N-CSR 1 dncsr.htm MANNING & NAPIER FUND, INC. Manning & Napier Fund, Inc.

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number 811-04087

Manning & Napier Fund, Inc.

(Exact name of registrant as specified in charter)

290 Woodcliff Drive, Fairport, NY 14450

(Address of principal executive offices)(Zip Code)

B. Reuben Auspitz 290 Woodcliff Drive, Fairport, NY 14450

(Name and address of agent for service)

Registrant’s telephone number, including area code: 585-325-6880

Date of fiscal year end: December 31, 2010

Date of reporting period: January 1, 2010 through December 31, 2010

Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.

A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.

 

 

 

ITEM 1. REPORTS TO STOCKHOLDERS

LOGO

Management Discussion and Analysis (unaudited)

Dear Shareholders:

Over the course of 2010, the markets experienced several ups and downs driven by well-defined swings in investor sentiment. Optimism fueled strong market returns early in the year, as upbeat economic releases led investors to believe in the potential for a robust U.S. recovery. However, sentiment shifted drastically in May and June as more negative economic news and issues related to Europe’s government debt problems led to notable stock market losses. In another swing, the markets rebounded in the fall amid better economic developments and prospects that the Federal Reserve would enact another round of quantitative easing. That rally generally continued through the end of the year as the markets reacted positively to the U.S. tax compromise, which extended the Bush-era tax cuts for all income brackets.

With equities posting double-digit gains in the third and fourth quarters, the choppy year ended on a strong note, and broad equity indices have now produced back-to-back years of positive results. For the twelve months ending December 31, 2010, the S&P 500 Index returned 15.07%, while the S&P 500 Health Care Index earned only 2.9%, as Health Care was the lowest performing market sector in 2010.

The Life Sciences Series had a 14.80% return during 2010, noticeably outpacing the S&P 500 Health Care Index yet slightly lagging the broader stock market. More importantly, the Series continues to have a strong track record relative to the broad market and the sector-specific benchmark over the current market cycle, which includes both a bull and a bear market. Over this current cycle, the Life Sciences Series has earned an annualized return of 9.90%, compared to the 7.52% return of the S&P 500 Index and the 4.49% return of the S&P 500 Health Care Index.

In the volatile markets of 2010, Manning & Napier maintained a selective investment approach and focused on companies that we believe can grow market share. We continued to emphasize quality, targeting best-in-class companies expected to generate sales growth despite a muted economic backdrop, as well as “away game winners” expected to successfully compete in faster-growing markets overseas.

In the current health care environment, Manning & Napier is targeting companies that can lower costs and enhance quality. With this particular focus, over the past year the Series had a substantial weighting to diagnostics companies, which are part of the health care equipment and supplies industry. By emphasizing prevention and early detection, we believe diagnostics companies can improve health care treatment and help avoid expensive, unexpected hospital visits. The Series started 2010 with a significantly higher allocation to the health care equipment and supplies industry than the benchmark, and this exposure increased during the year. By the end of the year, about half of the portfolio consisted of companies within this industry.

The Advisor also sees opportunities in health care information technology companies. Over the last twelve months, the Series maintained an overweight to the health care technology industry relative to the benchmark, although this weighting is much smaller than that of the health care equipment and supplies industry. Additionally, the Series reduced exposure to health care providers and services over the past year, and the Series continued to have a noteworthy underweight to pharmaceuticals versus the benchmark, which aided relative returns.

Stock selection decisions were the primary drivers of outperformance for the Life Sciences Series in 2010. In particular, the Series’ relative results benefited from specific holdings in the health care equipment and supplies industry as well as the life sciences tools and services industry.

While economic developments turned more optimistic toward the end of 2010, the U.S. economy still faces significant headwinds, including a struggling housing market, a stagnant job market, a difficult consumer rebalancing act, and high government debt burdens. Given these long-term structural issues, the slow growth environment in the U.S. will likely remain a reality. As the markets fluctuated around this slow growth trend in 2010, Manning & Napier earned solid returns

 

1

Management Discussion and Analysis (unaudited)

 

by staying focused on the fundamentals and maintaining our selective investment process. This investment approach has proved beneficial for the past 40 years, and we believe these qualities will remain important as the market environment unfolds in 2011.

As always, we appreciate your business.

Sincerely,

Manning & Napier Advisors, Inc.

 

2   

Performance Update as of December 31, 2010 (unaudited)

 

 

           

 

Average Annual Total Returns
As of December 31, 2010

             
      One
Year 		   

Five

Year

    

Ten

Year

     Since
Inception 1		       

Manning & Napier Fund, Inc. - Life Sciences Series2

      14.80 %      5.84%         6.36%        12.58%       

S&P 500 Total Return Index3

      15.07 %      2.30%         1.42%          1.05%       

S&P 500 Health Care Index3

      2.90 %      1.89%        -0.23%          1.67%       
                                      

The following graph compares the value of a $10,000 investment in the Manning & Napier Fund, Inc. - Life Sciences Series for the ten years ended December 31, 2010 to the S&P 500 Total Return Index and the S&P 500 Health Care Index.

LOGO

1Performance numbers for the Series and Indices are calculated from November 5, 1999, the Series’ current activation date.

2The Series’ performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. The Series’ performance is historical and may not be indicative of future results. The performance returns shown are inclusive of the net expense ratio of the Series. For the year ended December 31, 2010, this net expense ratio was 1.09%. The gross expense ratio, which does not account for any voluntary or contractual waivers currently in effect, was 1.09% for the year ended December 31, 2010.

3The 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 S&P 500 Health Care Index, a sub-index of the S&P 500 Total Return Index, includes the stocks of companies involved in the business of health care related products and services. Both Indices’ returns assume daily reinvestment of dividends and, unlike Series returns, do not reflect any fees or expenses.

 

   3

Shareholder Expense Example (unaudited)

 

As a shareholder of the Series, you may incur two types of costs: (1) transaction costs and (2) ongoing costs, including management fees and other Series expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Series and to compare these costs with the ongoing costs of investing in other mutual funds.

The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (July 1, 2010 to December 31, 2010).

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Series’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Series’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid during the period. You may use this information to compare the ongoing costs of investing in the Series and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.

 

 

     Beginning
Account  Value
7/1/10		         Ending
Account  Value
12/31/10		         Expenses Paid
During Period*
7/1/10-12/31/10

Actual

    $1,000.00       $1,178.00       $6.04

Hypothetical
(5% return before expenses)

    $1,000.00       $1,019.66       $5.60

*Expenses are equal to the Series’ annualized expense ratio (for the six-month period) of 1.10%, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Expenses are based on the most recent fiscal half year; therefore, the expense ratio stated above may differ from the expense ratio stated in the financial highlights, which is based on one-year data. The Series’ total return would have been lower had certain expenses not been waived during the period.

 

4   

Portfolio Composition as of December 31, 2010 (unaudited)

 

LOGO

 

 

Top Ten Stock Holdings2

  

Alere, Inc.

      5.8 %       Cerner Corp.      4.0 % 

Gen-Probe, Inc.

      5.8 %       Sequenom, Inc.      3.5 % 

Zoll Medical Corp.

      5.3 %       Insulet Corp.      3.4 % 

Cochlear Ltd. (Australia)

      4.7 %       Amgen, Inc.      3.2 % 

DexCom, Inc.

      4.5 %       UCB S.A. (Belgium)      3.2 % 
   

2As a percentage of total investments.

 

                           

 

   5

Investment Portfolio - December 31, 2010

 

 

     Shares     

 

Value

(Note 2)

  

COMMON STOCKS - 95.4%

      

Financials - 0.0%

      

Insurance - 0.0%

      

Avalon HealthCare Holdings, Inc.*1,2,3,4

      38,359       $             —   
           

Health Care - 95.4%

      

Biotechnology - 13.4%

      

Amgen, Inc.*

      145,770         8,002,773   

Basilea Pharmaceutica AG (Switzerland)*6

      77,000         5,354,529   

Cepheid, Inc.*

      155,000         3,526,250   

Momenta Pharmaceuticals, Inc.*

      312,230         4,674,083   

Swedish Orphan Biovitrum AB (Sweden)*6

      740,501         4,455,306   

United Therapeutics Corp.*

      114,500         7,238,690   
           
        33,251,631   
           

Health Care Equipment & Supplies - 50.5%

      

Abaxis, Inc.*

      232,500         6,242,625   

Alere, Inc.*

      273,000         9,991,800   

Alere, Inc.*3,5

      122,000         4,465,200   

Becton, Dickinson and Co.

      57,000         4,817,640   

Cochlear Ltd. (Australia)6

      141,230         11,625,969   

Conceptus, Inc.*

      405,000         5,589,000   

Covidien plc (Ireland)

      148,601         6,785,122   

DexCom, Inc.*

      815,000         11,124,750   

Gen-Probe, Inc.*2

      246,000         14,354,100   

Hogy Medical Co. Ltd. (Japan)6

      99,000         4,811,432   

Hologic, Inc.*

      310,000         5,834,200   

Insulet Corp.*

      550,970         8,540,035   

Quidel Corp.*

      325,000         4,696,250   

Sirona Dental Systems, Inc.*

      128,100         5,352,018   

Straumann Holding AG (Switzerland)6

      32,717         7,492,365   

Zoll Medical Corp.*2

      355,000         13,216,650   
           
        124,939,156   
           

Health Care Providers & Services - 12.1%

      

Bio-Reference Laboratories, Inc.*

      280,000         6,210,400   

China Cord Blood Corp. (Hong Kong)*

      894,000         3,584,940   

Cross Country Healthcare, Inc.*

      640,300         5,423,341   

Diagnosticos da America S.A. (Brazil)

      542,000         7,346,385   

Sonic Healthcare Ltd. (Australia)6

      614,000         7,298,923   
           
        29,863,989   
           

Health Care Technology - 6.1%

      

Allscripts Healthcare Solutions, Inc.*

      277,000         5,337,790   

Cerner Corp.*

      104,000         9,852,960   
           
        15,190,750   
           

 

6    The accompanying notes are an integral part of the financial statements.

Investment Portfolio - December 31, 2010

 

 

     Shares     

 

Value

(Note 2)

  

COMMON STOCKS (continued)

      

Health Care (continued)

      

Life Sciences Tools & Services - 6.6%

      

Caliper Life Sciences, Inc.*

      1,037,452       $ 6,577,446   

Sequenom, Inc.*

      1,085,000         8,701,700   

WuXi PharmaTech (Cayman), Inc. - ADR (Cayman Islands)*

      70,000         1,129,800   
           
        16,408,946   
           

Pharmaceuticals - 6.7%

      

Green Cross Corp. (South Korea)6

      43,000         5,260,298   

Teva Pharmaceutical Industries Ltd. - ADR (Israel)

      66,500         3,466,645   

UCB S.A. (Belgium)6

      228,939         7,861,333   
           
        16,588,276   
           

Total Health Care

         236,242,748   
           

TOTAL COMMON STOCKS
(Identified Cost $185,284,615)

             236,242,748   
           

PREFERRED STOCKS - 0.0%

      

Financials - 0.0%

      

Insurance - 0.0%

      

Avalon HealthCare Holdings, Inc. - Series D*2,3,4,7
(Identified Cost $2,312,500)

      925,000         —   
           

WARRANTS - 0.1%

      

Financials - 0.0%

      

Insurance - 0.0%

      

Avalon HealthCare Holdings, Inc., 2/27/20142,3,4,8

      38,359         —   
           

Health Care - 0.1%

      

Life Sciences Tools & Services - 0.1%

      

Caliper Life Sciences, Inc., 8/10/2011

      401,109         248,687   
           

TOTAL WARRANTS
(Identified Cost $195,276)

         248,687   
           

SHORT-TERM INVESTMENTS - 4.7%

      

Dreyfus Cash Management, Inc. - Institutional Shares9, 0.14%,
(Identified Cost $11,668,542)

      11,668,542         11,668,542   
           

 

The accompanying notes are an integral part of the financial statements.    7

Investment Portfolio - December 31, 2010

 

    

 

Value

(Note 2)

  

TOTAL INVESTMENTS - 100.2%
(Identified Cost $199,460,933)

    $ 248,159,977   

LIABILITIES, LESS OTHER ASSETS - (0.2%)

      (596,067 ) 
        

NET ASSETS - 100%

    $ 247,563,910   
        

ADR - American Depository Receipt

*Non-income producing security

1

This security was acquired on February 27, 2009 at a cost of $76,718 ($2.00 per share) and has been determined to be illiquid under guidelines established by the Board of Directors (see Note 2 to the financial statements).

2

Affiliated company as defined by the Investment Company Act of 1940 (see Note 2 to the financial statements).

3

Restricted securities - Investment in securities that are restricted as to public resale under the Securities Act of 1933, as amended. These securities amount to $4,465,200, or 1.8% of the Series’ net assets as of December 31, 2010 (see Note 2 to the financial statements).

4

Security has been valued at fair value (see Note 2 to the financial statements).

5

This security was acquired on February 3, 2006 at a cost of $2,978,020 ($24.41 per share) and has been determined to be liquid under guidelines established by the Board of Directors (see Note 2 to the financial statements).

6

International Fair Value factor from pricing service was applied.

7

This security was acquired on June 22, 2007 at a cost of $2,312,500 ($2.50 per share) and has been determined to be illiquid under guidelines established by the Board of Directors (see Note 2 to the financial statements).

8

This security was acquired on February 27, 2009 at a cost of $19,180 ($0.50 per warrant) and has been determined to be illiquid under guidelines established by the Board of Directors (see Note 2 to the financial statements).

9

Rate shown is the current yield as of December 31, 2010.

 

8    The accompanying notes are an integral part of the financial statements.

Statement of Assets and Liabilities

December 31, 2010

 

 

ASSETS:

   

Investments, at value (identified cost $199,460,933) (Note 2)

    $ 248,159,977   

Receivable for fund shares sold

      157,402   

Foreign tax reclaims receivable

      131,557   

Dividends receivable

      75,196   
        

TOTAL ASSETS

      248,524,132   
        

LIABILITIES:

   

Accrued management fees (Note 3)

      204,807   

Accrued fund accounting and administration fees (Note 3)

      7,788   

Accrued transfer agent fees (Note 3)

      2,594   

Accrued Chief Compliance Officer service fees (Note 3)

      245   

Payable for fund shares repurchased

      355,159   

Payable for securities purchased

      326,716   

Other payables and accrued expenses

      62,913   
        

TOTAL LIABILITIES

      960,222   
        

TOTAL NET ASSETS

    $ 247,563,910   
        

NET ASSETS CONSIST OF:

   

Capital stock

    $        203,302   

Additional paid-in-capital

      219,578,943   

Undistributed net investment loss

      (20,942 ) 

Accumulated net realized loss on investments, foreign currency and translation of other assets and liabilities

      (20,912,749 ) 

Net unrealized appreciation on investments, foreign currency and translation of other assets and liabilities

      48,715,356   
        

TOTAL NET ASSETS

    $ 247,563,910   
        

NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE - CLASS A
($247,563,910/20,330,172 shares)

    $           12.18   
        

 

The accompanying notes are an integral part of the financial statements.    9

Statement of Operations

For the Year Ended December 31, 2010

 

 

INVESTMENT INCOME:

   

Dividends (net of foreign taxes withheld, $154,466)

    $ 1,804,817   

Interest

      1,681   
        

Total Investment Income

      1,806,498   
        

EXPENSES:

   

Management fees (Note 3)

      2,650,046   

Fund accounting and administration fees (Note 3)

      61,888   

Transfer agent fees (Note 3)

      15,672   

Directors’ fees (Note 3)

      10,566   

Chief Compliance Officer service fees (Note 3)

      2,631   

Custodian fees

      52,878   

Miscellaneous

      102,561   
        

Total Expenses

      2,896,242   

Less reduction of expenses (Note 3)

      (758 ) 
        

Net Expenses

      2,895,484   
        

NET INVESTMENT LOSS

      (1,088,986 ) 
        

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:

   

Net realized gain (loss) on-

   

Investments

      18,309,383   

Foreign currency and translation of other assets and liabilities

      (75,704 ) 
        
     18,233,679   
        

Net change in unrealized appreciation appreciation on-

   

Investments

      17,281,571   

Foreign currency and translation of other assets and liabilities

      12,605   
        
     17,294,176   
        

NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCY

      35,527,855   
        

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

    $ 34,438,869   
        

 

 

10    The accompanying notes are an integral part of the financial statements.

Statements of Changes in Net Assets

 

 

 

    

For the

Year Ended

12/31/10

    

For the

Year Ended

12/31/09

  

INCREASE (DECREASE) IN NET ASSETS:

     

OPERATIONS:

     

Net investment loss

    $ (1,088,986 )    $ (1,203,760 ) 

Net realized gain (loss) on investments, foreign currency and written options

      18,233,679        (3,756,944 ) 

Net change in unrealized appreciation on investments and foreign currency

      17,294,176        99,105,593   
                

Net increase from operations

      34,438,869        94,144,889   
                

CAPITAL STOCK ISSUED AND REPURCHASED:

     

Net decrease from capital share transactions (Note 5)

      (59,818,922 )      (3,905,204 ) 
                

Net increase (decrease) in net assets

      (25,380,053 )      90,239,685   

NET ASSETS:

     

Beginning of year

      272,943,963        182,704,278   
                

End of year (including undistributed net investment income (loss) of $(20,942) and $0, respectively)

    $ 247,563,910      $ 272,943,963   
                

 

 

The accompanying notes are an integral part of the financial statements.    11

Financial Highlights

 

 

           For the Years Ended              
     12/31/10     12/31/09     12/31/08     12/31/07     12/31/06        

Per share data (for a share outstanding throughout each year):

             

Net asset value - Beginning of year

    $ 10.61      $ 6.99      $ 11.54      $ 11.41      $ 12.10     
                                          

Income (loss) from investment operations:

             

Net investment loss

      (0.04 )1      (0.05 )1      (0.06 )      (0.08 )      (0.05 )   

Net realized and unrealized gain (loss) on investments

      1.61        3.67        (4.38 )      1.25        1.56     
                                          

Total from investment operations

      1.57        3.62        (4.44 )      1.17        1.51     
                                          

Less distributions to shareholders:

             

From net realized gain on investments

      —        —        (0.11 )      (1.04 )      (2.20 )   
                                          

Net asset value - End of year

    $ 12.18      $ 10.61      $ 6.99      $ 11.54      $ 11.41     
                                          

Net assets - End of year

             

(000’s omitted)

    $ 247,564      $ 272,944      $ 182,704      $ 299,669      $ 233,072     
                                          

Total return2

      14.80%        51.79%        (38.77%)        10.62%        12.52%     

Ratios (to average net assets)/

             

Supplemental Data:

             

Expenses*

      1.09%        1.11%        1.12%        1.12%        1.14%     

Net investment loss

      (0.41% )      (0.55% )      (0.65% )      (0.75% )      (0.51% )   

Portfolio turnover

      67%        95%        94%        95%        93%     

*The investment advisor did not impose all or a portion of its management fees, CCO fees, fund accounting and transfer agent fees, and other fees in some years and in some years paid a portion of the Series’ expenses. If these expenses had been incurred by the Series, the expense ratio (to average net assets) would have been increased by the following amounts:

      
     0.00%3        0.01%        N/A        N/A        N/A     

1Calculated based on average shares outstanding during the year.

2Represents aggregate total return for the years indicated, and assumes reinvestment of all distributions. Total returns would have been lower had certain expenses not been waived or reimbursed during certain years.

3Less than 0.01%.

 

12    The accompanying notes are an integral part of the financial statements.

Notes to Financial Statements

 

1.

ORGANIZATION

Life Sciences Series (the “Series”) is a no-load diversified series of Manning & Napier Fund, Inc. (the “Fund”). The Fund is organized in Maryland and is registered under the Investment Company Act of 1940 (the “1940 Act”), as amended, as an open-end management investment company.

The Series’ investment objective is to provide long-term growth by investing principally in the common stocks of companies in the life sciences industry.

The Fund’s Advisor is Manning & Napier Advisors, Inc. (the “Advisor”). On November 5, 1999, the Series resumed sales of shares to advisory clients and employees of the Advisor and its affiliates. On May 1, 2001, the Series began offering shares directly to investors. Previously, the Series was available from time to time to advisory clients and employees of the Advisor. The total authorized capital stock of the Fund consists of 10.0 billion shares of common stock each having a par value of $0.01. As of December 31, 2010, 6.2 billion shares have been designated in total among 29 series, of which 100 million have been designated as Life Sciences Series Class A common stock.

 

2.

SIGNIFICANT ACCOUNTING POLICIES

Security Valuation

Portfolio securities, including domestic equities, foreign equities, warrants and options, listed on an exchange other than the NASDAQ National Market System are valued at the latest 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 provided by the Fund’s pricing service. Securities listed on the NASDAQ National Market System are valued in accordance with the NASDAQ Official Closing Price.

Short-term investments that mature in sixty days or less are valued at amortized cost, which approximates market value. Investments in open-end investment companies are valued at their net asset value per share on valuation date.

Volume and level of activity in established markets for an asset or liability are evaluated to determine whether recent transactions and quoted prices are determinative of fair value. Where there have been significant decreases in volume and level of activity, further analysis and adjustment may be necessary to estimate fair value. The Series measures fair value in these instances by the use of inputs and valuation techniques which may be based upon current market prices of securities that are comparable in coupon, rating, maturity and industry and/or expectation of future cash flows. As a result of trading in relatively thin markets and/or markets that experience significant volatility, the prices used by the Series to value these securities may differ from the value that would be realized if these securities were sold, and the differences could be material.

Securities for which representative valuations or prices are not available from the Fund’s pricing service may be valued at fair value. Due to the inherent uncertainty of valuations of such securities, the fair value may differ significantly from the values that would have been used had a ready market for such securities existed. If trading or events occurring after the close of the principal market in which securities are traded are expected to materially affect the value of those securities, then they may be valued at their fair value, taking this trading or these events into account. Fair value is determined in good faith by the Advisor under procedures approved by and under the general supervision and responsibility of the Fund’s Board of Directors (the “Board”). In accordance with the procedures approved by the Board, the Series applies fair value pricing on a daily basis except for North American, Central American, South American and Caribbean equity securities. Fair valuing of securities is determined with the assistance of a pricing service using calculations or factors based on indices of domestic securities and other appropriate indicators, such as prices of relevant American Depository Receipts and futures contracts, to adjust local market prices for subsequent movements through the time the Series calculates its net asset value. The value of securities used for the net asset value calculation under the procedures may differ from published prices for the same securities. It is the Fund’s

 

 

   13

Notes to Financial Statements

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Security Valuation (continued)

policy to classify each foreign equity security, except for those in the regions noted above, as Level 2 securities due to the fact the pricing service evaluated what factor was applied to the calculated end of day market price.

Various inputs are used in determining the value of the Series’ assets or liabilities carried at market value. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical assets and liabilities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). Level 3 includes significant unobservable inputs (including the Series’ own assumptions in determining the fair value of investments). The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the valuation levels used for major security types as of December 31, 2010 in valuing the Series’ assets or liabilities carried at market value:

 

Description                     Total                       Level 1                       Level 2                       Level 3  

Assets:

            

Equity securities*

    $ 236,491,435       $ 182,331,280       $ 54,160,155       $ — **** 

Preferred securities

      —         —         —         —   

Debt securities

      —         —         —         —   

Mutual funds

      11,668,542         11,668,542         —         —   

Other financial
instruments**:

      —         —         —         —   
                                   

Total assets:

      248,159,977         193,999,822         54,160,155         —   
                                   

Liabilities:

            

Other financial
instruments**:

      —         —         —         —   
                                   

Total liabilities:

      —         —         —         —   
                                   

Total

    $ 248,159,977       $ 193,999,822       $ 54,160,155       $ —   
                                   

The following table is a reconciliation of Level 3 investments for which significant unobservable inputs were used to determine fair value:

 

000000000000 000000000000 000000000000
Level 3 reconciliation   

Equity

Securities

         

Preferred

Securities

  

Balance as of December 31, 2009 (market value)

    $ 37,739         $ 231,250   

Realized gain (loss)

      (365,484 )         —   

Change in unrealized appreciation (depreciation)***

      327,745           (231,250 ) 

Net purchases (sales)

      —           —   

Transfers in and/or out of Level 3

      —           —   
                   

Balance as of December 31, 2010 (market value)

    $ —         $ —   
                   

*Includes common stock, warrants and rights. Please see the Investment Portfolio for industry classification and for securities where an International Fair Value factor from the pricing service was applied to value the security. Such securities are included in Level 2 in the table above.

**Other financial instruments are derivative instruments not reflected in the Investment Portfolio, such as futures, forwards and swap contracts, which are valued at the unrealized appreciation/depreciation on the instrument. As of December 31, 2010, the Series did not hold any derivative instruments.

 

 

14   

Notes to Financial Statements

 

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Security Valuation (continued)

***The change in unrealized appreciation (depreciation) on securities still held at December 31, 2010 was $(241,223), which is included in the related net change in unrealized appreciation/depreciation on the Statement of Operations.

****Avalon Healthcare Holdings, Inc., Avalon Healthcare Holdings, Inc.- Series D, and Avalon Healthcare Holdings, Inc. 2/27/2014 are Level 3 as of December 31, 2010. However, there is no market value for these securities reported in the financial statements.

The Fund’s policy is to recognize transfers in and transfers out of the valuation levels as of the beginning of the reporting period. During the year ended December 31, 2010, the Fund had three foreign equity securities transfer from Level 1 to Level 2 due to the implementation of new international fair value pricing procedures. The following is a summary of the foreign equity securities that transferred from Level 1 to Level 2:

 

   

Total #

Securities

Level 1 at

beginning and

Level 2 at end

of period

    Total Market
Value
Beginning of
period		     

Total Market
Value

End of period

      Change in
Market Value		  
  3    $ 30,576,707       $ 26,417,257       $ (4,159,450 ) 

Additional disclosure surrounding the activity in Level 3 fair value measurement will be effective for fiscal years beginning after December 15, 2010. Management has concluded that this will not have a material impact on the Series’ financial statements.

Security Transactions, Investment Income and Expenses

Security transactions are accounted for on trade date. Dividend income is recorded on the ex-dividend date, except that if the ex-dividend date has passed, certain dividends from foreign securities are recorded as soon as the Fund is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Interest income, including amortization of premium and accretion of discounts using the effective interest method, is earned from settlement date and accrued daily.

Expenses are recorded on an accrual basis. Most expenses of the Fund can be attributed to a specific series. Expenses which cannot be directly attributed are apportioned among the series in the Fund in such a manner as deemed equitable by the Fund’s Board, taking into consideration, among other things, the nature and type of expense.

The Series uses the identified cost method for determining realized gain or loss on investments for both financial statement and federal income tax reporting purposes.

Foreign Currency Translation

The books and records of the Series are maintained in U.S. dollars. Foreign currencies, investments and other assets and liabilities are translated into U.S. dollars at the current exchange rates. Purchases and sales of investment securities and income and expenses are translated on the respective dates of such transactions. The Series does not isolate realized and unrealized gains and losses attributable to changes in the exchange rates from gains and losses that arise from changes in the market value of investments. Such fluctuations are included with net realized and unrealized gain or loss on investments. Net realized foreign currency gains and losses represent foreign currency gains and losses between trade date and settlement date on securities transactions, gains and losses on disposition of foreign currencies and the difference between the amount of income and foreign withholding taxes recorded on the books of the Series and the amounts actually received or paid.

 

   15

Notes to Financial Statements

 

Restricted securities

Restricted securities are purchased in private placement transactions, are not registered under the Securities Act of 1933, as amended, and may have contractual restrictions on resale. Information regarding restricted securities is included at the end of the Series’ Investment Portfolio.

Illiquid Securities

A security may be considered illiquid if so deemed in good faith by the Advisor under procedures approved by and under the general supervision and responsibility of the Fund’s Board. Securities that are illiquid are marked with the applicable footnote on the Investment Portfolio. As of December 31, 2010, the aggregate value of securities deemed illiquid was $0 representing 0% of the Series’ net assets.

Affiliated Companies

The 1940 Act defines “affiliated companies” to include securities in which a series owns 5% or more of the outstanding voting securities of the issuer. The following transactions were effected for the year ended December 31, 2010:

 

Name of Issuer    Value at
12/31/09		    Purchase
Cost 		   Sales
Proceeds 		   Value at
12/31/10		    Shares Held  at
12/31/10		    Dividend
Income
12/31/09
through
12/31/10		    Net Realized
Gain (Loss)
12/31/09
through
12/31/10

Avalon

                     

HealthCare

                     

Holdings, Inc. -

                     

Series D

    $231,250    $—    $—    $—    925,000    $—    $—

Avalon

                     

HealthCare

                     

Holdings, Inc.

    9,590    —    —    —    38,359    —    —

Avalon

                     

HealthCare

                     

Holdings, Inc. -

                     

Warrants

                     

2/27/2014

    383    —    —    —    38,359    —    —
                                  
   $241,223    $—    $—    $—    1,001,718    $—    $—
                                  

Federal Taxes

The Series’ policy is to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. The Series is not subject to federal income tax or excise tax to the extent that the Series 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.

Management evaluates its tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of tax benefits of an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. At December 31, 2010, the Series has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken in future tax returns.

The Series files income tax returns in the U.S. federal jurisdiction, various states and foreign jurisdictions, as required. No income tax returns are currently under investigation. The statute of limitations on the Series’ tax returns remains open for the years ended December 31, 2007 through December 31, 2010. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.

 

16   

Notes to Financial Statements

 

Additionally, based on the Fund’s understanding of the tax rules and rates related to income, gains and transactions for foreign jurisdictions in which it invests, the Series will provide for foreign taxes, and where appropriate, deferred foreign tax.

Distributions of Income and Gains

Distributions to shareholders of net investment income and net realized gains are made annually. An additional distribution may be necessary to avoid taxation of the Series. Distributions are recorded on the ex-dividend date.

Indemnifications

The Fund’s organizational documents provide former and current directors and officers with a limited indemnification against liabilities arising in connection with the performance of their duties to the Fund. In the normal course of business, the Fund may also enter into contracts that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would be dependent on future claims that may be made against the Fund. The risk of material loss from such claims is considered remote.

Other

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 income and expenses during the reporting period. Actual results could differ from those estimates.

 

3.

TRANSACTIONS WITH AFFILIATES

The Fund has an Investment Advisory Agreement (the “Agreement”) with the Advisor, for which the Series pays a fee, computed daily and payable monthly, at an annual rate of 1.00% of the Series’ average daily net assets. Under the Agreement, personnel of the Advisor provide the Series with advice and assistance in the choice of investments and the execution of securities transactions, and otherwise maintain the Series’ organization. The Advisor also provides the Fund with necessary office space and fund administration and support services. The salaries of all officers of the Fund (except a percentage of the Fund’s Chief Compliance Officer’s salary, which is paid by 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. Each “non-affiliated” Director receives an annual stipend, which is allocated among all the active series of the Fund. In addition, these Directors also receive a fee per Board meeting attended plus a fee for each committee meeting attended.

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 Series.

For the year ended December 31, 2010, the Advisor voluntarily waived fees of $758, which is included as a reduction of expenses on the Statement of Operations. The Advisor is not eligible to recoup any expenses that have been waived or reimbursed in prior years.

The Advisor has agreements with PNC Global Investment Servicing (U.S.) Inc. (“PNCGIS”) under which PNCGIS serves as sub-accountant services agent and sub-transfer agent. The Fund pays the Advisor an annual fee related to fund accounting and administration of 0.0175% on the first $3 billion of average daily net assets (excluding Target Series); 0.015% on the next $3 billion of average daily net assets (excluding Target Series); and 0.01% of the average daily net assets in excess of $6 billion (excluding Target Series); plus a base fee of $25,500 per Series.

 

   17

Notes to Financial Statements

 

 

3.

TRANSACTIONS WITH AFFILIATES (continued)

Transfer Agent fees are charged to the Fund on a per account basis. Additionally, certain transaction- and cusip-based fees and out-of-pocket expenses, including charges for reporting relating to the Fund’s compliance program, are charged.

Effective July 1, 2010, PNCGIS, was sold to The Bank of New York Mellon Corporation, the Series’ custodian. At the close of the sale, PNCGIS changed its name to BNY Mellon Investment Servicing (U.S.) Inc. (“BNY”).

Expenses not directly attributable to a Series are allocated based on each Series’ relative net assets or number of accounts, depending on the expense.

 

4.

PURCHASES AND SALES OF SECURITIES

For the year ended December 31, 2010, purchases and sales of securities, other than U.S. Government securities and short-term securities, were $166,102,061 and $233,048,440, respectively. There were no purchases or sales of U.S. Government securities.

 

5.

CAPITAL STOCK TRANSACTIONS

Transactions in shares of Life Sciences Series were:

 

      

For the Year

Ended 12/31/10

    

For the Year

Ended 12/31/09

  
       Shares      Amount     Shares      Amount  

Sold

        2,426,114       $ 26,545,889        3,589,547       $ 27,786,051   

Reinvested

        —         —        —         —   

Repurchased

        (7,813,236 )       (86,364,811 )      (4,015,779 )       (31,691,255 ) 
                                    

Total

        (5,387,122 )     $ (59,818,922 )      (426,232 )     $ (3,905,204 ) 
                                    

Substantially all of the Series’ shares represent investments by fiduciary accounts over which the Advisor has sole investment discretion.

 

6.

FINANCIAL INSTRUMENTS

The Series may trade in instruments including written and purchased options, forward foreign currency exchange contracts and futures contracts and other derivatives in the normal course of investing activities to assist in managing exposure to various market risks. Investments in these instruments may subject the Series to various elements of risk, which may involve, to a varying degree, elements of risk in excess of the amounts recognized for financial statement purposes. These risks include: the risk that changes in the value of a derivative may not correlate perfectly with the underlying asset, rate or index, counterparty credit risk related to over the counter derivatives counterparties’ failure to perform under contract terms, liquidity risk related to the lack of a liquid market for these contracts allowing the fund to close out its position(s) and documentation risk relating to disagreement over contract terms. No such investments were held by the Series during the year ended December 31, 2010.

 

7.

FOREIGN SECURITIES

Investing in securities of foreign companies and foreign governments involves special risks and considerations not typically associated with investing in securities of domestic companies and the U.S. Government. These risks include revaluation of currencies and future adverse political and economic developments. Moreover, securities of foreign companies and foreign governments and their markets may be less liquid and their prices more volatile than those of comparable domestic companies and the U.S. Government.

 

18   

Notes to Financial Statements

 

 

8.

LIFE SCIENCES SECURITIES

The Series may focus its investments in certain related life sciences industries; hence, the Series may subject itself to a greater degree of risk than a series that is more diversified.

 

9.

FEDERAL INCOME TAX INFORMATION

The amount and characterization of certain income and capital gains to be distributed are determined in accordance with federal income tax regulations, which may differ from accounting principles generally accepted in the United States of America. These differences are primarily due to differing book and tax treatments in the timing of the recognition of net investment income or gains and losses, including net operating losses, foreign currency gains and losses, losses deferred due to wash sales and post-October losses. The Series may periodically make reclassifications among its capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations without impacting the Series’ net asset value. Any such reclassifications are not reflected in the financial highlights.

There were no distributions to shareholders for the years ended December 31, 2010 or December 31, 2009. For the year ended December 31, 2010, the Series elected to defer $20,942 of currency losses, attributable to post-October losses.

At December 31, 2010, the tax basis of distributable earnings and the net unrealized appreciation based on the identified cost for federal income tax purposes were as follows:

 

Cost for federal income tax purposes

    $ 199,954,537     

Unrealized appreciation

    $ 54,788,657     

Unrealized depreciation

      (6,583,217 )   
          

Net unrealized appreciation

    $ 48,205,440     
          

Capital loss carryover

      20,419,145     

At December 31, 2010, the capital loss carryover, disclosed above, available to the extent allowed by tax law to offset future net capital gain, if any, will expire as follows:

 

Loss  Carryover    Expiration Date     

$15,858,502

    December 31, 2016   

$  4,560,643

    December 31, 2017   

The capital loss carryover utilized in the current year was $17,300,198.

 

   19

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors of Manning & Napier Fund, Inc. and Shareholders of Life Sciences Series:

In our opinion, the accompanying statement of assets and liabilities, including the investment portfolio, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the Life Sciences Series (a series of Manning & Napier Fund, Inc., hereafter referred to as the “Series”) at December 31, 2010, and 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 five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Series’ management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2010 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

LOGO

New York, New York

February 22, 2011

 

20   

Renewal of Investment Advisory Agreement (unaudited)

 

At the Manning & Napier Fund, Inc. (the “Fund”) Board of Directors’ (the “Board”) meeting, held on November 17, 2010, the Investment Advisory Agreement (the “Agreement”) between the Fund and Manning & Napier Advisors, Inc. (the “Advisor”) was reviewed by the Board for renewal. In connection with the decision whether to renew the Agreement, a variety of material was prepared for and reviewed by the Board.

Representatives of the Advisor attended the meeting and presented additional oral and written information to the Board to assist the Board in its considerations. The discussion immediately below outlines the materials and information presented to the Board in connection with the Board’s 2010 Annual Review of the Agreement and the conclusions made by the Directors when determining to continue the Agreement.

 

  •  

The Board considered the services provided by the Advisor under the Agreement including, among others: deciding what securities to purchase and sell for each Series; arranging for the purchase and sale of such securities by placing orders with broker-dealers; administering the affairs of the Fund (including the books and records of the Fund not maintained by third party service providers such as the custodian or sub-transfer agent); arranging for the insurance coverage for the Fund; and supervising the preparation of tax returns, SEC filings (including registration statements) and reports to shareholders for the Fund. The Board also considered the nature and quality of such services provided under the Agreement in light of the Advisor’s services provided to the Fund for 24 years. The Board discussed the quality of these services with representatives from the Advisor and concluded that the Advisor was performing its services to the Fund required under the Agreement in a reasonable manner.

 

  •  

The Board considered the investment performance of the various Series of the Fund. The investment performance for each Series was reviewed on a cumulative basis since inception and on a one year basis. In addition, annualized performance for the following time periods was considered: inception, three year, five year, ten year, and current market cycle. A market cycle includes periods of both rising and falling markets. Returns for established benchmark indices for each Series were provided for each time period. The Board noted that the various Series were competitive against their respective benchmarks and/or peer groups over various time periods, but in particular over the full market cycle period relevant for the Series. In addition, the Board considered at the meeting (and considers on a quarterly basis) a peer group performance analysis consisting of Morningstar universes of mutual funds with similar investment objectives. The Board discussed the performance with representatives from the Advisor and concluded that the investment performance of each of the Fund’s Series was reasonable based on the Fund’s actual performance and comparative performance, especially performance over the current market cycle.

 

  •  

The Board considered the costs of the Advisor’s services and the profits of the Advisor as they relate to the Advisor’s services to the Fund under the Agreement. In reviewing the Advisor’s costs and profits, the Board discussed the Advisor’s revenues generated from the Fund (on both an actual and adjusted basis) and its expenses associated with providing the services under the Agreement. In addition, the Board reviewed the Advisor’s expenses associated with Fund activities outside of the Agreement (such as expense reimbursements pursuant to expense caps and payments made by the Advisor to third party platforms on which shares of the Fund are available for purchase). It was noted by representatives of the Advisor that 11 of the 27 active Series of the Fund are currently experiencing expenses above the capped expense ratios. After discussing the above costs and profits, the Board concluded that the Advisor’s profitability relating to its services provided under the Agreement was reasonable.

 

  •  

The Board considered the fees and expenses of the various Series of the Fund. The Advisor presented the advisory fees and total expenses for each Series, including the advisory fee adjusted for any expense waivers or reimbursements (either contractual or voluntary) paid by the Advisor. The advisory fees and expense ratios of each Series were compared to an average (on both a mean and median basis) of similar funds as disclosed on the Morningstar database. Representatives of the Advisor discussed with the Board the levels of its advisory

 

   21

Renewal of Investment Advisory Agreement (unaudited)

 

fee for each Series of the Fund and as compared to the median and mean advisory fees for similar funds as listed on Morningstar. Expense ratios for every Series, except the Pro-Blend’s Class R and Class C, and Target Class R and Class C, are currently below the median and mean for similar funds as listed on Morningstar. Based on their review of the information provided, the Board concluded that the fees and expenses of each Series of the Fund were reasonable on a comparative basis.

 

  •  

The Board also considered the other benefits the Advisor derives from its relationship with the Fund. Such other benefits include certain research products provided by soft dollars. Given the level of soft dollar transactions involving the Fund, the Board concluded that these additional benefits to the Advisor were reasonable.

 

  •  

In addition to the factors described above, the Board considered the Advisor’s personnel, investment strategies, policies and procedures relating to compliance with personal securities transactions, and reputation, expertise and resources in domestic and foreign financial markets. The Board concluded that these factors support the conclusion that the Advisor performs its services in a reasonable manner.

 

  •  

The Board did not consider economies of scale at this time because of the multiple uses of the Fund (for the Advisor’s discretionary investment account clients in addition to direct investors), the current profitability of the Advisor’s services to the Fund under the Agreement, and the overall size of the Fund complex.

Based on the Board’s deliberations and their evaluation of the information described above, the Board, including a majority of Directors that are not “interested persons” as defined in the Investment Company Act of 1940, concluded that the compensation under the Agreement was fair and reasonable in light of the services and expenses and such other matters as the Directors considered to be relevant in the exercise of their reasonable judgment. Accordingly, the Board approved the renewal of the Agreement. In the course of their deliberations, the Directors did not identify any particular information that was all important or controlling.

 

22   

Directors’ and Officers’ Information (unaudited)

 

The Statement of Additional Information provides additional information about the Fund’s directors and officers and can be obtained without charge by calling 1-800-466-3863, at www.manningnapieradvisors.com, or on the EDGAR Database on the SEC Internet web site (http:// www.sec.gov). The following chart shows certain information about the Fund’s officers and directors, including their principal occupations during the last five years. Unless specific dates are provided, the individuals have held the listed positions for longer than five years.

 

INTERESTED DIRECTOR/OFFICER

 

   

Name:

    B. Reuben Auspitz*

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    63

Current Position(s) Held with Fund:

    Principal Executive Officer, President, Chairman & Director

Term of Office1 & Length of Time Served:

    Indefinite - Director since 1984; Vice President 1984 - 2003; President since 2004; Principal Executive Officer since 2002

Principal Occupation(s) During Past 5 Years:

    Executive Vice President; Executive Group Member**; Chief Compliance Officer since 2004; Vice Chairman since June 2010; Co-Executive Director from 2003-2010 - Manning & Napier Advisors, Inc. President;
   Director - Manning & Napier Investor Services, Inc.
   Holds or has held one or more of the following titles for various subsidiaries and affiliates: President, Vice President, Director, Chairman, Treasurer, Chief Compliance Officer or Member.

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A

 

INDEPENDENT DIRECTORS

 

   

Name:

    Paul A. Brooke

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    65

Current Position(s) Held with Fund:

    Director, Audit Committee Member, Governance & Nominating Committee Member

Term of Office & Length of Time Served:

    Indefinite - Since 2007

Principal Occupation(s) During Past 5 Years:

    Chairman & CEO, Alsius Corp. (investments); Managing Member, PMSV Holdings LLC (investments)

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    Incyte Corp. (2000-present)
   ViroPharma, Inc. (2000-present)
   HLTH Corp. (2000-present)
   Cheyne Capital International (2000-present)
   MPM Bio-equities (2000-present)
   GMP Companies (2000-present)
     HoustonPharma (2000-present)

 

Name:

    Richard M. Hurwitz

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    47

Current Position(s) Held with Fund:

    Director, Audit Committee Member, Governance & Nominating Committee Member

Term of Office & Length of Time Served:

    Indefinite - Since 2009

Principal Occupation(s) During Past 5 Years:

    Chief Executive Officer, Pictometry International Corp. since August 2010 (provider of georeferenced, aerial image libraries and related software) Managing Partner (2006-July 2010) - Aegis Investment Partners, LLC (investments); Founder and Managing Partner (2004-2005) - Village Markets, LLC (groceries)

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    Pictometry International Corp. (2000-2010)
   Pioneering Technologies (2006-2009)
    

Vensearch Capital Corp. (2003-2007)

 

 

   23

Directors’ and Officers’ Information (unaudited)

 

 

INDEPENDENT DIRECTORS (continued)     

Name:

    Stephen B. Ashley

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    70

Current Position(s) Held with Fund:

    Director, Audit Committee Member, Governance & Nominating Committee Member

Term of Office & Length of Time Served:

    Indefinite - Since 1996

Principal Occupation(s) During Past 5 Years:

    Chairman, Director, President & Chief Executive Officer, The Ashley Group (property management and investment). Chairman (non-executive) 2004-2008; Director 1995-2008 - Fannie Mae (mortgage)

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    The Ashley Group (1995-2008)
     Genesee Corporation (1987-2007)

 

Name:

    Peter L. Faber

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    72

Current Position(s) Held with Fund:

    Director, Governance & Nominating Committee Member

Term of Office & Length of Time Served:

    Indefinite - Since 1987

Principal Occupation(s) During Past 5 Years:

    Senior Counsel since 2006, Partner (1995 - 2006) - McDermott, Will & Emery LLP (law firm)

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    Partnership for New York City, Inc. (non-profit)
   New York Collegium (non-profit)
     Boston Early Music Festival (non-profit)

 

Name:

    Harris H. Rusitzky

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    76

Current Position(s) Held with Fund:

    Director, Audit Committee Member, Governance & Nominating Committee Member

Term of Office & Length of Time Served:

    Indefinite - Since 1985

Principal Occupation(s) During Past 5 Years:

    President, The Greening Group (business consultants) since 1994; Partner, The Restaurant Group (restaurants) since 2006

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A

 

OFFICERS

   

Name:

    Jeffrey S. Coons, Ph.D., CFA

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    47

Current Position(s) Held with Fund:

    Vice President

Term of Office1 & Length of Time Served:

    Since 2004

Principal Occupation(s) During Past 5 Years:

   

President since 2010, Co-Director of Research since 2002, Executive Group Member** since 2003, - Manning & Napier Advisors, Inc.

Holds one or more of the following titles for various subsidiaries and affiliates: President, Director, Treasurer or Senior Trust Officer.

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

 

   

N/A

 

 

24   

Directors’ and Officers’ Information (unaudited)

 

 

OFFICERS (continued)

   

 

Name:

    Beth Galusha

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    49

Current Position(s) Held with Fund:

    Assistant Chief Financial Officer

Term of Office1 & Length of Time Served:

    Assistant Chief Financial Officer since 2010

Principal Occupation(s) During Past 5 Years:

    Chief Financial Officer and Treasurer, Manning & Napier Advisors, Inc.
   Holds one or more of the following titles for various affiliates: Chief Financial Officer, Director, or Treasurer

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A

 

Name:

    Christine Glavin

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    44

Current Position(s) Held with Fund:

    Principal Financial Officer, Chief Financial Officer

Term of Office1 & Length of Time Served:

    Principal Financial Officer since 2002; Chief Financial Officer since 2001

Principal Occupation(s) During Past 5 Years:

    Fund Reporting Manager, Manning & Napier Advisors, Inc. since 1997

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A

 

Name:

    Jodi L. Hedberg

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    43

Current Position(s) Held with Fund:

    Corporate Secretary, Chief Compliance Officer, Anti-Money Laundering Compliance Officer

Term of Office1 & Length of Time Served:

    Corporate Secretary since 1997; Chief Compliance Officer since 2004

Principal Occupation(s) During Past 5 Years:

    Director of Compliance, Manning & Napier Advisors, Inc. and affiliates since 1990 (title change in 2005 from Compliance Manager to Director of Compliance); Corporate Secretary, Manning & Napier Investor Services, Inc. since 2006

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A

 

Name:

    Richard Yates

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    45

Current Position(s) Held with Fund:

    Chief Legal Officer

Term of Office1 & Length of Time Served:

    Chief Legal Officer since 2004

Principal Occupation(s) During Past 5 Years:

    Counsel - Manning & Napier Advisors, Inc. & affiliates since 2000; Holds one or more of the following titles for various affiliates; Director or Corporate Secretary

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

   

N/A

*Interested Director, within the meaning of the Investment Company Act of 1940 by reason of his position with the Fund’s investment advisor and distributor. Mr. Auspitz serves as the Executive Vice President and Director, Manning & Napier Advisors, Inc. and President and Director, Manning & Napier Investor Services, Inc., the Fund’s distributor.

**Prior to June 2010, the Executive Group, consisting of senior executive employee-owners, performed the duties of the Office of the Chief Executive of the Advisor. Effective June 2010, the Executive Group serves as an advisory board to the Chief Executive Officer.

1The term of office for President, Vice President, Chief Financial Officer, Assistant Chief Financial Officer, Chief Legal Officer and Corporate Secretary is one year and until their respective successors are chosen and qualified. All other officers’ terms are indefinite.

 

   25

Literature Requests (unaudited)

 

Proxy Voting Policies and Procedures

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request:

 

By phone

   

1-800-466-3863

On the Securities and Exchange
Commission’s (SEC)web site

   

http://www.sec.gov

  

Proxy Voting Record

Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available, without charge, upon request:

 

By phone

   

1-800-466-3863

On the SEC’s web site

   

http://www.sec.gov

Quarterly Portfolio Holdings

The Series’ complete schedule of portfolio holdings for the 1st and 3rd quarters of each fiscal year are provided on Form N-Q, and are available, without charge, upon request:

 

By phone

   

1-800-466-3863

On the SEC’s web site

   

http://www.sec.gov

The Series’ Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.

Prospectus and Statement of Additional Information (SAI)

The prospectus and SAI provide additional information about each Series, including charges, expenses and risks. These documents are available, without charge, upon request:

 

By phone

   

1-800-466-3863

On the SEC’s web site

   

http://www.sec.gov

On the Advisor’s web site

   

http://www.manning-napier.com

Additional information available at www.manning-napier.com

1. Fund Holdings - Month-End

2. Fund Holdings - Quarter-End

3. Shareholder Report - Annual

4. Shareholder Report - Semi-Annual

 

 

MNLFS-12/10-AR

 

  

LOGO

Management Discussion and Analysis (unaudited)

 

Dear Shareholders:

Over the course of 2010, the markets experienced several ups and downs driven by well-defined swings in investor sentiment. Optimism fueled strong market returns early in the year, as upbeat economic releases led investors to believe in the potential for a robust U.S. recovery. However, sentiment shifted drastically in May and June as more negative economic news and issues related to Europe’s government debt problems led to notable stock market losses. In another swing, the markets rebounded in the fall amid better economic developments and prospects that the Federal Reserve would enact another round of quantitative easing. That rally generally continued through the end of the year as the markets reacted positively to the U.S. tax compromise, which extended the Bush-era tax cuts for all income brackets.

With equities posting double-digit gains in the third and fourth quarters, the choppy year ended on a strong note, and broad equity indices have now produced back-to-back years of positive results. During 2010, the Russell 2000 Index earned 26.85%, outpacing indexes such as the Russell 1000 and S&P 500, which are composed of larger cap stocks. Similar to the Russell 2000 Index, the Small Cap Series had a return of 25.71%, slightly trailing the index for the year.

In the volatile market environment of 2010, Manning & Napier maintained a selective investment approach and focused on companies that we believe can grow market share. We continued to emphasize quality, targeting best-in-class companies expected to generate sales growth despite a muted economic backdrop, as well as “away game winners” expected to successfully compete in faster-growing markets overseas. Using our active stock selection strategies, our analysts also identified opportunities in certain cyclical industries that have experienced supply cutbacks. Specifically, we have looked for well-positioned companies that can take market share and benefit from tight supply and demand dynamics in certain industries. Overall, the Small Cap Series continues to have a bias toward larger, more stable small cap companies.

During 2010, the Series had a heavy weighting to Energy and Industrials versus the benchmark, which benefited the Series’ relative performance. Additionally, the Series had a relatively high allocation to the Consumer Discretionary and Staples sectors. Meanwhile, noticeably lower exposure to Financials than the benchmark helped relative performance over the past year, yet an underweight to Information Technology detracted from relative returns.

Stock selection decisions modestly aided relative results over the past twelve months. In particular, security selections in the Energy, Industrials, and Information Technology sectors contributed to positive relative performance. Several key Technology and Industrials holdings were either acquired or the subject of takeover speculation in the second half of the year, which helped drive outperformance. In contrast, specific investments in the Consumer Staples, Materials, and Utilities sectors hurt relative returns in 2010.

While economic developments turned more optimistic toward the end of 2010, the U.S. economy still faces significant headwinds, including a struggling housing market, a stagnant job market, a difficult consumer rebalancing act, and high government debt burdens. Given these long-term structural issues, the slow growth environment in the U.S. will likely remain a reality. As the markets fluctuated around this slow growth trend in 2010, Manning & Napier earned solid returns by staying focused on the fundamentals and maintaining our selective investment process. This investment approach has proved beneficial for the past 40 years, and we believe these qualities will remain important as the market environment unfolds in 2011.

As always, we appreciate your business.

Sincerely,

Manning & Napier Advisors, Inc.

 

   1

Performance Update as of December 31, 2010 (unaudited)

 

 

            Average  Annual Total Returns
As of December 31, 2010		     
      One
Year 		   

Five

Year

  

Ten

Year

   Since
Inception1

Manning & Napier Fund, Inc. - Small Cap Series2

      25.71 %    -0.30%   6.50%   7.67%

S&P 500 Total Return Index3

      15.07 %     2.30%   1.42%   8.25%

Russell 2000® Index3

      26.85 %     4.47%   6.33%   9.20%

The following graph compares the value of a $10,000 investment in the Manning & Napier Fund, Inc. - Small Cap Series for the ten years ended December 31, 2010 to the S&P 500 Total Return Index and the Russell 2000® Index.

LOGO

1Performance numbers for the Series and Indices are calculated from April 30, 1992, the Series’ current activation date.

2The Series’ performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. The Series’ performance is historical and may not be indicative of future results. The performance returns shown are inclusive of the net expense ratio of the Series. For the year ended December 31, 2010, this net expense ratio was 1.12%. The gross expense ratio, which does not account for any voluntary or contractual waivers currently in effect, was 1.12% for the year ended December 31, 2010.

3The 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 daily reinvestment of dividends. The Russell 2000® Index is an unmanaged index that consists of 2,000 U.S. small-capitalization stocks. The Index returns are based on a market capitalization-weighted average of relative price changes of the component stocks plus dividends whose reinvestments are compounded daily. Both Indices’ returns, unlike Series returns, do not reflect any fees or expenses.

 

2   

Shareholder Expense Example (unaudited)

 

 

As a shareholder of the Series, you may incur two types of costs: (1) transaction costs and (2) ongoing costs, including management fees and other Series expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Series and to compare these costs with the ongoing costs of investing in other mutual funds.

The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (July 1, 2010 to December 31, 2010).

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Series’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Series’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid during the period. You may use this information to compare the ongoing costs of investing in the Series and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.

 
     Beginning
Account  Value
7/1/10		    Ending
Account  Value
12/31/10		    Expenses Paid
During Period*
7/1/10-12/31/10

Actual

    $1,000.00    $1,358.20    $6.60

Hypothetical
(5% return before expenses)

    $1,000.00    $1,019.61    $5.65

*Expenses are equal to the Series’ annualized expense ratio (for the six-month period) of 1.11%, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Expenses are based on the most recent fiscal half year; therefore, the expense ratio stated above may differ from the expense ratio stated in the financial highlights, which is based on one-year data. The Series’ total return would have been lower had certain expenses not been waived during the period.

 

   3

Portfolio Composition as of December 31, 2010 (unaudited)

 

LOGO

 

Market Capitalization           TopTen Stock Holdings2  

Average

      $2,143 Million         

Tomra Systems ASA (Norway)

      3.1 % 

Median

      1,595 Million         

Zoll Medical Corp.

      2.9 % 

Weighted Average

      1,963 Million         

Imax Corp. (Canada)

      2.9 % 
        

First Commonwealth Financial Corp.

      2.5 % 
        

Paladin Energy Ltd. (Australia)

      2.5 % 
        

RailAmerica, Inc.

      2.3 % 
        

Alere, Inc.

      2.3 % 
        

Infinera Corp.

      2.3 % 
        

Calfrac Well Services Ltd. (Canada)

      2.2 % 
        

Eagle Materials, Inc.

      2.2 % 
        

 

2As a percentage of total investments.

         

 

4   

Investment Portfolio - December 31, 2010

 

     Shares     

 

Value

(Note 2)

         

COMMON STOCKS - 95.1%

         

Consumer Discretionary - 18.4%

         

Auto Components - 1.5%

         

Cooper Tire & Rubber Co.

      131,190       $         3,093,460      
              

Distributors - 1.9%

         

Inchcape plc (United Kingdom)*1

      714,271         3,983,905      
              

Hotels, Restaurants & Leisure - 2.7%

         

Choice Hotels International, Inc.

      52,060         1,992,336      

Wendy’s - Arby’s Group, Inc. - Class A

      783,990         3,622,034      
              
     

 

 

 

5,614,370

 

  

   
              

Household Durables - 2.9%

         

Lennar Corp. - Class A

      89,340         1,675,125      

Rodobens Negocios Imobiliarios S.A. (Brazil)

      253,670         2,550,453      

Tupperware Brands Corp.

      36,310         1,730,898      
              
     

 

 

 

5,956,476

 

  

   
              

Media - 2.8%

         

Imax Corp. (Canada)*

      211,620         5,935,941      
              

Specialty Retail - 5.7%

         

Chico’s FAS, Inc.

      183,690         2,209,791      

Dick’s Sporting Goods, Inc.*

      96,700         3,626,250      

The Finish Line, Inc. - Class A

      137,030         2,355,546      

Lumber Liquidators Holdings, Inc.*

      132,110         3,290,860      

Select Comfort Corp.*

      39,202         357,914      
              
     

 

 

 

11,840,361

 

  

   
              

Textiles, Apparel & Luxury Goods - 0.9%

         

Skechers U.S.A., Inc. - Class A*

      94,810         1,896,200      
              

Total Consumer Discretionary

      

 

 

 

38,320,713

 

  

   
              

Consumer Staples - 8.1%

         

Food & Staples Retailing - 3.0%

         

BJ’s Wholesale Club, Inc.*

      40,940         1,961,026      

SUPERVALU, Inc.

      449,320         4,326,952      
              
     

 

 

 

6,287,978

 

  

   
              

Food Products - 5.1%

         

Diamond Foods, Inc.

      45,430         2,415,967      

Flowers Foods, Inc.

      146,030         3,929,667      

Sanderson Farms, Inc.

      77,480         3,033,342      

Tootsie Roll Industries, Inc.

      42,966         1,244,725      
                    
     

 

 

 

10,623,701

 

  

   
              

Total Consumer Staples

      

 

 

 

16,911,679

 

  

   
              

 

The accompanying notes are an integral part of the financial statements.    5

Investment Portfolio - December 31, 2010

 

     Shares     

 

Value

(Note 2)

         

COMMON STOCKS (continued)

         

Energy - 9.0%

         

Energy Equipment & Services - 6.6%

         

Calfrac Well Services Ltd. (Canada)

      132,210       $         4,552,821      

Dril-Quip, Inc.*

      26,770         2,080,564      

ION Geophysical Corp.*

      249,310         2,114,149      

Petroleum Geo-Services ASA (Norway)*1

      144,580         2,272,693      

Trican Well Service Ltd. (Canada)

      131,340         2,660,352      
              
     

 

 

 

13,680,579

 

  

   
              

Oil, Gas & Consumable Fuels - 2.4%

         

Paladin Energy Ltd. (Australia)*

      1,011,270         5,095,507      
              

Total Energy

      

 

 

 

18,776,086

 

  

   
              

 

Financials - 8.9%

         

Commercial Banks - 3.6%

         

First Commonwealth Financial Corp.

      733,470         5,192,968      

First Financial Bancorp

      120,890         2,234,047      
              
     

 

 

 

7,427,015

 

  

   
              

Real Estate Investment Trusts (REITS) - 4.1%

         

American Campus Communities, Inc.

      63,600         2,019,936      

Corporate Office Properties Trust

      85,740         2,996,613      

DuPont Fabros Technology, Inc.

      65,620         1,395,737      

Home Properties, Inc.

      37,670         2,090,308      
              
     

 

 

 

8,502,594

 

  

   
              

Thrifts & Mortgage Finance - 1.2%

         

First Niagara Financial Group, Inc.

      183,630         2,567,147      
              

Total Financials

      

 

 

 

18,496,756

 

  

   
              

Health Care - 10.6%

         

Health Care Equipment & Supplies - 5.2%

         

Alere, Inc.*

      130,026         4,758,952      

Zoll Medical Corp.*

      162,290         6,042,057      
              
     

 

 

 

10,801,009

 

  

   
              

Health Care Providers & Services - 3.0%

         

Cross Country Healthcare, Inc.*

      306,770         2,598,342      

Diagnosticos da America S.A. (Brazil)

      277,760         3,764,819      
              
     

 

 

 

6,363,161

 

  

   
              

Life Sciences Tools & Services - 2.4%

         

Sequenom, Inc.*

      543,940         4,362,399      

WuXi PharmaTech (Cayman), Inc. - ADR (Cayman Islands)*

      37,940         612,352      
                    
     

 

 

 

4,974,751

 

  

   
              

Total Health Care

      

 

 

 

22,138,921

 

  

   
              

 

6    The accompanying notes are an integral part of the financial statements.

Investment Portfolio - December 31, 2010

 

 

     Shares          

 

Value     

(Note 2)    

       

 

COMMON STOCKS (continued)

         

Industrials - 25.2%

         

Air Freight & Logistics - 1.5%

         

Atlas Air Worldwide Holdings, Inc.*

      54,360       $       3,034,919      
              

Airlines - 3.3%

         

Copa Holdings S.A. - Class A (Panama)

      49,220         2,896,105      

US Airways Group, Inc.*

      403,220         4,036,232      
              
     

 

 

 

6,932,337

 

  

   
              

Commercial Services & Supplies - 3.1%

         

Tomra Systems ASA (Norway)1

      962,570         6,408,360      
              

Construction & Engineering - 1.3%

         

MYR Group, Inc.*

      132,670         2,786,070      
              

Machinery - 9.2%

         

ArvinMeritor, Inc.*

      106,240         2,180,045      

Astec Industries, Inc.*

      77,910         2,525,063      

Lindsay Corp.

      41,890         2,489,523      

Titan International, Inc.

      197,330         3,855,828      

Wabash National Corp.*

      352,300         4,174,755      

Wabtec Corp.

      38,840         2,054,248      

Westport Innovations, Inc. (Canada)*

      101,140         1,873,113      
              
     

 

 

 

19,152,575

 

  

   
              

Marine - 1.0%

         

D/S Norden (Denmark)1

      58,760         2,135,915      
              

Road & Rail - 5.8%

         

Heartland Express, Inc.

      257,840         4,130,597      

Knight Transportation, Inc.

      163,490         3,106,310      

RailAmerica, Inc.*

      373,540         4,837,343      
              
     

 

 

 

12,074,250

 

  

   
              

Total Industrials

      

 

 

 

52,524,426

 

  

   
              

Information Technology - 8.3%

         

Communications Equipment - 3.7%

         

Infinera Corp.*

      454,180         4,691,679      

Riverbed Technology, Inc.*

      82,700         2,908,559      
              
     

 

 

 

7,600,238

 

  

   
              

Computers & Peripherals - 0.5%

         

Compellent Technologies, Inc.*

      38,570         1,064,146      
              

Internet Software & Services - 1.1%

         

VistaPrint N.V. (Netherlands)*

      49,000         2,254,000      
              

Software - 3.0%

         

Fortinet, Inc.*

      75,730         2,449,865      

 

 

The accompanying notes are an integral part of the financial statements.    7

Investment Portfolio - December 31, 2010

 

     Shares          

 

Value     

(Note 2)    

       

 

COMMON STOCKS (continued)

         

 

Information Technology (continued)

         

Software (continued)

         

SolarWinds, Inc.*

      201,600       $ 3,880,800      
              
     

 

 

 

6,330,665

 

  

   
              

Total Information Technology

         17,249,049      
              

 

Materials - 5.5%

         

Chemicals - 3.3%

         

Calgon Carbon Corp.*

      244,600         3,698,352      

Flotek Industries, Inc.*

      253,510         1,381,629      

The Scotts Miracle-Gro Co. - Class A

      35,400         1,797,258      
              
     

 

 

 

6,877,239

 

  

   
              

Construction Materials - 2.2%

         

Eagle Materials, Inc.

      160,990         4,547,968      
              

Total Materials

      

 

 

 

11,425,207

 

  

   
              

Utilities - 1.1%

         

Independent Power Producers & Energy Traders - 1.1%

         

GenOn Energy, Inc.*

      607,963         2,316,339      
              

TOTAL COMMON STOCKS
(Identified Cost $156,046,584)

         198,159,176      
              

 

SHORT-TERM INVESTMENTS - 3.9%

         

 

Dreyfus Cash Management, Inc. - Institutional Shares2, 0.14%

(Identified Cost $8,181,636)

      8,181,636         8,181,636      
              

 

TOTAL INVESTMENTS - 99.0%

         

(Identified Cost $164,228,220)

         206,340,812      

OTHER ASSETS, LESS LIABILITIES - 1.0%

         2,056,296      
              

NET ASSETS - 100%

       $     208,397,108      
              

ADR - American Depository Receipt

*Non-income producing security

1International Fair Value factor from pricing service was applied.

2Rate shown is the current yield as of December 31, 2010.

 

8    The accompanying notes are an integral part of the financial statements.

Statement of Assets and Liabilities

December 31, 2010

 

 

ASSETS:

   

Investments, at value (identified cost $164,228,220) (Note 2)

    $ 206,340,812   

Cash

      80,722   

Receivable for securities sold

      8,975,034   

Dividends receivable

      137,758   

Receivable for fund shares sold

      125,007   
        

TOTAL ASSETS

      215,659,333   
        

LIABILITIES:

   

Accrued management fees (Note 3)

      173,847   

Accrued fund accounting and administration fees (Note 3)

      7,087   

Accrued transfer agent fees (Note 3)

      2,616   

Accrued Chief Compliance Officer service fees (Note 3)

      245   

Payable for securities purchased

      6,668,895   

Payable for fund shares repurchased

      348,981   

Other payables and accrued expenses

      60,554   
        

TOTAL LIABILITIES

      7,262,225   
        

TOTAL NET ASSETS

    $ 208,397,108   
        

NET ASSETS CONSIST OF:

   

Capital stock

    $ 224,225   

Additional paid-in-capital

      231,014,775   

Accumulated net realized loss on investments, foreign currency and translation of other assets and liabilities

      (64,954,922 ) 

Net unrealized appreciation on investments, foreign currency and translation of other assets and liabilities

      42,113,030   
        

TOTAL NET ASSETS

    $ 208,397,108   
        

NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE - CLASS A ($208,397,108/22,422,525 shares)

    $ 9.29   
        

 

 

The accompanying notes are an integral part of the financial statements.    9

Statement of Operations

For the Year Ended December 31, 2010

 

 

INVESTMENT INCOME:

   

Dividends (net of foreign taxes withheld, $22,940)

    $ 1,740,239   

Interest

      55   
        

Total Investment Income

      1,740,294   
        

EXPENSES:

   

Management fees (Note 3)

      1,768,512   

Fund accounting and administration fees (Note 3)

      50,321   

Transfer agent fees (Note 3)

      16,169   

Directors’ fees (Note 3)

      9,389   

Chief Compliance Officer service fees (Note 3)

      2,631   

Custodian fees

      20,527   

Miscellaneous

      107,635   
        

Total Expenses

      1,975,184   

Less reduction of expenses (Note 3)

      (758 ) 
        

Net Expenses

      1,974,426   
        

NET INVESTMENT LOSS

      (234,132 ) 
        

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN

CURRENCY:

   

Net realized gain (loss) on-
Investments

      28,499,262   

Foreign currency and translation of other assets and liabilities

      (4,579 ) 
        
     28,494,683   
        

Net change in unrealized appreciation on-
Investments

      14,571,251   

Foreign currency and translation of other assets and liabilities

      229   
        
     14,571,480   
        

NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCY

      43,066,163   
        

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

      $  42,832,031   
        

 

 

10    The accompanying notes are an integral part of the financial statements.

Statements of Changes in Net Assets

 

 

    

For the

Year Ended
12/31/10

    

For the

Year Ended
12/31/09

  
INCREASE IN NET ASSETS:             
OPERATIONS:             

Net investment loss

    $ (234,132 )    $ (481,098 ) 

Net realized gain (loss) on investments and foreign currency

      28,494,683        (22,236,560 ) 

Net change in unrealized appreciation on investments and foreign currency

      14,571,480        78,307,749   
                

Net increase from operations

      42,832,031        55,590,091   
                

CAPITAL STOCK ISSUED AND REPURCHASED:

     

Net decrease from capital share transactions (Note 5)

      (6,344,912 )      (3,842,395 ) 
                

Net increase in net assets

      36,487,119        51,747,696   

NET ASSETS:

     

Beginning of year

      171,909,989        120,162,293   
                

End of year (including undistributed net investment income of $0 and $0, respectively)

    $ 208,397,108      $ 171,909,989   
                

 

 

The accompanying notes are an integral part of the financial statements.    11

Financial Highlights

 

 

    

 

For the Years Ended

  
     12/31/10     12/31/09     12/31/08     12/31/07     12/31/06  

Per share data (for a share

outstanding throughout each year):

           

Net asset value - Beginning of year

      $7.39        $4.98        $10.21        $13.08        $13.66   
                                        

Income (loss) from investment operations:

  

Net investment loss

      (0.01 )1       (0.02 )1       (0.02 )      (0.01 )      (0.05 ) 

Net realized and unrealized gain (loss) on investments

      1.91        2.43        (5.12 )      (1.25 )      2.55   
                                        

Total from investment operations

      1.90        2.41        (5.14 )      (1.26 )      2.50   
                                        

Less distributions to shareholders:

           

From net realized gain on investments

      —        —        (0.09 )      (1.61 )      (3.08 ) 
                                        

Net asset value - End of year

      $9.29      $ 7.39      $ 4.98      $ 10.21      $ 13.08   
                                        

Net assets - End of year
(000’s omitted)

      $208,397      $ 171,910      $ 120,162      $ 184,998      $ 175,491   
                                        

Total return2

      25.71%        48.39%        (50.68% )      (9.32% )      18.06%   

Ratios (to average net assets)/ Supplemental Data:

           

Expenses*

      1.12%        1.15%        1.15%        1.14%        1.16%   

Net investment loss

      (0.13% )      (0.34% )      (0.39% )      (0.08% )      (0.40% ) 

Portfolio turnover

      75%        76%        68%        64%        85%   

*The investment advisor did not impose all or a portion of its management fees, CCO fees, fund accounting and transfer agent fees, and other fees in some years and in some years paid a portion of the Series’ expenses. If these expenses had been incurred by the Series, the expense ratio (to average net assets) would have been increased by the following amounts:

      
     0.00 %3      0.00 %3      N/A        N/A        N/A   

1Calculated based on average shares outstanding during the year.

2Represents aggregate total return for the years indicated, and assumes reinvestment of all distributions. Total returns would have been lower had certain expenses not been waived or reimbursed during certain years.

3Less than 0.01%.

 

12    The accompanying notes are an integral part of the financial statements.

Notes to Financial Statements

 

 

1.

ORGANIZATION

Small Cap Series (the “Series”) is a no-load diversified series of Manning & Napier Fund, Inc. (the “Fund”). The Fund is organized in Maryland and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company.

The Series’ investment objective is to provide long-term growth by investing principally in the common stocks of companies with small market capitalizations.

The Series is authorized to issue five classes of shares (Class A, B, D, E and Z). Currently, only Class A shares have been issued. Each class of shares is substantially the same, except that class-specific distribution and shareholder servicing expenses are borne by the specific class of shares to which they relate.

The Fund’s Advisor is Manning & Napier Advisors, Inc. (the “Advisor”). Shares of the Series are offered to investors, clients and employees of the Advisor and its affiliates. The total authorized capital stock of the Fund consists of 10.0 billion shares of common stock each having a par value of $0.01. As of December 31, 2010, 6.2 billion shares have been designated in total among 29 series, of which 87.5 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, warrants and options, listed on an exchange other than the NASDAQ National Market System are valued at the latest 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 provided by the Fund’s pricing service. Securities listed on the NASDAQ National Market System are valued in accordance with the NASDAQ Official Closing Price.

Short-term investments that mature in sixty days or less are valued at amortized cost, which approximates market value. Investments in open-end investment companies are valued at their net asset value per share on valuation date.

Volume and level of activity in established markets for an asset or liability are evaluated to determine whether recent transactions and quoted prices are determinative of fair value. Where there have been significant decreases in volume and level of activity, further analysis and adjustment may be necessary to estimate fair value. The Series measures fair value in these instances by the use of inputs and valuation techniques which may be based upon current market prices of securities that are comparable in coupon, rating, maturity and industry and/or expectation of future cash flows. As a result of trading in relatively thin markets and/or markets that experience significant volatility, the prices used by the Series to value these securities may differ from the value that would be realized if these securities were sold, and the differences could be material.

Securities for which representative valuations or prices are not available from the Fund’s pricing service may be valued at fair value. Due to the inherent uncertainty of valuations of such securities, the fair value may differ significantly from the values that would have been used had a ready market for such securities existed. If trading or events occurring after the close of the principal market in which securities are traded are expected to materially affect the value of those securities, then they may be valued at their fair value, taking this trading or these events into account. Fair value is determined in good faith by the Advisor under procedures approved by and under the general supervision and responsibility of the Fund’s Board of Directors (the “Board”). In accordance with the procedures approved by the Board, the Series applies fair value pricing on a daily basis except for North American, Central American, South American and Caribbean equity securities. Fair valuing of securities is determined with the assistance of a pricing service using calculations or factors based on indices of domestic securities and other appropriate indicators, such as prices of relevant American Depository Receipts and futures contracts, to adjust local market prices for subsequent

 

   13

Notes to Financial Statements

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Security Valuation (continued)

movements through the time the Series calculates its net asset value. The value of securities used for the net asset value calculation under the procedures may differ from published prices for the same securities. It is the Fund’s policy to classify each foreign equity security, except for those in the regions noted above, as Level 2 securities due to the fact the pricing service evaluated what factor was applied to the calculated end of day market price.

Various inputs are used in determining the value of the Series’ assets or liabilities carried at market value. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical assets and liabilities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). Level 3 includes significant unobservable inputs (including the Series’ own assumptions in determining the fair value of investments). The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the valuation levels used for major security types as of December 31, 2010 in valuing the Series’ assets or liabilities carried at market value:

000000000000000 000000000000000 000000000000000 000000000000000
Description    Total      Level 1      Level 2      Level  3  

Assets:

            

Equity securities*

    $ 198,159,176       $ 183,358,303       $ 14,800,873       $ —   

Preferred securities

      —         —         —         —   

Debt securities

      —         —         —         —   

Mutual funds

      8,181,636         8,181,636         —         —   

Other financial instruments**:

      —         —         —         —   
                                   

Total assets:

      206,340,812         191,539,939         14,800,873         —   
                                   

Liabilities:

            

Other financial instruments**:

      —         —         —         —   
                                   

Total liabilities:

      —         —         —         —   
                                   

Total

    $ 206,340,812       $ 191,539,939       $ 14,800,873       $ —   
                                   

*Includes common stock, warrants and rights. Please see the Investment Portfolio for industry classification and for securities where an International Fair Value factor from the pricing service was applied to value the security. Such securities are included in Level 2 in the table above.

**Other financial instruments are derivative instruments not reflected in the Investment Portfolio, such as futures, forwards and swap contracts, which are valued at the unrealized appreciation/depreciation on the instrument. As of December 31, 2010, the Series did not hold any derivative instruments.

There were no Level 3 securities held by the Series as of December 31, 2009 or December 31, 2010.

The Fund’s policy is to recognize transfers in and transfers out of the valuation levels as of the beginning of the reporting period. During the year ended December 31, 2010, the Fund had one foreign equity security transfer from Level 1 to Level 2 due to the implementation of new international fair value pricing procedures. The following is a summary of the foreign equity securities that transferred from Level 1 to Level 2:

 

14   

Notes to Financial Statements

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Security Valuation (continued)

 

Total #

Securities

Level 1 at

beginning and

Level 2 at end

of period

    Total  Market
Value
Beginning of
period		     

Total Market
Value

End of period

      Change in
Market Value		  

1

    $ 4,605,200       $ 6,408,360       $ 1,803,160   

Additional disclosure surrounding the activity in Level 3 fair value measurement will be effective for fiscal years beginning after December 15, 2010. Management has concluded that this will not have a material impact on the Series’ financial statements.

Security Transactions, Investment Income and Expenses

Security transactions are accounted for on trade date. Dividend income is recorded on the ex-dividend date, except that if the ex-dividend date has passed, certain dividends from foreign securities are recorded as soon as the Fund is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Interest income, including amortization of premium and accretion of discounts using the effective interest method, is earned from settlement date and accrued daily.

Expenses are recorded on an accrual basis. Most expenses of the Fund can be attributed to a specific series. Expenses which cannot be directly attributed are apportioned among the series in the Fund in such a manner as deemed equitable by the Fund’s Board, taking into consideration, among other things, the nature and type of expense.

The Series uses the identified cost method for determining realized gain or loss on investments for both financial statement and federal income tax reporting purposes.

Foreign Currency Translation

The books and records of the Series are maintained in U.S. dollars. Foreign currencies, investments and other assets and liabilities are translated into U.S. dollars at the current exchange rates. Purchases and sales of investment securities and income and expenses are translated on the respective dates of such transactions. The Series does not isolate realized and unrealized gains and losses attributable to changes in the exchange rates from gains and losses that arise from changes in the market value of investments. Such fluctuations are included with net realized and unrealized gain or loss on investments. Net realized foreign currency gains and losses represent foreign currency gains and losses between trade date and settlement date on securities transactions, gains and losses on disposition of foreign currencies and the difference between the amount of income and foreign withholding taxes recorded on the books of the Series and the amounts actually received or paid.

Federal Taxes

The Series’ policy is to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. The Series is not subject to federal income tax or excise tax to the extent that the Series 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.

Management evaluates its tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of tax benefits of an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by

 

 

   15

Notes to Financial Statements

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Federal Taxes (continued)

taxing authorities. At December 31, 2010, the Series has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken in future tax returns.

The Series files income tax returns in the U.S. federal jurisdiction, various states and foreign jurisdictions, as required. No income tax returns are currently under investigation. The statute of limitations on the Series’ tax returns remains open for the years ended December 31, 2007 through December 31, 2010. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.

Additionally, based on the Fund’s understanding of the tax rules and rates related to income, gains and transactions for foreign jurisdictions in which it invests, the Series will provide for foreign taxes, and where appropriate, deferred foreign tax.

Distributions of Income and Gains

Distributions to shareholders of net investment income and net realized gains are made annually. An additional distribution may be necessary to avoid taxation of the Series. Distributions are recorded on the ex-dividend date.

Indemnifications

The Fund’s organizational documents provide former and current directors and officers with a limited indemnification against liabilities arising in connection with the performance of their duties to the Fund. In the normal course of business, the Fund may also enter into contracts that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would be dependent on future claims that may be made against the Fund. The risk of material loss from such claims is considered remote.

Other

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 income and expenses during the reporting period. Actual results could differ from those estimates.

 

3.

TRANSACTIONS WITH AFFILIATES

The Fund has an Investment Advisory Agreement (the “Agreement”) with the Advisor, for which the Series pays a fee, computed daily and payable monthly, at an annual rate of 1.00% of the Series’ average daily net assets.

Under the Agreement, personnel of the Advisor provide the Series with advice and assistance in the choice of investments and the execution of securities transactions, and otherwise maintain the Series’ organization. The Advisor also provides the Fund with necessary office space and fund administration and support services. The salaries of all officers of the Fund (except a percentage of the Fund’s Chief Compliance Officer’s salary, which is paid by 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. Each “non-affiliated” Director receives an annual stipend, which is allocated among all the active series of the Fund. In addition, these Directors also receive a fee per Board meeting attended plus a fee for each committee meeting attended.

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 Series.

 

 

16   

Notes to Financial Statements

 

3. TRANSACTIONS WITH AFFILIATES (continued)

For the year ended December 31, 2010, the Advisor voluntarily waived fees of $758, which is included as a reduction of expenses on the Statement of Operations. The Advisor is not eligible to recoup any expenses that have been waived or reimbursed in prior years.

The Advisor has agreements with PNC Global Investment Servicing (U.S.) Inc. (“PNCGIS”) under which PNCGIS serves as sub-accountant services agent and sub-transfer agent. The Fund pays the Advisor an annual fee related to fund accounting and administration of 0.0175% on the first $3 billion of average daily net assets (excluding Target Series); 0.015% on the next $3 billion of average daily net assets (excluding Target Series); and 0.01% of the average daily net assets in excess of $6 billion (excluding Target Series); plus a base fee of $25,500 per Series.

Transfer Agent fees are charged to the Fund on a per account basis. Additionally, certain transaction- and cusip-based fees and out-of-pocket expenses, including charges for reporting relating to the Fund’s compliance program, are charged.

Effective July 1, 2010, PNCGIS was sold to The Bank of New York Mellon Corporation, the Series’ custodian. At the close of the sale, PNCGIS changed its name to BNY Mellon Investment Servicing (U.S.) Inc. (“BNY”).

Expenses not directly attributable to a Series are allocated based on each Series’ relative net assets or number of accounts, depending on the expense.

 

4. PURCHASES AND SALES OF SECURITIES

For the year ended December 31, 2010, purchases and sales of securities, other than U.S. Government securities and short-term securities, were $127,636,610 and $138,310,342, respectively. There were no purchases or sales of U.S. Government securities.

 

5. CAPITAL STOCK TRANSACTIONS

Transactions in Class A shares of Small Cap Series were:

 

    

For the Year

Ended 12/31/10

    

For the Year

Ended 12/31/09

  
     Shares     Amount     Shares     Amount  

Sold

      2,171,584      $ 16,811,321        3,622,635      $ 20,933,139   

Reinvested

      —        —        —        —   

Repurchased

      (3,002,811 )      (23,156,233 )      (4,476,178 )      (24,775,534 ) 
                                

Total

      (831,227 )    $ (6,344,912 )      (853,543 )    $ (3,842,395 ) 
                                

Approximately 90% of the Series’ shares represent investments by fiduciary accounts over which the Advisor has sole investment discretion.

 

6. FINANCIAL INSTRUMENTS

The Series may trade in instruments including written and purchased options, forward foreign currency exchange contracts and futures contracts and other derivatives in the normal course of investing activities to assist in managing exposure to various market risks. Investments in these instruments may subject the Series to various elements of risk, which may involve, to a varying degree, elements of risk in excess of the amounts recognized for financial statement purposes. These risks include: the risk that changes in the value of a derivative may not correlate perfectly with the underlying asset, rate or index, counterparty credit risk related to over the counter derivatives counterparties’ failure to perform under contract terms, liquidity risk related to the lack of a liquid market for these contracts allowing

 

17

Notes to Financial Statements

 

6.

FINANCIAL INSTRUMENTS (continued)

the fund to close out its position(s) and documentation risk relating to disagreement over contract terms. No such investments were held by the Series during the year ended December 31, 2010.

 

7.

FOREIGN SECURITIES

Investing in securities of foreign companies and foreign governments involves special risks and considerations not typically associated with investing in securities of domestic companies and the U.S. Government. These risks include revaluation of currencies and future adverse political and economic developments. Moreover, securities of foreign companies and foreign governments and their markets may be less liquid and their prices more volatile than those of comparable domestic companies and the U.S. Government.

 

8.

FEDERAL INCOME TAX INFORMATION

The amount and characterization of certain income and capital gains to be distributed are determined in accordance with federal income tax regulations, which may differ from accounting principles generally accepted in the United States of America. These differences are primarily due to differing book and tax treatments in the timing of the recognition of net investment income or gains and losses, including net operating losses, losses deferred due to wash sales and foreign currency gains and losses. The Series may periodically make reclassifications among its capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations without impacting the Series’ net asset value. Any such reclassifications are not reflected in the financial highlights.

There were no distributions to shareholders for the years ended December 31, 2010 or December 31, 2009.

At December 31, 2010 , the tax basis of distributable earnings and the net unrealized appreciation based on identified cost of investments for federal income tax purposes were as follows:

 

 

Cost for federal income tax purposes

    $ 164,228,221     
 

Unrealized appreciation

    $ 45,444,657     
 

Unrealized depreciation

      (3,332,066 )   
            
 

Net unrealized appreciation

    $ 42,112,591     
            
 

Capital loss carryover

      64,954,922     

At December 31, 2010, the capital loss carryover, disclosed above, available to the extent allowed by tax law to offset future net capital gain, if any, will expire as follows:

 

Loss  Carryover    Expiration  Date       

    $12,581,033

    December 31, 2016   

    $52,373,889

    December 31, 2017   

The capital loss carryover utilized in the current year was $28,485,949.

 

18   

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors of Manning & Napier Fund, Inc. and Shareholders of Small Cap Series:

In our opinion, the accompanying statement of assets and liabilities, including the investment portfolio, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the Small Cap Series (a series of Manning & Napier Fund, Inc., hereafter referred to as the “Series”) at December 31, 2010, and 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 five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Series’ management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2010 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

LOGO

New York, New York

February 22, 2011

 

   19

Renewal of Investment Advisory Agreement (unaudited)

 

At the Manning & Napier Fund, Inc. (the “Fund”) Board of Directors’ (the “Board”) meeting, held on November 17, 2010, the Investment Advisory Agreement (the “Agreement”) between the Fund and Manning & Napier Advisors, Inc. (the “Advisor”) was reviewed by the Board for renewal. In connection with the decision whether to renew the Agreement, a variety of material was prepared for and reviewed by the Board.

Representatives of the Advisor attended the meeting and presented additional oral and written information to the Board to assist the Board in its considerations. The discussion immediately below outlines the materials and information presented to the Board in connection with the Board’s 2010 Annual Review of the Agreement and the conclusions made by the Directors when determining to continue the Agreement.

 

  •  

The Board considered the services provided by the Advisor under the Agreement including, among others: deciding what securities to purchase and sell for each Series; arranging for the purchase and sale of such securities by placing orders with broker-dealers; administering the affairs of the Fund (including the books and records of the Fund not maintained by third party service providers such as the custodian or sub-transfer agent); arranging for the insurance coverage for the Fund; and supervising the preparation of tax returns, SEC filings (including registration statements) and reports to shareholders for the Fund. The Board also considered the nature and quality of such services provided under the Agreement in light of the Advisor’s services provided to the Fund for 24 years. The Board discussed the quality of these services with representatives from the Advisor and concluded that the Advisor was performing its services to the Fund required under the Agreement in a reasonable manner.

 

  •  

The Board considered the investment performance of the various Series of the Fund. The investment performance for each Series was reviewed on a cumulative basis since inception and on a one year basis. In addition, annualized performance for the following time periods was considered: inception, three year, five year, ten year, and current market cycle. A market cycle includes periods of both rising and falling markets. Returns for established benchmark indices for each Series were provided for each time period. The Board noted that the various Series were competitive against their respective benchmarks and/or peer groups over various time periods, but in particular over the full market cycle period relevant for the Series. In addition, the Board considered at the meeting (and considers on a quarterly basis) a peer group performance analysis consisting of Morningstar universes of mutual funds with similar investment objectives. The Board discussed the performance with representatives from the Advisor and concluded that the investment performance of each of the Fund’s Series was reasonable based on the Fund’s actual performance and comparative performance, especially performance over the current market cycle.

 

  •  

The Board considered the costs of the Advisor’s services and the profits of the Advisor as they relate to the Advisor’s services to the Fund under the Agreement. In reviewing the Advisor’s costs and profits, the Board discussed the Advisor’s revenues generated from the Fund (on both an actual and adjusted basis) and its expenses associated with providing the services under the Agreement. In addition, the Board reviewed the Advisor’s expenses associated with Fund activities outside of the Agreement (such as expense reimbursements pursuant to expense caps and payments made by the Advisor to third party platforms on which shares of the Fund are available for purchase). It was noted by representatives of the Advisor that 11 of the 27 active Series of the Fund are currently experiencing expenses above the capped expense ratios. After discussing the above costs and profits, the Board concluded that the Advisor’s profitability relating to its services provided under the Agreement was reasonable.

 

  •  

The Board considered the fees and expenses of the various Series of the Fund. The Advisor presented the advisory fees and total expenses for each Series, including the advisory fee adjusted for any expense waivers or reimbursements (either contractual or voluntary) paid by the Advisor. The advisory fees and expense ratios of each Series were compared to an average (on both a mean and median basis) of similar funds as disclosed on the Morningstar database. Representatives of the Advisor discussed with the Board the levels of its advisory

 

20   

Renewal of Investment Advisory Agreement (unaudited)

 

 

fee for each Series of the Fund and as compared to the median and mean advisory fees for similar funds as listed on Morningstar. Expense ratios for every Series, except the Pro-Blend’s Class R and Class C, and Target Class R and Class C, are currently below the median and mean for similar funds as listed on Morningstar. Based on their review of the information provided, the Board concluded that the fees and expenses of each Series of the Fund were reasonable on a comparative basis.

 

  •  

The Board also considered the other benefits the Advisor derives from its relationship with the Fund. Such other benefits include certain research products provided by soft dollars. Given the level of soft dollar transactions involving the Fund, the Board concluded that these additional benefits to the Advisor were reasonable.

 

  •  

In addition to the factors described above, the Board considered the Advisor’s personnel, investment strategies, policies and procedures relating to compliance with personal securities transactions, and reputation, expertise and resources in domestic and foreign financial markets. The Board concluded that these factors support the conclusion that the Advisor performs its services in a reasonable manner.

 

  •  

The Board did not consider economies of scale at this time because of the multiple uses of the Fund (for the Advisor’s discretionary investment account clients in addition to direct investors), the current profitability of the Advisor’s services to the Fund under the Agreement, and the overall size of the Fund complex.

Based on the Board’s deliberations and their evaluation of the information described above, the Board, including a majority of Directors that are not “interested persons” as defined in the Investment Company Act of 1940, concluded that the compensation under the Agreement was fair and reasonable in light of the services and expenses and such other matters as the Directors considered to be relevant in the exercise of their reasonable judgment. Accordingly, the Board approved the renewal of the Agreement. In the course of their deliberations, the Directors did not identify any particular information that was all important or controlling.

 

   21

Directors’ and Officers’ Information (unaudited)

 

The Statement of Additional Information provides additional information about the Fund’s directors and officers and can be obtained without charge by calling 1-800-466-3863, at www.manningnapieradvisors.com, or on the EDGAR Database on the SEC Internet web site (http:// www.sec.gov). The following chart shows certain information about the Fund’s officers and directors, including their principal occupations during the last five years. Unless specific dates are provided, the individuals have held the listed positions for longer than five years.

 

INTERESTED DIRECTOR/OFFICER

   

 

Name:

   

 

B. Reuben Auspitz*

Address:    290 Woodcliff Drive
   Fairport, NY 14450
Age:    63
Current Position(s) Held with Fund:    Principal Executive Officer, President, Chairman & Director
Term of Office1 & Length of Time Served:    Indefinite - Director since 1984; Vice President 1984 - 2003; President since 2004; Principal Executive Officer since 2002
Principal Occupation(s) During Past 5 Years:    Executive Vice President; Executive Group Member**; Chief Compliance Officer since 2004; Vice Chairman since June 2010; Co-Executive Director from 2003-2010 - Manning & Napier Advisors, Inc. President; Director - Manning & Napier Investor Services, Inc. Holds or has held one or more of the following titles for various subsidiaries and affiliates: President, Vice President, Director, Chairman, Treasurer, Chief Compliance Officer or Member.
Number of Portfolios Overseen within Fund Complex:    29
Other Directorships Held Outside Fund Complex:    N/A

 

INDEPENDENT DIRECTORS

   

 

Name:

   

 

Paul A. Brooke

Address:    290 Woodcliff Drive
   Fairport, NY 14450
Age:    65
Current Position(s) Held with Fund:    Director, Audit Committee Member, Governance & Nominating Committee Member
Term of Office & Length of Time Served:    Indefinite - Since 2007
Principal Occupation(s) During Past 5 Years:    Chairman & CEO, Alsius Corp. (investments); Managing Member, PMSV Holdings LLC (investments)
Number of Portfolios Overseen within Fund Complex:    29
Other Directorships Held Outside Fund Complex:    Incyte Corp. (2000-present)
   ViroPharma, Inc. (2000-present)
   HLTH Corp. (2000-present)
   Cheyne Capital International (2000-present)
   MPM Bio-equities (2000-present)
   GMP Companies (2000-present)
     HoustonPharma (2000-present)

 

Name:

   

 

Richard M. Hurwitz

Address:    290 Woodcliff Drive
   Fairport, NY 14450
Age:    47
Current Position(s) Held with Fund:    Director, Audit Committee Member, Governance & Nominating Committee Member
Term of Office & Length of Time Served:    Indefinite - Since 2009
Principal Occupation(s) During Past 5 Years:    Chief Executive Officer, Pictometry International Corp. since August 2010 (provider of georeferenced, aerial image libraries and related software) Managing Partner (2006-July 2010) - Aegis Investment Partners, LLC (investments); Founder and Managing Partner (2004-2005) - Village
   Markets, LLC (groceries)
Number of Portfolios Overseen within Fund Complex:    29
Other Directorships Held Outside Fund Complex:    Pictometry International Corp. (2000-2010)
   Pioneering Technologies (2006-2009)
    

Vensearch Capital Corp. (2003-2007)

 

 

22   

Directors’ and Officers’ Information (unaudited)

 

INDEPENDENT DIRECTORS (continued)

   
Name:    Stephen B. Ashley
Address:    290 Woodcliff Drive
   Fairport, NY 14450
Age:    70
Current Position(s) Held with Fund:    Director, Audit Committee Member, Governance & Nominating Committee Member
Term of Office & Length of Time Served:    Indefinite - Since 1996
Principal Occupation(s) During Past 5 Years:    Chairman, Director, President & Chief Executive Officer, The Ashley Group (property management and investment). Chairman (non-executive) 2004-2008; Director 1995-2008 - Fannie Mae (mortgage)
Number of Portfolios Overseen within Fund Complex:    29
Other Directorships Held Outside Fund Complex:    The Ashley Group (1995-2008)
   Genesee Corporation (1987-2007)
Name:   

 

Peter L. Faber

Address:    290 Woodcliff Drive
   Fairport, NY 14450
Age:    72
Current Position(s) Held with Fund:    Director, Governance & Nominating Committee Member
Term of Office & Length of Time Served:    Indefinite - Since 1987
Principal Occupation(s) During Past 5 Years:    Senior Counsel since 2006, Partner (1995 - 2006) - McDermott, Will & Emery LLP (law firm)
Number of Portfolios Overseen within Fund Complex:    29
Other Directorships Held Outside Fund Complex:    Partnership for New York City, Inc. (non-profit)
   New York Collegium (non-profit)
   Boston Early Music Festival (non-profit)
Name:   

 

Harris H. Rusitzky

Address:    290 Woodcliff Drive
   Fairport, NY 14450
Age:    76
Current Position(s) Held with Fund:    Director, Audit Committee Member, Governance & Nominating Committee Member
Term of Office & Length of Time Served:    Indefinite - Since 1985
Principal Occupation(s) During Past 5 Years:    President, The Greening Group (business consultants) since 1994; Partner, The Restaurant Group (restaurants) since 2006
Number of Portfolios Overseen within Fund Complex:    29
Other Directorships Held Outside Fund Complex:    N/A

 

OFFICERS

 

   
Name:    Jeffrey S. Coons, Ph.D., CFA
Address:    290 Woodcliff Drive
   Fairport, NY 14450
Age:    47
Current Position(s) Held with Fund:    Vice President
Term of Office1 & Length of Time Served:    Since 2004
Principal Occupation(s) During Past 5 Years:    President since 2010, Co-Director of Research since 2002, Executive Group Member** since 2003, - Manning & Napier Advisors, Inc. Holds one or more of the following titles for various subsidiaries and affiliates: President, Director, Treasurer or Senior Trust Officer.
Number of Portfolios Overseen within Fund Complex:    29
Other Directorships Held Outside Fund Complex:   

N/A

 

 

   23

Directors’ and Officers’ Information (unaudited)

 

 

OFFICERS (continued)   
Name:    Beth Galusha
Address:    290 Woodcliff Drive
   Fairport, NY 14450
Age:    49
Current Position(s) Held with Fund:    Assistant Chief Financial Officer
Term of Office1 & Length of Time Served:    Assistant Chief Financial Officer since 2010
Principal Occupation(s) During Past 5 Years:    Chief Financial Officer and Treasurer, Manning & Napier Advisors, Inc. Holds one or more of the following titles for various affiliates: Chief Financial Officer, Director, or Treasurer
Number of Portfolios Overseen within Fund Complex:    29
Other Directorships Held Outside Fund Complex:    N/A

 

Name:

   

 

Christine Glavin

Address:    290 Woodcliff Drive
   Fairport, NY 14450
Age:    44
Current Position(s) Held with Fund:    Principal Financial Officer, Chief Financial Officer
Term of Office1 & Length of Time Served:    Principal Financial Officer since 2002; Chief Financial Officer since 2001
Principal Occupation(s) During Past 5 Years:    Fund Reporting Manager, Manning & Napier Advisors, Inc. since 1997
Number of Portfolios Overseen within Fund Complex:    29
Other Directorships Held Outside Fund Complex:    N/A

 

Name:

   

 

Jodi L. Hedberg

Address:    290 Woodcliff Drive
   Fairport, NY 14450
Age:    43
Current Position(s) Held with Fund:    Corporate Secretary, Chief Compliance Officer, Anti-Money Laundering Compliance Officer
Term of Office1 & Length of Time Served:    Corporate Secretary since 1997; Chief Compliance Officer since 2004
Principal Occupation(s) During Past 5 Years:    Director of Compliance, Manning & Napier Advisors, Inc. and affiliates since 1990 (title change in 2005 from Compliance Manager to Director of Compliance); Corporate Secretary, Manning & Napier Investor Services, Inc. since 2006
Number of Portfolios Overseen within Fund Complex:    29
Other Directorships Held Outside Fund Complex:    N/A

 

Name:

   

 

Richard Yates

Address:    290 Woodcliff Drive
   Fairport, NY 14450
Age:    45
Current Position(s) Held with Fund:    Chief Legal Officer
Term of Office1 & Length of Time Served:    Chief Legal Officer since 2004
Principal Occupation(s) During Past 5 Years:    Counsel - Manning & Napier Advisors, Inc. & affiliates since 2000; Holds one or more of the following titles for various affiliates; Director or Corporate Secretary
Number of Portfolios Overseen within Fund Complex:    29
Other Directorships Held Outside Fund Complex:    N/A

*Interested Director, within the meaning of the Investment Company Act of 1940 by reason of his position with the Fund’s investment advisor and distributor. Mr. Auspitz serves as the Executive Vice President and Director, Manning & Napier Advisors, Inc. and President and Director, Manning

& Napier Investor Services, Inc., the Fund’s distributor.

