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)
Paul J. Battaglia 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
Date of reporting period: January 1, 2022 through December 31, 2022
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, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
Item 1: Reports to Stockholders.
(a) |
www.manning-napier.com | |
Manning & Napier Fund, Inc. | |
Core Bond Series |
Independent Perspective | Real-World Solutions |
A Note from Our CEO
Dear Shareholder,
We are acutely aware of how difficult this year has been for our investors, in what has been a historically challenging year in the capital markets. A bear market in equities and a sharp correction in fixed income have each simultaneously occurred this year, resulting in one of the worst runs for blended stock-bond portfolios in the past two hundred years.
The global economy is facing inflationary pressures more significant than have been experienced over the past four decades. War in Europe, rising tensions in East Asia, and surging energy prices are all bringing renewed geopolitical tumult. Economic, social, and environmental pressures are manifesting themselves in rapid, and at times, dramatic and unexpected swings in election results domestically and abroad.
What have we been doing in response to the challenges abound, and, most significantly, what steps are we taking to ensure we deliver what our fund shareholders expect in the future? I’ll combine those steps into two main ways.
First, and by way of change, we have taken a meaningful evolutionary step to position Manning & Napier even more strongly for the years ahead. After eleven years as a public company, we went private in 2022 in partnership with the Callodine Group, returning to the status under which we operated for our first four decades. We believe being private will provide continuity for our investment strategies while allowing us to invest for the future.
The second step speaks even further to the value of continuity. Our fund shareholders can expect us to continue to rely on the consistent investment philosophies, disciplines, and time-tested processes that have guided our seasoned investors over multiple economic and capital markets cycles over the past half-century.
The past twelve months have been challenging for investors. It has reinforced the importance of long-term perspective and the value of having a clear investment plan.
Throughout the next chapter of Manning & Napier, we look forward to partnering with our mutual fund investors to help you realize the investment outcomes you need.
We thank and appreciate your continued confidence in our firm.
|
Sincerely,
Marc Mayer Chief Executive Officer |
Corporate Headquarters | 290 Woodcliff Drive | Fairport, NY 14450 | (585) 325-6880 phone | (800) 551-0224 toll free | www.manning-napier.com
1
Core Bond Series
Fund Commentary
(unaudited)
Investment Objective
To provide long-term total return by investing primarily in fixed income securities. Under normal circumstances, at least 80% of the Series’ assets will be invested in investment-grade bonds and other financial instruments with economic characteristics similar to bonds. Holdings will consist of US dollar denominated securities. The Series is not subject to maturity or duration restrictions.
Performance Commentary
Fixed income markets, as measured by the Bloomberg US Aggregate Bond Index, experienced double-digit losses for the year, experiencing the worst calendar year on record going back to the late 1970s. Losses were primarily attributable to the sharp rise in interest rates that occurred as the Federal Reserve raised the federal funds rate seven times throughout the year for a total increase of 4.25% in an effort to bring down high levels of inflation.
The Core Bond Series Class S experienced negative returns for the year and performed roughly in line with the benchmark, returning -13.21% vs. -13.01% for its benchmark (i.e., the Bloomberg US Aggregate Bond Index).
The Series benefitted from a shorter duration relative to the benchmark during the first half of the year as interest rates notably increased over the period. In contrast, selection within corporate bonds detracted from relative returns.
In terms of positioning, asset-backed securities continue to be our largest overweight position as we view the sector as relatively attractive and focus on securities with seniority in the capital structure that are backed by asset classes with high-quality fundamentals and low credit risk (e.g., student loans, prime autos, etc.). Alternatively, mortgages and corporate bonds are the largest underweights. Within sectors, we continue to de-risk, particularly within corporate bonds where we have been upgrading the quality of the portfolio as opportunities present themselves.
With respect to duration, we maintain a modest overweight relative to the benchmark. Should interest rates increase to more attractive levels and/or our economic outlook worsen, we’d look to incrementally add exposure to lock in higher yields for clients.
Data suggests that we are still in the early stages of a global slowdown and odds of a recession continue to increase. That stated, it is unclear how deep or how drawn out of a recession it may be. We believe flexibility and risk management will be key to navigating this uncertain environment and helping investors achieve their objectives.
Performance for the Core Bond Series Class S shares is provided above. Performance for other shares classes will differ based on each class’ underlying expenses.
Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate, so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be higher or lower than that quoted; investors can obtain the most recent month-end performance at www.manning-napier.com or by calling (800) 466-3863.
Additional information and associated disclosures can be found on the Performance Update page of this report.
All investments involve risks, including possible loss of principal. There is an inverse relationship between bond prices and interest rates; as interest rates rise, bond prices (and therefore the value of bond funds) fall. Likewise, as interest rates fall, bond prices and the value of bond funds rise. Investments in derivatives can be highly volatile and involve risks in addition to the risks of the underlying instrument on which the derivative is based, such as counterparty, correlation and liquidity risk. Also, the use of leverage increases exposure to the market and may magnify potential losses.
2
Core Bond Series
Performance Update as of December 31, 2022
(unaudited)
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 2022 | |||
ONE YEAR1 | FIVE YEAR | TEN YEAR | |
Core Bond Series - Class S2 | (13.21%) | (0.13%) | 0.80% |
Core Bond Series - Class I2,3 | (13.01%) | 0.09% | 0.97% |
Core Bond Series - Class W2,4 | (12.76%) | 0.33% | 1.03% |
Core Bond Series - Class Z2,4 | (12.86%) | 0.16% | 0.94% |
Bloomberg U.S. Aggregate Bond Index5 | (13.01%) | 0.02% | 1.06% |
The following graph compares the value of a $10,000 investment in the Core Bond Series - Class S for the ten years ended December 31, 2022 to the Bloomberg U.S. Aggregate Bond Index.
1The returns shown are based on net asset values calculated for shareholder transactions and may differ from the returns shown in the financial highlights, which reflect adjustments made to the net asset values in accordance with accounting principles generally accepted in the United States of America.
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, 2022, this net expense ratio was 0.70% for Class S, 0.45% for Class I, 0.05% for Class W and 0.30% for Class Z. The gross expense ratio, which does not account for any voluntary or contractual waivers currently in effect, was 0.70% for Class S, 0.49% for Class I, 0.37% for Class W and 0.37% for Class Z for the year ended December 31, 2022.
3For periods through August 3, 2015 (the inception date of the Class I shares), performance for the Class I shares is based on historical performance of the Class S shares. Because the Class I shares invest in the same portfolio of securities as Class S, performance will only be different to the extent that the Class S shares have a higher expense ratio.
4For periods through March 1, 2019 (the inception date of the Class W and Class Z shares), performance for the Class W and Class Z shares is based on the historical performance of the Class S shares. Because the Class W and Class Z shares invest in the same portfolio of securities as the Class S shares, performance will be different only to the extent that the Class S shares have a higher expense ratio.
5The Bloomberg U.S. Aggregate Bond Index is an unmanaged, market-value weighted index of U.S. domestic investment-grade debt issues, including government, corporate, asset-backed, and mortgage-backed securities, with maturities of one year or more. Index returns do not reflect any fees or expenses. Index returns provided by Intercontinental Exchange (ICE). Index data referenced herein is the property of Bloomberg Finance L.P. and its affiliates (“Bloomberg”), and/or its third party suppliers and has been licensed for use by Manning & Napier. Bloomberg and its third party suppliers accept no liability in connection with its use. Data provided is not a representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and none of these parties shall have any liability for any errors, omissions, or interruptions of any index or the data included therein. For additional disclosure information, please see: https:// go.manning-napier.com/benchmark-provisions.
3
Core Bond Series
Shareholder Expense Example
(unaudited)
As a shareholder of the Series, you incur ongoing costs, including management fees, shareholder service 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 in each class at the beginning of the period and held for the entire period (July 1, 2022 to December 31, 2022).
Actual Expenses
The Actual lines of the table below provide information about actual account values and actual expenses. You may use the information in these lines, 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 Actual line for the Class in which you have invested 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 Hypothetical lines of each class in the table below provide information about hypothetical account values and hypothetical expenses based on the Class’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Class’ 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 a class of the Series and other funds. To do so, compare this 5% hypothetical example for the Class in which you have invested 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, such as sales charges (loads), redemption fees, or exchange fees that you may incur in other mutual funds. 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.
BEGINNING 7/1/22 | ENDING | EXPENSES PAID | ANNUALIZED | |
Class S | ||||
Actual | $1,000.00 | $968.10 | $3.42 | 0.69% |
Hypothetical (5% return before expenses) | $1,000.00 | $1,021.73 | $3.52 | 0.69% |
Class I | ||||
Actual | $1,000.00 | $969.60 | $2.23 | 0.45% |
Hypothetical (5% return before expenses) | $1,000.00 | $1,022.94 | $2.29 | 0.45% |
Class W | ||||
Actual | $1,000.00 | $970.20 | $0.25 | 0.05% |
Hypothetical (5% return before expenses) | $1,000.00 | $1,024.95 | $0.26 | 0.05% |
Class Z | ||||
Actual | $1,000.00 | $969.40 | $1.49 | 0.30% |
Hypothetical (5% return before expenses) | $1,000.00 | $1,023.69 | $1.53 | 0.30% |
*Expenses are equal to each Class’ annualized expense ratio (for the six-month period), 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 ratios stated above may differ from the expense ratios stated in the financial highlights, which are based on one-year data. The Class’ total return would have been lower had certain expenses not been waived or reimbursed during the period.
4
Core Bond Series
Portfolio Composition as of December 31, 2022
(unaudited)
Sector Allocation1 |
1As a percentage of net assets. |
2A U.S. Treasury Bond is a long-term obligation of the U.S. Treasury issued with a maturity period of more than ten years. |
3A U.S. Treasury Note is an intermediate long-term obligation of the U.S. Treasury issued with a maturity period between one and ten years. |
5
Core Bond Series
Investment Portfolio - December 31, 2022
PRINCIPAL AMOUNT1/ SHARES | VALUE (NOTE 2) | |||||||
CORPORATE BONDS - 20.3% | ||||||||
Non-Convertible Corporate Bonds - 20.3% | ||||||||
Communication Services - 3.5% | ||||||||
Entertainment - 1.3% | ||||||||
Warnermedia Holdings, Inc., 4.054%, 3/15/20292 | 4,560,000 | $ | 3,959,181 | |||||
Interactive Media & Services - 2.2% | ||||||||
Tencent Holdings Ltd. (China), 3.975%, 4/11/20292 | 7,120,000 | 6,584,989 | ||||||
Total Communication Services | 10,544,170 | |||||||
Consumer Discretionary - 2.9% | ||||||||
Hotels, Restaurants & Leisure - 0.5% | ||||||||
Expedia Group, Inc., 3.25%, 2/15/2030 | 1,850,000 | 1,574,746 | ||||||
Internet & Direct Marketing Retail - 2.4% | ||||||||
Alibaba Group Holding Ltd., | ||||||||
(China), 2.125%, 2/9/2031 | 1,310,000 | 1,044,352 | ||||||
(China), 4.00%, 12/6/2037 | 3,440,000 | 2,895,710 | ||||||
Amazon.com, Inc., 3.30%, 4/13/2027 | 3,520,000 | 3,346,264 | ||||||
7,286,326 | ||||||||
Total Consumer Discretionary | 8,861,072 | |||||||
Consumer Staples - 1.0% | ||||||||
Beverages - 1.0% | ||||||||
PepsiCo, Inc., 3.90%, 7/18/2032 | 3,110,000 | 2,950,603 | ||||||
Energy - 1.8% | ||||||||
Oil, Gas & Consumable Fuels - 1.8% | ||||||||
Cenovus Energy, Inc. (Canada), 6.75%, 11/15/2039 | 1,696,000 | 1,766,114 | ||||||
Energy Transfer LP, 6.50%, 2/1/2042 | 3,590,000 | 3,558,432 | ||||||
Total Energy | 5,324,546 | |||||||
Financials - 3.2% | ||||||||
Banks - 2.7% | ||||||||
Bank of America Corp., (U.S. Secured Overnight Financing Rate + 1.320%), 2.687%, 4/22/20323 | 2,790,000 | 2,240,321 | ||||||
Citigroup, Inc., (U.S. Secured Overnight Financing Rate + 0.770%), 1.462%, 6/9/20273 | 2,670,000 | 2,320,540 | ||||||
JPMorgan Chase & Co., (U.S. Secured Overnight Financing Rate + 3.790%), 4.493%, 3/24/20313 | 4,000,000 | 3,752,357 | ||||||
8,313,218 | ||||||||
Capital Markets - 0.5% | ||||||||
Blackstone Secured Lending Fund, 2.75%, 9/16/2026 | 374,000 | 328,326 | ||||||
Owl Rock Technology Finance Corp., 3.75%, 6/17/20262 | 1,339,000 | 1,165,848 | ||||||
1,494,174 | ||||||||
Total Financials | 9,807,392 |
PRINCIPAL AMOUNT1/ SHARES | VALUE (NOTE 2) | |||||||
CORPORATE BONDS (continued) | ||||||||
Non-Convertible Corporate Bonds (continued) | ||||||||
Industrials - 3.0% | ||||||||
Airlines - 0.9% | ||||||||
Southwest Airlines Co., 5.125%, 6/15/2027 | 2,970,000 | $ | 2,940,825 | |||||
Road & Rail - 0.5% | ||||||||
BNSF Funding Trust I, (3 mo. LIBOR US + 2.350%), 6.613%, 12/15/20553 | 1,570,000 | 1,480,869 | ||||||
Trading Companies & Distributors - 1.6% | ||||||||
AerCap Ireland Capital DAC - AerCap Global Aviation Trust (Ireland), 3.00%, 10/29/2028 | 1,970,000 | 1,655,888 | ||||||
Air Lease Corp., 3.625%, 4/1/2027 | 1,700,000 | 1,553,793 | ||||||
Ashtead Capital, Inc. (United Kingdom), 4.00%, 5/1/20282 | 1,800,000 | 1,638,515 | ||||||
4,848,196 | ||||||||
Total Industrials | 9,269,890 | |||||||
Information Technology - 1.0% | ||||||||
Semiconductors & Semiconductor Equipment - 1.0% | ||||||||
QUALCOMM, Inc., 5.40%, 5/20/2033 | 2,920,000 | 3,055,289 | ||||||
Materials - 0.5% | ||||||||
Metals & Mining - 0.5% | ||||||||
Newcastle Coal Infrastructure Group Pty Ltd. (Australia), 4.40%, 9/29/20272 | 1,810,000 | 1,548,880 | ||||||
Real Estate - 2.3% | ||||||||
Equity Real Estate Investment Trusts (REITS) - 2.3% | ||||||||
SBA Tower Trust, 6.599%, 1/15/20282 | 2,325,000 | 2,332,378 | ||||||
Simon Property Group LP, 2.65%, 2/1/2032 | 5,680,000 | 4,582,896 | ||||||
Total Real Estate | 6,915,274 | |||||||
Utilities - 1.1% | ||||||||
Independent Power and Renewable Electricity Producers - 1.1% | ||||||||
Vistra Operations Co. LLC, | ||||||||
4.875%, 5/13/20242 | 2,630,000 | 2,574,446 | ||||||
3.55%, 7/15/20242 | 810,000 | 777,676 | ||||||
Total Utilities | 3,352,122 | |||||||
TOTAL CORPORATE BONDS | ||||||||
(Identified Cost $69,541,393) | 61,629,238 | |||||||
ASSET-BACKED SECURITIES - 11.7% | ||||||||
Business Jet Securities LLC, Series 2021-1A, Class A, 2.162%, 4/15/20362 | 1,979,624 | 1,738,216 | ||||||
CF Hippolyta Issuer LLC, Series 2020-1, Class A2, 1.99%, 7/15/20602 | 1,181,557 | 976,074 | ||||||
Series 2020-1, Class B1, 2.28%, 7/15/20602 | 1,498,698 | 1,309,008 | ||||||
Series 2021-1A, Class B1, 1.98%, 3/15/20612 | 1,675,028 | 1,397,982 |
The accompanying notes are an integral part of the financial statements.
6
Core Bond Series
Investment Portfolio - December 31, 2022
PRINCIPAL AMOUNT1/ SHARES | VALUE (NOTE 2) | |||||||
ASSET-BACKED SECURITIES (continued) | ||||||||
CLI Funding VIII LLC, Series 2021-1A, Class A, 1.64%, 2/18/20462 | 2,845,083 | $ | 2,421,802 | |||||
Commonbond Student Loan Trust, Series 2019-AGS, Class A1, 2.54%, 1/25/20472 | 454,798 | 414,465 | ||||||
CoreVest American Finance Trust, Series 2020-3, Class A, 1.358%, 8/15/20532 | 825,641 | 720,980 | ||||||
Credit Acceptance Auto Loan Trust, Series 2020-1A, Class B, 2.39%, 4/16/20292 | 383,656 | 381,959 | ||||||
Series 2020-3A, Class A, 1.24%, 10/15/20292 | 3,667,495 | 3,590,107 | ||||||
DataBank Issuer, Series 2021-1A, Class A2, 2.06%, 2/27/20512 | 2,400,000 | 2,078,981 | ||||||
EDvestinU Private Education Loan Issue No. 3 LLC, Series 2021-A, Class A, 1.80%, 11/25/20452 | 1,098,198 | 928,048 | ||||||
Flexential Issuer, Series 2021-1A, Class A2, 3.25%, 11/27/20512 | 2,825,000 | 2,465,899 | ||||||
Goodgreen Trust, Series 2020-1A, Class A, 2.63%, 4/15/20552 | 1,504,845 | 1,239,599 | ||||||
Libra Solutions LLC, Series 2022-2A, Class A, 6.85%, 10/15/20342 | 1,395,634 | 1,388,221 | ||||||
Navient Private Education Refi Loan Trust, Series 2019-EA, Class A2A, 2.64%, 5/15/20682 | 444,167 | 419,295 | ||||||
Oxford Finance Funding LLC, Series 2019-1A, Class A2, 4.459%, 2/15/20272 | 348,909 | 346,148 | ||||||
Series 2020-1A, Class A2, 3.101%, 2/15/20282 | 824,099 | 814,990 | ||||||
Series 2022-1A, Class A2, 3.602%, 2/15/20302 | 2,650,000 | 2,416,086 | ||||||
PEAR LLC, Series 2021-1, Class A, 2.60%, 1/15/2034 (Acquired 11/16/2021, cost $2,710,987)4 | 2,710,987 | 2,550,171 | ||||||
Series 2022-1, Class A1, 6.50%, 10/15/2034 (Acquired 10/14/2022, cost $1,065,611)4 | 1,066,464 | 1,064,565 | ||||||
SoFi Professional Loan Program LLC, Series 2017-F, Class A2FX, 2.84%, 1/25/20412 | 827,924 | 796,682 | ||||||
Series 2020-A, Class A2FX, 2.54%, 5/15/20462 | 566,034 | 523,609 | ||||||
Series 2020-C, Class AFX, 1.95%, 2/15/20462 | 424,253 | 384,071 | ||||||
Towd Point Mortgage Trust, Series 2016-5, Class A1, 2.50%, 10/25/20562,5 | 55,931 | 54,992 | ||||||
Series 2017-1, Class A1, 2.75%, 10/25/20562,5 | 43,811 | 43,074 | ||||||
Series 2019-HY1, Class A1, (1 mo. LIBOR US + 1.000%), 5.389%, 10/25/20482,6 | 106,409 | 105,552 | ||||||
Tricon American Homes, Series 2020- SFR1, Class B, 2.049%, 7/17/20382 | 1,300,000 | 1,142,469 |
PRINCIPAL AMOUNT1/ SHARES | VALUE (NOTE 2) | |||||||
ASSET-BACKED SECURITIES (continued) | ||||||||
Triton Container Finance VIII LLC, Series 2021-1A, Class A, 1.86%, 3/20/20462 | 2,383,500 | $ | 1,990,393 | |||||
Vertical Bridge Holdings LLC, Series 2020-2A, Class A, 2.636%, 9/15/20502 | 2,250,000 | 2,008,096 | ||||||
TOTAL ASSET-BACKED SECURITIES | ||||||||
(Identified Cost $39,732,541) | 35,711,534 | |||||||
COMMERCIAL MORTGAGE-BACKED SECURITIES - 7.1% | ||||||||
Brean Asset Backed Securities Trust, Series 2021-RM2, Class A, 1.75%, 10/25/20612,5 | 1,299,535 | 1,135,317 | ||||||
CIM Trust, Series 2019-INV1, Class A1, 4.00%, 2/25/20492,5 | 20,524 | 19,625 | ||||||
Citigroup Mortgage Loan Trust, Inc., Series 2021-INV1, Class A3A, 2.50%, 5/25/20512,5 | 878,459 | 704,084 | ||||||
Credit Suisse Mortgage Capital Trust, Series 2013-6, Class 2A1, 3.50%, 8/25/20432,5 | 184,582 | 166,793 | ||||||
Series 2013-IVR2, Class A2, 3.00%, 4/25/20432,5 | 192,424 | 170,116 | ||||||
Series 2013-IVR3, Class A1, 2.50%, 5/25/20432,5 | 56,195 | 49,092 | ||||||
Series 2013-TH1, Class A1, 2.13%, 2/25/20432,5 | 33,020 | 28,070 | ||||||
Fannie Mae REMICS, Series 2018-13, Class PA, 3.00%, 3/25/2048 | 1,745,169 | 1,529,400 | ||||||
Series 2018-31, Class KP, 3.50%, 7/25/2047 | 19,464 | 18,824 | ||||||
Series 2021-69, Class WJ, 1.50%, 10/25/2050 | 1,248,292 | 1,046,590 | ||||||
Fontainebleau Miami Beach Trust, Series 2019-FBLU, Class A, 3.144%, 12/10/20362 | 1,050,000 | 980,773 | ||||||
Freddie Mac Multifamily Structured Pass-Through Certificates, Series K030, Class X1 (IO), 0.137%, 4/25/20235 | 9,157,761 | 2,224 | ||||||
Series K032, Class X1 (IO), 0.062%, 5/25/20235 | 6,888,837 | 1,512 | ||||||
Freddie Mac REMICS, Series 5189, Class CP, 2.50%, 6/25/2049 | 1,442,488 | 1,246,558 | ||||||
Government National Mortgage Association, Series 2017-54, Class AH, 2.60%, 12/16/2056 | 73,631 | 68,726 | ||||||
GS Mortgage-Backed Securities Corp. Trust, | ||||||||
Series 2020-PJ3, Class A14, 3.00%, 10/25/20502,5 | 553,783 | 456,228 | ||||||
Series 2021-INV1, Class A9, (U.S. Secured Overnight Financing Rate 30 Day Average + 0.850%), 4.778%, 12/25/20512,6 | 1,678,764 | 1,527,182 | ||||||
Series 2021-PJ6, Class A8, 2.50%, 11/25/20512,5 | 1,291,414 | 1,111,798 |
The accompanying notes are an integral part of the financial statements.
7
Core Bond Series
Investment Portfolio - December 31, 2022
PRINCIPAL AMOUNT1/ SHARES | VALUE (NOTE 2) | |||||||
COMMERCIAL MORTGAGE-BACKED SECURITIES (continued) | ||||||||
GS Mortgage-Backed Securities Corp. Trust, (continued) | ||||||||
Series 2021-PJ9, Class A8, 2.50%, 2/26/20522,5 | 1,286,076 | $ | 1,107,195 | |||||
Imperial Fund Mortgage Trust, Series 2021-NQM3, Class A1, 1.595%, 11/25/20562,5 | 1,516,800 | 1,222,591 | ||||||
JP Morgan Mortgage Trust, Series 2014-2, Class 1A1, 3.00%, 6/25/20292,5 | 44,939 | 41,984 | ||||||
Series 2017-6, Class A3, 3.50%, 12/25/20482,5 | 19,814 | 18,005 | ||||||
New Residential Mortgage Loan Trust, Series 2014-1A, Class A, 3.75%, 1/25/20542,5 | 109,344 | 102,736 | ||||||
Series 2014-3A, Class AFX3, 3.75%, 11/25/20542,5 | 52,103 | 48,009 | ||||||
Series 2015-2A, Class A1, 3.75%, 8/25/20552,5 | 99,009 | 92,089 | ||||||
Series 2016-4A, Class A1, 3.75%, 11/25/20562,5 | 91,861 | 83,969 | ||||||
OBX Trust, Series 2022-INV1, Class A1, 3.00%, 12/25/20512,5 | 1,392,411 | 1,163,785 | ||||||
PMT Loan Trust, Series 2013-J1, Class A9, 3.50%, 9/25/20432,5 | 172,546 | 155,654 | ||||||
Provident Funding Mortgage Trust, | ||||||||
Series 2021-2, Class A2A, 2.00%, 4/25/20512,5 | 1,656,178 | 1,398,152 | ||||||
Series 2021-INV1, Class A1, 2.50%, 8/25/20512,5 | 2,573,868 | 2,058,332 | ||||||
RCKT Mortgage Trust, Series 2021-6, Class A1, 2.50%, 12/25/20512,5 | 1,654,919 | 1,324,006 | ||||||
Sequoia Mortgage Trust, | ||||||||
Series 2013-4, Class A1, 2.325%, 4/25/20435 | 1,542,401 | 1,272,944 | ||||||
Series 2013-6, Class A2, 3.00%, 5/25/20435 | 449,389 | 395,459 | ||||||
Series 2013-7, Class A2, 3.00%, 6/25/20435 | 33,681 | 29,534 | ||||||
Series 2013-8, Class A1, 3.00%, 6/25/20435 | 86,561 | 76,546 | ||||||
Sutherland Commercial Mortgage Trust, Series 2019-SBC8, Class A, 2.86%, 4/25/20412,5 | 510,252 | 466,771 | ||||||
WinWater Mortgage Loan Trust, Series 2015-1, Class A1, 3.50%, 1/20/20452,5 | 14,376 | 13,099 | ||||||
Series 2015-2, Class A11, 3.50%, 2/20/20452,5 | 449,437 | 405,108 | ||||||
TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES | ||||||||
(Identified Cost $25,209,923) | 21,738,880 | |||||||
MUNICIPAL BONDS - 1.5% | ||||||||
Clark County, Public Impt., Series A, G.O. Bond, 1.15%, 11/1/2026 | 3,410,000 | 2,957,119 |
PRINCIPAL AMOUNT1/ SHARES | VALUE (NOTE 2) | |||||||
MUNICIPAL BONDS (continued) | ||||||||
Hawaii, Series GC, G.O. Bond, 2.682%, 10/1/2038 | 95,000 | $ | 68,409 | |||||
New York City Transitional Finance Authority, Future Tax Secured, Public Impt., Revenue Bond, 1.58%, 5/1/2024 | 910,000 | 872,535 | ||||||
South Carolina Public Service Authority, Series B, Revenue Bond, 2.329%, 12/1/2028 | 600,000 | 505,319 | ||||||
TOTAL MUNICIPAL BONDS | ||||||||
(Identified Cost $5,027,305) | 4,403,382 | |||||||
U.S. TREASURY SECURITIES - 42.5% | ||||||||
U.S. Treasury Bonds - 12.5% | ||||||||
U.S. Treasury Bond | ||||||||
2.375%, 2/15/2042 | 24,765,000 | 19,057,442 | ||||||
3.00%, 5/15/2047 | 22,867,000 | 18,825,972 | ||||||
Total U.S. Treasury Bonds | ||||||||
(Identified Cost $41,850,139) | 37,883,414 | |||||||
U.S. Treasury Notes - 30.0% | ||||||||
U.S. Treasury Note | ||||||||
2.25%, 11/15/2025 | 16,955,000 | 16,058,239 | ||||||
2.00%, 11/15/2026 | 18,978,000 | 17,559,098 | ||||||
2.25%, 11/15/2027 | 25,555,000 | 23,580,477 | ||||||
3.125%, 11/15/2028 | 18,250,000 | 17,435,879 | ||||||
1.75%, 11/15/2029 | 12,085,000 | 10,564,934 | ||||||
1.375%, 11/15/2031 | 7,430,000 | 6,070,542 | ||||||
Total U.S. Treasury Notes | ||||||||
(Identified Cost $93,682,547) | 91,269,169 | |||||||
TOTAL U.S. TREASURY SECURITIES | ||||||||
(Identified Cost $135,532,686) | 129,152,583 | |||||||
U.S. GOVERNMENT AGENCIES - 15.3% | ||||||||
Mortgage-Backed Securities - 15.3% | ||||||||
Fannie Mae | ||||||||
Pool #AD0462, UMBS, 5.50%, 10/1/2024 | 706 | 703 | ||||||
Pool #MA3463, UMBS, 4.00%, 9/1/2033 | 103,235 | 101,433 | ||||||
Pool #MA1834, UMBS, 4.50%, 2/1/2034 | 30,764 | 30,380 | ||||||
Pool #FM1158, UMBS, 3.50%, 6/1/2034 | 366,150 | 353,067 | ||||||
Pool #MA2587, UMBS, 3.50%, 4/1/2036 | 196,313 | 186,541 | ||||||
Pool #MA3215, UMBS, 3.50%, 12/1/2037 | 632,741 | 601,366 | ||||||
Pool #FM2568, UMBS, 3.00%, 5/1/2038 | 420,413 | 388,749 | ||||||
Pool #995876, UMBS, 6.00%, 11/1/2038 | 59,868 | 62,762 | ||||||
Pool #MA4203, UMBS, 2.50%, 12/1/2040 | 2,776,820 | 2,417,883 |
The accompanying notes are an integral part of the financial statements.
8
Core Bond Series
Investment Portfolio - December 31, 2022
PRINCIPAL AMOUNT1/ SHARES | VALUE (NOTE 2) | |||||||
U.S. GOVERNMENT AGENCIES (continued) | ||||||||
Mortgage-Backed Securities (continued) | ||||||||
Fannie Mae (continued) | ||||||||
Pool #AI5172, UMBS, 4.00%, 8/1/2041 | 40,613 | $ | 39,170 | |||||
Pool #AH3858, UMBS, 4.50%, 8/1/2041 | 205,607 | 203,718 | ||||||
Pool #MA4633, UMBS, 3.50%, 6/1/2042 | 2,106,421 | 1,946,901 | ||||||
Pool #MA4687, UMBS, 4.00%, 6/1/2042 | 3,034,581 | 2,884,347 | ||||||
Pool #AL7729, UMBS, 4.00%, 6/1/2043 | 48,874 | 47,137 | ||||||
Pool #AX1685, UMBS, 3.50%, 11/1/2044 | 450,460 | 422,598 | ||||||
Pool #AS4103, UMBS, 4.50%, 12/1/2044 | 139,228 | 137,693 | ||||||
Pool #AY8604, UMBS, 3.50%, 4/1/2045 | 68,953 | 63,930 | ||||||
Pool #BC6764, UMBS, 3.50%, 4/1/2046 | 28,389 | 26,281 | ||||||
Pool #BC8677, UMBS, 4.00%, 5/1/2046 | 24,480 | 23,389 | ||||||
Pool #BD1191, UMBS, 3.50%, 1/1/2047 | 190,505 | 176,362 | ||||||
Pool #BE7845, UMBS, 4.50%, 2/1/2047 | 34,739 | 34,164 | ||||||
Pool #MA3007, UMBS, 3.00%, 4/1/2047 | 714,029 | 641,564 | ||||||
Pool #FM2232, UMBS, 4.00%, 6/1/2048 | 104,260 | 99,546 | ||||||
Pool #AL8674, 5.654%, 1/1/2049 | 265,382 | 274,017 | ||||||
Pool #FS1179, UMBS, 3.50%, 12/1/2049 | 2,793,183 | 2,585,439 | ||||||
Pool #FS2696, UMBS, 3.00%, 12/1/2051 | 2,748,652 | 2,443,784 | ||||||
Pool #FS2998, UMBS, 3.50%, 4/1/2052 | 4,803,536 | 4,418,172 | ||||||
Pool #MA4600, UMBS, 3.50%, 5/1/2052 | 3,078,864 | 2,797,908 | ||||||
Pool #MA4644, UMBS, 4.00%, 5/1/2052 | 3,023,476 | 2,836,239 | ||||||
Pool #MA4733, UMBS, 4.50%, 9/1/2052 | 2,591,723 | 2,497,274 |
PRINCIPAL AMOUNT1/ SHARES | VALUE (NOTE 2) | |||||||
U.S. GOVERNMENT AGENCIES (continued) | ||||||||
Mortgage-Backed Securities (continued) | ||||||||
Fannie Mae (continued) | ||||||||
Pool #MA4807, UMBS, 5.50%, 11/1/2052 | 4,972,962 | $ | 4,988,066 | |||||
Freddie Mac | ||||||||
Pool #G12988, 6.00%, 1/1/2023 | 1 | 1 | ||||||
Pool #G13078, 6.00%, 3/1/2023 | 4 | 4 | ||||||
Pool #D98711, 4.50%, 7/1/2031 | 49,096 | 48,578 | ||||||
Pool #C91746, 4.50%, 12/1/2033 | 36,768 | 36,390 | ||||||
Pool #C91771, 4.50%, 6/1/2034 | 49,105 | 48,536 | ||||||
Pool #C91780, 4.50%, 7/1/2034 | 56,870 | 56,303 | ||||||
Pool #QN0349, UMBS, 3.00%, 8/1/2034 | 387,361 | 365,393 | ||||||
Pool #C91832, 3.50%, 6/1/2035 | 223,753 | 212,774 | ||||||
Pool #G08268, 5.00%, 5/1/2038 | 285,661 | 289,221 | ||||||
Pool #G05900, 6.00%, 3/1/2040 | 19,649 | 20,622 | ||||||
Pool #A92889, 4.50%, 7/1/2040 | 108,478 | 107,620 | ||||||
Pool #A93451, 4.50%, 8/1/2040 | 318,338 | 315,821 | ||||||
Pool #G60513, 5.00%, 7/1/2041 | 286,837 | 290,144 | ||||||
Pool #G60071, 4.50%, 7/1/2042 | 112,082 | 111,195 | ||||||
Pool #RB5188, UMBS, 4.00%, 10/1/2042 | 3,620,582 | 3,442,173 | ||||||
Pool #Q17513, 3.50%, 4/1/2043 | 63,706 | 59,694 | ||||||
Pool #Q37857, 4.00%, 12/1/2045 | 239,391 | 230,424 | ||||||
Pool #G60855, 4.50%, 12/1/2045 | 101,940 | 100,916 | ||||||
Pool #Q38388, 4.00%, 1/1/2046 | 226,447 | 218,676 | ||||||
Pool #Q47544, 4.00%, 3/1/2047 | 255,299 | 246,265 | ||||||
Pool #Q47130, 4.50%, 4/1/2047 | 25,475 | 25,004 | ||||||
Pool #G08786, 4.50%, 10/1/2047 | 74,830 | 73,447 | ||||||
Pool #SD8044, UMBS, 3.00%, 2/1/2050 | 2,935,450 | 2,609,471 | ||||||
Pool #SD1129, UMBS, 4.00%, 8/1/2051 | 2,545,203 | 2,422,799 | ||||||
Pool #SD8230, UMBS, 4.50%, 6/1/2052 | 1,658,465 | 1,598,051 | ||||||
TOTAL U.S. GOVERNMENT AGENCIES | ||||||||
(Identified Cost $48,633,041) | 46,660,105 | |||||||
SHORT-TERM INVESTMENT - 1.1% | ||||||||
Dreyfus Government Cash Management, Institutional Shares, 4.19%7 | ||||||||
(Identified Cost $3,285,560) | 3,285,560 | 3,285,560 | ||||||
TOTAL INVESTMENTS - 99.5% | ||||||||
(Identified Cost $326,962,449) | 302,581,282 | |||||||
OTHER ASSETS, LESS LIABILITIES - 0.5% | 1,640,151 | |||||||
NET ASSETS - 100% | $ | 304,221,433 |
G.O. Bond - General Obligation Bond
Impt. - Improvement
IO - Interest only
LIBOR - London Interbank Offered Rate
The accompanying notes are an integral part of the financial statements.
9
Core Bond Series
Investment Portfolio - December 31, 2022
No. - Number
REMICS - Real Estate Mortgage Investment Conduits
UMBS - Uniform Mortgage-Backed Securities
1Amount is stated in USD unless otherwise noted.
2Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”) and determined to be liquid under the Fund’s Liquidity Risk Management Program. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at December 31, 2022 was $68,729,274, which represented 22.6% of the Series’ Net Assets.
3Variable rate security. Security may be issued at a fixed coupon rate, which converts to a variable rate at a specified date. Rate shown is the rate in effect as of December 31, 2022.
4Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”) and determined to be illiquid under the Fund’s Liquidity Risk Management Program. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of such securities at December 31, 2022 was $3,614,736, or 1.2% of the Series’ Net Assets.
5Variable or floating rate security, the interest rate of which adjusts periodically based on changes in current interest rates and prepayments on the underlying pool of assets. Rate shown is the rate in effect as of December 31, 2022.
6Floating rate security. Rate shown is the rate in effect as of December 31, 2022.
7Rate shown is the current yield as of December 31, 2022.
The Global Industry Classification Standard (GICS) was developed by and is the exclusive property and a service mark of MSCI Inc. (MSCI) and Standard & Poor’s, a division of S&P Global Inc. (S&P), and is licensed for use by Manning & Napier when referencing GICS sectors. Neither MSCI, S&P, nor any third party involved in making or compiling the GICS or any GICS classifications makes any express or implied warranties or representations with respect to such standard or classification, nor shall any such party have any liability therefrom.
The accompanying notes are an integral part of the financial statements.
10
Core Bond Series
Statement of Assets and Liabilities
December 31, 2022
ASSETS: | ||||
Investments, at value (identified cost $326,962,449) (Note 2) | $ | 302,581,282 | ||
Cash | 3,809 | |||
Receivable from Advisor (Note 3) | 13,808 | |||
Interest receivable | 1,525,851 | |||
Receivable for fund shares sold | 331,512 | |||
Dividends receivable | 7,374 | |||
Prepaid expenses | 13,676 | |||
TOTAL ASSETS | 304,477,312 | |||
LIABILITIES: | ||||
Accrued fund accounting and administration fees (Note 3) | 30,739 | |||
Accrued sub-transfer agent fees (Note 3) | 2,084 | |||
Accrued Chief Compliance Officer service fees (Note 3) | 2,063 | |||
Accrued distribution and service (Rule 12b-1) fees (Class S) (Note 3) | 435 | |||
Payable for fund shares repurchased | 185,174 | |||
Professional fees payable | 21,677 | |||
Other payables and accrued expenses | 13,707 | |||
TOTAL LIABILITIES | 255,879 | |||
TOTAL NET ASSETS | $ | 304,221,433 | ||
NET ASSETS CONSIST OF: | ||||
Capital stock | $ | 333,975 | ||
Additional paid-in-capital | 362,985,745 | |||
Total distributable earnings (loss) | (59,098,287 | ) | ||
TOTAL NET ASSETS | $ | 304,221,433 | ||
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE - Class S ($1,966,519/214,104 shares) | $ | 9.18 | ||
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE - Class I ($4,303,493/513,720 shares) | $ | 8.38 | ||
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE - Class W ($275,471,542/29,993,336 shares) | $ | 9.18 | ||
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE - Class Z ($22,479,879/2,676,372 shares) | $ | 8.40 |
The accompanying notes are an integral part of the financial statements.
11
Core Bond Series
Statement of Operations
For the Year Ended December 31, 2022
INVESTMENT INCOME:
Interest | $ | 8,843,035 | ||
Dividends | 62,505 | |||
Total Investment Income | 8,905,540 | |||
EXPENSES: | ||||
Management fees (Note 3) | 815,416 | |||
Fund accounting and administration fees (Note 3) | 109,423 | |||
Directors’ fees (Note 3) | 38,617 | |||
Sub-transfer agent fees (Note 3) | 9,918 | |||
Chief Compliance Officer service fees (Note 3) | 8,983 | |||
Distribution and service (Rule 12b-1) fees (Class S) (Note 3) | 7,520 | |||
Professional fees | 72,440 | |||
Registration and filing fees | 64,329 | |||
Custodian fees | 13,605 | |||
Miscellaneous | 67,796 | |||
Total Expenses | 1,208,047 | |||
Less reduction of expenses (Note 3) | (945,551 | ) | ||
Net Expenses | 262,496 | |||
NET INVESTMENT INCOME | 8,643,044 | |||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: | ||||
Net realized gain (loss) on investments | (34,251,297 | ) | ||
Net change in unrealized appreciation (depreciation) on investments | (21,471,498 | ) | ||
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS | (55,722,795 | ) | ||
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | (47,079,751 | ) |
The accompanying notes are an integral part of the financial statements.
12
Core Bond Series
Statements of Changes in Net Assets
FOR THE YEAR ENDED 12/31/22 | FOR THE YEAR ENDED 12/31/21 | |||||||
INCREASE (DECREASE) IN NET ASSETS: | ||||||||
OPERATIONS: | ||||||||
Net investment income | $ | 8,643,044 | $ | 6,211,759 | ||||
Net realized gain (loss) on investments | (34,251,297 | ) | 3,476,960 | |||||
Net change in unrealized appreciation (depreciation) on investments | (21,471,498 | ) | (14,150,627 | ) | ||||
Net increase (decrease) from operations | (47,079,751 | ) | (4,461,908 | ) | ||||
DISTRIBUTIONS TO SHAREHOLDERS (Note 9): | ||||||||
Class S | (52,571 | ) | (103,827 | ) | ||||
Class I | (137,806 | ) | (171,481 | ) | ||||
Class W | (7,884,279 | ) | (9,639,144 | ) | ||||
Class Z | (615,473 | ) | (640,465 | ) | ||||
Total distributions to shareholders | (8,690,129 | ) | (10,554,917 | ) | ||||
CAPITAL STOCK ISSUED AND REPURCHASED: | ||||||||
Net increase (decrease) from capital share transactions (Note 5) | (20,399,382 | ) | 43,705,280 | |||||
Net increase (decrease) in net assets | (76,169,262 | ) | 28,688,455 | |||||
NET ASSETS: | ||||||||
Beginning of year | 380,390,695 | 351,702,240 | ||||||
End of year | $ | 304,221,433 | $ | 380,390,695 |
The accompanying notes are an integral part of the financial statements.
13
Core Bond Series
Financial Highlights - Class S
FOR THE YEAR ENDED | ||||||||||||||||||||
12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 | ||||||||||||||||
Per share data (for a share outstanding throughout each year): | ||||||||||||||||||||
Net asset value - Beginning of year | $10.82 | $11.28 | $10.92 | $10.30 | $10.62 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income1 | 0.19 | 0.12 | 0.16 | 0.23 | 0.24 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | (1.62 | ) | (0.33 | ) | 0.78 | 0.61 | (0.32 | ) | ||||||||||||
Total from investment operations | (1.43 | ) | (0.21 | ) | 0.94 | 0.84 | (0.08 | ) | ||||||||||||
Less distributions to shareholders: | ||||||||||||||||||||
From net investment income | (0.21 | ) | (0.12 | ) | (0.16 | ) | (0.22 | ) | (0.24 | ) | ||||||||||
From net realized gain on investments | — | (0.13 | ) | (0.42 | ) | — | — | |||||||||||||
Total distributions to shareholders | (0.21 | ) | (0.25 | ) | (0.58 | ) | (0.22 | ) | (0.24 | ) | ||||||||||
Net asset value - End of year | $9.18 | $10.82 | $11.28 | $10.92 | $10.30 | |||||||||||||||
Net assets - End of year (000’s omitted) | $1,967 | $4,185 | $5,760 | $2,382 | $101,314 | |||||||||||||||
Total return2 | (13.30% | ) | (1.89% | ) | 8.67% | 8.18% | (0.75% | ) | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Expenses* | 0.70% | 0.65% | 0.64% | 0.69% | 0.70% | |||||||||||||||
Net investment income | 1.88% | 1.07% | 1.38% | 2.27% | 2.35% | |||||||||||||||
Series portfolio turnover | 101% | 69% | 110% | 66% | 78% | |||||||||||||||
*For certain years presented, the investment advisor did not impose all or a portion of its management and/or other fees, and in some years may have paid a portion of the Series’ expenses. If these expenses had been incurred by the Class, the expense ratio (to average net assets) would have increased by the following amounts: | ||||||||||||||||||||
N/A | N/A | N/A | 0.07% | 0.08% |
1Calculated based on average shares outstanding during the years.
2Represents aggregate total return for the years indicated, and assumes reinvestment of all distributions. Total return would have been lower had certain expenses not been waived or reimbursed during certain years.
The accompanying notes are an integral part of the financial statements.
14
Core Bond Series
Financial Highlights - Class I
FOR THE YEAR ENDED | ||||||||||||||||||||
12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 | ||||||||||||||||
Per share data (for a share outstanding throughout each year): | ||||||||||||||||||||
Net asset value - Beginning of year | $9.89 | $10.33 | $10.04 | $9.52 | $9.84 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income1 | 0.20 | 0.13 | 0.17 | 0.24 | 0.25 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | (1.48 | ) | (0.30 | ) | 0.72 | 0.55 | (0.31 | ) | ||||||||||||
Total from investment operations | (1.28 | ) | (0.17 | ) | 0.89 | 0.79 | (0.06 | ) | ||||||||||||
Less distributions to shareholders: | ||||||||||||||||||||
From net investment income | (0.23 | ) | (0.14 | ) | (0.18 | ) | (0.27 | ) | (0.26 | ) | ||||||||||
From net realized gain on investments | — | (0.13 | ) | (0.42 | ) | — | — | |||||||||||||
Total distributions to shareholders | (0.23 | ) | (0.27 | ) | (0.60 | ) | (0.27 | ) | (0.26 | ) | ||||||||||
Net asset value - End of year | $8.38 | $9.89 | $10.33 | $10.04 | $9.52 | |||||||||||||||
Net assets - End of year (000’s omitted) | $4,303 | $6,621 | $4,387 | $5,416 | $76,761 | |||||||||||||||
Total return2 | (13.01% | ) | (1.65% | ) | 8.93% | 8.38% | (0.53% | ) | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Expenses* | 0.45% | 0.45% | 0.45% | 0.45% | 0.45% | |||||||||||||||
Net investment income | 2.27% | 1.29% | 1.67% | 2.53% | 2.60% | |||||||||||||||
Series portfolio turnover | 101% | 69% | 110% | 66% | 78% | |||||||||||||||
*The investment advisor did not impose all or a portion of its management and/or other fees during the years, and may have paid a portion of the Series’ expenses. If these expenses had been incurred by the Class, the expense ratio (to average net assets) would have increased by the following amounts: | ||||||||||||||||||||
0.04% | 0.02% | 0.01% | 0.06% | 0.08% |
1Calculated based on average shares outstanding during the years.
2Represents aggregate total return for the years indicated, and assumes reinvestment of all distributions. Total return would have been lower had certain expenses not been waived or reimbursed during the years.
The accompanying notes are an integral part of the financial statements.
15
Core Bond Series
Financial Highlights - Class W
FOR THE YEAR ENDED | FOR THE PERIOD | |||||||||||||||
12/31/22 | 12/31/21 | 12/31/20 | ||||||||||||||
Per share data (for a share outstanding throughout each period): | ||||||||||||||||
Net asset value - Beginning of period | $10.82 | $11.27 | $10.90 | $10.40 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||
Net investment income2 | 0.26 | 0.19 | 0.22 | 0.26 | ||||||||||||
Net realized and unrealized gain (loss) on investments | (1.64 | ) | (0.33 | ) | 0.78 | 0.54 | ||||||||||
Total from investment operations | (1.38 | ) | (0.14 | ) | 1.00 | 0.80 | ||||||||||
Less distributions to shareholders: | ||||||||||||||||
From net investment income | (0.26 | ) | (0.18 | ) | (0.21 | ) | (0.30 | ) | ||||||||
From net realized gain on investments | — | (0.13 | ) | (0.42 | ) | — | ||||||||||
Total distributions to shareholders | (0.26 | ) | (0.31 | ) | (0.63 | ) | (0.30 | ) | ||||||||
Net asset value - End of period | $9.18 | $10.82 | $11.27 | $10.90 | ||||||||||||
Net assets - End of period (000’s omitted) | $275,472 | $344,304 | $321,288 | $192,391 | ||||||||||||
Total return3 | (12.76% | ) | (1.25% | ) | 9.31% | 7.74% | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||
Expenses* | 0.05% | 0.05% | 0.05% | 0.05% | 4 | |||||||||||
Net investment income | 2.68% | 1.68% | 1.97% | 2.87% | 4 | |||||||||||
Series portfolio turnover | 101% | 69% | 110% | 66% | ||||||||||||
*The investment advisor did not impose all or a portion of its management and/or other fees during the periods, and may have paid a portion of the Series’ expenses. If these expenses had been incurred by the Class, the expense ratio (to average net assets) would have increased by the following amounts: | ||||||||||||||||
0.32% | 0.30% | 0.32% | 0.34% | 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.
16
Core Bond Series
Financial Highlights - Class Z
FOR THE YEAR ENDED | FOR THE PERIOD 12/31/19 | |||||||||||||||
12/31/22 | 12/31/21 | 12/31/20 | ||||||||||||||
Per share data (for a share outstanding throughout each period): | ||||||||||||||||
Net asset value - Beginning of period | $9.91 | $10.35 | $10.06 | $9.62 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||
Net investment income2 | 0.22 | 0.15 | 0.18 | 0.22 | ||||||||||||
Net realized and unrealized gain (loss) on investments | (1.49 | ) | (0.31 | ) | 0.72 | 0.50 | ||||||||||
Total from investment operations | (1.27 | ) | (0.16 | ) | 0.90 | 0.72 | ||||||||||
Less distributions to shareholders: | ||||||||||||||||
From net investment income | (0.24 | ) | (0.15 | ) | (0.19 | ) | (0.28 | ) | ||||||||
From net realized gain on investments | — | (0.13 | ) | (0.42 | ) | — | ||||||||||
Total distributions to shareholders | (0.24 | ) | (0.28 | ) | (0.61 | ) | (0.28 | ) | ||||||||
Net asset value - End of period | $8.40 | $9.91 | $10.35 | $10.06 | ||||||||||||
Net assets - End of period (000’s omitted) | $22,480 | $25,281 | $20,266 | $10,372 | ||||||||||||
Total return3 | (12.86% | ) | (1.53% | ) | 9.02% | 7.50% | ||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||
Expenses* | 0.30% | 0.30% | 0.30% | 0.30% | 4 | |||||||||||
Net investment income | 2.46% | 1.43% | 1.75% | 2.64% | 4 | |||||||||||
Series portfolio turnover | 101% | 69% | 110% | 66% | ||||||||||||
*The investment advisor did not impose all or a portion of its management and/or other fees during the periods, and may have paid a portion of the Series’ expenses. If these expenses had been incurred by the Class, the expense ratio (to average net assets) would have increased by the following amounts: | ||||||||||||||||
0.07% | 0.05% | 0.07% | 0.09% | 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.
17
Core Bond Series
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 fixed income securities.
The Series is authorized to issue four classes of shares (Class S, I, W, and Z). 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, LLC (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 15 billion shares of common stock each having a par value of $0.01. As of December 31, 2022, 6.3 billion shares have been designated in total among 15 series, of which 100 million have been designated as Core Bond Series Class I common stock, 125 million have been designated as Core Bond Series Class S common stock, 150 million have been designated as Core Bond Series Class W common stock and Core Bond Series Class Z common stock.
2. | Significant Accounting Policies |
The following is a summary of significant accounting policies followed by the Series. The Series is an investment company and, accordingly, follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board Accounting Standards Codification Topic 946 - Investment Companies, which is part of accounting principles generally accepted in the United States of America (“GAAP”).
Security Valuation
Portfolio securities, including domestic equities, foreign equities, warrants and options, listed on an exchange other than the NASDAQ Stock Market 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 Stock Market 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 “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 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 may be valued at amortized cost, which approximates fair value. Investments in open-end investment companies are valued at their net asset value per share on valuation date.
18
Core Bond Series
Notes to Financial Statements (continued)
2. | Significant Accounting Policies (continued) |
Security Valuation (continued)
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. In these instances, fair value is measured 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 to value these securities may differ from the value that would be realized if these securities were sold, and the differences could be material.
Fair Value
The Series’ financial instruments are valued at the close of the NYSE and are reported at fair value, which GAAP defines as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Board has designated the Advisor as the Fund’s valuation designee (Valuation Designee) to make all fair value determinations with respect to each Series’ portfolio investments. Subject to oversight by the Board, the Valuation Designee performs the following functions in performing fair value determinations: assesses and manages valuation risks; establishes and applies fair value methodologies; tests fair value methodologies; and evaluates pricing vendors and pricing agents. The Advisor has adopted and implemented policies and procedures to be followed when making fair value determinations, and it has established a Valuation Committee through which the Advisor makes fair value determinations. The Valuation Designee provides periodic reporting to the Board on valuation matters. The Advisor’s determination of a security’s fair value price often involves the consideration of a number of subjective factors, and is therefore subject to the unavoidable risk that the value assigned to a security may be higher or lower than the security’s value would be if a reliable market quotation for the security was readily available. 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. The Advisor may use a pricing service to obtain the value of the Fund’s portfolio securities where the prices provided by such pricing service are believed to reflect the fair market value of such securities. The methods used by the pricing service and the valuations so established will be reviewed by the Advisor under the general supervision of the Fund’s Board of Directors. Several pricing services are available, one or more of which may be used by the Advisor, as approved by the Board. A change in a pricing service or a material change in a pricing methodology for investments with no readily available market quotations will be reported to the Board by the Advisor in accordance with certain requirements.
GAAP establishes the following fair value hierarchy that categorizes the inputs used to measure fair value. Level 1 includes quoted prices (unadjusted) in active markets for identical financial instruments that the Series’ can access at the reporting date. Level 2 includes other significant observable inputs (including, but not limited to, quoted prices for similar financial instruments in active markets, quoted prices for identical or similar financial instruments in inactive markets, interest rates and yield curves, implied volatilities, and credit spreads). Level 3 includes unobservable inputs (including the Valuation Designee’s own assumptions in determining fair value). A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input both individually and in aggregate that is significant to the fair value measurement. 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, 2022 in valuing the Series’ assets or liabilities carried at fair value:
DESCRIPTION | TOTAL | LEVEL 1 | LEVEL 2 | LEVEL 3 | ||||||||||||
Assets: | ||||||||||||||||
Debt securities: | ||||||||||||||||
U.S. Treasury and other U.S. | ||||||||||||||||
Government agencies | $ | 175,812,688 | $ | — | $ | 175,812,688 | $ | — | ||||||||
States and political subdivisions (municipals) | 4,403,382 | — | 4,403,382 | — |
19
Core Bond Series
Notes to Financial Statements (continued)
2. | Significant Accounting Policies (continued) |
Fair Value (continued)
DESCRIPTION | TOTAL | LEVEL 1 | LEVEL 2 | LEVEL 3 | ||||||||||||
Corporate debt: | ||||||||||||||||
Communication Services | $ | 10,544,170 | $ | — | $ | 10,544,170 | $ | — | ||||||||
Consumer Discretionary | 8,861,072 | — | 8,861,072 | — | ||||||||||||
Consumer Staples | 2,950,603 | — | 2,950,603 | — | ||||||||||||
Energy | 5,324,546 | — | 5,324,546 | — | ||||||||||||
Financials | 9,807,392 | — | 9,807,392 | — | ||||||||||||
Industrials | 9,269,890 | — | 9,269,890 | — | ||||||||||||
Information Technology | 3,055,289 | — | 3,055,289 | — | ||||||||||||
Materials | 1,548,880 | — | 1,548,880 | — | ||||||||||||
Real Estate | 6,915,274 | — | 6,915,274 | — | ||||||||||||
Utilities | 3,352,122 | — | 3,352,122 | — | ||||||||||||
Asset-backed securities | 35,711,534 | — | 35,711,534 | — | ||||||||||||
Commercial mortgage-backed securities | 21,738,880 | — | 21,738,880 | — | ||||||||||||
Short-Term Investment | 3,285,560 | 3,285,560 | — | — | ||||||||||||
Total assets | $ | 302,581,282 | $ | 3,285,560 | $ | 299,295,722 | $ | — |
There were no Level 3 securities held by the Series as of December 31, 2021 or December 31, 2022.
LIBOR Transition Risk
The United Kingdom’s Financial Conduct Authority announced a phase out of the London Interbank Offered Rate (“LIBOR”). Although many LIBOR rates will cease to be published or no longer will be representative of the underlying market they seek to measure after December 31, 2021, a selection of widely used USD LIBOR rates will continue to be published through June 2023 in order to assist with the transition. The Series may be exposed to financial instruments tied to LIBOR to determine payment obligations, financing terms, hedging strategies or investment value. The transition process away from LIBOR might lead to increased volatility and illiquidity in markets for, and reduce the effectiveness of new hedges placed against, instruments whose terms currently include LIBOR. The ultimate effect of the LIBOR transition process on the Series is uncertain.
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 Series is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair 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. Income, expenses (other than shareholder services fees), and realized and unrealized gains and losses are prorated among the classes based on the relative net assets of each class. Class specific expenses are directly charged to that Class.
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 fair value
20
Core Bond Series
Notes to Financial Statements (continued)
2. | Significant Accounting Policies (continued) |
Foreign Currency Translation (continued)
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.
Asset-Backed Securities
The Series may invest in asset-backed securities. Asset-backed securities are generally issued as pass-through certificates or as debt instruments. Asset-backed securities issued as pass-through certificates represent undivided fractional ownership interests in an underlying pool of assets. Asset-backed securities issued as debt instruments, which are also known as collateralized obligations, are typically issued as the debt of a special purpose entity organized solely for the purpose of owning such assets and issuing such debt. Asset-backed securities are often backed by a pool of assets representing the obligations of a number of different parties. The yield characteristics of certain asset-backed securities may differ from traditional debt securities. One such major difference is that all or a principal part of the obligations may be prepaid at any time because the underlying assets (i.e. loans) may be prepaid at any time. As a result, a decrease in interest rates in the market may result in increases in the level of prepayments as borrowers, particularly mortgagors, refinance and repay their loans. An increased prepayment rate with respect to an asset-backed security will have the effect of shortening the maturity of the security. In addition, the Series may subsequently have to reinvest the proceeds at lower interest rates. If the Series has purchased such an asset-backed security at a premium, a faster than anticipated prepayment rate could result in a loss of principal to the extent of the premium paid.
Mortgage-Backed Securities
The Series may invest in mortgage-backed securities (“MBS” or pass-through certificates) that represent an interest in a pool of specific underlying mortgage loans and entitle the Series to the periodic payments of principal and interest from those mortgages. MBS may be issued by government agencies or corporations, or private issuers. Most MBS issued by government agencies are guaranteed; however, the degree of protection differs based on the issuer. For MBS there are a number of important differences among the agencies and instrumentalities of the U.S. Government that issue mortgage-related securities and among the securities that they issue. For example, mortgage-related securities guaranteed by Ginnie Mae are guaranteed as to the timely payment of principal and interest by Ginnie Mae and such guarantee is backed by the full faith and credit of the United States. However, mortgage-related securities issued by Freddie Mac and Fannie Mae, including Freddie Mac and Fannie Mae guaranteed mortgage pass-through certificates, which are solely the obligations of Freddie Mac and Fannie Mae, are not backed by or entitled to the full faith and credit of the United States, but are supported by the right of the issuer to borrow from the U.S. Treasury. Non-agency mortgage-backed securities are securities issued by non-governmental issuers and have no direct or indirect government guarantees of payment and are subject to various risks. Non-agency mortgage loans are obligations of the borrowers thereunder only and are not typically insured or guaranteed by any other person or entity. The ability of a borrower to repay a loan is dependent upon the income or assets of the borrower. A number of factors, including a general economic downturn, acts of God, terrorism, social unrest and civil disturbances, may impair a borrower’s ability to repay its loans.
Inflation-Indexed Bonds
The Series may invest in inflation-indexed bonds. Inflation-indexed bonds are fixed income securities whose principal value is periodically adjusted according to the rate of inflation. If the index measuring inflation rises or falls, the principal value of inflation- indexed bonds will be adjusted upward or downward, and consequently the interest payable on these securities (calculated with respect to a larger or smaller principal amount) will be increased or reduced, respectively. Any upward or downward adjustment in the principal amount of an inflation-indexed bond will be included as interest income in the Statement of Operations, even though investors do not receive their principal until maturity. Repayment of the original bond principal upon maturity (as adjusted for inflation) is guaranteed in the case of U.S. Treasury inflation-indexed bonds. For bonds that do not provide a similar guarantee, the adjusted principal value of the bond repaid at maturity may be less than the original principal.
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
21
Core Bond Series
Notes to Financial Statements (continued)
2. | Significant Accounting Policies (continued) |
Securities Purchased on a When-Issued Basis or Forward Commitment (continued)
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, 2022.
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, 2022.
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.
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, 2022, 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, 2019 through December 31, 2022. The Series 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.
Foreign Taxes
Based on the Series’ understanding of the tax rules and rates related to income, gains and currency purchase/repatriation 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
Through the end of 2022, distributions to shareholders of net investment income were made quarterly; effective January 2023, such distributions will be made monthly. 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.
22
Core Bond Series
Notes to Financial Statements (continued)
2. | Significant Accounting Policies (continued) |
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 GAAP 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 0.25% 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 and are reimbursed for travel and other out-of-pocket expenses incurred by them in connection with attending such meetings. The Fund also has an Audit Committee Chair, Governance & Nominating Committee Chair and Lead Independent Director, who each receive an additional annual stipend for these roles.
The Fund may enter into agreements with financial intermediaries pursuant to which the Fund may pay financial intermediaries for non-distribution related sub-transfer agency, administrative, sub-accounting, and other shareholder services in an annual amount not to exceed 0.15% of the average daily net assets of the Class I and Class S shares of the Series. Payments made pursuant to such agreements are generally based on the current assets and/or number of accounts of the Series attributable to the financial intermediary. Any payments made pursuant to such agreements may be in addition to, rather than in lieu of, any Distribution and Shareholder Services Fee payable under the Rule 12b-1 plan of the Fund. For the year ended December 31, 2022, the sub-transfer agency expenses incurred by Class S and Class I were $2,426 and $7,492, respectively.
Manning & Napier Investor Services, Inc., a registered broker-dealer affiliate of the Advisor, acts as distributor for the Fund’s shares. The Series compensates the distributor for distributing and servicing the Series’ Class S shares pursuant to a distribution plan adopted under Rule 12b-1 of the 1940 Act, regardless of expenses actually incurred. Under the agreement, the Series pays distribution and service fees to the distributor at an annual rate of 0.25% of average daily net assets attributable to Class S shares. There are no distribution and service fees on the Class I, Class W or Class Z shares. The fees are accrued daily and paid monthly.
Pursuant to a master services agreement, the Fund pays the Advisor an annual fee related to fund accounting and administration of 0.0085% on the first $25 billion of average daily net assets; 0.0075% on the next $15 billion of average daily net assets; and 0.0065% of average daily net assets in excess of $40 billion; plus a base fee of $30,400 per series. Additionally, certain transaction and out-of-pocket expenses, including charges for reporting relating to the Fund’s compliance program, are charged. The Advisor has agreements with BNY Mellon Investment Servicing (U.S.) Inc. (“BNY”) under which BNY serves as sub-accountant services agent.
23
Core Bond Series
Notes to Financial Statements (continued)
3. | Transactions with Affiliates (continued) |
Pursuant to an advisory fee waiver agreement, the Advisor has contractually agreed to waive the management fee for the Class W shares. The full management fee will be waived under this agreement because Class W shares are only available to discretionary investment accounts and other accounts managed by the Advisor. These clients pay a management fee to the Advisor that is separate from the Fund’s expenses. In addition, pursuant to a separate expense limitation agreement, the Advisor has contractually agreed to limit its fees and reimburse expenses to the extent necessary so that the total direct annual fund operating expenses, exclusive of the shareholder services fee and/or distribution and service (12b-1) fees and waived Class W management fees (collectively, “excluded expenses”), do not exceed 0.45% of the average daily net assets of the Class S and Class I shares, 0.05% of the average daily net assets of the Class W shares, and 0.30% of the average daily net assets of the Class Z shares. These contractual waivers are expected to continue indefinitely, and may not be amended or terminated by the Advisor without the approval of the Series’ Board of Directors. The Advisor may receive from a Class the difference between the Class’s total direct annual fund operating expenses, not including excluded expenses, and the Class’s contractual expense limit to recoup all or a portion of its prior fee waivers (other than Class W management fee waivers) or expense reimbursements made during the rolling three-year period preceding the recoupment if at any point the total direct annual fund operating expenses, not including excluded expenses, are below the contractual expense limit (a) at the time of the fee waiver and/or expense reimbursement and (b) at the time of the recoupment.
Pursuant to the advisory fee waiver, the Advisor waived $736,716 in management fees for Class W shares for the year ended December 31, 2022. In addition, pursuant to the separate expense limitation agreement, the Advisor waived or reimbursed expenses of $2,500, $191,639 and $14,696 for Class I, Class W and Class Z shares, respectively, for the year ended December 31, 2022. These amounts are included as a reduction of expenses on the Statement of Operations.
As of December 31, 2022, the class specific waivers or reimbursements subject to possible future recoupment under the expense limitation agreement are as follows:
CLASS | EXPIRING DECEMBER 31, | |||||||||||||||
2023 | 2024 | 2025 | TOTAL | |||||||||||||
Class I | $ | 448 | $ | 1,037 | $ | 2,500 | $ | 3,985 | ||||||||
Class W | 171,244 | 170,505 | 191,639 | 533,388 | ||||||||||||
Class Z | 10,229 | 11,009 | 14,696 | 35,934 |
For the year ended December 31, 2022, the Advisor did not recoup any expenses that have been previously waived or reimbursed.
4. | Purchases and Sales of Securities |
For the year ended December 31, 2022, purchases and sales of securities, other than U.S. Government securities and short-term securities, were $50,249,708 and $103,876,534, respectively. Purchases and sales of U.S. Government securities, other than short-term securities, were $266,711,453 and $231,217,557, respectively.
5. | Capital Stock Transactions |
Transactions in Class S, Class I, Class W and Class Z shares of Core Bond Series were:
CLASS S | FOR THE YEAR ENDED 12/31/22 | FOR THE YEAR ENDED 12/31/21 | ||||||||||||||
SHARES | AMOUNT | SHARES | AMOUNT | |||||||||||||
Sold | 121,799 | $ | 1,264,369 | 207,182 | $ | 2,288,163 | ||||||||||
Reinvested | 5,373 | 51,052 | 9,348 | 102,072 | ||||||||||||
Repurchased | (299,806 | ) | (2,967,362 | ) | (340,592 | ) | (3,767,629 | ) | ||||||||
Total | (172,634 | ) | $ | (1,651,941 | ) | (124,062 | ) | $ | (1,377,394 | ) |
24
Core Bond Series
Notes to Financial Statements (continued)
5. | Capital Stock Transactions (continued) |
CLASS I | FOR THE YEAR ENDED 12/31/22 | FOR THE YEAR ENDED 12/31/21 | ||||||||||||||
SHARES | AMOUNT | SHARES | AMOUNT | |||||||||||||
Sold | 204,270 | $ | 1,836,234 | 397,051 | $ | 4,026,057 | ||||||||||
Reinvested | 14,723 | 126,974 | 16,449 | 163,961 | ||||||||||||
Repurchased | (374,841 | ) | (3,212,196 | ) | (168,610 | ) | (1,704,084 | ) | ||||||||
Total | (155,848 | ) | $ | (1,248,988 | ) | 244,890 | $ | 2,485,934 |
CLASS W | FOR THE YEAR ENDED 12/31/22 | FOR THE YEAR ENDED 12/31/21 | ||||||||||||||
SHARES | AMOUNT | SHARES | AMOUNT | |||||||||||||
Sold | 2,423,572 | $ | 23,723,615 | 4,762,413 | $ | 52,744,658 | ||||||||||
Reinvested | 780,717 | 7,384,091 | 839,927 | 9,165,523 | ||||||||||||
Repurchased | (5,041,057 | ) | (49,602,932 | ) | (2,285,988 | ) | (25,261,115 | ) | ||||||||
Total | (1,836,768 | ) | $ | (18,495,226 | ) | 3,316,352 | $ | 36,649,066 |
CLASS Z | FOR THE YEAR ENDED 12/31/22 | FOR THE YEAR ENDED 12/31/21 | ||||||||||||||
SHARES | AMOUNT | SHARES | AMOUNT | |||||||||||||
Sold | 267,682 | $ | 2,331,556 | 699,232 | $ | 7,061,796 | ||||||||||
Reinvested | 71,224 | 615,473 | 64,083 | 640,465 | ||||||||||||
Repurchased | (212,428 | ) | (1,950,256 | ) | (171,107 | ) | (1,754,587 | ) | ||||||||
Total | 126,478 | $ | 996,773 | 592,208 | $ | 5,947,674 |
Approximately 90% of the shares outstanding are fiduciary accounts where the Advisor has sole investment discretion.
6. | Line of Credit |
The Fund has entered into a 364-day, $50 million credit agreement (the “line of credit”) with Bank of New York Mellon. Each series of the Fund may borrow under the line of credit for temporary or emergency purposes, including funding shareholder redemptions and other short-term liquidity purposes. The Fund pays an annual fee on the unused commitment amount, payable quarterly, and is allocated among all the series of the Fund and included in miscellaneous expenses in the Statement of Operations for each series. The line of credit expires in September 2023 unless extended or renewed. During the year ended December 31, 2022, the Series did not borrow under the line of credit.
7. | 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. The Series may be subject 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 derivative 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 as of December 31, 2022.
25
Core Bond Series
Notes to Financial Statements (continued)
8. | 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.
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 GAAP. These differences are primarily due to differing book and tax treatments in the timing and/or treatment of the recognition of net investment income or gains and losses, including losses deferred due to wash sales. 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 12/31/22 | FOR THE YEAR ENDED 12/31/21 | |||||||
Ordinary income | $8,690,129 | $7,941,545 | ||||||
Long-term capital gains | — | $2,613,372 |
At December 31, 2022, the tax basis of components of distributable earnings and the net unrealized depreciation based on the identified cost of investments for federal income tax purposes were as follows:
Cost for federal income tax purposes | $ | 327,690,720 | ||
Unrealized appreciation | 457,429 | |||
Unrealized depreciation | (25,566,867 | ) | ||
Net unrealized depreciation | $ | (25,109,438 | ) | |
Undistributed long-term capital gains | $ | 25,846 | ||
Capital loss carryforwards | $ | (34,006,499 | ) |
As of December 31, 2022, the Series had net short-term capital loss carryforwards of $13,384,875 and net long-term capital loss carryforwards of $20,621,624, which may be carried forward indefinitely.
10. | Market Event |
Significant disruptions and volatility in the global financial markets and economies, like the current conditions caused by the Russian invasion of Ukraine and the COVID-19 pandemic, could negatively impact the investment performance of the Series. The global market and economic climate may become increasingly uncertain due to numerous factors beyond our control, including but not limited to, the effectiveness and acceptance of vaccines to prevent COVID-19, impacts on business operations in the U.S. related to the COVID-19 pandemic, such as supply chain disruptions and inflation, concerns related to unpredictable global market and economic factors, uncertainty in U.S. federal fiscal, tax, trade or regulatory policy and the fiscal, tax, trade or regulatory policy of foreign governments, rising interest rates, inflation or deflation, the availability of credit, performance of financial markets, terrorism, natural or biological catastrophes, public health emergencies, or political uncertainty.
26
Core Bond Series
Report of Independent Registered Public Accounting Firm
To the Board of Directors of Manning & Napier Fund, Inc. and Shareholders of Core Bond Series
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the investment portfolio, of Core Bond Series (one of the series constituting Manning & Napier Fund, Inc., referred to hereafter as the “Fund”) as of December 31, 2022, the related statement of operations for the year ended December 31, 2022, the statement of changes in net assets for each of the two years in the period ended December 31, 2022, including the related notes, and the financial highlights for each of the periods indicated therein (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2022, 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 ended December 31, 2022 and the financial highlights for each of the periods indicated therein in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of December 31, 2022 by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.
New York, New York
February 23, 2023
We have served as the auditor of one or more investment companies in Manning & Napier Mutual Funds since 1992.
27
Core Bond Series
Renewal of Investment Advisory Agreement
(unaudited)
At the Manning & Napier Fund, Inc. (the “Fund”) Board of Directors’ (the “Board”) Special meeting, held on May 3, 2022 (the “May 3rd Board Meeting”), a new Investment Advisory Agreement between the Fund and Manning & Napier Advisors, LLC (the “Advisor”) and on behalf of the Rainier International Discovery Series (the “Rainier Series”), a new investment advisory agreement between the Advisor and the Fund and a new investment sub-advisory agreement between Advisor and Rainier Investment Management, LLC (“Rainier”) (together, the “New Advisory Agreements”), were considered for approval by the Board, including all of the Directors who are not “interested persons” (“Independent Directors”), within the meaning of the Investment Company Act of 1940, as amended (the “1940 Act”). The Board was asked to consider the New Advisory Agreements because of a transaction that impacted Manning & Napier, Inc. (“MN Inc.”), the ultimate parent company of the Advisor and Rainier.
On March 31, 2022, MN Inc. and Callodine Group, LLC (“Callodine”) entered into an agreement under which an affiliate of Callodine would acquire MN Inc. (the “Transaction”). The Transaction, which was subject to customary closing conditions, closed on October 21, 2022. Following the closing, both the Advisor and Rainier are now indirectly owned and controlled by Callodine MN Holdings, Inc., which, in turn, is controlled by Callodine Group, LLC and its founder James Morrow. East Asset Management, LLC, and its owners Terrence and Kim Pegula, also indirectly hold a substantial interest in Callodine MN Holdings, Inc.
The Transaction was deemed to result in a change of control of the Advisor and Rainier under the 1940 Act, and therefore resulted in the assignment and automatic termination of the investment advisory agreement and sub-advisory agreement pursuant to which the Advisor and Rainier provided advisory services to each Series of the Fund (the “Existing Advisory Agreements”). The Board was asked to consider the approval of the New Advisory Agreements, to become effective upon shareholder approval, so that the Advisor and Sub-Advisor’s management of the Series would continue without any interruption.
