MANNING & NAPIER FUND, INC.
1100 Chase Square
Rochester, New York 14604
1-800-466-3863
Manning & Napier Fund, Inc. (the "Fund"), is an open-end management investment
company consisting of multiple series, each a separate investment portfolio
having its own investment objective and policies. This Prospectus relates to
the eight series of the Fund described below (individually and collectively,
the "Series"). The investment objective of each Series, except for the Global
Fixed Income Series, is to provide long-term growth of capital. The Global
Fixed Income Series seeks long-term total return. The Series seek to achieve
their respective objectives by the following investment policies:
SMALL CAP SERIES - by investing principally in the equity securities of small
issuers.
ENERGY SERIES - by investing principally in the equity securities of companies
in the energy industry and in industries connected with, marketing the
products of, serving and/or supplying the energy industry or which use energy
extensively in their product development or operations.
TECHNOLOGY SERIES - by investing principally in the equity securities of
companies in science -and technology-based industries and in industries
connected with, marketing the products of, serving and/or supplying science
- -and technology-based industries or which use scientific and technological
advances extensively in their product development or operations.
FINANCIAL SERVICES SERIES - by investing principally in the equity securities
of companies in the financial services industry and in industries connected
with, marketing the products of, serving and/or supplying the financial
services industry or which use financial services extensively in their product
development or operations.
INTERNATIONAL SERIES - by investing principally in the equity securities of
non-United States issuers.
LIFE SCIENCES SERIES - by investing principally in the equity securities of
companies in industries based on the life sciences (such as pharmaceuticals,
biomedical technology, health care delivery and environmental services) and in
industries connected with, marketing the products of, serving and/or supplying
industries based on the life sciences.
GLOBAL FIXED INCOME SERIES - by investing principally in fixed income
securities issued by governments, banks, corporations and supranational
entities located anywhere in the world, including the United States.
WORLD OPPORTUNITIES SERIES - by investing principally in common stocks of
companies domiciled in at least three different countries. The Advisor will
emphasize individual security selection to identify those issuers which are
believed to have attractive long-term business prospects and valuations.
This Prospectus provides you with the basic information you should know before
investing in the Series of the Fund named above. The Fund's other eleven
series are offered through separate prospectus. You should read this
Prospectus and keep it for future reference. A Statement of Additional
Information, dated April 14, 1997, containing additional information
about the Fund has been filed with the Securities and Exchange Commission and
is incorporated by reference in this Prospectus in its entirety. You may
obtain a copy of the Statement of Additional Information without charge by
contacting the Fund at the address or telephone number listed above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS APRIL 14, 1997.
<PAGE>
MANNING & NAPIER FUND, INC.
SMALL CAP SERIES
ENERGY SERIES
TECHNOLOGY SERIES
FINANCIAL SERVICES SERIES
INTERNATIONAL SERIES
LIFE SCIENCES SERIES
GLOBAL FIXED INCOME SERIES
WORLD OPPORTUNITIES SERIES
No person has been authorized to give any information or to make
representations not contained in this Prospectus in connection with any
offering made by this Prospectus and, if given or made, such information must
not be relied upon as having been authorized by the Fund. This Prospectus
does not constitute an offering by the Fund in any jurisdiction in which such
offering may not lawfully be made.
<TABLE>
<CAPTION>
PROSPECTUS
TABLE OF CONTENTS
<S> <C>
Annual Operating Expenses 2
Condensed Financial Information 3
The Fund 10
Risk and Investment Objectives and Policies 10
Risk and Additional Information about Investment Policies 17
Special Risk and Additional Investment Policies-World Opportunities Series 22
Principal Investment Restrictions 23
Management 24
Yield and Total Return 25
Offering of Shares 25
Net Asset Value ` 25
Redemption of Shares 26
Dividends and Tax Status 26
General Information 27
Appendix 27
</TABLE>
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
(As a percentage of offering price)
Maximum Sales Charge Imposed on Purchases None
Redemption Fees None
ANNUAL OPERATING EXPENSES
The following information provides (I) a tabular summary of expenses relating
to the annual operating expense of the Series and (ii) an example illustrating
the dollar cost of such expenses on a $1,000 investment.
<TABLE>
<CAPTION>
Annual Fund Operating Expenses (as a percentage of average daily net assets)
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Small Life
Technology Cap International Sciences
Series1 Series1 Series1 Series1
----------- -------- -------------- ---------
Management 1.00% 1.00% 1.00% 1.00%
12b-1 fees None None None None
Other expenses 0.04% 0.08% 0.12% 0.06%
----------- -------- -------------- ---------
Total fund operating
expenses 1.04% 1.08% 1.12% 1.06%
=========== ======== ============== =========
Annual Fund Operating Expenses (as a percentage of average daily net assets)
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Global World
Services Energy Fixed Income Opportunities
Series2 Series2 Series2 Series1
---------- -------- ------------- --------------
Management 1.00% 1.00% 1.00% 1.00%
12b-1 fees None None None None
Other expenses 0.13% 0.13% 0.25% 0.17%
---------- -------- ------------- --------------
Total fund operating
expenses 1.13% 1.13% 1.25% 1.17%
========== ======== ============= ==============
</TABLE>
You would pay the following expenses on a $1,000 investment, assuming a) 5.0%
annual return and b) redemptions at the end of each time period:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1 year 3 years 5 years 10 years
------- -------- -------- ---------
Technology Series 1 $ 11 $ 33 $ 57 $ 127
Small Cap Series 1 11 34 60 132
International Series 1 11 36 62 136
Life Sciences Series 1 11 34 58 129
Energy Series 2 12 36
Financial Services Series 2 12 36
Global Fixed Income Series 2 13 40
World Opportunities Series 1 12 37 64 142
</TABLE>
1 The Life Sciences Series was engaged in active investment operations for the
period January 1, 1995 through September 21, 1995. The Small Cap Series,
Technology Series and the International Series were engaged in active
investment operations for the year ended December 31, 1996 and the World
Opportunities Series was engaged in active investment operations for the
period September 6, 1996 (commencement of operations) to December 31, 1996;
therefore, actual management fees and other expenses were used above.
2 As these Series have not commenced active investment operations, the "Annual
Fund Operating Expenses" percentages and the "Example" expenses presented are
estimates based upon expense and average net assets if the Series were in
active investment operations for an entire year.
The purpose of the above table is to assist the investor in understanding the
various costs and expenses associated with investing in the Fund. For a more
complete description of the various costs and expenses illustrated above,
please refer to the Management sections of this Prospectus.
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
<PAGE> 2
FINANCIAL HIGHLIGHTS
The following tables provide selected per share data and ratios for the Series
(for a share outstanding throughout the period over various periods shown).
The tables are part of each Series' audited financial statements, which are
included in the Statement of Additional Information incorporated by reference
into this Prospectus. The Technology Series, Small Cap Series, and
International Series financial statements are included in the Statement of
Additional Information as they were engaged in active investment operations
for the year ended December 31, 1996. The World Opportunities Series
financial statements are also included in the Statement of Additional
Information for the period September 6, 1996 (commencement of operations) to
December 31, 1996. The remaining Series were not in active investment
operations; thus financial statements are not included.
Per share income and capital change information is presented for the
Technology Series, Small Cap Series, and International Series as they remain
engaged in active investment operations. Per share and capital change
information is presented for the World Opportunities Series for the period
September 6, 1996 (commencement of operations) to December 31, 1996. The
remaining Series have not commenced active investment operations; thus the per
share income and capital change information is not presented.
<TABLE>
<CAPTION>
TECHNOLOGY SERIES
For the For the
Year ended Year ended
Dec. 31, 1996 Dec. 31, 1995
<S> <C> <C>
Net asset value - Beginning of period $ 10.71 $ 11.35
Income from investment operations
Net investment income (loss) (0.02) 0.02
Net realized and unrealized gain (loss)
on investments 2.19 4.51
Total from investment operations 2.17 4.53
Less distributions declared to shareholders
From net investment income -- (0.01)
From net realized gain on investments (0.30) (5.16)
Redemption of capital --
Total distributions declared to shareholders (0.30) (5.17)
Net asset value - End of period $ 12.58 $ 10.71
Total return 21 20.90% 40.25%
Ratios (to average net assets)/Supplemental data:
Expenses 1.04% 1.12%
Net investment income (0.17%) 0.13%
Portfolio Turnover 107% 107%
Average Commission Rate Paid -- --
Net assets - End of period (000's omitted) $ 51,929 $ --
Aug. 29, 1994 Jan. 1, 1992 to
(recommencement of May 11, 1995 15
operations) (date of full
to Dec. 31, 1994 redemption)
<S> <C> <C>
Net asset value - Beginning of period $ 10.0019 $ 10.25
Income from investment operations
Net investment income (loss) (0.01) 0.01
Net realized and unrealized gain (loss)
on investments 1.36 1.53
Total from investment operations 1.35 1.54
Less distributions declared to shareholders
From net investment income -- --
From net realized gain on investments -- (1.94)
Redemption of capital -- (9.85)
Total distributions declared to shareholders -- (11.79)
Net asset value - End of period $ 11.35 $ --
Total return 21 13.5% --15
Ratios (to average net assets)/Supplemental data:
Expenses 1.32%4 1.35%4, 15
Net investment income (0.40)%4 0.20%4, 15
Portfolio Turnover 5% --5
Average Commission Rate Paid -- --
Net assets - End of period (000's omitted) $ 51,929 $ --
</TABLE>
<TABLE>
<CAPTION>
For the Year For the Year
TECHNOLOGY SERIES Ended Ended
Dec. 31, 1991 Dec. 31, 1990
<S> <C> <C>
Net asset value - Beginning of period $ 8.00 $ 9.41
Income from investment operations
Net investment income (loss) (0.04) 0.02
Net realized and unrealized gain (loss)
on investments 2.93 (0.83)
Total from investment operations 2.89 (0.81)
Less distributions declared to shareholders
From net investment income -- (0.03)
From net realized gain on investments (0.64) (0.57)
Redemption of capital -- --
Total distributions declared to shareholders (0.64) (0.60)
Net asset value - End of period $ 10.25 $ 8.00
Total return 21 36.10% (8.90)%
Ratios (to average net assets)/Supplemental data:
Expenses 1.13% 1.14%
Net investment income (0.33)% 0.20%12
Portfolio Turnover 4% 25%
Average Commission Rate Paid -- --
Net assets - End of period (000's omitted) $ 5,594 $ 5,835
Nov. 4, 1988
For the (commencement of
Year ended operations) to
Dec. 31, 1989 Dec. 31, 1988 3
<S> <C> <C>
Net asset value - Beginning of period $ 10.28 $ 10.00
Income from investment operations
Net investment income (loss) (0.05) 0.01
Net realized and unrealized gain (loss)
on investments (0.06) 0.28
Total from investment operations (0.11) 0.29
Less distributions declared to shareholders
From net investment income --2 (0.01)
From net realized gain on investments (0.76) --
Redemption of capital -- --
Total distributions declared to shareholders (0.76) (0.01)
Net asset value - End of period $ 9.41 $ 10.28
Total return 21 (0.90)% 19.40%
Ratios (to average net assets)/Supplemental data:
Expenses 1.11% 1.22%4
Net investment income (0.49)% 0.81%4
Portfolio Turnover --5 --5
Average Commission Rate Paid -- --
Net assets - End of period (000's omitted) $ 6,669 $ 6,260
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
SMALL CAP SERIES 7
For the For the
Year ended Year ended
Dec. 31, 1996 Dec. 31, 1995
<S> <C> <C>
Net asset value - Beginning of period $ 11.95 $ 12.92
Income from investment operations
Net investment income (loss) 0.05 0.00
Net realized and unrealized gain (loss)
on investments 1.11 1.93
Total from investment operations 1.16 1.93
Less distributions declared to shareholders
From net investment income (0.04) --
From net realized gain on investments (0.89) (2.90)
In excess of net realized gains (0.09) --
Redemption of capital -- --
Total distributions declared to shareholders (1.02) (2.90)
Net asset value - End of period $ 12.09 $ 11.95
Total return 21 10.06% 14.70%
Ratios (to average net assets) / Supplemental data:
Expenses9 1.08% 1.07%
Net investment income 0.29% (0.03)%
Portfolio Turnover 31% 77%
Average Commission Rate Paid $ 0.0291 $ 0.0500
Net assets - End of period (000's omitted) $ 100,688 $ 143,003
SMALL CAP SERIES 7
For the For the
Year ended Year ended
Dec. 31, 1994 Dec. 31, 1993
<S> <C> <C>
Net asset value - Beginning of period $ 12.52 $ 11.24
Income from investment operations
Net investment income (loss) (0.07) (0.04)
Net realized and unrealized gain (loss)
on investments 1.05 1.70
Total from investment operations 0.98 1.66
Less distributions declared to shareholders
From net investment income -- --
From net realized gain on investments (0.58) (0.38)
In excess of net realized gains -- --
Redemption of capital -- --
Total distributions declared to shareholders (.058) (0.38)
Net asset value - End of period $ 12.92 $ 12.52
Total return 21 8.01% 14.64%
Ratios (to average net assets) / Supplemental data:
Expenses9 1.10% 1.13%
Net investment income (0.58)% (0.43)%
Portfolio Turnover 31% 12%
Average Commission Rate Paid -- --
Net assets - End of period (000's omitted) $ 105,522 $ 70,734
<PAGE> 4
SMALL CAP SERIES7
For the period
For the Period Jan. 1, 1989
(recommence- July 24, 1989
ment of oper.) (date of full
to Dec. 31, 19926 redemption)
<S> <C> <C>
Net asset value - Beginning of period $ 10.0017 $ 8.96
Income from investment operations
Net investment income (loss) (0.02) (0.39)
Net realized and unrealized gain (loss)
on investments 1.63 --
Total from investment operations 1.61 (0.39)
Less distributions declared to shareholders
From net investment income -- --
From net realized gain on investments (0.29) -- --
In excess of net realized gains (0.08)16 --
Redemption of capital -- (8.57)
Total distributions declared to shareholders (0.37) (8.57)
Net asset value - End of period $ 11.24 $ --
Total return 21 16.20% --10
Ratios (to average net assets) / Supplemental data:
Expenses9 1.27%4, 13 14.59%4, 10
Net investment income (0.26)%4, 13 (8.02)%4, 10
Portfolio Turnover 24% --5
Average Commission Rate Paid -- --
Net assets - End of period (000's omitted) $ 33,079 $ --
SMALL CAP SERIES7
For the period
Jan. 6, 1986
For the For the (commencement
Year ended Year ended of operations) to
Dec. 31, 19881 Dec. 31, 1987 Dec. 31, 1986 11
<S> <C> <C> <C>
Net asset value - Beginning of period $ 8.93 $ 8.08 $ 10.00
Income from investment operations
Net investment income (loss) 0.10 0.13 (0.09)
Net realized and unrealized gain (loss)
on investments (0.07) 0.75 (1.83)
Total from investment operations 0.03 0.88 (1.92)
Less distributions declared to shareholders
From net investment income -- -- --
From net realized gain on investments -- (0.03) --
In excess of net realized gains -- -- - -
Redemption of capital -- -- --
Total distributions declared to shareholders -- (0.03) --
Net asset value - End of period $ 8.96 $ 8.93 $ 8.08
Total return 21 0.33% 10.89% (19.44)%
Ratios (to average net assets) / Supplemental data:
Expenses9 1.34% 2.26% 9.08%4
Net investment income 0.91% 0.95% (5.62)%4
Portfolio Turnover --5 76% --5
Average Commission Rate Paid -- -- --
Net assets - End of period (000's omitted) $ 90 $ 36,193 $ 1,608
</TABLE>
<TABLE>
<CAPTION>
<PAGE> 5
INTERNATIONAL SERIES
For the For the For the For the
Year ended Year ended Year ended Year ended
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993
<S> <C> <C> <C> <C>
Net asset value - Beginning of period $ 9.57 $ 9.54 $ 11.33 $ 9.19
Income from investment operations
Net investment income (loss) 0.15 0.13 0.14 0.15
Net realized and unrealized gain (loss)
on investments8 1.98 0.26 (1.78) 2.24
Total from investment operations 2.13 0.39 (1.64) 2.39
Less distributions declared to shareholders:
From net investment income (0.14) (0.12) -- (0.25)
From paid-in-capital -- (0.16) -- --
From net realized gain on investment (0.02) (0.08) (0.15) --
In excess of net realized gains -- -- - --
Total distributions declared to shareholders (0.16) (0.36) (0.15) (0.25)
Net asset value - End of period $ 11.54 $ 9.57 $ 9.54 $ 11.33
Total return 21 22.35% 4.14% (14.48)% 26.00%
Ratio (to average net assets)/Supplemental data:
Expenses 1.12% 1.20% 1.18% 1.16%
Net investment income 1.46% 1.42% 1.38% 1.39%
Portfolio Turnover 2% 14% 31% 20%
Average Commission Rate Paid $ 0.0013 $ 0.0021 -- --
Net assets at end of period (000's omitted) $ 149,331 $ 128,294 $ 85,964 $ 92,012
<PAGE> 6
INTERNATIONAL SERIES
For the period
Aug. 27, 1992 to
(commencement of
operations)
Dec. 31, 1992
<S> <C>
Net asset value - Beginning of period $ 10.0018
Income from investment operations
Net investment income (loss) 0.03
Net realized and unrealized gain (loss)
on investments8 0.57
Total from investment operations 0.60
Less distributions declared to shareholders:
From net investment income (0.03)
From paid-in-capital --
From net realized gain on investment (1.24)
In excess of net realized gains (0.14)14
Total distributions declared to shareholders (1.41)
Net asset value - End of period $ 9.19
Total return 21 6.01%
Ratio (to average net assets)/Supplemental data:
Expenses 1.33%4
Net investment income 0.85%4
Portfolio Turnover --5
Average Commission Rate Paid --
Net assets at end of period (000's omitted) $ 72,163
</TABLE>
<TABLE>
<CAPTION>
<PAGE> 7
LIFE SCIENCES SERIES
For the period For the period
Jan. 1, 1995 to Oct. 7, 1992
Sept. 21, 1995 For the For the (commencement of
(date of complete Year ended Year ended operations) to
redemption)20 Dec. 31, 1994 Dec. 31, 1993 Dec. 31, 1992
<S> <C> <C> <C> <C>
Net asset value - Beginning of period $ 10.43 $ 10.18 $ 10.12 $ 10.0018
Income from investment operations
Net investment income (loss) 0.06 0.02 0.02 0.02
Net realized and unrealized gain (loss)
on investments 4.02 1.02 0.30 0.18
Total from investment operations 4.08 1.04 0.32 0.20
Less distributions declared to shareholders:
From net investment income (0.06) (0.02) (0.02) (0.02)
In excess of net investment income -- -- (0.01) --
From net realized gain on investments (6.59) (0.77) (0.23) (0.06)
Redemption of Capitalization (7.86) -- -- --
Total distributions declared to shareholders (14.51) (0.79) (0.26) (0.08)
Net asset value - End of period $ -- $ 10.43 $ 10.18 $ 10.12
Total return 21 41.07% 10.30% 3.16% 1.95%
Ratio (to average net assets)/Supplemental data:
Expenses 1.06%4 1.07% 1.14% 1.83%4
Net investment income 0.57%4 0.17% 0.20% 0.67%4
Portfolio Turnover 28% 49% 45% --5
Average Commission Rate Paid $ 0.06 -- -- --
Net assets - End of period (000's omitted) $ -- $ 67,219 $ 70,594 $ 13,210
</TABLE>
<TABLE>
<CAPTION>
WORLD OPPORTUNITIES SERIES
For the period
Sept. 1, 1996
(commencement of
operations) to
Dec. 31, 1996
------------------
<S> <C>
Net asset value - Beginning of period $ 10.0022
------------------
Income from investment operations
Net investment income (loss) 0.05
Net realized and unrealized gain (loss)
on investments 0.43
Total from investment operations 0.48
Less distributions declared to shareholders:
From net investment income (0.05)
From net realized gain on investments (0.01)
Total distributions declared to shareholders (0.06)
Net asset value - End of period $ 10.42
Total return 21 4.82%
Ratio (to average net assets)/Supplemental data:
Expenses 1.17%4
Net investment income 1.54%4
Portfolio Turnover 1%
Average Commission Rate Paid $ 0.0065
Net assets - End of period (000's omitted) $ 77,338
==================
</TABLE>
<PAGE> 8
Footnotes to Financial Highlights:
1 Per share data was determined using a monthly average of the shares
outstanding throughout the period.
2 On April 11, 1989, a $.004 dividend was distributed to shareholders of
record on April 11, 1989.
3 On November 4, 1988, the Technology Series commenced sales of it's shares to
persons who are investment advisory clients or employees of the Fund's
Advisor.
4 Annualized.
5 For these periods, there were no purchases of securities whose maturity or
expiration date was greater than one year from the acquisition date.
6 The investment practice of the Fund results in the active operation of the
investment portfolio for discrete periods. On April 30, 1992 the Fund resumed
sales of shares of the Small Cap Series to advisory clients and employees of
the Fund's Advisor. Previously, the Small Cap Series was in active operation
from November 11, 1986 to May 14, 1987 and from December 1, 1987 to April 13,
1988. Other than those periods stated previously, the only shareholders of
the Small Cap Series were those of the Initial Shareholders. During periods
when the only shareholders of the Small Cap Series were the Initial
Shareholders, assets of the Fund were invested in U.S. Treasury securities.
On July 11 and 24, 1989, the shares held by the Initial Shareholders were
redeemed in full and the Fund remained dormant until April 30, 1992.
7 Per share data for all period prior to May 18, 1988, have been restated to
reflect the 10 for 1 stock dividend effected on May 18, 1988.
8 This amount is mathematically derived as the difference between the changes
in net asset value for the year and net investment income. The amount shown
for the year ended December 31, 1988 does not agree with the net realized
gains and net decrease in unrealized appreciation for the year as shown on the
Statement of Operations because the average number of shares for the year used
to determine the above computations is significantly different than the number
of shares outstanding at the time of the April 13, 1988 redemption described
in Note (6) above.
9 Absent fee waivers, the ratios of expense to average daily net assets is as
follows: 1.27%(for the period 4/30/92 to 12/31/92); 15.57%(for the period
1/1/89 to 7/24/89); 1.34%(for the year ended 12/31/88); 2.27%(for the year
ended 12/31/87); and 9.34%(for the period 1/6/88(commencement of operation)
to 12/31/86).
10 During the period January 1, 1989 to July 24, 1989(date of full
redemption), the only shareholders and resulting assets were those of the
Initial Shareholders who redeemed their shares on July 11 and 24, 1989.
Therefore, the ratios presented may not be representative of an actively
operated series.
11 On November 11, 1986, the Fund commenced sales of shares of the Small Cap
Series to persons who are investment advisory clients of the Fund's Advisor.
Prior to that date, the Small Cap Series did not engage in any business
operations other than to purchase and hold approximately $100,000 of U.S.
Treasury securities.
12 Investment income per share is comprised of recurring dividend and interest
income which amounted to $0.07 per share and special dividends from Bell
Industries and Tempest Technologies, Inc. which amounted to $0.03 and $0.02
per share, respectively.
13 For the period April 30, 1992 to December 31, 1992, the ratios for the
Small Cap Series were calculated using average daily net assets.
14 Distributions differ from net investment income and net realized capital
gains because of book/tax timing differences, due to the requirements of the
Internal Revenue Code (the "Code"). The Code requires the Fund to treat it's
open forward currency contracts sold short as covered for their fair market
value at the end of the period. The Fund recognized the gains on the forward
foreign currency contracts as unrealized for book purposes at the end of the
period.
15 The investment practice of the Fund results in the active operation of the
investment portfolios for discrete periods. On August 29, 1994, the Fund
resumed sales of shares of the Technology Series to advisory clients and
employees of the Fund's Advisor. Previously, the Technology Series was in
active operations from November 4, 1988 to May 11, 1992. On May 11, 1992, the
Technology Series redeemed all shares held, therefore, the ratios presented
may not be representative of an actively traded fund.
16 Distributions may differ from net investment income and net realized
capital gains because of book/tax timing differences, primarily the
requirement of the excise tax regulations enacted as part of the 1986 Tax
Reform Act. The regulations required the Series to measure capital gains
through October 31, 1992. The excise tax regulations also required the Series
to distribute those gains before December 31, 1992 to avoid payment of excise
tax.
17 Initial offering price upon recommencement of operations on April 30, 1992.
18 International Series and Life Sciences Series commenced operations on
August 27, 1992 and October 7, 1992, respectively. The initial offering price
upon commencement of operations was $10.00 per share.
19 Initial offering price upon recommencement of operations on August 29,
1994.
20 The investment practice of the Fund results in the active operation of the
investment portfolios for discrete periods. On September 21, 1995, the Life
Sciences Series redeemed all shares held, therefore, the ratios presented may
not be representative of an actively traded fund.
21 Represents aggregate total return for the period indicated.
22 Initial offering price upon commencement of operations on September 6,
1996.
<PAGE> 9
THE FUND
The Fund is an open-end management investment company incorporated under
the laws of the State of Maryland on July 26, 1984. This Prospectus relates
to eight series of the Fund: the Small Cap Series, the Energy Series, the
Technology Series, the Financial Services Series, the International Series,
the Life Sciences Series, and the Global Fixed Income Series and the World
Opportunities Series. The Small Cap Series of the Fund is a diversified fund.
The Energy Series, the Technology Series, the Financial Services Series, the
International Series, the Life Sciences Series, and the Global Fixed Income
Series and the World Opportunities Series are non-diversified funds.
Shares of the Fund are offered to employees of the Advisor and to its
clients or those of its affiliates that have authorized investment in the Fund
as part of the discretionary account management services of the Advisor or its
affiliates and directly to investors. There are no fees or expenses charged
to any investor in connection with acquisition of Fund shares.
Historically, shares of the Fund have been available only in connection
with certain strategies the Advisor employed on behalf of discretionary
account clients that had authorized the Advisor to acquire and dispose of Fund
shares on their behalf. These strategies entailed using one or more series of
the Fund as a means to capture opportunities in specific market or industry
sectors and to provide diversification among asset classes (e.g.,
international diversification or portfolio diversification among small-cap
stocks) that could not otherwise be captured efficiently and with sufficient
diversification. Once an investment opportunity was captured for a Series,
that Series would ordinarily be "collapsed" (i.e., securities sold and the
shares of the Series redeemed) and the proceeds returned to the individual
client accounts. Such Series might not be "collapsed", however, if it
continued to be a suitable vehicle for certain clients to diversify risk by
investing in a sector or asset class (e.g., small capitalization stocks or
international securities) the performance of which historically is not highly
correlated (i.e., is said to have a low "covariance" or be "non-covariant")
with other holdings in the client's advisory portfolio.
The Advisor may also make the shares of the Fund offered hereby available
in additional circumstances. First, Fund shares, including shares of series
offered through separate prospectuses, may be used in connection with a
discretionary account management service that uses Fund shares as the
principal underlying investment medium. In addition, shares are offered to
investors that are not discretionary account clients of the Advisor. Series
made available in this way could no longer be collapsed at the Advisor's sole
discretion.
Since a Series may be used under varying conditions and market prices,
the result for a given investor might differ from the result that would have
been obtained had the Series been used only for clients with the same
investment objective. However, the Advisor seeks to manage cash flows into
and out of the Series in the interests of the Fund and its clients so as to
minimize the effect on performance.
As a general rule, the investment in shares of a Series on behalf of
discretionary account clients is limited to a maximum of 5% -- or if the
Advisor believes that the opportunity to capture investment values or to
diversify risk among asset classes is particularly compelling, to a maximum of
10% -- of the client's portfolio. For clients who have selected a fixed
income investment objective, the Advisor may invest up to 25% of their
portfolio in the Global Fixed Income Series.
RISK AND INVESTMENT OBJECTIVES AND POLICIES
GENERAL
The objective of each Series is to provide long-term growth of capital
except for the Global Fixed Income Series which seeks long term total return.
The various Series of the Fund may become inactive during periods when the
Advisor believes that there are insufficient opportunities for growth in the
particular market or individual sector. However, each Series is designed to
provide an opportunity for long-term growth when used over an extended period
of time in conjunction with the Advisor's overall investment management
services. There is no assurance that a Series will attain its objective.
Each Series, except for the Global Fixed Income Series, will attempt to
achieve its objective by investing primarily in equity securities as described
below. Equity securities consist of common stocks and other securities having
<PAGE> 10
some of the characteristics of common stocks, such as convertible preferred
stocks, convertible bonds and warrants. The Small Cap Series does not intend
to invest more than 5% of the value of its total net assets in warrants. In
the case of the International Series and the World Opportunities
Series, the equity securities will be of non-United States issuers. The
principal factor in selecting convertible bonds will be the potential
opportunity to benefit from movement in the stock price. There will be no
minimum rating standards for debt aspects of such securities. Convertible
bonds purchased by a Series may be subject to the risk of being called by the
issuer. However, none of the Series will buy bonds if they are in default as
to payment of principal or interest. In the case of the Global Fixed Income
Series the portfolio will consist primarily of government debt securities
(e.g., those of agencies, instrumentalities and political subdivisions of U.S.
and foreign governments) and of investment grade corporate debt securities,
bank obligations and supranational obligations (rated BBB or better by
Standard and Poor's Corporation's ("S&P"), or by Moody's Investors Service,
Inc. ("Moody's") and high quality money market instruments (e.g., commercial
paper, T-bills, certificates and deposit and bankers acceptances rated A-2 or
better by S&P's or P-2 or better by Moody's).
Each Series, except for the Global Fixed Income Series, expects to be
fully invested in equity securities under normal circumstances. The Global
Fixed Income Series expects to be fully invested in fixed income securities
under normal circumstances. During periods when economic conditions in the
primary investment industries or vehicles for each Series are unfavorable or
when market conditions suggest a temporary defensive position, a Series may
invest its assets in U.S. government securities (or in the case of the
International Series, the World Opportunities Series and the Global
Fixed Income Series, both U.S. and foreign government securities), corporate
bonds and money market instruments, including, but not limited to, commercial
paper, bankers' acceptances, certificates of deposit and repurchase
agreements, rated in one of the top two rating categories by a major rating
service or, if unrated, of comparable quality as determined by the Advisor
(see the Appendix for details). In addition, even under normal circumstances
the Series may to varying degrees invest in certain types of securities or use
certain techniques and strategies discussed below under "Risk and Additional
Information about Investment Policies".
SMALL CAP SERIES
The Small Cap Series seeks to achieve its investment objective by
investing principally in equity securities of small issuers. In general, a
small issuer is one which has a market capitalization less than $700 million,
or less than the median market capitalization of the S&P Midcap Index (the
median market capitalization of the S&P Midcap Index as of the close on
December 31, 1996 was approximately $1,415.4 million), whichever is
greater at the time of investment. The Small Cap Series will, under normal
circumstances, have at least 65% of the value of its total net assets invested
in such securities; the balance, if any, will be invested in equity securities
of other than small issuers considered appropriate by the Advisor. Current
income is not a factor in pursuing the Small Cap Series' objective. There can
be no assurance that the Series will attain its objective.
Investing in the equity securities of small companies involves greater
risk than investing in such securities of larger companies, because the equity
securities of small companies may have less marketability and may be subject
to more abrupt or erratic market movements than the equity securities of
larger companies.
Investing in the Series involves the risk that the anticipated changes in
the economic environment will not occur. Changes in sector allocation may
lead to significant portfolio turnover with attendant brokerage and (for
taxable investors) tax consequences (see Dividends and Tax Status section).
The Series expects that its portfolio turnover rate generally will be no more
than 250%. The Series' ability to dispose of securities may be restricted by
the requirements for qualification for a regulated investment company.
<PAGE> 11
The Series'investment objective and policies as described above are not
fundamental policies and may be changed without shareholder approval; however,
it is the Board of Directors' policy to notify shareholders prior to any
material change.
ENERGY SERIES
The Energy Series seeks to achieve its investment objective by investing
principally in the equity securities of companies in the energy industry and
in industries connected with, marketing the products of, serving and/or
supplying the energy industry or which use energy extensively in their product
development or operations (hereinafter referred to as "energy and related
industries"). An equity security will generally be considered appropriate for
investment by the Energy Series if, as determined by the Advisor, at least 50%
of the company's assets, revenues or net income are derived from or related to
the energy and related industries. Under normal circumstances, at least 65%
of the Series' total assets will be concentrated in securities of companies in
the energy and related industries. Current income is not a factor in pursuing
the Series' objective. There can be no assurance that the Series will attain
its objective.
The Series' policy as to concentration of investments in the securities
of companies in the energy and related industries may involve a higher degree
of risk than those of investment companies which are less concentrated in
their investments. The special risks associated with investing in companies
in the energy and related industries are that earnings and dividends of
companies in these industries are greatly affected by changes in the prices
and supplies of oil and other energy fuels. Prices and supplies can fluctuate
significantly over a short period of time due to changes in international
politics, policies of the Organization of Petroleum Exporting Countries
(OPEC), relationships among OPEC nations, energy conservation, the regulatory
environment, governmental tax policies and the economic growth and stability
of countries which consume large amounts of energy resources. While the
Series intends to invest in the securities of many different companies, in
theory the Series could invest in the securities of fewer than 15 companies
without violating the various restrictions now imposed on the Series'
investments by its fundamental investment policies because the Series is
"non-diversified". The fewer the companies the Series invested in, the
greater would be the effect of each portfolio holding on the Series'
performance. Given the industry concentration, an investment in the Series
cannot be considered, and is not intended to be, a complete investment
program. Rather, it will be one of a number of holdings in the portfolios of
the clients of the Advisor or its affiliates.
The investment objective and policies as to concentration and continued
use of its name are fundamental investment policies of the Energy Series.
Fundamental investment policies may not be changed without the approval by a
majority, as defined in the Investment Company Act of 1940 (the "1940 Act"),
of the outstanding voting securities of the Series.
TECHNOLOGY SERIES
The Technology Series seeks to achieve its investment objective by
investing principally in the equity securities of companies in science -and
technology-ased industries and in industries connected with, marketing the
products of, serving and/or supplying science -and technology-based industries
or which use scientific and technological advances extensively in their
product development or operations (hereinafter referred to as "technology and
related industries"). Examples of companies involved in technology and
related industries include the following areas: biotechnology and health care;
communications; computers; electronics; factory and office automation;
metallurgical and other materials advances; and specialty chemicals, among
others. An equity security will generally be considered appropriate for
investment by the Technology Series if, as determined by the Advisor, at least
50% of the company's assets, revenues or net income are derived from or
related to technology and related industries. Under normal circumstances, at
least 65% of the Series' total assets will be concentrated in securities of
companies in technology and related industries. Current income is not a
factor in pursuing the Series' objective. There can be no assurance that the
Series will attain its objective.
<PAGE> 12
The Technology Series' policy as to concentration of investments in the
securities of companies in technology and related industries may involve a
higher degree of risk than those of investment companies which are less
concentrated in their investments. The special risks associated with
investments in the stocks of technology and related industries are that the
earnings prospects of these companies may be particularly uncertain or
volatile for a variety of reasons. These companies may have limited product
lines, market or financial resources, or they may be dependent upon a limited
management group. Products and services they offer may not prove to be
commercially successful or may be rendered obsolete by advances in science and
technology. In addition, biotechnology and health care companies may be
subject to extensive regulatory requirements causing considerable expense and
delay. Hence, such stocks may exhibit relatively high price volatility and
involve a high degree of risk. While the Series intends to invest in the
securities of many different companies, in theory the Series could invest in
the securities of fewer than 15 companies without violating the various
restrictions now imposed on the Series' investments by its fundamental
investment policies because the Series is "non-diversified". The fewer the
companies the Series invested in, the greater would be the effect of each
portfolio holding on the Series' performance. Given the industry
concentration, an investment in the Series cannot be considered, and is not
intended to be, a complete investment program. Rather, it will be one of a
number of holdings in the portfolios of the clients of the Advisor or its
affiliates.
The investment objective and policies as to concentration and continued
use of its name are fundamental investment policies of the Technology Series.
Fundamental investment policies may not be changed without the approval by a
majority, as defined in the 1940 Act, of the outstanding voting securities of
the Series.
FINANCIAL SERVICES SERIES
The Financial Services Series seeks to achieve its investment objective
by investing principally in the equity securities of companies in the
financial services industry and in industries connected with, serving and/or
supplying the financial services industry or which use financial services
extensively in their product development or operations (hereinafter referred
to as "financial services and related industries"). Selected examples of
companies involved in financial services would include: banks; thrift
institutions; insurance companies and brokers; finance companies; stockbrokers
and investment managers; leasing companies; real estate services; credit card
services; and, certain vendors and customers of the above (e.g., financial
software companies). The Series may purchase securities of an issuer which
derived more than 15% of its gross revenues in its most recent fiscal year
from securities-related activities, subject to applicable SEC regulations as
set forth in the Statement of Additional Information. An equity security will
generally be considered appropriate for investment by the Financial Services
Series if, as determined by the Advisor, at least 50% of the company's assets,
revenues or net income are derived from or related to the financial services
and related industries. Under normal circumstances, at least 65% of the
Series' total assets will be concentrated in securities of companies in the
financial services and related industries. Current income is not a factor in
pursuing the Series' objective. There can be no assurance that the Series will
attain its objective.
The Series' policy as to concentration of investments in the securities
of companies in the financial services and related industries may involve a
higher degree of risk than those of investment companies which are less
concentrated in their investments. The special risks associated with
investments in financial services and related industries are that the earnings
prospects of these companies may be uncertain or volatile for a variety of
reasons. These companies may be subject to uncertainties from changes in:
interest rates; the rate of inflation; the quality of their loan or investment
portfolios; government policies involving regulation or taxation; the ability
or willingness of consumers, companies, and governments to repay loans; and
the economic growth and political stability of outstanding debtor nations.
Certain financial services companies may also have limited product lines,
markets or financial resources, or they may be dependent upon a limited
management group or be affected by severe price competition. While the Series
intends to invest in the securities of many different companies, in theory the
Series could invest in the securities of fewer than 15 companies without
violating the various restrictions now imposed on the Series' investments by
its fundamental investment policies because the Series is "non-diversified".
The fewer the companies the Series invested in, the greater would be the
effect of each portfolio holding on the Series' performance. Given the
industry concentration, an investment in the Series cannot be considered, and
is not intended to be, a complete investment program. Rather, it will be one
of a number of holdings in the portfolios of the clients of the Advisor or its
affiliates.
<PAGE> 13
The investment objective and policies as to concentration and continued
use of its name are fundamental investment policies of the Financial Services
Series. Fundamental investment policies may not be changed without the
approval by a majority, as defined in the 1940 Act, of the outstanding voting
securities of the Series.
INTERNATIONAL SERIES
The International Series seeks to achieve its investment objective by
investing principally in equity securities of non-United States issuers. The
International Series will, under normal circumstances, have at least 65% of
the value of its total assets invested, and expects to be fully invested, in
equity securities issued by non-United States entities in three or more
countries including, but not limited to, France, Germany, the United Kingdom,
Spain, Italy, Switzerland, Belgium, the Netherlands, Denmark, Sweden, Norway,
Canada, Mexico, Japan, Singapore, Australia, and New Zealand. Current income
is not a factor in pursuing the Series' objective. There can be no assurance
that the Series will attain its objective.
While the International Series intends to invest in the securities of
many different companies, in theory the Series could be invested in the
securities of fewer than 15 companies without violating the various
restrictions now imposed on the Series' investments by its fundamental
investment policies because the Series is "non-diversified". The fewer the
companies the Series invests in, the greater would be the effect of each
portfolio holding on the Series' performance. Given the Series' status as
non-concentrated, no investment will be made that will result in more than 25%
of the Series' assets being invested in any one industry. A foreign
government and its agencies will be deemed separate industries for purposes of
this restriction. The Series should not be considered, and is not intended to
be, a complete investment program. Rather, it will be one of a number of
holdings in the portfolios of the clients of the Advisor or its affiliates.
See "Risk and Additional Information about Investment Policies - Foreign
Securities" for a further discussion of the risks associated with investments
in foreign securities.
LIFE SCIENCES SERIES
The Life Sciences Series seeks to achieve its investment objective by
investing principally in the equity securities of companies engaged in
research, development, production, or distribution of products and services
related to the life sciences. Examples of companies involved in the life
sciences and related industries include those in the following areas:
Pharmaceuticals, including ethical (prescription) and proprietary
(nonprescription) drugs, drug delivery systems, and chemical or biological
components used in diagnostic testing.
Biotechnology, including processes, products or services relevant to
human health care, veterinary medicine, agriculture, bioremediation, energy
systems or industrial manufacturing.
Medical Products and Supplies, including equipment used in chemical
analysis and diagnostic testing, surgical and medical instruments, and dental
and optical products.
<PAGE> 14
Health Care Services, including owners/operations of acute care
hospitals, specialty treatment hospitals, health maintenance organizations,
nursing homes, outpatient care centers, and other services associated with
health care delivery.
Environmental Services, including companies engaged in research,
development, manufacture or distribution of products, processes or services
related to waste management or pollution control.
An equity security will generally be considered appropriate for
investment by the Life Sciences Series if, as determined by the Advisor, at
least 50% of the company's assets, revenues, or net income are derived from or
related to the life sciences and related industries. Under normal
circumstances, at least 65% of the Series' total assets will be concentrated
in securities of companies in the life sciences and related industries.
Current income is not a factor in pursuing the Series' objective. There can
be no assurance that the Series will attain its objective.
The Life Sciences Series' policy as to concentration of investments in
the securities of companies in the life sciences and related industries may
involve a higher degree of risk than those of investment companies which are
less concentrated in their investments. The special risks associated with
investments in the life sciences and related industries are that the earnings
prospects of these companies may be uncertain or volatile for a variety of
reasons. For example, the Life Sciences Series' industries are subject to
substantial government regulation and, in some instances, funding or
subsidies. Accordingly, changes in government policies or regulations could
have a material effect on the demand and/or supply of products and services.
In addition, scientific and technological advances present the risk that
products and services may be subject to rapid obsolescence. Moreover, there
may be significant liability risks associated with medical or environmental
products and services. While the Series' portfolio will normally include
securities of established suppliers of traditional products and services, the
Series may also invest in smaller companies (including companies without
historical records of having earned profits) that may benefit from the
development of new products and services. These smaller companies may present
greater opportunities for capital appreciation, but may also involve greater
risks than large, established issuers. Such smaller companies may have
limited product lines, markets or financial resources, or may depend on a
limited management group. In addition, the price of their securities may
fluctuate more erratically and to a greater degree than those of larger, more
established companies since they may trade less frequently and in more limited
volume. While the Series intends to invest in the securities of many
different companies, in theory the Series could invest in the securities of
fewer than 15 companies without violating the various restrictions now imposed
on the Series' investments by its fundamental investment policies because the
Series is "non-diversified". The fewer the companies the Series invested in,
the greater would be the effect of each portfolio holding on the Series'
performance. Given the industry concentration, an investment in the Series
cannot be considered, and is not intended to be, a complete investment
program. Rather, it will be one of a number of holdings in the portfolios of
the clients of the Advisor or its affiliates.
The investment objective and policies as to concentration and continued
use of its name are fundamental investment policies of the Life Sciences
Series. Fundamental investment policies may not be changed without the
approval by a majority, as defined in the 1940 Act, of the outstanding voting
securities of the Series.
GLOBAL FIXED INCOME SERIES
The Global Fixed Income Series seeks to achieve its investment objective
by investing principally in fixed income securities issued by governments,
banks, corporations and supranational entities located anywhere in the world.
The Series will, under normal circumstances, have at least 65% of the value of
its total assets in fixed income securities of issuers located in three or
more countries, including, but not limited to, the United States, Western
Europe, Canada, Mexico, Japan, Australia and New Zealand. The portfolio may
invest in securities denominated in U.S. or foreign currencies. Securities of
issuers within a given country may be denominated in the currency of another
country. There is no limit on the amount the Series may invest in any one
country, or in securities denominated in the currency of any one country.
There can be no assurance that the Series will attain its objective.
<PAGE> 15
The Series' investments in fixed income securities will include debt
securities issued or guaranteed by U.S. or foreign sovereign governments,
their agencies, instrumentalities or political subdivisions; debt securities
issued or guaranteed by independent international organizations created or
supported by multiple governmental entities ("supranational entities") such as
the World Bank; U.S. or foreign corporate debt including commercial paper,
notes and bonds; debt obligations of U.S. and foreign banks and bank holding
companies; money market instruments; mortgage-backed securities; and
repurchase agreements involving these securities. The Series' portfolio will
consist primarily of government debt securities and of investment grade
corporate debt securities, bank debt and money market securities as rated by
an established rating agency (i.e., BBB or A-2 or better by S&P or Baa or P-2
or better by Moody's Investors Service, Inc. ("Moody's")), or, if not rated,
determined to be of comparable quality by the Advisor. Bonds rated BBB or
lower by S&P or Baa or lower by Moody's are considered to have speculative
characteristics. The Series may invest up to 20% of its assets in
lower-rated, high-risk debt securities (those rated Ba or lower by Moody's or
BB or lower by S&P) which have poor protection of payment of principal and
interest. These securities are commonly known as junk bonds. These securities
are often considered to be speculative and involve greater risk of default or
price changes due to changes in the issuer's credit-worthiness. Market prices
of these securities may fluctuate more than high-rated securities and they are
difficult to price at times because they are more thinly traded and less
liquid securities. Market prices may decline significantly in periods of
general economic difficulty which may follow periods of rising interest rates.
Ratings of corporate bonds including lower rated bonds are included in the
Appendix. In the event a security is downgraded below these ratings after
purchase, the Advisor will review and take appropriate action with regard to
the security. The Series may invest up to 5% of its total assets in debt
securities convertible into equity securities, although the Series has no
current intention to convert such securities or to hold them as equities after
conversion. The maturity of debt securities may be long-term (10 years or
greater), intermediate (1 to 10 years), or short-term (12 months or less) and
the proportion invested in each category can be expected to vary depending on
evaluations of market conditions. The value of debt securities held by the
Series, and therefore the Series' total return, is significantly affected by
movements in interest rates and by changes in foreign currency exchange rates.
In addition, the effect of interest rate movements on the value of the
Series' shares will be affected by the Series' average weighted maturity since
longer term securities will experience greater fluctuations than shorter term
securities. The value of debt securities held by the Series will also be
affected by changes in the ratings of any securities and changes in the
ability of the issuer to make payments of principal and interest.
While the Series intends to invest in the securities of many different
companies, in theory the Series could invest in the securities of fewer than
15 companies without violating the various restrictions now imposed on the
Series' investments by its fundamental investment policies because the Series
is "non-diversified". The fewer the companies the Series invested in, the
greater would be the effect of each portfolio holding on the Series'
performance. The Global Fixed Income Series will not invest more than 25% of
its total assets in any one foreign government. A foreign government and its
agencies will be deemed separate industries for purposes of this restriction.
The Series should not be considered, and is not intended to be, a complete
investment program. Rather, it will be one of a number of holdings in the
portfolios of the clients of the Advisor or its affiliates. See "Additional
Investment Policies--Foreign Securities" for a further discussion of the risks
associated with investments in foreign securities.
<PAGE> 16
The investment objective and policies and the continued use of its name
are fundamental investment policies of the Global Fixed Income Series.
Fundamental investment policies may not be changed without the approval by a
majority, as defined in the 1940 Act, of the outstanding voting securities of
the Series.
WORLD OPPORTUNITIES SERIES
The World Opportunities Series seeks to attain its objective by
investing at least 65% of its assets in common stocks of companies domiciled
in at least three different countries. The Advisor will emphasize individual
security selection to identify those issuers which, in the Advisor's opinion,
have attractive long-term business prospects and valuations. It may invest up
to 20% of assets in noninvestment-grade convertibles and debt securities.
There can be no assurance that the Series will attain its objective.
The Series may also invest up to 35% of its assets in corporate debt
securities of foreign issuers and in obligations issued by foreign governments
or their respective agencies and instrumentalities. The value of debt
securities fluctuates inversely to changes in interest rates. The Series may
invest in both exchange and over-the-counter traded securities. The Series
may invest in such securities without regard to term or rating and may, from
time to time, invest up to 20% of its assets in debt securities rated below
investment grade, i.e., rated lower than BBB by S&P or Baa by Moody's, or
unrated securities of comparable quality as determined by the Advisor. These
securities are commonly known as junk bonds. Ratings of corporate bonds
including lower rated bonds are included in the Appendix. See "Special Risk
and Additional Investment Policies - World Opportunities Series Only".
In periods of unusual market conditions, when the Series' Advisor
considers it appropriate, the Series may invest all or any part of the Series'
assets in cash, U.S. Government Securities, high quality commercial paper,
bankers' acceptances, repurchase agreements and certificates of deposit.
The Series is a non-diversified portfolio under the Investment Company
Act of 1940 (the "1940 Act"), which means that the Series is not limited by
the 1940 Act in the proportion of its assets that may be invested in the
obligations of a single issuer. Thus, the Series may invest a greater
proportion of its assets in the securities of a small number of issuers and as
a result will be subject to greater risk with respect to its securities.
However, the Series intends to comply with the diversification requirements
imposed by the Internal Revenue Code of 1986, as amended (the "Code") for
qualification as a regulated investment company.
For temporary defensive purposes during periods when the Advisor
determines that market conditions warrant, the Series may invest up to 100% of
its assets in money market instruments (including securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities,
certificates of deposit, time deposits and bankers' acceptances issued by
banks or savings and loan associations deemed to be creditworthy by the
Advisor, commercial paper rated A-1 by S&P or P-1 by Moody's, repurchase
agreements involving such securities and other investment companies investing
solely in such securities as permitted by applicable law) and may hold a
portion of its assets in cash. For a description of the above ratings, see
the Appendix and the Statement of Additional Information.
Unless otherwise stated, the Series' investment policies are not
fundamental and may be changed without shareholder approval; however, it is
the Board of Directors' policy to notify shareholders prior to any material
change.
In addition, the Series may to varying degrees use certain techniques
and strategies discussed below under "Risk and Additional Information about
Investment Policies".
<PAGE> 17
RISK AND ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
In attempting to achieve their objectives, the Series may follow a number
of investment strategies as described below. Unless otherwise noted, these
strategies have been voluntarily adopted by the Board of Directors based upon
current circumstances and may be changed or amended by action of the Board of
Directors without prior notice or approval of a Series' shareholders.
Additional information concerning these strategies and their related risks is
contained in the Statement of Additional Information.
FOREIGN SECURITIES
In seeking its objective, the International Series will invest primarily
in common stocks of non-United States issuers, while the World Opportunities
Series will invest 65% of its assets in common stocks of companies domiciled
in at least three different countries. The Global Fixed Income Series will
invest primarily in government and corporate fixed income securities issued
anywhere in the world, including the U.S. In addition, the Life Sciences
Series may invest up to 25% of its assets, and each other Series may invest up
to 10% of its assets in foreign securities which are not publicly traded in
the United States. Each Series will invest no more than 25% of its assets in
any one foreign government. Each Series, except for the Global Fixed Income
Series, may invest without limit in equity securities of foreign issuers that
are listed on a domestic securities exchange or are represented by American
Depository Receipts that are listed on a domestic securities exchange or are
traded in the United States on the over-the-counter market. Each Series'
restriction on investment in foreign securities is a fundamental policy that
cannot be changed without the approval of a majority, as defined in the 1940
Act, of the outstanding voting securities of a Series.
There are risks in investing in foreign securities not typically involved
in domestic investing. An investment in foreign securities may be affected by
changes in currency rates and in exchange control regulations. Foreign
companies are frequently not subject to the accounting and financial reporting
standards applicable to domestic companies, and there may be less information
available about foreign issuers. There is frequently less government
regulation of foreign issuers than in the United States. In addition,
investments in foreign countries are subject to the possibility of
expropriation or confiscatory taxation, political or social instability or
diplomatic developments that could adversely affect the value of those
investments. There may also be imposition of withholding taxes. Foreign
financial markets may have less volume and longer settlement periods than U.S.
markets which may cause liquidity problems for a Series. In addition, costs
associated with transactions on foreign markets are generally higher than for
transactions in the U.S. The Global Fixed Income Series' policy under which
it has no limit on the amount it may invest in any one country may involve a
higher degree of risk than if the Fund were more diversified among countries.
The special risks associated with investing in just one country include a
greater effect on portfolio holdings of country-specific economic factors,
currency fluctuations and country-specific social or political factors.
Obligations of foreign governmental entities are subject to various types
of governmental support and may or may not be supported by the full faith and
credit of a foreign government.
REPURCHASE AGREEMENTS
Each Series may enter into repurchase agreements with respect to
portfolio securities. Under the terms of a repurchase agreement, the Series
purchases securities ("collateral") from financial institutions such as banks
and broker-dealers (the "seller") which the Advisor deems to be creditworthy,
subject to the seller's agreement to repurchase them at a mutually agreed-upon
date and price. The repurchase price generally equals the price paid by the
Series plus interest negotiated on the basis of current short-term rates
(which may be more or less than the rate on the underlying portfolio
securities).
<PAGE> 18
The seller under a repurchase agreement is required to maintain the value
of the collateral held pursuant to the agreement at not less than 100% of the
repurchase price, and securities subject to repurchase agreements are held by
the Fund's Custodian either directly or through a securities depository.
Default by the seller would, however, expose the Series to possible loss
because of adverse market action or delay in connection with the disposition
of the underlying securities. Repurchase agreements are considered to be
loans by the Series under the 1940 Act.
U.S. GOVERNMENT SECURITIES
Each Series may purchase securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. Direct obligations of the U.S.
Government include bills, notes and bonds issued by the U.S. Treasury and
obligations issued or guaranteed by U.S. agencies or instrumentalities. The
obligations of certain U.S. agencies (e.g., the Government National Mortgage
Association) are backed by the full faith and credit of the U.S. Government or
are supported by the agencies' rights to borrow from the U.S. Treasury. The
issues of other agencies are supported only by the credit of the agency (e.g.,
the Federal National Mortgage Association).
SHORT SALES
Each Series may, within limits, engage in short sales "against the box".
A short sale is the sale of borrowed securities; a short sale against the box
means that the Series owns securities equivalent to those sold short. No more
than 25% of the net assets (taken at current value) of a Series may be held as
collateral for such sales at any one time. Such short sales can be used as a
hedge and as a method of deferring realized capital gains from one taxable
year to the next for tax purposes.
FORWARD COMMITMENTS OR PURCHASES ON A WHEN-ISSUED BASIS
Each Series may enter into forward commitments or purchase securities on
a when-issued basis. These securities normally are subject to settlement
within 45 days of the purchase date. The interest rate realized on these
securities is fixed as of the purchase date and no interest accrues to the
Series before settlement. These securities are subject to market fluctuation
due to changes in market interest rates. The Series will maintain a separate
account with a segregated portfolio of liquid assets in an amount
equal to the purchase price.
MORTGAGE-BACKED SECURITIES
Each Series may purchase mortgage-backed securities which represent an
interest in a pool of mortgage loans. The primary government issuers or
guarantors of mortgage-backed securities are the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA"), and
the Federal Home Loan Mortgage Corporation. Mortgage-backed securities may
also be issued by other U.S. and foreign government agencies and
non-governmental entities which consist of collateralized mortgage obligations
("CMOs") and real estate mortgage investment conduits ("REMICs") that are
rated in one of the top two rating categories by S&P or Moody's. The
mortgages backing these securities include conventional thirty-year fixed rate
mortgages, graduated payment mortgages, and adjustable rate mortgages. CMOs
and REMICs backed solely by GNMA certificates or other mortgage pass-throughs
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities may be supported by various types of insurance. However,
the guarantees or insurance do not extend to the mortgage-backed securities'
values, which are likely to vary inversely with fluctuations in interest
rates.
Mortgage-backed securities are in most cases "pass-through" instruments,
through which the holder receives a share of all interest and principal
payments from the mortgages underlying the certificate. When the Advisor is
determining the maturity of pass-through certificates the Advisor will
consider the maturity to be equal to the average life rather than the stated
maturity. During periods of declining interest rates, prepayment of mortgages
underlying mortgage-backed securities can be expected to accelerate. When the
mortgage obligations are prepaid, the Series reinvests the prepaid amounts in
securities, the yield of which reflects interest rates prevailing at the time.
Moreover, prepayment of mortgages which underlie securities purchased at a
premium could result in capital losses.
<PAGE> 19
To the extent that the Series purchases mortgage-related or
mortgage-backed securities at a premium, mortgage foreclosures and prepayments
of principal (which may be made at any time without penalty) may result in
some loss of the Series' principal investment to the extent of the premium
paid. The yield of the Series may be affected by reinvestment of prepayments
at higher or lower rates that the original investment. In addition, like
other debt securities, the value of mortgage-related securities, including
government and government-related mortgage pools, will generally fluctuate in
response to market interest rates.
ZERO-COUPON BONDS
Some of the securities in which the Series invests may include so-called
"zero-coupon" bonds. Zero-coupon bonds are issued at a significant discount
from face value and pay interest only at maturity rather than at intervals
during the life of the security. The Series is required to accrue and
distribute income from zero-coupon bonds on a current basis, even though it
does not receive that income currently in cash. Thus, the Series may have to
sell investments to obtain cash needed to make income distributions. The
discount in the absence of financial difficulties of the issuer decreases as
the final maturity of the security approaches. Zero-coupon bonds can be sold
prior to their maturity date in the secondary market at the then prevailing
market value, which depends primarily on the time remaining to maturity,
prevailing level of interest rates and the perceived credit quality of the
issues. The market prices of zero-coupon securities are subject to greater
fluctuations in response to changes in market interest rates than bonds which
pay interest currently.
VARIABLE AND FLOATING RATE INSTRUMENTS
Certain of the obligations purchased by each of the Series may carry
variable or floating rates of interest, may involve a conditional or
unconditional demand feature and may include variable amount master demand
notes. Such instruments bear interest at rates which are not fixed, but which
vary with changes in specified market rates or indices, such as a Federal
Reserve composite index. The interest rate on these securities may be reset
daily, weekly, quarterly, or at some other interval, and may have a floor
or ceiling rate. There is a risk that the current interest rate on such
obligations may not accurately reflect existing market interest rates.
HEDGING TECHNIQUES
Each Series has reserved the right, subject to authorization by the Board
of Directors prior to implementation, to engage in certain strategies in an
attempt to hedge the Series' portfolio, that is, to reduce the overall level
of risk that normally would be expected to be associated with its investments.
Each Series may write covered call options on common stocks (fixed income
securities for the Global Fixed Income Series); may purchase and sell (on a
secured basis) put options; and may engage in closing transactions with
respect to put and call options. Each Series also may purchase forward
foreign currency exchange contracts to hedge currency exchange rate risk. In
addition, each Series is authorized to purchase and sell stock index futures
contracts and options on stock index futures contracts. Each Series is also
authorized to conduct spot (i.e., cash basis) currency transactions or to use
currency futures contracts and options on futures contracts and foreign
currencies in order to protect against uncertainty in the future levels of
foreign currency exchange rates. These strategies are primarily used for
hedging purposes; nevertheless, there are risks associated with these
strategies as described below.
<PAGE> 20
OPTIONS ON SECURITIES
A call option is a short-term contract pursuant to which the purchaser of
the option, in return for a premium, has the right to buy the security
underlying the option at a specified price at any time during the term of the
option. The writer of a call option, who receives the premium, has the
obligation, upon exercise during the option term, to deliver the underlying
security against payment of the exercise price. Conversely, a put option
gives its purchaser, in return for a premium, the right to sell the underlying
equity security at a specified price during the option term to the writer of
the put option, who receives the premium. Each Series will sell call options
only on a "covered" basis, i.e., it will own the underlying security at all
times, and will write put options only on a "covered basis", i.e., it will
maintain an amount equal to the exercise price in a segregated account at all
times. The Series may engage in option transactions for hedging purposes and
to realize a greater current return, through the receipt of premiums, than
would be earned on the underlying securities alone. Options traded in the
over-the-counter market will be considered illiquid unless the Fund has
entered into arrangements with U.S. Government securities dealers to dispose
of such options at a formula price based on a multiple of the original premium
plus the amount by which the option is "in the money".
STOCK INDEX FUTURES CONTRACTS AND OPTIONS ON STOCK INDEX FUTURES CONTRACTS
A stock index futures contract is a bilateral agreement pursuant to which
one party agrees to accept, and the other party agrees to make, delivery of an
amount of cash equal to a specified dollar amount times the difference between
the stock index value at the close of trading of the contract and the price at
which the futures contract is originally struck. No physical delivery of the
stocks comprising the index is made. Options on stock index futures contracts
give the purchaser the right, in return for the premium paid, to assume a long
or short position in a futures contract.
FUTURES CONTRACTS
Each Series may purchase and sell financial futures contracts on debt
securities on a commodities exchange or board of trade for certain hedging,
return enhancement and risk management purposes in accordance with applicable
regulations. A financial futures contract is an agreement to purchase or sell
an agreed amount of securities at a set price for delivery in the future. The
Series may not purchase or sell future contracts if immediately thereafter the
sum of the amount of initial margin deposits on any such futures (plus
deposits on any other futures contracts and premiums paid in connection with
any options or futures contracts) that do not constitute "bona fide hedging"
under the Commodity Futures Trading Commission ("CFTC") rules would exceed 5%
of the liquidation value of the Series' total assets after taking into account
unrealized profits and losses on such contracts. In addition, the value of
all futures contracts sold will not exceed the total market value of the
Series' portfolio. The Fund will comply with guidelines established by the
Securities and Exchange Commission with respect to covering of obligations
under futures contracts and will set aside liquid assets in a
segregated account with its custodian in the amount prescribed.
The Series' successful use of futures contracts depends on the Advisor's
ability to predict the direction of the market and is subject to various
additional risks. The correlation between movements in the price of a futures
contract and the price of the securities being hedged is imperfect and there
is a risk that the value of the securities being hedged may increase or
decrease at a greater rate than the related futures contracts resulting in
losses to the Series. Certain futures exchanges or boards of trades have
established daily limits based on the amount of the previous day's settlement
price. These daily limits may restrict the Series' ability to repurchase for
sale certain futures contracts on any particular day.
<PAGE> 21
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Series' use of forward foreign currency contracts is limited to
hedging against movements in the value of foreign currencies relative to the
U.S. dollar in connection with specific portfolio transactions or with respect
to existing portfolio positions denominated in such currencies. A transaction
hedge involves the purchase or sale of a forward contract with respect to a
specific receivable or payable of a Series while a position hedge relates to a
specific portfolio holding. A forward foreign currency exchange contract
involves an obligation to purchase or sell a specified currency at a future
date at a price set at the time of the contract. Foreign currency exchange
contracts do not eliminate fluctuations in the values of portfolio securities
but rather allow a Series to establish a rate of exchange for a future point
in time. With respect to any such forward foreign currency contract, it will
not generally be possible to match precisely the amount covered by that
contract and the value of the securities involved due to the changes in the
values of such securities resulting from market movements between the date the
forward contract is entered into and the date it matures. In addition, while
forward contracts may offer protection from losses resulting from declines in
the value of a particular foreign currency, they also limit potential gains
which might result from increases in the value of such currency. Based on
current legal interpretation, the Series do not consider forward foreign
currency exchange contracts to be commodities or commodity contracts for
purposes of the Series' fundamental restrictions concerning investment in
commodities or commodity contracts, as set forth in the Statement of
Additional Information.
CURRENCY FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
A currency futures contract is an agreement for the purchase or sale for
future delivery of foreign currencies. A "sale" of a currency futures
contract means the obligation to deliver the foreign currencies called for by
the contract at a specified price on a specified date while a "purchase" of a
currency futures contract means the obligation to acquire the foreign
currencies called for by the contract at a specified price on a specified
date. A Series will only enter into futures contracts which are traded on
national or foreign futures exchanges and which are standardized as to
maturity date and the underlying financial instrument. Options on currency
futures contracts give the purchaser the right, in return for the premium
paid, to assume a long or short position in the futures contract. A Series
may not purchase or sell future contracts if immediately thereafter the sum of
the amount of initial margin deposits on any such futures (plus deposits on
any other futures contracts and premiums paid in connection with any options
or futures contracts) that do not constitute "bona fide hedging" under CFTC
rules would exceed 5% of the liquidation value of the Series' total assets
after taking into account unrealized profits and losses on such contracts. In
addition, the value of all futures contracts sold will not exceed the total
market value of each Series' portfolio.
FOREIGN CURRENCY OPTIONS
A call option on a foreign currency is a short-term contract pursuant to
which the purchaser of the option, in return for a premium, has the right to
buy the currency underlying the option at a specified price at any time during
the term of the option. The writer of a call option, who receives the
premium, has the obligation, upon exercise of the option during the option
term, to deliver the underlying currency against payment of the exercise
price. Conversely, a put option on a foreign currency gives its purchaser, in
return for a premium, the right to sell the underlying currency at a specified
price during the option term to the writer of the put option, who receives the
premium.
RISKS ASSOCIATED WITH HEDGING STRATEGIES
There are risks associated with the hedging strategies described above,
including the following: (1) the success of a hedging strategy may depend on
the ability of the Advisor to predict movements in the prices of individual
securities, fluctuations in domestic and foreign markets and currency exchange
rates, and movements in interest rates; (2) there may be an imperfect
correlation between the changes in market value of the stocks held by a Series
and the prices of currency contracts, options, futures and options on futures;
(3) there may not be a liquid secondary market for a currency contract,
option, futures contract or futures option; (4) trading restrictions or
limitations may be imposed by an exchange; and, (5) government regulations,
particularly requirements for qualification as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"), may
restrict trading in forward currency contracts, options, futures contracts and
futures options.
<PAGE> 22
SPECIAL RISK AND ADDITIONAL INVESTMENT POLICIES--WORLD OPPORTUNITIES SERIES
ONLY
The World Opportunities Series may engage in the following investment
policies and practices, some of which are described in more detail in the
Statement of Additional Information.
FOREIGN INVESTMENTS
Investments in foreign securities have special risks related to
political, economic and legal conditions outside of the U.S., including the
possibility of unfavorable currency exchange rates, exchange control
regulations (including currency blockage), expropriation, nationalization,
withholding taxes on income and difficulties in enforcing judgments. Foreign
securities may be less liquid and more volatile than comparable U.S.
securities. In general, there may be limited public information with respect
to foreign issuers, and some foreign issuers may also be subject to less
comprehensive accounting and disclosure requirements than similar U.S.
issuers.
The Series' investments in foreign securities may include investments in
countries whose economies or securities markets are not yet highly developed.
Special risks associated with these investments (in addition to the
considerations regarding foreign investments generally) may include, among
others, greater political uncertainties, an economy's dependence on revenues
from particular commodities or on international aid or development assistance,
currency transfer restrictions, highly limited numbers of potential buyers for
such securities and delays and disruptions in securities settlement
procedures.
INVESTING IN OTHER INVESTMENT COMPANIES
The Series may invest up to 10% of its total assets in closed-end
investment companies commonly referred to as "country funds". Such
investments will involve the payment of duplicate fees through the indirect
payment of a portion of the expenses, including advisory fees, of such other
investment companies.
SMALL COMPANIES
The Series may invest in smaller, less well established companies
which may offer greater opportunities for capital appreciation than larger,
better established companies. These stocks may also involve certain risks
related to limited product lines, markets or financial resources and
dependence on a small management group. Their securities may trade less
frequently, in smaller volumes and fluctuate more sharply in value than
exchange-listed securities of larger companies.
SECURITIES LENDING
The Series may seek to increase its income by lending portfolio
securities. Such loans will usually be made to member firms (and subsidiaries
thereof) of the New York Stock Exchange and to member banks of the Federal
Reserve System, and would be required to be secured continuously by collateral
in cash, cash equivalents or U.S. Treasury securities maintained on a current
basis at an amount at least equal to the market value of the securities
loaned. If the Advisor determines to make securities loans, the value of the
securities loaned would not exceed 30% of the value of the total assets of the
Series.
<PAGE> 23
HIGH YIELD DEBT SECURITIES
High risk, high yield securities rated below BBB or lower by S&P or
Baa or lower by Moody's are considered to have speculative characteristics and
involve greater risk of default or price changes due to changes in the
issuer's credit-worthiness. Market prices of these securities may fluctuate
more than high-rated securities and they are difficult to price at times
because they are more thinly traded and less liquid securities. Market prices
may decline significantly in periods of general economic difficulty which may
follow periods of rising interest rates. Securities in the lowest rating
category may be in default. For these reasons, it is the Series' policy not
to rely primarily on ratings issued by established credit rating agencies, but
to utilize such ratings in conjunction with the Advisor's independent and
ongoing review of credit quality. In the event a security is downgraded below
these ratings after purchase, the Advisor will review and take appropriate
action with regard to the security. The Series will also seek to minimize
risk by diversifying its holdings.
PRINCIPAL INVESTMENT RESTRICTIONS
The Series are subject to certain investment restrictions which are
fundamental policies that cannot be changed without the approval of the
holders of a majority, as defined in the 1940 Act, of a Series' outstanding
shares.
Each Series may borrow money, but only from a bank for temporary or
emergency purposes in amounts not exceeding 10% of the borrowing Series' total
assets and the borrowing Series will not make additional investments while
borrowings greater than 5% of its total assets are outstanding.
The Small Cap Series may not, with respect to 75% of its total assets,
invest more than 5% of the value of its total assets at the time of investment
in securities of any one issuer (other than obligations issued or guaranteed
by the U.S. Government, its agencies or its instrumentalities). The Series
may not purchase more than 10% of the outstanding voting securities of any one
issuer.
The Small Cap Series, the International Series, the Global Fixed Income
Series and the World Opportunities Series may not invest 25% or more of the
value of their total assets in securities of issuers in any one industry.
No Series will invest more than 10% of its total net assets in securities
of issuers that are restricted from being sold to the public without
registration under the Securities Act of 1933 and illiquid securities,
including repurchase agreements with maturities of greater than seven days.
Each Series may purchase shares of closed-end (except for the World
Opportunities Series which may also purchase shares of open-end) investment
companies that are traded on national exchanges to the extent permitted by
applicable law.
No Series may make loans, except loans of portfolio securities and
through repurchase agreements.
Additional information about the Series' investment restrictions is
contained in the Statement of Additional Information.
MANAGEMENT
The overall business and affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, including the Fund's
agreements with its Investment Advisor and Custodian. The day-to-day
operations of the Fund are delegated to the Fund's officers and to Manning &
Napier Advisors, Inc. (the "Advisor"), 1100 Chase Square, Rochester, New York
14604. A committee made up of investment professionals and analysts makes all
the investment decisions for the Fund.
<PAGE> 24
The Advisor acts as Investment Advisor to the Fund and supervises and
arranges the purchase and sale of securities held in the portfolio of the
Fund. Mr. William Manning controls the Advisor by virtue of his ownership of
the securities of the Advisor. The Advisor also is generally responsible for
supervision of the overall business affairs of the Fund including supervision
of service providers to the Fund and direction of the Advisor's directors,
officers or employees who may be elected as officers of the Fund to serve as
such.
As of the date of this Prospectus, the Advisor supervised over
$6.5 billion in assets of clients, including both individuals and
institutions. For its services to the Fund under the Investment Advisory
Agreement, the Fund pays the Advisor a fee, computed daily and payable
monthly, at an annual rate of 1% of the Fund's average daily net assets.
This fee is higher than the mean fee paid by all other mutual funds. The
advisory fee charged by the Advisor to its investment advisory clients will
not include or be based on assets of such clients held in shares of the
Fund. The Fund is responsible for its operating expenses, including: (i)
interest and taxes; (ii) brokerage commissions; (iii) insurance premiums;
(iv) compensation and expenses of its Directors other than those affiliated
with the Advisor; (v) legal and audit expenses; (vi) fees and expenses of
the Fund's Custodian, Shareholder Servicing or Transfer Agent and
Accounting Services agent, if obtained for the Fund from an entity other
than the Advisor; (vii) expenses incidental to the issuance of its shares,
including issuance on the payment of, or reinvestment of, dividends and capital
gain distributions; (viii) fees and expenses incidental to the registration
under federal or state securities laws of the Fund or its shares; (ix)
expenses of preparing, printing and mailing reports and notices and proxy
material to shareholders of the Fund; (x) all other expenses incidental
to holding meetings of the Fund's shareholders; (xi) dues or assessments
of or contributions to the Investment Company Institute or any successor; and,
(xii) such non-recurring expenses as may arise, including litigation affecting
the Fund and the legal obligations with respect to which the Fund may
have to indemnify its officers and Directors.
The Advisor may use its own resources to engage in activities that may
promote the sale of the Fund, including payments to third parties who provide
shareholder support servicing and distribution assistance.
OFFERING OF SHARES
Shares of the Fund are offered to persons who are investment advisory
clients or employees of the Fund's Advisor or its affiliates and directly to
investors. The purchase price for shares will be the net asset value next
determined after receipt by the Fund of a duly completed purchase order
transmitted by the Advisor to the Fund either executed by the investor or
by the Advisor pursuant to a power of attorney and/or investment management
agreement granted by the client.
The minimum initial investment in the Fund is $2,000. The minimum
initial or subsequent investment in any Series of the Fund for accounts held
custody by the Advisor or its affiliates is $400. The Distributor reserves
the right to waive these minimum initial or subsequent investment requirements
in its sole discretion. The Distributor has the right to refuse any order.
The Distributor may suspend offering shares to other than discretionary
management accounts of the Advisor.
Manning & Napier Investor Services, Inc. acts as Distributor of the Fund
shares and is located at the same address as the Advisor and the Fund. There
will be no additional costs to clients for this service.
NET ASSET VALUE
The Fund's net asset value per share is determined as of the closing time
of the New York Stock Exchange or, in the absence of a closing time, 4:00 p.m.
Eastern time on each day that the New York Stock Exchange is open for trading.
The exchange annually announces the days on which it will not be open for
trading; the most recent announcement indicates that it will not be open on:
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
<PAGE> 25
The net asset value per share is the value of the Fund's assets, less its
liabilities, divided by the number of shares of the Fund outstanding. The
value of the Fund's portfolio securities will be the market value of such
securities as determined based on quotes provided by a pricing service (which
uses the methodology outlined in the "Net Asset Value" section of the
Statement of Additional Information) approved by the Board of Directors, or,
in the absence of market quotations, fair value as determined in good faith by
or under the direction and control of the Board of Directors. Short-term
investments which mature in less than 60 days are normally valued at amortized
cost. Assets initially expressed in foreign currencies will be converted into
U.S. dollars as of the exchange rates quoted by any major bank. If such
quotes are not available, the exchange rates will be determined in accordance
with policies established in good faith by the Board of Directors. See the
Statement of Additional Information for further information.
YIELD AND TOTAL RETURN
From time-to-time the Series may advertise their total return and yield.
Both total return and yield figures are based on historical earnings and are
not intended to indicate future performance. The "total return" of a Series
refers to the average annual compounded rates of return over one-, five, and
ten-year periods or for the life of the Series (as stated in the
advertisement) that would equate an initial amount invested at the beginning
of a stated period to the ending redeemable value of the investment, assuming
the reinvestment of all dividend and capital gains distributions.
The "30-day yield" of a Series is calculated by dividing the net
investment income per share earned during a 30-day period by the maximum
offering price per share on the last day of the period. Net investment income
includes interest and dividend income earned on a Series' securities; it is
net of all expenses and all recurring and nonrecurring charges that have been
applied to all shareholder accounts. The yield calculation assumes that net
investment income earned over 30 days is compounded monthly for six months and
then annualized. Methods used to calculate advertised yields are standardized
for all stock and bond mutual funds. However, these methods differ from the
accounting methods used by a Series to maintain its books and records, and so
the advertised 30-day yield may not fully reflect the income paid to your own
account or the yield reported in a Series' reports to shareholders.
REDEMPTION OF SHARES
If a shareholder desires to redeem his shares at their net asset value,
the shareholder must send a written request for redemption in "good order" to
the Transfer Agent. "Good Order" generally means that the written request for
redemption must be endorsed by the record owner(s) exactly as the shares are
registered and the signature(s) must be guaranteed by an "eligible guarantor
institution" as the term is defined under Rule 17Ad-15(a)(2) under the
Securities Exchange Act of 1934. Please contact the Transfer Agent at
1-800-466-3863 for more information. The Transfer Agent may make certain de
minimis exceptions to the above requirements for redemption. Within three
days after receipt of a redemption request by the Transfer Agent in "good
order", the Series will make payment in cash, except as described below, of
the net asset value of the shares next determined after such redemption
request was received, except during any period in which the right of
redemption is suspended or date of payment is postponed because the New York
Stock Exchange is closed or trading on such Exchange is restricted or to the
extent otherwise permitted by the 1940 Act if an emergency exists. For shares
purchased, or received in exchange for shares purchased, by check (including
certified checks or cashier's checks), payment of redemption proceeds may be
delayed up to 15 days from the purchase date in an effort to assure that such
check has cleared.
Subject to the Series' compliance with applicable regulations, the Series
has reserved the right to pay the redemption price either totally or partially
by a distribution in-kind of securities (instead of cash) from the Series'
portfolio. The securities distributed in such a distribution would be valued
at the same amount as that assigned to them in calculating the net asset value
for the shares being sold. If a shareholder received a distribution in-kind,
he could incur brokerage or transaction charges when converting the securities
to cash. The Fund has elected, however, to be governed by Rule 18f-1
under the 1940 Act as a result of which the Fund is obligated to redeem
shares, with respect to any one shareholder during any 90-day period, solely
in cash up to the lesser of $250,000 or 1% of the net asset value of the Fund
at the beginning of the period.
<PAGE> 26
Due to the relatively high cost of maintaining small accounts, the Series
reserves the right to redeem shares in any account for their then-current
value (which will be promptly paid to the shareholder) if at any time the
total investment in such account drops below $1,000 because of redemptions
(but not due to changes in net asset value). Shareholders will be notified
that the value of their account is less than the minimum investment
requirement and allowed 60 days to make an additional investment before the
redemption is processed.
DIVIDENDS AND TAX STATUS
DIVIDENDS AND DISTRIBUTIONS
Each Series expects to pay ordinary income dividends and capital gain
distributions, if any, annually. Dividends and distributions will be paid in
full and fractional shares of the particular Series, based on the net asset
value per share at the close of business on the record date, although a
shareholder may, prior to the record date, request, by writing or by telephone
call to the Fund, that payments of either ordinary income dividends or capital
gain distributions, or both, be made in cash. The Fund will notify each
non-corporate taxable shareholder after the close of its fiscal year both of
the dollar amount and the tax status of that year's distributions. Generally,
the Fund will be required to impose backup withholding at the rate of 31% from
ordinary income dividends, capital gain distributions and redemption payments
made to non-corporate shareholders, if provisions of the law relating to the
furnishing of taxpayer identification numbers and reporting of dividends are
not complied with by such shareholders.
If a taxable shareholder invests shortly before the Series declares a
taxable dividend, a portion of the investment will be returned as a taxable
distribution (commonly referred to as "buying into a dividend"). This
distribution will be taxable regardless of whether you elected to reinvest
your distribution in additional shares or take the distribution in cash. If
you would like to avoid buying into a dividend, you may contact the Fund to
find out when the Series plans to declare a distribution and invest after that
date.
TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a general summary of certain federal income tax
considerations affecting each Series and its shareholders. No attempt is made
to present a detailed explanation of the tax treatment of the Series or their
shareholders, and the discussion here is not intended as a substitute for
careful tax planning. None of the Series covered in this Prospectus are
managed with respect to shareholders' tax outcomes.
Under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), each Series is treated as a separate entity for federal income tax
purposes. Each Series of the Fund intends to qualify each year as a regulated
investment company under Subchapter M of the Code. If a Series so qualifies,
that Series will not be subject to federal income taxes on its net investment
income and capital gains, if any, which such Series distributes to its
shareholders, provided that at least 90% of such Series' "investment company
taxable income" (generally, net investment income and the excess of net
short-term capital gain over net long-term capital loss) for the taxable year
is distributed, and provided that such Series meets certain other requirements
imposed by the Code. All dividends paid or distributed out of investment
company taxable income will be taxable as ordinary income to the shareholders.
Any "net capital gain" (the excess of net long-term capital gain over net
short-term capital loss) distributed to shareholders is taxable as long-term
capital gain to the shareholders, regardless of the length of time a
shareholder has owned his shares. Generally, such dividends and distributions
are taxable in the year in which received, but dividends and distributions
declared in October, November or December of any year to shareholders of
record on a date in such month are treated as paid on December 31 of such year
if they are paid during January of the following calendar year. Dividends and
distributions are not taxable to shareholders that are not otherwise subject
to tax on their income, such as qualified employee benefit plans.
<PAGE> 27
A 4% non-deductible federal excise tax is imposed on a regulated
investment company that fails to distribute substantially all of its ordinary
income and capital gain net income for each calendar year. Currently each
Series intends to make sufficient distributions of its ordinary income and
capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
Shareholders are also urged to consult their tax advisors concerning the
application of state and local income taxes and of foreign taxes to
investments in the Series, which may differ from the U.S. federal income tax
consequences described above.
ADDITIONAL DIVIDEND AND TAX INFORMATION FOR THE INTERNATIONAL SERIES, THE
GLOBAL FIXED INCOME SERIES AND THE WORLD OPPORTUNITIES SERIES
Income, such as dividends and interest, received by the International
Series, the Global Fixed Income Series and the World Opportunities Series may
give rise to withholding taxes imposed by foreign countries, generally at
rates from 10% to 40%. Tax conventions and treaties between such countries
and the United States may reduce or eliminate such taxes.
If more than 50% of the value of the International Series', the Global
Fixed Income Series' and the World Opportunities Series' total assets at the
close of their fiscal year consists of stocks or securities of foreign
corporations, the Series will be eligible to file elections with the Internal
Revenue Service pursuant to which shareholders of the Series will be required
to include in gross income their respective pro rata portions of foreign taxes
paid by the Series, and either deduct such respective pro rata portions in
computing their taxable incomes or, alternatively, use such pro rata portions
as foreign tax credits against their U.S. income taxes. Investors should note
that Code Section 904 imposes significant limitations on a taxpayer's ability
to claim the foreign tax credit.
GENERAL INFORMATION
The Fund was incorporated on July 26, 1984 as a Maryland corporation.
The Board of Directors may, at its own discretion, create additional series of
shares, each of which would have separate assets and liabilities.
The Fund does not expect to hold annual meetings of shareholders but
special meetings of shareholders may be held under certain circumstances.
Shareholders of the Fund retain the right, under certain circumstances, to
request that a meeting of shareholders be held for the purpose of considering
the removal of a Director from office, and if such a request is made, the Fund
will assist with shareholder communications in connection with the meeting.
The shares of the Fund have equal rights with regard to voting, redemption,
dividends, distributions and liquidations. The Fund's shareholders will vote
in the aggregate and not by Series except as otherwise expressly required by
law or when the Board of Directors determines that the matter to be voted upon
affects only the interests of the shareholders of a Series. Income, direct
liabilities and direct operating expenses of each Series will be allocated
directly to each Series, and general liabilities and expenses of the Fund will
be allocated among the Series in proportion to the total net assets of each
Series by the Board of Directors. The holders of shares have no preemptive or
conversion rights. Shares when issued are fully paid and non-assessable and
do not have cumulative voting rights.
<PAGE> 28
Coopers & Lybrand, L.L.P. has been selected as the independent
accountants of the Series and performs an annual audit of the Series' accounts
and reviews the Series' tax returns.
Fleet Bank acts as Custodian for the Energy Series, Financial Services
Series, Global Fixed Income Series and the domestic assets of the Technology
Series and Life Sciences Series. Boston Safe Deposit and Trust Company acts
as Custodian for the International Series, Small Cap Series, World
Opportunities Series and the foreign assets of the Life Sciences Series and
Technology Series. The Advisor, acting as Transfer Agent, maintains its own
shareholder account records, and shareholder inquiries should be directed to
Manning & Napier Fund, Inc., P.O. Box 41118, Rochester, New York 14604.
<PAGE> 29
APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
Moody's Investors Services, Inc.'s corporate bond ratings:
Aaa - Bonds which are rated Aaa are judged to be of the best quality and
carry the smallest degree of investment risk. Interest payments are protected
by a large or by an exceptionally stable margin, and principal is secure.
While the various protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment some time in the future.
Baa - Bonds which are rated Baa are considered medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa - Bonds which are rated Caa represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers "1", "2" and "3" to both the Aaa and Aa
rating classifications. The modifier "1" indicates that the security ranks in
the higher end of its generic rating category; the modifier "2" indicates a
mid-range ranking; and the modifier "3" indicates that the issue ranks in the
lower end of its generic rating category.
Standard & Poor's Corporation's corporate bond ratings:
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only to a small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than in higher rated categories.
<PAGE> 30
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's Investor Services, Inc.'s commercial paper ratings:
P-1 - Commercial papers which are rated P-1 are judged to have a superior
ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics:
-Leading market positions in well-established industries.
-High rates of return on funds employed.
-Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
-Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-Well-established access to a range of financial markets and assured
sources of alternate liquidity.
P-2 - Commercial papers which are rated P-2 are judged to have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
P-3 - Commercial papers which are rated P-3 are judged to have an
acceptable ability for repayment of senior short-term obligations. The effect
of industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level
of debt protection measurements and may require relatively high financial
leverage. Adequate alternate liquidity is maintained.
Standard & Poor's Corporation's commercial paper ratings:
A-1 - This is the highest category and indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issuers designated A-1.
A-3 - Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes
in circumstances than obligations carrying the higher designations.
B - Issues rated B are regarded as having only speculative capacity for
timely payment.
C - This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
D - Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due,
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period.
<PAGE> 31
MANNING & NAPIER FUND, INC.
P.O. Box 41118
Rochester, New York 14604
(800) 466-3863
SMALL CAP SERIES
Manning & Napier Fund, Inc. (the "Fund"), is an open-end management
investment company consisting of multiple series, each a separate investment
portfolio having its own investment objective and policies. This Prospectus
relates to the Small Cap Series of the Fund (the "Series"). The Series'
investment objective is to provide long-term growth of capital by investing
principally in the equity securities of small issuers.
This Prospectus provides you with the basic information you should know
before investing in the Series. The Fund's other series are offered through
separate prospectus. You should read this Prospectus and keep it for future
reference. A Statement of Additional Information, dated April 14,1997,
containing additional information about the Fund has been filed with the
Securities and Exchange Commission and is incorporated by reference in this
Prospectus in its entirety. You may obtain a copy of the Statement of
Additional Information without charge by contacting the Fund at the address or
telephone number listed above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS APRIL 14,1997.
<PAGE>
MANNING & NAPIER FUND, INC.
SMALL CAP SERIES
No person has been authorized to give any information or to make
representations not contained in this Prospectus in connection with any
offering made by this Prospectus and, if given or made, such information must
not be relied upon as having been authorized by the Fund. This Prospectus
does not constitute an offering by the Fund in any jurisdiction in which such
offering may not lawfully be made.
<TABLE>
<CAPTION>
PROSPECTUS
TABLE OF CONTENTS
<S> <C>
Annual Operating Expenses 2
Condensed Financial Information 3
The Fund 5
Risk and Investment Objectives and Policies 5
Risk and Additional Information about Investment Policies 6
Principal Investment Restrictions 11
Management 11
Total Return 12
Purchases, Exchanges and Redemptions of Shares 12
Net Asset Value 14
Dividends and Tax Status 14
General Information 15
Appendix 17
</TABLE>
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
(as a percentage of offering price)
Maximum Sales Charge Imposed on Purchases None
Redemption Fees 1 None
Exchange Fees 2 None
1 A wire charge, currently $15, will be deducted by the Transfer Agent from
the amount of a wire redemption payment made at the request of a shareholder.
Such amount is not included in the "Annual Operating Expenses of the Series."
2 A shareholder may effect up to four (4) exchanges in a twelve (12) month
period without charge. Subsequent exchanges are subject to a fee of $15.
ANNUAL OPERATING EXPENSES
The following information provides (I) a tabular summary of expenses relating
to the annual operating expenses of the Series and (ii) an example
illustrating the dollar cost of such expenses on a $1,000 investment.
Annual Operating Expenses of the Series (as a percentage of average
daily net assets):
Management Fees 1.00%
12b-1 Fees None
Other Expenses 0.08%
Total Operating Expenses 3 1.08%
Example
You would pay the following expenses on a $1,000 investment, assuming a) 5.0%
annual return and b) redemptions at the end of each time period:
1 year 3 years 5 years 10 years
Small Cap Series $11 $34 $60 $132
3 The Small Cap Series was engaged in active investment operations for the
year ended December 31, 1996; therefore, actual management fees and other
expenses are used above.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Series. For a
more complete description of the various costs and expenses illustrated above,
please refer to the Management section of this Prospectus.
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
<PAGE> 2
FINANCIAL HIGHLIGHTS
The following table provides selected per share data and ratios for the Small
Cap Series (for a share outstanding throughout the period over the various
periods shown). The table is part of the Series' audited
financial statements, which are included in the Statement of Additional
Information incorporated by reference into this Prospectus.
<TABLE>
<CAPTION>
For the year For the year
ended ended
SMALL CAP SERIES 1, 2 Dec. 31, 1996 Dec. 31, 1995
<S> <C> <C>
Net asset value - Beginning of period $ 11.95 $ 12.92
Income from investment operations
Net investment income (loss) 0.05 0.00
Net realized and unrealized gain (loss)
on investments 1.11 1.93
Total from investment operations 1.16 1.93
Less distributions declared to shareholders
From net investment income (0.04) --
From net realized gain on investments (0.89) (2.90)
In excess of net realized gains (0.09) -- --
Redemption of capital -- -- --
Total distributions declared to shareholders (1.02) (2.90)
Net asset value - End of period $ 12.09 $ 11.95
Total return11 10.06% 14.70%
Ratios (to average net assets)/Supplemental data:
Expenses8 1.08% 1.07%
Net investment income 0.29% (0.03)%
Portfolio Turnover 31% 77% 12%
Average Commission Rate Paid $ 0.0291 $ 0.05 --
Net assets - End of period (000's omitted) $ 100,688 $ 143,003
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
For the year For the year
ended ended
SMALL CAP SERIES 1, 2 Dec. 31, 1994 Dec. 31, 1993
<S> <C> <C>
Net asset value - Beginning of period $ 12.52 $ 11.24
Income from investment operations
Net investment income (loss) (0.07) (0.04)
Net realized and unrealized gain (loss)
on investments 1.05 1.70
Total from investment operations 0.98 1.66
Less distributions declared to shareholders
From net investment income -- --
From net realized gain on investments (0.58) (0.38)
In excess of net realized gains -- --
Redemption of capital -- --
Total distributions declared to shareholders (0.58) (0.38)
Net asset value - End of period $ 12.92 $ 12.52
Total return11 8.01% 14.64%
Ratios (to average net assets)/Supplemental data:
Expenses8 1.10% 1.13%
Net investment income (0.58)% (0.43)%
Portfolio Turnover 31% 12%
Average Commission Rate Paid -- --
Net assets - End of period (000's omitted) $ 105,522 $ 70,734
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
For the Period For the Period
April 30, 1992 Jan. 1, 1989 to
(recommencement July 24, 1989
of operations) (date of full
SMALL CAP SERIES 1, 2 to Dec. 31, 1992 redemption)
<S> <C> <C>
Net asset value - Beginning of period $ 10.0010 $ 8.96
Income from investment operations
Net investment income (loss) (0.02) (0.39)
Net realized and unrealized gain (loss)
on investments 1.63 --
Total from investment operations 1.61 (0.39)
Less distributions declared to shareholders
From net investment income -- --
From net realized gain on investments (0.29) --
In excess of net realized gains (0.08)9 --
Redemption of capital -- (8.57)
Total distributions declared to shareholders (0.37) (8.57)
Net asset value - End of period $ 11.24 $ --
Total return11 16.2% - 7
Ratios (to average net assets)/Supplemental data:
Expenses8 1.27%5 14.59%5, 7
Net investment income (0.26)%5 (8.02)%5, 7
Portfolio Turnover 24% --
Average Commission Rate Paid -- --
Net assets - End of period (000's omitted) $ 33,079 $ --
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
For the year For the year
ended ended
SMALL CAP SERIES 1, 2 Dec. 31, 19883 Dec. 31, 1987
<S> <C> <C>
Net asset value - Beginning of period $ 8.93 $ 8.08
Income from investment operations
Net investment income (loss) 0.10 0.13
Net realized and unrealized gain (loss)
on investments (0.07) 0.75
Total from investment operations 0.03 0.88
Less distributions declared to shareholders
From net investment income -- --
From net realized gain on investments -- (0.03)
In excess of net realized gains -- --
Redemption of capital -- --
Total distributions declared to shareholders -- (0.03)
Net asset value - End of period $ 8.96 $ 8.93
Total return11 0.33% 10.89%
Ratios (to average net assets)/Supplemental data:
Expenses8 1.34% 2.26%
Net investment income 0.91% 0.95%
Portfolio Turnover -- 6 76%
Average Commission Rate Paid -- --
Net assets - End of period (000's omitted) $ 90 $ 36,193
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
For the period
Jan. 6, 1986
(commencement of
operations) to
SMALL CAP SERIES 1, 2 Dec. 31, 1986
<S> <C>
Net asset value - Beginning of period $ 10.00
Income from investment operations
Net investment income (loss) (0.09)
Net realized and unrealized gain (loss)
on investments (1.83)
Total from investment operations (1.92)
Less distributions declared to shareholders
From net investment income --
From net realized gain on investments --
In excess of net realized gains --
Redemption of capital --
Total distributions declared to shareholders --
Net asset value - End of period $ 8.08
Total return11 (19.2%)
Ratios (to average net assets)/Supplemental data:
Expenses8 9.08%5
Net investment income (5.62%)5
Portfolio Turnover -- 6
Average Commission Rate Paid --
Net assets - End of period (000's omitted) $ 1,608
</TABLE>
<PAGE> 7
1 Prior to July 8, 1993, the investment practice of the Fund resulted in the
active operation of the investment portfolio for discrete periods. On April
30, 1992, the Fund resumed sales of shares to advisory clients and employees
of Manning & Napier Advisors, Inc. and its affiliates. On July 8, 1993, the
Fund began offering shares directly to investors. Previously, the Fund was in
active operation from November 11, 1986 to May 14, 1987 and from December 1,
1987 to April 13, 1988.
During the period of January 6, 1986 to November 10, 1986, May 15, 1987 to
November 30, 1987 and April 14,1988 to July 24, 1989, the only shareholder of
the Fund were the shareholders who provided the initial capitalization for the
Fund (the "Initial Shareholders"). During the periods when the only
shareholders of the Fund were the Initial Shareholders, assets of the Fund
were invested in U.S. Treasury securities. On July 11 and 24, 1989 the shares
held by the Initial Shareholders were redeemed in full and the Fund remained
dormant until April 30, 1992.
2 Per share data for all period prior to May 18, 1988, have been restated to
reflect the 10 for 1 stock dividend effected on May 18, 1988.
3 Per share data was determined using a monthly average of the shares
outstanding throughout the period.
4 On November 11, 1986, the Fund commenced sales of shares of the Small Cap
Series to persons who were investment advisory clients of the Fund's Advisor.
Prior to that date, the Small Cap Series did not engage in any business
operations other than to purchase and hold approximately $100,000 of U.S.
Treasury securities.
5 Annualized.
6 For these periods, there were no purchases of securities whose maturities
or expiration dates were greater than one year from the acquisition date.
7 During the period January 1, 1989 to July 24, 1989, the only shareholders
and resulting assets were those of the Initial Shareholders, as described in
Note 1, who redeemed their shares on July 11 and 24, 1989; therefore, the
ratios and total return presented may not be representative of an actively
operating fund.
8 Absent fee waivers, the ratios of expenses to average daily net assets is
as follows: 1.27% (for the period 4/30/92 to 12/31/92); 15.57% (for the period
1/1/89 to 7/24/89);1.34% (for the year ended 12/31/88); 2.27% (for the year
ended 12/31/87); and 9.34%(for the period 1/6/88 (commencement of operations)
to 12/31/86).
9 Distributions differ from net investment income and net realized capital
gains because of book/tax timing differences, primarily due to the
requirements of the excise tax regulations enacted as part of the 1986 Tax
Reform Act. The regulations required the Series to measure capital gains
through October 31, 1992. The excise tax regulations also required the Series
to distribute those gains before December 31, 1992 to avoid payment of excise
tax.
10 Initial offering price upon recommencement of operations on April 30,
1992.
11 Represents aggregate total return for the period indicated.
<PAGE> 8
THE FUND
The Fund is an open-end management investment company incorporated under
the laws of the State of Maryland on July 26, 1984. This prospectus relates
to the Small Cap Series of the Fund (the "Series"). The Series is a
diversified fund.
Shares of the Series are offered directly to investors and to employees
and clients of the Advisor or its affiliates that have authorized investment
in the Fund as part of the discretionary account management services of the
Advisor or its affiliates. There are no fees or expenses charged to any
investor in connection with acquisition of Fund shares.
Historically, shares of the Fund were available only in connection with
certain strategies the Advisor employed on behalf of discretionary account
clients that had authorized the Advisor to acquire and dispose of Fund shares
on their behalf. These strategies entailed using one or more series of the
Fund as a means to capture opportunities in specific market or industry
sectors and to provide diversification among asset classes (e.g.,
international diversification or portfolio diversification among small-cap
stocks) that could not otherwise be captured efficiently and with sufficient
diversification. Once an investment opportunity was captured for a Series,
that Series would ordinarily be "collapsed" (i.e., securities sold and the
shares of the Series redeemed) and the proceeds returned to the individual
client accounts.
