1933 Act File No. 33-63743
1940 Act File No. 811-7383
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. .................
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Post-Effective Amendment No. 2 ................. X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 3 ............................... X
MARKETVEST FUNDS
(formerly, Court Street Funds)
(Exact name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esq., Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
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on pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a) (i)
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on pursuant to paragraph (a) (i)
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X 75 days after filing pursuant to paragraph (a) (ii)
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on pursuant to paragraph (a) (ii) of Rule 485.
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If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
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previously filed post-effective amendment.
Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of
1940, and:
filed the Notice required by that Rule on ; or
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X intends to file the Notice required by that Rule on or about
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April 15, 1997; or
during the most recent fiscal year did not sell any securities pursuant
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to
Rule 24f-2 under the Investment Company Act of 1940, and, pursuant to
Rule 24f-2 (b)(2), need not file the Notice.
Copies To:
Matthew G. Maloney, Esquire
Dickstein, Shapiro & Morin, L.L.P.
2101 L Street, N.W.
Washington, D.C. 20037
CROSS-REFERENCE SHEET
This amendment to the Registration Statement of the Marketvest Funds
(formerly, Court Street Funds), which consists of two portfolios: (1)
Marketvest Pennsylvania Intermediate Municipal Bond Fund, and (2)
Marketvest International Equity Fund, is comprised of the following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page...............(1-2) Cover Page.
Item 2. Synopsis.................(1-2) Synopsis; (1-2) Risk Factors; (1-
2) Summary of Fund Expenses; (2)
Diversification.
Item 3. Condensed Financial
Information..............(1) Financial Highlights; (1-2)
Performance Information; (1) Performance
Information for Predecessor Common and
Collective Investment Funds; (2)
Performance Information for Predecessor
Collective Investment Fund.
Item 4. General Description of
Registrant...............(1) Investment Objective and Policies of
Each Fund; (2) Investment Objective and
Policies; (1) Pennsylvania Intermediate
Municipal Bond Fund; (1-2) Portfolio
Investments and Strategies; (2)
Additional Considerations of Investing
in Other Investment Companies.
Item 5. Management of the Fund...(1) Marketvest Group of Funds
Information; (1) Management of the
Marketvest Group of Funds; (2)
Management of the Marketvest Funds; (1-
2) Distribution of Shares of the
Fund(s); (1-2) Brokerage Transactions;
(1-2) Expenses of the Fund(s).
Item 6. Capital Stock and Other
Securities...............(1-2) Dividends and Capital Gains; (1-2)
Shareholder Information; (1-2)
Marketvest Funds-Voting Rights; (1-2)
Effect of Banking Laws; (1-2) Tax
Information; (1-2) Federal Income Tax;
(1) Additional Tax Information for
Pennsylvania Intermediate Municipal Bond
Fund.
Item 7. Purchase of Securities Being
Offered..................(1-2) Net Asset Value; (1-2) Investing
in the Fund(s); (1-2) Share Purchases;
(1-2) Minimum Investment Required; (1-2)
What Shares Cost; (1-2) Reducing the
Sales Charge; (1-2) Systematic
Investment Program; (1-2) Exchanging
Securities for Fund Shares; (1-2)
Certificates and Confirmations.
Item 8. Redemption or Repurchase.(1-2) Exchange Privilege; (1-2) Exchange
by Telephone; (1-2) Written Exchange;
(1-2) Redeeming Shares; (1-2) Systematic
Withdrawal Program; (1-2) Accounts with
Low Balances.
Item 9. Pending Legal Proceedings None
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
Item 10. Cover Page...............(1-2) Cover Page.
Item 11. Table of Contents........(1-2) Table of Contents.
Item 12. General Information and
History..................(1-2) General Information About the
Funds; (1-2) Massachusetts Partnership
Law; (1-2) Economic and Market
Information.
Item 13. Investment Objectives and
Policies.................(1-2) Investment Objective and Policies
of the Funds; (1) Pennsylvania
Investment Risks; (1-2) Investment
Limitations.
Item 14. Management of the Fund...(1-2) Marketvest Funds Management; (1-2)
Trustees' Compensation Table-Marketvest
Funds.
Item 15. Control Persons and Principal
Holders of Securities....(1) Fund Ownership.
Item 16. Investment Advisory and Other
Services.................(1-2) Investment Advisory Services; (1-
2) Other Services.
Item 17. Brokerage Allocation.....(1-2) Brokerage Transactions.
Item 18. Capital Stock and Other
Securities...............Not applicable.
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered............(1-2) Purchasing Shares; (1-2)
Distribution Plan; (1-2) Determining Net
Asset Value; (1-2) Exchange Privilege;
(1-2) Redeeming Shares.
Item 20. Tax Status...............(1-2) Tax Status.
Item 21. Underwriters.............Not applicable.
Item 22. Calculation of Performance
Data.....................(1-2) Total Return; (1-2) Yield; (1)
Tax-Equivalent Yield; (1-2) Performance
Comparisons; (1-2) Appendix.
Item 23. Financial Statements.....(1) The Financial Statements for
Marketvest Pennsylvania Intermediate
Municipal Bond Fund for the period ended
August 31, 1996 are incorporated herein
by reference to the Combined Semi-Annual
Report dated August 31, 1996; (2) to be
filed by Amendment.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS
DATED DECEMBER 31, 1996
MARKETVEST INTERNATIONAL EQUITY FUND
(A PORTFOLIO OF MARKETVEST GROUP OF FUNDS)
Marketvest Group of Funds currently consists of five investment portfolios
of Marketvest Funds and Marketvest Funds, Inc. Each portfolio is part of an
open-end, management investment company (mutual fund). This prospectus
offers investors interests in Marketvest International Equity Fund (the
`Fund''), a diversified portfolio of Marketvest Funds. Interests in the
other portfolios are offered in a separate combined prospectus.
The investment objective of the Fund is to provide long-term capital
appreciation. The Fund seeks to achieve its investment objective by
investing primarily in shares of other mutual funds, the portfolios of
which consist primarily of equity securities of non-U.S. issuers. The
Fund's investment adviser will attempt to identify and select a diversified
portfolio of international equity funds which represents the greatest
capital growth potential based on an analysis of many factors, including
the underlying funds' investment objectives, the history of the portfolio
manager(s), total return, volatility, and expenses. The Fund's strategy of
investing in other mutual funds may result in greater aggregate expenses
than if you directly purchased those funds.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF
ANY BANK, ARE NOT ENDORSED OR GUARANTEED BY ANY BANK, AND ARE NOT INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR
ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
This prospectus relates only to shares of the Fund and contains the
information you should read and know before you invest. Keep this
prospectus for future reference.
The Fund has filed a Combined Statement of Additional Information with the
other portfolios of the Marketvest Group of Funds, dated March , 1997
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with the Securities and Exchange Commission (`SEC''). The information
contained in the Combined Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy of
the Combined Statement of Additional Information free of charge, obtain
other information, or make inquiries about the Fund by writing to or
calling the Fund at 1-800-MKT-VEST (1-800-658-8378). The Combined Statement
of Additional Information, material incorporated by reference into this
document, and other information regarding the Fund is maintained
electronically with the SEC at Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated March , 1997
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TABLE OF CONTENTS
Synopsis 1
Summary of Fund Expenses 3
Investment Objective and Policies 5
Portfolio Investments and Strategies 6
Additional Considerations of
Investing in Other Investment Companies 21
Managment of the Marketvest Funds 21
Distribution of Shares of the Fund 21
Administration of the Fund 24
Portfolio Turnover 24
Brokerage Transactions 24
Expenses of the Fund 25
Net Asset Value 25
Investing in the Fund 25
Share Purchases 25
Minimum Investment Required 26
What Shares Cost 26
Reducing the Sales Charge 27
Systematic Investment Program 28
Exchanging Securities for Fund Shares 28
Certificates and Confirmation 28
Dividends and Capital Gains 28
Exchange Privilege 28
Exchange By Telephone 29
Written Exchange 29
Redeeming Shares 29
Systematic Withdrawal Program 31
Accounts with Low Balances 31
Shareholder Information 31
Marketvest Funds 31
Effect of Banking Laws 32
Tax Information 32
Federal Income Tax 32
Performance Information 33
Performance Information for
Predecessor Collective Investment
Fund 33
Appendix 35
SYNOPSIS
The Marketvest Group of Funds are comprised of the portfolios of Marketvest
Funds, Inc. and Marketvest Funds. Marketvest Funds, Inc. was incorporated
under the laws of the State of Maryland on October 25, 1995. Marketvest
Funds was established as a Massachusetts business trust under a Declaration
of Trust dated September 1, 1995, as amended. Both the Articles of
Incorporation and the Declaration of Trust permit the offering of separate
series of shares of common stock and beneficial interests, respectively,
representing interests in separate portfolios of securities. The shares in
any one portfolio may be (but are not currently) offered in separate
classes. The Marketvest Group of Funds are designed for individuals and
institutions as a convenient means of accumulating interests in
professionally managed portfolios.
As of the date of this prospectus, Marketvest Funds is comprised of the
following two portfolios:
Marketvest International Equity Fund (`International Equity Fund'' or the
`Fund") -- seeks to provide long-term capital appreciation by investing
primarily in shares of other mutual funds, the portfolios of which consist
primarily of equity securities of non-U.S. issuers; and
Marketvest Pennsylvania Intermediate Municipal Bond Fund ("Pennsylvania
Intermediate Municipal Bond Fund")--seeks to provide current income which
is exempt from federal regular income tax and the personal and corporate
income taxes imposed by the Commonwealth of Pennsylvania by investing
primarily in Pennsylvania municipal securities while maintaining a dollar-
weighted average portfolio maturity of between three to ten years.
Pennsylvania Intermediate Municipal Bond Fund may not be a suitable
investment for non-Pennsylvania taxpayers or retirement plans since it
intends to invest in Pennsylvania municipal securities.
In addition, as of the date of this prospectus, Marketvest Funds, Inc. is
comprised of the following three portfolios:
Marketvest Equity Fund ("Equity Fund")--seeks to provide growth of
principal by investing primarily in the equity securities of high quality
companies;
Marketvest Short-Term Bond Fund ("Short-Term Bond Fund")--seeks to provide
current income by investing primarily in investment grade debt securities,
U.S. government securities, and mortgage-backed and asset-backed securities
while maintaining a dollar-weighted average portfolio maturity of between
one to three years; and
Marketvest Intermediate U.S. Government Bond Fund ("Intermediate U.S.
Government Bond Fund")--seeks to provide current income by investing
primarily in securities which are issued or guaranteed as to payment of
principal and interest by the U.S. government or U.S. government agencies
or instrumentalities while maintaining a dollar-weighted average portfolio
maturity of between three to ten years.
For information on how to purchase shares of the Fund, please refer to
"Investing in the Fund." A minimum initial investment of $10,000 is
required. Subsequent investments must be in amounts of at least $50. Shares
of the Fund are sold at net asset value plus any applicable sales charge,
and are redeemed at net asset value. Information on redeeming shares may be
found under "Redeeming Shares." The Fund is advised by Dauphin Deposit Bank
and Trust Company ("Dauphin Deposit" or the "Adviser").
The Fund seeks to achieve its investment objective by investing primarily
in shares of other open-end management investment companies (the
`underlying funds'') that invest primarily in foreign equity securities.
To the extent that the Fund's assets are invested in underlying funds, its
investment experience will correspond directly with that of its
proportionate investment in those funds. This strategy also involves
certain additional expenses and certain tax results which would not be
present in a direct investment in mutual funds. See `Expenses of the
Fund,''and ``Federal Tax Information.'' Federal law imposes certain limits
on the purchases of mutual fund shares by the Fund. The Fund may purchase
shares of no-load funds available without a transaction fee and shares of
mutual funds that charge sales loads and/or pay their own distribution
expenses. See `Additional Considerations of Investing in Other Investment
Companies.''Each underlying fund provides a prospectus and other
disclosure documents to the Fund. These documents are also available to
Fund shareholders directly from the underlying fund.
In addition, the Fund may invest directly in foreign equity securities as
well as other direct investments, such as domestic equity securities, and
foreign and domestic debt obligations to the extent it is consistent with
achieving its objective of long-term capital appreciation.
DIVERSIFICATION
The Fund's investment strategy of investing in the shares of other
international equity funds is designed (but not guaranteed) to reduce the
risk associated with investing in a single underlying fund with a single
manager. Holding a diversified portfolio of international equity funds also
may provide access to a wider range of management talent, companies,
industries, countries, and markets than would be available through any one
underlying fund. International securities and markets are subject to
currency rate fluctuations and potentially greater price volatility and
liquidity considerations than U.S. securities. Investors have historically
sought to reduce these risks through multi-country diversification. The
Fund is designed to give shareholders a single investment that offers broad
international diversification.
RISK FACTORS
Investors should be aware of the following general risk considerations: The
foreign securities which constitute a major part of the investments of the
Fund and the underlying funds may be subject to certain risks (i.e.,
greater price volatility and illiquidity than U.S. equity securities) in
addition to those inherent in U.S. investments. The Fund may also invest in
underlying funds that invest without limit in the securities of emerging
market countries and, in some cases, an underlying fund may invest without
limit in the securities of a single country. An underlying fund may also
invest substantially all of its assets in the securities of a single
issuer. In addition, an underlying fund may concentrate its investments
within one industry. However, by holding shares of multiple underlying
funds, the Fund seeks to reduce these risks. The market value of fixed-
income securities in which the Fund and underlying funds may invest may
vary inversely in response to changes in prevailing interest rates.
Although the Fund will limit its direct investments in fixed income
securities to investment grade securities or unrated securities of
comparable quality, the underlying funds may invest 35% or more of their
respective assets in high yield securities (commonly known as `junk
bonds'). The Fund and the underlying funds may also make certain
investments and employ certain investment techniques that involve other
risks, such as leveraged borrowing, selling securities short, engaging in
foreign currency exchange transactions, trading in options, and entering
into futures contracts and swap agreements, all of which may involve
increased risks to the Fund. For a description of the risks associated with
the investments noted above, as well as those associated with investing in
mortgage-backed securities and securities which may be considered to be
"derivatives," please refer to the relevant descriptions under the sections
"Investment Objective and Policies," "Portfolio Investments and
Strategies," and "Additional Considerations of Investing in Other
Investment Companies" for more information.
The table below does not reflect any of the operating costs and investment
advisory fees of the underlying funds. By investing in the Fund, you bear
not only the Fund's expenses detailed below, but also the expenses of the
underlying funds. You would not incur the Fund's expenses detailed below
if you were to perform your own review and analysis and invest in the
underlying funds directly.
SUMMARY OF FUND EXPENSES
Shareholder Transaction Expenses
Maximum Sales Charge Imposed on Purchases
(as a percentage of offeringc price)....................... 1.50%
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering
price)...................................................... None
Contingent Deferred Sales Charge (as a percentage of
original purchase price or redemption proceeds, as
applicable)................................................ None
Redemption Fee (as a percentage of amount
redeemed, if applicable)................................... None
Exchange Fee................................................ None
ANNUAL OPERATING EXPENSES
(As a percentage of projected average net assets)*
Management Fees (after waiver)
(1).....................0.50%
12b-1 Fee
(2).....................0.00%
Total Other Expenses(after waiver and
reimbursements)(3)................................................0.25%
Total Fund Operating Expenses (after waivers and reimbursements)
(4).........................0.75%
(1) The estimated management fee has been reduced to reflect the
anticipated voluntary waiver of the management fee by the investment
adviser. The adviser can terminate this voluntary waiver at any time at
its sole discretion. The maximum management fee is 0.65%.
(2) As of the date of this prospectus, the Fund is not paying or accruing
12b-1 fees. The Fund can pay up to 0.25% as a 12b-1 fee to the
distributor. Certain trust clients of Dauphin Deposit Bank and Trust
Company will not be affected by the 12b-1 fees because the 12b-1 fees will
not be activated unless and until a separate class of shares of the Fund
(which would not have 12b-1 fees) are created and such clients' investments
in the Fund are converted to such class.
(3) Total Other Expenses have been reduced to reflect the anticipated
voluntary waiver of the administrative fee by the administrator and
reimbursement of certain expenses by the Adviser. The administrator and
Adviser can terminate these voluntary waivers and reimbursements at any
time at their sole discretion.
(4) The Total Fund Operating Expenses are estimated to be 1.07% absent the
voluntary waivers and reimbursements described in Notes 1 and 3 above.
