February 14, 1997
To Shareholders of the following series of the Manning & Napier Fund:
Small Cap Series
Technology Series
International Series
World Opportunities Series
New York Tax Exempt Series
Ohio Tax Exempt Series
Diversified Tax Exempt Series
Dear Shareholder:
Enclosed are copies of the Annual Reports for each of the above Series of the
Manning & Napier Fund in which you owned shares as of December 31, 1996. The
reports include information about the Series performance as well as portfolio
listings as of that date.
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 your holdings in the
Manning & Napier Fund.
Sincerely,
/s/ Amy J. Williams
Amy J. Williams
Fund Services Coordinator
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
World Opportunities Series
Annual Report
December 31, 1996
<PAGE>
Management Discussion and Analysis
Dear Shareholders:
The World Opportunities Series was activated on September 6, 1996. The
objective of this Series is to provide long-term growth through investments in
common stocks of companies throughout the world. Stocks are chosen for
inclusion in the portfolio through analysis of individual companies using
Manning & Napiers traditional investment strategies and pricing disciplines.
As you might expect from an investment approach which emphasizes individual
security selection, portfolio holdings have been chosen selectively. By the
end of 1996, the portfolio was fully invested, and sixteen countries,
including the United States, were represented in the Series portfolio. The
holdings include stocks of Asian, European, North American, and Latin American
companies. Our analysts also examine the currencies of the countries in which
stocks are held, and currencies are hedged where appropriate.
The last two years have seen extraordinary returns in the U.S. stock market,
while international stocks have turned in strong, but less remarkable,
returns. We feel that the high valuation of the U.S. market is a compelling
argument for diversifying the stock portion of your portfolio by adding
international securities.
We wish you a healthy, happy, and prosperous 1997.
Sincerely,
Manning & Napier Advisors, Inc.
1
<PAGE>
<TABLE>
<CAPTION>
Performance Update as of December 31, 1996
Manning & Napier Fund, Inc.
World Opportunities Series
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
12/31/96 Investment Cumulative Annual
Inception 2 $ 10,482 4.82% N/A
</TABLE>
<TABLE>
<CAPTION>
S&P 500 Total Return Index
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
12/31/96 Investment Cumulative Annual
Inception 2 $ 11,372 13.72% N/A
</TABLE>
<TABLE>
<CAPTION>
Morgan Stanley Capital
International World Index
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
12/31/96 Investment Cumulative Annual
Inception 2 $ 10,865 8.65% N/A
</TABLE>
The value of a $10,000 investment in the Manning & Napier Fund, Inc. - World
Opportunities Series from its inception (9/6/96) to present (12/31/96) as
compared to the Standard & Poor's (S&P) 500 Total Return Index and the Morgan
Stanley Capital International World Index. 1
<graphic>
<line chart>
Data for line chart to follow:
<TABLE>
<CAPTION>
Date Manning & Napier World Standard & Poors Morgan Stanley Capital
Opportunities Series 500 Total Return Index International World Index
<S> <C> <C> <C>
09/06/96 10,000 10,000 10,000
09/30/96 10,040 10,497 10,390
10/31/96 9,930 10,787 10,460
11/30/96 10,330 11,602 11,044
12/31/96 10,482 11,372 10,865
</TABLE>
1 The Standard & Poor (S&P) 500 Total Return Index is an unmanaged
capitalization-weighted measure of 500 widely held common stocks listed on the
New York Stock Exchange, American Stock Exchange, and Over-the-Counter
market. The Morgan Stanley Capital International World Index is a market
capitalization-weighted measure of the total return of 1,570 companies listed
on
the stock exchanges of the United States, Europe, Canada, Australia, New
Zealand and the Far East. The Morgan Stanley Capital International World
Index is
denominated in U.S. Dollars. The Indices' returns assume reinvestment of
dividends and, unlike Fund returns, do not reflect any fees or expenses.
2 Performance numbers for the Fund and Indices are calculated from
September 6, 1996, the Fund's inception date. The Fund's performance is
historical and may not be indicative of future results.
2
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - December 31, 1996
Value
Shares (Note 2)
<S> <C> <C>
COMMON STOCK - 91.5%
BRAZIL - 3.9%
HOUSEHOLD APPLIANCES - 3.9%
Brasmotor S.A. (Identified Cost $2,920,284) 10,800,000 $ 3,000,297
GERMANY - 2.2%
FOOTWEAR & RELATED APPAREL - 2.2%
Adidas AG (Identified Cost $1,651,677) 19,800 1,711,052
HONG KONG - 17.5%
BEVERAGES - 2.6%
Vitasoy Intl. Holdings Ltd. 4,610,000 2,011,591
BROADCAST MEDIA - 4.1%
Television Broadcasts Ltd. 800,000 3,196,049
COMPUTER EQUIPMENT - 2.7%
Varitronix International Ltd. 1,151,000 2,083,379
ELECTRONIC PRODUCTS - 1.7%
VTech Holdings Ltd. 720,000 1,293,934
HOUSEHOLD APPLIANCES - 2.0%
Guangdong Kelon Electronics Hldg. 2,348,000 1,517,865
SOFTWARE - 4.4%
Founder Hong Kong Ltd.* 8,848,000 3,403,275
TOTAL HONG KONG SECURITIES
(Identified Cost $12,937,016) 13,506,093
INDONESIA - 3.4%
TOBACCO - 3.4%
PT Hanjaya Mandala Sampoerna
(Identified Cost $2,238,889) 495,000 2,639,436
ITALY - 3.1%
ENERGY SOURCES - OIL/GAS - 3.1%
Edison S.p.A. (Identified Cost $2,322,193) 375,000 2,371,536
JAPAN - 9.3%
SOFTWARE - 4.7%
NTT Data Corp. 125 3,662,471
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - December 31, 1996
Value
Shares (Note 2)
<S> <C> <C>
ELECTRONIC PRODUCTS - 4.6%
Toshiba Corp. 570,000 $3,586,499
TOTAL JAPANESE SECURITIES
(Identified Cost $7,352,229) 7,248,970
SOUTH KOREA - 2.9%
ELECTRONIC PRODUCTS - 2.9%
Samsung Electronics Co. (Identified Cost $3,113,103) 42,000 2,272,561
NETHERLANDS - 2.7%
RETAIL - FOOD - 2.7%
Koninklije Ahold NV (Identified Cost $1,957,575) 34,000 2,124,619
SWITZERLAND - 2.7%
FOOD - MISCELLANEOUS - 2.7%
Nestle SA (Identified Cost $2,120,230) 1,920 2,056,671
UNITED KINGDOM - 3.9%
FOOD - MISCELLANEOUS - 3.9%
Grand Metropolitan PLC (Identified Cost $2,863,704) 380,000 2,987,815
UNITED STATES - 39.9%
CRUDE PETROLEUM & NATURAL GAS - 5.1%
YPF Sociedad Anonima - ADR 156,000 3,939,000
JEWELRY - 4.2%
Tag Heuer International SA - ADR* 200,000 3,225,000
MACHINERY - 2.3%
ASM Lithography Hldg. - ADR* 35,000 1,743,438
PHOTOGRAPHIC EQUIPMENT & SUPPLIES - 3.7%
Eastman Kodak Co. 36,000 2,889,000
RETAIL - WHOLESALE - 2.4%
Coleman Company, Inc.* 134,000 1,842,500
TELECOMMUNICATIONS - 22.2%
EQUIPMENT - 9.0%
ECI Telecommunications, Ltd. 152,000 3,230,000
Nokia Corp. Ab - ADR 65,000 3,745,625
6,975,625
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - December 31, 1996
Shares Value
Principal/Amount (Note 2)
<S> <C> <C>
TELECOMMUNICATIONS (continued)
SERVICE - 13.2%
Compania Anonima Nacional Telefonos de
Venezuela (CANTV) - ADR* 95,000 $ 2,671,875
Stet Societa' Finanziaria Telefonica S.p.A. - ADR 85,000 3,771,875
Telecomunicacoes Brasileiras - ADR 40,000 3,060,000
Vimpel Communications - ADR* 30,000 708,750
10,212,500
17,188,125
TOTAL UNITED STATES SECURITIES
(Identified Cost $28,541,345) 30,827,063
TOTAL COMMON STOCK
(Identified Cost $68,018,245) 70,746,113
SHORT-TERM INVESTMENTS - 7.7%
Federal National Mortgage Corporation Discount
Note, 1/28/97 $ 6,000,000 5,974,846
Dreyfus U.S. Treasury Money Market 228 228
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $5,975,074) 5,975,074
TOTAL INVESTMENTS - 99.2%
(Identified Cost $73,993,319) 76,721,187
OTHER ASSETS, LESS LIABILITIES - 0.8% 598,315
NET ASSETS -100% $77,319,502
</TABLE>
*Non-income producing security.
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
<S> <C>
At December 31, 1996, the net unrealized appreciation based on identified cost for
federal income tax purposes of $73,993,319 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost $ 4,983,589
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value (1,874,019)
UNREALIZED APPRECIATION - NET $ 3,109,570
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
INDUSTRY CONCENTRATION (AS A PERCENT OF NET ASSETS)
<S> <C>
Telecommunication- Equipment & Service 22.2%
Food - Retail/Miscellaneous 9.3%
Electronic Products 9.2%
Software 9.1%
Beverage & Tobacco 6.0%
Household Appliances 5.9%
Crude Petroleum & Natural Gas 5.1%
Jewelry 4.2%
Broadcast Media 4.1%
Photographic Equipment & Supplies 3.7%
Energy Sources -Oil/Gas 3.1%
Computer Equipment 2.7%
Machinery 2.3%
Footwear & Related Apparel 2.2%
Retail - Wholesale 2.4%
Total Common Stock 91.5%
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
DECEMBER 31, 1996
<S> <C>
ASSETS:
Investments, at value (Identified Cost $73,993,319)
(Note 2) $76,721,187
Foreign currency, at value (cost $1,233,378) 1,232,914
Cash 600,209
Receivable for forward foreign currency exchange
contracts sold (Note 2) 12,786,593
Receivable for fund shares sold 41,590
Dividends receivable 36,011
TOTAL ASSETS 91,418,504
LIABILITIES:
Accrued management fees (Note 3) 63,528
Accrued Directors' fees (Note 3) 1,667
Payable for forward foreign currency contracts sold,
at value (Note 2) 12,404,891
Payable for securities purchased 1,155,332
Payable for fund shares redeemed 436,235
Audit fee payable 8,000
Custodian fee payable 7,160
Other payables and accrued expenses 3,371
TOTAL LIABILITIES 14,080,184
NET ASSETS FOR 7,418,858 SHARES
OUTSTANDING $77,338,320
NET ASSETS CONSIST OF:
Capital stock $ 74,188
Additional paid-in-capital 74,129,697
Accumulated net realized gain on investments 21,631
Net unrealized appreciation on investments, foreign currency,
forward currency contracts, and other assets and liabilities 3,112,804
TOTAL NET ASSETS $77,338,320
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($77,338,320/7,418,858 shares) $ 10.42
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
FOR THE PERIOD SEPTEMBER 6, 1996 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
<S> <C>
INVESTMENT INCOME:
Interest $ 501,370
Dividends (net of withholding) 130,415
Total Investment Income 631,785
EXPENSES:
Management fees (Note 3) 224,344
Directors' fees (Note 3) 3,334
Custodian fee 24,856
Audit fee 8,000
Miscellaneous 4,175
Total Expenses 264,709
NET INVESTMENT INCOME 367,076
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on -
Investments (identified cost basis) 90,342
Foreign currency and forward foreign currency
exchange contracts 3,047
Net realized gain on investments 93,389
Net change in unrealized appreciation on -
Investments 2,727,868
Foreign currency and forward currency contracts and other
assets and liabilities 384,936
Net unrealized appreciation on investments 3,112,804
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS 3,206,193
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $3,573,269
</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
9/6/96 (commencement
of operations)
to 12/31/96
INCREASE (DECREASE) IN NET ASSETS:
<S> <C>
OPERATIONS:
Net investment income $ 367,076
Net realized gain on investments 93,389
Net change in unrealized appreciation on investments 3,112,804
Net increase in net assets from operations 3,573,269
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2):
From net investment income (370,123)
From net realized gain on investments (68,711)
Total distributions to shareholders (438,834)
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase in net assets from capital share
transactions (Note 5) 74,203,885
Net increase in net assets 77,338,320
NET ASSETS:
Beginning of period --
End of period $ 77,338,320
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
For the Period
9/6/96 (commencement
of operations)
to 12/31/96
<S> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT
THE PERIOD):
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.00
Income from investment operations:
Net investment income 0.051
Net realized and unrealized gain
on investments 0.429
Total from investment operations 0.480
Less distributions to shareholders:
From net investment income (0.051)
From net realized gain on investments (0.009)
Total distributions to shareholders (0.060)
NET ASSET VALUE - END OF PERIOD $ 10.42
Total return 1: 4.82%
Ratios of expenses (to average net assets) /
Supplemental Data:
Expenses 1.17%2
Net investment income 1.54%2
Portfolio turnover 1%
Average commission rate paid $ 0.0065
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 77,338
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
World Opportunities Series (the "Fund") is a no-load non-diversified
series of Manning & Napier Fund, Inc. (the "Corporation"). The
Corporation is organized in Maryland and is registered under the
Investment Company Act of 1940, as amended, as an open- end management
investment company.
Shares of the Fund are offered to clients and employees of Manning &
Napier Advisors, Inc. (The Advisor) and its affiliates. The total
authorized capital stock of the Corporation consists of one billion
shares of common stock each having a par value of $0.01. As of December
31, 1996, 940 million shares have been designated in total among 19
series, of which 50 million have been designated as World Opportunities Series
Class U 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 last
quoted sales price of the exchange on which the security is primarily
traded. Securities not traded on valuation date or securities not
listed on an exchange are valued at the latest quoted bid price.
Debt securities, including government bonds and mortgage backed
securities, will normally be valued on the basis of evaluated bid prices.
Securities for which representative prices are not available from the
Fund's pricing service are valued at fair value as determined in good
faith by Advisor under procedures established by and under the general
supervision and responsibility of the Fund's Board of Directors.
Short-term investments that mature in sixty (60) days or less are valued
at amortized cost which approximates market value.
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 annually.
Distributions are recorded on the ex-dividend date. Distributions of net
realized gains are distributed annually. An additional distribution may
be necessary to avoid taxation of the Fund.
The timing and characterization of certain income and capital gains are
determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. The differences may
be a result of deferral of certain losses, foreign denominated investments
or character reclassification between net income and net gains. As a
result, net investment income (loss) and net investment gain (loss) on
investment transactions for a reporting period may differ significantly from
distributions to shareholders during such period. As a result, the
Fund may periodically make reclassification among its
capital accounts without impacting the Fund's net asset value.
The Fund hereby designates $36,569 as capital gain dividends for the year
ended December 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)
purchase and sales of securities and income and expenses are converted into
U.S. dollars based upon the currency exchange rates prevailing on the
respective dates of such transactions.
Gains and losses attributable to foreign currency exchange rates are
recorded for financial statement purposes as net realized gains and losses
on investments. The portion of both realized and unrealized gains and
losses on investment that result from fluctuations in foreign currency
exchange rates is not separately stated.
12
<PAGE>
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may purchase or sell forward foreign currency contracts in order
to hedge a portfolio position or specific transaction. Risks may arise if
the counterparties to a contract are unable to meet the terms of the
contract or if the value of the foreign currency moves unfavorably.
All forward foreign currency contracts are adjusted daily by the exchange
rate of the underlying currency and, for financial statement purposes, any
gain or loss is recorded as unrealized gain or loss until a contract has
been closed. Realized and unrealized gain or loss arising from a
transaction is included in net realized and unrealized gain (loss) from
foreign currency and forward currency exchange contracts.
The Fund regularly trades forward foreign currency exchange contracts
with off-balance sheet risk in the normal course of its investing
activities to assist in managing exposure to changes in foreign currency
exchange rates.
The notional or contractual amount of these instruments represents the
investment the Fund has in forward foreign currency exchange contracts and
does not necessarily represent the amounts potentially at risk. The
measurement of the risks associated with forward foreign currency exchange
contracts is meaningful only when all related and offsetting transactions
are considered. A summary of obligations for forward currency exchange
contracts sold on December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Net Unrealized
Settlement Contracts In Exchange Contracts Appreciation/
Date to Deliver For At Value (Depreciation)
<C> <S> <C> <C> <C>
04/04/97 Dutch Guilder $ 1,976,168 $ 1,950,409 $ 25,759
01/08/97 Japanese Yen 1,263,923 1,202,736 61,187
01/08/97 Japanese Yen 1,215,371 1,176,778 38,593
04/04/97 Japanese Yen 3,637,160 3,634,286 2,874
04/04/97 Swiss Franc 1,217,137 1,128,987 88,150
04/04/97 Swiss Franc 568,736 526,860 41,876
04/04/97 Swiss Franc 798,722 752,658 46,064
04/04/97 Swiss Franc 2,109,375 2,032,176 77,199
</TABLE>
On December 31, 1996, the Fund had sufficient cash and/or securities to
cover any commitments under these contracts.
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 reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of the 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% of the Fund's
average daily net assets. The fee amounted to $224,344 for the period
September 6, 1996 (commencement of operations) to December 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 agreed that, in any fiscal year, if the expenses of the
Fund (including the advisory fee but excluding interest, taxes, brokerage
commissions, and extraordinary expenses) exceed the limits set by
applicable regulation of state securities commissions, the Advisor will
reduce its fee by the amount of such excess.
The Advisor also acts as the transfer, dividend paying and shareholder
servicing agent for the Fund. These services are provided at no
additional cost to the Fund.
Manning & Napier Investor Services, Inc., a registered broker-dealer
affiliate of the Advisor, acts as distributor for the Fund's shares. The
services of Manning & Napier Investor Services, Inc. are provided at no
additional cost to the Fund.
The compensation of the non-affiliated Directors totaled $3,334 for the
period September 6, 1996 (commencement of operations) to December 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
$68,223,244 and $294,390, respectively, for the period September 6, 1996
(commencement of operations) to December 31, 1996.
5. CAPITAL STOCK TRANSACTIONS
Transactions in shares of World Opportunities Series were:
<TABLE>
<CAPTION>
For the Period 9/6/96
(commencement of
operations) to 12/31/96
Shares Amount
------------------------ ------------
<S> <C> <C>
Sold 7,582,503 $75,856,659
Reinvested 43,147 433,194
Repurchased (206,792) (2,085,968)
Total 7,418,858 $74,203,885
</TABLE>
6. FOREIGN SECURITIES
Investing in securities of foreign companies and foreign governments
involves special risks and considerations not typically associated with
investing in securities of U.S. companies and the United States
government. These risks include revaluation of currencies and future
adverse political and economic developments. Moreover, securities of many
foreign companies and foreign governments and their markets may be less
liquid and their prices more volatile than of those securities of
comparable U.S. companies and the United States government.
15
<PAGE>
Independent Auditors' Report
TO THE SHAREHOLDERS AND DIRECTORS OF
MANNING & NAPIER FUND, INC.- WORLD OPPORTUNITIES SERIES:
We have audited the accompanying statement of assets and liabilities of
Manning & Napier Fund, Inc.- World Opportunities Series, including the
schedule of portfolio investments, as of December 31, 1996, and the related
statement of operations, the statement of changes in net assets, and the
financial highlights for the period September 6, 1996 (commencement of
operations) to December 31, 1996. These financial statements and financial
highlights are the responsibility of the Funds management. Our responsibility
is to express an opinion on these financial statements and financial
highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 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, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Manning & Napier Fund, Inc.- World Opportunities Series as of December 31,
1996, the results of its operations, the changes in its net assets, and the
financial highlights for the period September 6, 1996 (commencement of
operations) to December 31, 1996 in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
BOSTON, MASSACHUSETTS
JANUARY 23, 1997
16
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
Diversified Tax Exempt Series
Annual Report
December 31, 1996
<PAGE>
Management Discussion and Analysis
Dear Shareholders:
A fairly common expression being bandied about today is the phrase "if it
doesn't kill you, it will make you stronger". To a certain extent, that sums
up the bond market in 1996. The mediocre municipal bond market returns in
1996 are the result of short_term factors, specifically an ungrounded scare
about excessive growth and inflation plus uncertainty over the presidential
election. Combine those factors with the rather extraordinary returns that
the muni market generated in 1995, and the result is the mediocrity that will
be remembered as 1996. We would like to point out, however, that it is
short_term situations like those encountered in 1996 that provide us with the
needed opportunities to position the portfolio to benefit from the long_term
trends which are the most important determinants of municipal bond returns.
Having said all this, it is worthwhile to review what happened in 1996, just
what the impact of the election was, and what all this portends for 1997 and
beyond.
A GROWTH AND INFLATION SCARE:
At the end of 1995, the psychology in the muni market was 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
economic factors overshadowed what proved to be unfounded fears regarding the
potential for a flat tax and the negative impact that would have on the
municipal bond market.