The Advisor may also make the shares of the Fund offered hereby available
in additional circumstances. First, Fund shares, including shares of series
offered through separate prospectuses, may be used in connection with a
discretionary account management service that uses Fund shares as the
principal underlying investment medium. In addition, shares are offered to
investors that are not discretionary account clients of the Advisor. Series
made available in this way could no longer be collapsed at the Advisor's sole
discretion.
Since the Series may be used under varying conditions and market prices,
the result for a given investor might differ from the result that would have
been obtained had the Series been used only for clients with the same
investment objective. However, the Advisor seeks to manage cash flows into
and out of the Series in the interests of the Fund and its clients so as to
minimize the effect on performance.
As a general rule, the investment in shares of a Series on behalf of
discretionary account clients is limited to a maximum of 5% -- or if the
Advisor believes that the opportunity to capture investment values or to
diversify risk among asset classes is particularly compelling, to a maximum of
10% -- of the client's portfolio.
RISK AND INVESTMENT OBJECTIVES AND POLICIES
The Series seeks to achieve its investment objective by investing
principally in equity securities of small issuers. In general, a small issuer
is one which has a market capitalization less than $700 million, or less than
the median market capitalization of the S&P Midcap Index (the median market
capitalization of the S&P Midcap Index as of the close on December 31, 1996
was approximately $1,415.4 million), whichever is greater at the time
of investment. The Series will, under normal circumstances, have at least
65% of the value of its total net assets invested in such securities; the
balance, if any, will be invested in equity securities of other than small
issuers considered appropriate by the Advisor. Current income is not a factor
in pursuing the Series' objective.
<PAGE> 9
Investing in the equity securities of small companies involves greater
risk than investing in such securities of larger companies, because the equity
securities of small companies may have less marketability and may be subject
to more abrupt or erratic market movements than the equity securities of
larger companies.
The objective of the Series is to provide long-term growth of capital.
There is no assurance that the Series will attain its objective. The Series
will attempt to achieve its objective by investing primarily in equity
securities as described below. Equity securities consist of common stocks and
other securities having some of the characteristics of common stocks, such as
convertible preferred stocks, convertible bonds and warrants. The Series does
not intend to invest more than 5% of the value of its total net assets in
warrants. The principal factor in selecting convertible bonds will be the
potential opportunity to benefit from movement in the stock price. There will
be no minimum rating standards for debt aspects of such securities.
Convertible bonds purchased by the Series may be subject to the risk of being
called by the issuer. However, the Series will not buy bonds if they are in
default as to payment of principal or interest.
The Series expects to be fully invested in equity securities under normal
circumstances. During periods when economic conditions in the primary
investment industries or vehicles for the Series are unfavorable or when
market conditions suggest a temporary defensive position, the Series may
invest its assets in U.S. Government securities, corporate bonds and money
market instruments, including, but not limited to, commercial paper, bankers'
acceptances, certificates of deposit and repurchase agreements, rated in one
of the top two rating categories by a major rating service or, if unrated, of
comparable quality as determined by the Advisor (see the Appendix for
details). In addition, even under normal circumstances the Series may to
varying degrees invest in certain types of securities or use certain
techniques and strategies discussed below under "Risk and Additional
Information About Investment Policies".
The Series' investment objective and policies as described above are not
fundamental policies and may be changed without shareholder approval; however,
it is the Board of Directors' policy to notify shareholders prior to any
material change.
RISK AND ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
In attempting to achieve its objective, the Series may follow a number of
investment strategies as described below. These strategies have been
voluntarily adopted by the Board of Directors based upon current circumstances
and may be changed or amended by action of the Board of Directors without
prior notice or approval of the Series' shareholders. Additional information
concerning these strategies and their related risks is contained in the
Statement of Additional Information.
FOREIGN SECURITIES
In seeking its objective, the Series may invest up to 10% of its assets
in foreign securities which are not publicly traded in the United States.
The Series may invest without limit in equity securities of foreign issuers
that are listed on a domestic securities exchange or are represented by
American Depository Receipts that are listed on a domestic securities exchange
or are traded in the United States on the over-the-counter market. The
Series' restriction on investment in foreign securities is a fundamental
policy that cannot be changed without the approval of a majority, as defined
in the Investment Act of 1940 (the "1940 Act"), of the outstanding voting
securities of the Series.
There are risks in investing in foreign securities not typically involved
in domestic investing. An investment in foreign securities may be affected by
changes in currency rates and in exchange control regulations. Foreign
companies are frequently not subject to the accounting and financial reporting
standards applicable to domestic companies, and there may be less information
available about foreign issuers. There is frequently less government
regulation of foreign issuers than in the United States. In addition,
investments in foreign countries are subject to the possibility of
expropriation or confiscatory taxation, political or social instability or
diplomatic developments that could adversely affect the value of those
investments. There may also be imposition of withholding taxes. Foreign
financial markets may have less volume and longer settlement periods than U.S.
markets which may cause liquidity problems for the Series. In addition, costs
associated with transactions on foreign markets are generally higher than for
transactions in the U.S. Obligations of foreign governmental entities are
subject to various types of governmental support and may or may not be
supported by the full faith and credit of a foreign government.
<PAGE> 10
REPURCHASE AGREEMENTS
The Series may enter into repurchase agreements with respect to portfolio
securities. Under the terms of a repurchase agreement, the Series purchases
securities ("collateral") from financial institutions such as banks and
broker-dealers (the "seller") which the Advisor deems to be creditworthy,
subject to the seller's agreement to repurchase them at a mutually agreed-upon
date and price. The repurchase price generally equals the price paid by the
Series plus interest negotiated on the basis of current short-term rates
(which may be more or less than the rate on the underlying portfolio
securities).
The seller under a repurchase agreement is required to maintain the value
of the collateral held pursuant to the agreement at not less than 100% of the
repurchase price, and securities subject to repurchase agreements are held by
the Series' Custodian either directly or through a securities depository.
Default by the seller would, however, expose the Series to possible loss
because of adverse market action or delay in connection with the
disposition of the underlying securities. Repurchase agreements are considered
to be loans by the Series under the 1940 Act.
U.S. GOVERNMENT SECURITIES
The Series may purchase securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. Direct obligations of the U.S.
Government include bills, notes and bonds issued by the U.S. Treasury and
obligations issued or guaranteed by U.S. agencies or instrumentalities. The
obligations of certain U.S. agencies (e.g., the Government National Mortgage
Association) are backed by the full faith and credit of the U.S. Government or
are supported by the agencies' rights to borrow from the U.S. Treasury. The
issues of other agencies (e.g., the Federal National Mortgage Corporation)are
supported only by the credit of the agency.
SHORT SALES
The Series may within limits, engage in short sales "against the box". A
short sale is the sale of borrowed securities; a short sale against the box
means that the Series owns securities equivalent to those sold short. No more
than 25% of the net assets (taken at current value) of the Series may be held
as collateral for such sales at any one time. Such short sales can be used as
a hedge and as a method of deferring realized capital gains from one taxable
year to the next for tax purposes.
FORWARD COMMITMENTS OR PURCHASES ON A WHEN-ISSUED BASIS
The Series may enter into forward commitments or purchase securities on a
when-issued basis. These securities normally are subject to settlement within
45 days of the purchase date. The interest rate realized on these securities
is fixed as of the purchase date and no interest accrues to the Series before
settlement. These securities are subject to market fluctuation due to changes
in market interest rates. The Series will maintain a separate account with a
segregated portfolio of liquid assets in an amount at least equal to
the purchase price.
<PAGE> 11
MORTGAGE-BACKED SECURITIES
The Series may purchase mortgage-backed securities which represent an
interest in a pool of mortgage loans. The primary government issuers or
guarantors of mortgage-backed securities are the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA"), and
the Federal Home Loan Mortgage Corporation. Mortgage-backed securities may
also be issued by other U.S. and foreign government agencies and
non-governmental entities which consist of collateralized mortgage obligations
("CMOs") and real estate mortgage investment conduits ("REMICs") that are
rated in one of the top two rating categories by S&P or Moody's. The
mortgages backing these securities include conventional thirty-year fixed rate
mortgages, graduated payment mortgages, and adjustable rate mortgages. CMOs
and REMICs backed solely by GNMA certificates or other mortgage pass-throughs
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities may be supported by various types of insurance. However,
the guarantees or insurance do not extend to the mortgage-backed securities'
values, which are likely to vary inversely with fluctuations in interest
rates. Mortgage-backed securities are in most cases "pass-through"
instruments, through which the holder receives a share of all interest and
principal payments from the mortgages underlying the certificate. When the
Advisor is determining the maturity of pass-through certificates the Advisor
will consider the maturity to be equal to the average life rather than the
stated maturity. During periods of declining interest rates, prepayment of
mortgages underlying mortgage-backed securities can be expected to accelerate.
When the mortgage obligations are prepaid, the Series reinvests the prepaid
amounts in securities, the yield of which reflects interest rates prevailing
at the time. Moreover, prepayment of mortgages which underlie securities
purchased at a premium could result in capital losses.
ZERO-COUPON BONDS
Some of the securities in which the Series invests may include so-called
"zero-coupon" bonds. Zero-coupon bonds are issued at a significant discount
from face value and pay interest only at maturity rather than at intervals
during the life of the security. The Series is required to accrue and
distribute income from zero-coupon bonds on a current basis, even though it
does not receive that income currently in cash. Thus, the Series may have to
sell investments to obtain cash needed to make income distributions. The
discount in the absence of financial difficulties of the issuer decreases as
the final maturity of the security approaches. Zero-coupon bonds can be sold
prior to their maturity date in the secondary market at the then prevailing
market value, which depends primarily on the time remaining to maturity,
prevailing level of interest rates and the perceived credit quality of the
issues. The market prices of zero-coupon securities are subject to greater
fluctuations in response to changes in market interest rates than bonds which
pay interest currently.
VARIABLE AND FLOATING RATE INSTRUMENTS
Certain of the obligations purchased by the Series may carry variable or
floating rates of interest, may involve a conditional or unconditional demand
feature and may include variable amount master demand notes. Such instruments
bear interest at rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index.
The interest rate on these securities may be reset daily, weekly, quarterly,
or at some other interval, and may have a floor or ceiling rate.
There is a risk that the current interest rate on such obligations may not
accurately reflect existing market interest rates.
<PAGE> 12
HEDGING TECHNIQUES
The Series has reserved the right, subject to authorization by the Board
of Directors prior to implementation, to engage in certain strategies in an
attempt to hedge the Series' portfolio, that is, to reduce the overall level
of risk that normally would be expected to be associated with its investments.
The Series may write covered call options on common stocks; may purchase and
sell (on a secured basis) put options; and may engage in closing transactions
with respect to put and call options. The Series also may purchase forward
foreign currency exchange contracts to hedge currency exchange rate risk. In
addition, the Series is authorized to purchase and sell stock index futures
contracts and options on stock index futures contracts. The Series is also
authorized to conduct spot (i.e., cash basis) currency transactions or to use
currency futures contracts and options on futures contracts and foreign
currencies in order to protect against uncertainty in the future levels of
foreign currency exchange rates. These strategies are primarily used for
hedging purposes; nevertheless, there are risks associated with these
strategies as described below.
OPTIONS ON SECURITIES
A call option is a short-term contract pursuant to which the purchaser of
the option, in return for a premium, has the right to buy the security
underlying the option at a specified price at any time during the term of the
option. The writer of a call option, who receives the premium, has the
obligation, upon exercise during the option term, to deliver the underlying
security against payment of the exercise price. Conversely, a put option
gives its purchaser, in return for a premium, the right to sell the underlying
equity security at a specified price during the option term to the writer of
the put option, who receives the premium. The Series will sell call options
only on a "covered" basis, i.e., it will own the underlying security at all
times, and will write put options only on a "covered basis", i.e., it will
maintain an amount equal to the exercise price in a segregated account at all
times. The Series may engage in option transactions for hedging purposes and
to realize a greater current return, through the receipt of premiums, than
would be earned on the underlying securities alone. Options traded in the
over-the-counter market will be considered illiquid unless the Fund has
entered into arrangements with U.S. Government securities dealers to dispose
of such options at a formula price based on a multiple of the original premium
plus the amount by which the option is "in the money".
STOCK INDEX FUTURES CONTRACTS AND OPTIONS ON STOCK INDEX FUTURES CONTRACTS
A stock index futures contract is a bilateral agreement pursuant to which
one party agrees to accept, and the other party agrees to make, delivery of an
amount of cash equal to a specified dollar amount times the difference between
the stock index value at the close of trading of the contract and the price at
which the futures contract is originally struck. No physical delivery of the
stocks comprising the index is made. Options on stock index futures contracts
give the purchaser the right, in return for the premium paid, to assume a long
or short position in a futures contract.
FUTURES CONTRACTS
The Series may purchase and sell financial futures contracts on debt
securities on a commodities exchange or board of trade for certain hedging,
return enhancement and risk management purposes in accordance with applicable
regulations. A financial futures contract is an agreement to purchase or sell
an agreed amount of securities at a set price for delivery in the future. The
Series may not purchase or sell future contracts if immediately thereafter the
sum of the amount of initial margin deposits on any such futures (plus
deposits on any other futures contracts and premiums paid in connection with
any options or futures contracts) that do not constitute "bona fide hedging"
under the Commodity Futures Trading Commission ("CFTC") rules would exceed 5%
of the liquidation value of the Series' total assets after taking into account
unrealized profits and losses on such contracts. In addition, the value of
all futures contracts sold will not exceed the total market value of the
Series' portfolio. The Fund will comply with guidelines established by the
Securities and Exchange Commission with respect to covering of obligations
under futures contracts and will set aside liquid assets in a
segregated account with its custodian in the amount prescribed.
<PAGE> 13
The Series' successful use of futures contracts depends on the Advisor's
ability to predict the direction of the market and is subject to various
additional risks. The correlation between movements in the price of a futures
contract and the price of the securities being hedged is imperfect and there
is a risk that the value of the securities being hedged may increase or
decrease at a greater rate than the related futures contracts resulting in
losses to the Series. Certain futures exchanges or boards of trades have
established daily limits based on the amount of the previous day's settlement
price. These daily limits may restrict the Series' ability to repurchase for
sale certain futures contracts on any particular day.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Series' use of forward foreign currency contracts is limited to
hedging against movements in the value of foreign currencies relative to the
U.S. dollar in connection with specific portfolio transactions or with respect
to existing portfolio positions denominated in such currencies. A transaction
hedge involves the purchase or sale of a forward contract with respect to a
specific receivable or payable of a Series while a position hedge relates to a
specific portfolio holding. A forward foreign currency exchange contract
involves an obligation to purchase or sell a specified currency at a future
date at a price set at the time of the contract. Foreign currency exchange
contracts do not eliminate fluctuations in the values of portfolio securities
but rather allow a Series to establish a rate of exchange for a future point
in time. With respect to any such forward foreign currency contract, it will
not generally be possible to match precisely the amount covered by that
contract and the value of the securities involved due to the changes in the
values of such securities resulting from market movements between the date the
forward contract is entered into and the date it matures. In addition, while
forward contracts may offer protection from losses resulting from declines in
the value of a particular foreign currency, they also limit potential gains
which might result from increases in the value of such currency. Based on
current legal interpretation, the Series does not consider forward foreign
currency exchange contracts to be commodities or commodity contracts for
purposes of the Series' fundamental restrictions concerning investment in
commodities or commodity contracts, as set forth in the Statement of
Additional Information.
CURRENCY FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
A currency futures contract is an agreement for the purchase or sale for
future delivery of foreign currencies. A "sale" of a currency futures
contract means the obligation to deliver the foreign currencies called for by
the contract at a specified price on a specified date while a "purchase" of a
currency futures contract means the obligation to acquire the foreign
currencies called for by the contract at a specified price on a specified
date. The Series will only enter into futures contracts which are traded on
national or foreign futures exchanges and which are standardized as to
maturity date and the underlying financial instrument. Options on currency
futures contracts give the purchaser the right, in return for the premium
paid, to assume a long or short position in the futures contract. The Series
may not purchase or sell future contracts if immediately thereafter the sum of
the amount of initial margin deposits on any such futures (plus deposits on
any other futures contracts and premiums paid in connection with any options
or futures contracts) that do not constitute "bona fide hedging" under the
CFTC rules would exceed 5% of the liquidation value of the Series' total
assets after taking into account unrealized profits and losses on such
contracts. In addition, the value of all futures contracts sold will not
exceed the total market value of the Series' portfolio.
<PAGE> 14
FOREIGN CURRENCY OPTIONS
A call option on a foreign currency is a short-term contract pursuant to
which the purchaser of the option, in return for a premium, has the right to
buy the currency underlying the option at a specified price at any time during
the term of the option. The writer of a call option, who receives the
premium, has the obligation, upon exercise of the option during the option
term, to deliver the underlying currency against payment of the exercise
price. Conversely, a put option on a foreign currency gives its purchaser, in
return for a premium, the right to sell the underlying currency at a
specified price during the option term to the writer of the put option, who
receives the premium.
RISKS ASSOCIATED WITH HEDGING STRATEGIES
There are risks associated with the hedging strategies described above,
including the following: (1) the success of a hedging strategy may depend on
the ability of the Advisor to predict movements in the prices of individual
securities, fluctuations in domestic and foreign markets and currency exchange
rates, and movements in interest rates; (2) there may be an imperfect
correlation between the changes in market value of the stocks held by a Series
and the prices of currency contracts, options, futures and options on futures;
(3) there may not be a liquid secondary market for a currency contract,
option, futures contract or futures option; (4) trading restrictions or
limitations may be imposed by an exchange; and, (5) government regulations,
particularly requirements for qualification as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"), may
restrict trading in forward currency contracts, options, futures contracts and
futures options.
PRINCIPAL INVESTMENT RESTRICTIONS
The Series is subject to certain investment restrictions which are
fundamental policies that cannot be changed without the approval of the
holders of a majority, as defined in the 1940 Act, of the Series' outstanding
shares.
The Series may borrow money, but only from a bank for temporary or
emergency purposes in amounts not exceeding 10% of the Series' total assets
and the Series will not make additional investments while borrowings greater
than 5% of its total assets are outstanding.
The Series may not, with respect to 75% of its total assets, invest more
than 5% of the value of its total assets at the time of investment in
securities of any one issuer (other than obligations issued or guaranteed by
the U.S. Government, its agencies or its instrumentalities). The Series may
not purchase more than 10% of the outstanding voting securities of any one
issuer.
The Series may not invest 25% or more of the value of its total assets in
securities of issuers in any one industry.
The Series may not invest more than 10% of its total net assets in
securities of issuers that are restricted from being sold to the public
without registration under the Securities Act of 1933 and illiquid securities,
including repurchase agreements with maturities of greater than seven days.
The Series may purchase shares of closed-end investment companies that
are traded on national exchanges to the extent permitted by applicable law.
The Series may not make loans, except through repurchase agreements.
<PAGE> 15
Additional information about the Series' investment restrictions is
contained in the Statement of Additional Information.
MANAGEMENT
The overall business and affairs of the Fund are managed by its Board of
Directors. The Board approves all significant agreements between the Fund and
persons or companies furnishing services to the Fund, including the Fund's
agreements with its Investment Advisor and Custodian. The day-to-day
operations of the Fund are delegated to the Fund's officers and to Manning &
Napier Advisors, Inc. (the "Advisor"), 1100 Chase Square, Rochester, New York
14604. A committee made up of investment professionals and analysts make all
the investment decisions for the Fund.
The Advisor acts as Investment Advisor to the Fund and supervises and
arranges the purchase and sale of securities held in the portfolio of the
Fund. Mr. William Manning controls the Advisor by virtue of his ownership of
the securities of the Advisor. The Advisor also is generally responsible for
supervision of the overall business affairs of the Fund including supervision
of service providers to the Fund and direction of the Advisor's directors,
officers or employees who may be elected as officers of the Fund to serve as
such.
As of the date of this prospectus, the Advisor supervised over
$6.5 billion in assets of clients, including both individuals and
institutions. For its services to the Fund under the Investment Advisory
Agreement, the Fund pays the Advisor a fee, computed daily and payable
monthly, at an annual rate of 1% of the Fund's average daily net assets. This
fee is higher than the mean fee paid by all other mutual funds. The advisory
fee charged by the Advisor to its investment advisory clients will not include
or be based on assets of such clients held in shares of the Fund. The Fund is
responsible for its operating expenses, including: (i) interest and taxes;
(ii) brokerage commissions; (iii) insurance premiums; (iv) compensation and
expenses of its Directors other than those affiliated with the Advisor; (v)
legal and audit expenses; (vi) fees and expenses of the Fund's Custodian,
Shareholder Servicing or Transfer Agent and Accounting Services agent, if
obtained for the Fund from an entity other than the Advisor; (vii) expenses
incidental to the issuance of its shares, including issuance on the payment
of, or reinvestment of, dividends and capital gain distributions; (viii) fees
and expenses incidental to the registration under federal or state securities
laws of the Fund or its shares; (ix) expenses of preparing, printing and
mailing reports and notices and proxy material to shareholders of the Fund;
(x) all other expenses incidental to holding meetings of the Fund's
shareholders; (xi) dues or assessments of or contributions to the Investment
Company Institute or any successor; and, (xii) such non-recurring expenses as
may arise, including litigation affecting the Fund and the legal obligations
which the Fund may have to indemnify its officers and Directors.
The Advisor may use its own resources to engage in activities that may
promote the sale of the Fund, including payments to third parties who provide
shareholder support servicing and distribution assistance. Investors may be
charged a fee if they effect transactions through a broker or agent.
TOTAL RETURN
From time-to-time the Series may advertise its total return. Total
return figures are based on historical earnings and are not intended to
indicate future performance. The "total return" of a Series refers to the
average annual compounded rates of return over one-, five-, and ten-year
periods or for the life of the Series (as stated in the advertisement) that
would equate an initial amount invested at the beginning of a stated period to
the ending redeemable value of the investment, assuming the reinvestment of
all dividend and capital gains distributions.
<PAGE> 16
PURCHASES, EXCHANGES AND REDEMPTIONS OF SHARES
The minimum initial investment in the Series is $2,000 and subsequent
purchases must be at least $100. The Distributor reserves the right to waive
these minimum initial or subsequent investment requirements in its sole
discretion. The Distributor has the right to refuse any order. The
Distributor may suspend offering shares to other than discretionary management
accounts of the Advisor.
Purchases and redemptions of shares of the Series may be made on any day
the New York Stock Exchange is open for trading.
A purchase order will be effective as of the day received by the
Distributor, Transfer Agent, or its agents, if the order is received before
4:00 p.m. Eastern time by the Distributor, Transfer Agent or its agents.
Payment may be made by check or readily available funds. The purchase price
of shares of the Series is the net asset value next determined after a
purchase order is effective.
Shareholders may purchase shares regularly through the Automatic
Investment Plan with a pre-authorized draft drawn on their checking account.
Under this plan, the shareholders may elect to have a specified amount
invested on a regular schedule. The amount specified by the shareholder will
be withdrawn from the shareholder's bank account using the pre-authorized
draft. This amount will be invested at the applicable share price determined
on the date the amount is available for investment. Participation in the
Automatic Investment Plan may be discontinued either by the Fund or the
Shareholder upon 30 days' prior written notice to the other party. A
shareholder who wishes to enroll in the Automatic Investment Plan may do so by
completing the applicable section of the Account Application Form or
contacting the Fund for an Automatic Investment Plan Form.
The shares of the Series may be purchased in exchange for securities to
be included in the Series, subject to the Advisor's determination that these
securities are acceptable. Securities accepted in an exchange will be valued
at market value. All accrued interest and purchase or other rights which are
reflected in the market price of accepted securities at the time of valuation
become the property of the Series and must be delivered by the shareholder to
the Series upon receipt from the issuer.
The Advisor will not accept securities for the Series unless: (1) such
securities are appropriate in the Series at the time of the exchange; (2) the
shareholder represents and agrees that all securities offered to the Series
are not subject to any restrictions upon their sale by the Series under the
Securities Act of 1933, or otherwise; and, (3) prices are available from an
independent pricing service approved by the Series' Board of Directors.
As permitted pursuant to any rule, regulation or order promulgated by the
Securities and Exchange Commission, some or all of the shares in a direct
investment account with the Fund for which payment has been received by the
Transfer Agent may be exchanged for shares of any of the other Manning &
Napier Fund, Inc. Series at net asset value. Shareholders may effect up to 4
exchanges in a 12-month period without charge. Subsequent exchanges are
subject to a fee of $15. Exchanges will be made after instructions in writing
or by telephone are received by the Transfer Agent in proper form (i.e., if in
writing - signed by the record owner(s) exactly as the shares are registered;
if by telephone - proper account identification is given by the shareholder)
and each exchange must involve either shares having an aggregate value of at
least $1,000 or all the shares in the account. A shareholder should read the
prospectus of the other Series and consider the differences in objectives and
policies before making any exchange. The exchange privilege may not be
available in all states. For federal and state income tax purposes, an
exchange is treated as a sale of the shares exchanged, and therefore an
exchange could result in a gain or loss to the shareholder making the
exchange. The Series may modify or terminate this exchange offer upon 60
days' notice to shareholders subject to applicable law.
<PAGE> 17
If a shareholder desires to redeem his shares at their net asset value,
the shareholder must send a written request for redemption in "good order" to
the Transfer Agent. "Good Order" generally means that the written request for
redemption must be endorsed by the record owner(s) exactly as the shares are
registered and the signature(s) must be guaranteed by an "eligible guarantor
institution" as the term is defined under Rule 17Ad-15(a)(2) under the
Securities Exchange Act of 1934. Currently, such procedures generally permit
guarantees by a commercial bank or trust company, a member bank of the Federal
Reserve System, or a member firm of a national securities exchange.
Redemption requirements for corporations, other organizations, trusts,
fiduciaries, and retirement plans may require additional documentation.
Please contact the Transfer Agent at 1-800-466-3863 for more information. The
Transfer Agent may make certain de minimis exceptions to the above
requirements for redemption. Within three days after receipt of a redemption
request by the Transfer Agent in "good order", the Series will make payment in
cash, except as described below, of the net asset value of the shares next
determined after such redemption request was received, except during any
period in which the right of redemption is suspended or date of payment is
postponed because the New York Stock Exchange is closed or trading on such
Exchange is restricted or to the extent otherwise permitted by the 1940 Act if
an emergency exists. For shares purchased, or received in exchange for shares
purchased, by check (including certified checks or cashier's checks), payment
of redemption proceeds may be delayed up to 15 days from the purchase date in
an effort to assure that such check has cleared.
Subject to the Series' compliance with applicable regulations, the Series
has reserved the right to pay the redemption price either totally or partially
by a distribution in-kind of securities (instead of cash) from the Series'
portfolio. The securities distributed in such a distribution would be valued
at the same amount as that assigned to them in calculating the net asset value
for the shares being sold. If a shareholder received a distribution in-kind,
he could incur brokerage or transaction charges when converting the securities
to cash. The Fund has elected, however, to be governed by Rule 18f-1
under the 1940 Act as a result of which the Fund is obligated to redeem
shares, with respect to any one shareholder during any 90-day period, solely
in cash up to the lesser of $250,000 or 1% of the net asset value of the Fund
at the beginning of the period.
Due to the relatively high cost of maintaining small accounts, the Series
reserves the right to redeem shares in any account for their then-current
value (which will be promptly paid to the shareholder) if at any time the
total investment in such account drops below $1,000 because of redemptions
(but not due to changes in net asset value). Shareholders will be notified
that the value of their account is less than the minimum investment
requirement and allowed 60 days to make an additional investment before the
redemption is processed.
Manning & Napier Investor Services, Inc. acts as Distributor of the Fund
shares and is located at the same address as the Advisor and the Fund. The
Distributor receives no fee from the Fund and there are no additional costs to
shareholders for this service. The Advisor may, from its own resources,
defray or absorb costs related to distribution, including compensation of
employees who are involved in distribution.
<PAGE> 18
NET ASSET VALUE
The Series' net asset value per share is determined as of the closing
time of the New York Stock Exchange or, in the absence of a closing time, 4:00
p.m. Eastern time on each day that the New York Stock Exchange is open for
trading. The exchange annually announces the days on which it will not be
open for trading; the most recent announcement indicates that it will not be
open on: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value per share is the value of the Series' assets, less
its liabilities, divided by the number of shares of the Series outstanding.
The value of the Series' portfolio securities will be the market value of such
securities as determined based on quotes provided by a pricing service (which
uses the methodology outlined in the "Net Asset Value" section of the
Statement of Additional Information) approved by the Board of Directors, or,
in the absence of market quotations, fair value as determined in good faith by
or under the direction and control of the Board of Directors. Short-term
investments which mature in less than 60 days are normally valued at amortized
cost. Assets initially expressed in foreign currencies will be converted into
U.S. dollars as of the exchange rates quoted by any major bank. If such
quotes are not available, the exchange rates will be determined in accordance
with policies established in good faith by the Board of Directors. See the
Statement of Additional Information for further information.
DIVIDENDS AND TAX STATUS
DIVIDENDS AND DISTRIBUTIONS
The Series expects to pay ordinary income dividends and capital gain
distributions, if any, annually. Dividends and distributions will be paid in
full and fractional shares of the Series, based on the net asset value per
share at the close of business on the record date, although a shareholder may,
prior to the record date, request, by writing or by telephone call to the
Fund, that payments of either ordinary income dividends or capital gain
distributions, or both, be made in cash. The Fund will notify each
non-corporate taxable shareholder after the close of its fiscal year both of
the dollar amount and the tax status of that year's distributions. Generally,
the Fund will be required to impose backup withholding at the rate of 31% from
ordinary income dividends, capital gain distributions and redemption payments
made to non-corporate shareholders, if provisions of the law relating to the
furnishing of taxpayer identification numbers and reporting of dividends are
not complied with by such shareholders.
If a taxable shareholder invests shortly before the Series declares a
taxable dividend, a portion of the investment will be returned as a taxable
distribution (commonly referred to as "buying into a dividend"). This
distribution will be taxable regardless of whether you elected to reinvest
your distribution in additional shares or take the distribution in cash. If
you would like to avoid buying into a dividend, you may contact the Fund to
find out when the Series plans to declare a distribution and invest after that
date.
TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a general summary of certain federal income tax
considerations affecting the Series and its shareholders. No attempt is made
to present a detailed explanation of the tax treatment of the Series or its
shareholders, and the discussion here is not intended as a substitute for
careful tax planning. The Series is not managed with respect to tax outcomes
for its shareholders.
<PAGE> 19
Under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), the Series is treated as a separate entity for federal income tax
purposes. The Series intends to qualify each year as a regulated investment
company under Subchapter M of the Code. If the Series so qualifies, it will
not be subject to federal income taxes on its net investment income and
capital gains, if any, which the Series distributes to its shareholders,
provided that at least 90% of such Series' "investment company taxable income"
(generally, net investment income and the excess of net short-term capital
gain over net long-term capital loss) for the taxable year is distributed, and
provided that the Series meets certain other requirements imposed by the Code.
All dividends paid or distributed out of investment company taxable income
will be taxable as ordinary income to the shareholders. Any "net capital
gain" (the excess of net long-term capital gain over net short-term capital
loss) distributed to shareholders is taxable as long-term capital gain to the
shareholders, regardless of the length of time a shareholder has owned his
shares. Generally, such dividends and distributions are taxable in the year
in which received, but dividends and distributions declared in October,
November or December of any year to shareholders of record on a date in such
month are treated as paid on December 31 of such year if they are paid during
January of the following calendar year. Dividends and distributions are not
taxable to shareholders that are not otherwise subject to tax on their income,
such as qualified employee benefit plans.
A 4% non-deductible federal excise tax is imposed on a regulated
investment company that fails to distribute substantially all of its ordinary
income and capital gain net income for each calendar year. Currently, the
Series intends to make sufficient distributions of its ordinary income and
capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
Future legislative changes may materially affect the tax consequences of
investing in the Series. Shareholders are urged to consult their tax advisors
for the application of these rules (and other potentially relevant rules) to
their particular circumstances. Shareholders are also urged to consult their
tax advisors concerning the application of state and local income taxes and of
foreign taxes to investments in the Series, which may differ from the U.S.
federal income tax consequences described above.
GENERAL INFORMATION
The Fund was incorporated on July 26, 1984 as a Maryland corporation.
The Board of Directors may, at its own discretion, create additional series of
shares, each of which would have separate assets and liabilities.
The Fund does not expect to hold annual meetings of shareholders but
special meetings of shareholders may be held under certain circumstances.
Shareholders of the Fund retain the right, under certain circumstances, to
request that a meeting of shareholders be held for the purpose of considering
the removal of a Director from office, and if such a request is made, the Fund
will assist with shareholder communications in connection with the meeting.
The shares of the Fund have equal rights with regard to voting, redemption,
dividends, distributions and liquidations. The Fund's shareholders will vote
in the aggregate and not by Series except as otherwise expressly required by
law or when the Board of Directors determines that the matter to be voted upon
affects only the interests of the shareholders of a Series. Income, direct
liabilities and direct operating expenses of each Series will be allocated
directly to each Series, and general liabilities and expenses of the Fund will
be allocated among the Series in proportion to the total net assets of each
Series by the Board of Directors. The holders of shares have no preemptive or
conversion rights. Shares when issued are fully paid and non-assessable and
do not have cumulative voting rights.
<PAGE> 20
All securities and cash are held by Boston Safe Deposit and Trust
Company. Coopers & Lybrand, L.L.P. serves as independent accountants for the
Series and will audit its financial statements annually.
Manning & Napier Advisors, Inc. serves as the Fund's Transfer and
Dividend Disbursing Agent. Shareholder inquiries should be directed to
Manning & Napier Fund, Inc., P.O. Box 41118, Rochester, New York 14604.
<PAGE> 21
APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
Moody's Investors Services, Inc.'s corporate bond ratings:
Aaa - Bonds which are rated Aaa are judged to be of the best quality and
carry the smallest degree of investment risk. Interest payments are protected
by a large or by an exceptionally stable margin, and principal is secure.
While the various protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Moody's applies numerical modifiers "1", "2" and "3" to both the Aaa and Aa
rating classifications. The modifier "1" indicates that the security ranks in
the higher end of its generic rating category; the modifier "2" indicates a
mid-range ranking; and the modifier "3" indicates that the issue ranks in the
lower end of its generic rating category.
Standard & Poor's Corporation's corporate bond ratings:
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only to a small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than in higher rated categories.
<PAGE> 22
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's Investor Services, Inc.'s commercial paper ratings:
P-1 - Commercial papers which are rated P-1 are judged to have a superior
ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics:
-Leading market positions in well-established industries.
-High rates of return on funds employed.
-Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
-Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-Well-established access to a range of financial markets and assured
sources of alternate liquidity.
P-2 - Commercial papers which are rated P-2 are judged to have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
P-3 - Commercial papers which are rated P-3 are judged to have an
acceptable ability for repayment of senior short-term obligations. The effect
of industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level
of debt protection measurements and may require relatively high financial
leverage. Adequate alternate liquidity is maintained.
Standard & Poor's Corporation's commercial paper ratings:
A-1 - This is the highest category and indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-3 - Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes
in circumstances than obligations carrying the higher designations.
B - Issues rated B are regarded as having only speculative capacity for
timely payment.
C - This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
D - Debt rated D is in payment default. The D rating category is used
MANNING & NAPIER FUND, INC.
P.O. Box 41118
Rochester, New York 14604
1-800-466-3863
WORLD OPPORTUNITIES SERIES
Manning & Napier Fund, Inc. (the "Fund"), is an open-end management
investment company consisting of multiple series, each a separate investment
portfolio having its own investment objectives and policies. This Prospectus
relates to the World Opportunities Series (the "Series"), a series of the
Fund. The Series' investment objective is to seek long-term capital growth.
This Prospectus provides you with the basic information you should know
before investing in the Series. The Fund's other series are offered
through separate prospectus. You should read this Prospectus and keep it
for future reference. A Statement of Additional Information, dated April
14, 1997, containing additional information about the Fund has been filed
with the Securities and Exchange Commission and is incorporated by reference
in this Prospectus in its entirety. You may obtain a copy of the Statement of
Additional Information without charge by contacting the Fund at the address or
telephone number listed above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS APRIL 14, 1997.
<PAGE>
MANNING & NAPIER FUND, INC.
WORLD OPPORTUNITIES SERIES
No person has been authorized to give any information or to make
representations not contained in this Prospectus in connection with any
offering made by this Prospectus and, if given or made, such information must
not be relied upon as having been authorized by the Fund. This Prospectus
does not constitute an offering by the Fund in any jurisdiction in which such
offering may not lawfully be made.
<TABLE>
<CAPTION>
PROSPECTUS
TABLE OF CONTENTS
<S> <C>
Expenses 3
Financial Highlights 4
The Fund 5
Risk and Investment Objectives and Policies 5
Special Risk and Additional Investment Policies 6
Principal Investment Restrictions 10
Management 10
Total Return 11
Purchases, Exchanges and Redemptions of Shares 11
Net Asset Value 13
Dividends and Tax Status 13
General Information 14
Appendix 15
</TABLE>
Expenses
SHAREHOLDER TRANSACTION EXPENSES
(as a percentage of offering price)
Maximum Sales Charge Imposed on Purchases None
Redemption Fees 1 None
Exchange Fees 2 None
1 A wire charge, currently $15, will be deducted by the Transfer Agent from
the amount of a wire redemption payment made at the request of a shareholder.
Such amount is not included in the "Annual Operating Expenses" of the Series.
2 A shareholder may effect up to four (4) exchanges in a twelve (12) month
period without charge. Subsequent exchanges are subject to a fee of $15.
ANNUAL OPERATING EXPENSES
The following information provides (I) a tabular summary of expenses relating
to the annual operating expense of the Series and (ii) an example illustrating
the dollar cost of such expenses on a $1,000 investment.
Annual Operating Expenses (as a percentage of average daily net assets):
Management Fees 1.00%
12b-1 Fees None
Other Expenses 3 0.17%
Total Operating Expenses 3 1.17%
Example:
You would pay the following expenses on a $1,000 investment, assuming a) 5%
annual return and b) redemptions at the end of each period:
1 year 3 years 5 years 10 years
World Opportunities Series $12 $37 $64 $142
3 World Opportunities Series was engaged in active investment operations for
the period September 6, 1996 to December 31, 1996; therefore, actual
management fees and other expenses are used above.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in each Series. For a
more complete description of the various costs and expenses illustrated above,
please refer to the Management section of the Prospectus.
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN ABOVE.
<PAGE> 2
FINANCIAL HIGHLIGHTS
The following table provides selected per share data and ratios for the World
Opportunities Series (for a share outstanding throughout the period for the
period shown). The table is part of the Series audited financial statements,
which are included in the Statement of Additional Information incorporated by
reference into this Prospectus.
<TABLE>
<CAPTION>
For the period
Sept. 1, 1996
(commencement of
operations) to
Dec. 31, 1996
------------------
<S> <C>
Net asset value - Beginning of period $ 10.003
------------------
Income from investment operations
Net investment income (loss) 0.05
Net realized and unrealized gain (loss)
on investments 0.43
Total from investment operations 0.48
Less distributions declared to shareholders:
From net investment income (0.05)
From net realized gain on investments (0.01)
Total distributions declared to shareholders (0.06)
Net asset value - End of period $ 10.42
Total return 1 4.82%
Ratio (to average net assets)/Supplemental data:
Expenses 1.17%2
Net investment income 1.54%2
Portfolio Turnover 1%
Average Commission Rate Paid $ 0.0065
Net assets - End of period (000's omitted) $ 77,338
==================
</TABLE>
1 Represents aggregate total return for the period indicated.
2 Annualized.
3 Initial offering price upon commencement of operations on September 6, 1996.
<PAGE> 3
THE FUND
The Fund is an open-end management investment company incorporated under
the laws of the State of Maryland on July 26, 1984. The Fund offers separate
series of units of beneficial interest ("shares"). This Prospectus relates to
the World Opportunities Series, a series of the Fund. Information regarding
the Fund's other series is contained in separate prospectuses that may be
obtained from Manning & Napier Fund, Inc., P.O. Box 41118, Rochester, New York
14604 or by calling 1-800-466-3863.
Shares of the Series are offered directly to investors and to employees
and clients of the Advisor or its affiliates that have authorized investment
in the Fund as part of the discretionary account management services of the
Advisor or its affiliates. Investors may be charged a fee if they effect
transactions through a broker or agent.
Since the Series may be used under varying conditions and market prices,
the result for a given investor might differ from the result that would have
been obtained had the Series been used only for clients with the same
investment objective. However, the Advisor seeks to manage cash flows into
and out of the Series in the interest of the Fund and its clients so as to
minimize the effect on performance.
As a general rule, the investment in shares of the Series on behalf of
discretionary account clients is limited to a maximum of 5% -- or if the
Advisor believes that the opportunity to capture investment values or to
diversify risk among asset classes is particularly compelling, to a maximum of
10% -- of the client's portfolio.
RISK AND INVESTMENT OBJECTIVES AND POLICIES
GENERAL
The objective of the Series is to seek long-term capital growth. The
Series generally invests at least 65% of its assets in common stocks of
companies domiciled in at least three different countries. The Advisor will
emphasize individual security selection to identify those issuers which, in
the Advisor's opinion, have attractive long-term business prospects and
valuations. It may invest up to 20% of assets in noninvestment-grade
convertibles and debt securities. Unless otherwise stated, the Series'
investment policies are not fundamental and may be changed without shareholder
approval; however, it is the Board of Directors' policy to notify shareholders
prior to any material change. There is no assurance that the Series will
achieve its investment objective.
The Series may also invest up to 35% of its assets in corporate debt
securities of foreign issuers and in obligations issued by foreign
governments, or their respective agencies and instrumentalities. The value of
debt securities fluctuates inversely to changes in interest rates. The Series
may invest in both exchange and over-the-counter traded securities. The
Series may invest in such securities without regard to term or rating and may,
from time to time, invest up to 20% of its assets in debt securities rated
below investment grade, i.e., rated lower than BBB by Standard & Poor's
Corporation ("S&P") or Baa by Moody's Investor Service, Inc. ("Moody's"), or
unrated securities of comparable quality as determined by the Advisor. These
securities are commonly known as junk bonds. Ratings of corporate bonds
including lower rated bonds are included in the Appendix. See "Special Risk
and Additional Investment Policies-High Yield Debt Securities".
In periods of unusual market conditions, when the Series' Advisor
considers it appropriate, the Series may invest all or any part of the Series'
assets in cash, U.S. Government Securities, high quality commercial paper,
bankers' acceptances, repurchase agreements and certificates of deposit.
<PAGE> 4
The Series is a non-diversified portfolio under the Investment Company
Act of 1940 (the "1940 Act"), which means that the Series is not limited by
the 1940 Act in the proportion of its assets that may be invested in the
obligations of a single issuer. Thus, the Series may invest a greater
proportion of its assets in the securities of a small number of issuers and as
a result will be subject to greater risk with respect to its securities.
However, the Series intends to comply with the diversification requirements
imposed by the Internal Revenue Code of 1986, as amended (the "Code") for
qualification as a regulated investment company.
For temporary defensive purposes during periods when the Advisor
determines that market conditions warrant, the Series may invest up to 100% of
its assets in money market instruments (including securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities,
certificates of deposit, time deposits and bankers' acceptances issued by
banks or savings and loan associations deemed to be creditworthy by the
Advisor, commercial paper rated A-1 by S&P or P-1 by Moody's, repurchase
agreements involving such securities and other investment companies investing
solely in such securities as permitted by applicable law) and may hold a
portion of its assets in cash. For a description of the above ratings, see
the Appendix and the Statement of Additional Information.
In addition, the Series may to varying degrees use certain techniques and
strategies discussed below under "Special Risk and Additional Investment
Policies".
SPECIAL RISK AND ADDITIONAL INVESTMENT POLICIES
The Series may engage in the following investment policies and practices,
some of which are described in more detail in the Statement of Additional
Information.
FOREIGN INVESTMENTS
Investments in foreign securities have special risks related to political,
economic and legal conditions outside of the U.S., including the possibility
of unfavorable currency exchange rates, exchange control regulations
(including currency blockage), expropriation, nationalization, withholding
taxes on income and difficulties in enforcing judgments. Foreign securities
may be less liquid and more volatile than comparable U.S. securities. In
general, there may be limited public information with respect to foreign
issuers, and some foreign issuers may also be subject to less comprehensive
accounting and disclosure requirements than similar U.S. issuers.
The Series' investments in foreign securities may include investments in
countries whose economies or securities markets are not yet highly developed.
Special risks associated with these investments (in addition to the
considerations regarding foreign investments generally) may include, among
others, greater political uncertainties, an economy's dependence on revenues
from particular commodities or on international aid or development assistance,
currency transfer restrictions, highly limited numbers of potential buyers for
such securities and delays and disruptions in securities settlement
procedures.
INVESTING IN OTHER INVESTMENT COMPANIES
The Series may invest up to 10% of its total assets in closed-end investment
companies commonly referred to as "country funds". Such investments will
involve the payment of duplicate fees through the indirect payment of a
portion of the expenses, including advisory fees, of such other investment
companies.
SMALL COMPANIES
The Series may invest in smaller, less well-established companies which may
offer greater opportunities for capital appreciation than larger, better
established companies. These stocks may also involve certain risks related to
limited product lines, markets or financial resources and dependence on a
small management group. Their securities may trade less frequently, in
smaller volumes and fluctuate more sharply in value than exchange-listed
securities of larger companies.
<PAGE> 5
U.S. GOVERNMENT SECURITIES
The Series may purchase securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. Direct obligations of the U.S.
Government include bills, notes and bonds issued by the U.S. Treasury and
obligations issued or guaranteed by U.S. agencies or instrumentalities. The
obligations of certain U.S. agencies (i.e., the Government National Mortgage
Association) are backed by the full faith and credit of the U.S. Government or
are supported by the agencies' rights to borrow from the U.S. Treasury. The
issues of other agencies are supported only by the credit of the agency (e.g.,
the Federal National Mortgage Association).
SHORT SALES
The Series may, within limits, engage in short sales "against the box".
A short sale is the sale of borrowed securities; a short sale against the box
means that the Series owns securities equivalent to those sold short. No more
than 25% of the net assets (taken at current value) of the Series may be held
as collateral for such sales at any one time. Such short sales can be used as
a hedge and as a method of deferring realized capital gains from one taxable
year to the next for tax purposes.
ZERO-COUPON BONDS
Some of the securities in which the Series invests may include so-called
"zero-coupon" bonds. Zero-coupon bonds are issued at a significant discount
from face value and pay interest only at maturity rather than at intervals
during the life of the security. The Series is required to accrue and
distribute income from zero-coupon bonds on a current basis, even though it
does not receive that income currently in cash. Thus, the Series may have to
sell investments to obtain cash needed to make income distributions. The
discount, in the absence of financial difficulties of the issuer, decreases as
the final maturity of the security approaches. Zero-coupon bonds can be sold
prior to their maturity date in the secondary market at the then prevailing
market value, which depends primarily on the time remaining to maturity,
prevailing level of interest rates and the perceived credit quality of the
issues. The market prices of zero-coupon securities are subject to greater
fluctuations in response to changes in market interest rates than bonds which
pay interest currently.
VARIABLE AND FLOATING RATE INSTRUMENTS
Certain of the obligations purchased by the Series may carry variable or
floating rates of interest, may involve a conditional or unconditional demand
feature and may include variable amount master demand notes. Such instruments
bear interest at rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index.
The interest rate on these securities may be reset daily, weekly, quarterly,
or at some other interval, and may have a floor or ceiling rate.
There is a risk that the current interest rate on such obligations may not
accurately reflect existing market interest rates.
HEDGING TECHNIQUES
The Series has reserved the right, subject to authorization by the Board
of Directors prior to implementation, to engage in certain strategies in an
attempt to hedge the Series' portfolio, that is, to reduce the overall level
of risk that normally would be expected to be associated with its investments.
The Series may write covered call options on common stocks; may purchase and
sell (on a secured basis) put options; and may engage in closing transactions
with respect to put and call options. The Series also may purchase forward
foreign currency exchange contracts to hedge currency exchange rate risk. In
addition, the Series is authorized to purchase and sell stock index futures
contracts and options on stock index futures contracts. The Series is also
authorized to conduct spot (i.e., cash basis) currency transactions or to use
currency futures contracts and options on futures contracts and foreign
currencies in order to protect against uncertainty in the future levels of
foreign currency exchange rates. These strategies are primarily used for
hedging purposes; nevertheless, there are risks associated with these
strategies as described below.
<PAGE> 6
OPTIONS ON SECURITIES
A call option is a short-term contract pursuant to which the purchaser of
the option, in return for a premium, has the right to buy the security
underlying the option at a specified price at any time during the term of the
option. The writer of a call option, who receives the premium, has the
obligation, upon exercise during the option term, to deliver the underlying
security against payment of the exercise price. Conversely, a put option
gives its purchaser, in return for a premium, the right to sell the underlying
equity security at a specified price during the option term to the writer of
the put option, who receives the premium. The Series will sell call options
only on a "covered" basis, i.e., it will own the underlying security at all
times, and will write put options only on a secured basis, i.e., it will
maintain an amount equal to the exercise price in a segregated account at all
times. The Series may engage in option transactions for hedging purposes and
to realize a greater current return, through the receipt of premiums, than
would be earned on the underlying securities alone. Options traded in the
over-the-counter market will be considered illiquid unless the Series has
entered into arrangements with U.S. Government securities dealers to dispose
of such options at a formula price based on a multiple of the original premium
plus the amount by which the option is "in the money".
FUTURES CONTRACTS
The Series may purchase and sell financial futures contracts on debt
securities on a commodities exchange or board of trade for certain hedging,
return enhancement and risk management purposes in accordance with applicable
regulations. A financial futures contract is an agreement to purchase or sell
an agreed amount of securities at a set price for delivery in the future. The
Series may not purchase or sell futures contracts if immediately thereafter
the sum of the amount of initial margin deposits on any such futures (plus
deposits on any other futures contracts and premiums paid in connection with
any options or futures contracts) that do not constitute "bona fide hedging"
under the Commodity Futures Trading Commission ("CFTC") rules would exceed 5%
of the liquidation value of the Series' total assets after taking into account
unrealized profits and losses on such contracts. In addition, the value of
all futures contracts sold will not exceed the total market value of the
Series' portfolio. The Fund will comply with guidelines established by the
Securities and Exchange Commission with respect to covering of obligations
under futures contracts and will set aside liquid assets in a
segregated account with its custodian in the amount prescribed.
The Series' successful use of futures contracts depends on the Advisor's
ability to predict the direction of the market and is subject to various
additional risks. The correlation between movements in the prices of a
futures contract and the price of the securities being hedged is imperfect and
there is a risk that the value of the securities being hedged may increase or
decrease at a greater rate than the related futures contracts, resulting in
losses to the Series. Certain futures exchanges or boards of trades have
established daily limits based on the amount of the previous day's settlement
price. These daily limits may restrict the Series' ability to repurchase for
sale certain futures contracts on any particular day.
<PAGE> 7
STOCK INDEX FUTURES CONTRACTS AND OPTIONS ON STOCK INDEX FUTURES CONTRACTS
A stock index futures contract is a bilateral agreement pursuant to which
one party agrees to accept, and the other party agrees to make, delivery of an
amount of cash equal to a specified dollar amount times the difference between
the stock index value at the close of trading of the contract and the price at
which the futures contract is originally struck. No physical delivery of the
stocks comprising the index is made. Options on stock index futures contracts
give the purchaser the right, in return for the premium paid, to assume a long
or short position in a futures contract.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Series' use of forward foreign currency contracts is limited to
hedging against movements in the value of foreign currencies relative to the
U.S. dollar in connection with specific portfolio transactions or with respect
to existing portfolio positions denominated in such currencies. A transaction
hedge involves the purchase or sale of a forward contract with respect to a
specific receivable or payable of the Series while a position hedge relates to
a specific portfolio holding. A forward foreign currency exchange contract
involves an obligation to purchase or sell a specified currency at a future
date at a price set at the time of the contract. Foreign currency exchange
contracts do not eliminate fluctuations in the values of portfolio securities
but rather allow the Fund to establish a rate of exchange for a future point
in time. With respect to any such forward foreign currency contract, it will
not generally be possible to match precisely the amount covered by that
contract and the value of the securities involved due to the changes in the
values of such securities resulting from market movements between the date the
forward contract is entered into and the date it matures. In addition, while
forward contracts may offer protection from losses resulting from declines in
the value of a particular foreign currency, they also limit potential gains
which might result from increases in the value of such currency. Based on
current legal interpretation, the Fund does not consider forward foreign
currency exchange contracts to be commodities or commodity contracts for
purposes of the Series' fundamental restrictions concerning investment in
commodities or commodity contracts, as set forth in the Statement of
Additional Information.
CURRENCY FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
A currency futures contract is an agreement for the purchase or sale for
future delivery of foreign currencies. A "sale" of a currency futures
contract means the obligation to deliver the foreign currencies called for by
the contract at a specified price on a specified date while a "purchase" of a
currency futures contract means the obligation to acquire the foreign
currencies called for by the contract at a specified price on a specified
date. The Fund will only enter into futures contracts which are traded on
national or foreign futures exchanges and which are standardized as to
maturity date and the underlying financial instrument. Options on currency
futures contracts give the purchaser the right, in return for the premium
paid, to assume a long or short position in the futures contract. The Fund
may not purchase or sell future contracts if immediately thereafter the sum of
the amount of initial margin deposits on any such futures (plus deposits on
any other futures contracts and premiums paid in connection with any options
or futures contracts) that do not constitute "bona fide hedging" under the
CFTC rules would exceed 5% of the unrealized profits and losses on such
contracts. In addition, the value of all futures contracts sold will not
exceed the total market value of the Series' portfolio.
FOREIGN CURRENCY OPTIONS
A call option on a foreign currency is a short-term contract pursuant to
which the purchaser of the option, in return for a premium, has the right to
buy the currency underlying the option at a specified price at any time during
the term of the option. The writer of a call option, who receives the
premium, has the obligation, upon exercise of the option during the option
term, to deliver the underlying currency against payment of the exercise
price. Conversely, a put option on a foreign currency gives its purchaser, in
return for a premium, the right to sell the underlying currency at a specified
price during the option term to the writer of the put option, who receives the
premium.
<PAGE> 8
RISKS ASSOCIATED WITH HEDGING STRATEGIES
There are risks associated with the hedging strategies described above,
including the following: (1) the success of a hedging strategy may depend on
the ability of the Advisor to predict movements in the prices of individual
securities, fluctuations in domestic and foreign markets and currency exchange
rates, and movements in interest rates; (2) there may be an imperfect
correlation between the changes in market value of the stocks held by the
Series and the prices of currency contracts, options, futures and options on
futures; (3) there may not be a liquid secondary market for a currency
contract, option, futures contract or futures option; (4) trading restrictions
or limitations may be imposed by an exchange; and, (5) government regulations,
particularly requirements for qualification as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"), may
restrict trading in forward currency contracts, options, futures contracts,
and futures options.
FORWARD COMMITMENTS OR PURCHASES ON A WHEN-ISSUED BASIS
The Series may enter into forward commitments or purchase securities on a
when_issued basis. These securities normally are subject to settlement within
45 days of the purchase date. The interest rate realized on these securities
is fixed as of the purchase date and no interest accrues to the Series before
settlement. These securities are subject to market fluctuation due to changes
in market interest rates. The Series will maintain a separate account with a
segregated portfolio of liquid assets in an amount at least equal to
the purchase price.
MORTGAGE-BACKED SECURITIES
The Series may purchase mortgage-backed securities which represent an
interest in a pool of mortgage loans. The primary government issuers or
guarantors of mortgage-backed securities are the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA"), and
the Federal Home Loan Mortgage Corporation. Mortgage-backed securities may
also be issued by other U.S. and foreign government agencies and
non-governmental entities which consist of collateralized mortgage obligations
("CMOs") and real estate mortgage investment conduits ("REMICs") that are
rated in one of the top two rating categories by S&P or Moody's. The
mortgages backing these securities include conventional thirty-year fixed rate
mortgages, graduated payment mortgages, and adjustable rate mortgages. CMOs
and REMICs backed solely by GNMA certificates or other mortgage pass-throughs
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities may be supported by various types of insurance. However,
the guarantees or insurance do not extend to the mortgage-backed securities'
values, which are likely to vary inversely with fluctuations in interest
rates.
Mortgage-backed securities are in most cases "pass-through" instruments,
through which the holder receives a share of all interest and principal
payments from the mortgages underlying the certificate. When the Advisor is
determining the maturity of pass-through certificates the Advisor will
consider the maturity to be equal to the average life rather than the stated
maturity. During periods of declining interest rates, prepayment of mortgages
underlying mortgage-backed securities can be expected to accelerate. When the
mortgage obligations are prepaid, the Series reinvests the prepaid amounts in
securities, the yield of which reflects interest rates prevailing at the time.
Moreover, prepayment of mortgages which underlie securities purchased at a
premium could result in capital losses.
<PAGE> 9
To the extent that the Series purchases mortgage-related or
mortgage-backed securities at a premium, mortgage foreclosures and prepayments
of principal (which may be made at any time without penalty) may result in
some loss of the Series' principal investment to the extent of the premium
paid. The yield of the Series may be affected by reinvestment of prepayments
at higher or lower rates than the original investment. In addition, like
other debt securities, the value of mortgage-related securities, including
government and government-related mortgage pools, will generally fluctuate in
response to market interest rates.
SECURITIES LENDING
The Series may seek to increase its income by lending portfolio
securities. Such loans will usually be made to member firms (and subsidiaries
thereof) of the New York Stock Exchange and to member banks of the Federal
Reserve System and would be required to be secured continuously by collateral
in cash, cash equivalents or U.S. Treasury securities maintained on a current
basis at an amount at least equal to the market value of the securities
loaned. If the Advisor determines to make securities loans, the value of the
securities loaned would not exceed 30% of the value of the total assets of the
Series.
HIGH YIELD DEBT SECURITIES
High risk, high yield securities rated below BBB or lower by S&P or Baa
or lower by Moody's are considered to have speculative characteristics and
involve greater risk of default or price changes due to changes in the
issuer's credit-worthiness. Market prices of these securities may fluctuate
more than high-rated securities and they are difficult to price at times
because they are more thinly traded and less liquid securities. Market prices
may decline significantly in periods of general economic difficulty which may
follow periods of rising interest rates. Securities in the lowest rating
category may be in default. For these reasons, it is the Series' policy not
to rely primarily on ratings issued by established credit rating agencies, but
to utilize such ratings in conjunction with the Advisor's independent and
ongoing review of credit quality. In the event a security is downgraded below
these ratings after purchase, the Advisor will review and take appropriate
action with regard to the security. The Series will also seek to minimize
risk by diversifying its holdings.
PRINCIPAL INVESTMENT RESTRICTIONS
The Series is subject to certain investment restrictions which are
fundamental policies that cannot be changed without the approval of the
holders of a majority, as defined in the 1940 Act, of the Series' outstanding
shares.
The Series may borrow money, but only from a bank for temporary or
emergency purposes in amounts not exceeding 10% of the Series' total assets
and the Series will not make additional investments while borrowings greater
than 5% of its total assets are outstanding.
The Series may not invest 25% or more of the value of its total assets in
securities of issuers in any one industry.
The Series may not invest more than 10% of its total net assets in
securities of issuers that are restricted from being sold to the public
without registration under the Securities Act of 1933 and illiquid securities,
including repurchase agreements with maturities of greater than seven days.
The Series may invest its assets in securities of any other investment
company (closed-end and open-end), (1) by purchase in the open market
involving only customary brokers' commissions, (2) in connection with mergers,
acquisitions of assets, or consolidation, or (3) as otherwise permitted by
law, including the 1940 Act.
The Series may not make loans, except through loans of portfolio
securities and repurchase agreements.
Additional information about the Series' investment restrictions is
contained in the Statement of Additional Information.
<PAGE> 10
MANAGEMENT
The overall business and affairs of the Company are managed by its Board
of Directors. The Board approves all significant agreements between the
Company and persons or companies furnishing services to the Company, including
the Company's agreements with its Investment Advisor and Custodian. The
day-to-day operations of the Company are delegated to the Company's officers
and to Manning & Napier Advisors, Inc. (the "Advisor"), 1100 Chase Square,
Rochester, New York 14604. A committee made up of investment professionals
and analysts make all the investment decisions for the Fund.
The Advisor acts as Investment Advisor to the Company and supervises and
arranges the purchase and sale of securities held in the portfolio of the
Fund. Mr. William Manning controls the Advisor by virtue of his ownership of
the securities of the Advisor. The Advisor also is generally responsible for
supervision of the overall business affairs of the Company including
supervision of service providers to the Fund and direction of the Advisor's
directors, officers, or employees who may be elected as officers of the
Company to serve as such.
As of the date of this Prospectus, the Advisor supervised over
$6.5 billion in assets of clients, including both individuals and
institutions. For its services to the Company under the Investment Advisory
Agreement, the Company pays the Advisor a fee, computed daily and payable
monthly, at an annual rate of 1% of the Company's average daily net assets.
This fee is higher than the mean fee paid by all other mutual funds. The
advisory fee charged by the Advisor to its investment advisory clients will
not include or be based on assets of such clients held in shares of the
Company. The Company is responsible for its operating expenses, including:
(i) interest and taxes; (ii) brokerage commissions; (iii) insurance premiums;
(iv) compensation and expenses of its Directors other than those affiliated
with the Advisor; (v) legal and audit expenses; (vi) fees and expenses of the
Fund's Custodian, Shareholder Servicing or Transfer Agent and Accounting
Services agent, if obtained for the Fund from an entity other than the
Advisor; (vii) expenses incidental to the issuance of its shares, including
issuance on the payment of, or reinvestment of, dividends and capital gain
distributions; (viii) fees and expenses incidental to the registration under
federal or state securities laws of the Fund or its shares; (ix) expenses of
preparing, printing and mailing reports and notices and proxy material to
shareholders of the Fund; (x) all other expenses incidental to holding
meetings of the Fund's shareholders; (xi) dues or assessments of or
contributions to the Investment Company Institute or any successor; and, (xii)
such non-recurring expenses as may arise, including litigation affecting the
Fund and the legal obligations with respect to which the Fund may have to
indemnify its officers and Directors.
The Advisor may use its own resources to engage in activities that may
promote the sale of the Fund, including payments to third parties who provide
shareholder support servicing and distribution assistance. Investors may be
charged a fee if they effect transactions through a broker or agent.
TOTAL RETURN
From time-to-time the Series may advertise its total return. Total
return figures are based on historical earnings and are not intended to
indicate future performance. The "total return" of a Series refers to the
average annual compounded rates of return over one-, five-, and ten-year
periods or for the life of the Series (as stated in the advertisement) that
would equate an initial amount invested at the beginning of a stated period to
the ending redeemable value of the investment, assuming the reinvestment of
all dividend and capital gains distributions.
<PAGE> 11
PURCHASES, EXCHANGES AND REDEMPTIONS OF SHARES
The minimum initial investment in the Series is $2,000 and subsequent
purchases must be at least $100. The Distributor reserves the right to waive
these minimum initial or subsequent investment requirements in its sole
discretion. The Distributor has the right to refuse any order. The
Distributor may suspend offering shares to other than discretionary management
accounts of the Advisor.
Purchases and redemptions of shares of the Series may be made on any day
the New York Stock Exchange is open for trading.
A purchase order will be effective as of the day received by the
Distributor, Transfer Agent, or its agents, if the order is received before
4:00 p.m., Eastern Standard time by the Distributor, Transfer Agent, of its
agents. Payment may be made by check or readily available funds. The
purchase price of shares of the Series is the net asset value next determined
after a purchase order is effective.
The shares of the Series may be purchased in exchange for securities to
be included in the Series, subject to the Advisor's determination that these
securities are acceptable. Securities accepted in an exchange will be valued
at market value. All accrued interest and purchase or other rights which are
reflected in the market price of accepted securities at the time of valuation
become the property of the Series and must be delivered by the shareholder to
the Series upon receipt from the issuer.
The Advisor will not accept securities for the Series unless: (1) such
securities are appropriate in the Series at the time of the exchange; (2) the
shareholder represents and agrees that all securities offered to the Series
are not subject to any restrictions upon their sale by the Series under the
Securities Act of 1933, or otherwise; and, (3) prices are available from an
independent pricing service provided by the Fund's Board of Directors.
Shareholders may purchase shares regularly through the Automatic
Investment Plan with a pre-authorized draft drawn on their checking account.
Under this plan, the shareholder may elect to have a specified amount invested
on a regular schedule. The amount specified by the shareholder will be
withdrawn from the shareholder's bank account using the pre-authorized draft.
This amount will be invested at the applicable share price determined on the
date the amount is available for investment. Participation in the Automatic
Investment Plan may be discontinued either by the Fund or the Shareholder upon
30 days' prior written notice to the other party. A shareholder who wishes to
enroll in the Automatic Investment Plan may do so by completing the applicable
section of the Account Application Form or contacting the Fund for an
Automatic Investment Plan Form.
As permitted pursuant to any rule, regulation or order promulgated by the
Securities and Exchange Commission, some or all of the shares in a direct
investment account with the Fund for which payment has been received by the
Transfer Agent may be exchanged for shares of any of the other Manning &
Napier Fund, Inc. Series at the net asset value. Shareholders may effect up
to 4 exchanges in a 12-month period without charge. Subsequent exchanges are
subject to a fee of $15. Exchanges will be made after instructions in writing
or by telephone are received by the Transfer Agent in proper form (i.e., if in
writing - signed by the record owner(s) exactly as the shares are registered;
if by telephone - proper account identification is given by the shareholder)
and each exchange must involve either shares having an aggregate value of at
least $1,000 or all the shares in the account. A shareholder should read the
prospectus of the other Series and consider the differences in objectives and
policies before making any exchange. The exchange privilege may not be
available in all states. For federal and state income tax purposes, an
exchange is treated as a sale of the shares exchanged, and therefore an
exchange could result in a gain or loss to the shareholder making the
exchange. The Series may modify or terminate this exchange offer upon 60
days' notice to shareholders subject to applicable law.
<PAGE> 12
If a shareholder desires to redeem his shares at their net asset value,
the shareholder must send a written request for redemption in "good order" to
the Transfer Agent. "Good Order" generally means that the written request for
redemption must be endorsed by the record owner(s) exactly as the shares are
registered and the signature(s) must be guaranteed by an "eligible guarantor
institution" as the term is defined under Rule 17Ad-15(a)(2) under the
Securities Exchange Act of 1934. Currently, such procedures generally permit
guarantees by a commercial bank or trust company, a member bank of the Federal
Reserve System, or a member firm of a national securities exchange.
Redemption requirements for corporations, other organizations, trusts,
fiduciaries, and retirement plans may require additional documentation. Please
contact the Transfer Agent at 1-800-466-3863 for more information. The
Transfer Agent may make certain de minimis exceptions to the above
requirements for redemption. Within three days after receipt of a redemption
request by the Transfer Agent in "good order", the Series will make payment in
cash, except as described below, of the net asset value of the shares next
determined after such redemption request was received, except during any
period in which the right of redemption is suspended or date of payment is
postponed because the New York Stock Exchange is closed or trading on such
Exchange is restricted or to the extent otherwise permitted by the 1940 Act if
an emergency exists. For shares purchased, or received in exchange for shares
purchased, by check (including certified checks or cashier's checks), payment
of redemption proceeds may be delayed up to 15 days from the purchase date in
an effort to assure that such check has cleared.
Subject to the Series' compliance with applicable regulations, the Series
has reserved the right to pay the redemption price either totally or partially
by a distribution in-kind of securities (instead of cash) from the Series'
portfolio. The securities distributed in such a distribution would be valued
at the same amount as that assigned to them in calculating the net asset value
for the shares being sold. If a shareholder received a distribution in-kind,
he could incur brokerage or transaction charges when converting the securities
to cash. The Fund has elected, however, to be governed by Rule 18f-1
under the 1940 Act as a result of which the Fund is obligated to redeem
shares, with respect to any one shareholder during any 90-day period, solely
in cash up to the lesser of $250,000 or 1% of the net asset value of the Fund
at the beginning of the period.
Due to the relatively high cost of maintaining small accounts, the Series
reserves the right to redeem shares in any account for their then-current
value (which will be promptly paid to the shareholder) if at any time the
total investment in such account drops below $1,000 because of redemptions
(but not due to changes in net asset value). Shareholders will be notified
that the value of their account is less than the minimum investment
requirement and allowed 60 days to make an additional investment before the
redemption is processed.
Manning & Napier Investor Services, Inc. acts as Distributor of the Fund
shares and is located at the same address as the Advisor and the Fund. The
Distributor receives no fee from the Fund and there are no additional costs to
shareholders for this service. The Advisor may, from its own resources,
defray or absorb costs related to distribution, including compensation of
employees who are involved in distribution.
<PAGE> 13
NET ASSET VALUE
The Series' net asset value per share is determined as of the closing
time of the New York Stock Exchange or, in the absence of a closing time, 4:00
p.m. Eastern time on each day that the New York Stock Exchange is open for
trading. The exchange annually announces the days on which it will not be
open for trading; the most recent announcement indicates that it will not be
open on: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value per share is the value of the Series' assets, less
its liabilities, divided by the number of shares of the Series outstanding.
The value of the Series' portfolio securities will be the market value of such
securities as determined based on quotes provided by a pricing service (which
uses the methodology outlined in the "Net Asset Value" section of the
Statement of Additional Information) approved by the Board of Directors, or,
in the absence of market quotations, fair value as determined in good faith by
or under the direction and control of the Board of Directors. Short-term
investments which mature in less than 60 days are normally valued at amortized
cost. Assets initially expressed in foreign currencies will be converted into
U.S. dollars as of the exchange rates quoted by any major bank. If such
quotes are not available, the exchange rates will be determined in accordance
with policies established in good faith by the Board of Directors. See the
Statement of Additional Information for further information.
DIVIDENDS AND TAX STATUS
DIVIDENDS AND DISTRIBUTIONS
The Series expects to pay ordinary income dividends and capital gain
distributions, if any, annually. Dividends and distributions will be paid in
full and fractional shares of the Series, based on the net asset value per
share at the close of business on the record date, although a shareholder may,
prior to the record date, request, by writing or by telephone call to the
Fund, that payments of either ordinary income dividends or capital gain
distributions, or both, be made in cash. The Fund will notify each
non-corporate taxable shareholder after the close of its fiscal year both of
the dollar amount and the tax status of that year's distributions. Generally,
the Fund will be required to impose backup withholding at the rate of 31%
from ordinary income dividends, capital gain distributions, and redemption
payments made to non-corporate shareholders, if provisions of the law relating
to the furnishing of taxpayer identification numbers and reporting of
dividends are not complied with by such shareholders.
If a taxable shareholder invests shortly before the Series declares a
taxable dividend, a portion of the investment will be returned as a taxable
distribution (commonly referred to as "buying into a dividend"). This
distribution will be taxable regardless of whether you elected to reinvest
your distribution in additional shares or take the distribution in cash. If
you would like to avoid buying into a dividend, you may contact the Fund to
find out when the Series plans to declare a distribution and invest after that
date.
<PAGE> 14
TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a general summary of certain federal income tax
considerations affecting the Series and its shareholders. No attempt is made
to present a detailed explanation of the tax treatment of the Series or its
shareholders, and the discussion here is not intended as a substitute for
careful tax planning. This Series is not managed with respect to tax outcomes
for its shareholders.
Under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), the Series is treated as a separate entity for federal income tax
purposes. The Series intends to qualify each year as a regulated investment
company under Subchapter M of the Code. If the Series so qualifies, it will
not be subject to federal income taxes on its net investment income and
capital gains, if any, which the Series distributes to its shareholders,
provided that at least 90% of such Series' "investment company taxable income"
(generally, net investment income and the excess of net short-term capital
gain over net long-term capital loss) for the taxable year is distributed, and
provided that the Series meets certain other requirements imposed by the Code.
All dividends paid or distributed out of investment company taxable income
will be taxable as ordinary income to the shareholders. Any "net capital
gain" (the excess of net long-term capital gain over net short-term capital
loss) distributed to shareholders is taxable as long-term capital gain to the
shareholders, regardless of the length of time a shareholder has owned his
shares. Generally, such dividends and distributions are taxable in the year
in which received, but dividends and distributions declared in October,
November or December of any year to shareholders of record on a date in such
month are treated as paid on December 31 of such year if they are paid during
January of the following calendar year. Dividends and distributions are not
taxable to shareholders that are not otherwise subject to tax on their income,
such as qualified employee benefit plans. In view of the Series' investment
policy, ordinary income dividends, if any, are expected to be small.
A 4% non-deductible federal excise tax is imposed on a regulated
investment company that fails to distribute substantially all of its ordinary
income and capital gain net income for each calendar year. Currently, the
Series intends to make sufficient distributions of its ordinary income and
capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
Future legislative changes may materially affect the tax consequences of
investing in the Series. Shareholders are urged to consult their tax advisors
for the application of these rules (and other potentially relevant rules) to
their particular circumstances. Shareholders are also urged to consult their
tax advisors concerning the application of state and local income taxes and of
foreign taxes to investments in the Series, which may differ from the U.S.
federal income tax consequences described above.
ADDITIONAL DIVIDEND AND TAX INFORMATION
Income, such as dividends and interest, received by the Fund may give
rise to withholding taxes imposed by foreign countries, generally at rates
from 10% to 40%. Tax conventions and treaties between such countries and the
United States may reduce or eliminate such taxes.
If more than 50% of the value of the Fund's total assets at the close of
its fiscal year consists of stocks or securities of foreign corporations, the
Fund will be eligible to file elections with the Internal Revenue Service
pursuant to which shareholders of the Fund will be required to include in
gross income their respective pro rata portions of foreign taxes paid by the
Fund, and either deduct such respective pro rata portions in computing their
taxable incomes or, alternatively, use such pro rata portions as foreign tax
credits against their U.S. income taxes. Investors should note that Code
Section 904 imposes significant limitations on a taxpayer's ability to claim
the foreign tax credit.
<PAGE> 15
GENERAL INFORMATION
The Company was incorporated on July 26, 1984 as a Maryland corporation.
The Board of Directors may, at its own discretion, create additional series of
shares, each of which would have separate assets and liabilities.
The Company does not expect to hold annual meetings of shareholders but
special meetings of shareholders may be held under certain circumstances.
Shareholders of the Fund retain the right, under certain circumstances, to
request that a meeting of shareholders be held for the purpose of considering
the removal of a Director from office, and if such a request is made, the
Company will assist with shareholder communications in connection with the
meeting. The shares of the Company have equal rights with regard to voting,
redemption, dividends, distributions and liquidations. The Company's
shareholders will vote in the aggregate and not by Series except as otherwise
expressly required by law or when the Board of Directors determines that the
matter to be voted upon affects only the interests of the shareholders of a
Series. Income, direct liabilities and direct operating expenses of each
Series will be allocated directly to each Series, and general liabilities and
expenses of the Fund will be allocated among the Series in proportion to the
total net assets of each Series by the Board of Directors. The holders of
shares have no preemptive or conversion rights. Shares when issued are fully
paid and non-assessable and do not have cumulative voting rights.
All securities and cash are held by Boston Safe Deposit and Trust
Company. Coopers & Lybrand, L.L.P. serves as independent accountants for the
Series and will audit its financial statements annually.
Manning & Napier Advisors, Inc. serves as the Fund's Transfer and
Dividend Disbursing Agent. Shareholder inquiries should be directed to
Manning & Napier Fund, Inc., P.O. Box 41118, Rochester, New York 14604.
<PAGE> 16
APPENDIX
DESCRIPTION OF CORPORATE BOND RATINGS
Moody's Investors Services, Inc.'s corporate bond ratings:
Aaa - Bonds which are rated Aaa are judged to be of the best quality and
carry the smallest degree of investment risk. Interest payments are protected
by a large or by an exceptionally stable margin, and principal is secure.
While the various protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa - Bonds rated Caa represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Moody's applies numerical modifiers "1", "2" and "3" to both the Aaa and Aa
rating classifications. The modifier "1" indicates that the security ranks in
the higher end of its generic rating category; the modifier "2" indicates a
mid-range ranking; and the modifier "3" indicates that the issue ranks in the
lower end of its generic rating category.
Standard & Poor's Corporation's corporate bond ratings:
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only to a small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than in higher rated categories.
<PAGE> 17
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's Investor Services, Inc.'s commercial paper ratings:
P-1 - Commercial papers which are rated P-1 are judged to have a superior
ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics:
-Leading market positions in well-established industries.
-High rates of return on funds employed.
-Conservative capitalization structure with moderate reliance on debt and
ample asset protection.
-Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
-Well-established access to a range of financial markets and assured
sources of alternate liquidity.
P-2 - Commercial papers which are rated P-2 are judged to have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
P-3 - Commercial papers which are rated P-3 are judged to have an
acceptable ability for repayment of senior short-term obligations. The effect
of industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level
of debt protection measurements and may require relatively high financial
leverage. Adequate alternate liquidity is maintained.
Standard & Poor's Corporation's commercial paper ratings:
A-1 - This is the highest category and indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-3 - Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes
in circumstances than obligations carrying the higher designations.
B - Issues rated B are regarded as having only speculative capacity for
timely payment.
C - This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
D - Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due,
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period.
<PAGE> 18
MANNING & NAPIER FUND, INC.
P.O. Box 41118
Rochester, New York 14604
1-800-466-3863
NEW YORK TAX EXEMPT SERIES
Manning & Napier Fund, Inc. (the "Fund"), is an open-end management
investment company that offers separate series, each a separate investment
portfolio having its own investment objective and policies. This Prospectus
relates to the New York Tax Exempt Series of the Fund (the "Series"). The
Series' investment objective is to seek a high level of current income exempt
from federal income tax and New York personal income tax, consistent with
preservation of capital.
This Prospectus provides you with the basic information you should know
before investing in the Series. You should read it and keep it for future
reference. A Statement of Additional Information, dated April 14,
1997, containing additional information about the Fund has been filed
with the Securities and Exchange Commission and is incorporated by reference
in this Prospectus in its entirety. You may obtain a copy of the Statement of
Additional Information without charge by contacting the Fund at the address or
telephone number listed above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS APRIL 14, 1997.
<PAGE>
MANNING & NAPIER FUND, INC.
NEW YORK TAX EXEMPT SERIES
No person has been authorized to give any information or to make
representations not contained in this Prospectus in connection with any
offering made by this Prospectus and, if given or made, such information must
not be relied upon as having been authorized by the Fund. This Prospectus
does not constitute an offering by the Fund in any jurisdiction in which such
offering may not lawfully be made.
<TABLE>
<CAPTION>
PROSPECTUS
TABLE OF CONTENTS
<S> <C>
Annual Operating Expenses 2
Financial Highlights 3
The Fund 4
Risk and Investment Objectives and Policies 4
New York Tax Exempt Securities 5
Risk and Additional Information about Investment Policies 6
Management 10
Yield and Total Return 10
Purchases, Exchanges and Redemptions of Shares 11
Net Asset Value 13
Dividends and Tax Status 13
General Information 14
Appendix 16
</TABLE>
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
(as a percentage of offering price)
Maximum Sales Charge Imposed on Purchases None
Redemption Fees1 None
1 A wire charge, currently $15, will be deducted by the Transfer Agent from the
amount of a wire redemption payment made at the request of a shareholder.
Such amount is not included in the "Annual Operating Expenses of the Series."
ANNUAL OPERATING EXPENSES
The following information provides (I) a tabular summary of expenses relating
to the annual operating expenses of the Series and (ii) an example
illustrating the dollar cost of such expenses on a $1,000 investment.
Annual Operating Expenses of the Series (as a percentage of average
daily net assets):
Management Fees 2 0.50%
12b-1 Fees. None
Other Expenses 3 0.11%
Total Operating Expenses 3 0.61%
Example
You would pay the following expenses on a $1,000 investment, assuming a) 5.0%
annual return and b) redemptions at the end of each time period4:
1 year 3 years 5 years 10 years
New York Tax Exempt Series $6 $20 $34 $76
2 Clients who have entered into investment advisory agreements with Manning &
Napier Advisors, Inc. (the Fund's Advisor) will be separately rebated by
Manning & Napier an amount equal to the portion of their client advisory fee
attributable to the portion of their assets invested in the Fund. See
"Management."
3 New York Tax Exempt Series was engaged in active investment operations for
the year ended December 31, 1996; therefore, actual management fees and other
expenses are used above.
4 Should the total operating expenses for the Series exceed .85% of its average
net assets, the Advisor has voluntarily agreed to waive its fee and pay other
operating expenses in an amount that limits total operating expenses to .85%
of its average net assets. The fee waiver and the assumption of expenses by
the Advisor is voluntary and may be terminated at any time. However, the
Advisor has agreed to continue this assumption of expenses at least through
the Series' current fiscal year.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Series. For a
more complete description of the various costs and expenses illustrated above,
please refer to the Management section of this Prospectus.
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
<PAGE> 2
FINANCIAL HIGHLIGHTS
The following table provides selected per share data and ratios for the New
York Tax Exempt Series (for a share outstanding throughout the period for the
periods shown). The table is part of the Series' audited financial
statements, which are included in the Statement of Additional Information
incorporated by reference into this Prospectus.
<TABLE>
<CAPTION>
For the year For the year For the period
ended ended Jan. 17, 1994 to
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
---------------
<S> <C> <C> <C>
Net asset value - Beginning of period $ 10.07 $ 8.98 $ 10.003
Income from investment operations:
Net investment income 0.42 0.40 0.34
Net realized and unrealized gain/(loss)
on investments (0.10) 1.09 (1.02)
Total from investment operations 0.32 1.49 (0.68)
Less distributions declared to shareholders:
From net investment income (0.41) (0.40) (0.34)
Net asset value - End of period $ 9.98 $ 10.07 $ 8.98
Total return 1 3.32% 16.78% (6.82)%
Ratios (to average net assets)/Supplemental Data:
Expenses 0.61% 0.65% 0.79%2
Net investment income 4.41% 4.36% 3.82%2
Portfolio turnover 6% 0% 6%
Net assets - End of period (000's omitted) $ 37,325 $ 28,817 $ 17,301
</TABLE>
1 Represents aggregate total return for the period indicated.
2 Annualized.
3 Initial offering price upon commencement of operations on January 17, 1994.
<PAGE> 3
THE FUND
The Fund is an open-end management investment company incorporated under
the laws of the State of Maryland on July 26, 1984. The Fund offers separate
series of units of beneficial interest ("shares"). This Prospectus relates to
the New York Tax Exempt Series. Information regarding the Fund's other series
is contained in separate prospectuses that may be obtained from Manning &
Napier Fund, Inc., P.O. Box 41118, Rochester, New York 14604 or by calling
1-800-466-3863. The New York Tax Exempt Series is a diversified fund.
Shares of the Series are offered directly to investors and to employees
and clients of the Advisor or its affiliates that have authorized investment
in the Fund as part of the discretionary account management services of the
Advisor or its affiliates. There is no limitation on the investment in shares
of the Series on behalf of discretionary account clients unless otherwise
limited by a client agreement. There are no fees or expenses charged to any
investor in connection with acquisition of shares of the Series.
Since the Series may be used under varying conditions and market prices,
the result for a given investor might differ from the result that would have
been obtained had the Series been used only for clients with the same
investment objective. However, the Advisor seeks to manage cash flows into
and out of the Series in the interest of the Fund and its clients so as to
minimize the effect on performance.
RISK AND INVESTMENT OBJECTIVES AND POLICIES
The Series' objective is to seek as high a level of current income exempt
from federal income tax and New York State personal income tax as the Advisor
believes is consistent with preservation of capital. The Investment Advisor
will attempt to balance the Fund's goals of high income and capital
preservation by building a portfolio of securities that in the aggregate
afford the opportunity to earn current income, but also have quality and other
characteristics that attempt to avoid permanent capital losses. However, the
Fund's portfolio securities and, therefore, its shares will inevitably
fluctuate in value to a certain extent. Under current law, to the extent
distributions by the Series are derived from interest on New York Tax Exempt
Securities (which are described below) and are designated as such, they are
exempt from federal and New York personal income taxes. The Series is not
intended to be a complete investment program, and there is no assurance it
will achieve its objective.
The Series seeks to achieve its objective by following the fundamental
investment policy of investing at least 80% of its net assets in New York Tax
Exempt Securities, except when investing for defensive purposes during times
of adverse market conditions. The Series may also invest in taxable
obligations described below under "Risk and Additional Information about
Investment Policies" to the extent permitted by its investment policies, or
hold its assets in money market instruments or in cash. The Series'
investments in New York Tax Exempt Securities and taxable obligations will be
limited to securities rated in the four highest categories assigned by Moody's
Investors Service, Inc. (Aaa, Aa, A, Baa) or Standard & Poor's Corporation
(AAA, AA, A, BBB). For a description of the above ratings, see the Appendix.
Securities rated Baa by Moody's or BBB by Standard & Poors are considered
investment grade but may have speculative characteristics and changes in
economic conditions or circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with more
highly rated securities.
When the Series invests in New York Tax Exempt Securities in the lower
rating categories, the achievement of the Series' goals is more dependent on
the Advisor's ability than would be the case if the Series were investing in
New York Tax Exempt Securities in the higher rating categories. The amount of
information about the financial condition of an issuer of New York Tax Exempt
Securities may not be as extensive as information about corporations whose
securities are publicly traded. In addition, tax considerations may limit the
Series' ability to vary its portfolio securities in response to developments
in interest rates and economic conditions. The Advisor seeks to minimize the
risks of investing in lower-rated securities through investment analysis and
attention to current developments in interest rates and economic conditions.
<PAGE> 4
Interest income from certain types of New York Tax Exempt Securities may
be subject to federal alternative minimum tax. It is a fundamental policy of
the Series to exclude these securities from the term "New York Tax Exempt
Securities" for purposes of determining compliance with the 80% test described
above.
In pursuing its objective, the Series may to a limited extent buy and
sell futures contracts and options and may enter into repurchase agreements
and forward commitments. These incidental investment practices, which may
produce taxable capital gains and involve special risks, are described below.
The market value of the Series' investments will change in response to
changes in interest rates and other factors. During periods of falling
interest rates, the values of long-term, fixed-income securities generally
rise. Conversely, during periods of rising interest rates, the values of such
securities generally decline. Changes by recognized rating services in their
ratings of tax-exempt securities and in the ability of an issuer to make
payments of interest and principal will also affect the value of these
investments. Changes in the value of portfolio securities will not affect
interest income derived from those securities but will affect the Series' net
asset value.
During times when conditions in the markets for New York Tax Exempt
Securities suggest a temporary defensive position, the Advisor may temporarily
use alternative strategies, primarily designed to reduce fluctuations in the
value of the Series' assets. In implementing these "defensive" strategies,
the Series may invest in taxable obligations, including: obligations of the
U.S. Government, its agencies or instrumentalities; obligations issued by
governmental issuers in other states, the interest on which would be exempt
from federal income tax; other debt securities rated within the four highest
categories by either Moody's or Standard & Poor's; commercial paper rated in
the highest category by either rating service (Prime-1 or A-1+, respectively);
certificates of deposit and bankers' acceptances; repurchase agreements with
respect to any of the foregoing investments; or any other fixed-income
securities that the Advisor considers consistent with such strategy. It is
impossible to predict when, or for how long, the Series will use such
alternative strategies. The limitations described above on the ability of the
Series to vary its portfolio securities may limit the Series' use of these
alternative investment strategies.
A change in the securities held by the Series is known as "portfolio
turnover". Portfolio turnover generally involves some expense to the Series,
including brokerage commissions or dealer mark-ups and other transaction costs
on the sale of securities and reinvestment in other securities. Such
transactions may result in realization of taxable capital gains. The Series
expects that its annual portfolio turnover rate will be no more than 100%.
NEW YORK TAX EXEMPT SECURITIES
New York Tax Exempt Securities are debt obligations issued by the State
of New York and its political subdivisions, agencies and instrumentalities,
the interest from which is, in the opinion of bond counsel, exempt from
federal income tax and New York personal income tax. These securities are
issued to obtain funds for various public purposes, such as the construction
of public facilities, the payment of general operating expenses or the
refunding of outstanding debts. They may also be issued to finance various
private activities, including the lending of funds to public or private
institutions for the construction of housing, educational or medical
facilities, and may also include certain types of private activity and
industrial development bonds or notes issued by public authorities to finance
privately owned or operated facilities or to fund short-term cash
requirements. Short-term New York Tax Exempt Securities are generally issued
as interim financing in anticipation of tax collections, revenue receipts or
bond sales to finance various public purposes. New York Tax Exempt Securities
also include debt obligations issued by other governmental entities (for
example, U.S. territories) if such debt obligations generate interest income
which is exempt from federal income tax and New York personal income tax.
<PAGE> 5
The two principal classifications of New York Tax Exempt Securities are
general obligation and limited obligation (or revenue) securities. General
obligation securities involve the credit of an issuer possessing taxing power
and are payable from the issuer's general unrestricted revenues. Their
payment may depend on an appropriation by the issuer's legislative body. The
characteristics and methods of enforcement of general obligation securities
vary according to the law applicable to the particular issuer. Limited
obligation (or revenue) securities are payable only from the revenues derived
from a particular facility or class of facilities, or a specific revenue
source, and generally are not payable from the unrestricted revenues of the
issuer. So-called "private activity bonds" and "industrial development bonds"
are in most cases limited obligation securities, the credit quality of which
is directly related to the corporate user of the facilities.
The Series may also invest in securities representing interests in New
York Tax Exempt Securities, known as "inverse floating obligations" or
"residual interest bonds", paying interest rates that vary inversely to
changes in the interest rates of specified short-term tax exempt securities or
an index of short-term tax exempt securities. The interest rates on inverse
floating obligations or residual interest bonds will typically decline as
short-term market interest rates increase and increase as short-term market
rates decline. Such securities have the effect of providing a degree of
investment leverage, since they will generally increase or decrease in value
in response to changes in market interest rates at a rate which is a multiple
(typically two) of the rate at which fixed-rate long-term tax exempt
securities
increase or decrease in response to such changes. As a result, the market
values of inverse floating obligations and residual interest bonds will
generally be more volatile than the market values of fixed-rate tax exempt
securities. To seek to limit the interest rate risk of these securities, the
Series may purchase inverse floating obligations with shorter-term maturities
or which contain limitations on the extent to which the interest rate may
vary. There is no limit on the percentage of assets that may be invested in
inverse floating obligations or residual interest bonds.
Certain risks are inherent in the Series' investments in New York Tax
Exempt Securities. These risks result from amendments to the New York
Constitution and other statutes that limit the taxing and spending authority
of the State of New York, and a variety of New York laws and regulations that
may affect, directly or indirectly, New York Tax Exempt Securities. The
ability of issuers of municipal securities to pay interest on, or repay
principal of, municipal securities may be impaired as a result.
The Series' concentration in investments in New York Tax Exempt
Securities involves greater risks than if its investments were more
diversified. Because the Series invests primarily in New York Tax Exempt
Securities, investors should consider that the Series' yield and share price
are sensitive to political and economic developments within the State of New
York, and to the financial condition of the State, its public authorities, and
political subdivisions, particularly the City of New York.
RISK AND ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
Set forth below is further information about certain types of securities
in which the Series may invest as well as information about additional types
of investments and certain strategies the Series may pursue. These policies
have been voluntarily adopted by the Board of Directors based upon current
circumstances and may be changed or amended by action of the Board of
Directors without prior approval of the Series' shareholders. Additional
information concerning these strategies and their related risks is contained
in the Statement of Additional Information.
<PAGE> 6
INVESTMENTS IN PREMIUM SECURITIES
During a period of declining interest rates, many of the Series'
portfolio investments will likely bear coupon rates which are higher than
current market rates, regardless of whether such securities were originally
purchased at a premium. Such securities would generally carry market values
greater than the principal amounts payable on maturity, which would be
reflected in the net asset value of the Series' shares. The value of such
"premium" securities tends to approach the principal amount as they approach
maturity (or call price in the case of securities approaching their call). As
a result, an investor who purchases shares of the Series during such periods
would initially receive higher distributions (derived from the higher coupon
rates payable on the Series' investments) than might be available from
alternative investments bearing current market interest rates, but may face an
increased risk of capital loss as these higher coupon securities approach
maturity (or call date). In evaluating the potential performance of an
investment in the Series, investors may find it useful to compare the Series'
current dividend rate with the Series' "yield", which is computed on a
yield-to-maturity basis in accordance with Securities and Exchange Commission
regulations and which reflects amortization of market premiums.
ZERO-COUPON BONDS
Some of the securities in which the Series invests may include so-called
"zero-coupon" bonds. Zero-coupon bonds are issued at a significant discount
from face value and pay interest only at maturity rather than at intervals
during the life of the security. The Series is required to accrue and
distribute income from zero-coupon bonds on a current basis, even though it
does not receive that income currently in cash. Thus, the Series may have to
sell investments to obtain cash needed to make income distributions. The
discount in the absence of financial difficulties of the issuer decreases as
the final maturity of the security approaches. Zero-coupon bonds can be sold
prior to their maturity date in the secondary market at the then prevailing
market value, which depends primarily on the time remaining to maturity,
prevailing level of interest rates and the perceived credit quality of the
issues. The market prices of zero-coupon securities are subject to greater
fluctuations in response to changes in market interest rates than bonds which
pay interest currently.
RISKS ASSOCIATED WITH THE SERIES' INVESTMENT PROGRAM
At times, a portion of the Series' assets may be invested in New York Tax
Exempt Securities as to which the Series, by itself or together with other
funds and accounts managed by the Advisor, holds a major portion or all of an
issue of such securities. Under adverse market or economic conditions or in
the event of adverse changes in the financial condition of the issuer, the
Series could find it more difficult to sell such securities when the Advisor
believes it advisable to do so or may be able to sell such securities only at
prices lower than if such securities were more widely held. Under such
circumstances, it may also be more difficult to determine the fair value of
such securities for purposes of computing the Series' net asset value. In
order to enforce its rights in the event of a default under such securities,
the Series may be required to take possession of and manage assets securing
the issuer's obligations on such securities, which may increase the Series'
operating expenses and adversely affect the Series' net asset value. Any
income derived from the Series' ownership or operation of such assets would
not be tax-exempt.
Certain securities held by the Series may permit the issuer at its option
to "call", or redeem, its securities. If an issuer were to redeem securities
held by the Series during a time of declining interest rates, the Series may
not be able to reinvest the proceeds in securities providing the same
investment return as the securities redeemed.
<PAGE> 7
Since the Series invests primarily in New York Tax Exempt Securities, the
value of its shares may be especially affected by factors pertaining to the
New York economy and other factors specifically affecting the ability of
issuers of New York Tax Exempt Securities to meet their obligations. As a
result, the value of the Series' shares may fluctuate more widely than the
value of shares of a portfolio investing in securities relating to a number of
different states. The ability of state, county, or local governments to meet
their obligations will depend primarily on the availability of tax and other
revenues to those governments and on their fiscal conditions generally. The
amounts of tax and other revenues available to governmental issuers of New
York Tax Exempt Securities may be affected from time to time by economic,
political, and demographic conditions within the particular state. In
addition, constitutional or statutory restrictions may limit a government's
power to raise revenues or increase taxes. The availability of federal,
state, and local aid to issuers of New York Tax Exempt Securities may also
affect their ability to meet their obligations. Payments of principal and
interest on limited obligation securities will depend on the economic
conditions of the facility or specific revenue source from whose revenues the
payments will be made, which in turn could be affected by economic, political,
and demographic conditions in the state. Any reduction in the actual or
perceived ability of an issuer of New York Tax Exempt Securities to meet its
obligations (including a reduction in the rating of its outstanding
securities) would likely affect adversely the market value and marketability
of its obligations and could affect adversely the values of other New York Tax
Exempt Securities as well.
Because of the relatively small number of issuers of New York Tax Exempt
Securities, the Series is more likely to invest a higher percentage of its
assets in the securities of a single issuer than an investment company which
invests in a broad range of tax-exempt securities. This practice involves an
increased risk of loss to the Series if the issuer is unable to make interest
or principal payments or if the market value of such securities declines.
FINANCIAL FUTURES AND OPTIONS
The Series may purchase and sell financial futures contracts for hedging
purposes. Futures contracts on a Municipal Bond Index are traded on the
Chicago Board of Trade. This Index is intended to represent a numerical
measure of market performance for long-term tax-exempt bonds. An "index
future" is a contract to buy or sell units of a particular securities index at
an agreed price on a specified future date. Depending on the change in value
of the index between the time when the Series enters into and closes its
futures position, the Series may realize a gain or loss. The Series may
purchase and sell futures contracts on the Index (or any other tax-exempt bond
index approved for trading by the Commodity Futures Trading Commission) to
hedge against general changes in market values of New York Tax Exempt
Securities which the Fund owns or expects to purchase. The Series may also
purchase and sell put and call options on index futures, and on the indices
directly, in addition or as an alternative to purchasing and selling financial
futures contracts.