*Expenses in the table above are estimated based on expenses expected to be
incurred during the fiscal year ending February 28, 1998. During the
course of this period, expenses may be more or less than the amount shown.
The table above does not reflect any of the shareholder transaction
expenses or operating costs (such as investment advisory fees) of the
underlying funds.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY (OTHER THAN THE COSTS AND EXPENSES OF THE UNDERLYING
FUND INVESTMENTS). FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "MANAGEMENT OF THE MARKETVEST FUNDS" AND "INVESTING IN THE
FUND." Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.
If and when a Rule 12b-1 fee is assessed, long-term shareholders may pay
more than the economic equivalent of the maximum front-end sales charges
permitted under the rules of the National Association of Securities
Dealers, Inc.
EXAMPLE
1 YEAR 3 YEARS
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return and (2) redemption at the end
of each time
period.....................................................................
....... $23 $ 39
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
THIS EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING
FEBRUARY 28, 1998.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective and policies of the Fund appear below. The Fund's
investment objective cannot be changed without the approval of
shareholders. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by following the investment
policies described in this prospectus.
Unless indicated otherwise, the investment policies of the Fund may be
changed by the Board of Trustees (hereinafter referred to as "Board
Members") without the approval of the shareholders of the Fund.
Shareholders will be notified before any material change in these policies
becomes effective.
Additional information about investment limitations, strategies that the
Fund or underlying funds may employ, and certain investment policies
mentioned below, appear in the "Portfolio Investments and Strategies"
section of this prospectus and in the Combined Statement of Additional
Information.
The investment objective of the Fund is to provide long-term capital
appreciation. The Fund seeks to achieve its investment objective by
investing primarily in shares of other mutual funds, the portfolios of
which consist primarily of equity securities of non-U.S. issuers.
Under normal market conditions, and as an investment policy, the Fund will
invest at least 65% of its total assets in underlying funds that are
international equity funds. However, as an operational policy, the Fund
anticipates investing substantially all of its assets in international
equity funds. International equity funds are those which invest primarily
in equity securities of companies located in three or more countries
outside the United States. The Adviser will attempt to identify and select
a varied portfolio of international equity funds which presents the
greatest long-term capital growth potential based on the Adviser's analysis
of many factors. The selection of underlying funds involves an initial peer
group screening process which assesses fund investment style, investment
objectives and policies, and fund management. Rankings of certain
independent rating services are also considered. Potential underlying funds
which, in the Adviser's view, meet these criteria will then be subject to
further evaluation of investment policies, historic total return, size,
volatility and operating expenses over various time periods. Also, on a
macroeconomic level, a fund's geographical diversification is also
considered.
To seek to enhance the Fund's overall performance, the Fund may also invest
directly in, or in underlying funds that invest primarily in, individual
countries, geographic regions or emerging markets. The Adviser will first
assess the relative attractiveness of individual countries, geographic
regions, and/or emerging markets. After identifying the most and least
attractive countries or regions, consideration will be given to the
expected returns and risks before deciding which areas, if any, to
overweight or underweight.
The Investment Company Act of 1940 (the `1940 Act'') currently provides
that the Fund may not purchase the securities of an underlying fund, if as
a result, the Fund, together with any of its affiliates, would own more
than 3% of the total outstanding securities of that underlying fund. Thus,
the Fund's ability to invest in shares of certain underlying funds could be
restricted and the Fund's investment adviser may have to select alternative
investments. By investing in the Fund, you bear not only the Fund's total
operating expenses, but the operating expenses of the underlying funds as
well. See `Expenses of the Fund.''
The Fund is a diversified investment portfolio, and many of the underlying
funds also will be diversified. In some instances, however, an underlying
fund may be non-diversified or invest a substantial portion of its assets
in a single country. Such an investment may result in a greater fluctuation
in the total market value of the underlying fund's portfolio because of the
higher percentage of investments among fewer issuers or in a single
country. The economic, political or regulatory developments affecting the
value of the securities in the underlying fund's portfolio will therefore
have a greater impact on the total value of the portfolio than would be the
case if the portfolio were diversified among more issuers or countries. The
Fund intends to reduce these risks by holding shares of multiple underlying
funds. Many of the underlying funds will be diversified funds, and their
investments will be spread over a range of issuers, industries, and
countries. The level of diversification the Fund obtains from being
invested in a number of underlying funds is designed (but not guaranteed)
to reduce the risk associated with an investment in a single underlying
fund.
Assets not invested in international equity funds may be invested in
underlying funds other than international equity funds, such as global
funds (funds that invest primarily in securities of issuers throughout the
world, including the United States), emerging market funds, and domestic
equity and debt funds to the extent consistent with the Fund's objective of
long-term capital appreciation. As described in more detail below in the
section `Portfolio Investments and Strategies,'' the Fund may also make
direct investments in the securities held by these underlying funds,
including, but not limited to: domestic and foreign equity securities;
fixed income securities, which include preferred stock, bonds, notes, or
other debt securities of U.S. and foreign companies or governments; short-
term debt securities, including U.S. Treasury bills and other short-term
U.S. government securities, commercial paper, certificates of deposit and
bankers' acceptances; warrants; and unit investment trusts. The Fund and
underlying funds may also invest in variable rate demand notes, invest in
restricted securities, invest up to 15% of their net assets in illiquid
securities, engage in repurchase agreements, when-issued and delayed
delivery transactions, engage in forward commitments, invest in foreign
currency exchange transactions (including forward foreign currency exchange
transactions), invest in the securities of emerging market countries, enter
into futures contracts and foreign currency futures contracts, and trade in
options on foreign currencies, stock index and financial futures contracts,
portfolio securities and stock indices. The Fund and the underlying funds
may also lend their portfolio securities, and borrow for investment
purposes.
Furthermore, the underlying funds may be authorized to invest up to 100% of
their respective assets in the securities of foreign issuers and engage in
foreign currency transactions (including forward foreign currency exchange
transactions) with respect to these investments; invest primarily in either
the securities of emerging market countries or in the securities of a
single country; invest 35% or more of their respective assets in high yield
securities (i.e., `junk bonds''); invest in warrants; sell securities
short; engage in leveraged borrowing; and enter into interest rate swaps,
currency swaps, and other types of swap agreements such as caps, collars,
and floors. The Fund will not concentrate its assets (i.e., invest 25% or
more of its total assets) in any one industry but may invest its assets in
underlying funds that concentrate their investments in a single industry.
Although the Fund will normally invest in open-end, management investment
companies, or `mutual funds,'' it also may invest in closed-end management
investment companies and/or unit investment trusts. Unlike open-end funds
that offer and sell their shares at net asset value plus any applicable
sales charge, the shares of closed-end funds and unit investment trusts may
trade at a market value that represents a premium, discount or spread to
net asset value.
For temporary defensive purposes (up to 100% of total assets) and to
maintain liquidity (up to 35% of total assets), the Fund may invest in
short-term money market instruments. See `Money Market Instruments''
below.
PORTFOLIO INVESTMENTS AND STRATEGIES
The following is a description of the securities in which the Fund and the
underlying funds may invest. Because the Fund and the underlying funds may
invest in substantially similar securities in a similar fashion, thereby
incurring similar risks, all further references to the Fund hereinafter
include the underlying funds unless otherwise indicated. Although many of
the underlying funds may have the same or similar investment policies as
the Fund, they are not required to do so.
SECURITIES OF FOREIGN ISSUERS. The Fund may invest up to 100% of its total
assets in the equity securities of foreign issuers, including international
stocks. International stocks are issued by publicly traded companies from
countries around the world, excluding the United States. Investing in non-
U.S. securities carries substantial risks in addition to those associated
with domestic investments.
The Fund may also invest in securities of foreign issuers traded on the New
York or American Stock Exchanges or in the over-the-counter market in the
form of sponsored or unsponsored American Depositary Receipts ("ADRs"),
Global Depositary Receipts (`GDRs''), and European Depositary Receipts
(`EDRs'') (collectively, ``Depositary Receipts''). See description below.
The Fund's investment approach of investing in foreign securities is based
on the premise that investing in non-U.S. securities provides three
potential benefits over investing solely in U.S. securities: (1) the
opportunity to invest in foreign issuers believed to have superior growth
potential; (2) the opportunity to invest in foreign countries with economic
policies or business cycles different from those of the U.S.; and (3) the
opportunity to reduce portfolio volatility to the extent that securities
markets inside and outside the U.S. do not move in harmony.
The Fund may also take advantage of the unusual opportunities for higher
returns available from investing in developing or emerging market
countries. The Fund may invest without limit in emerging market countries.
A developing or emerging market country generally is considered to be in
the initial stages of industrialization. The Fund's investment adviser
considers emerging market countries to be all countries that are generally
considered to have developing or emerging markets. Furthermore, the Fund's
investment adviser considers emerging market countries to be all countries
considered by the International Bank for Reconstruction and Development
(more commonly known as the World Bank) and the International Finance
Corporation, as well as countries that are classified by the United Nations
or otherwise regarded by their authorities as developing. Investments in
developing countries are more volatile and risky. See description below.
To the extent that the Fund invests in underlying funds that invest
primarily in the securities of a single country, any political economic or
regulatory developments affecting the value of the securities in the
underlying fund's portfolio will have a greater impact on the total value
of the portfolio than would be the case if the portfolio were diversified
among the securities of more countries.
The economies of foreign countries may differ from the U.S. economy in such
respects as growth of gross domestic product, rate of inflation, currency
depreciation, capital reinvestment, resource self-sufficiency, and balance
of payments position. Further, the economies of developing countries
generally are heavily dependent on international trade and, accordingly,
have been, and may continue to be, adversely affected by trade barriers,
exchange controls, managed adjustments in relative currency values, and
other protectionist measures imposed or negotiated by the countries with
which they trade. These economies also have been, and may continue to be,
adversely affected by economic conditions in the countries with which they
trade.
Prior governmental approval for foreign investments may be required under
certain circumstances in some countries, or in issuers or industries deemed
sensitive to national interests, and the extent of foreign investment in
certain debt securities and domestic companies may be subject to
limitation. Foreign ownership limitations also may be imposed by the
charters of individual companies to prevent, among other concerns,
violation of foreign investment limitations.
Repatriation of investment income, capital, and the proceeds of sales by
foreign investors may require governmental registration and/or approval in
some countries. The Fund could be adversely affected by delays in, or a
refusal to grant, any required governmental registration or approval for
such repatriation. Any investment subject to such repatriation controls
will be considered illiquid if it appears reasonably likely that this
process will take more than seven days.
With respect to any foreign country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
governmental regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such
countries or the value of the investments in those countries.
Brokerage commissions, custodial services, and other costs relating to
foreign investment may be more expensive than in the United States. Foreign
markets may have different clearance and settlement procedures and in
certain markets there have been times when settlements have been unable to
keep pace with the volume of securities transactions, making it difficult
to conduct such transactions. The inability of the Fund to make intended
security purchases due to settlement problems could cause the Fund to miss
attractive investment opportunities. Inability to dispose of a portfolio
security due to settlement problems could result either in losses due to
subsequent declines in value of the portfolio security or, if the Fund has
entered into a contract to sell the security, could result in possible
liability to the purchaser.
Other differences between foreign and U.S. companies include: less publicly
available information about foreign companies; the lack of uniform
accounting, auditing, and financial reporting standards and practices or
regulatory requirements comparable to those applicable to U.S. companies;
less readily available market quotations on foreign companies; differences
in government regulation and supervision of foreign stock exchanges,
brokers, listed companies, and banks; differences in legal systems which
may affect the ability to enforce contractual obligations or obtain court
judgments; the limited size of many foreign securities markets and limited
trading volume in issuers compared to the volume of trading in U.S.
securities could cause prices to be erratic for reasons apart from factors
that affect the quality of securities; the likelihood that foreign
securities may be less liquid or more volatile; unreliable mail service
between countries; political or financial changes which adversely affect
investments in some countries; certain markets may require payment for
securities before delivery; and religious and ethnic instability.
In the past, U.S. government policies have discouraged or restricted
certain investments abroad by investors. Investors are advised that when
such policies are instituted, the Fund will abide by them, and the Fund
anticipates compliance by the underlying funds.
Depositary Receipts. ADRs are receipts typically issued by an American bank
or trust company that evidences ownership of underlying securities issued
by a foreign issuer. ADRs may not necessarily be denominated in the same
currency as the securities into which they may be converted. Generally,
ADRs, in registered form, are designed for use in U.S. securities markets.
EDRs and GDRs are typically issued by foreign banks or trust companies,
although they also may be issued by U.S. banks or trust companies, and
evidence ownership of underlying securities issued by either a foreign or a
U.S. corporation. Generally, Depositary Receipts in registered form are
designed for use in the U.S. securities market and Depositary Receipts in
bearer form are designed for use in securities markets outside the U.S.
Depositary Receipts may not necessarily be denominated in the same currency
as the underlying securities into which they may be converted. Depositary
Receipts may be available for investment through `sponsored'' or
`unsponsored'' facilities. A sponsored facility is established jointly by
the issuer of the security underlying the receipt and a depositary, whereas
an unsponsored facility may be established by a depositary without
participation by the issuer of the receipt's underlying security. Holders
of an unsponsored Depositary Receipt generally bear all the costs of the
unsponsored facility. The depositary of an unsponsored facility frequently
is under no obligation to distribute shareholder communications received
from the issuer of the deposited security or to pass through to the holders
of the receipts voting rights with respect to the deposited securities.
Ownership of unsponsored Depositary Receipts may not entitle the Fund or
the underling funds to financial or other reports from the issuer of the
underlying security, to which they would be entitled as the owner of
sponsored Depositary Receipts.
Emerging Markets. The risks of investing in developing or emerging markets
are similar to, but greater than, the risks of investing in the securities
of developed international markets since emerging or developing markets
tend to have economic structures that are less diverse and mature, and
political systems that are less stable, than developed countries.
In certain emerging market countries, there is less government supervision
and regulation of business and industry practices, stock exchanges,
brokers, and listed companies than in the United States. The economies of
emerging market countries may be predominantly based on a few industries
and may be highly vulnerable to change in local or global trade conditions.
The securities markets of many of these countries also may be smaller, less
liquid, and subject to greater price volatility than those in the United
States. Some emerging market countries also may have fixed or managed
currencies which are not free-floating against the U.S. dollar. Further,
certain emerging market country currencies may not be internationally
traded. Certain of these currencies have experienced a steady devaluation
relative to the U.S. dollar. Any devaluations in the currencies in which
portfolio securities are denominated may have an adverse impact on the
Fund. Finally, many emerging market countries have experienced substantial,
and in some periods, extremely high, rates of inflation for many years.
Inflation and rapid fluctuations in inflation rates have had, and may
continue to have, negative effects on the economies for individual emerging
market countries. Moreover, the economies of individual emerging market
countries may differ favorably or unfavorably from the U.S. economy in such
respects as the rate of growth of domestic product, inflation, capital
reinvestment, resource self-sufficiency and balance of payments position.
COMMON STOCKS. The Fund and the underlying funds may invest in common
stocks. The common stocks in which the Fund may directly invest will be
selected by the Adviser on the basis of traditional research techniques,
including assessment of earnings and dividend growth prospects of the
companies. The Fund and the underlying funds may also invest in preferred
stocks. Factors such as, but not limited to, product position, market
share, potential earnings growth, asset values, and revenues may be
considered in evaluating common stocks.
As with other mutual funds that invest primarily in equity securities, the
Fund is subject to market risks. That is, the possibility exists that the
values of common stocks will decline over short or even extended periods of
time. The companies in which the Fund and underlying funds may invest may
be classified as small to mid to large-cap companies. There are some
additional risk factors associated with investments in small capitalization
companies. In particular, stocks in the small capitalization sector may be
more volatile in price than larger capitalization stocks. This is because,
among other things, small companies have less certain growth prospects than
larger companies; have a lower degree of liquidity in the equity market;
and tend to have a greater sensitivity to changing economic conditions.
Further, in addition to exhibiting greater volatility, the stocks of small
companies may, to some degree, fluctuate independently of the stocks of
large companies; that is, the stocks of small companies may decline in
price as the prices of large company stocks rise or vice versa.
CONVERTIBLE SECURITIES. Convertible securities are fixed income securities
which may be exchanged or converted into a predetermined number of the
issuer's underlying common stock at the option of the holder during a
specified time period. Convertible securities may take the form of
convertible preferred stock, convertible bonds or debentures, units
consisting of "usable" bonds and warrants, or a combination of the features
of several of these securities. The investment characteristics of each
convertible security vary widely, which allows convertible securities to be
employed for different investment objectives.
