February 20, 1996
To: Shareholders of the Manning & Napier Fund
Dear Shareholder:
Enclosed is a copy of the Annual Report for each series of the Manning &
Napier Fund in which you owned shares as of December 31, 1995. This report
provides information about the performance of the Series and the portfolio
holdings as of that date.
Please contact me or your client consultant if you have any questions about
the Fund.
Sincerely,
/s/ Amy J. Williams
Amy J. Williams
Fund Services Coordinator
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
SMALL CAP SERIES
Annual Report
December 31, 1995
<PAGE>
Management Discussion and Analysis
DEAR SHAREHOLDERS:
The Small Cap Series of the Manning & Napier Fund remained true to its
fundamental approach in 1995 by undergoing a sector shift, selling out of
over-valued sectors in favor of out-of-favor ones. While this caused the
Series to underperform as 1995 progressed, this is the same approach that
allowed the Series to make money in 1994s tough market environment.
As the second half of the year progressed, we began to see many of our
technology holdings reach prices we felt represented fair value.
Simultaneously, the bad news in some of the consumer sectors was creating
attractive investment scenarios. This dramatic divergence in performance has
given us the opportunity to reposition the portfolio into stocks we believe
represent better value going forward.
We continue to manage the Small Cap Series of the Manning & Napier Fund based
on our strategies and pricing disciplines. These strategies are designed to
keep us focussed on companies that are well positioned, while the pricing
disciplines tend to keep us out of companies that have great stories but high
stock prices.
Each stock in the Series is individually selected and reviewed by analysts
with specific industry expertise. Careful attention to detail has often
resulted in investments in sectors where the combination of pricing and the
strategy fit was right and kept us out of sectors where either valuations or
conditions did not appear favorable. Our management techniques sometimes
result in our investing in stocks/sectors that are currently underperforming
the market, and they may also lead us to sell stocks in sectors that are
outperforming the market as we are selling. We believe this
early-in/early-out approach provides us with a less risky strategy designed to
provide attractive long term returns.
A review of several sectors in which the Series was and was not invested as of
December 31, 1995 will help illustrate our investment approach.
RETAILING STOCKS As of December 31, 1995, the Series is overweighted in this
sector which underperformed the market last year. We believe that the
valuations in retail stocks are very attractive and we have been taking
advantage of opportunities by increasing our exposure to this sector by
selectively buying stocks. Some of these investments have started to perform
well and we believe that over the long term our investments in this sector
will be strong contributors to the Series performance.
FINANCIAL STOCKS Financial services companies performed well in 1995, but
the Series did not hold investments in this area as of December 31, 1995.
Part of their performance was attributable to a snap-back from the poor
performance of 1994. Another factor driving performance was the bout of
consolidation activity in the banking sector. Our lack of investment in this
area stemmed from the fact that chasing takeovers appeared to be the way
investors were attempting to make money. At this point it is important to
remember the difference between betting on a takeover and investing in sound
value; the former is just that - a bet - while the latter is a business
decision based on fundamentals.
TECHNOLOGY STOCKS As we began 1995, the Small Cap Series had a relatively
heavy weighting in technology, and these investments served us well. However,
as the year progressed, we began to see technology stocks reach prices which
1
<PAGE>
Management Discussion and Analysis (continued)
we believe represented fair value, so we began paring back our holdings. Many
technology sectors continued to run, but because we thought they were
over-valued, we did not participate. As the year came to a close, many
technology investors found themselves caught in the middle of a rapid retreat.
While we continue to have investments in the technology area, they are
predominantly in the software area and not in areas such as semiconductors.
We believe this industry became over-valued and was showing signs of excess
capacity coming on line.
Strict adherence to our strategies and pricing disciplines is reflected in the
valuation of the Small Cap Series. Both the Price-to-Earnings ratio and the
Price-to-Book Value ratio of the Series are lower than the broader market (as
represented by the S&P 500), while the expected growth rate of the companies
in the portfolio is more than 1.5 times that of the S&P 500.we look forward to
1996, we believe we have positioned the portfolio to benefit from the
attractive valuations presented us in many areas that have lagged and are
poised for a recovery. Conversely, we have decreased our exposure to areas
that we believe have become over-valued. This strategy of focusing on the
values has served us well historically and it is the cornerstone of our
investment process.
We appreciate your continued confidence in us and wish you all the best in
1996.
Sincerely,
MANNING & NAPIER ADVISORS, INC.
[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%
2
<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
3
<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.
4
<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.
5
<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.
6
<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.
7
<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.
8
<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.
9
<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.
10
<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.
11
<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.
12
<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.
13
<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.
14
<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.
15
<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.
16
<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
17
<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.
1
<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
2
<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.
3
<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.
4
<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.
5
<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.
6
<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.
7
<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.
8
<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.
9
<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.
10
<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.
11
<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.
12
<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.
13
<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
14
<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.
15
<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.
16
<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.
17
<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.
18
<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
19
<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
1
<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.
2
<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.
3
<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.
4
<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.
5
<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.
6
<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.
7
<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.
8
<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.
9
<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).
10
<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.
11
<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.
12
<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
13
<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.
1
<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
2
<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.
3
<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.
4
<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.
5
<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.
6
<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.
7
<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.
8
<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.
9
<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.
10
<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.
11
<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.
12
<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.
13
<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
14
<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
1
<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%
2
<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
3
<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.
4
<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.
5
<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.
6
<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.
7
<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.
8
<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.
9
<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.
10
<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.
11
<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.
12
<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.
13
<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.
14
<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.
15
<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.
16
<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.
17
<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
18
<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
1
<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%
2
<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
3
<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.
4
<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.
5
<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.
6
<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.
7
<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.
8
<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.
9
<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.
10
<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.
11
<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.
12
<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.
13
<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.
14
<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.
15
<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.
16
<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.
17
<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
18
<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.
1
<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.
2
<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%
3
<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
4
<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.
5
<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.
6
<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.
7
<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.
8
<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.
9
<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.
10
<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.
11
<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.
12
<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.
13
<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
14
<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.
1
<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.
2
<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%
3
<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
4
<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.
5
<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.
6
<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.
7
<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.
8
<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.
9
<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.
10
<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.
11
<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
12
<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.
13
<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
14
<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.
1
<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.
2
<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%
3
<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
4
<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.
5
<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.
6
<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.
7
<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.
8
<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.
9
<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.
10
<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.
11
<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.
12
<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.
13
<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
14
<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.
1
<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.
2
<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
3
<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
4
<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
5
<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.
6
<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.
7
<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.
8
<PAGE>
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.
9
<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.
10
<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.
11
<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.
12
<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.
13
<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.
14
<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.
15
<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.
16
<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>
17
<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.
18
<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
19
<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
1
<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.
2
<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.
3
<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
4
<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
5
<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.
6
<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.
7
<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.
8
<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.
9
<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.
10
<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.
11
<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.
12
<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.
13
<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.
14
<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.
15
<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>
16
<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.
17
<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
18
<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.
1
<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
2
<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.
3
<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
4
<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
5
<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.
6
<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.
7
<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.
8
<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.
9
<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.
10
<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.
11
<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.
12
<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.
13
<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.
14
<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.
15
<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.
16
<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.
17
<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
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