December 18, 1997
Securities & Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
VIA: EDGAR
Gentlemen:
In accordance with the provisions of Rule 270.30b-21 of the Investment
Company Act of 1940, submitted are copies of the shareholder reports
together with the cover letter that were distributed to the
shareholders of the Manning & Napier Fund, Inc. Flexible Yield Series I,
Flexible Yield Series II, Flexible Yield Series III, Blended Asset Series I,
Blended Asset Series II, Defensive Series, Maximum Horizon Series and Tax
Managed Series.
Sincerely,
MANNING & NAPIER FUND, INC.
/s/ Beth H. Galusha
Beth H. Galusha
Treasurer & Chief Financial Officer
<PAGE>
Manning & Napier Fund, Inc.
Flexible Yield Series I
Annual Report
October 31, 1997
<PAGE>
Management Discussion and Analysis
Dear Shareholder:
Lets face it, fixed income management is not a high risk profession. Aside
from stress, the biggest physical risk fixed income managers face is the
continued deterioration of their eyesight. Of course the same can probably be
said of any profession which entails reading, writing, or staring at a
computer screen for 8 to 10 hours a day. The clinical term for this condition
is myopia, a visual defect where distant objects are blurred because their
image is focused in front of the retina rather than on the retina itself.
While it is likely that many fixed income professionals suffer from this
malady, there is a secondary definition of myopia that is far more endemic in
the fixed income investment community today. That definition defines myopia
as a shortsightedness in thinking or planning.
For example, when the Labor Department released their employment report at
8:30 A.M. on the first Friday of October, the market responded by driving
long-term interest rates down from 6.30% to 6.15%. Later in the morning when
a story came across the newswire that a U.S. aircraft carrier was heading
toward the Persian Gulf, concerns about oil prices drove long rates back to
6.40%. When it was revealed that the carrier had been scheduled to head to
the gulf, the market recovered and long bonds ended the day where they had
started at 6.30%. Such gyrations are symptomatic of the short-term focus of
the market and some managers do try to game out those factors and invest
accordingly. That is a tough game to play, and an even tougher game to win.
Rest assured, that is not how Manning & Napier approaches the management of
its fixed income funds. We invest based upon our long-term overview. We do
monitor the short- term factors that impact the market, but we do so to see if
they strengthen, weaken or have no effect on our long-term overview.
For those of you who are new shareholders, our overview calls for a
continuation of the saw-tooth decline in interest rates that has characterized
the domestic fixed income market for the last 15 years. That decline can be
traced to the globalization of the worlds economy, the resulting increase in
the competitive environment, and disinflationary pressure that has resulted
from consumers, producers, and policy makers responding to that new
environment.
In a competitive global environment, governments have no choice but to enact
sound fiscal and monetary policies. Nowhere is that more evident than in the
United States. In the early 1990s, the U.S. federal government was running
budget deficits in excess of $300 billion. At the time, some of the more
negative predictions were calling for deficits exceeding $500 billion.
History proved them wrong. Through September, which is the end of the federal
governments fiscal year, the trailing 12 month budget deficit had shrunk to an
amazingly low $22.3 billion. At the start of the fiscal year, deficit
projections had called for a deficit in the neighborhood of $125 billion for
fiscal year 1997.
There are two reasons for the dramatic improvement. First, receipts continue
to exceed expectations. Some of that can be traced to the fact that this is
the seventh year of the economic expansion. It can also be traced to a stock
market that is about to post its third consecutive year of double digit
returns. That has generated above-average capital gains and associated
capital gains taxes. Second, and more interestingly, expenditure growth has
been very much restrained. On a year-over-year basis it has been in the
neighborhood of 3%. Policy makers do not have direct control over the level
of receipts that come in; however, they do control expenditures. Their
restraint (a term not often applied to politicians) has been driven by the
financial markets' ability to enforce fiscal discipline.
1
<PAGE>
Management Discussion and Analysis
How so? With the growth of international financial markets, capital flows
from one country to another almost seamlessly. Those countries with
well-defined property rights, established legal systems, and attractive
relative returns will be the most successful when it comes to keeping capital,
as well as attracting foreign capital. Sound policies are a key contributor
to whether a country offers attractive relative returns. The situation is
compounded by the fact that the U.S. is running a rather sizable current
account deficit. Because of that, it is even more important that the U.S.
attract foreign capital. Otherwise our investment needs cannot be met.
Another investment opinion that has grown out of our long-term overview is the
lack of pricing power and the need for producers to strive for productivity
gains if they are to remain competitive in the global economy. That is one of
the few ways that they can achieve earnings growth, and from an inflation
standpoint, it contributes to the disinflationary environment. Manufacturing
productivity has been strong throughout the 1990s; it has been the measures of
service sector productivity that have appeared lacking. However, over the
last year there has been a growing consensus that service sector productivity
has been mismeasured. Not only is service sector productivity hard to
measure, but the low numbers being reported seem to contradict the incredible
investments that firms have made in computers and information processing.
That does not even address the high level of merger activity that has
permeated all sectors of the economy.
Solid productivity gains help to explain what has occurred in the U.S. economy
in 1997, specifically strong growth and declining inflation. During the first
quarter of this year, the economy grew at close to a 5% real rate (i.e., 5%
over the inflation rate). In the second quarter, real growth was just under
4%, and during the third quarter, growth came in at 3.5%. Those are all solid
readings, and intuitively one would expect inflation pressures to build, but
over the same period, the Consumer Price Index slowed from a year-over-year
rate of 3.3% to 2.2%. The Producer Price Indexs year-over-year growth rate
fell from 3% to 0%. Strong growth and declining inflation are typically
thought to be mutually exclusive. But that has not been the case this year,
and that was not the case during the 1950s and early 1960s when strong
productivity gains allowed growth and low inflation to coexist peacefully.
Both of these big picture items -- declining budget deficits and solid
productivity gains -- help to explain why interest rates have fallen over the
last 12 months. On the short end of the yield curve, rates are actually a
touch higher. However, two-year note rates are down 12 basis points (0.12%)
over the last year, five-year note rates are down 35 basis points (0.35%), and
long bond rates have fallen by 49 basis points (0.49%). In fixed income
parlance, the yield curve has flattened. From a performance standpoint,
falling interest rates mean higher returns; the further out on the yield curve
an investor ventured, the better his or her performance.
Because you have invested in a fund which is limited to shorter-term bonds,
returns have been fairly modest, but with a twelve-month return of 6.07%,
falling interest rates did earn you a little premium over the yield on bonds.
What we hoped you notice while you were reading this letter, is that none of
our conclusions depended upon our opinion of the most recent economic release,
they did not depend on a forecast of the
2
<PAGE>
Management Discussion and Analysis
economy over the next 6 to 12 months, and they did not depend upon our opinion
of what the Federal Reserve is going to do at the next Federal Open Market
Committee meeting. As we have stated on more than one occasion, the key to
success is to focus on the long-term trends. Manning & Napier has done that.
The proof as they say is in the pudding, and the performance of the Series
given its extremely high quality has been quite good.
Once again, we very much appreciate your business, and we hope that you and
your families have a healthy and joyous holiday season.
Sincerely,
Manning & Napier Advisors, Inc.
<pie chart>
Data for chart to follow:
Effective Maturity - As of 10/31/97
Less than 1 Year - 12%
1 - 2 Years - 17%
2 - 3 Years - 25%
3 - 4 Years - 28%
More than 4 Years - 18%
3
<PAGE>
Performance Update as of October 31, 1997
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc. - Flexible Yield Series I
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
10/31/97 Investment Cumulative Annual
One Year $ 10,607 6.07% 6.07%
Inception 2 $ 12,025 0.25% 5.09%
</TABLE>
<TABLE>
<CAPTION>
Merrill Lynch U.S. Treasury Short-Term Index
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
10/31/97 Investment Cumulative Annual
One Year $ 10,649 6.49% 6.49%
Inception 2 $ 12,350 23.50% 5.85%
</TABLE>
The value of a $10,000 investment in the
Manning & Napier Fund, Inc. - Flexible Yield
Series I from its inception (2/15/94) to
present (10/31/97) as compared to the Merrill
Lynch U.S. Treasury Short-Term Index1.
<graphic>
<line chart>
Data for chart to follow:
<TABLE>
<CAPTION>
<S> <C> <C>
Manning & Napier Flexible Merrill Lynch U.S. Treasury
date Yield Series I Short-Term Index
02/15/94 10,000 10,000
12/31/94 9,924 10,030
12/31/95 10,995 11,133
10/31/96 11,441 11,598
10/31/97 12,025 12,350
</TABLE>
1 The Merrill Lynch U.S. Treasury Short-Term Index is a market value weighted
measure of approximately 60 U.S. Treasury Securities. The Index is comprised
of U.S. Treasury securities with maturities greater than one year but less
than three years. The Index returns assume reinvestment of coupons and,
unlike Fund returns, do not reflect any fees or expenses.
2 The Fund and Index performance are calculated from February 15, 1994, the
Fund's inception date. The Fund's performance is historical and may not be
indicative of future results.
4
<PAGE>Portfolio - October 31, 1997
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT/SHARES (NOTE 2)
U.S. TREASURY SECURITIES - 92.4%
<S> <C> <C>
U.S. TREASURY NOTES
U.S.Treasury Note, 6.125%, 5/15/1998 $ 40,000 $ 40,125
U.S.Treasury Note, 6.50%, 4/30/1999 65,000 65,813
U.S.Treasury Note, 6.00%, 6/30/1999 40,000 40,237
U.S.Treasury Note, 6.875%, 3/31/2000 30,000 30,797
U.S.Treasury Note, 6.75%, 4/30/2000 85,000 87,072
U.S.Treasury Note, 5.875%, 6/30/2000 40,000 40,212
U.S.Treasury Note, 6.375%, 3/31/2001 95,000 96,841
U.S.Treasury Note, 6.625%, 6/30/2001 40,000 41,138
U.S.Treasury Note, 6.25%, 10/31/2001 40,000 40,712
U.S.Treasury Note, 6.25%, 1/31/2002 40,000 40,713
U.S.Treasury Note, 6.625%, 3/31/2002 25,000 25,812
U.S.Treasury Note, 6.25%, 6/30/2002 50,000 50,969
---------
TOTAL U.S. TREASURY SECURITIES
(Identified Cost $592,601) 600,441
---------
SHORT-TERM INVESTMENTS - 6.3%
U.S.Treasury Bill, 1/8/1998 40,000 39,618
Dreyfus U.S. Treasury Money Market Reserves 1,341 1,341
---------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $40,959) 40,959
---------
TOTAL INVESTMENTS - 98.7%
(Identified Cost $633,560) 641,400
OTHER ASSETS, LESS LIABILITIES - 1.3% 8,432
---------
NET ASSETS - 100% $649,832
=========
</TABLE>
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
<S> <C>
At October 31, 1997, the net unrealized appreciation based on identified
cost for federal income tax purposes of $634,331 was as follows:
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost $7,069
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value --
------
UNREALIZED APPRECIATION - NET $7,069
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
Statement of Assets and Liabilities
October 31, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments, at value (Identified Cost $633,560)(Note 2) $641,400
Cash 6,356
Interest receivable 6,204
Receivable from investment advisor (Note 3) 17,366
---------
TOTAL ASSETS 671,326
---------
LIABILITIES:
Accrued Directors' fees (Note 3) 7,345
Transfer agent fees payable (Note 3) 150
Audit fee payable 8,523
Other payables and accrued expenses 5,476
---------
TOTAL LIABILITIES 21,494
---------
NET ASSETS FOR 62,539 SHARES OUTSTANDING $649,832
=========
NET ASSETS CONSIST OF:
Capital stock $ 625
Additional paid-in-capital 633,218
Undistributed net investment income 10,842
Accumulated net realized loss on investments (2,693)
Net unrealized appreciation on investments 7,840
---------
TOTAL NET ASSETS $649,832
=========
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($649,832/62,539 shares) $ 10.39
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<TABLE>
<CAPTION>
Statement of Operations
FOR THE YEAR ENDED OCTOBER 31, 1997
<S> <C>
INVESTMENT INCOME:
Interest $ 37,457
---------
EXPENSES:
Management fee (Note 3) 2,189
Directors' fees (Note 3) 7,345
Transfer agent fees (Note 3) 150
Audit fee 8,450
Registration and filing fees 4,426
Custodian fee 550
Miscellaneous 825
---------
Total Expenses 23,935
Less Reduction of Expenses (Note 3) (19,555)
---------
Net Expenses 4,380
---------
NET INVESTMENT INCOME 33,077
---------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized loss on investments (identified cost basis) (2,250)
Net change in unrealized appreciation on investments 4,259
---------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 2,009
---------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 35,086
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the For the Ten For the
Year Ended Months Ended Year Ended
10/31/97 10/31/96 12/31/95
------------ -------------- ------------
INCREASE (DECREASE) IN NET ASSETS:
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 33,077 $ 15,879 $ 17,412
Net realized gain (loss) on investments (2,250) 2,919 321
Net change in unrealized appreciation (depreciation)
on investments 4,259 (3,729) 12,825
------------ -------------- ------------
Net increase in net assets from operations 35,086 15,069 30,558
------------ -------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (28,418) (10,555) (17,292)
From net realized gain on investments (1,988) -- --
------------ -------------- ------------
Total distributions to shareholders (30,406) (10,555) (17,292)
------------ -------------- ------------
CAPITAL STOCK ISSUED AND REPURCHASED:
Net increase in net assets from capital share
transactions (Note 5) 152,255 231,929 12,347
------------ -------------- ------------
Net increase in net assets 156,935 236,443 25,613
NET ASSETS:
Beginning of period 492,897 256,454 230,841
------------ -------------- ------------
END OF PERIOD (including undistributed net investment
income of $10,842, $5,336 and $12, respectively) $ 649,832 $ 492,897 $ 256,454
============ ============== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
For the
Period
For the 2/15/94
For the For the Ten Year (commencement
Year Ended Months Ended Ended of operations)
10/31/97 10/31/96 12/31/95 to 12/31/94
Per share data (for a share outstanding
throughout each period):
<S> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.27 $ 10.26 $ 9.69 $ 10.00
------------ -------------- ---------- ---------------
Income from investment operations:
Net investment income 0.505 0.411 0.464 0.241
Net realized and unrealized gain (loss)
on investments 0.099 (0.101) 0.566 (0.317)
------------ -------------- ---------- ---------------
Total from investment operations 0.604 0.310 1.030 (0.076)
------------ -------------- ---------- ---------------
Less distributions to shareholders:
From net investment income (0.456) (0.300) (0.460) (0.234)
From net realized gain on investments (0.028) -- -- --
------------ -------------- ---------- ---------------
Total distributions to shareholders (0.484) (0.300) (0.460) (0.234)
------------ -------------- ---------- ---------------
NET ASSET VALUE - END OF PERIOD $ 10.39 $ 10.27 $ 10.26 $ 9.69
============ ============== ========== ===============
Total return 1: 6.07% 3.11% 10.79% (0.76)%
Ratios (to average net assets) / Supplemental Data:
Expenses* 0.70% 0.70%2 0.70% 0.70%2
Net investment income* 5.29% 5.25%2 4.99% 4.41%2
Portfolio turnover 77% 36% 60% 38%
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 650 $ 493 $ 256 $ 231
============ ============== ========== ===============
</TABLE>
* The investment advisor did not impose its management fee and paid a portion
of the Fund's expenses. If these expenses had been incurred by the Fund,
and had 1994, 1995, and 1996 expenses been limited to that allowed by
state securities law, the net investment income per share and the ratios would
have been as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Net investment income $0.206 $ 0.270 $0.297 $ 0.143
Ratios (to average net assets):
Expenses 3.83% 2.50%2 2.50% 2.50%2
Net investment income 2.16% 3.45%2 3.19% 2.61%2
</TABLE>
1 Represents aggregate total return for the period indicated.
2 Annualized.
The accompanying notes are an integral part of the financial statements.
9
Notes to Financial Statements
1. ORGANIZATION
Flexible Yield Series I (the "Fund") is a no-load diversified series of
Manning & Napier Fund, Inc. (the "Corporation"). The Corporation is
organized in Maryland and is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company.
The total authorized capital stock of the Corporation consists of one
billion shares of common stock each having a par value of $0.01. As of
October 31, 1997, 940 million shares have been designated in total among 19
series, of which 37.5 million have been designated as Flexible Yield Series I
Class A Common Stock.
Effective January 1, 1996, the Fund changed its fiscal year end from
December 31 to October 31.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Portfolio securities listed on an exchange are valued at the latest
quoted sales price of the exchange on which the security is traded most
extensively. Securities not traded on valuation date or securities not
listed on an exchange are valued at the latest quoted bid price.
Debt securities, including government bonds and mortgage backed
securities, will normally be valued on the basis of evaluated bid prices.
Securities for which representative valuations or 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 days or less are valued at
amortized cost.
SECURITY TRANSACTIONS, INVESTMENT INCOME AND EXPENSES
Security transactions are accounted for on the date the securities are
purchased or sold. Dividend income is recorded on the ex-dividend date.
Interest income and expenses are recorded on an accrual basis.
Most expenses of the Corporation can be attributed to a specific fund.
Expenses which cannot be directly attributed are apportioned among the funds
in the Corporation.
FEDERAL INCOME TAXES
The Fund's policy is to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies. The Fund is not
subject to federal income or excise tax to the extent the Fund distributes to
shareholders each year its taxable income, including any net realized gains
on investments in accordance with requirements of the Internal Revenue Code.
Accordingly, no provision for federal income tax or excise tax has been made
in the financial statements.
10
<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.
At October 31, 1997 the Fund, for federal income tax purposes, had a
capital loss carryforward of $1,922 which will expire on October 31, 2005.
DISTRIBUTIONS OF INCOME AND GAINS
Distributions to shareholders of net investment income are made
quarterly. Distributions are recorded on the ex-dividend date. Distributions
of net realized gains are distributed annually. An additional distribution
may be necessary to avoid taxation of the Fund.
The timing and characterization of certain income and capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. The differences may be a
result of deferral of certain losses, character reclassification between net
income and net gains, or other required tax adjustments. As a result, net
investment income (loss) and net investment gain (loss) on investment
transactions for a reporting period may differ significantly from
distributions to shareholders during such period. As a result, the Fund may
periodically make reclassifications among its capital accounts without
impacting the Fund's net asset value.
OTHER
The preparation of the 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 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 0.35% of the Fund's
average daily net assets. The fee amounted to $2,189 for the year ended
October 31, 1997.
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.
11
<PAGE>
Notes to Financial Statements
3. TRANSACTIONS WITH AFFILIATES (continued)
The Advisor has voluntarily agreed to waive its fee and, if necessary,
pay other expenses of the Fund in order to maintain total expenses for the
Fund at no more than 0.70% of average daily net assets each year.
Accordingly, the Advisor did not impose any of its fee and paid expenses
amounting to $17,366 for the year ended October 31, 1997, 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 $150 for the year ended October 31,
1997.
Manning & Napier Investor Services, Inc., a registered broker-dealer
affiliate of the Advisor, acts as distributor for the Fund's shares. The
services of Manning & Napier Investor Services, Inc. are provided at no
additional cost to the Fund.
The compensation of the non-affiliated Directors totaled $7,345 for the
year ended October 31, 1997.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of United States Government securities, other than
short-term securities, were $601,627 and $432,869, respectively, for the year
ended October 31, 1997.
5. CAPITAL STOCK TRANSACTIONS
<TABLE>
<CAPTION>
Transactions in shares of Flexible Yield Series I Class A Common Stock were:
For the Year For the Ten Months For the Year
Ended 10/31/97 Ended 10/31/96 Ended 12/31/95
Shares Amount Shares Amount Shares Amount
-------------------- ---------- ---------------- ---------- ---------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Sold 53,796 $ 552,351 46,304 $ 468,224 42,563 $ 433,846
Reinvested 2,812 28,563 1,049 10,556 1,658 16,778
Repurchased (42,043) (428,659) (24,368) (246,851) (43,058) (438,277)
----------------------- ---------- ---------------- ---------- ---------------- ----------
Net increase 14,565 $ 152,255 22,985 $ 231,929 1,163 $ 12,347
======================= ========== ================ ========== ================ ==========
</TABLE>
The Advisor owned 12,280 shares on October 31, 1997, 4,042 shares on
October 31, 1996, and 3,924 shares on December 31, 1995.
12
<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 October 31, 1997.
13
<PAGE>
Independent Auditors Report
TO THE DIRECTORS OF MANNING & NAPIER FUND, INC.
AND SHAREHOLDERS OF FLEXIBLE YIELD SERIES I:
We have audited the accompanying statement of assets and liabilities,
including the investment portfolio, of Flexible Yield Series I (one of the
series constituting Manning & Napier Fund, Inc.) as of October 31, 1997, the
related statement of operations for the year then ended, the statement of
changes in net assets for the year ended October 31, 1997, the ten months
ended October 31, 1996 and the year ended December 31, 1995, and the
financial highlights for the year ended October 31, 1997, the ten months
ended October 31, 1996, and each of the years in the two year period ended
December 31, 1995. These financial statements and financial highlights are
the responsibility of the Funds management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of investments owned at October 31, 1997
by correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of the
Flexible Yield Series I at October 31, 1997, the results of its operations,
the changes in its net assets and its financial highlights for the
respective stated periods in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
BOSTON, MASSACHUSETTS
NOVEMBER 26, 1997
14
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
Flexible Yield Series II
Annual Report
October 31, 1997
<PAGE>
Management Discussion and Analysis
Dear Shareholder:
Lets face it, fixed income management is not a high risk profession.
Aside from stress, the biggest physical risk fixed income managers face is
the continued deterioration of their eyesight. Of course the same can
probably be said of any profession which entails reading, writing, or staring
at a computer screen for 8 to 10 hours a day. The clinical term for this
condition is myopia, a visual defect where distant objects are blurred
because their image is focused in front of the retina rather than on the
retina itself. While it is likely that many fixed income professionals
suffer from this malady, there is a secondary definition of myopia that is
far more endemic in the fixed income investment community today. That
definition defines myopia as a shortsightedness in thinking or planning.
For example, when the Labor Department released their employment report
at 8:30 A.M. on the first Friday of October, the market responded by
driving long-term interest rates down from 6.30% to 6.15%. Later in the
morning when a story came across the newswire that a U.S. aircraft carrier
was heading toward the Persian Gulf, concerns about oil prices drove long
rates back to 6.40%. When it was revealed that the carrier had been
scheduled to head to the gulf, the market recovered and long bonds ended the
day where they had started at 6.30%. Such gyrations are symptomatic of the
short-term focus of the market and some managers do try to game out those
factors and invest accordingly. That is a tough game to play, and an even
tougher game to win.
Rest assured, that is not how Manning & Napier approaches the management
of its fixed income funds. We invest based upon our long-term overview. We
do monitor the short- term factors that impact the market, but we do so to
see if they strengthen, weaken or have no effect on our long term overview.
For those of you who are new shareholders, our overview calls for a
continuation of the saw-tooth decline in interest rates that has
characterized the domestic fixed income market for the last 15 years. That
decline can be traced to the globalization of the worlds economy, the
resulting increase in the competitive environment, and disinflationary
pressure that has resulted from consumers, producers, and policy makers
responding to that new environment.
In a competitive global environment, governments have no choice but to
enact sound fiscal and monetary policies. Nowhere is that more evident than
in the United States. In the early 1990s, the U.S. federal government was
running budget deficits in excess of $300 billion. At the time, some of the
more negative predictions were calling for deficits exceeding $500 billion.
History proved them wrong. Through September, which is the end of the
federal governments fiscal year, the trailing 12 month budget deficit had
shrunk to an amazingly low $22.3 billion. At the start of the fiscal year,
deficit projections had called for a deficit in the neighborhood of $125
billion for fiscal year 1997.
There are two reasons for the dramatic improvement. First, receipts
continue to exceed expectations. Some of that can be traced to the fact that
this is the seventh year of the economic expansion. It can also be traced to
a stock market that is about to post its third consecutive year of double
digit returns. That has generated above-average capital gains and associated
capital gains taxes. Second, and more interestingly, expenditure growth has
been very much restrained. On a year-over-year basis it has been in the
neighborhood of 3%. Policy makers do not have direct control over the level
of receipts that come in; however, they do control expenditures. Their
restraint (a term not often applied to politicians) has been driven by the
financial markets' ability to enforce fiscal discipline.
1
<PAGE>
Management Discussion and Analysis
How so? With the growth of international financial markets, capital
flows from one country to another almost seamlessly. Those countries with
well-defined property rights, established legal systems, and attractive
relative returns will be the most successful when it comes to keeping
capital, as well as attracting foreign capital. Sound policies are a key
contributor to whether a country offers attractive relative returns. The
situation is compounded by the fact that the U.S. is running a rather sizable
current account deficit. Because of that, it is even more important that the
U.S. attract foreign capital. Otherwise our investment needs cannot be met.
Another investment opinion that has grown out of our long-term overview
is the lack of pricing power and the need for producers to strive for
productivity gains if they are to remain competitive in the global economy.
