized appreciation (depreciation)
on investments 341,625 (59,823)
Net increase in net assets from operations 1,205,252 47,346
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (254,925) (88,431)
In excess of net investment income (3,886) -
From net realized gains (564,923) (18,074)
In excess of net realized gains - (3,332)
Total distributions to shareholders (823,734) (109,837)
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase in net assets from capital share
transactions (Note 5) 4,617,621 4,106,508
Net increase in net assets 4,999,139 4,044,017
NET ASSETS:
Beginning of period 4,519,356 475,339
End of period (including undistributed net investment
income of $0 and $665, respectively) $ 9,518,495 $ 4,519,356
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-105
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
For the Period 9/15/93
For the For the (commencement of
Year Ended Year Ended operations) to
12/31/95 12/31/94 12/31/93
Per share data ( for a share outstanding
throughout each period):
<S> <C> <C> <C>
Net asset value -- Beginning of period $ 9.72 $ 10.05 $ 10.00
Income from investment operations:
Net investment income 0.342 0.200 0.045
Net realized and unrealized gain (loss) on
investments 1.698 (0.280) 0.045
Total from investment operations 2.040 (0.080) 0.090
Less distributions declared to shareholders:
From net investment income (0.342) (0.203) (0.040)
In excess of net investment income (0.005) - -
From net realized gains on investments (0.693) (0.040) -
In excess of net realized gains - (0.007) -
Total distributions declared to shareholders (1.040) (0.250) (0.040)
Net asset value - End of period $ 10.72 $ 9.72 $ 10.05
Total return1 21.08% (0.80)% 0.93%
Ratios (to average net assets)/Supplemental Data:
Expenses 1.20%** 1.20%* 1.20%2*
Net investment income 3.64%** 3.40%* 2.47%2*
Portfolio turnover 72% 45% 1%
Average commission rate paid $ 0.0689 - -
Net Assets - End of period (000's omitted) $ 9,518 $ 4,519 $ 475
*The investment advisor did not impose its management fee and paid a portion
of the Funds expenses. If these expenses had been incurred by the Fund,
expenses would have been limited to that required by state securities law.
**The investment advisor waived a portion of its management fee.
If the full expenses had been incurred by the Fund in either instance above,
the net investment income per share and the ratios would be as follows:
Net investment income $ 0.311 $ 0.124 $ 0.021
Ratios (to average net assets):
Expenses 1.53% 2.50% 2.50%2
Net Investment Income 3.31% 2.10% 1.17%2
</TABLE>
1Represents aggregate total return for the period indicated.
2Annualized.
The accompanying notes are an integral part of the financial statements.
B-106
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Blended Asset Series I (the "Fund") is a no-load diversified series of
Manning & Napier Fund, Inc. (the "Corporation"). The Corporation is
organized as a Maryland Corporation and is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment
company.
Shares of the Fund are offered to investors, employees and clients of
Manning & Napier Advisors, Inc. (the "Advisor") and its affiliates. The
total authorized capital stock of the Corporation consists of one billion
shares of common stock each having a par value of $0.01. As of December 31,
1995, 710 million shares have been designated in total among 18 series, of
which 50 million have been designated as Blended Asset Series I Class K
Common Stock.
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 latest
quoted sales price of the exchange on which the security is traded most
extensively. 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 Fund's Board of Directors.
Short-term investments that mature in sixty (60) days or less are valued
at amortized cost.
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 Fund's policy is to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies. The Fund is not
subject to federal income or excise tax to the extent the Fund distributes
to shareholders each year its taxable income, including any net realized
gains on investments in accordance with requirements of the Internal Revenue
Code. Accordingly, no provision for federal income taxes has been made in
the financial statements.
B-107
<PAGE>
NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
The Fund uses the identified cost method for determining realized gain or
loss on investments for both financial statement and federal income tax
reporting purposes.
DISTRIBUTION OF INCOME AND GAINS
Distributions to shareholders of net investment income are made
semi-annually. Distributions are recorded on the ex-dividend date.
Distributions of net realized gains are distributed annually. An additional
distribution may be necessary to avoid taxation of the Fund.
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 Fund may
periodically make reclassification among its capital accounts without
impacting the Fund's net asset value.
The Fund hereby designates $130,574 as capital gain dividends for the
year ended December 31, 1995.
3. TRANSACTIONS WITH AFFILIATES
The Fund has 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 of 1% of the Fund's
average daily net assets. The fee amounted to $69,950 for the year ended
December 31, 1995.
Under the Fund's Investment Advisory Agreement (the "Agreement"),
personnel of the Advisor provide the Fund with advice and assistance in the
choice of investments and the execution of securities transactions, and
otherwise maintain the Fund's organization. The Advisor also provides the
Fund with necessary office space and portfolio accounting and bookkeeping
services. The salaries of all officers of the Fund and of all Directors who
are "affiliated persons" of the Fund or of the Advisor, and all personnel of
the Fund or of the Advisor performing services relating to research,
statistical and investment activities are paid by the Advisor.
The Advisor also acts as the transfer, dividend paying and shareholder
servicing agent for the Fund. For these services, the Fund pays a fee which
is calculated as a percentage of the average daily net assets at an annual
rate of 0.024% and amounted to $1,679 for the year ended December 31, 1995.
B-108
<PAGE>
NOTES TO FINANCIAL STATEMENTS
3. TRANSACTIONS WITH AFFILIATES (continued)
The Advisor has voluntarily agreed to waive its fee and, if necessary,
pay other expenses of the Fund in order to maintain total expenses for the
Fund at no more than 1.20% of average daily net assets each year.
Accordingly, the Advisor waived fees of $23,407, which is reflected as a
reduction of expenses on the statement of operations. The fee waiver and
assumption of expenses by the Advisor is voluntary and may be terminated at
any time.
Manning & Napier Investor Services, Inc., a registered broker-dealer
affiliate of the Advisor, acts as distributor for the Fund's shares. The
services of Manning & Napier Investor Services, Inc. are provided at no
additional cost to the Fund.
The compensation of the non-affiliated Directors totaled $6,875 for the
year ended December 31, 1995.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term securities, were
$8,534,833 and $4,351,162, respectively, for the year ended December 31,
1995.
5. CAPITAL STOCK TRANSACTIONS
<TABLE>
<CAPTION>
Transactions in shares of Blended Asset Series I Class K Common Stock
were:
For the Year For the Year
Ended 12/31/95 Ended 12/31/94
Shares Amount Shares Amount
--------------- ----------- --------------- -----------
<S> <C> <C> <C> <C>
Sold 406,586 $4,437,737 481,619 $4,726,025
Reinvested 75,731 811,707 11,251 109,832
Redeemed (58,913) (631,823) (75,443) (729,349)
Total 423,404 $4,617,621 417,427 $4,106,508
</TABLE>
6. FINANCIAL INSTRUMENTS
The Fund may trade in financial instruments with off-balance sheet risk
in the normal course of its 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 a varying degree, elements of risk in excess
of the amounts recognized for financial statement purposes. No such
investments were held by the Fund at December 31, 1995.
B-109
<PAGE>
Independent Auditors' Report
To the Directors of Manning & Napier Fund, Inc.
and Shareholders of Blended Asset Series I:
We have audited the accompanying statement of assets and liabilities,
including the investment portfolio, of Blended Asset Series I (one of the
series constituting Manning & Napier Fund, Inc.) as of December 31, 1995,
the related statement of operations for the year then ended, the statement
of changes in net assets for the years ended
December 31, 1995 and 1994, and the financial highlights for each of the years
in the three year period ended December 31, 1995. 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 financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned at
December 31,1995 by correspondence with the custodian. 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 provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Blended Asset
series I at December 31, 1995, the results of its operations, the changes
in its net assets and its financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
BOSTON, MASSACHUSETTS
FEBRUARY 2, 1996
B-110
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
BLENDED ASSET SERIES II
Annual Report
December 31, 1995
<PAGE>
Management Discussion and Analysis
Dear Shareholders:
1995 was a year that put smiles on many investors faces as both the stock and
bond markets had the best returns in many years. The slower growth,
non-inflationary environment helped to spur bond prices higher, as interest
rates declined. Corporate earnings rose at a slower rate in the second half
of the year than they had in the first six months, but it was enough to keep
the equity markets in a general upward trend. One explanation for the strong
financial returns in the United States is that the U.S. appeared to be the
safe haven when one considers the Mexican currency crisis and the declines in
many international markets at the end of 1994.
As we look to 1996, we expect the recent monetary easing by the major
developed countries to encourage economic growth. Emerging markets have been
making tough policy decisions throughout 1995 bringing some economies to
recession levels, but fostering the trust that is needed for long-term
investors. This positive environment is being reflected in the world
financial markets.
We believe the positive macro environment - slow growth and low inflation - is
likely to continue. Furthermore, the great budget debate has come down to not
whether we will balance the budget, but how. Finally, there is the growing
emphasis on the need to increase the savings rate. All of these big picture
factors lead us to a constructive view for investors. However, all of this
must be looked at in the context of a market that is trading near all time
highs. It is clear to us that individual security selection will become more
important going forward.
In our stock selection process we use fundamental analysis to find companies
that fit our strategies and whose stocks we believe represent good value.
While we do not deliberately concentrate our investments in specific sectors
of a market, it is often the case that prices of whole sectors will become
attractive investment situations at the same time. Technology, healthcare,
transportation, and utilities experienced strong returns in 1995, and the
Series portfolio had exposure to all of them. Guided by our pricing
strategies, we sold equities as the year progressed. For example, we reduced
exposure to the technology sector at mid-year as many of these stocks attained
what our analysis showed to be fair value. We selected some consumer-related
stocks in smaller position-sizes during this period as they met our pricing
criteria. These consumer companies have either strong international profiles
or particular domestic strength in an industry that is expected to
consolidate.
While many investors pay careful attention to the stocks in their portfolio,
academic studies have shown that an even more important factor in investment
returns is getting the asset allocation (i.e., the mixture of stocks, bonds,
and cash) correct. We feel that the best way to adjust your asset allocation
is to continually search for the best investment opportunities - whether in
stocks, bonds, or cash - and invest accordingly. If there are many stocks
that meet
B-111
<PAGE>
Management Discussion and Analysis (continued)
our strategies, we will tend to have a higher percentage of our portfolio in
stocks; the bond portion of the portfolio is also a reflection of what the
values are in the market. If our opinion is that the markets, in general, are
not overflowing with values, we will tend to keep more of the fund in cash
awaiting better opportunities.
As we have previously discussed, our asset allocation had become increasingly
conservative as the market rose through the latter half of 1995. We begin
1996 poised to capture opportunities that we believe will come to the surface
as investors begin to reconcile the stock market at new highs with signs of a
slowing economy. We will evaluate these opportunities - as we always have -
stock-by-stock and bond-by-bond, using the short-term fluctuations in the
market as a buying opportunity.
We appreciate your continued confidence in us and wish you all the best in
1996.
Sincerely,
MANNING & NAPIER ADVISORS, INC.
[PIE CHART]
Asset Allocation
Bond - 41%
Stocks - 46%
Cash & Equivalents - 13%
B-112
<PAGE>
PERFORMANCE UPDATE AS OF DECEMBER 31, 1995
The value of a $10,000 investment in the Manning & Napier Fund, Inc. - Blended
Asset Series II from its inception (10/12/93) to present (12/31/95) as
compared to the Lehman Brothers Intermediate Bond Index and a Balanced Index.1
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc.
Blended Asset Series II
Total Return
Growth of
Through $10,000 Average
12/31/95 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 13,264 32.64% 32.64%
Inception2 $ 13,707 37.07% 15.25%
</TABLE>
<TABLE>
<CAPTION>
Lehman Brothers Intermediate Bond Index
Total Return
Growth of
Through $10,000 Average
12/31/95 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 11,533 15.33% 15.33%
Inception2 $ 11,261 12.61% 5.49%
</TABLE>
<TABLE>
<CAPTION>
Balanced Index
Total Return
Growth of
Through $10,000 Average
12/31/95 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 12,778 27.78% 27.78%
Inception2 $ 12,747 27.47% 11.74%
</TABLE>
1The Lehman Brothers Intermediate Bond Index is a market value weighted
measure of approximately 3,250 corporate and government securities. The Index
is comprised of investment grade securities with maturities greater than one
year but less than ten years. The Balanced Index is 50% Standard & Poor's
(S&P) 500 Total Return Index and 50% Lehman Brothers Aggregate Bond Index. The
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 Lehman Brothers Aggregate
Bond Index is a market valued weighted measure of approximately 5,355
corporate, government, and mortgage backed securities. The Index is comprised
of investment grade securities with maturities greater than one year. Both
Indices' returns assume reinvestment of income and, unlike Fund returns, do
not reflect any fees or expenses.
2The Fund and Indices performance numbers are calculated from October 12,
1993, the Fund's inception date. The Fund's performance is historical and may
not be indicative of future results.
[GRAPHIC]
LINE CHART
Data for Line Chart to follow:
<TABLE>
<CAPTION>
Manning & Napier Lehman Brothers
Blended Asset Intermediate Bond
Series II Index Balanced Index
<S> <C> <C> <C>
12-Oct-93* 10,000 10,000 10,000
31-Dec-93 9,982 9,956 10,056
30-Jun-94 9,662 9,695 9,691
31-Dec-94 10,333 9,764 9,976
30-Jun-95 12,621 10,701 11,551
31-Dec-95 13,707 11,261 12,747
</TABLE>
* Inception date
B-113
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - December 31, 1995
Value
Shares (Note 2)
<S> <C> <C>
COMMON STOCK - 45.75%
Air Transportation - 4.62%
Air Courier Services - 3.34%
Federal Express Corp.* 9,275 $ 685,191
Air Transportation, Scheduled Services - 1.28%
AMR Corp.* 3,550 263,587
948,778
Amusement & Recreational Services - 0.04%
Mountasia Entertainment International, Inc.* 1,675 8,061
Apparel - 2.82%
VF Corp. 10,975 578,931
Business Services - 1.24%
Employment Services - 0.05%
Barrett Business Services, Inc.* 725 10,694
Software - 1.19%
Black Box Corp.* 1,100 18,013
Borland International, Inc.* 4,100 67,650
Caere Corp.* 875 6,234
Electronic Arts, Inc.* 500 13,063
Informix Corp.* 700 21,000
Oracle Corp.* 750 31,781
Parametric Technology Corp.* 250 16,625
Symantec Corp.* 2,975 69,169
243,535
254,229
Chemicals & Allied Products - 1.86%
Biological Products - 0.58%
Alliance Pharmaceutical Corp.* 8,075 110,022
Human Genome Sciences, Inc.* 225 8,606
118,628
The accompanying notes are an integral part of the financial statements.
B-114
<PAGE>
Investment Portfolio - December 31, 1995
Value
Shares (Note 2)
Chemical & Allied Products (continued)
Household Products - 0.86%
Procter & Gamble Co. 2,125 $ 176,375
Industrial Organic Chemicals - 0.37%
International Specialty Products, Inc. 7,025 76,397
Pharmaceutical Preparation - 0.05%
Penederm, Inc.* 925 10,522
381,922
Communications - 5.55%
Television and Radio Broadcasting Stations - 0.02%
Children's Broadcasting Corp.* 625 3,906
Telephone Communications - 5.53%
BCE, Inc. 6,650 229,425
Cable & Wireless Plc. - ADR 12,600 266,175
NYNEX Corp. 8,400 453,600
Telefonica de Espana - ADR 4,450 186,344
1,135,544
1,139,450
Crude Petroleum & Natural Gas - 3.66%
Burlington Resources, Inc. 10,050 394,463
Mesa, Inc*. 3,775 14,156
Seagull Energy Corp.* 15,350 341,537
750,156
Educational Services - 0.16%
Westcott Communications, Inc.* 2,350 32,312
Electronics & Electrical Equipment - 7.71%
Electronic Components - 0.14%
Planar Systems, Inc.* 1,450 27,731
Household Applicances - 3.01%
Sunbeam Corporation, Inc. 21,900 333,975
Whirlpool Corp. 5,325 283,556
617,531
The accompanying notes are an integral part of the financial statements.
B-115
<PAGE>
Investment Portfolio - December 31, 1995
Value
Shares (Note 2)
Electronics & Electrical Equipment (continued)
Lighting Equipment - 1.62%
Coleman Company, Inc.* 800 $ 28,100
Raychem Corp. 5,350 304,281
332,381
Telecommunication Equipment - 2.94%
ADC Telecommunications, Inc.* 200 7,300
BroadBand Technologies, Inc.* 2,075 33,719
ECI Telecommunications Ltd. 925 21,102
General DataComm Industries, Inc.* 2,725 46,666
General Instrument Corp.* 20,125 470,422
Motorola, Inc. 225 12,825
Northern Telecom Ltd. 250 10,750
602,784
1,580,427
Engineering Services - 0.37%
Jacobs Engineering Group, Inc.* 3,000 75,000
Fabricated Metal Products - 0.33%
Keystone International, Inc. 1,400 28,000
Material Sciences Corp.* 2,275 33,841
Medalist Industries* 1,100 6,600
68,441
Food - 0.07%
J & J Snack Foods Corp.* 700 7,700
Grist Mill Co.* 750 5,531
13,231
Glass Products - 1.06%
Corning, Inc. 6,625 212,000
Libbey, Inc. 250 5,625
217,625
The accompanying notes are an integral part of the financial statements.
B-116
<PAGE>
Investment Portfolio - December 31, 1995
Value
Shares (Note 2)
Health Services - 2.20%
Doctors Offices & Clinics - 1.83%
Caremark International, Inc. 20,075 $ 363,859
Coastal Physician Group, Inc.* 875 11,812
375,671
Home Health Care Services - 0.22%
Health Management, Inc.* 2,925 38,756
Quantum Health Resources, Inc.* 625 6,133
44,889
Hospitals - 0.13%
Rehabcare Group, Inc.* 1,425 27,431
Specialty Outpatient Services - 0.02%
U.S. Physical Therapy, Inc.* 375 4,312
452,303
Industrial & Commercial Machinery - 0.31%
Computer Peripheral Equipment - 0.14%
Digital Equipment Corp.* 275 17,634
PSC, Inc.* 1,200 11,100
28,734
Printing Trades Equipment - 0.17%
Scitex Corp. 2,525 34,403
63,137
Office & Business Equipment - 0.13%
BT Office Products International, Inc.* 1,700 27,200
Plastic Products - 0.11%
Carlisle Plastics, Inc.* 1,125 5,062
Sun Coast Industries ,Inc.* 2,575 17,381
22,443
Primary Metal Industries - 0.15%
American Superconductor Corp.* 800 11,600
Gibraltar Steel Corp.* 1,600 19,400
31,000
The accompanying notes are an integral part of the financial statements.
B-117
<PAGE>
Investment Portfolio - December 31, 1995
Value
Shares (Note 2)
Printing & Publishing - 0.05%
Playboy Enterprises, Inc. - Class A* 500 $ 4,375
Playboy Enterprises, Inc. - Class B* 600 5,025
9,400
Restaurants - 2.47%
McDonald's Corp. 10,800 487,350
Quantum Restaurant Group, Inc.* 1,650 18,563
505,913
Retail - 6.57%
Retail Home Furnishing Stores - 0.16%
Pier 1 Imports, Inc. 2,961 33,681
Retail - Shoe Stores - 0.80%
Brown Group, Inc. 11,525 164,231
Retail Specialty Stores - 5.50%
Fabri-Centers of America - Class A* 1,650 21,863
Fabri-Centers of America - Class B* 1,800 19,350
Fingerhut Companies, Inc. 23,025 319,472
Gander Mountain, Inc.* 1,300 8,613
Hancock Fabrics, Inc. 12,700 114,300
Home Depot, Inc. 10,500 502,688
Michaels Stores, Inc.* 10,375 142,656
1,128,942
Retail - Variety Stores - 0.11%
Family Dollar Stores, Inc. 1,625 22,344
1,349,198
Shoes - 0.10%
Wolverine World Wide, Inc. 662 20,853
Technical Instruments & Supplies - 2.35%
Industrial Instruments - 0.19%
Measurex Corp. 1,400 39,550
Photographic Equipment & Supplies - 2.10%
Eastman Kodak Co. 6,450 432,150
The accompanying notes are an integral part of the financial statements.
B-118
<PAGE>
Investment Portfolio - December 31, 1995
Shares/ Value
Principal Amount (Note 2)
Technical Instruments & Supplies (continued)
Surgical & Medical Instruments - 0.06%
Allied Healthcare Products, Inc. 250 $ 4,000
SpaceLabs Medical, Inc.* 300 8,625
12,625
484,325
Textiles - 0.07%
Fieldcrest Cannon, Inc.* 825 13,716
Utilities - Electric - 1.75%
Enersis S.A. - ADR. 12,600 359,100
TOTAL COMMON STOCK
(Identified Cost $8,751,090) 9,387,151
U.S. TREASURY SECURITIES - 51.05%
U.S. Treasury Bonds - 21.59%
U.S. Treasury Bond, 7.25%, 5/15/16 $ 25,000 28,547
U.S. Treasury Bond, 7.875%, 2/15/21 700,000 861,656
U.S. Treasury Bond, 7.25%, 8/15/22 1,020,000 1,180,969
U.S. Treasury Bond, 7.50%, 11/15/24 1,400,000 1,681,750
U.S. Treasury Bond, 6.875%, 8/15/25 600,000 676,875
Total U.S. Treasury Bonds
Identified Cost $3,933,540) 4,429,797
U.S. Treasury Notes - 25.56%
U.S. Treasury Note, 6.125%, 7/31/96 700,000 703,500
U.S. Treasury Note, 7.50%, 12/31/96 500,000 511,094
U.S. Treasury Note, 5.50%, 9/30/97 40,000 40,200
U.S. Treasury Note, 5.375%, 11/30/97 100,000 100,312
U.S. Treasury Note, 4.75%, 10/31/98 45,000 44,395
U.S. Treasury Note, 5.125%, 11/30/98 15,000 14,944
U.S. Treasury Note, 6.875%, 8/31/99 145,000 152,341
U.S. Treasury Note, 7.75%, 12/31/99 20,000 21,713
U.S. Treasury Note, 7.125%, 2/29/00 545,000 580,425
U.S. Treasury Note, 6.25%, 5/31/00 2,700,000 2,791,967
U.S. Treasury Note, 6.125%, 9/30/00 225,000 232,031
U.S. Treasury Note, 6.25%, 2/15/03 50,000 52,188
Total U.S. Treasury Notes
(Identified Cost $5,126,238) 5,245,110
The accompanying notes are an integral part of the financail statements.
