December 6, 1996
To Shareholders of the following Series of the Manning & Napier Fund:
Defensive Series
Blended Asset Series I
Blended Asset Series II
Maximum Horizon Series
Flexible Yield Series I, II, and III
Tax Managed Series
Dear Shareholder:
Enclosed is a copy of an updated prospectus for each of the above Series of
the Manning & Napier Fund in which you are currently invested.
Also enclosed are copies of the Annual Reports for each of these Series in
which you were invested as of October 31, 1996. The reports include
information about the Series performance as well as portfolio listings as of
that date.
Because the fiscal year of the Blended Asset Series I and II and all three
Flexible Yield Series were changed to a fiscal year ending October 31, the
Annual Reports for these Series include information for ten months, the period
since the last Annual Reports, rather than for the full twelve months.
Please contact our Fund Services department at 1-800-4MN-FUND (1-800-466-3863)
or your Client Consultant if you have any questions about the enclosures or
about the Fund.
Sincerely,
/s/ Amy J. Williams
Amy J. Williams
Fund Services Coordinator
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
Blended Asset Series I
Annual Report
October 31, 1996
<PAGE>
Management Discussion and Analysis
Dear Shareholders:
Since we last reported to you six months ago, the markets have again exhibited
the upward and downward swings akin to the later stages of economic and market
cycles. Midway through this period we saw the Dow Jones Industrial Average
take a considerable dive, only to end this semi-annual reporting cycle above
the record-breaking 6000 mark. Likewise, the 30-year U.S. Treasury yield rose
to over 7% during this period, but bonds recovered nicely by the end of
October. However, as we have anticipated thus far, economic growth has
remained moderate and inflation has remained in check, allowing us to take
advantage of the buying opportunities that present themselves.
These gyrations were caused by overreaction to short-term economic data. Much
as happened in March of this year, the news again raised fears of higher
inflation and sent the Dow Jones Industrial Average plunging down 115 points
on July 5th in what was only a half-day of trading due to the holiday. Bonds
followed suit with the yield on the 30-year U.S. Treasury surging 25
basis-points. Many were left wondering whether the Federal Reserve Board
would raise the Fed Funds rate. However, additional evidence throughout the
summer that inflation and economic growth are under control led the Fed to
again leave rates unchanged when they met during the last week of September.
As we continue to adhere to our long-term overview for low inflation and lower
interest rates, the July 5th correction created a buying opportunity in which
we were able to lengthen the maturity of the bonds in the portfolio and move
into equity sectors where valuations proved attractive. The stock portion of
the portfolio has continued emphasis in small ticket consumer stocks which we
believe have been branded with the same iron as more cyclical consumer stocks,
thus creating a buying opportunity. In addition, we have increased our
exposure to the health care sector as valuations in that area have proved
attractive as well.
1
<PAGE>
Management Discussion and Analysis (continued)
At a time when market valuations in
general are high and the bull market is aging, it is important to be
discriminating about the levels of risk acceptable in funds with different
tolerances for volatility. Your Series places a high priority on dampening
market volatility, so even though we see a number of long-term positives in
0he investment picture, we must be sensitive to the possibility of cyclical
disruptions. With valuations currently very high, you should expect this
Series to be conservatively positioned, and indeed, that is the case. As we
continue to move through this mature bull market, we will hold fast to our
disciplines of attempting to identify stocks of companies with strong
strategic positioning in their industry at attractive valuations versus
long-term U.S. Treasury bonds.
We wish you and yours all the best during this holiday season.
Sincerely,
Manning & Napier Advisors, Inc.
[GRAPHIC]
[Pie Chart]
Asset Allocation - As of 10/31/96
Bonds - 66%
Stocks - 20%
Cash & Equivalents - 14%
2
<PAGE>
Performance Update as of October 31, 1996
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 (10/31/96) 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
10/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 10,837 8.37% 8.37%
Inception 2 $ 12,806 28.06% 8.22%
</TABLE>
<TABLE>
<CAPTION>
Lehman Brothers Intermediate Bond Index
Total Return
Growth of
Through $10,000 Average
10/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 10,581 5.81% 5.81%
Inception 2 $ 11,728 17.28% 5.22%
</TABLE>
<TABLE>
<CAPTION>
Balanced Index
Total Return
Growth of
Through $10,000 Average
10/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 11,115 11.15% 11.15%
Inception 2 $ 13,040 30.40% 8.85%
</TABLE>
1 The Lehman Brothers Intermediate Bond Index is a market value weighted
measure of approximately 3,425 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.
2 Performance numbers for the Fund and Indices 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 Balanced
Blended Asset Series I Intermediate Bond Index Index
<S> <C> <C> <C>
09/15/93 $ 10,000 $ 10,000 $ 10,000
12/31/93 10,092 10,032 10,081
06/30/94 9,671 9,770 9,795
12/31/94 10,012 9,838 9,986
06/30/95 11,578 10,783 11,256
12/31/95 12,123 11,347 12,151
04/30/96 12,292 11,213 12,303
10/31/96 12,806 11,728 13,040
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO - OCTOBER 31, 1996
VALUE
SHARES (NOTE 2)
<S> <C> <C>
COMMON STOCK - 20.10%
AIR TRANSPORTATION- 2.19%
Federal Express Corp.* 4,850 $390,425
APPAREL- 2.47%
VF Corp. 6,725 439,647
CHEMICALS & ALLIED PRODUCTS- 0.06%
Varitronix International Ltd. (Note 7) 6,000 10,941
COMMUNICATIONS- 2.42%
Stet Societa' Finanziaria Telefonica S.p.A. - ADR 4,975 172,259
Telefonica de Espana - ADR 4,300 259,075
---------
431,334
---------
COMPUTER EQUIPMENT- 0.12%
Cisco Systems, Inc.* 200 12,375
Digital Equipment Corp.* 300 8,850
---------
21,225
---------
ELECTROMEDICAL APPARATUS- 1.79%
Nellcor Puritan Bennett, Inc.* 16,300 317,850
ELECTRONICS & ELECTRICAL EQUIPMENT- 0.92%
SEMICONDUCTOR- 0.14%
Altera Corp.* 250 15,500
Texas Instruments, Inc. 200 9,625
---------
25,125
---------
TELECOMMUNICATIONS EQUIPMENT- 0.78%
ADC Telecommunications, Inc.* 150 10,256
BroadBand Technologies, Inc.* 1,050 18,769
DSC Communications Corp.* 325 4,509
ECI Telecommunications, Ltd. 625 12,500
General Instrument Corp.* 3,875 77,984
Northern Telecom Ltd. 225 14,653
---------
138,671
---------
163,796
---------
ENGINEERING SERVICES- 0.47%
Jacobs Engineering Group, Inc.* 3,775 83,522
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO - OCTOBER 31, 1996
VALUE
SHARES (NOTE 2)
<S> <C> <C>
FABRICATED METAL PRODUCTS- 0.19%
Keystone International, Inc. 875 $ 15,750
Material Sciences Corp.* 1,175 17,919
---------
33,669
---------
FOOD & BEVERAGES- 0.03%
Canandaigua Wine Co., Inc. - Class A* 250 5,625
GLASS PRODUCTS- 0.06%
Libbey, Inc. 425 10,200
HEALTH SERVICES- 1.55%
MedPartners, Inc.* 12,276 259,331
RehabCare Group, Inc.* 800 14,300
U.S. Physical Therapy, Inc.* 225 2,081
---------
275,712
---------
HOLDING COMPANIES - 0.02%
Ek Chor China Motorcycle Co. Ltd. 500 2,938
INFORMATION RETRIEVAL SERVICES- 0.02%
America OnLine, Inc.* 125 3,391
PLASTIC PRODUCTS- 0.03%
Sun Coast Industries, Inc.* 1,525 5,909
PRIMARY METAL INDUSTRIES- 0.17%
American Superconductor Corp.* 875 10,828
Gibraltar Steel Corp.* 775 18,794
---------
29,622
---------
PRINTING & PUBLISHING - 0.04%
Playboy Enterprises, Inc. - Class A* 225 2,700
Playboy Enterprises, Inc. - Class B* 300 3,600
6,300
RESTAURANTS- 0.78%
McDonald's Corp. 2,775 123,141
Morton's Restaurant Group, Inc.* 1,025 15,759
---------
138,900
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO - OCTOBER 31, 1996
VALUE
SHARES (NOTE 2)
<S> <C> <C>
RETAIL- 4.98%
RETAIL - HOME FURNISHING STORES- 0.10%
Pier 1 Imports, Inc. 1,238 17,332
RETAIL - SHOE STORES- 0.11%
Brown Group, Inc. 950 19,594
RETAIL - SPECIALTY STORES- 4.58%
Fabri-Centers of America - Class A* 8,250 107,250
Fabri-Centers of America - Class B* 7,250 94,250
Fingerhut Companies, Inc. 18,475 274,816
Hancock Fabrics, Inc. 10,525 89,463
Tandy Corp. 6,625 249,266
----------
815,045
----------
RETAIL - VARIETY STORES- 0.09%
Family Dollar Stores, Inc. 975 16,575
RETAIL - WHOLESALE- 0.10%
Coleman Company, Inc.* 1,300 17,225
885,771
SOFTWARE- 0.43%
Electronic Arts, Inc.* 725 27,188
Founder Hong Kong Ltd.* (Note 7) 18,000 6,984
Informix Corp.* 425 9,430
Microsoft Corp.* 100 13,725
Parametric Technology Corp.* 150 7,331
Symantec Corp.* 1,175 12,778
----------
77,436
----------
TECHNICAL INSTRUMENTS & SUPPLIES- 1.36%
PHOTOGRAPHIC EQUIPMENT & SUPPLIES - 1.32%
Eastman Kodak Co. 2,950 235,261
SURGICAL & MEDICAL INSTRUMENTS - 0.04%
Allied Healthcare Products, Inc.* 1,100 7,424
242,685
TOTAL COMMON STOCK
(Identified Cost $3,403,092) 3,576,898
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO - OCTOBER 31, 1996
PRINCIPAL VALUE
AMOUNT (NOTE 2)
<S> <C> <C>
U.S. TREASURY SECURITIES - 65.42%
U.S. TREASURY BONDS - 19.75%
U.S. Treasury Bond, 7.25%, 5/15/2016 $ 45,000 $ 47,475
U.S. Treasury Bond, 7.25%, 8/15/2022 555,000 587,259
U.S. Treasury Bond, 7.50%, 11/15/2024 2,625,000 2,880,116
------------
TOTAL U.S. TREASURY BONDS 3,514,850
------------
(Identified Cost $3,361,358)
U.S. TREASURY NOTES - 45.67%
U.S. Treasury Note, 5.875%, 4/30/1998 3,640,000 3,651,375
U.S. Treasury Note, 5.125%, 12/31/1998 595,000 586,819
U.S. Treasury Note, 6.875%, 8/31/1999 450,000 461,162
U.S. Treasury Note, 7.75%, 12/31/1999 20,000 21,013
U.S. Treasury Note, 6.625%, 7/31/2001 3,335,000 3,406,259
------------
TOTAL U.S. TREASURY NOTES
(Identified Cost $8,067,272) 8,126,628
------------
TOTAL U.S. TREASURY SECURITIES
(Identified Cost $11,428,630) 11,641,478
U.S. GOVERNMENT AGENCIES - 0.76%
MORTGAGE BACKED SECURITIES
GNMA POOL#174225, 9.50%, 8/15/2016 5,293 5,709
GNMA POOL#286310, 9.00%, 2/15/2020 42,520 44,939
GNMA POOL#385753, 9.00%, 7/15/2024 80,601 85,186
------------
TOTAL U.S. GOVERNMENT AGENCIES
(Identified Cost $134,042 ) 135,834
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO - OCTOBER 31, 1996
Principal Amount/ Value
Shares (NOTE 2)
<S> <C> <C>
SHORT-TERM INVESTMENTS - 4.16%
U.S. Treasury Bill, 11/29/1996 $ 1,600,000 $ 1,594,008
Dreyfus U.S. Treasury Money Market Reserves 739,029 739,029
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $2,333,037) 2,333,037
------------
TOTAL INVESTMENTS - 99.40%
(Identified Cost $17,298,801) 17,687,247
------------
OTHER ASSETS, LESS LIABILITIES - 0.60% 106,261
NET ASSETS - 100% $17,793,508
------------
</TABLE>
*Non-income producing security.
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
At October 31, 1996, the net unrealized appreciation based on identified cost for
federal income tax purposes of $17,305,735 was as follows:
<S> <C>
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value over
tax cost $ 553,706
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost
over value (172,194)
UNREALIZED APPRECIATION - NET $ 381,512
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
OCTOBER 31, 1996
<S> <C>
ASSETS:
Investments, at value (Identified Cost $17,298,801)(Note 2) $17,687,247
Interest receivable 174,470
Dividends receivable 739
TOTAL ASSETS 17,862,456
LIABILITIES:
Accrued management fees (Note 3) 18,484
Accrued Directors' fees (Note 3) 1,648
Transfer agent fees payable (Note 3) 345
Payable for fund shares redeemed 35,728
Audit fee payable 10,750
Other payables and accrued expenses 1,993
TOTAL LIABILITIES 68,948
NET ASSETS FOR 1,588,453 SHARES OUTSTANDING $17,793,508
NET ASSETS CONSIST OF:
Capital stock $ 15,885
Additional paid-in-capital 16,776,541
Undistributed net investment income 319,657
Accumulated net realized gain on investments 292,979
Net unrealized appreciation on investments 388,446
TOTAL NET ASSETS $17,793,508
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($17,793,508/1,588,453 shares) $ 11.20
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations
For the Ten For the
Months Year
Ended Ended
10/31/96 12/31/95
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 555,989 $ 294,411
Dividends 41,029 44,454
Total Investment Income 597,018 338,865
EXPENSES:
Management fees (Note 3) 121,924 69,950
Directors' fees (Note 3) 5,071 6,875
Transfer agent fees (Note 3) 2,926 1,679
Audit fee 12,450 14,625
Custodian fee 6,540 7,480
Registration & filing fees 7,497 6,384
Miscellaneous 3,561 354
Total Expenses 159,969 107,347
Less Waiver of Expenses (Note 3) (13,439) (23,407)
Net Expenses 146,530 83,940
NET INVESTMENT INCOME 450,488 254,925
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments (identified cost basis) 299,745 608,702
Net change in unrealized appreciation on investments 105,808 341,625
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS 405,553 950,327
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 856,041 $1,205,252
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
For the Ten For the Year For the Year
Months Ended Ended Ended
10/31/96 12/31/95 12/31/94
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
<S> <C> <C> <C>
Net investment income $ 450,488 $ 254,925 $ 88,876
Net realized gain on investments 299,745 608,702 18,293
Net change in unrealized appreciation on investments 105,808 341,625 (59,823)
Net increase in net assets from operations 856,041 1,205,252 47,346
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (130,831) (254,925) (88,431)
In excess of net investment income - (3,886) -
From net realized gain on investments (39,818) (564,923) (18,074)
In excess of net realized gain - - (3,332)
Total distributions to shareholders (170,649) (823,734) (109,837)
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase in net assets from capital share
transactions (Note 5) 7,589,621 4,617,621 4,106,508
Net increase in net assets 8,275,013 4,999,139 4,044,017
NET ASSETS:
Beginning of period 9,518,495 4,519,356 475,339
End of period (including undistributed net investment
income of $319,657, $0, and $665 respectively) $ 17,793,508 $ 9,518,495 $ 4,519,356
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
For the Period
9/15/93
For the Ten For the Year For the Year (commencement
Months Ended Ended Ended of operations) to
10/31/96 12/31/95 12/31/94 12/31/93
Per share data (for a share outstanding throughout
each period):
<S> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.72 $ 9.72 $ 10.05 $ 10.00
Income from investment operations:
Net investment income 0.293 0.342 0.200 0.045
Net realized and unrealized gain (loss)
on investments 0.307 1.698 (0.280) 0.045
Total from investment operations 0.600 2.040 (0.080) 0.090
Less distributions to shareholders:
From net investment income (0.092) (0.342) (0.203) (0.040)
In excess of net investment income - (0.005) - -
From net realized gain on investments (0.028) (0.693) (0.040) -
In excess of net realized gain - - (0.007) -
Total distributions to shareholders (0.120) (1.040) (0.250) (0.040)
NET ASSET VALUE - END OF PERIOD $ 11.20 $ 10.72 $ 9.72 $ 10.05
Total return1 5.64% 21.08% (0.80%) 0.93%
Ratios (to average net assets) / Supplemental Data:
Expenses 1.20%2** 1.20%** 1.20%* 1.20%2*
Net investment income 3.69%2** 3.64%** 3.40%* 2.47%2*
Portfolio turnover 85% 72% 45% 1%
Average commission rate paid $ 0.0515 $ 0.0689 - -
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 17,794 $ 9,518 $ 4,519 $ 475
*The investment advisor did not impose its management fee and paid a portion of the Fund's expenses. If these
expenses had been incurred by the Fund, expenses would have been limited to that allowed 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 $ 0.284 $ 0.311 $ 0.124 $ 0.021
Ratios (to average net assets):
Expenses 1.31%2 1.53% 2.50% 2.50%2
Net investment income 3.58%2 3.31% 2.10% 1.17%2
1 Represents aggregate total return for the period indicated
2 Annualized
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<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.
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
October 31, 1996, 940 million shares have been designated in total among 19
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 Advisor under procedures established by and under the general
supervision and responsibility of the Fund's Board of Directors.
Short-term investments that mature in sixty (60) days or less are valued
at amortized cost.