The Series may also, for hedging purposes, purchase and sell futures
contracts and related options with respect to U.S. Government Securities,
including U.S. Treasury bills, notes and bonds ("U.S. Government Securities")
and options directly on U.S. Government Securities. The Advisor believes
that, under certain market conditions, price movements in U.S. Government
Securities futures and related options may correlate closely with price
movements in New York Tax Exempt Securities and may as a result provide
hedging opportunities for the Series. U.S. Government Securities futures and
related options would be used in a way similar to the Series' use of index
futures and related options. The Series will only purchase or sell U.S.
Government Securities futures or related options when, in the opinion of the
Advisor, price movements in such futures and options will correlate closely
with price movements in the New York Tax Exempt Securities which are the
subject of the hedge.
The Series may purchase or sell future contracts if immediately
thereafter the sum of the amount of initial margin deposits on any such
futures (plus deposits on any other futures contracts and premiums paid in
connection with any options or futures contracts) that do not constitute "bona
fide hedging" under Commodity Futures Trading Commission ("CFTC") rules would
exceed 5% of the liquidation value of the Series' total assets after taking
into account unrealized profits and losses on such contracts. In addition,
the value of all futures contracts sold will not exceed the total market value
of the Series' portfolio. The Series will comply with guidelines established
by the Securities and Exchange Commission with respect to covering of
obligations under futures contracts and will set aside liquid assets
in a segregated account with its Custodian in the amount prescribed.
<PAGE> 8
The use of futures and options involves certain special risks and may
result in realization of taxable capital gains. Futures and options
transactions involve costs and may result in losses. Certain risks arise
because of the possibility of imperfect correlations between movements in the
prices of financial futures and options and movements in the prices of the
underlying bond index or U.S. Government Securities or the New York Tax Exempt
Securities which are the subject of the hedge. The successful use of futures
and options further depends on the Advisor's ability to forecast interest rate
movements correctly. Other risks arise from the Series' potential inability
to close out its futures or related options positions, and there can be no
assurance that a liquid secondary market will exist at a particular time.
Certain provisions of the Internal Revenue Code and other regulatory
requirements may limit the Series' ability to engage in futures and options
transactions.
A more detailed explanation of futures and options transactions,
including the risks associated with them, is included in the Statement of
Additional Information.
REPURCHASE AGREEMENTS AND FORWARD COMMITMENTS
The Series may enter into repurchase agreements on up to 25% of its
assets. These transactions must be fully collateralized at all times, but
involve some risk to the Series if the other party should default on its
obligation and the Series is delayed or prevented from recovering the
collateral. The Series may also purchase securities for future delivery,
which may increase its overall investment exposure and involves a risk of loss
if the value of the securities declines prior to the settlement date.
LIMITING INVESTMENT RISK
Specific investment restrictions help the Series limit investment risks
for its shareholders. These restrictions prohibit the Series from investing
more than: (a) (with respect to 75% of its total assets) 5% of its total
assets in the securities of any one issuer, other than U.S. Government
Securities;* (b) 5% of its net assets in securities of any issuer if the party
responsible for payment, together with any predecessor, has been in operation
for less than three years (except obligations of the U.S. Government or
agencies or instrumentalities and obligations backed by the faith, credit and
taxing power of any person authorized to issue New York Tax Exempt
Securities); (c) 10% of its net assets in securities restricted as to resale;
and (d) 10% of its net assets in any combination of securities that are not
readily marketable, in securities restricted as to resale (excluding Rule 144A
securities determined by the Series' Board of Directors [or the person
supervised by the Series' Board of Directors to make such determinations] to
be readily marketable), and repurchase agreements maturing in more than seven
days; (e) 25% or more of the value of its total assets in securities of
issuers in any one industry (other than U.S. Government Securities). In
addition, the Series may borrow money, but only from a bank for temporary or
emergency purposes in amounts not exceeding 10% of the Series' total assets.
Restrictions marked with an asterisk (*) above are summaries of
fundamental policies. See the Statement of Additional Information for the full
text of these policies and the Series' other fundamental policies.
Except for investment policies designated as fundamental in this
Prospectus or the Statement of Additional Information, the investment policies
described in this Prospectus and in the Statement of Additional Information
are not fundamental policies. The Board of Directors may change any
non-fundamental investment policies without shareholder approval. As a
matter of policy, the Board of Directors would not materially change the
Series' investment objective without shareholder approval.
<PAGE> 9
MANAGEMENT
The overall business and affairs of the Series are managed by its Board
of Directors. The Board approves all significant agreements between the
Series and persons or companies furnishing services to the Series, including
the Series' agreements with its Investment Advisor and Custodian. The
day-to-day operations of the Fund are delegated to the Fund's officers and to
Manning & Napier Advisors, Inc. (the "Advisor"), 1100 Chase Square, Rochester,
New York 14604. A committee made up of investment professionals and analysts
make all the investment decisions for the Fund.
The Advisor acts as investment advisor to the Fund. Mr. William Manning
controls the Advisor by virtue of his ownership of the securities of the
Advisor. The Advisor also is generally responsible for supervision of the
overall business affairs of the Series including supervision of service
providers to the Series and direction of the Advisor's directors, officers or
employees who may be elected as officers of the Fund to serve as such.
As of the date of this Prospectus, the Advisor supervised over
$6.5 billion in assets of clients, including both individuals and
institutions. For its services to the Fund under the Investment Advisory
Agreement, the Fund pays the Advisor a fee, computed daily and payable
monthly, at an annual rate of .50% of the Fund's average daily net assets.
Clients for whom the Advisor provides advisory services pursuant to separate
investment advisory contracts will be separately rebated by the Advisor an
amount equal to the portion of their client advisory fee attributable to the
portion of their assets invested in the Fund. The Advisor has also
voluntarily agreed to assume or pay expenses of the Series, if necessary, so
that the total annual operating expenses of the Series do not exceed .85% of
the Series' average daily net assets. This assumption is voluntary and maybe
terminated at anytime. In addition, the Advisor is separately compensated for
acting as Transfer Agent for the Series. The Fund is responsible for its
operating expenses, including: (i) interest and taxes; (ii) brokerage
commissions; (iii) insurance premiums; (iv) compensation and expenses of its
Directors other than those affiliated with the Advisor; (v) legal and audit
expenses; (vi) fees and expenses of the Fund's Custodian, and Accounting
Services Agent, if obtained for the Fund from an entity other than the
Advisor; (vii) expenses incidental to the issuance of its shares, including
issuance on the payment of, or reinvestment of, dividends and capital gain
distributions; (viii) fees and expenses incidental to the registration under
federal or state securities laws of the Fund or its shares; (ix) expenses of
preparing, printing and mailing reports and notices and proxy material to
shareholders of the Fund; (x) all other expenses incidental to holding
meetings of the Fund's shareholders; (xi) dues or assessments of or
contributions to the Investment Company Institute or any successor; and, (xii)
such non-recurring expenses as may arise, including litigation affecting the
Fund and the legal obligations with respect to which the Fund may have to
indemnify its officers and Directors.
The Advisor may use its own resources to engage in activities that may
promote the sale of the Fund, including payments to third parties who provide
shareholder support servicing and distribution assistance. Investors may be
charged a fee if they effect transactions through a broker or agent.
YIELD AND TOTAL RETURN
From time-to-time the Series may advertise its total return and yield.
Both total return and yield figures are based on historical earnings and are
not intended to indicate future performance. The "total return" of a Series
refers to the average annual compounded rates of return over one-, five-, and
ten-year periods or for the life of the Series (as stated in the
advertisement) that would equate an initial amount invested at the beginning
of a stated period to the ending redeemable value of the investment, assuming
the reinvestment of all dividend and capital gains distributions.
<PAGE> 10
The "30-day yield" of a series is calculated by dividing the net
investment income per share earned during a 30-day period by the maximum
offering price per share on the last day of the period. Net investment
income includes interest and dividend income earned on a Series' securities;
it is net of all expenses and all recurring and nonrecurring charges that have
been applied to all shareholder accounts. The yield calculation assumes that
net investment income earned over 30 days is compounded monthly for six months
and then annualized. Methods used to calculate advertised yields are
standardized for all stock and bond mutual funds. However, these methods
differ from the accounting methods used by a Series to maintain its books and
records, and so the advertised 30-day yield may not fully reflect the income
paid to your own account or the yield reported in the Series' reports to
shareholders.
PURCHASES, EXCHANGES AND REDEMPTIONS OF SHARES
The minimum initial investment in the Series is $2,000 and subsequent
purchases must be at least $100. These minimums may be waived at the
Distributor's discretion. The Distributor has the right to refuse any order.
Purchases and redemptions of shares of the Series may be made on any day
the New York Stock Exchange is open for trading.
A purchase order will be effective as of the day received by the
Distributor, Transfer Agent, or its agents, if the order is received before
4:00 p.m., Eastern time by the Distributor, Transfer Agent or its agents.
Payment may be made by check or readily available funds. The purchase price
of shares of the Series is the net asset value next determined after a
purchase order is effective.
The shares of the Series may be purchased in exchange for securities to
be included in the Series, subject to the Advisor's determination that these
securities are acceptable. Securities accepted in an exchange will be valued
at market value. All accrued interest and purchase or other rights which are
reflected in the market price of accepted securities at the time of valuation
become the property of the Series and must be delivered by the shareholder to
the Series upon receipt from the issuer.
The Advisor will not accept securities for the Series unless: (1) such
securities are appropriate in the Series at the time of the exchange; (2) the
shareholder represents and agrees that all securities offered to the Series
are not subject to any restrictions upon their sale by the Series under the
Securities Act of 1933, or otherwise; and, (3) prices are available from an
independent pricing service approved by the Series' Board of Directors.
Shareholders may purchase shares regularly through the Automatic
Investment Plan with a pre-authorized draft drawn on their checking account.
Under this plan, the shareholder may elect to have a specified amount invested
on a regular schedule. The amount specified by the shareholder will be
withdrawn from the shareholder's bank account using the pre-authorized draft.
This amount will be invested at the applicable share price determined on the
date the amount is available for investment. Participation in the Automatic
Investment Plan may be discontinued either by the Fund or the Shareholder upon
30 days' prior written notice to the other party. A shareholder who wishes to
enroll in the Automatic Investment Plan may do so by completing the applicable
section of the Account Application Form or contacting the Fund for an
Automatic Investment Plan Form.
<PAGE> 11
As permitted pursuant to any rule, regulation or order promulgated by the
Securities and Exchange Commission, some or all of the shares in a direct
investment account with the Fund for which payment has been received by the
Fund may be exchanged for shares of any of the other Manning & Napier Fund,
Inc. Series at the net asset value next determined after an exchange order is
effective. Shareholders may effect up to 4 exchanges in a 12-month period
without charge. Subsequent exchanges are subject to a fee of $15. Exchanges
will be made after instructions in writing or by telephone are received by the
Transfer Agent in proper form (i.e., if in writing - signed by the record
owner(s) exactly as the shares are registered; if by telephone - proper
account identification is given by the shareholder) and each exchange must
involve either shares having an aggregate value of at least $1,000 or all the
shares in the account. A shareholder should read the prospectus of the other
Series and consider the differences in objectives and policies before making
any exchange. The exchange privilege may not be available in all states. For
federal and state income tax purposes, an exchange is treated as a sale of the
shares exchanged and therefore, an exchange could result in a gain or loss to
the shareholder making the exchange. The Series may modify or terminate this
exchange offer upon 60 days' notice to shareholders subject to applicable law.
If shareholder desires to redeem his shares at their net asset value, the
shareholder must send a written request for redemption in "Good Order" to the
Transfer Agent. "Good Order" generally means that the written request for
redemption must be endorsed by the record owner(s) exactly as the shares are
registered and the signature(s) must be guaranteed by an "eligible guarantor
institution" as that term is defined under Rule 17Ad-15(a)(2) under the
Securities Exchange Act of 1934. Currently, such procedures generally permit
guarantees by a commercial bank or trust company, a member bank of the Federal
Reserve System, or a member firm of a national securities exchange.
Redemption requirements for corporations, other organizations, trusts,
fiduciaries, and retirement plans may require additional documentation.
Please contact the Advisor at 1-800-466-3863 for more information. The
Transfer Agent may make certain de minimis exceptions to the above
requirements for redemption. Within three days after receipt of a redemption
request by the Transfer Agent in "Good Order", the Series will make payment in
cash, except as described below, of the net asset value of the shares next
determined after such redemption request was received, except during any
period in which the right of redemption is suspended or date of payment is
postponed because the New York Stock Exchange is closed or trading on such
Exchange is restricted or to the extent otherwise permitted by the Investment
Company Act of 1940 ("1940 Act") if an emergency exists. For shares
purchased, or received in exchange for shares purchased, by check (including
certified checks or cashier's checks) payment of redemption proceeds may be
delayed up to 15 days from the purchase date in an effort to assure that such
check has cleared.
Subject to the Series' compliance with applicable regulations, the Series
has reserved the right to pay the redemption price, either totally or
partially, by a distribution in-kind of securities (instead of cash) from the
Series' portfolio. The securities distributed in such a distribution would be
valued at the same amount as that assigned to them in calculating the net
asset value for the shares being sold. If a shareholder received a
distribution in-kind, he could incur brokerage or transaction charges when
converting the securities to cash. The Fund has elected, however, to be
governed by Rule 18f-1 under the 1940 Act as a result of which the Fund is
obligated to redeem shares, with respect to any one shareholder during any
90-day period, solely in cash up to the lesser of $250,000 or 1% of the net
asset value of the Fund at the beginning of the period.
Due to the relatively high cost of maintaining small accounts, the Series
reserves the right to redeem shares in any account for their then-current
value (which will be promptly paid to the shareholder) if at any time the
total investment in such account drops below $1,000 because of redemptions
(but not due to changes in net asset value). Shareholders will be notified
that the value of their account is less than the minimum investment
requirement and allowed 60 days to make an additional investment before the
redemption is processed.
<PAGE> 12
Manning & Napier Investor Services, Inc. acts as Distributor of the Fund
shares and is located at the same address as the Advisor and the Fund. The
Distributor receives no fee from the Fund and there are no additional costs to
shareholders for this service. The Advisor may, from its own resources,
defray or absorb costs related to distribution, including compensation of
employees who are involved in distribution.
NET ASSET VALUE
The Series' net asset value per share is determined as of the closing
time of the New York Stock Exchange or, in the absence of a closing time, 4:00
p.m. Eastern time on each day that the New York Stock Exchange is open for
trading. The exchange annually announces the days on which it will not be
open for trading; the most recent announcement indicates that it will not be
open on: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value per share is the value of the Series' assets, less
its liabilities, divided by the number of shares of the Series outstanding.
The value of the Series' portfolio securities will be the market value of such
securities as determined based on quotes provided by a pricing service, (which
uses the methodology outlined in the "Net Asset Value" section of the
Statement of Additional Information) approved by the Board of Directors, or,
in the absence of market quotations, fair value as determined in good faith by
or under the direction and control of the Board of Directors. Short-term
investments which mature in less than 60 days are normally valued at amortized
cost. See the Statement of Additional Information for further information.
DIVIDENDS AND TAX STATUS
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
The Series intends to distribute to its shareholders on a quarterly basis
dividends substantially equal to all of its net investment income. The Series
also intends to distribute net realized short and long-term capital gains, if
any, taking into account any available capital loss carryforwards from prior
years at least annually. Dividends and distributions will be paid in full and
fractional shares of the Series, based on the net asset value per share at the
close of business on the record date, although a shareholder may, prior to the
record date, request, by writing or by telephone call to the Fund, that
payments of either ordinary income dividends or capital gain distributions, or
both, be made in cash. The Fund will notify each non-corporate taxable
shareholder after the close of its fiscal year both of the dollar amount and
the tax status of that year's distributions. Generally, the Fund will be
required to impose backup withholding at the rate of 31% from ordinary income
dividends, capital gain distributions and redemption payments made to
non-corporate shareholders, if provisions of the law relating to the
furnishing of taxpayer identification numbers and reporting of dividends are
not complied with by such shareholders.
If a taxable shareholder invests shortly before the Series declares a
taxable dividend, a portion of the investment will be returned as a taxable
distribution (commonly referred to as "buying into a dividend"). This
distribution will be taxable regardless of whether you elected to reinvest
your distribution in additional shares or take the distribution in cash. If
you would like to avoid buying into a dividend, you may contact the Fund to
find out when the Series plans to declare a distribution and invest after that
date.
TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a general summary of certain federal income tax
considerations affecting the Series and its shareholders. No attempt is made
to present a detailed explanation of the tax treatment of the Series or its
shareholders, and the discussion here is not intended as a substitute for
careful tax planning.
<PAGE> 13
Under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), the Series is treated as a separate entity for federal income tax
purposes. The Series intends to qualify each year as a regulated investment
company under Subchapter M of the Code. If the Series so qualifies, it will
not be subject to federal income taxes on its net investment income and
capital gains, if any, which the Series distributes to its shareholders,
provided that at least 90% of such Series' exempt income and 90% of such
Series' "investment company taxable income" (generally, net investment income
and the excess of net short-term capital gain over net long-term capital loss)
for the taxable year is distributed, and provided that the Series meets
certain other requirements imposed by the Code. All dividends paid or
distributed out of investment company taxable income will be taxable as
ordinary income to the shareholders. Any "net capital gain" (the excess of
net long-term capital gain over net short-term capital loss) distributed to
shareholders is taxable as long-term capital gain to the shareholders,
regardless of the length of time a shareholder has owned his shares.
Generally, such dividends and distributions are taxable in the year in which
received, but dividends and distributions declared in October, November or
December of any year to shareholders of record on a date in such month are
treated as paid on December 31 of such year if they are paid during January of
the following calendar year. Dividends and distributions are not taxable to
shareholders that are not otherwise subject to tax on their income, such as
qualified employee benefit plans.
A 4% non-deductible federal excise tax is imposed on a regulated
investment company that fails to distribute substantially all of its ordinary
income and capital gain net income for each calendar year. Currently the
Series intends to make sufficient distributions of its ordinary income and
capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
Future legislative changes may materially affect the tax consequences of
investing in the Series. Shareholders are urged to consult their tax advisors
for the application of these rules (and other potentially relevant rules) to
their particular circumstances. Shareholders are also urged to consult their
tax advisors concerning the application of state and local income taxes and of
foreign taxes to investments in the Series, which may differ from the U.S.
federal income tax consequences described above.
NEW YORK STATE AND LOCAL TAX
Under New York law, dividends paid by the Series are exempt from New York
State and New York City income tax for individuals who reside in New York to
the extent such dividends are excluded from gross income for federal income
tax purposes and are derived from interest payments on New York obligations.
Other distributions from the Series, including distributions derived from net
short-term and long-term capital gains, are generally not exempt from New York
State and City personal income tax.
GENERAL INFORMATION
The Fund was incorporated on July 26, 1984 as a Maryland corporation.
The Board of Directors may, at its own discretion, create additional series of
shares, each of which would have separate assets and liabilities. The Fund
does not expect to hold annual meetings of shareholders but special meetings
of shareholders may be held under certain circumstances. Shareholders of the
Fund retain the right, under certain circumstances, to request that a meeting
of shareholders be held for the purpose of considering the removal of a
Director from office, and if such a request is made, the Fund will assist with
shareholder communications in connection with the meeting. The shares of the
Fund have equal rights with regard to voting, redemption, dividends,
distributions and liquidations. The Fund's shareholders will vote in the
aggregate and not by Series except as otherwise expressly required by law or
when the Board of Directors determines that the matter to be voted upon
affects only the interests of the shareholders of a Series. Income, direct
liabilities and direct operating expenses of the Series will be allocated
directly to the Series, while general liabilities and expenses of the Fund
will be allocated among each Series. The holders of shares have no preemptive
or conversion rights. Shares when issued are fully paid and
non-assessable and do not have cumulative voting rights.
<PAGE> 14
All securities and cash are held by Boston Safe Deposit and Trust
Company. Coopers & Lybrand, L.L.P. serves as independent accountants for the
Series and will audit its financial statements annually.
Manning & Napier Advisors, Inc. serves as the Fund's Transfer and
Dividend Disbursing Agent. Shareholder inquiries should be directed to
Manning & Napier Fund, Inc., P.O. Box 41118, Rochester, New York 14604.
<PAGE> 15
APPENDIX
DESCRIPTION OF MUNICIPAL AND CORPORATE BOND RATINGS
Moody's Investors Services, Inc.'s municipal and corporate bond ratings:
Aaa - Bonds which are rated Aaa are judged to be of the best quality and
carry the smallest degree of investment risk. Interest payments are protected
by a large or by an exceptionally stable margin, and principal is secure.
While the various protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Moody's applies numerical modifiers "1", "2" and "3" to both the Aaa and
Aa rating classifications. The modifier "1" indicates that the security ranks
in the higher end of its generic rating category; the modifier "2" indicates a
mid-range ranking; and the modifier "3" indicates that the issue ranks in the
lower end of its generic rating category.
Moody's may also assign conditional ratings to municipal bonds. Bonds
for which the security depends upon the completion of some act or the
fulfillment of some condition are rated conditionally. These are bonds
secured by (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals which begin when
facilities are completed, or (d) payments to which some other limiting
condition attaches. Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.
Standard & Poor's Corporation's municipal and corporate bond ratings:
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only to a small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than bonds in higher rated
categories.
<PAGE> 16
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than in higher rated categories.
Standard & Poor's may modify the rating from "AA" to "B" by the addition of a
plus or minus sign to show relative standing within the major rating
categories. Standard & Poor's ratings may also be indicated by "NR". This
designation indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.
Standard & Poor's may also assign conditional ratings to municipal bonds. The
letter "p" indicates that the rating is provisional. A provisional rating
assumes the successful completion of the project being financed by the debt
being rated and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful timely completion of the project.
This rating, however, while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood of, or the risk of default
upon failure of, such completion. The investor should exercise his own
judgment with respect to such likelihood and risk.
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's Investor Services, Inc.'s commercial paper ratings:
P-1 - Commercial papers which are rated P-1 are judged to have a superior
ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics:
-Leading market positions in well-established industries.
-High rates of return on funds employed.
-Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
-Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
-Well-established access to a range of financial markets and assured
sources of alternate liquidity.
P-2 - Commercial papers which are rated P-2 are judged to have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
P-3 - Commercial papers which are rated P-3 are judged to have an
acceptable ability for repayment of senior short-term obligations. The effect
of industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level
of debt protection measurements and may require relatively high financial
leverage. Adequate alternate liquidity is maintained.
Standard & Poor's Corporation's commercial paper ratings:
A-1 - This is the highest category and indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issuers designated A-1.
A-3 - Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes
in circumstances than obligations carrying the higher designations.
B - Issues rated B are regarded as having only speculative capacity for
timely payment.
C - This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
D - Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due,
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period.
<PAGE> 17
MANNING & NAPIER FUND, INC.
P.O. Box 41118
Rochester, New York 14604
1-800-466-3863
OHIO TAX EXEMPT SERIES
Manning & Napier Fund, Inc. (the "Fund"), is an open-end management
investment company that offers separate series, each a separate investment
portfolio having its own investment objective and policies. This Prospectus
relates to the Ohio Tax Exempt Series of the Fund (the "Series"). The Series'
investment objective is to seek a high level of current income exempt from
federal income tax and Ohio personal income tax, consistent with preservation
of capital.
This Prospectus provides you with the basic information you should know
before investing in the Series. You should read it and keep it for future
reference. A Statement of Additional Information, dated April 14,
1997, containing additional information about the Fund has been filed
with the Securities and Exchange Commission and is incorporated by reference
in this Prospectus in its entirety. You may obtain a copy of the Statement of
Additional Information without charge by contacting the Fund at the address or
telephone number listed above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS APRIL 14, 1997.
<PAGE>
MANNING & NAPIER FUND, INC.
OHIO TAX EXEMPT SERIES
No person has been authorized to give any information or to make
representations not contained in this Prospectus in connection with any
offering made by this Prospectus and, if given or made, such information must
not be relied upon as having been authorized by the Fund. This Prospectus
does not constitute an offering by the Fund in any jurisdiction in which such
offering may not lawfully be made.
<TABLE>
<CAPTION>
PROSPECTUS
TABLE OF CONTENTS
<S> <C>
Annual Operating Expenses 2
Financial Highlights 3
The Fund 4
Risk and Investment Objectives and Policies 4
Ohio Tax Exempt Securities 5
Risk and Additional Information about Investment Policies 6
Management 10
Yield and Total Return 10
Purchases, Exchanges and Redemptions of Shares 11
Net Asset Value 12
Dividends and Tax Status 13
General Information 15
Appendix 16
</TABLE>
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
(as a percentage of offering price)
Maximum Sales Charge Imposed on Purchases None
Redemption Fees1 None
1 A wire charge, currently $15, will be deducted by the Transfer Agent from
the amount of a wire redemption payment made at the request of a shareholder.
Such amount is not included in the "Annual Operating Expenses of the Series."
ANNUAL OPERATING EXPENSES
The following information provides (I) a tabular summary of expenses relating
to the annual operating expenses of the Series and (ii) an example
illustrating the dollar cost of such expenses on a $1,000 investment.
Annual Operating Expenses of the Series (as a percentage of average
daily net assets):
Management Fees After Reduction of Fees 2, 4 0.48%
12b-1 Fees None
Other Expenses 3 0.37%
Total Operating Expenses 3 0.85%
Example
You would pay the following expenses on a $1,000 investment, assuming b) 5.0%
annual return and b) redemptions at the end of each time period4:
1 year 3 years 5 years 10 years
Ohio Tax Exempt Series $9 $27 $47 $105
2 Clients who have entered into investment advisory agreements with Manning &
Napier Advisors, Inc. (the Fund's Advisor) will be separately rebated by
Manning & Napier an amount equal to the portion of their client advisory fee
attributable to the portion of their assets invested in the Fund. See
"Management."
3 Ohio Tax Exempt Series was engaged in active investment operations for the
year ended December 31, 1996; therefore, actual management fees and other
expenses are used above.
4 The Advisor has voluntarily agreed to waive its fee and, if necessary, pay
other operating expenses of the Series in an amount that operates to limit
total operating expenses for the Series to not more than .85% of its average
net assets. Absent the fee waiver and assumption of expenses, management
fees and total operating expenses as a percentage of net assets, respectively,
would be .50% and .37% for the Series. Absent the fee waiver and assumption
of expenses, expenses paid on a $1,000 investment would have been:
1 year 3 years 5 years 10 years
Ohio Tax Exempt Series $9 $28 $48 $107
The fee waiver and assumption of expenses by the Advisor is voluntary and may
be terminated at any time. However, the Advisor has agreed to continue this
fee waiver and assumption of expenses at least through the Series' current
fiscal year.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Series. For a
more complete description of the various costs and expenses illustrated above,
please refer to the Management section of this Prospectus.
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
<PAGE> 3
FINANCIAL HIGHLIGHTS
The following table provides selected per share data and ratios for the Ohio
Tax Exempt Series (for a share outstanding throughout the period for the
periods shown). The tables are part of the Series' financial statements,
which are included in the Statement of Additional Information incorporated by
reference into this Prospectus.
<TABLE>
<CAPTION>
For the year For the year For the period
ended ended Feb. 14, 1994 to
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
<S> <C> <C> <C>
Net asset value - Beginning of period $ 10.31 $ 9.18 $ 10.003
Income from investment operations:
Net investment income 0.44 0.42 0.21
Net realized and unrealized gain/(loss)
on investments (0.13) 1.14 (0.83)
Total from investment operations 0.31 1.56 (0.62)
Less distributions declared to shareholders:
From net investment income (0.44) (0.43) (0.20)
From net realized gain on investments (0.00)4 -- --
Total distributions to shareholders (0.44) (0.43) (0.20)
Net asset value - End of period $ 10.18 $ 10.31 $ 9.18
Total return1 3.16% 17.14% (6.23)%
Ratios (to average net assets)/Supplemental Data:
Expenses 0.85%** 0.85%** 0.85%* 2
Net investment income 4.40%** 4.50%** 4.03%* 2
Portfolio turnover 2% 1% 2%
Net assets - End of period (000's omitted) $ 7,698 $ 6,144 $ 3,901
* The investment advisor did not impose its
management fee and paid a portion of the Fund's expenses.
** The investment advisor waived a portion of its
management fee.
If these expenses had been incurred by the Fund
In either instance above, the net investment income per
share and the ratios would have been as follows:
Net investment income $ 0.437 $ 0.41 $ 0.14
Ratios(to average net assets):
Expenses 0.87% 0.94% 2.07%2
Net investment income 4.38% 4.41% 2.81%2
</TABLE>
1 Represents aggregate total return for the period indicated.
2 Annualized.
3 Initial offering price upon commencement of operations on February 14, 1994.
4 Dividend amounted to $0.002 per share from net realized gain on investments.
<PAGE> 4
THE FUND
The Fund is an open-end management investment company incorporated under
the laws of the State of Maryland on July 26, 1984. The Fund offers separate
series of units of beneficial interest ("shares"). This Prospectus relates to
the Ohio Tax Exempt Series (the "Series"). Information regarding the Fund's
other series is contained in separate prospectuses that may be obtained from
Manning & Napier Fund, Inc., P.O. Box 41118, Rochester, New York 14604 or by
calling 1-800-466-3863. The Ohio Tax Exempt Series is a diversified fund.
Shares of the Series are offered directly to investors and to employees
and clients of the Advisor or its affiliates that have authorized investment
in the Fund as part of the discretionary account management services of the
Advisor or its affiliates. There is no limitation on the investment in
shares of the Series on behalf of discretionary account clients unless
otherwise limited by a client agreement. There are no fees or expenses
charged to any investor in connection with acquisition of shares of the
Series.
Since the Series may be used under varying conditions and market prices,
the result for a given investor might differ from the result that would have
been obtained had the Series been used only for clients with the same
investment objective. However, the Advisor seeks to manage cash flows into
and out of the Series in the interest of the Fund and its clients so as to
minimize the effect on performance.
RISK AND INVESTMENT OBJECTIVES AND POLICIES
The Series' objective is to seek as high a level of current income exempt
from federal income tax and Ohio State personal income tax as the Advisor
believes is consistent with preservation of capital. The Investment Advisor
will attempt to balance the Series' goals of high income and capital
preservation by building a portfolio of securities that in the aggregate
afford the opportunity to earn current income, but also have quality and other
characteristics that attempt to avoid permanent capital losses. However, the
Series' portfolio securities and, therefore, its shares will inevitably
fluctuate in value to a certain extent. Under current law, to the extent
distributions by the Series are derived from interest on Ohio Tax Exempt
Securities (which are described below) and are designated as such, they are
exempt from federal and Ohio personal income taxes. The Series is not
intended to be a complete investment program, and there is no assurance it
will achieve its objective.
The Series seeks to achieve its objective by following the fundamental
investment policy of investing at least 80% of its net assets in Ohio Tax
Exempt Securities, except when investing for defensive purposes during times
of adverse market conditions. The Series may also invest in taxable
obligations described below under "Ohio Tax Exempt Securities" to the extent
permitted by its investment policies, or hold its assets in money market
instruments or in cash. The Series' investments in Ohio Tax Exempt Securities
and taxable obligations will be limited to securities rated in the four
highest categories assigned by Moody's Investors Service, Inc. (Aaa, Aa, A,
Baa) or Standard & Poor's Corporation (AAA, AA, A, BBB). For a description of
the above ratings, see the Appendix. Securities rated Baa by Moody's or BBB
by Standard & Poor's are considered investment grade but may have speculative
characteristics and changes in economic conditions or circumstances are more
likely to lead to a weakened capacity to make principal and interest payments
than is the case with more highly rated securities. When the Series invests
in Ohio Tax Exempt Securities in the lower rating categories, the achievement
of the Series' goals is more dependent on the Advisor's ability than would be
the case if the Series were investing in Ohio Tax Exempt Securities in the
higher rating categories. The amount of information about the financial
condition of an issuer of Ohio Tax Exempt Securities may not be as extensive
as information about corporations whose securities are publicly traded. In
addition, tax considerations may limit the Series' ability to vary its
portfolio securities in response to developments in interest rates and
economic conditions. The Advisor seeks to minimize the risks of investing in
lower-rated securities through investment analysis and attention to current
developments in interest rates and economic conditions.
<PAGE> 4
Interest income from certain types of Ohio Tax Exempt Securities may be
subject to federal alternative minimum tax. It is a fundamental policy of the
Series to exclude these securities from the term "Ohio Tax Exempt Securities"
for purposes of determining compliance with the 80% test described above.
In pursuing its objective, the Series may, to a limited extent, buy and
sell futures contracts and options and may enter into repurchase agreements
and forward commitments. These incidental investment practices, which may
produce taxable capital gains and involve special risks, are described below.
The market value of the Series' investments will change in response to
changes in interest rates and other factors. During periods of falling
interest rates, the values of long-term, fixed-income securities generally
rise. Conversely, during periods of rising interest rates, the values of such
securities generally decline. Changes by recognized rating services in their
ratings of tax-exempt securities and in the ability of an issuer to make
payments of interest and principal will also affect the value of these
investments. Changes in the value of portfolio securities will not affect
interest income derived from those securities but will affect the Series' net
asset value.
During times when conditions in the markets for Ohio Tax Exempt
Securities suggest a temporary defensive position the Advisor may temporarily
use alternative strategies, primarily designed to reduce fluctuations in the
value of the Series' assets. In implementing these "defensive" strategies,
the Series may invest in taxable obligations, including: obligations of the
U.S. Government, its agencies or instrumentalities; obligations issued by
governmental issuers in other states, the interest on which would be exempt
from federal income tax; other debt securities rated within the four highest
categories by either Moody's or Standard & Poor's; commercial paper rated in
the highest category by either rating service (Prime-1 or A-1+, respectively);
certificates of deposit and bankers' acceptances; repurchase agreements with
respect to any of the foregoing investments; or any other fixed-income
securities that the Advisor considers consistent with such strategy. It is
impossible to predict when, or for how long, the Series will use such
alternative strategies. The limitations described above on the ability of the
Series to vary its portfolio securities may limit the Series' use of these
alternative investment strategies.
A change in the securities held by the Series is known as "portfolio
turnover". Portfolio turnover generally involves some expense to the Series,
including brokerage commissions or dealer mark-ups and other transaction costs
on the sale of securities and reinvestment in other securities. Such
transactions may result in realization of taxable capital gains. The Series
expects that its annual portfolio turnover rate will be no more than 100%.
OHIO TAX EXEMPT SECURITIES
Ohio Tax Exempt Securities are debt obligations issued by the State of
Ohio and its political subdivisions, agencies and instrumentalities, the
interest from which is, in the opinion of bond counsel, exempt from federal
income tax and Ohio personal income tax. These securities are issued to
obtain funds for various public purposes, such as the construction of public
facilities, the payment of general operating expenses or the refunding of
outstanding debts. They may also be issued to finance various private
activities, including the lending of funds to public or private institutions
for the construction of housing, educational or medical facilities and may
also include certain types of private activity and industrial development
bonds or notes issued by public authorities to finance privately owned or
operated facilities or to fund short-term cash requirements. Short-term Ohio
Tax Exempt Securities are generally issued as interim financing in
anticipation of tax collections, revenue receipts or bond sales to finance
various public purposes. Ohio Tax Exempt Securities also include debt
obligations issued by other governmental entities (for example, U.S.
territories) if such debt obligations generate interest income which is exempt
from federal income tax and Ohio personal income tax.
<PAGE> 5
The two principal classifications of Ohio Tax Exempt Securities are
general obligation and limited obligation (or revenue) securities. General
obligation securities involve the credit of an issuer possessing taxing power
and are payable from the issuer's general unrestricted revenues. Their
payment may depend on an appropriation by the issuer's legislative body. The
characteristics and methods of enforcement of general obligation securities
vary according to the law applicable to the particular issuer. Limited
obligation (or revenue) securities are payable only from the revenues derived
from a particular facility or class of facilities, or a specific revenue
source, and generally are not payable from the unrestricted revenues of the
issuer. So-called "private activity bonds" and "industrial development bonds"
are in most cases limited obligation securities, the credit quality of which
is directly related to the corporate user of the facilities.
The Series may also invest in securities representing interests in Ohio
Tax Exempt Securities, known as "inverse floating obligations" or "residual
interest bonds", paying interest rates that vary inversely to changes in the
interest rates of specified short-term tax exempt securities or an index of
short-term tax exempt securities. The interest rates on inverse floating
obligations or residual interest bonds will typically decline as short-term
market interest rates increase and increase as short-term market rates
decline. Such securities have the effect of providing a degree of investment
leverage, since they will generally increase or decrease in value in response
to changes in market interest rates at a rate which is a multiple (typically
two) of the rate at which fixed-rate long-term tax exempt securities increase
or decrease in response to such changes. As a result, the market values of
inverse floating obligations and residual interest bonds will generally be
more volatile than the market values of fixed-rate tax exempt securities. To
seek to limit the interest rate risk of these securities, the Series may
purchase inverse floating obligations with shorter-term maturities or which
contain limitations on the extent to which the interest rate may vary. There
is no limit on the percentage of assets that may be invested in inverse
floating obligations or residual interest bonds.
The Series' concentration in investments in Ohio Tax Exempt Securities
involves greater risks than if its investments were more diversified. Because
the Series invests primarily in Ohio Tax Exempt Securities, investors should
consider that the Series' yield and share price are sensitive to political and
economic developments within the State of Ohio. If either Ohio or any of its
local governmental entities is unable to meet its financial obligations, there
could be an adverse effect on the income derived by the Series, the ability to
preserve or realize appreciation of the Series' capital and the Series'
liquidity. A more complete description of these risks is contained in the
Statement of Additional Information.
RISK AND ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
Set forth below is further information about certain types of securities
in which the Series may invest, as well as information about additional types
of investments and certain strategies the Series may pursue. These policies
have been voluntarily adopted by the Board of Directors based upon current
circumstances and may be changed or amended by action of the Board of
Directors without prior approval of the Series' shareholders. Additional
information concerning these strategies and their related risks is contained
in the Statement of Additional Information.
INVESTMENTS IN PREMIUM SECURITIES
During a period of declining interest rates, many of the Series'
portfolio investments will likely bear coupon rates which are higher than
current market rates, regardless of whether such securities were originally
<PAGE> 6
purchased at a premium. Such securities would generally carry market values
greater than the principal amounts payable on maturity, which would be
reflected in the net asset value of the Series' shares. The value of such
"premium" securities tends to approach the principal amount as they approach
maturity (or call price in the case of securities approaching their call
date). As a result, an investor who purchases shares of the Series during
such periods would initially receive higher distributions (derived from the
higher coupon rates payable on the Series' investments) than might be
available from alternative investments bearing current market interest rates,
but may face an increased risk of capital loss as these higher coupon
securities approach maturity (or call date). In evaluating the potential
performance of an investment in the Series, investors may find it useful to
compare the Series' current dividend rate with the Series' "yield", which is
computed on a yield-to-maturity basis in accordance with Securities and
Exchange Commission regulations and which reflects amortization of market
premiums.
ZERO-COUPON BONDS
Some of the securities in which the Series invests may include so-called
"zero-coupon" bonds. Zero-coupon bonds are issued at a significant discount
from face value and pay interest only at maturity rather than at intervals
during the life of the security. The Series is required to accrue and
distribute income from zero-coupon bonds on a current basis, even though it
does not receive that income currently in cash. Thus, the Series may have to
sell investments to obtain cash needed to make income distributions. The
discount in the absence of financial difficulties of the issuer decreases as
the final maturity of the security approaches. Zero-coupon bonds can be sold
prior to their maturity date in the secondary market at the then prevailing
market value, which depends primarily on the time remaining to maturity,
prevailing level of interest rates and the perceived credit quality of the
issues. The market prices of zero-coupon securities are subject to greater
fluctuations in response to changes in market interest rates than bonds which
pay interest currently.
RISKS ASSOCIATED WITH THE SERIES' INVESTMENT PROGRAM
At times, a portion of the Series' assets may be invested in Ohio Tax
Exempt Securities as to which the Series, by itself or together with other
funds and accounts managed by the Advisor, holds a major portion or all of an
issue of such securities. Under adverse market or economic conditions or in
the event of adverse changes in the financial condition of the issuer, the
Series could find it difficult to sell such securities when the Advisor
believes it advisable to do so or may be able to sell such securities only at
prices lower than if such securities were more widely held. Under such
circumstances, it may also be more difficult to determine the fair value of
such securities for purposes of computing the Series' net asset value. In
order to enforce its rights in the event of a default under such securities,
the Series may be required to take possession of and manage assets securing
the issuer's obligations on such securities, which may increase the Series'
operating expenses and adversely affect the Series' net asset value. Any
income derived from the Series' ownership or operation of such assets would
not be tax-exempt.
Certain securities held by the Series may permit the issuer at its option
to "call", or redeem, its securities. If an issuer were to redeem securities
held by the Series during a time of declining interest rates, the Series may
not be able to reinvest the proceeds in securities providing the same
investment return as the securities redeemed.
Since the Series invests primarily in Ohio Tax Exempt Securities, the
value of its shares may be especially affected by factors pertaining to the
Ohio economy and other factors specifically affecting the ability of issuers
of Ohio Tax Exempt Securities to meet their obligations. As a result, the
value of the Series' shares may fluctuate more widely than the value of shares
of a portfolio investing in securities relating to a number of different
states. The ability of state, county, or local governments to meet their
<PAGE> 7
obligations will depend primarily on the availability of tax and other
revenues to those governments and on their fiscal conditions generally. The
amounts of tax and other revenues available to governmental issuers of Ohio
Tax Exempt Securities may be affected from time to time by economic,
political, and demographic conditions within the particular state. In
addition, constitutional or statutory restrictions may limit a government's
power to raise revenues or increase taxes. The availability of federal,
state, and local aid to issuers of Ohio Tax Exempt Securities may also affect
their ability to meet their obligations. Payments of principal and interest
on limited obligation securities will depend on the economic conditions of the
facility or specific revenue source from whose revenues the payments will be
made, which in turn could be affected by economic, political, and demographic
conditions in the state. Any reduction in the actual or perceived ability of
an issuer of Ohio Tax Exempt Securities to meet its obligations (including a
reduction in the rating of its outstanding securities) would likely affect
adversely the market value and marketability of its obligations and could
affect adversely the values of other Ohio Tax Exempt Securities as well.
Because of the relatively small number of issuers of Ohio Tax Exempt
Securities, the Series is more likely to invest a higher percentage of its
assets in the securities of a single issuer than an investment company which
invests in a broad range of tax-exempt securities. This practice involves an
increased risk of loss to the Series if the issuer is unable to make interest
or principal payments or if the market value of such securities declines.
FINANCIAL FUTURES AND OPTIONS
The Series may purchase and sell financial futures contracts for hedging
purposes. Futures contracts on a Municipal Bond Index are traded on the
Chicago Board of Trade. This Index is intended to represent a numerical
measure of market performance for long-term tax-exempt bonds. An "index
future" is a contract to buy or sell units of a particular securities index at
an agreed price on a specified future date. Depending on the change in value
of the index between the time when the Series enters into and closes its
futures position, the Series may realize a gain or loss. The Series may
purchase and sell futures contracts on the Index (or any other tax-exempt bond
index approved for trading by the Commodity Futures Trading Commission) to
hedge against general changes in market values of Ohio Tax Exempt Securities
which the Fund owns or expects to purchase. The Series may also purchase and
sell put and call options on index futures, and on the indices directly, in
addition or as an alternative to purchasing and selling financial futures
contracts.
The Series may, for hedging purposes, purchase and sell futures contracts
and related options with respect to U.S. Government securities, including U.S.
Treasury bills, notes and bonds ("U.S. Government Securities") and options
directly on U.S. Government Securities. The Advisor believes that, under
certain market conditions, price movements in U.S. Government Securities
futures and related options may correlate closely with price movements in Ohio
Tax Exempt Securities and may as a result provide hedging opportunities for
the Series. U.S. Government Securities futures and related options would be
used in a way similar to the Series' use of index futures and related options.
The Series will only purchase or sell U.S. Government Securities futures or
related options when, in the opinion of the Advisor, price movements in such
futures and options will correlate closely with price movements in the Ohio
Tax Exempt Securities which are the subject of the hedge.
The Series may purchase or sell future contracts if immediately
thereafter the sum of the amount of initial margin deposits on any such
futures (plus deposits on any other futures contracts and premiums paid in
connection with any options or futures contracts) that do not constitute "bona
fide hedging" under Commodity Futures Trading Commission ("CFTC") rules would
exceed 5% of the liquidation value of the Series' total assets after taking
into account unrealized profits and losses on such contracts. In addition,
<PAGE> 8
the value of all futures contracts sold will not exceed the total market value
of the Series' portfolio. The Series will comply with guidelines established
by the Securities and Exchange Commission with respect to covering of
obligations under futures contracts and will set aside liquid assets
in a segregated account with its Custodian in the amount prescribed.
The use of futures and options involves certain special risks and may
result in realization of taxable capital gains. Futures and options
transactions involve costs and may result in losses. Certain risks arise
because of the possibility of imperfect correlations between movements in the
prices of financial futures and options and movements in the prices of the
underlying bond index or U.S. Government Securities or the Ohio Tax Exempt
Securities which are the subject of the hedge. The successful use of futures
and options further depends on the Advisor's ability to forecast interest rate
movements correctly. Other risks arise from the Series' potential inability
to close out its futures or related options positions, and there can be no
assurance that a liquid secondary market will exist at a particular time.
Certain provisions of the Internal Revenue Code and other regulatory
requirements may limit the Series' ability to engage in futures and options
transactions.
A more detailed explanation of futures and options transactions,
including the risks associated with them, is included in the Statement of
Additional Information.
REPURCHASE AGREEMENTS AND FORWARD COMMITMENTS
The Series may enter into repurchase agreements on up to 25% of its
assets. These transactions must be fully collateralized at all times, but
involve some risk to the Series if the other party should default on its
obligation and the Series is delayed or prevented from recovering the
collateral. The Series may also purchase securities for future delivery,
which may increase its overall investment exposure and involves a risk of loss
if the value of the securities declines prior to the settlement date.
LIMITING INVESTMENT RISK
Specific investment restrictions help the Series limit investment risks
for its shareholders. These restrictions prohibit the Series from investing
more than: (a) (with respect to 75% of its total assets) 5% of its total
assets in the securities of any one issuer, other than U.S. Government
Securities;* (b) 5% of its net assets in securities of any issuer if the party
responsible for payment, together with any predecessor, has been in operation
for less than three years (except obligations of the U.S. Government or
agencies or instrumentalities and obligations backed by the faith, credit and
taxing power of any person authorized to issue Ohio Tax Exempt Securities);
(c) 10% of its net assets in securities restricted as to resale; and (d) 10%
of its net assets in any combination of securities that are not readily
marketable, in securities restricted as to resale (excluding Rule 144A
securities determined by the Series' Board of Directors [or the person
supervised by the Series' Board of Directors to make such determinations] to
be readily marketable), and repurchase agreements maturing in more than seven
days; (e) 25% or more of the value of its total assets in securities of
issuers in any one industry (other than U.S. Government Securities). In
addition, the Series may borrow money, but only from a bank for temporary or
emergency purposes in amounts not exceeding 10% of the Series' total assets.
Restrictions marked with an asterisk (*) above are summaries of
fundamental policies. See the Statement of Additional Information for the
full text of these policies and the Series' other fundamental policies.
Except for investment policies designated as fundamental in this Prospectus or
the Statement of Additional Information, the investment policies described in
this Prospectus and in the Statement are not fundamental policies. The Board
of Directors may change any non-fundamental investment policies without
shareholder approval. As a matter of policy, the Board of Directors would not
materially change the Series' investment objective without shareholder
approval.
<PAGE> 9
MANAGEMENT
The overall business and affairs of the Series are managed by its Board
of Directors. The Board approves all significant agreements between the
Series and persons or companies furnishing services to the Series, including
the Series' agreements with its Investment Advisor and Custodian. The
day-to-day operations of the Fund are delegated to the Fund's officers and to
Manning & Napier Advisors, Inc. (the "Advisor"), 1100 Chase Square, Rochester,
New York 14604. A committee made up of investment professionals and analysts
make all the investment decisions for the Fund.
The Advisor acts as investment advisor to the Fund. Mr. William Manning
controls the Advisor by virtue of his ownership of the securities of the
Advisor. The Advisor also is generally responsible for supervision of the
overall business affairs of the Series including supervision of service
providers to the Series and direction of the Advisor's directors, officers or
employees who may be elected as officers of the Fund to serve as such.
As of the date of this Prospectus, the Advisor supervised over
6.5 billion in assets of clients, including both individuals and
institutions. For its services to the Fund under the Investment Advisory
Agreement, the Fund pays the Advisor a fee, computed daily and payable
monthly, at an annual rate of .50% of the Fund's average daily net assets.
Clients for whom the Advisor provides advisory services pursuant to separate
investment advisory contracts will be separately rebated by the Advisor an
amount equal to the portion of their client advisory fee attributable to the
portion of their assets invested in the Fund. In addition, the Advisor is
separately compensated for acting as Transfer Agent for the Series. The Fund
is responsible for its operating expenses, including: (i) interest and taxes;
(ii) brokerage commissions; (iii) insurance premiums; (iv) compensation and
expenses of its Directors other than those affiliated with the Advisor; (v)
legal and audit expenses; (vi) fees and expenses of the Fund's Custodian, and
Accounting Services Agent, if obtained for the Fund from an entity other than
the Advisor; (vii) expenses incidental to the issuance of its shares,
including issuance on the payment of, or reinvestment of, dividends and
capital gain distributions; (viii) fees and expenses incidental to the
registration under federal or state securities laws of the Fund or its shares;
(ix) expenses of preparing, printing and mailing reports and notices and proxy
material to shareholders of the Fund; (x) all other expenses incidental to
holding meetings of the Fund's shareholders; (xi) dues or assessments of or
contributions to the Investment Company Institute or any successor; and, (xii)
such non-recurring expenses as may arise, including litigation affecting the
Fund and the legal obligations with respect to which the Fund may have to
indemnify its officers and Directors.
The Advisor may use its own resources to engage in activities that may
promote the sale of the Fund, including payments to third parties who provide
shareholder support servicing and distribution assistance. Investors may be
charged a fee if they effect transactions through a broker or agent.
YIELD AND TOTAL RETURN
From time-to-time the Series may advertise its total return and yield.
Both total return and yield figures are based on historical earnings and are
not intended to indicate future performance. The "total return" of a Series
refers to the average annual compounded rates of return over one-, five-, and
ten-year periods or for the life of the Series (as stated in the
advertisement) that would equate an initial amount invested at the beginning
of a stated period to the ending redeemable value of the investment, assuming
the reinvestment of all dividend and capital gains distributions.
The "30-day yield" of a Series is calculated by dividing the net
investment income per share earned during a 30-day period by the maximum
offering price per share on the last day of the period. Net investment
<PAGE> 10
income includes interest and dividend income earned on a Series' securities;
it is net of all expenses and all recurring and nonrecurring charges that have
been applied to all shareholder accounts. The yield calculation assumes that
net investment income earned over 30 days is compounded monthly for six months
and then annualized. Methods used to calculate advertised yields are
standardized for all stock and bond mutual funds. However, these methods
differ from the accounting methods used by a Series to maintain its books and
records, and so the advertised 30-day yield may not fully reflect the income
paid to your own account or the yield reported in a Series' reports to
shareholders.
PURCHASES, EXCHANGES AND REDEMPTIONS OF SHARES
The minimum initial investment in the Series is $2,000 and subsequent
purchases must be at least $100. These minimums may be waived at the
Distributor's discretion. The Distributor has the right to refuse any order.
Purchases and redemptions of shares of the Series may be made on any day
the New York Stock Exchange is open for trading.
A purchase order will be effective as of the day received by the
Distributor, Transfer Agent, or its agents, if the order is received before
4:00 p.m., Eastern time by the Distributor, Transfer Agent, or its agents.
Payment may be made by check or readily available funds. The purchase price
of shares of the Series is the net asset value next determined after a
purchase order is effective.
The shares of the Series may be purchased in exchange for securities to
be included in the Series, subject to the Advisor's determination that these
securities are acceptable. Securities accepted in an exchange will be valued
at market value. All accrued interest and purchase or other rights which are
reflected in the market price of accepted securities at the time of valuation
become the property of the Series and must be delivered by the shareholder to
the Series upon receipt from the issuer.
The Advisor will not accept securities for the Series unless: (1) such
securities are appropriate in the Series at the time of the exchange; (2) the
shareholder represents and agrees that all securities offered to the Series
are not subject to any restrictions upon their sale by the Series under the
Securities Act of 1933, or otherwise; and, (3) prices are available from an
independent pricing service provided by the Series' Board of Directors.
Shareholders may purchase shares regularly through the Automatic
Investment Plan with a pre-authorized draft drawn on their checking account.
Under this plan, the shareholder may elect to have a specified amount invested
on a regular schedule. The amount specified by the shareholder will be
withdrawn from the shareholder's bank account using the pre-authorized draft.
This amount will be invested at the applicable share price determined on the
date the amount is available for investment. Participation in the Automatic
Investment Plan may be discontinued either by the Fund or the Shareholder upon
30 days' prior written notice to the other party. A shareholder who wishes to
enroll in the Automatic Investment Plan may do so by completing the applicable
section of the Account Application Form or contacting the Fund for an
Automatic Investment Plan Form.
As permitted pursuant to any rule, regulation or order promulgated by the
Securities and Exchange Commission, some or all of the shares in a direct
investment account with the Fund for which payment has been received by the
Fund may be exchanged for shares of any of the other Manning & Napier Fund,
Inc. Series which are offered to direct investors at the net asset value next
determined after an exchange order is effective. Shareholders may effect up
to 4 exchanges in a 12-month period without charge. Subsequent exchanges are
<PAGE> 11
subject to a fee of $15. Exchanges will be made after instructions in writing
or by telephone are received by the Transfer Agent in proper form (i.e., if in
writing - signed by the record owner(s) exactly as the shares are registered;
if by telephone - proper account identification is given by the shareholder)
and each exchange must involve either shares having an aggregate value of at
least $1,000 or all the shares in the account. A shareholder should read the
prospectus of the other Series and consider the differences in objectives and
policies before making any exchange. The exchange privilege may not be
available in all states. For federal and state income tax purposes, an
exchange is treated as a sale of the shares exchanged, and therefore an
exchange could result in a gain or loss to the shareholder making the
exchange. The Series may modify or terminate this exchange offer upon 60
days' notice to shareholders subject to applicable law.
If shareholder desires to redeem his shares at their net asset value, the
shareholder must send a written request for redemption in "Good Order" to the
Transfer Agent. "Good Order" generally means that the written request for
redemption must be endorsed by the record owner(s) exactly as the shares are
registered and the signature(s) must be guaranteed by an "eligible guarantor
institution" as that term is defined under Rule 17Ad-15(a)(2) under the
Securities Exchange Act of 1934. Currently, such procedures generally permit
guarantees by a commercial bank or trust company, a member bank of the Federal
Reserve System, or a member firm of a national securities exchange.
Redemption requirements for corporations, other organizations, trusts,
fiduciaries, and retirement plans may require additional documentation.
Please contact the Advisor at 1-800-466-3863 for more information. The
Transfer Agent may make certain de minimis exceptions to the above
requirements for redemption. Within three days after receipt of a redemption
request by the Transfer Agent in "Good Order", the Series will make payment in
cash, except as described below, of the net asset value of the shares next
determined after such redemption request was received, except during any
period in which the right of redemption is suspended or date of payment is
postponed because the New York Stock Exchange is closed or trading on such
Exchange is restricted or to the extent otherwise permitted by the Investment
Company Act of 1940 ("1940 Act") if an emergency exists. For shares
purchased, or received in exchange for shares purchased, by check (including
certified checks or cashier's checks) payment of redemption proceeds may be
delayed up to 15 days from the purchase date in an effort to assure that such
check has cleared.
Subject to the Series' compliance with applicable regulations, the Series
has reserved the right to pay the redemption price either totally or
partially, by a distribution in-ind of securities (instead of cash) from the
Series' portfolio. The securities distributed in such a distribution would be
valued at the same amount as that assigned to them in calculating the net
asset value for the shares being sold. If a shareholder received a
distribution in-kind, he could incur brokerage or transaction charges when
converting the securities to cash. The Fund has elected, however, to be
governed by Rule 18f-1 under the 1940 Act as a result of which the Fund is
obligated to redeem shares, with respect to any one shareholder during any
90-day period, solely in cash up to the lesser of $250,000 or 1% of the net
asset value of the Fund at the beginning of the period.
Due to the relatively high cost of maintaining small accounts, the Series
reserves the right to redeem shares in any account for their then-current
value (which will be promptly paid to the shareholder) if at any time the
total investment in such account drops below $1,000 because of redemptions
(but not due to changes in net asset value). Shareholders will be notified
that the value of their account is less than the minimum investment
requirement and allowed 60 days to make an additional investment before the
redemption is processed.
Manning & Napier Investor Services, Inc. acts as Distributor of the Fund
shares and is located at the same address as the Advisor and the Fund. The
Distributor receives no fee from the Fund and there are no additional costs to
shareholders for this service. The Advisor may, from its own resources,
defray or absorb costs related to distribution, including compensation of
employees who are involved in distribution.
<PAGE> 12
NET ASSET VALUE
The Series' net asset value per share is determined as of the closing
time of the New York Stock Exchange or, in the absence of a closing time, 4:00
p.m. Eastern time on each day that the New York Stock Exchange is open for
trading. The exchange annually announces the days on which it will not be
open for trading; the most recent announcement indicates that it will not be
open on: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value per share is the value of the Series' assets, less
its liabilities, divided by the number of shares of the Series outstanding.
The value of the Series' portfolio securities will be the market value of such
securities as determined based on quotes provided by a pricing service (which
uses the methodology outlined in the "Net Asset Value" section of the
Statement of Additional Information) approved by the Board of Directors, or,
in the absence of market quotations, fair value as determined in good faith by
or under the direction and control of the Board of Directors. Short-term
investments which mature in less than 60 days are normally valued at amortized
cost. See the Statement of Additional Information for further information.
DIVIDENDS AND TAX STATUS
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
The Series intends to distribute to its shareholders on an quarterly
basis dividends substantially equal to all of its net investment income. The
Series also intends to distribute net realized short and long-term capital
gains, if any, taking into account any available capital loss carryforwards
from prior years at least annually. Dividends and distributions will be paid
in full and fractional shares of the Series, based on the net asset value per
share at the close of business on the record date, although a shareholder may,
prior to the record date, request, by writing or by telephone call to the
Fund, that payments of either ordinary income dividends or capital gain
distributions, or both, be made in cash. The Fund will notify each
non-corporate taxable shareholder after the close of its fiscal year both of
the dollar amount and the tax status of that year's distributions. Generally,
the Fund will be required to impose backup withholding at the rate of 31% from
ordinary income dividends, capital gain distributions and redemption payments
made to non-corporate shareholders, if provisions of the law relating to the
furnishing of taxpayer identification numbers and reporting of dividends are
not complied with by such shareholders.
If a taxable shareholder invests shortly before the Series declares a
taxable dividend, a portion of the investment will be returned as a taxable
distribution (commonly referred to as "buying into a dividend"). This
distribution will be taxable regardless of whether you elected to reinvest
your distribution in additional shares or take the distribution in cash. If
you would like to avoid buying into a dividend, you may contact the Fund to
find out when the Series plans to declare a distribution and invest after that
date.
TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a general summary of certain federal income tax
considerations affecting the Series and its shareholders. No attempt is made
to present a detailed explanation of the tax treatment of the Series or its
shareholders, and the discussion here is not intended as a substitute for
careful tax planning.
Under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), the Series is treated as a separate entity for federal income tax
purposes. The Series intends to qualify each year as a regulated investment
company under Subchapter M of the Code. If the Series so qualifies, it will
not be subject to federal income taxes on its net investment income and
capital gains, if any, which the Series distributes to its shareholders,
provided that at least 90% of such Series' exempt income and 90% of such
<PAGE> 13
Series' "investment company taxable income" (generally, net investment income
and the excess of net short-term capital gain over net long-term capital loss)
for the taxable year is distributed, and provided that the Series meets
certain other requirements imposed by the Code. All dividends paid or
distributed out of investment company taxable income will be taxable as
ordinary income to the shareholders. Any "net capital gain" (the excess of
net long-term capital gain over net short-term capital loss) distributed to
shareholders is taxable as long-term capital gain to the shareholders,
regardless of the length of time a shareholder has owned his shares.
Generally, such dividends and distributions are taxable in the year in which
received, but dividends and distributions declared in October, November or
December of any year to shareholders of record on a date in such month are
treated as paid on December 31 of such year if they are paid during January of
the following calendar year. Dividends and distributions are not taxable to
shareholders that are not otherwise subject to tax on their income, such as
qualified employee benefit plans.
A 4% non-deductible federal excise tax is imposed on a regulated
investment company that fails to distribute substantially all of its ordinary
income and capital gain net income for each calendar year. Currently the
Series intends to make sufficient distributions of its ordinary income and
capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
Future legislative changes may materially affect the tax consequences of
investing in the Series. Shareholders are urged to consult their tax advisors
for the application of these rules (and other potentially relevant rules) to
their particular circumstances. Shareholders are also urged to consult their
tax advisors concerning the application of state and local income taxes and of
foreign taxes to investments in the Series, which may differ from the U.S.
federal income tax consequences described above.
OHIO STATE TAX
Distributions received from Ohio Tax Exempt Series are exempt from Ohio
personal income tax, Ohio school district income taxes and Ohio municipal
income taxes to the extent they are derived from interest on obligations
issued by the State of Ohio or its political subdivisions or authorities
("Ohio State Securities"). It is assumed for purposes of this discussion of
Ohio taxation that these requirements will be satisfied, provided that the
Series continues to qualify as a regulated investment company for federal
income tax purposes and that at all times at least 50% of the value of the
total assets of the Series consists of Ohio State Securities or similar
obligations of other states or their subdivisions. All distributions received
from the Series are exempt from the net income base of the Ohio corporation
franchise tax to the extent that they are either exempt from federal income
tax or derived from interest on Ohio State Securities, but the Series' shares
will be included in the computation of net worth for purposes of such tax.
Distributions of capital gains with respect to shares of the Series will
be exempt from Ohio personal income tax, Ohio school district income taxes,
Ohio municipal income taxes and the net income base of the Ohio corporation
franchise tax to the extent that such distributions are attributable to profit
made on the sale, exchange or other disposition by the Series of Ohio State
Securities.
Distributions that are attributable to interest on obligations of the
United States or of any authority, commission, or instrumentality of the
United States ("Federal Securities") or obligations of Puerto Rico, the Virgin
Islands, or Guam or their authorities or instrumentalities ("Territorial
Securities") are exempt from Ohio personal income tax, Ohio school district
income taxes, and Ohio municipal income taxes and are excluded from the net
income base of the Ohio corporation franchise tax to the same extent that such
interest would be so exempt or excluded if the obligations were held directly
by the shareholders.
<PAGE> 14
GENERAL INFORMATION
The Fund was incorporated on July 26, 1984 as a Maryland corporation.
The Board of Directors may, at its own discretion, create additional series of
shares, each of which would have separate assets and liabilities.
The Fund does not expect to hold annual meetings of shareholders but
special meetings of shareholders may be held under certain circumstances.
Shareholders of the Fund retain the right, under certain circumstances, to
request that a meeting of shareholders be held for the purpose of considering
the removal of a Director from office, and if such a request is made, the Fund
will assist with shareholder communications in connection with the meeting.
The shares of the Fund have equal rights with regard to voting, redemption,
dividends, distributions and liquidations. The Fund's shareholders will vote
in the aggregate and not by Series except as otherwise expressly required by
law or when the Board of Directors determines that the matter to be voted upon
affects only the interests of the shareholders of a Series. Income, direct
liabilities and direct operating expenses of the Series will be allocated
directly to the Series, while general liabilities and expenses of the Fund
will be allocated among each Series. The holders of shares have no preemptive
or conversion rights. Shares when issued are fully paid and non-assessable
and do not have cumulative voting rights.
All securities and cash are held by Boston Safe Deposit and Trust
Company. Coopers & Lybrand, L.L.P. serves as independent accountants for the
Series and will audit its financial statements annually.
Manning & Napier Advisors, Inc. serves as the Fund's Transfer and
Dividend Disbursing Agent. Shareholder inquiries should be directed to
Manning & Napier Fund, Inc., P.O. Box 41118, Rochester, New York 14604.
<PAGE> 15
APPENDIX
DESCRIPTION OF MUNICIPAL AND CORPORATE BOND RATINGS
Moody's Investors Services, Inc.'s municipal and corporate bond ratings:
Aaa - Bonds which are rated Aaa are judged to be of the best quality and
carry the smallest degree of investment risk. Interest payments are protected
by a large or by an exceptionally stable margin, and principal is secure.
While the various protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in Aaa
securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
<PAGE> 16
Baa - Bonds which are rated Baa are considered medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Moody's applies numerical modifiers "1", "2" and "3" to both the Aaa and Aa
rating classifications. The modifier "1" indicates that the security ranks in
the higher end of its generic rating category; the modifier "2" indicates a
mid-range ranking; and the modifier "3" indicates that the issue ranks in the
lower end of its generic rating category.
Moody's may also assign conditional ratings to municipal bonds. Bonds for
which the security depends upon the completion of some act or the fulfillment
of some condition are rated conditionally. These are bonds secured by (a)
earnings of projects under construction, (b) earnings of projects unseasoned
in operating experience, (c) rentals which begin when facilities are
completed, or (d) payments to which some other limiting condition attaches.
Parenthetical rating denotes probable credit stature upon completion of
construction or elimination of basis of condition.
Standard & Poor's Corporation's municipal and corporate bond ratings:
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only to a small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than in higher rated categories.
Standard & Poor's may modify the rating from "AA" to "B" by the addition of a
plus or minus sign to show relative standing within the major rating
categories. Standard & Poor's ratings may also be indicated by "NR". This
designation indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.
Standard & Poor's may also assign conditional ratings to municipal bonds. The
letter "p" indicates that the rating is provisional. A provisional rating
assumes the successful completion of the project being financed by the debt
being rated and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful timely completion of the project.
This rating, however, while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood of, or the risk of default
upon failure of, such completion. The investor should exercise his own
judgment with respect to such likelihood and risk.
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's Investor Services, Inc.'s commercial paper ratings:
P-1 - Commercial papers which are rated P-1 are judged to have a superior
ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics:
-Leading market positions in well-established industries.
-High rates of return on funds employed.
-Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
-Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
-Well-established access to a range of financial markets and assured
sources of alternate liquidity.
P-2 - Commercial papers which are rated P-2 are judged to have a strong
ability for repayment for senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
P-3 - Commercial papers which are rated P-3 are judged to have an
acceptable ability for repayment of senior short-term obligations. The effect
of industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level
of debt protection measurements and may require relatively high financial
leverage. Adequate alternate liquidity is maintained.
& Poor's Corporation's commercial paper ratings:
<PAGE> 17
A-1 - This is the highest category and indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-3 - Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes
in circumstances than obligations carrying the higher designations.
B - Issues rated B are regarded as having only speculative capacity for
timely payment.
C - This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
D - Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due,
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period.
<PAGE> 18
when interest payments or principal payments are not made on the date due,
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period.
MANNING & NAPIER FUND, INC.
P.O. Box 41118
Rochester, New York 14604
1-800-466-3863
DIVERSIFIED TAX EXEMPT SERIES
Manning & Napier Fund, Inc. (the "Fund"), is an open-end management
investment company that offers separate series, each a separate investment
portfolio having its own investment objective and policies. This Prospectus
relates to the Diversified Tax Exempt Series of the Fund (the "Series"). The
Series' investment objective is to seek a high level of current income exempt
from federal income tax, consistent with preservation of capital.
This Prospectus provides you with the basic information you should know
before investing in the Series. You should read it and keep it for future
reference. A Statement of Additional Information, dated April 14,
1997, containing additional information about the Fund has been filed
with the Securities and Exchange Commission and is incorporated by reference
in this Prospectus in its entirety. You may obtain a copy of the Statement of
Additional Information without charge by contacting the Fund at the address or
telephone number listed above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS APRIL 14, 1997.
<PAGE>
MANNING & NAPIER FUND, INC.
DIVERSIFIED TAX EXEMPT SERIES
No person has been authorized to give any information or to make
representations not contained in this Prospectus in connection with any
offering made by this Prospectus and, if given or made, such information must
not be relied upon as having been authorized by the Fund. This Prospectus
does not constitute an offering by the Fund in any jurisdiction in which such
offering may not lawfully be made.
<TABLE>
<CAPTION>
PROSPECTUS
TABLE OF CONTENTS
<S> <C>
Annual Operating Expenses 2
Financial Highlights 3
The Fund 4
Risk and Investment Objectives and Policies 4
Tax Exempt Securities 5
Risk and Additional Information about Investment Policies 6
Management 9
Yield and Total Return 10
Purchases, Exchanges and Redemptions of Shares 10
Net Asset Value 12
Dividends and Tax Status 12
General Information 14
Appendix 15
</TABLE>
EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
(as a percentage of offering price)
Maximum Sales Charge Imposed on Purchases None
Redemption Fees 1 None
1 A wire charge, currently $15, will be deducted by the Transfer Agent from the
amount of a wire redemption payment made at the request of a shareholder.
Such amount is not included in the "Annual Operating Expenses of the Series."
ANNUAL OPERATING EXPENSES
The following information provides (I) tabular summary of expenses relating to
the annual operating expenses of the Series and (ii) an example illustrating
the dollar cost of such expenses on a $1,000 investment.
Annual Operating Expenses of the Series (as a percentage of average
daily net assets):
Management Fees 2 0.50%
12b-1 Fees. None
Other Expenses 3 0.20%
Total Operating Expenses3 0.70%
Example
You would pay the following expenses on a $1,000 investment, assuming a) 5.0%
annual return and b) redemptions at the end of each time period4:
1 year 3 years 5 years 10 years
Diversified Tax Exempt Series $7 $22 $39 $87
2 Clients who have entered into investment advisory agreements with Manning &
Napier Advisors, Inc. (the Fund's Advisor) will be separately rebated by
Manning & Napier an amount equal to the portion of their client advisory fee
attributable to the portion of their assets invested in the Fund. See
"Management."
3 Diversified Tax Exempt Series was engaged in active investment operations for
the year ended December 31, 1996; therefore, actual management fees and other
expenses are used above.
4 Should the total operating expenses for the Series exceed .85% of its average
net assets, the Advisor has voluntarily agreed to waive its fee and pay other
operating expenses in an amount that limits total operating expenses to .85%
of its average net assets. The fee waiver and the assumption of expenses by
the Advisor is voluntary and may be terminated at any time. However, the
Advisor has agreed to continue this assumption of expenses at least through
the Series' current fiscal year.
The purpose of the table above is to assist the investor in understanding the
various costs and expenses associated with investing in the Series. For a
more complete description of the various costs and expenses illustrated above,
please refer to the Management section of this Prospectus.
THE EXAMPLE ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
<PAGE> 2
FINANCIAL HIGHLIGHTS
The following table provides selected per share data and ratios for the
Diversified Tax Exempt Series (for a
share outstanding throughout the period for the periods shown). The table is
part of the Series' audited
financial statements which are included in the Statement of Additional
Information incorporated by reference
into this Prospectus.
<TABLE>
<CAPTION>
For the year For the year For the period
ended ended Feb. 14, 1994 to
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
<S> <C> <C> <C>
Net asset value - Beginning of period $ 10.32 $ 9.26 $ 10.004
Income from investment operations:
Net investment income 0.43 0.43 0.21
Net realized and unrealized gain/(loss)
on investments (0.10) 1.06 (0.75)
Total from investment operations 0.33 1.49 (0.54)
Less distributions declared to shareholders:
From net investment income (0.42) (0.43) (0.20)
Net asset value - End of period $ 10.23 $ 10.32 $ 9.26
Total return 1 3.33% 16.29% (5.39)%
Ratios (to average net assets)/Supplemental Data:
Expenses 0.70% 0.79% 0.85%2, 3
Net investment income 4.44% 4.52% 3.71%2, 3
Portfolio turnover 2% 5% 4%
Net assets - End of period (000's omitted) $ 16,949 $ 12,452 $ 8,481
</TABLE>
1 Represents aggregate total return for the period indicated.
2 Annualized.
3 The investment advisor waived a portion of its management fee. If the full
fee had been incurred by the Fund, the net investment income per share would
have been $0.186, and the annualized ratios would have been as follows:
Expenses: 1.29%; Net investment income: 3.27%.
4 Initial offering price upon commencement of operations on February 14, 1994.
<PAGE> 3
THE FUND
The Fund is an open-end management investment company incorporated under
the laws of the State of Maryland on July 26, 1984. The Fund offers separate
series of units of beneficial interest ("shares"). This Prospectus relates to
the Diversified Tax Exempt Series. Information regarding the Fund's other
series is contained in separate prospectuses that may be obtained from Manning
& Napier Fund, Inc., P.O. Box 41118, Rochester, New York 14604 or by calling
1-800-466-3863. The Diversified Tax Exempt Series is a diversified fund.
Shares of the Series are offered directly to investors and to employees
and clients of the Advisor or its affiliates that have authorized investment
in the Fund as part of the discretionary account management services of the
Advisor or its affiliates. There is no limitation on the investment in
shares of the Series on behalf of discretionary account clients unless
otherwise limited by a client agreement. There are no fees or expenses
charged to any investor in connection with acquisition of shares of the
Series.
Since the Series may be used under varying conditions and market prices,
the result for a given investor might differ from the result that would have
been obtained had the Series been used only for clients with the same
investment objective. However, the Advisor seeks to manage cash flows into
and out of the Series in the interest of the Fund and its clients so as to
minimize the effect on performance.
RISK AND INVESTMENT OBJECTIVES AND POLICIES
The Series' objective is to seek as high a level of current income exempt
from federal income tax as the Advisor believes is consistent with
preservation of capital. The Investment Advisor will attempt to balance the
Fund's goals of high income and capital preservation by building a portfolio
of securities that in the aggregate afford the opportunity to earn current
income but also have quality and other characteristics that attempt to avoid
permanent capital losses. However, the Fund's portfolio securities and,
therefore, its shares will inevitably fluctuate in value to a certain extent.
Under current law, to the extent distributions by the Series are derived from
interest on Tax Exempt Securities (which are described below) and are
designated as such, they are exempt from federal income tax. The Series is
not intended to be a complete investment program, and there is no assurance it
will achieve its objective.
The Series seeks its objective by following the fundamental investment
policy of investing at least 80% of its net assets in Tax Exempt Securities,
except when investing for defensive purposes during times of adverse market
conditions. The Series may also invest in taxable obligations described below
under "Risk and Additional Information about Investment Policies" to the
extent permitted by its investment policies, or hold its assets in money
market instruments or in cash. The Series' investments in Tax Exempt
Securities and taxable obligations will be limited to securities rated in the
four highest categories assigned by Moody's Investors Service, Inc. (Aaa, Aa,
A, Baa) or Standard & Poor's Corporation (AAA, AA, A, BBB). For a description
of the above ratings, see the Appendix.
When the Series invests in Tax Exempt Securities in the lower rating
categories, the achievement of the Series' goals is more dependent on the
Advisors' ability than would be the case if the Series were investing in Tax
Exempt Securities in the higher rating categories. The amount of information
about the financial condition of an issuer of Tax Exempt Securities may not be
as extensive as information about corporations whose securities are publicly
traded. In addition, tax considerations may limit the Series' ability to vary
its portfolio securities in response to developments in interest rates and
economic conditions. The Advisor seeks to minimize the risks of investing in
lower-rated securities through investment analysis and attention to current
developments in interest rates and economic conditions.
<PAGE> 4
Interest income from certain types of Tax Exempt Securities may be
subject to federal alternative minimum tax. It is a fundamental policy of the
Series to exclude these securities from the term "Tax Exempt Securities" for
purposes of determining compliance with the 80% test described above.
In pursuing its objective, the Series may to a limited extent buy and
sell futures contracts and options and may enter into repurchase agreements
and forward commitments. These incidental investment practices, which may
produce taxable capital gains and involve special risks, are described below.
The market value of the Series' investments will change in response to
changes in interest rates and other factors. During periods of falling
interest rates, the values of long-term, fixed-income securities generally
rise. Conversely, during periods of rising interest rates, the values of such
securities generally decline. Changes by recognized rating services in their
ratings of Tax Exempt Securities and in the ability of an issuer to make
payments of interest and principal will also affect the value of these
investments. Changes in the value of portfolio securities will not affect
interest income derived from those securities but will affect the Series' net
asset value.
During times when conditions in the markets for Tax Exempt Securities
suggest a temporary defensive position, the Advisor may temporarily use
alternative strategies, primarily designed to reduce fluctuations in the value
of the Series' assets. In implementing these "defensive" strategies, the
Series may invest in taxable obligations, including: obligations of the U.S.
government, its agencies or instrumentalities; other debt securities rated
within the four highest categories by either Moody's or Standard & Poor's;
commercial paper rated in the highest category by either rating service
(Prime-1 or A-1+, respectively); certificates of deposit and bankers'
acceptances; repurchase agreements with respect to any of the foregoing
investments; or any other fixed-income securities that the Advisor considers
consistent with such strategy. It is impossible to predict when, or for how
long, the Series will use such alternative strategies. The limitations
described above on the ability of the Series to vary its portfolio securities
may limit the Series' use of these alternative investment strategies.
A change in the securities held by the Series is known as "portfolio
turnover". Portfolio turnover generally involves some expense to the Series,
including brokerage commissions or dealer mark-ups and other transaction costs
on the sale of securities and reinvestment in other securities. Such
transactions may result in realization of taxable capital gains. The Advisor
believes that in general the secondary market for Tax Exempt Securities is
less liquid than that for taxable fixed-income securities. Accordingly, the
ability of the Series to buy and sell securities may, at any particular time
and with respect to any particular security, be limited. The Advisor expects
that its annual portfolio turnover rate will be no more than 100%.
TAX EXEMPT SECURITIES
Tax Exempt Securities are debt obligations issued by a state and its
political subdivisions, agencies and instrumentalities, the interest from
which is, in the opinion of bond counsel, exempt from federal income tax.
These securities are issued to obtain funds for various public purposes, such
as the construction of public facilities, the payment of general operating
expenses or the refunding of outstanding debts. They may also be issued to
finance various private activities, including the lending of funds to public
or private institutions for the construction of housing, educational or
medical facilities. They may also include certain types of private activity
and industrial development bonds or notes issued by public authorities to
finance privately owned or operated facilities or to fund short-term cash
requirements. Short-term Tax Exempt Securities are generally issued as
interim financing in anticipation of tax collections, revenue receipts or bond
sales to finance various public purposes. Tax Exempt Securities also include
debt obligations issued by other governmental entities (for example, U.S.
territories) if such debt obligations generate interest income which is exempt
from federal income tax.
<PAGE> 5
The two principal classifications of Tax Exempt Securities are general
obligation and limited obligation (or revenue) securities. General obligation
securities involve the credit of an issuer possessing taxing power and are
payable from the issuer's general unrestricted revenues. Their payment may
depend on an appropriation by the issuer's legislative body. The
characteristics and methods of enforcement of general obligation securities
vary according to the law applicable to the particular issuer. Limited
obligation (or revenue) securities are payable only from the revenues derived
from a particular facility or class of facilities, or a specific revenue
source, and generally are not payable from the unrestricted revenues of the
issuer. So-called "private activity bonds" and "industrial development bonds"
are in most cases limited obligation securities, the credit quality of which
is directly related to the corporate user of the facilities.
The Series may also invest in securities representing interests in Tax
Exempt Securities, known as "inverse floating obligations" or "residual
interest bonds", paying interest rates that vary inversely to changes in the
interest rates of specified short-term tax exempt securities or an index of
short-term tax exempt securities. The interest rates on inverse floating
obligations or residual interest bonds will typically decline as short-term
market interest rates increase and increase as short-term market rates
decline. Such securities have the effect of providing a degree of investment
leverage, since they will generally increase or decrease in value in response
to changes in market interest rates at a rate which is a multiple (typically
two) of the rate at which fixed-rate long-term tax exempt securities increase
or decrease in response to such changes. As a result, the market values of
inverse floating obligations and residual interest bonds will generally be
more volatile than the market values of fixed-rate Tax Exempt Securities. To
seek to limit the interest rate risk of these securities, the Series may
purchase inverse floating obligations with shorter-term maturities or which
contain limitations on the extent to which the interest rate may vary. There
is no limit on the percentage of assets that may be invested in inverse
floating obligations or residual interest bonds.
RISK AND ADDITIONAL INFORMATION ABOUT INVESTMENT POLICIES
Set forth below is further information about certain types of securities
in which the Series may invest, as well as information about additional types
of investments and certain strategies the Series may pursue. These policies
have been voluntarily adopted by the Board of Directors based upon current
circumstances and may be changed or amended by action of the Board of
Directors without prior approval of the Series' shareholders. Additional
information concerning these strategies and their related risks is contained
in the Statement of Additional Information.
INVESTMENTS IN PREMIUM SECURITIES
During a period of declining interest rates, many of the Series'
portfolio investments will likely bear coupon rates which are higher than
current market rates, regardless of whether such securities were originally
purchased at a premium. Such securities would generally carry market values
greater than the principal amounts payable on maturity, which would be
reflected in the net asset value of the Series' shares. The value of such
"premium" securities tends to approach the principal amount as they approach
maturity (or call price in the case of securities approaching their call
date). As a result, an investor who purchases shares of the Series during
such periods would initially receive higher monthly distributions (derived
from the higher coupon rates payable on the Series' investments) than might be
available from alternative investments bearing current market interest rates,
but may face an increased risk of capital loss as these higher coupon
securities approach maturity (or call date). In evaluating the potential
performance of an investment in the Series, investors may find it useful to
compare the Series' current dividend rate with the Series' "yield", which is
computed on a yield-to-maturity basis in accordance with Securities and
Exchange Commission regulations and which reflects amortization of market
premiums.
<PAGE> 6
ZERO-COUPON BONDS
Some of the securities in which the Series invests may include so-called
"zero-coupon" bonds. Zero-coupon bonds are issued at a significant discount
from face value and pay interest only at maturity rather than at intervals
during the life of the security. The Series is required to accrue and
distribute income from zero-coupon bonds on a current basis, even though it
does not receive that income currently in cash. Thus, the Series may have to
sell investments to obtain cash needed to make income distributions. The
discount in the absence of financial difficulties of the issuer decreases as
the final maturity of the security approaches. Zero-coupon bonds can be sold
prior to their maturity date in the secondary market at the then prevailing
market value, which depends primarily on the time remaining to maturity,
prevailing level of interest rates and the perceived credit quality of the
issues. The market prices of zero-coupon securities are subject to greater
fluctuations in response to changes in market interest rates than bonds which
pay interest currently.
RISKS ASSOCIATED WITH THE SERIES' INVESTMENT PROGRAM
At times, a portion of the Series' assets may be invested in Tax Exempt
Securities as to which the Series, by itself or together with other funds and
accounts managed by the Advisor, holds a major portion or all of an issue of
such securities. Under adverse market or economic conditions or in the event
of adverse changes in the financial condition of the issuer, the Series could
find it more difficult to sell such securities when the Advisor believes it
advisable to do so or may be able to sell such securities only at prices lower
than if such securities were more widely held. Under such circumstances, it
may also be more difficult to determine the fair value of such securities for
purposes of computing the Series' net asset value. In order to enforce its
rights in the event of a default under such securities, the Series may be
required to take possession of and manage assets securing the issuer's
obligations on such securities, which may increase the Series' operating
expenses and adversely affect the Series' net asset value. Any income derived
from the Series' ownership or operation of such assets would not be
tax-exempt. Securities rated Baa by Moody's or BBB by Standard & Poors are
considered investment grade but may have speculative characteristics and
changes in economic conditions or circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case
with more highly rated securities.
Certain securities held by the Series may permit the issuer at its option
to "call", or redeem, its securities. If an issuer were to redeem securities
held by the Series during a time of declining interest rates, the Series may
not be able to reinvest the proceeds in securities providing the same
investment return as the securities redeemed.
FINANCIAL FUTURES AND OPTIONS
The Series may purchase and sell financial futures contracts for hedging
purposes. Futures contracts on a Municipal Bond Index are traded on the
Chicago Board of Trade. This Index is intended to represent a numerical
measure of market performance for long-term tax exempt bonds. An "index
future" is a contract to buy or sell units of a particular securities index at
an agreed price on a specified future date. Depending on the change in value
of the index between the time when the Series enters into and terminates an
index future, the Series realizes a gain or loss. The Series may purchase and
sell futures contracts on the Index (or any other tax exempt bond index
approved for trading by the Commodity Futures Trading Commission) to hedge
against general changes in market values of Tax Exempt Securities which the
Fund owns or expects to purchase. The Series may also purchase and sell put
and call options on index futures, and on the indices directly, in addition or
as an alternative to purchasing and selling financial futures contracts.
<PAGE> 7
The Series may also, for hedging purposes, purchase and sell futures
contracts and related options with respect to U.S. government securities,
including U.S. Treasury bills, notes and bonds ("U.S. Government Securities")
and options directly on U.S. Government Securities. The Advisor believes
that, under certain market conditions, price movements in U.S. Government
Securities futures and related options may correlate closely with price
movements in Tax Exempt Securities and may as a result provide hedging
opportunities for the Series. U.S. Government Securities futures and related
options would be used in a way similar to the Series' use of index futures and
related options. The Series will only purchase or sell U.S. Government
Securities futures or related options when, in the opinion of the Advisor,
price movements in such futures and options will correlate closely with price
movements in the Tax Exempt Securities which are the subject of the hedge.
The Series may purchase or sell futures contracts if immediately
thereafter the sum of the amount of initial margin deposits on any such
futures (plus deposits on any other futures contracts and premiums paid in
connection with any options or futures contracts) that do not constitute
"bona fide hedging" under Commodity Futures Trading Commission ("CFTC") rules
would exceed 5% of the liquidation value of the Series' total assets after
taking into account unrealized profits and losses on such contracts. In
addition, the value of all futures contracts sold will not exceed the total
market value of the Series' portfolio. The Series will comply with guidelines
established by the Securities and Exchange Commission with respect to covering
of obligations under futures contracts and will set aside liquid
assets in a segregated account with its Custodian in the amount
prescribed.
The use of futures and options involves certain special risks and may
result in realization of taxable capital gains. Futures and options
transactions involve costs and may result in losses. Certain risks arise
because of the possibility of imperfect correlations between movements in the
prices of financial futures and options and movements in the prices of the
underlying bond index or U.S. Government Securities or the Tax Exempt
Securities which are the subject of the hedge. The successful use of futures
and options further depends on the Advisor's ability to forecast interest rate
movements correctly. Other risks arise from the Series' potential inability
to close out its futures or related options positions, and there can be no
assurance that a liquid secondary market will exist at a particular time.
Certain provisions of the
Internal Revenue Code and other regulatory requirements may limit the Series'
ability to engage in futures and options transactions.
A more detailed explanation of futures and options transactions,
including the risks associated with them, is included in the Statement of
Additional Information.
REPURCHASE AGREEMENTS AND FORWARD COMMITMENTS
The Series may enter into repurchase agreements on up to 25% of its
assets. These transactions must be fully collateralized at all times but
involve some risk to the Series if the other party should default on its
obligation and the Series is delayed or prevented from recovering the
collateral. The Series may also purchase securities for future delivery,
which may increase its overall investment exposure and involves a risk of loss
if the value of the securities declines prior to the settlement date.
LIMITING INVESTMENT RISK
Specific investment restrictions help the Series limit investment risks
for its shareholders. These restrictions prohibit the Series from investing
more than: (a) (with respect to 75% of its total assets) 5% of its total
assets in the securities of any one issuer, other than U.S. Government
Securities;* (b) 5% of its net assets in securities of any issuer if the party
responsible for payment, together with any predecessor, has been in operation
for less than three years (except obligations of the U.S. Government or
agencies or instrumentalities and obligations backed by the faith, credit and
taxing power of any person authorized to issue Tax Exempt Securities); (c) 10%
of its net assets in securities restricted as to resale; and (d) 10% of its
net assets in any combination of securities that are not readily marketable,
in securities restricted as to resale (excluding Rule 144A securities
determined by the Series' Board of Directors [or the person supervised by the
Series' Board of Directors to make such determinations] to be readily
marketable), and repurchase agreements maturing in more than seven days; (e)
25% or more of the value of its total assets in securities of issuers in any
one industry (other than U.S. Government Securities). In addition, the Series
may borrow money, but only from a bank for temporary or emergency purposes in
amounts not exceeding 10% of the Series' total assets.
<PAGE> 8
Restrictions marked with an asterisk (*) above are summaries of
fundamental policies. See the Statement of Additional Information for the
full text of these policies and the Series' other fundamental policies.
Except for investment policies designated as fundamental in this Prospectus or
the Statement of Additional Information, the investment policies described in
this Prospectus and in the Statement of Additional Information are not
fundamental policies. The Board of Directors may change any non-fundamental
investment policies without shareholder approval. As a matter of policy, the
Board of Directors would not materially change the Series' investment
objective without shareholder approval.
MANAGEMENT
The overall business and affairs of the Series are managed by its Board
of Directors. The Board approves all significant agreements between the
Series and persons or companies furnishing services to the Series, including
the Series' agreements with its Investment Advisor and Custodian. The
day-to-day operations of the Fund are delegated to the Fund's officers and to
Manning & Napier Advisors, Inc. (the "Advisor"), 1100 Chase Square, Rochester,
New York 14604. A committee made up of investment professionals and analysts
make all the investment decisions for the Fund.
The Advisor acts as investment advisor to the Fund. Mr. William Manning
controls the Advisor by virtue of his ownership of the securities of the
Advisor. The Advisor also is generally responsible for supervision of the
overall business affairs of the Series including supervision of service
providers to the Series and direction of the Advisor's directors, officers or
employees who may be elected as officers of the Fund to serve as such.
As of the date of this Prospectus, the Advisor supervised over
$6.5 billion in assets of clients, including both individuals and
institutions. For its services to the Fund under the Investment Advisory
Agreement, the Fund pays the Advisor a fee, computed daily and payable
monthly, at an annual rate of .50% of the Fund's average daily net assets.
Clients for whom the Advisor provides advisory services pursuant to separate
investment advisory contracts will be separately rebated by the Advisor an
amount equal to the portion of their client advisory fee attributable to the
portion of their assets invested in the Fund. In addition, the Advisor is
separately compensated for acting as Transfer Agent for the Series. The Fund
is responsible for its operating expenses, including: (i) interest and taxes;
(ii) brokerage commissions; (iii) insurance premiums; (iv) compensation and
expenses of its Directors other than those affiliated with the Advisor; (v)
legal and audit expenses; (vi) fees and expenses of the Fund's custodian, and
accounting services agent, if obtained for the Fund from an entity other than
the Advisor; (vii) expenses incidental to the issuance of its shares,
including issuance on the payment of, or reinvestment of, dividends and
capital gain distributions; (viii) fees and expenses incidental to the
registration under federal or state securities laws of the Fund or its shares;
(ix) expenses of preparing, printing and mailing reports and notices and proxy
material to shareholders of the Fund; (x) all other expenses incidental to
holding meetings of the Fund's shareholders; (xi) dues or assessments of or
contributions to the Investment Company Institute or any successor; and, (xii)
such non-recurring expenses as may arise, including litigation affecting the
Fund and the legal obligations with respect to which the Fund may have to
indemnify its officers and Directors.
<PAGE> 9
The Advisor may use its own resources to engage in activities that may
promote the sale of the Fund, including payments to third parties who provide
shareholder support servicing and distribution assistance. Investors may be
charged a fee if they effect transactions through a broker or agent.
YIELD AND TOTAL RETURN
From time-to-time the Series may advertise total return and yield. Both
total return and yield figures are based on historical earnings and are not
intended to indicate future performance. The "total return" of a Series
refers to the average annual compounded rates of return over one-, five-, and
ten-year periods or for the life of the Series (as stated in the
advertisement) that would equate an initial amount invested at the beginning
of a stated period to the ending redeemable value of the investment, assuming
the reinvestment of all dividend and capital gains distributions.
The "30-day yield" of a series is calculated by dividing the net
investment income per share earned during a 30-day period by the maximum
offering price per share on the last day of the period. Net investment
income includes interest and dividend income earned on a Series' securities;
it is net of all expenses and all recurring and nonrecurring charges that have
been applied to all shareholder accounts. The yield calculation assumes that
net investment income earned over 30 days is compounded monthly for six months
and then annualized. Methods used to calculate advertised yields are
standardized for all stock and bond mutual funds. However, these methods
differ from the accounting methods used by a Series to maintain its books and
records, and so the advertised 30-day yield may not fully reflect the income
paid to your own account or the yield reported in the Series' reports to
shareholders.
PURCHASES, EXCHANGES AND REDEMPTIONS OF SHARES
The minimum initial investment in the Series is $2,000 and subsequent
purchases must be at least $100. These minimums may be waived at the Fund's
discretion. The Distributor has the right to refuse any order.
Purchases and redemptions of shares of the Series may be made on any day
the New York Stock Exchange is open for trading.
A purchase order will be effective as of the day received by the
Distributor, Transfer Agent, or its agents, if the order is received before
4:00 p.m., Eastern time by the Distributor, Transfer Agent, or its agents.
Payment may be made by check or readily available funds. The purchase price
of shares of the Series is the net asset value next determined after a
purchase order is effective.
The shares of the Series may be purchased in exchange for securities to
be included in the Series, subject to the Advisor's determination that these
securities are acceptable. Securities accepted in an exchange will be valued
at market value. All accrued interest and purchase or other rights which are
reflected in the market price of accepted securities at the time of valuation
become the property of the Series and must be delivered by the shareholder to
the Series upon receipt from the issuer.
The Advisor will not accept securities for the Series unless: (1) such
securities are appropriate in the Series at the time of the exchange; (2) the
shareholder represents and agrees that all securities offered to the Series
are not subject to any restrictions upon their sale by the Series under the
Securities Act of 1933, or otherwise; and, (3) prices are available from an
independent pricing service provided by the Series' Board of Directors.
<PAGE> 10
Shareholders may purchase shares regularly through the Automatic
Investment Plan with a pre-authorized draft drawn on their checking account.
Under this plan, the shareholder may elect to have a specified amount invested
on a regular schedule. The amount specified by the shareholder will be
withdrawn from the shareholder's bank account using the pre-authorized draft.
This amount will be invested at the applicable share price determined on the
date the amount is available for investment. Participation in the Automatic
Investment Plan may be discontinued either by the Fund or the Shareholder upon
30 days' prior written notice to the other party. A shareholder who wishes to
enroll in the Automatic Investment Plan may do so by completing the applicable
section of the Account Application Form or contacting the Fund for an
Automatic Investment Plan Form.
As permitted pursuant to any rule, regulation or order promulgated by the
Securities and Exchange Commission, some or all of the shares in a direct
investment account with the Fund for which payment has been received by the
Fund may be exchanged for shares of any of the other Manning & Napier Fund,
Inc. Series at the net asset value next determined after an exchange order is
effective. Shareholders may effect up to 4 exchanges in a 12-month period
without charge. Subsequent exchanges are subject to a fee of $15. Exchanges
will be made after instructions in writing or by telephone are received by the
Transfer Agent in proper form (i.e., if in writing - signed by the record
owner(s) exactly as the shares are registered; if by telephone - proper
account identification is given by the shareholder) and each exchange must
involve either shares having an aggregate value of at least $1,000 or all the
shares in the account. A shareholder should read the prospectus of the other
Series and consider the differences in objectives and policies before making
any exchange. The exchange privilege may not be available in all states. For
federal and state income tax purposes, an exchange is treated as a sale of the
shares exchanged and therefore, an exchange could result in a gain or loss to
the shareholder making the exchange. The Series may modify or terminate this
exchange offer upon 60 days' notice to shareholders subject to applicable law.
If a shareholder desires to redeem his shares at their net asset value,
the shareholder must send a written request for redemption in "Good Order" to
the Transfer Agent. "Good Order" generally means that the written request for
redemption must be endorsed by the record owner(s) exactly as the shares are
registered and the signature(s) must be guaranteed by an "eligible guarantor
institution" as that term is defined under Rule 17Ad-15(a)(2) under the
Securities Exchange Act of 1934. Currently, such procedures generally permit
guarantees by a commercial bank or trust company, a member bank of the Federal
Reserve System, or a member firm of a national securities exchange.
Redemption requirements for corporations, other organizations, trusts,
fiduciaries, and retirement plans may require additional documentation.
Please contact the Advisor at 1-800-466-3863 for more information. The
Transfer Agent may make certain de minimis exceptions to the above
requirements for redemption. Within three days after receipt of a redemption
request by the Transfer Agent in "Good Order", the Series will make payment in
cash, except as described below, of the net asset value of the shares next
determined after such redemption request was received, except during any
period in which the right of redemption is suspended or date of payment is
postponed because the New York Stock Exchange is closed or trading on such
Exchange is restricted or to the extent otherwise permitted by the Investment
Company Act of 1940 if an emergency exists. For shares purchased, or received
in exchange for shares purchased, by check (including certified checks or
cashier's checks) payment of redemption proceeds may be delayed up to 15 days
from the purchase date in an effort to assure that such checks has cleared.