B-119
<PAGE>
Investment Portfolio - December 31, 1995
Shares/ Value
Principal Amount (Note 2)
U.S. Treasury Bills - 3.90%
U.S. Treasury Bill, 1/11/96 (Identified Cost $799,333) $ 800,000 $ 799,333
TOTAL U.S. TREASURY SECURITIES
(Identified Cost $9,859,111) 10,474,240
SHORT-TERM INVESTMENTS - 1.91%
Dreyfus U.S. Treasury Money Market Reserves
(Identified Cost $391,597) 391,597 391,597
TOTAL INVESTMENTS - 98.71%
(Identified Cost $19,001,798) 20,252,988
OTHER ASSETS, LESS LIABILITIES - 1.29% 265,947
NET ASSETS - 100% $20,518,935
</TABLE>
* Non-income producing security
<TABLE>
<CAPTION>
Federal Tax Information:
At December 31, 1995, the net unrealized appreciation based on identified cost
for federal income tax purposes of $19,001,798 was as follows:
<S> <C>
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost $1,659,102
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value (407,912)
Unrealized appreciation - net $1,251,190
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-120
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
December 31, 1995
<S> <C>
ASSETS:
Investments, at value (Identified cost, $19,001,798) (Note 2) $20,252,988
Cash 126,438
Interest receivable 153,028
Receivable for securities sold 109,560
Dividends receivable 14,367
Prepaid expense 579
TOTAL ASSETS 20,656,960
LIABILITIES:
Accrued management fees (Note 3) 24,026
Accrued Directors fees (Note 3) 1,818
Accrued transfer agent fees (Note 3) 400
Payable for fund shares redeemed 95,748
Audit fee payable 12,471
Other payables and accrued expenses 3,562
TOTAL LIABILITIES 138,025
NET ASSETS FOR 1,717,706 SHARES outstanding $20,518,935
NET ASSETS CONSIST OF:
Capital stock $ 17,177
Additional paid - in - capital 19,114,718
Undistributed net investment income 1,301
Accumulated net realized gain on investments 134,549
Net unrealized appreciation on investments 1,251,190
TOTAL NET ASSETS $20,518,935
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($20,518,935/1,717,706 shares) $ 11.95
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-121
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations
For the Year Ended December 31, 1995
<S> <C>
INVESTMENT INCOME:
Interest $ 376,523
Dividends 115,733
Total Investment Income 492,256
EXPENSES:
Management fees (Note 3) 131,695
Directors fees (Note 3) 7,297
Transfer agent fees (Note 3) 3,161
Audit fee 14,725
Custodian fees 9,600
Registration & filing fees 7,461
Miscellaneous 1,763
Total Expenses 175,702
Less Waiver of Expenses (Note 3) (17,669)
Net Expenses 158,033
NET INVESTMENT INCOME 334,223
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments (identified cost basis) 1,934,431
Net change in unrealized appreciation on investments 1,107,105
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS 3,041,536
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $3,375,759
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-122
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
For the For the
Year Ended Year Ended
12/31/95 12/31/94
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 334,223 $ 79,300
Net realized gain on investments 1,934,431 82,328
Net change in unrealized appreciation on investments 1,107,105 144,417
Net increase in net assets from operations 3,375,759 306,045
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (330,774) (78,792)
From net realized gains (1,817,057) (64,338)
Total distributions to shareholders (2,147,831) (143,130)
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase in net assets from capital share
transactions (Note 5) 12,077,417 6,575,676
Net increase in net assets 13,305,345 6,738,591
NET ASSETS:
Beginning of period 7,213,590 474,999
End of period (including undistributed net investment
income of $1,301 and $1,098, respectively) $20,518,935 $ 7,213,590
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-123
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
For the Period
10/12/93
For the For the (commencement
Year Ended Year Ended of operations)
12/31/95 12/31/94 to 12/31/93
<S> <C> <C> <C>
Per share data (for a share outstanding
throughout each period)
Net asset value - Beginning of period $ 10.12 $ 9.98 $ 10.00
Income from investment operations:
Net investment income 0.238 0.108 0.014
Net realized and unrealized gain (loss)
on investments 3.052 0.243 (0.032)
Total from investment operations 3.290 0.351 (0.018)
Less distributions declared to shareholders:
From net investment income (0.237) (0.119) (0.002)
From net realized gains (1.223) (0.092) -
Total distributions to shareholders (1.460) (0.211) (0.002)
Net asset value - End of period $ 11.95 $ 10.12 $ 9.98
Total return1 32.64% 3.52% (0.18)%
Ratios (to average net assets)/Supplemental Data:
Expenses 1.20%** 1.20%* 1.20%2*
Net investment income 2.53%** 2.12%* 1.94%2*
Portfolio turnover 63% 19% 0%
Average Commission Rate Paid $ 0.0635 - -
Net Assets - End of period (000s omitted) $ 20,519 $ 7,214 $ 475
*The investment advisor did not impose its management fee and paid a portion
of the Funds expenses. If these expenses had been incurred by the Fund for
the period ended December 31, 1993, expenses would have been limited to that
required by state securities law.
**The investment advisor waived a portion of its management fee.
If the full expenses had been incurred by the Fund in either instance above,
the net investment income per share and the ratios would have been as follows:
Net investment income $ 0.226 $ 0.051 $ 0.005
Ratios (to average net assets):
Expenses 1.33% 2.31% 2.50%2
Net investment income 2.40% 1.01% 0.64%2
1Represents aggregate total return for the period indicated.
2Annualized.
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-124
<PAGE>
Notes to Financial Statements
1. ORGANIZATION
Blended Asset Series II (the "Fund") is a no-load diversified series of
Manning & Napier Fund, Inc. (the "Corporation"). The Corporation is
organized as a Maryland Corporation and is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment
company.
Shares of the Fund are offered to investors, employees and clients of
Manning & Napier Advisors, Inc. (the "Advisor") and its affiliates. The
total authorized capital stock of the Corporation consists of one billion
shares of common stock each having a par value of $0.01. As of December 31,
1995, 710 million shares have been designated in total among 18 series, of
which 50 million have been designated as Blended Asset Series II Class L
Common Stock.
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 latest
quoted sales price of the exchange on which the security is traded most
extensively. 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 Fund's Board of Directors.
Short-term investments that mature in sixty (60) days or less are valued
at amortized cost.
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 Fund's policy is to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies. The Fund is not
subject to federal income or excise tax to the extent the Fund distributes
to shareholders each year its taxable income, including any net realized
gains on investments in accordance with requirements of the Internal Revenue
Code. Accordingly, no provision for federal income taxes has been made in
the financial statements.
B-125
<PAGE>
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
The Fund uses the identified cost method for determining realized gain or
loss on investments for both financial statement and federal income tax
reporting purposes.
DISTRIBUTION OF INCOME AND GAINS
Distributions to shareholders of net investment income are made
semi-annually. Distributions are recorded on the ex-dividend date.
Distributions of net realized gains are distributed annually. An additional
distribution may be necessary to avoid taxation of the Fund.
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 Fund may
periodically make reclassification among its capital accounts without
impacting the Fund's net asset value.
The Fund hereby designates $231,293 as dividends from capital gains for
the year ended December 31, 1995.
3. TRANSACTIONS WITH AFFILIATES
The Fund has 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 of 1% of the Fund's
average daily net assets. The fee amounted to $131,695 for the year ended
December 31, 1995.
Under the Fund's Investment Advisory Agreement (the "Agreement"),
personnel of the Advisor provide the Fund with advice and assistance in the
choice of investments and the execution of securities transactions, and
otherwise maintain the Fund's organization. The Advisor also provides the
Fund with necessary office space and portfolio accounting and bookkeeping
services. The salaries of all officers of the Fund and of all Directors who
are "affiliated persons" of the Fund or of the Advisor, and all personnel of
the Fund or of the Advisor performing services relating to research,
statistical and investment activities are paid by the Advisor.
The Advisor also acts as the transfer, dividend paying and shareholder
servicing agent for the Fund. For these services, the Fund pays a fee which
is calculated as a percentage of the average daily net assets at an annual
rate of 0.024% and amounted to $3,161 for the year ended December 31, 1995.
B-126
<PAGE>
Notes to Financial Statements
3. TRANSACTIONS WITH AFFILIATES (continued)
The Advisor has voluntarily agreed to waive its fee and, if necessary,
pay other expenses of the Fund in order to maintain total expenses for the
Fund at no more than 1.20% of average daily net assets each year.
Accordingly, the Advisor waived fees of $17,669 which is reflected as a
reduction of expenses on the Statement of Operations. The fee waiver and
assumption of expenses by the Advisor is voluntary and may be terminated at
any time.
Manning & Napier Investor Services, Inc., a registered broker-dealer
affiliate of the Advisor, acts as distributor for the Fund's shares. The
services of Manning & Napier Investor Services, Inc. are provided at no
additional cost to the Fund.
The compensation of the non-affiliated Directors totaled $7,297 for the
year ended December 31, 1995.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term securities, were
$16,627,058 and $7,458,813, respectively, for the year ended December 31,
1995.
5. CAPITAL STOCK TRANSACTIONS
<TABLE>
<CAPTION>
Transactions in shares of Blended Asset Series II Class L Common Stock were:
For the Year Ended For the Year Ended
12/31/95 12/31/94
Shares Amount Shares Amount
------------------- ------------ ------------------- -----------
<S> <C> <C> <C> <C>
Sold 891,550 $10,731,657 661,133 $6,534,790
Reinvested 180,298 2,145,684 14,156 143,210
Redeemed (66,963) (799,924) (10,085) (102,324)
Total 1,004,885 $12,077,417 665,204 $6,575,676
</TABLE>
6. FINANCIAL INSTRUMENTS
The Fund may trade in financial instruments with off-balance sheet risk
in the normal course of its 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 a varying degree, elements of risk in excess
of the amounts recognized for financial statement purposes. No such
investments were held by the Fund on December 31, 1995.
B-127
<PAGE>
Independent Auditors' Report
To the Directors of Manning & Napier Fund, Inc.
and Shareholders of Blended Asset Series II:
We have audited the accompanying statement of assets and liabilities,
including the investment portfolio, of Blended Asset Series II (one of the
series constituting Manning & Napier Fund, Inc.) as of December 31, 1995,
the related statement of operations for the year then ended, the statement
of changes in net assets for the years ended
December 31, 1995 and 1994, and the financial highlights for each of the years
in the three year period ended December 31, 1995. 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 financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned at
December 31,1995 by correspondence with the custodian. 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 provide a reasonable basis for
our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Blended Asset
Series II at December 31, 1995, the results of its operations, the changes
in its net assets, and its financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
February 2, 1996
B-128
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
Flexible Yield Series I
Annual Report
December 31, 1995
<PAGE>
Management Discussion and Analysis
DEAR SHAREHOLDERS:
When looking back on 1995, the first line of Dickens A Tale of Two Cities
immediately comes to mind: it was the best of times, it was the worst of
times.... The best of times refers to the almost uninterrupted decline in
interest rates that started in November of 1994 and continued throughout 1995.
With the exception of money market funds and cash equivalents, it is difficult
to find a sector of the fixed income marketplace that did not turn in double
digit returns. Even the lowly two-year U.S. Treasury note returned more than
11%. Who says bonds are boring?
But it was the worst of times because the attractive yields and compelling
values that were plentiful at the start of 1995, that made 1995 the strong
year that it was, are today difficult to find. It was an especially bad year
for those investors, and we suspect there are many, who failed to take
advantage of the opportunities that presented themselves early in the year.
But fear not, this fund was not one of them. Because we had positioned the
portfolio to take advantage of this scenario, it did indeed benefit from the
decline in interest rates over the course of the year.
In order to understand what happened in 1995, it is worthwhile to re-visit
what happened in 1994. To a large degree, the events of 1994, which led to
poor returns in the bond market that year, contributed to our success in 1995.
At the start of 1994, there was a large degree of speculation and financial
leverage in the market, and this created a fragile environment where the
effect of any shock to the system would be exaggerated. The first shock came
when the Federal Reserve increased short-term interest rates early in
February. At the same time, some economic indicators started to warn of
coming inflation, which caused long-term interest rates to rise. The
situation took a turn for the worse when the dollar started to decline
relative to the currencies of some other countries. Because the U.S. economy
is heavily dependent on foreign investment, which was slowed due to the
dollars decline, this was more bad news for the bond market.
The confluence of these factors in combination with an overleveraged
marketplace resulted in a sell-off that exceeded even the most bearish
expectations. As mentioned above, short-term rates doubled, and long-term
rates careened from 5.8% to 8.1%. With hindsight, it is easy to say the
increase in rates was overdone, but it was the speed with which the market
corrected that caught many market participants by surprise.
B-129
<PAGE>
Management Discussion and Analysis (continued)
The picture began to change with the Republican victory in the 1994
congressional elections. The Republicans had campaigned heavily on the issue
of fiscal conservatism and the balanced budget amendment, and the financial
markets were encouraged by this. With the election results acting as a
catalyst for the reversal, the factors that decimated the market in 1994 began
to reverse themselves, and so too did the rise in interest rates. By the start
of 1995, speculation was almost non-existent and the degree of leverage in the
marketplace had returned to more normal levels. While it does not necessarily
follow that this would lead to lower rates, it did alleviate one of the major
problems that had plagued the market in 1994.
The inflation story began to change as well in 1995; inflationary pressures
dissipated and it even began to appear that disinflation was returning.
During the second half of the year, economic growth slowed noticeably, and the
dollar, which struggled during the first quarter of the year, staged a nice
turnaround. The turnaround was especially noticeable versus the Japanese yen.
Events specific to 1995 kept the ball rolling. The most talked about was the
decided shift in the focus of the federal budget debates. Both the
Republicans and the Democrats proposed long- term fiscal plans that were meant
to balance the federal budget. While the timing and the details of each plan
were quite different, the market responded positively to the policy makers
renewed interest in fiscal responsibility.
Another factor in bonds strong showing was the renewed interest that foreign
investors were showing in U.S. financial markets. At the beginning of the
year, the dollar had fallen to such low levels that foreign investors were
drawn to its good relative value. Once the dollar started to appreciate,
foreign investors were drawn to its capital appreciation potential. Remember,
foreign investors do not simply buy U.S. dollars, they invest the dollars in
U.S. assets, with the bond market being one of the prime beneficiaries.
By the end of the year, long rates had effectively retraced their 1994
increase, falling from just above 8% in November of 1994 to 5.95% at the end
of 1995. The total returns were staggering, rivaling some of the best calender
years on record.
The Flexible Yield Series I, which holds short-term bonds, provided a total
return of 10.79% for 1995. For comparison purposes, the Merrill Lynch U.S.
Treasury Short-Term index returned 11.00%. Given that the index does not
account for the realities of fees and trading costs, this Series performance
was very competitive.
B-130
<PAGE>
Management Discussion and Analysis (continued)
Having closed the books on one of the best years for fixed income investors,
we believe it is unlikely the bond market can repeat its 1995 performance in
1996. As we begin 1996, the market is already discounting what can be
referred to as the best case scenario, moderate economic growth with little
inflationary pressure. New variables would have to emerge to drive yields
sharply lower (i.e. even slower growth, draconian budget cuts, etc...).
Nevertheless, our analysis shows that the long-term secular factors that have
driven rates lower in a saw-tooth fashion over the last 15 years are still
firmly in place, and we believe that rates, over the longer-term, will
continue to move lower.
We appreciate your continued confidence in us and wish you all the best in
1996.
Sincerely,
MANNING & NAPIER ADVISORS, INC.
[PIE CHART]
Effective Maturity
More than 4 Years - 31%
3-4 Years - 25%
2-3 Years - 20%
1-2 Years - 24%
B-131
<PAGE>
Performance Update as of December 31, 1995
The value of a $10,000 investment in the Manning & Napier Fund, Inc. -
Flexible Yield Series I from its inception (2/15/94) to present (12/31/95)
as compared to the Merrill Lynch U.S. Treasury Short-Term Index.1
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc. - Flexible Yield Series I
Total Return
Through Growth of $10,000 Average
12/31/95 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 11,079 10.79% 10.79%
Inception2 $ 10,995 9.95% 5.18%
</TABLE>
<TABLE>
<CAPTION>
Merrill Lynch U.S. Treasury Short-Term Index
Total Return
Through Growth of $10,000 Average
12/31/95 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 11,100 11.00% 11.00%
Inception2 $ 11,133 11.33% 5.88%
</TABLE>
1Merrill Lynch U.S. Treasury Short-Term Index is a market value weighted
measure of approximately 60 U.S. Treasury securities. The Index is comprised
of U.S. Treasury securities with maturities greater than one year but less
than three years. The Index returns assume reinvestment of coupons and,
unlike Fund returns, do not reflect any fees or expenses.
2The Fund and Index performance are calculated from February 15, 1994, the
Funds inception date. The Funds performance is historical and may not be
indicative of future results.
[GRAPHIC]
LINE CHART
Data for Line Chart to follow:
<TABLE>
<CAPTION>
Manning & Napier Merrill Lynch
Flexible Yield U.S. Treasury
Series I Short-Term Index
<S> <C> <C>
15-Feb-94* 10,000 10,000
31-Mar-94 9,930 9,923
30-Jun-94 9,860 9,931
30-Sep-94 9,930 10,029
31-Dec-94 9,924 10,030
31-Mar-95 10,211 10,366
30-Jun-95 10,573 10,699
30-Sep-95 10,709 10,859
31-Dec-95 10,995 11,133
</TABLE>
* Inception date
B-132
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - December 31, 1995
Principal Value
Amount/Shares (Note 2)
<S> <C> <C>
U.S. TREASURY SECURITIES - 106.2%
U.S. Treasury Notes
U.S. Treasury Note, 7.50%, 1/31/97 $ 5,000 $ 5,120
U.S. Treasury Note, 4.75%, 2/15/97 14,000 13,930
U.S. Treasury Note, 6.50%, 4/30/97 45,000 45,760
U.S. Treasury Note, 5.125%, 2/28/98 15,000 14,967
U.S. Treasury Note, 6.125%, 5/15/98 35,000 35,689
U.S. Treasury Note, 7.125%, 10/15/98 5,000 5,239
U.S. Treasury Note, 5.00%, 1/31/99 20,000 19,850
U.S. Treasury Note, 6.50%, 4/30/99 25,000 25,914
U.S. Treasury Note, 6.875%, 8/31/99 20,000 21,013
U.S. Treasury Note, 7.75%, 1/31/00 20,000 21,731
U.S. Treasury Note, 6.75%, 4/30/00 60,000 63,150
TOTAL U.S. TREASURY SECURITIES
(Identified Cost $265,053) 272,363
SHORT-TERM INVESTMENTS - 7.0%
Dreyfus U.S. Treasury Money Market Reserves
(Identified Cost $17,920) 17,920 17,920
TOTAL INVESTMENTS - 113.2%
(Identified Cost, $282,973) 290,283
LIABILITIES, LESS OTHER ASSETS - (13.2)% (33,829)
NET ASSETS - 100% $256,454
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-133
<PAGE>
<TABLE>
<CAPTION>
Federal Tax Information - December 31, 1995
Federal Tax Information:
At December 31, 1995, the net unrealized appreciation based on identified cost
for federal income tax purposes of $282,973 was as follows:
<S> <C>
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost $7,310
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value 0
Unrealized appreciation - net $7,310
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-134
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
December 31, 1995
<S> <C>
ASSETS:
Investments, at value (Identified cost, $282,973) (Note 2) $290,283
Cash 50
Interest receivable 3,993
Receivable from investment advisor (Note 3) 16,023
TOTAL ASSETS 310,349
LIABILITIES:
Accrued Directors fees (Note 3) 6,791
Audit fee payable 7,533
Payable for fund shares redeemed 34,368
Other payables and accrued expenses 5,203
TOTAL LIABILITIES 53,895
NET ASSETS FOR 24,989 SHARES OUTSTANDING $256,454
NET ASSETS CONSIST OF:
Capital stock $ 250
Additional paid-in-capital 249,409
Undistributed net investment income 12
Accumulated net realized loss on investments (527)
Net unrealized appreciation on investments 7,310
TOTAL NET ASSETS $256,454
ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($256,454/24,989 shares) $ 10.26
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-135
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations
For the Year Ended December 31, 1995
<S> <C>
INVESTMENT INCOME:
Interest $ 19,872
EXPENSES:
Management fee (Note 3) 1,221
Directors fees (Note 3) 6,791
Transfer agent fees (Note 3) 84
Audit fee 10,400
Custodian fee 600
Miscellaneous 608
Total Expenses 19,704
Less Waiver of Expenses (Note 3) (17,244)
Net Expenses 2,460
NET INVESTMENT INCOME 17,412
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments (identified cost basis) 321
Net change in unrealized appreciation on investments 12,825
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS 13,146
INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 30,558
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-136
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
For the Period
2/15/94
For the (commencement
Year Ended of operations)
12/31/95 to 12/31/94
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 17,412 $ 5,603
Net realized gain/(loss) on investments 321 (848)
Net change in unrealized appreciation (depreciation)
on investments 12,825 (5,515)
Net increase (decrease) in net assets from operations 30,558 (760)
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (17,292) (5,444)
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase in net assets from capital share
transactions (Note 5) 12,347 237,045
Net increase in net assets 25,613 230,841
NET ASSETS:
Beginning of period 230,841 -
End of period (including undistributed net investment
income of $12 and $159, respectively) $ 256,454 $ 230,841
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-137
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
For the period
2/15/94
For the (commencement
Year Ended of operations)
12/31/95 to 12/31/94
<S> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - Beginning of period $ 9.69 $ 10.00
Income from investment operations:
Net investment income 0.464 0.241
Net realized and unrealized gain (loss) on investments 0.566 (0.317)
Total from investment operations 1.030 (0.076)
Less distributions to shareholders:
From net investment income (0.460) (0.234)
Net asset value - End of period $ 10.26 $ 9.69
Total return1 10.79% (0.76)%
Ratios (to average net assets)/Supplemental Data:
Expenses* 0.70% 0.70%2
Net investment income* 4.99% 4.41%2
Portfolio turnover 60% 38%
Net Assets - End of period $ 256,454 $ 230,841
*The investment advisor did not impose its management fee and paid a portion of
the Funds expenses. If these expenses had been incurred by the Fund, expenses
would have been limited to that required by state securities law and the net
investment income per share and the ratios would have been as follows:
Net investment income $ 0.297 $ 0.143
Ratios (to average net assets):
Expenses 2.50% 2.50%2
Net investment income 3.19% 2.61%2
1Represents aggregate total return for the period indicated
2Annualized
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-138
<PAGE>
Notes to Financial Statements
1. ORGANIZATION
Flexible Yield Series I (the "Fund") is a no-load diversified series of
Manning & Napier Fund, Inc. (the "Corporation"). The Corporation is
organized as a Maryland Corporation and is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment
company.