Unfortunately, the economic tide began to turn rather quickly right at the
start of the year. One of the reasons the market rallied so strongly during
the later half of 1995 can be traced to speculative investments in fixed
income 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. assets. As long as Japanese
short-term 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 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 in all fixed income markets, including munis.
As spring began, the bond markets were 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 in 1995.
The probability
1
<PAGE>
Management Discussion and Analysis (continued)
of a recession became remote, and fears of inflation began to emerge. 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 higher. As the summer ended,
concerns seemed to be somewhat calmed, but rates remained stubbornly high.
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%, further
evidence that inflation was not increasing.
In the near_term, no one likes to see rising interest rates, but over the
longer_term, if one expects inflation to remain under control, rising interest
rates can create compelling fixed income buying opportunities. In the fixed
income markets, 1996 was 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.
THE ELECTION:
As everyone is quite aware, 1996 was an election year, which always has some
entertainment value. The political posturing started at the end of 1995 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. Relative to other fixed income securities, the fortunes of
munis waxed and waned inversely with the fortunes of Steve Forbes.
Ultimately President Clinton was reelected, but the Republicans were able to
hold on to the Congress. The net result was an administration that will be
unable to get any meaningful spending increases through Congress, and a
Congress that will be unable to enact anything in the way of meaningful tax
cuts. It is not necessarily gridlock, but the consensus after the election
was that if anything is going to get passed, it will relate to deficit
reduction. That bodes well for all fixed income markets, including munis.
Elections always 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. In the long run, however, the election results may not be
of major importance. With the
2
<PAGE>
Management Discussion and Analysis (continued)
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 have made
it clear that only fiscally sound policies will be tolerated. 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 monies 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 have had a
presidential campaign in which the Republican challenger called for a tax cut
while the Democratic incumbent attacked it for being budgetarily imprudent.
The new reality is that the only poll that seems to matter is the one being
taken daily in the global financial markets; sound policies are rewarded,
unsound policies are not.
1997 AND BEYOND:
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, non-cyclical influences that have brought down
interest rates, have capped inflation expectations, and have allowed
longer_term, non_callable securities to provide strong investment returns.
The short_term economic factors and the election are relevant, but they need
to be viewed as creating the buying opportunities that are necessary so that
your portfolio can benefit from a long_term overview. In essence, 1996 was a
small piece of the big picture.
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 to the extent possible. As always, our preference was for the
highest quality securities, especially general obligation bonds and
pre_refunded bonds. Revenue bonds were restricted primarily to those that
were backed by necessary services. We believe that the bumps in the road in
1996 have set the stage for a solid turnaround in 1997.
3
<PAGE>
Management Discussion and Analysis (continued)
CONCLUSION:
While 1996 was a difficult year, 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 to note 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, and that the
uncertainties introduced by elections are becoming even more ephemeral 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 a healthy, happy, and prosperous 1997.
Sincerely,
Manning & Napier Advisors, Inc.
<graphic>
<pie chart>
Data for chart to follow:
Portfolio Composition** -As of 12/31/96
General Obligation Bonds -80%
Revenue Bonds - 17%
Pre-Refunded Bonds - 3%
**As a percentage of municipal securities.
<graphic>
<pie chart>
Data for chart to follow:
<TABLE>
<CAPTION>
Quality Ratings* - As of 12/31/96
<S> <C>
Aaa 73%
Aa 22%
A 5%
</TABLE>
*Using Moodys Ratings, as a percent of municipal securities.
4
<PAGE>
Performance Update as of December 31, 1996
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc.
Diversified Tax Exempt Series
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
12/31/96 Investment Cumulative Annual
One Year $ 10,333 3.33% 3.33%
Inception 2 $ 11,370 13.70% 4.55%
</TABLE>
<TABLE>
<CAPTION>
Merrill Lynch Intermediate Municipal Index
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
12/31/96 Investment Cumulative Annual
One Year $ 10,464 4.64% 4.64%
Inception 2 $ 11,520 15.20% 5.03%
</TABLE>
The value of a $10,000 investment in the
Manning & Napier Fund, Inc. - Diversified
Tax Exempt Series from its inception
(2/14/94) to present (12/31/96) as
compared to the Merrill Lynch Intermediate
Municipal Index.1
<graphic>
<line chart>for chart to follow:
<TABLE>
<CAPTION>
Date Manning & Napier Diversified Merrill Lynch Intermediate
Tax Exempt Series Municipal Index
<S> <C> <C>
01/17/94 10,000 10,000
06/30/94 9,600 9,652
12/31/94 9,461 9,709
06/30/95 10,311 10,478
12/31/95 11,003 11,009
06/30/96 10,867 11,068
12/31/96 11,370 11,520
</TABLE>
1 The unmanaged Merrill Lynch Intermediate Municipal Index is a
market value weighted measure of approximately 380 municipal
bonds issued across the United States. The Index is comprised of
investment grade securities. Index returns assume reinvestment of
coupons and, unlike Fund returns, do not reflect any fees or
expenses.
2 The Fund and Index performance numbers are calculated from
February 14, 1994, the Fund's inception date. The Fund's
performance is historical and may not be indicative of future results.
5
<PAGE>
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Principal Value
Amount (Note 2)
MUNICIPAL SECURITIES - 95.4%
<S> <C> <C>
ALASKA - 1.9%
Anchorage, G.O. Bond, 6.10%, 8/1/2004 $ 300,000 $323,331
ARIZONA - 2.7%
Central Arizona Water Conservation District, Revenue
Bond, 4.70%, 5/1/2004 200,000 199,694
Maricopa County School District No. 097 Deer Valley,
G.O. Bond, Series A, 5.20%, 7/1/2007 250,000 254,693
454,387
COLORADO - 1.1%
El Paso County School District No. 020, G.O. Bond,
Series A, 6.20%, 12/15/2007 160,000 177,754
DELAWARE - 1.2%
Wilmington, G.O. Bond, Series B, 5.90%, 4/1/2000 200,000 209,718
DISTRICT OF COLUMBIA - 1.3%
District of Columbia, G.O. Bond, Series A, 7.65%,
12/1/2003 200,000 217,022
FLORIDA - 2.9%
Dade County School District, G.O. Bond, 6.125%, 8/1/2008 150,000 160,532
Florida State Board of Education Capital Outlay Public
Edu., G.O. Bond Series C, 5.60%, 6/1/2025 135,000 134,422
Florida State Dept. of Environmental Preservation 2000,
Revenue Bond, Series A, 4.50%, 7/1/2003 200,000 199,388
494,342
GEORGIA - 4.6%
Atlanta, G.O. Bond, 5.60%, 12/1/2018 350,000 349,017
Georgia, G.O. Bond, Series B, 5.65%, 3/1/2012 200,000 207,684
Glynn County Board of Education, G.O. Bond, 5.00%,
7/1/2006 200,000 202,110
758,811
HAWAII - 1.7%
Hawaii, G.O. Bond, Series CH, 6.00%, 11/1/2007 260,000 282,430
IDAHO - 0.6%
Ada & Canyon Counties Joint School District No. 2 Meridian,
G.O. Bond, 5.10%, 7/30/2005 100,000 103,080
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Principal Value
Amount (Note 2)
<S> <C> <C>
ILLINOIS - 4.4%
Aurora, G.O. Bond, 5.80%, 1/1/2012 $ 190,000 $194,685
Chicago Schools Financial Authority, G.O. Bond, 5.00%,
6/1/2007 200,000 197,280
Chicago, G.O. Bond, Series A, 5.875%, 1/1/2022 100,000 100,541
Illinois, Certificate Participation, Series 1995A, 5.60%, 7/1/2010 100,000 101,619
Tazewell County Community High School District No.
303 Pekin, G.O. Bond, 5.50%, 1/1/2011 150,000 150,343
744,468
INDIANA - 1.7%
Bloomington Sewer Works, Revenue Bond, 5.80%,
1/1/2011 150,000 154,402
Lafayette Waterworks, Revenue Bond, 4.90%, 7/1/2006 140,000 138,327
292,729
IOWA - 2.2%
Cedar Rapids, G.O. Bond, 6.45%, 6/1/2014 350,000 369,880
KENTUCKY - 3.4%
Jefferson County School District Finance Corp. School
Building, Revenue Bond, Series A, 5.00%, 2/1/2011 300,000 291,135
Kentucky State Turnpike Authority Revitalization
Projects, Revenue Bond, 6.50%, 7/1/2008 250,000 282,030
573,165
MAINE - 1.7%
Hermon, G.O. Bond, 5.60%, 11/1/2013 75,000 75,746
Portland, G.O. Bond, 6.20%, 4/1/2006 200,000 219,922
295,668
MASSACHUSETTS - 3.3%
Martha's Vineyard Regional High School District No. 100,
G.O. Bond, 6.70%, 12/15/2014 200,000 223,804
Massachusetts Municipal Electric Supply System,
Revenue Bond, Series A, 5.00%, 7/1/2017 200,000 184,790
Massachusetts Water Authority General Ref., Revenue Bond,
Series B, 5.25%, 3/1/2013 155,000 151,035
559,629
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Principal Value
Amount (Note 2)
<S> <C> <C>
MARYLAND - 3.8%
Baltimore Water Project, Revenue Bond, Series A,
5.55%, 7/1/2009 $ 260,000 $267,350
Prince Georges County Public Improvement, G.O. Bond,
5.00%, 3/15/2014 200,000 191,308
Washington County Public Improvement, G.O. Bond,
4.875%, 1/1/2010 200,000 191,724
650,382
MICHIGAN - 4.4%
Comstock Park Public Schools, G.O. Bond, 5.50%,
5/1/2011 150,000 151,294
Dearborn School District, G.O. Bond, 5.10%, 5/1/2006 200,000 201,606
Farmington Hills, G.O. Bond, 5.80%, 10/1/2006 50,000 52,612
Farmington Hills, G.O. Bond, 5.90%, 10/1/2007 75,000 78,960
Farmington Hills, G.O. Bond, 5.70%, 10/1/2005 65,000 68,409
Pinckney Community Schools, G.O. Bond, 5.00%,
5/1/2014 200,000 188,902
741,783
MINNESOTA - 4.1%
Minneapolis, G.O. Bond, Series B, 5.20%, 3/1/2013 300,000 294,321
Minnesota Various Purpose, G.O. Bond, 6.60%, 8/1/1999 200,000 212,240
Western Minnesota Municipal Power Agency, Revenue
Bond, 6.625%, 1/1/2016 175,000 193,615
700,176
MISSISSIPPI - 1.3%
Mississippi, G.O. Bond, 6.30%, 12/1/2006 200,000 222,338
MISSOURI - 1.5%
Missouri State Ref.- Third Street Building, G.O. Bond,
Series A, 5.125%, 8/1/2009 250,000 250,757
Montana - 1.1%
Montana Long Range Building Project, G.O. Bond, Series A,
4.875%, 8/1/2010 200,000 193,526
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Principal Value
Amount (Note 2)
<S> <C> <C>
NEVADA - 3.7%
Clark County School District, G.O. Bond, 6.00%,
6/15/2002 $ 100,000 $106,883
Henderson Water, G.O. Bond, Series A, 5.65%, 12/1/2003 300,000 317,940
Nevada State Project No. 42, G.O. Bond, 5.70%, 9/1/2008 200,000 208,750
633,573
NEW HAMPSHIRE - 1.3%
New Hampshire, G.O. Bond, 6.60%, 9/1/2014 200,000 224,456
NEW JERSEY - 2.8%
New Jersey State Highway Authority, Garden State
Parkway, Revenue Bond, 5.50%, 1/1/2000 200,000 206,802
West Windsor Plainsboro, G.O. Bond, 5.25%, 12/1/2004 250,000 259,662
466,464
NEW MEXICO - 1.2%
Albuquerque, G.O. Bond, Series A & B, 4.70%, 7/1/2000 200,000 202,574
NEW YORK - 3.4%
New York State Thruway Authority, Revenue Bond,
Series A, 5.50%, 1/1/2023 200,000 193,820
Sands Point, G.O. Bond, 6.70%, 11/15/2013 350,000 383,838
577,658
NORTH CAROLINA - 2.4%
Charlotte Public Improvement, G.O. Bond, 5.70%, 2/1/2002 200,000 212,168
North Carolina State Prison Facilities, G.O. Bond, 4.80%,
3/1/2009 200,000 194,068
406,236
OHIO - 2.5%
Ohio Public Facilities, Community Higher Education,
Revenue Bond, Series II-A, 4.25%, 12/1/2002 200,000 196,220
Summit County Various Purpose, G.O. Bond, 6.625%,
12/1/2012 200,000 219,436
415,656
OREGON - 1.5%
Salem Pedestrian Safety Impts, G.O. Bond, 5.50%, 5/1/2010 255,000 259,447
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Principal Value
Amount (Note 2)
<S> <C> <C>
PENNSYLVANIA - 3.3%
Cambria County, G.O. Bond, Series A, 6.10%, 8/15/2016 $ 350,000 $366,300
Pennsylvania State, G.O. Bond, Second Series, 6.00%,
7/1/2005 90,000 97,401
Pennsylvania State, G.O. Bond, First Series, 5.30%,
5/1/2005 100,000 103,325
567,026
RHODE ISLAND - 1.9%
Rhode Island State, G.O. Bond, Series A, 6.20%,
6/15/2004 300,000 325,629
SOUTH CAROLINA - 3.3%
South Carolina State Capital Improvement, G.O. Bond,
4.10%, 4/1/2001 200,000 197,960
South Carolina State Highway, G.O. Bond, Series B,
5.625%, 7/1/2010 350,000 363,986
561,946
TENNESSEE - 2.9%
Johnson City School Sales Tax, G.O. Bond, 6.70%,
5/1/2021 350,000 386,495
Lawrence County, G.O. Bond, 6.60%, 3/1/2013 100,000 109,178
495,673
TEXAS - 1.2%
Dallas Waterworks & Sewer, Revenue Bond, 5.625%,
4/1/2009 200,000 204,456
UTAH - 4.2%
Alpine School District, G.O. Bond, 5.375%, 3/15/2009 250,000 252,520
Nebo School District, G.O. Bond, 6.00%, 6/15/2018 450,000 461,403
713,923
VIRGINIA - 2.8%
Franklin County Capital Improvement , G.O. Bond,
6.60%, 7/15/2013 250,000 272,720
Loudoun County, G.O. Bond, Series A, 4.50%, 10/1/1997 200,000 201,492
474,212
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Principal Amount/ Value
Shares (Note 2)
<S> <C> <C>
WASHINGTON - 4.2%
Kitsap County School District, G.O. Bond, 6.625%,
12/1/2008 $ 350,000 $ 377,132
Seattle, G.O. Bond, Series A, 5.75%, 1/15/2020 230,000 230,635
Seattle Met. Municipality, G.O. Bond, 5.65%, 1/1/2020 100,000 98,985
706,752
WISCONSIN - 1.9%
Wisconsin State, G.O. Bond, Series A, 5.75%, 5/1/2001 300,000 315,678
TOTAL MUNICIPAL SECURITIES
(Identified Cost $15,660,961) 16,166,735
SHORT-TERM INVESTMENTS - 2.9%
Dreyfus Municipal Reserves (Identified Cost $495,430) 495,430 495,430
TOTAL INVESTMENTS - 98.3%
(Identified Cost $16,156,391) 16,662,165
OTHER ASSETS, LESS LIABILITIES - 1.7% 286,518
NET ASSETS - 100% $16,948,683
</TABLE>
Key -
G.O. Bond - General Obligation Bond
Impt. - Improvement
Ref. - Referendum
Met. - Metropolitan
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
<S> <C>
At December 31, 1996, the net unrealized appreciation based on identified
cost for federal income tax purposes of $16,156,391 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost $538,374
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value (32,600)
UNREALIZED APPRECIATION - NET $505,774
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
DECEMBER 31, 1996
<S> <C>
ASSETS:
Investments, at value (Identified Cost $16,156,391)(Note 2) $16,662,165
Interest receivable 255,833
Receivable for fund shares sold 53,120
Prepaid expense 116
TOTAL ASSETS 16,971,234
LIABILITIES:
Accrued management fees (Note 3) 7,063
Accrued Directors' fees (Note 3) 1,661
Audit fee payable 13,666
Other payables and accrued expenses 161
TOTAL LIABILITIES 22,551
NET ASSETS FOR 1,655,972 SHARES
OUTSTANDING $16,948,683
NET ASSETS CONSIST OF:
Capital stock $ 16,559
Additional paid-in-capital 16,399,431
Undistributed net investment income 35,290
Accumulated net realized loss on investments (8,371)
Net unrealized appreciation on investments 505,774
TOTAL NET ASSETS $16,948,683
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($16,948,683/ 1,655,972 shares) $ 10.23
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
<S> <C>
INVESTMENT INCOME:
Interest $766,794
EXPENSES:
Management fees (Note 3) 74,427
Directors' fees (Note 3) 6,750
Transfer agent fees (Note 3) 3,572
Audit fee 12,456
Custodian fee 3,500
Registration & filing fees 1,413
Miscellaneous 2,753
Total Expenses 104,871
NET INVESTMENT INCOME 661,923
REALIZED AND UNREALIZED LOSS ON
INVESTMENTS:
Net realized loss on investment (identified cost basis) (92)
Net change in unrealized appreciation on investments (77,279)
NET REALIZED AND UNREALIZED LOSS
ON INVESTMENTS (77,371)
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $584,552
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year For the Year
Ended 12/31/96 Ended 12/31/95
INCREASE (DECREASE) IN NET ASSETS:
<S> <C> <C>
OPERATIONS:
Net investment income $ 661,923 $ 453,193
Net realized loss on investments (92) (6,797)
Net change in unrealized appreciation on investments (77,279) 1,031,995
Net increase in net assets from operations 584,552 1,478,391
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2):
From net investment income (634,484) (453,725)
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase from capital share transactions (Note 5) 4,546,467 2,946,569
Net increase in net assets 4,496,535 3,971,235
NET ASSETS:
Beginning of period 12,452,148 8,480,913
End of period (including undistributed net investment
income of $35,290 and $7,877, respectively) $ 16,948,683 $ 12,452,148
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
For the Period
2/14/94
For the Year For the Year (commencement of
Ended Ended operations)
12/31/96 12/31/95 to 12/31/94
Per share data (for a share outstanding throughout
each period ):
<S> <C> <C> <C>
<C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.32 $ 9.26 $ 10.00
Income from investment operations:
Net investment income 0.434 0.428 0.210
Net realized and unrealized gain (loss)
on investments (0.104) 1.062 (0.749)
Total from investment operations 0.330 1.490 (0.539)
Less distributions to shareholders:
From net investment income (0.420) (0.430) (0.201)
NET ASSET VALUE - END OF PERIOD $ 10.23 $ 10.32 $ 9.26
Total return: 1 3.33% 16.29% (5.39)%
Ratios of expenses (to average net assets) /Supplemental Data:
Expenses 0.70% 0.79% 0.85%(2)(3)
Net investment income 4.44% 4.52% 3.71%(2)(3)
Portfolio turnover 2% 5% 4%
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 16,949 $ 12,452 $ 8,481
1 Represents aggregate total return for the period indicated.
2 Annualized.
3 The investment advisor waived a portion of its management fee.
If the full fee had been incurred by
the Fund, the net investment income per share would have been $0.186,
and the annualized ratios would have
been as follows: Expenses - 1.29%; Net investment income - 3.27%.
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
Notes to Financial Statements
1. ORGANIZATION
Diversified Tax Exempt Series (the "Fund") is a no-load diversified
series of Manning & Napier Fund, Inc. (the "Corporation"). The Corporation
is organized in Maryland and is registered under the Investment Company Act
of 1940, as amended, as an open-end management investment company.
Shares of the Fund are offered to investors, employees and clients of
Manning & Napier Advisors, Inc. (the "Advisor") and its affiliates. The
total authorized capital stock of the Corporation consists of one billion
shares of common stock each having a par value of $0.01. As of December 31,
1996, 940 million shares have been designated in total among 19 series, of
which 50 million have been designated as Diversified Tax Exempt Series Class
R Common Stock.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Municipal securities will normally be valued on the basis of market
valuations provided by an independent pricing service (the Service). The
Service utilizes the latest price quotations and a matrix system (which
considers such factors as security prices of similar securities, yields,
maturities, and ratings). The Service has been approved by the Funds Board
of Directors.
Securities for which representative prices are not available from the
Fund's pricing service are valued at fair value as determined in good faith
by the Advisor under procedures established by and under the general
supervision of the Fund's Board of Directors.
Short-term investments that mature in sixty (60) days or less are valued
at amortized cost which approximates market value.
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
16
<PAGE>
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Federal Income Taxes (continued)
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.
At December 31, 1996, the Fund, for federal income tax purposes, had a capital
loss carryforward of $8,371. Of this amount, $889 will expire on December
31, 2002, $7,390 will expire on December 31, 2003 and $92 will expire on
December 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
quarterly. Distributions are recorded on the ex-dividend date. Distributions
of net realized gains are distributed annually. An additional distribution
may be necessary to avoid taxation of the Fund.
The timing and characterization of certain income and capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. The differences may be a
result of deferral of certain losses or character reclassification between
net income and net gains. As a result, net investment income (loss) and net
investment gain (loss) on investment transactions for a reporting period may
differ significantly from distributions to shareholders during such period.