**Prior to June 2010, the Executive Group, consisting of senior executive employee-owners, performed the duties of the Office of the Chief Executive of the Advisor. Effective June 2010, the Executive Group serves as an advisory board to the Chief Executive Officer.

1The term of office for President, Vice President, Chief Financial Officer, Assistant Chief Financial Officer, Chief Legal Officer and Corporate Secretary is one year and until their respective successors are chosen and qualified. All other officers’ terms are indefinite.

 

24   

 

 

 

 

 

This page Intentionally Left Blank

 

25

Literature Requests (unaudited)

 

Proxy Voting Policies and Procedures

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request:

 

By phone

    1-800-466-3863

On the Securities and Exchange
Commission’s (SEC) web site

    http://www.sec.gov

Proxy Voting Record

Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available, without charge, upon request:

 

By phone

    1-800-466-3863

On the SEC’s web site

    http://www.sec.gov

Quarterly Portfolio Holdings

The Series’ complete schedule of portfolio holdings for the 1st and 3rd quarters of each fiscal year are provided on Form N-Q, and are available, without charge, upon request:

 

By phone

    1-800-466-3863

On the SEC’s web site

    http://www.sec.gov

The Series’ Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.

Prospectus and Statement of Additional Information (SAI)

The prospectus and SAI provide additional information about each Series, including charges, expenses and risks. These documents are available, without charge, upon request:

 

By phone

    1-800-466-3863

On the SEC’s web site

    http://www.sec.gov

On the Advisor’s web site

    http://www.manning-napier.com

Additional information available at www.manning-napier.com

1. Fund Holdings - Month-End

2. Fund Holdings - Quarter-End

3. Shareholder Report - Annual

4. Shareholder Report - Semi-Annual

MNSCS-12/10-AR

 

  

LOGO

Management Discussion and Analysis (unaudited)

 

Dear Shareholders:

Over the course of 2010, the markets experienced several ups and downs driven by well-defined swings in investor sentiment. Optimism fueled strong market returns early in the year, as upbeat economic releases led investors to believe in the potential for a robust U.S. recovery. However, sentiment shifted drastically in May and June as more negative economic news and issues related to Europe’s government debt problems led to notable stock market losses. In another swing, the markets rebounded in the fall amid better economic developments and prospects that the Federal Reserve would enact another round of quantitative easing. That rally generally continued through the end of the year as the markets reacted positively to the U.S. tax compromise, which extended the Bush-era tax cuts for all income brackets.

With equities posting double-digit gains in the third and fourth quarters, the choppy year ended on a strong note, and broad equity indices have now produced back-to-back years of positive results. For the twelve months ending December 31, 2010, the S&P 500 Index returned 15.07%, while the S&P 500 Information Technology Index earned 10.23%.

The Technology Series had a 19.53% return during 2010, outpacing the S&P 500 Information Technology Index as well as the broader stock market. More importantly, the Series continues to have a strong track record relative to the broad market and the sector-specific benchmark over the current market cycle, which includes both a bull and a bear market. Over this current cycle, the Technology Series has earned an annualized return of 20.44%, compared to the 7.52% return of the S&P 500 Index and the 11.11% return of the S&P 500 Information Technology Index.

In the volatile market environment of 2010, Manning & Napier maintained a selective investment approach and focused on companies that we believe can grow market share. We continued to emphasize quality, targeting best-in-class companies expected to generate sales growth despite a muted economic backdrop, as well as “away game winners” expected to successfully compete in faster-growing markets overseas.

Focusing on companies with strong fundamentals and favorable growth drivers, we took advantage of the market swings in 2010. During the market pullback in the second quarter, we added stocks with strong secular (i.e., non-cyclical) growth prospects that fit our Strategic Profile strategy, which seeks companies with a leading competitive advantage. Earlier in 2010 the Series reduced exposure to early cyclical companies, such as investments in the semiconductor capital equipment industry.

As the year progressed, there was an increased premium placed on sustainable, high-growth technology companies, particularly small and mid-cap stocks related to thematic trends such as cloud computing. Therefore, in the second half of the year, the Series benefited from owning some of these small and mid-cap holdings perceived to be long-term growth companies and attractive acquisition targets. Several of our selections were the subject of merger and acquisition activity and speculation, which led to outsized returns. In cases when the Advisor viewed the price appreciation as more speculative in nature, we took gains and trimmed the positions. Conversely, over the past year many large cap technology vendors with solid growth potential and sustainable competitive advantages have underperformed. At the end of the year, we began to increase exposure to many of these more attractively valued companies.

Over the last twelve months, specific stock selections significantly boosted the Technology Series’ outperformance. In particular, investments in the communications equipment, software, internet software & services, and wireless telecommunications services industries were the primary drivers of strong relative results. In contrast, security selections in the semiconductor capital equipment and IT services industries detracted from relative returns in 2010. The Series continues to maintain a heavy weighting to the communications equipment and internet software & services industries versus the benchmark.

While economic developments turned more optimistic toward the end of 2010, the U.S. economy still faces significant headwinds, including a struggling housing market, a stagnant job market, a difficult consumer rebalancing act, and high government debt burdens. Given these long-term structural issues, the slow growth environment in the U.S. will likely

 

   1

Management Discussion and Analysis (unaudited)

 

remain a reality. As the markets fluctuated around this slow growth trend in 2010, Manning & Napier earned solid returns by staying focused on the fundamentals and maintaining our selective investment process. This investment approach has proved beneficial for the past 40 years, and we believe these qualities will remain important as the market environment unfolds in 2011.

As always, we appreciate your business.

Sincerely,

Manning & Napier Advisors, Inc.

 

2   

Performance Update as of December 31, 2010 (unaudited)

 

 

            Average  Annual Total Returns
As of December 31, 2010		        
     

One

Year

    

Five

Year

    

Ten

Year

     Since
Inception 1		  

Manning & Napier Fund, Inc. - Technology Series2

      19.53%        9.81%        6.44%        2.83%   

S&P 500 Total Return Index3

      15.07%        2.30%        1.42%        0.28%   

S&P 500 Information Technology Index3

      10.23%        5.04%        -1.00%        -5.89%   
                                  

The following graph compares the value of a $10,000 investment in the Manning & Napier Fund, Inc. - Technology Series from its current activation1 (8/8/00) to present (12/31/10) to the S&P 500 Total Return Index and the S&P 500 Information Technology Index.

LOGO

1Performance numbers for the Series and Indices are calculated from August 8, 2000, the Series’ current activation date.

2The Series’ performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. The Series’ performance is historical and may not be indicative of future results. The performance returns shown are inclusive of the net expense ratio of the Series. For the year ended December 31, 2010, this net expense ratio was 1.12%. The gross expense ratio, which does not account for any voluntary or contractual waivers currently in effect, was 1.12% for the year ended December 31, 2010.

3The 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 S&P 500 Information Technology Index, a sub-index of the S&P 500 Total Return Index, includes the stocks of companies involved in the business of technology related products and services. Both Indices’ returns assume daily reinvestment of dividends and, unlike Series returns, do not reflect any fees or expenses.

 

   3

Shareholder Expense Example (unaudited)

 

 

As a shareholder of the Series, you may incur two types of costs: (1) transaction costs and (2) ongoing costs, including management fees and other Series expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Series and to compare these costs with the ongoing costs of investing in other mutual funds.

The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (July 1, 2010 to December 31, 2010).

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Series’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Series’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid during the period. You may use this information to compare the ongoing costs of investing in the Series and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.

 

 

    

Beginning

Account Value
7/1/10

    Ending
Account  Value
12/31/10		   

Expenses Paid

During Period

7/1/10-12/31/10*

Actual

    $1,000.00    $1,346.10    $6.56

Hypothetical
(5% return before expenses)

    $1,000.00    $1,019.61    $5.65

*Expenses are equal to the Series’ annualized expense ratio (for the six-month period) of 1.11%, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Expenses are based on the most recent fiscal half year; therefore, the expense ratio stated above may differ from the expense ratio stated in the financial highlights, which is based on one-year data. The Series’ total return would have been lower had certain expenses not been waived during the period.

 

4   

Portfolio Composition as of December 31, 2010 (unaudited)

 

LOGO

 

TopTen Stock Holdings2

 

         

QUALCOMM, Inc.

      4.8 %   

Infinera Corp.

      3.9%   

Microsoft Corp.

      4.8 %   

Cerner Corp.

      3.8%   

Cisco Systems, Inc.

      4.8 %   

VistaPrint N.V. (Netherlands)

      3.8%   

Google, Inc. - Class A

      4.3 %   

Autodesk, Inc.

      3.6%   

Juniper Networks, Inc.

      4.1 %   

Liberty Global, Inc. - Class A

      3.5%   
   

2As a percentage of total investments.

                      

 

   5

Investment Portfolio - December 31, 2010

 

     Shares     

 

Value

(Note 2)

  

COMMON STOCKS - 97.5%

      

Consumer Discretionary - 3.5%

      

Media - 3.5%

      

Liberty Global, Inc. - Class A*

      165,000       $ 5,837,700   
           

Health Care - 3.8%

      

Health Care Technology - 3.8%

      

Cerner Corp.*

      67,580         6,402,529   
           

Information Technology - 85.7%

      

Communications Equipment - 23.8%

      

Alcatel-Lucent - ADR (France)*

      1,570,600         4,648,976   

Cisco Systems, Inc.*

      394,000         7,970,620   

Infinera Corp.*

      638,430         6,594,982   

Juniper Networks, Inc.*

      187,800         6,933,576   

QUALCOMM, Inc.

      164,130         8,122,794   

Riverbed Technology, Inc.*

      160,000         5,627,200   
           
        39,898,148   
           

Computers & Peripherals - 6.9%

      

Apple, Inc.*

      12,400         3,999,744   

Compellent Technologies, Inc.*

      78,000         2,152,020   

EMC Corp.*

      158,600         3,631,940   

Immersion Corp.*

      257,000         1,724,470   
           
        11,508,174   
           

Electronic Equipment, Instruments & Components - 3.4%

      

Amphenol Corp. - Class A

      107,850         5,692,323   
           

Internet Software & Services - 15.1%

      

comScore, Inc.*

      247,530         5,522,394   

Google, Inc. - Class A*

      12,230         7,264,253   

NetEase.com, Inc. - ADR (China)*

      34,960         1,263,804   

Tencent Holdings Ltd. (China)1

      91,500         1,986,414   

VistaPrint N.V. (Netherlands)*

      139,000         6,394,000   

Vocus, Inc.*

      105,000         2,904,300   
           
        25,335,165   
           

IT Services - 11.4%

      

Accenture plc - Class A (Ireland)

      112,000         5,430,880   

Amadeus IT Holding S.A. - Class A (Spain)*1

      176,000         3,698,695   

Amdocs Ltd. (Guernsey)*

      210,000         5,768,700   

Cap Gemini S.A. (France)1

      89,000         4,160,718   
           
        19,058,993   
           

Semiconductors & Semiconductor Equipment - 7.4%

      

Advantest Corp. (Japan)1

      196,000         4,406,708   

Sumco Corp. (Japan)*1

      330,500         4,706,133   

 

6    The accompanying notes are an integral part of the financial statements.

Investment Portfolio - December 31, 2010

 

    

 

    Shares/

    Principal Amount

  

Value

(Note 2)

COMMON STOCKS (continued)

         

 

Information Technology (continued)

                  

Semiconductors & Semiconductor Equipment (continued)

         

Tokyo Electron Ltd. (Japan)1

        51,000       $ 3,211,021  
              
           12,323,862  
              

Software - 17.7%

         

Adobe Systems, Inc.*

        48,650         1,497,447  

Autodesk, Inc.*

        158,000         6,035,600  

Fortinet, Inc.*

        143,000         4,626,050  

Microsoft Corp.

        288,900         8,066,088  

SAP AG - ADR (Germany)

        73,000         3,694,530  

SolarWinds, Inc.*

        300,000         5,775,000  
              
           29,694,715  
              

Total Information Technology

            143,511,380  
              

Materials - 4.5%

         

Chemicals - 4.5%

         

Monsanto Co.

        57,790         4,024,496  

Shin-Etsu Chemical Co. Ltd. (Japan)1

        65,000         3,503,277  
              

Total Materials

            7,527,773  
              

TOTAL COMMON STOCKS
(Identified Cost $132,016,139)

            163,279,382  
              

 

 

CORPORATE BONDS - 1.6%

         

Non-Convertible Corporate Bonds - 1.6%

         

Telecommunication Services - 1.6%

         

Diversified Telecommunication Services - 1.6%

         

Clearwire Communications LLC - Clearwire Finance, Inc.2, 12.00%, 12/1/2015 (Identified Cost $2,516,553)

      $   2,500,000         2,700,000  
              

 

SHORT-TERM INVESTMENTS - 1.1%

         

Dreyfus Cash Management, Inc. - Institutional Shares3, 0.14%
(Identified Cost $1,754,448)

        1,754,448         1,754,448  
              

 

TOTAL INVESTMENTS - 100.2%
(Identified Cost $136,287,140)

            167,733,830  

LIABILITIES, LESS OTHER ASSETS - (0.2%)

            (333,985 )
              

NET ASSETS - 100%

          $       167,399,845  
              

 

The accompanying notes are an integral part of the financial statements.    7

Investment Portfolio - December 31, 2010

 

 

    

 

 

ADR - American Depository Receipt

*Non-income producing security

1International Fair Value factor from pricing service was applied.

2Restricted securities - Investment in securities that are restricted as to public resale under the Securities Act of 1933, as amended. This security has been sold under rule 144A and has been determined to be liquid under guidelines established by the Board of Directors. This security amounts to $2,700,000, or 1.6%, of the Series’ net assets as of December 31, 2010.

3Rate shown is the current yield as of December 31, 2010.

 

8    The accompanying notes are an integral part of the financial statements.

Statement of Assets and Liabilities

December 31, 2010

 

 

ASSETS:

   

Investments, at value (identified cost $136,287,140) (Note 2)

    $ 167,733,830   

Receivable for fund shares sold

      109,207   

Interest receivable

      25,547   

Foreign tax reclaims receivable

      7,951   

Dividends receivable

      2,884   
        

TOTAL ASSETS

      167,879,419   
        

LIABILITIES:

   

Accrued management fees (Note 3)

      147,924   

Accrued fund accounting and administration fees (Note 3)

      6,690   

Accrued transfer agent fees (Note 3)

      2,219   

Accrued Chief Compliance Officer service fees (Note 3)

      245   

Payable for fund shares repurchased

      266,423   

Audit fees payable

      31,285   

Other payables and accrued expenses

      24,788   
        

TOTAL LIABILITIES

      479,574   
        

TOTAL NET ASSETS

    $ 167,399,845   
        

NET ASSETS CONSIST OF:

   

Capital stock

    $ 143,927   

Additional paid-in-capital

      150,453,267   

Undistributed net investment loss

      (169 ) 

Accumulated net realized loss on investments, foreign currency and translation of other assets and liabilities

      (14,643,870 ) 

Net unrealized appreciation on investments

      31,446,690   
        

TOTAL NET ASSETS

    $ 167,399,845   
        

NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE - CLASS A ($167,399,845/14,392,678 shares)

    $ 11.63   
        

 

 

The accompanying notes are an integral part of the financial statements.    9

Statement of Operations

For the Year Ended December 31, 2010

 

 

INVESTMENT INCOME:

   

Dividends (net of foreign taxes withheld, $45,896)

    $ 569,714   

Interest

      297,916   
        

Total Investment Income

      867,630   
        

EXPENSES:

   

Management fees (Note 3)

      1,614,799   

Fund accounting and administration fees (Note 3)

      48,336   

Transfer agent fees (Note 3)

      13,289   

Directors’ fees (Note 3)

      9,348   

Chief Compliance Officer service fees (Note 3)

      2,630   

Custodian fees

      17,094   

Miscellaneous

      98,874   
        

Total Expenses

      1,804,370   

Less reduction of expenses (Note 3)

      (758 ) 
        

Net Expenses

      1,803,612   
        

NET INVESTMENT LOSS

      (935,982 ) 
        

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:

   

Net realized gain (loss) on Investments

      16,824,084   

Foreign currency and translation of other assets and liabilities

      (1,436 ) 
        
     16,822,648   
        

Net change in unrealized appreciation on investments

      14,923,959   
        

NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS

      31,746,607   
        

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

    $ 30,810,625   
        

 

10    The accompanying notes are an integral part of the financial statements.

Statements of Changes in Net Assets

 

 

 

 

    

For the

Year Ended
12/31/10

    

For the

Year Ended
12/31/09

  

INCREASE IN NET ASSETS:

     

OPERATIONS:

     

Net investment loss

    $ (935,982 )    $ (1,012,429 ) 

Net realized gain on investments and foreign currency

      16,822,648        4,676,879   

Net change in unrealized appreciation on investments and foreign currency

      14,923,959        66,974,543   
                

Net increase from operations

      30,810,625        70,638,993   
                

CAPITAL STOCK ISSUED AND REPURCHASED:

     

Net decrease from capital share transactions (Note 5)

      (21,141,317 )      (36,020,529 ) 
                

Net increase in net assets

      9,669,308        34,618,464   

NET ASSETS:

     

Beginning of year

      157,730,537        123,112,073   
                

End of year (including undistributed net investment income (loss) of $(169) and $0, respectively)

    $ 167,399,845      $ 157,730,537   
                

 

The accompanying notes are an integral part of the financial statements.    11

Financial Highlights

 

 

 

 

                    
                    
           For the Years Ended        
     12/31/10     12/31/09     12/31/08     12/31/07     12/31/06  

Per share data (for a share

outstanding throughout each year):

           

Net asset value - Beginning of year

          $9.73            $6.01            $11.29            $10.41            $8.37   
                                        

Income (loss) from investment operations:

           

Net investment loss

      (0.06 )1      (0.05 )1      (0.05 )      (0.05 )      (0.01 ) 

Net realized and unrealized gain (loss) on investments

      1.96        3.77        (5.09 )      2.34        2.05   
                                        

Total from investment operations

      1.90        3.72        (5.14 )      2.29        2.04   
                                        

Less distributions to shareholders:

           

From net realized gain on investments

      —          —          (0.14 )      (1.41 )      —     
                                        

Net asset value - End of year

      $11.63        $9.73        $6.01        $11.29        $10.41   
                                        

Net assets - End of year
(000’s omitted)

      $167,400        $157,731        $123,112        $227,679        $167,252   
                                        

Total return2

      19.53%        61.90%        (45.86% )      22.55%        24.37%   

Ratios (to average net assets)/ Supplemental Data:

           

Expenses*

      1.12%        1.13%        1.13%        1.13%        1.16%   

Net investment loss

      (0.58% )      (0.68% )      (0.53% )      (0.53% )      (0.14% ) 

Portfolio turnover

      70%        55%        65%        79%        83%   

*The investment advisor did not impose all or a portion of its management fees, CCO fees, fund accounting and transfer agent fees, and other fees in some years and in some years paid a portion of the Series’ expenses. If these expenses had been incurred by the Series, the expense ratio (to average net assets) would have been increased by the following amounts:

      
     0.00% 3      0.00% 3      N/A        N/A        N/A   

1Calculated based on average shares outstanding during the year.

2Represents aggregate total return for the years indicated, and assumes reinvestment of all distributions. Total returns would have been lower had certain expenses not been waived or reimbursed during certain years.

3Less than 0.01%.

 

12    The accompanying notes are an integral part of the financial statements.

Notes to Financial Statements

 

 

1.

ORGANIZATION

Technology Series (the “Series”) is a no-load diversified series of Manning & Napier Fund, Inc. (the “Fund”). The Fund is organized in Maryland and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company.

The Series’ investment objective is to provide long-term growth by investing principally in the common stocks of companies in technology-based industries.

The Fund’s Advisor is Manning & Napier Advisors, Inc. (the “Advisor”). On August 8, 2000, the Series resumed sales of shares to advisory clients and employees of the Advisor and its affiliates. The Series resumed offering shares directly to investors on May 18, 2004, as it had done previously from time to time. The total authorized capital stock of the Fund consists of 10.0 billion shares of common stock each having a par value of $0.01. As of December 31, 2010, 6.2 billion shares have been designated in total among 29 series, of which 100 million have been designated as Technology Series Class A common stock.

 

2.

SIGNIFICANT ACCOUNTING POLICIES

Security Valuation

Portfolio securities, including domestic equities, foreign equities, warrants and options, listed on an exchange other than the NASDAQ National Market System are valued at the latest 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 provided by the Fund’s pricing service. Securities listed on the NASDAQ National Market System are valued in accordance with the NASDAQ Official Closing Price.

Debt securities, including corporate bonds, will normally be valued on the basis of evaluated bid prices provided by an independent pricing service. Certain investments in securities held by the Series may be valued on a basis of a price provided directly by a principal market maker. These prices may differ from the value that would have been used had a broader market for securities existed.

Short-term investments that mature in sixty days or less are valued at amortized cost, which approximates market value. Investments in open-end investment companies are valued at their net asset value per share on valuation date.

Volume and level of activity in established markets for an asset or liability are evaluated to determine whether recent transactions and quoted prices are determinative of fair value. Where there have been significant decreases in volume and level of activity, further analysis and adjustment may be necessary to estimate fair value. The Series measures fair value in these instances by the use of inputs and valuation techniques which may be based upon current market prices of securities that are comparable in coupon, rating, maturity and industry and/or expectation of future cash flows. As a result of trading in relatively thin markets and/or markets that experience significant volatility, the prices used by the Series to value these securities may differ from the value that would be realized if these securities were sold, and the differences could be material.

Securities for which representative valuations or prices are not available from the Fund’s pricing service may be valued at fair value. Due to the inherent uncertainty of valuations of such securities, the fair value may differ significantly from the values that would have been used had a ready market for such securities existed. If trading or events occurring after the close of the principal market in which securities are traded are expected to materially affect the value of those securities, then they may be valued at their fair value, taking this trading or these events into account. Fair value is determined in good faith by the Advisor under procedures approved by and under the general supervision and responsibility of the Fund’s Board of Directors (the “Board”). In accordance with the procedures approved by the Board, the Series applies fair value pricing on a daily basis except for North American, Central American, South American and Caribbean equity securities. Fair valuing of securities is determined with the assistance of a pricing

 

   13

Notes to Financial Statements

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Security Valuation (continued)

service using calculations or factors based on indices of domestic securities and other appropriate indicators, such as prices of relevant American Depository Receipts and futures contracts, to adjust local market prices for subsequent movements through the time the Series calculates its net asset value. The value of securities used for the net asset value calculation under the procedures may differ from published prices for the same securities. It is the Fund’s policy to classify each foreign equity security, except for those in the regions noted above, as Level 2 securities due to the fact the pricing service evaluated what factor was applied to the calculated end of day market price.

Various inputs are used in determining the value of the Series’ assets or liabilities carried at market value. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical assets and liabilities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). Level 3 includes significant unobservable inputs (including the Series’ own assumptions in determining the fair value of investments). The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the valuation levels used for major security types as of December 31, 2010 in valuing the Series’ assets or liabilities carried at market value:

Description    Total      Level 1      Level 2      Level  3  

Assets:

            

Equity securities*

    $ 163,279,382       $ 137,606,416       $ 25,672,966       $ —   

Preferred securities

      —         —         —         —   

Debt securities:

      —         —            —   

Corporate debt

      2,700,000         —         2,700,000         —   

Mutual funds

      1,754,448         1,754,448         —         —   

Other financialinstruments**:

      —         —         —         —   
                                   

Total assets:

      167,733,830         139,360,864         28,372,966         —   
                                   

Liabilities:

            

Other financial instruments**:

      —         —         —         —   
                                   

Total liabilities:

      —         —         —         —   
                                   

Total

    $     167,733,830       $     139,360,864       $     28,372,966       $                  —   
                                   

*Includes common stock, warrants and rights. Please see the Investment Portfolio for industry classification and for securities where an International Fair Value factor from the pricing service was applied to value the security. Such securities are included in Level 2 in the table above.

**Other financial instruments are derivative instruments not reflected in the Investment Portfolio, such as futures, forwards and swap contracts, which are valued at the unrealized appreciation/depreciation on the instrument. As of December 31, 2010, the Series did not hold any derivative instruments.

There were no Level 3 securities held by the Series as of December 31, 2009 or December 31, 2010.

The Fund’s policy is to recognize transfers in and transfers out of the valuation levels as of the beginning of the reporting period. During the year ended December 31, 2010, the Fund had three foreign equity securities transfer from Level 1 to Level 2 due to the implementation of new international fair value pricing procedures. The following is a summary of the foreign equity securities that transferred from Level 1 to Level 2:

 

14   

Notes to Financial Statements

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Security Valuation (continued)

Total #

Securities

Level 1 at

beginning and

Level 2 at end

of period

   

Total Market

Value

Beginning of

period

    

Total Market

Value

End of period

     

Change in

Market Value

  

3

    $ 13,971,009       $ 11,778,448       $ (2,192,561 ) 

Additional disclosure surrounding the activity in Level 3 fair value measurement will be effective for fiscal years beginning after December 15, 2010. Management has concluded that this will not have a material impact on the Series’ financial statements.

Security Transactions, Investment Income and Expenses

Security transactions are accounted for on trade date. Dividend income is recorded on the ex-dividend date, except that if the ex-dividend date has passed, certain dividends from foreign securities are recorded as soon as the Fund is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Interest income, including amortization of premium and accretion of discounts using the effective interest method, is earned from settlement date and accrued daily.

Expenses are recorded on an accrual basis. Most expenses of the Fund can be attributed to a specific series. Expenses which cannot be directly attributed are apportioned among the series in the Fund in such a manner as deemed equitable by the Fund’s Board, taking into consideration, among other things, the nature and type of expense.

The Series uses the identified cost method for determining realized gain or loss on investments for both financial statement and federal income tax reporting purposes.

Foreign Currency Translation

The books and records of the Series are maintained in U.S. dollars. Foreign currencies, investments and other assets and liabilities are translated into U.S. dollars at the current exchange rates. Purchases and sales of investment securities and income and expenses are translated on the respective dates of such transactions. The Series does not isolate realized and unrealized gains and losses attributable to changes in the exchange rates from gains and losses that arise from changes in the market value of investments. Such fluctuations are included with net realized and unrealized gain or loss on investments. Net realized foreign currency gains and losses represent foreign currency gains and losses between trade date and settlement date on securities transactions, gains and losses on disposition of foreign currencies and the difference between the amount of income and foreign withholding taxes recorded on the books of the Series and the amounts actually received or paid.

Federal Taxes

The Series’ policy is to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. The Series is not subject to federal income tax or excise tax to the extent that the Series 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.

Management evaluates its tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of tax benefits of an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by

 

   15

Notes to Financial Statements

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Federal Taxes (continued)

taxing authorities. At December 31, 2010, the Series has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken in future tax returns.

The Series files income tax returns in the U.S. federal jurisdiction, various states and foreign jurisdictions, as required. No income tax returns are currently under investigation. The statute of limitations on the Series’ tax returns remains open for the years ended December 31, 2007 through December 31, 2010. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.

Additionally, based on the Fund’s understanding of the tax rules and rates related to income, gains and transactions for foreign jurisdictions in which it invests, the Series will provide for foreign taxes, and where appropriate, deferred foreign tax.

Distributions of Income and Gains

Distributions to shareholders of net investment income and net realized gains are made annually. An additional distribution may be necessary to avoid taxation of the Series. Distributions are recorded on the ex-dividend date.

Indemnifications

The Fund’s organizational documents provide former and current directors and officers with a limited indemnification against liabilities arising in connection with the performance of their duties to the Fund. In the normal course of business, the Fund may also enter into contracts that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would be dependent on future claims that may be made against the Fund. The risk of material loss from such claims is considered remote.

Other

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 income and expenses during the reporting period. Actual results could differ from those estimates.

 

3.

TRANSACTIONS WITH AFFILIATES

The Fund has an Investment Advisory Agreement (the “Agreement”) with the Advisor, for which the Series pays a fee, computed daily and payable monthly, at an annual rate of 1.00% of the Series’ average daily net assets.

Under the Agreement, personnel of the Advisor provide the Series with advice and assistance in the choice of investments and the execution of securities transactions, and otherwise maintain the Series’ organization. The Advisor also provides the Fund with necessary office space and fund administration and support services. The salaries of all officers of the Fund (except a percentage of the Fund’s Chief Compliance Officer’s salary, which is paid by 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. Each “non-affiliated” Director receives an annual stipend, which is allocated among all the active series of the Fund. In addition, these Directors also receive a fee per Board meeting attended plus a fee for each committee meeting attended.

The Advisor has contractually agreed, until at least April 30, 2012, to waive its fee and, if necessary, pay other operating expenses of the Series in order to maintain total direct annual fund operating expenses for the Series at no more than 1.20% of average daily net assets each year. For the year ended December 31, 2010, the Advisor voluntarily

 

16   

Notes to Financial Statements

 

3.

TRANSACTIONS WITH AFFILIATES (continued)

waived fees of $758, which is included as a reduction of expenses on the Statement of Operations. The Advisor is not eligible to recoup any expenses that have been waived or reimbursed in prior years.

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 Series.

The Advisor has agreements with PNC Global Investment Servicing (U.S.) Inc. (“PNCGIS”) under which PNCGIS serves as sub-accountant services agent and sub-transfer agent. The Fund pays the Advisor an annual fee related to fund accounting and administration of 0.0175% on the first $3 billion of average daily net assets (excluding Target Series); 0.015% on the next $3 billion of average daily net assets (excluding Target Series); and 0.01% of the average daily net assets in excess of $6 billion (excluding Target Series); plus a base fee of $25,500 per Series.Transfer Agent fees are charged to the Fund on a per account basis. Additionally, certain transaction- and cusip-based fees and out-of-pocket expenses, including charges for reporting relating to the Fund’s compliance program, are charged.

Effective July 1, 2010, PNCGIS was sold to The Bank of New York Mellon Corporation, the Series’ custodian. At the close of the sale, PNCGIS changed its name to BNY Mellon Investment Servicing (U.S.) Inc. (“BNY”).

Expenses not directly attributable to a Series are allocated based on each Series’ relative net assets or number of accounts, depending on the expense.

 

4.

PURCHASES AND SALES OF SECURITIES

For the year ended December 31, 2010, purchases and sales of securities, other than U.S. Government securities and short-term securities, were $103,664,949 and $112,200,278 respectively. There were no purchases or sales of U.S. Government securities.

 

5.

CAPITAL STOCK TRANSACTIONS

Transactions in shares of Technology Series were:

 

    

For the Year

Ended 12/31/10

    

For the Year

Ended 12/31/09

  
            Shares              Amount                Shares                Amount        

Sold

      1,704,514      $ 17,060,290        1,678,722      $ 12,866,101   

Reinvested

      —        —        —        —   

Repurchased

      (3,526,619 )      (38,201,607 )      (5,953,766 )      (48,886,630 ) 
                                

Total

      (1,822,105 )    $ (21,141,317 )      (4,275,044 )    $ (36,020,529 ) 
                                

Substantially all of the Series’ shares represent investments by fiduciary accounts over which the Advisor has sole investment discretion.

 

6.

FINANCIAL INSTRUMENTS

The Series may trade in instruments including written and purchased options, forward foreign currency exchange contracts and futures contracts and other derivatives in the normal course of investing activities to assist in managing exposure to various market risks. Investments in these instruments may subject the Series to various elements of risk, which may involve, to a varying degree, elements of risk in excess of the amounts recognized for financial statement purposes. These risks include: the risk that changes in the value of a derivative may not correlate perfectly

 

   17

Notes to Financial Statements

 

6.

FINANCIAL INSTRUMENTS (continued)

with the underlying asset, rate or index, counterparty credit risk related to over the counter derivatives counterparties’ failure to perform under contract terms, liquidity risk related to the lack of a liquid market for these contracts allowing the fund to close out its position(s) and documentation risk relating to disagreement over contract terms. No such investments were held by the Series during the year ended December 31, 2010.

 

7.

FOREIGN SECURITIES

Investing in securities of foreign companies and foreign governments involves special risks and considerations not typically associated with investing in securities of domestic companies and the U.S. Government. These risks include revaluation of currencies and future adverse political and economic developments. Moreover, securities of foreign companies and foreign governments and their markets may be less liquid and their prices more volatile than those of comparable domestic companies and the U.S. Government.

 

8.

TECHNOLOGY SECURITIES

The Series may focus its investments in certain related technology industries; hence, the Series may subject itself to a greater degree of risk than a series that is more diversified.

 

9.

FEDERAL INCOME TAX INFORMATION

The amount and characterization of certain income and capital gains to be distributed are determined in accordance with federal income tax regulations, which may differ from accounting principles generally accepted in the United States of America. These differences are primarily due to differing book and tax treatments in the timing of the recognition of net investment income or gains and losses, including net operating losses, foreign currency gains and losses, losses deferred due to wash sales and post-October losses. The Series may periodically make reclassifications among its capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations without impacting the Series’ net asset value. Any such reclassifications are not reflected in the financial highlights.

There were no distributions to shareholders for the years ended December 31, 2010 or December 31, 2009.

For the year ended December 31, 2010, the Series elected to defer $169 of currency losses, attributable to post-October losses.

At December 31, 2010, the tax basis of distributable earnings and the net unrealized appreciation based on the identified cost for federal income tax purposes were as follows:

 

Cost for federal income tax purposes

    $ 136,399,096     

Unrealized appreciation

    $ 35,210,118     

Unrealized depreciation

      (3,875,384 )   
          

Net unrealized appreciation

    $ 31,334,734     
          

Capital loss carryover

      14,531,914     

At December 31, 2010, the capital loss carryover, disclosed above, available to the extent allowed by tax law to offset future net capital gain, if any, will expire as follows:

 

     Loss  Carryover    Expiration Date  
   $3,181,311      December 31,2016   
   $11,350,603      December 31,2017   

The capital loss carryover utilized in the current year was $16,462,115.

 

18   

Report of Independent Registered Public Accounting Firm

To the Board of Directors of Manning & Napier Fund, Inc. and Shareholders of Technology Series:

In our opinion, the accompanying statement of assets and liabilities, including the investment portfolio, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the Technology Series (a series of Manning & Napier Fund, Inc., hereafter referred to as the “Series”) at December 31, 2010, and 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 five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Series’ management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2010 by correspondence with the custodian, provide a reasonable basis for our opinion.

LOGO

New York, New York

February 22, 2011

 

   19

Renewal of Investment Advisory Agreement (unaudited)

At the Manning & Napier Fund, Inc. (the “Fund”) Board of Directors’ (the “Board”) meeting, held on November 17, 2010, the Investment Advisory Agreement (the “Agreement”) between the Fund and Manning & Napier Advisors, Inc. (the “Advisor”) was reviewed by the Board for renewal. In connection with the decision whether to renew the Agreement, a variety of material was prepared for and reviewed by the Board.

Representatives of the Advisor attended the meeting and presented additional oral and written information to the Board to assist the Board in its considerations. The discussion immediately below outlines the materials and information presented to the Board in connection with the Board’s 2010 Annual Review of the Agreement and the conclusions made by the Directors when determining to continue the Agreement.

 

  •  

The Board considered the services provided by the Advisor under the Agreement including, among others: deciding what securities to purchase and sell for each Series; arranging for the purchase and sale of such securities by placing orders with broker-dealers; administering the affairs of the Fund (including the books and records of the Fund not maintained by third party service providers such as the custodian or sub-transfer agent); arranging for the insurance coverage for the Fund; and supervising the preparation of tax returns, SEC filings (including registration statements) and reports to shareholders for the Fund. The Board also considered the nature and quality of such services provided under the Agreement in light of the Advisor’s services provided to the Fund for 24 years. The Board discussed the quality of these services with representatives from the Advisor and concluded that the Advisor was performing its services to the Fund required under the Agreement in a reasonable manner.

 

  •  

The Board considered the investment performance of the various Series of the Fund. The investment performance for each Series was reviewed on a cumulative basis since inception and on a one year basis. In addition, annualized performance for the following time periods was considered: inception, three year, five year, ten year, and current market cycle. A market cycle includes periods of both rising and falling markets. Returns for established benchmark indices for each Series were provided for each time period. The Board noted that the various Series were competitive against their respective benchmarks and/or peer groups over various time periods, but in particular over the full market cycle period relevant for the Series. In addition, the Board considered at the meeting (and considers on a quarterly basis) a peer group performance analysis consisting of Morningstar universes of mutual funds with similar investment objectives. The Board discussed the performance with representatives from the Advisor and concluded that the investment performance of each of the Fund’s Series was reasonable based on the Fund’s actual performance and comparative performance, especially performance over the current market cycle.

 

  •  

The Board considered the costs of the Advisor’s services and the profits of the Advisor as they relate to the Advisor’s services to the Fund under the Agreement. In reviewing the Advisor’s costs and profits, the Board discussed the Advisor’s revenues generated from the Fund (on both an actual and adjusted basis) and its expenses associated with providing the services under the Agreement. In addition, the Board reviewed the Advisor’s expenses associated with Fund activities outside of the Agreement (such as expense reimbursements pursuant to expense caps and payments made by the Advisor to third party platforms on which shares of the Fund are available for purchase). It was noted by representatives of the Advisor that 11 of the 27 active Series of the Fund are currently experiencing expenses above the capped expense ratios. After discussing the above costs and profits, the Board concluded that the Advisor’s profitability relating to its services provided under the Agreement was reasonable.

 

  •  

The Board considered the fees and expenses of the various Series of the Fund. The Advisor presented the advisory fees and total expenses for each Series, including the advisory fee adjusted for any expense waivers or reimbursements (either contractual or voluntary) paid by the Advisor. The advisory fees and expense ratios of each Series were compared to an average (on both a mean and median basis) of similar funds as disclosed on the Morningstar database. Representatives of the Advisor discussed with the Board the levels of its advisory

 

20   

Renewal of Investment Advisory Agreement (unaudited)

fee for each Series of the Fund and as compared to the median and mean advisory fees for similar funds as listed on Morningstar. Expense ratios for every Series, except the Pro-Blend’s Class R and Class C, and Target Class R and Class C, are currently below the median and mean for similar funds as listed on Morningstar. Based on their review of the information provided, the Board concluded that the fees and expenses of each Series of the Fund were reasonable on a comparative basis.

 

  •  

The Board also considered the other benefits the Advisor derives from its relationship with the Fund. Such other benefits include certain research products provided by soft dollars. Given the level of soft dollar transactions involving the Fund, the Board concluded that these additional benefits to the Advisor were reasonable.

 

  •  

In addition to the factors described above, the Board considered the Advisor’s personnel, investment strategies, policies and procedures relating to compliance with personal securities transactions, and reputation, expertise and resources in domestic and foreign financial markets. The Board concluded that these factors support the conclusion that the Advisor performs its services in a reasonable manner.

 

  •  

The Board did not consider economies of scale at this time because of the multiple uses of the Fund (for the Advisor’s discretionary investment account clients in addition to direct investors), the current profitability of the Advisor’s services to the Fund under the Agreement, and the overall size of the Fund complex.

Based on the Board’s deliberations and their evaluation of the information described above, the Board, including a majority of Directors that are not “interested persons” as defined in the Investment Company Act of 1940, concluded that the compensation under the Agreement was fair and reasonable in light of the services and expenses and such other matters as the Directors considered to be relevant in the exercise of their reasonable judgment. Accordingly, the Board approved the renewal of the Agreement. In the course of their deliberations, the Directors did not identify any particular information that was all important or controlling.

 

   21

Directors’ and Officers’ Information (unaudited)

The Statement of Additional Information provides additional information about the Fund’s directors and officers and can be obtained without charge by calling 1-800-466-3863, at www.manningnapieradvisors.com, or on the EDGAR Database on the SEC Internet web site (http:// www.sec.gov). The following chart shows certain information about the Fund’s officers and directors, including their principal occupations during the last five years. Unless specific dates are provided, the individuals have held the listed positions for longer than five years.

INTERESTED DIRECTOR/OFFICER

 

Name:

  

B. Reuben Auspitz*

Address:

  

290 Woodcliff Drive

Fairport, NY 14450

Age:

  

63

Current Position(s) Held with Fund:

   Principal Executive Officer, President, Chairman & Director

Term of Office1 & Length of Time Served:

   Indefinite - Director since 1984; Vice President 1984 - 2003; President since 2004; Principal Executive Officer since 2002

Principal Occupation(s) During Past 5 Years:

   Executive Vice President; Executive Group Member**; Chief Compliance Officer since 2004; Vice Chairman since June 2010; Co-Executive Director from 2003-2010 - Manning & Napier Advisors, Inc. President; Director - Manning & Napier Investor Services, Inc. Holds or has held one or more of the following titles for various subsidiaries and affiliates: President, Vice President, Director, Chairman, Treasurer, Chief Compliance Officer or Member.

Number of Portfolios Overseen within Fund Complex:

  

29

Other Directorships Held Outside Fund Complex:

  

N/A

 

INDEPENDENT DIRECTORS

    

Name:

  

Paul A. Brooke

Address:

  

290 Woodcliff Drive

Fairport, NY 14450

Age:

  

65

Current Position(s) Held with Fund:

   Director, Audit Committee Member, Governance & Nominating Committee Member

Term of Office & Length of Time Served:

  

Indefinite - Since 2007

Principal Occupation(s) During Past 5 Years:

   Chairman & CEO, Alsius Corp. (investments); Managing Member, PMSV Holdings LLC (investments)

Number of Portfolios Overseen within Fund Complex:

  

29

Other Directorships Held Outside Fund Complex:

  

Incyte Corp. (2000-present)

ViroPharma, Inc. (2000-present)

HLTH Corp. (2000-present)

Cheyne Capital International (2000-present)

MPM Bio-equities (2000-present)

GMP Companies (2000-present)

HoustonPharma (2000-present)

 

Name:

  

 

Richard M. Hurwitz

Address:

  

290 Woodcliff Drive

Fairport, NY 14450

Age:

  

47

Current Position(s) Held with Fund:

   Director, Audit Committee Member, Governance & Nominating Committee Member

Term of Office & Length of Time Served:

  

Indefinite - Since 2009

Principal Occupation(s) During Past 5 Years:

   Chief Executive Officer, Pictometry International Corp. since August 2010 (provider of georeferenced, aerial image libraries and related software) Managing Partner (2006-July 2010) - Aegis Investment Partners, LLC (investments); Founder and Managing Partner (2004-2005) - Village Markets, LLC (groceries)

Number of Portfolios Overseen within Fund Complex:

  

29

Other Directorships Held Outside Fund Complex:

  

Pictometry International Corp. (2000-2010)

Pioneering Technologies (2006-2009)

Vensearch Capital Corp. (2003-2007)

 

 

22   

Directors’ and Officers’ Information (unaudited)

 

 

INDEPENDENT DIRECTORS (continued)

Name:

   Stephen B. Ashley

Address:

  

290 Woodcliff Drive

Fairport, NY 14450

Age:

   70

Current Position(s) Held with Fund:

   Director, Audit Committee Member, Governance & Nominating Committee Member

Term of Office & Length of Time Served:

   Indefinite - Since 1996

Principal Occupation(s) During Past 5 Years:

   Chairman, Director, President & Chief Executive Officer, The Ashley Group (property management and investment). Chairman (non-executive) 2004-2008; Director 1995-2008 - Fannie Mae (mortgage)

Number of Portfolios Overseen within Fund Complex:

   29

Other Directorships Held Outside Fund Complex:

  

The Ashley Group (1995-2008)

Genesee Corporation (1987-2007)

 

Name:

  

 

Peter L. Faber

Address:

  

290 Woodcliff Drive

Fairport, NY 14450

Age:

   72

Current Position(s) Held with Fund:

   Director, Governance & Nominating Committee Member

Term of Office & Length of Time Served:

   Indefinite - Since 1987

Principal Occupation(s) During Past 5 Years:

   Senior Counsel since 2006, Partner (1995 - 2006) - McDermott, Will & Emery LLP (law firm)

Number of Portfolios Overseen within Fund Complex:

   29

Other Directorships Held Outside Fund Complex:

  

Partnership for New York City, Inc. (non-profit)

New York Collegium (non-profit)

Boston Early Music Festival (non-profit)

 

Name:

  

 

Harris H. Rusitzky

Address:

  

290 Woodcliff Drive

Fairport, NY 14450

Age:

   76

Current Position(s) Held with Fund:

   Director, Audit Committee Member, Governance & Nominating Committee Member

Term of Office & Length of Time Served:

   Indefinite - Since 1985

Principal Occupation(s) During Past 5 Years:

   President, The Greening Group (business consultants) since 1994; Partner, The Restaurant Group (restaurants) since 2006

Number of Portfolios Overseen within Fund Complex:

   29

Other Directorships Held Outside Fund Complex:

   N/A

 

OFFICERS

    

Name:

   Jeffrey S. Coons, Ph.D., CFA

Address:

  

290 Woodcliff Drive

Fairport, NY 14450

Age:

   47

Current Position(s) Held with Fund:

   Vice President

Term of Office1 & Length of Time Served:

   Since 2004

Principal Occupation(s) During Past 5 Years:

   President since 2010, Co-Director of Research since 2002, Executive Group Member** since 2003, - Manning & Napier Advisors, Inc. Holds one or more of the following titles for various subsidiaries and affiliates: President, Director, Treasurer or Senior Trust Officer.

Number of Portfolios Overseen within Fund Complex:

   29

Other Directorships Held Outside Fund Complex:

  

N/A

 

 

   23

Directors’ and Officers’ Information (unaudited)

OFFICERS (continued)

 

Name:

   Beth Galusha

Address:

  

290 Woodcliff Drive

Fairport, NY 14450

Age:

   49

Current Position(s) Held with Fund:

   Assistant Chief Financial Officer

Term of Office1 & Length of Time Served:

   Assistant Chief Financial Officer since 2010

Principal Occupation(s) During Past 5 Years:

   Chief Financial Officer and Treasurer, Manning & Napier Advisors, Inc. Holds one or more of the following titles for various affiliates: Chief Financial Officer, Director, or Treasurer

Number of Portfolios Overseen within Fund Complex:

   29

Other Directorships Held Outside Fund Complex:

   N/A

 

Name:

   Christine Glavin

Address:

  

290 Woodcliff Drive

Fairport, NY 14450

Age:

   44

Current Position(s) Held with Fund:

   Principal Financial Officer, Chief Financial Officer

Term of Office1 & Length of Time Served:

   Principal Financial Officer since 2002; Chief Financial Officer since 2001

Principal Occupation(s) During Past 5 Years:

   Fund Reporting Manager, Manning & Napier Advisors, Inc. since 1997

Number of Portfolios Overseen within Fund Complex:

   29

Other Directorships Held Outside Fund Complex:

   N/A

 

Name:

   Jodi L. Hedberg

Address:

  

290 Woodcliff Drive

Fairport, NY 14450

Age:

   43

Current Position(s) Held with Fund:

   Corporate Secretary, Chief Compliance Officer, Anti-Money Laundering Compliance Officer

Term of Office1 & Length of Time Served:

   Corporate Secretary since 1997; Chief Compliance Officer since 2004

Principal Occupation(s) During Past 5 Years:

   Director of Compliance, Manning & Napier Advisors, Inc. and affiliates since 1990 (title change in 2005 from Compliance Manager to Director of Compliance); Corporate Secretary, Manning & Napier Investor Services, Inc. since 2006

Number of Portfolios Overseen within Fund Complex:

   29

Other Directorships Held Outside Fund Complex:

   N/A

 

Name:

   Richard Yates

Address:

   290 Woodcliff Drive
  Fairport, NY 14450

Age:

   45

Current Position(s) Held with Fund:

   Chief Legal Officer

Term of Office1 & Length of Time Served:

   Chief Legal Officer since 2004

Principal Occupation(s) During Past 5 Years:

   Counsel - Manning & Napier Advisors, Inc. & affiliates since 2000; Holds one or more of the following titles for various affiliates; Director or Corporate Secretary

Number of Portfolios Overseen within Fund Complex:

   29

Other Directorships Held Outside Fund Complex:

 

  

N/A

 

*Interested Director, within the meaning of the Investment Company Act of 1940 by reason of his position with the Fund’s investment advisor and distributor. Mr. Auspitz serves as the Executive Vice President and Director, Manning & Napier Advisors, Inc. and President and Director, Manning & Napier Investor Services, Inc., the Fund’s distributor.

**Prior to June 2010, the Executive Group, consisting of senior executive employee-owners, performed the duties of the Office of the Chief Executive of the Advisor. Effective June 2010, the Executive Group serves as an advisory board to the Chief Executive Officer.

1The term of office for President, Vice President, Chief Financial Officer, Assistant Chief Financial Officer, Chief Legal Officer and Corporate Secretary is one year and until their respective successors are chosen and qualified. All other officers’ terms are indefinite.

 

24   

 

 

This Page Intentionally Left Blank

 

25

Literature Requests (unaudited)

Proxy Voting Policies and Procedures

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request:

 

By phone

    1-800-466-3863   

On the Securities and Exchange Commission’s (SEC) web site

    http://www.sec.gov   

Proxy Voting Record

Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available, without charge, upon request:

 

By phone

    1-800-466-3863   

On the SEC’s web site

    http://www.sec.gov   

Quarterly Portfolio Holdings

The Series’ complete schedule of portfolio holdings for the 1st and 3rd quarters of each fiscal year are provided on Form N-Q, and are available, without charge, upon request:

 

By phone

    1-800-466-3863   

On the SEC’s web site

    http://www.sec.gov   

The Series’ Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.

Prospectus and Statement of Additional Information (SAI)

The prospectus and SAI provide additional information about each Series, including charges, expenses and risks. These documents are available, without charge, upon request:

 

By phone

    1-800-466-3863

On the SEC’s web site

    http://www.sec.gov

On the Advisor’s web site

    http://www.manning-napier.com

Additional information available at www.manning-napier.com

1. Fund Holdings - Month-End

2. Fund Holdings - Quarter-End

3. Shareholder Report - Annual

4. Shareholder Report - Semi-Annual

MNTEC-12/10-AR                             

LOGO

Management Discussion and Analysis (unaudited)

Dear Shareholders:

Over the course of 2010, the markets experienced several ups and downs driven by well-defined swings in investor sentiment. Optimism fueled strong market returns early in the year, as upbeat economic releases led investors to believe in the potential for a robust U.S. recovery. However, sentiment shifted drastically in May and June as more negative economic news and issues related to Europe’s government debt problems led to notable stock market losses. In another swing, the markets rebounded in the fall amid better economic developments and prospects that the Federal Reserve would enact another round of quantitative easing. That rally generally continued through the end of the year as the markets reacted positively to the U.S. tax compromise, which extended the Bush-era tax cuts for all income brackets.

With equities posting double-digit gains in the third and fourth quarters, the choppy year ended on a strong note, and broad equity indices have now produced back-to-back years of positive results. For the twelve months ending December 31, 2010, the S&P 500 Index returned 15.07%, while the S&P 500 Financial Services Index earned 12.17%. With a return of 6.56% during 2010, the Financial Services Series lagged behind the broad market and the sector-specific benchmark.

In the volatile market environment of 2010, Manning & Napier maintained a selective investment approach and focused on companies that we believe can grow market share. We continued to emphasize quality, targeting best-in-class companies expected to generate sales growth despite a muted economic backdrop, as well as “away game winners” expected to successfully compete in faster-growing markets overseas. Specifically, the Financial Services Series has invested in institutions that are well capitalized and have firm profitability, which we believe should allow them to take market share as weaker competitors struggle in the difficult credit environment.

Over the past year, the Series increased exposure to diversified financial services and commercial banks. Focusing on institutions with strong capital and deposit bases, the Advisor looked to invest in those companies that could benefit from the challenging banking environment through loan growth and market share gains. We favored financial institutions that operate in faster-growing Emerging Markets, and thus the Series added exposure to international companies during 2010. During the latter half of the year, the Series trimmed positions in the insurance industry.

Stock selection decisions in the insurance and capital markets industries aided the Financial Services Series’ relative results over the last twelve months. However, security selections in the IT services and commercial banking industries hurt relative returns. An underweight to Real Estate Investment Trusts (REITS) versus the benchmark also detracted from relative performance.

While economic developments turned more optimistic toward the end of 2010, the global economy still faces significant headwinds, including high consumer and government debt burdens. Given these long-term structural issues, the slow growth environment in the developed world will likely remain a reality. As the markets fluctuated around this slow growth trend in 2010, Manning & Napier earned solid returns by staying focused on the fundamentals and maintaining our selective investment process. This investment approach has proved beneficial over the past 40 years, and we believe these qualities will remain important as the market environment unfolds in 2011.

As always, we appreciate your business.

Sincerely,

Manning & Napier Advisors, Inc.

 

1

Performance Update as of December 31, 2010 (unaudited)

 

 

             

Average Annual Total Returns

As of December 31, 2010

      
     

One

Year

     

Five

Year

   

Since    

Inception1    

Manning & Napier Fund, Inc. - Financial Services Series2

      6.56%       -7.89%    -5.98%

S&P 500 Total Return Index3

      15.07%         2.30%      3.14%

S&P 500 Financials Index3

      12.17%       -10.56%     -8.22%

The following graph compares the value of a $10,000 investment in the Manning & Napier Fund, Inc. - Financial Services Series from its inception1 (7/1/05) to present (12/31/10) to the S&P 500 Total Return Index and the S&P 500 Financials Index.

LOGO

1Performance numbers for the Series and Indices are calculated from July 1, 2005, the Series’ inception date.

2The Series’ performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. The Series’ performance is historical and may not be indicative of future results. The performance returns shown are inclusive of the net expense ratio of the Series. For the year ended December 31, 2010, this net expense ratio was 1.14%. The gross expense ratio, which does not account for any voluntary or contractual waivers currently in effect, was 1.14% for the year ended December 31, 2010.

3The 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 S&P 500 Financials Index, a sub-index of the S&P 500 Total Return Index, includes the stocks of companies involved in the business of financial related products and services. Both Indices’ returns assume daily reinvestment of dividends and, unlike Series returns, do not reflect any fees or expenses.

 

2   

Shareholder Expense Example (unaudited)

 

 

As a shareholder of the Series, you may incur two types of costs: (1) transaction costs and (2) ongoing costs, including management fees and other Series expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Series and to compare these costs with the ongoing costs of investing in other mutual funds.

The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (July 1, 2010 to December 31, 2010).

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Series’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Series’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid during the period. You may use this information to compare the ongoing costs of investing in the Series and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.

 
    

Beginning

Account Value
7/1/10

   

Ending

Account Value
12/31/10

   

Expenses Paid

During Period*
7/1/10-12/31/10

Actual

    $1,000.00    $1,164.20    $6.27

Hypothetical

         

    (5% return before expenses)

    $1,000.00    $1,019.41    $5.85

*Expenses are equal to the Series’ annualized expense ratio (for the six-month period) of 1.15%, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Expenses are based on the most recent fiscal half year; therefore, the expense ratio stated above may differ from the expense ratio stated in the financial highlights, which is based on one-year data. The Series’ total return would have been lower had certain expenses not been waived during the period.

 

   3

Portfolio Composition as of December 31, 2010 (unaudited)

 

 

LOGO

 

TopTen Stock Holdings2  

Moody’s Corp.

      5.0 %       U.S. Bancorp      3.2 % 

JPMorgan Chase & Co.

      4.7 %       Brown & Brown, Inc.      3.2 % 

The Bank of New York Mellon Corp.

      4.6 %       The Charles Schwab Corp.      3.1 % 

The Western Union Co.

      3.9 %       State Street Corp.      3.1 % 

GAM Holding AG (Switzerland)

      3.9 %       Willis Group Holdings plc (United Kingdom)      3.1 % 

 

2As a percentage of total investments.

                           

 

4   

Investment Portfolio - December 31, 2010

 

     Shares     

Value

(Note 2)

  

COMMON STOCKS - 94.5%

      

Financials - 79.0%

      

Capital Markets - 24.0%

      

The Bank of New York Mellon Corp.1

      219,000       $         6,613,800   

The Charles Schwab Corp.

      264,000         4,517,040   

Credit Suisse Group AG - ADR (Switzerland)

      28,600         1,155,726   

Evercore Partners, Inc. - Class A

      46,700         1,587,800   

Financial Engines, Inc.*

      83,000         1,645,890   

GAM Holding AG (Switzerland)*2

      342,110         5,654,985   

The Goldman Sachs Group, Inc.

      18,300         3,077,328   

Greenhill & Co., Inc.

      16,800         1,372,224   

Lazard Ltd. - Class A (Bermuda)

      37,500         1,480,875   

Northern Trust Corp.

      54,000         2,992,140   

State Street Corp.

      97,000         4,494,980   
           
        34,592,788   
           

Commercial Banks - 15.6%

      

Banco Santander S.A. - ADR (Spain)

      385,000         4,100,250   

Barclays plc - ADR (United Kingdom)

      66,000         1,090,320   

First Commonwealth Financial Corp.

      423,000         2,994,840   

First Financial Bancorp

      80,000         1,478,400   

HSBC Holdings plc - ADR (United Kingdom)

      83,540         4,263,882   

Societe Generale - ADR (France)3

      117,550         1,277,769   

Standard Chartered plc (United Kingdom)2

      98,700         2,664,463   

U.S. Bancorp

      169,670         4,576,000   
           
        22,445,924   
           

Consumer Finance - 3.7%

      

American Express Co.

      90,000         3,862,800   

Discover Financial Services

      83,000         1,537,990   
           
        5,400,790   
           

Diversified Financial Services - 12.6%

      

Bank of America Corp.

      119,000         1,587,460   

Deutsche Boerse AG (Germany)2

      37,000         2,556,370   

JPMorgan Chase & Co.

      161,000         6,829,620   

Moody’s Corp.

      271,000         7,192,340   
           
        18,165,790   
           

Insurance - 15.0%

      

Allianz SE (Germany)2

      37,000         4,396,181   

The Allstate Corp.

      124,000         3,953,120   

Brown & Brown, Inc.

      190,000         4,548,600   

Willis Group Holdings plc (United Kingdom)

      128,000         4,432,640   

Zurich Financial Services AG (Switzerland)2

      16,500         4,272,951   
           
        21,603,492   
           

 

The accompanying notes are an integral part of the financial statements.    5

Investment Portfolio - December 31, 2010

 

     Shares     

Value

(Note 2)

  

COMMON STOCKS (continued)

      

Financials (continued)

      

Real Estate Investment Trusts (REITS) - 1.8%

      

Corporate Office Properties Trust

      76,000       $ 2,656,200   
           

Thrifts & Mortgage Finance -6.3%

      

First Niagara Financial Group, Inc.

      296,000         4,138,080   

Hudson City Bancorp, Inc.

      98,000         1,248,520   

People’s United Financial, Inc.

      261,540         3,664,175   
           
        9,050,775   
           

Total Financials

         113,915,759   
           

Information Technology - 15.5%

      

IT Services - 15.5%

      

Automatic Data Processing, Inc.

      85,550         3,959,254   

Cielo S.A. (Brazil)

      330,000         2,673,795   

MasterCard, Inc. - Class A

      17,900         4,011,569   

Redecard S.A. (Brazil)

      173,000         2,193,765   

Visa, Inc. - Class A

      54,000         3,800,520   

The Western Union Co.

      305,000         5,663,850   
           

Total Information Technology

         22,302,753   
           

TOTAL COMMON STOCKS

    (Identified Cost $130,347,359)

         136,218,512   
           

SHORT-TERM INVESTMENTS - 5.5%

      

Dreyfus Cash Management, Inc. - Institutional Shares4, 0.14%

(Identified Cost $7,948,572)

      7,948,572         7,948,572   
           

TOTAL INVESTMENTS - 100.0%

(Identified Cost $138,295,931)

         144,167,084   

OTHER ASSETS, LESS LIABILITIES - 0.0%**

         12,368   
           

NET ASSETS - 100%

       $     144,179,452   
           

ADR - American Depository Receipt

*Non-income producing security

**Less than 0.1%

1The Bank of New York Mellon Corp. is the Series’ custodian and serves as sub-accountant and sub-transfer agent to the Series.

2International Fair Value factor from pricing service was applied.

3Latest quoted sales price is not available and the latest quoted bid price was used to value the security.

4Rate shown is the current yield as of December 31, 2010.

 

6    The accompanying notes are an integral part of the financial statements.

Statement of Assets and Liabilities

December 31, 2010

 

ASSETS:

   

Investments, at value (identified cost $138,295,931) (Note 2)

    $ 144,167,084   

Dividends receivable

      192,168   

Receivable for fund shares sold

      130,496   

Foreign tax reclaims receivable

      77,884   
        

TOTAL ASSETS

      144,567,632   
        

LIABILITIES:

   

Accrued management fees (Note 3)

      120,821   

Accrued fund accounting and administration fees (Note 3)

      5,814   

Accrued transfer agent fees (Note 3)

      2,204   

Accrued Chief Compliance Officer service fees (Note 3)

      244   

Payable for fund shares repurchased

      196,774   

Audit fees payable

      31,404   

Other payables and accrued expenses

      30,919   
        

TOTAL LIABILITIES

      388,180   
        

TOTAL NET ASSETS

    $ 144,179,452   
        

NET ASSETS CONSIST OF:

   

Capital stock

    $ 246,943   

Additional paid-in-capital

      245,783,982   

Undistributed net investment income

      47,982   

Accumulated net realized loss on investments, foreign currency and translation of other assets and liabilities

      (107,777,337 ) 

Net unrealized appreciation on investments, foreign currency and translation of other assets and liabilities

      5,877,882   
        

TOTAL NET ASSETS

    $ 144,179,452   
        

NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE -
Class A ($144,179,452/24,694,313 shares)

    $ 5.84   
        

 

The accompanying notes are an integral part of the financial statements.    7

Statement of Operations

For the Year Ended December 31, 2010

 

INVESTMENT INCOME:

   

Dividends (net of foreign taxes withheld, $109,907)

    $ 3,283,753   
        

EXPENSES:

   

Management fees (Note 3)

      1,335,265   

Fund accounting and administration fees (Note 3)

      44,538   

Transfer agent fees (Note 3)

      13,420   

Directors’ fees (Note 3)

      8,677   

Chief Compliance Officer service fees (Note 3)

      2,621   

Custodian fees

      22,739   

Miscellaneous

      102,337   
        

Total Expenses

      1,529,597   

Less reduction of expenses (Note 3)

      (758 ) 
        

Net Expenses

      1,528,839   
        

NET INVESTMENT INCOME

      1,754,914   
        

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:

   

Net realized gain (loss) on- Investments

      2,654,084   

Foreign currency and translation of other assets and liabilities

      (7,057 ) 
        
     2,647,027   
        

Net change in unrealized appreciation (depreciation) on- Investments

      4,470,053   

Foreign currency and translation of other assets and liabilities

      6,084   
        
     4,476,137   
        

NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCY

      7,123,164   
        

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

    $ 8,878,078   
        

 

8    The accompanying notes are an integral part of the financial statements.

Statements of Changes in Net Assets

 

 

    

For the

Year Ended
12/31/10

    

For the

Year Ended
12/31/09

  

INCREASE IN NET ASSETS:

     

OPERATIONS:

     

Net investment income

    $ 1,754,914      $ 2,884,947   

Net realized gain (loss) on investments and foreign currency

      2,647,027        (42,361,984 ) 

Net change in unrealized appreciation on investments and foreign currency

      4,476,137        57,427,697   
                

Net increase from operations

      8,878,078        17,950,660   
                

DISTRIBUTIONS TO SHAREHOLDERS (Note 9):

     

From net investment income

      (1,786,293 )      (2,990,961 ) 
                

CAPITAL STOCK ISSUED AND REPURCHASED:

     

Net increase (decrease) from capital share transactions (Note 5)

      6,672,693        (13,914,002 ) 
                

Net increase in net assets

      13,764,478        1,045,697   

NET ASSETS:

     

Beginning of year

      130,414,974        129,369,277   
                

End of year (including undistributed net investment income of $47,982 and $43,192, respectively)

    $ 144,179,452      $ 130,414,974   
                

 

The accompanying notes are an integral part of the financial statements.    9

Financial Highlights

 

 

          

 

For the Years Ended

              
     12/31/10     12/31/09     12/31/08      12/31/07      12/31/06       

Per share data (for a share outstanding throughout each year):

                

Net asset value - Beginning of year

      $5.55           $5.14           $9.34            $12.51          $10.70      
                                         

Income (loss) from investment operations:

                

Net investment income

      0.071            0.101            0.17            0.19          0.10      

Net realized and unrealized gain (loss) on investments

      0.29           0.44           (4.19)           (2.36)         2.00      
                                         

Total from investment operations

      0.36           0.54           (4.02)           (2.17)         2.10      
                                         

Less distributions to shareholders:

                

From net investment income

      (0.07)          (0.13)          (0.18)           (0.18)         (0.11)     

From net realized gain on investments

      —           —           —            (0.82)         (0.18)     
                                         

Total distributions to shareholders

      (0.07)          (0.13)          (0.18)           (1.00)         (0.29)     
                                         

Net asset value - End of year

      $5.84           $5.55           $5.14            $9.34          $12.51      
                                         

Net assets - End of year
(000’s omitted)

          $144,179               $130,415               $129,369                $220,097              $132,855      
                                         

Total return2

      6.56%           10.54%           (42.98%)           (17.46%)         19.62%      

Ratios (to average net assets)/

                

Supplemental Data:

                

Expenses*

      1.14%           1.14%           1.12%            1.15%          1.18%      

Net investment income

      1.31%           2.01%           2.34%            1.72%          1.14%      

Portfolio turnover

      49%           98%           41%            38%          30%      

*The investment advisor did not impose all or a portion of its management fees, CCO fees and fund accounting and transfer agent fees, and other fees in some years and in some years paid a portion of the Series’ expenses. If these expenses had been incurred by the Series, the expense ratio (to average net assets) would have been increased by the following amounts:

      
     0.00% 3      0.00% 3      N/A         N/A       N/A   

1Calculated based on average shares outstanding during the year.

2Represents aggregate total return for the years indicated, and assumes reinvestment of all distributions. Total returns would have been lower had

certain expenses not been waived or reimbursed during certain years.

3Less than 0.01%.

 

10    The accompanying notes are an integral part of the financial statements.

Notes to Financial Statements

 

 

1.

ORGANIZATION

Financial Services Series (the “Series”) is a no-load diversified series of Manning & Napier Fund, Inc. (the “Fund”). The Fund is organized in Maryland and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company.

The Series’ investment objective is to provide long-term growth by investing principally in the common stocks of companies in the financial services industry.

The Fund’s Advisor is Manning & Napier Advisors, Inc. (the “Advisor”). Shares of the Series are offered to investors, clients and employees of the Advisor and its affiliates. The total authorized capital stock of the Fund consists of 10.0 billion shares of common stock each having a par value of $0.01. As of December 31, 2010, 6.2 billion shares have been designated in total among 29 series, of which 100 million have been designated as Financial Services Series Class A common stock.

 

2.

SIGNIFICANT ACCOUNTING POLICIES

Security Valuation

Portfolio securities, including domestic equities, foreign equities, warrants and options, listed on an exchange other than the NASDAQ National Market System are valued at the latest 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 provided by the Fund’s pricing service. Securities listed on the NASDAQ National Market System are valued in accordance with the NASDAQ Official Closing Price.

Short-term investments that mature in sixty days or less are valued at amortized cost, which approximates market value. Investments in open-end investment companies are valued at their net asset value per share on valuation date.

Volume and level of activity in established markets for an asset or liability are evaluated to determine whether recent transactions and quoted prices are determinative of fair value. Where there have been significant decreases in volume and level of activity, further analysis and adjustment may be necessary to estimate fair value. The Series measures fair value in these instances by the use of inputs and valuation techniques which may be based upon current market prices of securities that are comparable in coupon, rating, maturity and industry and/or expectation of future cash flows. As a result of trading in relatively thin markets and/or markets that experience significant volatility, the prices used by the Series to value these securities may differ from the value that would be realized if these securities were sold, and the differences could be material.

Securities for which representative valuations or prices are not available from the Fund’s pricing service may be valued at fair value. Due to the inherent uncertainty of valuations of such securities, the fair value may differ significantly from the values that would have been used had a ready market for such securities existed. If trading or events occurring after the close of the principal market in which securities are traded are expected to materially affect the value of those securities, then they may be valued at their fair value, taking this trading or these events into account. Fair value is determined in good faith by the Advisor under procedures approved by and under the general supervision and responsibility of the Fund’s Board of Directors (the “Board”). In accordance with the procedures approved by the Board, the Series applies fair value pricing on a daily basis except for North American, Central American, South American and Caribbean equity securities. Fair valuing of securities is determined with the assistance of a pricing service using calculations or factors based on indices of domestic securities and other appropriate indicators, such as prices of relevant American Depository Receipts and futures contracts, to adjust local market prices for subsequent movements through the time the Series calculates its net asset value. The value of securities used for the net asset value calculation under the procedures may differ from published prices for the same securities. It is the Fund’s

 

   11

Notes to Financial Statements

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Security Valuation (continued)

policy to classify each foreign equity security, except for those in the regions noted above, as Level 2 securities due to the fact the pricing service evaluated what factor was applied to the calculated end of day market price.

Various inputs are used in determining the value of the Series’ assets or liabilities carried at market value. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical assets and liabilities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). Level 3 includes significant unobservable inputs (including the Series’ own assumptions in determining the fair value of investments). The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the valuation levels used for major security types as of December 31, 2010 in valuing the Series’ assets or liabilities carried at market value:

000000000000000 000000000000000 000000000000000 000000000000000
Description    Total      Level 1      Level 2      Level  3  

Assets:

            

Equity securities*

    $ 136,218,512       $ 115,395,793       $ 20,822,719       $ —   

Preferred securities

      —         —         —         —   

Debt securities

      —         —         —         —   

Mutual funds

      7,948,572         7,948,572         —         —   

Other financial instruments**:

      —         —         —         —   
                                   

Total assets:

      144,167,084         123,344,365         20,822,719         —   
                                   

Liabilities:

            

Other financial instruments**:

      —         —         —         —   
                                   

Total liabilities:

      —         —         —         —   
                                   

Total

    $ 144,167,084       $ 123,344,365       $ 20,822,719       $ —   
                                   

*Includes common stock, warrants and rights. Please see the Investment Portfolio for industry classification and for securities where a latest quoted sales price is not available and the latest quoted bid price was used to value the security or foreign securities where an International Fair Value factor from the pricing service was applied to value the security. Such securities are included in Level 2 in the table above.

** Other financial instruments are derivative instruments not reflected in the Investment Portfolio, such as futures, forwards and swap contracts, which are valued at the unrealized appreciation/depreciation on the instrument. As of December 31, 2010, the Series did not hold any derivative instruments.

There were no Level 3 securities held by the Series as of December 31, 2009 or December 31, 2010.

The Fund’s policy is to recognize transfers in and transfers out of the valuation levels as of the beginning of the reporting period. During the year ended December 31, 2010, the Fund had three foreign equity securities transfer from Level 1 to Level 2 due to the implementation of new international fair value pricing procedures. The following is a summary of the foreign equity securities that transferred from Level 1 to Level 2:

 

12   

Notes to Financial Statements

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Security Valuation (continued)

000000000000000000 000000000000000000 000000000000000000 000000000000000000
   

Total #

Securities

Level 1 at

beginning and

Level 2 at end

of period

   

Total Market

Value

Beginning of

period

  

Total Market

Value

End of period

   

Change in

Market Value

  3    $    8,954,028    $    14,324,117    $     5,370,089

Additional disclosure surrounding the activity in Level 3 fair value measurement will be effective for fiscal years beginning after December 15, 2010. Management has concluded that this will not have a material impact on the Series’ financial statements.

Security Transactions, Investment Income and Expenses

Security transactions are accounted for on trade date. Dividend income is recorded on the ex-dividend date, except that if the ex-dividend date has passed, certain dividends from foreign securities are recorded as soon as the Fund is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Interest income, including amortization of premium and accretion of discounts using the effective interest method, is earned from settlement date and accrued daily.

Expenses are recorded on an accrual basis. Most expenses of the Fund can be attributed to a specific series. Expenses which cannot be directly attributed are apportioned among the series in the Fund in such a manner as deemed equitable by the Fund’s Board, taking into consideration, among other things, the nature and type of expense.

The Series uses the identified cost method for determining realized gain or loss on investments for both financial statement and federal income tax reporting purposes.

Foreign Currency Translation

The books and records of the Series are maintained in U.S. dollars. Foreign currencies, investments and other assets and liabilities are translated into U.S. dollars at the current exchange rates. Purchases and sales of investment securities and income and expenses are translated on the respective dates of such transactions. The Series does not isolate realized and unrealized gains and losses attributable to changes in the exchange rates from gains and losses that arise from changes in the market value of investments. Such fluctuations are included with net realized and unrealized gain or loss on investments. Net realized foreign currency gains and losses represent foreign currency gains and losses between trade date and settlement date on securities transactions, gains and losses on disposition of foreign currencies and the difference between the amount of income and foreign withholding taxes recorded on the books of the Series and the amounts actually received or paid.

Federal Taxes

The Series’ policy is to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. The Series is not subject to federal income tax or excise tax to the extent that the Series 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.

Management evaluates its tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of tax benefits of an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by

 

   13

Notes to Financial Statements

 

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Federal Taxes (continued)

taxing authorities. At December 31, 2010, the Series has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken in future tax returns.

The Series files income tax returns in the U.S. federal jurisdiction, various states and foreign jurisdictions, as required. No income tax returns are currently under investigation. The statute of limitations on the Series’ tax returns remains open for the years ended December 31, 2007 through December 31, 2010. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.

Additionally, based on the Fund’s understanding of the tax rules and rates related to income, gains and transactions for foreign jurisdictions in which it invests, the Series will provide for foreign taxes, and where appropriate, deferred foreign tax.

Distributions of Income and Gains

Distributions to shareholders of net investment income and net realized gains are made annually. An additional distribution may be necessary to avoid taxation of the Series. Distributions are recorded on the ex-dividend date.

Indemnifications

The Fund’s organizational documents provide former and current directors and officers with a limited indemnification against liabilities arising in connection with the performance of their duties to the Fund. In the normal course of business, the Fund may also enter into contracts that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would be dependent on future claims that may be made against the Fund. The risk of material loss from such claims is considered remote.

Other

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 income and expenses during the reporting period. Actual results could differ from those estimates.

 

3.

TRANSACTIONS WITH AFFILIATES

The Fund has an Investment Advisory Agreement (the “Agreement”) with the Advisor, for which the Series pays a fee, computed daily and payable monthly, at an annual rate of 1.00% of the Series’ average daily net assets.

Under the Agreement, personnel of the Advisor provide the Series with advice and assistance in the choice of investments and the execution of securities transactions, and otherwise maintain the Series’ organization. The Advisor also provides the Fund with necessary office space and fund administration and support services. The salaries of all officers of the Fund (except a percentage of the Fund’s Chief Compliance Officer’s salary, which is paid by 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. Each “non-affiliated” Director receives an annual stipend, which is allocated among all the active series of the Fund. In addition, these Directors also receive a fee per Board meeting attended plus a fee for each committee meeting attended.

The Advisor has contractually agreed, until at least April 30, 2012, to waive its fee and, if necessary, pay other operating expenses of the Series in order to maintain total direct annual fund operating expenses for the Series at no more than 1.20% of average daily net assets each year. For the year ended December 31, 2010, the Advisor voluntarily

 

14   

Notes to Financial Statements

 

 

 

3.

TRANSACTIONS WITH AFFILIATES (continued)

waived fees of $758, which is included as a reduction of expenses on the Statement of Operations. The Advisor is not eligible to recoup any expenses that have been waived or reimbursed in prior years.

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 Series.

The Advisor has agreements with PNC Global Investment Servicing (U.S.) Inc. (“PNCGIS”) under which PNCGIS serves as sub-accountant services agent and sub-transfer agent. The Fund pays the Advisor an annual fee related to fund accounting and administration of 0.0175% on the first $3 billion of average daily net assets (excluding Target Series); 0.015% on the next $3 billion of average daily net assets (excluding Target Series); and 0.01% of the average daily net assets in excess of $6 billion (excluding Target Series); plus a base fee of $25,500 per Series. Transfer Agent fees are charged to the Fund on a per account basis. Additionally, certain transaction- and cusip-based fees and out-of-pocket expenses, including charges for reporting relating to the Fund’s compliance program, are charged.

Effective July 1, 2010, PNCGIS was sold to The Bank of New York Mellon Corporation, the Series’ custodian. At the close of the sale, PNCGIS changed its name to BNY Mellon Investment Servicing (U.S.) Inc. (“BNY”).

Expenses not directly attributable to a Series are allocated based on each Series’ relative net assets or number of accounts, depending on the expense.

 

4.

PURCHASES AND SALES OF SECURITIES

For the year ended December 31, 2010, purchases and sales of securities, other than U.S. Government securities and short-term securities, were $63,810,863 and $62,850,672, respectively. There were no purchases or sales of U.S. Government securities.

 

5.

CAPITAL STOCK TRANSACTIONS

Transactions in shares of Financial Services Series were:

 

     For the Year     For the Year  
     Ended 12/31/10     Ended 12/31/09  
     Shares     Amount     Shares     Amount  

Sold

      3,059,077      $ 17,083,766            11,190,234      $ 55,137,124   

Reinvested

      298,746        1,727,732        534,460        2,895,097   

Repurchased

      (2,175,056 )      (12,138,805 )      (13,401,764 )      (71,946,223 ) 
                                

Total

          1,182,767      $ 6,672,693        (1,677,070 )    $   (13,914,002 ) 
                                

Substantially all of the Series’ shares represent investments by fiduciary accounts over which the Advisor has sole investment discretion.

 

6.

FINANCIAL INSTRUMENTS

The Series may trade in instruments including written and purchased options, forward foreign currency exchange contracts and futures contracts and other derivatives in the normal course of investing activities to assist in managing exposure to various market risks. Investments in these instruments may subject the Series to various elements of risk, which may involve, to a varying degree, elements of risk in excess of the amounts recognized for financial statement purposes. These risks include: the risk that changes in the value of a derivative may not correlate perfectly

 

   15

Notes to Financial Statements

 

 

 

6.

FINANCIAL INSTRUMENTS (continued)

with the underlying asset, rate or index, counterparty credit risk related to over the counter derivatives counterparties’ failure to perform under contract terms, liquidity risk related to the lack of a liquid market for these contracts allowing the fund to close out its position(s) and documentation risk relating to disagreement over contract terms. No such investments were held by the Series during the year ended December 31, 2010.

 

7.

FOREIGN SECURITIES

Investing in securities of foreign companies and foreign governments involves special risks and considerations not typically associated with investing in securities of domestic companies and the U.S. Government. These risks include revaluation of currencies and future adverse political and economic developments. Moreover, securities of foreign companies and foreign governments and their markets may be less liquid and their prices more volatile than those of comparable domestic companies and the U.S. Government.

 

8.

FINANCIAL SERVICES SECURITIES

The Series may focus its investments in certain related financial services industries; hence, the Series may subject itself to a greater degree of risk than a series that is more diversified.

 

9.

FEDERAL INCOME TAX INFORMATION

The amount and characterization of certain income and capital gains to be distributed are determined in accordance with federal income tax regulations, which may differ from accounting principles generally accepted in the United States of America. These differences are primarily due to differing book and tax treatments in the timing of the recognition of net investment income or gains and losses, including investments in real estate investment trusts (REITs), foreign currency gains and losses and post-October losses. The Series may periodically make reclassifications among its capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations without impacting the Series’ net asset value. Any such reclassifications are not reflected in the financial highlights.

The tax character of distributions paid were as follows:

 

     For  the Year    For  the Year     
     Ended  12/31/10    Ended  12/31/09     

 Ordinary income

    $1,786,293    $2,990,961   

At December 31, 2010, the tax basis of distributable earnings and the net unrealized appreciation based on identified cost of investments for federal income tax purposes were as follows:

 

Cost for federal income tax purposes

    $ 138,419,949     

Unrealized appreciation

    $ 9,659,996     

Unrealized depreciation

      (3,912,861 )   
          

Net unrealized appreciation

    $ 5,747,135     
          

Capital loss carryover

      107,605,337     

 

16   

Notes to Financial Statements

 

 

 

9.

FEDERAL INCOME TAX INFORMATION (continued)

At December 31, 2010, the capital loss carryover, disclosed above, available to the extent allowed by tax law to offset future net capital gain, if any, will expire as follows:

 

Loss  Carryover    Expiration  Date     

$50,750,210

    December 31, 2016   

$51,187,679

    December 31, 2017   

$  5,667,448

    December 31, 2018   

 

   17

Report of Independent Registered Public Accounting Firm

 

 

To the Board of Directors of Manning & Napier Fund, Inc. and Shareholders of Financial Services Series:

In our opinion, the accompanying statement of assets and liabilities, including the investment portfolio, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the Financial Services Series (a series of Manning & Napier Fund, Inc., hereafter referred to as the “Series”) at December 31, 2010, and 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 five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Series’ management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2010 by correspondence with the custodian, provide a reasonable basis for our opinion.

LOGO

New York, New York

February 22, 2011

 

18   

Supplemental Tax Information (unaudited)

 

 

All designations are based on financial information available as of the date of this annual report and, accordingly are subject to change.

For federal income tax purposes, the Series designates for the current fiscal year $1,786,293 or, if different, the maximum amount allowable under the tax law as qualified dividend income.

For corporate shareholders, the percentage of investment income (dividend income plus short-term gains, if any) that qualifies for the dividends received deduction for the current fiscal year is 99.37%, or if different, the maximum allowable under tax law.

 

   19

Renewal of Investment Advisory Agreement (unaudited)

 

 

 

At the Manning & Napier Fund, Inc. (the “Fund”) Board of Directors’ (the “Board”) meeting, held on November 17, 2010, the Investment Advisory Agreement (the “Agreement”) between the Fund and Manning & Napier Advisors, Inc. (the “Advisor”) was reviewed by the Board for renewal. In connection with the decision whether to renew the Agreement, a variety of material was prepared for and reviewed by the Board.

Representatives of the Advisor attended the meeting and presented additional oral and written information to the Board to assist the Board in its considerations. The discussion immediately below outlines the materials and information presented to the Board in connection with the Board’s 2010 Annual Review of the Agreement and the conclusions made by the Directors when determining to continue the Agreement.

 

  •  

The Board considered the services provided by the Advisor under the Agreement including, among others: deciding what securities to purchase and sell for each Series; arranging for the purchase and sale of such securities by placing orders with broker-dealers; administering the affairs of the Fund (including the books and records of the Fund not maintained by third party service providers such as the custodian or sub-transfer agent); arranging for the insurance coverage for the Fund; and supervising the preparation of tax returns, SEC filings (including registration statements) and reports to shareholders for the Fund. The Board also considered the nature and quality of such services provided under the Agreement in light of the Advisor’s services provided to the Fund for 24 years. The Board discussed the quality of these services with representatives from the Advisor and concluded that the Advisor was performing its services to the Fund required under the Agreement in a reasonable manner.

 

  •  

The Board considered the investment performance of the various Series of the Fund. The investment performance for each Series was reviewed on a cumulative basis since inception and on a one year basis. In addition, annualized performance for the following time periods was considered: inception, three year, five year, ten year, and current market cycle. A market cycle includes periods of both rising and falling markets. Returns for established benchmark indices for each Series were provided for each time period. The Board noted that the various Series were competitive against their respective benchmarks and/or peer groups over various time periods, but in particular over the full market cycle period relevant for the Series. In addition, the Board considered at the meeting (and considers on a quarterly basis) a peer group performance analysis consisting of Morningstar universes of mutual funds with similar investment objectives. The Board discussed the performance with representatives from the Advisor and concluded that the investment performance of each of the Fund’s Series was reasonable based on the Fund’s actual performance and comparative performance, especially performance over the current market cycle.

 

  •  

The Board considered the costs of the Advisor’s services and the profits of the Advisor as they relate to the Advisor’s services to the Fund under the Agreement. In reviewing the Advisor’s costs and profits, the Board discussed the Advisor’s revenues generated from the Fund (on both an actual and adjusted basis) and its expenses associated with providing the services under the Agreement. In addition, the Board reviewed the Advisor’s expenses associated with Fund activities outside of the Agreement (such as expense reimbursements pursuant to expense caps and payments made by the Advisor to third party platforms on which shares of the Fund are available for purchase). It was noted by representatives of the Advisor that 11 of the 27 active Series of the Fund are currently experiencing expenses above the capped expense ratios. After discussing the above costs and profits, the Board concluded that the Advisor’s profitability relating to its services provided under the Agreement was reasonable.

 

  •  

The Board considered the fees and expenses of the various Series of the Fund. The Advisor presented the advisory fees and total expenses for each Series, including the advisory fee adjusted for any expense waivers or reimbursements (either contractual or voluntary) paid by the Advisor. The advisory fees and expense ratios of each Series were compared to an average (on both a mean and median basis) of similar funds as disclosed on the Morningstar database. Representatives of the Advisor discussed with the Board the levels of its advisory

 

20   

Renewal of Investment Advisory Agreement (unaudited)

    

 

 

fee for each Series of the Fund and as compared to the median and mean advisory fees for similar funds as listed on Morningstar. Expense ratios for every Series, except the Pro-Blend’s Class R and Class C, and Target Class R and Class C, are currently below the median and mean for similar funds as listed on Morningstar. Based on their review of the information provided, the Board concluded that the fees and expenses of each Series of the Fund were reasonable on a comparative basis.

 

  •  

The Board also considered the other benefits the Advisor derives from its relationship with the Fund. Such other benefits include certain research products provided by soft dollars. Given the level of soft dollar transactions involving the Fund, the Board concluded that these additional benefits to the Advisor were reasonable.

 

  •  

In addition to the factors described above, the Board considered the Advisor’s personnel, investment strategies, policies and procedures relating to compliance with personal securities transactions, and reputation, expertise and resources in domestic and foreign financial markets. The Board concluded that these factors support the conclusion that the Advisor performs its services in a reasonable manner.

 

  •  

The Board did not consider economies of scale at this time because of the multiple uses of the Fund (for the Advisor’s discretionary investment account clients in addition to direct investors), the current profitability of the Advisor’s services to the Fund under the Agreement, and the overall size of the Fund complex.

Based on the Board’s deliberations and their evaluation of the information described above, the Board, including a majority of Directors that are not “interested persons” as defined in the Investment Company Act of 1940, concluded that the compensation under the Agreement was fair and reasonable in light of the services and expenses and such other matters as the Directors considered to be relevant in the exercise of their reasonable judgment. Accordingly, the Board approved the renewal of the Agreement. In the course of their deliberations, the Directors did not identify any particular information that was all important or controlling.

 

   21

Directors’ and Officers’ Information (unaudited)

 

 

The Statement of Additional Information provides additional information about the Fund’s directors and officers and can be obtained without charge by calling 1-800-466-3863, at www.manningnapieradvisors.com, or on the EDGAR Database on the SEC Internet web site (http:// www.sec.gov). The following chart shows certain information about the Fund’s officers and directors, including their principal occupations during the last five years. Unless specific dates are provided, the individuals have held the listed positions for longer than five years.

INTERESTED DIRECTOR/OFFICER

 

Name:

    B. Reuben Auspitz*
Address:    290 Woodcliff Drive
   Fairport, NY 14450
Age:    63
Current Position(s) Held with Fund:    Principal Executive Officer, President, Chairman & Director
Term of Office1 & Length of Time Served:    Indefinite - Director since 1984; Vice President 1984 - 2003; President since 2004; Principal Executive Officer since 2002
Principal Occupation(s) During Past 5 Years:    Executive Vice President; Executive Group Member**; Chief Compliance Officer since 2004; Vice Chairman since June 2010; Co-Executive Director from 2003-2010 - Manning & Napier Advisors, Inc. President; Director - Manning & Napier Investor Services, Inc. Holds or has held one or more of the following titles for various subsidiaries and affiliates: President, Vice President, Director, Chairman, Treasurer, Chief Compliance Officer or Member.
Number of Portfolios Overseen within Fund Complex:    29
Other Directorships Held Outside Fund Complex:    N/A

 

INDEPENDENT DIRECTORS

   
Name:    Paul A. Brooke
Address:    290 Woodcliff Drive
   Fairport, NY 14450
Age:    65
Current Position(s) Held with Fund:    Director, Audit Committee Member, Governance & Nominating Committee Member
Term of Office & Length of Time Served:    Indefinite - Since 2007
Principal Occupation(s) During Past 5 Years:    Chairman & CEO, Alsius Corp. (investments); Managing Member, PMSV Holdings LLC (investments)
Number of Portfolios Overseen within Fund Complex:    29
Other Directorships Held Outside Fund Complex:    Incyte Corp. (2000-present) ViroPharma, Inc. (2000-present) HLTH Corp. (2000-present) Cheyne Capital International (2000-present) MPM Bio-equities (2000-present) GMP Companies (2000-present) HoustonPharma (2000-present)

 

Name:

    Richard M. Hurwitz
Address:    290 Woodcliff Drive
   Fairport, NY 14450
Age:    47
Current Position(s) Held with Fund:    Director, Audit Committee Member, Governance & Nominating Committee Member
Term of Office & Length of Time Served:    Indefinite - Since 2009
Principal Occupation(s) During Past 5 Years:    Chief Executive Officer, Pictometry International Corp. since August 2010 (provider of georeferenced, aerial image libraries and related software) Managing Partner (2006-July 2010) - Aegis Investment Partners, LLC (investments); Founder and Managing Partner (2004-2005) - Village Markets, LLC (groceries)
Number of Portfolios Overseen within Fund Complex:    29
Other Directorships Held Outside Fund Complex:   

Pictometry International Corp. (2000-2010)

Pioneering Technologies (2006-2009)

Vensearch Capital Corp. (2003-2007)

 

 

22   

Directors’ and Officers’ Information (unaudited)

 

 

 

INDEPENDENT DIRECTORS (continued)

 

Name:

    Stephen B. Ashley
Address:    290 Woodcliff Drive
   Fairport, NY 14450
Age:    70
Current Position(s) Held with Fund:    Director, Audit Committee Member, Governance & Nominating
   Committee Member
Term of Office & Length of Time Served:    Indefinite - Since 1996
Principal Occupation(s) During Past 5 Years:    Chairman, Director, President & Chief Executive Officer, The Ashley Group (property management and investment). Chairman (non-executive) 2004-2008; Director 1995-2008 - Fannie Mae (mortgage)
Number of Portfolios Overseen within Fund Complex:    29
Other Directorships Held Outside Fund Complex:    The Ashley Group (1995-2008)
     Genesee Corporation (1987-2007)

 

Name:

    Peter L. Faber
Address:    290 Woodcliff Drive
   Fairport, NY 14450
Age:    72
Current Position(s) Held with Fund:    Director, Governance & Nominating Committee Member
Term of Office & Length of Time Served:    Indefinite - Since 1987
Principal Occupation(s) During Past 5 Years:    Senior Counsel since 2006, Partner (1995 - 2006) - McDermott, Will & Emery LLP (law firm)
Number of Portfolios Overseen within Fund Complex:    29
Other Directorships Held Outside Fund Complex:    Partnership for New York City, Inc. (non-profit) New York Collegium (non-profit) Boston Early Music Festival (non-profit)

 

Name:

    Harris H. Rusitzky
Address:    290 Woodcliff Drive
   Fairport, NY 14450
Age:    76
Current Position(s) Held with Fund:    Director, Audit Committee Member, Governance & Nominating Committee Member
Term of Office & Length of Time Served:    Indefinite - Since 1985
Principal Occupation(s) During Past 5 Years:    President, The Greening Group (business consultants) since 1994; Partner, The Restaurant Group (restaurants) since 2006
Number of Portfolios Overseen within Fund Complex:    29
Other Directorships Held Outside Fund Complex:    N/A

 

OFFICERS

   
Name:    Jeffrey S. Coons, Ph.D., CFA
Address:    290 Woodcliff Drive
   Fairport, NY 14450
Age:    47
Current Position(s) Held with Fund:    Vice President
Term of Office1 & Length of Time Served:    Since 2004
Principal Occupation(s) During Past 5 Years:    President since 2010, Co-Director of Research since 2002, Executive Group Member** since 2003, - Manning & Napier Advisors, Inc. Holds one or more of the following titles for various subsidiaries and affiliates: President, Director, Treasurer or Senior Trust Officer.
Number of Portfolios Overseen within Fund Complex:    29

Other Directorships Held Outside Fund Complex:

 

   

N/A

 

 

   23

Directors’ and Officers’ Information (unaudited)

 

 

 

OFFICERS (continued)

   

Name:

    Beth Galusha

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    49

Current Position(s) Held with Fund:

    Assistant Chief Financial Officer

Term of Office1 & Length of Time Served:

    Assistant Chief Financial Officer since 2010

Principal Occupation(s) During Past 5 Years:

    Chief Financial Officer and Treasurer, Manning & Napier Advisors, Inc. Holds one or more of the following titles for various affiliates: Chief Financial Officer, Director, or Treasurer

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A

 

Name:

    Christine Glavin

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    44

Current Position(s) Held with Fund:

    Principal Financial Officer, Chief Financial Officer

Term of Office1 & Length of Time Served:

    Principal Financial Officer since 2002; Chief Financial Officer since 2001

Principal Occupation(s) During Past 5 Years:

    Fund Reporting Manager, Manning & Napier Advisors, Inc. since 1997

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A

 

Name:

    Jodi L. Hedberg

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    43

Current Position(s) Held with Fund:

    Corporate Secretary, Chief Compliance Officer, Anti-Money Laundering Compliance Officer

Term of Office1 & Length of Time Served:

    Corporate Secretary since 1997; Chief Compliance Officer since 2004

Principal Occupation(s) During Past 5 Years:

    Director of Compliance, Manning & Napier Advisors, Inc. and affiliates since 1990 (title change in 2005 from Compliance Manager to Director of Compliance); Corporate Secretary, Manning & Napier Investor Services, Inc. since 2006

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A

 

Name:

    Richard Yates

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    45

Current Position(s) Held with Fund:

    Chief Legal Officer

Term of Office1 & Length of Time Served:

    Chief Legal Officer since 2004

Principal Occupation(s) During Past 5 Years:

    Counsel - Manning & Napier Advisors, Inc. & affiliates since 2000; Holds one or more of the following titles for various affiliates; Director or Corporate Secretary

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A

*Interested Director, within the meaning of the Investment Company Act of 1940 by reason of his position with the Fund’s investment advisor and distributor. Mr. Auspitz serves as the Executive Vice President and Director, Manning & Napier Advisors, Inc. and President and Director, Manning

& Napier Investor Services, Inc., the Fund’s distributor.

**Prior to June 2010, the Executive Group, consisting of senior executive employee-owners, performed the duties of the Office of the Chief Executive of the Advisor. Effective June 2010, the Executive Group serves as an advisory board to the Chief Executive Officer.

1The term of office for President, Vice President, Chief Financial Officer, Assistant Chief Financial Officer, Chief Legal Officer and Corporate Secretary is one year and until their respective successors are chosen and qualified. All other officers’ terms are indefinite.