Shares of the Fund are offered to investors, employees and clients of
Manning & Napier Advisors, Inc. (the "Advisor") and its affiliates. The
total authorized capital stock of the Corporation consists of one billion
shares of common stock each having a par value of $0.01. As of December 31,
1995, 710 million shares have been designated in total among 18 series, of
which 50 million have been designated as Flexible Yield Series I Class M
Common Stock.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Portfolio securities listed on an exchange are valued at the latest
quoted sales price of the exchange on which the security is traded most
extensively. 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 Fund's Board of Directors.
Short-term investments that mature in sixty (60) days or less are valued
at amortized cost.
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 Fund's policy is to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies. The Fund is not
subject to federal income or excise tax to the extent the Fund distributes
to shareholders each year its taxable income, including any net realized
gains on investments in accordance with requirements of the Internal Revenue
Code. Accordingly, no provision for federal income taxes has been made in
the financial statements.
B-139
<PAGE>
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
At December 31, 1995, the Fund, for federal income tax purposes, had a
capital loss carryforward of $527. Of this amount, $452 will expire on
December 31, 2002 and $75 will expire on December 31, 2003.
The Fund uses the identified cost method for determining realized gain or
loss on investments for both financial statement and federal income tax
reporting purposes.
DISTRIBUTION OF INCOME AND GAINS
Distributions to shareholders of net investment income are made
quarterly. Distributions are recorded on the ex-dividend date.
Distributions of net realized gains are distributed annually. An additional
distribution may be necessary to avoid taxation of the Fund.
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, character reclassification
between net income and net gains, or other required tax adjustments. 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
Fund may periodically make reclassification among its capital accounts
without impacting the Fund's net asset value.
3. TRANSACTIONS WITH AFFILIATES
The Fund has 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 of 0.35% of the Fund's
average daily net assets. The fee amounted to $1,221 for the year ended
December 31, 1995.
Under the Fund's Investment Advisory Agreement (the "Agreement"),
personnel of the Advisor provide the Fund with advice and assistance in the
choice of investments and the execution of securities transactions, and
otherwise maintain the Fund's organization. The Advisor also provides the
Fund with necessary office space and portfolio accounting and bookkeeping
services. The salaries of all officers of the Fund and of all Directors who
are "affiliated persons" of the Fund or of the Advisor, and all personnel of
the Fund or of the Advisor performing services relating to research,
statistical and investment activities are paid by the Advisor.
The Advisor also acts as the transfer, dividend paying and shareholder
servicing agent for the Fund. For these services, the Fund pays a fee which
is calculated as a percentage of the average daily net assets at an annual
rate of 0.024% and amounted to $84 for the year ended December 31, 1995.
B-140
<PAGE>
Notes to Financial Statements
3. TRANSACTIONS WITH AFFILIATES (continued)
The Advisor has voluntarily agreed to waive its fee and, if necessary,
pay other expenses of the Fund in order to maintain total expenses for the
Fund at no more than 0.70% of average daily net assets each year.
Accordingly, the Advisor did not impose any of its fee and paid expenses
amounting to $16,023 for the year ended
December 31, 1995, which is reflected as a reduction of expenses on the
statement of operations. The fee waiver and assumption of expenses by the
Advisor is voluntary and may be terminated at any time.
Manning & Napier Investor Services, Inc., a registered broker-dealer
affiliate of the Advisor, acts as distributor for the Fund's shares. The
services of Manning & Napier Investor Services, Inc. are provided at no
additional cost to the Fund.
The compensation of the non-affiliated Directors totaled $6,791 for the
year ended December 31, 1995.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term securities, were
$279,913 and $145,715, respectively, for the year ended December 31, 1995.
5. CAPITAL STOCK TRANSACTIONS
<TABLE>
<CAPTION>
Transactions in shares of Flexible Yield Series I Class M Common Stock were:
For the Period 2/15/94
For the Year (Commencement of Operations)
Ended 12/31/95 to 12/31/94
<S> <C> <C> <C> <C>
Shares Amount Shares Amount
--------------- ---------- ---------------- ---------
Sold 42,563 $ 433,846 31,143 $309,689
Reinvested 1,658 16,778 562 5,444
Redeemed (43,058) (438,277) (7,879) (78,088)
Total 1,163 $ 12,347 23,826 $237,045
</TABLE>
The Advisor owned 3,924 shares on December 31, 1995 and 3,750 shares on
December 31, 1994.
6. FINANCIAL INSTRUMENTS
The Fund may trade in financial instruments with off-balance sheet risk
in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include
written options and futures contracts and may involve, to a varying degree,
elements of risk in excess of the amounts recognized for financial statement
purposes. No such investments were held by the Fund on
December 31, 1995.
B-141
<PAGE>
Independent Auditors Report
To the Directors of Manning & Napier Fund, Inc.
and Shareholders of Flexible Yield Series I:
We have audited the accompanying statement of assets and liabilities,
including the investment portfolio,of Flexible Yield Series I (one of the
series constituting Manning & Napier Fund, Inc.) as of December 31, 1995, the
related statement of operations for the year then ended, and the statement of
changes in net assets and the financial highlights for each of the two years
in the period then ended. 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 financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of investments owned at December 31, 1995 by
correspondence with the custodian. 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 provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Flexible Yield
Series I at December 31, 1995, the results of its operations, the changes in
its net assets and its financial highlights for the respective stated periods
in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
February 2, 1996
B-142
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
Flexible Yield Series II
Annual Report
December 31, 1995
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
Dear Shareholders:
When looking back on 1995, the first line of Dickens A Tale of Two Cities
immediately comes to mind: it was the best of times, it was the worst of
times.... The best of times refers to the almost uninterrupted decline in
interest rates that started in November of 1994 and continued throughout 1995.
With the exception of money market funds and cash equivalents, it is difficult
to find a sector of the fixed income marketplace that did not turn in double
digit returns. Even the lowly two-year U.S. Treasury note returned more than
11%. Who says bonds are boring?
But it was the worst of times because the attractive yields and compelling
values that were plentiful at the start of 1995, that made 1995 the strong
year that it was, are today difficult to find. It was an especially bad year
for those investors, and we suspect there were many, who failed to take
advantage of the opportunities that presented themselves early in the year.
But fear not, this fund was not one of them. Because we had positioned the
portfolio to take advantage of this scenario, it did indeed benefit from the
decline in interest rates over the course of the year.
In order to understand what happened in 1995, it is worthwhile to re-visit
what happened in 1994. To a large degree, the events of 1994, which led to
poor returns in the bond market that year, contributed to our success in 1995.
At the start of 1994, there was a large degree of speculation and financial
leverage in the market, and this created a fragile environment where the
effect of any shock to the system would be exaggerated. The first shock came
when the Federal Reserve increased short-term interest rates early in
February. At the same time, some economic indicators started to warn of
coming inflation, which caused long-term interest rates to rise. The
situation took a turn for the worse when the dollar started to decline
relative to the currencies of some other countries. Because the U.S. economy
is heavily dependent on foreign investment, which was slowed due to the
dollars decline, this was more bad news for the bond market.
The confluence of these factors in combination with an overleveraged
marketplace resulted in a sell-off that exceeded even the most bearish
expectations. As mentioned above, short-term rates doubled, and long-term
rates careened from 5.8% to 8.1%. With hindsight, it is easy to say the
increase in rates was overdone, but it was the speed with which the market
corrected that caught many market participants by surprise.
B-143
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS (continued)
The picture began to change with the Republican victory in the 1994
congressional elections. The Republicans had campaigned heavily on the issue
of fiscal conservatism and the balanced budget amendment, and the financial
markets were encouraged by this. With the election results acting as a
catalyst for the reversal, the factors that decimated the market in 1994 began
to reverse themselves, and so too did the rise in interest rates. By the start
of 1995, speculation was almost non-existent and the degree of leverage in the
marketplace had returned to more normal levels. While it does not necessarily
follow that this would lead to lower rates, it did alleviate one of the major
problems that had plagued the market in 1994.
The inflation story began to change as well in 1995; inflationary pressures
dissipated and it even began to appear that disinflation was returning.
During the second half of the year, economic growth slowed noticeably, and the
dollar, which struggled during the first quarter of the year, staged a nice
turnaround. The turnaround was especially noticeable versus the Japanese yen.
Events specific to 1995 kept the ball rolling. The most talked about was the
decided shift in the focus of the federal budget debates. Both the
Republicans and the Democrats proposed long- term fiscal plans that were meant
to balance the federal budget. While the timing and the details of each plan
were quite different, the market responded positively to the policy makers
renewed interest in fiscal responsibility.
Another factor in bonds strong showing was the renewed interest that foreign
investors were showing in U.S. financial markets. At the beginning of the
year, the dollar had fallen to such low levels that foreign investors were
drawn to its good relative value. Once the dollar started to appreciate,
foreign investors were drawn to its capital appreciation potential. Remember,
foreign investors do not simply buy U.S. dollars, they invest the dollars in
U.S. assets, with the bond market being one of the prime beneficiaries.
By the end of the year, long rates had effectively retraced their 1994
increase, falling from just above 8% in November of 1994 to 5.95% at the end
of 1995. The total returns were staggering, rivaling some of the best calender
years on record.
The Flexible Yield Series II, which holds intermediate-term bonds, returned
17.33% last year. Comparing that to the performance of the Merrill Lynch
Intermediate Corporate/Government Index at 15.33% illustrates just how strong
the performance of the Series was. Outperforming a fixed income benchmark by
two percent is very difficult because, unlike fund returns, benchmarks do not
reflect fees or expenses.
B-144
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS (continued)
Having closed the books on one of the best years for fixed income investors,
we believe it is unlikely the bond market can repeat its 1995 performance in
1996. As we begin 1996, the market is already discounting what can be
referred to as the best case scenario, moderate economic growth with little
inflationary pressure. New variables would have to emerge to drive yields
sharply lower (i.e. even slower growth, draconian budget cuts, etc...).
Nevertheless, our analysis shows that the long-term secular factors that have
driven rates lower in a saw-tooth fashion over the last 15 years are still
firmly in place, and we believe that rates, over the longer-term, will
continue to move lower.
We appreciate your continued confidence in us and wish you all the best in
1996.
Sincerely,
MANNING & NAPIER ADVISORS, INC.
[PIE CHART]
Effective Maturity
More than 7 Years - 41%
5-7 Years - 12%
3-5 Years - 26%
2-3 Years - 5%
1-2 Years - 16%
B-145
<PAGE>
Performance Update as of December 31, 1995
The value of a $10,000 investment in the Manning & Napier Fund, Inc. -
Flexible Yield Series II from its inception (2/15/94) to present (12/31/95)
as compared to the Merrill Lynch Corporate/Government Intermediate Index.1
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc. - Flexible Yield Series II
Total Return
Through Growth of $10,000 Average
12/31/95 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 11,733 17.33% 17.33%
Inception2 $ 11,182 11.82% 6.14%
</TABLE>
<TABLE>
<CAPTION>
Merrill Lynch Corporate/Government Intermediate Index
Total Return
Through Growth of $10,000 Average
12/31/95 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 11,533 15.33% 15.33%
Inception2 $ 11,301 13.01% 6.73%
</TABLE>
1The Merrill Lynch Corporate/Government Intermediate Index is a market value
weighted measure of approximately 4,900 corporate and government bonds. The
Index is comprised of investment grade bonds with maturities greater than one
year but less than ten years. The Index returns assume reinvestment of
coupons and, unlike Fund returns, do not reflect any fees or expenses.
2The Fund and Index performance are calculated from February 15, 1994, the
Funds inception date. The Funds performance is historical and may not be
indicative of future results.
[GRAPHIC]
LINE CHART
Data for Line Chart to follow:
<TABLE>
<CAPTION>
Manning & Napier Merrill Lynch
Flexible Yield Corporate/Government
Series II Intermediate Index
<S> <C> <C>
15-Feb-94* 10,000 10,000
31-Mar-94 9,670 9,782
30-Jun-94 9,510 9,727
30-Sep-94 9,540 9,804
31-Dec-94 9,531 9,799
31-Mar-95 9,973 10,227
30-Jun-95 10,576 10,737
30-Sep-95 10,733 10,913
31-Dec-95 11,182 11,301
</TABLE>
* Inception date
B-146
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO - DECEMBER 31, 1995
Shares/Principal Value
Amount (Note 2)
<S> <C> <C>
U.S. TREASURY SECURITIES - 98.6%
U.S. Treasury Notes
U.S. Treasury Note, 7.50%, 1/31/97 $ 10,000 $ 10,241
U.S. Treasury Note, 4.75%, 2/15/97 10,000 9,950
U.S. Treasury Note, 6.875%, 2/28/97 30,000 30,562
U.S. Treasury Note, 6.00%, 8/31/97 20,000 20,244
U.S. Treasury Note, 5.125%, 11/30/98 20,000 19,925
U.S. Treasury Note, 5.00%, 1/31/99 15,000 14,887
U.S. Treasury Note, 6.50%, 4/30/99 25,000 25,914
U.S. Treasury Note, 5.50%, 4/15/00 45,000 45,338
U.S. Treasury Note, 6.75%, 4/30/00 25,000 26,312
U.S. Treasury Note, 7.875%, 8/15/01 45,000 50,316
U.S. Treasury Note, 5.875%, 2/15/04 60,000 61,219
U.S. Treasury Note, 7.25%, 5/15/04 105,000 116,812
TOTAL U.S. TREASURY SECURITIES
(Identified Cost $402,840) 431,720
SHORT-TERM INVESTMENTS - 0.6%
Dreyfus U.S. Treasury Money Market Reserves
(Identified Cost $2,735) 2,735 2,735
TOTAL INVESTMENTS - 99.2%
(Identified Cost, $405,575) 434,455
OTHER ASSETS, LESS LIABILITIES - 0.8% 3,571
NET ASSETS - 100% $ 438,026
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-147
<PAGE>
FEDERAL TAX INFORMATION - DECEMBER 31, 1995
<TABLE>
<CAPTION>
Federal Tax Information:
At December 31, 1995, the net unrealized appreciation based on identified cost
for federal income tax purposes of $405,575 was as follows:
<S> <C>
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost $28,911
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value (31)
Unrealized appreciation - net $28,880
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-148
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
<S> <C>
ASSETS:
Investments, at value (Identified cost $405,575) (Note 2) $434,455
Cash 20
Interest receivable 6,730
Receivable from investment advisor (Note 3) 16,519
TOTAL ASSETS 457,724
LIABILITIES:
Accrued Directors fees (Note 3) 6,792
Transfer agent fees payable (Note 3) 115
Audit fee payable 7,533
Other payables and accrued expenses 5,258
TOTAL LIABILITIES 19,698
NET ASSETS FOR 42,545 SHARES OUTSTANDING $438,026
NET ASSETS CONSIST OF:
Capital stock $ 425
Additional paid-in-capital 405,857
Undistributed net investment income 363
Accumulated net realized gain on investments 2,501
Net unrealized appreciation on investments 28,880
TOTAL NET ASSETS $438,026
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($438,026/42,545 shares) $ 10.30
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-149
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
<S> <C>
INVESTMENT INCOME:
Interest $ 29,659
EXPENSES:
Management fees (Note 3) 2,160
Directors fees (Note 3) 6,792
Transfer agent fees (Note 3) 115
Audit fee 10,400
Registration and filing fees 2,453
Custodian fees 600
Total Expenses 22,520
Less Waiver of Expenses (Note 3) (18,679)
Net Expenses 3,841
NET INVESTMENT INCOME 25,818
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments (identified cost basis) 2,582
Net change in unrealized appreciation on investments 45,414
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS 47,996
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 73,814
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-150
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
For the Period 2/15/94
For the (commencement
Year Ended of operations) to
12/31/95 12/31/94
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 25,818 $ 10,888
Net realized gain on investments 2,582 -
Net change in unrealized appreciation (depreciation)
on investments 45,414 (16,534)
Net increase (decrease) in net assets from operations 73,814 (5,646)
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (25,351) (10,558)
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase (decrease) in net assets from capital
share transactions (Note 5) (5,951) 411,718
Net increase in net assets 42,512 395,514
NET ASSETS:
Beginning of period 395,514 -
End of period (including undistributed net investment income
of $363 and $330, respectively) $ 438,026 $ 395,514
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-151
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
For the Period 2/15/94
For the (commencement
Year Ended of operations) to
12/31/95 12/31/94
<S> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - Beginning of period $ 9.27 $ 10.00
Income from investment operations:
Net investment income 0.561 0.269
Net realized and unrealized gain (loss) on investments 1.019 (0.738)
Total from investment operations 1.580 (0.469)
Less distributions to shareholders:
From net investment income (0.550) (0.261)
Net asset value - End of period $ 10.30 $ 9.27
Total Return1 17.33% (4.69)%
Ratios (to average net assets)/Supplemental Data:
Expenses* 0.80% 0.80%2
Net investment income* 5.38% 5.40%2
Portfolio turnover 35% 0%
Net Assets - End of period $ 438,026 $ 395,514
*The investment advisor did not impose its management fee and paid a portion
of the Funds expenses. If these expenses had been incurred by the Fund,
expenses would have been limited to that required by state securities law and
the net investment income per share and the ratios would have been as follows:
Net investment income $ 0.384 $ 0.184
Ratios (to average net assets):
Expenses 2.50% 2.50%2
Net investment income 3.68% 3.70%2
</TABLE>
1Represents aggregate total return for the period indicated.
2Annualized
The accompanying notes are an integral part of the financial statements.
B-152
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Flexible Yield Series II (the "Fund") is a no-load diversified series of
Manning & Napier Fund, Inc. (the "Corporation"). The Corporation is
organized as a Maryland Corporation and is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment
company.
Shares of the Fund are offered to investors, employees and clients of
Manning & Napier Advisors, Inc. (the "Advisor") and its affiliates. The
total authorized capital stock of the Corporation consists of one billion
shares of common stock each having a par value of $0.01. As of December 31,
1995, 710 million shares have been designated in total among 18 series, of
which 50 million have been designated as Flexible Yield Series II Class N
Common Stock.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Portfolio securities listed on an exchange are valued at the latest
quoted sales price of the exchange on which the security is traded most
extensively. 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 Fund's Board of Directors.
Short-term investments that mature in sixty (60) days or less are valued
at amortized cost.
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 Fund's policy is to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies. The Fund is not
subject to federal income or excise tax to the extent the Fund distributes
to shareholders each year its taxable income, including any net realized
gains on investments in accordance with requirements of the Internal Revenue
Code. Accordingly, no provision for federal income taxes has been made in
the financial statements.
B-153
<PAGE>
NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
The Fund uses the identified cost method for determining realized gain or
loss on investments for both financial statement and federal income tax
reporting purposes.
DISTRIBUTION OF INCOME AND GAINS
Distributions to shareholders of net investment income are made
quarterly. Distributions are recorded on the ex-dividend date.
Distributions of net realized gains are distributed annually. An additional
distribution may be necessary to avoid taxation of the Fund.
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, character reclassification
between net income and net gains or other required tax adjustments. 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 Fund may
periodically make reclassifications among its capital accounts without
impacting the Fund's net asset value.
3. TRANSACTIONS WITH AFFILIATES
The Fund has 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 of 0.45% of the Fund's
average daily net assets. The fee amounted to $2,160 for the year ended
December 31, 1995.
Under the Fund's Investment Advisory Agreement (the "Agreement"),
personnel of the Advisor provide the Fund with advice and assistance in the
choice of investments and the execution of securities transactions, and
otherwise maintain the Fund's organization. The Advisor also provides the
Fund with necessary office space and portfolio accounting and bookkeeping
services. The salaries of all officers of the Fund and of all Directors who
are "affiliated persons" of the Fund or of the Advisor, and all personnel of
the Fund or of the Advisor performing services relating to research,
statistical and investment activities are paid by the Advisor.