Subject to the Series' compliance with applicable regulations, the Series
has reserved the right to pay the redemption price either totally or partially
by a distribution in-kind of securities (instead of cash) from the Series'
portfolio. The securities distributed in such a distribution would be valued
at the same amount as that assigned to them in calculating the net asset value
for the shares being sold. If a shareholder received a distribution in-kind,
he could incur brokerage or transaction charges when converting the securities
to cash. The Fund has elected, however, to be governed by Rule 18f-1
under the 1940 Act as a result of which the Fund is obligated to redeem
shares, with respect to any one shareholder during any 90-day period, solely
in cash up to the lesser of $250,000 or 1% of the net asset value of the Fund
at the beginning of the period.
<PAGE> 11
Due to the relatively high cost of maintaining small accounts, the Series
reserves the right to redeem shares in any account for their then-current
value (which will be promptly paid to the shareholder) if at any time the
total investment in such account drops below $1,000 because of redemptions
(but not due to changes in net asset value). Shareholders will be notified
that the value of their account is less than the minimum investment
requirement and allowed 60 days to make an additional investment before the
redemption is processed.
Manning & Napier Investor Services, Inc. acts as Distributor of the Fund
shares and is located at the same address as the Advisor and the Fund. The
Distributor receives no fee from the Fund and there are no additional costs to
shareholders for this service. The Advisor may, from its own resources,
defray or absorb costs related to distribution, including compensation of
employees who are involved in distribution.
NET ASSET VALUE
The Series' net asset value per share is determined as of the closing
time of the New York Stock Exchange or, in the absence of a closing time, 4:00
p.m. Eastern time on each day that the New York Stock Exchange is open for
trading. The exchange annually announces the days on which it will not be
open for trading; the most recent announcement indicates that it will not be
open on: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value per share is the value of the Series' assets, less
its liabilities, divided by the number of shares of the Series outstanding.
The value of the Series' portfolio securities will be the market value of such
securities as determined based on quotes provided by a pricing service (which
uses the methodology outlined in the "Net Asset Value" section of the
Statement of Additional Information) approved by the Board of Directors, or,
in the absence of market quotations, fair value as determined in good faith by
or under the direction and control of the Board of Directors. Short-term
investments which mature in less than 60 days are normally valued at amortized
cost. See the Statement of Additional Information for further information.
DIVIDENDS AND TAX STATUS
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
The Series intends to distribute to its shareholders on an quarterly
basis dividends substantially equal to all of its net investment income. The
Series also intends to distribute net realized short and long-term capital
gains, if any, taking into account any available capital loss carryforwards
from prior years at least annually. Dividends and distributions will be paid
in full and fractional shares of the Series, based on the net asset value per
share at the close of business on the record date, although a shareholder may,
prior to the record date, request, by writing or by telephone call to the
Fund, that payments of either ordinary income dividends or capital gain
distributions, or both, be made in cash. The Fund will notify each
non-corporate taxable shareholder after the close of its fiscal year both of
the dollar amount and the tax status of that year's distributions. Generally,
the Fund will be required to impose backup withholding at the rate of 31% from
ordinary income dividends, capital gain distributions and redemption payments
made to non-corporate shareholders, if provisions of the law relating to the
furnishing of taxpayer identification numbers and reporting of dividends are
not complied with by such shareholders.
<PAGE> 12
If a taxable shareholder invests shortly before the Series declares a
taxable dividend, a portion of the investment will be returned as a taxable
distribution (commonly referred to as "buying into a dividend"). This
distribution will be taxable regardless of whether you elected to reinvest
your distribution in additional shares or take the distribution in cash. If
you would like to avoid buying into a dividend, you may contact the Fund to
find out when the Series plans to declare a distribution and invest after that
date.
TAX STATUS
The following is only a general summary of certain federal income tax
considerations affecting the Series and its shareholders. No attempt is made
to present a detailed explanation of the tax treatment of the Series or its
shareholders, and the discussion here is not intended as a substitute for
careful tax planning.
The following summary of federal income tax consequences is based on
current tax laws and regulations, which may be changed by legislative,
judicial or administrative action.
Under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), the Series of the Fund is treated as a separate entity for federal
income tax purposes. The Series intends to qualify each year as a regulated
investment company under Subchapter M of the Code. If the Series qualifies,
the Series will not be subject to federal income taxes on its net investment
income and net capital gain, if any, which the Series distributes to its
shareholders, provided that at least 90% of such Series' exempt income and 90%
of the Series' "investment company taxable income" (generally, net investment
income and the excess of net short-term capital gain over net long-term
capital loss) for the taxable year is distributed and provided that such
Series meets certain other requirements imposed by the Code. All dividends
paid or distributed out of investment company taxable income (other than
exempt interest dividends) will be taxable as ordinary income to the
shareholders. Any "net capital gain" (the excess of net long-term capital
gain over short-term capital loss) distributed to shareholders is taxable as
long-term capital gain to the shareholders, regardless of the length of time a
shareholder has owned his shares. Generally, such dividends and distributions
are taxable in the year in which received, but dividends and distributions
declared in October, November or December of any year to shareholders of
record on a date in such month are treated as paid on December 31 of such year
if they are paid during January of the following calendar year. Distributions
designated by the Series as "exempt-interest dividends" are not generally
subject to federal income tax. However, if you receive Social Security and
railroad retirement benefits, you should consult your tax adviser to determine
what effect, if any, an investment in the Series may have on the taxation of
your benefits. In addition, an investment in the Series may result in
liability for federal alternative minimum tax and for state and local taxes,
both for individual and corporate shareholders.
A 4% non-deductible federal excise tax is imposed on a regulated
investment company that fails to distribute substantially all of its ordinary
income and capital gain net income for each calendar year. Currently the
Series intends to make sufficient distributions of its ordinary income and
capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax.
Shareholders are also urged to consult their tax advisors concerning the
application of state and local income taxes and of foreign taxes to investment
in the Series, which may differ from the U.S. federal income tax consequences
described above.
STATE AND LOCAL TAXES
Depending upon the extent of the Series' activities in those states and
localities in which its offices are maintained or in which its agents or
independent contractors are located, the Series may be subject to the tax laws
of such states or localities. In addition, the exemption of interest income
for federal income tax purposes does not necessarily result in exemption under
the income or other tax laws of any state or local taxing authority. The laws
of the several states and local taxing authorities vary with respect to the
taxation of such interest income, and each holder of shares of the Series is
advised to consult his own tax advisor in that regard. The Series will report
annually the percentage of interest income received during the preceding year
on tax exempt obligations, and on a state-by-state basis, the source of such
income.
<PAGE> 13
GENERAL INFORMATION
The Fund was incorporated on July 26, 1984 as a Maryland corporation.
The Board of Directors may, at its own discretion, create additional series of
shares, each of which would have separate assets and liabilities. The Fund
does not expect to hold annual meetings of shareholders but special meetings
of shareholders may be held under certain circumstances. Shareholders of the
Fund retain the right, under certain circumstances, to request that a meeting
of shareholders be held for the purpose of considering the removal of a
Director from office, and if such a request is made, the Fund will assist with
shareholder communications in connection with the meeting. The shares of the
Fund have equal rights with regard to voting, redemption, dividends,
distributions and liquidations.
The Fund's shareholders will vote in the aggregate and not by Series
except as otherwise expressly required by law or when the Board of Directors
determines that the matter to be voted upon affects only the interests of the
shareholders of a Series. Income, direct liabilities and direct operating
expenses of the Series will be allocated directly to the Series, and general
liabilities and expenses of the Fund will be allocated among the Series in
proportion to the total net assets of the Series by the Board of Directors.
The holders of shares have no preemptive or conversion rights. Shares when
issued are fully paid and non-assessable and do not have cumulative voting
rights.
All securities and cash are held by Boston Safe Deposit and Trust
Company. Coopers & Lybrand, L.L.P. serves as independent accountants for the
Series and will audit its financial statements annually.
Manning & Napier Advisors, Inc. serves as the Fund's Transfer and
Dividend Disbursing Agent. Shareholder inquiries should be directed to
Manning & Napier Fund, Inc., P.O. Box 41118, Rochester, New York 14604.
<PAGE> 14
APPENDIX
DESCRIPTION OF MUNICIPAL AND CORPORATE BOND RATINGS
Moody's Investors Services, Inc.'s municipal and corporate bond ratings:
Aaa - Bonds that are rated Aaa are judged to be of the best quality and
carry the smallest degree of investment risk. Interest payments are protected
by a large or by an exceptionally stable margin, and principal is secure.
While the various protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in Aaa
securities.
A - Bonds that are rated A possess many favorable investment attributes
and are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds that are rated Baa are considered medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Moody's applies numerical modifiers "1", "2" and "3" to both the Aaa and Aa
rating classifications. The modifier "1" indicates that the security ranks in
the higher end of its generic rating category; the modifier "2" indicates a
mid-range ranking; and the modifier "3" indicates that the issue ranks in the
lower end of its generic rating category.
Moody's may also assign conditional ratings to municipal bonds. Bonds for
which the security depends upon the completion of some act or the fulfillment
of some condition are rated conditionally. These are bonds secured by (a)
earnings of projects under construction, (b) earnings of projects unseasoned
in operating experience, (c) rentals which when facilities are completed, or
(d) payments to which some other limiting condition attaches. Parenthetical
rating denotes probable credit stature upon completion of construction or
elimination of basis of condition.
Standard & Poor's Corporation's municipal and corporate bond ratings:
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-uality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only to a small degree.
A - Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB -Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than in higher rated categories.
<PAGE> 15
Standard & Poor's may modify the rating from "AA" to "B" by the addition of a
plus or minus sign to show relative standing within the major rating
categories. Standard & Poor's ratings may also be indicated by "NR". This
designation indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.
Standard & Poor's may also assign conditional ratings to municipal bonds. The
letter "p" indicates that the rating is provisional. A provisional rating
assumes the successful completion of the project being financed by the debt
being rated and indicates that payment of debt service requirements is largely
or entirely dependent upon the successful timely completion of the project.
This rating, however, while addressing credit quality subsequent to completion
of the project, makes no comment on the likelihood of, or the risk of default
upon failure of, such completion. The investor should exercise his own
judgment with respect to such likelihood and risk.
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Moody's Investor Services, Inc.'s commercial paper ratings:
P-1-Commercial papers which are rated P- are judged to have a superior
ability for repayment of senior short-erm debt obligations. Prime-
repayment ability will often be evidenced by many of the following
characteristics:
-Leading market positions in well-established industries.
-High rates of return on funds employed.
-Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
-Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
-Well-established access to a range of financial markets and assured
sources of alternate liquidity.
P-2 - Commercial papers which are rated P-2 are judged to have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a
lesser degree. Earnings trends and coverage ratios, while sound, may be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
P-3 - Commercial papers which are rated P-3 are judged to have an
acceptable ability for repayment of senior short-term obligations. The effect
of industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level
of debt protection measurements and may require relatively high financial
leverage. Adequate alternate liquidity is maintained.
Standard & Poor's Corporation's commercial paper ratings:
A-1 - This is the highest category and indicates that the degree of
safety regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
A-2 - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-3 - Issues carrying this designation have adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of changes
in circumstances than obligations carrying the higher designations.
B - Issues rated B are regarded as having only speculative capacity for
timely payment.
C - This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
D - Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due,
even if the applicable grace period has not expired, unless S&P believes that
such payments will be made during such grace period.
<PAGE> 16
MANNING & NAPIER FUND, INC.
Statement of Additional Information dated April 14, 1997
This Statement of Additional Information is not a Prospectus, and it should be
read in conjunction with each Series' Prospectus for the Small Cap Series,
Energy Series, Technology Series, Financial Services Series, International
Series, Life Sciences Series, Global Fixed Income Series, Blended Asset Series
I, Blended Asset Series II, Flexible Yield Series I, Flexible Yield Series II,
Flexible Yield Series III, New York Tax Exempt Series, Ohio Tax Exempt Series,
Diversified Tax Exempt Series, Tax Managed Series, Defensive Series, Maximum
Horizon Series and the World Opportunities Series, copies of which may be
obtained from Manning & Napier Advisors, Inc., 1100 Chase Square, Rochester,
NY 14604.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Page
----
Investment Objective, Policies and
Restrictions of the Fund B-2
Risk and Investment Policies B-2
Investment Restrictions B-17
Portfolio Turnover B-19
Management B-19
The Advisor B-25
Custodian and Independent Accountant B-27
Portfolio Transactions and Brokerage B-27
Net Asset Value B-29
Redemption of Shares B-29
Payment for Shares Received B-29
Redemption in Kind B-29
Federal Tax Treatment of Dividends and
Distributions B-30
Qualification as Regulated Investment
Company B-30
Fund Distributions B-32
Other Considerations B-34
</TABLE>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS OF THE FUND
Each Series' portfolio and strategies with respect to the composition of
their respective portfolios are described in the prospectus. If there is a
change in the Series' investment objective, shareholders will be notified
thirty (30) days prior to any such change and will be advised to consider
whether the fund remains an appropriate investment in light of their then
current financial position and needs. Convertible bonds purchased by the
Series may have a call feature. Warrants purchased by the Fund may or may not
be listed on a national securities exchange. The Fund has no current
intention to engage in "short sales against the box". All of the Series'
policies regarding options discussed below are fundamental.
RISK AND INVESTMENT POLICIES
Writing Covered Call and Secured Put Options
As a means of protecting their assets against market declines, and in an
attempt to earn additional income, each Series may write covered call option
contracts on its securities and may purchase call options for the purpose of
terminating its outstanding obligations with respect to securities upon which
covered call option contracts have been written.
As described in the Prospectus, when a Series writes a call option on
securities which it owns, it gives the purchaser of the option the right to
buy the securities at an exercise price specified in the option at any time
prior to the expiration of the option. If any option is exercised, a Series
will realize the gain or loss from the sale of the underlying security and the
proceeds of the sale will be increased by the net premium originally received
on the sale of the option. By writing a covered call option, a Series may
forego, in exchange for the net premium, the opportunity to profit from an
increase in the price of the underlying security above the option's exercise
price. A Series will have kept the risk of loss if the price of the security
declines, but will have reduced the effect of that risk to the extent of the
premium it received when the option was written.
A Series will write only covered call options which are traded on
national securities exchanges. Currently, call options on stocks may be
traded on the Chicago Board Options Exchange and the New York, American,
Pacific and Philadelphia Stock Exchanges. Call options are issued by the
Options Clearing Corporation ("OCC"), which also serves as the clearing house
for transactions with respect to standardized or listed options. The price of
a call option is paid to the writer without refund on expiration or exercise,
and no portion of the price is retained by OCC or the exchanges listed above.
Writers and purchasers of options pay the transaction costs, which may include
commissions charged or incurred in connection with such option transactions.
A Series may write only covered call options. A call option is
considered to be covered if the option writer owns the security underlying the
call or has an absolute and immediate right to acquire that security without
payment of additional cash consideration (or for additional cash consideration
held in a segregated account by its custodian) upon conversion or exchange of
other securities. A call option is also considered to be covered if the
writer holds on a unit-for-unit basis a call on the same security as the call
written, has the same expiration date and the exercise price of the call
purchased is equal to or less than the exercise price of the call written or
greater than the exercise price of the call written if the difference is
maintained in cash, Treasury bills or other liquid high grade short-term
obligations in a segregated account with its custodian, and marked-to-market
daily. A Series will not sell (uncover) the securities against which options
have been written until after the option period has expired, the option has
been exercised or a closing purchase has been executed.
<PAGE> B-2
Options written by a Series will have exercise prices which may be below
("in-the-money"), equal to ("at-the-money") or above ("out-of-the-money") the
market price of the underlying security at the time the options are written.
However, a Series generally will not write so-called "deep-in-the-money"
options.
The market value of a call option generally reflects the market price of
the underlying security. Other principal factors affecting market value
include supply and demand, dividend yield and interest rates, the price
volatility of the underlying security and the time remaining until the
expiration date.
If a call option on a security expires unexercised, a Series will realize
a short-term capital gain in the amount of the premium on the option, less all
commissions paid. Such a gain, however, may be offset by a decline in the
value of the underlying security during the option period. If a call option
is exercised, a Series will realize a gain or loss from the sale of the
underlying security equal to the difference between the cost of the underlying
security and the proceeds of the sale of the security (exercise price minus
commission) plus the amount of the premium on the option, less all commissions
paid.
Call options may also be purchased by a Series, but only to terminate
(entirely or in part) a Series' obligation as a writer of a call option. This
is accomplished by making a closing purchase transaction, that is, the
purchase of a call option on the same security with the same exercise price
and expiration date as specified in the call option which had been written
previously. A closing purchase transaction with respect to calls traded on a
national securities exchange has the effect of extinguishing the obligation of
the writer of a call option. A Series may enter into a closing purchase
transaction, for example, to realize a profit on an option it had previously
written, to enable it to sell the security which underlies the option, to free
itself to sell another option or to prevent its portfolio securities from
being purchased pursuant to the exercise of a call. A Series may also permit
the call option to be exercised. A closing transaction cannot be effected
with respect to an optioned security once a Series has received a notice that
the option is to be exercised.
The cost to a Series of such a closing transaction may be greater than
the net premium received by a Series upon writing the original call option. A
profit or loss from a closing purchase transaction will be realized depending
on whether the amount paid to purchase a call to close a position is less or
more than the amount received from writing the call. Any profit realized by a
Series from the execution of a closing transaction may be partly or completely
offset by a reduction in the market price of the underlying security.
A Series may also write secured put options and enter into closing
purchase transactions with respect to such options. A Series may write
secured put options on national securities exchanges to obtain, through the
receipt of premiums, a greater return than would be realized on the underlying
securities alone. A put option gives the purchaser of the option the right to
sell, and the writer has the obligation to buy, the underlying security at the
stated exercise price during the option period. The secured put writer
retains the risk of loss should the market value of the underlying security
decline below the exercise price of the option. During the option period, the
writer of a put option may be required at any time to make payment of the
exercise price against delivery of the underlying security. The operation of
put options in other respects is substantially identical to that of call
options. The Fund will establish a separate account with the Fund's custodian
consisting of liquid assets equal to the amount of the Series assets
that could be required to consummate the put options. For purposes of
determining the adequacy of the securities in the account, the deposited
assets will be valued at fair market value. If the value of such
assets declines, additional cash or assets will be placed in
the account daily so that the value of the account will equal the amount of
such commitments by the Series.
<PAGE> B-3
A put option is secured if a Series maintains in a segregated account
with its Custodian liquid assets in an amount not less than the
exercise price of the option at all times during the option period. A Series
may write secured put options when the Advisor wishes to purchase the
underlying security for a Series' portfolio at a price lower than the current
market price of the security. In such event a Series would write a secured
put option at an exercise price which, reduced by the premium received on the
option, reflects the lower price it is willing to pay. The potential gain on
a secured put option is limited to the income earned on the amount
held in liquid assets plus the premium received on the option (less
the commissions paid on the transaction) while the potential loss equals the
difference between the exercise price of the option and the current market
price of the underlying securities when the put is exercised, offset by the
premium received (less the commissions paid on the transaction) and
income earned on the amount held in liquid assets.
A Series may purchase put options on national securities exchanges in an
attempt to hedge against fluctuations in the value of its portfolio securities
and to protect against declines in the value of individual securities.
Purchasing a put option allows the purchaser to sell the particular security
covered by the option at a certain price (the "exercise price") at any time up
to a specified future date (the "expiration date").
Purchase of a put option creates a "hedge" against a decline in the value
of the underlying security by creating the right to sell the security at a
specified price. Purchase of a put option requires payment of a premium to
the seller of that option. Payment of this premium necessarily reduces the
return available on the individual security should that security continue to
appreciate in value. In return for the premium paid, a Series protects itself
against substantial losses should the security suffer a sharp decline in
value. In contrast to covered call option writing, where one obtains greater
current income at the risk of foregoing potential future gains, one purchasing
put options is in effect foregoing current income in return for reducing the
risk of potential future losses.
A Series will purchase put options as a means of "locking in" profits on
securities held in the portfolio. Should a security increase in value from
the time it is initially purchased, a Series may seek to lock in a certain
profit level by purchasing a put option. Should the security thereafter
continue to appreciate in value the put option will expire unexercised and the
total return on the security, if it continues to be held by a Series, will be
reduced by the amount of premium paid for the put option. At the same time, a
Series will continue to own the security. Should the security decline in
value below the exercise price of the put option, however, a Series may elect
to exercise the option and "put" or sell the security to the party that sold
the put option to that Series, at the exercise price. In this case a Series
would have a higher return on the security than would have been possible if a
put option had not been purchased.
Certain Risk and Other Factors Respecting Options
As stated in the Prospectus, positions in options on securities may be
closed only by a closing transaction, which may be made only on an exchange
which provides a liquid secondary market for such options. Although a Series
will write options only when the Advisor believes a liquid secondary market
will exist on an exchange for options of the same series, there can be no
assurance that a liquid secondary market will exist for any particular
security option. If no liquid secondary market exists respecting an option
position held, a Series may not be able to close an option position, which
will prevent that Series from selling any security position underlying an
option until the option expires and may have an adverse effect on its ability
effectively to hedge its security positions. A secured put option writer who
is unable to effect a closing purchase transaction would continue to bear the
risk of decline in the market price of the underlying security until the
option expires or is exercised. In addition, a secured put writer would be
unable to use the amount held in liquid assets securities as security
for the put option for other investment purposes until the exercise or
expiration of the option.
<PAGE> B-4
Possible reasons for the absence of a liquid secondary market on an
exchange for an option include the following: (a) insufficient trading
interest in certain options; (b) restrictions on transactions imposed by an
exchange; (c) trading halts, suspensions or other restrictions imposed with
respect to particular classes or series of options or underlying securities;
(d) inadequacy of the facilities of an exchange or OCC to handle trading
volume; or (e) a decision by one or more exchanges to discontinue the trading
of options or impose restrictions on types of orders.
Each of the exchanges on which options on securities are traded has
established limitations on the number of options which may be written by any
one investor or group of investors. These limitations apply regardless of
whether the options are written in different accounts or through different
brokers. It is possible that a Series and certain other accounts managed by
the Fund's Investment Advisor, Manning & Napier Advisors, Inc., may constitute
such a group. If so, the options positions of the Series may be aggregated
with those of other clients of the Advisor.
If Series writes an over-the-counter ("OTC") option, it will enter into
an arrangement with a primary U.S. government securities dealer, which would
establish a formula price at which the Series would have the absolute right to
repurchase that OTC option. This formula price would generally be based on a
multiple of the premium received for the option, plus the amount by which the
option is exercisable below the marked price of the underlying security
("in-the-money"). For an OTC option the Fund writes, it will treat as
illiquid (for purposes of the 10% net asset limitation on illiquid securities
stated in the Prospectus) an amount of assets used to cover written OTC
options, equal to the formula price for the repurchase of the OTC option less
the amount by which the OTC option is "in-the-money". The Fund will also
treat as illiquid any OTC option held by it. The Securities and Exchange
Commission ("SEC") is evaluating the general issue of whether or not the OTC
options should be considered to be liquid securities, and the procedure
described above could be affected by the outcome of that evaluation.
Although OCC has stated that it believes (based on forecasts provided by
the exchanges on which options are traded), that its facilities are adequate
to handle the volume of reasonably anticipated options transactions, and
although each exchange has advised OCC that it believes that its facilities
will also be adequate to handle reasonably anticipated volume, there can be no
assurance that higher than anticipated trading activity or order flow or other
unforeseen events might not at times render certain of these facilities
inadequate and thereby result in the institution of special trading procedures
or restrictions.
The Series will pay brokerage and other transaction costs to write and
purchase options on securities, including any closing transactions which the
Series may execute. The Fund's program of writing and/or purchasing such
options with respect to as much of its portfolio as possible will increase the
transaction costs borne by the Series.
Stock Index Futures Contracts and Options on Stock Index Futures Contracts
Each Series, except for the Flexible Yield Series I, Flexible Yield
Series II and Flexible Yield Series III of the Fund, may enter into Stock
Index Futures Contracts to provide: (1) a hedge for a portion of the Series'
portfolio; (2) a cash management tool; (3) as an efficient way to implement
either an increase or decrease in portfolio market exposure in response to
changing market conditions. The Series may also use Stock Index Futures as a
substitute for comparable market position in the underlying securities.
Although techniques other than the sale and purchase of Stock Index Futures
Contracts could be used to adjust the exposure or hedge the Series' portfolio,
the Series may be able to do so more efficiently and at a lower cost through
the use of Stock Index Futures Contracts.
<PAGE> B-5
A Stock Index Futures Contract is a contract to buy or sell units of a
stock index at a specified future date at a price agreed upon when the
contract is made. Entering into a contract to buy units of a stock index is
commonly referred to as buying or purchasing a contract or holding a long
position in the index. Entering into a contract to sell units of a stock
index is commonly referred to as selling a contract or holding a short
position. A stock index future obligates the seller to deliver (and the
purchaser to take) an amount of cash equal to a specific dollar amount times
the difference between the value of a specific stock index at the close of the
last trading day of the contract and the price at which the agreement is made.
No physical delivery of the underlying stocks in the index is made. The
Series intend to purchase and sell futures contracts on the stock index for
which it can obtain the best price with consideration also given to liquidity.
The Series will not enter into a Stock Index Futures Contract or option
thereon if, as a result thereof, the sum of the amount of initial margin
deposits on any such futures (plus deposits on any other futures contracts and
premiums paid in connection with any options or futures contracts) that do not
constitute "bona fide hedging" under CFTC rules would exceed 5% of the
liquidation value of the Series' total assets after taking into account
unrealized profits and losses on such contracts. In addition, the value of
all futures contracts sold will not exceed the total market value of the
Series' portfolio. The Fund will comply with guidelines established by the
Securities and Exchange Commission with respect to the covering of obligations
under future contracts and will set aside liquid assets in a
segregated account with its custodian in the amount prescribed.
Unlike the purchase or sale of an equity security, no price is paid or
received by the Series upon the purchase or sale of a Stock Index Futures
Contract. Upon entering into a Futures Contract, the Series would be required
to deposit with its custodian in a segregated account in the name of the
futures broker an amount of cash or U.S. Treasury bills known as "initial
margin." This amount is required by the rules of the exchanges and is subject
to change. The nature of initial margin in futures transactions is different
from that of margin in security transactions in that futures margin does not
involve the borrowing of funds by the Series to finance the transactions.
Rather, initial margin is in the nature of a performance bond or good faith
deposit on the contract that is returned to the Series upon termination of the
futures contract, assuming all contractual obligations have been satisfied.
Subsequent payments, called "variation margin", to and from the futures
broker, are made on a daily basis as the price of the underlying stock index
fluctuates, making the long and short positions in the futures contract more
or less valuable, a process known as "marking-to-market". For example, when
the Series has purchased a Stock Index Futures Contract and the price of the
underlying stock index has risen, that futures position will have increased in
value and the Series will receive from the broker a variation margin payment
equal to that increase in value. Conversely, when the Series has purchased a
Stock Index Futures Contract and the price of the stock index has declined,
the position would be less valuable and the Series would be required to make a
variation payment to the broker.
The Series will not enter into Stock Index Futures Contracts for
speculation and will only enter into Futures Contracts which are traded on
established futures markets. The Series may, however, purchase or sell Stock
Index Futures Contracts with respect to any stock index. Nevertheless, to
hedge the Series' portfolio successfully, the Advisor must sell Stock Index
Futures Contracts with respect to indices whose movements will, in its
judgment, have a significant correlation with movements in the prices of the
Series' portfolio securities.
Closing out an open Stock Index Futures Contract sale or purchase is
effected by entering into an offsetting Stock Index Futures Contract purchase
or sale, respectively, for the same aggregate amount of identical securities
with the same delivery date. If the offsetting purchase price is less than
the original sale price, the Series realize a gain; if it is more, the Series
realize a loss. Conversely, if the offsetting sale price is more than the
original purchase price, the Series realize a gain; if it is less, the Series
realize a loss. The Series must also be able to enter into an offsetting
transaction with respect to a particular Stock Index Futures Contract at a
particular time. If the Series are not able to enter into an offsetting
transaction, the Series will continue to be required to maintain the margin
deposits on the Stock Index Futures Contract.
<PAGE> B-6
The Series may elect to close out some or all of their futures positions
at any time prior to expiration. The purpose of making such a move would be
either to reduce equity exposure represented by long futures positions or
increase equity exposure represented by short futures positions. The Series
may close their positions by taking opposite positions which would operate to
terminate the Series' position in the Stock Index Futures Contracts. Final
determinations of variation margin would then be made, additional cash would
be required to be paid or released to the Series, and the Series would realize
a loss or a gain.
Stock Index Futures Contracts may be closed out only on the exchange or
board of trade where the contracts were initially traded. Although the Series
intend to purchase or sell Stock Index Futures Contracts only on exchanges or
boards of trade where there appears to be an active market, there is no
assurance that a liquid market on an exchange or board of trade will exist for
any particular time. In such an event, it might not be possible to close a
Stock Index Futures Contract, and in the event of adverse price movements, the
Series would continue to be required to make daily cash payments of variation
margin. However, in the event Stock Index Futures Contracts have been used to
hedge portfolio securities, the Series would continue to hold securities
subject to the hedge until the Stock Index Futures Contracts could be
terminated. In such circumstances, an increase in the price of the
securities, if any, might partially or completely offset losses on the Stock
Index Futures Contract. However, as described below, there is no guarantee
that the price of the securities will, in fact, correlate with price movements
in the Futures Contract and thus provide an offset to losses on a Stock Index
Futures Contract.
There are several risks in connection with the use by the Series of Stock
Index Futures Contracts as a hedging device. One risk arises because of the
imperfect correlation between movements in the prices of the Futures Contracts
and movements in the prices of securities which are the subject of the hedge.
The Advisor will, however, attempt to reduce this risk by entering into Stock
Index Futures Contracts on indices whose movements, in its judgment, will have
a significant correlation with movements in the prices of the Series'
portfolio securities sought to be hedged.
Successful use of Stock Index Futures Contracts by the Series for hedging
purposes is also subject to the Advisor's ability to correctly predict
movements in the direction of the market. It is possible that, when the
Series have sold Futures to hedge their portfolios against a decline in the
market, the index or indices on which the Futures are written might advance
and the value of securities held in the Series' portfolio might decline. If
this were to occur, the Series would lose money on the Futures and also would
experience a decline in value in its portfolio securities. However, while
this might occur to a certain degree, the Advisor believes that over time the
value of the Series' portfolio will tend to move in the same direction as the
securities underlying the Futures, which are intended to correlate to the
price movements of the portfolio securities sought to be hedged. It is also
possible that if the Series were to hedge against the possibility of a decline
in the market (adversely affecting stocks held in their portfolios) and stock
prices instead increased, the Series would lose part or all of the benefit of
increased value of those stocks that it had hedged, because it would have
offsetting losses in their Futures positions. In addition, in such
situations, if the Series had insufficient cash, they might have to sell
securities to meet their daily variation margin requirements. Such sales of
securities might be, but would not necessarily be, at increased prices (which
would reflect the rising market). Moreover, the Series might have to sell
securities at a time when it would be disadvantageous to do so.
<PAGE> B-7
In addition to the possibility that there might be an imperfect
correlation, or no correlation at all, between price movements in the Stock
Index Futures Contracts and the portion of the portfolio to be hedged, the
price movements in the Futures Contracts might not correlate perfectly with
price movements in the underlying stock index due to certain market
distortions. First, all participants in the futures market are subject to
margin deposit and maintenance requirements. Rather than meeting additional
margin deposit requirements, investors might close Stock Index Futures
Contracts through offsetting transactions which could distort the normal
relationship between the index and futures markets. Second, the margin
requirements in the futures market are less onerous than margin requirements
in the securities markets. Due to the possibility of price distortion in the
futures market and also because of the imperfect correlation between price
movements in the stock index and movements in the prices of Stock Index
Futures Contracts, even a correct forecast of general market trends by the
Advisor might not result in a successful hedging transaction over a very short
time period.
Options on Futures give the purchaser the right, in return for a premium
paid, to assume a position in a Futures Contract (a long position if a call
option and a short position if a put option), rather than to purchase or sell
the Stock Index Futures Contract, at a specified exercise price at any time
during the period of the option. Upon exercise of the option, the delivery of
the Futures position by the writer of the option to the holder of the option
will be accompanied by delivery of the accumulated balance in the writer's
Futures margin account which represents the amount by which the market price
of the Stock Index Futures Contract, at exercise, exceeds (in the case of a
call) or is less than (in the case of a put) the exercise price of the option
on the Futures Contract. Alternatively, settlement may be made totally in
cash.
The Series may seek to close out an option position on an index by
writing or buying an offsetting option covering the same index or contract and
having the same exercise price and expiration date. The ability to establish
and close out positions on such options will be subject to the development and
maintenance of a liquid secondary market. It is not certain that this market
will develop. Reasons for the absence of a liquid secondary market on an
exchange include the following: (i) insufficient trading in certain options;
(ii) restrictions that may be imposed by an exchange on opening transactions
or closing transactions or both; (iii) trading halts, suspensions or other
restrictions that may be imposed with respect to particular classes or series
of options, or underlying securities; (iv) unusual or unforeseen circumstances
that may interrupt normal operations on an exchange; (v) the facilities of an
exchange or a clearing corporation may not be adequate to handle unusual
trading volume; or (vi) one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of options (or particular class or series of options), in which event the
secondary market on that exchange would cease to exist, although outstanding
options on the exchange that had been issued by a clearing corporation as a
result of trades on that exchange would continue to be exercisable in
accordance with their terms. There is no assurance that higher than
anticipated trading activity or other unforeseen events might not, at times,
render certain of the facilities of any of the clearing corporations
inadequate, and thereby result in the institution by an exchange of special
procedures which may interfere with timely execution of customers' orders.
Futures on Securities
A futures contract on a security is a binding contractual commitment
which, if held to maturity, will result in an obligation to make or accept
delivery, during a particular month, of securities having a standardized face
value and rate of return. Futures contracts, by law are not permitted on
individual corporate securities and municipal securities but instead are
traded on exempt securities, such as government securities and broad-based
indexes of securities.
<PAGE> B-8
these futures contracts will primarily consist of futures based on government
securities (i.e., Treasury Bonds). By purchasing futures on securities, the
Fund will legally obligate itself to accept delivery of the underlying
security and pay the agreed price; by selling futures on securities, it will
legally obligate itself to make delivery of the security against payment of
the agreed price. Open futures positions on securities are valued at the most
recent settlement price, unless such price does not reflect the fair value of
the contract, in which case the positions will be valued by or under the
direction of the Board of Directors.
Positions taken in the futures markets are not normally held to maturity,
but are instead liquidated through offsetting transactions which may result in
a profit or a loss. While the Fund's futures contracts on securities will
usually be liquidated in this manner, it may instead make or take delivery of
the underlying securities whenever it appears economically advantageous for
the Fund to do so. A clearing corporation associated with the exchange on
which futures on securities or currency are traded guarantees that, if still
open, the sale or purchase will be performed on the settlement date.
Foreign Currency Transactions
In order to protect against a possible loss on investments resulting from
a decline in a particular foreign currency against the U.S. dollar or another
foreign currency, each Series except the Tax Exempt Series of the Fund is
authorized to enter into forward foreign currency exchange contracts. In
addition, each Series, is authorized to conduct spot (i.e., cash basis)
currency transactions or to use currency futures contracts, options on such
futures contracts, and options on foreign currencies in order to protect
against uncertainty in the future levels of currency exchange rates.
Forward Foreign Currency Exchange Contracts
Forward foreign currency exchange contracts involve an obligation to
purchase or sell a specified currency at a future date at a price set at the
time of the contract. Forward currency contracts do not eliminate
fluctuations in the values of portfolio securities but rather allow a Series
to establish a rate of exchange for a future point in time. A Series may
enter into forward foreign currency exchange contracts when deemed advisable
by the Advisor under only two circumstances.
First, when entering into a contract for the purchase or sale of a
security in a foreign currency, a Series may enter into a forward foreign
currency exchange contract for the amount of the purchase or sale price to
protect against variations, between the date the security is purchased or sold
and the date on which payment is made or received, in the value of the foreign
currency relative to the U.S. dollar or other foreign currency. This hedging
technique is known as "transaction hedging".
Second, when the Advisor anticipates that a particular foreign currency
may decline substantially relative to the U.S. dollar or other leading
currencies, in order to reduce risk, a Series may enter into a forward
contract to sell, for a fixed amount, the amount of foreign currency
approximating the value of some or all of its portfolio securities denominated
in such foreign currency. This hedging technique is known as "position
hedging". With respect to any such forward foreign currency contract, it will
not generally be possible to match precisely the amount covered by that
contract and the value of the securities involved due to the changes in the
values of such securities resulting from market movements between the date the
forward contract is entered into and the date it matures. In addition, while
forward contracts may offer protection from losses resulting from declines in
the value of a particular foreign currency, they also limit potential gains
which might result from increases in the value of such currency. A Series
will also incur costs in connection with forward foreign currency exchange
contracts and conversions of foreign currencies and U.S. dollars.
<PAGE> B-9
A separate account of each Series consisting of cash or high-grade liquid
securities equal to the amount of that Series' assets that would be required
to consummate forward contracts entered into under the second circumstance, as
set forth above, will be established with the Series' custodian. For the
purpose of determining the adequacy of the securities in the account, the
deposited securities will be valued at market or fair value. If the market
or fair value of such securities declines, additional cash or securities will
be placed in the account daily so that the value of the account will equal the
amount of such commitments by such Series.
Currency Futures Contracts and Options on Futures Contracts
Each Series, is authorized to purchase and sell currency futures
contracts and options thereon. Currency futures contracts involve entering
into contracts for the purchase or sale for future delivery of foreign
currencies. A "sale" of a currency futures contract (i.e., short) means the
acquisition of a contractual obligation to deliver the foreign currencies
called (i.e., long) for by the contract at a specified price on a specified
date. A "purchase" of a futures contract means the acquisition of a
contractual obligation to acquire the foreign currencies called for by the
contract at a specified price on a specified date. These investment
techniques will be used only to hedge against anticipated future changes in
exchange rates which otherwise might either adversely affect the value of
portfolio securities held by the Series or adversely affect the prices of
securities which the Series intend to purchase at a later date. Such
instruments will be used only in connection with permitted transaction or
position hedging and not for speculative purposes. The Series will not enter
in a currency futures contract or option thereon, if as a result thereof, the
sum of the amount of initial margin deposits on any such futures (plus
deposits on any other futures contracts and premiums paid in connection with
any options or futures contracts) that do not constitute "bona fide hedging"
under CFTC rules will not exceed 5% of the liquidation value of the Series'
total assets after taking into account unrealized profits and losses on such
contracts. In addition, the value of all futures contracts sold will not
exceed the total market value of the Series' portfolio. The Fund will comply
with guidelines established by the Securities and Exchange Commission with
respect to covering of obligations under future contracts and will set aside
cash and/or liquid high grade securities in a segregated account with its
custodian in the amount prescribed.
Although the Series intend to purchase or sell futures contracts only if
there is an active market for such contracts, no assurance can be given that a
liquid market will exist for any particular contract at any particular time.
In addition, due to the risk of an imperfect correlation between securities in
the Series' portfolio that are the subject of a hedging transaction and the
futures contract used as a hedging device, it is possible that the hedge will
not be fully effective. For example, losses on the portfolio securities may
be in excess of gains on the futures contract or losses on the futures
contract may be in excess of the gains on the portfolio securities that were
the subject of such hedge.
Brokerage fees are incurred when a futures contract is bought or sold and
margin deposits must be maintained for such contract. Although futures
contracts typically require actual delivery of and payment for financial
instruments or currencies, the contracts are usually closed out before the
delivery date. Closing out an open futures contract sale or purchase is
effected by entering into an offsetting futures contract purchase or sale,
respectively, for the same aggregate amount of the identical type of financial
instrument or currency and the same delivery date. If the offsetting purchase
price is less than the original sale price, a Series realizes a gain; if it is
more, a Series realizes a loss. Conversely, if the offsetting sale price is
more than the original purchase price, a Series realizes a gain; if it is
less, a Series realizes a loss. Transaction costs must also be included in
these calculations. There can be no assurance, however, that a Series will be
<PAGE> B-10
able to enter into an offsetting transaction with respect to a particular
contract at a particular time. If a Series is not able to enter into an
offsetting transaction, a Series will continue to be required to maintain the
margin deposits on the contract. The ability to establish and close out
positions on such options will be subject to the development and maintenance
of a liquid secondary market. It is not certain that a liquid market will
develop for any particular futures contracts. Reasons for the absence of a
liquid secondary market on an exchange include the following: (i) insufficient
trading; (ii) restrictions that may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions that may be imposed with respect to futures contracts or
the underlying security or asset; (iv) unusual or unforeseen circumstances
that may interrupt normal operations on an exchange; (v) the facilities of an
exchange or a clearing corporation may not be adequate to handle unusual
trading volume; or (vi) one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the trading
of certain futures, in which event the secondary market on that exchange would
cease to exist, although outstanding options on the exchange that had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms. There is no
assurance that higher than anticipated trading activity or other unforeseen
events might not, at times, render certain of the facilities of any of the
clearing corporations inadequate, and thereby result in the institution by an
exchange of special procedures which may interfere with timely execution of
customers' orders.
An option on a futures contract gives the purchaser the right, in return
for the premium paid, to assume a position in a futures contract (a long
position if a call option and a short position if a put option) at a specified
price at any time during the option exercise period. The writer of the option
is required upon exercise to assume an offsetting futures position (a short
position if a call option and a long position if a put option). Upon exercise
of the option, the assumption of offsetting futures positions by the writer
and holder of the option will be accompanied by delivery of the accumulated
cash balance in the writer's futures margin account which represents the
amount by which the market price of the futures contract, at exercise,
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option on the futures contract.
Call options sold by the Series with respect to futures contracts will be
covered by, among other things, entering into a long position in the same
contract at a price no higher than the strike price of the call option, or by
ownership of the instruments underlying the futures contract, or the placement
of liquid assets in a segregated account to fulfill the obligations
undertaken by the futures contract. A put option sold by the Series is
covered when, among other things, liquid assets are placed in a
segregated account to fulfill the obligations undertaken.
Foreign Currency Options
Each Series, except for the tax-exempt series of the Fund, are
authorized to purchase and write put and call options on foreign currencies.
A call option is a contract whereby the purchaser, in return for a premium,
has the right, but not the obligation, to buy the currency underlying the
option at a specified price during the exercise period. The writer of the
call option, who receives the premium, has the obligation, upon exercise of
the option during the exercise period, to deliver the underlying currency
against payment of the exercise price. A put option is a similar contract
that gives its purchaser, in return for a premium, the right to sell the
underlying currency at a specified price during the term of the option. The
writer of the put option, who receives the premium, has the obligation, upon
exercise of the option during the option period, to buy the underlying
currency at the exercise price. The Series will use currency options only to
hedge against the risk of fluctuations of foreign exchange rates related to
securities held in its portfolio or which it intends to purchase, and to earn
a high return by receiving a premium for writing options. Options on foreign
currencies are affected by all the factors which influence foreign exchange
rates and investments generally.
<PAGE> B-11
Obligations of Supranational Agencies
Currently, the Global Fixed Income Series, Flexible Yield Series I,
Flexible Yield Series II and the Flexible Series Yield III may purchase
securities issued or guaranteed by supranational agencies including, but not
limited to, the following: Asian Development Bank, Inter-American Development
Bank, International Bank for Reconstruction and Development (World Bank),
African Development Bank, European Coal and Steel Community, European Economic
Community, European Investment Bank and the Nordic Investment Bank. For
concentration purposes, supranational entities are considered an industry.
U.S. Government Securities
Each Series may invest in debt obligations of varying maturities issued
or guaranteed by the U.S. Government, its agencies or instrumentalities.
Direct obligations of the U.S. Treasury which are backed by the full faith and
credit of the U.S. Government, include a variety of Treasury securities that
differ only in their interest rates, maturities and dates of issuance. U.S.
Government agencies or instrumentalities which issue or guarantee securities
include, but are not limited to, the Federal Housing Administration, Federal
National Mortgage Association, Farmers Home Administration, Export-Import Bank
of the United States, Small Business Administration, Governmental National
Mortgage Association, General Services Administration, Central Bank for
Cooperatives, Federal Home Loan Banks, Federal Home Loan Mortgage Corporation,
Federal Intermediate Credit Banks, Federal Land Banks, Maritime
Administration, the Tennessee Valley Authority, District of Columbia Armory
Board and the Student Loan Marketing Association.
Obligations of U.S. Government agencies and instrumentalities may or may
not be supported by the full faith and credit of the United States. Some are
backed by the right of the issuer to borrow from the U.S. Treasury; others by
discretionary authority of the U.S. Government to purchase the agencies'
obligations; while still others, such as the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. In the
case of securities not backed by the full faith and credit of the United
States, the investor must look principally to the agency or instrumentality
issuing or guaranteeing the obligation for ultimate repayment, and may not be
able to assert a claim against the United States itself in the event the
agency or instrumentality does not meet its commitment.
A Series will invest in securities of such instrumentality only when the
Advisor is satisfied that the credit risk with respect to any instrumentality
is minimal.
Tax-exempt Securities
The New York Tax Exempt Series, the Ohio Tax Exempt Series and the
Diversified Tax Exempt Series may invest in tax-exempt securities issued by
New York, Ohio or any State of the United States, respectively, and such
State's political subdivisions, agencies and instrumentalities, the interest
from which is, in the opinion of bond counsel, exempt from federal income tax.
Each tax-exempt series is a "diversified" investment company under the
Investment Company Act of 1940. This means that with respect to 75% of its
total assets the Series may not invest more than 5% of its total assets in the
securities of any one issuer (except U.S. government securities). The other
25% of each Series' total assets may be in the securities of any one issuer.
Each Series will not invest more than 25% of its total assets in any
industry. Governmental issuers of tax-exempt securities are not considered
part of any "industry." However, Tax Exempt Securities backed only by the
assets and revenues of nongovernmental users may for this purpose (and for the
diversification purposes discussed above) be deemed to be issued by such
nongovernmental users, and the 25% limitation would apply to such obligations.
<PAGE> B-12
Each of the tax-exempt series believes that in general the secondary
market for tax-exempt securities is less liquid than that for taxable
fixed-income securities. Accordingly, the ability of the Series to buy and
sell securities may, at any particular time and with respect to any particular
securities, be limited.
It is nonetheless possible that a Series may invest more than 25% of its
assets in a broader segment of the market (but not in one industry) for
tax-exempt securities, such as revenue obligations of hospitals and other
health care facilities, housing agency revenue obligations, or transportation
revenue obligations. This would be the case only if the Advisor determined
that the yields available from obligations in a particular segment of the
market justified the additional risks associated with such concentration.
Although such obligations could be supported by the credit of governmental
users or by the credit of nongovernmental users engaged in a number of
industries, economic, business, political and other developments generally
affecting the revenues of issuers (for example, proposed legislation or
pending court decisions affecting the financing of such projects and market
factors affecting the demand for their services or products) may have a
general adverse effect on all tax-exempt securities in such a market segment.
Housing revenue bonds typically are issued by a state, county or local
housing authority and are secured only by the revenues of mortgages originated
by the authority using the proceeds of the bond issue. Because of the
impossibility of precisely predicting demand for mortgages from the proceeds
of such an issue, there is a risk that the proceeds of the issue will be in
excess of demand, which would result in early retirement of the bonds by the
issuer. Moreover, such housing revenue bonds depend for their repayment in
part upon the cash flow from the underlying mortgages, which cannot be
precisely predicted when the bonds are issued. The financing of multi-family
housing projects is affected by a variety of factors, including satisfactory
completion of construction, a sufficient level of occupancy, sound management,
adequate rent to cover operating expenses, changes in applicable laws and
governmental regulations and social and economic trends.
Health care facilities include life care facilities, nursing homes and
hospitals. Bonds to finance these facilities are issued by various
authorities. The bonds are typically secured by the revenues of each facility
and not be state or local government tax payments. The projects must maintain
adequate occupancy levels to be able to provide revenues adequate to maintain
debt service payments. Moreover, in the case of life care facilities, since a
portion of housing, medical care and other services may be financed by an
initial deposit, there may be risk if the facility does not maintain adequate
financial reserves to secure future liabilities. Life care facilities and
nursing homes may be affected by regulatory cost restrictions applied to
health care delivery in general, restrictions imposed by medical insurance
companies and competition from alternative health care or conventional housing
facilities. Hospital bond ratings are often based on feasibility studies
which contain projections of expenses, revenues and occupancy levels. A
hospital's income available to service its debt may be influenced by demand
for hospital services, management capabilities, the service area economy,
efforts by insurers and government agencies to limit rates and expenses,
competition, availability and expense of malpractice insurance, and Medicaid
and Medicare funding.
In recent years, nationally recognized rating organizations have reduced
their ratings of a substantial number of the obligations of issuers in the
health care sector of the tax exempt securities market. Reform of the health
care system is a topic of increasing discussion in the United States, with
proposals ranging from reform of the existing employer-based system of
insurance to a single-payer, public program. Depending upon their terms,
certain reform proposals could have an adverse impact on certain health care
sector issuers of tax-exempt securities. Because the outcome of current
discussions concerning health care, including the deliberations of President
Clinton's task force on health care reform, is highly uncertain, the Advisor
cannot predict the likely impact of reform initiatives.
Securities
<PAGE> B-13
Each Series, except for the Tax Exempt Series, may invest in
mortgage-backed securities issued or guaranteed by U.S. Government agencies or
instrumentalities such as the Government National Mortgage Association
("GNMA"), the Federal National Mortgage Association ("FNMA"), and the Federal
Home Loan Mortgage Corporation ("FHLMC"). Obligations of GNMA are backed by
the full faith and credit of the United States Government. Obligations of
FNMA and FHLMC are not backed by the full faith and credit of the United
States Government but are considered to be of high quality since they are
considered to be instrumentalities of the United States. The market value and
interest yield of these mortgage-backed securities can vary due to market
interest rate fluctuations and early prepayments of underlying mortgages.
These securities represent ownership in a pool of federally insured mortgage
loans with a maximum maturity of 30 years. However, due to scheduled and
unscheduled principal payments on the underlying loans, these securities have
a shorter average maturity and, therefore, less principal volatility than a
comparable 30-year bond. Since prepayment rates vary widely, it is not
possible to accurately predict the average maturity of a particular
mortgage-backed security. The scheduled monthly interest and principal
payments relating to mortgages in the pool will be "passed through" to
investors. Government mortgage-backed securities differ from conventional
bonds in that principal is paid back to the certificate holders over the life
of the loan rather than at maturity. As a result, there will be monthly
scheduled payments of principal and interest. In addition, there may be
unscheduled principal payments representing prepayments on the underlying
mortgages. Although these securities may offer yields higher than those
available from other types of U.S. Government securities, mortgage-backed
securities may be less effective than other types of securities as a means of
"locking in" attractive long-term rates because of the prepayment feature.
For instance, when interest rates decline, the value of these securities
likely will not rise as much as comparable debt securities due to the
prepayment feature. In addition, these prepayments can cause the price of a
mortgage-backed security originally purchased at a premium to decline in price
to its par value, which may result in a loss.
Each Series, except for the Tax Exempt Series, may also invest in
collateralized mortgage obligations ("CMOs") and real estate mortgage
investment conduits ("REMICs"), which are rated in one of the two top
categories by Standard & Poor's Corporation ("S&P") or Moody's Investors
Service ("Moody's"). CMOs are securities collateralized by mortgages,
mortgage pass-throughs, mortgage pay-through bonds (bonds representing an
interest in a pool of mortgages where the cash flow generated from the
mortgage collateral pool is dedicated to bond repayment), and mortgage_backed
bonds (general obligations of the issuers payable out of the issuer's general
funds and additionally secured by a first lien on a pool of single family
detached properties). Many CMOs are issued with a number of classes or series
which have different maturities and are retired in sequence. Investors
purchasing such CMOs in the shortest maturities receive or are credited with
their pro rata portion of the scheduled payments of interest and principal on
the underlying mortgages plus all unscheduled prepayments of principal up to a
predetermined portion of the total CMO obligation. Until that portion of such
CMO obligation is repaid, investors in the longer maturities receive interest
only. Accordingly, the CMOs in the longer maturity series are less likely
than other mortgage pass-throughs to be prepaid prior to their stated
maturity. Although some of mortgages underlying CMOs may be supported by
various types of insurance, and some CMOs may be backed by GNMA certificates
of other mortgage pass-throughs issued or guaranteed by U.S. Government
agencies or instrumentalities, the CMOs themselves are not generally
guaranteed.
REMICs, which were authorized under the Tax Reform Act of 1986, are
private entities formed for the purpose of holding a fixed pool of mortgages
secured by an interest in real property. REMICs are similar to CMOs in that
they issue multiple classes of securities.
<PAGE> B-14
Risk Factors Relating to New York Tax Exempt Securities
General. The following information as to certain New York risk factors
have been provided in view of the New York Tax Exempt Series' policy of
concentrating in New York Municipal Securities. This information constitutes
only a brief summary, does not purport to be a complete description of New
York risk factors, and is principally drawn from official statements relating
to securities offerings of the State of New York that have come to the
Portfolio's attention and were available as of the date of this Statement of
Additional Information. The New York Tax Exempt Series has not independently
verified any of the information contained in the official statement, but is
not aware of any fact which would render such information inaccurate.
The economy of New York is diverse with a comparatively large share of
the nation's finance, insurance, transportation, communications and services
employment, and a comparatively small share of the nation's farming and mining
activity. In the calendar years of 1984 through 1991, the State's rate of
economic expansion was somewhat slower than that of the nation. Accordingly,
unemployment in the State rose drastically in the late 1980's and early
1990's. However, since November 1992, employment growth resumed and the State
has gained approximately 240,000 jobs. During recent years, the
State has been hindered by significant cutbacks in computers and instrument
manufacturing, utility, defensive and banking industries. Government
downsizing has also moderated these job gains.
Revenues and Expenditures. New York's Governmental Funds receive over
52% of their revenues from the personal income tax levied by the State.
Investment income, fees and assessments, abandoned property collections, and
other varied resources supply the balance of the receipts for these funds.
New York's major expenditures are grants to local governments, which are
projected to account for approximately 69%, of all Governmental Funds
expenditures in fiscal 1996-1997. These grants include disbursements
for elementary, secondary and higher education, social services, drug abuse
control, and mass transportation programs. The State's 1996-1997 fiscal year
budget reflects a continuing strategy of substantially reduced State spending,
including program restructurings, reductions in social welfare spending and
efficiency and productivity initiatives.
Projections of total State receipts are based on the State's tax structure
in effect during the fiscal year and on assumptions relating to basic economic
factors and their historical relationships to State tax receipts. In
preparing projections of State receipts, economic forecasts relating to
personal income, wages, consumption, profits and employment have been
particularly important. The projection of receipts from most tax or revenue
sources is generally made by estimating the change in yield of such tax or
revenue source caused by economic or other factors, rather than by estimating
the total yield of such tax or revenue source from its estimated tax base.
The forecasting methodology, however, ensures that State fiscal year estimates
for taxes that are based on a computation of annual liability, such as the
business and personal income taxes, are consistent with estimates of total
liability under such taxes.
Projections of total State disbursements are based on assumptions relating
to economic and demographic factors, levels of disbursements for various
services provided by local governments, and the results of various
administrative and statutory mechanisms in controlling disbursements for State
operations. Factors that my affect the level of disbursements in the fiscal
year include uncertainties relating to the economy of the nation and the
State, the policies of the federal government, and changes in the demand for
and use of State services.
In recent years, State actions affecting the level of receipts and
disbursements, the relative strength of the State and regional economy,
actions of the federal government and other factors, have created structural
gaps for the State. These gaps resulted from a significant disparity between
recurring revenues and the costs of maintaining or increasing the level of
support for State programs. To address a potential imbalance in any given
fiscal year, the State would be required to take actions to increase receipts
and/or reduce disbursements as it enacts the budget for that year, and under
the State Constitution, the Governor is required to propose a balanced budget
each year. There can be no assurance, however, that the Legislature will
enact the Governor's proposals or that the State's actions will be sufficient
to preserve budgetary balance in a given fiscal year or to align recurring
receipts and disbursements in future fiscal years.
Fiscal 1995-1996. The State completed its 1995-1996 fiscal year
with the General Fund (the major operating fund of the State) in
balance on a cash-basis. For the 1996-1997 fiscal year, the State's
General Fund was projected to be in balanced on a cash basis. Receipts are
projected to be $33.17 billion, an increase of $365 million or 1.1%.
Disbursements are projected to be $33.12 billion, an increase of $444 million
or 1.3%.
State Debt. Under the State Constitution, the State may not, with
limited exceptions for emergencies, undertake long term borrowing (i.e.,
borrowing for more than one year) unless the borrowing is authorized in a
specific amount for a single work or purpose by the Legislature and approved
by the voters. There is no limitation on the amount of long term debt that
may be so authorized and subsequently incurred by the State. The State may
undertake short term borrowings without voter approval (i) in the anticipation
of the receipt of taxes and revenues, by issuing tax and revenue anticipation
notes, and (ii) in anticipation of the receipt of proceeds from the sale of
duly authorized by unissued bonds, by issuing bond anticipation notes. The
State Constitution provides that the State may guarantee the repayment of
certain borrowings to carry out designated projects by the New York State
Thruway Authority, the Job Development Authority and the Port Authority of New
York and New Jersey.
As of March 31, 1996, the State has approximately $5.05 billion in
general obligation bonds, including $294 million in bond anticipation notes
outstanding. Principal and interest due on general obligation bonds and
interest due on bond anticipation notes were $735 million for the 1995-1996
fiscal year and are estimated to be $719 million for the State's 1996-1997
fiscal year.
Debt Ratings. Due primarily to the deteriorating economy and recurring
deficits, Moody's lowered its ratings on New York State general obligations in
1990 from A1 to A. In January 1992, Moody's lowered the ratings on a
substantial number of the State's appropriation-backed debt from A to Baa1,
and stated that it had put the State's general obligations under review for
possible downgrade in the future. S&P lowered its ratings on the State's
general obligations in March 1990 from AA- to A, and in January 1992, S&P
further lowered the rating to A-. In January 1992, S&P also downgraded to A-
various agency debt, State moral obligations, contractual obligations, lease
purchase obligations, guarantees and school district debt. S&P currently
assesses the rating outlook for New York obligations as "negative". In
October 1995, Moody's reconfirmed its A rating on the State's general
obligation long-term indebtedness. Future negative rating actions would
tend to increase the State's borrowing costs as well as to negatively effect
the prices of bonds held by the New York Tax Exempt Series.
<PAGE> B-15
Ratings reflect only the respective views of such organizations, and
an explanation of the significance of such ratings may be obtained from the
rating agency furnishing the same. There is no assurance that a particular
rating will continue for any given period of time or that any such rating will
not be revised downward or withdrawn entirely, if in the judgment of the
agency originally establishing the rating, circumstances so warrant.
Litigation. The State is a defendant in numerous legal proceedings
pertaining to matters incidental to the performance of routine governmental
operations. Such litigation includes, but is not limited to, claims asserted
against the State arising from alleged torts, breaches of contracts,
condemnation proceedings and other alleged violations of State and federal
laws. These proceedings could adversely affect the financial condition of the
State in the 1996-1997 fiscal year or thereafter.
The State believes that the State Plan includes sufficient reserves for the
payment of judgments that may be required during the 1996-1997 fiscal year.
There can be no assurance, however, that an adverse decision in any of these
proceedings would not exceed the amount the State Plan reserves for the
payment of judgments and, therefore, could affect the ability of the State to
maintain a balanced 1996-1997 State Plan. In addition, the State is also a
party to other claims and litigations which its counsel has advised are not
probable of adverse court decisions. Although the amounts of potential
losses, if any, are not presently determinable, it is the State's opinion that
its ultimate liability in these cases is not expected to have a material
adverse effect on the State's financial position in the 1996-1997 fiscal year
or thereafter.
New York City. The fiscal health of the State is closely related to the
fiscal health of its localities, particularly the City, which has required and
continues to require significant financial assistance from the State. The
City depends on State aid both to enable the City to balance it's budget and
to meet its cash requirements. For each of 1981 through 1996 fiscal
years, the City achieved balanced operating results as reported in accordance
with generally accepted accounting principals. On November 14, 1996,
the City published the Financial Plans for the fiscal years
1997-2000, a modification to a financial plan submitted on June
21, 1996. The financial plan projects deficits of $2.6 billion, $1.2
billion, $2.1 billion and $3.0 billion respectively for fiscal years
1997-2000, with detailed actions to close the 1997 gap of $2.6 billion.
The City's financial plans have been the subject of extensive public
comment and criticism. On February 28, 1996, Fitch Investors Service, L.P.
("Fitch") placed the City's general obligation bonds on FitchAlert with
negative implications. On November 5, 1996, Fitch removed the City's general
obligation bonds from FitchAlert, although Fitch stated that the outlook
remains negative.
Moody's has rated the City's general obligation bonds Baa1. Standard
& Poor's has rated the bonds BBB+. Fitch has rated the bonds A-. These
ratings do not reflect any bond insurance relating to any portion of the
bonds. The City expects that ratings on the Financial Guaranty Insured Bonds
and the AMBAC Insured Bonds will be received in early 1997. The ratings on
the Financial Guaranty Insured Bonds and the AMBAC Insured Bonds will be based
on the insurance policies to be issued by Financial Guaranty and AMBAC
Indemnity, respectively. Bonds insured to maturity by Financial Guaranty are
rated "AAA" by Standard & Poor's, "Aaa" by Moody's and "AAA" by Fitch. Such
ratings reflect only the views of Moody's, Standard & Poor's and Fitch, from
which an explanation of the significance of such ratings will continue for any
given period of time or that they will not be revised downward or withdrawn
entirely. Any such downward revision or withdrawal could have an adverse
effect on the market prices of the bonds.
The City is a defendant in lawsuits pertaining to material matters,
including claims asserted which are incidental to performing routine
governmental and other functions. This litigation includes, but is not
limited to, actions commenced and claims asserted against the City arising out
of alleged torts, breaches of contracts, violations of law and condemnation
proceedings. As of June 30, 1996 and 1995, claims in excess of $380 billion
and $311 billion, respectively, were outstanding against the City for which
the City estimates its potential future liability to be $2.8 billion and $2.5
billion, respectively.
Other Localities. Certain localities in addition to the City could
have financial problems leading to requests for additional State assistance
during the State's 1996-1997 fiscal year and thereafter. The potential impact
on the State of such actions by localities is not included in the projections
of the State receipts and disbursements in the State's 1996-1997 fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers")
resulted in the creation of the Financial Control Board for the City of
Yonkers (the "Yonkers Board") by the State in 1984. The Yonkers Board is
charged with oversight of the fiscal affairs of Yonkers. Future actions taken
by the Governor or the State Legislature to assist Yonkers could result in
increased State expenditures for extraordinary local assistance.
Convertible Securities
Convertible Securities in which the Series' invest may be converted at
either a stated price or stated rate into underlying shares of common stock
thus enabling the investor to benefit from increases in the market price of
the common stock. Convertible securities provide higher yields than the
underlying equity, but generally offer lower yields than non-convertible
securities of similar quality. Like bonds, the value of convertible
securities fluctuates in relation to changes in interest rates and, in
addition, also fluctuates in relation to the underlying common stock.
Warrants
Warrants may be considered more speculative than certain other types of
investments because they (1) do not carry rights to dividends or voting rights
with respect to the securities which it entitles the holder to purchase, and
(2) do not represent any rights in the assets of the issuer.
Investment in Restricted Securities
Each Series may invest in "restricted securities" subject to the 10% net
asset limitation regarding illiquid securities. Restricted securities are
securities which were originally sold in private placements and which have not
been registered under the Securities Act of 1933, as amended (the "1933 Act").
Such securities generally have been considered illiquid because they may be
resold only subject to statutory restrictions and delays or if registered
under the 1933 Act. The Securities and Exchange Commission ("SEC") adopted
Rule 144A to provide for a safe harbor exemption from the registration
requirements of the 1933 Act for resales of restricted securities to
"qualified institutional buyers". The result has been the development of a
more liquid and efficient institutional resale market for restricted
securities. Rule 144A securities may be liquid if properly determined by the
Board of Directors.
<PAGE> B-16
INVESTMENT RESTRICTIONS
Each Series has adopted certain restrictions set forth below (in addition
to those indicated in the prospectus) as fundamental policies, which may not
be changed without the favorable vote of the holders of a "majority" of the
Fund's outstanding voting securities, which means a vote of the holders of the
lesser of (i) 67% of the shares represented at a meeting at which more than
50% of the outstanding shares are represented or (ii) more than 50% of the
outstanding shares.
A Series may not:
1. Purchase securities on margin (but a Series may obtain such
short-term credits as may be necessary for the clearance of transactions);
2. Make short sales of securities or maintain a short position, unless
at all times when a short position is open it owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short (short sale against-the-box), and unless
not more than 25% of a Series' net assets (taken at a current value) are held
as collateral for such sales at any one time;
3. Issue senior securities or pledge its assets, except that each
Series, may invest in futures contracts and related options;
4. Buy or sell commodities or commodity contracts (the Small Cap
Series, Energy Series, Technology Series, Financial Services Series,
International Series, Life Sciences Series, Global Fixed Income Series, Tax
Managed Series and the World Opportunities Series, also expressly provide that
forward foreign currency contracts are not considered commodities or commodity
contracts for purposes of this restriction) or real estate or interest in real
estate, although it may purchase and sell securities which are secured by real
estate and securities of companies which invest or deal in real estate. The
Blended Asset Series I, Blended Asset Series II, Flexible Yield Series I,
Flexible Yield Series II, Flexible Yield Series III, Defensive Series, and the
Maximum Horizon Series may not buy or sell commodities or commodity contracts,
provided that the Series may enter into all types of futures and forward
contracts on currency, securities, economic and other indices and may purchase
and sell options on such futures contracts, or buy or sell real estate or
interests in real estate, although it may purchase and sell securities which
are secured by real estate and securities of companies which invest or deal in
real estate.
5. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter
under certain federal securities laws;
6. Make investments for the purpose of exercising control or
management;
7. Participate on a joint or joint and several basis in any trading
account in securities;
8. Under the Investment Company Act of 1940 and the rules and
regulations thereunder, each Series is prohibited from acquiring the
securities of other investment companies if, as a result of such acquisition,
such Series owns more than 3% of the total voting stock of the company;
securities issued by any one investment company represent more than 5% of its
total assets; or securities (other than treasury stock) issued by all
investment companies represent more than 10% of the total assets of a Series.
A Series' purchase of such investment companies would indirectly bear a
proportionate share of the operating expenses of such investment companies,
including advisory fees. All Series, Except the Tax Managed Series and World
Opportunities Series, will not purchase or retain securities issued by
open-end investment companies (other than money market funds for temporary
investment).
<PAGE> B-17
9. Invest in interests in oil, gas or other mineral exploration or
development programs, although it may invest in the common stocks of companies
which invest in or sponsor such programs;
10. Purchase foreign securities if as a result of the purchase of such
securities more than 10% of a Series' assets (25% in the case of the Tax
Managed Series, Life Sciences Series, Blended Asset Series I, Blended Asset
Series II, Flexible Yield Series I, Flexible Yield Series II, Flexible Yield
Series III, Defensive Series, Maximum Horizon Series and 100% in the case of
the International Series, Global Fixed Income Series and World Opportunities
Series) would be invested in foreign securities provided that this restriction
shall not apply to foreign securities that are listed on a domestic securities
exchange or represented by American depository receipts that are traded either
on a domestic securities exchange or in the United States on the
over-the-counter market.
11. The Fund's investment policies with respect to options on
securities and with respect to stock index and currency futures and related
options are subject to the following fundamental limitations: (1) with
respect to any Series, the aggregate value of the securities underlying calls
or obligations underlying puts determined as of the date options are sold
shall not exceed 25% of the assets of the Series; (2) a Series will not enter
into any option transaction if immediately thereafter, the aggregate premiums
paid on all such options which are held at any time would exceed 20% of the
total net assets of the Series; (3) the aggregate margin deposits required on
all futures or options thereon held at any time by a Series will not exceed 5%
of the total assets of the Series; (4) the security underlying the put or call
is within the investment policies of each Series and the option is issued by
the Options Clearing Corporations; and (5) the Series may buy and sell puts
and calls on securities and options on financial futures if such options are
listed on a national securities or commodities exchange.
12. The Fund will not purchase or retain securities of an issuer if an
officer or director of such issuer is an officer or director of the Fund or
its investment adviser and one or more of such officers or directors of the
Fund or its investment adviser owns beneficially more than 1/2% of the shares
or securities of such issuer and all such directors and officers owning more
than 1/2% of such shares or securities together own more than 5% of such
shares or securities.
13. The Fund will not purchase securities of any company which has
(with predecessors) a record of less than three years continuous operation if
as a result more than 5% of the Portfolio's assets would be invested in
securities of such companies.
14. Invest more than 5% of the value of its total net assets in
warrants (except for the Flexible Yield Series I, Flexible Yield Series II,
Flexible Yield Series III, Global Fixed Income Series, New York Tax Exempt
Series, Ohio Tax Exempt Series and the Diversified Tax Exempt Series).
Included within that amount, but not to exceed 2% of the value of the Series'
net assets, may be warrants which are not listed on the New York or American
Stock Exchange.
Two Series are subject to the following investment limitations which are
not fundamental:
1. In the case of the Energy Series, the Public Utility Holding Company
Act of 1935 ("PUHCA") places certain restrictions on affiliates of public
utility companies as defined in PUHCA. The Energy Series will not acquire 5%
or more of the outstanding voting securities of a public utility in order to
avoid imposition of these restrictions.
2. The Financial Services Series may purchase securities of an issuer
which derived more than 15% of its gross revenues in its most recent fiscal
year from securities-related activities, subject to the following conditions
and applicable SEC regulations:
<PAGE> B-18
a. the purchase cannot cause more than 5% of the Series' total assets
to be invested in all securities of that issuer;
b. for an equity security--(i) the purchase cannot result in the
Series' owning more than 5% of the issuer's outstanding securities in that
class; and (ii) at the time of purchase, the security must meet the Federal
Reserve Board's definition of a margin security (i.e., registration on a
national securities exchange or listing by the Federal Reserve Board of
Governors on the current OTC Margin Stock list).
c. for a debt security--(i) the purchase cannot result in the Series
owning more than 10% of the outstanding principal amount of the issuers debt
securities; and (ii) at the time of purchase, the security must be of at least
investment grade quality (i.e., at least BBB/Baa as determined by one of the
major rating services or, if not rated, judged to be equivalent by the Series'
Directors). See the Appendix to the Prospectus for an explanation of these
ratings.
All of the above percentage limitations, as well as the issuer's gross
revenue test, are applicable at the time of purchase. With respect to
warrants, rights, and convertible securities, a determination of compliance
with the above limitations shall be made as though such warrant, right, or
conversion privilege had been exercised. The Financial Services Series will
not be required to divest its holdings of a particular issuer when
circumstances subsequent to the purchase would cause one of the above
conditions to not be met. The purchase of a general partnership interest in a
securities-related business is prohibited.
Portfolio Turnover
An annual portfolio turnover rate is, in general, the percentage computed
by taking the lesser of purchases or sales of portfolio securities (excluding
certain debt securities) for a year and dividing that amount by the monthly
average of the market value of such securities during the year. Each Series
expects that its turnover rate will be less than 100%, except for the Tax
Managed Series which expects its turnover rate will be no more than 50%.
However, turnover will in fact be determined by market conditions and
opportunities, and therefore it is impossible to estimate the turnover rate
with confidence.
<TABLE>
<CAPTION>
MANAGEMENT
The Directors and officers of the Fund are:
<S> <C> <C>
Position Principal occupations
Name and address with Fund During past five years
- ------------------------------------------- ----------- --------------------------------------
B. Reuben Auspitz* Vice Executive Vice President, Manning
1100 Chase Square President & & Napier Advisors, Inc., since 1983;
Rochester, NY 14604 Director President and Director, Manning &
Napier Investor Services, Inc. since
1990; Director, President and
Treasurer, Manning & Napier Advisory
Advantage Corporation, since 1990;
Director, Manning & Napier Leveraged
Investment Co., since 1994; Director
and Chairman, Exeter Trust, Co., since
1994; Member, Fiduciary Services,
L.L.C. since 1995; Member, Manning &
Napier Associates, L.L.C. since 1995;
Member, Manning & Napier Capital Co.,
L.L.C. since 1995; President and
Director, Manning & Napier Insurance
Fund, Inc. since 1995
</TABLE>
<PAGE> B-19
<TABLE>
<CAPTION>
<S> <C> <C>
Martin Birmingham Director Trustee, The Freedom Forum, since 1980;
Lincoln Tower, 16th FLR Director Emeritus, ACC Corporation
Rochester, NY 14604 since 1994; Director Manning & Napier
Insurance Fund, Inc. since 1995
Harris H. Rusitzky Director Formerly Director and Corporate
One Grove Street Executive, Serv-Rite Corporation from
Pittsford, NY 14534 1965-1994; President, Blimpie of
Central New York and The Greening Group
since 1994; Director, Manning & Napier
Insurance Fund, Inc., since 1995
Peter L. Faber* Director Former Partner, Kaye, Scholer, Fierman,
50 Rockefeller Plaza Hays & Handler from 1984-1995; Partner
New York, New York 10020-1605 McDermott, Will & Emery since 1995;
Director, Manning & Napier Insurance
Fund, Inc., since 1995
Stephen B. Ashley Director Chairman and Chief Executive Officer,
600 Powers Building Sibley Real Estate Services, Inc. since
116 West Main Street 1975; Chairman and Chief Executive Officer,
Rochester, New York 14614 Sibley Mortgage Corp. from 1975 - 1996;
Director, Genesee Corp. since 1987;
Director, Hahn Automotive since
1994; Director, Fannie Mae since 1995;
Director, Manning & Napier Fund, Inc.
since 1996; Chairman and Chief Executive
Officer , The Ashley Group since 1997
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
William Manning President President, Director and co-founder,
1100 Chase Square Manning & Napier Advisors, Inc., since
Rochester, NY 14604 1970; President, Manning & Napier Fund,
Inc., since 1985; President, Director,
Founder & CEO, Manning Ventures, Inc.,
since 1992; President, Director,
Founder & CEO, KSDS, Inc., since 1992;
President, Kent Display, Inc., since
1992; President, Director,Founder & CEO,
Synmatix Corporation, since 1993;
President, Director, Founder & CEO,
Manning Leasing, Inc. (dba Williams
International Air, Inc., since 1994;
President/Treasurer, Manning & Napier
Leveraged Investing Company, Inc.,
since 1994; Member, Manning & Napier
Capital Co., L.L.C., since 1994;
Member, Fiduciary Services, L.L.C.,
Founder & CEO, Manning Ventures, Inc.,
since 1995
Jodi Hedberg Corporate Adminstrative Clerk, Manning
1100 Chase Square Secretary & Napier Advisors, Inc., 1/90 to 5/90;
Rochester, NY 14604 Reconciler, Manning & Napier Advisors,
Inc., 5/90 to 3/91; Compliance
Administrator, Manning & Napier
Advisors, Inc., and Manning & Napier
Investor Services, Inc., Manning & Napier
Advisory Advantage Corporation, and Manning
& Napier Fund, Inc., 4/91 to 11/94; Senior
Compliance Administrator, Manning & Napier
Advisors, Inc., Manning & Napier Fund, Inc.
Manning & Napier Investor Services, Inc.,
and Manning & Napier Leveraged Investing
Company, Inc., Manning & Napier Advisory
Advantage Corporation, 11/94 to 11/95;
Compliance Manager, Manning & Napier Fund,
Inc; Manning & Napier Advisors, Inc.,
Manning & Napier Advisory Advantage
Corporation, Manning & Napier Investor
Services, Inc., Manning & Napier Insurance
Fund, Inc. and Manning & Napier Leveraged
Investing Company, Inc.,since 11/95
Timothy P. Mullaney, CPA Treasurer & Chief Fin. Senior Tax Associate, Coopers &
1100 Chase Square Officer Lybrand, LLP from 1990-1994; Tax
Rochester, NY 14604 Manager, Investors Bank & Trust from
1/94-7/94; Mutual Fund Chief Financial
Officer, Manning & Napier Advisors,
Inc. since 1994; Treasurer and Chief
Financial Officer, Manning & Napier
Insurance Fund, Inc., since 1995
<PAGE> B-20
</TABLE>
* Interested Director, within the meaning of the Investment Company Act of
1940 (the "1940 Act").
The only Committee of the Corporation is an Audit Committee whose members
are B. Reuben Auspitz and Harris H. Rusitzky and Stephen B. Ashley.
Directors affiliated with the Advisor do not receive fees from the Fund.
Mr. Faber is deemed to be an interested person of the investment advisor
because his firm provides legal services to the Advisor. Each Director who is
not affiliated with the Advisor shall receive an annual fee of $2,500. Annual
fees will be calculated monthly and prorated. Each Director who is not
affiliated with the Advisor shall receive $375 per Board Meeting attended for
each active Series of the Fund, plus $500 for any Committee Meeting held on a
day on which a Board Meeting is not held.
<TABLE>
<CAPTION>
*Interested Director, within the meaning of the Investment Company Act of 1940
(the "1940 Act").
The following persons were known by the Fund to own of record 5% or more
of the outstanding voting securities of each Series on December 31,
1996:
<PAGE> B-21
NAME AND ADDRESS OF HOLDER OF RECORD PERCENTAGE OF SERIES
Small Cap Series
Manning & Napier Advisors, Inc. 6.22%
FBO American Electric Power Co.
Pension Plan
1100 Chase Square
Rochester, NY 14604
International Series
Manning & Napier Advisors, Inc. 6.80%
FBO American Electric Power Co.
1100 Chase Square
Rochester, NY 14604
Technology Series
Manning & Napier Advisors, Inc. 7.94%
FBO American Electric Power Co.
Pension Plan
1100 Chase Square
Rochester, NY 14604
Blended Asset Series I
Manning & Napier Advisors, Inc. 7.87%
FBO National Financial Services
1100 Chase Square
Rochester, NY 14604
Morton Mease, American Express 20.10%
Financial Corporation
1200 Northstar West
P.O. Box 534
Minneapolis, MN 55440-0534
Flexible Yield Series I
Penfield Fire Company 6.26%
1838 Penfield Road
Penfield, NY 14526
John T. & Kim B. Dash JTWROS 6.53%
8600 Stanley Road
Amherst, NY 14051
Peter G. & Mary Jane Davidson 17.30%
1020 Rock Beach Road
Rochester, NY 14617-1327
Manning & Napier Advisors, Inc. 19.83%
1100 Chase Square
Rochester, NY 14604
E. Lawrence Hanson IRA R/O 23.16%
100 Highland Avenue
Providence, RI 02906
<PAGE> B-22
Flexible Yield Series II
Jerry Vasicik IRA 5.24%
65 Coventry Road
Endicott, NY 13760
Penfield Fire Company 5.28%
1838 Penfield Road
Penfield, NY 14526
Geraldine A. Moner IRA 8.59%
8589 Scenic View Drive
Broadview Heights, OH 44147
Charles E. Lucas 11.94%
9 Southland Avenue
Lakewood, NY 14750
Manning & Napier Advisors, Inc. 18.84%
1100 Chase Square
Rochester, NY 14604
Future Unlimited, Inc. P/S Plan 23.80%
8589 Scenicview Drive
Broadview Heights, OH 44147
Flexible Yield Series III
Perry's Ice Cream, Inc. Deferred Salary 5.70%
P/S Bond Fund
Once Ice Cream Plaza
Akron, NY 14001
Snyder Tank Corporation 7.93%
3774 Lakeshore Road
Buffalo, NY 14219
Boy Scouts of America Troop 31 7.94%
909 Fairport Road
East Rochester, NY 14445
Manning & Napier Advisors, Inc. 8.47%
1100 Chase Square
Rochester, NY 14604
Murata Electronics P/S 14.63%
2200 Lake Park Drive
Smyrna, GA 30080
George T. & Jacqueline A. Golebiewski 14.64%
JTWROS
4693 Pinecrest Terrace
Eden, NY 14057-9757
Tax Managed Series
Emily Ann McKnight 5.69%
600 Centreville Pike
Slippery Rock, PA 16057
Manning & Napier Advisors, Inc. 56.53%
1100 Chase Square
Rochester, NY 14604
<PAGE> B-23
Defensive Series
Conklin Instrument Corporation P/S Plan 16.19%
West Road
Pleasant Valley, NY 12569
Manning & Napier Advisors, Inc. 17.11%
FBO National Financial Services
1100 Chase Square
Rochester, NY 14604
Manning & Napier Advisors, Inc. 22.74%
1100 Chase Square
Rochester, NY 14604
Updike, Kelly, & Spellacy P/S-DG 25.14%
One State Street
P.O. Box 231277
Hartford, CT 06123
Maximum Horizon Series
Namic 401(k) Plan & Trust 6.09%
3601 Vincennes Road
Indianapolis, IN 46268
International Imaging Materials, Inc. 7.30%
P.O. Box 1329
Buffalo, NY 14240
Manning & Napier Advisors, Inc. 53.60%
FBO National Financial Services
1100 Chase Square
Rochester, NY 14604
New York Tax Exempt Series
Manning & Napier Advisors, Inc. 5.22%
FBO William B. Hale
1100 Chase Square
Rochester, NY 14604
Manning & Napier Advisors, Inc. 5.96%
FBO Dolomite Products Company, Inc.
1100 Chase Square
Rochester, NY 14604
Ohio Tax Exempt Series
Franklin Eck 11.89%
3300 Riverside Drive
Columbus, OH 43221
Ms. Nancy Peterson, Trust 15.82%
3873 Ridgeway Road
Kettering, OH 45429
<PAGE> B-24
The Advisor
Manning & Napier Advisors, Inc. acts as the Fund's investment advisor.
The Fund pays the Advisor for the services performed a fee at the annual rate
of 1% of the Fund's daily net assets for the Small Cap Series, Energy Series,
Technology Series, Maximum Horizon Series, Financial Services Series,
International Series, Tax Managed Series, Life Sciences Series, Global Fixed
Income Series, Blended Asset Series I, Blended Asset Series II, World
Opportunities Series, .80% for the Defensive Series, .35% for the Flexible
Yield Series I, .45% for the Flexible Yield Series II, .50% for the Flexible
Yield Series III, New York Tax Exempt Series, Ohio Tax Exempt Series and the
Diversified Tax Exempt Series. For fiscal years ended December 31, 1987,
December 31, 1988, December 31, 1989, December 31, 1992, December 31, 1993,
December 31, 1994, December 31, 1995 and December 31, 1996, the
aggregate total of fees paid by the Small Cap Series to the Advisor were
$34,211, $114,125, $0, $184,465, $582,365, $931,789, $1,296,858 and
$1,204,107, respectively. For the period November 4, 1988,
(Commencement of Investment Operations) to December 31, 1988 and for the
fiscal years ended December 31, 1989, December 31, 1990, December 31, 1991,
and December 31, 1992, the aggregate total of fees paid by the Technology
Series to the Advisor were $87,931, $660,878 $573,333, $603,370, and $249,485
respectively and for the period August 29, 1994 (Commencement of Operations)
to December 31, 1994 and for the fiscal years ended December 31, 1995 and
December 31, 1996, the aggregate total fees were $151, 936, $557,701
and $938,964, respectively. For the period August 27, 1992,
(Commencement of Investment Operations) to December 31, 1992 and for the
fiscal years ended December 31, 1993, December 31, 1994, December 31, 1995 and
December 31, 1996, the aggregate total fees paid by the International
Series to the Advisor were $282,754, $868,462, $870,103, $1,084,583 and
$1,363,591. For the period September 6, 1996 (Commencement of
Operations) to December 31, 1996, the aggregate total fees paid the World
Opportunities Series to the Advisor were $224,344. For the period
October 7, 1992, (Commencement of Investment Operations) to December 31, 1992
and for the fiscal years ended December 31, 1993, December 31, 1994, December
31, 1995, the aggregate total fees paid by the Life Sciences Series to the
Advisor were $30,001, $560,977, $749,795, and $451,038. For the fiscal years
ended December 31, 1987, December 31, 1988 and December 31, 1989, the advisory
fees waived by the Advisor for the Small Cap Series were $500, $707, and $489
respectively. For the period September 15, 1993, (Commencement of Operations)
to December 31, 1993 and for the fiscal years ended December 31, 1994,
December 31, 1995, and October 31, 1996 the advisory fees waived by the
Advisor for the Blended Asset Series I were $891, $26,034, $23,407 and
$13,439, and the aggregate total fees paid for the periods ended December 31,
1995, and October 31, 1996 were $46,543 and $108,485. For the period October
12, 1993, (Commencement of Operations) to December 31, 1993 and for the
periods ended December 31, 1994, December 31,1995, and October 31, 1996 the
advisory fees waived by the Advisor for the Blended Asset Series II were $393,
$37,315, $17,669 and $3,528, and the aggregate total fees paid for the fiscal
year ended December 31, 1995 and October 31, 1996 were $114,026 and $222,302.
For the period February 15, 1994 (Commencement of Operations) to December 31,
1994 and for the periods ended December 31, 1995, and October 31, 1996 the
advisory fees waived by the Advisor for the Flexible Yield Series II were
$905, $2,160, and $1,688. For the period February 15, 1994 (Commencement of
Operations) to December 31, 1994 and the periods ended December 31, 1995, and
October 31, 1996 the advisory fees waived by the Advisor for the Flexible
Yield Series I were $443, $1,221 and $1,057. For the period December 20,
1993, (Commencement of Operations) to December 31, 1993 and for the periods
ended December 31, 1994, December 31, 1995, and October 31, 1996 the advisory
fees waived by the Advisor for the Flexible Yield Series III were $11, $1,683,
$4,767 and $4,454. For the period September 6, 1996 (Commencement of
Operations) to December 31, 1996, the advisory fees waived by the Advisor for
the World Opportunities Series were $0. For the period January 17, 1994
(Commencement of Operations) to December 31, 1994 and for the periods ended
December 31, 1995 and December 31, 1996, the advisory fees paid to
the Advisor for the New York Tax Exempt Series were $82,497, $114,847 and
$160,913. For the period February 14, 1994 (Commencement of
Operations) to December 31, 1994 and for the periods ended December 31, 1995
and December 31, 1996, the advisory fees waived by the Advisor for
the Ohio Tax Exempt Series were $11,101, $4,398 and $1,181and the
aggregate total fees paid for the periods ended December 31, 1995 and
December 31, 1996 were $19,239 and $34,563. For the period
February 14, 1994 (Commencement of Operations) to December 31, 1994 and for
the periods ended December 31, 1995 and December 31, 1996, advisory
fees waived by the Advisor for the Diversified Tax Exempt Series were $22,494,
$0 and $0, and the aggregate total fees paid were $2,983, $50,130,
and $74,427. For the period November 1, 1995 (Commencement of
Operations) to October 31, 1996, the advisory fees waived by the Advisor for
the Tax Managed Series were $1,867. For the period November 1, 1995
<PAGE> B-25
(Commencement of Operations) to October 31, 1996, the advisory fees waived by
the Advisor for the Defensive Series were $3,940. For the period November 1,
1995 (Commencement of Operations) to October 31, 1996, the advisory fees
waived by the Advisor for the Maximum Horizon Series were $4,377. The
Investment Advisory Agreement (the "Agreement") between the Fund and the
Advisor provides that in the event the expenses of the Fund (including the fee
of the Advisor but excluding: (i)brokerage commissions; (ii) interest; (iii)
taxes; and (iv) extraordinary expenses except for those incurred by the Fund
as a result of litigation in connection with a suit involving a claim for
recovery by the Fund, or as a result of litigation involving a defense against
a liability asserted against the Fund, provided that, if the adviser made the
decision or took the action which resulted in such claim the adviser acted in
good faith without gross negligence or misconduct, and for any indemnification
paid by the Fund to its officers, directors and advisers in accordance with
applicable state and federal laws as a result of such litigation) for any
fiscal year exceed the limits set by applicable regulations of state
securities commissions, the Advisor will reduce its fee by the amount of such
excess. Any such reductions or refunds are accrued and paid in the same
manner as the Advisor's fee and are subject to readjustment during the year.
The Agreement states that the Advisor shall give the Fund the benefit of
its best judgment and effort in rendering services thereunder, but the Advisor
shall not be liable for any loss sustained by reason of the purchase, sale or
retention of any security, whether or not such purchase, sale or retention
shall have been based upon its own investigation and research or upon
investigation and research made by any other individual, firm or corporation,
if such purchase, sale or retention shall have been made and such other
individual, firm or corporation shall have been selected in good faith. The
Agreement also states that nothing contained therein shall, however, be
construed to protect the Advisor against any liability to the Fund or its
security holders by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of its reckless
disregard of its obligations and duties under the Agreement.
In the Agreement, the Fund agrees that the words "Manning & Napier" in
its name is derived from the name of the Advisor and is the property of the
Advisor for copyright and all other purposes and that therefore such words may
be freely used by the Advisor as to other investment companies or other
investment products; the Fund further agrees that, in the event that the
Advisor ceases to be the Fund's investment advisor for any reason, the Fund
will (unless the Advisor otherwise consents in writing) promptly take all
necessary steps to change its name to a name not including the words "Manning
& Napier." The Agreement also provides that it is agreed that the Advisor
shall have no responsibility or liability for the accuracy or completeness of
the Fund's Registration Statement under the 1940 Act or the Securities Act of
1933 except for information supplied by the Advisor for inclusion therein; the
Fund agrees to indemnify the Advisor to the full extent permitted by the
Fund's Articles of Incorporation.
On April 30, 1993, the Advisor became the Fund's Transfer Agent. For
servicing the Blended Asset Series I , Blended Asset Series II, Flexible Yield
Series I, Flexible Yield Series II, Flexible Yield Series III, New York Tax
Exempt Series, Ohio Tax Exempt Series, Diversified Tax Exempt Series, in this
capacity, for the fiscal years ended December 31, 1993, December 31, 1994 and
December 31, 1995, the Advisor received $29.87, $7,396, and $14,322 from the
Fund. For servicing the Tax Managed Series, Defensive Series, Maximum Horizon
Series, Blended Asset Series I, Blended Asset Series II, Flexible Yield Series
I, Flexible Yield Series II, and the Flexible Yield Series III, in this
capacity, for the fiscal year ended October 31, 1996, the Advisor received
$8,990 from the Fund. For servicing the Ohio Tax Exempt Series, New York
Tax Exempt Series and the Diversified Tax Exempt Series in this capacity, for
the fiscal year ended December 31, 1996, the Advisor received $12,960 from the
Fund. The Advisor will not charge for its Transfer Agent services to the
other Series.
Manning & Napier Investor Services, Inc., acts as Distributor of the Fund
shares and is located at the same address as the Advisor and the Fund. There
will be no additional costs to clients for this service. The Advisor may
impose separate requirements in connection with employee purchases of the
Fund.
<PAGE> B-26
Custodian and Independent Accountant
The custodian for the Energy Series, the Technology Series, the Financial
Services Series, the Life Sciences Series, and the Global Fixed Income Series
is Fleet Bank, N.A., 45 East Avenue, Rochester, N.Y. 14604, with the exception
of the foreign securities held by the Fund, whose custodian is Boston Safe
Deposit and Trust Company, One Cabot Road, 3rd Floor, Medford, MA 02155-5159.
The custodian for the Small Cap Series, International Series, Blended Asset
Series I, Blended Asset Series II, Flexible Yield Series I, Flexible Yield
Series II, Flexible Yield Series III, New York Tax Exempt Series, Ohio Tax
Exempt Series, Diversified Tax Exempt Series, Tax Managed Series, Defensive
Series, Maximum Horizon Series and the World Opportunities Series is Boston
Safe Deposit and Trust Company, One Cabot Road, 3rd Floor, Medford, MA
02155-5159. Boston Safe Deposit and Trust Company may, at its own expense,
employ a sub-custodian on behalf of the foreign securities held by the Fund,
provided that Boston Safe Deposit and Trust Company shall remain liable for
all its duties as custodian. Coopers & Lybrand L.L.P, One Post Office Square,
Boston, MA 02109 are the Fund's independent accountants for the Fund, with the
exception of the Blended Asset Series I, Blended Asset Series II, Flexible
Yield Series I, Flexible Yield Series II, Flexible Yield Series III, Tax
Managed Series, Defensive Series and the Maximum Horizon Series for which the
independent accountants are Deloitte & Touche LLP, 125 Summer Street, Boston,
MA 02110.
Portfolio Transactions and Brokerage
The Agreement states that in connection with its duties to arrange for
the purchase and the sale of securities held in the portfolio of the Fund by
placing purchase and sale orders for the Fund, the Advisor shall select such
broker-dealers ("brokers") as shall, in the Advisor's judgment, implement the
policy of the Fund to achieve "best execution", i.e., prompt and efficient
execution at the most favorable securities price. In making such selection,
the Advisor is authorized in the Agreement to consider the reliability,
integrity and financial condition of the broker, the size and difficulty in
executing the order and the value of the expected contribution of the broker
to the investment performance of the Fund on a continuing basis. The Advisor
is also authorized to consider whether a broker provides brokerage and/or
research services to the Fund and/or other accounts of the Advisor. The Fund
understands that a substantial amount of its portfolio transactions may be
transacted with primary market makers acting as principal on a net basis, with
no brokerage commissions being paid by the Fund. Such principal transactions
may, however, result in a profit to market makers. In certain instances the
Advisor may make purchases of underwritten issues for the Fund at prices which
include underwriting fees. The Agreement states that the commissions paid to
such brokers may be higher than another broker would have charged if a good
faith determination is made by the Advisor that the commission is reasonable
in relation to the services provided, viewed in terms of either that
particular transaction or the Advisor's overall responsibilities as to the
accounts as to which it exercises investment discretion and that the Advisor
shall use its judgment in determining that the amount of commissions paid are
reasonable in relation to the value of brokerage and research services
provided. The Advisor is further authorized to allocate the orders placed by
it on behalf of the Fund to such brokers or dealers who also provide research
or statistical material, or other services, to the Fund, the Advisor, or any
affiliate of either. Such allocation shall be in such amounts and proportions
as the Advisor shall determine, and the Advisor shall report on such
allocations regularly to the Fund, indicating the broker-dealers to whom such
allocations have been made and the basis therefore.
The research services discussed above may be in written form or through
direct contact with individuals and may include information as to particular
companies and securities as well as market economic or institutional areas and
information assisting the Fund in the valuation of its investments. The
research which the Advisor receives for the Fund's brokerage commissions,
<PAGE> B-27
whether or not useful to the Fund may be useful to the Advisor in managing the
accounts of the Advisor's other advisory clients. Similarly, the research
received for the commissions of such accounts may be useful to the Fund. For
the fiscal years ending December 31, 1987, December 31, 1988, December 31,
1989, December 31, 1992, December 31, 1993, December 31, 1994, December 31,
1995, and December 31, 1996 the brokerage commissions incurred by the
Small Cap Series were $90,216, $82,149, $0, $42,285, $60,820, $90,860,
$327,763 and $214,565, respectively. For the period November 4, 1988
(Commencement of Operations) to December 31, 1988 and the fiscal years ended
December 31, 1989, December 31, 1990, December 31, 1991 and December 31, 1992,
the brokerage commissions incurred by the Technology Series were $123,896,
$80,326, $11,415, $5,795 and $137,000, respectively and for the period August
29, 1994 (Commencement of Operations) to December 31, 1994 and the fiscal
years ended December 31, 1995 and December 31, 1996, were $13,693,
$73,963 and $151,177. For the period August 27, 1992 (Commencement
of Operations) to December 31, 1992 and the fiscal years ended December 31,
1993, December 31, 1994, December 31, 1995 and December 31, 1996, the
brokerage commissions incurred by the International Series were $219,814,
$49,000, $151,987, $157,084 and $49,487. For the period October 7,
1992 (Commencement of Operations) to December 31, 1992 and the fiscal years
ended December 31, 1993, December 31, 1994, December 31, 1995, the brokerage
commissions incurred by the Life Sciences Series were $10,670, $144,225,
$85,230, $132,203. For the period September 15, 1993 (Commencement of
Operations) to December 31, 1993 and for the fiscal years ended December 31,
1994, December 31, 1995, and October 31, 1996 the brokerage commissions
incurred by the Blended Asset Series I were $431, $4,270, $8,775 and $13,656.
For the period October 12, 1993 (Commencement of Operations) to December 31,
1993 and for the fiscal years ended December 31, 1994, December 31, 1995, and
October 31, 1996 the brokerage commissions incurred by the Blended Asset
Series II were $506, $8,525, $23,410 and $36,256. For the period February 15,
1994 (Commencement of Operations) to December 31, 1994, and the fiscal years
ended December 31, 1995, and October 31, 1996 there were no brokerage
commissions incurred by the Flexible Yield Series I. For the period February
15, 1994 (Commencement of Operations) to December 31, 1994 and the fiscal
years ended December 31, 1995, and October 31, 1996 there were no brokerage
commissions incurred by the Flexible Yield Series II. For the period December
20, 1993 (Commencement of Operations) to December 31, 1993 and for the fiscal
years ended December 31, 1994, December 31, 1995, and October 31, 1996 there
were no brokerage commissions incurred by the Flexible Yield Series III. For
the period January 17, 1994 (Commencement of Operations) to December 31, 1994
and the fiscal years ended December 31, 1995 and December 31, 1996,
there were no brokerage commissions incurred by the New York Tax Exempt
Series. For the period February 14, 1994 (Commencement of Operations) to
December 31, 1994 and the fiscal years ended December 31, 1995 and
December 31, 1996, there were no brokerage commissions incurred by
the Ohio Tax Exempt Series. For the period February 14, 1994 (Commencement of
Operations) to December 31, 1994 and the fiscal years ended December 31, 1995
and December 31, 1996, there were no brokerage commissions incurred
by the Diversified Tax Exempt Series. For the period September 6, 1996
(Commencement of Operations) to December 31, 1996, the brokerage commissions
incurred by the World Opportunities was $205,556. For the period
November 1, 1995 (Commencement of Operations) to October 31, 1996 the
brokerage commissions incurred by the Tax Managed Series were $837. For the
period November 1, 1995 (Commencement of Operations) to October 31, 1996, the
brokerage commissions incurred by the Defensive Series were $335. For the
period November 1, 1995 (Commencement of Operations) to October 31, 1996, the
brokerage commissions incurred by the Maximum Horizon Series were $2,753.