 

24   

 

 

 

 

 

This page Intentionally Left Blank

 

25

Literature Requests (unaudited)

 

 

Proxy Voting Policies and Procedures

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request:

 

By phone

     

1-800-466-3863

On the Securities and Exchange

     

Commission’s (SEC) web site

     

http://www.sec.gov

Proxy Voting Record

Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available, without charge, upon request:

 

By phone

     

1-800-466-3863

On the SEC’s web site

     

http://www.sec.gov

Quarterly Portfolio Holdings

The Series’ complete schedule of portfolio holdings for the 1st and 3rd quarters of each fiscal year are provided on Form N-Q, and are available, without charge, upon request:

 

By phone

     

1-800-466-3863

On the SEC’s web site

     

http://www.sec.gov

The Series’ Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.

Prospectus and Statement of Additional Information (SAI)

The prospectus and SAI provide additional information about each Series, including charges, expenses and risks. These documents are available, without charge, upon request:

 

By phone

     

1-800-466-3863

On the SEC’s web site

     

http://www.sec.gov

On the Advisor’s web site

     

http://www.manning-napier.com

Additional information available at www.manning-napier.com

1. Fund Holdings - Month-End

2. Fund Holdings - Quarter-End

3. Shareholder Report - Annual

4. Shareholder Report - Semi-Annual

 

  MNFNS-12/10-AR   

LOGO

Management Discussion and Analysis (unaudited)

 

Dear Shareholders:

Over the course of 2010, the markets experienced several ups and downs driven by well-defined swings in investor sentiment. Optimism fueled strong market returns early in the year, as positive economic releases led investors to believe in the potential for a robust U.S. recovery. However, sentiment shifted drastically in May and June as more negative economic news and issues related to Europe’s government debt problems led to notable market losses. In another swing, the markets rebounded in the fall amid better economic developments and prospects that the Federal Reserve would enact another round of quantitative easing. That rally generally continued through the end of the year as the markets reacted positively to the U.S. tax compromise, which extended the Bush-era tax cuts for all income brackets.

With solid gains in the third and fourth quarters, the choppy year ended on a fairly strong note, and broad market indices have now produced back-to-back years of positive results. For the twelve months ending December 31, 2010, the Morgan Stanley Capital International (MSCI) U.S. REIT Index returned 28.48%, noticeably outpacing the S&P 500 Total Return Index, which earned 15.07%. In its first full year of operations, the Real Estate Series had a 24.4% return, outperforming the broad market yet trailing the U.S. REIT Index.

Because of the Advisor’s outlook for a slow, uneven U.S. recovery, the Real Estate Series has maintained a conservative positioning since its inception in November 2009. At the end of 2010, the allocation breakdown of the Series included 26.5% of the portfolio in Multi-family Real Estate Investment Trusts (“REITs”), 21.6% in Office Property REITs, and 12.1% in Lodging (i.e., Hotel REITs and Hotels & Motels). Within the Office sector, the Advisor concentrated on niche property types that are more defensive in nature, such as data centers, life sciences office space, and government-focused office buildings. Meanwhile, the Series continued to have an underweight as compared to the benchmark to more economically sensitive areas, such as the Industrial and Retail sectors. The Industrial sector is linked more directly to economic activity and global trade, and while the Advisor sees potential in niche retailers that can benefit from a restructuring of the traditional mall structure, there is concern as the Retail sector is exposed to the debt-burdened U.S. consumer.

Overall, the Series’ relative underperformance was a result of its conservative bias throughout the year. While this conservative posture aided returns during the market correction in the second quarter, it detracted from relative results as the market rallied on more upbeat U.S. growth prospects. For example, during the latter half of the year, the Series’ underweight to the Retail and Industrial sectors versus the benchmark hurt relative returns. Over the last twelve months, specific selections within Specialized REITs and Residential REITs hurt relative performance, as did an overweight to Office REITs compared to the benchmark. In contrast, a higher allocation to Residential REITs than the benchmark helped relative results, and the Series also benefited from specific selections within the Hotels Resorts & Cruise Lines sub-sector.

While economic developments turned more optimistic toward the end of 2010, the U.S. economy still faces significant headwinds, including a struggling housing market, a stagnant job market, a difficult consumer rebalancing act, and high government debt burdens. Given these long-term structural issues, the slow growth environment in the U.S. will likely remain a reality. As the markets fluctuated around this slow growth trend in 2010, Manning & Napier earned strong absolute returns by staying focused on the fundamentals and maintaining our selective investment process. This investment approach has proved beneficial for the past 40 years, and we believe these qualities will remain important as the market environment unfolds in 2011.

As always, we appreciate your business.

Sincerely,

Manning & Napier Advisors, Inc.

 

   1

Performance Update as of December 31, 2010 (unaudited)

 

 

     

 

Average Annual Total Returns

As of December 31, 2010

     

 

One

Year

  

Since

Inception1

Manning & Napier Fund, Inc. - Real Estate Series2

    24.40%   27.85%

 

S&P 500 Total Return Index3

    15.07%   15.41%

 

Morgan Stanley Capital International (MSCI) U.S. Real Estate Investment Trust (REIT) Index3,4

    28.48%   35.25%

The following graph compares the value of a $10,000 investment in the Manning & Napier Fund, Inc. - Real Estate Series from its inception1 (11/10/09) to present (12/31/10) to the S&P 500 Total Return Index and the MSCI U.S. REIT Index.

LOGO

1 Performance numbers for the Series and Index are calculated from November 10, 2009, the Series’ inception date.

2 The Series’ performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. The Series’ performance is historical and may not be indicative of future results. The performance returns shown are inclusive of the net expense ratio of the Series. For the year ended December 31, 2010, this annualized net expense ratio was 1.20%. The annualized gross expense ratio, which does not account for any voluntary or contractual waivers currently in effect, was 1.21% for the year ended December 31, 2010.

3 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 the Over-the-Counter market. The Index returns assume daily reinvestment of dividends. The MSCI U.S. REIT Index is a free float-adjusted market capitalization weighted index that is comprised of equity REITs that are included in the MSCI U.S. Investable Market 2500 Index, with the exception of specialty equity REITs that do not generate a majority of their revenue and income from real estate rental and leasing operations. The Index represents approximately 85% of the U.S. REIT universe. Both Indices’ returns, unlike Series returns, do not reflect any fees or expenses.

4 The MSCI U.S. REIT Index returns are now assuming daily reinvestment of net dividends. Prior to December 31, 2010 the Index returns assumed daily reinvestment of gross dividends.

 

2   

Shareholder Expense Example (unaudited)

 

As a shareholder of the Series, you may incur two types of costs: (1) transaction costs and (2) ongoing costs, including management fees and other Series expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Series and to compare these costs with the ongoing costs of investing in other mutual funds.

The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (July 1, 2010 to December 31, 2010).

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Series’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Series’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid during the period. You may use this information to compare the ongoing costs of investing in the Series and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.

 
    

Beginning

Account Value

7/1/10

   

Ending

Account Value

12/31/10

   

Expenses Paid

During Period*

7/1/10-12/31/10

Actual

    $1,000.00    $1,173.20    $6.57

Hypothetical (5% return before expenses)

    $1,000.00    $1,019.16    $6.11

*Expenses are equal to the Series’ annualized expense ratio (for the six-month period) of 1.20%, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Expenses are based on the most recent fiscal half year; therefore, the expense ratio stated above may differ from the expense ratio stated in the financial highlights, which is based on one-year data. The Series’ total return would have been lower had certain expenses not been waived during the period.

 

   3

Portfolio Composition as of December 31, 2010 (unaudited)

 

LOGO

 

TopTen Stock Holdings2   

BioMed Realty Trust, Inc.

      4.9 %      

UDR, Inc.

      3.3 % 

Digital Realty Trust, Inc.

      4.5 %      

AvalonBay Communities, Inc.

      3.1 % 

Apartment Investment & Management Co. - Class A

      3.8 %      

Pebblebrook Hotel Trust

      3.1 % 

Host Hotels & Resorts, Inc.

      3.6 %      

Simon Property Group, Inc.

      3.1 % 

Corporate Office Properties Trust

      3.6 %      

Boston Properties, Inc.

      3.1 % 
   

2As a percentage of total investments.

                               

 

4   

Investment Portfolio - December 31, 2010

 

     Shares     

Value

(Note 2)

  

COMMON STOCKS - 98.6%

      

Consumer Discretionary - 4.8%

      

Hotels, Restaurants & Leisure - 3.2%

      

Accor S.A. (France)1

      23,000       $ 1,025,053   

Hyatt Hotels Corp. - Class A*

      19,840         907,878   

Intercontinental Hotels Group plc (United Kingdom)1

      45,900         896,605   
           
        2,829,536   
           

Household Durables - 1.6%

      

DR Horton, Inc.

      36,500         435,445   

Lennar Corp. - Class A

      30,000         562,500   

Toll Brothers, Inc.*

      22,800         433,200   
           
        1,431,145   
           

Total Consumer Discretionary

         4,260,681   
           

Financials - 91.9%

      

Real Estate Management & Development - 2.0%

      

CB Richard Ellis Group, Inc. - Class A*

      46,600         954,368   

Renhe Commercial Holdings Co. Ltd. (China)1

      1,900,000         332,207   

Thomas Properties Group, Inc.*

      122,000         514,840   
           
                1,801,415   
           

REITS - Apartments - 24.0%

      

American Campus Communities, Inc.

      71,210         2,261,630   

Apartment Investment & Management Co. - Class A

      131,000         3,385,040   

Associated Estates Realty Corp.

      57,000         871,530   

AvalonBay Communities, Inc.

      25,070         2,821,629   

Camden Property Trust

      49,710         2,683,346   

Equity Residential

      52,000         2,701,400   

Home Properties, Inc.

      43,540         2,416,035   

Mid-America Apartment Communities, Inc.

      20,430         1,297,101   

UDR, Inc.

      127,550         2,999,976   
           
        21,437,687   
           

REITS - Diversified - 11.2%

      

British Land Co. plc (United Kingdom)1

      108,000         886,514   

Digital Realty Trust, Inc.

      79,200         4,081,968   

DuPont Fabros Technology, Inc.

      113,500         2,414,145   

Land Securities Group plc (United Kingdom)1

      77,000         812,235   

Lexington Realty Trust

      120,000         954,000   

Morguard Real Estate Investment Trust (Canada)

      58,690         868,279   
           
        10,017,141   
           

REITS - Health Care - 12.4%

      

Cogdell Spencer, Inc.

      422,210         2,448,818   

HCP, Inc.

      70,790         2,604,364   

Health Care REIT, Inc.

      49,520         2,359,133   

 

The accompanying notes are an integral part of the financial statements.    5

Investment Portfolio - December 31, 2010

 

     Shares     

Value

(Note 2)

  

COMMON STOCKS (continued)

      

Financials (continued)

      

REITS - Health Care (continued)

      

Healthcare Realty Trust, Inc.

      79,580       $ 1,684,708   

National Health Investors, Inc.

      16,633         748,818   

Omega Healthcare Investors, Inc.

      52,230         1,172,041   
           
        11,017,882   
           

REITS - Hotels - 8.9%

      

DiamondRock Hospitality Co.*

      79,410         952,920   

Host Hotels & Resorts, Inc.

      182,030         3,252,876   

LaSalle Hotel Properties

      33,890         894,696   

Pebblebrook Hotel Trust

      138,000         2,804,160   
           
        7,904,652   
           

REITS - Manufactured Homes - 2.4%

      

Equity Lifestyle Properties, Inc.

      39,030         2,182,948   
           

REITS - Office Property - 15.9%

      

Alexandria Real Estate Equities, Inc.

      36,920         2,704,759   

BioMed Realty Trust, Inc.

      235,710         4,395,991   

Boston Properties, Inc.

      32,120         2,765,532   

Corporate Office Properties Trust

      91,740         3,206,313   

Mack-Cali Realty Corp.

      33,400         1,104,204   
           
              14,176,799   
           

REITS - Regional Malls - 4.1%

      

General Growth Properties, Inc.

      54,370         841,648   

Simon Property Group, Inc.

      28,000         2,785,720   
           
        3,627,368   
           

REITS - Shopping Centers - 2.9%

      

Equity One, Inc.

      43,000         781,740   

Tanger Factory Outlet Centers

      35,860         1,835,673   
           
        2,617,413   
           

REITS - Single Tenant - 3.9%

      

National Retail Properties, Inc.

      65,070         1,724,355   

Realty Income Corp.

      50,630         1,731,546   
           
        3,455,901   
           

REITS - Storage - 4.2%

      

Public Storage

      24,700         2,505,074   

Sovran Self Storage, Inc.

      33,000         1,214,730   
           
        3,719,804   
           

Total Financials

         81,959,010   
           

 

6    The accompanying notes are an integral part of the financial statements.

Investment Portfolio - December 31, 2010

 

     Shares     

Value

(Note 2)

  

COMMON STOCKS (continued)

      

Industrials - 0.8%

      

Transportation Infrastructure - 0.8%

      

Groupe Eurotunnel S.A. (France)1

      83,000       $ 730,420   
           

Utilities - 1.1%

      

Electric Utilities - 1.1%

      

Brookfield Infrastructure Partners LP - ADR (Bermuda)

      45,600         959,880   

AET&D Holdings No. 1 Ltd. (Australia)2

      125,000         —   
           

Total Utilities

         959,880   
           

TOTAL COMMON STOCKS

      

(Identified Cost $72,141,203)

         87,909,991   
           

SHORT-TERM INVESTMENTS - 2.2%

      

Dreyfus Cash Management, Inc. - Institutional Shares3, 0.14%

      

(Identified Cost $1,926,259)

      1,926,259         1,926,259   
           

TOTAL INVESTMENTS - 100.8%

      

(Identified Cost $74,067,462)

         89,836,250   

LIABILITIES, LESS OTHER ASSETS - (0.8%)

         (700,275 ) 
           

NET ASSETS - 100%

      

 

$

 

    89,135,975

 

  

           

No. - Number

REITS - Real Estate Investment Trusts

*Non-income producing security

1International Fair Value factor from pricing service was applied.

2Security has been valued at fair value (see Note 2 to the financial statements).

3Rate shown is the current yield as of December 31, 2010.

 

The accompanying notes are an integral part of the financial statements.    7

Statement of Assets and Liabilities

December 31, 2010

 

 

ASSETS:

   

Investments, at value (identified cost $74,067,462) (Note 2)

    $ 89,836,250   

Cash

      3,124   

Dividends receivable

      344,952   

Receivable for fund shares sold

      77,125   
        

TOTAL ASSETS

      90,261,451   
        

LIABILITIES:

   

Accrued management fees (Note 3)

      69,312   

Accrued fund accounting and administration fees (Note 3)

      4,387   

Accrued transfer agent fees (Note 3)

      1,941   

Accrued Chief Compliance Officer service fees (Note 3)

      241   

Payable for securities purchased

      854,558   

Payable for fund shares repurchased

      135,554   

Other payables and accrued expenses

      59,483   
        

TOTAL LIABILITIES

      1,125,476   
        

TOTAL NET ASSETS

    $ 89,135,975   
        

NET ASSETS CONSIST OF:

   

Capital stock

    $ 70,883   

Additional paid-in-capital

      71,933,274   

Distributions in excess of net investment income

      (6,678 ) 

Accumulated net realized gain on investments, foreign currency and translation of other assets and liabilities

      1,369,605   

Net unrealized appreciation on investments, foreign currency and translation of other assets and liabilities

      15,768,891   
        

TOTAL NET ASSETS

    $ 89,135,975   
        

NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE -
Class A ($89,135,975/7,088,339 shares)

    $ 12.58   
        

 

 

8    The accompanying notes are an integral part of the financial statements.

Statement of Operations

For the Year Ended December 31, 2010

 

 

INVESTMENT INCOME:

   

Dividends (net of foreign taxes withheld, $2,204)

    $ 1,770,300   
        

EXPENSES:

   

Management fees (Note 3)

      799,201   

Fund accounting and administration fees (Note 3)

      37,389   

Transfer agent fees (Note 3)

      14,682   

Chief Compliance Officer service fees (Note 3)

      2,741   

Directors’ fees (Note 3)

      1,305   

Custodian fees

      5,932   

Miscellaneous

      108,584   
        

Total Expenses

      969,834   

Less reduction of expenses (Note 3)

      (12,819 ) 
        

Net Expenses

      957,015   
        

NET INVESTMENT INCOME

      813,285   
        

REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCY:

   

Net realized gain on-Investments

      4,453,842   

Foreign currency and translation of other assets and liabilities

      1,672   
        
     4,455,514   
        

Net change in unrealized appreciation on-Investments

      12,074,199   

Foreign currency and translation of other assets and liabilities

      103   
        
     12,074,302   
        

NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCY

      16,529,816   
        

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

    $ 17,343,101   
        

 

 

The accompanying notes are an integral part of the financial statements.    9

Statements of Changes in Net Assets

 

 

 

    

For the

Year Ended
12/31/10

    

For the Period

11/10/091 to

12/31/09

  

INCREASE (DECREASE) IN NET ASSETS:

     

OPERATIONS:

     

Net investment income

    $ 813,285      $ 118,419   

Net realized gain on investments and foreign currency

      4,455,514        112,303   

Net change in unrealized appreciation on investments and foreign currency

      12,074,302        3,694,589   
                

Net increase from operations

      17,343,101        3,925,311   
                

DISTRIBUTIONS TO SHAREHOLDERS (Note 9):

     

From net investment income

      (842,827 )      (103,993 ) 

From net realized gain on investments

      (3,149,000 )      (40,774 ) 
                

Total distributions to shareholders

      (3,991,827 )      (144,767 ) 
                

CAPITAL STOCK ISSUED AND REPURCHASED:

     

Net increase from capital share transactions (Note 5)

      6,606,115        65,398,042   
                

Net increase in net assets

      19,957,389        69,178,586   

NET ASSETS:

     

Beginning of period

      69,178,586        —   
                

End of period (including distributions in excess of net investment income of $6,678 and undistributed netinvestment income of $14,426, respectively)

    $ 89,135,975      $ 69,178,586   
                

1 Commencement of operations.

     

 

10    The accompanying notes are an integral part of the financial statements.

Financial Highlights

 

 

    

For the

Year Ended

12/31/10

    

For the Period

11/10/091 to

12/31/09

  

Per share data (for a share outstanding throughout each period):

     

Net asset value - Beginning of period

      $10.61           $10.00      
                

Income from investment operations:

     

Net investment income2

      0.12        0.02   

Net realized and unrealized gain on investments

      2.44        0.62   
                

Total from investment operations

      2.56        0.64   
                

Less distributions to shareholders:

     

From net investment income

      (0.12)        (0.02)   

From net realized gain on investments

      (0.47)        (0.01)   
                

Total distributions to shareholders

      (0.59)        (0.03)   
                

Net asset value - End of period

      $12.58          $10.61     
                

Net assets - End of period
(000’s omitted)

      $89,136          $69,179     
                

Total return3

      24.40%        6.36%   

Ratios (to average net assets)/Supplemental Data:

     

Expenses*

      1.20%        1.20%4   

Net investment income

      1.02%        1.43%4   

Portfolio turnover

         34%            3%   

*The investment advisor did not impose all or a portion of its management fees, and other fees in some periods and in some periods paid a portion of the series’ expenses. If these expenses had been incurred by the Series, the expense ratio (to average net assets) would have been increased by the following amounts:

 

    

     0.01%        0.38%4   

1Commencement of operations.

2Calculated based on average shares outstanding during the periods.

3Represents aggregate total return for the periods indicated, and assumes reinvestment of all distributions. Total return would have been lower had certain expenses not been waived or reimbursed during the periods. Periods less than one year are not annualized.

4Annualized.

 

The accompanying notes are an integral part of the financial statements.    11

Notes to Financial Statements

 

 

1.

ORGANIZATION

Real Estate Series (the “Series”) is a no-load non-diversified series of Manning & Napier Fund, Inc. (the “Fund”). The Fund is organized in Maryland and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company.

The Series’ investment objective is to provide long-term growth by investing principally in the common stocks of companies in real estate-based industries.

The Fund’s Advisor is Manning & Napier Advisors, Inc. (the “Advisor”). Shares of the Series are offered to investors, clients and employees of the Advisor and its affiliates. The total authorized capital stock of the Fund consists of 10.0 billion shares of common stock each having a par value of $0.01. As of December 31, 2010, 6.2 billion shares have been designated in total among 29 series, of which 100 million have been designated as Real Estate Series Class A common stock.

 

2.

SIGNIFICANT ACCOUNTING POLICIES

Security Valuation

Portfolio securities, including domestic equities, foreign equities, warrants and options, listed on an exchange other than the NASDAQ National Market System are valued at the latest 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 provided by the Fund’s pricing service. Securities listed on the NASDAQ National Market System are valued in accordance with the NASDAQ Official Closing Price.

Short-term investments that mature in sixty days or less are valued at amortized cost, which approximates market value. Investments in open-end investment companies are valued at their net asset value per share on valuation date.

Volume and level of activity in established markets for an asset or liability are evaluated to determine whether recent transactions and quoted prices are determinative of fair value. Where there have been significant decreases in volume and level of activity, further analysis and adjustment may be necessary to estimate fair value. The Series measures fair value in these instances by the use of inputs and valuation techniques which may be based upon current market prices of securities that are comparable in coupon, rating, maturity and industry and/or expectation of future cash flows. As a result of trading in relatively thin markets and/or markets that experience significant volatility, the prices used by the Series to value these securities may differ from the value that would be realized if these securities were sold, and the differences could be material.

Securities for which representative valuations or prices are not available from the Fund’s pricing service may be valued at fair value. Due to the inherent uncertainty of valuations of such securities, the fair value may differ significantly from the values that would have been used had a ready market for such securities existed. If trading or events occurring after the close of the principal market in which securities are traded are expected to materially affect the value of those securities, then they may be valued at their fair value, taking this trading or these events into account. Fair value is determined in good faith by the Advisor under procedures approved by and under the general supervision and responsibility of the Fund’s Board of Directors (the “Board”). In accordance with the procedures approved by the Board, the Series applies fair value pricing on a daily basis except for North American, Central American, South American and Caribbean equity securities. Fair valuing of securities is determined with the assistance of a pricing service using calculations or factors based on indices of domestic securities and other appropriate indicators, such as prices of relevant American Depository Receipts and futures contracts, to adjust local market prices for subsequent movements through the time the Series calculates its net asset value. The value of securities used for the net asset value calculation under the procedures may differ from published prices for the same securities. It is the Fund’s

 

12   

Notes to Financial Statements

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Security Valuation (continued)

policy to classify each foreign equity security, except for those in the regions noted above, as Level 2 securities due to the fact the pricing service evaluated what factor was applied to the calculated end of day market price.

Various inputs are used in determining the value of the Series’ assets or liabilities carried at market value. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical assets and liabilities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). Level 3 includes significant unobservable inputs (including the Series’ own assumptions in determining the fair value of investments). The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the valuation levels used for major security types as of December 31, 2010 in valuing the Series’ assets or liabilities carried at market value:

 

Description    Total      Level  1      Level  2      Level  3  

Assets:

            

Equity securities*

    $ 87,909,991       $ 83,226,957       $ 4,683,034       $ — *** 

Preferred securities

      —         —         —         —   

Debt securities:

            

Mutual funds

      1,926,259         1,926,259         —         —   

Other financial instruments**:

      —         —         —         —   
                                   

Total assets:

      89,836,250         85,153,216         4,683,034         —   
                                   

Liabilities:

            

Other financial instruments**:

      —         —         —         —   

Total liabilities:

      —         —         —         —   
                                   

Total

    $     89,836,250       $     85,153,216       $     4,683,034       $                 —   
                                   

*Includes common stock, warrants and rights. Please see the Investment Portfolio for industry classification and for securities where an International Fair Value factor from the pricing service was applied to value the security. Such securities are included in Level 2 in the table above.

**Other financial instruments are derivative instruments not reflected in the Investment Portfolio, such as futures, forwards and swap contracts, which are valued at the unrealized appreciation/depreciation on the instrument. As of December 31, 2010, the Series did not hold any derivative instruments.

***AET&D Holdings No.1 Ltd. is a Level 3 security as of December 31, 2010. However, there is no cost or market value for this security reported in the financial statements.

The Fund’s policy is to recognize transfers in and transfers out of the valuation levels as of the beginning of the reporting period. There were no transfers between Level 1 and Level 2 during the year ended December 31, 2010.

Additional disclosure surrounding the activity in Level 3 fair value measurement will be effective for fiscal years beginning after December 15, 2010. Management has concluded that this will not have a material impact on the Series’ financial statements.

Security Transactions, Investment Income and Expenses

Security transactions are accounted for on trade date. Dividend income is recorded on the ex-dividend date, except that if the ex-dividend date has passed, certain dividends from foreign securities are recorded as soon as the Fund is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair market value of the securities

 

   13

Notes to Financial Statements

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Security Transactions, Investment Income and Expenses (continued)

received. Interest income, including amortization of premium and accretion of discounts using the effective interest method, is earned from settlement date and accrued daily.

Expenses are recorded on an accrual basis. Most expenses of the Fund can be attributed to a specific series. Expenses which cannot be directly attributed are apportioned among the series in the Fund in such a manner as deemed equitable by the Fund’s Board, taking into consideration, among other things, the nature and type of expense.

The Fund records distributions received in excess of income from underlying investments as a reduction of cost of investments and/or realized gain. Such amounts are based on estimates if actual amounts are not available and actual amounts of income, realized gain and return of capital may differ from the estimated amounts. The Fund adjusts the estimated amounts of components of distributions (and consequently its net investment income) as necessary once the issuers provide information about the actual composition of the distributions.

The Series uses the identified cost method for determining realized gain or loss on investments for both financial statement and federal income tax reporting purposes.

Foreign Currency Translation

The books and records of the Series are maintained in U.S. dollars. Foreign currencies, investments and other assets and liabilities are translated into U.S. dollars at the current exchange rates. Purchases and sales of investment securities and income and expenses are translated on the respective dates of such transactions. The Series does not isolate realized and unrealized gains and losses attributable to changes in the exchange rates from gains and losses that arise from changes in the market value of investments. Such fluctuations are included with net realized and unrealized gain or loss on investments. Net realized foreign currency gains and losses represent foreign currency gains and losses between trade date and settlement date on securities transactions, gains and losses on disposition of foreign currencies and the difference between the amount of income and foreign withholding taxes recorded on the books of the Series and the amounts actually received or paid.

Federal Taxes

The Series’ policy is to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. The Series is not subject to federal income tax or excise tax to the extent that the Series 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.

Management evaluates its tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of tax benefits of an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. At December 31, 2010, the Series has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken in future tax returns.

The Series files income tax returns in the U.S. federal jurisdiction, various states and foreign jurisdictions, as required. No income tax returns are currently under investigation. The statute of limitations on the Series’ tax returns remains open for the period ended December 31, 2009 and the year ended December 31, 2010. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.

 

14   

Notes to Financial Statements

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Federal Taxes (continued)

Additionally, based on the Fund’s understanding of the tax rules and rates related to income, gains and transactions for foreign jurisdictions in which it invests, the Series will provide for foreign taxes, and where appropriate, deferred foreign tax.

Distributions of Income and Gains

Distributions to shareholders of net investment income and net realized gains are made annually. An additional distribution may be necessary to avoid taxation of the Series. Distributions are recorded on the ex-dividend date.

Indemnifications

The Fund’s organizational documents provide former and current directors and officers with a limited indemnification against liabilities arising in connection with the performance of their duties to the Fund. In the normal course of business, the Fund may also enter into contracts that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would be dependent on future claims that may be made against the Fund. The risk of material loss from such claims is considered remote.

Other

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 income and expenses during the reporting period. Actual results could differ from those estimates.

 

3.

TRANSACTIONS WITH AFFILIATES

The Fund has an Investment Advisory Agreement (the “Agreement”) with the Advisor, for which the Series pays a fee, computed daily and payable monthly, at an annual rate of 1.00% of the Series’ average daily net assets.

Under the Agreement, personnel of the Advisor provide the Series with advice and assistance in the choice of investments and the execution of securities transactions, and otherwise maintain the Series’ organization. The Advisor also provides the Fund with necessary office space and fund administration and support services. The salaries of all officers of the Fund (except a percentage of the Fund’s Chief Compliance Officer’s salary, which is paid by 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. Each “non-affiliated” Director receives an annual stipend, which is allocated among all the active series of the Fund. In addition, these Directors also receive a fee per Board meeting attended plus a fee for each committee meeting attended.

The Advisor has contractually agreed, until at least April 30, 2012, to waive its fee and, if necessary, pay other operating expenses of the Series in order to maintain total direct annual fund operating expenses for the Series at no more than 1.20% of average daily net assets each year. Accordingly, the Advisor waived fees of $12,061 for the year ended December 31, 2010, which is included as a reduction of expenses on the Statement of Operations. For the year ended December 31, 2010, the Advisor voluntarily waived additional fees of $758, which is also included as a reduction of expenses on the Statement of Operations. The Advisor is not eligible to recoup any expense that has been waived or reimbursed in prior years.

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 Series.

 

   15

Notes to Financial Statements

 

3.

TRANSACTIONS WITH AFFILIATES (continued)

The Advisor has agreements with PNC Global Investment Servicing (U.S.) Inc. (“PNCGIS”) under which PNCGIS serves as sub-accountant services agent and sub-transfer agent. The Fund pays the Advisor an annual fee related to fund accounting and administration of 0.0175% on the first $3 billion of average daily net assets (excluding Target Series); 0.015% on the next $3 billion of average daily net assets (excluding Target Series); and 0.01% of the average daily net assets in excess of $6 billion (excluding Target Series); plus a base fee of $25,500 per Series. Transfer Agent fees are charged to the Fund on a per account basis. Additionally, certain transaction- and cusip-based fees and out-of-pocket expenses, including charges for reporting relating to the Fund’s compliance program, are charged.

Effective July 1, 2010, PNCGIS was sold to The Bank of New York Mellon Corporation, the Series’ custodian. At the close of the sale, PNCGIS changed its name to BNY Mellon Investment Servicing (U.S.) Inc. (“BNY”).

Expenses not directly attributable to a Series are allocated based on each Series’ relative net assets or number of accounts, depending on the expense.

 

4.

PURCHASES AND SALES OF SECURITIES

For the year ended December 31, 2010, purchases and sales of securities, other than U.S. Government securities and short-term securities, were $30,723,037 and $26,832,796, respectively. There were no purchases or sales of U.S. Government securities.

 

5.

CAPITAL STOCK TRANSACTIONS

Transactions in shares of Real Estate Series were:

 

            For the period 11/10/09  
    

For the Year

Ended 12/31/10

     

(commencement of

operations) to 12/31/09

  
          Shares              Amount               Shares              Amount      

 Sold

      938,366      $ 11,015,288         6,617,571      $ 66,420,562   

 Reinvested

      326,194        3,931,823         13,571        139,922   

 Repurchased

      (694,124 )      (8,340,996 )       (113,239 )      (1,162,442 ) 
                                 

 Total

      570,436      $ 6,606,115         6,517,903      $ 65,398,042   
                                 

Substantially all of the Series’ shares represent investments by fiduciary accounts over which the Advisor has sole investment discretion.

 

6.

FINANCIAL INSTRUMENTS

The Series may trade in instruments including written and purchased options, forward foreign currency exchange contracts and futures contracts and other derivatives in the normal course of investing activities to assist in managing exposure to various market risks. Investments in these instruments may subject the Series to various elements of risk, which may involve, to a varying degree, elements of risk in excess of the amounts recognized for financial statement purposes. These risks include: the risk that changes in the value of a derivative may not correlate perfectly with the underlying asset, rate or index, counterparty credit risk related to over the counter derivatives counterparties’ failure to perform under contract terms, liquidity risk related to the lack of a liquid market for these contracts allowing the fund to close out its position(s) and documentation risk relating to disagreement over contract terms. No such investments were held by the Series during the year ended December 31, 2010.

 

16   

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 domestic companies and the U.S. Government. These risks include revaluation of currencies and future adverse political and economic developments. Moreover, securities of foreign companies and foreign governments and their markets may be less liquid and their prices more volatile than those of comparable domestic companies and the U.S. Government.

 

8.

REAL ESTATE SECURITIES

The Series may focus its investments in certain real estate related industries; hence, the Series may subject itself to a greater degree of risk than a series that is more diversified.

 

9.

FEDERAL INCOME TAX INFORMATION

The amount and characterization of certain income and capital gains to be distributed are determined in accordance with federal income tax regulations, which may differ from accounting principles generally accepted in the United States of America. These differences are primarily due to differing book and tax treatments in the timing of the recognition of net investment income or gains and losses, including foreign currency gains and losses, losses deferred due to wash sales, post-October losses and investments in passive foreign investment companies (PFICs). The Series may periodically make reclassifications among its capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations without impacting the Series’ net asset value. Any such reclassifications are not reflected in the financial highlights.

The tax character of distributions paid were as follows:

 

    

For the Year

Ended

12/31/10

     

For the Period

Ended

12/31/09*

  

Ordinary income

    $ 3,765,261       $ 103,993   

Long-term capital gains

      226,566         40,774   

* The Fund commenced operations on November 10, 2009.

For the year ended December 31, 2010, the Series elected to defer $125 of currency losses, attributable to post-October losses.

At December 31, 2010, the tax basis of distributable earnings and the net unrealized appreciation based on the identified cost of investments for federal income tax purposes were as follows:

 

Cost for federal income tax purposes

      $74,078,511      

Unrealized appreciation

      $16,380,246      

Unrealized depreciation

      (622,507)      
           

Net unrealized appreciation

      $15,757,739      
           

Undistributed ordinary income

      504,518      

Undistributed long-term gains

      869,583      

 

   17

Report of Independent Registered Public Accounting Firm

To the Board of Directors of Manning & Napier Fund, Inc. and Shareholders of Real Estate Series:

In our opinion, the accompanying statement of assets and liabilities, including the investment portfolio, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the Real Estate Series (a series of Manning & Napier Fund, Inc., hereafter referred to as the “Series”) at December 31, 2010, and the results of its operations for the year then ended and the changes in its net assets and the financial highlights for the year then ended and for the period November 10, 2009 (commencement of operations) through December 31, 2009, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Series’ management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2010 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

LOGO

New York, New York

February 22, 2011

 

18   

Supplemental Tax Information (unaudited)

All designations are based on financial information available as of the date of this annual report and, accordingly are subject to change.

For federal income tax purposes, the Series designates for the current fiscal year $66,924 or, if different, the maximum amount allowable under the tax law as qualified dividend income.

Pursuant to Section 852 of the Internal Revenue Code, as amended, the Series hereby designates $226,566 as capital gains for its taxable year ended December 31, 2010, or if different, the maximum allowable under tax law.

For corporate shareholders, the percentage of investment income (dividend income plus short-term gains, if any) that qualifies for the dividends received deduction for the current fiscal year is 0.86%, or if different, the maximum allowable under tax law.

 

   19

Renewal of Investment Advisory Agreement (unaudited)

At the Manning & Napier Fund, Inc. (the “Fund”) Board of Directors’ (the “Board”) meeting, held on November 17, 2010, the Investment Advisory Agreement (the “Agreement”) between the Fund and Manning & Napier Advisors, Inc. (the “Advisor”) was reviewed by the Board for renewal. In connection with the decision whether to renew the Agreement, a variety of material was prepared for and reviewed by the Board.

Representatives of the Advisor attended the meeting and presented additional oral and written information to the Board to assist the Board in its considerations. The discussion immediately below outlines the materials and information presented to the Board in connection with the Board’s 2010 Annual Review of the Agreement and the conclusions made by the Directors when determining to continue the Agreement.

 

  •  

The Board considered the services provided by the Advisor under the Agreement including, among others: deciding what securities to purchase and sell for each Series; arranging for the purchase and sale of such securities by placing orders with broker-dealers; administering the affairs of the Fund (including the books and records of the Fund not maintained by third party service providers such as the custodian or sub-transfer agent); arranging for the insurance coverage for the Fund; and supervising the preparation of tax returns, SEC filings (including registration statements) and reports to shareholders for the Fund. The Board also considered the nature and quality of such services provided under the Agreement in light of the Advisor’s services provided to the Fund for 24 years. The Board discussed the quality of these services with representatives from the Advisor and concluded that the Advisor was performing its services to the Fund required under the Agreement in a reasonable manner.

 

  •  

The Board considered the investment performance of the various Series of the Fund. The investment performance for each Series was reviewed on a cumulative basis since inception and on a one year basis. In addition, annualized performance for the following time periods was considered: inception, three year, five year, ten year, and current market cycle. A market cycle includes periods of both rising and falling markets. Returns for established benchmark indices for each Series were provided for each time period. The Board noted that the various Series were competitive against their respective benchmarks and/or peer groups over various time periods, but in particular over the full market cycle period relevant for the Series. In addition, the Board considered at the meeting (and considers on a quarterly basis) a peer group performance analysis consisting of Morningstar universes of mutual funds with similar investment objectives. The Board discussed the performance with representatives from the Advisor and concluded that the investment performance of each of the Fund’s Series was reasonable based on the Fund’s actual performance and comparative performance, especially performance over the current market cycle.

 

  •  

The Board considered the costs of the Advisor’s services and the profits of the Advisor as they relate to the Advisor’s services to the Fund under the Agreement. In reviewing the Advisor’s costs and profits, the Board discussed the Advisor’s revenues generated from the Fund (on both an actual and adjusted basis) and its expenses associated with providing the services under the Agreement. In addition, the Board reviewed the Advisor’s expenses associated with Fund activities outside of the Agreement (such as expense reimbursements pursuant to expense caps and payments made by the Advisor to third party platforms on which shares of the Fund are available for purchase). It was noted by representatives of the Advisor that 11 of the 27 active Series of the Fund are currently experiencing expenses above the capped expense ratios. After discussing the above costs and profits, the Board concluded that the Advisor’s profitability relating to its services provided under the Agreement was reasonable.

 

  •  

The Board considered the fees and expenses of the various Series of the Fund. The Advisor presented the advisory fees and total expenses for each Series, including the advisory fee adjusted for any expense waivers or reimbursements (either contractual or voluntary) paid by the Advisor. The advisory fees and expense ratios of each Series were compared to an average (on both a mean and median basis) of similar funds as disclosed on the Morningstar database. Representatives of the Advisor discussed with the Board the levels of its advisory

 

20   

Renewal of Investment Advisory Agreement (unaudited)

 

 

 

fee for each Series of the Fund and as compared to the median and mean advisory fees for similar funds as listed on Morningstar. Expense ratios for every Series, except the Pro-Blend’s Class R and Class C, and Target Class R and Class C, are currently below the median and mean for similar funds as listed on Morningstar. Based on their review of the information provided, the Board concluded that the fees and expenses of each Series of the Fund were reasonable on a comparative basis.

 

  •  

The Board also considered the other benefits the Advisor derives from its relationship with the Fund. Such other benefits include certain research products provided by soft dollars. Given the level of soft dollar transactions involving the Fund, the Board concluded that these additional benefits to the Advisor were reasonable.

 

  •  

In addition to the factors described above, the Board considered the Advisor’s personnel, investment strategies, policies and procedures relating to compliance with personal securities transactions, and reputation, expertise and resources in domestic and foreign financial markets. The Board concluded that these factors support the conclusion that the Advisor performs its services in a reasonable manner.

 

  •  

The Board did not consider economies of scale at this time because of the multiple uses of the Fund (for the Advisor’s discretionary investment account clients in addition to direct investors), the current profitability of the Advisor’s services to the Fund under the Agreement, and the overall size of the Fund complex.

Based on the Board’s deliberations and their evaluation of the information described above, the Board, including a majority of Directors that are not “interested persons” as defined in the Investment Company Act of 1940, concluded that the compensation under the Agreement was fair and reasonable in light of the services and expenses and such other matters as the Directors considered to be relevant in the exercise of their reasonable judgment. Accordingly, the Board approved the renewal of the Agreement. In the course of their deliberations, the Directors did not identify any particular information that was all important or controlling.

 

   21

Directors’ and Officers’ Information (unaudited)

 

The Statement of Additional Information provides additional information about the Fund’s directors and officers and can be obtained without charge by calling 1-800-466-3863, at www.manningnapieradvisors.com, or on the EDGAR Database on the SEC Internet web site (http:// www.sec.gov). The following chart shows certain information about the Fund’s officers and directors, including their principal occupations during the last five years. Unless specific dates are provided, the individuals have held the listed positions for longer than five years.

 

INTERESTED DIRECTOR/OFFICER   
Name:    B. Reuben Auspitz*
Address:    290 Woodcliff Drive
   Fairport, NY 14450
Age:    63
Current Position(s) Held with Fund:    Principal Executive Officer, President, Chairman & Director
Term of Office1 & Length of Time Served:    Indefinite - Director since 1984; Vice President 1984 - 2003; President since 2004; Principal Executive Officer since 2002
Principal Occupation(s) During Past 5 Years:    Executive Vice President; Executive Group Member**; Chief Compliance Officer since 2004; Vice Chairman since June 2010; Co-Executive Director from 2003-2010 - Manning & Napier Advisors, Inc. President; Director - Manning & Napier Investor Services, Inc. Holds or has held one or more of the following titles for various subsidiaries and affiliates: President, Vice President, Director, Chairman, Treasurer, Chief Compliance Officer or Member.
Number of Portfolios Overseen within Fund Complex:    29
Other Directorships Held Outside Fund Complex:    N/A
INDEPENDENT DIRECTORS   
Name:    Paul A. Brooke
Address:    290 Woodcliff Drive
   Fairport, NY 14450
Age:    65
Current Position(s) Held with Fund:    Director, Audit Committee Member, Governance & Nominating Committee Member
Term of Office & Length of Time Served:    Indefinite - Since 2007
Principal Occupation(s) During Past 5 Years:    Chairman & CEO, Alsius Corp. (investments); Managing Member, PMSV Holdings LLC (investments)
Number of Portfolios Overseen within Fund Complex:    29
Other Directorships Held Outside Fund Complex:    Incyte Corp. (2000-present)
   ViroPharma, Inc. (2000-present)
   HLTH Corp. (2000-present)
   Cheyne Capital International (2000-present)
   MPM Bio-equities (2000-present)
   GMP Companies (2000-present)
     HoustonPharma (2000-present)
Name:    Richard M. Hurwitz
Address:    290 Woodcliff Drive
   Fairport, NY 14450
Age:    47
Current Position(s) Held with Fund:    Director, Audit Committee Member, Governance & Nominating Committee Member
Term of Office & Length of Time Served:    Indefinite - Since 2009
Principal Occupation(s) During Past 5 Years:    Chief Executive Officer, Pictometry International Corp. since August 2010 (provider of georeferenced, aerial image libraries and related software) Managing Partner (2006-July 2010) - Aegis Investment Partners, LLC (investments); Founder and Managing Partner (2004-2005) - Village Markets, LLC (groceries)
Number of Portfolios Overseen within Fund Complex:    29
Other Directorships Held Outside Fund Complex:    Pictometry International Corp. (2000-2010)
   Pioneering Technologies (2006-2009)
    

Vensearch Capital Corp. (2003-2007)

 

 

22   

Directors’ and Officers’ Information (unaudited)

 

 

INDEPENDENT DIRECTORS (continued)   
Name:    Stephen B. Ashley
Address:    290 Woodcliff Drive
   Fairport, NY 14450
Age:    70
Current Position(s) Held with Fund:    Director, Audit Committee Member, Governance & Nominating Committee Member
Term of Office & Length of Time Served:    Indefinite - Since 1996
Principal Occupation(s) During Past 5 Years:    Chairman, Director, President & Chief Executive Officer, The Ashley Group (property management and investment). Chairman (non-executive) 2004-2008; Director 1995-2008 - Fannie Mae (mortgage)
Number of Portfolios Overseen within Fund Complex:    29
Other Directorships Held Outside Fund Complex:    The Ashley Group (1995-2008)
     Genesee Corporation (1987-2007)
Name:    Peter L. Faber
Address:    290 Woodcliff Drive
   Fairport, NY 14450
Age:    72
Current Position(s) Held with Fund:    Director, Governance & Nominating Committee Member
Term of Office & Length of Time Served:    Indefinite - Since 1987
Principal Occupation(s) During Past 5 Years:    Senior Counsel since 2006, Partner (1995 - 2006) - McDermott, Will & Emery LLP (law firm)
Number of Portfolios Overseen within Fund Complex:    29
Other Directorships Held Outside Fund Complex:    Partnership for New York City, Inc. (non-profit)
   New York Collegium (non-profit)
     Boston Early Music Festival (non-profit)
Name:    Harris H. Rusitzky
Address:    290 Woodcliff Drive
   Fairport, NY 14450
Age:    76
Current Position(s) Held with Fund:    Director, Audit Committee Member, Governance & Nominating Committee Member
Term of Office & Length of Time Served:    Indefinite - Since 1985
Principal Occupation(s) During Past 5 Years:    President, The Greening Group (business consultants) since 1994; Partner, The Restaurant Group (restaurants) since 2006
Number of Portfolios Overseen within Fund Complex:    29
Other Directorships Held Outside Fund Complex:    N/A
OFFICERS   
Name:    Jeffrey S. Coons, Ph.D., CFA
Address:    290 Woodcliff Drive
   Fairport, NY 14450
Age:    47
Current Position(s) Held with Fund:    Vice President
Term of Office1 & Length of Time Served:    Since 2004
Principal Occupation(s) During Past 5 Years:    President since 2010, Co-Director of Research since 2002, Executive Group Member** since 2003, - Manning & Napier Advisors, Inc. Holds one or more of the following titles for various subsidiaries and affiliates: President, Director, Treasurer or Senior Trust Officer.
Number of Portfolios Overseen within Fund Complex:    29

Other Directorships Held Outside Fund Complex:

 

   

N/A

 

 

   23

Directors’ and Officers’ Information (unaudited)

 

 

OFFICERS (continued)  
Name:  

Beth Galusha

Address:  

290 Woodcliff Drive

 

Fairport, NY 14450

Age:  

49

Current Position(s) Held with Fund:  

Assistant Chief Financial Officer

Term of Office1 & Length of Time Served:  

Assistant Chief Financial Officer since 2010

Principal Occupation(s) During Past 5 Years:   Chief Financial Officer and Treasurer, Manning & Napier Advisors, Inc.
  Holds one or more of the following titles for various affiliates: Chief
 

Financial Officer, Director, or Treasurer

Number of Portfolios Overseen within Fund Complex:  

29

Other Directorships Held Outside Fund Complex:  

N/A

 

Name:

  

Christine Glavin

Address:  

290 Woodcliff Drive

 

Fairport, NY 14450

Age:  

44

Current Position(s) Held with Fund:  

Principal Financial Officer, Chief Financial Officer

Term of Office1 & Length of Time Served:   Principal Financial Officer since 2002; Chief Financial Officer since 2001
Principal Occupation(s) During Past 5 Years:   Fund Reporting Manager, Manning & Napier Advisors, Inc. since 1997
Number of Portfolios Overseen within Fund Complex:  

29

Other Directorships Held Outside Fund Complex:  

N/A

Name:  

Jodi L. Hedberg

Address:  

290 Woodcliff Drive

 

Fairport, NY 14450

Age:  

43

Current Position(s) Held with Fund:   Corporate Secretary, Chief Compliance Officer, Anti-Money Laundering
  Compliance Officer
Term of Office1 & Length of Time Served:   Corporate Secretary since 1997; Chief Compliance Officer since 2004
Principal Occupation(s) During Past 5 Years:   Director of Compliance, Manning & Napier Advisors, Inc. and affiliates
  since 1990 (title change in 2005 from Compliance Manager to Director of
  Compliance); Corporate Secretary, Manning & Napier Investor Services,
 

Inc. since 2006

Number of Portfolios Overseen within Fund Complex:  

29

Other Directorships Held Outside Fund Complex:  

N/A

Name:  

Richard Yates

Address:  

290 Woodcliff Drive

 

Fairport, NY 14450

Age:  

45

Current Position(s) Held with Fund:  

Chief Legal Officer

Term of Office1 & Length of Time Served:  

Chief Legal Officer since 2004

Principal Occupation(s) During Past 5 Years:   Counsel - Manning & Napier Advisors, Inc. & affiliates since 2000; Holds
  one or more of the following titles for various affiliates; Director or
 

Corporate Secretary

Number of Portfolios Overseen within Fund Complex:  

29

Other Directorships Held Outside Fund Complex:  

N/A

*Interested Director, within the meaning of the Investment Company Act of 1940 by reason of his position with the Fund’s investment advisor and distributor. Mr. Auspitz serves as the Executive Vice President and Director, Manning & Napier Advisors, Inc. and President and Director, Manning & Napier Investor Services, Inc., the Fund’s distributor.

**Prior to June 2010, the Executive Group, consisting of senior executive employee-owners, performed the duties of the Office of the Chief Executive of the Advisor. Effective June 2010, the Executive Group serves as an advisory board to the Chief Executive Officer.

1The term of office for President, Vice President, Chief Financial Officer, Assistant Chief Financial Officer, Chief Legal Officer and Corporate Secretary is one year and until their respective successors are chosen and qualified. All other officers’ terms are indefinite.

 

24   

 

This Page Is Intentionally Left Blank

 

 

 

 

 

 

   25

Literature Requests (unaudited)

Proxy Voting Policies and Procedures

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request:

 

By phone

   

1-800-466-3863

   

On the Securities and Exchange

      

Commission’s (SEC) web site

   

http://www.sec.gov

   

Proxy Voting Record

Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available, without charge, upon request:

 

By phone

   

1-800-466-3863

     

On the SEC’s web site

   

http://www.sec.gov

   

Quarterly Portfolio Holdings

The Series’ complete schedule of portfolio holdings for the 1st and 3rd quarters of each fiscal year are provided on Form N-Q, and are available, without charge, upon request:

 

By phone

   

1-800-466-3863

     

On the SEC’s web site

   

http://www.sec.gov

   

The Series’ Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.

Prospectus and Statement of Additional Information (SAI)

The prospectus and SAI provide additional information about each Series, including charges, expenses and risks. These documents are available, without charge, upon request:

 

By phone

   

1-800-466-3863

     

On the SEC’s web site

   

http://www.sec.gov

   

On the Advisor’s web site

   

http://www.manning-napier.com

   

Additional information available at www.manning-napier.com

1. Fund Holdings - Month-End

2. Fund Holdings - Quarter-End

3. Shareholder Report - Annual

4. Shareholder Report - Semi-Annual

 

                                                                  MNRE-12/10-AR

LOGO

Management Discussion and Analysis (unaudited)

 

Dear Shareholders:

Over the course of 2010, the international markets experienced several ups and downs driven by well-defined swings in investor sentiment. Optimism fueled strong market returns early in the year, as upbeat economic releases led investors to believe in the potential for a robust global recovery. However, sentiment shifted drastically in May and June as more negative economic news and issues related to Europe’s government debt problems led to notable stock market losses. In another swing, the markets rebounded in the fall amid better economic developments.

With foreign equities posting gains in the third and fourth quarters, the choppy year ended on a fairly strong note, and broad international equity indices have now produced back-to-back years of positive results. For the twelve months ending December 31, 2010, the Morgan Stanley Capital International (MSCI) All Country World Index excluding the U.S. (ACWIxUS) was up 11.15%.

The International Series had a 12.04% return during 2010, outpacing the MSCI ACWIxUS Index. More importantly, the Series continues to have a strong track record relative to the benchmark over the current international stock market cycle, April 1, 2003 through December 31, 2010, which includes both a bull and a bear market. Over this current cycle, the International Series has earned an annualized return of 14.68%, compared to the 13.75% return of the ACWIxUS Index.

Despite concerns about Europe’s sovereign debt crisis, the International Series maintained an overweight to Western Europe during the past year. We believe some of the healthier, core European countries have more favorable dynamics, and we have invested in what we consider to be top level companies that may benefit from sales outside the European area. In particular, throughout 2010 the International Series’ largest country weightings included Germany, France, and the United Kingdom. While the higher allocation to France versus the benchmark detracted from relative returns in 2010, selections in Germany were drivers of outperformance. Stock selections in Brazil, Norway, and India also contributed to positive relative results. However, an underweight to Japan versus the benchmark and a lack of exposure to Canada hurt relative returns.

In regards to exposure to Emerging Markets, the Series had a noticeable overweight to Brazil and a higher allocation to India versus the benchmark, as the Advisor sees attractive longer-term growth potential in these markets. In contrast, the Series had no direct exposure to China during 2010, which modestly aided relative returns. While China has experienced robust growth, we believe there are risks related to China’s bank lending boom, inflationary pressures, and policy direction.

While the markets were volatile during the past year, the slow growth outlook for the global economy remains intact. Many developed countries continue to struggle with high government debt problems, perhaps best epitomized by the 16-nation Eurozone, which recently had to bail out Ireland to try to prevent its debt and banking crisis from spreading to other vulnerable countries such as Spain, Italy, or Portugal. In contrast to the slower growth developed world, emerging markets such as Brazil, China, and India have better fundamentals for more robust growth. Yet such rapid expansion may present its own set of dilemmas. With low growth, low yields, and accommodative monetary policy in much of the rest of the world, money is flowing into these stronger areas in search of higher returns, thus introducing inflationary pressures. Many of these emerging markets have already enacted policies to address mounting inflation, and their actions imply they are prepared to take additional measures to control inflation and growth if needed, including tightening monetary policy and implementing capital restrictions. Ultimately, two distinct economic scenarios appear to be playing out: a muted growth and subdued inflationary environment in the developed world, and a stronger growth and rising inflationary environment in the emerging markets.

With noteworthy headwinds such as sovereign debt issues in Europe, high government debt burdens in the developed world, and inflationary pressures in the emerging markets, the global economy remains in an uneven, slow growth environment. As the markets fluctuated around this slow growth trend in 2010, Manning & Napier earned solid returns by staying

 

   1

Management Discussion and Analysis (unaudited)

 

focused on country and industry fundamentals. We believe this investment approach will remain important as the market environment unfolds in 2011.

As always, we appreciate your business.

Sincerely,

Manning & Napier Advisors, Inc.

 

2   

Performance Update as of December 31, 2010 (unaudited)

 

 

        

Average Annual Total Returns

As of December 31, 2010

     
    

One  

Year  

  

Five    

Year    

  

Ten    

Year   

  

Since

Inception1

 

Manning & Napier Fund, Inc. - International Series2

   12.04%   6.71%   6.04%   9.29%

 

S&P 500 Total Return Index3

   15.07%   2.30%   1.42%   8.35%

 

Morgan Stanley Capital International (MSCI) All Country

          

World Index ex U.S.3

 

  

11.15%

 

  

4.82%

 

  

5.54%

 

  

7.15%

 

The following graph compares the value of a $10,000 investment in the Manning & Napier Fund, Inc. - International Series for the ten years ended December 31, 2010 to the S&P 500 Total Return Index and the MSCI All Country World Index ex U.S.

LOGO

1 Performance numbers for the Series and the S&P 500 Total Return Index are calculated from August 27, 1992, the Series’ inception date. Prior to 2001, the MSCI All Country World Index ex U.S. only published month-end numbers; therefore, performance numbers for the Index are calculated from August 31, 1992.

2 The Series’ performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. The Series’ performance is historical and may not be indicative of future results. The performance returns shown are inclusive of the net expense ratio of the Series. For the year ended December 31, 2010, this net expense ratio was 1.15%. The gross expense ratio, which does not account for any voluntary or contractual waivers currently in effect, was 1.15% for the year ended December 31, 2010.

3 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 the Over-the-Counter market. The Index returns assume daily reinvestment of dividends. The MSCI All Country World Index ex U.S. is a free float-adjusted market capitalization weighted index that is designed to measure equity market performance in the global developed and emerging markets and consists of 47 developed and emerging market country indices outside the United States. The Index is denominated in U.S Dollars. The Index returns assume daily reinvestment of gross dividends (which do not account for foreign dividend taxation) from the inception of the Series (see Note 1 above) through December 31, 1998, as net returns were not available. Subsequent to December 31, 1998, the Index returns assume daily reinvestment of net dividends (thus accounting for foreign dividend taxation). Both Indices’ returns, unlike Series returns, do not reflect any fees or expenses.

 

   3

Shareholder Expense Example (unaudited)

 

As a shareholder of the Series, you may incur two types of costs: (1) transaction costs and (2) ongoing costs, including management fees and other Series expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Series and to compare these costs with the ongoing costs of investing in other mutual funds.

The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (July 1, 2010 to December 31, 2010).

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Series’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Series’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid during the period. You may use this information to compare the ongoing costs of investing in the Series and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.

 
     Beginning
Account Value
7/1/10		    Ending
Account Value
12/31/10		    Expenses  Paid
During Period*
7/1/10-12/31/10

Actual

        $1,000.00          $1,245.10          $6.62  

Hypothetical

               

    (5% return before expenses)

        $1,000.00          $1,019.31          $5.96  

*Expenses are equal to the Series’ annualized expense ratio (for the six-month period) of 1.17%, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Expenses are based on the most recent fiscal half year; therefore, the expense ratio stated above may differ from the expense ratio stated in the financial highlights, which is based on one-year data. The Series’ total return would have been lower had certain expenses not been waived during the period.

 

4   

Portfolio Composition as of December 31, 2010 (unaudited)

 

LOGO

 

   5

Investment Portfolio - December 31, 2010

 

     Shares     

Value

(Note 2)

  

COMMON STOCKS - 95.1%

      

Consumer Discretionary - 12.4%

      

Auto Components - 1.6%

      

Hankook Tire Co. Ltd. (South Korea)1

      178,870       $       5,000,988   
           

Automobiles - 2.0%

      

Hero Honda Motors Ltd. (India)1

      42,450         1,887,276   

Maruti Suzuki India Ltd. (India)1

      44,940         1,428,024   

Yamaha Motor Co. Ltd. (Japan)*1

      196,000         3,180,637   
           
        6,495,937   
           

Hotels, Restaurants & Leisure - 0.1%

      

Indian Hotels Co. Ltd. (India)1

      86,954         187,784   
           

Household Durables - 3.3%

      

Corporacion Geo S.A.B. de C.V. - Class B (Mexico)*

      783,010         2,872,093   

LG Electronics, Inc. (South Korea)1

      32,640         3,386,105   

PDG Realty S.A. Empreendimentos e Participacoes (Brazil)

      87,074         532,935   

Rodobens Negocios Imobiliarios S.A. (Brazil)

      367,000         3,689,898   
           
        10,481,031   
           

Media - 3.7%

      

Gestevision Telecinco S.A. (Spain)1

      490,600         5,404,095   

Reed Elsevier plc - ADR (United Kingdom)

      60,311         2,024,037   

Societe Television Francaise 1 (France)1

      108,530         1,886,713   

Wolters Kluwer N.V. (Netherlands)1

      114,447         2,509,920   
           
        11,824,765   
           

Multiline Retail - 1.2%

      

PPR (France)1

      22,930         3,650,726   
           

Specialty Retail - 0.5%

      

Komeri Co. Ltd. (Japan)1

      67,000         1,534,209   
           

 

Total Consumer Discretionary

      

 

 

 

39,175,440

 

  

           

Consumer Staples - 16.3%

      

Beverages - 2.5%

      

Diageo plc (United Kingdom)1

      162,810         3,016,542   

Kirin Holdings Co. Ltd. (Japan)1

      215,000         3,007,002   

United Spirits Ltd. (India)1

      57,400         1,878,791   
           
        7,902,335   
           

Food & Staples Retailing - 5.1%

      

Carrefour S.A. (France)1

      165,082         6,806,753   

Casino Guichard-Perrachon S.A. (France)1

      34,170         3,334,110   

President Chain Store Corp. (Taiwan)1

      352,320         1,624,414   

Tesco plc (United Kingdom)1

      667,410         4,425,605   
           
        16,190,882   
           

 

6    The accompanying notes are an integral part of the financial statements.

Investment Portfolio - December 31, 2010

 

     Shares     

Value

(Note 2)

  

COMMON STOCKS (continued)

      

Consumer Staples (continued)

      

Food Products - 6.4%

      

Danone S.A. (France)1

      40,012       $       2,515,840   

IOI Corp. Berhad (Malaysia)1

      560,800         1,056,007   

Nestle S.A. (Switzerland)1

      105,220         6,164,174   

Suedzucker AG (Germany)1

      90,690         2,422,012   

Unilever plc - ADR (United Kingdom)

      261,230         8,066,782   
           
        20,224,815   
           

Household Products - 1.9%

      

Hindustan Unilever Ltd. (India)1

      250,540         1,752,937   

Reckitt Benckiser Group plc (United Kingdom)1

      78,270         4,305,999   
           
        6,058,936   
           

Personal Products - 0.4%

      

Kao Corp. (Japan)1

      47,000         1,263,129   
           

Total Consumer Staples

         51,640,097   
           

Energy - 4.2%

      

Oil, Gas & Consumable Fuels - 4.2%

      

Repsol YPF S.A. (Spain)1

      56,900         1,593,406   

Royal Dutch Shell plc - Class B (Netherlands)1

      88,430         2,928,317   

Royal Dutch Shell plc - Class B - ADR (Netherlands)

      87,780         5,852,293   

Total S.A. (France)1

      56,580         3,013,594   
           

Total Energy

         13,387,610   
           

Financials - 13.7%

      

Capital Markets - 0.8%

      

Daiwa Securities Group, Inc. (Japan)1

      98,000         502,702   

Nomura Holdings, Inc. (Japan)1

      78,900         500,626   

OSK Holdings Berhad (Malaysia)1

      2,089,500         1,330,878   

OSK Ventures International Berhad (Malaysia)*1

      202,575         26,279   
           
        2,360,485   
           

Commercial Banks - 3.6%

      

BNP Paribas (France)1

      28,330         1,804,242   

The Chugoku Bank Ltd. (Japan)1

      137,000         1,653,147   

Credit Agricole S.A. (France)1

      63,090         802,235   

The Hachijuni Bank Ltd. (Japan)1

      244,000         1,359,504   

Hong Leong Financial Group Berhad (Malaysia)1

      816,800         2,354,285   

Mitsubishi UFJ Financial Group, Inc. (Japan)1

      170,000         916,661   

Royal Bank of Scotland Group plc (United Kingdom)*1

      277,092         170,167   

Societe Generale (France)1

      15,410         829,163   

The Sumitomo Trust & Banking Co. Ltd. (Japan)1

      247,000         1,547,368   
           
        11,436,772   
           

 

The accompanying notes are an integral part of the financial statements.    7

Investment Portfolio - December 31, 2010

 

     Shares     

 

Value

(Note 2)

  

COMMON STOCKS (continued)

      

Financials (continued)

      

Diversified Financial Services - 0.2%

      

ING Groep N.V. (Netherlands)*1

      65,395       $ 637,977   
           

Insurance - 6.6%

      

Allianz SE (Germany)1

      40,870         4,855,998   

Amil Participacoes S.A. (Brazil)

      350,000         3,753,012   

AXA S.A. (France)1

      56,372         938,337   

Mapfre S.A. (Spain)1

      885,000         2,467,072   

Muenchener Rueckversicherungs-Gesellschaft AG (MunichRe) (Germany)1

      40,610         6,150,576   

Zurich Financial Services AG (Switzerland)1

      10,500         2,719,151   
           
        20,884,146   
           

Real Estate Investment Trusts (REITS) - 1.4%

      

Alstria Office REIT AG (Germany)1

      313,480         4,398,514   
           

Real Estate Management & Development - 0.0%**

      

OSK Property Holdings Berhad (Malaysia)1

      243,091         52,820   
           

Thrifts & Mortgage Finance - 1.1%

      

Aareal Bank AG (Germany)*1

      115,790         3,521,499   
           

Total Financials

         43,292,213   
           

Health Care - 11.4%

      

Health Care Equipment & Supplies - 1.1%

      

Straumann Holding AG (Switzerland)1

      15,476         3,544,085   
           

Health Care Providers & Services - 2.4%

      

Odontoprev S.A. (Brazil)

      492,000         7,436,313   
           

Pharmaceuticals - 7.9%

      

AstraZeneca plc (United Kingdom)1

      27,960         1,274,259   

AstraZeneca plc - ADR (United Kingdom)

      46,350         2,140,908   

Bayer AG (Germany)1

      100,000         7,412,735   

GlaxoSmithKline plc (United Kingdom)1

      172,980         3,354,567   

Novartis AG - ADR (Switzerland)

      49,000         2,888,550   

Sanofi-Aventis S.A. (France)1

      26,423         1,694,000   

Shire plc (Ireland)1

      195,160         4,705,715   

Takeda Pharmaceutical Co. Ltd. (Japan)1

      34,900         1,714,491   
           
        25,185,225   
           

Total Health Care

         36,165,623   
           

Industrials - 18.0%

      

Airlines - 1.4%

      

Deutsche Lufthansa AG (Germany)*1

      206,580         4,493,679   
           

Commercial Services & Supplies - 3.0%

      

Taiwan Secom Co. Ltd. (Taiwan)1

      777,210         1,474,095   

 

8    The accompanying notes are an integral part of the financial statements.

Investment Portfolio - December 31, 2010

 

               
     Shares     

Value

(Note 2)

  

COMMON STOCKS (continued)

      

Industrials (continued)

      

Commercial Services & Supplies (continued)

      

Tomra Systems ASA (Norway)1

      1,189,080       $         7,916,362   
           
        9,390,457   
           

Construction & Engineering - 0.6%

      

Larsen & Toubro Ltd. (India)1

      41,270         1,826,546   
           

Electrical Equipment - 5.1%

      

ABB Ltd. (Asea Brown Boveri) - ADR (Switzerland)*

      138,000         3,098,100   

Alstom S.A. (France)1

      97,560         4,676,167   

Bharat Heavy Electricals Ltd. (India)1

      30,080         1,562,897   

Schneider Electric S.A. (France)1

      26,590         3,986,800   

Teco Electric and Machinery Co. Ltd. (Taiwan)1

      4,084,000         2,730,155   
           
        16,054,119   
           

Industrial Conglomerates - 3.6%

      

Siemens AG (Germany)1

      92,300         11,433,629   
           

Machinery - 0.9%

      

FANUC Corp. (Japan)1

      19,400         2,965,413   
           

Road & Rail - 2.0%

      

All America Latina Logistica S.A. (Brazil)

      722,000         6,524,096   
           

Transportation Infrastructure - 1.4%

      

Malaysia Airports Holdings Berhad (Malaysia)1

      2,148,700         4,376,143   
           

Total Industrials

         57,064,082   
           

Information Technology - 8.0%

      

Communications Equipment - 0.4%

      

D-Link Corp. (Taiwan)1

      1,120,606         1,152,616   
           

Electronic Equipment, Instruments & Components - 2.2%

      

Hitachi Ltd. (Japan)1

      662,000         3,514,670   

Keyence Corp. (Japan)1

      6,845         1,975,023   

Yageo Corp. (Taiwan)1

      2,931,000         1,441,394   
           
        6,931,087   
           

IT Services - 0.8%

      

Cap Gemini S.A. (France)1

      56,320         2,632,940   
           

Semiconductors & Semiconductor Equipment - 3.4%

      

Infineon Technologies AG (Germany)*1

      770,000         7,177,394   

Taiwan Semiconductor Manufacturing Co. Ltd. - ADR (Taiwan)

      275,315         3,452,450   
           
        10,629,844   
           

Software - 1.2%

      

SAP AG (Germany)1

      76,970         3,925,675   
           

Total Information Technology

         25,272,162   
           

 

The accompanying notes are an integral part of the financial statements.    9

Investment Portfolio - December 31, 2010

 

               
     Shares     

Value

(Note 2)

  

COMMON STOCKS (continued)

      

Materials - 1.9%

      

Chemicals - 1.2%

      

Arkema S.A. (France)1

      1,229       $             88,627   

BASF SE (Germany)1

      47,000         3,750,740   
           
        3,839,367   
           

Construction Materials - 0.7%

      

Taiwan Cement Corp. (Taiwan)1

      1,899,827         2,136,661   

Taiwan Cement Corp. (Taiwan) - Rights2

      184,663         36,734   
           
        2,173,395   
           

Total Materials

         6,012,762   
           

Telecommunication Services - 5.3%

      

Diversified Telecommunication Services - 3.9%

      

France Telecom S.A. (France)1

      155,920         3,262,760   

France Telecom S.A. - ADR (France)

      38,800         817,904   

Swisscom AG - ADR (Switzerland)3

      106,400         4,686,920   

Telefonica S.A. - ADR (Spain)

      22,850         1,563,397   

Telenor ASA - ADR (Norway)3

      45,480         2,223,972   
           
        12,554,953   
           

Wireless Telecommunication Services - 1.4%

      

Digi.Com Berhad (Malaysia)1

      284,200         2,267,333   

SK Telecom Co. Ltd. - ADR (South Korea)

      114,190         2,127,360   
           
        4,394,693   
           

Total Telecommunication Services

         16,949,646   
           

Utilities - 3.9%

      

Electric Utilities - 1.6%

      

E.ON AG (Germany)1

      164,441         5,021,838   
           

Multi-Utilities - 1.3%

      

GDF Suez (France)1

      51,850         1,862,202   

National Grid plc (United Kingdom)1

      286,530         2,476,545   
           
        4,338,747   
           

Water Utilities - 1.0%

      

Cia de Saneamento de Minas Gerais - Copasa MG (Brazil)

      182,000         3,146,627   
           

Total Utilities

         12,507,212   
           

TOTAL COMMON STOCKS
(Identified Cost $255,475,986)

         301,466,847   
           

 

10    The accompanying notes are an integral part of the financial statements.

Investment Portfolio - December 31, 2010

 

               
     Shares     

Value

(Note 2)

  

SHORT-TERM INVESTMENTS - 4.9%

      

Dreyfus Cash Management, Inc. - Institutional Shares4, 0.14%,

(Identified Cost $15,625,574)

      15,625,574       $       15,625,574   
           

TOTAL INVESTMENTS - 100.0%
(Identified Cost $271,101,560)

         317,092,421   

OTHER ASSETS, LESS LIABILITIES - 0.0%**

         106,081   
           

NET ASSETS - 100%

       $ 317,198,502   
           

ADR - American Depository Receipt

*Non-income producing security

**Less than 0.1%

1International Fair Value factor from pricing service was applied.

2Security has been valued at fair value (see Note 2 to the financial statements).

3Latest quoted sales price is not available and latest quoted bid price was used to value the security.

4Rate shown is the current yield as of December 31, 2010.

The Series’ portfolio holds, as a percentage of net assets, greater than 10% in the following countries: Germany - 20.4%; France - 14.1%.

 

The accompanying notes are an integral part of the financial statements.    11

Statement of Assets & Liabilities

December 31, 2010

 

 

ASSETS:

   

Investments, at value (identified cost $271,101,560) (Note 2)

      $317,092,421   

Foreign currency, at value (cost $41,729)

      41,810   

Foreign tax reclaims receivable

      361,651   

Receivable for fund shares sold

      306,281   

Dividends receivable

      145,768   
        

TOTAL ASSETS

      317,947,931   
        

LIABILITIES:

   

Accrued management fees (Note 3)

      263,429   

Accrued fund accounting and administration fees (Note 3)

      9,853   

Accrued transfer agent fees (Note 3)

      2,263   

Accrued Chief Compliance Officer service fees (Note 3)

      245   

Payable for fund shares repurchased

      371,959   

Accrued custodian fees

      43,120   

Accrued capital gains tax payable (Note 2)

      211   

Other payables and accrued expenses

      58,349   
        

TOTAL LIABILITIES

      749,429   
        

TOTAL NET ASSETS

      $317,198,502   
        

NET ASSETS CONSIST OF:

   

Capital stock

      $      358,418   

Additional paid-in-capital

      272,946,505   

Distributions in excess of net investment income

      (2,564,313 ) 

Accumulated net realized gain on investments, foreign currency and translation of other assets and liabilities

      446,977   

Net unrealized appreciation (depreciation) on investments (net of accrued capital gains tax of $211), foreign currency and translation of other assets and liabilities

      46,010,915   
        

TOTAL NET ASSETS

      $317,198,502   
        

NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE - Class A ($317,198,502/35,841,758 shares)

      $             8.85   
        

 

12    The accompanying notes are an integral part of the financial statements.

Statement of Operations

For the Year Ended December 31, 2010

 

 

INVESTMENT INCOME:

   

Dividends (net of foreign taxes withheld, $862,092)

      $  7,769,347   
        

EXPENSES:

   

Management fees (Note 3)

      2,747,895   

Fund accounting and administration fees (Note 3)

      66,435   

Transfer agent fees (Note 3)

      13,498   

Directors’ fees (Note 3)

      11,355   

Chief Compliance Officer service fees (Note 3)

      2,631   

Custodian fees

      190,558   

Miscellaneous

      125,304   
        

Total Expenses

      3,157,676   

Less reduction of expenses (Note 3)

      (758 ) 
        

Net Expenses

      3,156,918   
        

NET INVESTMENT INCOME

      4,612,429   
        

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:

   

Net realized gain (loss) on-

   

Investments (net of foreign capital gains tax of $192,697) (Note 2)

      10,981,265   

Foreign currency, and translation of other assets and liabilities

      (194,903 ) 
        
     10,786,362   
        

Net change in unrealized appreciation (depreciation) on-

   

Investments (net of change in accrued capital gains tax of $(34,045))

      18,846,538   

Foreign currency, and translation of other assets and liabilities

      14,719   
        
     18,861,257   
        

NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCY

      29,647,619   
        

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

      $34,260,048   
        

 

The accompanying notes are an integral part of the financial statements.    13

Statements of Changes in Net Assets

 

    

For the

Year Ended
12/31/10

    

For the

Year Ended
12/31/09

  

INCREASE (DECREASE) IN NET ASSETS:

     

OPERATIONS:

     

Net investment income

    $ 4,612,429      $ 3,790,908   

Net realized gain on investments and foreign currency

      10,786,362        8,560,500   

Net change in unrealized appreciation (depreciation) on investments (net of change in accrued capital gains tax of $(34,045) and $34,256, respectively) and foreign currency

      18,861,257        48,051,482   
                

Net increase from operations

      34,260,048        60,402,890   
                

DISTRIBUTIONS TO SHAREHOLDERS (Note 8):

     

From net investment income

      (6,327,558 )      (4,479,987 ) 

From net realized gain on investments

      (11,801,674 )      (7,507,773 ) 
                

Total distributions to shareholders

      (18,129,232 )      (11,987,760 ) 
                

CAPITAL STOCK ISSUED AND REPURCHASED:

     

Net increase from capital share transactions (Note 5)

      33,967,286        36,412,740   
                

Net increase in net assets

      50,098,102        84,827,870   

NET ASSETS:

     

Beginning of year

      267,100,400        182,272,530   
                

End of year (including distributions in excess of net investment income of $2,564,313 and $461,584, respectively)

    $ 317,198,502      $ 267,100,400   
                

 

14    The accompanying notes are an integral part of the financial statements.

Financial Highlights

 

            For the Years Ended                
     12/31/10      12/31/09      12/31/08      12/31/07      12/31/06         

Per share data (for a share

outstanding through out each year):

                  

Net asset value - Beginning of year

      $8.39            $6.57            $10.87            $9.84            $9.90         
                                               

Income (loss) from investment operations:

                  

Net investment income

      0.141            0.141            0.22            0.15            0.15         

Net realized and unrealized gain (loss) on investments

      0.86            2.10            (3.82)           1.12            2.01         
                                               

Total from investment operations

      1.00            2.24            (3.60)           1.27            2.16         
                                               

Less distributions to shareholders:

                  

From net investment income

      (0.19)           (0.16)           (0.21)           (0.14)           (0.15)        

From net realized gain on investments

      (0.35)           (0.26)           (0.49)           (0.10)           (2.07)        
                                               

Total distributions to shareholders

      (0.54)           (0.42)           (0.70)           (0.24)           (2.22)        
                                               

Net asset value - End of year

      $8.85            $8.39            $6.57              $10.87              $9.84         
                                               

Net assets - End of year (000’s omitted)

        $317,199              $267,100              $182,273              $270,080              $215,981         
                                               

Total return2

      12.04%            34.23%            (33.25%)           13.01%            21.96%         

Ratios (to average net assets)/

                  

Supplemental Data:

                  

Expenses*

      1.15%            1.15%            1.15%            1.16%            1.18%         

Net investment income

      1.68%            1.90%            2.49%            1.47%            1.39%         

Portfolio turnover

      13%            17%            9%            20%            30%         

*The investment advisor did not impose all of its management fees, CCO fees and fund accounting and transfer agent fees, and other fees in some years and in some years paid a portion of the Series’ expenses. If these expenses had been incurred by the Series, the expense ratio (to average net assets) would have been increased by the following amounts:

         
     0.00%3            0.00%3            N/A            N/A            N/A         

1Calculated based on average shares outstanding during the year.

2Represents aggregate total return for the periods indicated, and assumes reinvestment of all distributions. Total return would have been lower had certain expenses not been waived or reimbursed during the periods. Periods less than one year are not annualized.

3Less than 0.01%.

 

The accompanying notes are an integral part of the financial statements.    15

Notes to Financial Statements

 

 

1.

ORGANIZATION

International Series (the “Series”) is a no-load diversified series of Manning & Napier Fund, Inc. (the “Fund”). The Fund is organized in Maryland and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company.

The Series’ investment objective is to provide long-term growth by investing principally in the common stocks of companies located outside the United States.

The Fund’s Advisor is Manning & Napier Advisors, Inc. (the “Advisor”). Shares of the Series are offered to investors, clients and employees of the Advisor and its affiliates. The Series resumed offering shares directly to investors on May 18, 2004, as it had done previously from time to time. The total authorized capital stock of the Fund consists of 10.0 billion shares of common stock each having a par value of $0.01. As of December 31, 2010, 6.2 billion shares have been designated in total among 29 series, of which 100 million have been designated as International Series Class A common stock.

 

2.

SIGNIFICANT ACCOUNTING POLICIES

Security Valuation

Portfolio securities, including domestic equities, foreign equities, warrants and options, listed on an exchange other than the NASDAQ National Market System are valued at the latest 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 provided by the Fund’s pricing service. Securities listed on the NASDAQ National Market System are valued in accordance with the NASDAQ Official Closing Price.

Short-term investments that mature in sixty days or less are valued at amortized cost, which approximates market value. Investments in open-end investment companies are valued at their net asset value per share on valuation date.

Volume and level of activity in established markets for an asset or liability are evaluated to determine whether recent transactions and quoted prices are determinative of fair value. Where there have been significant decreases in volume and level of activity, further analysis and adjustment may be necessary to estimate fair value. The Series measures fair value in these instances by the use of inputs and valuation techniques which may be based upon current market prices of securities that are comparable in coupon, rating, maturity and industry and/or expectation of future cash flows. As a result of trading in relatively thin markets and/or markets that experience significant volatility, the prices used by the Series to value these securities may differ from the value that would be realized if these securities were sold, and the differences could be material.

Securities for which representative valuations or prices are not available from the Fund’s pricing service may be valued at fair value. Due to the inherent uncertainty of valuations of such securities, the fair value may differ significantly from the values that would have been used had a ready market for such securities existed. If trading or events occurring after the close of the principal market in which securities are traded are expected to materially affect the value of those securities, then they may be valued at their fair value, taking this trading or these events into account. Fair value is determined in good faith by the Advisor under procedures approved by and under the general supervision and responsibility of the Fund’s Board of Directors (the “Board”). In accordance with the procedures approved by the Board, the Series applies fair value pricing on a daily basis except for North American, Central American, South American and Caribbean equity securities. Fair valuing of securities is determined with the assistance of a pricing service using calculations or factors based on indices of domestic securities and other appropriate indicators, such as prices of relevant American Depository Receipts and futures contracts, to adjust local market prices for subsequent movements through the time the Series calculates its net asset value. The value of securities used for the net asset value calculation under the procedures may differ from published prices for the same securities. It is the Fund’s

 

16   

Notes to Financial Statements

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Security Valuation (continued)

policy to classify each foreign equity security, except for those in the regions noted above, as Level 2 securities due to the fact the pricing service evaluated what factor was applied to the calculated end of day market price.

Various inputs are used in determining the value of the Series’ assets or liabilities carried at market value. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical assets and liabilities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). Level 3 includes significant unobservable inputs (including the Series’ own assumptions in determining the fair value of investments.) The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the valuation levels used for major security types as of December 31, 2010 in valuing the Series’ assets or liabilities carried at market value:

 

Description    Total      Level 1      Level 2      Level 3  

Assets:

            

Equity securities*

    $ 301,466,847       $ 59,986,755       $ 241,443,358       $ 36,734   

Preferred securities

      —         —         —         —   

Debt securities:

            

Mutual funds

      15,625,574         15,625,574         —         —   

Other financial instruments**

      —         —         —         —   
                                   

Total assets

      317,092,421         75,612,329         241,443,358         36,734   
                                   

Liabilities:

            

Other financial instruments**

      —         —         —         —   
                                   

Total liabilities:

      —         —         —         —   
                                   

Total

    $     317,092,421       $       75,612,329       $     241,443,358       $               36,734   
                                   

The following table is a reconciliation of Level 3 investments for which significant unobservable inputs were used to determine fair value:

 

Level 3 Reconciliation    Equity
Securities 		 

Balance as of December 31, 2009 (market value)

    $ —   

Accrued discounts/premiums

      —   

Change in unrealized appreciation/depreciation ***

      36,734   

Net realized gain

      —   

Net purchases/sales

      —   
        

Balance as of December 31, 2010 (market value)

    $         36,734   
        

*Includes common stock, warrants and rights. Please see the Investment Portfolio for industry classification and for securities where a latest quoted sales price is not available and the latest quoted bid price was used to value the security or foreign securities that had an International Fair Value factor applied from the pricing service. Such securities are included in Level 2 in the table above.

**Other financial instruments are derivative instruments not reflected in the Investment Portfolio, such as futures, forwards and swap contracts, which are valued at the unrealized appreciation/depreciation on the instrument. As of December 31, 2010, the Series did not hold any derivative instruments.

 

   17

Notes to Financial Statements

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Security Valuation (continued)

***The change in unrealized appreciation (depreciation) on securities still held at December 31, 2010 was $36,734, which is included in the related net change in unrealized appreciation/depreciation on the Statement of Operations.

The Fund’s policy is to recognize transfers in and transfers out of the valuation levels as of the beginning of the reporting period. During the year ended December 31, 2010, the Fund had a significant amount of foreign equity securities transfer from Level 1 to Level 2 due to the implementation of new international fair value pricing procedures. The following is a summary of the foreign equity securities that transferred from Level 1 to Level 2:

 

   

Total #

Securities

Level 1 at

beginning and

Level 2 at end

of period

    Total  Market
Value
Beginning of
period		     

Total Market
Value

End of period

      Change in
Market Value		  
  74    $     187,697,217       $ 204,537,518       $ 16,840,301   

Additional disclosure surrounding the activity in Level 3 fair value measurement will be effective for fiscal years beginning after December 15, 2010. Management has concluded that this will not have a material impact on the Series’ financial statements.

Security Transactions, Investment Income and Expenses

Security transactions are accounted for on trade date. Dividend income is recorded on the ex-dividend date, except that if the ex-dividend date has passed, certain dividends from foreign securities are recorded as soon as the Fund is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Interest income, including amortization of premium and accretion of discounts using the effective interest method, is earned from settlement date and accrued daily.

Expenses are recorded on an accrual basis. Most expenses of the Fund can be attributed to a specific series. Expenses which cannot be directly attributed are apportioned among the series in the Fund in such a manner as deemed equitable by the Fund’s Board, taking into consideration, among other things, the nature and type of expense.

The Series uses the identified cost method for determining realized gain or loss on investments for both financial statement and federal income tax reporting purposes.

Foreign Currency Translation

The books and records of the Series are maintained in U.S. dollars. Foreign currencies, investments and other assets and liabilities are translated into U.S. dollars at the current exchange rates. Purchases and sales of investment securities and income and expenses are translated on the respective dates of such transactions. The Series does not isolate realized and unrealized gains and losses attributable to changes in the exchange rates from gains and losses that arise from changes in the market value of investments. Such fluctuations are included with net realized and unrealized gain or loss on investments. Net realized foreign currency gains and losses represent foreign currency gains and losses between trade date and settlement date on securities transactions, gains and losses on disposition of foreign currencies and the difference between the amount of income and foreign withholding taxes recorded on the books of the Series and the amounts actually received or paid.

Federal Taxes

The Series’ policy is to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. The Series is not subject to federal income tax or excise tax to the extent that the Series distributes to

 

18   

Notes to Financial Statements

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Federal Taxes (continued)

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.

Management evaluates its tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of tax benefits of an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. At December 31, 2010, the Series has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken in future tax returns.

The Series files income tax returns in the U.S. federal jurisdiction, various states and foreign jurisdictions, as required. No income tax returns are currently under investigation. The statute of limitations on the Series’ tax returns remains open for the years ended December 31, 2007 through December 31, 2010. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.

Additionally, based on the Fund’s understanding of the tax rules and rates related to income, gains and transactions for foreign jurisdictions in which it invests, the Series will provide for foreign taxes, and where appropriate, deferred foreign tax.

Distributions of Income and Gains

Distributions to shareholders of net investment income and net realized gains are made annually. An additional distribution may be necessary to avoid taxation of the Series. Distributions are recorded on the ex-dividend date.

Indemnifications

The Fund’s organizational documents provide former and current directors and officers with a limited indemnification against liabilities arising in connection with the performance of their duties to the Fund. In the normal course of business, the Fund may also enter into contracts that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would be dependent on future claims that may be made against the Fund. The risk of material loss from such claims is considered remote.

Other

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 income and expenses during the reporting period. Actual results could differ from those estimates.

 

3.

TRANSACTIONS WITH AFFILIATES

The Fund has an Investment Advisory Agreement (the “Agreement”) with the Advisor, for which the Series pays a fee, computed daily and payable monthly, at an annual rate of 1.00% of the Series’ average daily net assets.

Under the Agreement, personnel of the Advisor provide the Series with advice and assistance in the choice of investments and the execution of securities transactions, and otherwise maintain the Series’ organization. The Advisor also provides the Fund with necessary office space and fund administration and support services. The salaries of all officers of the Fund (except a percentage of the Fund’s Chief Compliance Officer’s salary, which is paid by the Fund), and of all Directors who are “affiliated persons” of the Fund, or of the Advisor, and all personnel of the Fund,

 

   19

Notes to Financial Statements

 

3.

TRANSACTIONS WITH AFFILIATES (continued)

or of the Advisor, performing services relating to research, statistical and investment activities, are paid by the Advisor. Each “non-affiliated” Director receives an annual stipend, which is allocated among all the active series of the Fund. In addition, these Directors also receive a fee per Board meeting attended plus a fee for each committee meeting attended.

For the year ended December 31, 2010, the Advisor voluntarily waived fees of $758, which is included as a reduction of expenses on the Statement of Operations. The Advisor is not eligible to recoup any expense that has been waived or reimbursed in prior years.

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 Series.

The Advisor has agreements with PNC Global Investment Servicing (U.S.) Inc. (“PNCGIS”) under which PNCGIS serves as sub-accountant services agent and sub-transfer agent. The Fund pays the Advisor an annual fee related to fund accounting and administration of 0.0175% on the first $3 billion of average daily net assets (excluding Target Series); 0.015% on the next $3 billion of average daily net assets (excluding Target Series); and 0.01% of the average daily net assets in excess of $6 billion (excluding Target Series); plus a base fee of $25,500 per Series. Transfer Agent fees are charged to the Fund on a per account basis. Additionally, certain transaction- and cusip-based fees and out-of-pocket expenses, including charges for reporting relating to the Fund’s compliance program, are charged.

Effective July 1, 2010, PNCGIS was sold to The Bank of New York Mellon Corporation, the Series’ custodian. At the close of the sale, PNCGIS changed its name to BNY Mellon Investment Servicing (U.S.) Inc. (“BNY”).

Expenses not directly attributable to a Series are allocated based on each Series’ relative net assets or number of accounts, depending on the expense.

 

4.

PURCHASES AND SALES OF SECURITIES

For the year ended December 31, 2010, purchases and sales of securities, other than U.S. Government securities and short-term securities, were $47,150,818 and $34,149,837, respectively. There were no purchases or sales of U.S. Government securities.

 

5.

CAPITAL STOCK TRANSACTIONS

Transactions in shares of International Series were:

 

    

For the Year

Ended 12/31/10

    

For the Year

Ended 12/31/09

  
     Shares     Amount     Shares     Amount  

Sold

      4,885,983      $   40,773,050        6,129,853      $   48,093,794   

Reinvested

      2,043,894        17,734,979        1,415,130        11,706,962   

Repurchased

        (2,930,271 )      (24,540,743 )        (3,449,201 )      (23,388,016 ) 
                                

Total

      3,999,606      $ 33,967,286        4,095,782      $ 36,412,740   
                                

Substantially all of the Series’ shares represent investments by fiduciary accounts over which the Advisor has sole investment discretion.

 

20   

Notes to Financial Statements

 

 

6.

FINANCIAL INSTRUMENTS

The Series may trade in instruments including written and purchased options, forward foreign currency exchange contracts and futures contracts and other derivatives in the normal course of investing activities to assist in managing exposure to various market risks. Investments in these instruments may subject the Series to various elements of risk, which may involve, to a varying degree, elements of risk in excess of the amounts recognized for financial statement purposes. These risks include: the risk that changes in the value of a derivative may not correlate perfectly with the underlying asset, rate or index, counterparty credit risk related to over the counter derivatives counterparties’ failure to perform under contract terms, liquidity risk related to the lack of a liquid market for these contracts allowing the fund to close out its position(s) and documentation risk relating to disagreement over contract terms. No such investments were held by the Series during the year ended December 31, 2010.

 

7.

FOREIGN SECURITIES

Investing in securities of foreign companies and foreign governments involves special risks and considerations not typically associated with investing in securities of domestic companies and the U.S. Government. These risks include revaluation of currencies and future adverse political and economic developments. Moreover, securities of foreign companies and foreign governments and their markets may be less liquid and their prices more volatile than those of comparable domestic companies and the U.S. Government.

 

8.

FEDERAL INCOME TAX INFORMATION

The amount and characterization of certain income and capital gains to be distributed are determined in accordance with federal income tax regulations, which may differ from accounting principles generally accepted in the United States of America. These differences are primarily due to differing book and tax treatments in the timing of the recognition of net investment income or gains and losses, including foreign currency gains and losses, post-October losses, foreign capital gains taxes and investments in passive foreign investment companies (PFICs). The Series may periodically make reclassifications among its capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations without impacting the Series’ net asset value. Any such reclassifications are not reflected in the financial highlights.

The tax character of distributions paid were as follows:

 

     For the Year
Ended
12/31/10		           For the Year
Ended
12/31/09		  

Ordinary income

    $   12,805,548          $   11,987,760   

Long-term capital gains

      5,323,684            —   

For the year ended December 31, 2010, the Series elected to defer $16,001 of currency losses, attributable to post-October losses.

At December 31, 2010, the tax basis of distributable earnings and the net unrealized appreciation based on the identified cost of investments for federal income tax purposes were as follows:

 

Cost for federal income tax purposes

    $ 273,894,572        

Unrealized appreciation

    $ 65,409,200        

Unrealized depreciation

      (22,211,351 )      
             

Net unrealized appreciation

    $ 43,197,849        
             

Undistributed ordinary income

      691,677        

 

   21

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors of Manning & Napier Fund, Inc. and Shareholders of International Series:

In our opinion, the accompanying statement of assets and liabilities, including the investment portfolio, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the International Series (a series of Manning & Napier Fund, Inc., hereafter referred to as the “Series”) at December 31, 2010, and 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 five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Series’ management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2010 by correspondence with the custodian, provide a reasonable basis for our opinion.

LOGO

New York, New York

February 22, 2011

 

22   

Supplemental Tax Information (unaudited)

 

All designations are based on financial information available as of the date of this annual report and, accordingly are subject to change.

For federal income tax purposes, the Series designates for the current fiscal year $7,010,585 or, if different, the maximum amount allowable under the tax law as qualified dividend income.

Pursuant to Section 852 of the Internal Revenue Code, as amended, the Series hereby designates $5,323,684 as capital gains for its taxable year ended December 31, 2010, or if different, the maximum allowable under tax law.

 

   23

Renewal of Investment Advisory Agreement (unaudited)

 

At the Manning & Napier Fund, Inc. (the “Fund”) Board of Directors’ (the “Board”) meeting, held on November 17, 2010, the Investment Advisory Agreement (the “Agreement”) between the Fund and Manning & Napier Advisors, Inc. (the “Advisor”) was reviewed by the Board for renewal. In connection with the decision whether to renew the Agreement, a variety of material was prepared for and reviewed by the Board.

Representatives of the Advisor attended the meeting and presented additional oral and written information to the Board to assist the Board in its considerations. The discussion immediately below outlines the materials and information presented to the Board in connection with the Board’s 2010 Annual Review of the Agreement and the conclusions made by the Directors when determining to continue the Agreement.

 

  •  

The Board considered the services provided by the Advisor under the Agreement including, among others: deciding what securities to purchase and sell for each Series; arranging for the purchase and sale of such securities by placing orders with broker-dealers; administering the affairs of the Fund (including the books and records of the Fund not maintained by third party service providers such as the custodian or sub-transfer agent); arranging for the insurance coverage for the Fund; and supervising the preparation of tax returns, SEC filings (including registration statements) and reports to shareholders for the Fund. The Board also considered the nature and quality of such services provided under the Agreement in light of the Advisor’s services provided to the Fund for 24 years. The Board discussed the quality of these services with representatives from the Advisor and concluded that the Advisor was performing its services to the Fund required under the Agreement in a reasonable manner.

 

  •  

The Board considered the investment performance of the various Series of the Fund. The investment performance for each Series was reviewed on a cumulative basis since inception and on a one year basis. In addition, annualized performance for the following time periods was considered: inception, three year, five year, ten year, and current market cycle. A market cycle includes periods of both rising and falling markets. Returns for established benchmark indices for each Series were provided for each time period. The Board noted that the various Series were competitive against their respective benchmarks and/or peer groups over various time periods, but in particular over the full market cycle period relevant for the Series. In addition, the Board considered at the meeting (and considers on a quarterly basis) a peer group performance analysis consisting of Morningstar universes of mutual funds with similar investment objectives. The Board discussed the performance with representatives from the Advisor and concluded that the investment performance of each of the Fund’s Series was reasonable based on the Fund’s actual performance and comparative performance, especially performance over the current market cycle.

 

  •  

The Board considered the costs of the Advisor’s services and the profits of the Advisor as they relate to the Advisor’s services to the Fund under the Agreement. In reviewing the Advisor’s costs and profits, the Board discussed the Advisor’s revenues generated from the Fund (on both an actual and adjusted basis) and its expenses associated with providing the services under the Agreement. In addition, the Board reviewed the Advisor’s expenses associated with Fund activities outside of the Agreement (such as expense reimbursements pursuant to expense caps and payments made by the Advisor to third party platforms on which shares of the Fund are available for purchase). It was noted by representatives of the Advisor that 11 of the 27 active Series of the Fund are currently experiencing expenses above the capped expense ratios. After discussing the above costs and profits, the Board concluded that the Advisor’s profitability relating to its services provided under the Agreement was reasonable.

 

  •  

The Board considered the fees and expenses of the various Series of the Fund. The Advisor presented the advisory fees and total expenses for each Series, including the advisory fee adjusted for any expense waivers or reimbursements (either contractual or voluntary) paid by the Advisor. The advisory fees and expense ratios of each Series were compared to an average (on both a mean and median basis) of similar funds as disclosed on the Morningstar database. Representatives of the Advisor discussed with the Board the levels of its advisory

 

24   

Renewal of Investment Advisory Agreement (unaudited)

 

 

 

fee for each Series of the Fund and as compared to the median and mean advisory fees for similar funds as listed on Morningstar. Expense ratios for every Series, except the Pro-Blend’s Class R and Class C, and Target Class R and Class C, are currently below the median and mean for similar funds as listed on Morningstar. Based on their review of the information provided, the Board concluded that the fees and expenses of each Series of the Fund were reasonable on a comparative basis.

 

  •  

The Board also considered the other benefits the Advisor derives from its relationship with the Fund. Such other benefits include certain research products provided by soft dollars. Given the level of soft dollar transactions involving the Fund, the Board concluded that these additional benefits to the Advisor were reasonable.

 

  •  

In addition to the factors described above, the Board considered the Advisor’s personnel, investment strategies, policies and procedures relating to compliance with personal securities transactions, and reputation, expertise and resources in domestic and foreign financial markets. The Board concluded that these factors support the conclusion that the Advisor performs its services in a reasonable manner.

 

  •  

The Board did not consider economies of scale at this time because of the multiple uses of the Fund (for the Advisor’s discretionary investment account clients in addition to direct investors), the current profitability of the Advisor’s services to the Fund under the Agreement, and the overall size of the Fund complex.

Based on the Board’s deliberations and their evaluation of the information described above, the Board, including a majority of Directors that are not “interested persons” as defined in the Investment Company Act of 1940, concluded that the compensation under the Agreement was fair and reasonable in light of the services and expenses and such other matters as the Directors considered to be relevant in the exercise of their reasonable judgment. Accordingly, the Board approved the renewal of the Agreement. In the course of their deliberations, the Directors did not identify any particular information that was all important or controlling.