The Fund may invest in convertible securities that are rated, at the time
of purchase, investment grade by a nationally recognized statistical rating
organization (`NRSRO'') or, if unrated, of comparable quality as
determined by the Adviser. The underlying funds may invest in convertible
securities that are rated below investment grade at the time of purchase.
See description of `High Yield Securities'' and the Appendix for more
information about the rating of investments.
Convertible bonds and convertible preferred stocks are fixed income
securities that generally retain the investment characteristics of fixed
income securities until they have been converted, but also react to
movements in the underlying equity securities. The holder is entitled to
receive the fixed income of a bond or the dividend preference of a
preferred stock until the holder elects to exercise the conversion
privilege. The interest income and dividends from convertible bonds and
preferred stocks provide a stable stream of income with generally higher
yields than common stocks, but lower than nonconvertible securities of
similar quality.
In general, the market value of a convertible security is at least the
higher of its `investment value'' (i.e, its value as a fixed income
security) or its `conversion value'' (i.e., its value upon conversion into
its underlying common stock). As a fixed income security, a convertible
security tends to increase in market value when interest rates decline and
tends to decrease in value when interest rates rise. However, the price of
a convertible security is also influenced by the market value of the
security's underlying common stock. The price of a convertible security
tends to increase as the market value of the underlying stock rises,
whereas it tends to decrease as the market value of the underlying stock
declines. While no securities investment is without some risk, investments
in convertible securities generally entail less risk than investments in
the common stock of the same issuer.
ZERO COUPON CONVERTIBLE SECURITIES. Zero coupon convertible securities are
debt securities which are issued at a discount to their face amount and do
not entitle the holder to any periodic payments of interest prior to
maturity. Rather, interest earned on zero coupon convertible securities
accretes at a stated yield until the security reaches its face amount at
maturity. Zero coupon convertible securities are convertible into a
specific number of shares of the issuer's common stock. In addition, zero
coupon convertible securities usually have put features that provide the
holder with the opportunity to sell the bonds back to the issuer at a
stated price before maturity. Generally, the prices of zero coupon
convertible securities may be more sensitive to market interest rate
fluctuations than conventional convertible securities.
Federal income tax law requires the holder of a zero coupon convertible
security to recognize income with respect to the security prior to the
receipt of cash payments. To maintain its qualification as a regulated
investment company and avoid liability for federal income taxes, the Fund
will be required to distribute income accrued with respect to zero coupon
convertible securities which it owns, and may have to sell portfolio
securities (perhaps at disadvantageous times) in order to generate cash to
satisfy these distribution requirements.
FOREIGN CURRENCY TRANSACTIONS. Foreign currency transactions may be used to
obtain the necessary currencies to settle securities transactions. Currency
transactions may be conducted either on a spot or cash basis at prevailing
rates or through forward foreign currency exchange contracts.
Foreign currency transactions also may be used to protect assets against
adverse changes in foreign currency exchange rates or exchange control
regulations. Such changes could unfavorably affect the value of assets
which are denominated in foreign currencies, such as foreign securities or
funds deposited in foreign banks, as measured in U.S. dollars. Although
foreign currency exchanges may be used to protect against a decline in the
value of one or more currencies, such efforts may also limit any potential
gain that might result from a relative increase in the value of such
currencies and might, in certain cases, result in losses. Further, the Fund
may be affected either unfavorably or favorably by fluctuations in the
relative rates of exchange between the currencies of different nations.
Cross-hedging transactions involve the risk of imperfect correlation
between changes in the values of the currencies to which such transactions
relate and changes in the value of the currency or other asset or liability
that is the subject of the hedge.
FORWARD COMMITMENTS. Forward commitments are contracts to purchase
securities for a fixed price at a date beyond customary settlement time.
The Fund may enter into these contracts if liquid securities in amounts
sufficient to meet the purchase price are segregated on the fund's records
at the trade date and maintained until the transaction has been settled.
Risk is involved if the value of the security declines before settlement.
Although the Fund may enter into forward commitments with the intention of
acquiring the security, it may dispose of the commitment prior to
settlement and realize a short-term profit or loss.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS AND OPTIONS ON FOREIGN
CURRENCIES. A forward foreign currency exchange contract (`forward
contract') is an obligation to purchase or sell an amount of a particular
currency at a specific price and on a future date agreed upon by the
parties.
Generally, no commission charges or deposits are involved. At the time the
Fund enters into a forward contract, Fund assets with a value equal to the
Fund's obligation under the forward contract are segregated on the Fund's
records and are maintained until the contract has been settled. The Fund
will not enter into a forward contract with a term of more than one year.
The Fund will generally enter into a forward contract to provide the proper
currency to settle a securities transaction at the time the transaction
occurs (`trade date''). The period between the trade date and settlement
date will vary between 24 hours and 30 days, depending upon local custom.
The Fund may also protect against the decline of a particular foreign
currency by entering into a forward contract to sell an amount of that
currency approximating the value of all or a portion of the Fund's assets
denominated in that currency (`hedging''). The success of this type of
short-term hedging strategy is highly uncertain due to the difficulties of
predicting short-term currency market movements and of precisely matching
forward contract amounts and the constantly changing value of the
securities involved. Although the Adviser will consider the likelihood of
changes in currency values when making investment decisions, the Adviser
believes that it is important to be able to enter into forward contracts
when it believes the interests of the Fund will be served.
The Fund may purchase and write put and call options on foreign currencies
for the purpose of protecting against declines in the U.S. dollar value of
foreign currency-denominated portfolio securities and against increases in
the U.S. dollar cost of such securities to be acquired. As in the case of
other kinds of options, however, the writing of an option on a foreign
currency constitutes only a partial hedge, up to the amount of the premium
received, and the Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on a foreign currency may constitute an effective
hedge against fluctuations in exchange rates although, in the event of rate
movements adverse to the Fund's position, it may forfeit the entire amount
of the premium plus related transaction costs. Options on foreign
currencies to be written or purchased by the Fund are traded on U.S. and
foreign exchanges or over-the-counter.
CURRENCY RISKS. Because the Fund may purchase securities denominated in
currencies other than the U.S. dollar, changes in foreign currency
exchange rates could affect: the Fund's net asset value; the value of
interest earned; gains and losses realized on the sale of securities;
and net investment income and capital gain, if any, to be distributed to
shareholders by the Fund. If the value of a foreign currency rises
against the U.S. dollar, the value of the Fund assets denominated in
that currency will increase; correspondingly, if the value of a foreign
currency declines against the U.S. dollar, the value of Fund assets
denominated in that currency will decrease.
The exchange rates between the U.S. dollar and foreign currencies are a
function of such factors as supply and demand in the currency exchange
markets, international balances of payments, governmental
interpretation, speculation and other economic and political conditions.
Although the Fund values its assets daily in U.S. dollars, the Fund will
not convert its holdings of foreign currencies to U.S. dollars daily.
When the Fund converts its holdings to another currency, it may incur
conversion costs. Foreign exchange dealers may realize a profit on the
difference between the price at which they buy and sell currencies.
FUTURES AND OPTIONS TRANSACTIONS. The Fund may engage in futures and
options transactions as described below. As a means of reducing
fluctuations in the net asset value of its shares, the Fund may attempt to
hedge all or a portion of its portfolio by buying and selling financial and
stock index futures contracts, buying put and call options on portfolio
securities and put options on futures contracts, and writing call options
on futures contracts. The Fund may also write covered put and call options
to attempt to increase its current income or to hedge a portion of its
portfolio investments. The Fund will maintain its positions in securities,
option rights, and segregated cash subject to puts and calls until the
options are exercised, closed, or have expired. An option position on
futures contracts may be closed out over-the-counter or on a nationally
recognized exchange which provides a secondary market for options of the
same series. The Fund purchases and writes options only with investment
dealers and other financial institutions (such as commercial banks or
savings associations) deemed creditworthy by the Adviser.
Futures Contracts. The Fund may purchase and sell financial and stock index
futures contracts to hedge against the effects of changes in the value of
portfolio securities due to anticipated changes in interest rates or market
conditions without necessarily buying or selling the securities. The Fund
also may purchase and sell stock index futures to hedge against changes in
prices. The Fund will not engage in futures transactions for speculative
purposes.
A futures contract is a firm commitment by two parties: the seller who
agrees to make delivery of the specific type of security called for in the
contract (`going short'') and the buyer who agrees to take delivery of the
security (`going long'') at a certain time in the future. For example, in
the fixed income securities market, prices move inversely to interest
rates. A rise in rates means a drop in price. Conversely, a drop in rates
means a rise in price. In order to hedge its holdings of fixed income
securities against a rise in market interest rates, the Fund could enter
into contracts to deliver securities at a predetermined price (i.e., `go
short') to protect themselves against the possibility that the prices of
their fixed income securities may decline during the Fund's anticipated
holding period. The Fund would `go long'' (agree to purchase securities in
the future at a predetermined price) to hedge against a decline in market
interest rates.
Stock index futures contracts are based on indices that reflect the market
value of common stock of the firms included in the indices. An index
futures contract is an agreement pursuant to which two parties agree to
take or make delivery of an amount of cash equal to the differences between
the value of the index at the close of the last trading day of the contract
and the price at which the index contract was originally written.
Put Options on Futures Contracts and Stock Indices. The Fund may purchase
listed put options on financial and stock index futures contracts to
protect portfolio securities against decreases in value resulting from
market factors, such as an anticipated increase in interest rates. Unlike
entering directly into a futures contract, which requires the purchaser to
buy a financial instrument on a set date at a specified price, the purchase
of a put option on a futures contract entitles (but does not obligate) its
purchaser to decide on or before a future date whether to assume a short
position at the specified price.
Generally, if the hedged portfolio securities decrease in value during the
term of an option, the related futures contracts will also decrease in
value and the option will increase in value. In such an event, the Fund
will normally close out its option by selling an identical option. If the
hedge is successful, the proceeds received by the Fund upon the sale of the
second option will be large enough to offset both the premium paid by the
Fund for the original option plus the decrease in value of the hedged
securities.
Alternatively, the Fund may exercise its put option to close out the
position. To do so, it would simultaneously enter into a futures contract
of the type underlying the option (for a price less than the strike price
of the option) and exercise the option. The Fund would then deliver the
futures contract in return for payment of the strike price. If a Fund
neither closes out nor exercises an option, the option will expire on the
date provided in the option contract, and only the premium paid for the
contract will be lost.
Stock Index Options. The Fund also may purchase put options on stock
indices listed on national securities exchanges or traded in the over-the-
counter market to protect against decreases in stock prices. A stock index
fluctuates with changes in the market values of the stocks included in the
index.
The effectiveness of purchasing stock index options will depend upon the
extent to which price movements in a Fund's portfolio correlate with price
movements of the stock index selected. Because the value of an index option
depends upon movements in the level of the index rather than the price of a
particular stock, whether the Fund will realize a gain or loss from the
purchase of options on an index depends upon movements in the level of
stock prices in the stock market generally or, in the case of certain
indices, in an industry or market segment, rather than movements in the
price of a particular stock. Accordingly, successful use by the Fund of
options on stock indices will be subject to the ability of the Adviser to
predict correctly movements in the directions of the stock market generally
or of a particular industry. This requires different skills and techniques
than predicting changes in the price of individual stocks.
Call Options on Financial and Stock Index Futures Contracts. In addition to
purchasing put options on futures, the Fund may write (sell) listed and
over-the-counter call options on financial and stock index futures
contracts (including cash-settled stock index options) to hedge their
respective portfolios against an increase in market interest rates or a
decrease in stock prices. When the Fund writes a call option on a futures
contract, it is undertaking the obligation of assuming a short futures
position (selling a futures contract) at the fixed strike price at any time
during the life of the option if the option is exercised. As stock prices
fall or market interest rates rise, causing the prices of futures to go
down, the Fund's obligation under a call option on a future (to sell a
futures contract) costs less to fulfill, causing the value of the Fund's
call option position to increase. In other words, as the underlying
futures price goes down below the strike price, the buyer of the option has
no reason to exercise the call, so that the Fund keeps the premium received
for the option. This premium can offset, in whole or part, the drop in
value of the Fund's portfolio securities.
Prior to the expiration of a call written by the Fund, or exercise of it by
the buyer, the Fund may close out the option by buying an identical option.
If the hedge is successful, the cost of the second option will be less than
the premium received by the Fund for the initial option. The net premium
income of the Fund will then offset, in whole or part, the decrease in
value of the hedged securities.
The Fund will not maintain open positions in futures contracts it has sold
or call options it has written on futures contracts if, in the aggregate,
the value of the open positions (marked to market) exceeds the current
market value of its securities portfolio plus or minus the unrealized gain
or loss on those open positions, adjusted for the correlation of volatility
between the hedged securities and the futures contracts. If this limitation
is exceeded at any time, the Fund will take prompt action to close out a
sufficient number of open contracts to bring its open futures and options
positions within this limitation.
Put and Call Options on Portfolio Securities. The Fund may purchase put and
call options on portfolio securities to protect against price movements in
particular securities. A put option gives the Fund, in return for a
premium, the right (but not the obligation) to sell the underlying security
to the writer (seller) at a specified price during the term of the option.
A call option gives the Fund, in return for a premium, the right (but not
the obligation) to buy the underlying securities from the seller at a
specified price during the term of the option.
The Fund may also write covered put and call options to generate income and
thereby protect against price movements in particular securities in the
Fund's portfolio. As the writer of a call option, the Fund has the
obligation upon exercise of the option during the option period to deliver
the underlying security upon payment of the exercise price.
The Fund may only write call options either on securities held in its
portfolio or on securities which it has the right to obtain without payment
of further consideration (or has segregated cash in the amount of any
additional consideration). In the case of put options, the Fund will
segregate cash, U.S. Treasury obligations or liquid securities with a value
equal to or greater than the exercise price of the underlying securities.
Over-the-Counter Options. The Fund may purchase and write over-the-counter
options on portfolio securities in negotiated transactions with the buyers
or writers of the options when options on the portfolio securities held by
the Fund are not traded on an exchange. Over-the-counter options are two-
party contracts with price and terms negotiated between buyer and seller.
In contrast, exchange-traded options are third-party contracts with
standardized strike prices and expiration dates and are purchased from a
clearing corporation. Exchange-traded options have a continuous liquid
market while over-the-counter options may not.
Risks. When the Fund uses futures and options on futures as hedging
devices, there is a risk that the prices of the securities subject to
the futures contracts may not correlate perfectly with the prices of the
securities in its portfolio. This may cause the futures contract and any
related options to react differently than the portfolio securities to
market changes. In addition, the Adviser could be incorrect in its
expectations about the direction or extent of market factors such as
stock price movements. In these events, the Fund may lose money on the
futures contract or option.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the Adviser
will consider liquidity before entering into these transactions, there
is no assurance that a liquid secondary market on an exchange or
otherwise will exist for any particular futures contract or option at
any particular time. The Fund's ability to establish and close out
futures and options positions depends on this secondary market.
The Fund will engage in futures contracts and related options in
conformity with the requirements of the Commodities Exchange Act
("Act"), which entitles the Fund to an exclusion from regulation
provided that, among other representations, the Fund uses futures
contracts and related options solely for ``bona fide hedging purposes''
within the meaning and intent of the Act, and with respect to positions
in futures contracts and related option contracts that are not for bona
fide hedging purposes, the Fund limits the aggregate initial margin and
premiums required to establish such positions to no more than five
percent of the liquidation value of its net assets after taking into
account unrealized profits and unrealized losses on any such contracts
it has entered into; and excluding the value of any options that are
``in-the-money'' at the time of purchase, as defined in the Act. When the
Fund purchases futures contracts, an amount of cash and cash
equivalents, equal to the underlying commodity value of the futures
contracts (less any related margin deposits), will be deposited in a
segregated account with the custodian (or the broker, if legally
permitted) to collateralize the position and thereby insure that the use
of such futures contracts are unleveraged. When the Fund sells futures
contracts, it will either own or have the right to receive the
underlying future or security, or will make deposits to collateralize
the position as discussed above.