Board Considerations in Approving the New Advisory Agreements
The Board met on April 8, April 13, April 27 and May 3 in person and by video conference to consider and discuss the New Advisory Agreements. At each of those meetings, the Independent Directors also met separately with their independent counsel outside the presence of Fund Management. In preparation for those Board meetings, the Independent Directors requested that the Advisor, Rainier and Callodine furnish information necessary for the Directors to evaluate the terms of the New Advisory Agreements. The Advisor and Rainier were the only investment advisers the Directors considered at such meetings. The Independent Directors also submitted a number of follow-up requests to the Advisor for additional information based on the Board’s review of information provided in response to its initial requests. The Board also considered information that the Board previously reviewed in connection with its approval of the Existing Advisory Agreements for initial terms of two years, which occurred at a meeting held on April 22, 2020, as well as information presented in 2021 that covered similar matters but for which no approval was sought at that time. The Board further considered that the Existing Advisory Agreements were subject to shareholder consideration and were approved by shareholders at a special meeting held on June 30, 2020 and August 18, 2020. At the Meeting on May 3rd, the Board additionally reviewed information provided in connection with the proposed renewal of the Existing Advisory Agreements. The Directors used this information, as well as other information submitted to the Board in connection with the recent Board meetings noted above, and other meetings held since the most recent approval of the Existing Advisory Agreements, to help them decide whether to approve the New Advisory Agreements for initial two- year terms.
Specifically, the Board requested and received written materials from the Advisor and Rainier regarding, among other things: (i) the terms, conditions, and expected timing of the Transaction; (ii) the nature, extent and quality of the services to be provided by the Advisor and Rainier under the New Advisory Agreements; (iii) the proposed advisory fee to be paid to the Advisor and Rainier under the New Advisory Agreements; (iv) the Advisor and Rainier’s compliance programs; and (v) the Advisor and Rainier’s investment management personnel. In addition, the Board considered information provided to them with respect to Callodine, its business and affiliates, as well as its objectives and plans related to the Advisor. The Independent Directors considered their discussion about business strategy with a representative from Callodine who attended the April 13th meeting.
At the May 3rd Board meeting, the Directors, including all of the Independent Directors, based on their evaluation of the information provided by the Advisor, Rainier, Callodine and other service providers of the Series, approved the New Advisory Agreements. Specifically, the Directors considered information presented by the Advisor and Rainier at a meeting of the Board held on May 3, 2022, specifically regarding among other areas: (i) the services provided by the Advisor and Rainier; (ii) the investment performance of the Series, the Advisor and Rainier; and (iii) the profitability of the overall relationship to the Advisor and Rainier.
28
Core Bond Series
Renewal of Investment Advisory Agreement
(unaudited)
The Independent Directors also received advice at the May 3rd Board meeting and other recent Board meetings from independent counsel and met in executive session outside the presence of Fund management. In considering the approval of the New Advisory Agreements, the Board considered various factors that they determined were relevant, including: (i) the nature, extent and quality of the services to be provided by the Advisor and Rainier; (ii) the investment performance of the Series, the Advisor and Rainier; and (iii) the fees to be paid to the Advisor and Rainier under the New Advisory Agreements, as discussed in further detail below. In addition, the Board, in considering the New Advisory Agreements in the context of the Transaction, relied upon representations from the Advisor and Rainier that: (i) the Transaction would not result in any material changes to the nature, quality and extent of services provided to the Series by the Advisor and Rainier that are discussed below; (ii) the Advisor and Rainier did not anticipate any material changes to their compliance programs or code of ethics in connection with the Transaction; and (iii) the portfolio managers and investment process for the Series would not change as a result of the Transaction.
Nature, Extent and Quality of Services Provided by the Advisor and Rainier
In considering the nature, extent and quality of the services to be provided by the Advisor and Rainier, the Board reviewed the portfolio management services to be provided by the Advisor and Rainier to the Series, including the quality of the continuing portfolio management personnel and investment process, as well as the Advisor and Rainier’s compliance history and compliance program. The Directors reviewed the terms of the proposed New Advisory Agreements, and noted that the New Advisory Agreements do not materially differ from the Existing Advisory Agreements. The Directors also reviewed the Advisor and Rainier’s investment and risk management approaches for the Series. The most recent investment adviser registration forms (Form ADV) for the Advisor and Rainier also were available to the Board. The Directors also considered other services to be provided to the Series by the Advisor specifically, such as monitoring Rainier’s adherence to the Series’ investment restrictions and monitoring compliance with various Fund policies and procedures and with applicable securities laws and regulations. Based on the factors above, as well as those discussed below, the Board concluded, within the context of its full deliberations, that the nature, extent and quality of the services to be provided to each Series by the Advisor and Rainier under the New Advisory Agreements support approval of the New Advisory Agreements.
Investment Performance of the Advisor and Rainier
In connection with its most recent approvals of the Existing Advisory Agreements and other meetings held during the course of the period since then, the Board was provided with reports - both proprietary to the Advisor or the Fund and generated by independent providers of investment company data - regarding the performance of each Series over various time periods. As part of these meetings, the Advisor and Rainier and their representatives provided information regarding and, as applicable, led discussions of factors impacting the Advisor and Rainier’s performance for the Series, outlining current market conditions and explaining their expectations and strategies for the future. The Directors determined that it was appropriate to take into account its consideration of the Advisor and Rainier’s performance at meetings held prior to the May 3rd Board meeting. In doing so, the Directors generally determined that the Advisor and Rainier’s performance was satisfactory. Where the Advisor or Rainier’s performance was materially below a Series’ benchmarks and or peer group, the Directors requested an explanation for the underperformance and/or the steps taken by the Advisor and Rainier in an effort to improve performance. In all instances, the Directors were satisfied with the explanation provided. The Directors plan to remain focused in future meetings to address aberrational underperformance. The Directors will continue to monitor the fees and expenses of the Series compared to peer groups. Based on this information and the Advisor and Rainier’s representations that the portfolio managers for the Series would not change in connection with the Transaction, the Board concluded, within the context of its full deliberations, that the investment results that the Advisor and Rainier had been able to achieve for each Series support approval of the New Advisory Agreements.
Costs of Advisory Services, Profitability and Economies of Scale
With respect to the cost of advisory services, the Board considered that the investment advisory fees payable to the Advisor and Rainier under the New Advisory Agreements are the same as the investment advisory fee payable to the Advisor and Rainier under the Existing Advisory Agreements. With respect to profitability and economies of scale, at the May 3rd Board meeting, the Board considered the Advisor and Rainier’s profitability and economies of scale from management of the Series. The Board noted the Advisor’s explanation of the consistent approach taken in calculating profitability, compared to prior periods, including the allocation of expenses as part of that calculation. The Directors noted that certain Series were not yet at sufficient scale to be profitable. The Directors noted the potential for the Transaction to add resources that could improve economies of scale for various Series; however, they also noted that such potential may not be realized. The Directors concluded that the profit margins of the Advisor and Rainier with respect to the management of the Series were not unreasonable. The Board also considered the Advisor’s willingness to continue its current expense limitation and fee waiver arrangements with the Series.
29
Core Bond Series
Renewal of Investment Advisory Agreement
(unaudited)
Conclusion
The conclusions described above, in part, formed the basis for the Board’s approval of the New Advisory Agreements at the May 3rd Board meeting. The Board concluded, in the exercise of its reasonable judgment, that the terms of the New Advisory Agreements, including the compensation to be paid thereunder, are reasonable in relation to the services expected to be provided by the Advisor and Rainier to the Series and that the appointment of the Advisor and Rainier and the approval of the New Advisory Agreements would be in the best interests of the Series and their shareholders. Based on the Directors’ deliberations and their evaluation of the information described above and other factors and information they believed relevant, the Board, including all of the Independent Directors, unanimously approved (a) the appointment of the Advisor as investment adviser to the Series and Rainier as investment sub-adviser to the Rainier Series, and (b) the New Advisory Agreements.
The Board did not indicate that any single factor was determinative of its decision to approve the Agreement, but indicated that the Board based its determination on the total mix of information available to it.
The New Advisory Agreements were approved by shareholders at Shareholder Meetings held on August 19, 2022, September 16, 2022 and October 18, 2022 and became effective upon the closing of the Transaction with Callodine on October 21, 2022.
30
Core Bond Series
Liquidity Risk Management Program Disclosure
(unaudited)
The Securities and Exchange Commission adopted Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”) to promote effective liquidity risk management by open-end investment companies and reduce Liquidity Risk, which is the risk that open-end investment companies are unable to meet redemption obligations without a significant dilution of remaining shareholder interests.
The Manning & Napier Fund, Inc. and each of its series (each a “Fund” or collectively, the “Funds”) adopted a Liquidity Risk Management Program (the “Program”) and obtained approval from the Board of Directors (the “Board”), including a majority of Directors who are not interested persons of the Fund, to appoint a Liquidity Risk Management Committee (the “Committee”) to assess and manage the Fund’s Liquidity Risk.
Under the Program, assessment and management of Liquidity Risk takes into consideration certain factors, such as each fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions, its short- and long-term cash-flow projections during both normal and reasonably foreseeable stressed conditions, and its cash and cash-equivalent holdings and access to other funding sources. As required by the rule, the Program includes policies and procedures for the classification of each Fund’s portfolio holdings into four liquidity categories, establishes a 15% limit on holdings of illiquid investments, and sets forth procedures for the override of vendor-derived classifications.
The Committee prepares an annual assessment (“assessment”) of the Program to review the operation of the Program, including the adequacy of controls designed to manage the Funds’ Liquidity Risk. Through this assessment, the Committee re-considers prior conclusions around each factor that the Fund must consider to assess, manage, and review its Liquidity Risk and evaluates the effectiveness of processes to classify Fund assets into liquidity categories, including Committee override determinations. As part of this evaluation the Committee re-affirms that each Fund operates as a Primarily Highly Liquid Fund, with greater than 50% of net assets consistently invested in Highly Liquid Investments, thereby negating a need to establish a Highly Liquid Investment Minimum for any Fund. Lastly, the assessment considers the effectiveness of the safeguards that the Committee adopted to prevent a violation of the Liquidity Rule’s limit on a Fund’s holding of Illiquid Investments.
The most recent assessment covered January 1, 2021, through December 31, 2021, and was presented to the Board in February 2022. This assessment confirmed that the Program continues to operate effectively in all material respects to address the requirements of the Liquidity Rule and manage the Funds’ Liquidity Risk.
31
Core Bond Series
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.manning-napier.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 directors and officers, 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 and Officer1 Name: | Paul Battaglia |
Address: | 290 Woodcliff Drive Fairport, NY 14450 |
Born: | 1978 |
Current Position(s) Held with Fund: | Principal Executive Officer, President, Chairman and Director |
Term of Office2 & Length of Time Served: | Indefinite - Chairman and Director since November 2018 |
Principal Occupation(s) During Past 5 Years: | Chief Financial Officer since 2018; Vice President of Finance (2016 - 2018); Director of Finance (2011 - 2016); Financial Analyst/Internal Auditor (2004-2006) - Manning & Napier Advisors, LLC and affiliates Holds one or more of the following titles for various subsidiaries and affiliates: Chief Financial Officer |
Number of Portfolios Overseen within Fund Complex: | 15 |
Other Directorships Held Outside Fund Complex During Past 5 Years: | N/A |
Independent Directors Name: | Stephen B. Ashley |
Address: | 290 Woodcliff Drive Fairport, NY 14450 |
Born: | 1940 |
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 and Director since 1997; Chief Executive Officer (1997-2019) - Ashley Companies (property management and investment) |
Number of Portfolios Overseen within Fund Complex: | 15 |
Other Directorships Held Outside Fund Complex During Past 5 Years: | Ashley Companies since 1997 |
Name: | Paul A. Brooke |
Address: | 290 Woodcliff Drive Fairport, NY 14450 |
Born: | 1945 |
Current Position(s) Held with Fund: | Lead Independent Director, Audit Committee Member, Governance & Nominating Committee Member |
Term of Office & Length of Time Served: | Indefinite - Director, Audit Committee Member, Governance & Nominating Committee Member since 2007; Lead Independent Director since 2017 |
Principal Occupation(s) During Past 5 Years: | Managing Member since 1991 - PMSV Holdings LLC (investments); Managing Member (2010-2016) - VenBio (investments). |
Number of Portfolios Overseen within Fund Complex: | 15 |
Other Directorships Held Outside Fund Complex During Past 5 Years: | Incyte Corp. (biotech) (2000-2020); PureEarth (non-profit) since 2012; Cerus (biomedical) since 2016; Caelum BioSciences (biomedical) since 2018; Cheyne Capital International (investment)(2000-2017); |
32
Core Bond Series
Directors’ and Officers’ Information
(unaudited)
Independent Directors (continued) Name: | John Glazer |
Address: | 290 Woodcliff Drive Fairport, NY 14450 |
Born: | 1965 |
Current Position(s) Held with Fund: | Director, Audit Committee Member, Governance & Nominating Committee Member |
Term of Office & Length of Time Served: | Indefinite - Director, Audit Committee Member, Governance & Nominating Committee Member since February 2021 |
Principal Occupation(s) During Past 5 Years: | Chief Executive Officer since 2020 - Oikos Holdings LLC (Single-Family Office); Head of Corporate Development (2019-2020) - Caelum Biosciences (pharmaceutical development); Head of Private Investments (2015-2018) - AC Limited (Single-Family Office) |
Number of Portfolios Overseen within Fund Complex: | 15 |
Other Directorships Held Outside Fund Complex During Past 5 Years: | N/A |
Name: | Russell O. Vernon |
Address: | 290 Woodcliff Drive Fairport, NY 14450 |
Born: | 1957 |
Current Position(s) Held with Fund: | Director, Audit Committee Member, Governance & Nominating Committee Chairman |
Term of Office & Length of Time Served: | Indefinite - Director, Audit Committee Member, Governance & Nominating Committee Member since April 2020; Governance & Nominating Committee Chairman since November 2020 |
Principal Occupation(s) During Past 5 Years: | Founder and General Partner (2009-2019) - BVM Capital Management (economic development) |
Number of Portfolios Overseen within Fund Complex: | 15 |
Other Directorships Held Outside Fund Complex During Past 5 Years: | Board Member, Vice Chairman and President since 2010 - Newburgh Armory Unity Center (military); Board Member and Executive Director since 2020 - National Purple Heart Honor Mission, Inc. (military); Board Member, Vice Chairman (2015-2020) - National Purple Heart Hall of Honor, Inc. (military) |
Name: | Chester N. Watson |
Address: | 290 Woodcliff Drive Fairport, NY 14450 |
Born: | 1950 |
Current Position(s) Held with Fund: | Director, Audit Committee Chairman, Governance & Nominating Committee Member |
Term of Office & Length of Time Served: | Indefinite - Director, Audit Committee Member, Governance & Nominating Committee Member Since 2012; Audit Committee Chairman since 2013 |
Principal Occupation(s) During Past 5 Years: | General Auditor (2003-2011) - General Motors Company (auto manufacturer) |
Number of Portfolios Overseen within Fund Complex: | 15 |
Other Directorships Held Outside Fund Complex During Past 5 Years: | Rochester Institute of Technology (University) since 2005; Hudson Valley Center for Innovation, Inc. (New Business and Economic Development) since 2019; Town of Greenburgh, NY Planning Board (Municipal Government) (2015-2019); |
33
Core Bond Series
Directors’ and Officers’ Information
(unaudited)
Officers:
Name: Address:
Born: Current Position(s) Held with Fund: Term of Office2 & Length of Time Served: Principal Occupation(s) During Past 5 Years: | Elizabeth Craig 290 Woodcliff Drive Fairport, NY 14450 1987 Corporate Secretary Since 2016 Director of Fund Administration since 2021; Fund Regulatory Administration Manager (2018-2021); Fund Administration Manager (2015-2018) - Manning & Napier Advisors, LLC; Corporate Secretary, Director since 2019- Manning & Napier Investor Services, Inc. |
Name: Address:
Born: Current Position(s) Held with Fund: Term of Office2 & Length of Time Served: Principal Occupation(s) During Past 5 Years:
| Samantha Larew 290 Woodcliff Drive Fairport, NY 14450 1980 Chief Compliance Officer and Anti-Money Laundering Compliance Officer Chief Compliance Officer since 2019; Anti-Money Laundering Compliance Officer since 2018 Co-Director of Compliance since 2018; Compliance Communications Supervisor (2014-2018) - Manning & Napier Advisors, LLC& Affiliates; Broker-Dealer Chief Compliance Officer since 2013; Broker-Dealer Assistant Corporate Secretary since 2011 - Manning & Napier Investor Services, Inc.; |
Name: Address:
Born: Current Position(s) Held with Fund: Term of Office2 & Length of Time Served: Principal Occupation(s) During Past 5 Years: | Scott Morabito 290 Woodcliff Drive Fairport, NY 14450 1987 Vice President Vice President since 2019; Assistant Vice President (2017-2019) Managing Director, Client Service and Business Operations since 2021; Managing Director of Operations (2019-2021); Director of Funds Group (2017-2019) - Manning & Napier Advisors, LLC; President, Director since 2018 - Manning & Napier Investor Services, Inc.; President, Exeter Trust Company since 2021; |
Name: Address:
Born: Current Position(s) Held with Fund: Term of Office2 & Length of Time Served: Principal Occupation(s) During Past 5 Years: | Troy Statczar 290 Woodcliff Drive Fairport, NY 14450 1971 Principal Financial Officer, Treasurer Principal Financial Officer and Treasurer since 2020 Senior Principal Consultant, Fund Officers, since 2020 - ACA Group (formerly Foreside Financial Group); Director of Fund Administration (2017-2019) - Thornburg Investment Management, Inc. |
Name: Address:
Born: Current Position(s) Held with Fund: Term of Office2 & Length of Time Served: Principal Occupation(s) During Past 5 Years: | Sarah Turner 290 Woodcliff Drive Fairport, NY 14450 1982 Chief Legal Officer; Assistant Corporate Secretary Since 2018 General Counsel since 2018 - Manning & Napier Advisors, LLC and affiliates; Counsel (2017-2018) - Harter Secrest and Emery LLP Holds one or more of the following titles for various affiliates: General Counsel |
1Interested Director, within the meaning of the 1940 Act by reason of his positions with the Fund’s Advisor, Manning & Napier Advisors, LLC, and Distributor, Manning & Napier Investor Services, Inc.
2The term of office of all officers shall be one year and until their respective successors are chosen and qualified, or his or her earlier resignation or removal as provided in the Fund’s By-Laws.
34
Core Bond Series
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-PORT, and are available, without charge, upon request:
By phone | 1-800-466-3863 |
On the SEC’s web site | http://www.sec.gov |
Prospectus and Statement of Additional Information (SAI)
For more information about any of the Manning & Napier Fund, Inc. Series, you may obtain a prospectus and SAI at www.manning- napier.com or by calling 1-(800) 466-3863. Before investing, carefully consider the objectives, risks, charges and expenses of the investment and read the prospectus carefully as it contains this and other information about the investment company. In addition, this information can be found on the SEC’s web site, http://www.sec.gov.
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
The Fund also offers electronic notification or “e-delivery” when certain documents are available on-line to be downloaded or reviewed. Direct shareholders can elect to receive electronic notification when shareholder reports, prospectus updates, and/or statements are available. If you do not currently have on-line access to your account, you can establish access by going to www.manning-napier.com, click on “Login” in the top corner of the page, and follow the prompts to self-enroll. Once enrolled, you can set your electronic notification preferences by clicking on the Account Options tab located within the green toolbar and then select E-Delivery Option. Should you have any questions on either how to establish on-line access or how to update your account settings, please contact Investor Services at 1-800-466-3863.
The Manning & Napier Fund, Inc. is managed by Manning & Napier Advisors, LLC. Manning & Napier Investor Services, Inc., an affiliate of Manning & Napier Advisors, LLC, is the distributor of the Fund shares.
MNCOB-12/22-AR
35
www.manning-napier.com | |
Manning & Napier Fund, Inc. | |
Unconstrained Bond Series |
Independent Perspective | Real-World Solutions |
A Note from Our CEO
Dear Shareholder,
We are acutely aware of how difficult this year has been for our investors, in what has been a historically challenging year in the capital markets. A bear market in equities and a sharp correction in fixed income have each simultaneously occurred this year, resulting in one of the worst runs for blended stock-bond portfolios in the past two hundred years.
The global economy is facing inflationary pressures more significant than have been experienced over the past four decades. War in Europe, rising tensions in East Asia, and surging energy prices are all bringing renewed geopolitical tumult. Economic, social, and environmental pressures are manifesting themselves in rapid, and at times, dramatic and unexpected swings in election results domestically and abroad.
What have we been doing in response to the challenges abound, and, most significantly, what steps are we taking to ensure we deliver what our fund shareholders expect in the future? I’ll combine those steps into two main ways.
First, and by way of change, we have taken a meaningful evolutionary step to position Manning & Napier even more strongly for the years ahead. After eleven years as a public company, we went private in 2022 in partnership with the Callodine Group, returning to the status under which we operated for our first four decades. We believe being private will provide continuity for our investment strategies while allowing us to invest for the future.
The second step speaks even further to the value of continuity. Our fund shareholders can expect us to continue to rely on the consistent investment philosophies, disciplines, and time-tested processes that have guided our seasoned investors over multiple economic and capital markets cycles over the past half-century.
The past twelve months have been challenging for investors. It has reinforced the importance of long-term perspective and the value of having a clear investment plan.
Throughout the next chapter of Manning & Napier, we look forward to partnering with our mutual fund investors to help you realize the investment outcomes you need.
We thank and appreciate your continued confidence in our firm.
Sincerely,
Marc Mayer Chief Executive Officer |
Corporate Headquarters | 290 Woodcliff Drive | Fairport, NY 14450 | (585) 325-6880 phone | (800) 551-0224 toll free | www.manning-napier.com
1
Unconstrained Bond Series
Fund Commentary
(unaudited)
Investment Objective
Primarily to provide long-term total return, with a secondary objective of preservation of capital. Under normal circumstances, at least 80% of the Series’ assets will be invested in bonds and other financial instruments with economic characteristics similar to bonds. Up to 50% of the Series may be invested in below investment-grade securities and/or in non-US dollar denominated securities, including securities issued by companies located in emerging markets. Derivatives, such as futures, options, swaps, and forwards, may also be used to manage interest rate exposure, duration, or currency risk.
Performance Commentary
Fixed income markets, as measured by the Bloomberg US Aggregate Bond Index, experienced double-digit losses for the year, experiencing the worst calendar year on record going back to the late 1970s. Losses were primarily attributable to the sharp rise in interest rates that occurred as the Federal Reserve raised the federal funds rate seven times throughout the year for a total increase of 4.25% in an effort to bring down high levels of inflation.
The Unconstrained Bond Series Class S experienced negative absolute returns during the year, returning -6.71%, and underperformed its benchmark, the FTSE 3-Month Treasury Bill Index, which returned 1.50%. Relative underperformance was primarily attributable to the Series’ modest duration as interest rates rose significantly during the year, causing cash to outperform.
The Series continues to be significantly invested in credit, most notably corporates and asset-backed securities, with roughly 15% in high yield rated issues (about half of which is short-dated high yield). During the fourth quarter, we continued to de-risk the portfolio as our outlook for growth remains challenged. Specifically, we decreased allocations to both corporates (high yield and investment grade) and securitized credit, adding to our position in U.S. Treasuries. Additionally, we initiated a position in a 5-year U.S. Treasury future in an effort to incrementally increase the duration of the portfolio as we’ve started to see the long end of the yield curve come down to reflect lower inflation/growth expectations.
Data suggests that we are still in the early stages of a global slowdown and odds of a recession continue to increase. That stated, it is unclear how deep or how drawn out of a recession it may be. We believe flexibility and risk management will be key to navigating this uncertain environment and helping investors achieve their objectives.
Performance for the Unconstrained Bond Series Class S shares is provided above. Performance for other shares classes will differ based on each class’ underlying expenses.
Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate, so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be higher or lower than that quoted; investors can obtain the most recent month-end performance at www.manning-napier.com or by calling (800) 466-3863.
Additional information and associated disclosures can be found on the Performance Update page of this report.
All investments involve risks, including possible loss of principal. There is an inverse relationship between bond prices and interest rates; as interest rates rise, bond prices (and therefore the value of bond funds) fall. Likewise, as interest rates fall, bond prices and the value of bond funds rise. Investments in higher-yielding, lower-rated securities involve additional risks, including a higher risk of default and loss of principal. Funds that invest in foreign countries may be subject to the risks of adverse changes in foreign economic, political, regulatory and other conditions as well as risks related to the use of different financial standards. Investments in emerging markets may be more volatile than investments in more developed markets. Investments in derivatives can be highly volatile and involve risks in addition to the risks of the underlying instrument on which the derivative is based, such as counterparty, correlation and liquidity risk. Also, the use of leverage increases exposure to the market and may magnify potential losses.
2
Unconstrained Bond Series
Performance Update as of December 31, 2022
(unaudited)
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 2022 | ||||||||
ONE YEAR1 | FIVE YEAR | TEN YEAR | ||||||
Unconstrained Bond Series - Class S2 | (6.71%) | 1.61% | 1.75% | |||||
Unconstrained Bond Series - Class I2,3 | (6.42%) | 1.86% | 1.98% | |||||
Unconstrained Bond Series - Class W2,4 | (6.05%) | 2.15% | 2.02% | |||||
FTSE 3-Month Treasury Bill Index5 | 1.50% | 1.25% | 0.74% | |||||
Bloomberg U.S. Aggregate Bond Index6 | (13.01%) | 0.02% | 1.06% |
The following graph compares the value of a $10,000 investment in the Unconstrained Bond Series - Class S for the ten years ended December 31, 2022 to the FTSE 3-Month Treasury Bill Index and Bloomberg U.S. Aggregate Bond Index.
1The returns shown are based on net asset values calculated for shareholder transactions and may differ from the returns shown in the financial highlights, which reflect adjustments made to the net asset values in accordance with accounting principles generally accepted in the United States of America.
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, 2022, this net expense ratio was 0.72% for Class S, 0.47% for Class I and 0.05% for Class W. The gross expense ratio, which does not account for any voluntary or contractual waivers currently in effect, was 0.72% for Class S, 0.47% for Class I and 0.37% for Class W for the year ended December 31, 2022.
3For periods through August 1, 2013 (the inception date of the Class I shares), performance for the Class I shares is based on the historical performance of the Class S shares. Because the Class I shares invest in the same portfolio of securities as Class S, performance will only be different to the extent that the Class S shares have a higher expense ratio.
4For periods through March 1, 2019 (the inception date of the Class W shares), performance for the Class W shares is based on the historical performance of the Class S shares. Because the Class W shares invest in the same portfolio of securities as the Class S shares, performance will be different only to the extent that the Class S shares have a higher expense ratio.
5The FTSE 3-Month Treasury Bill Index is an unmanaged index based on 3-Month U.S. treasury bills. The Index measures the monthly return equivalents of yield averages that are not marked to market. The Index returns do not reflect any fees or expenses. Index returns provided by Interactive Data.
6The Bloomberg U.S. Aggregate Bond Index is an unmanaged, market-value weighted index of U.S. domestic investment-grade debt issues, including government, corporate, asset-backed, and mortgage-backed securities, with maturities of one year or more. Index returns do not reflect any fees or expenses. Index returns provided by Intercontinental Exchange (ICE). Index data referenced herein is the property of Bloomberg Finance L.P. and its affiliates (“Bloomberg”), and/or its third party suppliers and has been licensed for use by Manning & Napier. Bloomberg and its third party suppliers accept no liability in connection with its use. Data provided is not a representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and none of these parties shall have any liability for any errors, omissions, or interruptions of any index or the data included therein. For additional disclosure information, please see: https://go.manning-napier.com/benchmark-provisions.
3
Unconstrained Bond Series
Shareholder Expense Example
(unaudited)
As a shareholder of the Series, you incur ongoing costs, including management fees, shareholder service 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 in each class at the beginning of the period and held for the entire period (July 1, 2022 to December 31, 2022).
Actual Expenses
The Actual lines of the table below provide information about actual account values and actual expenses. You may use the information in these lines, 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 Actual line for the Class in which you have invested 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 Hypothetical lines of each class in the table below provide information about hypothetical account values and hypothetical expenses based on the Class’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Class’ 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 a class of the Series and other funds. To do so, compare this 5% hypothetical example for the Class in which you have invested 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, such as sales charges (loads), redemption fees, or exchange fees that you may incur in other mutual funds. 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.
BEGINNING ACCOUNT VALUE | ENDING ACCOUNT VALUE 12/31/22 | EXPENSES PAID DURING PERIOD* 7/1/22 - 12/31/22 | ANNUALIZED EXPENSE RATIO | ||||||||
Class S | |||||||||||
Actual | $1,000.00 | $999.50 | $3.73 | 0.74% | |||||||
Hypothetical (5% return before expenses) | $1,000.00 | $1,021.48 | $3.77 | 0.74% | |||||||
Class I | |||||||||||
Actual | $1,000.00 | $1,001.10 | $2.42 | 0.48% | |||||||
Hypothetical (5% return before expenses) | $1,000.00 | $1,022.79 | $2.45 | 0.48% | |||||||
Class W | |||||||||||
Actual | $1,000.00 | $1,004.20 | $0.25 | 0.05% | |||||||
Hypothetical (5% return before expenses) | $1,000.00 | $1,024.95 | $0.26 | 0.05% |
* Expenses are equal to each Class’ annualized expense ratio (for the six-month period), 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 ratios stated above may differ from the expense ratios stated in the financial highlights, which are based on one-year data. The Class’ total return would have been lower had certain expenses not been waived or reimbursed during the period.
4
Unconstrained Bond Series
Portfolio Composition as of December 31, 2022
(unaudited)
Sector Allocation1 |
1As a percentage of net assets. |
2A U.S. Treasury Note is an intermediate long-term obligation of the U.S. Treasury issued with a maturity period between one and ten years. |
5
Unconstrained Bond Series
Investment Portfolio - December 31, 2022
SHARES/ PRINCIPAL AMOUNT1 | VALUE (NOTE 2) | |||||||
COMMON STOCKS - 0.7% | ||||||||
Energy - 0.7% | ||||||||
Oil, Gas & Consumable Fuels - 0.7% | ||||||||
Jonah Energy Parent LLC*2 | ||||||||
(Identified Cost $1,288,725) | 85,915 | $ | 5,346,491 | |||||
PREFERRED STOCKS - 0.5% | ||||||||
Health Care - 0.2% | ||||||||
Pharmaceuticals - 0.2% | ||||||||
Harrow Health, Inc., 8.625%, 4/30/2026 | 54,816 | 1,307,362 | ||||||
Information Technology - 0.3% | ||||||||
Software - 0.3% | ||||||||
Argo Blockchain plc (United Kingdom), 8.75%, 11/30/2026 | 71,086 | 216,812 | ||||||
Greenidge Generation Holdings, Inc., 8.50%, 10/31/2026 | 70,000 | 74,900 | ||||||
Synchronoss Technologies, Inc., 8.375%, 6/30/2026 | 144,265 | 2,589,557 | ||||||
TOTAL PREFERRED STOCKS (Identified Cost $8,490,131) | 4,188,631 | |||||||
CORPORATE BONDS - 30.4% | ||||||||
Non-Convertible Corporate Bonds- 30.4% | ||||||||
Communication Services - 4.0% | ||||||||
Entertainment - 2.4% | ||||||||
MGI Media and Games Invest SE (Malta) (3 mo. EURIBOR + 6.250%), 8.313%, 6/21/20263,4 | EUR | 8,000,000 | 8,072,752 | |||||
Warnermedia Holdings, Inc., | ||||||||
(U.S. Secured Overnight Financing Index + 1.780%), 6.092%, 3/15/20243,4 | 7,500,000 | 7,479,771 | ||||||
4.054%, 3/15/20294 | 4,500,000 | 3,907,087 | ||||||
19,459,610 | ||||||||
Interactive Media & Services - 0.7% | ||||||||
Tencent Holdings Ltd. (China), 3.975%, 4/11/20294 | 6,650,000 | 6,150,305 | ||||||
Media - 0.9% | ||||||||
Quebecor Media, Inc. (Canada), 5.75%, 1/15/2023 | 7,450,000 | 7,448,127 | ||||||
Total Communication Services | 33,058,042 | |||||||
Consumer Discretionary - 3.1% | ||||||||
Automobiles - 0.6% | ||||||||
Hyundai Capital America, 5.75%, 4/6/20234 | 5,000,000 | 5,001,237 | ||||||
Hotels, Restaurants & Leisure - 1.3% | ||||||||
Expedia Group, Inc., 3.25%, 2/15/2030 | 3,400,000 | 2,894,128 | ||||||
MGM Resorts International, 6.00%, 3/15/2023 | 7,363,000 | 7,365,094 | ||||||
10,259,222 |
SHARES/ PRINCIPAL AMOUNT1 | VALUE (NOTE 2) | |||||||
CORPORATE BONDS (continued) | ||||||||
Non-Convertible Corporate Bonds (continued) | ||||||||
Consumer Discretionary (continued) | ||||||||
Internet & Direct Marketing Retail - 1.2% | ||||||||
Alibaba Group Holding Ltd. (China), 4.00%, 12/6/2037 | 3,210,000 | $ | 2,702,101 | |||||
Amazon.com, Inc., 3.30%, 4/13/2027 | 4,000,000 | 3,802,573 | ||||||
Gaming Innovation Group plc (Malta) (3 mo. STIB + 8.500%), 10.993%, 6/11/2024 (Acquired 01/26/2022, cost $1,097,585)3,5 | SEK | 10,000,000 | 968,354 | |||||
North Investment Group AB (Sweden) (3 mo. STIB + 9.000%), 11.137%, 5/5/2024 (Acquired 04/22/2021, cost $2,818,941)3,5 | SEK | 23,750,000 | 2,244,249 | |||||
9,717,277 | ||||||||
Total Consumer Discretionary | 24,977,736 | |||||||
Consumer Staples - 1.3% | ||||||||
Beverages - 0.5% | ||||||||
PepsiCo, Inc., 3.90%, 7/18/2032 | 4,000,000 | 3,794,988 | ||||||
Food Products - 0.8% | ||||||||
Campbell Soup Co., 3.65%, 3/15/2023 | 4,680,000 | 4,667,621 | ||||||
Greenfood AB (Sweden) (3 mo. STIB + 7.000%), 9.096%, 11/4/2025 (Acquired 10/28/2021, cost $2,486,820)3,5 | SEK | 21,250,000 | 1,839,333 | |||||
6,506,954 | ||||||||
Total Consumer Staples | 10,301,942 | |||||||
Energy - 3.3% | ||||||||
Oil, Gas & Consumable Fuels - 3.3% | ||||||||
Brooge Petroleum and Gas Investment Co. FZE (United Arab Emirates), 8.50%, 9/24/20254 | 4,820,016 | 4,567,661 | ||||||
Cenovus Energy, Inc. (Canada), 6.75%, 11/15/2039 | 1,579,000 | 1,644,277 | ||||||
DCP Midstream Operating LP, 3.875%, 3/15/2023 | 5,000,000 | 4,969,548 | ||||||
Energy Transfer LP, 4.25%, 3/15/2023 | 4,000,000 | 3,990,782 | ||||||
PetroTal Corp. (Peru), 12.00%, 2/16/2024 (Acquired 02/01/2021, cost $2,584,000)5 | 2,720,000 | 2,740,504 | ||||||
Ping Petroleum UK Ltd. (Bermuda), 12.00%, 7/29/2024 (Acquired 07/14/2021-09/15/2021, cost $2,257,763)5 | 2,300,000 | 2,151,799 | ||||||
Sabine Pass Liquefaction LLC, 5.75%, 5/15/2024 | 7,000,000 | 7,007,073 | ||||||
Total Energy | 27,071,644 | |||||||
Financials - 7.4% | ||||||||
Banks - 4.4% | ||||||||
Bank of America Corp., | ||||||||
(3 mo. LIBOR US + 0.780%), 3.55%, 3/5/20246 | 3,000,000 | 2,988,793 |
The accompanying notes are an integral part of the financial statements.
6
Unconstrained Bond Series
Investment Portfolio - December 31, 2022
SHARES/ PRINCIPAL AMOUNT1 | VALUE (NOTE 2) | |||||||
CORPORATE BONDS (continued) | ||||||||
Non-Convertible Corporate Bonds (continued) | ||||||||
Financials (continued) | ||||||||
Banks (continued) | ||||||||
Bank of America Corp., (continued) | ||||||||
(3 mo. LIBOR US + 0.760%), 5.529%, 9/15/20263 | 3,561,000 | $ | 3,433,370 | |||||
JPMorgan Chase & Co., 8.00%, 4/29/2027 | 3,000,000 | 3,358,788 | ||||||
KeyBank NA, (U.S. Secured Overnight Financing Rate + 0.340%), 0.423%, 1/3/20246 | 5,000,000 | 4,968,451 | ||||||
Morgan Stanley, (U.S. Secured Overnight Financing Rate + 0.455%), 0.529%, 1/25/20246 | 5,000,000 | 4,968,978 | ||||||
Popular, Inc. (Puerto Rico), 6.125%, 9/14/2023 | 3,735,000 | 3,713,132 | ||||||
The Goldman Sachs Group, Inc., | ||||||||
(U.S. Secured Overnight Financing Rate + 0.572%), 0.673%, 3/8/20246 | 5,000,000 | 4,942,970 | ||||||
(U.S. Secured Overnight Financing Rate + 1.390%), 5.702%, 3/15/20243 | 7,500,000 | 7,509,333 | ||||||
35,883,815 | ||||||||
Capital Markets - 0.7% | ||||||||
Blackstone Secured Lending Fund, 2.75%, 9/16/2026 | 1,239,000 | 1,087,689 | ||||||
Drawbridge Special Opportunities Fund LP - Drawbridge Special Opportunities Finance Corporation, 3.875%, 2/15/20264 | 2,850,000 | 2,566,461 | ||||||
Owl Rock Technology Finance Corp., 3.75%, 6/17/20264 | 2,390,000 | 2,080,939 | ||||||
StoneX Group, Inc., 8.625%, 6/15/20254 | 338,000 | 341,024 | ||||||
6,076,113 | ||||||||
Consumer Finance - 1.4% | ||||||||
Navient Corp., | ||||||||
5.50%, 1/25/2023 | 5,000,000 | 4,990,154 | ||||||
6.75%, 6/25/2025 | 1,800,000 | 1,730,259 | ||||||
OneMain Finance Corp., 5.625%, 3/15/2023 | 4,775,000 | 4,769,375 | ||||||
11,489,788 | ||||||||
Diversified Financial Services - 0.5% | ||||||||
FS Energy & Power Fund, 7.50%, 8/15/20234 | 3,685,000 | 3,695,020 | ||||||
Mortgage Real Estate Investment Trusts (REITS) - 0.4% | ||||||||
Arbor Realty Trust, Inc., 8.00%, 4/30/2023 (Acquired 05/10/2021- 01/11/2023, cost $5,035,222)5 | 3,555,000 | 3,554,504 | ||||||
Total Financials | 60,699,240 | |||||||
Industrials - 4.6% | ||||||||
Airlines - 1.7% | ||||||||
Alaska Airlines Pass-Through Trust, Series 2020-1, Class B, 8.00%, 8/15/20254 | 4,178,617 | 4,199,135 |
SHARES/ PRINCIPAL AMOUNT1 | VALUE (NOTE 2) | |||||||
CORPORATE BONDS (continued) | ||||||||
Non-Convertible Corporate Bonds (continued) | ||||||||
Industrials (continued) | ||||||||
Airlines (continued) | ||||||||
Southwest Airlines Co., 5.25%, 5/4/2025 | 3,000,000 | $ | 3,012,036 | |||||
United Airlines Pass-Through Trust, Series 2019-2, Class B, 3.50%, 5/1/2028 | 3,676,058 | 3,134,322 | ||||||
United Airlines Pass-Through Trust, Series 2018-1, Class B, 4.60%, 3/1/2026 | 3,670,033 | 3,323,113 | ||||||
13,668,606 | ||||||||
Commercial Services & Supplies - 0.4% | ||||||||
Cartiga LLC, 8.00%, 6/15/2026 (Acquired 06/14/2021, cost $4,000,000)5 | 4,000,000 | 3,702,138 | ||||||
Electrical Equipment - 0.3% | ||||||||
Joetul AS (Norway) (3 mo. NIBOR + 6.950%), 9.99%, 10/6/20243 | NOK | 23,000,000 | 2,325,133 | |||||
Marine - 1.7% | ||||||||
American Tanker, Inc. (Norway), 7.75%, 7/2/2025 | 6,560,000 | 6,283,819 | ||||||
Seaspan Corp. (Hong Kong), 6.50%, 2/5/20244 | 7,600,000 | 7,546,298 | ||||||
13,830,117 | ||||||||
Road & Rail - 0.2% | ||||||||
BNSF Funding Trust I, (3 mo. LIBOR US + 2.350%), 6.613%, 12/15/20556 | 1,500,000 | 1,414,843 | ||||||
Trading Companies & Distributors - 0.3% | ||||||||
AerCap Ireland Capital DAC - AerCap Global Aviation Trust (Ireland), 3.00%, 10/29/2028 | 1,970,000 | 1,655,888 | ||||||
Ashtead Capital, Inc. (United Kingdom), 4.00%, 5/1/20284 | 1,500,000 | 1,365,429 | ||||||
3,021,317 | ||||||||
Total Industrials | 37,962,154 | |||||||
Information Technology - 0.6% | ||||||||
Software - 0.6% | ||||||||
Cabonline Group Holding AB (Sweden) (3 mo. STIB + 9.500%), 11.254%, 4/19/20263,4 | SEK | 17,500,000 | 1,512,860 | |||||
Extenda Retail Holding 1 AB (Sweden) (3 mo. STIB + 6.750%), 9.414%, 3/30/2027 (Acquired 03/24/2022, cost $3,620,906)3,5 | SEK | 34,000,000 | 3,061,572 | |||||
Total Information Technology | 4,574,432 | |||||||
Materials - 0.2% | ||||||||
Metals & Mining - 0.2% | ||||||||
Newcastle Coal Infrastructure Group Pty Ltd. (Australia), 4.40%, 9/29/20274 | 1,750,000 | 1,497,536 |
The accompanying notes are an integral part of the financial statements.
7
Unconstrained Bond Series
Investment Portfolio - December 31, 2022
SHARES/ PRINCIPAL AMOUNT1 | VALUE (NOTE 2) | |||||||
CORPORATE BONDS (continued) | ||||||||
Non-Convertible Corporate Bonds (continued) | ||||||||
Materials (continued) | ||||||||
Metals & Mining (continued) | ||||||||
Northwest Acquisitions ULC - Dominion Finco, Inc., 7.125%, 11/1/2022 (Acquired 10/06/2017-09/12/2019, cost $4,353,936)5,7 | 5,870,000 | $ | 587 | |||||
Total Materials | 1,498,123 | |||||||
Real Estate - 4.1% | ||||||||
Equity Real Estate Investment Trusts (REITS) - 3.7% | ||||||||
Crown Castle, Inc., 3.15%, 7/15/2023 | 3,615,000 | 3,573,501 | ||||||
IIP Operating Partnership LP, 5.50%, 5/25/2026 | 4,320,000 | 3,790,187 | ||||||
Novedo Holding AB (Sweden) (3 mo. STIB + 6.500%), 8.882%, 11/26/2024 (Acquired 11/15/2021-03/30/2022, cost $2,935,885)3,5 | SEK | 26,250,000 | 2,383,938 | |||||
Pelorus Fund REIT LLC, 7.00%, 9/30/2026 (Acquired 09/21/2021- 07/08/2022, cost $4,218,250)5 | 4,345,000 | 4,001,701 | ||||||
SBA Tower Trust, | ||||||||
2.836%, 1/15/20254 | 3,500,000 | 3,300,671 | ||||||
1.884%, 1/15/20264 | 2,750,000 | 2,420,944 | ||||||
6.599%, 1/15/20284 | 6,110,000 | 6,129,388 | ||||||
Simon Property Group LP, 2.65%, 2/1/2032 | 5,500,000 | 4,437,663 | ||||||
30,037,993 | ||||||||
Real Estate Management & Development - 0.4% | ||||||||
Carrington Holding Co. LLC, 8.00%, 1/1/20264 | 3,500,000 | 3,385,294 | ||||||
Total Real Estate | 33,423,287 | |||||||
Utilities - 1.8% | ||||||||
Electric Utilities - 1.2% | ||||||||
Alexander Funding Trust, 1.841%, 11/15/20234 | 10,000,000 | 9,473,276 | ||||||
Independent Power and Renewable Electricity Producers - 0.4% | ||||||||
Vistra Operations Co. LLC, 3.55%, 7/15/20244 | 3,500,000 | 3,360,329 | ||||||
Multi-Utilities - 0.2% | ||||||||
Dominion Energy, Inc., 2.45%, 1/15/20234 | 2,000,000 | 1,996,534 | ||||||
Total Utilities | 14,830,139 | |||||||
TOTAL CORPORATE BONDS (Identified Cost $267,588,866) | 248,396,739 | |||||||
ASSET-BACKED SECURITIES - 28.3% | ||||||||
Aligned Data Centers Issuer LLC, Series 2021-1A, Class A2, 1.937%, 8/15/20464 | 4,500,000 | 3,830,247 |
SHARES/ PRINCIPAL AMOUNT1 | VALUE (NOTE 2) | |||||||
ASSET-BACKED SECURITIES (continued) | ||||||||
Avis Budget Rental Car Funding AESOP LLC, Series 2017-2A, Class A, 2.97%, 3/20/20244 | 4,000,000 | $ | 3,988,262 | |||||
BRSP Ltd., Series 2021-FL1, Class A, (1 mo. LIBOR US + 1.150%), 5.489%, 8/19/20383,4 | 3,000,000 | 2,892,473 | ||||||
Business Jet Securities LLC, Series 2021-1A, Class A, 2.162%, 4/15/20364 | 3,966,268 | 3,482,596 | ||||||
CarMax Auto Owner Trust, Series 2020- 4, Class A3, 0.50%, 8/15/2025 | 6,808,184 | 6,610,729 | ||||||
Carvana Auto Receivables Trust, Series 2020-P1, Class A4, 0.61%, 10/8/2026 | 5,788,000 | 5,376,090 | ||||||
CF Hippolyta Issuer LLC, | ||||||||
Series 2020-1, Class A1, 1.69%, 7/15/20604 | 3,724,038 | 3,326,576 | ||||||
Series 2020-1, Class B1, 2.28%, 7/15/20604 | 1,816,604 | 1,586,676 | ||||||
Chase Auto Owner Trust, Series 2022- AA, Class A1, 2.983%, 8/25/20234 | 1,992,636 | 1,990,162 | ||||||
CLI Funding VIII LLC, Series 2021-1A, Class A, 1.64%, 2/18/20464 | 5,446,302 | 4,636,020 | ||||||
College Ave Student Loans LLC, Series 2021-A, Class A2, 1.60%, 7/25/20514 | 1,793,027 | 1,528,307 | ||||||
Commonbond Student Loan Trust, Series 2019-AGS, Class A1, 2.54%, 1/25/20474 | 1,970,790 | 1,796,016 | ||||||
CoreVest American Finance Trust, | ||||||||
Series 2019-1, Class A, 3.324%, 3/15/20524 | 569,493 | 557,381 | ||||||
Series 2019-3, Class A, 2.705%, 10/15/20524 | 1,851,677 | 1,734,590 | ||||||
Series 2020-3, Class A, 1.358%, 8/15/20534 | 1,100,855 | 961,307 | ||||||
Series 2020-4, Class A, 1.174%, 12/15/20524 | 1,059,684 | 935,877 | ||||||
Credit Acceptance Auto Loan Trust, | ||||||||
Series 2020-3A, Class A, 1.24%, 10/15/20294 | 5,224,143 | 5,113,908 | ||||||
Series 2021-2A, Class C, 1.64%, 6/17/20304 | 3,800,000 | 3,413,190 | ||||||
Series 2021-3A, Class C, 1.63%, 9/16/20304 | 3,000,000 | 2,700,529 | ||||||
Series 2022-1A, Class A, 4.60%, 6/15/20324 | 7,400,000 | 7,182,530 | ||||||
DataBank Issuer, Series 2021-1A, Class A2, 2.06%, 2/27/20514 | 5,200,000 | 4,504,459 | ||||||
Diamond Infrastructure Funding LLC, Series 2021-1A, Class A, 1.76%, 4/15/20494 | 5,000,000 | 4,100,927 | ||||||
DT Auto Owner Trust, Series 2020-1A, Class C, 2.29%, 11/17/20254 | 3,402,881 | 3,383,852 | ||||||
EDvestinU Private Education Loan Issue No. 1 LLC, | ||||||||
Series 2019-A, Class A, 3.58%, 11/25/20384 | 1,603,422 | 1,506,911 | ||||||
Series 2021-A, Class A, 1.80%, 11/25/20454 | 1,887,527 | 1,595,083 |
The accompanying notes are an integral part of the financial statements.
8
Unconstrained Bond Series
Investment Portfolio - December 31, 2022
SHARES/ PRINCIPAL AMOUNT1 | VALUE (NOTE 2) | |||||||
ASSET-BACKED SECURITIES (continued) | ||||||||
Flexential Issuer, Series 2021-1A, Class A2, 3.25%, 11/27/20514 | 4,760,000 | $ | 4,154,931 | |||||
Ford Credit Auto Owner Trust, Series 2022-C, Class A1, 3.633%, 10/15/2023 | 2,551,719 | 2,549,487 | ||||||
FS RIALTO, Series 2021-FL2, Class A, (1 mo. LIBOR US + 1.220%), 5.546%, 5/16/20383,4 | 3,000,000 | 2,848,880 | ||||||
Goodgreen Trust, Series 2020-1A, Class A, 2.63%, 4/15/20554 | 3,135,094 | 2,582,497 | ||||||
GreatAmerica Leasing Receivables Funding LLC, Series 2022-1, Class A1, 4.335%, 10/16/20234 | 3,868,155 | 3,858,651 | ||||||
Hertz Vehicle Financing LLC, Series 2021-1A, Class B, 1.56%, 12/26/20254 | 3,000,000 | 2,748,594 | ||||||
Hotwire Funding LLC, Series 2021-1, Class A2, 2.311%, 11/20/20514 | 3,500,000 | 3,040,336 | ||||||
HTS Fund I LLC, Series 2021-1, Class A, 1.411%, 8/25/20364 | 1,750,000 | 1,723,573 | ||||||
Hyundai Auto Lease Securitization Trust, Series 2020-B, Class A3, 0.51%, 9/15/20234 | 54,816 | 54,747 | ||||||
ITE Rail Fund Levered LP, Series 2021- 3A, Class A, 2.21%, 6/28/20514 | 5,613,624 | 4,731,218 | ||||||
KREF Ltd., Series 2021-FL2, Class AS, (1 mo. LIBOR US + 1.300%), 5.626%, 2/15/20393,4 | 3,500,000 | 3,274,857 | ||||||
Laurel Road Prime Student Loan Trust, Series 2019-A, Class A2FX, 2.73%, 10/25/20484 | 401,858 | 390,043 | ||||||
LCCM Trust, | ||||||||
Series 2021-FL2, Class AS, (1 mo. LIBOR US + 1.550%), 5.868%, 12/13/20383,4 | 2,000,000 | 1,901,430 | ||||||
Series 2021-FL2, Class B, (1 mo. LIBOR US + 1.900%), 6.218%, 12/13/20383,4 | 3,000,000 | 2,851,222 | ||||||
LFS LLC, Series 2022-A, Class A, 5.25%, 5/15/2034 (Acquired 05/11/2022, cost $5,958,320)5 | 5,980,448 | 5,799,575 | ||||||
Libra Solutions LLC, | ||||||||
Series 2022-1A, Class A, 4.75%, 5/15/20344 | 2,685,328 | 2,634,331 | ||||||
Series 2022-2A, Class A, 6.85%, 10/15/20344 | 4,743,331 | 4,718,138 | ||||||
Navient Private Education Loan Trust, | ||||||||
Series 2014-1, Class A3, (1 mo. LIBOR US + 0.510%), 4.899%, 6/25/20313 | 3,757,388 | 3,551,821 | ||||||
Series 2015-BA, Class A3, (1 mo. LIBOR US + 1.450%), 5.768%, 7/16/20403,4 | 1,934,283 | 1,899,710 | ||||||
Series 2017-2A, Class A, (1 mo. LIBOR US + 1.050%), 5.439%, 12/27/20663,4 | 3,139,489 | 3,024,511 | ||||||
Series 2020-1A, Class A1B, (1 mo. LIBOR US + 1.050%), 5.439%, 6/25/20693,4 | 2,256,878 | 2,183,685 |
SHARES/ PRINCIPAL AMOUNT1 | VALUE (NOTE 2) | |||||||
ASSET-BACKED SECURITIES (continued) | ||||||||
Navient Private Education Loan Trust, (continued) | ||||||||
Series 2020-GA, Class A, 1.17%, 9/16/20694 | 621,727 | $ | 562,749 | |||||
Series 2021-1A, Class A1A, 1.31%, 12/26/20694 | 5,251,829 | 4,294,905 | ||||||
Series 2021-A, Class A, 0.84%, 5/15/20694 | 946,872 | 817,921 | ||||||
Series 2022-A, Class A, 2.23%, 7/15/20704 | 3,552,976 | 3,091,811 | ||||||
Oxford Finance Funding LLC, | ||||||||
Series 2019-1A, Class A2, 4.459%, 2/15/20274 | 2,653,366 | 2,632,376 | ||||||
Series 2020-1A, Class A2, 3.101%, 2/15/20284 | 4,176,631 | 4,130,469 | ||||||
Series 2020-1A, Class B, 4.037%, 2/15/20284 | 1,760,602 | 1,722,060 | ||||||
Series 2022-1A, Class A2, 3.602%, 2/15/20304 | 4,650,000 | 4,239,546 | ||||||
PEAR LLC, | ||||||||
Series 2020-1, Class A, 3.75%, 12/15/20324 | 1,880,039 | 1,839,534 | ||||||
Series 2021-1, Class A, 2.60%, 1/15/2034 (Acquired 11/16/2021, cost $4,438,178)5 | 4,438,178 | 4,174,905 | ||||||
Series 2022-1, Class A1, 6.50%, 10/15/2034 (Acquired 10/14/2022, cost $2,131,222)5 | 2,132,928 | 2,129,130 | ||||||
Series 2022-1, Class A2, 7.25%, 10/15/2034 (Acquired 10/14/2022, cost $2,414,000)5 | 2,500,000 | 2,431,468 | ||||||
PenFed Auto Receivables Owner Trust, Series 2022-A, Class A1, 3.174%, 9/15/20234 | 2,200,937 | 2,198,329 | ||||||
Progress Residential Trust, Series 2019- SFR4, Class A, 2.687%, 10/17/20364 | 3,800,000 | 3,611,662 | ||||||
Santander Drive Auto Receivables Trust, | ||||||||
Series 2020-2, Class C, 1.46%, 9/15/2025 | 2,750,166 | 2,737,283 | ||||||
Series 2020-3, Class C, 1.12%, 1/15/2026 | 4,426,912 | 4,386,758 | ||||||
Series 2020-4, Class C, 1.01%, 1/15/2026 | 3,412,808 | 3,369,901 | ||||||
Slam Ltd., Series 2021-1A, Class A, (Cayman Islands), 2.434%, 6/15/20464 | 5,799,680 | 4,805,201 | ||||||
SMB Private Education Loan Trust, | ||||||||
Series 2019-B, Class A2A, 2.84%, 6/15/20374 | 2,553,869 | 2,341,782 | ||||||
Series 2020-B, Class A1A, 1.29%, 7/15/20534 | 1,471,249 | 1,299,180 | ||||||
SoFi Professional Loan Program LLC, Series 2017-F, Class A2FX, 2.84%, 1/25/20414 | 158,363 | 152,388 | ||||||
Stack Infrastructure Issuer LLC, Series 2021-1A, Class A2, 1.877%, 3/26/20464 | 3,400,000 | 2,915,662 | ||||||
Stonepeak, Series 2021-1A, Class AA, 2.301%, 2/28/20334 | 1,001,487 | 890,919 |
The accompanying notes are an integral part of the financial statements.
9
Unconstrained Bond Series
Investment Portfolio - December 31, 2022
SHARES/ PRINCIPAL AMOUNT1 | VALUE (NOTE 2) | |||||||
ASSET-BACKED SECURITIES (continued) | ||||||||
Store Master Funding I-VII and XIV, Series 2019-1, Class A1, 2.82%, 11/20/20494 | 2,383,544 | $ | 2,137,071 | |||||
Textainer Marine Containers VII Ltd., Series 2021-1A, Class A, 1.68%, 2/20/20464 | 5,632,000 | 4,709,591 | ||||||
Towd Point Mortgage Trust, | ||||||||
Series 2016-5, Class A1, 2.50%, 10/25/20564,8 | 157,923 | 155,272 | ||||||
Series 2017-1, Class A1, 2.75%, 10/25/20564,8 | 491,044 | 482,786 | ||||||
Series 2018-2, Class A1, 3.25%, 3/25/20584,8 | 554,484 | 530,820 | ||||||
Series 2019-HY1, Class A1, (1 mo. LIBOR US + 1.000%), 5.389%, 10/25/20483,4 | 1,267,449 | 1,257,245 | ||||||
Tricon American Homes, Series 2020- SFR1, Class C, 2.249%, 7/17/20384 | 2,500,000 | 2,182,031 | ||||||
Trinity Rail Leasing 2018 LLC, Series 2020-1A, Class A, 1.96%, 10/17/20504 | 2,248,267 | 1,954,185 | ||||||
Trinity Rail Leasing 2021 LLC, Series 2021-1A, Class A, 2.26%, 7/19/20514 | 1,886,681 | 1,557,284 | ||||||
Triton Container Finance VIII LLC, Series 2021-1A, Class A, (Bermuda), 1.86%, 3/20/20464 | 5,618,250 | 4,691,641 | ||||||
TRP LLC, Series 2021-1, Class A, 2.07%, 6/19/20514 | 2,928,199 | 2,460,555 | ||||||
Vantage Data Centers Issuer LLC, Series 2020-1A, Class A2, 1.645%, 9/15/20454 | 6,500,000 | 5,722,355 | ||||||
Vertical Bridge Holdings LLC, Series 2020-2A, Class A, 2.636%, 9/15/20504 | 4,000,000 | 3,569,948 | ||||||
TOTAL ASSET-BACKED SECURITIES (Identified Cost $251,552,455) | 231,443,658 | |||||||
COMMERCIAL MORTGAGE-BACKED SECURITIES - 11.0% | ||||||||
BDS, Series 2021-FL8, Class B, (Cayman Islands) (1 mo. LIBOR US + 1.350%), 5.689%, 1/18/20363,4 | 3,000,000 | 2,845,818 | ||||||
BRAVO Residential Funding Trust, Series 2019-2, Class A3, 3.50%, 10/25/20444,8 | 3,456,172 | 3,201,676 | ||||||
Brean Asset Backed Securities Trust, Series 2021-RM2, Class A, 1.75%, 10/25/20614,8 | 2,599,070 | 2,270,635 | ||||||
CIM Trust, Series 2019-INV1, Class A1, 4.00%, 2/25/20494,8 | 83,504 | 79,846 | ||||||
Credit Suisse Mortgage Capital Trust, Series 2013-TH1, Class A1, 2.13%, 2/25/20434,8 | 115,027 | 97,782 | ||||||
Fannie Mae REMICS, Series 2018-31, Class KP, 3.50%, 7/25/2047 | 90,927 | 87,940 | ||||||
Fontainebleau Miami Beach Trust, Series 2019-FBLU, Class A, 3.144%, 12/10/20364 | 4,480,000 | 4,184,632 |
SHARES/ PRINCIPAL AMOUNT1 | VALUE (NOTE 2) | |||||||
COMMERCIAL MORTGAGE-BACKED SECURITIES (continued) | ||||||||
Freddie Mac Multifamily Structured Pass-Through Certificates, | ||||||||
Series K030, Class X1 (IO), 0.137%, 4/25/20238 | 38,601,132 | $ | 9,376 | |||||
Series K032, Class X1 (IO), 0.062%, 5/25/20238 | 29,037,331 | 6,370 | ||||||
Series K106, Class X1 (IO), 1.354%, 1/25/20308 | 53,769,576 | 3,996,572 | ||||||
FREMF Mortgage Trust, Series 2013-K28, Class X2A (IO), 0.10%, 6/25/2046 (Acquired 10/01/2015, cost $117,462)5 | 17,223,664 | 673 | ||||||
GCAT Trust, Series 2022-NQM3, Class A1, 4.348%, 4/25/20674,8 | 9,540,898 | 9,064,521 | ||||||
GS Mortgage-Backed Securities Trust, | ||||||||
Series 2021-GR3, Class A6, 2.50%, 4/25/20524,8 | 5,625,323 | 4,842,421 | ||||||
Series 2021-PJ9, Class A8, 2.50%, 2/26/20524,8 | 3,429,537 | 2,952,520 | ||||||
Series 2022-PJ1, Class A15, (U.S. Secured Overnight Financing Rate 30 Day Average + 0.850%), 4.371%, 5/28/20523,4 | 4,603,293 | 4,184,170 | ||||||
Series 2022-PJ3, Class A24, 3.00%, 8/25/20524,8 | 9,306,418 | 8,213,037 | ||||||
Imperial Fund Mortgage Trust, | ||||||||
Series 2022-NQM2, Class A1, 3.638%, 3/25/20674,9 | 7,023,791 | 6,341,004 | ||||||
Series 2022-NQM3, Class A1, 4.38%, 5/25/20674,9 | 4,376,105 | 4,052,924 | ||||||
Series 2022-NQM4, Class A1, 4.767%, 6/25/20674,9 | 9,674,479 | 9,387,332 | ||||||
J.P. Morgan Mortgage Trust, | ||||||||
Series 2014-2, Class 1A1, 3.00%, 6/25/20294,8 | 370,746 | 346,364 | ||||||
Series 2022-INV3, Class A4B, 3.00%, 9/25/20524,8 | 7,202,543 | 6,331,560 | ||||||
Metlife Securitization Trust, Series 2019- 1A, Class A, 3.746%, 4/25/20584,8 | 813,357 | 766,327 | ||||||
New Residential Mortgage Loan Trust, | ||||||||
Series 2014-3A, Class AFX3, 3.75%, 11/25/20544,8 | 259,072 | 238,716 | ||||||
Series 2015-2A, Class A1, 3.75%, 8/25/20554,8 | 363,034 | 337,659 | ||||||
Series 2019-2A, Class A1, 4.25%, 12/25/20574,8 | 1,780,707 | 1,684,315 | ||||||
NYMT Loan Trust, Series 2022-CP1, Class A1, 2.042%, 7/25/20614 | 2,234,642 | 1,996,840 | ||||||
RCKT Mortgage Trust, Series 2021-6, Class A5, 2.50%, 12/25/20514,8 | 5,355,197 | 4,610,240 | ||||||
RUN Trust, Series 2022-NQM1, Class A1, 4.00%, 3/25/20674 | 3,334,001 | 3,148,152 | ||||||
Sequoia Mortgage Trust, | ||||||||
Series 2013-2, Class A, 1.874%, 2/25/20438 | 123,253 | 104,134 | ||||||
Series 2013-6, Class A2, 3.00%, 5/25/20438 | 1,285,992 | 1,131,663 |
The accompanying notes are an integral part of the financial statements.
10
Unconstrained Bond Series
Investment Portfolio - December 31, 2022
SHARES/ PRINCIPAL AMOUNT1 | VALUE (NOTE 2) | |||||||
COMMERCIAL MORTGAGE-BACKED SECURITIES (continued) | ||||||||
Sequoia Mortgage Trust, (continued) | ||||||||
Series 2013-7, Class A2, 3.00%, 6/25/20438 | 123,897 | $ | 108,645 | |||||
Series 2013-8, Class A1, 3.00%, 6/25/20438 | 147,620 | 130,541 | ||||||
Starwood Retail Property Trust, Series 2014-STAR, Class A, (1 mo. LIBOR US + 1.470%), 5.788%, 11/15/20273,4 | 1,777,115 | 1,233,252 | ||||||
Sutherland Commercial Mortgage Trust, Series 2019-SBC8, Class A, 2.86%, 4/25/20414,8 | 2,207,823 | 2,019,683 | ||||||
WinWater Mortgage Loan Trust, Series 2015-1, Class A1, 3.50%, 1/20/20454,8 | 71,881 | 65,493 | ||||||
TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES (Identified Cost $96,504,576) | 90,072,833 | |||||||
FOREIGN GOVERNMENT BONDS - 0.8% | ||||||||
Mexico Government International Bond (Mexico), 4.125%, 1/21/2026 | 1,800,000 | 1,756,909 | ||||||
Republic of Italy Government International Bond (Italy), 2.375%, 10/17/2024 | 4,500,000 | 4,236,483 | ||||||
TOTAL FOREIGN GOVERNMENT BONDS (Identified Cost $6,257,302) | 5,993,392 | |||||||
MUNICIPAL BONDS - 0.4% | ||||||||
District of Columbia, Revenue Bond, 1.558%, 4/1/2023 | 520,000 | 515,088 | ||||||
Hawaii, Series GC, G.O. Bond, 2.632%, 10/1/2037 | 3,905,000 | 2,854,671 | ||||||
TOTAL MUNICIPAL BONDS (Identified Cost $4,571,346) | 3,369,759 | |||||||
U.S. TREASURY SECURITIES - 20.6% | ||||||||
U.S. Treasury Notes - 20.6% | ||||||||
U.S. Treasury Note | ||||||||
0.125%, 8/31/2023 | 21,400,000 | 20,756,328 | ||||||
0.25%, 8/15/2024 | 10,460,000 | 9,774,380 | ||||||
2.25%, 11/15/2027 | 44,305,000 | 40,881,747 | ||||||
2.75%, 2/15/2028 | 26,155,000 | 24,628,611 | ||||||
2.875%, 5/15/2028 | 25,615,000 | 24,214,180 | ||||||
2.875%, 8/15/2028 | 25,475,000 | 24,036,060 | ||||||
3.125%, 11/15/2028 | 25,385,000 | 24,252,591 | ||||||
TOTAL U.S. TREASURY SECURITIES (Identified Cost $170,033,068) | 168,543,897 |
SHARES/ PRINCIPAL AMOUNT1 | VALUE (NOTE 2) | |||||||
U.S. GOVERNMENT AGENCIES - 0.2% | ||||||||
Mortgage-Backed Securities - 0.2% | ||||||||
Fannie Mae | ||||||||
Pool #AD0462, UMBS, 5.50%, 10/1/2024 | 1,716 | $ | 1,706 | |||||
Pool #MA0115, UMBS, 4.50%, 7/1/2029 | 27,681 | 27,364 | ||||||
Pool #MA1834, UMBS, 4.50%, 2/1/2034 | 119,146 | 117,659 | ||||||
Pool #995876, UMBS, 6.00%, 11/1/2038 | 210,848 | 221,039 | ||||||
Pool #AW5338, UMBS, 4.50%, 6/1/2044 | 479,699 | 471,827 | ||||||
Pool #AS3878, UMBS, 4.50%, 11/1/2044 | 329,047 | 325,420 | ||||||
Pool #BE7845, UMBS, 4.50%, 2/1/2047 | 96,498 | 94,901 | ||||||
Freddie Mac | ||||||||
Pool #G12988, 6.00%, 1/1/2023 | 1 | 1 | ||||||
Pool #G13078, 6.00%, 3/1/2023 | 11 | 11 | ||||||
Pool #G13331, 5.50%, 10/1/2023 | 209 | 208 | ||||||
Pool #C91359, 4.50%, 2/1/2031 | 76,592 | 75,784 | ||||||
Pool #D98711, 4.50%, 7/1/2031 | 223,660 | 221,299 | ||||||
Pool #C91746, 4.50%, 12/1/2033 | 162,741 | 161,070 | ||||||
Pool #G05900, 6.00%, 3/1/2040 | 37,782 | 39,652 | ||||||
TOTAL U.S. GOVERNMENT AGENCIES (Identified Cost $1,853,304) | 1,757,941 | |||||||
SHORT-TERM INVESTMENT - 6.1% | ||||||||
Dreyfus Government Cash Management, Institutional Shares, 4.19%10 | ||||||||
(Identified Cost $49,938,505) | 49,938,505 | 49,938,505 | ||||||
TOTAL INVESTMENTS - 99.0% (Identified Cost $858,078,278) | 809,051,846 | |||||||
OTHER ASSETS, LESS LIABILITIES - 1.0% | 8,461,538 | |||||||
NET ASSETS - 100% | $ | 817,513,384 |
The accompanying notes are an integral part of the financial statements.
11
Unconstrained Bond Series
Investment Portfolio - December 31, 2022
FUTURES CONTRACTS: LONG POSITIONS OPEN AT DECEMBER 31, 2022 | |||||||||||||||||
CONTRACTS PURCHASED | ISSUE | EXCHANGE | EXPIRATION | NOTIONAL VALUE 1 | VALUE/UNREALIZED DEPRECIATION | ||||||||||||
2,850 | Canadian Treasury Bonds (2 Year) | MX | March 2023 | 217,254,616 | $(747,715 | ) | |||||||||||
1,400 | U.S. Treasury Notes (2 Year) | CBOT | March 2023 | 287,109,376 | (631,517 | ) | |||||||||||
455 | U.S. Treasury Notes (5 Year) | CBOT | March 2023 | 49,108,009 | (573,177 | ) | |||||||||||
TOTAL LONG POSITIONS | $(1,952,409 | ) |
FUTURES CONTRACTS: SHORT POSITIONS OPEN AT DECEMBER 31, 2022 | |||||||||||||||||
CONTRACTS SOLD | ISSUE | EXCHANGE | EXPIRATION | NOTIONAL VALUE 1 | VALUE/UNREALIZED APPRECIATION/ (DEPRECIATION) | ||||||||||||
300 | CBOE iBoxx iShares Corporate Bond Index | CBOE | January 2023 | 40,659,000 | $(337,054 | ) | |||||||||||
550 | Canadian Treasury Bonds (10 Year) | MX | March 2023 | 49,780,281 | 1,667,671 | ||||||||||||
600 | U.S. Ultra Treasury Bonds (10 Year) | CBOT | March 2023 | 70,968,750 | 123,726 | ||||||||||||
TOTAL SHORT POSITIONS | $1,454,343 |
CBOE - Chicago Board Options Exchange
CBOT - Chicago Board of Trade
EUR - Euro
EURIBOR - Euro Interbank Offered Rate
G.O. Bond - General Obligation Bond
IO - Interest only
LIBOR - London Interbank Offered Rate
MX - Montreal Exchange
NIBOR - Norwegian Interbank Offered Rate
No. - Number
NOK - Norwegian Krone
REMICS - Real Estate Mortgage Investment Conduits
SEK - Swedish Krona
STIB - Stockholm Interbank Offered Rate
UMBS - Uniform Mortgage-Backed Securities
*Non-income producing security.
1Amount is stated in USD unless otherwise noted.
2Security has been valued using significant unobservable inputs.
3Floating rate security. Rate shown is the rate in effect as of December 31, 2022.
4Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”) and determined to be liquid under the Fund’s Liquidity Risk Management Program. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at December 31, 2022 was $362,873,381, which represented 44.4% of the Series’ Net Assets.
5Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”) and determined to be illiquid under the Fund’s Liquidity Risk Management Program. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of such securities at December 31, 2022 was $41,184,430, or 5.0% of the Series’ Net Assets.
6Variable rate security. Security may be issued at a fixed coupon rate, which converts to a variable rate at a specified date. Rate shown is the rate in effect as of December 31, 2022.
7Issuer filed for bankruptcy and/or is in default of interest payments.
8Variable or floating rate security, the interest rate of which adjusts periodically based on changes in current interest rates and prepayments on the underlying pool of assets. Rate shown is the rate in effect as of December 31, 2022.
9Represents a step-up bond that pays initial coupon rate for the first period and then a higher coupon rate for the following periods. Rate shown reflects the current coupon as of December 31, 2022.
10Rate shown is the current yield as of December 31, 2022.
The Global Industry Classification Standard (GICS) was developed by and is the exclusive property and a service mark of MSCI Inc. (MSCI) and Standard & Poor’s, a division of S&P Global Inc. (S&P), and is licensed for use by Manning & Napier when referencing GICS sectors. Neither MSCI, S&P, nor any third party involved in making or compiling the GICS or any GICS classifications makes any express or implied warranties or representations with respect to such standard or classification, nor shall any such party have any liability therefrom.
The accompanying notes are an integral part of the financial statements.
12
Unconstrained Bond Series
Statement of Assets and Liabilities
December 31, 2022
ASSETS: | ||||
Investments in securities, at value (identified cost $858,078,278) (Note 2) | $ | 809,051,846 | ||
Deposits at broker for futures contracts | 8,753,433 | |||
Interest receivable | 4,711,942 | |||
Receivable for fund shares sold | 590,006 | |||
Futures variation margin receivable | 143,113 | |||
Dividends receivable | 110,395 | |||
Receivable for securities sold | 53 | |||
Prepaid expenses | 26,590 | |||
TOTAL ASSETS | 823,387,378 | |||
LIABILITIES: | ||||
Due to custodian | 46,249 | |||
Foreign currency overdraft, at value (identified cost $5,882) | 5,858 | |||
Accrued sub-transfer agent fees (Note 3) | 54,361 | |||
Accrued fund accounting and administration fees (Note 3) | 40,883 | |||
Accrued management fees (Note 3) | 40,802 | |||
Accrued distribution and service (Rule 12b-1) fees (Class S) (Note 3) | 6,817 | |||
Accrued Chief Compliance Officer service fees (Note 3) | 2,062 | |||
Payable for fund shares repurchased | 5,178,032 | |||
Futures variation margin payable | 448,767 | |||
Other payables and accrued expenses | 50,163 | |||
TOTAL LIABILITIES | 5,873,994 | |||
TOTAL NET ASSETS | $ | 817,513,384 | ||
NET ASSETS CONSIST OF: | ||||
Capital stock | $ | 878,321 | ||
Additional paid-in-capital | 891,754,146 | |||
Total distributable earnings (loss) | (75,119,083 | ) | ||
TOTAL NET ASSETS | $ | 817,513,384 | ||
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE - Class S | ||||
($31,882,215/3,302,811 shares) | $ | 9.65 | ||
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE - Class I | ||||
($192,902,691/22,913,961 shares) | $ | 8.42 | ||
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE - Class W | ||||
($592,728,478/61,615,335 shares) | $ | 9.62 |
The accompanying notes are an integral part of the financial statements.