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.
13
<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 tax or excise tax 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
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 reclassifications among its capital accounts without
impacting the Fund's net asset value.
The Fund hereby designates $19,854 as capital gain dividends for the
period ended October 31, 1996.
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.
14
<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.
OTHER
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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 1.0% of the Fund's
average daily net assets. The fee amounted to $121,924 for the ten months
ended October 31, 1996 and $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 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 $13,439 for the ten months ended
October 31, 1996 and $23,407 for the year ended December 31, 1995, which are
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.
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%; this fee amounted to $2,926 for the ten months ended October
31, 1996 and $1,679 for the year ended December 31, 1995.
15
<PAGE>
Notes to Financial Statements
2. TRANSACTIONS WITH AFFILIATES (continued)
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 $5,071 for the
ten months ended October 31, 1996 and $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
$17,340,767 and $11,470,757, respectively, for the ten months ended October
31, 1996.
5. CAPITAL STOCK TRANSACTIONS
Transactions in shares of Blended Asset Series I Class K Common Stock
were:
<TABLE>
<CAPTION>
For the Ten For the Year For the Year
Months Ended Ended Ended
10/31/96 12/31/95 12/31/94
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Sold 940,658 $10,210,779 406,586 $4,437,737 481,619 $4,726,025
Reinvested 15,624 169,059 75,731 811,707 11,251 109,832
Repurchased (255,975) (2,790,217) (58,913) (631,823) (75,443) (729,349)
Total 700,307 $ 7,589,621 423,404 $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 on October 31, 1996.
16
<PAGE>
Notes to Financial Statements
7. FOREIGN SECURITIES
Investing in securities of foreign companies and foreign governments
involves special risks and considerations not typically associated with
investing in securities of U.S. companies and the United States government.
These risks include revaluation of currencies and potential 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.
8. CHANGE IN FISCAL YEAR END
Effective January 1, 1996, the Fund changed its fiscal year end from
December 31 to October 31.
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 October 31, 1996, the
related statement of operations for the ten months then ended and the year
ended December 31, 1995, the statement of changes in net assets for the ten
months ended October 31, 1996 and the years ended December 31, 1995 and 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 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 October 31, 1996 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 October 31, 1996, 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
November 19, 1996
18
<PAGE>
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
Blended Asset Series II
Annual Report
October 31, 1996
<PAGE>
Management Discussion and Analysis
Dear Shareholders:
Since we last reported to you six months ago, the markets have again
exhibited the upward and downward swings akin to the later stages of economic
and market cycles. Midway through this period we saw the Dow Jones Industrial
Average take a considerable dive, only to end this semi-annual reporting cycle
above the record-breaking 6000 mark. Likewise, the 30-year U.S. Treasury
yield rose to over 7% during this period, but bonds recovered nicely by the
end of October. However, as we have anticipated thus far, economic growth has
remained moderate and inflation has remained in check, allowing us to take
advantage of the buying opportunities that present themselves.
These gyrations were caused by overreaction to short-term economic data.
Much as happened in March of this year, the news again raised fears of higher
inflation and sent the Dow Jones Industrial Average plunging down 115 points
on July 5th in what was only a half-day of trading due to the holiday. Bonds
followed suit with the yield on the 30-year U.S. Treasury surging 25
basis-points. Many were left wondering whether the Federal Reserve Board
would raise the Fed Funds rate. However, additional evidence throughout the
summer that inflation and economic growth are under control led the Fed to
again leave rates unchanged when they met during the last week of September.
As we continue to adhere to our long-term overview for low inflation and
lower interest rates, the July 5th correction created a buying opportunity in
which we were able to lengthen the maturity of the bonds in the portfolio and
move into equity sectors where valuations proved attractive. We boosted our
exposure to the technology sector, which was the hardest hit by the July
decline, and semiconductor stocks wound up posting the largest gains of any
sector during the third quarter of this year. The stock portion of the
portfolio has continued emphasis in small ticket consumer stocks which we
believe have been branded with the same iron as more cyclical consumer stocks,
thus creating a buying opportunity. In addition, we have increased our
exposure to the health care sector as valuations in that area have proved
attractive as well.
1
<page
Management Discussion and Analysis (continued)
At a time when market valuations in general are high and the bull market
is aging, it is important to be discriminating about the levels of risk
acceptable in funds with different tolerances for volatility. While this
Series has asset allocation discretion, it is designed to place greater
emphasis on growth than on dampening volatility. As a result, even though
high market valuations bring the threat of cyclical volatility, the series
remains fairly heavily invested because, a) we are able to find individual
securities at more attractive valuations than the market as a whole, and b)
looking past the immediate cycle, we see long-term positive trends that should
help the market. As we continue to move through this mature bull market, we
will hold fast to our disciplines of attempting to identify stocks of
companies with strong strategic positioning in their industry at attractive
valuations versus long-term U.S. Treasury bonds.
We wish you and yours all the best during this holiday season.
Sincerely,
Manning & Napier Advisors, Inc.
[GRAPHIC]
[Pie Chart]
Asset Allocation - As of 10/31/96
Stocks - 50%
Bonds - 38%
Cash & Equivalents - 12%
2
<PAGE>
Performance Update as of October 31, 1996
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 (10/31/96) 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
10/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 11,589 15.89% 15.89%
Inception 2 $ 15,078 50.78% 14.38%
</TABLE>
<TABLE>
<CAPTION>
Lehman Brothers Intermediate Bond Index
Total Return
Growth of
Through $10,000 Average
10/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 10,581 5.81% 5.81%
Inception 2 $ 11,639 16.39% 5.09%
</TABLE>
<TABLE>
<CAPTION>
Balanced Index
Total Return
Growth of
Through $10,000 Average
10/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 11,478 14.78% 14.78%
Inception 2 $ 13,978 39.78% 11.58%
</TABLE>
1 The Lehman Brothers Intermediate Bond Index is a market value weighted
measure of approximately 3,425 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 value weighted measure of approximately
5,570 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.
2 Performance numbers for the Fund and Indices 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 Balanced
Blended Asset Series II Intermediate Bond Index Index
<S> <C> <C> <C>
10/12/93 $ 10,000 $ 10,000 $ 10,000
12/31/93 9,982 9,956 10,056
06/30/94 9,662 9,695 9,693
12/31/94 10,333 9,764 9,978
06/30/95 12,621 10,701 11,550
12/31/95 13,707 11,261 12,743
04/30/96 14,016 11,127 13,035
10/31/96 15,078 11,639 13,978
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - October 31, 1996
VALUE
SHARES (NOTE 2)
<S> <C> <C>
COMMON STOCK - 49.61%
AIR TRANSPORTATION - 2.33%
Federal Express Corp.* 9,550 768,775
APPAREL - 3.02%
VF Corp. 15,200 993,700
CHEMICALS & ALLIED PRODUCTS - 1.21%
BIOLOGICAL PRODUCTS - 0.24%
Alliance Pharmaceutical Corp.* 5,575 78,050
HOUSEHOLD PRODUCTS - 0.64%
Procter & Gamble Co. 2,125 210,375
INDUSTRIAL ORGANIC CHEMICALS - 0.33%
International Specialty Products, Inc.* 7,025 76,397
Varitronix International Ltd. (Note 7) 18,000 32,824
109,221
397,646
COMMUNICATIONS - 2.69%
Stet Societa' Finanziaria Telefonica S.p.A. - ADR 11,475 397,322
Telefonica de Espana - ADR 8,125 489,531
886,853
COMPUTER EQUIPMENT - 0.27%
Cisco Systems, Inc.* 800 49,500
Digital Equipment Corp.* 1,275 37,612
87,112
CRUDE PETROLEUM & NATURAL GAS - 1.35%
YPF Sociedad Anonima - ADR 19,500 443,625
ELECTROMEDICAL APPARATUS - 1.79%
Nellcor Puritan Bennett, Inc.* 30,225 589,388
ELECTRONICS & ELECTRICAL EQUIPMENT - 6.98%
HOUSEHOLD APPLIANCES - 1.09%
Sunbeam Corporation, Inc. 14,600 359,525
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - October 31, 1996
VALUE
SHARES (NOTE 2)
<S> <C> <C>
ELECTRONICS & ELECTRICAL EQUIPMENT (CONTINUED)
SEMICONDUCTOR - 4.21%
Altera Corp.* 1,150 71,300
Intel Corp. 7,375 810,328
Texas Instruments, Inc. 10,550 507,719
1,389,347
TELECOMMUNICATIONS EQUIPMENT - 1.68%
ADC Telecommunications, Inc.* 700 47,863
BroadBand Technologies, Inc.* 3,625 64,797
DSC Communications Corp.* 1,400 19,425
ECI Telecommunications, Ltd. 2,375 47,500
General Instrument Corp.* 17,675 355,709
Northern Telecom Ltd. 250 16,281
551,575
2,300,447
ENGINEERING SERVICES - 0.47%
Jacobs Engineering Group, Inc.* 7,025 155,428
FABRICATED METAL PRODUCTS - 0.24%
Keystone International, Inc. 2,175 39,150
Material Sciences Corp.* 2,650 40,413
79,563
FOOD & BEVERAGES - 0.05%
Canandaigua Wine Co., Inc. - Class A* 750 16,875
GLASS PRODUCTS - 0.09%
Libbey, Inc. 1,225 29,400
HEALTH SERVICES - 2.96%
MedPartners, Inc.* 43,771 924,662
RehabCare Group, Inc.* 2,400 42,900
U.S. Physical Therapy, Inc.* 650 6,012
973,574
HOLDING COMPANIES - 0.03%
Ek Chor China Motorcycle Co. Ltd. 1,325 7,784
INFORMATION RETRIEVAL SERVICES 0.04%
America OnLine, Inc.* 475 12,884
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - October 31, 1996
VALUE
SHARES (NOTE 2)
<S> <C> <C>
PAPER MILLS - 2.03%
Kimberly-Clark Corp. 7,500 $ 699,375
PLASTIC PRODUCTS - 0.05%
Sun Coast Industries, Inc.* 3,950 15,306
PRIMARY METAL INDUSTRIES - 0.26%
American Superconductor Corp.* 3,075 38,053
Gibraltar Steel Corp.* 1,925 46,681
84,734
PRINTING & PUBLISHING - 0.07%
Playboy Enterprises, Inc. - Class A* 825 9,900
Playboy Enterprises, Inc. - Class B* 900 10,800
20,700
RESTAURANTS - 3.49%
McDonald's Corp. 25,050 1,111,594
Morton's Restaurant Group, Inc.* 2,525 38,822
1,150,416
RETAIL - 9.98%
RETAIL - HOME FURNISHING STORES - 0.14%
Pier 1 Imports, Inc. 3,311 46,354
RETAIL - SHOE STORES - 1.00%
Brown Group, Inc. 15,900 327,938
RETAIL - SPECIALTY STORES - 8.60%
Fabri-Centers of America - Class A* 16,375 212,875
Fabri-Centers of America - Class B* 13,925 181,025
Fingerhut Companies, Inc. 31,600 470,050
Hancock Fabrics, Inc. 20,175 171,487
Home Depot, Inc. 13,500 739,125
Office Depot, Inc.* 13,900 272,788
Tandy Corp. 21,000 790,125
2,837,475
RETAIL - VARIETY STORES - 0.11%
Family Dollar Stores, Inc. 2,000 34,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - October 31, 1996
SHARES/ VALUE
PRINCIPAL AMOUNT (NOTE 2)
<S> <C> <C>
Retail (continued)
RETAIL - WHOLESALE - 0.13%
Coleman Company, Inc.* 3,200 $ 42,400
3,288,167
SOFTWARE - 4.85%
Electronic Arts, Inc.* 2,600 97,500
Founder Hong Kong Ltd.* (Note 7) 50,000 19,400
Informix Corp.* 13,500 299,531
Microsoft Corp.* 375 51,469
Oracle Corp.* 25,275 1,069,448
Parametric Technology Corp.* 625 30,547
Symantec Corp.* 3,050 33,169
1,601,064
TECHNICAL INSTRUMENTS & SUPPLIES - 4.16%
PHOTOGRAPHIC EQUIPMENT & SUPPLIES - 4.10%
Eastman Kodak Co. 16,950 1,351,763
SURGICAL & MEDICAL INSTRUMENTS - 0.06%
Allied Healthcare Products, Inc.* 2,750 18,562
1,370,325
UTILITIES - ELECTRIC - 1.20%
Enersis S.A. - ADR 13,500 396,563
TOTAL COMMON STOCK
(Identified Cost $14,298,086) 16,369,704
U.S. TREASURY SECURITIES - 38.27%
U.S. TREASURY BONDS - 30.60%
U.S. Treasury Bond, 7.25%, 8/15/2022 $ 2,585,000 2,735,253
U.S. Treasury Bond, 7.50%, 11/15/2024 3,100,000 3,401,280
U.S. Treasury Bond, 6.875%, 8/15/2025 3,875,000 3,960,975
TOTAL U.S. TREASURY BONDS
(Identified Cost $9,721,951) 10,097,508
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - October 31, 1996
PRINCIPAL VALUE
AMOUNT/SHARES (NOTE 2)
<S> <C> <C>
U.S. TREASURY NOTES - 7.67%
U.S. Treasury Note, 4.75%, 10/31/1998 $ 45,000 $ 44,114
U.S. Treasury Note, 5.125%, 11/30/1998 415,000 409,780
U.S. Treasury Note, 7.75%, 12/31/1999 20,000 21,012
U.S. Treasury Note, 6.25%, 5/31/2000 2,045,000 2,058,419
TOTAL U.S. TREASURY NOTES
(Identified Cost $2,519,517) 2,533,325
TOTAL U.S. TREASURY SECURITIES
(Identified Cost $12,241,468) 12,630,833
SHORT-TERM INVESTMENTS - 10.73%
U.S. Treasury Bill, 11/29/1996 2,500,000 2,490,570
Dreyfus U.S. Treasury Money Market Reserves 1,048,699 1,048,699
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $3,539,269) 3,539,269
TOTAL INVESTMENTS - 98.61%
(Identified Cost $30,078,823) 32,539,806
OTHER ASSETS, LESS LIABILITIES - 1.39% 458,892
NET ASSETS - 100% $32,998,698
</TABLE>
*Non-income producing security
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
At October 31, 1996, the net unrealized appreciation based on identified cost for
federal income tax purposes of $30,093,619 was as follows:
<S> <C>
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost $2,957,835
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value (511,648)
UNREALIZED APPRECIATION - NET $2,446,187
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
OCTOBER 31, 1996
ASSETS:
<S> <C>
Investments, at value (Identified Cost $30,078,823)(Note 2) $32,539,806
Cash 251,260
Interest receivable 266,853
Dividends receivable 2,589
TOTAL ASSETS 33,060,508
LIABILITIES:
Accrued management fees (Note 3) 39,303
Accrued Directors' fees (Note 3) 1,649
Transfer agent fees payable (Note 3) 651
Audit fee payable 10,750
Payable for securities purchased 3,705
Other payables and accrued expenses 5,752
TOTAL LIABILITIES 61,810
NET ASSETS FOR 2,529,773 SHARES OUTSTANDING $32,998,698
NET ASSETS CONSIST OF:
Capital stock $ 25,298
Additional paid-in-capital 28,987,158
Undistributed net investment income 475,782
Accumulated net realized gain on investments 1,049,477
Net unrealized appreciation on investments 2,460,983
TOTAL NET ASSETS $32,998,698
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($32,998,698/2,529,773 shares) $ 13.04
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
For the Ten Months For the Year
Ended 10/31/96 Ended 12/31/95
INVESTMENT INCOME:
<S> <C> <C>
Interest $ 711,893 $ 376,523
Dividends 126,421 115,733
Total Investment Income 838,314 492,256
EXPENSES:
Management fees (Note 3) 225,830 131,695
Directors' fees (Note 3) 5,071 7,297
Transfer agent fees (Note 3) 5,420 3,161
Audit fee 12,450 14,725
Registration & filing fees 9,026 7,461
Custodian fee 9,000 9,600
Miscellaneous 8,152 1,763
Total Expenses 274,949 175,702
Less Waiver of Expenses (Note 3) (3,528) (17,669)
Net Expenses 271,421 158,033
NET INVESTMENT INCOME 566,893 334,223
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments (identified cost basis) 1,053,546 1,934,431
Net change in unrealized appreciation on investments 1,209,793 1,107,105
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 2,263,339 3,041,536
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 2,830,232 $ 3,375,759
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the For the For the
Ten Months Year Ended Year Ended
Ended 10/31/96 12/31/95 12/31/94
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 566,893 $ 334,223 $ 79,300
Net realized gain on investments 1,053,546 1,934,431 82,328
Net change in unrealized appreciation on investments 1,209,793 1,107,105 144,417
Net increase in net assets from operations 2,830,232 3,375,759 306,045
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (92,412) (330,774) (78,792)
From net realized gain on investments (138,618) (1,817,057) (64,338)
Total distributions to shareholders (231,030) (2,147,831) (143,130)
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase in net assets from capital share
transactions (Note 5) 9,880,561 12,077,417 6,575,676
Net increase in net assets 12,479,763 13,305,345 6,738,591
NET ASSETS:
Beginning of period 20,518,935 7,213,590 474,999
End of period (including undistributed net investment
income of $475,782, $1,301, and $1,098 respectively) $ 32,998,698 $20,518,935 $ 7,213,590
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
For the
Ten For the
Months Year
Ended Ended
10/31/96 12/31/95
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
NET ASSET VALUE - BEGINNING OF PERIOD $ 11.95 $ 10.12
Income from investment operations:
Net investment income 0.227 0.238
Net realized and unrealized gain (loss)
on investments 0.963 3.052
Total from investment operations 1.190 3.290
Less distributions to shareholders:
From net investment income (0.040) (0.237)
From net realized gain on investments (0.060) (1.223)
Total distributions to shareholders (0.100) (1.460)
NET ASSET VALUE - END OF PERIOD $ 13.04 $ 11.95
Total return1 10.01% 32.64%
Ratios (to average net assets) / Supplemental Data:
Expenses 1.20%2** 1.20%**
Net investment income 2.51%2** 2.53%**
Portfolio turnover 57% 63%
Average commission rate paid $ 0.0524 $ 0.0635
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 32,999 $ 20,519
* The investment advisor did not impose its management fee and paid a portion of the Fund's
expenses. If these expenses had been incurred by the Fund for the period ended December 31,
1993, expenses would have been limited to that allowed 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 $ 0.225 $ 0.226
Ratios (to average net assets):
Expenses 1.22%2 1.33%
Net investment income 2.49%2 2.40%
1 Represents aggregate total return for the period indicated
2 Annualized
For the Period
For the 10/12/93
Year (commencement
Ended of operations) to
12/31/94 12/31/93
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
NET ASSET VALUE - BEGINNING OF PERIOD $ 9.98 $ 10.00
Income from investment operations:
Net investment income 0.108 0.014
Net realized and unrealized gain (loss)
on investments 0.243 (0.032)
Total from investment operations 0.351 (0.018)
Less distributions to shareholders:
From net investment income (0.119) (0.002)
From net realized gain on investments (0.092) -
Total distributions to shareholders (0.211) (0.002)
NET ASSET VALUE - END OF PERIOD $ 10.12 $ 9.98
Total return1 3.52% (0.18%)
Ratios (to average net assets) / Supplemental Data:
Expenses 1.20%* 1.20%2*
Net investment income 2.12%* 1.94%2*
Portfolio turnover 19% 0%
Average commission rate paid - -
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 7,214 $ 475
* The investment advisor did not impose its management fee and paid a portion of the Fund's
expenses. If these expenses had been incurred by the Fund for the period ended December 31,
1993, expenses would have been limited to that allowed 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 $ 0.051 $ 0.005
Ratios (to average net assets):
Expenses 2.31% 2.50%2
Net investment income 1.01% 0.64%2
1 Represents aggregate total return for the period indicated
2 Annualized
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<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.