WARRANTS. The Fund may invest in warrants. Warrants provide an option to
purchase common stock at a specific price (usually at a premium above the
market value of the optioned common stock at issuance) valid for a specific
period of time. Warrants may have a life ranging from less than a year to
twenty years or may be perpetual. However, most warrants have expiration
dates after which they are worthless. In addition, if the market price of
the common stock does not exceed the warrant's exercise price during the
life of the warrant, the warrant will expire as worthless. Warrants have no
voting rights, pay no dividends, and have no rights with respect to the
assets of the corporation issuing them. The percentage increase or decrease
in the market price of the warrant may tend to be greater than the
percentage increase or decrease in the market price of the underlying
common stock.
SWAP AGREEMENTS. As one way of managing its exposure to different types of
investments, the Fund may enter into interest rate swaps, currency swaps,
and other types of swap agreements such as caps, collars, and floors.
Depending on how they are used, swap agreements may increase or decrease
the overall volatility of the Fund's investments, its share price and
yield.
Swap agreements are sophisticated instruments that typically involve a
small investment of cash relative to the magnitude of risks assumed. As a
result, swaps can be highly volatile and may have a considerable impact on
the Fund's performance. Swap agreements are subject to risks related to the
counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. The Fund may also suffer
losses if it is unable to terminate outstanding swap agreements to reduce
its exposure through offsetting transactions. When the Fund enters into a
swap agreement, assets of the Fund equal to the value of the swap agreement
will be segregated by the Fund.
CORPORATE OBLIGATIONS. The debt securities in which the Fund may invest
directly will possess a minimum credit rating of investment grade assigned
by an NRSRO, such as BBB by Standard & Poor's Ratings Group (`S&P'') or
Fitch Investors Service, Inc. (`Fitch''), or Baa by Moody's Investors
Service, Inc. (`Moody's''), or, if unrated, will be judged by the Adviser
to be of comparable quality. Bonds rated "BBB" by S&P or Fitch, or "Baa" by
Moody's, have speculative characteristics. Changes in economic conditions
or other circumstances are more likely to lead to a weakened capacity to
make principal and interest payments than higher rated bonds. Downgraded
securities will be evaluated on a case by case basis by the Adviser. The
Adviser will determine whether or not the security continues to be an
acceptable investment. If not, the security will be sold. A description of
the ratings categories is contained in the Appendix to this prospectus. The
debt securities in which the underlying funds may invest may be rated below
investment grade (i.e., `junk bonds'') at the time of purchase. See ``High
Yield Securities.''
Floating Rate Corporate Debt Obligations. The Fund may invest in floating
rate corporate debt obligations, including increasing rate securities.
Floating rate securities are generally offered at an initial interest rate
which is at or above prevailing market rates. The interest rate paid on
these securities is then reset periodically (commonly every 90 days) to an
increment over some predetermined interest rate index. Commonly utilized
indices include the three-month Treasury bill rate, the six-month Treasury
bill rate, the one-month or three-month London Interbank Offered Rate
(LIBOR), the prime rate of a bank, the commercial paper rates, or the
longer-term rates on U.S. Treasury securities.
Increasing rate securities, which currently do not make up a significant
share of the market in corporate debt securities, are generally offered at
an initial interest rate which is at or above prevailing market rates.
Interest rates are reset periodically (most commonly every 90 days) at
different levels on a predetermined scale. These levels of interest are
ordinarily set at progressively higher increments over time. Some
increasing rate securities may, by agreement, revert to a fixed rate
status. These securities may also contain features which allow the issuer
the option to convert the increasing rate of interest to a fixed rate under
such terms, conditions, and limitations as are described in each issue's
prospectus.
Fixed Rate Corporate Debt Obligations. The Fund will also invest in fixed
rate securities, including fixed rate securities with short-term
characteristics. Fixed rate securities with short-term characteristics are
long-term debt obligations but are treated in the market as having short
maturities because call features of the securities may make them callable
within a short period of time. A fixed rate security with short-term
characteristics would include a fixed income security priced close to call
or redemption price or a fixed income security approaching maturity, where
the expectation of call or redemption is high.
Fixed rate securities tend to exhibit more price volatility during times of
rising or falling interest rates than securities with floating rates of
interest. This is because floating rate securities, as described above,
behave like short-term instruments in that the rate of interest they pay is
subject to periodic adjustments based on a designated interest rate index.
Fixed rate securities pay a fixed rate of interest and are more sensitive
to fluctuating interest rates. In periods of rising interest rates, the
value of a fixed rate security is likely to fall. Fixed rate securities
with short-term characteristics are not subject to the same price
volatility as fixed rate securities without such characteristics.
Therefore, they behave more like floating rate securities with respect to
price volatility.
The prices of fixed income securities generally fluctuate inversely to the
direction of interest rates.
U.S. GOVERNMENT SECURITIES. The Fund may invest in U.S. government
securities. These instruments are either issued or guaranteed by the U.S.
government, its agencies or instrumentalities. These securities include,
but are not limited to: direct obligations of the U.S. Treasury, such as
U.S. Treasury bills, notes, and bonds; notes, bonds and discount notes
issued or guaranteed by U.S. government agencies and instrumentalities
supported by the full faith and credit of the United States; notes, bonds,
and discount notes of U.S. government agencies or instrumentalities which
receive or have access to federal funding; and notes, bonds, and discount
notes of other U.S. government instrumentalities supported only by the
credit of the instrumentalities.
MORTGAGE-BACKED SECURITIES. The Fund may invest in mortgage-backed
securities rated at the time of purchase investment grade (BBB or Baa or
better) by an NRSRO, or which are of comparable quality in the judgment of
the Adviser. Mortgage-backed securities are securities that directly or
indirectly represent a participation in, or are secured by and payable
from, mortgage loans on real property. There are currently four basic types
of mortgage-backed securities: (i) those issued or guaranteed by the U.S.
government or one of its agencies or instrumentalities, such as the
Government National Mortgage Association (`Ginnie Mae''), Federal National
Mortgage Association (`Fannie Mae''), and Federal Home Loan Mortgage
Corporation (`Freddie Mac''); (ii) those issued by private issuers that
represent an interest in or are collateralized by mortgage-backed
securities issued or guaranteed by the U.S. government or one of its
agencies or instrumentalities; (iii) those issued by private issuers that
represent an interest in or are collateralized by whole loans or mortgage-
backed securities without a government guarantee but usually having some
form of private credit enhancement; and (iv) privately issued securities
which are collateralized by pools of mortgages in which each mortgage is
guaranteed as to payment of principal and interest by an agency or
instrumentality of the U.S. government.
The privately issued mortgage-related securities provide for a periodic
payment consisting of both interest and/or principal. The interest portion
of these payments will be distributed by the Fund as income, and the
capital portion will be reinvested.
Adjustable Rate Mortgage Securities ("ARMS"). The Fund may invest in ARMS.
ARMS are pass-through mortgage-backed securities with adjustable rather
than fixed interest rates. The ARMS in which the Fund invests are issued by
Ginnie Mae, Fannie Mae, and Freddie Mac and are actively traded. The
underlying mortgages which collateralize ARMS issued by Ginnie Mae are
fully guaranteed by the Federal Housing Administration or Veterans
Administration, while those collateralizing ARMS issued by Fannie Mae or
Freddie Mac are typically conventional residential mortgages conforming to
strict underwriting size and maturity constraints.
Collateralized Mortgage Obligations ("CMOS"). The Fund may invest in CMOs.
CMOs are debt obligations collateralized by mortgage loans or mortgage
pass-through securities. Typically, CMOs are collateralized by Ginnie Mae,
Fannie Mae or Freddie Mac certificates, but may be collateralized by whole
loans or private pass-through securities. CMOs may have fixed or floating
rates of interest.
The Fund will invest only in CMOs that are rated at the time of purchase
investment grade (BBB or Baa or better) by an NRSRO. The Fund may also
invest in certain CMOs which are issued by private entities such as
investment banking firms and companies related to the construction
industry. The CMOs in which the Fund may invest may be: (i) securities
which are collateralized by pools of mortgages in which each mortgage is
guaranteed as to payment of principal and interest by an agency or
instrumentality of the U.S. government; (ii) securities which are
collateralized by pools of mortgages in which payment of principal and
interest is guaranteed by the issuer and such guarantee is collateralized
by U.S. government securities; (iii) collateralized by pools of mortgages
in which payment of principal and interest is dependent upon the underlying
pool of mortgages with no U.S. government guarantee; or (iv) other
securities in which the proceeds of the issuance are invested in mortgage-
backed securities and payment of the principal and interest is supported by
the credit of an agency or instrumentality of the U.S. government.
Real Estate Mortgage Investment Conduits ("REMICS"). The Fund may invest in
REMICs. REMICs are offerings of multiple class mortgage-backed securities
which qualify and elect treatment as such under provisions of the Internal
Revenue Code. Issuers of REMICs may take several forms, such as trusts,
partnerships, corporations, associations, or segregated pools of mortgages.
Once REMIC status is elected and obtained, the entity is not subject to
federal income taxation. Instead, income is passed through the entity and
is taxed to the person or persons who hold interests in the REMIC. A REMIC
interest must consist of one or more classes of "regular interests," some
of which may offer adjustable rates of interest, and a single class of
"residual interests." To qualify as a REMIC, substantially all the assets
of the entity must be in assets directly or indirectly secured principally
by real property.
ASSET-BACKED SECURITIES. The Fund may invest in asset-backed securities.
Asset-backed securities have structural characteristics similar to
mortgage-backed securities but have underlying assets that generally are
not mortgage loans or interests in mortgage loans. The Fund may invest in
asset-backed securities rated at the time of purchase investment grade (BBB
or Baa or better) by an NRSRO. The asset-backed securities in which the
Fund may invest include, but are not limited to, interests in pools of
receivables, such as motor vehicle installment purchase obligations and
credit card receivables, equipment leases, manufactured housing (mobile
home) leases, or home equity loans. These securities may be in the form of
pass-through instruments or asset-backed bonds. The securities are issued
by non-governmental entities and carry no direct or indirect government
guarantee.
INVESTMENT RISKS OF MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Mortgage-
backed and asset-backed securities generally pay back principal and
interest over the life of the security. At the time the Fund reinvests the
payments and any unscheduled prepayments of principal received, the Fund
may receive a rate of interest which is actually lower than the rate of
interest paid on these securities ("prepayment risks"). Mortgage-backed and
asset-backed securities are subject to higher prepayment risks than most
other types of debt instruments with prepayment risks because the
underlying mortgage loans or the collateral supporting asset-backed
securities may be prepaid without penalty or premium. Prepayment risks on
mortgage-backed securities tend to increase during periods of declining
mortgage interest rates because many borrowers refinance their mortgages to
take advantage of the more favorable rates. Prepayments on mortgage-backed
securities are also affected by other factors, such as the frequency with
which people sell their homes or elect to make unscheduled payments on
their mortgages. Although asset-backed securities generally are less likely
to experience substantial prepayments than are mortgage-backed securities,
certain factors that affect the rate of prepayments on mortgage-backed
securities also affect the rate of prepayments on asset-backed securities.
While mortgage-backed securities generally entail less risk of a decline
during periods of rapidly rising interest rates, mortgage-backed securities
may also have less potential for capital appreciation than other similar
investments (e.g., investments with comparable maturities) because as
interest rates decline, the likelihood increases that mortgages will be
prepaid. Furthermore, if mortgage-backed securities are purchased at a
premium, mortgage foreclosures and unscheduled principal payments may
result in some loss of a holder's principal investment to the extent of the
premium paid. Conversely, if mortgage-backed securities are purchased at a
discount, both a scheduled payment of principal and an unscheduled
prepayment of principal would increase current and total returns and would
accelerate the recognition of income, which would be taxed as ordinary
income when distributed to shareholders.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the
benefit of the same security interest in the related collateral. Credit
card receivables are generally unsecured and the debtors are entitled to
the protection of a number of state and federal consumer credit laws, many
of which give such debtors the right to set off certain amounts owed on the
credit cards, thereby reducing the balance due. Most issuers of asset-
backed securities backed by motor vehicle installment purchase obligations
permit the servicer of such receivables to retain possession of the
underlying obligations. If the servicer sells these obligations to another
party, there is a risk that the purchaser would acquire an interest
superior to that of the holders of the related asset-backed securities.
Further, if a vehicle is registered in one state and is then re-registered
because the owner and obligor moves to another state, such re-registration
could defeat the original security interest in the vehicle in certain
cases. In addition, because of the large number of vehicles involved in a
typical issuance and technical requirements under state laws, the trustee
for the holders of asset-backed securities backed by automobile receivables
may not have a proper security interest in all of the obligations backing
such receivables. Therefore, there is the possibility that recoveries on
repossessed collateral may not, in some cases, be available to support
payments on these securities.
HIGH YIELD SECURITIES. The underlying funds may invest 35% or more of their
respective assets in debt securities which are not considered investment
grade bonds (commonly referred to as "junk bonds") by an NRSRO, such as
Moody's or S&P. There is no minimal acceptable rating for a security to be
purchased or held in the underlying funds, and the underlying funds, may,
from time to time, purchase or hold securities in the lowest rating
category. Debt obligations that are not determined to be investment grade
are high-yield, high-risk bonds, typically subject to greater market
fluctuations and greater risk of loss of income and principal due to an
issuer's default. To a greater extent than investment grade bonds, lower
rated bonds tend to reflect short-term corporate, economic, and market
developments, as well as investor perceptions of the issuer's credit
quality. In addition, lower rated bonds may be more difficult to dispose of
or to value than higher rated, lower-yielding bonds. A description of the
rating categories is contained in the Appendix to this prospectus.
VARIABLE RATE DEMAND NOTES. The Fund may purchase variable rate demand
notes. Variable rate demand notes are long-term debt instruments that have
variable or floating interest rates and provide the Fund with the right to
tender the security for repurchase at its stated principal amount plus
accrued interest. Such securities typically bear interest at a rate that is
intended to cause the securities to trade at par. The interest rate may
float or be adjusted at regular intervals (ranging from daily to annually),
and is normally based on a published interest rate or interest rate index.
Many variable rate demand notes allow the Fund to demand the repurchase of
the security on not more than seven days prior notice. Other notes only
permit the Fund to tender the security at the time of each interest rate
adjustment or at other fixed intervals. (See "Demand Features"). The Fund
treats variable rate demand notes as maturing on the later of the date of
the next interest rate adjustment or the date on which the Fund may next
tender the security for repurchase.
DEMAND FEATURES. The Fund may acquire securities that are subject to puts
and standby commitments ("demand features") to purchase the securities at
their principal amount (usually with accrued interest) within a fixed
period (usually seven days) following a demand by the Fund. The demand
feature may be issued by the issuer of the underlying securities, a dealer
in the securities or by another third party, and may not be transferred
separately from the underlying security. The Fund uses these arrangements
to provide the Fund with liquidity and not to protect against changes in
the market value of the underlying securities. The bankruptcy, receivership
or default by the issuer of the demand feature, or a default on the
underlying security or other event that terminates the demand feature
before its exercise, will adversely affect the liquidity of the underlying
security. Demand features that are exercisable even after a payment default
on the underlying security may be treated as a form of credit enhancement.
MONEY MARKET INSTRUMENTS. For temporary defensive purposes (up to 100% of
total assets) and to maintain liquidity (up to 35% of total assets), the
Fund may invest directly in or in underlying funds which invest in U.S. and
foreign short-term money market instruments, including:
commercial paper rated A-1 or A-2 by S&P, Prime-1 or Prime-2 by
Moody's, or F-1 or F-2 by Fitch, and Europaper (dollar-denominated
commercial paper issued outside the United States) rated A-1, A-2,
Prime-1, or Prime-2;
instruments of domestic and foreign banks and savings and loans
(such as certificates of deposit, demand and time deposits, savings
shares, and bankers' acceptances) if they have capital, surplus,
and undivided profits of over $100,000,000, or if the principal
amount of the instrument is insured by the Bank Insurance Fund,
which is administered by the Federal Deposit Insurance Corporation
("FDIC"), or the Savings Association Insurance Fund, which is also
administered by the FDIC. These instruments may include Eurodollar
Certificates of Deposit ("ECDs"), Yankee Certificates of Deposit
("Yankee CDs"), and Eurodollar Time Deposits ("ETDs");
obligations of the U.S. government or its agencies or
instrumentalities (see ``U.S. Government Securities'' above);
repurchase agreements; and
other short-term instruments which are not rated but are determined
by the Adviser to be of comparable quality to the other obligations
in which the Fund may invest.