That is one of the few ways that they can achieve earnings growth, and from
an inflation standpoint, it contributes to the disinflationary environment.
Manufacturing productivity has been strong throughout the 1990s; it has been
the measures of service sector productivity that have appeared lacking.
However, over the last year there has been a growing consensus that service
sector productivity has been mismeasured. Not only is service sector
productivity hard to measure, but the low numbers being reported seem to
contradict the incredible investments that firms have made in computers and
information processing. That does not even address the high level of merger
activity that has permeated all sectors of the economy.
Solid productivity gains help to explain what has occurred in the U.S.
economy in 1997, specifically strong growth and declining inflation. During
the first quarter of this year, the economy grew at close to a 5% real rate
(i.e., 5% over the inflation rate). In the second quarter, real growth was
just under 4%, and during the third quarter, growth came in at 3.5%. Those
are all solid readings, and intuitively one would expect inflation pressures
to build, but over the same period, the Consumer Price Index slowed from a
year-over-year rate of 3.3% to 2.2%. The Producer Price Indexs
year-over-year growth rate fell from 3% to 0%. Strong growth and declining
inflation are typically thought to be mutually exclusive. But that has not
been the case this year, and that was not the case during the 1950s and early
1960s when strong productivity gains allowed growth and low inflation to
coexist peacefully.
Both of these big picture items -- declining budget deficits and solid
productivity gains -- help to explain why interest rates have fallen over
the last 12 months. On the short end of the yield curve, rates are actually
a touch higher. However, two-year note rates are down 12 basis points
(0.12%) over the last year, five-year note rates are down 35 basis points
(0.35%), and long bond rates have fallen by 49 basis points (0.49%). In
fixed income parlance, the yield curve has flattened. From a performance
standpoint, falling interest rates mean higher returns; the further out on
the yield curve an investor ventured, the better his or her performance.
As of the end of October, we had positioned the Series in longer-term
bonds than its benchmark, the Merrill Lynch Corporate/Government Intermediate
Index, in keeping with our overview. Flexible Yield Series II, which has a
maximum dollar-weighted average maturity of ten years, returned 7.61%. That
was exactly equal to the return of the benchmark; however, the benchmark does
not reflect the fees and trading expenses that real-world investors incur,
and by avoiding corporate bonds, the Flexible Yield Series II achieved this
return with higher quality (i.e., lower credit risk) than the benchmark.
2
<PAGE>
Management Discussion and Analysis
What we hoped you notice while you were reading this letter, is that none
of our conclusions depended upon our opinion of the most recent economic
release, they did not depend on a forecast of the economy over the next 6 to
12 months, and they did not depend upon our opinion of what the Federal
Reserve is going to do at the next Federal Open Market Committee meeting. As
we have stated on more than one occasion, the key to success is to focus on
the long-term trends. Manning & Napier has done that. The proof as they say
is in the pudding, and the performance of the Series given its extremely high
quality has been quite good.
Once again, we very much appreciate your business, and we hope that you
and your families have a healthy and joyous holiday season.
Sincerely,
Manning & Napier Advisors, Inc.
<graphic>
<pie chart>
Data for chart to follow:
Effective Maturity - As of 10/31/97
Less than 1 Year - 6%
1-2 Years - 10%
2-3 Years - 16%
3-5 Years - 21%
5-7 Years - 21%
More than 7 Years - 26%
3
<PAGE>
Performance Update as of October 31, 1997
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc. - Flexible Yield Series II
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
10/31/97 Investment Cumulative Annual
One Year $ 10,761 7.61% 7.61%
Inception 2 $ 12,199 21.99% 5.50%
</TABLE>
<TABLE>
<CAPTION>
Merrill Lynch Corporate/Government Intermediate Index
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
10/31/97 Investment Cumulative Annual
One Year $ 10,761 7.61% 7.61%
Inception 2 $ 12,560 25.60% 6.33%
</TABLE>
The value of a $10,000 investment in the
Manning & Napier Fund, Inc. - Flexible Yield
Series II from its inception (2/15/94) to
present (10/31/97) as compared to the Merrill
Lynch Corporate/Government Intermediate
Index. 1
<graphic>
<line chart>
Data for chart to follow:
<TABLE>
<CAPTION>
Date Manning & Napier Flexible Merrill Lynch Corporate/
Yield Series II Government Intermediate Index
<S> <C> <C>
02/15/94 10,000 10,000
12/31/94 9,531 9,799
12/31/95 11,182 11,301
10/31/96 11,336 11,672
10/31/97 12,199 12,560
</TABLE>
1 The Merrill Lynch Corporate/Government Intermediate Index is a
market value weighted measure of approximately 4,000 corporate
and government bonds. The Index is comprised of investment grade
bonds with maturities greater than one year but less than ten years.
The Index returns assume reinvestment of coupons and, unlike Fund
returns, do not reflect any fees or expenses.
2 The Fund and Index performance are calculated from February 15,
1994, the Fund's inception date. The Fund's performance is historical
and may not be indicative of future results.
4
<PAGE>
Investment Portfolio - October 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
PRINCIPAL VALUE
AMOUNT/SHARES (NOTE 2)
U.S. TREASURY SECURITIES - 94.8%
U.S. TREASURY NOTES
U.S. Treasury Note, 5.875%, 4/30/1998 $ 25,000 $ 25,047
U.S. Treasury Note, 5.00%, 1/31/1999 15,000 14,887
U.S. Treasury Note, 5.875%, 1/31/1999 35,000 35,098
U.S. Treasury Note, 6.00%, 6/30/1999 20,000 20,119
U.S. Treasury Note, 5.50%, 4/15/2000 30,000 29,887
U.S. Treasury Note, 6.75%, 4/30/2000 25,000 25,609
U.S. Treasury Note, 6.125%, 9/30/2000 55,000 55,602
U.S. Treasury Note, 7.875%, 8/15/2001 30,000 32,137
U.S. Treasury Note, 6.25%, 10/31/2001 15,000 15,267
U.S. Treasury Note, 6.25%, 1/31/2002 50,000 50,891
U.S. Treasury Note, 6.25%, 6/30/2002 45,000 45,872
U.S. Treasury Note, 6.25%, 2/15/2003 40,000 40,838
U.S. Treasury Note, 7.25%, 5/15/2004 100,000 107,594
U.S. Treasury Note, 6.50%, 10/15/2006 145,000 150,800
U.S. Treasury Note, 6.625%, 5/15/2007 30,000 31,594
---------
TOTAL U.S. TREASURY SECURITIES
(Identified Cost $654,052) 681,242
---------
SHORT-TERM INVESTMENTS - 2.6%
Dreyfus U.S. Treasury Money Market Reserves
(Identified Cost $18,416) 18,416 18,416
---------
TOTAL INVESTMENTS - 97.4%
(Identified Cost $672,468) 699,658
OTHER ASSETS, LESS LIABILITIES - 2.6% 18,566
---------
NET ASSETS - 100% $718,224
=========
</TABLE>
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
<S> <C>
At October 31, 1997, the net unrealized appreciation based on identified
cost for federal income tax purposes of $672,798 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost $26,860
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value ---
-------
UNREALIZED APPRECIATION - NET $26,860
=======
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
<S> <C>
OCTOBER 31, 1997
ASSETS:
Investments, at value (Identified Cost $672,468)(Note 2) $699,658
Cash 31,903
Interest receivable 8,976
Receivable from investment advisor (Note 3) 15,892
--------
TOTAL ASSETS 756,429
--------
LIABILITIES:
Accrued Directors' fees (Note 3) 7,346
Transfer agent fees payable (Note 3) 155
Payable for fund shares repurchased 17,590
Audit fee payable 8,524
Other payables and accrued expenses 4,590
--------
TOTAL LIABILITIES 38,205
--------
NET ASSETS FOR 70,205 SHARES OUTSTANDING $718,224
========
NET ASSETS CONSIST OF:
Capital stock $ 702
Additional paid-in-capital 677,316
Undistributed net investment income 8,569
Accumulated net realized gain on investments 4,447
Net unrealized appreciation on investments 27,190
--------
TOTAL NET ASSETS $718,224
========
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($718,224/70,205 shares) $ 10.23
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31, 1997
<S> <C>
INVESTMENT INCOME:
Interest $ 40,286
---------
EXPENSES:
Management fees (Note 3) 2,897
Directors' fees (Note 3) 7,346
Transfer agent fees (Note 3) 155
Audit fee 8,450
Registration and filing fees 3,944
Custodian fee 325
Miscellaneous 822
---------
Total Expenses 23,939
Less Reduction of Expenses (Note 3) (18,789)
---------
Net Expenses 5,150
---------
NET INVESTMENT INCOME 35,136
---------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments (identified cost basis) 5,404
Net change in unrealized appreciation on investments 11,090
---------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS 16,494
---------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 51,630
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the For the Ten For the
Year Ended Months Ended Year Ended
10/31/97 10/31/96 12/31/95
------------ -------------- ------------
INCREASE (DECREASE) IN NET ASSETS:
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 35,136 $ 20,840 $ 25,818
Net realized gain on investments 5,404 289 2,582
Net change in unrealized appreciation (depreciation)
on investments 11,090 (12,780) 45,414
------------ -------------- ------------
Net increase in net assets from operations 51,630 8,349 73,814
------------ -------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (36,179) (12,453) (25,351)
From net realized gain on investments (382) (2,503) --
------------ -------------- ------------
Total distributions to shareholders (36,561) (14,956) (25,351)
------------ -------------- ------------
CAPITAL STOCK ISSUED AND REPURCHASED:
Net increase (decrease) in net assets from capital
share transactions (Note 5) 221,861 49,875 (5,951)
------------ -------------- ------------
Net increase in net assets 236,930 43,268 42,512
NET ASSETS:
Beginning of period 481,294 438,026 395,514
------------ -------------- ------------
END OF PERIOD (including undistributed net investment
income of $8,569, $8,750 and $363, respectively) $ 718,224 $ 481,294 $ 438,026
============ ============== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
For the Period
For the For the 2/15/94
Year For the Ten Year (commencement
Ended Months Ended Ended of operations) to
10/31/97 10/31/96 12/31/95 12/31/94
-------------- ---------- -------------------
<S> <C> <C> <C> <C>
Per share data (for a share outstanding throughout
each period):
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.10 $ 10.30 $ 9.27 $ 10.00
---------- -------------- ---------- -------------------
Income from investment operations:
Net investment income 0.523 0.445 0.561 0.269
Net realized and unrealized gain (loss)
on investments 0.212 (0.315) 1.019 (0.738)
---------- -------------- ---------- -------------------
Total from investment operations 0.735 0.130 1.580 (0.469)
---------- -------------- ---------- -------------------
Less distributions to shareholders:
From net investment income (0.597) (0.270) (0.550) (0.261)
From net realized gain on investments (0.008) (0.060) - -
---------- -------------- ---------- -------------------
Total distributions to shareholders (0.605) (0.330) (0.550) (0.261)
---------- -------------- ---------- -------------------
NET ASSET VALUE - END OF PERIOD $ 10.23 $ 10.10 $ 10.30 $ 9.27
========== ============== ========== ===================
Total return 1: 7.61% 1.38% 17.33% (4.69%)
Ratios (to average net assets) / Supplemental Data:
Expenses* 0.80% 0.80%2 0.80% 0.80%2
Net investment income* 5.46% 5.55%2 5.38% 5.40%2
Portfolio turnover 58% 5% 35% 0%
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 718 $ 481 $ 438 $ 396
========== ============== ========== ===================
</TABLE>
* The investment advisor did not impose its management fee and paid a portion
of the Fund's expenses. If these expenses had been incurred by the Fund,
and had 1994, 1995, and 1996 expenses been limited to that allowed by state
securities law, the net investment income per share and the ratios would have
been as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Net investment income $0.243 $ 0.309 $0.384 $ 0.184
Ratios (to average net assets):
Expenses 3.72% 2.50%2 2.50% 2.50%2
Net investment income 2.54% 3.85%2 3.68% 3.70%2
</TABLE>
1 Represents aggregate total return for the period indicated.
2 Annualized.
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
Notes to Financial Statements
1. ORGANIZATION
Flexible Yield Series II (the "Fund") is a no-load diversified series of
Manning & Napier Fund, Inc. (the "Corporation"). The Corporation is
organized in Maryland and is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company.
The total authorized capital stock of the Corporation consists of one
billion shares of common stock each having a par value of $0.01. As of
October 31, 1997, 940 million shares have been designated in total among 19
series, of which 37.5 million have been designated as Flexible Yield Series
II Class A Common Stock.
Effective January 1, 1996, the Fund changed its fiscal year end from
December 31 to October 31.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Portfolio securities listed on an exchange are valued at the latest
quoted sales price of the exchange on which the security is traded most
extensively. Securities not traded on valuation date or securities not
listed on an exchange are valued at the latest quoted bid price.
Debt securities, including government bonds and mortgage backed
securities, will normally be valued on the basis of evaluated bid prices.
Securities for which representative valuations or 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 Funds Board of
Directors.
Short-term investments that mature in sixty days or less are valued at
amortized cost.
SECURITY TRANSACTIONS, INVESTMENT INCOME AND EXPENSES
Security transactions are accounted for on the date the securities are
purchased or sold. Dividend income is recorded on the ex-dividend date.
Interest income and expenses are recorded on an accrual basis.
Most expenses of the Corporation can be attributed to a specific fund.
Expenses which cannot be directly attributed are apportioned among the funds
in the Corporation.
FEDERAL INCOME TAXES
The Fund's policy is to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies. The Fund is not
subject to federal income or excise tax to the extent the Fund distributes to
shareholders each year its taxable income, including any net realized gains
on investments in accordance with requirements of the Internal Revenue Code.
Accordingly, no provision for federal income tax or excise tax has been made
in the financial statements.
10
<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.
DISTRIBUTIONS OF INCOME AND GAINS
Distributions to shareholders of net investment income are made
quarterly. Distributions are recorded on the ex-dividend date. Distributions
of net realized gains are distributed annually. An additional distribution
may be necessary to avoid taxation of the Fund.
The timing and characterization of certain income and capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. The differences may be a
result of deferral of certain losses, character reclassification between net
income and net gains, or other tax adjustments. As a result, net investment
income (loss) and net investment gain (loss) on investment transactions for a
reporting period may differ significantly from distributions to shareholders
during such period. As a result, the Fund may periodically make
reclassifications among its capital accounts without impacting the Fund's net
asset value.
OTHER
The preparation of the 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 revenues and expenses during
the reporting period. Actual results could differ from those estimates.
3. TRANSACTIONS WITH AFFILIATES
The Fund has an investment advisory agreement with Manning & Napier
Advisors, Inc. (the "Advisor"), for which the Fund pays the Advisor a fee,
computed daily and payable monthly, at an annual rate of 0.45% of the Fund's
average daily net assets. The fee amounted to $2,897 for the year ended
October 31, 1997.
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.
11
<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 0.80% of average daily net assets each year.
Accordingly, the Advisor did not impose any of its fee and paid expenses
amounting to $15,892 for the year ended October 31, 1997, 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 $155 for the year ended October 31,
1997.
Manning & Napier Investor Services, Inc., a registered broker-dealer
affiliate of the Advisor, acts as distributor for the Fund's shares. The
services of Manning & Napier Investor Services, Inc. are provided at no
additional cost to the Fund.
The compensation of the non-affiliated Directors totaled $7,346 for the
year ended October 31, 1997.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of United States Government securities, other than
short-term securities, were $552,135 and $350,019, respectively, for the year
ended October 31, 1997.
5. CAPITAL STOCK TRANSACTIONS
<TABLE>
<CAPTION>
Transactions in shares of Flexible Yield Series II Class A Common Stock were:
For the Year For the Ten Months For the Year
Ended 10/31/97 Ended 10/31/96 Ended 12/31/95
------------------- ------------------- ---------------
Shares Amount Shares Amount Shares Amount
-------- ---------- ------------------- --------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Sold 46,530 $461,689 7,361 $ 72,902 17,414 $ 173,234
Reinvested 3,696 36,561 1,460 14,399 2,527 25,352
Repurchased (27,676) (276,389) (3,711) (37,426) (20,065) (204,537)
------- ---------- ------------------- --------- --------------- ----------
Net increase
(decrease) 22,550 $221,861 5,110 $ 49,875 (124) $ (5,951)
======= ========== =================== ========= =============== ==========
</TABLE>
The Advisor owned 14,700 shares on October 31, 1997, 13,836 shares on October
31, 1996, and 13,383 shares on December 31, 1995.
12
<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 October 31, 1997.
13
<PAGE>
Independent Auditors Report
TO THE DIRECTORS OF MANNING & NAPIER FUND, INC.
AND SHAREHOLDERS OF FLEXIBLE YIELD SERIES II:
We have audited the accompanying statement of assets and liabilities,
including the investment portfolio, of Flexible Yield Series II (one of the
series constituting Manning & Napier Fund, Inc.) as of October 31, 1997, the
related statement of operations for the year then ended, the statement of
changes in net assets for the year ended October 31, 1997, the ten months
ended October 31, 1996 and the year ended December 31, 1995, and the
financial highlights for the year ended October 31, 1997, the ten months
ended October 31, 1996, and each of the years in the two year period ended
December 31, 1995. These financial statements and financial highlights are
the responsibility of the Funds management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of investments owned at October 31, 1997
by correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of the
Flexible Yield Series II at October 31, 1997, the results of its operations,
the changes in its net assets and its financial highlights for the
respective stated periods in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
BOSTON, MASSACHUSETTS
NOVEMBER 26, 1997
14
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
Flexible Yield Series III
Annual Report
October 31, 1997
<PAGE>
Management Discussion and Analysis
Lets face it, fixed income management is not a high risk profession.
Aside from stress, the biggest physical risk fixed income managers face is
the continued deterioration of their eyesight. Of course the same can
probably be said of any profession which entails reading, writing, or staring
at a computer screen for 8 to 10 hours a day. The clinical term for this
condition is myopia, a visual defect where distant objects are blurred
because their image is focused in front of the retina rather than on the
retina itself. While it is likely that many fixed income professionals
suffer from this malady, there is a secondary definition of myopia that is
far more endemic in the fixed income investment community today. That
definition defines myopia as a shortsightedness in thinking or planning.
For example, when the Labor Department released their employment report
at 8:30 A.M. on the first Friday of October, the market responded by
driving long-term interest rates down from 6.30% to 6.15%. Later in the
morning when a story came across the newswire that a U.S. aircraft carrier
was heading toward the Persian Gulf, concerns about oil prices drove long
rates back to 6.40%. When it was revealed that the carrier had been
scheduled to head to the gulf, the market recovered and long bonds ended the
day where they had started at 6.30%. Such gyrations are symptomatic of the
short-term focus of the market and some managers do try to game out those
factors and invest accordingly. That is a tough game to play, and an even
tougher game to win.
Rest assured, that is not how Manning & Napier approaches the management
of its fixed income funds. We invest based upon our long-term overview. We
do monitor the short- term factors that impact the market, but we do so to
see if they strengthen, weaken or have no effect on our long term overview.
For those of you who are new shareholders, our overview calls for a
continuation of the saw-tooth decline in interest rates that has
characterized the domestic fixed income market for the last 15 years. That
decline can be traced to the globalization of the worlds economy, the
resulting increase in the competitive environment, and disinflationary
pressure that has resulted from consumers, producers, and policy makers
responding to that new environment.
In a competitive global environment, governments have no choice but to
enact sound fiscal and monetary policies. Nowhere is that more evident than
in the United States. In the early 1990s, the U.S. federal government was
running budget deficits in excess of $300 billion. At the time, some of the
more negative predictions were calling for deficits exceeding $500 billion.
History proved them wrong. Through September, which is the end of the
federal governments fiscal year, the trailing 12 month budget deficit had
shrunk to an amazingly low $22.3 billion. At the start of the fiscal year,
deficit projections had called for a deficit in the neighborhood of $125
billion for fiscal year 1997.
There are two reasons for the dramatic improvement. First, receipts
continue to exceed expectations. Some of that can be traced to the fact that
this is the seventh year of the economic expansion. It can also be traced to
a stock market that is about to post its third consecutive year of double
digit returns. That has generated above-average capital gains and associated
capital gains taxes. Second, and more interestingly, expenditure growth has
been very much restrained. On a year-over-year basis it has been in the
neighborhood of 3%. Policy makers do not have direct control over the level
of receipts that come in; however, they do control expenditures. Their
restraint (a term not often applied to politicians) has been driven by the
financial markets' ability to enforce fiscal discipline.
1
<PAGE>
Management Discussion and Analysis
How so? With the growth of international financial markets, capital
flows from one country to another almost seamlessly. Those countries with
well-defined property rights, established legal systems, and attractive
relative returns will be the most successful when it comes to keeping
capital, as well as attracting foreign capital. Sound policies are a key
contributor to whether a country offers attractive relative returns. The
situation is compounded by the fact that the U.S. is running a rather sizable
current account deficit. Because of that, it is even more important that the
U.S. attract foreign capital. Otherwise our investment needs cannot be met.
Another investment opinion that has grown out of our long-term overview
is the lack of pricing power and the need for producers to strive for
productivity gains if they are to remain competitive in the global economy.
That is one of the few ways that they can achieve earnings growth, and from
an inflation standpoint, it contributes to the disinflationary environment.
Manufacturing productivity has been strong throughout the 1990s; it has been
the measures of service sector productivity that have appeared lacking.
However, over the last year there has been a growing consensus that service
sector productivity has been mismeasured. Not only is service sector
productivity hard to measure, but the low numbers being reported seem to
contradict the incredible investments that firms have made in computers and
information processing. That does not even address the high level of merger
activity that has permeated all sectors of the economy.
Solid productivity gains help to explain what has occurred in the U.S.
economy in 1997, specifically strong growth and declining inflation. During
the first quarter of this year, the economy grew at close to a 5% real rate
(i.e., 5% over the inflation rate). In the second quarter, real growth was
just under 4%, and during the third quarter, growth came in at 3.5%. Those
are all solid readings, and intuitively one would expect inflation pressures
to build, but over the same period, the Consumer Price Index slowed from a
year-over-year rate of 3.3% to 2.2%. The Producer Price Indexs
year-over-year growth rate fell from 3% to 0%. Strong growth and declining
inflation are typically thought to be mutually exclusive. But that has not
been the case this year, and that was not the case during the 1950s and early
1960s when strong productivity gains allowed growth and low inflation to
coexist peacefully.
Both of these big picture items -- declining budget deficits and solid
productivity gains -- help to explain why interest rates have fallen over
the last 12 months. On the short end of the yield curve, rates are actually
a touch higher. However, two-year note rates are down 12 basis points
(0.12%) over the last year, five-year note rates are down 35 basis points
(0.35%), and long bond rates have fallen by 49 basis points (0.49%). In
fixed income parlance, the yield curve has flattened. From a performance
standpoint, falling interest rates mean higher returns; the further out on
the yield curve an investor ventured, the better his or her performance.
As of the end of October, we had positioned the Flexible Yield Series III
in longer-term bonds than its benchmark, the Merrill Lynch
Corporate/Government Bond Index, in keeping with our overview. Unlike the
index, the Series did not hold corporate bonds because we do not believe the
higher yields paid by corporates are worth their inherent credit risk.
Corporate bonds outperformed government bonds over the last twelve months,
but the disadvantage in performance caused by not holding corporate bonds was
outweighed by the benefit of holding longer-term bonds. Flexible Yield
Series III, which has no maturity restrictions, returned 9.73% for the year
ending October 31, 1997. That easily exceeded the Merrill Lynch
Corporate/Government Index which returned 8.95%. This outperformance was
achieved despite the fact that the benchmark does not reflect the fees and
expenses
2
<PAGE>
Management Discussion and Analysis
that real-world investors incur and with a higher quality (i.e., lower
credit risk ) portfolio than the benchmark.
What we hope you noticed while you were reading this letter, is that none
of our conclusions depended upon our opinion of the most recent economic
release, they did not depend on a forecast of the economy over the next 6 to
12 months, and they did not depend upon our opinion of what the Federal
Reserve is going to do at the next Federal Open Market Committee meeting. As
we have stated on more than one occasion, the key to success is to focus on
the long-term trends. Manning & Napier has done that. The proof as they say
is in the pudding, and the performance of the Series given its extremely high
quality has been quite good.
Once again, we very much appreciate your business, and we hope that you
and your families have a healthy and joyous holiday season.
Sincerely,
Manning & Napier Advisors, Inc.