As a result, the Fund may periodically make reclassification among its
capital accounts without impacting the Fund's net asset value.
The Fund hereby designates 100% of its ordinary distributions as
tax-exempt dividends for the year ended December 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 reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of the revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
17
<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 $74,427 for the year ended
December 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 0.85% of average daily net assets each year. 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 $3,572 for the year ended December 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 $6,750 for the
year ended December 31, 1996.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term securities, were
$4,563,432 and $297,922, respectively, for the year ended December 31, 1996.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
5. CAPITAL STOCK TRANSACTIONS
Transactions in shares of Diversified Tax Exempt Series were:
<TABLE>
<CAPTION>
For the Year For the Year
Ended 12/31/96 Ended 12/31/95
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Sold 535,294 $ 5,427,100 330,682 $3,323,798
Reinvested 60,908 612,628 43,117 433,995
Repurchased (147,335) (1,493,261) (82,916) (811,224)
--------------- ------------ --------------- -----------
Total 448,867 $ 4,546,467 290,883 $2,946,569
</TABLE>
6. FINANCIAL INSTRUMENTS
The Fund may trade in financial instruments with off-balance sheet risk
in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include
written options and futures contracts and may involve, to a varying degree,
elements of risk in excess of the amounts recognized for financial statement
purposes. No such investments were held by the Fund on December 31, 1996.
19
<PAGE>
Independent Auditors' Report
TO THE SHAREHOLDERS AND DIRECTORS OF
MANNING & NAPIER FUND, INC.- DIVERSIFIED TAX EXEMPT SERIES:
We have audited the accompanying statement of assets and liabilities of
Manning & Napier Fund, Inc.- Diversified Tax Exempt Series, including the
schedule of portfolio investments, as of December 31, 1996, and the related
statement of operations for the year then ended, the statement of changes in
net assets for each of the two years in the period then ended and the
financial highlights for each of the periods indicated in the financial
highlights table herein. These financial statements and financial highlights
are the responsibility of the Funds management. Our responsibility is to
express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 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, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the Manning & Napier Fund, Inc.- Diversified Tax Exempt Series as
of December 31, 1996, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then
ended and the financial highlights for each of the periods indicated in the
financial highlights table herein in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
BOSTON, MASSACHUSETTS
JANUARY 23, 1997
20
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
Ohio Tax Exempt Series
Annual Report
December 31, 1996
<PAGE>
Management Discussion and Analysis
Dear Shareholders:
A fairly common expression being bandied about today is the phrase "if it
doesn't kill you, it will make you stronger". To a certain extent, that sums
up the bond market in 1996. The mediocre municipal bond market returns in
1996 are the result of short_term factors, specifically an ungrounded scare
about excessive growth and inflation plus uncertainty over the presidential
election. Combine those factors with the rather extraordinary returns that
the muni market generated in 1995, and the result is the mediocrity that will
be remembered as 1996. We would like to point out, however, that it is
short_term situations like those encountered in 1996 that provide us with the
needed opportunities to position the portfolio to benefit from the long_term
trends which are the most important determinants of municipal bond returns.
Having said all this, it is worthwhile to review what happened in 1996, just
what the impact of the election was, and what all this portends for 1997 and
beyond.
A GROWTH AND INFLATION SCARE:
At the end of 1995, the psychology in the muni market was 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
economic factors overshadowed what proved to be unfounded fears regarding the
potential for a flat tax and the negative impact that would have on the
municipal bond market.
Unfortunately, the economic tide began to turn rather quickly right at
the start of the year. One of the reasons the market rallied so strongly
during the later half of 1995 can be traced to speculative investments in
fixed income 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.
assets. As long as Japanese short-term 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 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 in all fixed income
markets, including munis.
As spring began, the bond markets were 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
1
<PAGE>
Management Discussion and Analysis (continued)
releases reported job gains that were much stronger than in 1995. The
probability of a recession became remote, and fears of inflation began to
emerge. 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 higher. As the summer
ended, concerns seemed to be somewhat calmed, but rates remained stubbornly
high.
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%, further
evidence that inflation was not increasing.
In the near_term, no one likes to see rising interest rates, but over the
longer_term, if one expects inflation to remain under control, rising
interest rates can create compelling fixed income buying opportunities. In
the fixed income markets, 1996 was 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.
THE ELECTION:
As everyone is quite aware, 1996 was an election year, which always has
some entertainment value. The political posturing started at the end of 1995
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. Relative to other fixed income securities, the fortunes of
munis waxed and waned inversely with the fortunes of Steve Forbes.
Ultimately President Clinton was reelected, but the Republicans were able
to hold on to the Congress. The net result was an administration that will
be unable to get any meaningful spending increases through Congress, and a
Congress that will be unable to enact anything in the way of meaningful tax
cuts. It is not necessarily gridlock, but the consensus after the election
was that if anything is going to get passed, it will relate to deficit
reduction. That bodes well for all fixed income markets, including munis.
2
<PAGE>
Management Discussion and Analysis (continued)
Elections always 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. 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 have made it clear that only fiscally sound policies will
be tolerated. 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
monies 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 have had a presidential campaign in which the
Republican challenger called for a tax cut while the Democratic incumbent
attacked it for being budgetarily imprudent. The new reality is that the
only poll that seems to matter is the one being taken daily in the global
financial markets; sound policies are rewarded, unsound policies are not.
1997 AND BEYOND:
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, non-cyclical influences that have brought down
interest rates, have capped inflation expectations, and have allowed
longer_term, non_callable securities to provide strong investment returns.
The short_term economic factors and the election are relevant, but they need
to be viewed as creating the buying opportunities that are necessary so that
your portfolio can benefit from a long_term overview. In essence, 1996 was a
small piece of the big picture.
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 to the extent possible. As always, our preference
was for the highest quality securities, especially general obligation bonds
and pre_refunded bonds. Revenue bonds were restricted primarily to those
that were backed by necessary services. We believe that the bumps in the
road in 1996 have set the stage for a solid turnaround in 1997.
3
<PAGE>
Management Discussion and Analysis (continued)
CONCLUSION:
While 1996 was a difficult year, 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 to note 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, and that the uncertainties introduced by elections are becoming even
more ephemeral 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 a healthy, happy, and prosperous 1997.
Sincerely,
Manning & Napier Advisors, Inc.
<graphic>
<pie chart>
Data for chart to follow:
Portfolio Composition** - As of 12/31/96
General Obligation Bonds - 63%
Revenue Bonds - 32%
Pre-Refunded Bonds - 5%
**As a percentage of municipal securities.
<graphic>
<pie chart>
Data for chart to follow:
<TABLE>
<CAPTION>
Quality Ratings * -As of 12/31/96
<S> <C>
Aaa 90%
Aa 5%
A 3%
Not Rated 2%
* Using Moody's Ratings, as a percentage of municipal securities.
</TABLE>
4
<PAGE>
Performance Update as of December 31, 1996
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc.
Ohio Tax Exempt Series
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
12/31/96 Investment Cumulative Annual
One Year $ 10,316 3.16% 3.16%
Inception2 $ 11,331 13.31% 4.43%
</TABLE>
<TABLE>
<CAPTION>
Merrill Lynch Intermediate Municipal Index
<S> <C> <C> <C>
Total Return
Growth of $10,000 Average
Through Investment Cumulative Annual
12/31/96
One Year $ 10,464 4.64% 4.64%
Inception2 $ 11,520 15.20% 5.03%
</TABLE>
The value of a $10,000 investment in the
Manning & Napier Fund, Inc. - Ohio
Tax Exempt Series from its inception
(2/14/94) to present (12/31/96) as
compared to the Merrill Lynch Intermediate
Municipal Index.1
<graphic>
<line chart>
Data for chart to follow:
<TABLE>
<CAPTION>
Date Manning & Napier Ohio Merrill Lynch Intermediate
Tax Exempt Series Municipal Index
<S> <C> <C>
01/17/94 10,000 10,000
06/30/94 9,540 9,652
12/31/94 9,377 9,709
06/30/95 10,288 10,478
12/31/95 10,985 11,009
06/30/96 10,828 11,068
12/31/96 11,331 11,520
</TABLE>
1 The unmanaged Merrill Lynch Intermediate Municipal Index is a
market value weighted measure of approximately 380 municipal
bonds issued across the United States. The Index is comprised of
investment grade securities. Index returns assume reinvestment of
coupons and, unlike Fund returns, do not reflect any fees or
expenses.
2 The Fund and Index performance numbers are calculated from
February 14, 1994, the Fund's inception date. The Fund's
performance is historical and may not be indicative of future results.
5
<PAGE>
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Principal Value
Amount (Note 2)
OHIO MUNICIPAL SECURITIES - 97.5%
<S> <C> <C>
Akron Bath Copley Joint Twnshp. Childrens Hos. Med.
Ctr., Revenue Bond, 7.45%, 11/15/2020 $ 50,000 $ 56,389
Akron Limited Tax, G.O. Bond, 4.10%, 12/1/2001 65,000 63,896
Akron Waterworks, Revenue Management Bond, 5.70%
3/1/2007 100,000 105,089
Allen County, G.O. Bond, 5.30%, 12/1/2007 100,000 101,937
Amherst Police & Jail Facility, G.O. Bond, 5.375%,
12/1/2012 50,000 50,332
Avon Lake, G.O. Bond, 5.70%, 12/1/2006 60,000 62,636
Avon Lake, G.O. Bond, 6.00%,12/1/2009 40,000 41,789
Bedford Heights, G.O. Bond, Series A, 5.65%, 12/1/2014 60,000 62,139
Belmont County, G.O. Bond, 5.15%, 12/1/2010 100,000 99,163
Bexley City School District, G.O. Bond, 6.50%, 12/1/2016 20,000 22,170
Cincinnati, G.O. Bond, 4.60%,12/1/2003 50,000 50,071
Clermont County Hospital Facilities Mercy Health Care
System, Revenue Bond, Series A, 7.625%, 1/1/2015 25,000 26,439
Cleveland City School District, G.O. Bond, 5.875%,
12/1/2011 125,000 128,291
Cleveland Public Power System Improvement, Revenue
Bond, 1st Mtg., 8.375%, 8/1/2017 50,000 52,368
Cleveland Waterworks Revenue Ref. & Impt. - First Meeting,
Revenue Bond, Series H, 5.50%, 1/1/2010 170,000 172,807
Cleveland Waterworks, Revenue Bond, 1st Mtg., Series G,
5.50%, 1/1/2013 100,000 101,491
Columbus Limited Tax, G.O. Bond, Series A, 4.85%,
7/1/2004 50,000 50,817
Columbus, G.O. Bond, Series B, 6.10%, 1/1/2003 100,000 108,496
Columbus, G.O. Bond, Series D, 5.50%, 9/15/2008 50,000 51,779
Crawford County, G.O. Bond, 6.75%, 12/1/2019 175,000 196,688
Cuyahoga County, G.O. Bond, Series A, 4.30%,
10/1/1999 50,000 50,164
Cuyahoga Falls, G.O. Bond, 7.20%, 12/1/2010 75,000 82,616
Delaware City School District, Construction & Impt.,
G.O. Bond, Series B, 5.20%, 12/1/2016 100,000 95,115
Fairfield County Hospital Impt., Lancaster-Fairfield
Community Hospital, Revenue Bond, 7.00%, 6/15/2012 50,000 55,944
Findlay Water, Revenue Bond, 5.45%, 11/1/2008 100,000 102,178
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Principal Value
Amount (Note 2)
OHIO MUNICIPAL SECURITIES (continued)
<S> <C> <C>
Franklin County, G.O. Bond, 4.95%, 12/1/2004 $ 50,000 $ 51,115
Franklin County, G.O. Bond, 5.50%, 12/1/2013 100,000 101,048
Gahanna-Jefferson City School District, G.O. Bond,
4.75%, 12/1/1999 50,000 50,801
Green Local School District - Summit, G.O. Bond,
5.20%, 12/1/2003 75,000 77,556
Greene County Sewer System, Revenue Bond, 5.50%,
12/1/2018 30,000 29,363
Hamilton County Building Impt. - Museum Center,
G.O. Bond, 5.85%, 12/1/2001 50,000 53,150
Hamilton County Sewer System Ref. & Impt. - Metro Sewer
District, Revenue Bond, Series A, 4.75%, 12/1/2000 50,000 50,837
Hamilton County Sewer System Ref. & Impt. - Metro Sewer
District, Revenue Bond, Series A, 5.00%, 12/1/2014 125,000 118,338
Hilliard School District, G.O. Bond, 6.35%, 12/1/2003 60,000 66,091
Hilliard School District, G.O. Bond, Series A, 5.00%,
12/1/2020 225,000 209,556
Huber Heights Water Systems, Revenue Bond, 5.25%,
12/1/2007 200,000 204,836
Kettering City School District School Impt., G.O. Bond,
5.30%, 12/1/2014 125,000 123,006
Kettering City School District, G.O. Bond, 4.85%,
12/1/2006 40,000 39,961
Kettering City School District, G.O. Bond, 5.25%,
12/1/2022 60,000 57,380
Kings Local School District, G.O. Bond, 5.50%,
12/1/2021 115,000 113,155
Lakewood City School District, G.O. Bond, 5.55%,
12/1/2013 100,000 100,975
Lakota Local School District, G.O. Bond, 5.75%,
12/1/2006 50,000 53,038
Lakota Local School District, G.O. Bond, 7.00%,
12/1/2008 100,000 117,492
Lakota Local School District, G.O. Bond, 7.90%,
12/1/2011 45,000 48,274
Lorain Water System, Revenue Bond, 4.75%, 4/1/2005 125,000 124,822
Mahoning County Limited Tax, G.O. Bond, 5.65%,
12/1/1998 20,000 20,617
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Principal Value
Amount (Note 2)
OHIO MUNICIPAL SECURITIES (continued)
<S> <C> <C>
Mahoning County, G.O. Bond, 5.70%, 12/1/2006 $ 100,000 $105,807
Mahoning County, G.O. Bond, 5.70%, 12/1/2009 150,000 156,204
Mason City School District, G.O. Bond, 5.00%, 12/1/2007 120,000 119,995
Montgomery County, G.O. Bond, 5.30%, 9/1/2007 65,000 66,457
Montgomery County, Moraine-Beaver Creek Sewers,
Revenue Bond, 5.60%, 9/1/2011 100,000 101,547
North Canton City School District, G.O. Bond, 5.85%,
12/1/2007 40,000 42,625
North Olmstead, G.O. Bond, 6.20%, 12/1/2011 200,000 219,474
Northeast Ohio Regional Sewer District Waste & Water
Impt., Revenue Bond, 6.50%, 11/15/2016 100,000 109,968
Northwood Local School District, G.O. Bond, 5.55%,
12/1/2006 65,000 68,808
Northwood Local School District, G.O. Bond, 6.20%,
12/1/2013 40,000 42,620
Ohio, G.O. Bond, 6.50%, 8/1/2011 50,000 53,668
Ohio Building Authority, Local Jail Grant, Revenue Bond,
Series A, 4.65%, 10/1/2005 50,000 49,241
Ohio Building Authority, State Facilities - Administration
Building, Revenue Bond, 5.50%, 10/1/2005 50,000 52,400
Ohio Higher Education Facility, University of Dayton
Project, Revenue Bond, 5.80%, 12/1/2019 100,000 101,958
Ohio Public Facilities, Higher Education, Revenue Bond,
Series II-A, 4.25%, 12/1/2002 50,000 49,055
Ohio Turnpike, Revenue Bond, Series A, 5.40%, 2/15/2009 250,000 253,618
Ohio Water Development Authority Ref. & Impt. - Pure
Water, Revenue Bond, 5.75%, 12/1/2005 60,000 63,674
Ohio Water Development Authority Pure Water, Revenue
Bond, Series I, 6.00%, 12/1/2016 40,000 41,131
Ohio Water Development Authority, Pollution Control
Facility, Revenue Bond, 5.25%, 12/1/2014 100,000 96,507
Ottawa County, G.O. Bond, 5.45%, 9/1/2006 30,000 31,444
Pickerington Local School District Construction & Impt.,
G.O. Bond, 5.375%, 12/1/2019 150,000 145,854
Pickerington Water Systems Improvements, G.O. Bond,
5.85%, 12/1/2013 50,000 51,545
Reynoldsburg City School District, G.O. Bond, 6.55%,
12/1/2017 175,000 191,726
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Principal Value
Amount/Shares (Note 2)
OHIO MUNICIPAL SECURITIES (continued)
<S> <C> <C>
Rocky River City School District, G.O. Bond, Series A,
6.375%, 12/1/1998 $ 25,000 $ 26,125
Rocky River City School District, G.O. Bond, Series A,
6.90%, 12/1/2011 50,000 55,465
Rural Lorain Water Authority Ref. & Impt., Revenue Bond,
5.30%, 10/1/2012 110,000 108,490
South-Western City School District, Franklin & Pickway
Counties G.O. Bond, 4.80%, 12/1/2006 100,000 99,032
Stark County Hospital, Doctors Hospital, Inc., Revenue
Bond, 8.625%, 4/1/2018 30,000 32,269
Stark County, G.O. Bond, 5.70%, 11/15/2017 100,000 100,893
Summit County, G.O. Bond, 5.75%, 12/1/2008 175,000 183,060
Toledo Sewer System, Revenue Bond, 6.35%, 11/15/2017 185,000 198,738
Toledo, G.O. Bond, 5.95%,12/1/2015 175,000 181,682
Trumbull County, G.O. Bond, 6.20%, 12/1/2014 100,000 106,470
Warren, G.O. Bond, 5.20%,11/15/2013 50,000 51,779
Warren County Waterworks, Revenue Bond, 6.00%,
12/1/2014 100,000 104,268
Warren County Waterworks, Revenue Bonds, 5.45%,
12/1/2015 140,000 136,605
Wood County, G.O. Bond, 5.40%,12/1/2013 50,000 50,138
Youngstown, G.O. Bond, 6.125%,12/1/2014 50,000 52,792
TOTAL MUNICIPAL SECURITIES
(Identified Cost $7,266,606) 7,505,347
SHORT-TERM INVESTMENTS - 1.7%
Dreyfus Municipal Reserves (Identified Cost $128,772 128,772 128,772
TOTAL INVESTMENTS - 99.2%
(Identified Cost $7,395,378) 7,634,119
OTHER ASSETS, LESS LIABILITIES - 0.8% 63,436
NET ASSETS - 100% 7,697,555
</TABLE>
Key -
G.O. Bond - General Obligation Bond
Ref.. - Referendum
Impt. - Improvement
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
Federal Tax Information
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
<S> <C>
At December 31, 1996, the net unrealized appreciation based on identified cost for
federal income tax purposes of $7,395,378 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost $258,804
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value (20,063)
UNREALIZED APPRECIATION - NET $238,741
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
DECEMBER 31, 1996
<S> <C>
ASSETS:
Investments, at value (Identified Cost $7,395,378)(Note 2) $7,634,119
Interest receivable 62,642
Receivable for fund shares sold 25,460
Prepaid expense 265
TOTAL ASSETS 7,722,486
LIABILITIES:
Accrued management fees (Note 3) 8,382
Accrued Directors' fees (Note 3) 1,662
Audit fee payable 13,666
Other payables and accrued expenses 1,221
TOTAL LIABILITIES 24,931
NET ASSETS FOR 756,391 SHARES OUTSTANDING $7,697,555
NET ASSETS CONSIST OF:
Capital stock $ 7,564
Additional paid-in-capital 7,449,142
Undistributed net investment income 2,108
Net unrealized appreciation on investments 238,741
TOTAL NET ASSETS $7,697,555
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($7,697,555/756,391 shares) $ 10.18
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
<S> <C>
INVESTMENT INCOME:
Interest $363,824
EXPENSES:
Management fees (Note 3) 34,563
Directors' fees (Note 3) 6,750
Transfer agent fees (Note 3) 1,664
Audit fee 11,909
Custodian fee 3,500
Miscellaneous 1,892
Total Expenses 60,278
Less Waiver of Expenses (Note 3) (1,181)
Net Expenses 59,097
NET INVESTMENT INCOME 304,727
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investments (identified cost basis) 3,259
Net change in unrealized appreciation on investments (51,282)
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (48,023)
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $256,704
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year For the Year
Ended 12/31/96 Ended 12/31/95
INCREASE (DECREASE) IN NET ASSETS:
<S> <C> <C>
OPERATIONS:
Net investment income $ 304,727 $ 213,139
Net realized gain (loss) on investments 3,259 (667)
Net change in unrealized appreciation on investments (51,282) 507,287
Net increase in net assets from operations 256,704 719,759
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2):
From net investment income (303,669) (215,626)
From net realized gain on investments (1,397) --
Total distributions to shareholders (305,066) (215,626)
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase in net assets from capital share transactions (Note 5) 1,602,341 1,738,597
Net increase in net assets 1,553,979 2,242,730
NET ASSETS:
Beginning of period 6,143,576 3,900,846
End of period (including undistributed net investment
income of $2,108 and $1,076, respectively) $ 7,697,555 $ 6,143,576
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
For the Period
2/14/94
(commencement
For the Year For the Year of operations)
Ended 12/31/96 Ended 12/31/95 to 12/31/94
<S> <C> <C> <C>
Per share data (for a share outstanding throughout
each period)
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.31 $ 9.18 $ 10.00
Income from investment operations:
Net investment income 0.439 0.419 0.205
Net realized and unrealized gain (loss)
on investments (0.129) 1.136 (0.828)
Total from investment operations 0.310 1.555 (0.623)
Less distributions to shareholders:
From net investment income (0.438) (0.425) (0.197)
From net realized gain on investments (0.002) -- --
Total distributions to shareholders (0.440) (0.425) (0.197)
NET ASSET VALUE - END OF PERIOD $ 10.18 $ 10.31 $ 9.18
Total return:(1) 3.15% 17.14% (6.23)%
Ratios of expenses (to average net assets) /
Supplemental Data:
Expenses 0.85%** 0.85%** 0.85%*(2)
Net investment income 4.40%** 4.50%** 4.03%*(2)
Portfolio turnover 2% 1% 2%
NET ASSETS - END OF PERIOD (000's omitted) $ 7,698 $ 6,144 $ 3,901
* The investment advisor did not impose its management
fee and paid a portion of the Fund's expenses.