The Advisor also acts as the transfer, dividend paying and shareholder
servicing agent for the Fund. For these services, the Fund pays a fee which
is calculated as a percentage of the average daily net assets at an annual
rate of 0.024% and amounted to $115 for the year ended December 31, 1995.
The Advisor has voluntarily agreed to waive its fee and, if necessary,
pay other expenses of the Fund in order to maintain total expenses for the
Fund at no more than 0.80% of average daily net assets each year.
Accordingly, the Advisor did not impose any of its fee and paid expenses
amounting to $16,519 for the year ended
B-154
<PAGE>
NOTES TO FINANCIAL STATEMENTS
3. TRANSACTIONS WITH AFFILIATES (continued)
December 31, 1995, which is reflected as a reduction of expenses on the
statement of operations. The fee waiver and assumption of expenses by
the Advisor is voluntary and may be terminated at any time.
Manning & Napier Investor Services, Inc., a registered broker-dealer
affiliate of the Advisor, acts as distributor for the Fund's shares. The
services of Manning & Napier Investor Services, Inc. are provided at no
additional cost to the Fund.
The compensation of the non-affiliated Directors totaled $6,792 for the
year ended December 31, 1995.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term securities, were
$199,216 and $156,035, respectively, for the year ended December 31, 1995.
5. CAPITAL STOCK TRANSACTIONS
Transactions in shares of Flexible Yield Series II Class N Common Stock
were:
<TABLE>
<CAPTION>
For the Period 2/15/94
For the Year (Commencement of Operations)
Ended 12/31/95 to 12/31/94
Shares Amount Shares Amount
--------------- ---------- ---------------------------- --------
<S> <C> <C> <C> <C>
Sold 17,414 $ 173,234 41,530 $401,160
Reinvested 2,527 25,352 1,139 10,558
Redeemed (20,065) (204,537) - -
Total (124) $ (5,951) 42,669 $411,718
</TABLE>
The Advisor owned 13,383 shares on December 31, 1995 and 12,674 shares on
December 31, 1994.
6. FINANCIAL INSTRUMENTS
The Fund may trade in financial instruments with off-balance sheet risk
in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include
written options and futures contracts and may involve, to a varying degree,
elements of risk in excess of the amounts recognized for financial statement
purposes. No such investments were held by the Fund on
December 31, 1995.
B-155
<PAGE>
Independent Auditors' Report
To the Directors of Manning & Napier Fund, Inc.
and Shareholders of Flexible Yield Series II:
We have audited the accompanying statement of assets and liabilities,
including the investment portfolio, of Flexible Yield Series II (one of the
series constituting Manning & Napier Fund, Inc.) as of December 31, 1995, the
related statement of operations for the year then ended, and the statement of
changes in net assets and the financial highlights for each of the two years
in the period then ended. 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 financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of investments owned at December 31, 1995 by
correspondence with the custodian. 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 provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Flexible Yield
Series II at December 31, 1995, the results of its operations, the changes in
its net assets and its financial highlights for the respective stated periods
in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
February 2, 1996
B-156
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
Flexible Yield Series III
Annual Report
December 31, 1995
<PAGE>
Management Discussion and Analysis
Dear Shareholders:
When looking back on 1995, the first line of Dickens A Tale of Two Cities
immediately comes to mind: it was the best of times, it was the worst of
times.... The best of times refers to the almost uninterrupted decline in
interest rates that started in November of 1994 and continued throughout 1995.
With the exception of money market funds and cash equivalents, it is difficult
to find a sector of the fixed income marketplace that did not turn in double
digit returns. Even the lowly two-year U.S. Treasury note returned more than
11%. Who says bonds are boring?
But it was the worst of times because the attractive yields and compelling
values that were plentiful at the start of 1995, that made 1995 the strong
year that it was, are today difficult to find. It was an especially bad year
for those investors, and we suspect there were many, who failed to take
advantage of the opportunities that presented themselves early in the year.
But fear not, this fund was not one of them. Because we had positioned the
portfolio to take advantage of this scenario, it did indeed benefit from the
decline in interest rates over the course of the year.
In order to understand what happened in 1995, it is worthwhile to re-visit
what happened in 1994. To a large degree, the events of 1994, which led to
poor returns in the bond market that year, contributed to our success in 1995.
At the start of 1994, there was a large degree of speculation and financial
leverage in the market, and this created a fragile environment where the
effect of any shock to the system would be exaggerated. The first shock came
when the Federal Reserve increased short-term interest rates early in
February. At the same time, some economic indicators started to warn of
coming inflation, which caused long-term interest rates to rise. The
situation took a turn for the worse when the dollar started to decline
relative to the currencies of some other countries. Because the U.S. economy
is heavily dependent on foreign investment, which was slowed due to the
dollars decline, this was more bad news for the bond market.
The confluence of these factors in combination with an overleveraged
marketplace resulted in a sell-off that exceeded even the most bearish
expectations. As mentioned above, short-term rates doubled, and long-term
rates careened from 5.8% to 8.1%. With hindsight, it is easy to say the
increase in rates was overdone, but it was the speed with which the market
corrected that caught many market participants by surprise.
B-157
<PAGE>
Management Discussion and Analysis (continued)
The picture began to change with the Republican victory in the 1994
congressional elections. The Republicans had campaigned heavily on the issue
of fiscal conservatism and the balanced budget amendment, and the financial
markets were encouraged by this. With the election results acting as a
catalyst for the reversal, the factors that decimated the market in 1994 began
to reverse themselves, and so too did the rise in interest rates. By the start
of 1995, speculation was almost non-existent and the degree of leverage in the
marketplace had returned to more normal levels. While it does not necessarily
follow that this would lead to lower rates, it did alleviate one of the major
problems that had plagued the market in 1994.
The inflation story began to change as well in 1995; inflationary pressures
dissipated and it even began to appear that disinflation was returning.
During the second half of the year, economic growth slowed noticeably, and the
dollar, which struggled during the first quarter of the year, staged a nice
turnaround. The turnaround was especially noticeable versus the Japanese yen.
Events specific to 1995 kept the ball rolling. The most talked about was the
decided shift in the focus of the federal budget debates. Both the
Republicans and the Democrats proposed long- term fiscal plans that were meant
to balance the federal budget. While the timing and the details of each plan
were quite different, the market responded positively to the policy makers
renewed interest in fiscal responsibility.
Another factor in bonds' strong showing was
the renewed interest that foreign investors were showing in U.S. financial
markets. At the beginning of the year, the dollar had fallen to such low
levels that foreign investors were drawn to its good relative value. Once the
dollar started to appreciate, foreign investors were drawn to its capital
appreciation potential. Remember, foreign investors do not simply buy U.S.
dollars, they invest the dollars in U.S. assets, with the bond market being
one of the prime beneficiaries.
By the end of the year, long rates had effectively retraced their 1994
increase, falling from just above 8% in November of 1994 to 5.95% at the end
of 1995. The total returns were staggering, rivaling some of the best calender
years on record.
The Flexible Yield Series III, which is unrestricted as to the maturity of the
bonds it holds, provided very attractive returns. The Series total return for
1995 was 22.09%, three percent higher than the Merrill Lynch
Corporate/Government Index, which returned 19.06%. Outperforming a fixed
income benchmark by three percent is very difficult because, unlike fund
returns, benchmarks do not reflect fees or expenses.
B-158
<PAGE>
Management Discussion and Analysis (continued)
Having closed the books on one of the best years for fixed income investors,
we believe it is unlikely the bond market can repeat its 1995 performance in
1996. As we begin 1996, the market is already discounting what can be
referred to as the best case scenario, moderate economic growth with little
inflationary pressure. New variables would have to emerge to drive yields
sharply lower (i.e. even slower growth, draconian budget cuts, etc...).
Nevertheless, our analysis shows that the long-term secular factors that have
driven rates lower in a saw-tooth fashion over the last 15 years are still
firmly in place, and we believe that rates, over the longer-term, will
continue to move lower.
We appreciate your continued confidence in us and wish you all the best in
1996.
Sincerely,
MANNING & NAPIER ADVISORS, INC.
[PIE CHART]
Effective Maturity
Over 10 Years - 40%
7-10 Years - 17%
5-7 Years - 17%
3-5 Years - 12%
2-3 Years - 5%
1-2 Years - 7%
Less than 1 Year - 2%
[PIE CHART]
Portfolio Composition
U.S. Treasury Securities - 92%
Mortgage Backed Securities - 8%
B-159
<PAGE>
Performance Update as of December 31, 1995
The value of a $10,000 investment in the Manning & Napier Fund, Inc. -
Flexible Yield Series III from its inception (12/20/93) to present
(12/31/95) as compared to the Merrill Lynch Corporate/Government Bond Index.1
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc. - Flexible Yield Series III
Total Return
Through Growth of $10,000 Average
12/31/95 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 12,209 22.09% 22.09%
Inception2 $ 11,452 14.52% 6.89%
</TABLE>
<TABLE>
<CAPTION>
Merrill Lynch Corporate/Government Bond Index
Total Return
Through Growth of $10,000 Average
12/31/95 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 11,906 19.06% 19.06%
Inception2 $ 11,532 15.32% 7.27%
</TABLE>
1The Merrill Lynch Corporate/Government Bond Index is a market value weighted
measure of approximately 6,600 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.
2The Fund and Index performance are calculated from December 20, 1993, the
Funds inception date. The Funds performance is historical and may not be
indicative of future results.
[GRAPHIC]
LINE CHART
Data for Line Chart to follow:
<TABLE>
<CAPTION>
Manning & Napier Merrill Lynch
Flexible Yield Corporate/Government
Series III Bond Index
<S> <C> <C>
20-Dec-93* 10,000 10,000
31-Dec-93 9,960 10,013
30-Jun-94 9,349 9,602
31-Dec-94 9,380 9,686
30-Jun-95 10,634 10,815
31-Dec-95 11,452 11,532
</TABLE>
* Inception date
B-160
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - December 31, 1995
Principal Value
Amount (Note 2)
<S> <C> <C>
U.S. TREASURY SECURITIES - 90.8%
U.S. Treasury Bonds - 25.0%
U.S. Treasury Bond, 7.25%, 8/15/22
(Identified Cost $238,918) $ 250,000 $ 289,453
U.S. Treasury Notes - 59.1%
U.S. Treasury Note, 4.375%, 11/15/96 25,000 24,813
U.S. Treasury Note, 7.50%, 1/31/97 40,000 40,962
U.S. Treasury Note, 6.875%, 2/28/97 35,000 35,656
U.S. Treasury Note, 5.125%, 11/30/98 60,000 59,775
U.S. Treasury Note, 7.75%, 11/30/99 40,000 43,338
U.S. Treasury Note, 5.50%, 4/15/00 25,000 25,188
U.S. Treasury Note, 6.25%, 8/31/00 60,000 62,100
U.S. Treasury Note, 7.50%, 11/15/01 35,000 38,577
U.S. Treasury Note, 6.375%, 8/15/02 150,000 157,594
U.S. Treasury Note, 5.75%, 8/15/03 15,000 15,183
U.S. Treasury Note, 5.875%, 2/15/04 100,000 102,031
U.S. Treasury Note, 6.50%, 8/15/05 75,000 79,898
Total U.S. Treasury Notes (Identified Cost $653,267) 685,115
U.S. Treasury Stripped Securities - 6.7%
Interest Stripped - Principal Payment, 5/15/14 98,000 31,926
Interest Stripped - Principal Payment, 8/15/14 143,000 45,794
Total U.S. Treasury Stripped Securities
(Identified Cost $67,910) 77,720
TOTAL U.S. TREASURY SECURITIES
(Identified Cost $960,095) 1,052,288
The accompanying notes are an integral part of the financial statements.
B-161
<PAGE>
Investment Portfolio - December 31, 1995
Principal
Amount/Shares Value
U.S. GOVERNMENT AGENCIES - 7.4%
Mortgage Backed Securities
GNMA, Pool #224199, 9.50%, 7/15/18 $ 23,546 $ 25,261
GNMA, Pool #299164, 9.00%, 12/15/20 22,883 24,235
GNMA, Pool #376345, 6.50%, 12/15/23 37,115 36,814
TOTAL U.S. GOVERNMENT AGENCIES
(Identified Cost $80,060) 86,310
SHORT TERM INVESTMENTS - 0.6%
Dreyfus U.S. Treasury Money Market Reserves
(Identified Cost $7,383) 7,383 7,383
TOTAL INVESTMENTS - 98.8%
(Identified Cost $1,047,538) 1,145,981
OTHER ASSETS, LESS LIABILITIES - 1.2% 13,243
NET ASSETS - 100% $ 1,159,224
</TABLE>
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
At December 31, 1995, the net unrealized appreciation based on identified cost
for federal income tax purposes of $1,047,538 was as follows:
<S> <C>
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value
over tax cost $98,631
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax over value (188)
Unrealized appreciation - net $98,443
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-162
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
December 31, 1995
<S> <C>
ASSETS:
Investments, at value (Identified cost, $1,047,538) (Note 2) $1,145,981
Cash 1,332
Interest receivable 20,051
Receivable from investment advisor (Note 3) 10,582
TOTAL ASSETS 1,177,946
LIABILITIES:
Accrued Directors fees (Note 3) 6,832
Transfer agent fees payable (Note 3) 229
Audit fee payable 5,858
Other payables and accrued expenses 5,803
TOTAL LIABILITIES 18,722
NET ASSETS FOR 110,331 SHARES OUTSTANDING $1,159,224
NET ASSETS CONSIST OF:
Capital stock $ 1,103
Additional paid-in-capital 1,059,462
Undistributed net investment income 388
Accumulated net realized loss on investments (172)
Net unrealized appreciation on investments 98,443
TOTAL NET ASSETS $1,159,224
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($1,159,224/110,331 shares) $ 10.51
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-163
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations
For the Year Ended December 31, 1995
<S> <C>
INVESTMENT INCOME:
Interest $ 66,467
EXPENSES:
Management fees (Note 3) 4,767
Directors fees (Note 3) 6,832
Transfer agent fees (Note 3) 229
Audit fee 8,600
Custodian fees 600
Miscellaneous 2,424
Total Expenses 23,452
Less Waiver of Expenses (Note 3) (15,349)
Net Expenses 8,103
NET INVESTMENT INCOME 58,364
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized loss on investments (identified cost basis) (132)
Net change in unrealized appreciation on investments 128,849
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 128,717
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $187,081
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-164
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
For the For the
Year Ended Year Ended
12/31/95 12/31/94
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 58,364 $ 21,040
Net realized loss on investments (132) (28)
Net change in unrealized appreciation (depreciation)
on investments 128,849 (30,063)
Net increase (decrease) in net assets from operations 187,081 (9,051)
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (57,528) (20,952)
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase in net assets from
capital share transactions (Note 5) 282,134 702,883
Net increase in net assets 411,687 672,880
NET ASSETS:
Beginning of period 747,537 74,657
End of period (including undistributed net investment
income of $388 and $88, respectively) $ 1,159,224 $ 747,537
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-165
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
For the Period
For the For the 12/20/93
Year Year (commencement of
Ended Ended operations) to
12/31/95 12/31/94 12/31/93
<S> <C> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - Beginning of period $ 9.11 $ 9.95 $ 10.00
Income from investment operations:
Net investment income 0.582 0.262 0.010
Net realized and unrealized gain (loss) on
investments 1.393 (0.841) (0.050)
Total from investment operations 1.975 (0.579) (0.040)
Less distributions declared to shareholders:
From net investment income (0.575) (0.261) (0.010)
Net asset value - End of period $ 10.51 $ 9.11 $ 9.95
Total return1 22.09% (5.83%) (0.50%)
Ratios (to average net assets)/Supplemental Data:
Expenses 0.85%* 0.85%* 0.85%2*
Net investment income 6.13%* 6.22%* 3.85%2*
Portfolio turnover 6% 1% 0%
Net Assets - End of period $1,159,224 $ 747,537 $ 74,657
*The investment advisor did not impose its management fee and paid a portion
of the Funds expenses. If these expenses had been incurred by the Fund for
the periods ended December 31, 1993 and December 31, 1994, expenses would have
been limited to that required by state securities law. If the full expenses
allowed by state securities law had been incurred by the Fund, the net
investment income per share and the ratios would have been as follows:
Net investment income $ 0.429 $ 0.192 $ 0.010
Ratios (to average net assets):
Expenses 2.46% 2.50% 2.50%2
Net investment income 4.52% 4.57% 2.20%2
</TABLE>
1Represents aggregate total return for the period indicated.
2Annualized
The accompanying notes are an integral part of the financial statements.
B-166
<PAGE>
Notes to Financial Statements
1. ORGANIZATION
Flexible Yield Series III (the "Fund") is a no-load diversified series of
Manning & Napier Fund, Inc. (the "Corporation"). The Corporation is
organized as a Maryland Corporation and is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment
company.
Shares of the Fund are offered to investors, employees and clients of
Manning & Napier Advisors, Inc. (the "Advisor") and its affiliates. The
total authorized capital stock of the Corporation consists of one billion
shares of common stock each having a par value of $0.01. As of December 31,
1995, 710 million shares have been designated in total among 18 series, of
which 50 million have been designated as Flexible Yield Series III Class O
Common Stock.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Portfolio securities listed on an exchange are valued at the latest
quoted sales price of the exchange on which the security is traded most
extensively. 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 Fund's Board of Directors.
Short-term investments that mature in sixty (60) days or less are valued
at amortized cost.
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 Fund's policy is to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies. The Fund is not
subject to federal income or excise tax to the extent the Fund distributes
to shareholders each year its taxable income, including any net realized
gains on investments in accordance with requirements of the Internal Revenue
Code. Accordingly, no provision for federal income taxes has been made in
the financial statements.
B-167
<PAGE>
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
At December 31, 1995, the Fund, for federal income tax purposes, had a
capital loss carryforward of $172, which will expire on December 31, 2003.
The Fund uses the identified cost method for determining realized gain or
loss on investments for both financial statement and federal income tax
reporting purposes.
DISTRIBUTION OF INCOME AND GAINS
Distributions to shareholders of net investment income are made
quarterly. Distributions are recorded on the ex-dividend date.
Distributions of net realized gains are distributed annually. An additional
distribution may be necessary to avoid taxation of the Fund.
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, character reclassification
between net income and net gains or other required tax adjustments. 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 Fund may
periodically make reclassification among its capital accounts without
impacting the Fund's net asset value.
3. TRANSACTIONS WITH AFFILIATES
The Fund has 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 of 0.50% of the Fund's
average daily net assets. The fee amounted to $4,767 for the year ended
December 31, 1995.
Under the Fund's Investment Advisory Agreement (the "Agreement"),
personnel of the Advisor provide the Fund with advice and assistance in the
choice of investments and the execution of securities transactions, and
otherwise maintain the Fund's organization. The Advisor also provides the
Fund with necessary office space and portfolio accounting and bookkeeping
services. The salaries of all officers of the Fund and of all Directors who
are "affiliated persons" of the Fund or of the Advisor, and all personnel of
the Fund or of the Advisor performing services relating to research,
statistical and investment activities are paid by the Advisor.
The Advisor also acts as the transfer, dividend paying and shareholder
servicing agent for the Fund. For these services, the Fund pays a fee which
is calculated as a percentage of the average daily net assets at an annual
rate of 0.024% and amounted to $229 for the year ended December 31, 1995.
B-168
<PAGE>
Notes to Financial Statements
3. TRANSACTIONS WITH AFFILIATES (continued)
The Advisor has voluntarily agreed to waive its fee and, if necessary,
pay other expenses of the Fund in order to maintain total expenses for the
Fund 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 $10,582 for the year ended
December 31, 1995, which is reflected as a reduction of expenses on the
statement of operations. The fee waiver and assumption of expenses by the
Advisor is voluntary and may be terminated at any time.
Manning & Napier Investor Services, Inc., a registered broker-dealer
affiliate of the Advisor, acts as distributor for the Fund's shares. The
services of Manning & Napier Investor Services, Inc. are provided at no
additional cost to the Fund.
The compensation of the non-affiliated Directors totaled $6,832 for the
year ended December 31, 1995.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term securities, were
$402,527 and $52,177, respectively, for the year ended December 31, 1995.
5. CAPITAL STOCK TRANSACTIONS
<TABLE>
<CAPTION>
Transactions in shares of Flexible Yield Series III Class O Common Stock
were:
For the Year For the Year
Ended 12/31/95 Ended 12/31/94
Shares Amount Shares Amount
--------------- --------- -------------- --------
<S> <C> <C> <C> <C>
Sold 23,843 $236,968 72,768 $686,867
Reinvested 4,597 46,488 1,752 16,016
Redeemed (129) (1,322) - -
Total 28,311 $282,134 74,520 $702,883
</TABLE>
The Advisor owned 10,412 shares on December 31, 1995 and 9,839 shares on
December 31, 1994.
6. FINANCIAL INSTRUMENTS
The Fund may trade in financial instruments with off-balance sheet risk
in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include
written options and futures contracts and may involve, to a varying degree,
elements of risk in excess of the amounts recognized for financial statement
purposes. No such investments were held by the Fund on
December 31, 1995.