<graphic>
<pie chart>
Data for chart to follow:
Effective Maturity - As of 10/31/97
Less than 1 Year - 2%
1-2 Years - 7%
2-3 Years - 4%
5-7 Years - 25%
7-10 Years - 23%
Over 10 Years - 39%
<graphic>
<pie chart>
Data for chart to follow:
Portfolio Composition - As of 10/31/97
U.S. Treasury Securities - 91%
Mortgage Backed Securities - 4%
Cash & Equivalents - 5%
3
<PAGE>
Performance Update as of October 31, 1997
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc. - Flexible Yield Series III
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
10/31/97 Investment Cumulative Annual
One Year $ 10,973 9.73% 9.73%
Inception 2 $ 12,542 25.42% 6.03%
</TABLE>
<TABLE>
<CAPTION>
Merrill Lynch Corporate/Government Bond Index
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
10/31/97 Investment Cumulative Annual
One Year $ 10,895 8.95% 8.95%
Inception 2 $ 12,832 28.32% 6.66%
</TABLE>
The value of a $10,000 investment in the
Manning & Napier Fund, Inc. - Flexible Yield
Series III from its inception (12/20/93) to
present (10/31/97) as compared to the Merrill
Lynch Corporate/Government Bond Index. 1
<graphic>
<line chart>
Data for chart to follow:
<TABLE>
<CAPTION>
Date Manning & Napier Merrill Lynch Corporate/
Flexible Yield Series III Government Bond Index
<S> <C> <C>
12/20/93 10,000 10,000
12/31/93 9,960 10,013
12/31/94 9,380 9,686
12/31/95 11,451 11,532
10/31/96 11,431 11,778
10/31/97 12,542 12,832
</TABLE>
1 The Merrill Lynch Corporate/Government Bond Index is a market
value weighted measure of approximately 5,638 corporate and
government bonds. The Index is comprised of investment grade
securities with maturities greater than one year. The Index returns
assume reinvestment of coupons and, unlike Fund returns, do not reflect
any fees or expenses.
2 The Fund and Index performance are calculated from December 20,
1993, the Fund's inception date. The Fund's performance is historical
and may not be indicative of future results.
4
<PAGE>
Investment Portfolio - October 31, 1997
<TABLE>
<CAPTION>
Principal VALUE
AMOUNT (NOTE 2)
U.S. TREASURY SECURITIES - 91.02%
<S> <C> <C>
U.S. TREASURY BONDS - 32.27%
U.S. Treasury Bond, 5.625%, 2/15/2006 $ 70,000 $ 68,687
U.S. Treasury Bond, 7.25%, 8/15/2022 175,000 197,094
U.S. Treasury Bond, 6.875%, 8/15/2025 155,000 168,369
-----------
TOTAL U.S. TREASURY BONDS
(Identified Cost $379,604) 434,150
-----------
U.S. TREASURY NOTES - 52.38%
U.S. Treasury Note, 5.875%, 4/30/1998 10,000 10,019
U.S. Treasury Note, 5.125%, 11/30/1998 35,000 34,836
U.S. Treasury Note, 6.00%, 6/30/1999 35,000 35,208
U.S. Treasury Note, 6.375%, 7/15/1999 15,000 15,178
U.S. Treasury Note, 7.75%, 11/30/1999 20,000 20,812
U.S. Treasury Note, 6.25%, 8/31/2000 30,000 30,422
U.S. Treasury Note, 6.25%, 6/30/2002 50,000 50,969
U.S. Treasury Note, 6.375%, 8/15/2002 100,000 102,563
U.S. Treasury Note, 5.875%, 2/15/2004 170,000 170,691
U.S. Treasury Note, 6.50%, 8/15/2005 55,000 57,028
U.S. Treasury Note, 6.50%, 10/15/2006 60,000 62,400
U.S. Treasury Note, 6.25%, 2/15/2007 50,000 51,234
U.S. Treasury Note, 6.625%, 5/15/2007 60,000 63,188
-----------
TOTAL U.S. TREASURY NOTES
(Identified Cost $677,923) 704,548
-----------
U.S. TREASURY STRIPPED SECURITIES- 6.37%
Interest Stripped - Principal Payment, 5/15/2014 98,000 35,202
Interest Stripped - Principal Payment, 8/15/2014 143,000 50,493
-----------
TOTAL U.S. TREASURY STRIPPED SECURITIES
(Identified Cost $85,061) 85,695
-----------
TOTAL U.S. TREASURY SECURITIES
(Identified Cost $1,142,588) 1,224,393
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
Investment Portfolio - October 31, 1997
<TABLE>
<CAPTION>
Principal Value
Amount/Shares (Note 2)
<S> <C> <C>
U.S. GOVERNMENT AGENCIES - 4.45%
MORTGAGE BACKED SECURITIES
GNMA, Pool #224199, 9.50%, 7/15/2018 $ 12,956 $ 14,021
GNMA, Pool #299164, 9.00%, 12/15/2020 13,202 14,081
GNMA, Pool #376345, 6.50%, 12/15/2023 32,099 31,718
-----------
TOTAL U.S. GOVERNMENT AGENCIES
(Identified Cost $55,033) 59,820
-----------
SHORT-TERM INVESTMENTS - 0.76%
Dreyfus U.S. Treasury Money Market Reserves
(Identified Cost $10,288) 10,288 10,288
-----------
TOTAL INVESTMENTS - 96.23%
(Identified Cost $1,207,909) 1,294,501
OTHER ASSETS, LESS LIABILITIES - 3.77% 50,780
-----------
NET ASSETS - 100% $1,345,281
===========
</TABLE>
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
<S> <C>
At October 31, 1997, the net unrealized appreciation based on identified cost for
federal income tax purposes of $1,207,909 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost $89,225
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value (2,633)
--------
UNREALIZED APPRECIATION - NET $86,592
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
OCTOBER 31, 1997
<S> <C>
ASSETS:
Investments, at value (Identified Cost $1,207,909)(Note 2) $1,294,501
Cash 43,084
Interest receivable 16,838
Receivable from investment advisor (Note 3) 11,587
----------
TOTAL ASSETS 1,366,010
----------
LIABILITIES:
Accrued Directors' fees (Note 3) 7,345
Transfer agent fees payable (Note 3) 300
Audit fee payable 8,524
Other payables and accrued expenses 4,560
----------
TOTAL LIABILITIES 20,729
----------
NET ASSETS FOR 129,274 SHARES OUTSTANDING $1,345,281
==========
NET ASSETS CONSIST OF:
Capital stock $ 1,293
Additional paid-in-capital 1,239,186
Undistributed net investment income 17,515
Accumulated net realized gain on investments 695
Net unrealized appreciation on investments 86,592
----------
TOTAL NET ASSETS $1,345,281
==========
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($1,345,281/129,274 shares) $ 10.41
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31, 1997
<S> <C>
INVESTMENT INCOME:
Interest $ 83,411
---------
EXPENSES:
Management fees (Note 3) 6,249
Directors' fees (Note 3) 7,345
Transfer agent fees (Note 3) 300
Audit fee 8,450
Registration and filing fees 3,900
Custodian fee 1,255
Miscellaneous 960
---------
Total Expenses 28,459
Less Reduction of Expenses (Note 3) (17,836)
---------
Net Expenses 10,623
---------
NET INVESTMENT INCOME 72,788
---------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments (identified cost basis) 1,966
Net change in unrealized appreciation on investments 48,709
---------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS 50,675
---------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $123,463
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the For the Ten For the
Year Ended Months Ended Year Ended
10/31/97 10/31/96 12/31/95
------------ -------------- ------------
INCREASE (DECREASE) IN NET ASSETS:
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 72,788 $ 53,298 $ 58,364
Net realized gain (loss) on investments 1,966 4,772 (132)
Net change in unrealized appreciation
(depreciation) on investments 48,709 (60,560) 128,849
------------ -------------- ------------
Net increase (decrease) in net assets from
operations 123,463 (2,490) 187,081
------------ -------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (73,237) (36,728) (57,528)
From net realized gain on investments (4,865) -- --
------------ -------------- ------------
Total distributions to shareholders (78,102) (36,728) (57,528)
------------ -------------- ------------
CAPITAL STOCK ISSUED AND REPURCHASED:
Net increase (decrease) in net assets from capital
share transactions (Note 5) 202,056 (22,142) 282,134
------------ -------------- ------------
Net increase (decrease) in net assets 247,417 (61,360) 411,687
NET ASSETS:
Beginning of period 1,097,864 1,159,224 747,537
------------ -------------- ------------
END OF PERIOD (including undistributed net
investment income of $17,515, $16,958 and
$388, respectively) $ 1,345,281 $ 1,097,864 $ 1,159,224
============ ============== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
For the Period
For the For the For the For the 12/20/93
Year Ten Months Year Year (commencement
Ended Ended Ended Ended of operations)
10/31/97 10/31/96 12/31/95 12/31/94 to 12/31/93
Per share data (for a share outstanding
throughout each period):
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.13 $ 10.51 $ 9.11 $ 9.95 $ 10.00
---------- ------------ ---------- ---------- ----------------
Income from investment operations:
Net investment income 0.580 0.497 0.582 0.262 0.010
Net realized and unrealized gain (loss)
on investments 0.355 (0.532) 1.393 (0.841) (0.050)
---------- ------------ ---------- ---------- ----------------
Total from investment operations 0.935 (0.035) 1.975 (0.579) (0.040)
---------- ------------ ---------- ---------- ----------------
Less distributions to shareholders:
From net investment income (0.610) (0.345) (0.575) (0.261) (0.010)
From net realized gain on investments (0.045) -- -- -- --
---------- ------------ ---------- ---------- ----------------
Total distributions to shareholders (0.655) (0.345) (0.575) (0.261) (0.010)
---------- ------------ ---------- ---------- ----------------
NET ASSET VALUE - END OF PERIOD $ 10.41 $ 10.13 $ 10.51 $ 9.11 $ 9.95
========== ============ ========== ========== ================
Total return 1: 9.73% (0.18%) 22.09% (5.83%) (0.40%)
Ratios (to average net assets)/Supplemental Data:
Expenses* 0.85% 0.85%2 0.85% 0.85% 0.85%2
Net investment income* 5.82% 5.98%2 6.13% 6.22% 3.85%2
Portfolio turnover 51% 5% 6% 1% 0%
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 1,345 $ 1,098 $ 1,159 $ 748 $ 75
========== ============ ========== ========== ================
</TABLE>
* The investment advisor did not impose its management fee and paid a portion
of the Fund's expenses. If these expenses had been incurred by the Fund,
and had 1993, 1994 and 1996 expenses been limited to that allowed by state
securities law, the net investment income per share and the ratios would have
been as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Net investment income $0.437 $ 0.360 $0.429 $0.192 $ 0.010
Ratios(to average net assets):
Expenses 2.28% 2.50%2 2.46% 2.50% 2.50%2
Net investment income 4.39% 4.33%2 4.52% 4.57% 2.20%2
</TABLE>
1 Represents aggregate total return for the period indicated.
2 Annualized.
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
Notes to Financial Statements
1. ORGANIZATION
Flexible Yield Series III (the "Fund") is a no-load diversified series of
Manning & Napier Fund, Inc. (the "Corporation"). The Corporation is
organized in Maryland and is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company.
The total authorized capital stock of the Corporation consists of one
billion shares of common stock each having a par value of $0.01. As of
October 31, 1997, 940 million shares have been designated in total among 19
series, of which 37.5 million have been designated as Flexible Yield Series
III Class A Common Stock.
Effective January 1, 1996 the Fund changed its fiscal year end from
December 31 to October 31.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Portfolio securities listed on an exchange are valued at the latest
quoted sales price of the exchange on which the security is traded most
extensively. Securities not traded on valuation date or securities not
listed on an exchange are valued at the latest quoted bid price.
Debt securities, including government bonds and mortgage backed
securities, will normally be valued on the basis of evaluated bid prices.
Securities for which representative valuations or 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 days or less are valued at
amortized cost.
SECURITY TRANSACTIONS, INVESTMENT INCOME AND EXPENSES
Security transactions are accounted for on the date the securities are
purchased or sold. Dividend income is recorded on the ex-dividend date.
Interest income and expenses are recorded on an accrual basis.
Most expenses of the Corporation can be attributed to a specific fund.
Expenses which cannot be directly attributed are apportioned among the funds
in the Corporation.
11
<PAGE>
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FEDERAL INCOME TAXES
The Fund's policy is to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies. The Fund is not
subject to federal income or excise tax to the extent the Fund distributes to
shareholders each year its taxable income, including any net realized gains
on investments in accordance with requirements of the Internal Revenue Code.
Accordingly, no provision for federal income tax or excise tax has been made
in the financial statements.
The Fund uses the identified cost method for determining realized gain or
loss on investments for both financial statement and federal income tax
reporting purposes.
DISTRIBUTIONS OF INCOME AND GAINS
Distributions to shareholders of net investment income are made
quarterly. Distributions are recorded on the ex-dividend date. Distributions
of net realized gains are distributed annually. An additional distribution
may be necessary to avoid taxation of the Fund.
The timing and characterization of certain income and capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. The differences may be a
result of deferral of certain losses, character reclassification between net
income and net gains, or other tax adjustments. As a result, net investment
income (loss) and net investment gain (loss) on investment transactions for a
reporting period may differ significantly from distributions to shareholders
during such period. As a result, the Fund may periodically make
reclassifications among its capital accounts without impacting the Fund's net
asset value.
OTHER
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the 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 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 $6,249 for the year ended
October 31, 1997.
12
<PAGE>
Notes to Financial Statements
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
Under the Fund's Investment Advisory Agreement (the "Agreement"),
personnel of the Advisor provide the Fund with advice and assistance in the
choice of investments and the execution of securities transactions, and
otherwise maintain the Fund's organization. The Advisor also provides the
Fund with necessary office space and portfolio accounting and bookkeeping
services. The salaries of all officers of the Fund and of all Directors who
are affiliated persons of the Fund or of the Advisor, and all personnel of
the Fund or of the Advisor performing services relating to research,
statistical and investment activities are paid by the Advisor.
The Advisor has voluntarily agreed to waive its fee and, if necessary,
pay other expenses of the Fund in order to maintain total expenses for the
Fund at no more than 0.85% of average daily net assets each year.
Accordingly, the Advisor did not impose any of its fee and paid expenses
amounting to $11,587 for the year ended October 31, 1997, 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 $300 for the year ended October 31,
1997.
Manning & Napier Investor Services, Inc., a registered broker-dealer
affiliate of the Advisor, acts as distributor for the Fund's shares. The
services of Manning & Napier Investor Services, Inc. are provided at no
additional cost to the Fund.
The compensation of the non-affiliated Directors totaled $7,345 for the
year ended October 31,1997.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of United States Government securities, other than
short-term securities, were $746,052 and $587,286, respectively, for the year
ended October 31, 1997.
13
<PAGE>
5. CAPITAL STOCK TRANSACTIONS
Transactions in shares of Flexible Yield Series III Class A Common Stock
were:
<TABLE>
<CAPTION>
For the Year For the Ten Months For the Year
Ended 10/31/97 Ended 10/31/96 Ended 12/31/95
--------------- ------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Shares Amount Shares Amount Shares Amount
--------------- ---------- ------------------- ---------- --------------- ---------
Sold 76,364 $ 754,896 6,096 $ 60,715 23,843 $236,968
Reinvested 6,790 67,166 3,073 30,104 4,597 46,488
Repurchased (62,307) (620,006) (11,073) (112,961) (129) (1,322)
--------------- ---------- ------------------- ---------- --------------- ---------
Net increase
(decrease) 20,847 $ 202,056 (1,904) $ (22,142) 28,311 $282,134
=============== ========== =================== ========== =============== =========
</TABLE>
The Advisor owned 11,513 shares on October 31, 1997, 10,782 shares on
October 31, 1996, and 10,412 shares on December 31, 1995.
6. FINANCIAL INSTRUMENTS
The Fund may trade in financial instruments with off-balance sheet risk
in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include
written options and futures contracts and may involve, to a varying degree,
elements of risk in excess of the amounts recognized for financial statement
purposes. No such investments were held by the Fund on October 31, 1997.
14
<PAGE>
Independent Auditors Report
TO THE DIRECTORS OF MANNING & NAPIER FUND, INC.
AND SHAREHOLDERS OF FLEXIBLE YIELD SERIES III:
We have audited the accompanying statement of assets and liabilities,
including the investment portfolio, of Flexible Yield Series III (one of the
series constituting Manning & Napier Fund, Inc.) as of October 31, 1997, the
related statement of operations for the year then ended, the statement of
changes in net assets for the year ended October 31, 1997, the ten months
ended October 31, 1996 and the year ended December 31, 1995, and the
financial highlights for the year ended October 31, 1997, the ten months
ended October 31, 1996, and each of the years in the three year period ended
December 31, 1995. These financial statements and financial highlights are
the responsibility of the Funds management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of investments owned at October 31, 1997
by correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of the
Flexible Yield Series III at October 31, 1997, the results of its operations,
the changes in its net assets and its financial highlights for the
respective stated periods in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
BOSTON, MASSACHUSETTS
NOVEMBER 26, 1997
15
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
Defensive Series
Annual Report
October 31, 1997
<PAGE>
Management Discussion and Analysis
Dear Shareholders:
In our last letter to you six months ago, we explained that this late
cycle stock market had reached excessive valuations and stated that, while we
may not see a significant correction, we could very likely experience
flat-to-mediocre returns over time. While the events on October 27, 1997
were dramatic, with the Dow Jones Industrial Average plunging over 550 points
in one day and twice setting off the New York Stock Exchanges circuit
breakers, half of that days losses were gained back the following day. We
have not fallen into significant correction territory and valuations in the
U.S. stock market remain high, but it is evident that the market environment
is emotional.
We have positioned the portfolio based on our overview that the U.S.
stock market, and especially the large cap U.S. multinationals, has been
reaching extremes. The stock selection process is based, as always, on the
fundamentals underlying the investments. In managing the portfolio, we have
largely steered away from the volatile technology sector and the excessively
valued blue chips, and instead focused on stocks which we expect to be less
likely to be hit as hard by a correction and to lead in a recovery. While
there are less opportunities to be found domestically, the portfolio has
gained an increased exposure in the international markets. Many of the world
markets were indeed rocked by the recent events, but the portfolios holdings
primarily avoid the most profoundly hit Asian markets. We have also been
prepared to take advantage of some good values as they become available, and
the correction provided the opportunity to add some quality securities to the
portfolio.
While the stock market plunged, the bond market rallied strongly. The
yield on the 30-year U.S. Treasury bond dropped more than 80 basis points
(0.80%) over this six-month period, offering further evidence of the low
inflation environment as well as reflecting a flight to quality in the recent
turmoil. The fixed income portion of the portfolio, with its emphasis on
longer durations, has benefitted from this significant move. The use of long
bonds to control stock market volatility at extremes is a key component of
our risk management strategy and one which proved very effective during
October's turmoil.
1
<PAGE>
Management Discussion and Analysis
In conclusion, while the recent stock market events have raised investors
emotions, it may at the same time bring them down to earth. We will continue
to attempt to manage risk based on our long-term overview, making decisions
from the fundamentals and taking advantage of opportunities as they arise.
Once again, we very much appreciate your business, and we hope that you
and your families have a healthy and joyous holiday season.
Sincerely,
Manning & Napier Advisors, Inc.
Portfolio Composition - As of 10/31/97
Bonds - 80%
Stocks - 16%
Cash & Equivalents - 4%
2
<PAGE>
Performance Update as of October 31, 1997
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc. - Defensive Series
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
10/31/97 Investment Cumulative Annual
One Year $ 10,874 8.74% 8.74%
Inception 2 $ 11,411 14.11% 6.81%
</TABLE>
<TABLE>
<CAPTION>
Lehman Brothers Intermediate Bond Index
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
10/31/97 Investment Cumulative Annual
One Year $ 10,749 7.49% 7.49%
Inception 2 $ 11,374 13.74% 6.64%
</TABLE>
<TABLE>
<CAPTION>
15-85 Blended Index
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
10/31/97 Investment Cumulative Annual
One Year $ 11,112 11.12% 11.12%
Inception 2 $ 12,052 20.52% 9.77%
</TABLE>
The value of a $10,000 investment in the
Manning & Napier Fund, Inc. - Defensive
Series from its inception (11/1/95) to present
(10/31/97) as compared to the Lehman
Brothers Intermediate Bond Index and a
15-85 Blended Index. 1
<graphic>
<line chart>
Data for chart to follow:
<TABLE>
<CAPTION>
Manning & Napier Lehman Brothers
Defensive Series Intermediate Bond Index 15-85 Blended Index
<S> <C> <C> <C>
11/01/95 10,000 10,000 10,000
04/30/96 10,116 10,116 10,301
10/31/96 10,494 10,581 10,847
01/31/97 10,620 10,693 11,140
10/31/97 11,411 11,374 12,052
</TABLE>
1 The Lehman Brothers Intermediate Bond Index is a market value weighted
measure of approximately 3,850 corporate and government securities.
The Index is comprised of investment grade securities with maturities
greater than one year but less than ten years. The 15-85 Blended
Index is 15% Standard & Poor's (S&P) 500 Total Return Index and
85% Lehman Brothers Intermediate Bond Index. The S&P 500 Total
Return Index is an unmanaged capitalization-weighted measure of 500
widely held common stocks listed on the New York Stock Exchange, American
Stock Exchange, and Over-the-Counter market. Both Indices returns assume
reinvestment of income and, unlike Fund returns, do not reflect any fees or
expenses.
2 Performance numbers for the Fund and Indices are calculated from
November 1, 1995, the Fund's inception date. The Fund's performance
is historical and may not be indicative of future results.