There were no brokerage commissions paid to affiliates during the last five
fiscal years.
NET ASSET VALUE
The net asset value is determined on each day that the New York Stock
Exchange is open for trading. In determining the net asset value of the
Fund's shares, common stocks that are listed on national securities exchanges
or the NASDAQ National Market System are valued at the last sale price on the
exchange on which each stock is principally traded as of the close of the New
York Stock Exchange (which is currently 4:00 p.m., Eastern time), or, in the
<PAGE> B-28
absence of recorded sales, at the closing bid prices on such exchanges or on
such System. Unlisted securities that are not included in such National
Market System are valued at the quoted bid prices in the over-the-counter
market. All securities initially expressed in foreign currencies will be
converted to U.S. dollars at the exchange rates quoted at the close of the New
York markets. Short securities positions are accounted for at value, using
the same method of valuation described above. Securities and other assets for
which market quotations are not readily available are valued by appraisal at
their fair value as determined in good faith by the Advisor under procedures
established by and under the general supervision and responsibility of the
Fund's Board of Directors. The Advisor may use a pricing service to obtain
the value of the Fund's portfolio securities where the prices provided by such
pricing service are believed to reflect the fair market value of such
securities. The methods used by the pricing service and the valuations so
established will be reviewed by the Advisor under the general supervision of
the Fund's Board of Directors. Several pricing services are available, one or
more of which may be used as approved by the Fund's Board of Directors.
REDEMPTION OF SHARES
Payment for shares redeemed
Payment for shares presented for redemption may be delayed more than
three days only for (1) any period (A) during which the New York Stock
Exchange is closed other than customary week-end and holiday closings or (B)
during which trading on the New York Stock Exchange is restricted; (2) for any
period during which an emergency exists as a result of which (A) disposal by
the Fund of securities owned by it is not reasonably practicable or (B) it is
not reasonably practicable for the Fund to determine the value of its net
assets; or (3) for such other periods as the Securities and Exchange
Commission may by order permit.
Redemption in Kind
If the Board of Directors determines that it would be detrimental to the
best interests of the remaining shareholders of the Fund to make payment
wholly or partly in cash, the Fund may pay the redemption price in whole or in
part by a distribution in kind of securities from the portfolio of the Fund,
in lieu of cash in conformity with applicable rules of the Securities and
Exchange Commission. The Fund, however, has elected to be governed by Rule
18f-1 under the 1940 Act pursuant to which the Fund is obligated to redeem
shares solely in cash up to the lesser of $250,000 or one per cent of the net
asset value of the Fund during any 90 day period for any one shareholder.
Should redemptions by any shareholder exceed such limitation, the Fund will
have the option of redeeming the excess in cash or in kind. If shares are
redeemed in kind, the redeeming shareholder might incur brokerage costs in
converting the assets into cash.
FEDERAL TAX TREATMENT OF DIVIDENDS AND DISTRIBUTIONS
The following is only a summary of certain additional tax considerations
generally affecting the Fund and its shareholders that are not described in
the Fund's Prospectus. No attempt is made to present a detailed explanation
of the tax treatment of the Fund or its shareholders, and the discussion here
and in the Fund's Prospectus is not intended as a substitute for careful tax
planning.
The following discussion of federal income tax consequences is based on
the Internal Revenue Code of 1986, as amended (the "Code") and the regulations
issued thereunder as in effect on the date of this Statement of Additional
Information. New legislation, as well as administrative changes or court
decisions, may significantly change the conclusions expressed herein, and may
have a retroactive effect with respect to the transactions contemplated
herein.
<PAGE> B-29
Qualification as Regulated Investment Company
As a regulated investment company ("RIC") under Subchapter M of the Code,
each Series is exempt from federal income tax on its net investment income and
capital gains which it distributes to shareholders, provided that it
distributes at least 90% of its investment company taxable income (generally,
net investment income and the excess of net short-term capital gain over net
long-term capital loss) for the year (the "Distribution Requirement") and
satisfies certain other requirements of the Code that are described below.
Distributions of investment company taxable income made during the taxable
year will satisfy the Distribution Requirement.
In addition to satisfaction of the Distribution Requirement each Series
must derive at least 90% of its gross income from dividends, interest, certain
payments with respect to securities loans and gains from the sale or other
disposition of stocks, securities or foreign currencies, or from other income
(including but not limited to gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies ("Qualifying Income") and derive less than 30% of its
gross income from the sale or other disposition of stocks, securities and
certain other investments held for less than three months including foreign
currencies (or options, futures or forward contracts on foreign currencies)
but only if such currencies (or options, futures or forward contracts) are not
directly related to the Series' principal business of investing in stock or
securities or options and futures with respect to stocks or securities (the
so-called "Short-Short Gain Rule"). Moreover, at the close of each quarter
of its taxable year, at least 50% of the value of a Series' assets must
consist of cash and cash items, Government securities, securities of other
RICs, and securities of other issuers (as to which such Series has not
invested more than 5% of the value of its total assets in any one issuer and
as to which such Series does not hold more than 10% of the outstanding voting
securities of any one issuer), and no more than 25% of the value of its total
assets may be invested in the securities of any one issuer (other than
Government securities and securities of other RICs), or in two or more issuers
which the Fund controls and which are engaged in the same, similar or related
trades or businesses (the "Asset Diversification Test").
The foregoing requirements of the Code may inhibit the Series in their
efforts to achieve their investment objectives.
1. a. Qualifying Income
It is not clear to what extent income derived by a Series from
foreign currency gains will, under future Treasury regulations, be treated by
the Internal Revenue Service (the "Service") as Qualifying Income.
Consequently, each Series will take appropriate actions to
limit such transactions, where necessary, until such time as applicable U.S.
Treasury regulations are issued or a Series receives a satisfactory opinion of
counsel or private letter ruling from the Service that income from such
currency transactions constitutes Qualifying Income.
1. b. Currency Transactions
Transactions in forward currency contracts, currency futures
contracts, options on currencies, and certain other instruments are subject to
special rules which may affect the timing and character of distributions to
shareholders by accelerating income to the Series, deferring Series' losses,
causing adjustments in the holding periods of Series' securities, and
converting capital gains into ordinary income. For example, certain foreign
currency gains realized by a Series will be treated as ordinary income rather
than capital gain under Section 988 of the Code. The tax treatment of certain
foreign currency contracts, futures contracts, and options on futures
contracts entered into by a Series will be governed by Section 1256 of the
Code. In general, each such position held by the Series will be marked to
market (i.e., treated as if it were closed out on the last business day of
each taxable year of the Series), and all gain or loss associated with such
marking to market or other transactions in such positions will be treated as
60% long-term and 40% short-term capital gain or loss.
<PAGE> B-30
When a Series holds an option or contract governed by Section 1256
which substantially diminishes the Series' risk of loss with respect to
another position held by the Series which is not governed by Section 1256,
this combination of positions could be a "mixed straddle" that is generally
subject to Section 1092 of the Code in addition to Section 1256 of the Code.
The Series may make certain tax elections for its "mixed straddles" which
could eliminate the effects of Section 1256. In addition, a Series'
activities in foreign currency contracts, futures contracts and options may be
limited by the requirements for qualification as a regulated investment
company and by future legislative or regulatory changes in these requirements.
2. Short-Short Gain Rule
Because of the Short-Short Gain Rule, a Series may have to:
(1) limit the sale of appreciated securities held for less than
three months;
(2) limit the short sale of, or the acquisition of put options on,
appreciated securities held for one year or less;
(3) limit the closing of call options or secured put options it has
written or of appreciated put options it has held for less than three months;
and
(4) limit writing options that expire in less than three months and
covered call options on securities that have been held for less than three
months and are likely to appreciate significantly during the option period.
To the extent a Series is able to identify and designate offsetting
positions as "hedges," increases and decreases in the value of such positions
will be netted for purposes of determining whether the Short-Short Gain Rule
has been satisfied. In addition, the Short-Short Gain Rule will not prevent a
Series from disposing of investments at a loss, since the recognition of a
loss before the expiration of the three-month holding period has no impact.
3. Asset Diversification Test
The Service has ruled (1) that the issuer of a call option written on a
security is the issuer of the underlying security and (2) that, where the
writer of a call option owns the underlying security, the Asset
Diversification Test will be applied solely to such security and that the
value of the option will not be counted.
The Service has informally ruled for purposes of the Asset
Diversification Test that (1) a put option on a security is itself a
"security", (2) the issuer of a put option on a security is the issuer of the
underlying security, (3) the market value of a purchased put option should be
the measure of the investment in the instrument as a "security", and (4) the
market value of the underlying security should be the measure of the
investment in a written put option as a "security".
<PAGE> B-31
By law, the Series may not rely on informal rulings of the Service.
Consequently, a Series may find it necessary to seek its own ruling from the
Service on these issues or to curtail its options trading in order to stay
within the limits of the Asset Diversification Test.
It is unclear under present law who should be treated as the issuer of
foreign currency exchange contracts, although it has been suggested that the
issuer in each case would be the foreign central bank or foreign government
backing the particular currency. A Series may find it necessary to curtail
trading in forward foreign currency contracts or seek a ruling on this issue.
A Series may also find it necessary to seek rulings with respect to other
financial instruments, or curtail trading therein, for purposes of the Asset
Diversification Test.
Fund Distributions
Investors should be careful to consider the tax implications of buying
shares of a Series just prior to the record date of an ordinary income
dividend or capital gain distribution. The price of shares purchased at that
time may reflect the amount of the forthcoming ordinary income dividend or
capital gain distribution. Those purchasing just prior to an ordinary income
dividend or capital gain distribution will nevertheless be taxable on the
entire amount of the distribution received.
In the event a Series elects to retain its net capital gain, it is
expected that such Series also will elect to have shareholders treated as
having received a distribution of such gain, with the result that they will be
required to report their respective shares of such gain on their returns as
long-term capital gain, will receive a refundable tax credit for their
allocable share of capital gain tax paid by such Series on the gain, and will
increase the tax basis for their shares by an amount equal to 65% of the
deemed distribution.
Investors should be aware that any loss realized upon the sale, exchange
or redemption of Series shares held for six months or less will be treated as
a long-term capital loss to the extent any capital gain distributions have
been paid with respect to such shares or any amounts have been treated as
long-term capital gains with respect to such shares pursuant to the election
described in the preceding paragraph. Investors should also be aware that the
maximum federal tax rate on long-term capital gains has been increased to 35%
for corporate taxpayers and to 28% for non-corporate taxpayers.
In some circumstances the Series' use of short sales, writing of covered
call options and acquisitions of put options to further its investment
objectives may reduce the portion of its distributions that qualify for the
corporate dividends received deduction.
Except in the case of the International Series and Global Fixed Income
Series, the Code allows a 70% dividends-received deduction (the "deduction")
to corporate shareholders of any Series. Special provisions are contained in
the Code as to the eligibility of payments to such shareholders for the
deduction. The extent to which the ordinary income dividends paid by a Series
are eligible for the deduction is determined by the ratio of the aggregate
dividends received by such Series from domestic corporations in any fiscal
year to the ordinary income dividends paid by such Series for that year. For
purposes of determining the deduction, a Series may not take into account any
amount received as a dividend with respect to any security unless such Series
has held the security with respect to which the dividend has been paid for a
minimum period, generally 46 days. Moreover, corporate taxpayers will have to
take into account the entire amount of any dividend received from a Series for
purposes of the alternative minimum tax and environmental tax. Capital gains
distributions are not eligible for the dividends received deduction.
<PAGE> B-32
As noted in the Prospectuses for the New York Tax Exempt Series, the Ohio
Tax Exempt Series and the Diversified Tax Exempt Series, exempt-interest
dividends are excludable from a shareholder's gross income for federal income
tax purposes. Exempt-interest dividends may nevertheless be subject to the
alternative minimum tax (the "Alternative Minimum Tax") imposed by Section 55
of the Code or the environmental tax (the "Environmental Tax") imposed by
Section 59A of the Code to corporate taxpayers. The Alternative Minimum Tax
and the Environmental Tax may be imposed in two circumstances. First,
exempt-interest dividends derived from certain "private activity bonds" issued
after August 7, 1986, will generally be an item of tax preference and
therefore potentially subject to the Alternative Minimum Tax and the
Environmental Tax. Each Tax Exempt Series intends, when possible, to avoid
investing in private activity bonds. Second, in the case of exempt-interest
dividends received by corporate shareholders, all exempt-interest dividends,
regardless of when the bonds from which they are derived were issued or
whether they are derived from private activity bonds, will be included in the
corporation's "adjusted current earnings" as defined in Section 56(g) of the
Code, in calculating the corporation's alternative minimum taxable income for
purposes of determining the Alternative Minimum Tax and the Environmental Tax.
The percentage of income that constitutes "exempt-interest dividends"
will be determined for each year for each Tax Exempt Series will be applied
uniformly to all dividends declared with respect to the Series during that
year. This percentage may differ from the actual percentage for any
particular day.
Interest on indebtedness incurred by shareholders to purchase or carry
shares of a Tax Exempt Series will not be deductible for federal income tax
purposes. The deduction otherwise allowable to property and casualty
insurance companies for "losses incurred" will be reduced by an amount equal
to a portion of exempt-interest dividends received or accrued during any
taxable year. Foreign corporations engaged in a trade or business in the
United States will be subject to a "branch profits tax" on their "dividend
equivalent amount" for the taxable year, which will include exempt-interest
dividends. Certain Subchapter S corporations may also be subject to taxes on
their "passive investment income," which could include exempt-interest
dividends. Up to 85% of the Social Security benefits or railroad retirement
benefits received by an individual during any taxable year will be included in
the gross income of such individual if the individual's "modified adjusted
gross income" (which includes exempt-interest dividends) plus one-half of the
Social Security benefits or railroad retirement benefits received by such
individual during that taxable year exceeds the base amount described in
Section 86 of the Code.
Entities or persons who are "substantial users" (or persons related to
"substantial users") of facilities financed by industrial development bonds or
private activity bonds should consult their tax advisors before purchasing
shares of a Tax Exempt Series.
"Substantial user" is defined generally for these purposes as including a
"non-exempt person" who regularly uses in trade or business a part of a
facility financed from the proceeds of such bonds.
Issuers of bonds purchased by a Tax Exempt Series (or the beneficiary of
such bonds) may have made certain representations or covenants in connection
with the issuance of such bonds to satisfy certain requirements of the Code
that must be satisfied subsequent to the issuance of such bonds. Investors
should be aware that exempt-interest dividends derived from such bonds may
become subject to federal income taxation retroactively to the date thereof if
such representations are determined to have been inaccurate or if the issuer
of such bonds (or the beneficiary of such bonds) fails to comply with such
covenants.
From time to time, the Fund may present its performance in communications
to shareholders, sales literature, and advertising. Performance measurements
will be presented by average annual total return, total return, and/or
cumulative total return. All measurements will be based upon the change in
net assets resulting from all Fund operations, including the reinvestment of
dividends and distributions, if any, for the specified periods.
<PAGE> B-33
The Fund's performance will vary from time to time depending on market
conditions, the composition of its portfolio, and its level of operation
expenses. Consequently, any performance figures should not be considered
representative of the future performance of the Fund. The Fund may include in
performance advertisements rankings or similar information provided by
Morningstar or other organizations.
Other Considerations
A 4% non-deductible excise tax is imposed on RICs that fail to distribute
in each calendar year an amount equal to 98% of their ordinary income for the
calendar year and 98% of their "capital gain net income" (excess of capital
gains over capital losses) for the one-year period ending on October 31 of
such calendar year, even if they satisfy the Distribution Requirement. The
balance of such income must be distributed during the next calendar year.
Each Series intends to make sufficient distributions of its ordinary income
and capital gain net income prior to the end of each calendar year to avoid
liability for this excise tax. However, investors should note that a Series
may in certain circumstances be required to liquidate portfolio investments in
order to make sufficient distributions to avoid excise tax liability.
For purposes of the excise tax, a RIC must (1) offset a net ordinary loss
for any calendar year in determining its capital gain net income, but only to
the extent the capital gain net income for the one-year period ending on
October 31 of such calendar year exceeds the net capital gains for said period
and (2) exclude certain foreign currency gains and losses incurred after
October 31 of any year in determining the amount of ordinary taxable income
for the current calendar year (and, instead include such gains and losses in
determining ordinary taxable income for the succeeding calendar year).
Rules of state and local taxation of ordinary income dividends and
capital gain distributions from regulated investment companies often differ
from the rules for federal income taxation described above. Shareholders are
urged to consult their tax advisors for the application of the federal rules
outlined above to their particular circumstances and for the application of
state and local tax rules affecting investment in the Fund. Foreign
shareholders are urged to consult their own tax advisors concerning the
applicability of the United States withholding tax.
<PAGE> B-34
February 14, 1997
To Shareholders of the following series of the Manning & Napier Fund:
Small Cap Series
Technology Series
International Series
World Opportunities Series
New York Tax Exempt Series
Ohio Tax Exempt Series
Diversified Tax Exempt Series
Dear Shareholder:
Enclosed are copies of the Annual Reports for each of the above Series of the
Manning & Napier Fund in which you owned shares as of December 31, 1996. The
reports include information about the Series performance as well as portfolio
listings as of that date.
Please contact our Fund Services department at 1-800-4MN-FUND (1-800-466-3863)
or your Client Consultant if you have any questions about your holdings in the
Manning & Napier Fund.
Sincerely,
/s/ Amy J. Williams
Amy J. Williams
Fund Services Coordinator
<PAGE> B-35
Manning & Napier Fund, Inc.
World Opportunities Series
Annual Report
December 31, 1996
<PAGE>
Management Discussion and Analysis
Dear Shareholders:
The World Opportunities Series was activated on September 6, 1996. The
objective of this Series is to provide long-term growth through investments in
common stocks of companies throughout the world. Stocks are chosen for
inclusion in the portfolio through analysis of individual companies using
Manning & Napiers traditional investment strategies and pricing disciplines.
As you might expect from an investment approach which emphasizes individual
security selection, portfolio holdings have been chosen selectively. By the
end of 1996, the portfolio was fully invested, and sixteen countries,
including the United States, were represented in the Series portfolio. The
holdings include stocks of Asian, European, North American, and Latin American
companies. Our analysts also examine the currencies of the countries in which
stocks are held, and currencies are hedged where appropriate.
The last two years have seen extraordinary returns in the U.S. stock market,
while international stocks have turned in strong, but less remarkable,
returns. We feel that the high valuation of the U.S. market is a compelling
argument for diversifying the stock portion of your portfolio by adding
international securities.
We wish you a healthy, happy, and prosperous 1997.
Sincerely,
Manning & Napier Advisors, Inc.
<PAGE> B-36
Performance Update as of December 31, 1996
Manning & Napier Fund, Inc.
World Opportunities Series
Total Return
Through Growth of $10,000 Average
12/31/96 Investment Cumulative Annual
Inception 2 $ 10,482 4.82% N/A
S&P 500 Total Return Index
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
12/31/96 Investment Cumulative Annual
Inception 2 $ 11,372 13.72% N/A
</TABLE>
<TABLE>
<CAPTION>
Morgan Stanley Capital
International World Index
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
12/31/96 Investment Cumulative Annual
Inception 2 $ 10,865 8.65% N/A
</TABLE>
The value of a $10,000 investment in the Manning & Napier Fund, Inc. - World
Opportunities Series from its inception (9/6/96) to present (12/31/96) as
compared to the Standard & Poor's (S&P) 500 Total Return Index and the Morgan
Stanley Capital International World Index. 1
<graphic>
<line chart>
Data for line chart to follow:
<TABLE>
<CAPTION>
Date Manning & Napier World Standard & Poors Morgan Stanley Capital
Opportunities Series 500 Total Return Index International World Index
<S> <C> <C> <C>
09/06/96 10,000 10,000 10,000
09/30/96 10,040 10,497 10,390
10/31/96 9,930 10,787 10,460
11/30/96 10,330 11,602 11,044
12/31/96 10,482 11,372 10,865
</TABLE>
1 The Standard & Poor (S&P) 500 Total Return Index is an unmanaged
capitalization-weighted measure of 500 widely held common stocks listed on the
New York Stock Exchange, American Stock Exchange, and Over-the-Counter
market. The Morgan Stanley Capital International World Index is a market
capitalization-weighted measure of the total return of 1,570 companies listed
on the stock exchanges of the United States, Europe, Canada, Australia, New
Zealand and the Far East. The Morgan Stanley Capital International World
Index is denominated in U.S. Dollars. The Indices' returns assume reinvestment
of dividends and, unlike Fund returns, do not reflect any fees or expenses.
2 Performance numbers for the Fund and Indices are calculated from
September 6, 1996, the Fund's inception date. The Fund's performance is
historical and may not be indicative of future results.
<PAGE> B-37
<TABLE>
<CAPTION>
Investment Portfolio - December 31, 1996
Value
Shares (Note 2)
<S> <C> <C>
COMMON STOCK - 91.5%
BRAZIL - 3.9%
HOUSEHOLD APPLIANCES - 3.9%
Brasmotor S.A. (Identified Cost $2,920,284) 10,800,000 $ 3,000,297
GERMANY - 2.2%
FOOTWEAR & RELATED APPAREL - 2.2%
Adidas AG (Identified Cost $1,651,677) 19,800 1,711,052
HONG KONG - 17.5%
BEVERAGES - 2.6%
Vitasoy Intl. Holdings Ltd. 4,610,000 2,011,591
BROADCAST MEDIA - 4.1%
Television Broadcasts Ltd. 800,000 3,196,049
COMPUTER EQUIPMENT - 2.7%
Varitronix International Ltd. 1,151,000 2,083,379
ELECTRONIC PRODUCTS - 1.7%
VTech Holdings Ltd. 720,000 1,293,934
HOUSEHOLD APPLIANCES - 2.0%
Guangdong Kelon Electronics Hldg. 2,348,000 1,517,865
SOFTWARE - 4.4%
Founder Hong Kong Ltd.* 8,848,000 3,403,275
TOTAL HONG KONG SECURITIES
(Identified Cost $12,937,016) 13,506,093
INDONESIA - 3.4%
TOBACCO - 3.4%
PT Hanjaya Mandala Sampoerna
(Identified Cost $2,238,889) 495,000 2,639,436
ITALY - 3.1%
ENERGY SOURCES - OIL/GAS - 3.1%
Edison S.p.A. (Identified Cost $2,322,193) 375,000 2,371,536
JAPAN - 9.3%
SOFTWARE - 4.7%
NTT Data Corp. 125 3,662,471
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-38
<TABLE>
<CAPTION>
Investment Portfolio - December 31, 1996
Value
Shares (Note 2)
<S> <C> <C>
ELECTRONIC PRODUCTS - 4.6%
Toshiba Corp. 570,000 $3,586,499
TOTAL JAPANESE SECURITIES
(Identified Cost $7,352,229) 7,248,970
SOUTH KOREA - 2.9%
ELECTRONIC PRODUCTS - 2.9%
Samsung Electronics Co. (Identified Cost $3,113,103) 42,000 2,272,561
NETHERLANDS - 2.7%
RETAIL - FOOD - 2.7%
Koninklije Ahold NV (Identified Cost $1,957,575) 34,000 2,124,619
SWITZERLAND - 2.7%
FOOD - MISCELLANEOUS - 2.7%
Nestle SA (Identified Cost $2,120,230) 1,920 2,056,671
UNITED KINGDOM - 3.9%
FOOD - MISCELLANEOUS - 3.9%
Grand Metropolitan PLC (Identified Cost $2,863,704) 380,000 2,987,815
UNITED STATES - 39.9%
CRUDE PETROLEUM & NATURAL GAS - 5.1%
YPF Sociedad Anonima - ADR 156,000 3,939,000
JEWELRY - 4.2%
Tag Heuer International SA - ADR* 200,000 3,225,000
MACHINERY - 2.3%
ASM Lithography Hldg. - ADR* 35,000 1,743,438
PHOTOGRAPHIC EQUIPMENT & SUPPLIES - 3.7%
Eastman Kodak Co. 36,000 2,889,000
RETAIL - WHOLESALE - 2.4%
Coleman Company, Inc.* 134,000 1,842,500
TELECOMMUNICATIONS - 22.2%
EQUIPMENT - 9.0%
ECI Telecommunications, Ltd. 152,000 3,230,000
Nokia Corp. Ab - ADR 65,000 3,745,625
6,975,625
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-39
<TABLE>
<CAPTION>
Investment Portfolio - December 31, 1996
Shares Value
Principal/Amount (Note 2)
<S> <C> <C>
TELECOMMUNICATIONS (continued)
SERVICE - 13.2%
Compania Anonima Nacional Telefonos de
Venezuela (CANTV) - ADR* 95,000 $ 2,671,875
Stet Societa' Finanziaria Telefonica S.p.A. - ADR 85,000 3,771,875
Telecomunicacoes Brasileiras - ADR 40,000 3,060,000
Vimpel Communications - ADR* 30,000 708,750
10,212,500
17,188,125
TOTAL UNITED STATES SECURITIES
(Identified Cost $28,541,345) 30,827,063
TOTAL COMMON STOCK
(Identified Cost $68,018,245) 70,746,113
SHORT-TERM INVESTMENTS - 7.7%
Federal National Mortgage Corporation Discount
Note, 1/28/97 $ 6,000,000 5,974,846
Dreyfus U.S. Treasury Money Market 228 228
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $5,975,074) 5,975,074
TOTAL INVESTMENTS - 99.2%
(Identified Cost $73,993,319) 76,721,187
OTHER ASSETS, LESS LIABILITIES - 0.8% 598,315
NET ASSETS -100% $77,319,502
</TABLE>
*Non-income producing security.
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
<S> <C>
At December 31, 1996, the net unrealized appreciation based on identified cost for
federal income tax purposes of $73,993,319 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost $ 4,983,589
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value (1,874,019)
UNREALIZED APPRECIATION - NET $ 3,109,570
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-40
<TABLE>
<CAPTION>
INDUSTRY CONCENTRATION (AS A PERCENT OF NET ASSETS)
<S> <C>
Telecommunication- Equipment & Service 22.2%
Food - Retail/Miscellaneous 9.3%
Electronic Products 9.2%
Software 9.1%
Beverage & Tobacco 6.0%
Household Appliances 5.9%
Crude Petroleum & Natural Gas 5.1%
Jewelry 4.2%
Broadcast Media 4.1%
Photographic Equipment & Supplies 3.7%
Energy Sources -Oil/Gas 3.1%
Computer Equipment 2.7%
Machinery 2.3%
Footwear & Related Apparel 2.2%
Retail - Wholesale 2.4%
Total Common Stock 91.5%
</TABLE>
The accompanying notes are an integral part of the financial statements.
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
DECEMBER 31, 1996
<S> <C>
ASSETS:
Investments, at value (Identified Cost $73,993,319)
(Note 2) $76,721,187
Foreign currency, at value (cost $1,233,378) 1,232,914
Cash 600,209
Receivable for forward foreign currency exchange
contracts sold (Note 2) 12,786,593
Receivable for fund shares sold 41,590
Dividends receivable 36,011
TOTAL ASSETS 91,418,504
LIABILITIES:
Accrued management fees (Note 3) 63,528
Accrued Directors' fees (Note 3) 1,667
Payable for forward foreign currency contracts sold,
at value (Note 2) 12,404,891
Payable for securities purchased 1,155,332
Payable for fund shares redeemed 436,235
Audit fee payable 8,000
Custodian fee payable 7,160
Other payables and accrued expenses 3,371
TOTAL LIABILITIES 14,080,184
NET ASSETS FOR 7,418,858 SHARES
OUTSTANDING $77,338,320
NET ASSETS CONSIST OF:
Capital stock $ 74,188
Additional paid-in-capital 74,129,697
Accumulated net realized gain on investments 21,631
Net unrealized appreciation on investments, foreign currency,
forward currency contracts, and other assets and liabilities 3,112,804
TOTAL NET ASSETS $77,338,320
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($77,338,320/7,418,858 shares) $ 10.42
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-41
Statement of Operations
<TABLE>
<CAPTION>
FOR THE PERIOD SEPTEMBER 6, 1996 (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1996
<S> <C>
INVESTMENT INCOME:
Interest $ 501,370
Dividends (net of withholding) 130,415
Total Investment Income 631,785
EXPENSES:
Management fees (Note 3) 224,344
Directors' fees (Note 3) 3,334
Custodian fee 24,856
Audit fee 8,000
Miscellaneous 4,175
Total Expenses 264,709
NET INVESTMENT INCOME 367,076
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on -
Investments (identified cost basis) 90,342
Foreign currency and forward foreign currency
exchange contracts 3,047
Net realized gain on investments 93,389
Net change in unrealized appreciation on -
Investments 2,727,868
Foreign currency and forward currency contracts and other
assets and liabilities 384,936
Net unrealized appreciation on investments 3,112,804
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS 3,206,193
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $3,573,269
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-42
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Period
9/6/96 (commencement
of operations)
to 12/31/96
INCREASE (DECREASE) IN NET ASSETS:
<S> <C>
OPERATIONS:
Net investment income $ 367,076
Net realized gain on investments 93,389
Net change in unrealized appreciation on investments 3,112,804
Net increase in net assets from operations 3,573,269
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2):
From net investment income (370,123)
From net realized gain on investments (68,711)
Total distributions to shareholders (438,834)
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase in net assets from capital share
transactions (Note 5) 74,203,885
Net increase in net assets 77,338,320
NET ASSETS:
Beginning of period --
End of period $ 77,338,320
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-43
Financial Highlights
<TABLE>
<CAPTION>
For the Period
9/6/96 (commencement
of operations)
to 12/31/96
<S> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT
THE PERIOD):
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.00
Income from investment operations:
Net investment income 0.051
Net realized and unrealized gain
on investments 0.429
Total from investment operations 0.480
Less distributions to shareholders:
From net investment income (0.051)
From net realized gain on investments (0.009)
Total distributions to shareholders (0.060)
NET ASSET VALUE - END OF PERIOD $ 10.42
Total return 1: 4.82%
Ratios of expenses (to average net assets) /
Supplemental Data:
Expenses 1.17%2
Net investment income 1.54%2
Portfolio turnover 1%
Average commission rate paid $ 0.0065
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 77,338
1 Represents aggregate total return for the period indicated.
2 Annualized.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-44
Notes to Financial Statements
1. ORGANIZATION
World Opportunities Series (the "Fund") is a no-load non-diversified
series of Manning & Napier Fund, Inc. (the "Corporation"). The
Corporation is organized in Maryland and is registered under the
Investment Company Act of 1940, as amended, as an open- end management
investment company.
Shares of the Fund are offered to clients and employees of Manning &
Napier Advisors, Inc. (The Advisor) and its affiliates. The total
authorized capital stock of the Corporation consists of one billion
shares of common stock each having a par value of $0.01. As of December
31, 1996, 940 million shares have been designated in total among 19
series, of which 50 million have been designated as World Opportunities Series
Class U Common Stock.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Portfolio securities, including domestic equities, foreign equities,
options and corporate bonds, listed on an exchange are valued at the last
quoted sales price of the exchange on which the security is primarily
traded. Securities not traded on valuation date or securities not
listed on an exchange are valued at the latest quoted bid price.
Debt securities, including government bonds and mortgage backed
securities, will normally be valued on the basis of evaluated bid prices.
Securities for which representative prices are not available from the
Fund's pricing service are valued at fair value as determined in good
faith by Advisor under procedures established by and under the general
supervision and responsibility of the Fund's Board of Directors.
Short-term investments that mature in sixty (60) days or less are valued
at amortized cost which approximates market value.
SECURITY TRANSACTIONS, INVESTMENT INCOME AND EXPENSES
Security transactions are accounted for on the date the securities are
purchased or sold. Dividend income is recorded on the ex-dividend date.
Interest income and expenses are recorded on an accrual basis.
Most expenses of the Corporation can be attributed to a specific fund.
Expenses which cannot be directly attributed are apportioned among the
funds in the Corporation.
<PAGE> B-45
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
FEDERAL INCOME TAXES
The Fund's policy is to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies. The Fund
is not subject to federal income or excise tax to the extent the Fund
distributes to shareholders each year its taxable income, including any
net realized gains on investments in accordance with requirements of the
Internal Revenue Code. Accordingly, no provision for federal income tax or
excise tax has been made in the financial statements.
The Fund uses the identified cost method for determining realized gain or
loss on investments for both financial statement and federal income
tax reporting purposes.
DISTRIBUTION OF INCOME AND GAINS
Distributions to shareholders of net investment income are made annually.
Distributions are recorded on the ex-dividend date. Distributions of net
realized gains are distributed annually. An additional distribution may
be necessary to avoid taxation of the Fund.
The timing and characterization of certain income and capital gains are
determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. The differences may
be a result of deferral of certain losses, foreign denominated investments
or character reclassification between net income and net gains. As a
result, net investment income (loss) and net investment gain (loss) on
investment transactions for a reporting period may differ significantly from
distributions to shareholders during such period. As a result, the
Fund may periodically make reclassification among its capital accounts without
impacting the Fund's net asset value.
The Fund hereby designates $36,569 as capital gain dividends for the year
ended December 31, 1996.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars.
Foreign currency amounts are translated into U.S. dollars on the following
basis: a) investment securities, other assets and liabilities are
converted to U.S. dollars based upon current exchange rates; and b)
purchase and sales of securities and income and expenses are converted into
U.S. dollars based upon the currency exchange rates prevailing on the
respective dates of such transactions.
Gains and losses attributable to foreign currency exchange rates are
recorded for financial statement purposes as net realized gains and losses
on investments. The portion of both realized and unrealized gains and
losses on investment that result from fluctuations in foreign currency
exchange rates is not separately stated.
<PAGE> B-46
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may purchase or sell forward foreign currency contracts in order
to hedge a portfolio position or specific transaction. Risks may arise if
the counterparties to a contract are unable to meet the terms of the
contract or if the value of the foreign currency moves unfavorably.
All forward foreign currency contracts are adjusted daily by the exchange
rate of the underlying currency and, for financial statement purposes, any
gain or loss is recorded as unrealized gain or loss until a contract has
been closed. Realized and unrealized gain or loss arising from a
transaction is included in net realized and unrealized gain (loss) from
foreign currency and forward currency exchange contracts.
The Fund regularly trades forward foreign currency exchange contracts
with off-balance sheet risk in the normal course of its investing
activities to assist in managing exposure to changes in foreign currency
exchange rates.
The notional or contractual amount of these instruments represents the
investment the Fund has in forward foreign currency exchange contracts and
does not necessarily represent the amounts potentially at risk. The
measurement of the risks associated with forward foreign currency exchange
contracts is meaningful only when all related and offsetting transactions
are considered. A summary of obligations for forward currency exchange
contracts sold on December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Net Unrealized
Settlement Contracts In Exchange Contracts Appreciation/
Date to Deliver For At Value (Depreciation)
<C> <S> <C> <C> <C>
04/04/97 Dutch Guilder $ 1,976,168 $ 1,950,409 $ 25,759
01/08/97 Japanese Yen 1,263,923 1,202,736 61,187
01/08/97 Japanese Yen 1,215,371 1,176,778 38,593
04/04/97 Japanese Yen 3,637,160 3,634,286 2,874
04/04/97 Swiss Franc 1,217,137 1,128,987 88,150
04/04/97 Swiss Franc 568,736 526,860 41,876
04/04/97 Swiss Franc 798,722 752,658 46,064
04/04/97 Swiss Franc 2,109,375 2,032,176 77,199
</TABLE>
On December 31, 1996, the Fund had sufficient cash and/or securities to
cover any commitments under these contracts.
<PAGE> B-47
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
OTHER
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of the revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
3. TRANSACTIONS WITH AFFILIATES
The Fund has an investment advisory agreement with Manning & Napier
Advisors, Inc. (the "Advisor"), for which the Fund pays the Advisor a fee,
computed daily and payable monthly, at an annual rate of 1% of the Fund's
average daily net assets. The fee amounted to $224,344 for the period
September 6, 1996 (commencement of operations) to December 31, 1996.
Under the Fund's Investment Advisory Agreement (the "Agreement"),
personnel of the Advisor provide the Fund with advice and assistance in
the choice of investments and the execution of securities transactions,
and otherwise maintain the Fund's organization. The Advisor also provides
the Fund with necessary office space and portfolio accounting and
bookkeeping services. The salaries of all officers of the Fund and of all
Directors who are "affiliated persons" of the Fund or of the Advisor, and
all personnel of the Fund or of the Advisor performing services
relating to research, statistical and investment activities are paid
by the Advisor.
The Advisor has agreed that, in any fiscal year, if the expenses of the
Fund (including the advisory fee but excluding interest, taxes, brokerage
commissions, and extraordinary expenses) exceed the limits set by
applicable regulation of state securities commissions, the Advisor will
reduce its fee by the amount of such excess.
The Advisor also acts as the transfer, dividend paying and shareholder
servicing agent for the Fund. These services are provided at no
additional cost to the Fund.
Manning & Napier Investor Services, Inc., a registered broker-dealer
affiliate of the Advisor, acts as distributor for the Fund's shares. The
services of Manning & Napier Investor Services, Inc. are provided at no
additional cost to the Fund.
The compensation of the non-affiliated Directors totaled $3,334 for the
period September 6, 1996 (commencement of operations) to December 31,
1996.
<PAGE> B-48
Notes to Financial Statements
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term securities, were
$68,223,244 and $294,390, respectively, for the period September 6, 1996
(commencement of operations) to December 31, 1996.
5. CAPITAL STOCK TRANSACTIONS
Transactions in shares of World Opportunities Series were:
<TABLE>
<CAPTION>
For the Period 9/6/96
(commencement of
operations) to 12/31/96
Shares Amount
------------------------ ------------
<S> <C> <C>
Sold 7,582,503 $75,856,659
Reinvested 43,147 433,194
Repurchased (206,792) (2,085,968)
Total 7,418,858 $74,203,885
</TABLE>
6. FOREIGN SECURITIES
Investing in securities of foreign companies and foreign governments
involves special risks and considerations not typically associated with
investing in securities of U.S. companies and the United States
government. These risks include revaluation of currencies and future
adverse political and economic developments. Moreover, securities of many
foreign companies and foreign governments and their markets may be less
liquid and their prices more volatile than of those securities of
comparable U.S. companies and the United States government.
<PAGE> B-49
Independent Auditors' Report
TO THE SHAREHOLDERS AND DIRECTORS OF
MANNING & NAPIER FUND, INC.- WORLD OPPORTUNITIES SERIES:
We have audited the accompanying statement of assets and liabilities of
Manning & Napier Fund, Inc.- World Opportunities Series, including the
schedule of portfolio investments, as of December 31, 1996, and the related
statement of operations, the statement of changes in net assets, and the
financial highlights for the period September 6, 1996 (commencement of
operations) to December 31, 1996. These financial statements and financial
highlights are the responsibility of the Funds management. Our responsibility
is to express an opinion on these financial statements and financial
highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1996 by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Manning & Napier Fund, Inc.- World Opportunities Series as of December 31,
1996, the results of its operations, the changes in its net assets, and the
financial highlights for the period September 6, 1996 (commencement of
operations) to December 31, 1996 in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
BOSTON, MASSACHUSETTS
JANUARY 23, 1997
<PAGE> B-50
Manning & Napier Fund, Inc.
Diversified Tax Exempt Series
Annual Report
December 31, 1996
Management Discussion and Analysis
Dear Shareholders:
A fairly common expression being bandied about today is the phrase "if it
doesn't kill you, it will make you stronger". To a certain extent, that sums
up the bond market in 1996. The mediocre municipal bond market returns in
1996 are the result of short-term factors, specifically an ungrounded scare
about excessive growth and inflation plus uncertainty over the presidential
election. Combine those factors with the rather extraordinary returns that
the muni market generated in 1995, and the result is the mediocrity that will
be remembered as 1996. We would like to point out, however, that it is
short-term situations like those encountered in 1996 that provide us with the
needed opportunities to position the portfolio to benefit from the long-term
trends which are the most important determinants of municipal bond returns.
Having said all this, it is worthwhile to review what happened in 1996, just
what the impact of the election was, and what all this portends for 1997 and
beyond.
A GROWTH AND INFLATION SCARE:
At the end of 1995, the psychology in the muni market was about as good as it
could get. Economic growth was slowing, some were even calling for a
recession later in 1996, and inflation worries were non-existent. These
economic factors overshadowed what proved to be unfounded fears regarding the
potential for a flat tax and the negative impact that would have on the
municipal bond market.
Unfortunately, the economic tide began to turn rather quickly right at the
start of the year. One of the reasons the market rallied so strongly during
the later half of 1995 can be traced to speculative investments in fixed
income securities. Speculators were borrowing Japanese yen at extraordinarily
low Japanese short-term interest rates (0.3% to 0.5%), converting the yen into
U.S. dollars, and investing the proceeds in U.S. assets. As long as Japanese
short-term rates were expected to stay low or the yen was expected to slip
versus the U.S. dollar, this trade worked quite well. Unfortunately, once the
tide began to turn (i.e., people thought Japanese short-term rates might
rise), the selling it created snowballed due to the leverage inherent in the
trade. That happened during the early part of 1996, and short to intermediate
interest rates rose in all fixed income markets, including munis.
As spring began, the bond markets were shocked by the February employment
report issued by the Bureau of Labor Statistics. The number of new jobs
created during the month of February was an eye-popping 705,000 at the time of
the first release. Subsequent releases revised the number modestly lower, but
those same releases reported job gains that were much stronger than in 1995.
The probability
<PAGE> B-51
Management Discussion and Analysis (continued)
of a recession became remote, and fears of inflation began to emerge. Strong
consumer expenditures during the first half of 1996, solid capital spending,
and a surprisingly resilient housing sector simply added to the markets
concerns, driving long-term interest rates higher. As the summer ended,
concerns seemed to be somewhat calmed, but rates remained stubbornly high.
It is important to note, however, that throughout all of this, inflation
itself remained very much in check. The most common measures, the Producer
Price Index (PPI) and the Consumer Price Index (CPI), both remained at or
below 3.0% on a year over year basis throughout 1996. An even more accurate
measure of inflation, the GDP deflator, remained closer to 2.0%, further
evidence that inflation was not increasing.
In the near-term, no one likes to see rising interest rates, but over the
longer-term, if one expects inflation to remain under control, rising interest
rates can create compelling fixed income buying opportunities. In the fixed
income markets, 1996 was a stern test, but in the long run, only those who
acted during these difficult times will be positioned to benefit from the
long-term trends of moderate growth and low inflation.
THE ELECTION:
As everyone is quite aware, 1996 was an election year, which always has some
entertainment value. The political posturing started at the end of 1995 when
the Republican Congress and the Democratic White House shut down the
government and threatened to default on U.S. Treasury securities. It veered
off to the right with the rise and fall of Steve Forbes and his call for a
flat income tax. Relative to other fixed income securities, the fortunes of
munis waxed and waned inversely with the fortunes of Steve Forbes.
Ultimately President Clinton was reelected, but the Republicans were able to
hold on to the Congress. The net result was an administration that will be
unable to get any meaningful spending increases through Congress, and a
Congress that will be unable to enact anything in the way of meaningful tax
cuts. It is not necessarily gridlock, but the consensus after the election
was that if anything is going to get passed, it will relate to deficit
reduction. That bodes well for all fixed income markets, including munis.
Elections always introduce uncertainty. Who will win the election? Who will
control the House? The Senate? What issues will galvanize the public?
Financial markets, as a general rule, do not like uncertainty and this year
was no exception. In the long run, however, the election results may not be
of major importance. With the
<PAGE> B-52
Management Discussion and Analysis (continued)
growth of the global financial markets and the influence they wield on a
country's interest and exchange rates, who is in the White House or who
controls Congress becomes less significant. The financial markets have made
it clear that only fiscally sound policies will be tolerated. Witness what
has occurred with a Democrat in the White House over the last four years. The
budget deficit has shrunk from $300 billion to just over $100 billion, the
debate has shifted away from where government monies should be spent to what
spending cuts should be made, and the two parties debated whether the budget
should be balanced in seven years or in ten. Beyond that, we have had a
presidential campaign in which the Republican challenger called for a tax cut
while the Democratic incumbent attacked it for being budgetarily imprudent.
The new reality is that the only poll that seems to matter is the one being
taken daily in the global financial markets; sound policies are rewarded,
unsound policies are not.
1997 AND BEYOND:
At Manning & Napier, we view the big picture items as the most important. The
growth in international trade, the subsequent increase in international
competition, the need for policy makers, producers, and consumers to adjust to
this new economic reality, and the impact their actions have had on the
economy, inflation, and interest rates are what drives our fixed income
process. These are long-term, non-cyclical influences that have brought down
interest rates, have capped inflation expectations, and have allowed
longer-term, non-callable securities to provide strong investment returns.
The short-term economic factors and the election are relevant, but they need
to be viewed as creating the buying opportunities that are necessary so that
your portfolio can benefit from a long-term overview. In essence, 1996 was a
small piece of the big picture.
Manning & Napier weighted the portfolio toward the longer end of the maturity
spectrum. During the first half of 1996 when interest rates were rising, that
weighting was amplified. An emphasis was also placed on non-callable
securities to the extent possible. As always, our preference was for the
highest quality securities, especially general obligation bonds and
pre-refunded bonds. Revenue bonds were restricted primarily to those that
were backed by necessary services. We believe that the bumps in the road in
1996 have set the stage for a solid turnaround in 1997.
<PAGE> B-53
Management Discussion and Analysis (continued)
CONCLUSION:
While 1996 was a difficult year, it is important to realize that the causes of
the difficulty were essentially shorter-term in nature. Speculative excesses,
a cyclical growth scare and the associated inflation worries, and the
uncertainty associated with an election all combined to push interest rates
higher. It is also worthwhile to note that the shorter-term problems that
plagued 1996 are needed to create the quality longer-term investment
opportunities that will benefit the Series going forward, and that the
uncertainties introduced by elections are becoming even more ephemeral given
the growing importance of the financial markets. Beyond all of this, Manning
& Napier believes that the adherence to a long-term investment overview and
investment process is what separates the good funds from the bad ones.
We wish you a healthy, happy, and prosperous 1997.
Sincerely,
Manning & Napier Advisors, Inc.
<graphic>
<pie chart>
Data for chart to follow:
Portfolio Composition** -As of 12/31/96
General Obligation Bonds -80%
Revenue Bonds - 17%
Pre-Refunded Bonds - 3%
**As a percentage of municipal securities.
<graphic>
<pie chart>
Data for chart to follow:
<TABLE>
<CAPTION>
Quality Ratings* - As of 12/31/96
<S> <C>
Aaa 73%
Aa 22%
A 5%
</TABLE>
*Using Moodys Ratings, as a percent of municipal securities.
<PAGE> B-54
Performance Update as of December 31, 1996
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc.
Diversified Tax Exempt Series
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
12/31/96 Investment Cumulative Annual
One Year $ 10,333 3.33% 3.33%
Inception 2 $ 11,370 13.70% 4.55%
</TABLE>
<TABLE>
<CAPTION>
Merrill Lynch Intermediate Municipal Index
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
12/31/96 Investment Cumulative Annual
One Year $ 10,464 4.64% 4.64%
Inception 2 $ 11,520 15.20% 5.03%
</TABLE>
The value of a $10,000 investment in the
Manning & Napier Fund, Inc. - Diversified
Tax Exempt Series from its inception
(2/14/94) to present (12/31/96) as
compared to the Merrill Lynch Intermediate
Municipal Index.1
<graphic>
<line chart>for chart to follow:
<TABLE>
<CAPTION>
Date Manning & Napier Diversified Merrill Lynch Intermediate
Tax Exempt Series Municipal Index
<S> <C> <C>
01/17/94 10,000 10,000
06/30/94 9,600 9,652
12/31/94 9,461 9,709
06/30/95 10,311 10,478
12/31/95 11,003 11,009
06/30/96 10,867 11,068
12/31/96 11,370 11,520
</TABLE>
1 The unmanaged Merrill Lynch Intermediate Municipal Index is a
market value weighted measure of approximately 380 municipal
bonds issued across the United States. The Index is comprised of
investment grade securities. Index returns assume reinvestment of
coupons and, unlike Fund returns, do not reflect any fees or
expenses.
2 The Fund and Index performance numbers are calculated from
February 14, 1994, the Fund's inception date. The Fund's
performance is historical and may not be indicative of future results.
<PAGE> B-55
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Principal Value
Amount (Note 2)
MUNICIPAL SECURITIES - 95.4%
<S> <C> <C>
ALASKA - 1.9%
Anchorage, G.O. Bond, 6.10%, 8/1/2004 $ 300,000 $323,331
ARIZONA - 2.7%
Central Arizona Water Conservation District, Revenue
Bond, 4.70%, 5/1/2004 200,000 199,694
Maricopa County School District No. 097 Deer Valley,
G.O. Bond, Series A, 5.20%, 7/1/2007 250,000 254,693
454,387
COLORADO - 1.1%
El Paso County School District No. 020, G.O. Bond,
Series A, 6.20%, 12/15/2007 160,000 177,754
DELAWARE - 1.2%
Wilmington, G.O. Bond, Series B, 5.90%, 4/1/2000 200,000 209,718
DISTRICT OF COLUMBIA - 1.3%
District of Columbia, G.O. Bond, Series A, 7.65%,
12/1/2003 200,000 217,022
FLORIDA - 2.9%
Dade County School District, G.O. Bond, 6.125%, 8/1/2008 150,000 160,532
Florida State Board of Education Capital Outlay Public
Edu., G.O. Bond Series C, 5.60%, 6/1/2025 135,000 134,422
Florida State Dept. of Environmental Preservation 2000,
Revenue Bond, Series A, 4.50%, 7/1/2003 200,000 199,388
494,342
GEORGIA - 4.6%
Atlanta, G.O. Bond, 5.60%, 12/1/2018 350,000 349,017
Georgia, G.O. Bond, Series B, 5.65%, 3/1/2012 200,000 207,684
Glynn County Board of Education, G.O. Bond, 5.00%,
7/1/2006 200,000 202,110
758,811
HAWAII - 1.7%
Hawaii, G.O. Bond, Series CH, 6.00%, 11/1/2007 260,000 282,430
IDAHO - 0.6%
Ada & Canyon Counties Joint School District No. 2 Meridian,
G.O. Bond, 5.10%, 7/30/2005 100,000 103,080
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-56
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Principal Value
Amount (Note 2)
<S> <C> <C>
ILLINOIS - 4.4%
Aurora, G.O. Bond, 5.80%, 1/1/2012 $ 190,000 $194,685
Chicago Schools Financial Authority, G.O. Bond, 5.00%,
6/1/2007 200,000 197,280
Chicago, G.O. Bond, Series A, 5.875%, 1/1/2022 100,000 100,541
Illinois, Certificate Participation, Series 1995A, 5.60%, 7/1/2010 100,000 101,619
Tazewell County Community High School District No.
303 Pekin, G.O. Bond, 5.50%, 1/1/2011 150,000 150,343
744,468
INDIANA - 1.7%
Bloomington Sewer Works, Revenue Bond, 5.80%,
1/1/2011 150,000 154,402
Lafayette Waterworks, Revenue Bond, 4.90%, 7/1/2006 140,000 138,327
292,729
IOWA - 2.2%
Cedar Rapids, G.O. Bond, 6.45%, 6/1/2014 350,000 369,880
KENTUCKY - 3.4%
Jefferson County School District Finance Corp. School
Building, Revenue Bond, Series A, 5.00%, 2/1/2011 300,000 291,135
Kentucky State Turnpike Authority Revitalization
Projects, Revenue Bond, 6.50%, 7/1/2008 250,000 282,030
573,165
MAINE - 1.7%
Hermon, G.O. Bond, 5.60%, 11/1/2013 75,000 75,746
Portland, G.O. Bond, 6.20%, 4/1/2006 200,000 219,922
295,668
MASSACHUSETTS - 3.3%
Martha's Vineyard Regional High School District No. 100,
G.O. Bond, 6.70%, 12/15/2014 200,000 223,804
Massachusetts Municipal Electric Supply System,
Revenue Bond, Series A, 5.00%, 7/1/2017 200,000 184,790
Massachusetts Water Authority General Ref., Revenue Bond,
Series B, 5.25%, 3/1/2013 155,000 151,035
559,629
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-57
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Principal Value
Amount (Note 2)
<S> <C> <C>
MARYLAND - 3.8%
Baltimore Water Project, Revenue Bond, Series A,
5.55%, 7/1/2009 $ 260,000 $267,350
Prince Georges County Public Improvement, G.O. Bond,
5.00%, 3/15/2014 200,000 191,308
Washington County Public Improvement, G.O. Bond,
4.875%, 1/1/2010 200,000 191,724
650,382
MICHIGAN - 4.4%
Comstock Park Public Schools, G.O. Bond, 5.50%,
5/1/2011 150,000 151,294
Dearborn School District, G.O. Bond, 5.10%, 5/1/2006 200,000 201,606
Farmington Hills, G.O. Bond, 5.80%, 10/1/2006 50,000 52,612
Farmington Hills, G.O. Bond, 5.90%, 10/1/2007 75,000 78,960
Farmington Hills, G.O. Bond, 5.70%, 10/1/2005 65,000 68,409
Pinckney Community Schools, G.O. Bond, 5.00%,
5/1/2014 200,000 188,902
741,783
MINNESOTA - 4.1%
Minneapolis, G.O. Bond, Series B, 5.20%, 3/1/2013 300,000 294,321
Minnesota Various Purpose, G.O. Bond, 6.60%, 8/1/1999 200,000 212,240
Western Minnesota Municipal Power Agency, Revenue
Bond, 6.625%, 1/1/2016 175,000 193,615
700,176
MISSISSIPPI - 1.3%
Mississippi, G.O. Bond, 6.30%, 12/1/2006 200,000 222,338
MISSOURI - 1.5%
Missouri State Ref.- Third Street Building, G.O. Bond,
Series A, 5.125%, 8/1/2009 250,000 250,757
Montana - 1.1%
Montana Long Range Building Project, G.O. Bond, Series A,
4.875%, 8/1/2010 200,000 193,526
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-58
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Principal Value
Amount (Note 2)
<S> <C> <C>
NEVADA - 3.7%
Clark County School District, G.O. Bond, 6.00%,
6/15/2002 $ 100,000 $106,883
Henderson Water, G.O. Bond, Series A, 5.65%, 12/1/2003 300,000 317,940
Nevada State Project No. 42, G.O. Bond, 5.70%, 9/1/2008 200,000 208,750
633,573
NEW HAMPSHIRE - 1.3%
New Hampshire, G.O. Bond, 6.60%, 9/1/2014 200,000 224,456
NEW JERSEY - 2.8%
New Jersey State Highway Authority, Garden State
Parkway, Revenue Bond, 5.50%, 1/1/2000 200,000 206,802
West Windsor Plainsboro, G.O. Bond, 5.25%, 12/1/2004 250,000 259,662
466,464
NEW MEXICO - 1.2%
Albuquerque, G.O. Bond, Series A & B, 4.70%, 7/1/2000 200,000 202,574
NEW YORK - 3.4%
New York State Thruway Authority, Revenue Bond,
Series A, 5.50%, 1/1/2023 200,000 193,820
Sands Point, G.O. Bond, 6.70%, 11/15/2013 350,000 383,838
577,658
NORTH CAROLINA - 2.4%
Charlotte Public Improvement, G.O. Bond, 5.70%, 2/1/2002 200,000 212,168
North Carolina State Prison Facilities, G.O. Bond, 4.80%,
3/1/2009 200,000 194,068
406,236
OHIO - 2.5%
Ohio Public Facilities, Community Higher Education,
Revenue Bond, Series II-A, 4.25%, 12/1/2002 200,000 196,220
Summit County Various Purpose, G.O. Bond, 6.625%,
12/1/2012 200,000 219,436
415,656
OREGON - 1.5%
Salem Pedestrian Safety Impts, G.O. Bond, 5.50%, 5/1/2010 255,000 259,447
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-59
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Principal Value
Amount (Note 2)
<S> <C> <C>
PENNSYLVANIA - 3.3%
Cambria County, G.O. Bond, Series A, 6.10%, 8/15/2016 $ 350,000 $366,300
Pennsylvania State, G.O. Bond, Second Series, 6.00%,
7/1/2005 90,000 97,401
Pennsylvania State, G.O. Bond, First Series, 5.30%,
5/1/2005 100,000 103,325
567,026
RHODE ISLAND - 1.9%
Rhode Island State, G.O. Bond, Series A, 6.20%,
6/15/2004 300,000 325,629
SOUTH CAROLINA - 3.3%
South Carolina State Capital Improvement, G.O. Bond,
4.10%, 4/1/2001 200,000 197,960
South Carolina State Highway, G.O. Bond, Series B,
5.625%, 7/1/2010 350,000 363,986
561,946
TENNESSEE - 2.9%
Johnson City School Sales Tax, G.O. Bond, 6.70%,
5/1/2021 350,000 386,495
Lawrence County, G.O. Bond, 6.60%, 3/1/2013 100,000 109,178
495,673
TEXAS - 1.2%
Dallas Waterworks & Sewer, Revenue Bond, 5.625%,
4/1/2009 200,000 204,456
UTAH - 4.2%
Alpine School District, G.O. Bond, 5.375%, 3/15/2009 250,000 252,520
Nebo School District, G.O. Bond, 6.00%, 6/15/2018 450,000 461,403
713,923
VIRGINIA - 2.8%
Franklin County Capital Improvement , G.O. Bond,
6.60%, 7/15/2013 250,000 272,720
Loudoun County, G.O. Bond, Series A, 4.50%, 10/1/1997 200,000 201,492
474,212
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-60
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Principal Amount/ Value
Shares (Note 2)
<S> <C> <C>
WASHINGTON - 4.2%
Kitsap County School District, G.O. Bond, 6.625%,
12/1/2008 $ 350,000 $ 377,132
Seattle, G.O. Bond, Series A, 5.75%, 1/15/2020 230,000 230,635
Seattle Met. Municipality, G.O. Bond, 5.65%, 1/1/2020 100,000 98,985
706,752
WISCONSIN - 1.9%
Wisconsin State, G.O. Bond, Series A, 5.75%, 5/1/2001 300,000 315,678
TOTAL MUNICIPAL SECURITIES
(Identified Cost $15,660,961) 16,166,735
SHORT-TERM INVESTMENTS - 2.9%
Dreyfus Municipal Reserves (Identified Cost $495,430) 495,430 495,430
TOTAL INVESTMENTS - 98.3%
(Identified Cost $16,156,391) 16,662,165
OTHER ASSETS, LESS LIABILITIES - 1.7% 286,518
NET ASSETS - 100% $16,948,683
</TABLE>
Key -
G.O. Bond - General Obligation Bond
Impt. - Improvement
Ref. - Referendum
Met. - Metropolitan
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
<S> <C>
At December 31, 1996, the net unrealized appreciation based on identified
cost for federal income tax purposes of $16,156,391 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost $538,374
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value (32,600)
UNREALIZED APPRECIATION - NET $505,774
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-61
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
DECEMBER 31, 1996
<S> <C>
ASSETS:
Investments, at value (Identified Cost $16,156,391)(Note 2) $16,662,165
Interest receivable 255,833
Receivable for fund shares sold 53,120
Prepaid expense 116
TOTAL ASSETS 16,971,234
LIABILITIES:
Accrued management fees (Note 3) 7,063
Accrued Directors' fees (Note 3) 1,661
Audit fee payable 13,666
Other payables and accrued expenses 161
TOTAL LIABILITIES 22,551
NET ASSETS FOR 1,655,972 SHARES
OUTSTANDING $16,948,683
NET ASSETS CONSIST OF:
Capital stock $ 16,559
Additional paid-in-capital 16,399,431
Undistributed net investment income 35,290
Accumulated net realized loss on investments (8,371)
Net unrealized appreciation on investments 505,774
TOTAL NET ASSETS $16,948,683
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($16,948,683/ 1,655,972 shares) $ 10.23
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-62
Statement of Operations
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
<S> <C>
INVESTMENT INCOME:
Interest $766,794
EXPENSES:
Management fees (Note 3) 74,427
Directors' fees (Note 3) 6,750
Transfer agent fees (Note 3) 3,572
Audit fee 12,456
Custodian fee 3,500
Registration & filing fees 1,413
Miscellaneous 2,753
Total Expenses 104,871
NET INVESTMENT INCOME 661,923
REALIZED AND UNREALIZED LOSS ON
INVESTMENTS:
Net realized loss on investment (identified cost basis) (92)
Net change in unrealized appreciation on investments (77,279)
NET REALIZED AND UNREALIZED LOSS
ON INVESTMENTS (77,371)
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $584,552
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-63
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year For the Year
Ended 12/31/96 Ended 12/31/95
INCREASE (DECREASE) IN NET ASSETS:
<S> <C> <C>
OPERATIONS:
Net investment income $ 661,923 $ 453,193
Net realized loss on investments (92) (6,797)
Net change in unrealized appreciation on investments (77,279) 1,031,995
Net increase in net assets from operations 584,552 1,478,391
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2):
From net investment income (634,484) (453,725)
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase from capital share transactions (Note 5) 4,546,467 2,946,569
Net increase in net assets 4,496,535 3,971,235
NET ASSETS:
Beginning of period 12,452,148 8,480,913
End of period (including undistributed net investment
income of $35,290 and $7,877, respectively) $ 16,948,683 $ 12,452,148
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-64
Financial Highlights
<TABLE>
<CAPTION>
For the Period
2/14/94
For the Year For the Year (commencement of
Ended Ended operations)
12/31/96 12/31/95 to 12/31/94
Per share data (for a share outstanding throughout
each period ):
<S> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.32 $ 9.26 $ 10.00
Income from investment operations:
Net investment income 0.434 0.428 0.210
Net realized and unrealized gain (loss)
on investments (0.104) 1.062 (0.749)
Total from investment operations 0.330 1.490 (0.539)
Less distributions to shareholders:
From net investment income (0.420) (0.430) (0.201)
NET ASSET VALUE - END OF PERIOD $ 10.23 $ 10.32 $ 9.26
Total return: 1 3.33% 16.29% (5.39)%
Ratios of expenses (to average net assets) /Supplemental Data:
Expenses 0.70% 0.79% 0.85%(2)(3)
Net investment income 4.44% 4.52% 3.71%(2)(3)
Portfolio turnover 2% 5% 4%
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 16,949 $ 12,452 $ 8,481
1 Represents aggregate total return for the period indicated.
2 Annualized.
3 The investment advisor waived a portion of its management fee.
If the full fee had been incurred by the Fund, the net investment income per
share would have been $0.186, and the annualized ratios would have
been as follows: Expenses - 1.29%; Net investment income - 3.27%.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-65
Notes to Financial Statements
1. ORGANIZATION
Diversified Tax Exempt Series (the "Fund") is a no-load diversified
series of Manning & Napier Fund, Inc. (the "Corporation"). The Corporation
is organized in Maryland and is registered under the Investment Company Act
of 1940, as amended, as an open-end management investment company.
Shares of the Fund are offered to investors, employees and clients of
Manning & Napier Advisors, Inc. (the "Advisor") and its affiliates. The
total authorized capital stock of the Corporation consists of one billion
shares of common stock each having a par value of $0.01. As of December 31,
1996, 940 million shares have been designated in total among 19 series, of
which 50 million have been designated as Diversified Tax Exempt Series Class
R Common Stock.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Municipal securities will normally be valued on the basis of market
valuations provided by an independent pricing service (the Service). The
Service utilizes the latest price quotations and a matrix system (which
considers such factors as security prices of similar securities, yields,
maturities, and ratings). The Service has been approved by the Funds Board
of Directors.
Securities for which representative prices are not available from the
Fund's pricing service are valued at fair value as determined in good faith
by the Advisor under procedures established by and under the general
supervision of the Fund's Board of Directors.
Short-term investments that mature in sixty (60) days or less are valued
at amortized cost which approximates market value.
SECURITY TRANSACTIONS, INVESTMENT INCOME AND EXPENSES
Security transactions are accounted for on the date the securities are
purchased or sold. Dividend income is recorded on the ex-dividend date.
Interest income and expenses are recorded on an accrual basis.
Most expenses of the Corporation can be attributed to a specific fund.
Expenses which cannot be directly attributed are apportioned among the funds
in the Corporation.
FEDERAL INCOME TAXES
The Fund's policy is to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies. The Fund is not
subject to federal
<PAGE> B-66
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
Federal Income Taxes (continued)
income or excise tax to the extent the Fund distributes to shareholders
each year its taxable income, including any net realized gains on investments
in accordance with requirements of the Internal Revenue Code. Accordingly,
no provision for federal income tax or excise tax has been made in the
financial statements.
At December 31, 1996, the Fund, for federal income tax purposes, had a capital
loss carryforward of $8,371. Of this amount, $889 will expire on December
31, 2002, $7,390 will expire on December 31, 2003 and $92 will expire on
December 31, 2004.
The Fund uses the identified cost method for determining realized gain or
loss on investments for both financial statement and federal income tax
reporting purposes.
DISTRIBUTION OF INCOME AND GAINS
Distributions to shareholders of net investment income are made
quarterly. Distributions are recorded on the ex-dividend date. Distributions
of net realized gains are distributed annually. An additional distribution
may be necessary to avoid taxation of the Fund.
The timing and characterization of certain income and capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. The differences may be a
result of deferral of certain losses or character reclassification between
net income and net gains. As a result, net investment income (loss) and net
investment gain (loss) on investment transactions for a reporting period may
differ significantly from distributions to shareholders during such period.
As a result, the Fund may periodically make reclassification among its
capital accounts without impacting the Fund's net asset value.
The Fund hereby designates 100% of its ordinary distributions as
tax-exempt dividends for the year ended December 31, 1996.
OTHER
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of the revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
<PAGE> B-67
Notes to Financial Statements
3. TRANSACTIONS WITH AFFILIATES
The Fund has an investment advisory agreement with Manning & Napier
Advisors, Inc. (the "Advisor"), for which the Fund pays the Advisor a fee,
computed daily and payable monthly, at an annual rate of 0.50% of the Fund's
average daily net assets. The fee amounted to $74,427 for the year ended
December 31, 1996.
Under the Fund's Investment Advisory Agreement (the "Agreement"),
personnel of the Advisor provide the Fund with advice and assistance in the
choice of investments and the execution of securities transactions, and
otherwise maintain the Fund's organization. The Advisor also provides the
Fund with necessary office space and portfolio accounting and bookkeeping
services. The salaries of all officers of the Fund and of all Directors who
are "affiliated persons" of the Fund or of the Advisor, and all personnel of
the Fund or of the Advisor performing services relating to research,
statistical and investment activities are paid by the Advisor.
The Advisor has voluntarily agreed to waive its fee and, if necessary,
pay other expenses of the Fund in order to maintain total expenses for the
Fund at no more than 0.85% of average daily net assets each year. The fee
waiver and assumption of expenses by the Advisor is voluntary and may be
determinated at any time.
The Advisor also acts as the transfer, dividend paying and shareholder
servicing agent for the Fund. For these services, the Fund pays a fee which
is calculated as a percentage of the average daily net assets at an annual
rate of 0.024%; this fee amounted to $3,572 for the year ended December 31,
1996.
Manning & Napier Investor Services, Inc., a registered broker-dealer
affiliate of the Advisor, acts as distributor for the Fund's shares. The
services of Manning & Napier Investor Services, Inc. are provided at no
additional cost to the Fund.
The compensation of the non-affiliated Directors totaled $6,750 for the
year ended December 31, 1996.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term securities, were
$4,563,432 and $297,922, respectively, for the year ended December 31, 1996.
<PAGE> B-68
NOTES TO FINANCIAL STATEMENTS
5. CAPITAL STOCK TRANSACTIONS
Transactions in shares of Diversified Tax Exempt Series were:
<TABLE>
<CAPTION>
For the Year For the Year
Ended 12/31/96 Ended 12/31/95
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Sold 535,294 $ 5,427,100 330,682 $3,323,798
Reinvested 60,908 612,628 43,117 433,995
Repurchased (147,335) (1,493,261) (82,916) (811,224)
--------------- ------------ --------------- -----------
Total 448,867 $ 4,546,467 290,883 $2,946,569
</TABLE>
6. FINANCIAL INSTRUMENTS
The Fund may trade in financial instruments with off-balance sheet risk
in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include
written options and futures contracts and may involve, to a varying degree,
elements of risk in excess of the amounts recognized for financial statement
purposes. No such investments were held by the Fund on December 31, 1996.
<PAGE> B-69
Independent Auditors' Report
TO THE SHAREHOLDERS AND DIRECTORS OF
MANNING & NAPIER FUND, INC.- DIVERSIFIED TAX EXEMPT SERIES:
We have audited the accompanying statement of assets and liabilities of
Manning & Napier Fund, Inc.- Diversified Tax Exempt Series, including the
schedule of portfolio investments, as of December 31, 1996, and the related
statement of operations for the year then ended, the statement of changes in
net assets for each of the two years in the period then ended and the
financial highlights for each of the periods indicated in the financial
highlights table herein. These financial statements and financial highlights
are the responsibility of the Funds management. Our responsibility is to
express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 1996 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the Manning & Napier Fund, Inc.- Diversified Tax Exempt Series as
of December 31, 1996, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then
ended and the financial highlights for each of the periods indicated in the
financial highlights table herein in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
BOSTON, MASSACHUSETTS
JANUARY 23, 1997
<PAGE> B-70
Manning & Napier Fund, Inc.
Ohio Tax Exempt Series
Annual Report
December 31, 1996
Management Discussion and Analysis
Dear Shareholders:
A fairly common expression being bandied about today is the phrase "if it
doesn't kill you, it will make you stronger". To a certain extent, that sums
up the bond market in 1996. The mediocre municipal bond market returns in
1996 are the result of short-term factors, specifically an ungrounded scare
about excessive growth and inflation plus uncertainty over the presidential
election. Combine those factors with the rather extraordinary returns that
the muni market generated in 1995, and the result is the mediocrity that will
be remembered as 1996. We would like to point out, however, that it is
short-term situations like those encountered in 1996 that provide us with the
needed opportunities to position the portfolio to benefit from the long-term
trends which are the most important determinants of municipal bond returns.
Having said all this, it is worthwhile to review what happened in 1996, just
what the impact of the election was, and what all this portends for 1997 and
beyond.
A GROWTH AND INFLATION SCARE:
At the end of 1995, the psychology in the muni market was about as good
as it could get. Economic growth was slowing, some were even calling for a
recession later in 1996, and inflation worries were non-existent. These
economic factors overshadowed what proved to be unfounded fears regarding the
potential for a flat tax and the negative impact that would have on the
municipal bond market.
Unfortunately, the economic tide began to turn rather quickly right at
the start of the year. One of the reasons the market rallied so strongly
during the later half of 1995 can be traced to speculative investments in
fixed income securities. Speculators were borrowing Japanese yen at
extraordinarily low Japanese short-term interest rates (0.3% to 0.5%),
converting the yen into U.S. dollars, and investing the proceeds in U.S.
assets. As long as Japanese short-term rates were expected to stay low or
the yen was expected to slip versus the U.S. dollar, this trade worked quite
well. Unfortunately, once the tide began to turn (i.e., people thought
Japanese short-term rates might rise), the selling it created snowballed due
to the leverage inherent in the trade. That happened during the early part
of 1996, and short to intermediate interest rates rose in all fixed income
markets, including munis.
As spring began, the bond markets were shocked by the February employment
report issued by the Bureau of Labor Statistics. The number of new jobs
created during the month of February was an eye-popping 705,000 at the time
of the first release. Subsequent releases revised the number modestly lower,
but those same
<PAGE> B-71
Management Discussion and Analysis (continued)
releases reported job gains that were much stronger than in 1995. The
probability of a recession became remote, and fears of inflation began to
emerge. Strong consumer expenditures during the first half of 1996, solid
capital spending, and a surprisingly resilient housing sector simply added to
the markets concerns, driving long-term interest rates higher. As the summer
ended, concerns seemed to be somewhat calmed, but rates remained stubbornly
high.
It is important to note, however, that throughout all of this, inflation
itself remained very much in check. The most common measures, the Producer
Price Index (PPI) and the Consumer Price Index (CPI), both remained at or
below 3.0% on a year over year basis throughout 1996. An even more accurate
measure of inflation, the GDP deflator, remained closer to 2.0%, further
evidence that inflation was not increasing.
In the near-term, no one likes to see rising interest rates, but over the
longer-term, if one expects inflation to remain under control, rising
interest rates can create compelling fixed income buying opportunities. In
the fixed income markets, 1996 was a stern test, but in the long run, only
those who acted during these difficult times will be positioned to benefit
from the long-term trends of moderate growth and low inflation.
THE ELECTION:
As everyone is quite aware, 1996 was an election year, which always has
some entertainment value. The political posturing started at the end of 1995
when the Republican Congress and the Democratic White House shut down the
government and threatened to default on U.S. Treasury securities. It veered
off to the right with the rise and fall of Steve Forbes and his call for a
flat income tax. Relative to other fixed income securities, the fortunes of
munis waxed and waned inversely with the fortunes of Steve Forbes.
Ultimately President Clinton was reelected, but the Republicans were able
to hold on to the Congress. The net result was an administration that will
be unable to get any meaningful spending increases through Congress, and a
Congress that will be unable to enact anything in the way of meaningful tax
cuts. It is not necessarily gridlock, but the consensus after the election
was that if anything is going to get passed, it will relate to deficit
reduction. That bodes well for all fixed income markets, including munis.
<PAGE> B-72
Management Discussion and Analysis (continued)
Elections always introduce uncertainty. Who will win the election? Who
will control the House? The Senate? What issues will galvanize the public?
Financial markets, as a general rule, do not like uncertainty and this year
was no exception. In the long run, however, the election results may not be
of major importance. With the growth of the global financial markets and the
influence they wield on a country's interest and exchange rates, who is in
the White House or who controls Congress becomes less significant. The
financial markets have made it clear that only fiscally sound policies will
be tolerated. Witness what has occurred with a Democrat in the White House
over the last four years. The budget deficit has shrunk from $300 billion to
just over $100 billion, the debate has shifted away from where government
monies should be spent to what spending cuts should be made, and the two
parties debated whether the budget should be balanced in seven years or in
ten. Beyond that, we have had a presidential campaign in which the
Republican challenger called for a tax cut while the Democratic incumbent
attacked it for being budgetarily imprudent. The new reality is that the
only poll that seems to matter is the one being taken daily in the global
financial markets; sound policies are rewarded, unsound policies are not.
1997 AND BEYOND:
At Manning & Napier, we view the big picture items as the most important.
The growth in international trade, the subsequent increase in international
competition, the need for policy makers, producers, and consumers to adjust
to this new economic reality, and the impact their actions have had on the
economy, inflation, and interest rates are what drives our fixed income
process. These are long-term, non-cyclical influences that have brought down
interest rates, have capped inflation expectations, and have allowed
longer-term, non-callable securities to provide strong investment returns.
The short-term economic factors and the election are relevant, but they need
to be viewed as creating the buying opportunities that are necessary so that
your portfolio can benefit from a long-term overview. In essence, 1996 was a
small piece of the big picture.
Manning & Napier weighted the portfolio toward the longer end of the
maturity spectrum. During the first half of 1996 when interest rates were
rising, that weighting was amplified. An emphasis was also placed on
non-callable securities to the extent possible. As always, our preference
was for the highest quality securities, especially general obligation bonds
and pre-refunded bonds. Revenue bonds were restricted primarily to those
that were backed by necessary services. We believe that the bumps in the
road in 1996 have set the stage for a solid turnaround in 1997.
<PAGE> B-73
Management Discussion and Analysis (continued)
CONCLUSION:
While 1996 was a difficult year, it is important to realize that the
causes of the difficulty were essentially shorter-term in nature.
Speculative excesses, a cyclical growth scare and the associated inflation
worries, and the uncertainty associated with an election all combined to
push interest rates higher. It is also worthwhile to note that the
shorter-term problems that plagued 1996 are needed to create the quality
longer-term investment opportunities that will benefit the Series going
forward, and that the uncertainties introduced by elections are becoming even
more ephemeral given the growing importance of the financial markets. Beyond
all of this, Manning & Napier believes that the adherence to a long-term
investment overview and investment process is what separates the good funds
from the bad ones.
We wish you a healthy, happy, and prosperous 1997.
Sincerely,
Manning & Napier Advisors, Inc.
<graphic>
<pie chart>
Data for chart to follow:
Portfolio Composition** - As of 12/31/96
General Obligation Bonds - 63%
Revenue Bonds - 32%
Pre-Refunded Bonds - 5%
**As a percentage of municipal securities.
<graphic>
<pie chart>
Data for chart to follow:
<TABLE>
<CAPTION>
Quality Ratings * -As of 12/31/96
<S> <C>
Aaa 90%
Aa 5%
A 3%
Not Rated 2%
* Using Moody's Ratings, as a percentage of municipal securities.
</TABLE>
B-74
<PAGE>
Performance Update as of December 31, 1996
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc.
Ohio Tax Exempt Series
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
12/31/96 Investment Cumulative Annual
One Year $ 10,316 3.16% 3.16%
Inception2 $ 11,331 13.31% 4.43%
</TABLE>
<TABLE>
<CAPTION>
Merrill Lynch Intermediate Municipal Index
<S> <C> <C> <C>
Total Return
Growth of $10,000 Average
Through Investment Cumulative Annual
12/31/96
One Year $ 10,464 4.64% 4.64%
Inception2 $ 11,520 15.20% 5.03%
</TABLE>
The value of a $10,000 investment in the
Manning & Napier Fund, Inc. - Ohio
Tax Exempt Series from its inception
(2/14/94) to present (12/31/96) as
compared to the Merrill Lynch Intermediate
Municipal Index.1
<graphic>
<line chart>
Data for chart to follow:
<TABLE>
<CAPTION>
Date Manning & Napier Ohio Merrill Lynch Intermediate
Tax Exempt Series Municipal Index
<S> <C> <C>
01/17/94 10,000 10,000
06/30/94 9,540 9,652
12/31/94 9,377 9,709
06/30/95 10,288 10,478
12/31/95 10,985 11,009
06/30/96 10,828 11,068
12/31/96 11,331 11,520
</TABLE>
1 The unmanaged Merrill Lynch Intermediate Municipal Index is a
market value weighted measure of approximately 380 municipal
bonds issued across the United States. The Index is comprised of
investment grade securities. Index returns assume reinvestment of
coupons and, unlike Fund returns, do not reflect any fees or
expenses.
2 The Fund and Index performance numbers are calculated from
February 14, 1994, the Fund's inception date. The Fund's
performance is historical and may not be indicative of future results.
<PAGE> B-75
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Principal Value
Amount (Note 2)
OHIO MUNICIPAL SECURITIES - 97.5%
<S> <C> <C>
Akron Bath Copley Joint Twnshp. Childrens Hos. Med.
Ctr., Revenue Bond, 7.45%, 11/15/2020 $ 50,000 $ 56,389
Akron Limited Tax, G.O. Bond, 4.10%, 12/1/2001 65,000 63,896
Akron Waterworks, Revenue Management Bond, 5.70%
3/1/2007 100,000 105,089
Allen County, G.O. Bond, 5.30%, 12/1/2007 100,000 101,937
Amherst Police & Jail Facility, G.O. Bond, 5.375%,
12/1/2012 50,000 50,332
Avon Lake, G.O. Bond, 5.70%, 12/1/2006 60,000 62,636
Avon Lake, G.O. Bond, 6.00%,12/1/2009 40,000 41,789
Bedford Heights, G.O. Bond, Series A, 5.65%, 12/1/2014 60,000 62,139
Belmont County, G.O. Bond, 5.15%, 12/1/2010 100,000 99,163
Bexley City School District, G.O. Bond, 6.50%, 12/1/2016 20,000 22,170
Cincinnati, G.O. Bond, 4.60%,12/1/2003 50,000 50,071
Clermont County Hospital Facilities Mercy Health Care
System, Revenue Bond, Series A, 7.625%, 1/1/2015 25,000 26,439
Cleveland City School District, G.O. Bond, 5.875%,
12/1/2011 125,000 128,291
Cleveland Public Power System Improvement, Revenue
Bond, 1st Mtg., 8.375%, 8/1/2017 50,000 52,368
Cleveland Waterworks Revenue Ref. & Impt. - First Meeting,
Revenue Bond, Series H, 5.50%, 1/1/2010 170,000 172,807
Cleveland Waterworks, Revenue Bond, 1st Mtg., Series G,
5.50%, 1/1/2013 100,000 101,491
Columbus Limited Tax, G.O. Bond, Series A, 4.85%,
7/1/2004 50,000 50,817
Columbus, G.O. Bond, Series B, 6.10%, 1/1/2003 100,000 108,496
Columbus, G.O. Bond, Series D, 5.50%, 9/15/2008 50,000 51,779
Crawford County, G.O. Bond, 6.75%, 12/1/2019 175,000 196,688
Cuyahoga County, G.O. Bond, Series A, 4.30%,
10/1/1999 50,000 50,164
Cuyahoga Falls, G.O. Bond, 7.20%, 12/1/2010 75,000 82,616
Delaware City School District, Construction & Impt.,
G.O. Bond, Series B, 5.20%, 12/1/2016 100,000 95,115
Fairfield County Hospital Impt., Lancaster-Fairfield
Community Hospital, Revenue Bond, 7.00%, 6/15/2012 50,000 55,944
Findlay Water, Revenue Bond, 5.45%, 11/1/2008 100,000 102,178
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-76
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Principal Value
Amount (Note 2)
OHIO MUNICIPAL SECURITIES (continued)
<S> <C> <C>
Franklin County, G.O. Bond, 4.95%, 12/1/2004 $ 50,000 $ 51,115
Franklin County, G.O. Bond, 5.50%, 12/1/2013 100,000 101,048
Gahanna-Jefferson City School District, G.O. Bond,
4.75%, 12/1/1999 50,000 50,801
Green Local School District - Summit, G.O. Bond,
5.20%, 12/1/2003 75,000 77,556
Greene County Sewer System, Revenue Bond, 5.50%,
12/1/2018 30,000 29,363
Hamilton County Building Impt. - Museum Center,
G.O. Bond, 5.85%, 12/1/2001 50,000 53,150
Hamilton County Sewer System Ref. & Impt. - Metro Sewer
District, Revenue Bond, Series A, 4.75%, 12/1/2000 50,000 50,837
Hamilton County Sewer System Ref. & Impt. - Metro Sewer
District, Revenue Bond, Series A, 5.00%, 12/1/2014 125,000 118,338
Hilliard School District, G.O. Bond, 6.35%, 12/1/2003 60,000 66,091
Hilliard School District, G.O. Bond, Series A, 5.00%,
12/1/2020 225,000 209,556
Huber Heights Water Systems, Revenue Bond, 5.25%,
12/1/2007 200,000 204,836
Kettering City School District School Impt., G.O. Bond,
5.30%, 12/1/2014 125,000 123,006
Kettering City School District, G.O. Bond, 4.85%,
12/1/2006 40,000 39,961
Kettering City School District, G.O. Bond, 5.25%,
12/1/2022 60,000 57,380
Kings Local School District, G.O. Bond, 5.50%,
12/1/2021 115,000 113,155
Lakewood City School District, G.O. Bond, 5.55%,
12/1/2013 100,000 100,975
Lakota Local School District, G.O. Bond, 5.75%,
12/1/2006 50,000 53,038
Lakota Local School District, G.O. Bond, 7.00%,
12/1/2008 100,000 117,492
Lakota Local School District, G.O. Bond, 7.90%,
12/1/2011 45,000 48,274
Lorain Water System, Revenue Bond, 4.75%, 4/1/2005 125,000 124,822
Mahoning County Limited Tax, G.O. Bond, 5.65%,
12/1/1998 20,000 20,617
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-77
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Principal Value
Amount (Note 2)
OHIO MUNICIPAL SECURITIES (continued)
<S> <C> <C>
Mahoning County, G.O. Bond, 5.70%, 12/1/2006 $ 100,000 $105,807
Mahoning County, G.O. Bond, 5.70%, 12/1/2009 150,000 156,204
Mason City School District, G.O. Bond, 5.00%, 12/1/2007 120,000 119,995
Montgomery County, G.O. Bond, 5.30%, 9/1/2007 65,000 66,457
Montgomery County, Moraine-Beaver Creek Sewers,
Revenue Bond, 5.60%, 9/1/2011 100,000 101,547
North Canton City School District, G.O. Bond, 5.85%,
12/1/2007 40,000 42,625
North Olmstead, G.O. Bond, 6.20%, 12/1/2011 200,000 219,474
Northeast Ohio Regional Sewer District Waste & Water
Impt., Revenue Bond, 6.50%, 11/15/2016 100,000 109,968
Northwood Local School District, G.O. Bond, 5.55%,
12/1/2006 65,000 68,808
Northwood Local School District, G.O. Bond, 6.20%,
12/1/2013 40,000 42,620
Ohio, G.O. Bond, 6.50%, 8/1/2011 50,000 53,668
Ohio Building Authority, Local Jail Grant, Revenue Bond,
Series A, 4.65%, 10/1/2005 50,000 49,241
Ohio Building Authority, State Facilities - Administration
Building, Revenue Bond, 5.50%, 10/1/2005 50,000 52,400
Ohio Higher Education Facility, University of Dayton
Project, Revenue Bond, 5.80%, 12/1/2019 100,000 101,958
Ohio Public Facilities, Higher Education, Revenue Bond,
Series II-A, 4.25%, 12/1/2002 50,000 49,055
Ohio Turnpike, Revenue Bond, Series A, 5.40%, 2/15/2009 250,000 253,618
Ohio Water Development Authority Ref. & Impt. - Pure
Water, Revenue Bond, 5.75%, 12/1/2005 60,000 63,674
Ohio Water Development Authority Pure Water, Revenue
Bond, Series I, 6.00%, 12/1/2016 40,000 41,131
Ohio Water Development Authority, Pollution Control
Facility, Revenue Bond, 5.25%, 12/1/2014 100,000 96,507
Ottawa County, G.O. Bond, 5.45%, 9/1/2006 30,000 31,444
Pickerington Local School District Construction & Impt.,
G.O. Bond, 5.375%, 12/1/2019 150,000 145,854
Pickerington Water Systems Improvements, G.O. Bond,
5.85%, 12/1/2013 50,000 51,545
Reynoldsburg City School District, G.O. Bond, 6.55%,
12/1/2017 175,000 191,726
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-78
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Principal Value
Amount/Shares (Note 2)
OHIO MUNICIPAL SECURITIES (continued)
<S> <C> <C>
Rocky River City School District, G.O. Bond, Series A,
6.375%, 12/1/1998 $ 25,000 $ 26,125
Rocky River City School District, G.O. Bond, Series A,
6.90%, 12/1/2011 50,000 55,465
Rural Lorain Water Authority Ref. & Impt., Revenue Bond,
5.30%, 10/1/2012 110,000 108,490
South-Western City School District, Franklin & Pickway
Counties G.O. Bond, 4.80%, 12/1/2006 100,000 99,032
Stark County Hospital, Doctors Hospital, Inc., Revenue
Bond, 8.625%, 4/1/2018 30,000 32,269
Stark County, G.O. Bond, 5.70%, 11/15/2017 100,000 100,893
Summit County, G.O. Bond, 5.75%, 12/1/2008 175,000 183,060
Toledo Sewer System, Revenue Bond, 6.35%, 11/15/2017 185,000 198,738
Toledo, G.O. Bond, 5.95%,12/1/2015 175,000 181,682
Trumbull County, G.O. Bond, 6.20%, 12/1/2014 100,000 106,470
Warren, G.O. Bond, 5.20%,11/15/2013 50,000 51,779
Warren County Waterworks, Revenue Bond, 6.00%,
12/1/2014 100,000 104,268
Warren County Waterworks, Revenue Bonds, 5.45%,
12/1/2015 140,000 136,605
Wood County, G.O. Bond, 5.40%,12/1/2013 50,000 50,138
Youngstown, G.O. Bond, 6.125%,12/1/2014 50,000 52,792
TOTAL MUNICIPAL SECURITIES
(Identified Cost $7,266,606) 7,505,347
SHORT-TERM INVESTMENTS - 1.7%
Dreyfus Municipal Reserves (Identified Cost $128,772 128,772 128,772
TOTAL INVESTMENTS - 99.2%
(Identified Cost $7,395,378) 7,634,119
OTHER ASSETS, LESS LIABILITIES - 0.8% 63,436
NET ASSETS - 100% 7,697,555
</TABLE>
Key -
G.O. Bond - General Obligation Bond
Ref.. - Referendum
Impt. - Improvement
The accompanying notes are an integral part of the financial statements.
<PAGE> B-79
Federal Tax Information
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
<S> <C>
At December 31, 1996, the net unrealized appreciation based on identified cost for
federal income tax purposes of $7,395,378 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost $258,804
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value (20,063)
UNREALIZED APPRECIATION - NET $238,741
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-80
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
DECEMBER 31, 1996
<S> <C>
ASSETS:
Investments, at value (Identified Cost $7,395,378)(Note 2) $7,634,119
Interest receivable 62,642
Receivable for fund shares sold 25,460
Prepaid expense 265
TOTAL ASSETS 7,722,486
LIABILITIES:
Accrued management fees (Note 3) 8,382
Accrued Directors' fees (Note 3) 1,662
Audit fee payable 13,666
Other payables and accrued expenses 1,221
TOTAL LIABILITIES 24,931
NET ASSETS FOR 756,391 SHARES OUTSTANDING $7,697,555
NET ASSETS CONSIST OF:
Capital stock $ 7,564
Additional paid-in-capital 7,449,142
Undistributed net investment income 2,108
Net unrealized appreciation on investments 238,741
TOTAL NET ASSETS $7,697,555
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($7,697,555/756,391 shares) $ 10.18
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-81
Statement of Operations
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
<S> <C>
INVESTMENT INCOME:
Interest $363,824
EXPENSES:
Management fees (Note 3) 34,563
Directors' fees (Note 3) 6,750
Transfer agent fees (Note 3) 1,664
Audit fee 11,909
Custodian fee 3,500
Miscellaneous 1,892
Total Expenses 60,278
Less Waiver of Expenses (Note 3) (1,181)
Net Expenses 59,097
NET INVESTMENT INCOME 304,727
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investments (identified cost basis) 3,259
Net change in unrealized appreciation on investments (51,282)
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (48,023)
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $256,704
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-82
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year For the Year
Ended 12/31/96 Ended 12/31/95
INCREASE (DECREASE) IN NET ASSETS:
<S> <C> <C>
OPERATIONS:
Net investment income $ 304,727 $ 213,139
Net realized gain (loss) on investments 3,259 (667)
Net change in unrealized appreciation on investments (51,282) 507,287
Net increase in net assets from operations 256,704 719,759
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2):
From net investment income (303,669) (215,626)
From net realized gain on investments (1,397) --
Total distributions to shareholders (305,066) (215,626)
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase in net assets from capital share transactions (Note 5) 1,602,341 1,738,597
Net increase in net assets 1,553,979 2,242,730
NET ASSETS:
Beginning of period 6,143,576 3,900,846
End of period (including undistributed net investment
income of $2,108 and $1,076, respectively) $ 7,697,555 $ 6,143,576
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-83
Financial Highlights
<TABLE>
<CAPTION>
For the Period
2/14/94
(commencement
For the Year For the Year of operations)
Ended 12/31/96 Ended 12/31/95 to 12/31/94
<S> <C> <C> <C>
Per share data (for a share outstanding throughout
each period)
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.31 $ 9.18 $ 10.00
Income from investment operations:
Net investment income 0.439 0.419 0.205
Net realized and unrealized gain (loss)
on investments (0.129) 1.136 (0.828)
Total from investment operations 0.310 1.555 (0.623)
Less distributions to shareholders:
From net investment income (0.438) (0.425) (0.197)
From net realized gain on investments (0.002) -- --
Total distributions to shareholders (0.440) (0.425) (0.197)
NET ASSET VALUE - END OF PERIOD $ 10.18 $ 10.31 $ 9.18
Total return:(1) 3.15% 17.14% (6.23)%
Ratios of expenses (to average net assets) /
Supplemental Data:
Expenses 0.85%** 0.85%** 0.85%*(2)
Net investment income 4.40%** 4.50%** 4.03%*(2)
Portfolio turnover 2% 1% 2%
NET ASSETS - END OF PERIOD (000's omitted) $ 7,698 $ 6,144 $ 3,901
* The investment advisor did not impose its management
fee and paid a portion of the Fund's expenses.
** The investment advisor waived a portion of its
management fee.
If these expenses had been incurred by the Fund in either
instance above, the net investment income
per share and the ratios would have been as follows:
Net Investment Income $ 0.437 $ 0.411 $ 0.141
Ratios (to average net assets):
Expenses 0.87% 0.94% 2.07%(2)
Net investment income 4.38% 4.41% 2.81%(2)
1 Total return represents aggregate total return for the
period indicated.
2 Annualized.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-84
Notes to Financial Statements
1. ORGANIZATION
Ohio Tax Exempt Series (the "Fund") is a no-load diversified series of
Manning & Napier Fund, Inc. (the "Corporation"). The Corporation is
organized in Maryland and is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company.
Shares of the Fund are offered to investors, employees and clients of
Manning & Napier Advisors, Inc. (the "Advisor") and its affiliates. The
total authorized capital stock of the Corporation consists of one billion
shares of common stock each having a par value of $0.01. As of December 31,
1996, 940 million shares have been designated in total among 19 series, of
which 50 million have been designated as Ohio Tax Exempt Series Class Q
Common Stock.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Municipal securities will normally be valued on the basis of market
valuations provided by an independent pricing service (the Service). The
Service utilizes the latest price quotations and a matrix system (which
considers such factors as security prices of similar securities, yields,
maturities, and ratings). The Service has been approved by the Funds Board
of Directors.
Securities for which representative prices are not available from the
Fund's pricing service are valued at fair value as determined in good faith
by the Advisor under procedures established by and under the general
supervision of the Funds Board of Directors.
Short-term investments that mature in sixty (60) days or less are valued
at amortized cost, which approximates market value.
SECURITY TRANSACTIONS, INVESTMENT INCOME AND EXPENSES
Security transactions are accounted for on the date the securities are
purchased or sold. Dividend income is recorded on the ex-dividend date.
Interest income and expenses are recorded on an accrual basis.
Most expenses of the Corporation can be attributed to a specific fund.
Expenses which cannot be directly attributed are apportioned among the funds
in the Corporation.
FEDERAL INCOME TAXES
The Fund's policy is to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies. The Fund is not
subject to federal income or excise tax to the extent the Fund distributes to
shareholders each year its taxable income, including any net realized gains
on investments in accordance with requirements of the Internal Revenue Code.
Accordingly, no provision for federal income tax or excise tax has been made
in the financial statements.
<PAGE> B-85
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
FEDERAL INCOME TAXES (continued)
The Fund uses the identified cost method for determining realized gain or loss
on investments for both financial statement and federal income tax
reporting purposes.
DISTRIBUTION OF INCOME AND GAINS
Distributions to shareholders of tax exempt income are made quarterly.
Distributions are recorded on the ex-dividend date. Distributions of net
realized gains are distributed annually. An additional distribution may be
necessary to avoid taxation of the Fund.
The timing and characterization of certain income and capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. The differences may be a
result of deferral of certain losses or character reclassification between
net income and net gains. As a result, net investment income (loss) and net
investment gain (loss) on investment transactions for a reporting period may
differ significantly from distributions to shareholders during such period.
As a result, the Fund may periodically make reclassification among its
capital accounts without impacting the Fund's net asset value.
The Fund hereby designates 100% of its ordinary distributions as
tax-exempt dividends and 100% of its gains dividends as capital gain
dividends for the year ended December 31, 1996.
OTHER
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of the revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
3. TRANSACTIONS WITH AFFILIATES
The Fund has an investment advisory agreement with Manning & Napier
Advisors, Inc. (the "Advisor"), for which the Fund pays the Advisor a fee,
computed daily and payable monthly, at an annual rate of 0.50% of the Fund's
average daily net assets. The fee amounted to $34,563 for the year ended
December 31, 1996.
Under the Fund's Investment Advisory Agreement (the "Agreement"),
personnel of the Advisor provide the Fund with advice and assistance in the
choice of investments and the execution of securities transactions, and
otherwise maintain the Fund's organization. The Advisor also provides the
Fund with necessary office space and portfolio accounting and bookkeeping
services. The salaries of all officers of the Fund and of all Directors who
are "affiliated persons" of the Fund or of the Advisor, and all personnel of
the Fund or of the Advisor performing services relating to research,
statistical and investment activities are paid by the Advisor.