 

   25

Directors’ and Officers’ Information (unaudited)

 

The Statement of Additional Information provides additional information about the Fund’s directors and officers and can be obtained without charge by calling 1-800-466-3863, at www.manningnapieradvisors.com, or on the EDGAR Database on the SEC Internet web site (http:// www.sec.gov). The following chart shows certain information about the Fund’s officers and directors, including their principal occupations during the last five years. Unless specific dates are provided, the individuals have held the listed positions for longer than five years.

 

INTERESTED DIRECTOR/OFFICER

   

Name:

Address:

   

B. Reuben Auspitz*

290 Woodcliff Drive

Fairport, NY 14450

Age:

    63

Current Position(s) Held with Fund:

    Principal Executive Officer, President, Chairman & Director

Term of Office1 & Length of Time Served:

    Indefinite - Director since 1984; Vice President 1984 - 2003; President
   since 2004; Principal Executive Officer since 2002

Principal Occupation(s) During Past 5 Years:

    Executive Vice President; Executive Group Member**; Chief Compliance Officer since 2004; Vice Chairman since June 2010; Co-Executive Director from 2003-2010 - Manning & Napier Advisors, Inc. President; Director - Manning & Napier Investor Services, Inc. Holds or has held one or more of the following titles for various subsidiaries and affiliates: President, Vice President, Director, Chairman, Treasurer, Chief Compliance Officer or Member.

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A

 

INDEPENDENT DIRECTORS

   

Name:

    Paul A. Brooke

Address:

   

290 Woodcliff Drive

Fairport, NY 14450

Age:

    65

Current Position(s) Held with Fund:

    Director, Audit Committee Member, Governance & Nominating Committee Member

Term of Office & Length of Time Served:

    Indefinite - Since 2007

Principal Occupation(s) During Past 5 Years:

    Chairman & CEO, Alsius Corp. (investments); Managing Member, PMSV Holdings LLC (investments)

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    Incyte Corp. (2000-present) ViroPharma, Inc. (2000-present) HLTH Corp. (2000-present) Cheyne Capital International (2000-present) MPM Bio-equities (2000-present) GMP Companies (2000-present) HoustonPharma (2000-present)

 

Name:

    Richard M. Hurwitz

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    47

Current Position(s) Held with Fund:

    Director, Audit Committee Member, Governance & Nominating Committee Member

Term of Office & Length of Time Served:

    Indefinite - Since 2009

Principal Occupation(s) During Past 5 Years:

    Chief Executive Officer, Pictometry International Corp. since August 2010 (provider of georeferenced, aerial image libraries and related software) Managing Partner (2006-July 2010) - Aegis Investment Partners, LLC (investments); Founder and Managing Partner (2004-2005) - Village Markets, LLC (groceries)

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    Pictometry International Corp. (2000-2010)
   Pioneering Technologies (2006-2009)
    

Vensearch Capital Corp. (2003-2007)

 

 

26   

Directors’ and Officers’ Information (unaudited)

 

 

INDEPENDENT DIRECTORS (continued)

   

 

Name:

   

Stephen B. Ashley

Address:

   

290 Woodcliff Drive

  

Fairport, NY 14450

Age:

   

70

Current Position(s) Held with Fund:

   

Director, Audit Committee Member, Governance & Nominating Committee Member

Term of Office & Length of Time Served:

   

Indefinite - Since 1996

Principal Occupation(s) During Past 5 Years:

   

Chairman, Director, President & Chief Executive Officer, The Ashley Group (property management and investment). Chairman (non-executive) 2004-2008; Director 1995-2008 - Fannie Mae (mortgage)

Number of Portfolios Overseen within Fund Complex:

   

29

Other Directorships Held Outside Fund Complex:

   

The Ashley Group (1995-2008)

    

Genesee Corporation (1987-2007)

 

Name:

   

 

Peter L. Faber

Address:

   

290 Woodcliff Drive

  

Fairport, NY 14450

Age:

   

72

Current Position(s) Held with Fund:

   

Director, Governance & Nominating Committee Member

Term of Office & Length of Time Served:

   

Indefinite - Since 1987

Principal Occupation(s) During Past 5 Years:

   

Senior Counsel since 2006, Partner (1995 - 2006) - McDermott, Will & Emery LLP (law firm)

Number of Portfolios Overseen within Fund Complex:

   

29

Other Directorships Held Outside Fund Complex:

   

Partnership for New York City, Inc. (non-profit)

New York Collegium (non-profit)

Boston Early Music Festival (non-profit)

 

Name:

   

 

Harris H. Rusitzky

Address:

   

290 Woodcliff Drive

  

Fairport, NY 14450

Age:

   

76

Current Position(s) Held with Fund:

   

Director, Audit Committee Member, Governance & Nominating Committee Member

Term of Office & Length of Time Served:

   

Indefinite - Since 1985

Principal Occupation(s) During Past 5 Years:

   

President, The Greening Group (business consultants) since 1994; Partner, The Restaurant Group (restaurants) since 2006

Number of Portfolios Overseen within Fund Complex:

   

29

Other Directorships Held Outside Fund Complex:

   

N/A

 

OFFICERS

   

Name:

   

Jeffrey S. Coons, Ph.D., CFA

Address:

   

290 Woodcliff Drive

  

Fairport, NY 14450

Age:

   

47

Current Position(s) Held with Fund:

   

Vice President

Term of Office1 & Length of Time Served:

   

Since 2004

Principal Occupation(s) During Past 5 Years:

   

President since 2010, Co-Director of Research since 2002, Executive Group Member** since 2003, - Manning & Napier Advisors, Inc. Holds one or more of the following titles for various subsidiaries and affiliates: President, Director, Treasurer or Senior Trust Officer.

Number of Portfolios Overseen within Fund Complex:

   

29

Other Directorships Held Outside Fund Complex:

 

   

N/A

 

 

   27

Directors’ and Officers’ Information (unaudited)

 

 

OFFICERS (continued)

   

Name:

   

Beth Galusha

Address:

   

290 Woodcliff Drive

  

Fairport, NY 14450

Age:

   

49

Current Position(s) Held with Fund:

   

Assistant Chief Financial Officer

Term of Office1 & Length of Time Served:

   

Assistant Chief Financial Officer since 2010

Principal Occupation(s) During Past 5 Years:

   

Chief Financial Officer and Treasurer, Manning & Napier Advisors, Inc. Holds one or more of the following titles for various affiliates: Chief Financial Officer, Director, or Treasurer

Number of Portfolios Overseen within Fund Complex:

   

29

Other Directorships Held Outside Fund Complex:

   

N/A

 

Name:

   

Christine Glavin

Address:

   

290 Woodcliff Drive

  

Fairport, NY 14450

Age:

   

44

Current Position(s) Held with Fund:

   

Principal Financial Officer, Chief Financial Officer

Term of Office1 & Length of Time Served:

   

Principal Financial Officer since 2002; Chief Financial Officer since 2001

Principal Occupation(s) During Past 5 Years:

   

Fund Reporting Manager, Manning & Napier Advisors, Inc. since 1997

Number of Portfolios Overseen within Fund Complex:

   

29

Other Directorships Held Outside Fund Complex:

   

N/A

 

Name:

   

Jodi L. Hedberg

Address:

   

290 Woodcliff Drive

  

Fairport, NY 14450

Age:

   

43

Current Position(s) Held with Fund:

   

Corporate Secretary, Chief Compliance Officer, Anti-Money Laundering Compliance Officer

Term of Office1 & Length of Time Served:

   

Corporate Secretary since 1997; Chief Compliance Officer since 2004

Principal Occupation(s) During Past 5 Years:

   

Director of Compliance, Manning & Napier Advisors, Inc. and affiliates since 1990 (title change in 2005 from Compliance Manager to Director of Compliance); Corporate Secretary, Manning & Napier Investor Services, Inc. since 2006

Number of Portfolios Overseen within Fund Complex:

   

29

Other Directorships Held Outside Fund Complex:

   

N/A

 

Name:

   

Richard Yates

Address:

   

290 Woodcliff Drive

  

Fairport, NY 14450

Age:

   

45

Current Position(s) Held with Fund:

   

Chief Legal Officer

Term of Office1 & Length of Time Served:

   

Chief Legal Officer since 2004

Principal Occupation(s) During Past 5 Years:

   

Counsel - Manning & Napier Advisors, Inc. & affiliates since 2000; Holds one or more of the following titles for various affiliates; Director or Corporate Secretary

Number of Portfolios Overseen within Fund Complex:

   

29

Other Directorships Held Outside Fund Complex:

   

N/A

*Interested Director, within the meaning of the Investment Company Act of 1940 by reason of his position with the Fund’s investment advisor and distributor. Mr. Auspitz serves as the Executive Vice President and Director, Manning & Napier Advisors, Inc. and President and Director, Manning & Napier Investor Services, Inc., the Fund’s distributor.

**Prior to June 2010, the Executive Group, consisting of senior executive employee-owners, performed the duties of the Office of the Chief Executive of the Advisor. Effective June 2010, the Executive Group serves as an advisory board to the Chief Executive Officer.

1The term of office for President, Vice President, Chief Financial Officer, Assistant Chief Financial Officer, Chief Legal Officer and Corporate Secretary is one year and until their respective successors are chosen and qualified. All other officers’ terms are indefinite.

 

28   

 

 

 

 

 

This page intentionally Left Blank

 

29

Literature Requests (unaudited)

 

Proxy Voting Policies and Procedures

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request:

 

By phone

   

1-800-466-3863

   

On the Securities and Exchange

      

    Commission’s (SEC) web site

   

http://www.sec.gov

   

Proxy Voting Record

Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available, without charge, upon request:

 

By phone

   

1-800-466-3863

   

On the SEC’s web site

   

http://www.sec.gov

   

Quarterly Portfolio Holdings

The Series’ complete schedule of portfolio holdings for the 1st and 3rd quarters of each fiscal year are provided on Form N-Q, and are available, without charge, upon request:

 

By phone

   

1-800-466-3863

   

On the SEC’s web site

   

http://www.sec.gov

   

The Series’ Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.

Prospectus and Statement of Additional Information (SAI)

The prospectus and SAI provide additional information about each Series, including charges, expenses and risks. These documents are available, without charge, upon request:

 

By phone

   

1-800-466-3863

   

On the SEC’s web site

   

http://www.sec.gov

   

On the Advisor’s web site

   

http://www.manning-napier.com

   

Additional information available at www.manning-napier.com

1. Fund Holdings - Month-End

2. Fund Holdings - Quarter-End

3. Shareholder Report - Annual

4. Shareholder Report - Semi-Annual

 

 

MNINT-12/10-AR

 

  

LOGO

Management Discussion and Analysis (unaudited)

 

Dear Shareholders:

Over the course of 2010, the international markets experienced several ups and downs driven by well-defined swings in investor sentiment. Optimism fueled strong market returns early in the year, as upbeat economic releases led investors to believe in the potential for a robust global recovery. However, sentiment shifted drastically in May and June as more negative economic news and issues related to Europe’s government debt problems led to notable stock market losses. In another swing, the markets rebounded in the fall amid better economic developments.

With foreign equities posting gains in the third and fourth quarters, the choppy year ended on a fairly strong note, and broad international equity indices have now produced back-to-back years of positive results. For the twelve months ending December 31, 2010, the Morgan Stanley Capital International (MSCI) All Country World Index excluding the U.S. (ACWIxUS) was up 11.15%.

While the World Opportunities Series had a solid 9.23% return during 2010, the Series trailed the MSCI ACWIxUS Index. However, the Series continues to have a strong track record relative to the benchmark over the current international stock market cycle, April 1, 2003 through December 31, 2010, which includes both a bull and a bear market. Over this current cycle, the World Opportunities Series has earned an annualized return of 14.21%, compared to the 13.75% return of the ACWIxUS Index.

In the volatile market environment of 2010, Manning & Napier maintained a selective investment approach and focused on companies that we believe can grow market share. We continued to emphasize quality, targeting best-in-class companies expected to generate sales growth despite a muted economic backdrop, as well as “away game winners” expected to successfully compete in faster-growing markets overseas. Using our active stock selection strategies, our analysts also identified opportunities in certain cyclical industries that have experienced supply cutbacks. Specifically, we have looked for well-positioned companies that we believe can take market share and benefit from tight supply and demand dynamics.

During the last year, sector allocation decisions aided the World Opportunities Series’ relative results. In particular, a noteworthy underweight to Financials versus the benchmark and not owning stocks in the Utilities sector were drivers of outperformance. Meanwhile, a lower allocation to Materials than the benchmark detracted from relative returns over the past twelve months. Throughout 2010, the Series maintained a relatively high exposure to Information Technology, Consumer Staples, Health Care, and Industrials.

As for specific stock selections, individual investments in the Energy sector significantly boosted the Series’ relative results over the last twelve months. However, security selections in Information Technology and Consumer Staples hurt relative performance. From a country standpoint, stock selections in Canada, Germany, Brazil, Ireland, and the Netherlands helped the World Opportunities Series’ relative returns in the last twelve months. In contrast, an underweight to Japan compared to the benchmark detracted from relative returns in 2010, as did specific stock selections in this market.

Despite concerns about Europe’s sovereign debt crisis, the World Opportunities Series maintained an overweight to Developed Europe. We believe some of the healthier, core European countries have more favorable dynamics, and we have invested in what we consider to be top level companies that may benefit from sales outside the European area. Indeed, stock selections in Developed Europe were a primary contributor to relative performance in 2010. Selections in North America also aided returns.

With noteworthy headwinds such as sovereign debt issues in Europe, high government debt burdens in the developed world, and inflationary pressures in the emerging markets, the global economy remains in an uneven, slow growth environment. As the markets fluctuated around this slow growth trend in 2010, Manning & Napier earned solid returns by staying focused on the fundamentals and maintaining our selective investment process. This investment approach has proved beneficial over the past 40 years, and we believe these qualities will remain important as the market environment unfolds in 2011.

As always, we appreciate your business.

Sincerely,

Manning & Napier Advisors, Inc.

 

   1

Performance Update as of December 31, 2010 (unaudited)

 

 

             

 

Average Annual Total Returns
As of  December 31, 2010

          
      One
Year 		    

Five

Year

     

Ten

Year

      Since
Inception 1		  

Manning & Napier Fund, Inc. - World Opportunities Series2

          9.23%         7.02%                 8.59%             9.75%     

Morgan Stanley Capital International (MSCI) All Country World   Index ex U.S.3

      11.15%         4.82%                 5.54%             5.86%     

The following graph compares the value of a $10,000 investment in the Manning & Napier Fund, Inc. - World Opportunities Series for the ten years ended December 31, 2010 to the MSCI All Country World Index ex U.S.

LOGO

1Performance numbers for the Series are calculated from September 6, 1996, the Series’ inception date. Prior to 2001, the MSCI All Country World Index ex U.S. only published month-end numbers; therefore, performance numbers for the Index are calculated from September 30, 1996.

2The Series’ performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. The Series’ performance is historical and may not be indicative of future results. The performance returns shown are inclusive of the net expense ratio of the Series. For the year ended December 31, 2010, this net expense ratio was 1.11%. The gross expense ratio, which does not account for any voluntary or contractual waivers currently in effect, was 1.11% for the year ended December 31, 2010.

3The MSCI All Country World Index ex U.S. is a free float-adjusted market capitalization weighted index that is designed to measure equity market performance in the global developed and emerging markets and consists of 47 developed and emerging market country indices outside the United States. The Index is denominated in U.S. Dollars. The Index returns assume daily reinvestment of gross dividends (which do not account for foreign dividend taxation) from the inception of the Series (see Note 1 above) through December 31, 1998, as net returns were not available. Subsequent to December 31, 1998, the Index returns assume daily reinvestment of net dividends (thus accounting for foreign dividend taxation). Unlike Series returns, the Index returns do not reflect any fees or expenses.

 

2   

Shareholder Expense Example (unaudited)

 

 

As a shareholder of the Series, you may incur two types of costs: (1) transaction costs and (2) ongoing costs, including management fees and other Series expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Series and to compare these costs with the ongoing costs of investing in other mutual funds.

The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (July 1, 2010 to December 31, 2010).

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Series’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Series’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid during the period. You may use this information to compare the ongoing costs of investing in the Series and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.

 

 

     Beginning
Account  Value
7/1/10		    Ending
Account  Value
12/31/10		    Expenses Paid  
During Period*  
7/1/10-12/31/10  

Actual

    $1,000.00    $1,233.60    $6.19

Hypothetical
(5% return before expenses)

    $1,000.00    $1,019.66    $5.60

*Expenses are equal to the Series’ annualized expense ratio (for the six-month period) of 1.10%, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Expenses are based on the most recent fiscal half year; therefore, the expense ratio stated above may differ from the expense ratio stated in the financial highlights, which is based on one-year data. The Series’ total return would have been lower had certain expenses not been waived during the period.

 

   3

Portfolio Composition as of December 31, 2010 (unaudited)

 

LOGO

 

4   

Investment Portfolio - December 31, 2010

 

 

     Shares     

Value

      (Note 2)      

  

COMMON STOCKS - 95.0%

      

Consumer Discretionary - 11.5%

      

Automobiles - 1.3%

      

Bayerische Motoren Werke AG (BMW) (Germany)1

      658,390       $ 51,872,596   

Suzuki Motor Corp. (Japan)1

      1,290,200         31,672,883   
           
        83,545,479   
           

Hotels, Restaurants & Leisure - 0.8%

      

Accor S.A. (France)1

      772,010         34,406,578   

Club Mediterranee S.A. (France)*1

      852,070         17,625,544   
           
        52,032,122   
           

Leisure Equipment & Products - 0.5%

      

Sankyo Co. Ltd. (Japan)1

      576,000         32,453,798   
           

Media - 6.5%

      

Grupo Televisa S.A. - ADR (Mexico)*

      2,837,700         73,581,561   

Liberty Global, Inc. - Class A (United States)*

      1,929,970         68,282,339   

Mediaset S.p.A. (Italy)1

      4,111,660         24,901,045   

Reed Elsevier plc (United Kingdom)1

      7,692,400         64,977,565   

Societe Television Francaise 1 (France)1

      8,726,180         151,698,085   

Virgin Media, Inc. (United Kingdom)

      1,222,838         33,310,107   
           
        416,750,702   
           

Multiline Retail - 1.2%

     

Marks & Spencer Group plc (United Kingdom)1

      13,137,700         75,758,378   
           

Textiles, Apparel & Luxury Goods - 1.2%

      

Adidas AG (Germany)1

      1,234,880         80,327,899   
           

Total Consumer Discretionary

         740,868,378   
           

Consumer Staples - 14.6%

      

Beverages - 2.9%

      

Anheuser-Busch InBev N.V. (Belgium)1

      1,050,370         60,017,281   

Heineken N.V. (Netherlands)1

      2,532,650         124,218,172   
           
        184,235,453   
           

Food & Staples Retailing - 5.1%

      

Carrefour S.A. (France)1

      3,017,720         124,428,310   

Koninklijke Ahold N.V. (Netherlands)1

      3,846,750         50,816,507   

Tesco plc (United Kingdom)1

      23,591,360         156,434,649   
           
        331,679,466   
           

Food Products - 5.8%

      

Danone S.A. (France)1

      2,129,470         133,894,977   

Nestle S.A. (Switzerland)1

      2,293,350         134,352,863   

Unilever plc - ADR (United Kingdom)

      3,496,690         107,977,787   
           
        376,225,627   
           

 

The accompanying notes are an integral part of the financial statements.    5

Investment Portfolio - December 31, 2010

 

 

 

     Shares     

Value

      (Note 2)      

  

COMMON STOCKS (continued)

      

Consumer Staples (continued)

      

Personal Products - 0.8%

      

Beiersdorf AG (Germany)1

      907,340       $ 50,348,501   
           

Total Consumer Staples

         942,489,047   
           

Energy - 12.7%

      

Energy Equipment & Services - 8.7%

      

Calfrac Well Services Ltd. (Canada)

      1,296,670         44,652,500   

Compagnie Generale de Geophysique - Veritas (CGG - Veritas) (France)*1

      4,993,170         152,427,629   

Petroleum Geo-Services ASA (Norway)*1

      2,306,650         36,258,864   

Schlumberger Ltd. (United States)

      2,168,190         181,043,865   

Trican Well Service Ltd. (Canada)2

      7,415,430         150,202,917   
           
        564,585,775   
           

Oil, Gas & Consumable Fuels - 4.0%

      

Cameco Corp. (Canada)

      2,735,540         110,461,105   

Talisman Energy, Inc. (Canada)

      6,488,650         144,351,743   
           
        254,812,848   
           

Total Energy

         819,398,623   
           

Financials - 7.8%

      

Commercial Banks - 3.1%

      

Banco Santander S.A. (Spain)1

      9,236,150         98,418,804   

HSBC Holdings plc (United Kingdom)1

      9,710,520         99,242,573   
           
        197,661,377   
           

Diversified Financial Services - 1.9%

      

Deutsche Boerse AG (Germany)1

      1,817,360         125,563,363   
           

Insurance - 2.8%

      

Allianz SE (Germany)1

      981,230         116,585,528   

Willis Group Holdings plc (United Kingdom)

      1,915,780         66,343,461   
           
        182,928,989   
           

Total Financials

         506,153,729   
           

Health Care - 12.1%

      

Health Care Equipment & Supplies - 4.5%

      

Cochlear Ltd. (Australia)1

      1,173,920         96,636,392   

Covidien plc (Ireland)

      2,238,820         102,224,521   

Mindray Medical International Ltd. - ADR (China)

      891,100         23,525,040   

Straumann Holding AG (Switzerland)1

      295,300         67,625,249   
           
        290,011,202   
           

Health Care Providers & Services - 3.8%

      

BML, Inc. (Japan)1

      554,500         15,520,454   

Bumrungrad Hospital Public Co. Ltd. - NVDR (Thailand)1

      35,555,100         37,395,125   

 

6    The accompanying notes are an integral part of the financial statements.

Investment Portfolio - December 31, 2010

 

 

     Shares     

Value

(Note 2)

  

COMMON STOCKS (continued)

      

Health Care (continued)

      

Health Care Providers & Services (continued)

      

Sonic Healthcare Ltd. (Australia)1

      16,077,890       $     191,125,859   
           
        244,041,438   
           

Life Sciences Tools & Services - 3.0%

      

Lonza Group AG (Switzerland)1

      2,455,292         196,804,090   
           

Pharmaceuticals - 0.8%

      

Santen Pharmaceutical Co. Ltd. (Japan)1

      1,432,500         49,665,101   
           

Total Health Care

         780,521,831   
           

Industrials - 15.0%

      

Aerospace & Defense - 1.0%

      

Empresa Brasileira de Aeronautica S.A. (Embraer) - ADR (Brazil)

      2,227,150         65,478,210   
           

Air Freight & Logistics - 3.1%

      

TNT N.V. (Netherlands)1

      7,487,480         198,012,453   
           

Airlines - 2.4%

      

Ryanair Holdings plc - ADR (Ireland)

      5,058,530         155,600,383   
           

Electrical Equipment - 2.7%

      

ABB Ltd. (Asea Brown Boveri) - ADR (Switzerland)*

      5,189,430         116,502,704   

Nexans S.A. (France)1

      412,730         32,510,170   

Prysmian S.p.A. (Italy)1

      1,621,590         27,636,186   
           
        176,649,060   
           

Industrial Conglomerates - 1.1%

      

Siemens AG (Germany)1

      550,520         68,195,467   
           

Professional Services - 3.3%

      

Adecco S.A. (Switzerland)1

      1,607,430         105,414,240   

Randstad Holding N.V. (Netherlands)*1

      1,997,449         105,563,315   
           
        210,977,555   
           

Road & Rail - 1.4%

      

All America Latina Logistica S.A. (Brazil)

      7,149,150         64,600,753   

Canadian National Railway Co. (Canada)

      439,050         29,183,653   
           
        93,784,406   
           

Total Industrials

         968,697,534   
           

Information Technology - 15.7%

      

Communications Equipment - 1.3%

      

Alcatel-Lucent - ADR (France)*

      29,070,460         86,048,562   
           

Internet Software & Services - 0.6%

      

VistaPrint N.V. (Netherlands)*

      809,360         37,230,560   
           

IT Services - 6.9%

      

Accenture plc - Class A (Ireland)

      1,338,860         64,921,321   

 

The accompanying notes are an integral part of the financial statements.    7

Investment Portfolio - December 31, 2010

 

 

     Shares     

Value

(Note 2)

  

COMMON STOCKS (continued)

      

Information Technology (continued)

      

IT Services (continued)

      

Amadeus IT Holding S.A. - Class A (Spain)*1

      1,577,960       $ 33,161,321   

Amdocs Ltd. (Guernsey)*

      9,530,590         261,805,307   

Cielo S.A. (Brazil)

      5,119,970         41,484,094   

Redecard S.A. (Brazil)

      3,414,050         43,292,622   
           
        444,664,665   
           

Semiconductors & Semiconductor Equipment - 4.6%

      

Advantest Corp. (Japan)1

      6,568,600         147,683,185   

Sumco Corp. (Japan)*1

      5,038,920         71,751,374   

Tokyo Electron Ltd. (Japan)1

      1,041,080         65,547,648   

Yingli Green Energy Holding Co. Ltd.- ADR (China)*

      1,439,780         14,225,026   
           
        299,207,233   
           

Software - 2.3%

      

Misys plc (United Kingdom)*1

      12,411,604         66,258,594   

SAP AG - ADR (Germany)

      898,850         45,490,799   

Square Enix Holdings Co. Ltd. (Japan)1

      2,181,600         38,587,780   
           
        150,337,173   
           

Total Information Technology

         1,017,488,193   
           

Materials - 4.1%

      

Chemicals - 1.6%

      

Johnson Matthey plc (United Kingdom)1

      1,554,500         49,526,122   

Shin-Etsu Chemical Co. Ltd. (Japan)1

      952,500         51,336,477   
           
        100,862,599   
           

Construction Materials - 2.3%

      

CRH plc (Ireland)1

      6,993,600         145,914,497   
           

Paper & Forest Products - 0.2%

      

Norbord, Inc. (Canada)*

      1,120,342         16,495,833   
           

Total Materials

         263,272,929   
           

Telecommunication Services - 1.5%

      

Wireless Telecommunication Services - 1.5%

      

SK Telecom Co. Ltd. - ADR (South Korea)

      5,160,950         96,148,499   
           

TOTAL COMMON STOCKS

      

(Identified Cost $5,519,494,262)

         6,135,038,763   
           

 

8    The accompanying notes are an integral part of the financial statements.

Investment Portfolio - December 31, 2010

 

 

     Shares     

Value

(Note 2)

        

PREFERRED STOCKS - 1.0%

        

Consumer Staples - 1.0%

        

Household Products - 1.0%

        

Henkel AG & Co. KGaA (Germany)1

(Identified Cost $36,696,378)

      1,048,140       $ 64,986,480     
             

SHORT-TERM INVESTMENTS - 5.3%

        

Dreyfus Cash Management, Inc. - Institutional Shares3, 0.14%

(Identified Cost $339,413,268)

      339,413,268         339,413,268     
             

TOTAL INVESTMENTS - 101.3%

        

(Identified Cost $5,895,603,908)

         6,539,438,511     

LIABILITIES, LESS OTHER ASSETS - (1.3%)

         (84,012,377 )   
             

NET ASSETS - 100%

       $  6,455,426,134     
             

ADR - American Depository Receipt

NVDR - Non-Voting Depository Receipt

*Non-income producing security

1International Fair Value factor from pricing service was applied.

2Affiliated company as defined by the Investment Company Act of 1940 (see Note 2 to the financial statements).

3Rate shown is the current yield as of December 31, 2010.

The Series’ portfolio holds, as a percentage of net assets, greater than 10% in the following countries:

France - 11.4%; United Kingdom - 11.1%.

 

The accompanying notes are an integral part of the financial statements.    9

Statement of Assets and Liabilities

December 31, 2010

 

 

ASSETS:

   

Investments, at value (identified cost $5,895,603,908) (Note 2)

    $ 6,539,438,511   

Receivable for fund shares sold

      15,981,280   

Receivable for securities sold

      5,054,544   

Foreign tax reclaims receivable

      4,888,301   

Dividends receivable

      4,551,961   
        

TOTAL ASSETS

      6,569,914,597   
        

LIABILITIES:

   

Accrued management fees (Note 3)

      5,352,489   

Accrued transfer agent fees (Note 3)

      407,945   

Accrued fund accounting and administration fees (Note 3)

      136,223   

Accrued directors’ fees (Note 3)

      2,261   

Accrued Chief Compliance Officer service fees (Note 3)

      245   

Payable for securities purchased

      104,105,563   

Payable for fund shares repurchased

      3,856,821   

Other payables and accrued expenses

      626,916   
        

TOTAL LIABILITIES

      114,488,463   
        

TOTAL NET ASSETS

    $ 6,455,426,134   
        

NET ASSETS CONSIST OF:

   

Capital stock

    $ 7,500,565   

Additional paid-in-capital

      5,796,809,349   

Distributions in excess of net investment income

      (493,000 ) 

Accumulated net realized gain on investments, foreign currency and translation of other assets
and liabilities

      7,289,612   

Net unrealized appreciation on investments, foreign currency and translation of other assets
and liabilities

      644,319,608   
        

TOTAL NET ASSETS

    $ 6,455,426,134   
        

NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE -
Class A ($6,455,426,134/750,056,522 shares)

    $ 8.61   
        

 

10    The accompanying notes are an integral part of the financial statements.

Statement of Operations

For the Year Ended December 31, 2010

 

 

INVESTMENT INCOME:

   

Dividends (net of foreign taxes withheld, $12,577,925)

      $112,609,854   
        

EXPENSES:

   

Management fees (Note 3)

      55,383,375   

Transfer agent fees (Note 3)

      2,927,156   

Fund accounting and administration fees (Note 3)

      743,077   

Directors’ fees (Note 3)

      103,078   

Chief Compliance Officer service fees (Note 3)

      2,631   

Custodian fees

      1,091,198   

Miscellaneous

      1,373,722   
        

Total Expenses

      61,624,237   

Less reduction of expenses (Note 3)

      (758 ) 
        

Net Expenses

      61,623,479   
        

NET INVESTMENT INCOME

      50,986,375   
        

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:

   

Net realized gain (loss) on-
Investments

      145,345,736   

Foreign currency and translation of other assets and liabilities

      (2,707,000 ) 
        
     142,638,736   
        

Net change in unrealized appreciation on-
Investments

      299,446,571   

Foreign currency and translation of other assets and liabilities

      387,847   
        
     299,834,418   
        

NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCY

      442,473,154   
        

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

      $493,459,529   
        

 

 

The accompanying notes are an integral part of the financial statements.    11

Statements of Changes in Net Assets

 

 

    

For the

Year Ended

12/31/10

    

For the

Year Ended

12/31/09

  

INCREASE (DECREASE) IN NET ASSETS:

     

OPERATIONS:

     

Net investment income

      $    50,986,375        $    16,004,364   

Net realized gain on investments and foreign currency

      142,638,736        32,401,977   

Net change in unrealized appreciation on investments and foreign currency

      299,834,418        859,900,733   
                

Net increase from operations

      493,459,529        908,307,074   
                

DISTRIBUTIONS TO SHAREHOLDERS (Note 8):

     

From net investment income

      (51,336,546 )      (30,333,272 ) 

From net realized gain on investments

      (128,844,230 )      —   
                

Total distributions to shareholders

      (180,180,776 )      (30,333,272 ) 
                

CAPITAL STOCK ISSUED AND REPURCHASED:

     

Net increase from capital share transactions (Note 5)

      1,224,687,957        2,699,428,129   
                

Net increase in net assets

      1,537,966,710        3,577,401,931   

NET ASSETS:

     

Beginning of year

      4,917,459,424        1,340,057,493   
                

End of year (including distributions in excess of net investment income of $493,000 and undistributed net investment income of $2,564,172, respectively)

      $6,455,426,134        $4,917,459,424   
                

 

12    The accompanying notes are an integral part of the financial statements.

Financial Highlights

 

 

     For the Years Ended         
     12/31/10     12/31/09     12/31/08      12/31/07      12/31/06         
Per share data (for a share outstanding throughout each year):                

Net asset value - Beginning of year

      $8.12         $5.88         $10.07          $9.58          $8.46       
                                             

Income (loss) from investment operations:

                

Net investment income

      0.071        0.041        0.10          0.05          0.12       

Net realized and unrealized gain (loss) on investments

      0.67         2.26         (4.08)         1.36          2.71       
                                             

Total from investment operations

      0.74         2.30         (3.98)         1.41          2.83       
                                             

Less distributions to shareholders:

                

From net investment income

      (0.07)        (0.06)        (0.03)         (0.05)         (0.14)      

From net realized gain on investments

      (0.18)        —         (0.18)         (0.87)         (1.57)      
                                             

Total distributions to shareholders

      (0.25)        (0.06)        (0.21)         (0.92)         (1.71)      
                                             

Net asset value - End of year

      $8.61         $8.12         $5.88          $10.07          $9.58       
                                             

 

Net assets - End of year (000’s omitted)

      $6,455,426         $4,917,459         $1,340,057          $841,864          $317,121       
                                             

Total return2

      9.23%         39.12%         (40.07%)         15.13%          33.88%       

Ratios (to average net assets)/Supplemental Data:

                

Expenses*

      1.11%         1.17%         1.16%          1.14%          1.16%       

Net investment income

      0.92%         0.60%         2.17%          0.75%          1.35%       

Portfolio turnover

      39%         42%         34%          49%          64%       

*The investment advisor did not impose all of its management fees, CCO fees and fund accounting and transfer agent fees, and other fees in some years and in some years paid a portion of the series’ expenses. If these expenses had been incurred by the Series, the expense ratio (to average net assets) would have been increased by the following amounts:

 

    

     0.00%3         0.00%3      

 

N/A 

  

      N/A          N/A       

1Calculated based on average shares outstanding during the year.

2Represents aggregate total return for the periods indicated, and assumes reinvestment of all distributions. Total return would have been lower had certain expenses not been waived or reimbursed during the periods. Periods less than one year are not annualized.

3Less than 0.01%.

 

The accompanying notes are an integral part of the financial statements.    13

Notes to Financial Statements

 

 

1.

ORGANIZATION

World Opportunities Series (the “Series”) is a no-load diversified series of Manning & Napier Fund, Inc. (the “Fund”). The Fund is organized in Maryland and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company.

The Series’ investment objective is to provide long-term growth by investing principally in the common stocks of companies from outside the United States.

The Series is authorized to issue five classes of shares (Class A, B, D, E and Z). Currently, only Class A shares have been issued. Each class of shares is substantially the same, except that class-specific distribution and shareholder servicing expenses are borne by the specific class of shares to which they relate.

The Fund’s Advisor is Manning & Napier Advisors, Inc. (the “Advisor”). Shares of the Series are offered to investors, clients and employees of the Advisor and its affiliates. The total authorized capital stock of the Fund consists of 10.0 billion shares of common stock each having a par value of $0.01. As of December 31, 2010, 6.2 billion shares have been designated in total among 29 series, of which 2.5 billion have been designated as World Opportunities Series Class A common stock.

 

2.

SIGNIFICANT ACCOUNTING POLICIES

Security Valuation

Portfolio securities, including domestic equities, foreign equities, warrants and options, listed on an exchange other than the NASDAQ National Market System are valued at the latest 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 provided by the Fund’s pricing service. Securities listed on the NASDAQ National Market System are valued in accordance with the NASDAQ Official Closing Price.

Short-term investments that mature in sixty days or less are valued at amortized cost, which approximates market value. Investments in open-end investment companies are valued at their net asset value per share on valuation date.

Volume and level of activity in established markets for an asset or liability are evaluated to determine whether recent transactions and quoted prices are determinative of fair value. Where there have been significant decreases in volume and level of activity, further analysis and adjustment may be necessary to estimate fair value. The Series measures fair value in these instances by the use of inputs and valuation techniques which may be based upon current market prices of securities that are comparable in coupon, rating, maturity and industry and/or expectation of future cash flows. As a result of trading in relatively thin markets and/or markets that experience significant volatility, the prices used by the Series to value these securities may differ from the value that would be realized if these securities were sold, and the differences could be material.

Securities for which representative valuations or prices are not available from the Fund’s pricing service may be valued at fair value. Due to the inherent uncertainty of valuations of such securities, the fair value may differ significantly from the values that would have been used had a ready market for such securities existed. If trading or events occurring after the close of the principal market in which securities are traded are expected to materially affect the value of those securities, then they may be valued at their fair value, taking this trading or these events into account. Fair value is determined in good faith by the Advisor under procedures approved by and under the general supervision and responsibility of the Fund’s Board of Directors (the “Board”). In accordance with the procedures approved by the Board, the Series applies fair value pricing on a daily basis except for North American, Central American, South American and Caribbean equity securities. Fair valuing of securities is determined with the assistance of a pricing service using calculations or factors based on indices of domestic securities and other appropriate indicators, such as prices of relevant American Depository Receipts and futures contracts, to adjust local market prices for subsequent

 

14   

Notes to Financial Statements

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Security Valuation (continued)

movements through the time the Series calculates its net asset value. The value of securities used for the net asset value calculation under the procedures may differ from published prices for the same securities. It is the Fund’s policy to classify each foreign equity security, except for those in the regions noted above, as Level 2 securities due to the fact the pricing service evaluated what factor was applied to the calculated end of day market price.

Various inputs are used in determining the value of the Series’ assets or liabilities carried at market value. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical assets and liabilities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). Level 3 includes significant unobservable inputs (including the Series’ own assumptions in determining the fair value of investments.) The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the valuation levels used for major security types as of December 31, 2010 in valuing the Series’ assets or liabilities carried at market value:

 

Description    Total      Level 1      Level 2      Level  3  

Assets:

            

Equity securities*

      $ 6,135,038,763         $ 2,244,465,272         $ 3,890,573,491         $                      —   

Preferred securities

      64,986,480            64,986,480         —   

Debt securities

      —         —         —         —   

Mutual funds

      339,413,268         339,413,268         —         —   

Other financial instruments**:

      —         —         —         —   
                                   

Total assets:

      6,539,438,511         2,583,878,540         3,955,559,971         —   
                                   

Liabilities:

            

Other financial instruments**:

      —         —         —         —   

Total liabilities:

      —         —         —         —   
                                   

Total

      $ 6,539,438,511         $ 2,583,878,540         $ 3,955,559,971         $                      —   
                                   

*Includes common stock, warrants and rights. Please see the Investment Portfolio for industry classification and for securities where an International Fair Value factor from the pricing service was applied to value the security. Such securities are included in Level 2 in the table above.

**Other financial instruments are derivative instruments not reflected in the Investment Portfolio, such as futures, forwards and swap contracts, which are valued at the unrealized appreciation/depreciation on the instrument. As of December 31, 2010, the Series did not hold any derivative instruments.

There were no Level 3 securities held by the Series as of December 31, 2009 or December 31, 2010.

The Fund’s policy is to recognize transfers in and transfers out of the valuation levels as of the beginning of the reporting period. During the year ended December 31, 2010, the Fund had a significant amount of foreign equity securities transfer from Level 1 to Level 2 due to the implementation of new international fair value pricing procedures. The following is a summary of the foreign equity securities that transferred from Level 1 to Level 2:

 

   15

Notes to Financial Statements

 

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Security Valuation (continued)

 

   

Total #

Securities

Level 1 at

beginning and

Level 2 at end

of period

     

Total Market

Value

Beginning of

period

    

Total Market

Value

End of period

     

Change in

Market Value

  
    28               $ 2,196,289,659         $ 2,575,490,588       $  379,200,929   

Additional disclosure surrounding the activity in Level 3 fair value measurement will be effective for fiscal years beginning after December 15, 2010. Management has concluded that this will not have a material impact on the Series’ financial statements.

Security Transactions, Investment Income and Expenses

Security transactions are accounted for on trade date. Dividend income is recorded on the ex-dividend date, except that if the ex-dividend date has passed, certain dividends from foreign securities are recorded as soon as the Fund is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Interest income, including amortization of premium and accretion of discounts using the effective interest method, is earned from settlement date and accrued daily.

Expenses are recorded on an accrual basis. Most expenses of the Fund can be attributed to a specific series. Expenses which cannot be directly attributed are apportioned among the series in the Fund in such a manner as deemed equitable by the Fund’s Board, taking into consideration, among other things, the nature and type of expense.

The Series uses the identified cost method for determining realized gain or loss on investments for both financial statement and federal income tax reporting purposes.

Foreign Currency Translation

The books and records of the Series are maintained in U.S. dollars. Foreign currencies, investments and other assets and liabilities are translated into U.S. dollars at the current exchange rates. Purchases and sales of investment securities and income and expenses are translated on the respective dates of such transactions. The Series does not isolate realized and unrealized gains and losses attributable to changes in the exchange rates from gains and losses that arise from changes in the market value of investments. Such fluctuations are included with net realized and unrealized gain or loss on investments. Net realized foreign currency gains and losses represent foreign currency gains and losses between trade date and settlement date on securities transactions, gains and losses on disposition of foreign currencies and the difference between the amount of income and foreign withholding taxes recorded on the books of the Series and the amounts actually received or paid.

Affiliated Companies

The 1940 Act defines “affiliated companies” to include securities in which a series owns 5% or more of the outstanding voting securities of the issuer. The following transactions were effected in shares of Calfrac Well Services Ltd. (Canada) and Trican Well Service Ltd. (Canada) for the year ended December 31, 2010:

 

16   

Notes to Financial Statements

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Affiliated Companies (continued)

 

Name of Issuer  

Value at

12/31/09

    

Purchase

Cost

  

Sales

Proceeds

    

Value at

12/31/10

   Shares Held  at
12/31/10		  

Dividend

Income

12/31/09

through

12/31/10

    

Net Realized

Gain

12/31/09

through

12/31/10

  

Calfrac Well Service Ltd. (Canada)*

     $67,286,779      —     $27,870,894      $44,652,500   1,296,670     $159,989        $6,107,092   

Trican Well Service Ltd. (Canada)

      $99,690,152      —     $               —      $150,202,917   7,415,430     $729,495        $            —   

* Security was an affiliated company for the period December 31, 2009 through April 16, 2010.

Federal Taxes

The Series’ policy is to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. The Series is not subject to federal income tax or excise tax to the extent that the Series 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.

Management evaluates its tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of tax benefits of an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. At December 31, 2010, the Series has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken in future tax returns.

The Series files income tax returns in the U.S. federal jurisdiction, various states and foreign jurisdictions, as required. No income tax returns are currently under investigation. The statute of limitations on the Series’ tax returns remains open for the years ended December 31, 2007 through December 31, 2010. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.

Additionally, based on the Fund’s understanding of the tax rules and rates related to income, gains and transactions for foreign jurisdictions in which it invests, the Series will provide for foreign taxes, and where appropriate, deferred foreign tax.

Distributions of Income and Gains

Distributions to shareholders of net investment income and net realized gains are made annually. An additional distribution may be necessary to avoid taxation of the Series. Distributions are recorded on the ex-dividend date.

Indemnifications

The Fund’s organizational documents provide former and current directors and officers with a limited indemnification against liabilities arising in connection with the performance of their duties to the Fund. In the normal course of business, the Fund may also enter into contracts that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would be dependent on future claims that may be made against the Fund. The risk of material loss from such claims is considered remote.

 

   17

Notes to Financial Statements

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Other

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 income and expenses during the reporting period. Actual results could differ from those estimates.

 

3.

TRANSACTIONS WITH AFFILIATES

The Fund has an Investment Advisory Agreement (the “Agreement”) with the Advisor, for which the Series pays a fee, computed daily and payable monthly, at an annual rate of 1.00% of the Series’ average daily net assets.

Under the Agreement, personnel of the Advisor provide the Series with advice and assistance in the choice of investments and the execution of securities transactions, and otherwise maintain the Series’ organization. The Advisor also provides the Fund with necessary office space and fund administration and support services. The salaries of all officers of the Fund (except a percentage of the Fund’s Chief Compliance Officer’s salary, which is paid by 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. Each “non-affiliated” Director receives an annual stipend, which is allocated among all the active series of the Fund. In addition, these Directors also receive a fee per Board meeting attended plus a fee for each committee meeting attended.

For the year ended December 31, 2010, the Advisor voluntarily waived fees of $758, which is included as a reduction of expenses on the Statement of Operations. The Advisor is not eligible to recoup any expense that has been waived or reimbursed in prior years.

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 Series.

The Advisor has agreements with PNC Global Investment Servicing (U.S.) Inc. (“PNCGIS”) under which PNCGIS serves as sub-accountant services agent and sub-transfer agent. The Fund pays the Advisor an annual fee related to fund accounting and administration of 0.0175% on the first $3 billion of average daily net assets (excluding Target Series); 0.015% on the next $3 billion of average daily net assets (excluding Target Series); and 0.01% of the average daily net assets in excess of $6 billion (excluding Target Series); plus a base fee of $25,500 per Series. Transfer Agent fees are charged to the Fund on a per account basis. Additionally, certain transaction- and cusip-based fees and out-of-pocket expenses, including charges for reporting relating to the Fund’s compliance program, are charged.

Effective July 1, 2010, PNCGIS was sold to The Bank of New York Mellon Corporation, the Series’ custodian. At the close of the sale, PNCGIS changed its name to BNY Mellon Investment Servicing (U.S.) Inc. (“BNY”).

Expenses not directly attributable to a Series are allocated based on each Series’ relative net assets or number of accounts, depending on the expense.

 

4.

PURCHASES AND SALES OF SECURITIES

For the year ended December 31, 2010, purchases and sales of securities, other than U.S. Government securities and short-term securities, were $3,163,930,092 and $2,047,901,465, respectively. There were no purchases or sales of U.S. Government securities.

 

18   

Notes to Financial Statements

 

 

5.

CAPITAL STOCK TRANSACTIONS

Transactions in Class A shares of World Opportunities Series were:

 

    

For the Year

Ended 12/31/10

    

For the Year

Ended 12/31/09

  
     Shares     Amount     Shares     Amount  

Sold

      380,543,895      $ 3,072,871,491        473,021,745      $ 3,314,846,649   

Reinvested

      17,838,209        148,727,024        2,714,538        21,626,348   

Repurchased

      (253,809,235 )      (1,996,910,558 )      (98,321,062 )      (637,044,868 ) 
                                

Total

      144,572,869      $ 1,224,687,957        377,415,221      $ 2,699,428,129   
                                

Approximately 3% of the Series’ shares represent investments by fiduciary accounts over which the Advisor has sole investment discretion.

 

6.

FINANCIAL INSTRUMENTS

The Series may trade in instruments including written and purchased options, forward foreign currency exchange contracts and futures contracts and other derivatives in the normal course of investing activities to assist in managing exposure to various market risks. Investments in these instruments may subject the Series to various elements of risk, which may involve, to a varying degree, elements of risk in excess of the amounts recognized for financial statement purposes. These risks include: the risk that changes in the value of a derivative may not correlate perfectly with the underlying asset, rate or index, counterparty credit risk related to over the counter derivatives counterparties’ failure to perform under contract terms, liquidity risk related to the lack of a liquid market for these contracts allowing the fund to close out its position(s) and documentation risk relating to disagreement over contract terms. No such investments were held by the Series for the year ended December 31, 2010.

 

7.

FOREIGN SECURITIES

Investing in securities of foreign companies and foreign governments involves special risks and considerations not typically associated with investing in securities of domestic companies and the U.S. Government. These risks include revaluation of currencies and future adverse political and economic developments. Moreover, securities of foreign companies and foreign governments and their markets may be less liquid and their prices more volatile than those of comparable domestic companies and the U.S. Government.

 

8.

FEDERAL INCOME TAX INFORMATION

The amount and characterization of certain income and capital gains to be distributed are determined in accordance with federal income tax regulations, which may differ from accounting principles generally accepted in the United States of America. These differences are primarily due to differing book and tax treatments in the timing of the recognition of net investment income or gains and losses, including foreign currency gains and losses, losses deferred due to wash sales, and post-October losses. The Series may periodically make reclassifications among its capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations without impacting the Series’ net asset value. Any such reclassifications are not reflected in the financial highlights.

 

   19

Notes to Financial Statements

 

 

8.

FEDERAL INCOME TAX INFORMATION (continued)

The tax character of distributions paid were as follows:

 

    

For the Year

Ended

12/31/10

     

For the Year

Ended

12/31/09

  

Ordinary income

    $   115,460,480       $     30,333,272   

Long-term capital gains

      64,720,296         —   

For the year ended December 31, 2010, the Series elected to defer $492,999 of currency losses, attributable to Post-October losses.

At December 31, 2010, the tax basis of distributable earnings and the net unrealized appreciation based on the identified cost of investments for federal income tax purposes were as follows:

 

Cost for federal income tax purposes

    $ 5,934,571,718     

Unrealized appreciation

    $ 817,876,674     

Unrealized depreciation

      (213,009,881 )   
          

Net unrealized appreciation

    $ 604,866,793     
          

Undistributed ordinary income

      28,292,435     

Undistributed long-term gains

      17,964,985     

 

20   

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors of Manning & Napier Fund, Inc. and Shareholders of World Opportunities Series:

In our opinion, the accompanying statement of assets and liabilities, including the investment portfolio, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the World Opportunities Series (a series of Manning & Napier Fund, Inc., hereafter referred to as the “Series”) at December 31, 2010, and 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 five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Series’ management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2010 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

LOGO

New York, New York

February 22, 2011

 

   21

Supplemental Tax Information (unaudited)

 

 

All designations are based on financial information available as of the date of this annual report and, accordingly are subject to change.

For federal income tax purposes, the Series designates for the current fiscal year $111,683,383 or, if different, the maximum amount allowable under the tax law as qualified dividend income.

Pursuant to Section 852 of the Internal Revenue Code, as amended, the Series hereby designates $64,720,296 as capital gains for its taxable year ended December 31, 2010, or if different, the maximum allowable under tax law.

For corporate shareholders, the percentage of investment income (dividend income plus short-term gains, if any) that qualifies for the dividends received deduction for the current fiscal year is 0.11%.

 

22   

Renewal of Investment Advisory Agreement (unaudited)

 

At the Manning & Napier Fund, Inc. (the “Fund”) Board of Directors’ (the “Board”) meeting, held on November 17, 2010, the Investment Advisory Agreement (the “Agreement”) between the Fund and Manning & Napier Advisors, Inc. (the “Advisor”) was reviewed by the Board for renewal. In connection with the decision whether to renew the Agreement, a variety of material was prepared for and reviewed by the Board.

Representatives of the Advisor attended the meeting and presented additional oral and written information to the Board to assist the Board in its considerations. The discussion immediately below outlines the materials and information presented to the Board in connection with the Board’s 2010 Annual Review of the Agreement and the conclusions made by the Directors when determining to continue the Agreement.

 

  •  

The Board considered the services provided by the Advisor under the Agreement including, among others: deciding what securities to purchase and sell for each Series; arranging for the purchase and sale of such securities by placing orders with broker-dealers; administering the affairs of the Fund (including the books and records of the Fund not maintained by third party service providers such as the custodian or sub-transfer agent); arranging for the insurance coverage for the Fund; and supervising the preparation of tax returns, SEC filings (including registration statements) and reports to shareholders for the Fund. The Board also considered the nature and quality of such services provided under the Agreement in light of the Advisor’s services provided to the Fund for 24 years. The Board discussed the quality of these services with representatives from the Advisor and concluded that the Advisor was performing its services to the Fund required under the Agreement in a reasonable manner.

 

  •  

The Board considered the investment performance of the various Series of the Fund. The investment performance for each Series was reviewed on a cumulative basis since inception and on a one year basis. In addition, annualized performance for the following time periods was considered: inception, three year, five year, ten year, and current market cycle. A market cycle includes periods of both rising and falling markets. Returns for established benchmark indices for each Series were provided for each time period. The Board noted that the various Series were competitive against their respective benchmarks and/or peer groups over various time periods, but in particular over the full market cycle period relevant for the Series. In addition, the Board considered at the meeting (and considers on a quarterly basis) a peer group performance analysis consisting of Morningstar universes of mutual funds with similar investment objectives. The Board discussed the performance with representatives from the Advisor and concluded that the investment performance of each of the Fund’s Series was reasonable based on the Fund’s actual performance and comparative performance, especially performance over the current market cycle.

 

  •  

The Board considered the costs of the Advisor’s services and the profits of the Advisor as they relate to the Advisor’s services to the Fund under the Agreement. In reviewing the Advisor’s costs and profits, the Board discussed the Advisor’s revenues generated from the Fund (on both an actual and adjusted basis) and its expenses associated with providing the services under the Agreement. In addition, the Board reviewed the Advisor’s expenses associated with Fund activities outside of the Agreement (such as expense reimbursements pursuant to expense caps and payments made by the Advisor to third party platforms on which shares of the Fund are available for purchase). It was noted by representatives of the Advisor that 11 of the 27 active Series of the Fund are currently experiencing expenses above the capped expense ratios. After discussing the above costs and profits, the Board concluded that the Advisor’s profitability relating to its services provided under the Agreement was reasonable.

 

  •  

The Board considered the fees and expenses of the various Series of the Fund. The Advisor presented the advisory fees and total expenses for each Series, including the advisory fee adjusted for any expense waivers or reimbursements (either contractual or voluntary) paid by the Advisor. The advisory fees and expense ratios of each Series were compared to an average (on both a mean and median basis) of similar funds as disclosed on the Morningstar database. Representatives of the Advisor discussed with the Board the levels of its advisory

 

   23

Renewal of Investment Advisory Agreement (unaudited)

 

 

 

fee for each Series of the Fund and as compared to the median and mean advisory fees for similar funds as listed on Morningstar. Expense ratios for every Series, except the Pro-Blend’s Class R and Class C, and Target Class R and Class C, are currently below the median and mean for similar funds as listed on Morningstar. Based on their review of the information provided, the Board concluded that the fees and expenses of each Series of the Fund were reasonable on a comparative basis.

 

  •  

The Board also considered the other benefits the Advisor derives from its relationship with the Fund. Such other benefits include certain research products provided by soft dollars. Given the level of soft dollar transactions involving the Fund, the Board concluded that these additional benefits to the Advisor were reasonable.

 

  •  

In addition to the factors described above, the Board considered the Advisor’s personnel, investment strategies, policies and procedures relating to compliance with personal securities transactions, and reputation, expertise and resources in domestic and foreign financial markets. The Board concluded that these factors support the conclusion that the Advisor performs its services in a reasonable manner.

 

  •  

The Board did not consider economies of scale at this time because of the multiple uses of the Fund (for the Advisor’s discretionary investment account clients in addition to direct investors), the current profitability of the Advisor’s services to the Fund under the Agreement, and the overall size of the Fund complex.

Based on the Board’s deliberations and their evaluation of the information described above, the Board, including a majority of Directors that are not “interested persons” as defined in the Investment Company Act of 1940, concluded that the compensation under the Agreement was fair and reasonable in light of the services and expenses and such other matters as the Directors considered to be relevant in the exercise of their reasonable judgment. Accordingly, the Board approved the renewal of the Agreement. In the course of their deliberations, the Directors did not identify any particular information that was all important or controlling.

 

24   

Directors’ and Officers’ Information (unaudited)

The Statement of Additional Information provides additional information about the Fund’s directors and officers and can be obtained without charge by calling 1-800-466-3863, at www.manningnapieradvisors.com, or on the EDGAR Database on the SEC Internet web site (http:// www.sec.gov). The following chart shows certain information about the Fund’s officers and directors, including their principal occupations during the last five years. Unless specific dates are provided, the individuals have held the listed positions for longer than five years.

 

INTERESTED DIRECTOR/OFFICER

   

Name:

   

B. Reuben Auspitz*

Address:

   

290 Woodcliff Drive

  

Fairport, NY 14450

Age:

   

63

Current Position(s) Held with Fund:

   

Principal Executive Officer, President, Chairman & Director

Term of Office1 & Length of Time Served:

   

Indefinite - Director since 1984; Vice President 1984 - 2003; President since 2004; Principal Executive Officer since 2002

Principal Occupation(s) During Past 5 Years:

   

Executive Vice President; Executive Group Member**; Chief Compliance Officer since 2004; Vice Chairman since June 2010; Co-Executive Director from 2003-2010 - Manning & Napier Advisors, Inc. President; Director - Manning & Napier Investor Services, Inc.

Holds or has held one or more of the following titles for various subsidiaries and affiliates: President, Vice President, Director, Chairman, Treasurer, Chief Compliance Officer or Member.

Number of Portfolios Overseen within Fund Complex:

   

29

Other Directorships Held Outside Fund Complex:

   

N/A

INDEPENDENT DIRECTORS

   

Name:

   

Paul A. Brooke

Address:

   

290 Woodcliff Drive

  

Fairport, NY 14450

Age:

   

65

Current Position(s) Held with Fund:

   

Director, Audit Committee Member, Governance & Nominating

  

Committee Member

Term of Office & Length of Time Served:

   

Indefinite - Since 2007

Principal Occupation(s) During Past 5 Years:

   

Chairman & CEO, Alsius Corp. (investments); Managing Member, PMSV Holdings LLC (investments)

Number of Portfolios Overseen within Fund Complex:

   

29

Other Directorships Held Outside Fund Complex:

   

Incyte Corp. (2000-present)

  

ViroPharma, Inc. (2000-present)

  

HLTH Corp. (2000-present)

  

Cheyne Capital International (2000-present)

  

MPM Bio-equities (2000-present)

  

GMP Companies (2000-present)

    

HoustonPharma (2000-present)

Name:

   

Richard M. Hurwitz

Address:

   

290 Woodcliff Drive

  

Fairport, NY 14450

Age:

   

47

Current Position(s) Held with Fund:

   

Director, Audit Committee Member, Governance & Nominating

  

Committee Member

Term of Office & Length of Time Served:

   

Indefinite - Since 2009

Principal Occupation(s) During Past 5 Years:

   

Chief Executive Officer, Pictometry International Corp. since August 2010 (provider of georeferenced, aerial image libraries and related software) Managing Partner (2006-July 2010) - Aegis Investment Partners, LLC (investments); Founder and Managing Partner (2004-2005) - Village Markets, LLC (groceries)

Number of Portfolios Overseen within Fund Complex:

   

29

Other Directorships Held Outside Fund Complex:

   

Pictometry International Corp. (2000-2010)

  

Pioneering Technologies (2006-2009)

    

Vensearch Capital Corp. (2003-2007)

 

 

25

Directors’ and Officers’ Information (unaudited)

 

INDEPENDENT DIRECTORS (continued)   

 

Name:

    Stephen B. Ashley

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    70

Current Position(s) Held with Fund:

    Director, Audit Committee Member, Governance & Nominating Committee Member

Term of Office & Length of Time Served:

    Indefinite - Since 1996

Principal Occupation(s) During Past 5 Years:

    Chairman, Director, President & Chief Executive Officer, The Ashley Group (property management and investment). Chairman (non-executive) 2004-2008; Director 1995-2008 - Fannie Mae (mortgage)

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    The Ashley Group (1995-2008)
     Genesee Corporation (1987-2007)

Name:

    Peter L. Faber

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    72

Current Position(s) Held with Fund:

    Director, Governance & Nominating Committee Member

Term of Office & Length of Time Served:

    Indefinite - Since 1987

Principal Occupation(s) During Past 5 Years:

    Senior Counsel since 2006, Partner (1995 - 2006) - McDermott, Will & Emery LLP (law firm)

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    Partnership for New York City, Inc. (non-profit)
   New York Collegium (non-profit)
     Boston Early Music Festival (non-profit)

Name:

    Harris H. Rusitzky

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    76

Current Position(s) Held with Fund:

    Director, Audit Committee Member, Governance & Nominating Committee Member

Term of Office & Length of Time Served:

    Indefinite - Since 1985

Principal Occupation(s) During Past 5 Years:

    President, The Greening Group (business consultants) since 1994; Partner, The Restaurant Group (restaurants) since 2006

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A

OFFICERS

   

 

Name:

    Jeffrey S. Coons, Ph.D., CFA

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    47

Current Position(s) Held with Fund:

    Vice President

Term of Office1 & Length of Time Served:

    Since 2004

Principal Occupation(s) During Past 5 Years:

    President since 2010, Co-Director of Research since 2002, Executive Group Member** since 2003, - Manning & Napier Advisors, Inc. Holds one or more of the following titles for various subsidiaries and affiliates: President, Director, Treasurer or Senior Trust Officer.

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

 

   

N/A

 

 

26

Directors’ and Officers’ Information (unaudited)

 

OFFICERS (continued)   

 

Name:

    Beth Galusha

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    49

Current Position(s) Held with Fund:

    Assistant Chief Financial Officer

Term of Office1 & Length of Time Served:

    Assistant Chief Financial Officer since 2010

Principal Occupation(s) During Past 5 Years:

    Chief Financial Officer and Treasurer, Manning & Napier Advisors, Inc. Holds one or more of the following titles for various affiliates: Chief Financial Officer, Director, or Treasurer

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A

Name:

    Christine Glavin

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    44

Current Position(s) Held with Fund:

    Principal Financial Officer, Chief Financial Officer

Term of Office1 & Length of Time Served:

    Principal Financial Officer since 2002; Chief Financial Officer since 2001

Principal Occupation(s) During Past 5 Years:

    Fund Reporting Manager, Manning & Napier Advisors, Inc. since 1997

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A

Name:

    Jodi L. Hedberg

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    43

Current Position(s) Held with Fund:

    Corporate Secretary, Chief Compliance Officer, Anti-Money Laundering Compliance Officer

Term of Office1 & Length of Time Served:

    Corporate Secretary since 1997; Chief Compliance Officer since 2004

Principal Occupation(s) During Past 5 Years:

    Director of Compliance, Manning & Napier Advisors, Inc. and affiliates since 1990 (title change in 2005 from Compliance Manager to Director of Compliance); Corporate Secretary, Manning & Napier Investor Services, Inc. since 2006

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A

Name:

    Richard Yates

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    45

Current Position(s) Held with Fund:

    Chief Legal Officer

Term of Office1 & Length of Time Served:

    Chief Legal Officer since 2004

Principal Occupation(s) During Past 5 Years:

    Counsel - Manning & Napier Advisors, Inc. & affiliates since 2000; Holds one or more of the following titles for various affiliates; Director or Corporate Secretary

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A

*Interested Director, within the meaning of the Investment Company Act of 1940 by reason of his position with the Fund’s investment advisor and distributor. Mr. Auspitz serves as the Executive Vice President and Director, Manning & Napier Advisors, Inc. and President and Director, Manning

& Napier Investor Services, Inc., the Fund’s distributor.

**Prior to June 2010, the Executive Group, consisting of senior executive employee-owners, performed the duties of the Office of the Chief Executive of the Advisor. Effective June 2010, the Executive Group serves as an advisory board to the Chief Executive Officer.

1The term of office for President, Vice President, Chief Financial Officer, Assistant Chief Financial Officer, Chief Legal Officer and Corporate Secretary is one year and until their respective successors are chosen and qualified. All other officers’ terms are indefinite.

 

27

 

 

 

 

 

This Page Intentionally Left Blank

 

28

 

 

 

 

 

This Page Intentionally Left Blank

 

29

Literature Requests (unaudited)

Proxy Voting Policies and Procedures

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request:

 

By phone

   

1-800-466-3863

   

On the Securities and Exchange

      

  Commission’s (SEC) web site

   

http://www.sec.gov

   

Proxy Voting Record

Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available, without charge, upon request:

 

By phone

   

1-800-466-3863

   

On the SEC’s web site

   

http://www.sec.gov

   

Quarterly Portfolio Holdings

The Series’ complete schedule of portfolio holdings for the 1st and 3rd quarters of each fiscal year are provided on Form N-Q, and are available, without charge, upon request:

 

By phone

   

1-800-466-3863

   

On the SEC’s web site

   

http://www.sec.gov

   

The Series’ Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.

Prospectus and Statement of Additional Information (SAI)

The prospectus and SAI provide additional information about each Series, including charges, expenses and risks. These documents are available, without charge, upon request:

 

By phone

   

1-800-466-3863

   

On the SEC’s web site

   

http://www.sec.gov

   

On the Advisor’s web site

   

http://www.manning-napier.com

   

Additional information available at www.manning-napier.com

1. Fund Holdings - Month-End

2. Fund Holdings - Quarter-End

3. Shareholder Report - Annual

4. Shareholder Report - Semi-Annual

            MNWO-12/10-AR

LOGO

Management Discussion and Analysis (unaudited)

 

Dear Shareholders:

As well-defined swings in sentiment drove market fluctuations in 2010, the fixed income markets generally had favorable results for the year. Returns were broadly positive throughout the first three quarters of the year. However, while equities finished the year with a strong rally, fixed income markets generally took a negative turn at the end of 2010. After eight consecutive quarters of positive performance, broad fixed income markets suffered losses in the fourth quarter.

While municipal securities posted gains for the year, the sector had the weakest fixed income returns in 2010, as credit concerns and supply and demand changes caused noteworthy losses during the last quarter. The Bank of America Merrill Lynch 1-12 Year Municipal Bond Index earned 3.04% during the year. With a return of 0.14%, the Ohio Tax Exempt Series trailed its benchmark over the last twelve months.

The municipal bond market generally performed well in the first three quarters of the year, a reflection of attractive supply and demand dynamics. During this time, the fundamentals in the tax-exempt marketplace remained strong, with demand rising because of the likelihood of higher taxes in the top tax brackets, and supply for longer-term tax-exempt issues declining because of the popularity of the alternative Build America Bond program. However, amid heightened concern about municipal defaults, the municipal bond market struggled during the fourth quarter.

While credit issues exist in certain areas of the municipal market, the Advisor does not believe the broad municipal credit environment has materially deteriorated. In fact, municipal defaults are rare, and municipalities typically pay their debts in full even if they are forced to restructure. Rather, much of the losses at the end of the year were likely due to supply and demand shifts within the sector. The recent tax compromise, which extended the Bush-era tax cuts for all income brackets, lessened the immediate demand for tax-shielding investments, and supply is expected to increase because of the expiration of the Build America Bond program, which had limited longer-term, tax-exempt supply, thus benefiting the municipal market. Given these factors, municipal yields increased during the fourth quarter. While rising yields equate to price declines, the Advisor believes this yield shift has enhanced the relative value of municipal bonds versus other sectors of the fixed income market.

Throughout 2010, the Series continued to focus on high quality bonds with an emphasis on the underlying credit quality, which provides additional security in the midst of a tough credit and economic environment. Specifically, during the past year the underlying credit quality of the bonds in the Series was rated investment grade or higher, and the types of holdings included general obligation debt, pre-refunded bonds, and revenue debt associated with necessary municipal services. While this higher quality bias leads to slightly lower relative yields than the overall municipal market, the Advisor believes the safety and liquidity of such issues justifies the quality bias.

Over the past year, the Series had a significant exposure to securities in the intermediate to longer-term maturity range as compared to the benchmark, which holds only minimal securities in this range. This intermediate to longer-term weighting was the primary driver of relative underperformance in 2010. While the current positioning helped relative results during several periods last year, particularly when municipal yields fell to historic lows during the third quarter, this positioning noticeably detracted from returns when yields rose during the fourth quarter, causing the Series to lag its benchmark for the year. However, given the slow growth economic environment, the Advisor believes the intermediate to longer-term maturity structure continues to be the most suitable strategy.

As the markets unfold in 2011, it will be important to monitor trends such as state and local budgets, monetary policy, and inflation expectations. With this mindset, Manning & Napier remains committed to our active and selective investment approach to fixed income. Staying focused on the fundamentals and maintaining our selective investment process helped us earn solid returns through the volatile markets of 2010, and we believe these qualities will remain important in the environment ahead.

As always, we appreciate your business.

Sincerely,

Manning & Napier Advisors, Inc.

 

1   

Performance Update as of December 31, 2010 (unaudited)

 

 

            Average  Annual Total Returns
As of December 31, 2010		  
      One
Year 		    Five
Year 		     Ten
Year 		     Since
Inception 1		  

Manning & Napier Fund, Inc. - Ohio Tax Exempt Series2

      0.14 %      3.47%          4.00%           4.29%       

Bank of America (BofA) Merrill Lynch 1-12 Year Municipal Bond Index3

      3.04 %      4.71%          4.91%           5.15%       
                                    

The following graph compares the value of a $10,000 investment in the Manning & Napier Fund, Inc. - Ohio Tax Exempt Series for the ten years ended December 31, 2010 to the BofA Merrill Lynch 1-12 Year Municipal Bond Index.

LOGO

1Performance numbers for the Series and Index are calculated from February 14, 1994, the Series’ inception date.

2The Series’ performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. The Series’ performance is historical and may not be indicative of future results. The performance returns shown are inclusive of the net expense ratio of the Series. For the year ended December 31, 2010, this net expense ratio was 0.85%. The gross expense ratio, which does not account for any voluntary or contractual waivers currently in effect, was 0.85% for the year ended December 31, 2010.

3The BofA Merrill Lynch 1-12 Year Municipal Bond Index (formerly a Merrill Lynch Index) is an unmanaged, market weighted index comprised of investment-grade, fixed rate, coupon bearing municipal bonds with maturities greater than one year but less than twelve years. The Index returns assume reinvestment of coupons and, unlike Series returns, do not reflect any fees or expenses.

 

   2

Shareholder Expense Example (unaudited)

 

As a shareholder of the Series, you may incur two types of costs: (1) transaction costs and (2) ongoing costs, including management fees and other Series expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Series and to compare these costs with the ongoing costs of investing in other mutual funds.

The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (July 1, 2010 to December 31, 2010).

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Series’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Series’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid during the period. You may use this information to compare the ongoing costs of investing in the Series and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.

 

 

    

Beginning

Account Value
7/1/10

       

Ending

Account Value

12/31/10

       

Expenses Paid

During Period*

7/1/10-12/31/10

  

Actual

      $1,000.00                   $   978.30                   $4.24               

Hypothetical (5% return before expenses)

      $1,000.00                   $1,020.92                   $4.33               

*Expenses are equal to the Series’ annualized expense ratio (for the six-month period) of 0.85%, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Expenses are based on the most recent fiscal half year; therefore, the expense ratio stated above may differ from the expense ratio stated in the financial highlights, which is based on one-year data. The Series’ total return would have been lower had certain expenses not been waived during the period.

 

3   

Portfolio Composition as of December 31, 2010 (unaudited)

 

LOGO

 

   4

Investment Portfolio - December 31, 2010

 

     Coupon
Rate 		    Maturity
Date 		     Credit
Rating 1
(unaudited)		     Principal
Amount 		     Value
(Note 2)		  

OHIO MUNICIPAL SECURITIES - 96.7%

             

Akron, Various Purposes Impt., G.O. Bond

      4.250%        12/1/2028         AA2      $ 200,000       $ 179,376   

Akron, Various Purposes Impt., Series B, G.O. Bond

      5.000%        12/1/2031         AA2        300,000         292,392   

American Municipal Power-Ohio, Inc., Prairie State Energy Campus Project, Series A, Revenue Bond

      5.250%        2/15/2023         A1        150,000         156,143   

Avon, Public Impt., Series B, G.O. Bond

      5.000%        12/1/2023         Aa1        100,000         105,945   

Batavia Local School District, G.O. Bond, NATL

      5.625%        12/1/2022         A1        200,000         222,996   

Bedford Heights, Series A, G.O. Bond, AMBAC.

      5.650%        12/1/2014         Aa3        20,000         21,497   

Big Walnut Local School District, Delaware County, School Facilities Construction & Impt., G.O. Bond, AGM

      4.500%        12/1/2029         Aa2        200,000         194,284   

Brunswick, Limited Tax, Capital Impt., G.O. Bond

      4.000%        12/1/2025         Aa2        100,000         96,612   

Butler County, G.O. Bond, AMBAC

      5.000%        12/1/2016         Aa1        110,000         126,051   

Butler County, Water & Sewer, G.O. Bond

      2.500%        12/1/2014         Aa1        100,000         102,907   

Canal Winchester Local School District, G.O. Bond, AGM

      4.250%        12/1/2027         Aa3        500,000         460,515   

Canal Winchester Local School District, Prerefunded Balance, Series B, G.O. Bond, NATL

      5.000%        12/1/2025         A1        355,000         401,970   

Cincinnati City School District, Construction & Impt., G.O. Bond, FGRNA

      5.250%        12/1/2022         Aa2        115,000         129,857   

Cincinnati City School District, Construction & Impt., G.O. Bond, FGRNA

      5.250%        12/1/2025         Aa2        600,000         658,092   

Cincinnati City School District, G.O. Bond

      4.500%        6/1/2018         Aa2        100,000         110,670   

Cincinnati City School District, G.O. Bond

      5.000%        6/1/2031         Aa2        265,000         265,779   

Cincinnati Water Systems, Series B, Revenue Bond, NATL

      5.000%        12/1/2023         Aa1        600,000         637,968   

Cincinnati, Various Purposes Impt., Series A, G.O. Bond

      5.000%        12/1/2021         Aa1        220,000         241,025   

Cincinnati, Various Purposes Impt., Series B, G.O. Bond

      4.250%        12/1/2026         Aa1        170,000         164,263   

Cleveland Heights & University Heights City School District, G.O. Bond

      5.125%        12/1/2026         Aa2        200,000         204,178   

Cleveland, Income Tax, Revenue Bond

      5.250%        5/15/2024         AA2        500,000         520,730   

Cleveland, Water Utility Impt., Series O, Revenue Bond, NATL

      5.000%        1/1/2037         Aa1        380,000         369,759   

Columbus City School District, Facilities Construction & Impt., G.O. Bond

      4.500%        12/1/2029         Aa2        500,000         470,675   

Columbus City School District, Facilities Construction & Impt., G.O. Bond, AGM

      4.250%        12/1/2032         Aa2        500,000         441,270   

Columbus, Limited Tax, Series 2, G.O. Bond

      5.000%        7/1/2017         Aaa            250,000             279,455   

 

5    The accompanying notes are an integral part of the financial statements.

Investment Portfolio - December 31, 2010

 

     Coupon
Rate 		    Maturity
Date 		     Credit
Rating 1
(unaudited)		      Principal
Amount 		     Value
(Note 2)		  

OHIO MUNICIPAL SECURITIES (continued)

              

Columbus, Sewer Impt., Series A, Revenue Bond

      4.250%        6/1/2030         Aa1       $     250,000       $     226,575   

Cuyahoga Falls, G.O. Bond, NATL

      5.000%        12/1/2021         Aa2         750,000         795,330   

Delaware County, Capital Facilities, Series A, G.O. Bond

      4.250%        12/1/2023         Aa1         100,000         101,388   

Eaton Community City Schools, G.O. Bond, FGRNA

      4.125%        12/1/2026         Aa2         500,000         459,840   

Elyria City School District, G.O. Bond, XLCA

      4.750%        12/1/2027         A1         100,000         97,499   

Euclid, G.O. Bond, NATL

      4.250%        12/1/2023         Aa2         465,000         468,557   

Fairbanks Local School District, School Facilities Construction & Impt., G.O. Bond, AGM

      4.500%        12/1/2028         Aa3         400,000         374,380   

Fairborn School District, G.O. Bond, AGM

      5.000%        12/1/2021         Aa3         400,000         430,096   

Fairfield County, Building Impt., Prerefunded Balance, G.O. Bond

      5.000%        12/1/2018         Aa2         250,000         260,575   

Fairview Park City School District, G.O. Bond, NATL

      5.000%        12/1/2029         Aa3         315,000         316,969   

Franklin County, Various Purposes Impt., G.O. Bond

      5.000%        12/1/2027         Aaa         500,000         524,390   

Geneva Area City School District, G.O. Bond, NATL

      4.500%        12/1/2030         Aa3         120,000         116,159   

Granville Exempt Village School District, G.O. Bond, AGM

      4.375%        12/1/2031         Aa1         500,000         454,890   

Greater Cleveland Regional Transit Authority, Capital Impt., G.O. Bond, FGRNA

      4.125%        12/1/2023         Aa2         450,000         433,080   

Greene County, Limited Tax, G.O. Bond

      4.500%        12/1/2035         Aa2         250,000         232,630   

Greene County, Revenue Bond

      3.500%        12/1/2026         Aa2         300,000         259,047   

Hamilton City School District, G.O. Bond, AGM

      4.250%        12/1/2030         Aa3         500,000         435,760   

Hamilton County, Sewer Impt., Series A, Revenue Bond

      5.000%        12/1/2032         Aa2         100,000         100,286   

Hamilton Electric System, Series A, Revenue Bond, AGC

      4.125%        10/1/2024         Aa3         300,000         286,170   

Hamilton Waterworks System, Series A, Revenue Bond, AGC

      4.625%        10/15/2029         Aa3         100,000         93,835   

Hamilton, Series A, Revenue Bond, AGC

      4.125%        10/15/2023         Aa3         120,000         116,918   

Hancock County, Various Purposes Impt., G.O. Bond, NATL

      4.000%        12/1/2016         Aa2         200,000         217,134   

Harrison, Various Purposes Impt., G.O. Bond, AGM

      5.250%        12/1/2038         Aa3         275,000         284,081   

Huber Heights City School District, School Impt., G.O. Bond

      5.000%        12/1/2036         Aa2         450,000         441,013   

Indian Hill Exempt Village School District, School Impt., G.O. Bond

      4.375%        12/1/2022         Aaa         250,000         258,015   

 

The accompanying notes are an integral part of the financial statements.    6

Investment Portfolio - December 31, 2010

 

     Coupon
Rate 		    Maturity
Date 		     Credit
Rating 1
(unaudited)		    

Principal

Amount

      Value
(Note 2)		  

OHIO MUNICIPAL SECURITIES (continued)

             

Indian Lake Local School District, School Facilities Construction & Impt., G.O. Bond, NATL

      4.500%        12/1/2021         Aa3      $     235,000       $     240,755   

Ironton City School District, G.O. Bond, NATL

      4.250%        12/1/2028         Baa1        500,000         449,365   

Kettering City School District, G.O. Bond, AGM

      4.250%        12/1/2025         Aa2        750,000         722,648   

Lakewood, Water System, Revenue Bond, AMBAC

      4.500%        7/1/2028         WR3        500,000         446,750   

Lakota Local School District, Series A, G.O. Bond, FGRNA

      5.250%        12/1/2024         Aaa        210,000         233,568   

Licking Heights Local School District, School Facilities Construction & Impt., Series A, G.O. Bond, NATL

      5.000%        12/1/2022         Aa2        250,000         260,250   

Lima, Revenue Bond, AGM

      3.750%        12/1/2023         Aa3        225,000         217,201   

Lima, Revenue Bond, AGM

      4.300%        12/1/2029         Aa3        200,000         193,598   

Lorain City School District, Unrefunded Balance, G.O. Bond, NATL

      4.750%        12/1/2025         Aa2        335,000         341,750   

Lorain County, Sewer System Impt., G.O. Bond

      5.000%        12/1/2039         Aa2        200,000         196,984   

Lucas County, Sewer & Water District Impt., G.O. Bond

      4.100%        12/1/2027         AA2        100,000         97,376   

Lucas County, Various Purposes Impt., G.O. Bond

      4.500%        10/1/2035         Aa2        300,000         268,623   

Mahoning County, Various Purposes Impt., Revenue Bond

      4.375%        12/1/2035         Aa3        230,000         214,291   

Mahoning County, Various Purposes Impt., Series B, G.O. Bond, AGC

      4.375%        12/1/2035         Aa3        300,000         285,765   

Mansfield, Limited Tax, Various Purposes Impt., G.O. Bond, AGC

      5.500%        12/1/2029         Aa3        100,000         98,952   

Marion, Limited Tax, Various Purposes Impt., Series A, G.O. Bond, AGM

      4.300%        12/1/2030         Aa3        100,000         95,508   

Marysville Exempt Village School District, G.O. Bond, AGM

      5.000%        12/1/2023         Aa3        500,000         515,850   

Marysville, Sewer & Wastewater, Revenue Bond, AGC, XLCA

      4.750%        12/1/2046         Aa3        180,000         159,966   

Mason, Limited Tax, Various Purposes Impt., G.O. Bond

      4.250%        12/1/2027         Aaa        925,000         887,195   

Maumee City School District, G.O. Bond, AGM

      4.600%        12/1/2031         Aa3        260,000         252,171   

Maumee, Public Impt., G.O. Bond, NATL

      4.125%        12/1/2018         Aa2        375,000         396,926   

Miamisburg City School District, G.O. Bond

      5.000%        12/1/2033         Aa2        250,000         251,940   

Middletown, Various Purposes Impt., G.O. Bond, AGM

      4.500%        12/1/2018         Aa2        100,000         111,511   

Monroe Local School District, G.O. Bond, AMBAC

      5.500%        12/1/2024         Aa3        500,000         549,645   

 

7    The accompanying notes are an integral part of the financial statements.

Investment Portfolio - December 31, 2010

 

     Coupon
Rate 		    Maturity
Date 		     Credit
Rating 1
(unaudited)		     Principal
Amount 		     Value
(Note 2)		  

OHIO MUNICIPAL SECURITIES (continued)

             

Montgomery County, Various Purposes Impt., G.O. Bond

      3.000%        12/1/2019         Aa1      $ 250,000       $ 248,833   

Mount Healthy City School District, G.O. Bond, AGM

      5.000%        12/1/2031         Aa3        200,000         198,708   

Muskingum County, Limited Tax, Various Purposes Impt., G.O. Bond, AGC

      4.300%        12/1/2028         Aa2        145,000         141,281   

New Albany Plain Local School District, G.O. Bond, FGRNA

      5.000%        12/1/2030         AA2        140,000         133,869   

New Albany Plain Local School District, Prerefunded Balance, G.O. Bond, FGIC

      5.000%        12/1/2025         Aa1        45,000         47,758   

New Albany Plain Local School District, Prerefunded Balance, G.O. Bond, FGIC

      5.000%        12/1/2025         Aa1        85,000         90,209   

New Albany Plain Local School District, Prerefunded Balance, G.O. Bond, FGIC

      5.000%        12/1/2029         Aa1        95,000         100,822   

New Albany Plain Local School District, Unrefunded Balance, G.O. Bond, FGIC

      5.000%        12/1/2025         Aa1        185,000         185,043   

New Albany Plain Local School District, Unrefunded Balance, G.O. Bond, FGRNA

      5.000%        12/1/2029         Aa1        130,000         125,070   

North Royalton, Various Purposes Impt., G.O. Bond

      5.250%        12/1/2028         Aa2        1,025,000         1,058,446   

Ohio State Water Development Authority, Pollution Control, Revenue Bond

      5.250%        12/1/2015         Aaa        200,000         231,508   

Ohio State Water Development Authority, Pure Water, Series I, Revenue Bond, AMBAC

      6.000%        12/1/2016         Aaa        30,000         33,691   

Ohio State, Infrastructure Impt., Series A, Prerefunded Balance, G.O. Bond

      5.000%        3/1/2017         Aa1        250,000         289,925   

Ohio State, School Services, Series A, G.O. Bond

      4.500%        9/15/2025         Aa1        700,000         701,554   

Ohio State, Series C, G.O. Bond

      5.000%        9/15/2020         Aa1        100,000         113,287   

Olentangy Local School District, Series A, G.O. Bond, AGM

      4.500%        12/1/2032         Aa1        800,000         743,048   

Orange City School District, G.O. Bond

      4.500%        12/1/2023         Aaa        500,000         508,570   

Painesville City Local School District, G.O. Bond, FGRNA

      4.500%        12/1/2025         A1        170,000         168,536   

Pickerington Local School District, G.O. Bond, NATL

      4.300%        12/1/2024         Baa1        300,000         289,020   

Pickerington Local School District, G.O. Bond, NATL

      4.250%        12/1/2034         Aa2        230,000         196,910   

Portage County, Limited Tax, Various Purposes Impt., G.O. Bond

      4.000%        12/1/2020         AA2        175,000         180,133   

South Range Local School District, G.O. Bond, XLCA

      4.500%        12/1/2035         A2        225,000         201,973   

South-Western City School District, Franklin & Pickway County, G.O. Bond, AGM

      4.250%        12/1/2026         Aa2        600,000         574,500   

 

The accompanying notes are an integral part of the financial statements.    8

Investment Portfolio - December 31, 2010

 

     Coupon
Rate		   Maturity
Date 		     Credit
Rating 1
(unaudited)		     Principal
Amount/
Shares 		    

Value

(Note 2)

  

OHIO MUNICIPAL SECURITIES (continued)

          

Springboro Community City School District, G.O. Bond, AGM

    5.250%     12/1/2032         Aa3      $         150,000       $         150,771   

Sugarcreek Local School District, G.O. Bond, AGM

    4.250%     12/1/2031         Aa2        750,000         643,410   

Summit County, Various Purposes Impt., Series R, G.O. Bond, FGRNA

    5.500%     12/1/2019         Aa1        100,000         116,678   

Sylvania City School District, G.O. Bond, AGC

    5.000%     12/1/2025         Aa2        270,000         278,810   

Symmes Township, Limited Tax, Parkland Acquisition & Impt., G.O. Bond

    5.250%     12/1/2037         Aa1        100,000         103,434   

Tallmadge City School District, G.O. Bond, AGM

    5.000%     12/1/2031         AA2        200,000         202,280   

Tallmadge, G.O. Bond

    4.250%     12/1/2030         Aa2        180,000         172,060   

Tecumseh Local School District, G.O. Bond, FGRNA

    4.750%     12/1/2027         A1        195,000         192,317   

Toledo, Capital Impt., G.O. Bond, AGC

    4.000%     12/1/2024         Aa3        100,000         92,423   

Toledo, Waterworks, Revenue Bond, NATL

    5.000%     11/15/2023         Aa3        100,000         102,025   

Trotwood-Madison City School District, G.O. Bond, AGM

    4.250%     12/1/2022         Aa3        250,000         248,490   

Troy, Sewer Impt., G.O. Bond

    4.750%     12/1/2024         Aa1        250,000         255,940   

Van Buren Local School District, Prerefunded Balance, G.O. Bond, AGM

    5.250%     12/1/2016         Aa3        300,000         313,269   

Vandalia Butler City School District, G.O. Bond

    5.000%     12/1/2038         Aa2        500,000         510,145   

Vandalia, G.O. Bond, AMBAC

    5.000%     12/1/2015         Aa2        235,000         257,207   

Wadsworth City School District, G.O. Bond, AGC

    5.000%     12/1/2037         AA2        180,000         182,090   

Warren County, Highway Impt., G.O. Bond

    4.000%     12/1/2022         Aa1        100,000         101,249   

Washington Court House City School District, G.O. Bond, FGRNA

    5.000%     12/1/2029         A1        500,000         496,955   

West Chester Township, Various Purposes Impt., Series A, G.O. Bond

    5.000%     12/1/2020         Aaa        100,000         110,245   

Wood County, G.O. Bond

    5.400%     12/1/2013         Aa2        15,000         15,045   
                  

TOTAL MUNICIPAL BONDS
(Identified Cost $34,002,680)

                33,235,151   
                  

SHORT-TERM INVESTMENTS - 3.0%

             

Dreyfus AMT - Free Municipal Reserves - Class R (Identified Cost $1,017,361)

             1,017,361         1,017,361   
                  

 

9    The accompanying notes are an integral part of the financial statements.

Investment Portfolio - December 31, 2010

 

        
    

Value

(Note 2)

  

 

TOTAL INVESTMENTS - 99.7%
(Identified Cost $35,020,041)

    $   34,252,512   

OTHER ASSETS, LESS LIABILITIES - 0.3%

      117,243   
        

NET ASSETS - 100%

    $ 34,369,755   
        

KEY:

G.O. Bond - General Obligation Bond

Impt. - Improvement

Scheduled principal and interest payments are guaranteed by:

AGC (Assured Guaranty Corp.)

AGM (Assurance Guaranty Municipal Corp.)

AMBAC (AMBAC Assurance Corp.)

FGIC (Financial Guaranty Insurance Co.)

FGRNA (FGIC reinsured by NATL)

NATL (National Public Finance Guarantee Corp.)

XLCA (XL Capital Assurance)

The insurance does not guarantee the market value of the municipal bonds.

1Credit ratings from Moody’s (unaudited).

2Credit ratings from S&P (unaudited).

3Credit rating has been withdrawn. As of December 31, 2010, there is no rating available (unaudited).

The Series’ portfolio holds, as a percentage of net assets, greater than 10% in bonds insured by the following companies:

NATL - 26.1%; AGM - 24.0%.

 

The accompanying notes are an integral part of the financial statements.    10

Statement of Assets and Liabilities

December 31, 2010

 

 

ASSETS:

   

Investments, at value (identified cost $35,020,041) (Note 2)

    $ 34,252,512   

Interest receivable

      177,763   
        

TOTAL ASSETS

      34,430,275   
        

LIABILITIES:

   

Accrued management fees (Note 3)

      16,011   

Accrued fund accounting and administration fees (Note 3)

      5,520   

Accrued transfer agent fees (Note 3)

      477   

Accrued Chief Compliance Officer service fees (Note 3)

      245   

Audit fees payable

      29,616   

Printing fees payable

      4,234   

Other payables and accrued expenses

      4,417   
        

TOTAL LIABILITIES

      60,520   
        

TOTAL NET ASSETS

    $ 34,369,755   
        

NET ASSETS CONSIST OF:

   

Capital stock

    $ 33,358   

Additional paid-in-capital

      35,067,396   

Undistributed net investment income

      36,178   

Accumulated net realized gain on investments

      352   

Net unrealized depreciation on investments

      (767,529 ) 
        

TOTAL NET ASSETS

    $ 34,369,755   
        

NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE -
Class A ($34,369,755/3,335,822 shares)

    $ 10.30   
        

 

11    The accompanying notes are an integral part of the financial statements.

Statement of Operations

For the Year Ended December 31, 2010

 

 

INVESTMENT INCOME:

   

Interest

    $ 1,235,268   

Dividends

      48   
        

Total Investment Income

      1,235,316   
        

EXPENSES:

   

Management fees (Note 3)

      150,692   

Fund accounting and administration fees (Note 3)

      45,687   

Directors’ fees (Note 3)

      6,973   

Chief Compliance Officer service fees (Note 3)

      2,630   

Transfer agent fees (Note 3)

      2,603   

Audit fees

      29,805   

Custodian fees

      1,702   

Miscellaneous

      16,410   
        

Total Expenses

      256,502   

Less reduction of expenses (Note 3)

      (758 ) 
        

Net Expenses

      255,744   
        

NET INVESTMENT INCOME

      979,572   

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:

   

Net realized gain on investments

      286   

Net change in unrealized depreciation on investments

      (1,217,584 ) 
        

NET REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS

      (1,217,298 ) 
        

NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS

    $ (237,726 ) 
        

 

The accompanying notes are an integral part of the financial statements.    12

Statements of Changes in Net Assets

 

 

     For  the
Year Ended
12/31/10		     For  the
Year Ended
12/31/09		  

INCREASE (DECREASE) IN NET ASSETS:

     

OPERATIONS:

     

Net investment income

    $ 979,572      $ 749,727   

Net realized gain on investments

      286        130,404   

Net change in unrealized appreciation (depreciation) on investments

      (1,217,584 )      1,786,693   
                

Net increase (decrease) from operations

      (237,726 )      2,666,824   
                

DISTRIBUTIONS TO SHAREHOLDERS (Note 8):

     

From net investment income

      (996,467 )      (774,410 ) 

From net realized gain on investments

      —        (221,596 ) 
                

Total distributions to shareholders

      (996,467 )      (996,006 ) 
                

CAPITAL STOCK ISSUED AND REPURCHASED:

     

Net increase from capital share transactions (Note 5)

      10,728,881        2,359,995   
                

Net increase in net assets

      9,494,688        4,030,813   

NET ASSETS:

     

Beginning of year

      24,875,067        20,844,254   
                

End of year (including undistributed net investment income of $36,178 and $53,139, respectively)

    $ 34,369,755      $ 24,875,067   
                

 

13    The accompanying notes are an integral part of the financial statements.

Financial Highlights

 

 

           

 

For the Years Ended

         
     12/31/10      12/31/09      12/31/08      12/31/07      12/31/06  

Per share data (for a share outstanding throughout each year):

               

Net asset value - Beginning of year

      $10.62            $9.82            $10.43            $10.46            $10.52      
                                            

Income (loss) from investment operations:

               

Net investment income

      0.351            0.361            0.38            0.34            0.38      

Net realized and unrealized gain (loss) on investments

      (0.33)           0.91            (0.57)           —2            (0.05)     
                                            

Total from investment operations

      0.02            1.27            (0.19)           0.34            0.33      
                                            

Less distributions to shareholders:

               

From net investment income

      (0.34)           (0.37)           (0.36)           (0.37)           (0.38)     

From net realized gain on investments

      —            (0.10)           (0.06)           —            (0.01)     
                                            

Total distributions to shareholders

      (0.34)           (0.47)           (0.42)           (0.37)           (0.39)     
                                            

Net asset value - End of year

      $10.30            $10.62            $9.82            $10.43            $10.46      
                                            

Net assets - End of year (000’s omitted)

          $34,370                $24,875                $20,844                $26,432                $20,612      
                                            

Total return3

      0.14%            13.09%            (1.74%)           3.28%            3.19%      

Ratios (to average net assets)/

               

Supplemental Data:

               

Expenses*

      0.85%            0.85%            0.85%            0.85%            0.85%      

Net investment income

      3.25%            3.39%            3.58%            3.47%            3.81%      

Portfolio turnover

      0%4            11%            15%            3%            9%      

*The investment advisor did not impose all or a portion of its management fees, CCO fees, fund accounting and transfer agent fees, and other fees in some years and in some years paid a portion of the Series’ expenses. If these expenses had been incurred by the Series, the expense ratio (to average net assets) would have been increased by the following amounts:

 

    0.00%5        0.03 %         0.01 %      0.00 %5      0.07 %     

1Calculated based on average shares outstanding during the year.

2Less than $0.01 per share.

3Represents aggregate total return for the periods indicated, and assumes reinvestment of all distributions. Total return would have been lower had certain expenses not been waived or reimbursed during the periods. Periods less than one year are not annualized.

4Less than 1%.

5Less than 0.01%.

 

The accompanying notes are an integral part of the financial statements.    14

Notes to Financial Statements

 

1.

ORGANIZATION

Ohio Tax Exempt Series (the “Series”) is a no-load diversified series of Manning & Napier Fund, Inc. (the “Fund”). The Fund is organized in Maryland and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company.

The Series’ investment objective is to provide 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 the preservation of capital.

The Fund’s Advisor is Manning & Napier Advisors, Inc. (the “Advisor”). Shares of the Series are offered to investors, clients and employees of the Advisor and its affiliates. The total authorized capital stock of the Fund consists of 10.0 billion shares of common stock each having a par value of $0.01. As of December 31, 2010, 6.2 billion shares have been designated in total among 29 series, of which 100 million have been designated as Ohio Tax Exempt Series Class A common stock.

 

2.

SIGNIFICANT ACCOUNTING POLICIES

Security Valuation

Municipal securities will normally be valued on the basis of market valuations provided by an independent pricing service (the “Service”). The Service utilizes the latest price quotations and a matrix system (which considers such factors as security prices of similar securities, yields, maturities and ratings). The Service has been approved by the Fund’s Board of Directors (the “Board”).

Short-term investments that mature in sixty days or less are valued at amortized cost, which approximates market value. Investments in open-end investment companies are valued at their net asset value per share on valuation date.

Volume and level of activity in established markets for an asset or liability are evaluated to determine whether recent transactions and quoted prices are determinative of fair value. Where there have been significant decreases in volume and level of activity, further analysis and adjustment may be necessary to estimate fair value. The Series measures fair value in these instances by the use of inputs and valuation techniques which may be based upon current market prices of securities that are comparable in coupon, rating, maturity and industry and/or expectation of future cash flows. As a result of trading in relatively thin markets and/or markets that experience significant volatility, the prices used by the Series to value these securities may differ from the value that would be realized if these securities were sold, and the differences could be material.

Securities for which representative valuations or prices are not available from the Fund’s pricing service may be valued at fair value. Due to the inherent uncertainty of valuations of such securities, the fair value may differ significantly from the values that would have been used had a ready market for such securities existed. If trading or events occurring after the close of the principal market in which securities are traded are expected to materially affect the value of those securities, then they may be valued at their fair value, taking this trading or these events into account. Fair value is determined in good faith by the Advisor under procedures approved by and under the general supervision and responsibility of the Board.

Various inputs are used in determining the value of the Series’ assets or liabilities carried at market value. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical assets and liabilities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). Level 3 includes significant unobservable inputs (including the Series’ own assumptions in determining the fair value of investments). The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

 

15   

Notes to Financial Statements

 

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Security Valuation (continued)

The following is a summary of the valuation levels used for major security types as of December 31, 2010 in valuing the Series’ assets or liabilities carried at market value:

 

Description    Total      Level  1      Level  2      Level  3  

Assets:

            

Equity securities*

    $ —       $ —       $ —       $ —   

Preferred securities

      —         —         —         —   

Debt securities:

            

States and political subdivisions (municipals)

      33,235,151         —         33,235,151         —   

Mutual funds

      1,017,361         1,017,361         —         —   

Other financial instruments**:

      —         —         —         —   
                                   

Total assets:

      34,252,512         1,017,361         33,235,151         —   
                                   

Liabilities:

            

Other financial instruments**:

      —         —         —         —   
                                   

Total liabilities:

      —         —         —         —   
                                   

Total

    $     34,252,512       $     1,017,361       $     33,235,151       $                     —   
                                   

*Includes common stock, warrants and rights. Please see the Investment Portfolio for industry classification.