3
<PAGE>
Investment Portfolio - October 31, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
<S> <C> <C>
COMMON STOCK - 16.11%
AGRICULTURAL PRODUCTION - 0.02%
Sylvan, Inc.* 25 $ 375
---------
AMUSEMENT & RECREATION SERVICES - 0.41%
Grand Casinos, Inc.* 25 336
Resorts World Berhad - ADR (Note 7) 775 6,882
---------
7,218
---------
CHEMICAL & ALLIED PRODUCTS - 1.87%
Pharmacia & Upjohn, Inc. 575 18,256
R.P. Scherer Corp.* 250 14,719
---------
32,975
---------
COMPUTERS - 0.04%
Bell & Howell Co.* 25 689
---------
CONSUMER PRODUCTS - MISCELLANEOUS - 0.69%
Unilever plc - ADR (Note 7) 400 12,100
---------
CRUDE PETROLEUM & NATURAL GAS - 0.82%
Petroleo Brasileiro - SA (Petrobras) ADR (Note 7) 725 14,402
---------
DIAMONDS - 0.54%
DeBeers Centenary AG - ADR (Note 7) 400 9,600
---------
DISTRIBUTION - WHOLESALE - 0.62%
Unisource Worldwide, Inc. 675 11,011
---------
ELECTRONIC EQUIPMENT - 0.04%
Coleman Company, Inc.* 50 747
---------
ENGINEERING SERVICES - 0.19%
Jacobs Engineering Group, Inc.* 125 3,375
---------
FOOD & BEVERAGES - 1.69%
Allied Domecq plc - ADR (Note 7) 1,600 12,946
Guinness plc - ADR (Note 7) 375 16,790
---------
29,736
---------
GLASS PRODUCTS - 0.05%
Libbey, Inc. 25 934
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C> <C>
HEALTH SERVICES - 1.01%
MedPartners, Inc.* 700 $ 17,806
---------
HOLDING COMPANIES - 0.01%
C.P. Pokphand Co. (Hong Kong) (Note 7) 1,000 239
---------
INDUSTRIAL & COMMERCIAL MACHINERY - 0.44%
Comfort Systems USA, Inc.* 25 425
NN Ball & Roller, Inc. 50 437
York International Corp. 150 6,844
---------
7,706
---------
MANUFACTURING - MISCELLANEOUS - 0.03%
Penn Engineering & Manufacturing Corp. 25 609
---------
MOTION PICTURE PRODUCTION - 0.88%
Group AB SA - ADR* (Note 7) 50 372
Viacom, Inc. - Class B* 500 15,125
---------
15,497
---------
PLASTIC PRODUCTS - MISCELLANEOUS - 0.02%
PT Tri Polyta Indonesia - ADR (Note 7) 100 294
---------
PRIMARY METAL INDUSTRIES - 0.10%
American Superconductor Corp.* 25 275
Gibraltar Steel Corp.* 25 591
Wolverine Tube Inc.* 25 775
---------
1,641
---------
PRINTING & PUBLISHING - 0.08%
Playboy Enterprises, Inc. - Class B* 25 345
Scholastic Corp.* 25 1,012
---------
1,357
---------
RESTAURANTS - 1.40%
McDonald's Corp. 550 24,647
---------
RETAIL - 0.30%
RETAIL - RECREATIONAL GOODS - 0.03%
West Marine, Inc.* 25 525
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
Investment Portfolio - October 31, 1997
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C> <C>
RETAIL (CONTINUED)
RETAIL - SPECIALTY STORES - 0.27%
Hancock Fabrics, Inc. 300 $ 4,069
Loehmanns Holdings, Inc.* 25 178
Talbots, Inc. 25 600
---------
4,847
---------
5,372
---------
SOFTWARE - 0.11%
Apache Medical Systems, Inc.* 25 70
Broderbund Software, Inc.* 25 725
HCIA, Inc.* 50 619
Symantec Corp.* 25 547
---------
1,961
---------
TECHNICAL INSTRUMENTS & SUPPLIES - 2.71%
LABORATORY ANALYTICAL INSTRUMENTS - 1.01%
Mallinckrodt, Inc. 475 17,813
---------
OPTICAL SUPPLIES - 0.05%
Sola International Inc.* 25 853
---------
PHOTOGRAPHIC EQUIPMENT & SUPPLIES - 1.61%
Eastman Kodak Co. 475 28,441
---------
SURGICAL & MEDICAL INSTRUMENTS - 0.04%
Eclipse Surgical Technologies, Inc.* 25 223
Lunar Corp.* 25 477
---------
700
---------
47,807
---------
TELECOMMUNICATION SERVICE- 1.99%
Compania Anonima Nacional Telefonos de
Venezuela (CANTV) - ADR (Note 7) 300 13,125
Telecom Italia SpA - ADR (Note 7) 125 7,844
Telecomunicacoes Brasileiras (Telebras) -
ADR (Note 7) 140 14,210
---------
35,179
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
Investment Portfolio - October 31, 1997
<TABLE>
<CAPTION>
Shares/Principal Value
Amount (Note 2)
<S> <C> <C>
TRAINING & EDUCATION - 0.02%
Firearms Training Systems, Inc.* 50 $ 325
-----------
TRANSPORTATION EQUIPMENT - 0.03%
Federal Signal Corp. 25 605
-----------
TOTAL COMMON STOCK
(Identified Cost $287,418) 284,207
-----------
U.S. TREASURY SECURITIES - 73.90%
U.S. TREASURY BONDS - 21.44%
U.S. Treasury Bond, 6.50%, 5/15/2005 $ 260,000 $ 269,588
U.S. Treasury Bond, 6.875%, 8/15/2025 100,000 108,625
-----------
TOTAL U.S. TREASURY BONDS
(Identified Cost $357,574) 378,213
-----------
U.S. TREASURY NOTES - 52.46%
U.S. Treasury Note, 6.00%, 8/15/1999 385,000 387,286
U.S. Treasury Note, 6.125%, 9/30/2000 155,000 156,695
U.S. Treasury Note, 6.25%, 6/30/2002 150,000 152,906
U.S. Treasury Note, 5.875%, 9/30/2002 30,000 30,159
U.S. Treasury Note, 6.25%, 2/15/2003 155,000 158,245
U.S. Treasury Note, 5.875%, 2/14/2004 40,000 40,163
-----------
TOTAL U.S. TREASURY NOTES
(Identified Cost $917,439) 925,454
-----------
TOTAL U.S. TREASURY SECURITIES
(Identified Cost $1,275,013) 1,303,667
-----------
U.S. GOVERNMENT AGENCIES - 5.68%
MORTGAGE BACKED SECURITIES
GNMA, Pool #365225 , 9.00%, 11/24/2024 48,256 51,469
GNMA, Pool #398655, 6.50%, 5/15/2026 49,236 48,651
-----------
TOTAL U.S. GOVERNMENT AGENCIES
(Identified Cost $99,583) 100,120
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
Investment Portfolio - October 31, 1997
<TABLE>
<CAPTION>
Principal Value
Amount/Shares (Note 2)
<S> <C> <C>
SHORT-TERM INVESTMENTS - 5.18%
U.S. Treasury Bill, 12/11/1997 $ 40,000 $ 39,789
Dreyfus U.S. Treasury Money Market Reserves 51,546 51,546
-----------
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $91,335) 91,335
-----------
TOTAL INVESTMENTS - 100.87%
(Identified Cost $1,753,349) 1,779,329
LIABILITIES, LESS OTHER ASSETS - (0.87%) (15,293)
-----------
NET ASSETS - 100% $1,764,036
===========
</TABLE>
*Non-income producing security
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
<S> <C>
At October 31, 1997, the net unrealized appreciation based on identified
cost for federal income tax purposes of $1,760,273 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost $ 40,640
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value (21,589)
---------
UNREALIZED APPRECIATION - NET $ 19,051
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
OCTOBER 31, 1997
<S> <C>
ASSETS:
Investments, at value (Identified Cost $1,753,349)(Note 2) $1,779,329
Cash 2,005
Interest receivable 21,490
Dividends receivable 240
Receivable from investment advisor (Note 3) 11,188
----------
TOTAL ASSETS 1,814,252
----------
LIABILITIES:
Accrued Directors' fees (Note 3) 7,345
Transfer agent fees payable (Note 3) 338
Payable for fund shares repurchased 16,148
Payable for securities purchased 11,276
Audit fee payable 7,549
Custodian fee payable 1,399
Other payables and accrued expenses 6,161
----------
TOTAL LIABILITIES 50,216
----------
NET ASSETS FOR 164,649 SHARES OUTSTANDING $1,764,036
==========
NET ASSETS CONSIST OF:
Capital stock $ 1,646
Additional paid-in-capital 1,677,212
Undistributed net investment income 31,890
Accumulated net realized gain on investments 27,308
Net unrealized appreciation on investments 25,980
----------
TOTAL NET ASSETS $1,764,036
==========
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($1,764,036/164,649 shares) $ 10.71
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31, 1997
<S> <C>
INVESTMENT INCOME:
Interest $ 74,704
Dividends 2,092
---------
Total Investment Income 76,796
---------
EXPENSES:
Management fees (Note 3) 11,283
Directors' fees (Note 3) 7,345
Transfer agent fees (Note 3) 338
Audit fee 8,000
Registration and filing fees 4,721
Custodian fee 3,980
Miscellaneous 907
---------
Total Expenses 36,574
Less Reduction of Expenses (Note 3) (22,471)
---------
Net Expenses 14,103
---------
NET INVESTMENT INCOME 62,693
---------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments (identified cost basis) 27,310
Net change in unrealized appreciation (depreciation)
on investments 27,116
---------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS 54,426
---------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $117,119
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year For the Year
Ended 10/31/97 Ended 10/31/96
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 62,693 $ 21,079
Net realized gain on investments 27,310 6,509
Net change in unrealized appreciation (depreciation)
on investments 27,116 (1,136)
---------------- ----------------
Net increase in net assets from operations 117,119 26,452
---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (41,851) (10,031)
From net realized gain on investments (6,511) ----
---------------- ----------------
Total distributions to shareholders (48,362) (10,031)
---------------- ----------------
CAPITAL STOCK ISSUED AND REPURCHASED:
Net increase in net assets from capital share
transactions (Note 5) 950,074 728,784
---------------- ----------------
Net increase in net assets 1,018,831 745,205
NET ASSETS:
Beginning of period 745,205 ------
---------------- ----------------
END OF PERIOD (including undistributed net investment
income of $31,890 and $11,048, respectively) $ 1,764,036 $ 745,205
================ ================
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
For the Year For the Year
Ended 10/31/97 Ended 10/31/96
<S> <C> <C>
Per share data (for a share outstanding throughout
each period):
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.29 $ 10.00
---------------- ----------------
Income from investment operations:
Net investment income 0.426 0.349
Net realized and unrealized gain on investments 0.447 0.137
---------------- ----------------
Total from investment operations 0.873 0.486
---------------- ----------------
Less distributions to shareholders:
From net investment income (0.385) (0.196)
From net realized gain on investments (0.068) --
---------------- ----------------
Total distributions to shareholders (0.453) (0.196)
---------------- ----------------
NET ASSET VALUE - END OF PERIOD $ 10.71 $ 10.29
================ ================
Total return1: 8.74% 4.94%
Ratios (to average net assets) / Supplemental Data:
Expenses* 1.00% 1.00%
Net investment income* 4.45% 4.26%
Portfolio turnover 166% 30%
Average commission rate paid $ 0.0590 $ 0.0691
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 1,764 $ 745
================ ================
</TABLE>
*The investment advisor did not impose its management fee and paid a
portion of the Fund's expenses. If these expenses had been incurred by the
Fund, and had 1996 expenses been limited to that allowed by state securities
law, the net investment income per share and the ratios would have been
as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Net investment income $0.274 $0.226
Ratios (to average net assets):
Expenses 2.59% 2.50%
Net investment income 2.86% 2.76%
</TABLE>
1 Represents aggregate total return for the period indicated.
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
Notes to Financial Statements
1. ORGANIZATION
Defensive Series (the "Fund") is a no-load diversified series of Manning
& Napier Fund, Inc. (the "Corporation"). The Corporation is organized in
Maryland and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company.
The total authorized capital stock of the Corporation consists of one
billion shares of common stock each having a par value of $0.01. As of
October 31, 1997, 940 million shares have been designated in total among 19
series, of which 37.5 million have been designated as Defensive Series Class
A Common Stock.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Portfolio securities, including domestic equities, foreign equities,
options and corporate bonds, listed on an exchange are valued at the latest
quoted sales price of the exchange on which the security is traded most
extensively. Securities not traded on valuation date or securities not
listed on an exchange are valued at the latest quoted bid price.
Debt securities, including government bonds and mortgage backed
securities, will normally be valued on the basis of evaluated bid prices.
Securities for which representative valuations or 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 days or less are valued at
amortized cost.
SECURITY TRANSACTIONS, INVESTMENT INCOME AND EXPENSES
Security transactions are accounted for on the date the securities are
purchased or sold. Dividend income is recorded on the ex-dividend date.
Interest income and expenses are recorded on an accrual basis.
Most expenses of the Corporation can be attributed to a specific fund.
Expenses which cannot be directly attributed are apportioned among the funds
in the Corporation.
FEDERAL INCOME TAXES
The Fund's policy is to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies. The Fund is not
subject to federal income or excise tax to the extent the Fund distributes to
shareholders each year its taxable income, including any net realized gains
on investments in accordance with requirements of the Internal Revenue Code.
Accordingly, no provision for federal income tax or excise tax has been made
in the financial statements.
13
<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.
DISTRIBUTIONS OF INCOME AND GAINS
Distributions to shareholders of net investment income are made
semi-annually. Distributions are recorded on the ex-dividend date.
Distributions of net realized gains are distributed annually. An additional
distribution may be necessary to avoid taxation of the Fund.
The timing and characterization of certain income and capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. The differences may be a
result of deferral of certain losses, foreign denominated investments,
character reclassification between net income and net gains, or other tax
adjustments. As a result, net investment income (loss) and net investment
gain (loss) on investment transactions for a reporting period may differ
significantly from distributions to shareholders during such period. As a
result, the Fund may periodically make reclassifications among its capital
accounts without impacting the Fund's net asset value.
OTHER
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
3. TRANSACTIONS WITH AFFILIATES
The Fund has an investment advisory agreement with Manning & Napier
Advisors, Inc. (the "Advisor"), for which the Fund pays the Advisor a fee,
computed daily and payable monthly, at an annual rate of 0.8% of the Fund's
average daily net assets. The fee amounted to $11,283 for the year ended
October 31, 1997.
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.
14
<PAGE>
Notes to Financial Statements
3. TRANSACTIONS WITH AFFILIATES (continued)
The Advisor has voluntarily agreed to waive its fee and, if necessary,
pay other expenses of the Fund in order to maintain total expenses for the
Fund at no more than 1.0% of average daily net assets each year.
Accordingly, the Advisor did not impose any of its fee and paid expenses
amounting to $11,188 for the year ended October 31, 1997, 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 $338 for the year ended October 31,
1997.
Manning & Napier Investor Services, Inc., a registered broker-dealer
affiliate of the Advisor, acts as distributor for the Fund's shares. The
services of Manning & Napier Investor Services, Inc. are provided at no
additional cost to the Fund.
The compensation of the non-affiliated Directors totaled $7,345 for the
year ended October 31, 1997.
4. PURCHASES AND SALES OF SECURITIES
For the year ended October 31, 1997, purchases and sales of securities,
other than United States Government securities and short-term securities,
were $364,915 and $170,496, respectively. Purchases and sales of United
States Government securities were $2,738,204 and $1,986,176, respectively.
5. CAPITAL STOCK TRANSACTIONS
<TABLE>
<CAPTION>
Transactions in shares of Defensive Series Class A Common Stock were:
<S> <C> <C> <C> <C>
For the Year For the Year
Ended 10/31/97 Ended 10/31/96
-------------- ---------------
Shares Amount Shares Amount
------- ---------- -------------- ---------
Sold 166,901 $1,715,330 76,159 $766,290
Reinvested 4,719 48,362 1,010 10,030
Repurchased (79,413) (813,618) (4,727) (47,536)
------- ----------- --------------- ---------
Net increase 92,207 $ 950,074 72,442 $728,784
======= =========== =============== =========
</TABLE>
The Advisor owned 33,910 shares on October 31, 1997, and 12,747 shares
on October 31, 1996.
15
<PAGE>
Notes to Financial Statements
6. FINANCIAL INSTRUMENTS
The Fund may trade in financial instruments with off-balance sheet risk
in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include
written options, forward foreign currency exchange contracts, and futures
contracts and may involve, to a varying degree, elements of risk in excess of
the amounts recognized for financial statement purposes. No such investments
were held by the Fund on October 31, 1997.
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 domestic companies and the United States
government. These risks include revaluation of currencies and potential
adverse political and economic developments. Moreover, securities of foreign
companies and foreign governments may be less liquid and their prices more
volatile that those of securities of comparable domestic companies and the
United States government.
16
<PAGE>
Independent Auditors Report
TO THE DIRECTORS OF MANNING & NAPIER FUND, INC.
AND SHARESHOLDERS OF DEFENSIVE SERIES:
We have audited the accompanying statement of assets and liabilities,
including the investment portfolio, of Defensive Series (one of the series
constituting Manning & Napier Fund, Inc.) as of October 31, 1997, the related
statement of operations for the year then ended, and the statement of changes
in net assets, and the financial highlights for the years ended October 31,
1997 and 1996. These financial statements and financial highlights are the
responsibility of the Funds management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of investments owned as of October 31,
1997 by correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of the
Defensive Series at October 31, 1997, the results of its operations, the
changes in its net assets and its financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
BOSTON, MASSACHUSETTS
NOVEMBER 26, 1997
17
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
Tax Managed Series
Annual Report
October 31, 1997
<PAGE>
Management Discussion and Analysis
Dear Shareholders:
In our last letter to you six months ago, we explained that this late cycle
stock market had reached excessive valuations and stated that, while we may
not see a significant correction, we could very likely experience
flat-to-mediocre returns over time. While the events on October 27, 1997 were
dramatic, with the Dow Jones Industrial Average plunging over 550 points in
one day and twice setting off the New York Stock Exchanges circuit breakers,
half of that days losses were gained back the following day. We have not
fallen into significant correction territory and valuations in the U.S. stock
market remain high, but it is evident that the market environment is
emotional.
We have positioned the portfolio based on our overview that the U.S. stock
market, and especially the large cap U.S. multinationals, has been reaching
extremes, we seek to also minimize the impact of taxes on the portfolio. The
stock selection process is based, as always, on the fundamentals underlying
the investments. In managing the portfolio, we have steered away from the
volatile technology sector and some of the more excessively valued blue chips,
and instead focused on stocks which we expect to be less likely to be hit as
hard by a correction and to lead in a recovery. While there are less
opportunities to be found domestically, the portfolio has gained an increased
exposure in the international markets. Many of the world markets were indeed
rocked by the recent events, but the portfolios holdings avoid the most
profoundly hit Asian markets. We have also been prepared to take advantage of
some good values as they become available, and the correction provided the
opportunity to add some quality securities to the portfolio.
Keeping all this in mind, the Advisor has continued to adhere to its strategy
of minimizing the amount of realized gains in the short term as much as
possible given the volatile environment. Steps have also been taken to offset
capital gains by realizing losses when prudent.
In conclusion, while the recent stock market events have raised investors
emotions, it may at the same time bring them down to earth. By adhering to
our long-term overview, the Advisor will continue to attempt to manage risk
while minimizing the impact of taxes, making decisions based on the
fundamentals and taking advantage of opportunities as they arise.
Once again, we very much appreciate your business, and we hope that you and
your families have a healthy and joyous holiday season.
Sincerely,
Manning & Napier Advisors, Inc.
1
<PAGE>
Portfolio Composition - As of October 31, 1997
<graphic>
<pie chart>
Cash & Equivalents - 12%
Chemicals & Allied Products - 8%
Crude Petroleum & Natural Gas - 3%
Food & Beverages - 3%
Health Services - 5%
Idustrial & Commercial Machinery - 3%
Paper Mills - 6%
Primary Metal Industries - 3%
Electronic Equiment - 8%
Restaurants - 5%
Retail - 13%
Software - 10%
Technical Instruments & Supplies - 5%
Miscellaneous* - 16%
*Miscellaneous includes:
Air Transportation
Consumer Products - Miscellaneous
Glass Products
Management Services
Medical Products
Printing & Publishing
Rubber & Plastic Footwear
Telecommunication Service
Utilities - Electric
2
Performance Update as of October 31, 1997
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc. - Tax Managed Series
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
10/31/97 Investment Cumulative Annual
One Year $ 13,070 30.70% 30.70%
Inception 2 $ 15,200 52.00% 23.25%
</TABLE>
<TABLE>
<CAPTION>
Standard & Poor's (S&P) 500 Total Return
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
10/31/97 Investment Cumulative Annual
One Year $ 13,210 32.10% 32.10%
Inception 2 $ 16,392 63.92% 27.99%
</TABLE>
The value of a $10,000 investment in the
Manning & Napier Fund, Inc. - Tax Managed
Series from its inception (11/1/95) to present
(10/31/97) as compared to the Standard &
Poor's (S&P) 500 Total Return Index. 1
<graphic>chart>
Data for chart to follow:
<TABLE>
<CAPTION>
Manning & Napier Standard & Poors (S&P)
Tax Managed Series 500 Total Return Index
<S> <C> <C>
11/01/95 10,000 10,000
04/30/96 10,980 11,376
10/31/96 11,630 12,408
04/30/97 13,170 14,233
10/31/97 15,200 16,392
</TABLE>
1The Standard & Poor's (S&P) 500 Total Return Index is an unmanaged
capitalization-weighted measure of 500 widely held common stocks
listed on the New York Stock Exchange, American Stock Exchange,
and the Over-the-Counter Market. The Index returns assume
reinvestment of income and, unlike Fund returns, do not reflect any fees
or expenses.
2 The Fund and Index performance are calculated from November 1,
1995, the Fund's inception date. The Fund's performance is historical
and may not be indicative of future results.
3
<PAGE>
Investment Portfolio - October 31, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
COMMON STOCK - 88.36%
<S> <C> <C>
AIR TRANSPORTATION - 2.55%
Federal Express Corp.* 200 $ 13,350
---------
CHEMICAL & ALLIED PRODUCTS - 7.98%
Colgate-Palmolive Co. 200 12,950
Procter & Gamble Co. 100 6,800
R.P. Scherer Corp.* 375 22,078
---------
41,828
---------
CONSUMER PRODUCTS - MISCELLANEOUS - 1.73%
Unilever plc - ADR (Note 7) 300 9,075
---------
CRUDE PETROLEUM & NATURAL GAS - 3.41%
Petroleo Brasileiro SA (Petrobras) - ADR (Note 7) 900 17,878
---------
ELECTRONIC EQUIPMENT - 7.66%
Coleman Company, Inc.* 1,550 23,153
Motorola, Inc. 275 16,981
---------
40,134
---------
FOOD & BEVERAGES - 3.09%
Allied Domecq plc - ADR (Note 7) 2,000 16,182
---------
GLASS PRODUCTS - 0.89%
Libbey, Inc. 125 4,672
---------
HEALTH SERVICES - 4.74%
MedPartners, Inc.* 977 24,852
---------
INDUSTRIAL & COMMERCIAL MACHINERY - 3.48%
York International Corp. 400 18,250
---------
MANAGEMENT SERVICES - 2.34%
Physician Support Systems, Inc.* 800 12,300
---------
MEDICAL PRODUCTS - 1.92%
Johnson & Johnson 175 10,041
---------
PAPER MILLS - 6.28%
Fort James Corp.* 240 9,525
Kimberly-Clark Corp. 450 23,372
---------
32,897
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
Investment Portfolio - October 31, 1997
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C> <C>
PRIMARY METAL INDUSTRIES - 3.00%
American Superconductor Corp.* 1,000 $ 11,000
Gibraltar Steel Corp.* 200 4,725
---------
15,725
---------
PRINTING & PUBLISHING - 0.79%
Playboy Enterprises, Inc. - Class B* 300 4,144
---------
RESTAURANTS - 4.89%
McDonald's Corp. 475 21,286
Morton's Restaurant Group, Inc.* 200 4,325
---------
25,611
---------
RETAIL - SPECIALTY STORES - 12.76%
Fingerhut Companies, Inc. 500 11,063
Home Depot, Inc. 412 22,918
IKON Office Solutions, Inc. 350 9,909
Loehmanns Holdings, Inc.* 1,300 9,263
Tandy Corp. 400 13,750
---------
66,903
---------
RUBBER & PLASTIC FOOTWEAR - 2.02%
Nike, Inc. - Class B 225 10,603
---------
SOFTWARE - 10.10%
Broderbund Software, Inc.* 350 10,150
Medic Computer Systems, Inc.* 500 17,437
Oracle Corp.* 525 18,785
Symantec Corp.* 300 6,562
---------
52,934
---------
TECHNICAL INSTRUMENTS & SUPPLIES - 5.29%
Eastman Kodak Co. 300 17,962
Millipore Corp. 250 9,781
---------
27,743
---------
TELECOMMUNICATION SERVICES - 2.50%
Compania Anonima Nacional Telefonos de
Venezuela (CANTV) - ADR (Note 7) 300 13,125
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
Investment Portfolio - October 31, 1997
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C> <C>
UTILITIES-ELECTRIC - 0.94%
Enersis SA - ADR (Note 7) 150 $ 4,950
---------
TOTAL COMMON STOCK
(Identified Cost $373,589) 463,197
---------
SHORT-TERM INVESTMENTS - 3.89%
Dreyfus U.S. Treasury Money Market Reserves
(Identified Cost $20,373) 20,373 20,373
---------
TOTAL INVESTMENTS - 92.25%
(Identified Cost $393,962) 483,570
OTHER ASSETS, LESS LIABILITIES - 7.75% 40,627
---------
NET ASSETS - 100% $524,197
=========
</TABLE>
*Non-income producing security
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
<S> <C>
At October 31, 1997, the net unrealized appreciation based on identified
cost for federal income tax purposes of $393,962 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost $98,516
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost value (8,908)
--------
UNREALIZED APPRECIATION - NET $89,608
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
October 31, 1997
<S> <C>
ASSETS:
Investments, at value (Identified Cost $393,962)(Note 2) $483,570
Cash 43,355
Receivable for securities sold 35,831
Dividends receivable 298
Receivable from investment advisor (Note 3) 19,835
--------
TOTAL ASSETS 582,889
--------
LIABILITIES:
Accrued Directors' fees (Note 3) 7,345
Transfer agent fees payable (Note 3) 80
Payable for securities purchased 35,529
Audit fee payable 7,549
Custodian fee payable 2,376
Other payables and accrued expenses 5,813
--------
TOTAL LIABILITIES 58,692
--------
NET ASSETS FOR 34,491 SHARES OUTSTANDING $524,197
========
NET ASSETS CONSIST OF:
Capital stock $ 345
Additional paid-in-capital 420,041
Accumulated net realized gain on investments 14,203
Net unrealized appreciation on investments 89,608
--------
TOTAL NET ASSETS $524,197
========
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($524,197/34,491 shares) $ 15.20
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31, 1997
<S> <C>
INVESTMENT INCOME:
Dividends $ 2,581
Interest 1,172
---------
Total Investment Income 3,753
---------
EXPENSES:
Management fees (Note 3) 3,368
Directors' fees (Note 3) 7,345
Transfer agent fees (Note 3) 80
Audit fee 8,000
Registration and filing fees 4,559
Custodian fee 3,002
Miscellaneous 891
---------
Total Expenses 27,245
Less Reduction of Expenses (Note 3) (23,203)
---------
Net Expenses 4,042
---------
NET INVESTMENT LOSS (289)
---------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments (identified cost basis) 14,448
Net change in unrealized appreciation on investments 58,457
---------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS 72,905
---------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 72,616
=========
</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 10/31/97 Ended 10/31/96
INCREASE (DECREASE) IN NET ASSETS:
<S> <C> <C>
OPERATIONS:
Net investment loss $ (289) $ (390)
Net realized gain (loss) on investments 14,448 (245)
Net change in unrealized appreciation on
investments 58,457 31,151
---------------- ----------------
Net increase in net assets from operations 72,616 30,516
---------------- ----------------
CAPITAL STOCK ISSUED AND REPURCHASED:
Net increase in net assets from capital share
transactions (Note 5) 227,201 193,864
---------------- ----------------
Net increase in net assets 299,817 224,380
NET ASSETS:
Beginning of period 224,380 -
---------------- ----------------
END OF PERIOD (including undistributed net investment
income of $0 and $0, respectively) $ 524,197 $ 224,380
================ ================
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
For the For the Year
Year Ended Ended
10/31/97 10/31/96
------------ --------------
Per share data (for a share outstanding throughout
each period):
<S> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 11.63 $ 10.00
------------ --------------
Income from investment operations:
Net investment loss (0.008) (0.020)
Net realized and unrealized gain (loss)
on investments 3.578 1.650
------------ --------------
Total from investment operations 3.570 1.630
------------ --------------
NET ASSET VALUE - END OF PERIOD $ 15.20 $ 11.63
============ ==============
Total return 1: 30.70% 16.30%
Ratios (to average net assets) / Supplemental Data:
Expenses* 1.20% 1.20%
Net investment loss* (0.09%) (0.21%)
Portfolio turnover 103% 78%
Average commission rate paid $ 0.0625 $ 0.0757
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 524 $ 224
============ ==============
</TABLE>
* The investment advisor did not impose its management fee and paid a
portion of the Fund's expenses. If these expenses had been incurred by the
Fund, and had 1996 expenses been limited to that allowed by state securities
law,
the net investment income per share and the ratios would have been
as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Net investment loss ($0.620) ($0.144)
Ratios (to average net assets):
Expenses 8.08% 2.50%
Net investment loss (6.97%) (1.51%)
</TABLE>
1 Represents aggregate total return for the period indicated.
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
Notes to Financial Statements
1. ORGANIZATION
Tax Managed Series (the "Fund") is a no-load diversified series of
Manning & Napier Fund, Inc. (the "Corporation"). The Corporation is
organized in Maryland and is registered under the Investment Company Act
of 1940, as amended, as an open-end management investment company.