<PAGE> B-86
Notes to Financial Statements
3. TRANSACTIONS WITH AFFILIATES (continued)
The Advisor has voluntarily agreed to waive its fee and, if necessary,
pay other expenses of the Fund in order to maintain total expenses for the
Fund at no more than 0.85% of average daily net assets each year.
Accordingly, the Advisor waived fees of $1,181, which is reflected as a
reduction of expenses on the Statement of Operations. The fee waiver and
assumption of expenses by the Advisor is voluntary and may be terminated at
any time.
The Advisor also acts as the transfer, dividend paying and shareholder
servicing agent for the Fund. For these services, the Fund pays a fee which
is calculated as a percentage of the average daily net assets at an annual
rate of 0.024%; this fee amounted to $1,664 for the year ended December 31,
1996.
Manning & Napier Investor Services, Inc., a registered broker-dealer
affiliate of the Advisor, acts as distributor for the Fund's shares. The
services of Manning & Napier Investor Services, Inc. are provided at no
additional cost to the Fund.
The compensation of the non-affiliated Directors totaled $6,750 for the
year ended December 31, 1996.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term securities, were
$1,751,540 and $123,530, respectively, for the year ended December 31, 1996.
5. CAPITAL STOCK TRANSACTIONS
Transactions in shares of Ohio Tax Exempt Series were:
<TABLE>
<CAPTION>
For the Year For the Year
Ended 12/31/96 Ended 12/31/95
Shares Amount Shares Amount
--------------- ----------- --------------- -----------
<S> <C> <C> <C> <C>
Sold 187,378 $1,880,010 163,241 $1,658,399
Reinvested 30,485 305,066 21,448 215,626
Repurchased (57,415) (582,735) (13,614) (135,428)
Total 160,448 $1,602,341 171,075 $1,738,597
</TABLE>
<PAGE> B-87
Notes to Financial Statements
6. FINANCIAL INSTRUMENTS
The Fund may trade in financial instruments with off-balance sheet risk
in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include
written options and futures contracts and may involve, to a varying degree,
elements of risk in excess of the amounts recognized for financial statement
purposes. No such investments were held by the Fund on December 31, 1996.
7. CONCENTRATION OF CREDIT
The Fund primarily invests in debt obligations issued by the State of
Ohio and its political subdivisions, agencies, and public authorities to obtain
funds for various public purposes. The Fund is more susceptible to
factors adversely affecting issues of Ohio municipal securities than is a
municipal bond fund that is not concentrated in these issues to the same
extent.
<PAGE> B-88
Independent Auditors' Report
TO THE SHAREHOLDERS AND DIRECTORS OF
MANNING & NAPIER FUND, INC.- OHIO TAX EXEMPT SERIES:
We have audited the accompanying statement of assets and liabilities of
Manning & Napier Fund, Inc.- Ohio Tax Exempt Series, including the schedule
of portfolio investments, as of December 31, 1996, and the related statement
of operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended and the financial
highlights for each of the periods indicated in the financial highlights
table herein. These financial statements and financial highlights are the
responsibility of the Funds management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 1996 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the Manning & Napier Fund, Inc.- Ohio Tax Exempt Series as of
December 31, 1996, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended
and the financial highlights for each of the periods indicated in the
financial highlights table herein in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
BOSTON, MASSACHUSETTS
JANUARY 23, 1997
<PAGE> B-89
Manning & Napier Fund, Inc.
New York Tax Exempt Series
Annual Report
December 31, 1996
<PAGE>
Management Discussion and Analysis
Dear Shareholders:
A fairly common expression being bandied about today is the phrase "if it
doesn't kill you, it will make you stronger". To a certain extent, that sums
up the bond market in 1996. The mediocre municipal bond market returns in
1996 are the result of short-term factors, specifically an ungrounded scare
about excessive growth and inflation plus uncertainty over the presidential
election. Combine those factors with the rather extraordinary returns that
the muni market generated in 1995, and the result is the mediocrity that will
be remembered as 1996. We would like to point out, however, that it in
short-term situations like those encountered in 1996 that provide us with the
needed opportunities to position the portfolio to benefit from the long-term
trends which are the most important determinants of municipal bond returns.
Having said all this, it is worthwhile to review what happened in 1996, just
what the impact of the election was, and what all this portends for 1997 and
beyond.
A GROWTH AND INFLATION SCARE:
At the end of 1995, the psychology in the muni market was about as good
as it could get. Economic growth was slowing, some were even calling for a
recession later in 1996, and inflation worries were non-existent. These
economic factors overshadowed what proved to be unfounded fears regarding the
potential for a flat tax and the negative impact that would have on the
municipal bond market.
Unfortunately, the economic tide began to turn rather quickly right at
the start of the year. One of the reasons the market rallied so strongly
during the later half of 1995 can be traced to speculative investments in
fixed income securities. Speculators were borrowing Japanese yen at
extraordinarily low Japanese short-term interest rates (0.3% to 0.5%),
converting the yen into U.S. dollars, and investing the proceeds in U.S.
assets. As long as Japanese short-term rates were expected to stay low or
the yen was expected to slip versus the U.S. dollar, this trade worked quite
well. Unfortunately, once the tide began to turn (i.e., people thought
Japanese short-term rates might rise), the selling it created snowballed due
to the leverage inherent in the trade. That happened during the early part
of 1996, and short to intermediate interest rates rose in all fixed income
markets, including munis.
As spring began, the bond markets were shocked by the February employment
report issued by the Bureau of Labor Statistics. The number of new jobs
created during the
<PAGE> B-90
Management Discussion and Analysis (continued)
month of February was an eye-popping 705,000 at the time of the first
release. Subsequent releases revised the number modestly lower, but those
same releases reported job gains that were much stronger than in 1995. The
probability of a recession became remote, and fears of inflation began to
emerge. Strong consumer expenditures during the first half of 1996, solid
capital spending, and a surprisingly resilient housing sector simply added to
the markets concerns, driving long-term interest rates higher. As the summer
ended, concerns seemed to be somewhat calmed, but rates remained stubbornly
high.
It is important to note, however, that throughout all of this, inflation
itself remained very much in check. The most common measures, the Producer
Price Index (PPI) and the Consumer Price Index (CPI), both remained at or
below 3.0% on a year over year basis throughout 1996. An even more accurate
measure of inflation, the GDP deflator, remained closer to 2.0%, further
evidence that inflation was not increasing.
In the near-term, no one likes to see rising interest rates, but over the
longer-term, if one expects inflation to remain under control, rising
interest rates can create compelling fixed income buying opportunities. In
the fixed income markets, 1996 was a stern test, but in the long run, only
those who acted during these difficult times will be positioned to benefit
from the long-term trends of moderate growth and low inflation.
THE ELECTION:
As everyone is quite aware, 1996 was an election year, which always has
some entertainment value. The political posturing started at the end of 1995
when the Republican Congress and the Democratic White House shut down the
government and threatened to default on U.S. Treasury securities. It veered
off to the right with the rise and fall of Steve Forbes and his call for a
flat income tax. Relative to other fixed income securities, the fortunes of
munis waxed and waned inversely with the fortunes of Steve Forbes.
Ultimately President Clinton was reelected, but the Republicans were able
to hold on to the Congress. The net result was an administration that will
be unable to get any meaningful spending increases through Congress, and a
Congress that will be unable to enact anything in the way of meaningful tax
cuts. It is not necessarily gridlock, but the consensus after the election
was that if anything is going to get passed, it will relate to deficit
reduction. That bodes well for all fixed income markets, including munis.
<PAGE> B-91
Management Discussion and Analysis (continued)
Elections always introduce uncertainty. Who will win the election? Who
will control the House? The Senate? What issues will galvanize the public?
Financial markets, as a general rule, do not like uncertainty and this year
was no exception. In the long run, however, the election results may not be
of major importance. With the growth of the global financial markets and the
influence they wield on a country's interest and exchange rates, who is in
the White House or who controls Congress becomes less significant. The
financial markets have made it clear that only fiscally sound policies will
be tolerated. Witness what has occurred with a Democrat in the White House
over the last four years. The budget deficit has shrunk from $300 billion to
just over $100 billion, the debate has shifted away from where government
monies should be spent to what spending cuts should be made, and the two
parties debated whether the budget should be balanced in seven years or in
ten. Beyond that, we have had a presidential campaign in which the
Republican challenger called for a tax cut while the Democratic incumbent
attacked it for being budgetarily imprudent. The new reality is that the
only poll that seems to matter is the one being taken daily in the global
financial markets; sound policies are rewarded, unsound policies are not.
1997 AND BEYOND:
At Manning & Napier, we view the big picture items as the most important.
The growth in international trade, the subsequent increase in international
competition, the need for policy makers, producers, and consumers to adjust
to this new economic reality, and the impact their actions have had on the
economy, inflation, and interest rates are what drives our fixed income
process. These are long-term, non-cyclical influences that have brought down
interest rates, have capped inflation expectations, and have allowed
longer-term, non-callable securities to provide strong investment returns.
The short-term economic factors and the election are relevant, but they need
to be viewed as creating the buying opportunities that are necessary so that
your portfolio can benefit from a long-term overview. In essence, 1996 was a
small piece of the big picture.
Manning & Napier weighted the portfolio toward the longer end of the
maturity spectrum. During the first half of 1996 when interest rates were
rising, that weighting was amplified. An emphasis was also placed on
non-callable securities to the extent possible. As always, our preference
was for the highest quality securities, especially general obligation bonds
and pre-refunded bonds. Revenue bonds were restricted primarily to those
that were backed by necessary services. We believe that the bumps in the
road in 1996 have set the stage for a solid turnaround in 1997.
<PAGE> B-92
Management Discussion and Analysis (continued)
CONCLUSION:
While 1996 was a difficult year, it is important to realize that the
causes of the difficulty were essentially shorter-term in nature.
Speculative excesses, a cyclical growth scare and the associated inflation
worries, and the uncertainty associated with an election all combined to
push interest rates higher. It is also worthwhile to note that the
shorter-term problems that plagued 1996 are needed to create the quality
longer-term investment opportunities that will benefit the Series going
forward, and that the uncertainties introduced by elections are becoming even
more ephemeral given the growing importance of the financial markets. Beyond
all of this, Manning & Napier believes that the adherence to a long-term
investment overview and investment process is what separates the good funds
from the bad ones.
We wish you a healthy, happy, and prosperous 1997.
Sincerely,
Manning & Napier Advisors, Inc.
<graphic>
<pie chart>
Data for chart to follow:
Portfolio Composition** - As of 12/31/96
General Obligation Bonds - 70%
Revenue Bonds - 24%
Pre-Refunded Bonds - 6%
**As a percentage of municipal securities.
<graphic>
<pie chart>
Data for chart to follow:
<TABLE>
<CAPTION>
Quality Ratings* - As of 12/31/96
<S> <C>
Aaa 82%
Aa 15%
A 3%
* Using Mood's Ratings, as a percentage of municipal securities.
</TABLE>
<PAGE> B-93
Performance Update as of December 31, 1996
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc.
New York Tax Exempt Series
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
12/31/96 Investment Cumulative Annual
One Year $ 10,332 3.32% 3.32%
Inception 2 $ 11,243 12.43% 4.04%
</TABLE>
<TABLE>
<CAPTION>
Merrill Lynch Intermediate Municipal Index
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
12/31/96 Investment Cumulative Annual
One Year $ 10,464 4.64% 4.64%
Inception 2 $ 11,532 15.32% 4.93%
</TABLE>
The value of a $10,000 investment in the
Manning & Napier Fund, Inc. - New York
Tax Exempt Series from its inception
(1/17/94) to present (12/31/96) as
compared to the Merrill Lynch Intermediate
Municipal Index.1
<graphic>
<line chart>
Data for chart to follow:
<TABLE>
<CAPTION>
Date Manning & Napier New York Merrill Lynch Intermediate Municipal
Tax Exempt Series Index
<S> <C> <C>
01/17/94 10,000 10,000
06/30/94 9,460 9,662
12/31/94 9,318 9,719
06/30/95 10,202 10,489
12/31/95 10,882 11,020
06/30/96 10,733 11,080
12/31/96 11,243 11,532
</TABLE>
1 The unmanaged Merrill Lynch Intermediate Municipal Index is a
market value weighted measure of approximately 380 municipal
bonds issued across the United States. The Index is comprised of
investment grade securities. Index returns assume reinvestment of
coupons and, unlike Fund returns, do not reflect any fees or
expenses.
2 The Fund and Index performance numbers are calculated from
January 17, 1994, the Fund's inception date. The Fund's
performance is historical and may not be indicative of future results.
<PAGE> B-94
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Principal Value
Amount (Note 2)
<S> <C> <C>
NEW YORK MUNICIPAL SECURITIES - 95.5%
Albany City School District, G.O. Bond, 4.35%,
2/1/2001 $ 475,000 $473,437
Albany City School District, G.O. Bond, 4.35%,
2/1/2002 150,000 148,728
Albany County, G.O. Bond, 5.75%, 6/1/2010 200,000 206,744
Amherst Public Improvement, G.O. Bond, 4.625%,
3/1/2004 250,000 249,382
Amherst Public Improvement, G.O. Bond, 4.625%,
3/1/2007 200,000 194,844
Battery Park City Authority, Revenue Bond, 7.70%,
5/1/2015 500,000 548,840
Bayport-Blue Point Union Free School District, G.O.
Bond, 5.60%, 6/15/2012 250,000 257,195
Brighton Central School District, G.O. Bond,
5.40%, 6/1/2012 250,000 250,748
Brockport Central School District, G.O. Bond,
5.50%, 6/15/2015 300,000 300,648
Broome County Public Safety, Certificate
Participation, 5.00%, 4/1/2006 250,000 252,378
Buffalo General Improvement, G.O. Bond, Series A,
4.75%, 2/1/2004 500,000 502,070
Buffalo Schools, G.O. Bond, Series B, 5.05%,
2/1/2009 250,000 246,655
Buffalo, G.O. Bond, 5.00%, 12/1/2009 150,000 147,890
Cattaraugus County Public Improvement, G.O. Bond,
5.00%, 8/1/2007 300,000 303,183
Colonie, G.O. Bond, 5.20%, 8/15/2008 100,000 101,610
Cortlandville, G.O. Bond, 5.40%, 6/15/2013 155,000 155,817
East Hampton, G.O. Bond, 4.625%, 1/15/2007 175,000 170,135
East Hampton, G.O. Bond, 4.625%, 1/15/2008 175,000 167,475
Ellenville Central School District, G.O. Bond,
5.375%, 5/1/2009 210,000 216,735
Erie County Public Improvement, G.O. Bond,
5.80%, 1/15/2003 230,000 245,516
Erie County, G.O. Bond, Series B, 5.50%, 6/15/2009 100,000 102,881
Erie County, G.O. Bond, Series B, 5.50%, 6/15/2025 400,000 392,656
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-95
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Principal Value
Amount (Note 2)
NEW YORK MUNICIPAL SECURITIES (continued)
<S> <C> <C>
Fillmore Central School District, G.O. Bond, 5.25%,
6/15/2015 $ 300,000 $293,064
Gloversville City School District, G.O. Bond, 5.00%,
6/15/2005 350,000 356,513
Greene Central School District, G.O. Bond, 5.25%,
6/15/2012 195,000 194,177
Guilderland School District, G.O. Bond, 4.75%,
6/15/1998 130,000 131,786
Guilderland School District, G.O. Bond, 4.90%,
6/15/2008 370,000 362,437
Hamburg Central School District, G.O. Bond,
5.375%, 6/1/2014 600,000 596,952
Hempstead Town, G.O. Bond, Series B, 5.625%,
2/1/2010 200,000 206,402
Holland Central School District, G.O. Bond,
6.125%, 6/15/2010 245,000 264,120
Huntington, G.O. Bond, 5.875%, 9/1/2009 250,000 263,062
Huntington, G.O. Bond, 5.90%, 1/15/2007 300,000 322,869
Indian River Central School District, G.O. Bond,
Second Series, 4.30%, 12/15/2003 475,000 469,623
Irvington Union Free School District, G.O. Bond,
Series B, 5.10%, 7/15/2005 275,000 281,105
Jamesville-Dewitt Central School District, G.O.
Bond, 5.75%, 6/15/2009 420,000 446,124
Jordan-El Bridge Central School District, G.O. Bond,
5.875%, 6/15/2008 500,000 535,365
Kingston City School District, Series B, 6.80%,
12/15/1997 100,000 103,029
Le Roy Central School District, G.O. Bond, 0.10%,
6/15/2008 350,000 195,856
Middletown City School District, G.O. Bond, Series
A, 5.50%, 11/15/2005 175,000 184,662
Monroe County Public Improvement - Prerefunded,
G.O. Bond, 6.00%, 3/1/2002 95,000 101,755
Monroe County Public Improvement - Prerefunded,
G.O. Bond, 6.10%, 6/1/2015 20,000 22,184
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-96
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Principal Value
Amount (Note 2)
NEW YORK MUNICIPAL SECURITIES (continued)
<S> <C> <C>
Monroe County Public Improvement - Unrefunded
Balance, G.O. Bond, 6.00%, 3/1/2002 $ 405,000 $433,605
Monroe County Public Improvement - Unrefunded
Balance, G.O. Bond, 6.10%, 6/1/2015 180,000 188,924
Monroe County Public Improvement, G.O. Bond,
4.90%, 6/1/2005 250,000 252,395
Monroe County Water Authority, Revenue Bond,
Series B, 5.25%, 8/1/2011 500,000 492,970
Monroe County Water Improvement, G.O. Bond,
5.25%, 2/1/2017 320,000 310,330
Nassau County, G.O. Bond, Series A, 4.00%,
5/1/1999 100,000 99,819
Nassau County, G.O. Bond, Series S, 5.00%,
3/1/2005 300,000 305,415
New Castle, G.O. Bond, 4.75%, 6/1/2010 450,000 423,545
New Rochelle City School District, G.O. Bond,
Series A, 4.30%, 2/1/2003 500,000 492,100
New Rochelle, G.O. Bond, Series C, 6.20%,
3/15/2007 175,000 192,698
New York City Municipal Water Authority, Revenue
Bond, Series B, 5.00%, 6/15/2003 400,000 403,524
New York City Municipal Water Authority, Revenue
Bond, Series B, 5.375%, 6/15/2019 250,000 238,555
New York City Municipal Water, Finance Authority,
Revenue Bond, Series B, 5.50%, 6/15/2019 200,000 195,954
New York City, G.O. Bond, Series A, 8.75%,
11/1/2016 250,000 264,260
New York City, G.O. Bond, Series K, 5.50%,
4/1/2007 500,000 513,760
New York Government Assistance Corp., Revenue
Bond, Series A, 5.90%, 4/1/2013 500,000 517,525
New York Government Assistance Corp., Revenue
Bond, Series A, 6.00%, 4/1/2024 250,000 255,345
New York State Dorm Authority, Columbia University,
Revenue Bond, 4.40%, 7/1/1997 125,000 125,607
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-97
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Principal Value
Amount (Note 2)
NEW YORK MUNICIPAL SECURITIES (continued)
<S> <C> <C>
New York State Environmental Facilities Corp.
Pollution Control, Revenue Bond, Series A, 4.65%,
6/15/2007 $ 250,000 $241,948
New York State Environmental Facilities Corp.
Pollution Control, Revenue Bond, Series A,
5.20%, 6/15/2015 250,000 242,437
New York State Environmental Pollution Control,
Revenue Bond, Pooled LN-B, 6.65%, 9/15/2013 500,000 547,750
New York State Housing Finance Agency, State
University Construction, Revenue Bond, Series A,
8.00%, 5/1/2011 250,000 307,780
New York State Medical Care Facility, Financial
Agency, Revenue Bond, 7.75%, 2/15/2020 380,000 424,870
New York State Mortgage Agency, Homeowners
Mortgage, Revenue Bond, Series 31A, 5.375%,
10/1/2017 500,000 476,820
New York State Power Authority, Revenue Bond,
Series CC, 4.80%, 1/1/2005 250,000 250,000
New York State Power Authority, Revenue Bond,
Series CC, 5.00%, 1/1/2014 500,000 468,420
New York State Power Authority, Revenue Bond,
Series CC, 5.25%, 1/1/2018 250,000 236,035
New York State Thruway Authority, Highway &
Bridge, Revenue Bond, Series B, 5.75%, 4/1/2006 100,000 106,482
New York State Thruway Authority, Revenue Bond,
Series A, 5.50%, 1/1/2023 1,020,000 988,482
New York State Thruway Authority, Revenue Bond,
Series B, 4.90%, 1/1/2007 450,000 445,028
New York State Urban Development Correctional
Capital Facilities, Revenue Bond, Series A, 5.25%,
1/1/2014 500,000 490,635
New York State Urban Development, Corp.
Correctional Facility, Revenue Bond, Series G,
7.00%, 1/1/2017 50,000 54,761
New York State Urban Development, Revenue
Bond, 5.375%, 7/1/2022 400,000 388,388
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-98
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Principal Value
Amount (Note 2)
NEW YORK MUNICIPAL SECURITIES (continued)
<S> <C> <C>
New York, G.O. Bond, 8.00%, 3/15/2016 $ 500,000 $561,820
Niagara County, G.O. Bond, Series B, 5.20%,
1/15/2011 400,000 395,596
Niagara County, G.O. Bond, 5.90%, 7/15/2014 350,000 361,953
North Hempstead, G.O. Bond, Series B, 5.90%,
4/1/2004 300,000 323,214
North Hempstead, G.O. Bond, Series C, 4.90%,
8/1/2006 300,000 301,497
North Syracuse Central School District, G.O. Bond,
5.50%, 6/15/2011 295,000 299,555
Onondaga County, G.O. Bond, 5.85%, 2/15/2002 300,000 318,285
Penfield Central School District, G.O. Bond, 5.20%,
6/15/2010 560,000 561,562
Queensbury, G O. Bond, Series A, 5.50%, 4/15/2011 150,000 153,080
Queensbury, G.O. Bond, Series A, 5.50%, 4/15/2012 350,000 355,600
Rochester, G.O. Bond, Series A, 4.70%, 8/15/2006 250,000 247,055
Rochester, G.O. Bond, Series A, 5.00%, 8/15/2020 250,000 234,823
Rochester, G.O. Bond, Series A, 5.00%, 8/15/2022 95,000 88,879
Rome, G.O. Bond, 5.20%, 12/1/2010 390,000 387,617
Sands Point, G.O. Bond, 6.70%, 11/15/2014 700,000 765,548
Schenectady, G.O. Bond, 4.55%, 10/1/2002 200,000 200,842
South County Central School District Brookhaven,
G.O. Bond, 5.50%, 9/15/2007 380,000 394,877
Steuben County Public Improvement, G.O. Bond,
5.60%, 5/1/2006 500,000 521,035
Suffolk County Water Authority, Revenue Bond,
5.10%, 6/1/2009 250,000 249,830
Suffolk County Water Authority, Revenue Bond,
7.375%, 6/1/2012 500,000 539,010
Suffolk County, G.O. Bond, Series G, 5.40%,
4/1/2013 400,000 393,172
Sullivan County Public Improvement, G.O. Bond,
4.375%, 3/15/2001 300,000 298,332
Sullivan County Public Improvement, G.O. Bond,
5.125%, 3/15/2013 330,000 318,493
Three Village Central School District, G.O. Bond,
5.375%, 6/15/2007 230,000 238,087
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-99
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Principal Value
Amount (Note 2)
NEW YORK MUNICIPAL SECURITIES (continued)
<S> <C> <C>
Tioga County Public Improvement, G.O. Bond,
5.25%, 3/15/2005 $ 250,000 $ 257,073
Tompkins County, G.O. Bond, Series B, 5.625%,
9/15/2011 135,000 138,110
Tompkins County, G.O. Bond, Series B, 5.625%,
9/15/2013 300,000 304,821
Tompkins County, G.O. Bond, Series B, 5.625%,
9/15/2014 300,000 304,404
Triborough Bridge & Tunnel Authority, Revenue
Bond, Series A, 3.65%, 1/1/1998 250,000 250,235
Triborough Bridge & Tunnel Authority, Revenue
Bond, Series A, 5.00%, 1/1/2012 500,000 473,710
Triborough Bridge & Tunnel Authority, Revenue
Bond, Series A, 6.50%, 1/1/2004 200,000 216,464
Triborough Bridge & Tunnel Authority - General
Purpose, Revenue Bond, 5.00%, 1/1/2017 250,000 228,995
Tri-Valley Central School District, G.O. Bond,
5.60%, 6/15/2008 120,000 125,185
Westchester County, G.O. Bond, Series A, 4.75%,
12/15/2008 250,000 243,325
Westchester County, G.O. Bond, Series A, 4.75%,
12/15/2009 250,000 239,940
Westchester County, G.O. Bond, Series B, 4.30%,
12/15/2010 215,000 192,917
Westchester County, G.O. Bond, Series B, 4.30%,
12/15/2011 100,000 88,715
White Plains, G.O. Bond, 4.50%, 9/1/2005 180,000 177,577
White Plains, G.O. Bond, 4.50%, 9/1/2007 315,000 302,586
William Floyd Union Free School District, G.O.
Bond, 5.70%, 6/15/2008 405,000 425,517
Williamsville Central School District, G.O. Bond,
5.375%, 5/1/2004 800,000 836,648
TOTAL MUNICIPAL SECURITIES
(Identified Cost $35,270,025) 35,658,803
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-100
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C> <C>
SHORT-TERM INVESTMENTS - 3.1%
Dreyfus Basic New York Tax Free Money Market
Fund (Identified Cost $1,143,651) 1,143,651 $ 1,143,651
TOTAL INVESTMENTS - 98.6%
(Identified Cost $36,413,676) 36,802,454
OTHER ASSETS, LESS LIABILITIES - 1.4% 522,424
NET ASSETS - 100% $37,324,878
</TABLE>
Key -
G.O. Bond - General Obligation Bond
Rev. Bond - Revenue Bond
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
<S> <C>
At December 31, 1996, the net unrealized appreciation based on identified cost for
federal income tax purposes of $36,413,676 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost $ 659,953
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value (271,175)
UNREALIZED APPRECIATION - NET $ 388,778
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-101
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
DECEMBER 31, 1996
<S> <C>
ASSETS:
Investments, at value (Identified Cost $36,413,676)(Note 2) $36,802,454
Interest receivable 491,234
Receivable for fund shares sold 65,000
Prepaid expense 1,157
TOTAL ASSETS 37,359,845
LIABILITIES:
Accrued management fees (Note 3) 15,627
Accrued Directors' fees (Note 3) 1,661
Transfer agent fees payable (Note 3) 750
Audit fee payable 13,666
Custodian fees payable 251
Other payables and accrued expenses 3,012
TOTAL LIABILITIES 34,967
NET ASSETS FOR 3,741,281 SHARES
OUTSTANDING $37,324,878
NET ASSETS CONSIST OF:
Capital stock $ 37,413
Additional paid-in-capital 36,859,354
Undistributed net investment income 59,777
Accumulated net realized loss on investments (20,444)
Net unrealized appreciation on investments 388,778
TOTAL NET ASSETS $37,324,878
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($37,324,878 / 3,741,281 shares) $ 9.98
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-102
Statement of Operations
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
<S> <C>
INVESTMENT INCOME:
Interest $1,612,600
EXPENSES:
Management fees (Note 3) 160,913
Directors' fees (Note 3) 6,750
Transfer agent fees (Note 3) 7,724
Audit fee 12,640
Custodian fee 6,536
Miscellaneous 468
Total Expenses 195,031
NET INVESTMENT INCOME 1,417,569
REALIZED AND UNREALIZED LOSS
ON INVESTMENTS:
Net realized loss on investments (identified cost basis) (335)
Net change in unrealized appreciation on investments (217,088)
NET REALIZED AND UNREALIZED LOSS
ON INVESTMENTS (217,423)
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $1,200,146
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-103
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year For the Year
Ended 12/31/96 Ended 12/31/95
INCREASE (DECREASE) IN NET ASSETS:
<S> <C> <C>
OPERATIONS:
Net investment income $ 1,417,569 $ 1,003,236
Net realized loss on investments (335) (6)
Net change in unrealized appreciation (depreciation)
on investments (217,088) 2,511,379
Net increase in net assets from operations 1,200,146 3,514,609
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2):
From net investment income (1,370,523) (991,282)
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase from capital share transactions (Note 5) 8,678,432 8,992,775
Net increase in net assets 8,508,055 11,516,102
NET ASSETS:
Beginning of period 28,816,823 17,300,721
End of period (including undistributed net investment
income of $59,777 and $12,779, respectively) $ 37,324,878 $ 28,816,823
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-104
Financial Highlights
<TABLE>
<CAPTION>
For the Period
1/17/94
(commencement
For the Year For the Year of operations)
Ended 12/31/96 Ended 12/31/95 to 12/31/94
<S> <C> <C> <C>
Per share data (for a share outstanding throughout
each period):
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.07 $ 8.98 $ 10.00
Income from investment operations:
Net investment income 0.422 0.404 0.338
Net realized and unrealized gain (loss)
on investments (0.102) 1.086 (1.020)
Total from investment operations 0.320 1.490 (0.682)
Less distributions to shareholders:
From net investment income (0.410) (0.400) (0.338)
NET ASSET VALUE - END OF PERIOD $ 9.98 $ 10.07 $ 8.98
Total return: (1) 3.32% 16.78% (6.82)%
Ratios of expenses (to average net assets) /
Supplemental Data:
Expenses 0.61% 0.65% 0.79% (2)
Net investment income 4.41% 4.36% 3.82%(2)
Portfolio turnover 6% 0% 6%
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 37,325 $ 28,817 $ 17,301
1 Total return represents aggregate total return for the
period indicated.
2 Annualized.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-105
Notes to Financial Statements
1. ORGANIZATION
New York Tax Exempt Series (the "Fund") is a no-load diversified series
of Manning & Napier Fund, Inc. (the "Corporation"). The Corporation is
organized in Maryland and is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company.
Shares of the Fund are offered to investors, employees and clients of
Manning & Napier Advisors, Inc. (the "Advisor") and its affiliates. The
total authorized capital stock of the Corporation consists of one billion
shares of common stock each having a par value of $0.01. As of December 31,
1996, 940 million shares have been designated in total among 19 series, of
which 50 million have been designated as New York Tax Exempt Series Class P
Common Stock.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Municipal securities will normally be valued on the basis of market
valuations provided by an independent pricing service (the Service). The
Service utilizes the latest price quotations and a matrix system (which
considers such factors as security prices of similar securities, yields,
maturities, and ratings). The Service has been approved by the Funds Board
of Directors.
Securities for which representative prices are not available from the
Fund's pricing service are valued at fair value as determined in good faith
by the Advisor under procedures established by and under the general
supervision of the Fund's Board of Directors.
Short-term investments that mature in sixty (60) days or less are valued
at amortized cost, which approximates market value.
SECURITY TRANSACTIONS, INVESTMENT INCOME AND EXPENSES
Security transactions are accounted for on the date the securities are
purchased or sold. Dividend income is recorded on the ex-dividend date.
Interest income and expenses are recorded on an accrual basis.
Most expenses of the Corporation can be attributed to a specific fund.
Expenses which cannot be directly attributed are apportioned among the funds
in the Corporation.
<PAGE> B-106
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
FEDERAL INCOME TAXES
The Fund's policy is to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies. The Fund is not
subject to federal income or excise tax to the extent the Fund distributes to
shareholders each year its taxable income, including any net realized gains
on investments in accordance with requirements of the Internal Revenue Code.
Accordingly, no provision for federal income tax or excise tax has been made
in the financial statements.
At December 31, 1996, the Fund, for federal income tax purposes, had a capital
loss carryforward of $20,444. Of this amount, $2,550 will expire on
December 31, 2002, $17,559 will expire on December 31, 2003, and $355 will
expire on December 31, 2004.
The Fund uses the identified cost method for determining realized gain or
loss on investments for both financial statement and federal income tax
reporting purposes.
DISTRIBUTION OF INCOME AND GAINS
Distributions to shareholders of net investment income are made
quarterly. Distributions are recorded on the ex-dividend date. Distributions
of net realized gains are distributed annually. An additional distribution
may be necessary to avoid taxation of the Fund.
The timing and characterization of certain income and capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. The differences may be a
result of deferral of certain losses or character reclassification between
net income and net gains. As a result, net investment income (loss) and net
investment gain (loss) on investment transactions for a reporting period may
differ significantly from distributions to shareholders during such period.
As a result, the Fund may periodically make reclassification among its
capital accounts without impacting the Fund's net asset value.
The Fund hereby designates 100% of its ordinary distributions as
tax-exempt dividends for the year ended December 31, 1996.
OTHER
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of the revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
<PAGE> B-107
Notes to Financial Statements
3. TRANSACTIONS WITH AFFILIATES
The Fund has an investment advisory agreement with Manning & Napier
Advisors, Inc. (the "Advisor"), for which the Fund pays the Advisor a fee,
computed daily and payable monthly, at an annual rate of 0.50% of the Fund's
average daily net assets. The fee amounted to $160,913 for the year ended
December 31, 1996.
Under the Fund's Investment Advisory Agreement (the "Agreement"),
personnel of the Advisor provide the Fund with advice and assistance in the
choice of investments and the execution of securities transactions, and
otherwise maintain the Fund's organization. The Advisor also provides the
Fund with necessary office space and portfolio accounting and bookkeeping
services. The salaries of all officers of the Fund and of all Directors who
are "affiliated persons" of the Fund or of the Advisor, and all personnel of
the Fund or of the Advisor performing services relating to research,
statistical and investment activities are paid by the Advisor.
The Advisor has voluntarily agreed to waive its fee and, if necessary,
pay other expenses of the Fund in order to maintain total expenses for the
Fund at no more than 0.85% of average daily net assets each year.
The Advisor also acts as the transfer, dividend paying and shareholder
servicing agent for the Fund. For these services, the Fund pays a fee which
is calculated as a percentage of the average daily net assets at an annual
rate of 0.024%; this fee amounted to $7,724 for the year ended December 31,
1996.
Manning & Napier Investor Services, Inc., a registered broker-dealer
affiliate of the Advisor, acts as distributor for the Fund's shares. The
services of Manning & Napier Investor Services, Inc. are provided at no
additional cost to the Fund.
The compensation of the non-affiliated Directors totaled $6,750 for the
year ended December 31, 1996.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term securities, were
$11,045,005 and $1,991,542, respectively, for the year ended December 31,
1996.
<PAGE> B-108
NOTES TO FINANCIAL STATEMENTS
5. CAPITAL STOCK TRANSACTIONS
Transactions in shares of New York Tax Exempt Series were:
<TABLE>
<CAPTION>
For the Year For the Year
Ended 12/31/96 Ended 12/31/95
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Sold 1,002,977 $ 9,923,094 905,817 $8,705,001
Reinvested 137,887 1,351,346 99,114 973,495
Repurchased (260,462) (2,596,008) (70,547) (685,721)
Total 880,402 $ 8,678,432 934,384 $8,992,775
</TABLE>
6. FINANCIAL INSTRUMENTS
The Fund may trade in financial instruments with off-balance sheet risk
in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include
written options and futures contracts and may involve, to a varying degree,
elements of risk in excess of the amounts recognized for financial statement
purposes. No such investments were held by the Fund on December 31, 1996.
7. CONCENTRATION OF CREDIT
The Fund primarily invests in debt obligations issued by the State of New York
and its political subdivisions, agencies, and public authorities to obtain
funds for various public purposes. The Fund is more susceptible
factors adversely affecting issues of New York municipal securities than
is a municipal bond fund that is not concentrated in these issues to the
same extent.
<PAGE> B-109
Independent Auditors' Report
TO THE SHAREHOLDERS AND DIRECTORS OF
MANNING & NAPIER FUND, INC.- NEW YORK TAX EXEMPT SERIES:
We have audited the accompanying statement of assets and liabilities of
Manning & Napier Fund, Inc.- New York Tax Exempt Series, including the
schedule of portfolio investments, as of December 31, 1996, and the related
statement of operations for the year then ended, the statement of changes in
net assets for each of the two years in the period then ended and the
financial highlights for each of the periods indicated in the financial
highlights table herein. These financial statements and financial highlights
are the responsibility of the Funds management. Our responsibility is to
express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 1996 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the Manning & Napier Fund, Inc.- New York Tax Exempt Series as of
December 31, 1996, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended
and the financial highlights for each of the periods indicated in the
financial highlights table herein in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
BOSTON, MASSACHUSETTS
JANUARY 23, 1997
<PAGE> B-110
Manning $ Napier Fund, Inc.
Small Cap Series
Annual Report
December 31, 1996
<PAGE>
Management Discussion and Analysis
Dear Shareholders:
The returns of the Small Cap Series in 1996 demonstrated how volatile
this sector can be, but the Series ended a tough year with a solid return in
the fourth quarter. As we discussed in the Semi-Annual Report dated June 30,
1996, the first half of the year was good both for small company stocks in
general and for the Small Cap Series in particular. The stock market decline
in early July hit this sector and the Series particularly hard, but
performance improved significantly toward the end of the year. We believe
that the small cap sector of the market continues to offer excellent
potential. There are two main reasons for this belief: first, small cap
stocks have provided higher returns than larger stocks historically; second,
valuations of small cap stocks currently are low relative to those of larger
stocks.
In the 1995 Annual Report, we discussed our purchases of selected retail
stocks late in the year. Our analysis showed that this sector as a whole was
undervalued, and this presented an opportunity to purchase selected
securities in this sector at attractive prices. After significant volatility
early in the year, several of these holdings made strong contributions to the
Series return late in the year. We have begun to sell some of these holdings
recently as they have reached prices at which our analysis shows that the
growth we expected has been achieved. At the end of the year, the retail
sector accounted for 24% of the Series holdings.
In the second half of 1996, several consumer software companies were
added to the Series portfolio, and this sector now represents approximately
7% of the portfolio. This sector was extremely strong in 1995, with
valuations at extreme levels. This led to a significant oversupply in 1996,
driving many stocks down significantly. Indeed, several of the stocks we
added were down over 50% from their highs at the time of purchase. We have
invested in the companies which we believe will benefit from the
consolidation we expect to see in this industry.
<PAGE> B-111
Management Discussion and Analysis (continued)
In addition to always searching for promising additions to the Series, we
continually reevaluate the holdings in the portfolio to assess their fit with
our investment strategies. Stocks which no longer meet those strategies are
sold. Conversely, stocks which have underperformed will not be sold if they
continue to meet our criteria. One of the strengths of our investment
strategy is that it provides the patience which is often necessary to stick
with good investments during temporary down periods. This strategy has been
quite successful for our investors over time.
We wish you a healthy, happy, and prosperous 1997.
Sincerely,
Manning & Napier Advisors, Inc.
Portfolio Composition* - As of 12/31/96
*As a percent of net assets.
<graphic>
<pie chart>
Data for chart to follow:
Retail - 24.0%
Software - 12.4%
Miscellaneous** - 11.4%
Fabricated Metal Products - 8.7%
Primary Metal Industries - 6.9%
Printing & Publishing - 4.8%
Health Services - 4.5%
Restaurants - 4.2%
Glass Products - 3.3%
Cash, short-term investments, and liabilities less other assets - 19.8%
**Miscellaneous includes:
Computer Equipment
Electronics & Electrical Equipment
Food & Beverages
Holding Companies
Optical Supplies
Plastic Products
Surgical & Medical Instruments
<PAGE> B-112
Performance Update as of December 31, 1996
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc. Small Cap Series
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
12/31/96 Investment Cumulative Annual
One Year $ 11,006 10.06% 10.06%
Inception 2 $ 18,156 81.56% 13.60%
</TABLE>
<TABLE>
<CAPTION>
S&P 500 Total Return Index
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
12/31/96 Investment Cumulative Annual
One Year $ 12,290 22.90% 22.90%
Inception 2 $ 20,206 102.06% 16.24%
</TABLE>
The value of a $10,000 investment in the
Manning & Napier Fund, Inc. - Small Cap
Series from its current activation (4/30/92)
to present (12/31/96) as compared to the
Standard & Poor's (S&P) 500 Total Return
Index. 1
<graphic>
<line chart>
Data for chart to follow:
<TABLE>
<CAPTION>
Date Manning & Napier Small Cap Series S&P 500 Total Return Index
<S> <C> <C>
04/30/92 10,000 10,000
12/31/92 11,610 10,725
12/31/93 13,317 11,799
12/31/94 14,383 11,959
12/31/95 16,497 16,437
06/30/96 18,248 18,093
12/31/96 18,156 20,206
</TABLE>
1 The Standard and Poor's (S&P) 500 Total Return Index is an unmanaged
capitalization-weighted measure of 500 widely held common stocks listed on the
New York Stock Exchange, American Stock Exchange, and Over-The-Counter
Market. S&P 500 Total Return Index returns assume reinvestment of dividends
and, unlike Fund returns, do not reflect any fees or expenses.
2 The Fund and Index performance numbers are calculated from April 30, 1992,
the Fund's current activation date. The Fund's performance is historical and
may not be indicative of future results.
<PAGE> B-113
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C> <C>
COMMON STOCK - 80.2%
COMPUTER EQUIPMENT - 1.3%
Varitronix International Ltd. (Note 7) 725,000 $1,312,294
FABRICATED METAL PRODUCTS - 8.7%
Keystone International, Inc. 214,100 4,308,762
Material Sciences Corp.* 250,000 4,500,000
8,808,762
FOOD & BEVERAGES - 2.1%
Canandaigua Wine Company, Inc. - Class A* 75,000 2,137,500
GLASS PRODUCTS - 3.3%
Libbey, Inc. 120,000 3,345,000
HEALTH SERVICES - 4.5%
RehabCare Group, Inc.* 195,000 3,924,375
U. S. Physical Therapy, Inc.* 65,000 633,750
4,558,125
HOLDING COMPANIES - 0.9%
EK Chor China Motorcycle Co. Ltd. - ADR
(Note 7) 129,500 955,063
OPTICAL SUPPLIES - 2.1%
Sola International, Inc.* 55,000 2,090,000
PLASTIC PRODUCTS - 0.9%
Sun Coast Industries, Inc.* 350,000 962,500
PRIMARY METAL INDUSTRIES - 6.9%
American Superconductor Corp.* 115,000 1,221,875
Gibraltar Steel Corp.* 220,000 5,775,000
6,996,875
PRINTING & PUBLISHING - 4.8%
Playboy Enterprises, Inc. - Class A* 93,000 941,625
Playboy Enterprises, Inc. - Class B* 107,000 1,043,250
Harte-Hanks Communications 46,100 1,279,275
Houghton Mifflin Co. 27,300 1,545,862
4,810,012
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-114
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C> <C>
RESTAURANTS - 4.2%
Mortons Restaurant Group, Inc.* 249,000 $ 4,201,875
RETAIL - 24.0%
RETAIL - HOME FURNISHING STORES - 5.7%
Pier 1 Imports, Inc. 324,500 5,719,312
RETAIL - NONDURABLE GOODS - 0.1%
Mikasa, Inc.* 5,000 51,250
RETAIL - SPECIALTY STORES - 8.8%
Fabri-Centers of America - Class A* 414,400 6,682,200
Hancock Fabrics, Inc. 213,500 2,215,063
8,897,263
RETAIL - VARIETY STORES - 5.1%
Family Dollar Stores, Inc. 250,000 5,093,750
RETAIL - WHOLESALE - 4.3%
Coleman Company, Inc.* 314,800 4,328,500
24,090,075
SOFTWARE - 12.4%
Activision Inc.* 74,000 952,750
Broderbund Software, Inc.* 49,000 1,457,750
Electronic Arts, Inc.* 79,000 2,365,062
Founder Hong Kong Ltd.* (Note 7) 2,700,000 1,038,522
Maxis, Inc.* 67,700 829,325
Spectrum Holobyte, Inc.* 196,000 1,470,000
Symantec Corp.* 300,000 4,350,000
12,463,409
SURGICAL & MEDICAL INSTRUMENTS - 2.0%
Allied Healthcare Products, Inc. 271,000 1,998,625
TELECOMMUNICATION EQUIPMENT - 2.1%
BroadBand Technologies, Inc.* 140,000 2,065,000
TOTAL COMMON STOCK
(Identified Cost $73,662,098) 80,795,115
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-115
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Principal Amount/ Value
Shares (Note 2)
<S> <C> <C>
SHORT-TERM INVESTMENTS - 20.1%
Federal Home Loan Mortgage Corporation,
Discount Note, 1/8/1997 $ 1,100,000 $ 1,098,881
Federal Home Loan Mortgage Corporation,
Discount Note, 1/24/1997 2,000,000 1,993,062
Federal National Mortgage Association,
Discount Note, 1/17/1997 15,000,000 14,964,267
Dreyfus U.S. Treasury Money Market Reserves 2,184,447 2,184,447
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $20,240,657) 20,240,657
TOTAL INVESTMENTS - 100.3%
(Identified Cost $93,902,755) 101,035,772
LIABILITIES, LESS OTHER ASSETS - (0.3%) (347,345)
NET ASSETS - 100% $100,688,427
</TABLE>
* Non-income producing security
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
<S> <C>
At December 31, 1996, the net unrealized appreciation based on identified cost for
federal income tax purposes of $93,902,755 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost $17,060,909
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value (9,927,892)
UNREALIZED APPRECIATION - NET $ 7,133,017
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-116
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
DECEMBER 31, 1996
<S> <C>
ASSETS:
Investments, at value (Identified Cost $93,902,755)(Note 2) $101,035,772
Foreign currency, at value (cost $63,604) 63,623
Cash 43,277
Dividends receivable 75,755
Receivable for fund shares sold 36,360
Prepaid expense 5,753
TOTAL ASSETS 101,260,540
LIABILITIES:
Accrued management fees (Note 3) 82,605
Accrued Directors' fees (Note 3) 1,661
Payable for fund shares redeemed 447,648
Audit fee payable 22,566
Custodian fees payable 4,476
Other payables and accrued expenses 13,157
TOTAL LIABILITIES 572,113
NET ASSETS FOR 8,326,380 SHARES
OUTSTANDING $100,688,427
NET ASSETS CONSIST OF:
Capital stock $ 83,263
Additional paid-in-capital 94,204,564
Undistributed net investment income 82,416
Accumulated distributions in excess of capital gains (814,852)
Net unrealized appreciation on investments and other assets 7,133,036
TOTAL NET ASSETS $100,688,427
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($100,688,427/8,326,380 shares) $ 12.09
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-117
Statement of Operations
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
<S> <C>
INVESTMENT INCOME:
Interest $ 860,752
Dividends 790,001
Total Investment Income 1,650,753
EXPENSES:
Management fees (Note 3) 1,204,107
Directors' fees (Note 3) 6,750
Custodian fee 27,960
Audit fee 22,566
Registration & filing fees 11,519
Miscellaneous 23,956
Total Expenses 1,296,858
NET INVESTMENT INCOME 353,895
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments and other assets (identified
cost basis) 5,120,431
Net change in unrealized appreciation on investments and
other assets 9,285,634
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS 14,406,065
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $14,759,960
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-118
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year For the Year
Ended 12/31/96 Ended 12/31/95
INCREASE (DECREASE) IN NET ASSETS:
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ 353,895 $ (40,525)
Net realized gain on investments 5,120,431 31,290,477
Net change in unrealized appreciation on investments 9,285,634 15,430,101
Net increase in net assets from operations 14,759,960 15,819,851
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2):
From net investment income (271,530) --
From net realized gain on investments (7,753,635) (28,009,998)
In excess of realized gain on investments (814,852) --
Total distributions to shareholders (8,840,017) (28,009,998)
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase (decrease) from capital share
transactions (Note 5) (48,234,558) 49,670,946
Net increase (decrease) in net assets (42,314,615) 37,480,799
NET ASSETS:
Beginning of period 143,003,042 105,522,243
End of period (including undistributed net investment
income of $82,416 and $0, respectively) $ 100,688,427 $ 143,003,042
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-119
Financial Highlights
<TABLE>
<CAPTION>
For the Years Ended For the Period
4/30/92(1) to
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
Per share data (for a share outstanding
throughout each period ):*
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 11.95 $ 12.92 $ 12.52 $ 11.24 $ 10.00(3)
Income from investment operations:
Net investment income (loss) 0.045 (0.004) (0.066) (0.040) (0.020)
Net realized and unrealized gain (loss)
on investments 1.112 1.934 1.051 1.700 1.630
Total from investment operations 1.157 1.930 0.985 1.660 1.610
Less distributions to shareholders:
From net investment income (0.035) - - - -
From net realized gain on investments (0.889) (2.900) (0.585) (0.380) (0.290)
In excess of net realized gains (0.093) - - - (0.080)(4)
Redemption of initial capitalization* - - - - -
Total distributions to shareholders (1.017) (2.900) (0.585) (0.380) (0.370)
NET ASSET VALUE - END OF PERIOD $ 12.09 $ 11.95 $ 12.92 $ 12.52 $ 11.24
Total Return: (5) 10.06% 14.70% 8.01% 14.64% 16.20%
Ratios of expenses (to average net assets) /
Supplemental Data:
Expenses (7) 1.08% 1.07% 1.10% 1.13% 1.27%(8)
Net investment income (loss) 0.29% (0.03)% (0.58)% (0.43)% (0.26)%(8)
Portfolio turnover 31% 77% 31% 12% 24%
Average commission rate paid $ 0.0291 $ 0.0500 - - -
NET ASSETS - END OF PERIOD
(000'S OMITTED) $ 100,688 $ 143,003 $ 105,522 $ 70,734 $ 33,079
Footnotes on next page.
For the Period
1/1/89 to
7/24/89(2)
Per share data (for a share outstanding
throughout each period ):*
<S> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 8.96
Income from investment operations:
Net investment income (loss) (0.390)
Net realized and unrealized gain (loss)
on investments -
Total from investment operations (0.390)
Less distributions to shareholders:
From net investment income -
From net realized gain on investments -
In excess of net realized gains -
Redemption of initial capitalization* (8.570)
Total distributions to shareholders (8.570)
NET ASSET VALUE - END OF PERIOD -
Total Return: (5) - (6)
Ratios of expenses (to average net assets) /
Supplemental Data:
Expenses (7) 14.59%(8)(6)
Net investment income (loss) (8.02)%(8)(6)
Portfolio turnover 0%
Average commission rate paid -
NET ASSETS - END OF PERIOD
(000'S OMITTED) -
Footnotes on next page.
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-120
Financial Highlights - Footnotes
*Prior to July 8, 1993, the investment practice of the Fund resulted in
the active operation of the investment portfolio for discrete periods. On
April 30, 1992, the Fund resumed sales of shares to advisory clients and
employees of Manning & Napier Advisors, Inc. (the "Advisor") and its
affiliates. On July 8, 1993, the Fund began offering shares directly to
investors. Previously, the Fund was in active operation from November 11,
1986 to May 14, 1987 and from December 1, 1987 to April 13, 1988.
During periods when the only shareholders of the Fund were the Initial
Shareholders, assets of the Fund were invested in U.S. Treasury Securities.
On July 11 and 24, 1989 the shares held by the Initial Shareholders were
redeemed in full and the Fund remained dormant until April 30, 1992.
1Recommencement of operations.
2Date of complete redemption.
3Initial offering price upon recommencement of operations on April 30,
1992.
4Distributions differ from net investment income and net realized capital
gains because of book/tax timing differences, primarily the requirements of
the excise tax regulations enacted as part of the 1986 Tax Reform Act. The
regulations required the Fund to measure capital gains through October 31,
1992. The excise tax regulations also required the Fund to distribute those
gains before December 31, 1992 to avoid payment of excise tax.
5Represents aggregate total return for the period indicated.
6During the period January 1, 1989 to July 24, 1989, the only
shareholders and resulting assets were those of the Initial Shareholders, as
described in the note with the asterisk, who redeemed their shares on July 11
and 24, 1989; therefore, the ratios and total return presented may not be
representative of an actively operating fund.
7During the period 1/1/89 to 7/24/89, absent waivers of investment
advisory fees, the ratio of expenses to average daily net assets was
15.57%.
8Annualized.
<PAGE> B-121
Notes to Financial Statements
1. ORGANIZATION
Small Cap Series (the "Fund") is a no-load diversified series of Manning
& Napier Fund, Inc. (the "Corporation"). The Corporation is organized in
Maryland and is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company.
On April 30, 1992, the Fund resumed sales of shares to advisory clients
and employees of Manning & Napier Advisors, Inc. (the "Advisor") and its
affiliates. On July 8, 1993, the Fund began offering shares directly to
investors. Previously, the Fund was available from time to time to Manning &
Napier employees and advisory clients of Manning & Napier Advisors, Inc.
The total authorized capital stock of the Corporation consists of one
billion shares of common stock each having a par value of $0.01. As of
December 31, 1996, 940 million shares have been designated in total among 19
series, of which 50 million have been designated as Small Cap Series Class A
Common Stock.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Portfolio securities, including domestic equities, foreign equities,
options and corporate bonds, listed on an exchange are valued at the last
quoted sales price of the exchange on which the security is primarily traded.
Securities not traded on valuation date or securities not listed on an
exchange are valued at the latest quoted bid price.
Debt securities, including government bonds and mortgage backed
securities, will normally be valued on the basis of evaluated bid prices.
Securities for which representative prices are not available from the
Fund's pricing service are valued at fair value as determined in good faith
by the Advisor under procedures established by and under the general
supervision and responsibility of the Fund's Board of Directors.
Short-term investments that mature in sixty (60) days or less are valued
at amortized cost, which approximates market value.
<PAGE> B-122
NOTES TO FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SECURITY TRANSACTIONS, INVESTMENT INCOME AND EXPENSES
Security transactions are accounted for on the date the securities are
purchased or sold. Dividend income is recorded on the ex-dividend date.
Interest income and expenses are recorded on an accrual basis.
Most expenses of the Corporation can be attributed to a specific fund.
Expenses which cannot be directly attributed are apportioned among the funds
in the Corporation.
FEDERAL INCOME TAXES
The Fund's policy is to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies. The Fund is not
subject to federal income or excise tax to the extent the Fund distributes to
shareholders each year its taxable income, including any net realized gains
on investments in accordance with requirements of the Internal Revenue Code.
Accordingly, no provision for federal income tax or excise tax has been made
in the financial statements.
The Fund uses the identified cost method for determining realized gain or
loss on investments for both financial statement and federal income tax
reporting purposes.
DISTRIBUTION OF INCOME AND GAINS
Distributions to shareholders of net investment income are made annually.
Distributions are recorded on the ex-dividend date. Distributions of net
realized gains are distributed annually. An additional distribution may be
necessary to avoid taxation of the Fund.
The timing and characterization of certain income and capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. The differences may be a
result of deferral of certain losses, foreign denominated investments or
character reclassification between net income and net gains. As a result,
net investment income (loss) and net investment gain (loss) on investment
transactions for a reporting period may differ significantly from
distributions to shareholders during such period. As a result, the Fund may
periodically make reclassification among its capital accounts without
impacting the Fund's net asset value.
The Fund hereby designates $1,553,659 as capital gain dividends for the
year ended December 31, 1996.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars.
Foreign currency amounts are translated into U.S. dollars on the following
basis: a) investment securities, other assets and liabilities are converted
to U.S. dollars based upon current exchange rates; and b) purchase and sales
of securities and income and expenses are converted into U.S. dollars based
upon the currency exchange rates prevailing on the respective dates of such
transactions.
<PAGE> B-123
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
FOREIGN CURRENCY TRANSLATION (continued)
Gains and losses attributable to foreign currency exchange rates are
recorded for financial statement purposes as net realized gains and losses on
investments. The portion of both realized and unrealized gains and losses on
investment that result from fluctuations in foreign currency exchange rates
is not separately stated.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may purchase or sell forward foreign currency contracts in order
to hedge a portfolio position or specific transaction. Risks may arise if
the counterparties to a contract are unable to meet the terms of the contract
or if the value of the foreign currency moves unfavorably.
At December 31, 1996, the Fund had no open foreign currency exchange
contracts.
OTHER
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of the revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
<PAGE> B-124
3. TRANSACTIONS WITH AFFILIATES
The Fund has an investment advisory agreement with Manning & Napier
Advisors, Inc. (the "Advisor"), for which the Fund pays the Advisor a fee,
computed daily and payable monthly, at an annual rate of 1% of the Fund's
average daily net assets. The fee amounted to $1,204,107 for the year ended
December 31, 1996.
Under the Fund's Investment Advisory Agreement (the "Agreement"),
personnel of the Advisor provide the Fund with advice and assistance in the
choice of investments and the execution of securities transactions, and
otherwise maintain the Fund's organization. The Advisor also provides the
Fund with necessary office space and portfolio accounting and bookkeeping
services. The salaries of all officers of the Fund and of all Directors who
are "affiliated persons" of the Fund or of the Advisor, and all personnel of
the Fund or of the Advisor performing services relating to research,
statistical and investment activities are paid by the Advisor.
The Advisor has agreed that, in any fiscal year, if the expenses of the
Fund (including the advisory fee but excluding interest, taxes, brokerage
commissions, and extraordinary expenses) exceed the limits set by applicable
regulation of state securities commissions, the Advisor will reduce its fee
by the amount of such excess.
<PAGE> B-125
Notes to Financial Statements
3. TRANSACTIONS WITH AFFILIATES (continued)
The Advisor also acts as the transfer, dividend paying and shareholder
servicing agent for the Fund. These services are provided at no additional
cost to the Fund.
Manning & Napier Investor Services, Inc., a registered broker-dealer
affiliate of the Advisor, acts as distributor for the Fund's shares. The
services of Manning & Napier Investor Services, Inc. are provided at no
additional cost to the Fund.
The compensation of the non-affiliated Directors totaled $6,750 for the
year ended December 31, 1996.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term securities, were
$32,399,687 and $103,139,845 respectively, for the year ended December 31,
1996.
5. CAPITAL STOCK TRANSACTIONS
Transactions in shares of Small Cap Series were:
<TABLE>
<CAPTION>
For the Year For the Year
Ended Ended
12/31/96 12/31/95
<S> <C> <C> <C> <C>
Shares Amount Shares Amount
Sold 1,521,782 $ 18,457,745 1,840,553 $26,713,110
Reinvested 745,911 8,765,039 2,289,934 27,662,435
Repurchased (5,907,361) (75,457,342) (331,604) (4,704,599)
Total (3,639,668) $(48,234,558) 3,798,883 $49,670,946
</TABLE>
6. FINANCIAL INSTRUMENTS
The Fund may trade in financial instruments with off-balance sheet risk
in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include
written options, forward foreign currency exchange contracts, and futures
contracts and may involve, to a varying degree, elements of risk in excess of
the amounts recognized for financial statement purposes. No such investments
were held by the Fund on December 31, 1996.
7. FOREIGN SECURITIES
Investing in securities of foreign companies and foreign governments
involves special risks and considerations not typically associated with
investing in securities of U.S. companies and the United States government.
There risks include revaluation of currencies and future adverse political
and economic developments. Moreover, securities of many foreign companies
and foreign governments and their markets may be less liquid and their prices
more volatile than those of securities of comparable U.S. companies and the
United States government.
<PAGE> B-126
Independent Auditors' Report
TO THE SHAREHOLDERS AND DIRECTORS OF
MANNING & NAPIER FUND, INC.- SMALL CAP SERIES:
We have audited the accompanying statement of assets and liabilities of
Manning & Napier Fund, Inc.- Small Cap Series, including the schedule of
portfolio investments, as of December 31, 1996, and the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended and the financial
highlights for each of the periods indicated in the financial highlights
table herein. These financial statements and financial highlights are the
responsibility of the Funds management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 1996 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the Manning & Napier Fund, Inc.- Small Cap Series as of December
31, 1996, the results of its operations for the year then ended, the changes
in its net assets for each of the two years in the period then ended and the
financial highlights for each of the periods indicated in the financial
highlights table herein in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
BOSTON, MASSACHUSETTS
JANUARY 23, 1997
<PAGE> B-127
Manning & Napier Fund, Inc.
Technology Series
Annual Report
December 31, 1996
Management Discussion and Analysis
Dear Shareholders:
After posting extraordinary returns in 1995, we wrote in the Annual
Report that shareholders should expect performance to return to a more normal
level in 1996. While 1996's returns were indeed lower than 1995's, 1996
proved to be another exceptional year both for the market as a whole and for
the Technology Series.
At the end of 1995, we wrote that we were negative on the short-term
outlook for the semiconductor industry, and that we had moved away from this
sector within the portfolio. In the first half of 1996, semiconductor stocks
declined to a point which provided the opportunity to add some of the leaders
in this industry to the portfolio at attractive valuations. As the year
progressed, this industry began to see increased bookings and its stock
performance improved substantially. Semiconductor stocks were the best
performing in the technology sector in 1996, and they made a significant
contribution to the Series' return for the year. Near the end of the year,
we sold some semiconductor holdings to realize the gains; this sector
represented approximately 28% of the Series' holdings at the end of the year.
Late in the year, we purchased three stocks in the wireless
communications field, and this group made up approximately 14% of the
portfolio at year end. Prior to our purchase of these stocks, the group had
been depressed due to a slowdown in the U.S. market in 1995. Our analysis
showed that international markets have picked up to a point that overrides
the U.S. slowdown. In addition, we expect to see a re-acceleration in
wireless stocks in 1997 as new digital wireless phone service comes on line.
This will require the building of networks, which will benefit the companies
whose stock we hold, and we also expect it to stimulate demand in the
wireless area.
A third important component of the Technology Series is the consumer
software area, representing approximately 12% of the portfolio at the end of
the year. Due to a large oversupply, this sector has been going through a
shake-out. This caused prices of many of the stocks to be depressed,
providing the opportunity to purchase the stock of several strong companies
at bargain levels. We believe these companies will benefit from the industry
consolidation we expect to take place.
Looking ahead to 1997 and beyond, we believe we have structured the
Technology Series to benefit from the trends we expect to see in the
technology sector of the market. As we've discussed previously, our three
major themes are: increased consumer acceptance of technology, increased use
of technology in the business world, and expanded use of technology
internationally. This overview remains intact, and we continue to find
exciting opportunities in this sector of the market.
We wish you a healthy, happy, and prosperous 1997.
Sincerely,
Manning & Napier Advisors
<PAGE> B-128
Performance Update as of December 31, 1996
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc. - Technology Series
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
12/31/96 Investment Cumulative Annual
One Year $ 12,090 20.90% 20.90%
Inception 2 $ 19,244 92.44% 32.20%
</TABLE>
<TABLE>
<CAPTION>
S&P 500 Total Return Index
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
12/31/96 Investment Cumulative Annual
One Year $ 12,290 22.90% 22.90%
Inception 2 $ 16,514 65.14% 23.85%
</TABLE>
The value of a $10,000 investment in the
Manning & Napier Fund, Inc. _Small Cap
Series from its current activation (4/30/92)
to present (12/31/96) as compared to the
Standard & Poor's (S&P) 500 Total Return
Index. 1
<graphic>
<line chart>
Data for chart to follow:
<TABLE>
<CAPTION>
Date Manning & Napier Technology Series S&P 500 Total Return Index
<S> <C> <C>
08/29/94 10,000 10,000
12/31/94 11,350 9,773
06/30/95 14,736 11,742
12/31/95 15,918 13,433
06/30/96 16,674 14,787
12/31/96 19,244 16,514
</TABLE>
1 The Standard and Poor's (S&P) 500 Total Return Index is an unmanaged
capitalization-weighted measure of 500 widely held common stocks listed on the
New York Stock Exchange, American Stock Exchange, and Over-the-Counter
Market. S&P 500 Total Return Index returns assume reinvestment of dividends
and, unlike Fund returns, do not reflect any fees or expenses.
2 The Fund and Index performance numbers are calculated from August 29,
1994, the Fund's current activation date. The Fund's performance is
historical and may not be indicative of future results.
<PAGE> B-129
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C> <C>
COMMON STOCK - 87.8%
COMPUTER EQUIPMENT - 5.4%
Digital Equipment Corp.* 117,000 $ 4,255,875
Varitronix International Ltd. (Note 6) 1,000,000 1,810,060
6,065,935
INFORMATION RETRIEVAL SERVICES - 2.9%
America Online, Inc.* 98,800 3,285,100
PRIMARY METAL INDUSTRIES - 1.6%
American Superconductor Corp.* 173,000 1,838,125
RETAIL - SPECIALTY STORES - 4.2%
Tandy Corp. 107,000 4,708,000
SEMICONDUCTORS - 17.7%
Altera Corp.* 69,000 5,015,438
Intel Corp. 63,000 8,249,062
Texas Instruments, Inc. 104,000 6,630,000
19,894,500
SOFTWARE - 22.1%
Activision Inc.* 82,000 1,055,750
Broderbund Software, Inc.* 102,000 3,034,500
Electronic Arts, Inc.* 170,000 5,089,375
Founder Hong Kong Ltd.* (Note 6) 2,200,000 846,203
Maxis, Inc.* 77,300 946,925
Microsoft Corp.* 66,000 5,453,250
Oracle Corp.* 107,625 4,493,344
Parametric Technology Co.* 43,000 2,209,125
Spectrum Holobyte, Inc.* 231,000 1,732,500
24,860,972
TELECOMMUNICATION EQUIPMENT - 33.9%
ADC Telecommunications, Inc.* 110,000 3,423,750
BroadBand Technologies, Inc.* 250,300 3,691,925
Cisco Systems, Inc.* 33,000 2,099,625
DSC Communications Corp.* 225,000 4,021,875
ECI Telecommunications Ltd. 210,200 4,466,750
Glenayre Technologies, Inc.* 245,000 5,282,812
Motorola, Inc. 80,000 4,910,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-130
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Shares/ Value
Principal Amount (Note 2)
<S> <C> <C>
TELECOMMUNICATION EQUIPMENT (continued)
Northern Telecom Ltd. 76,800 $ 4,752,000
Nokia Corp., Ab-ADR (Note 6) 94,000 5,416,750
38,065,487
TOTAL COMMON STOCK
(Identified Cost $81,017,403) 98,718,119
SHORT-TERM INVESTMENTS - 12.5%
Federal Farm Credit Discount Note, 1/08/1997 $ 7,000,000 6,992,846
Farm Credit Discount Note, 1/24/1997 6,000,000 5,979,186
Galaxy Government Fund 1,069,222 1,069,222
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $14,041,254) 14,041,254
TOTAL INVESTMENTS - 100.3%
(Identified Cost $95,058,657) 112,759,373
LIABILITIES, LESS OTHER ASSETS - (0.3%) (327,316)
NET ASSETS - 100% $112,432,057
</TABLE>
*Non-income producing security.
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
<S> <C>
At December 31, 1996, the net unrealized appreciation based on identified cost for federal
income tax purposes of $95,058,657 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost $20,978,428
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value (3,277,712)
UNREALIZED APPRECIATION - NET $17,700,716
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-131
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
DECEMBER 31, 1996
<S> <C>
ASSETS:
Investments, at value (Identified Cost $95,058,657)(Note 2) $112,759,373
Foreign currency, at value (cost $78,086) 78,116
Cash 8,486
Dividends receivable 48,680
Receivable for fund shares sold 45,410
Prepaid expense 3,029
TOTAL ASSETS 112,943,094
LIABILITIES:
Accrued management fees (Note 3) 96,073
Accrued Directors' fees (Note 3) 1,661
Payable for fund shares redeemed 392,184
Audit fee payable 16,666
Other payables and accrued expenses 4,453
TOTAL LIABILITIES 511,037
NET ASSETS FOR 8,939,764 SHARES
OUTSTANDING $112,432,057
NET ASSETS CONSIST OF:
Capital stock $ 89,397
Additional paid-in-capital 87,293,192
Accumulated net realized gain on investments and other assets 7,348,722
Net unrealized appreciation on investments and other assets 17,700,746
TOTAL NET ASSETS $112,432,057
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($112,432,057/8,939,764 shares) $ 12.58
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-132
Statement of Operations
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
<S> <C>
INVESTMENT INCOME:
Interest $ 497,327
Dividends 320,980
Total Investment Income 818,307
EXPENSES:
Management fees (Note 3) 938,964
Directors' fees (Note 3) 6,750
Custodian fee 13,555
Audit fee 13,042
Miscellaneous 3,764
Total Expenses 976,075
NET INVESTMENT LOSS (157,768)
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investments and other assets (identified
cost basis) 7,770,819
Net change in unrealized appreciation on investments and
other assets 12,349,434
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 20,120,253
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $19,962,485
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-133
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year For the Year
Ended 12/31/96 Ended 12/31/95
INCREASE (DECREASE) IN NET ASSETS:
<S> <C> <C>
Net investment income (loss) $ (157,768) $ 71,018
Net realized gain on investments 7,770,819 19,400,886
Net change in unrealized appreciation (depreciation)
on investments 12,349,434 (268,944)
Net increase in net assets from operations 19,962,485 19,202,960
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2):
From net investment income (37,295) (33,723)
From net realized gain on investment (2,466,358) (17,390,172)
Total distributions to shareholders (2,503,653) (17,423,895)
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase (decrease) from capital share
transactions (Note 5) 41,826,182 (561,295)
Net increase in net assets 59,285,014 1,217,770
NET ASSETS:
Beginning of period 53,147,043 51,929,273
End of period (including undistributed net investment
income of $0 and $37,295, respectively) $ 112,432,057 $ 53,147,043
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-134
Financial Highlights
<TABLE>
<CAPTION>
For the For the For the For the
Year Year Period Period For the For the
Ended Ended 8/29/94(1) 1/1/92 to Year Ended Year Ended
12/31/96 12/31/95 to 12/31/94 5/11/92(2) 12/31/91 12/31/90
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING
THROUGHOUT EACH PERIOD ):*
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.71 $ 11.35 $ 10.00(3) $ 10.25 $ 8.00 $ 9.41
Income from investment operations:
Net investment income (loss) (0.021) 0.018 (0.013) 0.010 (0.040) 0.020
Net realized and unrealized gain (loss)
on investments 2.191 4.515 1.363 1.530 2.930 (0.830)
Total from investment operations 2.170 4.533 1.350 1.540 2.890 (0.810)
Less distributions to shareholders:
From net investment income -- (0.010) -- -- -- (0.030)
From net realized gain on investments (0.300) (5.163) -- (1.940) (0.640) (0.570)
Redemption of capital -- -- -- (9.850) -- --
Total distributions to shareholders (0.300) (5.173) -- (11.790) (0.640) (0.600)
NET ASSET VALUE - END OF PERIOD $ 12.58 $ 10.71 $ 11.35 $ 0.00 $ 10.25 $ 8.00
Total return (4): 20.90% 40.25% 13.5% -(5) 36.1% (8.9)%
Ratios of expenses (to average net assets) /
Supplemental Data:
Expenses 1.04% 1.12% 1.32%(6) 1.35%(6)(5) 1.13% 1.14%
Net investment income (0.17%) 0.13% (0.40)%(6) 0.20%(6)(5) (0.33)% 0.20%(7)
Portfolio turnover 107% 107% 5% 0% 4% 25%
Average commission rate paid $ 0.0163 $ 0.0156 -- -- -- --
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 112,432 $ 53,147 $ 51,929 - $ 5,594 $ 5,835
</TABLE>
* The investment practice of the Fund results in the active operation
of the investment portfolio for discrete period. The Fund was in active
operation from November 4, 1988 to May 11, 1992. On May 11, 1992, the
Fund redeemed all shares held. The Fund recommenced investment operations
on August 29, 1994.
1 Recommencement of operations.
2 Date of complete redemption.
3 Initial offering price upon recommencement of operations on August 29, 1994.
4 Represents aggregate total return for the period indicated.
5 The Fund ceased investment operations on May 11, 1992; therefore, ratios and
total return would not be representative of an actively operating fund.
6 Annualized.
7 Investment income per share is comprised of recurring dividends and interest
income which amounted to $0.07 per share and special dividends from Bell
Industries and Tempest Technologies, Inc.
The accompanying notes are an integral part of the financial statements.
<PAGE> B-135
Notes to Financial statements
1. ORGANIZATION
Technology Series (the "Fund") is a no-load non-diversified series of
Manning & Napier Fund, Inc. (the "Corporation"). The Corporation is
organized in Maryland and is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company.
Shares of the Fund are offered to clients and employees of Manning &
Napier Advisors, Inc. (the Advisor) and its affiliates. The investment
practice of the Fund results in the active operation of the investment
portfolio for discrete periods. As of December 31, 1996, the Fund has been
in active operation from November 4, 1988 to May 11, 1992 and from August 29,
1994 to December 31, 1996.
The total authorized capital stock of the Corporation consists of one
billion shares of common stock each having a par value of $0.01. As of
December 31, 1996, 940 million shares have been designated in total among 19
series, of which 50 million have been designated as Technology Series Class D
Common Stock.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Portfolio securities, including domestic equities, foreign equities,
options and corporate bonds, listed on an exchange are valued at the last
quoted sales price of the exchange on which the security is primarily traded.
Securities not traded on valuation date or securities not listed on an
exchange are valued at the latest quoted bid price.
Debt securities, including government bonds and mortgage backed
securities, will normally be valued on the basis of evaluated bid prices.
Securities for which representative prices are not available from the
Fund's pricing service are valued at fair value as determined in good faith
by the Advisor under procedures established by and under the general
supervision of the Fund's Board of Directors.
Short-term investments that mature in sixty (60) days or less are valued
at amortized cost, which approximates market value.
SECURITY TRANSACTIONS, INVESTMENT INCOME AND EXPENSES
Security transactions are accounted for on the date the securities are
purchased or sold. Dividend income is recorded on the ex-dividend date.
Interest income and expenses are recorded on an accrual basis.
Most expenses of the Corporation can be attributed to a specific fund.
Expenses which cannot be directly attributed are apportioned among the funds
in the Corporation.
<PAGE> B-136
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
FEDERAL INCOME TAXES
The Fund's policy is to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies. The Fund is not
subject to federal income or excise tax to the extent the Fund distributes to
shareholders each year its taxable income, including any net realized gains
on investments in accordance with requirements of the Internal Revenue Code.
Accordingly, no provision for federal income tax or excise tax has been made
in the financial statements.
The Fund uses the identified cost method for determining realized gain or
loss on investments for both financial statement and federal income tax
reporting purposes.
DISTRIBUTION OF INCOME AND GAINS
Distributions to shareholders of net investment income are made annually.
Distributions are recorded on the ex-dividend date. Distributions of net
realized gains are distributed annually. An additional distribution may be
necessary to avoid taxation of the Fund.
The timing and characterization of certain income and capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. The differences may be a
result of deferral of certain losses, foreign denominated investments or
character reclassification between net income and net gains. As a result,
net investment income (loss) and net investment gain (loss) on investment
transactions for a reporting period may differ significantly from
distributions to shareholders during such period. As a result, the Fund may
periodically make reclassification among its capital accounts without
impacting the Fund's net asset value.
The Fund hereby designates $197,895 as capital gain dividends for the
year ended December 31, 1996.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars.
Foreign currency amounts are translated into U.S. dollars on the following
basis: a) investment securities, other assets and liabilities are converted
to U.S. dollars based upon current exchange rates; and b) purchase and sales
of securities and income and expenses are converted into U.S. dollars based
upon the currency exchange rates prevailing on the respective dates of such
transactions.
Gains and losses attributable to foreign currency exchange rates are
recorded for financial statement purposes as net realized gains and losses on
investments. The portion of both realized and unrealized gains and losses on
investment that result from fluctuations in foreign currency exchange rates
is not separately stated.
<PAGE> B-137
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may purchase or sell forward foreign currency contracts in order
to hedge a portfolio position or specific transaction. Risks may arise if
the counterparties to a contract are unable to meet the terms of the contract
or if the value of the foreign currency moves unfavorably.
At December 31, 1996, the Fund had no open foreign currency exchange
contracts.
OPTION CONTRACTS
The Fund may write (sell) or buy call or put options on securities and
other financial instruments. When the Fund writes a call, the Fund gives the
purchaser the right to buy the underlying security from the Fund at the
price specified in the option contract (the exercise price) at any time
during the option period. When the Fund writes a put option, the Fund
gives the purchaser the right to sell to the Fund the underlying security
at the exercise price at any time during the option period. The Fund will
only write options on a covered basis. This means that the Fund will own
the underlying security when the Fund writes a call or the Fund will put
aside cash, U.S. Government securities, or other liquid assets in the
amount not less than the exercise price at all times the put option is
outstanding.
When the Fund writes a call or put option, an amount equal to the
premium received is included in the Funds Statement of Assets and Liabilities a
an asset and an equivalent liability. The amount of the liability is
subsequently marked-to-market to reflect the current market value of the
option. The current market value of the option is the closing price or,
in the absence of a closing price, the bid price.
If a written option expires on its stipulated expiration date or if
the Fund enters into a closing transaction, a gain or loss is realized on
the contract. When a gain or loss is realized, the liability related to such
option contract is extinguished. If a written call option is exercised, a
gain or loss is realized from the sale of the underlying security and the
premium received from the option is added to proceeds from the sale of the
underlying security thereby increasing the gain or decreasing the loss from
the sale of the underlying security. If a written put option is exercised,
the cost of the underlying security purchased by the Fund will be decreased
by the premium originally received.
The Fund may also purchase options in an attempt to hedge against
fluctuations in the value of its portfolio and to protect against declines in
the value of the securities. The premium paid by the Fund for the purchase of
a call or put option is included in the Funds Statement of Assets and
Liabilities as an investment and subsequently marked-to-market to reflect
the current market value of the option. The current market value of the
option is the closing price or, in the absence of a closing price, the bid
price.
<PAGE> B-138
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
OPTION CONTRACTS (continued)
If an option the Fund has purchased expires on the stipulated expiration
date, the Fund realizes a loss in the amount of the cost of the option. If the
Fund exercised a call option, the cost of the securities acquired by
exercising the call is increased by the premium paid to buy the call. If
the Fund exercises a put option, it realizes a gain or loss from the sale
of the underlying security and the proceeds from such a sale are decreased
by the premium originally paid.
The measurement of the risks associated with option contracts is
meaningful only when all related and offsetting transactions are considered.
A summary of obligations for option contracts for the year ended December
31, 1996 are as follows:
WRITTEN CALL OPTIONS
Shares Amount
Balance at December 31, 1995 0 $0
Options entered into during 1996 (330) (50,571)
Options expired during 1996 330 50,571
Options exercised during 1996 0 0
Balances at December 31, 1996 0 $0
OTHER
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of the revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
3. TRANSACTIONS WITH AFFILIATES
The Fund has an investment advisory agreement with Manning & Napier
Advisors, Inc. (the "Advisor"), for which the Fund pays the Advisor a fee,
computed daily and payable monthly, at an annual rate of 1% of the Fund's
average daily net assets. The fee amounted to $938,964 for the year ended
December 31, 1996.
Under the Fund's Investment Advisory Agreement (the "Agreement"),
personnel of the Advisor provide the Fund with advice and assistance in the
choice of investments and the execution of securities transactions, and
otherwise maintain the Fund's organization. The Advisor also provides the
Fund with necessary office space and portfolio accounting and bookkeeping
ervices. The salaries of all officers of the Fund.
<PAGE> B-139
Notes to Financial Statements
3. TRANSACTIONS WITH AFFILIATES (continued)
And of all Directors who are "affiliated persons" of the Fund or of the
Advisor, and all personnel of the Fund or of the Advisor performing services
relating to research, statistical and investment activities are paid by the
Advisor.
The Advisor has agreed that, in any fiscal year, if the expenses of the
Fund (including the advisory fee but excluding interest, taxes, brokerage
commissions, and extraordinary expenses) exceed the limits set by applicable
regulation of state securities commissions, the Advisor will reduce its fee
by the amount of such excess.
The Advisor also acts as the transfer, dividend paying and shareholder
servicing agent for the Fund. These services are provided at no additional
cost to the Fund.
Manning & Napier Investor Services, Inc., a registered broker-dealer
affiliate of the Advisor, acts as distributor for the Fund's shares. The
services of Manning & Napier Investor Services, Inc. are provided at no
additional cost to the Fund.
The compensation of the non-affiliated Directors totaled $6,750 for the
year ended December 31, 1996
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term securities, were
$124,914,905 and $88,429,657, respectively, for the year ended December 31,
1996.
5. CAPITAL STOCK TRANSACTIONS
Transactions in shares of Technology Series were:
<TABLE>
<CAPTION>
For the Year For the Year
Ended 12/31/96 Ended 12/31/95
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Sold 4,212,766 $44,608,367 1,415,392 $ 17,145,335
Reinvested 243,127 2,487,188 1,612,684 17,272,178
Repurchased (479,442) (5,269,373) (2,641,988) (34,978,808)
Total 3,976,451 $41,826,182 386,088 $ (561,295)
</TABLE>
<PAGE> B-140
Notes to Financial Statements
6. FOREIGN SECURITIES
Investing in securities of foreign companies and foreign governments
involves special risks and considerations not typically associated with
investing in securities of U.S. companies and the United States government.
These risks include revaluation of currencies and future adverse political
and economic developments. Moreover, securities of many foreign companies
and foreign governments and their markets may be less liquid and their prices
more volatile than those of securities of comparable U.S. companies and the
United States government.
7. TECHNOLOGY SECURITIES
The Fund may focus its investments in certain related technology
industries; hence, the Fund may subject itself to a greater degree of risk
than a fund that is more diversified.
<PAGE> B-141
Independent Auditors' Report
TO THE SHAREHOLDERS AND DIRECTORS OF
MANNING & NAPIER FUND, INC.- TECHNOLOGY SERIES:
We have audited the accompanying statement of assets and liabilities of
Manning & Napier Fund, Inc.- Technology Series, including the schedule of
portfolio investments, as of December 31, 1996, and the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended and the financial
highlights for each of the periods indicated in the financial highlights
table herein. These financial statements and financial highlights are the
responsibility of the Funds management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 1996 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the Manning & Napier Fund, Inc.- Technology Series as of December
31, 1996, the results of its operations for the year then ended, the changes
in its net assets for each of the two years in the period then ended and the
financial highlights for each of the periods indicated in the financial
highlights table herein in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
BOSTON, MASSACHUSETTS
JANUARY 23, 1997
<PAGE> B-142
Manning & Napier Fund, Inc.
International Series
Annual Report
December 31, 1996
Management Discussion and Analysis
Dear Shareholders:
The International Series finished the year well ahead of the Morgan
Stanley Capital International World Index. As of December 31, 1996, the
Series held investments in Germany (at 28%), France (28%), Italy (11%), Spain
(10%), Hong Kong (5%), Mexico (2%), and the United Kingdom (2%).
Our overview for these holdings remains firmly on track. In Europe, we
continue to see a commitment by the governments to strengthening their
economies. This has been evidenced by several actions, including a series of
discount rate cuts across continental Europe. In the United Kingdom, where
growth is stronger and inflationary risks are higher, the central bank raised
the discount rate as a preemptory move against inflation. We have also seen
many privatizations of state-run businesses in Europe, further evidence of an
increased commitment to free enterprise.
As the Europeans prepare for European Monetary Union (EMU), all the
countries have been avidly pursuing fiscal discipline. While this has had a
negative near-term effect on growth, it has allowed for sharply declining
interest rates; lower interest rates support the equity markets as they
ultimately help provide improved corporate earnings and make equities the more
attractive investment alternative. European countries have also been
implementing monetary policies which have led to lower inflation and therefore
lower bond yields. This is the case even in countries, like Italy and Spain,
which traditionally have high inflation. The combination of monetary easing
and fiscal tightening is a classic signal for a weakening currency, and we
have therefore hedged the currencies of some countries where appropriate.
As we have discussed in previous shareholder reports, our investments in
Hong Kong are in H-Shares, which are shares of Chinese companies traded in
Hong Kong. This market performed very well in 1996, and we expect continued
strong growth as China has been implementing easier monetary policies with the
goal of spurring growth.
We are also pleased with the growing strength of the Mexican economy.
Confidence has been returning to the Mexican market as is evidenced by
increased foreign investment. In addition, inflation, while still high, has
been significantly reduced, and this should allow interest rates to decline.
As we expected, the companies in which we have invested have benefited
substantially from the improved situation in Mexico.
<PAGE> B-143
Management Discussion and Analysis
The countries represented in the Series portfolio have been the same for
approximately a year; however, our team of international analysts also
considers other countries for the Series. Countries for which our overview
and stock valuations converge in a compelling story will be added to the
portfolio. For example, we have been watching Japan, where strong monetary
easing is in place and the weakening of the yen is driving international
competitiveness higher. Should valuations there become more attractive, Japan
could be a near-term addition to the portfolio, though again, hedging the
currency would be a major issue.
We wish you a healthy, happy, and prosperous 1997.
Sincerely,
Manning & Napier Advisors, Inc.
<graphic>
<pie chart>
Data for chart to follow:
Portfolio Allocation by Country*
France 32%
Germany 32%
Hong Kong 6%
Italy 13%
Mexico 3%
Spain 2%
United Kingdom 2%
*As a percentage of common stocks.
<PAGE> B-144
Performance Update as of December 31, 1996
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc.
International Series
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
12/31/96 Investment Cumulative Annual
One Year $ 12,235 22.35% 22.35%
Inception 2 $ 14,557 45.57% 9.01%
</TABLE>
<TABLE>
<CAPTION>
S&P 500 Total Return Index
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
12/31/96 Investment Cumulative Annual
One Year $ 12,290 22.90% 22.90%
Inception 2 $ 20,052 100.52% 17.34%
</TABLE>
<TABLE>
<CAPTION>
Morgan Stanley
Capital International World Index
<S> <C> <C> <C>
Total Return
Through Growth of $10,000 Average
12/31/96 Investment Cumulative Annual
One Year $ 11,348 13.48% 13.48%
Inception 2 $ 17,421 74.21% 13.61%
</TABLE>
The value of a $10,000 investment in the
Manning & Napier Fund, Inc. - International
Series from its inception (8/27/92) to
present (12/31/96) as compared to the
Standard & Poor's (S&P) 500 Total Return
Index and the Morgan Stanley Capital
International World Index. 1
<graphic>
<line chart>
Data for chart to follow:
<TABLE>
<CAPTION>
Date Manning & Napier S&P 500 Total Morgan Stanley Capital
International Series Return Index International World Index
<S> <C> <C> <C>
08/27/92 10,000 10,000 10,000
12/31/92 10,598 10,643 9,880
12/31/93 13,359 11,709 12,103
12/31/94 11,425 11,868 12,717
12/31/95 11,898 16,312 15,351
06/30/96 13,229 17,955 16,439
12/31/96 14,557 20,052 17,421
</TABLE>
1 The Standard & Poor (S&P) 500 Total Return Index is an
unmanaged capitalization-weighted measure of 500 widely held
common stocks listed on the New York Stock Exchange, American
Stock Exchange, and Over-the-Counter market. The Morgan
Stanley Capital International World Index is a market
capitalization-weighted measure of the total return of 1,570
companies listed on the stock exchanges of the United States,
Europe, Canada, Australia, New Zealand and the Far East.
The Morgan Stanley Capital International Index is denominated
in U.S. Dollars. The Indices' returns assume reinvestment of
dividends and, unlike Fund returns, do not reflect any fees
or expenses.
2 Performance numbers for the Fund and Indices are calculated
from August 27, 1992, the Fund's inception date. The Fund's
performance is historical and may not be indicative of future
results.
<PAGE> B-145
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C> <C>
COMMON STOCK - 85.56%
FRANCE - 27.73%
AEROSPACE & MILITARY TECHNOLOGY - 0.31%
Thomson CSF 14,389 $ 466,607
AUTOMOBILES - 0.57%
PSA Peugeot Citroen 7,545 849,002
BANKING - 2.11%
Cie Financiere De Paribas 13,919 941,083
Compagnie de Suez SA 19,575 832,039
Societe Generale 12,813 1,385,002
3,158,124
BEVERAGE & TOBACCO - 2.20%
LVMH (Louis Vuitton Moet-Hennessy) 11,764 3,284,430
BUILDING MATERIALS & COMPONENTS - 0.54%
Lafarge, SA 13,327 799,371
BUSINESS & PUBLIC SERVICES - 1.41%
Compagnie Generale des Eaux 16,992 2,105,194
CHEMICALS - 1.50%
L'Air Liquide 14,380 2,244,298
CONSTRUCTION & HOUSING - 0.25%
Bouygues 3,604 373,597
ELECTRICAL & ELECTRONICS - 1.15%
Alcatel Alsthom 21,353 1,714,839
ENERGY SOURCES - 3.65%
Elf Acquitaine, SA 37,335 3,397,588
Total SA - B 25,288 2,056,191
5,453,779
FINANCIAL SERVICES - 0.52%
Compagnie Bancaire SA 3,827 452,755
Societe Eurafrance SA 743 320,968
773,723
FOOD & HOUSEHOLD PRODUCTS - 0.98%
Groupe Danone 10,381 1,446,153
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-146
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C> <C>
HEALTH & PERSONAL CARE - 3.30%
Sanofi SA 11,667 $ 1,159,967
L'Oreal 10,013 3,769,862
4,929,829
INDUSTRIAL COMPONENTS - 0.54%
Michelin-B 15,025 810,894
LEISURE & TOURISM - 0.41%
Accor SA 4,809 608,775
MACHINERY & ENGINEERING - 1.95%
Schneider SA 13,595 628,414
Sidel SA 33,200 2,283,720
2,912,134
MATERIALS & COMMODITIES - 1.48%
Compagnie de Saint-Gobain 15,599 2,206,122
MERCHANDISING - 2.96%
Carrefour Supermarche 6,048 3,934,149
Casino Guichard-Perrachon 10,600 493,446
4,427,595
MULTI-INDUSTRY - 1.90%
AXA SA 27,573 1,753,213
Chargeurs International SA* 1,235 61,156
Lyonnaise des Eaux-Dumez 7,820 727,613
Pathe SA* 1,235 297,450
2,839,432
TOTAL FRENCH SECURITIES
(Identified Cost $30,262,717) 41,403,898
GERMANY - 27.68%
AIRLINES - 0.21%
Deutsche Lufthansa AG 23,700 319,993
AUTOMOBILES - 5.36%
Daimler-Benz AG* 59,540 4,081,385
Volkswagen AG 9,484 3,928,421
8,009,806
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-147
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C> <C>
BANKING - 3.33%
Bayerische Vereinsbank AG 49,730 $ 2,016,273
Dresdner Bank AG 99,090 2,961,651
4,977,924
CHEMICALS - 2.28%
Bayer AG 83,750 3,398,314
CONSTRUCTION & HOUSING - 0.60%
Hochtief AG 22,770 895,086
ELECTRICAL & ELECTRONICS - 3.73%
Siemens AG 120,000 5,568,617
INSURANCE - 2.78%
Allianz AG Holding 2,307 4,152,156
MACHINERY & ENGINEERING - 2.12%
Mannesmann AG 5,725 2,463,264
M.A.N. AG 2,902 700,491
3,163,755
MATERIALS & COMMODITIES - 0.55%
Degussa AG 1,790 814,137
MULTI-INDUSTRY - 1.74%
Viag AG 6,656 2,605,653
UTILITIES - GAS & ELECTRIC - 4.98%
RWE AG 75,810 3,172,186
VEBA AG 74,150 4,263,838
7,436,024
TOTAL GERMAN SECURITIES
(Identified Cost $29,140,238) 41,341,465
HONG KONG - 4.83%
ENERGY SOURCES - OIL/GAS - 0.84%
Zhenhai Refining & Chemical Co Ltd. 3,402,000 1,253,557
RETAIL - APPAREL -0.94%
Giordano International Ltd. 1,650,000 1,407,968
SOFTWARE - 1.37%
Founder Hong Kong Ltd.* 5,300,000 2,038,580
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-148
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C> <C>
TELECOMMUNICATIONS -0.56%
Champion Technology Holdings 4,398,729 $ 836,006
TEXTILES & APPAREL -1.01%
Yizheng Chemical Fibre Co. Ltd. 6,224,000 1,512,838
WHOLESALE - SPECIAL LINES - 0.11%
Goldlion Holdings Ltd. 200,000 164,198
TOTAL HONG KONG SECURITIES
(Identified Cost $7,557,254) 7,213,147
ITALY -10.97%
AUTOMOBILES - 0.91%
Fiat S.p.A. 450,000 1,360,669
BUILDING MATERIAL & COMPONENTS - 0.31%
Italcementi S.p.A. 83,600 468,115
CONSTRUCTION & HOUSING -0.35%
Sirti S.p.A. 86,500 524,241
ENERGY SOURCES - OIL/GAS - 0.44%
Edison S.p.A. 104,000 657,706
FINANCIAL SERVICES - 1.16%
Banca Commerciale Italiana 242,000 439,999
Banco Ambrosiano Veneto S.p.A. 80,700 194,041
Credito Italiano S.p.A. 288,000 316,078
Istituto Bancario San Paolo di Torina S.p.A. 126,800 776,836
1,726,954
FOOD & HOUSEHOLD PRODUCTS - 0.29%
Parmalat Finanziaria S.p.A. 280,080 428,053
INSURANCE - 2.27%
Assicurazioni Generali S.p.A. 136,004 2,575,827
R.A.S. S.p.A. 47,575 443,468
S.A.I. S.p.A. 40,400 372,595
3,391,890
MULTI-INDUSTRY -0.77%
Montedison S.p.A.* 896,140 610,413
Pirelli S.p.A. 288,000 534,070
1,144,483
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-149
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C> <C>
RETAIL - SPECIATLY STORES - 0.18%
La Rinascente S.p.A. 45,000 $ 260,869
La Rinascente S.p.A. 11/30/1999 warrants 2,250 992
261,861
TELECOMMUNICATIONS - 3.64%
Telecom Italia S.p.A. 1,060,000 2,751,245
Telecomm Italia Mobile S.p.A. 1,060,000 2,677,925
5,429,170
TEXTILES & APPAREL - 0.24%
Benetton Group S.p.A. 28,800 364,078
UTILITIES - GAS & ELECTRIC - 0.41%
Italgas S.p.A. 150,000 625,987
TOTAL ITALIAN SECURITIES
(Identified Cost $16,430,885) 16,383,207
MEXICO - 2.26%
BEVERAGE & TOBACCO -0.77%
Coca-Cola Femsa S.A. 400,000 1,155,869
FOOD - PROCESSING - 0.90%
Grupo Industrial Maseca S.A. - Series B 1,075,000 1,348,830
REAL ESTATE - 0.06%
Grupo Situr S.A. - Series B* 1,575,000 83,839
RETAIL - DEPARTMENT STORES - 0.53%
Cifra, SA - Series B* 650,000 792,505
TOTAL MEXICAN SECURITIES
(Identified Cost $2,843,934) 3,381,043
SPAIN - 10.06%
BEVERAGE & TOBACCO - 0.12%
Tabacalera SA - A 4,266 183,722
CONSTRUCTION & HOUSING - 0.27%
Dragados & Construcciones SA 11,988 184,716
Fomento de Construcciones y Contratas SA 2,277 212,264
396,980
ENERGY SOURCES - OIL/GAS - 0.99%
Repsol SA 38,365 1,471,947
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-150
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<S> <C> <C>
FINANCIAL SERVICES - 2.62%
Banco Bilbao Vizcaya SA 28,290 $ 1,527,842
Banco Central Hispanoamericano SA 18,888 485,299
Banco Santander SA 18,728 1,199,002
Corp. Bancaria De Espana SA (Argentaria) 15,512 694,339
3,906,482
INSURANCE - 0.11%
Corporacion Mapfre 2,823 172,034
METAL - STEEL - 0.23%
Acerinox SA 2,343 338,636
MULTI-INDUSTRY - 0.28%
Autopistas Concesionaria Espanola SA 29,865 411,854
REAL ESTATE -0.03%
Inmobiliaria Metropolitana Vasco Central SA 1,128 41,496
TELECOMMUNICATIONS - 1.71%
Telefonica de Espana 110,009 2,555,307
UTILITIES - GAS & ELECTRIC - 3.70%
Empresa Nacional de Electridad (ENDESA) 29,210 2,079,367
Gas Natural SDG - E 4,993 1,161,706
Iberdrola SA 122,474 1,736,158
Union Electrica Fenosa SA 52,126 560,217
5,537,448
TOTAL SPANISH SECURITIES
(Identified Cost $9,477,871) 15,015,906
UNITED KINGDOM - 2.03%
MERCHANDISING - 2.03%
Tesco plc 500,000 3,036,293
TOTAL UNITED KINGDOM SECURITIES
(Identified Cost $2,210,889) 3,036,293
TOTAL COMMON STOCK
(Identified Cost $97,923,788) 127,774,959
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-151
Investment Portfolio - December 31, 1996
<TABLE>
<CAPTION>
Principal Value
Amount/Shares (Note 2)
<S> <C> <C>
SHORT-TERM INVESTMENTS - 12.96%
Federal Home Loan Mortgage Corp.
Discount Note, 1/17/97 $ 13,000,000 $ 12,969,204
Dreyfus U.S. Treasury Money Market 6,319,428 6,319,428
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $19,360,632) 19,360,632
TOTAL INVESTMENTS - 98.52%
(Identified Cost $117,284,420) 147,135,591
OTHER ASSETS, LESS LIABILITIES - 1.48% 2,195,758
NET ASSETS -100% $149,331,349
</TABLE>
*Non-income producing security.
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
<S> <C>
At December 31, 1996, the net unrealized appreciation based on identified cost for
federal income tax purposes of $117,425,442 was as follows:
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost $35,918,689
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value (6,208,540)
UNREALIZED APPRECIATION - NET $29,710,149
</TABLE>
The accompanying notes are an integral part of financial statements.