13
Unconstrained Bond Series
Statement of Operations
For the Year Ended December 31, 2022
INVESTMENT INCOME: | ||||
Interest | $ | 28,405,714 | ||
Dividends | 1,181,180 | |||
Total Investment Income | 29,586,894 | |||
EXPENSES: | ||||
Management fees (Note 3) | 2,356,139 | |||
Sub-transfer agent fees (Note 3) | 155,200 | |||
Fund accounting and administration fees (Note 3) | 149,055 | |||
Directors’ fees (Note 3) | 93,245 | |||
Distribution and service (Rule 12b-1) fees (Class S) (Note 3) | 63,406 | |||
Chief Compliance Officer service fees (Note 3) | 8,984 | |||
Custodian fees | 28,154 | |||
Miscellaneous | 264,564 | |||
Total Expenses | 3,118,747 | |||
Less reduction of expenses (Note 3) | (2,011,749 | ) | ||
Net Expenses | 1,106,998 | |||
NET INVESTMENT INCOME | 28,479,896 | |||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY: | ||||
Net realized gain (loss) on- | ||||
Investments | (16,407,477 | ) | ||
Futures contracts | (15,079,049 | ) | ||
Options written | 44,208 | |||
Foreign currency and translation of other assets and liabilities | 234,655 | |||
(31,207,663 | ) | |||
Net change in unrealized appreciation (depreciation) on- | ||||
Investments | (46,813,171 | ) | ||
Futures contracts | 2,472,483 | |||
Foreign currency and translation of other assets and liabilities | (53,017 | ) | ||
(44,393,705 | ) | |||
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY | (75,601,368 | ) | ||
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | (47,121,472 | ) |
The accompanying notes are an integral part of the financial statements.
14
Unconstrained Bond Series
Statements of Changes in Net Assets
FOR THE YEAR ENDED 12/31/22 | FOR THE YEAR ENDED 12/31/21 | |||||||
INCREASE (DECREASE) IN NET ASSETS: | ||||||||
OPERATIONS: | ||||||||
Net investment income | $ | 28,479,896 | $ | 23,728,961 | ||||
Net realized gain (loss) on investments and foreign currency | (31,207,663 | ) | 22,037,924 | |||||
Net change in unrealized appreciation (depreciation) on investments and foreign currency | (44,393,705 | ) | (24,025,171 | ) | ||||
Net increase (decrease) from operations | (47,121,472 | ) | 21,741,714 | |||||
DISTRIBUTIONS TO SHAREHOLDERS (Note 9): | ||||||||
Class S | (703,862 | ) | (1,000,768 | ) | ||||
Class I | (5,026,277 | ) | (2,012,290 | ) | ||||
Class W | (19,469,136 | ) | (40,773,813 | ) | ||||
Total distributions to shareholders | (25,199,275 | ) | (43,786,871 | ) | ||||
CAPITAL STOCK ISSUED AND REPURCHASED: | ||||||||
Net increase (decrease) from capital share transactions (Note 5) | 161,611,136 | 76,085,887 | ||||||
Net increase (decrease) in net assets | 89,290,389 | 54,040,730 | ||||||
NET ASSETS: | ||||||||
Beginning of year | 728,222,995 | 674,182,265 | ||||||
End of year | $ | 817,513,384 | $ | 728,222,995 |
The accompanying notes are an integral part of the financial statements.
15
Unconstrained Bond Series
Financial Highlights - Class S
FOR THE YEAR ENDED | |||||||||||||||
12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 | |||||||||||
Per share data (for a share outstanding throughout each year): | |||||||||||||||
Net asset value - Beginning of year | $10.61 | $10.93 | $10.44 | $10.18 | $10.42 | ||||||||||
Income (loss) from investment operations: | |||||||||||||||
Net investment income1 | 0.31 | 0.30 | 0.29 | 0.28 | 0.26 | ||||||||||
Net realized and unrealized gain (loss) on investments | (1.02 | ) | (0.02 | ) | 0.48 | 0.23 | (0.24 | ) | |||||||
Total from investment operations | (0.71 | ) | 0.28 | 0.77 | 0.51 | 0.02 | |||||||||
Less distributions to shareholders: | |||||||||||||||
From net investment income | (0.25 | ) | (0.30 | ) | (0.28 | ) | (0.25 | ) | (0.25 | ) | |||||
From net realized gain on investments | — | (0.30 | ) | (0.00 | )2 | — | (0.01 | ) | |||||||
Total distributions to shareholders | (0.25 | ) | (0.60 | ) | (0.28 | ) | (0.25 | ) | (0.26 | ) | |||||
Net asset value - End of year | $9.65 | $10.61 | $10.93 | $10.44 | $10.18 | ||||||||||
Net assets - End of year (000’s omitted) | $31,882 | $17,776 | $20,925 | $22,884 | $685,649 | ||||||||||
Total return3 | (6.71% | ) | 2.59% | 7.54% | 5.01% | 0.20% | |||||||||
Ratios (to average net assets)/Supplemental Data: | |||||||||||||||
Expenses* | 0.72% | 0.73% | 0.73% | 0.75% | 0.75% | ||||||||||
Net investment income | 3.15% | 2.71% | 2.74% | 2.80% | 2.56% | ||||||||||
Series portfolio turnover | 60% | 69% | 96% | 75% | 58% | ||||||||||
*For certain years presented, the investment advisor did not impose all or a portion of its management and/or other fees, and in some years may have paid a portion of the Series’ expenses. If these expenses had been incurred by the Class, the expense ratio (to average net assets) would have increased by the following amounts: | |||||||||||||||
N/A | N/A | N/A | 0.01% | 0.01% |
1Calculated based on average shares outstanding during the years.
2Less than $(0.01).
3Represents aggregate total return for the years indicated, and assumes reinvestment of all distributions. Total return would have been lower had certain expenses not been waived or reimbursed during certain years.
The accompanying notes are an integral part of the financial statements.
16
Unconstrained Bond Series
Financial Highlights - Class I
FOR THE YEAR ENDED | |||||||||||||||
12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 |
Per share data (for a share outstanding throughout each year): | |||||||||||||||
Net asset value - Beginning of year | $9.29 | $9.65 | $9.26 | $9.09 | $9.34 | ||||||||||
Income (loss) from investment operations: | |||||||||||||||
Net investment income1 | 0.30 | 0.29 | 0.28 | 0.28 | 0.26 | ||||||||||
Net realized and unrealized gain (loss) on investments | (0.90 | ) | (0.02 | ) | 0.42 | 0.20 | (0.22 | ) | |||||||
Total from investment operations | (0.60 | ) | 0.27 | 0.70 | 0.48 | 0.04 | |||||||||
Less distributions to shareholders: | |||||||||||||||
From net investment income | (0.27 | ) | (0.33 | ) | (0.31 | ) | (0.31 | ) | (0.28 | ) | |||||
From net realized gain on investments | — | (0.30 | ) | (0.00 | )2 | — | (0.01 | ) | |||||||
Total distributions to shareholders | (0.27 | ) | (0.63 | ) | (0.31 | ) | (0.31 | ) | (0.29 | ) | |||||
Net asset value - End of year | $8.42 | $9.29 | $9.65 | $9.26 | $9.09 | ||||||||||
Net assets - End of year (000’s omitted) | $192,903 | $36,639 | $21,687 | $19,039 | $28,499 | ||||||||||
Total return3 | (6.42% | ) | 2.81% | 7.74% | 5.37% | 0.40% | |||||||||
Ratios (to average net assets)/Supplemental Data: | |||||||||||||||
Expenses* | 0.47% | 0.49% | 0.49% | 0.48% | 0.50% | ||||||||||
Net investment income | 3.47% | 2.97% | 2.96% | 3.01% | 2.75% | ||||||||||
Series portfolio turnover | 60% | 69% | 96% | 75% | 58% | ||||||||||
*For certain years presented, the investment advisor did not impose all or a portion of its management and/or other fees, and in some years may have paid a portion of the Series’ expenses. If these expenses had been incurred by the Class, the expense ratio (to average net assets) would have increased by the following amounts: | |||||||||||||||
N/A | N/A | N/A | 0.01% | 0.01% |
1Calculated based on average shares outstanding during the years.
2Less than $(0.01).
3Represents aggregate total return for the years indicated, and assumes reinvestment of all distributions. Total return would have been lower had certain expenses not been waived or reimbursed during certain years.
The accompanying notes are an integral part of the financial statements.
17
Unconstrained Bond Series
Financial Highlights - Class W
FOR THE YEAR ENDED | FOR THE | |||||||||||
PERIOD | ||||||||||||
3/1/191 TO | ||||||||||||
12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | |||||||||
Per share data (for a share outstanding throughout each period): | ||||||||||||
Net asset value - Beginning of period | $10.57 | $10.90 | $10.41 | $10.34 | ||||||||
Income (loss) from investment operations: | ||||||||||||
Net investment income2 | 0.37 | 0.37 | 0.36 | 0.30 | ||||||||
Net realized and unrealized gain (loss) on investments | (1.01 | ) | (0.03 | ) | 0.49 | 0.12 | ||||||
Total from investment operations | (0.64 | ) | 0.34 | 0.85 | 0.42 | |||||||
Less distributions to shareholders: | ||||||||||||
From net investment income | (0.31 | ) | (0.37 | ) | (0.36 | ) | (0.35 | ) | ||||
From net realized gain on investments | — | (0.30 | ) | (0.00 | )3 | — | ||||||
Total distributions to shareholders | (0.31 | ) | (0.67 | ) | (0.36 | ) | (0.35 | ) | ||||
Net asset value - End of period | $9.62 | $10.57 | $10.90 | $10.41 | ||||||||
Net assets - End of period (000’s omitted) | $592,728 | $673,807 | $631,570 | $859,888 | ||||||||
Total return4 | (6.05% | ) | 3.19% | 8.29% | 4.10% | 5 | ||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||
Expenses* | 0.05% | 0.05% | 0.05% | 0.05% | 6 | |||||||
Net investment income | 3.68% | 3.40% | 3.40% | 3.44% | 6 | |||||||
Series portfolio turnover | 60% | 69% | 96% | 75% | ||||||||
*The investment advisor did not impose all or a portion of its management and/or other fees during the periods, and may have paid a portion of the Series’ expenses. If these expenses had been incurred by the Class, the expense ratio (to average net assets) would have increased by the following amounts: | ||||||||||||
0.32% | 0.32% | 0.32% | 0.31% | 6 |
1Commencement of operations.
2Calculated based on average shares outstanding during the periods.
3Less than $(0.01).
4Represents 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.
5Includes litigation proceeds. Excluding this amount, the total return would have been 4.00%.
6Annualized.
The accompanying notes are an integral part of the financial statements.
18
Unconstrained Bond Series
Notes to Financial Statements
1. | Organization |
Unconstrained 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, and its secondary objective is to provide preservation of capital.
The Fund’s advisor is Manning & Napier Advisors, LLC (the “Advisor”). Shares of the Series are offered to investors, clients and employees of the Advisor and its affiliates. The Series is authorized to issue four classes of shares (Class S, I, W, and Z). 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 total authorized capital stock of the Fund consists of 15 billion shares of common stock each having a par value of $0.01. As of December 31, 2022, 6.3 billion shares have been designated in total among 15 series, of which 100 million have been designated as Unconstrained Bond Series Class I common stock and Unconstrained Bond Series Class Z common stock, 125 million have been designated as Unconstrained Bond Series Class S common stock and 150 million have been designated as Unconstrained Bond Series Class W common stock. Class Z common stock is not currently offered for sale.
2. | Significant Accounting Policies |
The following is a summary of significant accounting policies followed by the Series. The Series is an investment company and, accordingly, follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board Accounting Standards Codification Topic 946 - Investment Companies, which is part of accounting principles generally accepted in the United States of America (“GAAP”).
Security Valuation
Portfolio securities, including domestic equities, foreign equities, warrants and options, listed on an exchange other than the NASDAQ Stock Market 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 Stock Market 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, loan assignments, and mortgage-backed securities will normally be valued on the basis of evaluated bid prices provided directly by an independent pricing service (the “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.
The fair value of loan assignments is estimated using recently executed transactions, market price quotations, credit/market events, and cross-asset pricing. Inputs are generally observable market inputs obtained from independent sources. Loan assignments are generally categorized in Level 2 of the fair value hierarchy, unless key inputs are unobservable, in which case they would be categorized in Level 3.
Municipal securities will normally be valued on the basis of market valuations provided by 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”).
19
Unconstrained Bond Series
Notes to Financial Statements (continued)
2. | Significant Accounting Policies (continued) |
Security Valuation (continued)
Short-term investments that mature in sixty days or less may be valued at amortized cost, which approximates fair 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. In these instances, fair value is measured 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 to value these securities may differ from the value that would be realized if these securities were sold, and the differences could be material.
Fair Value
The Series’ financial instruments are valued at the close of the NYSE and are reported at fair value, which GAAP defines as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Board has designated the Advisor as the Fund’s valuation designee (Valuation Designee) to make all fair value determinations with respect to each Series’ portfolio investments. Subject to oversight by the Board, the Valuation Designee performs the following functions in performing fair value determinations: assesses and manages valuation risks; establishes and applies fair value methodologies; tests fair value methodologies; and evaluates pricing vendors and pricing agents. The Advisor has adopted and implemented policies and procedures to be followed when making fair value determinations, and it has established a Valuation Committee through which the Advisor makes fair value determinations. The Valuation Designee provides periodic reporting to the Board on valuation matters. The Advisor’s determination of a security’s fair value price often involves the consideration of a number of subjective factors, and is therefore subject to the unavoidable risk that the value assigned to a security may be higher or lower than the security’s value would be if a reliable market quotation for the security was readily available. 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. The Advisor may use a pricing service to obtain the value of the Fund’s portfolio securities where the prices provided by such pricing service are believed to reflect the fair market value of such securities. The methods used by the pricing service and the valuations so established will be reviewed by the Advisor under the general supervision of the Fund’s Board of Directors. Several pricing services are available, one or more of which may be used by the Advisor, as approved by the Board. A change in a pricing service or a material change in a pricing methodology for investments with no readily available market quotations will be reported to the Board by the Advisor in accordance with certain requirements.
GAAP establishes the following fair value hierarchy that categorizes the inputs used to measure fair value. Level 1 includes quoted prices (unadjusted) in active markets for identical financial instruments that the Series’ can access at the reporting date. Level 2 includes other significant observable inputs (including, but not limited to, quoted prices for similar financial instruments in active markets, quoted prices for identical or similar financial instruments in inactive markets, interest rates and yield curves, implied volatilities, and credit spreads). Level 3 includes unobservable inputs (including the Valuation Designee’s own assumptions in determining fair value). A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input both individually and in aggregate that is significant to the fair value measurement. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
20
Unconstrained Bond Series
Notes to Financial Statements (continued)
2. | Significant Accounting Policies (continued) |
Fair Value (continued)
The following is a summary of the valuation levels used for major security types as of December 31, 2022 in valuing the Series’ assets or liabilities carried at fair value:
DESCRIPTION | TOTAL | LEVEL 1 | LEVEL 2 | LEVEL 3 | ||||||||||||
Assets: | ||||||||||||||||
Equity securities: | ||||||||||||||||
Energy | $ | 5,346,491 | $ | — | $ | — | $ | 5,346,491 | ||||||||
Preferred securities: | ||||||||||||||||
Health Care | 1,307,362 | 1,307,362 | — | — | ||||||||||||
Information Technology | 2,881,269 | 2,881,269 | — | — | ||||||||||||
Debt securities: | ||||||||||||||||
U.S. Treasury and other U.S. | ||||||||||||||||
Government agencies | 170,301,838 | — | 170,301,838 | — | ||||||||||||
States and political subdivisions | ||||||||||||||||
(municipals) | 3,369,759 | — | 3,369,759 | — | ||||||||||||
Corporate debt: | ||||||||||||||||
Communication Services | 33,058,042 | — | 33,058,042 | — | ||||||||||||
Consumer Discretionary | 24,977,736 | — | 24,977,736 | — | ||||||||||||
Consumer Staples | 10,301,942 | — | 10,301,942 | — | ||||||||||||
Energy | 27,071,644 | — | 27,071,644 | — | ||||||||||||
Financials | 60,699,240 | — | 60,699,240 | — | ||||||||||||
Industrials | 37,962,154 | — | 37,962,154 | — | ||||||||||||
Information Technology | 4,574,432 | — | 4,574,432 | — | ||||||||||||
Materials | 1,498,123 | — | 1,498,123 | — | ||||||||||||
Real Estate | 33,423,287 | — | 33,423,287 | — | ||||||||||||
Utilities | 14,830,139 | — | 14,830,139 | — | ||||||||||||
Asset-backed securities | 231,443,658 | — | 231,443,658 | — | ||||||||||||
Commercial mortgage-backed | ||||||||||||||||
securities | 90,072,833 | — | 90,072,833 | — | ||||||||||||
Foreign government bonds | 5,993,392 | — | 5,993,392 | — | ||||||||||||
Short-Term Investment | 49,938,505 | 49,938,505 | — | — | ||||||||||||
Other financial instruments:* | ||||||||||||||||
Interest rate contracts | 1,791,397 | 1,791,397 | — | — | ||||||||||||
Total assets | 810,843,243 | 55,918,533 | 749,578,219 | 5,346,491 | ||||||||||||
Liabilities: | ||||||||||||||||
Other financial instruments:* | ||||||||||||||||
Credit contracts | (337,054 | ) | (337,054 | ) | — | — | ||||||||||
Interest rate contracts | (1,952,409 | ) | (1,952,409 | ) | — | — | ||||||||||
Total liabilities | (2,289,463 | ) | (2,289,463 | ) | — | — | ||||||||||
Total | $ | 808,553,780 | $ | 53,629,070 | $ | 749,578,219 | $ | 5,346,491 |
*Other financial instruments are futures (Level 1). Futures are valued at the unrealized appreciation (depreciation) on the instrument.
LIBOR Transition Risk
The United Kingdom’s Financial Conduct Authority announced a phase out of the London Interbank Offered Rate (“LIBOR”). Although many LIBOR rates will cease to be published or no longer will be representative of the underlying market they seek to measure after December 31, 2021, a selection of widely used USD LIBOR rates will continue to be published through June 2023 in order to assist with the transition. The Series may be exposed to financial instruments tied to LIBOR to determine payment obligations, financing terms, hedging strategies or investment value. The transition process away from LIBOR might lead to increased volatility and illiquidity in markets for, and reduce the effectiveness of new hedges placed against, instruments whose terms currently include LIBOR. The ultimate effect of the LIBOR transition process on the Series is uncertain.
21
Unconstrained Bond Series
Notes to Financial Statements (continued)
2. | Significant Accounting Policies (continued) |
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 Series is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair 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. Income, expenses (other than shareholder services fees), and realized and unrealized gains and losses are prorated among the classes based on the relative net assets of each class. Class specific examples are directly charged to that Class.
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 fair 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.
Futures
The Series may purchase or sell exchange-traded futures contracts, which are contracts that obligate the Series to make or take delivery of a financial instrument or the cash value of a security index at a specified future date at a specified price. The Series may use futures contracts to manage exposure to the bond market or changes in interest rates and currency values, or for gaining exposure to markets. Risks of entering into futures contracts include the possibility that there may be an illiquid market at the time the Advisor to the Series may be attempting to sell some or all the Series’ holdings or that a change in the value of the contract may not correlate with changes in the value of the underlying securities. Upon entering into a futures contract, a Series is required to deposit either cash or securities (initial margin). Subsequent payments (variation margin) are made or received by the Series, generally on a daily basis. The variation margin payments are equal to the daily changes in the contract value and are recorded as unrealized gains or losses. The Series recognize a realized gain or loss when the contract is closed or expires.
Futures transactions involve minimal counterparty risk since futures contracts are guaranteed against default by the exchange on which they trade. The Series’ futures contracts are not subject to master netting arrangements (the right to close out all transactions traded with a counterparty, and net amounts owed or due across transactions).
Option Contracts
The Series may write (sell) or buy call or put options on securities and other financial instruments. When the Series writes a call, the Series gives the purchaser the right to buy the underlying security from the Series at the price specified in the option contract (the “exercise price”) at any time during the option period. When the Series writes a put option, the Series gives the purchaser the right to sell to the Series the underlying security at the exercise price at any time during the option period. The Series will only write options on a “covered basis.” This means that the Series will own the underlying security when the Series writes a call or the Series will put aside cash, U.S. Government securities, or other liquid assets in an amount not less than the exercise price at all times the put option is outstanding.
22
Unconstrained Bond Series
Notes to Financial Statements (continued)
2. | Significant Accounting Policies (continued) |
Option Contracts (continued)
When the Series writes an option, an amount equal to the premium received is reflected as a liability and is subsequently marked-to-market to reflect the current market value of the option. The Series, as a writer of an option, has no control over whether the underlying security or financial instrument may be sold (call) or purchased (put) and, as a result, bears the market risk of an unfavorable change in the price of the security or financial instrument underlying the written option. There is a risk that the Series may not be able to enter into a closing transaction because of an illiquid market.
The Series may also purchase options in an attempt to hedge against fluctuations in the value of its portfolio and to protect against declines in the value of the securities. The premium paid by the Series for the purchase of an option is reflected as an investment and subsequently marked-to-market to reflect the current market value of the option. The risk associated with purchasing options is limited to the premium paid.
When a security is purchased or sold through an exercise of an option, the related premium paid (or received) is added to (or deducted from) the basis of the security acquired or deducted from (or added to) the proceeds of the security sold. When an option expires (or the Series enters into a closing transaction), the Series realizes a gain or loss on the option to the extent of the premium received or paid (or gain or loss to the extent the cost of the closing transaction exceeds the premium paid or received).
The measurement of the risks associated with option contracts is meaningful only when all related and offsetting transactions are considered. No such investments were held by the Series on December 31, 2022.
The following table presents the present value of derivatives held at December 31, 2022 as reflected on the Statement of Assets and Liabilities, and the effect of derivative instruments on the Statement of Operations:
STATEMENT OF ASSETS AND LIABILITIES | ||||||
Derivative | Assets Location | |||||
Interest rate contracts | Net unrealized appreciation1 | $ | 1,791,397 | |||
Derivative | Liabilities Location | |||||
Credit contracts | Net unrealized depreciation1 | $ | (337,054 | ) | ||
Interest rate contracts | Net unrealized depreciation1 | $ | (1,952,409 | ) | ||
STATEMENT OF OPERATIONS | ||||||
Derivative | Location of Gain or (Loss) on Derivatives | Realized Gain (Loss) on Derivatives | ||||
Credit contracts | Net realized gain (loss) on futures contracts | $ | 338,927 | |||
Foreign currency exchange contracts | Net realized gain (loss) on futures contracts | $ | (216,939 | ) | ||
Interest rate contracts | Net realized gain (loss) on futures contracts | $ | (15,201,037 | ) | ||
Interest rate contracts | Net realized gain (loss) on options written | $ | 44,208 | |||
Derivative | Location of Appreciation (Depreciation) on Derivatives | Unrealized Appreciation (Depreciation) on Derivatives | ||||
Credit contracts | Net change in unrealized appreciation(depreciation) on futures contracts | $ | (308,412 | ) | ||
Interest rate contracts | Net change in unrealized appreciation (depreciation) on futures contracts | $ | 2,780,895 |
1Includes cumulative appreciation/depreciation on futures contracts as reported in the Investment Portfolio, and is included within Net Assets as the components of capital are not required to be presented separately on the Statement of Assets and Liabilities. Only the current day’s variation margin is reported within the Statement of Assets and Liabilities.
23
Unconstrained Bond Series
Notes to Financial Statements (continued)
2. | Significant Accounting Policies (continued) |
The average month-end balances for the year ended December 31, 2022 were as follows:
Futures Contracts: | ||||
Average number of contracts purchased1 | 3,468 | |||
Average number of contracts sold1 | 2,737 | |||
Average notional value of contracts purchased1 | $706,458,020 | |||
Average notional value of contracts sold1 | $488,896,605 | |||
Options: | ||||
Average number of option contracts written2 | 455 | |||
Average notional value of option contracts written2 | $49,664,911 |
1Average notional calculations were performed utilizing the period held rather than 12 months.
2Average notional calculations are for a period less than one month.
Asset-Backed Securities
The Series may invest in asset-backed securities. Asset-backed securities are generally issued as pass-through certificates or as debt instruments. Asset-backed securities issued as pass-through certificates represent undivided fractional ownership interests in an underlying pool of assets. Asset-backed securities issued as debt instruments, which are also known as collateralized obligations, are typically issued as the debt of a special purpose entity organized solely for the purpose of owning such assets and issuing such debt. Asset-backed securities are often backed by a pool of assets representing the obligations of a number of different parties. The yield characteristics of certain asset-backed securities may differ from traditional debt securities. One such major difference is that all or a principal part of the obligations may be prepaid at any time because the underlying assets (i.e. loans) may be prepaid at any time. As a result, a decrease in interest rates in the market may result in increases in the level of prepayments as borrowers, particularly mortgagors, refinance and repay their loans. An increased prepayment rate with respect to an asset-backed security will have the effect of shortening the maturity of the security. In addition, the Series may subsequently have to reinvest the proceeds at lower interest rates. If the Series has purchased such an asset-backed security at a premium, a faster than anticipated prepayment rate could result in a loss of principal to the extent of the premium paid.
Mortgage-Backed Securities
The Series may invest in mortgage-backed securities (“MBS” or pass-through certificates) that represent an interest in a pool of specific underlying mortgage loans and entitle the Series to the periodic payments of principal and interest from those mortgages. MBS may be issued by government agencies or corporations, or private issuers. Most MBS issued by government agencies are guaranteed; however, the degree of protection differs based on the issuer. For MBS there are a number of important differences among the agencies and instrumentalities of the U.S. Government that issue mortgage-related securities and among the securities that they issue. For example, mortgage-related securities guaranteed by Ginnie Mae are guaranteed as to the timely payment of principal and interest by Ginnie Mae and such guarantee is backed by the full faith and credit of the United States. However, mortgage-related securities issued by Freddie Mac and Fannie Mae, including Freddie Mac and Fannie Mae guaranteed mortgage pass-through certificates, which are solely the obligations of Freddie Mac and Fannie Mae, are not backed by or entitled to the full faith and credit of the United States, but are supported by the right of the issuer to borrow from the U.S. Treasury. Non-agency mortgage-backed securities are securities issued by non-governmental issuers and have no direct or indirect government guarantees of payment and are subject to various risks. Non-agency mortgage loans are obligations of the borrowers thereunder only and are not typically insured or guaranteed by any other person or entity. The ability of a borrower to repay a loan is dependent upon the income or assets of the borrower. A number of factors, including a general economic downturn, acts of God, terrorism, social unrest and civil disturbances, may impair a borrower’s ability to repay its loans.
Inflation-Indexed Bonds
The Series may invest in inflation-indexed bonds. Inflation-indexed bonds are fixed income securities whose principal value is periodically adjusted according to the rate of inflation. If the index measuring inflation rises or falls, the principal value of inflation-indexed bonds will be adjusted upward or downward, and consequently the interest payable on these securities (calculated with respect to a larger or smaller principal amount) will be increased or reduced, respectively. Any upward or downward adjustment in
24
Unconstrained Bond Series
Notes to Financial Statements (continued)
2. | Significant Accounting Policies (continued) |
Inflation-Indexed Bonds (continued)
the principal amount of an inflation-indexed bond will be included as interest income in the Statement of Operations, even though investors do not receive their principal until maturity. Repayment of the original bond principal upon maturity (as adjusted for inflation) is guaranteed in the case of U.S. Treasury inflation-indexed bonds. For bonds that do not provide a similar guarantee, the adjusted principal value of the bond repaid at maturity may be less than the original principal.
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, 2022.
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, 2022.
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.
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, 2022, 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, 2019 through December 31, 2022. The Series 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.
25
Unconstrained Bond Series
Notes to Financial Statements (continued)
2. | Significant Accounting Policies (continued) |
Foreign Taxes
Based on the Series’ understanding of the tax rules and rates related to income, gains and currency purchase/repatriation 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
Through the end of 2022, distributions to shareholders of net investment income were made quarterly; effective January 2023, such distributions will be made monthly. 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 GAAP 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 0.30% 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 and are reimbursed for travel and other out-of-pocket expenses incurred by them in connection with attending such meetings. The Fund also has an Audit Committee Chair, Governance & Nominating Committee Chair and Lead Independent Director, who each receive an additional annual stipend for these roles.
The Fund may enter into agreements with financial intermediaries pursuant to which the Fund may pay financial intermediaries for non-distribution related sub-transfer agency, administrative, sub-accounting, and other shareholder services in an annual amount not to exceed 0.15% of the average daily net assets of the Class I and Class S shares of the Series. Payments made pursuant to such agreements are generally based on the current assets and/or number of accounts of the Series attributable to the financial intermediary. Any payments made pursuant to such agreements may be in addition to, rather than in lieu of, any Distribution and Shareholder Services Fee payable under the Rule 12b-1 plan of the Fund. For the year ended December 31, 2022, the sub-transfer agency expenses incurred by Class S and Class I were $26,061 and $129,139, respectively.
Manning & Napier Investor Services, Inc., a registered broker-dealer affiliate of the Advisor, acts as distributor for the Fund’s shares. The Series compensates the distributor for distributing and servicing the Series’ Class S shares pursuant to a distribution plan adopted under Rule 12b-1 of the 1940 Act, regardless of expenses actually incurred. Under the agreement, the Series pays distribution and service fees to the distributor at an annual rate of 0.25% of average daily net assets attributable to Class S shares. There are no distribution and service fees on the Class I, Class W or Class Z shares. The fees are accrued daily and paid monthly.
26
Unconstrained Bond Series
Notes to Financial Statements (continued)
3. | Transactions with Affiliates (continued) |
Pursuant to a master services agreement, the Fund pays the Advisor an annual fee related to fund accounting and administration of 0.0085% on the first $25 billion of average daily net assets; 0.0075% on the next $15 billion of average daily net assets; and 0.0065% of average daily net assets in excess of $40 billion; plus a base fee of $30,400 per series. Additionally, certain transaction and out-of-pocket expenses, including charges for reporting relating to the Fund’s compliance program, are charged. The Advisor has agreements with BNY Mellon Investment Servicing (U.S.) Inc. (“BNY”) under which BNY serves as sub-accountant services agent.
Pursuant to an advisory fee waiver agreement, the Advisor has contractually agreed to waive the management fee for the Class W shares. The full management fee will be waived under this agreement because Class W shares are only available to discretionary investment accounts and other accounts managed by the Advisor. These clients pay a management fee to the Advisor that is separate from the Fund’s expenses. In addition, pursuant to a separate expense limitation agreement, the Advisor has contractually agreed to limit its fees and reimburse expenses to the extent necessary so that the total direct annual fund operating expenses, exclusive of the shareholder services fee and/or distribution and service (12b-1) fees and waived Class W management fees (collectively, “excluded expenses”), do not exceed 0.50% of the average daily net assets of the Class S and Class I shares, 0.05% of the average daily net assets of the Class W shares, and 0.35% of the average daily net assets of the Class Z shares. These contractual waivers are expected to continue indefinitely, and may not be amended or terminated by the Advisor without the approval of the Series’ Board of Directors. The Advisor may receive from a Class the difference between the Class’s total direct annual fund operating expenses, not including excluded expenses, and the Class’s contractual expense limit to recoup all or a portion of its prior fee waivers (other than Class W management fee waivers) or expense reimbursements made during the rolling three-year period preceding the recoupment if at any point the total direct annual fund operating expenses, not including excluded expenses, are below the contractual expense limit (a) at the time of the fee waiver and/or expense reimbursement and (b) at the time of the recoupment.
Pursuant to the advisory fee waiver, the Advisor waived $1,890,350 in management fees for Class W for the year ended December 31, 2022. In addition, pursuant to the separate expense limitation agreement, the Advisor waived or reimbursed expenses of $121,399 for Class W shares for the year ended December 31, 2022. These amounts are included as a reduction of expenses on the Statement of Operations.
As of December 31, 2022, the class specific waivers or reimbursements subject to possible future recoupment under the expense limitation agreement are as follows:
CLASS | EXPIRING DECEMBER 31, | |||||||||||||||
2023 | 2024 | 2025 | TOTAL | |||||||||||||
Class W | $ | 147,864 | $ | 147,021 | $ | 121,399 | $ | 416,284 |
For the year ended December 31, 2022, the Advisor did not recoup any expenses that have been previously waived or reimbursed.
4. | Purchases and Sales of Securities |
For the year ended December 31, 2022, purchases and sales of securities, other than U.S. Government securities and short-term securities, were $327,366,220 and $391,190,485, respectively. Purchases and sales of U.S. Government securities, other than short-term securities, were $138,008,926 and $1,946,565, respectively.
27
Unconstrained Bond Series
Notes to Financial Statements (continued)
5. | Capital Stock Transactions |
Transactions in Class S, Class I, and Class W shares of Unconstrained Bond Series were:
CLASS S | FOR THE YEAR ENDED 12/31/22 | FOR THE YEAR ENDED 12/31/21 | ||||||||||||
SHARES | AMOUNT | SHARES | AMOUNT | |||||||||||
Sold | 2,808,386 | $ | 27,913,644 | 884,856 | $ | 9,734,861 | ||||||||
Reinvested | 68,029 | 661,035 | 80,186 | 858,877 | ||||||||||
Repurchased | (1,249,158 | ) | (12,344,700 | ) | (1,203,389 | ) | (13,288,062 | ) | ||||||
Total | 1,627,257 | $ | 16,229,979 | (238,347 | ) | $ | (2,694,324 | ) |
CLASS I | FOR THE YEAR ENDED 12/31/22 | FOR THE YEAR ENDED 12/31/21 | ||||||||||||
SHARES | AMOUNT | SHARES | AMOUNT | |||||||||||
Sold | 29,763,574 | $ | 258,057,218 | 4,537,446 | $ | 43,948,757 | ||||||||
Reinvested | 574,241 | 4,859,860 | 161,691 | 1,513,399 | ||||||||||
Repurchased | (11,367,473 | ) | (97,110,497 | ) | (3,002,075 | ) | (29,035,743 | ) | ||||||
Total | 18,970,342 | $ | 165,806,581 | 1,697,062 | $ | 16,426,413 |
CLASS W | FOR THE YEAR ENDED 12/31/22 | FOR THE YEAR ENDED 12/31/21 | ||||||||||||
SHARES | AMOUNT | SHARES | AMOUNT | |||||||||||
Sold | 3,393,946 | $ | 34,217,149 | 5,873,439 | $ | 64,391,385 | ||||||||
Reinvested | 1,909,664 | 18,579,224 | 3,676,779 | 39,259,780 | ||||||||||
Repurchased | (7,435,375 | ) | (73,221,797 | ) | (3,770,657 | ) | (41,297,367 | ) | ||||||
Total | (2,131,765 | ) | $ | (20,425,424 | ) | 5,779,561 | $ | 62,353,798 |
Approximately 72% of the shares outstanding are fiduciary accounts where the Advisor has sole investment discretion.
6. | Line of Credit |
The Fund has entered into a 364-day, $50 million credit agreement (the “line of credit”) with Bank of New York Mellon. Each series of the Fund may borrow under the line of credit for temporary or emergency purposes, including funding shareholder redemptions and other short-term liquidity purposes. The Fund pays an annual fee on the unused commitment amount, payable quarterly, and is allocated among all the series of the Fund and included in miscellaneous expenses in the Statement of Operations for each series. The line of credit expires in September 2023 unless extended or renewed. During the year ended December 31, 2022, the Series did not borrow under the line of credit.
7. | Financial Instruments and Loan Assignments |
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. The Series may be subject 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 derivative 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. For the year ended December 31, 2022, the Series invested in futures contracts (credit, foreign currency exchange and interest rate risk) and options written (interest rate risk).
28
Unconstrained Bond Series
Notes to Financial Statements (continued)
7. | Financial Instruments and Loan Assignments (continued) |
The Series may invest in a loan assignment of all or a portion of the loans. The Series has direct rights against the borrower on a loan when it purchases an assignment; however, the Series’ rights may be more limited than the lender from which it acquired the assignment and the Series may be able to enforce its rights only through an administrative agent. Loan assignments are vulnerable to market conditions and may become illiquid due to economic conditions or other events may reduce the demand for loan assignments and certain loan assignments which were liquid when purchased may become illiquid.
8. | 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.
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 GAAP. These differences are primarily due to differing book and tax treatments in the timing and/or treatment of the recognition of net investment income or gains and losses, including foreign currency gains and losses, losses deferred due to wash sales and the realization for tax purposes of unrealized gains/losses on certain futures. 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. For the year ended December 31, 2022, amounts were reclassified within the capital accounts to decrease Additional Paid in Capital by $395,789 and increase Total Distributable Earnings (Loss) by $395,789. Any such reclassifications are not reflected in the financial highlights.
The tax character of distributions paid were as follows:
FOR THE YEAR ENDED 12/31/22 | FOR THE YEAR ENDED 12/31/21 | |||||||
Ordinary income | $ | 25,199,275 | $ | 37,118,952 | ||||
Long-term capital gains | — | $ | 6,667,919 |
At December 31, 2022, the tax basis of components of distributable earnings and the net unrealized depreciation based on the identified cost for federal income tax purposes were as follows:
Cost for federal income tax purposes | $ | 857,042,818 | ||
Unrealized appreciation | 7,440,654 | |||
Unrealized depreciation | (55,929,692 | ) | ||
Net unrealized depreciation | $ | (48,489,038 | ) | |
Capital Loss Carryforward | $ | (25,672,338 | ) | |
Qualified late-year losses1 | $ | 999,437 |
1The Series has elected to defer certain qualified late-year losses and recognize such losses in the year ending December 31, 2023.
At December 31, 2022, the Series had net short-term capital loss carryforwards of $8,406,213 and net long-term capital loss carryforwards of $17,266,125, which may be carried forward indefinitely.
29
Unconstrained Bond Series
Notes to Financial Statements (continued)
10. | Market Event |
Significant disruptions and volatility in the global financial markets and economies, like the current conditions caused by the Russian invasion of Ukraine and the COVID-19 pandemic, could negatively impact the investment performance of the Series. The global market and economic climate may become increasingly uncertain due to numerous factors beyond our control, including but not limited to, the effectiveness and acceptance of vaccines to prevent COVID-19, impacts on business operations in the U.S. related to the COVID-19 pandemic, such as supply chain disruptions and inflation, concerns related to unpredictable global market and economic factors, uncertainty in U.S. federal fiscal, tax, trade or regulatory policy and the fiscal, tax, trade or regulatory policy of foreign governments, rising interest rates, inflation or deflation, the availability of credit, performance of financial markets, terrorism, natural or biological catastrophes, public health emergencies, or political uncertainty.
30
Unconstrained Bond Series
Report of Independent Registered Public Accounting Firm
To the Board of Directors of Manning & Napier Fund, Inc. and Shareholders of Unconstrained Bond Series
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the investment portfolio, of Unconstrained Bond Series (one of the series constituting Manning & Napier Fund, Inc., referred to hereafter as the “Fund”) as of December 31, 2022, the related statement of operations for the year ended December 31, 2022, the statement of changes in net assets for each of the two years in the period ended December 31, 2022, including the related notes, and the financial highlights for each of the periods indicated therein (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2022, 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 ended December 31, 2022 and the financial highlights for each of the periods indicated therein in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of December 31, 2022 by correspondence with the custodian and issuers of privately offered securities. We believe that our audits provide a reasonable basis for our opinion.
New York, New York | |
February 23, 2023 |
We have served as the auditor of one or more investment companies in Manning & Napier Mutual Funds since 1992.
31
Unconstrained Bond Series
Renewal of Investment Advisory Agreement
(unaudited)
At the Manning & Napier Fund, Inc. (the “Fund”) Board of Directors’ (the “Board”) Special meeting, held on May 3, 2022 (the “May 3rd Board Meeting”), a new Investment Advisory Agreement between the Fund and Manning & Napier Advisors, LLC (the “Advisor”) and on behalf of the Rainier International Discovery Series (the “Rainier Series”), a new investment advisory agreement between the Advisor and the Fund and a new investment sub-advisory agreement between Advisor and Rainier Investment Management, LLC (“Rainier”) (together, the “New Advisory Agreements”), were considered for approval by the Board, including all of the Directors who are not “interested persons” (“Independent Directors”), within the meaning of the Investment Company Act of 1940, as amended (the “1940 Act”). The Board was asked to consider the New Advisory Agreements because of a transaction that impacted Manning & Napier, Inc. (“MN Inc.”), the ultimate parent company of the Advisor and Rainier.
On March 31, 2022, MN Inc. and Callodine Group, LLC (“Callodine”) entered into an agreement under which an affiliate of Callodine would acquire MN Inc. (the “Transaction”). The Transaction, which was subject to customary closing conditions, closed on October 21, 2022. Following the closing, both the Advisor and Rainier are now indirectly owned and controlled by Callodine MN Holdings, Inc., which, in turn, is controlled by Callodine Group, LLC and its founder James Morrow. East Asset Management, LLC, and its owners Terrence and Kim Pegula, also indirectly hold a substantial interest in Callodine MN Holdings, Inc.
The Transaction was deemed to result in a change of control of the Advisor and Rainier under the 1940 Act, and therefore resulted in the assignment and automatic termination of the investment advisory agreement and sub-advisory agreement pursuant to which the Advisor and Rainier provided advisory services to each Series of the Fund (the “Existing Advisory Agreements”). The Board was asked to consider the approval of the New Advisory Agreements, to become effective upon shareholder approval, so that the Advisor and Sub-Advisor’s management of the Series would continue without any interruption.
Board Considerations in Approving the New Advisory Agreements
The Board met on April 8, April 13, April 27 and May 3 in person and by video conference to consider and discuss the New Advisory Agreements. At each of those meetings, the Independent Directors also met separately with their independent counsel outside the presence of Fund Management. In preparation for those Board meetings, the Independent Directors requested that the Advisor, Rainier and Callodine furnish information necessary for the Directors to evaluate the terms of the New Advisory Agreements. The Advisor and Rainier were the only investment advisers the Directors considered at such meetings. The Independent Directors also submitted a number of follow-up requests to the Advisor for additional information based on the Board’s review of information provided in response to its initial requests. The Board also considered information that the Board previously reviewed in connection with its approval of the Existing Advisory Agreements for initial terms of two years, which occurred at a meeting held on April 22, 2020, as well as information presented in 2021 that covered similar matters but for which no approval was sought at that time. The Board further considered that the Existing Advisory Agreements were subject to shareholder consideration and were approved by shareholders at a special meeting held on June 30, 2020 and August 18, 2020. At the Meeting on May 3rd, the Board additionally reviewed information provided in connection with the proposed renewal of the Existing Advisory Agreements. The Directors used this information, as well as other information submitted to the Board in connection with the recent Board meetings noted above, and other meetings held since the most recent approval of the Existing Advisory Agreements, to help them decide whether to approve the New Advisory Agreements for initial two-year terms.
Specifically, the Board requested and received written materials from the Advisor and Rainier regarding, among other things: (i) the terms, conditions, and expected timing of the Transaction; (ii) the nature, extent and quality of the services to be provided by the Advisor and Rainier under the New Advisory Agreements; (iii) the proposed advisory fee to be paid to the Advisor and Rainier under the New Advisory Agreements; (iv) the Advisor and Rainier’s compliance programs; and (v) the Advisor and Rainier’s investment management personnel. In addition, the Board considered information provided to them with respect to Callodine, its business and affiliates, as well as its objectives and plans related to the Advisor. The Independent Directors considered their discussion about business strategy with a representative from Callodine who attended the April 13th meeting.
At the May 3rd Board meeting, the Directors, including all of the Independent Directors, based on their evaluation of the information provided by the Advisor, Rainier, Callodine and other service providers of the Series, approved the New Advisory Agreements. Specifically, the Directors considered information presented by the Advisor and Rainier at a meeting of the Board held on May 3, 2022, specifically regarding among other areas: (i) the services provided by the Advisor and Rainier; (ii) the investment performance of the Series, the Advisor and Rainier; and (iii) the profitability of the overall relationship to the Advisor and Rainier.
32
Unconstrained Bond Series
Renewal of Investment Advisory Agreement
(unaudited)
The Independent Directors also received advice at the May 3rd Board meeting and other recent Board meetings from independent counsel and met in executive session outside the presence of Fund management. In considering the approval of the New Advisory Agreements, the Board considered various factors that they determined were relevant, including: (i) the nature, extent and quality of the services to be provided by the Advisor and Rainier; (ii) the investment performance of the Series, the Advisor and Rainier; and (iii) the fees to be paid to the Advisor and Rainier under the New Advisory Agreements, as discussed in further detail below. In addition, the Board, in considering the New Advisory Agreements in the context of the Transaction, relied upon representations from the Advisor and Rainier that: (i) the Transaction would not result in any material changes to the nature, quality and extent of services provided to the Series by the Advisor and Rainier that are discussed below; (ii) the Advisor and Rainier did not anticipate any material changes to their compliance programs or code of ethics in connection with the Transaction; and (iii) the portfolio managers and investment process for the Series would not change as a result of the Transaction.
Nature, Extent and Quality of Services Provided by the Advisor and Rainier
In considering the nature, extent and quality of the services to be provided by the Advisor and Rainier, the Board reviewed the portfolio management services to be provided by the Advisor and Rainier to the Series, including the quality of the continuing portfolio management personnel and investment process, as well as the Advisor and Rainier’s compliance history and compliance program. The Directors reviewed the terms of the proposed New Advisory Agreements, and noted that the New Advisory Agreements do not materially differ from the Existing Advisory Agreements. The Directors also reviewed the Advisor and Rainier’s investment and risk management approaches for the Series. The most recent investment adviser registration forms (Form ADV) for the Advisor and Rainier also were available to the Board. The Directors also considered other services to be provided to the Series by the Advisor specifically, such as monitoring Rainier’s adherence to the Series’ investment restrictions and monitoring compliance with various Fund policies and procedures and with applicable securities laws and regulations. Based on the factors above, as well as those discussed below, the Board concluded, within the context of its full deliberations, that the nature, extent and quality of the services to be provided to each Series by the Advisor and Rainier under the New Advisory Agreements support approval of the New Advisory Agreements.
Investment Performance of the Advisor and Rainier
In connection with its most recent approvals of the Existing Advisory Agreements and other meetings held during the course of the period since then, the Board was provided with reports – both proprietary to the Advisor or the Fund and generated by independent providers of investment company data – regarding the performance of each Series over various time periods. As part of these meetings, the Advisor and Rainier and their representatives provided information regarding and, as applicable, led discussions of factors impacting the Advisor and Rainier’s performance for the Series, outlining current market conditions and explaining their expectations and strategies for the future. The Directors determined that it was appropriate to take into account its consideration of the Advisor and Rainier’s performance at meetings held prior to the May 3rd Board meeting. In doing so, the Directors generally determined that the Advisor and Rainier’s performance was satisfactory. Where the Advisor or Rainier’s performance was materially below a Series’ benchmarks and or peer group, the Directors requested an explanation for the underperformance and/or the steps taken by the Advisor and Rainier in an effort to improve performance. In all instances, the Directors were satisfied with the explanation provided. The Directors plan to remain focused in future meetings to address aberrational underperformance. The Directors will continue to monitor the fees and expenses of the Series compared to peer groups. Based on this information and the Advisor and Rainier’s representations that the portfolio managers for the Series would not change in connection with the Transaction, the Board concluded, within the context of its full deliberations, that the investment results that the Advisor and Rainier had been able to achieve for each Series support approval of the New Advisory Agreements.
Costs of Advisory Services, Profitability and Economies of Scale
With respect to the cost of advisory services, the Board considered that the investment advisory fees payable to the Advisor and Rainier under the New Advisory Agreements are the same as the investment advisory fee payable to the Advisor and Rainier under the Existing Advisory Agreements. With respect to profitability and economies of scale, at the May 3rd Board meeting, the Board considered the Advisor and Rainier’s profitability and economies of scale from management of the Series. The Board noted the Advisor’s explanation of the consistent approach taken in calculating profitability, compared to prior periods, including the allocation of expenses as part of that calculation. The Directors noted that certain Series were not yet at sufficient scale to be profitable. The Directors noted the potential for the Transaction to add resources that could improve economies of scale for various Series; however, they also noted that such potential may not be realized. The Directors concluded that the profit margins of the Advisor and Rainier with respect to the management of the Series were not unreasonable. The Board also considered the Advisor’s willingness to continue its current expense limitation and fee waiver arrangements with the Series.
33
Unconstrained Bond Series
Renewal of Investment Advisory Agreement
(unaudited)
Conclusion
The conclusions described above, in part, formed the basis for the Board’s approval of the New Advisory Agreements at the May 3rd Board meeting. The Board concluded, in the exercise of its reasonable judgment, that the terms of the New Advisory Agreements, including the compensation to be paid thereunder, are reasonable in relation to the services expected to be provided by the Advisor and Rainier to the Series and that the appointment of the Advisor and Rainier and the approval of the New Advisory Agreements would be in the best interests of the Series and their shareholders. Based on the Directors’ deliberations and their evaluation of the information described above and other factors and information they believed relevant, the Board, including all of the Independent Directors, unanimously approved (a) the appointment of the Advisor as investment adviser to the Series and Rainier as investment sub-adviser to the Rainier Series, and (b) the New Advisory Agreements.
The Board did not indicate that any single factor was determinative of its decision to approve the Agreement, but indicated that the Board based its determination on the total mix of information available to it.
The New Advisory Agreements were approved by shareholders at Shareholder Meetings held on August 19, 2022, September 16, 2022 and October 18, 2022 and became effective upon the closing of the Transaction with Callodine on October 21, 2022.
34
Unconstrained Bond Series
Liquidity Risk Management Program Disclosure
(unaudited)
The Securities and Exchange Commission adopted Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”) to promote effective liquidity risk management by open-end investment companies and reduce Liquidity Risk, which is the risk that open-end investment companies are unable to meet redemption obligations without a significant dilution of remaining shareholder interests.
The Manning & Napier Fund, Inc. and each of its series (each a “Fund” or collectively, the “Funds”) adopted a Liquidity Risk Management Program (the “Program”) and obtained approval from the Board of Directors (the “Board”), including a majority of Directors who are not interested persons of the Fund, to appoint a Liquidity Risk Management Committee (the “Committee”) to assess and manage the Fund’s Liquidity Risk.
Under the Program, assessment and management of Liquidity Risk takes into consideration certain factors, such as each fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions, its short- and long-term cash-flow projections during both normal and reasonably foreseeable stressed conditions, and its cash and cash-equivalent holdings and access to other funding sources. As required by the rule, the Program includes policies and procedures for the classification of each Fund’s portfolio holdings into four liquidity categories, establishes a 15% limit on holdings of illiquid investments, and sets forth procedures for the override of vendor-derived classifications.
The Committee prepares an annual assessment (“assessment”) of the Program to review the operation of the Program, including the adequacy of controls designed to manage the Funds’ Liquidity Risk. Through this assessment, the Committee re-considers prior conclusions around each factor that the Fund must consider to assess, manage, and review its Liquidity Risk and evaluates the effectiveness of processes to classify Fund assets into liquidity categories, including Committee override determinations. As part of this evaluation the Committee re-affirms that each Fund operates as a Primarily Highly Liquid Fund, with greater than 50% of net assets consistently invested in Highly Liquid Investments, thereby negating a need to establish a Highly Liquid Investment Minimum for any Fund. Lastly, the assessment considers the effectiveness of the safeguards that the Committee adopted to prevent a violation of the Liquidity Rule’s limit on a Fund’s holding of Illiquid Investments.
The most recent assessment covered January 1, 2021, through December 31, 2021, and was presented to the Board in February 2022. This assessment confirmed that the Program continues to operate effectively in all material respects to address the requirements of the Liquidity Rule and manage the Funds’ Liquidity Risk.
35
Unconstrained Bond Series
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.manning-napier.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 directors and officers, 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 and Officer1
Name: | Paul Battaglia | |
Address: | 290 Woodcliff Drive | |
Fairport, NY 14450 | ||
Born: | 1978 | |
Current Position(s) Held with Fund: | Principal Executive Officer, President, Chairman and Director | |
Term of Office2 & Length of Time Served: | Indefinite – Chairman and Director since November 2018 | |
Principal Occupation(s) During Past 5 Years: | Chief Financial Officer since 2018; Vice President of Finance (2016 – 2018); Director of Finance (2011 – 2016); Financial Analyst/Internal Auditor (2004-2006) – Manning & Napier Advisors, LLC and affiliates Holds one or more of the following titles for various subsidiaries and affiliates: Chief Financial Officer | |
Number of Portfolios Overseen within Fund Complex: | 15 | |
Other Directorships Held Outside Fund Complex During Past 5 Years: | N/A | |
Independent Directors
Name: | Stephen B. Ashley | |
Address: | 290 Woodcliff Drive | |
Fairport, NY 14450 | ||
Born: | 1940 | |
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 and Director since 1997; Chief Executive Officer (1997-2019) - Ashley Companies (property management and investment) | |
Number of Portfolios Overseen within Fund Complex: | 15 | |
Other Directorships Held Outside Fund Complex During Past 5 Years: | Ashley Companies since 1997 | |
Name: | Paul A. Brooke | |
Address: | 290 Woodcliff Drive | |
Fairport, NY 14450 | ||
Born: | 1945 | |
Current Position(s) Held with Fund: | Lead Independent Director, Audit Committee Member, Governance & Nominating Committee Member | |
Term of Office & Length of Time Served: | Indefinite – Director, Audit Committee Member, Governance & Nominating Committee Member since 2007; Lead Independent Director since 2017 | |
Principal Occupation(s) During Past 5 Years: | Managing Member since 1991 - PMSV Holdings LLC (investments); Managing Member (2010-2016) - VenBio (investments). | |
Number of Portfolios Overseen within Fund Complex: | 15 | |
Other Directorships Held Outside Fund Complex During Past 5 Years: | Incyte Corp. (biotech) (2000-2020); PureEarth (non-profit) since 2012; Cerus (biomedical) since 2016; Caelum BioSciences (biomedical) since 2018; Cheyne Capital International (investment)(2000-2017); | |
36
Unconstrained Bond Series
Directors’ and Officers’ Information
(unaudited)
Independent Directors (continued)
Name: | John Glazer | |
Address: | 290 Woodcliff Drive | |
Fairport, NY 14450 | ||
Born: | 1965 | |
Current Position(s) Held with Fund: | Director, Audit Committee Member, Governance & Nominating Committee Member | |
Term of Office & Length of Time Served: | Indefinite – Director, Audit Committee Member, Governance & Nominating Committee Member since February 2021 | |
Principal Occupation(s) During Past 5 Years: | Chief Executive Officer since 2020 – Oikos Holdings LLC (Single-Family Office); Head of Corporate Development (2019-2020) – Caelum Biosciences (pharmaceutical development); Head of Private Investments (2015-2018) – AC Limited (Single-Family Office) | |
Number of Portfolios Overseen within Fund Complex: | 15 | |
Other Directorships Held Outside Fund Complex During Past 5 Years: | N/A | |
Name: | Russell O. Vernon | |
Address: | 290 Woodcliff Drive | |
Fairport, NY 14450 | ||
Born: | 1957 | |
Current Position(s) Held with Fund: | Director, Audit Committee Member, Governance & Nominating Committee Chairman | |
Term of Office & Length of Time Served: | Indefinite – Director, Audit Committee Member, Governance & Nominating Committee Member since April 2020; Governance & Nominating Committee Chairman since November 2020 | |
Principal Occupation(s) During Past 5 Years: | Founder and General Partner (2009-2019) – BVM Capital Management (economic development) |
Number of Portfolios Overseen within Fund Complex: | 15 | |
Other Directorships Held Outside Fund Complex During Past 5 Years: | Board Member, Vice Chairman and President since 2010 – Newburgh Armory Unity Center (military); Board Member and Executive Director since 2020 – National Purple Heart Honor Mission, Inc. (military); Board Member, Vice Chairman (2015-2020) – National Purple Heart Hall of Honor, Inc. (military) | |
Name: | Chester N. Watson | |
Address: | 290 Woodcliff Drive | |
Fairport, NY 14450 | ||
Born: | 1950 | |
Current Position(s) Held with Fund: | Director, Audit Committee Chairman, Governance & Nominating Committee Member | |
Term of Office2 & Length of Time Served: | Indefinite – Director, Audit Committee Member, Governance & Nominating Committee Member Since 2012; Audit Committee Chairman since 2013 | |
Principal Occupation(s) During Past 5 Years: | General Auditor (2003-2011) - General Motors Company (auto manufacturer) | |
Number of Portfolios Overseen within Fund Complex: | 15 | |
Other Directorships Held Outside Fund Complex During Past 5 Years: | Rochester Institute of Technology (University) since 2005; Hudson Valley Center for Innovation, Inc. (New Business and Economic Development) since 2019; Town of Greenburgh, NY Planning Board (Municipal Government) (2015-2019); | |
37
Unconstrained Bond Series
Directors’ and Officers’ Information
(unaudited)
Officers:
Name: | Elizabeth Craig | |
Address: | 290 Woodcliff Drive | |
Fairport, NY 14450 | ||
Born: | 1987 | |
Current Position(s) Held with Fund: | Corporate Secretary | |
Term of Office2 & Length of Time Served: | Since 2016 | |
Principal Occupation(s) During Past 5 Years: | Director of Fund Administration since 2021; Fund Regulatory Administration Manager (2018-2021); Fund Administration Manager (2015-2018) - Manning & Napier Advisors, LLC; Corporate Secretary, Director since 2019– Manning & Napier Investor Services, Inc. | |
Name: | Samantha Larew | |
Address: | 290 Woodcliff Drive | |
Fairport, NY 14450 | ||
Born: | 1980 | |
Current Position(s) Held with Fund: | Chief Compliance Officer and Anti-Money Laundering Compliance Officer | |
Term of Office2 & Length of Time Served: | Chief Compliance Officer since 2019; Anti-Money Laundering Compliance Officer since 2018 | |
Principal Occupation(s) During Past 5 Years: | Co-Director of Compliance since 2018; Compliance Communications Supervisor (2014-2018) - Manning & Napier Advisors, LLC& Affiliates; Broker-Dealer Chief Compliance Officer since 2013; Broker-Dealer Assistant Corporate Secretary since 2011 – Manning & Napier Investor Services, Inc.; | |
Name: | Scott Morabito | |
Address: | 290 Woodcliff Drive | |
Fairport, NY 14450 | ||
Born: | 1987 | |
Current Position(s) Held with Fund: | Vice President | |
Term of Office2 & Length of Time Served: | Vice President since 2019; Assistant Vice President (2017-2019) | |
Principal Occupation(s) During Past 5 Years: | Managing Director, Client Service and Business Operations since 2021; Managing Director of Operations (2019-2021); Director of Funds Group (2017-2019) - Manning & Napier Advisors, LLC; President, Director since 2018 – Manning & Napier Investor Services, Inc.; President, Exeter Trust Company since 2021; | |
Name: | Troy Statczar | |
Address: | 290 Woodcliff Drive | |
Fairport, NY 14450 | ||
Born: | 1971 | |
Current Position(s) Held with Fund: | Principal Financial Officer, Treasurer | |
Term of Office2 & Length of Time Served: | Principal Financial Officer and Treasurer since 2020 | |
Principal Occupation(s) During Past 5 Years: | Senior Principal Consultant, Fund Officers, since 2020 – ACA Group (formerly Foreside Financial Group); Director of Fund Administration (2017- 2019) - Thornburg Investment Management, Inc. | |
Name: | Sarah Turner | |
Address: | 290 Woodcliff Drive | |
Fairport, NY 14450 | ||
Born: | 1982 | |
Current Position(s) Held with Fund: | Chief Legal Officer; Assistant Corporate Secretary | |
Term of Office2 & Length of Time Served: | Since 2018 | |
Principal Occupation(s) During Past 5 Years: | General Counsel since 2018 - Manning & Napier Advisors, LLC and affiliates; Counsel (2017-2018) – Harter Secrest and Emery LLP Holds one or more of the following titles for various affiliates: General Counsel | |
1Interested Director, within the meaning of the 1940 Act by reason of his positions with the Fund’s Advisor, Manning & Napier Advisors, LLC, and Distributor, Manning & Napier Investor Services, Inc.
2The term of office of all officers shall be one year and until their respective successors are chosen and qualified, or his or her earlier resignation or removal as provided in the Fund’s By-Laws.
38
Unconstrained Bond Series
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-PORT, and are available, without charge, upon request:
By phone | 1-800-466-3863 |
On the SEC’s web site | http://www.sec.gov |
Prospectus and Statement of Additional Information (SAI)
For more information about any of the Manning & Napier Fund, Inc. Series, you may obtain a prospectus and SAI at www.manning-napier.com or by calling 1-(800) 466-3863. Before investing, carefully consider the objectives, risks, charges and expenses of the investment and read the prospectus carefully as it contains this and other information about the investment company. In addition, this information can be found on the SEC’s web site, http://www.sec.gov.
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 |
The Fund also offers electronic notification or “e-delivery” when certain documents are available on-line to be downloaded or reviewed. Direct shareholders can elect to receive electronic notification when shareholder reports, prospectus updates, and/or statements are available. If you do not currently have on-line access to your account, you can establish access by going to www.manning-napier.com, click on “Login” in the top corner of the page, and follow the prompts to self-enroll. Once enrolled, you can set your electronic notification preferences by clicking on the Account Options tab located within the green toolbar and then select E-Delivery Option. Should you have any questions on either how to establish on-line access or how to update your account settings, please contact Investor Services at 1-800-466-3863.
The Manning & Napier Fund, Inc. is managed by Manning & Napier Advisors, LLC. Manning & Napier Investor Services, Inc., an affiliate of Manning & Napier Advisors, LLC, is the distributor of the Fund shares.
MNCPB-12/22-AR
39
www.manning-napier.com | |
Manning & Napier Fund, Inc. | |
Diversified Tax Exempt Series |
Independent Perspective | Real-World Solutions |
A Note from Our CEO
Dear Shareholder,
We are acutely aware of how difficult this year has been for our investors, in what has been a historically challenging year in the capital markets. A bear market in equities and a sharp correction in fixed income have each simultaneously occurred this year, resulting in one of the worst runs for blended stock-bond portfolios in the past two hundred years.
The global economy is facing inflationary pressures more significant than have been experienced over the past four decades. War in Europe, rising tensions in East Asia, and surging energy prices are all bringing renewed geopolitical tumult. Economic, social, and environmental pressures are manifesting themselves in rapid, and at times, dramatic and unexpected swings in election results domestically and abroad.
What have we been doing in response to the challenges abound, and, most significantly, what steps are we taking to ensure we deliver what our fund shareholders expect in the future? I’ll combine those steps into two main ways.
First, and by way of change, we have taken a meaningful evolutionary step to position Manning & Napier even more strongly for the years ahead. After eleven years as a public company, we went private in 2022 in partnership with the Callodine Group, returning to the status under which we operated for our first four decades. We believe being private will provide continuity for our investment strategies while allowing us to invest for the future.
The second step speaks even further to the value of continuity. Our fund shareholders can expect us to continue to rely on the consistent investment philosophies, disciplines, and time-tested processes that have guided our seasoned investors over multiple economic and capital markets cycles over the past half-century.
The past twelve months have been challenging for investors. It has reinforced the importance of long-term perspective and the value of having a clear investment plan.
Throughout the next chapter of Manning & Napier, we look forward to partnering with our mutual fund investors to help you realize the investment outcomes you need.
We thank and appreciate your continued confidence in our firm.
|
Sincerely,
Marc Mayer Chief Executive Officer |
Corporate Headquarters | 290 Woodcliff Drive | Fairport, NY 14450 | (585) 325-6880 phone | (800) 551-0224 toll free | www.manning-napier.com
1
Diversified Tax Exempt Series
Fund Commentary
(unaudited)
Investment Objective
To provide as high a level of current income that is exempt from federal income taxes which the Advisor believes is consistent with the preservation of capital. The Series invests primarily in municipal bonds that provide income exempt from federal income tax.
Performance Commentary
Fixed income markets, as measured by the Bloomberg US Aggregate Bond Index, experienced double-digit losses for the year, experiencing the worst calendar year on record going back to the late 1970s. Losses were primarily attributable to the sharp rise in interest rates that occurred as the Federal Reserve raised the federal funds rate seven times throughout the year for a total increase of 4.25% in an effort to bring down high levels of inflation. That stated, the municipal bond market fared much better as the rise in interest rates was dampened by continued investor demand and lower new issuance levels, causing yields to increase by less than taxable bonds.
The Diversified Tax Exempt Series Class A shares experienced negative absolute returns and underperformed on a relative basis, returning -5.83% during the year vs. -4.90% for its benchmark (i.e., the Intercontinental Exchange (ICE) Bank of America (BofA) 1-12 Year Municipal Bond Index).
Underperformance was primarily attributable to the Series’ longer duration and subsequent exposure to the long end of the yield curve as rates increased over the period.
In terms of positioning, we continue to favor essential service revenue bonds, and within general obligations (GOs), we have a relatively higher quality tilt due to our selectivity within the sector.
Data suggests that we are still in the early stages of a global slowdown and odds of a recession continue to increase. That stated, it is unclear how deep or how drawn out of a recession it may be. We believe flexibility and risk management will be key to navigating this uncertain environment and helping investors achieve their objectives.
Performance for the Diversified Tax Exempt Series Class A shares is provided above. Performance for other shares classes will differ based on each class’ underlying expenses.
Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate, so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be higher or lower than that quoted; investors can obtain the most recent month-end performance at www.manning-napier.com or by calling (800) 466-3863.
Additional information and associated disclosures can be found on the Performance Update page of this report.
All investments involve risks, including possible loss of principal. There is an inverse relationship between bond prices and interest rates; as interest rates rise, bond prices (and therefore the value of bond funds) fall. Likewise, as interest rates fall, bond prices and the value of bond funds rise. The income earned by the Series may be subject to the Alternative Minimum Tax (AMT), depending on your tax situation.
2
Diversified Tax Exempt Series
Performance Update as of December 31, 2022
(unaudited)
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 2022 | |||
ONE YEAR1 | FIVE YEAR | TEN YEAR | |
Diversified Tax Exempt Series - Class A2 | (5.83%) | 1.08% | 0.86% |
Diversified Tax Exempt Series - Class W2,3 | (5.40%) | 1.47% | 1.06% |
Intercontinental Exchange (ICE) Bank of America (BofA) 1-12 Year Municipal Bond Index4 | (4.90%) | 1.33% | 1.63% |
The following graph compares the value of a $10,000 investment in the Diversified Tax Exempt Series - Class A for the ten years ended December 31, 2022 to the Intercontinental Exchange (ICE) Bank of America (BofA) 1-12 Year Municipal Bond Index.
1The returns shown are based on net asset values calculated for shareholder transactions and may differ from the returns shown in the financial highlights, which reflect adjustments made to the net asset values in accordance with accounting principles generally accepted in the United States of America.
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, 2022, this net expense ratio was 0.63% for Class A and 0.13% for Class W. The gross expense ratio, which does not account for any voluntary or contractual waivers currently in effect, was 0.63% for Class A and 0.63% for Class W for the year ended December 31, 2022.
3For periods through March 1, 2019 (the inception date of the Class W shares), performance for the Class W shares is based on the historical performance of the Class A shares. Because the Class W shares invest in the same portfolio of securities as the Class A shares, performance will be different only to the extent that the Class A shares have a higher expense ratio.
4The Intercontinental Exchange (ICE) Bank of America (BofA) 1-12 Year Municipal Bond Index is a subset of the ICE BofA U.S. Municipal Securities Index. The Index includes all U.S. dollar denominated investment grade tax-exempt debt with a remaining term to final maturity greater than one year, but less than twelve years. Qualifying securities must have at least 18 months to final maturity at the time of issuance and a fixed coupon schedule. The Index returns do not reflect any fees or expenses.Index returns provided by ICE Intercontinental Exchange (ICE). Index data referenced herein is the property of ICE Data Indices, LLC, its affiliates (“ICE Data”) and/or its third party suppliers and has been licensed for use by Manning & Napier. ICE Data and its third party suppliers accept no liability in connection with its use. Data provided is not a representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and none of these parties shall have any liability for any errors, omissions, or interruptions of any index or the data included therein. For additional disclosure information, please see: https://go.manning-napier.com/benchmark-provisions.
3
Diversified Tax Exempt Series
Shareholder Expense Example
(unaudited)
As a shareholder of the Series, you incur ongoing costs, including management fees, shareholder service 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 in each class at the beginning of the period and held for the entire period (July 1, 2022 to December 31, 2022).
Actual Expenses
The Actual lines of the table below provide information about actual account values and actual expenses. You may use the information in these lines, 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 Actual line for the Class in which you have invested 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 Hypothetical lines of each class in the table below provide information about hypothetical account values and hypothetical expenses based on the Class’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Class’ 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 a class of the Series and other funds. To do so, compare this 5% hypothetical example for the Class in which you have invested 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, such as sales charges (loads), redemption fees, or exchange fees that you may incur in other mutual funds. 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.
BEGINNING ACCOUNT VALUE 7/1/22 | ENDING ACCOUNT VALUE 12/31/22 | EXPENSES PAID DURING PERIOD* 7/1/22 - 12/31/22 | ANNUALIZED EXPENSE RATIO | |
Class A | ||||
Actual | $1,000.00 | $1,003.00 | $3.18 | 0.63% |
Hypothetical | ||||
(5% return before expenses) | $1,000.00 | $1,022.03 | $3.21 | 0.63% |
Class W | ||||
Actual | $1,000.00 | $1,004.80 | $0.66 | 0.13% |
Hypothetical | ||||
(5% return before expenses) | $1,000.00 | $1,024.55 | $0.66 | 0.13% |
*Expenses are equal to each Class’ annualized expense ratio (for the six-month period), 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 ratios stated above may differ from the expense ratios stated in the financial highlights, which are based on one-year data. The Class’ total return would have been lower had certain expenses not been waived or reimbursed during the period.
4
Diversified Tax Exempt Series
Portfolio Composition as of December 31, 2022
(unaudited)
Sector Allocation1 |
1As a percentage of net assets. |
Top Ten States2 | ||||
Texas | 13.2% | Virginia | 4.8% | |
New York | 12.1% | Wisconsin | 4.2% | |
Florida | 6.5% | Illinois | 3.8% | |
Maryland | 6.1% | North Carolina | 3.6% | |
Washington | 5.4% | Tennessee | 3.3% | |
2As a percentage of total investments. |
5
Diversified Tax Exempt Series
Investment Portfolio - December 31, 2022
PRINCIPAL AMOUNT1/ SHARES | VALUE (NOTE 2) | |||||||
MUNICIPAL BONDS - 96.0% | ||||||||
ALABAMA - 0.5% | ||||||||
Cullman Utilities Board Water Division, Revenue Bond, AGM, 4.000%, 9/1/2025 | 1,000,000 | $ | 1,025,994 | |||||
ALASKA - 0.8% | ||||||||
Alaska Municipal Bond Bank Authority | ||||||||
Electric Light & Power Impt., Revenue Bond, 5.000%, 12/1/2025 | 750,000 | 789,605 | ||||||
Electric Light & Power Impt., Revenue Bond, 5.000%, 12/1/2030 | 875,000 | 993,075 | ||||||
1,782,680 | ||||||||
ARIZONA - 1.1% | ||||||||
Mesa | ||||||||
Multiple Utility Impt., Revenue Bond, 5.000%, 7/1/2023 | 1,050,000 | 1,060,900 | ||||||
Multiple Utility Impt., Revenue Bond, 5.000%, 7/1/2024 | 1,200,000 | 1,239,106 | ||||||
2,300,006 | ||||||||
CALIFORNIA - 0.7% | ||||||||
California, G.O. Bond, 5.000%, 8/1/2025 | 1,410,000 | 1,495,111 | ||||||
COLORADO - 0.9% | ||||||||
Denver Wastewater Management Division Department of Public Works, Public Impt., Revenue Bond, 5.000%, 11/1/2029 | 750,000 | 846,585 | ||||||
E-470 Public Highway Authority, Senior Lien, Series A, Revenue Bond, 5.000%, 9/1/2026 | 1,000,000 | 1,070,476 | ||||||
1,917,061 | ||||||||
FLORIDA - 6.5% | ||||||||
Central Florida Expressway Authority Senior Lien, Revenue Bond, 5.000%, 7 /1/2024 | 500,000 | 515,295 | ||||||
Senior Lien, Revenue Bond, 5.000%, 7/1/2027 | 500,000 | 547,545 | ||||||
Senior Lien, Revenue Bond, 5.000%, 7/1/2038 | 530,000 | 558,773 | ||||||
Florida | ||||||||
Series A, G.O. Bond, 5.000%, 6/1/2025 | 1,857,000 | 1,960,199 | ||||||
Series B, G.O. Bond, 5.000%, 6/1/2024 | 930,000 | 958,706 | ||||||
Florida Department of Transportation Turnpike System, Series B, Revenue Bond, 2.500%, 7/1/2026 | 505,000 | 496,017 | ||||||
JEA Electric System, Series A, Revenue Bond, 5.000%, 10/1/2028 | 1,000,000 | 1,108,571 | ||||||
Miami-Dade County, Revenue Bond, 5.000%, 4/1/2028 | 1,015,000 | 1,129,246 | ||||||
Miami-Dade County, Water & Sewer System, Sewer Impt., Revenue Bond, 5.000%, 10/1/2028 | 2,000,000 | 2,224,216 | ||||||
Orlando Utilities Commission, Series C, Revenue Bond, 5.000%, 10/1/2025 | 665,000 | 705,544 |
PRINCIPAL AMOUNT1/ SHARES | VALUE (NOTE 2) | |||||||
MUNICIPAL BONDS (continued) | ||||||||
FLORIDA (continued) | ||||||||
Port St. Lucie Utility System, Water Utility Impt., Revenue Bond, NATL, 5.250%, 9/1/2023 | 500,000 | $ | 507,331 | |||||
School District of Broward County, School Impt., G.O. Bond, 5.000%, 7/1/2032 | 1,895,000 | 2,194,440 | ||||||
Tampa-Hillsborough County Expressway Authority, Highway Impt., Series A, Revenue Bond, BAM, 5.000%, 7/1/2028 | 1,000,000 | 1,094,506 | ||||||
14,000,389 | ||||||||
GEORGIA - 2.7% | ||||||||
Georgia, School Impt., Series A, G.O. Bond, 5.000%, 7/1/2033 | 5,000,000 | 5,879,014 | ||||||
HAWAII - 2.2% | ||||||||
City & County of Honolulu, Transit Impt., Series E, G.O. Bond, 5.000%, 3/1/2027 | 2,000,000 | 2,188,779 | ||||||
Hawaii | ||||||||
Series FE, G.O. Bond, 5.000%, 10/1/2025 | 1,505,000 | 1,599,227 | ||||||
Series GJ, G.O. Bond, 1.033%, 8/1/2025 | 500,000 | 455,649 | ||||||
Honolulu County, Series E, G.O. Bond, 5.000%, 9/1/2028 | 500,000 | 552,246 | ||||||
4,795,901 | ||||||||
ILLINOIS - 3.8% | ||||||||
Aurora, Waterworks & Sewerage, Series B, Revenue Bond, 3.000%, 12/1/2023 | 625,000 | 625,993 | ||||||
Illinois, Public Impt., Series A, G.O. Bond, 5.000%, 11/1/2024 | 1,800,000 | 1,836,458 | ||||||
Illinois Municipal Electric Agency Series A, Revenue Bond, 5.000%, 2/1/2025 | 2,000,000 | 2,082,884 | ||||||
Series A, Revenue Bond, 5.000%, 2/1/2026 | 730,000 | 767,987 | ||||||
Illinois State Toll Highway Authority Highway Impt., Series B, Revenue Bond, 5.000%, 1/1/2038 | 1,050,000 | 1,098,996 | ||||||
Series B, Revenue Bond, 5.000%, 1/1/2031 | 1,500,000 | 1,708,866 | ||||||
8,121,184 | ||||||||
INDIANA - 0.5% | ||||||||
South Bend Sewage Works, Revenue Bond, 3.000%, 12/1/2025 | 1,075,000 | 1,083,704 | ||||||
IOWA - 1.7% | ||||||||
Cedar Falls IA, Municipal Electric Utility, Revenue Bond, 5.000%, 12/1/2023 | 2,000,000 | 2,038,646 | ||||||
Des Moines, Stormwater Utility, Public Impt., Series B, Revenue Bond, 5.000%, 6/1/2031 | 865,000 | 1,001,500 | ||||||
Johnston, Public Impt., Series A, G.O. Bond, 5.000%, 6/1/2023 | 520,000 | 524,386 | ||||||
3,564,532 |
The accompanying notes are an integral part of the financial statements.