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
October 31, 1996, 940 million shares have been designated in total among 19
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 Advisor under procedures established by and under the general supervision
and responsibility of the Fund's Board of Directors.
Short-term investments that mature in sixty (60) days or less are valued
at amortized cost.
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
13
<PAGE>
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FEDERAL INCOME TAXES (CONTINUED)
income tax or excise tax 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
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 reclassifications among its capital accounts without
impacting the Fund's net asset value.
The Fund hereby designated $94,722 as capital gains dividends for the
period ended October 31, 1996.
OTHER
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reorted amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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.
14
<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.
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 1.0% of the Fund's
average daily net assets. The fee amounted to $225,830 for the ten months
ended October 31, 1996 and $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 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 $3,528 for the ten months ended
October 31, 1996 and $17,669 for the year ended December 31, 1995, which are
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.
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%; this fee amounted to $5,420 for the ten months ended October
31, 1996 and $3,161 for the year ended December 31, 1995.
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 $5,071 for the
ten months ended October 31, 1996 and $7,297 for the year ended December 31,
1995.
15
<PAGE>
Notes to Financial Statements
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term securities, were
$22,106,807 and $14,391,013, respectively, for the ten months ended October
31, 1996.
5. CAPITAL STOCK TRANSACTIONS
Transactions in shares of Blended Asset Series II Class L Common
Stock were:
<TABLE>
<CAPTION>
For the Ten For the Year For the Year
Months Ended Ended Ended
10/31/96 12/31/95 12/31/94
<S> <C> <C> <C> <C> <C> <C>
Shares Amount Shares Amount Shares Amount
------------- ------------ ------------- ------------ ------------- ----------
Sold 1,030,732 $12,602,396 891,550 $10,731,657 661,133 $6,534,790
Reinvested 18,786 230,877 180,298 2,145,684 14,156 143,210
Repurchased (237,451) (2,952,712) (66,963) (799,924) (10,085) (102,324)
Total 812,067 $ 9,880,561 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 October 31, 1996.
7. FOREIGN SECURITIES
Investing in securities of foreign companies and foreign governments
involves special risks and considerations not typically associated with
investing in securities of U.S. companies and the United States government.
These risks include revaluation of currencies and potential 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.
8. CHANGE IN FISCAL YEAR END
Effective January 1, 1996, the Fund changed its fiscal year end from
December 31 to October 31.
16
<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 October 31, 1996, the
related statement of operations for the ten months then ended and the year
ended December 31, 1995, the statement of changes in net assets for the ten
months ended October 31, 1996 and the years ended December 31, 1995 and 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 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 October 31, 1996
by correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits 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 October 31, 1996, 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
November 19, 1996
17
<PAGE>
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
Flexible Yield Series I
Annual Report
October 31, 1996
<PAGE>
Management Discussion and Analysis
Dear Shareholders:
During 1996, we have experienced what Manning & Napier feels to be a
temporary setback in the bond market. Short-term factors, including
speculation in the bond market, inflation fears, and political uncertainty
have led to a difficult year in the bond market. Especially when contrasted
with the extraordinary returns earned by bonds and bond funds in 1995, the
luster appears to have worn off the bond market. Our experience, however,
teaches us that short-term situations such as this provide opportunities to
position the portfolio to benefit from the long-term trends which are the most
important determinants of returns in the bond market.
At the end of 1995, the bond market looked about as good as it could get.
Economic growth was slowing, some were even calling for a recession later in
1996, and inflation worries were non_existent. These factors pushed long_term
interest rates down through the 6% level, and they finished 1995 at 5.95%.
The tide began to turn rather quickly right at the start of 1996. One of
the reasons why the market rallied so strongly during the second half of 1995
can be traced to speculative investments in U.S. Treasury securities.
Speculators were borrowing Japanese yen at extraordinarily low Japanese
short_term interest rates (0.3% to 0.5%), converting the yen into U.S.
dollars, and investing the proceeds in U.S. Treasury securities. As long as
Japanese short rates were expected to stay low or the yen was expected to slip
versus the U.S. dollar, this trade worked quite well. Unfortunately, once the
tide began to turn (i.e. people thought Japanese short-term interest rates
might rise), the selling it created snowballed due to the leverage inherent in
the trade. That happened during the early part of 1996, and short to
intermediate interest rates rose rather quickly.
As spring started to roll in, the bond market was shocked by the February
employment report issued by the Bureau of Labor Statistics. The number of new
jobs created during the month of February was an eye_popping 705,000 at the
time of the first release. Subsequent releases revised the number modestly
lower, but those same releases reported job gains that were much stronger than
what had been the case in 1995. The probability of a recession became remote,
and fears of inflation began to surface once again. Strong consumer
expenditures during the first half of 1996, solid capital spending, and a
surprisingly resilient housing sector simply added to the markets concerns,
driving long_term interest rates close to 7.25%. As the summer ended,
concerns seem to be somewhat assuaged, but rates remained stubbornly close to
7%.
It is important to note, however, that throughout all of this, inflation
itself remained very much in check. The most common measures, the Producer
Price Index (PPI) and the Consumer Price Index (CPI), both remained at or
below 3.0% on a year-over-year basis throughout 1996. An even more accurate
measure of inflation, the GDP deflator, remained closer to 2.0%. That means
real interest rates (nominal rates less the rate of inflation) exceeded 4%_5%,
depending upon which measure of inflation was used.
In the near_term, no one likes to see rising interest rates, but if one
expects inflation to remain under control over the longer_term, rising
interest rates can create compelling fixed income buying opportunities. In
the fixed income markets, 1996 has been a stern test, but in the long run,
only those who acted during these difficult times will be positioned to
benefit from the long-term trends of moderate growth and low inflation.
1
<PAGE>
Management Discussion and Analysis (continued)
As everyone is quite aware, 1996 is an election year, and the market
reacted to the uncertainty of the countrys political future. The political
posturing started at the end of last year when the Republican Congress and the
Democratic White House shut down the government and threatened to default on
U.S. Treasury securities. It veered off to the right with the rise and fall
of Steve Forbes and his call for a flat income tax. It focused on the
Republican primaries in the spring with Bob Dole being the ultimate winner.
And it has continued throughout the election season as the incumbent,
President Clinton, maintained a double digit lead in the polls.
In the short_term, elections do introduce volatility in the marketplace.
This year saw a marked acceleration in the growth rate of government
expenditures, which comprise about 20% of this country's GDP. This was a big
contributor to the acceleration in overall economic growth during the first
half of 1996, and that acceleration contributed to this years increase in
interest rates.
Elections also introduce uncertainty. Who will win the election? Who
will control the House? The Senate? What issues will galvanize the public?
Financial markets, as a general rule, do not like uncertainty and this year
was no exception. Given the sizable lead the President held in the polls
throughout the campaign, the biggest uncertainty seemed to relate to which
party would control the Congress. Historically, the financial markets seem to
prefer split control -- one party in control of one branch of the government
and the other in control of another.
In the long run, however, the election results may not be of major
importance. With the growth of the global financial markets and the influence
they wield on a country's interest and exchange rates, who is in the White
House or who controls Congress becomes less significant. The financial
markets are in effect pulling all parties to the right, specifically toward
fiscally sound policies. Witness what has occurred with a Democrat in the
White House over the last four years. The budget deficit has shrunk from $300
billion to just over $100 billion, the debate has shifted away from where
government moneys should be spent to what spending cuts should be made, and
the two parties debated whether the budget should be balanced in seven years
or in ten. Beyond that, we had a presidential campaign in which the
Republican challenger was calling for a tax cut and the Democratic incumbent
attacked it for being budgetarily imprudent. The new reality is that the only
poll that really seems to matter is the one being taken in the global
financial markets; sound policies are rewarded, unsound policies are not.
All the factors that have influenced the bond market over the past year
have the effect of diverting attention from the larger trends, but the larger
trends are of the most importance in determining investment success over the
long- term. At Manning & Napier, we view the big picture items as the most
important. The growth in international trade, the subsequent increase in
international competition, the need for policy makers, producers, and
consumers to adjust to this new economic reality, and the impact their actions
have had on the economy, inflation, and interest rates are what drives our
fixed income process. These are long_term, secular influences that have
brought down interest rates, have capped inflation expectations, and have
allowed longer_term, non_callable securities to provide strong investment
returns.
As in previous years, we have positioned the Series portfolio in
accordance with our overview. Within the framework of the maturity guidelines
set down for the Series, Manning & Napier weighted the portfolio toward the
longer end of the maturity spectrum. During the first half of 1996 when
interest rates were rising, that
2
<PAGE>
Management Discussion and Analysis (continued)
weighting was amplified. An emphasis was also placed on non_callable
securities. Corporate bonds were unaffected by the overview. The sector was
avoided, however, because the credit spreads associated with corporate bonds
were so narrow relative to U.S. Treasury securities that Manning & Napier felt
that investors were not being paid for the credit risk inherent in investments
in corporate bonds.
While 1996 has been a difficult year for the bond market, it is important
to realize that the causes of the difficulty were essentially shorter_term in
nature. Speculative excesses, a cyclical growth scare and the associated
inflation worries, and the uncertainty associated with an election all
combined to push interest rates higher. It is also worthwhile noting that the
shorter_term problems that plagued 1996 are needed to create the quality
longer_term investment opportunities that will benefit the Series going
forward. In addition, the uncertainties that the election introduced are
becoming even more short-lived given the growing importance of the financial
markets. Beyond all of this, Manning & Napier believes that the adherence to
a long_term investment overview and investment process is what separates the
good funds from the bad ones.
We wish you and yours all the best during this holiday season.
Sincerely,
MANNING & NAPIER ADVISORS, INC.
[GRAPHIC]
[PIE CHART]
Effective Maturity - As of 10/31/96
1 - 2 Years - 13%
2 - 3 Years - 21%
3 - 4 Years - 39%
More than 4 Years - 27%
3
<PAGE>
Performance Update as of October 31, 1996
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 (10/31/96) 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
Growth of
Through $10,000 Average
10/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 10,504 5.04% 5.04%
Inception 2 $ 11,337 13.37% 4.74%
</TABLE>
<TABLE>
<CAPTION>
Merrill Lynch U.S. Treasury Short-Term Index
Total Return
Growth of
Through $10,000 Average
10/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 10,591 5.91% 5.91%
Inception 2 $ 11,598 15.98% 5.62%
</TABLE>
1 The Merrill Lynch U.S. Treasury Short-Term Index is a market value weighted
measure of approximately 59 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.
2 The Fund and Index performance are calculated from February 15, 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 U.S. Treasury
Flexible Yield Series I Short-Term Index
<S> <C> <C>
02/15/94 $ 10,000 $ 10,000
06/30/94 9,860 9,931
12/31/94 9,924 10,030
06/30/95 10,573 10,699
12/31/95 10,995 11,133
04/30/96 10,931 11,179
10/31/96 11,337 11,598
</TABLE>
4
<PAGE>
Investment Portfolio - October 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT/SHARES (NOTE 2)
<S> <C> <C>
U.S. TREASURY NOTES - 95.18%
U.S. Treasury Note, 4.75%, 2/15/1997 $ 14,000 $ 13,970
U.S. Treasury Note, 6.50%, 4/30/1997 45,000 45,244
U.S. Treasury Note, 5.125%, 2/28/1998 40,000 39,730
U.S. Treasury Note, 6.125%, 5/15/1998 60,000 60,387
U.S. Treasury Note, 6.50%, 4/30/1999 95,000 96,432
U.S. Treasury Note, 6.75%, 4/30/2000 85,000 86,939
U.S. Treasury Note, 6.375%, 3/31/2001 125,000 126,445
TOTAL U.S. TREASURY NOTES
(Identified Cost $465,566 ) 469,147
SHORT-TERM INVESTMENTS - 4.57%
Dreyfus U.S. Treasury Money Market Reserves
(Identified Cost $22,514 ) 22,514 22,514
TOTAL INVESTMENTS - 99.75%
(Identified Cost $488,080 ) 491,661
OTHER ASSETS, LESS LIABILITIES - 0.25% 1,236
NET ASSETS - 100% $492,897
</TABLE>
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
At October 31, 1996, the net unrealized appreciation based on identified cost for
federal income tax purposes of $488,374 was as follows:
<S> <C>
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost $3,287
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value 0
UNREALIZED APPRECIATION - NET $3,287
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
OCTOBER 31, 1996
ASSETS:
<S> <C>
Investments, at value (Identified Cost $488,080)(Note 2) $491,661
Interest receivable 2,910
Receivable from investment advisor (Note 3) 16,323
TOTAL ASSETS 510,894
LIABILITIES:
Accrued Directors' fees (Note 3) 5,071
Audit fee payable 7,750
Other payables and accrued expenses 5,176
TOTAL LIABILITIES 17,997
NET ASSETS FOR 47,974 SHARES OUTSTANDING $492,897
NET ASSETS CONSIST OF:
Capital stock $ 480
Additional paid-in-capital 481,108
Undistributed net investment income 5,336
Accumulated net realized gain on investments 2,392
Net unrealized appreciation on investments 3,581
TOTAL NET ASSETS $492,897
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($492,897 / 47,974 shares) $ 10.27
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
For the Ten Months For the Year
Ended 10/31/96 Ended 12/31/95
INVESTMENT INCOME:
<S> <C> <C>
Interest $ 17,994 $ 19,872
EXPENSES:
Management fee (Note 3) 1,057 1,221
Directors' fees (Note 3) 5,071 6,791
Transfer agent fees (Note 3) 72 84
Audit fee 8,114 10,400
Custodian fee 297 600
Miscellaneous 4,884 608
Total Expenses 19,495 19,704
Less Waiver of Expenses (Note 3) (17,380) (17,244)
Net Expenses 2,115 2,460
NET INVESTMENT INCOME 15,879 17,412
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investments (identified cost basis) 2,919 321
Net change in unrealized appreciation on investments (3,729) 12,825
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (810) 13,146
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 15,069 $ 30,558
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Period
2/15/94
For the Ten For the (commencement
Months Ended Year Ended of operations)
10/31/96 12/31/95 to 12/31/94
-------------- ------------ ----------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
<S> <C> <C> <C>
Net investment income $ 15,879 $ 17,412 $ 5,603
Net realized gain (loss) on investments 2,919 321 (848)
Net change in unrealized appreciation (depreciation)
on investments (3,729) 12,825 (5,515)
Net increase (decrease) in net assets from operations 15,069 30,558 (760)
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (10,555) (17,292) (5,444)
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase in net assets from capital share
transactions (Note 5) 231,929 12,347 237,045
Net increase in net assets 236,443 25,613 230,841
NET ASSETS:
Beginning of period 256,454 230,841 -
End of period (including undistributed net investment
income of $5,336, $12, and $159 respectively) $ 492,897 $ 256,454 $ 230,841
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
For the
For the Ten Year
Months Ended Ended
10/31/96 12/31/95
Per share data (for a share outstanding throughout
each period ):
<S> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.26 $ 9.69
Income from investment operations:
Net investment income 0.411 0.464
Net realized and unrealized gain (loss)
on investments (0.101) 0.566
Total from investment operations 0.310 1.030
Less distributions to shareholders:
From net investment income (0.300) (0.460)
NET ASSET VALUE - END OF PERIOD $ 10.27 $ 10.26
Total return 1 3.11% 10.79%
Ratios (to average net assets) / Supplemental Data:
Expenses* 0.70%2 0.70%
Net investment income* 5.25%2 4.99%
Portfolio turnover 36% 60%
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 493 $ 256
* The investment advisor did not impose its management fee and paid a portion of the Fund's
expenses. If these expenses had been incurred by the Fund, expenses would have been limited to
that allowed by state securities law and the net investment income per share and the ratios would
have been as follows:
Net investment income $ 0.270 $ 0.297
Ratios (to average net assets):
Expenses 2.50%2 2.50%
Net investment income 3.45%2 3.19%
1 Represents aggregate total return for the period indicated
2 Annualized
For the
Period
2/15/94
(commencement
of operations)
to 12/31/94
Per share data (for a share outstanding throughout
each period ):
<S> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.00
Income from investment operations:
Net investment income 0.241
Net realized and unrealized gain (loss)
on investments (0.317)
Total from investment operations (0.076)
Less distributions to shareholders:
From net investment income (0.234)
NET ASSET VALUE - END OF PERIOD $ 9.69
Total return 1 (0.76)%
Ratios (to average net assets) / Supplemental Data:
Expenses* 0.70%2
Net investment income* 4.41%2
Portfolio turnover 38%
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 231
* The investment advisor did not impose its management fee and paid a portion of the Fund's
expenses. If these expenses had been incurred by the Fund, expenses would have been limited to
that allowed by state securities law and the net investment income per share and the ratios would
have been as follows:
Net investment income $ 0.143
Ratios (to average net assets):
Expenses 2.50%2
Net investment income 2.61%2
1 Represents aggregate total return for the period indicated
2 Annualized
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<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.