REPURCHASE AGREEMENTS. The securities in which the Fund invests may be
purchased pursuant to repurchase agreements. Repurchase agreements are
arrangements in which banks, broker/dealers, and other recognized financial
institutions sell securities to the Fund and agree at the time of sale to
repurchase them at a mutually agreed upon time and price. To the extent
that the original seller does not repurchase the securities from the Fund,
the Fund could receive less than the repurchase price on any sale of such
securities.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase
securities on a when-issued or delayed delivery basis. These transactions
are arrangements in which the Fund purchases securities with payment and
delivery scheduled for a future time. The seller's failure to complete
these transactions may cause the Fund to miss a price or yield considered
to be advantageous. Settlement dates may be a month or more after entering
into these transactions, and the market values of the securities purchased
may vary from the purchase prices.
The Fund may dispose of a commitment prior to settlement if the Adviser
deems it appropriate to do so. In addition, the Fund may enter into
transactions to sell its purchase commitments to third parties at current
market values and simultaneously acquire other commitments to purchase
similar securities at later dates. The Fund may realize short-term profits
or losses upon the sale of such commitments.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income,
the Fund may lend portfolio securities on a short-term or long-term basis,
to broker/dealers, banks, or other institutional borrowers of securities.
The Fund will only enter into loan arrangements with broker/dealers, banks,
or other institutions which the Adviser has determined are creditworthy
under guidelines established by the Board Members and will receive
collateral in the form of cash or U.S. government securities equal to at
least 100% of the value of the securities loaned at all times. This policy
cannot be changed without the approval of holders of a majority of the
Fund's shares.
There is the risk that when lending portfolio securities, the securities
may not be available to the Fund on a timely basis and the Fund may,
therefore, lose the opportunity to sell the securities at a desirable
price. In addition, in the event that a borrower of securities would file
for bankruptcy or become insolvent, disposition of the securities may be
delayed pending court action.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
otherwise invest pursuant to its investment objective and policies but
which are subject to restrictions on resale under federal securities law.
However, the Fund will limit investments in illiquid securities, including
(where applicable) restricted securities not determined by the Board
Members to be liquid, non-negotiable time deposits, over-the-counter
options, and repurchase agreements providing for settlement in more than
seven days after notice, to 15% of its net assets.
In certain cases, shares of underlying funds may be considered illiquid.
See `Additional Considerations of Investing in Other Investment
Companies.''
BORROWING MONEY. The Fund will not borrow money directly or through reverse
repurchase agreements (arrangements in which the Fund sells a portfolio
instrument for a percentage of its cash value with an agreement to buy it
back on a set date) or pledge securities except, under certain
circumstances, the Fund may borrow up to one-third of the value of its
total assets and pledge assets as necessary to secure such borrowings. This
policy cannot be changed without the approval of holders of a majority of
the Fund's shares.
The underlying funds may borrow money directly or through reverse
repurchase agreements and pledge assets as necessary to secure such
borrowings. An underlying fund will maintain continuous asset coverage
(i.e., total assets including borrowings, less liabilities exclusive of
borrowings) of 300% of the amount borrowed. (For this purpose, the
proceeds received from a reverse repurchase agreement will be deemed a
borrowing by an underlying fund). If the 300% asset coverage should decline
as a result of market fluctuations or other reasons, an underlying fund may
be required to sell some of its portfolio securities within three days to
reduce the debt and restore the 300% asset coverage, even though it may be
disadvantageous from an investment standpoint to sell portfolio securities
at the time.
Borrowing money, also known as leveraging, will cause an underlying fund to
incur interest charges, and may increase the effect of fluctuations in the
value of the investments of the underlying fund on the net asset value of
its shares. Generally, an underlying fund will not purchase additional
securities for investment while there are borrowings outstanding
representing more than 5% of its total assets.
SHORT SALES. An underlying fund may sell securities short, subject to
certain restrictions. A short sale occurs when a borrowed security is sold
in anticipation of a decline in its price. If the decline occurs, shares
equal in number to those sold short can be purchased at the lower price. If
the price increases, the higher price must be paid. The purchased shares
are then returned to the original lender. Risk arises because no loss limit
can be placed on the transaction. When an underlying fund enters into a
short sale, assets equal to the market price of the securities sold short
or any lesser price at which the underlying fund can obtain such
securities, are segregated on the underlying fund's records and maintained
until the underlying fund meets its obligations under the short sale.
DIVERSIFICATION. With respect to 75% of the value of total assets, the Fund
will not invest more than 5% in securities of any one issuer, other than
cash, cash items, securities of investment companies or securities issued
or guaranteed by the government of the United States or its agencies or
instrumentalities and repurchase agreements collateralized by U.S.
government securities or acquire more than 10% of the outstanding voting
securities of any one issuer (for which purposes all indebtedness of an
issuer shall be deemed a single class and all preferred stock of an issuer
shall be deemed a single class, except that futures or option contracts and
securities of mutual funds shall not be subject to this restriction). This
policy cannot be changed without the approval of holders of a majority of
the Fund's shares.
NON-DIVERSIFICATION. The underlying funds in which the Fund invests may be
non-diversified investment companies. As such, there is no 1940 Act limit
on the percentage of assets which can be invested in any single issuer. An
investment in such funds, therefore, will entail greater risks than would
exist in diversified investment companies because the higher percentage of
investments among fewer issuers may result in greater fluctuation in the
total market value of the fund's portfolio. Any economic, political, or
regulatory developments affecting the value of the securities of such
issuer held by the fund will have a greater impact on the total value of
the fund's portfolio than would be the case if the fund were diversified
among more issuers.
However, it is anticipated that the underlying funds will comply with
Subchapter M of the Internal Revenue Code. This requires that at the end of
each quarter of the taxable year, the aggregate value of all investments in
any one issuer (except U.S. government obligations, cash, cash items and
other investment companies) which exceed 5% of a fund's total assets shall
not exceed 50% of the value of its total assets, and, with respect to the
remaining assets, no more than 25% of a fund's assets shall be invested in
a single issuer.
INDUSTRY CONCENTRATION. An underlying fund may concentrate its investments
within one industry. Because the scope of investment alternatives within an
industry is limited, the value of the shares of such an underlying fund may
be subject to greater market fluctuation than an investment in a fund which
invests in a broader range of securities.
DERIVATIVE CONTRACTS AND SECURITIES. The term "derivative" has
traditionally been applied to certain contracts (including, futures,
forward, option and swap contracts) that "derive" their value from changes
in the value of an underlying security, currency, commodity or index.
Certain types of securities that incorporate the performance
characteristics of these contracts are also referred to as "derivatives."
The term has also been applied to securities "derived" from the cash flows
from underlying securities, mortgages or other obligations.
Derivative contracts and securities can be used to reduce or increase the
volatility of an investment portfolio's total performance. While the
response of certain derivative contracts and securities to market changes
may differ from traditional investments, such as stock and bonds,
derivatives do not necessarily present greater market risks than
traditional investments.
ADDITIONAL CONSIDERATIONS OF INVESTING IN OTHER INVESTMENT COMPANIES
Any investment in a mutual fund involves risk and, although the Fund
invests in a number of underlying funds, this practice does not eliminate
investment risk. Moreover, investing through the Fund in an underlying
portfolio of mutual funds involves certain additional expenses and certain
tax results which would not be present in a direct investment in the
underlying funds. See "Expenses of the Fund" and `Federal Tax
Information.''
The Fund and its affiliates may purchase only up to 3% of the total
outstanding securities of any underlying fund. For this purpose, shares of
underlying funds held by private discretionary investment advisory accounts
managed by the Adviser will be aggregated with those held by the Fund.
Accordingly, when affiliated persons and other accounts managed by the
Adviser hold shares of any of the underlying funds, the Fund's ability to
invest fully in shares of those funds is restricted, and the Adviser must
then, in some instances, select alternative investments that would not have
been its first preference.
The 1940 Act also provides that, when the Fund invests in shares of an
underlying fund, the underlying fund will be obligated to redeem shares
held by the Fund only in an amount up to 1% of the underlying fund's
outstanding securities during any period of less than 30 days. Therefore,
if the Fund owns more than 1% of an underlying fund's outstanding
securities, the portion of the investment exceeding 1% may be considered
illiquid and, when added together with other such illiquid securities, may
not exceed 15% of the Fund's net assets. See "Portfolio Investment and
Strategies--Restricted and Illiquid Securities." These limitations are not
fundamental investment policies and may be changed by the Board Members
without shareholder approval.
Under certain circumstances an underlying fund may determine to make
payment of a redemption by a Fund wholly or partly by a distribution in
kind of securities from its portfolio, in lieu of cash, in conformity with
the rules of the SEC. In such cases, the Fund may hold portfolio securities
distributed by an underlying fund until the Adviser determines that it is
appropriate to dispose of such securities.
Investment decisions by the investment advisers of the underlying funds are
made independently of each other and of the Fund and its Adviser.
Therefore, the investment adviser of one underlying fund may be purchasing
shares of the same issuer whose shares are being sold by the investment
adviser of another such fund. The result of this would be an indirect
expense to the Fund without accomplishing any investment purpose.
The Fund may purchase shares of both load and no-load underlying funds
(including those with a contingent deferred sales charge). However, in most
cases, the Fund anticipates purchasing fund shares without a sales load or
qualifying for a reduction or waiver of any sales load because of the
amount it intends to invest in the underlying fund.
Under the 1940 Act, a mutual fund must sell its shares at the price
(including sales load, if any) described in its prospectus, and current
rules under the 1940 Act do not permit negotiation of sales charges.
Therefore, the Fund currently is not able to negotiate the level of the
sales charges at which it will purchase shares of load funds. In some
cases, the sales load may be as great as 8.5% of the public offering price
(or 9.29% of the net amount invested). Nevertheless, when appropriate, the
Fund will purchase such shares pursuant to (i) letters of intent,
permitting it to obtain reduced or no sales charges by aggregating its
intended purchases over time (generally 13 months from the initial purchase
under the letter); (ii) rights of accumulation, permitting it to obtain
reduced or no sales charges as it purchases additional shares of an
underlying fund; and (iii) the right to obtain reduced or no sales charges
by aggregating its purchases of several funds within a family of mutual
funds.
MANAGEMENT OF THE MARKETVEST FUNDS
BOARD MEMBERS. Marketvest Funds is managed by a Board of Trustees. The
Board Members are responsible for managing the Fund's business affairs and
for exercising all of the powers of the Fund except those reserved for the
shareholders.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with
Marketvest Funds, investment decisions for the Fund are made by Dauphin
Deposit Bank and Trust Company ("Dauphin Deposit" or `Adviser''), the
Fund's investment adviser, subject to direction by the Board Members. The
Adviser continually conducts investment research and supervision for the
Fund including underlying fund analysis, selection, and ongoing monitoring,
and is responsible for the direct purchase or sale of portfolio
instruments, for which it receives an annual advisory fee from the assets
of the Fund.
ADVISORY FEES. The Adviser receives an annual investment advisory fee at an
annual rate equal to 0.65% of the Fund's average daily net assets. The
Adviser may voluntarily choose to waive a portion of its fee or reimburse
the Fund for certain operating expenses, but reserves the right to
terminate such waiver or reimbursement at any time at its sole discretion.
The investment advisory fees of the underlying funds are not included in
the discussion of the Fund's advisory fee above. By investing in the Fund,
you bear not only the Fund's expenses, but also similar expenses of the
underlying funds. You would not incur the Fund's expenses if you were to
invest in the underlying funds directly.
ADVISER'S BACKGROUND. Dauphin Deposit is a wholly-owned subsidiary of
Dauphin Deposit Corporation (the "Corporation"), a bank holding company.
Through its subsidiaries and affiliates, the Corporation provides a
comprehensive range of financial services to the public. The headquarters
of both the Corporation and Dauphin Deposit are located at 213 Market
Street, Harrisburg, PA 17105.
Dauphin Deposit, and its divisions, Bank of Pennsylvania, Valleybank, and
Farmers Bank, provide banking services through over 100 branch offices
located in a nine county area in south central Pennsylvania with regional
headquarters in Harrisburg, Hanover, and Reading, Pennsylvania. Among the
services offered to clients are commercial and consumer lending, time and
regular savings and demand deposits, cash management, credit cards, and
personal, corporate, and pension trust services. Mortgage lending is
provided through its affiliate, Eastern Mortgage Services, Inc. As of
September 30, 1996, Dauphin Deposit had assets in excess of $5 billion.
Dauphin Deposit's Trust and Financial Services Group provides individuals,
businesses, and municipalities with investment, custodial, and trust
services. As of September 30, 1996, the Trust and Financial Services Group
had in excess of $2 billion under active management. Dauphin Deposit has
managed, on behalf of its trust clients, eight common and collective
investment funds having a market value in excess of $800 million.
Hopper Soliday and Co., Inc. ("Hopper Soliday"), headquartered in
Lancaster, Pennsylvania, is a wholly-owned subsidiary of the Corporation.
Hopper Soliday's services include municipal finance, investment banking,
securities underwriting, market making, institutional sales, retail
brokerage, and other general securities businesses permitted for bank
holding companies and their non-bank subsidiaries. Hopper Soliday is a
registered broker/dealer and an affiliate of the Adviser. As such, the
Adviser is permitted under certain limited circumstances (as described
further under "Brokerage Transactions") to use Hopper Soliday as a broker
to execute portfolio transactions on behalf of the Fund.
As part of its regular banking operations, Dauphin Deposit may make loans
to public companies and municipalities. Thus, it may be possible, from time
to time, for the Fund or the underlying funds to hold or acquire the
securities of issuers which are also lending clients of Dauphin Deposit.
Because of the internal controls maintained by Dauphin Deposit to restrict
the flow of non-public information, Fund investments are typically made
without any knowledge of Dauphin Deposit's or its affiliates' lending
relationships with an issuer; therefore, the lending relationship will not
be a factor in the selection of securities.
The Fund and the Adviser have each adopted strict codes of ethics governing
the conduct of all employees who manage the Fund and their portfolio
securities. These codes recognize that such persons owe a fiduciary duty to
the Fund's shareholders and must place the interests of the shareholders
ahead of the employees' own interest. Among other things, the codes:
require preclearance and periodic reporting of personal securities
transactions; prohibit personal transactions in securities being purchased
or sold, or being considered for purchase or sale, by the Fund; prohibit
purchasing securities in initial public offerings; and prohibit taking
profits on securities held for less than sixty days. Violations of the
codes are subject to review by the Board Members, and could result in
severe penalties imposed by the Fund or the Adviser.
PORTFOLIO MANAGERS' BACKGROUND. Brett A. Hoffacker is an Equity Specialist
and Vice President of Dauphin Deposit. Mr. Hoffacker has been the Portfolio
Manager of Dauphin Deposit's Personal Trust Equity Fund (since 1994) and
Dauphin Deposit's Employee Benefit Global Equity Fund (since 1994). From
1983 to 1994, Mr. Hoffacker was Manager of the Investment and Employee
Benefit Departments of Farmers Bank and Trust Company, a Division of
Dauphin Deposit. Mr. Hoffacker graduated from the Pennsylvania State
University with a B.A. in Finance and the Pennsylvania Bankers' Association
Central Atlantic School of Trust. Mr. Hoffacker is a Certified Retirement
Plan Specialist and a former registered investment broker. From 1980 to
1983, Mr. Hoffacker was employed by The York Bank and Trust in Trust
Employee Benefits as an account administrator. Mr. Hoffacker has been the
portfolio manager for the Fund since its inception.
DISTRIBUTION OF SHARES OF THE FUND
Edgewood Services, Inc. is the principal distributor for shares of the
Fund. It is a New York corporation organized on October 26, 1993, and is
the principal distributor for a number of investment companies. Edgewood
Services, Inc. is a subsidiary of Federated Investors.
DISTRIBUTION PLAN. Pursuant to the provisions of a distribution plan
adopted in accordance with the Investment Company Act Rule 12b-1 (the
"Plan"), the Fund may pay to Edgewood Services, Inc., the distributor, an
amount computed at an annual rate of up to 0.25% of the average daily net
asset value of the Fund's shares to finance any activity which is
principally intended to result in the sale of that Fund's shares subject to
the Plan. Certain trust clients of Dauphin Deposit will not be affected by
the Plan because the Plan will not be activated unless and until a separate
class of shares of the Fund (which would not have a Rule 12b-1 plan) is
created and such trust clients' investments in the Fund are converted to
such class. The Fund is not currently making payments under the Plan, nor
does it anticipate doing so in the immediate future.