The total authorized capital stock of the Corporation consists of one
billion shares of common stock each having a par value of $0.01. As of
October 31, 1997, 940 million shares have been designated in total among
19 series, of which 37.5 million have been designated as Tax Managed
Series Class A Common Stock.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Portfolio securities, including domestic equities, foreign equities,
options and corporate bonds, listed on an exchange are valued at the
latest quoted sales price of the exchange on which the security is traded
most extensively. Securities not traded on valuation date or securities not
listed on an exchange are valued at the latest quoted bid price.
Debt securities, including government bonds and mortgage backed
securities, will normally be valued on the basis of evaluated bid prices.
Securities for which representative valuations or 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 days or less are valued at
amortized cost.
SECURITY TRANSACTIONS, INVESTMENT INCOME AND EXPENSES
Security transactions are accounted for on the date the securities are
purchased or sold. Dividend income is recorded on the ex-dividend date.
Interest income and expenses are recorded on an accrual basis.
Most expenses of the Corporation can be attributed to a specific fund.
Expenses which cannot be directly attributed are apportioned among the
funds in the Corporation.
FEDERAL INCOME TAXES
The Fund's policy is to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies. The Fund is
not subject to federal income or excise tax to the extent the Fund
distributes to shareholders each year its taxable income, including any net
realized gains on investments in accordance with requirements of the Internal
Revenue Code. Accordingly, no provision for federal income tax or excise
tax has been made in the financial statements.
11
<PAGE>
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
FEDERAL INCOME TAXES (continued)
The Fund uses the identified cost method for determining realized gain or loss
on investments for both financial statement and federal income tax
reporting purposes.
DISTRIBUTIONS OF INCOME AND GAINS
Distributions to shareholders of net investment income are made annually.
Distributions are recorded on the ex-dividend date. Distributions of net
realized gains are distributed annually. An additional distribution may
be necessary to avoid taxation of the Fund.
The timing and characterization of certain income and capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. The differences may be a
result of deferral of certain losses, character reclassification between
net income and net gains, or other tax adjustments. As a result, net
investment income (loss) and net investment gain (loss) on investment
transactions for a reporting period may differ significantly from distributions
to shareholders during such period. As a result, the Fund may periodically
make reclassifications among its capital accounts without impacting the Fund's
net asset value.
OTHER
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
TRANSACTIONS WITH AFFILIATES
The Fund has an investment advisory agreement with Manning & Napier
Advisors, Inc. (the "Advisor"), for which the Fund pays the Advisor a fee,
computed daily and payable monthly, at an annual rate of 1.0% of the
Fund's average daily net assets. The fee amounted to $3,368 for the year
ended October 31, 1997.
Under the Fund's Investment Advisory Agreement (the "Agreement"),
personnel of the Advisor provide the Fund with advice and assistance in
the choice of investments and the execution of securities transactions,
and otherwise maintain the Fund's organization. The Advisor also provides
the Fund with necessary office space and portfolio accounting and bookkeeping
services. The salaries of all officers of the Fund and of all Directors
who are "affiliated persons" of the Fund or of the Advisor, and all
personnel of the Fund or of the Advisor performing services relating
to research, statistical and investment activities are paid by the Advisor.
12
<PAGE>
Notes to Financial Statements
3. TRANSACTIONS WITH AFFILIATES (continued)
The Advisor has voluntarily agreed to waive its fee and, if necessary,
pay other expenses of the Fund in order to maintain total expenses for the
Fund at no more than 1.2% of average daily net assets each year.
Accordingly, the Advisor did not impose any of its fee and paid expenses
amounting to $19,835 for the year ended October 31, 1997, 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 $80 for the year ended October
31, 1997.
Manning & Napier Investor Services, Inc., a registered broker-dealer
affiliate of the Advisor, acts as distributor for the Fund's shares. The
services of Manning & Napier Investor Services, Inc. are provided at no
additional cost to the Fund.
The compensation of the non-affiliated Directors totaled $7,345 for the
year ended October 31, 1997.
4. PURCHASES AND SALES OF SECURITIES
For the year ended October 31, 1997, purchases and sales of securities,
other than United States Government securities and short-term securities,
were $497,204 and $325,672, respectively. Purchases and sales of United
States Government securities were $94,652 and $95,000, respectively.
5. CAPITAL STOCK TRANSACTIONS
<TABLE>
<CAPTION>
Transactions in shares of Tax Managed Series Class A Common Stock were:
<S> <C> <C> <C> <C>
For the Year For the Year
Ended 10/31/97 Ended 10/31/96
----------------- ---------------
Shares Amount Shares Amount
--------- --------- --------------- ---------
Sold 16,041 $239,934 23,344 $235,926
Repurchased (850) (12,733) (4,044) (42,062)
--------- --------- --------------- ---------
Net increase 15,191 $227,201 19,300 193,864
========= ========= =============== =========
</TABLE>
The Advisor owned 12,500 shares on October 31, 1997 and October 31, 1996.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
6. FINANCIAL INSTRUMENTS
The Fund may trade in financial instruments with off-balance sheet risk
in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include
written options, forward foreign currency exchange contracts, and futures
contracts and may involve, to a varying degree, elements of risk in excess of
the amounts recognized for financial statement purposes. No such
investments were held by the Fund on October 31, 1997.
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 domestic companies and the United States
government. These risks include revaluation of currencies and future adverse
political and economic developments. Moreover, securities of foreign
companies and foreign governments may be less liquid and their prices more
volatile than those of securities of comparable domestic companies and the
United States government.
14
<PAGE>
Independent Auditors Report
TO THE DIRECTORS OF MANNING & NAPIER FUND, INC.
AND SHAREHOLDERS OF TAX MANAGED SERIES:
We have audited the accompanying statement of assets and liabilities,
including the investment portfolio, of Tax Managed Series (one of the series
constituting Manning & Napier Fund, Inc.) as of October 31, 1997, the related
statement of operations for the year then ended, and the statement of changes
in net assets and the financial highlights for the years ended October 31,
1997 and 1996. These financial statements and financial highlights are the
responsibility of the Funds management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
October 31, 1997 by correspondence with the custodian and brokers. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights present
fairly, in all material respects, the financial position of the Tax Managed
Series at October 31, 1997, the results of its operations, the changes in its
net assets and its financial highlights for the respective stated periods in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
BOSTON, MASSACHUSETTS
NOVEMBER 26, 1997
15
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
Blended Asset Series I
Annual Report
October 31, 1997
<PAGE>
Management Discussion and Analysis
Dear Shareholders:
In our last letter to you six months ago, we explained that this late cycle
stock market had reached excessive valuations and stated that, while we may
not see a significant correction, we could very likely experience
flat-to-mediocre returns over time. While the events on October 27, 1997 were
dramatic, with the Dow Jones Industrial Average plunging over 550 points in
one day and twice setting off the New York Stock Exchanges circuit breakers,
half of that days losses were gained back the following day. We have not
fallen into significant correction territory and valuations in the U.S. stock
market remain high, but it is evident that the market environment is
emotional. have positioned the portfolio based on our overview that the U.S.
stock market, and especially the large cap U.S. multinationals, has been
reaching extremes. The stock selection process is based, as always, on the
fundamentals underlying the investments. In managing the portfolio, we have
largely steered away from the volatile technology sector and the excessively
valued blue chips, and instead focused on stocks which we expect to be less
likely to be hit as hard by a correction and to lead in a recovery. While
there are less opportunities to be found domestically, the portfolio has
gained an increased exposure in the international markets. Many of the world
markets were indeed rocked by the recent events, but the portfolios holdings
primarily avoided the most profoundly hit Asian markets. We have also been
prepared to take advantage of some good values as they become available, and
the correction provided the opportunity to add some quality securities to the
portfolio.
While the stock market plunged, the bond market rallied strongly. The yield
on the 30-year U.S. Treasury bond dropped more than 80 basis points (0.80%)
over this six-month period, offering further evidence of the low inflation
environment as well as reflecting a flight to quality in the recent turmoil.
The fixed income portion of the portfolio, with its emphasis on longer
durations, has benefitted from this significant move. The use of long bonds
to control stock market volatility at extremes is a key component of our risk
management strategy and one which proved very effective during October's
turmoil.
1
<PAGE>
Management Discussion and Analysis
In conclusion, while the recent stock market events have raised investors
emotions, it may at the same time bring them down to earth. We will continue
to attempt to manage risk based on our long-term overview, making decisions
from the fundamentals and taking advantage of opportunities as they arise.
Once again, we very much appreciate your business, and we hope that you and
your families have a healthy and joyous holiday season.
Sincerely,
Manning & Napier Advisors, Inc.
<graphic>
<pie chart>
Data for chart to follow:
Asset Allocation - As of 10/31/97
Bonds - 56%
Stocks - 43%
Cash & Equivalents - 1%
2
<PAGE>
Performance Update as of October 31, 1997
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc. - Blended Asset Series I
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
10/31/97 Investment Cumulative Annual
One Year $ 11,301 13.01% 13.01%
Inception 2 $ 14,472 44.72% 9.36%
</TABLE>
<TABLE>
<CAPTION>
Lehman Brothers Intermediate Bond Index
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
10/31/97 Investment Cumulative Annual
One Year $ 10,749 7.49% 7.49%
Inception 2 $ 12,606 26.06% 5.77%
</TABLE>
<TABLE>
<CAPTION>
30 - 70 Blended Index
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
10/31/97 Investment Cumulative Annual
One Year $ 11,477 14.77% 14.77%
Inception 2 $ 14,965 49.65% 10.25%
</TABLE>
The value of a $10,000 investment in the
Manning & Napier Fund, Inc. - Blended
Asset Series I from its inception (9/15/93)
to present (10/31/97) as compared to the
Lehman Brothers Intermediate Bond Index
and a 30-70 Blended Index. 1
<graphic>
<line chart>
Data for chart to follow:
<TABLE>
<CAPTION>
Manning & Napier Lehman Brothers 30-70
Date Blended Asset Series I Intermediate Bond Index Blended Index
<S> <C> <C> <C>
09/15/93 10,000 10,000 10,000
12/31/93 10,092 10,032 10,081
12/31/94 10,012 9,838 9,986
12/31/95 12,123 11,347 12,151
10/31/96 12,806 11,728 13,040
10/31/97 14,472 12,606 14,965
</TABLE>
1 The Lehman Brothers Intermediate Bond Index is a market value weighted
measure of approximately 3,761 corporate and government securities. The
Index is comprised of investment grade securities with maturities greater
thanyear but less than ten years. The 30-70 Blended Index is 30% Standard
& Poor's (S&P) 500 Total Return Index and 70% Lehman Brothers Intermediate
Bond Index. The S&P 500 Total Return Index is an unmanaged capitalization-
weighted measure of 500 widely held common stocks listed on the New York
Stock Exchange, American Stocks Exchange, and Over-the-Counter market.
Both Indices' returns assume reinvestment of income and, unlike Fund returns,
do not reflect any fees or expenses.
2 Performance numbers for the Fund and Indices are calculated from
September 15, 1993, the Fund's inception date. The Fund's performance is
historical and may not be indicative of future results.
3
<PAGE>
Investment Portfolio - October 31, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
COMMON STOCK - 43.07%
<S> <C> <C>
AGRICULTURAL PRODUCTION - 0.05%
Sylvan, Inc.* 675 $ 10,125
---------
AMUSEMENT & RECREATION SERVICES - 0.76%
Grand Casinos, Inc.* 600 8,062
Resorts World Berhad - ADR (Note 7) 17,800 158,075
---------
166,137
---------
CHEMICAL & ALLIED PRODUCTS - 4.45%
Orion-yhtyma OY - B Shares (Finland) (Note 7) 450 16,606
Pharmacia & Upjohn, Inc. 15,225 483,394
R.P. Scherer Corp.* 8,100 476,888
---------
976,888
---------
COMPUTER EQUIPMENT - 0.14%
Bell & Howell Co.* 950 26,184
Varitronix International Ltd. (Hong Kong)
(Note 7) 3,000 4,966
---------
31,150
---------
CONSUMER PRODUCTS - MISCELLANEOUS - 1.60%
Unilever plc - ADR (Note 7) 11,600 350,900
---------
CRUDE PETROLEUM & NATURAL GAS - 2.04%
Petroleo Brasileiro SA (Petrobras) - ADR (Note 7) 22,500 446,958
---------
DIAMONDS - 0.92%
De Beers Centenary AG - ADR (Note 7) 8,400 201,600
---------
DIRECT MAIL ADVERTISING - 0.10%
Harte-Hanks Communications, Inc. 625 21,719
---------
DISTRIBUTION - WHOLESALE - 1.50%
Unisource Worldwide, Inc. 20,125 328,289
---------
ELECTRONIC EQUIPMENT - 0.17%
Coleman Company, Inc.* 1,300 19,419
Harman International Industries, Inc. 350 18,900
---------
38,319
---------
ENGINEERING SERVICES - 0.48%
Jacobs Engineering Group, Inc.* 3,925 105,975
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
Investment Portfolio - October 31, 1997
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C> <C>
FOOD & BEVERAGES - 4.50%
Allied Domecq plc - ADR (Note 7) 56,700 $458,760
Guinness plc - ADR (Note 7) 11,800 528,324
---------
987,084
---------
GLASS PRODUCTS - 0.10%
Libbey, Inc. 600 22,425
---------
HEALTH SERVICES - 2.36%
MedPartners, Inc.* 20,306 516,534
---------
HOLDING COMPANIES - 0.03%
C.P. Pokphand Co. - (Hong Kong) (Note 7) 30,000 7,177
---------
INDUSTRIAL & COMMERCIAL MACHINERY - 0.11%
Comfort Systems USA, Inc.* 700 11,900
NN Ball & Roller, Inc. 1,350 11,813
---------
23,713
---------
MANUFACTURING - MISCELLANEOUS - 0.08%
Penn Engineering & Manufacturing Corp. 750 18,281
---------
MOTION PICTURE PRODUCTION - 1.95%
Group AB SA - ADR* (Note 7) 1,350 10,041
Viacom, Inc. - Class B* 13,825 418,206
---------
428,247
---------
PAPER MILLS - 0.07%
Schweitzer-Mauduit International, Inc. 375 15,797
---------
PLASTIC PRODUCTS - MISCELLANEOUS - 0.02%
PT Tri Polyta Indonesia - ADR (Note 7) 1,775 5,214
---------
PRIMARY METAL INDUSTRIES - 0.21%
American Superconductor Corp.* 825 9,075
Gibraltar Steel Corp.* 900 21,262
Wolverine Tube Inc.* 500 15,500
---------
45,837
---------
PRINTING & PUBLISHING - 0.21%
Playboy Enterprises, Inc. - Class A* 225 2,841
Playboy Enterprises, Inc. - Class B* 1,000 13,812
Scholastic Corp.* 700 28,350
---------
45,003
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
Investment Portfolio - October 31, 1997
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C> <C>
RESTAURANTS - 3.17%
McDonald's Corp. 15,500 $ 694,594
-----------
RETAIL - 2.89%
RETAIL - CATALOG & MAIL ORDER - 2.06%
Comcast Corp. - Class A 16,425 451,687
-----------
RETAIL - RECREATIONAL GOODS - 0.07%
West Marine, Inc.* 750 15,750
-----------
RETAIL - SPECIALTY STORES - 0.76%
Hancock Fabrics, Inc. 10,525 142,745
Loehmanns Holdings, Inc. 1,175 8,372
Talbots, Inc. 600 14,400
-----------
165,517
-----------
632,954
-----------
SOFTWARE - 0.26%
Apache Medical Systems, Inc.* 700 1,969
Broderbund Software, Inc.* 550 15,950
Electronic Arts, Inc.* 275 9,316
HCIA, Inc.* 1,200 14,850
Symantec Corp.* 725 15,859
-----------
57,944
-----------
TECHNICAL INSTRUMENTS & SUPPLIES - 6.56%
LABORATORY & ANALYTICAL INSTRUMENTS - 2.60%
Mallinckrodt, Inc. 15,200 570,000
-----------
OPTICAL SUPPLIES - 0.07%
Sola International, Inc.* 450 15,356
-----------
PHOTOGRAPHIC EQUIPMENT & SUPPLIES - 3.78%
Eastman Kodak Co. 13,850 829,269
-----------
SURGICAL & MEDICAL INSTRUMENTS - 0.11%
CardioGenesis Corp.* 575 5,175
Eclipse Surgical Technologies, Inc.* 925 8,267
Lunar Corp.* 600 11,437
-----------
24,879
-----------
1,439,504
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
Investment Portfolio - October 31, 1997
<TABLE>
<CAPTION>
Shares/Principal Value
Amount (Note 2)
<S> <C> <C>
TELECOMMUNICATION SERVICES - 8.21%
Compania Anonima Nacional Telefonos de
Venezuela (CANTV) - ADR (Note 7) 9,300 $ 406,875
Frontier Corp. 26,800 579,550
Telecom Italia SpA - ADR (Note 7) 4,975 312,181
Telecomunicacoes Brasileiras (Telebras) -
ADR (Note 7) 4,850 492,275
VIMPEL Communications - ADR* (Note 7) 300 9,825
------------
1,800,706
------------
TRAINING & EDUCATION - 0.05%
Firearms Training Systems, Inc.* 1,525 9,912
------------
TRANSPORTATION EQUIPMENT - 0.08%
Federal Signal Corp. 700 16,931
------------
TOTAL COMMON STOCK
(Identified Cost $9,189,392) 9,445,917
------------
U.S. TREASURY SECURITIES - 55.99%
U.S. TREASURY BONDS - 16.61%
U.S. Treasury Bond, 9.875%, 11/15/2015 $ 20,000 $ 27,956
U.S. Treasury Bond, 7.25%, 5/15/2016 45,000 50,217
U.S. Treasury Bond, 7.50%, 11/15/2024 3,060,000 3,564,900
------------
TOTAL U.S. TREASURY BONDS
(Identified Cost $3,281,277) 3,643,073
------------
U.S. TREASURY NOTES - 39.38%
U.S. Treasury Note, 5.125%, 12/31/1998 595,000 592,025
U.S. Treasury Note, 6.875%, 8/31/1999 2,450,000 2,501,298
U.S. Treasury Note, 7.75%, 12/31/1999 1,215,000 1,265,878
U.S. Treasury Note, 6.625%, 7/31/2001 3,335,000 3,431,925
U.S. Treasury Note, 5.875%, 9/30/2002 840,000 844,463
------------
TOTAL U.S. TREASURY NOTES
(Identified Cost $8,525,881) 8,635,589
------------
TOTAL U.S. TREASURY SECURITIES
(Identified Cost $11,807,158) 12,278,662
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
Investment Portfolio - October 31, 1997
<TABLE>
<CAPTION>
Principal Value
Amount/Shares (Note 2)
<S> <C> <C>
U.S. GOVERNMENT AGENCIES - 0.52%
MORTGAGE BACKED SECURITIES
GNMA POOL #174225, 9.50%, 8/15/2016 $ 2,815 $ 3,047
GNMA POOL #286310, 9.00%, 2/15/2020 31,078 33,148
GNMA POOL #385753, 9.00%, 7/15/2024 71,862 76,646
------------
TOTAL U.S. GOVERNMENT AGENCIES
(Identified Cost $110,113) 112,841
------------
SHORT-TERM INVESTMENTS - 0.66%
Dreyfus U.S. Treasury Money Market Reserves
(Identified Cost $145,218) 145,218 145,218
------------
TOTAL INVESTMENTS - 100.24%
(Identified Cost $21,251,881) 21,982,638
LIABILITIES, LESS OTHER ASSETS - (0.24%) (52,148)
------------
NET ASSETS - 100% $21,930,490
============
</TABLE>
*Non-income producing security
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
<S> <C>
At October 31, 1997, the net unrealized appreciation based on identified cost for
federal income tax purposes of $21,252,987 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost $1,407,189
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value (677,538)
-----------
UNREALIZED APPRECIATION - NET $ 729,651
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
OCTOBER 31, 1997
<S> <C>
ASSETS:
Investments, at value (Identified Cost $21,251,881)(Note 2) $21,982,638
Cash 113,455
Receivable for securities sold 300,803
Interest receivable 240,252
Dividends receivable 13,988
-----------
TOTAL ASSETS 22,651,136
-----------
LIABILITIES:
Accrued management fees (Note 3) 19,772
Accrued Directors' fees (Note 3) 2,256
Transfer agent fees payable (Note 3) 461
Payable for securities purchased 507,714
Payable for fund shares repurchased 176,019
Audit fee payable 11,950
Other payables and accrued expenses 2,474
-----------
TOTAL LIABILITIES 720,646
-----------
NET ASSETS FOR 1,831,743 SHARES OUTSTANDING $21,930,490
===========
NET ASSETS CONSIST OF:
Capital stock $ 18,318
Additional paid-in-capital 19,480,643
Undistributed net investment income 274,768
Accumulated net realized gain on investments 1,426,004
Net unrealized appreciation on investments 730,757
-----------
TOTAL NET ASSETS $21,930,490
===========
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($21,930,490/1,831,743 shares) $ 11.97
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31, 1997
<S> <C>
INVESTMENT INCOME:
Interest $ 839,782
Dividends 84,263
-----------
Total Investment Income 924,045
-----------
EXPENSES:
Management fees (Note 3) 201,261
Directors' fees (Note 3) 7,345
Transfer agent fees (Note 3) 4,830
Audit fee 13,663
Registration and filing fees 10,286
Custodian fee 8,500
Miscellaneous 4,116
-----------
Total Expenses 250,001
Less Reduction of Expenses (Note 3) (8,488)
-----------
Net Expenses 241,513
-----------
NET INVESTMENT INCOME 682,532
-----------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments (identified cost basis) 1,431,876
Net change in unrealized appreciation on investments 342,311
-----------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS 1,774,187
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $2,456,719
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year For the Ten For the Year
Year Ended Months Ended Year Ended
10/31/97 10/31/96 12/31/95
-------------- -------------- --------------
INCREASE (DECREASE) IN NET ASSETS:
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 682,532 $ 450,488 $ 254,925
Net realized gain on investments 1,431,876 299,745 608,702
Net change in unrealized appreciation
on investments 342,311 105,808 341,625
-------------- -------------- --------------
Net increase in net assets from operations 2,456,719 856,041 1,205,252
-------------- -------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (730,167) (130,831) (254,925)
In excess of net investment income -- -- (3,886)
From net realized gain on investments (296,105) (39,818) (564,923)
-------------- -------------- --------------
Total distributions to shareholders (1,026,272) (170,649) (823,734)
-------------- -------------- --------------
CAPITAL STOCK ISSUED AND REPURCHASED:
Net increase in net assets from capital share
transactions (Note 5) 2,706,535 7,589,621 4,617,621
-------------- -------------- --------------
Net increase in net assets 4,136,982 8,275,013 4,999,139
NET ASSETS:
Beginning of period 17,793,508 9,518,495 4,519,356
-------------- -------------- --------------
END OF PERIOD (including undistributed net
investment income of $274,768, $319,657,
and $0, respectively) $ 21,930,490 $ 17,793,508 $ 9,518,495
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
For the Period
For the For the For the For the 9/15/93
Year Ten Months Year Year (commencement
Ended Ended Ended Ended of operations) to
10/31/97 10/31/96 12/31/95 12/31/94 12/31/93
---------- ------------ ---------- ---------- -------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout
each period):
NET ASSET VALUE - BEGINNING OF PERIOD $ 11.20 $ 10.72 $ 9.72 $ 10.05 $ 10.00
---------- ------------ ---------- ---------- -------------------
Income from investment operations:
Net investment income 0.390 0.293 0.342 0.200 0.045
Net realized and unrealized gain (loss)
on investments 1.010 0.307 1.698 (0.280) 0.045
---------- ------------ ---------- ---------- -------------------
Total from investment operations 1.400 0.600 2.040 (0.080) 0.090
---------- ------------ ---------- ---------- -------------------
Less distributions to shareholders:
From net investment income (0.442) (0.092) (0.342) (0.203) (0.040)
In excess of net investment income - - (0.005) - -
From net realized gain on investments (0.188) (0.028) (0.693) (0.040) -
In excess of net realized gain on investments - - - (0.007) -
---------- ------------ ---------- ---------- -------------------
Total distributions to shareholders (0.630) (0.120) (1.040) (0.250) (0.040)
---------- ------------ ---------- ---------- -------------------
NET ASSET VALUE - END OF PERIOD $ 11.97 $ 11.20 $ 10.72 $ 9.72 $ 10.05
========== ============ ========== ========== ===================
Total return 1: 13.01% 5.64% 21.08% (0.80%) 0.93%
Ratios (to average net assets) / Supplemental Data:
Expenses * 1.20% 1.20%2 1.20% 1.20% 1.20%2
Net investment income * 3.39% 3.69%2 3.64% 3.40% 2.47%2
Portfolio turnover 50% 85% 72% 45% 1%
Average commission rate paid 3 $ 0.0418 $ 0.0515 $ 0.0689 - -
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 21,930 $ 17,794 $ 9,518 $ 4,519 $ 475
========== ============ ========== ========== ===================
</TABLE>
*The investment advisor did not impose all or a portion of its management fee
and in some periods paid a portion of the Fund's expenses. If these expenses
had been incurred by the Fund, and had 1994 and 1993 expenses been limited to
that allowed by state securities law, the net investment income per share and
the ratios would be as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Net investment income $0.385 $ 0.284 $0.311 $0.124 $ 0.021
Ratios (to average net assets):
Expenses 1.24% 1.31%2 1.53% 2.50% 2.50%2
Net investment income 3.35% 3.58%2 3.31% 2.10% 1.17%2
</TABLE>
1 Represents aggregate total return for the period indicated.
2 Annualized.
3 Average commission rate is calculated for funds with fiscal years beginning
on or after January 1, 1995.