** The investment advisor waived a portion of its
management fee.
If these expenses had been incurred by the Fund in either
instance above, the net investment income
per share and the ratios would have been as follows:
Net Investment Income $ 0.437 $ 0.411 $ 0.141
Ratios (to average net assets):
Expenses 0.87% 0.94% 2.07%(2)
Net investment income 4.38% 4.41% 2.81%(2)
1 Total return represents aggregate total return for the
period indicated.
2 Annualized.
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
Notes to Financial Statements
1. ORGANIZATION
Ohio Tax Exempt Series (the "Fund") is a no-load diversified series of
Manning & Napier Fund, Inc. (the "Corporation"). The Corporation is
organized in Maryland and is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company.
Shares of the Fund are offered to investors, employees and clients of
Manning & Napier Advisors, Inc. (the "Advisor") and its affiliates. The
total authorized capital stock of the Corporation consists of one billion
shares of common stock each having a par value of $0.01. As of December 31,
1996, 940 million shares have been designated in total among 19 series, of
which 50 million have been designated as Ohio Tax Exempt Series Class Q
Common Stock.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Municipal securities will normally be valued on the basis of market
valuations provided by an independent pricing service (the Service). The
Service utilizes the latest price quotations and a matrix system (which
considers such factors as security prices of similar securities, yields,
maturities, and ratings). The Service has been approved by the Funds Board
of Directors.
Securities for which representative prices are not available from the
Fund's pricing service are valued at fair value as determined in good faith
by the Advisor under procedures established by and under the general
supervision of the Funds Board of Directors.
Short-term investments that mature in sixty (60) days or less are valued
at amortized cost, which approximates market value.
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.
15
<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 tax exempt income are made quarterly.
Distributions are recorded on the ex-dividend date. Distributions of net
realized gains are distributed annually. An additional distribution may be
necessary to avoid taxation of the Fund.
The timing and characterization of certain income and capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. The differences may be a
result of deferral of certain losses or character reclassification between
net income and net gains. As a result, net investment income (loss) and net
investment gain (loss) on investment transactions for a reporting period may
differ significantly from distributions to shareholders during such period.
As a result, the Fund may periodically make reclassification among its
capital accounts without impacting the Fund's net asset value.
The Fund hereby designates 100% of its ordinary distributions as
tax-exempt dividends and 100% of its gains dividends as capital gain
dividends for the year ended December 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 reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of the 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 0.50% of the Fund's
average daily net assets. The fee amounted to $34,563 for the year ended
December 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.
16
<PAGE>
Notes to Financial Statements
3. TRANSACTIONS WITH AFFILIATES (continued)
The Advisor has voluntarily agreed to waive its fee and, if necessary,
pay other expenses of the Fund in order to maintain total expenses for the
Fund at no more than 0.85% of average daily net assets each year.
Accordingly, the Advisor waived fees of $1,181, 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 $1,664 for the year ended December 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 $6,750 for the
year ended December 31, 1996.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term securities, were
$1,751,540 and $123,530, respectively, for the year ended December 31, 1996.
5. CAPITAL STOCK TRANSACTIONS
Transactions in shares of Ohio Tax Exempt Series were:
<TABLE>
<CAPTION>
For the Year For the Year
Ended 12/31/96 Ended 12/31/95
Shares Amount Shares Amount
--------------- ----------- --------------- -----------
<S> <C> <C> <C> <C>
Sold 187,378 $1,880,010 163,241 $1,658,399
Reinvested 30,485 305,066 21,448 215,626
Repurchased (57,415) (582,735) (13,614) (135,428)
Total 160,448 $1,602,341 171,075 $1,738,597
</TABLE>
17
<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 and futures contracts and may involve, to a varying degree,
elements of risk in excess of the amounts recognized for financial statement
purposes. No such investments were held by the Fund on December 31, 1996.
7. CONCENTRATION OF CREDIT
The Fund primarily invests in debt obligations issued by the State of Ohio and
its political subdivisions, agencies, and public authorities to obtain
funds for various public purposes. The Fund is more susceptible to
factors adversely affecting issues of Ohio municipal securities than is a
municipal bond fund that is not concentrated in these issues to the same
extent.
18
<PAGE>
Independent Auditors' Report
TO THE SHAREHOLDERS AND DIRECTORS OF
MANNING & NAPIER FUND, INC.- OHIO TAX EXEMPT SERIES:
We have audited the accompanying statement of assets and liabilities of
Manning & Napier Fund, Inc.- Ohio Tax Exempt Series, including the schedule
of portfolio investments, as of December 31, 1996, and the related statement
of operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended and the financial
highlights for each of the periods indicated in the financial highlights
table herein. These financial statements and financial highlights are the
responsibility of the Funds management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 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, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the Manning & Napier Fund, Inc.- Ohio Tax Exempt Series as of
December 31, 1996, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended
and the financial highlights for each of the periods indicated in the
financial highlights table herein in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
BOSTON, MASSACHUSETTS
JANUARY 23, 1997
19
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
New York Tax Exempt Series
Annual Report
December 31, 1996
<PAGE>
Management Discussion and Analysis
Dear Shareholders:
A fairly common expression being bandied about today is the phrase "if it
doesn't kill you, it will make you stronger". To a certain extent, that sums
up the bond market in 1996. The mediocre municipal bond market returns in
1996 are the result of short_term factors, specifically an ungrounded scare
about excessive growth and inflation plus uncertainty over the presidential
election. Combine those factors with the rather extraordinary returns that
the muni market generated in 1995, and the result is the mediocrity that will
be remembered as 1996. We would like to point out, however, that it is
short_term situations like those encountered in 1996 that provide us with the
needed opportunities to position the portfolio to benefit from the long_term
trends which are the most important determinants of municipal bond returns.
Having said all this, it is worthwhile to review what happened in 1996, just
what the impact of the election was, and what all this portends for 1997 and
beyond.
A GROWTH AND INFLATION SCARE:
At the end of 1995, the psychology in the muni market was 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
economic factors overshadowed what proved to be unfounded fears regarding the
potential for a flat tax and the negative impact that would have on the
municipal bond market.
Unfortunately, the economic tide began to turn rather quickly right at
the start of the year. One of the reasons the market rallied so strongly
during the later half of 1995 can be traced to speculative investments in
fixed income 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.
assets. As long as Japanese short-term 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 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 in all fixed income
markets, including munis.
As spring began, the bond markets were shocked by the February employment
report issued by the Bureau of Labor Statistics. The number of new jobs
created during the
1
<PAGE>
Management Discussion and Analysis (continued)
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 in 1995. The
probability of a recession became remote, and fears of inflation began to
emerge. 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 higher. As the summer
ended, concerns seemed to be somewhat calmed, but rates remained stubbornly
high.
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%, further
evidence that inflation was not increasing.
In the near_term, no one likes to see rising interest rates, but over the
longer_term, if one expects inflation to remain under control, rising
interest rates can create compelling fixed income buying opportunities. In
the fixed income markets, 1996 was 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.
THE ELECTION:
As everyone is quite aware, 1996 was an election year, which always has
some entertainment value. The political posturing started at the end of 1995
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. Relative to other fixed income securities, the fortunes of
munis waxed and waned inversely with the fortunes of Steve Forbes.
Ultimately President Clinton was reelected, but the Republicans were able
to hold on to the Congress. The net result was an administration that will
be unable to get any meaningful spending increases through Congress, and a
Congress that will be unable to enact anything in the way of meaningful tax
cuts. It is not necessarily gridlock, but the consensus after the election
was that if anything is going to get passed, it will relate to deficit
reduction. That bodes well for all fixed income markets, including munis.
2
<PAGE>
Management Discussion and Analysis (continued)
Elections always 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. 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 have made it clear that only fiscally sound policies will
be tolerated. 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
monies 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 have had a presidential campaign in which the
Republican challenger called for a tax cut while the Democratic incumbent
attacked it for being budgetarily imprudent. The new reality is that the
only poll that seems to matter is the one being taken daily in the global
financial markets; sound policies are rewarded, unsound policies are not.
1997 AND BEYOND:
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, non-cyclical influences that have brought down
interest rates, have capped inflation expectations, and have allowed
longer_term, non_callable securities to provide strong investment returns.
The short_term economic factors and the election are relevant, but they need
to be viewed as creating the buying opportunities that are necessary so that
your portfolio can benefit from a long_term overview. In essence, 1996 was a
small piece of the big picture.
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 to the extent possible. As always, our preference
was for the highest quality securities, especially general obligation bonds
and pre_refunded bonds. Revenue bonds were restricted primarily to those
that were backed by necessary services. We believe that the bumps in the
road in 1996 have set the stage for a solid turnaround in 1997.
3
<PAGE>
Management Discussion and Analysis (continued)
CONCLUSION:
While 1996 was a difficult year, 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 to note 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, and that the uncertainties introduced by elections are becoming even
more ephemeral 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 a healthy, happy, and prosperous 1997.
Sincerely,
Manning & Napier Advisors, Inc.
<graphic>
<pie chart>
Data for chart to follow:
Portfolio Composition** - As of 12/31/96
General Obligation Bonds - 70%
Revenue Bonds - 24%
Pre-Refunded Bonds - 6%
**As a percentage of municipal securities.
<graphic>
<pie chart>
Data for chart to follow:
<TABLE>
<CAPTION>
Quality Ratings* - As of 12/31/96
<S> <C>
Aaa 82%
Aa 15%
A 3%
* Using Mood's Ratings, as a percentage of municipal securities.
</TABLE>
4
<PAGE>
Performance Update as of December 31, 1996
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc.
New York Tax Exempt Series
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
12/31/96 Investment Cumulative Annual
One Year $ 10,332 3.32% 3.32%
Inception 2 $ 11,243 12.43% 4.04%
</TABLE>
<TABLE>
<CAPTION>
Merrill Lynch Intermediate Municipal Index
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
12/31/96 Investment Cumulative Annual
One Year $ 10,464 4.64% 4.64%
Inception 2 $ 11,532 15.32% 4.93%
</TABLE>
The value of a $10,000 investment in the
Manning & Napier Fund, Inc. - New York
Tax Exempt Series from its inception
(1/17/94) to present (12/31/96) as
compared to the Merrill Lynch Intermediate
Municipal Index.1
<graphic>
<line chart>
Data for chart to follow:
<TABLE>
<CAPTION>
Date Manning & Napier New York Merrill Lynch Intermediate Municipal
Tax Exempt Series Index
<S> <C> <C>
01/17/94 10,000 10,000
06/30/94 9,460 9,662
12/31/94 9,318 9,719
06/30/95 10,202 10,489
12/31/95 10,882 11,020
06/30/96 10,733 11,080
12/31/96 11,243 11,532
</TABLE>
1 The unmanaged Merrill Lynch Intermediate Municipal Index is a
market value weighted measure of approximately 380 municipal
bonds issued across the United States. The Index is comprised of
investment grade securities. Index returns assume reinvestment of
coupons and, unlike Fund returns, do not reflect any fees or
expenses.
2 The Fund and Index performance numbers are calculated from
January 17, 1994, the Fund's inception date. The Fund's
performance is historical and may not be indicative of future results.
5
<PAGE>
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Principal Value
Amount (Note 2)
<S> <C> <C>
NEW YORK MUNICIPAL SECURITIES - 95.5%
Albany City School District, G.O. Bond, 4.35%,
2/1/2001 $ 475,000 $473,437
Albany City School District, G.O. Bond, 4.35%,
2/1/2002 150,000 148,728
Albany County, G.O. Bond, 5.75%, 6/1/2010 200,000 206,744
Amherst Public Improvement, G.O. Bond, 4.625%,
3/1/2004 250,000 249,382
Amherst Public Improvement, G.O. Bond, 4.625%,
3/1/2007 200,000 194,844
Battery Park City Authority, Revenue Bond, 7.70%,
5/1/2015 500,000 548,840
Bayport-Blue Point Union Free School District, G.O.
Bond, 5.60%, 6/15/2012 250,000 257,195
Brighton Central School District, G.O. Bond,
5.40%, 6/1/2012 250,000 250,748
Brockport Central School District, G.O. Bond,
5.50%, 6/15/2015 300,000 300,648
Broome County Public Safety, Certificate
Participation, 5.00%, 4/1/2006 250,000 252,378
Buffalo General Improvement, G.O. Bond, Series A,
4.75%, 2/1/2004 500,000 502,070
Buffalo Schools, G.O. Bond, Series B, 5.05%,
2/1/2009 250,000 246,655
Buffalo, G.O. Bond, 5.00%, 12/1/2009 150,000 147,890
Cattaraugus County Public Improvement, G.O. Bond,
5.00%, 8/1/2007 300,000 303,183
Colonie, G.O. Bond, 5.20%, 8/15/2008 100,000 101,610
Cortlandville, G.O. Bond, 5.40%, 6/15/2013 155,000 155,817
East Hampton, G.O. Bond, 4.625%, 1/15/2007 175,000 170,135
East Hampton, G.O. Bond, 4.625%, 1/15/2008 175,000 167,475
Ellenville Central School District, G.O. Bond,
5.375%, 5/1/2009 210,000 216,735
Erie County Public Improvement, G.O. Bond,
5.80%, 1/15/2003 230,000 245,516
Erie County, G.O. Bond, Series B, 5.50%, 6/15/2009 100,000 102,881
Erie County, G.O. Bond, Series B, 5.50%, 6/15/2025 400,000 392,656
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Principal Value
Amount (Note 2)
NEW YORK MUNICIPAL SECURITIES (continued)
<S> <C> <C>
Fillmore Central School District, G.O. Bond, 5.25%,
6/15/2015 $ 300,000 $293,064
Gloversville City School District, G.O. Bond, 5.00%,
6/15/2005 350,000 356,513
Greene Central School District, G.O. Bond, 5.25%,
6/15/2012 195,000 194,177
Guilderland School District, G.O. Bond, 4.75%,
6/15/1998 130,000 131,786
Guilderland School District, G.O. Bond, 4.90%,
6/15/2008 370,000 362,437
Hamburg Central School District, G.O. Bond,
5.375%, 6/1/2014 600,000 596,952
Hempstead Town, G.O. Bond, Series B, 5.625%,
2/1/2010 200,000 206,402
Holland Central School District, G.O. Bond,
6.125%, 6/15/2010 245,000 264,120
Huntington, G.O. Bond, 5.875%, 9/1/2009 250,000 263,062
Huntington, G.O. Bond, 5.90%, 1/15/2007 300,000 322,869
Indian River Central School District, G.O. Bond,
Second Series, 4.30%, 12/15/2003 475,000 469,623
Irvington Union Free School District, G.O. Bond,
Series B, 5.10%, 7/15/2005 275,000 281,105
Jamesville-Dewitt Central School District, G.O.
Bond, 5.75%, 6/15/2009 420,000 446,124
Jordan-El Bridge Central School District, G.O. Bond,
5.875%, 6/15/2008 500,000 535,365
Kingston City School District, Series B, 6.80%,
12/15/1997 100,000 103,029
Le Roy Central School District, G.O. Bond, 0.10%,
6/15/2008 350,000 195,856
Middletown City School District, G.O. Bond, Series
A, 5.50%, 11/15/2005 175,000 184,662
Monroe County Public Improvement - Prerefunded,
G.O. Bond, 6.00%, 3/1/2002 95,000 101,755
Monroe County Public Improvement - Prerefunded,
G.O. Bond, 6.10%, 6/1/2015 20,000 22,184
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Principal Value
Amount (Note 2)
NEW YORK MUNICIPAL SECURITIES (continued)
<S> <C> <C>
Monroe County Public Improvement - Unrefunded
Balance, G.O. Bond, 6.00%, 3/1/2002 $ 405,000 $433,605
Monroe County Public Improvement - Unrefunded
Balance, G.O. Bond, 6.10%, 6/1/2015 180,000 188,924
Monroe County Public Improvement, G.O. Bond,
4.90%, 6/1/2005 250,000 252,395
Monroe County Water Authority, Revenue Bond,
Series B, 5.25%, 8/1/2011 500,000 492,970
Monroe County Water Improvement, G.O. Bond,
5.25%, 2/1/2017 320,000 310,330
Nassau County, G.O. Bond, Series A, 4.00%,
5/1/1999 100,000 99,819
Nassau County, G.O. Bond, Series S, 5.00%,
3/1/2005 300,000 305,415
New Castle, G.O. Bond, 4.75%, 6/1/2010 450,000 423,545
New Rochelle City School District, G.O. Bond,
Series A, 4.30%, 2/1/2003 500,000 492,100
New Rochelle, G.O. Bond, Series C, 6.20%,
3/15/2007 175,000 192,698
New York City Municipal Water Authority, Revenue
Bond, Series B, 5.00%, 6/15/2003 400,000 403,524
New York City Municipal Water Authority, Revenue
Bond, Series B, 5.375%, 6/15/2019 250,000 238,555
New York City Municipal Water, Finance Authority,
Revenue Bond, Series B, 5.50%, 6/15/2019 200,000 195,954
New York City, G.O. Bond, Series A, 8.75%,
11/1/2016 250,000 264,260
New York City, G.O. Bond, Series K, 5.50%,
4/1/2007 500,000 513,760
New York Government Assistance Corp., Revenue
Bond, Series A, 5.90%, 4/1/2013 500,000 517,525
New York Government Assistance Corp., Revenue
Bond, Series A, 6.00%, 4/1/2024 250,000 255,345
New York State Dorm Authority, Columbia University,
Revenue Bond, 4.40%, 7/1/1997 125,000 125,607
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Principal Value
Amount (Note 2)
NEW YORK MUNICIPAL SECURITIES (continued)
<S> <C> <C>
New York State Environmental Facilities Corp.
Pollution Control, Revenue Bond, Series A, 4.65%,
6/15/2007 $ 250,000 $241,948
New York State Environmental Facilities Corp.
Pollution Control, Revenue Bond, Series A,
5.20%, 6/15/2015 250,000 242,437
New York State Environmental Pollution Control,
Revenue Bond, Pooled LN-B, 6.65%, 9/15/2013 500,000 547,750
New York State Housing Finance Agency, State
University Construction, Revenue Bond, Series A,
8.00%, 5/1/2011 250,000 307,780
New York State Medical Care Facility, Financial
Agency, Revenue Bond, 7.75%, 2/15/2020 380,000 424,870
New York State Mortgage Agency, Homeowners
Mortgage, Revenue Bond, Series 31A, 5.375%,
10/1/2017 500,000 476,820
New York State Power Authority, Revenue Bond,
Series CC, 4.80%, 1/1/2005 250,000 250,000
New York State Power Authority, Revenue Bond,
Series CC, 5.00%, 1/1/2014 500,000 468,420
New York State Power Authority, Revenue Bond,
Series CC, 5.25%, 1/1/2018 250,000 236,035
New York State Thruway Authority, Highway &
Bridge, Revenue Bond, Series B, 5.75%, 4/1/2006 100,000 106,482
New York State Thruway Authority, Revenue Bond,
Series A, 5.50%, 1/1/2023 1,020,000 988,482
New York State Thruway Authority, Revenue Bond,
Series B, 4.90%, 1/1/2007 450,000 445,028
New York State Urban Development Correctional
Capital Facilities, Revenue Bond, Series A, 5.25%,
1/1/2014 500,000 490,635
New York State Urban Development, Corp.