The distributor may, from time to time, and for such periods as it deems
appropriate, voluntarily reduce its compensation under the Plan to the
extent the expenses attributable to the shares exceed such lower expense
limitation as the distributor may, by notice to the Fund, voluntarily
declare to be effective.
The distributor may select financial institutions such as banks,
fiduciaries, custodians for public funds, investment advisers, and
broker/dealers to provide sales and support services as agents for their
clients or customers who beneficially own shares. Financial institutions
will receive fees from the distributor based upon shares owned by their
clients or customers. The schedules of such fees and the basis upon which
such fees will be paid will be determined from time to time by the
distributor.
The Fund's Plan is a compensation type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund
does not pay for unreimbursed expenses of the distributor, including
amounts expended by the distributor in excess of amounts received by it
from the Fund, interest, carrying or other financing charges in connection
with excess amounts expended, or the distributor's overhead expenses.
However, the distributor may be able to recover such amounts or may earn a
profit from future payments made by the Fund under the Plan.
The Glass-Steagall Act prohibits a depository institution (such as a
commercial bank or a savings association) from being an underwriter or
distributor of certain securities, including shares of registered open-end
mutual fund companies. The Glass-Steagall Act does not prohibit such a
depository institution from acting as investment adviser or custodian to
such an investment company or from purchasing shares of such a company as
agent for and upon the order of its customer. In the event the Glass-
Steagall Act is deemed to prohibit depository institutions from acting in
the advisory or custodial capacities described above or should Congress
relax current restrictions on depository institutions, the Board Members
will consider appropriate changes in the services provided by the Adviser.
ADMINISTRATIVE ARRANGEMENTS. The distributor may also pay financial
institutions as directed by the Adviser a fee based upon the average daily
net asset value of shares of their customers invested in the Fund for
providing administrative services. This fee is in addition to the amounts
paid under the Distribution Plan for administrative services, and, if paid,
will be reimbursed by the Adviser and not the Fund.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services ("FAS"),
Pittsburgh, Pennsylvania, a subsidiary of Federated Investors, provides the
Fund with the administrative personnel and services necessary to operate
the Fund. Such services include certain legal and accounting services. FAS
receives an annual administrative fee equal to 0.15% of the Fund's average
aggregate daily net assets.
The administrative fee received during any fiscal year shall aggregate at
least $75,000 per Fund. FAS may voluntarily choose to waive a portion of
its fee at any time.
CUSTODIAN. Dauphin Deposit Bank and Trust Company, Harrisburg,
Pennsylvania, is custodian for the securities and cash of the Fund.
PORTFOLIO TURNOVER
Although the Fund does not intend to invest for the purpose of seeking
short-term profits, securities in the Fund's portfolio will be sold
whenever the Adviser believes it is appropriate to do so in light of the
Fund's investment objective, without regard to the length of time a
particular security may have been held. Generally, a high portfolio
turnover rate results in increased transaction costs and higher taxes paid
by the Fund's shareholders. In addition, a high rate of portfolio turnover
may result in the realization of a larger amount of capital gains which,
when distributed to the Fund's shareholders, are taxable to them. To the
extent that the underlying funds have assessed a sales charge on the Fund's
investment, a higher portfolio turnover rate for the Fund could impact the
Fund's overall performance and total return. Nevertheless, transactions for
the Fund's portfolio will be based only upon investment considerations and
will not be limited by any other considerations when the Fund's adviser
deems it appropriate to make changes in the Fund's portfolio. There is no
limit on the underlying funds' portfolio turnover rates.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the order
at a favorable price. In working with dealers, the Adviser will generally
utilize those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. In selecting among firms believed to meet these criteria, the
Adviser may give consideration to those firms which have sold or are
selling shares of the Fund. The Adviser makes decisions on portfolio
transactions and selects brokers and dealers subject to review by the Board
Members.
Notwithstanding the foregoing, to the extent consistent with applicable
provisions of the 1940 Act, Rule 17e-1, and other rules and exemptions
adopted by the Securities and Exchange Commission (the "SEC") under that
Act, the Board Members have determined that orders for transactions in
securities or options on behalf of the Fund may be placed by Dauphin
Deposit with broker/dealers affiliated with Dauphin Deposit, including
Hopper Soliday. The Fund may use Hopper Soliday or another affiliated
broker in a portfolio transaction when Dauphin Deposit believes that the
affiliated broker's charge for the transaction does not exceed usual and
customary levels and is likely to result in price and execution at least as
favorable as those of other qualified unaffiliated broker/dealers.
EXPENSES OF THE FUND
The Fund pays all of its own expenses and its allocable shares of
Marketvest Funds' expenses. The expenses of the Fund include, but are not
limited to, the cost of: organizing the Fund and continuing its existence;
Board Members' fees; investment advisory and administrative services;
printing prospectuses and other Fund documents for shareholders;
registering the Fund and shares of the Fund; taxes and commissions;
issuing, purchasing, repurchasing, and redeeming shares; fees for
custodians, transfer agents, dividend disbursing agents, shareholder
servicing agents, and registrars; printing, mailing, auditing, accounting,
and legal expenses; reports to shareholders and governmental agencies;
meetings of Board Members and shareholders and proxy solicitations
therefor; distribution fees; insurance premiums; association membership
dues; and such nonrecurring and extraordinary items as may arise.
An investor in the Fund should recognize that you may invest directly in
underlying funds and that, by investing in underlying funds indirectly
through the Fund, you will bear not only your proportionate share of the
expenses of the Fund and of Marketvest Funds as described above, but also,
indirectly, similar expenses of the underlying funds. In addition, you will
bear your proportionate share of expenses, if any, related to the
distribution of the Fund's shares, see "Distribution of Shares of the
Fund," and also may indirectly bear expenses paid by an underlying fund
related to the distribution of its shares. You also will bear your
proportionate share of any sales charges incurred by the Fund related to
the purchase of shares of the underlying funds. However, in certain
instances, the Fund may be eligible to purchase underlying funds at a
reduced or no sales charge, whereas an individual investor would have to
pay the full sales charge if the investor directly invested in such
underlying funds. In those instances, it may be possible for an investor to
bear greater transaction and operating expenses by investing directly in
the underlying funds than if the investor were to invest indirectly through
such underlying funds as a shareholder in the Fund (even after aggregating
the transaction and operating expenses of the Fund and the underlying
funds). Finally, you should recognize that, as a result of the Fund's
policies of investing in other mutual funds, you may receive taxable
capital gains distributions to a greater extent than would be the case if
you invested directly in the underlying funds. See "Dividends and Capital
Gains''and ``Federal Income Tax Consequences."
NET ASSET VALUE
The Fund's net asset value per share fluctuates. It is determined by
dividing the sum of the market value of all securities and other assets,
less liabilities, by the number of shares outstanding.
INVESTING IN THE FUND
SHARE PURCHASES
Fund shares are sold on days on which the New York Stock Exchange and the
Federal Reserve Wire System are open for business except on Martin Luther
King Day, Columbus Day, and Veterans' Day. Shares of the Fund may be
purchased through Hopper Soliday or Dauphin Deposit. In connection with the
sale of shares of the Fund, the distributor may from time to time offer
certain items of nominal value to any shareholder or investor. The Fund
reserves the right to reject any purchase request.
To purchase shares of the Fund through Hopper Soliday, call toll free 1-
800-MKT-VEST (1-800-658-8378). Trust and institutional investors should
contact their account officer to make purchase requests through Dauphin
Deposit. Texas residents must purchase shares of the Fund through Edgewood
Services, Inc. at 1-800-618-3573. A purchase request must be received by
Hopper Soliday or Edgewood Services, Inc. before 4:00 p.m. (Eastern time),
and by Dauphin Deposit before 2:00 p.m. (Eastern time), in order for shares
of the Fund to be purchased at that day's net asset value. Purchase
requests through registered broker/dealers must be received by Hopper
Soliday before 3:00 p.m. (Eastern time) in order for shares to be purchased
at that day's net asset value. Hopper Soliday and Dauphin Deposit are
responsible for promptly submitting purchase requests and providing proper
written purchasing instructions to the Fund. The order will be placed by
Hopper Soliday or Edgewood Services, Inc. when payment is received. Payment
for shares purchased through Dauphin Deposit must be received on the next
business day after placing the order.
BY CHECK. Purchases of shares by check must be made payable to the Fund and
sent to Hopper Soliday, 1703 Oregon Pike, P.O. Box 4548, Lancaster, PA
17604-4548.
BY WIRE. To purchase shares by wire, Dauphin Deposit trust and
institutional investors should contact their account officer. All other
shareholders should contact Hopper Soliday.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund by an investor is $10,000.
Subsequent investments must be in amounts of at least $50. These minimums
may be waived (or lowered) for purchases by the Trust and Financial
Services Group of Dauphin Deposit and its affiliates for fiduciary or
custodial accounts and for certain purchases by employees of Dauphin
Deposit Corporation and its subsidiaries. An institutional investor's
minimum investment will be calculated by combining all accounts it
maintains with the Marketvest Group of Funds.
WHAT SHARES COST
Shares of the Fund are sold at their net asset value next determined after
an order is received, plus a sales charge, as follows:
Sales Charge as a Sales Charge as a
Amount of Percentage of Public Percentage of Net
Transaction Offering Price Amount Invested
Less than $100,000 1.50% 1.52%
$100,000 but less than $250,000 1.00 1.01%
$250,000 but less than $500,000 0.75% 0.76%
$500,000 or more 0.50% 0.50%
The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, Monday through Friday,
except on: (i) days on which there are not sufficient changes in the value
of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no shares are tendered for
redemption and no orders to purchase shares are received; and (iii) the
following holidays: New Year's Day, Martin Luther King Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day,
Veterans' Day, Thanksgiving Day, and Christmas Day.
PURCHASES AT NET ASSET VALUE. Shares of the Fund may be purchased at net
asset value, without a sales charge, by the Trust and Financial Services
Division of Dauphin Deposit and their affiliates for accounts in which the
Trust and Financial Services Division serves in the capacity of Trustee,
Guardian, Attorney-in-fact, Executor, Administrator, Investment Advisor,
Managing Agent, or Custodian under the Uniform Gifts to Minors Act, by
trust companies, by trust departments of other financial institutions, and
by banks and savings and loans (savings associations) for their accounts.
Board Members, emeritus trustees, employees and retired employees of
Marketvest Funds, Inc. and Marketvest Funds, Dauphin Deposit Corporation
and its subsidiaries, including Dauphin Deposit and Hopper Soliday, or
Edgewood Services, Inc. or their affiliates, or any bank or investment
dealer who has a sales agreement with Edgewood Services, Inc. with regard
to the Fund, and their spouses and children under 21, may also buy shares
at net asset value, without a sales charge. However, purchases of Fund
shares at net asset value under brokerage accounts established with Hopper
Soliday may be subject to per-transaction charges. Shareholders should
consult Hopper Soliday for more information about its charges.
SALES CHARGE REALLOWANCE. For sales of shares of the Fund, a dealer will
normally receive up to 85% of the applicable sales charge. For shares sold
with a sales charge, Hopper Soliday will receive 85% of the applicable
sales charge for purchases of shares of the Fund made directly through
Hopper Soliday.
The sales charge for shares sold other than through Hopper Soliday or
registered broker/dealers will be retained by the distributor. However, the
distributor will, periodically, uniformly offer to pay to dealers
additional amounts in the form of cash or promotional incentives, such as
reimbursement of certain expenses of qualified employees and their spouses
to attend informational meetings about the Fund or other special events at
recreational-type facilities, or items of material value. Such payments,
all or a portion of which may be paid from the sales charge the distributor
normally retains or any other source available to it, will be predicated
upon the amount of shares of the Fund that are sold by the dealer.
REDUCING THE SALES CHARGE
The sales charge can be reduced on the purchase of shares through:
quantity discounts and accumulated purchases;
signing a 13-month letter of intent;
using the reinvestment privilege; or
concurrent purchases.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table above,
larger purchases reduce the sales charge paid. The Fund will combine
purchases made on the same day by the investor, the investor's spouse, and
the investor's children under age 21 when it calculates the sales charge.
If an additional purchase of shares of the Fund is made, the Fund will
consider the previous purchases still invested in any of the Markevest
Group of Funds. For example, if a shareholder of the Fund already owns
shares having a current value at the public offering price of $90,000 and
purchases $10,000 more at the current public offering price, the sales
charge on the additional purchase according to the schedule now in effect
would be 1.00%, not 1.50%.
To receive the sales charge reduction, Hopper Soliday or the distributor
must be notified by the shareholder in writing or by the shareholder's
financial institution at the time the purchase is made that Fund shares are
already owned or that purchases are being combined. The Fund will reduce
the sales charge after it confirms the purchases.
LETTER OF INTENT. If a shareholder intends to purchase at least $100,000 of
shares in the Fund over the next 13 months, the sales charge may be reduced
by signing a letter of intent to that effect. This letter of intent
includes a provision for a sales charge adjustment depending on the amount
actually purchased within the 13-month period and a provision for the
custodian to hold up to 1.50% of the total amount intended to be purchased
in escrow (in shares of the Marketvest Group of Funds) until such purchase
is completed.
The shares held in escrow will be applied to the shareholder's account at
the end of the 13-month period unless the amount specified in the letter of
intent is not purchased. In this event, an appropriate number of escrowed
shares may be redeemed in order to realize the difference in the sales
charge. This letter of intent will not obligate the shareholder to purchase
shares, but if the shareholder does so, each purchase during the period
will be at the sales charge applicable to the total amount intended to be
purchased. This letter may be dated as of a prior date to include any
purchases made within the past 90 days; however, these previous purchases
will not receive the reduced sales charge.
REINVESTMENT PRIVILEGE. If shares in the Fund have been redeemed, the
shareholder has a one-time right, within 30 days, to reinvest the
redemption proceeds at the next-determined net asset value without any
sales charge. Hopper Soliday or the distributor must be notified by the
shareholder in writing or by the shareholder's financial institution of the
reinvestment in order to eliminate a sales charge. If the shareholder
redeems his or her shares in the Fund, there may be tax consequences.
Shareholders contemplating such transactions should consult their own tax
advisers.
CONCURRENT PURCHASES. For purposes of qualifying for a sales charge
reduction, a shareholder has the privilege of combining concurrent
purchases of two or more funds in Marketvest Group of Funds, the purchase
price of which includes a sales charge. For example, if a shareholder
concurrently invested $90,000 in shares of the Fund with a sales charge,
and $10,000 in shares of another fund in Marketvest Group of Funds with a
sales charge, the sales charge would be reduced on the Fund purchase.
To receive this sales charge reduction, Hopper Soliday or the distributor
must be notified by the shareholder in writing or by their financial
institution at the time the concurrent purchases are made. The Fund will
reduce the sales charge after they confirm the purchases.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their
investment on a regular basis in a minimum amount of $50. The minimum
amount of $50 may be waived (or lowered) at times for employees of Dauphin
Deposit. Under this program, funds may be automatically withdrawn
periodically from the shareholder's checking account and invested in Fund
shares at the net asset value next determined after an order is received by
the Fund, plus the applicable sales charge. A shareholder may apply for
participation in this program through Hopper Soliday.
EXCHANGING SECURITIES FOR FUND SHARES
A complete description of how the Fund may accept securities in exchange
for Fund shares is explained in the Fund's Combined Statement of Additional
Information under "Exchanging Securities for Fund Shares."
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Shareholder Services Company
maintains a share account for each shareholder. Share certificates will not
be issued.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. In addition, confirmations are sent to report dividends paid.
DIVIDENDS AND CAPITAL GAINS
Dividends are declared and paid annually. Dividends and distributions are
automatically reinvested in additional shares of the Fund on payment dates
at the ex-dividend date net asset value without a sales load, unless
shareholders request cash payments by contacting the Fund. All
shareholders on the record date are entitled to the dividend. If shares
are redeemed or exchanged prior to the record date or purchased after the
record date, those shares are not entitled to that year's dividend. Capital
gains realized by the Fund, if any, will be distributed at least once every
12 months. Dividends and capital gains will be automatically reinvested in
additional shares on payment dates at the ex-dividend date net asset value
without a sales charge, unless cash payments are requested by writing to
the Fund.