B-169
<PAGE>
Independent Auditors' Report
To the Directors of Manning & Napier Fund, Inc.
and Shareholders of Flexible Yield Series III:
We have audited the accompanying statement of assets and liabilities,
including the investment portfolio, of Flexible Yield Series III (one of the
series constituting Manning & Napier Fund, Inc.) as of December 31, 1995, the
related statement of operations for the year then ended, the statement of
changes in net assets for the years ended December 31, 1995
and 1994, and the financial highlights for each of the years in the three year
period ended December 31, 1995. 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 financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of investments owned at December 31, 1995 by
correspondence with the custodian. 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 provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of Flexible Yield
Series III at December 31, 1995, the results of its operations, the changes in
its net assets and its financial highlights for the respective stated periods
in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
February 2, 1996
B-170
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
NEW YORK
TAX EXEMPT SERIES
Annual Report
December 31, 1995
<PAGE>
Management Discussion and Analysis
Dear Shareholders:
When looking back on 1995, the first line of Dickens A Tale of Two Cities
immediately comes to mind: it was the best of times, it was the worst of
times.... The best of times refers to the almost uninterrupted decline in
interest rates that started in November of 1994 and continued throughout 1995.
With the exception of money market funds and cash equivalents, it is
difficult to find a sector of the taxable fixed income marketplace that did
not turn in double digit returns. Even the lowly two-year U.S. Treasury note
returned more than 11%. Who says bonds are boring?
But it was the worst of times because the attractive yields and compelling
values that were plentiful at the start of 1995, that made 1995 the strong
year that it was, are today difficult to find. It was an especially bad year
for those investors, and we suspect there were many, who failed to take
advantage of the opportunities that presented themselves early in the year.
But fear not, this fund was not one of them. Because we had positioned the
portfolio to take advantage of this scenario, it did indeed benefit from the
decline in interest rates over the course of the year.
In order to understand what happened in 1995, it is worthwhile to re-visit
what happened in 1994. To a large degree, the events of 1994, which led to
poor returns in the bond market that year, contributed to our success in 1995.
At the start of 1994, there was a large degree of speculation and financial
leverage in the market, and this created a fragile environment where the
effect of any shock to the system would be exaggerated. The first shock came
when the Federal Reserve increased short-term interest rates early in
February. At the same time, some economic indicators started to warn of
coming inflation, which caused long-term interest rates to rise. The
situation took a turn for the worse when the dollar started to decline
relative to the currencies of some other countries. Because the U.S. economy
is heavily dependent on foreign investment, which was slowed due to the
dollars decline, this was more bad news for the bond market.
The confluence of these factors in combination with an overleveraged
marketplace resulted in a sell-off that exceeded even the most bearish
expectations. As mentioned above, short-term rates doubled, and long-term
rates careened from 5.8% to 8.1%. With hindsight, it is easy to say the
increase in rates was overdone, but it was the speed with which the market
corrected that caught many market participants by surprise.
B-171
<PAGE>
Management Discussion and Analysis (continued)
The picture began to change with the Republican victory in the 1994
congressional elections. The Republicans had campaigned heavily on the issue
of fiscal conservatism and the balanced budget amendment, and the financial
markets were encouraged by this. With the election results acting as a
catalyst for the reversal, the factors that decimated the market in 1994 began
to reverse themselves, and so too did the rise in interest rates. By the start
of 1995, speculation was almost non-existent and the degree of leverage in the
marketplace had returned to more normal levels. While it does not necessarily
follow that this would lead to lower rates, it did alleviate one of the major
problems that had plagued the market in 1994.
The inflation story began to change as well in 1995; inflationary pressures
dissipated and it even began to appear that disinflation was returning.
During the second half of the year, economic growth slowed noticeably, and the
dollar, which struggled during the first quarter of the year, staged a nice
turnaround. The turnaround was especially noticeable versus the Japanese yen.
Events specific to 1995 kept the ball rolling. The most talked about was the
decided shift in the focus of the federal budget debates. Both the
Republicans and the Democrats proposed long-term fiscal plans that were meant
to balance the federal budget. While the timing and the details of each plan
were quite different, the market responded positively to the policy makers
renewed interest in fiscal responsibility.
Another factor in bonds strong showing was the renewed interest that foreign
investors were showing in U.S. financial markets. At the beginning of the
year, the dollar had fallen to such low levels that foreign investors were
drawn to its good relative value. Once the dollar started to appreciate,
foreign investors were drawn to its capital appreciation potential. Remember,
foreign investors do not simply buy U.S. dollars, they invest the dollars in
U.S. assets, with the bond market being one of the prime beneficiaries.
By the end of the year, long rates had effectively retraced their 1994
increase, falling from just above 8% in November of 1994 to 5.95% at the end
of 1995. The total returns were staggering, rivaling some of the best calender
years on record.
As good as 1995 was for all fixed income investors, there was a dark cloud
that hung over municipal investors during the second half of the year; that
cloud could effectively be referred to as tax reform. Although the talk had
quieted down somewhat by the end of the year, there was still a sense that tax
reform, or rather tax simplification, would be an important campaign issue in
1996. Many proposals focus not only on simplifying the filing process, but
also on increasing the rate of savings within the economy since the current
system seems to penalize savings while encouraging consumption. While it is
tough to argue with the ultimate goals of tax simplification, one of the
potential losers, at least on a relative basis, would be the municipal bond
market.
B-172
<PAGE>
Management Discussion and Analysis (continued)
Most of the tax simplification plans that have been proposed, or are expected
to be proposed, do not take anything away from muni bonds. What has shaken up
the muni market, however, are the proposals within the various plans to exempt
all investment income from taxation, thereby stripping the muni market of its
relative advantage. If such an event were to occur, munis would trade like
high grade corporate bonds - at some yield spread above U.S. Treasuries rather
than at some spread below U.S. Treasuries as is currently the case.
As a result of this potential change, many muni investors have shortened the
maturity of their portfolios and concentrated their purchases on the short end
of the curve. This has caused intermediate and longer-term munis to lag their
intermediate and longer-term taxable counterparts on a relative basis. Despite
this, municipal bonds earned strong double-digit returns, even while beginning
to discount unfavorable tax legislation. This discounting would lessen the
shock should such legislation become reality, while providing fresh upside
potential should there prove to be no tax changes which adversely affect
municipal bonds.
The New York Tax Exempt Series earned a total return of 16.78% for 1995. For
comparison purposes, the Merrill Lynch Intermediate Municipal Index returned
13.39%, which means the Series outperformed the benchmark by more than 3%.
Because benchmark returns, unlike mutual fund returns, do not reflect fees or
expenses, it is rare for a bond fund to outperform a benchmark.
We have structured the portfolio based on our investment overview of declining
interest rates. As a result, the security selection process has focussed on
issuers with high credit quality, long maturities (which benefit from
declining interest rates), and as much call protection as possible (which
limits the ability of issuers to call away your investments). Additionally,
we prefer to focus on bonds that are insured or pre-refunded which adds an
additional element of protection. Finally, we look for general obligation
bonds (as opposed to revenue bonds) because we would rather rely on the full
faith and credit of a municipality than the revenue generated by a specific
project. It is important to note that this high quality standard did not
penalize our performance.
Having closed the books on one of the best years for fixed income investors,
we believe it is unlikely the bond market can repeat its 1995 performance in
1996. As we begin 1996, it appears that the market is already discounting
what can be referred to as the best case scenario, moderate economic growth
with little inflationary pressure. For muni investors, the direction of tax
reform will no doubt have an influence on the performance of municipal bonds.
As we stated earlier, the market has already been discounting this to some
B-173
<PAGE>
Management Discussion and Analysis (continued)
degree, driving the shape of the muni yield curve steeper than the Treasury
yield curve. New variables would have to emerge to drive yields sharply lower
(i.e., even slower growth, draconian budget cuts, etc...). Nevertheless, our
analysis shows that the long-term secular factors that have driven rates lower
in a saw-tooth fashion over the last 15 years are still firmly in place, and
we believe that rates, over the longer-term, will continue to move lower.
We appreciate your continued confidence in us and wish you all the best in
1996.
Sincerely,
MANNING & NAPIER ADVISORS, INC.
[PIE CHART]
Portfolio Composition
General Obligation Bonds - 66%
Revenue Bonds - 23%
Pre-Refunded Bonds - 11%
[PIE CHART]
Quality Ratings*
Aaa - 76%
Aa - 18%
A - 4%
Not Rated - 2%
*Using Moody's Ratings
B-174
<PAGE>
Performance Update as of December 31, 1995
The value of a $10,000 investment in the Manning & Napier Fund, Inc. - New
York Tax Exempt Series from its inception (1/17/94) to present (12/31/95) as
compared to the Merrill Lynch Intermediate Municipal Index.1
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc.
New York Tax Exempt Series
Total Return
Through Growth of $10,000 Average
12/31/95 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 11,678 16.78% 16.78%
Inception2 $ 10,882 8.82% 4.42%
</TABLE>
<TABLE>
<CAPTION>
Merrill Lynch Intermediate Municipal Index
Total Return
Through Growth of $10,000 Average
12/31/95 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 11,339 13.39% 13.39%
Inception2 $ 11,020 10.20% 5.09%
</TABLE>
1The unmanaged Merrill Lynch Intermediate Municipal Index is a market value
weighted measure of approximately 260 municipal bonds issued across the United
States. The Index is comprised of investment grade securities. Index returns
assume reinvestment of coupons and, unlike Fund returns, do not reflect any
fees or expenses.
2The Fund and Index performance numbers are calculated from January 17, 1994,
the Fund's inception date. The Fund's performance is historical and may not
be indicative of future results.
[GRAPHIC]
LINE CHART
Data for Line Chart to follow:
<TABLE>
<CAPTION>
Manning & Napier Merrill Lynch
New York Tax Intermediate
Exempt Series Municipal Index
<S> <C> <C>
17-Jan-94* 10,000 10,000
31-Mar-94 9,430 9,586
30-Jun-94 9,460 9,662
30-Sep-94 9,430 9,782
31-Dec-94 9,318 9,719
31-Mar-95 9,941 10,176
30-Jun-95 10,202 10,489
30-Sep-95 10,433 10,691
31-Dec-95 10,882 11,020
</TABLE>
* Inception date
B-175
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - December 31, 1995
Principal Value
Amount (Note 2)
<S> <C> <C>
NEW YORK MUNICIPAL SECURITIES - 93.4%
Albany City School District, G.O. Bond, 4.35%, 2/1/2001 $ 475,000 $ 474,986
Albany City School District, G.O. Bond, 4.35%, 2/1/2002 150,000 149,045
Albany County, G.O. Bond, 5.75%, 6/1/2010 200,000 210,730
Amherst Public Improvement, G.O. Bond, 4.625%, 3/1/2004 250,000 252,443
Amherst Public Improvement, G.O. Bond, 4.625%, 3/1/2007 200,000 196,480
Battery Park City Authority, Revenue Bond, 7.70%, 5/1/2015 500,000 565,670
Broome County Public Safety, Certificate Participation,
5.00%, 4/1/2006 250,000 253,185
Buffalo, G.O. Bond, Series A, 5.00%, 12/1/2009 150,000 149,547
Buffalo General Improvement, G.O. Bond, Series A,
4.75%, 2/1/2004 500,000 505,670
Buffalo Schools, G.O. Bond, Series B, 5.05%, 2/1/2009 250,000 248,570
Cattaraugus County Public Improvement, G.O. Bond, 5.00%
8/1/2007 300,000 304,206
Colonie, G.O. Bond, 5.20%, 8/15/2008 100,000 102,808
East Hampton, G.O. Bond, 4.625%, 1/15/2007 175,000 170,492
East Hampton, G.O. Bond, 4.625%, 1/15/2008 175,000 168,651
Erie County, G.O. Bond, Series B, 5.50%, 6/15/2009 100,000 104,593
Erie County, G.O. Bond, Series B, 5.50%, 6/15/2025 400,000 399,408
Guilderland School District, G.O. Bond, 4.75%, 6/15/1998 130,000 132,353
Guilderland School District, G.O. Bond, 4.90%, 6/15/2008 370,000 367,269
Hempstead Town, G.O. Bond, Series B, 5.625%, 2/1/2010 200,000 209,746
Holland Central School District, G.O. Bond, 6.125%,
6/15/2010 245,000 269,226
Huntington, G.O. Bond, 5.875%, 9/1/2009 250,000 267,262
Huntington, G.O. Bond, 5.90%, 1/15/2007 300,000 325,881
Irvington School District, G.O. Bond, Series B,
5.10%, 7/15/2005 275,000 283,803
Jamesville-Dewitt Central School District, G.O. Bond,
5.75%, 6/15/2009 420,000 451,437
Jordan-El Bridge Central School District, G.O. Bond,
5.875%, 6/15/2008 500,000 539,705
Kingston City School District, Series B, 6.80%, 12/15/1997 100,000 105,480
LeRoy Central School District, G.O. Bond, 0.10%, 6/15/2008 350,000 181,353
The accompanying notes are an integral part of the financial statements.
B-176
<PAGE>
Investment Portfolio - December 31, 1995
Principal Value
Amount (Note 2)
NEW YORK MUNICIPAL SECURITIES (continued)
Monroe County Public Improvement, G.O. Bond,
4.90%, 6/1/2005 $ 250,000 $ 253,382
Monroe County Public Improvement, G.O. Bond, 6.00%,
3/1/2002 500,000 542,235
Monroe County Public Improvement, G.O. Bond, 6.10%,
6/1/2015 200,000 214,000
Monroe County Water Authority, Revenue Bond, Series B,
5.25%, 8/1/2011 500,000 500,720
Nassau County, G.O. Bond, Series A, 3.25%, 5/1/1996 500,000 499,300
Nassau County, G.O. Bond, Series A, 4.00%, 5/1/1999 100,000 99,594
New Castle, G.O. Bond, 4.75%, 6/1/2010 450,000 434,484
New Rochelle, G.O. Bond, Series C., 6.20%, 3/15/2007 175,000 193,443
New Rochelle City School District, G.O. Bond, Series A,
4.30%, 2/1/2003 500,000 492,185
New York City, G.O. Bond, 8.00%, 3/15/2016 500,000 580,570
New York City, G.O. Bond, Series A, 8.75%, 11/1/2016 250,000 275,540
New York City Municipal Water Authority, Revenue Bond,
Series B, 5.00%, 6/15/2003 400,000 407,724
New York City Municipal Water Authority, Revenue Bond,
Series B, 5.375%, 6/15/2019 250,000 248,838
New York State Dorm Authority, Columbia University,
Revenue Bond, 4.40%, 7/1/1997 125,000 126,155
New York State Environmental Pollution Control, Revenue
Bond, Pooled LN-B, 6.65%, 9/15/2013 500,000 554,585
New York State Housing Authority, Finance Agency - Mental
Hygiene, Revenue Bond, 5.80%, 11/1/2001 250,000 270,373
New York State Local Government Assistance Corp., Revenue
Bond, Series A - MBIA-IBC, 5.90%, 4/1/2013 500,000 530,980
New York State Local Government Assistance Corp., Revenue
Bond, Series A, 6.00%, 4/1/2024 250,000 262,075
New York State Medical Care Facility Financial Agency MBIA -
IBC, Revenue Bond, 7.75%, 2/15/2020 380,000 438,265
New York State Medical Care Facilities, Financial Agency -
Insd. Mtg. Hospital, Revenue Bond, Series A, 8.50%,
1/15/2022 500,000 511,065
The accompanying notes are an intergral part of the financial statements.
B-177
<PAGE>
Investment Portfolio - December 31, 1995
Principal Value
Amount (Note 2)
NEW YORK MUNICIPAL SECURITIES (continued)
New York State Mortgage Agency, Homeowners Mortgage
Revenue Bond, Series 31A, 5.375%, 10/1/2017 $ 500,000 $ 487,745
New York State Power Authority, Revenue Bond, Series CC,
4.80%, 1/1/2005 250,000 250,907
New York State Power Authority, Revenue Bond, Series CC,
5.00%, 1/1/2014 500,000 484,420
New York State Power Authority, Revenue Bond, Series CC. -
MBIA-IBC, 5.25%, 1/1/2018 250,000 246,787
New York State Thruway Authority, Revenue Bond,
Series B, 4.90%, 1/1/2007 450,000 448,483
New York State Thruway Authority, Revenue Bond, Series A,
5.50%, 1/1/2023 300,000 298,329
New York State Thruway Authority, Highway & Bridge,
Revenue Bond, Series B, 5.75%, 4/1/2006 100,000 107,196
New York State Urban Development Correctional Capital
Facilities, Revenue Bond, Series A, 5.25%, 1/1/2014 500,000 505,820
New York State Urban Development Corp. Correctional
Facility, Revenue Bond, Series G, 7.00%, 1/1/2017 50,000 56,117
North Hempstead, G.O. Bond, Series B, 5.90%, 4/1/2004 300,000 330,192
North Hempstead, G.O. Bond, Series C, 4.90%, 8/1/2006 300,000 302,499
Onondaga County, G.O. Bond, 5.85%, 2/15/2002 300,000 322,458
Queensbury, G.O. Bond, Series A, 5.50%, 4/15/2011 150,000 155,876
Queensbury, G.O. Bond, Series A, 5.50%, 4/15/2012 350,000 363,709
Rochester, G.O. Bond, Series A, 4.70%, 8/15/2006 250,000 249,988
Rochester, G.O. Bond, Series A, 5.00%, 8/15/2020 250,000 244,102
Rochester, G.O. Bond, Series A, 5.00%, 8/15/2022 95,000 92,672
Sands Point, G.O. Bond, 6.70%, 11/15/2014 700,000 777,413
Schenectady, G.O. Bond, 4.55%, 10/1/2002 200,000 201,260
South County Central School District Brookhaven, G.O. Bond,
5.50%, 9/15/2007 380,000 398,020
Steuben County Public Improvement, G.O. Bond,
5.60%, 5/1/2006 500,000 525,095
Suffolk County, G.O. Bond, Series G, 5.40%, 4/1/2013 400,000 406,516
Suffolk County Water Authority, Revenue Bond,
5.10%, 6/1/2009 250,000 251,465
Suffolk County Water Authority, Revenue Bond,
7.325%, 6/1/2012 500,000 553,180
The accompanying notes are an integral part of the financial statements.
<PAGE> B-178
Investment Portfolio - December 31, 1995
Principal Value
Amount (Note 2)
NEW YORK MUNICIPAL SECURITIES (continued)
Sullivan County Public Improvement, G.O. Bond, 4.375%,
3/15/2001 $ 300,000 $ 298,740
Sullivan County Public Improvement, G.O. Bond, 5.125%,
3/15/2013 330,000 331,779
Three Village Central School District, G.O. Bond,
5.375%, 6/15/2007 230,000 239,899
Tioga County Public Improvement, G.O. Bond,
5.25%, 3/15/2005 250,000 259,605
Tompkins County, G.O. Bond, Series B, 5.625%, 9/15/2011 135,000 140,049
Tompkins County, G.O. Bond, Series B, 5.625%, 9/15/2013 300,000 310,989
Tompkins County, G.O. Bond, Series B, 5.625%, 9/15/2014 300,000 309,831
Triborough Bridge & Tunnel Authority, Revenue Bond,
3.65%, Series A, 1/1/1998 250,000 248,050
Triborough Bridge & Tunnel Authority, Revenue Bond,
Series A, 5.00%, 1/1/2012 500,000 487,105
Tri-Valley Central School District, G.O. Bond, 5.60%,
6/15/2008 120,000 126,006
Westchester County, G.O. Bond, Series A, 4.75%,
12/15/2008 250,000 245,723
Westchester County, G.O. Bond, Series A, 4.75%,
12/15/2009 250,000 244,012
Westchester County, G.O. Bond, Series B, 4.30%,
12/15/2010 215,000 197,570
Westchester County, G.O. Bond, Series B,
4.30%, 12/15/2011 100,000 91,129
White Plains, G.O. Bond, 4.50%, 9/1/2005 180,000 178,182
White Plains, G.O. Bond, 4.50%, 9/1/2007 315,000 304,425
TOTAL MUNICIPAL SECURITIES
(Identified Cost $26,292,989) 26,898,855
SHORT-TERM INVESTMENTS - 3.0%
Dreyfus/Laurel New York Tax Free Money Market Fund
(Identified Cost $868,045) 868,045 868,045
TOTAL INVESTMENTS - 96.4%
(Identified Cost $27,161,034) 27,766,900
The accompanying notes are an integral part of the financial statements.