**Other financial instruments are derivative instruments not reflected in the Investment Portfolio, such as futures, forwards and swap contracts, which are valued at the unrealized appreciation/depreciation on the instrument. As of December 31, 2010, the Series did not hold any derivative instruments.

There were no Level 3 securities held by the Series as of December 31, 2009 or December 31, 2010.

The Fund’s policy is to recognize transfers in and transfers out of the valuation levels as of the beginning of the reporting period. There were no significant transfers between Level 1 and Level 2 during the year ended December 31, 2010.

Additional disclosure surrounding the activity in Level 3 fair value measurement will be effective for fiscal years beginning after December 15, 2010. Management has concluded that this will not have a material impact on the Series’ financial statements.

Security Transactions, Investment Income and Expenses

Security transactions are accounted for on trade date. Dividend income is recorded on the ex-dividend date, except that if the ex-dividend date has passed, certain dividends from foreign securities are recorded as soon as the Fund is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Interest income, including amortization of premium and accretion of discounts using the effective interest method, is earned from settlement date and accrued daily.

Expenses are recorded on an accrual basis. Most expenses of the Fund can be attributed to a specific series. Expenses which cannot be directly attributed are apportioned among the series in the Fund in such a manner as deemed equitable by the Fund’s Board, taking into consideration, among other things, the nature and type of expense.

The Series uses the identified cost method for determining realized gain or loss on investments for both financial statement and federal income tax reporting purposes.

 

   16

Notes to Financial Statements

 

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Federal Taxes

The Series’ policy is to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. The Series is not subject to federal income tax or excise tax to the extent that the Series 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.

Management evaluates its tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of tax benefits of an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. At December 31, 2010, the Series has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken in future tax returns.

The Series files income tax returns in the U.S. federal jurisdiction and various states, as required. No income tax returns are currently under investigation. The statute of limitations on the Series’ tax returns remains open for the years ended December 31, 2007 through December 31, 2010. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.

Distributions of Income and Gains

Distributions to shareholders of net investment income are made quarterly. Distributions of net realized gains are made annually. An additional distribution may be necessary to avoid taxation of the Series. Distributions are recorded on the ex-dividend date.

Indemnifications

The Fund’s organizational documents provide former and current directors and officers with a limited indemnification against liabilities arising in connection with the performance of their duties to the Fund. In the normal course of business, the Fund may also enter into contracts that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would be dependent on future claims that may be made against the Fund. The risk of material loss from such claims is considered remote.

Other

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 income and expenses during the reporting period. Actual results could differ from those estimates.

 

3.

TRANSACTIONS WITH AFFILIATES

The Fund has an Investment Advisory Agreement (the “Agreement”) with the Advisor, for which the Series pays a fee, computed daily and payable monthly, at an annual rate of 0.50% of the Series’ average daily net assets.

Under the Agreement, personnel of the Advisor provide the Series with advice and assistance in the choice of investments and the execution of securities transactions, and otherwise maintain the Series’ organization. The Advisor also provides the Fund with necessary office space and fund administration and support services. The salaries of all officers of the Fund (except a percentage of the Fund’s Chief Compliance Officer’s salary, which is paid by 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

 

17   

Notes to Financial Statements

 

3.

TRANSACTIONS WITH AFFILIATES (continued)

Advisor. Each “non-affiliated” Director receives an annual stipend, which is allocated among all the active series of the Fund. In addition, these Directors also receive a fee per Board meeting attended plus a fee for each committee meeting attended.

The Advisor has contractually agreed, until at least April 30, 2012, to waive its fee and, if necessary, pay other operating expenses of the Series in order to maintain total direct annual fund operating expenses for the Series at no more than 0.85% of average daily net assets each year. For the year ended December 31, 2010, the Advisor voluntarily waived fees of $758, which are included as a reduction of expenses on the Statement of Operations. The Advisor is not eligible to recoup any expenses that have been waived or reimbursed in prior years.

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 Series.

The Advisor has agreements with PNC Global Investment Servicing (U.S.) Inc. (“PNCGIS”) under which PNCGIS serves as sub-accountant services agent and sub-transfer agent. The Fund pays the Advisor an annual fee related to fund accounting and administration of 0.0175% on the first $3 billion of average daily net assets (excluding Target Series); 0.015% on the next $3 billion of average daily net assets (excluding Target Series); and 0.01% of the average daily net assets in excess of $6 billion (excluding Target Series); plus a base fee of $25,500 per Series. Transfer Agent fees are charged to the Fund on a per account basis. Additionally, certain transaction- and cusip-based fees and out-of-pocket expenses, including charges for reporting relating to the Fund’s compliance program, are charged.

Effective July 1, 2010, PNCGIS was sold to The Bank of New York Mellon Corporation, the Series’ custodian. At the close of the sale, PNCGIS changed its name to BNY Mellon Investment Servicing (U.S.) Inc. (“BNY”).

Expenses not directly attributable to a Series are allocated based on each Series’ relative net assets or number of accounts, depending on the expense.

 

4.

PURCHASES AND SALES OF SECURITIES

For the year ended December 31, 2010, purchases and sales of securities, other than U.S. Government securities and short-term securities, were $10,731,463 and $20,000, respectively. There were no purchases or sales of U.S. Government securities.

 

5.

CAPITAL STOCK TRANSACTIONS

Transactions in shares of Ohio Tax Exempt Series were:

 

    

For the Year

Ended 12/31/10

    

For the Year

Ended 12/31/09

  
     Shares     Amount     Shares     Amount  

Sold

              1,165,715      $ 12,625,181                673,194      $ 7,080,565   

Reinvested

      89,722        946,551        91,022        955,397   

Repurchased

      (262,403 )      (2,842,851 )      (543,835 )      (5,675,967 ) 
                                

Total

      993,034      $       10,728,881        220,381              2,359,995   
                                

Substantially all of the Series’ shares represent investments by fiduciary accounts over which the Advisor has sole investment discretion.

 

   18

Notes to Financial Statements

 

6.

FINANCIAL INSTRUMENTS

The Series may trade in instruments including written and purchased options, forward foreign currency exchange contracts and futures contracts and other derivatives in the normal course of investing activities to assist in managing exposure to various market risks. Investments in these instruments may subject the Series to various elements of risk, which may involve, to a varying degree, elements of risk in excess of the amounts recognized for financial statement purposes. These risks include: the risk that changes in the value of a derivative may not correlate perfectly with the underlying asset, rate or index, counterparty credit risk related to over the counter derivatives counterparties’ failure to perform under contract terms, liquidity risk related to the lack of a liquid market for these contracts allowing the fund to close out its position(s) and documentation risk relating to disagreement over contract terms. No such investments were held by the Series during the year ended December 31, 2010.

 

7.

CONCENTRATION OF CREDIT

The Series 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 Series 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.

 

8.

FEDERAL INCOME TAX INFORMATION

The amount and characterization of certain income and capital gains to be distributed are determined in accordance with federal income tax regulations, which may differ from accounting principles generally accepted in the United States of America. These differences are primarily due to differing book and tax treatments in the timing of the recognition of net investment income or gains and losses, including market discount. The Series may periodically make reclassifications among its capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations without impacting the Series’ net asset value. Any such reclassifications are not reflected in the financial highlights.

The tax character of distributions paid were as follows:

 

     For the  Year
Ended
12/31/10		      For the  Year
Ended
12/31/09		  

Tax exempt income

    $ 996,467       $ 774,419   

Long-term capital gains

      —         221,587   

At December 31, 2010, the tax basis of distributable earnings and the net unrealized appreciation based on the identified cost of investments for federal income tax purposes were as follows:

 

 

Cost for federal income tax purposes

    $ 35,017,120   
 

Unrealized appreciation

    $ 312,179   
 

Unrealized depreciation

      (1,076,787 ) 
          
 

Net unrealized depreciation

    $ (764,608 ) 
          
 

Undistributed tax exempt income

      33,257   
 

Undistributed long-term gains

      352   

 

19   

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors of Manning & Napier Fund, Inc. and Shareholders of Ohio Tax Exempt Series:

In our opinion, the accompanying statement of assets and liabilities, including the investment portfolio (except for credit ratings), and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the Ohio Tax Exempt Series (a series of Manning & Napier Fund, Inc., hereafter referred to as the “Series”) at December 31, 2010, and 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 five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Series’ management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2010 by correspondence with the custodian, provide a reasonable basis for our opinion.

LOGO

New York, New York

February 22, 2011

 

   20

Supplemental Tax Information (unaudited)

 

All designations are based on financial information available as of the date of this annual report and, accordingly are subject to change.

Pursuant to Section 852 of the Internal Revenue Code, as amended, the Series hereby designates $0 as capital gains for its taxable year ended December 31, 2010. In addition, the Series hereby designates $996,467 as tax exempt dividends for the year ended December 31, 2010. For each item it is the intention of the Series to designate the maximum allowable under tax law.

 

21   

Renewal of Investment Advisory Agreement (unaudited)

 

At the Manning & Napier Fund, Inc. (the “Fund”) Board of Directors’ (the “Board”) meeting, held on November 17, 2010, the Investment Advisory Agreement (the “Agreement”) between the Fund and Manning & Napier Advisors, Inc. (the “Advisor”) was reviewed by the Board for renewal. In connection with the decision whether to renew the Agreement, a variety of material was prepared for and reviewed by the Board.

Representatives of the Advisor attended the meeting and presented additional oral and written information to the Board to assist the Board in its considerations. The discussion immediately below outlines the materials and information presented to the Board in connection with the Board’s 2010 Annual Review of the Agreement and the conclusions made by the Directors when determining to continue the Agreement.

 

  •  

The Board considered the services provided by the Advisor under the Agreement including, among others: deciding what securities to purchase and sell for each Series; arranging for the purchase and sale of such securities by placing orders with broker-dealers; administering the affairs of the Fund (including the books and records of the Fund not maintained by third party service providers such as the custodian or sub-transfer agent); arranging for the insurance coverage for the Fund; and supervising the preparation of tax returns, SEC filings (including registration statements) and reports to shareholders for the Fund. The Board also considered the nature and quality of such services provided under the Agreement in light of the Advisor’s services provided to the Fund for 24 years. The Board discussed the quality of these services with representatives from the Advisor and concluded that the Advisor was performing its services to the Fund required under the Agreement in a reasonable manner.

 

  •  

The Board considered the investment performance of the various Series of the Fund. The investment performance for each Series was reviewed on a cumulative basis since inception and on a one year basis. In addition, annualized performance for the following time periods was considered: inception, three year, five year, ten year, and current market cycle. A market cycle includes periods of both rising and falling markets. Returns for established benchmark indices for each Series were provided for each time period. The Board noted that the various Series were competitive against their respective benchmarks and/or peer groups over various time periods, but in particular over the full market cycle period relevant for the Series. In addition, the Board considered at the meeting (and considers on a quarterly basis) a peer group performance analysis consisting of Morningstar universes of mutual funds with similar investment objectives. The Board discussed the performance with representatives from the Advisor and concluded that the investment performance of each of the Fund’s Series was reasonable based on the Fund’s actual performance and comparative performance, especially performance over the current market cycle.

 

  •  

The Board considered the costs of the Advisor’s services and the profits of the Advisor as they relate to the Advisor’s services to the Fund under the Agreement. In reviewing the Advisor’s costs and profits, the Board discussed the Advisor’s revenues generated from the Fund (on both an actual and adjusted basis) and its expenses associated with providing the services under the Agreement. In addition, the Board reviewed the Advisor’s expenses associated with Fund activities outside of the Agreement (such as expense reimbursements pursuant to expense caps and payments made by the Advisor to third party platforms on which shares of the Fund are available for purchase). It was noted by representatives of the Advisor that 11 of the 27 active Series of the Fund are currently experiencing expenses above the capped expense ratios. After discussing the above costs and profits, the Board concluded that the Advisor’s profitability relating to its services provided under the Agreement was reasonable.

 

  •  

The Board considered the fees and expenses of the various Series of the Fund. The Advisor presented the advisory fees and total expenses for each Series, including the advisory fee adjusted for any expense waivers or reimbursements (either contractual or voluntary) paid by the Advisor. The advisory fees and expense ratios of each Series were compared to an average (on both a mean and median basis) of similar funds as disclosed on the Morningstar database. Representatives of the Advisor discussed with the Board the levels of its advisory

 

   22

Renewal of Investment Advisory Agreement (unaudited)

 

 

fee for each Series of the Fund and as compared to the median and mean advisory fees for similar funds as listed on Morningstar. Expense ratios for every Series, except the Pro-Blend’s Class R and Class C, and Target Class R and Class C, are currently below the median and mean for similar funds as listed on Morningstar. Based on their review of the information provided, the Board concluded that the fees and expenses of each Series of the Fund were reasonable on a comparative basis.

 

  •  

The Board also considered the other benefits the Advisor derives from its relationship with the Fund. Such other benefits include certain research products provided by soft dollars. Given the level of soft dollar transactions involving the Fund, the Board concluded that these additional benefits to the Advisor were reasonable.

 

  •  

In addition to the factors described above, the Board considered the Advisor’s personnel, investment strategies, policies and procedures relating to compliance with personal securities transactions, and reputation, expertise and resources in domestic and foreign financial markets. The Board concluded that these factors support the conclusion that the Advisor performs its services in a reasonable manner.

 

  •  

The Board did not consider economies of scale at this time because of the multiple uses of the Fund (for the Advisor’s discretionary investment account clients in addition to direct investors), the current profitability of the Advisor’s services to the Fund under the Agreement, and the overall size of the Fund complex.

Based on the Board’s deliberations and their evaluation of the information described above, the Board, including a majority of Directors that are not “interested persons” as defined in the Investment Company Act of 1940, concluded that the compensation under the Agreement was fair and reasonable in light of the services and expenses and such other matters as the Directors considered to be relevant in the exercise of their reasonable judgment. Accordingly, the Board approved the renewal of the Agreement. In the course of their deliberations, the Directors did not identify any particular information that was all important or controlling.

 

23   

Directors’ and Officers’ Information (unaudited)

 

The Statement of Additional Information provides additional information about the Fund’s directors and officers and can be obtained without charge by calling 1-800-466-3863, at www.manningnapieradvisors.com, or on the EDGAR Database on the SEC Internet web site (http:// www.sec.gov). The following chart shows certain information about the Fund’s officers and directors, including their principal occupations during the last five years. Unless specific dates are provided, the individuals have held the listed positions for longer than five years.

INTERESTED DIRECTOR/OFFICER

 

Name:

    B. Reuben Auspitz*

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    63

Current Position(s) Held with Fund:

    Principal Executive Officer, President, Chairman & Director

Term of Office1 & Length of Time Served:

    Indefinite - Director since 1984; Vice President 1984 - 2003; President since 2004; Principal Executive Officer since 2002

Principal Occupation(s) During Past 5 Years:

    Executive Vice President; Executive Group Member**; Chief Compliance Officer since 2004; Vice Chairman since June 2010; Co-Executive Director from 2003-2010 - Manning & Napier Advisors, Inc. President;
   Director - Manning & Napier Investor Services, Inc.
   Holds or has held one or more of the following titles for various subsidiaries and affiliates: President, Vice President, Director, Chairman, Treasurer, Chief Compliance Officer or Member.

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A
      

 

INDEPENDENT DIRECTORS

 

   

Name:

    Paul A. Brooke

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    65

Current Position(s) Held with Fund:

    Director, Audit Committee Member, Governance & Nominating Committee Member

Term of Office & Length of Time Served:

    Indefinite - Since 2007

Principal Occupation(s) During Past 5 Years:

    Chairman & CEO, Alsius Corp. (investments); Managing Member, PMSV
   Holdings LLC (investments)

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    Incyte Corp. (2000-present)
   ViroPharma, Inc. (2000-present)
   HLTH Corp. (2000-present)
   Cheyne Capital International (2000-present)
   MPM Bio-equities (2000-present)
   GMP Companies (2000-present)
     HoustonPharma (2000-present)
      

 

Name:

   

 

Richard M. Hurwitz

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    47

Current Position(s) Held with Fund:

    Director, Audit Committee Member, Governance &
   Nominating Committee Member

Term of Office & Length of Time Served:

    Indefinite - Since 2009

Principal Occupation(s) During Past 5 Years:

    Chief Executive Officer, Pictometry International Corp. since August 2010 (provider of georeferenced, aerial image libraries and related software) Managing Partner (2006-July 2010) - Aegis Investment Partners, LLC (investments); Founder and Managing Partner (2004-2005) - Village Markets, LLC (groceries)

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    Pictometry International Corp. (2000-2010)
   Pioneering Technologies (2006-2009)
    

Vensearch Capital Corp. (2003-2007)

 

 

   24

Directors’ and Officers’ Information (unaudited)

 

INDEPENDENT DIRECTORS (continued)

 

   

Name:

    Stephen B. Ashley

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    70

Current Position(s) Held with Fund:

    Director, Audit Committee Member, Governance & Nominating Committee Member
  

Term of Office & Length of Time Served:

    Indefinite - Since 1996

Principal Occupation(s) During Past 5 Years:

    Chairman, Director, President & Chief Executive Officer, The Ashley Group (property management and investment). Chairman (non-executive) 2004-2008; Director 1995-2008 - Fannie Mae (mortgage)
  
  

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

   

The Ashley Group (1995-2008)

Genesee Corporation (1987-2007)

      

 

Name:

   

 

Peter L. Faber

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    72

Current Position(s) Held with Fund:

    Director, Governance & Nominating Committee Member

Term of Office & Length of Time Served:

    Indefinite - Since 1987

Principal Occupation(s) During Past 5 Years:

    Senior Counsel since 2006, Partner (1995 - 2006) - McDermott, Will & Emery LLP (law firm)
  

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    Partnership for New York City, Inc. (non-profit) New York Collegium (non-profit) Boston Early Music Festival (non-profit)
      

 

Name:

   

 

Harris H. Rusitzky

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    76

Current Position(s) Held with Fund:

    Director, Audit Committee Member, Governance & Nominating Committee Member

Term of Office & Length of Time Served:

    Indefinite - Since 1985

Principal Occupation(s) During Past 5 Years:

    President, The Greening Group (business consultants) since 1994; Partner, The Restaurant Group (restaurants) since 2006

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A
      

 

OFFICERS

     

 

Name:

    Jeffrey S. Coons, Ph.D., CFA

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    47

Current Position(s) Held with Fund:

    Vice President

Term of Office1 & Length of Time Served:

    Since 2004

Principal Occupation(s) During Past 5 Years:

    President since 2010, Co-Director of Research since 2002, Executive Group Member** since 2003, - Manning & Napier Advisors, Inc. Holds one or more of the following titles for various subsidiaries and affiliates: President, Director, Treasurer or Senior Trust Officer.
  

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

 

    N/A
      

 

25   

Directors’ and Officers’ Information (unaudited)

 

OFFICERS (continued)

 

Name:

    Beth Galusha

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    49

Current Position(s) Held with Fund:

    Assistant Chief Financial Officer

Term of Office1 & Length of Time Served:

    Assistant Chief Financial Officer since 2010

Principal Occupation(s) During Past 5 Years:

    Chief Financial Officer and Treasurer, Manning & Napier Advisors, Inc. Holds one or more of the following titles for various affiliates: Chief Financial Officer, Director, or Treasurer

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

 

   

N/A

 

 

Name:

    Christine Glavin

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    44

Current Position(s) Held with Fund:

    Principal Financial Officer, Chief Financial Officer

Term of Office1 & Length of Time Served:

    Principal Financial Officer since 2002; Chief Financial Officer since 2001

Principal Occupation(s) During Past 5 Years:

    Fund Reporting Manager, Manning & Napier Advisors, Inc. since 1997

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

 

   

N/A

 

 

Name:

    Jodi L. Hedberg

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    43

Current Position(s) Held with Fund:

    Corporate Secretary, Chief Compliance Officer, Anti-Money Laundering Compliance Officer

Term of Office1 & Length of Time Served:

    Corporate Secretary since 1997; Chief Compliance Officer since 2004

Principal Occupation(s) During Past 5 Years:

    Director of Compliance, Manning & Napier Advisors, Inc. and affiliates since 1990 (title change in 2005 from Compliance Manager to Director of Compliance); Corporate Secretary, Manning & Napier Investor Services, Inc. since 2006

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

 

   

N/A

 

 

Name:

    Richard Yates

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    45

Current Position(s) Held with Fund:

    Chief Legal Officer

Term of Office1 & Length of Time Served:

    Chief Legal Officer since 2004

Principal Occupation(s) During Past 5 Years:

    Counsel - Manning & Napier Advisors, Inc. & affiliates since 2000; Holds one or more of the following titles for various affiliates; Director or Corporate Secretary

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

 

    N/A

*Interested Director, within the meaning of the Investment Company Act of 1940 by reason of his position with the Fund’s investment advisor and distributor. Mr. Auspitz serves as the Executive Vice President and Director, Manning & Napier Advisors, Inc. and President and Director, Manning & Napier Investor Services, Inc., the Fund’s distributor.

**Prior to June 2010, the Executive Group, consisting of senior executive employee-owners, performed the duties of the Office of the Chief Executive of the Advisor. Effective June 2010, the Executive Group serves as an advisory board to the Chief Executive Officer.

1The term of office for President, Vice President, Chief Financial Officer, Assistant Chief Financial Officer, Chief Legal Officer and Corporate Secretary is one year and until their respective successors are chosen and qualified. All other officers’ terms are indefinite.

 

   26

Literature Requests (unaudited)

 

Proxy Voting Policies and Procedures

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request:

 

By phone

   

1-800-466-3863

On the Securities and Exchange
Commission’s (SEC) web site

   

http://www.sec.gov

Proxy Voting Record

Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available, without charge, upon request:

 

By phone

   

1-800-466-3863

On the SEC’s web site

   

http://www.sec.gov

Quarterly Portfolio Holdings

The Series’ complete schedule of portfolio holdings for the 1st and 3rd quarters of each fiscal year are provided on

Form N-Q, and are available, without charge, upon request:

 

By phone

   

1-800-466-3863

On the SEC’s web site

   

http://www.sec.gov

The Series’ Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.

Prospectus and Statement of Additional Information (SAI)

The prospectus and SAI provide additional information about each Series, including charges, expenses and risks. These documents are available, without charge, upon request:

 

By phone

   

1-800-466-3863

On the SEC’s web site

   

http://www.sec.gov

On the Advisor’s web site

   

http://www.manning-napier.com

Additional information available at www.manning-napier.com

1. Fund Holdings - Month-End

2. Fund Holdings - Quarter-End

3. Shareholder Report - Annual

4. Shareholder Report - Semi-Annual

 

 

MNOHTES-12/10-AR

 

  

LOGO

Management Discussion and Analysis (unaudited)

Dear Shareholders:

As well-defined swings in sentiment drove market fluctuations in 2010, the fixed income markets generally had favorable results for the year. Returns were broadly positive throughout the first three quarters of the year. However, while equities finished the year with a strong rally, fixed income markets generally took a negative turn at the end of 2010. After eight consecutive quarters of positive performance, broad fixed income markets suffered losses in the fourth quarter.

While municipal securities posted gains for the year, the sector had the weakest fixed income returns in 2010, as credit concerns and supply and demand changes caused noteworthy losses during the last quarter. The Bank of America Merrill Lynch 1-12 Year Municipal Bond Index earned 3.04% during the year. With a return of 0.41%, the Diversified Tax Exempt Series trailed its benchmark over the last twelve months.

The municipal bond market generally performed well in the first three quarters of the year, a reflection of attractive supply and demand dynamics. During this time, the fundamentals in the tax-exempt marketplace remained strong, with demand rising because of the likelihood of higher taxes in the top tax brackets, and supply for longer-term tax-exempt issues declining because of the popularity of the alternative Build America Bond program. However, amid heightened concern about municipal defaults, the municipal bond market struggled during the fourth quarter.

While credit issues exist in certain areas of the municipal market, the Advisor does not believe the broad municipal credit environment has materially deteriorated. In fact, municipal defaults are rare, and municipalities typically pay their debts in full even if they are forced to restructure. Rather, much of the losses at the end of the year were likely due to supply and demand shifts within the sector. The recent tax compromise, which extended the Bush-era tax cuts for all income brackets, lessened the immediate demand for tax-shielding investments, and supply is expected to increase because of the expiration of the Build America Bond program, which had limited longer-term, tax-exempt supply, thus benefiting the municipal market. Given these factors, municipal yields increased during the fourth quarter. While rising yields equate to price declines, the Advisor believes this yield shift has enhanced the relative value of municipal bonds versus other sectors of the fixed income market.

Throughout 2010, the Series continued to focus on high quality bonds with an emphasis on the underlying credit quality, which provides additional security in the midst of a tough credit and economic environment. Specifically, during the past year the underlying credit quality of the bonds in the Series was rated investment grade or higher, and the types of holdings included general obligation debt, pre-refunded bonds, and revenue debt associated with necessary municipal services. While this higher quality bias leads to slightly lower relative yields than the overall municipal market, the Advisor believes the safety and liquidity of such issues justifies the quality bias.

Over the past year, the Series had a significant exposure to securities in the intermediate to longer-term maturity range as compared to the benchmark, which holds only minimal securities in this range. This intermediate to longer-term weighting was the primary driver of relative underperformance in 2010. While the current positioning helped relative results during several periods last year, particularly when municipal yields fell to historic lows during the third quarter, this positioning noticeably detracted from returns when yields rose during the fourth quarter, causing the Series to lag its benchmark for the year. However, given the slow growth economic environment, the Advisor believes the intermediate to longer-term maturity structure continues to be the most suitable strategy.

As the markets unfold in 2011, it will be important to monitor trends such as state and local budgets, monetary policy, and inflation expectations. With this mindset, Manning & Napier remains committed to our active and selective investment approach to fixed income. Staying focused on the fundamentals and maintaining our selective investment process helped us earn solid returns through the volatile markets of 2010, and we believe these qualities will remain important in the environment ahead.

As always, we appreciate your business.

Sincerely,

Manning & Napier Advisors, Inc.

 

1

Performance Update as of December 31, 2010 (unaudited)

 

     Average Annual Total Returns
As of December 31, 2010		  
     One
Year 		    Five
Year 		    Ten
Year 		    Since
Inception 1		  

Manning & Napier Fund, Inc. - Diversified Tax Exempt Series2

     0.41 %      3.59 %      4.18 %      4.49%      

Bank of America (BofA) Merrill Lynch 1-12 Year Municipal Bond Index3

     3.04 %      4.71 %      4.91 %      5.15%      

The following graph compares the value of a $10,000 investment in the Manning & Napier Fund, Inc. - Diversified Tax Exempt Series for the ten years ended December 31, 2010 to the BofA Merrill Lynch 1-12 Year Municipal Bond Index.

LOGO

1Performance numbers for the Series and Index are calculated from February 14, 1994, the Series’ inception date.

2The Series’ performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. The Series’ performance is historical and may not be indicative of future results. The performance returns shown are inclusive of the net expense ratio of the Series. For the year ended December 31, 2010, this net expense ratio was 0.58%. The gross expense ratio, which does not account for any voluntary or contractual waivers currently in effect, was 0.58% for the year ended December 31, 2010.

3The BofA Merrill Lynch 1-12 Year Municipal Bond Index (formerly a Merrill Lynch Index) is an unmanaged, market weighted index comprised of investment-grade, fixed rate, coupon bearing municipal bonds with maturities greater than one year but less than twelve years. The Index returns assume reinvestment of coupons and, unlike Series returns, do not reflect any fees or expenses.

 

2

Shareholder Expense Example (unaudited)

 

As a shareholder of the Series, you may incur two types of costs: (1) transaction costs and (2) ongoing costs, including management fees and other Series expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Series and to compare these costs with the ongoing costs of investing in other mutual funds.

The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (July 1, 2010 to December 31, 2010).

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Series’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Series’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid during the period. You may use this information to compare the ongoing costs of investing in the Series and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.

 

 
     Beginning
Account  Value
7/1/10		    Ending
Account  Value
12/31/10		    Expenses Paid
During Period*
7/1/10-12/31/10

Actual

    $1,000.00    $  978.50    $2.94

Hypothetical
(5% return before expenses)

    $1,000.00    $1,022.23    $3.01

*Expenses are equal to the Series’ annualized expense ratio (for the six-month period) of 0.59%, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Expenses are based on the most recent fiscal half year; therefore, the expense ratio stated above may differ from the expense ratio stated in the financial highlights, which is based on one-year data. The Series’ total return would have been lower had certain expenses not been waived during the period.

 

3

Portfolio Composition as of December 31, 2010 (unaudited)

LOGO

     Credit Quality Ratings2,3           
   

Aaa

    19.9%    
   

Aa

    56.7%    
   

A

    13.2%    
   

Baa

    4.5%    
   

Unrated investments

    1.0%    
   

Cash, short-term investments, and other assets, less liabilities

    4.7%    
   
   

 

2As a percentage of net assets.

3Based on ratings from Moody’s, or the S&P equivalent. The Series may use different ratings provided by other rating agencies for purposes of determining compliance with the Series’ investment policies.

         
   

Top Ten States4

  

    
   

Florida

      4.9%       
   

Texas

      4.9%       
   

South Carolina

      4.7%       
   

Washington

      4.6%       
   

New York

      4.5%       
   

Indiana

      4.1%       
   

Massachusetts

      3.8%       
   

Pennsylvania

      3.5%       
   

Virginia

      3.4%       
   

Michigan

      3.4%       
   
   

 

4As a percentage of total investments.

             
 

 

4

Investment Portfolio - December 31, 2010

 

     Coupon
Rate		    Maturity
Date 		     Credit
Rating1
(unaudited)		    Principal
Amount 		    

Value

(Note 2)

  

MUNICIPAL BONDS - 95.3%

               

ALABAMA - 1.1%

               

Alabama State, Series C, G.O. Bond

    3.250%      6/1/2021       Aa1    $       1,500,000       $         1,447,230   

Fort Payne Waterworks Board, Revenue Bond, AMBAC

    3.500%      7/1/2015       WR2      665,000         681,279   

Hoover Board of Education, Special Tax Warrants, NATL

    5.250%      2/15/2017       Aa2      500,000         503,005   

Odenville Utilities Board, Water, Revenue Bond, NATL

    4.300%      8/1/2028       Baa1      500,000         484,375   
                    
                 3,115,889   
                    

ALASKA - 0.2%

               

Alaska Municipal Bond Bank Authority, Series 1, Revenue Bond, NATL

    4.100%      6/1/2017       Aa2      455,000         473,082   
                    

ARIZONA - 2.6%

               

Goodyear, G.O. Bond, NATL

    4.375%      7/1/2020       Aa2      680,000         702,134   

Mesa, G.O. Bond, FGRNA

    4.125%      7/1/2027       Aa2      2,215,000         2,056,672   

Phoenix, Series B, G.O. Bond

    4.200%      7/1/2021       Aa1      1,500,000         1,541,160   

Salt River Project Agricultural Impt. & Power District, Series A, Revenue Bond

    5.000%      1/1/2035       Aa1      1,700,000         1,700,000   

Yuma County Library District, Series A, G.O. Bond, AMBAC

    4.500%      7/1/2035       Aa3      1,200,000         1,064,640   
                    
                 7,064,606   
                    

ARKANSAS - 0.8%

               

Arkansas State, Water Utility Impt., Series A, G.O. Bond

    4.500%      7/1/2044       Aa1      1,000,000         932,940   

Bentonville School District No. 6, Series A, G.O. Bond

    4.500%      6/1/2040       Aa2      1,000,000         921,910   

Hot Springs, Public Impt., Revenue Bond, AGC.

    4.625%      12/1/2037       AA3      500,000         476,670   
                    
                 2,331,520   
                    

CALIFORNIA - 3.0%

               

California State, G.O. Bond

    5.250%      2/1/2023       A1      500,000         512,950   

California State, G.O. Bond

    4.750%      12/1/2028       A1      795,000         722,504   

California State, Various Purposes Impt., G.O. Bond, AMBAC

    4.250%      12/1/2035       A1      1,140,000         894,889   

Campbell Union School District, G.O. Bond, AGM

    4.375%      8/1/2027       Aa2      1,810,000         1,668,060   

 

The accompanying notes are an integral part of the financial statements.    5

Investment Portfolio - December 31, 2010

 

     Coupon
Rate 		    Maturity
Date 		     Credit
Rating 1
(unaudited)		      Principal
Amount 		    

Value

(Note 2)

  

MUNICIPAL BONDS (continued)

              

CALIFORNIA (continued)

              

Chula Vista Elementary School District, Series F, G.O. Bond, NATL

      4.800%        8/1/2024         Baa1       $       435,000       $         434,382   

Chula Vista Elementary School District, Series F, G.O. Bond, NATL

      4.875%        8/1/2025         Baa1         425,000         422,573   

Los Angeles Unified School District, Series B, G.O. Bond, AMBAC

      4.500%        7/1/2027         Aa2         840,000         760,679   

Oak Valley Hospital District, G.O. Bond, FGRNA

      4.500%        7/1/2025         A1         1,395,000         1,251,692   

Richmond Joint Powers Financing Authority, Series A, Tax Allocation, NATL

      5.250%        9/1/2025         Baa1         1,570,000         1,515,395   
                   
                8,183,124   
                   

COLORADO - 0.8%

              

Colorado Water Resources & Power Development Authority, Water Resource, Series D, Revenue Bond, AGM

      4.375%        8/1/2035         Aa2         1,420,000         1,269,295   

Commerce City, Certificate of Participation, AMBAC

      4.750%        12/15/2032         A3         1,000,000         884,460   
                   
                2,153,755   
                   

CONNECTICUT - 0.6%

              

Stamford, G.O. Bond

      4.400%        2/15/2026         Aa1         1,545,000         1,553,698   
                   

DELAWARE - 1.0%

              

New Castle County, Series A, G.O. Bond

      4.250%        7/15/2025         Aaa         1,500,000         1,515,405   

New Castle County, Series A, G.O. Bond

      4.250%        7/15/2026         Aaa         1,265,000         1,271,730   
                   
                2,787,135   
                   

DISTRICT OF COLUMBIA - 0.8%

              

District of Columbia, Series A, G.O. Bond, FGRNA

      4.750%        6/1/2033         Aa2         2,500,000         2,345,700   
                   

FLORIDA - 4.8%

              

Cape Coral, Water Utility Impt., Special Assessment, NATL

      4.500%        7/1/2021         A2         1,845,000         1,820,701   

Florida State Board of Education, Capital Outlay, Public Education, Series A, G.O. Bond, AGM

      4.500%        6/1/2025         Aa1         1,280,000         1,285,555   

 

6    The accompanying notes are an integral part of the financial statements.

Investment Portfolio - December 31, 2010

 

     Coupon
Rate		   Maturity
Date 		     Credit
Rating1
(unaudited)		   Principal
Amount 		    

Value

(Note 2)

  

MUNICIPAL BONDS (continued)

             

FLORIDA (continued)

             

Florida State Board of Education, Capital Outlay, Public Education, Series D, G.O. Bond

    5.000%     6/1/2016       Aa1   $         2,000,000       $         2,257,380   

Florida State Department of Transportation, G.O. Bond

    5.000%     7/1/2027       Aa1     1,000,000         1,006,300   

Fort Lauderdale, Water Utility Impt., Revenue Bond

    4.500%     9/1/2038       Aa1     1,000,000         892,470   

Miami-Dade County, Water & Sewer Systems, Revenue Bond, AGM

    5.000%     10/1/2039       Aa2     1,500,000         1,455,375   

Palm Beach County, FPL Reclaimed Water Project, Revenue Bond

    5.000%     10/1/2040       Aaa     1,020,000         1,015,226   

Panama City Beach, Water Utility Impt., Revenue Bond, AGC

    5.000%     6/1/2039       AA3     1,000,000         954,740   

Tampa Bay Water Utility System, Revenue Bond

    5.000%     10/1/2038       Aa2     1,000,000         985,160   

Tohopekaliga Water Authority, Utility System, Series A, Revenue Bond, AGM

    5.000%     10/1/2028       Aa2     510,000         513,606   

Winter Park, Electric Impt., Series A, Revenue Bond, AGM

    5.000%     10/1/2029       Aa3     1,000,000         1,001,330   

Winter Park, Impt., Revenue Bond

    5.000%     12/1/2034       Aa2     250,000         243,857   
                  
               13,431,700   
                  

GEORGIA - 3.1%

             

Atlanta, Prerefunded Balance, G.O. Bond

    5.600%     12/1/2018       Aa2     350,000         354,900   

Atlanta, Water & Wastewater, Revenue Bond, AGM

    5.000%     11/1/2043       Aa3     1,500,000         1,399,395   

Atlanta, Water & Wastewater, Series A, Revenue Bond, NATL

    5.000%     11/1/2033       A1     310,000         294,205   

Coweta County Water & Sewage Authority, Series A, Revenue Bond, AGM

    4.250%     6/1/2040       Aa3     1,500,000         1,290,465   

Dekalb County, Special Transportation Parks & Greenspace, G.O. Bond

    4.375%     12/1/2030       Aa3     1,000,000         970,820   

Dekalb County, Water & Sewer, Series A, Revenue Bond

    5.000%     10/1/2035       Aa1     1,000,000         995,700   

Fulton County, Water Utility Impt., Revenue Bond, FGRNA

    5.000%     1/1/2035       Aa2     1,000,000         983,530   

Georgia State, Prerefunded Balance, Series B, G.O. Bond

    5.650%     3/1/2012       Aaa     5,000         5,298   

Georgia State, Series B, G.O. Bond

    4.000%     3/1/2022       Aaa     1,270,000         1,289,596   

Georgia State, Unrefunded Balance, Series B, G.O. Bond

    5.650%     3/1/2012       Aaa     195,000         206,747   

 

The accompanying notes are an integral part of the financial statements.    7

Investment Portfolio - December 31, 2010

 

    Coupon
Rate 		    Maturity
Date 		    Credit
Rating 1
(unaudited)		     Principal
Amount 		   

Value

(Note 2)

  

MUNICIPAL BONDS (continued)

          

GEORGIA (continued)

          

Madison, Water & Sewer, Revenue Bond, AMBAC

     4.625%        7/1/2030        WR2      $         1,000,000      $         883,030   
               
            8,673,686   
               

HAWAII - 0.3%

          

Honolulu County, Public Impt., Series B, G.O. Bond

     4.750%        12/1/2035        Aa1        1,000,000        957,700   
               

ILLINOIS - 2.3%

          

Chicago, Series A, G.O. Bond, AGM

     4.750%        1/1/2038        Aa3        1,500,000        1,304,820   

Chicago, Unrefunded Balance, Series A, G.O. Bond, NATL

     5.000%        1/1/2034        Aa3        520,000        461,505   

Illinois State, G.O. Bond

     5.000%        12/1/2027          A1        600,000        542,076   

Illinois State, G.O. Bond, NATL

     5.250%        10/1/2018          A1        2,000,000        2,007,020   

Springfield Metropolitan Sanitation District, Series A, G.O. Bond

     4.750%        1/1/2034        AA3        1,115,000        1,045,301   

Springfield, Electric Power & Light, Revenue Bond, NATL

     5.000%        3/1/2035          A1        1,000,000        959,310   
               
            6,320,032   
               

INDIANA - 4.0%

          

Avon Community School Building Corp., Revenue Bond, AMBAC

     4.250%        7/15/2018           A3        1,450,000        1,519,702   

Avon Community School Building Corp., Revenue Bond, AMBAC

     4.750%        1/15/2032           A3        1,015,000        923,122   

Frankfort High School Elementary School Building Corp., Revenue Bond, AGM

     4.750%        7/15/2025        Aa3        1,500,000        1,517,445   

Indiana Municipal Power Agency, Series A, Revenue Bond, NATL

     5.000%        1/1/2042          A1        1,000,000        921,830   

Indianapolis Local Public Impt. Bond Bank, Waterworks Project, Series A, Revenue Bond, AGC

     5.500%        1/1/2038        Aa3        1,000,000        1,032,640   

La Porte County, G.O. Bond, FGRNA

     5.200%        1/15/2018          A1        300,000        306,561   

Noblesville, Sewage Works, Revenue Bond, AMBAC

     5.000%        1/1/2024        Aa2        550,000        550,253   

North Lawrence Community Schools Building Corp., Revenue Bond, AGM

     5.000%        7/15/2020        Aa3        450,000        469,242   

Plainfield, Series A, Revenue Bond

     4.650%        1/1/2027           A3        645,000        623,096   

 

 

8    The accompanying notes are an integral part of the financial statements.

Investment Portfolio - December 31, 2010

 

    Coupon
Rate 		    Maturity
Date 		    Credit
Rating1
(unaudited)		   Principal
Amount 		   

Value

(Note 2)

  

MUNICIPAL BONDS (continued)

          

INDIANA (continued)

          

Shelbyville Central Renovation School Building Corp., Revenue Bond, NATL

     5.000%        7/15/2018      Baa1   $         3,000,000      $         3,265,020   
               
            11,128,911   
               

IOWA - 2.1%

          

Cedar Rapids, Public Impt., Series A, G.O. Bond

     4.000%        6/1/2030      Aaa     440,000        387,715   

Dubuque Iowa, Series D, Revenue Bond

     4.000%        6/1/2030      Aa2     470,000        406,216   

Indianola Community School District, G.O. Bond, FGRNA

     5.200%        6/1/2021        A1     425,000        440,555   

Iowa City Community School District, G.O. Bond, AGM

     4.000%        6/1/2018      Aaa     425,000        435,918   

Linn-Mar Community School District, Revenue Bond

     4.625%        7/1/2029        A2     1,000,000        958,580   

Polk County, Series C, G.O. Bond

     4.000%        6/1/2017      Aaa     995,000        1,053,018   

Polk County, Series C, G.O. Bond

     4.125%        6/1/2025      Aaa     2,075,000        2,076,577   
               
            5,758,579   
               

KANSAS - 3.0%

          

Johnson & Miami Counties Unified School District No. 230, G.O. Bond, FGRNA

     4.000%        9/1/2022      Aa3     1,000,000        976,510   

Johnson County Water District No. 1, Revenue Bond

     3.250%        12/1/2030      Aaa     1,000,000        793,820   

Miami County Unified School District No. 416 Louisburg, G.O Bond, NATL

     5.000%        9/1/2018      Baa1     2,000,000        2,173,900   

Scott County, G.O. Bond

     4.750%        4/1/2040         A3     1,000,000        967,690   

Sedgwick County Unified School District No. 265, G.O. Bond, AGM

     5.000%        10/1/2025      Aa3     1,090,000        1,102,306   

Seward County, G.O. Bond, AGM

     5.000%        8/1/2040      Aa3     1,000,000        1,012,110   

Shawnee County Unified School District No. 450, Shawnee Heights, G.O. Bond, AGM

     4.200%        9/1/2020      Aa3     700,000        715,750   

Shawnee County Unified School District No. 450, Shawnee Heights, G.O. Bond, AGM

     4.250%        9/1/2021      Aa3     580,000        589,054   
               
            8,331,140   
               

KENTUCKY - 1.3%

          

Lexington-Fayette Urban County Government Public Facilities Corp., Revenue Bond, NATL

     4.000%        10/1/2018      Aa2     1,655,000        1,722,640   

Lexington-Fayette Urban County Government, Series A, Revenue Bond

     3.625%        7/1/2020      Aa2     1,000,000        1,016,920   

 

 

The accompanying notes are an integral part of the financial statements.    9

Investment Portfolio - December 31, 2010

 

 

     Coupon
Rate 		     Maturity
Date 		     Credit
Rating1
(unaudited)		   Principal
Amount 		    

Value

(Note 2)

  

MUNICIPAL BONDS (continued)

              

KENTUCKY (continued)

              

Louisville & Jefferson County Metropolitan Sewer District, Series A, Revenue Bond, AGC

      4.250%         5/15/2038       Aa3   $       1,000,000       $       873,940   
                   
             

 

 

 

3,613,500

 

  

                   

LOUISIANA - 0.7%

              

Caddo Parish Parishwide School District, G.O. Bond, NATL

      4.350%         3/1/2026       Aa2     660,000         654,898   

Caddo Parish Parishwide School District, G.O. Bond, NATL

      4.375%         3/1/2027       Aa2     1,090,000         1,073,792   

New Orleans, Sewage Service, Revenue Bond, FGIC

      5.250%         6/1/2012         A3     300,000         300,678   
                   
             

 

 

 

2,029,368

 

  

                   

MAINE - 0.3%

              

Maine Municipal Bond Bank, Series D, Revenue Bond

      4.000%         11/1/2033       AAA3       1,000,000         850,160   
                   

MARYLAND - 1.4%

              

Anne Arundel County, Water & Sewer, G.O. Bond

      4.125%         3/1/2024       Aa1     345,000         348,826   

Anne Arundel County, Water & Sewer, G.O. Bond

      4.200%         3/1/2025       Aa1     1,770,000         1,784,815   

Baltimore County, Metropolitan District, G.O. Bond

      4.250%         9/1/2029       Aaa     1,000,000         972,290   

Maryland State, State and Local Facilities, G.O. Bond

      4.250%         8/1/2021       Aaa     750,000         785,963   
                   
             

 

 

 

3,891,894

 

  

                   

MASSACHUSETTS - 3.7%

              

Beverly, Municipal Purpose Loan, G.O. Bond

      4.500%         1/15/2035       AA3     695,000         647,608   

Boston Water & Sewer Commission, Series A, Revenue Bond

      5.000%         11/1/2031       Aa1     1,000,000         1,034,580   

Boston, Series A, G.O. Bond, NATL

      4.125%         1/1/2021       Aaa     1,000,000         1,022,230   

Boston, Series A, G.O. Bond, NATL

      4.125%         1/1/2022       Aaa     410,000         416,654   

Cambridge, Series A, G.O. Bond

      4.000%         2/1/2026       Aaa     850,000         836,629   

Cambridge, Series A, G.O. Bond

      4.000%         2/1/2027       Aaa     850,000         825,401   

Commonwealth of Massachusetts, Series A, G.O. Bond

      4.750%         8/1/2038       Aa1     500,000         479,935   

 

10    The accompanying notes are an integral part of the financial statements.

Investment Portfolio - December 31, 2010

 

 

    

Coupon

Rate

     

Maturity

Date

     

Credit

Rating1

(unaudited)

    

Principal

Amount

     

Value

(Note 2)

  

MUNICIPAL BONDS (continued)

              

MASSACHUSETTS (continued)

              

Commonwealth of Massachusetts, Series C, G.O. Bond, AMBAC

      5.500%         12/1/2023         Aa1      $ 1,000,000       $ 1,153,740   

Commonwealth of Massachusetts, Series D, G.O. Bond

      5.250%         10/1/2014         Aa1        1,000,000         1,133,870   

Lowell, State Qualified, G.O. Bond, AMBAC

      5.000%         2/1/2020         Aa2        500,000         528,740   

Massachusetts Water Resources Authority, Series A, Revenue Bond, AGM

      4.375%         8/1/2032         Aa1        2,000,000         1,826,160   

Richmond, G.O. Bond, NATL

      5.000%         4/15/2021         Aa2        400,000         404,996   
                   
             

 

 

 

10,310,543

 

  

                   

MICHIGAN - 3.3%

              

Bendle Public School District, G.O. Bond, FGRNA

      4.500%         5/1/2028         Aa2        640,000         581,216   

Detroit City School District, Series B, G.O. Bond, FGIC

      5.000%         5/1/2033         Aa2        750,000         658,320   

Detroit Sewer Disposal System, Series B, Revenue Bond, FGRNA

      4.625%         7/1/2034           A2        1,500,000         1,265,235   

Detroit Water Supply System, Revenue Bond, NATL

      5.250%         7/1/2023           A1        2,000,000         2,022,820   

Grand Rapids Public Schools, G.O. Bond, NATL

      4.125%         5/1/2023         Aa3        1,200,000         1,169,016   

Muskegon Public Schools, G.O. Bond, AGM

      5.000%         5/1/2020         Aa2        1,000,000         1,034,850   

Saginaw City School District, G.O. Bond, AGM

      4.500%         5/1/2031         Aa2        1,695,000         1,502,245   

Warren Woods Public Schools, School Building & Site, G.O. Bond, AGM

      4.500%         5/1/2026         Aa2        1,015,000         952,750   
                   
             

 

 

 

9,186,452

 

  

                   

MINNESOTA - 2.0%

              

Brooklyn Center Independent School District No. 286, Series A, G.O. Bond, NATL

      4.375%         2/1/2026         Aa2        1,105,000         1,095,928   

Hennepin County, Series A, G.O. Bond

      4.500%         12/1/2025         Aaa        1,500,000         1,531,800   

Minnesota State, G.O. Bond

      5.000%         8/1/2013         Aa1        2,000,000         2,200,100   

Pine County, Series A, G.O. Bond, FGRNA

      4.400%         2/1/2028         AAA3        555,000         539,643   

Western Minnesota Municipal Power Agency, Revenue Bond

      6.625%         1/1/2016         Aaa        175,000         198,201   
                   
             

 

 

 

5,565,672

 

  

                   

MISSISSIPPI - 0.2%

              

Biloxi Public School District, Prerefunded Balance, Revenue Bond, NATL

      5.000%         4/1/2017           A1        500,000         505,740   
                   

 

The accompanying notes are an integral part of the financial statements.    11

Investment Portfolio - December 31, 2010

 

    

Coupon

Rate

  

Maturity

Date

     

Credit

Rating1

(unaudited)

  

Principal

Amount

     

Value

(Note 2)

  

MUNICIPAL BONDS (continued)

             

MISSOURI - 1.7%

             

Columbia, Water & Electric, Series A, Revenue Bond

    4.125%     10/1/2033       AA3   $ 995,000       $ 928,703   

Missouri State, Water Pollution Control, Series A, G.O. Bond

    4.500%     12/1/2030       Aaa     2,375,000         2,745,429   

Springfield, Electric Light & Power Impt., Revenue Bond, FGRNA

    4.750%     8/1/2031       Aa3     1,015,000         981,302   
                  
            

 

 

 

4,655,434

 

  

                  

NEBRASKA - 1.8%

             

Nebraska Public Power District, Series C, Revenue Bond

    5.000%     1/1/2026         A1     840,000         859,925   

Omaha Metropolitan Utilities District, Series A, Revenue Bond, AGM

    4.375%     12/1/2031         A1     2,640,000         2,375,393   

Omaha Public Power District, Series AA, Revenue Bonds, FGRNA

    4.500%     2/1/2034       Aa2     1,950,000         1,765,257   
                  
            

 

 

 

5,000,575

 

  

                  

NEVADA - 3.0%

             

Clark County, G.O. Bond, AGM

    4.750%     6/1/2027       Aa1     3,000,000         2,986,350   

Las Vegas Valley Water District, Water Impt., Series A, G.O. Bond, AGM

    4.750%     6/1/2033       Aa1     1,500,000         1,403,655   

Nevada State, Capital Impt., G.O. Bond

    5.000%     6/1/2019       Aa1     2,040,000         2,233,147   

Nevada State, Project Nos. 66 & 67, Unrefunded Balance, Series A, G.O. Bond, FGRNA

    5.000%     5/15/2028       Aa1     125,000         125,010   

North Las Vegas, G.O. Bond, NATL

    5.000%     5/1/2024       Aa2     1,500,000         1,515,975   
                  
            

 

 

 

8,264,137

 

  

                  

NEW HAMPSHIRE - 0.6%

             

Manchester, Series F, G.O. Bond

    3.750%     12/1/2025       Aa1     1,005,000         954,147   

New Hampshire Municipal Bond Bank, Series D, Revenue Bond

    4.625%     7/15/2039       Aa3     835,000         821,331   
                  
            

 

 

 

1,775,478

 

  

                  

NEW JERSEY - 1.5%

             

East Brunswick Township Board of Education, G.O. Bond, AGM

    4.500%     11/1/2028       Aa2     835,000         828,879   

East Brunswick Township Board of Education, G.O. Bond, AGM

    4.500%     11/1/2029       Aa2     1,000,000         981,260   

 

12    The accompanying notes are an integral part of the financial statements.

Investment Portfolio - December 31, 2010

 

     Coupon
Rate		   Maturity
Date 		     Credit
Rating1
(unaudited)		  

Principal

Amount

     

Value

(Note 2)

  

MUNICIPAL BONDS (continued)

             

NEW JERSEY (continued)

             

Hudson County, G.O. Bond, CIFG

    4.250%     9/1/2021       Aa3   $ 930,000       $ 954,794   

Morris County Impt. Authority, School District, Morris Hills Regional District, Revenue Bond

    3.700%     10/1/2018       Aaa     540,000         559,121   

Sparta Township Board of Education, G.O. Bond, AGM

    4.300%     2/15/2030       Aa2     1,000,000         916,020   
                  
            

 

 

 

4,240,074

 

  

                  

NEW MEXICO - 0.3%

             

New Mexico Finance Authority, Public Project Revolving Fund, Series A-1, Revenue Bond, NATL

    3.250%     6/1/2013       Aa1     690,000         725,501   
                  

NEW YORK - 4.4%

             

Hampton Bays Union Free School District, G.O. Bond, AGM

    4.375%     9/15/2029       Aa3     2,225,000         2,173,447   

New York City Municipal Water Finance Authority, Water & Sewer Systems, Series A, Revenue Bond

    5.750%     6/15/2040       Aa1     2,590,000         2,752,626   

New York City Municipal Water Finance Authority, Water & Sewer Systems, Series E, Revenue Bond, FGRNA

    5.000%     6/15/2026       Aa1     750,000         758,835   

New York State Dormitory Authority, University of Rochester, Series E, Revenue Bond

    4.000%     7/1/2022       Aa3     930,000         924,494   

New York State Power Authority, Series A, Revenue Bond, NATL

    4.500%     11/15/2047       Aa2     1,000,000         909,430   

New York State Urban Development Corp., Series B, Revenue Bond, NATL

    5.000%     1/1/2019       WR2     1,000,000         1,080,640   

Port Authority of New York & New Jersey, Revenue Bond

    4.500%     10/15/2037       Aa2     1,000,000         925,180   

Sachem Central School District of Holbrook, G.O. Bond, FGRNA

    4.375%     10/15/2030       AA3     2,000,000         1,882,300   

Saratoga County, Sewer Impt., Series B, G.O. Bond

    4.375%     7/15/2040       AA3     855,000         770,526   
                  
            

 

 

 

12,177,478

 

  

                  

NORTH CAROLINA - 2.1%

             

Charlotte, Series B, Revenue Bond

    4.625%     7/1/2039       Aaa     1,000,000         965,450   

Charlotte, Water & Sewer, Revenue Bond

    5.000%     7/1/2038       Aaa     1,000,000         1,016,250   

Mecklenburg County, Public Impt., Series A, G.O. Bond

    4.125%     2/1/2022       Aaa     1,455,000         1,490,677   

 

The accompanying notes are an integral part of the financial statements.    13

Investment Portfolio - December 31, 2010

 

    

Coupon

Rate

  

Maturity

Date

     

Credit

Rating1

(unaudited)

   

Principal

Amount

     

Value

(Note 2)

  

MUNICIPAL BONDS (continued)

              

NORTH CAROLINA (continued)

              

North Carolina Municipal Power Agency No. 1 Catawba, Series A, Revenue Bond

    5.000%     1/1/2030         A2    $ 1,000,000       $ 969,000   

North Carolina State, Highway Impt., Revenue Bond, NATL

    4.000%     3/1/2018       Aa2      1,355,000         1,443,617   
                   
             

 

 

 

5,884,994

 

  

                   

NORTH DAKOTA - 0.7%

              

Fargo, Series A, G.O. Bond, NATL

    4.700%     5/1/2030       Aa1      1,840,000         1,805,960   
                   

OHIO - 3.0%

              

Brookville Local School District, G.O. Bond, AGM

    4.125%     12/1/2026       Aa3      660,000         610,790   

Columbus City School District, G.O. Bond, AGM

    4.375%     12/1/2032       Aa2      1,000,000         892,810   

Columbus, Limited Tax, Series 2, G.O. Bond

    5.000%     7/1/2017       Aaa      1,000,000         1,117,820   

Licking Heights Local School District, School Facilities Construction & Impt., Series A, G.O. Bond, NATL

    5.000%     12/1/2022       Aa2      1,450,000         1,509,450   

Newark City School District, G.O. Bond, FGRNA

    4.250%     12/1/2027         A1      500,000         455,375   

Ohio State, Conservation Project, Series A, Prerefunded Balance, G.O. Bond

    5.000%     3/1/2015       Aa1      1,000,000         1,117,610   

Pickerington Local School District, G.O. Bond, NATL

    4.250%     12/1/2034       Aa2      2,500,000         2,140,325   

Springfield City School District, Prerefunded Balance, G.O. Bond, FGIC

    5.200%     12/1/2023         A1      325,000         345,439   
                   
             

 

 

 

8,189,619

 

  

                   

OKLAHOMA - 1.1%

              

Oklahoma City Water Utilities Trust, Series A, Revenue Bond

    4.125%     7/1/2039       Aa1      1,000,000         878,850   

Oklahoma City, G.O. Bond, NATL

    4.250%     3/1/2023       Aaa      2,000,000         2,036,320   
                   
             

 

 

 

2,915,170

 

  

                   

OREGON - 2.3%

              

Clackamas County School District No. 12 North Clackamas, Series A, G.O. Bond, AGM

    4.750%     6/15/2031       Aa1      870,000         863,231   

Metro, G.O. Bond

    5.000%     6/1/2022       Aaa      3,000,000         3,273,630   

 

14    The accompanying notes are an integral part of the financial statements.

Investment Portfolio - December 31, 2010

 

 

     Coupon
Rate 		    Maturity
Date 		    Credit
Rating 1
(unaudited)		      Principal
Amount 		     Value
     (Note 2)    		  

MUNICIPAL BONDS (continued)

             

OREGON (continued)

             

Portland, Water Utility Impt., Series A, Revenue Bond, NATL

      4.500 %      10/1/2031        Aa1       $      550,000       $ 528,435   

Salem, Water & Sewer, Revenue Bond, AGM

      5.000 %      5/1/2014        Aa3         1,120,000         1,244,141   

Washington County School District No. 15 Forest Grove, Prerefunded Balance, G.O. Bond, AGM

      5.500 %      6/15/2017        Aa1         500,000         511,645   
                  
               6,421,082   
                  

PENNSYLVANIA - 3.5%

             

Allegheny County, Series C-62B, G.O. Bond

      5.000 %      11/1/2029        A1         750,000         750,480   

Commonwealth of Pennsylvania, Second Series, G.O. Bond, CIFG

      4.250 %      3/1/2025        Aa1         2,000,000         1,970,600   

Erie Water Authority, Series 2006, Revenue Bond, AGM

      5.000 %      12/1/2036        AA3         1,000,000         964,770   

Jenkintown School District, Series A, G.O. Bond, FGRNA

      4.500 %      5/15/2032        A3         1,000,000         913,880   

Lancaster School District, G.O. Bond, AGM

      5.000 %      6/1/2019        Aa3         1,200,000         1,319,472   

Pennsylvania Turnpike Commission, Prerefunded Balance, Revenue Bond, AMBAC

      5.375 %      7/15/2019        Aa3         530,000         549,700   

Philadelphia, Water & Wastewater, Prerefunded Revenue Bond, NATL

      5.600 %      8/1/2018        BBB3         20,000         23,162   

Philadelphia, Water & Wastewater, Series A, Revenue Bond, AMRAG

      5.000 %      8/1/2021        Aa3         1,000,000         1,050,960   

Plum Boro School District, Series A, G.O. Bond, FGRNA

      4.500 %      9/15/2030        A3         855,000         796,672   

Uniontown Area School District, G.O. Bond, AGM

      4.350 %      10/1/2034        Aa3         1,500,000         1,303,170   
                  
               9,642,866   
                  

RHODE ISLAND - 1.1%

             

Narragansett Bay Commission, Series A, Revenue Bond, NATL

      5.000 %      8/1/2035        Baa1         1,000,000         976,450   

Rhode Island Clean Water Finance Agency, Series A, Revenue Bond, NATL

      5.000 %      10/1/2035        Baa1         1,000,000         893,080   

Rhode Island State, Series B, G.O. Bond

      5.000 %      4/1/2023        Aa2         1,110,000         1,182,239   
                  
               3,051,769   
                  

 

The accompanying notes are an integral part of the financial statements.    15

Investment Portfolio - December 31, 2010

 

 

     Coupon
Rate 		    Maturity
Date 		     Credit
Rating 1
(unaudited)		      Principal
Amount 		     Value
     (Note 2)    		  

MUNICIPAL BONDS (continued)

              

SOUTH CAROLINA - 4.7%

              

Beaufort County School District, Series B, G.O. Bond, SCSDE

      5.000 %      3/1/2017         Aa1       $       1,000,000       $      1,148,730   

Beaufort County, G.O. Bond, NATL

      4.250 %      3/1/2024         Aa1         790,000         787,203   

Charleston County, Transportation Sales Tax, G.O. Bond

      5.000 %      11/1/2017         Aaa         1,000,000         1,140,750   

Columbia, Water Utility Impt., Revenue Bond

      5.000 %      2/1/2027         Aa1         1,750,000         1,835,873   

Lexington, Waterworks & Sewer System, Revenue Bond, AGC

      5.000 %      1/15/2039         Aa3         1,565,000         1,566,096   

Richland County School District No. 1, Series B, G.O. Bond, SCSDE

      4.450 %      3/1/2026         Aa1         1,005,000         1,005,804   

South Carolina Transportation Infrastructure Bank, Series B, Revenue Bond, AMBAC

      4.250 %      10/1/2027         A1         2,000,000         1,822,560   

South Carolina, State Institutional - South Carolina State University, Series D, G.O. Bond

      4.250 %      10/1/2026         Aaa         1,250,000         1,256,263   

Spartanburg Sanitation Sewer District, Series B, Revenue Bond, NATL

      5.000 %      3/1/2032         A1         1,500,000         1,459,785   

Sumter, Water Utility Impt., Revenue Bond, XLCA

      4.500 %      12/1/2032         A1         1,000,000         901,780   
                   
                12,924,844   
                   

SOUTH DAKOTA - 0.2%

              

Rapid City, Revenue Bond

      5.250 %      11/1/2039         Aa3         450,000         454,401   
                   

TENNESSEE - 1.1%

              

Claiborne County, Series A, G.O. Bond

      4.125 %      4/1/2030         A3         750,000         694,373   

Maryville, Series B, G.O. Bond

      3.500 %      6/1/2030         Aa3         1,280,000         1,146,074   

Tennessee State, Series A, G.O. Bond

      3.625 %      5/1/2031         Aaa         1,500,000         1,257,180   
                   
                3,097,627   
                   

TEXAS - 4.8%

              

Alamo Community College District, Series A, G.O. Bond, NATL

      5.000 %      8/15/2024         Aaa         1,020,000         1,070,908   

Alvin Independent School District, G.O. Bond

      4.375 %      2/15/2024         Aaa         750,000         755,483   

Canyon Independent School District, G.O. Bond

      4.700 %      2/15/2025         AAA3         1,440,000         1,472,990   

Clear Creek Independent School District, G.O. Bond, AGM

      4.000 %      2/15/2029         Aa2         2,340,000         2,060,581   

Del Valle Independent School District, School Building, G.O. Bond

      5.000 %      6/15/2019         AAA3         1,845,000         2,036,732   

 

16    The accompanying notes are an integral part of the financial statements.

Investment Portfolio - December 31, 2010

 

 

     Coupon
Rate 		    Maturity
Date 		     Credit
Rating 1
(unaudited)		      Principal
Amount 		    

Value

(Note 2)

  

MUNICIPAL BONDS (continued)

              

TEXAS (continued)

              

Fort Bend County, G.O. Bond, NATL

      4.750 %      3/1/2031         Aa1       $     1,000,000       $ 972,120   

Huntsville Independent School District, G.O. Bond

      4.500 %      2/15/2029         Aaa         1,220,000         1,187,487   

McKinney, Waterworks & Sewer, Revenue Bond, FGRNA

      4.750 %      3/15/2024         Aa2         1,000,000         1,009,280   

San Antonio, Water, Revenue Bond, FGRNA

      4.375 %      5/15/2029         Aa1         1,400,000         1,306,732   

University of Texas, Financing System, Series F, Revenue Bond

      4.750 %      8/15/2028         Aaa         1,000,000         1,009,470   

Waller Consolidated Independent School District, G.O. Bond

      4.750 %      2/15/2023         Aaa         500,000         502,710   
                   
                    13,384,493   
                   

UTAH - 2.0%

              

Mountain Regional Water Special Service District, Revenue Bond, NATL

      5.000 %      12/15/2030         Baa1         1,240,000         1,163,988   

Ogden City School District, G.O. Bond

      4.250 %      6/15/2025         Aaa         1,500,000         1,483,995   

Ogden, Water Utility Impt., Revenue Bond, AGM

      4.500 %      6/15/2038         Aa3         750,000         658,785   

Provo City School District, Series B, G.O. Bond

      4.000 %      6/15/2014         Aaa         1,100,000         1,194,743   

St. George, Parks and Recreation, G.O. Bond, AMBAC

      4.000 %      8/1/2019         Aa2         795,000         816,028   

Utah State Building Ownership Authority, Series C, Revenue Bond, AGM

      5.500 %      5/15/2011         Aa1         300,000         305,547   
                   
                5,623,086   
                   

VERMONT - 0.4%

              

Vermont State, Series D, G.O. Bond

      4.500 %      7/15/2025         Aaa         1,000,000         1,029,660   
                   

VIRGINIA - 3.4%

              

Fairfax County Water Authority, Series B, Revenue Bond

      4.000 %      4/1/2032         Aaa         1,000,000         911,530   

Fairfax County, Public Impt., Series A, G.O. Bond

      4.000 %      4/1/2017         Aaa         2,000,000         2,154,180   

Fairfax County, Public Impt., Series A, G.O. Bond

      4.250 %      4/1/2027         Aaa         1,500,000         1,498,170   

Norfolk, Capital Impt., G.O. Bond, FGRNA

      4.250 %      10/1/2024         Aa2         2,500,000         2,509,925   

Norfolk, Capital Impt., G.O. Bond, NATL

      4.375 %      3/1/2024         Aa2         685,000         691,720   

Norfolk, Water Utility Impt., Revenue Bond

      3.750 %      11/1/2040         Aa2         1,000,000         794,550   

Richmond, Series B, G.O. Bond, AGM

      4.750 %      7/15/2023         Aa2         400,000         409,332   

 

The accompanying notes are an integral part of the financial statements.    17

Investment Portfolio - December 31, 2010

 

 

     Coupon
Rate 		    Maturity
Date 		     Credit
Rating 1
(unaudited)		      Principal
Amount 		    

Value

(Note 2)

  

MUNICIPAL BONDS (continued)

              

VIRGINIA (continued)

              

Upper Occoquan Sewage Authority,
Series B, Revenue Bond

      4.500 %      7/1/2038         Aa1       $     470,000       $ 439,746   
                   
                9,409,153   
                   

WASHINGTON - 4.6%

              

Franklin County, G.O. Bond, FGRNA

      5.125 %      12/1/2022         BBB3         1,000,000         1,006,610   

Grant County Public Utility District No. 2 Priest Rapids, Series A, Revenue Bond, NATL

      5.000 %      1/1/2043         Aa3         1,000,000         933,640   

King County School District No. 411 Issaquah, Series A, G.O. Bond, AGM

      5.250 %      12/1/2018         Aaa             2,420,000         2,677,270   

King County, Sewer Impt., G.O. Bond, FGRNA.

      5.000 %      1/1/2035         Aa1         1,255,000         1,258,150   

King County, Sewer Impt., Revenue Bond, AGM

      5.000 %      1/1/2024         Aa2         1,460,000         1,536,869   

King County, Sewer Impt., Series A, Revenue Bond, NATL

      4.500 %      1/1/2032         Aa2         1,070,000         999,615   

Seattle, Drain & Wastewater, Revenue Bond, NATL

      4.375 %      2/1/2026         Aa1         2,000,000         1,957,760   

Tacoma, Sewer Impt., Revenue Bond, FGRNA

      5.125 %      12/1/2036         Aa2         1,275,000         1,278,494   

Washington State, Motor Vehicle Fuel Tax, Series B, G.O. Bond, AMBAC

      5.000 %      1/1/2025         Aa1         1,000,000         1,045,820   
                   
                    12,694,228   
                   

WEST VIRGINIA - 0.3%

              

West Virginia State Water Development Authority, Series A, Revenue Bond, FGRNA

      4.250 %      11/1/2026         A3          820,000         767,733   
                   

WISCONSIN - 3.0%

              

Central Brown County Water Authority, Water Systems, Revenue Bond, AMBAC

      5.000 %      12/1/2035         A3          1,500,000         1,412,400   

Eau Claire, Series B, G.O. Bond, NATL

      4.000 %      4/1/2015         Aa1         1,195,000         1,310,043   

Madison, Water Utility Impt., Series A, Revenue Bond

      4.250 %      1/1/2030         Aa1         1,000,000         907,550   

Milwaukee County Metropolitan Sewer District, Series F, G.O. Bond

      5.000 %      10/1/2018         Aaa         1,050,000         1,214,241   

Milwaukee, Series B5, G.O. Bond

      5.000 %      5/1/2024         Aa1         1,000,000         1,074,780   

Oshkosh, Corporate Purposes, Series A, G.O. Bond, FGRNA

      5.050 %      12/1/2021         Aa2         450,000         469,242   

Stoughton Area School District, G.O. Bond, FGRNA

      4.875 %      4/1/2016         Aa2         500,000         504,835   

 

18    The accompanying notes are an integral part of the financial statements.

Investment Portfolio - December 31, 2010

 

     Coupon
Rate 		    Maturity
Date 		     Credit
Rating 1
(unaudited)		      Principal
Amount/
Shares 		    

Value

(Note 2)

  

MUNICIPAL BONDS (continued)

              

WISCONSIN (continued)

              

Wisconsin Public Power, Inc., Series A, Revenue Bond, AMBAC

      5.000 %      7/1/2035         A1       $ 870,000       $ 815,173   

Wisconsin State, Transportation, Series A, Revenue Bond, AGM

      5.000 %      7/1/2025         Aa2         700,000         723,618   
                   
                8,431,882   
                   

WYOMING - 0.3%

              

Wyoming Municipal Power Agency, Series A, Revenue Bond

      5.375 %      1/1/2042         A2         710,000         709,467   
                   

TOTAL MUNICIPAL BONDS
(Identified Cost $268,550,079)

                 263,840,297   
                   

SHORT-TERM INVESTMENTS - 3.3%

              

Dreyfus AMT - Free Municipal Reserves - Class R

(Identified Cost $9,284,437)

  

  

           9,284,437         9,284,437   
                   

TOTAL INVESTMENTS - 98.6%
(Identified Cost $277,834,516)

                 273,124,734   

OTHER ASSETS, LESS LIABILITIES - 1.4%

                 3,845,102   
                   

NET ASSETS - 100%

               $   276,969,836   
                   

KEY:

G.O. Bond - General Obligation Bond

Impt. - Improvement

No. - Number

Scheduled principal and interest payments are guaranteed by:

AGC (Assurance Guaranty Corp.)

AGM (Assurance Guaranty Municipal Corp.)

AMBAC (AMBAC Assurance Corp.)

AMRAG (AMBAC reinsured by AGC)

CIFG (CIFG North America, Inc.)

FGIC (Financial Guaranty Insurance Co.)

FGRNA (FGIC reinsured by NATL)

NATL (National Public Finance Guarantee Corp.)

XLCA (XL Capital Assurance)

The insurance does not guarantee the market value of the municipal bonds.

1Credit ratings from Moody’s (unaudited).

2Credit rating has been withdrawn. As of December 31, 2010, there is no rating available (unaudited).

3Credit ratings from S&P (unaudited).

The Series’ portfolio holds, as a percentage of net assets, greater than 10% in bonds insured by the following companies:

NATL - 29.6%; AGM - 18.1%.

 

The accompanying notes are an integral part of the financial statements.    19

Statement of Assets and Liabilities

December 31, 2010

 

 

ASSETS:

   

Investments, at value (identified cost $277,834,516) (Note 2)

    $ 273,124,734   

Interest receivable

      3,496,462   

Receivable for fund shares sold

      590,433   
        

TOTAL ASSETS

      277,211,629   
        

LIABILITIES:

   

Accrued management fees (Note 3)

      117,515   

Accrued fund accounting and administration fees (Note 3)

      14,597   

Accrued transfer agent fees (Note 3)

      689   

Accrued Chief Compliance Officer service fees (Note 3)

      245   

Accrued directors fees (Note 3)

      49   

Payable for fund shares repurchased

      57,359   

Audit fees payable

      30,269   

Other payables and accrued expenses

      21,070   
        

TOTAL LIABILITIES

      241,793   
        

TOTAL NET ASSETS

    $ 276,969,836   
        

NET ASSETS CONSIST OF:

   

Capital stock

    $ 257,159   

Additional paid-in-capital

      281,150,952   

Undistributed net investment income

      271,507   

Net unrealized depreciation on investments

      (4,709,782 ) 
        

TOTAL NET ASSETS

    $ 276,969,836   
        

NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE - Class A ($276,969,836/25,715,917 shares)

    $ 10.77   
        

 

20    The accompanying notes are an integral part of the financial statements.

Statement of Operations

For the Year Ended December 31, 2010

 

 

INVESTMENT INCOME:

   

Interest

    $ 10,834,848   

Dividends

      506   
        

Total Investment Income

      10,835,354   
        

EXPENSES:

   

Management fees (Note 3)

      1,324,330   

Fund accounting and administration fees (Note 3)

      99,043   

Directors’ fees (Note 3)

      11,408   

Transfer agent fees (Note 3)

      4,074   

Chief Compliance Officer service fees (Note 3)

      2,631   

Custodian fees

      13,551   

Miscellaneous

      91,552   
        

Total Expenses

      1,546,589   

Less reduction of expenses (Note 3)

      (758 ) 
        

Net Expenses

      1,545,831   
        

NET INVESTMENT INCOME

      9,289,523   
        

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:

   

Net realized gain on investments

      44,160   

Net change in unrealized depreciation on investments

      (9,181,739 ) 
        

NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS

      (9,137,579 ) 
        

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

    $ 151,944   
        

 

The accompanying notes are an integral part of the financial statements.    21

Statement of Changes in Net Assets

 

 

    

For the

Year Ended
12/31/10

    

For the

Year Ended
12/31/09

  

INCREASE (DECREASE) IN NET ASSETS:

     

OPERATIONS:

     

Net investment income

    $ 9,289,523      $ 7,635,785   

Net realized gain on investments

      44,160        243,778   

Net change in unrealized appreciation (depreciation) on investments

      (9,181,739 )      16,756,505   
                

Net increase from operations

      151,944        24,636,068   
                

DISTRIBUTIONS TO SHAREHOLDERS (Note 7):

     

From net investment income

      (10,674,465 )      (8,260,550 ) 

From net realized gain on investments

      (50,263 )      (515,923 ) 
                

Total distributions to shareholders

      (10,724,728 )      (8,776,473 ) 
                

CAPITAL STOCK ISSUED AND REPURCHASED:

     

Net increase from capital share transactions (Note 5)

      53,056,589        20,890,861   
                

Net increase in net assets

      42,483,805        36,750,456   

NET ASSETS:

     

Beginning of year

      234,486,031        197,735,575   
                

End of year (including undistributed net investment income of $271,507 and $1,659,323, respectively)

    $ 276,969,836      $ 234,486,031   
                

 

22    The accompanying notes are an integral part of the financial statements.

Financial Highlights

 

 

         

 

For the Years Ended

     
     12/31/10    12/31/09    12/31/08    12/31/07    12/31/06
Per share data (for a share outstanding throughout each year):                         

Net asset value - Beginning of year

        $11.17               $10.34               $10.92               $10.95               $10.90       
                                                      

Income (loss) from investment operations:

                         

Net investment income

        0.401              0.401              0.42               0.36               0.37       

Net realized and unrealized gain (loss) on investments

        (0.35)              0.90               (0.62)              (0.02)              0.05       
                                                      

Total from investment operations

        0.05               1.30               (0.20)              0.34               0.42       
                                                      

Less distributions to shareholders:

                         

From net investment income

        (0.45)              (0.44)              (0.36)              (0.37)              (0.36)      

From net realized gain on investments

        —2               (0.03)              (0.02)              —2              (0.01)      
                                                      

Total distributions to shareholders

        (0.45)              (0.47)              (0.38)              (0.37)              (0.37)      
                                                      

Net asset value - End of year

        $10.77               $11.17               $10.34               $10.92               $10.95       
                                                      

Net assets - End of year (000’s omitted)

          $276,970                 $234,486                 $197,736                 $235,709                 $167,689       
                                                      

Total return3

        0.41%               12.75%               (1.79%)              3.20%               3.94%       
Ratios (to average net assets)/ Supplemental Data:                         

Expenses*

        0.58%               0.60%               0.61%               0.62%               0.66%       

Net investment income

        3.51%               3.65%               3.75%               3.65%               3.71%       

Portfolio turnover

        3%               8%               7%               3%               5%      

*The investment advisor did not impose all or a portion of its management fees, CCO fees, fund accounting and transfer agent fees, and other fees in some years and in some years paid a portion of the Series’ expenses. If these expenses had been incurred by the Series, the expense ratio (to average net assets) would have been increased by the following amounts:

     0.00%4                    0.01 %                       N/A                    N/A                            N/A      

1Calculated based on average shares outstanding during the year.

2Less than $0.01 per share.

3Represents aggregate total return for the periods indicated, and assumes reinvestment of all distributions. Total return would have been lower had certain expenses not been waived or reimbursed during the periods. Periods less than one year are not annualized.

4Less than 0.01%.

 

The accompanying notes are an integral part of the financial statements.    23

Notes to Financial Statements

 

 

1.

ORGANIZATION

Diversified Tax Exempt Series (the “Series”) is a no-load diversified series of Manning & Napier Fund, Inc. (the “Fund”). The Fund is organized in Maryland and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company.

The Series’ investment objective is to provide as high a level of current income exempt from federal income tax as the Advisor believes is consistent with the preservation of capital.

The Fund’s Advisor is Manning & Napier Advisors, Inc. (the “Advisor”). Shares of the Series are offered to investors, clients and employees of the Advisor and its affiliates. The total authorized capital stock of the Fund consists of 10.0 billion shares of common stock each having a par value of $0.01. As of December 31, 2010, 6.2 billion shares have been designated in total among 29 series, of which 100 million have been designated as Diversified Tax Exempt Series Class A common stock.

 

2.

SIGNIFICANT ACCOUNTING POLICIES

Security Valuation

Municipal securities will normally be valued on the basis of market valuations provided by an independent pricing service (the “Service”). The Service utilizes the latest price quotations and a matrix system (which considers such factors as security prices of similar securities, yields, maturities and ratings). The Service has been approved by the Fund’s Board of Directors (the “Board”).

Short-term investments that mature in sixty days or less are valued at amortized cost, which approximates market value. Investments in open-end investment companies are valued at their net asset value per share on valuation date.

Volume and level of activity in established markets for an asset or liability are evaluated to determine whether recent transactions and quoted prices are determinative of fair value. Where there have been significant decreases in volume and level of activity, further analysis and adjustment may be necessary to estimate fair value. The Series measures fair value in these instances by the use of inputs and valuation techniques which may be based upon current market prices of securities that are comparable in coupon, rating, maturity and industry and/or expectation of future cash flows. As a result of trading in relatively thin markets and/or markets that experience significant volatility, the prices used by the Series to value these securities may differ from the value that would be realized if these securities were sold, and the differences could be material.

Securities for which representative valuations or prices are not available from the Fund’s pricing service may be valued at fair value. Due to the inherent uncertainty of valuations of such securities, the fair value may differ significantly from the values that would have been used had a ready market for such securities existed. If trading or events occurring after the close of the principal market in which securities are traded are expected to materially affect the value of those securities, then they may be valued at their fair value, taking this trading or these events into account. Fair value is determined in good faith by the Advisor under procedures approved by and under the general supervision and responsibility of the Board.

Various inputs are used in determining the value of the Series’ assets or liabilities carried at market value. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical assets and liabilities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). Level 3 includes significant unobservable inputs (including the Series’ own assumptions in determining the fair value of investments). The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the valuation levels used for major security types as of December 31, 2010 in valuing the Series’ assets or liabilities carried at market value:

 

24   

Notes to Financial Statements

 

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Security Valuation (continued)

Description    Total      Level 1      Level 2      Level  3  

Assets:

            

Equity securities*

    $ —       $ —       $ —       $                 —   

Preferred securities

      —         —         —         —   

Debt securities:

            

States and political subdivisions (municipals)

      263,840,297         —         263,840,297         —   

Mutual funds

      9,284,437         9,284,437         —         —   

Other financial instruments**:

      —         —         —         —   
                                   

Total Assets:

      273,124,734         9,284,437         263,840,297         —   
                                   

Liabilities:

            

Other financial instruments**:

      —         —         —         —   
                                   

Total liabilities:

      —         —         —         —   
                                   

Total

    $   273,124,734       $      9,284,437       $   263,840,297       $                 —   
                                   

*Includes common stock, warrants and rights. Please see the Investment Portfolio for industry classification.

**Other financial instruments are derivative instruments not reflected in the Investment Portfolio, such as futures, forwards and swap contracts, which are valued at the unrealized appreciation/depreciation on the instrument. As of December 31, 2010, the Series did not hold any derivative instruments.

There were no Level 3 securities held by the Series as of December 31, 2009 or December 31, 2010.

The Fund’s policy is to recognize transfers in and transfers out of the valuation levels as of the beginning of the reporting period. There were no significant transfers between Level 1 and Level 2 during the year ended December 31, 2010.

Additional disclosure surrounding the activity in Level 3 fair value measurement will be effective for fiscal years beginning after December 15, 2010. Management has concluded that this will not have a material impact on the Series’ financial statements.

Security Transactions, Investment Income and Expenses

Security transactions are accounted for on trade date. Dividend income is recorded on the ex-dividend date, except that if the ex-dividend date has passed, certain dividends from foreign securities are recorded as soon as the Fund is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Interest income, including amortization of premium and accretion of discounts using the effective interest method, is earned from settlement date and accrued daily.

Expenses are recorded on an accrual basis. Most expenses of the Fund can be attributed to a specific series. Expenses which cannot be directly attributed are apportioned among the series in the Fund in such a manner as deemed equitable by the Fund’s Board, taking into consideration, among other things, the nature and type of expense.

The Series uses the identified cost method for determining realized gain or loss on investments for both financial statement and federal income tax reporting purposes.

 

   25

Notes to Financial Statements

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Federal Taxes

The Series’ policy is to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. The Series is not subject to federal income tax or excise tax to the extent that the Series 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.

Management evaluates its tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of tax benefits of an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. At December 31, 2010, the Series has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken in future tax returns.

The Series files income tax returns in the U.S. federal jurisdiction and various states, as required. No income tax returns are currently under investigation. The statute of limitations on the Series’ tax returns remains open for the years ended December 31, 2007 through December 31, 2010. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.

Distributions of Income and Gains

Distributions to shareholders of net investment income are made quarterly. Distributions of net realized gains are made annually. An additional distribution may be necessary to avoid taxation of the Series. Distributions are recorded on the ex-dividend date.

Indemnifications

The Fund’s organizational documents provide former and current directors and officers with a limited indemnification against liabilities arising in connection with the performance of their duties to the Fund. In the normal course of business, the Fund may also enter into contracts that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would be dependent on future claims that may be made against the Fund. The risk of material loss from such claims is considered remote.

Other

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 income and expenses during the reporting period. Actual results could differ from those estimates.

 

3.

TRANSACTIONS WITH AFFILIATES

The Fund has an Investment Advisory Agreement (the “Agreement”) with the Advisor, for which the Series pays a fee, computed daily and payable monthly, at an annual rate of 0.50% of the Series’ average daily net assets.

Under the Agreement, personnel of the Advisor provide the Series with advice and assistance in the choice of investments and the execution of securities transactions, and otherwise maintain the Series’ organization. The Advisor also provides the Fund with necessary office space and fund administration and support services. The salaries of all officers of the Fund (except a percentage of the Fund’s Chief Compliance Officer’s salary, which is paid by 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

 

26   

Notes to Financial Statements

 

 

3.

TRANSACTIONS WITH AFFILIATES (continued)

Advisor. Each “non-affiliated” Director receives an annual stipend, which is allocated among all the active series of the Fund. In addition, these Directors also receive a fee per Board meeting attended plus a fee for each committee meeting attended.

The Advisor has contractually agreed, until at least April 30, 2012, to waive its fee and, if necessary, pay other operating expenses of the Series in order to maintain total direct annual fund operating expenses for the Series at no more than 0.85% of average daily net assets each year. For the year ended December 31, 2010, the Advisor voluntarily waived fees of $758, which are included as a reduction of expenses on the Statement of Operations. The Advisor is not eligible to recoup any expenses that have been waived or reimbursed in prior years.

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 Series.

The Advisor has agreements with PNC Global Investment Servicing (U.S.) Inc. (“PNCGIS”) under which PNCGIS serves as sub-accountant services agent and sub-transfer agent. The Fund pays the Advisor an annual fee related to fund accounting and administration of 0.0175% on the first $3 billion of average daily net assets (excluding Target Series); 0.015% on the next $3 billion of average daily net assets (excluding Target Series); and 0.01% of the average daily net assets in excess of $6 billion (excluding Target Series); plus a base fee of $25,500 per Series. Transfer Agent fees are charged to the Fund on a per account basis. Additionally, certain transaction- and cusip-based fees and out-of-pocket expenses, including charges for reporting relating to the Fund’s compliance program, are charged.

Effective July 1, 2010, PNCGIS was sold to The Bank of New York Mellon Corporation, the Series’ custodian. At the close of the sale, PNCGIS changed its name to BNY Mellon Investment Servicing (U.S.) Inc. (“BNY”).

Expenses not directly attributable to a Series are allocated based on each Series’ relative net assets or number of accounts, depending on the expense.

 

4.

PURCHASES AND SALES OF SECURITIES

For the year ended December 31, 2010, purchases and sales of securities, other than U.S. Government securities and short-term securities, were $56,294,453 and $7,867,290, respectively. There were no purchases or sales of U.S. Government securities.

 

5.

CAPITAL STOCK TRANSACTIONS

Transactions in shares of Diversified Tax Exempt Series were:

 

    

For the Year

Ended 12/31/10

    

For the Year

Ended 12/31/09

  
     Shares     Amount     Shares     Amount  

Sold

      7,011,303      $ 79,206,449        4,637,961      $ 51,174,088   

Reinvested

      903,576        10,015,744        749,319        8,166,096   

Repurchased

      (3,196,428 )      (36,165,604 )      (3,520,939 )      (38,449,323 ) 
                                

Total

      4,718,451      $ 53,056,589        1,866,341     

 

$

 

20,890,861

 

  

                                

Substantially all of the Series’ shares represent investments by fiduciary accounts over which the Advisor has sole investment discretion.

 

   27

Notes to Financial Statements

 

6.

FINANCIAL INSTRUMENTS

The Series may trade in instruments including written and purchased options, forward foreign currency exchange contracts and futures contracts and other derivatives in the normal course of investing activities to assist in managing exposure to various market risks. Investments in these instruments may subject the Series to various elements of risk, which may involve, to a varying degree, elements of risk in excess of the amounts recognized for financial statement purposes. These risks include: the risk that changes in the value of a derivative may not correlate perfectly with the underlying asset, rate or index, counterparty credit risk related to over the counter derivatives counterparties’ failure to perform under contract terms, liquidity risk related to the lack of a liquid market for these contracts allowing the fund to close out its position(s) and documentation risk relating to disagreement over contract terms. No such investments were held by the Series during the year ended December 31, 2010.

 

7.

FEDERAL INCOME TAX INFORMATION

The amount and characterization of certain income and capital gains to be distributed are determined in accordance with federal income tax regulations, which may differ from accounting principles generally accepted in the United States of America. These differences are primarily due to differing book and tax treatments in the timing of the recognition of net investment income or gains and losses, including market discount. The Series may periodically make reclassifications among its capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations without impacting the Series’ net asset value. Any such reclassifications are not reflected in the financial highlights.

The tax character of distributions paid were as follows:

 

     For the  Year
Ended
12/31/10		        For the  Year
Ended
12/31/09		  

Ordinary income

    $ —         $ 42,152   

Tax exempt income

      10,676,650           8,218,398   

Long-term capital gains

      48,078           515,923   

At December 31, 2010, the tax basis of distributable earnings and the net unrealized appreciation based on the identified cost of investments for federal income tax purposes were as follows:

 

Cost for federal income tax purposes

    $ 277,769,109      

Unrealized appreciation

    $ 4,291,074      

Unrealized depreciation

      (8,935,449)      
           

Net unrealized depreciation

    $ (4,644,375)      
           

Undistributed tax exempt income

      206,100      

 

28

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors of Manning & Napier Fund, Inc. and Shareholders of

Diversified Tax Exempt Series:

In our opinion, the accompanying statement of assets and liabilities, including the investment portfolio (except for credit ratings), and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the Diversified Tax Exempt Series (a series of Manning & Napier Fund, Inc., hereafter referred to as the “Series”) at December 31, 2010, and 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 five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Series’ management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2010 by correspondence with the custodian, provide a reasonable basis for our opinion.

LOGO

New York, New York

February 22, 2011

 

   29

Supplemental Tax Information (unaudited)

 

All designations are based on financial information available as of the date of this annual report and, accordingly are subject to change.

Pursuant to Section 852 of the Internal Revenue Code, as amended, the Series hereby designates $48,078 as capital gains for its taxable year ended December 31, 2010. In addition, the Series hereby designates $10,676,650 as tax exempt dividends for the year ended December 31, 2010. For each item it is the intention of the Series to designate the maximum allowable under tax law.

 

30   

Renewal of Investment Advisory Agreement (unaudited)

 

At the Manning & Napier Fund, Inc. (the “Fund”) Board of Directors’ (the “Board”) meeting, held on November 17, 2010, the Investment Advisory Agreement (the “Agreement”) between the Fund and Manning & Napier Advisors, Inc. (the “Advisor”) was reviewed by the Board for renewal. In connection with the decision whether to renew the Agreement, a variety of material was prepared for and reviewed by the Board.

Representatives of the Advisor attended the meeting and presented additional oral and written information to the Board to assist the Board in its considerations. The discussion immediately below outlines the materials and information presented to the Board in connection with the Board’s 2010 Annual Review of the Agreement and the conclusions made by the Directors when determining to continue the Agreement.

 

  •  

The Board considered the services provided by the Advisor under the Agreement including, among others: deciding what securities to purchase and sell for each Series; arranging for the purchase and sale of such securities by placing orders with broker-dealers; administering the affairs of the Fund (including the books and records of the Fund not maintained by third party service providers such as the custodian or sub-transfer agent); arranging for the insurance coverage for the Fund; and supervising the preparation of tax returns, SEC filings (including registration statements) and reports to shareholders for the Fund. The Board also considered the nature and quality of such services provided under the Agreement in light of the Advisor’s services provided to the Fund for 24 years. The Board discussed the quality of these services with representatives from the Advisor and concluded that the Advisor was performing its services to the Fund required under the Agreement in a reasonable manner.

 

  •  

The Board considered the investment performance of the various Series of the Fund. The investment performance for each Series was reviewed on a cumulative basis since inception and on a one year basis. In addition, annualized performance for the following time periods was considered: inception, three year, five year, ten year, and current market cycle. A market cycle includes periods of both rising and falling markets. Returns for established benchmark indices for each Series were provided for each time period. The Board noted that the various Series were competitive against their respective benchmarks and/or peer groups over various time periods, but in particular over the full market cycle period relevant for the Series. In addition, the Board considered at the meeting (and considers on a quarterly basis) a peer group performance analysis consisting of Morningstar universes of mutual funds with similar investment objectives. The Board discussed the performance with representatives from the Advisor and concluded that the investment performance of each of the Fund’s Series was reasonable based on the Fund’s actual performance and comparative performance, especially performance over the current market cycle.

 

  •  

The Board considered the costs of the Advisor’s services and the profits of the Advisor as they relate to the Advisor’s services to the Fund under the Agreement. In reviewing the Advisor’s costs and profits, the Board discussed the Advisor’s revenues generated from the Fund (on both an actual and adjusted basis) and its expenses associated with providing the services under the Agreement. In addition, the Board reviewed the Advisor’s expenses associated with Fund activities outside of the Agreement (such as expense reimbursements pursuant to expense caps and payments made by the Advisor to third party platforms on which shares of the Fund are available for purchase). It was noted by representatives of the Advisor that 11 of the 27 active Series of the Fund are currently experiencing expenses above the capped expense ratios. After discussing the above costs and profits, the Board concluded that the Advisor’s profitability relating to its services provided under the Agreement was reasonable.

 

  •  

The Board considered the fees and expenses of the various Series of the Fund. The Advisor presented the advisory fees and total expenses for each Series, including the advisory fee adjusted for any expense waivers or reimbursements (either contractual or voluntary) paid by the Advisor. The advisory fees and expense ratios of each Series were compared to an average (on both a mean and median basis) of similar funds as disclosed on the Morningstar database. Representatives of the Advisor discussed with the Board the levels of its advisory

 

   31

Renewal of Investment Advisory Agreement (unaudited)

 

 

 

fee for each Series of the Fund and as compared to the median and mean advisory fees for similar funds as listed on Morningstar. Expense ratios for every Series, except the Pro-Blend’s Class R and Class C, and Target Class R and Class C, are currently below the median and mean for similar funds as listed on Morningstar. Based on their review of the information provided, the Board concluded that the fees and expenses of each Series of the Fund were reasonable on a comparative basis.

 

  •  

The Board also considered the other benefits the Advisor derives from its relationship with the Fund. Such other benefits include certain research products provided by soft dollars. Given the level of soft dollar transactions involving the Fund, the Board concluded that these additional benefits to the Advisor were reasonable.

 

  •  

In addition to the factors described above, the Board considered the Advisor’s personnel, investment strategies, policies and procedures relating to compliance with personal securities transactions, and reputation, expertise and resources in domestic and foreign financial markets. The Board concluded that these factors support the conclusion that the Advisor performs its services in a reasonable manner.

 

  •  

The Board did not consider economies of scale at this time because of the multiple uses of the Fund (for the Advisor’s discretionary investment account clients in addition to direct investors), the current profitability of the Advisor’s services to the Fund under the Agreement, and the overall size of the Fund complex.

Based on the Board’s deliberations and their evaluation of the information described above, the Board, including a majority of Directors that are not “interested persons” as defined in the Investment Company Act of 1940, concluded that the compensation under the Agreement was fair and reasonable in light of the services and expenses and such other matters as the Directors considered to be relevant in the exercise of their reasonable judgment. Accordingly, the Board approved the renewal of the Agreement. In the course of their deliberations, the Directors did not identify any particular information that was all important or controlling.

 

32   

Directors’ and Officers’ Information (unaudited)

 

The Statement of Additional Information provides additional information about the Fund’s directors and officers and can be obtained without charge by calling 1-800-466-3863, at www.manningnapieradvisors.com, or on the EDGAR Database on the SEC Internet web site (http:// www.sec.gov). The following chart shows certain information about the Fund’s officers and directors, including their principal occupations during the last five years. Unless specific dates are provided, the individuals have held the listed positions for longer than five years.

INTERESTED DIRECTOR/OFFICER

 

Name:

    B. Reuben Auspitz*

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    63

Current Position(s) Held with Fund:

    Principal Executive Officer, President, Chairman & Director

Term of Office1 & Length of Time Served:

    Indefinite - Director since 1984; Vice President 1984 - 2003; President since 2004; Principal Executive Officer since 2002

Principal Occupation(s) During Past 5 Years:

    Executive Vice President; Executive Group Member**; Chief Compliance Officer since 2004; Vice Chairman since June 2010; Co-Executive Director from 2003-2010 - Manning & Napier Advisors, Inc. President; Director - Manning & Napier Investor Services, Inc. Holds or has held one or more of the following titles for various subsidiaries and affiliates: President, Vice President, Director, Chairman, Treasurer, Chief Compliance Officer or Member.