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
October 31, 1996, 940 million shares have been designated in total among 19
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 Advisor under procedures established by and under the general supervision
and responsibility of the Fund's Board of Directors.
Short-term investments that mature in sixty (60) days or less are
valued at amortized cost.
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.
10
<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 tax or excise tax 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
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.
OTHER
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
11
<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 0.35% of the Fund's
average daily net assets. The fee amounted to $1,057 for the ten months ended
October 31, 1996 and $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 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 $16,323 for the ten months ended October 31, 1996 and $16,023
for the year ended December 31, 1995, which are 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.
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%; this fee amounted to $72 for the ten months ended October 31,
1996 and $84 for the year ended December 31, 1995.
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 $5,071 for the
ten months ended October 31, 1996 and $6,791 for the year ended December 31,
1995.
12
<PAGE>
Notes to Financial Statements
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term securities, were
$330,613 and $132,098, respectively, for the ten months ended October 31,
1996.
5. CAPITAL STOCK TRANSACTIONS
<TABLE>
<CAPTION>
Transactions in shares of Flexible Yield Series I Class M Common Stock were:
For the Ten For the Year
Months Ended Ended
10/31/96 12/31/95
------------- -------------
Shares Amount Shares Amount
------------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Sold 46,304 $ 468,224 42,563 $ 433,846
Reinvested 1,049 10,556 1,658 16,778
Repurchased (24,368) (246,851) (43,058) (438,277)
Total 22,985 $ 231,929 1,163 $ 12,347
Transactions in shares of Flexible Yield Series I Class M Common Stock were:
For the Period 2/15/94
(commencement of operations)
to 12/31/94
Shares Amount
------------------ ---------
<S> <C> <C>
Sold 31,143 $309,689
Reinvested 562 5,444
Repurchased (7,879) (78,088)
Total 23,826 $237,045
</TABLE>
The Advisor owned 4,042 shares on October 31, 1996, 3,924 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 October 31, 1996.
7. CHANGE IN FISCAL YEAR END
Effective January 1, 1996, the Fund changed its fiscal year end from December
31 to October 31.
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 October 31, 1996, the
related statement of operations for the ten months then ended and the year
ended December 31, 1995, the statement of changes in net assets for the ten
months ended October 31, 1996 and the years ended December 31, 1995 and 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 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 October 31, 1996 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 October 31, 1996, 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
November 19, 1996
14
<PAGE>
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
Flexible Yield Series II
Annual Report
October 31, 1996
<PAGE>
Management Discussion and Analysis
Dear Shareholders:
During 1996, we have experienced what Manning & Napier feels to be a
temporary setback in the bond market. Short-term factors, including
speculation in the bond market, inflation fears, and political uncertainty
have led to a difficult year in the bond market. Especially when contrasted
with the extraordinary returns earned by bonds and bond funds in 1995, the
luster appears to have worn off the bond market. Our experience, however,
teaches us that short-term situations such as this provide opportunities to
position the portfolio to benefit from the long-term trends which are the most
important determinants of returns in the bond market.
At the end of 1995, the bond market looked about as good as it could get.
Economic growth was slowing, some were even calling for a recession later in
1996, and inflation worries were non_existent. These factors pushed long_term
interest rates down through the 6% level, and they finished 1995 at 5.95%.
The tide began to turn rather quickly right at the start of 1996. One of
the reasons why the market rallied so strongly during the second half of 1995
can be traced to speculative investments in U.S. Treasury securities.
Speculators were borrowing Japanese yen at extraordinarily low Japanese
short_term interest rates (0.3% to 0.5%), converting the yen into U.S.
dollars, and investing the proceeds in U.S. Treasury securities. As long as
Japanese short rates were expected to stay low or the yen was expected to slip
versus the U.S. dollar, this trade worked quite well. Unfortunately, once the
tide began to turn (i.e. people thought Japanese short-term interest rates
might rise), the selling it created snowballed due to the leverage inherent in
the trade. That happened during the early part of 1996, and short to
intermediate interest rates rose rather quickly.
As spring started to roll in, the bond market was shocked by the February
employment report issued by the Bureau of Labor Statistics. The number of new
jobs created during the month of February was an eye_popping 705,000 at the
time of the first release. Subsequent releases revised the number modestly
lower, but those same releases reported job gains that were much stronger than
what had been the case in 1995. The probability of a recession became remote,
and fears of inflation began to surface once again. Strong consumer
expenditures during the first half of 1996, solid capital spending, and a
surprisingly resilient housing sector simply added to the markets concerns,
driving long_term interest rates close to 7.25%. As the summer ended,
concerns seem to be somewhat assuaged, but rates remained stubbornly close to
7%.
It is important to note, however, that throughout all of this, inflation
itself remained very much in check. The most common measures, the Producer
Price Index (PPI) and the Consumer Price Index (CPI), both remained at or
below 3.0% on a year-over-year basis throughout 1996. An even more accurate
measure of inflation, the GDP deflator, remained closer to 2.0%. That means
real interest rates (nominal rates less the rate of inflation) exceeded 4%_5%,
depending upon which measure of inflation was used.
In the near_term, no one likes to see rising interest rates, but if one
expects inflation to remain under control over the longer_term, rising
interest rates can create compelling fixed income buying opportunities. In
the fixed income markets, 1996 has been a stern test, but in the long run,
only those who acted during these difficult times will be positioned to
benefit from the long-term trends of moderate growth and low inflation.
1
<PAGE>
Management Discussion and Analysis (continued)
As everyone is quite aware, 1996 is an election year, and the market
reacted to the uncertainty of the countrys political future. The political
posturing started at the end of last year when the Republican Congress and the
Democratic White House shut down the government and threatened to default on
U.S. Treasury securities. It veered off to the right with the rise and fall
of Steve Forbes and his call for a flat income tax. It focused on the
Republican primaries in the spring with Bob Dole being the ultimate winner.
And it has continued throughout the election season as the incumbent,
President Clinton, maintained a double digit lead in the polls.
In the short_term, elections do introduce volatility in the marketplace.
This year saw a marked acceleration in the growth rate of government
expenditures, which comprise about 20% of this country's GDP. This was a big
contributor to the acceleration in overall economic growth during the first
half of 1996, and that acceleration contributed to this years increase in
interest rates.
Elections also introduce uncertainty. Who will win the election? Who
will control the House? The Senate? What issues will galvanize the public?
Financial markets, as a general rule, do not like uncertainty and this year
was no exception. Given the sizable lead the President held in the polls
throughout the campaign, the biggest uncertainty seemed to relate to which
party would control the Congress. Historically, the financial markets seem to
prefer split control -- one party in control of one branch of the government
and the other in control of another.
In the long run, however, the election results may not be of major
importance. With the growth of the global financial markets and the influence
they wield on a country's interest and exchange rates, who is in the White
House or who controls Congress becomes less significant. The financial
markets are in effect pulling all parties to the right, specifically toward
fiscally sound policies. Witness what has occurred with a Democrat in the
White House over the last four years. The budget deficit has shrunk from $300
billion to just over $100 billion, the debate has shifted away from where
government moneys should be spent to what spending cuts should be made, and
the two parties debated whether the budget should be balanced in seven years
or in ten. Beyond that, we had a presidential campaign in which the
Republican challenger was calling for a tax cut and the Democratic incumbent
attacked it for being budgetarily imprudent. The new reality is that the only
poll that really seems to matter is the one being taken in the global
financial markets; sound policies are rewarded, unsound policies are not.
All the factors that have influenced the bond market over the past year
have the effect of diverting attention from the larger trends, but the larger
trends are of the most importance in determining investment success over the
long- term. At Manning & Napier, we view the big picture items as the most
important. The growth in international trade, the subsequent increase in
international competition, the need for policy makers, producers, and
consumers to adjust to this new economic reality, and the impact their actions
have had on the economy, inflation, and interest rates are what drives our
fixed income process. These are long_term, secular influences that have
brought down interest rates, have capped inflation expectations, and have
allowed longer_term, non_callable securities to provide strong investment
returns.
As in previous years, we have positioned the Series portfolio in
accordance with our overview. Within the framework of the maturity guidelines
set down for the Series, Manning & Napier weighted the portfolio toward the
longer end of the maturity spectrum. During the first half of 1996 when
interest rates were rising, that
2
<PAGE>
Management Discussion and Analysis (continued)
weighting was amplified. An emphasis was also placed on non_callable
securities. Given that, the mortgage_backed sector of the fixed income
marketplace was underweighted. Small positions were established, but they
totaled less than 10% of the Series portfolio. Corporate bonds were
unaffected by the overview. The sector was avoided, however, because the
credit spreads associated with corporate bonds were so narrow relative to U.S.
Treasury securities that Manning & Napier felt that investors were not being
paid for the credit risk inherent in investments in corporate bonds.
While 1996 has been a difficult year for the bond market, it is important
to realize that the causes of the difficulty were essentially shorter_term in
nature. Speculative excesses, a cyclical growth scare and the associated
inflation worries, and the uncertainty associated with an election all
combined to push interest rates higher. It is also worthwhile noting that the
shorter_term problems that plagued 1996 are needed to create the quality
longer_term investment opportunities that will benefit the Series going
forward. In addition, the uncertainties that the election introduced are
becoming even more short-lived given the growing importance of the financial
markets. Beyond all of this, Manning & Napier believes that the adherence to
a long_term investment overview and investment process is what separates the
good funds from the bad ones.
We wish you and yours all the best during this holiday season.
MANNING & NAPIER ADVISORS, INC.
[GRAPHIC]
[PIE CHART]
Effective Maturity - As of 10/31/96
Less than 1 Year - 15%
1 - 2 Years - 5%
2 - 3 Years - 13%
3 - 5 Years - 22%
5 - 7 Years - 9%
More than 7 Years - 36%
3
<PAGE>
Performance Update as of October 31, 1996
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 (10/31/96) as
compared to the Merrill Lynch Corporate/Government Intermediate Index. 1
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc. - Flexible Yield Series II
Total Return
Growth of
Through $10,000 Average
10/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 10,427 4.27% 4.27%
Inception 2 $ 11,336 13.36% 4.73%
</TABLE>
<TABLE>
<CAPTION>
Merrill Lynch Corporate/Government Intermediate Index
Total Return
Growth of
Through $10,000 Average
10/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 10,574 5.74% 5.74%
Inception 2 $ 11,672 16.72% 5.87%
</TABLE>
1 The Merrill Lynch Corporate/Government Intermediate Index is a market
value weighted measure of approximately 3,360 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.
2 The Fund and Index performance are calculated from February 15, 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 Corporate/Government
Flexible Yield Series II Intermediate Index
<S> <C> <C>
02/15/94 10,000 10,000
06/30/94 9,510 9,727
12/31/94 9,531 9,799
06/30/95 10,576 10,737
12/31/95 11,182 11,301
04/30/96 10,889 11,167
10/31/96 11,336 11,672
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO - OCTOBER 31, 1996
Shares/Principal VALUE
Amount (NOTE 2)
<S> <C> <C>
U.S. TREASURY NOTES - 96.2%
U.S. Treasury Note, 7.50%, 1/31/1997 $ 10,000 $ 10,056
U.S. Treasury Note, 4.75%, 2/15/1997 10,000 9,978
U.S. Treasury Note, 6.875%, 2/28/1997 30,000 30,150
U.S. Treasury Note, 6.00%, 8/31/1997 20,000 20,075
U.S. Treasury Note, 5.875%, 4/30/1998 25,000 25,078
U.S. Treasury Note, 5.125%, 11/30/1998 20,000 19,748
U.S. Treasury Note, 5.00%, 1/31/1999 15,000 14,752
U.S. Treasury Note, 6.50%, 4/30/1999 25,000 25,377
U.S. Treasury Note, 5.50%, 4/15/2000 30,000 29,527
U.S. Treasury Note, 6.75%, 4/30/2000 25,000 25,570
U.S. Treasury Note, 7.875%, 8/15/2001 45,000 48,263
U.S. Treasury Note, 6.25%, 2/15/2003 40,000 40,137
U.S. Treasury Note, 5.875%, 2/15/2004 60,000 58,594
U.S. Treasury Note, 7.25%, 5/15/2004 100,000 105,625
TOTAL U.S. TREASURY NOTES
(Identified Cost $446,830) 462,930
SHORT-TERM INVESTMENTS - 3.0%
Dreyfus U.S. Treasury Money Market Reserves
(Identified Cost $14,323) 14,323 14,323
TOTAL INVESTMENTS - 99.2%
(Identified Cost $461,153) 477,253
OTHER ASSETS, LESS LIABILITIES - 0.8% 4,041
NET ASSETS - 100% $481,294
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
Federal Tax Information - October 31, 1996
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
At October 31, 1996, the net unrealized appreciation based on identified cost for
federal income tax purposes of $461,153 was as follows:
<S> <C>
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost $16,103
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value (3)
UNREALIZED APPRECIATION - NET $16,100
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
OCTOBER 31, 1996
<S> <C>
ASSETS:
Investments, at value (Identified Cost $461,153)(Note 2) $477,253
Interest receivable 6,938
Receivable from investment advisor (Note 3) 14,712
TOTAL ASSETS 498,903
LIABILITIES:
Accrued Directors' fees (Note 3) 5,072
Transfer agent fees payable (Note 3) 90
Audit fee payable 7,750
Other payables and accrued expenses 4,697
TOTAL LIABILITIES 17,609
NET ASSETS FOR 47,655 SHARES OUTSTANDING $481,294
NET ASSETS CONSIST OF:
Capital stock $ 476
Additional paid-in-capital 455,681
Undistributed net investment income 8,750
Accumulated net realized gain on investments 287
Net unrealized appreciation on investments 16,100
TOTAL NET ASSETS $481,294
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($481,294 / 47,655 shares) $ 10.10
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
For the For the
Ten Months Year
Ended 10/31/96 Ended 12/31/95
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 23,842 $ 29,659
EXPENSES:
Management fees (Note 3) 1,688 2,160
Directors' fees (Note 3) 5,072 6,792
Transfer agent fees (Note 3) 90 115
Audit fee 7,808 10,400
Registration and filing fees 3,929 2,453
Custodian fee 150 600
Miscellaneous 665 -
Total Expenses 19,402 22,520
Less Waiver of Expenses (Note 3) (16,400) (18,679)
Net Expenses 3,002 3,841
NET INVESTMENT INCOME 20,840 25,818
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investments (identified cost basis) 289 2,582
Net change in unrealized appreciation on investments (12,780) 45,414
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (12,491) 47,996
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 8,349 $ 73,814
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Period
2/15/94
For the Ten For the (commencement
Months Ended Year Ended of operations)
10/31/96 12/31/95 to 12/31/94
-------------- ------------ ----------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 20,840 $ 25,818 $ 10,888
Net realized gain on investments 289 2,582 -
Net change in unrealized appreciation (depreciation)
on investments (12,780) 45,414 (16,534)
Net increase (decrease) in net assets from operations 8,349 73,814 (5,646)
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (12,453) (25,351) (10,558)
From net realized gain on investments (2,503) - -
Total distributions to shareholders (14,956) (25,351) (10,558)
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase (decrease) in net assets from capital share
transactions (Note 5) 49,875 (5,951) 411,718
Net increase in net assets 43,268 42,512 395,514
NET ASSETS:
Beginning of period 438,026 395,514 -
End of period (including undistributed net investment
income of $8,750, $363 and $330 respectively) $ 481,294 $ 438,026 $ 395,514
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
For the
Ten For the
Months Year
Ended Ended
10/31/96 12/31/95
---------- ----------
<S> <C> <C>
Per share data (for a share outstanding throughout
each period ):
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.30 $ 9.27
Income from investment operations:
Net investment income 0.445 0.561
Net realized and unrealized gain (loss)
on investments (0.315) 1.019
Total from investment operations 0.130 1.580
Less distributions to shareholders:
From net investment income (0.270) (0.550)
From net realized gain on investments (0.060) -
Total distributions to shareholders (0.330) (0.550)
NET ASSET VALUE - END OF PERIOD $ 10.10 $ 10.30
Total return 1 1.38% 17.33%
Ratios (to average net assets) / Supplemental Data:
Expenses* 0.80%2 0.80%
Net investment income* 5.55%2 5.38%
Portfolio turnover 5% 35%
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 481 $ 438
* The investment advisor did not impose its management fee and paid a portion of the Fund's expenses.