B-179
<PAGE>
Investment Portfolio - December 31, 1995
Value
(Note 2)
OTHER ASSETS, LESS LIABILITIES - 3.6% $ 1,049,923
NET ASSETS - 100% $28,816,823
</TABLE>
Key
G.O. Bond - General Obligation Bond
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
At December 31, 1995, the net unrealized appreciation based on identified cost
for federal income tax purposes of $27,161,034 was as follows:
<S> <C>
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost $688,913
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value (83,047)
Unrealized appreciation - net $605,866
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-180
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
DECEMBER 31, 1995
<S> <C>
ASSETS:
Investments, at value (Identified cost, $27,161,034)
(Note 2) $27,766,900
Receivable for fund shares sold 859,120
Interest receivable 404,727
Prepaid expense 1,280
TOTAL ASSETS 29,032,027
LIABILITIES:
Accrued management fees (Note 3) 11,599
Accrued Directors' fees (Note 3) 1,812
Transfer agent fees payable (Note 3) 557
Payable for securities purchased 148,423
Payable for fund shares redeemed 29,747
Audit fee payable 14,000
Custodian fee payable 1,090
Other payables and accrued expenses 7,976
TOTAL LIABILITIES 215,204
NET ASSETS FOR 2,860,879 SHARES
OUTSTANDING $28,816,823
NET ASSETS CONSIST OF:
Capital stock $ 28,608
Additional paid-in-capital 28,189,679
Undistributed net investment income 12,779
Accumulated net realized loss on investments (20,109)
Net unrealized appreciation on investments 605,866
TOTAL NET ASSETS $28,816,823
NET ASSET VALUE, OFFERING PRICE
AND REDEMPTION PRICE PER
SHARE ($28,816,823/2,860,879 shares) $ 10.07
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-181
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations
For the Year Ended December 31, 1995
<S> <C>
INVESTMENT INCOME:
Interest $1,152,732
EXPENSES:
Management fees (Note 3) 114,847
Directors' fees (Note 3) 6,791
Transfer agent fees (Note 3) 5,513
Audit fee 8,757
Custodian fees 6,600
Registration and filing fees 6,434
Miscellaneous 554
Total Expenses 149,496
NET INVESTMENT INCOME 1,003,236
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized loss on investments (identified cost basis) (6)
Net change in unrealized appreciation on investments 2,511,379
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS 2,511,373
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $3,514,609
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-182
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
For the Period 1/17/94
For the (Commencement
Year Ended of Operations)
12/31/95 to 12/31/94
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 1,003,236 $ 632,138
Net realized loss on investments (6) (20,103)
Net change in unrealized appreciation (depreciation) on
investments 2,511,379 (1,905,513)
Net increase (decrease) in net assets from operations 3,514,609 (1,293,478)
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (991,282) (631,313)
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase in net assets from capital share
transactions (Note 5) 8,992,775 19,225,512
Net increase in net assets 11,516,102 17,300,721
NET ASSETS:
Beginning of period 17,300,721 -
End of period (including undistributed net
Investment income of $12,779 and $825,
respectively) $28,816,823 $ 17,300,721
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-183
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
For the Period 1/17/94
For the (Commencement
Year Ended of Operations)
12/31/95 to 12/31/94
<S> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - Beginning of period $ 8.98 $ 10.00
Income from investment operations:
Net investment income 0.404 0.338
Net realized and unrealized gain (loss) on investments 1.086 (1.020)
Total from investment operations 1.490 (0.682)
Less distributions declared to shareholders:
From net investment income (0.400) (0.338)
Net asset value - End of period $ 10.07 $ 8.98
Total Return1 16.78% (6.82)%
Ratios (to average net assets)/Supplemental Data:
Expenses 0.65% 0.79%2
Net investment income 4.36% 3.82%2
Portfolio turnover 0% 6%
Net Assets - End of period (000's omitted) $ 28,817 $ 17,301
</TABLE>
1Total return represents aggregate total return for the period indicated.
2Annualized.
The accompanying notes are an integral part of the financial statements.
B-184
<PAGE>
Notes to Financial Statements
1. ORGANIZATION
New York Tax Exempt Series (the "Fund") is a no-load diversified series
of Manning & Napier Fund, Inc. (the "Corporation"). The Corporation is
organized as a Maryland Corporation and is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment
company.
Shares of the Fund are offered to investors, employees and clients of
Manning & Napier Advisors, Inc. (the "Advisor") and its affiliates. The
total authorized capital stock of the Corporation consists of one billion
shares of common stock each having a par value of $0.01. As of December 31,
1995, 710 million shares have been designated in total among 18 series, of
which 50 million have been designated as New York Tax Exempt Series Class P
Common Stock.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Municipal securities will normally be valued on the basis of market
valuations provided by an independent pricing service (the "Service"). The
Service utilizes the latest price quotations and a matrix system (which
considers such factors as security prices of similar securities, yields,
maturities, and ratings). The Service has been approved by the Fund's Board
of Directors.
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 Fund's Board of Directors.
Short-term investments that mature in sixty (60) days or less are valued
at amortized cost.
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
of the Corporation.
FEDERAL INCOME TAXES
The Fund's policy is to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies. The Fund is not
subject to federal income or excise tax to the extent the Fund distributes
to shareholders each year its taxable income, including any net realized
gains on investments in accordance with requirements of the Internal Revenue
Code. Accordingly, no provision for federal income taxes has been made in
the financial statements.
B-185
<PAGE>
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
FEDERAL INCOME TAXES (continued)
At December 31, 1995, the Fund, for federal income tax purposes, had a
capital loss carryforward of $20,109. Of this amount, $2,550 will expire on
December 31, 2002 and $17,559 will expire on December 31, 2003.
The Fund uses the identified cost method for determining realized gain or
loss on investments for both financial statement and federal income tax
reporting purposes.
DISTRIBUTION OF INCOME AND GAINS
Distributions to shareholders of tax exempt income are made quarterly.
Distributions are recorded on the ex-dividend date. Distributions of net
realized gains are distributed annually. An additional distribution may be
necessary to avoid taxation of the Fund.
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 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 Fund may periodically make reclassification
among its capital accounts without impacting the Fund's net asset value.
The Fund hereby designates $975,391 as tax-exempt dividends for the year
ended December 31, 1995.
3. TRANSACTIONS WITH AFFILIATES
The Fund has 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 of 0.50% of the Fund's
average daily net assets. The fee amounted to $114,847 for the year ended
December 31, 1995.
Under the Fund's Investment Advisory Agreement (the "Agreement"),
personnel of the Advisor provide the Fund with advice and assistance in the
choice of investments and the execution of securities transactions, and
otherwise maintain the Fund's organization. The Advisor also provides the
Fund with necessary office space and portfolio accounting and bookkeeping
services. The salaries of all officers of the Fund and of all Directors who
are "affiliated persons" of the Fund or of the Advisor, and all personnel of
the Fund or of the Advisor performing services relating to research,
statistical and investment activities are paid by the Advisor.
B-186
<PAGE>
Notes to Financial Statements
3. TRANSACTIONS WITH AFFILIATES (continued)
The Advisor also acts as the transfer, dividend paying and shareholder
servicing agent for the Fund. For these services, the Fund pays a fee which
is calculated as a percentage of the average daily net assets at an annual
rate of 0.024% and amounted to $5,513 for the year ended December 31, 1995.
The Advisor has voluntarily agreed to waive its fee and, if necessary,
pay other expenses of the Fund in order to maintain total expenses for the
Fund at no more than 0.85% of average daily net assets each year.
Manning & Napier Investor Services, Inc., a registered broker-dealer
affiliate of the Advisor, acts as distributor for the Fund's shares. The
services of Manning & Napier Investor Services, Inc. are provided at no
additional cost to the Fund.
The compensation of the non-affiliated Directors totaled $6,791 for the
year ended December 31, 1995.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term securities, were
$7,623,401 and $0, respectively, for the year ended December 31, 1995.
5. CAPITAL STOCK TRANSACTIONS
<TABLE>
<CAPTION>
Transactions in shares of New York Tax Exempt Series Class P Common Stock
were:
For the Year For the Period 1/17/94
Ended 12/31/95 to 12/31/94
Shares Amount Shares Amount
--------------- ----------- ----------------------- ------------
<S> <C> <C> <C> <C>
Sold 905,817 $8,705,001 2,187,660 $21,660,167
Reinvested 99,114 973,495 68,726 616,469
Redeemed (70,547) (685,721) (329,891) (3,051,124)
Total 934,384 $8,992,775 1,926,495 $19,225,512
</TABLE>
B-187
<PAGE>
6. FINANCIAL INSTRUMENTS
The Fund may trade in financial instruments with off-balance sheet risk
in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include
written options and futures contracts and may involve, to a varying degree,
elements of risk in excess of the amounts recognized for financial statement
purposes. No such investments were held by the Fund on
December 31, 1995.
7. CONCENTRATION OF CREDIT
The Fund primarily invests in debt obligations issued by the State of New
York and its political subdivisions, agencies, and public authorities to
obtain funds for various public purposes. The Fund is more susceptible to
factors adversely affecting issues of New York municipal securities than is
a municipal bond fund that is not concentrated in these issues to the same
extent.
B-188
<PAGE>
Report of Independent Accountants
To the Shareholders and Directors of
Manning & Napier Fund, Inc. - New York Tax Exempt Series:
We have audited the accompanying statement of assets and liabilities of
Manning & Napier Fund, Inc. - New York Tax Exempt Series, including the
schedule of portfolio investments as of December 31, 1995, the related
statement of operations for the year then ended, the statement of changes in
the net assets, and the financial highlights for the year then ended and for
the period January 17, 1994 (Commencement of Operations) to December 31, 1994.
These financial statements and financial highlights are the responsibility of
the Fund's 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 financial 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 statements. Our procedures included confirmation of securities
owned as of December 31, 1995 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 provide 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 the
Manning & Napier Fund, Inc. - New York Tax Exempt Series as of December 31,
1995, the results of its operations for the year then ended, the changes in
its net assets, and the financial highlights for the year then ended and for
the period January 17, 1994 (Commencement of Operations) to December 31, 1994,
in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
January 26, 1996
B-189
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
Ohio Tax Exempt Series
Annual Report
December 31, 1995
<PAGE>
Management Discussion and Analysis
Dear Shareholders:
When looking back on 1995, the first line of Dickens A Tale of Two Cities
immediately comes to mind: it was the best of times, it was the worst of
times.... The best of times refers to the almost uninterrupted decline in
interest rates that started in November of 1994 and continued throughout 1995.
With the exception of money market funds and cash equivalents, it is
difficult to find a sector of the taxable fixed income marketplace that did
not turn in double digit returns. Even the lowly two-year U.S. Treasury note
returned more than 11%. Who says bonds are boring?
But it was the worst of times because the attractive yields and compelling
values that were plentiful at the start of 1995, that made 1995 the strong
year that it was, are today difficult to find. It was an especially bad year
for those investors, and we suspect there were many, who failed to take
advantage of the opportunities that presented themselves early in the year.
But fear not, this fund was not one of them. Because we had positioned the
portfolio to take advantage of this scenario, it did indeed benefit from the
decline in interest rates over the course of the year.
In order to understand what happened in 1995, it is worthwhile to re-visit
what happened in 1994. To a large degree, the events of 1994, which led to
poor returns in the bond market that year, contributed to our success in 1995.
At the start of 1994, there was a large degree of speculation and financial
leverage in the market, and this created a fragile environment where the
effect of any shock to the system would be exaggerated. The first shock came
when the Federal Reserve increased short-term interest rates early in
February. At the same time, some economic indicators started to warn of
coming inflation, which caused long-term interest rates to rise. The
situation took a turn for the worse when the dollar started to decline
relative to the currencies of some other countries. Because the U.S. economy
is heavily dependent on foreign investment, which was slowed due to the
dollars decline, this was more bad news for the bond market.
The confluence of these factors in combination with an overleveraged
marketplace resulted in a sell-off that exceeded even the most bearish
expectations. As mentioned above, short-term rates doubled, and long-term
rates careened from 5.8% to 8.1%. With hindsight, it is easy to say the
increase in rates was overdone, but it was the speed with which the market
corrected that caught many market participants by surprise.
The picture began to change with the Republican victory in the 1994
congressional elections. The Republicans had campaigned heavily on the issue
B-190
<PAGE>
Management Discussion and Analysis (continued)
of fiscal conservatism and the balanced budget amendment, and the financial
markets were encouraged by this. With the election results acting as a
catalyst for the reversal, the factors that decimated the market in 1994 began
to reverse themselves, and so too did the rise in interest rates. By the start
of 1995, speculation was almost non-existent and the degree of leverage in the
marketplace had returned to more normal levels. While it does not necessarily
follow that this would lead to lower rates, it did alleviate one of the major
problems that had plagued the market in 1994.
The inflation story began to change as well in 1995; inflationary pressures
dissipated and it even began to appear that disinflation was returning.
During the second half of the year, economic growth slowed noticeably, and the
dollar, which struggled during the first quarter of the year, staged a nice
turnaround. The turnaround was especially noticeable versus the Japanese yen.
Events specific to 1995 kept the ball rolling. The most talked about was the
decided shift in the focus of the federal budget debates. Both the
Republicans and the Democrats proposed long-term fiscal plans that were meant
to balance the federal budget. While the timing and the details of each plan
were quite different, the market responded positively to the policy makers
renewed interest in fiscal responsibility.
Another factor in bonds strong showing was the renewed interest that foreign
investors were showing in U.S. financial markets. At the beginning of the
year, the dollar had fallen to such low levels that foreign investors were
drawn to its good relative value. Once the dollar started to appreciate,
foreign investors were drawn to its capital appreciation potential. Remember,
foreign investors do not simply buy U.S. dollars, they invest the dollars in
U.S. assets, with the bond market being one of the prime beneficiaries.
By the end of the year, long rates had effectively retraced their 1994
increase, falling from just above 8% in November of 1994 to 5.95% at the end
of 1995. The total returns were staggering, rivaling some of the best calender
years on record.
As good as 1995 was for all fixed income investors, there was a dark cloud
that hung over municipal investors during the second half of the year; that
cloud could effectively be referred to as tax reform. Although the talk had
quieted down somewhat by the end of the year, there was still a sense that tax
reform, or rather tax simplification, would be an important campaign issue in
1996. Many proposals focus not only on simplifying the filing process, but
also on increasing the rate of savings within the economy since the current
system seems to penalize savings while encouraging consumption. While it is
tough to argue with the ultimate goals of tax simplification, one of the
potential losers, at least on a relative basis, would be the municipal bond
market.
B-191
<PAGE>
Management Discussion and Analysis (continued)
Most of the tax simplification plans that have been proposed, or are expected
to be proposed, do not take anything away from muni bonds. What has shaken up
the muni market, however, are the proposals within the various plans to exempt
all investment income from taxation, thereby stripping the muni market of its
relative advantage. If such an event were to occur, munis would trade like
high grade corporate bonds - at some yield spread above U.S. Treasuries rather
than at some spread below U.S. Treasuries as is currently the case.
As a result of this potential change, many muni investors have shortened the
maturity of their portfolios and concentrated their purchases on the short end
of the curve. This has caused intermediate and longer-term munis to lag their
intermediate and longer-term taxable counterparts on a relative basis. Despite
this, municipal bonds earned strong double-digit returns, even while beginning
to discount unfavorable tax legislation. This discounting would lessen the
shock should such legislation become reality, while providing fresh upside
potential should there prove to be no tax changes which adversely affect
municipal bonds.
The Ohio Tax Exempt Series earned a total return of 17.14% for 1995. For
comparison purposes, the Merrill Lynch Intermediate Municipal Index returned
13.39%, which means the Series outperformed the benchmark by nearly 4%.
Because benchmark returns, unlike mutual fund returns, do not reflect fees or
expenses, it is rare for a bond fund to outperform a benchmark.
We have structured the portfolio based on our investment overview of declining
interest rates. As a result, the security selection process has focussed on
issuers with high credit quality, long maturities (which benefit from
declining interest rates), and as much call protection as possible (which
limits the ability of issuers to call away your investments). Additionally,
we prefer to focus on bonds that are insured or pre-refunded which adds an
additional element of protection. Finally, we look for general obligation
bonds (as opposed to revenue bonds) because we would rather rely on the full
faith and credit of a municipality than the revenue generated by a specific
project. It is important to note that this high quality standard did not
penalize our performance.
B-192
<PAGE>
Management Discussion and Analysis (continued)
Having closed the books on one of the best years for fixed income investors,
we believe it is unlikely the bond market can repeat its 1995 performance in
1996. As we begin 1996, it appears that the market is already discounting
what can be referred to as the best case scenario, moderate economic growth
with little inflationary pressure. For muni investors, the direction of tax
reform will no doubt have an influence on the performance of municipal bonds.
As we stated earlier, the market has already been discounting this to some
degree, driving the shape of the muni yield curve steeper than the Treasury
yield curve. New variables would have to emerge to drive yields sharply lower
(i.e., even slower growth, draconian budget cuts, etc...). Nevertheless, our
analysis shows that the long-term secular factors that have driven rates lower
in a saw-tooth fashion over the last 15 years are still firmly in place, and
we believe that rates, over the longer-term, will continue to move lower.
We appreciate your continued confidence in us and wish you all the best in
1996.
Sincerely,
MANNING & NAPIER ADVISORS, INC.
[PIE CHART]
Portfolio Composition
General Obligation Bonds - 66%
Revenue Bonds - 27%
Pre-Refunded Bonds - 7%
[PIE CHART]
Quality Ratings*
Aaa - 88%
Aa - 6%
A - 4%
Not Rated - 2%
*Using Moody's Ratings
B-193
<PAGE>
Performance Update as of December 31, 1995
The value of a $10,000 investment in the Manning & Napier Fund, Inc. - Ohio
Tax Exempt Series from its inception (2/14/94) to present (12/31/95) as
compared to the Merrill Lynch Intermediate Municipal Index.1
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc.
Ohio Tax Exempt Series
Total Return
Through Growth of $10,000 Average
12/31/95 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 11,714 17.14% 17.14%
Inception2 $ 10,985 9.85% 5.12%
</TABLE>
<TABLE>
<CAPTION>
Merrill Lynch Intermediate Municipal Index
Total Return
Through Growth of $10,000 Average
12/31/95 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 11,339 13.39% 13.39%
Inception2 $ 11,009 10.09% 5.25%
</TABLE>
1The unmanaged Merrill Lynch Intermediate Municipal Index is a market value
weighted measure of approximately 260 municipal bonds issued across the United
States. The Index is comprised of investment grade securities. Index returns
assume reinvestment of coupons and, unlike Fund returns, do not reflect any
fees or expenses.
2The Fund and Index performance numbers are calculated from February 14, 1994,
the Fund's inception date. The Fund's performance is historical and may not
be indicative of future results.
[GRAPHIC]
LINE CHART
Data for Line Chart to follow:
<TABLE>
<CAPTION>
Manning & Napier Merrill Lynch
Ohio Tax Intermediate
Exempt Series Municipal Index
<S> <C> <C>
14-Feb-94* 10,000 10,000
31-Mar-94 9,630 9,576
30-Jun-94 9,540 9,652
30-Sep-94 9,510 9,771
31-Dec-94 9,377 9,709
31-Mar-95 10,067 10,165
30-Jun-95 10,288 10,478
30-Sep-95 10,552 10,679
31-Dec-95 10,985 11,009
</TABLE>
* Inception date
B-194
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - December 31, 1995
Principal Value
Amount (Note 2)
<S> <C> <C>
OHIO MUNICIPAL SECURITIES - 96.7%
Akron Bath Copley Joint Twnshp. Childrens Hos.
Med. Ctr. MBIA-IBC, Rev. Bond, 7.45%,
11/15/2020 $ 50,000 $ 58,251
Akron Limited Tax, G.O. Bond, 4.10%, 12/1/2001 65,000 64,158
Akron Waterworks, Revenue Management Improvement
Bond, 5.70%, 3/1/2007 100,000 105,930
Allen County, G.O. Bond, 5.30%, 12/1/2007 100,000 102,496
Amherst Police & Jail Facility, G.O. Bond, 5.375%,
12/1/2012 50,000 50,844
Avon Lake, G.O. Bond, 5.70%, 12/1/2006 60,000 63,211
Avon Lake, G.O. Bond, 6.00%, 12/1/2009 40,000 42,259
Bedford Heights, G.O. Bond, Series A, 5.65%, 12/1/2014 60,000 64,199
Belmont County, G.O. Bond, 5.15%, 12/1/2010 100,000 100,707
Bexley City School District, G.O. Bond MBIA-IBC,
6.50%, 12/1/2016 20,000 22,623
Cincinnati, G.O. Bond, 4.60%, 12/1/2003 50,000 50,428
Clermont County Hospital Facilities Mercy Health Care
System, Revenue Bond, Series A, 7.625%, 1/1/2015 25,000 27,222
Cleveland, G.O. Bond, Series B, 4.95%, 7/1/1996 20,000 20,134
Cleveland City School District, G.O. Bond, 5.875%,
12/1/2011 125,000 131,139
Cleveland Public Power System Improvement, Revenue Bond,
1st Mtg, 8.375%, 8/1/2017 50,000 54,434
Cleveland Waterworks, Revenue Bond, 1st Mtg, Series G,
5.50%, 1/1/2013 100,000 104,978
Columbus, G.O. Bond, Series B, 6.10%, 1/1/2003 100,000 110,090
Columbus, G.O. Bond, Series D, 5.50%, 9/15/2008 50,000 52,253
Columbus Limited Tax, G.O. Bond, Series A,
4.85%, 7/1/2004 50,000 51,190
Crawford County, G.O. Bond, 6.75%, 12/1/2019 175,000 202,508
Cuyahoga County, G.O. Bond, Series A, 4.30%, 10/1/1999 50,000 50,187
Cuyahoga Falls, G.O. Bond, 7.20%, 12/1/2010 75,000 84,533
Delaware City School District Construction & Impt.,
G.O. Bond, Series B, 5.20%, 12/1/2016 100,000 99,869
Fairfield County Hospital Impt., Lancaster-Fairfield
Community Hospital, Revenue Bond, 7.00%, 6/15/2012 50,000 57,380
The accompanying notes are an integral part of the financial statements.