Correctional Facility, Revenue Bond, Series G,
7.00%, 1/1/2017 50,000 54,761
New York State Urban Development, Revenue
Bond, 5.375%, 7/1/2022 400,000 388,388
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Principal Value
Amount (Note 2)
NEW YORK MUNICIPAL SECURITIES (continued)
<S> <C> <C>
New York, G.O. Bond, 8.00%, 3/15/2016 $ 500,000 $561,820
Niagara County, G.O. Bond, Series B, 5.20%,
1/15/2011 400,000 395,596
Niagara County, G.O. Bond, 5.90%, 7/15/2014 350,000 361,953
North Hempstead, G.O. Bond, Series B, 5.90%,
4/1/2004 300,000 323,214
North Hempstead, G.O. Bond, Series C, 4.90%,
8/1/2006 300,000 301,497
North Syracuse Central School District, G.O. Bond,
5.50%, 6/15/2011 295,000 299,555
Onondaga County, G.O. Bond, 5.85%, 2/15/2002 300,000 318,285
Penfield Central School District, G.O. Bond, 5.20%,
6/15/2010 560,000 561,562
Queensbury, G O. Bond, Series A, 5.50%, 4/15/2011 150,000 153,080
Queensbury, G.O. Bond, Series A, 5.50%, 4/15/2012 350,000 355,600
Rochester, G.O. Bond, Series A, 4.70%, 8/15/2006 250,000 247,055
Rochester, G.O. Bond, Series A, 5.00%, 8/15/2020 250,000 234,823
Rochester, G.O. Bond, Series A, 5.00%, 8/15/2022 95,000 88,879
Rome, G.O. Bond, 5.20%, 12/1/2010 390,000 387,617
Sands Point, G.O. Bond, 6.70%, 11/15/2014 700,000 765,548
Schenectady, G.O. Bond, 4.55%, 10/1/2002 200,000 200,842
South County Central School District Brookhaven,
G.O. Bond, 5.50%, 9/15/2007 380,000 394,877
Steuben County Public Improvement, G.O. Bond,
5.60%, 5/1/2006 500,000 521,035
Suffolk County Water Authority, Revenue Bond,
5.10%, 6/1/2009 250,000 249,830
Suffolk County Water Authority, Revenue Bond,
7.375%, 6/1/2012 500,000 539,010
Suffolk County, G.O. Bond, Series G, 5.40%,
4/1/2013 400,000 393,172
Sullivan County Public Improvement, G.O. Bond,
4.375%, 3/15/2001 300,000 298,332
Sullivan County Public Improvement, G.O. Bond,
5.125%, 3/15/2013 330,000 318,493
Three Village Central School District, G.O. Bond,
5.375%, 6/15/2007 230,000 238,087
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Principal Value
Amount (Note 2)
NEW YORK MUNICIPAL SECURITIES (continued)
<S> <C> <C>
Tioga County Public Improvement, G.O. Bond,
5.25%, 3/15/2005 $ 250,000 $ 257,073
Tompkins County, G.O. Bond, Series B, 5.625%,
9/15/2011 135,000 138,110
Tompkins County, G.O. Bond, Series B, 5.625%,
9/15/2013 300,000 304,821
Tompkins County, G.O. Bond, Series B, 5.625%,
9/15/2014 300,000 304,404
Triborough Bridge & Tunnel Authority, Revenue
Bond, Series A, 3.65%, 1/1/1998 250,000 250,235
Triborough Bridge & Tunnel Authority, Revenue
Bond, Series A, 5.00%, 1/1/2012 500,000 473,710
Triborough Bridge & Tunnel Authority, Revenue
Bond, Series A, 6.50%, 1/1/2004 200,000 216,464
Triborough Bridge & Tunnel Authority - General
Purpose, Revenue Bond, 5.00%, 1/1/2017 250,000 228,995
Tri-Valley Central School District, G.O. Bond,
5.60%, 6/15/2008 120,000 125,185
Westchester County, G.O. Bond, Series A, 4.75%,
12/15/2008 250,000 243,325
Westchester County, G.O. Bond, Series A, 4.75%,
12/15/2009 250,000 239,940
Westchester County, G.O. Bond, Series B, 4.30%,
12/15/2010 215,000 192,917
Westchester County, G.O. Bond, Series B, 4.30%,
12/15/2011 100,000 88,715
White Plains, G.O. Bond, 4.50%, 9/1/2005 180,000 177,577
White Plains, G.O. Bond, 4.50%, 9/1/2007 315,000 302,586
William Floyd Union Free School District, G.O.
Bond, 5.70%, 6/15/2008 405,000 425,517
Williamsville Central School District, G.O. Bond,
5.375%, 5/1/2004 800,000 836,648
TOTAL MUNICIPAL SECURITIES
(Identified Cost $35,270,025) 35,658,803
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C> <C>
SHORT-TERM INVESTMENTS - 3.1%
Dreyfus Basic New York Tax Free Money Market
Fund (Identified Cost $1,143,651) 1,143,651 $ 1,143,651
TOTAL INVESTMENTS - 98.6%
(Identified Cost $36,413,676) 36,802,454
OTHER ASSETS, LESS LIABILITIES - 1.4% 522,424
NET ASSETS - 100% $37,324,878
</TABLE>
Key -
G.O. Bond - General Obligation Bond
Rev. Bond - Revenue Bond
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
<S> <C>
At December 31, 1996, the net unrealized appreciation based on identified cost for
federal income tax purposes of $36,413,676 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost $ 659,953
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value (271,175)
UNREALIZED APPRECIATION - NET $ 388,778
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
DECEMBER 31, 1996
<S> <C>
ASSETS:
Investments, at value (Identified Cost $36,413,676)(Note 2) $36,802,454
Interest receivable 491,234
Receivable for fund shares sold 65,000
Prepaid expense 1,157
TOTAL ASSETS 37,359,845
LIABILITIES:
Accrued management fees (Note 3) 15,627
Accrued Directors' fees (Note 3) 1,661
Transfer agent fees payable (Note 3) 750
Audit fee payable 13,666
Custodian fees payable 251
Other payables and accrued expenses 3,012
TOTAL LIABILITIES 34,967
NET ASSETS FOR 3,741,281 SHARES
OUTSTANDING $37,324,878
NET ASSETS CONSIST OF:
Capital stock $ 37,413
Additional paid-in-capital 36,859,354
Undistributed net investment income 59,777
Accumulated net realized loss on investments (20,444)
Net unrealized appreciation on investments 388,778
TOTAL NET ASSETS $37,324,878
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($37,324,878 / 3,741,281 shares) $ 9.98
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
<S> <C>
INVESTMENT INCOME:
Interest $1,612,600
EXPENSES:
Management fees (Note 3) 160,913
Directors' fees (Note 3) 6,750
Transfer agent fees (Note 3) 7,724
Audit fee 12,640
Custodian fee 6,536
Miscellaneous 468
Total Expenses 195,031
NET INVESTMENT INCOME 1,417,569
REALIZED AND UNREALIZED LOSS
ON INVESTMENTS:
Net realized loss on investments (identified cost basis) (335)
Net change in unrealized appreciation on investments (217,088)
NET REALIZED AND UNREALIZED LOSS
ON INVESTMENTS (217,423)
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $1,200,146
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year For the Year
Ended 12/31/96 Ended 12/31/95
INCREASE (DECREASE) IN NET ASSETS:
<S> <C> <C>
OPERATIONS:
Net investment income $ 1,417,569 $ 1,003,236
Net realized loss on investments (335) (6)
Net change in unrealized appreciation (depreciation)
on investments (217,088) 2,511,379
Net increase in net assets from operations 1,200,146 3,514,609
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2):
From net investment income (1,370,523) (991,282)
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase from capital share transactions (Note 5) 8,678,432 8,992,775
Net increase in net assets 8,508,055 11,516,102
NET ASSETS:
Beginning of period 28,816,823 17,300,721
End of period (including undistributed net investment
income of $59,777 and $12,779, respectively) $ 37,324,878 $ 28,816,823
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
For the Period
1/17/94
(commencement
For the Year For the Year of operations)
Ended 12/31/96 Ended 12/31/95 to 12/31/94
<S> <C> <C> <C>
Per share data (for a share outstanding throughout
each period):
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.07 $ 8.98 $ 10.00
Income from investment operations:
Net investment income 0.422 0.404 0.338
Net realized and unrealized gain (loss)
on investments (0.102) 1.086 (1.020)
Total from investment operations 0.320 1.490 (0.682)
Less distributions to shareholders:
From net investment income (0.410) (0.400) (0.338)
NET ASSET VALUE - END OF PERIOD $ 9.98 $ 10.07 $ 8.98
Total return: (1) 3.32% 16.78% (6.82)%
Ratios of expenses (to average net assets) /
Supplemental Data:
Expenses 0.61% 0.65% 0.79% (2)
Net investment income 4.41% 4.36% 3.82%(2)
Portfolio turnover 6% 0% 6%
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 37,325 $ 28,817 $ 17,301
1 Total return represents aggregate total return for the
period indicated.
2 Annualized.
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
Notes to Financial Statements
1. ORGANIZATION
New York Tax Exempt Series (the "Fund") is a no-load diversified series
of Manning & Napier Fund, Inc. (the "Corporation"). The Corporation is
organized in Maryland and is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company.
Shares of the Fund are offered to investors, employees and clients of
Manning & Napier Advisors, Inc. (the "Advisor") and its affiliates. The
total authorized capital stock of the Corporation consists of one billion
shares of common stock each having a par value of $0.01. As of December 31,
1996, 940 million shares have been designated in total among 19 series, of
which 50 million have been designated as New York Tax Exempt Series Class P
Common Stock.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Municipal securities will normally be valued on the basis of market
valuations provided by an independent pricing service (the Service). The
Service utilizes the latest price quotations and a matrix system (which
considers such factors as security prices of similar securities, yields,
maturities, and ratings). The Service has been approved by the Funds Board
of Directors.
Securities for which representative prices are not available from the
Fund's pricing service are valued at fair value as determined in good faith
by the Advisor under procedures established by and under the general
supervision of the Fund's Board of Directors.
Short-term investments that mature in sixty (60) days or less are valued
at amortized cost, which approximates market value.
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.
17
<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.
At December 31, 1996, the Fund, for federal income tax purposes, had a capital
loss carryforward of $20,444. Of this amount, $2,550 will expire on
December 31, 2002, $17,559 will expire on December 31, 2003, and $355 will
expire on December 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
quarterly. Distributions are recorded on the ex-dividend date. Distributions
of net realized gains are distributed annually. An additional distribution
may be necessary to avoid taxation of the Fund.
The timing and characterization of certain income and capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. The differences may be a
result of deferral of certain losses or character reclassification between
net income and net gains. As a result, net investment income (loss) and net
investment gain (loss) on investment transactions for a reporting period may
differ significantly from distributions to shareholders during such period.
As a result, the Fund may periodically make reclassification among its
capital accounts without impacting the Fund's net asset value.
The Fund hereby designates 100% of its ordinary distributions as
tax-exempt dividends for the year ended December 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 reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of the revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
18
<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 $160,913 for the year ended
December 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 0.85% of average daily net assets each year.
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 $7,724 for the year ended December 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 $6,750 for the
year ended December 31, 1996.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term securities, were
$11,045,005 and $1,991,542, respectively, for the year ended December 31,
1996.
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS
5. CAPITAL STOCK TRANSACTIONS
Transactions in shares of New York Tax Exempt Series were:
<TABLE>
<CAPTION>
For the Year For the Year
Ended 12/31/96 Ended 12/31/95
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Sold 1,002,977 $ 9,923,094 905,817 $8,705,001
Reinvested 137,887 1,351,346 99,114 973,495
Repurchased (260,462) (2,596,008) (70,547) (685,721)
Total 880,402 $ 8,678,432 934,384 $8,992,775
</TABLE>
6. FINANCIAL INSTRUMENTS
The Fund may trade in financial instruments with off-balance sheet risk
in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include
written options and futures contracts and may involve, to a varying degree,
elements of risk in excess of the amounts recognized for financial statement
purposes. No such investments were held by the Fund on December 31, 1996.
7. CONCENTRATION OF CREDIT
The Fund primarily invests in debt obligations issued by the State of New York
and its political subdivisions, agencies, and public authorities to obtain
funds for various public purposes. The Fund is more susceptible to
factors adversely affecting issues of New York municipal securities than
is a municipal bond fund that is not concentrated in these issues to the
same extent.
20
<PAGE>
Independent Auditors' Report
TO THE SHAREHOLDERS AND DIRECTORS OF
MANNING & NAPIER FUND, INC.- NEW YORK TAX EXEMPT SERIES:
We have audited the accompanying statement of assets and liabilities of
Manning & Napier Fund, Inc.- New York Tax Exempt Series, including the
schedule of portfolio investments, as of December 31, 1996, and the related
statement of operations for the year then ended, the statement of changes in
net assets for each of the two years in the period then ended and the
financial highlights for each of the periods indicated in the financial
highlights table herein. These financial statements and financial highlights
are the responsibility of the Funds management. Our responsibility is to
express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 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, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the Manning & Napier Fund, Inc.- New York Tax Exempt Series as of
December 31, 1996, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended
and the financial highlights for each of the periods indicated in the
financial highlights table herein in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
BOSTON, MASSACHUSETTS
JANUARY 23, 1997
21
<PAGE>
<PAGE>
Manning $ Napier Fund, Inc.
Small Cap Series
Annual Report
December 31, 1996
<PAGE>
Management Discussion and Analysis
Dear Shareholders:
The returns of the Small Cap Series in 1996 demonstrated how volatile
this sector can be, but the Series ended a tough year with a solid return in
the fourth quarter. As we discussed in the Semi-Annual Report dated June 30,
1996, the first half of the year was good both for small company stocks in
general and for the Small Cap Series in particular. The stock market decline
in early July hit this sector and the Series particularly hard, but
performance improved significantly toward the end of the year. We believe
that the small cap sector of the market continues to offer excellent
potential. There are two main reasons for this belief: first, small cap
stocks have provided higher returns than larger stocks historically; second,
valuations of small cap stocks currently are low relative to those of larger
stocks.
In the 1995 Annual Report, we discussed our purchases of selected retail
stocks late in the year. Our analysis showed that this sector as a whole was
undervalued, and this presented an opportunity to purchase selected
securities in this sector at attractive prices. After significant volatility
early in the year, several of these holdings made strong contributions to the
Series return late in the year. We have begun to sell some of these holdings
recently as they have reached prices at which our analysis shows that the
growth we expected has been achieved. At the end of the year, the retail
sector accounted for 24% of the Series holdings.
In the second half of 1996, several consumer software companies were
added to the Series portfolio, and this sector now represents approximately
7% of the portfolio. This sector was extremely strong in 1995, with
valuations at extreme levels. This led to a significant oversupply in 1996,
driving many stocks down significantly. Indeed, several of the stocks we
added were down over 50% from their highs at the time of purchase. We have
invested in the companies which we believe will benefit from the
consolidation we expect to see in this industry.
1
<PAGE>
Management Discussion and Analysis (continued)
In addition to always searching for promising additions to the Series, we
continually reevaluate the holdings in the portfolio to assess their fit with
our investment strategies. Stocks which no longer meet those strategies are
sold. Conversely, stocks which have underperformed will not be sold if they
continue to meet our criteria. One of the strengths of our investment
strategy is that it provides the patience which is often necessary to stick
with good investments during temporary down periods. This strategy has been
quite successful for our investors over time.
We wish you a healthy, happy, and prosperous 1997.
Sincerely,
Manning & Napier Advisors, Inc.
Portfolio Composition* - As of 12/31/96
*As a percent of net assets.
<graphic>
<pie chart>
Data for chart to follow:
Retail - 24.0%
Software - 12.4%
Miscellaneous** - 11.4%
Fabricated Metal Products - 8.7%
Primary Metal Industries - 6.9%
Printing & Publishing - 4.8%
Health Services - 4.5%
Restaurants - 4.2%
Glass Products - 3.3%
Cash, short-term investments, and liabilities less other assets - 19.8%
**Miscellaneous includes:
Computer Equipment
Electronics & Electrical Equipment
Food & Beverages
Holding Companies
Optical Supplies
Plastic Products
Surgical & Medical Instruments
2
<PAGE>
Performance Update as of December 31, 1996
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc. Small Cap Series
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
12/31/96 Investment Cumulative Annual
One Year $ 11,006 10.06% 10.06%
Inception 2 $ 18,156 81.56% 13.60%
</TABLE>
<TABLE>
<CAPTION>
S&P 500 Total Return Index
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
12/31/96 Investment Cumulative Annual
One Year $ 12,290 22.90% 22.90%
Inception 2 $ 20,206 102.06% 16.24%
</TABLE>
The value of a $10,000 investment in the
Manning & Napier Fund, Inc. - Small Cap
Series from its current activation (4/30/92)
to present (12/31/96) as compared to the
Standard & Poor's (S&P) 500 Total Return
Index. 1
<graphic>
<line chart>
Data for chart to follow:
<TABLE>
<CAPTION>
Date Manning & Napier Small Cap Series S&P 500 Total Return Index
<S> <C> <C>
04/30/92 10,000 10,000
12/31/92 11,610 10,725
12/31/93 13,317 11,799
12/31/94 14,383 11,959
12/31/95 16,497 16,437
06/30/96 18,248 18,093
12/31/96 18,156 20,206
</TABLE>
1 The Standard and Poor's (S&P) 500 Total Return Index is an unmanaged
capitalization-weighted measure of 500 widely held common stocks listed on the
New York Stock Exchange, American Stock Exchange, and Over-The-Counter
Market. S&P 500 Total Return Index returns assume reinvestment of dividends
and, unlike Fund returns, do not reflect any fees or expenses.
2 The Fund and Index performance numbers are calculated from April 30, 1992,
the Fund's current activation date. The Fund's performance is historical and
may not be indicative of future results.