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A

 

INDEPENDENT DIRECTORS

   

Name:

    Paul A. Brooke

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    65

Current Position(s) Held with Fund:

    Director, Audit Committee Member, Governance & Nominating Committee Member

Term of Office & Length of Time Served:

    Indefinite - Since 2007

Principal Occupation(s) During Past 5 Years:

    Chairman & CEO, Alsius Corp. (investments); Managing Member, PMSV Holdings LLC (investments)

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

   

Incyte Corp. (2000-present)

ViroPharma, Inc. (2000-present)

HLTH Corp. (2000-present)

Cheyne Capital International (2000-present)

MPM Bio-equities (2000-present)

GMP Companies (2000-present)

HoustonPharma (2000-present)

 

Name:

    Richard M. Hurwitz

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    47

Current Position(s) Held with Fund:

    Director, Audit Committee Member, Governance & Nominating Committee Member

Term of Office & Length of Time Served:

    Indefinite - Since 2009

Principal Occupation(s) During Past 5 Years:

    Chief Executive Officer, Pictometry International Corp. since August 2010 (provider of georeferenced, aerial image libraries and related software) Managing Partner (2006-July 2010) - Aegis Investment Partners, LLC (investments); Founder and Managing Partner (2004-2005) - Village Markets, LLC (groceries)

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

   

Pictometry International Corp. (2000-2010)

Pioneering Technologies (2006-2009)

Vensearch Capital Corp. (2003-2007)

    

     

 

   33

Directors’ and Officers’ Information (unaudited)

 

INDEPENDENT DIRECTORS (continued)

 

Name:

    Stephen B. Ashley

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    70

Current Position(s) Held with Fund:

    Director, Audit Committee Member, Governance & Nominating Committee Member

Term of Office & Length of Time Served:

    Indefinite - Since 1996

Principal Occupation(s) During Past 5 Years:

    Chairman, Director, President & Chief Executive Officer, The Ashley Group (property management and investment). Chairman (non-executive) 2004-2008; Director 1995-2008 - Fannie Mae (mortgage)

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

   

The Ashley Group (1995-2008)

Genesee Corporation (1987-2007)

 

Name:

    Peter L. Faber

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    72

Current Position(s) Held with Fund:

    Director, Governance & Nominating Committee Member

Term of Office & Length of Time Served:

    Indefinite - Since 1987

Principal Occupation(s) During Past 5 Years:

    Senior Counsel since 2006, Partner (1995 - 2006) - McDermott, Will & Emery LLP (law firm)

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    Partnership for New York City, Inc. (non-profit) New York Collegium (non-profit) Boston Early Music Festival (non-profit)

 

Name:

    Harris H. Rusitzky

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    76

Current Position(s) Held with Fund:

    Director, Audit Committee Member, Governance & Nominating Committee Member

Term of Office & Length of Time Served:

    Indefinite - Since 1985

Principal Occupation(s) During Past 5 Years:

    President, The Greening Group (business consultants) since 1994; Partner, The Restaurant Group (restaurants) since 2006

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A

 

OFFICERS

   

 

Name:

    Jeffrey S. Coons, Ph.D., CFA

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    47

Current Position(s) Held with Fund:

    Vice President

Term of Office1 & Length of Time Served:

    Since 2004

Principal Occupation(s) During Past 5 Years:

    President since 2010, Co-Director of Research since 2002, Executive Group Member** since 2003, - Manning & Napier Advisors, Inc. Holds one or more of the following titles for various subsidiaries and affiliates: President, Director, Treasurer or Senior Trust Officer.

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A

    

     

 

34   

Directors’ and Officers’ Information (unaudited)

 

OFFICERS (continued)

 

Name:

    Beth Galusha

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    49

Current Position(s) Held with Fund:

    Assistant Chief Financial Officer

Term of Office1 & Length of Time Served:

    Assistant Chief Financial Officer since 2010

Principal Occupation(s) During Past 5 Years:

    Chief Financial Officer and Treasurer, Manning & Napier Advisors, Inc. Holds one or more of the following titles for various affiliates: Chief Financial Officer, Director, or Treasurer

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A

 

Name:

    Christine Glavin

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    44

Current Position(s) Held with Fund:

    Principal Financial Officer, Chief Financial Officer

Term of Office1 & Length of Time Served:

    Principal Financial Officer since 2002; Chief Financial Officer since 2001

Principal Occupation(s) During Past 5 Years:

    Fund Reporting Manager, Manning & Napier Advisors, Inc. since 1997

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A

 

Name:

    Jodi L. Hedberg

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    43

Current Position(s) Held with Fund:

    Corporate Secretary, Chief Compliance Officer, Anti-Money Laundering
   Compliance Officer

Term of Office1 & Length of Time Served:

    Corporate Secretary since 1997; Chief Compliance Officer since 2004

Principal Occupation(s) During Past 5 Years:

    Director of Compliance, Manning & Napier Advisors, Inc. and affiliates since 1990 (title change in 2005 from Compliance Manager to Director of Compliance); Corporate Secretary, Manning & Napier Investor Services, Inc. since 2006

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A

 

Name:

    Richard Yates

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    45

Current Position(s) Held with Fund:

    Chief Legal Officer

Term of Office1 & Length of Time Served:

    Chief Legal Officer since 2004

Principal Occupation(s) During Past 5 Years:

    Counsel - Manning & Napier Advisors, Inc. & affiliates since 2000; Holds one or more of the following titles for various affiliates; Director or Corporate Secretary

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A

*Interested Director, within the meaning of the Investment Company Act of 1940 by reason of his position with the Fund’s investment advisor and distributor. Mr. Auspitz serves as the Executive Vice President and Director, Manning & Napier Advisors, Inc. and President and Director, Manning & Napier Investor Services, Inc., the Fund’s distributor.

**Prior to June 2010, the Executive Group, consisting of senior executive employee-owners, performed the duties of the Office of the Chief Executive of the Advisor. Effective June 2010, the Executive Group serves as an advisory board to the Chief Executive Officer.

1The term of office for President, Vice President, Chief Financial Officer, Assistant Chief Financial Officer, Chief Legal Officer and Corporate Secretary is one year and until their respective successors are chosen and qualified. All other officers’ terms are indefinite.

 

   35

 

 

 

 

 

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36

 

 

 

 

 

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37

Literature Requests (unaudited)

Proxy Voting Policies and Procedures

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request:

 

By phone

   

1-800-466-3863

   

On the Securities and Exchange Commission’s (SEC) web site

   

http://www.sec.gov

   

Proxy Voting Record

Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available, without charge, upon request:

 

By phone

   

1-800-466-3863

   

On the SEC’s web site

   

http://www.sec.gov

   

Quarterly Portfolio Holdings

The Series’ complete schedule of portfolio holdings for the 1st and 3rd quarters of each fiscal year are provided on Form N-Q, and are available, without charge, upon request:

 

By phone

   

1-800-466-3863

   

On the SEC’s web site

   

http://www.sec.gov

   

The Series’ Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.

Prospectus and Statement of Additional Information (SAI)

The prospectus and SAI provide additional information about each Series, including charges, expenses and risks. These documents are available, without charge, upon request:

 

By phone

   

1-800-466-3863

   

On the SEC’s web site

   

http://www.sec.gov

   

On the Advisor’s web site

   

http://www.manning-napier.com

   

Additional information available at www.manning-napier.com

1. Fund Holdings - Month-End

2. Fund Holdings - Quarter-End

3. Shareholder Report - Annual

4. Shareholder Report - Semi-Annual

 

                            MNDTES-12/10-AR

LOGO

Management Discussion and Analysis (unaudited)

 

Dear Shareholders:

As well-defined swings in sentiment drove market fluctuations in 2010, the fixed income markets generally had favorable results for the year. Returns were broadly positive throughout the first three quarters of the year. However, while equities finished the year with a strong rally, fixed income markets generally took a negative turn at the end of 2010. After eight consecutive quarters of positive performance, broad fixed income markets suffered losses in the fourth quarter.

While municipal securities posted gains for the year, the sector had the weakest fixed income returns in 2010, as credit concerns and supply and demand changes caused noteworthy losses during the last quarter. The Bank of America Merrill Lynch 1-12 Year Municipal Bond Index earned 3.04% during the year. With a return of 0.32%, the New York Tax Exempt Series trailed its benchmark over the last twelve months.

The municipal bond market generally performed well in the first three quarters of the year, a reflection of attractive supply and demand dynamics. During this time, the fundamentals in the tax-exempt marketplace remained strong, with demand rising because of the likelihood of higher taxes in the top tax brackets, and supply for longer-term tax-exempt issues declining because of the popularity of the alternative Build America Bond program. However, amid heightened concern about municipal defaults, the municipal bond market struggled during the fourth quarter.

While credit issues exist in certain areas of the municipal market, the Advisor does not believe the broad municipal credit environment has materially deteriorated. In fact, municipal defaults are rare, and municipalities typically pay their debts in full even if they are forced to restructure. Rather, much of the losses at the end of the year were likely due to supply and demand shifts within the sector. The recent tax compromise, which extended the Bush-era tax cuts for all income brackets, lessened the immediate demand for tax-shielding investments, and supply is expected to increase because of the expiration of the Build America Bond program, which had limited longer-term, tax-exempt supply, thus benefiting the municipal market. Given these factors, municipal yields increased during the fourth quarter. While rising yields equate to price declines, the Advisor believes this yield shift has enhanced the relative value of municipal bonds versus other sectors of the fixed income market.

Throughout 2010, the Series continued to focus on high quality bonds with an emphasis on the underlying credit quality, which provides additional security in the midst of a tough credit and economic environment. Specifically, during the past year the underlying credit quality of the bonds in the Series was rated investment grade or higher, and the types of holdings included general obligation debt, pre-refunded bonds, and revenue debt associated with necessary municipal services. While this higher quality bias leads to slightly lower relative yields than the overall municipal market, the Advisor believes the safety and liquidity of such issues justifies the quality bias.

Over the past year, the Series had a significant exposure to securities in the intermediate to longer-term maturity range as compared to the benchmark, which holds only minimal securities in this range. This intermediate to longer-term weighting was the primary driver of relative underperformance in 2010. While the current positioning helped relative results during several periods last year, particularly when municipal yields fell to historic lows during the third quarter, this positioning noticeably detracted from returns when yields rose during the fourth quarter, causing the Series to lag its benchmark for the year. However, given the slow growth economic environment, the Advisor believes the intermediate to longer-term maturity structure continues to be the most suitable strategy.

As the markets unfold in 2011, it will be important to monitor trends such as state and local budgets, monetary policy, and inflation expectations. With this mindset, Manning & Napier remains committed to our active and selective investment approach to fixed income. Staying focused on the fundamentals and maintaining our selective investment process helped us earn solid returns through the volatile markets of 2010, and we believe these qualities will remain important in the environment ahead.

As always, we appreciate your business.

Sincerely,

Manning & Napier Advisors, Inc.

 

1   

Performance Update as of December 31, 2010 (unaudited)

 

 

       

 

Average Annual Total Returns

As of December 31, 2010

        One
Year 		    

Five

Year

     

Ten

Year

     Since
Inception1

Manning & Napier Fund, Inc. - New York Tax Exempt Series2

        0.32 %     3.35%        3.94 %        4.29%

Bank of America (BofA) Merrill Lynch 1-12 Year Municipal Bond Index3

        3.04 %     4.71%        4.91 %        5.13%
                                

The following graph compares the value of a $10,000 investment in the Manning & Napier Fund, Inc. - New York Tax Exempt Series for the ten years ended December 31, 2010 to the BofA Merrill Lynch 1-12 Year Municipal Bond Index.

LOGO

1 Performance numbers for the Series and Index are calculated from January 17, 1994, the Series’ inception date.

2The Series’ performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. The Series’ performance is historical and may not be indicative of future results. The performance returns shown are inclusive of the net expense ratio of the Series. For the year ended December 31, 2010, this net expense ratio was 0.61%. The gross expense ratio, which does not account for any voluntary or contractual waivers currently in effect, was 0.61% for the year ended December 31, 2010.

3The BofA Merrill Lynch 1-12 Year Municipal Bond Index (formerly a Merrill Lynch Index) is an unmanaged, market weighted index comprised of investment-grade, fixed rate, coupon bearing municipal bonds with maturities greater than one year but less than twelve years. The Index returns assume reinvestment of coupons and, unlike Series returns, do not reflect any fees or expenses.

 

   2

Shareholder Expense Example (unaudited)

 

 

As a shareholder of the Series, you may incur two types of costs: (1) transaction costs and (2) ongoing costs, including management fees and other Series expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Series and to compare these costs with the ongoing costs of investing in other mutual funds.

The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (July 1, 2010 to December 31, 2010).

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Series’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Series’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid during the period. You may use this information to compare the ongoing costs of investing in the Series and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.

 

 

     Beginning
Account  Value
7/1/10		         Ending
Account  Value
12/31/10		         Expenses Paid
During Period*
7/1/10-12/31/10

Actual

    $1,000.00       $     978.90       $3.04

Hypothetical
(5% return before expenses)

    $1,000.00       $  1,022.13       $3.11

*Expenses are equal to the Series’ annualized expense ratio (for the six-month period) of 0.61%, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Expenses are based on the most recent fiscal half year; therefore, the expense ratio stated above may differ from the expense ratio stated in the financial highlights, which is based on one-year data. The Series’ total return would have been lower had certain expenses not been waived during the period.

 

3   

Portfolio Composition as of December 31, 2010 (unaudited)

 

LOGO

 

   4

Investment Portfolio - December 31, 2010

 

 

     Coupon
Rate 		    Maturity
Date 		    

Credit

Rating1
(unaudited)

   Principal
Amount 		    

Value

(Note 2)

  

NEW YORK MUNICIPAL BONDS - 98.4%

             

Albany County, Public Impt., G.O. Bond

      4.000%        6/1/2026       Aa2   $     500,000       $     474,005   

Arlington Central School District, G.O. Bond, NATL

      4.625%        12/15/2024       Aa2     845,000         858,419   

Arlington Central School District, G.O. Bond, NATL

      4.625%        12/15/2025       Aa2     365,000         369,566   

Bethlehem, Public Impt., G.O. Bond

      4.500%        12/1/2033       AA2     335,000         335,211   

Bethlehem, Public Impt., G.O. Bond

      4.500%        12/1/2035       AA2     425,000         421,838   

Briarcliff Manor, Public Impt., Series A, G.O. Bond, AMBAC

      4.000%        10/1/2025       Aa2     280,000         278,135   

Brookhaven, Public Impt., G.O. Bond, FGRNA

      4.000%        5/1/2023       Aa2     900,000         892,179   

Brookhaven, Public Impt., G.O. Bond, FGRNA

      4.000%        5/1/2024       Aa2     815,000         799,262   

Buffalo Fiscal Stability Authority, Sales Tax & State Aid, Series B, Revenue Bond, NATL

      5.000%        9/1/2016       Aa1     525,000         590,588   

Cayuga County, Public Impt., G.O. Bond, AGM

      3.250%        4/1/2026       Aa3     670,000         601,633   

Chautauqua County, Public Impt., G.O. Bond

      4.250%        1/15/2027       A2     665,000         652,099   

Chautauqua County, Public Impt., Series B, G.O. Bond, NATL

      4.500%        12/15/2018       Aa3     485,000         518,465   

Cleveland Hill Union Free School District, G.O. Bond, AGM

      3.750%        6/15/2025       Aa3     475,000         456,494   

Clifton Park Water Authority, Revenue Bond

      4.250%        10/1/2029       AA2     250,000         242,125   

Dryden Central School District, G.O. Bond, AGM

      5.500%        6/15/2011       Aa3     200,000         204,032   

Dutchess County, Public Impt., Prerefunded Balance, G.O. Bond, NATL

      4.000%        12/15/2016       Aa1     315,000         348,160   

Dutchess County, Public Impt., Unrefunded Balance, G.O. Bond, NATL

      4.000%        12/15/2016       Aa1     360,000         387,234   

East Rochester Union Free School District, G.O. Bond

      3.500%        3/15/2023       AA2     380,000         367,707   

Erie County Water Authority, Revenue Bond, NATL

      5.000%        12/1/2037       Aa2     625,000         623,138   

Franklin Square Union Free School District, G.O. Bond, FGRNA

      5.000%        1/15/2021       Aa2     520,000         530,093   

Gates Chili Central School District, G.O. Bond

      2.500%        6/15/2016       Aa3     555,000         566,067   

Gates Chili Central School District, G.O. Bond

      3.000%        6/15/2017       Aa3     590,000         608,868   

Geneva City, Public Impt., G.O. Bond, AGM

      3.250%        5/15/2018       Aa3     590,000         605,340   

Greece Central School District, G.O. Bond, AGM

      4.000%        6/15/2019       Aa3     2,675,000         2,817,738   

Hampton Bays Union Free School District, G.O. Bond, AGM

      4.250%        9/15/2026       Aa3     1,140,000         1,142,006   

Haverstraw-Stony Point Central School District, G.O. Bond, AGM

      4.500%        10/15/2032       Aa2     2,000,000         1,860,520   

Hempstead, Public Impt., Series A, G.O. Bond

      4.000%        4/15/2021       Aaa     1,500,000         1,568,235   

Hyde Park Central School District, G.O. Bond, AGC

      3.500%        6/15/2018       AA2     360,000         374,926   

 

5    The accompanying notes are an integral part of the financial statements.

Investment Portfolio - December 31, 2010

 

 

     Coupon
Rate 		    Maturity
Date 		     Credit
Rating1
(unaudited)		   Principal
Amount 		     Value
(Note 2)		  

NEW YORK MUNICIPAL BONDS (continued)

             

Johnson City Central School District, G.O. Bond, FGRNA

      4.250%        6/15/2024          A2   $     500,000       $     487,970   

Johnson City Central School District, G.O. Bond, FGRNA

      4.375%        6/15/2028          A2     1,000,000         932,740   

Johnson City Central School District, G.O. Bond, FGRNA

      4.375%        6/15/2030          A2     985,000         896,951   

Lake George Central School District, G.O. Bond

      3.750%        7/15/2025       AA2     335,000         320,123   

Long Island Power Authority, Electric Systems, Series A, Revenue Bond

      5.750%        4/1/2039         A3     675,000         696,843   

Long Island Power Authority, Electric Systems, Series A, Revenue Bond, FGRNA

      5.000%        12/1/2019         A3     1,000,000         1,060,480   

Long Island Power Authority, Electric Systems, Series A, Revenue Bond, FGRNA

      5.000%        12/1/2025         A3     1,690,000         1,705,092   

Long Island Power Authority, Electric Systems, Series F, Revenue Bond, NATL

      4.500%        5/1/2028         A3     1,880,000         1,775,923   

Maine-Endwell Central School District, G.O. Bond, AGC

      4.000%        6/15/2025       AA2     1,000,000         966,890   

Mamaroneck Union Free School District, G.O. Bond

      3.500%        6/15/2025       Aaa     1,000,000         944,450   

Marlboro Central School District, G.O. Bond, AGC

      4.000%        12/15/2026       AA2     500,000         486,745   

Metropolitan Transportation Authority, Dedicated Tax Fund, Series A, Revenue Bond, NATL

      5.000%        11/15/2030       Aa3     750,000         749,955   

Metropolitan Transportation Authority, Dedicated Tax Fund, Series B, Revenue Bond

      5.000%        11/15/2034       AA2     1,000,000         997,180   

Metropolitan Transportation Authority, Series A, Revenue Bond, AGM

      5.000%        11/15/2030       Aa3     500,000         493,770   

Metropolitan Transportation Authority, Series A, Revenue Bond, FGRNA

      5.000%        11/15/2025         A2     1,500,000         1,500,180   

Metropolitan Transportation Authority, Series B, Revenue Bond, AGM

      4.500%        11/15/2032       Aa3     500,000         444,680   

Metropolitan Transportation Authority, Series F, Revenue Bond

      5.000%        11/15/2030         A2     640,000         624,301   

Miller Place Union Free School District, G.O. Bond

      4.000%        2/15/2027       Aa2     265,000         248,061   

Minisink Valley Central School District, G.O. Bond

      3.500%        4/15/2025       AA2     900,000         841,077   

Monroe County Water Authority, Revenue Bond

      4.250%        8/1/2030       Aa2     405,000         373,519   

Monroe County Water Authority, Revenue Bond

      4.500%        8/1/2035       Aa2     275,000         257,876   

Monroe County, Public Impt., G.O. Bond, AMBAC

      4.125%        6/1/2020         A3     1,000,000         987,370   

 

The accompanying notes are an integral part of the financial statements.    6

Investment Portfolio - December 31, 2010

 

 

     Coupon
Rate 		    Maturity
Date 		     Credit
Rating1
(unaudited)		    Principal
Amount 		     Value
(Note 2)		  

NEW YORK MUNICIPAL BONDS (continued)

              

Nanuet Union Free School District, G.O. Bond, AGM

      4.300%        6/15/2029       Aa2    $     505,000       $     483,553   

Nassau County Interim Finance Authority, Sales Tax Secured, Series A, Revenue Bond, AMBAC

      4.750%        11/15/2023       Aa1      1,000,000         1,025,580   

Nassau County, Public Impt., Series A, G.O. Bond, AGC

      5.000%        5/1/2022       Aa3      500,000         541,895   

Nassau County, Public Impt., Series C, G.O. Bond

      4.000%        10/1/2026         A1      1,000,000         895,860   

Nassau County, Public Impt., Series C, G.O. Bond, AGC

      5.000%        10/1/2028       Aa3      1,000,000         1,033,570   

New Hyde Park & Garden City Park, Union Free School District, G.O. Bond, AGM

      4.125%        6/15/2023       Aa2      200,000         201,438   

New Hyde Park & Garden City Park, Union Free School District, G.O. Bond, AGM

      4.125%        6/15/2024       Aa2      250,000         251,043   

New York City Municipal Water Finance Authority, Water & Sewer Systems, Series A, Revenue Bond

      4.250%        6/15/2033       Aa1      1,250,000         1,126,675   

New York City Municipal Water Finance Authority, Water & Sewer Systems, Series A, Revenue Bond

      4.500%        6/15/2037       Aa1      1,000,000         927,050   

New York City Municipal Water Finance Authority, Water & Sewer Systems, Series A, Revenue Bond

      5.750%        6/15/2040       Aa1      1,000,000         1,062,790   

New York City Municipal Water Finance Authority, Water & Sewer Systems, Series A, Revenue Bond, AMBAC

      5.000%        6/15/2035       Aa1      750,000         743,708   

New York City Municipal Water Finance Authority, Water & Sewer Systems, Series D, Revenue Bond, AMBAC

      4.500%        6/15/2036       Aa1      500,000         464,210   

New York City Municipal Water Finance Authority, Water & Sewer Systems, Series E, Revenue Bond, FGRNA

      5.000%        6/15/2026       Aa1      750,000         758,835   

New York City, G.O. Bond, XLCA

      5.000%        9/1/2019       Aa2      500,000         536,555   

New York City, Series A, G.O. Bond, CIFG

      5.000%        8/1/2024       Aa2      1,000,000         1,031,860   

New York City, Series B, G.O. Bond

      4.250%        8/1/2037       Aa2      1,000,000         872,920   

New York City, Series G, G.O. Bond

      5.000%        8/1/2023       Aa2      1,250,000         1,307,900   

New York City, Series O, G.O. Bond

      5.000%        6/1/2033       Aa2      1,050,000         1,051,187   

New York Municipal Bond Bank Agency, Series A1, Revenue Bond, AGM

      5.000%        5/15/2017       Aa3      215,000         237,220   

New York Municipal Bond Bank Agency, Series B1, Revenue Bond, AGM

      5.000%        4/15/2018       Aa3      1,000,000         1,093,960   

New York State Dormitory Authority, Columbia University, Revenue Bond

      5.000%        7/1/2038       Aaa      900,000         914,625   

 

7    The accompanying notes are an integral part of the financial statements.

Investment Portfolio - December 31, 2010

 

 

     Coupon
Rate		   Maturity
Date 		     Credit
Rating1
(unaudited)		    Principal
Amount 		     Value
(Note 2)		  

NEW YORK MUNICIPAL BONDS (continued)

           

New York State Dormitory Authority, Columbia University, Series A, Revenue Bond

    5.000%     7/1/2025       Aaa    $     500,000       $     507,745   

New York State Dormitory Authority, Cornell University, Series C, Revenue Bond

    5.000%     7/1/2037       Aa1      1,000,000         1,007,520   

New York State Dormitory Authority, Education, Series F, Revenue Bond

    5.000%     3/15/2023       Aa3      1,475,000         1,536,537   

New York State Dormitory Authority, New York University, Series A, Revenue Bond

    5.000%     7/1/2039       Aa3      1,000,000         995,480   

New York State Dormitory Authority, Series A, Revenue Bond, AGM

    5.000%     10/1/2018       Aa3      250,000         278,445   

New York State Dormitory Authority, Series A, Revenue Bond, AGM

    5.000%     10/1/2021       Aa3      250,000         268,647   

New York State Dormitory Authority, Series A, Revenue Bond, AGM

    4.000%     10/1/2025       Aa3      1,500,000         1,393,635   

New York State Dormitory Authority, Series A, Revenue Bond, AGM

    4.375%     10/1/2030       Aa3      1,500,000         1,387,530   

New York State Dormitory Authority, Series B, Revenue Bond, AGM

    4.400%     10/1/2030       Aa3      140,000         128,701   

New York State Dormitory Authority, Series B, Revenue Bond, AGM

    4.750%     10/1/2040       Aa3      1,360,000         1,239,082   

New York State Dormitory Authority, University of Rochester, Series A, Revenue Bond

    5.125%     7/1/2039       Aa3      1,000,000         991,850   

New York State Environmental Facilities Corp., Clean Water & Drinking, Revenue Bond

    4.500%     6/15/2022       Aaa      300,000         305,982   

New York State Environmental Facilities Corp., Clean Water & Drinking, Revenue Bond, NATL

    5.000%     6/15/2021       Aaa      600,000         632,916   

New York State Environmental Facilities Corp., Clean Water & Drinking, Series A, Revenue Bond

    4.500%     6/15/2036       Aaa      1,000,000         940,770   

New York State Environmental Facilities Corp., Clean Water & Drinking, Series B, Revenue Bond

    5.000%     6/15/2027       Aaa      1,000,000         1,003,450   

New York State Environmental Facilities Corp., Clean Water & Drinking, Series B, Revenue Bond

    4.500%     6/15/2036       Aa1      1,500,000         1,407,000   

New York State Environmental Facilities Corp., Personal Income Tax, Series A, Revenue Bond

    5.000%     12/15/2019       AAA2        750,000         808,478   

New York State Environmental Facilities Corp., Pollution Control, Unrefunded Balance, Series A, Revenue Bond

    5.200%     6/15/2015       Aaa      25,000         25,089   

 

The accompanying notes are an integral part of the financial statements.    8

Investment Portfolio - December 31, 2010

 

 

     Coupon
Rate 		    Maturity
Date 		     Credit
Rating1
(unaudited)		   Principal
Amount 		     Value
(Note 2)		  

NEW YORK MUNICIPAL BONDS (continued)

             

New York State Environmental Facilities Corp., Pollution Control, Unrefunded Balance, Series B, Revenue Bond

      5.200%        5/15/2014       Aaa   $     440,000       $     463,021   

New York State Housing Finance Agency, State University Construction, Series A, Revenue Bond

      8.000%        5/1/2011       Aa3     30,000         30,660   

New York State Municipal Bond Bank Agency, Series B1, Revenue Bond

      4.125%        12/15/2029       A2     420,000         373,657   

New York State Municipal Bond Bank Agency, Series B1, Revenue Bond

      4.500%        12/15/2034       A2     215,000         194,242   

New York State Power Authority, Series A, Revenue Bond, NATL

      4.500%        11/15/2047       Aa2     2,000,000         1,818,860   

New York State Thruway Authority, Highway & Bridge, Prerefunded Balance, Series A, Revenue Bond, FGIC

      5.500%        4/1/2015       Aa2     320,000         327,318   

New York State Thruway Authority, Highway & Bridge, Prerefunded Balance, Series B, Revenue Bond, NATL

      5.250%        4/1/2016       AAA2     300,000         310,977   

New York State Thruway Authority, Highway & Bridge, Series B, Revenue Bond, AMBAC

      5.000%        4/1/2021       AA2     1,500,000         1,572,255   

New York State Thruway Authority, Highway & Bridge, Series C, Revenue Bond, AMBAC

      5.000%        4/1/2020       Aa3     750,000         781,875   

New York State Thruway Authority, Highway & Bridge, Series C, Revenue Bond, NATL

      5.250%        4/1/2011       Aa2     1,000,000         1,012,330   

New York State Thruway Authority, Personal Income Tax, Prerefunded Balance, Series A, Revenue Bond, AGM

      5.000%        3/15/2014       Aa3     500,000         544,385   

New York State Thruway Authority, Personal Income Tax, Prerefunded Balance, Series A, Revenue Bond, NATL

      5.000%        3/15/2016       AAA2     300,000         326,631   

New York State Thruway Authority, Series F, Revenue Bond, AMBAC

      5.000%        1/1/2026       A1     340,000         340,731   

New York State Urban Development Corp., Correctional Capital Facilities, Series A, Revenue Bond, AGM

      5.250%        1/1/2014       Aa3     500,000         536,635   

New York State Urban Development Corp., Personal Income Tax, Series C, Revenue Bond, NATL

      4.250%        3/15/2024       Baa1     1,000,000         1,010,100   

New York State Urban Development Corp., Service Contract, Series B, Revenue Bond

      5.250%        1/1/2022       AA2     2,350,000         2,515,158   

New York State, Series A, G.O. Bond

      4.600%        3/15/2013       Aa2     475,000         483,208   

New York State, Series C, G.O. Bond

      4.000%        2/1/2027       Aa2     600,000         570,990   

New York State, Series C, G.O. Bond, AGM

      5.000%        4/15/2012       Aa2     700,000         740,404   

 

9    The accompanying notes are an integral part of the financial statements.

Investment Portfolio - December 31, 2010

 

 

     Coupon
Rate		   Maturity
Date 		     Credit
Rating1
(unaudited)		   Principal
Amount 		    

Value

(Note 2)

  

NEW YORK MUNICIPAL BONDS (continued)

          

New York State, Transit Impt., Series A, G.O. Bond

    4.500%     3/1/2040       Aa2   $     1,500,000       $     1,400,685   

New York State, Water Utility Impt., Series A, G.O. Bond

    4.500%     3/15/2019       Aa2     500,000         528,675   

Niagara County, Series B, G.O. Bond, NATL

    5.200%     1/15/2011       Baa1     400,000         400,688   

Niagara Falls City School District, G.O. Bond, AGM

    4.375%     9/15/2029       AA2     885,000         856,910   

Niagara-Wheatfield Central School District, G.O. Bond, FGRNA

    4.125%     2/15/2019       Aa3     610,000         645,581   

Niagara-Wheatfield Central School District, G.O. Bond, FGRNA

    4.125%     2/15/2020       Aa3     850,000         883,677   

Niskayuna Central School District, G.O Bond, AGC

    4.000%     4/15/2022       Aa2     400,000         405,952   

Onondaga County, Series A, G.O. Bond

    4.500%     3/1/2028       Aa1     365,000         368,511   

Orangetown, Public Impt., G.O. Bond

    3.000%     9/15/2026       Aa2     580,000         507,987   

Otsego County, G.O. Bond

    4.000%     11/15/2027       Aa3     790,000         769,144   

Palmyra Macedon Central School District, G.O. Bond

    3.750%     6/15/2024       Aa3     500,000         487,845   

Pembroke Central School District, G.O. Bond

    4.000%     6/15/2023       AA2     500,000         506,325   

Penfield Central School District, G.O. Bond

    4.000%     6/15/2024       Aa2     1,025,000         1,021,290   

Perinton, Public Impt., G.O. Bond

    4.250%     12/15/2031       AA2     175,000         170,027   

Phelps-Clifton Springs Central School District, Series B, G.O. Bond, NATL

    5.000%     6/15/2021       A1     850,000         876,257   

Phelps-Clifton Springs Central School District,

             

Series B, G.O. Bond, NATL

    5.000%     6/15/2022       A1     450,000         461,916   

Pleasantville Union Free School District, G.O. Bond

    4.250%     5/1/2038       Aa2     500,000         441,095   

Pleasantville Union Free School District, G.O. Bond

    4.375%     5/1/2039       Aa2     500,000         445,680   

Port Authority of New York & New Jersey, Revenue Bond

    5.000%     7/15/2024       Aa2     3,000,000         3,157,440   

Port Authority of New York & New Jersey, Revenue Bond

    4.750%     7/15/2030       Aa2     495,000         483,897   

Port Authority of New York & New Jersey, Revenue Bond

    5.000%     10/1/2030       Aa2     1,000,000         1,005,880   

Port Authority of New York & New Jersey, Revenue Bond

    4.500%     10/15/2037       Aa2     400,000         370,072   

Pulaski Central School District, Series A, G.O. Bond, FGRNA

    4.500%     6/15/2026       A2     425,000         426,828   

Ramapo, Public Impt., Series B, G.O. Bond, NATL

    4.375%     5/1/2031       Aa2     435,000         410,601   

Ramapo, Public Impt., Series B, G.O. Bond, NATL

    4.375%     5/1/2032       Aa2     510,000         477,345   

 

The accompanying notes are an integral part of the financial statements.    10

Investment Portfolio - December 31, 2010

 

 

     Coupon
Rate 		    Maturity
Date 		     Credit
Rating1
(unaudited)		   Principal
Amount 		    

Value

(Note 2)

  

NEW YORK MUNICIPAL BONDS (continued)

             

Ramapo, Public Impt., Series B, G.O. Bond, NATL

      4.500%        5/1/2033       Aa2   $     410,000       $     391,611   

Ravena Coeymans Selkirk Central School District, G.O. Bond, AGM

      4.250%        6/15/2014       Aa3     1,180,000         1,273,432   

Rochester City, Series A, G.O. Bond, AMBAC

      5.000%        8/15/2020       Aa3     250,000         281,447   

Rochester City, Series A, G.O. Bond, AMBAC

      5.000%        8/15/2022       A2     95,000         105,806   

Sachem Central School District of Holbrook, G.O. Bond, FGRNA

      4.250%        10/15/2028       AA2     330,000         317,255   

Sachem Central School District of Holbrook, G.O. Bond, FGRNA

      4.375%        10/15/2030       AA2     1,000,000         941,150   

Sachem Central School District of Holbrook, Series B, G.O. Bond, FGRNA

      4.250%        10/15/2026       AA2     1,200,000         1,189,572   

Saratoga County Water Authority, Water Utility Impt., Revenue Bond

      5.000%        9/1/2038       AA2     950,000         945,706   

Saratoga County, Public Impt., Series A, G.O. Bond

      4.750%        7/15/2036       Aa1     820,000         811,603   

Saratoga County, Sewer Impt., Series B, G.O. Bond

      4.200%        7/15/2032       AA2     425,000         383,371   

Saratoga County, Sewer Impt., Series B, G.O. Bond

      4.250%        7/15/2035       AA2     700,000         631,736   

Saratoga Springs City School District, G.O. Bond

      5.000%        6/15/2019       AA2     245,000         281,314   

Schenectady, G.O. Bond, NATL

      5.300%        2/1/2011       A1     250,000         250,877   

Schroon Lake Central School District, G.O. Bond, AGM

      4.000%        6/15/2027       Aa3     490,000         477,294   

Schuylerville Central School District, G.O. Bond, AGM

      4.000%        6/15/2025       AA2     500,000         496,735   

Somers Central School District, G.O. Bond, NATL

      4.000%        12/1/2023       Aa2     400,000         396,008   

South Country Central School District at Brookhaven, G.O. Bond, AGM

      4.000%        7/15/2027       AA2     750,000         694,493   

South Glens Falls Central School District, Unrefunded Balance, G.O. Bond, FGRNA

      5.375%        6/15/2018       A1     95,000         96,805   

Spencerport Fire District, G.O. Bond, AGC

      4.500%        11/15/2031       AA2     290,000         288,431   

Spencerport Fire District, G.O. Bond, AGC

      4.500%        11/15/2032       AA2     250,000         246,225   

St. Lawrence County, Public Impt., G.O. Bond, FGRNA

      4.500%        5/15/2031       A2     1,185,000         1,095,497   

St. Lawrence County, Public Impt., G.O. Bond, FGRNA

      4.500%        5/15/2032       A2     1,000,000         916,310   

Suffolk County Water Authority, Revenue Bond, NATL

      4.500%        6/1/2027       Baa1     1,160,000         1,136,220   

Suffolk County Water Authority, Series A, Revenue Bond

      4.500%        6/1/2030       AA2     640,000         608,602   

 

11    The accompanying notes are an integral part of the financial statements.

Investment Portfolio - December 31, 2010

 

 

     Coupon
Rate		   Maturity
Date 		     Credit
Rating1
(unaudited)		   Principal
Amount 		     Value
(Note 2)		  

NEW YORK MUNICIPAL BONDS (continued)

          

Suffolk County Water Authority, Series A, Revenue Bond, NATL

    4.500%     6/1/2032       Baa1    $     1,000,000       $     933,440   

Suffolk County, Public Impt., Series A, G.O. Bond, NATL

    4.250%     5/1/2024       Aa2     1,000,000         1,005,640   

Syracuse, Public Impt., Series A, G.O. Bond, FGRNA

    4.250%     12/1/2028         A1     600,000         546,468   

Syracuse, Public Impt., Series A, G.O. Bond, FGRNA

    4.250%     12/1/2029         A1     600,000         539,226   

Syracuse, Public Impt., Series A, G.O. Bond, NATL

    4.250%     6/15/2023         A1     690,000         663,352   

Syracuse, Public Impt., Series A, G.O. Bond, NATL

    4.375%     6/15/2025         A1     990,000         934,144   

Tarrytowns Union Free School District, G.O. Bond, AMBAC

    4.250%     1/15/2030       Aa2     215,000         197,972   

Tarrytowns Union Free School District, G.O. Bond, AMBAC

    4.375%     1/15/2032       Aa2     1,090,000         1,004,599   

Tompkins County, Public Impt., G.O. Bond

    4.250%     12/15/2032       Aa1     300,000         292,464   

Triborough Bridge & Tunnel Authority, General Purposes, Prerefunded Balance, Series A, Revenue Bond, NATL

    4.750%     1/1/2019       AA2     300,000         341,367   

Triborough Bridge & Tunnel Authority, General Purposes, Prerefunded Balance, Series A, Revenue Bond, NATL

    5.000%     1/1/2032       AAA2      1,695,000         1,771,156   

Triborough Bridge & Tunnel Authority, General Purposes, Series B, Revenue Bond

    5.000%     11/15/2020       Aa2     750,000         782,018   

Triborough Bridge & Tunnel Authority, General Purposes, Unrefunded Balance, Series A, Revenue Bond, NATL

    5.000%     1/1/2032       Aa2     305,000         305,088   

Triborough Bridge & Tunnel Authority, Series C, Revenue Bond

    5.000%     11/15/2038       Aa2     900,000         901,107   

Triborough Bridge & Tunnel Authority, Subordinate Bonds, Revenue Bond, FGRNA .

    5.000%     11/15/2032       Aa3     1,000,000         1,000,740   

Ulster County, Public Impt., G.O. Bond, XLCA

    4.500%     11/15/2026       AA2     560,000         565,919   

Ulster County, Public Impt., Series A, G.O. Bond, FGRNA

    4.250%     11/15/2021       AA2     200,000         205,038   

Union Endicott Central School District, G.O. Bond, FGRNA

    4.125%     6/15/2014          A2     605,000         651,264   

Union Endicott Central School District, G.O. Bond, FGRNA

    4.125%     6/15/2015          A2     865,000         933,923   

Village of Fayetteville, Public Impt., Series A, G.O. Bond, AGM

    4.000%     6/15/2025       Aa3     555,000         548,384   

Wayne County, Public Impt., G.O. Bond, NATL

    4.125%     6/1/2024       Aa2     500,000         501,650   

West Seneca Central School District, G.O. Bond, AGM

    5.000%     5/1/2011       Aa3     300,000         304,716   

 

The accompanying notes are an integral part of the financial statements.    12

Investment Portfolio - December 31, 2010

 

    

Coupon

Rate

     

Maturity

Date

     

Credit

Rating1

(unaudited)

   

Principal

Amount/

Shares

     

Value

(Note 2)

  

NEW YORK MUNICIPAL BONDS (continued)

               

Westchester County, Public Impt., Series B, G.O. Bond

      4.300%         12/15/2011       Aaa    $ 15,000       $ 15,569   

Westchester County, Public Impt., Series B, G.O. Bond

      3.700%         12/15/2015       Aaa      1,000,000         1,060,650   

Westhampton Beach Union Free School District, G.O. Bond, NATL

      4.000%         7/15/2018       Aa2      726,000         764,275   

White Plains City School District, Series B, G.O. Bond

      4.650%         5/15/2031       Aa2      685,000         702,680   

Yonkers City, Series B, G.O. Bond, NATL

      5.000%         8/1/2023         A2      1,125,000         1,127,183   

Yonkers City, Series B, G.O. Bond, NATL

      5.000%         8/1/2030         A2      1,095,000         1,006,907   
                    

TOTAL MUNICIPAL BONDS
(Identified Cost $136,126,767)

                  134,035,734   
                    

SHORT-TERM INVESTMENTS - 0.8%

               

Dreyfus BASIC New York Municipal Money Market Fund

(Identified Cost $1,115,340)

               1,115,340         1,115,340   
                    

TOTAL INVESTMENTS - 99.2%
(Identified Cost $137,242,107)

                  135,151,074   

OTHER ASSETS, LESS LIABILITIES - 0.8%

                  1,074,296   
                    

NET ASSETS - 100%

                $ 136,225,370   
                    

KEY:

G.O. Bond - General Obligation Bond

Impt. - Improvement

Scheduled principal and interest payments are guaranteed by:

AGC (Assured Guaranty Corp.)

AGM (Assurance Guaranty Municipal Corp.)

AMBAC (AMBAC Assurance Corp.)

CIFG (CIFG North America, Inc.)

FGIC (Financial Guaranty Insurance Co.)

FGRNA (FGIC reinsured by NATL)

NATL (National Public Finance Guarantee Corp.)

XLCA (XL Capital Assurance)

The insurance does not guarantee the market value of the municipal bonds.

1Credit ratings from Moody’s (unaudited).

2Credit ratings from S&P (unaudited).

The Series’ portfolio holds, as a percentage of net assets, greater than 10% in bonds insured by the following companies:

NATL - 33.4%; AGM - 16.2%.

 

13    The accompanying notes are an integral part of the financial statements.

Statement of Assets and Liabilities

December 31, 2010

 

 

ASSETS:

   

Investments, at value (identified cost $137,242,107) (Note 2)

      $135,151,074   

Interest receivable

      1,446,422   

Receivable for fund shares sold

      250,052   

Dividends receivable

      8   
        

TOTAL ASSETS

      136,847,556   
        

LIABILITIES:

   

Accrued management fees (Note 3)

      59,061   

Accrued fund accounting and administration fees (Note 3)

      9,584   

Accrued transfer agent fees (Note 3)

      770   

Accrued Chief Compliance Officer service fees (Note 3)

      245   

Payable for fund shares repurchased

      509,754   

Other payables and accrued expenses

      42,772   
        

TOTAL LIABILITIES

      622,186   
        

TOTAL NET ASSETS

      $136,225,370   
        

NET ASSETS CONSIST OF:

   

Capital stock

      $      133,648   

Additional paid-in-capital

      138,023,429   

Undistributed net investment income

      159,777   

Accumulated net realized loss on investments

      (451 ) 

Net unrealized depreciation on investments

      (2,091,033 ) 
        

TOTAL NET ASSETS

      $136,225,370   
        

NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE -
Class A ($136,225,370/13,364,784 shares)

      $          10.19   
        

 

The accompanying notes are an integral part of the financial statements.    14

Statement of Operations

For the Year Ended December 31, 2010

 

 

INVESTMENT INCOME:

   

Interest

    $ 5,246,230   

Dividends

      195   
        

Total Investment Income

      5,246,425   
        

EXPENSES:

   

Management fees (Note 3)

      652,227   

Fund accounting and administration fees (Note 3)

      70,173   

Directors’ fees (Note 3)

      8,875   

Transfer agent fees (Note 3)

      4,398   

Chief Compliance Officer service fees (Note 3)

      2,630   

Custodian fees

      6,976   

Miscellaneous

      55,116   
        

Total Expenses

      800,395   

Less reduction of expenses (Note 3)

      (758 ) 
        

Net Expenses

      799,637   
        

NET INVESTMENT INCOME

      4,446,788   
        

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:

   

Net realized gain on investments

      46,036   

Net change in unrealized appreciation (depreciation) on investments

      (4,689,742 ) 
        

NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS

      (4,643,706 ) 
        

NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS

    $ (196,918 ) 
        

 

15    The accompanying notes are an integral part of the financial statements.

Statements of Changes in Net Assets

 

 

    

For the

Year Ended
12/31/10

    

For the

Year Ended
12/31/09

  

INCREASE (DECREASE) IN NET ASSETS:

     

OPERATIONS:

     

Net investment income

      $    4,446,788        $    3,752,622   

Net realized gain on investments

      46,036        236,539   

Net change in unrealized appreciation (depreciation) on investments

      (4,689,742 )      7,946,641   
                

Net increase (decrease) from operations

      (196,918 )      11,935,802   
                

DISTRIBUTIONS TO SHAREHOLDERS (Note 8):

     

From net investment income

      (4,857,125 )      (4,042,429 ) 

From net realized gain on investments

      (113,664 )      (341,360 ) 
                

Total distributions to shareholders

      (4,970,789 )      (4,383,789 ) 
                

CAPITAL STOCK ISSUED AND REPURCHASED:

     

Net increase from capital share transactions (Note 5)

      30,861,062        5,778,371   
                

Net increase in net assets

      25,693,355        13,330,384   

NET ASSETS:

     

Beginning of year

      110,532,015        97,201,631   
                

End of year (including undistributed net investment income of $159,777 and $577,775, respectively)

      $136,225,370        $110,532,015   
                

 

The accompanying notes are an integral part of the financial statements.    16

Financial Highlights

 

 

            For the Years Ended         
     12/30/10      12/31/09      12/31/08      12/31/07      12/31/06  

Per share data (for a share outstanding throughout each year):

               

Net asset value - Beginning of year

      $10.55             $9.79             $10.41            $10.44            $10.45      
                                            

Income (loss) from investment operations:

               

Net investment income

      0.361            0.381            0.38            0.37            0.38      

Net realized and unrealized gain (loss) on investments

      (0.32)            0.82             (0.63)           (0.01)           (0.02)     
                                            

 

Total from investment operations

      0.04             1.20             (0.25)           0.36            0.36      
                                            

Less distributions to shareholders:

               

From net investment income

      (0.39)            (0.41)            (0.36)           (0.37)           (0.36)     

From net realized gain on investments

      (0.01)            (0.03)            (0.01)           (0.02)           (0.01)     
                                            

 

Total distributions to shareholders

      (0.40)            (0.44)            (0.37)           (0.39)           (0.37)     
                                            

 

Net asset value - End of year

      $10.19             $10.55             $9.79            $10.41            $10.44      
                                            

Net assets - End of year (000’s omitted)

        $136,225               $110,532               $97,202              $111,704              $92,910      
                                            

 

Total return2

      0.32%             12.46%             (2.37%)           3.44%            3.48%      

Ratios (to average net assets)/

Supplemental Data:

               

Expenses*

      0.61%             0.64%             0.64%            0.65%            0.68%      

Net investment income

      3.41%             3.64%             3.71%            3.66%            3.68%      

Portfolio turnover

      7%             10%             11%            7%            8%      

*The investment advisor did not impose all or a portion of its management fees, CCO fees, fund accounting and transfer agent fees, and other fees in some years and in some years paid a portion of the Series’ expenses. If these expenses had been incurred by the Series, the expense ratio (to average net assets) would have been increased by the following amounts:

      
     0.00%3            0.00%3            N/A            N/A            N/A      

1Calculated based on average shares outstanding during the year.

2Represents aggregate total return for the periods indicated, and assumes reinvestment of all distributions. Total return would have been lower had certain expenses not been waived or reimbursed during the periods. Periods less than one year are not annualized.

3Less than 0.01%.

 

17    The accompanying notes are an integral part of the financial statements.

Notes to Financial Statements

 

 

1.

ORGANIZATION

New York Tax Exempt Series (the “Series”) is a no-load diversified series of Manning & Napier Fund, Inc. (the “Fund”). The Fund is organized in Maryland and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company.

The Series’ investment objective is to provide 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 the preservation of capital.

The Fund’s Advisor is Manning & Napier Advisors, Inc. (the “Advisor”). Shares of the Series are offered to investors, clients and employees of the Advisor and its affiliates. The total authorized capital stock of the Fund consists of 10.0 billion shares of common stock each having a par value of $0.01. As of December 31, 2010, 6.2 billion shares have been designated in total among 29 series, of which 100 million have been designated as New York Tax Exempt Series Class A common stock.

 

2.

SIGNIFICANT ACCOUNTING POLICIES

Security Valuation

Municipal securities will normally be valued on the basis of market valuations provided by an independent pricing service (the “Service”). The Service utilizes the latest price quotations and a matrix system (which considers such factors as security prices of similar securities, yields, maturities and ratings). The Service has been approved by the Fund’s Board of Directors (the “Board”).

Short-term investments that mature in sixty days or less are valued at amortized cost, which approximates market value. Investments in open-end investment companies are valued at their net asset value per share on valuation date.

Volume and level of activity in established markets for an asset or liability are evaluated to determine whether recent transactions and quoted prices are determinative of fair value. Where there have been significant decreases in volume and level of activity, further analysis and adjustment may be necessary to estimate fair value. The Series measures fair value in these instances by the use of inputs and valuation techniques which may be based upon current market prices of securities that are comparable in coupon, rating, maturity and industry and/or expectation of future cash flows. As a result of trading in relatively thin markets and/or markets that experience significant volatility, the prices used by the Series to value these securities may differ from the value that would be realized if these securities were sold, and the differences could be material.

Securities for which representative valuations or prices are not available from the Fund’s pricing service may be valued at fair value. Due to the inherent uncertainty of valuations of such securities, the fair value may differ significantly from the values that would have been used had a ready market for such securities existed. If trading or events occurring after the close of the principal market in which securities are traded are expected to materially affect the value of those securities, then they may be valued at their fair value, taking this trading or these events into account. Fair value is determined in good faith by the Advisor under procedures approved by and under the general supervision and responsibility of the Board.

Various inputs are used in determining the value of the Series’ assets or liabilities carried at market value. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical assets and liabilities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). Level 3 includes significant unobservable inputs (including the Series’ own assumptions in determining the fair value of investments). The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

 

   18

Notes to Financial Statements

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Security Valuation (continued)

The following is a summary of the valuation levels used for major security types as of December 31, 2010 in valuing the Series’ assets or liabilities carried at market value:

 

Description    Total      Level 1      Level 2      Level  3  

Assets:

            

Equity securities*

    $ —       $ —       $ —       $                       —   

Preferred securities

      —         —         —         —   

Debt securities:

            

States and political subdivisions (municipals)

      134,035,734         —         134,035,734         —   

Mutual funds

      1,115,340         1,115,340         —         —   

Other finanical instruments**:

      —         —         —         —   
                                   

Total assets:

      135,151,074         1,115,340         134,035,734         —   
                                   

Liabilities:

            

Other financial instruments**:

      —         —         —         —   
                                   

Total liabilities:

      —         —         —         —   
                                   

Total

    $     135,151,074       $         1,115,340       $     134,035,734       $ —   
                                   

*Includes common stock, warrants and rights. Please see the Investment Portfolio for industry classification.

**Other financial instruments are derivative instruments not reflected in the Investment Portfolio, such as futures, forwards and swap contracts, which are valued at the unrealized appreciation/depreciation on the instrument. As of December 31, 2010, the Series did not hold any derivative instruments.

There were no Level 3 securities held by the Series as of December 31, 2009 or December 31, 2010.

The Fund’s policy is to recognize transfers in and transfers out of the valuation levels as of the beginning of the reporting period. There were no significant transfers between Level 1 and Level 2 during the year ended December 31, 2010.

Additional disclosure surrounding the activity in Level 3 fair value measurement will be effective for fiscal years beginning after December 15, 2010. Management has concluded that this will not have a material impact on the Series’ financial statements.

Security Transactions, Investment Income and Expenses

Security transactions are accounted for on trade date. Dividend income is recorded on the ex-dividend date, except that if the ex-dividend date has passed, certain dividends from foreign securities are recorded as soon as the Fund is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Interest income, including amortization of premium and accretion of discounts using the effective interest method, is earned from settlement date and accrued daily.

Expenses are recorded on an accrual basis. Most expenses of the Fund can be attributed to a specific series. Expenses which cannot be directly attributed are apportioned among the series in the Fund in such a manner as deemed equitable by the Fund’s Board, taking into consideration, among other things, the nature and type of expense.

The Series uses the identified cost method for determining realized gain or loss on investments for both financial statement and federal income tax reporting purposes.

 

19   

Notes to Financial Statements

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Federal Taxes

The Series’ policy is to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. The Series is not subject to federal income tax or excise tax to the extent that the Series 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.

Management evaluates its tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of tax benefits of an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. At December 31, 2010, the Series has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken in future tax returns.

The Series files income tax returns in the U.S. federal jurisdiction and various states, as required. No income tax returns are currently under investigation. The statute of limitations on the Series’ tax returns remains open for the years ended December 31, 2007 through December 31, 2010. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.

Distributions of Income and Gains

Distributions to shareholders of net investment income are made quarterly. Distributions of net realized gains are made annually. An additional distribution may be necessary to avoid taxation of the Series. Distributions are recorded on the ex-dividend date.

Indemnifications

The Fund’s organizational documents provide former and current directors and officers with a limited indemnification against liabilities arising in connection with the performance of their duties to the Fund. In the normal course of business, the Fund may also enter into contracts that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would be dependent on future claims that may be made against the Fund. The risk of material loss from such claims is considered remote.

Other

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 income and expenses during the reporting period. Actual results could differ from those estimates.

 

3.

TRANSACTIONS WITH AFFILIATES

The Fund has an Investment Advisory Agreement (the “Agreement”) with the Advisor, for which the Series pays a fee, computed daily and payable monthly, at an annual rate of 0.50% of the Series’ average daily net assets.

Under the Agreement, personnel of the Advisor provide the Series with advice and assistance in the choice of investments and the execution of securities transactions, and otherwise maintain the Series’ organization. The Advisor also provides the Fund with necessary office space and fund administration and support services. The salaries of all officers of the Fund (except a percentage of the Fund’s Chief Compliance Officer’s salary, which is paid by 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

 

   20

Notes to Financial Statements

 

 

3.

TRANSACTIONS WITH AFFILIATES (continued)

Advisor. Each “non-affiliated” Director receives an annual stipend, which is allocated among all the active series of the Fund. In addition, these Directors also receive a fee per Board meeting attended plus a fee for each committee meeting attended.

The Advisor has contractually agreed, until at least April 30, 2012, to waive its fee and, if necessary, pay other operating expenses of the Series in order to maintain total direct annual fund operating expenses for the Series at no more than 0.85% of average daily net assets each year. For the year ended December 31, 2010, the Advisor voluntarily waived fees of $758, which is reflected as a reduction of expenses on the Statement of Operations. The Advisor is not eligible to recoup any expenses that have been waived or reimbursed in prior years.

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 Series.

The Advisor has agreements with PNC Global Investment Servicing (U.S.) Inc. (“PNCGIS”) under which PNCGIS serves as sub-accountant services agent and sub-transfer agent. The Fund pays the Advisor an annual fee related to fund accounting and administration of 0.0175% on the first $3 billion of average daily net assets (excluding Target Series); 0.015% on the next $3 billion of average daily net assets (excluding Target Series); and 0.01% of the average daily net assets in excess of $6 billion (excluding Target Series); plus a base fee of $25,500 per Series. Transfer Agent fees are charged to the Fund on a per account basis. Additionally, certain transaction- and cusip-based fees and out-of-pocket expenses, including charges for reporting relating to the Fund’s compliance program, are charged.

Effective July 1, 2010, PNCGIS was sold to The Bank of New York Mellon Corporation, the Series’ custodian. At the close of the sale, PNCGIS changed its name to BNY Mellon Investment Servicing (U.S.) Inc. (“BNY”).

Expenses not directly attributable to a Series are allocated based on each Series’ relative net assets or number of accounts, depending on the expense.

 

4.

PURCHASES AND SALES OF SECURITIES

For the year ended December 31, 2010, purchases and sales of securities, other than U.S. Government securities and short-term securities, were $41,206,181 and $8,159,650, respectively. There were no purchases or sales of U.S. Government securities.

 

5.

CAPITAL STOCK TRANSACTIONS

Transactions in shares of New York Tax Exempt Series were:

 

    

For the Year

Ended 12/31/10

    

For the Year

Ended 12/31/09

  
     Shares     Amount     Shares     Amount  

Sold

      3,733,646      $ 39,811,439        1,541,814      $ 16,071,689   

Reinvested

      448,246        4,689,832        399,655        4,143,970   

Repurchased

      (1,293,178 )      (13,640,209 )      (1,396,044 )      (14,437,288 ) 
                                

Total

              2,888,714      $     30,861,062                545,425      $       5,778,371   
                                

 

21   

Notes to Financial Statements

 

 

5.

CAPITAL STOCK TRANSACTIONS (continued)

Substantially all of the Series’ shares represent investments by fiduciary accounts over which the Advisor has sole investment discretion.

 

6.

FINANCIAL INSTRUMENTS

The Series may trade in instruments including written and purchased options, forward foreign currency exchange contracts and futures contracts and other derivatives in the normal course of investing activities to assist in managing exposure to various market risks. Investments in these instruments may subject the Series to various elements of risk, which may involve, to a varying degree, elements of risk in excess of the amounts recognized for financial statement purposes. These risks include: the risk that changes in the value of a derivative may not correlate perfectly with the underlying asset, rate or index, counterparty credit risk related to over the counter derivatives counterparties’ failure to perform under contract terms, liquidity risk related to the lack of a liquid market for these contracts allowing the fund to close out its position(s) and documentation risk relating to disagreement over contract terms. No such investments were held by the Series during the year ended December 31, 2010.

 

7.

CONCENTRATION OF CREDIT

The Series 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 Series is more susceptible to factors adversely affecting issues of New York municipal securities than is a municipal bond fund that is not concentrated in these issues to the same extent.

 

8.

FEDERAL INCOME TAX INFORMATION

The amount and characterization of certain income and capital gains to be distributed are determined in accordance with federal income tax regulations, which may differ from accounting principles generally accepted in the United States of America. These differences are primarily due to differing book and tax treatments in the timing of the recognition of net investment income or gains and losses, including market discount and post-October losses. The Series may periodically make reclassifications among its capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations without impacting the Series’ net asset value. Any such reclassifications are not reflected in the financial highlights.

The tax character of distributions paid were as follows:

 

    

For the Year

Ended

12/31/10

     

For the Year

Ended

12/31/09

  

Ordinary income

    $ —       $ 6,320   

Tax exempt income

              4,858,448                 4,036,109   

Long-term capital gains

      112,341         341,360   

For the year ended December 31, 2010, the Series elected to defer $451 of capital losses, attributable to post-October losses.

 

   22

Notes to Financial Statements

 

 

8.

FEDERAL INCOME TAX INFORMATION

(continued)

At December 31, 2010, the tax basis of distributable earnings and the net unrealized appreciation based on the identified cost of investments for federal income tax purposes were as follows:

 

Cost for federal income tax purposes

    $ 137,209,517     

Unrealized appreciation

    $ 1,682,337     

Unrealized depreciation

      (3,740,780 )   
          

Net unrealized depreciation

    $ (2,058,443 )   
          

Undistributed tax exempt income

      127,187     

 

23   

Report of Independent Registered Public Accounting Firm

 

 

To the Board of Directors of Manning & Napier Fund, Inc. and Shareholders of New York Tax Exempt Series:

In our opinion, the accompanying statement of assets and liabilities, including the investment portfolio (except for credit ratings), and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the New York Tax Exempt Series (a series of Manning & Napier Fund, Inc., hereafter referred to as the “Series”) at December 31, 2010, and 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 five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Series’ management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2010 by correspondence with the custodian, provide a reasonable basis for our opinion.

LOGO

New York, New York

February 22, 2011

 

   24

Supplemental Tax Information (unaudited)

 

 

All designations are based on financial information available as of the date of this annual report and, accordingly are subject to change.

Pursuant to Section 852 of the Internal Revenue Code, as amended, the Series hereby designates $112,341 as capital gains for its taxable year ended December 31, 2010. In addition, the Series hereby designates $4,858,448 as tax exempt dividends for the year ended December 31, 2010. For each item it is the intention of the Series to designate the maximum allowable under tax law.

 

25   

Renewal of Investment Advisory Agreement (unaudited)

 

 

At the Manning & Napier Fund, Inc. (the “Fund”) Board of Directors’ (the “Board”) meeting, held on November 17, 2010, the Investment Advisory Agreement (the “Agreement”) between the Fund and Manning & Napier Advisors, Inc. (the “Advisor”) was reviewed by the Board for renewal. In connection with the decision whether to renew the Agreement, a variety of material was prepared for and reviewed by the Board.

Representatives of the Advisor attended the meeting and presented additional oral and written information to the Board to assist the Board in its considerations. The discussion immediately below outlines the materials and information presented to the Board in connection with the Board’s 2010 Annual Review of the Agreement and the conclusions made by the Directors when determining to continue the Agreement.

 

  •  

The Board considered the services provided by the Advisor under the Agreement including, among others: deciding what securities to purchase and sell for each Series; arranging for the purchase and sale of such securities by placing orders with broker-dealers; administering the affairs of the Fund (including the books and records of the Fund not maintained by third party service providers such as the custodian or sub-transfer agent); arranging for the insurance coverage for the Fund; and supervising the preparation of tax returns, SEC filings (including registration statements) and reports to shareholders for the Fund. The Board also considered the nature and quality of such services provided under the Agreement in light of the Advisor’s services provided to the Fund for 24 years. The Board discussed the quality of these services with representatives from the Advisor and concluded that the Advisor was performing its services to the Fund required under the Agreement in a reasonable manner.

 

  •  

The Board considered the investment performance of the various Series of the Fund. The investment performance for each Series was reviewed on a cumulative basis since inception and on a one year basis. In addition, annualized performance for the following time periods was considered: inception, three year, five year, ten year, and current market cycle. A market cycle includes periods of both rising and falling markets. Returns for established benchmark indices for each Series were provided for each time period. The Board noted that the various Series were competitive against their respective benchmarks and/or peer groups over various time periods, but in particular over the full market cycle period relevant for the Series. In addition, the Board considered at the meeting (and considers on a quarterly basis) a peer group performance analysis consisting of Morningstar universes of mutual funds with similar investment objectives. The Board discussed the performance with representatives from the Advisor and concluded that the investment performance of each of the Fund’s Series was reasonable based on the Fund’s actual performance and comparative performance, especially performance over the current market cycle.

 

  •  

The Board considered the costs of the Advisor’s services and the profits of the Advisor as they relate to the Advisor’s services to the Fund under the Agreement. In reviewing the Advisor’s costs and profits, the Board discussed the Advisor’s revenues generated from the Fund (on both an actual and adjusted basis) and its expenses associated with providing the services under the Agreement. In addition, the Board reviewed the Advisor’s expenses associated with Fund activities outside of the Agreement (such as expense reimbursements pursuant to expense caps and payments made by the Advisor to third party platforms on which shares of the Fund are available for purchase). It was noted by representatives of the Advisor that 11 of the 27 active Series of the Fund are currently experiencing expenses above the capped expense ratios. After discussing the above costs and profits, the Board concluded that the Advisor’s profitability relating to its services provided under the Agreement was reasonable.

 

  •  

The Board considered the fees and expenses of the various Series of the Fund. The Advisor presented the advisory fees and total expenses for each Series, including the advisory fee adjusted for any expense waivers or reimbursements (either contractual or voluntary) paid by the Advisor. The advisory fees and expense ratios of each Series were compared to an average (on both a mean and median basis) of similar funds as disclosed on the Morningstar database. Representatives of the Advisor discussed with the Board the levels of its advisory

 

   26

Renewal of Investment Advisory Agreement (unaudited)

 

 

 

fee for each Series of the Fund and as compared to the median and mean advisory fees for similar funds as listed on Morningstar. Expense ratios for every Series, except the Pro-Blend’s Class R and Class C, and Target Class R and Class C, are currently below the median and mean for similar funds as listed on Morningstar. Based on their review of the information provided, the Board concluded that the fees and expenses of each Series of the Fund were reasonable on a comparative basis.

 

  •  

The Board also considered the other benefits the Advisor derives from its relationship with the Fund. Such other benefits include certain research products provided by soft dollars. Given the level of soft dollar transactions involving the Fund, the Board concluded that these additional benefits to the Advisor were reasonable.

 

  •  

In addition to the factors described above, the Board considered the Advisor’s personnel, investment strategies, policies and procedures relating to compliance with personal securities transactions, and reputation, expertise and resources in domestic and foreign financial markets. The Board concluded that these factors support the conclusion that the Advisor performs its services in a reasonable manner.

 

  •  

The Board did not consider economies of scale at this time because of the multiple uses of the Fund (for the Advisor’s discretionary investment account clients in addition to direct investors), the current profitability of the Advisor’s services to the Fund under the Agreement, and the overall size of the Fund complex.

Based on the Board’s deliberations and their evaluation of the information described above, the Board, including a majority of Directors that are not “interested persons” as defined in the Investment Company Act of 1940, concluded that the compensation under the Agreement was fair and reasonable in light of the services and expenses and such other matters as the Directors considered to be relevant in the exercise of their reasonable judgment. Accordingly, the Board approved the renewal of the Agreement. In the course of their deliberations, the Directors did not identify any particular information that was all important or controlling.

 

27   

Directors’ and Officers’ Information (unaudited)

 

 

The Statement of Additional Information provides additional information about the Fund’s directors and officers and can be obtained without charge by calling 1-800-466-3863, at www.manningnapieradvisors.com, or on the EDGAR Database on the SEC Internet web site (http:// www.sec.gov). The following chart shows certain information about the Fund’s officers and directors, including their principal occupations during the last five years. Unless specific dates are provided, the individuals have held the listed positions for longer than five years.

 

INTERESTED DIRECTOR/OFFICER

   

Name:

    B. Reuben Auspitz*

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    63

Current Position(s) Held with Fund:

    Principal Executive Officer, President, Chairman & Director

Term of Office1 & Length of Time Served:

    Indefinite - Director since 1984; Vice President 1984 - 2003; President since 2004; Principal Executive Officer since 2002

Principal Occupation(s) During Past 5 Years:

    Executive Vice President; Executive Group Member**; Chief Compliance Officer since 2004; Vice Chairman since June 2010; Co-Executive Director from 2003-2010 - Manning & Napier Advisors, Inc. President; Director - Manning & Napier Investor Services, Inc. Holds or has held one or more of the following titles for various subsidiaries and affiliates: President, Vice President, Director, Chairman, Treasurer, Chief Compliance Officer or Member.

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A

 

INDEPENDENT DIRECTORS

   

Name:

    Paul A. Brooke

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    65

Current Position(s) Held with Fund:

    Director, Audit Committee Member, Governance & Nominating
   Committee Member

Term of Office & Length of Time Served:

    Indefinite - Since 2007

Principal Occupation(s) During Past 5 Years:

    Chairman & CEO, Alsius Corp. (investments); Managing Member, PMSV
   Holdings LLC (investments)

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    Incyte Corp. (2000-present)
   ViroPharma, Inc. (2000-present)
   HLTH Corp. (2000-present)
   Cheyne Capital International (2000-present)
   MPM Bio-equities (2000-present)
   GMP Companies (2000-present)
     HoustonPharma (2000-present)

 

Name:

   

 

Richard M. Hurwitz

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    47

Current Position(s) Held with Fund:

    Director, Audit Committee Member, Governance & Nominating
   Committee Member

Term of Office & Length of Time Served:

    Indefinite - Since 2009

Principal Occupation(s) During Past 5 Years:

    Chief Executive Officer, Pictometry International Corp. since August 2010 (provider of georeferenced, aerial image libraries and related software) Managing Partner (2006-July 2010) - Aegis Investment Partners, LLC (investments); Founder and Managing Partner (2004-2005) - Village Markets, LLC (groceries)

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    Pictometry International Corp. (2000-2010)
   Pioneering Technologies (2006-2009)
     Vensearch Capital Corp. (2003-2007)

 

   28

Directors’ and Officers’ Information (unaudited)

 

 

INDEPENDENT DIRECTORS (continued)

   

 

Name:

    Stephen B. Ashley
Address:    290 Woodcliff Drive
   Fairport, NY 14450
Age:    70
Current Position(s) Held with Fund:    Director, Audit Committee Member, Governance & Nominating
   Committee Member
Term of Office & Length of Time Served:    Indefinite - Since 1996
Principal Occupation(s) During Past 5 Years:   

Chairman, Director, President & Chief Executive Officer, The Ashley Group (property management and investment). Chairman (non-executive)

2004-2008; Director 1995-2008 - Fannie Mae (mortgage)

Number of Portfolios Overseen within Fund Complex:    29
Other Directorships Held Outside Fund Complex:    The Ashley Group (1995-2008)
     Genesee Corporation (1987-2007)

 

Name:

   

 

Peter L. Faber

Address:    290 Woodcliff Drive
   Fairport, NY 14450
Age:    72
Current Position(s) Held with Fund:    Director, Governance & Nominating Committee Member
Term of Office & Length of Time Served:    Indefinite - Since 1987
Principal Occupation(s) During Past 5 Years:    Senior Counsel since 2006, Partner (1995 - 2006) - McDermott, Will &
   Emery LLP (law firm)
Number of Portfolios Overseen within Fund Complex:    29
Other Directorships Held Outside Fund Complex:    Partnership for New York City, Inc. (non-profit)
   New York Collegium (non-profit)
     Boston Early Music Festival (non-profit)

 

Name:

   

 

Harris H. Rusitzky

Address:    290 Woodcliff Drive
   Fairport, NY 14450
Age:    76
Current Position(s) Held with Fund:    Director, Audit Committee Member, Governance & Nominating
   Committee Member
Term of Office & Length of Time Served:    Indefinite - Since 1985
Principal Occupation(s) During Past 5 Years:    President, The Greening Group (business consultants) since 1994;
   Partner, The Restaurant Group (restaurants) since 2006
Number of Portfolios Overseen within Fund Complex:    29
Other Directorships Held Outside Fund Complex:    N/A

 

OFFICERS

   

 

Name:

    Jeffrey S. Coons, Ph.D., CFA
Address:    290 Woodcliff Drive
   Fairport, NY 14450
Age:    47
Current Position(s) Held with Fund:    Vice President
Term of Office1 & Length of Time Served:    Since 2004
Principal Occupation(s) During Past 5 Years:    President since 2010, Co-Director of Research since 2002, Executive Group Member** since 2003, - Manning & Napier Advisors, Inc. Holds one or more of the following titles for various subsidiaries and affiliates: President, Director, Treasurer or Senior Trust Officer.

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A

 

29   

Directors’ and Officers’ Information (unaudited)

 

 

OFFICERS (continued)

 

Name:

    Beth Galusha

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    49

Current Position(s) Held with Fund:

    Assistant Chief Financial Officer

Term of Office1 & Length of Time Served:

    Assistant Chief Financial Officer since 2010

Principal Occupation(s) During Past 5 Years:

    Chief Financial Officer and Treasurer, Manning & Napier Advisors, Inc. Holds one or more of the following titles for various affiliates: Chief Financial Officer, Director, or Treasurer

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A

 

Name:

   

 

Christine Glavin

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    44

Current Position(s) Held with Fund:

    Principal Financial Officer, Chief Financial Officer

Term of Office1 & Length of Time Served:

    Principal Financial Officer since 2002; Chief Financial Officer since 2001

Principal Occupation(s) During Past 5 Years:

    Fund Reporting Manager, Manning & Napier Advisors, Inc. since 1997

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A

 

Name:

   

 

Jodi L. Hedberg

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    43

Current Position(s) Held with Fund:

    Corporate Secretary, Chief Compliance Officer, Anti-Money Laundering
   Compliance Officer

Term of Office1 & Length of Time Served:

    Corporate Secretary since 1997; Chief Compliance Officer since 2004

Principal Occupation(s) During Past 5 Years:

    Director of Compliance, Manning & Napier Advisors, Inc. and affiliates since 1990 (title change in 2005 from Compliance Manager to Director of Compliance); Corporate Secretary, Manning & Napier Investor Services, Inc. since 2006

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A

 

Name:

   

 

Richard Yates

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    45

Current Position(s) Held with Fund:

    Chief Legal Officer

Term of Office1 & Length of Time Served:

    Chief Legal Officer since 2004

Principal Occupation(s) During Past 5 Years:

    Counsel - Manning & Napier Advisors, Inc. & affiliates since 2000; Holds one or more of the following titles for various affiliates; Director or Corporate Secretary

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

   

N/A

*Interested Director, within the meaning of the Investment Company Act of 1940 by reason of his position with the Fund’s investment advisor and distributor. Mr. Auspitz serves as the Executive Vice President and Director, Manning & Napier Advisors, Inc. and President and Director, Manning & Napier Investor Services, Inc., the Fund’s distributor.

**Prior to June 2010, the Executive Group, consisting of senior executive employee-owners, performed the duties of the Office of the Chief Executive of the Advisor. Effective June 2010, the Executive Group serves as an advisory board to the Chief Executive Officer.

1The term of office for President, Vice President, Chief Financial Officer, Assistant Chief Financial Officer, Chief Legal Officer and Corporate Secretary is one year and until their respective successors are chosen and qualified. All other officers’ terms are indefinite.

 

   30

Literature Requests (unaudited)

 

Proxy Voting Policies and Procedures

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request:

 

By phone

   

1-800-466-3863

On the Securities and Exchange
  Commission’s (SEC) web site

   

http://www.sec.gov

Proxy Voting Record

Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available, without charge, upon request:

 

By phone

   

1-800-466-3863

On the SEC’s web site

   

http://www.sec.gov

Quarterly Portfolio Holdings

The Series’ complete schedule of portfolio holdings for the 1st and 3rd quarters of each fiscal year are provided on Form N-Q, and are available, without charge, upon request:

 

By phone

   

1-800-466-3863

On the SEC’s web site

   

http://www.sec.gov

The Series’ Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.

Prospectus and Statement of Additional Information (SAI)

The prospectus and SAI provide additional information about each Series, including charges, expenses and risks. These documents are available, without charge, upon request:

 

By phone

   

1-800-466-3863

On the SEC’s web site

   

http://www.sec.gov

On the Advisor’s web site

   

http://www.manning-napier.com

Additional information available at www.manning-napier.com

1. Fund Holdings - Month-End

2. Fund Holdings - Quarter-End

3. Shareholder Report - Annual

4. Shareholder Report - Semi-Annual

 

 

MNNYTES-12/10-AR

 

  

LOGO

Management Discussion and Analysis (unaudited)

 

Dear Shareholders:

As well-defined swings in sentiment drove market fluctuations in 2010, the fixed income markets had favorable results for the year. Returns were broadly positive throughout the first three quarters of the year, with higher gains during the stock market pullback in the second quarter. However, while equities finished the year with a strong rally, fixed income markets generally took a negative turn at the end of the year. After eight consecutive quarters of positive performance, broad fixed income markets suffered losses in the fourth quarter.

Overall, corporate bonds were the best performing sector during 2010, with below investment grade securities experiencing significant gains. Mortgage securities and U.S. Treasury securities also performed well, particularly intermediate and longer-term U.S. Treasuries. While municipal bonds posted positive results for the year, the sector had the weakest returns in 2010, as credit concerns and supply and demand changes caused noteworthy losses during the last quarter.

The Bank of America Merrill Lynch U.S. Corporate, Government and Mortgage Index earned a solid 6.43% during the year. With a return of 8.97%, the Core Bond Series noticeably outpaced its benchmark.

Throughout 2010, the Core Bond Series maintained a heavy weighting to corporate bonds because the Advisor believes the supply and demand dynamics within this sector remain attractive. As of the end of the year, the Series had 81.8% of its assets invested in corporate bonds and preferred stocks, and this significant allocation to corporate bonds was the primary driver of outperformance over the past year.

During the second quarter, the Series sold its taxable municipal bonds (i.e., Build America Bonds) and reinvested the proceeds into commercial mortgage-backed securities, which are a type of asset-backed securities. Accordingly, the Series’ exposure to asset-backed securities increased throughout the year. While the Series started the year with no mortgage-backed securities holdings, the Advisor added exposure to this sector toward the end of the year.

As the markets unfold in 2011, it will be important to monitor trends such as monetary policy and inflation expectations. With this mindset, Manning & Napier remains committed to our active investment approach to fixed income. With our fundamentals-based investment strategies, we will continue to use tools such as sector, maturity, quality, and issue selections to take advantage of market opportunities and manage risk throughout the full bond market cycle. Staying focused on the fundamentals and maintaining our selective investment process helped us earn strong returns through the volatile markets of 2010, and we believe these qualities will remain important in the environment ahead.

As always, we appreciate your business.

Sincerely,

Manning & Napier Advisors, Inc.

 

 

  

1

Performance Update as of December 31, 2010 (unaudited)

 

      Average  Annual Total Returns
As of December 31, 2010		  
      One
Year 		    Five
Year 		    Since
Inception 1		  

Manning & Napier Fund, Inc. - Core Bond Series2

      8.97 %      6.38%        5.76%   

Bank of America (BofA) Merrill Lynch U.S. Corporate,

         

Government & Mortgage Index3

      6.43 %      5.87%        5.50%   

The following graph compares the value of a $10,000 investment in the Manning & Napier Fund, Inc. - Core Bond Series from its inception1 (4/21/05) to present (12/31/10) to the BofA Merrill Lynch U.S. Corporate, Government & Mortgage Index.

LOGO

1Performance numbers for the Series and Index are calculated from April 21, 2005, the Series’ inception date.

2The Series’ performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. The Series’ performance is historical and may not be indicative of future results. The performance returns shown are inclusive of the net expense ratio of the Series. For the year ended December 31, 2010, this net expense ratio was 0.76%. The gross expense ratio, which does not account for any voluntary or contractual waivers currently in effect, was 0.76% for the year ended December 31, 2010.

3The unmanaged BofA Merrill Lynch U.S. Corporate, Government & Mortgage Index (formerly a Merrill Lynch Index) is a market value weighted measure that represents U.S. government, corporate, and pass-through securities issued by entities within the United States, by supranational entities, or by entities headquartered outside of the United States but who have issued dollar-denominated securities within the United States. The Index only includes investment-grade securities with maturities of greater than one year. The Index returns assume reinvestment of coupons and, unlike Series returns, do not reflect any fees or expenses.

 

2   

Shareholder Expense Example (unaudited)

 

As a shareholder of the Series, you may incur two types of costs: (1) transaction costs and (2) ongoing costs, including management fees and other Series expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Series and to compare these costs with the ongoing costs of investing in other mutual funds.

The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (July 1, 2010 to December 31, 2010).

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Series’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Series’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid during the period. You may use this information to compare the ongoing costs of investing in the Series and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.

 

 
     Beginning
Account  Value
7/1/10		    Ending
Account  Value
12/31/10		    Expenses Paid
During Period*
7/1/10-12/31/10

Actual

    $1,000.00    $1,027.30    $3.88

Hypothetical

         

(5% return before expenses)

    $1,000.00    $1,021.37    $3.87

*Expenses are equal to the Series’ annualized expense ratio (for the six-month period) of 0.76%, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Expenses are based on the most recent fiscal half year; therefore, the expense ratio stated above may differ from the expense ratio stated in the financial highlights, which is based on one-year data. The Series’ total return would have been lower had certain expenses not been waived during the period.

 

   3

Portfolio Composition as of December 31, 2010 (unaudited)

 

LOGO

 

4   

Investment Portfolio - December 31, 2010

 

     Credit
Rating 1
(unaudited)		      Principal
Amount 		    

Value

(Note 2)

  

CORPORATE BONDS - 74.4%

         

Convertible Corporate Bonds - 1.1%

         

Health Care - 0.6%

         

Biotechnology - 0.5%

         

Amgen, Inc., 0.375%, 2/1/2013

      A3       $ 530,000       $ 530,000   
              

Health Care Equipment & Supplies - 0.1%

         

Medtronic, Inc., 1.625%, 4/15/2013

      A1         120,000         120,750   
              

Total Health Care

            650,750   
              

Information Technology - 0.5%

         

Computers & Peripherals - 0.5%

         

EMC Corp., 1.75%, 12/1/2013

      A2         395,000         594,969   
              

Total Convertible Corporate Bonds
(Identified Cost $1,128,853)

            1,245,719   
              

Non-Convertible Corporate Bonds - 73.3%

         

Consumer Discretionary - 11.4%

         

Hotels, Restaurants & Leisure - 2.1%

         

International Game Technology, 7.50%, 6/15/2019

      Baa2         1,095,000         1,232,600   

Yum! Brands, Inc., 3.875%, 11/1/2020

      Baa3         1,250,000         1,194,109   
              
           2,426,709   
              

Household Durables - 0.9%

         

Newell Rubbermaid, Inc., 4.70%, 8/15/2020

      Baa3         1,000,000         991,949   
              

Media - 4.7%

         

Comcast Corp., 6.50%, 11/15/2035

      Baa1         925,000         994,162   

Comcast Corp., 6.95%, 8/15/2037

      Baa1         665,000         752,160   

DIRECTV Holdings LLC, 5.20%, 3/15/2020

      Baa2         965,000         1,000,399   

Discovery Communications LLC, 5.05%, 6/1/2020

      Baa2         965,000         1,020,453   

Time Warner, Inc., 7.625%, 4/15/2031

      Baa2         850,000         1,033,330   

The Walt Disney Co., 5.50%, 3/15/2019

      A2         500,000         567,687   
              
           5,368,191   
              

Multiline Retail - 0.7%

         

Target Corp., 6.00%, 1/15/2018

      A2         670,000         775,677   
              

Specialty Retail - 2.5%

         

AutoZone, Inc., 4.00%, 11/15/2020

      Baa2         850,000         802,801   

The Home Depot, Inc., 5.40%, 3/1/2016

      Baa1         1,065,000         1,193,444   

Lowe’s Companies, Inc., 6.10%, 9/15/2017

      A1         745,000         861,657   
              
           2,857,902   
              

Textiles, Apparel & Luxury Goods - 0.5%

         

VF Corp., 5.95%, 11/1/2017

      A3         485,000         541,000   
              

Total Consumer Discretionary

            12,961,428   
              

 

The accompanying notes are an integral part of the financial statements.    5

Investment Portfolio - December 31, 2010

 

     Credit
Rating 1
(unaudited)		      Principal
Amount 		     Value
(Note  2)		  

CORPORATE BONDS (continued)

         

Non-Convertible Corporate Bonds (continued)

         

Consumer Staples - 2.5%

         

Beverages - 0.2%

         

PepsiCo, Inc., 7.90%, 11/1/2018

      Aa3       $ 157,000       $ 201,998   
              

Food & Staples Retailing - 0.5%

         

The Kroger Co., 5.50%, 2/1/2013

      Baa2         230,000         248,789   

The Kroger Co., 6.15%, 1/15/2020

      Baa2         335,000         379,609   
              
           628,398   
              

Food Products - 1.8%

         

General Mills, Inc., 5.65%, 2/15/2019

      Baa1         765,000         851,640   

Grupo Bimbo SAB de CV (Mexico)3, 4.875%, 6/30/2020

      Baa2         500,000         501,957   

Kraft Foods, Inc., 6.125%, 2/1/2018

      Baa2         565,000         645,397   
              
           1,998,994   
              

Total Consumer Staples

            2,829,390   
              

Energy - 5.9%

         

Energy Equipment & Services - 3.4%

         

Baker Hughes, Inc., 7.50%, 11/15/2018

      A2         620,000         777,446   

Baker Hughes, Inc., 5.125%, 9/15/2040

      A2         1,000,000         976,782   

Weatherford International Ltd. (Switzerland), 9.625%, 3/1/2019

      Baa2         1,645,000         2,110,843   
              
           3,865,071   
              

Oil, Gas & Consumable Fuels - 2.5%

         

Apache Corp., 6.90%, 9/15/2018

      A3         630,000         769,220   

Hess Corp., 5.60%, 2/15/2041

      Baa2         1,050,000         1,042,370   

Shell International Finance B.V. (Netherlands), 4.30%, 9/22/2019.

      Aa1         1,000,000         1,042,555   
              
           2,854,145   
              

Total Energy

            6,719,216   
              

Financials - 24.8%

         

Capital Markets - 5.9%

         

The Charles Schwab Corp., 4.45%, 7/22/2020

      A2         1,010,000         1,006,096   

Goldman Sachs Capital I, 6.345%, 2/15/2034

      A3         830,000         790,865   

Goldman Sachs Capital II4, 5.793%, 12/29/2049

      Baa2             1,285,000         1,089,037   

The Goldman Sachs Group, Inc., 6.15%, 4/1/2018

      A1         690,000         759,823   

The Goldman Sachs Group, Inc., 5.375%, 3/15/2020

      A1         500,000         516,681   

Merrill Lynch & Co., Inc., 6.11%, 1/29/2037

      A3         805,000         726,654   

Morgan Stanley, 5.55%, 4/27/2017

      A2         1,727,000         1,799,189   
              
                 6,688,345   
              

Commercial Banks - 6.6%

         

Household Finance Co., 6.375%, 11/27/2012

      A3         785,000         851,069   

HSBC Finance Corp., 7.00%, 5/15/2012

      A3         1,025,000         1,099,769   

KeyBank National Association, 5.45%, 3/3/2016

      Baa1         1,050,000         1,104,968   

 

6    The accompanying notes are an integral part of the financial statements.

Investment Portfolio - December 31, 2010

 

     Credit
Rating 1
(unaudited)		      Principal
Amount 		    

Value

(Note 2)

  

CORPORATE BONDS (continued)

         

Non-Convertible Corporate Bonds (continued)

         

Financials (continued)

         

Commercial Banks (continued)

         

Manufacturers & Traders Trust Co., 6.625%, 12/4/2017

      A3       $     1,135,000       $       1,274,207   

National City Corp., 6.875%, 5/15/2019

      Baa1         500,000         561,379   

PNC Bank National Association, 5.25%, 1/15/2017

      A3         880,000         913,563   

USB Capital XIII Trust, 6.625%, 12/15/2039

      A2         715,000         730,323   

Wachovia Corp., 5.25%, 8/1/2014

      A2         945,000         1,007,837   
              
           7,543,115   
              

Consumer Finance - 0.9%

         

American Express Co., 8.125%, 5/20/2019

      A3         795,000         989,148   
              

Diversified Financial Services - 2.9%

         

Bank of America Corp., 7.625%, 6/1/2019

      A2         845,000         972,963   

Citigroup, Inc., 8.50%, 5/22/2019

      A3         1,190,000         1,477,308   

JPMorgan Chase & Co., 6.30%, 4/23/2019

      Aa3         785,000         893,530   
              
           3,343,801   
              

Insurance - 1.7%

         

American International Group, Inc., 4.25%, 5/15/2013

      A3         660,000         683,000   

Fidelity National Financial, Inc., 6.60%, 5/15/2017

      Baa3         1,260,000         1,257,167   
              
           1,940,167   
              

Real Estate Investment Trusts (REITS) - 6.8%

         

AvalonBay Communities, Inc., 6.10%, 3/15/2020

      Baa1         720,000         805,178   

Boston Properties LP, 5.875%, 10/15/2019

      Baa2         935,000         1,013,959   

Camden Property Trust, 5.70%, 5/15/2017

      Baa1         780,000         823,113   

Digital Realty Trust LP, 5.875%, 2/1/2020

      Baa2         500,000         508,677   

HCP, Inc., 6.70%, 1/30/2018

      Baa3         940,000         1,008,504   

Health Care REIT, Inc., 6.20%, 6/1/2016

      Baa2         375,000         414,939   

Mack-Cali Realty LP, 7.75%, 8/15/2019

      Baa2         735,000         855,360   

National Retail Properties, Inc., 6.875%, 10/15/2017

      Baa2         890,000         958,852   

Simon Property Group LP, 10.35%, 4/1/2019

      A3         990,000         1,353,527   
              
           7,742,109   
              

Total Financials

            28,246,685   
              

Health Care - 2.7%

         

Biotechnology - 0.5%

         

Amgen, Inc., 5.85%, 6/1/2017

      A3         500,000         570,749   
              

Health Care Equipment & Supplies - 0.7%

         

Becton Dickinson and Co., 6.00%, 5/15/2039

      A2         535,000         604,117   

CR Bard, Inc., 4.40%, 1/15/2021

      A3         200,000         203,214   
              
           807,331   
              

 

The accompanying notes are an integral part of the financial statements.    7

Investment Portfolio - December 31, 2010

 

    

Credit

Rating1

(unaudited)

    

Principal

Amount

     

Value

(Note 2)

  

CORPORATE BONDS (continued)

        

Non-Convertible Corporate Bonds (continued)

        

Health Care (continued)

        

Pharmaceuticals - 1.5%

        

Abbott Laboratories, 5.60%, 11/30/2017

      A1      $     675,000       $ 771,734   

Novartis Securities Investment Ltd. (Bermuda), 5.125%, 2/10/2019

      Aa2        870,000         962,250   
             
          1,733,984   
             

 

Total Health Care

           3,112,064   
             

Industrials - 13.1%

        

Aerospace & Defense - 1.2%

        

The Boeing Co., 6.00%, 3/15/2019

      A2        500,000         575,259   

Honeywell International, Inc., 5.30%, 3/1/2018

      A2        690,000         767,848   
             
          1,343,107   
             

 

Air Freight & Logistics - 0.9%

        

FedEx Corp., 8.00%, 1/15/2019

      Baa2        790,000         974,509   
             

Airlines - 2.0%

        

Continental Airlines Pass-Through Trust, Series 1997-4, Class A, 6.90%, 1/2/2018

      Baa2        300,296         319,065   

Delta Air Lines Pass-Through Trust, Series 2001-1, Class 1A2, 7.111%, 9/18/2011

      BBB 2      295,000         304,587   

Delta Air Lines Pass-Through Trust, Series 2007-1, Class A, 6.821%, 8/10/2022

      Baa1        166,574         176,569   

Delta Air Lines Pass-Through Trust, Series 2010-1, Class A, 6.20%, 7/2/2018

      Baa2        500,000         531,250   

Southwest Airlines Co., 5.25%, 10/1/2014

      Baa3        910,000         957,081   
             
              2,288,552   
             

Commercial Services & Supplies - 0.9%

        

Waste Management, Inc., 7.375%, 3/11/2019

      Baa3        830,000         1,004,384   
             

Industrial Conglomerates - 3.8%

        

GE Capital Trust I4, 6.375%, 11/15/2067

      Aa3        1,145,000         1,130,687   

General Electric Capital Corp., 5.625%, 5/1/2018

      Aa2        350,000         381,680   

General Electric Capital Corp., Series A, 6.75%, 3/15/2032

      Aa2        740,000         837,767   

General Electric Co., 5.25%, 12/6/2017

      Aa2        370,000         399,635   

Textron, Inc., 7.25%, 10/1/2019

      Baa3        1,245,000         1,426,709   

Tyco Electronics Group S.A. (Luxembourg), 4.875%, 1/15/2021

      Baa2        200,000         202,244   
             
          4,378,722   
             

Machinery - 1.6%

        

Caterpillar Financial Services Corp., 7.05%, 10/1/2018

      A2        660,000         798,358   

John Deere Capital Corp., 5.50%, 4/13/2017

      A2        225,000         250,861   

John Deere Capital Corp., 5.75%, 9/10/2018

      A2        700,000         793,010   
             
          1,842,229   
             

 

8    The accompanying notes are an integral part of the financial statements.

Investment Portfolio - December 31, 2010

 

 

    

Credit

Rating1

(unaudited)

     

Principal

Amount

     

Value

(Note 2)

  

CORPORATE BONDS (continued)

         

Non-Convertible Corporate Bonds (continued)

         

Industrials (continued)

         

Road & Rail - 2.7%

         

CSX Corp., 6.00%, 10/1/2036

      Baa3       $ 730,000       $ 760,309   

JB Hunt Transport Services, Inc., 3.375%, 9/15/2015

      Baa3         1,595,000         1,575,514   

Union Pacific Corp., 5.65%, 5/1/2017

      Baa2         705,000         778,463   
              
           3,114,286   
              

Total Industrials

                14,945,789   
              

Information Technology - 6.1%

         

Communications Equipment - 1.0%

         

Cisco Systems, Inc., 5.90%, 2/15/2039

      A1         1,065,000         1,179,493   
              

Computers & Peripherals - 2.6%

         

Dell, Inc., 5.875%, 6/15/2019

      A2         1,055,000         1,154,367   

Hewlett-Packard Co., 5.50%, 3/1/2018

      A2         680,000         766,174   

International Business Machines Corp., 5.60%, 11/30/2039

      Aa3         909,000         990,382   
              
           2,910,923   
              

Electronic Equipment, Instruments & Components - 0.4%

  

      

Corning, Inc., 4.25%, 8/15/2020

      Baa1         500,000         493,768   
              

IT Services - 0.8%

         

The Western Union Co., 5.253%, 4/1/2020

      A3         945,000         970,884   
              

Software - 1.3%

         

Oracle Corp., 5.00%, 7/8/2019

      A2         700,000         759,503   

Oracle Corp.3, 3.875%, 7/15/2020

      A2         675,000         671,008   
              
           1,430,511   
              

Total Information Technology

            6,985,579   
              

Materials - 3.2%

         

Chemicals - 0.7%

         

E.I. du Pont de Nemours & Co., 6.00%, 7/15/2018

      A2         670,000         770,363   
              

Metals & Mining - 1.4%

         

Alcoa, Inc., 5.87%, 2/23/2022

      Baa3         660,000         655,691   

BHP Billiton Finance (USA) Ltd. (Australia), 6.50%, 4/1/2019

      A1         810,000         963,207   
              
           1,618,898   
              

Paper & Forest Products - 1.1%

         

International Paper Co., 7.50%, 8/15/2021

      Baa3         1,065,000         1,257,940   
              

Total Materials

            3,647,201   
              

Telecommunication Services - 1.2%

         

Wireless Telecommunication Services - 1.2%

         

Crown Castle Towers LLC3, 6.113%, 1/15/2020

      A2         745,000         777,274   

Crown Castle Towers LLC3, 4.883%, 8/15/2020

      A2         250,000         240,270   

 

The accompanying notes are an integral part of the financial statements.    9

Investment Portfolio - December 31, 2010

 

    

Credit

Rating1

(unaudited)

     

Principal

Amount/

Shares

     

Value

(Note 2)

  

CORPORATE BONDS (continued)

         

Non-Convertible Corporate Bonds (continued)

         

Telecommunication Services (continued)

         

Wireless Telecommunication Services (continued)

         

SBA Tower Trust3, 5.101%, 4/15/2017

      A2       $     375,000       $ 389,869   
              

Total Telecommunication Services

            1,407,413   
              

Utilities - 2.4%

         

Electric Utilities - 2.1%

         

Exelon Generation Co. LLC, 5.35%, 1/15/2014

      A3         580,000         627,891   

Exelon Generation Co. LLC, 6.20%, 10/1/2017

      A3         350,000         391,711   

Exelon Generation Co. LLC, 4.00%, 10/1/2020

      A3         500,000         467,919   

Southwestern Electric Power Co., 6.45%, 1/15/2019

      Baa3         855,000         938,920   
              
           2,426,441   
              

Multi-Utilities - 0.3%

         

CenterPoint Energy Resources Corp., Series B, 7.875%, 4/1/2013

      Baa3         335,000         378,696   
              

Total Utilities

            2,805,137   
              

Total Non-Convertible Corporate Bonds
(Identified Cost $77,969,198)

                83,659,902   
              

TOTAL CORPORATE BONDS
(Identified Cost $79,098,051)

            84,905,621   
              

PREFERRED STOCKS - 2.1%

 

         

Financials - 2.1%

         

Commercial Banks - 1.2%

         

PNC Financial Services Group, Inc., Series K6, 8.25%

      Baa3         290,000         309,224   

Wells Fargo & Co., Series K6, 7.98%

      Baa3         1,000,000         1,055,000   
              
           1,364,224   
              

Diversified Financial Services - 0.9%

         

JPMorgan Chase & Co., Series 16, 7.90%

      Baa1         965,000         1,025,785   
              

TOTAL PREFERRED STOCKS
(Identified Cost $2,309,476)

            2,390,009   
              

ASSET-BACKED SECURITIES - 1.0%

 

         

Capital Auto Receivables Asset Trust, Series 2007-1, Class A4A, 5.010%, 4/16/2012

      Aaa       $ 22,273         22,483   

Capital Auto Receivables Asset Trust, Series 2007-3, Class A4, 5.210%, 3/17/2014

      Aaa         30,476         31,158   

Ford Credit Auto Owner Trust, Series 2008-C, Class A4B4, 2.010%, 4/15/2013

      Aaa         50,000         50,716   

Hertz Vehicle Financing LLC, Series 2009-2A, Class A23, 5.290%, 3/25/2016

      Aaa         370,000         401,877   

 

10    The accompanying notes are an integral part of the financial statements.

Investment Portfolio - December 31, 2010

 

     Credit
Rating 1
(unaudited)		     Principal
Amount 		    

Value

(Note 2)

  

ASSET-BACKED SECURITIES (continued)

        

Hertz Vehicle Financing LLC, Series 2010-1A, Class A23, 3.740%, 2/25/2017

      Aaa      $     595,000       $ 604,517   
             

TOTAL ASSET-BACKED SECURITIES
(Identified Cost $1,061,591)

               1,110,751   
             

COMMERCIAL MORTGAGE-BACKED SECURITIES - 3.7%

        

American Tower Trust, Series 2007-1A, Class AFX3, 5.420%, 4/15/2037

      Aaa        400,000         432,503   

Americold LLC Trust, Series 2010-ARTA, Class A13, 3.847%, 1/14/2029

      AAA 2      100,000         100,179   

Banc of America Commercial Mortgage, Inc., Series 2006-2, Class A44, 5.740%, 5/10/2045

      AAA 2      200,000         218,952   

Banc of America Commercial Mortgage, Inc., Series 2006-4, Class A4, 5.634%, 7/10/2046

      Aaa        100,000         107,295   

Bear Stearns Commercial Mortgage Securities, Series 2005-PWR9, Class A4A, 4.871%, 9/11/2042

      Aaa        100,000         105,345   

Bear Stearns Commercial Mortgage Securities, Series 2006-PW12, Class A44, 5.722%, 9/11/2038

      Aaa        150,000         163,660   

Citigroup Commercial Mortgage Trust, Series 2006-C4, Class A34, 5.728%, 3/15/2049

      Aaa        110,000         119,055   

Commercial Mortgage Pass-Through Certificates, Series 2006-C7, Class A44, 5.764%, 6/10/2046

      AAA 2      155,000         169,473   

Commercial Mortgage Pass-Through Certificates, Series 2010-C1, Class A13, 3.156%, 7/20/2046

      Aaa        264,528         265,124   

Greenwich Capital Commercial Funding Corp., Series 2006-GG7, Class A44, 5.883%, 7/10/2038

      Aaa        415,000         452,764   

JP Morgan Chase Commercial Mortgage Securities Corp., Series 2005-LDP5, Class A44, 5.205%, 12/15/2044

      Aaa        325,000         349,883   

JP Morgan Chase Commercial Mortgage Securities Corp., Series 2006-LDP7, Class A44, 5.872%, 4/15/2045

      Aaa        100,000         109,361   

JP Morgan Chase Commercial Mortgage Securities Corp., Series 2010-C2, Class A33, 4.070%, 11/15/2043

      AAA 2      200,000         190,183   

LB-UBS Commercial Mortgage Trust, Series 2006-C4, Class A44, 5.881%, 6/15/2038

      Aaa        150,000         162,318   

Merrill Lynch - Countrywide Commercial Mortgage Trust, Series 2006-3, Class A44, 5.414%, 7/12/2046

      Aaa        125,000         131,759   

Morgan Stanley Capital I, Series 2005-HQ7, Class A44, 5.204%, 11/14/2042

      Aaa        100,000         107,652   

OBP Depositor LLC Trust, Series 2010-OBP, Class A3, 4.646%, 7/15/2045

      AAA 2      100,000         102,036   

Vornado DP LLC, Series 2010-VNO, Class A2FX3, 4.004%, 9/13/2028

      AAA 2      245,000         237,541   

 

The accompanying notes are an integral part of the financial statements.    11

Investment Portfolio - December 31, 2010

 

     Credit
Rating 1
(unaudited)		      Principal
Amount/
Shares 		    

Value

(Note 2)

  

COMMERCIAL MORTGAGE-BACKED SECURITIES (continued)

         

Wachovia Bank Commercial Mortgage Trust, Series 2005-C21, Class A44, 5.203%, 10/15/2044

      Aaa       $ 150,000       $ 162,118   

Wachovia Bank Commercial Mortgage Trust, Series 2006-C25, Class A44, 5.737%, 5/15/2043

      Aaa         115,000         123,345   

Wachovia Bank Commercial Mortgage Trust, Series 2006-C26, Class A34, 6.011%, 6/15/2045

      Aaa         150,000         162,790   

Wells Fargo Commercial Mortgage Trust, Series 2010-C1, Class A23, 4.393%, 11/18/2043

      Aaa         275,000         271,905   
              

TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES
(Identified Cost $4,219,389)

            4,245,241   
              

MUNICIPAL BONDS - 0.9%

         

Monroe County Water Authority, Revenue Bond, 6.339%, 8/1/2035

      Aa2         500,000         509,950   

New York City, G.O. Bond, 6.646%, 12/1/2031

      Aa2         500,000         511,840   
              

 

 

TOTAL MUNICIPAL BONDS
(Identified Cost $1,000,000)

            1,021,790   
              

MUTUAL FUNDS - 4.4%

         

iShares iBoxx Investment Grade Corporate Bond Fund

(Identified Cost $4,523,436)

         46,150         5,004,506   
              

U.S. GOVERNMENT AGENCIES - 9.8%

         

Mortgage-Backed Securities - 9.8%

         

Fannie Mae, Pool #888468, 5.50%, 9/1/2021

       $     2,054,275         2,215,086   

Fannie Mae, Pool #995233, 5.50%, 10/1/2021

         136,132         146,959   

Fannie Mae, Pool #888017, 6.00%, 11/1/2021

         156,364         170,608   

Fannie Mae, Pool #995329, 5.50%, 12/1/2021

         1,210,769         1,305,549   

Fannie Mae, Pool #888136, 6.00%, 12/1/2021

         205,685         224,422   

Fannie Mae, Pool #888810, 5.50%, 11/1/2022

         2,169,029         2,338,823   

Fannie Mae, Pool #AD0462, 5.50%, 10/1/2024

         129,863         139,718   

Fannie Mae, Pool #889409, 6.00%, 5/1/2038

         2,922,364         3,179,102   

Freddie Mac, Pool #G11850, 5.50%, 7/1/2020

         666,781         719,186   

Freddie Mac, Pool #G12610, 6.00%, 3/1/2022

         209,422         228,695   

Freddie Mac, Pool #G12655, 6.00%, 5/1/2022

         143,019         156,181   

Freddie Mac, Pool #G12988, 6.00%, 1/1/2023

         117,388         127,971   

Freddie Mac, Pool #G13078, 6.00%, 3/1/2023

         205,681         224,610   
              

TOTAL U.S. GOVERNMENT AGENCIES
(Identified Cost $11,198,202)

                11,176,910   
              

 

12    The accompanying notes are an integral part of the financial statements.

Investment Portfolio - December 31, 2010

 

     Shares     

 

Value

(Note 2)

  

SHORT-TERM INVESTMENTS - 2.6%

      

Dreyfus Cash Management, Inc. - Institutional Shares5, 0.14%,

(Identified Cost $2,990,144)

      2,990,144       $ 2,990,144   
           

TOTAL INVESTMENTS - 98.9%
(Identified Cost $106,400,289)

         112,844,972   

OTHER ASSETS, LESS LIABILITIES - 1.1%

         1,213,042   
           

NET ASSETS - 100%

       $     114,058,014   
           

G.O. Bond - General Obligation Bond

1Credit ratings from Moody’s (unaudited).