6
Diversified Tax Exempt Series
Investment Portfolio - December 31, 2022
PRINCIPAL AMOUNT1/ SHARES | VALUE (NOTE 2) | |||||||
MUNICIPAL BONDS (continued) | ||||||||
KANSAS - 0.9% | ||||||||
Topeka, Series A, G.O. Bond, 4.000%, 8/15/2024 | 1,440,000 | $ | 1,468,243 | |||||
Wichita, Water & Sewer Utility, Series A, Revenue Bond, 5.000%, 10/1/2024 | 500,000 | 519,111 | ||||||
1,987,354 | ||||||||
KENTUCKY - 1.9% | ||||||||
Kentucky Municipal Power Agency, Series A, Revenue Bond, NATL, 5.000%, 9/1/2024 | 1,355,000 | 1,375,308 | ||||||
Louisville/Jefferson County Metropolitan Government, Public Impt., G.O. Bond, 4.900%, 11/15/2023 | 2,760,000 | 2,750,441 | ||||||
4,125,749 | ||||||||
LOUISIANA - 0.4% | ||||||||
New Orleans | ||||||||
Sewer Impt., Revenue Bond, 5.000%, 6/1/2023 | 300,000 | 301,837 | ||||||
Sewer Impt., Series B, Revenue Bond, 5.000%, 6/1/2027 | 500,000 | 535,392 | ||||||
837,229 | ||||||||
MAINE - 0.6% | ||||||||
Maine Municipal Bond Bank, Highway Impt., Series A, Revenue Bond, 5.000%, 9/1/2027 | 675,000 | 739,549 | ||||||
Maine Turnpike Authority, Highway Impt., Revenue Bond, 5.000%, 7/1/2033 | 550,000 | 626,725 | ||||||
1,366,274 | ||||||||
MARYLAND - 6.1% | ||||||||
Baltimore County | ||||||||
G.O. Bond, 5.000%, 3/1/2023 | 665,000 | 667,180 | ||||||
G.O. Bond, 5.000%, 8/1/2028 | 1,000,000 | 1,123,613 | ||||||
Maryland | ||||||||
School Impt., Series A, G.O. Bond, 5.000%, 8/1/2028 | 905,000 | 1,017,294 | ||||||
School Impt., Series A, G.O. Bond, 5.000%, 3/1/2033 | 5,000,000 | 5,849,233 | ||||||
School Impt., Series A, G.O. Bond, 5.000%, 8/1/2035 | 1,000,000 | 1,136,127 | ||||||
Series B, G.O. Bond, 5.000%, 8/1/2025 | 1,000,000 | 1,058,514 | ||||||
Maryland Health & Higher Educational Facilities Authority, Prerefunded Balance, Revenue Bond, 5.000%, 7/1/2030 | 1,010,000 | 1,069,551 | ||||||
Prince George’s County, Public Impt., Series A, G.O. Bond, 5.000%, 7/15/2028 | 1,135,000 | 1,275,878 | ||||||
13,197,390 | ||||||||
MASSACHUSETTS - 2.3% | ||||||||
Commonwealth of Massachusetts, Series B, G.O. Bond, 5.000%, 7/1/2029 | 775,000 | 883,634 |
PRINCIPAL AMOUNT1/ SHARES | VALUE (NOTE 2) | |||||||
MUNICIPAL BONDS (continued) | ||||||||
MASSACHUSETTS (continued) | ||||||||
Massachusetts | ||||||||
Public Impt., Series D, G.O. Bond, 5.000%, 4/1/2026 | 1,095,000 | $ | 1,174,040 | |||||
Series B, G.O. Bond, 5.000%, 7/1/2024 | 410,000 | 423,106 | ||||||
The Massachusetts Clean Water Trust, Water Utility Impt., Revenue Bond, 5.000%, 2/1/2030 | 2,100,000 | 2,430,320 | ||||||
4,911,100 | ||||||||
MINNESOTA - 0.5% | ||||||||
Minnesota, Public Impt., Series A, G.O. Bond, 5.000%, 8/1/2026 | 1,030,000 | 1,092,033 | ||||||
MISSISSIPPI - 0.2% | ||||||||
Mississippi, Series E, G.O. Bond, 1.122%, 10/1/2025 | 500,000 | 454,511 | ||||||
MISSOURI - 2.1% | ||||||||
Clayton, G.O. Bond, 4.000%, 3/15/2028 | 510,000 | 545,482 | ||||||
Columbia School District, Series B, G.O. Bond, 5.000%, 3/1/2026 | 1,635,000 | 1,749,900 | ||||||
Kansas City, Sanitary Sewer System, Sewer Impt., Series A, Revenue Bond, 4.000%, 1/1/2025 | 750,000 | 767,868 | ||||||
Missouri Joint Municipal Electric Utility Commission, Prairie Street Project, Revenue Bond, 5.000%, 1/1/2027 | 1,410,000 | 1,508,370 | ||||||
4,571,620 | ||||||||
NEBRASKA - 1.7% | ||||||||
Lincoln Electric System Revenue, Series A, Prerefunded Balance, Revenue Bond, 5.000%, 9/1/2030 | 1,000,000 | 1,059,184 | ||||||
Nebraska Public Power District, Series B, Revenue Bond, 5.000%, 1/1/2030 | 640,000 | 728,027 | ||||||
Omaha, Public Impt., Series A, G.O. Bond, 2.500%, 1/15/2023 | 760,000 | 759,891 | ||||||
Omaha Public Power District, Series A, Revenue Bond, 5.000%, 2/1/2031 | 1,000,000 | 1,104,996 | ||||||
3,652,098 | ||||||||
NEVADA - 0.6% | ||||||||
Washoe County School District, School Impt., Series A, G.O. Bond, 5.000%, 10/1/2025 | 1,230,000 | 1,304,335 | ||||||
NEW JERSEY - 1.4% | ||||||||
New Jersey Economic Development Authority | �� | |||||||
Revenue Bond, 5.000%, 6/15/2028 | 700,000 | 756,182 | ||||||
School Impt., Revenue Bond, 5.000%, 6/15/2029 | 750,000 | 815,927 | ||||||
New Jersey Transportation Trust Fund Authority, Transit Impt., Series AA, Revenue Bond, 5.000%, 6/15/2026 | 1,445,000 | 1,505,233 | ||||||
3,077,342 | ||||||||
NEW MEXICO - 0.9% | ||||||||
Albuquerque, Series D, G.O. Bond, 5.000%, 7/1/2025 | 1,000,000 | 1,055,484 |
The accompanying notes are an integral part of the financial statements.
7
Diversified Tax Exempt Series
Investment Portfolio - December 31, 2022
PRINCIPAL AMOUNT1/ SHARES | VALUE (NOTE 2) | |||||||
MUNICIPAL BONDS (continued) | ||||||||
NEW MEXICO (continued) | ||||||||
Bernalillo County, Public Impt., Recreational Facility Impt., G.O. Bond, 4.000%, 8/15/2024 | 785,000 | $ | 800,790 | |||||
1,856,274 | ||||||||
NEW YORK - 12.1% | ||||||||
Metropolitan Transportation Authority, Transit Impt., Green Bond, Series C-1, Revenue Bond, 4.750%, 11/15/2045 | 2,000,000 | 1,885,786 | ||||||
New York City | ||||||||
Public Impt., Subseries F-3, G.O. Bond, 5.000%, 12/1/2024 | 825,000 | 859,130 | ||||||
Series B-1, G.O. Bond, 5.000%, 8/1/2027 | 1,600,000 | 1,757,394 | ||||||
Series E, G.O. Bond, 5.000%, 8/1/2026 | 1,200,000 | 1,054,658 | ||||||
Series E, G.O. Bond, 5.000%, 8/1/2026 | 1,905,000 | 2,054,007 | ||||||
Series J, G.O. Bond, 5.000%, 8/1/2023 | 950,000 | 961,193 | ||||||
New York City Municipal Water Finance Authority, Series EE, Revenue Bond, 5.000%, 6/15/2040 | 3,500,000 | 3,724,091 | ||||||
New York City Transitional Finance Authority, Building Aid, Series S-4A, Prerefunded Balance, Revenue Bond, 5.000%, 7/15/2023 | 645,000 | 651,088 | ||||||
New York City Transitional Finance Authority, Future Tax Secured, Public Impt., Revenue Bond, 3.650%, 11/1/2024 | 635,000 | 621,218 | ||||||
New York State Dormitory Authority Public Impt., Series C, Prerefunded Balance, Revenue Bond, 5.000%, 3/15/2023 | 2,000,000 | 2,008,129 | ||||||
School Impt., Series E, Revenue Bond, AGM, 5.000%, 10/1/2025 | 860,000 | 872,046 | ||||||
Series C, Prerefunded Balance, Revenue Bond, 0.887%, 3/15/2025 | 950,000 | 873,542 | ||||||
Series C, Prerefunded Balance, Revenue Bond, 1.187%, 3/15/2026 | 1,110,000 | 988,136 | ||||||
New York State Thruway Authority, Series B, Revenue Bond, 4.000%, 1/1/2038 | 2,390,000 | 2,329,545 | ||||||
New York State Urban Development Corp. | ||||||||
Economic Impt., Correctional Facility Impt, Series B, Revenue Bond, 2.020%, 3/15/2024 | 475,000 | 459,652 | ||||||
Highway Impt., Series C, Prerefunded Balance, Revenue Bond, 5.000%, 3/15/2024 | 765,000 | 768,030 | ||||||
Port Authority of New York & New Jersey, Airport & Marina Impt., Consolidated Series 222, Revenue Bond, 5.000%, 7/15/2032 | 1,185,000 | 1,353,447 |
PRINCIPAL AMOUNT1/ SHARES | VALUE (NOTE 2) | |||||||
MUNICIPAL BONDS (continued) | ||||||||
NEW YORK (continued) | ||||||||
Triborough Bridge & Tunnel Authority, Series A, Revenue Bond, 5.000%, 11/15/2023 | 2,805,000 | $ | 2,826,153 | |||||
26,047,245 | ||||||||
NORTH CAROLINA - 3.6% | ||||||||
Charlotte, Water & Sewer System, Revenue Bond, 5.000%, 7/1/2024 | 1,235,000 | 1,275,279 | ||||||
Mecklenburg County, School Impt., G.O. Bond, 5.000%, 3/1/2030 | 3,675,000 | 4,252,031 | ||||||
North Carolina Turnpike Authority, Highway Impt., Revenue Bond, 5.000%, 2/1/2024 | 1,500,000 | 1,527,261 | ||||||
Raleigh, Series A, G.O. Bond, 5.000%, 9/1/2023 | 700,000 | 710,033 | ||||||
7,764,604 | ||||||||
OHIO - 3.2% | ||||||||
Brecksville-Broadview Heights City School District, School Impt., Prerefunded Balance, G.O. Bond, 5.000%, 12/1/2048 | 1,000,000 | 1,018,317 | ||||||
Cincinnati, Public Impt., Series A, G.O. Bond, 5.000%, 12/1/2027 | 1,100,000 | 1,219,015 | ||||||
Cincinnati, Water System, Water Utility Impt., Series A, Revenue Bond, 5.000%, 12/1/2032 | 1,410,000 | 1,666,203 | ||||||
Mason | ||||||||
Recreational Facility Impt., Series A, G.O. Bond, 3.000%, 12/1/2023 | 595,000 | 596,048 | ||||||
Recreational Facility Impt., Series B, G.O. Bond, 2.000%, 12/1/2023 | 680,000 | 675,145 | ||||||
Ohio | ||||||||
Series A, G.O. Bond, 5.000%, 6/15/2028 | 500,000 | 561,068 | ||||||
Series A, G.O. Bond, 5.000%, 6/15/2029 | 1,000,000 | 1,142,310 | ||||||
6,878,106 | ||||||||
OREGON - 0.7% | ||||||||
Metro, Recreational Facility Impt., Series A, G.O. Bond, 5.000%, 6/1/2023 | 825,000 | 826,262 | ||||||
Oregon, Public Impt., Series K, G.O. Bond, 5.000%, 8/1/2023 | 575,000 | 581,914 | ||||||
1,408,176 | ||||||||
PENNSYLVANIA - 3.1% | ||||||||
Pennsylvania Turnpike Commission | ||||||||
Highway Impt., Series A, Revenue Bond, 5.000%, 12/1/2029 | 750,000 | 825,986 | ||||||
Highway Impt., Series A, Revenue Bond, 5.000%, 12/1/2030 | 850,000 | 935,119 | ||||||
Highway Impt., Series A-1, Revenue Bond, 5.000%, 12/1/2023 | 1,200,000 | 1,221,674 | ||||||
Series A-2, Revenue Bond, 5.000%, 6/1/2028 | 590,000 | 624,966 | ||||||
Philadelphia, Water & Wastewater, Water Utility Impt., Series A, Revenue Bond, 5.000%, 11/1/2040 | 2,450,000 | 2,664,209 |
The accompanying notes are an integral part of the financial statements.
8
Diversified Tax Exempt Series
Investment Portfolio - December 31, 2022
PRINCIPAL AMOUNT1/ SHARES | VALUE (NOTE 2) | |||||||
MUNICIPAL BONDS (continued) | ||||||||
PENNSYLVANIA (continued) | ||||||||
Pittsburgh Water & Sewer Authority, Series B, Revenue Bond, AGM, 5.000%, 9/1/2032 | 300,000 | $ | 334,601 | |||||
6,606,555 | ||||||||
TENNESSEE - 3.3% | ||||||||
Clarksville, Electric System, Revenue Bond, 5.000%, 9/1/2029 | 1,015,000 | 1,116,327 | ||||||
Knoxville Electric System Revenue, Series FF, Revenue Bond, 5.000%, 7/1/2023 | 800,000 | 800,908 | ||||||
Knoxville, Wastewater System, Sewer Impt., Series A, Revenue Bond, 5.000%, 4/1/2032 | 2,500,000 | 2,966,223 | ||||||
Metropolitan Government of Nashville & Davidson County, Water & Sewer, Series B, Revenue Bond, 1.031%, 7/1/2025 | 650,000 | 592,870 | ||||||
Putnam County, G.O. Bond, 5.000%, 4/1/2025 | 500,000 | 524,703 | ||||||
Sullivan County, Correctional Facility Impt, G.O. Bond, 5.000%, 5/1/2027 | 1,000,000 | 1,095,531 | ||||||
7,096,562 | ||||||||
TEXAS - 13.2% | ||||||||
Central Texas Turnpike System, Series C, Revenue Bond, 5.000%, 8/15/2027 | 1,470,000 | 1,506,196 | ||||||
Corpus Christi, G.O. Bond, 5.000%, 3/1/2024 | 1,000,000 | 1,024,474 | ||||||
Cypress-Fairbanks Independent School District, School Impt., Series A, G.O. Bond, 5.000%, 2/15/2028 | 2,250,000 | 2,501,757 | ||||||
Dallas, Waterworks & Sewer System, Series C, Revenue Bond, 5.000%, 10/1/2028 | 1,715,000 | 1,931,790 | ||||||
Harris County, Senior Lien, Toll Road Impt., Series B, Revenue Bond, 5.000%, 8/15/2023 | 600,000 | 607,482 | ||||||
Houston, Combined Utility System Series A, Revenue Bond, 5.000%, 11/15/2031 | 1,140,000 | 1,332,682 | ||||||
Series C, Revenue Bond, 5.000%, 5/15/2024 | 1,005,000 | 1,032,423 | ||||||
Irving, Public Impt., G.O. Bond, 5.000%, 9/15/2032 | 3,030,000 | 3,536,914 | ||||||
North Texas Municipal Water District Water System, Series A, Revenue Bond, 5.000%, 9/1/2027 | 1,500,000 | 1,652,099 | ||||||
North Texas Tollway Authority Series A, Revenue Bond, 5.000%, 1/1/2026 | 500,000 | 510,086 | ||||||
Series A, Revenue Bond, 5.000%, 1/1/2027 | 2,000,000 | 2,124,593 | ||||||
Series B, Revenue Bond, 5.000%, 1/1/2029 | 925,000 | 1,036,684 | ||||||
San Angelo Independent School District, Series A, G.O. Bond, 5.000%, 2/15/2024 | 1,645,000 | 1,683,739 |
PRINCIPAL AMOUNT1/ SHARES | VALUE (NOTE 2) | |||||||
MUNICIPAL BONDS (continued) | ||||||||
TEXAS (continued) | ||||||||
San Antonio Water System, Water Utility Impt., Series A, Revenue Bond, 5.000%, 5/15/2032 | 1,075,000 | $ | 1,187,753 | |||||
Tarrant County, Highway Impt., G.O. Bond, 5.000%, 7/15/2036 | 2,300,000 | 2,591,299 | ||||||
Texas Municipal Gas Acquisition & Supply Corp. III | ||||||||
Revenue Bond, 5.000%, 12/15/2026 | 200,000 | 206,177 | ||||||
Revenue Bond, 5.000%, 12/15/2027 | 600,000 | 621,798 | ||||||
Revenue Bond, 5.000%, 12/15/2028 | 250,000 | 259,725 | ||||||
Texas Water Development Board Water Utility Impt., Revenue Bond, 5.000%, 10/15/2025 | 1,000,000 | 1,063,526 | ||||||
Water Utility Impt., Series B, Revenue Bond, 5.000%, 10/15/2025 | 1,845,000 | 1,962,206 | ||||||
28,373,403 | ||||||||
UTAH - 0.4% | ||||||||
Salt Lake City Corp., Series B, G.O. Bond, 5.000%, 6/15/2026 | 830,000 | 896,061 | ||||||
VIRGINIA - 4.9% | ||||||||
Fairfax County | ||||||||
Public Impt., Series A, Prerefunded Balance, G.O. Bond, 5.000%, 10/1/2035 | 3,580,000 | 3,850,605 | ||||||
Series B, G.O. Bond, 5.000%, 10/1/2024 | 5,855,000 | 6,086,044 | ||||||
Richmond, Public Utility, Series B, Revenue Bond, 2.086%, 1/15/2025 | 515,000 | 484,836 | ||||||
10,421,485 | ||||||||
WASHINGTON - 5.4% | ||||||||
Seattle, Water System, Water Utility Impt., Revenue Bond, 5.000%, 9/1/2025 | 3,000,000 | 3,177,121 | ||||||
Washington | ||||||||
Highway Impt., Series B, G.O. Bond, 5.000%, 8/1/2025 | 1,480,000 | 1,498,193 | ||||||
School Impt., Series 2020A, G.O. Bond, 5.000%, 8/1/2032 | 4,255,000 | 4,810,745 | ||||||
Series R, G.O. Bond, 5.000%, 8/1/2027 | 2,000,000 | 2,204,056 | ||||||
11,690,115 | ||||||||
WEST VIRGINIA - 0.9% | ||||||||
West Virginia, Series A, G.O. Bond, 5.000%, 6/1/2025 | 1,860,000 | 1,959,825 | ||||||
WISCONSIN - 4.2% | ||||||||
Mid-St. Technical College District, G.O. Bond, 2.000%, 3/1/2024 | 600,000 | 593,032 | ||||||
Milwaukee Metropolitan Sewerage District, Sewer Impt., Series A, G.O. Bond, 4.000%, 10/1/2026 | 1,900,000 | 1,985,597 | ||||||
Western Technical College District, Series A, G.O. Bond, 3.000%, 4/1/2025 | 600,000 | 602,618 |
The accompanying notes are an integral part of the financial statements.
9
Diversified Tax Exempt Series
Investment Portfolio - December 31, 2022
PRINCIPAL AMOUNT1/ SHARES | VALUE (NOTE 2) | |||||||
MUNICIPAL BONDS (continued) | ||||||||
WISCONSIN (continued) | ||||||||
Wisconsin, Public Impt., Series B, G.O. Bond, 5.000%, 5/1/2024 | 5,750,000 | $ | 5,913,710 | |||||
9,094,957 | ||||||||
TOTAL MUNICIPAL BONDS | ||||||||
(Identified Cost $215,157,702) | 206,635,979 | |||||||
MUTUAL FUND - 3.1% | ||||||||
iShares National Muni Bond ETF | ||||||||
(Identified Cost $7,083,057) | 62,191 | 6,562,395 | ||||||
SHORT-TERM INVESTMENT - 0.8% | ||||||||
Dreyfus Government Cash Management, Institutional Shares, 4.19%2 | ||||||||
(Identified Cost $1,691,784) | 1,691,784 | 1,691,784 | ||||||
TOTAL INVESTMENTS - 99.9% | ||||||||
(Identified Cost $223,932,543) | 214,890,158 | |||||||
OTHER ASSETS, LESS LIABILITIES -0.1% | 243,127 | |||||||
NET ASSETS - 100.0% | $ | 215,133,285 |
ETF - Exchange-Traded Fund
G.O. Bond - General Obligation Bond
Impt. - Improvement
Scheduled principal and interest payments are guaranteed by:
AGM (Assurance Guaranty Municipal Corp.)
BAM (Build America Mutual Assurance Co.)
NATL (National Public Finance Guarantee Corp.)
The insurance does not guarantee the market value of the municipal bonds.
1Amount is stated in USD unless otherwise noted.
2Rate shown is the current yield as of December 31, 2022.
The accompanying notes are an integral part of the financial statements.
10
Diversified Tax Exempt Series
Statement of Assets and Liabilities
December 31, 2022
ASSETS: | ||||
Investments, at value (identified cost $223,932,543) (Note 2) | $ | 214,890,158 | ||
Interest receivable | 2,771,486 | |||
Receivable for fund shares sold | 638,927 | |||
Dividends receivable | 7,923 | |||
Prepaid expenses | 8,463 | |||
TOTAL ASSETS | 218,316,957 | |||
LIABILITIES: | ||||
Accrued fund accounting and administration fees (Note 3) | 23,376 | |||
Accrued Chief Compliance Officer service fees (Note 3) | 2,063 | |||
Accrued management fees (Note 3) | 903 | |||
Payable for fund shares repurchased | 3,129,005 | |||
Other payables and accrued expenses | 28,325 | |||
TOTAL LIABILITIES | 3,183,672 | |||
TOTAL NET ASSETS | $ | 215,133,285 | ||
NET ASSETS CONSIST OF: | ||||
Capital stock | $ | 209,990 | ||
Additional paid-in-capital | 222,057,142 | |||
Total distributable earnings (loss) | (7,133,847 | ) | ||
TOTAL NET ASSETS | $ | 215,133,285 | ||
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE - Class A | ||||
($2,162,283/211,166 shares) | $ | 10.24 | ||
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE - Class W | ||||
($212,971,002/20,787,848 shares) | $ | 10.24 |
The accompanying notes are an integral part of the financial statements.
11
Diversified Tax Exempt Series
Statement of Operations
For the Year Ended December 31, 2022
INVESTMENT INCOME: | ||||
Interest | $ | 3,025,746 | ||
Dividends | 226,590 | |||
Total Investment Income | 3,252,336 | |||
EXPENSES: | ||||
Management fees (Note 3) | 978,907 | |||
Fund accounting and administration fees (Note 3) | 79,341 | |||
Directors’ fees (Note 3) | 23,526 | |||
Chief Compliance Officer service fees (Note 3) | 8,983 | |||
Professional fees | 67,500 | |||
Custodian fees | 5,113 | |||
Miscellaneous | 69,479 | |||
Total Expenses | 1,232,849 | |||
Less reduction of expenses (Note 3) | (968,019 | ) | ||
Net Expenses | 264,830 | |||
NET INVESTMENT INCOME | 2,987,506 | |||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: | ||||
Net realized gain (loss) on investments | (95,411 | ) | ||
Net change in unrealized appreciation (depreciation) on investments | (10,937,294 | ) | ||
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS | (11,032,705 | ) | ||
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | (8,045,199 | ) |
The accompanying notes are an integral part of the financial statements.
12
Diversified Tax Exempt Series
Statements of Changes in Net Assets
FOR THE YEAR ENDED 12/31/22 | FOR THE YEAR ENDED 12/31/21 | |||||||
INCREASE (DECREASE) IN NET ASSETS: | ||||||||
OPERATIONS: | ||||||||
Net investment income | $ | 2,987,506 | $ | 1,843,322 | ||||
Net realized gain (loss) on investments | (95,411 | ) | 8,714,790 | |||||
Net change in unrealized appreciation (depreciation) on investments | (10,937,294 | ) | (9,903,740 | ) | ||||
Net increase (decrease) from operations | (8,045,199 | ) | 654,372 | |||||
DISTRIBUTIONS TO SHAREHOLDERS (Note 8): | ||||||||
Class A | (12,871 | ) | (151,254 | ) | ||||
Class W | (2,248,038 | ) | (7,220,650 | ) | ||||
Total distributions to shareholders | (2,260,909 | ) | (7,371,904 | ) | ||||
CAPITAL STOCK ISSUED AND REPURCHASED: | ||||||||
Net increase (decrease) from capital share transactions (Note 5) | 107,069,093 | (131,176,695 | ) | |||||
Net increase (decrease) in net assets | 96,762,985 | (137,894,227 | ) | |||||
NET ASSETS: | ||||||||
Beginning of year | 118,370,300 | 256,264,527 | ||||||
End of year | $ | 215,133,285 | $ | 118,370,300 |
The accompanying notes are an integral part of the financial statements.
13
Diversified Tax Exempt Series
Financial Highlights - Class A
FOR THE YEAR ENDED | ||||||||||||||||||||
12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 | ||||||||||||||||
Per share data (for a share outstanding throughout each year): | ||||||||||||||||||||
Net asset value - Beginning of year | $10.94 | $11.58 | $11.14 | $10.90 | $10.98 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income1 | 0.10 | 0.10 | 0.15 | 0.17 | 0.15 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | (0.74 | ) | (0.08 | ) | 0.48 | 0.39 | (0.08 | ) | ||||||||||||
Total from investment operations | (0.64 | ) | 0.02 | 0.63 | 0.56 | 0.07 | ||||||||||||||
Less distributions to shareholders: | ||||||||||||||||||||
From net investment income | (0.06 | ) | (0.09 | ) | (0.10 | ) | (0.20 | ) | (0.15 | ) | ||||||||||
From net realized gain on investments | (0.00 | )2 | (0.57 | ) | (0.09 | ) | (0.12 | ) | — | |||||||||||
Total distributions to shareholders | (0.06 | ) | (0.66 | ) | (0.19 | ) | (0.32 | ) | (0.15 | ) | ||||||||||
Net asset value - End of year | $10.24 | $10.94 | $11.58 | $11.14 | $10.90 | |||||||||||||||
Net assets - End of year (000’s omitted) | $2,162 | $2,430 | $2,324 | $4,394 | $297,814 | |||||||||||||||
Total return3 | (5.83% | ) | 0.16% | 5.73% | 5.10% | 0.65% | ||||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Expenses | 0.63% | 0.67% | 0.61% | 0.58% | 0.59% | |||||||||||||||
Net investment income | 1.00% | 0.91% | 1.35% | 1.62% | 1.42% | |||||||||||||||
Series portfolio turnover | 10% | 23% | 41% | 29% | 12% |
1Calculated based on average shares outstanding during the years.
2Less than $(0.01).
3Represents aggregate total return for the years indicated, and assumes reinvestment of all distributions.
The accompanying notes are an integral part of the financial statements.
14
Diversified Tax Exempt Series
Financial Highlights - Class W
FOR THE YEAR ENDED | FOR THE | |||||||||||||||
PERIOD | ||||||||||||||||
3/1/191 TO | ||||||||||||||||
12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | |||||||||||||
Per share data (for a share outstanding throughout each period): | ||||||||||||||||
Net asset value - Beginning of period | $10.94 | $11.59 | $11.15 | $11.01 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||
Net investment income2 | 0.16 | 0.16 | 0.21 | 0.20 | ||||||||||||
Net realized and unrealized gain (loss) on investments | (0.75 | ) | (0.09 | ) | 0.48 | 0.31 | ||||||||||
Total from investment operations | (0.59 | ) | 0.07 | 0.69 | 0.51 | |||||||||||
Less distributions to shareholders: | ||||||||||||||||
From net investment income | (0.11 | ) | (0.15 | ) | (0.16 | ) | (0.25 | ) | ||||||||
From net realized gain on investments | (0.00 | )3 | (0.57 | ) | (0.09 | ) | (0.12 | ) | ||||||||
Total distributions to shareholders | (0.11 | ) | (0.72 | ) | (0.25 | ) | (0.37 | ) | ||||||||
Net asset value - End of period | $10.24 | $10.94 | $11.59 | $11.15 | ||||||||||||
Net assets - End of period (000’s omitted) | $212,971 | $115,940 | $253,941 | $189,336 | ||||||||||||
Total return4 | (5.40% | ) | 0.62 | % | 6.23 | % | 4.61 | % | ||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||
Expenses* | 0.13% | 0.17 | % | 0.11 | % | 0.11 | %5 | |||||||||
Net investment income | 1.53% | 1.42 | % | 1.79 | % | 2.14 | %5 | |||||||||
Series portfolio turnover | 10% | 23 | % | 41 | % | 29 | % | |||||||||
*The investment advisor did not impose all or a portion of its management and/or other fees during the periods, and may have paid a portion of the Series’ expenses. If these expenses had been incurred by the Class, the expense ratio (to average net assets) would have increased by the following amounts: | ||||||||||||||||
0.50% | 0.50% | 0.50% | 0.50% | 5 |
1Commencement of operations.
2Calculated based on average shares outstanding during the periods.
3Less than $(0.01).
4Represents 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.
5Annualized.
The accompanying notes are an integral part of the financial statements.
15
Diversified Tax Exempt Series
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 Series is authorized to issue two classes of shares (Class A and Class W). While each class of shares is substantially the same, each class has its own investment eligibility criteria and cost structure.
The Fund’s advisor is Manning & Napier Advisors, LLC (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 15 billion shares of common stock each having a par value of $0.01. As of December 31, 2022, 6.3 billion shares have been designated in total among 15 series, of which 100 million have been designated as Diversified Tax Exempt Series Class A common stock and 50 million have been designated as Diversified Tax Exempt Series Class W common stock.
2. | Significant Accounting Policies |
The following is a summary of significant accounting policies followed by the Series. The Series is an investment company and, accordingly, follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board Accounting Standards Codification Topic 946 - Investment Companies, which is part of accounting principles generally accepted in the United States of America (“GAAP”).
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 may be valued at amortized cost, which approximates fair 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. In these instances, fair value is measured 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 to value these securities may differ from the value that would be realized if these securities were sold, and the differences could be material.
Fair Value
The Series’ financial instruments are valued at the close of the NYSE and are reported at fair value, which GAAP defines as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Board has designated the Advisor as the Fund’s valuation designee (Valuation Designee) to make all fair value determinations with respect to each Series’ portfolio investments. Subject to oversight by the Board, the Valuation Designee performs the following functions in performing fair value determinations: assesses and manages valuation risks; establishes and applies fair value methodologies; tests fair value methodologies; and evaluates pricing vendors and pricing agents. The Advisor has adopted and implemented policies and procedures to be followed when making fair value determinations, and it has established a Valuation Committee through which the Advisor makes fair value determinations. The Valuation Designee provides periodic reporting to the Board on valuation matters. The Advisor’s determination of a security’s fair value price often involves the consideration of a number of subjective factors, and is therefore subject to the unavoidable risk that the value assigned to a security may be higher or lower than the security’s value would be if a reliable market quotation for the security was readily available. 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.
16
Diversified Tax Exempt Series
Notes to Financial Statements (continued)
2. | Significant Accounting Policies (continued) |
Fair Value (continued)
The Advisor may use a pricing service to obtain the value of the Fund’s portfolio securities where the prices provided by such pricing service are believed to reflect the fair market value of such securities. The methods used by the pricing service and the valuations so established will be reviewed by the Advisor under the general supervision of the Fund’s Board of Directors. Several pricing services are available, one or more of which may be used by the Advisor, as approved by the Board. A change in a pricing service or a material change in a pricing methodology for investments with no readily available market quotations will be reported to the Board by the Advisor in accordance with certain requirements.
GAAP establishes the following fair value hierarchy that categorizes the inputs used to measure fair value. Level 1 includes quoted prices (unadjusted) in active markets for identical financial instruments that the Series’ can access at the reporting date. Level 2 includes other significant observable inputs (including, but not limited to, quoted prices for similar financial instruments in active markets, quoted prices for identical or similar financial instruments in inactive markets, interest rates and yield curves, implied volatilities, and credit spreads). Level 3 includes unobservable inputs (including the Valuation Designee’s own assumptions in determining fair value). A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input both individually and in aggregate that is significant to the fair value measurement. 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, 2022 in valuing the Series’ assets or liabilities carried at fair value:
DESCRIPTION | TOTAL | LEVEL 1 | LEVEL 2 | LEVEL 3 | ||||||||||||
Assets: | ||||||||||||||||
Debt securities: | ||||||||||||||||
Municipal Bonds | $ | 206,635,979 | $ | — | $ | 206,635,979 | $ | — | ||||||||
Mutual fund | 6,562,395 | 6,562,395 | — | — | ||||||||||||
Short-Term Investment | 1,691,784 | 1,691,784 | — | — | ||||||||||||
Total assets | $ | 214,890,158 | $ | 8,254,179 | $ | 206,635,979 | $ | — |
There were no Level 3 securities held by the Series as of December 31, 2021 or December 31, 2022.
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 Series is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair 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.
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.
17
Diversified Tax Exempt Series
Notes to Financial Statements (continued)
2. | Significant Accounting Policies (continued) |
Federal Taxes (continued)
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, 2022, 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, 2019 through December 31, 2022. The Series 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
Through the end of 2022, distributions to shareholders of net investment income were made quarterly; effective January 2023, such distributions will be made monthly. 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 GAAP 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 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 and are reimbursed for travel and other out-of-pocket expenses incurred by them in connection with attending such meetings. The Fund also has an Audit Committee Chair, Governance & Nominating Committee Chair and Lead Independent Director, who each receive an additional annual stipend for these roles.
18
Diversified Tax Exempt Series
Notes to Financial Statements (continued)
3. | Transactions with Affiliates (continued) |
Manning & Napier Investor Services, Inc., a registered broker-dealer affiliate of the Advisor, acts as distributor for the Fund’s shares. The services of Manning & Napier Investor Services, Inc. are provided at no additional cost to the Series.
Pursuant to a master services agreement, the Fund pays the Advisor an annual fee related to fund accounting and administration of 0.0085% on the first $25 billion of average daily net assets; 0.0075% on the next $15 billion of average daily net assets; and 0.0065% of average daily net assets in excess of $40 billion; plus a base fee of $30,400 per series. Additionally, certain transaction and out-of-pocket expenses, including charges for reporting relating to the Fund’s compliance program, are charged. The Advisor has agreements with BNY Mellon Investment Servicing (U.S.) Inc. (“BNY”) under which BNY serves as sub-accountant services agent.
Pursuant to an advisory fee waiver agreement, the Advisor has contractually agreed to waive the management fee for the Class W shares. The full management fee will be waived under this agreement because Class W shares are only available to discretionary investment accounts and other accounts managed by the Advisor. These clients pay a management fee to the Advisor that is separate from the Fund’s expenses. In addition, pursuant to a separate expense limitation agreement, the Advisor has contractually agreed to limit its fees and reimburse expenses to the extent necessary so that the total direct annual fund operating expenses, exclusive of the waived Class W management fees (collectively, “excluded expenses”), do not exceed 0.85% of the average daily net assets of the Class A shares and 0.35% of the average daily net assets of the Class W shares. These contractual waivers are expected to continue indefinitely, and may not be amended or terminated by the Advisor without the approval of the Series’ Board of Directors. The Advisor may receive from a Class the difference between the Class’s total direct annual fund operating expenses, not including excluded expenses, and the Class’s contractual expense limit to recoup all or a portion of its prior fee waivers (other than Class W management fee waivers) or expense reimbursements made during the rolling three-year period preceding the recoupment if at any point the total direct annual fund operating expenses, not including excluded expenses, are below the contractual expense limit (a) at the time of the fee waiver and/or expense reimbursement and (b) at the time of the recoupment.
Pursuant to the advisory fee waiver, the Advisor waived $968,019 in management fees for Class W shares for the year ended December 31, 2022 This amount is included as a reduction of expenses on the Statement of Operations.
As of December 31, 2022 , there are no expenses eligible to be recouped by the Advisor.
4. | Purchases and Sales of Securities |
For the year ended December 31, 2022, purchases and sales of securities, other than U.S. Government securities and short-term securities, were $136,824,203 and $11,745,000, respectively. Sales of U.S. Government securities, other than short-term securities, were $6,887,988. There were no purchases of U.S. Government securities.
5. | Capital Stock Transactions |
Transactions in shares of Class A and Class W of Diversified Tax Exempt Series were:
CLASS A | FOR THE YEAR ENDED 12/31/22 | FOR THE YEAR ENDED 12/31/21 | ||||||||||||||
SHARES | AMOUNT | SHARES | AMOUNT | |||||||||||||
Sold | 88,261 | $ | 898,599 | 121,144 | $ | 1,400,116 | ||||||||||
Reinvested | 1,177 | 12,062 | 13,707 | 150,949 | ||||||||||||
Repurchased | (100,409 | ) | (1,034,932 | ) | (113,352 | ) | (1,298,287 | ) | ||||||||
Total | (10,971 | ) | $ | (124,271 | ) | 21,499 | $ | 252,778 |
19
Diversified Tax Exempt Series
Notes to Financial Statements (continued)
5. | Capital Stock Transactions (continued) |
CLASS W | FOR THE YEAR ENDED 12/31/22 | FOR THE YEAR ENDED 12/31/21 | ||||||||||||||
SHARES | AMOUNT | SHARES | AMOUNT | |||||||||||||
Sold | 12,731,910 | $ | 133,342,070 | 1,222,473 | $ | 14,076,424 | ||||||||||
Reinvested | 198,134 | 2,031,739 | 629,320 | 6,944,529 | ||||||||||||
Repurchased | (2,737,634 | ) | (28,180,445 | ) | (13,167,815 | ) | (152,450,426 | ) | ||||||||
Total | 10,192,410 | $ | 107,193,364 | (11,316,022 | ) | $ | (131,429,473 | ) |
Over 90% of the shares outstanding are fiduciary accounts where the Advisor has sole investment discretion.
6. | Line of Credit |
The Fund has entered into a 364-day, $50 million credit agreement (the “line of credit”) with Bank of New York Mellon. Each series of the Fund may borrow under the line of credit for temporary or emergency purposes, including funding shareholder redemptions and other short-term liquidity purposes. The Fund pays an annual fee on the unused commitment amount, payable quarterly, and is allocated among all the series of the Fund and included in miscellaneous expenses in the Statement of Operations for each series. The line of credit expires in September 2023 unless extended or renewed. During the year ended December 31, 2022, the Series did not borrow under the line of credit.
7. | 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. The Series may be subject 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 derivative 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 as of December 31, 2022.
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 GAAP. These differences are primarily due to differing book and tax treatments in the timing and/or treatment of the recognition of net investment income or gains and losses, including market discount on investments, callable bonds and tax equalization. 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. For the year ended December 31, 2022, amounts were reclassified within the capital accounts to increase Additional Paid in Capital by $91,345 and decrease Total Distributable Earnings (Loss) by $91,345. Any such reclassifications are not reflected in the financial highlights.
The tax character of distributions paid were as follows:
FOR THE YEAR ENDED 12/31/22 | FOR THE YEAR ENDED 12/31/21 | |||||||
Ordinary income | $ | 189,332 | $ | 557,648 | ||||
Tax exempt income | $ | 2,055,182 | $ | 1,548,715 | ||||
Long-term capital gains | $ | 16,395 | $ | 5,265,541 |
20
Diversified Tax Exempt Series
Notes to Financial Statements (continued)
8. | Federal Income Tax Information (continued) |
At December 31, 2022, the tax basis of components of distributable earnings and the net unrealized depreciation based on the identified cost of investments for federal income tax purposes were as follows:
Cost for federal income tax purposes | $ | 223,906,748 | ||
Unrealized appreciation | 69,727 | |||
Unrealized depreciation | (9,086,317 | ) | ||
Net unrealized depreciation | $ | (9,016,590 | ) | |
Undistributed tax exempt income | $ | 2,074,578 | ||
Capital loss carryforwards | $ | (202,008 | ) |
As of December 31, 2022, the Series had net short-term capital loss carryforwards of $94,861 and net long-term capital loss carryforwards of $107,147, which may be carried forward indefinitely.
9. | Market Event |
Significant disruptions and volatility in the global financial markets and economies, like the current conditions caused by the Russian invasion of Ukraine and the COVID-19 pandemic, could negatively impact the investment performance of the Series. The global market and economic climate may become increasingly uncertain due to numerous factors beyond our control, including but not limited to, the effectiveness and acceptance of vaccines to prevent COVID-19, impacts on business operations in the U.S. related to the COVID-19 pandemic, such as supply chain disruptions and inflation, concerns related to unpredictable global market and economic factors, uncertainty in U.S. federal fiscal, tax, trade or regulatory policy and the fiscal, tax, trade or regulatory policy of foreign governments, rising interest rates, inflation or deflation, the availability of credit, performance of financial markets, terrorism, natural or biological catastrophes, public health emergencies, or political uncertainty.
21
Diversified Tax Exempt Series
Report of Independent Registered Public Accounting Firm
To the Board of Directors of Manning & Napier Fund, Inc. and Shareholders of Diversified Tax Exempt Series
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the investment portfolio, of Diversified Tax Exempt Series (one of the series constituting Manning & Napier Fund, Inc., referred to hereafter as the “Fund”) as of December 31, 2022, the related statement of operations for the year ended December 31, 2022, the statement of changes in net assets for each of the two years in the period ended December 31, 2022, including the related notes, and the financial highlights for each of the periods indicated therein (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2022, 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 ended December 31, 2022 and the financial highlights for each of the periods indicated therein in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of December 31, 2022 by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.
New York, New York
February 23, 2023
We have served as the auditor of one or more investment companies in Manning & Napier Mutual Funds since 1992.
22
Diversified Tax Exempt Series
Renewal of Investment Advisory Agreement
(unaudited)
At the Manning & Napier Fund, Inc. (the “Fund”) Board of Directors’ (the “Board”) Special meeting, held on May 3, 2022 (the “May 3rd Board Meeting”), a new Investment Advisory Agreement between the Fund and Manning & Napier Advisors, LLC (the “Advisor”) and on behalf of the Rainier International Discovery Series (the “Rainier Series”), a new investment advisory agreement between the Advisor and the Fund and a new investment sub-advisory agreement between Advisor and Rainier Investment Management, LLC (“Rainier”) (together, the “New Advisory Agreements”), were considered for approval by the Board, including all of the Directors who are not “interested persons” (“Independent Directors”), within the meaning of the Investment Company Act of 1940, as amended (the “1940 Act”). The Board was asked to consider the New Advisory Agreements because of a transaction that impacted Manning & Napier, Inc. (“MN Inc.”), the ultimate parent company of the Advisor and Rainier.
On March 31, 2022, MN Inc. and Callodine Group, LLC (“Callodine”) entered into an agreement under which an affiliate of Callodine would acquire MN Inc. (the “Transaction”). The Transaction, which was subject to customary closing conditions, closed on October 21, 2022. Following the closing, both the Advisor and Rainier are now indirectly owned and controlled by Callodine MN Holdings, Inc., which, in turn, is controlled by Callodine Group, LLC and its founder James Morrow. East Asset Management, LLC, and its owners Terrence and Kim Pegula, also indirectly hold a substantial interest in Callodine MN Holdings, Inc.
The Transaction was deemed to result in a change of control of the Advisor and Rainier under the 1940 Act, and therefore resulted in the assignment and automatic termination of the investment advisory agreement and sub-advisory agreement pursuant to which the Advisor and Rainier provided advisory services to each Series of the Fund (the “Existing Advisory Agreements”). The Board was asked to consider the approval of the New Advisory Agreements, to become effective upon shareholder approval, so that the Advisor and Sub-Advisor’s management of the Series would continue without any interruption.
Board Considerations in Approving the New Advisory Agreements
The Board met on April 8, April 13, April 27 and May 3 in person and by video conference to consider and discuss the New Advisory Agreements. At each of those meetings, the Independent Directors also met separately with their independent counsel outside the presence of Fund Management. In preparation for those Board meetings, the Independent Directors requested that the Advisor, Rainier and Callodine furnish information necessary for the Directors to evaluate the terms of the New Advisory Agreements. The Advisor and Rainier were the only investment advisers the Directors considered at such meetings. The Independent Directors also submitted a number of follow-up requests to the Advisor for additional information based on the Board’s review of information provided in response to its initial requests. The Board also considered information that the Board previously reviewed in connection with its approval of the Existing Advisory Agreements for initial terms of two years, which occurred at a meeting held on April 22, 2020, as well as information presented in 2021 that covered similar matters but for which no approval was sought at that time. The Board further considered that the Existing Advisory Agreements were subject to shareholder consideration and were approved by shareholders at a special meeting held on June 30, 2020 and August 18, 2020. At the Meeting on May 3rd, the Board additionally reviewed information provided in connection with the proposed renewal of the Existing Advisory Agreements. The Directors used this information, as well as other information submitted to the Board in connection with the recent Board meetings noted above, and other meetings held since the most recent approval of the Existing Advisory Agreements, to help them decide whether to approve the New Advisory Agreements for initial two-year terms.
Specifically, the Board requested and received written materials from the Advisor and Rainier regarding, among other things: (i) the terms, conditions, and expected timing of the Transaction; (ii) the nature, extent and quality of the services to be provided by the Advisor and Rainier under the New Advisory Agreements; (iii) the proposed advisory fee to be paid to the Advisor and Rainier under the New Advisory Agreements; (iv) the Advisor and Rainier’s compliance programs; and (v) the Advisor and Rainier’s investment management personnel. In addition, the Board considered information provided to them with respect to Callodine, its business and affiliates, as well as its objectives and plans related to the Advisor. The Independent Directors considered their discussion about business strategy with a representative from Callodine who attended the April 13th meeting.
At the May 3rd Board meeting, the Directors, including all of the Independent Directors, based on their evaluation of the information provided by the Advisor, Rainier, Callodine and other service providers of the Series, approved the New Advisory Agreements. Specifically, the Directors considered information presented by the Advisor and Rainier at a meeting of the Board held on May 3, 2022, specifically regarding among other areas: (i) the services provided by the Advisor and Rainier; (ii) the investment performance of the Series, the Advisor and Rainier; and (iii) the profitability of the overall relationship to the Advisor and Rainier.
23
Diversified Tax Exempt Series
Renewal of Investment Advisory Agreement
(unaudited)
The Independent Directors also received advice at the May 3rd Board meeting and other recent Board meetings from independent counsel and met in executive session outside the presence of Fund management. In considering the approval of the New Advisory Agreements, the Board considered various factors that they determined were relevant, including: (i) the nature, extent and quality of the services to be provided by the Advisor and Rainier; (ii) the investment performance of the Series, the Advisor and Rainier; and (iii) the fees to be paid to the Advisor and Rainier under the New Advisory Agreements, as discussed in further detail below. In addition, the Board, in considering the New Advisory Agreements in the context of the Transaction, relied upon representations from the Advisor and Rainier that: (i) the Transaction would not result in any material changes to the nature, quality and extent of services provided to the Series by the Advisor and Rainier that are discussed below; (ii) the Advisor and Rainier did not anticipate any material changes to their compliance programs or code of ethics in connection with the Transaction; and (iii) the portfolio managers and investment process for the Series would not change as a result of the Transaction.
Nature, Extent and Quality of Services Provided by the Advisor and Rainier
In considering the nature, extent and quality of the services to be provided by the Advisor and Rainier, the Board reviewed the portfolio management services to be provided by the Advisor and Rainier to the Series, including the quality of the continuing portfolio management personnel and investment process, as well as the Advisor and Rainier’s compliance history and compliance program. The Directors reviewed the terms of the proposed New Advisory Agreements, and noted that the New Advisory Agreements do not materially differ from the Existing Advisory Agreements. The Directors also reviewed the Advisor and Rainier’s investment and risk management approaches for the Series. The most recent investment adviser registration forms (Form ADV) for the Advisor and Rainier also were available to the Board. The Directors also considered other services to be provided to the Series by the Advisor specifically, such as monitoring Rainier’s adherence to the Series’ investment restrictions and monitoring compliance with various Fund policies and procedures and with applicable securities laws and regulations. Based on the factors above, as well as those discussed below, the Board concluded, within the context of its full deliberations, that the nature, extent and quality of the services to be provided to each Series by the Advisor and Rainier under the New Advisory Agreements support approval of the New Advisory Agreements.
Investment Performance of the Advisor and Rainier
In connection with its most recent approvals of the Existing Advisory Agreements and other meetings held during the course of the period since then, the Board was provided with reports – both proprietary to the Advisor or the Fund and generated by independent providers of investment company data – regarding the performance of each Series over various time periods. As part of these meetings, the Advisor and Rainier and their representatives provided information regarding and, as applicable, led discussions of factors impacting the Advisor and Rainier’s performance for the Series, outlining current market conditions and explaining their expectations and strategies for the future. The Directors determined that it was appropriate to take into account its consideration of the Advisor and Rainier’s performance at meetings held prior to the May 3rd Board meeting. In doing so, the Directors generally determined that the Advisor and Rainier’s performance was satisfactory. Where the Advisor or Rainier’s performance was materially below a Series’ benchmarks and or peer group, the Directors requested an explanation for the underperformance and/or the steps taken by the Advisor and Rainier in an effort to improve performance. In all instances, the Directors were satisfied with the explanation provided. The Directors plan to remain focused in future meetings to address aberrational underperformance. The Directors will continue to monitor the fees and expenses of the Series compared to peer groups. Based on this information and the Advisor and Rainier’s representations that the portfolio managers for the Series would not change in connection with the Transaction, the Board concluded, within the context of its full deliberations, that the investment results that the Advisor and Rainier had been able to achieve for each Series support approval of the New Advisory Agreements.
Costs of Advisory Services, Profitability and Economies of Scale
With respect to the cost of advisory services, the Board considered that the investment advisory fees payable to the Advisor and Rainier under the New Advisory Agreements are the same as the investment advisory fee payable to the Advisor and Rainier under the Existing Advisory Agreements. With respect to profitability and economies of scale, at the May 3rd Board meeting, the Board considered the Advisor and Rainier’s profitability and economies of scale from management of the Series. The Board noted the Advisor’s explanation of the consistent approach taken in calculating profitability, compared to prior periods, including the allocation of expenses as part of that calculation. The Directors noted that certain Series were not yet at sufficient scale to be profitable. The Directors noted the potential for the Transaction to add resources that could improve economies of scale for various Series; however, they also noted that such potential may not be realized. The Directors concluded that the profit margins of the Advisor and Rainier with respect to the management of the Series were not unreasonable. The Board also considered the Advisor’s willingness to continue its current expense limitation and fee waiver arrangements with the Series.
24
Diversified Tax Exempt Series
Renewal of Investment Advisory Agreement
(unaudited)
Conclusion
The conclusions described above, in part, formed the basis for the Board’s approval of the New Advisory Agreements at the May 3rd Board meeting. The Board concluded, in the exercise of its reasonable judgment, that the terms of the New Advisory Agreements, including the compensation to be paid thereunder, are reasonable in relation to the services expected to be provided by the Advisor and Rainier to the Series and that the appointment of the Advisor and Rainier and the approval of the New Advisory Agreements would be in the best interests of the Series and their shareholders. Based on the Directors’ deliberations and their evaluation of the information described above and other factors and information they believed relevant, the Board, including all of the Independent Directors, unanimously approved (a) the appointment of the Advisor as investment adviser to the Series and Rainier as investment sub-adviser to the Rainier Series, and (b) the New Advisory Agreements.
The Board did not indicate that any single factor was determinative of its decision to approve the Agreement, but indicated that the Board based its determination on the total mix of information available to it.
The New Advisory Agreements were approved by shareholders at Shareholder Meetings held on August 19, 2022, September 16, 2022 and October 18, 2022 and became effective upon the closing of the Transaction with Callodine on October 21, 2022.
25
Diversified Tax Exempt Series
Liquidity Risk Management Program Disclosure
(unaudited)
The Securities and Exchange Commission adopted Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”) to promote effective liquidity risk management by open-end investment companies and reduce Liquidity Risk, which is the risk that open-end investment companies are unable to meet redemption obligations without a significant dilution of remaining shareholder interests.
The Manning & Napier Fund, Inc. and each of its series (each a “Fund” or collectively, the “Funds”) adopted a Liquidity Risk Management Program (the “Program”) and obtained approval from the Board of Directors (the “Board”), including a majority of Directors who are not interested persons of the Fund, to appoint a Liquidity Risk Management Committee (the “Committee”) to assess and manage the Fund’s Liquidity Risk.
Under the Program, assessment and management of Liquidity Risk takes into consideration certain factors, such as each fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions, its short- and long-term cash-flow projections during both normal and reasonably foreseeable stressed conditions, and its cash and cash-equivalent holdings and access to other funding sources. As required by the rule, the Program includes policies and procedures for the classification of each Fund’s portfolio holdings into four liquidity categories, establishes a 15% limit on holdings of illiquid investments, and sets forth procedures for the override of vendor-derived classifications.
The Committee prepares an annual assessment (“assessment”) of the Program to review the operation of the Program, including the adequacy of controls designed to manage the Funds’ Liquidity Risk. Through this assessment, the Committee re-considers prior conclusions around each factor that the Fund must consider to assess, manage, and review its Liquidity Risk and evaluates the effectiveness of processes to classify Fund assets into liquidity categories, including Committee override determinations. As part of this evaluation the Committee re-affirms that each Fund operates as a Primarily Highly Liquid Fund, with greater than 50% of net assets consistently invested in Highly Liquid Investments, thereby negating a need to establish a Highly Liquid Investment Minimum for any Fund. Lastly, the assessment considers the effectiveness of the safeguards that the Committee adopted to prevent a violation of the Liquidity Rule’s limit on a Fund’s holding of Illiquid Investments.
The most recent assessment covered January 1, 2021, through December 31, 2021, and was presented to the Board in February 2022. This assessment confirmed that the Program continues to operate effectively in all material respects to address the requirements of the Liquidity Rule and manage the Funds’ Liquidity Risk.
26
Diversified Tax Exempt Series
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.manning-napier.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 directors and officers, 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 and Officer1
Name: | Paul Battaglia | |
Address: | 290 Woodcliff Drive | |
Fairport, NY 14450 | ||
Born: | 1978 | |
Current Position(s) Held with Fund: | Principal Executive Officer, President, Chairman and Director | |
Term of Office2 & Length of Time Served: | Indefinite – Chairman and Director since November 2018 | |
Principal Occupation(s) During Past 5 Years: | Chief Financial Officer since 2018; Vice President of Finance (2016 – 2018); Director of Finance (2011 – 2016); Financial Analyst/Internal Auditor (2004- 2006) – Manning & Napier Advisors, LLC and affiliates Holds one or more of the following titles for various subsidiaries and affiliates: Chief Financial Officer | |
Number of Portfolios Overseen within Fund Complex: | 15 | |
Other Directorships Held Outside Fund Complex During Past 5 Years: | N/A | |
Independent Directors
Name: | Stephen B. Ashley | |
Address: | 290 Woodcliff Drive | |
Fairport, NY 14450 | ||
Born: | 1940 | |
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 and Director since 1997; Chief Executive Officer (1997-2019) - Ashley Companies (property management and investment) | |
Number of Portfolios Overseen within Fund Complex: | 15 | |
Other Directorships Held Outside Fund Complex During Past 5 Years: | Ashley Companies since 1997 | |
Name: | Paul A. Brooke | |
Address: | 290 Woodcliff Drive | |
Fairport, NY 14450 | ||
Born: | 1945 | |
Current Position(s) Held with Fund: | Lead Independent Director, Audit Committee Member, Governance & Nominating Committee Member | |
Term of Office & Length of Time Served: | Indefinite – Director, Audit Committee Member, Governance & Nominating Committee Member since 2007; Lead Independent Director since 2017 | |
Principal Occupation(s) During Past 5 Years: | Managing Member since 1991 - PMSV Holdings LLC (investments); Managing Member (2010-2016) - VenBio (investments). | |
Number of Portfolios Overseen within Fund Complex: | 15 | |
Other Directorships Held Outside Fund Complex During Past 5 Years: | Incyte Corp. (biotech) (2000-2020); PureEarth (non-profit) since 2012; Cerus (biomedical) since 2016; Caelum BioSciences (biomedical) since 2018; Cheyne Capital International (investment)(2000-2017); | |
27
Diversified Tax Exempt Series
Directors’ and Officers’ Information
(unaudited)
Independent Directors (continued)
Name: | John Glazer | |
Address: | 290 Woodcliff Drive | |
Fairport, NY 14450 | ||
Born: | 1965 | |
Current Position(s) Held with Fund: | Director, Audit Committee Member, Governance & Nominating Committee Member | |
Term of Office & Length of Time Served: | Indefinite – Director, Audit Committee Member, Governance & Nominating Committee Member since February 2021 | |
Principal Occupation(s) During Past 5 Years: | Chief Executive Officer since 2020 – Oikos Holdings LLC (Single-Family Office); Head of Corporate Development (2019-2020) – Caelum Biosciences (pharmaceutical development); Head of Private Investments (2015-2018) – AC Limited (Single-Family Office) | |
Number of Portfolios Overseen within Fund Complex: | 15 | |
Other Directorships Held Outside Fund Complex During Past 5 Years: | N/A | |
Name: | Russell O. Vernon | |
Address: | 290 Woodcliff Drive | |
Fairport, NY 14450 | ||
Born: | 1957 | |
Current Position(s) Held with Fund: | Director, Audit Committee Member, Governance & Nominating Committee Chairman | |
Term of Office & Length of Time Served: | Indefinite – Director, Audit Committee Member, Governance & Nominating Committee Member since April 2020; Governance & Nominating Committee Chairman since November 2020 | |
Principal Occupation(s) During Past 5 Years: | Founder and General Partner (2009-2019) – BVM Capital Management (economic development) | |
Number of Portfolios Overseen within Fund Complex: | 15 | |
Other Directorships Held Outside Fund Complex During Past 5 Years: | Board Member, Vice Chairman and President since 2010 – Newburgh Armory Unity Center (military); Board Member and Executive Director since 2020 – National Purple Heart Honor Mission, Inc. (military); Board Member, Vice Chairman (2015-2020) – National Purple Heart Hall of Honor, Inc. (military) | |
Name: | Chester N. Watson | |
Address: | 290 Woodcliff Drive | |
Fairport, NY 14450 | ||
Born: | 1950 | |
Current Position(s) Held with Fund: | Director, Audit Committee Chairman, Governance & Nominating Committee Member | |
Term of Office & Length of Time Served: | Indefinite – Director, Audit Committee Member, Governance & Nominating Committee Member Since 2012; Audit Committee Chairman since 2013 | |
Principal Occupation(s) During Past 5 Years: | General Auditor (2003-2011) - General Motors Company (auto manufacturer) | |
Number of Portfolios Overseen within Fund Complex: | 15 | |
Other Directorships Held Outside Fund Complex During Past 5 Years: | Rochester Institute of Technology (University) since 2005; Hudson Valley Center for Innovation, Inc. (New Business and Economic Development) since 2019; Town of Greenburgh, NY Planning Board (Municipal Government) (2015-2019); | |
28
Diversified Tax Exempt Series
Directors’ and Officers’ Information
(unaudited)
Officers:
Name: | Elizabeth Craig | |
Address: | 290 Woodcliff Drive | |
Fairport, NY 14450 | ||
Born: | 1987 | |
Current Position(s) Held with Fund: | Corporate Secretary | |
Term of Office2 & Length of Time Served: | Since 2016 | |
Principal Occupation(s) During Past 5 Years: | Director of Fund Administration since 2021; Fund Regulatory Administration Manager (2018-2021); Fund Administration Manager (2015-2018) - Manning & Napier Advisors, LLC; Corporate Secretary, Director since 2019– Manning & Napier Investor Services, Inc. | |
Name: | Samantha Larew | |
Address: | 290 Woodcliff Drive | |
Fairport, NY 14450 | ||
Born: | 1980 | |
Current Position(s) Held with Fund: | Chief Compliance Officer and Anti-Money Laundering Compliance Officer | |
Term of Office2 & Length of Time Served: | Chief Compliance Officer since 2019; Anti-Money Laundering Compliance Officer since 2018 | |
Principal Occupation(s) During Past 5 Years: | Co-Director of Compliance since 2018; Compliance Communications Supervisor (2014-2018) - Manning & Napier Advisors, LLC& Affiliates; Broker-Dealer Chief Compliance Officer since 2013; Broker-Dealer Assistant Corporate Secretary since 2011 – Manning & Napier Investor Services, Inc.; | |
Name: | Scott Morabito | |
Address: | 290 Woodcliff Drive | |
Fairport, NY 14450 | ||
Born: | 1987 | |
Current Position(s) Held with Fund: | Vice President | |
Term of Office2 & Length of Time Served: | Vice President since 2019; Assistant Vice President (2017-2019) | |
Principal Occupation(s) During Past 5 Years: | Managing Director, Client Service and Business Operations since 2021; Managing Director of Operations (2019-2021); Director of Funds Group (2017-2019) - Manning & Napier Advisors, LLC; President, Director since 2018 – Manning & Napier Investor Services, Inc.; President, Exeter Trust Company since 2021; | |
Name: | Troy Statczar | |
Address: | 290 Woodcliff Drive | |
Fairport, NY 14450 | ||
Born: | 1971 | |
Current Position(s) Held with Fund: | Principal Financial Officer, Treasurer | |
Term of Office2 & Length of Time Served: | Principal Financial Officer and Treasurer since 2020 | |
Principal Occupation(s) During Past 5 Years: | Senior Principal Consultant, Fund Officers, since 2020 – ACA Group (formerly Foreside Financial Group); Director of Fund Administration (2017- 2019) - Thornburg Investment Management, Inc. | |
Name: | Sarah Turner | |
Address: | 290 Woodcliff Drive | |
Fairport, NY 14450 | ||
Born: | 1982 | |
Current Position(s) Held with Fund: | Chief Legal Officer; Assistant Corporate Secretary | |
Term of Office2 & Length of Time Served: | Since 2018 | |
Principal Occupation(s) During Past 5 Years: | General Counsel since 2018 - Manning & Napier Advisors, LLC and affiliates; Counsel (2017-2018) – Harter Secrest and Emery LLP Holds one or more of the following titles for various affiliates: General Counsel | |
1Interested Director, within the meaning of the 1940 Act by reason of his positions with the Fund’s Advisor, Manning & Napier Advisors, LLC, and Distributor, Manning & Napier Investor Services, Inc.
2The term of office of all officers shall be one year and until their respective successors are chosen and qualified, or his or her earlier resignation or removal as provided in the Fund’s By-Laws.
29
Diversified Tax Exempt Series
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-PORT, and are available, without charge, upon request:
By phone | 1-800-466-3863 |
On the SEC’s web site | http://www.sec.gov |
Prospectus and Statement of Additional Information (SAI)
For more information about any of the Manning & Napier Fund, Inc. Series, you may obtain a prospectus and SAI at www.manning-napier.com or by calling 1-(800) 466-3863. Before investing, carefully consider the objectives, risks, charges and expenses of the investment and read the prospectus carefully as it contains this and other information about the investment company. In addition, this information can be found on the SEC’s web site, http://www.sec.gov.
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 |
The Fund also offers electronic notification or “e-delivery” when certain documents are available on-line to be downloaded or reviewed. Direct shareholders can elect to receive electronic notification when shareholder reports, prospectus updates, and/or statements are available. If you do not currently have on-line access to your account, you can establish access by going to www.manning-napier.com, click on “Login” in the top corner of the page, and follow the prompts to self-enroll. Once enrolled, you can set your electronic notification preferences by clicking on the Account Options tab located within the green toolbar and then select E-Delivery Option. Should you have any questions on either how to establish on-line access or how to update your account settings, please contact Investor Services at 1-800-466-3863.
The Manning & Napier Fund, Inc. is managed by Manning & Napier Advisors, LLC. Manning & Napier Investor Services, Inc., an affiliate of Manning & Napier Advisors, LLC, is the distributor of the Fund shares.
MNDTE-12/22-AR
30
www.manning-napier.com
Manning & Napier Fund, Inc.
New York Tax Exempt Series
Independent Perspective | Real-World Solutions |
A Note from Our CEO
Dear Shareholder,
We are acutely aware of how difficult this year has been for our investors, in what has been a historically challenging year in the capital markets. A bear market in equities and a sharp correction in fixed income have each simultaneously occurred this year, resulting in one of the worst runs for blended stock-bond portfolios in the past two hundred years.
The global economy is facing inflationary pressures more significant than have been experienced over the past four decades. War in Europe, rising tensions in East Asia, and surging energy prices are all bringing renewed geopolitical tumult. Economic, social, and environmental pressures are manifesting themselves in rapid, and at times, dramatic and unexpected swings in election results domestically and abroad.
What have we been doing in response to the challenges abound, and, most significantly, what steps are we taking to ensure we deliver what our fund shareholders expect in the future? I’ll combine those steps into two main ways.
First, and by way of change, we have taken a meaningful evolutionary step to position Manning & Napier even more strongly for the years ahead. After eleven years as a public company, we went private in 2022 in partnership with the Callodine Group, returning to the status under which we operated for our first four decades. We believe being private will provide continuity for our investment strategies while allowing us to invest for the future.
The second step speaks even further to the value of continuity. Our fund shareholders can expect us to continue to rely on the consistent investment philosophies, disciplines, and time-tested processes that have guided our seasoned investors over multiple economic and capital markets cycles over the past half-century.
The past twelve months have been challenging for investors. It has reinforced the importance of long-term perspective and the value of having a clear investment plan.
Throughout the next chapter of Manning & Napier, we look forward to partnering with our mutual fund investors to help you realize the investment outcomes you need.
We thank and appreciate your continued confidence in our firm.
Sincerely, | |
Marc Mayer | |
Chief Executive Officer |
Corporate Headquarters | 290 Woodcliff Drive | Fairport, NY 14450 | (585) 325-6880 phone | (800) 551-0224 toll free | www.manning-napier.com
1
New York Tax Exempt Series
Fund Commentary
(unaudited)
Investment Objective
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 Series invests primarily in municipal bonds that provide income exempt from federal income tax and New York State personal income tax.
Performance Commentary
Fixed income markets, as measured by the Bloomberg US Aggregate Bond Index, experienced double-digit losses for the year, experiencing the worst calendar year on record going back to the late 1970s. Losses were primarily attributable to the sharp rise in interest rates that occurred as the Federal Reserve raised the federal funds rate seven times throughout the year for a total increase of 4.25% in an effort to bring down high levels of inflation. That stated, the municipal bond market fared much better as the rise in interest rates was dampened by continued investor demand and lower new issuance levels, causing yields to increase by less than taxable bonds.
The New York Tax-Exempt Series Class A shares delivered negative absolute returns and underperformed on a relative basis, returning -5.90% during the year versus -4.90% for its benchmark (i.e., the Intercontinental Exchange (ICE) Bank of America (BofA) 1-12 Year Municipal Bond Index).
Underperformance was primarily attributable to the Series’ longer duration and subsequent exposure to the long end of the yield curve as rates increased over the period.
Please note that the Fund’s Board of Directors approved the closure of the Series at their November 15, 2022 Board meeting. The Series has been closed and liquidated as of the end of business on 1/20/2023.
Performance for the New York Tax Exempt Series Class A shares is provided above. Performance for other shares classes will differ based on each class’ underlying expenses.
Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate, so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be higher or lower than that quoted; investors can obtain the most recent month-end performance at www.manning-napier.com or by calling (800) 466-3863.
Additional information and associated disclosures can be found on the Performance Update page of this report.
All investments involve risks, including possible loss of principal. There is an inverse relationship between bond prices and interest rates; as interest rates rise, bond prices (and therefore the value of bond funds) fall. Likewise, as interest rates fall, bond prices and the value of bond funds rise. The income earned by the Series may be subject to the Alternative Minimum Tax (AMT), depending on your tax situation.
2
New York Tax Exempt Series
Performance Update as of December 31, 2022
(unaudited)
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 2022 | |||
ONE YEAR1 | FIVE YEAR | TEN YEAR | |
New York Tax Exempt Series - Class A2 | (5.90%) | 0.82% | 0.66% |
New York Tax Exempt Series - Class W2,3 | (5.46%) | 1.23% | 0.87% |
Intercontinental Exchange (ICE) Bank of America (BofA) 1-12 Year Municipal Bond Index4 | (4.90%) | 1.33% | 1.63% |
The following graph compares the value of a $10,000 investment in the New York Tax Exempt Series - Class A for the ten years ended December 31, 2022 to the Intercontinental Exchange (ICE) Bank of America (BofA) 1-12 Year Municipal Bond Index.
1The returns shown are based on net asset values calculated for shareholder transactions and may differ from the returns shown in the financial highlights, which reflect adjustments made to the net asset values in accordance with accounting principles generally accepted in the United States of America.
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, 2022, this net expense ratio was 0.71% for Class A and 0.21% for Class W. The gross expense ratio, which does not account for any voluntary or contractual waivers currently in effect, was 0.71% for Class A and 0.71% for Class W for the year ended December 31, 2022.
3For periods through March 1, 2019 (the inception date of the Class W shares), performance for the Class W shares is based on the historical performance of the Class A shares. Because the Class W shares invest in the same portfolio of securities as the Class A shares, performance will be different only to the extent that the Class A shares have a higher expense ratio.
4The Intercontinental Exchange (ICE) Bank of America (BofA) 1-12 Year Municipal Bond Index is a subset of the ICE BofA U.S. Municipal Securities Index. The Index includes all U.S. dollar denominated investment grade tax-exempt debt with a remaining term to final maturity greater than one year, but less than twelve years. Qualifying securities must have at least 18 months to final maturity at the time of issuance and a fixed coupon schedule. The Index returns do not reflect any fees or expenses. Index returns provided by ICE Intercontinental Exchange (ICE). Index data referenced herein is the property of ICE Data Indices, LLC, its affiliates (“ICE Data”) and/or its third party suppliers and has been licensed for use by Manning & Napier. ICE Data and its third party suppliers accept no liability in connection with its use. Data provided is not a representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and none of these parties shall have any liability for any errors, omissions, or interruptions of any index or the data included therein. For additional disclosure information, please see: https://go.manning-napier.com/benchmark-provisions.
3
New York Tax Exempt Series
Shareholder Expense Example
(unaudited)
As a shareholder of the Series, you incur ongoing costs, including management fees, shareholder service 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 in each class at the beginning of the period and held for the entire period (July 1, 2022 to December 31, 2022).
Actual Expenses
The Actual lines of the table below provide information about actual account values and actual expenses. You may use the information in these lines, 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 Actual line for the Class in which you have invested 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 Hypothetical lines of each class in the table below provide information about hypothetical account values and hypothetical expenses based on the Class’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Class’ 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 a class of the Series and other funds. To do so, compare this 5% hypothetical example for the Class in which you have invested 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, such as sales charges (loads), redemption fees, or exchange fees that you may incur in other mutual funds. 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.
BEGINNING ACCOUNT VALUE 7/1/22 | ENDING ACCOUNT VALUE 12/31/22 | EXPENSES PAID DURING PERIOD* 7/1/22 - 12/31/22 | ANNUALIZED EXPENSE RATIO | |
Class A | ||||
Actual | $1,000.00 | $1,001.30 | $3.63 | 0.72% |
Hypothetical (5% return before expenses) | $1,000.00 | $1,021.58 | $3.67 | 0.72% |
Class W | ||||
Actual | $1,000.00 | $1,004.20 | $1.06 | 0.21% |
Hypothetical (5% return before expenses) | $1,000.00 | $1,024.15 | $1.07 | 0.21% |
*Expenses are equal to each Class’ annualized expense ratio (for the six-month period), 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 ratios stated above may differ from the expense ratios stated in the financial highlights, which are based on one-year data. The Class’ total return would have been lower had certain expenses not been waived or reimbursed during the period.