<PAGE> B-152
<TABLE>
<CAPTION>
INDUSTRY CONCENTRATION - DECEMBER 31, 1996
Percent
of Net Assets
<S> <C>
Utilities - Gas & Electric 9.09%
Automobiles 6.84%
Energy Sources 5.92%
Telecommunication 5.91%
Banking 5.44%
Insurance 5.16%
Merchandising 4.99%
Electrical & Electronics 4.88%
Multi-Industry 4.69%
Financial Services 4.30%
Machinery & Engineering 4.07%
Chemicals 3.78%
Health & Personal Care 3.30%
Beverage & Tobacco 3.09%
Materials & Commodities 2.03%
Retail 1.65%
Construction & Housing 1.47%
Business & Public Services 1.41%
Software 1.37%
Food & Household Products 1.27%
Textiles & Apparel 1.25%
Food Processing 0.90%
Building Materials & Components 0.85%
Industrial Components 0.54%
Leisure & Tourism 0.41%
Aerospace & Military Technology 0.31%
Metals-Steel 0.23%
Airlines 0.21%
Wholesale - Special Lines 0.11%
Real Estate 0.09%
TOTAL COMMON STOCK 85.56%
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-153
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
DECEMBER 31, 1996
<S> <C>
ASSETS:
Investments, at value (Identified Cost $117,284,420)(Note 2) $147,135,591
Foreign currency, at value (cost $2,135,706) 2,117,749
Receivable for forward foreign currency exchange
contracts sold (Note 2) 81,565,507
Receivable for securities sold 1,466,191
Foreign tax reclaims receivable 399,663
Receivable for fund shares sold 61,730
Dividends receivable 28,685
Prepaid expense 5,523
TOTAL ASSETS 232,780,639
LIABILITIES:
Accrued management fees (Note 3) 123,423
Accrued Directors' fees (Note 3) 1,661
Payable for forward foreign currency contracts sold,
at value (Note 2) 82,569,683
Payable for fund shares redeemed 686,948
Audit fee payable 28,966
Custodian fee payable 27,071
Other payables and accrued expenses 11,538
TOTAL LIABILITIES 83,449,290
NET ASSETS FOR 12,939,100 SHARES
OUTSTANDING $149,331,349
NET ASSETS CONSIST OF:
Capital stock $ 129,391
Additional paid-in-capital 117,447,753
Undistributed net investment income 110,482
Accumulated net realized gain on investments 2,811,395
Net unrealized appreciation on investments, foreign currency,
forward currency contracts, and other assets and liabilities 28,832,328
TOTAL NET ASSETS $149,331,349
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($149,331,349/12,939,100 shares) $ 11.54
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-154
Statement of Operations
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
<S> <C>
INVESTMENT INCOME:
Dividends (net of withholding) $ 2,559,888
Interest 956,585
Total Investment Income 3,516,473
EXPENSES:
Management fees (Note 3) 1,363,591
Directors' fees (Note 3) 6,750
Custodian fee 91,450
Audit fee 28,966
Registration and filing fees 11,034
Miscellaneous 23,263
Total Expenses 1,525,054
NET INVESTMENT INCOME 1,991,419
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on -
Investments (identified cost basis) 753,139
Foreign currency and forward foreign currency
exchange contracts 6,231,777
Net realized gain on investments 6,984,916
Net change in unrealized appreciation (depreciation) on-
Investments 19,506,468
Foreign currency and forward currency contracts and other
assets and liabilities (646,903)
Net unrealized appreciation on investments 18,859,565
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS 25,844,481
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $27,835,900
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-155
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Year For the Year
Ended 12/31/96 Ended 12/31/95
INCREASE (DECREASE) IN NET ASSETS:
<S> <C> <C>
OPERATIONS:
Net investment income $ 1,991,419 $ 1,544,241
Net realized gain (loss) on investments 6,984,916 (5,910,357)
Net change in unrealized appreciation on investments 18,859,565 8,433,964
Net increase in net assets from operations 27,835,900 4,067,848
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2):
From net investment income (1,821,116) (1,539,988)
From paid-in-capital -- (2,083,389)
From net realized gain on investment (241,966) (757,156)
Total distributions to shareholders (2,063,082) (4,380,533)
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase (decrease) from capital share
transactions (Note 5) (4,735,326) 42,642,060
Net increase in net assets 21,037,492 42,329,375
NET ASSETS:
Beginning of period 128,293,857 85,964,482
End of period (including undistributed net investment
income of $110,482 and $0, respectively) $ 149,331,349 $ 128,293,857
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> B-156
Financial Highlights
<TABLE>
<CAPTION>
For the Years Ended
12/31/96 12/31/95 12/31/94 12/31/93
<S> <C> <C> <C> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD):
NET ASSET VALUE - BEGINNING OF PERIOD $ 9.57 $ 9.54 $ 11.33 $ 9.19
Income from investment operations:
Net investment income 0.156 0.123 0.143 0.150
Net realized and unrealized gain (loss)
on investments 1.976 0.262 (1.784) 2.240
Total from investment operations 2.132 0.385 (1.641) 2.390
Less distributions to shareholders:
From net investment income (0.143) (0.118) -- (0.250)
From paid-in-capital -- (0.160) -- --
From net realized gain on investments (0.019) (0.077) (0.149) --
In excess of net realized gains -- -- -- --
Total distributions to shareholders (0.162) (0.355) (0.149) (0.250)
NET ASSET VALUE - END OF PERIOD $ 11.54 $ 9.57 $ 9.54 $ 11.33
Total return (2): 22.35% 4.14% (14.48)% 26.00%
Ratios of expenses (to average net assets) /Supplemental Data:
Expenses 1.12% 1.20% 1.18% 1.16%
Net investment income 1.46% 1.42% 1.38% 1.39%
Portfolio turnover 2% 14% 31% 20%
Average commission rate paid $ 0.0013 $ 0.0021 - -
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 149,331 $ 128,294 $ 85,964 $ 92,012
For the
Period 8/27/92
(commencement
of operations)
to 12/31/92
<S> <C>
PER SHARE DATA (FOR A SHARE OUTSTANDING THROUGHOUT
EACH PERIOD):
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.00
Income from investment operations:
Net investment income 0.030
Net realized and unrealized gain (loss)
on investments 0.570
Total from investment operations 0.600
Less distributions to shareholders:
From net investment income (0.030)
From paid-in-capital --
From net realized gain on investments (1.240)
In excess of net realized gains (0.140)(1)
Total distributions to shareholders (1.410)
NET ASSET VALUE - END OF PERIOD $ 9.19
Total return (2): 6.01%
Ratios of expenses (to average net assets) /Supplemental Data:
Expenses 1.33%(3)
Net investment income 0.85%(3)
Portfolio turnover 0%
Average commission rate paid -
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 72,163
</TABLE>
1 Distributions differ from net investment income and net realized capital
gains because of book/tax timing differences, due to the requirements of
the Internal Revenue Code.
2 Represents aggregate total return for the period indicated.
3 Annualized.
The accompanying notes are an integral part of the financial statements.
<PAGE> B-157
Notes to Financial Statements
1. ORGANIZATION
International Series (the "Fund") is a no-load non-diversified series of
Manning & Napier Fund, Inc. (the "Corporation"). The Corporation is
organized in Maryland and is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company.
Shares of the Fund are offered to clients and employees of Manning &
Napier Advisors, Inc. (The Advisor) and its affiliates. The total authorized
capital stock of the Corporation consists of one billion shares of common
stock each having a par value of $0.01. As of December 31, 1996, 940 million
shares have been designated in total among 19 series, of which 50 million
have been designated as International Series Class G Common Stock.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Portfolio securities, including domestic equities, foreign equities,
options and corporate bonds, listed on an exchange are valued at the last
quoted sales price of the exchange on which the security is primatily traded.
Securities not traded on valuation date or securities not listed on an
exchange are valued at the latest quoted bid price.
Debt securities, including government bonds and mortgage backed
securities, will normally be valued on the basis of evaluated bid prices.
Securities for which representative prices are not available from the
Fund's pricing service are valued at fair value as determined in good faith
by the Advisor under procedures established by and under the general
supervision of the Fund's Board of Directors.
Short-term investments that mature in sixty (60) days or less are valued
at amortized cost, which approximates market value.
SECURITY TRANSACTIONS, INVESTMENT INCOME AND EXPENSES
Security transactions are accounted for on the date the securities are
purchased or sold. Dividend income is recorded on the ex-dividend date.
Interest income and expenses are recorded on an accrual basis.
Most expenses of the Corporation can be attributed to a specific fund.
Expenses which cannot be directly attributed are apportioned among the funds
in the Corporation.
<PAGE> B-158
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
FEDERAL INCOME TAXES
The Fund's policy is to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies. The Fund is not
subject to federal income or excise tax to the extent the Fund distributes to
shareholders each year its taxable income, including any net realized gains
on investments in accordance with requirements of the Internal Revenue Code.
Accordingly, no provision for federal income tax or excise tax has been made
in the financial statements.
The Fund uses the identified cost method for determining realized gain or
loss on investments for both financial statement and federal income tax
reporting purposes.
DISTRIBUTION OF INCOME AND GAINS
Distributions to shareholders of net investment income are made annually.
Distributions are recorded on the ex-dividend date. Distributions of net
realized gains are distributed annually. An additional distribution may be
necessary to avoid taxation of the Fund.
The timing and characterization of certain income and capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. The differences may be a
result of deferral of certain losses, foreign denominated investments or
character reclassification between net income and net gains. As a result,
net investment income (loss) and net investment gain (loss) on investment
transactions for a reporting period may differ significantly from
distributions to shareholders during such period. As a result, the Fund may
periodically make reclassification among its capital accounts without
impacting the Fund's net asset value.
The Fund hereby designates $241,966 as capital gain dividends for the
year ended December 31, 1996.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars.
Foreign currency amounts are translated into U.S. dollars on the following
basis: a) investment securities, other assets and liabilities are converted
to U.S. dollars based upon current exchange rates; and b) purchase and sales
of securities and income and expenses are converted into U.S. dollars based
upon the currency exchange rates prevailing on the respective dates of such
transactions.
Gains and losses attributable to foreign currency exchange rates are
recorded for financial statement purposes as net realized gains and losses on
investments. The portion of both realized and unrealized gains and losses on
investment that result from fluctuations in foreign currency exchange rates
is not separately stated.
<PAGE> B-159
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Fund may purchase or sell forward foreign currency contracts in order
to hedge a portfolio position or specific transaction. Risks may arise if
the counterparties to a contract are unable to meet the terms of the contract
or if the value of the foreign currency moves unfavorably.
All forward foreign currency contracts are adjusted daily by the exchange
rate of the underlying currency and, for financial statement purposes, any
gain or loss is recorded as unrealized gain or loss until a contract has been
closed. Realized and unrealized gain or loss arising from a transaction is
included in net realized and unrealized gain (loss) from foreign currency and
forward currency exchange contracts.
The Fund regularly trades forward foreign currency exchange contracts
with off-balance sheet risk in the normal course of its investing activities
to assist in managing exposure to changes in foreign currency exchange rates.
The notional or contractual amount of these instruments represents the
investment the Fund has in forward foreign currency exchange contracts and
does not necessarily represent the amounts potentially at risk. The
measurement of the risks associated with forward foreign currency exchange
contracts is meaningful only when all related and offsetting transactions are
considered. A summary of obligations for forward currency exchange contracts
sold on December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Net Unrealized
Settlement Contracts In Exchange Contracts Appreciation/
Date to Deliver For At Value (Depreciation)
<C> <S> <C> <C> <C>
01/27/97 Deutsche Marks $ 41,176,092 $ 41,657,216 $ (481,124)
01/27/97 French Francs $ 40,389,415 $ 40,912,467 $ (523,052)
</TABLE>
On December 31, 1996, the Fund had sufficient cash and/or securities to
cover any commitments under there contracts.
OTHER
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of the revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
<PAGE> B-160
Notes to Financial Statements
3. TRANSACTIONS WITH AFFILIATES
The Fund has an investment advisory agreement with Manning & Napier
Advisors, Inc. (the "Advisor"), for which the Fund pays the Advisor a fee,
computed daily and payable monthly, at an annual rate of 1% of the Fund's
average daily net assets. The fee amounted to $1,363,591 for the year ended
December 31, 1996.
Under the Fund's Investment Advisory Agreement (the "Agreement"),
personnel of the Advisor provide the Fund with advice and assistance in the
choice of investments and the execution of securities transactions, and
otherwise maintain the Fund's organization. The Advisor also provides the
Fund with necessary office space and portfolio accounting and bookkeeping
services. The salaries of all officers of the Fund and of all Directors who
are "affiliated persons" of the Fund or of the Advisor, and all personnel of
the Fund or of the Advisor performing services relating to research,
statistical and investment activities are paid by the Advisor.
The Advisor has agreed that, in any fiscal year, if the expenses of the
Fund (including the advisory fee but excluding interest, taxes, brokerage
commissions, and extraordinary expenses) exceed the limits set by applicable
regulation of state securities commissions, the Advisor will reduce its fee
by the amount of such excess.
The Advisor also acts as the transfer, dividend paying and shareholder
servicing agent for the Fund. These services are provided at no additional
cost to the Fund.
Manning & Napier Investor Services, Inc., a registered broker-dealer
affiliate of the Advisor, acts as distributor for the Fund's shares. The
services of Manning & Napier Investor Services, Inc. are provided at no
additional cost to the Fund.
The compensation of the non-affiliated Directors totaled $6,750 for the
year ended December 31, 1996.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term securities, were
$10,853,674 and $2,647,901, respectively, for the year ended December 31,
1996.
<PAGE> B-161
Notes to Financial Statements
5. CAPITAL STOCK TRANSACTIONS
Transactions in shares of International Series were:
<TABLE>
<CAPTION>
For the Year For the Year
Ended 12/31/96 Ended 12/31/95
<S> <C> <C> <C> <C>
Shares Amount Shares Amount
--------------- ------------- --------------- ------------
Sold 1,645,694 $ 17,300,172 4,223,049 $41,054,909
Reinvested 184,488 2,044,126 460,661 4,327,528
Repurchased (2,297,367) (24,079,624) (287,048) (2,740,377)
Total (467,185) $ (4,735,326) 4,396,662 $42,642,060
</TABLE>
6. FOREIGN SECURITIES
Investing in securities of foreign companies and foreign governments
involves special risks and considerations not typically associated with
investing in securities of U.S. companies and the United States government.
These risks include revaluation of currencies and future adverse political
and economic developments. Moreover, securities of many foreign companies
and foreign governments and their markets may be less liquid and their prices
more volatile than of those securities of comparable U.S. companies and the
United States government.
<PAGE> B-162
Independent Auditors' Report
TO THE SHAREHOLDERS AND DIRECTORS OF
MANNING & NAPIER FUND, INC.- INTERNATIONAL SERIES:
We have audited the accompanying statement of assets and liabilities of
Manning & Napier Fund, Inc.- International Series, including the schedule of
portfolio investments, as of December 31, 1996, and the related statement of
operations for the year then ended, the statement of changes in net assets
for each of the two years in the period then ended and the financial
highlights for each of the periods indicated in the financial highlights
table herein. These financial statements and financial highlights are the
responsibility of the Funds management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 1996 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of the Manning & Napier Fund, Inc.- International Series as of
December 31, 1996, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended
and the financial highlights for each of the periods indicated in the
financial highlights table herein in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
BOSTON, MASSACHUSETTS
JANUARY 23, 1997
December 6, 1996
To Shareholders of the following Series of the Manning & Napier Fund:
Defensive Series
Blended Asset Series I
Blended Asset Series II
Maximum Horizon Series
Flexible Yield Series I, II, and III
Tax Managed Series
Dear Shareholder:
Enclosed is a copy of an updated prospectus for each of the above Series of
the Manning & Napier Fund in which you are currently invested.
Also enclosed are copies of the Annual Reports for each of these Series in
which you were invested as of October 31, 1996. The reports include
information about the Series performance as well as portfolio listings as of
that date.
Because the fiscal year of the Blended Asset Series I and II and all three
Flexible Yield Series were changed to a fiscal year ending October 31, the
Annual Reports for these Series include information for ten months, the period
since the last Annual Reports, rather than for the full twelve months.
Please contact our Fund Services department at 1-800-4MN-FUND (1-800-466-3863)
or your Client Consultant if you have any questions about the enclosures or
about the Fund.
Sincerely,
/s/ Amy J. Williams
Amy J. Williams
Fund Services Coordinator
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
Blended Asset Series I
Annual Report
October 31, 1996
<PAGE>
Management Discussion and Analysis
Dear Shareholders:
Since we last reported to you six months ago, the markets have again exhibited
the upward and downward swings akin to the later stages of economic and market
cycles. Midway through this period we saw the Dow Jones Industrial Average
take a considerable dive, only to end this semi-annual reporting cycle above
the record-breaking 6000 mark. Likewise, the 30-year U.S. Treasury yield rose
to over 7% during this period, but bonds recovered nicely by the end of
October. However, as we have anticipated thus far, economic growth has
remained moderate and inflation has remained in check, allowing us to take
advantage of the buying opportunities that present themselves.
These gyrations were caused by overreaction to short-term economic data. Much
as happened in March of this year, the news again raised fears of higher
inflation and sent the Dow Jones Industrial Average plunging down 115 points
on July 5th in what was only a half-day of trading due to the holiday. Bonds
followed suit with the yield on the 30-year U.S. Treasury surging 25
basis-points. Many were left wondering whether the Federal Reserve Board
would raise the Fed Funds rate. However, additional evidence throughout the
summer that inflation and economic growth are under control led the Fed to
again leave rates unchanged when they met during the last week of September.
As we continue to adhere to our long-term overview for low inflation and lower
interest rates, the July 5th correction created a buying opportunity in which
we were able to lengthen the maturity of the bonds in the portfolio and move
into equity sectors where valuations proved attractive. The stock portion of
the portfolio has continued emphasis in small ticket consumer stocks which we
believe have been branded with the same iron as more cyclical consumer stocks,
thus creating a buying opportunity. In addition, we have increased our
exposure to the health care sector as valuations in that area have proved
attractive as well.
1
<PAGE>
Management Discussion and Analysis (continued)
At a time when market valuations in
general are high and the bull market is aging, it is important to be
discriminating about the levels of risk acceptable in funds with different
tolerances for volatility. Your Series places a high priority on dampening
market volatility, so even though we see a number of long-term positives in
0he investment picture, we must be sensitive to the possibility of cyclical
disruptions. With valuations currently very high, you should expect this
Series to be conservatively positioned, and indeed, that is the case. As we
continue to move through this mature bull market, we will hold fast to our
disciplines of attempting to identify stocks of companies with strong
strategic positioning in their industry at attractive valuations versus
long-term U.S. Treasury bonds.
We wish you and yours all the best during this holiday season.
Sincerely,
Manning & Napier Advisors, Inc.
[GRAPHIC]
[Pie Chart]
Asset Allocation - As of 10/31/96
Bonds - 66%
Stocks - 20%
Cash & Equivalents - 14%
2
<PAGE>
Performance Update as of October 31, 1996
The value of a $10,000 investment in the Manning & Napier Fund, Inc. - Blended
Asset Series I from its inception (9/15/93) to present (10/31/96) as compared
to the Lehman Brothers Intermediate Bond Index and a Balanced Index. 1
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc. - Blended Asset Series I
Total Return
Growth of
Through $10,000 Average
10/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 10,837 8.37% 8.37%
Inception 2 $ 12,806 28.06% 8.22%
</TABLE>
<TABLE>
<CAPTION>
Lehman Brothers Intermediate Bond Index
Total Return
Growth of
Through $10,000 Average
10/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 10,581 5.81% 5.81%
Inception 2 $ 11,728 17.28% 5.22%
</TABLE>
<TABLE>
<CAPTION>
Balanced Index
Total Return
Growth of
Through $10,000 Average
10/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 11,115 11.15% 11.15%
Inception 2 $ 13,040 30.40% 8.85%
</TABLE>
1 The Lehman Brothers Intermediate Bond Index is a market value weighted
measure of approximately 3,425 corporate and government securities. The
Index is comprised of investment grade securities with maturities greater than
one year but less than ten years. The Balanced Index is 30% Standard & Poor's
(S&P) 500 Total Return Index and 70% Lehman Brothers Intermediate Bond
Index. The S&P 500 Total Return Index is an unmanaged capitalization-
weighted measure of 500 widely held common stocks listed on the New York
Stock Exchange, American Stock Exchange, and Over-the-Counter market.
Both Indices' returns assume reinvestment of income and, unlike Fund returns,
do not reflect any fees or expenses.
2 Performance numbers for the Fund and Indices are calculated from
September 15, 1993, the Fund's inception date. The Fund's performance is
historical and may not be indicative of future results.
[GRAPHIC]
LINE CHART
Data for Line Chart to follow:
<TABLE>
<CAPTION>
Manning & Napier Lehman Brothers Balanced
Blended Asset Series I Intermediate Bond Index Index
<S> <C> <C> <C>
09/15/93 $ 10,000 $ 10,000 $ 10,000
12/31/93 10,092 10,032 10,081
06/30/94 9,671 9,770 9,795
12/31/94 10,012 9,838 9,986
06/30/95 11,578 10,783 11,256
12/31/95 12,123 11,347 12,151
04/30/96 12,292 11,213 12,303
10/31/96 12,806 11,728 13,040
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO - OCTOBER 31, 1996
VALUE
SHARES (NOTE 2)
<S> <C> <C>
COMMON STOCK - 20.10%
AIR TRANSPORTATION- 2.19%
Federal Express Corp.* 4,850 $390,425
APPAREL- 2.47%
VF Corp. 6,725 439,647
CHEMICALS & ALLIED PRODUCTS- 0.06%
Varitronix International Ltd. (Note 7) 6,000 10,941
COMMUNICATIONS- 2.42%
Stet Societa' Finanziaria Telefonica S.p.A. - ADR 4,975 172,259
Telefonica de Espana - ADR 4,300 259,075
---------
431,334
---------
COMPUTER EQUIPMENT- 0.12%
Cisco Systems, Inc.* 200 12,375
Digital Equipment Corp.* 300 8,850
---------
21,225
---------
ELECTROMEDICAL APPARATUS- 1.79%
Nellcor Puritan Bennett, Inc.* 16,300 317,850
ELECTRONICS & ELECTRICAL EQUIPMENT- 0.92%
SEMICONDUCTOR- 0.14%
Altera Corp.* 250 15,500
Texas Instruments, Inc. 200 9,625
---------
25,125
---------
TELECOMMUNICATIONS EQUIPMENT- 0.78%
ADC Telecommunications, Inc.* 150 10,256
BroadBand Technologies, Inc.* 1,050 18,769
DSC Communications Corp.* 325 4,509
ECI Telecommunications, Ltd. 625 12,500
General Instrument Corp.* 3,875 77,984
Northern Telecom Ltd. 225 14,653
---------
138,671
---------
163,796
---------
ENGINEERING SERVICES- 0.47%
Jacobs Engineering Group, Inc.* 3,775 83,522
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO - OCTOBER 31, 1996
VALUE
SHARES (NOTE 2)
<S> <C> <C>
FABRICATED METAL PRODUCTS- 0.19%
Keystone International, Inc. 875 $ 15,750
Material Sciences Corp.* 1,175 17,919
---------
33,669
---------
FOOD & BEVERAGES- 0.03%
Canandaigua Wine Co., Inc. - Class A* 250 5,625
GLASS PRODUCTS- 0.06%
Libbey, Inc. 425 10,200
HEALTH SERVICES- 1.55%
MedPartners, Inc.* 12,276 259,331
RehabCare Group, Inc.* 800 14,300
U.S. Physical Therapy, Inc.* 225 2,081
---------
275,712
---------
HOLDING COMPANIES - 0.02%
Ek Chor China Motorcycle Co. Ltd. 500 2,938
INFORMATION RETRIEVAL SERVICES- 0.02%
America OnLine, Inc.* 125 3,391
PLASTIC PRODUCTS- 0.03%
Sun Coast Industries, Inc.* 1,525 5,909
PRIMARY METAL INDUSTRIES- 0.17%
American Superconductor Corp.* 875 10,828
Gibraltar Steel Corp.* 775 18,794
---------
29,622
---------
PRINTING & PUBLISHING - 0.04%
Playboy Enterprises, Inc. - Class A* 225 2,700
Playboy Enterprises, Inc. - Class B* 300 3,600
6,300
RESTAURANTS- 0.78%
McDonald's Corp. 2,775 123,141
Morton's Restaurant Group, Inc.* 1,025 15,759
---------
138,900
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO - OCTOBER 31, 1996
VALUE
SHARES (NOTE 2)
<S> <C> <C>
RETAIL- 4.98%
RETAIL - HOME FURNISHING STORES- 0.10%
Pier 1 Imports, Inc. 1,238 17,332
RETAIL - SHOE STORES- 0.11%
Brown Group, Inc. 950 19,594
RETAIL - SPECIALTY STORES- 4.58%
Fabri-Centers of America - Class A* 8,250 107,250
Fabri-Centers of America - Class B* 7,250 94,250
Fingerhut Companies, Inc. 18,475 274,816
Hancock Fabrics, Inc. 10,525 89,463
Tandy Corp. 6,625 249,266
----------
815,045
----------
RETAIL - VARIETY STORES- 0.09%
Family Dollar Stores, Inc. 975 16,575
RETAIL - WHOLESALE- 0.10%
Coleman Company, Inc.* 1,300 17,225
885,771
SOFTWARE- 0.43%
Electronic Arts, Inc.* 725 27,188
Founder Hong Kong Ltd.* (Note 7) 18,000 6,984
Informix Corp.* 425 9,430
Microsoft Corp.* 100 13,725
Parametric Technology Corp.* 150 7,331
Symantec Corp.* 1,175 12,778
----------
77,436
----------
TECHNICAL INSTRUMENTS & SUPPLIES- 1.36%
PHOTOGRAPHIC EQUIPMENT & SUPPLIES - 1.32%
Eastman Kodak Co. 2,950 235,261
SURGICAL & MEDICAL INSTRUMENTS - 0.04%
Allied Healthcare Products, Inc.* 1,100 7,424
242,685
TOTAL COMMON STOCK
(Identified Cost $3,403,092) 3,576,898
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO - OCTOBER 31, 1996
PRINCIPAL VALUE
AMOUNT (NOTE 2)
<S> <C> <C>
U.S. TREASURY SECURITIES - 65.42%
U.S. TREASURY BONDS - 19.75%
U.S. Treasury Bond, 7.25%, 5/15/2016 $ 45,000 $ 47,475
U.S. Treasury Bond, 7.25%, 8/15/2022 555,000 587,259
U.S. Treasury Bond, 7.50%, 11/15/2024 2,625,000 2,880,116
------------
TOTAL U.S. TREASURY BONDS 3,514,850
------------
(Identified Cost $3,361,358)
U.S. TREASURY NOTES - 45.67%
U.S. Treasury Note, 5.875%, 4/30/1998 3,640,000 3,651,375
U.S. Treasury Note, 5.125%, 12/31/1998 595,000 586,819
U.S. Treasury Note, 6.875%, 8/31/1999 450,000 461,162
U.S. Treasury Note, 7.75%, 12/31/1999 20,000 21,013
U.S. Treasury Note, 6.625%, 7/31/2001 3,335,000 3,406,259
------------
TOTAL U.S. TREASURY NOTES
(Identified Cost $8,067,272) 8,126,628
------------
TOTAL U.S. TREASURY SECURITIES
(Identified Cost $11,428,630) 11,641,478
U.S. GOVERNMENT AGENCIES - 0.76%
MORTGAGE BACKED SECURITIES
GNMA POOL#174225, 9.50%, 8/15/2016 5,293 5,709
GNMA POOL#286310, 9.00%, 2/15/2020 42,520 44,939
GNMA POOL#385753, 9.00%, 7/15/2024 80,601 85,186
------------
TOTAL U.S. GOVERNMENT AGENCIES
(Identified Cost $134,042 ) 135,834
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO - OCTOBER 31, 1996
Principal Amount/ Value
Shares (NOTE 2)
<S> <C> <C>
SHORT-TERM INVESTMENTS - 4.16%
U.S. Treasury Bill, 11/29/1996 $ 1,600,000 $ 1,594,008
Dreyfus U.S. Treasury Money Market Reserves 739,029 739,029
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $2,333,037) 2,333,037
------------
TOTAL INVESTMENTS - 99.40%
(Identified Cost $17,298,801) 17,687,247
------------
OTHER ASSETS, LESS LIABILITIES - 0.60% 106,261
NET ASSETS - 100% $17,793,508
------------
</TABLE>
*Non-income producing security.
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
At October 31, 1996, the net unrealized appreciation based on identified cost for
federal income tax purposes of $17,305,735 was as follows:
<S> <C>
Aggregate gross unrealized appreciation for all
investments in which there was an excess of value over
tax cost $ 553,706
Aggregate gross unrealized depreciation for all
investments in which there was an excess of tax cost
over value (172,194)
UNREALIZED APPRECIATION - NET $ 381,512
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
OCTOBER 31, 1996
<S> <C>
ASSETS:
Investments, at value (Identified Cost $17,298,801)(Note 2) $17,687,247
Interest receivable 174,470
Dividends receivable 739
TOTAL ASSETS 17,862,456
LIABILITIES:
Accrued management fees (Note 3) 18,484
Accrued Directors' fees (Note 3) 1,648
Transfer agent fees payable (Note 3) 345
Payable for fund shares redeemed 35,728
Audit fee payable 10,750
Other payables and accrued expenses 1,993
TOTAL LIABILITIES 68,948
NET ASSETS FOR 1,588,453 SHARES OUTSTANDING $17,793,508
NET ASSETS CONSIST OF:
Capital stock $ 15,885
Additional paid-in-capital 16,776,541
Undistributed net investment income 319,657
Accumulated net realized gain on investments 292,979
Net unrealized appreciation on investments 388,446
TOTAL NET ASSETS $17,793,508
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($17,793,508/1,588,453 shares) $ 11.20
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations
For the Ten For the
Months Year
Ended Ended
10/31/96 12/31/95
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 555,989 $ 294,411
Dividends 41,029 44,454
Total Investment Income 597,018 338,865
EXPENSES:
Management fees (Note 3) 121,924 69,950
Directors' fees (Note 3) 5,071 6,875
Transfer agent fees (Note 3) 2,926 1,679
Audit fee 12,450 14,625
Custodian fee 6,540 7,480
Registration & filing fees 7,497 6,384
Miscellaneous 3,561 354
Total Expenses 159,969 107,347
Less Waiver of Expenses (Note 3) (13,439) (23,407)
Net Expenses 146,530 83,940
NET INVESTMENT INCOME 450,488 254,925
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Net realized gain on investments (identified cost basis) 299,745 608,702
Net change in unrealized appreciation on investments 105,808 341,625
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS 405,553 950,327
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 856,041 $1,205,252
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
For the Ten For the Year For the Year
Months Ended Ended Ended
10/31/96 12/31/95 12/31/94
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
<S> <C> <C> <C>
Net investment income $ 450,488 $ 254,925 $ 88,876
Net realized gain on investments 299,745 608,702 18,293
Net change in unrealized appreciation on investments 105,808 341,625 (59,823)
Net increase in net assets from operations 856,041 1,205,252 47,346
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (130,831) (254,925) (88,431)
In excess of net investment income - (3,886) -
From net realized gain on investments (39,818) (564,923) (18,074)
In excess of net realized gain - - (3,332)
Total distributions to shareholders (170,649) (823,734) (109,837)
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase in net assets from capital share
transactions (Note 5) 7,589,621 4,617,621 4,106,508
Net increase in net assets 8,275,013 4,999,139 4,044,017
NET ASSETS:
Beginning of period 9,518,495 4,519,356 475,339
End of period (including undistributed net investment
income of $319,657, $0, and $665 respectively) $ 17,793,508 $ 9,518,495 $ 4,519,356
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
For the Period
9/15/93
For the Ten For the Year For the Year (commencement
Months Ended Ended Ended of operations) to
10/31/96 12/31/95 12/31/94 12/31/93
Per share data (for a share outstanding throughout
each period):
<S> <C> <C> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.72 $ 9.72 $ 10.05 $ 10.00
Income from investment operations:
Net investment income 0.293 0.342 0.200 0.045
Net realized and unrealized gain (loss)
on investments 0.307 1.698 (0.280) 0.045
Total from investment operations 0.600 2.040 (0.080) 0.090
Less distributions to shareholders:
From net investment income (0.092) (0.342) (0.203) (0.040)
In excess of net investment income - (0.005) - -
From net realized gain on investments (0.028) (0.693) (0.040) -
In excess of net realized gain - - (0.007) -
Total distributions to shareholders (0.120) (1.040) (0.250) (0.040)
NET ASSET VALUE - END OF PERIOD $ 11.20 $ 10.72 $ 9.72 $ 10.05
Total return1 5.64% 21.08% (0.80%) 0.93%
Ratios (to average net assets) / Supplemental Data:
Expenses 1.20%2** 1.20%** 1.20%* 1.20%2*
Net investment income 3.69%2** 3.64%** 3.40%* 2.47%2*
Portfolio turnover 85% 72% 45% 1%
Average commission rate paid $ 0.0515 $ 0.0689 - -
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 17,794 $ 9,518 $ 4,519 $ 475
*The investment advisor did not impose its management fee and paid a portion of the Fund's expenses. If these
expenses had been incurred by the Fund, expenses would have been limited to that allowed by state securities law.
** The investment advisor waived a portion of its management fee.
If the full expenses had been incurred by the Fund in either instance above, the net investment income per share and
the ratios would be as follows:
Net investment income $ 0.284 $ 0.311 $ 0.124 $ 0.021
Ratios (to average net assets):
Expenses 1.31%2 1.53% 2.50% 2.50%2
Net investment income 3.58%2 3.31% 2.10% 1.17%2
1 Represents aggregate total return for the period indicated
2 Annualized
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
Notes to Financial Statements
1. ORGANIZATION
Blended Asset Series I (the "Fund") is a no-load diversified series of
Manning & Napier Fund, Inc. (the "Corporation"). The Corporation is
organized as a Maryland Corporation and is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment
company.
The total authorized capital stock of the Corporation consists of one
billion shares of common stock each having a par value of $0.01. As of
October 31, 1996, 940 million shares have been designated in total among 19
series, of which 50 million have been designated as Blended Asset Series I
Class K Common Stock.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Portfolio securities, including domestic equities, foreign equities,
options and corporate bonds, listed on an exchange are valued at the latest
quoted sales price of the exchange on which the security is traded most
extensively. Securities not traded on valuation date or securities not
listed on an exchange are valued at the latest quoted bid price.
Debt securities, including government bonds and mortgage backed
securities, will normally be valued on the basis of evaluated bid prices.
Securities for which representative prices are not available from the
Fund's pricing service are valued at fair value as determined in good faith
by the Advisor under procedures established by and under the general
supervision and responsibility of the Fund's Board of Directors.
Short-term investments that mature in sixty (60) days or less are valued
at amortized cost.
SECURITY TRANSACTIONS, INVESTMENT INCOME AND EXPENSES
Security transactions are accounted for on the date the securities are
purchased or sold. Dividend income is recorded on the ex-dividend date.
Interest income and expenses are recorded on an accrual basis.
Most expenses of the Corporation can be attributed to a specific fund.
Expenses which cannot be directly attributed are apportioned among the funds
in the Corporation.
13
<PAGE>
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
FEDERAL INCOME TAXES
The Fund's policy is to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies. The Fund is not
subject to federal income or excise tax to the extent the Fund distributes to
shareholders each year its taxable income, including any net realized gains
on investments in accordance with requirements of the Internal Revenue Code.
Accordingly, no provision for federal income tax or excise tax has been made
in the financial statements.
The Fund uses the identified cost method for determining realized gain or
loss on investments for both financial statement and federal income tax
reporting purposes.
DISTRIBUTION OF INCOME AND GAINS
Distributions to shareholders of net investment income are made
semi-annually. Distributions are recorded on the ex-dividend date.
Distributions of net realized gains are distributed annually. An additional
distribution may be necessary to avoid taxation of the Fund.
The timing and characterization of certain income and capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. The differences may be a
result of deferral of certain losses, foreign denominated investments, or
character reclassification between net income and net gains. As a result,
net investment income (loss) and net investment gain (loss) on investment
transactions for a reporting period may differ significantly from
distributions to shareholders during such period. As a result, the Fund may
periodically make reclassifications among its capital accounts without
impacting the Fund's net asset value.
The Fund hereby designates $19,854 as capital gain dividends for the
period ended October 31, 1996.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars.
Foreign currency amounts are translated into U.S. dollars on the following
basis: a) investment securities, other assets and liabilities are converted
to U.S. dollars based upon current exchange rates; and b) purchases and sales
of securities and income and expenses are converted into U.S. dollars based
upon the currency exchange rates prevailing on the respective dates of such
transactions.
14
<PAGE>
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
FOREIGN CURRENCY TRANSLATION (continued)
Gains and losses attributable to foreign currency exchange rates are
recorded for financial statement purposes as net realized gains and losses on
investments. The portion of both realized and unrealized gains and losses on
investments that result from fluctuations in foreign currency exchange rates
is not separately stated.
OTHER
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. TRANSACTIONS WITH AFFILIATES
The Fund has an investment advisory agreement with Manning & Napier
Advisors, Inc. (the "Advisor"), for which the Fund pays the Advisor a fee,
computed daily and payable monthly, at an annual rate of 1.0% of the Fund's
average daily net assets. The fee amounted to $121,924 for the ten months
ended October 31, 1996 and $69,950 for the year ended December 31, 1995.
Under the Fund's Investment Advisory Agreement (the "Agreement"),
personnel of the Advisor provide the Fund with advice and assistance in the
choice of investments and the execution of securities transactions, and
otherwise maintain the Fund's organization. The Advisor also provides the
Fund with necessary office space and portfolio accounting and bookkeeping
services. The salaries of all officers of the Fund and of all Directors who
are "affiliated persons" of the Fund or of the Advisor, and all personnel of
the Fund or of the Advisor performing services relating to research,
statistical and investment activities are paid by the Advisor.
The Advisor has voluntarily agreed to waive its fee and, if necessary,
pay other expenses of the Fund in order to maintain total expenses for the
Fund at no more than 1.20% of average daily net assets each year.
Accordingly, the Advisor waived fees of $13,439 for the ten months ended
October 31, 1996 and $23,407 for the year ended December 31, 1995, which are
reflected as a reduction of expenses on the Statement of Operations. The fee
waiver and assumption of expenses by the Advisor is voluntary and may be
terminated at any time.
The Advisor also acts as the transfer, dividend paying and shareholder
servicing agent for the Fund. For these services, the Fund pays a fee which
is calculated as a percentage of the average daily net assets at an annual
rate of 0.024%; this fee amounted to $2,926 for the ten months ended October
31, 1996 and $1,679 for the year ended December 31, 1995.
15
<PAGE>
Notes to Financial Statements
2. TRANSACTIONS WITH AFFILIATES (continued)
Manning & Napier Investor Services, Inc., a registered broker-dealer
affiliate of the Advisor, acts as distributor for the Fund's shares. The
services of Manning & Napier Investor Services, Inc. are provided at no
additional cost to the Fund.
The compensation of the non-affiliated Directors totaled $5,071 for the
ten months ended October 31, 1996 and $6,875 for the year ended December 31,
1995.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term securities, were
$17,340,767 and $11,470,757, respectively, for the ten months ended October
31, 1996.
5. CAPITAL STOCK TRANSACTIONS
Transactions in shares of Blended Asset Series I Class K Common Stock
were:
<TABLE>
<CAPTION>
For the Ten For the Year For the Year
Months Ended Ended Ended
10/31/96 12/31/95 12/31/94
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Sold 940,658 $10,210,779 406,586 $4,437,737 481,619 $4,726,025
Reinvested 15,624 169,059 75,731 811,707 11,251 109,832
Repurchased (255,975) (2,790,217) (58,913) (631,823) (75,443) (729,349)
Total 700,307 $ 7,589,621 423,404 $4,617,621 417,427 $4,106,508
</TABLE>
6. FINANCIAL INSTRUMENTS
The Fund may trade in financial instruments with off-balance sheet risk
in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include written
options, forward foreign currency exchange contracts, and futures contracts
and may involve, to a varying degree, elements of risk in excess of the
amounts recognized for financial statement purposes. No such investments were
held by the Fund on October 31, 1996.
16
<PAGE>
Notes to Financial Statements
7. FOREIGN SECURITIES
Investing in securities of foreign companies and foreign governments
involves special risks and considerations not typically associated with
investing in securities of U.S. companies and the United States government.
These risks include revaluation of currencies and potential adverse political
and economic developments. Moreover, securities of many foreign companies and
foreign governments and their markets may be less liquid and their prices more
volatile than those of securities of comparable U.S. companies and the United
States government.
8. CHANGE IN FISCAL YEAR END
Effective January 1, 1996, the Fund changed its fiscal year end from
December 31 to October 31.
17
<PAGE>
Independent Auditors' Report
TO THE DIRECTORS OF MANNING & NAPIER FUND, INC.
AND SHAREHOLDERS OF BLENDED ASSET SERIES I:
We have audited the accompanying statement of assets and liabilities,
including the investment portfolio, of Blended Asset Series I (one of the
series constituting Manning & Napier Fund, Inc.) as of October 31, 1996, the
related statement of operations for the ten months then ended and the year
ended December 31, 1995, the statement of changes in net assets for the ten
months ended October 31, 1996 and the years ended December 31, 1995 and 1994,
and the financial highlights for each of the periods indicated in the
financial highlights table herein. These financial statements and financial
highlights are the responsibility of the Funds management. Our responsibility
is to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of investments owned at October 31, 1996 by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of Blended
Asset Series I at October 31, 1996, the results of its operations, the changes
in its net assets and its financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
November 19, 1996
18
<PAGE>
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
Blended Asset Series II
Annual Report
October 31, 1996
<PAGE>
Management Discussion and Analysis
Dear Shareholders:
Since we last reported to you six months ago, the markets have again
exhibited the upward and downward swings akin to the later stages of economic
and market cycles. Midway through this period we saw the Dow Jones Industrial
Average take a considerable dive, only to end this semi-annual reporting cycle
above the record-breaking 6000 mark. Likewise, the 30-year U.S. Treasury
yield rose to over 7% during this period, but bonds recovered nicely by the
end of October. However, as we have anticipated thus far, economic growth has
remained moderate and inflation has remained in check, allowing us to take
advantage of the buying opportunities that present themselves.
These gyrations were caused by overreaction to short-term economic data.
Much as happened in March of this year, the news again raised fears of higher
inflation and sent the Dow Jones Industrial Average plunging down 115 points
on July 5th in what was only a half-day of trading due to the holiday. Bonds
followed suit with the yield on the 30-year U.S. Treasury surging 25
basis-points. Many were left wondering whether the Federal Reserve Board
would raise the Fed Funds rate. However, additional evidence throughout the
summer that inflation and economic growth are under control led the Fed to
again leave rates unchanged when they met during the last week of September.
As we continue to adhere to our long-term overview for low inflation and
lower interest rates, the July 5th correction created a buying opportunity in
which we were able to lengthen the maturity of the bonds in the portfolio and
move into equity sectors where valuations proved attractive. We boosted our
exposure to the technology sector, which was the hardest hit by the July
decline, and semiconductor stocks wound up posting the largest gains of any
sector during the third quarter of this year. The stock portion of the
portfolio has continued emphasis in small ticket consumer stocks which we
believe have been branded with the same iron as more cyclical consumer stocks,
thus creating a buying opportunity. In addition, we have increased our
exposure to the health care sector as valuations in that area have proved
attractive as well.
1
<page
Management Discussion and Analysis (continued)
At a time when market valuations in general are high and the bull market
is aging, it is important to be discriminating about the levels of risk
acceptable in funds with different tolerances for volatility. While this
Series has asset allocation discretion, it is designed to place greater
emphasis on growth than on dampening volatility. As a result, even though
high market valuations bring the threat of cyclical volatility, the series
remains fairly heavily invested because, a) we are able to find individual
securities at more attractive valuations than the market as a whole, and b)
looking past the immediate cycle, we see long-term positive trends that should
help the market. As we continue to move through this mature bull market, we
will hold fast to our disciplines of attempting to identify stocks of
companies with strong strategic positioning in their industry at attractive
valuations versus long-term U.S. Treasury bonds.
We wish you and yours all the best during this holiday season.
Sincerely,
Manning & Napier Advisors, Inc.
[GRAPHIC]
[Pie Chart]
Asset Allocation - As of 10/31/96
Stocks - 50%
Bonds - 38%
Cash & Equivalents - 12%
2
<PAGE>
Performance Update as of October 31, 1996
The value of a $10,000 investment in the Manning & Napier Fund, Inc. -
Blended Asset Series II from its inception (10/12/93) to present (10/31/96) as
compared to the Lehman Brothers Intermediate Bond Index and a Balanced Index.
1
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc. - Blended Asset Series II
Total Return
Growth of
Through $10,000 Average
10/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 11,589 15.89% 15.89%
Inception 2 $ 15,078 50.78% 14.38%
</TABLE>
<TABLE>
<CAPTION>
Lehman Brothers Intermediate Bond Index
Total Return
Growth of
Through $10,000 Average
10/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 10,581 5.81% 5.81%
Inception 2 $ 11,639 16.39% 5.09%
</TABLE>
<TABLE>
<CAPTION>
Balanced Index
Total Return
Growth of
Through $10,000 Average
10/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 11,478 14.78% 14.78%
Inception 2 $ 13,978 39.78% 11.58%
</TABLE>
1 The Lehman Brothers Intermediate Bond Index is a market value weighted
measure of approximately 3,425 corporate and government securities. The Index
is comprised of investment grade securities with maturities greater than one
year but less than ten years. The Balanced Index is 50% Standard & Poor's
(S&P) 500 Total Return Index and 50% Lehman Brothers Aggregate Bond Index. The
S&P 500 Total Return Index is an unmanaged capitalization-weighted measure of
500 widely held common stocks listed on the New York Stock Exchange, American
Stock Exchange, and Over-the-Counter market. The Lehman Brothers
Aggregate Bond Index is a market value weighted measure of approximately
5,570 corporate, government, and mortgage backed securities. The Index is
comprised of investment grade securities with maturities greater than one year.
Both Indices' returns assume reinvestment of income and, unlike Fund
returns, do not reflect any fees or expenses.
2 Performance numbers for the Fund and Indices are calculated from October 12,
1993, the Fund's inception date. The Fund's performance is historical and may
not be indicative of future results.
[GRAPHIC]
LINE CHART
Data for Line Chart to follow:
<TABLE>
<CAPTION>
Manning & Napier Lehman Brothers Balanced
Blended Asset Series II Intermediate Bond Index Index
<S> <C> <C> <C>
10/12/93 $ 10,000 $ 10,000 $ 10,000
12/31/93 9,982 9,956 10,056
06/30/94 9,662 9,695 9,693
12/31/94 10,333 9,764 9,978
06/30/95 12,621 10,701 11,550
12/31/95 13,707 11,261 12,743
04/30/96 14,016 11,127 13,035
10/31/96 15,078 11,639 13,978
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - October 31, 1996
VALUE
SHARES (NOTE 2)
<S> <C> <C>
COMMON STOCK - 49.61%
AIR TRANSPORTATION - 2.33%
Federal Express Corp.* 9,550 768,775
APPAREL - 3.02%
VF Corp. 15,200 993,700
CHEMICALS & ALLIED PRODUCTS - 1.21%
BIOLOGICAL PRODUCTS - 0.24%
Alliance Pharmaceutical Corp.* 5,575 78,050
HOUSEHOLD PRODUCTS - 0.64%
Procter & Gamble Co. 2,125 210,375
INDUSTRIAL ORGANIC CHEMICALS - 0.33%
International Specialty Products, Inc.* 7,025 76,397
Varitronix International Ltd. (Note 7) 18,000 32,824
109,221
397,646
COMMUNICATIONS - 2.69%
Stet Societa' Finanziaria Telefonica S.p.A. - ADR 11,475 397,322
Telefonica de Espana - ADR 8,125 489,531
886,853
COMPUTER EQUIPMENT - 0.27%
Cisco Systems, Inc.* 800 49,500
Digital Equipment Corp.* 1,275 37,612
87,112
CRUDE PETROLEUM & NATURAL GAS - 1.35%
YPF Sociedad Anonima - ADR 19,500 443,625
ELECTROMEDICAL APPARATUS - 1.79%
Nellcor Puritan Bennett, Inc.* 30,225 589,388
ELECTRONICS & ELECTRICAL EQUIPMENT - 6.98%
HOUSEHOLD APPLIANCES - 1.09%
Sunbeam Corporation, Inc. 14,600 359,525
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - October 31, 1996
VALUE
SHARES (NOTE 2)
<S> <C> <C>
ELECTRONICS & ELECTRICAL EQUIPMENT (CONTINUED)
SEMICONDUCTOR - 4.21%
Altera Corp.* 1,150 71,300
Intel Corp. 7,375 810,328
Texas Instruments, Inc. 10,550 507,719
1,389,347
TELECOMMUNICATIONS EQUIPMENT - 1.68%
ADC Telecommunications, Inc.* 700 47,863
BroadBand Technologies, Inc.* 3,625 64,797
DSC Communications Corp.* 1,400 19,425
ECI Telecommunications, Ltd. 2,375 47,500
General Instrument Corp.* 17,675 355,709
Northern Telecom Ltd. 250 16,281
551,575
2,300,447
ENGINEERING SERVICES - 0.47%
Jacobs Engineering Group, Inc.* 7,025 155,428
FABRICATED METAL PRODUCTS - 0.24%
Keystone International, Inc. 2,175 39,150
Material Sciences Corp.* 2,650 40,413
79,563
FOOD & BEVERAGES - 0.05%
Canandaigua Wine Co., Inc. - Class A* 750 16,875
GLASS PRODUCTS - 0.09%
Libbey, Inc. 1,225 29,400
HEALTH SERVICES - 2.96%
MedPartners, Inc.* 43,771 924,662
RehabCare Group, Inc.* 2,400 42,900
U.S. Physical Therapy, Inc.* 650 6,012
973,574
HOLDING COMPANIES - 0.03%
Ek Chor China Motorcycle Co. Ltd. 1,325 7,784
INFORMATION RETRIEVAL SERVICES 0.04%
America OnLine, Inc.* 475 12,884
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - October 31, 1996
VALUE
SHARES (NOTE 2)
<S> <C> <C>
PAPER MILLS - 2.03%
Kimberly-Clark Corp. 7,500 $ 699,375
PLASTIC PRODUCTS - 0.05%
Sun Coast Industries, Inc.* 3,950 15,306
PRIMARY METAL INDUSTRIES - 0.26%
American Superconductor Corp.* 3,075 38,053
Gibraltar Steel Corp.* 1,925 46,681
84,734
PRINTING & PUBLISHING - 0.07%
Playboy Enterprises, Inc. - Class A* 825 9,900
Playboy Enterprises, Inc. - Class B* 900 10,800
20,700
RESTAURANTS - 3.49%
McDonald's Corp. 25,050 1,111,594
Morton's Restaurant Group, Inc.* 2,525 38,822
1,150,416
RETAIL - 9.98%
RETAIL - HOME FURNISHING STORES - 0.14%
Pier 1 Imports, Inc. 3,311 46,354
RETAIL - SHOE STORES - 1.00%
Brown Group, Inc. 15,900 327,938
RETAIL - SPECIALTY STORES - 8.60%
Fabri-Centers of America - Class A* 16,375 212,875
Fabri-Centers of America - Class B* 13,925 181,025
Fingerhut Companies, Inc. 31,600 470,050
Hancock Fabrics, Inc. 20,175 171,487
Home Depot, Inc. 13,500 739,125
Office Depot, Inc.* 13,900 272,788
Tandy Corp. 21,000 790,125
2,837,475
RETAIL - VARIETY STORES - 0.11%
Family Dollar Stores, Inc. 2,000 34,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - October 31, 1996
SHARES/ VALUE
PRINCIPAL AMOUNT (NOTE 2)
<S> <C> <C>
Retail (continued)
RETAIL - WHOLESALE - 0.13%
Coleman Company, Inc.* 3,200 $ 42,400
3,288,167
SOFTWARE - 4.85%
Electronic Arts, Inc.* 2,600 97,500
Founder Hong Kong Ltd.* (Note 7) 50,000 19,400
Informix Corp.* 13,500 299,531
Microsoft Corp.* 375 51,469
Oracle Corp.* 25,275 1,069,448
Parametric Technology Corp.* 625 30,547
Symantec Corp.* 3,050 33,169
1,601,064
TECHNICAL INSTRUMENTS & SUPPLIES - 4.16%
PHOTOGRAPHIC EQUIPMENT & SUPPLIES - 4.10%
Eastman Kodak Co. 16,950 1,351,763
SURGICAL & MEDICAL INSTRUMENTS - 0.06%
Allied Healthcare Products, Inc.* 2,750 18,562
1,370,325
UTILITIES - ELECTRIC - 1.20%
Enersis S.A. - ADR 13,500 396,563
TOTAL COMMON STOCK
(Identified Cost $14,298,086) 16,369,704
U.S. TREASURY SECURITIES - 38.27%
U.S. TREASURY BONDS - 30.60%
U.S. Treasury Bond, 7.25%, 8/15/2022 $ 2,585,000 2,735,253
U.S. Treasury Bond, 7.50%, 11/15/2024 3,100,000 3,401,280
U.S. Treasury Bond, 6.875%, 8/15/2025 3,875,000 3,960,975
TOTAL U.S. TREASURY BONDS
(Identified Cost $9,721,951) 10,097,508
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - October 31, 1996
PRINCIPAL VALUE
AMOUNT/SHARES (NOTE 2)
<S> <C> <C>
U.S. TREASURY NOTES - 7.67%
U.S. Treasury Note, 4.75%, 10/31/1998 $ 45,000 $ 44,114
U.S. Treasury Note, 5.125%, 11/30/1998 415,000 409,780
U.S. Treasury Note, 7.75%, 12/31/1999 20,000 21,012
U.S. Treasury Note, 6.25%, 5/31/2000 2,045,000 2,058,419
TOTAL U.S. TREASURY NOTES
(Identified Cost $2,519,517) 2,533,325
TOTAL U.S. TREASURY SECURITIES
(Identified Cost $12,241,468) 12,630,833
SHORT-TERM INVESTMENTS - 10.73%
U.S. Treasury Bill, 11/29/1996 2,500,000 2,490,570
Dreyfus U.S. Treasury Money Market Reserves 1,048,699 1,048,699
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $3,539,269) 3,539,269
TOTAL INVESTMENTS - 98.61%
(Identified Cost $30,078,823) 32,539,806
OTHER ASSETS, LESS LIABILITIES - 1.39% 458,892
NET ASSETS - 100% $32,998,698
</TABLE>
*Non-income producing security
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
At October 31, 1996, the net unrealized appreciation based on identified cost for
federal income tax purposes of $30,093,619 was as follows:
<S> <C>
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost $2,957,835
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value (511,648)
UNREALIZED APPRECIATION - NET $2,446,187
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
OCTOBER 31, 1996
ASSETS:
<S> <C>
Investments, at value (Identified Cost $30,078,823)(Note 2) $32,539,806
Cash 251,260
Interest receivable 266,853
Dividends receivable 2,589
TOTAL ASSETS 33,060,508
LIABILITIES:
Accrued management fees (Note 3) 39,303
Accrued Directors' fees (Note 3) 1,649
Transfer agent fees payable (Note 3) 651
Audit fee payable 10,750
Payable for securities purchased 3,705
Other payables and accrued expenses 5,752
TOTAL LIABILITIES 61,810
NET ASSETS FOR 2,529,773 SHARES OUTSTANDING $32,998,698
NET ASSETS CONSIST OF:
Capital stock $ 25,298
Additional paid-in-capital 28,987,158
Undistributed net investment income 475,782
Accumulated net realized gain on investments 1,049,477
Net unrealized appreciation on investments 2,460,983
TOTAL NET ASSETS $32,998,698
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($32,998,698/2,529,773 shares) $ 13.04
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
For the Ten Months For the Year
Ended 10/31/96 Ended 12/31/95
INVESTMENT INCOME:
<S> <C> <C>
Interest $ 711,893 $ 376,523
Dividends 126,421 115,733
Total Investment Income 838,314 492,256
EXPENSES:
Management fees (Note 3) 225,830 131,695
Directors' fees (Note 3) 5,071 7,297
Transfer agent fees (Note 3) 5,420 3,161
Audit fee 12,450 14,725
Registration & filing fees 9,026 7,461
Custodian fee 9,000 9,600
Miscellaneous 8,152 1,763
Total Expenses 274,949 175,702
Less Waiver of Expenses (Note 3) (3,528) (17,669)
Net Expenses 271,421 158,033
NET INVESTMENT INCOME 566,893 334,223
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments (identified cost basis) 1,053,546 1,934,431
Net change in unrealized appreciation on investments 1,209,793 1,107,105
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 2,263,339 3,041,536
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 2,830,232 $ 3,375,759
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the For the For the
Ten Months Year Ended Year Ended
Ended 10/31/96 12/31/95 12/31/94
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 566,893 $ 334,223 $ 79,300
Net realized gain on investments 1,053,546 1,934,431 82,328
Net change in unrealized appreciation on investments 1,209,793 1,107,105 144,417
Net increase in net assets from operations 2,830,232 3,375,759 306,045
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (92,412) (330,774) (78,792)
From net realized gain on investments (138,618) (1,817,057) (64,338)
Total distributions to shareholders (231,030) (2,147,831) (143,130)
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase in net assets from capital share
transactions (Note 5) 9,880,561 12,077,417 6,575,676
Net increase in net assets 12,479,763 13,305,345 6,738,591
NET ASSETS:
Beginning of period 20,518,935 7,213,590 474,999
End of period (including undistributed net investment
income of $475,782, $1,301, and $1,098 respectively) $ 32,998,698 $20,518,935 $ 7,213,590
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
For the
Ten For the
Months Year
Ended Ended
10/31/96 12/31/95
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
NET ASSET VALUE - BEGINNING OF PERIOD $ 11.95 $ 10.12
Income from investment operations:
Net investment income 0.227 0.238
Net realized and unrealized gain (loss)
on investments 0.963 3.052
Total from investment operations 1.190 3.290
Less distributions to shareholders:
From net investment income (0.040) (0.237)
From net realized gain on investments (0.060) (1.223)
Total distributions to shareholders (0.100) (1.460)
NET ASSET VALUE - END OF PERIOD $ 13.04 $ 11.95
Total return1 10.01% 32.64%
Ratios (to average net assets) / Supplemental Data:
Expenses 1.20%2** 1.20%**
Net investment income 2.51%2** 2.53%**
Portfolio turnover 57% 63%
Average commission rate paid $ 0.0524 $ 0.0635
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 32,999 $ 20,519
* The investment advisor did not impose its management fee and paid a portion of the Fund's
expenses. If these expenses had been incurred by the Fund for the period ended December 31,
1993, expenses would have been limited to that allowed by state securities law.
** The investment advisor waived a portion of its management fee.
If the full expenses had been incurred by the Fund in either instance above, the net investment
income per share and the ratios would have been as follows:
Net investment income $ 0.225 $ 0.226
Ratios (to average net assets):
Expenses 1.22%2 1.33%
Net investment income 2.49%2 2.40%
1 Represents aggregate total return for the period indicated
2 Annualized
For the Period
For the 10/12/93
Year (commencement
Ended of operations) to
12/31/94 12/31/93
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
NET ASSET VALUE - BEGINNING OF PERIOD $ 9.98 $ 10.00
Income from investment operations:
Net investment income 0.108 0.014
Net realized and unrealized gain (loss)
on investments 0.243 (0.032)
Total from investment operations 0.351 (0.018)
Less distributions to shareholders:
From net investment income (0.119) (0.002)
From net realized gain on investments (0.092) -
Total distributions to shareholders (0.211) (0.002)
NET ASSET VALUE - END OF PERIOD $ 10.12 $ 9.98
Total return1 3.52% (0.18%)
Ratios (to average net assets) / Supplemental Data:
Expenses 1.20%* 1.20%2*
Net investment income 2.12%* 1.94%2*
Portfolio turnover 19% 0%
Average commission rate paid - -
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 7,214 $ 475
* The investment advisor did not impose its management fee and paid a portion of the Fund's
expenses. If these expenses had been incurred by the Fund for the period ended December 31,
1993, expenses would have been limited to that allowed by state securities law.
** The investment advisor waived a portion of its management fee.
If the full expenses had been incurred by the Fund in either instance above, the net investment
income per share and the ratios would have been as follows:
Net investment income $ 0.051 $ 0.005
Ratios (to average net assets):
Expenses 2.31% 2.50%2
Net investment income 1.01% 0.64%2
1 Represents aggregate total return for the period indicated
2 Annualized
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
Notes to Financial Statements
1. ORGANIZATION
Blended Asset Series II (the "Fund") is a no-load diversified series of
Manning & Napier Fund, Inc. (the "Corporation"). The Corporation is organized
as a Maryland Corporation and is registered under the Investment Company Act
of 1940, as amended, as an open-end management investment company.
The total authorized capital stock of the Corporation consists of one
billion shares of common stock each having a par value of $0.01. As of
October 31, 1996, 940 million shares have been designated in total among 19
series, of which 50 million have been designated as Blended Asset Series II
Class L Common Stock.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Portfolio securities, including domestic equities, foreign equities,
options and corporate bonds, listed on an exchange are valued at the latest
quoted sales price of the exchange on which the security is traded most
extensively. Securities not traded on valuation date or securities not listed
on an exchange are valued at the latest quoted bid price.
Debt securities, including government bonds and mortgage backed
securities, will normally be valued on the basis of evaluated bid prices.
Securities for which representative prices are not available from the
Fund's pricing service are valued at fair value as determined in good faith by
the Advisor under procedures established by and under the general supervision
and responsibility of the Fund's Board of Directors.
Short-term investments that mature in sixty (60) days or less are valued
at amortized cost.
SECURITY TRANSACTIONS, INVESTMENT INCOME AND EXPENSES
Security transactions are accounted for on the date the securities are
purchased or sold. Dividend income is recorded on the ex-dividend date.
Interest income and expenses are recorded on an accrual basis.
Most expenses of the Corporation can be attributed to a specific fund.
Expenses which cannot be directly attributed are apportioned among the funds
in the Corporation.
FEDERAL INCOME TAXES
The Fund's policy is to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies. The Fund is not
subject to federal income or excise tax to the extent the Fund distributes to
shareholders each year its taxable income, including any net realized gains on
investments in accordance with requirements of the Internal Revenue Code.
Accordingly, no provision for federal
13
<PAGE>
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FEDERAL INCOME TAXES (CONTINUED)
income tax or excise tax has been made in the financial statements.
The Fund uses the identified cost method for determining realized gain or
loss on investments for both financial statement and federal income tax
reporting purposes.
DISTRIBUTION OF INCOME AND GAINS
Distributions to shareholders of net investment income are made
semi-annually. Distributions are recorded on the ex-dividend date.
Distributions of net realized gains are distributed annually. An additional
distribution may be necessary to avoid taxation of the Fund.
The timing and characterization of certain income and capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. The differences may be a
result of deferral of certain losses, foreign denominated investments, or
character reclassification between net income and net gains. As a result, net
investment income (loss) and net investment gain (loss) on investment
transactions for a reporting period may differ significantly from
distributions to shareholders during such period. As a result, the Fund may
periodically make reclassifications among its capital accounts without
impacting the Fund's net asset value.
The Fund hereby designated $94,722 as capital gains dividends for the
period ended October 31, 1996.
OTHER
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reorted amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars.
Foreign currency amounts are translated into U.S. dollars on the following
basis: a) investment securities, other assets and liabilities are converted to
U.S. dollars based upon current exchange rates; and b) purchases and sales of
securities and income and expenses are converted into U.S. dollars based upon
the currency exchange rates prevailing on the respective dates of such
transactions.
14
<PAGE>
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION (CONTINUED)
Gains and losses attributable to foreign currency exchange rates are
recorded for financial statement purposes as net realized gains and losses on
investments. The portion of both realized and unrealized gains and losses on
investments that result from fluctuations in foreign currency exchange rates
is not separately stated.
3. TRANSACTIONS WITH AFFILIATES
The Fund has an investment advisory agreement with Manning & Napier
Advisors, Inc. (the "Advisor"), for which the Fund pays the Advisor a fee,
computed daily and payable monthly, at an annual rate of 1.0% of the Fund's
average daily net assets. The fee amounted to $225,830 for the ten months
ended October 31, 1996 and $131,695 for the year ended December 31, 1995.
Under the Fund's Investment Advisory Agreement (the "Agreement"),
personnel of the Advisor provide the Fund with advice and assistance in the
choice of investments and the execution of securities transactions, and
otherwise maintain the Fund's organization. The Advisor also provides the
Fund with necessary office space and portfolio accounting and bookkeeping
services. The salaries of all officers of the Fund and of all Directors who
are "affiliated persons" of the Fund or of the Advisor, and all personnel of
the Fund or of the Advisor performing services relating to research,
statistical and investment activities are paid by the Advisor.
The Advisor has voluntarily agreed to waive its fee and, if necessary,
pay other expenses of the Fund in order to maintain total expenses for the
Fund at no more than 1.20% of average daily net assets each year.
Accordingly, the Advisor waived fees of $3,528 for the ten months ended
October 31, 1996 and $17,669 for the year ended December 31, 1995, which are
reflected as a reduction of expenses on the Statement of Operations. The fee
waiver and assumption of expenses by the Advisor is voluntary and may be
terminated at any time.
The Advisor also acts as the transfer, dividend paying and shareholder
servicing agent for the Fund. For these services, the Fund pays a fee which
is calculated as a percentage of the average daily net assets at an annual
rate of 0.024%; this fee amounted to $5,420 for the ten months ended October
31, 1996 and $3,161 for the year ended December 31, 1995.
Manning & Napier Investor Services, Inc., a registered broker-dealer
affiliate of the Advisor, acts as distributor for the Fund's shares. The
services of Manning & Napier Investor Services, Inc. are provided at no
additional cost to the Fund.
The compensation of the non-affiliated Directors totaled $5,071 for the
ten months ended October 31, 1996 and $7,297 for the year ended December 31,
1995.
15
<PAGE>
Notes to Financial Statements
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term securities, were
$22,106,807 and $14,391,013, respectively, for the ten months ended October
31, 1996.
5. CAPITAL STOCK TRANSACTIONS
Transactions in shares of Blended Asset Series II Class L Common
Stock were:
<TABLE>
<CAPTION>
For the Ten For the Year For the Year
Months Ended Ended Ended
10/31/96 12/31/95 12/31/94
<S> <C> <C> <C> <C> <C> <C>
Shares Amount Shares Amount Shares Amount
------------- ------------ ------------- ------------ ------------- ----------
Sold 1,030,732 $12,602,396 891,550 $10,731,657 661,133 $6,534,790
Reinvested 18,786 230,877 180,298 2,145,684 14,156 143,210
Repurchased (237,451) (2,952,712) (66,963) (799,924) (10,085) (102,324)
Total 812,067 $ 9,880,561 1,004,885 $12,077,417 665,204 $6,575,676
</TABLE>
6. FINANCIAL INSTRUMENTS
The Fund may trade in financial instruments with off-balance sheet risk
in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include written
options, forward foreign currency exchange contracts, and futures contracts
and may involve, to a varying degree, elements of risk in excess of the
amounts recognized for financial statement purposes. No such investments were
held by the Fund on October 31, 1996.
7. FOREIGN SECURITIES
Investing in securities of foreign companies and foreign governments
involves special risks and considerations not typically associated with
investing in securities of U.S. companies and the United States government.
These risks include revaluation of currencies and potential adverse political
and economic developments. Moreover, securities of many foreign companies and
foreign governments and their markets may be less liquid and their prices more
volatile than those of securities of comparable U.S. companies and the United
States government.
8. CHANGE IN FISCAL YEAR END
Effective January 1, 1996, the Fund changed its fiscal year end from
December 31 to October 31.
16
<PAGE>
Independent Auditors' Report
TO THE DIRECTORS OF MANNING & NAPIER FUND, INC.
AND SHAREHOLDERS OF BLENDED ASSET SERIES II:
We have audited the accompanying statement of assets and liabilities,
including the investment portfolio, of Blended Asset Series II (one of the
series constituting Manning & Napier Fund, Inc.) as of October 31, 1996, the
related statement of operations for the ten months then ended and the year
ended December 31, 1995, the statement of changes in net assets for the ten
months ended October 31, 1996 and the years ended December 31, 1995 and 1994,
and the financial highlights for each of the periods indicated in the
financial highlights table herein. These financial statements and financial
highlights are the responsibility of the Funds management. Our responsibility
is to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of investments owned at October 31, 1996
by correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of Blended
Asset Series II at October 31, 1996, the results of its operations, the
changes in its net assets and its financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
November 19, 1996
17
<PAGE>
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
Flexible Yield Series I
Annual Report
October 31, 1996
<PAGE>
Management Discussion and Analysis
Dear Shareholders:
During 1996, we have experienced what Manning & Napier feels to be a
temporary setback in the bond market. Short-term factors, including
speculation in the bond market, inflation fears, and political uncertainty
have led to a difficult year in the bond market. Especially when contrasted
with the extraordinary returns earned by bonds and bond funds in 1995, the
luster appears to have worn off the bond market. Our experience, however,
teaches us that short-term situations such as this provide opportunities to
position the portfolio to benefit from the long-term trends which are the most
important determinants of returns in the bond market.
At the end of 1995, the bond market looked about as good as it could get.
Economic growth was slowing, some were even calling for a recession later in
1996, and inflation worries were non-existent. These factors pushed long-term
interest rates down through the 6% level, and they finished 1995 at 5.95%.
The tide began to turn rather quickly right at the start of 1996. One of
the reasons why the market rallied so strongly during the second half of 1995
can be traced to speculative investments in U.S. Treasury securities.
Speculators were borrowing Japanese yen at extraordinarily low Japanese
short-term interest rates (0.3% to 0.5%), converting the yen into U.S.
dollars, and investing the proceeds in U.S. Treasury securities. As long as
Japanese short rates were expected to stay low or the yen was expected to slip
versus the U.S. dollar, this trade worked quite well. Unfortunately, once the
tide began to turn (i.e. people thought Japanese short-term interest rates
might rise), the selling it created snowballed due to the leverage inherent in
the trade. That happened during the early part of 1996, and short to
intermediate interest rates rose rather quickly.
As spring started to roll in, the bond market was shocked by the February
employment report issued by the Bureau of Labor Statistics. The number of new
jobs created during the month of February was an eye_popping 705,000 at the
time of the first release. Subsequent releases revised the number modestly
lower, but those same releases reported job gains that were much stronger than
what had been the case in 1995. The probability of a recession became remote,
and fears of inflation began to surface once again. Strong consumer
expenditures during the first half of 1996, solid capital spending, and a
surprisingly resilient housing sector simply added to the markets concerns,
driving long-term interest rates close to 7.25%. As the summer ended,
concerns seem to be somewhat assuaged, but rates remained stubbornly close to
7%.
It is important to note, however, that throughout all of this, inflation
itself remained very much in check. The most common measures, the Producer
Price Index (PPI) and the Consumer Price Index (CPI), both remained at or
below 3.0% on a year-over-year basis throughout 1996. An even more accurate
measure of inflation, the GDP deflator, remained closer to 2.0%. That means
real interest rates (nominal rates less the rate of inflation) exceeded 4%-5%,
depending upon which measure of inflation was used.
In the near_term, no one likes to see rising interest rates, but if one
expects inflation to remain under control over the longer-term, rising
interest rates can create compelling fixed income buying opportunities. In
the fixed income markets, 1996 has been a stern test, but in the long run,
only those who acted during these difficult times will be positioned to
benefit from the long-term trends of moderate growth and low inflation.
1
<PAGE>
Management Discussion and Analysis (continued)
As everyone is quite aware, 1996 is an election year, and the market
reacted to the uncertainty of the countrys political future. The political
posturing started at the end of last year when the Republican Congress and the
Democratic White House shut down the government and threatened to default on
U.S. Treasury securities. It veered off to the right with the rise and fall
of Steve Forbes and his call for a flat income tax. It focused on the
Republican primaries in the spring with Bob Dole being the ultimate winner.
And it has continued throughout the election season as the incumbent,
President Clinton, maintained a double digit lead in the polls.
In the short-term, elections do introduce volatility in the marketplace.
This year saw a marked acceleration in the growth rate of government
expenditures, which comprise about 20% of this country's GDP. This was a big
contributor to the acceleration in overall economic growth during the first
half of 1996, and that acceleration contributed to this years increase in
interest rates.
Elections also introduce uncertainty. Who will win the election? Who
will control the House? The Senate? What issues will galvanize the public?
Financial markets, as a general rule, do not like uncertainty and this year
was no exception. Given the sizable lead the President held in the polls
throughout the campaign, the biggest uncertainty seemed to relate to which
party would control the Congress. Historically, the financial markets seem to
prefer split control -- one party in control of one branch of the government
and the other in control of another.
In the long run, however, the election results may not be of major
importance. With the growth of the global financial markets and the influence
they wield on a country's interest and exchange rates, who is in the White
House or who controls Congress becomes less significant. The financial
markets are in effect pulling all parties to the right, specifically toward
fiscally sound policies. Witness what has occurred with a Democrat in the
White House over the last four years. The budget deficit has shrunk from $300
billion to just over $100 billion, the debate has shifted away from where
government moneys should be spent to what spending cuts should be made, and
the two parties debated whether the budget should be balanced in seven years
or in ten. Beyond that, we had a presidential campaign in which the
Republican challenger was calling for a tax cut and the Democratic incumbent
attacked it for being budgetarily imprudent. The new reality is that the only
poll that really seems to matter is the one being taken in the global
financial markets; sound policies are rewarded, unsound policies are not.
All the factors that have influenced the bond market over the past year
have the effect of diverting attention from the larger trends, but the larger
trends are of the most importance in determining investment success over the
long- term. At Manning & Napier, we view the big picture items as the most
important. The growth in international trade, the subsequent increase in
international competition, the need for policy makers, producers, and
consumers to adjust to this new economic reality, and the impact their actions
have had on the economy, inflation, and interest rates are what drives our
fixed income process. These are long-term, secular influences that have
brought down interest rates, have capped inflation expectations, and have
allowed longer-term, non_callable securities to provide strong investment
returns.
As in previous years, we have positioned the Series portfolio in
accordance with our overview. Within the framework of the maturity guidelines
set down for the Series, Manning & Napier weighted the portfolio toward the
longer end of the maturity spectrum. During the first half of 1996 when
interest rates were rising, that
2
<PAGE>
Management Discussion and Analysis (continued)
weighting was amplified. An emphasis was also placed on non_callable
securities. Corporate bonds were unaffected by the overview. The sector was
avoided, however, because the credit spreads associated with corporate bonds
were so narrow relative to U.S. Treasury securities that Manning & Napier felt
that investors were not being paid for the credit risk inherent in investments
in corporate bonds.
While 1996 has been a difficult year for the bond market, it is important
to realize that the causes of the difficulty were essentially shorter-term in
nature. Speculative excesses, a cyclical growth scare and the associated
inflation worries, and the uncertainty associated with an election all
combined to push interest rates higher. It is also worthwhile noting that the
shorter-term problems that plagued 1996 are needed to create the quality
longer-term investment opportunities that will benefit the Series going
forward. In addition, the uncertainties that the election introduced are
becoming even more short-lived given the growing importance of the financial
markets. Beyond all of this, Manning & Napier believes that the adherence to
a long-term investment overview and investment process is what separates the
good funds from the bad ones.
We wish you and yours all the best during this holiday season.
Sincerely,
MANNING & NAPIER ADVISORS, INC.
[GRAPHIC]
[PIE CHART]
Effective Maturity - As of 10/31/96
1 - 2 Years - 13%
2 - 3 Years - 21%
3 - 4 Years - 39%
More than 4 Years - 27%
3
<PAGE>
Performance Update as of October 31, 1996
The value of a $10,000 investment in the Manning & Napier Fund, Inc. -
Flexible Yield Series I from its inception (2/15/94) to present (10/31/96) as
compared to the Merrill Lynch U.S. Treasury Short-Term Index. 1
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc. - Flexible Yield Series I
Total Return
Growth of
Through $10,000 Average
10/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 10,504 5.04% 5.04%
Inception 2 $ 11,337 13.37% 4.74%
</TABLE>
<TABLE>
<CAPTION>
Merrill Lynch U.S. Treasury Short-Term Index
Total Return
Growth of
Through $10,000 Average
10/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 10,591 5.91% 5.91%
Inception 2 $ 11,598 15.98% 5.62%
</TABLE>
1 The Merrill Lynch U.S. Treasury Short-Term Index is a market value weighted
measure of approximately 59 U.S. Treasury Securities. The Index is comprised
of U.S. Treasury securities with maturities greater than one year but less than
three years. The Index returns assume reinvestment of coupons and, unlike Fund
returns, do not reflect any fees or expenses.
2 The Fund and Index performance are calculated from February 15, 1994, the
Fund's inception date. The Fund's performance is historical and may not be
indicative of future results.
[GRAPHIC]
LINE CHART
Data for Line Chart to follow:
<TABLE>
<CAPTION>
Manning & Napier Merrill Lynch U.S. Treasury
Flexible Yield Series I Short-Term Index
<S> <C> <C>
02/15/94 $ 10,000 $ 10,000
06/30/94 9,860 9,931
12/31/94 9,924 10,030
06/30/95 10,573 10,699
12/31/95 10,995 11,133
04/30/96 10,931 11,179
10/31/96 11,337 11,598
</TABLE>
4
<PAGE>
Investment Portfolio - October 31, 1996
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT/SHARES (NOTE 2)
<S> <C> <C>
U.S. TREASURY NOTES - 95.18%
U.S. Treasury Note, 4.75%, 2/15/1997 $ 14,000 $ 13,970
U.S. Treasury Note, 6.50%, 4/30/1997 45,000 45,244
U.S. Treasury Note, 5.125%, 2/28/1998 40,000 39,730
U.S. Treasury Note, 6.125%, 5/15/1998 60,000 60,387
U.S. Treasury Note, 6.50%, 4/30/1999 95,000 96,432
U.S. Treasury Note, 6.75%, 4/30/2000 85,000 86,939
U.S. Treasury Note, 6.375%, 3/31/2001 125,000 126,445
TOTAL U.S. TREASURY NOTES
(Identified Cost $465,566 ) 469,147
SHORT-TERM INVESTMENTS - 4.57%
Dreyfus U.S. Treasury Money Market Reserves
(Identified Cost $22,514 ) 22,514 22,514
TOTAL INVESTMENTS - 99.75%
(Identified Cost $488,080 ) 491,661
OTHER ASSETS, LESS LIABILITIES - 0.25% 1,236
NET ASSETS - 100% $492,897
</TABLE>
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
At October 31, 1996, the net unrealized appreciation based on identified cost for
federal income tax purposes of $488,374 was as follows:
<S> <C>
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost $3,287
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value 0
UNREALIZED APPRECIATION - NET $3,287
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
OCTOBER 31, 1996
ASSETS:
<S> <C>
Investments, at value (Identified Cost $488,080)(Note 2) $491,661
Interest receivable 2,910
Receivable from investment advisor (Note 3) 16,323
TOTAL ASSETS 510,894
LIABILITIES:
Accrued Directors' fees (Note 3) 5,071
Audit fee payable 7,750
Other payables and accrued expenses 5,176
TOTAL LIABILITIES 17,997
NET ASSETS FOR 47,974 SHARES OUTSTANDING $492,897
NET ASSETS CONSIST OF:
Capital stock $ 480
Additional paid-in-capital 481,108
Undistributed net investment income 5,336
Accumulated net realized gain on investments 2,392
Net unrealized appreciation on investments 3,581
TOTAL NET ASSETS $492,897
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($492,897 / 47,974 shares) $ 10.27
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
For the Ten Months For the Year
Ended 10/31/96 Ended 12/31/95
INVESTMENT INCOME:
<S> <C> <C>
Interest $ 17,994 $ 19,872
EXPENSES:
Management fee (Note 3) 1,057 1,221
Directors' fees (Note 3) 5,071 6,791
Transfer agent fees (Note 3) 72 84
Audit fee 8,114 10,400
Custodian fee 297 600
Miscellaneous 4,884 608
Total Expenses 19,495 19,704
Less Waiver of Expenses (Note 3) (17,380) (17,244)
Net Expenses 2,115 2,460
NET INVESTMENT INCOME 15,879 17,412
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investments (identified cost basis) 2,919 321
Net change in unrealized appreciation on investments (3,729) 12,825
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (810) 13,146
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 15,069 $ 30,558
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Period
2/15/94
For the Ten For the (commencement
Months Ended Year Ended of operations)
10/31/96 12/31/95 to 12/31/94
-------------- ------------ ----------------
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
<S> <C> <C> <C>
Net investment income $ 15,879 $ 17,412 $ 5,603
Net realized gain (loss) on investments 2,919 321 (848)
Net change in unrealized appreciation (depreciation)
on investments (3,729) 12,825 (5,515)
Net increase (decrease) in net assets from operations 15,069 30,558 (760)
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (10,555) (17,292) (5,444)
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase in net assets from capital share
transactions (Note 5) 231,929 12,347 237,045
Net increase in net assets 236,443 25,613 230,841
NET ASSETS:
Beginning of period 256,454 230,841 -
End of period (including undistributed net investment
income of $5,336, $12, and $159 respectively) $ 492,897 $ 256,454 $ 230,841
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
For the
For the Ten Year
Months Ended Ended
10/31/96 12/31/95
Per share data (for a share outstanding throughout
each period ):
<S> <C> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.26 $ 9.69
Income from investment operations:
Net investment income 0.411 0.464
Net realized and unrealized gain (loss)
on investments (0.101) 0.566
Total from investment operations 0.310 1.030
Less distributions to shareholders:
From net investment income (0.300) (0.460)
NET ASSET VALUE - END OF PERIOD $ 10.27 $ 10.26
Total return 1 3.11% 10.79%
Ratios (to average net assets) / Supplemental Data:
Expenses* 0.70%2 0.70%
Net investment income* 5.25%2 4.99%
Portfolio turnover 36% 60%
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 493 $ 256
* The investment advisor did not impose its management fee and paid a portion of the Fund's
expenses. If these expenses had been incurred by the Fund, expenses would have been limited to
that allowed by state securities law and the net investment income per share and the ratios would
have been as follows:
Net investment income $ 0.270 $ 0.297
Ratios (to average net assets):
Expenses 2.50%2 2.50%
Net investment income 3.45%2 3.19%
1 Represents aggregate total return for the period indicated
2 Annualized
For the
Period
2/15/94
(commencement
of operations)
to 12/31/94
Per share data (for a share outstanding throughout
each period ):
<S> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.00
Income from investment operations:
Net investment income 0.241
Net realized and unrealized gain (loss)
on investments (0.317)
Total from investment operations (0.076)
Less distributions to shareholders:
From net investment income (0.234)
NET ASSET VALUE - END OF PERIOD $ 9.69
Total return 1 (0.76)%
Ratios (to average net assets) / Supplemental Data:
Expenses* 0.70%2
Net investment income* 4.41%2
Portfolio turnover 38%
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 231
* The investment advisor did not impose its management fee and paid a portion of the Fund's
expenses. If these expenses had been incurred by the Fund, expenses would have been limited to
that allowed by state securities law and the net investment income per share and the ratios would
have been as follows:
Net investment income $ 0.143
Ratios (to average net assets):
Expenses 2.50%2
Net investment income 2.61%2
1 Represents aggregate total return for the period indicated
2 Annualized
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
Notes to Financial Statements
1. ORGANIZATION
Flexible Yield Series I (the "Fund") is a no-load diversified series
of Manning & Napier Fund, Inc. (the "Corporation"). The Corporation is
organized as a Maryland Corporation and is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
The total authorized capital stock of the Corporation consists of one
billion shares of common stock each having a par value of $0.01. As of
October 31, 1996, 940 million shares have been designated in total among 19
series, of which 50 million have been designated as Flexible Yield Series I
Class M Common Stock.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Portfolio securities listed on an exchange are valued at the latest
quoted sales price of the exchange on which the security is traded most
extensively. Securities not traded on valuation date or securities not listed
on an exchange are valued at the latest quoted bid price.
Debt securities, including government bonds and mortgage backed
securities, will normally be valued on the basis of evaluated bid prices.
Securities for which representative prices are not available from the
Fund's pricing service are valued at fair value as determined in good faith by
the Advisor under procedures established by and under the general supervision
and responsibility of the Fund's Board of Directors.
Short-term investments that mature in sixty (60) days or less are
valued at amortized cost.
SECURITY TRANSACTIONS, INVESTMENT INCOME AND EXPENSES
Security transactions are accounted for on the date the securities are
purchased or sold. Dividend income is recorded on the ex-dividend date.
Interest income and expenses are recorded on an accrual basis.
Most expenses of the Corporation can be attributed to a specific fund.
Expenses which cannot be directly attributed are apportioned among the funds
in the Corporation.
10
<PAGE>
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FEDERAL INCOME TAXES
The Fund's policy is to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies. The Fund is not
subject to federal income or excise tax to the extent the Fund distributes to
shareholders each year its taxable income, including any net realized gains on
investments in accordance with requirements of the Internal Revenue Code.
Accordingly, no provision for federal income tax or excise tax has been made
in the financial statements.
The Fund uses the identified cost method for determining realized gain or
loss on investments for both financial statement and federal income tax
reporting purposes.
DISTRIBUTION OF INCOME AND GAINS
Distributions to shareholders of net investment income are made
quarterly. Distributions are recorded on the ex-dividend date. Distributions
of net realized gains are distributed annually. An additional distribution
may be necessary to avoid taxation of the Fund.
The timing and characterization of certain income and capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. The differences may be a
result of deferral of certain losses, character reclassification between net
income and net gains, or other required tax adjustments. As a result, net
investment income (loss) and net investment gain (loss) on investment
transactions for a reporting period may differ significantly from
distributions to shareholders during such period. As a result, the Fund may
periodically make reclassifications among its capital accounts without
impacting the Fund's net asset value.
OTHER
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
11
<PAGE>
Notes to Financial Statements
3. TRANSACTIONS WITH AFFILIATES
The Fund has an investment advisory agreement with Manning & Napier
Advisors, Inc. (the "Advisor"), for which the Fund pays the Advisor a fee,
computed daily and payable monthly, at an annual rate of 0.35% of the Fund's
average daily net assets. The fee amounted to $1,057 for the ten months ended
October 31, 1996 and $1,221 for the year ended December 31, 1995.
Under the Fund's Investment Advisory Agreement (the "Agreement"),
personnel of the Advisor provide the Fund with advice and assistance in the
choice of investments and the execution of securities transactions, and
otherwise maintain the Fund's organization. The Advisor also provides the
Fund with necessary office space and portfolio accounting and bookkeeping
services. The salaries of all officers of the Fund and of all Directors who
are "affiliated persons" of the Fund or of the Advisor, and all personnel of
the Fund or of the Advisor performing services relating to research,
statistical and investment activities are paid by the Advisor.
The Advisor has voluntarily agreed to waive its fee and, if necessary,
pay other expenses of the Fund in order to maintain total expenses for the
Fund at no more than 0.70% of average daily net assets each year.
Accordingly, the Advisor did not impose any of its fee and paid expenses
amounting to $16,323 for the ten months ended October 31, 1996 and $16,023
for the year ended December 31, 1995, which are reflected as a reduction of
expenses on the Statement of Operations. The fee waiver and assumption of
expenses by the Advisor is voluntary and may be terminated at any time.
The Advisor also acts as the transfer, dividend paying and shareholder
servicing agent for the Fund. For these services, the Fund pays a fee which
is calculated as a percentage of the average daily net assets at an annual
rate of 0.024%; this fee amounted to $72 for the ten months ended October 31,
1996 and $84 for the year ended December 31, 1995.
Manning & Napier Investor Services, Inc., a registered broker-dealer
affiliate of the Advisor, acts as distributor for the Fund's shares. The
services of Manning & Napier Investor Services, Inc. are provided at no
additional cost to the Fund.
The compensation of the non-affiliated Directors totaled $5,071 for the
ten months ended October 31, 1996 and $6,791 for the year ended December 31,
1995.
12
<PAGE>
Notes to Financial Statements
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term securities, were
$330,613 and $132,098, respectively, for the ten months ended October 31,
1996.
5. CAPITAL STOCK TRANSACTIONS
<TABLE>
<CAPTION>
Transactions in shares of Flexible Yield Series I Class M Common Stock were:
For the Ten For the Year
Months Ended Ended
10/31/96 12/31/95
------------- -------------
Shares Amount Shares Amount
------------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Sold 46,304 $ 468,224 42,563 $ 433,846
Reinvested 1,049 10,556 1,658 16,778
Repurchased (24,368) (246,851) (43,058) (438,277)
Total 22,985 $ 231,929 1,163 $ 12,347
Transactions in shares of Flexible Yield Series I Class M Common Stock were:
For the Period 2/15/94
(commencement of operations)
to 12/31/94
Shares Amount
------------------ ---------
<S> <C> <C>
Sold 31,143 $309,689
Reinvested 562 5,444
Repurchased (7,879) (78,088)
Total 23,826 $237,045
</TABLE>
The Advisor owned 4,042 shares on October 31, 1996, 3,924 on December 31, 1995
and 3,750 shares on December 31, 1994.
6. FINANCIAL INSTRUMENTS
The Fund may trade in financial instruments with off-balance sheet risk in the
normal course of its investing activities to assist in managing exposure to
various market risks. These financial instruments include written options and
futures contracts and may involve, to a varying degree, elements of risk in
excess of the amounts recognized for financial statement purposes. No such
investments were held by the Fund on October 31, 1996.
7. CHANGE IN FISCAL YEAR END
Effective January 1, 1996, the Fund changed its fiscal year end from December
31 to October 31.
13
<PAGE>
Independent Auditors' Report
TO THE DIRECTORS OF MANNING & NAPIER FUND, INC.
AND SHAREHOLDERS OF FLEXIBLE YIELD SERIES I:
We have audited the accompanying statement of assets and liabilities,
including the investment portfolio, of Flexible Yield Series I (one of the
series constituting Manning & Napier Fund, Inc.) as of October 31, 1996, the
related statement of operations for the ten months then ended and the year
ended December 31, 1995, the statement of changes in net assets for the ten
months ended October 31, 1996 and the years ended December 31, 1995 and 1994,
and the financial highlights for each of the periods indicated in the
financial highlights table herein. These financial statements and financial
highlights are the responsibility of the Funds management. Our responsibility
is to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of investments owned at October 31, 1996 by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of Flexible
Yield Series I at October 31, 1996, the results of its operations, the changes
in its net assets and its financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
November 19, 1996
14
<PAGE>
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
Flexible Yield Series II
Annual Report
October 31, 1996
<PAGE>
Management Discussion and Analysis
Dear Shareholders:
During 1996, we have experienced what Manning & Napier feels to be a
temporary setback in the bond market. Short-term factors, including
speculation in the bond market, inflation fears, and political uncertainty
have led to a difficult year in the bond market. Especially when contrasted
with the extraordinary returns earned by bonds and bond funds in 1995, the
luster appears to have worn off the bond market. Our experience, however,
teaches us that short-term situations such as this provide opportunities to
position the portfolio to benefit from the long-term trends which are the most
important determinants of returns in the bond market.
At the end of 1995, the bond market looked about as good as it could get.
Economic growth was slowing, some were even calling for a recession later in
1996, and inflation worries were non-existent. These factors pushed long-term
interest rates down through the 6% level, and they finished 1995 at 5.95%.
The tide began to turn rather quickly right at the start of 1996. One of
the reasons why the market rallied so strongly during the second half of 1995
can be traced to speculative investments in U.S. Treasury securities.
Speculators were borrowing Japanese yen at extraordinarily low Japanese
short-term interest rates (0.3% to 0.5%), converting the yen into U.S.
dollars, and investing the proceeds in U.S. Treasury securities. As long as
Japanese short rates were expected to stay low or the yen was expected to slip
versus the U.S. dollar, this trade worked quite well. Unfortunately, once the
tide began to turn (i.e. people thought Japanese short-term interest rates
might rise), the selling it created snowballed due to the leverage inherent in
the trade. That happened during the early part of 1996, and short to
intermediate interest rates rose rather quickly.
As spring started to roll in, the bond market was shocked by the February
employment report issued by the Bureau of Labor Statistics. The number of new
jobs created during the month of February was an eye_popping 705,000 at the
time of the first release. Subsequent releases revised the number modestly
lower, but those same releases reported job gains that were much stronger than
what had been the case in 1995. The probability of a recession became remote,
and fears of inflation began to surface once again. Strong consumer
expenditures during the first half of 1996, solid capital spending, and a
surprisingly resilient housing sector simply added to the markets concerns,
driving long-term interest rates close to 7.25%. As the summer ended,
concerns seem to be somewhat assuaged, but rates remained stubbornly close to
7%.
It is important to note, however, that throughout all of this, inflation
itself remained very much in check. The most common measures, the Producer
Price Index (PPI) and the Consumer Price Index (CPI), both remained at or
below 3.0% on a year-over-year basis throughout 1996. An even more accurate
measure of inflation, the GDP deflator, remained closer to 2.0%. That means
real interest rates (nominal rates less the rate of inflation) exceeded 4%-5%,
depending upon which measure of inflation was used.
In the near_term, no one likes to see rising interest rates, but if one
expects inflation to remain under control over the longer-term, rising
interest rates can create compelling fixed income buying opportunities. In
the fixed income markets, 1996 has been a stern test, but in the long run,
only those who acted during these difficult times will be positioned to
benefit from the long-term trends of moderate growth and low inflation.
1
<PAGE>
Management Discussion and Analysis (continued)
As everyone is quite aware, 1996 is an election year, and the market
reacted to the uncertainty of the countrys political future. The political
posturing started at the end of last year when the Republican Congress and the
Democratic White House shut down the government and threatened to default on
U.S. Treasury securities. It veered off to the right with the rise and fall
of Steve Forbes and his call for a flat income tax. It focused on the
Republican primaries in the spring with Bob Dole being the ultimate winner.
And it has continued throughout the election season as the incumbent,
President Clinton, maintained a double digit lead in the polls.
In the short-term, elections do introduce volatility in the marketplace.
This year saw a marked acceleration in the growth rate of government
expenditures, which comprise about 20% of this country's GDP. This was a big
contributor to the acceleration in overall economic growth during the first
half of 1996, and that acceleration contributed to this years increase in
interest rates.
Elections also introduce uncertainty. Who will win the election? Who
will control the House? The Senate? What issues will galvanize the public?
Financial markets, as a general rule, do not like uncertainty and this year
was no exception. Given the sizable lead the President held in the polls
throughout the campaign, the biggest uncertainty seemed to relate to which
party would control the Congress. Historically, the financial markets seem to
prefer split control -- one party in control of one branch of the government
and the other in control of another.
In the long run, however, the election results may not be of major
importance. With the growth of the global financial markets and the influence
they wield on a country's interest and exchange rates, who is in the White
House or who controls Congress becomes less significant. The financial
markets are in effect pulling all parties to the right, specifically toward
fiscally sound policies. Witness what has occurred with a Democrat in the
White House over the last four years. The budget deficit has shrunk from $300
billion to just over $100 billion, the debate has shifted away from where
government moneys should be spent to what spending cuts should be made, and
the two parties debated whether the budget should be balanced in seven years
or in ten. Beyond that, we had a presidential campaign in which the
Republican challenger was calling for a tax cut and the Democratic incumbent
attacked it for being budgetarily imprudent. The new reality is that the only
poll that really seems to matter is the one being taken in the global
financial markets; sound policies are rewarded, unsound policies are not.
All the factors that have influenced the bond market over the past year
have the effect of diverting attention from the larger trends, but the larger
trends are of the most importance in determining investment success over the
long- term. At Manning & Napier, we view the big picture items as the most
important. The growth in international trade, the subsequent increase in
international competition, the need for policy makers, producers, and
consumers to adjust to this new economic reality, and the impact their actions
have had on the economy, inflation, and interest rates are what drives our
fixed income process. These are long-term, secular influences that have
brought down interest rates, have capped inflation expectations, and have
allowed longer-term, non_callable securities to provide strong investment
returns.
As in previous years, we have positioned the Series portfolio in
accordance with our overview. Within the framework of the maturity guidelines
set down for the Series, Manning & Napier weighted the portfolio toward the
longer end of the maturity spectrum. During the first half of 1996 when
interest rates were rising, that
2
<PAGE>
Management Discussion and Analysis (continued)
weighting was amplified. An emphasis was also placed on non_callable
securities. Given that, the mortgage_backed sector of the fixed income
marketplace was underweighted. Small positions were established, but they
totaled less than 10% of the Series portfolio. Corporate bonds were
unaffected by the overview. The sector was avoided, however, because the
credit spreads associated with corporate bonds were so narrow relative to U.S.
Treasury securities that Manning & Napier felt that investors were not being
paid for the credit risk inherent in investments in corporate bonds.