If these expenses had been incurred by the Fund, expenses would have been limited to that allowed
by state securities law and the net investment income per share and the ratios would have been as
follows:
Net investment income $ 0.309 $ 0.384
Ratios (to average net assets):
Expenses 2.50%2 2.50%
Net investment income 3.85%2 3.68%
1 Represents aggregate total return for the period indicated
2 Annualized
For the Period
2/15/94
(commencement
of operations) to
12/31/94
-------------------
<S> <C>
Per share data (for a share outstanding throughout
each period ):
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.00
Income from investment operations:
Net investment income 0.269
Net realized and unrealized gain (loss)
on investments (0.738)
Total from investment operations (0.469)
Less distributions to shareholders:
From net investment income (0.261)
From net realized gain on investments -
Total distributions to shareholders (0.261)
NET ASSET VALUE - END OF PERIOD $ 9.27
Total return 1 (4.69%)
Ratios (to average net assets) / Supplemental Data:
Expenses* 0.80%2
Net investment income* 5.40%2
Portfolio turnover 0%
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 396
* The investment advisor did not impose its management fee and paid a portion of the Fund's expenses.
If these expenses had been incurred by the Fund, expenses would have been limited to that allowed
by state securities law and the net investment income per share and the ratios would have been as
follows:
Net investment income $ 0.184
Ratios (to average net assets):
Expenses 2.50%2
Net investment income 3.70%2
1 Represents aggregate total return for the period indicated
2 Annualized
</TABLE>
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.
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
October 31, 1996, 940 million shares have been designated in total among 19
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 Advisor under procedures established by and under the general supervision
and responsibility of the Fund's Board of Directors.
Short-term investments that mature in sixty (60) days or less are
valued at amortized cost.
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
11
<PAGE>
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FEDERAL INCOME TAXES (CONTINUED)
requirements of the Internal Revenue Code. Accordingly, no provision for
federal income tax or excise tax 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
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, 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.
OTHER
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reorted amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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 $1,688 for the ten months ended
October 31, 1996 and $2,160 for the year ended December 31, 1995.
12
<PAGE>
Notes to Financial Statements
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
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 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 $14,712 for the ten months ended October 31, 1996 and $16,519 for
the year ended December 31, 1995, which are 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.
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%; this fee amounted to $90 for the ten months ended October 31,
1996 and $115 for the year ended December 31, 1995.
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 $5,072 for the
ten months ended October 31, 1996 and $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
$64,125 and $20,181 respectively, for the ten months ended October 31,
1996.
13
<PAGE>
Notes to Financial Statements
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 Ten Months For the Year (commencement of
Ended 10/31/96 Ended 12/31/95 operations) to 12/31/94
Shares Amount Shares Amount Shares Amount
------------------- --------- --------------- ---------- ----------------------- --------
<S> <C> <C> <C> <C> <C> <C>
Sold 7,361 $ 72,902 17,414 $ 173,234 41,530 $401,160
Reinvested 1,460 14,399 2,527 25,352 1,139 10,558
Repurchased (3,711) (37,426) (20,065) (204,537) - -
Total 5,110 $ 49,875 (124) $ (5,951) 42,669 $411,718
</TABLE>
The Advisor owned 13,836 shares on October 31, 1996 and 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 October
31, 1996.
7. CHANGE IN FISCAL YEAR END
Effective January 1, 1996, the Fund changed its fiscal year end from
December 31 to October 31.
14
<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 October 31, 1996, the
related statement of operations for the ten months then ended and the year
ended December 31, 1995, the statement of changes in net assets for the ten
months ended October 31, 1996 and the years ended December 31, 1995 and 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 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 October 31, 1996 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 October 31, 1996, 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
November 19, 1996
15
<PAGE>
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
Flexible Yield Series III
Annual Report
October 31, 1996
<PAGE>
Management Discussion and Analysis
Dear Shareholders:
During 1996, we have experienced what Manning & Napier feels to be a
temporary setback in the bond market. Short-term factors, including
speculation in the bond market, inflation fears, and political uncertainty
have led to a difficult year in the bond market. Especially when contrasted
with the extraordinary returns earned by bonds and bond funds in 1995, the
luster appears to have worn off the bond market. Our experience, however,
teaches us that short-term situations such as this provide opportunities to
position the portfolio to benefit from the long-term trends which are the most
important determinants of returns in the bond market.
At the end of 1995, the bond market looked about as good as it could
get. Economic growth was slowing, some were even calling for a recession
later in 1996, and inflation worries were non_existent. These factors pushed
long_term interest rates down through the 6% level, and they finished 1995 at
5.95%.
The tide began to turn rather quickly right at the start of 1996.
One of the reasons why the market rallied so strongly during the second half
of 1995 can be traced to speculative investments in U.S. Treasury securities.
Speculators were borrowing Japanese yen at extraordinarily low Japanese
short_term interest rates (0.3% to 0.5%), converting the yen into U.S.
dollars, and investing the proceeds in U.S. Treasury securities. As long as
Japanese short rates were expected to stay low or the yen was expected to slip
versus the U.S. dollar, this trade worked quite well. Unfortunately, once the
tide began to turn (i.e. people thought Japanese short-term interest rates
might rise), the selling it created snowballed due to the leverage inherent in
the trade. That happened during the early part of 1996, and short to
intermediate interest rates rose rather quickly.
As spring started to roll in, the bond market was shocked by the
February employment report issued by the Bureau of Labor Statistics. The
number of new jobs created during the month of February was an eye_popping
705,000 at the time of the first release. Subsequent releases revised the
number modestly lower, but those same releases reported job gains that were
much stronger than what had been the case in 1995. The probability of a
recession became remote, and fears of inflation began to surface once again.
Strong consumer expenditures during the first half of 1996, solid capital
spending, and a surprisingly resilient housing sector simply added to the
markets concerns, driving long_term interest rates close to 7.25%. As the
summer ended, concerns seem to be somewhat assuaged, but rates remained
stubbornly close to 7%.
It is important to note, however, that throughout all of this,
inflation itself remained very much in check. The most common measures, the
Producer Price Index (PPI) and the Consumer Price Index (CPI), both remained
at or below 3.0% on a year-over-year basis throughout 1996. An even more
accurate measure of inflation, the GDP deflator, remained closer to 2.0%.
That means real interest rates (nominal rates less the rate of inflation)
exceeded 4%_5%, depending upon which measure of inflation was used.
In the near_term, no one likes to see rising interest rates, but if
one expects inflation to remain under control over the longer_term, rising
interest rates can create compelling fixed income buying opportunities. In
the fixed income markets, 1996 has been a stern test, but in the long run,
only those who acted during these difficult times will be positioned to
benefit from the long-term trends of moderate growth and low inflation.
As everyone is quite aware, 1996 is an election year, and the market
reacted to the uncertainty of the countrys political future. The political
posturing started at the end of last year when the Republican Congress and the
Democratic White House shut down the government and threatened to default on
U.S. Treasury securities. It
1
<PAGE>
Management Discussion and Analysis (continued)
veered off to the right with the rise and fall of Steve Forbes and
his call for a flat income tax. It focused on the Republican primaries in the
spring with Bob Dole being the ultimate winner. And it has continued
throughout the election season as the incumbent, President Clinton, maintained
a double digit lead in the polls.
In the short_term, elections do introduce volatility in the
marketplace. This year saw a marked acceleration in the growth rate of
government expenditures, which comprise about 20% of this country's GDP. This
was a big contributor to the acceleration in overall economic growth during
the first half of 1996, and that acceleration contributed to this years
increase in interest rates.
Elections also introduce uncertainty. Who will win the election?
Who will control the House? The Senate? What issues will galvanize the public?
Financial markets, as a general rule, do not like uncertainty and this year
was no exception. Given the sizable lead the President held in the polls
throughout the campaign, the biggest uncertainty seemed to relate to which
party would control the Congress. Historically, the financial markets seem to
prefer split control -- one party in control of one branch of the government
and the other in control of another.
In the long run, however, the election results may not be of major
importance. With the growth of the global financial markets and the influence
they wield on a country's interest and exchange rates, who is in the White
House or who controls Congress becomes less significant. The financial
markets are in effect pulling all parties to the right, specifically toward
fiscally sound policies. Witness what has occurred with a Democrat in the
White House over the last four years. The budget deficit has shrunk from $300
billion to just over $100 billion, the debate has shifted away from where
government moneys should be spent to what spending cuts should be made, and
the two parties debated whether the budget should be balanced in seven years
or in ten. Beyond that, we had a presidential campaign in which the
Republican challenger was calling for a tax cut and the Democratic incumbent
attacked it for being budgetarily imprudent. The new reality is that the only
poll that really seems to matter is the one being taken in the global
financial markets; sound policies are rewarded, unsound policies are not.
All the factors that have influenced the bond market over the past
year have the effect of diverting attention from the larger trends, but the
larger trends are of the most importance in determining investment success
over the long- term. At Manning & Napier, we view the big picture items as
the most important. The growth in international trade, the subsequent
increase in international competition, the need for policy makers, producers,
and consumers to adjust to this new economic reality, and the impact their
actions have had on the economy, inflation, and interest rates are what drives
our fixed income process. These are long_term, secular influences that have
brought down interest rates, have capped inflation expectations, and have
allowed longer_term, non_callable securities to provide strong investment
returns.
As in previous years, we have positioned the Series portfolio in
accordance with our overview. Within the framework of the maturity guidelines
set down for the Series, Manning & Napier weighted the portfolio toward the
longer end of the maturity spectrum. During the first half of 1996 when
interest rates were rising, that weighting was amplified. An emphasis was
also placed on non_callable securities. Given that, the mortgage_backed
sector of the fixed income marketplace was underweighted. Small positions
were established, but they totaled less than 10% of the Series portfolio.
Corporate bonds were unaffected by the overview. The sector
2
<PAGE>
Management Discussion and Analysis (continued)
was avoided, however, because the credit spreads associated with
corporate bonds were so narrow relative to U.S. Treasury securities that
Manning & Napier felt that investors were not being paid for the credit risk
inherent in investments in corporate bonds.
While 1996 has been a difficult year for the bond market, it is
important to realize that the causes of the difficulty were essentially
shorter_term in nature. Speculative excesses, a cyclical growth scare and the
associated inflation worries, and the uncertainty associated with an election
all combined to push interest rates higher. It is also worthwhile noting that
the shorter_term problems that plagued 1996 are needed to create the quality
longer_term investment opportunities that will benefit the Series going
forward. In addition, the uncertainties that the election introduced are
becoming even more short-lived given the growing importance of the financial
markets. Beyond all of this, Manning & Napier believes that the adherence to
a long_term investment overview and investment process is what separates the
good funds from the bad ones.
We wish you and yours all the best during this holiday season.
MANNING & NAPIER ADVISORS, INC.
[GRAPHIC]
[PIE CHART]
Effective Maturity - As of 10/31/96
Less than 1 year - 9%
1 - 2 Years - 5%
2 - 3 Years - 6%
3 - 5 Years -12%
5 - 7 Years - 19%
7 - 10 Years - 16%
Over 10 Years - 33%
[GRAPHIC]
[PIE CHART]
Portfolio Composition - As of 10/31/96
U.S. Treasury Securities - 91%
Mortgage Backed Securities - 6%
Cash & Equivalents - 3%
3
<PAGE>
Performance Update as of October 31, 1996
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 (10/31/96)
as compared to the Merrill Lynch Corporate/Government Bond Index. 1
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc. - Flexible Yield Series III
Total Return
Growth of
Through $10,000 Average
10/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 10,361 3.61% 3.61%
Inception 2 $ 11,431 14.31% 4.77%
</TABLE>
<TABLE>
<CAPTION>
Merrill Lynch Corporate/Government Bond Index
Total Return
Growth of
Through $10,000 Average
10/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 10,529 5.29% 5.29%
Inception 2 $ 11,778 17.78% 5.87%
</TABLE>
1 The Merrill Lynch Corporate/Government Bond Index is a market
value weighted measure of approximately 4,775 corporate and
government bonds. The Index is comprised of investment grade
securities with maturities greater than one year. The Index returns
assume reinvestment of coupons and, unlike Fund returns, do not reflect
any fees or expenses.
2 The Fund and Index performance are calculated from December 20,
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 Merrill Lynch Corporate/
Flexible Yield Series III Government Bond Index
<S> <C> <C>
12/20/93 $ 10,000 $ 10,000
12/31/93 9,960 10,013
06/30/94 9,349 9,602
12/31/94 9,380 9,686
06/30/95 10,634 10,815
12/31/95 11,451 11,532
04/30/96 10,868 11,191
10/31/96 11,431 11,778
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - October 31, 1996
PRINCIPAL VALUE
AMOUNT (NOTE 2)
U.S. TREASURY SECURITIES - 90.83%
<S> <C> <C>
U.S. TREASURY BONDS - 19.28%
U.S. Treasury Bond, 7.25%, 8/15/2022
(Identified Cost $186,166 ) $ 200,000 $211,625
U.S. TREASURY NOTES - 64.94%
U.S. Treasury Note, 4.375%, 11/15/1996 25,000 24,984
U.S. Treasury Note, 7.50%, 1/31/1997 40,000 40,225
U.S. Treasury Note, 6.875%, 2/28/1997 35,000 35,175
U.S. Treasury Note, 5.00%, 1/31/1998 50,000 49,617
U.S. Treasury Note, 5.125%, 11/30/1998 60,000 59,245
U.S. Treasury Note, 7.75%, 11/30/1999 40,000 42,000
U.S. Treasury Note, 5.50%, 4/15/2000 25,000 24,606
U.S. Treasury Note, 6.25%, 8/31/2000 60,000 60,432
U.S. Treasury Note, 7.50%, 11/15/2001 35,000 37,052
U.S. Treasury Note, 6.375%, 8/15/2002 150,000 151,623
U.S. Treasury Note, 5.75%, 8/15/2003 15,000 14,607
U.S. Treasury Note, 5.875%, 2/15/2004 100,000 97,656
U.S. Treasury Note, 6.50%, 8/15/2005 75,000 75,773
TOTAL U.S. TREASURY NOTES
(Identified Cost $755,476) 712,995
U.S. TREASURY STRIPPED SECURITIES- 6.61%
Interest Stripped - Principal Payment, 5/15/2014 98,000 29,822
Interest Stripped - Principal Payment, 8/15/2014 143,000 42,784
TOTAL U.S. TREASURY STRIPPED SECURITIES
(Identified Cost $21,905 ) 72,606
TOTAL U.S. TREASURY SECURITIES
(Identified Cost $963,547) 997,226
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - October 31, 1996
Principal
Amount/ Value
Shares (Note 2)
U.S. GOVERNMENT AGENCIES - 6.27%
<S> <C> <C>
MORTGAGE BACKED SECURITIES
GNMA, Pool #224199, 9.50%, 7/15/2018 $16,138 $ 17,404
GNMA, Pool #299164, 9.00%, 12/15/2020 16,634 17,580
GNMA, Pool #376345, 6.50%, 12/15/2023 35,398 33,817
TOTAL U.S. GOVERNMENT AGENCIES
(Identified Cost $64,597 ) 68,801
SHORT-TERM INVESTMENTS - 2.04%
Dreyfus U.S. Treasury Money Market Reserves
(Identified Cost $22,359 ) 22,359 22,359
TOTAL INVESTMENTS - 99.14%
(Identified Cost $1,050,503 ) 1,088,386
OTHER ASSETS, LESS LIABILITIES - 0.86% 9,478
NET ASSETS - 100% $1,097,864
</TABLE>
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
At October 31, 1996, the net unrealized appreciation based on identified cost for
federal income tax purposes of $1,050,503 was as follows:
<S> <C>
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost $45,831
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value (7,948)
UNREALIZED APPRECIATION - NET $37,883
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
OCTOBER 31, 1996
<S> <C>
ASSETS:
Investments, at value (Identified Cost $1,050,503)(Note 2) $1,088,386
Interest receivable 14,831
Receivable from investment advisor (Note 3) 12,396
TOTAL ASSETS 1,115,613
LIABILITIES:
Accrued Directors' fees (Note 3) 5,072
Audit fee payable 7,750
Other payables and accrued expenses 4,927
TOTAL LIABILITIES 17,749
NET ASSETS FOR 108,427 SHARES OUTSTANDING $1,097,864
NET ASSETS CONSIST OF:
Capital stock $ 1,084
Additional paid-in-capital 1,037,339
Undistributed net investment income 16,958
Accumulated net realized gain on investments 4,600
Net unrealized appreciation on investments 37,883
TOTAL NET ASSETS $1,097,864
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($1,097,864/108,427 shares) $ 10.13
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
For the Ten Months For the Year
Ended 10/31/96 Ended 12/31/95
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 60,867 $ 66,467
EXPENSES:
Management fees (Note 3) 4,454 4,767
Directors' fees (Note 3) 5,072 6,832
Transfer agent fees (Note 3) 214 229
Audit fee 9,425 8,600
Custodian fee 500 600
Miscellaneous 4,754 2,424
Total Expenses 24,419 23,452
Less Waiver of Expenses (Note 3) (16,850) (15,349)
Net Expenses 7,569 8,103
NET INVESTMENT INCOME 53,298 58,364
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) on investments (identified cost basis) 4,772 (132)
Net change in unrealized appreciation on investments (60,560) 128,849
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (55,788) 128,717
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS ($2,490) $ 187,081
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Ten For the For the
Months Ended Year Ended Year Ended
10/31/96 12/31/95 12/31/94
-------------- ------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 53,298 $ 58,364 $ 21,040
Net realized gain (loss) on investments 4,772 (132) (28)
Net change in unrealized appreciation (depreciation)
on investments (60,560) 128,849 (30,063)
Net increase (decrease) in net assets from operations (2,490) 187,081 (9,051)
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (36,728) (57,528) (20,952)
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase (decrease) in net assets from capital share
transactions (Note 5) (22,142) 282,134 702,883
Net increase (decrease) in net assets (61,360) 411,687 672,880
NET ASSETS:
Beginning of period 1,159,224 747,537 74,657
End of period (including undistributed net investment
income of $16,958, $388, and $88, respectively) $ 1,097,864 $ 1,159,224 $ 747,537
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
For the For the
Ten Months Year
Ended Ended
10/31/96 12/31/95
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.51 $ 9.11
Income from investment operations:
Net investment income 0.497 0.582
Net realized and unrealized gain (loss)
on investments (0.532) 1.393
Total from investment operations (0.035) 1.975
Less distributions to shareholders:
From net investment income (0.345) (0.575)
NET ASSET VALUE - END OF PERIOD $ 10.13 $ 10.51
Total return 1 (0.18%) 22.09%
Ratios (to average net assets)/Supplemental Data:
Expenses* 0.85%2 0.85%
Net investment income* 5.98%2 6.13%
Portfolio turnover 5% 6%
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 1,098 $ 1,159
* The investment advisor did not impose its management fee and paid a portion of the Fund's
expenses. If these expenses had been incurred by the Fund for the periods ended December 31,
1993, December 31, 1994, and October 31, 1996, expenses would have been limited to that
allowed 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 $ 0.360 $ 0.429
Ratios(to average net assets):