2Credit ratings from S&P (unaudited).

3Restricted securities - Investment in securities that are restricted as to public resale under the Securities Act of 1933, as amended. These securities have been sold under rule 144A and have been determined to be liquid under guidelines established by the Board of Directors. These securities amount to $5,186,243, or 4.5% of the Series’ net assets as of December 31, 2010.

4The coupon rate is floating and is the stated rate as of December 31, 2010.

5Rate shown is the current yield as of December 31, 2010.

6The rate shown is the fixed rate as of December 31, 2010; the rate becomes floating in 2049.

 

The accompanying notes are an integral part of the financial statements.    13

Statement of Assets and Liabilities

December 31, 2010

 

 

ASSETS:

   

Investments, at value (identified cost $106,400,289) (Note 2)

    $ 112,844,972   

Interest receivable

      1,305,102   

Dividends receivable

      20,202   
        

TOTAL ASSETS

      114,170,276   
        

LIABILITIES:

   

Accrued management fees (Note 3)

      56,977   

Accrued fund accounting and administration fees (Note 3)

      7,124   

Accrued transfer agent fees (Note 3)

      428   

Accrued Chief Compliance Officer service fees (Note 3)

      243   

Audit fees payable

      30,977   

Registration fees payable

      6,988   

Printing fees payable

      5,813   

Other payables and accrued expenses

      3,712   
        

TOTAL LIABILITIES

      112,262   
        

TOTAL NET ASSETS

    $ 114,058,014   
        

NET ASSETS CONSIST OF:

   

Capital stock

    $ 104,226   

Additional paid-in-capital

      107,668,697   

Undistributed net investment income

      211,367   

Accumulated net realized loss on investments

      (370,959 ) 

Net unrealized appreciation on investments

      6,444,683   
        

TOTAL NET ASSETS

    $ 114,058,014   
        

NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE -
Class A ($114,058,014/10,422,646 shares)

    $ 10.94   
        

 

14    The accompanying notes are an integral part of the financial statements.

Statement of Operations

For the Year Ended December 31, 2010

 

 

INVESTMENT INCOME:

   

Interest

    $ 4,290,125   

Dividends

      309,634   
        

Total Investment Income

      4,599,759   
        

EXPENSES:

   

Management fees (Note 3)

      568,425   

Fund accounting and administration fees (Note 3)

      54,794   

Directors’ fees (Note 3)

      8,306   

Chief Compliance Officer service fees (Note 3)

      2,621   

Transfer agent fees (Note 3)

      2,554   

Custodian fees

      6,455   

Miscellaneous

      74,094   
        

Total Expenses

      717,249   

Less reduction of expenses (Note 3)

      (758 ) 
        

Net Expenses

      716,491   
        

NET INVESTMENT INCOME

      3,883,268   
        

REALIZED AND UNREALIZED GAIN ON INVESTMENTS:

   

Net realized gain on investments

      499,316   

Net change in unrealized appreciation on investments

      3,349,635   
        

NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS

      3,848,951   
        

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

    $ 7,732,219   
        

 

The accompanying notes are an integral part of the financial statements.    15

Statement of Changes in Net Assets

 

 

    

For the

Year Ended
12/31/10

      For the
Year Ended
12/31/09		  

INCREASE (DECREASE) IN NET ASSETS:

      

OPERATIONS:

      

Net investment income

    $ 3,883,268       $ 2,981,016   

Net realized gain on investments

      499,316         196,512   

Net change in unrealized appreciation on investments

      3,349,635         3,411,672   
                 

Net increase from operations

      7,732,219         6,589,200   
                 

DISTRIBUTIONS TO SHAREHOLDERS (Note 8):

      

From net investment income

      (3,683,326 )       (2,992,322 ) 
                 

CAPITAL STOCK ISSUED AND REPURCHASED:

      

Net increase from capital share transactions (Note 5)

      33,408,300         19,933,271   
                 

Net increase in net assets

      37,457,193         23,530,149   

NET ASSETS:

      

Beginning of year

      76,600,821         53,070,672   
                 

End of year (including undistributed net investment income of $211,367 and $1,751, respectively)

    $ 114,058,014       $ 76,600,821   
                 

 

16    The accompanying notes are an integral part of the financial statements.

Financial Highlights

 

 

            For the Years Ended         
     12/31/10      12/31/09      12/31/08      12/31/07      12/31/06  
Per share data (for a share outstanding throughout each year):               

Net asset value - Beginning of year

            $10.38                   $9.69                   $10.05                   $9.98                   $9.89       
                                            

Income (loss) from investment operations:

               

Net investment income

      0.451            0.491            0.45             0.42             0.36       

Net realized and unrealized gain (loss) on investments

      0.48             0.62             (0.30)            0.13             0.09       
                                            

Total from investment operations

      0.93             1.11             0.15             0.55             0.45       
                                            

Less distributions to shareholders:

               

From net investment income

      (0.37)            (0.42)            (0.46)            (0.42)            (0.36)      

From net realized gain on investments

      —             —             (0.05)            (0.06)            —       
                                            

Total distributions to shareholders

      (0.37)            (0.42)            (0.51)            (0.48)            (0.36)      
                                            

Net asset value - End of year

      $10.94             $10.38             $9.69             $10.05             $9.98       
                                            

Net assets - End of year
(000’s omitted)

      $114,058             $76,601             $53,071             $49,909             $45,696       
                                            

Total return2

      8.97%             11.46%             1.66%             5.58%             4.51%       

Ratios (to average net assets)/

Supplemental Data:

               

Expenses*

      0.76%             0.79%             0.80%             0.80%             0.80%       

Net investment income

      4.10%             4.84%             4.73%             4.21%             3.87%       

Portfolio turnover

      23%             67%             53%             346%             313%       

*The investment advisor did not impose all or a portion of its management fees, CCO fees, fund accounting and transfer agent fees, and other fees in some years and in some years paid a portion of the Series’ expenses. If these expenses had been incurred by the Series, the expense ratio (to average net assets) would have been increased by the following amounts:

 

     

     0.00%3             0.00%3             0.03%             0.04%             0.08%       

1Calculated based on average shares outstanding during the year.

2Represents aggregate total return for the year indicated, and assumes reinvestment of all distributions. Total return would have been lower had certain expenses not been waived or reimbursed during the years.

3Less than 0.01%.

 

The accompanying notes are an integral part of the financial statements.    17

Notes to Financial Statements

 

 

 

1.

ORGANIZATION

Core Bond Series (the “Series”) is a no-load diversified series of Manning & Napier Fund, Inc. (the “Fund”). The Fund is organized in Maryland and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company.

The Series’ investment objective is to provide long-term total return by investing primarily in investment-grade bonds and other financial instruments, including derivatives, with economic characteristics similar to bonds.

The Fund’s Advisor is Manning & Napier Advisors, Inc. (the “Advisor”). Shares of the Series are offered to investors, clients and employees of the Advisor and its affiliates. The total authorized capital stock of the Fund consists of 10.0 billion shares of common stock each having a par value of $0.01. As of December 31, 2010, 6.2 billion shares have been designated in total among 29 series, of which 125 million have been designated as Core Bond Series Class A common stock.

 

2.

SIGNIFICANT ACCOUNTING POLICIES

Security Valuation

Portfolio securities, including domestic equities, foreign equities, warrants and options, listed on an exchange other than the NASDAQ National Market System are valued at the latest 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 provided by the Fund’s pricing service. Securities listed on the NASDAQ National Market System are valued in accordance with the NASDAQ Official Closing Price.

Debt securities, including government bonds, foreign bonds, asset-backed securities, structured notes, supranational obligations, sovereign bonds, corporate bonds and mortgage-backed securities will normally be valued on the basis of evaluated bid prices provided directly by an independent pricing service. The pricing services use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the pricing services may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient market activity may not exist or is limited, the pricing services also utilize proprietary valuation models which may consider market characteristics such as benchmark yield curves, option-adjusted spreads, credit spreads, estimated default rates, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to calculate the fair value. Certain investments in securities held by the Series may be valued on a basis of a price provided directly by a principal market maker. These prices may differ from the value that would have been used had a broader market for securities existed.

Municipal securities will normally be valued on the basis of market valuations provided by an independent pricing service that utilizes the latest price quotations and a matrix system (which considers such factors as security prices of similar securities, yields, maturities and ratings).

Short-term investments that mature in sixty days or less are valued at amortized cost, which approximates market value. Investments in open-end investment companies are valued at their net asset value per share on valuation date.

Volume and level of activity in established markets for an asset or liability are evaluated to determine whether recent transactions and quoted prices are determinative of fair value. Where there have been significant decreases in volume and level of activity, further analysis and adjustment may be necessary to estimate fair value. The Series measures fair value in these instances by the use of inputs and valuation techniques which may be based upon current market prices of securities that are comparable in coupon, rating, maturity and industry and/or expectation of future cash flows. As a result of trading in relatively thin markets and/or markets that experience significant volatility,

 

18   

Notes to Financial Statements

 

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Security Valuation (continued)

the prices used by the Series to value these securities may differ from the value that would be realized if these securities were sold, and the differences could be material.

Securities for which representative valuations or prices are not available from the Fund’s pricing service may be valued at fair value. Due to the inherent uncertainty of valuations of such securities, the fair value may differ significantly from the values that would have been used had a ready market for such securities existed. If trading or events occurring after the close of the principal market in which securities are traded are expected to materially affect the value of those securities, then they may be valued at their fair value, taking this trading or these events into account. Fair value is determined in good faith by the Advisor under procedures approved by and under the general supervision and responsibility of the Fund’s Board of Directors (the “Board”).

Various inputs are used in determining the value of the Series’ assets or liabilities carried at market value. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical assets and liabilities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). Level 3 includes significant unobservable inputs (including the Series’ own assumptions in determining the fair value of investments). The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the valuation levels used for major security types as of December 31, 2010 in valuing the Series’ assets or liabilities carried at market value:

 

    Description    Total      Level 1      Level 2      Level 3  
 

Assets:

            
 

Equity securities*

    $ —       $ —       $ —       $ —   
 

Preferred securities

      2,390,009         —         2,390,009         —   
 

Debt securities:

            
 

U.S. Treasury and other U.S. Government agencies

      11,176,910         —         11,176,910         —   
 

States and political subdivisions (municipals)

      1,021,790         —         1,021,790         —   
 

Corporate debt

      83,659,902         —         83,659,902         —   
 

Convertible corporate debt

      1,245,719         —         1,245,719         —   
 

Asset backed securities

      1,110,751         —         1,110,751         —   
 

Commercial mortgage backed securities

      4,245,241         —         4,245,241         —   
 

Mutual funds

      7,994,650         7,994,650         —         —   
 

Other financial instruments**:

      —         —         —         —   
                                     
 

Total assets:

      112,844,972         7,994,650         104,850,322         —   
                                     
 

Liabilities:

            
 

Other financial instruments**:

      —         —         —         —   
 

Total liabilities:

      —         —         —         —   
                                     
 

Total

    $     112,844,972       $       7,994,650       $     104,850,322       $                       —   
                                     

*Includes common stock, warrants and rights. Please see the Investment Portfolio for industry classification.

 

   19

Notes to Financial Statements

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Security Valuation (continued)

**Other financial instruments are derivative instruments not reflected in the Investment Portfolio, such as futures, forwards and swap contracts, which are valued at the unrealized appreciation/depreciation on the instrument. As of December 31, 2010, the Series did not hold any derivative instruments.

There were no Level 3 securities held by the Series as of December 31, 2009 or December 31, 2010.

The Fund’s policy is to recognize transfers in and transfers out of the valuation levels as of the beginning of the reporting period. There were no significant transfers between Level 1 and Level 2 during the year ended December 31, 2010.

Additional disclosure surrounding the activity in Level 3 fair value measurement will be effective for fiscal years beginning after December 15, 2010. Management has concluded that this will not have a material impact on the Series’ financial statements.

Security Transactions, Investment Income and Expenses

Security transactions are accounted for on trade date. Dividend income is recorded on the ex-dividend date, except that if the ex-dividend date has passed, certain dividends from foreign securities are recorded as soon as the Fund is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Interest income, including amortization of premium and accretion of discounts using the effective interest method, is earned from settlement date and accrued daily.

Expenses are recorded on an accrual basis. Most expenses of the Fund can be attributed to a specific series. Expenses which cannot be directly attributed are apportioned among the series in the Fund in such a manner as deemed equitable by the Fund’s Board, taking into consideration, among other things, the nature and type of expense.

The Series uses the identified cost method for determining realized gain or loss on investments for both financial statement and federal income tax reporting purposes.

Foreign Currency Translation

The books and records of the Series are maintained in U.S. dollars. Foreign currencies, investments and other assets and liabilities are translated into U.S. dollars at the current exchange rates. Purchases and sales of investment securities and income and expenses are translated on the respective dates of such transactions. The Series does not isolate realized and unrealized gains and losses attributable to changes in the exchange rates from gains and losses that arise from changes in the market value of investments. Such fluctuations are included with net realized and unrealized gain or loss on investments. Net realized foreign currency gains and losses represent foreign currency gains and losses between trade date and settlement date on securities transactions, gains and losses on disposition of foreign currencies and the difference between the amount of income and foreign withholding taxes recorded on the books of the Series and the amounts actually received or paid.

Securities Purchased on a When-Issued Basis or Forward Commitment

The Series may purchase securities on a when-issued basis or forward commitment. These transactions involve a commitment by the Series to purchase securities for a predetermined price with payment and delivery taking place beyond the customary settlement period. When such purchases are outstanding, the Series will designate liquid assets in an amount sufficient to meet the purchase price. When purchasing a security on a delayed delivery basis, the Series assumes the rights and risks of ownership of the security, including the risk of price and yield fluctuations, and takes such fluctuations into account when determining its net asset value. The Series may sell the when-issued securities before they are delivered, which may result in a capital gain or loss. No such investments were held by the Series as of December 31, 2010.

 

20   

Notes to Financial Statements

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Securities Purchased on a When-Issued Basis or Forward Commitment (continued)

In connection with its ability to purchase or sell securities on a forward commitment basis, the Series may enter into forward roll transactions principally using To Be Announced (TBA) securities. Forward roll transactions require the sale of securities for delivery in the current month, and a simultaneous agreement to repurchase substantially similar (same type, coupon and maturity) securities on a specified future date. Risks of entering into forward roll transactions include the potential inability of the counterparty to meet the terms of the agreement; the potential of the Series to receive inferior securities at redelivery as compared to the securities sold to the counterparty; counterparty credit risk; and the potential pay down speed variance between the mortgage-backed pools. During the roll period, the Series forgoes principal and interest paid on the securities. The Series accounts for such dollar rolls as purchases and sales. Information regarding securities purchased on a when-issued basis is included in the Series’ Investment Portfolio. No such investments were held by the Series as of December 31, 2010.

Restricted Securities

Restricted securities are purchased in private placement transactions, are not registered under the Securities Act of 1933, as amended, and may have contractual restrictions on resale. Information regarding restricted securities is included at the end of the Series’ Investment Portfolio.

Illiquid Securities

A security may be considered illiquid if so deemed in good faith by the Advisor under procedures approved by and under the general supervision and responsibility of the Fund’s Board. Securities that are illiquid are marked with the applicable footnote on the Investment Portfolio. No such investments were held by the Series on December 31, 2010.

Federal Taxes

The Series’ policy is to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. The Series is not subject to federal income tax or excise tax to the extent that the Series 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.

Management evaluates its tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of tax benefits of an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. At December 31, 2010, the Series has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken in future tax returns.

The Series files income tax returns in the U.S. federal jurisdiction, various states and foreign jurisdictions, as required. No income tax returns are currently under investigation. The statute of limitations on the Series’ tax returns remains open for the years ended December 31, 2007 through December 31, 2010. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.

Additionally, based on the Fund’s understanding of the tax rules and rates related to income, gains and transactions for foreign jurisdictions in which it invests, the Series will provide for foreign taxes, and where appropriate, deferred foreign tax.

 

   21

Notes to Financial Statements

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Distributions of Income and Gains

Distributions to shareholders of net investment income and net realized gains are made annually. An additional distribution may be necessary to avoid taxation of the Series. Distributions are recorded on the ex-dividend date.

Indemnifications

The Fund’s organizational documents provide former and current directors and officers with a limited indemnification against liabilities arising in connection with the performance of their duties to the Fund. In the normal course of business, the Fund may also enter into contracts that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would be dependent on future claims that may be made against the Fund. The risk of material loss from such claims is considered remote.

Other

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 income and expenses during the reporting period. Actual results could differ from those estimates.

 

3.

TRANSACTIONS WITH AFFILIATES

The Fund has an Investment Advisory Agreement (the “Agreement”) with the Advisor, for which the Series pays a fee, computed daily and payable monthly, at an annual rate of 0.60% of the Series’ average daily net assets.

Under the Agreement, personnel of the Advisor provide the Series with advice and assistance in the choice of investments and the execution of securities transactions, and otherwise maintain the Series’ organization. The Advisor also provides the Fund with necessary office space and fund administration and support services. The salaries of all officers of the Fund (except a percentage of the Fund’s Chief Compliance Officer’s salary, which is paid by 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. Each “non-affiliated” Director receives an annual stipend, which is allocated among all the active series of the Fund. In addition, these Directors also receive a fee per Board meeting attended plus a fee for each committee meeting attended.

The Advisor has contractually agreed, until at least April 30, 2012, to waive its fee and, if necessary, pay other operating expenses of the Series in order to maintain total direct annual fund operating expenses for the Series at no more than 0.80% of average daily net assets each year. For the year ended December 31, 2010, the Advisor voluntarily waived fees of $758, which is included as a reduction of expenses on the Statement of Operations. The Advisor is not eligible to recoup any expenses that have been waived or reimbursed in prior years.

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 Series.

The Advisor has agreements with PNC Global Investment Servicing (U.S.) Inc. (“PNCGIS”) under which PNCGIS serves as sub-accountant services agent and sub- transfer agent. The Fund pays the Advisor an annual fee related to fund accounting and administration of 0.0175% on the first $3 billion of average daily net assets (excluding Target Series); 0.015% on the next $3 billion of average daily net assets (excluding Target Series); and 0.01% of the average daily net assets in excess of $6 billion (excluding Target Series); plus a base fee of $25,500 per Series.

 

22   

Notes to Financial Statements

 

 

3.

TRANSACTIONS WITH AFFILIATES (continued)

Transfer Agent fees are charged to the Fund on a per account basis. Additionally, certain transaction- and cusip-based fees and out-of-pocket expenses, including charges for reporting relating to the Fund’s compliance program, are charged.

Effective July 1, 2010, PNCGIS was sold to The Bank of New York Mellon Corporation, the Series’ custodian. At the close of the sale, PNCGIS changed its name to BNY Mellon Investment Servicing (U.S.) Inc. (“BNY”).

Expenses not directly attributable to a Series are allocated based on each Series’ relative net assets or number of accounts, depending on the expense.

 

4.

PURCHASES AND SALES OF SECURITIES

For the year ended December 31, 2010, purchases and sales of securities, other than U.S. Government securities and short-term securities, were $41,886,293 and $9,417,688, respectively. Purchases and sales of U.S. Government securities, other than short-term securities, were $12,562,768 and $11,446,569, respectively.

 

5.

CAPITAL STOCK TRANSACTIONS

Transactions in shares of Core Bond Series were:

 

    

For the Year

Ended 12/31/10

    

For the Year

Ended 12/31/09

  
     Shares     Amount     Shares     Amount  

Sold

      3,256,147      $ 35,669,098        2,334,851      $ 24,190,684   

Reinvested

      338,001        3,639,306        282,320        2,942,598   

Repurchased

      (553,027 )      (5,900,104 )      (711,761 )      (7,200,011 ) 
                                

Total

      3,041,121        33,408,300        1,905,410        19,933,271   
                                

Substantially all of the Series’ shares represent investments by fiduciary accounts over which the Advisor has sole investment discretion.

 

6.

FINANCIAL INSTRUMENTS

The Series may trade in instruments including written and purchased options, forward foreign currency exchange contracts and futures contracts and other derivatives in the normal course of investing activities to assist in managing exposure to various market risks. Investments in these instruments may subject the Series to various elements of risk, which may involve, to a varying degree, elements of risk in excess of the amounts recognized for financial statement purposes. These risks include: the risk that changes in the value of a derivative may not correlate perfectly with the underlying asset, rate or index, counterparty credit risk related to over the counter derivatives counterparties’ failure to perform under contract terms, liquidity risk related to the lack of a liquid market for these contracts allowing the fund to close out its position(s) and documentation risk relating to disagreement over contract terms. No such investments were held by the Series during the year ended December 31, 2010.

 

7.

FOREIGN SECURITIES

Investing in securities of foreign companies and foreign governments involves special risks and considerations not typically associated with investing in securities of domestic companies and the U.S. Government. These risks include revaluation of currencies and future adverse political and economic developments. Moreover, securities of foreign companies and foreign governments and their markets may be less liquid and their prices more volatile than those of comparable domestic companies and the U.S. Government.

 

   23

Notes to Financial Statements

 

 

8.

FEDERAL INCOME TAX INFORMATION

The amount and characterization of certain income and capital gains to be distributed are determined in accordance with federal income tax regulations, which may differ from accounting principles generally accepted in the United States of America. These differences are primarily due to differing book and tax treatments in the timing of the recognition of net investment income or gains and losses, including investments in hybrid securities. The Series may periodically make reclassifications among its capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations without impacting the Series’ net asset value. Any such reclassifications are not reflected in the financial highlights.

The tax character of distributions paid were as follows:

 

    

For the Year

Ended
12/31/10

     

For the Year

Ended
12/31/09

  

Ordinary income

    $ 3,683,326       $ 2,992,322   

At December 31, 2010, the tax basis of distributable earnings and the net unrealized appreciation based on identified cost for federal income tax purposes were as follows:

 

Cost for federal income tax purposes

    $ 106,472,401     

Unrealized appreciation

    $ 6,690,312     

Unrealized depreciation

      (317,741 )   
          

Net unrealized appreciation

    $ 6,372,571     
          

Undistributed ordinary income

      234,229     

Capital loss carryover

      370,960     

At December 31, 2010, the capital loss carryover, disclosed above, available to the extent allowed by tax law to offset future net capital gain, if any, will expire as follows:

 

         Loss Carryover      Expiration Date
       $350,661       December 31, 2016
       20,299       December 31, 2017

The capital loss carryover utilized in the current year was $489,642.

 

24   

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors of Manning & Napier Fund, Inc. and Shareholders of Core Bond Series:

In our opinion, the accompanying statement of assets and liabilities, including the investment portfolio, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the Core Bond Series (a series of Manning & Napier Fund, Inc., hereafter referred to as the “Series”) at December 31, 2010, and 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 five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Series’ management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2010 by correspondence with the custodian, provide a reasonable basis for our opinion.

LOGO

New York, New York

February 22, 2011

 

   25

Supplemental Tax Information (unaudited)

 

All designations are based on financial information available as of the date of this annual report and, accordingly are subject to change.

For federal income tax purposes, the Series designates for the current fiscal year $94,940 or, if different, the maximum amount allowable under the tax law as qualified dividend income.

For corporate shareholders, the percentage of investment income (dividend income plus short-term gain, if any) that qualifies for the dividends received deduction for the current fiscal year is 2.58%, or if different, the maximum allowable under tax law.

 

26   

Renewal of Investment Advisory Agreement (unaudited)

 

At the Manning & Napier Fund, Inc. (the “Fund”) Board of Directors’ (the “Board”) meeting, held on November 17, 2010, the Investment Advisory Agreement (the “Agreement”) between the Fund and Manning & Napier Advisors, Inc. (the “Advisor”) was reviewed by the Board for renewal. In connection with the decision whether to renew the Agreement, a variety of material was prepared for and reviewed by the Board.

Representatives of the Advisor attended the meeting and presented additional oral and written information to the Board to assist the Board in its considerations. The discussion immediately below outlines the materials and information presented to the Board in connection with the Board’s 2010 Annual Review of the Agreement and the conclusions made by the Directors when determining to continue the Agreement.

 

  •  

The Board considered the services provided by the Advisor under the Agreement including, among others: deciding what securities to purchase and sell for each Series; arranging for the purchase and sale of such securities by placing orders with broker-dealers; administering the affairs of the Fund (including the books and records of the Fund not maintained by third party service providers such as the custodian or sub-transfer agent); arranging for the insurance coverage for the Fund; and supervising the preparation of tax returns, SEC filings (including registration statements) and reports to shareholders for the Fund. The Board also considered the nature and quality of such services provided under the Agreement in light of the Advisor’s services provided to the Fund for 24 years. The Board discussed the quality of these services with representatives from the Advisor and concluded that the Advisor was performing its services to the Fund required under the Agreement in a reasonable manner.

 

  •  

The Board considered the investment performance of the various Series of the Fund. The investment performance for each Series was reviewed on a cumulative basis since inception and on a one year basis. In addition, annualized performance for the following time periods was considered: inception, three year, five year, ten year, and current market cycle. A market cycle includes periods of both rising and falling markets. Returns for established benchmark indices for each Series were provided for each time period. The Board noted that the various Series were competitive against their respective benchmarks and/or peer groups over various time periods, but in particular over the full market cycle period relevant for the Series. In addition, the Board considered at the meeting (and considers on a quarterly basis) a peer group performance analysis consisting of Morningstar universes of mutual funds with similar investment objectives. The Board discussed the performance with representatives from the Advisor and concluded that the investment performance of each of the Fund’s Series was reasonable based on the Fund’s actual performance and comparative performance, especially performance over the current market cycle.

 

  •  

The Board considered the costs of the Advisor’s services and the profits of the Advisor as they relate to the Advisor’s services to the Fund under the Agreement. In reviewing the Advisor’s costs and profits, the Board discussed the Advisor’s revenues generated from the Fund (on both an actual and adjusted basis) and its expenses associated with providing the services under the Agreement. In addition, the Board reviewed the Advisor’s expenses associated with Fund activities outside of the Agreement (such as expense reimbursements pursuant to expense caps and payments made by the Advisor to third party platforms on which shares of the Fund are available for purchase). It was noted by representatives of the Advisor that 11 of the 27 active Series of the Fund are currently experiencing expenses above the capped expense ratios. After discussing the above costs and profits, the Board concluded that the Advisor’s profitability relating to its services provided under the Agreement was reasonable.

 

  •  

The Board considered the fees and expenses of the various Series of the Fund. The Advisor presented the advisory fees and total expenses for each Series, including the advisory fee adjusted for any expense waivers or reimbursements (either contractual or voluntary) paid by the Advisor. The advisory fees and expense ratios of each Series were compared to an average (on both a mean and median basis) of similar funds as disclosed on the Morningstar database. Representatives of the Advisor discussed with the Board the levels of its advisory

 

   27

Renewal of Investment Advisory Agreement (unaudited)

 

fee for each Series of the Fund and as compared to the median and mean advisory fees for similar funds as listed on Morningstar. Expense ratios for every Series, except the Pro-Blend’s Class R and Class C, and Target Class R and Class C, are currently below the median and mean for similar funds as listed on Morningstar. Based on their review of the information provided, the Board concluded that the fees and expenses of each Series of the Fund were reasonable on a comparative basis.

 

  •  

The Board also considered the other benefits the Advisor derives from its relationship with the Fund. Such other benefits include certain research products provided by soft dollars. Given the level of soft dollar transactions involving the Fund, the Board concluded that these additional benefits to the Advisor were reasonable.

 

  •  

In addition to the factors described above, the Board considered the Advisor’s personnel, investment strategies, policies and procedures relating to compliance with personal securities transactions, and reputation, expertise and resources in domestic and foreign financial markets. The Board concluded that these factors support the conclusion that the Advisor performs its services in a reasonable manner.

 

  •  

The Board did not consider economies of scale at this time because of the multiple uses of the Fund (for the Advisor’s discretionary investment account clients in addition to direct investors), the current profitability of the Advisor’s services to the Fund under the Agreement, and the overall size of the Fund complex.

Based on the Board’s deliberations and their evaluation of the information described above, the Board, including a majority of Directors that are not “interested persons” as defined in the Investment Company Act of 1940, concluded that the compensation under the Agreement was fair and reasonable in light of the services and expenses and such other matters as the Directors considered to be relevant in the exercise of their reasonable judgment. Accordingly, the Board approved the renewal of the Agreement. In the course of their deliberations, the Directors did not identify any particular information that was all important or controlling.

 

28   

Directors’ and Officers’ Information (unaudited)

 

The Statement of Additional Information provides additional information about the Fund’s directors and officers and can be obtained without charge by calling 1-800-466-3863, at www.manningnapieradvisors.com, or on the EDGAR Database on the SEC Internet web site (http:// www.sec.gov). The following chart shows certain information about the Fund’s officers and directors, including their principal occupations during the last five years. Unless specific dates are provided, the individuals have held the listed positions for longer than five years.

INTERESTED DIRECTOR/OFFICER

 

Name:

   B. Reuben Auspitz*

Address:

  

290 Woodcliff Drive

Fairport, NY 14450

Age:

   63

Current Position(s) Held with Fund:

   Principal Executive Officer, President, Chairman & Director

Term of Office1 & Length of Time Served:

   Indefinite - Director since 1984; Vice President 1984 - 2003; President since 2004; Principal Executive Officer since 2002

Principal Occupation(s) During Past 5 Years:

   Executive Vice President; Executive Group Member**; Chief Compliance Officer since 2004; Vice Chairman since June 2010; Co-Executive Director from 2003-2010 - Manning & Napier Advisors, Inc. President; Director - Manning & Napier Investor Services, Inc. Holds or has held one or more of the following titles for various subsidiaries and affiliates: President, Vice President, Director, Chairman, Treasurer, Chief Compliance Officer or Member.

Number of Portfolios Overseen within Fund Complex:

   29

Other Directorships Held Outside Fund Complex:

   N/A

 

INDEPENDENT DIRECTORS

  

Name:

   Paul A. Brooke

Address:

  

290 Woodcliff Drive

Fairport, NY 14450

Age:

   65

Current Position(s) Held with Fund:

  

Director, Audit Committee Member, Governance & Nominating

Committee Member

Term of Office & Length of Time Served:

   Indefinite - Since 2007

Principal Occupation(s) During Past 5 Years:

   Chairman & CEO, Alsius Corp. (investments); Managing Member, PMSV Holdings LLC (investments)

Number of Portfolios Overseen within Fund Complex:

   29

Other Directorships Held Outside Fund Complex:

  

Incyte Corp. (2000-present)

ViroPharma, Inc. (2000-present)

HLTH Corp. (2000-present)

Cheyne Capital International (2000-present)

MPM Bio-equities (2000-present)

GMP Companies (2000-present)

HoustonPharma (2000-present)

Name:

   Richard M. Hurwitz

Address:

  

290 Woodcliff Drive

Fairport, NY 14450

Age:

   47

Current Position(s) Held with Fund:

   Director, Audit Committee Member, Governance & Nominating Committee Member

Term of Office & Length of Time Served:

   Indefinite - Since 2009

Principal Occupation(s) During Past 5 Years:

  

Chief Executive Officer, Pictometry International Corp. since August 2010 (provider of georeferenced, aerial image libraries and related software)

Managing Partner (2006-July 2010) - Aegis Investment Partners, LLC (investments); Founder and Managing Partner (2004-2005) - Village Markets, LLC (groceries)

Number of Portfolios Overseen within Fund Complex:

   29

Other Directorships Held Outside Fund Complex:

  

Pictometry International Corp. (2000-2010)

Pioneering Technologies (2006-2009)

Vensearch Capital Corp. (2003-2007)

 

 

   29

Directors’ and Officers’ Information (unaudited)

 

INDEPENDENT DIRECTORS (continued)

Name:

    Stephen B. Ashley

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    70

Current Position(s) Held with Fund:

    Director, Audit Committee Member, Governance & Nominating Committee Member

Term of Office & Length of Time Served:

    Indefinite - Since 1996

Principal Occupation(s) During Past 5 Years:

    Chairman, Director, President & Chief Executive Officer, The Ashley Group (property management and investment). Chairman (non-executive) 2004-2008; Director 1995-2008 - Fannie Mae (mortgage)

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    The Ashley Group (1995-2008)
     Genesee Corporation (1987-2007)
      

 

Name:

    Peter L. Faber

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    72

Current Position(s) Held with Fund:

    Director, Governance & Nominating Committee Member

Term of Office & Length of Time Served:

    Indefinite - Since 1987

Principal Occupation(s) During Past 5 Years:

    Senior Counsel since 2006, Partner (1995 - 2006) - McDermott, Will & Emery LLP (law firm)

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    Partnership for New York City, Inc. (non-profit)
   New York Collegium (non-profit)
     Boston Early Music Festival (non-profit)
      

 

Name:

    Harris H. Rusitzky

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    76

Current Position(s) Held with Fund:

    Director, Audit Committee Member, Governance & Nominating Committee Member

Term of Office & Length of Time Served:

    Indefinite - Since 1985

Principal Occupation(s) During Past 5 Years:

    President, The Greening Group (business consultants) since 1994; Partner, The Restaurant Group (restaurants) since 2006

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A
      

 

OFFICERS

   

Name:

    Jeffrey S. Coons, Ph.D., CFA

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    47

Current Position(s) Held with Fund:

    Vice President

Term of Office1 & Length of Time Served:

    Since 2004

Principal Occupation(s) During Past 5 Years:

    President since 2010, Co-Director of Research since 2002, Executive Group Member** since 2003, - Manning & Napier Advisors, Inc. Holds one or more of the following titles for various subsidiaries and
   affiliates: President, Director, Treasurer or Senior Trust Officer.

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

 

   

N/A

 

 

30   

Directors’ and Officers’ Information (unaudited)

 

OFFICERS (continued)

 

Name:

    Beth Galusha

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    49

Current Position(s) Held with Fund:

    Assistant Chief Financial Officer

Term of Office1 & Length of Time Served:

    Assistant Chief Financial Officer since 2010

Principal Occupation(s) During Past 5 Years:

    Chief Financial Officer and Treasurer, Manning & Napier Advisors, Inc.
   Holds one or more of the following titles for various affiliates: Chief Financial Officer, Director, or Treasurer

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A

 

Name:

    Christine Glavin

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    44

Current Position(s) Held with Fund:

    Principal Financial Officer, Chief Financial Officer

Term of Office1 & Length of Time Served:

    Principal Financial Officer since 2002; Chief Financial Officer since 2001

Principal Occupation(s) During Past 5 Years:

    Fund Reporting Manager, Manning & Napier Advisors, Inc. since 1997

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A

 

Name:

    Jodi L. Hedberg

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    43

Current Position(s) Held with Fund:

    Corporate Secretary, Chief Compliance Officer, Anti-Money Laundering Compliance Officer

Term of Office1 & Length of Time Served:

    Corporate Secretary since 1997; Chief Compliance Officer since 2004

Principal Occupation(s) During Past 5 Years:

    Director of Compliance, Manning & Napier Advisors, Inc. and affiliates since 1990 (title change in 2005 from Compliance Manager to Director of Compliance); Corporate Secretary, Manning & Napier Investor Services,
   Inc. since 2006

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A

 

Name:

    Richard Yates

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    45

Current Position(s) Held with Fund:

    Chief Legal Officer

Term of Office1 & Length of Time Served:

    Chief Legal Officer since 2004

Principal Occupation(s) During Past 5 Years:

    Counsel - Manning & Napier Advisors, Inc. & affiliates since 2000; Holds one or more of the following titles for various affiliates; Director or Corporate Secretary

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A

*Interested Director, within the meaning of the Investment Company Act of 1940 by reason of his position with the Fund’s investment advisor and distributor. Mr. Auspitz serves as the Executive Vice President and Director, Manning & Napier Advisors, Inc. and President and Director, Manning & Napier Investor Services, Inc., the Fund’s distributor.

**Prior to June 2010, the Executive Group, consisting of senior executive employee-owners, performed the duties of the Office of the Chief Executive of the Advisor. Effective June 2010, the Executive Group serves as an advisory board to the Chief Executive Officer.

1The term of office for President, Vice President, Chief Financial Officer, Assistant Chief Financial Officer, Chief Legal Officer and Corporate Secretary is one year and until their respective successors are chosen and qualified. All other officers’ terms are indefinite.

 

   31

 

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32

 

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   33

Literature Requests (unaudited)

 

Proxy Voting Policies and Procedures

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request:

 

By phone

   

1-800-466-3863

On the Securities and Exchange Commission’s (SEC) web site

   

http://www.sec.gov

Proxy Voting Record

Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available, without charge, upon request:

 

By phone

   

1-800-466-3863

On the SEC’s web site

   

http://www.sec.gov

Quarterly Portfolio Holdings

The Series’ complete schedule of portfolio holdings for the 1st and 3rd quarters of each fiscal year are provided on Form N-Q, and are available, without charge, upon request:

 

By phone

   

1-800-466-3863

On the SEC’s web site

   

http://www.sec.gov

The Series’ Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.

Prospectus and Statement of Additional Information (SAI)

The prospectus and SAI provide additional information about each Series, including charges, expenses and risks. These documents are available, without charge, upon request:

 

By phone

   

1-800-466-3863

On the SEC’s web site

   

http://www.sec.gov

On the Advisor’s web site

   

http://www.manning-napier.com

Additional information available at www.manning-napier.com

1. Fund Holdings - Month-End

2. Fund Holdings - Quarter-End

3. Shareholder Report - Annual

4. Shareholder Report - Semi-Annual

 

 

MNCRBND-12/10-AR

 

  

LOGO

 

Management Discussion and Analysis (unaudited)

 

Dear Shareholders:

As well-defined swings in sentiment drove market fluctuations in 2010, the fixed income markets had favorable results for the year. Returns were broadly positive throughout the first three quarters of the year, with higher gains during the stock market pullback in the second quarter. However, while equities finished the year with a strong rally, fixed income markets generally took a negative turn at the end of the year. After eight consecutive quarters of positive performance, broad fixed income markets suffered losses in the fourth quarter.

Overall, corporate bonds were the best performing sector during 2010, with below investment grade securities experiencing significant gains. Mortgage securities and U.S. Treasury securities also performed well, particularly intermediate and longer-term U.S. Treasuries. While municipal bonds posted positive results for the year, the sector had the weakest returns in 2010, as credit concerns and supply and demand changes caused noteworthy losses during the last quarter.

The Bank of America Merrill Lynch U.S. Corporate, Government and Mortgage Index earned a solid 6.43% during the year. With a return of 10.18%, the Core Plus Bond Series noticeably outpaced its benchmark.

Throughout 2010, the Core Plus Bond Series has maintained a heavy weighting to corporate bonds, including below investment grade corporate securities, because the Advisor believes the supply and demand dynamics within this sector remain attractive. As of the end of the year, the Series had 86.6% of its assets invested in corporate bonds and preferred stocks, and this significant allocation to corporate bonds was the primary driver of outperformance over the past year. Within that sector weighting, the Series had a 19.7% allocation to corporate bonds rated below investment grade, which is near the 20% limit for the Series.

As the markets unfold in 2011, it will be important to monitor trends such as monetary policy and inflation expectations. With this mindset, Manning & Napier remains committed to our active investment approach to fixed income. With our fundamentals-based investment strategies, we will continue to use tools such as sector, maturity, quality, and issue selections to take advantage of market opportunities and manage risk throughout the full bond market cycle. Staying focused on the fundamentals and maintaining our selective investment process helped us earn strong returns through the volatile markets of 2010, and we believe these qualities will remain important in the environment ahead.

As always, we appreciate your business.

Sincerely,

Manning & Napier Advisors, Inc.

 

   1

Performance Update as of December 31, 2010 (unaudited)

 

 

     

Average Annual Total Returns
As of December 31, 2010

     

One

Year

  

Five

Year

  

Since

Inception1

 

Manning & Napier Fund, Inc. - Core Plus Bond Series2

    10.18%   6.84%   6.17%

 

Bank of America (BofA) Merrill Lynch U.S. Corporate, Government & Mortgage Index3

    6.43%   5.87%   5.50%

The following graph compares the value of a $10,000 investment in the Manning & Napier Fund, Inc. - Core Plus Bond Series from its inception1 (4/21/05) to present (12/31/10) to the BofA Merrill Lynch U.S. Corporate, Government & Mortgage Index.

LOGO

1Performance numbers for the Series and Index are calculated from April 21, 2005, the Series’ inception date.

2The Series’ performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. The Series’ performance is historical and may not be indicative of future results. The performance returns shown are inclusive of the net expense ratio of the Series. For the year ended December 31, 2010, this net expense ratio was 0.76%. The gross expense ratio, which does not account for any voluntary or contractual waivers currently in effect, was 0.76% for the year ended December 31, 2010.

3The unmanaged BofA Merrill Lynch U.S. Corporate, Government & Mortgage Index (formerly a Merrill Lynch Index) is a market value weighted measure that represents U.S. government, corporate, and pass-through securities issued by entities within the United States, by supranational entities, or by entities headquartered outside of the United States but who have issued dollar-denominated securities within the United States. The Index only includes investment-grade securities with maturities of greater than one year. The Index returns assume reinvestment of coupons and, unlike Series returns, do not reflect any fees or expenses.

 

2   

Shareholder Expense Example (unaudited)

 

 

As a shareholder of the Series, you may incur two types of costs: (1) transaction costs and (2) ongoing costs, including management fees and other Series expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Series and to compare these costs with the ongoing costs of investing in other mutual funds.

The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (July 1, 2010 to December 31, 2010).

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Series’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Series’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid during the period. You may use this information to compare the ongoing costs of investing in the Series and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.

 

 

    

Beginning

Account Value

7/1/10

   

Ending

Account Value

12/31/10

   

Expenses Paid

During Period*

7/1/10-12/31/10

Actual

    $1,000.00    $1,042.20    $3.91

Hypothetical (5% return before expenses)

    $1,000.00    $1,021.37    $3.87

*Expenses are equal to the Series’ annualized expense ratio (for the six-month period) of 0.76%, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Expenses are based on the most recent fiscal half year; therefore, the expense ratio stated above may differ from the expense ratio stated in the financial highlights, which is based on one-year data. The Series’ total return would have been lower had certain expenses not been waived during the period.

 

   3

Portfolio Composition as of December 31, 2010 (unaudited)

 

LOGO

 

4   

Investment Portfolio - December 31, 2010

 

    

Credit

Rating1

(unaudited)

    

Principal

Amount

     

Value

(Note 2)

  

CORPORATE BONDS - 80.9%

        

Convertible Corporate Bonds - 1.2%

        

Health Care - 0.7%

        

Biotechnology - 0.6%

        

Amgen, Inc., 0.375%, 2/1/2013

      A3      $ 3,270,000       $       3,270,000   
             

Health Care Equipment & Supplies - 0.1%

        

Medtronic, Inc., 1.625%, 4/15/2013

      A1        665,000         669,156   
             

Total Health Care

           3,939,156   
             

Information Technology - 0.5%

        

Computers & Peripherals - 0.5%

        

EMC Corp., 1.75%, 12/1/2013

      A 2      1,685,000         2,538,031   
             

Total Convertible Corporate Bonds

        

(Identified Cost $5,940,689)

           6,477,187   
             

Non-Convertible Corporate Bonds - 79.7%

        

Consumer Discretionary - 13.1%

        

Hotels, Restaurants & Leisure - 1.8%

        

Cedar Fair LP - Canada’s Wonderland Co. - Magnum Management Corp.3, 9.125%, 8/1/2018

      B2        1,000,000         1,076,250   

International Game Technology, 7.50%, 6/15/2019

      Baa2        5,505,000         6,196,769   

Wendy’s - Arby’s Restaurants LLC, 10.00%, 7/15/2016

      B3        1,000,000         1,085,000   

Wyndham Worldwide Corp., 9.875%, 5/1/2014

      Ba1        405,000         474,252   

Wyndham Worldwide Corp., 6.00%, 12/1/2016

      Ba1        800,000         837,148   
             
       

 

 

 

9,669,419

 

  

             

Household Durables - 1.8%

        

Fortune Brands, Inc., 5.375%, 1/15/2016

      Baa3        4,485,000         4,638,140   

Newell Rubbermaid, Inc., 4.70%, 8/15/2020

      Baa3        5,000,000         4,959,745   
             
       

 

 

 

9,597,885

 

  

             

Media - 5.9%

        

Cablevision Systems Corp., 8.625%, 9/15/2017

      B1        1,965,000         2,139,394   

Columbus International, Inc. (Barbados)3, 11.50%, 11/20/2014

      B2        900,000         999,000   

Comcast Corp., 6.50%, 11/15/2035

      Baa1        4,540,000         4,879,456   

Comcast Corp., 6.95%, 8/15/2037

      Baa1        1,855,000         2,098,131   

DIRECTV Holdings LLC, 5.20%, 3/15/2020

      Baa2        4,710,000         4,882,777   

Discovery Communications LLC, 5.05%, 6/1/2020

      Baa2        4,875,000         5,155,137   

MDC Partners, Inc. (Canada), 11.00%, 11/1/2016

      B2        500,000         551,250   

Sirius XM Radio, Inc.3, 9.75%, 9/1/2015

      Ba3        1,405,000         1,577,113   

Time Warner, Inc., 7.625%, 4/15/2031

      Baa2        4,105,000         4,990,379   

Unitymedia Hessen GmbH & Co. KG - Unitymedia NRW GmbH (Germany)3, 8.125%, 12/1/2017

      B1      EUR       600,000         848,890   

UPC Holding B.V. (Netherlands)3, 9.875%, 4/15/2018

      B2      $ 1,405,000         1,538,475   

Virgin Media Finance plc, Series 1 (United Kingdom), 9.50%, 8/15/2016

      Ba3        1,000,000         1,130,000   

 

The accompanying notes are an integral part of the financial statements.    5

Investment Portfolio - December 31, 2010

 

    

Credit

Rating1

(unaudited)

     

Principal

Amount

     

Value

(Note 2)

  

CORPORATE BONDS (continued)

         

Non-Convertible Corporate Bonds (continued)

         

Consumer Discretionary (continued)

         

Media (continued)

         

WMG Acquisition Corp., 9.50%, 6/15/2016

      Ba2       $         1,000,000       $       1,072,500   
              
        

 

 

 

31,862,502

 

  

              

Multiline Retail - 0.7%

         

Target Corp., 6.00%, 1/15/2018

      A2         3,225,000         3,733,666   
              

Specialty Retail - 2.3%

         

AutoZone, Inc., 4.00%, 11/15/2020

      Baa2         1,650,000         1,558,379   

The Home Depot, Inc., 5.40%, 3/1/2016

      Baa1         4,325,000         4,846,617   

Lowe’s Companies, Inc., 6.10%, 9/15/2017

      A1         3,175,000         3,672,164   

Rent-A-Center, Inc.3, 6.625%, 11/15/2020

      Ba3         1,100,000         1,094,500   

Toys R Us Property Co., LLC, 8.50%, 12/1/2017

      Ba1         920,000         989,000   
              
        

 

 

 

12,160,660

 

  

              

Textiles, Apparel & Luxury Goods - 0.6%

         

VF Corp., 5.95%, 11/1/2017

      A3         2,815,000         3,140,034   
              

Total Consumer Discretionary

         

 

 

 

70,164,166

 

  

              

Consumer Staples - 1.7%

         

Beverages - 0.7%

         

CEDC Finance Corp. International, Inc.3, 9.125%, 12/1/2016

      B1         1,215,000         1,290,937   

Constellation Brands, Inc., 8.375%, 12/15/2014

      Ba3         1,205,000         1,316,463   

PepsiCo, Inc., 7.90%, 11/1/2018

      Aa3         713,000         917,355   
              
        

 

 

 

3,524,755

 

  

              

Food Products - 0.8%

         

Kraft Foods, Inc., 6.125%, 2/1/2018

      Baa2         3,610,000         4,123,685   
              

Household Products - 0.0%*

         

The Procter & Gamble Co., 4.85%, 12/15/2015

      Aa3         25,000         27,880   
              

Personal Products - 0.2%

         

Revlon Consumer Products Corp., 9.75%, 11/15/2015

      B3         1,215,000         1,284,863   
              

Total Consumer Staples

         

 

 

 

8,961,183

 

  

              

Energy - 8.6%

         

Energy Equipment & Services - 3.5%

         

Baker Hughes, Inc., 7.50%, 11/15/2018

      A2         3,155,000         3,956,200   

Calfrac Holdings LP3, 7.50%, 12/1/2020

      B2         1,000,000         1,012,500   

Cie Generale de Geophysique - Veritas (France), 7.75%, 5/15/2017

      Ba3         1,000,000         1,025,000   

Complete Production Services, Inc., 8.00%, 12/15/2016

      B1         1,155,000         1,195,425   

Hornbeck Offshore Services, Inc., 8.00%, 9/1/2017

      Ba3         500,000         510,000   

Key Energy Services, Inc., 8.375%, 12/1/2014

      B1         1,000,000         1,055,000   

Thermon Industries, Inc.3, 9.50%, 5/1/2017

      B1         830,000         883,950   

Trinidad Drilling Ltd. (Canada)3, 7.875%, 1/15/2019

      B2         1,000,000         1,010,000   

 

6    The accompanying notes are an integral part of the financial statements.

Investment Portfolio - December 31, 2010

 

 

    

Credit

Rating1

(unaudited)

    

Principal

Amount

     

Value

(Note 2)

  

CORPORATE BONDS (continued)

        

Non-Convertible Corporate Bonds (continued)

        

Energy (continued)

        

Energy Equipment & Services (continued)

        

Weatherford International Ltd. (Switzerland), 9.625%, 3/1/2019

      Baa2      $         6,175,000       $         7,923,680   
             
       

 

 

 

18,571,755

 

  

             

Oil, Gas & Consumable Fuels - 5.1%

        

Anadarko Petroleum Corp., 5.95%, 9/15/2016

      Ba1        5,825,000         6,257,733   

Apache Corp., 6.90%, 9/15/2018

      A3        2,275,000         2,777,739   

Aquilex Holdings LLC - Aquilex Finance Corp., 11.125%, 12/15/2016

      Caa1        740,000         749,250   

Arch Western Finance LLC, 6.75%, 7/1/2013

      B1        694,000         700,940   

Chaparral Energy, Inc., 8.875%, 2/1/2017

      Caa1        1,055,000         1,070,825   

Chesapeake Energy Corp., 9.50%, 2/15/2015

      Ba3        1,500,000         1,691,250   

Coffeyville Resources LLC - Coffeyville Finance, Inc.3, 9.00%, 4/1/2015

      Ba3        373,000         399,110   

Coffeyville Resources LLC - Coffeyville Finance, Inc.3, 10.875%, 4/1/2017

      B3        395,000         424,625   

Crosstex Energy LP - Crosstex Energy Finance Corp., 8.875%, 2/15/2018

      B3        1,500,000         1,606,875   

Hess Corp., 5.60%, 2/15/2041

      Baa2        5,125,000         5,087,757   

Linn Energy LLC - Linn Energy Finance Corp.3, 7.75%, 2/1/2021.

      B2        1,045,000         1,071,125   

Martin Midstream Partners LP - Martin Midstream Finance Corp., 8.875%, 4/1/2018

      B 2      840,000         865,200   

Niska Gas Storage US LLC - Niska Gas Storage Canada ULC3, 8.875%, 3/15/2018

      B1        605,000         647,350   

Plains Exploration & Production Co., 8.625%, 10/15/2019

      B1        1,000,000         1,095,000   

Targa Resources Partners LP - Targa Resources Partners Finance Corp., 8.25%, 7/1/2016

      B1        750,000         791,250   

Tesoro Corp., 9.75%, 6/1/2019

      Ba1        1,180,000         1,306,850   

Whiting Petroleum Corp., 7.00%, 2/1/2014

      Ba3        1,000,000         1,050,000   
             
       

 

 

 

27,592,879

 

  

             

Total Energy

           46,164,634   
             

Financials - 24.9%

        

Capital Markets - 4.7%

        

Goldman Sachs Capital I, 6.345%, 2/15/2034

      A3        3,450,000         3,287,333   

Goldman Sachs Capital II4, 5.793%, 12/29/2049

      Baa2        4,205,000         3,563,737   

The Goldman Sachs Group, Inc., 6.15%, 4/1/2018

      A1        3,385,000         3,727,538   

The Goldman Sachs Group, Inc., 5.375%, 3/15/2020

      A1        4,510,000         4,660,458   

Merrill Lynch & Co., Inc., 6.11%, 1/29/2037

      A3        1,785,000         1,611,277   

Morgan Stanley, 5.55%, 4/27/2017

      A2        3,544,000         3,692,139   

Morgan Stanley, 5.50%, 1/26/2020

      A2        4,485,000         4,520,992   
             
       

 

 

 

25,063,474

 

  

             

 

The accompanying notes are an integral part of the financial statements.    7

Investment Portfolio - December 31, 2010

 

 

    

Credit

Rating1

(unaudited)

     

Principal

Amount

     

Value

(Note 2)

  

CORPORATE BONDS (continued)

         

Non-Convertible Corporate Bonds (continued)

         

Financials (continued)

         

Commercial Banks - 6.1%

         

Household Finance Co., 6.375%, 11/27/2012

      A3       $       4,335,000       $       4,699,855   

KeyBank National Association, 5.45%, 3/3/2016

      Baa1         4,640,000         4,882,909   

Manufacturers & Traders Trust Co., 6.625%, 12/4/2017

      A3         5,665,000         6,359,807   

National City Corp., 6.875%, 5/15/2019

      Baa1         1,920,000         2,155,693   

PNC Bank National Association, 5.25%, 1/15/2017

      A3         5,640,000         5,855,110   

U.S. Bank National Association, 6.375%, 8/1/2011

      Aa3         85,000         87,826   

USB Capital XIII Trust, 6.625%, 12/15/2039

      A2         3,580,000         3,656,719   

Wachovia Corp., 5.25%, 8/1/2014

      A2         4,500,000         4,799,223   
              
        

 

 

 

32,497,142

 

  

              

Consumer Finance - 1.8%

         

American Express Co., 8.125%, 5/20/2019

      A3         3,935,000         4,895,970   

American Express Co.4, 6.80%, 9/1/2066

      Baa2         3,445,000         3,410,550   

Credit Acceptance Corp.3, 9.125%, 2/1/2017

      B1         1,500,000         1,575,000   
              
        

 

 

 

9,881,520

 

  

              

Diversified Financial Services - 3.3%

         

Bank of America Corp., 5.75%, 8/15/2016

      A3         3,715,000         3,794,642   

Bank of America Corp., 7.625%, 6/1/2019

      A2         3,315,000         3,817,007   

Citigroup, Inc., 8.50%, 5/22/2019

      A3         4,110,000         5,102,298   

JPMorgan Chase & Co., 6.30%, 4/23/2019

      Aa3         4,300,000         4,894,497   
              
        

 

 

 

17,608,444

 

  

              

Insurance - 1.6%

         

American International Group, Inc., 4.25%, 5/15/2013

      A3         1,840,000         1,904,120   

Fidelity National Financial, Inc., 6.60%, 5/15/2017

      Baa3         5,035,000         5,023,681   

Hartford Financial Services Group, Inc.4, 8.125%, 6/15/2038

      Ba1         1,615,000         1,715,937   
              
        

 

 

 

8,643,738

 

  

              

Real Estate Investment Trusts (REITS) - 7.4%

         

AvalonBay Communities, Inc., 6.10%, 3/15/2020

      Baa1         4,380,000         4,898,167   

Boston Properties LP, 5.875%, 10/15/2019

      Baa2         4,455,000         4,831,216   

Camden Property Trust, 5.70%, 5/15/2017

      Baa1         4,025,000         4,247,474   

Digital Realty Trust LP, 5.875%, 2/1/2020

      Baa2         1,000,000         1,017,353   

DuPont Fabros Technology LP, 8.50%, 12/15/2017

      Ba2         1,475,000         1,578,250   

Felcor Lodging LP, 10.00%, 10/1/2014

      B2         1,000,000         1,120,000   

HCP, Inc., 6.70%, 1/30/2018

      Baa3         4,500,000         4,827,947   

Health Care REIT, Inc., 6.20%, 6/1/2016

      Baa2         4,390,000         4,857,557   

Host Hotels & Resorts LP, 6.375%, 3/15/2015

      Ba1         740,000         751,100   

Mack-Cali Realty LP, 7.75%, 8/15/2019

      Baa2         2,665,000         3,101,407   

National Retail Properties, Inc., 6.875%, 10/15/2017

      Baa2         2,365,000         2,547,961   

Omega Healthcare Investors, Inc., 7.50%, 2/15/2020

      Ba2         1,000,000         1,051,250   

 

8    The accompanying notes are an integral part of the financial statements.

Investment Portfolio - December 31, 2010

 

 

    

Credit

Rating1

(unaudited)

    

Principal

Amount

     

Value

(Note 2)

  

CORPORATE BONDS (continued)

        

Non-Convertible Corporate Bonds (continued)

        

Financials (continued)

        

Real Estate Investment Trusts (REITS) (continued)

        

Simon Property Group LP, 10.35%, 4/1/2019

      A3      $       3,670,000       $       5,017,620   
             
       

 

 

 

39,847,302

 

  

             

Total Financials

        

 

 

 

133,541,620

 

  

             

Health Care - 3.3%

        

Biotechnology - 0.9%

        

Amgen, Inc., 3.45%, 10/1/2020

      A3        5,000,000         4,764,190   
             

Health Care Equipment & Supplies - 1.5%

        

Alere, Inc., 9.00%, 5/15/2016

      B3        2,000,000         2,060,000   

Becton Dickinson and Co., 6.00%, 5/15/2039

      A2        3,350,000         3,782,787   

CR Bard, Inc., 4.40%, 1/15/2021

      A3        800,000         812,855   

Fresenius US Finance II, Inc.3, 9.00%, 7/15/2015

      Ba1        1,320,000         1,511,400   
             
       

 

 

 

8,167,042

 

  

             

Health Care Providers & Services - 0.7%

        

BioScrip, Inc., 10.25%, 10/1/2015

      B3        795,000         818,850   

HCA, Inc., 8.50%, 4/15/2019

      Ba3        1,000,000         1,095,000   

Health Management Associates, Inc., 6.125%, 4/15/2016

      BB 2      1,050,000         1,060,500   

LifePoint Hospitals, Inc.3, 6.625%, 10/1/2020

      Ba1        1,000,000         992,500   
             
       

 

 

 

3,966,850

 

  

             

Life Sciences Tools & Services - 0.2%

        

PharmaNet Development Group, Inc.3, 10.875%, 4/15/2017

      B3        825,000         858,000   
             

Total Health Care

        

 

 

 

17,756,082

 

  

             

Industrials - 13.9%

        

Aerospace & Defense - 1.1%

        

BE Aerospace, Inc., 6.875%, 10/1/2020

      Ba3        1,000,000         1,032,500   

The Boeing Co., 6.00%, 3/15/2019

      A2        3,465,000         3,986,548   

Kratos Defense & Security Solutions, Inc., 10.00%, 6/1/2017

      B3        525,000         581,437   
             
       

 

 

 

5,600,485

 

  

             

Air Freight & Logistics - 0.1%

        

FedEx Corp., 8.00%, 1/15/2019

      Baa2        435,000      

 

 

 

536,597

 

  

             

Airlines - 1.7%

        

Continental Airlines Pass-Through Trust, Series 1997-4, Class A, 6.90%, 1/2/2018

      Baa2        351,290         373,246   

Continental Airlines, Inc.3, 6.75%, 9/15/2015

      Ba2        1,000,000         1,030,000   

Delta Air Lines Pass-Through Trust, Series 2001-1, Class 1A2, 7.111%, 9/18/2011

      BBB 2      1,245,000         1,285,463   

Delta Air Lines Pass-Through Trust, Series 2007-1, Class A, 6.821%, 8/10/2022

      Baa1        1,218,838         1,291,968   

 

The accompanying notes are an integral part of the financial statements.    9

Investment Portfolio - December 31, 2010

 

    

Credit

Rating1

(unaudited)

     

Principal

Amount

     

Value

(Note 2)

  

CORPORATE BONDS (continued)

         

Non-Convertible Corporate Bonds (continued)

         

Industrials (continued)

         

Airlines (continued)

         

Delta Air Lines, Inc.3, 9.50%, 9/15/2014

      Ba2       $         898,000       $         977,697   

Southwest Airlines Co., 5.25%, 10/1/2014

      Baa3         3,925,000         4,128,068   
              
        

 

 

 

9,086,442

 

  

              

Building Products - 0.4%

         

Building Materials Corp. of America3, 6.875%, 8/15/2018

      B1         630,000         623,700   

Building Materials Corp. of America3, 7.50%, 3/15/2020

      B1         400,000         407,000   

Owens Corning, 9.00%, 6/15/2019

      Ba1         1,095,000         1,284,647   
              
        

 

 

 

2,315,347

 

  

              

Commercial Services & Supplies - 1.2%

         

Clean Harbors, Inc., 7.625%, 8/15/2016

      Ba2         900,000         956,250   

Garda World Security Corp. (Canada)3, 9.75%, 3/15/2017

      B3         800,000         858,000   

Waste Management, Inc., 7.375%, 3/11/2019

      Baa3         3,930,000         4,755,697   
              
        

 

 

 

6,569,947

 

  

              

Industrial Conglomerates - 3.9%

         

GE Capital Trust I4, 6.375%, 11/15/2067

      Aa3         3,545,000         3,500,687   

General Electric Capital Corp., 5.625%, 5/1/2018

      Aa2         2,150,000         2,344,605   

General Electric Capital Corp., 5.50%, 1/8/2020

      Aa2         3,105,000         3,320,757   

General Electric Capital Corp., Series A, 6.75%, 3/15/2032

      Aa2         3,695,000         4,183,176   

General Electric Co., 5.25%, 12/6/2017

      Aa2         2,100,000         2,268,197   

Textron, Inc., 7.25%, 10/1/2019

      Baa3         3,790,000         4,343,154   

Tyco Electronics Group S.A. (Luxembourg), 4.875%, 1/15/2021

      Baa2         800,000         808,975   
              
        

 

 

 

20,769,551

 

  

              

Machinery - 1.8%

         

Caterpillar Financial Services Corp., 7.05%, 10/1/2018

      A2         3,385,000         4,094,608   

John Deere Capital Corp., 5.50%, 4/13/2017

      A2         1,240,000         1,382,526   

John Deere Capital Corp., 5.75%, 9/10/2018

      A2         3,795,000         4,299,246   
              
        

 

 

 

9,776,380

 

  

              

Marine - 0.5%

         

Navios Maritime Holdings, Inc. - Navios Maritime Finance US, Inc. (Marshall Island), 8.875%, 11/1/2017

      Ba3         1,530,000         1,656,225   

United Maritime Group LLC - United Maritime Group Finance Corp., 11.75%, 6/15/2015

      B3         740,000         741,850   
              
        

 

 

 

2,398,075

 

  

              

Road & Rail - 3.2%

         

CSX Corp., 6.00%, 10/1/2036

      Baa3         4,530,000         4,718,081   

JB Hunt Transport Services, Inc., 3.375%, 9/15/2015

      Baa3         7,865,000         7,768,913   

RailAmerica, Inc., 9.25%, 7/1/2017

      B1         710,000         780,113   

 

10    The accompanying notes are an integral part of the financial statements.

Investment Portfolio - December 31, 2010

 

 

    

Credit

Rating1

(unaudited)

     

Principal

Amount

     

Value

(Note 2)

  

CORPORATE BONDS (continued)

         

Non-Convertible Corporate Bonds (continued)

         

Industrials (continued)

         

Road & Rail (continued)

         

Union Pacific Corp., 5.65%, 5/1/2017

      Baa2       $       3,675,000       $       4,057,946   
              
           17,325,053   
              

Total Industrials

            74,377,877   
              

Information Technology - 4.2%

         

Communications Equipment - 1.2%

         

Alcatel-Lucent USA, Inc., 6.50%, 1/15/2028

      B1         1,000,000         795,000   

Cisco Systems, Inc., 5.90%, 2/15/2039

      A1         3,705,000         4,103,306   

Hughes Network Systems LLC - HNS Finance Corp., 9.50%, 4/15/2014

      B1         1,280,000         1,320,000   
              
           6,218,306   
              

Computers & Peripherals - 0.9%

         

International Business Machines Corp., 5.60%, 11/30/2039

      Aa3         4,506,000         4,909,418   
              

Electronic Equipment, Instruments & Components - 0.5%

         

Corning, Inc., 4.25%, 8/15/2020

      Baa1         2,500,000         2,468,840   
              

IT Services - 0.9%

         

The Western Union Co., 5.253%, 4/1/2020

      A3         4,810,000         4,941,746   
              

Semiconductors & Semiconductor Equipment - 0.5%

         

Advanced Micro Devices, Inc., 8.125%, 12/15/2017

      Ba3         1,475,000         1,563,500   

MagnaChip Semiconductor S.A. - MagnaChip Semiconductor Finance Co., 10.50%, 4/15/2018

      B2         830,000         875,650   
              
           2,439,150   
              

Software - 0.2%

         

Oracle Corp.3, 3.875%, 7/15/2020

      A2         1,325,000         1,317,164   
              

Total Information Technology

            22,294,624   
              

Materials - 4.5%

         

Chemicals - 1.1%

         

E.I. du Pont de Nemours & Co., 6.00%, 7/15/2018

      A2         3,435,000         3,949,546   

Ferro Corp., 7.875%, 8/15/2018

      B2         1,030,000         1,086,650   

Rhodia S.A. (France)3, 6.875%, 9/15/2020

      B1         1,000,000         1,013,750   
              
           6,049,946   
              

Containers & Packaging - 0.1%

         

Reynolds Group Issuer, Inc. - Reynolds Group Issuer LLC3, 9.00%, 4/15/2019

      Caa1         500,000         518,125   
              

Metals & Mining - 1.9%

         

Alcoa, Inc., 5.87%, 2/23/2022

      Baa3         2,185,000         2,170,736   

BHP Billiton Finance (USA) Ltd. (Australia), 6.50%, 4/1/2019

      A1         3,230,000         3,840,935   

Cliffs Natural Resources, Inc., 5.90%, 3/15/2020

      Baa3         1,000,000         1,053,535   

 

The accompanying notes are an integral part of the financial statements.    11

Investment Portfolio - December 31, 2010

 

     Credit
Rating 1
(unaudited)		      Principal
Amount 		    

Value

(Note 2)

  

CORPORATE BONDS (continued)

         

Non-Convertible Corporate Bonds (continued)

         

Materials (continued)

         

Metals & Mining (continued)

         

Cliffs Natural Resources, Inc., 4.80%, 10/1/2020

      Baa3       $       2,000,000       $       1,954,218   

Steel Dynamics, Inc., 7.75%, 4/15/2016

      Ba2         805,000         847,263   
              
           9,866,687   
              

Paper & Forest Products - 1.4%

         

Georgia-Pacific LLC3, 8.25%, 5/1/2016

      Ba2         1,100,000         1,241,625   

International Paper Co., 7.50%, 8/15/2021

      Baa3         5,330,000         6,295,604   
              
           7,537,229   
              

Total Materials

            23,971,987   
              

Telecommunication Services - 2.5%

         

Diversified Telecommunication Services - 0.8%

         

Clearwire Communications LLC - Clearwire Finance, Inc.3, 12.00%, 12/1/2015

      B2         410,000         442,800   

Clearwire Communications LLC - Clearwire Finance, Inc.3, 12.00%, 12/1/2015

      B2         370,000         398,675   

Inmarsat Finance plc (United Kingdom)3, 7.375%, 12/1/2017

      Ba2         1,000,000         1,050,000   

Intelsat Subsidiary Holding Co. S.A. (Bermuda)3, 8.875%, 1/15/2015

      B3         995,000         1,017,387   

Wind Acquisition Finance S.A. (Luxembourg)3, 11.75%, 7/15/2017

      B2         1,080,000         1,217,700   
              
           4,126,562   
              

Wireless Telecommunication Services - 1.7%

         

CC Holdings GS V LLC - Crown Castle GS III Corp.3, 7.75%, 5/1/2017

      Baa3         1,000,000         1,092,500   

Crown Castle Towers LLC3, 6.113%, 1/15/2020

      A2         4,070,000         4,246,316   

Crown Castle Towers LLC3, 4.883%, 8/15/2020

      A2         610,000         586,259   

NII Capital Corp., 10.00%, 8/15/2016

      B2         1,000,000         1,107,500   

SBA Tower Trust3, 5.101%, 4/15/2017

      A2         2,095,000         2,178,070   
              
           9,210,645   
              

Total Telecommunication Services

            13,337,207   
              

Utilities - 3.0%

         

Electric Utilities - 2.5%

         

Allegheny Energy Supply Co. LLC3, 5.75%, 10/15/2019

      Baa3         2,385,000         2,400,600   

Exelon Generation Co. LLC, 5.35%, 1/15/2014

      A3         3,355,000         3,632,026   

Exelon Generation Co. LLC, 4.00%, 10/1/2020

      A3         4,000,000         3,743,352   

Southwestern Electric Power Co., 6.45%, 1/15/2019

      Baa3         3,240,000         3,558,013   
              
           13,333,991   
              

Gas Utilities - 0.2%

         

Ferrellgas LP - Ferrellgas Finance Corp.3, 6.50%, 5/1/2021

      Ba3         1,000,000         975,000   
              

 

12    The accompanying notes are an integral part of the financial statements.

Investment Portfolio - December 31, 2010

 

     Credit
Rating 1
(unaudited)		      Principal
Amount/
Shares 		    

Value

(Note 2)

  

CORPORATE BONDS (continued)

         

Non-Convertible Corporate Bonds (continued)

         

Utilities (continued)

         

Independent Power Producers & Energy Traders - 0.2%

         

Mirant Mid Atlantic Pass-Through Trust, Series B, 9.125%, 6/30/2017

      Ba1       $         389,076       $         418,257   

Mirant Mid Atlantic Pass-Through Trust, Series C, 10.06%, 12/30/2028

      Ba1         487,147         540,733   
              
        

 

 

 

958,990

 

  

              

Multi-Utilities - 0.1%

         

CenterPoint Energy Resources Corp., Series B, 7.875%, 4/1/2013

      Baa3         770,000         870,435   
              

Total Utilities

         

 

 

 

16,138,416

 

  

              

Total Non-Convertible Corporate Bonds
(Identified Cost $394,151,508)

            426,707,796   
              

TOTAL CORPORATE BONDS
(Identified Cost $400,092,197)

            433,184,983   
              

PREFERRED STOCKS - 2.2%

         

Financials - 2.2%

         

Commercial Banks - 1.0%

         

PNC Financial Services Group, Inc., Series K7, 8.25%

      Baa3         1,850,000         1,972,637   

Wells Fargo & Co., Series K7, 7.98%

      Baa3         3,145,000         3,317,975   
              
        

 

 

 

5,290,612

 

  

              

Diversified Financial Services - 1.2%

         

Bank of America Corp., Series K7, 8.00%

      Ba3         3,350,000         3,376,130   

JPMorgan Chase & Co., Series 17, 7.90%

      Baa1         2,985,000         3,173,025   
              
        

 

 

 

6,549,155

 

  

              

TOTAL PREFERRED STOCKS
(Identified Cost $10,896,014)

            11,839,767   
              

ASSET-BACKED SECURITIES - 1.2%

         

Capital Auto Receivables Asset Trust, Series 2007-1, Class A4A, 5.010%, 4/16/2012

      Aaa       $ 133,637         134,898   

Capital Auto Receivables Asset Trust, Series 2007-3, Class A4, 5.210%, 3/17/2014

      Aaa         152,383         155,790   

Ford Credit Auto Owner Trust, Series 2008-C, Class A4B4, 2.010%, 4/15/2013

      Aaa         300,000         304,294   

Hertz Vehicle Financing LLC, Series 2009-2A, Class A23, 5.290%, 3/25/2016

      Aaa         2,585,000         2,807,711   

 

The accompanying notes are an integral part of the financial statements.    13

Investment Portfolio - December 31, 2010

 

     Credit
Rating 1
(unaudited)		      Principal
Amount 		    

Value

(Note 2)

  

ASSET-BACKED SECURITIES (continued)

         

Hertz Vehicle Financing LLC, Series 2010-1A, Class A23, 3.740%, 2/25/2017

      Aaa       $     2,360,000       $       2,397,749   

SLM Student Loan Trust, Series 2002-4, Class A44, 0.442%, 3/15/2017

      Aaa         383,494         383,163   
              

TOTAL ASSET-BACKED SECURITIES
(Identified Cost $5,872,535)

            6,183,605   
              

COMMERCIAL MORTGAGE-BACKED SECURITIES - 3.5%

         

Americold LLC Trust, Series 2010-ARTA, Class A13, 3.847%, 1/14/2029

      AAA2         435,000         435,778   

Banc of America Commercial Mortgage, Inc., Series 2006-2, Class A44, 5.740%, 5/10/2045

      AAA2         700,000         766,334   

Banc of America Commercial Mortgage, Inc., Series 2006-4, Class A4, 5.634%, 7/10/2046

      Aaa         335,000         359,438   

Bear Stearns Commercial Mortgage Securities, Series 2005-PWR9, Class A4A, 4.871%, 9/11/2042

      Aaa         375,000         395,043   

Bear Stearns Commercial Mortgage Securities, Series 2006-PW12, Class A44, 5.722%, 9/11/2038

      Aaa         745,000         812,843   

Bear Stearns Commercial Mortgage Securities, Series 2006-PW13, Class A4, 5.540%, 9/11/2041

      AAA2         650,000         697,580   

Citigroup Commercial Mortgage Trust, Series 2006-C4, Class A34, 5.728%, 3/15/2049

      Aaa         575,000         622,332   

Commercial Mortgage Pass-Through Certificates, Series 2006-C7, Class A44, 5.764%, 6/10/2046

      AAA2         900,000         984,036   

Commercial Mortgage Pass-Through Certificates, Series 2010-C1, Class A13, 3.156%, 7/20/2046

      Aaa         1,302,678         1,305,609   

Greenwich Capital Commercial Funding Corp., Series 2006-GG7, Class A44, 5.883%, 7/10/2038

      Aaa         1,695,000         1,849,243   

JP Morgan Chase Commercial Mortgage Securities Corp., Series 2005-LDP5, Class A44, 5.205%, 12/15/2044

      Aaa         1,670,000         1,797,861   

JP Morgan Chase Commercial Mortgage Securities Corp., Series 2006-LDP7, Class A44, 5.872%, 4/15/2045

      Aaa         330,000         360,891   

JP Morgan Chase Commercial Mortgage Securities Corp., Series 2010-C2, Class A33, 4.070%, 11/15/2043

      AAA2         750,000         713,185   

LB-UBS Commercial Mortgage Trust, Series 2006-C4, Class A44, 5.881%, 6/15/2038

      Aaa         645,000         697,974   

Merrill Lynch - Countrywide Commercial Mortgage Trust, Series 2006-3, Class A44, 5.414%, 7/12/2046

      Aaa         605,000         637,713   

Morgan Stanley Capital I, Series 2005-HQ7, Class A44, 5.204%, 11/14/2042

      Aaa         385,000         414,460   

OBP Depositor LLC Trust, Series 2010-OBP, Class A3, 4.646%, 7/15/2045

      AAA2         420,000         428,551   

 

14    The accompanying notes are an integral part of the financial statements.

Investment Portfolio - December 31, 2010

 

     Credit
Rating 1
(unaudited)		     

Principal
Amount/

Shares

     

Value

(Note 2)

  

COMMERCIAL MORTGAGE-BACKED SECURITIES (continued)

         

Vornado DP LLC, Series 2010-VNO, Class A2FX3, 4.004%, 9/13/2028

      AAA2       $      1,195,000       $       1,158,618   

Wachovia Bank Commercial Mortgage Trust, Series 2005-C21, Class A44, 5.203%, 10/15/2044

      Aaa         820,000         886,245   

Wachovia Bank Commercial Mortgage Trust, Series 2006-C25, Class A44, 5.737%, 5/15/2043

      Aaa         770,000         825,873   

Wachovia Bank Commercial Mortgage Trust, Series 2006-C26, Class A34, 6.011%, 6/15/2045

      Aaa         900,000         976,741   

Wells Fargo Commercial Mortgage Trust, Series 2010-C1, Class A23, 4.393%, 11/18/2043

      Aaa         1,350,000         1,334,805   
              

TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES
(Identified Cost $18,381,578)

            18,461,153   
              

FOREIGN GOVERNMENT BONDS - 0.6%

         

Hellenic Republic Government Bond (Greece), 6.00%, 7/19/2019

(Identified Cost $5,180,884)

      Ba1       EUR 4,000,000         3,432,175   
              

MUNICIPAL BONDS - 0.5%

         

New York City, G.O. Bond, 6.646%, 12/1/2031

(Identified Cost $2,500,000)

      Aa2       $ 2,500,000         2,559,200   
              

MUTUAL FUNDS - 1.7%

         81,330         8,819,425   

iShares iBoxx Investment Grade Corporate Bond Fund

         

John Hancock Preferred Income Fund

         10,500         196,140   
              

TOTAL MUTUAL FUNDS
(Identified Cost $7,604,479)

            9,015,565   
              

U.S. GOVERNMENT AGENCIES - 6.6%

         

Mortgage-Backed Securities - 6.6%

         

Fannie Mae, Pool #888468, 5.50%, 9/1/2021

       $ 4,982,518         5,372,556   

Fannie Mae, Pool #995233, 5.50%, 10/1/2021

         356,262         384,595   

Fannie Mae, Pool #888017, 6.00%, 11/1/2021

         380,032         414,651   

Fannie Mae, Pool #995329, 5.50%, 12/1/2021

         2,943,686         3,174,122   

Fannie Mae, Pool #888136, 6.00%, 12/1/2021

         498,143         543,521   

Fannie Mae, Pool #888810, 5.50%, 11/1/2022

         5,262,289         5,674,228   

Fannie Mae, Pool #AD0462, 5.50%, 10/1/2024

         315,419         339,353   

Fannie Mae, Pool #889409, 6.00%, 5/1/2038

         14,557,617         15,836,545   

Freddie Mac, Pool #G11850, 5.50%, 7/1/2020

         1,620,915         1,748,309   

Freddie Mac, Pool #G12610, 6.00%, 3/1/2022

         508,205         554,975   

Freddie Mac, Pool #G12655, 6.00%, 5/1/2022

         347,394         379,365   

Freddie Mac, Pool #G12988, 6.00%, 1/1/2023

         285,385         311,114   

 

The accompanying notes are an integral part of the financial statements.    15

Investment Portfolio - December 31, 2010

 

     Principal
Amount/
Shares 		    

Value

(Note 2)

  

U.S. GOVERNMENT AGENCIES (continued)

      

Mortgage-Backed Securities (continued)

      

Freddie Mac, Pool #G13078, 6.00%, 3/1/2023

    $       498,562       $ 544,445   

Freddie Mac, Pool #G13331, 5.50%, 10/1/2023

      262,803         281,815   
           

TOTAL U.S. GOVERNMENT AGENCIES
(Identified Cost $35,643,752)

         35,559,594   
           

SHORT-TERM INVESTMENTS - 1.5%

      

Dreyfus Cash Management, Inc. - Institutional Shares5, 0.14%,

(Identified Cost $8,065,745)

      8,065,745         8,065,745   
           

TOTAL INVESTMENTS - 98.7%
(Identified Cost $494,237,184)

         528,301,787   

OTHER ASSETS, LESS LIABILITIES - 1.3%

         7,053,560   
           

NET ASSETS - 100%

       $     535,355,347   
           

 

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS OPEN AT DECEMBER 31, 20106:
    Settlement Date    Contracts to  Deliver    In  Exchange
For		    Contracts
At Value		      Unrealized    
Depreciation    

01/28/2011

    EUR3,380,000    $4,440,813    $ 4,516,504       $(75,691)

* Less than 0.1%

EUR - Euro currency

G.O. Bond - General Obligation Bond

1Credit ratings from Moody’s (unaudited).

2Credit ratings from S&P (unaudited).

3Restricted securities - Investment in securities that are restricted as to public resale under the Securities Act of 1933, as amended. These securities have been sold under rule 144A and have been determined to be liquid under guidelines established by the Board of Directors. These securities amount to $52,985,099, or 9.9%, of the Series’ net assets as of December 31, 2010.

4The coupon rate is floating and is the stated rate as of December 31, 2010.

5Rate shown is the current yield as of December 31, 2010.

6The counterparty for all forward foreign currency exchange contracts is the Bank of New York Mellon Corp.

7The rate shown is the fixed rate as of December 31, 2010; the rate becomes floating in 2049.

 

16    The accompanying notes are an integral part of the financial statements.

Statement of Assets and Liabilities

December 31, 2010

 

 

ASSETS:

   

Investments, at value (identified cost $494,237,184) (Note 2)

    $ 528,301,787   

Interest receivable

      7,159,221   

Receivable for fund shares sold

      804,739   

Dividends receivable

      35,598   
        

TOTAL ASSETS

      536,301,345   
        

LIABILITIES:

   

Accrued management fees (Note 3)

      315,128   

Accrued fund accounting and administration fees (Note 3)

      17,553   

Accrued transfer agent fees (Note 3)

      1,068   

Accrued Chief Compliance Officer service fees (Note 3)

      243   

Accrued directors’ fees (Note 3)

      91   

Payable for fund shares repurchased

      473,520   

Unrealized depreciation on foreign forward currency contracts (Note 2)

      75,691   

Other payables and accrued expenses

      62,704   
        

TOTAL LIABILITIES

      945,998   
        

TOTAL NET ASSETS

    $ 535,355,347   
        

NET ASSETS CONSIST OF:

   

Capital stock

    $ 488,349   

Additional paid-in-capital

      497,599,318   

Distributions in excess of net investment income

      (28,376 ) 

Accumulated net realized gain on investments, foreign currency and translation of other assets and liabilities

      3,305,937   

Net unrealized appreciation on investments, foreign currency and translation of other assets and liabilities

      33,990,119   
        

TOTAL NET ASSETS

    $ 535,355,347   
        

NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE - Class A ($535,355,347/48,834,882 shares)

    $ 10.96   
        

 

The accompanying notes are an integral part of the financial statements.    17

Statement of Operations

For the Year Ended December 31, 2010

 

 

INVESTMENT INCOME:

   

Interest

    $ 25,311,539   

Dividends

      2,228,910   
        

Total Investment Income

      27,540,449   
        

EXPENSES:

   

Management fees (Note 3)

      3,394,742   

Fund accounting and administration fees (Note 3)

      114,126   

Directors’ fees (Note 3)

      15,748   

Transfer agent fees (Note 3)

      6,026   

Chief Compliance Officer service fees (Note 3)

      2,621   

Custodian fees

      28,618   

Miscellaneous

      109,124   
        

Total Expenses

      3,671,005   

Less reduction of expenses (Note 3)

      (758 ) 
        

Net Expenses

      3,670,247   
        

NET INVESTMENT INCOME

      23,870,202   
        

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:

   

Net realized gain (loss) on-

   

Investments

      8,915,939   

Foreign currency and translation of other assets and liabilities

      (347,168 ) 

Forward foreign currency exchange contracts

      195,190   
        
     8,763,961   
        

Net change in unrealized appreciation (depreciation) on-
Investments

      13,417,513   

Foreign currency and translation of other assets and liabilities

      10,688   

Forward foreign currency exchange contracts

      (75,691 ) 
        
     13,352,510   
        

NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCY

      22,116,471   
        

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

    $ 45,986,673   
        

 

18    The accompanying notes are an integral part of the financial statements.

Statements of Changes in Net Assets

 

 

    

For the

Year Ended
12/31/10

    

For the

Year Ended
12/31/09

  

INCREASE (DECREASE) IN NET ASSETS:

     

OPERATIONS:

     

Net investment income

    $ 23,870,202      $ 19,821,911   

Net realized gain on investments and foreign currency

      8,763,961        2,769,225   

Net change in unrealized appreciation (depreciation) on investments and foreign currency

      13,352,510        24,535,497   
                

Net increase from operations

      45,986,673        47,126,633   
                

DISTRIBUTIONS TO SHAREHOLDERS (Note 8):

     

From net investment income

      (24,015,126 )      (19,892,958 ) 

From net realized gain on investments

      (3,214,343 )      —   
                

Total distributions to shareholders

      (27,229,469 )      (19,892,958 ) 
                

CAPITAL STOCK ISSUED AND REPURCHASED:

     

Net increase from capital share transactions (Note 5)

      121,289,798        27,443,626   
                

Net increase in net assets

      140,047,002        54,677,301   

NET ASSETS:

     

Beginning of year

      395,308,345        340,631,044   
                

End of year (including distributions in excess of net investment income of $28,376 and undistributed net investment income of $321,747, respectively)

    $ 535,355,347      $ 395,308,345   
                

 

The accompanying notes are an integral part of the financial statements.    19

Financial Highlights

 

 

           For the Years Ended        
     12/31/10     12/31/09     12/31/08     12/31/07     12/31/06  

Per share data (for a share outstanding throughout each year):

           

Net asset value - Beginning of year

      $10.49        $9.66        $10.02        $9.98        $9.89   
                                        

Income (loss) from investment operations:

           

Net investment income

      0.55 1      0.57 1      0.42        0.40        0.37   

Net realized and unrealized gain (loss) on investments

      0.51        0.82        (0.32 )      0.03        0.08   
                                        

Total from investment operations

      1.06        1.39        0.10        0.43        0.45   
                                        

Less distributions to shareholders: From net investment income

      (0.52 )      (0.56 )      (0.45 )      (0.39 )      (0.36 ) 

From net realized gain on investments

      (0.07 )      —        (0.01 )      —        —   
                                        

Total distributions to shareholders

      (0.59 )      (0.56 )      (0.46 )      (0.39 )      (0.36 ) 
                                        

Net asset value - End of year

      $10.96        $10.49        $9.66        $10.02        $9.98   
                                        

Net assets - End of year (000’s omitted)

          $535,355            $395,308            $340,631            $278,494            $224,145   
                                        

Total return2

      10.18%        14.35%        1.24%        4.34%        4.59%   

Ratios (to average net assets)/ Supplemental Data:

           

Expenses*

      0.76%        0.78%        0.80%        0.81%        0.83%   

Net investment income

      4.92%        5.60%        4.84%        4.20%        3.95%   

Portfolio turnover

      31%        72%        63%        341%        315%   

*The investment advisor did not impose all or a portion of its management fees, CCO fees, fund accounting and transfer agent fees and other fees in some years and in some years paid a portion of the Series’ expenses. If these expenses had been incurred by the Series, the expense ratio (to average net assets) would have been increased by the following amounts:

      
     0.00% 3      0.00% 3      N/A        N/A        N/A   

1Calculated based on average shares outstanding during the year.

2Represents aggregate total return for the periods indicated, and assumes reinvestment of all distributions. Total return would have been lower had certain expenses not been waived or reimbursed during the periods. Periods less than one year are not annualized.

3Less than 0.01%.

 

20    The accompanying notes are an integral part of the financial statements.

Notes to Financial Statements

 

 

1.

ORGANIZATION

Core Plus Bond Series (the “Series”) is a no-load diversified series of Manning & Napier Fund, Inc. (the “Fund”). The Fund is organized in Maryland and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company.

The Series’ investment objective is to provide long-term total return by investing primarily in bonds and other financial instruments, including derivatives, with economic characteristics similar to bonds.

The Fund’s Advisor is Manning & Napier Advisors, Inc. (the “Advisor”). Shares of the Series are offered to investors, clients and employees of the Advisor and its affiliates. The total authorized capital stock of the Fund consists of 10.0 billion shares of common stock each having a par value of $0.01. As of December 31, 2010, 6.2 billion shares have been designated in total among 29 series, of which 125 million have been designated as Core Plus Bond Series Class A common stock.

 

2.

SIGNIFICANT ACCOUNTING POLICIES

Security Valuation

Portfolio securities, including domestic equities, foreign equities, warrants and options, listed on an exchange other than the NASDAQ National Market System are valued at the latest 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 provided by the Fund’s pricing service. Securities listed on the NASDAQ National Market System are valued in accordance with the NASDAQ Official Closing Price.

Debt securities, including government bonds, foreign bonds, asset-backed securities, structured notes, supranational obligations, sovereign bonds, corporate bonds and mortgage-backed securities will normally be valued on the basis of evaluated bid prices provided directly by an independent pricing service. The pricing services use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the pricing services may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient market activity may not exist or is limited, the pricing services also utilize proprietary valuation models which may consider market characteristics such as benchmark yield curves, option-adjusted spreads, credit spreads, estimated default rates, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to calculate the fair value. Certain investments in securities held by the Series may be valued on a basis of a price provided directly by a principal market maker. These prices may differ from the value that would have been used had a broader market for securities existed.

Municipal securities will normally be valued on the basis of market valuations provided by an independent pricing service that utilizes the latest price quotations and a matrix system (which considers such factors as security prices of similar securities, yields, maturities and ratings).

Short-term investments that mature in sixty days or less are valued at amortized cost, which approximates market value. Investments in open-end investment companies are valued at their net asset value per share on valuation date.

Volume and level of activity in established markets for an asset or liability are evaluated to determine whether recent transactions and quoted prices are determinative of fair value. Where there have been significant decreases in volume and level of activity, further analysis and adjustment may be necessary to estimate fair value. The Series measures fair value in these instances by the use of inputs and valuation techniques which may be based upon current market prices of securities that are comparable in coupon, rating, maturity and industry and/or expectation of future cash flows. As a result of trading in relatively thin markets and/or markets that experience significant volatility,

 

   21

Notes to Financial Statements

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Security Valuation (continued)

the prices used by the Series to value these securities may differ from the value that would be realized if these securities were sold, and the differences could be material.

Securities for which representative valuations or prices are not available from the Fund’s pricing service may be valued at fair value. Due to the inherent uncertainty of valuations of such securities, the fair value may differ significantly from the values that would have been used had a ready market for such securities existed. If trading or events occurring after the close of the principal market in which securities are traded are expected to materially affect the value of those securities, then they may be valued at their fair value, taking this trading or these events into account. Fair value is determined in good faith by the Advisor under procedures approved by and under the general supervision and responsibility of the Fund’s Board of Directors (the “Board”).