While 1996 has been a difficult year for the bond market, it is important
to realize that the causes of the difficulty were essentially shorter-term in
nature. Speculative excesses, a cyclical growth scare and the associated
inflation worries, and the uncertainty associated with an election all
combined to push interest rates higher. It is also worthwhile noting that the
shorter-term problems that plagued 1996 are needed to create the quality
longer-term investment opportunities that will benefit the Series going
forward. In addition, the uncertainties that the election introduced are
becoming even more short-lived given the growing importance of the financial
markets. Beyond all of this, Manning & Napier believes that the adherence to
a long-term investment overview and investment process is what separates the
good funds from the bad ones.
We wish you and yours all the best during this holiday season.
MANNING & NAPIER ADVISORS, INC.
[GRAPHIC]
[PIE CHART]
Effective Maturity - As of 10/31/96
Less than 1 Year - 15%
1 - 2 Years - 5%
2 - 3 Years - 13%
3 - 5 Years - 22%
5 - 7 Years - 9%
More than 7 Years - 36%
3
<PAGE>
Performance Update as of October 31, 1996
The value of a $10,000 investment in the Manning & Napier Fund, Inc. -
Flexible Yield Series II from its inception (2/15/94) to present (10/31/96) as
compared to the Merrill Lynch Corporate/Government Intermediate Index. 1
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc. - Flexible Yield Series II
Total Return
Growth of
Through $10,000 Average
10/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 10,427 4.27% 4.27%
Inception 2 $ 11,336 13.36% 4.73%
</TABLE>
<TABLE>
<CAPTION>
Merrill Lynch Corporate/Government Intermediate Index
Total Return
Growth of
Through $10,000 Average
10/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 10,574 5.74% 5.74%
Inception 2 $ 11,672 16.72% 5.87%
</TABLE>
1 The Merrill Lynch Corporate/Government Intermediate Index is a market
value weighted measure of approximately 3,360 corporate and government bonds.
The Index is comprised of investment grade bonds with maturities greater than
one year but less than ten years. The Index returns assume reinvestment of
coupons and, unlike Fund returns, do not reflect any fees or expenses.
2 The Fund and Index performance are calculated from February 15, 1994,
the Fund's inception date. The Fund's performance is historical and may
not be indicative of future results.
[GRAPHIC]
LINE CHART
Data for Line Chart to follow:
<TABLE>
<CAPTION>
Manning & Napier Merrill Lynch Corporate/Government
Flexible Yield Series II Intermediate Index
<S> <C> <C>
02/15/94 10,000 10,000
06/30/94 9,510 9,727
12/31/94 9,531 9,799
06/30/95 10,576 10,737
12/31/95 11,182 11,301
04/30/96 10,889 11,167
10/31/96 11,336 11,672
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO - OCTOBER 31, 1996
Shares/Principal VALUE
Amount (NOTE 2)
<S> <C> <C>
U.S. TREASURY NOTES - 96.2%
U.S. Treasury Note, 7.50%, 1/31/1997 $ 10,000 $ 10,056
U.S. Treasury Note, 4.75%, 2/15/1997 10,000 9,978
U.S. Treasury Note, 6.875%, 2/28/1997 30,000 30,150
U.S. Treasury Note, 6.00%, 8/31/1997 20,000 20,075
U.S. Treasury Note, 5.875%, 4/30/1998 25,000 25,078
U.S. Treasury Note, 5.125%, 11/30/1998 20,000 19,748
U.S. Treasury Note, 5.00%, 1/31/1999 15,000 14,752
U.S. Treasury Note, 6.50%, 4/30/1999 25,000 25,377
U.S. Treasury Note, 5.50%, 4/15/2000 30,000 29,527
U.S. Treasury Note, 6.75%, 4/30/2000 25,000 25,570
U.S. Treasury Note, 7.875%, 8/15/2001 45,000 48,263
U.S. Treasury Note, 6.25%, 2/15/2003 40,000 40,137
U.S. Treasury Note, 5.875%, 2/15/2004 60,000 58,594
U.S. Treasury Note, 7.25%, 5/15/2004 100,000 105,625
TOTAL U.S. TREASURY NOTES
(Identified Cost $446,830) 462,930
SHORT-TERM INVESTMENTS - 3.0%
Dreyfus U.S. Treasury Money Market Reserves
(Identified Cost $14,323) 14,323 14,323
TOTAL INVESTMENTS - 99.2%
(Identified Cost $461,153) 477,253
OTHER ASSETS, LESS LIABILITIES - 0.8% 4,041
NET ASSETS - 100% $481,294
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
Federal Tax Information - October 31, 1996
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
At October 31, 1996, the net unrealized appreciation based on identified cost for
federal income tax purposes of $461,153 was as follows:
<S> <C>
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost $16,103
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value (3)
UNREALIZED APPRECIATION - NET $16,100
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
OCTOBER 31, 1996
<S> <C>
ASSETS:
Investments, at value (Identified Cost $461,153)(Note 2) $477,253
Interest receivable 6,938
Receivable from investment advisor (Note 3) 14,712
TOTAL ASSETS 498,903
LIABILITIES:
Accrued Directors' fees (Note 3) 5,072
Transfer agent fees payable (Note 3) 90
Audit fee payable 7,750
Other payables and accrued expenses 4,697
TOTAL LIABILITIES 17,609
NET ASSETS FOR 47,655 SHARES OUTSTANDING $481,294
NET ASSETS CONSIST OF:
Capital stock $ 476
Additional paid-in-capital 455,681
Undistributed net investment income 8,750
Accumulated net realized gain on investments 287
Net unrealized appreciation on investments 16,100
TOTAL NET ASSETS $481,294
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($481,294 / 47,655 shares) $ 10.10
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
For the For the
Ten Months Year
Ended 10/31/96 Ended 12/31/95
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 23,842 $ 29,659
EXPENSES:
Management fees (Note 3) 1,688 2,160
Directors' fees (Note 3) 5,072 6,792
Transfer agent fees (Note 3) 90 115
Audit fee 7,808 10,400
Registration and filing fees 3,929 2,453
Custodian fee 150 600
Miscellaneous 665 -
Total Expenses 19,402 22,520
Less Waiver of Expenses (Note 3) (16,400) (18,679)
Net Expenses 3,002 3,841
NET INVESTMENT INCOME 20,840 25,818
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investments (identified cost basis) 289 2,582
Net change in unrealized appreciation on investments (12,780) 45,414
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (12,491) 47,996
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 8,349 $ 73,814
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Period
2/15/94
For the Ten For the (commencement
Months Ended Year Ended of operations)
10/31/96 12/31/95 to 12/31/94
-------------- ------------ ----------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 20,840 $ 25,818 $ 10,888
Net realized gain on investments 289 2,582 -
Net change in unrealized appreciation (depreciation)
on investments (12,780) 45,414 (16,534)
Net increase (decrease) in net assets from operations 8,349 73,814 (5,646)
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (12,453) (25,351) (10,558)
From net realized gain on investments (2,503) - -
Total distributions to shareholders (14,956) (25,351) (10,558)
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase (decrease) in net assets from capital share
transactions (Note 5) 49,875 (5,951) 411,718
Net increase in net assets 43,268 42,512 395,514
NET ASSETS:
Beginning of period 438,026 395,514 -
End of period (including undistributed net investment
income of $8,750, $363 and $330 respectively) $ 481,294 $ 438,026 $ 395,514
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
For the
Ten For the
Months Year
Ended Ended
10/31/96 12/31/95
---------- ----------
<S> <C> <C>
Per share data (for a share outstanding throughout
each period ):
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.30 $ 9.27
Income from investment operations:
Net investment income 0.445 0.561
Net realized and unrealized gain (loss)
on investments (0.315) 1.019
Total from investment operations 0.130 1.580
Less distributions to shareholders:
From net investment income (0.270) (0.550)
From net realized gain on investments (0.060) -
Total distributions to shareholders (0.330) (0.550)
NET ASSET VALUE - END OF PERIOD $ 10.10 $ 10.30
Total return 1 1.38% 17.33%
Ratios (to average net assets) / Supplemental Data:
Expenses* 0.80%2 0.80%
Net investment income* 5.55%2 5.38%
Portfolio turnover 5% 35%
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 481 $ 438
* The investment advisor did not impose its management fee and paid a portion of the Fund's expenses.
If these expenses had been incurred by the Fund, expenses would have been limited to that allowed
by state securities law and the net investment income per share and the ratios would have been as
follows:
Net investment income $ 0.309 $ 0.384
Ratios (to average net assets):
Expenses 2.50%2 2.50%
Net investment income 3.85%2 3.68%
1 Represents aggregate total return for the period indicated
2 Annualized
For the Period
2/15/94
(commencement
of operations) to
12/31/94
-------------------
<S> <C>
Per share data (for a share outstanding throughout
each period ):
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.00
Income from investment operations:
Net investment income 0.269
Net realized and unrealized gain (loss)
on investments (0.738)
Total from investment operations (0.469)
Less distributions to shareholders:
From net investment income (0.261)
From net realized gain on investments -
Total distributions to shareholders (0.261)
NET ASSET VALUE - END OF PERIOD $ 9.27
Total return 1 (4.69%)
Ratios (to average net assets) / Supplemental Data:
Expenses* 0.80%2
Net investment income* 5.40%2
Portfolio turnover 0%
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 396
* The investment advisor did not impose its management fee and paid a portion of the Fund's expenses.
If these expenses had been incurred by the Fund, expenses would have been limited to that allowed
by state securities law and the net investment income per share and the ratios would have been as
follows:
Net investment income $ 0.184
Ratios (to average net assets):
Expenses 2.50%2
Net investment income 3.70%2
1 Represents aggregate total return for the period indicated
2 Annualized
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
Notes to Financial Statements
1. ORGANIZATION
Flexible Yield Series II (the "Fund") is a no-load diversified
series of Manning & Napier Fund, Inc. (the "Corporation"). The Corporation is
organized as a Maryland Corporation and is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
The total authorized capital stock of the Corporation consists of one
billion shares of common stock each having a par value of $0.01. As of
October 31, 1996, 940 million shares have been designated in total among 19
series, of which 50 million have been designated as Flexible Yield Series II
Class N Common Stock.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Portfolio securities listed on an exchange are valued at the latest
quoted sales price of the exchange on which the security is traded most
extensively. Securities not traded on valuation date or securities not listed
on an exchange are valued at the latest quoted bid price.
Debt securities, including government bonds and mortgage backed
securities, will normally be valued on the basis of evaluated bid prices.
Securities for which representative prices are not available from the
Fund's pricing service are valued at fair value as determined in good faith by
the Advisor under procedures established by and under the general supervision
and responsibility of the Fund's Board of Directors.
Short-term investments that mature in sixty (60) days or less are
valued at amortized cost.
SECURITY TRANSACTIONS, INVESTMENT INCOME AND EXPENSES
Security transactions are accounted for on the date the securities are
purchased or sold. Dividend income is recorded on the ex-dividend date.
Interest income and expenses are recorded on an accrual basis.
Most expenses of the Corporation can be attributed to a specific fund.
Expenses which cannot be directly attributed are apportioned among the funds
in the Corporation.
FEDERAL INCOME TAXES
The Fund's policy is to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies. The Fund is not
subject to federal income or excise tax to the extent the Fund distributes to
shareholders each year its taxable income, including any net realized gains on
investments in accordance with
11
<PAGE>
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FEDERAL INCOME TAXES (CONTINUED)
requirements of the Internal Revenue Code. Accordingly, no provision for
federal income tax or excise tax has been made in the financial statements.
The Fund uses the identified cost method for determining realized gain or
loss on investments for both financial statement and federal income tax
reporting purposes.
DISTRIBUTION OF INCOME AND GAINS
Distributions to shareholders of net investment income are made
quarterly. Distributions are recorded on the ex-dividend date. Distributions
of net realized gains are distributed annually. An additional distribution
may be necessary to avoid taxation of the Fund.
The timing and characterization of certain income and capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. The differences may be a
result of deferral of certain losses, or character reclassification between
net income and net gains, or other required tax adjustments. As a result, net
investment income (loss) and net investment gain (loss) on investment
transactions for a reporting period may differ significantly from
distributions to shareholders during such period. As a result, the Fund may
periodically make reclassifications among its capital accounts without
impacting the Fund's net asset value.
OTHER
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reorted amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. TRANSACTIONS WITH AFFILIATES
The Fund has an investment advisory agreement with Manning & Napier
Advisors, Inc. (the "Advisor"), for which the Fund pays the Advisor a fee,
computed daily and payable monthly, at an annual rate of 0.45% of the Fund's
average daily net assets. The fee amounted to $1,688 for the ten months ended
October 31, 1996 and $2,160 for the year ended December 31, 1995.
12
<PAGE>
Notes to Financial Statements
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
Under the Fund's Investment Advisory Agreement (the "Agreement"),
personnel of the Advisor provide the Fund with advice and assistance in the
choice of investments and the execution of securities transactions, and
otherwise maintain the Fund's organization. The Advisor also provides the
Fund with necessary office space and portfolio accounting and bookkeeping
services. The salaries of all officers of the Fund and of all Directors who
are "affiliated persons" of the Fund or of the Advisor, and all personnel of
the Fund or of the Advisor performing services relating to research,
statistical and investment activities are paid by the Advisor.
The Advisor has voluntarily agreed to waive its fee and, if necessary,
pay other expenses of the Fund in order to maintain total expenses for the
Fund at no more than 0.80% of average daily net assets each year.
Accordingly, the Advisor did not impose any of its fee and paid expenses
amounting to $14,712 for the ten months ended October 31, 1996 and $16,519 for
the year ended December 31, 1995, which are reflected as a reduction of
expenses on the Statement of Operations. The fee waiver and assumption of
expenses by the Advisor is voluntary and may be terminated at any time.
The Advisor also acts as the transfer, dividend paying and shareholder
servicing agent for the Fund. For these services, the Fund pays a fee which
is calculated as a percentage of the average daily net assets at an annual
rate of 0.024%; this fee amounted to $90 for the ten months ended October 31,
1996 and $115 for the year ended December 31, 1995.
Manning & Napier Investor Services, Inc., a registered broker-dealer
affiliate of the Advisor, acts as distributor for the Fund's shares. The
services of Manning & Napier Investor Services, Inc. are provided at no
additional cost to the Fund.
The compensation of the non-affiliated Directors totaled $5,072 for the
ten months ended October 31, 1996 and $6,792 for the year ended December 31,
1995.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term securities, were
$64,125 and $20,181 respectively, for the ten months ended October 31,
1996.
13
<PAGE>
Notes to Financial Statements
5. CAPITAL STOCK TRANSACTIONS
Transactions in shares of Flexible Yield Series II Class N Common Stock were:
<TABLE>
<CAPTION>
For the Period 2/15/94
For the Ten Months For the Year (commencement of
Ended 10/31/96 Ended 12/31/95 operations) to 12/31/94
Shares Amount Shares Amount Shares Amount
------------------- --------- --------------- ---------- ----------------------- --------
<S> <C> <C> <C> <C> <C> <C>
Sold 7,361 $ 72,902 17,414 $ 173,234 41,530 $401,160
Reinvested 1,460 14,399 2,527 25,352 1,139 10,558
Repurchased (3,711) (37,426) (20,065) (204,537) - -
Total 5,110 $ 49,875 (124) $ (5,951) 42,669 $411,718
</TABLE>
The Advisor owned 13,836 shares on October 31, 1996 and 13,383 shares on
December 31, 1995 and 12,674 shares on December 31, 1994.
6. FINANCIAL INSTRUMENTS
the Fund may trade in financial instruments with off-balance sheet risk
in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include
written options and futures contracts and may involve, to a varying
degree, elements of risk in excess of the amounts recognized for financial
statement purposes. No such investments were held by the Fund on October
31, 1996.
7. CHANGE IN FISCAL YEAR END
Effective January 1, 1996, the Fund changed its fiscal year end from
December 31 to October 31.
14
<PAGE>
Independent Auditors' Report
TO THE DIRECTORS OF MANNING & NAPIER FUND, INC.
AND SHAREHOLDERS OF FLEXIBLE YIELD SERIES II:
We have audited the accompanying statement of assets and liabilities,
including the investment portfolio, of Flexible Yield Series II (one of the
series constituting Manning & Napier Fund, Inc.) as of October 31, 1996, the
related statement of operations for the ten months then ended and the year
ended December 31, 1995, the statement of changes in net assets for the ten
months ended October 31, 1996 and the years ended December 31, 1995 and 1994,
and the financial highlights for each of the periods indicated in the
financial highlights table herein. These financial statements and financial
highlights are the responsibility of the Funds management. Our responsibility
is to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of investments owned at October 31, 1996 by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of Flexible
Yield Series II at October 31, 1996, the results of its operations, the
changes in its net assets and its financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
November 19, 1996
15
<PAGE>
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
Flexible Yield Series III
Annual Report
October 31, 1996
<PAGE>
Management Discussion and Analysis
Dear Shareholders:
During 1996, we have experienced what Manning & Napier feels to be a
temporary setback in the bond market. Short-term factors, including
speculation in the bond market, inflation fears, and political uncertainty
have led to a difficult year in the bond market. Especially when contrasted
with the extraordinary returns earned by bonds and bond funds in 1995, the
luster appears to have worn off the bond market. Our experience, however,
teaches us that short-term situations such as this provide opportunities to
position the portfolio to benefit from the long-term trends which are the most
important determinants of returns in the bond market.
At the end of 1995, the bond market looked about as good as it could
get. Economic growth was slowing, some were even calling for a recession
later in 1996, and inflation worries were non-existent. These factors pushed
long-term interest rates down through the 6% level, and they finished 1995 at
5.95%.
The tide began to turn rather quickly right at the start of 1996.
One of the reasons why the market rallied so strongly during the second half
of 1995 can be traced to speculative investments in U.S. Treasury securities.
Speculators were borrowing Japanese yen at extraordinarily low Japanese
short-term interest rates (0.3% to 0.5%), converting the yen into U.S.
dollars, and investing the proceeds in U.S. Treasury securities. As long as
Japanese short rates were expected to stay low or the yen was expected to slip
versus the U.S. dollar, this trade worked quite well. Unfortunately, once the
tide began to turn (i.e. people thought Japanese short-term interest rates
might rise), the selling it created snowballed due to the leverage inherent in
the trade. That happened during the early part of 1996, and short to
intermediate interest rates rose rather quickly.
As spring started to roll in, the bond market was shocked by the
February employment report issued by the Bureau of Labor Statistics. The
number of new jobs created during the month of February was an eye_popping
705,000 at the time of the first release. Subsequent releases revised the
number modestly lower, but those same releases reported job gains that were
much stronger than what had been the case in 1995. The probability of a
recession became remote, and fears of inflation began to surface once again.
Strong consumer expenditures during the first half of 1996, solid capital
spending, and a surprisingly resilient housing sector simply added to the
markets concerns, driving long-term interest rates close to 7.25%. As the
summer ended, concerns seem to be somewhat assuaged, but rates remained
stubbornly close to 7%.
It is important to note, however, that throughout all of this,
inflation itself remained very much in check. The most common measures, the
Producer Price Index (PPI) and the Consumer Price Index (CPI), both remained
at or below 3.0% on a year-over-year basis throughout 1996. An even more
accurate measure of inflation, the GDP deflator, remained closer to 2.0%.
That means real interest rates (nominal rates less the rate of inflation)
exceeded 4%-5%, depending upon which measure of inflation was used.
In the near-term, no one likes to see rising interest rates, but if
one expects inflation to remain under control over the longer-term, rising
interest rates can create compelling fixed income buying opportunities. In
the fixed income markets, 1996 has been a stern test, but in the long run,
only those who acted during these difficult times will be positioned to
benefit from the long-term trends of moderate growth and low inflation.
As everyone is quite aware, 1996 is an election year, and the market
reacted to the uncertainty of the countrys political future. The political
posturing started at the end of last year when the Republican Congress and the
Democratic White House shut down the government and threatened to default on
U.S. Treasury securities. It
1
<PAGE>
Management Discussion and Analysis (continued)
veered off to the right with the rise and fall of Steve Forbes and
his call for a flat income tax. It focused on the Republican primaries in the
spring with Bob Dole being the ultimate winner. And it has continued
throughout the election season as the incumbent, President Clinton, maintained
a double digit lead in the polls.
In the short-term, elections do introduce volatility in the
marketplace. This year saw a marked acceleration in the growth rate of
government expenditures, which comprise about 20% of this country's GDP. This
was a big contributor to the acceleration in overall economic growth during
the first half of 1996, and that acceleration contributed to this years
increase in interest rates.
Elections also introduce uncertainty. Who will win the election?
Who will control the House? The Senate? What issues will galvanize the public?
Financial markets, as a general rule, do not like uncertainty and this year
was no exception. Given the sizable lead the President held in the polls
throughout the campaign, the biggest uncertainty seemed to relate to which
party would control the Congress. Historically, the financial markets seem to
prefer split control -- one party in control of one branch of the government
and the other in control of another.
In the long run, however, the election results may not be of major
importance. With the growth of the global financial markets and the influence
they wield on a country's interest and exchange rates, who is in the White
House or who controls Congress becomes less significant. The financial
markets are in effect pulling all parties to the right, specifically toward
fiscally sound policies. Witness what has occurred with a Democrat in the
White House over the last four years. The budget deficit has shrunk from $300
billion to just over $100 billion, the debate has shifted away from where
government moneys should be spent to what spending cuts should be made, and
the two parties debated whether the budget should be balanced in seven years
or in ten. Beyond that, we had a presidential campaign in which the
Republican challenger was calling for a tax cut and the Democratic incumbent
attacked it for being budgetarily imprudent. The new reality is that the only
poll that really seems to matter is the one being taken in the global
financial markets; sound policies are rewarded, unsound policies are not.
All the factors that have influenced the bond market over the past
year have the effect of diverting attention from the larger trends, but the
larger trends are of the most importance in determining investment success
over the long- term. At Manning & Napier, we view the big picture items as
the most important. The growth in international trade, the subsequent
increase in international competition, the need for policy makers, producers,
and consumers to adjust to this new economic reality, and the impact their
actions have had on the economy, inflation, and interest rates are what drives
our fixed income process. These are long-term, secular influences that have
brought down interest rates, have capped inflation expectations, and have
allowed longer-term, non_callable securities to provide strong investment
returns.
As in previous years, we have positioned the Series portfolio in
accordance with our overview. Within the framework of the maturity guidelines
set down for the Series, Manning & Napier weighted the portfolio toward the
longer end of the maturity spectrum. During the first half of 1996 when
interest rates were rising, that weighting was amplified. An emphasis was
also placed on non_callable securities. Given that, the mortgage_backed
sector of the fixed income marketplace was underweighted. Small positions
were established, but they totaled less than 10% of the Series portfolio.
Corporate bonds were unaffected by the overview. The sector
2
<PAGE>
Management Discussion and Analysis (continued)
was avoided, however, because the credit spreads associated with
corporate bonds were so narrow relative to U.S. Treasury securities that
Manning & Napier felt that investors were not being paid for the credit risk
inherent in investments in corporate bonds.
While 1996 has been a difficult year for the bond market, it is
important to realize that the causes of the difficulty were essentially
shorter-term in nature. Speculative excesses, a cyclical growth scare and the
associated inflation worries, and the uncertainty associated with an election
all combined to push interest rates higher. It is also worthwhile noting that
the shorter-term problems that plagued 1996 are needed to create the quality
longer-term investment opportunities that will benefit the Series going
forward. In addition, the uncertainties that the election introduced are
becoming even more short-lived given the growing importance of the financial
markets. Beyond all of this, Manning & Napier believes that the adherence to
a long-term investment overview and investment process is what separates the
good funds from the bad ones.
We wish you and yours all the best during this holiday season.
MANNING & NAPIER ADVISORS, INC.
[GRAPHIC]
[PIE CHART]
Effective Maturity - As of 10/31/96
Less than 1 year - 9%
1 - 2 Years - 5%
2 - 3 Years - 6%
3 - 5 Years -12%
5 - 7 Years - 19%
7 - 10 Years - 16%
Over 10 Years - 33%
[GRAPHIC]
[PIE CHART]
Portfolio Composition - As of 10/31/96
U.S. Treasury Securities - 91%
Mortgage Backed Securities - 6%
Cash & Equivalents - 3%
3
<PAGE>
Performance Update as of October 31, 1996
The value of a $10,000 investment in the Manning & Napier Fund, Inc. -
Flexible Yield Series III from its inception (12/20/93) to present (10/31/96)
as compared to the Merrill Lynch Corporate/Government Bond Index. 1
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc. - Flexible Yield Series III
Total Return
Growth of
Through $10,000 Average
10/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 10,361 3.61% 3.61%
Inception 2 $ 11,431 14.31% 4.77%
</TABLE>
<TABLE>
<CAPTION>
Merrill Lynch Corporate/Government Bond Index
Total Return
Growth of
Through $10,000 Average
10/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
One Year $ 10,529 5.29% 5.29%
Inception 2 $ 11,778 17.78% 5.87%
</TABLE>
1 The Merrill Lynch Corporate/Government Bond Index is a market
value weighted measure of approximately 4,775 corporate and
government bonds. The Index is comprised of investment grade
securities with maturities greater than one year. The Index returns
assume reinvestment of coupons and, unlike Fund returns, do not reflect
any fees or expenses.
2 The Fund and Index performance are calculated from December 20,
1993, the Fund's inception date. The Fund's performance is historical
and may not be indicative of future results.
[GRAPHIC]
LINE CHART
Data for Line Chart to follow:
<TABLE>
<CAPTION>
Manning & Napier Merrill Lynch Corporate/
Flexible Yield Series III Government Bond Index
<S> <C> <C>
12/20/93 $ 10,000 $ 10,000
12/31/93 9,960 10,013
06/30/94 9,349 9,602
12/31/94 9,380 9,686
06/30/95 10,634 10,815
12/31/95 11,451 11,532
04/30/96 10,868 11,191
10/31/96 11,431 11,778
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - October 31, 1996
PRINCIPAL VALUE
AMOUNT (NOTE 2)
U.S. TREASURY SECURITIES - 90.83%
<S> <C> <C>
U.S. TREASURY BONDS - 19.28%
U.S. Treasury Bond, 7.25%, 8/15/2022
(Identified Cost $186,166 ) $ 200,000 $211,625
U.S. TREASURY NOTES - 64.94%
U.S. Treasury Note, 4.375%, 11/15/1996 25,000 24,984
U.S. Treasury Note, 7.50%, 1/31/1997 40,000 40,225
U.S. Treasury Note, 6.875%, 2/28/1997 35,000 35,175
U.S. Treasury Note, 5.00%, 1/31/1998 50,000 49,617
U.S. Treasury Note, 5.125%, 11/30/1998 60,000 59,245
U.S. Treasury Note, 7.75%, 11/30/1999 40,000 42,000
U.S. Treasury Note, 5.50%, 4/15/2000 25,000 24,606
U.S. Treasury Note, 6.25%, 8/31/2000 60,000 60,432
U.S. Treasury Note, 7.50%, 11/15/2001 35,000 37,052
U.S. Treasury Note, 6.375%, 8/15/2002 150,000 151,623
U.S. Treasury Note, 5.75%, 8/15/2003 15,000 14,607
U.S. Treasury Note, 5.875%, 2/15/2004 100,000 97,656
U.S. Treasury Note, 6.50%, 8/15/2005 75,000 75,773
TOTAL U.S. TREASURY NOTES
(Identified Cost $755,476) 712,995
U.S. TREASURY STRIPPED SECURITIES- 6.61%
Interest Stripped - Principal Payment, 5/15/2014 98,000 29,822
Interest Stripped - Principal Payment, 8/15/2014 143,000 42,784
TOTAL U.S. TREASURY STRIPPED SECURITIES
(Identified Cost $21,905 ) 72,606
TOTAL U.S. TREASURY SECURITIES
(Identified Cost $963,547) 997,226
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - October 31, 1996
Principal
Amount/ Value
Shares (Note 2)
U.S. GOVERNMENT AGENCIES - 6.27%
<S> <C> <C>
MORTGAGE BACKED SECURITIES
GNMA, Pool #224199, 9.50%, 7/15/2018 $16,138 $ 17,404
GNMA, Pool #299164, 9.00%, 12/15/2020 16,634 17,580
GNMA, Pool #376345, 6.50%, 12/15/2023 35,398 33,817
TOTAL U.S. GOVERNMENT AGENCIES
(Identified Cost $64,597 ) 68,801
SHORT-TERM INVESTMENTS - 2.04%
Dreyfus U.S. Treasury Money Market Reserves
(Identified Cost $22,359 ) 22,359 22,359
TOTAL INVESTMENTS - 99.14%
(Identified Cost $1,050,503 ) 1,088,386
OTHER ASSETS, LESS LIABILITIES - 0.86% 9,478
NET ASSETS - 100% $1,097,864
</TABLE>
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
At October 31, 1996, the net unrealized appreciation based on identified cost for
federal income tax purposes of $1,050,503 was as follows:
<S> <C>
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost $45,831
Aggregate gross unrealized depreciation for all investments
in which there was an excess of tax cost over value (7,948)
UNREALIZED APPRECIATION - NET $37,883
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
OCTOBER 31, 1996
<S> <C>
ASSETS:
Investments, at value (Identified Cost $1,050,503)(Note 2) $1,088,386
Interest receivable 14,831
Receivable from investment advisor (Note 3) 12,396
TOTAL ASSETS 1,115,613
LIABILITIES:
Accrued Directors' fees (Note 3) 5,072
Audit fee payable 7,750
Other payables and accrued expenses 4,927
TOTAL LIABILITIES 17,749
NET ASSETS FOR 108,427 SHARES OUTSTANDING $1,097,864
NET ASSETS CONSIST OF:
Capital stock $ 1,084
Additional paid-in-capital 1,037,339
Undistributed net investment income 16,958
Accumulated net realized gain on investments 4,600
Net unrealized appreciation on investments 37,883
TOTAL NET ASSETS $1,097,864
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($1,097,864/108,427 shares) $ 10.13
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
For the Ten Months For the Year
Ended 10/31/96 Ended 12/31/95
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 60,867 $ 66,467
EXPENSES:
Management fees (Note 3) 4,454 4,767
Directors' fees (Note 3) 5,072 6,832
Transfer agent fees (Note 3) 214 229
Audit fee 9,425 8,600
Custodian fee 500 600
Miscellaneous 4,754 2,424
Total Expenses 24,419 23,452
Less Waiver of Expenses (Note 3) (16,850) (15,349)
Net Expenses 7,569 8,103
NET INVESTMENT INCOME 53,298 58,364
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) on investments (identified cost basis) 4,772 (132)
Net change in unrealized appreciation on investments (60,560) 128,849
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (55,788) 128,717
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS ($2,490) $ 187,081
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
For the Ten For the For the
Months Ended Year Ended Year Ended
10/31/96 12/31/95 12/31/94
-------------- ------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 53,298 $ 58,364 $ 21,040
Net realized gain (loss) on investments 4,772 (132) (28)
Net change in unrealized appreciation (depreciation)
on investments (60,560) 128,849 (30,063)
Net increase (decrease) in net assets from operations (2,490) 187,081 (9,051)
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (36,728) (57,528) (20,952)
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase (decrease) in net assets from capital share
transactions (Note 5) (22,142) 282,134 702,883
Net increase (decrease) in net assets (61,360) 411,687 672,880
NET ASSETS:
Beginning of period 1,159,224 747,537 74,657
End of period (including undistributed net investment
income of $16,958, $388, and $88, respectively) $ 1,097,864 $ 1,159,224 $ 747,537
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
For the For the
Ten Months Year
Ended Ended
10/31/96 12/31/95
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.51 $ 9.11
Income from investment operations:
Net investment income 0.497 0.582
Net realized and unrealized gain (loss)
on investments (0.532) 1.393
Total from investment operations (0.035) 1.975
Less distributions to shareholders:
From net investment income (0.345) (0.575)
NET ASSET VALUE - END OF PERIOD $ 10.13 $ 10.51
Total return 1 (0.18%) 22.09%
Ratios (to average net assets)/Supplemental Data:
Expenses* 0.85%2 0.85%
Net investment income* 5.98%2 6.13%
Portfolio turnover 5% 6%
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 1,098 $ 1,159
* The investment advisor did not impose its management fee and paid a portion of the Fund's
expenses. If these expenses had been incurred by the Fund for the periods ended December 31,
1993, December 31, 1994, and October 31, 1996, expenses would have been limited to that
allowed by state securities law. If the full expenses allowed by state securities law had been
incurred by the Fund, the net investment income per share and the ratios would have been as
follows:
Net investment income $ 0.360 $ 0.429
Ratios(to average net assets):
Expenses 2.50%2 2.46%
Net investment income 4.33%2 4.52%
1 Represents aggregate total return for the period indicated.
2 Annualized.
For the Period
For the 12/20/93
Year (commencement
Ended of operations) to
12/31/94 12/31/93
---------- -------------------
<S> <C> <C>
Per share data (for a share outstanding throughout each period):
NET ASSET VALUE - BEGINNING OF PERIOD $ 9.95 $ 10.00
Income from investment operations:
Net investment income 0.262 0.010
Net realized and unrealized gain (loss)
on investments (0.841) (0.050)
Total from investment operations (0.579) (0.040)
Less distributions to shareholders:
From net investment income (0.261) (0.010)
NET ASSET VALUE - END OF PERIOD $ 9.11 $ 9.95
Total return 1 (5.83%) (0.40%)
Ratios (to average net assets)/Supplemental Data:
Expenses* 0.85% 0.85%2
Net investment income* 6.22% 3.85%2
Portfolio turnover 1% 0%
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 748 $ 75
* The investment advisor did not impose its management fee and paid a portion of the Fund's
expenses. If these expenses had been incurred by the Fund for the periods ended December 31,
1993, December 31, 1994, and October 31, 1996, expenses would have been limited to that
allowed by state securities law. If the full expenses allowed by state securities law had been
incurred by the Fund, the net investment income per share and the ratios would have been as
follows:
Net investment income $ 0.192 $ 0.010
Ratios(to average net assets):
Expenses 2.50% 2.50%2
Net investment income 4.57% 2.20%2
1 Represents aggregate total return for the period indicated.
2 Annualized.
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
Notes to Financial Statements
1. ORGANIZATION
Flexible Yield Series III (the "Fund") is a no-load diversified series of
Manning & Napier Fund, Inc. (the "Corporation"). The Corporation is organized
as a Maryland Corporation and is registered under the Investment Company Act
of 1940, as amended, as an open-end management investment company.
The total authorized capital stock of the Corporation consists of one
billion shares of common stock each having a par value of $0.01. As of
October 31, 1996, 940 million shares have been designated in total among 19
series, of which 50 million have been designated as Flexible Yield Series III
Class O Common Stock.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Portfolio securities listed on an exchange are valued at the latest
quoted sales price of the exchange on which the security is traded most
extensively. Securities not traded on valuation date or securities not
listed on an exchange are valued at the latest quoted bid price.
Debt securities, including government bonds and mortgage backed
securities, will normally be valued on the basis of evaluated bid prices.
Securities for which representative prices are not available from
the Fund's pricing service are valued at fair value as determined in good
faith by the Advisor under procedures established by and under the general
supervision and responsibility of the Fund's Board of Directors.
Short-term investments that mature in sixty (60) days or less are
valued at amortized cost.
SECURITY TRANSACTIONS, INVESTMENT INCOME AND EXPENSES
Security transactions are accounted for on the date the securities
are purchased or sold. Dividend income is recorded on the ex-dividend
date. Interest income and expenses are recorded on an accrual basis.
Most expenses of the Corporation can be attributed to a specific
fund. Expenses which cannot be directly attributed are apportioned among
the funds in the Corporation.
11
<PAGE>
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FEDERAL INCOME TAXES
The Fund's policy is to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies. The Fund is
not subject to federal income or excise tax to the extent the Fund
distributes to shareholders each year its taxable income, including any
net realized gains on investments in accordance with requirements of the
Internal Revenue Code. Accordingly, no provision for federal income tax
or excise tax has been made in the financial statements.
The Fund uses the identified cost method for determining realized
gain or loss on investments for both financial statement and federal
income tax reporting purposes.
DISTRIBUTION OF INCOME AND GAINS
Distributions to shareholders of net investment income are made
quarterly. Distributions are recorded on the ex-dividend date.
Distributions of net realized gains are distributed annually. An
additional distribution may be necessary to avoid taxation of the Fund.
The timing and characterization of certain income and capital gains
are determined in accordance with federal income tax regulations which may
differ from generally accepted accounting principles. The differences may
be a result of deferral of certain losses, character reclassification
between net income and net gains, or other tax adjustments. As a result, net
investment income (loss) and net investment gain (loss) on investment
transactions for a reporting period may differ significantly from
distributions to shareholders during such period. As a result, the
Fund may periodically make reclassifications among its capital
accounts without impacting the Fund's net asset value.
OTHER
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reorted amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
12
<PAGE>
Notes to Financial Statements
3. TRANSACTIONS WITH AFFILIATES
The Fund has an investment advisory agreement with Manning & Napier
Advisors, Inc. (the "Advisor"), for which the Fund pays the Advisor a
fee, computed daily and payable monthly, at an annual rate of 0.50% of
the Fund's average daily net assets. The fee amounted to $4,454 for the
ten months ended October 31, 1996 and $4,767 for the year ended December
31, 1995.
Under the Fund's Investment Advisory Agreement (the "Agreement"),
personnel of the Advisor provide the Fund with advice and assistance in
the choice of investments and the execution of securities transactions,
and otherwise maintain the Fund's organization. The Advisor also provides
the Fund with necessary office space and portfolio accounting and
bookkeeping services. The salaries of all officers of the Fund and of all
Directors who are "affiliated persons" of the Fund or of the Advisor, and
all personnel of the Fund or of the Advisor performing services
relating to research, statistical and investment activities are paid
by the Advisor.
The Advisor has voluntarily agreed to waive its fee and, if necessary,
pay other expenses of the Fund in order to maintain total expenses for the
Fund at no more than 0.85% of average daily net assets each year.
Accordingly, the Advisor did not impose any of its fee and paid expenses
amounting to $12,396 for the ten months ended October 31, 1996 and $10,582 for
the year ended December 31, 1995, which are reflected as a reduction of
expenses on the Statement of Operations. The fee waiver and assumption of
expenses by the Advisor is voluntary and may be terminated at any time.
The Advisor also acts as the transfer, dividend paying and
shareholder servicing agent for the Fund. For these services, the Fund
pays a fee which is calculated as a percentage of the average daily net
assets at an annual rate of 0.024%;this fee amounted to $214 for the ten
months ended October 31, 1996 and $229 for the year ended December 31, 1995.
Manning & Napier Investor Services, Inc., a registered broker-dealer
affiliate of the Advisor, acts as distributor for the Fund's shares. The
services of Manning & Napier Investor Services, Inc. are provided at no
additional cost to the Fund.
The compensation of the non-affiliated Directors totaled $5,072 for
the ten months ended October 31, 1996 and $6,832 for the year ended
December 31, 1995.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term securities, were
$49,235 and $73,092, respectively, for the ten months ended October 31, 1996.
13
<PAGE>
Notes to Financial Statements
5. CAPITAL STOCK TRANSACTIONS
Transactions in shares of Flexible Yield Series III Class O Common Stock
were:
<TABLE>
<CAPTION>
For the Ten Months For the Year For the Year
Ended 10/31/96 Ended 12/31/95 Ended 12/31/94
------------------- --------------- --------------
Shares Amount Shares Amount Shares Amount
------------------- ---------- --------------- --------- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
Sold 6,096 $ 60,715 23,843 $236,968 72,768 $686,867
Reinvested 3,073 30,104 4,597 46,488 1,752 16,016
Repurchased (11,073) (112,961) (129) (1,322) - -
Total (1,904) $ (22,142) 28,311 $282,134 74,520 $702,883
</TABLE>
6. FINANCIAL INSTRUMENTS
The Fund may trade in financial instruments with off-balance sheet
risk in the normal course of its investing activities to assist in
managing exposure to various market risks. These financial instruments
include written options and futures contracts and may involve, to a
varying degree, elements of risk in excess of the amounts recognized for
financial statement purposes. No such investments were held by the Fund
on October 31, 1996.
7. CHANGE IN FISCAL YEAR END
Effective January 1, 1996, the Fund changed its fiscal year end from
December 31 to October 31.
14
<PAGE>
Independedt Auditors'eport
TO THE DIRECTORS OF MANNING & NAPIER FUND, INC.
AND SHAREHOLDERS OF FLEXIBLE YIELD SERIES III:
We have audited the accompanying statement of assets and liabilities,
including the investment portfolio, of Flexible Yield Series III (one of the
series constituting Manning & Napier Fund, Inc.) as of October 31, 1996, the
related statement of operations for the ten months then ended and the year
ended December 31, 1995, the statement of changes in net assets for the ten
months ended October 31, 1996 and the years ended December 31, 1995 and 1994,
and the financial highlights for each of the periods indicated in the
financial highlights table herein. These financial statements and financial
highlights are the responsibility of the Funds management. Our responsibility
is to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of investments owned at October 31, 1996 by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of Flexible
Yield Series III at October 31, 1996, the results of its operations, the
changes in its net assets and its financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
November 19, 1996
15
<PAGE>
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
Defensive Series
Annual Report
October 31, 1996
<PAGE>
Management Discussion and Analysis
Dear Shareholders:
Since we last reported to you six months ago, the markets have again
exhibited the upward and downward swings akin to the later stages of economic
and market cycles. Midway through this period we saw the Dow Jones Industrial
Average take a considerable dive, only to end this semi-annual reporting cycle
above the record-breaking 6000 mark. Likewise, the 30-year U.S.. Treasury
yield rose to over 7% during this period, but bonds recovered nicely by the
end of October. However, as we have anticipated thus far, economic growth
has remained moderate and inflation has remained in check, allowing us to take
advantage of the buying opportunities that present themselves.
These gyrations were caused by overreaction to short-term economic data.
Much as happened in March of this year, the news again raised fears of higher
inflation and sent the Dow Jones Industrial Average plunging down 115 points
on July 5th in what was only a half-day of trading due to the holiday. Bonds
followed suit with the yield on the 30-year U.S. Treasury surging 25
basis-points. Many were left wondering whether the Federal Reserve Board
would raise the Fed Funds rate. However, additional evidence throughout the
summer that inflation and economic growth are under control led the Fed to
again leave rates unchanged when they met during the last week of September.
As we continue to adhere to our long-term overview for low inflation and
lower interest rates, the July 5th correction created a buying opportunity in
which we were able to slightly lengthen the maturity of the bonds in the
portfolio and move into equity sectors where valuations proved attractive.
The stock portion of the portfolio has continued emphasis in small ticket
consumer stocks which we believe have been branded with the same iron as more
cyclical consumer stocks, thus creating a buying opportunity. In addition, we
have increased our exposure to the health care sector as valuations in that
area have proved attractive as well.
1
<PAGE>
Management Discussion and Analysis (continued)
At a time when market valuations in general are high and the bull market
is aging, it is important to be discriminating about the levels of risk
acceptable in funds with different tolerances for volatility. Your Series
places a high priority on dampening market volatility, so even though we see a
number of long-term positives in the investment picture, we must be sensitive
to the possibility of cyclical disruptions. With valuations currently very
high, you should expect this Series to be conservatively positioned, and
indeed, that is the case. As we continue to move through this mature bull
market, we will hold fast to our disciplines of attempting to identify stocks
of companies with strong strategic positioning in their industry at attractive
valuations versus long-term U.S. Treasury bonds.
We wish you and yours all the best during this holiday season.
Sincerely,
Manning & Napier Advisors, Inc.
[GRAPHIC]
[PIE CHART]
Portfolio Composition - As of 10/31/96
Bonds - 88%
Stocks - 7%
Cash & Equivalents - 5%
2
<PAGE>
Performance Update as of October 31, 1996
The value of a $10,000 investment in the Manning & Napier Fund, Inc. -
Defensive Series from its inception (11/1/95) to present (10/31/96) as
compared to the Lehman Brothers Intermediate Bond Index and a Balanced Index.
1
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc. - Defensive Series
Total Return
Through Growth of $10,000 Average
10/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
Inception 2 $ 10,494 4.94% 4.94%
</TABLE>
<TABLE>
<CAPTION>
Lehman Brothers Intermediate Bond Index
Total Return
Through Growth of $10,000 Average
10/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
Inception 2 $ 10,581 5.81% 5.81%
</TABLE>
<TABLE>
<CAPTION>
Balanced Index
Total Return
Through Growth of $10,000 Average
10/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
Inception 2 $ 10,847 8.47% 8.47%
</TABLE>
1 The Lehman Brothers Intermediate Bond Index is a market value weighted
measure of approximately 3,425 corporate and government securities. The Index
is comprised of investment grade securities with maturities greater than one
year but less than ten years. The Balanced Index is 15% Standard & Poor's
(S&P) 500 Total Return Index and 85% Lehman Brothers Intermediate Bond Index.
The S&P 500 Total Return Index is an unmanaged capitalization-weighted measure
of 500 widely held common stocks listed on the New York Stock Exchange, American
Stock Exchange, and Over-the-Counter market. Both Indices returns assume
reinvestment of income and, unlike Fund returns, do not reflect any fees or
expenses.
2 Performance numbers for the Fund and Indices are calculated from November 1,
1995, the Fund's inception date. The Fund's performance is historical and may
not be indicative of future results.
[GRAPHIC]
LINE CHART
Data for Line Chart to follow:
<TABLE>
<CAPTION>
Manning & Napier Lehman Brothers
Defensive Series Intermediate Bond Index Balanced Index
<S> <C> <C> <C>
11/01/95 $ 10,000 $ 10,000 $ 10,000
01/31/96 10,287 10,326 10,425
04/30/96 10,116 10,116 10,301
07/31/96 10,137 10,246 10,389
10/31/96 10,494 10,581 10,847
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - October 31, 1996
VALUE
SHARES (NOTE 2)
COMMON STOCK - 7.43%
<S> <C> <C>
AIR TRANSPORTATION- 0.81%
Federal Express Corp.* 75 $6,038
---------
APPAREL- 0.44%
VF Corp. 50 3,269
---------
COMMUNICATIONS- 0.35%
Stet Societa' Finanziaria Telefonica S.p.A. - ADR 75 2,597
---------
ELECTROMEDICAL APPARATUS- 0.79%
Nellcor Puritan Bennett, Inc.* 300 5,850
---------
ENGINEERING SERVICES - 0.38%
Jacobs Engineering Group, Inc.* 125 2,766
---------
HEALTH SERVICES- 0.69%
MedPartners, Inc.* 242 5,112
---------
PHOTOGRAPHIC EQUIPMENT & SUPPLIES- 0.54%
Eastman Kodak Co. 50 3,987
---------
RESTAURANTS - 0.89%
McDonald's Corp. 150 6,656
---------
RETAIL - 2.01%
Fabri-Centers of America - Class A* 125 1,625
Fabri-Centers of America - Class B* 125 1,625
Fingerhut Companies, Inc. 325 4,834
Hancock Fabrics, Inc. 175 1,488
Tandy Corp. 150 5,643
---------
15,215
---------
TELECOMMUNICATIONS EQUIPMENT - 0.14%
General Instrument Corp.* 50 1,006
---------
UTILITIES-ELECTRIC- 0.39%
Enersis S.A.- ADR 100 2,938
---------
TOTAL COMMON STOCK
(Identified Cost $54,658) 55,434
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - October 31, 1996
PRINCIPAL VALUE
AMOUNT/SHARES (NOTE 2)
<S> <C> <C>
U.S. TREASURY SECURITIES- 87.80%
U.S. TREASURY BONDS - 28.57%
U.S. Treasury Bond, 6.50%, 5/15/2005 $ 150,000 $151,605
U.S. Treasury Bond, 6.875%, 8/15/2025 60,000 61,331
TOTAL U.S. TREASURY BONDS
(Identified Cost $213,904) 212,936
---------
U.S. TREASURY NOTES - 59.23%
U.S. Treasury Note, 6.00%, 8/31/1997 50,000 50,188
U.S. Treasury Note, 6.00%, 8/15/1999 170,000 170,478
U.S. Treasury Note, 6.125%, 9/30/2000 115,000 115,323
U.S. Treasury Note, 6.25%, 2/15/2003 105,000 105,361
---------
TOTAL U.S. TREASURY NOTES
(Identified Cost $442,294) 441,350
TOTAL U.S. TREASURY SECURITIES
(Identified Cost $656,198) 654,286
---------
SHORT-TERM INVESTMENTS - 3.04%
U.S. Treasury Bill, 11/29/1996 15,000 14,945
Dreyfus U.S. Treasury Money Market Reserves 7,660 7,660
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $22,605) 22,605
TOTAL INVESTMENTS - 98.27%
(Identified Cost $733,461 ) 732,325
OTHER ASSETS, LESS LIABILITIES - 1.73% 12,880
NET ASSETS - 100% $745,205
</TABLE>
*Non-income producing security
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
Federal Tax Information - October 31, 1996
FEDERAL TAX INFORMATION:
At October 31, 1996, the net unrealized depreciation based on identified cost for
federal income tax purposes of $733,461 was as follows:
<S> <C>
Aggregate gross unrealized appreciation for all investments in which
there was an excess of value over tax cost $ 4,714
Aggregate gross unrealized depreciation for all investments in which
there was an excess of tax cost over value (5,850)
UNREALIZED DEPRECIATION - NET $(1,136)
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
OCTOBER 31, 1996
<S> <C>
ASSETS:
Investments, at value (Identified Cost $733,461)(Note 2) $732,325
Interest receivable 10,065
Receivable for securities sold 4,863
Dividends receivable 13
Receivable from investment advisor (Note 3) 17,893
TOTAL ASSETS 765,159
LIABILITIES:
Accrued Directors' fees (Note 3) 6,840
Transfer agent fees payable (Note 3) 118
Audit fee payable 7,225
Other payables and accrued expenses 5,771
TOTAL LIABILITIES 19,954
NET ASSETS FOR 72,442 SHARES OUTSTANDING $745,205
NET ASSETS CONSIST OF:
Capital stock $ 724
Additional paid-in-capital 728,060
Undistributed net investment income 11,048
Accumulated net realized gain on investments 6,509
Net unrealized depreciation on investments (1,136)
TOTAL NET ASSETS $745,205
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($745,205/72,442 shares) $ 10.29
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations
FOR THE YEAR ENDED OCTOBER 31, 1996
<S> <C>
INVESTMENT INCOME:
Interest $ 25,219
Dividends 798
Total Investment Income 26,017
EXPENSES:
Management fees (Note 3) 3,940
Directors' fees (Note 3) 6,840
Transfer agent fees (Note 3) 118
Audit fee 8,000
Registration and filing fees 4,550
Custodian fee 2,439
Miscellaneous 884
Total Expenses 26,771
Less Waiver of Expenses (Note 3) (21,833)
Net Expenses 4,938
NET INVESTMENT INCOME 21,079
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on investments (identified cost basis) 6,509
Net change in unrealized depreciation on investments (1,136)
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 5,373
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 26,452
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes In Net Assets
For the Year
Ended
10/31/96
INCREASE (DECREASE) IN NET ASSETS:
<S> <C>
OPERATIONS:
Net investment income $ 21,079
Net realized gain on investments 6,509
Net change in unrealized depreciation on investments (1,136)
Net increase in net assets from operations 26,452
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (10,031)
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase in net assets from capital share
transactions (Note 5) 728,784
Net increase in net assets 745,205
NET ASSETS:
Beginning of period -
End of period (including undistributed net investment
income of $11,048) $ 745,205
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
For the Year
Ended
10/31/96
Per share data (for a share outstanding throughout
the period )
<S> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $10.00
Income from investment operations:
Net investment income 0.349
Net realized and unrealized gain on investments 0.137
Total from investment operations 0.486
Less distributions to shareholders:
From net investment income (0.196)
NET ASSET VALUE - END OF PERIOD $10.29
Total return1 4.94%
Ratios (to average net assets) / Supplemental Data:
Expenses* 1.00%
Net investment income* 4.26%
Portfolio turnover 30%
Average commission rate paid $0.0691
NET ASSETS - END OF PERIOD (000'S OMITTED) $745
*The investment advisor did not impose its management fee and paid a
portion of the Fund's expenses. If these expenses had been incurred by the
Fund, expenses would have been limited to that allowed by state securities
law and the net investment income per share and the ratios would have been
as follows:
Net investment income $0.226
Ratios (to average net assets):
Expenses 2.50%
Net investment income 2.76%
1 Represents aggregate total return for the period indicated
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
Notes to Financial Statements
1. ORGANIZATION
Defensive Series (the "Fund") is a no-load diversified series of Manning
& Napier Fund, Inc. (the "Corporation"). The Corporation is organized as a
Maryland Corporation and is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company.
The total authorized capital stock of the Corporation consists of one
billion shares of common stock each having a par value of $0.01. As of
October 31, 1996, 940 million shares have been designated in total among 19
series, of which 50 million have been designated as Defensive Series Class E
Common Stock.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Portfolio securities, including domestic equities, foreign equities,
options and corporate bonds, listed on an exchange are valued at the latest
quoted sales price of the exchange on which the security is traded most
extensively. Securities not traded on valuation date or securities not
listed on an exchange are valued at the latest quoted bid price.
Debt securities, including government bonds and mortgage backed
securities, will normally be valued on the basis of evaluated bid prices.
Securities for which representative prices are not available from the
Fund's pricing service are valued at fair value as determined in good faith
by the Advisor under procedures established by and under the general
supervision and responsibility of the Fund's Board of Directors.
Short-term investments that mature in sixty (60) days or less are valued
at amortized cost.
SECURITY TRANSACTIONS, INVESTMENT INCOME AND EXPENSES
Security transactions are accounted for on the date the securities are
purchased or sold. Dividend income is recorded on the ex-dividend date.
Interest income and expenses are recorded on an accrual basis.
Most expenses of the Corporation can be attributed to a specific fund.
Expenses which cannot be directly attributed are apportioned among the funds
in the Corporation.
FEDERAL INCOME TAXES
The Fund's policy is to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies. The Fund is not
subject to federal income or excise tax to the extent the Fund distributes to
shareholders each year its taxable income, including any net realized gains
on investments in accordance with requirements of the Internal Revenue Code.
Accordingly, no provision for federal income tax or excise tax has been made
in the financial statements.
11
<PAGE>
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FEDERAL INCOME TAXES (CONTINUED)
The Fund uses the identified cost method for determining realized gain or
loss on investments for both financial statement and federal income tax
reporting purposes.
DISTRIBUTION OF INCOME AND GAINS
Distributions to shareholders of net investment income are made
semi-annually. Distributions are recorded on the ex-dividend date.
Distributions of net realized gains are distributed annually. An additional
distribution may be necessary to avoid taxation of the Fund.
The timing and characterization of certain income and capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. The differences may be a
result of deferral of certain losses, character reclassification between net
income and net gains, or other tax adjustments. As a result, net investment
income (loss) and net investment gain (loss) on investment transactions for a
reporting period may differ significantly from distributions to shareholders
during such period. As a result, the Fund may periodically make
reclassifications among its capital accounts without impacting the Fund's net
asset value.
OTHER
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. TRANSACTIONS WITH AFFILIATES
The Fund has an investment advisory agreement with Manning & Napier
Advisors, Inc. (the "Advisor"), for which the Fund pays the Advisor a fee,
computed daily and payable monthly, at an annual rate of 0.8% of the Fund's
average daily net assets. The fee amounted to $3,940 for the year ended
October 31, 1996.
Under the Fund's Investment Advisory Agreement (the "Agreement"),
personnel of the Advisor provide the Fund with advice and assistance in the
choice of investments and the execution of securities transactions, and
otherwise maintain the Fund's organization. The Advisor also provides the
Fund with necessary office space and portfolio accounting and bookkeeping
services. The salaries of all officers of the Fund and of all Directors who
are "affiliated persons" of the Fund or of the Advisor, and all personnel of
the Fund or of the Advisor performing services relating to research,
statistical and investment activities are paid by the Advisor.
12
<PAGE>
Notes to Financial Statements
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
The Advisor has voluntarily agreed to waive its fee and, if necessary,
pay other expenses of the Fund in order to maintain total expenses for the
Fund at no more than 1.0% of average daily net assets each year.
Accordingly, the Advisor did not impose any of its fee and paid expenses
amounting to $17,893 for the year ended October 31, 1996, which is reflected
as a reduction of expenses on the Statement of Operations. The fee waiver
and assumption of expenses by the Advisor is voluntary and may be terminated
at any time.
The Advisor also acts as the transfer, dividend paying and shareholder
servicing agent for the Fund. For these services, the Fund pays a fee which
is calculated as a percentage of the average daily net assets at an annual
rate of 0.024%; this fee amounted to $118 for the year ended October 31,
1996.
Manning & Napier Investor Services, Inc., a registered broker-dealer
affiliate of the Advisor, acts as distributor for the Fund's shares. The
services of Manning & Napier Investor Services, Inc. are provided at no
additional cost to the Fund.
The compensation of the non-affiliated Directors totaled $6,840 for the
year ended October 31, 1996.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term securities, were
$833,564 and $127,622, respectively, for the year ended October 31, 1996.
<TABLE>
<CAPTION>
5. CAPITAL STOCK TRANSACTIONS
Transactions in shares of Defensive Series Class E Common Stock were:
For the Year
Ended 10/31/96
Shares Amount
--------------- ---------
<S> <C> <C>
Sold 76,159 $766,290
Reinvested 1,010 10,030
Repurchased (4,727) (47,536)
Total 72,442 728,784
</TABLE>
The Advisor owned 12,747 shares on October 31, 1996.
13
<PAGE>
Notes to Financial Statements
6. FINANCIAL INSTRUMENTS
The Fund may trade in financial instruments with off-balance sheet risk
in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include
written options, forward foreign currency exchange contracts, and futures
contracts and may involve, to a varying degree, elements of risk in excess of
the amounts recognized for financial statement purposes. No such investments
were held by the Fund on October 31, 1996.
14
<PAGE>
Independent Auditors'Report
TO THE DIRECTORS OF MANNING & NAPIER FUND, INC.
AND SHAREHOLDERS OF DEFENSIVE SERIES:
We have audited the accompanying statement of assets and liabilities,
including the investment portfolio, of Defensive Series (one of the series
constituting Manning & Napier Fund, Inc.) as of October 31, 1996, the related
statements of operations and changes in net assets and the financial
highlights for the year then ended. These financial statements and financial
highlights are the responsibility of the Funds management. Our responsibility
is to express an opinion on these financial statements and financial
highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of investments owned as of October 31,
1996 by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audit provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of Defensive
Series at October 31, 1996, the results of its operations, the changes in its
net assets and its financial highlights for the respective stated period in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
November 19, 1996
15
<PAGE>
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
Maximum Horizon Series
Annual Report
October 31, 1996
<PAGE>
Management Discussion and Analysis
Dear Shareholders:
Since we last reported to you six months ago, the markets have again
exhibited the upward and downward swings akin to the later stages of economic
and market cycles. Midway through this period we saw the Dow Jones
Industrial Average take a considerable dive, only to end this semi-annual
reporting cycle above the record-breaking 6000 mark. Likewise, the 30-year
U.S. Treasury yield rose to over 7% during this period, but bonds recovered
nicely by the end of October. However, as we have anticipated thus far,
economic growth has remained moderate and inflation has remained in check,
allowing us to take advantage of the buying opportunities that present
themselves.
These gyrations were caused by overreaction to short-term economic data.
Much as happened in March of this year, the news again raised fears of higher
inflation and sent the Dow Jones Industrial Average plunging down 115 points
on July 5th in what was only a half-day of trading due to the holiday. Bonds
followed suit with the yield on the 30-year U.S. Treasury surging 25
basis-points. Many were left wondering whether the Federal Reserve Board
would raise the Fed Funds rate. However, additional evidence throughout the
summer that inflation and economic growth are under control led the Fed to
again leave rates unchanged when they met during the last week of September.
As we continue to adhere to our long-term overview for low inflation and
lower interest rates, the July 5th correction created a buying opportunity in
which we were able to lengthen the maturity of the bonds in the portfolio and
move into equity sectors where valuations proved attractive. We boosted our
exposure to the technology sector, which was the hardest hit by the July
decline, and semiconductor stocks wound up posting the largest gains of any
sector during the third quarter of this year. The stock portion of the
portfolio has continued emphasis in small ticket consumer stocks which we
believe have been branded with the same iron as more cyclical consumer
stocks, thus creating a buying opportunity. In addition, we have increased
our exposure to the health care sector as valuations in that area have proved
attractive as well.
1
<PAGE>
Management Discussion and Analysis (continued)
At a time when market valuations in general are high and the bull market
is aging, it is important to be discriminating about the levels of risk
acceptable in funds with different tolerances for volatility. While this
Series has asset allocation discretion, it is designed to place emphasis on
growth rather than on dampening volatility. As a result, even though high
market valuations bring the threat of cyclical volatility, the Series remains
fairly heavily invested because, a) we are able to find individual securities
at more attractive valuations than the market as a whole, and b) looking past
the immediate cycle, we see long-term positive trends that should help the
market. As we continue to move through this mature bull market, we will hold
fast to our disciplines of attempting to identify stocks of companies with
strong strategic positioning in their industry at attractive valuations
versus long-term U.S. Treasury bonds.
We wish you and yours all the best during this holiday season.
Sincerely,
Manning & Napier Advisors, Inc.
[GRAPHIC]
[PIE CHART]
Portfolio Composition - As of 10/31/96
Stocks - 72%
Bonds - 20%
Cash & Equivalents - 8%
2
<PAGE>
Performance Update as of October 31, 1996
The value of a $10,000 investment in the Manning & Napier Fund, Inc. - Maximum
Horizon Series from its inception (11/1/95) to present (10/31/96) as
compared to the Standard & Poor's (S&P) 500 Total Return Index. 1
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc. - Maximum Horizon Series
Total Return
Growth of
Through $10,000 Average
10/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
Inception 2 $ 11,521 15.21% 15.21%
</TABLE>
<TABLE>
<CAPTION>
Standard & Poor's 500 Total Return Index
Total Return
Growth of
Through $10,000 Average
10/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
Inception 2 $ 12,408 24.08% 24.08%
</TABLE>
1 The Standard & Poor's (S&P) 500 Total Return Index is an unmanaged
capitalization-weighted measure of approximately 500 widely held common
stocks listed on the New York Stock Exchange, American Stock Exchange, and
Over-the-Counter market. The Index returns assume reinvestment of income
and, unlike Fund returns, do not reflect any fees or expenses.
2 The Fund and Index performance are calculated from November 1, 1995, the
Fund's inception date. The Fund's performance is historical and may not be
indicative of future results.
[GRAPHIC]
LINE CHART
Data for Line Chart to follow:
<TABLE>
<CAPTION>
Manning & Napier Standard & Poors (S&P) 500
Maximum Horizon Series Total Return Index
<S> <C> <C>
11/01/95 $ 10,000 $ 10,000
01/31/96 10,492 11,001
04/30/96 10,753 11,376
07/31/96 10,640 11,196
10/31/96 11,521 12,408
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - October 31, 1996
VALUE
SHARES (NOTE 2)
COMMON STOCK - 72.40%
<S> <C> <C>
AIR TRANSPORTATION- 2.43%
Federal Express Corp.* 475 $ 38,237
APPAREL - 4.05%
VF Corp. 975 63,741
CHEMICAL & ALLIED PRODUCTS - 2.88%
BIOLOGICAL PRODUCTS - 0.18%
Alliance Pharmaceutical Corp.* 200 2,800
HOUSEHOLD PRODUCTS -2.05%
Procter & Gamble Co. 325 32,175
INDUSTRIAL ORGANIC CHEMICALS - 0.65%
International Specialty Products, Inc.* 600 6,525
Varitronix International Ltd. (Note 7) 2,000 3,647
10,172
45,147
COMMUNICATIONS - 4.01%
Stet Societa' Finanziaria Telefonica S.p.A. - ADR 950 32,894
Telefonica de Espana - ADR 500 30,125
63,019
COMPUTER EQUIPMENT - 0.19%
Cisco Systems, Inc.* 25 1,547
Digital Equipment, Corp.* 50 1,475
3,022
CRUDE PETROLEUM & NATURAL GAS - 2.60%
Seagull Energy Corp.* 125 2,703
YPF Sociedad Anonima - ADR 1,675 38,106
40,809
ELECTROMEDICAL APPARATUS - 3.78%
Nellcor Puritan Bennett, Inc.* 3,050 59,475
ELECTRONICS & ELECTRICAL EQUIPMENT - 7.04%
HOUSEHOLD APPLIANCES - 0.35%
Sunbeam Corporation, Inc. 225 5,541
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - October 31, 1996
VALUE
SHARES (NOTE 2)
<S> <C> <C>
ELECTRONICS & ELECTRICAL EQUIPMENT (CONTINUED)
SEMICONDUCTORS - 5.33%
Altera Corp.* 50 $ 3,100
Intel Corp. 275 30,216
Texas Instruments, Inc. 1,050 50,531
83,847
TELECOMMUNICATION EQUIPMENT - 1.36%
BroadBand Technologies, Inc.* 225 4,022
DSC Communications Corp.* 50 694
General Instrument Corp.* 825 16,603
21,319
110,707
ENGINEERING SERVICES - 0.60%
Jacobs Engineering Group, Inc.* 425 9,403
FABRICATED METAL PRODUCTS - 0.40%
Keystone International, Inc. 175 3,150
Material Sciences Corp.* 200 3,050
6,200
FOOD & BEVERAGES - 0.07%
Canandaigua Wine Co., Inc. - Class A* 50 1,125
GLASS PRODUCTS - 0.15%
Libbey, Inc. 100 2,400
HEALTH SERVICES - 3.29%
MedPartners, Inc.* 2,300 48,588
RehabCare Group, Inc.* 150 2,681
U. S. Physical Therapy, Inc.* 50 462
51,731
HOLDING COMPANIES - 0.04%
Ek Chor China Motorcycle Co. Ltd. 100 588
PAPER & ALLIED PRODUCTS - 5.51%
Alco Standard Corp. 725 33,622
Fort Howard Corp.* 1,250 32,031
Kimberly-Clark Corp. 225 20,981
86,634
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - October 31, 1996
VALUE
SHARES (NOTE 2)
<S> <C> <C>
PLASTIC PRODUCTS - 0.01%
Sun Coast Industries, Inc.* 325 $ 1,259
PRIMARY METAL INDUSTRIES - 0.16%
American Superconductor Corp.* 200 2,475
RESTAURANTS - 4.43%
McDonald's Corp. 1,500 66,562
Morton's Restaurant Group, Inc.* 200 3,075
69,637
RETAIL - 18.99%
RETAIL - DEPARTMENT STORES - 3.15%
Nordstrom, Inc. 1,375 49,586
RETAIL - HOME FURNISHING STORES - 0.25%
Pier 1 Imports, Inc. 275 3,850
RETAIL - SHOE STORES - 0.30%
Brown Group, Inc. 225 4,641
RETAIL - SPECIALTY STORES - 13.50%
Fabri-Centers of America - Class A* 1,075 13,975
Fabri-Centers of America - Class B* 900 11,700
Fingerhut Companies, Inc. 1,450 21,569
Hancock Fabrics, Inc. 1,250 10,625
Home Depot, Inc. 925 50,644
Office Depot, Inc.* 725 14,228
Tandy Corp. 1,575 59,259
Toys "R" Us, Inc.* 900 30,488
212,488
RETAIL - WHOLESALE - 1.79%
Coleman Company, Inc.* 2,125 28,156
298,721
SOFTWARE - 4.69%
Founder Hong Kong Ltd.* (Note 7) 3,000 1,164
Informix Corp.* 1,100 24,406
Oracle Corp.* 1,075 45,486
Symantec Corp.* 250 2,719
73,775
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - October 31, 1996
Principal Amount/ VALUE
SHARES (NOTE 2)
<S> <C> <C>
TECHNICAL INSTRUMENTS & SUPPLIES - 5.17%
PHOTOGRAPHIC EQUIPMENT & SUPPLIES - 5.07%
Eastman Kodak Co. 1,000 $ 79,750
SURGICAL & MEDICAL INSTRUMENTS - 0.10%
Allied Healthcare Products, Inc.* 225 1,519
81,269
UTILITIES-ELECTRIC - 1.91%
Enersis S.A.- ADR 1,025 30,109
TOTAL COMMON STOCK
(Identified Cost $1,108,840) 1,139,483
U.S. TREASURY BONDS - 20.13%
U.S. Treasury Bond, 6.875%, 8/15/2025
(Identified Cost $308,435) $ 310,000 316,878
SHORT-TERM INVESTMENTS - 7.45%
U.S. Treasury Bill, 11/29/1996 40,000 39,849
Dreyfus U.S. Treasury Money Market Reserves 77,394 77,394
TOTAL SHORT-TERM INVESTMENTS
(Identified Cost $117,243 ) 117,243
TOTAL INVESTMENTS - 99.98%
(Identified Cost $1,534,518 ) 1,573,604
OTHER ASSETS, LESS LIABILITIES - 0.02% 387
NET ASSETS - 100% $1,573,991
</TABLE>
*Non-income producing security
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
At October 31, 1996, the net unrealized appreciation based on identified cost for
federal income tax purposes of $1,536,040 was as follows:
<S> <C>
Aggregate gross unrealized appreciation for all investments in
which there was an excess of value over tax cost $ 68,096
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost over value (30,532)
UNREALIZED APPRECIATION - NET $ 37,564
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
OCTOBER 31, 1996
<S> <C>
ASSETS:
Investments, at value (Identified Cost $1,534,518)(Note 2) $1,573,604
Interest receivable 4,517
Dividends receivable 218
Receivable from investment advisor (Note 3) 19,574
TOTAL ASSETS 1,597,913
LIABILITIES:
Accrued Directors' fees (Note 3) 6,839
Transfer agent fees payable (Note 3) 105
Audit fee payable 7,225
Other payables and accrued expenses 6,105
Payable for securities purchased 3,648
TOTAL LIABILITIES 23,922
NET ASSETS FOR 138,282 SHARES OUTSTANDING $1,573,991
NET ASSETS CONSIST OF:
Capital stock $ 1,383
Additional paid-in-capital 1,519,745
Undistributed net investment income 3,342
Accumulated net realized gain on investments 10,435
Net unrealized appreciation on investments 39,086
TOTAL NET ASSETS $1,573,991
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($1,573,991/138,282 shares) $ 11.38
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations
FOR THE YEAR ENDED OCTOBER 31, 1996
<S> <C>
INVESTMENT INCOME:
Interest $ 9,431
Dividends 3,422
Total Investment Income 12,853
EXPENSES:
Management fees (Note 3) 4,377
Directors' fees (Note 3) 6,839
Transfer agent fees (Note 3) 105
Audit fee 8,000
Registration and filing fees 4,550
Custodian fee 4,237
Miscellaneous 1,146
Total Expenses 29,254
Less Waiver of Expenses (Note 3) (23,951)
Net Expenses 5,303
NET INVESTMENT INCOME 7,550
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments (identified cost basis) 10,435
Net change in unrealized appreciation on investments 39,086
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 49,521
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 57,071
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
For the Year
Ended
10/31/96
INCREASE (DECREASE) IN NET ASSETS:
<S> <C>
OPERATIONS:
Net investment income $ 7,550
Net realized gain on investments 10,435
Net change in unrealized appreciation on investments 39,086
Net increase in net assets from operations 57,071
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (4,208)
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase in net assets from capital share
transactions (Note 5) 1,521,128
Net increase in net assets 1,573,991
NET ASSETS:
Beginning of period -
End of period (including undistributed net investment
income of $3,342) $ 1,573,991
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
For the Year
Ended
10/31/96
Per share data (for a share outstanding throughout
the period):
<S> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.00
Income from investment operations:
Net investment income 0.155
Net realized and unrealized gain on investments 1.356
Total from investment operations 1.511
Less distributions to shareholders:
From net investment income (0.131)
NET ASSET VALUE - END OF PERIOD $ 11.38
Total return 1 15.21%
Ratios (to average net assets) / Supplemental Data:
Expenses* 1.20%
Net investment income* 1.71%
Portfolio turnover 95%
Average commission rate paid $ 0.0655
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 1,574
* The investment advisor did not impose its management fee and paid a portion of
the Fund's expenses. If these expenses had been incurred by the Fund, expenses
would have been limited to that allowed by state securities law and the net
investment income per share and the ratios would have been as follows:
Net investment income $ 0.037
Ratios (to average net assets):
Expenses 2.50%
Net investment income 0.41%
1 Represents aggregate total return for the period indicated
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
Notes to Financial Statements
1. ORGANIZATION
Maximum Horizon Series (the "Fund") is a no-load diversified series of
Manning & Napier Fund, Inc. (the "Corporation"). The Corporation is
organized as a Maryland Corporation and is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment
company.
The total authorized capital stock of the Corporation consists of one
billion shares of common stock each having a par value of $0.01. As of
October 31, 1996, 940 million shares have been designated in total among 19
series, of which 100 million have been designated as Maximum Horizon Series
Class B Common Stock.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Portfolio securities, including domestic equities, foreign equities,
options and corporate bonds, listed on an exchange are valued at the latest
quoted sales price of the exchange on which the security is traded most
extensively. Securities not traded on valuation date or securities not
listed on an exchange are valued at the latest quoted bid price.
Debt securities, including government bonds and mortgage backed
securities, will normally be valued on the basis of evaluated bid prices.
Securities for which representative prices are not available from the
Fund's pricing service are valued at fair value as determined in good faith
by the Advisor under procedures established by and under the general
supervision and responsibility of the Fund's Board of Directors.
Short-term investments that mature in sixty (60) days or less are valued
at amortized cost.
SECURITY TRANSACTIONS, INVESTMENT INCOME AND EXPENSES
Security transactions are accounted for on the date the securities are
purchased or sold. Dividend income is recorded on the ex-dividend date.
Interest income and expenses are recorded on an accrual basis.
Most expenses of the Corporation can be attributed to a specific fund.
Expenses which cannot be directly attributed are apportioned among the funds
in the Corporation.
12
<PAGE>
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FEDERAL INCOME TAXES
The Fund's policy is to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies. The Fund is not
subject to federal income or excise tax to the extent the Fund distributes to
shareholders each year its taxable income, including any net realized gains
on investments in accordance with requirements of the Internal Revenue Code.
Accordingly, no provision for federal income tax or excise tax has been made
in the financial statements.
The Fund uses the identified cost method for determining realized gain or
loss on investments for both financial statement and federal income tax
reporting purposes.
DISTRIBUTION OF INCOME AND GAINS
Distributions to shareholders of net investment income are made
semi-annually. Distributions are recorded on the ex-dividend date.
Distributions of net realized gains are distributed annually. An additional
distribution may be necessary to avoid taxation of the Fund.
The timing and characterization of certain income and capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. The differences may be a
result of deferral of certain losses, character reclassification between net
income and net gains, or other tax adjustments. As a result, net investment
income (loss) and net investment gain (loss) on investment transactions for a
reporting period may differ significantly from distributions to shareholders
during such period. As a result, the Fund may periodically make
reclassifications among its capital accounts without impacting the Fund's net
asset value.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars.
Foreign currency amounts are translated into U.S. dollars on the following
basis: a) investment securities, other assets and liabilities are converted
to U.S. dollars based upon current exchange rates; and b) purchases and sales
of securities and income and expenses are converted into U.S. dollars based
upon the currency exchange rates prevailing on the respective dates of such
transactions.
Gains and losses attributable to foreign currency exchange rates are
recorded for financial statement purposes as net realized gains and losses on
investments. The portion of both realized and unrealized gains and losses on
investments that result from fluctuations in foreign currency exchange rates
is not separately stated.
13
<PAGE>
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OTHER
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reorted amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. TRANSACTIONS WITH AFFILIATES
The Fund has an investment advisory agreement with Manning & Napier
Advisors, Inc. (the "Advisor"), for which the Fund pays the Advisor a fee,
computed daily and payable monthly, at an annual rate of 1.0% of the Fund's
average daily net assets. The fee amounted to $4,377 for the year ended
October 31, 1996.
Under the Fund's Investment Advisory Agreement (the "Agreement"),
personnel of the Advisor provide the Fund with advice and assistance in the
choice of investments and the execution of securities transactions, and
otherwise maintain the Fund's organization. The Advisor also provides the
Fund with necessary office space and portfolio accounting and bookkeeping
services. The salaries of all officers of the Fund and of all Directors who
are "affiliated persons" of the Fund or of the Advisor, and all personnel of
the Fund or of the Advisor performing services relating to research,
statistical and investment activities are paid by the Advisor.
The Advisor has voluntarily agreed to waive its fee and, if necessary,
pay other expenses of the Fund in order to maintain total expenses for the
Fund at no more than 1.2% of average daily net assets each year.
Accordingly, the Advisor did not impose any of its fee and paid expenses
amounting to $19,574 for the year ended October 31, 1996, which is reflected
as a reduction of expenses on the Statement of Operations. The fee waiver
and assumption of expenses by the Advisor is voluntary and may be terminated
at any time.
The Advisor also acts as the transfer, dividend paying and shareholder
servicing agent for the Fund. For these services, the Fund pays a fee which
is calculated as a percentage of the average daily net assets at an annual
rate of 0.024%; this fee amounted to $105 for the year ended October 31,
1996.
Manning & Napier Investor Services, Inc., a registered broker-dealer
affiliate of the Advisor, acts as distributor for the Fund's shares. The
services of Manning & Napier Investor Services, Inc. are provided at no
additional cost to the Fund.
The compensation of the non-affiliated Directors totaled $6,839 for the
year ended October 31, 1996.
14
<PAGE>
Notes to Financial Statements
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term securities, were
$1,833,788 and $426,775, respectively, for the year ended October 31, 1996.
5. CAPITAL STOCK TRANSACTIONS
Transactions in shares of Maximum Horizon Series Class B Common Stock were:
<TABLE>
<CAPTION>
For the Year
Ended 10/31/96
Shares Amount
--------------- -----------
<S> <C> <C>
Sold 148,143 $1,624,294
Reinvested 390 4,209
Repurchased (10,251) (107,375)
Total 138,282 $1,521,128
The Advisor owned 12,654 shares on October 31, 1996.
</TABLE>
6. FINANCIAL INSTRUMENTS
The Fund may trade in financial instruments with off-balance sheet risk
in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include
written options, forward foreign currency exchange contracts, and futures
contracts and may involve, to a varying degree, elements of risk in excess of
the amounts recognized for financial statement purposes. No such investments
were held by the Fund on October 31, 1996.
7. FOREIGN SECURITIES
Investing in securities of foreign companies and foreign governments
involves special risks and considerations not typically associated with
investing in securities of U.S. companies and the United States government.
These risks include revaluation of currencies and potential adverse political
and economic developments. Moreover, securities of many foreign companies
and foreign governments and their markets may be less liquid and their prices
more volatile than those of securities of comparable U.S. companies and the
United States government.
15
<PAGE>
Independen Auditors'Report
TO THE DIRECTORS OF MANNING & NAPIER FUND, INC.
AND SHAREHOLDERS OF MAXIMUM HORIZON SERIES:
We have audited the accompanying statement of assets and liabilities,
including the investment portfolio, of Maximum Horizon Series (one of the
series constituting Manning & Napier Fund, Inc.) as of October 31, 1996, the
related statements of operations and changes in net assets and the financial
highlights for the year then ended. These financial statements and
financial highlights are the responsibility of the Funds management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of investments owned as of October 31,
1996 by correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provide a reasonable basis for our
opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of Maximum
Horizon Series at October 31, 1996, the results of its operations, the
changes in its net assets and its financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
November 19, 1996
16
<PAGE>
<PAGE>
<PAGE>
Manning & Napier Fund, Inc.
Tax Managed Series
Annual Report
October 31, 1996
<PAGE>
Management Discussion and Analysis
Dear Shareholders:
We have reached the close of the first fiscal year for the Tax Managed
Series of the Manning & Napier Fund. By drawing upon the investment
strategies and disciplines of the Funds Advisor, the Series has pursued
levels of return associated with the stock market while minimizing the impact
of taxes.
Given the ultimate goal of this Series and the long-term investment time
horizon of the shareholders, we have continued to adhere to our buy and hold
strategy that aims to minimize the amount of realized gains. Our turnover
rate during the past six months is relatively low, with steps taken to offset
taxable gains by realizing losses when the Advisor deems it to be prudent.
In addition, the Series did not pay out any dividends during this period,
another factor that can impact taxes. The Series has also continued to
invest its assets in equity securities, selecting companies that meet our
investment strategies and have strong long-term business prospects. Of
course, the goals of the Series are long-term, so performance should be
evaluated over the long-term. However, this approach has worked well for the
Series thus far, with satisfying short-term performance results.
We will continue to look for the best long-term equity investments that
present attractive valuations and to strive to minimize realized gains. We
expect this strategy to prove itself to your taxation concerns and your
long-term performance goals.
We wish you and yours all the best during this holiday season.
Sincerely,
Manning & Napier Advisors, Inc.
1
<PAGE>
[GRAPHIC]
[PIE CHART]
Portfolio Composition - As of 10/31/96
Apparel - 3%
Air Transportation - 4%
Chemicals & Allied Products - 8%
Communications - 3%
Electromedical Apparatus - 3%
Electronics & Electrical Equipment - 23%
Health Services - 5%
Paper Mills - 6%
Photographic Equipment & Supplies - 5%
Restaurants - 5%
Retail - 19%
Software - 4%
Miscellaneous* - 12%
* Miscellaneous includes:
Computer Equipment
Fabricated Metal Products
Glass Products
Primary Metal Industries
Printing & Publishing
Utilities - Electric
Cash & Equivalents
2
<PAGE>
Performance Update as of October 31, 1996
The value of a $10,000 investment in the Manning & Napier Fund, Inc. -
Tax Managed Series from its inception (11/1/95) to present (10/31/96) as
compared to the Standard & Poor's (S&P) 500 Total Return Index. 1
<TABLE>
<CAPTION>
Manning & Napier Fund, Inc. - Tax Managed Series
Total Return
Growth of
Through $10,000 Average
10/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
Inception 2 $ 11,630 16.30% 16.30%
</TABLE>
<TABLE>
<CAPTION>
Standard & Poor's (S&P) 500 Total Return Index
Total Return
Growth of
Through $10,000 Average
10/31/96 Investment Cumulative Annual
<S> <C> <C> <C>
Inception 2 $ 12,408 24.08% 24.08%
</TABLE>
1The Standard & Poor's (S&P) 500 Total Return Index is an unmanaged
capitalization-weighted measure of 500 widely held common stocks
listed on the New York Stock Exchange, American Stock Exchange,
and the Over-the-Counter Market. The Index returns assume
reinvestment of income and, unlike Fund returns, do not reflect any fees
or expenses.
2 The Fund and Index performance are calculated from November 1,
1995, the Fund's inception date. The Fund's performance is historical
and may not be indicative of future results.
[GRAPHIC]
LINE CHART
Data for Line Chart to follow:
<TABLE>
<CAPTION>
Manning & Napier Standard & Poors (S&P) 500
Tax Managed Series Total Return Index
<S> <C> <C>
11/01/95 $ 10,000 $ 10,000
01/31/96 10,100 11,001
04/30/96 10,980 11,376
07/31/96 10770 11,196
10/31/96 11,630 12,408
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - October 31, 1996
VALUE
SHARES (NOTE 2)
COMMON STOCK - 97.50%
<S> <C> <C>
AIR TRANSPORTATION - 3.59%
Federal Express Corp.* 100 $ 8,050
---------
APPAREL - 2.91%
VF Corp. 100 6,537
---------
CHEMICAL & ALLIED PRODUCTS - 8.34%
BIOLOGICAL PRODUCTS - 2.03%
Alliance Pharmaceutical Corp.* 325 4,550
---------
HOUSEHOLD PRODUCTS - 6.31%
Colgate-Palmolive Co. 100 9,200
Procter & Gamble Co. 50 4,950
14,150
18,700
COMMUNICATIONS - 2.69%
Telefonica de Espana - ADR 100 6,025
---------
COMPUTER EQUIPMENT - 1.31%
Digital Equipment, Corp.* 100 2,950
---------
ELECTROMEDICAL APPARATUS - 2.61%
Nellcor Puritan Bennett, Inc.* 300 5,850
---------
ELECTRONICS & ELECTRICAL EQUIPMENT - 22.72%
HOUSEHOLD APPLIANCES - 4.39%
Sunbeam Corporation, Inc. 400 9,850
---------
SEMICONDUCTORS - 14.33%
Altera Corp.* 175 10,850
Intel Corp. 150 16,481
Texas Instruments, Inc. 100 4,812
32,143
TELECOMMUNICATION EQUIPMENT - 4.00%
BroadBand Technologies, Inc.* 250 4,469
General Instrument Corp.* 225 4,528
8,997
50,990
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - October 31, 1996
VALUE
SHARES (NOTE 2)
<S> <C> <C>
FABRICATED METAL PRODUCTS - 1.53%
Material Sciences Corp.* 225 $3,431
GLASS PRODUCTS - 1.34%
Libbey, Inc. 125 3,000
HEALTH SERVICES - 5.16%
MedPartners, Inc.* 302 6,380
RehabCare Group, Inc.* 175 3,128
U. S. Physical Therapy, Inc.* 225 2,081
11,589
PAPER MILLS - 6.15%
Fort Howard Corp.* 175 4,484
Kimberly-Clark Corp. 100 9,325
13,809
PHOTOGRAPHIC EQUIPMENT & SUPPLIES - 5.33%
Eastman Kodak Co. 150 11,962
--------
PRIMARY METAL INDUSTRIES - 2.16%
Gibraltar Steel Corp.* 200 4,850
--------
PRINTING & PUBLISHING - 1.60%
Playboy Enterprises, Inc. - Class B* 300 3,600
--------
RESTAURANTS - 5.33%
McDonald's Corp. 200 8,875
Morton's Restaurant Group, Inc.* 200 3,075
11,950
RETAIL - 18.84%
RETAIL - HOME FURNISHING STORES - 2.18%
Pier 1 Imports, Inc. 350 4,900
RETAIL - SPECIALTY STORES - 14.00%
Fingerhut Companies, Inc. 500 7,438
Home Depot, Inc. 175 9,581
Office Depot, Inc.* 350 6,869
Tandy Corp. 200 7,525
31,413
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio - October 31, 1996
VALUE
SHARES (NOTE 2)
<S> <C> <C>
RETAIL (CONTINUED)
RETAIL - VARIETY STORES - 2.66%
Family Dollar Stores, Inc. 350 $ 5,950
42,263
SOFTWARE - 3.93%
Informix Corp.* 250 5,549
Symantec Corp.* 300 3,263
8,812
UTILITIES-ELECTRIC - 1.96%
Enersis S.A.- ADR 150 4,406
---------
TOTAL COMMON STOCK
(Identified Cost $187,623) 218,774
---------
SHORT-TERM INVESTMENTS - 2.30%
Dreyfus U.S. Treasury Money Market Reserves
(Identified Cost $5,148) 5,148 5,148
---------
TOTAL INVESTMENTS - 99.80%
(Identified Cost $192,771) 223,922
OTHER ASSETS, LESS LIABILITIES - 0.20% 458
---------
NET ASSETS - 100% $224,380
=========
</TABLE>
*Non-income producing security
<TABLE>
<CAPTION>
FEDERAL TAX INFORMATION:
At October 31, 1996, the net unrealized appreciation based on identified cost for
federal income tax purposes of $192,771 was as follows:
<S> <C>
Aggregate gross unrealized appreciation for all investments
in which there was an excess of value over tax cost $37,610
Aggregate gross unrealized depreciation for all investments in
which there was an excess of tax cost value (6,459)
UNREALIZED APPRECIATION - NET $31,151
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
OCTOBER 31, 1996
<S> <C>
ASSETS:
Investments, at value (Identified Cost $192,771)(Note 2) $223,922
Dividends receivable 97
Receivable from investment advisor (Note 3) 20,327
TOTAL ASSETS 244,346
LIABILITIES:
Accrued Directors' fees (Note 3) 6,840
Transfer agent fees payable (Note 3) 45
Audit fee payable 7,225
Other payables and accrued expenses 5,856
TOTAL LIABILITIES 19,966
NET ASSETS FOR 19,300 SHARES OUTSTANDING $224,380
NET ASSETS CONSIST OF:
Capital stock $ 193
Additional paid-in-capital 193,281
Accumulated net realized loss on investments (245)
Net unrealized appreciation on investments 31,151
TOTAL NET ASSETS $224,380
NET ASSET VALUE, OFFERING PRICE AND
REDEMPTION PRICE PER SHARE
($224,380 / 19,300 shares) $ 11.63
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations
FOR THE YEAR ENDED OCTOBER 31, 1996
<S> <C>
INVESTMENT INCOME:
Dividends $ 1,477
Interest 381
Total Investment Income 1,858
EXPENSES:
Management fees (Note 3) 1,867
Directors' fees (Note 3) 6,840
Transfer agent fees (Note 3) 45
Audit fee 8,000
Custodian fee 2,254
Miscellaneous 5,436
Total Expenses 24,442
Less Waiver of Expenses (Note 3) (22,194)
Net Expenses 2,248
NET INVESTMENT LOSS (390)
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized loss on investments (identified cost basis) (245)
Net change in unrealized appreciation on investments 31,151
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS 30,906
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 30,516
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
For the Year
Ended
10/31/96
--------------
INCREASE (DECREASE) IN NET ASSETS:
<S> <C>
OPERATIONS:
Net investment loss $ (390)
Net realized loss on investments (245)
Net change in unrealized appreciation on investments 31,151
Net increase in net assets from operations 30,516
CAPITAL STOCK ISSUED AND REDEEMED:
Net increase in net assets from capital share
transactions (Note 5) 193,864
Net increase in net assets 224,380
NET ASSETS:
Beginning of period -
End of period (including accumulated net investment
loss of $0) $ 224,380
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
For the Year
Ended
10/31/96
--------------
Per share data (for a share outstanding throughout
the period):
<S> <C>
NET ASSET VALUE - BEGINNING OF PERIOD $ 10.00
Income from investment operations:
Net investment loss (0.020)
Net realized and unrealized gain (loss)
on investments 1.650
Total from investment operations 1.630
NET ASSET VALUE - END OF PERIOD $ 11.63
Total return 1 16.30%
Ratios (to average net assets) / Supplemental Data:
Expenses* 1.20%
Net investment loss* (0.21%)
Portfolio turnover 78%
Average commission rate paid $ 0.0757
NET ASSETS - END OF PERIOD (000'S OMITTED) $ 224
* The investment advisor did not impose its management fee and paid a
portion of the Fund's expenses. If these expenses had been incurred by the
Fund, expenses would have been limited to that allowed by state securities law
and the net investment income per share and the ratios would have been
as follows:
Net investment loss ($0.144)
Ratios (to average net assets):
Expenses 2.50%
Net investment loss (1.51%)
1 Represents aggregate total return for the period indicated
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
Notes to Financial Statements
1. ORGANIZATION
Tax Managed Series (the "Fund") is a no-load diversified series of
Manning & Napier Fund, Inc. (the "Corporation"). The Corporation is
organized as a Maryland Corporation and is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment
company.
The total authorized capital stock of the Corporation consists of one
billion shares of common stock each having a par value of $0.01. As of
October 31, 1996, 940 million shares have been designated in total among 19
series, of which 50 million have been designated as Tax Managed Series Class
H Common Stock.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Portfolio securities, including domestic equities, foreign equities,
options and corporate bonds, listed on an exchange are valued at the latest
quoted sales price of the exchange on which the security is traded most
extensively. Securities not traded on valuation date or securities not
listed on an exchange are valued at the latest quoted bid price.
Debt securities, including government bonds and mortgage backed
securities, will normally be valued on the basis of evaluated bid prices.
Securities for which representative prices are not available from the
Fund's pricing service are valued at fair value as determined in good faith
by the Advisor under procedures established by and under the general
supervision and responsibility of the Fund's Board of Directors.
Short-term investments that mature in sixty (60) days or less are valued
at amortized cost.
SECURITY TRANSACTIONS, INVESTMENT INCOME AND EXPENSES
Security transactions are accounted for on the date the securities are
purchased or sold. Dividend income is recorded on the ex-dividend date.
Interest income and expenses are recorded on an accrual basis.
Most expenses of the Corporation can be attributed to a specific fund.
Expenses which cannot be directly attributed are apportioned among the funds
in the Corporation.
FEDERAL INCOME TAXES
The Fund's policy is to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies. The Fund is not
subject to federal income or excise tax to the extent the Fund distributes to
shareholders each year its taxable income, including any net realized gains
on investments in accordance with requirements of the Internal Revenue Code.
Accordingly, no provision for federal income tax or excise tax has been made
in the financial statements.
11
<PAGE>
Notes to Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FEDERAL INCOME TAXES (CONTINUED)
At October 31, 1996, the Fund, for federal income tax purposes, has a
capital loss carry forward of $245 which will expire on October 31, 2004.
The Fund uses the identified cost method for determining realized gain or
loss on investments for both financial statement and federal income tax
reporting purposes.
DISTRIBUTION OF INCOME AND GAINS
Distributions to shareholders of net investment income are made annually.
Distributions are recorded on the ex-dividend date. Distributions of net
realized gains are distributed annually. An additional distribution may be
necessary to avoid taxation of the Fund.
The timing and characterization of certain income and capital gains are
determined in accordance with federal income tax regulations which may differ
from generally accepted accounting principles. The differences may be a
result of deferral of certain losses, character reclassification between net
income and net gains, or other tax adjustments. As a result, net investment
income (loss) and net investment gain (loss) on investment transactions for a
reporting period may differ significantly from distributions to shareholders
during such period. As a result, the Fund may periodically make
reclassifications among its capital accounts without impacting the Fund's net
asset value.
During the year ended October 31, 1996, $390 was reclassified from accumulated
net investment loss to additional paid-in-capital.
OTHER
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. TRANSACTIONS WITH AFFILIATES
The Fund has an investment advisory agreement with Manning & Napier
Advisors, Inc. (the "Advisor"), for which the Fund pays the Advisor a fee,
computed daily and payable monthly, at an annual rate of 1.0% of the Fund's
average daily net assets. The fee amounted to $1,867 for the year ended
October 31, 1996.
Under the Fund's Investment Advisory Agreement (the "Agreement"),
personnel of the Advisor provide the Fund with advice and assistance in the
choice of investments and the execution of securities transactions, and
otherwise maintain the Fund's organization. The Advisor also provides the
Fund with necessary office space and portfolio accounting and bookkeeping
services. The salaries of all officers of the Fund and of all Directors who
are "affiliated persons" of the Fund or of the Advisor, and all personnel of
the Fund or of the Advisor performing services relating to research,
statistical and investment activities are paid by the Advisor.
12
<PAGE>
Notes to Financial Statements
3. TRANSACTIONS WITH AFFILIATES (continued)
The Advisor has voluntarily agreed to waive its fee and, if necessary,
pay other expenses of the Fund in order to maintain total expenses for the
Fund at no more than 1.2% of average daily net assets each year.
Accordingly, the Advisor did not impose any of its fee and paid expenses
amounting to $20,327 for the year ended October 31, 1996, which is reflected
as a reduction of expenses on the Statement of Operations. The fee waiver
and assumption of expenses by the Advisor is voluntary and may be terminated
at any time.
The Advisor also acts as the transfer, dividend paying and shareholder
servicing agent for the Fund. For these services, the Fund pays a fee which
is calculated as a percentage of the average daily net assets at an annual
rate of 0.024%; this fee amounted to $45 for the year ended October 31, 1996.
Manning & Napier Investor Services, Inc., a registered broker-dealer
affiliate of the Advisor, acts as distributor for the Fund's shares. The
services of Manning & Napier Investor Services, Inc. are provided at no
additional cost to the Fund.
The compensation of the non-affiliated Directors totaled $6,840 for the
year ended October 31, 1996.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, other than short-term securities, were
$321,147 and $133,279, respectively, for the year ended October 31, 1996.
5. CAPITAL STOCK TRANSACTIONS
Transactions in shares of Tax Managed Series Class H Common Stock were:
<TABLE>
<CAPTION>
For the Year
Ended 10/31/96
---------------
Shares Amount
--------------- ---------
<S> <C> <C>
Sold 23,344 $235,926
Repurchased (4,044) (42,062)
Total 19,300 193,864
</TABLE>
The Advisor owned 12,500 shares on October 31, 1996.
13
<PAGE>
Notes to Financial Statements
6. FINANCIAL INSTRUMENTS
The Fund may trade in financial instruments with off-balance sheet risk
in the normal course of its investing activities to assist in managing
exposure to various market risks. These financial instruments include
written options, forward foreign currency exchange contracts, and futures
contracts and may involve, to a varying degree, elements of risk in excess of
the amounts recognized for financial statement purposes. No such investments
were held by the Fund on October 31, 1996.
14
<PAGE>
Independent Auditors' Report
TO THE DIRECTORS OF MANNING & NAPIER FUND, INC.
AND SHAREHOLDERS OF TAX MANAGED SERIES:
We have audited the accompanying statement of assets and liabilities,
including the investment portfolio, of Tax Managed Series (one of the series
constituting Manning & Napier Fund, Inc.) as of October 31, 1996, the related
statements of operations and changes in net assets and the financial
highlights for the year then ended. These financial statements and financial
highlights are the responsibility of the Funds management. Our responsibility
is to express an opinion on these financial statements and financial
highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of investments owned as of October 31,
1996 by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audit provide a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of Tax
Managed Series at October 31, 1996, the results of its operations, the
changes in its net assets and its financial highlights for the respective
stated periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
November 19, 1996
15
<PAGE>