3
<PAGE>
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C> <C>
COMMON STOCK - 80.2%
COMPUTER EQUIPMENT - 1.3%
Varitronix International Ltd. (Note 7) 725,000 $1,312,294
FABRICATED METAL PRODUCTS - 8.7%
Keystone International, Inc. 214,100 4,308,762
Material Sciences Corp.* 250,000 4,500,000
8,808,762
FOOD & BEVERAGES - 2.1%
Canandaigua Wine Company, Inc. - Class A* 75,000 2,137,500
GLASS PRODUCTS - 3.3%
Libbey, Inc. 120,000 3,345,000
HEALTH SERVICES - 4.5%
RehabCare Group, Inc.* 195,000 3,924,375
U. S. Physical Therapy, Inc.* 65,000 633,750
4,558,125
HOLDING COMPANIES - 0.9%
EK Chor China Motorcycle Co. Ltd. - ADR
(Note 7) 129,500 955,063
OPTICAL SUPPLIES - 2.1%
Sola International, Inc.* 55,000 2,090,000
PLASTIC PRODUCTS - 0.9%
Sun Coast Industries, Inc.* 350,000 962,500
PRIMARY METAL INDUSTRIES - 6.9%
American Superconductor Corp.* 115,000 1,221,875
Gibraltar Steel Corp.* 220,000 5,775,000
6,996,875
PRINTING & PUBLISHING - 4.8%
Playboy Enterprises, Inc. - Class A* 93,000 941,625
Playboy Enterprises, Inc. - Class B* 107,000 1,043,250
Harte-Hanks Communications 46,100 1,279,275
Houghton Mifflin Co. 27,300 1,545,862
4,810,012
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C> <C>
RESTAURANTS - 4.2%
Mortons Restaurant Group, Inc.* 249,000 $ 4,201,875
RETAIL - 24.0%
RETAIL - HOME FURNISHING STORES - 5.7%
Pier 1 Imports, Inc. 324,500 5,719,312
RETAIL - NONDURABLE GOODS - 0.1%
Mikasa, Inc.* 5,000 51,250
RETAIL - SPECIALTY STORES - 8.8%
Fabri-Centers of America - Class A* 414,400 6,682,200
Hancock Fabrics, Inc. 213,500 2,215,063
8,897,263
RETAIL - VARIETY STORES - 5.1%
Family Dollar Stores, Inc. 250,000 5,093,750
RETAIL - WHOLESALE - 4.3%
Coleman Company, Inc.* 314,800 4,328,500
24,090,075
SOFTWARE - 12.4%
Activision Inc.* 74,000 952,750
Broderbund Software, Inc.* 49,000 1,457,750
Electronic Arts, Inc.* 79,000 2,365,062
Founder Hong Kong Ltd.* (Note 7) 2,700,000 1,038,522
Maxis, Inc.* 67,700 829,325
Spectrum Holobyte, Inc.* 196,000 1,470,000
Symantec Corp.* 300,000 4,350,000
12,463,409
SURGICAL & MEDICAL INSTRUMENTS - 2.0%
Allied Healthcare Products, Inc. 271,000 1,998,625
TELECOMMUNICATION EQUIPMENT - 2.1%
BroadBand Technologies, Inc.* 140,000 2,065,000
TOTAL COMMON STOCK
(Identified Cost $73,662,098) 80,795,115
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Principal Amount/ Value
Shares (Note 2)
<S> <C> <C>
SHORT-TERM INVESTMENTS - 20.1%
Federal Home Loan Mortgage Corporation,
Discount Note, 1/8/1997 $ 1,100,000 $ 1,098,881
Federal Home Loan Mortgage Corporation,
Discount Note, 1/24/1997 2,000,000 1,993,062
Federal National Mortgage Association,
Discount Note, 1/17/1997 15,000,000 14,964,267
Dreyfus U.S. Treasury Money Market Reserves 2,184,447 2,184,447
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $20,240,657) 20,240,657
TOTAL INVESTMENTS - 100.3%
(Identified Cost $93,902,755) 101,035,772
LIABILITIES, LESS OTHER ASSETS - (0.3%) (347,345)
NET ASSETS - 100% $100,688,427
</TABLE>
* Non-income producing security
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
<S> <C>
At December 31, 1996, the net unrealized appreciation based on identified cost for
federal income tax purposes of $93,902,755 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost $17,060,909
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value (9,927,892)
UNREALIZED APPRECIATION - NET $ 7,133,017
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
DECEMBER 31, 1996
<S> <C>
ASSETS:
Investments, at value (Identified Cost $93,902,755)(Note 2) $101,035,772
Foreign currency, at value (cost $63,604) 63,623
Cash 43,277
Dividends receivable 75,755
Receivable for fund shares sold 36,360
Prepaid expense 5,753
TOTAL ASSETS 101,260,540
LIABILITIES:
Accrued management fees (Note 3) 82,605
Accrued Directors' fees (Note 3) 1,661
Payable for fund shares redeemed 447,648
Audit fee payable 22,566
Custodian fees payable 4,476
Other payables and accrued expenses 13,157
TOTAL LIABILITIES 572,113
NET ASSETS FOR 8,326,380 SHARES
OUTSTANDING $100,688,427
NET ASSETS CONSIST OF:
Capital stock $ 83,263
Additional paid-in-capital 94,204,564
Undistributed net investment income 82,416
Accumulated distributions in excess of capital gains (814,852)
Net unrealized appreciation on investments and other assets 7,133,036
TOTAL NET ASSETS $100,688,427
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($100,688,427/8,326,380 shares) $ 12.09
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
<S> <C>
INVESTMENT INCOME:
Interest $ 860,752
Dividends 790,001
Total Investment Income 1,650,753
EXPENSES:
Management fees (Note 3) 1,204,107
Directors' fees (Note 3) 6,750
Custodian fee 27,960
Audit fee 22,566
Registration & filing fees 11,519
Miscellaneous 23,956
Total Expenses 1,296,858
NET INVESTMENT INCOME 353,895
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments and other assets (identified
cost basis) 5,120,431
Net change in unrealized appreciation on investments and
other assets 9,285,634
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS 14,406,065
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $14,759,960
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year For the Year
Ended 12/31/96 Ended 12/31/95
INCREASE (DECREASE) IN NET ASSETS:
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ 353,895 $ (40,525)
Net realized gain on investments 5,120,431 31,290,477
Net change in unrealized appreciation on investments 9,285,634 15,430,101
Net increase in net assets from operations 14,759,960 15,819,851
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2):
From net investment income (271,530) --
From net realized gain on investments (7,753,635) (28,009,998)
In excess of realized gain on investments (814,852) --
Total distributions to shareholders (8,840,017) (28,009,998)
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase (decrease) from capital share
transactions (Note 5) (48,234,558) 49,670,946
Net increase (decrease) in net assets (42,314,615) 37,480,799
NET ASSETS:
Beginning of period 143,003,042 105,522,243
End of period (including undistributed net investment
income of $82,416 and $0, respectively) $ 100,688,427 $ 143,003,042
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
For the Years Ended For the Period
4/30/92(1) to
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
Per share data (for a share outstanding
throughout each period ):*
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 11.95 $ 12.92 $ 12.52 $ 11.24 $ 10.00(3)
Income from investment operations:
Net investment income (loss) 0.045 (0.004) (0.066) (0.040) (0.020)
Net realized and unrealized gain (loss)
on investments 1.112 1.934 1.051 1.700 1.630
Total from investment operations 1.157 1.930 0.985 1.660 1.610
Less distributions to shareholders:
From net investment income (0.035) - - - -
From net realized gain on investments (0.889) (2.900) (0.585) (0.380) (0.290)
In excess of net realized gains (0.093) - - - (0.080)(4)
Redemption of initial capitalization* - - - - -
Total distributions to shareholders (1.017) (2.900) (0.585) (0.380) (0.370)
NET ASSET VALUE - END OF PERIOD $ 12.09 $ 11.95 $ 12.92 $ 12.52 $ 11.24
Total Return: (5) 10.06% 14.70% 8.01% 14.64% 16.20%
Ratios of expenses (to average net assets) /
Supplemental Data:
Expenses (7) 1.08% 1.07% 1.10% 1.13% 1.27%(8)
Net investment income (loss) 0.29% (0.03)% (0.58)% (0.43)% (0.26)%(8)
Portfolio turnover 31% 77% 31% 12% 24%
Average commission rate paid $ 0.0291 $ 0.0500 - - -
NET ASSETS - END OF PERIOD
(000'S OMITTED) $ 100,688 $ 143,003 $ 105,522 $ 70,734 $ 33,079
Footnotes on next page.
For the Period
1/1/89 to
7/24/89(2)
Per share data (for a share outstanding
throughout each period ):*
<S> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 8.96
Income from investment operations:
Net investment income (loss) (0.390)
Net realized and unrealized gain (loss)
on investments -
Total from investment operations (0.390)
Less distributions to shareholders:
From net investment income -
From net realized gain on investments -
In excess of net realized gains -
Redemption of initial capitalization* (8.570)
Total distributions to shareholders (8.570)
NET ASSET VALUE - END OF PERIOD -
Total Return: (5) - (6)
Ratios of expenses (to average net assets) /
Supplemental Data:
Expenses (7) 14.59%(8)(6)
Net investment income (loss) (8.02)%(8)(6)
Portfolio turnover 0%
Average commission rate paid -
NET ASSETS - END OF PERIOD
(000'S OMITTED) -
Footnotes on next page.
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
Financial Highlights - Footnotes
*Prior to July 8, 1993, the investment practice of the Fund resulted in
the active operation of the investment portfolio for discrete periods. On
April 30, 1992, the Fund resumed sales of shares to advisory clients and
employees of Manning & Napier Advisors, Inc. (the "Advisor") and its
affiliates. On July 8, 1993, the Fund began offering shares directly to
investors. Previously, the Fund was in active operation from November 11,
1986 to May 14, 1987 and from December 1, 1987 to April 13, 1988.
During periods when the only shareholders of the Fund were the Initial
Shareholders, assets of the Fund were invested in U.S. Treasury Securities.
On July 11 and 24, 1989 the shares held by the Initial Shareholders were
redeemed in full and the Fund remained dormant until April 30, 1992.
1Recommencement of operations.
2Date of complete redemption.
3Initial offering price upon recommencement of operations on April 30,
1992.
4Distributions differ from net investment income and net realized capital
gains because of book/tax timing differences, primarily the requirements of
the excise tax regulations enacted as part of the 1986 Tax Reform Act. The
regulations required the Fund to measure capital gains through October 31,
1992. The excise tax regulations also required the Fund to distribute those
gains before December 31, 1992 to avoid payment of excise tax.
5Represents aggregate total return for the period indicated.
6During the period January 1, 1989 to July 24, 1989, the only
shareholders and resulting assets were those of the Initial Shareholders, as
described in the note with the asterisk, who redeemed their shares on July 11
and 24, 1989; therefore, the ratios and total return presented may not be
representative of an actively operating fund.
7During the period 1/1/89 to 7/24/89, absent waivers of investment
advisory fees, the ratio of expenses to average daily net assets was
15.57%.
8Annualized.
11
<PAGE>
Notes to Financial Statements
1. ORGANIZATION
Small Cap Series (the "Fund") is a no-load diversified series of Manning
& Napier Fund, Inc. (the "Corporation"). The Corporation is organized in
Maryland and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company.
On April 30, 1992, the Fund resumed sales of shares to advisory clients
and employees of Manning & Napier Advisors, Inc. (the "Advisor") and its
affiliates. On July 8, 1993, the Fund began offering shares directly to
investors. Previously, the Fund was available from time to time to Manning &
Napier employees and advisory clients of Manning & Napier Advisors, Inc.
The total authorized capital stock of the Corporation consists of one
billion shares of common stock each having a par value of $0.01. As of
December 31, 1996, 940 million shares have been designated in total among 19
series, of which 50 million have been designated as Small Cap Series Class A
Common Stock.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Portfolio securities, including domestic equities, foreign equities,
options and corporate bonds, listed on an exchange are valued at the last
quoted sales price of the exchange on which the security is primarily traded.
Securities not traded on valuation date or securities not listed on an
exchange are valued at the latest quoted bid price.
Debt securities, including government bonds and mortgage backed
securities, will normally be valued on the basis of evaluated bid prices.
Securities for which representative prices are not available from the
Fund's pricing service are valued at fair value as determined in good faith
by the Advisor under procedures established by and under the general
supervision and responsibility of the Fund's Board of Directors.
Short-term investments that mature in sixty (60) days or less are valued
at amortized cost, which approximates market value.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SECURITY TRANSACTIONS, INVESTMENT INCOME AND EXPENSES
Security transactions are accounted for on the date the securities are
purchased or sold. Dividend income is recorded on the ex-dividend date.
Interest income and expenses are recorded on an accrual basis.
Most expenses of the Corporation can be attributed to a specific fund.
Expenses which cannot be directly attributed are apportioned among the funds
in the Corporation.
FEDERAL INCOME TAXES
The Fund's policy is to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies. The Fund is not
subject to federal income or excise tax to the extent the Fund distributes to
shareholders each year its taxable income, including any net realized gains
on investments in accordance with requirements of the Internal Revenue Code.
Accordingly, no provision for federal income 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 annually.
Distributions are recorded on the ex-dividend date. Distributions of net
realized gains are distributed annually. An additional distribution may be
necessary to avoid taxation of the Fund.
The timing and characterization of certain income and capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. The differences may be a
result of deferral of certain losses, foreign denominated investments or
character reclassification between net income and net gains. As a result,
net investment income (loss) and net investment gain (loss) on investment
transactions for a reporting period may differ significantly from
distributions to shareholders during such period. As a result, the Fund may
periodically make reclassification among its capital accounts without
impacting the Fund's net asset value.
The Fund hereby designates $1,553,659 as capital gain dividends for the
year ended December 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) purchase and sales
of securities and income and expenses are converted into U.S. dollars based
upon the currency exchange rates prevailing on the respective dates of such
transactions.
13
<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
investment that result from fluctuations in foreign currency exchange rates
is not separately stated.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may purchase or sell forward foreign currency contracts in order
to hedge a portfolio position or specific transaction. Risks may arise if
the counterparties to a contract are unable to meet the terms of the contract
or if the value of the foreign currency moves unfavorably.
At December 31, 1996, the Fund had no open foreign currency exchange
contracts.
OTHER
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of the 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% of the Fund's
average daily net assets. The fee amounted to $1,204,107 for the year ended
December 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 agreed that, in any fiscal year, if the expenses of the
Fund (including the advisory fee but excluding interest, taxes, brokerage
commissions, and extraordinary expenses) exceed the limits set by applicable
regulation of state securities commissions, the Advisor will reduce its fee
by the amount of such excess.
14
<PAGE>
Notes to Financial Statements
3. TRANSACTIONS WITH AFFILIATES (continued)
The Advisor also acts as the transfer, dividend paying and shareholder
servicing agent for the Fund. These services are provided at no additional
cost to the Fund.
Manning & Napier Investor Services, Inc., a registered broker-dealer
affiliate of the Advisor, acts as distributor for the Fund's shares. The
services of Manning & Napier Investor Services, Inc. are provided at no
additional cost to the Fund.
The compensation of the non-affiliated Directors totaled $6,750 for the
year ended December 31, 1996.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term securities, were
$32,399,687 and $103,139,845 respectively, for the year ended December 31,
1996.
5. CAPITAL STOCK TRANSACTIONS
Transactions in shares of Small Cap Series were:
<TABLE>
<CAPTION>
For the Year For the Year
Ended Ended
12/31/96 12/31/95
<S> <C> <C> <C> <C>
Shares Amount Shares Amount
Sold 1,521,782 $ 18,457,745 1,840,553 $26,713,110
Reinvested 745,911 8,765,039 2,289,934 27,662,435
Repurchased (5,907,361) (75,457,342) (331,604) (4,704,599)
Total (3,639,668) $(48,234,558) 3,798,883 $49,670,946
</TABLE>
6. FINANCIAL INSTRUMENTS
The Fund may trade in financial instruments with off-balance sheet risk
in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include
written options, forward foreign currency exchange contracts, and futures
contracts and may involve, to a varying degree, elements of risk in excess of
the amounts recognized for financial statement purposes. No such investments
were held by the Fund on December 31, 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.
There risks include revaluation of currencies and future adverse political
and economic developments. Moreover, securities of many foreign companies
and foreign governments and their markets may be less liquid and their prices
more volatile than those of securities of comparable U.S. companies and the
United States government.
15
<PAGE>
Independent Auditors' Report
TO THE SHAREHOLDERS AND DIRECTORS OF
MANNING & NAPIER FUND, INC.- SMALL CAP SERIES:
We have audited the accompanying statement of assets and liabilities of
Manning & Napier Fund, Inc.- Small Cap Series, including the schedule of
portfolio investments, as of December 31, 1996, and the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended and the financial
highlights for each of the periods indicated in the financial highlights
table herein. These financial statements and financial highlights are the
responsibility of the Funds management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 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, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the Manning & Napier Fund, Inc.- Small Cap Series as of December
31, 1996, the results of its operations for the year then ended, the changes
in its net assets for each of the two years in the period then ended and the
financial highlights for each of the periods indicated in the financial
highlights table herein in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
BOSTON, MASSACHUSETTS
JANUARY 23, 1997
16
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
Technology Series
Annual Report
December 31, 1996
<PAGE>
Management Discussion and Analysis
Dear Shareholders:
After posting extraordinary returns in 1995, we wrote in the Annual
Report that shareholders should expect performance to return to a more normal
level in 1996. While 1996's returns were indeed lower than 1995's, 1996
proved to be another exceptional year both for the market as a whole and for
the Technology Series.
At the end of 1995, we wrote that we were negative on the short_term
outlook for the semiconductor industry, and that we had moved away from this
sector within the portfolio. In the first half of 1996, semiconductor stocks
declined to a point which provided the opportunity to add some of the leaders
in this industry to the portfolio at attractive valuations. As the year
progressed, this industry began to see increased bookings and its stock
performance improved substantially. Semiconductor stocks were the best
performing in the technology sector in 1996, and they made a significant
contribution to the Series' return for the year. Near the end of the year,
we sold some semiconductor holdings to realize the gains; this sector
represented approximately 28% of the Series' holdings at the end of the year.
Late in the year, we purchased three stocks in the wireless
communications field, and this group made up approximately 14% of the
portfolio at year end. Prior to our purchase of these stocks, the group had
been depressed due to a slowdown in the U.S. market in 1995. Our analysis
showed that international markets have picked up to a point that overrides
the U.S. slowdown. In addition, we expect to see a re_acceleration in
wireless stocks in 1997 as new digital wireless phone service comes on line.
This will require the building of networks, which will benefit the companies
whose stock we hold, and we also expect it to stimulate demand in the
wireless area.
A third important component of the Technology Series is the consumer
software area, representing approximately 12% of the portfolio at the end of
the year. Due to a large oversupply, this sector has been going through a
shake_out. This caused prices of many of the stocks to be depressed,
providing the opportunity to purchase the stock of several strong companies
at bargain levels. We believe these companies will benefit from the industry
consolidation we expect to take place.
Looking ahead to 1997 and beyond, we believe we have structured the
Technology Series to benefit from the trends we expect to see in the
technology sector of the market. As we've discussed previously, our three
major themes are: increased consumer acceptance of technology, increased use
of technology in the business world, and expanded use of technology
internationally. This overview remains intact, and we continue to find
exciting opportunities in this sector of the market.
We wish you a healthy, happy, and prosperous 1997.
Sincerely,
Manning & Napier Advisors
1
<PAGE>
Performance Update as of December 31, 1996
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc. - Technology Series
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
12/31/96 Investment Cumulative Annual
One Year $ 12,090 20.90% 20.90%
Inception 2 $ 19,244 92.44% 32.20%
</TABLE>
<TABLE>
<CAPTION>
S&P 500 Total Return Index
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
12/31/96 Investment Cumulative Annual
One Year $ 12,290 22.90% 22.90%
Inception 2 $ 16,514 65.14% 23.85%
</TABLE>
The value of a $10,000 investment in the
Manning & Napier Fund, Inc. _Small Cap
Series from its current activation (4/30/92)
to present (12/31/96) as compared to the
Standard & Poor's (S&P) 500 Total Return
Index. 1
<graphic>
<line chart>
Data for chart to follow:
<TABLE>
<CAPTION>
Date Manning & Napier Technology Series S&P 500 Total Return Index
<S> <C> <C>
08/29/94 10,000 10,000
12/31/94 11,350 9,773
06/30/95 14,736 11,742
12/31/95 15,918 13,433
06/30/96 16,674 14,787
12/31/96 19,244 16,514
</TABLE>
1 The Standard and Poor's (S&P) 500 Total Return Index is an unmanaged
capitalization-weighted measure of 500 widely held common stocks listed on the
New York Stock Exchange, American Stock Exchange, and Over-the-Counter
Market. S&P 500 Total Return Index returns assume reinvestment of dividends
and, unlike Fund returns, do not reflect any fees or expenses.
2 The Fund and Index performance numbers are calculated from August 29,
1994, the Fund's current activation date. The Fund's performance is
historical and may not be indicative of future results.
2
<PAGE>
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C> <C>
COMMON STOCK - 87.8%
COMPUTER EQUIPMENT - 5.4%
Digital Equipment Corp.* 117,000 $ 4,255,875
Varitronix International Ltd. (Note 6) 1,000,000 1,810,060
6,065,935
INFORMATION RETRIEVAL SERVICES - 2.9%
America Online, Inc.* 98,800 3,285,100
PRIMARY METAL INDUSTRIES - 1.6%
American Superconductor Corp.* 173,000 1,838,125
RETAIL - SPECIALTY STORES - 4.2%
Tandy Corp. 107,000 4,708,000
SEMICONDUCTORS - 17.7%
Altera Corp.* 69,000 5,015,438
Intel Corp. 63,000 8,249,062
Texas Instruments, Inc. 104,000 6,630,000
19,894,500
SOFTWARE - 22.1%
Activision Inc.* 82,000 1,055,750
Broderbund Software, Inc.* 102,000 3,034,500
Electronic Arts, Inc.* 170,000 5,089,375
Founder Hong Kong Ltd.* (Note 6) 2,200,000 846,203
Maxis, Inc.* 77,300 946,925
Microsoft Corp.* 66,000 5,453,250
Oracle Corp.* 107,625 4,493,344
Parametric Technology Co.* 43,000 2,209,125
Spectrum Holobyte, Inc.* 231,000 1,732,500
24,860,972
TELECOMMUNICATION EQUIPMENT - 33.9%
ADC Telecommunications, Inc.* 110,000 3,423,750
BroadBand Technologies, Inc.* 250,300 3,691,925
Cisco Systems, Inc.* 33,000 2,099,625
DSC Communications Corp.* 225,000 4,021,875
ECI Telecommunications Ltd. 210,200 4,466,750
Glenayre Technologies, Inc.* 245,000 5,282,812
Motorola, Inc. 80,000 4,910,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Shares/ Value
Principal Amount (Note 2)
<S> <C> <C>
TELECOMMUNICATION EQUIPMENT (continued)
Northern Telecom Ltd. 76,800 $ 4,752,000
Nokia Corp., Ab-ADR (Note 6) 94,000 5,416,750
38,065,487
TOTAL COMMON STOCK
(Identified Cost $81,017,403) 98,718,119
SHORT-TERM INVESTMENTS - 12.5%
Federal Farm Credit Discount Note, 1/08/1997 $ 7,000,000 6,992,846
Farm Credit Discount Note, 1/24/1997 6,000,000 5,979,186
Galaxy Government Fund 1,069,222 1,069,222
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $14,041,254) 14,041,254
TOTAL INVESTMENTS - 100.3%
(Identified Cost $95,058,657) 112,759,373
LIABILITIES, LESS OTHER ASSETS - (0.3%) (327,316)
NET ASSETS - 100% $112,432,057
</TABLE>
*Non-income producing security.