EXCHANGE PRIVILEGE
Shareholders may exchange shares of the Fund for shares of any of the other
funds (except the Equity Fund) in the Marketvest Group of Funds at net
asset value without any sales charge; exchanges into the Equity Fund may be
done at net asset value plus the difference between the Fund's sales charge
already paid and the applicable sales charge on shares of the Equity Fund
to be acquired in the exchange. Shares of any of the funds in the
Marketvest Group of Funds may be exchanged for shares of the Fund at net
asset value. In addition, shares of the Fund may be exchanged for shares
(which are sold at net asset value without a sales load) of the following
funds distributed by Federated Securities Corp.:
Liberty U.S. Government Money Market Trust--a US government money market
fund; and
Pennsylvania Municipal Cash Trust (Institutional Service Shares)--a
Pennsylvania municipal money market fund.
Shareholders who exercise this exchange privilege must exchange shares
having a net asset value of at least $1,000. Prior to any exchange, the
shareholder must receive a copy of the current prospectus of the
participating fund into which an exchange is to be made.
Upon receipt by Federated Shareholder Services Company of proper
instructions and all necessary supporting documents, shares submitted for
exchange will be redeemed at the next determined net asset value. If the
exchanging shareholder does not have an account in the participating fund
whose shares are being acquired, a new account will be established with the
same registration, dividend, and capital gain options as the account from
which shares are exchanged, unless otherwise specified by the shareholder.
In the case where the new account registration is not identical to that of
the existing account, a signature guarantee is required. (See "Redeeming
Shares by Mail").
Exercise of this privilege is treated as a redemption and a new purchase
for federal income tax purposes and, depending on the circumstances, a
short or long-term capital gain or loss may be realized. The Fund reserves
the right to modify or terminate the exchange privilege at any time.
Shareholders would be notified prior to any modification or termination.
Shareholders may obtain further information on the exchange privilege by
calling their Hopper Soliday representative or an authorized broker.
EXCHANGE BY TELEPHONE
Shareholders may provide instructions for exchanges between participating
funds by calling Hopper Soliday toll-free at 1-800-MKT-VEST (1-800-658-
8378). In addition, investors may exchange shares by calling their
authorized broker directly.
An authorization form permitting the Fund to accept telephone exchange
requests must first be completed. It is recommended that investors request
this privilege at the time of their initial application. If not completed
at the time of initial application, authorization forms and information on
this service can be obtained through a Hopper Soliday representative or
authorized broker.
Shares may be exchanged by telephone only between fund accounts having
identical shareholder registrations. Telephone exchange instructions may be
recorded. If reasonable procedures are not followed by the Fund, it may be
liable for losses due to unauthorized or fraudulent telephone instructions.
Telephone exchange instructions must be received by Hopper Soliday or an
authorized broker and transmitted to Federated Shareholder Services Company
before 3:00 p.m. (Eastern time) for shares to be exchanged the same day.
Shareholders who exchange into shares of the Fund will not receive a
dividend from the Fund on the date of the exchange.
Shareholders of the Fund may have difficulty in making exchanges by
telephone through banks, brokers, and other financial institutions during
times of drastic economic or market changes. If shareholders cannot contact
their Hopper Soliday representative or authorized broker by telephone, it
is recommended that an exchange request be made in writing and sent by mail
for next day delivery.
WRITTEN EXCHANGE
An investor may exchange shares by sending a written request to Hopper
Soliday, 1703 Oregon Pike, PO Box 4548, Lancaster, PA 17604-4548. In
addition, trust and institutional investors of Dauphin Deposit wishing to
make an exchange by written request may do so by sending it to their
account officer, c/o Dauphin Deposit Bank and Trust Company, 213 Market
Street, Harrisburg, PA 17101.
REDEEMING SHARES
The Fund redeems shares at their net asset value next determined after the
Fund receives the redemption request. Redemption's will be made on days on
which the Fund computes its net asset value. Telephone or written requests
for redemption's must be received in proper form and can be made through
Hopper Soliday or Dauphin Deposit.
The Fund reserves the right to restrict or terminate wire redemption
privileges.
BY TELEPHONE. To redeem shares of the Fund through Hopper Soliday, call
toll-free 1-800-MKT-VEST (1-800-658-8378). Trust and institutional
investors of Dauphin Deposit should contact their account officer to make
redemption requests. Shares of the Fund will be redeemed at the net asset
value next determined after the Fund receives the redemption request from
Hopper Soliday or Dauphin Deposit. The Fund reserves the right to restrict
or terminate wire redemption privileges.
A redemption request must be received by Hopper Soliday or Dauphin Deposit
before 4:00 p.m. (Eastern time) in order for shares of the Fund to be
redeemed at that day's net asset value. Redemption requests through
registered broker/dealers must be received by Hopper Soliday before 3:00
p.m. (Eastern time) in order for shares to be redeemed at that day's net
asset value. Hopper Soliday and Dauphin Deposit are responsible for
promptly submitting redemption requests and providing proper written
redemption instructions to the Fund. Registered broker/dealers may charge
customary fees and commissions for this service. In no event will proceeds
be sent more than seven days after a proper request for redemption has been
received.
An authorization form permitting the Fund to accept telephone requests must
first be completed. Authorization forms and information on this service are
available from Hopper Soliday or Dauphin Deposit. Telephone redemption
instructions may be recorded. If reasonable procedures are not followed by
the Fund, it may be liable for losses due to unauthorized or fraudulent
telephone instructions.
In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If such a case should
occur, another method of redemption should be utilized, such as a written
request to Hopper Soliday or Dauphin Deposit.
If, at any time, the Fund shall determine it necessary to terminate or
modify this method of redemption, shareholders would be promptly notified.
BY MAIL. Any shareholder may redeem shares of the Fund by sending a written
request to Hopper Soliday. Trust and institutional investors should send a
written request to Dauphin Deposit. The written request should include the
shareholder's name, the Fund's name, the account number, and the share or
dollar amount requested. Shareholders should call Hopper Soliday or Dauphin
Deposit for assistance in redeeming by mail.
SIGNATURES. Shareholders requesting a redemption of any amount to be sent
to an address other than that on record with the Fund, or a redemption
payable other than to the shareholder of record must have signatures on
written redemption requests guaranteed by:
a trust company or commercial bank whose deposits are insured by
the Bank Insurance Fund ("BIF"), which is administered by the
Federal Deposit Insurance Corporation ("FDIC");
a member of the New York, American, Boston, Midwest, or Pacific
Stock Exchange;
a savings bank or savings association whose deposits are insured by
the Savings Association Insurance Fund ("SAIF"), which is
administered by the FDIC; or
any other "eligible guarantor institution," as defined in the
Securities Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Fund may elect in the
future to limit eligible signature guarantors to institutions that are
members of a signature guarantee program. The Fund and its transfer agent
reserve the right to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day, but
in no event more than seven days, after receipt of a proper written
redemption request.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount may
take advantage of the Systematic Withdrawal Program. Under this program,
Fund shares are redeemed to provide for periodic withdrawal payments in an
amount directed by the shareholder. Depending upon the amount of the
withdrawal payments, the amount of dividends paid and capital gains
distributions with respect to Fund shares, and the fluctuation of the net
asset value of Fund shares redeemed under this program, redemptions may
reduce, and eventually deplete, the shareholder's investment in the Fund.
For this reason, payments under this program should not be considered as
yield or income on the shareholder's investment in the Fund. To be eligible
to participate in this program, a shareholder must have an account value of
at least $10,000. A shareholder may apply for participation in this
program through Hopper Soliday. Due to the fact that shares are sold with a
sales charge, it may not be advisable for shareholders to be purchasing
shares while participating in this program.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund
may redeem shares in any account and pay the proceeds to the shareholder if
the account balance falls below the required minimum value of $1,000 due to
shareholder redemptions. This requirement does not apply, however, if the
balance falls below $1,000 because of changes in the Fund's net asset
value. Before shares are redeemed to close an account, the shareholder is
notified in writing and allowed 30 days to purchase additional shares to
meet the minimum requirement.
SHAREHOLDER INFORMATION
There is a remote possibility that one fund within Marketvest Group of
Funds may become liable for any misstatement, inaccuracy or incomplete
disclosure in the prospectus or Statement of Additional Information about
another fund within Marketvest Group of Funds.
MARKETVEST FUNDS
VOTING RIGHTS. Each share of the Fund gives the shareholder one vote in
Board Member elections and other matters submitted to shareholders for
vote.
As a Massachusetts business trust, Marketvest Funds is not required to hold
annual shareholder meetings. Shareholder approval will be sought only for
certain changes in the operation of Marketvest Funds or the Fund and for
the election of Board Members under certain circumstances.
Board Members may be removed by the Board Members or by shareholders at a
special meeting. A special meeting of the shareholders for this purpose
shall be called by the Board Members upon the written request of
shareholders owning at least 10% of the outstanding shares of all series of
Marketvest Funds entitled to vote.
When the Fund is asked to vote on matters relating to the underlying funds,
the Fund is required to either: seek voting instructions from its
shareholders regarding underlying fund proxies and to vote such proxies in
accordance with the instructions received; or to vote such proxies in the
same proportion as the vote of all other holders of the underlying fund
securities.
EFFECT OF BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations presently
prohibit a bank holding company registered under the Bank Holding Company
Act of 1956, as amended, or any bank or non-bank affiliate thereof from
sponsoring, organizing, controlling, or distributing the shares of a
registered, open-end investment company continuously engaged in the
issuance of its shares, and prohibit banks generally from underwriting, or
distributing certain types of securities such as shares of a registered
open-end investment company. Such laws and regulations do not prohibit such
a holding company or bank or non-bank affiliate from acting as investment
adviser, transfer agent, or custodian to such an investment company or from
purchasing shares of such a company as agent for and upon the order of
their customer. The Fund's Adviser, Dauphin Deposit, is subject to such
banking laws and regulations. In addition, the Fund may enter into
brokerage transactions with Hopper Soliday, which is an affiliate of
Dauphin Deposit (see "Brokerage Transactions").
Dauphin Deposit believes, based on the advice of its counsel, that it may
perform the investment advisory services for the Fund contemplated by its
advisory agreements with the Fund without violating the Glass-Steagall Act
or other applicable banking laws or regulations. Such counsel has pointed
out, however, that changes in either federal or state statutes and
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of present or future statutes and regulations,
could prevent Dauphin Deposit from continuing to perform all or a part of
the above services for its customers and/or the Fund. In such event,
changes in the operation of the Fund may occur, including the possible
alteration or termination of any automatic or other Fund share investment
and redemption services then being provided by Dauphin Deposit, and the
Board Members would consider alternative investment advisers and other
means of continuing available investment services. It is not expected that
Fund shareholders would suffer any adverse financial consequences (if
another adviser with equivalent abilities to Dauphin Deposit is found) as a
result of any of these occurrences.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund expects to pay no federal income tax because it intends to meet
requirements of the Internal Revenue Code (the `Code'') applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies.
The Fund will be treated as a single, separate entity for federal income
tax purposes so that income (including capital gains) and losses realized
by the Fund will not be combined for tax purposes with those realized by
any of the other funds in the Marketvest Group of Funds.
Unless otherwise exempt, Fund shareholders are required to pay federal
income tax on any dividends and other distributions received. This applies
whether dividends and distributions are received in cash or additional
shares. The Fund will provide detailed tax information for reporting
purposes.
Shareholders are urged to consult their own tax advisers regarding the
status of their accounts under state and local tax laws.
The Fund may invest in underlying funds with capital loss carry-forwards.
If such an underlying fund realizes capital gains, it will be able to
offset the gains to the extent of its loss carry-forwards in determining
the amount of capital gains which must be distributed to its shareholders.
To the extent that gains are offset in this manner, the Fund will not
realize gains on the related fund until such time as the underlying fund is
sold.
Income received by the underlying funds from sources within various foreign
countries may be subject to foreign income taxes withheld at the source.
Since less than 50% of the value of the Fund's total assets at the close of
its taxable year is expected to consist of stock or securities of foreign
corporations, the Fund is not permitted to elect to "pass through" to the
Fund's shareholders the amount of foreign income taxes paid by the
underlying funds. Each shareholder's respective pro rata share of foreign
taxes paid by the underlying funds will, therefore, be netted against their
share of the underlying fund's gross income.
The Fund's transactions in foreign currencies and hedging activities may
give rise to ordinary income or loss to the extent such income or loss
results from fluctuations in value of the foreign currency concerned. In
addition, such activities will likely produce a difference between book
income and taxable income. This difference may cause a portion of the
Fund's income distributions to constitute a return of capital for tax
purposes or require the Fund to make distributions exceeding book income to
qualify as a regulated investment company for tax purposes.
The foregoing discussion relates only to U.S. federal income tax law as
applicable to U.S. citizens or residents. Foreign shareholders (i.e.,
nonresident alien individuals and foreign corporations, partnerships,
trusts, and estates) generally are subject to U.S. withholding tax at the
rate of 30% (or lower tax treaty rate) on distributions derived from net
investment income and short-term capital gains. Distributions to foreign
shareholders of long-term capital gains and any gains from the sale or
other disposition of shares of the Fund generally are not subject to U.S.
taxation. Distributions by the Fund also may be subject to state, local and
foreign taxes, and their treatment under applicable tax laws may differ
from the federal income tax treatment.
PERFORMANCE INFORMATION
From time to time, the Fund may advertise total return.
Total return represents the change, over a specified period of time, in the
value of an investment in the Fund after reinvesting all income and capital
gains distributions. It is calculated by dividing that change by the
initial investment and is expressed as a percentage.
The performance information normally reflects the effect of the maximum
sales load which, if excluded, would increase the total return.
From time to time, advertisements for the Fund may refer to ratings,
rankings, and other information in certain financial publications and/or
compare the Fund's performance to certain indices.
PERFORMANCE INFORMATION FOR PREDECESSOR COLLECTIVE INVESTMENT FUND
The Fund emanates from a collective investment fund that was managed by the
Adviser (the "Collective Fund"). The assets from the Collective Fund were
transferred to the Fund in connection with the Fund's commencement of
operations.
Set forth below are certain performance data for the Collective Fund as of
November 30, 1996, which was not a registered investment company under the
1940 Act. This information is deemed relevant because the Collective Fund
has been managed using substantially the same investment objective,
policies, and limitations as those used by the Fund. However, the past
performance data shown below is not necessarily indicative of the Fund's
future performance. The Fund is actively managed, and its investments will
vary from time to time. The Fund's investments are not identical to the
past portfolio investments of the Collective Fund. Moreover, the Collective
Fund did not incur expenses that correspond to the advisory,
administrative, and other fees to which the Fund is subject. Accordingly,
the performance information shown below has been adjusted to reflect the
anticipated total expense ratios for the Fund. This adjustment has the
effect of lessening the actual performance for the Collective Fund. Because
a sales load was not imposed on the Collective Fund, the performance
figures shown below have been adjusted to reflect the effect of the maximum
sales load of the Fund (i.e., 1.50%) applicable to certain purchasers of
the Fund. This adjustment further reduces the actual performance of the
Collective Fund. Corresponding performance figures which do not reflect the
sales load are also provided.
1 Year 3 Year 5 Year Since
Inception*
LOAD 16.72% 11.98% 12.31% 10.34%
NO LOAD 18.53% 12.56% 12.66% 10.64%
*The inception date of the Collective Fund was May 31, 1991.
APPENDIX
STANDARD & POOR'S RATINGS GROUP (`S&P'') CORPORATE BOND RATING DEFINITIONS
AAA-Debt rated `AAA'' has the highest rating assigned by S&P. Capacity to
pay interest and repay principal is extremely strong.
AA-Debt rated `AA'' has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small degree.
A-Debt rated `A'' has a strong capacity to pay interest and repay
principal, although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher-
rated categories.
BBB-Debt rated `BBB'' is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher-rated
categories.
BB, B, CCC, CC-Debt rated `BB'', ``B'', `CCC'', and ``CC'' is regarded, on
balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the
obligation. `BB'' indicates the lowest degree of speculation and ``CC'' the
highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties of major risk exposures to adverse conditions.
CI-The rating `CI'' is reversed for income bonds on which no interest is
being paid.
D-Debt rated `D'' is in default, and payment of interest and/or repayment
of principal is in arrears.
MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATING DEFINITIONS
AAA-Bonds which are rated `Aaa'' are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally
referred to as `gilt edged.'' Interest payments are protected by a large
or an exceptionally stable margin and principal is secure. While the
various protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position of
such issues.
AA-Bonds which are rated `Aa'' are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A-Bonds which are rated `A'' possess many favorable investment attributes
and are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
near future.
BAA-Bonds which are rated `Baa'' are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and, in fact, have speculative characteristics
as well.