4
New York Tax Exempt Series
Portfolio Composition as of December 31, 2022
(unaudited)
Sector Allocation1 |
1As a percentage of net assets. |
2A U.S. Treasury Bill is a short-term obligation of the U.S. Treasury issued with a maturity less than one year. |
5
New York Tax Exempt Series
Investment Portfolio - December 31, 2022
PRINCIPAL AMOUNT1/ SHARES | VALUE (NOTE 2) | |||||||
NEW YORK MUNICIPAL BONDS - 91.2% | ||||||||
Albany | ||||||||
Public Impt., G.O. Bond, AGM, 3.000%, 1/15/2026 | 595,000 | $ | 599,413 | |||||
Public Impt., G.O. Bond, AGM, 3.000%, 1/15/2027 | 445,000 | 448,697 | ||||||
Albany County | ||||||||
Public Impt., Series A, G.O. Bond, 5.000%, 6/1/2024 | 250,000 | 257,769 | ||||||
Public Impt., Series A, G.O. Bond, 5.000%, 6/1/2026 | 430,000 | 464,049 | ||||||
Amsterdam City School District, G.O. Bond, AGM, 4.000%, 6/15/2024 | 1,135,000 | 1,147,667 | ||||||
Bath Central School District, G.O. Bond, 4.000%, 6/15/2025 | 750,000 | 768,377 | ||||||
Beacon City School District, G.O. Bond, 2.000%, 6/15/2024 | 390,000 | 384,060 | ||||||
Briarcliff Manor, Public Impt., G.O. Bond, 5.000%, 2/1/2023 | 400,000 | 400,501 | ||||||
Brighton Central School District | ||||||||
G.O. Bond, 2.125%, 6/15/2025 | 500,000 | 493,465 | ||||||
School Impt., G.O. Bond, 2.000%, 6/15/2026 | 1,520,000 | 1,490,543 | ||||||
School Impt., G.O. Bond, 2.000%, 6/15/2027 | 1,330,000 | 1,298,966 | ||||||
Brookhaven | ||||||||
Public Impt., Recreational Facility Impt., G.O. Bond, 4.000%, 3/15/2025 | 400,000 | 405,490 | ||||||
Public Impt., Recreational Facility Impt., G.O. Bond, 4.000%, 3/15/2026 | 1,155,000 | 1,171,163 | ||||||
Brookhaven-Comsewogue Union Free School District, School Impt., G.O. Bond, 2.250%, 5/15/2024 | 500,000 | 495,922 | ||||||
Buffalo, Public Impt., Recreational Facility Impt., Series A, G.O. Bond, 5.000%, 4/1/2024 | 250,000 | 256,714 | ||||||
Buffalo Municipal Water Finance Authority | ||||||||
Series A, Revenue Bond, 5.000%, 7/1/2023 | 300,000 | 302,873 | ||||||
Water Utility Impt., Series A, Revenue Bond, AGM, 5.000%, 7/1/2039 | 250,000 | 260,936 | ||||||
Water Utility Impt., Series A, Revenue Bond, AGM, 5.000%, 7/1/2043 | 600,000 | 622,024 | ||||||
Water Utility Impt., Series A, Revenue Bond, AGM, 5.000%, 7/1/2048 | 250,000 | 257,508 | ||||||
Clarkstown, Public Impt., Series A, G.O. Bond, 2.000%, 6/15/2026 | 535,000 | 525,673 | ||||||
Commack Union Free School District, School Impt., Series A, G.O. Bond, 1.000%, 6/15/2025 | 1,400,000 | 1,344,802 | ||||||
Dutchess County | ||||||||
Series B, G.O. Bond, 2.000%, 4/1/2026 | 1,175,000 | 1,155,895 | ||||||
Series B, G.O. Bond, 2.000%, 4/1/2027 | 1,000,000 | 978,401 |
PRINCIPAL AMOUNT1/ SHARES | VALUE (NOTE 2) | |||||||
NEW YORK MUNICIPAL BONDS (continued) | ||||||||
Enlarged City School District of Troy, G.O. Bond, BAM, 2.000%, 6/1/2026 | 500,000 | $ | 488,741 | |||||
Erie County | ||||||||
Public Impt., Series A, G.O. Bond, 5.000%, 9/15/2026 | 300,000 | 325,953 | ||||||
Public Impt., Series A, G.O. Bond, 5.000%, 9/15/2027 | 200,000 | 221,829 | ||||||
Erie County Fiscal Stability Authority, Series D Revenue Bond, 5.000%, 9/1/2038 | 1,000,000 | 1,052,983 | ||||||
Gates Chili Central School District | ||||||||
School Impt., G.O. Bond, 3.125%, 6/15/2024 | 300,000 | 300,171 | ||||||
School Impt., G.O. Bond, 3.125%, 6/15/2025 | 245,000 | 245,978 | ||||||
School Impt., G.O. Bond, 3.125%, 6/15/2026 | 265,000 | 266,799 | ||||||
Greece Central School District, G.O. Bond, BAM, 2.500%, 6/15/2023 | 620,000 | 618,869 | ||||||
Haverstraw-Stony Point Central School District, G.O. Bond, 2.250%, 10/15/2027 | 510,000 | 499,655 | ||||||
Kings Park Central School District, School Impt., G.O. Bond, 2.000%, 9/1/2024 | 415,000 | 409,630 | ||||||
Mamaroneck Union Free School District, School Impt., G.O. Bond, 4.000%, 8/15/2032 | 1,000,000 | 1,064,407 | ||||||
Metropolitan Transportation Authority, Transit Impt., Green Bond, Series C-1, Revenue Bond, 4.750%, 11/15/2045 | 1,175,000 | 1,107,899 | ||||||
Nassau County Interim Finance Authority | ||||||||
Series A, Revenue Bond, 5.000%, 11/15/2030 | 630,000 | 741,690 | ||||||
Series A, Revenue Bond, 4.000%, 11/15/2034 | 760,000 | 805,663 | ||||||
New Windsor | ||||||||
Public Impt., G.O. Bond, AGM, 3.000%, 6/15/2024 | 580,000 | 579,563 | ||||||
Public Impt., G.O. Bond, AGM, 3.000%, 6/15/2025 | 580,000 | 580,901 | ||||||
Public Impt., G.O. Bond, AGM, 3.000%, 6/15/2026 | 230,000 | 230,838 | ||||||
New York, Highway Impt., Series A, G.O. Bond, 5.000%, 3/15/2023 | 510,000 | 512,089 | ||||||
New York City | ||||||||
G.O. Bond, 5.000%, 8/1/2026 | 515,000 | 555,270 | ||||||
Public Impt., Series 2, G.O. Bond, 3.375%, 3/1/2025 | 500,000 | 484,262 | ||||||
Public Impt., Series D2, G.O. Bond, 3.430%, 12/1/2024 | 500,000 | 486,436 | ||||||
Series B-1, G.O. Bond, 5.000%, 8/1/2027 | 1,400,000 | 1,537,720 | ||||||
Series D, G.O. Bond, 1.216%, 8/1/2026 | 500,000 | 439,441 | ||||||
Series E, G.O. Bond, 5.000%, 8/1/2026 | 1,500,000 | 1,617,328 |
The accompanying notes are an integral part of the financial statements.
6
New York Tax Exempt Series
Investment Portfolio - December 31, 2022
PRINCIPAL AMOUNT1/ SHARES | VALUE (NOTE 2) | |||||||
NEW YORK MUNICIPAL BONDS (continued) | ||||||||
New York City Municipal Water Finance Authority | ||||||||
Revenue Bond, 5.000%, 6/15/2040 | 1,510,000 | $ | 1,626,936 | |||||
Water Utility Impt., Series CC-1, Revenue Bond, 5.000%, 6/15/2032 | 1,310,000 | 1,506,279 | ||||||
Water Utility Impt., Subseries BB-1, Revenue Bond, 5.000%, 6/15/2046 | 2,000,000 | 2,082,636 | ||||||
New York City Transitional Finance Authority Building Aid | ||||||||
Prerefunded Balance, Revenue Bond, 5.000%, 7/15/2023 | 390,000 | 393,574 | ||||||
Public Impt., Series S1, Revenue Bond, 5.000%, 7/15/2025 | 1,030,000 | 1,074,994 | ||||||
Public Impt., Series S2, Prerefunded Balance, Revenue Bond, 5.000%, 7/15/2023 | 1,905,000 | 1,925,466 | ||||||
Public Impt., Series S2, Unrefunded Balance, Revenue Bond, 5.000%, 7/15/2023 | 95,000 | 95,999 | ||||||
Unrefunded Balance, Revenue Bond, 5.000%, 7/15/2023 | 430,000 | 434,521 | ||||||
New York City Transitional Finance Authority Future Tax Secured | ||||||||
Public Impt., Revenue Bond, 5.000%, 5/1/2031 | 780,000 | 904,223 | ||||||
Revenue Bond, 5.000%, 11/1/2024 | 750,000 | 779,820 | ||||||
New York State Dormitory Authority | ||||||||
Highway Impt., Series A, Prerefunded Balance, Revenue Bond, 5.000%, 3/15/2027 | 1,115,000 | 1,214,685 | ||||||
School Impt., Series A, Prerefunded Balance, Revenue Bond, 5.000%, 3/15/2027 | 450,000 | 491,697 | ||||||
School Impt., Series A, Revenue Bond, BAM, 5.000%, 10/1/2031 | 2,500,000 | 2,873,326 | ||||||
School Impt., Series D, Revenue Bond, 5.000%, 2/15/2031 | 1,365,000 | 1,552,466 | ||||||
School Impt., Series D, Revenue Bond, AGM, 5.000%, 10/1/2030 | 1,000,000 | 1,115,101 | ||||||
School Impt., Series E, Prerefunded Balance, Revenue Bond, 5.000%, 3/15/2026 | 760,000 | 814,251 | ||||||
Series A, Prerefunded Balance, Revenue Bond, 5.000%, 7/1/2024 | 1,680,000 | 1,697,946 | ||||||
Series A, Unrefunded Balance, Revenue Bond, 5.000%, 2/15/2030 | 1,500,000 | 1,633,316 | ||||||
Series C, Prerefunded Balance, Revenue Bond, 0.887%, 3/15/2025 | 500,000 | 459,759 | ||||||
Series E, Revenue Bond, 5.000%, 3/15/2033 | 1,250,000 | 1,463,780 | ||||||
New York State Environmental Facilities Corp. | ||||||||
Water and Sewer, Series A, Revenue Bond, 5.000%, 6/15/2025 | 300,000 | 302,936 | ||||||
Water Utility Impt., Revenue Bond, 5.000%, 6/15/2028 | 2,250,000 | 2,536,047 | ||||||
PRINCIPAL AMOUNT1/ SHARES | VALUE (NOTE 2) | |||||||
NEW YORK MUNICIPAL BONDS (continued) | ||||||||
New York State Environmental Facilities Corp. (continued) | ||||||||
Water Utility Impt., Series B, Revenue Bond, 4.000%, 8/15/2046 | 2,000,000 | $ | 1,955,587 | |||||
New York State Thruway Authority | ||||||||
Highway Impt., Series A-1, Revenue Bond, 5.000%, 3/15/2023 | 1,025,000 | 1,029,161 | ||||||
Highway Impt., Series A-1, Revenue Bond, 5.000%, 3/15/2025 | 1,245,000 | 1,306,121 | ||||||
Series B, Revenue Bond, 4.000%, 1/1/2038 | 1,000,000 | 974,705 | ||||||
New York State Urban Development Corp. | ||||||||
Economic Impt., Series A, Revenue Bond, 5.000%, 3/15/2025 | 435,000 | 456,442 | ||||||
Economic Impt., Series B, Prerefunded Balance, Revenue Bond, 3.250%, 3/15/2025 | 800,000 | 771,687 | ||||||
Public Impt., Recreational Facility Impt., Revenue Bond, 5.000%, 3/15/2032 | 500,000 | 571,727 | ||||||
Public Impt., Series C-3, Revenue Bond, 5.000%, 3/15/2041 | 850,000 | 891,592 | ||||||
Series A, Prerefunded Balance, Revenue Bond, 5.000%, 3/15/2027 | 1,875,000 | 2,018,084 | ||||||
North Colonie Central School District, G.O. Bond, 2.000%, 7/15/2027 | 1,000,000 | 976,577 | ||||||
North Rose-Wolcott Central School District, G.O. Bond, AGM, 2.000%, 6/15/2025 | 500,000 | 491,385 | ||||||
Onondaga County, Public Impt., Telecommunications Impt., G.O. Bond, 5.000%, 5/15/2023 | 1,000,000 | 1,007,487 | ||||||
Orangetown, Series B, G.O. Bond, 5.000%, 9/15/2026 | 355,000 | 385,731 | ||||||
Perinton, G.O. Bond, 4.000%, 12/15/2023 | 160,000 | 161,543 | ||||||
Phelps-Clifton Springs Central School District, G.O. Bond, 3.750%, 6/15/2023 | 955,000 | 958,255 | ||||||
Port Authority of New York & New Jersey | ||||||||
Airport & Marina Impt., Consolidated Series 222, Revenue Bond, 5.000%, 7/15/2032 | 1,065,000 | 1,216,389 | ||||||
Consolidated Series 184, Revenue Bond, 5.000%, 9/1/2025 | 1,000,000 | 1,032,821 | ||||||
Sachem Central School District, G.O. Bond, 5.000%, 10/15/2023 | 250,000 | 253,888 | ||||||
Sales Tax Asset Receivable Corp. | ||||||||
Series A, Prerefunded Balance, Revenue Bond, 5.000%, 10/15/2028 | 2,500,000 | 2,600,438 | ||||||
Series A, Prerefunded Balance, Revenue Bond, 5.000%, 10/15/2030 | 520,000 | 540,656 | ||||||
Schenectady, School Impt., G.O. Bond, 2.000%, 12/15/2024 | 1,485,000 | 1,468,298 | ||||||
Smithtown, Public Impt., Recreational Facility Impt., G.O. Bond, 2.000%, 2/15/2023 | 435,000 | 434,525 |
The accompanying notes are an integral part of the financial statements.
7
New York Tax Exempt Series
Investment Portfolio - December 31, 2022
PRINCIPAL AMOUNT1/ SHARES | VALUE (NOTE 2) | |||||||
NEW YORK MUNICIPAL BONDS (continued) | ||||||||
South Glens Falls Central School District, Series A, G.O. Bond, 2.000%, 7/15/2027 | 2,655,000 | $ | 2,584,439 | |||||
South Jefferson Central School District, G.O. Bond, AGM, 4.000%, 4/15/2025 | 1,125,000 | 1,145,428 | ||||||
Sullivan County, Public Impt., G.O. Bond, 3.000%, 11/15/2023 | 500,000 | 501,036 | ||||||
Triborough Bridge & Tunnel Authority | ||||||||
Highway Impt., Series A, Revenue Bond, 5.000%, 11/15/2023 | 350,000 | 356,433 | ||||||
Highway Impt., Series A, Revenue Bond, 4.000%, 11/15/2044 | 500,000 | 474,842 | ||||||
Series B, Revenue Bond, 5.000%, 11/15/2023 | 2,000,000 | 2,036,758 | ||||||
Series B, Revenue Bond, 5.000%, 11/15/2029 | 360,000 | 394,985 | ||||||
Ulster County, G.O. Bond, 4.000%, 11/15/2025 | 490,000 | 509,499 | ||||||
Uniondale Union Free School District, School Impt., G.O. Bond, 5.000%, 5/1/2024 | 1,955,000 | 2,008,669 | ||||||
Vestal Central School District, G.O. Bond, 2.000%, 6/15/2025 | 685,000 | 670,030 | ||||||
Wappinger | ||||||||
Highway Impt., G.O. Bond, 2.000%, 10/1/2027 | 310,000 | 298,134 | ||||||
Highway Impt., G.O. Bond, 2.000%, 10/1/2028 | 320,000 | 304,530 | ||||||
Webster Central School District | ||||||||
School Impt., G.O. Bond, 2.125%, 10/15/2025 | 320,000 | 315,663 |
PRINCIPAL AMOUNT1/ SHARES | VALUE (NOTE 2) | |||||||
NEW YORK MUNICIPAL BONDS (continued) | ||||||||
Webster Central School District (continued) | ||||||||
School Impt., G.O. Bond, 2.250%, 10/15/2026 | 330,000 | $ | 326,068 | |||||
TOTAL MUNICIPAL BONDS (Identified Cost $94,814,206) | 91,114,394 | |||||||
MUTUAL FUND - 3.1% | ||||||||
iShares New York Muni Bond ETF | ||||||||
(Identified Cost $3,338,367) | 58,863 | 3,084,421 | ||||||
U.S. GOVERNMENT SECURITIES - 3.5% | ||||||||
U.S. Treasury Bills - 3.5% | ||||||||
U.S. Treasury Bill | ||||||||
4.103%, 2/16/20232 | 500,000 | 497,519 | ||||||
4.307%, 3/16/20232 | 500,000 | 495,819 | ||||||
4.415%, 4/13/20232 | 500,000 | 494,371 | ||||||
2.754%, 4/20/20232 | 500,000 | 493,507 | ||||||
4.510%, 5/4/20232 | 500,000 | 492,504 | ||||||
2.839%, 6/15/20232 | 500,000 | 489,993 | ||||||
2.893%, 7/13/20232 | 500,000 | 488,219 | ||||||
TOTAL U.S. GOVERNMENT SECURITIES (Identified Cost $3,461,403) | 3,451,932 | |||||||
SHORT-TERM INVESTMENT - 1.4% | ||||||||
Dreyfus Government Cash Management, Institutional Shares, 4.19%3 | ||||||||
(Identified Cost $1,403,712) | 1,403,712 | 1,403,712 | ||||||
TOTAL INVESTMENTS - 99.2% (Identified Cost $103,017,688) | 99,054,459 | |||||||
OTHER ASSETS, LESS LIABILITIES - 0.8% | 818,978 | |||||||
NET ASSETS - 100.0% | $ | 99,873,437 |
ETF - Exchange-Traded Fund
G.O. Bond - General Obligation Bond
Impt. - Improvement
Scheduled principal and interest payments are guaranteed by:
AGM (Assurance Guaranty Municipal Corp.)
BAM (Build America Mutual Assurance Co.)
The insurance does not guarantee the market value of the municipal bonds.
1Amount is stated in USD unless otherwise noted.
2Represents the annualized yield at time of purchase.
3Rate shown is the current yield as of December 31, 2022.
The accompanying notes are an integral part of the financial statements.
8
New York Tax Exempt Series
Statement of Assets and Liabilities
December 31, 2022
ASSETS: | ||||
Investments, at value (identified cost $103,017,688) (Note 2) | $ | 99,054,459 | ||
Interest receivable | 983,320 | |||
Receivable for fund shares sold | 162,458 | |||
Dividends receivable | 5,335 | |||
Prepaid expenses | 1,954 | |||
TOTAL ASSETS | 100,207,526 | |||
LIABILITIES: | ||||
Accrued fund accounting and administration fees (Note 3) | 18,807 | |||
Accrued Chief Compliance Officer service fees (Note 3) | 2,063 | |||
Accrued management fees (Note 3) | 666 | |||
Payable for fund shares repurchased | 284,591 | |||
Professional fees payable | 19,530 | |||
Other payables and accrued expenses | 8,432 | |||
TOTAL LIABILITIES | 334,089 | |||
TOTAL NET ASSETS | $ | 99,873,437 | ||
NET ASSETS CONSIST OF: | ||||
Capital stock. | $ | 103,515 | ||
Additional paid-in-capital. | 102,881,302 | |||
Total distributable earnings (loss) | (3,111,380 | ) | ||
TOTAL NET ASSETS | $ | 99,873,437 | ||
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE - Class A | ||||
($1,568,179/162,664 shares) | $ | 9.64 | ||
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE - Class W | ||||
($98,305,258/10,188,856 shares) | $ | 9.65 |
The accompanying notes are an integral part of the financial statements.
9
New York Tax Exempt Series
Statement of Operations
For the Year Ended December 31, 2022
INVESTMENT INCOME: | ||||
Interest | $ | 1,409,122 | ||
Dividends | 96,105 | |||
Total Investment Income | 1,505,227 | |||
EXPENSES: | ||||
Management fees (Note 3) | 458,476 | |||
Fund accounting and administration fees (Note 3) | 65,773 | |||
Directors’ fees (Note 3) | 11,070 | |||
Chief Compliance Officer service fees (Note 3) | 8,983 | |||
Professional fees | 66,925 | |||
Custodian fees | 2,540 | |||
Miscellaneous | 36,232 | |||
Total Expenses | 649,999 | |||
Less reduction of expenses (Note 3) | (450,440 | ) | ||
Net Expenses | 199,559 | |||
NET INVESTMENT INCOME | 1,305,668 | |||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: | ||||
Net realized gain (loss) on investments | (33,535 | ) | ||
Net change in unrealized appreciation (depreciation) on investments | (5,131,227 | ) | ||
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS | (5,164,762 | ) | ||
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | (3,859,094 | ) |
The accompanying notes are an integral part of the financial statements.
10
New York Tax Exempt Series
Statements of Changes in Net Assets
FOR THE YEAR ENDED 12/31/22 | FOR THE YEAR ENDED 12/31/21 | |||||||
INCREASE (DECREASE) IN NET ASSETS: | ||||||||
OPERATIONS: | ||||||||
Net investment income | $ | 1,305,668 | $ | 830,645 | ||||
Net realized gain (loss) on investments | (33,535 | ) | 3,380,547 | |||||
Net change in unrealized appreciation (depreciation) on investments | (5,131,227 | ) | (3,800,351 | ) | ||||
Net increase (decrease) from operations | (3,859,094 | ) | 410,841 | |||||
DISTRIBUTIONS TO SHAREHOLDERS (Note 9): | ||||||||
Class A | (8,387 | ) | (98,977 | ) | ||||
Class W | (980,360 | ) | (2,874,985 | ) | ||||
Total distributions to shareholders | (988,747 | ) | (2,973,962 | ) | ||||
CAPITAL STOCK ISSUED AND REPURCHASED: | ||||||||
Net increase (decrease) from capital share transactions (Note 5) | 52,167,824 | (52,921,093 | ) | |||||
Net increase (decrease) in net assets | 47,319,983 | (55,484,214 | ) | |||||
NET ASSETS: | ||||||||
Beginning of year | 52,553,454 | 108,037,668 | ||||||
End of year | $ | 99,873,437 | $ | 52,553,454 |
The accompanying notes are an integral part of the financial statements.
11
New York Tax Exempt Series
Financial Highlights - Class A
FOR THE YEAR ENDED | |||||||||||||||
12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 | |||||||||||
Per share data (for a share outstanding throughout each year): | |||||||||||||||
Net asset value - Beginning of year | $10.30 | $10.83 | $10.49 | $10.34 | $10.43 | ||||||||||
Income (loss) from investment operations: | |||||||||||||||
Net investment income1 | 0.09 | 0.11 | 0.14 | 0.16 | 0.14 | ||||||||||
Net realized and unrealized gain (loss) on investments | (0.70 | ) | (0.08 | ) | 0.36 | 0.34 | (0.08 | ) | |||||||
Total from investment operations | (0.61 | ) | 0.03 | 0.50 | 0.50 | 0.06 | |||||||||
Less distributions to shareholders: | |||||||||||||||
From net investment income | (0.05 | ) | (0.09 | ) | (0.10 | ) | (0.18 | ) | (0.15 | ) | |||||
From net realized gain on investments | — | (0.47 | ) | (0.06 | ) | (0.17 | ) | — | |||||||
Total distributions to shareholders | (0.05 | ) | (0.56 | ) | (0.16 | ) | (0.35 | ) | (0.15 | ) | |||||
Net asset value - End of year | $9.64 | $10.30 | $10.83 | $10.49 | $10.34 | ||||||||||
Net assets - End of year (000’s omitted) | $1,568 | $1,931 | $1,797 | $1,952 | $138,694 | ||||||||||
Total return2 | (5.90% | ) | 0.24% | 4.73% | 4.86% | 0.54% | |||||||||
Ratios (to average net assets)/Supplemental Data: | |||||||||||||||
Expenses | 0.71% | 0.79% | 0.67% | 0.63% | 0.62% | ||||||||||
Net investment income | 0.90% | 0.99% | 1.29% | 1.56% | 1.39% | ||||||||||
Series portfolio turnover | 8% | 31% | 35% | 24% | 21% |
1Calculated based on average shares outstanding during the years.
2Represents aggregate total return for the years indicated, and assumes reinvestment of all distributions.
The accompanying notes are an integral part of the financial statements.
12
New York Tax Exempt Series
Financial Highlights - Class W
FOR THE YEAR ENDED | FOR THE | |||||||||||
12/31/22 | 12/31/21 | 12/31/20 | PERIOD 3/1/191 TO 12/31/19 | |||||||||
Per share data (for a share outstanding throughout each period): | ||||||||||||
Net asset value - Beginning of period | $10.31 | $10.84 | $10.49 | $10.45 | ||||||||
Income (loss) from investment operations: | ||||||||||||
Net investment income2 | 0.14 | 0.16 | 0.19 | 0.19 | ||||||||
Net realized and unrealized gain (loss) on investments | (0.70 | ) | (0.07 | ) | 0.37 | 0.25 | ||||||
Total from investment operations | (0.56 | ) | 0.09 | 0.56 | 0.44 | |||||||
Less distributions to shareholders: | ||||||||||||
From net investment income | (0.10 | ) | (0.15 | ) | (0.15 | ) | (0.23 | ) | ||||
From net realized gain on investments | — | (0.47 | ) | (0.06 | ) | (0.17 | ) | |||||
Total distributions to shareholders | (0.10 | ) | (0.62 | ) | (0.21 | ) | (0.40 | ) | ||||
Net asset value - End of period | $9.65 | $10.31 | $10.84 | $10.49 | ||||||||
Net assets - End of period (000’s omitted) | $98,305 | $50,622 | $106,241 | $87,721 | ||||||||
Total return3 | (5.46% | ) | 0.80% | 5.33% | 4.23% | |||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||
Expenses* | 0.21% | 0.29% | 0.17% | 0.16%4 | ||||||||
Net investment income | 1.43% | 1.50% | 1.77% | 2.09%4 | ||||||||
Series portfolio turnover | 8% | 31% | 35% | 24% | ||||||||
*The investment advisor did not impose all or a portion of its management and/or other fees during the periods, and may have paid a portion of the Series’ expenses. If these expenses had been incurred by the Class, the expense ratio (to average net assets) would have increased by the following amounts: | ||||||||||||
0.50% | 0.50% | 0.50% | 0.50%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.
13
New York Tax Exempt Series
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 Series is authorized to issue two classes of shares (Class A and Class W). While each class of shares is substantially the same, each class has its own investment eligibility criteria and cost structure.
The Fund’s advisor is Manning & Napier Advisors, LLC (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 15 billion shares of common stock each having a par value of $0.01. As of December 31, 2022, 6.3 billion shares have been designated in total among 15 series, of which 100 million have been designated as New York Tax Exempt Series Class A common stock and 50 million have been designated as New York Tax Exempt Series Class W common stock.
2. | Significant Accounting Policies |
The following is a summary of significant accounting policies followed by the Series. The Series is an investment company and, accordingly, follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board Accounting Standards Codification Topic 946 - Investment Companies, which is part of accounting principles generally accepted in the United States of America (“GAAP”).
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 may be valued at amortized cost, which approximates fair 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. In these instances, fair value is measured 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 to value these securities may differ from the value that would be realized if these securities were sold, and the differences could be material.
Fair Value
The Series’ financial instruments are valued at the close of the NYSE and are reported at fair value, which GAAP defines as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Board has designated the Advisor as the Fund’s valuation designee (Valuation Designee) to make all fair value determinations with respect to each Series’ portfolio investments. Subject to oversight by the Board, the Valuation Designee performs the following functions in performing fair value determinations: assesses and manages valuation risks; establishes and applies fair value methodologies; tests fair value methodologies; and evaluates pricing vendors and pricing agents. The Advisor has adopted and implemented policies and procedures to be followed when making fair value determinations, and it has established a Valuation Committee through which the Advisor makes fair value determinations. The Valuation Designee provides periodic reporting to the Board on valuation matters. The Advisor’s determination of a security’s fair value price often involves the consideration of a number of subjective factors, and is therefore subject to the unavoidable risk that the value assigned to a security may be higher or lower than the security’s value would be if a reliable market quotation for the security was readily available. 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.
14
New York Tax Exempt Series
Notes to Financial Statements (continued)
2. | Significant Accounting Policies (continued) |
Fair Value (continued)
The Advisor may use a pricing service to obtain the value of the Fund’s portfolio securities where the prices provided by such pricing service are believed to reflect the fair market value of such securities. The methods used by the pricing service and the valuations so established will be reviewed by the Advisor under the general supervision of the Fund’s Board of Directors. Several pricing services are available, one or more of which may be used by the Advisor, as approved by the Board. A change in a pricing service or a material change in a pricing methodology for investments with no readily available market quotations will be reported to the Board by the Advisor in accordance with certain requirements.
GAAP establishes the following fair value hierarchy that categorizes the inputs used to measure fair value. Level 1 includes quoted prices (unadjusted) in active markets for identical financial instruments that the Series’ can access at the reporting date. Level 2 includes other significant observable inputs (including, but not limited to, quoted prices for similar financial instruments in active markets, quoted prices for identical or similar financial instruments in inactive markets, interest rates and yield curves, implied volatilities, and credit spreads). Level 3 includes unobservable inputs (including the Valuation Designee’s own assumptions in determining fair value). A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input both individually and in aggregate that is significant to the fair value measurement. 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, 2022 in valuing the Series’ assets or liabilities carried at fair value:
DESCRIPTION | TOTAL | LEVEL 1 | LEVEL 2 | LEVEL 3 | ||||||||||||
Assets: | ||||||||||||||||
Debt securities: | ||||||||||||||||
New York Municipal Bonds | $ | 91,114,394 | $ | — | $ | 91,114,394 | $ | — | ||||||||
U.S. Treasury and other U.S. Government agencies | 3,451,932 | — | 3,451,932 | — | ||||||||||||
Mutual fund | 3,084,421 | 3,084,421 | — | — | ||||||||||||
Short-Term Investment | 1,403,712 | 1,403,712 | — | — | ||||||||||||
Total assets | $ | 99,054,459 | $ | 4,488,133 | $ | 94,566,326 | $ | — |
There were no Level 3 securities held by the Series as of December 31, 2021 or December 31, 2022.
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 Series is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair 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.
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.
15
New York Tax Exempt Series
Notes to Financial Statements (continued)
2. | Significant Accounting Policies (continued) |
Federal Taxes (continued)
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, 2022, 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, 2019 through December 31, 2022. The Series 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 GAAP 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 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 and are reimbursed for travel and other out-of-pocket expenses incurred by them in connection with attending such meetings. The Fund also has an Audit Committee Chair, Governance & Nominating Committee Chair and Lead Independent Director, who each receive an additional annual stipend for these roles.
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
New York Tax Exempt Series
Notes to Financial Statements (continued)
3. | Transactions with Affiliates (continued) |
Pursuant to a master services agreement, the Fund pays the Advisor an annual fee related to fund accounting and administration of 0.0085% on the first $25 billion of average daily net assets; 0.0075% on the next $15 billion of average daily net assets; and 0.0065% of average daily net assets in excess of $40 billion; plus a base fee of $30,400 per series. Additionally, certain transaction and out-of-pocket expenses, including charges for reporting relating to the Fund’s compliance program, are charged. The Advisor has agreements with BNY Mellon Investment Servicing (U.S.) Inc. (“BNY”) under which BNY serves as sub-accountant services agent.
Pursuant to an advisory fee waiver agreement, the Advisor has contractually agreed to waive the management fee for the Class W shares. The full management fee will be waived under this agreement because Class W shares are only available to discretionary investment accounts and other accounts managed by the Advisor. These clients pay a management fee to the Advisor that is separate from the Fund’s expenses. In addition, pursuant to a separate expense limitation agreement, the Advisor has contractually agreed to limit its fees and reimburse expenses to the extent necessary so that the total direct annual fund operating expenses, exclusive of the waived Class W management fees (collectively, “excluded expenses”), do not exceed 0.85% of the average daily net assets of the Class A shares and 0.35% of the average daily net assets of the Class W shares. These contractual waivers are expected to continue indefinitely, and may not be amended or terminated by the Advisor without the approval of the Series’ Board of Directors. The Advisor may receive from a Class the difference between the Class’s total direct annual fund operating expenses, not including excluded expenses, and the Class’s contractual expense limit to recoup all or a portion of its prior fee waivers (other than Class W management fee waivers) or expense reimbursements made during the rolling three-year period preceding the recoupment if at any point the total direct annual fund operating expenses, not including excluded expenses, are below the contractual expense limit (a) at the time of the fee waiver and/or expense reimbursement and (b) at the time of the recoupment.
Pursuant to the advisory fee waiver, the Advisor waived $450,440 in management fees for Class W shares for the year ended December 31, 2022. This amount is included as a reduction of expenses on the Statement of Operations.
As of December 31, 2022, there are no expenses eligible to be recouped by the Advisor.
4. | Purchases and Sales of Securities |
For the year ended December 31, 2022, purchases and sales of securities, other than U.S. Government securities and short-term securities, were $57,466,430 and $4,280,000, respectively. Sales of U.S. Government securities, other than short-term securities, were $2,227,527. There were no purchases of U.S. Government securities.
5. | Capital Stock Transactions |
Transactions in shares of Class A and Class W of New York Tax Exempt Series were:
CLASS A | FOR THE YEAR ENDED 12/31/22 | FOR THE YEAR ENDED 12/31/21 | ||||||||||||||
SHARES | AMOUNT | SHARES | AMOUNT | |||||||||||||
Sold | 10,589 | $ | 101,788 | 17,220 | $ | 185,742 | ||||||||||
Reinvested | 760 | 7,331 | 9,384 | 97,244 | ||||||||||||
Repurchased | (36,117 | ) | (355,258 | ) | (5,153 | ) | (55,716 | ) | ||||||||
Total | (24,768 | ) | $ | (246,139 | ) | 21,451 | $ | 227,270 |
17
New York Tax Exempt Series
Notes to Financial Statements (continued)
5. | Capital Stock Transactions (continued) |
CLASS W | FOR THE YEAR ENDED 12/31/22 | FOR THE YEAR ENDED 12/31/21 | ||||||||||||||
SHARES | AMOUNT | SHARES | AMOUNT | |||||||||||||
Sold | 6,496,391 | $ | 64,210,954 | 512,584 | $ | 5,518,545 | ||||||||||
Reinvested | 95,588 | 922,213 | 268,406 | 2,789,603 | ||||||||||||
Repurchased | (1,315,079 | ) | (12,719,204 | ) | (5,673,889 | ) | (61,456,511 | ) | ||||||||
Total | 5,276,900 | $ | 52,413,963 | (4,892,899 | ) | $ | (53,148,363 | ) |
Over 90% of the shares outstanding are fiduciary accounts where the Advisor has sole investment discretion.
6. | Line of Credit |
The Fund has entered into a 364-day, $50 million credit agreement (the “line of credit”) with Bank of New York Mellon. Each series of the Fund may borrow under the line of credit for temporary or emergency purposes, including funding shareholder redemptions and other short-term liquidity purposes. The Fund pays an annual fee on the unused commitment amount, payable quarterly, and is allocated among all the series of the Fund and included in miscellaneous expenses in the Statement of Operations for each series. The line of credit expires in September 2023 unless extended or renewed. During the year ended December 31, 2022, the Series did not borrow under the line of credit.
7. | 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. The Series may be subject 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 derivative 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 as of December 31, 2022.
8. | 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.
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 GAAP. These differences are primarily due to differing book and tax treatments in the timing and/or treatment of the recognition of net investment income or gains and losses, including market discount on investments and tax equalization. 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. For the year ended December 31, 2022, amounts were reclassified within the capital accounts to increase Additional Paid in Capital by $45,350 and decrease Total Distributable Earnings (Loss) by $45,350. Any such reclassifications are not reflected in the financial highlights.
18
New York Tax Exempt Series
Notes to Financial Statements (continued)
9. | Federal Income Tax Information (continued) |
The tax character of distributions paid were as follows:
FOR THE YEAR ENDED 12/31/22 | FOR THE YEAR ENDED 12/31/21 | |||||||
Ordinary income | $ | 53,042 | $ | 257,981 | ||||
Tax exempt income | $ | 935,705 | $ | 684,443 | ||||
Long-term capital gains | $ | — | $ | 2,031,538 |
At December 31, 2022, the tax basis of components of distributable earnings and the net unrealized depreciation based on the identified cost of investments for federal income tax purposes were as follows:
Cost for federal income tax purposes | $ | 103,042,897 | ||
Unrealized appreciation | 48,970 | |||
Unrealized depreciation | (4,037,408 | ) | ||
Net unrealized depreciation | $ | (3,988,438 | ) | |
Undistributed tax exempt income | $ | 910,369 | ||
Capital loss carryforwards | $ | (33,308 | ) |
As of December 31, 2022, the Series had net short-term capital loss carryforwards of $33,308, which may be carried forward indefinitely.
10. | Market Event |
Significant disruptions and volatility in the global financial markets and economies, like the current conditions caused by the Russian invasion of Ukraine and the COVID-19 pandemic, could negatively impact the investment performance of the Series. The global market and economic climate may become increasingly uncertain due to numerous factors beyond our control, including but not limited to, the effectiveness and acceptance of vaccines to prevent COVID-19, impacts on business operations in the U.S. related to the COVID-19 pandemic, such as supply chain disruptions and inflation, concerns related to unpredictable global market and economic factors, uncertainty in U.S. federal fiscal, tax, trade or regulatory policy and the fiscal, tax, trade or regulatory policy of foreign governments, rising interest rates, inflation or deflation, the availability of credit, performance of financial markets, terrorism, natural or biological catastrophes, public health emergencies, or political uncertainty.
11. | Subsequent Events |
The Board approved the liquidation of the Series, which occurred on January 20, 2023. Effective December 2, 2022, the Series was closed to any new investors. Effective January 6, 2023, the Series stopped selling shares to existing shareholders and no longer accepted automatic investments from existing shareholders. Effective January 6, 2023, the Advisor voluntarily began waiving its management fees.
19
New York Tax Exempt Series
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
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the investment portfolio, of New York Tax Exempt Series (one of the series constituting Manning & Napier Fund, Inc., referred to hereafter as the “Fund”) as of December 31, 2022, the related statement of operations for the year ended December 31, 2022, the statement of changes in net assets for each of the two years in the period ended December 31, 2022, including the related notes, and the financial highlights for each of the periods indicated therein (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2022, 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 ended December 31, 2022 and the financial highlights for each of the periods indicated therein in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of December 31, 2022 by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.
Subsequent Event
As discussed in Note 11 to the financial statements, the Series was liquidated on January 20, 2023, pursuant to approval of the Board of Directors.
New York, New York
February 23, 2023
We have served as the auditor of one or more investment companies in Manning & Napier Mutual Funds since 1992.
20
New York Tax Exempt Series
Renewal of Investment Advisory Agreement
(unaudited)
At the Manning & Napier Fund, Inc. (the “Fund”) Board of Directors’ (the “Board”) Special meeting, held on May 3, 2022 (the “May 3rd Board Meeting”), a new Investment Advisory Agreement between the Fund and Manning & Napier Advisors, LLC (the “Advisor”) and on behalf of the Rainier International Discovery Series (the “Rainier Series”), a new investment advisory agreement between the Advisor and the Fund and a new investment sub-advisory agreement between Advisor and Rainier Investment Management, LLC (“Rainier”) (together, the “New Advisory Agreements”), were considered for approval by the Board, including all of the Directors who are not “interested persons” (“Independent Directors”), within the meaning of the Investment Company Act of 1940, as amended (the “1940 Act”). The Board was asked to consider the New Advisory Agreements because of a transaction that impacted Manning & Napier, Inc. (“MN Inc.”), the ultimate parent company of the Advisor and Rainier.
On March 31, 2022, MN Inc. and Callodine Group, LLC (“Callodine”) entered into an agreement under which an affiliate of Callodine would acquire MN Inc. (the “Transaction”). The Transaction, which was subject to customary closing conditions, closed on October 21, 2022. Following the closing, both the Advisor and Rainier are now indirectly owned and controlled by Callodine MN Holdings, Inc., which, in turn, is controlled by Callodine Group, LLC and its founder James Morrow. East Asset Management, LLC, and its owners Terrence and Kim Pegula, also indirectly hold a substantial interest in Callodine MN Holdings, Inc.
The Transaction was deemed to result in a change of control of the Advisor and Rainier under the 1940 Act, and therefore resulted in the assignment and automatic termination of the investment advisory agreement and sub-advisory agreement pursuant to which the Advisor and Rainier provided advisory services to each Series of the Fund (the “Existing Advisory Agreements”). The Board was asked to consider the approval of the New Advisory Agreements, to become effective upon shareholder approval, so that the Advisor and Sub-Advisor’s management of the Series would continue without any interruption.
Board Considerations in Approving the New Advisory Agreements
The Board met on April 8, April 13, April 27 and May 3 in person and by video conference to consider and discuss the New Advisory Agreements. At each of those meetings, the Independent Directors also met separately with their independent counsel outside the presence of Fund Management. In preparation for those Board meetings, the Independent Directors requested that the Advisor, Rainier and Callodine furnish information necessary for the Directors to evaluate the terms of the New Advisory Agreements. The Advisor and Rainier were the only investment advisers the Directors considered at such meetings. The Independent Directors also submitted a number of follow-up requests to the Advisor for additional information based on the Board’s review of information provided in response to its initial requests. The Board also considered information that the Board previously reviewed in connection with its approval of the Existing Advisory Agreements for initial terms of two years, which occurred at a meeting held on April 22, 2020, as well as information presented in 2021 that covered similar matters but for which no approval was sought at that time. The Board further considered that the Existing Advisory Agreements were subject to shareholder consideration and were approved by shareholders at a special meeting held on June 30, 2020 and August 18, 2020. At the Meeting on May 3rd, the Board additionally reviewed information provided in connection with the proposed renewal of the Existing Advisory Agreements. The Directors used this information, as well as other information submitted to the Board in connection with the recent Board meetings noted above, and other meetings held since the most recent approval of the Existing Advisory Agreements, to help them decide whether to approve the New Advisory Agreements for initial two-year terms.
Specifically, the Board requested and received written materials from the Advisor and Rainier regarding, among other things: (i) the terms, conditions, and expected timing of the Transaction; (ii) the nature, extent and quality of the services to be provided by the Advisor and Rainier under the New Advisory Agreements; (iii) the proposed advisory fee to be paid to the Advisor and Rainier under the New Advisory Agreements; (iv) the Advisor and Rainier’s compliance programs; and (v) the Advisor and Rainier’s investment management personnel. In addition, the Board considered information provided to them with respect to Callodine, its business and affiliates, as well as its objectives and plans related to the Advisor. The Independent Directors considered their discussion about business strategy with a representative from Callodine who attended the April 13th meeting.
At the May 3rd Board meeting, the Directors, including all of the Independent Directors, based on their evaluation of the information provided by the Advisor, Rainier, Callodine and other service providers of the Series, approved the New Advisory Agreements. Specifically, the Directors considered information presented by the Advisor and Rainier at a meeting of the Board held on May 3, 2022, specifically regarding among other areas: (i) the services provided by the Advisor and Rainier; (ii) the investment performance of the Series, the Advisor and Rainier; and (iii) the profitability of the overall relationship to the Advisor and Rainier.
21
New York Tax Exempt Series
Renewal of Investment Advisory Agreement
(unaudited)
The Independent Directors also received advice at the May 3rd Board meeting and other recent Board meetings from independent counsel and met in executive session outside the presence of Fund management. In considering the approval of the New Advisory Agreements, the Board considered various factors that they determined were relevant, including: (i) the nature, extent and quality of the services to be provided by the Advisor and Rainier; (ii) the investment performance of the Series, the Advisor and Rainier; and (iii) the fees to be paid to the Advisor and Rainier under the New Advisory Agreements, as discussed in further detail below. In addition, the Board, in considering the New Advisory Agreements in the context of the Transaction, relied upon representations from the Advisor and Rainier that: (i) the Transaction would not result in any material changes to the nature, quality and extent of services provided to the Series by the Advisor and Rainier that are discussed below; (ii) the Advisor and Rainier did not anticipate any material changes to their compliance programs or code of ethics in connection with the Transaction; and (iii) the portfolio managers and investment process for the Series would not change as a result of the Transaction.
Nature, Extent and Quality of Services Provided by the Advisor and Rainier
In considering the nature, extent and quality of the services to be provided by the Advisor and Rainier, the Board reviewed the portfolio management services to be provided by the Advisor and Rainier to the Series, including the quality of the continuing portfolio management personnel and investment process, as well as the Advisor and Rainier’s compliance history and compliance program. The Directors reviewed the terms of the proposed New Advisory Agreements, and noted that the New Advisory Agreements do not materially differ from the Existing Advisory Agreements. The Directors also reviewed the Advisor and Rainier’s investment and risk management approaches for the Series. The most recent investment adviser registration forms (Form ADV) for the Advisor and Rainier also were available to the Board. The Directors also considered other services to be provided to the Series by the Advisor specifically, such as monitoring Rainier’s adherence to the Series’ investment restrictions and monitoring compliance with various Fund policies and procedures and with applicable securities laws and regulations. Based on the factors above, as well as those discussed below, the Board concluded, within the context of its full deliberations, that the nature, extent and quality of the services to be provided to each Series by the Advisor and Rainier under the New Advisory Agreements support approval of the New Advisory Agreements.
Investment Performance of the Advisor and Rainier
In connection with its most recent approvals of the Existing Advisory Agreements and other meetings held during the course of the period since then, the Board was provided with reports – both proprietary to the Advisor or the Fund and generated by independent providers of investment company data – regarding the performance of each Series over various time periods. As part of these meetings, the Advisor and Rainier and their representatives provided information regarding and, as applicable, led discussions of factors impacting the Advisor and Rainier’s performance for the Series, outlining current market conditions and explaining their expectations and strategies for the future. The Directors determined that it was appropriate to take into account its consideration of the Advisor and Rainier’s performance at meetings held prior to the May 3rd Board meeting. In doing so, the Directors generally determined that the Advisor and Rainier’s performance was satisfactory. Where the Advisor or Rainier’s performance was materially below a Series’ benchmarks and or peer group, the Directors requested an explanation for the underperformance and/or the steps taken by the Advisor and Rainier in an effort to improve performance. In all instances, the Directors were satisfied with the explanation provided. The Directors plan to remain focused in future meetings to address aberrational underperformance. The Directors will continue to monitor the fees and expenses of the Series compared to peer groups. Based on this information and the Advisor and Rainier’s representations that the portfolio managers for the Series would not change in connection with the Transaction, the Board concluded, within the context of its full deliberations, that the investment results that the Advisor and Rainier had been able to achieve for each Series support approval of the New Advisory Agreements.
Costs of Advisory Services, Profitability and Economies of Scale
With respect to the cost of advisory services, the Board considered that the investment advisory fees payable to the Advisor and Rainier under the New Advisory Agreements are the same as the investment advisory fee payable to the Advisor and Rainier under the Existing Advisory Agreements. With respect to profitability and economies of scale, at the May 3rd Board meeting, the Board considered the Advisor and Rainier’s profitability and economies of scale from management of the Series. The Board noted the Advisor’s explanation of the consistent approach taken in calculating profitability, compared to prior periods, including the allocation of expenses as part of that calculation. The Directors noted that certain Series were not yet at sufficient scale to be profitable. The Directors noted the potential for the Transaction to add resources that could improve economies of scale for various Series; however, they also noted that such potential may not be realized. The Directors concluded that the profit margins of the Advisor and Rainier with respect to the management of the Series were not unreasonable. The Board also considered the Advisor’s willingness to continue its current expense limitation and fee waiver arrangements with the Series.
22
New York Tax Exempt Series
Renewal of Investment Advisory Agreement
(unaudited)
Conclusion
The conclusions described above, in part, formed the basis for the Board’s approval of the New Advisory Agreements at the May 3rd Board meeting. The Board concluded, in the exercise of its reasonable judgment, that the terms of the New Advisory Agreements, including the compensation to be paid thereunder, are reasonable in relation to the services expected to be provided by the Advisor and Rainier to the Series and that the appointment of the Advisor and Rainier and the approval of the New Advisory Agreements would be in the best interests of the Series and their shareholders. Based on the Directors’ deliberations and their evaluation of the information described above and other factors and information they believed relevant, the Board, including all of the Independent Directors, unanimously approved (a) the appointment of the Advisor as investment adviser to the Series and Rainier as investment sub-adviser to the Rainier Series, and (b) the New Advisory Agreements.
The Board did not indicate that any single factor was determinative of its decision to approve the Agreement, but indicated that the Board based its determination on the total mix of information available to it.
The New Advisory Agreements were approved by shareholders at Shareholder Meetings held on August 19, 2022, September 16, 2022 and October 18, 2022 and became effective upon the closing of the Transaction with Callodine on October 21, 2022.
23
New York Tax Exempt Series
Liquidity Risk Management Program Disclosure
(unaudited)
The Securities and Exchange Commission adopted Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”) to promote effective liquidity risk management by open-end investment companies and reduce Liquidity Risk, which is the risk that open-end investment companies are unable to meet redemption obligations without a significant dilution of remaining shareholder interests.
The Manning & Napier Fund, Inc. and each of its series (each a “Fund” or collectively, the “Funds”) adopted a Liquidity Risk Management Program (the “Program”) and obtained approval from the Board of Directors (the “Board”), including a majority of Directors who are not interested persons of the Fund, to appoint a Liquidity Risk Management Committee (the “Committee”) to assess and manage the Fund’s Liquidity Risk.
Under the Program, assessment and management of Liquidity Risk takes into consideration certain factors, such as each fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions, its short- and long-term cash-flow projections during both normal and reasonably foreseeable stressed conditions, and its cash and cash-equivalent holdings and access to other funding sources. As required by the rule, the Program includes policies and procedures for the classification of each Fund’s portfolio holdings into four liquidity categories, establishes a 15% limit on holdings of illiquid investments, and sets forth procedures for the override of vendor-derived classifications.
The Committee prepares an annual assessment (“assessment”) of the Program to review the operation of the Program, including the adequacy of controls designed to manage the Funds’ Liquidity Risk. Through this assessment, the Committee re-considers prior conclusions around each factor that the Fund must consider to assess, manage, and review its Liquidity Risk and evaluates the effectiveness of processes to classify Fund assets into liquidity categories, including Committee override determinations. As part of this evaluation the Committee re-affirms that each Fund operates as a Primarily Highly Liquid Fund, with greater than 50% of net assets consistently invested in Highly Liquid Investments, thereby negating a need to establish a Highly Liquid Investment Minimum for any Fund. Lastly, the assessment considers the effectiveness of the safeguards that the Committee adopted to prevent a violation of the Liquidity Rule’s limit on a Fund’s holding of Illiquid Investments.
The most recent assessment covered January 1, 2021, through December 31, 2021, and was presented to the Board in February 2022. This assessment confirmed that the Program continues to operate effectively in all material respects to address the requirements of the Liquidity Rule and manage the Funds’ Liquidity Risk.
24
New York Tax Exempt Series
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.manning-napier.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 directors and officers, 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 and Officer1
Name: | Paul Battaglia |
Address: | 290 Woodcliff Drive Fairport, NY 14450 |
Born: | 1978 |
Current Position(s) Held with Fund: | Principal Executive Officer, President, Chairman and Director |
Term of Office2 & Length of Time Served: | Indefinite – Chairman and Director since November 2018 |
Principal Occupation(s) During Past 5 Years: | Chief Financial Officer since 2018; Vice President of Finance (2016 – 2018); Director of Finance (2011 – 2016); Financial Analyst/Internal Auditor (2004- 2006) – Manning & Napier Advisors, LLC and affiliates Holds one or more of the following titles for various subsidiaries and affiliates: Chief Financial Officer |
Number of Portfolios Overseen within Fund Complex: | 15 |
Other Directorships Held Outside Fund Complex During Past 5 Years: | N/A |
Independent Directors
Name: | Stephen B. Ashley |
Address: | 290 Woodcliff Drive Fairport, NY 14450 |
Born: | 1940 |
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 and Director since 1997; Chief Executive Officer (1997-2019) - Ashley Companies (property management and investment) |
Number of Portfolios Overseen within Fund Complex: | 15 |
Other Directorships Held Outside Fund Complex During Past 5 Years: | Ashley Companies since 1997 |
Name: | Paul A. Brooke |
Address: | 290 Woodcliff Drive Fairport, NY 14450 |
Born: | 1945 |
Current Position(s) Held with Fund: | Lead Independent Director, Audit Committee Member, Governance & Nominating Committee Member |
Term of Office & Length of Time Served: | Indefinite – Director, Audit Committee Member, Governance & Nominating Committee Member since 2007; Lead Independent Director since 2017 |
Principal Occupation(s) During Past 5 Years: | Managing Member since 1991 - PMSV Holdings LLC (investments); Managing Member (2010-2016) - VenBio (investments). |
Number of Portfolios Overseen within Fund Complex: | 15 |
Other Directorships Held Outside Fund Complex During Past 5 Years: | Incyte Corp. (biotech) (2000-2020); PureEarth (non-profit) since 2012; Cerus (biomedical) since 2016; Caelum BioSciences (biomedical) since 2018; Cheyne Capital International (investment)(2000-2017); |
25
New York Tax Exempt Series
Directors’ and Officers’ Information
(unaudited)
Independent Directors (continued)
Name: | John Glazer |
Address: | 290 Woodcliff Drive Fairport, NY 14450 |
Born: | 1965 |
Current Position(s) Held with Fund: | Director, Audit Committee Member, Governance & Nominating Committee Member |
Term of Office & Length of Time Served: | Indefinite – Director, Audit Committee Member, Governance & Nominating Committee Member since February 2021 |
Principal Occupation(s) During Past 5 Years: | Chief Executive Officer since 2020 – Oikos Holdings LLC (Single-Family Office); Head of Corporate Development (2019-2020) – Caelum Biosciences (pharmaceutical development); Head of Private Investments (2015-2018) – AC Limited (Single-Family Office) |
Number of Portfolios Overseen within Fund Complex: | 15 |
Other Directorships Held Outside Fund Complex During Past 5 Years: | N/A |
Name: | Russell O. Vernon |
Address: | 290 Woodcliff Drive Fairport, NY 14450 |
Born: | 1957 |
Current Position(s) Held with Fund: | Director, Audit Committee Member, Governance & Nominating Committee Chairman |
Term of Office & Length of Time Served: | Indefinite – Director, Audit Committee Member, Governance & Nominating Committee Member since April 2020; Governance & Nominating Committee Chairman since November 2020 |
Principal Occupation(s) During Past 5 Years: | Founder and General Partner (2009-2019) – BVM Capital Management (economic development) |
Number of Portfolios Overseen within Fund Complex: | 15 |
Other Directorships Held Outside Fund Complex During Past 5 Years: | Board Member, Vice Chairman and President since 2010 – Newburgh Armory Unity Center (military); Board Member and Executive Director since 2020 – National Purple Heart Honor Mission, Inc. (military); Board Member, Vice Chairman (2015-2020) – National Purple Heart Hall of Honor, Inc. (military) |
Name: | Chester N. Watson |
Address: | 290 Woodcliff Drive Fairport, NY 14450 |
Born: | 1950 |
Current Position(s) Held with Fund: | Director, Audit Committee Chairman, Governance & Nominating Committee Member |
Term of Office & Length of Time Served: | Indefinite – Director, Audit Committee Member, Governance & Nominating Committee Member Since 2012; Audit Committee Chairman since 2013 |
Principal Occupation(s) During Past 5 Years: | General Auditor (2003-2011) - General Motors Company (auto manufacturer) |
Number of Portfolios Overseen within Fund Complex: | 15 |
Other Directorships Held Outside Fund Complex During Past 5 Years: | Rochester Institute of Technology (University) since 2005; Hudson Valley Center for Innovation, Inc. (New Business and Economic Development) since 2019; Town of Greenburgh, NY Planning Board (Municipal Government) (2015-2019); |
26
New York Tax Exempt Series
Directors’ and Officers’ Information
(unaudited)
Officers:
Name: | Elizabeth Craig |
Address: | 290 Woodcliff Drive Fairport, NY 14450 |
Born: | 1987 |
Current Position(s) Held with Fund: | Corporate Secretary |
Term of Office2 & Length of Time Served: | Since 2016 |
Principal Occupation(s) During Past 5 Years: | Director of Fund Administration since 2021; Fund Regulatory Administration Manager (2018-2021); Fund Administration Manager (2015-2018) - Manning & Napier Advisors, LLC; Corporate Secretary, Director since 2019– Manning & Napier Investor Services, Inc. |
Name: | Samantha Larew |
Address: | 290 Woodcliff Drive Fairport, NY 14450 |
Born: | 1980 |
Current Position(s) Held with Fund: | Chief Compliance Officer and Anti-Money Laundering Compliance Officer |
Term of Office2 & Length of Time Served: | Chief Compliance Officer since 2019; Anti-Money Laundering Compliance Officer since 2018 |
Principal Occupation(s) During Past 5 Years: | Co-Director of Compliance since 2018; Compliance Communications Supervisor (2014-2018) - Manning & Napier Advisors, LLC& Affiliates; Broker-Dealer Chief Compliance Officer since 2013; Broker-Dealer Assistant Corporate Secretary since 2011 – Manning & Napier Investor Services, Inc.; |
Name: | Scott Morabito |
Address: | 290 Woodcliff Drive Fairport, NY 14450 |
Born: | 1987 |
Current Position(s) Held with Fund: | Vice President |
Term of Office2 & Length of Time Served: | Vice President since 2019; Assistant Vice President (2017-2019) |
Principal Occupation(s) During Past 5 Years: | Managing Director, Client Service and Business Operations since 2021; Managing Director of Operations (2019-2021); Director of Funds Group (2017-2019) - Manning & Napier Advisors, LLC; President, Director since 2018 – Manning & Napier Investor Services, Inc.; President, Exeter Trust Company since 2021; |
Name: | Troy Statczar |
Address: | 290 Woodcliff Drive Fairport, NY 14450 |
Born: | 1971 |
Current Position(s) Held with Fund: | Principal Financial Officer, Treasurer |
Term of Office2 & Length of Time Served: | Principal Financial Officer and Treasurer since 2020 |
Principal Occupation(s) During Past 5 Years: | Senior Principal Consultant, Fund Officers, since 2020 – ACA Group (formerly Foreside Financial Group); Director of Fund Administration (2017- 2019) - Thornburg Investment Management, Inc. |
Name: | Sarah Turner |
Address: | 290 Woodcliff Drive Fairport, NY 14450 |
Born: | 1982 |
Current Position(s) Held with Fund: | Chief Legal Officer; Assistant Corporate Secretary |
Term of Office2 & Length of Time Served: | Since 2018 |
Principal Occupation(s) During Past 5 Years: | General Counsel since 2018 - Manning & Napier Advisors, LLC and affiliates; Counsel (2017-2018) – Harter Secrest and Emery LLP Holds one or more of the following titles for various affiliates: General Counsel |
1Interested Director, within the meaning of the 1940 Act by reason of his positions with the Fund’s Advisor, Manning & Napier Advisors, LLC, and Distributor, Manning & Napier Investor Services, Inc.
2The term of office of all officers shall be one year and until their respective successors are chosen and qualified, or his or her earlier resignation or removal as provided in the Fund’s By-Laws.
27
{This page intentionally left blank}
28
{This page intentionally left blank}
29
New York Tax Exempt Series
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-PORT, and are available, without charge, upon request:
By phone | 1-800-466-3863 |
On the SEC’s web site | http://www.sec.gov |
Prospectus and Statement of Additional Information (SAI)
For more information about any of the Manning & Napier Fund, Inc. Series, you may obtain a prospectus and SAI at www.manning-napier.com or by calling 1-(800) 466-3863. Before investing, carefully consider the objectives, risks, charges and expenses of the investment and read the prospectus carefully as it contains this and other information about the investment company. In addition, this information can be found on the SEC’s web site, http://www.sec.gov.
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 |
The Fund also offers electronic notification or “e-delivery” when certain documents are available on-line to be downloaded or reviewed. Direct shareholders can elect to receive electronic notification when shareholder reports, prospectus updates, and/or statements are available. If you do not currently have on-line access to your account, you can establish access by going to www.manning-napier.com, click on “Login” in the top corner of the page, and follow the prompts to self-enroll. Once enrolled, you can set your electronic notification preferences by clicking on the Account Options tab located within the green toolbar and then select E-Delivery Option. Should you have any questions on either how to establish on-line access or how to update your account settings, please contact Investor Services at 1-800-466-3863.
The Manning & Napier Fund, Inc. is managed by Manning & Napier Advisors, LLC. Manning & Napier Investor Services, Inc., an affiliate of Manning & Napier Advisors, LLC, is the distributor of the Fund shares.
MNNYT-12/22-AR
30
www.manning-napier.com
Manning & Napier Fund, Inc.
High Yield Bond Series
Independent Perspective | Real-World Solutions |
A Note from Our CEO
Dear Shareholder,
We are acutely aware of how difficult this year has been for our investors, in what has been a historically challenging year in the capital markets. A bear market in equities and a sharp correction in fixed income have each simultaneously occurred this year, resulting in one of the worst runs for blended stock-bond portfolios in the past two hundred years.
The global economy is facing inflationary pressures more significant than have been experienced over the past four decades. War in Europe, rising tensions in East Asia, and surging energy prices are all bringing renewed geopolitical tumult. Economic, social, and environmental pressures are manifesting themselves in rapid, and at times, dramatic and unexpected swings in election results domestically and abroad.
What have we been doing in response to the challenges abound, and, most significantly, what steps are we taking to ensure we deliver what our fund shareholders expect in the future? I’ll combine those steps into two main ways.
First, and by way of change, we have taken a meaningful evolutionary step to position Manning & Napier even more strongly for the years ahead. After eleven years as a public company, we went private in 2022 in partnership with the Callodine Group, returning to the status under which we operated for our first four decades. We believe being private will provide continuity for our investment strategies while allowing us to invest for the future.
The second step speaks even further to the value of continuity. Our fund shareholders can expect us to continue to rely on the consistent investment philosophies, disciplines, and time-tested processes that have guided our seasoned investors over multiple economic and capital markets cycles over the past half-century.
The past twelve months have been challenging for investors. It has reinforced the importance of long-term perspective and the value of having a clear investment plan.
Throughout the next chapter of Manning & Napier, we look forward to partnering with our mutual fund investors to help you realize the investment outcomes you need.
We thank and appreciate your continued confidence in our firm.
Sincerely,
Marc Mayer Chief Executive Officer |
Corporate Headquarters | 290 Woodcliff Drive | Fairport, NY 144501 (585) 325-6880 phone | (800) 551-0224 toll free | www.manning-napier.com
1
High Yield Bond Series
Fund Commentary
Investment Objective
To provide a high level of long-term total return, which is a combination of income and capital appreciation. Under normal circumstances, the Series will invest at least 80% of its assets in bonds that are rated below investment-grade (junk bonds), and/or securities that are designed to track the performance of non-investment grade securities, principally exchange-traded funds.
Performance Commentary
2022 was a challenging year for the high yield market as it experienced its worst calendar year since 2008. Though less impacted than investment grade markets, losses were largely attributable to tightening financial conditions caused by the sharp rise in interest rates that occurred as the Federal Reserve raised the federal funds rate seven times throughout the year for a total increase of 4.25% in an effort to bring down high levels of inflation.
The High Yield Bond Series Class S posted negative returns over the year, however, it meaningfully outperformed its benchmark, the Intercontinental Exchange (ICE) Bank of America (BofA) U.S. Cash Pay High Yield Index, returning -7.59% versus -11.09% for the benchmark.
Both sector allocation and security selection were positive for the year, most notably selection within Basic Industry and Energy.
In terms of positioning, we continue to focus on businesses that generate positive free cash flow and that either pay down debt or focus on improving their business with good relative value. As such, we have a modestly higher credit quality tilt than the broad market. During the fourth quarter, we continued to pare down exposure to more cyclical areas of the market, particularly within Autos, and less liquid issuances given our negative economic outlook. In contrast, we found select opportunities within the Healthcare and Media sectors. From a duration perspective, the Series continues to be somewhat shorter than the broad market. Overall, we do not believe investors are being adequately compensated on the longer end for the additional risks assumed. Finally, we continue to find value in select smaller, off-the-run high yield securities that offer attractive yields with stronger investor protections than their on-the-run counterparts.
As always, we believe that a select, disciplined approach focused on current valuations and conditions will be key to navigating any challenges and opportunities that arise and ultimately helping investors achieve their objectives.
Performance for the High Yield Bond Series Class S shares is provided above. Performance for other shares classes will differ based on each class’ underlying expenses.
Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate, so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be higher or lower than that quoted; investors can obtain the most recent month-end performance at www.manning-napier.com or by calling (800) 466-3863.
Additional information and associated disclosures can be found on the Performance Update page of this report.
All investments involve risks, including possible loss of principal. There is an inverse relationship between bond prices and interest rates; as interest rates rise, bond prices (and therefore the value of bond funds) fall. Likewise, as interest rates fall, bond prices and the value of bond funds rise. Investments in higher-yielding, lower-rated securities involve additional risks, including a higher risk of default and loss of principal. Investments in derivatives can be highly volatile and involve risks in addition to the risks of the underlying instrument on which the derivative is based, such as counterparty, correlation and liquidity risk. Also, the use of leverage increases exposure to the market and may magnify potential losses.
2
High Yield Bond Series
Performance Update as of December 31, 2022
(unaudited)
AVERAGE ANNUAL TOTAL RETURNS | |||
ONE YEAR1 | FIVE YEAR | TEN YEAR | |
High Yield Bond Series - Class S2 | (7.59%) | 3.97% | 4.69% |
High Yield Bond Series - Class I2,3 | (7.38%) | 4.25% | 4.95% |
High Yield Bond Series - Class W2,4 | (6.92%) | 4.61% | 5.01% |
High Yield Bond Series - Class Z2,4 | (7.39%) | 4.26% | 4.83% |
Intercontinental Exchange (ICE) Bank of America (BofA) BB-B U.S. Cash Pay High Yield Index5 | (10.61%) | 2.35% | 3.95% |
Intercontinental Exchange (ICE) Bank of America (BofA) U.S. Cash Pay High Yield Index6 | (11.09%) | 2.14% | 3.94% |
The following graph compares the value of a $10,000 investment in the High Yield Bond Series - Class S for the ten years ended December 31, 2022 to the Intercontinental Exchange (ICE) Bank of America (BofA) BB-B U.S. Cash Pay High Yield Index and Intercontinental Exchange (ICE) Bank of America (BofA) U.S. Cash Pay High Yield Index.
1The returns shown are based on net asset values calculated for shareholder transactions and may differ from the returns shown in the financial highlights, which reflect adjustments made to the net asset values in accordance with accounting principles generally accepted in the United States of America.
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, 2022, this net expense ratio was 0.90% for Class S, 0.65% for Class I, 0.10% for Class W and 0.50% for Class Z. The gross expense ratio, which does not account for any voluntary or contractual waivers currently in effect, was 0.97% for Class S, 0.69% for Class I, 0.56% for Class W and 0.56% for Class Z for the year ended December 31, 2022.
3For periods through August 1, 2012 (the inception date of the Class I shares), performance for the Class I shares is based on historical performance of the Class S shares. Because the Class I shares invest in the same portfolio of securities as Class S, performance will only be different to the extent that the Class S shares have a higher expense ratio.
4For periods through March 1, 2019 (the inception date of the Class W and Class Z shares), performance for the Class W and Class Z shares is based on the historical performance of the Class S shares. Because the Class W and Class Z shares invest in the same portfolio of securities as the Class S shares, performance will be different only to the extent that the Class S shares have a higher expense ratio.
3
High Yield Bond Series
Performance Update as of December 31, 2022
(unaudited)
5The Intercontinental Exchange (ICE) Bank of America (BofA) BB-B U.S. Cash Pay High Yield Index is a subset of the ICE BofA U.S. Cash Pay High Yield Index. The Index includes all U.S. dollar denominated below investment grade corporate debt securities currently in a coupon paying period rated BB1 through B3. Qualifying securities must have at least one year remaining term to final maturity, at least 18 months to final maturity at point of issuance, a fixed coupon schedule, and a minimum amount outstanding of $250 million. The Index returns do not reflect any fees or expenses. Index returns provided by ICE Intercontinental Exchange (ICE). Index data referenced herein is the property of ICE Data Indices, LLC, its affiliates (“ICE Data”) and/or its third party suppliers and has been licensed for use by Manning & Napier. ICE Data and its third party suppliers accept no liability in connection with its use. Data provided is not a representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and none of these parties shall have any liability for any errors, omissions, or interruptions of any index or the data included therein. For additional disclosure information, please see: https://go.manning-napier.com/benchmark-provisions.
6The Intercontinental Exchange (ICE) Bank of America (BofA) U.S. Cash Pay High Yield Index tracks the performance of U.S. dollar denominated below investment grade corporate debt, currently in a coupon paying period, issued in the U.S. domestic market. Qualifying securities must have at least one year remaining term to final maturity as of the rebalancing date, at least 18 months to final maturity at the time of issuance, a fixed coupon schedule, and a minimum amount outstanding of $250 million. The Index returns do not reflect any fees or expenses. Index returns provided by ICE Intercontinental Exchange (ICE). Index data referenced herein is the property of ICE Data Indices, LLC, its affiliates (“ICE Data”) and/or its third party suppliers and has been licensed for use by Manning & Napier. ICE Data and its third party suppliers accept no liability in connection with its use. Data provided is not a representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and none of these parties shall have any liability for any errors, omissions, or interruptions of any index or the data included therein. For additional disclosure information, please see: https://go.manning-napier.com/benchmark-provisions.
4
High Yield Bond Series
Shareholder Expense Example
As a shareholder of the Series, you incur ongoing costs, including management fees, shareholder service 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 in each class at the beginning of the period and held for the entire period (July 1, 2022 to December 31, 2022).
Actual Expenses
The Actual lines of the table below provide information about actual account values and actual expenses. You may use the information in these lines, 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 Actual line for the Class in which you have invested 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 Hypothetical lines of each class in the table below provide information about hypothetical account values and hypothetical expenses based on the Class’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Class’ 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 a class of the Series and other funds. To do so, compare this 5% hypothetical example for the Class in which you have invested 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, such as sales charges (loads), redemption fees, or exchange fees that you may incur in other mutual funds. 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.
BEGINNING 7/1/22 | ENDING | EXPENSES PAID | ANNUALIZED | |
Class S | ||||
Actual | $1,000.00 | $1,027.30 | $4.60 | 0.90% |
Hypothetical (5% return before expenses) | $1,000.00 | $1,020.67 | $4.58 | 0.90% |
Class I | ||||
Actual | $1,000.00 | $1,028.30 | $3.32 | 0.65% |
Hypothetical (5% return before expenses) | $1,000.00 | $1,021.93 | $3.31 | 0.65% |
Class W | ||||
Actual | $1,000.00 | $1,031.00 | $0.51 | 0.10% |
Hypothetical (5% return before expenses) | $1,000.00 | $1,024.70 | $0.51 | 0.10% |
Class Z | ||||
Actual | $1,000.00 | $1,028.90 | $2.56 | 0.50% |
Hypothetical (5% return before expenses) | $1,000.00 | $1,022.68 | $2.55 | 0.50% |
*Expenses are equal to each Class’ annualized expense ratio (for the six-month period), 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 ratios stated above may differ from the expense ratios stated in the financial highlights, which are based on one-year data. The Class’ total return would have been lower had certain expenses not been waived or reimbursed during the period.
5
High Yield Bond Series
Portfolio Composition as of December 31, 2022
(unaudited)
Sector Allocation1 |
1As a percentage of net assets. |
6
High Yield Bond Series
Investment Portfolio - December 31, 2022
SHARES/ PRINCIPAL AMOUNT1 | VALUE (NOTE 2) | |||||||
COMMON STOCKS - 1.2% | ||||||||
Energy - 1.2% | ||||||||
Oil, Gas & Consumable Fuels - 1.2% | ||||||||
Jonah Energy Parent LLC*2 | ||||||||
(Identified Cost $980,115) | 65,341 | $ | 4,066,171 | |||||
PREFERRED STOCKS - 1.0% | ||||||||
Health Care - 0.5% | ||||||||
Pharmaceuticals - 0.5% | ||||||||
Harrow Health, Inc., 8.625%, 4/30/2026 | 73,702 | 1,757,793 | ||||||
Information Technology - 0.5% | ||||||||
Software - 0.5% | ||||||||
Synchronoss Technologies, Inc., 8.375%, 6/30/2026 | 98,752 | 1,772,598 | ||||||
TOTAL PREFERRED STOCKS (Identified Cost $4,336,484) | 3,530,391 | |||||||
LOAN ASSIGNMENTS - 3.0% | ||||||||
Evolution Well Services Holdings LLC, Term Loan, (U.S. Secured Overnight Financing Rate + 7.25%), 9.50%, 3/4/20273 | 4,000,000 | 3,820,000 | ||||||
CSC Holdings LLC, Term Loan, (U.S. Secured Overnight Financing Rate + 2.25%), 6.568%, 7/17/20253 | 6,486,807 | 6,113,816 | ||||||
TOTAL LOAN ASSIGNMENTS (Identified Cost $10,239,343) | 9,933,816 | |||||||
CORPORATE BONDS - 88.5% | ||||||||
Non-Convertible Corporate Bonds- 88.5% | ||||||||
Communication Services - 4.5% | ||||||||
Media - 4.5% | ||||||||
Beasley Mezzanine Holdings LLC, 8.625%, 2/1/20264. | 6,250,000 | 3,749,561 | ||||||
CCO Holdings LLC - CCO Holdings Capital Corp., 4.25%, 2/1/20314 | 3,785,000 | 3,040,400 | ||||||
iHeartCommunications, Inc., 6.375%, 5/1/2026 | 4,910,000 | 4,516,481 | ||||||
Sirius X.M. Radio, Inc., 4.00%, 7/15/20284 | 4,250,000 | 3,688,285 | ||||||
Total Communication Services | 14,994,727 | |||||||
Consumer Discretionary - 5.4% | ||||||||
Automobiles - 1.4% | ||||||||
Ford Motor Credit Co. LLC, 3.815%, 11/2/2027 | 5,250,000 | 4,628,029 | ||||||
Hotels, Restaurants & Leisure - 1.4% | ||||||||
Affinity Gaming, 6.875%, 12/15/20274 | 5,700,000 | 4,846,571 |
SHARES/ PRINCIPAL AMOUNT1 | VALUE (NOTE 2) | |||||||
CORPORATE BONDS (continued) | ||||||||
Non-Convertible Corporate Bonds (continued) | ||||||||
Consumer Discretionary (continued) | ||||||||
Household Durables - 0.5% | ||||||||
Forestar Group, Inc., 5.00%, 3/1/20284 | 1,925,000 | $ | 1,661,032 | |||||
Multiline Retail - 1.1% | ||||||||
Macy’s Retail Holdings LLC, 4.50%, 12/15/2034 | 5,250,000 | 3,602,827 | ||||||
Specialty Retail - 1.0% | ||||||||
Bed Bath & Beyond, Inc., 4.915%, 8/1/2034 | 3,750,000 | 354,523 | ||||||
Staples, Inc., 10.75%, 4/15/20274 | 4,270,000 | 3,075,408 | ||||||
3,429,931 | ||||||||
Total Consumer Discretionary | 18,168,390 | |||||||
Consumer Staples - 1.9% | ||||||||
Food & Staples Retailing - 1.1% | ||||||||
Pilgrim’s Pride Corp., 4.25%, 4/15/20314 | 4,360,000 | 3,710,927 | ||||||
Food Products - 0.8% | ||||||||
Viterra Finance B.V. (Netherlands), 3.20%, 4/21/20314 | 3,693,000 | 2,782,364 | ||||||
Total Consumer Staples | 6,493,291 | |||||||
Energy - 8.6% | ||||||||
Oil, Gas & Consumable Fuels - 8.6% | ||||||||
Atlantica Sustainable Infrastructure plc (Spain), 4.125%, 6/15/20284 | 7,481,000 | 6,646,681 | ||||||
Brooge Petroleum and Gas Investment Co. FZE (United Arab Emirates), 8.50%, 9/24/20254 | 3,759,000 | 3,562,196 | ||||||
Guara Norte Sarl (Brazil), 5.198%, 6/15/20344 | 7,125,210 | 6,022,139 | ||||||
Hess Midstream Operations LP, 4.25%, 2/15/20304 | 5,750,000 | 4,932,091 | ||||||
Moss Creek Resources Holdings, Inc., 7.50%, 1/15/20264 | 3,500,000 | 3,147,370 | ||||||
PetroTal Corp. (Peru), 12.00%, 2/16/2024 (Acquired 02/01/2021 - 03/11/2022, cost $3,114,931)5 | 3,064,000 | 3,087,097 | ||||||
Ping Petroleum UK Ltd. (Bermuda), 12.00%, 7/29/2024 (Acquired 07/14/2021, cost $1,666,000)5 | 1,700,000 | 1,590,460 | ||||||
Total Energy | 28,988,034 | |||||||
Financials - 23.8% | ||||||||
Banks - 1.2% | ||||||||
Popular, Inc. (Puerto Rico), 6.125%, 9/14/2023 | 3,880,000 | 3,857,283 | ||||||
Capital Markets - 2.6% | ||||||||
Drawbridge Special Opportunities Fund LP - Drawbridge Special Opportunities Finance Corporation, 3.875%, 2/15/20264 | 2,400,000 | 2,161,231 | ||||||
Jefferies Financial Group, Inc., 2.625%, 10/15/2031 | 4,250,000 | 3,249,825 |
The accompanying notes are an integral part of the financial statements.