B-195
<PAGE>
Investment Portfolio - December 31, 1995
Principal Value
Amount (Note 2)
OHIO MUNICIPAL SECURITIES (continued)
Findlay Water, Revenue Bond, 5.45%, 11/1/2008 $ 100,000 $ 103,320
Franklin County, G.O. Bond, 4.95%, 12/1/2004 50,000 51,526
Gahanna-Jefferson City School District, G.O. Bond,
4.75%, 12/1/1999 50,000 51,092
Green Local School District - Summit, G.O. Bond,
5.20%, 12/1/2003 75,000 78,260
Greene County Sewer System, Revenue Bond, 5.50%,
12/1/2018 30,000 30,112
Hamilton County Building Impt., Museum Center
G.O. Bond, 5.85%, 12/1/2001 50,000 54,040
Hamilton County Sewer System, Ref. & Impt. - Metro
Sewer District, Revenue Bond, Series A,
4.75%, 12/1/2000 50,000 51,277
Hamilton County Sewer System Ref & Impt - Metro
Sewer District, Rev. Bond, Series A, 5.00%, 12/1/2014 125,000 120,839
Hilliard School District, G.O. Bond, 6.35%, 12/1/2003 60,000 67,156
Huber Heights Water Systems, Revenue Bond,
5.25%, 12/1/2007 200,000 206,622
Kettering City School District, G.O. Bond, 4.85%,
12/1/2006 40,000 40,235
Kettering City School District, G.O. Bond, 5.25%,
12/1/2022 60,000 59,062
Lakewood City School District, G.O. Bond, 5.55%,
12/1/2013 100,000 102,448
Lakota Local School District, G.O. Bond, 5.75%,
12/1/2006 50,000 53,509
Lakota Local School District, G.O. Bond, 7.00%,
12/1/2008 100,000 119,818
Lakota Local School District, G.O. Bond, 7.90%,
12/1/2011 45,000 49,819
Lorain Water System, Revenue Bond, 4.75%, 4/1/2005 125,000 125,643
Lucas County, G.O. Bond, Series I, 5.40%, 12/1/2003 100,000 105,597
Mahoning County, G.O. Bond, 5.70%, 12/1/2009 150,000 158,110
Mahoning County Limited Tax, G.O. Bond, 5.65%,
12/1/1998 20,000 20,884
Mason City School District, G.O. Bond, 5.00%, 12/1/2007 120,000 120,461
The accompanying notes are and integral part of the financial statements.
B-196
<PAGE>
Investment Portfolio - December 31, 1995
Principal Value
Amount (Note 2)
OHIO MUNICIPAL SECURITIES (continued)
Montgomery County, G.O. Bond, 5.30%, 9/1/2007 $ 65,000 $ 67,092
Montgomery County Moraine-Beaver Creek Sewers,
Revenue Bond, 5.60%, 9/1/2011 100,000 103,249
North Canton City School District, G.O. Bond,
5.85%, 12/1/2007 40,000 43,008
Northeast Ohio Regional Sewer District Waste & Water
Impt., Rev. Bond, 6.50%, 11/15/2016 100,000 112,258
Northwood Local School District, G.O. Bond, 5.55%,
12/1/2006 65,000 69,218
Northwood Local School District, G.O. Bond, 6.20%,
12/1/2013 40,000 43,473
Ohio, G.O. Bond, 6.50%, 8/1/2011 50,000 54,736
Ohio Building Authority, Local Jail Grant, Revenue Bond,
Series A, 4.65%, 10/1/2005 50,000 49,495
Ohio Building Authority, State Facilites - Administration
Buildings-MBIA-IBC, Revenue Bond, 5.50%, 10/1/2005 50,000 53,178
Ohio Higher Education Facility, University of Dayton
Project, Revenue Bond, 5.80%, 12/1/2019 100,000 103,430
Ohio Public Facilities, Higher Education, Revenue Bond,
Series II-A, 4.25%, 12/1/2002 50,000 49,116
Ohio Water Development Authority Pure Water, Revenue
Bond, Series I, 6.00%, 12/1/2016 40,000 43,459
Ohio Water Development Authority Ref. & Impt. - Pure
Water, Revenue Bond, 5.75%, 12/1/2005 60,000 64,365
Ottawa County, G.O. Bond, 5.45%, 9/1/2006 30,000 31,663
Pickerington Water Systems Improvement, G.O. Bond,
5.85%, 12/1/2013 50,000 52,748
Reynoldsburg City School District, G.O. Bond, 6.55%,
12/1/2017 175,000 193,728
Rocky River City School District, G.O. Bond, Series A,
6.375%, 12/1/1998 25,000 26,614
Rocky River City School District, G.O. Bond, Series A,
6.90%, 12/1/2011 50,000 53,754
Rural Lorain Water Authority Ref. & Impt. - MBIA - IBC,
Revenue Bond, 5.30%, 10/1/2012 110,000 111,176
The accompanying notes are an integral part of the financial statements.
B-197
<PAGE>
Investment Portfolio - December 31, 1995
Principal Value
Amount/Shares (Note 2)
OHIO MUNICIPAL SECURITIES (continued)
South-Western City School District, Franklin & Pickway
Counties, G.O. Bond, 4.80%, 12/1/2006 $ 100,000 $ 100,153
Stark County, G.O. Bond, 5.70%, 11/15/2017 100,000 102,574
Stark County Hospital - Doctors Hospital, Inc.,
Revenue Bond, 8.625%, 4/1/2018 30,000 33,420
Summit County, G.O. Bond, 5.75%, 12/1/2008 175,000 184,461
Toledo, G.O. Bond, 5.95%, 12/1/2015 175,000 185,267
Toledo Sewer System, Revenue Bond, 6.35%, 11/15/2017 185,000 203,700
Trumbull County, G.O. Bond, 6.20%, 12/1/2014 100,000 108,422
Warren, G.O. Bond, 5.20%, 11/15/2013 50,000 50,172
Wood County, G.O. Bond, 5.40%, 12/1/2013 50,000 50,418
Youngstown, G.O. Bond, 6.125%, 12/1/2014 50,000 54,075
TOTAL MUNICIPAL SECURITIES
(Identified Cost $5,649,252) 5,939,275
SHORT-TERM INVESTMENTS - 5.1%
Dreyfus Municipal Reserves (Identified Cost $314,372) 314,372 314,372
TOTAL INVESTMENTS - 101.8%
(Identified Cost $5,963,624) 6,253,647
LIABILITIES, LESS OTHER ASSETS (1.8)% (110,071)
NET ASSETS - 100% $6,143,576
</TABLE>
Key -
G.O. Bond - General Obliation Bond
Rev. Bond - Revenue Bond
Impt. - Improvement
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
At December 31, 1995, the net unrealized appreciation based on identified cost
for federal income tax purposes of $5,963,624 was as follows:
<S> <C>
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost $291,561
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value (1,538)
Unrealized appreciation-net $290,023
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-198
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
December 31, 1995
<S> <C>
ASSETS:
Investments, at value (Identified cost, $5,963,624) (Note 2) $6,253,647
Interest receivable 49,534
Prepaid expense 255
TOTAL ASSETS 6,303,436
LIABILITIES:
Accrued management fees (Note 3) 19,239
Accrued Directors' fees (Note 3) 1,813
Transfer agent fees payable (Note 3) 121
Payable for securities purchased 124,973
Audit fee payable 11,000
Other payables and accrued expenses 2,714
TOTAL LIABILITIES 159,860
NET ASSETS FOR 595,943 SHARES OUTSTANDING $6,143,576
NET ASSETS CONSIST OF:
Capital stock $ 5,959
Additional paid-in-capital 5,848,380
Undistributed net investment income 1,076
Accumulated net realized loss on investments (1,862)
Net unrealized appreciation on investments 290,023
TOTAL NET ASSETS $6,143,576
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($6,143,576/595,943 shares) $ 10.31
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-199
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations
For the Year Ended December 31, 1995
<S> <C>
INVESTMENT INCOME:
Interest $253,301
EXPENSES:
Management fees (Note 3) 23,637
Directors' fees (Note 3) 6,792
Transfer agent fees (Note 3) 1,135
Custodian fees 6,000
Audit fee 5,171
Miscellaneous 1,825
Total Expenses 44,560
Less Waiver of Expenses (Note 3) (4,398)
Net Expenses 40,162
NET INVESTMENT INCOME 213,139
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized loss on investments (identified cost basis) (667)
Net change in unrealized appreciation on investments 507,287
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 506,620
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $719,759
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-200
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
For the Period 2/14/94
For the (commencement
Year Ended of operations)
12/31/95 to 12/31/94
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 213,139 $ 89,937
Net realized loss on investments (667) (1,195)
Net change in unrealized appreciation (depreciation) on
investments 507,287 (217,264)
Net increase (decrease) in net assets from operations 719,759 (128,522)
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (215,626) (86,374)
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase in net assets from capital share
transactions (Note 5) 1,738,597 4,115,742
Net increase in net assets 2,242,730 3,900,846
NET ASSETS:
Beginning of period 3,900,846 -
End of period (including undistributed net
investment income of $1,076 and $3,563,
respectively) $ 6,143,576 $ 3,900,846
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-201
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
For the Period 2/14/94
For the (commencement
Year Ended of operations)
12/31/95 to 12/31/94
<S> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - Beginning of period $ 9.18 $ 10.00
Income from investment operations:
Net investment income 0.419 0.205
Net realized and unrealized gain (loss) on investments 1.136 (0.828)
Total from investment operations 1.555 (0.623)
Less distributions declared to shareholders:
From net investment income (0.425) (0.197)
Net asset value - End of period $ 10.31 $ 9.18
Total Return1 17.14% (6.23)%
Ratios (to average net assets)/Supplemental Data:
Expenses 0.85%** 0.85%*2
Net investment income 4.50%** 4.03%*2
Portfolio turnover 1% 2%
Net Assets - End of period (000's omitted) $ 6,144 $ 3,901
*The investment advisor did not impose its management fee and paid a portion
of the Fund's expenses.
**The investment advisor waived a portion of its management fee.
If these expenses had been incurred by the Fund in either instances above, the
net investment income per share and the ratioswould have been as follows:
Net investment income $0.411 $ 0.141
Ratios (to average net assets):
Expenses2 0.94% 2.07%
Net investment income2 4.41% 2.81%
1Total return represents aggregate total return for the period indicated.
2Annualized.
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-202
<PAGE>
Notes to Financial Statements
1. ORGANIZATION
Ohio Tax Exempt Series (the "Fund") is a no-load diversified series of
Manning & Napier Fund, Inc. (the "Corporation"). The Corporation is
organized as a Maryland Corporation and is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment
company.
Shares of the Fund are offered to investors, employees and clients of
Manning & Napier Advisors, Inc. (the "Advisor") and its affiliates. The
total authorized capital stock of the Corporation consists of one billion
shares of common stock each having a par value of $0.01. As of December 31,
1995, 710 million shares have been designated in total among 18 series, of
which 50 million have been designated as Ohio Tax Exempt Series Class Q
Common Stock.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Municipal securities will normally be valued on the basis of market
valuations provided by an independent pricing service (the "Service"). The
Service utilizes the latest price quotations and a matrix system (which
considers such factors as security prices of similar securities, yields,
maturities, and ratings). The Service has been approved by the Fund's Board
of Directors.
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 Fund's Board of Directors.
Short-term investments that mature in sixty (60) days or less are valued
at amortized cost.
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 Fund's policy is to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies. The Fund is not
subject to federal income or excise tax to the extent the Fund distributes
to shareholders each year its taxable income, including any net realized
gains on investments in accordance with requirements of the Internal Revenue
Code. Accordingly, no provision for federal income taxes has been made in
the financial statements.
B-203
<PAGE>
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
FEDERAL INCOME TAXES (continued)
At December 31, 1995, the Fund, for federal income tax purposes, had a
capital loss carryforward of $1,862. Of this amount, $1,195 will expire on
December 31, 2002 and $667 will expire on December 31, 2003.
The Fund uses the identified cost method for determining realized gain or
loss on investments for both financial statement and federal income tax
reporting purposes.
DISTRIBUTION OF INCOME AND GAINS
Distributions to shareholders of tax exempt income are made quarterly.
Distributions are recorded on the ex-dividend date. Distributions of net
realized gains are distributed annually. An additional distribution may be
necessary to avoid taxation of the Fund.
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 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 Fund may periodically make reclassification
among its capital accounts without impacting the Fund's net asset value.
The Fund hereby designates $214,921 as tax-exempt dividends for the year
ended December 31, 1995.
3. TRANSACTIONS WITH AFFILIATES
The Fund has 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 of 0.50% of the Fund's
average daily net assets. The fee amounted to $23,637 for the year ended
December 31, 1995.
Under the Fund's Investment Advisory Agreement (the "Agreement"),
personnel of the Advisor provide the Fund with advice and assistance in the
choice of investments and the execution of securities transactions, and
otherwise maintain the Fund's organization. The Advisor also provides the
Fund with necessary office space and portfolio accounting and bookkeeping
services. The salaries of all officers of the Fund and of all Directors who
are "affiliated persons" of the Fund or of the Advisor, and all personnel of
the Fund or of the Advisor performing services relating to research,
statistical and investment activities are paid by the Advisor.
B-204
<PAGE>
Notes to Financial Statements
3. TRANSACTIONS WITH AFFILIATES (continued)
The Advisor also acts as the transfer, dividend paying and shareholder
servicing agent for the Fund. For these services, the Fund pays a fee which
is calculated as a percentage of the average daily net assets at an annual
rate of 0.024% and amounted to $1,135 for the year ended December 31, 1995.
The Advisor has voluntarily agreed to waive its fee and, if necessary,
pay other expenses of the Fund in order to maintain total expenses for the
Fund at no more than 0.85% of average daily net assets each year.
Accordingly, the Advisor waived fees of $4,398, which is reflected as a
reduction of expenses on the Statement of Operations. The fee waiver and
assumption of expenses by the Advisor is voluntary and may be terminated at
any time.
Manning & Napier Investor Services, Inc., a registered broker-dealer
affiliate of the Advisor, acts as distributor for the Fund's shares. The
services of Manning & Napier Investor Services, Inc. are provided at no
additional cost to the Fund.
The compensation of the non-affiliated Directors totaled $6,792 for the
year ended December 31, 1995.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term securities, were
$1,633,770 and $50,405, respectively, for the year ended December 31, 1995.
5. CAPITAL STOCK TRANSACTIONS
<TABLE>
<CAPTION>
Transactions in share of Ohio Tax Exempt Series Class Q Common Stock were:
For the Year For the Period
Ended 12/31/95 2/14/94 to 12/31/94
Shares Amount Shares Amount
--------------- ----------- -------------------- -----------
<S> <C> <C> <C> <C>
Sold 163,241 $1,658,399 462,240 $4,466,525
Reinvested 21,448 215,626 9,419 86,374
Redeemed (13,614) (135,428) (46,791) (437,157)
Total 171,075 $1,738,597 424,868 $4,115,742
</TABLE>
B-205
<PAGE>
6. FINANCIAL INSTRUMENTS
The Fund may trade in financial instruments with off-balance sheet risk
in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include
written options and futures contracts and may involve, to a varying degree,
elements of risk in excess of the amounts recognized for financial statement
purposes. No such investments were held by the Fund on
December 31, 1995.
7. CONCENTRATION OF CREDIT
The Fund primarily invests in debt obligations issued by the State of
Ohio and its political subdivisions, agencies, and public authorities to
obtain funds for various public purposes. The Fund is more susceptible to
factors adversely affecting issues of Ohio municipal securities than is a
municipal bond fund that is not concentrated in these issues to the same
extent.
B-206
<PAGE>
Report of Independent Accountants
TO THE SHAREHOLDERS AND DIRECTORS OF
MANNING & NAPIER FUND, INC. - OHIO TAX EXEMPT SERIES:
We have audited the accompanying statement of assets and liabilities of
Manning & Napier Fund, Inc. - Ohio Tax Exempt Series, including the schedule
of portfolio investments as of December 31, 1995, the related statement of
operations for the year then ended, the changes in net assets, and the
financial highlights for the year then ended and for the period February 14,
1994 (Commencement of Operations) to
December 31, 1994. These financial statements and financial highlights are
the responsibility of the Fund's 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 financial 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 statements. Our procedures included confirmation of securities
owned as of December 31, 1995 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 provide 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 the
Manning & Napier Fund, Inc. - Ohio Tax Exempt Series as of December 31, 1995,
the results of its operations for the year then ended, the changes in its net
assets and the financial highlights for the year then ended and for the period
February 14, 1994 (Commencement of Operations) to December 31, 1994, in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
January 26, 1996
B-207
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
DIVERSIFIED TAX
EXEMPT SERIES
Annual Report
December 31, 1995
<PAGE>
Management Discussion and Analysis
Dear Shareholders:
When looking back on 1995, the first line of Dickens A Tale of Two Cities
immediately comes to mind: it was the best of times, it was the worst of
times.... The best of times refers to the almost uninterrupted decline in
interest rates that started in November of 1994 and continued throughout 1995.
With the exception of money market funds and cash equivalents, it is
difficult to find a sector of the taxable fixed income marketplace that did
not turn in double digit returns. Even the lowly two-year U.S. Treasury note
returned more than 11%. Who says bonds are boring?
But it was the worst of times because the attractive yields and compelling
values that were plentiful at the start of 1995, that made 1995 the strong
year that it was, are today difficult to find. It was an especially bad year
for those investors, and we suspect there were many, who failed to take
advantage of the opportunities that presented themselves early in the year.
But fear not, this fund was not one of them. Because we had positioned the
portfolio to take advantage of this scenario, it did indeed benefit from the
decline in interest rates over the course of the year.
In order to understand what happened in 1995, it is worthwhile to re-visit
what happened in 1994. To a large degree, the events of 1994, which led to
poor returns in the bond market that year, contributed to our success in 1995.
At the start of 1994, there was a large degree of speculation and financial
leverage in the market, and this created a fragile environment where the
effect of any shock to the system would be exaggerated. The first shock came
when the Federal Reserve increased short-term interest rates early in
February. At the same time, some economic indicators started to warn of
coming inflation, which caused long-term interest rates to rise. The
situation took a turn for the worse when the dollar started to decline
relative to the currencies of some other countries. Because the U.S. economy
is heavily dependent on foreign investment, which was slowed due to the
dollars decline, this was more bad news for the bond market.
The confluence of these factors in combination with an overleveraged
marketplace resulted in a sell-off that exceeded even the most bearish
expectations. As mentioned above, short-term rates doubled, and long-term
rates careened from 5.8% to 8.1%. With hindsight, it is easy to say the
increase in rates was overdone, but it was the speed with which the market
corrected that caught many market participants by surprise.
B-208
<PAGE>
Management Discussion and Analysis (continued)
The picture began to change with the Republican victory in the 1994
congressional elections. The Republicans had campaigned heavily on the issue
of fiscal conservatism and the balanced budget amendment, and the financial
markets were encouraged by this. With the election results acting as a
catalyst for the reversal, the factors that decimated the market in 1994 began
to reverse themselves, and so too did the rise in interest rates. By the start
of 1995, speculation was almost non-existent and the degree of leverage in the
marketplace had returned to more normal levels. While it does not necessarily
follow that this would lead to lower rates, it did alleviate one of the major
problems that had plagued the market in 1994.
The inflation story began to change as well in 1995; inflationary pressures
dissipated and it even began to appear that disinflation was returning.
During the second half of the year, economic growth slowed noticeably, and the
dollar, which struggled during the first quarter of the year, staged a nice
turnaround. The turnaround was especially noticeable versus the Japanese yen.
Events specific to 1995 kept the ball rolling. The most talked about was the
decided shift in the focus of the federal budget debates. Both the
Republicans and the Democrats proposed long-term fiscal plans that were meant
to balance the federal budget. While the timing and the details of each plan
were quite different, the market responded positively to the policy makers
renewed interest in fiscal responsibility.
Another factor in bonds strong showing was the renewed interest that foreign
investors were showing in U.S. financial markets. At the beginning of the
year, the dollar had fallen to such low levels that foreign investors were
drawn to its good relative value. Once the dollar started to appreciate,
foreign investors were drawn to its capital appreciation potential. Remember,
foreign investors do not simply buy U.S. dollars, they invest the dollars in
U.S. assets, with the bond market being one of the prime beneficiaries.
By the end of the year, long rates had effectively retraced their 1994
increase, falling from just above 8% in November of 1994 to 5.95% at the end
of 1995. The total returns were staggering, rivaling some of the best calender
years on record.
As good as 1995 was for all fixed income investors, there was a dark cloud
that hung over municipal investors during the second half of the year; that
cloud could effectively be referred to as tax reform. Although the talk had
quieted down somewhat by the end of the year, there was still a sense that tax
reform, or rather tax simplification, would be an important campaign issue in
1996. Many proposals focus not only on simplifying the filing process, but
B-209
<PAGE>
Management Discussion and Analysis (continued)
also on increasing the rate of savings within the economy since the current
system seems to penalize savings while encouraging consumption. While it is
tough to argue with the ultimate goals of tax simplification, one of the
potential losers, at least on a relative basis, would be the municipal bond
market.
Most of the tax simplification plans that have been proposed, or are expected
to be proposed, do not take anything away from muni bonds. What has shaken up
the muni market, however, are the proposals within the various plans to exempt
all investment income from taxation, thereby stripping the muni market of its
relative advantage. If such an event were to occur, munis would trade like
high grade corporate bonds - at some yield spread above U.S. Treasuries rather
than at some spread below U.S. Treasuries as is currently the case.
As a result of this potential change, many muni investors have shortened the
maturity of their portfolios and concentrated their purchases on the short end
of the curve. This has caused intermediate and longer-term munis to lag their
intermediate and longer-term taxable counterparts on a relative basis. Despite
this, municipal bonds earned strong double-digit returns, even while beginning
to discount unfavorable tax legislation. This discounting would lessen the
shock should such legislation become reality, while providing fresh upside
potential should there prove to be no tax changes which adversely affect
municipal bonds.
The Diversified Tax Exempt Series earned a total return of 16.29% for 1995.
For comparison purposes, the Merrill Lynch Intermediate Municipal Index
returned 13.39%, which means the Series outperformed the benchmark by nearly
3%. Because benchmark returns, unlike mutual fund returns, do not reflect
fees or expenses, it is rare for a bond fund to outperform a benchmark.
We have structured the portfolio based on our investment overview of declining
interest rates. As a result, the security selection process has focussed on
issuers with high credit quality, long maturities (which benefit from
declining interest rates), and as much call protection as possible (which
limits the ability of issuers to call away your investments). Additionally,
we prefer to focus on bonds that are insured or pre-refunded which adds an
additional element of protection. Finally, we look for general obligation
bonds (as opposed to revenue bonds) because we would rather rely on the full
faith and credit of a municipality than the revenue generated by a specific
project. It is important to note that this high quality standard did not
penalize our performance.