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
Notes to Financial Statements
1. ORGANIZATION
Blended Asset Series I (the "Fund") is a no-load diversified series of
Manning & Napier Fund, Inc. (the "Corporation"). The Corporation is organized
in Maryland and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company.
The total authorized capital stock of the Corporation consists of one
billion shares of common stock each having a par value of $0.01. As of
October 31, 1997, 940 million shares have been designated in total among 19
series, of which 37.5 million have been designated as Blended Asset Series I
Class A Common Stock.
Effective January 1, 1996, the fund changed its fiscal year from
December 31 to October 31.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Portfolio securities, including domestic equities, foreign equities,
options and corporate bonds, listed on an exchange are valued at the latest
quoted sales price of the exchange on which the security is traded most
extensively. Securities not traded on valuation date or securities not listed
on an exchange are valued at the latest quoted bid price.
Debt securities, including government bonds and mortgage backed
securities, will normally be valued on the basis of evaluated bid prices.
Securities for which representative valuations or 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 days or less are valued at
amortized cost.
SECURITY TRANSACTIONS, INVESTMENT INCOME AND EXPENSES
Security transactions are accounted for on the date the securities are
purchased or sold. Dividend income is recorded on the ex-dividend date.
Interest income and expenses are recorded on an accrual basis.
Most expenses of the Corporation can be attributed to a specific fund.
Expenses which cannot be directly attributed are apportioned among the funds
in the Corporation.
FEDERAL INCOME TAXES
The Fund's policy is to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies. The Fund is not
subject to federal income or excise tax to the extent the Fund distributes to
shareholders each year its taxable income, including any net realized gains on
investments in accordance with requirements of the Internal Revenue Code.
Accordingly, no provision for federal income tax or excise tax has been made
in the financial statements.
13
<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.
DISTRIBUTIONS OF INCOME AND GAINS
Distributions to shareholders of net investment income are made
semi-annually. Distributions are recorded on the ex-dividend date.
Distributions of net realized gains are distributed annually. An additional
distribution may be necessary to avoid taxation of the Fund.
The timing and characterization of certain income and capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. The differences may be a
result of deferral of certain losses, foreign denominated investments,
character reclassification between net income and net gains, or other tax
adjustments. As a result, net investment income (loss) and net investment
gain (loss) on investment transactions for a reporting period may differ
significantly from distributions to shareholders during such period. As a
result, the Fund may periodically make reclassifications among its capital
accounts without impacting the Fund's net asset value.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars.
Foreign currency amounts are translated into U.S. dollars on the following
basis: a) investment securities, other assets and liabilities are converted to
U.S. dollars based upon current exchange rates; and b) purchases and sales of
securities and income and expenses are converted into U.S. dollars based upon
the currency exchange rates prevailing on the respective dates of such
transactions.
Gains and losses attributable to foreign currency exchange rates are
recorded for financial statement purposes as net realized gains and losses on
investments. The portion of both realized and unrealized gains and losses on
investments that result from fluctuations in foreign currency exchange rates
is not separately stated.
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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
14
<PAGE>
Notes to Financial Statements
3. TRANSACTIONS WITH AFFILIATES
The Fund has an investment advisory agreement with Manning & Napier
Advisors, Inc. (the "Advisor"), for which the Fund pays the Advisor a fee,
computed daily and payable monthly, at an annual rate of 1.0% of the Fund's
average daily net assets. The fee amounted to $201,261 for the year ended
October 31, 1997.
Under the Fund's Investment Advisory Agreement (the "Agreement"),
personnel of the Advisor provide the Fund with advice and assistance in the
choice of investments and the execution of securities transactions, and
otherwise maintain the Fund's organization. The Advisor also provides the
Fund with necessary office space and portfolio accounting and bookkeeping
services. The salaries of all officers of the Fund and of all Directors who
are "affiliated persons" of the Fund or of the Advisor, and all personnel of
the Fund or of the Advisor performing services relating to research,
statistical and investment activities are paid by the Advisor.
The Advisor has voluntarily agreed to waive its fee and, if necessary,
pay other expenses of the Fund in order to maintain total expenses for the
Fund at no more than 1.20% of average daily net assets each year.
Accordingly, the Advisor waived fees of $8,488 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 $4,830 for the year ended October 31,
1997.
Manning & Napier Investor Services, Inc., a registered broker-dealer
affiliate of the Advisor, acts as distributor for the Fund's shares. The
services of Manning & Napier Investor Services, Inc. are provided at no
additional cost to the Fund.
The compensation of the non-affiliated Directors totaled $7,345 for the
year ended October 31, 1997.
4. PURCHASES AND SALES OF SECURITIES
For the year ended October 31, 1997, purchases and sales of securities,
other than United States Government securities and short-term securities, were
$9,292,880 and $4,871,822, respectively. Purchases and sales of United States
Government securities were $4,813,732 and $4,501,063, respectively.
15
<PAGE>
Notes to Financial Statements
5. CAPITAL STOCK TRANSACTIONS
Transactions in shares of Blended Asset Series I Class A Common Stock
were:
<TABLE>
<CAPTION>
For the Year For the Ten Months For the Year
Ended 10/31/97 Ended 10/31/96 Ended 12/31/95
--------------- ------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Shares Amount Shares Amount Shares Amount
--------------- ------------ ------------------- ------------ --------------- -----------
Sold 514,345 $ 5,851,791 940,658 $10,210,779 406,586 $4,437,737
Reinvested 91,051 1,011,493 15,624 169,059 75,731 811,707
Repurchased (362,106) (4,156,749) (255,975) (2,790,217) (58,913) (631,823)
--------------- ------------ ------------------- ------------ --------------- -----------
Net increase 243,290 $ 2,706,535 770,307 $ 7,589,621 423,404 $4,617,621
=============== ============ =================== ============ =============== ===========
</TABLE>
6. FINANCIAL INSTRUMENTS
The Fund may trade in financial instruments with off-balance sheet risk
in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include written
options, forward foreign currency exchange contracts, and futures contracts
and may involve, to a varying degree, elements of risk in excess of the
amounts recognized for financial statement purposes. No such investments were
held by the Fund on October 31, 1997.
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 domestic companies and the United States
government. These risks include revaluation of currencies and future adverse
political and economic developments. Moreover, securities of foreign
companies and foreign governments may be less liquid and their prices more
volatile than those of securities of comparable domestic companies and the
United States government.
16
<PAGE>
Independent Auditors Report
TO THE DIRECTORS OF MANNING & NAPIER FUND, INC.
AND SHAREHOLDERS OF BLENDED ASSET SERIES I:
We have audited the accompanying statement of assets and liabilities,
including the investment portfolio, of Blended Asset Series I (one of the
series constituting Manning & Napier Fund, Inc.) as of October 31, 1997, the
related statement of operations for the year then ended, the statement of
changes in net assets for the year ended October 31, 1997, the ten months
ended October 31, 1996 and the year ended December 31, 1995, and the
financial highlights for the year ended October 31, 1997, the ten months ended
October 31, 1996, and each of the years in the three year period ended
December 31, 1995. These financial statements and financial highlights are the
responsibility of the Funds management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of investments owned at October 31, 1997 by
correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of the
Blended Asset Series I at October 31, 1997, the results of its operations, the
changes in its net assets and its financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
BOSTON, MASSACHUSETTS
NOVEMBER 26, 1997
17
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
Blended Asset Series II
Annual Report
October 31, 1997
<PAGE>
Management Discussion and Analysis
Dear Shareholders:
In our last letter to you six months ago, we explained that this late
cycle stock market had reached excessive valuations and stated that, while we
may not see a significant correction, we could very likely experience
flat-to-mediocre returns over time. While the events on October 27, 1997 were
dramatic, with the Dow Jones Industrial Average plunging over 550 points in
one day and twice setting off the New York Stock Exchanges circuit breakers,
half of that days losses were gained back the following day. We have not
fallen into significant correction territory and valuations in the U.S. stock
market remain high, but it is evident that the market environment is
emotional.
We have positioned the portfolio based on our overview that the U.S.
stock market, and especially the large cap U.S. multinationals, has been
reaching extremes. The stock selection process is based, as always, on the
fundamentals underlying the investments. In managing the portfolio, we have
largely steered away from the volatile technology sector and the excessively
valued blue chips, and instead focused on stocks which we expect to be less
likely to be hit as hard by a correction and to lead in a recovery. While
there are less opportunities to be found domestically, the portfolio has
gained an increased exposure in the international markets. Many of the world
markets were indeed rocked by the recent events, but the portfolios holdings
primarily avoid the most profoundly hit Asian markets. We have also been
prepared to take advantage of some good values as they become available, and
the correction provided the opportunity to add some quality securities to the
portfolio.
While the stock market plunged, the bond market rallied strongly. The
yield on the 30-year U.S. Treasury bond dropped more than 80 basis points
(0.80%) over this six-month period, offering further evidence of the low
inflation environment as well as reflecting a flight to quality in the recent
turmoil. The fixed income portion of the portfolio, with its emphasis on
longer durations, has benefitted from this significant move. The use of long
bonds to control stock market volatility at extremes is a key component of our
risk management strategy and one which proved very effective during October's
turmoil.
1
<PAGE>
Management Discussion and Analysis
In conclusion, while the recent stock market events have raised investors
emotions, it may at the same time bring them down to earth. We will continue
to attempt to manage risk based on our long-term overview, making decisions
from the fundamentals and taking advantage of opportunities as they arise.
Once again, we very much appreciate your business, and we hope that you
and your families have a healthy and joyous holiday season.
Sincerely,
Manning & Napier Advisors, Inc.
<graphic>
<pie chart>
Data for chart to follow:
Stocks - 61%
Bonds - 38%
Cash & Equivalents - 1%
2
<PAGE>
Performance Update as of October 31, 1997
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc. - Blended Asset Series II
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
10/31/97 Investment Cumulative Annual
One Year $ 11,969 19.69% 19.69%
Inception 2 $ 18,047 80.47% 15.66%
</TABLE>
<TABLE>
<CAPTION>
Lehman Brothers Intermediate Bond Index
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
10/31/97 Investment Cumulative Annual
One Year $ 10,749 7.49% 7.49%
Inception 2 $ 12,510 25.10% 5.68%
</TABLE>
<TABLE>
<CAPTION>
50-50 Blended Index
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
10/31/97 Investment Cumulative Annual
One Year $ 12,042 20.42% 20.42%
Inception 2 $ 16,832 68.32% 13.69%
</TABLE>
The value of a $10,000 investment in the
Manning & Napier Fund, Inc. - Blended
Asset Series II from its inception (10/12/93)
to present (10/31/97) as compared to the
Lehman Brothers Intermediate Bond Index
and a 50-50 Blended Index. 1
<graphic>
<line chart>
Data for chart to follow:
<TABLE>
<CAPTION>
Date Manning & Napier Lehman Brothers 50-50
Blended Asset Series II Intermediate Bond Index Balanced Index
<S> <C> <C> <C>
10/12/93 10,000 10,000 10,000
12/31/93 9,982 9,956 10,056
12/31/94 10,333 9,764 9,978
12/31/95 13,707 11,261 12,743
10/31/96 15,078 11,639 13,978
10/31/97 18,047 12,510 16,832
</TABLE>
1 The Lehman Brothers Intermediate Bond Index is a market value
weighted measure of approximately 3,850 corporate and government
securities. The Index is comprised of investment grade securities
with maturities greater than one year but less than ten years. The
50-50 Blended Index is 50% Standard & Poor's (S&P) 500 Total
Return Index and 50% Lehman Brothers Aggregate Bond Index. The
S&P 500 Total Return Index is an unmanaged capitalization-weighted
measure of 500 widely held common stocks listed on the New York
Stock Exchange, American Stock Exchange, and Over-the-Counter
market. The Lehman Brothers Aggregate Bond Index is a market
value weighted measure of approximately 6,233 corporate, government,
and mortgage backed securities. The Index is comprised of investment
grade securities with maturities greater than one year. Both Indices'
returns assume reinvestment of income and, unlike Fund returns, do
not reflect any fees or expenses.
2 Performance numbers for the Fund and Indices are calculated from
October 12,1993, the Fund's inception date. The Fund's performance
is historical and may not be indicative of future results.
3
<PAGE>
Investment Portfolio - October 31, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
COMMON STOCK - 60.88%
<S> <C> <C>
AMUSEMENT & RECREATION SERVICES - 1.08%
Grand Casinos, Inc.* 1,700 $ 22,844
Resorts World Berhad - ADR (Note 7) 59,550 528,840
-----------
551,684
-----------
ARGRICULTURAL PRODUCTION - 0.06%
Sylvan, Inc.* 2,000 30,000
-----------
CHEMICAL & ALLIED PRODUCTS - 5.07%
Orion-yhtyma OY - B Shares (Finland) (Note 7) 1,300 47,972
Pharmacia & Upjohn, Inc. 46,200 1,466,850
R.P. Scherer Corp.* 18,150 1,068,581
-----------
2,583,403
-----------
COMPUTERS - 4.08%
Bell & Howell Co.* 15,600 429,975
International Game Technology 64,000 1,636,000
Varitronix International Ltd.(Hong Kong) (Note 7) 8,000 13,242
-----------
2,079,217
-----------
CONSUMER PRODUCTS - MISCELLANEOUS - 1.84%
Unilever plc - ADR (Note 7) 30,900 934,725
-----------
CRUDE PETROLEUM & NATURAL GAS - 5.79%
Petroleo Brasileiro SA (Petrobras) - ADR (Note 7) 62,400 1,239,564
Union Texas Petroleum Holdings, Inc. 47,700 1,085,175
YPF Sociedad Anonima - ADR (Note 7) 19,550 625,600
-----------
2,950,339
-----------
DIAMONDS - 1.03%
De Beers Centenary AG - ADR (Note 7) 21,750 522,000
-----------
DIRECT MAIL ADVERTISING - 0.11%
Harte-Hanks Communictions, Inc. 1,600 55,600
-----------
DISTRIBUTION - OFFICE EQUIPMENT - 1.41%
Unisource Worldwide, Inc. 43,975 717,342
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
Investment Portfolio - October 31, 1997
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C> <C>
ELECTRONIC EQUIPMENT - 0.20%
Coleman Company, Inc.* 3,650 $ 54,522
Harman International Industries, Inc. 975 52,650
-----------
107,172
-----------
ENGINEERING SERVICES - 0.41%
Jacobs Engineering Group, Inc.* 7,675 207,225
-----------
FOOD & BEVERAGES - 4.96%
Allied Domecq plc - ADR (Note 7) 158,800 1,284,851
Guinness plc - ADR (Note 7) 27,675 1,239,098
-----------
2,523,949
-----------
GLASS PRODUCTS - 0.12%
Libbey, Inc. 1,625 60,734
-----------
HEALTH SERVICES - 3.23%
MedPartners, Inc.* 64,651 1,644,560
-----------
HOLDING COMPANIES - 0.04%
C.P. Pokphand Co. - (Hong Kong) (Note 7) 92,000 22,010
-----------
INDUSTRIAL & COMMERCIAL MACHINERY - 1.60%
Comfort Systems USA, Inc.* 2,025 34,425
NN Ball & Roller, Inc. 4,000 35,000
York International Corp. 16,350 745,969
-----------
815,394
-----------
MANUFACTURING - MISCELLANEOUS - 0.10%
Penn Engineering & Manufacturing Corp. 2,200 53,625
-----------
MOTION PICTURE PRODUCTION - 3.20%
Groupe AB SA- ADR* (Note 7) 3,850 28,634
Viacom, Inc. - Class B* 53,000 1,603,250
-----------
1,631,884
-----------
PAPER MILLS - 0.81%
Kimberly-Clark Corp. 7,000 363,563
Schweitzer-Mauduit International, Inc. 1,125 47,391
-----------
410,954
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
Investment Portfolio - October 31, 1997
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C> <C>
PLASTIC PRODUCTS - MISCELLANEOUS - 0.03%
PT Tri Polyta Indonesia - ADR (Note 7) 4,700 $ 13,806
-----------
PRIMARY METAL INDUSTRIES - 0.24%
American Superconductor Corp.* 2,150 23,650
Gibraltar Steel Corp.* 2,400 56,700
Wolverine Tube Inc.* 1,350 41,850
-----------
122,200
-----------
PRINTING & PUBLISHING - 0.24%
Playboy Enterprises, Inc. - Class A* 825 10,416
Playboy Enterprises, Inc. - Class B* 2,775 38,330
Scholastic Corp.* 1,800 72,900
-----------
121,646
-----------
RESTAURANTS - 2.44%
McDonald's Corp. 27,700 1,241,306
-----------
RETAIL - 5.14%
RETAIL - CATALOG & MAIL ORDER - 2.39%
Comcast Corp. - Class A 44,250 1,216,875
-----------
RETAIL - RECREATIONAL GOODS - 0.09%
West Marine, Inc.* 2,250 47,250
-----------
RETAIL - SPECIALTY STORES - 2.66%
Fabri Centers of America - Class A* 2,825 61,091
Fingerhut Companies, Inc. 42,425 938,653
Hancock Fabrics, Inc. 21,200 287,525
Loehmanns Holdings, Inc.* 3,300 23,512
Talbots, Inc. 1,800 43,200
-----------
1,353,981
-----------
2,618,106
-----------
SOFTWARE - 0.32%
Apache Medical Systems, Inc.* 1,950 5,484
Broderbund Software, Inc.* 1,400 40,600
Electronic Arts, Inc.* 800 27,100
HCIA, Inc.* 3,700 45,787
Symantec Corp.* 2,050 44,844
-----------
163,815
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
Investment Portfolio - October 31, 1997
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C> <C>
TECHNICAL INSTRUMENTS & SUPPLIES - 9.26%
LABORATORY & ANALYTICAL INSTRUMENTS - 2.94%
Mallinckrodt, Inc. 39,900 $ 1,496,250
------------
OPTICAL SUPPLIES - 0.08%
Sola International, Inc.* 1,200 40,950
------------
PHOTOGRAPHIC EQUIPMENT & SUPPLIES - 4.55%
Eastman Kodak Co. 38,675 2,315,666
------------
SCIENTIFIC INSTRUMENTS - 1.55%
Millipore Corp. 20,200 790,325
------------
SURGICAL & MEDICAL INSTRUMENTS - 0.14%
CardioGenesis Corp.* 1,725 15,525
Eclipse Surgical Technologies, Inc.* 2,700 24,131
Lunar Corp.* 1,600 30,500
------------
70,156
------------
4,713,347
------------
TELECOMMUNICATION SERVICES - 6.42%
Compania Anonima Nacional Telefonos de
Venezuela (CANTV) - ADR (Note 7) 26,525 1,160,469
Telecom Italia SpA- ADR (Note7) 11,525 723,194
Telecomunicacoes Brasileiras (Telebras)- 13,365 1,356,547
ADR (Note 7)
VIMPEL Communications- ADR* (Note 7) 850 27,837
------------
3,268,047
------------
TRAINING & EDUCATION - 0.06%
Firearms Training Systems, Inc.* 4,600 29,900
------------
TRANSPORTATION EQUIPMENT - 0.09%
Federal Signal Corp. 1,825 44,142
------------
UTILITIES-ELECTRIC - 1.50%
Enersis SA - ADR (Note 7) 23,150 763,950
------------
TOTAL COMMON STOCK
(Identified Cost $29,492,632) 31,002,082
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
Investment Portfolio - October 31, 1997
<TABLE>
<CAPTION>
Principal Amount/ Value
Shares (Note 2)
<S> <C> <C>
U.S. TREASURY SECURITIES - 37.90%
U.S. TREASURY BONDS - 20.24%
U.S. Treasury Bond, 7.50%, 11/15/2024 $ 3,065,000 $ 3,570,725
U.S. Treasury Bond, 6.875%, 8/15/2025 6,200,000 6,734,750
------------
TOTAL U.S. TREASURY BONDS
(Identified Cost $9,326,085) 10,305,475
------------
U.S. TREASURY NOTES - 17.66%
U.S. Treasury Note, 6.625%, 7/31/2001 3,295,000 3,390,763
U.S. Treasury Note, 6.25%, 1/31/2002 5,000 5,089
U.S. Treasury Note, 6.25%, 6/30/2002 3,175,000 3,236,516
U.S. Treasury Note, 5.875%, 9/30/2002 2,350,000 2,362,486
------------
TOTAL U.S. TREASURY NOTES
(Identified Cost $8,974,012) 8,994,854
------------
TOTAL U.S. TREASURY SECURITIES
(Identified Cost $18,300,097) 19,300,329
------------
SHORT-TERM INVESTMENTS - 1.10%
Dreyfus U.S. Treasury Money Market Reserves
(Identified Cost $559,350) 559,350 559,350
------------
TOTAL INVESTMENTS - 99.88%
(Identified Cost $48,352,079) 50,861,761
OTHER ASSETS, LESS LIABILITIES - 0.12% 60,605
------------
NET ASSETS - 100% $50,922,366
============
</TABLE>
*Non-income producing security
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
<S> <C>
At October 31, 1997, the net unrealized appreciation based on identified cost for
federal income tax purposes of $48,352,079 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost $ 4,393,349
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value (1,833,667)
------------
UNREALIZED APPRECIATION - NET $ 2,509,682
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
OCTOBER 31, 1997
<S> <C>
ASSETS:
Investments, at value (Identified Cost $48,352,079)(Note 2) $50,861,761
Cash 139,500
Receivable for securities sold 878,337
Interest receivable 330,783
Dividends receivable 37,460
Receivable for fund shares sold 5,615
-----------
TOTAL ASSETS 52,253,456
-----------
LIABILITIES:
Accrued management fees (Note 3) 44,031
Accrued Directors' fees (Note 3) 2,256
Transfer agent fees payable (Note 3) 1,057
Payable for securities purchased 1,269,130
Audit fee payable 12,148
Other payables and accrued expenses 2,468
-----------
TOTAL LIABILITIES 1,331,090
-----------
NET ASSETS FOR 3,466,675 SHARES OUTSTANDING $50,922,366
===========
NET ASSETS CONSIST OF:
Capital stock $ 34,666
Additional paid-in-capital 41,709,311
Undistributed net investment income 437,931
Accumulated net realized gain on investments 6,230,776
Net unrealized appreciation on investments 2,509,682
-----------
TOTAL NET ASSETS $50,922,366
===========
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($50,922,366/3,466,675 shares) $ 14.69
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31, 1997
<S> <C>
INVESTMENT INCOME:
Interest $1,235,671
Dividends 282,328
----------
Total Investment Income 1,517,999
----------
EXPENSES:
Management fees (Note 3) 422,101
Directors' fees (Note 3) 7,345
Transfer agent fees (Note 3) 10,130
Audit fee 13,862
Custodian fee 12,000
Registration and filing fees 9,879
Miscellaneous 8,637
----------
Total Expenses 483,954
----------
NET INVESTMENT INCOME 1,034,045
----------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments
(identified cost basis) 6,250,473
----------
Net change in unrealized appreciation on investments 48,699
----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 6,299,172
----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $7,333,217
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year For the Ten Months For the Year
Ended 10/31/97 Ended 10/31/96 Ended 12/31/95
----------------- -------------------- ----------------
INCREASE (DECREASE) IN NET ASSETS:
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 1,034,045 $ 566,893 $ 334,223
Net realized gain on investments 6,250,473 1,053,546 1,934,431
Net change in unrealized appreciation on
investments 48,699 1,209,793 1,107,105
----------------- -------------------- ----------------
Net increase in net assets from operations 7,333,217 2,830,232 3,375,759
----------------- -------------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (1,092,397) (92,412) (330,774)
From net realized gain on investments (1,048,673) (138,618) (1,817,057)
----------------- -------------------- ----------------
Total distributions to shareholders (2,141,070) (231,030) (2,147,831)
----------------- -------------------- ----------------
CAPITAL STOCK ISSUED AND REPURCHASED:
Net increase in net assets from capital share
transactions (Note 5) 12,731,521 9,880,561 12,077,417
----------------- -------------------- ----------------
Net increase in net assets 17,923,668 12,479,763 13,305,345
NET ASSETS:
Beginning of period 32,998,698 20,518,935 7,213,590
----------------- -------------------- ----------------
END OF PERIOD (including undistributed net investment
income of $437,931, $475,782 and $1,301,
respectively) $ 50,922,366 $ 32,998,698 $ 20,518,935
================= ==================== ================
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
For the For the Period
For the Ten For the For the 10/12/93
Year Months Year Year (commencement
Ended Ended Ended Ended of operations) to
10/31/97 10/31/96 12/31/95 12/31/94 12/31/93
---------- ---------- ---------- ---------- -------------------
<S> <C> <C> <C> <C> <C>
Per share data (for a share outstanding throughout
each period):
NET ASSET VALUE - BEGINNING OF PERIOD $ 13.04 $ 11.95 $ 10.12 $ 9.98 $ 10.00
---------- ---------- ---------- ---------- -------------------
Income from investment operations:
Net investment income 0.325 0.227 0.238 0.108 0.014
Net realized and unrealized gain (loss)
on investments 2.130 0.963 3.052 0.243 (0.032)
---------- ---------- ---------- ---------- -------------------
Total from investment operations 2.455 1.190 3.290 0.351 (0.018)
---------- ---------- ---------- ---------- -------------------
Less distributions to shareholders:
From net investment income (0.393) (0.040) (0.237) (0.119) (0.002)
From net realized gain on investments (0.412) (0.060) (1.223) (0.092) -
---------- ---------- ---------- ---------- -------------------
Total distributions to shareholders (0.805) (0.100) (1.460) (0.211) (0.002)
---------- ---------- ---------- ---------- -------------------
NET ASSET VALUE - END OF PERIOD $ 14.69 $ 13.04 $ 11.95 $ 10.12 $ 9.98
========== ========== ========== ========== ===================
Total return1: 19.69% 10.01% 32.64% 3.52% (0.18%)
Ratios (to average net assets) / Supplemental Data:
Expenses 1.15% 1.20%2* 1.20%* 1.20%* 1.20%2*
Net investment income 2.45% 2.51%2* 2.53%* 2.12%* 1.94%2*
Portfolio turnover 63% 57% 63% 19% 0%
Average commission rate paid(3) $ 0.0436 $ 0.0524 $ 0.0635 - -
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 50,922 $ 32,999 $ 20,519 $ 7,214 $ 475
========== ========== ========== ========== ===================
</TABLE>
* The investment advisor did not impose all or a portion of its management fee
in some periods and paid a portion of the Fund's expenses. If these expenses
had been incurred by the Fund and had 1993 expenses been limited to that
allowed by state securities law, the net investment income per share and the
ratios would have been as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Net investment income N/A $ 0.225 $0.226 $0.051 $ 0.005
Ratios (to average net assets):