7
High Yield Bond Series
Investment Portfolio - December 31, 2022
SHARES/ PRINCIPAL AMOUNT1 | VALUE (NOTE 2) | |||||||
CORPORATE BONDS (continued) | ||||||||
Non-Convertible Corporate Bonds (continued) | ||||||||
Financials (continued) | ||||||||
Capital Markets (continued) | ||||||||
StoneX Group, Inc., 8.625%, 6/15/20254 | 3,170,000 | $ | 3,198,363 | |||||
8,609,419 | ||||||||
Consumer Finance - 5.6% | ||||||||
Navient Corp., | ||||||||
6.75%, 6/25/2025 | 4,965,000 | 4,772,632 | ||||||
5.625%, 8/1/2033 | 4,250,000 | 3,055,973 | ||||||
OneMain Finance Corp., 5.625%, 3/15/2023 | 3,225,000 | 3,221,201 | ||||||
SLM Corp., 3.125%, 11/2/2026 | 9,050,000 | 7,742,359 | ||||||
18,792,165 | ||||||||
Diversified Financial Services - 6.2% | ||||||||
Burford Capital Global Finance LLC, 6.875%, 4/15/20304 | 5,450,000 | 4,884,078 | ||||||
FS Energy & Power Fund, 7.50%, 8/15/20234 | 6,020,000 | 6,036,370 | ||||||
Midcap Financial Issuer Trust, 6.50%, 5/1/20284 | 6,000,000 | 5,166,058 | ||||||
VistaJet Malta Finance plc - XO Management Holding, Inc. (Switzerland), 7.875%, 5/1/20274 | 5,405,000 | 4,890,689 | ||||||
20,977,195 | ||||||||
Insurance - 2.5% | ||||||||
Enact Holdings, Inc., 6.50%, 8/15/20254 | 8,500,000 | 8,356,570 | ||||||
Thrifts & Mortgage Finance - 5.7% | ||||||||
LD Holdings Group LLC, 6.125%, 4/1/20284 | 4,900,000 | 2,925,234 | ||||||
MGIC Investment Corp., 5.25%, 8/15/2028 | 5,000,000 | 4,618,548 | ||||||
Radian Group, Inc., 4.875%, 3/15/2027 | 8,750,000 | 8,028,575 | ||||||
United Wholesale Mortgage LLC, 5.50%, 4/15/20294 | 4,500,000 | 3,586,096 | ||||||
19,158,453 | ||||||||
Total Financials | 79,751,085 | |||||||
Health Care - 7.7% | ||||||||
Health Care Providers & Services - 4.4% | ||||||||
AdaptHealth LLC, 4.625%, 8/1/20294 | 5,398,000 | 4,524,591 | ||||||
CHS/Community Health Systems, Inc., 5.25%, 5/15/20304 | 4,275,000 | 3,226,487 | ||||||
DaVita, Inc., 4.625%, 6/1/20304 | 4,850,000 | 3,909,978 | ||||||
Tenet Healthcare Corp., 6.125%, 10/1/20284 | 3,600,000 | 3,230,334 | ||||||
14,891,390 | ||||||||
Pharmaceuticals - 3.3% | ||||||||
Bausch Health Companies, Inc., 4.875%, 6/1/20284 | 4,750,000 | 3,038,380 | ||||||
Perrigo Finance Unlimited Co., 4.40%, 6/15/2030 | 4,000,000 | 3,416,230 |
SHARES/ PRINCIPAL AMOUNT1 | VALUE (NOTE 2) | |||||||
CORPORATE BONDS (continued) | ||||||||
Non-Convertible Corporate Bonds (continued) | ||||||||
Health Care (continued) | ||||||||
Pharmaceuticals (continued) | ||||||||
Teva Pharmaceutical Finance Netherlands III B.V. (Israel), 7.125%, 1/31/2025 | 4,600,000 | $ | 4,573,012 | |||||
11,027,622 | ||||||||
Total Health Care | 25,919,012 | |||||||
Industrials - 18.5% | ||||||||
Air Freight & Logistics - 2.9% | ||||||||
Cargo Aircraft Management, Inc., 4.75%, 2/1/20284 | 5,455,000 | 4,947,090 | ||||||
Western Global Airlines LLC, 10.375%, 8/15/20254 | 6,275,000 | 4,741,710 | ||||||
9,688,800 | ||||||||
Airlines - 2.9% | ||||||||
Alaska Airlines Pass-Through Trust, Series 2020-1, Class B, 8.00%, 8/15/20254 | 2,491,918 | 2,504,153 | ||||||
United Airlines Pass-Through Trust, Series 2019-2, Class B, 3.50%, 5/1/2028 | 4,737,395 | 4,039,251 | ||||||
United Airlines Pass-Through Trust, Series 2018-1, Class B, 4.60%, 3/1/2026 | 3,461,220 | 3,134,039 | ||||||
9,677,443 | ||||||||
Building Products - 1.2% | ||||||||
Eco Material Technologies, Inc., 7.875%, 1/31/20274 | 4,250,000 | 4,109,713 | ||||||
Construction & Engineering - 4.9% | ||||||||
IEA Energy Services LLC, 6.625%, 8/15/20294 | 6,800,000 | 6,346,271 | ||||||
IHS Holding Ltd. (Nigeria), 6.25%, 11/29/20284 | 6,100,000 | 4,929,679 | ||||||
Tutor Perini Corp., 6.875%, 5/1/20254 | 6,000,000 | 5,260,878 | ||||||
16,536,828 | ||||||||
Machinery - 1.5% | ||||||||
Hillenbrand, Inc., 3.75%, 3/1/2031 | 5,907,000 | 4,875,499 | ||||||
Marine - 4.2% | ||||||||
American Tanker, Inc. (Norway), 7.75%, 7/2/2025 | 8,355,000 | 8,003,248 | ||||||
Seaspan Corp. (Hong Kong), 6.50%, 2/5/20244 | 6,200,000 | 6,156,191 | ||||||
14,159,439 | ||||||||
Professional Services - 0.9% | ||||||||
TriNet Group, Inc., 3.50%, 3/1/20294 | 3,800,000 | 3,148,211 | ||||||
Total Industrials | 62,195,933 |
The accompanying notes are an integral part of the financial statements.
8
High Yield Bond Series
Investment Portfolio - December 31, 2022
SHARES/ PRINCIPAL AMOUNT11 | VALUE (NOTE 2) | |||||||
CORPORATE BONDS (continued) | ||||||||
Non-Convertible Corporate Bonds (continued) | ||||||||
Information Technology - 4.4% | ||||||||
Electronic Equipment, Instrument & Components - 1.4% | ||||||||
TTM Technologies, Inc., 4.00%, 3/1/20294 | 5,500,000 | $ | 4,720,665 | |||||
Electronic Equipment, Instruments & Components - 0.9% | ||||||||
Coherent Corp., 5.00%, 12/15/20294 | 3,500,000 | 3,042,616 | ||||||
Software - 2.1% | ||||||||
GoTo Group, Inc., 5.50%, 9/1/20274 | 6,250,000 | 3,373,439 | ||||||
Open Text Holdings, Inc. (Canada), 4.125%, 12/1/20314 | 4,530,000 | 3,533,009 | ||||||
6,906,448 | ||||||||
Total Information Technology | 14,669,729 | |||||||
Materials - 4.6% | ||||||||
Containers & Packaging - 1.0% | ||||||||
Ardagh Packaging Finance plc - Ardagh Holdings USA, Inc., 5.25%, 8/15/20274 | 4,270,000 | 3,220,036 | ||||||
Metals & Mining - 2.5% | ||||||||
Eldorado Gold Corp. (Turkey), 6.25%, 9/1/20294 | 5,700,000 | 5,008,916 | ||||||
Endeavour Mining plc (Burkina Faso), 5.00%, 10/14/20264 | 3,875,000 | 3,283,279 | ||||||
Northwest Acquisitions ULC - Dominion Finco, Inc., 7.125%, 11/1/2022 (Acquired 10/10/2017 - 05/15/2020, cost $1,518,841)5,6 | 6,535,000 | 654 | ||||||
8,292,849 | ||||||||
Paper & Forest Products - 1.1% | ||||||||
Clearwater Paper Corp., 4.75%, 8/15/20284 | 4,245,000 | 3,743,572 | ||||||
Total Materials | 15,256,457 | |||||||
SHARES/ PRINCIPAL AMOUNT11 | VALUE (NOTE 2) | |||||||
CORPORATE BONDS (continued) | ||||||||
Non-Convertible Corporate Bonds (continued) | ||||||||
Real Estate - 5.3% | ||||||||
Equity Real Estate Investment Trusts (REITS) - 4.4% | ||||||||
Coinbase Global, Inc., 3.375%, 10/1/20284 | 4,600,000 | $ | 2,430,155 | |||||
IIP Operating Partnership LP, 5.50%, 5/25/2026 | 5,455,000 | 4,785,989 | ||||||
Pelorus Fund REIT LLC, 7.00%, 9/30/2026 (Acquired 09/21/2021 - 07/08/2022, cost $4,114,250)5 | 4,355,000 | 4,010,911 | ||||||
SBA Tower Trust, 6.599%, 1/15/20284 | 3,730,000 | 3,741,836 | ||||||
14,968,891 | ||||||||
Real Estate Management & Development - 0.9% | ||||||||
Carrington Holding Co. LLC, 8.00%, 1/1/20264 | 3,000,000 | 2,901,680 | ||||||
Total Real Estate | 17,870,571 | |||||||
Utilities - 3.8% | ||||||||
Electric Utilities - 1.9% | ||||||||
NRG Energy, Inc., 3.375%, 2/15/20294 | 7,800,000 | 6,284,458 | ||||||
Independent Power and Renewable Electricity Producers - 1.9% | ||||||||
Vistra Operations Co. LLC, 4.375%, 5/1/20294 | 7,400,000 | 6,380,272 | ||||||
Total Utilities | 12,664,730 | |||||||
TOTAL CORPORATE BONDS (Identified Cost $326,220,589) | 296,971,959 | |||||||
SHORT-TERM INVESTMENT - 4.5% | ||||||||
Dreyfus Government Cash Management, Institutional Shares, 4.19%7 | ||||||||
(Identified Cost $15,022,195) | 15,022,195 | 15,022,195 | ||||||
TOTAL INVESTMENTS - 98.2% (Identified Cost $356,798,726) | 329,524,532 | |||||||
OTHER ASSETS, LESS LIABILITIES - 1.8% | 6,175,016 | |||||||
NET ASSETS - 100% | $ | 335,699,548 |
*Non-income producing security. |
1Amount is stated in USD unless otherwise noted. |
2Security has been valued using significant unobservable inputs. |
3Floating rate security. Rate shown is the rate in effect as of December 31, 2022. |
4Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”) and determined to be liquid under the Fund’s Liquidity Risk Management Program. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at December 31, 2022 was $203,807,313, which represented 60.7% of the Series’ Net Assets. |
5Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”) and determined to be illiquid under the Fund’s Liquidity Risk Management Program. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of such securities at December 31, 2022 was $8,689,122, or 2.6% of the Series’ Net Assets. |
6Issuer filed for bankruptcy and/or is in default of interest payments. |
7Rate shown is the current yield as of December 31, 2022. |
The accompanying notes are an integral part of the financial statements.
9
High Yield Bond Series
Investment Portfolio - December 31, 2022
The Global Industry Classification Standard (GICS) was developed by and is the exclusive property and a service mark of MSCI Inc. (MSCI) and Standard & Poor’s, a division of S&P Global Inc. (S&P), and is licensed for use by Manning & Napier when referencing GICS sectors. Neither MSCI, S&P, nor any third party involved in making or compiling the GICS or any GICS classifications makes any express or implied warranties or representations with respect to such standard or classification, nor shall any such party have any liability therefrom.
The accompanying notes are an integral part of the financial statements.
10
High Yield Bond Series
Statement of Assets and Liabilities
December 31, 2022
ASSETS: | ||||
Investments, at value (identified cost $356,798,726) (Note 2) | $ | 329,524,532 | ||
Receivable from Advisor (Note 3) | 23,236 | |||
Interest receivable | 5,659,279 | |||
Receivable for fund shares sold | 2,178,787 | |||
Dividends receivable | 49,395 | |||
Prepaid expenses | 48,634 | |||
TOTAL ASSETS | 337,483,863 | |||
LIABILITIES: | ||||
Due to custodian | 248,275 | |||
Accrued sub-transfer agent fees (Note 3) | 79,109 | |||
Accrued fund accounting and administration fees (Note 3) | 21,602 | |||
Accrued distribution and service (Rule 12b-1) fees (Class S) (Note 3) | 9,942 | |||
Accrued Chief Compliance Officer service fees (Note 3) | 2,063 | |||
Payable for fund shares repurchased | 1,338,309 | |||
Other payables and accrued expenses | 85,015 | |||
TOTAL LIABILITIES | 1,784,315 | |||
TOTAL NET ASSETS | $ | 335,699,548 | ||
NET ASSETS CONSIST OF: | ||||
Capital stock | $ | 422,490 | ||
Additional paid-in-capital | 372,666,507 | |||
Total distributable earnings (loss) | (37,389,449 | ) | ||
TOTAL NET ASSETS | $ | 335,699,548 | ||
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE - Class S ($47,499,074/5,253,268 shares) | $ | 9.04 | ||
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE - Class I ($210,242,426/28,285,650 shares) | $ | 7.43 | ||
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE - Class W ($74,809,991/8,286,917 shares) | $ | 9.03 | ||
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE - Class Z ($3,148,057/423,169 shares) | $ | 7.44 |
The accompanying notes are an integral part of the financial statements.
11
High Yield Bond Series
Statement of Operations
For the Year Ended December 31, 2022
INVESTMENT INCOME: | ||||
Interest | $ | 20,489,067 | ||
Dividends | 792,664 | |||
Total Investment Income | 21,281,731 | |||
EXPENSES: | ||||
Management fees (Note 3) | 1,178,109 | |||
Sub-transfer agent fees (Note 3) | 252,757 | |||
Distribution and service (Rule 12b-1) fees (Class S) (Note 3) | 112,620 | |||
Fund accounting and administration fees (Note 3) | 90,684 | |||
Directors’ fees (Note 3) | 35,087 | |||
Chief Compliance Officer service fees (Note 3) | 8,983 | |||
Transfer agent fees | 107,734 | |||
Custodian fees | 14,326 | |||
Interest expense | 2,465 | |||
Miscellaneous | 222,292 | |||
Total Expenses | 2,025,057 | |||
Less reduction of expenses (Note 3) | (573,382 | ) | ||
Net Expenses | 1,451,675 | |||
NET INVESTMENT INCOME | 19,830,056 | |||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: | ||||
Net realized gain (loss) on investments | (9,797,634 | ) | ||
Net change in unrealized appreciation (depreciation) on investments | (31,351,323 | ) | ||
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS | (41,148,957 | ) | ||
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | (21,318,901 | ) |
The accompanying notes are an integral part of the financial statements.
12
High Yield Bond Series
Statements of Changes in Net Assets
FOR THE YEAR ENDED 12/31/22 | FOR THE YEAR ENDED 12/31/21 | |||||||
INCREASE (DECREASE) IN NET ASSETS: | ||||||||
OPERATIONS: | ||||||||
Net investment income | $ | 19,830,056 | $ | 11,633,491 | ||||
Net realized gain (loss) on investments | (9,797,634 | ) | 11,120,514 | |||||
Net change in unrealized appreciation (depreciation) on investments | (31,351,323 | ) | (2,626,100 | ) | ||||
Net increase (decrease) from operations | (21,318,901 | ) | 20,127,905 | |||||
DISTRIBUTIONS TO SHAREHOLDERS (Note 9): | ||||||||
Class S | (2,576,877 | ) | (2,851,858 | ) | ||||
Class I | (12,541,981 | ) | (5,700,231 | ) | ||||
Class W | (5,932,760 | ) | (11,182,645 | ) | ||||
Class Z | (209,265 | ) | (297,832 | ) | ||||
Total distributions to shareholders | (21,260,883 | ) | (20,032,566 | ) | ||||
CAPITAL STOCK ISSUED AND REPURCHASED: | ||||||||
Net increase (decrease) from capital share transactions (Note 5) | 116,382,705 | 107,301,099 | ||||||
Net increase (decrease) in net assets | 73,802,921 | 107,396,438 | ||||||
NET ASSETS: | ||||||||
Beginning of year | 261,896,627 | 154,500,189 | ||||||
End of year. | $ | 335,699,548 | $ | 261,896,627 |
The accompanying notes are an integral part of the financial statements.
13
High Yield Bond Series
Financial Highlights - Class S
FOR THE YEAR ENDED | ||||||||||||||||||||
12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 | ||||||||||||||||
Per share data (for a share outstanding throughout each year): | ||||||||||||||||||||
Net asset value - Beginning of year | $10.37 | $10.19 | $10.10 | $9.47 | $10.09 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income1 | 0.60 | 0.53 | 0.57 | 0.57 | 0.53 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | (1.40 | ) | 0.47 | 0.03 | 0.73 | (0.65 | ) | |||||||||||||
Total from investment operations | (0.80 | ) | 1.00 | 0.60 | 1.30 | (0.12 | ) | |||||||||||||
Less distributions to shareholders: | ||||||||||||||||||||
From net investment income | (0.51 | ) | (0.47 | ) | (0.51 | ) | (0.67 | ) | (0.50 | ) | ||||||||||
From net realized gain on investments | (0.02 | ) | $(0.35 | ) | — | — | — | |||||||||||||
Total distributions to shareholders | (0.53 | ) | (0.82 | ) | (0.51 | ) | (0.67 | ) | (0.50 | ) | ||||||||||
Net asset value - End of year | $9.04 | $10.37 | $10.19 | $10.10 | $9.47 | |||||||||||||||
Net assets - End of year (000’s omitted) | $47,499 | $47,108 | $10,197 | $13,113 | $82,399 | |||||||||||||||
Total return2 | (7.69% | ) | 9.99 | 6.28 | 13.97% | (1.31% | ) | |||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Expenses* | 0.90% | 0.90% | 0.90% | 0.90% | 0.90% | |||||||||||||||
Net investment income | 6.23% | 5.02% | 5.91% | 5.90% | 5.32% | |||||||||||||||
Series portfolio turnover | 93% | 128% | 208% | 143% | 100% |
*The investment advisor did not impose all or a portion of its management and/or other fees during the years, and may have paid a portion of the Series’ expenses. If these expenses had been incurred by the Class, the expense ratio (to average net assets) would have increased by the following amounts:
0.07% | 0.05% | 0.13% | 0.12% | 0.08% |
1Calculated based on average shares outstanding during the years.
2Represents aggregate total return for the years indicated, and assumes reinvestment of all distributions. Total return would have been lower had certain expenses not been waived or reimbursed during the years.
The accompanying notes are an integral part of the financial statements.
14
High Yield Bond Series
Financial Highlights - Class I
FOR THE YEAR ENDED | ||||||||||||||||||||
12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 | ||||||||||||||||
Per share data (for a share outstanding throughout each year): | ||||||||||||||||||||
Net asset value - Beginning of year | $8.64 | $8.62 | $8.63 | $8.20 | $ | $8.80 | ||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income1 | 0.54 | 0.47 | 0.51 | 0.53 | 0.49 | |||||||||||||||
Net realized and unrealized gain (loss) on investments | (1.19 | ) | 0.40 | 0.02 | 0.61 | (0.57 | ) | |||||||||||||
Total from investment operations | (0.65 | ) | 0.87 | 0.53 | 1.14 | (0.08 | ) | |||||||||||||
Less distributions to shareholders: | ||||||||||||||||||||
From net investment income | (0.54 | ) | (0.50 | ) | (0.54 | ) | (0.71 | ) | (0.52 | ) | ||||||||||
From net realized gain on investments | (0.02 | ) | (0.35 | ) | — | — | — | |||||||||||||
Total distributions to shareholders | (0.56 | ) | (0.85 | ) | (0.54 | ) | (0.71 | ) | (0.52 | ) | ||||||||||
Net asset value - End of year | $7.43 | $8.64 | $8.62 | $8.63 | $8.20 | |||||||||||||||
Net assets - End of year (000’s omitted) | $210,242 | $67,760 | $22,477 | $20,974 | $32,962 | |||||||||||||||
Total return2 | (7.50% | ) | 10.27% | 6.60% | 14.24% | (0.98% | ) | |||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Expenses* | 0.65% | 0.65% | 0.65% | 0.65% | 0.65% | |||||||||||||||
Net investment income | 6.82% | 5.28% | 6.17% | 6.17% | 5.63% | |||||||||||||||
Series portfolio turnover | 93% | 128% | 208% | 143% | 100% |
*The investment advisor did not impose all or a portion of its management and/or other fees during the years, and may have paid a portion of the Series’ expenses. If these expenses had been incurred by the Class, the expense ratio (to average net assets) would have increased by the following amounts:
0.04% | 0.02% | 0.10% | 0.13% | 0.08% |
1Calculated based on average shares outstanding during the years.
2Represents aggregate total return for the years indicated, and assumes reinvestment of all distributions. Total return would have been lower had certain expenses not been waived or reimbursed during the years.
The accompanying notes are an integral part of the financial statements.
15
High Yield Bond Series
Financial Highlights - Class W
FOR THE YEAR ENDED | FORTHE | |||||||||||||||
12/31/22 | 12/31/21 | 12/31/20 | PERIOD 3/1/191 TO | |||||||||||||
Per share data (for a share outstanding throughout each period): Net asset value - Beginning of period | $10.36 | $10.17 | $10.08 | $10.01 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||
Net investment income2 | 0.66 | 0.63 | 0.64 | 0.56 | ||||||||||||
Net realized and unrealized gain (loss) on investments | (1.38 | ) | 0.46 | 0.03 | 0.27 | |||||||||||
Total from investment operations | (0.72 | ) | 1.09 | 0.67 | 0.83 | |||||||||||
Less distributions to shareholders: | ||||||||||||||||
From net investment income | (0.59 | ) | (0.55 | ) | (0.58 | ) | (0.76 | ) | ||||||||
From net realized gain on investments | (0.02 | ) | (0.35 | ) | — | — | ||||||||||
Total distributions to shareholders | (0.61 | ) | (0.90 | ) | (0.58 | ) | (0.76 | ) | ||||||||
Net asset value - End of period | $9.03 | $10.36 | $10.17 | $10.08 | ||||||||||||
Net assets - End of period (000’s omitted) | $74,810 | $137,215 | $119,895 | $30,363 | ||||||||||||
Total return3 | (6.92% | ) | 10.89% | 7.11% | 8.63% | |||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||
Expenses* | 0.10% | 0.10% | 0.10% | 0.10% | 4 | |||||||||||
Net investment income | 6.84% | 5.92% | 6.76% | 6.66% | 4 | |||||||||||
Series portfolio turnover | 93% | 128% | 208% | 143% |
*The investment advisor did not impose all or a portion of its management and/or other fees during the periods, and may have paid a portion of the Series’ expenses. If these expenses had been incurred by the Class, the expense ratio (to average net assets) would have increased by the following amounts:
0.46% | 0.47% | 0.54% | 0.59% | 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.
16
High Yield Bond Series
Financial Highlights - Class Z
FOR THE YEAR ENDED | FORTHE | |||||||||||||||
12/31/22 | 12/31/21 | 12/31/20 | PERIOD 3/1/191 TO | |||||||||||||
Per share data (for a share outstanding throughout each period): Net asset value - Beginning of period | $8.65 | $8.62 | $8.64 | $8.67 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||
Net investment income2 | 0.51 | 0.48 | 0.52 | 0.46 | ||||||||||||
Net realized and unrealized gain (loss) on investments | (1.15 | ) | 0.41 | 0.01 | 0.23 | |||||||||||
Total from investment operations | (0.64 | ) | 0.89 | 0.53 | 0.69 | |||||||||||
Less distributions to shareholders: | ||||||||||||||||
From net investment income | (0.55 | ) | (0.51 | ) | (0.55 | ) | (0.72 | ) | ||||||||
From net realized gain on investments | (0.02 | ) | (0.35 | ) | — | — | ||||||||||
Total distributions to shareholders | (0.57 | ) | (0.86 | ) | (0.55 | ) | (0.72 | ) | ||||||||
Net asset value - End of period | $7.44 | $8.65 | $8.62 | $8.64 | ||||||||||||
Net assets - End of period (000’s omitted) | $3,148 | $9,813 | $1,931 | $1,627 | ||||||||||||
Total return3 | (7.39% | ) | 10.48% | 6.59% | 8.26% | |||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||
Expenses* | 0.50% | 0.50% | 0.50% | 0.50% | 4 | |||||||||||
Net investment income | 6.38% | 5.41% | 6.32% | 6.26% | 4 | |||||||||||
Series portfolio turnover | 93% | 128% | 208% | 143% |
*The investment advisor did not impose all or a portion of its management and/or other fees during the periods, and may have paid a portion of the Series’ expenses. If these expenses had been incurred by the Class, the expense ratio (to average net assets) would have increased by the following amounts:
0.06% | 0.07% | 0.14% | 0.19% | 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.
17
High Yield Bond Series
Notes to Financial Statements
1. | Organization |
High Yield 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 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 Series is authorized to issue four classes of shares (Class S, I, W, and Z). 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, LLC (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 15 billion shares of common stock each having a par value of $0.01. As of December 31, 2022, 6.3 billion shares have been designated in total among 15 series, of which 100 million have been designated as High Yield Bond Series Class I common stock and High Yield Bond Series Class Z common stock, 125 million have been designated as High Yield Bond Series Class S common stock and 50 million have been designated as High Yield Bond Series Class W common stock.
2. | Significant Accounting Policies |
The following is a summary of significant accounting policies followed by the Series. The Series is an investment company and, accordingly, follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board Accounting Standards Codification Topic 946 - Investment Companies, which is part of accounting principles generally accepted in the United States of America (“GAAP”).
Security Valuation
Portfolio securities, including domestic equities, foreign equities, warrants and options, listed on an exchange other than the NASDAQ Stock Market 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 Stock Market 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, loan assignments, 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.
The fair value of loan assignments is estimated using recently executed transactions, market price quotations, credit/market events, and cross-asset pricing. Inputs are generally observable market inputs obtained from independent sources. Loan assignments are generally categorized in Level 2 of the fair value hierarchy, unless key inputs are unobservable, in which case they would be categorized in Level 3.
Short-term investments that mature in sixty days or less may be valued at amortized cost, which approximates fair value. Investments in open-end investment companies are valued at their net asset value per share on valuation date.
18
High Yield Bond Series
Notes to Financial Statements (continued)
2. | Significant Accounting Policies (continued) |
Security Valuation (continued)
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. In these instances fair value is measured 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 to value these securities may differ from the value that would be realized if these securities were sold, and the differences could be material.
Fair Value
The Series’ financial instruments are valued at the close of the NYSE and are reported at fair value, which GAAP defines as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Board has designated the Advisor as the Fund’s valuation designee (Valuation Designee) to make all fair value determinations with respect to each Series’ portfolio investments. Subject to oversight by the Board, the Valuation Designee performs the following functions in performing fair value determinations: assesses and manages valuation risks; establishes and applies fair value methodologies; tests fair value methodologies; and evaluates pricing vendors and pricing agents. The Advisor has adopted and implemented policies and procedures to be followed when making fair value determinations, and it has established a Valuation Committee through which the Advisor makes fair value determinations. The Valuation Designee provides periodic reporting to the Board on valuation matters. The Advisor’s determination of a security’s fair value price often involves the consideration of a number of subjective factors, and is therefore subject to the unavoidable risk that the value assigned to a security may be higher or lower than the security’s value would be if a reliable market quotation for the security was readily available. 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. The Advisor may use a pricing service to obtain the value of the Fund’s portfolio securities where the prices provided by such pricing service are believed to reflect the fair market value of such securities. The methods used by the pricing service and the valuations so established will be reviewed by the Advisor under the general supervision of the Fund’s Board of Directors. Several pricing services are available, one or more of which may be used by the Advisor, as approved by the Board. A change in a pricing service or a material change in a pricing methodology for investments with no readily available market quotations will be reported to the Board by the Advisor in accordance with certain requirements.
GAAP establishes the following fair value hierarchy that categorizes the inputs used to measure fair value. Level 1 includes quoted prices (unadjusted) in active markets for identical financial instruments that the Series’ can access at the reporting date. Level 2 includes other significant observable inputs (including, but not limited to, quoted prices for similar financial instruments in active markets, quoted prices for identical or similar financial instruments in inactive markets, interest rates and yield curves, implied volatilities, and credit spreads). Level 3 includes unobservable inputs (including the Valuation Designee’s own assumptions in determining fair value). A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input both individually and in aggregate that is significant to the fair value measurement. 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, 2022 in valuing the Series’ assets or liabilities carried at fair value:
DESCRIPTION | TOTAL | LEVEL 1 | LEVEL 2 | LEVEL 3 | ||||||||||||
Assets: | ||||||||||||||||
Equity securities: | ||||||||||||||||
Energy | $ | 4,066,171 | $ | — | $ | — | $ | 4,066,171 | ||||||||
Preferred securities: | ||||||||||||||||
Health Care | 1,757,793 | 1,757,793 | — | — | ||||||||||||
Information Technology | 1,772,598 | 1,772,598 | — | — |
19
High Yield Bond Series
Notes to Financial Statements (continued)
2. | Significant Accounting Policies (continued) |
Fair Value (continued)
DESCRIPTION | TOTAL | LEVEL 1 | LEVEL 2 | LEVEL 3 | ||||||||||||
Debt securities: | ||||||||||||||||
Loan Assignments | $ | 9,933,816 | $ | — | $ | 9,933,816 | $ | — | ||||||||
Corporate debt: | ||||||||||||||||
Communication Services | 14,994,727 | — | 14,994,727 | — | ||||||||||||
Consumer Discretionary | 18,168,390 | — | 18,168,390 | — | ||||||||||||
Consumer Staples | 6,493,291 | — | 6,493,291 | — | ||||||||||||
Energy | 28,988,034 | — | 28,988,034 | — | ||||||||||||
Financials | 79,751,085 | — | 79,751,085 | — | ||||||||||||
Health Care | 25,919,012 | — | 25,919,012 | — | ||||||||||||
Industrials | 62,195,933 | — | 62,195,933 | — | ||||||||||||
Information Technology | 14,669,729 | — | 14,669,729 | — | ||||||||||||
Materials | 15,256,457 | — | 15,256,457 | — | ||||||||||||
Real Estate | 17,870,571 | — | 17,870,571 | — | ||||||||||||
Utilities | 12,664,730 | — | 12,664,730 | — | ||||||||||||
Short-Term Investment | 15,022,195 | 15,022,195 | — | — | ||||||||||||
Total assets | $ | 329,524,532 | $ | 18,552,586 | $ | 306,905,775 | $ | 4,066,171 |
The following table is a reconciliation Level 3 investments for which significant unobservable inputs were used to determine fair value:
LEVEL 3 RECONCILIATION | EQUITY SECURITY | |||
Balance as of December 31, 2021 (fair value) | $ | 4,083,813 | ||
Net realized gain (loss) | — | |||
Change in unrealized appreciation (depreciation)* | (17,642 | ) | ||
Purchases | — | |||
Sales | — | |||
Transfers in | — | |||
Transfers out | — | |||
Balance as of December 31, 2022 (fair value) | $ | 4,066,171 |
* The change in unrealized appreciation (depreciation) attributable to securities owned on December 31, 2022 which were valued using significant unobservable inputs (Level 3) amounted to $(17,642).
The following table summarizes the quantitative inputs and assumptions used for items categorized in Level 3 of the fair value hierarchy as of December 31, 2022:
QUANTITATIVE INFORMATION ABOUT LEVEL 3 FAIR VALUE MEASUREMENTS | |||||
FAIR VALUE AT 12/31/2022 | VALUATION TECHNIQUE | UNOBSERVABLE INPUT | VALUATION IMPACT FROM AN INCREASE IN INPUT | AMOUNT OR RANGE/ WEIGHTED AVERAGE | |
Common Stock - Energy | $4,066,171 | Market approach, | Increase | $62.23/NA | |
potential transaction price | Price based on potential transaction | ||||
20
High Yield Bond Series
Notes to Financial Statements (continued)
2. | Significant Accounting Policies (continued) |
LIBOR Transition Risk
The United Kingdom’s Financial Conduct Authority announced a phase out of the London Interbank Offered Rate (“LIBOR”). Although many LIBOR rates will cease to be published or no longer will be representative of the underlying market they seek to measure after December 31, 2021, a selection of widely used USD LIBOR rates will continue to be published through June 2023 in order to assist with the transition. The Series may be exposed to financial instruments tied to LIBOR to determine payment obligations, financing terms, hedging strategies or investment value. The transition process away from LIBOR might lead to increased volatility and illiquidity in markets for, and reduce the effectiveness of new hedges placed against, instruments whose terms currently include LIBOR. The ultimate effect of the LIBOR transition process on the Series is uncertain.
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 Series is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair 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. Income, expenses (other than shareholder services fees), and realized and unrealized gains and losses are prorated among the classes based on the relative net assets of each class. Class specific expenses are directly charged to that Class.
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 fair 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 on December 31, 2022.
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.
21
High Yield Bond Series
Notes to Financial Statements (continued)
2. | Significant Accounting Policies (continued) |
Securities Purchased on a When-Issued Basis or Forward Commitment (continued)
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, 2022.
Asset-Backed Securities
The Series may invest in asset-backed securities. Asset-backed securities are generally issued as pass-through certificates or as debt instruments. Asset-backed securities issued as pass-through certificates represent undivided fractional ownership interests in an underlying pool of assets. Asset-backed securities issued as debt instruments, which are also known as collateralized obligations, are typically issued as the debt of a special purpose entity organized solely for the purpose of owning such assets and issuing such debt. Asset-backed securities are often backed by a pool of assets representing the obligations of a number of different parties. The yield characteristics of certain asset-backed securities may differ from traditional debt securities. One such major difference is that all or a principal part of the obligations may be prepaid at any time because the underlying assets (i.e. loans) may be prepaid at any time. As a result, a decrease in interest rates in the market may result in increases in the level of prepayments as borrowers, particularly mortgagors, refinance and repay their loans. An increased prepayment rate with respect to an asset-backed security will have the effect of shortening the maturity of the security. In addition, the Series may subsequently have to reinvest the proceeds at lower interest rates. If the Series has purchased such an asset-backed security at a premium, a faster than anticipated prepayment rate could result in a loss of principal to the extent of the premium paid.
Mortgage-Backed Securities
The Series may invest in mortgage-backed securities (“MBS” or pass-through certificates) that represent an interest in a pool of specific underlying mortgage loans and entitle the Series to the periodic payments of principal and interest from those mortgages. MBS may be issued by government agencies or corporations, or private issuers. Most MBS issued by government agencies are guaranteed; however, the degree of protection differs based on the issuer. For MBS, there are a number of important differences among the agencies and instrumentalities of the U.S. Government that issue mortgage-related securities and among the securities that they issue. For example, mortgage-related securities guaranteed by Ginnie Mae are guaranteed as to the timely payment of principal and interest by Ginnie Mae and such guarantee is backed by the full faith and credit of the United States. However, mortgage-related securities issued by Freddie Mac and Fannie Mae, including Freddie Mac and Fannie Mae guaranteed mortgage pass-through certificates, which are solely the obligations of Freddie Mac and Fannie Mae, are not backed by or entitled to the full faith and credit of the United States, but are supported by the right of the issuer to borrow from the U.S. Treasury. Non-agency mortgage-backed securities are securities issued by non-governmental issuers and have no direct or indirect government guarantees of payment and are subject to various risks. Non-agency mortgage loans are obligations of the borrowers thereunder only and are not typically insured or guaranteed by any other person or entity. The ability of a borrower to repay a loan is dependent upon the income or assets of the borrower. A number of factors, including a general economic downturn, acts of God, terrorism, social unrest and civil disturbances, may impair a borrower’s ability to repay its loans.
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.
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.
22
High Yield Bond Series
Notes to Financial Statements (continued)
2. | Significant Accounting Policies (continued) |
Federal Taxes (continued)
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, 2022, 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, 2019 through December 31, 2022. The Series 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.
Foreign Taxes
Based on the Series’ understanding of the tax rules and rates related to income, gains and currency purchase/repatriation 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
Through the end of 2022, distributions to shareholders of net investment income were made quarterly; effective January 2023, such distributions will be made monthly. 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 GAAP 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 0.40% 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 and are reimbursed for travel and other out-of-pocket expenses incurred by them in connection with attending such meetings. The Fund also has an Audit Committee Chair, Governance & Nominating Committee Chair and Lead Independent Director, who each receive an additional annual stipend for these roles.
23
High Yield Bond Series
Notes to Financial Statements (continued)
3. | Transactions with Affiliates (continued) |
The Fund may enter into agreements with financial intermediaries pursuant to which the Fund may pay financial intermediaries for non-distribution related sub-transfer agency, administrative, sub-accounting, and other shareholder services in an annual amount not to exceed 0.15% of the average daily net assets of the Class I and Class S shares of the Series. Payments made pursuant to such agreements are generally based on the current assets and/or number of accounts of the Series attributable to the financial intermediary. Any payments made pursuant to such agreements may be in addition to, rather than in lieu of, any Distribution and Shareholder Services Fee payable under the Rule 12b-1 plan of the Fund. For the year ended December 31, 2022, the sub-transfer agency expenses incurred by Class S and Class I were $68,530 and $184,227, respectively.
Manning & Napier Investor Services, Inc., a registered broker-dealer affiliate of the Advisor, acts as distributor for the Fund’s shares. The Series compensates the distributor for distributing and servicing the Series’ Class S shares pursuant to a distribution plan adopted under Rule 12b-1 of the 1940 Act, regardless of expenses actually incurred. Under the agreement, the Series pays distribution and service fees to the distributor at an annual rate of 0.25% of average daily net assets attributable to Class S shares. There are no distribution and service fees on the Class I, Class W or Class Z shares. The fees are accrued daily and paid monthly.
Pursuant to a master services agreement, the Fund pays the Advisor an annual fee related to fund accounting and administration of 0.0085% on the first $25 billion of average daily net assets; 0.0075% on the next $15 billion of average daily net assets; and 0.0065% of average daily net assets in excess of $40 billion; plus a base fee of $30,400 per series. Additionally, certain transaction and out-of-pocket expenses, including charges for reporting relating to the Fund’s compliance program, are charged. The Advisor has agreements with BNY Mellon Investment Servicing (U.S.) Inc. (“BNY”) under which BNY serves as sub-accountant services agent.
Pursuant to an advisory fee waiver agreement, the Advisor has contractually agreed to waive the management fee for the Class W shares. The full management fee will be waived under this agreement because Class W shares are only available to discretionary investment accounts and other accounts managed by the Advisor. These clients pay a management fee to the Advisor that is separate from the Fund’s expenses. In addition, pursuant to a separate expense limitation agreement, the Advisor has contractually agreed to limit its fees and reimburse expenses to the extent necessary so that the total direct annual fund operating expenses, exclusive of the shareholder services fee and/or distribution and service (12b-1) fees and waived Class W management fees (collectively, “excluded expenses”), do not exceed 0.65% of the average daily net assets of the Class S and Class I shares, 0.10% of the average daily net assets of the Class W shares, and 0.50% of the average daily net assets of the Class Z shares. These contractual waivers are expected to continue indefinitely, and may not be amended or terminated by the Advisor without the approval of the Series’ Board of Directors. The Advisor may receive from a Class the difference between the Class’s total direct annual fund operating expenses, not including excluded expenses, and the Class’s contractual expense limit to recoup all or a portion of its prior fee waivers (other than Class W management fee waivers) or expense reimbursements made during the rolling three-year period preceding the recoupment if at any point the total direct annual fund operating expenses, not including excluded expenses, are below the contractual expense limit (a) at the time of the fee waiver and/or expense reimbursement and (b) at the time of the recoupment.
Pursuant to the advisory fee waiver, the Advisor waived $413,429 in management fees for Class W for the year ended December 31, 2022. In addition, pursuant to the separate expense limitation agreement, the Advisor waived or reimbursed expenses of $29,566, $61,823, $65,639 and $2,925 for Class S, Class I, Class W, and Class Z, respectively, for the year ended December 31, 2022. These amounts are included as a reduction of expenses on the Statement of Operations.
As of December 31, 2022, the class specific waivers or reimbursements subject to possible future recoupment under the expense limitation agreement are as follows:
CLASS | EXPIRING DECEMBER 31, | |||||||||||||||
2023 | 2024 | 2025 | TOTAL | |||||||||||||
Class S | $ | 13,633 | $ | 12,275 | $ | 29,566 | $ | 55,474 | ||||||||
Class I | 17,756 | 7,047 | 61,823 | 86,626 | ||||||||||||
Class W | 126,979 | 88,678 | 65,639 | 281,296 | ||||||||||||
Class Z | 2,226 | 3,707 | 2,925 | 8,858 |
24
High Yield Bond Series
Notes to Financial Statements (continued)
3. Transactions with Affiliates (continued)
For the year ended December 31, 2022, the Advisor did not recoup any expenses that have been previously waived or reimbursed.
4. Purchases and Sales of Securities
For the year ended December 31, 2022, purchases and sales of securities, other than U.S. Government securities and short-term securities, were $359,076,413 and $250,451,361, respectively. There were no purchases or sales of U.S. Government securities.
5. Capital Stock Transactions
Transactions in Class S, Class I, Class W and Class Z shares of High Yield Bond Series were:
CLASS S | FOR THE YEAR ENDED 12/31/22 | FOR THE YEAR ENDED 12/31/21 | ||||||||||||||
SHARES | AMOUNT | SHARES | AMOUNT | |||||||||||||
Sold | 4,194,876 | $ | 40,616,330 | 5,744,521 | $ | 61,132,086 | ||||||||||
Reinvested | 223,109 | 2,071,687 | 215,066 | 2,231,231 | ||||||||||||
Repurchased | (3,706,119 | ) | (35,971,229 | ) | (2,418,892 | ) | (25,703,861 | ) | ||||||||
Total | 711,866 | $ | 6,716,788 | 3,540,695 | $ | 37,659,456 |
CLASS I | FOR THE YEAR ENDED 12/31/22 | FOR THE YEAR ENDED 12/31/21 | ||||||||||||||
SHARES | AMOUNT | SHARES | AMOUNT | |||||||||||||
Sold | 32,025,385 | $ | 255,151,398 | 8,127,738 | $ | 72,620,203 | ||||||||||
Reinvested | 1,456,184 | 11,113,563 | 638,351 | 5,534,045 | ||||||||||||
Repurchased | (13,037,786 | ) | (103,591,709 | ) | (3,532,642 | ) | (31,206,195 | ) | ||||||||
Total | 20,443,783 | $ | 162,673,252 | 5,233,447 | $ | 46,948,053 |
CLASS W | FOR THE YEAR ENDED 12/31/22 | FOR THE YEAR ENDED 12/31/21 | ||||||||||||||
SHARES | AMOUNT | SHARES | AMOUNT | |||||||||||||
Sold | 527,333 | $ | 5,146,112 | 1,256,616 | $ | 13,115,949 | ||||||||||
Reinvested | 606,840 | 5,658,667 | 1,035,395 | 10,750,624 | ||||||||||||
Repurchased | (6,087,986 | ) | (57,758,554 | ) | (840,081 | ) | (8,855,336 | ) | ||||||||
Total | (4,953,813 | ) | $ | (46,953,775 | ) | 1,451,930 | $ | 15,011,237 |
CLASS Z | FOR THE YEAR ENDED 12/31/22 | FOR THE YEAR ENDED 12/31/21 | ||||||||||||||
SHARES | AMOUNT | SHARES | AMOUNT | |||||||||||||
Sold | 2,424,290 | $ | 19,257,318 | 1,916,130 | $ | 16,799,932 | ||||||||||
Reinvested | 27,063 | 207,597 | 33,862 | 297,832 | ||||||||||||
Repurchased | (3,162,730 | ) | (25,518,475 | ) | (1,039,362 | ) | (9,415,411 | ) | ||||||||
Total | (711,377 | ) | $ | (6,053,560 | ) | 910,630 | $ | 7,682,353 |
Approximately 22% of the shares outstanding are fiduciary accounts where the Advisor has sole investment discretion.
25
High Yield Bond Series
Notes to Financial Statements (continued)
6. | Line of Credit |
The Fund has entered into a 364-day, $50 million credit agreement (the “line of credit”) with Bank of New York Mellon. Each series of the Fund may borrow under the line of credit for temporary or emergency purposes, including funding shareholder redemptions and other short-term liquidity purposes. The Fund pays an annual fee on the unused commitment amount, payable quarterly, and is allocated among all the series of the Fund and included in miscellaneous expenses in the Statement of Operations for each series. The line of credit expires in September 2023 unless extended or renewed. During the year ended December 31, 2022, the High Yield Bond Series borrowed an average of $25,000,000 for 1 day at an interest rate of 3.55%. As of December 31, 2022, there was no borrowing outstanding.
7. | 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. The Series may be subject 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 derivative 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 as of December 31, 2022.
The Series may invest in a loan assignment of all or a portion of the loans. The Series has direct rights against the borrower on a loan when it purchases an assignment; however, the Series’ rights may be more limited than the lender from which it acquired the assignment and the Series may be able to enforce its rights only through an administrative agent. Loan assignments are vulnerable to market conditions and may become illiquid due to economic conditions or other events may reduce the demand for loan assignments and certain loan assignments which were liquid when purchased may become illiquid.
8. | 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.
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 GAAP. These differences are primarily due to differing book and tax treatments in the timing and/or treatment of the recognition of net investment income or gains and losses, including losses deferred due to wash sales and preferred bonds, taxable over distribution, and a defaulted bond accrual. 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. For the year ended December 31, 2022, amounts were reclassified within the capital accounts to decrease Additional Paid in Capital by $71,666 and increase Total Distributable Earnings (Loss) by $71,666. 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 12/31/22 | ENDED 12/31/21 | |||
Ordinary income | $ | 20,855,406 | $ | 19,495,758 |
Long-term capital gains | $ | 405,477 | $ | 536,808 |
26
High Yield Bond Series
Notes to Financial Statements (continued)
9. | Federal Income Tax Information (continued) |
At December 31, 2022, the tax basis of components of distributable earnings and the net unrealized depreciation based on the identified cost of investments for federal income tax purposes were as follows:
Cost for federal income tax purposes | $ | 358,398,918 |
Unrealized appreciation | 3,676,059 | |
Unrealized depreciation | (32,550,445) | |
Net unrealized depreciation | $ | (28,874,386) |
Capital loss carryforwards | $ | (8,515,065) |
As of December 31, 2022, the Series had net short-term capital loss carryforwards of $6,095,996 and net long-term capital loss carryforwards of $2,419,069, which may be carried forward indefinitely.
10. | Market Event |
Significant disruptions and volatility in the global financial markets and economies, like the current conditions caused by the Russian invasion of Ukraine and the COVID-19 pandemic, could negatively impact the investment performance of the Series. The global market and economic climate may become increasingly uncertain due to numerous factors beyond our control, including but not limited to, the effectiveness and acceptance of vaccines to prevent COVID-19, impacts on business operations in the U.S. related to the COVID-19 pandemic, such as supply chain disruptions and inflation, concerns related to unpredictable global market and economic factors, uncertainty in U.S. federal fiscal, tax, trade or regulatory policy and the fiscal, tax, trade or regulatory policy of foreign governments, rising interest rates, inflation or deflation, the availability of credit, performance of financial markets, terrorism, natural or biological catastrophes, public health emergencies, or political uncertainty.
27
High Yield Bond Series
Report of Independent Registered Public Accounting Firm
To the Board of Directors of Manning & Napier Fund, Inc. and Shareholders of High Yield Bond Series
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the investment portfolio, of High Yield Bond Series (one of the series constituting Manning & Napier Fund, Inc., referred to hereafter as the “Fund”) as of December 31, 2022, the related statement of operations for the year ended December 31, 2022, the statement of changes in net assets for each of the two years in the period ended December 31, 2022, including the related notes, and the financial highlights for each of the periods indicated therein (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2022, 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 ended December 31, 2022 and the financial highlights for each of the periods indicated therein in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of December 31, 2022 by correspondence with the custodian, agent banks and issuers of privately offered securities. We believe that our audits provide a reasonable basis for our opinion.
New York, New York
February 23, 2023
We have served as the auditor of one or more investment companies in Manning & Napier Mutual Funds since 1992.
28
High Yield Bond Series
Renewal of Investment Advisory Agreement
(unaudited)
At the Manning & Napier Fund, Inc. (the “Fund”) Board of Directors’ (the “Board”) Special meeting, held on May 3, 2022 (the “May 3rd Board Meeting”), a new Investment Advisory Agreement between the Fund and Manning & Napier Advisors, LLC (the “Advisor”) and on behalf of the Rainier International Discovery Series (the “Rainier Series”), a new investment advisory agreement between the Advisor and the Fund and a new investment sub-advisory agreement between Advisor and Rainier Investment Management, LLC (“Rainier”) (together, the “New Advisory Agreements”), were considered for approval by the Board, including all of the Directors who are not “interested persons” (“Independent Directors”), within the meaning of the Investment Company Act of 1940, as amended (the “1940 Act”). The Board was asked to consider the New Advisory Agreements because of a transaction that impacted Manning & Napier, Inc. (“MN Inc.”), the ultimate parent company of the Advisor and Rainier.
On March 31, 2022, MN Inc. and Callodine Group, LLC (“Callodine”) entered into an agreement under which an affiliate of Callodine would acquire MN Inc. (the “Transaction”). The Transaction, which was subject to customary closing conditions, closed on October 21, 2022. Following the closing, both the Advisor and Rainier are now indirectly owned and controlled by Callodine MN Holdings, Inc., which, in turn, is controlled by Callodine Group, LLC and its founder James Morrow. East Asset Management, LLC, and its owners Terrence and Kim Pegula, also indirectly hold a substantial interest in Callodine MN Holdings, Inc.
The Transaction was deemed to result in a change of control of the Advisor and Rainier under the 1940 Act, and therefore resulted in the assignment and automatic termination of the investment advisory agreement and sub-advisory agreement pursuant to which the Advisor and Rainier provided advisory services to each Series of the Fund (the “Existing Advisory Agreements”). The Board was asked to consider the approval of the New Advisory Agreements, to become effective upon shareholder approval, so that the Advisor and Sub-Advisor’s management of the Series would continue without any interruption.
Board Considerations in Approving the New Advisory Agreements
The Board met on April 8, April 13, April 27 and May 3 in person and by video conference to consider and discuss the New Advisory Agreements. At each of those meetings, the Independent Directors also met separately with their independent counsel outside the presence of Fund Management. In preparation for those Board meetings, the Independent Directors requested that the Advisor, Rainier and Callodine furnish information necessary for the Directors to evaluate the terms of the New Advisory Agreements. The Advisor and Rainier were the only investment advisers the Directors considered at such meetings. The Independent Directors also submitted a number of follow-up requests to the Advisor for additional information based on the Board’s review of information provided in response to its initial requests. The Board also considered information that the Board previously reviewed in connection with its approval of the Existing Advisory Agreements for initial terms of two years, which occurred at a meeting held on April 22, 2020, as well as information presented in 2021 that covered similar matters but for which no approval was sought at that time. The Board further considered that the Existing Advisory Agreements were subject to shareholder consideration and were approved by shareholders at a special meeting held on June 30, 2020 and August 18, 2020. At the Meeting on May 3rd, the Board additionally reviewed information provided in connection with the proposed renewal of the Existing Advisory Agreements. The Directors used this information, as well as other information submitted to the Board in connection with the recent Board meetings noted above, and other meetings held since the most recent approval of the Existing Advisory Agreements, to help them decide whether to approve the New Advisory Agreements for initial two-year terms.
Specifically, the Board requested and received written materials from the Advisor and Rainier regarding, among other things: (i) the terms, conditions, and expected timing of the Transaction; (ii) the nature, extent and quality of the services to be provided by the Advisor and Rainier under the New Advisory Agreements; (iii) the proposed advisory fee to be paid to the Advisor and Rainier under the New Advisory Agreements; (iv) the Advisor and Rainier’s compliance programs; and (v) the Advisor and Rainier’s investment management personnel. In addition, the Board considered information provided to them with respect to Callodine, its business and affiliates, as well as its objectives and plans related to the Advisor. The Independent Directors considered their discussion about business strategy with a representative from Callodine who attended the April 13th meeting.
At the May 3rd Board meeting, the Directors, including all of the Independent Directors, based on their evaluation of the information provided by the Advisor, Rainier, Callodine and other service providers of the Series, approved the New Advisory Agreements. Specifically, the Directors considered information presented by the Advisor and Rainier at a meeting of the Board held on May 3, 2022, specifically regarding among other areas: (i) the services provided by the Advisor and Rainier; (ii) the investment performance of the Series, the Advisor and Rainier; and (iii) the profitability of the overall relationship to the Advisor and Rainier.
29
High Yield Bond Series
Renewal of Investment Advisory Agreement
(unaudited)
The Independent Directors also received advice at the May 3rd Board meeting and other recent Board meetings from independent counsel and met in executive session outside the presence of Fund management. In considering the approval of the New Advisory Agreements, the Board considered various factors that they determined were relevant, including: (i) the nature, extent and quality of the services to be provided by the Advisor and Rainier; (ii) the investment performance of the Series, the Advisor and Rainier; and (iii) the fees to be paid to the Advisor and Rainier under the New Advisory Agreements, as discussed in further detail below. In addition, the Board, in considering the New Advisory Agreements in the context of the Transaction, relied upon representations from the Advisor and Rainier that: (i) the Transaction would not result in any material changes to the nature, quality and extent of services provided to the Series by the Advisor and Rainier that are discussed below; (ii) the Advisor and Rainier did not anticipate any material changes to their compliance programs or code of ethics in connection with the Transaction; and (iii) the portfolio managers and investment process for the Series would not change as a result of the Transaction.
Nature, Extent and Quality of Services Provided by the Advisor and Rainier
In considering the nature, extent and quality of the services to be provided by the Advisor and Rainier, the Board reviewed the portfolio management services to be provided by the Advisor and Rainier to the Series, including the quality of the continuing portfolio management personnel and investment process, as well as the Advisor and Rainier’s compliance history and compliance program. The Directors reviewed the terms of the proposed New Advisory Agreements, and noted that the New Advisory Agreements do not materially differ from the Existing Advisory Agreements. The Directors also reviewed the Advisor and Rainier’s investment and risk management approaches for the Series. The most recent investment adviser registration forms (Form ADV) for the Advisor and Rainier also were available to the Board. The Directors also considered other services to be provided to the Series by the Advisor specifically, such as monitoring Rainier’s adherence to the Series’ investment restrictions and monitoring compliance with various Fund policies and procedures and with applicable securities laws and regulations. Based on the factors above, as well as those discussed below, the Board concluded, within the context of its full deliberations, that the nature, extent and quality of the services to be provided to each Series by the Advisor and Rainier under the New Advisory Agreements support approval of the New Advisory Agreements.
Investment Performance of the Advisor and Rainier
In connection with its most recent approvals of the Existing Advisory Agreements and other meetings held during the course of the period since then, the Board was provided with reports – both proprietary to the Advisor or the Fund and generated by independent providers of investment company data – regarding the performance of each Series over various time periods. As part of these meetings, the Advisor and Rainier and their representatives provided information regarding and, as applicable, led discussions of factors impacting the Advisor and Rainier’s performance for the Series, outlining current market conditions and explaining their expectations and strategies for the future. The Directors determined that it was appropriate to take into account its consideration of the Advisor and Rainier’s performance at meetings held prior to the May 3rd Board meeting. In doing so, the Directors generally determined that the Advisor and Rainier’s performance was satisfactory. Where the Advisor or Rainier’s performance was materially below a Series’ benchmarks and or peer group, the Directors requested an explanation for the underperformance and/or the steps taken by the Advisor and Rainier in an effort to improve performance. In all instances, the Directors were satisfied with the explanation provided. The Directors plan to remain focused in future meetings to address aberrational underperformance. The Directors will continue to monitor the fees and expenses of the Series compared to peer groups. Based on this information and the Advisor and Rainier’s representations that the portfolio managers for the Series would not change in connection with the Transaction, the Board concluded, within the context of its full deliberations, that the investment results that the Advisor and Rainier had been able to achieve for each Series support approval of the New Advisory Agreements.
Costs of Advisory Services, Profitability and Economies of Scale
With respect to the cost of advisory services, the Board considered that the investment advisory fees payable to the Advisor and Rainier under the New Advisory Agreements are the same as the investment advisory fee payable to the Advisor and Rainier under the Existing Advisory Agreements. With respect to profitability and economies of scale, at the May 3rd Board meeting, the Board considered the Advisor and Rainier’s profitability and economies of scale from management of the Series. The Board noted the Advisor’s explanation of the consistent approach taken in calculating profitability, compared to prior periods, including the allocation of expenses as part of that calculation. The Directors noted that certain Series were not yet at sufficient scale to be profitable. The Directors noted the potential for the Transaction to add resources that could improve economies of scale for various Series; however, they also noted that such potential may not be realized. The Directors concluded that the profit margins of the Advisor and Rainier with respect to the management of the Series were not unreasonable. The Board also considered the Advisor’s willingness to continue its current expense limitation and fee waiver arrangements with the Series.
30
High Yield Bond Series
Renewal of Investment Advisory Agreement
(unaudited)
Conclusion
The conclusions described above, in part, formed the basis for the Board’s approval of the New Advisory Agreements at the May 3rd Board meeting. The Board concluded, in the exercise of its reasonable judgment, that the terms of the New Advisory Agreements, including the compensation to be paid thereunder, are reasonable in relation to the services expected to be provided by the Advisor and Rainier to the Series and that the appointment of the Advisor and Rainier and the approval of the New Advisory Agreements would be in the best interests of the Series and their shareholders. Based on the Directors’ deliberations and their evaluation of the information described above and other factors and information they believed relevant, the Board, including all of the Independent Directors, unanimously approved (a) the appointment of the Advisor as investment adviser to the Series and Rainier as investment sub-adviser to the Rainier Series, and (b) the New Advisory Agreements.
The Board did not indicate that any single factor was determinative of its decision to approve the Agreement, but indicated that the Board based its determination on the total mix of information available to it.
The New Advisory Agreements were approved by shareholders at Shareholder Meetings held on August 19, 2022, September 16, 2022 and October 18, 2022 and became effective upon the closing of the Transaction with Callodine on October 21, 2022.
31
High Yield Bond Series
Liquidity Risk Management Program Disclosure
(unaudited)
The Securities and Exchange Commission adopted Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”) to promote effective liquidity risk management by open-end investment companies and reduce Liquidity Risk, which is the risk that open-end investment companies are unable to meet redemption obligations without a significant dilution of remaining shareholder interests.
The Manning & Napier Fund, Inc. and each of its series (each a “Fund” or collectively, the “Funds”) adopted a Liquidity Risk Management Program (the “Program”) and obtained approval from the Board of Directors (the “Board”), including a majority of Directors who are not interested persons of the Fund, to appoint a Liquidity Risk Management Committee (the “Committee”) to assess and manage the Fund’s Liquidity Risk.
Under the Program, assessment and management of Liquidity Risk takes into consideration certain factors, such as each fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions, its short- and long-term cash-flow projections during both normal and reasonably foreseeable stressed conditions, and its cash and cash-equivalent holdings and access to other funding sources. As required by the rule, the Program includes policies and procedures for the classification of each Fund’s portfolio holdings into four liquidity categories, establishes a 15% limit on holdings of illiquid investments, and sets forth procedures for the override of vendor-derived classifications.
The Committee prepares an annual assessment (“assessment”) of the Program to review the operation of the Program, including the adequacy of controls designed to manage the Funds’ Liquidity Risk. Through this assessment, the Committee re-considers prior conclusions around each factor that the Fund must consider to assess, manage, and review its Liquidity Risk and evaluates the effectiveness of processes to classify Fund assets into liquidity categories, including Committee override determinations. As part of this evaluation the Committee re-affirms that each Fund operates as a Primarily Highly Liquid Fund, with greater than 50% of net assets consistently invested in Highly Liquid Investments, thereby negating a need to establish a Highly Liquid Investment Minimum for any Fund. Lastly, the assessment considers the effectiveness of the safeguards that the Committee adopted to prevent a violation of the Liquidity Rule’s limit on a Fund’s holding of Illiquid Investments.
The most recent assessment covered January 1, 2021, through December 31, 2021, and was presented to the Board in February 2022. This assessment confirmed that the Program continues to operate effectively in all material respects to address the requirements of the Liquidity Rule and manage the Funds’ Liquidity Risk.
32
High Yield Bond Series
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.manning-napier.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 directors and officers, 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 and Officer1
Name: | Paul Battaglia |
Address: | 290 Woodcliff Drive |
Fairport, NY 14450 | |
Born: | 1978 |
Current Position(s) Held with Fund: | Principal Executive Officer, President, Chairman and Director |
Term of Office2 & Length of Time Served: | Indefinite – Chairman and Director since November 2018 |
Principal Occupation(s) During Past 5 Years: | Chief Financial Officer since 2018; Vice President of Finance (2016 – 2018); |
Director of Finance (2011 – 2016); Financial Analyst/Internal Auditor (2004- | |
2006) – Manning & Napier Advisors, LLC and affiliates | |
Holds one or more of the following titles for various subsidiaries and | |
affiliates: Chief Financial Officer | |
Number of Portfolios Overseen within Fund Complex: | 15 |
Other Directorships Held Outside Fund Complex During | N/A |
Past 5 Years: | |
Independent Directors | |
Name: | Stephen B. Ashley |
Address: | 290 Woodcliff Drive |
Fairport, NY 14450 | |
Born: | 1940 |
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 and Director since 1997; Chief Executive Officer (1997-2019) - |
Ashley Companies (property management and investment) | |
Number of Portfolios Overseen within Fund Complex: | 15 |
Other Directorships Held Outside Fund Complex During | Ashley Companies since 1997 |
Past 5 Years: | |
Name: | Paul A. Brooke |
Address: | 290 Woodcliff Drive |
Fairport, NY 14450 | |
Born: | 1945 |
Current Position(s) Held with Fund: | Lead Independent Director, Audit Committee Member, Governance & |
Nominating Committee Member | |
Term of Office & Length of Time Served: | Indefinite – Director, Audit Committee Member, Governance & Nominating |
Committee Member since 2007; Lead Independent Director since 2017 | |
Principal Occupation(s) During Past 5 Years: | Managing Member since 1991 - PMSV Holdings LLC (investments); |
Managing Member (2010-2016) - VenBio (investments). | |
15 | |
Number of Portfolios Overseen within Fund Complex: | Incyte Corp. (biotech) (2000-2020); PureEarth (non-profit) since 2012; Cerus |
Other Directorships Held Outside Fund Complex During | (biomedical) since 2016; Caelum BioSciences (biomedical) since 2018; |
Past 5 Years: | Cheyne Capital International (investment)(2000-2017); |
33
High Yield Bond Series
Directors’ and Officers’ Information
(unaudited)
Independent Directors (continued)
Name: | John Glazer |
Address: | 290 Woodcliff Drive |
Fairport, NY 14450 | |
Born: | 1965 |
Current Position(s) Held with Fund: | Director, Audit Committee Member, Governance & Nominating Committee |
Member | |
Term of Office & Length of Time Served: | Indefinite – Director, Audit Committee Member, Governance & Nominating |
Committee Member since February 2021 | |
Principal Occupation(s) During Past 5 Years: | Chief Executive Officer since 2020 – Oikos Holdings LLC (Single-Family |
Office); Head of Corporate Development (2019-2020) – Caelum Biosciences | |
(pharmaceutical development); Head of Private Investments (2015-2018) – | |
AC Limited (Single-Family Office) | |
Number of Portfolios Overseen within Fund Complex: | 15 |
Other Directorships Held Outside Fund Complex During | N/A |
Past 5 Years: | |
Name: | Russell O. Vernon |
Address: | 290 Woodcliff Drive |
Fairport, NY 14450 | |
Born: | 1957 |
Current Position(s) Held with Fund: | Director, Audit Committee Member, Governance & Nominating Committee Chairman |
Term of Office & Length of Time Served: | Indefinite – Director, Audit Committee Member, Governance & Nominating |
Committee Member since April 2020; Governance & Nominating Committee | |
Chairman since November 2020 | |
Principal Occupation(s) During Past 5 Years: | Founder and General Partner (2009-2019) – BVM Capital Management |
(economic development) | |
Number of Portfolios Overseen within Fund Complex: | 15 |
Other Directorships Held Outside Fund Complex During | Board Member, Vice Chairman and President since 2010 – Newburgh |
Past 5 Years: | Armory Unity Center (military); Board Member and Executive Director since |
2020 – National Purple Heart Honor Mission, Inc. (military); Board Member, | |
Vice Chairman (2015-2020) – National Purple Heart Hall of Honor, Inc. | |
(military) | |
Name: | Chester N. Watson |
Address: | 290 Woodcliff Drive |
Fairport, NY 14450 | |
Born: | 1950 |
Current Position(s) Held with Fund: | Director, Audit Committee Chairman, Governance & Nominating Committee |
Member | |
Term of Office & Length of Time Served: | Indefinite – Director, Audit Committee Member, Governance & Nominating |
Committee Member Since 2012; Audit Committee Chairman since 2013 | |
Principal Occupation(s) During Past 5 Years: | General Auditor (2003-2011) - General Motors Company (auto |
manufacturer) | |
Number of Portfolios Overseen within Fund Complex: | 15 |
Other Directorships Held Outside Fund Complex During | Rochester Institute of Technology (University) since 2005; Hudson Valley |
Past 5 Years: | Center for Innovation, Inc. (New Business and Economic Development) |
since 2019; Town of Greenburgh, NY Planning Board (Municipal | |
Government) (2015-2019); |
34
High Yield Bond Series
Directors’ and Officers’ Information
(unaudited)
Officers:
Name: | Elizabeth Craig |
Address: | 290 Woodcliff Drive |
Fairport, NY 14450 | |
Born: | 1987 |
Current Position(s) Held with Fund: | Corporate Secretary |
Term of Office2 & Length of Time Served: | Since 2016 |
Principal Occupation(s) During Past 5 Years: | Director of Fund Administration since 2021; Fund Regulatory Administration |
Manager (2018-2021); Fund Administration Manager (2015-2018) - Manning | |
& Napier Advisors, LLC; Corporate Secretary, Director since 2019– Manning | |
& Napier Investor Services, Inc. | |
Name: | Samantha Larew |
Address: | 290 Woodcliff Drive |
Fairport, NY 14450 | |
Born: | 1980 |
Current Position(s) Held with Fund: | Chief Compliance Officer and Anti-Money Laundering Compliance Officer |
Term of Office2 & Length of Time Served: | Chief Compliance Officer since 2019; Anti-Money Laundering Compliance |
Officer since 2018 | |
Principal Occupation(s) During Past 5 Years: | Co-Director of Compliance since 2018; Compliance Communications |
Supervisor (2014-2018) - Manning & Napier Advisors, LLC& Affiliates; | |
Broker-Dealer Chief Compliance Officer since 2013; Broker-Dealer Assistant | |
Corporate Secretary since 2011 – Manning & Napier Investor Services, Inc.; | |
Name: | Scott Morabito |
Address: | 290 Woodcliff Drive |
Fairport, NY 14450 | |
Born: | 1987 |
Current Position(s) Held with Fund: | Vice President |
Term of Office2 & Length of Time Served: | Vice President since 2019; Assistant Vice President (2017-2019) |
Principal Occupation(s) During Past 5 Years: | Managing Director, Client Service and Business Operations since 2021; |
Managing Director of Operations (2019-2021); Director of Funds Group | |
(2017-2019) - Manning & Napier Advisors, LLC; President, Director since | |
2018 – Manning & Napier Investor Services, Inc.; President, Exeter Trust | |
Company since 2021; | |
Name: | Troy Statczar |
Address: | 290 Woodcliff Drive |
Fairport, NY 14450 | |
Born: | 1971 |
Current Position(s) Held with Fund: | Principal Financial Officer, Treasurer |
Term of Office2 & Length of Time Served: | Principal Financial Officer and Treasurer since 2020 |
Principal Occupation(s) During Past 5 Years: | Senior Principal Consultant, Fund Officers, since 2020 – ACA Group |
(formerly Foreside Financial Group); Director of Fund Administration (2017- | |
2019) - Thornburg Investment Management, Inc. | |
Name: | Sarah Turner |
Address: | 290 Woodcliff Drive |
Fairport, NY 14450 | |
Born: | 1982 |
Current Position(s) Held with Fund: | Chief Legal Officer; Assistant Corporate Secretary |
Term of Office2 & Length of Time Served: | Since 2018 |
Principal Occupation(s) During Past 5 Years: | General Counsel since 2018 - Manning & Napier Advisors, LLC and |
affiliates; Counsel (2017-2018) – Harter Secrest and Emery LLP | |
Holds one or more of the following titles for various affiliates: General | |
Counsel | |
1Interested Director, within the meaning of the 1940 Act by reason of his positions with the Fund’s Advisor, Manning & Napier Advisors, LLC, and Distributor, Manning & Napier Investor Services, Inc.
2The term of office of all officers shall be one year and until their respective successors are chosen and qualified, or his or her earlier resignation or removal as provided in the Fund’s By-Laws.
35
{This page intentionally left blank}
36
{This page intentionally left blank}
37
High Yield Bond Series
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-PORT, and are available, without charge, upon request:
By phone | 1-800-466-3863 |
On the SEC’s web site | http://www.sec.gov |
Prospectus and Statement of Additional Information (SAI)
For more information about any of the Manning & Napier Fund, Inc. Series, you may obtain a prospectus and SAI at www.manning-napier.com or by calling 1-(800) 466-3863. Before investing, carefully consider the objectives, risks, charges and expenses of the investment and read the prospectus carefully as it contains this and other information about the investment company. In addition, this information can be found on the SEC’s web site, http://www.sec.gov.
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 |
The Fund also offers electronic notification or “e-delivery” when certain documents are available on-line to be downloaded or reviewed. Direct shareholders can elect to receive electronic notification when shareholder reports, prospectus updates, and/or statements are available. If you do not currently have on-line access to your account, you can establish access by going to www.manning-napier.com, click on “Login” in the top corner of the page, and follow the prompts to self-enroll. Once enrolled, you can set your electronic notification preferences by clicking on the Account Options tab located within the green toolbar and then select E-Delivery Option. Should you have any questions on either how to establish on-line access or how to update your account settings, please contact Investor Services at 1-800-466-3863.
The Manning & Napier Fund, Inc. is managed by Manning & Napier Advisors, LLC. Manning & Napier Investor Services, Inc., an affiliate of Manning & Napier Advisors, LLC, is the distributor of the Fund shares.
MNHYB-12/22-AR
38
www.manning-napier.com
Manning & Napier Fund, Inc.
Real Estate Serie
Independent Perspective | Real-World Solutions |
A Note from Our CEO
Dear Shareholder,
We are acutely aware of how difficult this year has been for our investors, in what has been a historically challenging year in the capital markets. A bear market in equities and a sharp correction in fixed income have each simultaneously occurred this year, resulting in one of the worst runs for blended stock-bond portfolios in the past two hundred years.
The global economy is facing inflationary pressures more significant than have been experienced over the past four decades. War in Europe, rising tensions in East Asia, and surging energy prices are all bringing renewed geopolitical tumult. Economic, social, and environmental pressures are manifesting themselves in rapid, and at times, dramatic and unexpected swings in election results domestically and abroad.
What have we been doing in response to the challenges abound, and, most significantly, what steps are we taking to ensure we deliver what our fund shareholders expect in the future? I’ll combine those steps into two main ways.
First, and by way of change, we have taken a meaningful evolutionary step to position Manning & Napier even more strongly for the years ahead. After eleven years as a public company, we went private in 2022 in partnership with the Callodine Group, returning to the status under which we operated for our first four decades. We believe being private will provide continuity for our investment strategies while allowing us to invest for the future.
The second step speaks even further to the value of continuity. Our fund shareholders can expect us to continue to rely on the consistent investment philosophies, disciplines, and time-tested processes that have guided our seasoned investors over multiple economic and capital markets cycles over the past half-century.
The past twelve months have been challenging for investors. It has reinforced the importance of long-term perspective and the value of having a clear investment plan.
Throughout the next chapter of Manning & Napier, we look forward to partnering with our mutual fund investors to help you realize the investment outcomes you need.
We thank and appreciate your continued confidence in our firm.
Sincerely
Marc Mayer Chief Executive Officer |
Corporate Headquarters | 290 Woodcliff Drive | Fairport, NY 144501 (585) 325-6880 phone | (800) 551-0224 toll free | www.manning-napier.com
1
Real Estate Series
Fund Commentary
(unaudited)
Investment Objective
To provide high current income and long-term capital appreciation by investing principally in companies in the real estate industry. Under normal circumstances, at least 80% of the Series’ assets will be invested in securities of companies that are principally engaged in the US real estate industry.
Performance Commentary
Real estate markets delivered negative returns during 2022, and lagged behind the broader U.S. equity market as well. Within the real estate market, returns for the year were negative nearly across the board, with the exception of Gaming REITs. (i.e. casinos). Outside of Gaming, cyclical areas like the Hospitality and Retail sectors were negative but some of the best relative performers, while Residential, Office, Industrial, and Data Storages REITs posted some of the worst returns for the year.