Expenses 2.50%2 2.46%
Net investment income 4.33%2 4.52%
1 Represents aggregate total return for the period indicated.
2 Annualized.
For the Period
For the 12/20/93
Year (commencement
Ended of operations) to
12/31/94 12/31/93
---------- -------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
NET ASSET VALUE - BEGINNING OF PERIOD $ 9.95 $ 10.00
Income from investment operations:
Net investment income 0.262 0.010
Net realized and unrealized gain (loss)
on investments (0.841) (0.050)
Total from investment operations (0.579) (0.040)
Less distributions to shareholders:
From net investment income (0.261) (0.010)
NET ASSET VALUE - END OF PERIOD $ 9.11 $ 9.95
Total return 1 (5.83%) (0.40%)
Ratios (to average net assets)/Supplemental Data:
Expenses* 0.85% 0.85%2
Net investment income* 6.22% 3.85%2
Portfolio turnover 1% 0%
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 748 $ 75
* The investment advisor did not impose its management fee and paid a portion of the Fund's
expenses. If these expenses had been incurred by the Fund for the periods ended December 31,
1993, December 31, 1994, and October 31, 1996, expenses would have been limited to that
allowed 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 $ 0.192 $ 0.010
Ratios(to average net assets):
Expenses 2.50% 2.50%2
Net investment income 4.57% 2.20%2
1 Represents aggregate total return for the period indicated.
2 Annualized.
</TABLE>
The 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.
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
October 31, 1996, 940 million shares have been designated in total among 19
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 Advisor under procedures established by and under the general
supervision and responsibility of the Fund's Board of Directors.
Short-term investments that mature in sixty (60) days or less are
valued at amortized cost.
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.
11
<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 tax
or excise tax 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
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 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.
OTHER
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reorted amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
12
<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 0.50% of
the Fund's average daily net assets. The fee amounted to $4,454 for the
ten months ended October 31, 1996 and $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 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 $12,396 for the ten months ended October 31, 1996 and $10,582 for
the year ended December 31, 1995, which are 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.
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%;this fee amounted to $214 for the ten
months ended October 31, 1996 and $229 for the year ended December 31, 1995.
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 $5,072 for
the ten months ended October 31, 1996 and $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
$49,235 and $73,092, respectively, for the ten months ended October 31, 1996.
13
<PAGE>
Notes to Financial Statements
5. CAPITAL STOCK TRANSACTIONS
Transactions in shares of Flexible Yield Series III Class O Common Stock
were:
<TABLE>
<CAPTION>
For the Ten Months For the Year For the Year
Ended 10/31/96 Ended 12/31/95 Ended 12/31/94
------------------- --------------- --------------
Shares Amount Shares Amount Shares Amount
------------------- ---------- --------------- --------- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
Sold 6,096 $ 60,715 23,843 $236,968 72,768 $686,867
Reinvested 3,073 30,104 4,597 46,488 1,752 16,016
Repurchased (11,073) (112,961) (129) (1,322) - -
Total (1,904) $ (22,142) 28,311 $282,134 74,520 $702,883
</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 October 31, 1996.
7. CHANGE IN FISCAL YEAR END
Effective January 1, 1996, the Fund changed its fiscal year end from
December 31 to October 31.
14
<PAGE>
Independedt Auditors'eport
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 October 31, 1996, the
related statement of operations for the ten months then ended and the year
ended December 31, 1995, the statement of changes in net assets for the ten
months ended October 31, 1996 and the years ended December 31, 1995 and 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 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 October 31, 1996 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 October 31, 1996, 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
November 19, 1996
15
<PAGE>
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
Defensive Series
Annual Report
October 31, 1996
<PAGE>
Management Discussion and Analysis
Dear Shareholders:
Since we last reported to you six months ago, the markets have again
exhibited the upward and downward swings akin to the later stages of economic
and market cycles. Midway through this period we saw the Dow Jones Industrial
Average take a considerable dive, only to end this semi-annual reporting cycle
above the record-breaking 6000 mark. Likewise, the 30-year U.S.. Treasury
yield rose to over 7% during this period, but bonds recovered nicely by the
end of October. However, as we have anticipated thus far, economic growth
has remained moderate and inflation has remained in check, allowing us to take
advantage of the buying opportunities that present themselves.
These gyrations were caused by overreaction to short-term economic data.
Much as happened in March of this year, the news again raised fears of higher
inflation and sent the Dow Jones Industrial Average plunging down 115 points
on July 5th in what was only a half-day of trading due to the holiday. Bonds
followed suit with the yield on the 30-year U.S. Treasury surging 25
basis-points. Many were left wondering whether the Federal Reserve Board
would raise the Fed Funds rate. However, additional evidence throughout the
summer that inflation and economic growth are under control led the Fed to
again leave rates unchanged when they met during the last week of September.
As we continue to adhere to our long-term overview for low inflation and
lower interest rates, the July 5th correction created a buying opportunity in
which we were able to slightly lengthen the maturity of the bonds in the
portfolio and move into equity sectors where valuations proved attractive.
The stock portion of the portfolio has continued emphasis in small ticket
consumer stocks which we believe have been branded with the same iron as more
cyclical consumer stocks, thus creating a buying opportunity. In addition, we
have increased our exposure to the health care sector as valuations in that
area have proved attractive as well.
1
<PAGE>
Management Discussion and Analysis (continued)
At a time when market valuations in general are high and the bull market
is aging, it is important to be discriminating about the levels of risk
acceptable in funds with different tolerances for volatility. Your Series
places a high priority on dampening market volatility, so even though we see a
number of long-term positives in the investment picture, we must be sensitive
to the possibility of cyclical disruptions. With valuations currently very
high, you should expect this Series to be conservatively positioned, and
indeed, that is the case. As we continue to move through this mature bull
market, we will hold fast to our disciplines of attempting to identify stocks
of companies with strong strategic positioning in their industry at attractive
valuations versus long-term U.S. Treasury bonds.
We wish you and yours all the best during this holiday season.
Sincerely,
Manning & Napier Advisors, Inc.
[GRAPHIC]
[PIE CHART]
Portfolio Composition - As of 10/31/96
Bonds - 88%
Stocks - 7%
Cash & Equivalents - 5%
2
<PAGE>
Performance Update as of October 31, 1996
The value of a $10,000 investment in the Manning & Napier Fund, Inc. -
Defensive Series from its inception (11/1/95) to present (10/31/96) as
compared to the Lehman Brothers Intermediate Bond Index and a Balanced Index.
1
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc. - Defensive Series
Total Return
Through Growth of $10,000 Average
10/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
Inception 2 $ 10,494 4.94% 4.94%
</TABLE>
<TABLE>
<CAPTION>
Lehman Brothers Intermediate Bond Index
Total Return
Through Growth of $10,000 Average
10/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
Inception 2 $ 10,581 5.81% 5.81%
</TABLE>
<TABLE>
<CAPTION>
Balanced Index
Total Return
Through Growth of $10,000 Average
10/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
Inception 2 $ 10,847 8.47% 8.47%
</TABLE>
1 The Lehman Brothers Intermediate Bond Index is a market value weighted
measure of approximately 3,425 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 15% Standard & Poor's
(S&P) 500 Total Return Index and 85% 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.
2 Performance numbers for the Fund and Indices are calculated from November 1,
1995, 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
Defensive Series Intermediate Bond Index Balanced Index
<S> <C> <C> <C>
11/01/95 $ 10,000 $ 10,000 $ 10,000
01/31/96 10,287 10,326 10,425
04/30/96 10,116 10,116 10,301
07/31/96 10,137 10,246 10,389
10/31/96 10,494 10,581 10,847
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - October 31, 1996
VALUE
SHARES (NOTE 2)
COMMON STOCK - 7.43%
<S> <C> <C>
AIR TRANSPORTATION- 0.81%
Federal Express Corp.* 75 $6,038
---------
APPAREL- 0.44%
VF Corp. 50 3,269
---------
COMMUNICATIONS- 0.35%
Stet Societa' Finanziaria Telefonica S.p.A. - ADR 75 2,597
---------
ELECTROMEDICAL APPARATUS- 0.79%
Nellcor Puritan Bennett, Inc.* 300 5,850
---------
ENGINEERING SERVICES - 0.38%
Jacobs Engineering Group, Inc.* 125 2,766
---------
HEALTH SERVICES- 0.69%
MedPartners, Inc.* 242 5,112
---------
PHOTOGRAPHIC EQUIPMENT & SUPPLIES- 0.54%
Eastman Kodak Co. 50 3,987
---------
RESTAURANTS - 0.89%
McDonald's Corp. 150 6,656
---------
RETAIL - 2.01%
Fabri-Centers of America - Class A* 125 1,625
Fabri-Centers of America - Class B* 125 1,625
Fingerhut Companies, Inc. 325 4,834
Hancock Fabrics, Inc. 175 1,488
Tandy Corp. 150 5,643
---------
15,215
---------
TELECOMMUNICATIONS EQUIPMENT - 0.14%
General Instrument Corp.* 50 1,006
---------
UTILITIES-ELECTRIC- 0.39%
Enersis S.A.- ADR 100 2,938
---------
TOTAL COMMON STOCK
(Identified Cost $54,658) 55,434
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - October 31, 1996
PRINCIPAL VALUE
AMOUNT/SHARES (NOTE 2)
<S> <C> <C>
U.S. TREASURY SECURITIES- 87.80%
U.S. TREASURY BONDS - 28.57%
U.S. Treasury Bond, 6.50%, 5/15/2005 $ 150,000 $151,605
U.S. Treasury Bond, 6.875%, 8/15/2025 60,000 61,331
TOTAL U.S. TREASURY BONDS
(Identified Cost $213,904) 212,936
---------
U.S. TREASURY NOTES - 59.23%
U.S. Treasury Note, 6.00%, 8/31/1997 50,000 50,188
U.S. Treasury Note, 6.00%, 8/15/1999 170,000 170,478
U.S. Treasury Note, 6.125%, 9/30/2000 115,000 115,323
U.S. Treasury Note, 6.25%, 2/15/2003 105,000 105,361
---------
TOTAL U.S. TREASURY NOTES
(Identified Cost $442,294) 441,350
TOTAL U.S. TREASURY SECURITIES
(Identified Cost $656,198) 654,286
---------
SHORT-TERM INVESTMENTS - 3.04%
U.S. Treasury Bill, 11/29/1996 15,000 14,945
Dreyfus U.S. Treasury Money Market Reserves 7,660 7,660
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $22,605) 22,605
TOTAL INVESTMENTS - 98.27%
(Identified Cost $733,461 ) 732,325
OTHER ASSETS, LESS LIABILITIES - 1.73% 12,880
NET ASSETS - 100% $745,205
</TABLE>
*Non-income producing security
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
Federal Tax Information - October 31, 1996
FEDERAL TAX INFORMATION:
At October 31, 1996, the net unrealized depreciation based on identified cost for
federal income tax purposes of $733,461 was as follows:
<S> <C>
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost $ 4,714
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value (5,850)
UNREALIZED DEPRECIATION - NET $(1,136)
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
OCTOBER 31, 1996
<S> <C>
ASSETS:
Investments, at value (Identified Cost $733,461)(Note 2) $732,325
Interest receivable 10,065
Receivable for securities sold 4,863
Dividends receivable 13
Receivable from investment advisor (Note 3) 17,893
TOTAL ASSETS 765,159
LIABILITIES:
Accrued Directors' fees (Note 3) 6,840
Transfer agent fees payable (Note 3) 118
Audit fee payable 7,225
Other payables and accrued expenses 5,771
TOTAL LIABILITIES 19,954
NET ASSETS FOR 72,442 SHARES OUTSTANDING $745,205
NET ASSETS CONSIST OF:
Capital stock $ 724
Additional paid-in-capital 728,060
Undistributed net investment income 11,048
Accumulated net realized gain on investments 6,509
Net unrealized depreciation on investments (1,136)
TOTAL NET ASSETS $745,205
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($745,205/72,442 shares) $ 10.29
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations
FOR THE YEAR ENDED OCTOBER 31, 1996
<S> <C>
INVESTMENT INCOME:
Interest $ 25,219
Dividends 798
Total Investment Income 26,017
EXPENSES:
Management fees (Note 3) 3,940
Directors' fees (Note 3) 6,840
Transfer agent fees (Note 3) 118
Audit fee 8,000
Registration and filing fees 4,550
Custodian fee 2,439
Miscellaneous 884
Total Expenses 26,771
Less Waiver of Expenses (Note 3) (21,833)
Net Expenses 4,938
NET INVESTMENT INCOME 21,079
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investments (identified cost basis) 6,509
Net change in unrealized depreciation on investments (1,136)
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 5,373
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 26,452
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes In Net Assets
For the Year
Ended
10/31/96
INCREASE (DECREASE) IN NET ASSETS:
<S> <C>
OPERATIONS:
Net investment income $ 21,079
Net realized gain on investments 6,509
Net change in unrealized depreciation on investments (1,136)
Net increase in net assets from operations 26,452
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (10,031)
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase in net assets from capital share
transactions (Note 5) 728,784
Net increase in net assets 745,205
NET ASSETS:
Beginning of period -
End of period (including undistributed net investment
income of $11,048) $ 745,205
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
For the Year
Ended
10/31/96
Per share data (for a share outstanding throughout
the period )
<S> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $10.00
Income from investment operations:
Net investment income 0.349
Net realized and unrealized gain on investments 0.137
Total from investment operations 0.486
Less distributions to shareholders:
From net investment income (0.196)
NET ASSET VALUE - END OF PERIOD $10.29
Total return1 4.94%
Ratios (to average net assets) / Supplemental Data:
Expenses* 1.00%
Net investment income* 4.26%
Portfolio turnover 30%
Average commission rate paid $0.0691
NET ASSETS - END OF PERIOD (000'S OMITTED) $745
*The investment advisor did not impose its management fee and paid a
portion of the Fund's expenses. If these expenses had been incurred by the
Fund, expenses would have been limited to that allowed by state securities
law and the net investment income per share and the ratios would have been
as follows:
Net investment income $0.226
Ratios (to average net assets):
Expenses 2.50%
Net investment income 2.76%
1 Represents aggregate total return for the period indicated
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
Notes to Financial Statements
1. ORGANIZATION
Defensive 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.
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
October 31, 1996, 940 million shares have been designated in total among 19
series, of which 50 million have been designated as Defensive Series Class E
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 Advisor under procedures established by and under the general
supervision and responsibility of the Fund's Board of Directors.
Short-term investments that mature in sixty (60) days or less are valued
at amortized cost.
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 tax or excise tax has been made
in the financial statements.
11
<PAGE>
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FEDERAL INCOME TAXES (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, character reclassification between net
income and net gains, or other 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.
OTHER
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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 0.8% of the Fund's
average daily net assets. The fee amounted to $3,940 for the year ended
October 31, 1996.
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.
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 1.0% of average daily net assets each year.
Accordingly, the Advisor did not impose any of its fee and paid expenses
amounting to $17,893 for the year ended October 31, 1996, 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.
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%; this fee amounted to $118 for the year ended October 31,
1996.
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 $6,840 for the
year ended October 31, 1996.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term securities, were
$833,564 and $127,622, respectively, for the year ended October 31, 1996.
<TABLE>
<CAPTION>
5. CAPITAL STOCK TRANSACTIONS
Transactions in shares of Defensive Series Class E Common Stock were:
For the Year
Ended 10/31/96
Shares Amount
--------------- ---------
<S> <C> <C>
Sold 76,159 $766,290
Reinvested 1,010 10,030
Repurchased (4,727) (47,536)
Total 72,442 728,784
</TABLE>
The Advisor owned 12,747 shares on October 31, 1996.