Expenses N/A 1.22%2 1.33% 2.31% 2.50%2
Net investment income N/A 2.49%2 2.40% 1.01% 0.64%2
</TABLE>
1 Represents aggregate total return for the period indicated.
2 Annualized.
3 Average commission rate is calculated for funds with fiscal years beginning
on or after January 1, 1995.
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
Notes to Financial Statements
1. ORGANIZATION
Blended Asset Series II (the "Fund") is a no-load diversified series of
Manning & Napier Fund, Inc. (the "Corporation"). The Corporation is
organized in Maryland and is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company.
The total authorized capital stock of the Corporation consists of one
billion shares of common stock each having a par value of $0.01. As of
October 31, 1997, 940 million shares have been designated in total among 19
series, of which 37.5 million have been designated as Blended Asset Series II
Class A Common Stock.
Effective January 1, 1996 the fund changed its fiscal year end from
December 31 to October 31.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Portfolio securities, including domestic equities, foreign equities,
options and corporate bonds, listed on an exchange are valued at the latest
quoted sales price of the exchange on which the security is traded most
extensively. Securities not traded on valuation date or securities not
listed on an exchange are valued at the latest quoted bid price.
Debt securities, including government bonds and mortgage backed
securities, will normally be valued on the basis of evaluated bid prices.
Securities for which representative valuatuions or 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 days or less are valued at
amortized cost.
SECURITY TRANSACTIONS, INVESTMENT INCOME AND EXPENSES
Security transactions are accounted for on the date the securities are
purchased or sold. Dividend income is recorded on the ex-dividend date.
Interest income and expenses are recorded on an accrual basis.
Most expenses of the Corporation can be attributed to a specific fund.
Expenses which cannot be directly attributed are apportioned among the funds
in the Corporation.
FEDERAL INCOME TAXES
The Fund's policy is to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies. The Fund is not
subject to federal income or excise tax to the extent the Fund distributes to
shareholders each year its taxable income, including any net realized gains
on investments in accordance with requirements of the Internal Revenue Code.
Accordingly, no provision for federal income tax or excise tax has been made
in the financial statements.
13
<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.
DISTRIBUTIONS OF INCOME AND GAINS
Distributions to shareholders of net investment income are made
semi-annually. Distributions are recorded on the ex-dividend date.
Distributions of net realized gains are distributed annually. An additional
distribution may be necessary to avoid taxation of the Fund.
The timing and characterization of certain income and capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. The differences may be a
result of deferral of certain losses, foreign denominated investments,
character reclassification between net income and net gains, or other tax
adjustments. As a result, net investment income (loss) and net investment
gain (loss) on investment transactions for a reporting period may differ
significantly from distributions to shareholders during such period. As a
result, the Fund may periodically make reclassifications among its capital
accounts without impacting the Fund's net asset value.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars.
Foreign currency amounts are translated into U.S. dollars on the following
basis: a) investment securities, other assets and liabilities are converted
to U.S. dollars based upon current exchange rates; and b) purchases and sales
of securities and income and expenses are converted into U.S. dollars based
upon the currency exchange rates prevailing on the respective dates of such
transactions.
Gains and losses attributable to foreign currency exchange rates are
recorded for financial statement purposes as net realized gains and losses on
investments. The portion of both realized and unrealized gains and losses on
investments that result from fluctuations in foreign currency exchange rates
is not separately stated.
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 a t 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.
14
<PAGE>
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
OPTION CONTRACTS (continued)
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 dat 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.
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 exercises 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 October 31,
1997 is as follows:
WRITTEN CALL OPTIONS
<TABLE>
<CAPTION>
Shares Amount
------- ----------
<S> <C> <C>
Options written 435 $ 115,126
Options exercised (435) (115,126)
------- ----------
Balance at, October 31, 1997 0 $ 0
======= ==========
</TABLE>
15
<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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. TRANSACTIONS WITH AFFILIATES
The Fund has an investment advisory agreement with Manning & Napier
Advisors, Inc. (the "Advisor"), for which the Fund pays the Advisor a fee,
computed daily and payable monthly, at an annual rate of 1.0% of the Fund's
average daily net assets. The fee amounted to $422,101 for the year ended
October 31, 1997.
Under the Fund's Investment Advisory Agreement (the "Agreement"),
personnel of the Advisor provide the Fund with advice and assistance in the
choice of investments and the execution of securities transactions, and
otherwise maintain the Fund's organization. The Advisor also provides the
Fund with necessary office space and portfolio accounting and bookkeeping
services. The salaries of all officers of the Fund and of all Directors who
are "affiliated persons" of the Fund or of the Advisor, and all personnel of
the Fund or of the Advisor performing services relating to research,
statistical and investment activities are paid by the Advisor.
The Advisor also acts as the transfer, dividend paying and shareholder
servicing agent for the Fund. For these services, the Fund pays a fee which
is calculated as a percentage of the average daily net assets at an annual
rate of 0.024%; this fee amounted to $10,130 for the year ended October 31,
1997.
Manning & Napier Investor Services, Inc., a registered broker-dealer
affiliate of the Advisor, acts as distributor for the Fund's shares. The
services of Manning & Napier Investor Services, Inc. are provided at no
additional cost to the Fund.
The compensation of the non-affiliated Directors totaled $7,345 for the
year ended October 31, 1997.
4. PURCHASES AND SALES OF SECURITIES
For the year ended October 31, 1997, purchases and sales of securities,
other than United States Government securities and short-term securities, were
$28,087,787 and $18,788,467, respectively. Purchases and sales of United
States Government securities were $12,348,445 and $6,537,288, respectively.
16
<PAGE>
Notes to Financial Statements
5. CAPITAL STOCK TRANSACTIONS
Transactions in shares of Blended Asset Series II Class A Common Stock
were:
<TABLE>
<CAPTION>
For the For the Ten For the
Year Ended Months Ended Year Ended
10/31/97 10/31/96 12/31/95
----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares Amount Shares Amount Shares Amount
----------- ------------ ---------- ------------
Sold 1,218,144 $16,655,310 1,030,732 $12,602,396 891,550 $10,731,657
Reinvested 163,874 2,138,523 18,786 230,877 180,298 2,145,684
Repurchased (445,116) (6,062,312) (237,451) (2,952,712) (66,963) (799,924)
----------- ------------ ---------- ------------ ----------- ------------
Net increase 936,902 $12,731,521 812,067 $ 9,880,561 1,044,885 $12,077,417
=========== ============ ========== ============ =========== ============
</TABLE>
6. FINANCIAL INSTRUMENTS
The Fund may trade in financial instruments with off-balance sheet risk
in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include written
options, forward foreign currency exchange contracts, and futures contracts
and may involve, to a varying degree, elements of risk in excess of the
amounts recognized for financial statement purposes. No such investments were
held by the Fund on October 31, 1997.
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 domestic companies and the United States
government. These risks include revaluation of currencies and future adverse
political and economic developments. Moreover, securities of foreign
companies and foreign governments and their markets may be less liquid and
their prices more volatile than those of securities of comparable domestic
companies and the United States government.
17
<PAGE>
Independent Auditors Report
TO THE DIRECTORS OF MANNING & NAPIER FUND, INC.
AND SHAREHOLDERS OF BLENDED ASSET SERIES II:
We have audited the accompanying statement of assets and liabilities,
including the investment portfolio, of Blended Asset Series II (one of the
series constituting Manning & Napier Fund, Inc.) as of October 31, 1997, the
related statement of operations for the year then ended, the statement of
changes in net assets for the year ended October 31, 1997, the ten months
ended October 31, 1996 and the year ended December 31, 1995, and the
financial highlights for the year ended October 31, 1997, the ten months ended
October 31, 1996, and each of the years in the three year period ended
December 31, 1995. These financial statements and financial highlights are the
responsibility of the Funds management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of investments owned at October 31, 1997 by
correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of the
Blended Asset Series II at October 31, 1997, the results of its operations,
the changes in its net assets and its financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
BOSTON, MASSACHUSETTS
NOVEMBER 26, 1997
18
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
Maximum Horizon Series
Annual Report
October 31, 1997
<PAGE>
Management Discussion and Analysis
Dear Shareholders:
In our last letter to you six months ago, we explained that this late
cycle stock market had reached excessive valuations and stated that, while we
may not see a significant correction, we could very likely experience
flat-to-mediocre returns over time. While the events on October 27, 1997 were
dramatic, with the Dow Jones Industrial Average plunging over 550 points in
one day and twice setting off the New York Stock Exchanges circuit breakers,
half of that days losses were gained back the following day. We have not
fallen into significant correction territory and valuations in the U.S. stock
market remain high, but it is evident that the market environment is
emotional.
We have positioned the portfolio based on our overview that the U.S.
stock market, and especially the large cap U.S. multinationals, has been
reaching extremes. The stock selection process is based, as always, on the
fundamentals underlying the investments. In managing the portfolio, we have
largely steered away from the volatile technology sector and the excessively
valued blue chips, and instead focused on stocks which we expect to be less
likely to be hit as hard by a correction and to lead in a recovery. While
there are less opportunities to be found domestically, the portfolio has
gained an increased exposure in the international markets. Many of the world
markets were indeed rocked by the recent events, but the portfolios holdings
primarily avoid the most profoundly hit Asian markets. We have also been
prepared to take advantage of some good values as they become available, and
the correction provided the opportunity to add some quality securities to the
portfolio.
While the stock market plunged, the bond market rallied strongly. The
yield on the 30-year U.S. Treasury bond dropped more than 80 basis points
(0.80%) over this six-month period, offering further evidence of the low
inflation environment as well as reflecting a flight to quality in the recent
turmoil. The fixed income portion of the portfolio, with its emphasis on
longer durations, has benefitted from this significant move. The use of long
bonds to control stock market volatility at extremes is a key component of our
risk management strategy and one which proved very effective during October's
turmoil.
1
<PAGE>
Management Discussion and Analysis
In conclusion, while the recent stock market events have raised investors
emotions, it may at the same time bring them down to earth. We will continue
to attempt to manage risk based on our long-term overview, making decisions
from the fundamentals and taking advantage of opportunities as they arise.
Once again, we very much appreciate your business, and we hope that you
and your families have a healthy and joyous holiday season.
Sincerely,
Manning & Napier Advisors, Inc.
<graphic>
<pie chart>
Data for chart to follow:
Stocks - 98%
Bonds - 1%
Cash & Equivalents - 1%
2
<PAGE>
Performance Update as of October 31, 1997
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc. - Maximum Horizon Series
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
10/31/97 Investment Cumulative Annual
One Year $ 12,677 26.77% 26.77%
Inception 2 $ 14,604 46.04% 20.82%
</TABLE>
<TABLE>
<CAPTION>
Standard & Poor's 500 Total Return Index
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
10/31/97 Investment Cumulative Annual
One Year $ 13,210 32.10% 32.10%
Inception 2 $ 16,392 63.92% 27.99%
</TABLE>
The value of a $10,000 investment in the
Manning & Napier Fund, Inc. - Maximum
Horizon Series from its inception (11/1/95)
to present (10/31/97) as compared to the
Standard & Poor's (S&P) 500 Total Return
Index. 1
<graphic>
<line chart>
Data for chart to follow:
<TABLE>
<CAPTION>
Manning & Napier Standard & Poors
Maximum Horizon Series 500 Total Return Index
<S> <C> <C>
11/01/95 10,000 10,000
04/30/96 10,753 11,376
10/31/96 11,521 12,408
04/30/97 12,589 14,233
10/31/97 14,604 16,392
</TABLE>
1 The Standard & Poor's (S&P) 500 Total Return Index is an unmanaged
capitalization-weighted measure of approximately 500 widely held common
stocks listed on the New York Stock Exchange, American Stock Exchange,
and Over-the-Counter market. The Index returns assume reinvestment
of income and, unlike Fund returns, do not reflect any fees or expenses.
2 The Fund and Index performance are calculated from November 1, 1995,
the Fund's inception date. The Fund's performance is historical and may not
beindicative of future results.
3
<PAGE>
Investment Portfolio - October 31, 1997
<TABLE>
<CAPTION>
VALUE
SHARES (NOTE 2)
COMMON STOCK - 97.90%
<S> <C> <C>
AGRICULTURAL PRODUCTION - 0.10%
Sylvan, Inc.* 675 $ 10,125
-----------
AMUSEMENT & RECREATION SERVICES - 1.55%
Grand Casinos, Inc.* 600 8,062
Resorts World Berhad - ADR (Note 7) 16,250 144,310
-----------
152,372
-----------
CHEMICAL & ALLIED PRODUCTS - 11.39%
Celltech plc* (United Kingdom) (Note 7) 56,200 310,701
Orion-Yhtyma OY - B Shares (Finland) (Note 7) 500 18,451
Pharmacia & Upjohn, Inc. 10,525 334,169
Procter & Gamble Co. 2,350 159,800
R.P. Scherer Corp.* 5,075 298,791
-----------
1,121,912
-----------
COMPUTER EQUIPMENT - 8.90%
Bell & Howell Co.* 12,525 345,220
International Game Technology 20,600 526,587
Varitronix International Ltd. (Hong Kong) (Note 7) 3,000 4,966
-----------
876,773
-----------
CONSUMER PRODUCTS - MISCELLANEOUS - 1.60%
Unilever plc - ADR (Note 7) 5,200 157,300
-----------
CRUDE PETROLEUM & NATURAL GAS - 7.18%
Petroleo Brasileiro SA (Petrobras) - ADR (Note 7) 5,000 99,324
Union Texas Petroleum Holdings, Inc. 19,100 434,525
YPF Sociedad Anonima - ADR (Note 7) 5,425 173,600
-----------
707,449
-----------
DIAMONDS - 1.88%
De Beers Centenary AG - ADR (Note 7) 7,700 184,800
-----------
DIRECT MAIL ADVERTISING - 0.05%
Harte-Hanks Communications, Inc. 150 5,212
-----------
DISTRIBUTION - WHOLESALE - 1.65%
Unisource Worldwide, Inc. 9,950 162,309
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
Portfolio - October 31, 1997
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C> <C>
ELECTRONIC EQUIPMENT - 6.06%
Coleman Company, Inc.* 20,850 $311,447
Harman International Industries, Inc. 225 12,150
Motorola, Inc. 4,425 273,244
---------
596,841
---------
ENGINEERING SERVICES - 0.70%
Jacobs Engineering Group, Inc.* 2,575 69,525
---------
FOOD & BEVERAGES - 6.84%
Allied Domecq plc - ADR (Note 7) 36,800 297,749
Guinness plc - ADR (Note 7) 8,400 376,095
---------
673,844
---------
GLASS PRODUCTS - 0.11%
Libbey, Inc. 300 11,213
---------
HEALTH SERVICES - 4.65%
MedPartners, Inc.* 18,025 458,511
---------
HOLDING COMPANIES - 0.07%
C.P. Pokphand Co. (Hong Kong) (Note 7) 30,000 7,177
---------
INDUSTRIAL & COMMERCIAL MACHINERY - 2.75%
Comfort Systems USA, Inc.* 550 9,350
NN Ball & Roller, Inc. 1,300 11,375
York International Corp. 5,475 249,797
---------
270,522
---------
MANUFACTURING - MISCELLANEOUS - 0.15%
Penn Engineering & Manufacturing Corp. 600 14,625
---------
MOTION PICTURE PRODUCTION - 3.70%
Group AB SA - ADR* (Note 7) 1,275 9,483
Viacom, Inc. - Class B* 11,750 355,438
---------
364,921
---------
NONDEPOSITORY CREDIT INSTITUTIONS - 3.65%
Takefuji Corp. (Japan) (Note 7) 8,100 359,923
---------
PAPER MILLS - 6.80%
Aracruz Celulose SA - ADR (Note 7) 22,400 336,000
Kimberly-Clark Corp. 6,175 320,714
Schweitzer-Mauduit International, Inc. 325 13,691
---------
670,405
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
Investment Portfolio - October 31, 1997
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C> <C>
PLASTIC PRODUCTS - MISCELLANEOUS - 0.05%
PT Tri Polyta Indonesia - ADR (Note 7) 1,825 $ 5,361
---------
PRIMARY METAL INDUSTRIES - 0.33%
American Superconductor Corp.* 725 7,975
Gibraltar Steel Corp.* 475 11,222
Wolverine Tube Inc.* 425 13,175
---------
32,372
---------
PRINTING & PUBLISHING - 2.60%
Playboy Enterprises, Inc. - Class B* 950 13,122
Readers Digest Association, Inc. - Class A 10,000 227,500
Scholastic Corp.* 375 15,187
---------
255,809
---------
RESTAURANTS - 4.22%
McDonald's Corp. 9,275 415,636
---------
RETAIL - 3.53%
RETAIL - RECREATIONAL GOODS - 0.14%
West Marine, Inc.* 650 13,650
---------
RETAIL - SPECIALTY STORES - 3.39%
Fabri-Centers of America - Class A* 700 15,138
Fingerhut Companies, Inc. 10,025 221,803
Hancock Fabrics, Inc. 5,525 74,933
Loehmanns Holdings, Inc.* 1,050 7,481
Talbots, Inc. 600 14,400
---------
333,755
---------
347,405
---------
SOFTWARE - 0.49%
Apache Medical Systems, Inc.* 775 2,180
Broderbund Software, Inc.* 750 21,750
Electronic Arts, Inc.* 300 10,163
Symantec Corp.* 650 14,219
---------
48,312
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
Investment Portfolio - October 31, 1997
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C> <C>
TECHNICAL INSTRUMENTS & SUPPLIES - 8.23%
LABORATORY & ANALYTICAL INSTRUMENTS - 1.56%
Mallinckrodt, Inc. 4,100 $ 153,750
-----------
OPTICAL SUPPLIES - 0.15%
Sola International, Inc.* 425 14,503
-----------
PHOTOGRAPHIC EQUIPMENT & SUPPLIES - 4.69%
Eastman Kodak Co. 7,725 462,534
-----------
SCIENTIFIC INSTRUMENTS - 1.64%
Millipore Corp. 4,125 161,390
-----------
SURGICAL & MEDICAL INSTRUMENTS - 0.19%
CardioGenesis Corp.* 475 4,275
Eclipse Surgical Technologies, Inc.* 875 7,820
Lunar Corp.* 350 6,672
-----------
18,767
-----------
810,944
-----------
TELECOMMUNICATION SERVICES - 8.27%
Compania Anonima Nacional Telefonos de
Venezuela (CANTV) - ADR (Note 7) 5,200 227,500
Frontier Corp. 14,700 317,887
Telecom Italia SpA - ADR (Note 7) 950 59,612
Telecomunicacoes Brasileiras (Telebras) -
ADR (Note 7) 2,000 203,000
VIMPEL Communications - ADR* (Note 7) 200 6,550
-----------
814,549
-----------
TRAINING & EDUCATION - 0.10%
Firearms Training Systems, Inc.* 1,550 10,075
-----------
TRANSPORTATION EQUIPMENT - 0.05%
Federal Signal Corp. 200 4,837
-----------
UTILITIES-ELECTRIC - 0.24%
Enersis S.A.- ADR (Note 7) 725 23,925
-----------
TOTAL COMMON STOCK
(Identified Cost $9,675,143) 9,644,984
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
Investment Portfolio - October 31, 1997
<TABLE>
<CAPTION>
Principal Value
Amount/Shares (Note 2)
<S> <C> <C>
U.S. TREASURY BONDS - 0.77%
U.S. Treasury Bond, 6.875%, 8/15/2025
(Identified Cost $71,681) $ 70,000 $ 76,038
-----------
SHORT-TERM INVESTMENTS - 1.47%
Dreyfus U.S. Treasury Money Market Reserves
(Identified Cost $144,430) 144,430 144,430
-----------
TOTAL INVESTMENTS - 100.14%
(Identified Cost $9,891,254) 9,865,452
LIABILITIES, LESS OTHER ASSETS - (0.14%) (13,758)
-----------
NET ASSETS - 100% $9,851,694
===========
</TABLE>
*Non-income producing security
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
<S> <C>
At October 31, 1997, the net unrealized depreciation based on identified cost for
federal income tax purposes of $9,894,195 was as follows:
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost $ 655,547
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value (684,290)
----------
UNREALIZED DEPRECIATION - NET $ (28,743)
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
OCTOBER 31, 1997
<S> <C>
ASSETS:
Investments, at value (Identified Cost $9,891,254)(Note 2) $9,865,452
Dividends receivable 17,996
Interest receivable 1,020
-----------
TOTAL ASSETS 9,884,468
-----------
LIABILITIES:
Accrued Management fees (Note 3) 21,472
Accrued Directors' fees (Note 3) 2,257
Transfer agent fees payable (Note 3) 1,348
Audit fee payable 7,549
Payable for fund shares repurchased 119
Other payables and accrued expenses 29
-----------
TOTAL LIABILITIES 32,774
-----------
NET ASSETS FOR 691,741 SHARES OUTSTANDING $9,851,694
===========
NET ASSETS CONSIST OF:
Capital stock $ 6,917
Additional paid-in-capital 8,834,160
Undistributed net investment income 29,439
Accumulated net realized gain on investments 1,006,980
Net unrealized depreciation on investments (25,802)
-----------
TOTAL NET ASSETS $9,851,694
===========
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($9,851,694/691,741 shares) $ 14.24
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 31, 1997
<S> <C>
INVESTMENT INCOME:
Dividends $ 66,023
Interest 53,893
-----------
Total Investment Income 119,916
-----------
EXPENSES:
Management fees (Note 3) 56,154
Directors' fees (Note 3) 7,345
Transfer agent fees (Note 3) 1,348
Custodian fee 8,100
Audit fee 8,000
Registration and filing fees 4,960
Miscellaneous 1,161
-----------
Total Expenses 87,068
Less Reduction of Expenses (Note 3) (19,683)
-----------
Net Expenses 67,385
-----------
NET INVESTMENT INCOME 52,531
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net realized gain on investments (identified cost basis) 1,008,486
Net change in unrealized depreciation on investments (64,888)
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 943,598
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 996,129
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year For the Year
Ended 10/31/97 Ended 10/31/96
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 52,531 $ 7,550
Net realized gain on investments 1,008,486 10,435
Net change in unrealized appreciation (depreciation)
on investments (64,888) 39,086
---------------- ----------------
Net increase in net assets from operations 996,129 57,071
---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (26,434) (4,208)
From net realized gain on investment (11,941) --
Total distributions to shareholders (38,375) (4,208)
---------------- ----------------
CAPITAL STOCK ISSUED AND REPURCHASED:
Net increase in net assets from capital share
transactions (Note 5) 7,319,949 1,521,128
---------------- ----------------
Net increase in net assets 8,277,703 1,573,991
NET ASSETS:
Beginning of period 1,573,991 --
---------------- ----------------
END OF PERIOD (including undistributed net investment
income of $29,439 and $3,342 respectively) $ 9,851,694 $ 1,573,991
================ ================
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
For the Year For the Year
Ended 10/31/97 Ended 10/31/96
----------------
<S> <C> <C>
Per share data (for a share outstanding throughout
each period):
NET ASSET VALUE - BEGINNING OF PERIOD $ 11.38 $ 10.00
---------------- ----------------
Income from investment operations:
Net investment income 0.101 0.155
Net realized and unrealized gain on investments 2.919 1.356
---------------- ----------------
Total from investment operations 3.020 1.511
---------------- ----------------
Less distributions to shareholders:
From net investment income (0.082) (0.131)
From net realized gain on investments (0.078) --
---------------- ----------------
Total distributions to shareholders (0.160) (0.131)
---------------- ----------------
NET ASSET VALUE - END OF PERIOD $ 14.24 $ 11.38
================ ================
Total return 1: 26.77% 15.21%
Ratios (to average net assets) / Supplemental Data:
Expenses* 1.20% 1.20%
Net investment income* 0.94% 1.71%
Portfolio turnover 115% 95%
Average commission rate paid $ 0.0486 $ 0.0655
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 9,852 $ 1,574
================ ================
</TABLE>
* The investment advisor did not impose all or a portion of its management
fee and paid a portion of the Fund's expenses. If these expenses had been
incurred by the Fund, and had 1996 expenses been limited to that allowed by
state securities law, the net investment income per share and the ratios would
have been as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Net investment income $0.063 $0.037
Ratios (to average net assets):
Expenses 1.55% 2.50%
Net investment income 0.59% 0.41%
</TABLE>
1 Represents aggregate total return for the period indicated.
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
Notes to Financial Statements
1. ORGANIZATION
Maximum Horizon Series (the "Fund") is a no-load diversified series of
Manning & Napier Fund, Inc. (the "Corporation"). The Corporation is organized
in Maryland and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company.