The Real Estate Series Class S posted negative returns for the year and also slightly underperformed its benchmark (i.e. the MSCI US REIT Index), returning -26.96% versus -25.37%, respectively. In aggregate, sub-industry allocations detracted from returns while security selection contributed positively to relative performance. The primary drivers of underperformance included a sizable underweight to Retail REITs (most notably shopping centers and the triple-net retail space), a zero-weight allocation to Gaming REITs, and an overweight allocation to Infrastructure companies (primarily cell towers). Positive contributors included an underweight to Office REITs (which was the worst-performing sub-industry during the year) and stock selection within Data Centers.
The portfolio currently favors Residential REITs, with a primary focus on Single-Family Housing and Manufactured Housing, as we expect the undersupply of homes relative to long-term household formation to result in excess demand and support pricing for residential rentals. These dynamics are somewhat different in the multi-family space, where increased supply has led to rent pressures, and we have moved to an underweight allocation to Apartments. The portfolio also has an overweight allocation to Industrial REITs compared to the benchmark as we have a favorable view of the trend toward e-commerce (and associated warehousing/logistics needs) being accelerated and continuing, as well as an overweight allocation to Infrastructure companies (e.g. cell towers) which we expect to benefit from secular growth tailwinds over the long term. The portfolio also continues to maintain an overweight allocation to Data Storage REITs, which are key beneficiaries of the growth in cloud-hosted data across enterprises. Within traditional office REITs, to which we maintain an underweight allocation, we generally continue to prefer Sun Belt markets over coastal metropolitan markets due to the combination of strong job growth and manageable supply. The pandemic environment strengthened this case as it has weakened demand for space in large metropolitan areas, which we expect to be persistent in certain respects. The portfolio has zero allocation to Mall and Shopping Center REITs, as we continue to have a long-term negative view of brick-and-mortar retail’s fundamental strength in an increasingly e-commerce-dominated world.
Performance for the Real Estate Series Class S shares is provided above. Performance for other shares classes will differ based on each class’ underlying expenses.
Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate, so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be higher or lower than that quoted; investors can obtain the most recent month-end performance at www.manning- napier.com or by calling (800) 466-3863.
Additional information and associated disclosures can be found on the Performance Update page of this report.
All investments involve risks, including potential loss of principal. Funds whose investments are concentrated in a specific industry or sector may be subject to a higher degree of market risk than funds whose investments are diversified among a variety of sectors. The Real Estate Series is subject to risks associated with the direct ownership of real estate, including the potential for falling real estate prices and the possibility of being highly leveraged; an investment in the Series will be closely aligned with the performance of the real estate markets. Additionally, like all derivatives, investments in options can be highly volatile and involve risks in addition to the risks of the underlying instrument on which the derivative is based, such as counterparty, correlation and liquidity risk.
2
Real Estate Series
Performance Update as of December 31, 2022
(unaudited)
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 2022 | ||||||
ONE | FIVE YEAR | TEN YEAR | ||||
Real Estate Series - Class S2 3 | (26.96%) | 3.45% | 6.65% | |||
Real Estate Series - Class I2,3 | (26.83%) | 3.72% | 6.91% | |||
Real Estate Series - Class W2’4 | (26.26%) | 4.24% | 7.05% | |||
Real Estate Series - Class Z2’4 | (26.67%) | 3.78% | 6.82% | |||
MSCI U.S. Real Estate Investment Trust (REIT) Index5 | (25.37%) | 2.48% | 5.20% |
The following graph compares the value of a $10,000 investment in the Real Estate Series - Class S for the ten years ended December 31, 2022 to the MSCI U.S. REIT Index.
1The returns shown are based on net asset values calculated for shareholder transactions and may differ from the returns shown in the financial highlights, which reflect adjustments made to the net asset values in accordance with accounting principles generally accepted in the United States of America.
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, 2022, this net expense ratio was 1.10% for Class S, 0.85% for Class I, 0.10% for Class W and 0.70% for Class Z. The gross expense ratio, which does not account for any voluntary or contractual waivers currently in effect, was 1.12% for Class S, 0.86% for Class I, 0.72% for Class W and 0.72% for Class Z for the year ended December 31, 2022.
3For periods through August 1, 2012 (the inception date of the Class I shares), performance for Class I shares is based on the historical performance of the Class S shares. Because the Class I shares invest in the same portfolio of securities as Class S, performance will only be different to the extent that the Class S shares have a higher expense ratio.
4For periods through March 1, 2019 (the inception date of the Class W and Class Z shares), performance for the Class W and Class Z shares is based on the historical performance of the Class S shares. Because the Class W and Class Z shares invest in the same portfolio of securities as the Class S shares, performance will be different only to the extent that the Class S shares have a higher expense ratio.
5The MSCI U.S. Real Estate Investment Trust (REIT) Index is a free float-adjusted market capitalization index that is comprised of equity REITs that are classified in the Equity REITs Industry under the GICS® Real Estate sector. The MSCI U.S. REIT Index is a subset of the MSCI USA Investable Market Index (IMI) which captures large, mid, and small-cap securities. The Index returns do not reflect any fees or expenses. The Index is denominated in U.S. dollars. The Index returns are net of withholding taxes. They assume daily reinvestment of net dividends thus accounting for any applicable dividend taxation. Index returns provided by Bloomberg.Index data referenced herein is the property of MSCI, its affiliates (“MSCI”) and/or its third party suppliers and has been licensed for use by Manning & Napier. MSCI and its third party suppliers accept no liability in connection with its use. Data provided is not a representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and none of these parties shall have any liability for any errors, omissions, or interruptions of any index or the data included therein. For additional disclosure information, please see: https://go.manning-napier.com/benchmark-provisions.
3
Real Estate Series
Shareholder Expense Example
(unaudited)
As a shareholder of the Series, you incur ongoing costs, including management fees, shareholder service 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 in each class at the beginning of the period and held for the entire period (July 1, 2022 to December 31, 2022).
Actual Expenses
The Actual lines of the table below provide information about actual account values and actual expenses. You may use the information in these lines, 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 Actual line for the Class in which you have invested 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 Hypothetical lines of each class in the table below provide information about hypothetical account values and hypothetical expenses based on the Class’ actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Class’ 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 a class of the Series and other funds. To do so, compare this 5% hypothetical example for the Class in which you have invested 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, such as sales charges (loads), redemption fees, or exchange fees that you may incur in other mutual funds. 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.
BEGINNING ACCOUNT VALUE 7/1/22 | ENDING ACCOUNT VALUE 12/31/22 | EXPENSES PAID DURING PERIOD* 7/1/22 - 12/31/22 | ANNUALIZED EXPENSE RATIO | |||||
Class S | ||||||||
Actual | $1,000.00 | $912.30 | $5.30 | 1.10% | ||||
Hypothetical (5% return before expenses) | $1,000.00 | $1,019.66 | $5.60 | 1.10% | ||||
Class I | ||||||||
Actual | $1,000.00 | $914.00 | $4.10 | 0.85% | ||||
Hypothetical (5% return before expenses) | $1,000.00 | $1,020.92 | $4.33 | 0.85% | ||||
Class W | ||||||||
Actual | $1,000.00 | $916.80 | $0.48 | 0.10% | ||||
Hypothetical (5% return before expenses) | $1,000.00 | $1,024.70 | $0.51 | 0.10% | ||||
Class Z | ||||||||
Actual | $1,000.00 | $913.80 | $3.38 | 0.70% | ||||
Hypothetical (5% return before expenses) | $1,000.00 | $1,021.68 | $3.57 | 0.70% |
*Expenses are equal to each Class’ annualized expense ratio (for the six-month period), 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 ratios stated above may differ from the expense ratios stated in the financial highlights, which are based on one-year data. The Class’ total return would have been lower had certain expenses not been waived or reimbursed during the period.
4
Real Estate Series
Portfolio Composition as of December 31, 2022
(unaudited)
Sector Allocation1 |
1As a percentage of net assets. |
Top Ten Stock Holdings2 | ||||
Prologis, Inc. | 12.3% | Equity LifeStyle Properties, Inc. | 3.3% | |
Equinix, Inc. | 11.0% | Healthcare Realty Trust, Inc. | 3.2% | |
Public Storage | 4.6% | Rexford Industrial Realty, Inc. | 3.2% | |
Radius Global Infrastructure, Inc. - Class A | 4.3% | Cellnex Telecom S.A. (Spain) | 3.1% | |
Sun Communities, Inc. | 4.1% | Mid-America Apartment Communities, Inc. | 3.0% | |
2As a percentage of total investments. |
5
Real Estate Series
Investment Portfolio - December 31, 2022
SHARES | VALUE (NOTE 2) | |||||||
COMMON STOCKS - 98.8% | ||||||||
Communication Services - 8.4% | ||||||||
Integrated Telecommunication Services - 8.4% | ||||||||
Cellnex Telecom S.A. (Spain)1 | 245,690 | $ | 8,149,845 | |||||
Helios ToZers plc (Tanzania)* | 2,253,833 | 2,890,982 | ||||||
Radius Global Infrastructure, Inc. - Class A* | 952,213 | 11,255,158 | ||||||
Total Communication Services | 22,295,985 | |||||||
Consumer Discretionary - 1.5% | ||||||||
Hotels, Resorts & Cruise Lines - 1.5% | ||||||||
Marriott Vacations WorldZide Corp. | 16,046 | 2,159,631 | ||||||
Playa Hotels & Resorts N.V.* | 269,230 | 1,758,072 | ||||||
Total Consumer Discretionary | 3,917,703 | |||||||
Real Estate - 88.9% | ||||||||
REITS - Health Care - 10.7% | ||||||||
CareTrust REIT, Inc. | 197,970 | 3,678,283 | ||||||
Community Healthcare Trust, Inc. | 172,966 | 6,192,183 | ||||||
Healthcare Realty Trust, Inc. | 441,575 | 8,509,150 | ||||||
Ventas, Inc. | 89,571 | 4,035,173 | ||||||
WelltoZer, Inc. | 87,423 | 5,730,578 | ||||||
28,145,367 | ||||||||
REITS - Industrial - 20.6% | ||||||||
Americold Realty Trust, Inc. | 93,584 | 2,649,363 | ||||||
LXP Industrial Trust | 329,486 | 3,301,450 | ||||||
Prologis, Inc. | 286,951 | 32,347,986 | ||||||
Rexford Industrial Realty, Inc. | 154,459 | 8,439,640 | ||||||
STAG Industrial, Inc. | 62,513 | 2,019,795 | ||||||
Terreno Realty Corp. | 97,959 | 5,570,928 | ||||||
54,329,162 | ||||||||
REITS - Office - 2.7% | ||||||||
BrandyZine Realty Trust | 283,017 | 1,740,554 | ||||||
Cousins Properties, Inc. | 217,175 | 5,492,356 | ||||||
7,232,910 | ||||||||
REITS - Residential - 24.4% | ||||||||
American Homes 4 Rent - Class A | 183,144 | 5,519,960 | ||||||
AvalonBay Communities, Inc. | 23,000 | 3,714,960 | ||||||
Camden Property Trust | 31,952 | 3,574,790 | ||||||
Equity LifeStyle Properties, Inc. | 133,737 | 8,639,410 | ||||||
Essex Property Trust, Inc. | 15,129 | 3,206,138 | ||||||
Flagship Communities REIT | 260,343 | 4,227,970 | ||||||
Independence Realty Trust, Inc. | 214,975 | 3,624,478 | ||||||
Invitation Homes, Inc. | 251,965 | 7,468,243 | ||||||
Mid-America Apartment Communities, Inc. | 50,347 | 7,903,976 | ||||||
Sun Communities, Inc. | 74,642 | 10,673,806 | ||||||
UDR, Inc. | 146,321 | 5,667,012 | ||||||
64,220,743 | ||||||||
REITS - Retail - 5.5% | ||||||||
Agree Realty Corp. | 78,110 | 5,540,342 | ||||||
Getty Realty Corp. | 205,921 | 6,970,426 | ||||||
Realty Income Corp. | 31,444 | 1,994,493 | ||||||
14,505,261 |
SHARES | VALUE (NOTE 2) | |||||||
COMMON STOCKS (continued) | ||||||||
Real Estate (continued) | ||||||||
REITS - Specialized - 25.0% | ||||||||
American ToZer Corp. | 24,935 | $ | 5,282,729 | |||||
Digital Realty Trust, Inc. | 63,791 | 6,396,324 | ||||||
Equinix, Inc. | 44,148 | 28,918,264 | ||||||
Life Storage, Inc. | 58,361 | 5,748,558 | ||||||
Public Storage | 42,845 | 12,004,741 | ||||||
SBA Communications Corp. | 27,399 | 7,680,214 | ||||||
66,030,830 | ||||||||
Total Real Estate | 234,464,273 | |||||||
TOTAL COMMON STOCKS | ||||||||
(Identified Cost $262,920,807) | 260,677,961 | |||||||
SHORT-TERM INVESTMENT - 0.9% | ||||||||
Dreyfus Government Cash Management, Institutional Shares, 4.19%2 | ||||||||
(Identified Cost $2,418,143) | 2,418,143 | 2,418,143 | ||||||
TOTAL INVESTMENTS - 99.7% | ||||||||
(Identified Cost $265,338,950) | 263,096,104 | |||||||
OTHER ASSETS, LESS LIABILITIES - 0.3% | 696,754 | |||||||
NET ASSETS - 100% | $ | 263,792,858 |
REIT - Real Estate Investment Trust
The accompanying notes are an integral part of the financial statements.
6
Real Estate Series
Investment Portfolio - December 31, 2022
*Non-income producing security.
1Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”) and determined to be liquid under the Fund’s Liquidity Risk Management Program. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at December 31, 2022 was $8,149,845, which represented 3.1% of the Series’ Net Assets.
2Rate shown is the current yield as of December 31, 2022.
The Global Industry Classification Standard (GICS) was developed by and is the exclusive property and a service mark of MSCI Inc. (MSCI) and Standard & Poor’s, a division of S&P Global Inc. (S&P), and is licensed for use by Manning & Napier when referencing GICS sectors. Neither MSCI, S&P, nor any third party involved in making or compiling the GICS or any GICS classifications makes any express or implied warranties or representations with respect to such standard or classification, nor shall any such party have any liability therefrom.
The accompanying notes are an integral part of the financial statements.
7
Real Estate Series
Statement of Assets and Liabilities
December 31, 2022
ASSETS:
Investments, at value (Identified cost $265,338,950) (Note 2) | $ | 263,096,104 | ||
Cash | 2,903 | |||
Dividends receivable | 750,113 | |||
Receivable for fund shares sold | 261,911 | |||
Foreign tax reclaims receivable | 9,322 | |||
Prepaid expenses | 21,150 | |||
TOTAL ASSETS | 264,141,503 | |||
LIABILITIES: | ||||
Accrued sub-transfer agent fees (Note 3) | 25,746 | |||
Accrued management fees (Note 3) | 22,110 | |||
Accrued fund accounting and administration fees (Note 3) | 15,526 | |||
Accrued distribution and service (Rule 12b-1) fees (Class S) (Note 3) | 7,237 | |||
Accrued Chief Compliance Officer service fees (Note 3) | 2,062 | |||
Directors’ fees payable (Note 3) | 1,793 | |||
Payable for fund shares repurchased | 215,923 | |||
Professional fees payable | 24,915 | |||
Accrued transfer agent fees | 18,398 | |||
Other payables and accrued expenses | 14,935 | |||
TOTAL LIABILITIES | 348,645 | |||
TOTAL NET ASSETS | $ | 263,792,858 | ||
NET ASSETS CONSIST OF: | ||||
Capital stock | $ | 200,603 | ||
Additional paid-in-capital | 265,920,804 | |||
Total distributable earnings (loss) | (2,328,549 | ) | ||
TOTAL NET ASSETS | $ | 263,792,858 | ||
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE - Class S | ||||
($33,005,099/2,506,962 shares) | $ | 13.17 | ||
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE - Class I | ||||
($34,718,932/2,632,623 shares) | $ | 13.19 | ||
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE - Class W | ||||
($194,053,266/14,767,630 shares) | $ | 13.14 | ||
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE - Class Z | ||||
($2,015,561/153,074 shares) | $ | 13.17 |
The accompanying notes are an integral part of the financial statements.
8
Real Estate Series
Statement of Operations
For the Year Ended December 31, 2022
INVESTMENT INCOME:
Dividends (net of foreign taxes withheld, $16,058) | $ | 6,423,895 | ||
EXPENSES: | ||||
Management fees (Note 3) | 1,879,518 | |||
Sub-transfer agent fees (Note 3) | 117,404 | |||
Distribution and service (Rule 12b-1) fees (Class S) (Note 3) | 98,483 | |||
Fund accounting and administration fees (Note 3) | 88,516 | |||
Directors’ fees (Note 3) | 39,218 | |||
Chief Compliance Officer service fees (Note 3) | 8,983 | |||
Custodian fees | 8,104 | |||
Miscellaneous | 235,288 | |||
Total Expenses | 2,475,514 | |||
Less reduction of expenses (Note 3) | (1,425,445 | ) | ||
Net Expenses | 1,050,069 | |||
NET INVESTMENT INCOME | 5,373,826 | |||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY: | ||||
Net realized gain (loss) on- | ||||
Investments | 30,155,315 | |||
Foreign currency and translation of other assets and liabilities | (861 | ) | ||
30,154,454 | ||||
Net change in unrealized appreciation (depreciation) on- | ||||
Investments | (135,524,313 | ) | ||
Foreign currency and translation of other assets and liabilities | (242 | ) | ||
(135,524,555 | ) | |||
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY | (105,370,101 | ) | ||
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | (99,996,275 | ) |
The accompanying notes are an integral part of the financial statements.
9
Real Estate Series
Statements of Changes in Net Assets
FOR THE YEAR ENDED 12/31/22 | FOR THE YEAR ENDED 12/31/21 | |||||||
INCREASE (DECREASE) IN NET ASSETS: | ||||||||
OPERATIONS: | ||||||||
Net investment income | $ | 5,373,826 | $ | 4,711,947 | ||||
Net realized gain (loss) on investments and foreign currency | 30,154,454 | 26,118,997 | ||||||
Net change in unrealized appreciation (depreciation) on investments and foreign currency | (135,524,555 | ) | 91,600,959 | |||||
Net increase (decrease) from operations | (99,996,275 | ) | 122,431,903 | |||||
DISTRIBUTIONS TO SHAREHOLDERS (Note 10): | ||||||||
Class S | (4,530,110 | ) | (1,665,158 | ) | ||||
Class I | (4,983,168 | ) | (4,881,125 | ) | ||||
Class W | (28,120,697 | ) | (12,260,150 | ) | ||||
Class Z | (312,579 | ) | (125,057 | ) | ||||
Total distributions to shareholders. | (37,946,554 | ) | (18,931,490 | ) | ||||
CAPITAL STOCK ISSUED AND REPURCHASED: | ||||||||
Net increase (decrease) from capital share transactions (Note 5) | 11,190,953 | 3,074,231 | ||||||
Net increase (decrease) in net assets | (126,751,876 | ) | 106,574,644 | |||||
NET ASSETS: | ||||||||
Beginning of year | 390,544,734 | 283,970,090 | ||||||
End of year | $ | 263,792,858 | $ | 390,544,734 |
The accompanying notes are an integral part of the financial statements.
10
Real Estate Series
Financial Highlights - Class S
FOR THE YEAR ENDED | ||||||||||||||||||||
12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 | ||||||||||||||||
Per share data (for a share outstanding throughout each year): | ||||||||||||||||||||
Net asset value - Beginning of year. | $20.66 | $14.92 | $16.31 | $13.09 | $14.93 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income1 | 0.16 | 0.12 | 0.12 | 2 | 0.15 | 0.26 | ||||||||||||||
Net realized and unrealized gain (loss) on investments | (5.63 | ) | 6.35 | (1.15 | ) | 3.65 | (1.24 | ) | ||||||||||||
Total from investment operations | (5.47 | ) | 6.47 | (1.03 | ) | 3.80 | (0.98 | ) | ||||||||||||
Less distributions to shareholders: | ||||||||||||||||||||
From net investment income | (0.23 | ) | (0.10 | ) | (0.13 | ) | (0.16 | ) | (0.21 | ) | ||||||||||
From net realized gain on investments | (1.79 | ) | (0.63 | ) | (0.19 | ) | (0.42 | ) | (0.63 | ) | ||||||||||
From return of capital | — | — | (0.04 | ) | — | (0.02 | ) | |||||||||||||
Total distributions to shareholders | (2.02 | ) | (0.73 | ) | (0.36 | ) | (0.58 | ) | (0.86 | ) | ||||||||||
Net asset value - End of year | $13.17 | $20.66 | $14.92 | $16.31 | $13.09 | |||||||||||||||
Net assets - End of year (000’s omitted) | $33,005 | $48,549 | $37,762 | $59,923 | $214,722 | |||||||||||||||
Total return3 | (26.96% | ) | 43.67% | (6.27% | ) | 29.14% | 4 | (6.73% | ) | |||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Expenses* | 1.10% | 1.10% | 1.10% | 1.11% | 1.11% | |||||||||||||||
Net investment income | 0.96% | 0.66% | 0.81% | 2 | 1.02% | 1.82% | ||||||||||||||
Series portfolio turnover | 43% | 26% | 69% | 24% | 44% | |||||||||||||||
*For certain years presented, the investment advisor did not impose all or a portion of its management and/or other fees, and in some years may have paid a portion of the Series’ expenses. If these expenses had been incurred by the Class, the expense ratio (to average net assets) would have increased by the following amounts: | ||||||||||||||||||||
0.02% | 0.01% | 0.03% | 0.00%5 | N/A |
1Calculated based on average shares outstanding during the years.
2Includes special dividends from two of the Series’ securities. Excluding this amount, the net investment income per share would have been $0.11 and the net investment income ratio would have been 0.72%.
3Represents aggregate total return for the years indicated, and assumes reinvestment of all distributions. Total return would have been lower had certain expenses not been waived or reimbursed during certain years.
4Includes litigation proceeds. Excluding this amount, the total return is 29.06%.
5Less than 0.01%.
The accompanying notes are an integral part of the financial statements.
11
Real Estate Series
Financial Highlights - Class I1
FOR THE YEAR ENDED | ||||||||||||||||||||
12/31/22 | 12/31/21 | 12/31/20 | 12/31/19 | 12/31/18 | ||||||||||||||||
Per share data (for a share outstanding throughout each year): | ||||||||||||||||||||
Net asset value - Beginning of year | $20.71 | $16.04 | $18.35 | $15.67 | $19.40 | |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income2 | 0.21 | 0.17 | 0.17 | 3 | 0.31 | 0.40 | ||||||||||||||
Net realized and unrealized gain (loss) on investments | (5.66 | ) | 6.78 | (1.28 | ) | 4.25 | (1.57 | ) | ||||||||||||
Total from investment operations | (5.45 | ) | 6.95 | (1.11 | ) | 4.56 | (1.17 | ) | ||||||||||||
Less distributions to shareholders: | ||||||||||||||||||||
From net investment income | (0.28 | ) | (0.48 | ) | (0.52 | ) | (0.68 | ) | (0.68 | ) | ||||||||||
From net realized gain on investments | (1.79 | ) | (1.80 | ) | (0.54 | ) | (1.20 | ) | (1.79 | ) | ||||||||||
From return of capital | — | — | (0.14 | ) | — | (0.09 | ) | |||||||||||||
Total distributions to shareholders | (2.07 | ) | (2.28 | ) | (1.20 | ) | (1.88 | ) | (2.56 | ) | ||||||||||
Net asset value - End of year | $13.19 | $20.71 | $16.04 | $18.35 | $15.67 | |||||||||||||||
Net assets - End of year (000’s omitted) | $34,719 | $51,320 | $30,787 | $50,025 | $50,111 | |||||||||||||||
Total return4 | (26.83% | ) | 44.14% | (5.96% | ) | 29.31% | (6.41% | ) | ||||||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||||||
Expenses* | 0.85% | 0.84% | 5 | 0.85% | 0.84% | 0.86% | ||||||||||||||
Net investment income | 1.20% | 0.92% | 1.02% | 3 | 1.62% | 2.12% | ||||||||||||||
Series portfolio turnover | 43% | 26% | 69% | 24% | 44% | |||||||||||||||
*For certain years presented, the investment advisor did not impose all or a portion of its management and/or other fees, and in some years may have paid a portion of the Series’ expenses. If these expenses had been incurred by the Class, the expense ratio (to average net assets) would have increased by the following amounts: | ||||||||||||||||||||
0.01% | N/A | 0.01% | N/A | N/A |
1Share amounts have been adjusted for a reverse stock split effective after the close of business on November 4, 2022. See Note 1 of the Notes to Financial Statements.
2Calculated based on average shares outstanding during the years.
3Includes special dividends from two of the Series’ securities. Excluding this amount, the net investment income per share would have been $0.14 and the net investment income ratio would have been 0.93%.
4Represents aggregate total return for the years indicated, and assumes reinvestment of all distributions. Total return would have been lower had certain expenses not been waived or reimbursed during certain years.
5Includes recoupment of past waived and/or reimbursed fees. Excluding this amount, the expense ratio (to average net assets) would have decreased by less than 0.01%.
The accompanying notes are an integral part of the financial statements.
12
Real Estate Series
Financial Highlights - Class W
FOR THE YEAR ENDED | FOR THE | |||||||||||||||
12/31/22 | 12/31/21 | 12/31/20 | PERIOD 3/1/191 TO 12/31/19 | |||||||||||||
Per share data (for a share outstanding throughout each period): | ||||||||||||||||
Net asset value - Beginning of period | $20.65 | $14.89 | $16.27 | $14.76 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||
Net investment income2 | 0.33 | 0.29 | 0.33 | 3 | 0.35 | |||||||||||
Net realized and unrealized gain (loss) on investments | (5.64 | ) | 6.38 | (1.20 | ) | 1.91 | ||||||||||
Total from investment operations | (5.31 | ) | 6.67 | (0.87 | ) | 2.26 | ||||||||||
Less distributions to shareholders: | ||||||||||||||||
From net investment income | (0.41 | ) | (0.29 | ) | (0.25 | ) | (0.33 | ) | ||||||||
From net realized gain on investments | (1.79 | ) | (0.63 | ) | (0.19 | ) | (0.42 | ) | ||||||||
From return of capital | — | — | (0.07 | ) | — | |||||||||||
Total distributions to shareholders | (2.20 | ) | (0.92 | ) | (0.51 | ) | (0.75 | ) | ||||||||
Net asset value - End of period | $13.14 | $20.65 | $14.89 | $16.27 | ||||||||||||
Net assets - End of period (000’s omitted) | $194,053 | $288,394 | $214,871 | $191,373 | ||||||||||||
Total return4 | (26.26% | ) | 45.19% | (5.33% | ) | 15.43% | 5 | |||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||
Expenses* | 0.10% | 0.10% | 0.10% | 0.10% | 6 | |||||||||||
Net investment income | 1.95% | 1.66% | 2.27% | 3 | 2.58% | 6 | ||||||||||
Series portfolio turnover | 43% | 26% | 69% | 24% | ||||||||||||
*The investment advisor did not impose all or a portion of its management and/or other fees during the periods, and may have paid a portion of the Series’ expenses. If these expenses had been incurred by the Class, the expense ratio (to average net assets) would have increased by the following amounts: | ||||||||||||||||
0.62% | 0.61% | 0.64% | 0.62% | 6 |
1Commencement of operations.
2Calculated based on average shares outstanding during the periods.
3Includes special dividends from two of the Series’ securities. Excluding this amount, the net investment income per share would have been $0.31 and the net investment income ratio would have been 2.14%.
4Represents 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.
5Includes litigation proceeds. Excluding this amount, the total return would have been 15.36%.
6Annualized.
The accompanying notes are an integral part of the financial statements.
13
Real Estate Series
Financial Highlights - Class Z1
FOR THE YEAR ENDED | FOR THE | |||||||||||||||
12/31/22 | 12/31/21 | 12/31/20 | PERIOD 3/1/192 TO 12/31/19 | |||||||||||||
Per share data (for a share outstanding throughout each period): | ||||||||||||||||
Net asset value - Beginning of period | $20.67 | $15.99 | $18.32 | $17.61 | ||||||||||||
Income (loss) from investment operations: | ||||||||||||||||
Net investment income3 | 0.25 | 0.23 | 0.25 | 4 | 0.23 | |||||||||||
Net realized and unrealized gain (loss) on investments | (5.66 | ) | 6.75 | (1.36 | ) | 2.38 | ||||||||||
Total from investment operations | (5.41 | ) | 6.98 | (1.11 | ) | 2.61 | ||||||||||
Less distributions to shareholders: | ||||||||||||||||
From net investment income | (0.30 | ) | (0.51 | ) | (0.54 | ) | (0.71 | ) | ||||||||
From net realized gain on investments | (1.79 | ) | (1.79 | ) | (0.54 | ) | (1.19 | ) | ||||||||
From return of capital | — | — | (0.14 | ) | — | |||||||||||
Total distributions to shareholders | (2.09 | ) | (2.30 | ) | (1.22 | ) | (1.90 | ) | ||||||||
Net asset value - End of period | $13.17 | $20.67 | $15.99 | $18.32 | ||||||||||||
Net assets - End of period (000’s omitted) | $2,016 | $2,281 | $549 | $539 | ||||||||||||
Total return5 | (26.67% | ) | 44.36% | (5.96% | ) | 14.98% | 6 | |||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||||||
Expenses* | 0.70% | 0.70% | 0.70% | 0.70% | 7 | |||||||||||
Net investment income | 1.51% | 1.15% | 1.51% | 4 | 1.42% | 7 | ||||||||||
Series portfolio turnover | 43% | 26% | 69% | 24% | ||||||||||||
*The investment advisor did not impose all or a portion of its management and/or other fees during the periods, and may have paid a portion of the Series’ expenses. If these expenses had been incurred by the Class, the expense ratio (to average net assets) would have increased by the following amounts: | ||||||||||||||||
0.02% | 0.01% | 0.04% | 0.02% | 7 |
1Share amounts have been adjusted for a reverse stock split effective after the close of business on November 4, 2022. See Note 1 of the Notes to Financial Statements.
2Commencement of operations.
3Calculated based on average shares outstanding during the periods.
4Includes special dividends from two of the Series’ securities. Excluding this amount, the net investment income per share would have been $0.23 and the net investment income ratio would have been 1.39%.
5Represents 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.
6Includes litigation proceeds. Excluding this amount, the total return would have been 14.62%.
7Annualized.
14
Real Estate Series
Notes to Financial Statements
1. | Organization |
Real Estate 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 high current income and long-term capital appreciation by investing principally in companies in the real estate industry.
The Fund’s advisor is Manning & Napier Advisors, LLC (the “Advisor”). Shares of the Series are offered to investors, clients and employees of the Advisor and its affiliates. The Series is authorized to issue four classes of shares (Class S, I, W, and Z). 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 total authorized capital stock of the Fund consists of 15 billion shares of common stock each having a par value of $0.01. As of December 31, 2022, 6.3 billion shares have been designated in total among 15 series, of which 100 million have been designated as Real Estate Series Class I common stock, Real Estate Series Class S common stock and Real Estate Series Class Z common stock and 75 million have been designated as Real Estate Series Class W common stock.
Effective after the close of trading on November 4, 2022, the Fund’s Board of Directors (the “Board”) has approved a Reverse Stock Split for Classes I and Z of the Series. Shareholders who own Classes I and Z shares of the Series will receive a proportional number of Classes I and Z shares of the Series. The total dollar value of a shareholder’s investment in the Series will be unchanged and each shareholder will continue to own the same percentage (by value) of the Series following the Reverse Stock Split as the shareholder did immediately prior to the Reverse Stock Split.
Reverse Stock Split Ratios are as follows:
REVERSE STOCK SPLIT RATIO | ||
CLASS | (old to new) | |
Class I | 1 : 0.351034 | |
Class Z | 1 : 0.352711 |
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Series. The Series is an investment company and, accordingly, follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board Accounting Standards Codification Topic 946 - Investment Companies, which is part of accounting principles generally accepted in the United States of America (“GAAP”).
Security Valuation
Portfolio securities, including domestic equities, foreign equities, warrants and options, listed on an exchange other than the NASDAQ Stock Market 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 Stock Market are valued in accordance with the NASDAQ Official Closing Price.
Short-term investments that mature in sixty days or less may be valued at amortized cost, which approximates fair 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.
15
Real Estate Series
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
Security Valuation (continued)
In these instances fair value is measured 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 to value these securities may differ from the value that would be realized if these securities were sold, and the differences could be material.
Fair Value
The Series’ financial instruments are valued at the close of the NYSE and are reported at fair value, which GAAP defines as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Board has designated the Advisor as the Fund’s valuation designee (Valuation Designee) to make all fair value determinations with respect to each Series’ portfolio investments. Subject to oversight by the Board, the Valuation Designee performs the following functions in performing fair value determinations: assesses and manages valuation risks; establishes and applies fair value methodologies; tests fair value methodologies; and evaluates pricing vendors and pricing agents. The Advisor has adopted and implemented policies and procedures to be followed when making fair value determinations, and it has established a Valuation Committee through which the Advisor makes fair value determinations. The Valuation Designee provides periodic reporting to the Board on valuation matters. The Advisor’s determination of a security’s fair value price often involves the consideration of a number of subjective factors, and is therefore subject to the unavoidable risk that the value assigned to a security may be higher or lower than the security’s value would be if a reliable market quotation for the security was readily available. 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. The Advisor may use a pricing service to obtain the value of the Fund’s portfolio securities where the prices provided by such pricing service are believed to reflect the fair market value of such securities. The methods used by the pricing service and the valuations so established will be reviewed by the Advisor under the general supervision of the Fund’s Board of Directors. Several pricing services are available, one or more of which may be used by the Advisor, as approved by the Board. A change in a pricing service or a material change in a pricing methodology for investments with no readily available market quotations will be reported to the Board by the Advisor in accordance with certain requirements.
GAAP establishes the following fair value hierarchy that categorizes the inputs used to measure fair value. Level 1 includes quoted prices (unadjusted) in active markets for identical financial instruments that the Series’ can access at the reporting date. Level 2 includes other significant observable inputs (including, but not limited to, quoted prices for similar financial instruments in active markets, quoted prices for identical or similar financial instruments in inactive markets, interest rates and yield curves, implied volatilities, and credit spreads). Level 3 includes unobservable inputs (including the Valuation Designee’s own assumptions in determining fair value). A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input both individually and in aggregate that is significant to the fair value measurement. 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, 2022 in valuing the Series’ assets or liabilities carried at fair value:
DESCRIPTION | TOTAL | LEVEL 1 | LEVEL 2# | LEVEL 3 | ||||||||||||
Assets: | ||||||||||||||||
Equity securities: | ||||||||||||||||
Communication Services | $ | 22,295,985 | $ | 11,255,158 | $ | 11,040,827 | $ | — | ||||||||
Consumer Discretionary | 3,917,703 | 3,917,703 | — | — | ||||||||||||
Real Estate* | 234,464,273 | 234,464,273 | — | — | ||||||||||||
Short-Term Investment | 2,418,143 | 2,418,143 | — | — | ||||||||||||
Total assets | $ | 263,096,104 | $ | 252,055,277 | $ | 11,040,827 | $ | — |
*Please refer to the Investment Portfolio for the industry classifications of these portfolio holdings.
16
Real Estate Series
Notes to Financial Statements (continued)
3. Significant Accounting Policies (continued)
Fair Value (continued)
#Includes certain foreign equity securities for which a factor from a third party vendor was applied to determine the securities’ fair value following the close of local trading.
There were no Level 3 securities held by the Series as of December 31, 2021 or December 31, 2022.
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 Series is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair 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. Income, expenses (other than shareholder services fees), and realized and unrealized gains and losses are prorated among the classes based on the relative net assets of each class. Class specific expenses are directly charged to that Class.
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, 2022, 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.
17
Real Estate Series
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
Federal Taxes (continued)
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, 2019 through December 31, 2022. The Series 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.
Foreign Taxes
Based on the Series’ understanding of the tax rules and rates related to income, gains and currency purchase/repatriation 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 GAAP 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 and are reimbursed for travel and other out-of-pocket expenses incurred by them in connection with attending such meetings. The Fund also has an Audit Committee Chair, Governance & Nominating Committee Chair and Lead Independent Director, who each receive an additional annual stipend for these roles.
The Fund may enter into agreements with financial intermediaries pursuant to which the Fund may pay financial intermediaries for non-distribution related sub-transfer agency, administrative, sub-accounting, and other shareholder services in an annual amount not to exceed 0.15% of the average daily net assets of the Class I and Class S shares of the Series. Payments made pursuant to such agreements are generally based on the current assets and/or number of accounts of the Series attributable to the financial intermediary. Any payments made pursuant to such agreements may be in addition to, rather than in lieu of, any Distribution and Shareholder Services Fee payable under the Rule 12b-1 plan of the Fund. For the year ended December 31, 2022, the sub-transfer agency expenses incurred by Class S and Class I were $57,714 and $59,690, respectively.
18
Real Estate Series
Notes to Financial Statements (continued)
3. Transactions with Affiliates (continued)
Manning & Napier Investor Services, Inc., a registered broker-dealer affiliate of the Advisor, acts as distributor for the Fund’s shares. The Series compensates the distributor for distributing and servicing the Series’ Class S shares pursuant to a distribution plan adopted under Rule 12b-1 of the 1940 Act, regardless of expenses actually incurred. Under the agreement, the Series pays distribution and service fees to the distributor at an annual rate of 0.25% of average daily net assets attributable to Class S shares. There are no distribution and service fees on the Class I, Class W or Class Z shares. The fees are accrued daily and paid monthly.
Pursuant to a master services agreement, the Fund pays the Advisor an annual fee related to fund accounting and administration of 0.0085% on the first $25 billion of average daily net assets; 0.0075% on the next $15 billion of average daily net assets; and 0.0065% of average daily net assets in excess of $40 billion; plus a base fee of $30,400 per series. Additionally, certain transaction and out-of-pocket expenses, including charges for reporting relating to the Fund’s compliance program, are charged. The Advisor has agreements with BNY Mellon Investment Servicing (U.S.) Inc. (“BNY”) under which BNY serves as sub-accountant services agent.
Pursuant to an advisory fee waiver agreement, the Advisor has contractually agreed to waive the management fee for the Class W shares. The full management fee will be waived under this agreement because Class W shares are only available to discretionary investment accounts and other accounts managed by the Advisor. These clients pay a management fee to the Advisor that is separate from the Fund’s expenses. In addition, pursuant to a separate expense limitation agreement, the Advisor has contractually agreed to limit its fees and reimburse expenses to the extent necessary so that the total direct annual fund operating expenses, exclusive of the shareholder services fee and/or distribution and service (12b-1) fees and waived Class W management fees (collectively, “excluded expenses”), do not exceed 0.85% of the average daily net assets of the Class S and Class I shares, 0.10% of the average daily net assets of the Class W shares, and 0.70% of the average daily net assets of the Class Z shares. These contractual waivers are expected to continue indefinitely, and may not be amended or terminated by the Advisor without the approval of the Series’ Board of Directors. The Advisor may receive from a Class the difference between the Class’s total direct annual fund operating expenses, not including excluded expenses, and the Class’s contractual expense limit to recoup all or a portion of its prior fee waivers (other than Class W management fee waivers) or expense reimbursements made during the rolling three-year period preceding the recoupment if at any point the total direct annual fund operating expenses, not including excluded expenses, are below the contractual expense limit (a) at the time of the fee waiver and/or expense reimbursement and (b) at the time of the recoupment.
Pursuant to the advisory fee waiver, the Advisor waived $1,366,512 in management fees for Class W for the year ended December 31, 2022. In addition, pursuant to the separate expense limitation agreement, the Advisor waived or reimbursed expenses of $7,032, $2,875, $48,609 and $417 for Class S, Class I Class W and Class Z, respectively, for the year ended December 31, 2022. These amounts are included as a reduction of expenses on the Statement of Operations.
As of December 31, 2022, the class specific waivers or reimbursements subject to possible future recoupment under the expense limitation agreement are as follows:
CLASS | EXPIRING DECEMBER 31, | |||||||||||||||
2023 | 2024 | 2025 | Total | |||||||||||||
Class S | $12,058 | $2,956 | $7,032 | $22,046 | ||||||||||||
Class I | 5 | — | 2,875 | 2,880 | ||||||||||||
Class W | 67,990 | 30,356 | 48,609 | 146,955 | ||||||||||||
Class Z | 190 | 96 | 417 | 703 |
For the year ended December 31, 2022, the Advisor did not recoup any expenses that have been previously waived or reimbursed.
19
Real Estate Series
Notes to Financial Statements (continued)
4. Purchases and Sales of Securities
For the year ended December 31, 2022, purchases and sales of securities, other than U.S. Government securities and short-term securities, were $134,758,887 and $151,095,528, respectively. There were no purchases or sales of U.S. Government securities.
5. Capital Stock Transactions
Transactions in Class S, Class I, Class W and Class Z shares of Real Estate Series were:
CLASS S | FOR THE YEAR ENDED 12/31/22 | FOR THE YEAR ENDED 12/31/21 | ||||||||||||||
SHARES | AMOUNT | SHARES | AMOUNT | |||||||||||||
Sold | 346,357 | $ | 6,141,623 | 366,265 | $ | 6,424,926 | ||||||||||
Reinvested | 314,796 | 4,363,076 | 82,953 | 1,621,736 | ||||||||||||
Repurchased | (503,878 | ) | (8,548,741 | ) | (631,144 | ) | (10,881,761 | ) | ||||||||
Total | 157,275 | $ | 1,955,958 | (181,926 | ) | $ | (2,835,099 | ) |
CLASS I | FOR THE YEAR ENDED 12/31/22 | FOR THE YEAR ENDED 12/31/21 | ||||||||||||||
SHARES1 | AMOUNT | SHARES1 | AMOUNT | |||||||||||||
Sold | 856,809 | $ | 15,125,704 | 838,462 | $ | 16,119,743 | ||||||||||
Reinvested | 313,216 | 4,347,440 | 221,620 | 4,337,281 | ||||||||||||
Repurchased | (1,016,524 | ) | (16,727,072 | ) | (500,782 | ) | (9,257,738 | ) | ||||||||
Total | 153,501 | $ | 2,746,072 | 559,300 | $ | 11,199,286 |
CLASS W | FOR THE YEAR ENDED 12/31/22 | FOR THE YEAR ENDED 12/31/21 | ||||||||||||||
SHARES | AMOUNT | SHARES | AMOUNT | |||||||||||||
Sold | 559,696 | $ | 9,333,852 | 636,315 | $ | 11,124,927 | ||||||||||
Reinvested | 1,988,426 | 27,499,927 | 607,420 | 11,862,919 | ||||||||||||
Repurchased | (1,746,092 | ) | (30,948,554 | ) | (1,705,540 | ) | (29,801,017 | ) | ||||||||
Total | 802,030 | $ | 5,885,225 | (461,805 | ) | $ | (6,813,171 | ) |
CLASS Z | FOR THE YEAR ENDED 12/31/22 | FOR THE YEAR ENDED 12/31/21 | ||||||||||||||
SHARES1 | AMOUNT | SHARES1 | AMOUNT | |||||||||||||
Sold | 121,176 | $ | 2,056,232 | 77,163 | $ | 1,551,103 | ||||||||||
Reinvested | 22,553 | 312,579 | 6,365 | 124,519 | ||||||||||||
Repurchased | (100,984 | ) | (1,765,113 | ) | (7,556 | ) | (152,407 | ) | ||||||||
Total | 42,745 | $ | 603,698 | 75,972 | $ | 1,523,215 |
1 | Share amounts have been adjusted for a reverse stock split effective after the close of business on November 4, 2022. See Note 1 of the Notes to Financial Statements. |
Approximately 73% of the shares outstanding are fiduciary accounts where the Advisor has sole investment discretion.
20
Real Estate Series
Notes to Financial Statements (continued)
6. Line of Credit
The Fund has entered into a 364-day, $50 million credit agreement (the “line of credit”) with Bank of New York Mellon. Each series of the Fund may borrow under the line of credit for temporary or emergency purposes, including funding shareholder redemptions and other short-term liquidity purposes. The Fund pays an annual fee on the unused commitment amount, payable quarterly, and is allocated among all the series of the Fund and included in miscellaneous expenses in the Statement of Operations for each series. The line of credit expires in September 2023 unless extended or renewed. During the year ended December 31, 2022, the Series did not borrow under the line of credit.
7. 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. The Series may be subject 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 derivative 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 as of December 31, 2022.
8. 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.
9. 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.
10. 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 GAAP. These differences are primarily due to differing book and tax treatments in the timing and/or treatment of the recognition of net investment income or gains and losses, including foreign currency gains and losses, redesignation of distributions paid and tax equalization. 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. For the year ended December 31, 2022, amounts were reclassified within the capital accounts to increase Additional Paid in Capital by $2,138,185 and decrease Total Distributable Earnings (Loss) by $2,138,185. Any such reclassifications are not reflected in the financial highlights.
The tax character of distributions paid were as follows:
FOR THE YEAR ENDED 12/31/22 | FOR THE YEAR ENDED 12/31/21 | |||||||
Ordinary income | $ | 5,471,177 | $ | 4,712,706 | ||||
Long-term capital gains | $ | 32,475,377 | $ | 14,218,784 |
21
Notes to Financial Statements (continued)
10. Federal Income Tax Information (continued)
At December 31, 2022, the tax basis of components of distributable earnings and the net unrealized depreciation based on the identified cost of investments for federal income tax purposes were as follows:
Cost for federal income tax purposes | $ | 265,931,672 | ||
Unrealized appreciation | 25,153,725 | |||
Unrealized depreciation | (27,989,293 | ) | ||
Net unrealized depreciation | $ | (2,835,568 | ) | |
Undistributed long-term capital gains | $ | 508,423 |
11. Market Event
Significant disruptions and volatility in the global financial markets and economies, like the current conditions caused by the Russian invasion of Ukraine and the COVID-19 pandemic, could negatively impact the investment performance of the Series. The global market and economic climate may become increasingly uncertain due to numerous factors beyond our control, including but not limited to, the effectiveness and acceptance of vaccines to prevent COVID-19, impacts on business operations in the U.S. related to the COVID-19 pandemic, such as supply chain disruptions and inflation, concerns related to unpredictable global market and economic factors, uncertainty in U.S. federal fiscal, tax, trade or regulatory policy and the fiscal, tax, trade or regulatory policy of foreign governments, rising interest rates, inflation or deflation, the availability of credit, performance of financial markets, terrorism, natural or biological catastrophes, public health emergencies, or political uncertainty.
22
Real Estate Series
Report of Independent Registered Public Accounting Firm
To the Board of Directors of Manning & Napier Fund, Inc. and Shareholders of Real Estate Series
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the investment portfolio, of Real Estate Series (one of the series constituting Manning & Napier Fund, Inc., referred to hereafter as the “Fund”) as of December 31, 2022, the related statement of operations for the year ended December 31, 2022, the statement of changes in net assets for each of the two years in the period ended December 31, 2022, including the related notes, and the financial highlights for each of the periods indicated therein (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2022, 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 ended December 31, 2022 and the financial highlights for each of the periods indicated therein in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of December 31, 2022 by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.
New York, New York
February 23, 2023
We have served as the auditor of one or more investment companies in Manning & Napier Mutual Funds since 1992.
23
Real Estate Series
Supplemental Tax Information
(unaudited)
All reportings 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 reports for the current fiscal year $323,339 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 1.74%.
The Series designates $5,029,079, or 91.92% of the dividends distributed as Section 199A dividends.
The Series designates $31,490,898 as Long-Term Capital Gain dividends pursuant to Section 852(b)(3) of the Internal Revenue Code for the fiscal year ended December 31, 2022.
24
Real Estate Series
Renewal of Investment Advisory Agreement
(unaudited)
At the Manning & Napier Fund, Inc. (the “Fund”) Board of Directors’ (the “Board”) Special meeting, held on May 3, 2022 (the “May 3rd Board Meeting”), a new Investment Advisory Agreement between the Fund and Manning & Napier Advisors, LLC (the “Advisor”) and on behalf of the Rainier International Discovery Series (the “Rainier Series”), a new investment advisory agreement between the Advisor and the Fund and a new investment sub-advisory agreement between Advisor and Rainier Investment Management, LLC (“Rainier”) (together, the “New Advisory Agreements”), were considered for approval by the Board, including all of the Directors who are not “interested persons” (“Independent Directors”), within the meaning of the Investment Company Act of 1940, as amended (the “1940 Act”). The Board was asked to consider the New Advisory Agreements because of a transaction that impacted Manning & Napier, Inc. (“MN Inc.”), the ultimate parent company of the Advisor and Rainier.
On March 31, 2022, MN Inc. and Callodine Group, LLC (“Callodine”) entered into an agreement under which an affiliate of Callodine would acquire MN Inc. (the “Transaction”). The Transaction, which was subject to customary closing conditions, closed on October 21, 2022. Following the closing, both the Advisor and Rainier are now indirectly owned and controlled by Callodine MN Holdings, Inc., which, in turn, is controlled by Callodine Group, LLC and its founder James Morrow. East Asset Management, LLC, and its owners Terrence and Kim Pegula, also indirectly hold a substantial interest in Callodine MN Holdings, Inc.
The Transaction was deemed to result in a change of control of the Advisor and Rainier under the 1940 Act, and therefore resulted in the assignment and automatic termination of the investment advisory agreement and sub-advisory agreement pursuant to which the Advisor and Rainier provided advisory services to each Series of the Fund (the “Existing Advisory Agreements”). The Board was asked to consider the approval of the New Advisory Agreements, to become effective upon shareholder approval, so that the Advisor and Sub-Advisor’s management of the Series would continue without any interruption.
Board Considerations in Approving the New Advisory Agreements
The Board met on April 8, April 13, April 27 and May 3 in person and by video conference to consider and discuss the New Advisory Agreements. At each of those meetings, the Independent Directors also met separately with their independent counsel outside the presence of Fund Management. In preparation for those Board meetings, the Independent Directors requested that the Advisor, Rainier and Callodine furnish information necessary for the Directors to evaluate the terms of the New Advisory Agreements. The Advisor and Rainier were the only investment advisers the Directors considered at such meetings. The Independent Directors also submitted a number of follow-up requests to the Advisor for additional information based on the Board’s review of information provided in response to its initial requests. The Board also considered information that the Board previously reviewed in connection with its approval of the Existing Advisory Agreements for initial terms of two years, which occurred at a meeting held on April 22, 2020, as well as information presented in 2021 that covered similar matters but for which no approval was sought at that time. The Board further considered that the Existing Advisory Agreements were subject to shareholder consideration and were approved by shareholders at a special meeting held on June 30, 2020 and August 18, 2020. At the Meeting on May 3rd, the Board additionally reviewed information provided in connection with the proposed renewal of the Existing Advisory Agreements. The Directors used this information, as well as other information submitted to the Board in connection with the recent Board meetings noted above, and other meetings held since the most recent approval of the Existing Advisory Agreements, to help them decide whether to approve the New Advisory Agreements for initial two-year terms.
Specifically, the Board requested and received written materials from the Advisor and Rainier regarding, among other things: (i) the terms, conditions, and expected timing of the Transaction; (ii) the nature, extent and quality of the services to be provided by the Advisor and Rainier under the New Advisory Agreements; (iii) the proposed advisory fee to be paid to the Advisor and Rainier under the New Advisory Agreements; (iv) the Advisor and Rainier’s compliance programs; and (v) the Advisor and Rainier’s investment management personnel. In addition, the Board considered information provided to them with respect to Callodine, its business and affiliates, as well as its objectives and plans related to the Advisor. The Independent Directors considered their discussion about business strategy with a representative from Callodine who attended the April 13th meeting.
At the May 3rd Board meeting, the Directors, including all of the Independent Directors, based on their evaluation of the information provided by the Advisor, Rainier, Callodine and other service providers of the Series, approved the New Advisory Agreements. Specifically, the Directors considered information presented by the Advisor and Rainier at a meeting of the Board held on May 3, 2022, specifically regarding among other areas: (i) the services provided by the Advisor and Rainier; (ii) the investment performance of the Series, the Advisor and Rainier; and (iii) the profitability of the overall relationship to the Advisor and Rainier.
25
Real Estate Series
Renewal of Investment Advisory Agreement
(unaudited)
The Independent Directors also received advice at the May 3rd Board meeting and other recent Board meetings from independent counsel and met in executive session outside the presence of Fund management. In considering the approval of the New Advisory Agreements, the Board considered various factors that they determined were relevant, including: (i) the nature, extent and quality of the services to be provided by the Advisor and Rainier; (ii) the investment performance of the Series, the Advisor and Rainier; and (iii) the fees to be paid to the Advisor and Rainier under the New Advisory Agreements, as discussed in further detail below. In addition, the Board, in considering the New Advisory Agreements in the context of the Transaction, relied upon representations from the Advisor and Rainier that: (i) the Transaction would not result in any material changes to the nature, quality and extent of services provided to the Series by the Advisor and Rainier that are discussed below; (ii) the Advisor and Rainier did not anticipate any material changes to their compliance programs or code of ethics in connection with the Transaction; and (iii) the portfolio managers and investment process for the Series would not change as a result of the Transaction.
Nature, Extent and Quality of Services Provided by the Advisor and Rainier
In considering the nature, extent and quality of the services to be provided by the Advisor and Rainier, the Board reviewed the portfolio management services to be provided by the Advisor and Rainier to the Series, including the quality of the continuing portfolio management personnel and investment process, as well as the Advisor and Rainier’s compliance history and compliance program. The Directors reviewed the terms of the proposed New Advisory Agreements, and noted that the New Advisory Agreements do not materially differ from the Existing Advisory Agreements. The Directors also reviewed the Advisor and Rainier’s investment and risk management approaches for the Series. The most recent investment adviser registration forms (Form ADV) for the Advisor and Rainier also were available to the Board. The Directors also considered other services to be provided to the Series by the Advisor specifically, such as monitoring Rainier’s adherence to the Series’ investment restrictions and monitoring compliance with various Fund policies and procedures and with applicable securities laws and regulations. Based on the factors above, as well as those discussed below, the Board concluded, within the context of its full deliberations, that the nature, extent and quality of the services to be provided to each Series by the Advisor and Rainier under the New Advisory Agreements support approval of the New Advisory Agreements.
Investment Performance of the Advisor and Rainier
In connection with its most recent approvals of the Existing Advisory Agreements and other meetings held during the course of the period since then, the Board was provided with reports – both proprietary to the Advisor or the Fund and generated by independent providers of investment company data – regarding the performance of each Series over various time periods. As part of these meetings, the Advisor and Rainier and their representatives provided information regarding and, as applicable, led discussions of factors impacting the Advisor and Rainier’s performance for the Series, outlining current market conditions and explaining their expectations and strategies for the future. The Directors determined that it was appropriate to take into account its consideration of the Advisor and Rainier’s performance at meetings held prior to the May 3rd Board meeting. In doing so, the Directors generally determined that the Advisor and Rainier’s performance was satisfactory. Where the Advisor or Rainier’s performance was materially below a Series’ benchmarks and or peer group, the Directors requested an explanation for the underperformance and/or the steps taken by the Advisor and Rainier in an effort to improve performance. In all instances, the Directors were satisfied with the explanation provided. The Directors plan to remain focused in future meetings to address aberrational underperformance. The Directors will continue to monitor the fees and expenses of the Series compared to peer groups. Based on this information and the Advisor and Rainier’s representations that the portfolio managers for the Series would not change in connection with the Transaction, the Board concluded, within the context of its full deliberations, that the investment results that the Advisor and Rainier had been able to achieve for each Series support approval of the New Advisory Agreements.
Costs of Advisory Services, Profitability and Economies of Scale
With respect to the cost of advisory services, the Board considered that the investment advisory fees payable to the Advisor and Rainier under the New Advisory Agreements are the same as the investment advisory fee payable to the Advisor and Rainier under the Existing Advisory Agreements. With respect to profitability and economies of scale, at the May 3rd Board meeting, the Board considered the Advisor and Rainier’s profitability and economies of scale from management of the Series. The Board noted the Advisor’s explanation of the consistent approach taken in calculating profitability, compared to prior periods, including the allocation of expenses as part of that calculation. The Directors noted that certain Series were not yet at sufficient scale to be profitable. The Directors noted the potential for the Transaction to add resources that could improve economies of scale for various Series; however, they also noted that such potential may not be realized. The Directors concluded that the profit margins of the Advisor and Rainier with respect to the management of the Series were not unreasonable. The Board also considered the Advisor’s willingness to continue its current expense limitation and fee waiver arrangements with the Series.
26
Real Estate Series
Renewal of Investment Advisory Agreement
(unaudited)
Conclusion
The conclusions described above, in part, formed the basis for the Board’s approval of the New Advisory Agreements at the May 3rd Board meeting. The Board concluded, in the exercise of its reasonable judgment, that the terms of the New Advisory Agreements, including the compensation to be paid thereunder, are reasonable in relation to the services expected to be provided by the Advisor and Rainier to the Series and that the appointment of the Advisor and Rainier and the approval of the New Advisory Agreements would be in the best interests of the Series and their shareholders. Based on the Directors’ deliberations and their evaluation of the information described above and other factors and information they believed relevant, the Board, including all of the Independent Directors, unanimously approved (a) the appointment of the Advisor as investment adviser to the Series and Rainier as investment sub-adviser to the Rainier Series, and (b) the New Advisory Agreements.
The Board did not indicate that any single factor was determinative of its decision to approve the Agreement, but indicated that the Board based its determination on the total mix of information available to it.
The New Advisory Agreements were approved by shareholders at Shareholder Meetings held on August 19, 2022, September 16, 2022 and October 18, 2022 and became effective upon the closing of the Transaction with Callodine on October 21, 2022.
27
Real Estate Series
Liquidity Risk Management Program Disclosure
(unaudited)
The Securities and Exchange Commission adopted Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”) to promote effective liquidity risk management by open-end investment companies and reduce Liquidity Risk, which is the risk that open-end investment companies are unable to meet redemption obligations without a significant dilution of remaining shareholder interests.
The Manning & Napier Fund, Inc. and each of its series (each a “Fund” or collectively, the “Funds”) adopted a Liquidity Risk Management Program (the “Program”) and obtained approval from the Board of Directors (the “Board”), including a majority of Directors who are not interested persons of the Fund, to appoint a Liquidity Risk Management Committee (the “Committee”) to assess and manage the Fund’s Liquidity Risk.
Under the Program, assessment and management of Liquidity Risk takes into consideration certain factors, such as each fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions, its short- and long-term cash-flow projections during both normal and reasonably foreseeable stressed conditions, and its cash and cash-equivalent holdings and access to other funding sources. As required by the rule, the Program includes policies and procedures for the classification of each Fund’s portfolio holdings into four liquidity categories, establishes a 15% limit on holdings of illiquid investments, and sets forth procedures for the override of vendor-derived classifications.
The Committee prepares an annual assessment (“assessment”) of the Program to review the operation of the Program, including the adequacy of controls designed to manage the Funds’ Liquidity Risk. Through this assessment, the Committee re-considers prior conclusions around each factor that the Fund must consider to assess, manage, and review its Liquidity Risk and evaluates the effectiveness of processes to classify Fund assets into liquidity categories, including Committee override determinations. As part of this evaluation the Committee re-affirms that each Fund operates as a Primarily Highly Liquid Fund, with greater than 50% of net assets consistently invested in Highly Liquid Investments, thereby negating a need to establish a Highly Liquid Investment Minimum for any Fund. Lastly, the assessment considers the effectiveness of the safeguards that the Committee adopted to prevent a violation of the Liquidity Rule’s limit on a Fund’s holding of Illiquid Investments.
The most recent assessment covered January 1, 2021, through December 31, 2021, and was presented to the Board in February 2022. This assessment confirmed that the Program continues to operate effectively in all material respects to address the requirements of the Liquidity Rule and manage the Funds’ Liquidity Risk.
28
Real Estate Series
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.manning-napier.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 directors and officers, 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 and Officer1
Name: | Paul Battaglia |
Address: | 290 Woodcliff Drive |
Fairport, NY 14450 | |
Born: | 1978 |
Current Position(s) Held with Fund: | Principal Executive Officer, President, Chairman and Director |
Term of Office2 & Length of Time Served: | Indefinite – Chairman and Director since November 2018 |
Principal Occupation(s) During Past 5 Years: | Chief Financial Officer since 2018; Vice President of Finance (2016 – 2018); |
Director of Finance (2011 – 2016); Financial Analyst/Internal Auditor (2004- | |
2006) – Manning & Napier Advisors, LLC and affiliates | |
Holds one or more of the following titles for various subsidiaries and | |
affiliates: Chief Financial Officer | |
Number of Portfolios Overseen within Fund Complex: | 15 |
Other Directorships Held Outside Fund Complex During | N/A |
Past 5 Years: | |
Independent Directors
Name: | Stephen B. Ashley |
Address: | 290 Woodcliff Drive |
Fairport, NY 14450 | |
Born: | 1940 |
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 and Director since 1997; Chief Executive Officer (1997-2019) - |
Ashley Companies (property management and investment) | |
Number of Portfolios Overseen within Fund Complex: | 15 |
Other Directorships Held Outside Fund Complex During | Ashley Companies since 1997 |
Past 5 Years: | |
Name: | Paul A. Brooke |
Address: | 290 Woodcliff Drive |
Fairport, NY 14450 | |
Born: | 1945 |
Current Position(s) Held with Fund: | Lead Independent Director, Audit Committee Member, Governance & |
Nominating Committee Member | |
Term of Office & Length of Time Served: | Indefinite – Director, Audit Committee Member, Governance & Nominating |
Committee Member since 2007; Lead Independent Director since 2017 | |
Principal Occupation(s) During Past 5 Years: | Managing Member since 1991 - PMSV Holdings LLC (investments); |
Managing Member (2010-2016) - VenBio (investments). | |
Number of Portfolios Overseen within Fund Complex: | 15 |
Other Directorships Held Outside Fund Complex During | Incyte Corp. (biotech) (2000-2020); PureEarth (non-profit) since 2012; Cerus |
Past 5 Years: | (biomedical) since 2016; Caelum BioSciences (biomedical) since 2018; |
Cheyne Capital International (investment)(2000-2017); | |
29
Real Estate Series
Directors’ and Officers’ Information
(unaudited)
Independent Directors (continued)
Name: | John Glazer |
Address: | 290 Woodcliff Drive |
Fairport, NY 14450 | |
Born: | 1965 |
Current Position(s) Held with Fund: | Director, Audit Committee Member, Governance & Nominating Committee |
Member | |
Term of Office & Length of Time Served: | Indefinite – Director, Audit Committee Member, Governance & Nominating |
Committee Member since February 2021 | |
Principal Occupation(s) During Past 5 Years: | Chief Executive Officer since 2020 – Oikos Holdings LLC (Single-Family |
Office); Head of Corporate Development (2019-2020) – Caelum Biosciences | |
(pharmaceutical development); Head of Private Investments (2015-2018) – | |
AC Limited (Single-Family Office) | |
Number of Portfolios Overseen within Fund Complex: | 15 |
Other Directorships Held Outside Fund Complex During | N/A |
Past 5 Years: | |
Name: | Russell O. Vernon |
Address: | 290 Woodcliff Drive |
Fairport, NY 14450 | |
Born: | 1957 |
Current Position(s) Held with Fund: | Director, Audit Committee Member, Governance & Nominating Committee |
Chairman | |
Term of Office & Length of Time Served: | Indefinite – Director, Audit Committee Member, Governance & Nominating |
Committee Member since April 2020; Governance & Nominating Committee | |
Chairman since November 2020 | |
Principal Occupation(s) During Past 5 Years: | Founder and General Partner (2009-2019) – BVM Capital Management |
(economic development) | |
Number of Portfolios Overseen within Fund Complex: | 15 |
Other Directorships Held Outside Fund Complex During | Board Member, Vice Chairman and President since 2010 – Newburgh |
Past 5 Years: | Armory Unity Center (military); Board Member and Executive Director since |
2020 – National Purple Heart Honor Mission, Inc. (military); Board Member, | |
Vice Chairman (2015-2020) – National Purple Heart Hall of Honor, Inc. | |
(military) | |
Name: | Chester N. Watson |
Address: | 290 Woodcliff Drive |
Fairport, NY 14450 | |
Born: | 1950 |
Current Position(s) Held with Fund: | Director, Audit Committee Chairman, Governance & Nominating Committee |
Member | |
Term of Office & Length of Time Served: | Indefinite – Director, Audit Committee Member, Governance & Nominating |
Committee Member Since 2012; Audit Committee Chairman since 2013 | |
Principal Occupation(s) During Past 5 Years: | General Auditor (2003-2011) - General Motors Company (auto |
manufacturer) | |
Number of Portfolios Overseen within Fund Complex: | 15 |
Other Directorships Held Outside Fund Complex During | Rochester Institute of Technology (University) since 2005; Hudson Valley |
Past 5 Years: | Center for Innovation, Inc. (New Business and Economic Development) |
since 2019; Town of Greenburgh, NY Planning Board (Municipal | |
Government) (2015-2019); |
30
Real Estate Series
Directors’ and Officers’ Information
(unaudited)
Officers:
Name: | Elizabeth Craig |
Address: | 290 Woodcliff Drive |
Fairport, NY 14450 | |
Born: | 1987 |
Current Position(s) Held with Fund: | Corporate Secretary |
Term of Office2 & Length of Time Served: | Since 2016 |
Principal Occupation(s) During Past 5 Years: | Director of Fund Administration since 2021; Fund Regulatory Administration |
Manager (2018-2021); Fund Administration Manager (2015-2018) - Manning | |
& Napier Advisors, LLC; Corporate Secretary, Director since 2019– Manning | |
& Napier Investor Services, Inc. | |
Name: | Samantha Larew |
Address: | 290 Woodcliff Drive |
Fairport, NY 14450 | |
Born: | 1980 |
Current Position(s) Held with Fund: | Chief Compliance Officer and Anti-Money Laundering Compliance Officer |
Term of Office2 & Length of Time Served: | Chief Compliance Officer since 2019; Anti-Money Laundering Compliance |
Officer since 2018 | |
Principal Occupation(s) During Past 5 Years: | Co-Director of Compliance since 2018; Compliance Communications |
Supervisor (2014-2018) - Manning & Napier Advisors, LLC& Affiliates; | |
Broker-Dealer Chief Compliance Officer since 2013; Broker-Dealer Assistant | |
Corporate Secretary since 2011 – Manning & Napier Investor Services, Inc.; | |
Name: | Scott Morabito |
Address: | 290 Woodcliff Drive |
Fairport, NY 14450 | |
Born: | 1987 |
Current Position(s) Held with Fund: | Vice President |
Term of Office2 & Length of Time Served: | Vice President since 2019; Assistant Vice President (2017-2019) |
Principal Occupation(s) During Past 5 Years: | Managing Director, Client Service and Business Operations since 2021; |
Managing Director of Operations (2019-2021); Director of Funds Group | |
(2017-2019) - Manning & Napier Advisors, LLC; President, Director since | |
2018 – Manning & Napier Investor Services, Inc.; President, Exeter Trust | |
Company since 2021; | |
Name: | Troy Statczar |
Address: | 290 Woodcliff Drive |
Fairport, NY 14450 | |
Born: | 1971 |
Current Position(s) Held with Fund: | Principal Financial Officer, Treasurer |
Term of Office2 & Length of Time Served: | Principal Financial Officer and Treasurer since 2020 |
Principal Occupation(s) During Past 5 Years: | Senior Principal Consultant, Fund Officers, since 2020 – ACA Group |
(formerly Foreside Financial Group); Director of Fund Administration (2017- | |
2019) - Thornburg Investment Management, Inc. | |
Name: | Sarah Turner |
Address: | 290 Woodcliff Drive |
Fairport, NY 14450 | |
Born: | 1982 |
Current Position(s) Held with Fund: | Chief Legal Officer; Assistant Corporate Secretary |
Term of Office2 & Length of Time Served: | Since 2018 |
Principal Occupation(s) During Past 5 Years: | General Counsel since 2018 - Manning & Napier Advisors, LLC and |
affiliates; Counsel (2017-2018) – Harter Secrest and Emery LLP | |
Holds one or more of the following titles for various affiliates: General | |
Counsel |
1Interested Director, within the meaning of the 1940 Act by reason of his positions with the Fund’s Advisor, Manning & Napier Advisors, LLC, and Distributor, Manning & Napier Investor Services, Inc.
2The term of office of all officers shall be one year and until their respective successors are chosen and qualified, or his or her earlier resignation or removal as provided in the Fund’s By-Laws.
31
{This page intentionally left blank}
32
{This page intentionally left blank}
33
Real Estate Series
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-PORT, and are available, without charge, upon request:
By phone | 1-800-466-3863 |
On the SEC’s web site | http://www.sec.gov |
Prospectus and Statement of Additional Information (SAI)
For more information about any of the Manning & Napier Fund, Inc. Series, you may obtain a prospectus and SAI at www.manning-napier.com or by calling 1-(800) 466-3863. Before investing, carefully consider the objectives, risks, charges and expenses of the investment and read the prospectus carefully as it contains this and other information about the investment company. In addition, this information can be found on the SEC’s web site, http://www.sec.gov.
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 |
The Fund also offers electronic notification or “e-delivery” when certain documents are available on-line to be downloaded or reviewed. Direct shareholders can elect to receive electronic notification when shareholder reports, prospectus updates, and/or statements are available. If you do not currently have on-line access to your account, you can establish access by going to www.manning-napier.com, click on “Login” in the top corner of the page, and follow the prompts to self-enroll. Once enrolled, you can set your electronic notification preferences by clicking on the Account Options tab located within the green toolbar and then select E-Delivery Option. Should you have any questions on either how to establish on-line access or how to update your account settings, please contact Investor Services at 1-800-466-3863.
The Manning & Napier Fund, Inc. is managed by Manning & Napier Advisors, LLC. Manning & Napier Investor Services, Inc., an affiliate of Manning & Napier Advisors, LLC, is the distributor of the Fund shares.
MNRES-12/22-AR
34
www.manning-napier.com
Manning & Napier Fund, Inc.
Credit Series
Independent Perspective | Real-World Solutions |
A Note from Our CEO
Dear Shareholder,
We are acutely aware of how difficult this year has been for our investors, in what has been a historically challenging year in the capital markets. A bear market in equities and a sharp correction in fixed income have each simultaneously occurred this year, resulting in one of the worst runs for blended stock-bond portfolios in the past two hundred years.
The global economy is facing inflationary pressures more significant than have been experienced over the past four decades. War in Europe, rising tensions in East Asia, and surging energy prices are all bringing renewed geopolitical tumult. Economic, social, and environmental pressures are manifesting themselves in rapid, and at times, dramatic and unexpected swings in election results domestically and abroad.
What have we been doing in response to the challenges abound, and, most significantly, what steps are we taking to ensure we deliver what our fund shareholders expect in the future? I’ll combine those steps into two main ways.
First, and by way of change, we have taken a meaningful evolutionary step to position Manning & Napier even more strongly for the years ahead. After eleven years as a public company, we went private in 2022 in partnership with the Callodine Group, returning to the status under which we operated for our first four decades. We believe being private will provide continuity for our investment strategies while allowing us to invest for the future.
The second step speaks even further to the value of continuity. Our fund shareholders can expect us to continue to rely on the consistent investment philosophies, disciplines, and time-tested processes that have guided our seasoned investors over multiple economic and capital markets cycles over the past half-century.
The past twelve months have been challenging for investors. It has reinforced the importance of long-term perspective and the value of having a clear investment plan.
Throughout the next chapter of Manning & Napier, we look forward to partnering with our mutual fund investors to help you realize the investment outcomes you need.
We thank and appreciate your continued confidence in our firm.
Sincerely,
Marc Mayer Chief Executive Officer
|
Corporate Headquarters | 290 Woodcliff Drive | Fairport, NY 14450 | (585) 325-6880 phone | (800) 551-0224 toll free | www.manning-napier.com
1
Credit Series
Fund Commentary
(unaudited)
Investment Objective
To provide long-term total return. Under normal circumstances, at least 80% of the Series’ assets will be invested in credit-related instruments and other financial instruments, principally derivative instruments and exchange-traded funds, with economic characteristics similar to credit-related instruments.
Performance Commentary
Fixed income markets, as measured by the Bloomberg US Aggregate Bond Index, experienced double-digit losses for the year, experiencing the worst calendar year on record going back to the late 1970s. Losses were primarily attributable to the sharp rise in interest rates that occurred as the Federal Reserve raised the federal funds rate seven times throughout the year for a total increase of 4.25% in an effort to bring down high levels of inflation.
As a reminder, the Credit Series was created specifically to provide Manning & Napier’s separately managed multi-asset class clients with desired credit exposure (e.g., corporates, asset-backed, and commercial mortgage-backed securities).
The Series experienced negative absolute returns for the year and underperformed on a relative basis, returning -11.13% versus -9.10% for its benchmark, the Bloomberg US Intermediate Credit Index. Underperformance was primarily attributable to the Series’ longer duration relative to the benchmark, and, to a lesser degree, credit selection.
Data suggests that we are still in the early stages of a global slowdown and odds of a recession continue to increase. That stated, it is unclear how deep or how drawn out of a recession it may be. We believe flexibility and risk management will be key to navigating this uncertain environment and helping investors achieve their objectives.
Performance for the Credit Series Class W shares is provided above.
Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate, so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be higher or lower than that quoted; investors can obtain the most recent month-end performance at www.manning-napier.com or by calling (800) 466-3863.
Additional information and associated disclosures can be found on the Performance Update page of this report.
All investments involve risks, including possible loss of principal. There is an inverse relationship between bond prices and interest rates; as interest rates rise, bond prices (and therefore the value of bond funds) fall. Likewise, as interest rates fall, bond prices and the value of bond funds rise. Investments in derivatives can be highly volatile and involve risks in addition to the risks of the underlying instrument on which the derivative is based, such as counterparty, correlation and liquidity risk. Also, the use of leverage increases exposure to the market and may magnify potential losses.
2
Credit Series
Performance Update as of December 31, 2022
(unaudited)
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 2022 | ||||
ONE YEAR1 | TOTAL RETURN SINCE INCEPTION1,2 | |||
Credit Series - Class W3 | (11.13%) | (1.24%) | ||
Bloomberg U.S. Intermediate Government/Credit Bond Index4 | (9.10%) | (1.76%) |
The following graph compares the value of a $10,000 investment in the Credit Series - Class W from its inception (April 14, 2020) to present (December 31, 2022) to the Bloomberg U.S. Intermediate Credit Index.
1 The returns shown are based on net asset values calculated for shareholder transactions and may differ from the returns shown in the financial highlights, which reflect adjustments made to the net asset values in accordance with accounting principles generally accepted in the United States of America.