13
<PAGE>
Notes to Financial Statements
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 October 31, 1996.
14
<PAGE>
Independent Auditors'Report
TO THE DIRECTORS OF MANNING & NAPIER FUND, INC.
AND SHAREHOLDERS OF DEFENSIVE SERIES:
We have audited the accompanying statement of assets and liabilities,
including the investment portfolio, of Defensive Series (one of the series
constituting Manning & Napier Fund, Inc.) as of October 31, 1996, the related
statements of operations and changes in net assets and the financial
highlights for the year 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 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 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 as of October 31,
1996 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 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 Defensive
Series at October 31, 1996, the results of its operations, the changes in its
net assets and its financial highlights for the respective stated period in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
November 19, 1996
15
<PAGE>
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
Maximum Horizon Series
Annual Report
October 31, 1996
<PAGE>
Management Discussion and Analysis
Dear Shareholders:
Since we last reported to you six months ago, the markets have again
exhibited the upward and downward swings akin to the later stages of economic
and market cycles. Midway through this period we saw the Dow Jones
Industrial Average take a considerable dive, only to end this semi-annual
reporting cycle above the record-breaking 6000 mark. Likewise, the 30-year
U.S. Treasury yield rose to over 7% during this period, but bonds recovered
nicely by the end of October. However, as we have anticipated thus far,
economic growth has remained moderate and inflation has remained in check,
allowing us to take advantage of the buying opportunities that present
themselves.
These gyrations were caused by overreaction to short-term economic data.
Much as happened in March of this year, the news again raised fears of higher
inflation and sent the Dow Jones Industrial Average plunging down 115 points
on July 5th in what was only a half-day of trading due to the holiday. Bonds
followed suit with the yield on the 30-year U.S. Treasury surging 25
basis-points. Many were left wondering whether the Federal Reserve Board
would raise the Fed Funds rate. However, additional evidence throughout the
summer that inflation and economic growth are under control led the Fed to
again leave rates unchanged when they met during the last week of September.
As we continue to adhere to our long-term overview for low inflation and
lower interest rates, the July 5th correction created a buying opportunity in
which we were able to lengthen the maturity of the bonds in the portfolio and
move into equity sectors where valuations proved attractive. We boosted our
exposure to the technology sector, which was the hardest hit by the July
decline, and semiconductor stocks wound up posting the largest gains of any
sector during the third quarter of this year. The stock portion of the
portfolio has continued emphasis in small ticket consumer stocks which we
believe have been branded with the same iron as more cyclical consumer
stocks, thus creating a buying opportunity. In addition, we have increased
our exposure to the health care sector as valuations in that area have proved
attractive as well.
1
<PAGE>
Management Discussion and Analysis (continued)
At a time when market valuations in general are high and the bull market
is aging, it is important to be discriminating about the levels of risk
acceptable in funds with different tolerances for volatility. While this
Series has asset allocation discretion, it is designed to place emphasis on
growth rather than on dampening volatility. As a result, even though high
market valuations bring the threat of cyclical volatility, the Series remains
fairly heavily invested because, a) we are able to find individual securities
at more attractive valuations than the market as a whole, and b) looking past
the immediate cycle, we see long-term positive trends that should help the
market. As we continue to move through this mature bull market, we will hold
fast to our disciplines of attempting to identify stocks of companies with
strong strategic positioning in their industry at attractive valuations
versus long-term U.S. Treasury bonds.
We wish you and yours all the best during this holiday season.
Sincerely,
Manning & Napier Advisors, Inc.
[GRAPHIC]
[PIE CHART]
Portfolio Composition - As of 10/31/96
Stocks - 72%
Bonds - 20%
Cash & Equivalents - 8%
2
<PAGE>
Performance Update as of October 31, 1996
The value of a $10,000 investment in the Manning & Napier Fund, Inc. - Maximum
Horizon Series from its inception (11/1/95) to present (10/31/96) as
compared to the Standard & Poor's (S&P) 500 Total Return Index. 1
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc. - Maximum Horizon Series
Total Return
Growth of
Through $10,000 Average
10/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
Inception 2 $ 11,521 15.21% 15.21%
</TABLE>
<TABLE>
<CAPTION>
Standard & Poor's 500 Total Return Index
Total Return
Growth of
Through $10,000 Average
10/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
Inception 2 $ 12,408 24.08% 24.08%
</TABLE>
1 The Standard & Poor's (S&P) 500 Total Return Index is an unmanaged
capitalization-weighted measure of approximately 500 widely held common
stocks listed on the New York Stock Exchange, American Stock Exchange, and
Over-the-Counter market. The Index returns assume reinvestment of income
and, unlike Fund returns, do not reflect any fees or expenses.
2 The Fund and Index performance are calculated from November 1, 1995, 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 Standard & Poors (S&P) 500
Maximum Horizon Series Total Return Index
<S> <C> <C>
11/01/95 $ 10,000 $ 10,000
01/31/96 10,492 11,001
04/30/96 10,753 11,376
07/31/96 10,640 11,196
10/31/96 11,521 12,408
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - October 31, 1996
VALUE
SHARES (NOTE 2)
COMMON STOCK - 72.40%
<S> <C> <C>
AIR TRANSPORTATION- 2.43%
Federal Express Corp.* 475 $ 38,237
APPAREL - 4.05%
VF Corp. 975 63,741
CHEMICAL & ALLIED PRODUCTS - 2.88%
BIOLOGICAL PRODUCTS - 0.18%
Alliance Pharmaceutical Corp.* 200 2,800
HOUSEHOLD PRODUCTS -2.05%
Procter & Gamble Co. 325 32,175
INDUSTRIAL ORGANIC CHEMICALS - 0.65%
International Specialty Products, Inc.* 600 6,525
Varitronix International Ltd. (Note 7) 2,000 3,647
10,172
45,147
COMMUNICATIONS - 4.01%
Stet Societa' Finanziaria Telefonica S.p.A. - ADR 950 32,894
Telefonica de Espana - ADR 500 30,125
63,019
COMPUTER EQUIPMENT - 0.19%
Cisco Systems, Inc.* 25 1,547
Digital Equipment, Corp.* 50 1,475
3,022
CRUDE PETROLEUM & NATURAL GAS - 2.60%
Seagull Energy Corp.* 125 2,703
YPF Sociedad Anonima - ADR 1,675 38,106
40,809
ELECTROMEDICAL APPARATUS - 3.78%
Nellcor Puritan Bennett, Inc.* 3,050 59,475
ELECTRONICS & ELECTRICAL EQUIPMENT - 7.04%
HOUSEHOLD APPLIANCES - 0.35%
Sunbeam Corporation, Inc. 225 5,541
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - October 31, 1996
VALUE
SHARES (NOTE 2)
<S> <C> <C>
ELECTRONICS & ELECTRICAL EQUIPMENT (CONTINUED)
SEMICONDUCTORS - 5.33%
Altera Corp.* 50 $ 3,100
Intel Corp. 275 30,216
Texas Instruments, Inc. 1,050 50,531
83,847
TELECOMMUNICATION EQUIPMENT - 1.36%
BroadBand Technologies, Inc.* 225 4,022
DSC Communications Corp.* 50 694
General Instrument Corp.* 825 16,603
21,319
110,707
ENGINEERING SERVICES - 0.60%
Jacobs Engineering Group, Inc.* 425 9,403
FABRICATED METAL PRODUCTS - 0.40%
Keystone International, Inc. 175 3,150
Material Sciences Corp.* 200 3,050
6,200
FOOD & BEVERAGES - 0.07%
Canandaigua Wine Co., Inc. - Class A* 50 1,125
GLASS PRODUCTS - 0.15%
Libbey, Inc. 100 2,400
HEALTH SERVICES - 3.29%
MedPartners, Inc.* 2,300 48,588
RehabCare Group, Inc.* 150 2,681
U. S. Physical Therapy, Inc.* 50 462
51,731
HOLDING COMPANIES - 0.04%
Ek Chor China Motorcycle Co. Ltd. 100 588
PAPER & ALLIED PRODUCTS - 5.51%
Alco Standard Corp. 725 33,622
Fort Howard Corp.* 1,250 32,031
Kimberly-Clark Corp. 225 20,981
86,634
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - October 31, 1996
VALUE
SHARES (NOTE 2)
<S> <C> <C>
PLASTIC PRODUCTS - 0.01%
Sun Coast Industries, Inc.* 325 $ 1,259
PRIMARY METAL INDUSTRIES - 0.16%
American Superconductor Corp.* 200 2,475
RESTAURANTS - 4.43%
McDonald's Corp. 1,500 66,562
Morton's Restaurant Group, Inc.* 200 3,075
69,637
RETAIL - 18.99%
RETAIL - DEPARTMENT STORES - 3.15%
Nordstrom, Inc. 1,375 49,586
RETAIL - HOME FURNISHING STORES - 0.25%
Pier 1 Imports, Inc. 275 3,850
RETAIL - SHOE STORES - 0.30%
Brown Group, Inc. 225 4,641
RETAIL - SPECIALTY STORES - 13.50%
Fabri-Centers of America - Class A* 1,075 13,975
Fabri-Centers of America - Class B* 900 11,700
Fingerhut Companies, Inc. 1,450 21,569
Hancock Fabrics, Inc. 1,250 10,625
Home Depot, Inc. 925 50,644
Office Depot, Inc.* 725 14,228
Tandy Corp. 1,575 59,259
Toys "R" Us, Inc.* 900 30,488
212,488
RETAIL - WHOLESALE - 1.79%
Coleman Company, Inc.* 2,125 28,156
298,721
SOFTWARE - 4.69%
Founder Hong Kong Ltd.* (Note 7) 3,000 1,164
Informix Corp.* 1,100 24,406
Oracle Corp.* 1,075 45,486
Symantec Corp.* 250 2,719
73,775
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - October 31, 1996
Principal Amount/ VALUE
SHARES (NOTE 2)
<S> <C> <C>
TECHNICAL INSTRUMENTS & SUPPLIES - 5.17%
PHOTOGRAPHIC EQUIPMENT & SUPPLIES - 5.07%
Eastman Kodak Co. 1,000 $ 79,750
SURGICAL & MEDICAL INSTRUMENTS - 0.10%
Allied Healthcare Products, Inc.* 225 1,519
81,269
UTILITIES-ELECTRIC - 1.91%
Enersis S.A.- ADR 1,025 30,109
TOTAL COMMON STOCK
(Identified Cost $1,108,840) 1,139,483
U.S. TREASURY BONDS - 20.13%
U.S. Treasury Bond, 6.875%, 8/15/2025
(Identified Cost $308,435) $ 310,000 316,878
SHORT-TERM INVESTMENTS - 7.45%
U.S. Treasury Bill, 11/29/1996 40,000 39,849
Dreyfus U.S. Treasury Money Market Reserves 77,394 77,394
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $117,243 ) 117,243
TOTAL INVESTMENTS - 99.98%
(Identified Cost $1,534,518 ) 1,573,604
OTHER ASSETS, LESS LIABILITIES - 0.02% 387
NET ASSETS - 100% $1,573,991
</TABLE>
*Non-income producing security
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
At October 31, 1996, the net unrealized appreciation based on identified cost for
federal income tax purposes of $1,536,040 was as follows:
<S> <C>
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost $ 68,096
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value (30,532)
UNREALIZED APPRECIATION - NET $ 37,564
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
OCTOBER 31, 1996
<S> <C>
ASSETS:
Investments, at value (Identified Cost $1,534,518)(Note 2) $1,573,604
Interest receivable 4,517
Dividends receivable 218
Receivable from investment advisor (Note 3) 19,574
TOTAL ASSETS 1,597,913
LIABILITIES:
Accrued Directors' fees (Note 3) 6,839
Transfer agent fees payable (Note 3) 105
Audit fee payable 7,225
Other payables and accrued expenses 6,105
Payable for securities purchased 3,648
TOTAL LIABILITIES 23,922
NET ASSETS FOR 138,282 SHARES OUTSTANDING $1,573,991
NET ASSETS CONSIST OF:
Capital stock $ 1,383
Additional paid-in-capital 1,519,745
Undistributed net investment income 3,342
Accumulated net realized gain on investments 10,435
Net unrealized appreciation on investments 39,086
TOTAL NET ASSETS $1,573,991
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($1,573,991/138,282 shares) $ 11.38
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations
FOR THE YEAR ENDED OCTOBER 31, 1996
<S> <C>
INVESTMENT INCOME:
Interest $ 9,431
Dividends 3,422
Total Investment Income 12,853
EXPENSES:
Management fees (Note 3) 4,377
Directors' fees (Note 3) 6,839
Transfer agent fees (Note 3) 105
Audit fee 8,000
Registration and filing fees 4,550
Custodian fee 4,237
Miscellaneous 1,146
Total Expenses 29,254
Less Waiver of Expenses (Note 3) (23,951)
Net Expenses 5,303
NET INVESTMENT INCOME 7,550
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments (identified cost basis) 10,435
Net change in unrealized appreciation on investments 39,086
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 49,521
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 57,071
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
For the Year
Ended
10/31/96
INCREASE (DECREASE) IN NET ASSETS:
<S> <C>
OPERATIONS:
Net investment income $ 7,550
Net realized gain on investments 10,435
Net change in unrealized appreciation on investments 39,086
Net increase in net assets from operations 57,071
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (4,208)
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase in net assets from capital share
transactions (Note 5) 1,521,128
Net increase in net assets 1,573,991
NET ASSETS:
Beginning of period -
End of period (including undistributed net investment
income of $3,342) $ 1,573,991
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
For the Year
Ended
10/31/96
Per share data (for a share outstanding throughout
the period):
<S> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.00
Income from investment operations:
Net investment income 0.155
Net realized and unrealized gain on investments 1.356
Total from investment operations 1.511
Less distributions to shareholders:
From net investment income (0.131)
NET ASSET VALUE - END OF PERIOD $ 11.38
Total return 1 15.21%
Ratios (to average net assets) / Supplemental Data:
Expenses* 1.20%
Net investment income* 1.71%
Portfolio turnover 95%
Average commission rate paid $ 0.0655
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 1,574
* The investment advisor did not impose its management fee and paid a portion of
the Fund's expenses. If these expenses had been incurred by the Fund, expenses
would have been limited to that allowed by state securities law and the net
investment income per share and the ratios would have been as follows:
Net investment income $ 0.037
Ratios (to average net assets):
Expenses 2.50%
Net investment income 0.41%
1 Represents aggregate total return for the period indicated
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
Notes to Financial Statements
1. ORGANIZATION
Maximum Horizon 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.
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
October 31, 1996, 940 million shares have been designated in total among 19
series, of which 100 million have been designated as Maximum Horizon Series
Class B 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 Advisor under procedures established by and under the general
supervision and responsibility of the Fund's Board of Directors.
Short-term investments that mature in sixty (60) days or less are valued
at amortized cost.
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.
12
<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 tax or excise tax 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
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, character reclassification between net
income and net gains, or other 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.
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.
13
<PAGE>
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OTHER
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reorted amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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 1.0% of the Fund's
average daily net assets. The fee amounted to $4,377 for the year ended
October 31, 1996.
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 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 1.2% of average daily net assets each year.
Accordingly, the Advisor did not impose any of its fee and paid expenses
amounting to $19,574 for the year ended October 31, 1996, 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.
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%; this fee amounted to $105 for the year ended October 31,
1996.
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 $6,839 for the
year ended October 31, 1996.
14
<PAGE>
Notes to Financial Statements
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term securities, were
$1,833,788 and $426,775, respectively, for the year ended October 31, 1996.
5. CAPITAL STOCK TRANSACTIONS
Transactions in shares of Maximum Horizon Series Class B Common Stock were:
<TABLE>
<CAPTION>
For the Year
Ended 10/31/96
Shares Amount
--------------- -----------
<S> <C> <C>
Sold 148,143 $1,624,294
Reinvested 390 4,209
Repurchased (10,251) (107,375)
Total 138,282 $1,521,128
The Advisor owned 12,654 shares on October 31, 1996.
</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 October 31, 1996.
7. FOREIGN SECURITIES
Investing in securities of foreign companies and foreign governments
involves special risks and considerations not typically associated with
investing in securities of U.S. companies and the United States government.
These risks include revaluation of currencies and potential 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.
15
<PAGE>
Independen Auditors'Report
TO THE DIRECTORS OF MANNING & NAPIER FUND, INC.
AND SHAREHOLDERS OF MAXIMUM HORIZON SERIES:
We have audited the accompanying statement of assets and liabilities,
including the investment portfolio, of Maximum Horizon Series (one of the
series constituting Manning & Napier Fund, Inc.) as of October 31, 1996, the
related statements of operations and changes in net assets and the financial
highlights for the year 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 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 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 as of October 31,
1996 by correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit 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 Maximum
Horizon Series at October 31, 1996, 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
November 19, 1996
16
<PAGE>
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
Tax Managed Series
Annual Report
October 31, 1996
<PAGE>
Management Discussion and Analysis
Dear Shareholders:
We have reached the close of the first fiscal year for the Tax Managed
Series of the Manning & Napier Fund. By drawing upon the investment
strategies and disciplines of the Funds Advisor, the Series has pursued
levels of return associated with the stock market while minimizing the impact
of taxes.
Given the ultimate goal of this Series and the long-term investment time
horizon of the shareholders, we have continued to adhere to our buy and hold
strategy that aims to minimize the amount of realized gains. Our turnover
rate during the past six months is relatively low, with steps taken to offset
taxable gains by realizing losses when the Advisor deems it to be prudent.