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
<S> <C>
At December 31, 1996, the net unrealized appreciation based on identified cost for federal
income tax purposes of $95,058,657 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost $20,978,428
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value (3,277,712)
UNREALIZED APPRECIATION - NET $17,700,716
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
DECEMBER 31, 1996
<S> <C>
ASSETS:
Investments, at value (Identified Cost $95,058,657)(Note 2) $112,759,373
Foreign currency, at value (cost $78,086) 78,116
Cash 8,486
Dividends receivable 48,680
Receivable for fund shares sold 45,410
Prepaid expense 3,029
TOTAL ASSETS 112,943,094
LIABILITIES:
Accrued management fees (Note 3) 96,073
Accrued Directors' fees (Note 3) 1,661
Payable for fund shares redeemed 392,184
Audit fee payable 16,666
Other payables and accrued expenses 4,453
TOTAL LIABILITIES 511,037
NET ASSETS FOR 8,939,764 SHARES
OUTSTANDING $112,432,057
NET ASSETS CONSIST OF:
Capital stock $ 89,397
Additional paid-in-capital 87,293,192
Accumulated net realized gain on investments and other assets 7,348,722
Net unrealized appreciation on investments and other assets 17,700,746
TOTAL NET ASSETS $112,432,057
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($112,432,057/8,939,764 shares) $ 12.58
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
<S> <C>
INVESTMENT INCOME:
Interest $ 497,327
Dividends 320,980
Total Investment Income 818,307
EXPENSES:
Management fees (Note 3) 938,964
Directors' fees (Note 3) 6,750
Custodian fee 13,555
Audit fee 13,042
Miscellaneous 3,764
Total Expenses 976,075
NET INVESTMENT LOSS (157,768)
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investments and other assets (identified
cost basis) 7,770,819
Net change in unrealized appreciation on investments and
other assets 12,349,434
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 20,120,253
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $19,962,485
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year For the Year
Ended 12/31/96 Ended 12/31/95
INCREASE (DECREASE) IN NET ASSETS:
<S> <C> <C>
Net investment income (loss) $ (157,768) $ 71,018
Net realized gain on investments 7,770,819 19,400,886
Net change in unrealized appreciation (depreciation)
on investments 12,349,434 (268,944)
Net increase in net assets from operations 19,962,485 19,202,960
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2):
From net investment income (37,295) (33,723)
From net realized gain on investment (2,466,358) (17,390,172)
Total distributions to shareholders (2,503,653) (17,423,895)
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase (decrease) from capital share
transactions (Note 5) 41,826,182 (561,295)
Net increase in net assets 59,285,014 1,217,770
NET ASSETS:
Beginning of period 53,147,043 51,929,273
End of period (including undistributed net investment
income of $0 and $37,295, respectively) $ 112,432,057 $ 53,147,043
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
For the For the For the For the
Year Year Period Period For the For the
Ended Ended 8/29/94(1) 1/1/92 to Year Ended Year Ended
12/31/96 12/31/95 to 12/31/94 5/11/92(2) 12/31/91 12/31/90
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING
THROUGHOUT EACH PERIOD ):*
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.71 $ 11.35 $ 10.00(3) $ 10.25 $ 8.00 $ 9.41
Income from investment operations:
Net investment income (loss) (0.021) 0.018 (0.013) 0.010 (0.040) 0.020
Net realized and unrealized gain (loss)
on investments 2.191 4.515 1.363 1.530 2.930 (0.830)
Total from investment operations 2.170 4.533 1.350 1.540 2.890 (0.810)
Less distributions to shareholders:
From net investment income -- (0.010) -- -- -- (0.030)
From net realized gain on investments (0.300) (5.163) -- (1.940) (0.640) (0.570)
Redemption of capital -- -- -- (9.850) -- --
Total distributions to shareholders (0.300) (5.173) -- (11.790) (0.640) (0.600)
NET ASSET VALUE - END OF PERIOD $ 12.58 $ 10.71 $ 11.35 $ 0.00 $ 10.25 $ 8.00
Total return (4): 20.90% 40.25% 13.5% -(5) 36.1% (8.9)%
Ratios of expenses (to average net assets) /
Supplemental Data:
Expenses 1.04% 1.12% 1.32%(6) 1.35%(6)(5) 1.13% 1.14%
Net investment income (0.17%) 0.13% (0.40)%(6) 0.20%(6)(5) (0.33)% 0.20%(7)
Portfolio turnover 107% 107% 5% 0% 4% 25%
Average commission rate paid $ 0.0163 $ 0.0156 -- -- -- --
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 112,432 $ 53,147 $ 51,929 - $ 5,594 $ 5,835
</TABLE>
* The investment practice of the Fund results in the active operation
of the investment portfolio for discrete period. The Fund was in active
operation from November 4, 1988 to May 11, 1992. On May 11, 1992, the
Fund redeemed all shares held. The Fund recommenced investment operations
on August 29, 1994.
1 Recommencement of operations.
2 Date of complete redemption.
3 Initial offering price upon recommencement of operations on August 29, 1994.
4 Represents aggregate total return for the period indicated.
5 The Fund ceased investment operations on May 11, 1992; therefore, ratios and
total return would not be representative of an actively operating fund.
6 Annualized.
7 Investment income per share is comprised of recurring dividends and interest
income which amounted to $0.07 per share and special dividends from Bell
Industries and Tempest Technologies, Inc.
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
Notes to Financial statements
1. ORGANIZATION
Technology Series (the "Fund") is a no-load non-diversified series of
Manning & Napier Fund, Inc. (the "Corporation"). The Corporation is
organized in Maryland and is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company.
Shares of the Fund are offered to clients and employees of Manning &
Napier Advisors, Inc. (the Advisor) and its affiliates. The investment
practice of the Fund results in the active operation of the investment
portfolio for discrete periods. As of December 31, 1996, the Fund has been
in active operation from November 4, 1988 to May 11, 1992 and from August 29,
1994 to December 31, 1996.
The total authorized capital stock of the Corporation consists of one
billion shares of common stock each having a par value of $0.01. As of
December 31, 1996, 940 million shares have been designated in total among 19
series, of which 50 million have been designated as Technology Series Class D
Common Stock.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Portfolio securities, including domestic equities, foreign equities,
options and corporate bonds, listed on an exchange are valued at the last
quoted sales price of the exchange on which the security is primarily traded.
Securities not traded on valuation date or securities not listed on an
exchange are valued at the latest quoted bid price.
Debt securities, including government bonds and mortgage backed
securities, will normally be valued on the basis of evaluated bid prices.
Securities for which representative prices are not available from the
Fund's pricing service are valued at fair value as determined in good faith
by the Advisor under procedures established by and under the general
supervision of the Fund's Board of Directors.
Short-term investments that mature in sixty (60) days or less are valued
at amortized cost, which approximates market value.
SECURITY TRANSACTIONS, INVESTMENT INCOME AND EXPENSES
Security transactions are accounted for on the date the securities are
purchased or sold. Dividend income is recorded on the ex-dividend date.
Interest income and expenses are recorded on an accrual basis.
Most expenses of the Corporation can be attributed to a specific fund.
Expenses which cannot be directly attributed are apportioned among the funds
in the Corporation.
9
<PAGE>
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
FEDERAL INCOME TAXES
The Fund's policy is to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies. The Fund is not
subject to federal income or excise tax to the extent the Fund distributes to
shareholders each year its taxable income, including any net realized gains
on investments in accordance with requirements of the Internal Revenue Code.
Accordingly, no provision for federal income 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 annually.
Distributions are recorded on the ex-dividend date. Distributions of net
realized gains are distributed annually. An additional distribution may be
necessary to avoid taxation of the Fund.
The timing and characterization of certain income and capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. The differences may be a
result of deferral of certain losses, foreign denominated investments or
character reclassification between net income and net gains. As a result,
net investment income (loss) and net investment gain (loss) on investment
transactions for a reporting period may differ significantly from
distributions to shareholders during such period. As a result, the Fund may
periodically make reclassification among its capital accounts without
impacting the Fund's net asset value.
The Fund hereby designates $197,895 as capital gain dividends for the
year ended December 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) purchase and sales
of securities and income and expenses are converted into U.S. dollars based
upon the currency exchange rates prevailing on the respective dates of such
transactions.
Gains and losses attributable to foreign currency exchange rates are
recorded for financial statement purposes as net realized gains and losses on
investments. The portion of both realized and unrealized gains and losses on
investment that result from fluctuations in foreign currency exchange rates
is not separately stated.
10
<PAGE>
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may purchase or sell forward foreign currency contracts in order
to hedge a portfolio position or specific transaction. Risks may arise if
the counterparties to a contract are unable to meet the terms of the contract
or if the value of the foreign currency moves unfavorably.
At December 31, 1996, the Fund had no open foreign currency exchange
contracts.
OPTION CONTRACTS
The Fund may write (sell) or buy call or put options on securities and other
financial instruments. When the Fund writes a call, the Fund gives the
purchaser the right to buy the underlying security from the Fund at the
price specified in the option contract (the exercise price) at any time
during the option period. When the Fund writes a put option, the Fund
gives the purchaser the right to sell to the Fund the underlying security
at the exercise price at any time during the option period. The Fund will
only write options on a covered basis. This means that the Fund will own
the underlying security when the Fund writes a call or the Fund will put
aside cash, U.S. Government securities, or other liquid assets in the
amount not less than the exercise price at all times the put option is
outstanding.
When the Fund writes a call or put option, an amount equal to the premium
received is included in the Funds Statement of Assets and Liabilities as
an asset and an equivalent liability. The amount of the liability is
subsequently marked-to-market to reflect the current market value of the
option. The current market value of the option is the closing price or,
in the absence of a closing price, the bid price.
If a written option expires on its stipulated expiration date or if the Fund
enters into a closing transaction, a gain or loss is realized on the
contract. When a gain or loss is realized, the liability related to such
option contract is extinguished. If a written call option is exercised, a
gain or loss is realized from the sale of the underlying security and the
premium received from the option is added to proceeds from the sale of the
underlying security thereby increasing the gain or decreasing the loss from
the sale of the underlying security. If a written put option is exercised,
the cost of the underlying security purchased by the Fund will be decreased
by the premium originally received.
The Fund may also purchase options in an attempt to hedge against fluctuations
in the value of its portfolio and to protect against declines in the value
of the securities. The premium paid by the Fund for the purchase of a
call or put option is included in the Funds Statement of Assets and
Liabilities as an investment and subsequently marked-to-market to reflect
the current market value of the option. The current market value of the
option is the closing price or, in the absence of a closing price, the bid
price.
11
<PAGE>
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
OPTION CONTRACTS (continued)
If an option the Fund has purchased expires on the stipulated expiration date,
the Fund realizes a loss in the amount of the cost of the option. If the
Fund exercised a call option, the cost of the securities acquired by
exercising the call is increased by the premium paid to buy the call. If
the Fund exercises a put option, it realizes a gain or loss from the sale
of the underlying security and the proceeds from such a sale are decreased
by the premium originally paid.
The measurement of the risks associated with option contracts is meaningful
only when all related and offsetting transactions are considered. A
summary of obligations for option contracts for the year ended December
31, 1996 are as follows:
WRITTEN CALL OPTIONS
Shares Amount
Balance at December 31, 1995 0 $0
Options entered into during 1996 (330) (50,571)
Options expired during 1996 330 50,571
Options exercised during 1996 0 0
Balances at December 31, 1996 0 $0
OTHER
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of the 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% of the Fund's
average daily net assets. The fee amounted to $938,964 for the year ended
December 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.
12
<PAGE>
Notes to Financial Statements
3. TRANSACTIONS WITH AFFILIATES (continued)
And of all Directors who are "affiliated persons" of the Fund or of the
Advisor, and all personnel of the Fund or of the Advisor performing services
relating to research, statistical and investment activities are paid by the
Advisor.
The Advisor has agreed that, in any fiscal year, if the expenses of the
Fund (including the advisory fee but excluding interest, taxes, brokerage
commissions, and extraordinary expenses) exceed the limits set by applicable
regulation of state securities commissions, the Advisor will reduce its fee
by the amount of such excess.
The Advisor also acts as the transfer, dividend paying and shareholder
servicing agent for the Fund. These services are provided at no additional
cost to the Fund.
Manning & Napier Investor Services, Inc., a registered broker-dealer
affiliate of the Advisor, acts as distributor for the Fund's shares. The
services of Manning & Napier Investor Services, Inc. are provided at no
additional cost to the Fund.
The compensation of the non-affiliated Directors totaled $6,750 for the
year ended December 31, 1996
.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term securities, were
$124,914,905 and $88,429,657, respectively, for the year ended December 31,
1996.
5. CAPITAL STOCK TRANSACTIONS
Transactions in shares of Technology Series were:
<TABLE>
<CAPTION>
For the Year For the Year
Ended 12/31/96 Ended 12/31/95
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Sold 4,212,766 $44,608,367 1,415,392 $ 17,145,335
Reinvested 243,127 2,487,188 1,612,684 17,272,178
Repurchased (479,442) (5,269,373) (2,641,988) (34,978,808)
Total 3,976,451 $41,826,182 386,088 $ (561,295)
</TABLE>
13
<PAGE>
Notes to Financial Statements
6. FOREIGN SECURITIES
Investing in securities of foreign companies and foreign governments
involves special risks and considerations not typically associated with
investing in securities of U.S. companies and the United States government.
These risks include revaluation of currencies and future adverse political
and economic developments. Moreover, securities of many foreign companies
and foreign governments and their markets may be less liquid and their prices
more volatile than those of securities of comparable U.S. companies and the
United States government.
7. TECHNOLOGY SECURITIES
The Fund may focus its investments in certain related technology
industries; hence, the Fund may subject itself to a greater degree of risk
than a fund that is more diversified.
14
<PAGE>
Independent Auditors' Report
TO THE SHAREHOLDERS AND DIRECTORS OF
MANNING & NAPIER FUND, INC.- TECHNOLOGY SERIES:
We have audited the accompanying statement of assets and liabilities of
Manning & Napier Fund, Inc.- Technology Series, including the schedule of
portfolio investments, as of December 31, 1996, and the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended and the financial
highlights for each of the periods indicated in the financial highlights
table herein. These financial statements and financial highlights are the
responsibility of the Funds management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 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, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the Manning & Napier Fund, Inc.- Technology Series as of December
31, 1996, the results of its operations for the year then ended, the changes
in its net assets for each of the two years in the period then ended and the
financial highlights for each of the periods indicated in the financial
highlights table herein in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
BOSTON, MASSACHUSETTS
JANUARY 23, 1997
15
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
International Series
Annual Report
December 31, 1996
<PAGE>
Management Discussion and Analysis
Dear Shareholders:
The International Series finished the year well ahead of the Morgan
Stanley Capital International World Index. As of December 31, 1996, the
Series held investments in Germany (at 28%), France (28%), Italy (11%), Spain
(10%), Hong Kong (5%), Mexico (2%), and the United Kingdom (2%).
Our overview for these holdings remains firmly on track. In Europe, we
continue to see a commitment by the governments to strengthening their
economies. This has been evidenced by several actions, including a series of
discount rate cuts across continental Europe. In the United Kingdom, where
growth is stronger and inflationary risks are higher, the central bank raised
the discount rate as a preemptory move against inflation. We have also seen
many privatizations of state-run businesses in Europe, further evidence of an
increased commitment to free enterprise.
As the Europeans prepare for European Monetary Union (EMU), all the
countries have been avidly pursuing fiscal discipline. While this has had a
negative near-term effect on growth, it has allowed for sharply declining
interest rates; lower interest rates support the equity markets as they
ultimately help provide improved corporate earnings and make equities the more
attractive investment alternative. European countries have also been
implementing monetary policies which have led to lower inflation and therefore
lower bond yields. This is the case even in countries, like Italy and Spain,
which traditionally have high inflation. The combination of monetary easing
and fiscal tightening is a classic signal for a weakening currency, and we
have therefore hedged the currencies of some countries where appropriate.
As we have discussed in previous shareholder reports, our investments in
Hong Kong are in H-Shares, which are shares of Chinese companies traded in
Hong Kong. This market performed very well in 1996, and we expect continued
strong growth as China has been implementing easier monetary policies with the
goal of spurring growth.
We are also pleased with the growing strength of the Mexican economy.
Confidence has been returning to the Mexican market as is evidenced by
increased foreign investment. In addition, inflation, while still high, has
been significantly reduced, and this should allow interest rates to decline.
As we expected, the companies in which we have invested have benefited
substantially from the improved situation in Mexico.
1
<PAGE>
Management Discussion and Analysis
The countries represented in the Series portfolio have been the same for
approximately a year; however, our team of international analysts also
considers other countries for the Series. Countries for which our overview
and stock valuations converge in a compelling story will be added to the
portfolio. For example, we have been watching Japan, where strong monetary
easing is in place and the weakening of the yen is driving international
competitiveness higher. Should valuations there become more attractive, Japan
could be a near-term addition to the portfolio, though again, hedging the
currency would be a major issue.
We wish you a healthy, happy, and prosperous 1997.
Sincerely,
Manning & Napier Advisors, Inc.
<graphic>
<pie chart>
Data for chart to follow:
Portfolio Allocation by Country*
France 32%
Germany 32%
Hong Kong 6%
Italy 13%
Mexico 3%
Spain 2%
United Kingdom 2%
*As a percentage of common stocks.
2
<PAGE>
Performance Update as of December 31, 1996
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc.
International Series
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
12/31/96 Investment Cumulative Annual
One Year $ 12,235 22.35% 22.35%
Inception 2 $ 14,557 45.57% 9.01%
</TABLE>
<TABLE>
<CAPTION>
S&P 500 Total Return Index
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
12/31/96 Investment Cumulative Annual
One Year $ 12,290 22.90% 22.90%
Inception 2 $ 20,052 100.52% 17.34%
</TABLE>
<TABLE>
<CAPTION>
Morgan Stanley
Capital International World Index
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
12/31/96 Investment Cumulative Annual
One Year $ 11,348 13.48% 13.48%
Inception 2 $ 17,421 74.21% 13.61%
</TABLE>
The value of a $10,000 investment in the
Manning & Napier Fund, Inc. - International
Series from its inception (8/27/92) to
present (12/31/96) as compared to the
Standard & Poor's (S&P) 500 Total Return
Index and the Morgan Stanley Capital
International World Index. 1
<graphic>
<line chart>
Data for chart to follow:
<TABLE>
<CAPTION>
Date Manning & Napier S&P 500 Total Morgan Stanley Capital
International Series Return Index International World Index
<S> <C> <C> <C>
08/27/92 10,000 10,000 10,000
12/31/92 10,598 10,643 9,880
12/31/93 13,359 11,709 12,103
12/31/94 11,425 11,868 12,717
12/31/95 11,898 16,312 15,351
06/30/96 13,229 17,955 16,439
12/31/96 14,557 20,052 17,421
</TABLE>
1 The Standard & Poor (S&P) 500 Total Return Index is an
unmanaged capitalization-weighted measure of 500 widely held
common stocks listed on the New York Stock Exchange, American
Stock Exchange, and Over-the-Counter market. The Morgan
Stanley Capital International World Index is a market
capitalization-weighted measure of the total return of 1,570
companies listed on the stock exchanges of the United States,
Europe, Canada, Australia, New Zealand and the Far East.
The Morgan Stanley Capital International Index is denominated
in U.S. Dollars. The Indices' returns assume reinvestment of
dividends and, unlike Fund returns, do not reflect any fees
or expenses.
2 Performance numbers for the Fund and Indices are calculated
from August 27, 1992, the Fund's inception date. The Fund's
performance is historical and may not be indicative of future
results.