2 Inception date for the Series was April 14, 2020. Inception performance for the index begins on the first day of the month following the Series’ inception.
3 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, 2022, this annualized net expense ratio was 0.10% for Class W. The annualized gross expense ratio, which does not account for any voluntary or contractual waivers currently in effect, was 0.36% for Class W for the year ended December 31, 2022.
4 The Bloomberg U.S. Intermediate Government/Credit Bond Index is a market value-weighted measure of over 3,000 investment-grade corporate and government securities with maturities greater than one year but less than ten years. The Index returns do not reflect any fees or expenses. Index returns provided by Intercontinental Exchange (ICE). Index data referenced herein is the property of Bloomberg Finance L.P. and its affiliates (“Bloomberg”), and/or its third party suppliers and has been licensed for use by Manning & Napier. Bloomberg and its third party suppliers accept no liability in connection with its use. Data provided is not a representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and none of these parties shall have any liability for any errors, omissions, or interruptions of any index or the data included therein. For additional disclosure information, please see: https://go.manning-napier.com/benchmark-provisions.
3
Credit Series
Shareholder Expense Example
(unaudited)
As a shareholder of the Series, you incur ongoing costs, including management fees, shareholder service 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, 2022 to December 31, 2022).
Actual Expenses
The Actual lines of the table below provide 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 Actual 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 Hypothetical line in 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 a class of the Series and other funds. To do so, compare this 5% hypothetical example for the class in which you have invested 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, such as sales charges (loads), redemption fees, or exchange fees that you may incur in other mutual funds. 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.
BEGINNING ACCOUNT VALUE | ENDING ACCOUNT VALUE 12/31/22 | EXPENSES PAID DURING PERIOD* 7/1/22 - 12/31/22 | ANNUALIZED EXPENSE RATIO | |||||
Class W | ||||||||
Actual | $1,000.00 | $984.70 | $0.50 | 0.10% | ||||
Hypothetical (5% return before expenses) | $1,000.00 | $1,024.70 | $0.51 | 0.10% |
*Expenses are equal to each Series’ annualized expense ratio (for the six-month period), 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 ratios stated above may differ from the expense ratios stated in the financial highlights, which are based on one-year data. The Series’ total return would have been lower had certain expenses not been waived or reimbursed during the period.
4
Credit Series
Portfolio Composition as of December 31, 2022
(unaudited)
Sector Allocation1 |
|
1As a percentage of net assets. |
2A U.S. Treasury Note is an intermediate long-term obligation of the U.S. Treasury issued with a maturity period between one and ten years. |
5
Credit Series
Investment Portfolio - December 31, 2022
PRINCIPAL AMOUNT1/ SHARES | VALUE (NOTE 2) | |||||||
CORPORATE BONDS - 36.9% | ||||||||
Non-Convertible Corporate Bonds- 36.9% | ||||||||
Communication Services - 6.0% | ||||||||
Entertainment - 2.2% | ||||||||
Warnermedia Holdings, Inc., 4.054%, 3/15/20292 | 6,850,000 | $ | 5,947,454 | |||||
Interactive Media & Services - 3.8% | ||||||||
Tencent Holdings Ltd. (China), 3.975%, 4/11/20292 | 10,890,000 | 10,071,703 | ||||||
Total Communication Services | 16,019,157 | |||||||
Consumer Discretionary - 5.3% | ||||||||
Hotels, Restaurants & Leisure - 1.0% | ||||||||
Expedia Group, Inc., 3.25%, 2/15/2030 | 2,940,000 | 2,502,569 | ||||||
Internet & Direct Marketing Retail - 4.3% | ||||||||
Alibaba Group Holding Ltd., | ||||||||
(China), 2.125%, 2/9/2031 | 1,700,000 | 1,355,266 | ||||||
(China), 4.00%, 12/6/2037 | 6,090,000 | 5,126,417 | ||||||
Amazon.com, Inc., 3.30%, 4/13/2027 | 5,230,000 | 4,971,863 | ||||||
11,453,546 | ||||||||
Total Consumer Discretionary | 13,956,115 | |||||||
Consumer Staples - 1.8% | ||||||||
Beverages - 1.8% | ||||||||
PepsiCo, Inc., 3.90%, 7/18/2032 | 5,010,000 | 4,753,222 | ||||||
Energy - 3.5% | ||||||||
Oil, Gas & Consumable Fuels - 3.5% | ||||||||
Cenovus Energy, Inc. (Canada), 6.75%, 11/15/2039 | 2,834,000 | 2,951,159 | ||||||
Energy Transfer LP, 6.50%, 2/1/2042 | 6,320,000 | 6,264,427 | ||||||
Total Energy | 9,215,586 | |||||||
Financials - 6.4% | ||||||||
Banks - 5.1% | ||||||||
Bank of America Corp., (U.S. Secured Overnight Financing Rate + 1.320%), 2.687%, 4/22/20323 | 4,530,000 | 3,637,510 | ||||||
Citigroup, Inc., (U.S. Secured Overnight Financing Rate + 0.770%), 1.462%, 6/9/20273 | 4,360,000 | 3,789,347 | ||||||
JPMorgan Chase & Co., (U.S. Secured Overnight Financing Rate + 3.790%), 4.493%, 3/24/20313 | 6,500,000 | 6,097,581 | ||||||
13,524,438 | ||||||||
Capital Markets - 1.3% | ||||||||
Blackstone Secured Lending Fund, 2.75%, 9/16/2026 | 1,901,000 | 1,668,843 | ||||||
Owl Rock Technology Finance Corp., 3.75%, 6/17/20262 | 2,215,000 | 1,928,569 | ||||||
3,597,412 | ||||||||
Total Financials | 17,121,850 |
PRINCIPAL AMOUNT1/ SHARES | VALUE (NOTE 2) | |||||||
CORPORATE BONDS (continued) | ||||||||
Non-Convertible Corporate Bonds (continued) | ||||||||
Industrials - 5.6% | ||||||||
Airlines - 1.8% | ||||||||
Southwest Airlines Co., 5.125%, 6/15/2027 | 4,990,000 | $ | 4,940,982 | |||||
Road & Rail - 0.9% | ||||||||
BNSF Funding Trust I, (3 mo. LIBOR US + 2.350%), 6.613%, 12/15/20553 | 2,540,000 | 2,395,801 | ||||||
Trading Companies & Distributors - 2.9% | ||||||||
AerCap Ireland Capital DAC - AerCap Global Aviation Trust (Ireland), 3.00%, 10/29/2028 | 3,000,000 | 2,521,657 | ||||||
Air Lease Corp., 3.625%, 4/1/2027 | 2,740,000 | 2,504,349 | ||||||
Ashtead Capital, Inc. (United Kingdom), 4.00%, 5/1/20282 | 2,890,000 | 2,630,726 | ||||||
7,656,732 | ||||||||
Total Industrials | 14,993,515 | |||||||
Information Technology - 1.8% | ||||||||
Semiconductors & Semiconductor Equipment - 1.8% | ||||||||
QUALCOMM, Inc., | ||||||||
4.25%, 5/20/2032 | 3,495,000 | 3,377,730 | ||||||
5.40%, 5/20/2033 | 1,305,000 | 1,365,463 | ||||||
Total Information Technology | 4,743,193 | |||||||
Materials - 0.9% | ||||||||
Metals & Mining - 0.9% | ||||||||
Newcastle Coal Infrastructure Group Pty Ltd. (Australia), 4.40%, 9/29/20272 | 2,870,000 | 2,455,959 | ||||||
Real Estate - 4.2% | ||||||||
Equity Real Estate Investment Trusts (REITS) - 4.2% | ||||||||
SBA Tower Trust, 6.599%, 1/15/20282 | 3,940,000 | 3,952,502 | ||||||
Simon Property Group LP, 2.65%, 2/1/2032 | 9,100,000 | 7,342,316 | ||||||
Total Real Estate | 11,294,818 | |||||||
Utilities - 1.4% | ||||||||
Independent Power and Renewable Electricity Producers - 1.4% | ||||||||
Vistra Operations Co. LLC, | ||||||||
4.875%, 5/13/20242 | 2,855,000 | 2,794,694 | ||||||
3.55%, 7/15/20242 | 885,000 | 849,683 | ||||||
Total Utilities | 3,644,377 | |||||||
TOTAL CORPORATE BONDS | ||||||||
(Identified Cost $107,811,418) | 98,197,792 | |||||||
ASSET-BACKED SECURITIES - 18.5% | ||||||||
Business Jet Securities LLC, Series 2021-1A, Class A, 2.162%, 4/15/20362 | 1,074,051 | 943,075 | ||||||
CarMax Auto Owner Trust, Series 2020- 4, Class A3, 0.50%, 8/15/2025 | 2,622,703 | 2,546,638 |
The accompanying notes are an integral part of the financial statements.
6
Credit Series
Investment Portfolio - December 31, 2022
PRINCIPAL AMOUNT1/ SHARES | VALUE (NOTE 2) | |||||||
ASSET-BACKED SECURITIES (continued) | ||||||||
CF Hippolyta Issuer LLC, | ||||||||
Series 2020-1, Class A2, 1.99%, 7/15/20602 | 666,292 | $ | 550,418 | |||||
Series 2020-1, Class B1, 2.28%, 7/15/20602 | 2,134,509 | 1,864,345 | ||||||
Series 2021-1A, Class B1, 1.98%, 3/15/20612 | 904,134 | 754,592 | ||||||
CLI Funding VIII LLC, Series 2021-1A, Class A, 1.64%, 2/18/20462 | 1,463,186 | 1,245,498 | ||||||
Commonbond Student Loan Trust, Series 2020-AGS, Class A, 1.98%, 8/25/20502 | 710,404 | 605,659 | ||||||
Credit Acceptance Auto Loan Trust, | ||||||||
Series 2020-3A, Class A, 1.24%, 10/15/20292 | 2,200,497 | 2,154,064 | ||||||
Series 2021-2A, Class A, 0.96%, 2/15/20302 | 800,000 | 768,393 | ||||||
Series 2021-2A, Class C, 1.64%, 6/17/20302 | 1,000,000 | 898,208 | ||||||
Series 2021-3A, Class B, 1.38%, 7/15/20302 | 1,300,000 | 1,200,616 | ||||||
Series 2022-1A, Class A, 4.60%, 6/15/20322 | 2,600,000 | 2,523,592 | ||||||
DataBank Issuer, Series 2021-2A, Class A2, 2.40%, 10/25/20512 | 900,000 | 772,556 | ||||||
DT Auto Owner Trust, Series 2020-1A, Class C, 2.29%, 11/17/20252 | 1,054,366 | 1,048,470 | ||||||
EDvestinU Private Education Loan Issue No. 3 LLC, Series 2021-A, Class A, 1.80%, 11/25/20452 | 617,736 | 522,027 | ||||||
Flexential Issuer, Series 2021-1A, Class A2, 3.25%, 11/27/20512 | 1,525,000 | 1,331,149 | ||||||
Goodgreen Trust, Series 2020-1A, Class A, 2.63%, 4/15/20552 | 815,125 | 671,449 | ||||||
Hotwire Funding LLC, Series 2021-1, Class A2, 2.311%, 11/20/20512 | 1,470,000 | 1,276,941 | ||||||
KREF Ltd., Series 2021-FL2, Class AS, (1 mo. LIBOR US + 1.300%), 5.626%, 2/15/20392,4 | 1,500,000 | 1,403,510 | ||||||
Libra Solutions LLC, Series 2022-2A, Class A, 6.85%, 10/15/20342 | 1,213,198 | 1,206,755 | ||||||
Navient Private Education Refi Loan Trust, | ||||||||
Series 2017-2A, Class A, (1 mo. LIBOR US + 1.050%), 5.439%, 12/27/20662,4 | 1,877,517 | 1,808,757 | ||||||
Series 2020-DA, Class A, 1.69%, 5/15/20692 | 652,318 | 585,202 | ||||||
Series 2021-A, Class A, 0.84%, 5/15/20692 | 438,794 | 379,037 | ||||||
Nelnet Student Loan Trust, Series 2012-3A, Class A, (1 mo. LIBOR US + 0.700%), 5.089%, 2/25/20452,4 | 802,194 | 781,155 | ||||||
Oxford Finance Funding LLC, | ||||||||
Series 2019-1A, Class A2, 4.459%, 2/15/20272 | 647,973 | 642,847 | ||||||
Series 2022-1A, Class A2, 3.602%, 2/15/20302 | 2,850,000 | 2,598,432 |
PRINCIPAL AMOUNT1/ SHARES | VALUE (NOTE 2) | |||||||
ASSET-BACKED SECURITIES (continued) | ||||||||
PEAR LLC, | ||||||||
Series 2021-1, Class A, 2.60%, 1/15/2034 (Acquired 11/16/2021, cost $1,479,393)5 | 1,479,393 | $ | 1,391,635 | |||||
Series 2022-1, Class A1, 6.50%, 10/15/2034 (Acquired 10/14/2022, cost $886,588)5 | 887,298 | 885,718 | ||||||
PHEAA Student Loan Trust, Series 2016-1A, Class A, (1 mo. LIBOR US + 1.150%), 5.539%, 9/25/20652,4 | 548,322 | 536,561 | ||||||
Slam Ltd., Series 2021-1A, Class A, (Cayman Islands), 2.434%, 6/15/20462 | 1,721,780 | 1,426,544 | ||||||
SLM Student Loan Trust, | ||||||||
Series 2011-2, Class A2, (1 mo. LIBOR US + 1.200%), 5.589%, 10/25/20344 | 639,524 | 634,927 | ||||||
Series 2013-6, Class A3, (1 mo. LIBOR US + 0.650%), 5.039%, 6/26/20284 | 1,412,450 | 1,352,768 | ||||||
SMB Private Education Loan Trust, | ||||||||
Series 2015-B, Class A3, (1 mo. LIBOR US + 1.750%), 6.068%, 5/17/20322,4 | 761,601 | 758,599 | ||||||
Series 2016-B, Class A2A, 2.43%, 2/17/20322 | 793,514 | 746,690 | ||||||
Series 2017-B, Class A2A, 2.82%, 10/15/20352 | 208,090 | 198,902 | ||||||
Series 2017-B, Class A2B, (1 mo. LIBOR US + 0.750%), 5.068%, 10/15/20352,4 | 942,438 | 929,189 | ||||||
SoFi Professional Loan Program LLC, | ||||||||
Series 2017-F, Class A2FX, 2.84%, 1/25/20412 | 527,878 | 507,958 | ||||||
Series 2018-B, Class A2FX, 3.34%, 8/25/20472 | 136,459 | 131,895 | ||||||
Stack Infrastructure Issuer LLC, Series 2021-1A, Class A2, 1.877%, 3/26/20462 | 1,050,000 | 900,425 | ||||||
Store Master Funding I-VII, Series 2018- 1A, Class A1, 3.96%, 10/20/20482 | 1,405,516 | 1,345,764 | ||||||
Textainer Marine Containers VII Ltd., Series 2021-1A, Class A, 1.68%, 2/20/20462 | 1,621,333 | 1,355,791 | ||||||
Tricon American Homes, | ||||||||
Series 2017-SFR2, Class A, 2.928%, 1/17/20362 | 1,122,107 | 1,087,601 | ||||||
Series 2020-SFR1, Class A, 1.499%, 7/17/20382 | 1,397,147 | 1,211,939 | ||||||
Triton Container Finance VIII LLC, Series 2021-1A, Class A, 1.86%, 3/20/20462 | 1,255,594 | 1,048,511 | ||||||
Vantage Data Centers Issuer LLC, Series 2020-1A, Class A2, 1.645%, 9/15/20452 | 1,750,000 | 1,540,634 | ||||||
TOTAL ASSET-BACKED SECURITIES | ||||||||
(Identified Cost $53,277,927) | 49,075,436 |
The accompanying notes are an integral part of the financial statements.
7
Credit Series
Investment Portfolio - December 31, 2022
PRINCIPAL AMOUNT1/ SHARES | VALUE (NOTE 2) | |||||||
COMMERCIAL MORTGAGE-BACKED SECURITIES - 15.8% | ||||||||
Brean Asset Backed Securities Trust, Series 2021-RM2, Class A, 1.75%, 10/25/20612,6 | 866,357 | $ | 756,878 | |||||
Credit Suisse Mortgage Capital Trust, | ||||||||
Series 2013-7, Class A6, 3.50%, 8/25/20432,6 | 259,251 | 233,466 | ||||||
Series 2018-J1, Class A2, 3.50%, 2/25/20482,6 | 4,317,190 | 3,820,510 | ||||||
Fannie Mae REMICS, | ||||||||
Series 2020-48, Class DC, 2.50%, 7/25/2050 | 4,581,908 | 3,929,228 | ||||||
Series 2021-69, Class WJ, 1.50%, 10/25/2050 | 672,157 | 563,549 | ||||||
Flagstar Mortgage Trust, Series 2021-8INV, Class A3, 2.50%, 9/25/20512,6 | 872,577 | 690,262 | ||||||
Freddie Mac Multifamily Structured Pass-Through Certificates, | ||||||||
Series K072, Class A2, 3.444%, 12/25/2027 | 1,000,000 | 957,284 | ||||||
Series K106, Class X1 (IO), 1.354%, 1/25/20306 | 15,931,726 | 1,184,170 | ||||||
Freddie Mac REMICS, Series 5189, Class CP, 2.50%, 6/25/2049 | 4,586,373 | 3,963,416 | ||||||
GCT Commercial Mortgage Trust, Series 2021-GCT, Class A, (1 mo. LIBOR US + 0.800%), 5.118%, 2/15/20382,4 | 1,900,000 | 1,766,918 | ||||||
GS Mortgage-Backed Securities Corp. Trust, | ||||||||
Series 2020-PJ3, Class A14, 3.00%, 10/25/20502,6 | 276,891 | 228,114 | ||||||
Series 2021-INV1, Class A6, 2.50%, 12/25/20512,6 | 886,984 | 763,543 | ||||||
Series 2021-PJ6, Class A8, 2.50%, 11/25/20512,6 | 591,551 | 509,275 | ||||||
Series 2021-PJ9, Class A8, 2.50%, 2/26/20522,6 | 685,907 | 590,504 | ||||||
Series 2022-PJ3, Class A6, 3.00%, 8/25/20522,6 | 1,896,801 | 1,577,754 | ||||||
Imperial Fund Mortgage Trust, | ||||||||
Series 2021-NQM3, Class A1, 1.595%, 11/25/20562,6 | 824,157 | 664,298 | ||||||
Series 2022-NQM2, Class A1, 3.638%, 3/25/20672,7 | 1,404,758 | 1,268,201 | ||||||
J.P. Morgan Chase Commercial Mortgage Securities Trust, Series 2019-ICON, Class A, 3.884%, 1/5/20342 | 2,000,000 | 1,927,990 | ||||||
J.P. Morgan Mortgage Trust, Series 2022-INV3, Class A3B, 3.00%, 9/25/20522,6 | 1,850,477 | 1,546,639 | ||||||
Morgan Stanley Bank of America Merrill Lynch Trust, Series 2014-C19, Class A4, 3.526%, 12/15/2047 | 965,361 | 927,579 | ||||||
Morgan Stanley Capital I Trust, | ||||||||
Series 2016-UB11, Class A4, 2.782%, 8/15/2049 | 500,000 | 452,564 | ||||||
Series 2020-CNP, Class A, 2.428%, 4/5/20422,6 | 1,000,000 | 787,379 |
PRINCIPAL AMOUNT1/ SHARES | VALUE (NOTE 2) | |||||||
COMMERCIAL MORTGAGE-BACKED SECURITIES (continued) | ||||||||
NewRez Warehouse Securitization Trust, Series 2021-1, Class A, (1 mo. LIBOR US + 0.750%), 5.139%, 5/25/20552,4 | 2,000,000 | $ | 1,968,163 | |||||
Oceanview Mortgage Loan Trust, Series 2020-1, Class A1A, 1.733%, 5/28/20502,6 | 679,679 | 599,852 | ||||||
Provident Funding Mortgage Trust, | ||||||||
Series 2021-2, Class A2A, 2.00%, 4/25/20512,6 | 725,603 | 612,557 | ||||||
Series 2021-INV1, Class A1, 2.50%, 8/25/20512,6 | 1,420,065 | 1,135,631 | ||||||
RCKT Mortgage Trust, | ||||||||
Series 2021-6, Class A1, 2.50%, 12/25/20512,6 | 873,430 | 698,781 | ||||||
Series 2021-6, Class A5, 2.50%, 12/25/20512,6 | 1,004,099 | 864,420 | ||||||
RUN Trust, Series 2022-NQM1, Class A1, 4.00%, 3/25/20672 | 949,317 | 896,399 | ||||||
Sequoia Mortgage Trust, | ||||||||
Series 2013-5, Class A1, 2.50%, 5/25/20432,6 | 514,356 | 444,096 | ||||||
Series 2013-9, Class A1, 3.50%, 7/25/20432,6 | 3,980,501 | 3,604,567 | ||||||
Wells Fargo Commercial Mortgage Trust, Series 2015-NXS4, Class A4, 3.718%, 12/15/2048 | 1,000,000 | 949,954 | ||||||
WinWater Mortgage Loan Trust, Series 2015-3, Class A1, 3.50%, 3/20/20452,6 | 1,326,518 | 1,200,965 | ||||||
TOTAL COMMERCIAL MORTGAGE-BACKED SECURITIES | ||||||||
(Identified Cost $46,603,921) | 42,084,906 | |||||||
MUNICIPAL BONDS - 1.3% | ||||||||
Hawaii, Series GC, G.O. Bond, 2.632%, 10/1/2037 | 2,240,000 | 1,637,506 | ||||||
South Carolina Public Service Authority, Series B, Revenue Bond, 2.329%, 12/1/2028 | 1,355,000 | 1,141,180 | ||||||
Tampa-Hillsborough County Expressway Authority, Series B, Revenue Bond, BAM, 1.892%, 7/1/2029 | 1,000,000 | 808,838 | ||||||
TOTAL MUNICIPAL BONDS | ||||||||
(Identified Cost $4,679,702) | 3,587,524 | |||||||
U.S. TREASURY SECURITIES - 6.6% | ||||||||
U.S. Treasury Notes - 6.6% | ||||||||
U.S. Treasury Note | ||||||||
1.75%, 5/15/2023 | 3,005,000 | 2,972,837 | ||||||
2.50%, 5/15/2024 | 3,945,000 | 3,828,499 | ||||||
2.25%, 11/15/2027 | 11,525,000 | 10,634,514 | ||||||
TOTAL U.S. TREASURY SECURITIES | ||||||||
(Identified Cost $17,649,042) | 17,435,850 |
The accompanying notes are an integral part of the financial statements.
8
Credit Series
Investment Portfolio - December 31, 2022
PRINCIPAL AMOUNT1/ SHARES | VALUE (NOTE 2) | |||||||
U.S. GOVERNMENT AGENCIES - 19.0% | ||||||||
Mortgage-Backed Securities - 19.0% | ||||||||
Fannie Mae | ||||||||
Pool #MA4687, UMBS, 4.00%, 6/1/2042 | 4,801,552 | $ | 4,563,840 | |||||
Pool #BK0433, UMBS, 3.50%, 12/1/2049 | 5,649,129 | 5,195,927 | ||||||
Pool #FM6890, UMBS, 3.00%, 6/1/2050 | 2,132,375 | 1,898,228 | ||||||
Pool #CA6316, UMBS, 3.00%, 7/1/2050 | 4,999,490 | 4,411,301 | ||||||
Pool #FS1807, UMBS, 3.50%, 7/1/2051 | 4,569,668 | 4,203,066 | ||||||
Pool #FS1838, UMBS, 3.00%, 12/1/2051 | 4,704,387 | 4,181,688 | ||||||
Pool #MA4514, UMBS, 3.50%, 1/1/2052 | 1,699,269 | 1,547,656 | ||||||
Pool #BV5383, UMBS, 3.00%, 4/1/2052 | 2,883,207 | 2,551,502 | ||||||
Pool #MA4626, UMBS, 4.00%, 6/1/2052 | 6,762,996 | 6,344,177 | ||||||
Pool #MA4807, UMBS, 5.50%, 11/1/2052 | 2,599,727 | 2,607,623 | ||||||
Freddie Mac | ||||||||
Pool #RB5169, UMBS, 3.50%, 6/1/2042 | 4,838,386 | 4,471,611 | ||||||
Pool #RB5178, UMBS, 4.50%, 8/1/2042 | 1,866,466 | 1,820,029 | ||||||
Pool #QE0356, UMBS, 3.50%, 4/1/2052 | 1,910,125 | 1,746,120 | ||||||
Pool #SD8230, UMBS, 4.50%, 6/1/2052 | 5,114,399 | 4,928,093 | ||||||
TOTAL U.S. GOVERNMENT AGENCIES | ||||||||
(Identified Cost $53,856,877) | 50,470,861 | |||||||
SHORT-TERM INVESTMENT - 1.7% | ||||||||
Dreyfus Government Cash Management, Institutional Shares, 4.19%8 | ||||||||
(Identified Cost $4,459,840) | 4,459,840 | 4,459,840 | ||||||
TOTAL INVESTMENTS - 99.8% | ||||||||
(Identified Cost $288,338,727) | 265,312,209 | |||||||
OTHER ASSETS, LESS LIABILITIES - 0.2% | 509,844 | |||||||
NET ASSETS - 100% | $ | 265,822,053 |
The accompanying notes are an integral part of the financial statements.
9
Credit Series
Investment Portfolio - December 31, 2022
G.O. Bond - General Obligation Bond
IO - Interest only
LIBOR - London Interbank Offered Rate
No. - Number
REMICS - Real Estate Mortgage Investment Conduits
UMBS - Uniform Mortgage-Backed Securities
Scheduled principal and interest payments are guaranteed by:
BAM (Build America Mutual Assurance Co.)
The insurance does not guarantee the market value of the municipal bonds.
1Amount is stated in USD unless otherwise noted.
2Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”) and determined to be liquid under the Fund’s Liquidity Risk Management Program. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at December 31, 2022 was $102,052,202, which represented 38.4% of the Series’ Net Assets.
3Variable rate security. Security may be issued at a fixed coupon rate, which converts to a variable rate at a specified date. Rate shown is the rate in effect as of December 31, 2022.
4Floating rate security. Rate shown is the rate in effect as of December 31, 2022.
5Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”) and determined to be illiquid under the Fund’s Liquidity Risk Management Program. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of such securities at December 31, 2022 was $2,277,353, or 0.9% of the Series’ Net Assets.
6Variable or floating rate security, the interest rate of which adjusts periodically based on changes in current interest rates and prepayments on the underlying pool of assets. Rate shown is the rate in effect as of December 31, 2022.
7Represents a step-up bond that pays initial coupon rate for the first period and then a higher coupon rate for the following periods. Rate shown reflects the current coupon as of December 31, 2022.
8Rate shown is the current yield as of December 31, 2022.
The Global Industry Classification Standard (GICS) was developed by and is the exclusive property and a service mark of MSCI Inc. (MSCI) and Standard & Poor’s, a division of S&P Global Inc. (S&P), and is licensed for use by Manning & Napier when referencing GICS sectors. Neither MSCI, S&P, nor any third party involved in making or compiling the GICS or any GICS classifications makes any express or implied warranties or representations with respect to such standard or classification, nor shall any such party have any liability therefrom.
The accompanying notes are an integral part of the financial statements.
10
Credit Series
Statement of Assets and Liabilities
December 31, 2022
ASSETS: | ||||
Investments, at value (identified cost $288,338,727) (Note 2) | $ | 265,312,209 | ||
Cash | 2,050 | |||
Receivable from Advisor (Note 3) | 18,069 | |||
Interest receivable | 1,480,252 | |||
Receivable for fund shares sold | 684,919 | |||
Dividends receivable | 14,066 | |||
Foreign tax reclaims receivable | 3,100 | |||
Prepaid expenses | 4,726 | |||
TOTAL ASSETS | 267,519,391 | |||
LIABILITIES: | ||||
Accrued fund accounting and administration fees (Note 3) | 22,091 | |||
Accrued Chief Compliance Officer service fees (Note 3) | 2,063 | |||
Payable for fund shares repurchased | 1,641,870 | |||
Other payables and accrued expenses | 31,314 | |||
TOTAL LIABILITIES | 1,697,338 | |||
TOTAL NET ASSETS | $ | 265,822,053 | ||
NET ASSETS CONSIST OF: | ||||
Capital stock | $ | 304,028 | ||
Additional paid-in-capital | 297,399,310 | |||
Total distributable earnings (loss) | (31,881,285 | ) | ||
TOTAL NET ASSETS | $ | 265,822,053 | ||
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER SHARE - Class W | ||||
($265,822,053/30,402,835 shares) | $ | 8.74 |
The accompanying notes are an integral part of the financial statements.
11
Credit Series
Statement of Operations
For the Year Ended December 31, 2022
INVESTMENT INCOME: | ||||
Interest (net of foreign taxes withheld, $11,585) | $ | 8,155,808 | ||
Dividends | 129,477 | |||
Total Investment Income | 8,285,285 | |||
EXPENSES: | ||||
Management fees (Note 3) | 619,031 | |||
Fund accounting and administration fees (Note 3) | 76,647 | |||
Directors’ fees (Note 3) | 30,172 | |||
Chief Compliance Officer service fees (Note 3) | 8,983 | |||
Professional fees | 76,358 | |||
Custodian fees | 9,626 | |||
Miscellaneous | 63,897 | |||
Total Expenses | 884,714 | |||
Less reduction of expenses (Note 3) | (637,101 | ) | ||
Net Expenses | 247,613 | |||
NET INVESTMENT INCOME | 8,037,672 | |||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: | ||||
Net realized gain (loss) on investments | (8,739,542 | ) | ||
Net change in unrealized appreciation (depreciation) on investments | (24,359,994 | ) | ||
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS | (33,099,536 | ) | ||
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | (25,061,864 | ) |
The accompanying notes are an integral part of the financial statements.
12
Credit Series
Statements of Changes in Net Assets
FOR THE YEAR ENDED | FOR THE YEAR ENDED | |||||||
12/31/22 | 12/31/21 | |||||||
INCREASE (DECREASE) IN NET ASSETS: | �� | |||||||
OPERATIONS: | ||||||||
Net investment income | $ | 8,037,672 | $ | 4,440,597 | ||||
Net realized gain (loss) on investments | (8,739,542 | ) | 3,919,220 | |||||
Net change in unrealized appreciation (depreciation) on investments | (24,359,994 | ) | (8,155,311 | ) | ||||
Net increase (decrease) from operations | (25,061,864 | ) | 204,506 | |||||
DISTRIBUTIONS TO SHAREHOLDERS (Note 8): | ||||||||
Class W | (8,284,425 | ) | (8,777,239 | ) | ||||
CAPITAL STOCK ISSUED AND REPURCHASED: | ||||||||
Net increase (decrease) from capital share transactions (Note 5) | 92,691,219 | 22,923,299 | ||||||
Net increase (decrease) in net assets | 59,344,930 | 14,350,566 | ||||||
NET ASSETS: | ||||||||
Beginning of year | 206,477,123 | 192,126,557 | ||||||
End of year | $ | 265,822,053 | $ | 206,477,123 |
The accompanying notes are an integral part of the financial statements.
13
Credit Series
Financial Highlights - Class W
FOR THE YEAR ENDED | FOR THE PERIOD | |||||||||||
12/31/22 | 12/31/21 | 4/14/201 TO 12/31/20 | ||||||||||
Per share data (for a share outstanding throughout each period): | $10.15 | $10.60 | $10.00 | |||||||||
Net asset value - Beginning of period | ||||||||||||
Income (loss) from investment operations: | ||||||||||||
Net investment income2 | 0.30 | 0.23 | 0.19 | |||||||||
Net realized and unrealized gain (loss) on investments | (1.42 | ) | (0.22 | ) | 0.68 | |||||||
Total from investment operations | (1.12 | ) | 0.01 | 0.87 | ||||||||
Less distributions to shareholders: | ||||||||||||
From net investment income | (0.28 | ) | (0.24 | ) | (0.18 | ) | ||||||
From net realized gain on investments | (0.01 | ) | (0.22 | ) | (0.09 | ) | ||||||
Total distributions to shareholders | (0.29 | ) | (0.46 | ) | (0.27 | ) | ||||||
Net asset value - End of period | $8.74 | $10.15 | $10.60 | |||||||||
Net assets - End of period (000’s omitted) | $265,822 | $206,477 | $192,127 | |||||||||
Total return3 | (11.13% | ) | 0.02% | 8.77% | ||||||||
Ratios (to average net assets)/Supplemental Data: | ||||||||||||
Expenses* | 0.10% | 0.10% | 0.10% | 4 | ||||||||
Net investment income | 3.25% | 2.23% | 2.52% | 4 | ||||||||
Series portfolio turnover | 44% | 69% | 44% | |||||||||
*The investment advisor did not impose all or a portion of its management and/or other fees during the periods, and may have paid a portion of the Series’ expenses. If these expenses had been incurred by the Class, the expense ratio (to average net assets) would have increased by the following amounts: | ||||||||||||
0.26% | 0.27% | 0.33% | 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.
14
Credit Series
Notes to Financial Statements
1. Organization
Credit 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 total return by investing primarily in fixed income securities.
The Fund’s advisor is Manning & Napier Advisors, LLC (the “Advisor”). Shares are only offered to discretionary investment accounts and other funds managed by the Advisor. The total authorized capital stock of the Fund consists of 15 billion shares of common stock each having a par value of $0.01. As of December 31, 2022, 6.3 billion shares have been designated in total among 15 series, of which 100 million have been designated as Credit Series Class W common stock.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Series. The Series is an investment company and, accordingly, follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board Accounting Standards Codification Topic 946 - Investment Companies, which is part of accounting principles generally accepted in the United States of America (“GAAP”).
Security Valuation
Portfolio securities, including domestic equities, foreign equities, warrants and options, listed on an exchange other than the NASDAQ Stock Market 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 Stock Market 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 “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 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 may be valued at amortized cost, which approximates fair 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. In these instances fair value is measured 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 to value these securities may differ from the value that would be realized if these securities were sold, and the differences could be material.
15
Credit Series
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
Fair Value
The Series’ financial instruments are valued at the close of the NYSE and are reported at fair value, which GAAP defines as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Board has designated the Advisor as the Fund’s valuation designee (Valuation Designee) to make all fair value determinations with respect to each Series’ portfolio investments. Subject to oversight by the Board, the Valuation Designee performs the following functions in performing fair value determinations: assesses and manages valuation risks; establishes and applies fair value methodologies; tests fair value methodologies; and evaluates pricing vendors and pricing agents. The Advisor has adopted and implemented policies and procedures to be followed when making fair value determinations, and it has established a Valuation Committee through which the Advisor makes fair value determinations. The Valuation Designee provides periodic reporting to the Board on valuation matters. The Advisor’s determination of a security’s fair value price often involves the consideration of a number of subjective factors, and is therefore subject to the unavoidable risk that the value assigned to a security may be higher or lower than the security’s value would be if a reliable market quotation for the security was readily available. 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. The Advisor may use a pricing service to obtain the value of the Fund’s portfolio securities where the prices provided by such pricing service are believed to reflect the fair market value of such securities. The methods used by the pricing service and the valuations so established will be reviewed by the Advisor under the general supervision of the Fund’s Board of Directors. Several pricing services are available, one or more of which may be used by the Advisor, as approved by the Board. A change in a pricing service or a material change in a pricing methodology for investments with no readily available market quotations will be reported to the Board by the Advisor in accordance with certain requirements.
GAAP establishes the following fair value hierarchy that categorizes the inputs used to measure fair value. Level 1 includes quoted prices (unadjusted) in active markets for identical financial instruments that the Series’ can access at the reporting date. Level 2 includes other significant observable inputs (including, but not limited to, quoted prices for similar financial instruments in active markets, quoted prices for identical or similar financial instruments in inactive markets, interest rates and yield curves, implied volatilities, and credit spreads). Level 3 includes unobservable inputs (including the Valuation Designee’s own assumptions in determining fair value). A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input both individually and in aggregate that is significant to the fair value measurement. 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, 2022 in valuing the Series’ assets or liabilities carried at fair value:
DESCRIPTION | TOTAL | LEVEL 1 | LEVEL 2 | LEVEL 3 | ||||||||||||
Assets: | ||||||||||||||||
Debt securities: | ||||||||||||||||
U.S. Treasury and other U.S. Government agencies | $ | 67,906,711 | $ | — | $ | 67,906,711 | $ | — | ||||||||
States and political subdivisions (municipals) | 3,587,524 | — | 3,587,524 | — | ||||||||||||
Corporate debt: | ||||||||||||||||
Communication Services | 16,019,157 | — | 16,019,157 | — | ||||||||||||
Consumer Discretionary | 13,956,115 | — | 13,956,115 | — | ||||||||||||
Consumer Staples | 4,753,222 | — | 4,753,222 | — | ||||||||||||
Energy | 9,215,586 | — | 9,215,586 | — | ||||||||||||
Financials | 17,121,850 | — | 17,121,850 | — | ||||||||||||
Industrials | 14,993,515 | — | 14,993,515 | — | ||||||||||||
Information Technology | 4,743,193 | — | 4,743,193 | — | ||||||||||||
Materials | 2,455,959 | — | 2,455,959 | — | ||||||||||||
Real Estate | 11,294,818 | — | 11,294,818 | — | ||||||||||||
Utilities | 3,644,377 | — | 3,644,377 | — |
16
Credit Series
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
Fair Value (continued)
DESCRIPTION | TOTAL | LEVEL 1 | LEVEL 2 | LEVEL 3 | ||||||||||||
Asset-backed securities | $ | 49,075,436 | $ | — | $ | 49,075,436 | $ | — | ||||||||
Commercial mortgage-backed securities | 42,084,906 | — | 42,084,906 | — | ||||||||||||
Short-Term Investment | 4,459,840 | 4,459,840 | — | — | ||||||||||||
Total assets | $ | 265,312,209 | $ | 4,459,840 | $ | 260,852,369 | $ | — |
There were no Level 3 securities held by the Series as of December 31, 2021 or December 31, 2022.
LIBOR Transition Risk
The United Kingdom’s Financial Conduct Authority announced a phase out of the London Interbank Offered Rate (“LIBOR”). Although many LIBOR rates will cease to be published or no longer will be representative of the underlying market they seek to measure after December 31, 2021, a selection of widely used USD LIBOR rates will continue to be published through June 2023 in order to assist with the transition. The Series may be exposed to financial instruments tied to LIBOR to determine payment obligations, financing terms, hedging strategies or investment value. The transition process away from LIBOR might lead to increased volatility and illiquidity in markets for, and reduce the effectiveness of new hedges placed against, instruments whose terms currently include LIBOR. The ultimate effect of the LIBOR transition process on the Series is uncertain.
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 Series is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair 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 fair 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.
Asset-Backed Securities
The Series may invest in asset-backed securities. Asset-backed securities are generally issued as pass-through certificates or as debt instruments. Asset-backed securities issued as pass-through certificates represent undivided fractional ownership interests in an underlying pool of assets. Asset-backed securities issued as debt instruments, which are also known as collateralized obligations, are typically issued as the debt of a special purpose entity organized solely for the purpose of owning such assets and issuing such debt. Asset-backed securities are often backed by a pool of assets representing the obligations of a number of different parties. The yield characteristics of certain asset-backed securities may differ from traditional debt securities. One such major difference is that all or a principal part of the obligations may be prepaid at any time because the underlying assets (i.e. loans) may be prepaid at any time.
17
Credit Series
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
Asset-Backed Securities (continued)
As a result, a decrease in interest rates in the market may result in increases in the level of prepayments as borrowers, particularly mortgagors, refinance and repay their loans. An increased prepayment rate with respect to an asset-backed security will have the effect of shortening the maturity of the security. In addition, the Series may subsequently have to reinvest the proceeds at lower interest rates. If the Series has purchased such an asset-backed security at a premium, a faster than anticipated prepayment rate could result in a loss of principal to the extent of the premium paid.
Mortgage-Backed Securities
The Series may invest in mortgage-backed securities (“MBS” or pass-through certificates) that represent an interest in a pool of specific underlying mortgage loans and entitle the Series to the periodic payments of principal and interest from those mortgages. MBS may be issued by government agencies or corporations, or private issuers. Most MBS issued by government agencies are guaranteed; however, the degree of protection differs based on the issuer. For MBS there are a number of important differences among the agencies and instrumentalities of the U.S. Government that issue mortgage-related securities and among the securities that they issue. For example, mortgage-related securities guaranteed by Ginnie Mae are guaranteed as to the timely payment of principal and interest by Ginnie Mae and such guarantee is backed by the full faith and credit of the United States. However, mortgage-related securities issued by Freddie Mac and Fannie Mae, including Freddie Mac and Fannie Mae guaranteed mortgage pass-through certificates, which are solely the obligations of Freddie Mac and Fannie Mae, are not backed by or entitled to the full faith and credit of the United States, but are supported by the right of the issuer to borrow from the U.S. Treasury. Non-agency mortgage-backed securities are securities issued by non-governmental issuers and have no direct or indirect government guarantees of payment and are subject to various risks. Non-agency mortgage loans are obligations of the borrowers thereunder only and are not typically insured or guaranteed by any other person or entity. The ability of a borrower to repay a loan is dependent upon the income or assets of the borrower. A number of factors, including a general economic downturn, acts of God, terrorism, social unrest and civil disturbances, may impair a borrower’s ability to repay its loans.
Inflation-Indexed Bonds
The Series may invest in inflation-indexed bonds. Inflation-indexed bonds are fixed income securities whose principal value is periodically adjusted according to the rate of inflation. If the index measuring inflation rises or falls, the principal value of inflation-indexed bonds will be adjusted upward or downward, and consequently the interest payable on these securities (calculated with respect to a larger or smaller principal amount) will be increased or reduced, respectively. Any upward or downward adjustment in the principal amount of an inflation-indexed bond will be included as interest income in the Statement of Operations, even though investors do not receive their principal until maturity. Repayment of the original bond principal upon maturity (as adjusted for inflation) is guaranteed in the case of U.S. Treasury inflation-indexed bonds. For bonds that do not provide a similar guarantee, the adjusted principal value of the bond repaid at maturity may be less than the original principal.
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, 2022.
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.
18
Credit Series
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
Securities Purchased on a When-Issued Basis or Forward Commitment (continued)
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, 2022.
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.
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, 2022, 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, 2020 through for the year ended December 31, 2022. The Series 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.
Foreign Taxes
Based on the Series’ understanding of the tax rules and rates related to income, gains and currency purchase/repatriation 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
Through the end of 2022, distributions to shareholders of net investment income were made quarterly; effective January 2023, such distributions will be made monthly. 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 GAAP 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.
19
Credit Series
Notes to Financial Statements (continued)
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 0.25% 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 and are reimbursed for travel and other out-of-pocket expenses incurred by them in connection with attending such meetings. The Fund also has an Audit Committee Chair, Governance & Nominating Committee Chair and Lead Independent Director who each receive an additional annual stipend for these roles.
Manning & Napier Investor Services, Inc., a registered broker-dealer affiliate of the Advisor, acts as distributor for the Fund’s shares. There are no distribution and service fees on the Class W shares.
Pursuant to a master services agreement, the Fund pays the Advisor an annual fee related to fund accounting and administration of 0.0085% on the first $25 billion of average daily net assets; 0.0075% on the next $15 billion of average daily net assets; and 0.0065% of average daily net assets in excess of $40 billion; plus a base fee of $30,400 per series. Additionally, certain transaction and out-of-pocket expenses, including charges for reporting relating to the Fund’s compliance program, are charged. The Advisor has agreements with BNY Mellon Investment Servicing (U.S.) Inc. (“BNY”) under which BNY serves as sub-accountant services agent.
Pursuant to an advisory fee waiver agreement, the Advisor has contractually agreed to waive the management fee for the Class W shares. The full management fee will be waived under this agreement because Class W shares are only available to discretionary investment accounts and other accounts managed by the Advisor. These clients pay a management fee to the Advisor that is separate from the Fund’s expenses. In addition, pursuant to a separate expense limitation agreement, the Advisor has contractually agreed to limit its fees and reimburse expenses to the extent necessary so that the total direct annual fund operating expenses, exclusive of waived Class W management fees (collectively, “excluded expenses”), do not exceed 0.10% of the average daily net assets of the Class W shares. These contractual waivers are expected to continue indefinitely, and may not be amended or terminated by the Advisor without the approval of the Series’ Board of Directors. The Advisor may receive from a Class the difference between the Class’s total direct annual fund operating expenses, not including excluded expenses, and the Class’s contractual expense limit to recoup all or a portion of its prior fee waivers (other than Class W management fee waivers) or expense reimbursements made during the rolling three-year period preceding the recoupment if at any point the total direct annual fund operating expenses, not including excluded expenses, are below the contractual expense limit (a) at the time of the fee waiver and/or expense reimbursement and (b) at the time of the recoupment.
Pursuant to the advisory fee waiver, the Advisor waived $619,031 in management fees for Class W for the year ended December 31, 2022. In addition, pursuant to the separate expense limitation agreement, the Advisor waived or reimbursed expenses of $18,070 for Class W shares, respectively, for the year ended December 31, 2022. These amounts are included as a reduction of expenses on the Statement of Operations.
As of December 31, 2022, the class specific waivers or reimbursements subject to possible future recoupment under the expense limitation agreement are as follows:
CLASS | EXPIRING DECEMBER 31, | |||||||||||||||
2023 | 2024 | 2025 | TOTAL | |||||||||||||
Class W | $ | 93,809 | $ | 34,013 | $ | 18,070 | $ | 145,892 |
20
Credit Series
Notes to Financial Statements (continued)
3. | Transactions with Affiliates (continued) |
For the year ended December 31, 2022, the Advisor did not recoup any expenses that have been previously waived or reimbursed.
4. | Purchases and Sales of Securities |
For the year ended December 31, 2022, purchases and sales of securities, other than U.S. Government securities and short-term securities, were $116,761,324 and $96,378,565, respectively. Purchases and sales of U.S. Government securities, other than short-term securities, were $84,891,842 and $7,533,143, respectively.
5. | Capital Stock Transactions |
Transactions in Class W shares of Credit Series were:
CLASS W | FOR THE YEAR ENDED 12/31/22 | FOR THE YEAR ENDED 12/31/21 | ||||||||||||||
SHARES | AMOUNT | SHARES | AMOUNT | |||||||||||||
Sold | 12,952,907 | $ | 119,342,887 | 3,674,022 | $ | 38,389,686 | ||||||||||
Reinvested | 898,894 | 8,030,683 | 828,766 | 8,498,088 | ||||||||||||
Repurchased | (3,792,770 | ) | (34,682,351 | ) | (2,291,219 | ) | (23,964,475 | ) | ||||||||
Total | 10,059,031 | $ | 92,691,219 | 2,211,569 | $ | 22,923,299 |
Over 90% of the shares outstanding are fiduciary accounts where 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. The Series may be subject 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 derivative 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 as of December 31, 2022.
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 GAAP. These differences are primarily due to differing book and tax treatments in the timing and/or treatment of the recognition of net investment income or gains and losses, including organization costs. 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 assets. Any such reclassifications are not reflected in the financial highlights.
21
Credit Series
Notes to Financial Statements (continued)
8. Federal Income Tax Information (continued)
The tax character of distributions paid were as follows:
FOR THE YEAR | FOR THE YEAR | |||||||
ENDED 12/31/22 | ENDED 12/31/21 | |||||||
Ordinary income | $ | 8,239,137 | $ | 6,724,292 | ||||
Long-term capital gains | $ | 45,288 | $ | 2,052,947 |
At December 31, 2022, the tax basis of components of distributable earnings and the net unrealized depreciation based on the identified cost of investments for federal income tax purposes were as follows:
Cost for federal income tax purposes | $ | 288,483,314 | ||
Unrealized appreciation | 251,725 | |||
Unrealized depreciation | (23,422,830 | ) | ||
Net unrealized depreciation | $ | (23,171,105 | ) | |
Undistributed ordinary income | $ | 38,565 | ||
Capital loss carryforwards | $ | (8,747,540 | ) | |
Other temporary differences | ||||
(organization costs) | $ | (1,208 | ) |
As of December 31, 2022, the Series had net short-term capital loss carryforwards of $3,591,536 and net long-term capital loss carryforwards of $5,156,004, which may be carried forward indefinitely.
9. Market Event
Significant disruptions and volatility in the global financial markets and economies, like the current conditions caused by the Russian invasion of Ukraine and the COVID-19 pandemic, could negatively impact the investment performance of the Series. The global market and economic climate may become increasingly uncertain due to numerous factors beyond our control, including but not limited to, the effectiveness and acceptance of vaccines to prevent COVID-19, impacts on business operations in the U.S. related to the COVID-19 pandemic, such as supply chain disruptions and inflation, concerns related to unpredictable global market and economic factors, uncertainty in U.S. federal fiscal, tax, trade or regulatory policy and the fiscal, tax, trade or regulatory policy of foreign governments, rising interest rates, inflation or deflation, the availability of credit, performance of financial markets, terrorism, natural or biological catastrophes, public health emergencies, or political uncertainty.
22
Credit Series
Report of Independent Registered Public Accounting Firm
To the Board of Directors of Manning & Napier Fund, Inc. and Shareholders of Credit Series
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the investment portfolio, of Credit Series (one of the series constituting Manning & Napier Fund, Inc., referred to hereafter as the “Fund”) as of December 31, 2022, the related statement of operations for the year ended December 31, 2022, the statement of changes in net assets for each of the two years in the period ended December 31, 2022, including the related notes, and the financial highlights for each of the two years in the period ended December 31, 2022 and for the period April 14, 2020 (commencement of operations) through December 31, 2020 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2022, 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 ended December 31, 2022 and the financial highlights for each of the two years in the period ended December 31, 2022 and for the period April 14, 2020 (commencement of operations) through December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of December 31, 2022 by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion.
New York, New York
February 23, 2023
We have served as the auditor of one or more investment companies in Manning & Napier Mutual Funds since 1992.
23
Credit Series
Renewal of Investment Advisory Agreement
(unaudited)
At the Manning & Napier Fund, Inc. (the “Fund”) Board of Directors’ (the “Board”) Special meeting, held on May 3, 2022 (the “May 3rd Board Meeting”), a new Investment Advisory Agreement between the Fund and Manning & Napier Advisors, LLC (the “Advisor”) and on behalf of the Rainier International Discovery Series (the “Rainier Series”), a new investment advisory agreement between the Advisor and the Fund and a new investment sub-advisory agreement between Advisor and Rainier Investment Management, LLC (“Rainier”) (together, the “New Advisory Agreements”), were considered for approval by the Board, including all of the Directors who are not “interested persons” (“Independent Directors”), within the meaning of the Investment Company Act of 1940, as amended (the “1940 Act”). The Board was asked to consider the New Advisory Agreements because of a transaction that impacted Manning & Napier, Inc. (“MN Inc.”), the ultimate parent company of the Advisor and Rainier.
On March 31, 2022, MN Inc. and Callodine Group, LLC (“Callodine”) entered into an agreement under which an affiliate of Callodine would acquire MN Inc. (the “Transaction”). The Transaction, which was subject to customary closing conditions, closed on October 21, 2022. Following the closing, both the Advisor and Rainier are now indirectly owned and controlled by Callodine MN Holdings, Inc., which, in turn, is controlled by Callodine Group, LLC and its founder James Morrow. East Asset Management, LLC, and its owners Terrence and Kim Pegula, also indirectly hold a substantial interest in Callodine MN Holdings, Inc.
The Transaction was deemed to result in a change of control of the Advisor and Rainier under the 1940 Act, and therefore resulted in the assignment and automatic termination of the investment advisory agreement and sub-advisory agreement pursuant to which the Advisor and Rainier provided advisory services to each Series of the Fund (the “Existing Advisory Agreements”). The Board was asked to consider the approval of the New Advisory Agreements, to become effective upon shareholder approval, so that the Advisor and Sub-Advisor’s management of the Series would continue without any interruption.
Board Considerations in Approving the New Advisory Agreements
The Board met on April 8, April 13, April 27 and May 3 in person and by video conference to consider and discuss the New Advisory Agreements. At each of those meetings, the Independent Directors also met separately with their independent counsel outside the presence of Fund Management. In preparation for those Board meetings, the Independent Directors requested that the Advisor, Rainier and Callodine furnish information necessary for the Directors to evaluate the terms of the New Advisory Agreements. The Advisor and Rainier were the only investment advisers the Directors considered at such meetings. The Independent Directors also submitted a number of follow-up requests to the Advisor for additional information based on the Board’s review of information provided in response to its initial requests. The Board also considered information that the Board previously reviewed in connection with its approval of the Existing Advisory Agreements for initial terms of two years, which occurred at a meeting held on April 22, 2020, as well as information presented in 2021 that covered similar matters but for which no approval was sought at that time. The Board further considered that the Existing Advisory Agreements were subject to shareholder consideration and were approved by shareholders at a special meeting held on June 30, 2020 and August 18, 2020. At the Meeting on May 3rd, the Board additionally reviewed information provided in connection with the proposed renewal of the Existing Advisory Agreements. The Directors used this information, as well as other information submitted to the Board in connection with the recent Board meetings noted above, and other meetings held since the most recent approval of the Existing Advisory Agreements, to help them decide whether to approve the New Advisory Agreements for initial two-year terms.
Specifically, the Board requested and received written materials from the Advisor and Rainier regarding, among other things: (i) the terms, conditions, and expected timing of the Transaction; (ii) the nature, extent and quality of the services to be provided by the Advisor and Rainier under the New Advisory Agreements; (iii) the proposed advisory fee to be paid to the Advisor and Rainier under the New Advisory Agreements; (iv) the Advisor and Rainier’s compliance programs; and (v) the Advisor and Rainier’s investment management personnel. In addition, the Board considered information provided to them with respect to Callodine, its business and affiliates, as well as its objectives and plans related to the Advisor. The Independent Directors considered their discussion about business strategy with a representative from Callodine who attended the April 13th meeting.
At the May 3rd Board meeting, the Directors, including all of the Independent Directors, based on their evaluation of the information provided by the Advisor, Rainier, Callodine and other service providers of the Series, approved the New Advisory Agreements. Specifically, the Directors considered information presented by the Advisor and Rainier at a meeting of the Board held on May 3, 2022, specifically regarding among other areas: (i) the services provided by the Advisor and Rainier; (ii) the investment performance of the Series, the Advisor and Rainier; and (iii) the profitability of the overall relationship to the Advisor and Rainier.
24
Credit Series
Renewal of Investment Advisory Agreement
(unaudited)
The Independent Directors also received advice at the May 3rd Board meeting and other recent Board meetings from independent counsel and met in executive session outside the presence of Fund management. In considering the approval of the New Advisory Agreements, the Board considered various factors that they determined were relevant, including: (i) the nature, extent and quality of the services to be provided by the Advisor and Rainier; (ii) the investment performance of the Series, the Advisor and Rainier; and (iii) the fees to be paid to the Advisor and Rainier under the New Advisory Agreements, as discussed in further detail below. In addition, the Board, in considering the New Advisory Agreements in the context of the Transaction, relied upon representations from the Advisor and Rainier that: (i) the Transaction would not result in any material changes to the nature, quality and extent of services provided to the Series by the Advisor and Rainier that are discussed below; (ii) the Advisor and Rainier did not anticipate any material changes to their compliance programs or code of ethics in connection with the Transaction; and (iii) the portfolio managers and investment process for the Series would not change as a result of the Transaction.
Nature, Extent and Quality of Services Provided by the Advisor and Rainier
In considering the nature, extent and quality of the services to be provided by the Advisor and Rainier, the Board reviewed the portfolio management services to be provided by the Advisor and Rainier to the Series, including the quality of the continuing portfolio management personnel and investment process, as well as the Advisor and Rainier’s compliance history and compliance program. The Directors reviewed the terms of the proposed New Advisory Agreements, and noted that the New Advisory Agreements do not materially differ from the Existing Advisory Agreements. The Directors also reviewed the Advisor and Rainier’s investment and risk management approaches for the Series. The most recent investment adviser registration forms (Form ADV) for the Advisor and Rainier also were available to the Board. The Directors also considered other services to be provided to the Series by the Advisor specifically, such as monitoring Rainier’s adherence to the Series’ investment restrictions and monitoring compliance with various Fund policies and procedures and with applicable securities laws and regulations. Based on the factors above, as well as those discussed below, the Board concluded, within the context of its full deliberations, that the nature, extent and quality of the services to be provided to each Series by the Advisor and Rainier under the New Advisory Agreements support approval of the New Advisory Agreements.
Investment Performance of the Advisor and Rainier
In connection with its most recent approvals of the Existing Advisory Agreements and other meetings held during the course of the period since then, the Board was provided with reports – both proprietary to the Advisor or the Fund and generated by independent providers of investment company data – regarding the performance of each Series over various time periods. As part of these meetings, the Advisor and Rainier and their representatives provided information regarding and, as applicable, led discussions of factors impacting the Advisor and Rainier’s performance for the Series, outlining current market conditions and explaining their expectations and strategies for the future. The Directors determined that it was appropriate to take into account its consideration of the Advisor and Rainier’s performance at meetings held prior to the May 3rd Board meeting. In doing so, the Directors generally determined that the Advisor and Rainier’s performance was satisfactory. Where the Advisor or Rainier’s performance was materially below a Series’ benchmarks and or peer group, the Directors requested an explanation for the underperformance and/or the steps taken by the Advisor and Rainier in an effort to improve performance. In all instances, the Directors were satisfied with the explanation provided. The Directors plan to remain focused in future meetings to address aberrational underperformance. The Directors will continue to monitor the fees and expenses of the Series compared to peer groups. Based on this information and the Advisor and Rainier’s representations that the portfolio managers for the Series would not change in connection with the Transaction, the Board concluded, within the context of its full deliberations, that the investment results that the Advisor and Rainier had been able to achieve for each Series support approval of the New Advisory Agreements.
Costs of Advisory Services, Profitability and Economies of Scale
With respect to the cost of advisory services, the Board considered that the investment advisory fees payable to the Advisor and Rainier under the New Advisory Agreements are the same as the investment advisory fee payable to the Advisor and Rainier under the Existing Advisory Agreements. With respect to profitability and economies of scale, at the May 3rd Board meeting, the Board considered the Advisor and Rainier’s profitability and economies of scale from management of the Series. The Board noted the Advisor’s explanation of the consistent approach taken in calculating profitability, compared to prior periods, including the allocation of expenses as part of that calculation. The Directors noted that certain Series were not yet at sufficient scale to be profitable. The Directors noted the potential for the Transaction to add resources that could improve economies of scale for various Series; however, they also noted that such potential may not be realized. The Directors concluded that the profit margins of the Advisor and Rainier with respect to the management of the
25
Credit Series
Renewal of Investment Advisory Agreement
(unaudited)
Series were not unreasonable. The Board also considered the Advisor’s willingness to continue its current expense limitation and fee waiver arrangements with the Series.
Conclusion
The conclusions described above, in part, formed the basis for the Board’s approval of the New Advisory Agreements at the May 3rd Board meeting. The Board concluded, in the exercise of its reasonable judgment, that the terms of the New Advisory Agreements, including the compensation to be paid thereunder, are reasonable in relation to the services expected to be provided by the Advisor and Rainier to the Series and that the appointment of the Advisor and Rainier and the approval of the New Advisory Agreements would be in the best interests of the Series and their shareholders. Based on the Directors’ deliberations and their evaluation of the information described above and other factors and information they believed relevant, the Board, including all of the Independent Directors, unanimously approved (a) the appointment of the Advisor as investment adviser to the Series and Rainier as investment sub-adviser to the Rainier Series, and (b) the New Advisory Agreements.
The Board did not indicate that any single factor was determinative of its decision to approve the Agreement, but indicated that the Board based its determination on the total mix of information available to it.
The New Advisory Agreements were approved by shareholders at Shareholder Meetings held on August 19, 2022, September 16, 2022 and October 18, 2022 and became effective upon the closing of the Transaction with Callodine on October 21, 2022.
26
Credit Series
Liquidity Risk Management Program Disclosure
(unaudited)
The Securities and Exchange Commission adopted Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”) to promote effective liquidity risk management by open-end investment companies and reduce Liquidity Risk, which is the risk that open-end investment companies are unable to meet redemption obligations without a significant dilution of remaining shareholder interests.
The Manning & Napier Fund, Inc. and each of its series (each a “Fund” or collectively, the “Funds”) adopted a Liquidity Risk Management Program (the “Program”) and obtained approval from the Board of Directors (the “Board”), including a majority of Directors who are not interested persons of the Fund, to appoint a Liquidity Risk Management Committee (the “Committee”) to assess and manage the Fund’s Liquidity Risk.
Under the Program, assessment and management of Liquidity Risk takes into consideration certain factors, such as each fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably foreseeable stressed conditions, its short- and long-term cash-flow projections during both normal and reasonably foreseeable stressed conditions, and its cash and cash-equivalent holdings and access to other funding sources. As required by the rule, the Program includes policies and procedures for the classification of each Fund’s portfolio holdings into four liquidity categories, establishes a 15% limit on holdings of illiquid investments, and sets forth procedures for the override of vendor-derived classifications.
The Committee prepares an annual assessment (“assessment”) of the Program to review the operation of the Program, including the adequacy of controls designed to manage the Funds’ Liquidity Risk. Through this assessment, the Committee re-considers prior conclusions around each factor that the Fund must consider to assess, manage, and review its Liquidity Risk and evaluates the effectiveness of processes to classify Fund assets into liquidity categories, including Committee override determinations. As part of this evaluation the Committee re-affirms that each Fund operates as a Primarily Highly Liquid Fund, with greater than 50% of net assets consistently invested in Highly Liquid Investments, thereby negating a need to establish a Highly Liquid Investment Minimum for any Fund. Lastly, the assessment considers the effectiveness of the safeguards that the Committee adopted to prevent a violation of the Liquidity Rule’s limit on a Fund’s holding of Illiquid Investments.
The most recent assessment covered January 1, 2021, through December 31, 2021, and was presented to the Board in February 2022. This assessment confirmed that the Program continues to operate effectively in all material respects to address the requirements of the Liquidity Rule and manage the Funds’ Liquidity Risk.
27
Credit Series
Directors’ and Officers’ Information
(unaudited)
2The 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.manning-napier.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 directors and officers, 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 and Officer1
Name: | Paul Battaglia |
Address: | 290 Woodcliff Drive |
Fairport, NY 14450 | |
Born: | 1978 |
Current Position(s) Held with Fund: | Principal Executive Officer, President, Chairman and Director |
Term of Office2 & Length of Time Served: | Indefinite – Chairman and Director since November 2018 |
Principal Occupation(s) During Past 5 Years: | Chief Financial Officer since 2018; Vice President of Finance (2016 – 2018); |
Director of Finance (2011 – 2016); Financial Analyst/Internal Auditor (2004- | |
2006) – Manning & Napier Advisors, LLC and affiliates | |
Holds one or more of the following titles for various subsidiaries and | |
affiliates: Chief Financial Officer | |
Number of Portfolios Overseen within Fund Complex: | 15 |
Other Directorships Held Outside Fund Complex During | N/A |
Past 5 Years: | |
Independent Directors
Name: | Stephen B. Ashley |
Address: | 290 Woodcliff Drive |
Fairport, NY 14450 | |
Born: | 1940 |
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 and Director since 1997; Chief Executive Officer (1997-2019) - |
Ashley Companies (property management and investment) | |
Number of Portfolios Overseen within Fund Complex: | 15 |
Other Directorships Held Outside Fund Complex During | Ashley Companies since 1997 |
Past 5 Years: | |
Name: | Paul A. Brooke |
Address: | 290 Woodcliff Drive |
Fairport, NY 14450 | |
Born: | 1945 |
Current Position(s) Held with Fund: | Lead Independent Director, Audit Committee Member, Governance & |
Nominating Committee Member | |
Term of Office & Length of Time Served: | Indefinite – Director, Audit Committee Member, Governance & Nominating |
Committee Member since 2007; Lead Independent Director since 2017 | |
Principal Occupation(s) During Past 5 Years: | Managing Member since 1991 - PMSV Holdings LLC (investments); |
Managing Member (2010-2016) - VenBio (investments). | |
Number of Portfolios Overseen within Fund Complex: | 15 |
Other Directorships Held Outside Fund Complex During Past 5 Years: | Incyte Corp. (biotech) (2000-2020); PureEarth (non-profit) since 2012; Cerus (biomedical) since 2016; Caelum BioSciences (biomedical) since 2018; Cheyne Capital International (investment)(2000-2017); |
28
Credit Series
Directors’ and Officers’ Information
(unaudited)
Independent Directors (continued)
Name: | John Glazer |
Address: | 290 Woodcliff Drive |
Fairport, NY 14450 | |
Born: | 1965 |
Current Position(s) Held with Fund: | Director, Audit Committee Member, Governance & Nominating Committee |
Member | |
Term of Office & Length of Time Served: | Indefinite – Director, Audit Committee Member, Governance & Nominating |
Committee Member since February 2021 | |
Principal Occupation(s) During Past 5 Years: | Chief Executive Officer since 2020 – Oikos Holdings LLC (Single-Family |
Office); Head of Corporate Development (2019-2020) – Caelum Biosciences | |
(pharmaceutical development); Head of Private Investments (2015-2018) – | |
AC Limited (Single-Family Office) | |
Number of Portfolios Overseen within Fund Complex: | 15 |
Other Directorships Held Outside Fund Complex During | N/A |
Past 5 Years: | |
Name: | Russell O. Vernon |
Address: | 290 Woodcliff Drive |
Fairport, NY 14450 | |
Born: | 1957 |
Current Position(s) Held with Fund: | Director, Audit Committee Member, Governance & Nominating Committee |
Chairman | |
Term of Office & Length of Time Served: | Indefinite – Director, Audit Committee Member, Governance & Nominating |
Committee Member since April 2020; Governance & Nominating Committee | |
Chairman since November 2020 | |
Principal Occupation(s) During Past 5 Years: | Founder and General Partner (2009-2019) – BVM Capital Management |
(economic development) | |
Number of Portfolios Overseen within Fund Complex: | 15 |
Other Directorships Held Outside Fund Complex During Past 5 Years: | Board Member, Vice Chairman and President since 2010 – Newburgh Armory Unity Center (military); Board Member and Executive Director since 2020 – National Purple Heart Honor Mission, Inc. (military); Board Member, Vice Chairman (2015-2020) – National Purple Heart Hall of Honor, Inc. (military) |
Name: | Chester N. Watson |
Address: | 290 Woodcliff Drive |
Fairport, NY 14450 | |
Born: | 1950 |
Current Position(s) Held with Fund: | Director, Audit Committee Chairman, Governance & Nominating Committee Member |
Term of Office & Length of Time Served: | Indefinite – Director, Audit Committee Member, Governance & Nominating Committee Member Since 2012; Audit Committee Chairman since 2013 |
Principal Occupation(s) During Past 5 Years: | General Auditor (2003-2011) - General Motors Company (auto manufacturer) |
Number of Portfolios Overseen within Fund Complex: | 15 |
Other Directorships Held Outside Fund Complex During | Rochester Institute of Technology (University) since 2005; Hudson Valley Center for Innovation, Inc. (New Business and Economic Development) since 2019; Town of Greenburgh, NY Planning Board (Municipal |
Past 5 Years: | Government) (2015-2019); |
29
Credit Series
Directors’ and Officers’ Information
(unaudited)
Officers:
Name: | Elizabeth Craig |
Address: | 290 Woodcliff Drive |
Fairport, NY 14450 | |
Born: | 1987 |
Current Position(s) Held with Fund: | Corporate Secretary |
Term of Office2 & Length of Time Served: | Since 2016 |
Principal Occupation(s) During Past 5 Years: | Director of Fund Administration since 2021; Fund Regulatory Administration |
Manager (2018-2021); Fund Administration Manager (2015-2018) - Manning | |
& Napier Advisors, LLC; Corporate Secretary, Director since 2019– Manning | |
& Napier Investor Services, Inc. | |
Name: | Samantha Larew |
Address: | 290 Woodcliff Drive |
Fairport, NY 14450 | |
Born: | 1980 |
Current Position(s) Held with Fund: | Chief Compliance Officer and Anti-Money Laundering Compliance Officer |
Term of Office2 & Length of Time Served: | Chief Compliance Officer since 2019; Anti-Money Laundering Compliance |
Officer since 2018 | |
Principal Occupation(s) During Past 5 Years: | Co-Director of Compliance since 2018; Compliance Communications |
Supervisor (2014-2018) - Manning & Napier Advisors, LLC& Affiliates; | |
Broker-Dealer Chief Compliance Officer since 2013; Broker-Dealer Assistant | |
Corporate Secretary since 2011 – Manning & Napier Investor Services, Inc.; | |
Name: | Scott Morabito |
Address: | 290 Woodcliff Drive |
Fairport, NY 14450 | |
Born: | 1987 |
Current Position(s) Held with Fund: | Vice President |
Term of Office2 & Length of Time Served: | Vice President since 2019; Assistant Vice President (2017-2019) |
Principal Occupation(s) During Past 5 Years: | Managing Director, Client Service and Business Operations since 2021; |
Managing Director of Operations (2019-2021); Director of Funds Group | |
(2017-2019) - Manning & Napier Advisors, LLC; President, Director since | |
2018 – Manning & Napier Investor Services, Inc.; President, Exeter Trust | |
Company since 2021; | |
Name: | Troy Statczar |
Address: | 290 Woodcliff Drive |
Fairport, NY 14450 | |
Born: | 1971 |
Current Position(s) Held with Fund: | Principal Financial Officer, Treasurer |
Term of Office2 & Length of Time Served: | Principal Financial Officer and Treasurer since 2020 |
Principal Occupation(s) During Past 5 Years: | Senior Principal Consultant, Fund Officers, since 2020 – ACA Group |
(formerly Foreside Financial Group); Director of Fund Administration (2017- | |
2019) - Thornburg Investment Management, Inc. | |
Name: | Sarah Turner |
Address: | 290 Woodcliff Drive |
Fairport, NY 14450 | |
Born: | 1982 |
Current Position(s) Held with Fund: | Chief Legal Officer; Assistant Corporate Secretary |
Term of Office2 & Length of Time Served: | Since 2018 |
Principal Occupation(s) During Past 5 Years: | General Counsel since 2018 - Manning & Napier Advisors, LLC and |
affiliates; Counsel (2017-2018) – Harter Secrest and Emery LLP | |
Holds one or more of the following titles for various affiliates: General | |
Counsel | |
1Interested Director, within the meaning of the 1940 Act by reason of his positions with the Fund’s Advisor, Manning & Napier Advisors, LLC, and Distributor, Manning & Napier Investor Services, Inc.
2The term of office of all officers shall be one year and until their respective successors are chosen and qualified, or his or her earlier resignation or removal as provided in the Fund’s By-Laws.
30
Credit Series
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-PORT, and are available, without charge, upon request:
By phone | 1-800-466-3863 |
On the SEC’s web site | http://www.sec.gov |
Prospectus and Statement of Additional Information (SAI)
For more information about any of the Manning & Napier Fund, Inc. Series, you may obtain a prospectus and SAI at www.manning-napier.com or by calling 1-(800) 466-3863. Before investing, carefully consider the objectives, risks, charges and expenses of the investment and read the prospectus carefully as it contains this and other information about the investment company. In addition, this information can be found on the SEC’s web site, http://www.sec.gov.
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 |
The Fund also offers electronic notification or “e-delivery” when certain documents are available on-line to be downloaded or reviewed. Direct shareholders can elect to receive electronic notification when shareholder reports, prospectus updates, and/or statements are available. If you do not currently have on-line access to your account, you can establish access by going to www.manning-napier.com, click on “Login” in the top corner of the page, and follow the prompts to self-enroll. Once enrolled, you can set your electronic notification preferences by clicking on the Account Options tab located within the green toolbar and then select E-Delivery Option. Should you have any questions on either how to establish on-line access or how to update your account settings, please contact Investor Services at 1-800-466-3863.
The Manning & Napier Fund, Inc. is managed by Manning & Napier Advisors, LLC. Manning & Napier Investor Services, Inc., an affiliate of Manning & Napier Advisors, LLC, is the distributor of the Fund shares.
MNCRE-12/22-AR
31
(b) | Not applicable. |
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 13(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 current members of the Audit Committee are: Stephen B. Ashley, Paul A. Brooke, John M. Glazer, Russell O. Vernon, and Chester N. Watson. 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
● | Registrant may incorporate the following information by reference, if this information has been disclosed in the registrant’s definitive proxy statement or definitive information statement. The proxy statement or information statement must be filed no later than 120 days after the end of the fiscal year covered by the Annual Report. |
Principal Accountant Fees and Services
Aggregate fees for professional services rendered for the Manning & Napier Fund, Inc. (Core Bond Series, Credit Series, Diversified Tax Exempt Series, High Yield Bond Series, New York Tax Exempt Series, Real Estate Series and Unconstrained Bond Series, collectively the “Fund”) by PricewaterhouseCoopers LLP (“PwC”) as of and for the years ended December 31, 2022 and 2021 were:
2022 | 2021 | |||||||
Audit Fees (a) | $ | 329,100 | $ | 329,300 | ||||
Audit Related Fees (b) | $ | 0 | $ | 0 | ||||
Tax Fees (c) | $ | 108,500 | $ | 106,786 | ||||
All Other Fees (d) | $ | 0 | $ | 0 | ||||
$ | 437,600 | $ | 436,086 |
(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.
(c) | Tax Fees |
These fees relate to professional services rendered by PwC for tax compliance, tax advice, tax planning and shareholder reporting.
(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, 2022 and 2021.
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, LLC, 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. |
2022 | 2021 | |||||||
Audit Related Fees | $ | 0 | $ | 0 | ||||
Tax Fees | $ | 0 | $ | 0 | ||||
$ | 0 | $ | 0 |
There were no Audit Related fees for the year ended December 31, 2021 or December 31, 2022.
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, 2022 and 2021.
Aggregate Fees
Aggregate fees billed to the Fund for non-audit services for 2022 and 2021 were $108,500 and $106,786, respectively. Aggregate fees billed to the Fund’s advisor and service affiliates for non-audit services were $0 and $0, 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 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: DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
Item 13: Exhibits
(a)(1) | Code of ethics that is subject to the disclosure of Item 2 above. |
(a)(2)(1) | Not applicable. |
(a)(2)(2) | Not applicable. |
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/ Paul J. Battaglia
Paul J. Battaglia
President & Principal Executive Officer
Manning & Napier Fund, Inc.
Date: 02/24/2023
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/ Paul J. Battaglia
Paul J. Battaglia
President & Principal Executive Officer
Manning & Napier Fund, Inc.
Date: 02/24/2023
/s/ Troy M. Statczar
Troy M. Statczar
Treasurer and Principal Financial Officer
Manning & Napier Fund, Inc.
Date: 02/24/2023