In addition, the Series did not pay out any dividends during this period,
another factor that can impact taxes. The Series has also continued to
invest its assets in equity securities, selecting companies that meet our
investment strategies and have strong long-term business prospects. Of
course, the goals of the Series are long-term, so performance should be
evaluated over the long-term. However, this approach has worked well for the
Series thus far, with satisfying short-term performance results.
We will continue to look for the best long-term equity investments that
present attractive valuations and to strive to minimize realized gains. We
expect this strategy to prove itself to your taxation concerns and your
long-term performance goals.
We wish you and yours all the best during this holiday season.
Sincerely,
Manning & Napier Advisors, Inc.
1
<PAGE>
[GRAPHIC]
[PIE CHART]
Portfolio Composition - As of 10/31/96
Apparel - 3%
Air Transportation - 4%
Chemicals & Allied Products - 8%
Communications - 3%
Electromedical Apparatus - 3%
Electronics & Electrical Equipment - 23%
Health Services - 5%
Paper Mills - 6%
Photographic Equipment & Supplies - 5%
Restaurants - 5%
Retail - 19%
Software - 4%
Miscellaneous* - 12%
* Miscellaneous includes:
Computer Equipment
Fabricated Metal Products
Glass Products
Primary Metal Industries
Printing & Publishing
Utilities - Electric
Cash & Equivalents
2
<PAGE>
Performance Update as of October 31, 1996
The value of a $10,000 investment in the Manning & Napier Fund, Inc. -
Tax Managed Series from its inception (11/1/95) to present (10/31/96) as
compared to the Standard & Poor's (S&P) 500 Total Return Index. 1
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc. - Tax Managed Series
Total Return
Growth of
Through $10,000 Average
10/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
Inception 2 $ 11,630 16.30% 16.30%
</TABLE>
<TABLE>
<CAPTION>
Standard & Poor's (S&P) 500 Total Return Index
Total Return
Growth of
Through $10,000 Average
10/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
Inception 2 $ 12,408 24.08% 24.08%
</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 the Over-the-Counter Market. The Index returns assume
reinvestment of income and, unlike Fund returns, do not reflect any fees
or expenses.
2 The Fund and Index performance are calculated from November 1,
1995, 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 Standard & Poors (S&P) 500
Tax Managed Series Total Return Index
<S> <C> <C>
11/01/95 $ 10,000 $ 10,000
01/31/96 10,100 11,001
04/30/96 10,980 11,376
07/31/96 10770 11,196
10/31/96 11,630 12,408
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - October 31, 1996
VALUE
SHARES (NOTE 2)
COMMON STOCK - 97.50%
<S> <C> <C>
AIR TRANSPORTATION - 3.59%
Federal Express Corp.* 100 $ 8,050
---------
APPAREL - 2.91%
VF Corp. 100 6,537
---------
CHEMICAL & ALLIED PRODUCTS - 8.34%
BIOLOGICAL PRODUCTS - 2.03%
Alliance Pharmaceutical Corp.* 325 4,550
---------
HOUSEHOLD PRODUCTS - 6.31%
Colgate-Palmolive Co. 100 9,200
Procter & Gamble Co. 50 4,950
14,150
18,700
COMMUNICATIONS - 2.69%
Telefonica de Espana - ADR 100 6,025
---------
COMPUTER EQUIPMENT - 1.31%
Digital Equipment, Corp.* 100 2,950
---------
ELECTROMEDICAL APPARATUS - 2.61%
Nellcor Puritan Bennett, Inc.* 300 5,850
---------
ELECTRONICS & ELECTRICAL EQUIPMENT - 22.72%
HOUSEHOLD APPLIANCES - 4.39%
Sunbeam Corporation, Inc. 400 9,850
---------
SEMICONDUCTORS - 14.33%
Altera Corp.* 175 10,850
Intel Corp. 150 16,481
Texas Instruments, Inc. 100 4,812
32,143
TELECOMMUNICATION EQUIPMENT - 4.00%
BroadBand Technologies, Inc.* 250 4,469
General Instrument Corp.* 225 4,528
8,997
50,990
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - October 31, 1996
VALUE
SHARES (NOTE 2)
<S> <C> <C>
FABRICATED METAL PRODUCTS - 1.53%
Material Sciences Corp.* 225 $3,431
GLASS PRODUCTS - 1.34%
Libbey, Inc. 125 3,000
HEALTH SERVICES - 5.16%
MedPartners, Inc.* 302 6,380
RehabCare Group, Inc.* 175 3,128
U. S. Physical Therapy, Inc.* 225 2,081
11,589
PAPER MILLS - 6.15%
Fort Howard Corp.* 175 4,484
Kimberly-Clark Corp. 100 9,325
13,809
PHOTOGRAPHIC EQUIPMENT & SUPPLIES - 5.33%
Eastman Kodak Co. 150 11,962
--------
PRIMARY METAL INDUSTRIES - 2.16%
Gibraltar Steel Corp.* 200 4,850
--------
PRINTING & PUBLISHING - 1.60%
Playboy Enterprises, Inc. - Class B* 300 3,600
--------
RESTAURANTS - 5.33%
McDonald's Corp. 200 8,875
Morton's Restaurant Group, Inc.* 200 3,075
11,950
RETAIL - 18.84%
RETAIL - HOME FURNISHING STORES - 2.18%
Pier 1 Imports, Inc. 350 4,900
RETAIL - SPECIALTY STORES - 14.00%
Fingerhut Companies, Inc. 500 7,438
Home Depot, Inc. 175 9,581
Office Depot, Inc.* 350 6,869
Tandy Corp. 200 7,525
31,413
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - October 31, 1996
VALUE
SHARES (NOTE 2)
<S> <C> <C>
RETAIL (CONTINUED)
RETAIL - VARIETY STORES - 2.66%
Family Dollar Stores, Inc. 350 $ 5,950
42,263
SOFTWARE - 3.93%
Informix Corp.* 250 5,549
Symantec Corp.* 300 3,263
8,812
UTILITIES-ELECTRIC - 1.96%
Enersis S.A.- ADR 150 4,406
---------
TOTAL COMMON STOCK
(Identified Cost $187,623) 218,774
---------
SHORT-TERM INVESTMENTS - 2.30%
Dreyfus U.S. Treasury Money Market Reserves
(Identified Cost $5,148) 5,148 5,148
---------
TOTAL INVESTMENTS - 99.80%
(Identified Cost $192,771) 223,922
OTHER ASSETS, LESS LIABILITIES - 0.20% 458
---------
NET ASSETS - 100% $224,380
=========
</TABLE>
*Non-income producing security
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
At October 31, 1996, the net unrealized appreciation based on identified cost for
federal income tax purposes of $192,771 was as follows:
<S> <C>
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost $37,610
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost value (6,459)
UNREALIZED APPRECIATION - NET $31,151
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
OCTOBER 31, 1996
<S> <C>
ASSETS:
Investments, at value (Identified Cost $192,771)(Note 2) $223,922
Dividends receivable 97
Receivable from investment advisor (Note 3) 20,327
TOTAL ASSETS 244,346
LIABILITIES:
Accrued Directors' fees (Note 3) 6,840
Transfer agent fees payable (Note 3) 45
Audit fee payable 7,225
Other payables and accrued expenses 5,856
TOTAL LIABILITIES 19,966
NET ASSETS FOR 19,300 SHARES OUTSTANDING $224,380
NET ASSETS CONSIST OF:
Capital stock $ 193
Additional paid-in-capital 193,281
Accumulated net realized loss on investments (245)
Net unrealized appreciation on investments 31,151
TOTAL NET ASSETS $224,380
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($224,380 / 19,300 shares) $ 11.63
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations
FOR THE YEAR ENDED OCTOBER 31, 1996
<S> <C>
INVESTMENT INCOME:
Dividends $ 1,477
Interest 381
Total Investment Income 1,858
EXPENSES:
Management fees (Note 3) 1,867
Directors' fees (Note 3) 6,840
Transfer agent fees (Note 3) 45
Audit fee 8,000
Custodian fee 2,254
Miscellaneous 5,436
Total Expenses 24,442
Less Waiver of Expenses (Note 3) (22,194)
Net Expenses 2,248
NET INVESTMENT LOSS (390)
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized loss on investments (identified cost basis) (245)
Net change in unrealized appreciation on investments 31,151
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 30,906
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 30,516
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
For the Year
Ended
10/31/96
--------------
INCREASE (DECREASE) IN NET ASSETS:
<S> <C>
OPERATIONS:
Net investment loss $ (390)
Net realized loss on investments (245)
Net change in unrealized appreciation on investments 31,151
Net increase in net assets from operations 30,516
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase in net assets from capital share
transactions (Note 5) 193,864
Net increase in net assets 224,380
NET ASSETS:
Beginning of period -
End of period (including accumulated net investment
loss of $0) $ 224,380
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
For the Year
Ended
10/31/96
--------------
Per share data (for a share outstanding throughout
the period):
<S> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.00
Income from investment operations:
Net investment loss (0.020)
Net realized and unrealized gain (loss)
on investments 1.650
Total from investment operations 1.630
NET ASSET VALUE - END OF PERIOD $ 11.63
Total return 1 16.30%
Ratios (to average net assets) / Supplemental Data:
Expenses* 1.20%
Net investment loss* (0.21%)
Portfolio turnover 78%
Average commission rate paid $ 0.0757
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 224
* The investment advisor did not impose its management fee and paid a
portion of the Fund's expenses. If these expenses had been incurred by the
Fund, expenses would have been limited to that allowed by state securities law
and the net investment income per share and the ratios would have been
as follows:
Net investment loss ($0.144)
Ratios (to average net assets):
Expenses 2.50%
Net investment loss (1.51%)
1 Represents aggregate total return for the period indicated
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
Notes to Financial Statements
1. ORGANIZATION
Tax Managed 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.
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
October 31, 1996, 940 million shares have been designated in total among 19
series, of which 50 million have been designated as Tax Managed Series Class
H 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 Advisor under procedures established by and under the general
supervision and responsibility of the Fund's Board of Directors.
Short-term investments that mature in sixty (60) days or less are valued
at amortized cost.
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 tax or excise tax has been made
in the financial statements.
11
<PAGE>
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FEDERAL INCOME TAXES (CONTINUED)
At October 31, 1996, the Fund, for federal income tax purposes, has a
capital loss carry forward of $245 which will expire on October 31, 2004.
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, character reclassification between net
income and net gains, or other 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.
During the year ended October 31, 1996, $390 was reclassified from accumulated
net investment loss to additional paid-in-capital.
OTHER
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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 1.0% of the Fund's
average daily net assets. The fee amounted to $1,867 for the year ended
October 31, 1996.
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.
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 1.2% of average daily net assets each year.
Accordingly, the Advisor did not impose any of its fee and paid expenses
amounting to $20,327 for the year ended October 31, 1996, 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.
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%; this fee amounted to $45 for the year ended October 31, 1996.
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 $6,840 for the
year ended October 31, 1996.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term securities, were
$321,147 and $133,279, respectively, for the year ended October 31, 1996.
5. CAPITAL STOCK TRANSACTIONS
Transactions in shares of Tax Managed Series Class H Common Stock were:
<TABLE>
<CAPTION>
For the Year
Ended 10/31/96
---------------
Shares Amount
--------------- ---------
<S> <C> <C>
Sold 23,344 $235,926
Repurchased (4,044) (42,062)
Total 19,300 193,864
</TABLE>
The Advisor owned 12,500 shares on October 31, 1996.
13
<PAGE>
Notes to Financial Statements
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 October 31, 1996.
14
<PAGE>
Independent Auditors' Report
TO THE DIRECTORS OF MANNING & NAPIER FUND, INC.
AND SHAREHOLDERS OF TAX MANAGED SERIES:
We have audited the accompanying statement of assets and liabilities,
including the investment portfolio, of Tax Managed Series (one of the series
constituting Manning & Napier Fund, Inc.) as of October 31, 1996, the related
statements of operations and changes in net assets and the financial
highlights for the year 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 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 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 as of October 31,
1996 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 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 Tax
Managed Series at October 31, 1996, 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
November 19, 1996
15
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
<RESTATED>
<CIK> 0000751173
<NAME> MANNING & NAPIER FUND, INC.
<SERIES>
<NAME> BLENDED ASSET SERIES I
<NUMBER> 11
<CAPTION>
<S> <C>
<MULTIPLIER> 1
<CURRENCY> 1
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> OCT-31-1996
<PERIOD-TYPE> YEAR
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 17,298,801
<INVESTMENTS-AT-VALUE> 17,687,247
<RECEIVABLES> 175,209
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 17,864,456
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 68,948
<TOTAL-LIABILITIES> 68,948
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 16,792,426
<SHARES-COMMON-STOCK> 1,588,453
<SHARES-COMMON-PRIOR> 888,146
<ACCUMULATED-NII-CURRENT> 319,657
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 292,979
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 388,446
<NET-ASSETS> 17,793,508
<DIVIDEND-INCOME> 41,029
<INTEREST-INCOME> 555,989
<OTHER-INCOME> 0
<EXPENSES-NET> 146,530
<NET-INVESTMENT-INCOME> 450,488
<REALIZED-GAINS-CURRENT> 299,745
<APPREC-INCREASE-CURRENT> 105,808
<NET-CHANGE-FROM-OPS> 856,041
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 130,831
<DISTRIBUTIONS-OF-GAINS> 39,818
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 940,658
<NUMBER-OF-SHARES-REDEEMED> 255,975
<SHARES-REINVESTED> 15,624
<NET-CHANGE-IN-ASSETS> 8,275,013
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 33,052
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 121,924
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 159,969
<AVERAGE-NET-ASSETS> 14,387,868
<PER-SHARE-NAV-BEGIN> 10.72
<PER-SHARE-NII> 0.293
<PER-SHARE-GAIN-APPREC> 0.307
<PER-SHARE-DIVIDEND> 0.092
<PER-SHARE-DISTRIBUTIONS> 0.028
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.20
<EXPENSE-RATIO> 1.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
<RESTATED>
<CIK> 000751173
<NAME> MANNING & NAPIER FUND, INC.
<SERIES>
<NAME> BLENDED ASSET SERIES II
<NUMBER> 12
<CAPTION>
<S> <C>
<MULTIPLIER> 1
<CURRENCY> 1
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> OCT-31-1996
<PERIOD-TYPE> YEAR
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 30,078,823
<INVESTMENTS-AT-VALUE> 32,539,806
<RECEIVABLES> 269,442
<ASSETS-OTHER> 251,260
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 33,060,508
<PAYABLE-FOR-SECURITIES> 3,705
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 58,105
<TOTAL-LIABILITIES> 61,810
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,012,456
<SHARES-COMMON-STOCK> 2,529,773
<SHARES-COMMON-PRIOR> 1,717,706
<ACCUMULATED-NII-CURRENT> 475,782
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,049,477
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,460,983
<NET-ASSETS> 32,998,698
<DIVIDEND-INCOME> 126,421
<INTEREST-INCOME> 771,893
<OTHER-INCOME> 0
<EXPENSES-NET> 271,421
<NET-INVESTMENT-INCOME> 566,893
<REALIZED-GAINS-CURRENT> 1,053,546
<APPREC-INCREASE-CURRENT> 1,209,793
<NET-CHANGE-FROM-OPS> 2,830,232
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 92,412
<DISTRIBUTIONS-OF-GAINS> 138,618
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,030,732
<NUMBER-OF-SHARES-REDEEMED> 237,451
<SHARES-REINVESTED> 18,786
<NET-CHANGE-IN-ASSETS> 12,479,763
<ACCUMULATED-NII-PRIOR> 1,301
<ACCUMULATED-GAINS-PRIOR> 134,549
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 225,830
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 274,949
<AVERAGE-NET-ASSETS> 27,044,211
<PER-SHARE-NAV-BEGIN> 11.95
<PER-SHARE-NII> 0.227
<PER-SHARE-GAIN-APPREC> 0.963
<PER-SHARE-DIVIDEND> 0.040
<PER-SHARE-DISTRIBUTIONS> 0.060
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.04
<EXPENSE-RATIO> 1.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
<RESTATED>
<CIK> 0000751173
<NAME> MANNING & NAPIER FUND, INC.
<SERIES>
<NAME> DEFENSIVE SERIES
<NUMBER> 2
<CAPTION>
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<RESTATED>
<CIK> 0000751173
<NAME> MANNING & NAPIER FUND, INC.
<SERIES>
<NAME> FLEXIBLE YIELD SERIES I
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<RESTATED>
<CIK> 0000751173
<NAME> MANNING & NAPIER FUND, INC.
<SERIES>
<NAME> FLEXIBLE YIELD SERIES II
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<CAPTION>
<S> <C>
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<LEGEND>
<RESTATED>
<CIK> 0000751173
<NAME> MANNING & NAPIER FUND, INC.
<SERIES>
<NAME> FLEXIBLE YIELD SERIES III
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<CAPTION>
<S> <C>
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<TABLE> <S> <C>
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<LEGEND>
<RESTATED>
<CIK> 0000751173
<NAME> MANNING AND NAPIER FUND, INC.
<SERIES>
<NAME> MAXIMUM HORIZON SERIES
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<CAPTION>
<S> <C>
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</TABLE>
<TABLE> <S> <C>
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<LEGEND>
<RESTATED>
<CIK> 0000751173
<NAME> MANNING AND NAPIER FUND, INC.
<SERIES>
<NAME> TAX MANAGED SERIES
<NUMBER> 8
<CAPTION>
<S> <C>
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