3
<PAGE>
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C> <C>
COMMON STOCK - 85.56%
FRANCE - 27.73%
AEROSPACE & MILITARY TECHNOLOGY - 0.31%
Thomson CSF 14,389 $ 466,607
AUTOMOBILES - 0.57%
PSA Peugeot Citroen 7,545 849,002
BANKING - 2.11%
Cie Financiere De Paribas 13,919 941,083
Compagnie de Suez SA 19,575 832,039
Societe Generale 12,813 1,385,002
3,158,124
BEVERAGE & TOBACCO - 2.20%
LVMH (Louis Vuitton Moet-Hennessy) 11,764 3,284,430
BUILDING MATERIALS & COMPONENTS - 0.54%
Lafarge, SA 13,327 799,371
BUSINESS & PUBLIC SERVICES - 1.41%
Compagnie Generale des Eaux 16,992 2,105,194
CHEMICALS - 1.50%
L'Air Liquide 14,380 2,244,298
CONSTRUCTION & HOUSING - 0.25%
Bouygues 3,604 373,597
ELECTRICAL & ELECTRONICS - 1.15%
Alcatel Alsthom 21,353 1,714,839
ENERGY SOURCES - 3.65%
Elf Acquitaine, SA 37,335 3,397,588
Total SA - B 25,288 2,056,191
5,453,779
FINANCIAL SERVICES - 0.52%
Compagnie Bancaire SA 3,827 452,755
Societe Eurafrance SA 743 320,968
773,723
FOOD & HOUSEHOLD PRODUCTS - 0.98%
Groupe Danone 10,381 1,446,153
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C> <C>
HEALTH & PERSONAL CARE - 3.30%
Sanofi SA 11,667 $ 1,159,967
L'Oreal 10,013 3,769,862
4,929,829
INDUSTRIAL COMPONENTS - 0.54%
Michelin-B 15,025 810,894
LEISURE & TOURISM - 0.41%
Accor SA 4,809 608,775
MACHINERY & ENGINEERING - 1.95%
Schneider SA 13,595 628,414
Sidel SA 33,200 2,283,720
2,912,134
MATERIALS & COMMODITIES - 1.48%
Compagnie de Saint-Gobain 15,599 2,206,122
MERCHANDISING - 2.96%
Carrefour Supermarche 6,048 3,934,149
Casino Guichard-Perrachon 10,600 493,446
4,427,595
MULTI-INDUSTRY - 1.90%
AXA SA 27,573 1,753,213
Chargeurs International SA* 1,235 61,156
Lyonnaise des Eaux-Dumez 7,820 727,613
Pathe SA* 1,235 297,450
2,839,432
TOTAL FRENCH SECURITIES
(Identified Cost $30,262,717) 41,403,898
GERMANY - 27.68%
AIRLINES - 0.21%
Deutsche Lufthansa AG 23,700 319,993
AUTOMOBILES - 5.36%
Daimler-Benz AG* 59,540 4,081,385
Volkswagen AG 9,484 3,928,421
8,009,806
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C> <C>
BANKING - 3.33%
Bayerische Vereinsbank AG 49,730 $ 2,016,273
Dresdner Bank AG 99,090 2,961,651
4,977,924
CHEMICALS - 2.28%
Bayer AG 83,750 3,398,314
CONSTRUCTION & HOUSING - 0.60%
Hochtief AG 22,770 895,086
ELECTRICAL & ELECTRONICS - 3.73%
Siemens AG 120,000 5,568,617
INSURANCE - 2.78%
Allianz AG Holding 2,307 4,152,156
MACHINERY & ENGINEERING - 2.12%
Mannesmann AG 5,725 2,463,264
M.A.N. AG 2,902 700,491
3,163,755
MATERIALS & COMMODITIES - 0.55%
Degussa AG 1,790 814,137
MULTI-INDUSTRY - 1.74%
Viag AG 6,656 2,605,653
UTILITIES - GAS & ELECTRIC - 4.98%
RWE AG 75,810 3,172,186
VEBA AG 74,150 4,263,838
7,436,024
TOTAL GERMAN SECURITIES
(Identified Cost $29,140,238) 41,341,465
HONG KONG - 4.83%
ENERGY SOURCES - OIL/GAS - 0.84%
Zhenhai Refining & Chemical Co Ltd. 3,402,000 1,253,557
RETAIL - APPAREL -0.94%
Giordano International Ltd. 1,650,000 1,407,968
SOFTWARE - 1.37%
Founder Hong Kong Ltd.* 5,300,000 2,038,580
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C> <C>
TELECOMMUNICATIONS -0.56%
Champion Technology Holdings 4,398,729 $ 836,006
TEXTILES & APPAREL -1.01%
Yizheng Chemical Fibre Co. Ltd. 6,224,000 1,512,838
WHOLESALE - SPECIAL LINES - 0.11%
Goldlion Holdings Ltd. 200,000 164,198
TOTAL HONG KONG SECURITIES
(Identified Cost $7,557,254) 7,213,147
ITALY -10.97%
AUTOMOBILES - 0.91%
Fiat S.p.A. 450,000 1,360,669
BUILDING MATERIAL & COMPONENTS - 0.31%
Italcementi S.p.A. 83,600 468,115
CONSTRUCTION & HOUSING -0.35%
Sirti S.p.A. 86,500 524,241
ENERGY SOURCES - OIL/GAS - 0.44%
Edison S.p.A. 104,000 657,706
FINANCIAL SERVICES - 1.16%
Banca Commerciale Italiana 242,000 439,999
Banco Ambrosiano Veneto S.p.A. 80,700 194,041
Credito Italiano S.p.A. 288,000 316,078
Istituto Bancario San Paolo di Torina S.p.A. 126,800 776,836
1,726,954
FOOD & HOUSEHOLD PRODUCTS - 0.29%
Parmalat Finanziaria S.p.A. 280,080 428,053
INSURANCE - 2.27%
Assicurazioni Generali S.p.A. 136,004 2,575,827
R.A.S. S.p.A. 47,575 443,468
S.A.I. S.p.A. 40,400 372,595
3,391,890
MULTI-INDUSTRY -0.77%
Montedison S.p.A.* 896,140 610,413
Pirelli S.p.A. 288,000 534,070
1,144,483
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C> <C>
RETAIL - SPECIATLY STORES - 0.18%
La Rinascente S.p.A. 45,000 $ 260,869
La Rinascente S.p.A. 11/30/1999 warrants 2,250 992
261,861
TELECOMMUNICATIONS - 3.64%
Telecom Italia S.p.A. 1,060,000 2,751,245
Telecomm Italia Mobile S.p.A. 1,060,000 2,677,925
5,429,170
TEXTILES & APPAREL - 0.24%
Benetton Group S.p.A. 28,800 364,078
UTILITIES - GAS & ELECTRIC - 0.41%
Italgas S.p.A. 150,000 625,987
TOTAL ITALIAN SECURITIES
(Identified Cost $16,430,885) 16,383,207
MEXICO - 2.26%
BEVERAGE & TOBACCO -0.77%
Coca-Cola Femsa S.A. 400,000 1,155,869
FOOD - PROCESSING - 0.90%
Grupo Industrial Maseca S.A. - Series B 1,075,000 1,348,830
REAL ESTATE - 0.06%
Grupo Situr S.A. - Series B* 1,575,000 83,839
RETAIL - DEPARTMENT STORES - 0.53%
Cifra, SA - Series B* 650,000 792,505
TOTAL MEXICAN SECURITIES
(Identified Cost $2,843,934) 3,381,043
SPAIN - 10.06%
BEVERAGE & TOBACCO - 0.12%
Tabacalera SA - A 4,266 183,722
CONSTRUCTION & HOUSING - 0.27%
Dragados & Construcciones SA 11,988 184,716
Fomento de Construcciones y Contratas SA 2,277 212,264
396,980
ENERGY SOURCES - OIL/GAS - 0.99%
Repsol SA 38,365 1,471,947
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C> <C>
FINANCIAL SERVICES - 2.62%
Banco Bilbao Vizcaya SA 28,290 $ 1,527,842
Banco Central Hispanoamericano SA 18,888 485,299
Banco Santander SA 18,728 1,199,002
Corp. Bancaria De Espana SA (Argentaria) 15,512 694,339
3,906,482
INSURANCE - 0.11%
Corporacion Mapfre 2,823 172,034
METAL - STEEL - 0.23%
Acerinox SA 2,343 338,636
MULTI-INDUSTRY - 0.28%
Autopistas Concesionaria Espanola SA 29,865 411,854
REAL ESTATE -0.03%
Inmobiliaria Metropolitana Vasco Central SA 1,128 41,496
TELECOMMUNICATIONS - 1.71%
Telefonica de Espana 110,009 2,555,307
UTILITIES - GAS & ELECTRIC - 3.70%
Empresa Nacional de Electridad (ENDESA) 29,210 2,079,367
Gas Natural SDG - E 4,993 1,161,706
Iberdrola SA 122,474 1,736,158
Union Electrica Fenosa SA 52,126 560,217
5,537,448
TOTAL SPANISH SECURITIES
(Identified Cost $9,477,871) 15,015,906
UNITED KINGDOM - 2.03%
MERCHANDISING - 2.03%
Tesco plc 500,000 3,036,293
TOTAL UNITED KINGDOM SECURITIES
(Identified Cost $2,210,889) 3,036,293
TOTAL COMMON STOCK
(Identified Cost $97,923,788) 127,774,959
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Principal Value
Amount/Shares (Note 2)
<S> <C> <C>
SHORT-TERM INVESTMENTS - 12.96%
Federal Home Loan Mortgage Corp.
Discount Note, 1/17/97 $ 13,000,000 $ 12,969,204
Dreyfus U.S. Treasury Money Market 6,319,428 6,319,428
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $19,360,632) 19,360,632
TOTAL INVESTMENTS - 98.52%
(Identified Cost $117,284,420) 147,135,591
OTHER ASSETS, LESS LIABILITIES - 1.48% 2,195,758
NET ASSETS -100% $149,331,349
</TABLE>
*Non-income producing security.
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
<S> <C>
At December 31, 1996, the net unrealized appreciation based on identified cost for
federal income tax purposes of $117,425,442 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost $35,918,689
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value (6,208,540)
UNREALIZED APPRECIATION - NET $29,710,149
</TABLE>
The accompanying notes are an integral part of financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
INDUSTRY CONCENTRATION - DECEMBER 31, 1996
Percent
of Net Assets
<S> <C>
Utilities - Gas & Electric 9.09%
Automobiles 6.84%
Energy Sources 5.92%
Telecommunication 5.91%
Banking 5.44%
Insurance 5.16%
Merchandising 4.99%
Electrical & Electronics 4.88%
Multi-Industry 4.69%
Financial Services 4.30%
Machinery & Engineering 4.07%
Chemicals 3.78%
Health & Personal Care 3.30%
Beverage & Tobacco 3.09%
Materials & Commodities 2.03%
Retail 1.65%
Construction & Housing 1.47%
Business & Public Services 1.41%
Software 1.37%
Food & Household Products 1.27%
Textiles & Apparel 1.25%
Food Processing 0.90%
Building Materials & Components 0.85%
Industrial Components 0.54%
Leisure & Tourism 0.41%
Aerospace & Military Technology 0.31%
Metals-Steel 0.23%
Airlines 0.21%
Wholesale - Special Lines 0.11%
Real Estate 0.09%
TOTAL COMMON STOCK 85.56%
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
DECEMBER 31, 1996
<S> <C>
ASSETS:
Investments, at value (Identified Cost $117,284,420)(Note 2) $147,135,591
Foreign currency, at value (cost $2,135,706) 2,117,749
Receivable for forward foreign currency exchange
contracts sold (Note 2) 81,565,507
Receivable for securities sold 1,466,191
Foreign tax reclaims receivable 399,663
Receivable for fund shares sold 61,730
Dividends receivable 28,685
Prepaid expense 5,523
TOTAL ASSETS 232,780,639
LIABILITIES:
Accrued management fees (Note 3) 123,423
Accrued Directors' fees (Note 3) 1,661
Payable for forward foreign currency contracts sold,
at value (Note 2) 82,569,683
Payable for fund shares redeemed 686,948
Audit fee payable 28,966
Custodian fee payable 27,071
Other payables and accrued expenses 11,538
TOTAL LIABILITIES 83,449,290
NET ASSETS FOR 12,939,100 SHARES
OUTSTANDING $149,331,349
NET ASSETS CONSIST OF:
Capital stock $ 129,391
Additional paid-in-capital 117,447,753
Undistributed net investment income 110,482
Accumulated net realized gain on investments 2,811,395
Net unrealized appreciation on investments, foreign currency,
forward currency contracts, and other assets and liabilities 28,832,328
TOTAL NET ASSETS $149,331,349
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($149,331,349/12,939,100 shares) $ 11.54
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
<S> <C>
INVESTMENT INCOME:
Dividends (net of withholding) $ 2,559,888
Interest 956,585
Total Investment Income 3,516,473
EXPENSES:
Management fees (Note 3) 1,363,591
Directors' fees (Note 3) 6,750
Custodian fee 91,450
Audit fee 28,966
Registration and filing fees 11,034
Miscellaneous 23,263
Total Expenses 1,525,054
NET INVESTMENT INCOME 1,991,419
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on -
Investments (identified cost basis) 753,139
Foreign currency and forward foreign currency
exchange contracts 6,231,777
Net realized gain on investments 6,984,916
Net change in unrealized appreciation (depreciation) on-
Investments 19,506,468
Foreign currency and forward currency contracts and other
assets and liabilities (646,903)
Net unrealized appreciation on investments 18,859,565
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS 25,844,481
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $27,835,900
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year For the Year
Ended 12/31/96 Ended 12/31/95
INCREASE (DECREASE) IN NET ASSETS:
<S> <C> <C>
OPERATIONS:
Net investment income $ 1,991,419 $ 1,544,241
Net realized gain (loss) on investments 6,984,916 (5,910,357)
Net change in unrealized appreciation on investments 18,859,565 8,433,964
Net increase in net assets from operations 27,835,900 4,067,848
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2):
From net investment income (1,821,116) (1,539,988)
From paid-in-capital -- (2,083,389)
From net realized gain on investment (241,966) (757,156)
Total distributions to shareholders (2,063,082) (4,380,533)
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase (decrease) from capital share
transactions (Note 5) (4,735,326) 42,642,060
Net increase in net assets 21,037,492 42,329,375
NET ASSETS:
Beginning of period 128,293,857 85,964,482
End of period (including undistributed net investment
income of $110,482 and $0, respectively) $ 149,331,349 $ 128,293,857
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
For the Years Ended
12/31/96 12/31/95 12/31/94 12/31/93
<S> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD):
NET ASSET VALUE - BEGINNING OF PERIOD $ 9.57 $ 9.54 $ 11.33 $ 9.19
Income from investment operations:
Net investment income 0.156 0.123 0.143 0.150
Net realized and unrealized gain (loss)
on investments 1.976 0.262 (1.784) 2.240
Total from investment operations 2.132 0.385 (1.641) 2.390
Less distributions to shareholders:
From net investment income (0.143) (0.118) -- (0.250)
From paid-in-capital -- (0.160) -- --
From net realized gain on investments (0.019) (0.077) (0.149) --
In excess of net realized gains -- -- -- --
Total distributions to shareholders (0.162) (0.355) (0.149) (0.250)
NET ASSET VALUE - END OF PERIOD $ 11.54 $ 9.57 $ 9.54 $ 11.33
Total return (2): 22.35% 4.14% (14.48)% 26.00%
Ratios of expenses (to average net assets) /Supplemental Data:
Expenses 1.12% 1.20% 1.18% 1.16%
Net investment income 1.46% 1.42% 1.38% 1.39%
Portfolio turnover 2% 14% 31% 20%
Average commission rate paid $ 0.0013 $ 0.0021 - -
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 149,331 $ 128,294 $ 85,964 $ 92,012
For the
Period 8/27/92
(commencement
of operations)
to 12/31/92
<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 0.030
Net realized and unrealized gain (loss)
on investments 0.570
Total from investment operations 0.600
Less distributions to shareholders:
From net investment income (0.030)
From paid-in-capital --
From net realized gain on investments (1.240)
In excess of net realized gains (0.140)(1)
Total distributions to shareholders (1.410)
NET ASSET VALUE - END OF PERIOD $ 9.19
Total return (2): 6.01%
Ratios of expenses (to average net assets) /Supplemental Data:
Expenses 1.33%(3)
Net investment income 0.85%(3)
Portfolio turnover 0%
Average commission rate paid -
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 72,163
</TABLE>
1 Distributions differ from net investment income and net realized capital
gains because of book/tax timing differences, due to the requirements of
the Internal Revenue Code.
2 Represents aggregate total return for the period indicated.
3 Annualized.
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
Notes to Financial Statements
1. ORGANIZATION
International Series (the "Fund") is a no-load non-diversified series of
Manning & Napier Fund, Inc. (the "Corporation"). The Corporation is
organized in Maryland and is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company.
Shares of the Fund are offered to clients and employees of Manning &
Napier Advisors, Inc. (The Advisor) and its affiliates. The total authorized
capital stock of the Corporation consists of one billion shares of common
stock each having a par value of $0.01. As of December 31, 1996, 940 million
shares have been designated in total among 19 series, of which 50 million
have been designated as International Series Class G Common Stock.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Portfolio securities, including domestic equities, foreign equities,
options and corporate bonds, listed on an exchange are valued at the last
quoted sales price of the exchange on which the security is primatily traded.
Securities not traded on valuation date or securities not listed on an
exchange are valued at the latest quoted bid price.
Debt securities, including government bonds and mortgage backed
securities, will normally be valued on the basis of evaluated bid prices.
Securities for which representative prices are not available from the
Fund's pricing service are valued at fair value as determined in good faith
by the Advisor under procedures established by and under the general
supervision of the Fund's Board of Directors.
Short-term investments that mature in sixty (60) days or less are valued
at amortized cost, which approximates market value.
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.
16
<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 annually.
Distributions are recorded on the ex-dividend date. Distributions of net
realized gains are distributed annually. An additional distribution may be
necessary to avoid taxation of the Fund.
The timing and characterization of certain income and capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. The differences may be a
result of deferral of certain losses, foreign denominated investments or
character reclassification between net income and net gains. As a result,
net investment income (loss) and net investment gain (loss) on investment
transactions for a reporting period may differ significantly from
distributions to shareholders during such period. As a result, the Fund may
periodically make reclassification among its capital accounts without
impacting the Fund's net asset value.
The Fund hereby designates $241,966 as capital gain dividends for the
year ended December 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) purchase and sales
of securities and income and expenses are converted into U.S. dollars based
upon the currency exchange rates prevailing on the respective dates of such
transactions.
Gains and losses attributable to foreign currency exchange rates are
recorded for financial statement purposes as net realized gains and losses on
investments. The portion of both realized and unrealized gains and losses on
investment that result from fluctuations in foreign currency exchange rates
is not separately stated.
17
<PAGE>
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may purchase or sell forward foreign currency contracts in order
to hedge a portfolio position or specific transaction. Risks may arise if
the counterparties to a contract are unable to meet the terms of the contract
or if the value of the foreign currency moves unfavorably.
All forward foreign currency contracts are adjusted daily by the exchange
rate of the underlying currency and, for financial statement purposes, any
gain or loss is recorded as unrealized gain or loss until a contract has been
closed. Realized and unrealized gain or loss arising from a transaction is
included in net realized and unrealized gain (loss) from foreign currency and
forward currency exchange contracts.
The Fund regularly trades forward foreign currency exchange contracts
with off-balance sheet risk in the normal course of its investing activities
to assist in managing exposure to changes in foreign currency exchange rates.
The notional or contractual amount of these instruments represents the
investment the Fund has in forward foreign currency exchange contracts and
does not necessarily represent the amounts potentially at risk. The
measurement of the risks associated with forward foreign currency exchange
contracts is meaningful only when all related and offsetting transactions are
considered. A summary of obligations for forward currency exchange contracts
sold on December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Net Unrealized
Settlement Contracts In Exchange Contracts Appreciation/
Date to Deliver For At Value (Depreciation)
<C> <S> <C> <C> <C>
01/27/97 Deutsche Marks $ 41,176,092 $ 41,657,216 $ (481,124)
01/27/97 French Francs $ 40,389,415 $ 40,912,467 $ (523,052)
</TABLE>
On December 31, 1996, the Fund had sufficient cash and/or securities to
cover any commitments under there contracts.
OTHER
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of the revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
18
<PAGE>
Notes to Financial Statements
3. TRANSACTIONS WITH AFFILIATES
The Fund has an investment advisory agreement with Manning & Napier
Advisors, Inc. (the "Advisor"), for which the Fund pays the Advisor a fee,
computed daily and payable monthly, at an annual rate of 1% of the Fund's
average daily net assets. The fee amounted to $1,363,591 for the year ended
December 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 agreed that, in any fiscal year, if the expenses of the
Fund (including the advisory fee but excluding interest, taxes, brokerage
commissions, and extraordinary expenses) exceed the limits set by applicable
regulation of state securities commissions, the Advisor will reduce its fee
by the amount of such excess.
The Advisor also acts as the transfer, dividend paying and shareholder
servicing agent for the Fund. These services are provided at no additional
cost to the Fund.
Manning & Napier Investor Services, Inc., a registered broker-dealer
affiliate of the Advisor, acts as distributor for the Fund's shares. The
services of Manning & Napier Investor Services, Inc. are provided at no
additional cost to the Fund.
The compensation of the non-affiliated Directors totaled $6,750 for the
year ended December 31, 1996.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term securities, were
$10,853,674 and $2,647,901, respectively, for the year ended December 31,
1996.
19
<PAGE>
Notes to Financial Statements
5. CAPITAL STOCK TRANSACTIONS
Transactions in shares of International Series were:
<TABLE>
<CAPTION>
For the Year For the Year
Ended 12/31/96 Ended 12/31/95
<S> <C> <C> <C> <C>
Shares Amount Shares Amount
--------------- ------------- --------------- ------------
Sold 1,645,694 $ 17,300,172 4,223,049 $41,054,909
Reinvested 184,488 2,044,126 460,661 4,327,528
Repurchased (2,297,367) (24,079,624) (287,048) (2,740,377)
Total (467,185) $ (4,735,326) 4,396,662 $42,642,060
</TABLE>
6. FOREIGN SECURITIES
Investing in securities of foreign companies and foreign governments
involves special risks and considerations not typically associated with
investing in securities of U.S. companies and the United States government.
These risks include revaluation of currencies and future adverse political
and economic developments. Moreover, securities of many foreign companies
and foreign governments and their markets may be less liquid and their prices
more volatile than of those securities of comparable U.S. companies and the
United States government.
20
<PAGE>
Independent Auditors' Report
TO THE SHAREHOLDERS AND DIRECTORS OF
MANNING & NAPIER FUND, INC.- INTERNATIONAL SERIES:
We have audited the accompanying statement of assets and liabilities of
Manning & Napier Fund, Inc.- International Series, including the schedule of
portfolio investments, as of December 31, 1996, and the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended and the financial
highlights for each of the periods indicated in the financial highlights
table herein. These financial statements and financial highlights are the
responsibility of the Funds management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 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, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the Manning & Napier Fund, Inc.- International Series as of
December 31, 1996, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended
and the financial highlights for each of the periods indicated in the
financial highlights table herein in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
BOSTON, MASSACHUSETTS
JANUARY 23, 1997
21
<PAGE>
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