Various inputs are used in determining the value of the Series’ assets or liabilities carried at market value. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical assets and liabilities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). Level 3 includes significant unobservable inputs (including the Series’ own assumptions in determining the fair value of investments). The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the valuation levels used for major security types as of December 31, 2010 in valuing the Series’ assets or liabilities carried at market value:

 

$00000,000,000 $00000,000,000 $00000,000,000 $00000,000,000

 

Description

    Total     Level  1      Level  2     Level  3  

Assets:

          

Equity securities*

    $ —      $ —       $ —      $ —   

Preferred securities

      11,839,767        —         11,839,767        —   

Debt securities:

          

U.S. Treasury and other U.S. Government agencies

      35,559,594        —         35,559,594        —   

States and political subdivisions (municipals)

      2,559,200        —         2,559,200        —   

Corporate debt

      426,707,796        —         426,707,796        —   

Convertible corporate debt

      6,477,187        —         6,477,187        —   

Asset backed securities

      6,183,605        —         6,183,605        —   

Commercial mortgage backed securities

      18,461,153        —         18,461,153        —   

Foreign government bonds

      3,432,175        —         3,432,175        —   

Mutual funds

      17,081,310        17,081,310         —        —   

Other financial instruments**:

      —        —         —        —   
                                 

Total assets:

      528,301,787        17,081,310         511,220,477        —   
                                 

Liabilities:

          

Other financial instruments**: Forward foreign currency exchange contracts

      (75,691 )      —         (75,691 )      —   
                                 

Total liabilities:

      (75,691 )      —         (75,691 )      —   
                                 

Total

    $     528,226,096      $     17,081,310       $     511,144,786      $ —   
                                 

 

22   

Notes to Financial Statements

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Security Valuation (continued)

The following table is a reconciliation of Level 3 investments for which significant unobservable inputs were used to determine fair value:

 

Level 3 Reconciliation   

Corporate

Debt

  

Balance as of December 31, 2009 (market value)

    $         244,111   

Accrued discounts/premiums

      2,483   

Change in unrealized appreciation/ depreciation

      (1,848 ) 

Net realized gain

      44,810   

Net purchases/sales

      (289,556 ) 
        

Balance as of December 31, 2010 (market value)

    $ —   
        

*Includes common stock, warrants and rights. Please see the Investment Portfolio for industry classification.

**Other financial instruments are derivative instruments not reflected in the Investment Portfolio, such as futures, forwards and swap contracts, which are valued at the unrealized appreciation/depreciation on the instrument.

There were no Level 3 securities held by the Series as of December 31, 2010.

The Fund’s policy is to recognize transfers in and transfers out of the valuation levels as of the beginning of the reporting period. There were no significant transfers between Level 1 and Level 2 during the year ended December 31, 2010.

Additional disclosure surrounding the activity in Level 3 fair value measurement will be effective for fiscal years beginning after December 15, 2010. Management has concluded that this will not have a material impact on the Series’ financial statements.

Security Transactions, Investment Income and Expenses

Security transactions are accounted for on trade date. Dividend income is recorded on the ex-dividend date, except that if the ex-dividend date has passed, certain dividends from foreign securities are recorded as soon as the Fund is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Interest income, including amortization of premium and accretion of discounts using the effective interest method, is earned from settlement date and accrued daily.

Expenses are recorded on an accrual basis. Most expenses of the Fund can be attributed to a specific series. Expenses which cannot be directly attributed are apportioned among the series in the Fund in such a manner as deemed equitable by the Fund’s Board, taking into consideration, among other things, the nature and type of expense.

The Series uses the identified cost method for determining realized gain or loss on investments for both financial statement and federal income tax reporting purposes.

Foreign Currency Translation

The books and records of the Series are maintained in U.S. dollars. Foreign currencies, investments and other assets and liabilities are translated into U.S. dollars at the current exchange rates. Purchases and sales of investment securities and income and expenses are translated on the respective dates of such transactions. The Series does not isolate realized and unrealized gains and losses attributable to changes in the exchange rates from gains and losses that arise from changes in the market value of investments. Such fluctuations are included with net realized and unrealized gain or loss on investments. Net realized foreign currency gains and losses represent foreign currency

 

   23

Notes to Financial Statements

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Foreign Currency Translation (continued)

gains and losses between trade date and settlement date on securities transactions, gains and losses on disposition of foreign currencies and the difference between the amount of income and foreign withholding taxes recorded on the books of the Series and the amounts actually received or paid.

Forward Foreign Currency Exchange Contracts

The Series may purchase or sell forward foreign currency exchange 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 exchange 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) on investments.

The Series may regularly trade 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 Series 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. Investments in forward foreign currency exchange contacts held by the Series on December 31, 2010 are shown at the end of the Investment Portfolio, which is indicative of volume of derivative activity during the period.

Securities Purchased on a When-Issued Basis or Forward Commitment

The Series may purchase securities on a when-issued basis or forward commitment. These transactions involve a commitment by the Series to purchase securities for a predetermined price with payment and delivery taking place beyond the customary settlement period. When such purchases are outstanding, the Series will designate liquid assets in an amount sufficient to meet the purchase price. When purchasing a security on a delayed delivery basis, the Series assumes the rights and risks of ownership of the security, including the risk of price and yield fluctuations, and takes such fluctuations into account when determining its net asset value. The Series may sell the when-issued securities before they are delivered, which may result in a capital gain or loss. No such investments were held by the Series on December 31, 2010.

In connection with its ability to purchase or sell securities on a forward commitment basis, the Series may enter into forward roll transactions principally using To Be Announced (TBA) securities. Forward roll transactions require the sale of securities for delivery in the current month, and a simultaneous agreement to repurchase substantially similar (same type, coupon and maturity) securities on a specified future date. Risks of entering into forward roll transactions include the potential inability of the counterparty to meet the terms of the agreement; the potential of the Series to receive inferior securities at redelivery as compared to the securities sold to the counterparty; counterparty credit risk; and the potential pay down speed variance between the mortgage-backed pools. During the roll period, the Series forgoes principal and interest paid on the securities. The Series accounts for such dollar rolls as purchases and sales. Information regarding securities purchased on a when-issued basis is included in the Series’ Investment Portfolio. No such investments were held by the Series on December 31, 2010.

 

24   

Notes to Financial Statements

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Restricted Securities

Restricted securities are purchased in private placement transactions, are not registered under the Securities Act of 1933, as amended, and may have contractual restrictions on resale. Information regarding restricted securities is included at the end of the Series’ Investment Portfolio.

Illiquid Securities

A security may be considered illiquid if so deemed in good faith by the Advisor under procedures approved by and under the general supervision and responsibility of the Fund’s Board. Securities that are illiquid are marked with the applicable footnote on the Investment Portfolio. No such investments were held by the Series on December 31, 2010.

Federal Taxes

The Series’ policy is to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. The Series is not subject to federal income tax or excise tax to the extent that the Series 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.

Management evaluates its tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of tax benefits of an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. At December 31, 2010, the Series has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken in future tax returns.

The Series files income tax returns in the U.S. federal jurisdiction, various states and foreign jurisdictions, as required. No income tax returns are currently under investigation. The statute of limitations on the Series’ tax returns remains open for the years ended December 31, 2007 through December 31, 2010. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.

Additionally, based on the Fund’s understanding of the tax rules and rates related to income, gains and transactions for foreign jurisdictions in which it invests, the Series will provide for foreign taxes, and where appropriate, deferred foreign tax.

Distributions of Income and Gains

Distributions to shareholders of net investment income and net realized gains are made annually. An additional distribution may be necessary to avoid taxation of the Series. Distributions are recorded on the ex-dividend date.

Indemnifications

The Fund’s organizational documents provide former and current directors and officers with a limited indemnification against liabilities arising in connection with the performance of their duties to the Fund. In the normal course of business, the Fund may also enter into contracts that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would be dependent on future claims that may be made against the Fund. The risk of material loss from such claims is considered remote.

Other

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of

 

   25

Notes to Financial Statements

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Other (continued)

assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

 

3.

TRANSACTIONS WITH AFFILIATES

The Fund has an Investment Advisory Agreement (the “Agreement”) with the Advisor, for which the Series pays a fee, computed daily and payable monthly, at an annual rate of 0.70% of the Series’ average daily net assets.

Under the Agreement, personnel of the Advisor provide the Series with advice and assistance in the choice of investments and the execution of securities transactions, and otherwise maintain the Series’ organization. The Advisor also provides the Fund with necessary office space and fund administration and support services. The salaries of all officers of the Fund (except a percentage of the Fund’s Chief Compliance Officer’s salary, which is paid by 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. Each “non-affiliated” Director receives an annual stipend, which is allocated among all the active series of the Fund. In addition, these Directors also receive a fee per Board meeting attended plus a fee for each committee meeting attended.

The Advisor has contractually agreed, until at least April 30, 2012, to waive its fee and, if necessary, pay other operating expenses of the Series in order to maintain total direct annual fund operating expenses for the Series at no more than 0.90% of average daily net assets each year. For the year ended December 31, 2010, the Advisor voluntarily waived fees of $758, which is included as a reduction of expenses on the Statement of Operations. The Advisor is not eligible to recoup any expenses that have been waived or reimbursed in prior years.

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 Series.

The Advisor has agreements with PNC Global Investment Servicing (U.S.) Inc. (“PNCGIS”) under which PNCGIS serves as sub-accountant services agent and sub-transfer agent. The Fund pays the Advisor an annual fee related to fund accounting and administration of 0.0175% on the first $3 billion of average daily net assets (excluding Target Series); 0.015% on the next $3 billion of average daily net assets (excluding Target Series); and 0.01% of the average daily net assets in excess of $6 billion (excluding Target Series); plus a base fee of $25,500 per Series. Transfer Agent fees are charged to the Fund on a per account basis. Additionally, certain transaction- and cusip-based fees and out-of-pocket expenses, including charges for reporting relating to the Fund’s compliance program, are charged.

Effective July 1, 2010, PNCGIS was sold to The Bank of New York Mellon Corporation, the Series’ custodian. At the close of the sale, PNCGIS changed its name to BNY Mellon Investment Servicing (U.S.) Inc. (“BNY”).

Expenses not directly attributable to a Series are allocated based on each Series’ relative net assets or number of accounts, depending on the expense.

 

4.

PURCHASES AND SALES OF SECURITIES

For the year ended December 31, 2010, purchases and sales of securities, other than U.S. Government securities and short-term securities, were $226,721,358 and $103,347,523, respectively. Purchases and sales of U.S. Government securities, other than short-term securities, were $39,274,428 and $44,027,767, respectively.

 

26   

Notes to Financial Statements

 

 

5.

CAPITAL STOCK TRANSACTIONS

Transactions in shares of Core Plus Bond Series were:

 

    

For the Year

Ended 12/31/10

    

For the Year

Ended 12/31/09

  
     Shares     Amount     Shares     Amount  

Sold

      12,957,005      $ 142,303,123        5,159,453      $ 53,012,979   

Reinvested

      2,483,553        26,822,714        1,861,873        19,585,357   

Repurchased

      (4,296,032 )      (47,836,039 )      (4,577,661 )      (45,154,710 ) 
                                

Total

      11,144,526      $ 121,289,798        2,443,665      $ 27,443,626   
                                

Substantially all of the Series’ shares represent investments by fiduciary accounts over which the Advisor has sole investment discretion.

 

6.

FINANCIAL INSTRUMENTS

The Series may trade in instruments including written and purchased options, forward foreign currency exchange contracts and futures contracts and other derivatives in the normal course of investing activities to assist in managing exposure to various market risks. Investments in these instruments may subject the Series to various elements of risk, which may involve, to a varying degree, elements of risk in excess of the amounts recognized for financial statement purposes. These risks include: the risk that changes in the value of a derivative may not correlate perfectly with the underlying asset, rate or index, counterparty credit risk related to over the counter derivatives counterparties’ failure to perform under contract terms, liquidity risk related to the lack of a liquid market for these contracts allowing the fund to close out its position(s) and documentation risk relating to disagreement over contract terms. No such investments were held by the Series during the year ended December 31, 2010, except forward foreign currency exchange contracts, as shown at the end the Investment Portfolio.

 

7.

FOREIGN SECURITIES

Investing in securities of foreign companies and foreign governments involves special risks and considerations not typically associated with investing in securities of domestic companies and the U.S. Government. These risks include revaluation of currencies and future adverse political and economic developments. Moreover, securities of foreign companies and foreign governments and their markets may be less liquid and their prices more volatile than those of comparable domestic companies and the U.S. Government.

 

8.

FEDERAL INCOME TAX INFORMATION

The amount and characterization of certain income and capital gains to be distributed are determined in accordance with federal income tax regulations, which may differ from accounting principles generally accepted in the United States of America. These differences are primarily due to differing book and tax treatments in the timing of the recognition of net investment income or gains and losses, including foreign currency gains and losses, investments in hybrid securities, foreign currency contracts and post-October losses. The Series may periodically make reclassifications among its capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations without impacting the Series’ net asset value. Any such reclassifications are not reflected in the financial highlights.

 

   27

Notes to Financial Statements

 

 

8.

FEDERAL INCOME TAX INFORMATION (continued)

The tax character of distributions paid were as follows:

 

    

For the Year

Ended

12/31/10

     

For the Year

Ended

12/31/09

  

Ordinary income

    $ 25,263,864       $ 19,892,958   

Long-term capital gains

      1,965,605         —   

At December 31, 2010, the tax basis of distributable earnings and the net unrealized appreciation based on the identified cost of investments for federal income tax purposes:

 

Cost for federal income tax purposes

    $ 494,545,149   

Unrealized appreciation

    $ 37,215,210   

Unrealized depreciation

      (3,458,572 ) 
        

Net unrealized appreciation

    $ 33,756,638   
        

Undistributed ordinary income

      41,690   

Undistributed long-term gains

      3,188,556   

The capital loss carryover utilized in the current year was $2,448,880.

 

28   

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors of Manning & Napier Fund, Inc. and Shareholders of Core Plus Bond Series:

In our opinion, the accompanying statement of assets and liabilities, including the investment portfolio (except for credit ratings), and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the Core Plus Bond Series (a series of Manning & Napier Fund, Inc., hereafter referred to as the “Series”) at December 31, 2010, and 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 five years in the period ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Series’ management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2010 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

LOGO

New York, New York

February 22, 2011

 

   29

Supplemental Tax Information (unaudited)

 

All designations are based on financial information available as of the date of this annual report and, accordingly are subject to change.

For federal income tax purposes, the Series designates for the current fiscal year $911,632 or, if different, the maximum amount allowable under the tax law as qualified dividend income.

Pursuant to Section 852 of the Internal Revenue Code, as amended, the Series hereby designates $1,965,605 as capital gains for its taxable year ended December 31, 2010, or if different, the maximum allowable under tax law.

For corporate shareholders, the percentage of investment income (dividend income plus short-term gains, if any) that qualifies for the dividends received deduction for the current fiscal year is 3.63%, or if different, the maximum allowable under tax law.

 

30   

Renewal of Investment Advisory Agreement (unaudited)

 

At the Manning & Napier Fund, Inc. (the “Fund”) Board of Directors’ (the “Board”) meeting, held on November 17, 2010, the Investment Advisory Agreement (the “Agreement”) between the Fund and Manning & Napier Advisors, Inc. (the “Advisor”) was reviewed by the Board for renewal. In connection with the decision whether to renew the Agreement, a variety of material was prepared for and reviewed by the Board.

Representatives of the Advisor attended the meeting and presented additional oral and written information to the Board to assist the Board in its considerations. The discussion immediately below outlines the materials and information presented to the Board in connection with the Board’s 2010 Annual Review of the Agreement and the conclusions made by the Directors when determining to continue the Agreement.

 

  •  

The Board considered the services provided by the Advisor under the Agreement including, among others: deciding what securities to purchase and sell for each Series; arranging for the purchase and sale of such securities by placing orders with broker-dealers; administering the affairs of the Fund (including the books and records of the Fund not maintained by third party service providers such as the custodian or sub-transfer agent); arranging for the insurance coverage for the Fund; and supervising the preparation of tax returns, SEC filings (including registration statements) and reports to shareholders for the Fund. The Board also considered the nature and quality of such services provided under the Agreement in light of the Advisor’s services provided to the Fund for 24 years. The Board discussed the quality of these services with representatives from the Advisor and concluded that the Advisor was performing its services to the Fund required under the Agreement in a reasonable manner.

 

  •  

The Board considered the investment performance of the various Series of the Fund. The investment performance for each Series was reviewed on a cumulative basis since inception and on a one year basis. In addition, annualized performance for the following time periods was considered: inception, three year, five year, ten year, and current market cycle. A market cycle includes periods of both rising and falling markets. Returns for established benchmark indices for each Series were provided for each time period. The Board noted that the various Series were competitive against their respective benchmarks and/or peer groups over various time periods, but in particular over the full market cycle period relevant for the Series. In addition, the Board considered at the meeting (and considers on a quarterly basis) a peer group performance analysis consisting of Morningstar universes of mutual funds with similar investment objectives. The Board discussed the performance with representatives from the Advisor and concluded that the investment performance of each of the Fund’s Series was reasonable based on the Fund’s actual performance and comparative performance, especially performance over the current market cycle.

 

  •  

The Board considered the costs of the Advisor’s services and the profits of the Advisor as they relate to the Advisor’s services to the Fund under the Agreement. In reviewing the Advisor’s costs and profits, the Board discussed the Advisor’s revenues generated from the Fund (on both an actual and adjusted basis) and its expenses associated with providing the services under the Agreement. In addition, the Board reviewed the Advisor’s expenses associated with Fund activities outside of the Agreement (such as expense reimbursements pursuant to expense caps and payments made by the Advisor to third party platforms on which shares of the Fund are available for purchase). It was noted by representatives of the Advisor that 11 of the 27 active Series of the Fund are currently experiencing expenses above the capped expense ratios. After discussing the above costs and profits, the Board concluded that the Advisor’s profitability relating to its services provided under the Agreement was reasonable.

 

  •  

The Board considered the fees and expenses of the various Series of the Fund. The Advisor presented the advisory fees and total expenses for each Series, including the advisory fee adjusted for any expense waivers or reimbursements (either contractual or voluntary) paid by the Advisor. The advisory fees and expense ratios of each Series were compared to an average (on both a mean and median basis) of similar funds as disclosed on the Morningstar database. Representatives of the Advisor discussed with the Board the levels of its advisory

 

   31

Renewal of Investment Advisory Agreement (unaudited)

 

 

 

fee for each Series of the Fund and as compared to the median and mean advisory fees for similar funds as listed on Morningstar. Expense ratios for every Series, except the Pro-Blend’s Class R and Class C, and Target Class R and Class C, are currently below the median and mean for similar funds as listed on Morningstar. Based on their review of the information provided, the Board concluded that the fees and expenses of each Series of the Fund were reasonable on a comparative basis.

 

  •  

The Board also considered the other benefits the Advisor derives from its relationship with the Fund. Such other benefits include certain research products provided by soft dollars. Given the level of soft dollar transactions involving the Fund, the Board concluded that these additional benefits to the Advisor were reasonable.

 

  •  

In addition to the factors described above, the Board considered the Advisor’s personnel, investment strategies, policies and procedures relating to compliance with personal securities transactions, and reputation, expertise and resources in domestic and foreign financial markets. The Board concluded that these factors support the conclusion that the Advisor performs its services in a reasonable manner.

 

  •  

The Board did not consider economies of scale at this time because of the multiple uses of the Fund (for the Advisor’s discretionary investment account clients in addition to direct investors), the current profitability of the Advisor’s services to the Fund under the Agreement, and the overall size of the Fund complex.

Based on the Board’s deliberations and their evaluation of the information described above, the Board, including a majority of Directors that are not “interested persons” as defined in the Investment Company Act of 1940, concluded that the compensation under the Agreement was fair and reasonable in light of the services and expenses and such other matters as the Directors considered to be relevant in the exercise of their reasonable judgment. Accordingly, the Board approved the renewal of the Agreement. In the course of their deliberations, the Directors did not identify any particular information that was all important or controlling.

 

32   

Directors’ and Officers’ Information (unaudited)

 

The Statement of Additional Information provides additional information about the Fund’s directors and officers and can be obtained without charge by calling 1-800-466-3863, at www.manningnapieradvisors.com, or on the EDGAR Database on the SEC Internet web site (http:// www.sec.gov). The following chart shows certain information about the Fund’s officers and directors, including their principal occupations during the last five years. Unless specific dates are provided, the individuals have held the listed positions for longer than five years.

 

INTERESTED DIRECTOR/OFFICER     

Name:

    B. Reuben Auspitz*

Address:

   

290 Woodcliff Drive

Fairport, NY 14450

Age:

    63

Current Position(s) Held with Fund:

    Principal Executive Officer, President, Chairman & Director

Term of Office1 & Length of Time Served:

    Indefinite - Director since 1984; Vice President 1984 - 2003; President since 2004; Principal Executive Officer since 2002

Principal Occupation(s) During Past 5 Years:

    Executive Vice President; Executive Group Member**; Chief Compliance Officer since 2004; Vice Chairman since June 2010; Co-Executive Director from 2003-2010 - Manning & Napier Advisors, Inc. President; Director - Manning & Napier Investor Services, Inc. Holds or has held one or more of the following titles for various subsidiaries and affiliates: President, Vice President, Director, Chairman, Treasurer, Chief Compliance Officer or Member.

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A

 

INDEPENDENT DIRECTORS

   

Name:

    Paul A. Brooke

Address:

   

290 Woodcliff Drive

Fairport, NY 14450

Age:

    65

Current Position(s) Held with Fund:

    Director, Audit Committee Member, Governance & Nominating Committee Member

Term of Office & Length of Time Served:

    Indefinite - Since 2007

Principal Occupation(s) During Past 5 Years:

    Chairman & CEO, Alsius Corp. (investments); Managing Member, PMSV Holdings LLC (investments)

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

   

Incyte Corp. (2000-present)

ViroPharma, Inc. (2000-present)

HLTH Corp. (2000-present)

Cheyne Capital International (2000-present)

MPM Bio-equities (2000-present)

GMP Companies (2000-present)

HoustonPharma (2000-present)

 

Name:

    Richard M. Hurwitz

Address:

   

290 Woodcliff Drive

Fairport, NY 14450

Age:

    47

Current Position(s) Held with Fund:

    Director, Audit Committee Member, Governance & Nominating Committee Member

Term of Office & Length of Time Served:

    Indefinite - Since 2009

Principal Occupation(s) During Past 5 Years:

   

Chief Executive Officer, Pictometry International Corp. since August 2010 (provider of georeferenced, aerial image libraries and related software)

Managing Partner (2006-July 2010) - Aegis Investment Partners, LLC (investments); Founder and Managing Partner (2004-2005) - Village Markets, LLC (groceries)

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

   

Pictometry International Corp. (2000-2010)

Pioneering Technologies (2006-2009)

Vensearch Capital Corp. (2003-2007)

 

 

   33

Directors’ and Officers’ Information (unaudited)

 

 

INDEPENDENT DIRECTORS (continued)   

Name:

    Stephen B. Ashley

Address:

   

290 Woodcliff Drive

Fairport, NY 14450

Age:

    70

Current Position(s) Held with Fund:

    Director, Audit Committee Member, Governance & Nominating Committee Member

Term of Office & Length of Time Served:

    Indefinite - Since 1996

Principal Occupation(s) During Past 5 Years:

    Chairman, Director, President & Chief Executive Officer, The Ashley Group (property management and investment). Chairman (non-executive) 2004-2008; Director 1995-2008 - Fannie Mae (mortgage)

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

   

The Ashley Group (1995-2008)

Genesee Corporation (1987-2007)

 

Name:

    Peter L. Faber

Address:

   

290 Woodcliff Drive

Fairport, NY 14450

Age:

    72

Current Position(s) Held with Fund:

    Director, Governance & Nominating Committee Member

Term of Office & Length of Time Served:

    Indefinite - Since 1987

Principal Occupation(s) During Past 5 Years:

    Senior Counsel since 2006, Partner (1995 - 2006) - McDermott, Will & Emery LLP (law firm)

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

   

Partnership for New York City, Inc. (non-profit)

New York Collegium (non-profit)

Boston Early Music Festival (non-profit)

 

Name:

    Harris H. Rusitzky

Address:

   

290 Woodcliff Drive

Fairport, NY 14450

Age:

    76

Current Position(s) Held with Fund:

    Director, Audit Committee Member, Governance & Nominating Committee Member

Term of Office & Length of Time Served:

    Indefinite - Since 1985

Principal Occupation(s) During Past 5 Years:

    President, The Greening Group (business consultants) since 1994; Partner, The Restaurant Group (restaurants) since 2006

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A

 

OFFICERS

   

Name:

    Jeffrey S. Coons, Ph.D., CFA

Address:

   

290 Woodcliff Drive

Fairport, NY 14450

Age:

    47

Current Position(s) Held with Fund:

    Vice President

Term of Office1 & Length of Time Served:

    Since 2004

Principal Occupation(s) During Past 5 Years:

    President since 2010, Co-Director of Research since 2002, Executive Group Member** since 2003, - Manning & Napier Advisors, Inc. Holds one or more of the following titles for various subsidiaries and affiliates: President, Director, Treasurer or Senior Trust Officer.

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

 

   

N/A

 

 

34   

Directors’ and Officers’ Information (unaudited)

 

 

OFFICERS (continued)   

 

Name:

   

Beth Galusha

Address:

   

290 Woodcliff Drive

Fairport, NY 14450

Age:

   

49

Current Position(s) Held with Fund:

   

Assistant Chief Financial Officer

Term of Office1 & Length of Time Served:

   

Assistant Chief Financial Officer since 2010

Principal Occupation(s) During Past 5 Years:

   

Chief Financial Officer and Treasurer, Manning & Napier Advisors, Inc. Holds one or more of the following titles for various affiliates: Chief Financial Officer, Director, or Treasurer

Number of Portfolios Overseen within Fund Complex:

   

29

Other Directorships Held Outside Fund Complex:

    N/A

 

Name:

   

Christine Glavin

Address:

   

290 Woodcliff Drive

Fairport, NY 14450

Age:

   

44

Current Position(s) Held with Fund:

   

Principal Financial Officer, Chief Financial Officer

Term of Office1 & Length of Time Served:

   

Principal Financial Officer since 2002; Chief Financial Officer since 2001

Principal Occupation(s) During Past 5 Years:

   

Fund Reporting Manager, Manning & Napier Advisors, Inc. since 1997

Number of Portfolios Overseen within Fund Complex:

   

29

Other Directorships Held Outside Fund Complex:

    N/A

 

Name:

   

Jodi L. Hedberg

Address:

   

290 Woodcliff Drive

Fairport, NY 14450

Age:

   

43

Current Position(s) Held with Fund:

   

Corporate Secretary, Chief Compliance Officer, Anti-Money Laundering Compliance Officer

Term of Office1 & Length of Time Served:

   

Corporate Secretary since 1997; Chief Compliance Officer since 2004

Principal Occupation(s) During Past 5 Years:

   

Director of Compliance, Manning & Napier Advisors, Inc. and affiliates since 1990 (title change in 2005 from Compliance Manager to Director of Compliance); Corporate Secretary, Manning & Napier Investor Services, Inc. since 2006

Number of Portfolios Overseen within Fund Complex:

   

29

Other Directorships Held Outside Fund Complex:

    N/A

 

Name:

   

Richard Yates

Address:

   

290 Woodcliff Drive

Fairport, NY 14450

Age:

   

45

Current Position(s) Held with Fund:

   

Chief Legal Officer

Term of Office1 & Length of Time Served:

   

Chief Legal Officer since 2004

Principal Occupation(s) During Past 5 Years:

   

Counsel - Manning & Napier Advisors, Inc. & affiliates since 2000; Holds one or more of the following titles for various affiliates; Director or Corporate Secretary

Number of Portfolios Overseen within Fund Complex:

   

29

Other Directorships Held Outside Fund Complex:

    N/A

*Interested Director, within the meaning of the Investment Company Act of 1940 by reason of his position with the Fund’s investment advisor and distributor. Mr. Auspitz serves as the Executive Vice President and Director, Manning & Napier Advisors, Inc. and President and Director, Manning & Napier Investor Services, Inc., the Fund’s distributor.

**Prior to June 2010, the Executive Group, consisting of senior executive employee-owners, performed the duties of the Office of the Chief Executive of the Advisor. Effective June 2010, the Executive Group serves as an advisory board to the Chief Executive Officer.

1The term of office for President, Vice President, Chief Financial Officer, Assistant Chief Financial Officer, Chief Legal Officer and Corporate Secretary is one year and until their respective successors are chosen and qualified. All other officers’ terms are indefinite.

 

   35

 

 

 

 

 

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36

 

 

 

 

 

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37

Literature Requests (unaudited)

 

Proxy Voting Policies and Procedures

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request:

 

By phone

   

1-800-466-3863

On the Securities and Exchange
  Commission’s (SEC) web site

   

http://www.sec.gov

Proxy Voting Record

Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available, without charge, upon request:

 

By phone

   

1-800-466-3863

On the SEC’s web site

   

http://www.sec.gov

Quarterly Portfolio Holdings

The Series’ complete schedule of portfolio holdings for the 1st and 3rd quarters of each fiscal year are provided on Form N-Q, and are available, without charge, upon request:

 

By phone

   

1-800-466-3863

On the SEC’s web site

   

http://www.sec.gov

The Series’ Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.

Prospectus and Statement of Additional Information (SAI)

The prospectus and SAI provide additional information about each Series, including charges, expenses and risks. These documents are available, without charge, upon request:

 

By phone

   

1-800-466-3863

On the SEC’s web site

   

http://www.sec.gov

On the Advisor’s web site

   

http://www.manning-napier.com

Additional information available at www.manning-napier.com

1. Fund Holdings - Month-End

2. Fund Holdings - Quarter-End

3. Shareholder Report - Annual

4. Shareholder Report - Semi-Annual

MNCRPLBND-12/10-AR

 

  

LOGO

Management Discussion and Analysis (unaudited)

 

Dear Shareholders:

As well-defined swings in sentiment drove market fluctuations in 2010, the fixed income markets had favorable results for the year. While returns were broadly positive across sectors, high yield securities were the best performing area of the fixed income market for the year. With returns resembling those of equities, high yield bonds experienced stronger performance at the end of the year than the rest of the fixed income markets, which suffered losses in the fourth quarter.

The Bank of America Merrill Lynch U.S. High Yield, Cash Pay, BB-B Rated Index earned 14.50% during the year. While the High Yield Bond Series returned a solid 13.59% and outpaced the broader Bank of America Merrill Lynch U.S. Corporate, Government and Mortgage Index in its first full year of its most recent activation, the Series slightly trailed its benchmark during 2010.

Historically, the high yield market has provided strong total and relative returns for several years following a recession, as defaults recede and credit spreads tighten. Such favorable conditions were a main reason Manning & Napier launched the High Yield Bond Series in September 2009. Following the 2008 credit crisis, yields on high yield bonds have indeed retreated from extremes, helping the high yield market generate outsized gains in both 2009 and 2010. Given attractive valuations, low defaults, and expectations for modest growth and inflation, we believe the high yield market continues to present opportunities. Yields on below investment grade bonds remain relatively high, particularly as compared to Treasury yields, and spreads between the two have the potential for further tightening over the next few years. As bond prices rise when yields fall, the Series continues to look to take advantage of this market environment.

As of the end of 2010, the High Yield Bond Series had a relatively high allocation to the Communications, Non-Cyclical Consumer, and Energy sectors versus the benchmark. In contrast, the Series was underweight to the Basic Materials, Consumer Cyclical, Financial, and Utilities sectors as compared to the benchmark. The lower exposure to Financials hurt the Series’ relative performance during the past year, particularly in the first and third quarters.

The Series was also impacted by market events over the last twelve months. For instance, when European sovereign debt concerns escalated during the second quarter, exposure to the Euro detracted from the Series’ relative results. Meanwhile, the Series benefited from merger and acquisition activity that involved several holdings last year.

As the markets unfold in 2011, it will be important to monitor trends such as the financial condition of corporations, monetary policy, and pricing in the marketplace. With this mindset, Manning & Napier remains committed to our active and selective investment approach to fixed income. Staying focused on the fundamentals and maintaining our selective investment process helped us earn solid returns through the volatile markets of 2010, and we believe these qualities will remain important in the environment ahead.

As always, we appreciate your business.

Sincerely,

Manning & Napier Advisors, Inc.

 

   1

Performance Update as of December 31, 2010 (unaudited)

 

 

    

Average Annual Total Returns

As of December 31, 2010

  
    

One

Year

    

Since

Inception1

  

Manning & Napier Fund, Inc. - High Yield Bond Series2

      13.59%        14.38%   

 

Bank of America (BofA) Merrill Lynch U.S. High Yield, Cash Pay, BB-B Rated Index3

      14.50%        17.34%   
                  
                  

The following graph compares the value of a $10,000 investment in the Manning & Napier Fund, Inc. - High Yield Bond Series from its current activation1 (9/14/09) to present (12/31/10) to the BofA Merrill Lynch U.S. High Yield, Cash Pay, BB-B Rated Index.

LOGO

1Performance numbers for the Series and Index are calculated from September 14, 2009, the Series’ current activation date.

2The Series’ performance does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. The Series’ performance is historical and may not be indicative of future results. The performance returns shown are inclusive of the net expense ratio of the Series. For the year ended December 31, 2010, this annualized net expense ratio was 1.14%. The annualized gross expense ratio, which does not account for any voluntary or contractual waivers currently in effect, was 1.14% for the year ended December 31, 2010.

3The unmanaged BofA Merrill Lynch U.S. High Yield, Cash Pay, BB-B Rated Index (formerly a Merrill Lynch Index) is a market value weighted measure of BB and B rated corporate bonds with maturities of at least one-year. The Index returns assume reinvestment of coupons and, unlike Series returns, do not reflect any fees or expenses.

 

2   

Shareholder Expense Example (unaudited)

 

 

As a shareholder of the Series, you may incur two types of costs: (1) transaction costs and (2) ongoing costs, including management fees and other Series expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Series and to compare these costs with the ongoing costs of investing in other mutual funds.

The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (July 1, 2010 to December 31, 2010).

Actual Expenses

The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Series’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Series’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid during the period. You may use this information to compare the ongoing costs of investing in the Series and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transaction costs were included, your costs would have been higher.

 

 

    

Beginning

Account Value

7/1/10

   

Ending

Account Value

12/31/10

   

Expenses Paid

During Period*

7/1/10-12/31/10

Actual

    $1,000.00    $1,094.80    $6.18

Hypothetical
(5% return before expenses)

    $1,000.00    $1,019.31    $5.96

*Expenses are equal to the Series’ annualized expense ratio (for the six-month period) of 1.17%, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Expenses are based on the most recent fiscal half year; therefore, the expense ratio stated above may differ from the expense ratio stated in the financial highlights, which is based on one-year data. The Series’ total return would have been lower had certain expenses not been waived during the period.

 

   3

Portfolio Composition as of December 31, 2010 (unaudited)

 

LOGO

 

4   

Investment Portfolio - December 31, 2010

 

    

Credit

Rating1

(unaudited)

     

Principal

Amount

     

Value

(Note 2)

  

 

CORPORATE BONDS - 91.1%

         

Non-Convertible Corporate Bonds - 91.1%

         

Consumer Discretionary - 15.9%

         

Hotels, Restaurants & Leisure - 4.5%

         

Cedar Fair LP - Canada’s Wonderland Co. - Magnum Management Corp.2, 9.125%, 8/1/2018

      B2       $ 660,000       $ 710,325   

Scientific Games International, Inc.2, 7.875%, 6/15/2016

      B1         1,450,000         1,446,375   

Wendy’s - Arby’s Restaurants LLC, 10.00%, 7/15/2016

      B3         1,700,000         1,844,500   

Wyndham Worldwide Corp., 9.875%, 5/1/2014

      Ba1         570,000         667,466   

Wyndham Worldwide Corp., 6.00%, 12/1/2016

      Ba1         2,260,000         2,364,943   
              
           7,033,609   
              

Media - 9.1%

         

Cablevision Systems Corp., 8.625%, 9/15/2017

      B1           2,030,000         2,210,163   

Columbus International, Inc. (Barbados)2, 11.50%, 11/20/2014

      B2         1,770,000         1,964,700   

Interactive Data Corp.2, 10.25%, 8/1/2018

      Caa1         925,000         1,012,875   

MDC Partners, Inc. (Canada), 11.00%, 11/1/2016

      B2         955,000         1,052,887   

Sirius XM Radio, Inc.2, 9.75%, 9/1/2015

      Ba3         940,000         1,055,150   

Unitymedia Hessen GmbH & Co. KG - Unitymedia NRW GmbH (Germany)2, 8.125%, 12/1/2017

      B1         650,000         679,250   

Unitymedia Hessen GmbH & Co. KG - Unitymedia NRW GmbH (Germany)2, 8.125%, 12/1/2017

      B1       EUR 525,000         742,779   

UPC Holding B.V. (Netherlands)2, 9.875%, 4/15/2018

      B2       $ 1,935,000         2,118,825   

Virgin Media Finance plc (United Kingdom), 8.375%, 10/15/2019

      Ba3         935,000         1,021,487   

WMG Acquisition Corp., 9.50%, 6/15/2016

      Ba2         1,105,000         1,185,113   

XM Satellite Radio, Inc.2, 7.625%, 11/1/2018

      B3         1,315,000         1,357,737   
              
           14,400,966   
              

Specialty Retail - 2.3%

         

Rent-A-Center, Inc.2, 6.625%, 11/15/2020

      Ba3         1,600,000         1,592,000   

Toys R Us Property Co., LLC, 8.50%, 12/1/2017

      Ba1         1,885,000         2,026,375   
              
           3,618,375   
              

Total Consumer Discretionary

            25,052,950   
              

Consumer Staples - 3.9%

         

Beverages - 2.5%

         

CEDC Finance Corp. International, Inc.2, 9.125%, 12/1/2016

      B1         1,885,000         2,002,813   

Constellation Brands, Inc., 8.375%, 12/15/2014

      Ba3         1,830,000         1,999,275   
              
           4,002,088   
              

Personal Products - 1.4%

         

Revlon Consumer Products Corp., 9.75%, 11/15/2015

      B3         2,055,000         2,173,163   
              

Total Consumer Staples

            6,175,251   
              

Energy - 20.1%

         

Energy Equipment & Services - 7.3%

         

Calfrac Holdings LP2, 7.50%, 12/1/2020

      B2         1,595,000         1,614,937   

 

The accompanying notes are an integral part of the financial statements.    5

Investment Portfolio - December 31, 2010

 

    

Credit

Rating1

(unaudited)

    

Principal

Amount

     

Value

(Note 2)

  

 

CORPORATE BONDS (continued)

        

Non-Convertible Corporate Bonds (continued)

        

Energy (continued)

        

Energy Equipment & Services (continued)

        

Cie Generale de Geophysique - Veritas (France), 7.50%, 5/15/2015

      Ba3      $     2,000,000       $     2,035,000   

Complete Production Services, Inc., 8.00%, 12/15/2016

      B1        2,150,000         2,225,250   

Hornbeck Offshore Services, Inc., 8.00%, 9/1/2017

      Ba3        1,340,000         1,366,800   

Key Energy Services, Inc., 8.375%, 12/1/2014

      B1        1,150,000         1,213,250   

Thermon Industries, Inc.2, 9.50%, 5/1/2017

      B1        1,355,000         1,443,075   

Trinidad Drilling Ltd. (Canada)2, 7.875%, 1/15/2019

      B2        1,710,000         1,727,100   
             
          11,625,412   
             

Oil, Gas & Consumable Fuels - 12.8%

        

Aquilex Holdings LLC - Aquilex Finance Corp., 11.125%, 12/15/2016

      Caa1        1,185,000         1,199,813   

Arch Coal, Inc., 8.75%, 8/1/2016

      B1        725,000         790,250   

Arch Western Finance LLC, 6.75%, 7/1/2013

      B1        611,000         617,110   

Chaparral Energy, Inc., 8.875%, 2/1/2017

      Caa1        1,495,000         1,517,425   

Chesapeake Energy Corp., 9.50%, 2/15/2015

      Ba3        2,075,000         2,339,562   

Coffeyville Resources LLC - Coffeyville Finance, Inc.2, 9.00%, 4/1/2015

      Ba3        604,000         646,280   

Coffeyville Resources LLC - Coffeyville Finance, Inc.2, 10.875%, 4/1/2017

      B3        640,000         688,000   

Crosstex Energy LP - Crosstex Energy Finance Corp., 8.875%, 2/15/2018

      B3        2,143,000         2,295,689   

Linn Energy LLC - Linn Energy Finance Corp.2, 7.75%, 2/1/2021.

      B2        1,455,000         1,491,375   

MarkWest Energy Partners LP - MarkWest Energy Finance Corp., 6.75%, 11/1/2020

      B1        1,550,000         1,550,000   

Martin Midstream Partners LP - Martin Midstream Finance Corp., 8.875%, 4/1/2018

      B 3      1,360,000         1,400,800   

Niska Gas Storage US LLC - Niska Gas Storage Canada ULC2, 8.875%, 3/15/2018

      B1        970,000         1,037,900   

Plains Exploration & Production Co., 8.625%, 10/15/2019

      B1        440,000         481,800   

Targa Resources Partners LP - Targa Resources Partners Finance Corp., 8.25%, 7/1/2016

      B1        1,410,000         1,487,550   

Tesoro Corp., 9.75%, 6/1/2019

      Ba1        1,940,000         2,148,550   

Whiting Petroleum Corp., 7.00%, 2/1/2014

      Ba3        485,000         509,250   
             
          20,201,354   
             

Total Energy

           31,826,766   
             

Financials - 11.5%

        

Capital Markets - 0.9%

        

Goldman Sachs Capital II4, 5.793%, 12/29/2049

      Baa2        1,650,000         1,398,375   
             

 

6    The accompanying notes are an integral part of the financial statements.

Investment Portfolio - December 31, 2010

 

 

    

Credit

Rating1

(unaudited)

     

Principal

Amount

     

Value

(Note 2)

  

CORPORATE BONDS (continued)

         

Non-Convertible Corporate Bonds (continued)

         

Financials (continued)

         

Commercial Banks - 0.5%

         

Wilmington Trust Corp., 8.50%, 4/2/2018

      Ba1       $     755,000       $         861,834   
              

Consumer Finance - 3.3%

         

American Express Co.4, 6.80%, 9/1/2066

      Baa2         2,940,000         2,910,600   

Credit Acceptance Corp.2, 9.125%, 2/1/2017

      B1         2,185,000         2,294,250   
              
           5,204,850   
              

Insurance - 1.5%

         

Hartford Financial Services Group, Inc.4, 8.125%, 6/15/2038

      Ba1         2,250,000         2,390,625   
              

Real Estate Investment Trusts (REITS) - 4.3%

         

DuPont Fabros Technology LP, 8.50%, 12/15/2017

      Ba2         2,495,000         2,669,650   

Felcor Lodging LP, 10.00%, 10/1/2014

      B2         1,370,000         1,534,400   

Host Hotels & Resorts LP, 6.875%, 11/1/2014

      BB3         665,000         684,950   

Host Hotels & Resorts LP, 6.375%, 3/15/2015

      Ba1         550,000         558,250   

Omega Healthcare Investors, Inc., 7.50%, 2/15/2020

      Ba2         1,335,000         1,403,419   
              
           6,850,669   
              

Real Estate Management & Development - 1.0%

         

CB Richard Ellis Services, Inc.2, 6.625%, 10/15/2020

      Ba1         1,500,000         1,500,000   
              

Total Financials

            18,206,353   
              

Health Care - 8.6%

         

Health Care Equipment & Supplies - 3.9%

         

Alere, Inc., 7.875%, 2/1/2016

      B2         1,725,000         1,729,313   

Alere, Inc., 9.00%, 5/15/2016

      B3         1,323,000         1,362,690   

Fresenius Medical Care Capital Trust IV, 7.875%, 6/15/2011

      Ba3         965,000         981,887   

Fresenius US Finance II, Inc.2, 9.00%, 7/15/2015

      Ba1         1,885,000         2,158,325   
              
           6,232,215   
              

Health Care Providers & Services - 3.8%

         

BioScrip, Inc., 10.25%, 10/1/2015

      B3         1,285,000         1,323,550   

HCA, Inc., 7.875%, 2/15/2020

      Ba3         1,170,000         1,251,900   

Health Management Associates, Inc., 6.125%, 4/15/2016

      BB3         1,935,000         1,954,350   

LifePoint Hospitals, Inc.2, 6.625%, 10/1/2020

      Ba1         1,500,000         1,488,750   
              
           6,018,550   
              

Life Sciences Tools & Services - 0.9%

         

PharmaNet Development Group, Inc.2, 10.875%, 4/15/2017

      B3         1,350,000         1,404,000   
              

Total Health Care

            13,654,765   
              

Industrials - 12.5%

         

Aerospace & Defense - 2.2%

         

BE Aerospace, Inc., 6.875%, 10/1/2020

      Ba3         1,500,000         1,548,750   

GeoEye, Inc., 9.625%, 10/1/2015

      Ba3         945,000         1,067,850   

 

The accompanying notes are an integral part of the financial statements.    7

Investment Portfolio - December 31, 2010

 

    

Credit

Rating1

(unaudited)

     

Principal

Amount

     

Value

(Note 2)

  

 

CORPORATE BONDS (continued)

         

Non-Convertible Corporate Bonds (continued)

         

Industrials (continued)

         

Aerospace & Defense (continued)

         

Kratos Defense & Security Solutions, Inc., 10.00%, 6/1/2017

      B3       $     750,000       $         830,625   
              
           3,447,225   
              

Airlines - 1.8%

         

Continental Airlines, Inc.2, 6.75%, 9/15/2015

      Ba2         1,495,000         1,539,850   

Delta Air Lines, Inc.2, 9.50%, 9/15/2014

      Ba2         1,176,000         1,280,370   
              
           2,820,220   
              

Building Products - 1.8%

         

Building Materials Corp. of America2, 6.875%, 8/15/2018

      B1         825,000         816,750   

Building Materials Corp. of America2, 7.50%, 3/15/2020

      B1         645,000         656,287   

Owens Corning, 9.00%, 6/15/2019

      Ba1         1,140,000         1,337,441   
              
           2,810,478   
              

Commercial Services & Supplies - 2.2%

         

ACCO Brands Corp., 10.625%, 3/15/2015

      B1         910,000         1,023,750   

Clean Harbors, Inc., 7.625%, 8/15/2016

      Ba2         1,072,000         1,139,000   

Garda World Security Corp. (Canada)2, 9.75%, 3/15/2017

      B3         1,290,000         1,383,525   
              
           3,546,275   
              

Industrial Conglomerates - 1.4%

         

GE Capital Trust I4, 6.375%, 11/15/2067

      Aa3         2,250,000         2,221,875   
              

Marine - 2.2%

         

Navios Maritime Holdings, Inc. - Navios Maritime Finance US, Inc. (Marshall Island), 8.875%, 11/1/2017

      Ba3         2,195,000         2,376,087   

United Maritime Group LLC - United Maritime Group Finance Corp., 11.75%, 6/15/2015

      B3         1,185,000         1,187,963   
              
           3,564,050   
              

Road & Rail - 0.9%

         

RailAmerica, Inc., 9.25%, 7/1/2017

      B1         773,000         849,334   

Swift Services Holdings, Inc.2, 10.00%, 11/15/2018

      Caa1         500,000         523,750   
              
           1,373,084   
              

Total Industrials

            19,783,207   
              

Information Technology - 3.8%

         

Communications Equipment - 2.0%

         

Alcatel-Lucent USA, Inc., 6.45%, 3/15/2029

      B1         1,580,000         1,248,200   

Hughes Network Systems LLC - HNS Finance Corp., 9.50%, 4/15/2014

      B1         1,775,000         1,830,469   
              
           3,078,669   
              

 

8    The accompanying notes are an integral part of the financial statements.

Investment Portfolio - December 31, 2010

 

    

Credit

Rating1

(unaudited)

     

Principal

Amount

     

Value

(Note 2)

  

 

CORPORATE BONDS (continued)

         

Non-Convertible Corporate Bonds (continued)

         

Information Technology (continued)

         

Semiconductors & Semiconductor Equipment - 1.8%

         

Advanced Micro Devices, Inc., 8.125%, 12/15/2017

      Ba3       $     645,000       $         683,700   

Advanced Micro Devices, Inc.2, 7.75%, 8/1/2020

      Ba3         760,000         788,500   

MagnaChip Semiconductor S.A. - MagnaChip Semiconductor Finance Co., 10.50%, 4/15/2018

      B2         1,360,000         1,434,800   
              
           2,907,000   
              

Total Information Technology

            5,985,669   
              

Materials - 5.9%

         

Chemicals - 2.0%

         

Ferro Corp., 7.875%, 8/15/2018

      B2         1,470,000         1,550,850   

Rhodia S.A. (France)2, 6.875%, 9/15/2020

      B1         1,535,000         1,556,106   
              
           3,106,956   
              

Containers & Packaging - 1.5%

         

Reynolds Group Issuer, Inc. - Reynolds Group Issuer LLC2, 8.50%, 5/15/2018

      Caa1         1,375,000         1,381,875   

Reynolds Group Issuer, Inc. - Reynolds Group Issuer LLC2, 7.125%, 4/15/2019

      Ba3         1,000,000         1,017,500   
              
           2,399,375   
              

Metals & Mining - 0.9%

         

Steel Dynamics, Inc., 7.75%, 4/15/2016

      Ba2         1,300,000         1,368,250   
              

Paper & Forest Products - 1.5%

         

Georgia-Pacific LLC2, 8.25%, 5/1/2016

      Ba2         2,115,000         2,387,306   
              

Total Materials

            9,261,887   
              

Telecommunication Services - 6.4%

         

Diversified Telecommunication Services - 4.2%

         

Clearwire Communications LLC - Clearwire Finance, Inc.2, 12.00%, 12/1/2015

      B2         1,000,000         1,080,000   

Clearwire Communications LLC - Clearwire Finance, Inc.2, 12.00%, 12/1/2015

      B2         275,000         296,313   

Inmarsat Finance plc (United Kingdom)2, 7.375%, 12/1/2017

      Ba2         1,500,000         1,575,000   

Intelsat Subsidiary Holding Co. S.A. (Bermuda)2, 8.875%, 1/15/2015

      B3         1,395,000         1,426,387   

Wind Acquisition Finance S.A. (Luxembourg)2, 11.75%, 7/15/2017

      B2         1,800,000         2,029,500   

Wind Acquisition Finance S.A. (Luxembourg)2, 7.25%, 2/15/2018.

      Ba2         275,000         279,813   
              
               6,687,013   
              

Wireless Telecommunication Services - 2.2%

         

CC Holdings GS V LLC - Crown Castle GS III Corp.2, 7.75%, 5/1/2017

      Baa3         1,315,000         1,436,637   

 

The accompanying notes are an integral part of the financial statements.    9

Investment Portfolio - December 31, 2010

 

 

     Credit
Rating
(unaudited) 		     Principal
Amount/
Shares 		    

Value

(Note 2)

  

CORPORATE BONDS (continued)

         

Non-Convertible Corporate Bonds (continued)

         

Telecommunication Services (continued)

         

Wireless Telecommunication Services (continued)

         

NII Capital Corp., 8.875%, 12/15/2019

      B2       $      1,845,000       $       1,987,987   
              
           3,424,624   
              

Total Telecommunication Services

            10,111,637   
              

Utilities - 2.5%

         

Gas Utilities - 1.0%

         

Ferrellgas LP - Ferrellgas Finance Corp.2, 6.50%, 5/1/2021

      Ba3         1,615,000         1,574,625   
              

Independent Power Producers & Energy Traders - 1.5%

         

Mirant Mid Atlantic Pass-Through Trust, Series B, 9.125%, 6/30/2017

      Ba1         779,047         837,476   

Mirant Mid Atlantic Pass-Through Trust, Series C, 10.06%, 12/30/2028

      Ba1         477,404         529,919   

North American Energy Alliance LLC - North American Energy Alliance Finance Corp.2, 10.875%, 6/1/2016

      Ba3         945,000         1,048,950   
              
           2,416,345   
              

Total Utilities

            3,990,970   
              

TOTAL CORPORATE BONDS
(Identified Cost $137,487,774)

            144,049,455   
              

PREFERRED STOCKS - 2.6%

         

Financials - 2.6%

         

Commercial Banks - 0.9%

         

Wells Fargo & Co., Series K6, 7.98%

      Baa3         1,335,000         1,408,425   
              

Diversified Financial Services - 1.7%

         

Bank of America Corp., Series K6, 8.00%

      Ba3         1,410,000         1,420,998   

JPMorgan Chase & Co., Series 16, 7.90%

      Baa1         1,275,000         1,355,312   
              
           2,776,310   
              

TOTAL PREFERRED STOCKS
(Identified Cost $3,817,685)

            4,184,735   
              

MUTUAL FUNDS - 1.5%

         

iShares iBoxx High Yield Corporate Bond Fund
(Identified Cost $2,235,307)

         25,880         2,336,705   
              

 

10    The accompanying notes are an integral part of the financial statements.

Investment Portfolio - December 31, 2010

 

 

     Shares     

Value

(Note 2)

  

SHORT-TERM INVESTMENTS - 3.2%

      

Dreyfus Cash Management, Inc. - Institutional Shares5, 0.14%,
(Identified Cost $5,143,661)

      5,143,661       $ 5,143,661   
           

TOTAL INVESTMENTS - 98.4%
Identified Cost $148,684,427)

         155,714,556   

OTHER ASSETS, LESS LIABILITIES - 1.6%

         2,466,755   
           

NET ASSETS - 100%

       $      158,181,311   
           

EUR - Euro currency

1Credit ratings from Moody’s (unaudited).

2Restricted securities - Investment in securities that are restricted as to public resale under the Securities Act of 1933, as amended. These securities have been sold under rule 144A and have been determined to be liquid under guidelines established by the Board of Directors. These securities amount to $56,255,865, or 35.6%, of the Series’ net assets as of December 31, 2010.

3Credit ratings from S&P (unaudited).

4The coupon rate is floating and is the stated rate as of December 31, 2010.

5Rate shown is the current yield as of December 31, 2010.

6The rate shown is the fixed rate as of December 31, 2010; the rate becomes floating in 2049.

 

The accompanying notes are an integral part of the financial statements.    11

Statement of Assets and Liabilities

December 31, 2010

 

 

ASSETS:

   

Investments, at value (identified cost $148,684,427) (Note 2)

    $ 155,714,556   

Interest receivable

      2,635,153   

Receivable for fund shares sold

      152,010   

Dividends receivable

      15,562   
        

TOTAL ASSETS

      158,517,281   
        

LIABILITIES:

   

Accrued management fees (Note 3)

      133,188   

Accrued fund accounting and administration fees (Note 3)

      7,725   

Accrued transfer agent fees (Note 3)

      1,510   

Accrued Chief Compliance Officer service fees (Note 3)

      243   

Accrued directors’ fees (Note 3)

      87   

Payable for fund shares repurchased

      133,941   

Audit fees payable

      34,834   

Other payables and accrued expenses

      24,442   
        

TOTAL LIABILITIES

      335,970   
        

TOTAL NET ASSETS

    $ 158,181,311   
        

NET ASSETS CONSIST OF:

   

Capital stock

    $        147,331   

Additional paid-in-capital

      150,540,151   

Undistributed net investment income

      21,255   

Accumulated net realized gain on investments, foreign currency and translation of other assets and liabilities

      442,370   

Net unrealized appreciation on investments, foreign currency and translation of other assets and liabilities

      7,030,204   
        

TOTAL NET ASSETS

    $ 158,181,311   
        

NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE - Class A
($158,181,311/14,733,147 shares)

    $           10.74   
        

 

12    The accompanying notes are an integral part of the financial statements.

Statement of Operations

For the Year Ended December 31, 2010

 

 

INVESTMENT INCOME:

   

Interest

    $ 10,674,449   

Dividends

      744,228   
        

Total Investment Income

      11,418,677   
        

EXPENSES:

   

Management fees (Note 3)

      1,439,394   

Fund accounting and administration fees (Note 3)

      58,379   

Transfer agent fees (Note 3)

      10,384   

Directors’ fees (Note 3)

      9,336   

Chief Compliance Officer service fees (Note 3)

      2,675   

Custodian fees

      9,775   

Miscellaneous

      114,150   
        

Total Expenses

      1,644,093   

Less reduction of expenses (Note 3)

      (758 ) 
        

Net Expenses

      1,643,335   
        

NET INVESTMENT INCOME

      9,775,342   
        

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY:

   

Net realized gain (loss) on Investments

      3,928,488   

Foreign currency and translation of other assets and liabilities

      (46,171 ) 
        
     3,882,317   
        

Net change in unrealized appreciation on Investments

      4,695,592   

Foreign currency and translation of other assets and liabilities

      416   
        
     4,696,008   
        

NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN CURRENCY

      8,578,325   
        

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

    $ 18,353,667   
        

 

The accompanying notes are an integral part of the financial statements.    13

Statements of Changes in Net Assets

 

 

    

For the

Year Ended

12/31/10

    

For the Period
9/14/091 to

12/31/09

  

INCREASE (DECREASE) IN NET ASSETS:

     

OPERATIONS:

     

Net investment income

      $    9,775,342        $    1,590,736   

Net realized gain on investments and foreign currency

      3,882,317        450,110   

Net change in unrealized appreciation on investments and foreign Currency

      4,696,008        2,334,196   
                

Net increase from operations

      18,353,667        4,375,042   
                

DISTRIBUTIONS TO SHAREHOLDERS (Note 8):

     

From net investment income

      (10,050,478 )      (1,259,565 ) 

From net realized gain on investments

      (3,847,008 )      (88,925 ) 
                

Total distributions to shareholders

      (13,897,486 )      (1,348,490 ) 
                

CAPITAL STOCK ISSUED AND REPURCHASED:

     

Net increase from capital share transactions (Note 5)

      26,046,907        124,651,671   
                

Net increase in net assets

      30,503,088        127,678,223   

NET ASSETS:

     

Beginning of period

      127,678,223        —   
                

End of period (including undistributed net investment income of $21,255 and $325,982, respectively)

      $158,181,311        $127,678,223   
                

 

1Commencement

of operations.

 

14    The accompanying notes are an integral part of the financial statements.

Financial Highlights

 

     For the Year
Ended
12/31/10		     For the Period
9/14/091to
12/31/09 		 

Per share data (for a share outstanding throughout each period):

     

Net asset value - Beginning of period

              $10.37                        $10.00           
                

Income from investment operations:

     

Net investment income2

      0.75        0.20   

Net realized and unrealized gain on investments

      0.66        0.28   
                

Total from investment operations

      1.41        0.48   
                

Less distributions to shareholders:

     

From net investment income

      (0.75)        (0.10)   

From net realized gain on investments

      (0.29)        (0.01)   
                

Total distributions to shareholders

      (1.04)        (0.11)   
                

Net asset value - End of period

      $10.74        $10.37   
                

Net assets - End of period (000’s omitted)

      $158,181        $127,678   
                

Total return3

      13.59%        4.82%   

Ratios (to average net assets)/ Supplemental Data:

     

Expenses*

      1.14%        1.20%4   

Net investment income

      6.79%        6.51%4   

Portfolio turnover

      54%        22%   

*The investment advisor did not impose all or a portion of its management fees, CCO fees, fund accounting and transfer agent fees and other fees in some periods and in some periods paid a portion of the Series’ expenses. If these expenses had been incurred by the Series, the expense ratio (to average net assets) would have been increased by the following amounts:

      
     0.00%5        0.02%4   

1Commencement of operations.

2Calculated based on average shares outstanding during the year.

3Represents aggregate total return for the periods indicated, and assumes reinvestment of all distributions. Total return would have been lower had certain expenses not been waived or reimbursed during the periods. Periods less than one year are not annualized.

4Annualized.

5Less than 0.01%.

 

The accompanying notes are an integral part of the financial statements.    15

Notes to Financial Statements

 

 

1.

ORGANIZATION

High Yield Bond Series (the “Series”) is a no-load non-diversified series of Manning & Napier Fund, Inc. (the “Fund”). The Fund is organized in Maryland and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company.

The Series’ investment objective is to provide a high level of long-term total return by investing principally in non-investment grade fixed income securities that are issued by government and corporate entities.

The Fund’s Advisor is Manning & Napier Advisors, Inc. (the “Advisor”). On September 14, 2009 the Series resumed sales of shares to advisory clients and employees of the Advisor and its affiliates and directly to investors. The total authorized capital stock of the Fund consists of 10.0 billion shares of common stock each having a par value of $0.01. As of December 31, 2010, 6.2 billion shares have been designated in total among 29 series, of which 125 million have been designated as High Yield Bond Series Class A common stock.

 

2.

SIGNIFICANT ACCOUNTING POLICIES

Security Valuation

Portfolio securities, including domestic equities, foreign equities, warrants and options, listed on an exchange other than the NASDAQ National Market System are valued at the latest 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 provided by the Fund’s pricing service. Securities listed on the NASDAQ National Market System are valued in accordance with the NASDAQ Official Closing Price.

Debt securities, including government bonds, foreign bonds, asset-backed securities, structured notes, supranational obligations, sovereign bonds, corporate bonds and mortgage-backed securities will normally be valued on the basis of evaluated bid prices provided directly by an independent pricing service. The pricing services use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the pricing services may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient market activity may not exist or is limited, the pricing services also utilize proprietary valuation models which may consider market characteristics such as benchmark yield curves, option-adjusted spreads, credit spreads, estimated default rates, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to calculate the fair value. Certain investments in securities held by the Series may be valued on a basis of a price provided directly by a principal market maker. These prices may differ from the value that would have been used had a broader market for securities existed.

Short-term investments that mature in sixty days or less are valued at amortized cost, which approximates market value. Investments in open-end investment companies are valued at their net asset value per share on valuation date.

Volume and level of activity in established markets for an asset or liability are evaluated to determine whether recent transactions and quoted prices are determinative of fair value. Where there have been significant decreases in volume and level of activity, further analysis and adjustment may be necessary to estimate fair value. The Series measures fair value in these instances by the use of inputs and valuation techniques which may be based upon current market prices of securities that are comparable in coupon, rating, maturity and industry and/or expectation of future cash flows. As a result of trading in relatively thin markets and/or markets that experience significant volatility, the prices used by the Series to value these securities may differ from the value that would be realized if these securities were sold, and the differences could be material.

Securities for which representative valuations or prices are not available from the Fund’s pricing service may be valued at fair value. Due to the inherent uncertainty of valuations of such securities, the fair value may differ significantly

 

16   

Notes to Financial Statements

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Security Valuation (continued)

from the values that would have been used had a ready market for such securities existed. If trading or events occurring after the close of the principal market in which securities are traded are expected to materially affect the value of those securities, then they may be valued at their fair value, taking this trading or these events into account. Fair value is determined in good faith by the Advisor under procedures approved by and under the general supervision and responsibility of the Fund’s Board of Directors (the “Board”).

Various inputs are used in determining the value of the Series’ assets or liabilities carried at market value. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical assets and liabilities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). Level 3 includes significant unobservable inputs (including the Series’ own assumptions in determining the fair value of investments). The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the valuation levels used for major security types as of December 31, 2010 in valuing the Series’ assets or liabilities carried at market value:

 

 

Description

    Total      Level 1      Level 2      Level  3  

Assets:

            

Equity securities*

    $ —       $ —       $ —       $ —   

Preferred securities

      4,184,735         —         4,184,735         —   

Debt securities:

            

U.S. Treasury and other U.S. Government agencies

      —         —         —         —   

States and political subdivisions (municipals)

      —         —         —         —   

Corporate debt

      144,049,455            144,049,455         —   

Convertible corporate debt

      —         —         —         —   

Asset backed securities

      —         —         —         —   

Commercial mortgage backed securities

      —         —         —         —   

Mutual funds

      7,480,366         7,480,366         —         —   

Other financial instruments**:

      —         —         —         —   
                                   

Total assets

      155,714,556         7,480,366         148,234,190         —   
                                   

Liabilities:

            

Other financial instruments**:

      —         —         —         —   
                                   

Total liabilities:

      —         —         —         —   
                                   

Total:

    $     155,714,556       $     7,480,366       $     148,234,190       $                 —   
                                   

 

   17

Notes to Financial Statements

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Security Valuation (continued)

The following table is a reconciliation of Level 3 investments for which significant unobservable inputs were used to determine fair value:

 

Level 3 Reconciliation    Corporate
Debt 		 

Balance as of December 31, 2009 (market value)

    $         1,239,608   

Accrued discounts/premiums

      9,095   

Change in unrealized appreciation/depreciation

      (14,603 ) 

Net realized gain

      155,747   

Net purchases/sales

      (1,389,847 ) 
        

Balance as of December 31, 2010 (market value)

    $ —   
        

*Includes common stock, warrants and rights. Please see the Investment Portfoilio for industry classification.

**Other financial instruments are derivative instruments not reflected in the Investment Portfolio, such as futures, forwards and swap contracts, which are valued at the unrealized appreciation/depreciation on the instrument. As of December 31, 2010, the Series did not hold any derivative instruments.

There were no Level 3 securities held by the Series as of December 31, 2010.

The Fund’s policy is to recognize transfers in and transfers out of the valuation levels as of the beginning of the reporting period. There were no significant transfers between Level 1 and Level 2 during the year ended December 31, 2010.

Additional disclosure surrounding the activity in Level 3 fair value measurement will also be effective for fiscal years beginning after December 15, 2010. Management has concluded that this will not have a material impact on the Series’ financial statements.

Security Transactions, Investment Income and Expenses

Security transactions are accounted for on trade date. Dividend income is recorded on the ex-dividend date, except that if the ex-dividend date has passed, certain dividends from foreign securities are recorded as soon as the Fund is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair market value of the securities received. Interest income, including amortization of premium and accretion of discounts using the effective interest method, is earned from settlement date and accrued daily.

Expenses are recorded on an accrual basis. Most expenses of the Fund can be attributed to a specific series. Expenses which cannot be directly attributed are apportioned among the series in the Fund in such a manner as deemed equitable by the Fund’s Board, taking into consideration, among other things, the nature and type of expense.

The Series uses the identified cost method for determining realized gain or loss on investments for both financial statement and federal income tax reporting purposes.

Foreign Currency Translation

The books and records of the Series are maintained in U.S. dollars. Foreign currencies, investments and other assets and liabilities are translated into U.S. dollars at the current exchange rates. Purchases and sales of investment securities and income and expenses are translated on the respective dates of such transactions. The Series do not isolate realized and unrealized gains and losses attributable to changes in the exchange rates from gains and losses that arise from changes in the market value of investments. Such fluctuations are included with net realized and

 

18   

Notes to Financial Statements

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Foreign Currency Translation (continued)

unrealized gain or loss on investments. Net realized foreign currency gains and losses represent foreign currency gains and losses between trade date and settlement date on securities transactions, gains and losses on disposition of foreign currencies and the difference between the amount of income and foreign withholding taxes recorded on the books of the Series and the amounts actually received or paid.

Restricted Securities

Restricted securities are purchased in private placement transactions, are not registered under the Securities Act of 1933, as amended, and may have contractual restrictions on resale. Information regarding restricted securities is included at the end of the Series’ Investment Portfolio.

Illiquid Securities

A security may be considered illiquid if so deemed in good faith by the Advisor under procedures approved by and under the general supervision and responsibility of the Fund’s Board. Securities that are illiquid are marked with the applicable footnote on the Investment Portfolio. No such investments were held by the Series on December 31, 2010.

Federal Taxes

The Series’ policy is to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. The Series is not subject to federal income tax or excise tax to the extent that the Series 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.

Management evaluates its tax positions to determine if the tax positions taken meet the minimum recognition threshold in connection with accounting for uncertainties in income tax positions taken or expected to be taken for the purposes of measuring and recognizing tax liabilities in the financial statements. Recognition of tax benefits of an uncertain tax position is required only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. At December 31, 2010, the Series has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken in future tax returns.

The Series files income tax returns in the U.S. federal jurisdiction, various states and foreign jurisdictions, as required. No income tax returns are currently under investigation. The statute of limitations on the Series’ tax returns remains open for the period ended December 31, 2009 through the year ended December 31, 2010. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.

Additionally, based on the Fund’s understanding of the tax rules and rates related to income, gains and transactions for foreign jurisdictions in which it invests, the Series will provide for foreign taxes, and where appropriate, deferred foreign tax.

Distributions of Income and Gains

Distributions to shareholders of net investment income and net realized gains are made annually. An additional distribution may be necessary to avoid taxation of the Series. Distributions are recorded on the ex-dividend date.

Indemnifications

The Fund’s organizational documents provide former and current directors and officers with a limited indemnification against liabilities arising in connection with the performance of their duties to the Fund. In the normal course of business, the Fund may also enter into contracts that provide general indemnifications. The Fund’s maximum exposure

 

   19

Notes to Financial Statements

 

 

2.

SIGNIFICANT ACCOUNTING POLICIES (continued)

Indemnifications (continued)

under these arrangements is unknown as this would be dependent on future claims that may be made against the Fund. The risk of material loss from such claims is considered remote.

Other

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 income and expenses during the reporting period. Actual results could differ from those estimates.

 

3.

TRANSACTIONS WITH AFFILIATES

The Fund has an Investment Advisory Agreement (the “Agreement”) with the Advisor, for which the Series pays a fee, computed daily and payable monthly, at an annual rate of 1.00% of the Series’ average daily net assets.

Under the Agreement, personnel of the Advisor provide the Series with advice and assistance in the choice of investments and the execution of securities transactions, and otherwise maintain the Series’ organization. The Advisor also provides the Fund with necessary office space and fund administration and support services. The salaries of all officers of the Fund (except a percentage of the Fund’s Chief Compliance Officer’s salary, which is paid by 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. Each “non-affiliated” Director receives an annual stipend, which is allocated among all the active series of the Fund. In addition, these Directors also receive a fee per Board meeting attended plus a fee for each committee meeting attended.

The Advisor has contractually agreed, until at least April 30, 2012, to waive its fee and, if necessary, pay other operating expenses of the Series in order to maintain total direct annual fund operating expenses for the Series at no more than 1.20% of average daily net assets each year. For the year ended December 31, 2010, the Advisor voluntarily waived fees of $758, which is included as a reduction of expenses on the Statement of Operations. The Advisor is not eligible to recoup any expenses that have been waived or reimbursed in prior years.

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 Series.

The Advisor has agreements with PNC Global Investment Servicing (U.S.) Inc. (“PNCGIS”) under which PNCGIS serves as sub-accountant services agent and sub-transfer agent. The Fund pays the Advisor an annual fee related to fund accounting and administration of 0.0175% on the first $3 billion of average daily net assets (excluding Target Series); 0.015% on the next $3 billion of average daily net assets (excluding Target Series); and 0.01% of the average daily net assets in excess of $6 billion (excluding Target Series); plus a base fee of $25,500 per Series. Transfer Agent fees are charged to the Fund on a per account basis. Additionally, certain transaction- and cusip-based fees and out-of-pocket expenses, including charges for reporting relating to the Fund’s compliance program, are charged.

Effective July 1, 2010, PNCGIS was sold to The Bank of New York Mellon Corporation, the Series’ custodian. At the close of the sale, PNCGIS changed its name to BNY Mellon Investment Servicing (U.S.) Inc. (“BNY”).

Expenses not directly attributable to a Series are allocated based on each Series’ relative net assets or number of accounts, depending on the expense.

 

20   

Notes to Financial Statements

 

 

4.

PURCHASES AND SALES OF SECURITIES

For the year ended December 31, 2010, purchases and sales of securities, other than U.S. Government securities and short-term securities, were $93,215,114 and $74,388,312, respectively. There were no purchases or sales of U.S. Government securities.

 

5.

CAPITAL STOCK TRANSACTIONS

Transactions in shares of High Yield Bond Series were:

 

    

For the Year

Ended 12/31/10

    

For the period 9/14/09

(commencement of

operations) to 12/31/09

  
     Shares     Amount     Shares     Amount  

Sold

      2,275,341      $ 24,816,656        12,442,729      $ 125,933,491   

Reinvested

      1,258,376        13,463,941        126,129        1,296,610   

Repurchased

      (1,117,255 )      (12,233,690 )      (252,173 )      (2,578,430 ) 
                                

Total

      2,416,462      $ 26,046,907        12,316,685      $ 124,651,671   
                                

Substantially all of the Series’ shares represent investments by fiduciary accounts over which the Advisor has sole investment discretion.

 

6.

FINANCIAL INSTRUMENTS

The Series may trade in instruments including written and purchased options, forward foreign currency exchange contracts and futures contracts and other derivatives in the normal course of investing activities to assist in managing exposure to various market risks. Investments in these instruments may subject the Series to various elements of risk, which may involve, to a varying degree, elements of risk in excess of the amounts recognized for financial statement purposes. These risks include: the risk that changes in the value of a derivative may not correlate perfectly with the underlying asset, rate or index, counterparty credit risk related to over the counter derivatives counterparties’ failure to perform under contract terms, liquidity risk related to the lack of a liquid market for these contracts allowing the fund to close out its position(s) and documentation risk relating to disagreement over contract terms. No such investments were held by the Series during the year ended December 31, 2010.

 

7.

FOREIGN SECURITIES

Investing in securities of foreign companies and foreign governments involves special risks and considerations not typically associated with investing in securities of domestic companies and the U.S. Government. These risks include revaluation of currencies and future adverse political and economic developments. Moreover, securities of foreign companies and foreign governments and their markets may be less liquid and their prices more volatile than those of comparable domestic companies and the U.S. Government.

 

8.

FEDERAL INCOME TAX INFORMATION

The amount and characterization of certain income and capital gains to be distributed are determined in accordance with federal income tax regulations, which may differ from accounting principles generally accepted in the United States of America. These differences are primarily due to differing book and tax treatments in the timing of the recognition of net investment income or gains and losses, including foreign currency gains, losses and investments in hybrid securities, disallowed expenses and post-October losses. The Series may periodically make reclassifications among its capital accounts to reflect income and gains available for distribution (or available capital loss carryovers)

 

   21

Notes to Financial Statements

 

8.

FEDERAL INCOME TAX INFORMATION (continued)

under income tax regulations without impacting the Series’ net asset value. Any such reclassifications are not reflected in the financial highlights.

The tax character of distributions paid were as follows:

 

    

For the Year

Ended

12/31/10

     

For the Period

Ended

12/31/09*

  

Ordinary income

    $ 13,587,061       $ 1,348,490   

Long-term capital gains

      310,425         —   

* The Series commenced operations on September 14, 2009.

At December 31, 2010, the tax basis of distributable earnings and the net unrealized appreciation based on identified cost for federal income tax purposes were as follows:

 

Cost for federal income tax purposes

      $    148,763,047                                        

Unrealized appreciation

      $    7,234,162     

Unrealized depreciation

      (282,653 )   
          

Net unrealized appreciation

      $    6,951,509     
          

Undistributed ordinary income

      275,283     

Undistributed long-term gains

      167,087     

 

22   

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors of Manning & Napier Fund, Inc. and Shareholders of High Yield Bond Series:

In our opinion, the accompanying statement of assets and liabilities, including the investment portfolio, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the High Yield Bond Series (a series of Manning & Napier Fund, Inc., hereafter referred to as the “Series”) at December 31, 2010, and the results of its operations for the year then ended and the changes in its net assets and the financial highlights for the year ended and the period September 14, 2009 (commencement of operations) through December 31, 2009, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Series’ management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2010 by correspondence with the custodian, provide a reasonable basis for our opinion.

LOGO

New York, New York

February 22, 2011

 

   23

Supplemental Tax Information (unaudited)

 

All designations are based on financial information available as of the date of this annual report and, accordingly are subject to change.

For federal income tax purposes, the Series designates for the current fiscal period $322,621 or, if different, the maximum amount allowable under the tax law as qualified dividend income.

Pursuant to Section 852 of the Internal Revenue Code, as amended, the Series hereby designates $310,425 as capital gains for its taxable year ended December 31, 2010, or if different, the maximum allowable under tax law.

For corporate shareholders, the percentage of investment income (dividend income plus short-term gains, if any) that qualifies for the dividends received deduction for the current fiscal period is 2.37%, or if different, the maximum allowable under tax law.

 

24   

Renewal of Investment Advisory Agreement (unaudited)

 

At the Manning & Napier Fund, Inc. (the “Fund”) Board of Directors’ (the “Board”) meeting, held on November 17, 2010, the Investment Advisory Agreement (the “Agreement”) between the Fund and Manning & Napier Advisors, Inc. (the “Advisor”) was reviewed by the Board for renewal. In connection with the decision whether to renew the Agreement, a variety of material was prepared for and reviewed by the Board.

Representatives of the Advisor attended the meeting and presented additional oral and written information to the Board to assist the Board in its considerations. The discussion immediately below outlines the materials and information presented to the Board in connection with the Board’s 2010 Annual Review of the Agreement and the conclusions made by the Directors when determining to continue the Agreement.

 

  •  

The Board considered the services provided by the Advisor under the Agreement including, among others: deciding what securities to purchase and sell for each Series; arranging for the purchase and sale of such securities by placing orders with broker-dealers; administering the affairs of the Fund (including the books and records of the Fund not maintained by third party service providers such as the custodian or sub-transfer agent); arranging for the insurance coverage for the Fund; and supervising the preparation of tax returns, SEC filings (including registration statements) and reports to shareholders for the Fund. The Board also considered the nature and quality of such services provided under the Agreement in light of the Advisor’s services provided to the Fund for 24 years. The Board discussed the quality of these services with representatives from the Advisor and concluded that the Advisor was performing its services to the Fund required under the Agreement in a reasonable manner.

 

  •  

The Board considered the investment performance of the various Series of the Fund. The investment performance for each Series was reviewed on a cumulative basis since inception and on a one year basis. In addition, annualized performance for the following time periods was considered: inception, three year, five year, ten year, and current market cycle. A market cycle includes periods of both rising and falling markets. Returns for established benchmark indices for each Series were provided for each time period. The Board noted that the various Series were competitive against their respective benchmarks and/or peer groups over various time periods, but in particular over the full market cycle period relevant for the Series. In addition, the Board considered at the meeting (and considers on a quarterly basis) a peer group performance analysis consisting of Morningstar universes of mutual funds with similar investment objectives. The Board discussed the performance with representatives from the Advisor and concluded that the investment performance of each of the Fund’s Series was reasonable based on the Fund’s actual performance and comparative performance, especially performance over the current market cycle.

 

  •  

The Board considered the costs of the Advisor’s services and the profits of the Advisor as they relate to the Advisor’s services to the Fund under the Agreement. In reviewing the Advisor’s costs and profits, the Board discussed the Advisor’s revenues generated from the Fund (on both an actual and adjusted basis) and its expenses associated with providing the services under the Agreement. In addition, the Board reviewed the Advisor’s expenses associated with Fund activities outside of the Agreement (such as expense reimbursements pursuant to expense caps and payments made by the Advisor to third party platforms on which shares of the Fund are available for purchase). It was noted by representatives of the Advisor that 11 of the 27 active Series of the Fund are currently experiencing expenses above the capped expense ratios. After discussing the above costs and profits, the Board concluded that the Advisor’s profitability relating to its services provided under the Agreement was reasonable.

 

  •  

The Board considered the fees and expenses of the various Series of the Fund. The Advisor presented the advisory fees and total expenses for each Series, including the advisory fee adjusted for any expense waivers or reimbursements (either contractual or voluntary) paid by the Advisor. The advisory fees and expense ratios of each Series were compared to an average (on both a mean and median basis) of similar funds as disclosed on the Morningstar database. Representatives of the Advisor discussed with the Board the levels of its advisory

 

   25

Renewal of Investment Advisory Agreement (unaudited)

 

 

fee for each Series of the Fund and as compared to the median and mean advisory fees for similar funds as listed on Morningstar. Expense ratios for every Series, except the Pro-Blend’s Class R and Class C, and Target Class R and Class C, are currently below the median and mean for similar funds as listed on Morningstar. Based on their review of the information provided, the Board concluded that the fees and expenses of each Series of the Fund were reasonable on a comparative basis.

 

  •  

The Board also considered the other benefits the Advisor derives from its relationship with the Fund. Such other benefits include certain research products provided by soft dollars. Given the level of soft dollar transactions involving the Fund, the Board concluded that these additional benefits to the Advisor were reasonable.

 

  •  

In addition to the factors described above, the Board considered the Advisor’s personnel, investment strategies, policies and procedures relating to compliance with personal securities transactions, and reputation, expertise and resources in domestic and foreign financial markets. The Board concluded that these factors support the conclusion that the Advisor performs its services in a reasonable manner.

 

  •  

The Board did not consider economies of scale at this time because of the multiple uses of the Fund (for the Advisor’s discretionary investment account clients in addition to direct investors), the current profitability of the Advisor’s services to the Fund under the Agreement, and the overall size of the Fund complex.

Based on the Board’s deliberations and their evaluation of the information described above, the Board, including a majority of Directors that are not “interested persons” as defined in the Investment Company Act of 1940, concluded that the compensation under the Agreement was fair and reasonable in light of the services and expenses and such other matters as the Directors considered to be relevant in the exercise of their reasonable judgment. Accordingly, the Board approved the renewal of the Agreement. In the course of their deliberations, the Directors did not identify any particular information that was all important or controlling.

 

26   

Directors’ and Officers’ Information (unaudited)

 

The Statement of Additional Information provides additional information about the Fund’s directors and officers and can be obtained without charge by calling 1-800-466-3863, at www.manningnapieradvisors.com, or on the EDGAR Database on the SEC Internet web site (http:// www.sec.gov). The following chart shows certain information about the Fund’s officers and directors, including their principal occupations during the last five years. Unless specific dates are provided, the individuals have held the listed positions for longer than five years.

 

INTERESTED DIRECTOR/OFFICER

   

 

Name:

    B. Reuben Auspitz*

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    63

Current Position(s) Held with Fund:

    Principal Executive Officer, President, Chairman & Director

Term of Office1 & Length of Time Served:

    Indefinite - Director since 1984; Vice President 1984 - 2003; President
   since 2004; Principal Executive Officer since 2002

Principal Occupation(s) During Past 5 Years:

    Executive Vice President; Executive Group Member**; Chief Compliance
   Officer since 2004; Vice Chairman since June 2010; Co-Executive
   Director from 2003-2010 - Manning & Napier Advisors, Inc. President;
   Director - Manning & Napier Investor Services, Inc.
   Holds or has held one or more of the following titles for various
   subsidiaries and affiliates: President, Vice President, Director, Chairman,
   Treasurer, Chief Compliance Officer or Member.

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A

 

INDEPENDENT DIRECTORS

   

 

Name:

    Paul A. Brooke

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    65

Current Position(s) Held with Fund:

    Director, Audit Committee Member, Governance & Nominating
   Committee Member

Term of Office & Length of Time Served:

    Indefinite - Since 2007

Principal Occupation(s) During Past 5 Years:

    Chairman & CEO, Alsius Corp. (investments); Managing Member, PMSV
   Holdings LLC (investments)

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    Incyte Corp. (2000-present)
   ViroPharma, Inc. (2000-present)
   HLTH Corp. (2000-present)
   Cheyne Capital International (2000-present)
   MPM Bio-equities (2000-present)
   GMP Companies (2000-present)
     HoustonPharma (2000-present)

 

Name:

    Richard M. Hurwitz

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    47

Current Position(s) Held with Fund:

    Director, Audit Committee Member, Governance & Nominating
   Committee Member

Term of Office & Length of Time Served:

    Indefinite - Since 2009

Principal Occupation(s) During Past 5 Years:

    Chief Executive Officer, Pictometry International Corp. since August 2010
   (provider of georeferenced, aerial image libraries and related software)
   Managing Partner (2006-July 2010) - Aegis Investment Partners, LLC
   (investments); Founder and Managing Partner (2004-2005) - Village
   Markets, LLC (groceries)

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    Pictometry International Corp. (2000-2010)
   Pioneering Technologies (2006-2009)
    

Vensearch Capital Corp. (2003-2007)

 

 

   27

Directors’ and Officers’ Information (unaudited)

 

 

INDEPENDENT DIRECTORS (continued)

 

Name:

    Stephen B. Ashley

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    70

Current Position(s) Held with Fund:

    Director, Audit Committee Member, Governance & Nominating
   Committee Member

Term of Office & Length of Time Served:

    Indefinite - Since 1996

Principal Occupation(s) During Past 5 Years:

    Chairman, Director, President & Chief Executive Officer, The Ashley
   Group (property management and investment). Chairman
   (non-executive) 2004-2008; Director 1995-2008 - Fannie Mae (mortgage)

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    The Ashley Group (1995-2008)
     Genesee Corporation (1987-2007)

 

Name:

   

 

Peter L. Faber

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    72

Current Position(s) Held with Fund:

    Director, Governance & Nominating Committee Member

Term of Office & Length of Time Served:

    Indefinite - Since 1987

Principal Occupation(s) During Past 5 Years:

    Senior Counsel since 2006, Partner (1995 - 2006) - McDermott, Will &
   Emery LLP (law firm)

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    Partnership for New York City, Inc. (non-profit)
   New York Collegium (non-profit)
     Boston Early Music Festival (non-profit)

 

Name:

   

 

Harris H. Rusitzky

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    76

Current Position(s) Held with Fund:

    Director, Audit Committee Member, Governance & Nominating
   Committee Member

Term of Office & Length of Time Served:

    Indefinite - Since 1985

Principal Occupation(s) During Past 5 Years:

    President, The Greening Group (business consultants) since 1994;
   Partner, The Restaurant Group (restaurants) since 2006

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A

 

OFFICERS

   

 

Name:

    Jeffrey S. Coons, Ph.D., CFA

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    47

Current Position(s) Held with Fund:

    Vice President

Term of Office1 & Length of Time Served:

    Since 2004

Principal Occupation(s) During Past 5 Years:

    President since 2010, Co-Director of Research since 2002, Executive
   Group Member** since 2003, - Manning & Napier Advisors, Inc.
   Holds one or more of the following titles for various subsidiaries and
   affiliates: President, Director, Treasurer or Senior Trust Officer.

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

   

N/A

 

 

28   

Directors’ and Officers’ Information (unaudited)

 

OFFICERS (continued)

   

 

Name:

    Beth Galusha

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    49

Current Position(s) Held with Fund:

    Assistant Chief Financial Officer

Term of Office1 & Length of Time Served:

    Assistant Chief Financial Officer since 2010

Principal Occupation(s) During Past 5 Years:

    Chief Financial Officer and Treasurer, Manning & Napier Advisors, Inc.
   Holds one or more of the following titles for various affiliates: Chief
   Financial Officer, Director, or Treasurer

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A

 

Name:

   

 

Christine Glavin

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    44

Current Position(s) Held with Fund:

    Principal Financial Officer, Chief Financial Officer

Term of Office1 & Length of Time Served:

    Principal Financial Officer since 2002; Chief Financial Officer since 2001

Principal Occupation(s) During Past 5 Years:

    Fund Reporting Manager, Manning & Napier Advisors, Inc. since 1997

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A

 

Name:

   

 

Jodi L. Hedberg

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    43

Current Position(s) Held with Fund:

    Corporate Secretary, Chief Compliance Officer, Anti-Money Laundering
   Compliance Officer

Term of Office1 & Length of Time Served:

    Corporate Secretary since 1997; Chief Compliance Officer since 2004

Principal Occupation(s) During Past 5 Years:

    Director of Compliance, Manning & Napier Advisors, Inc. and affiliates
   since 1990 (title change in 2005 from Compliance Manager to Director of
   Compliance); Corporate Secretary, Manning & Napier Investor Services,
   Inc. since 2006

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

    N/A

 

Name:

   

 

Richard Yates

Address:

    290 Woodcliff Drive
   Fairport, NY 14450

Age:

    45

Current Position(s) Held with Fund:

    Chief Legal Officer

Term of Office1 & Length of Time Served:

    Chief Legal Officer since 2004

Principal Occupation(s) During Past 5 Years:

    Counsel - Manning & Napier Advisors, Inc. & affiliates since 2000; Holds
   one or more of the following titles for various affiliates; Director or
   Corporate Secretary

Number of Portfolios Overseen within Fund Complex:

    29

Other Directorships Held Outside Fund Complex:

   

N/A

*Interested Director, within the meaning of the Investment Company Act of 1940 by reason of his position with the Fund’s investment advisor and

distributor. Mr. Auspitz serves as the Executive Vice President and Director, Manning & Napier Advisors, Inc. and President and Director, Manning & Napier Investor Services, Inc., the Fund’s distributor.

**Prior to June 2010, the Executive Group, consisting of senior executive employee-owners, performed the duties of the Office of the Chief

Executive of the Advisor. Effective June 2010, the Executive Group serves as an advisory board to the Chief Executive Officer.

1The term of office for President, Vice President, Chief Financial Officer, Assistant Chief Financial Officer, Chief Legal Officer and Corporate

Secretary is one year and until their respective successors are chosen and qualified. All other officers’ terms are indefinite.

 

   29

Literature Requests (unaudited)

 

Proxy Voting Policies and Procedures

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, without charge, upon request:

 

By phone

   

1-800-466-3863

   

On the Securities and Exchange Commission’s (SEC) web site

   

http://www.sec.gov

   

Proxy Voting Record

Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30th is available, without charge, upon request:

 

By phone

   

1-800-466-3863

   

On the SEC’s web site

   

http://www.sec.gov

   

Quarterly Portfolio Holdings

The Series’ complete schedule of portfolio holdings for the 1st and 3rd quarters of each fiscal year are provided on Form N-Q, and are available, without charge, upon request:

 

By phone

   

1-800-466-3863

   

On the SEC’s web site

   

http://www.sec.gov

   

The Series’ Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.

Prospectus and Statement of Additional Information (SAI)

The prospectus and SAI provide additional information about each Series, including charges, expenses and risks. These documents are available, without charge, upon request:

 

By phone

   

1-800-466-3863

   

On the SEC’s web site

   

http://www.sec.gov

   

On the Advisor’s web site

   

http://www.manning-napier.com

   

Additional information available at www.manning-napier.com

1. Fund Holdings - Month-End

2. Fund Holdings - Quarter-End

3. Shareholder Report - Annual

4. Shareholder Report - Semi-Annual

 

MNHYYLD-12/10-AR   

ITEM 2: CODE OF ETHICS

(a) The registrant has adopted a code of ethics that applies to its principal executive officer, principal financial officer and principal accounting officer. A copy of the registrant’s code of ethics is filed herewith as Exhibit 12(a)(1).

(b) During the period covered by this report, no amendments were made to the provisions of the code of ethics adopted in 2 (a) above.

(c) During the period covered by this report, no implicit or explicit waivers to the provisions of the code of ethics adopted in 2 (a) above were granted.

(d) Not applicable to the registrant due to the response given in 2 (c) above.

 

ITEM 3: AUDIT COMMITTEE FINANCIAL EXPERT

All of the members of the Audit committee have been determined by the Registrant’s Board of Directors to be Audit Committee Financial Experts as defined in this item. The members of the Audit Committee are: Harris H. Rusitzky, Stephen B. Ashley, Paul A. Brooke and Richard M. Hurwitz. All Audit Committee members are independent under applicable rules. This designation will not increase the designee’s duties, obligations or liability as compared to their duties, obligations and liability as a member of the Audit Committee and of the Board.

 

ITEM 4: PRINCIPAL ACCOUNTANT FEES AND SERVICES

Principal Accountant Fees and Services

Aggregate fees for professional services rendered for the Manning & Napier Fund, Inc. (Life Sciences Series, Small Cap Series, Technology Series, Financial Services Series, Real Estate Series, International Series, World Opportunities Series, Ohio Tax Exempt Series, Diversified Tax Exempt Series, New York Tax Exempt Series, Core Bond Series, Core Plus Bond Series, and High Yield Bond Series, collectively the “Fund”) by PricewaterhouseCoopers LLP (“PwC”) as of and for the years ended December 31, 2010 and 2009 were:

 

     2010    2009

Audit Fees (a)

        337,183          336,557  

Audit Related Fees (b)

        —            13,392  

Tax Fees (c)

        74,400          87,780  

All Other Fees (d)

        —            —    
                     
       411,583          437,729  
                     

(a) Audit Fees

These fees relate to professional services rendered by PwC for the audit of the Fund’s annual financial statements or services normally provided by the accountant in connection with statutory and regulatory filing or engagements. These services include the audits of the financial statements of the Fund, issuance of consents, income tax provision procedures and assistance with review of documents filed with the SEC.

(b) Audit-Related Fees

These fees relate to assurance and related services by PwC that are reasonably related to the performance of the audit of the Fund’s financial statements and are not reported under “Audit Fees” above. These fees relate to professional services provided by PwC in connection with service provider conversion.

(c) Tax Fees

These fees relate to professional services rendered by PwC for tax compliance, tax advice and tax planning. The tax services provided by PwC related to the preparation of the Fund’s federal and state income tax returns, excise tax calculations and returns, a review of the Fund’s calculations of capital gain and income distributions, and additional tax research for compliance purposes.

(d) All Other Fees

These fees relate to products and services provided by PwC other than those reported above under “Audit Fees,” “Audit-Related Fees,” and “Tax Fees” above.

There were no amounts that were approved by the Audit Committee pursuant to the de minimus exception (Rule 2-01(c)(7) of Regulation S-X) for the fiscal years ended December 31, 2010 and 2009.

Non-Audit Services to the Fund’s Service Affiliates that were Pre-Approved by the Fund’s Audit Committee

The Fund’s Audit Committee is required to pre-approve non-audit services which meet both the following criteria:

 

i)

Directly relate to the Fund’s operations and financial reporting; and

 

ii)

Rendered by PwC to the Fund’s advisor, Manning & Napier Advisors, Inc., and entities in a control relationship with the advisor (“service affiliate”) that provide ongoing services to the Fund. For purposes of disclosure, Manning & Napier Investor Services, Inc. is considered to be a service affiliate.

 

     2010    2009

Audit Related Fees

        153,644          8,420  

Tax Fees

        —            1,950  
                     
       153,644          10,370  
                     

The Audit Related fees for the years ended December 31, 2010 were for a license for proprietary authoritative financial reporting and assurance literature library software, a surprise examination pursuant to Rule 204-2(b) and 206(4)-2, and a Type II SAS 70 pursuant to Rule 206. In 2009, were for 17Ad-13 internal control examinations and the license for proprietary authoritative financial report and assurance literature library software.

The Tax fees for the year ended December 31, 2009 relate to research on the tax implications for various funds holding certain investment types.

There were no amounts that were approved by the Audit Committee pursuant to the de minimus exception (Rule 2-01(c)(7) of Regulation S-X) for the fiscal years ended December 31, 2010 and 2009.

Aggregate Fees

Aggregate fees billed to the Fund for non-audit services for 2010 and 2009 were $74,400 and $87,780, respectively. Aggregate fees billed to the Fund’s advisor and service affiliates for non-audit services were $153,644 and $10,370, respectively. These amounts include fees for non-audit services required to be pre-approved and fees for non-audit services that did not require pre-approval since they did not relate to the Fund’s operations and financial reporting.

The Fund’s Audit Committee has considered whether the provisions for non-audit services to the Fund’s advisor and service affiliates, which did not require pre-approval, are compatible with maintaining PwC’s independence.

 

ITEM 5: AUDIT COMMITTEE OF LISTED REGISTRANTS.

Not applicable.

 

ITEM 6: INVESTMENTS.

 

(a)

See Investment Portfolios under Item 1 on this Form N-CSR.

 

(b)

Not applicable.

 

ITEM 7: DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED- END MANAGEMENT INVESTMENT COMPANIES.

Not applicable.

 

ITEM 8: PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

Not applicable.

ITEM 9: PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.

Not applicable.

 

ITEM 10: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

There have been no material changes to the procedure by which shareholders may recommend nominees to the registrant’s board of directors.

 

ITEM 11: CONTROLS AND PROCEDURES.

 

(a)

Based on their evaluation of the Funds’ disclosure controls and procedures, as of a date within 90 days of the filing date, the Funds’ Principal Executive Officer and Principal Financial Officer have concluded that the Funds’ disclosure controls and procedures are: (i) reasonably designed to ensure that information required to be disclosed in this report is appropriately communicated to the Funds’ officers to allow timely decisions regarding disclosures required in this report; (ii) reasonably designed to ensure that information required to be disclosed in this report is recorded, processed, summarized and reported in a timely manner; and (iii) are effective in achieving the goals described in (i) and (ii) above.

 

(b)

During the second fiscal quarter of the period covered by this report, there have been no changes in the Funds’ internal control over financial reporting that the above officers believe to have materially affected, or to be reasonably likely to materially affect, the Funds’ internal control over financial reporting.

 

Item 12: EXHIBITS.

 

(a)(1)   Code of ethics that is subject to the disclosure of Item 2 above.
(a)(2)   Separate certifications for the Registrant’s principal executive officer and principal financial officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the Investment Company Act of 1940, are attached as EX-99.CERT.
(a)(3)   Not applicable.
(b)   A certification of the Registrant’s principal executive officer and principal financial officer, as required by 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and Rule 30a-2(b) under the Investment Company Act of 1940, is attached as EX- 99.906CERT. The certification furnished pursuant to this paragraph is not deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. Such certification is not deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Registrant specifically incorporates them by reference.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Manning & Napier Fund, Inc.

/s/ B. Reuben Auspitz
B. Reuben Auspitz
President & Principal Executive Officer of
Manning & Napier Fund, Inc.
March 1, 2011

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ B. Reuben Auspitz
B. Reuben Auspitz
President & Principal Executive Officer of
Manning & Napier Fund, Inc.
March 1, 2011
/s/ Christine Glavin
Christine Glavin
Chief Financial Officer & Principal Financial Officer
of Manning & Napier Fund, Inc.
March 1, 2011