B-210
<PAGE>
Management Discussion and Analysis (continued)
Having closed the books on one of the best years for fixed income investors,
we believe it is unlikely the bond market can repeat its 1995 performance in
1996. As we begin 1996, it appears that the market is already discounting
what can be referred to as the best case scenario, moderate economic growth
with little inflationary pressure. For muni investors, the direction of tax
reform will no doubt have an influence on the performance of municipal bonds.
As we stated earlier, the market has already been discounting this to some
degree, driving the shape of the muni yield curve steeper than the Treasury
yield curve. New variables would have to emerge to drive yields sharply lower
(i.e., even slower growth, draconian budget cuts, etc...). Nevertheless, our
analysis shows that the long-term secular factors that have driven rates lower
in a saw-tooth fashion over the last 15 years are still firmly in place, and
we believe that rates, over the longer-term, will continue to move lower.
We appreciate your continued confidence in us and wish you all the best in
1996.
Sincerely,
MANNING & NAPIER ADVISORS, INC.
[PIE CHART]
Portfolio Composition
General Obligation Bonds - 79%
Revenue Bonds - 17%
Pre-Refunded Bonds - 4%
[PIE CHART]
Quality Ratings*
Aaa - 60%
Aa - 33%
A - 7%
*Using Moody's Ratings
B-211
<PAGE>
Performance Update as of December 31, 1995
The value of a $10,000 investment in the Manning & Napier Fund, Inc. -
Diversified Tax Exempt Series from its inception (2/14/94) to present
(12/31/95) as compared to the Merrill Lynch Intermediate Municipal Index.1
<TABLE>
<CAPTION>
MANNING & NAPIER FUND, INC.
DIVERSIFIED TAX EXEMPT SERIES
Total Return
Through Growth of $10,000 Average
12/31/95 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 11,629 16.29% 16.29%
Inception2 $ 11,003 10.03% 5.22%
</TABLE>
<TABLE>
<CAPTION>
MERRILL LYNCH INTERMEDIATE MUNICIPAL INDEX
Total Return
Through Growth of $10,000 Average
12/31/95 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 11,339 13.39% 13.39%
Inception2 $ 11,009 10.09% 5.25%
</TABLE>
1The unmanaged Merrill Lynch Intermediate Municipal Index is a market value
weighted measure of approximately 260 municipal bonds issued across the United
States. The Index is comprised of investment grade securities. Index returns
assume reinvestment of coupons and, unlike Fund returns, do not reflect any
fees or expenses.
2The Fund and Index performance numbers are calculated from February 14, 1994,
the Fund's inception date. The Fund's performance is historical and may not
be indicative of future results.
[GRAPHIC]
[LINE CHART]
Data for Line Chart to follow:
<TABLE>
<CAPTION>
Manning & Napier Merrill Lynch
Diversified Tax Intermediate
Exempt Series Municipal Index
<S> <C> <C>
14-Feb-94* 10,000 10,000
31-Mar-94 9,570 9,576
30-Jun-94 9,600 9,652
30-Sep-94 9,580 9,771
31-Dec-94 9,461 9,709
31-Mar-95 10,075 10,165
30-Jun-95 10,311 10,478
30-Sep-95 10,550 10,679
31-Dec-95 11,003 11,009
</TABLE>
* Inception date
B-212
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - December 31, 1995
Principal Value
Amount (Note 2)
<S> <C> <C>
MUNICIPAL SECURITIES - 96.5%
Arizona - 1.6%
Central Arizona Water Conservation District Contract,
Central Arizona Project, 4.70%, 5/1/2004 $ 200,000 $ 200,810
Colorado - 1.5%
El Paso County School District No. 020 - MBIA-IBC,
G.O. Bond, Series A, 6.20%, 12/15/2007 160,000 180,810
Deleware - 1.6%
Delaware, G.O. Bond, Series A, 5.00%, 3/1/2008 200,000 201,254
District of Columbia - 1.8%
District of Columbia, G.O. Bond, Series A, 7.65%,
12/1/2003 200,000 223,616
Florida - 2.9%
Dade County School District, , G.O. Bond, 6.125%,
8/1/2008 150,000 159,483
Florida State Department of Environmental Preservation
2000, Revenue Bond, Series A, 4.50%, 7/1/2003 200,000 200,886
360,369
Georgia - 4.6%
Atlanta, G.O, Bond, 5.60%, 12/1/2018 350,000 354,777
Georgia, G.O. Bond, Series B, 5.65%, 3/1/2012 200,000 213,872
568,649
Hawaii - 3.1%
Hawaii, G.O. Bond, Series BO, 6.20%, 8/1/1996 100,000 101,533
Hawaii, G.O. Bond, Series CH, 6.00%, 11/1/2007 260,000 285,197
386,730
Idaho - 0.8%
Ada & Canyon Counties Joint School District, No. 2
Meridan, G.O. Bond, 5.10%, 7/30/2005 100,000 103,210
The accompanying notes are an integral part of the financial statements.
B-213
<PAGE>
Investment Portfolio - December 31, 1995
Principal Value
Amount (Note 2)
Illinois - 2.4%
Chicago Schools Financial Authority, G.O. Bond,
Series A, 5.00%, 6/1/2007 $ 200,000 $ 199,132
Illinois, Certificate Participation, Series 1995A, 5.60%,
7/1/2010 100,000 103,355
302,487
Indiana - 2.4%
Bloomington Sewer Works, Revenue Bond, 5.80%,
1/1/2011 150,000 157,060
Lafayette Waterworks, Revenue Bond, 4.90%, 7/1/2006 140,000 139,432
296,492
Iowa - 3.1%
Cedar Rapids, G.O. Bond, 6.45%, 6/1/2014 350,000 380,677
Kentucky - 2.3%
Kentucky State Turnpike Authority Revitalization
Projects, Revenue Bond, 6.50%, 7/1/2008 250,000 286,565
Maine - 1.8%
Portland, G.O. Bond, 6.20%, 4/1/2006 200,000 222,894
Maryland - 3.2%
Prince Georges County Public Improvement, G.O. Bond,
5.00%, 3/15/2014 200,000 196,698
Washington County Public Improvement, G.O. Bond,
4.875%, 1/1/2010 200,000 196,516
393,214
Massachusetts - 3.4%
Martha's Vineyard Regional High School District
No. 100, G.O. Bond, 6.70%, 12/15/2014 200,000 225,638
Massachusetts Municipal Electric Supply System, Revenue
Bond, Series A, 5.00%, 7/1/2017 200,000 193,350
418,988
The accompanying notes are an integral part of the financial statements.
B-214
<PAGE>
Investment Portfolio - December 31, 1995
Principal Value
Amount (Note 2)
Michigan - 4.8%
Dearborn School District, G.O. Bond, 5.10%, 5/1/2006 $ 200,000 $ 204,762
Farmington Hills, G.O. Bond, 5.70%, 10/1/2005 65,000 69,112
Farmington Hills, G.O. Bond, 5.80%, 10/1/2006 50,000 53,148
Farmington Hills, G.O. Bond, 5.90%, 10/1/2007 75,000 79,703
Pinckney Community Schools, G.O. Bond, 5.00%,
5/1/2014 200,000 195,064
601,789
Minnesota - 3.3%
Minnesota Various Purpose, G.O. Bond, 6.60%,
8/1/1999 200,000 217,146
Western Minnesota Municipal Power Agency, Revenue
Bond, 6.625%, 1/1/2016 175,000 198,474
415,620
Mississippi - 1.8%
Mississippi, G.O. Bond, 6.30%, 12/1/2006 200,000 222,478
Montana - 1.6%
Montana Long Range Building Project, G.O. Bond,
Series A, 4.875%, 8/1/2010 200,000 196,814
Nevada - 5.1%
Clark County School District, G.O. Bond, 6.00%,
6/15/2002 100,000 108,269
Henderson Water, G.O. Bond, Series A, 5.65%,
12/1/2003 300,000 321,594
Nevada Project No. 42, G.O. Bond, 5.70%, 9/1/2008 200,000 210,752
640,615
New Hampshire - 1.8%
New Hampshire, G.O. Bond, 6.60%, 9/1/2014 200,000 221,496
New Jersey - 3.8%
New Jersey Highway Authority, Garden State Parkway,
Revenue Bond, 5.50%, 1/1/2000 200,000 208,968
West Windsor Plainsboro, G.O. Bond, 5.25%, 12/1/2004 250,000 262,145
471,113
The accompanying notes are an integral part of the financial statements.
B-214
<PAGE>
Investment Portfolio - December 31, 1995
Principal Value
Amount (Note 2)
New Mexico - 1.6%
Albuquerque, G.O. Bond, Series A & B, 4.70%,
7/1/2000 $ 200,000 $ 204,066
New York - 4.7%
New York State Thruway Authority, Revenue Bond,
Series A, 5.50%, 1/1/2023 200,000 198,886
Sands Point, G.O. Bond, 6.70%, 11/15/2013 350,000 389,914
588,800
North Carolina - 3.3%
Charlotte Public Improvement, G.O. Bond, 5.70%,
2/1/2002 200,000 215,628
North Carolina State Prison Facilities, G.O. Bond,
Series C, 4.80%, 3/1/2009 200,000 197,680
413,308
Ohio - 3.4%
Ohio Public Facilities, Community Higher Education,
Revenue Bond, Series II-A, 4.25%, 12/1/2002 200,000 196,464
Summit County, Various Purpose, G.O. Bond, 6.625%,
12/1/2012 200,000 222,290
418,754
Pennsylvania - 4.6%
Cambria County, G.O. Bond, Series A, 6.10%,
8/15/2016 350,000 372,211
Pennsylvania State, G.O. Bond, First Series, 5.30%,
5/1/2005 100,000 104,103
Pennsylvania State, G.O. Bond, Second Series,
6.00%, 7/1/2005 90,000 98,525
574,839
Rhode Island - 2.6%
Rhode Island State, G.O. Bond, Series A, 6.20%,
6/15/2004 300,000 330,147
The accompanying notes are an integral part of the financial statements.
B-215
<PAGE>
Investment Portfolio - December 31, 1995
Principal Value
Amount (Note 2)
South Carolina - 1.6%
South Carolina State Capital Improvement, G.O. Bond,
4.10%, 4/1/2001 $ 200,000 $ 198,590
Tennessee - 4.0%
Johnson City School Sales Tax, G.O. Bond, 6.70%,
5/1/2021 350,000 394,236
Lawrence County, G.O. Bond, 6.60%, 3/1/2013 100,000 109,370
503,606
Texas - 1.7%
Dallas Waterworks & Sewer, Revenue Bond, 5.625%,
4/1/2009 200,000 207,122
Virginia - 3.8%
Franklin County Capital Improvement, G.O. Bond,
6.60%, 7/15/2013 250,000 275,003
Loudoun County, G.O. Bond, Series A, 4.50%,
10/1/1997 200,000 202,210
477,213
Washington - 3.9%
Kitsap County School District, G.O. Bond, 6.625%,
12/1/2008 350,000 382,613
Seattle Met. Municipality, G.O. Bond, 5.65%, 1/1/2020 100,000 100,842
483,455
Wisconsin - 2.6%
Wisconsin State, G.O. Bond, Series A, 5.75%, 5/1/2001 300,000 320,241
TOTAL MUNICIPAL SECURITIES
(Identified Cost $11,433,778) 12,016,831
The accompanying notes are an integral part of the financial statements.
B-216
<PAGE>
Investment Portfolio - December 31, 1995
Value
Shares (Note 2)
SHORT-TERM INVESTMENTS - 2.2%
Dreyfus Municipal Reserves (Identified Cost $273,915) 273,915 $ 273,915
TOTAL INVESTMENTS - 98.7%
(Identified Cost $11,707,693) 12,290,746
OTHER ASSETS, LESS LIABILITIES - 1.3% 161,402
NET ASSETS - 100% $12,452,148
</TABLE>
Key:
G.O. Bond - General Obligation Bond
Rev. Bond - Revenue Bond
Dist. - District
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
At December 31, 1995, the net unrealized appreciation based on identified cost
for federal income tax purposes of $11,707,693 was as follows:
<S> <C>
Aggregate gross unrealized appreciation for all
investments in which there was an excess of
value over tax cost $584,480
Aggregate gross unrealized depreciation for all
investments in which there was an excess of
tax cost over value (1,427)
Unrealized appreciation - net $583,053
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-217
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
December 31, 1995
<S> <C>
ASSETS:
Investments, at value (Identified cost, $11,707,693)
(Note 2) $12,290,746
Interest receivable 169,639
Receivable for fund shares sold 14,310
Prepaid expense 535
TOTAL ASSETS 12,475,230
LIABILITIES:
Accrued management fees (Note 3) 5,063
Accrued Directors fees (Note 3) 1,813
Transfer agent fees payable (Note 3) 243
Audit fee payable 11,703
Registration and filing fees 2,978
Other payables and accrued expenses 1,282
TOTAL LIABILITIES 23,082
NET ASSETS FOR 1,207,105 SHARES
OUTSTANDING $12,452,148
NET ASSETS CONSIST OF:
Capital stock $ 12,071
Additional paid - in - capital 11,857,426
Undistributed net investment income 7,877
Accumulated net realized loss on investments (8,279)
Net unrealized appreciation on investments 583,053
TOTAL NET ASSETS $12,452,148
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($12,452,148/1,207,105 shares) $ 10.32
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-218
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1995
<S> <C>
INVESTMENT INCOME:
Interest $ 532,614
EXPENSES:
Management fees (Note 3) 50,130
Directors fees (Note 3) 6,792
Transfer agent fees (Note 3) 2,406
Registration and filing fees 8,019
Audit fee 6,074
Custodian fees 6,000
Total Expenses 79,421
NET INVESTMENT INCOME 453,193
REALIZED AND UNREALIZED GAIN (Loss)
ON INVESTMENTS:
Net realized loss on investments (identified cost basis) (6,797)
Net change in unrealized appreciation on investments 1,031,995
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 1,025,198
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $1,478,391
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-219
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
For the Period 2/14/94
For the (commencement
Year Ended of operations)
12/31/95 to 12/31/94
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 453,193 $ 190,311
Net realized loss on investments (6,797) (1,482)
Net change in unrealized appreciation (depreciation)
on investments 1,031,995 (448,942)
Net increase (decrease) in net assets from operations 1,478,391 (260,113)
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (453,725) (181,902)
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase in net assets from capital share
transactions (note 5) 2,946,569 8,922,928
Net increase in net assets 3,971,235 8,480,913
NET ASSETS:
Beginning of period 8,480,913 -
End of period (including undistributed net
investment income of $7,877 and $8,409, respectively) 12,452,148 $8,480,913
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-220
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
For the Period 2/14/94
For the (commencement
Year Ended of operations)
12/31/95 to 12/31/94
<S> <C> <C>
Per share data (for a share outstanding
throughout each period):
Net asset value - Beginning of period $ 9.26 $ 10.00
Income from investment operations:
Net investment income 0.428 0.210
Net realized and unrealized gain (loss) on investments 1.062 (0.749)
Total from investment operations 1.490 (0.539)
Less distributions declared to shareholders:
From net investment income (0.430) (0.201)
Net asset value - End of period $ 10.32 $ 9.26
Total return1 16.29% (5.39)%
Ratios (to average net assets)/Supplemental Data:
Expenses 0.79% 0.85%*2
Net investment income 4.52% 3.71%*2
Portfolio turnover 5% 4%
Net Assets - End of period (000s omitted) $ 12,452 $ 8,481
*The investment advisor waived a portion of its management fee. If the full
fee had been incurred by the Fund, the net investment income per share and the
ratios would have been as follows:
Net investment income - $ 0.186
Ratios (to average net assets):
Expenses2 - 1.29%
Net investment income2 - 3.27%
</TABLE>
1Total return represents aggregate total return for the period indicated.
2Annualized
The accompanying notes are an integral part of the financial statements.
B-221
<PAGE>
Notes to Financial Statements
1. ORGANIZATION
Diversified Tax Exempt Series (the "Fund") is a no-load diversified
series of Manning & Napier Fund, Inc. (the "Corporation"). The Corporation
is organized as a Maryland Corporation and is registered under the
Investment Company Act of 1940, as amended, as an open-end management
investment company.
Shares of the Fund are offered to investors, employees and clients of
Manning & Napier Advisors, Inc. (the "Advisor") and its affiliates. The
total authorized capital stock of the Corporation consists of one billion
shares of common stock each having a par value of $0.01. As of December 31,
1995, 710 million shares have been designated in total among 18 series, of
which 50 million have been designated as Diversified Tax Exempt Series Class
R Common Stock.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Municipal securities will normally be valued on the basis of market
valuations provided by an independent pricing service (the "Service"). The
Service utilizes the latest price quotations and a matrix system (which
considers such factors as security prices of similar securities, yields,
maturities, and ratings). The Service has been approved by the Fund's Board
of Directors.
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 Fund's Board of Directors.
Short-term investments that mature in sixty (60) days or less are valued
at amortized cost.
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 Fund's policy is to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies. The Fund is not
subject to federal income or excise tax to the extent the Fund distributes
to shareholders each year its taxable income, including any net realized
gains on investments in accordance with requirements of the Internal Revenue
Code. Accordingly, no provision for federal income taxes has been made in
the financial statements.
B-222
<PAGE>
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
FEDERAL INCOME TAXES (continued)
At December 31, 1995, the Fund, for federal income tax purposes, had a
capital loss carryforward of $8,279. Of this amount, $889 will expire on
December 31, 2002, and $7,390 will expire on December 31, 2003.
The Fund uses the identified cost method for determining realized gain or
loss on investments for both financial statement and federal income tax
reporting purposes.
DISTRIBUTION OF INCOME AND GAINS
Distributions to shareholders of tax exempt income are made quarterly.
Distributions are recorded on the ex-dividend date. Distributions of net
realized gains are distributed annually. An additional distribution may be
necessary to avoid taxation of the Fund.
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 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 Fund may periodically make reclassification
among its capital accounts without impacting the Fund's net asset value.
The Fund hereby designates $450,417 as tax-exempt dividends for the year
ended December 31, 1995.
3. TRANSACTIONS WITH AFFILIATES
The Fund has 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 of 0.50% of the Fund's
average daily net assets. The fee amounted to $50,130 for the year ended
December 31, 1995.
Under the Fund's Investment Advisory Agreement (the "Agreement"),
personnel of the Advisor provide the Fund with advice and assistance in the
choice of investments and the execution of securities transactions, and
otherwise maintain the Fund's organization. The Advisor also provides the
Fund with necessary office space and portfolio accounting and bookkeeping
services. The salaries of all officers of the Fund and of all Directors who
are "affiliated persons" of the Fund or of the Advisor, and all personnel of
the Fund or of the Advisor performing services relating to research,
statistical and investment activities are paid by the Advisor.
B-223
<PAGE>
Notes to Financial Statements
3. TRANSACTIONS WITH AFFILIATES (continued)
The Advisor also acts as the transfer, dividend paying and shareholder
servicing agent for the Fund. For these services, the Fund pays a fee which
is calculated as a percentage of the average daily net assets at an annual
rate of 0.024% and amounted to $2,406 for the year ended December 31, 1995.
The Advisor has voluntarily agreed to waive its fee and, if necessary,
pay other expenses of the Fund in order to maintain total expenses for the
Fund at no more than 0.85% of average daily net assets each year.
Manning & Napier Investor Services, Inc., a registered broker-dealer
affiliate of the Advisor, acts as distributor for the Fund's shares. The
services of Manning & Napier Investor Services, Inc. are provided at no
additional cost to the Fund.
The compensation of the non-affiliated Directors totaled $6,792 for the
year ended December 31, 1995.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term securities, were
$3,217,042 and $505,118, respectively, for the year ended December 31, 1995.
5. CAPITAL STOCK TRANSACTIONS
<TABLE>
<CAPTION>
Transactions in shares of Diversified Tax Exempt Series Class R Common Stock
were:
For the Period 2/14/94
For the Year (commencement of operations)
Ended 12/31/95 to 12/31/94
Shares Amount Shares Amount
--------------- ----------- ---------------------------- -----------
<S> <C> <C> <C> <C>
Sold 330,682 $3,323,798 977,105 $9,492,298
Reinvested 43,117 433,995 18,688 172,679
Redeemed (82,916) (811,224) (79,571) (742,049)
Total 290,883 $2,946,569 916,222 $8,922,928
</TABLE>
6. FINANCIAL INSTRUMENTS
The Fund may trade in financial instruments with off-balance sheet risk
in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include
written options and futures contracts and may involve, to a varying degree,
elements of risk in excess of the amounts recognized for financial statement
purposes. No such investments were held by the Fund on December 31, 1995.
18
<PAGE>
Report of Independent Accountants
To the Shareholders and Directors of
Manning & Napier Fund, Inc.-Diversified Tax Exempt Series:
We have audited the accompanying statement of assets and liabilities of
Manning & Napier Fund, Inc.- Diversified Tax Exempt Series, including the
schedule of portfolio investments, as of December 31, 1995, the related
statements of operations for the year then ended, changes in net assets and
the financial highlights for the year then ended and for the period from
February 14, 1994 (Commencement of Operations) to December 31, 1994. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial 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 statements. Our procedures included confirmation of securities
owned as of December 31, 1995 by correspondence with the custodian. 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 audit 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 the
Manning & Napier Fund, Inc.-Diversified Tax Exempt Series as of December 31,
1995, the results of its operations for the year then ended, the changes in
its net assets and the financial highlights for the year then ended and for
the period from February 14, 1994 (Commencement of Operations) to December 31,
1994, in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
January 26, 1996
19
<PAGE>