The total authorized capital stock of the Corporation consists of one
billion shares of common stock each having a par value of $0.01. As of
October 31, 1997, 940 million shares have been designated in total among 19
series, of which 75 million have been designated as Maximum Horizon Series
Class A Common Stock.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Portfolio securities, including domestic equities, foreign equities,
options and corporate bonds, listed on an exchange are valued at the latest
quoted sales price of the exchange on which the security is traded most
extensively. Securities not traded on valuation date or securities not listed
on an exchange are valued at the latest quoted bid price.
Debt securities, including government bonds and mortgage backed
securities, will normally be valued on the basis of evaluated bid prices.
Securities for which representative valuations or 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 Funds Board of
Directors.
Short-term investments that mature in sixty days or less are valued at
amortized cost.
SECURITY TRANSACTIONS, INVESTMENT INCOME AND EXPENSES
Security transactions are accounted for on the date the securities are
purchased or sold. Dividend income is recorded on the ex-dividend date.
Interest income and expenses are recorded on an accrual basis.
Most expenses of the Corporation can be attributed to a specific fund.
Expenses which cannot be directly attributed are apportioned among the funds
in the Corporation.
FEDERAL INCOME TAXES
The Fund's policy is to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies. The Fund is not
subject to federal income or excise tax to the extent the Fund distributes to
shareholders each year its taxable income, including any net realized gains on
investments in accordance with requirements of the Internal Revenue Code.
Accordingly, no provision for federal income tax or excise tax has been made
in the financial statements.
13
<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.
DISTRIBUTIONS OF INCOME AND GAINS
Distributions to shareholders of net investment income are made
semi-annually. Distributions are recorded on the ex-dividend date.
Distributions of net realized gains are distributed annually. An additional
distribution may be necessary to avoid taxation of the Fund.
The timing and characterization of certain income and capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. The differences may be a
result of deferral of certain losses, foreign denominated investments,
character reclassification between net income and net gains, or other tax
adjustments. As a result, net investment income (loss) and net investment
gain (loss) on investment transactions for a reporting period may differ
significantly from distributions to shareholders during such period. As a
result, the Fund may periodically make reclassifications among its capital
accounts without impacting the Fund's net asset value.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars.
Foreign currency amounts are translated into U.S. dollars on the following
basis: a) investment securities, other assets and liabilities are converted to
U.S. dollars based upon current exchange rates; and b) purchases and sales of
securities and income and expenses are converted into U.S. dollars based upon
the currency exchange rates prevailing on the respective dates of such
transactions.
Gains and losses attributable to foreign currency exchange rates are
recorded for financial statement purposes as net realized gains and losses on
investments. The portion of both realized and unrealized gains and losses on
investments that result from fluctuations in foreign currency exchange rates
is not separately stated.
OTHER
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
14
<PAGE>
Notes to Financial Statements
3. TRANSACTIONS WITH AFFILIATES
The Fund has an investment advisory agreement with Manning & Napier
Advisors, Inc. (the "Advisor"), for which the Fund pays the Advisor a fee,
computed daily and payable monthly, at an annual rate of 1.0% of the Fund's
average daily net assets. The fee amounted to $56,154 for the year ended
October 31, 1997.
Under the Fund's Investment Advisory Agreement (the "Agreement"),
personnel of the Advisor provide the Fund with advice and assistance in the
choice of investments and the execution of securities transactions, and
otherwise maintain the Fund's organization. The Advisor also provides the
Fund with necessary office space and portfolio accounting and bookkeeping
services. The salaries of all officers of the Fund and of all Directors who
are "affiliated persons" of the Fund or of the Advisor, and all personnel of
the Fund or of the Advisor performing services relating to research,
statistical and investment activities are paid by the Advisor.
The Advisor has voluntarily agreed to waive its fee and, if necessary,
pay other expenses of the Fund in order to maintain total expenses for the
Fund at no more than 1.20% of average daily net assets each year.
Accordingly, the Advisor waived fees of $19,683 for the year ended October 31,
1997, 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 $1,348 for the year ended October 31,
1997.
Manning & Napier Investor Services, Inc., a registered broker-dealer
affiliate of the Advisor, acts as distributor for the Fund's shares. The
services of Manning & Napier Investor Services, Inc. are provided at no
additional cost to the Fund.
The compensation of the non-affiliated Directors totaled $7,345 for the
year ended October 31, 1997.
4. PURCHASES AND SALES OF SECURITIES
For the year ended October 31, 1997, purchases and sales of securities,
other than United States Government securities and short-term securities, were
$11,395,385 and $3,825,271, respectively. Purchases and sales of United
States Government securities were $2,111,104 and $2,359,683, respectively.
15
<PAGE>
Notes to Financial Statements
5. CAPITAL STOCK TRANSACTIONS
Transactions in shares of Maximum Horizon Series Class A Common Stock
were:
<TABLE>
<CAPTION>
For the Year For the Year
Ending 10/31/97 Ending 10/31/96
<S> <C> <C> <C> <C>
Shares Amount Shares Amount
---------------- ----------- ---------------- -----------
Sold 604,488 $8,008,694 148143 $1,624,294
Reinvested 2,983 38,375 390 4,209
Repurchased (54,012) (727,120) (10,251) (107,375)
---------------- ----------- ---------------- -----------
Net increase 553,459 $7,319,949 138,282 $1,521,128
================ =========== ================ ===========
</TABLE>
The Advisor owned 12,820 shares on October 31, 1997 and 12,654 shares on
October 31, 1996.
6. FINANCIAL INSTRUMENTS
The Fund may trade in financial instruments with off-balance sheet risk
in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include written
options, forward foreign currency exchange contracts, and futures contracts
and may involve, to a varying degree, elements of risk in excess of the
amounts recognized for financial statement purposes. No such investments were
held by the Fund on October 31, 1997.
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 domestic companies and the United States
government. These risks include revaluation of currencies and future adverse
political and economic developments. Moreover, securities of foreign
companies and foreign governments may be less liquid and their prices more
volatile than those of securities of comparable domestic companies and the
United States government.
16
<PAGE>
Independent Auditors Report
TO THE DIRECTORS OF MANNING & NAPIER FUND, INC.
AND SHAREHOLDERS OF MAXIMUM HORIZON SERIES:
We have audited the accompanying statement of assets and liabilities,
including the investment portfolio, of Maximum Horizon Series (one of the
series constituting Manning & Napier Fund, Inc.) as of October 31, 1997, the
related statement of operations for the year then ended, and the statement of
changes in net assets and the financial highlights for the years ended October
31, 1997 and 1996. These financial statements and financial highlights are the
responsibility of the Funds management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of investments owned as of October 31, 1997
by correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of the
Maximum Horizon Series at October 31, 1997, the results of its operations, the
changes in its net assets and its financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
BOSTON, MASSACHUSETTS
NOVEMBER 26, 1997
17
<PAGE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
<RESTATED>
<CIK> 0000751173
<NAME> MANNING & NAPIER FUND, INC.
<SERIES>
<NAME> BLENDED ASSET SERIES I
<NUMBER> 11
<MULTIPLIER> 1
<CURRENCY> 1
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<PERIOD-TYPE> YEAR
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 21,251,881
<INVESTMENTS-AT-VALUE> 21,982,638
<RECEIVABLES> 555,043
<ASSETS-OTHER> 113,455
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 22,651,136
<PAYABLE-FOR-SECURITIES> 507,714
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 212,932
<TOTAL-LIABILITIES> 720,646
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 19,498,961
<SHARES-COMMON-STOCK> 1,831,743
<SHARES-COMMON-PRIOR> 1,588,453
<ACCUMULATED-NII-CURRENT> 274,768
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,426,004
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 730,757
<NET-ASSETS> 21,930,490
<DIVIDEND-INCOME> 84,263
<INTEREST-INCOME> 839,782
<OTHER-INCOME> 0
<EXPENSES-NET> 241,513
<NET-INVESTMENT-INCOME> 682,532
<REALIZED-GAINS-CURRENT> 1,431,876
<APPREC-INCREASE-CURRENT> 342,311
<NET-CHANGE-FROM-OPS> 2,456,719
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 730,167
<DISTRIBUTIONS-OF-GAINS> 296,105
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 514,345
<NUMBER-OF-SHARES-REDEEMED> 362,106
<SHARES-REINVESTED> 91,051
<NET-CHANGE-IN-ASSETS> 4,136,982
<ACCUMULATED-NII-PRIOR> 319,657
<ACCUMULATED-GAINS-PRIOR> 292,979
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 201,261
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 250,001
<AVERAGE-NET-ASSETS> 20,025,396
<PER-SHARE-NAV-BEGIN> 11.20
<PER-SHARE-NII> 0.390
<PER-SHARE-GAIN-APPREC> 1.010
<PER-SHARE-DIVIDEND> 0.442
<PER-SHARE-DISTRIBUTIONS> 0.188
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.97
<EXPENSE-RATIO> 1.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
<RESTATED>
<CIK> 0000751173
<NAME> MANNING & NAPIER FUND, INC.
<SERIES>
<NAME> BLENDED ASSET SERIES II
<NUMBER> 12
<MULTIPLIER> 1
<CURRENCY> 1
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<PERIOD-TYPE> YEAR
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 48,352,079
<INVESTMENTS-AT-VALUE> 50,861,761
<RECEIVABLES> 1,252,195
<ASSETS-OTHER> 139,500
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 52,253,456
<PAYABLE-FOR-SECURITIES> 1,269,130
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 61,960
<TOTAL-LIABILITIES> 1,331,090
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 41,743,977
<SHARES-COMMON-STOCK> 3,466,675
<SHARES-COMMON-PRIOR> 2,529,773
<ACCUMULATED-NII-CURRENT> 437,931
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 6,230,776
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,509,682
<NET-ASSETS> 50,922,366
<DIVIDEND-INCOME> 282,328
<INTEREST-INCOME> 1,235,671
<OTHER-INCOME> 0
<EXPENSES-NET> 483,954
<NET-INVESTMENT-INCOME> 1,034,045
<REALIZED-GAINS-CURRENT> 6,250,473
<APPREC-INCREASE-CURRENT> 48,699
<NET-CHANGE-FROM-OPS> 7,333,217
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,092,397
<DISTRIBUTIONS-OF-GAINS> 1,048,673
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,218,144
<NUMBER-OF-SHARES-REDEEMED> 445,116
<SHARES-REINVESTED> 163,874
<NET-CHANGE-IN-ASSETS> 17,923,668
<ACCUMULATED-NII-PRIOR> 475,782
<ACCUMULATED-GAINS-PRIOR> 1,049,477
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 422,101
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 483,954
<AVERAGE-NET-ASSETS> 42,049,034
<PER-SHARE-NAV-BEGIN> 13.04
<PER-SHARE-NII> 0.325
<PER-SHARE-GAIN-APPREC> 2.130
<PER-SHARE-DIVIDEND> 0.393
<PER-SHARE-DISTRIBUTIONS> 0.412
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.69
<EXPENSE-RATIO> 1.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
<RESTATED>
<CIK> 0000751173
<NAME> MANNING & NAPIER FUND, INC.
<SERIES>
<NAME> DEFENSIVE SERIES
<NUMBER> 2
<MULTIPLIER> 1
<CURRENCY> 1
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<PERIOD-TYPE> YEAR
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 1,753,349
<INVESTMENTS-AT-VALUE> 1,779,329
<RECEIVABLES> 32,918
<ASSETS-OTHER> 2,005
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,814,252
<PAYABLE-FOR-SECURITIES> 11,276
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 38,940
<TOTAL-LIABILITIES> 50,216
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,678,858
<SHARES-COMMON-STOCK> 164,649
<SHARES-COMMON-PRIOR> 72,442
<ACCUMULATED-NII-CURRENT> 31,890
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 27,308
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 25,980
<NET-ASSETS> 1,764,036
<DIVIDEND-INCOME> 2,092
<INTEREST-INCOME> 74,704
<OTHER-INCOME> 0
<EXPENSES-NET> 14,103
<NET-INVESTMENT-INCOME> 62,693
<REALIZED-GAINS-CURRENT> 27,310
<APPREC-INCREASE-CURRENT> 27,116
<NET-CHANGE-FROM-OPS> 117,119
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 41,851
<DISTRIBUTIONS-OF-GAINS> 6,511
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 166,901
<NUMBER-OF-SHARES-REDEEMED> 79,413
<SHARES-REINVESTED> 4,719
<NET-CHANGE-IN-ASSETS> 1,018,831
<ACCUMULATED-NII-PRIOR> 11,048
<ACCUMULATED-GAINS-PRIOR> 6,509
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 11,283
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 36,574
<AVERAGE-NET-ASSETS> 1,405,147
<PER-SHARE-NAV-BEGIN> 10.29
<PER-SHARE-NII> 0.426
<PER-SHARE-GAIN-APPREC> 0.447
<PER-SHARE-DIVIDEND> 0.385
<PER-SHARE-DISTRIBUTIONS> 0.068
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.71
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
<RESTATED>
<CIK> 0000751173
<NAME> MANNING & NAPIER FUND, INC.
<SERIES>
<NAME> FLEXIBLE YIELD SERIES I
<NUMBER> 13
<MULTIPLIER> 1
<CURRENCY> 1
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<PERIOD-TYPE> YEAR
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 633,560
<INVESTMENTS-AT-VALUE> 641,400
<RECEIVABLES> 23,570
<ASSETS-OTHER> 6,356
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 671,326
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 21,494
<TOTAL-LIABILITIES> 21,494
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 633,843
<SHARES-COMMON-STOCK> 62,539
<SHARES-COMMON-PRIOR> 47,974
<ACCUMULATED-NII-CURRENT> 10,842
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,693)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,840
<NET-ASSETS> 649,832
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 37,457
<OTHER-INCOME> 0
<EXPENSES-NET> 4,380
<NET-INVESTMENT-INCOME> 33,077
<REALIZED-GAINS-CURRENT> (2,250)
<APPREC-INCREASE-CURRENT> 4,259
<NET-CHANGE-FROM-OPS> 35,086
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 28,418
<DISTRIBUTIONS-OF-GAINS> 1,988
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 53,796
<NUMBER-OF-SHARES-REDEEMED> 42,043
<SHARES-REINVESTED> 2,812
<NET-CHANGE-IN-ASSETS> 156,935
<ACCUMULATED-NII-PRIOR> 5,336
<ACCUMULATED-GAINS-PRIOR> 2,392
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,189
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 23,935
<AVERAGE-NET-ASSETS> 613,277
<PER-SHARE-NAV-BEGIN> 10.27
<PER-SHARE-NII> 0.505
<PER-SHARE-GAIN-APPREC> 0.099
<PER-SHARE-DIVIDEND> 0.456
<PER-SHARE-DISTRIBUTIONS> 0.028
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.39
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
<RESTATED>
<CIK> 0000751173
<NAME> MANNING & NAPIER FUND, INC.
<SERIES>
<NAME> FLEXIBLE YIELD SERIES II
<NUMBER> 14
<MULTIPLIER> 1
<CURRENCY> 1
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<PERIOD-TYPE> YEAR
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 672,468
<INVESTMENTS-AT-VALUE> 699,658
<RECEIVABLES> 24,868
<ASSETS-OTHER> 31,903
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 756,429
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 38,205
<TOTAL-LIABILITIES> 38,205
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 678,018
<SHARES-COMMON-STOCK> 70,205
<SHARES-COMMON-PRIOR> 47,655
<ACCUMULATED-NII-CURRENT> 8,569
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,447
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 27,190
<NET-ASSETS> 718,224
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 40,286
<OTHER-INCOME> 0
<EXPENSES-NET> 5,150
<NET-INVESTMENT-INCOME> 35,136
<REALIZED-GAINS-CURRENT> 5,404
<APPREC-INCREASE-CURRENT> 11,090
<NET-CHANGE-FROM-OPS> 51,630
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 36,179
<DISTRIBUTIONS-OF-GAINS> 382
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 46,530
<NUMBER-OF-SHARES-REDEEMED> 27,676
<SHARES-REINVESTED> 3,696
<NET-CHANGE-IN-ASSETS> 236,930
<ACCUMULATED-NII-PRIOR> 8,750
<ACCUMULATED-GAINS-PRIOR> 287
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,897
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 23,939
<AVERAGE-NET-ASSETS> 646,559
<PER-SHARE-NAV-BEGIN> 10.10
<PER-SHARE-NII> 0.523
<PER-SHARE-GAIN-APPREC> 0.212
<PER-SHARE-DIVIDEND> 0.597
<PER-SHARE-DISTRIBUTIONS> 0.008
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.23
<EXPENSE-RATIO> 0.80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
<RESTATED>
<CIK> 0000751173
<NAME> MANNING & NAPIER FUND, INC.
<SERIES>
<NAME> FLEXIBLE YIELD SERIES III
<NUMBER> 15
<MULTIPLIER> 1
<CURRENCY> 1
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<PERIOD-TYPE> YEAR
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 1,207,909
<INVESTMENTS-AT-VALUE> 1,294,501
<RECEIVABLES> 28,425
<ASSETS-OTHER> 43,084
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,366,010
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 20,729
<TOTAL-LIABILITIES> 20,729
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,240,479
<SHARES-COMMON-STOCK> 129,274
<SHARES-COMMON-PRIOR> 108,427
<ACCUMULATED-NII-CURRENT> 17,515
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 695
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 86,592
<NET-ASSETS> 1,345,281
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 83,411
<OTHER-INCOME> 0
<EXPENSES-NET> 10,623
<NET-INVESTMENT-INCOME> 72,788
<REALIZED-GAINS-CURRENT> 1,966
<APPREC-INCREASE-CURRENT> 48,709
<NET-CHANGE-FROM-OPS> 123,463
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 73,237
<DISTRIBUTIONS-OF-GAINS> 4,865
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 76,364
<NUMBER-OF-SHARES-REDEEMED> 62,307
<SHARES-REINVESTED> 6,790
<NET-CHANGE-IN-ASSETS> 247,417
<ACCUMULATED-NII-PRIOR> 16,958
<ACCUMULATED-GAINS-PRIOR> 4,600
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6,249
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 28,459
<AVERAGE-NET-ASSETS> 1,243,044
<PER-SHARE-NAV-BEGIN> 10.13
<PER-SHARE-NII> 0.580
<PER-SHARE-GAIN-APPREC> 0.355
<PER-SHARE-DIVIDEND> 0.610
<PER-SHARE-DISTRIBUTIONS> 0.045
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.41
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
<RESTATED>
<CIK> 0000751173
<NAME> MANNING & NAPIER FUND, INC.
<SERIES>
<NAME> MAXIMUM HORIZON SERIES
<NUMBER> 5
<MULTIPLIER> 1
<CURRENCY> 1
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<PERIOD-TYPE> YEAR
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 9,891,254
<INVESTMENTS-AT-VALUE> 9,865,452
<RECEIVABLES> 19,016
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 9,884,468
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 32,774
<TOTAL-LIABILITIES> 32,774
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,841,077
<SHARES-COMMON-STOCK> 691,741
<SHARES-COMMON-PRIOR> 138,282
<ACCUMULATED-NII-CURRENT> 29,439
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,006,980
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (25,802)
<NET-ASSETS> 9,851,694
<DIVIDEND-INCOME> 66,023
<INTEREST-INCOME> 53,893
<OTHER-INCOME> 0
<EXPENSES-NET> 67,385
<NET-INVESTMENT-INCOME> 52,531
<REALIZED-GAINS-CURRENT> 1,008,486
<APPREC-INCREASE-CURRENT> (64,888)
<NET-CHANGE-FROM-OPS> 996,129
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 26,434
<DISTRIBUTIONS-OF-GAINS> 11,941
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 604,488
<NUMBER-OF-SHARES-REDEEMED> 54,012
<SHARES-REINVESTED> 2,983
<NET-CHANGE-IN-ASSETS> 8,277,703
<ACCUMULATED-NII-PRIOR> 3,342
<ACCUMULATED-GAINS-PRIOR> 10,435
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 56,154
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 87,068
<AVERAGE-NET-ASSETS> 5,526,057
<PER-SHARE-NAV-BEGIN> 11.38
<PER-SHARE-NII> 0.101
<PER-SHARE-GAIN-APPREC> 2.919
<PER-SHARE-DIVIDEND> 0.082
<PER-SHARE-DISTRIBUTIONS> 0.078
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 14.24
<EXPENSE-RATIO> 1.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
<RESTATED>
<CIK> 0000751173
<NAME> MANNING & NAPIER FUND, INC.
<SERIES>
<NAME> TAX MANAGED SERIES
<NUMBER> 8
<MULTIPLIER> 1
<CURRENCY> 1
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<PERIOD-TYPE> YEAR
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 393,962
<INVESTMENTS-AT-VALUE> 483,570
<RECEIVABLES> 55,964
<ASSETS-OTHER> 43,355
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 582,889
<PAYABLE-FOR-SECURITIES> 35,529
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 23,163
<TOTAL-LIABILITIES> 58,692
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 420,386
<SHARES-COMMON-STOCK> 34,491
<SHARES-COMMON-PRIOR> 19,300
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 14,203
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 89,608
<NET-ASSETS> 524,197
<DIVIDEND-INCOME> 2,581
<INTEREST-INCOME> 1,172
<OTHER-INCOME> 0
<EXPENSES-NET> 4,042
<NET-INVESTMENT-INCOME> (289)
<REALIZED-GAINS-CURRENT> 14,448
<APPREC-INCREASE-CURRENT> 58,457
<NET-CHANGE-FROM-OPS> 72,616
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 16,041
<NUMBER-OF-SHARES-REDEEMED> 850
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 299,817
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (245)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,368
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 27,245
<AVERAGE-NET-ASSETS> 338,590
<PER-SHARE-NAV-BEGIN> 11.63
<PER-SHARE-NII> (0.008)
<PER-SHARE-GAIN-APPREC> 3.578
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 15.20
<EXPENSE-RATIO> 1.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