BA-Bonds which are `Ba'' are judged to have speculative elements; their
future cannot be considered well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B-Bonds which are rated `B'' generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
CAA-Bonds which are rated `Caa'' are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to
principal or interest.
CA-Bonds which are `Ca'' represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C-Bonds which are rated `C'' are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
FITCH INVESTORS SERVICE, INC. BOND RATING DEFINITIONS
AAA-Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA-Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated `AAA.'' Because bonds rated in
the `AAA'' and ``AA'' categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated `F-1+.''
A-Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered strong,
but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB-Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economicc conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
BB-Bonds are considered speculative. The obligor's ability to pay interest
and repay principal may be affected over time by adverse economic changes.
However, business and financial alternatives can be identified which could
assist the obligor in satisfying its debt service requirements.
B-Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited
margin of safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC-Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC-Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C-Bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D-Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of
their ultimate recovery value in liquidation or reorganization of the
obligor. `DDD'' represents the highest potential for recovery on these
bonds, and `D'' represents the lowest potential for recovery.
Addresses
Marketvest International Equity Fund
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Distributor
Edgewood Services, Inc. Clearing Operations
P.O. Box 897
Pittsburgh, Pennsylvania 15230-0897
Investment Adviser
Dauphin Deposit Bank and Trust Company 213 Market Street
Harrisburg, Pennsylvania 17101
Custodian
Dauphin Deposit Bank and Trust Company 213 Market Street
Harrisburg, Pennsylvania 17101
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Portfolio Accounting Services
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Independent Auditors
Ernst & Young LLP One Oxford Centre
Pittsburgh, Pennsylvania 15219
PROSPECTUS
Marketvest International Equity Fund
(A Portfolio of Marktvest Group of Funds)
March , 1997
--
[LOGO OF MARKETVEST FUNDS]
[LOGO OF DAUPHIN DEPOSIT BANK AND TRUST COMPANY]
Investment Adviser
Edgewood Services, Inc.
Federated Investors Tower
Pittsburgh, PA 15222-3779
Edgewood Services, Inc. is the distributor of the Fund
and a subsidiary of Federated Investors.
(1/97)
- ---------
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This Combined Statement of Additional Information shall
not constitute an offer to sell or the solicitation of an offer to buy nor
shall there be any sale of these securities in any State in which such
offer, solicitation, or sale would be unlawful under the securities laws of
any such State.
SUBJECT TO COMPLETION
PRELIMINARY COMBINED STATEMENT OF ADDITIONAL INFORMATION
DATED DECEMBER 31, 1996
MARKETVEST GROUP OF FUNDS
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This Combined Statement of Additional Information relates to the
following five portfolios (individually, the ``Fund,''or collectively,
the ``Funds') comprising the Marketvest Group of Funds:
o Marketvest Equity Fund;
o Marketvest International Equity Fund;
o Marketvest Pennsylvania Intermediate Municipal Bond Fund;
o Marketvest Short-Term Bond Fund; and
o Marketvest Intermediate U.S. Government Bond Fund.
This Combined Statement of Additional Information should be read with
the combined prospectus of the Marketvest Equity Fund, Marketvest
Pennsylvania Intermediate Municipal Bond Fund, Marketvest Short-Term
Bond Fund and Marketvest Intermediate U.S. Government Bond Fund dated
January 5, 1996 (Revised September 30, 1996) and the prospectus of the
International Equity Fund dated March , 1997. This Statement is not a
--
prospectus itself. To receive a copy of either prospectus, write to the
Funds or call Hopper Soliday and Co., Inc. at 1-800-MKT-VEST (1-800-
658-8378). Terms used but not defined herein, which are defined in the
prospectuses, are used herein as defined in the prospectuses.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated March , 1997
--
Edgewood Services, Inc.
DISTRIBUTOR DAUPHIN DEPOSIT BANK AND TRUST COMPANY
A SUBSIDIARY OF FEDERATED INVESTORS INVESTMENT ADVISER
INVESTMENT OBJECTIVE AND POLICIES OF THE FUNDS 4
CONVERTIBLE SECURITIES 5
WARRANTS 7
FUTURES AND OPTIONS TRANSACTIONS 8
FUTURES CONTRACTS 8
``MARGIN'' IN FUTURES TRANSACTIONS 9
PUT OPTIONS ON FUTURES CONTRACTS 10
STOCK INDEX OPTIONS 11
CALL OPTIONS ON FINANCIAL AND STOCK INDEX FUTURES CONTRACTS 12
PURCHASING PUT AND CALL OPTIONS ON PORTFOLIO SECURITIES 13
WRITING COVERED PUT AND CALL OPTIONS ON PORTFOLIO SECURITIES 14
OVER-THE-COUNTER OPTIONS 14
RISKS 4
FOREIGN SECURITIES 5
FOREIGN CURRENCY HEDGING TRANSACTIONS 5
PENNSYLVANIA MUNICIPAL SECURITIES 19
PARTICIPATION INTERESTS 21
VARIABLE RATE MUNICIPAL SECURITIES 21
MUNICIPAL LEASES 6
WEIGHTED AVERAGE PORTFOLIO MATURITY 22
ADJUSTABLE RATE MORTGAGE SECURITIES ("ARMS") 23
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS") 7
REAL ESTATE MORTGAGE INVESTMENT CONDUITS ("REMICS") 25
PRIVATELY ISSUED MORTGAGE-RELATED SECURITIES 26
RESETS OF INTEREST 26
CAPS AND FLOORS 27
SWAP AGREEMENTS 9
CREDIT FACILITIES 9
FOREIGN BANK INSTRUMENTS 30
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS 31
REPURCHASE AGREEMENTS 31
CREDIT ENHANCEMENT 31
RESTRICTED AND ILLIQUID SECURITIES 32
REVERSE REPURCHASE AGREEMENTS 33
LENDING OF PORTFOLIO SECURITIES 34
PORTFOLIO TURNOVER 34
PENNSYLVANIA INVESTMENT RISKS 35
INVESTMENT LIMITATIONS 36
MARKETVEST FUNDS, INC. MANAGEMENT
MARKETVEST FUNDS MANAGEMENT 41
OFFICERS AND BOARD MEMBERS 41
FUND OWNERSHIP 16
DIRECTORS' COMPENSATION TABLE--MARKETVEST FUNDS, INC. (THE
``CORPORATION'') 16
TRUSTEES' COMPENSATION TABLE--MARKETVEST FUNDS (THE ``TRUST'') 17
TRUSTEE LIABILITY 49
INVESTMENT ADVISORY SERVICES 50
ADVISER TO THE FUNDS 50
ADVISORY FEES 18
OTHER SERVICES 51
ADMINISTRATION OF THE FUNDS 51
CUSTODIAN 51
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND PORTFOLIO ACCOUNTING
SERVICES 51
INDEPENDENT AUDITORS 52
BROKERAGE TRANSACTIONS 52
PURCHASING SHARES 55
DISTRIBUTION PLAN 55
ADMINISTRATIVE ARRANGEMENTS 56
CONVERSION TO FEDERAL FUNDS 56
EXCHANGING SECURITIES FOR FUND SHARES 20
DETERMINING NET ASSET VALUE 57
DETERMINING MARKET VALUE OF SECURITIES 58
TRADING IN FOREIGN SECURITIES 58
VALUING MUNICIPAL BONDS 21
EXCHANGE PRIVILEGE 60
REDEEMING SHARES 60
REDEMPTION IN KIND 60
MASSACHUSETTS PARTNERSHIP LAW 22
TAX STATUS 22
THE FUNDS' TAX STATUS 61
SHAREHOLDERS' TAX STATUS 23
TOTAL RETURN 24
YIELD 24
TAX-EQUIVALENT YIELD 24
TAX-EQUIVALENCY TABLE 24
PERFORMANCE COMPARISONS 69
ECONOMIC AND MARKET INFORMATION 27
FINANCIAL STATEMENTS 27
APPENDIX 28
INVESTMENT OBJECTIVE AND POLICIES OF THE FUNDS
The Funds' prospectuses discuss the Funds' investment objectives and the
policies employed to achieve those objectives. The following discussion
supplements the description of the Funds' investment policies in the
prospectuses.
The Funds' respective investment objectives cannot be changed without the
approval of that Fund's shareholders. Unless otherwise indicated, the
investment policies described below may be changed by the Board of Trustees
or the Board of Directors (hereinafter referred to as `Board Members'')
without shareholder approval. Shareholders will be notified before any
material change in these policies becomes effective.
The International Equity Fund seeks to achieve its investment objective by
investing primarily in shares of other investment companies (the
`underlying funds''). To the extent that the International Equity Fund's
assets are invested in underlying funds, its investment experience will
correspond directly with that of its proportionate investment in those
funds. The International Equity Fund may also invest directly in the
securities held by the underlying funds. Because the International Equity
Fund and the underlying funds will have substantially similar investment
experiences and incur similar risks, all further references to the
International Equity Fund hereinafter include the underlying funds unless
otherwise indicated. Although many of the underlying funds have the same or
similar investment policies as the International Equity Fund, they are not
required to do so.
CONVERTIBLE SECURITIES
The Equity Fund and the International Equity Fund may invest in convertible
securities. Convertible bonds and convertible preferred stocks are fixed
income securities that generally retain the investment characteristics of
fixed income securities until they have been converted but also react to
movements in the underlying equity securities. The holder is entitled to
receive the fixed income of a bond or the dividend preference of a
preferred stock until the holder elects to exercise the conversion
privilege. Usable bonds are corporate bonds that can be used, in whole or
in part, customarily at full face value, in lieu of cash to purchase the
issuer's common stock. When owned as part of a unit along with warrants,
which are options to buy the common stock, they function as convertible
bonds, except that the warrants generally will expire before the bond's
maturity. Convertible securities are senior to equity securities and,
therefore, have a claim to assets of the corporation prior to the holders
of common stock in the case of liquidation. However, convertible securities
are generally subordinated to similar nonconvertible securities of the same
company. The interest income and dividends from convertible bonds and
preferred stocks provide a stable stream of income with generally higher
yields than common stocks, but lower than non-convertible securities of
similar quality.
The Funds will exchange or convert the convertible securities held in their
respective portfolios into shares of the underlying common stock in
instances in which, in the Adviser's opinion, the investment
characteristics of the underlying common shares will assist a Fund in
achieving its investment objective. Otherwise, the Funds will hold or trade
the convertible securities. In selecting convertible securities for a Fund,
the Adviser evaluates the investment characteristics of the convertible
security as a fixed income instrument and the investment potential of the
underlying equity security for capital appreciation. In evaluating these
matters with respect to a particular convertible security, the Adviser
considers numerous factors, including the economic and political outlook,
the value of the security relative to other investment alternatives, trends
in the determinants of the issuer's profits, and the issuer's management
capability and practices.
Usable bonds are corporate bonds that can be used in whole or in part,
customarily at full face value, in lieu of cash to purchase the issuer's
common stock. When owned as part of a unit along with warrants, which
entitle the holder to buy the common stock, they function as convertible
bonds, except that the warrants generally will expire before the bonds'
maturity. Convertible securities are senior to equity securities and,
therefore, have a claim to assets of the corporation prior to the holders
of common stock in the case of liquidation. However, convertible securities
are generally subordinated to similar nonconvertible securities of the same
company.
The Funds will exchange or convert the convertible securities held in their
respective portfolios into shares of the underlying common stocks when, in
the Adviser's opinion, the investment characteristics of the underlying
common shares will assist the Funds in achieving their investment
objectives. Otherwise, the Funds will hold or trade the convertible
securities. In selecting convertible securities for the Funds, the Adviser
evaluates the investment characteristics of the convertible security as a
fixed income instrument, and the investment potential of the underlying
equity security for capital appreciation. In evaluating these matters with
respect to a particular convertible security, the Adviser considers
numerous factors, including the economic and political outlook, the value
of the security relative to other investment alternatives, trends in the
determinants of the issuer's profits, and the issuer's management
capability and practices.
WARRANTS
The Equity Fund and the International Equity Fund may invest in warrants.
Warrants provide an option to purchase common stock at a specific price
(usually at a premium above the market value of the optioned common stock
at issuance) valid for a specific period of time. Warrants may have a life
ranging from less than a year to twenty years or may be perpetual. However,
most warrants have expiration dates after which they are worthless. In
addition, if the market price of the common stock does not exceed the
warrant's exercise price during the life of the warrant, the warrant will
expire as worthless. Warrants have no voting rights, pay no dividends, and
have no rights with respect to the assets of the corporation issuing them.
The percentage increase or decrease in the market price of the warrant may
tend to be greater than the percentage increase or decrease in the market
price of the underlying common stock.
FUTURES AND OPTIONS TRANSACTIONS
The Equity Fund and the International Equity Fund may engage in futures and
options transactions as described below. As a means of reducing
fluctuations in the net asset value of their shares, the Funds may attempt
to hedge all or a portion of their respective portfolios by buying and
selling financial and stock index futures contracts, buying put and call
options on portfolio securities and put options on financial futures
contracts, and writing call options on futures contracts. The Funds may
also write covered put and call options on portfolio securities to attempt
to increase their current income or to hedge a portion of their portfolio
investments. The Funds will maintain their positions in securities, option
rights, and segregated cash subject to puts and calls until the options are
exercised, closed, or have expired. An option position on futures contracts
may be closed out over-the-counter or on a nationally recognized exchange
which provides a secondary market for options of the same series. The Funds
purchase and write options only with investment dealers and other financial
institutions (such as commercial banks or savings associations) deemed
creditworthy by the Adviser.
FUTURES CONTRACTS
The Equity Fund and the International Equity Fund may purchase and sell
financial futures contracts to hedge against the effects of changes in the
value of portfolio securities due to anticipated changes in interest rates
and market conditions without necessarily buying or selling the securities.
The Funds also may purchase and sell stock index futures to hedge against
changes in prices. The Funds do not intend to engage in futures
transactions for speculative purposes, but may do so to a limited extent as
permitted by exclusions under the Commodities Exchange Act (`Act'').
A futures contract is a firm commitment by two parties: the seller who
agrees to make delivery of the specific type of security called for in the
contract (`going short'') and the buyer who agrees to take delivery of the
security (`going long'') at a certain time in the future. For example, in
the fixed income securities market, prices move inversely to interest
rates. A rise in rates means a drop in price. Conversely, a drop in rates
means a rise in price. In order to hedge its holdings of fixed income
securities against a rise in market interest rates, the Funds could enter
into contracts to deliver securities at a predetermined price (i.e., `go
short') to protect themselves against the possibility that the prices of
their fixed income securities may decline during the Funds' anticipated
holding period. A Fund would `go long'' (agree to purchase securities in
the future at a predetermined price) to hedge against a decline in market
interest rates.
Stock index futures contracts are based on indices that reflect the market
value of common stock of the firms included in the indices. An index
futures contract is an agreement pursuant to which two parties agree to
take or make delivery of an amount of cash equal to the differences between
the value of the index at the close of the last trading day of the contract
and the price at which the index contract was originally written.
`MARGIN'' IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Equity Fund and the
International Equity Fund do not pay or receive money upon the purchase or
sale of a futures contract. Rather, the Funds are required to deposit an
amount of `initial margin'' in cash or U.S. Treasury bills with their
custodian (or the broker, if legally permitted). The nature of initial
margin in futures transactions is different from that of margin in
securities transactions in that initial margin in futures transactions does
not involve the borrowing of funds by a Fund to finance the transactions.
Initial margin is in the nature of a performance bond or good faith deposit
on the contract which is returned to a Fund upon termination of the futures
contract, assuming all contractual obligations have been satisfied.
A futures contract held by a Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund
pays or receives cash, called `variation margin,'' equal to the daily
change in value of the futures contract. This process is known as `marking
to market.''Variation margin does not represent a borrowing or loan by a
Fund but is instead settlement between a Fund and the broker of the amount
one would owe the other if the futures contract expired. In computing its
daily net asset value, a Fund will mark to market its open futures
positions. A Fund is also required to deposit and maintain margin when it
writes call options on futures contracts.
PUT OPTIONS ON FUTURES CONTRACTS
The Equity Fund and the International Equity Fund may purchase listed put
options on financial and stock index futures contracts to protect portfolio
securities against decreases in value resulting from market factors, such
as an anticipated increase in interest rates. Unlike entering directly into
a futures contract, which requires the purchaser to buy a financial
instrument on a set date at a specified price, the purchase of a put option
on a futures contract entitles (but does not obligate) its purchaser to
decide on or before a future date whether to assume a short position at the
specified price.
Generally, if the hedged portfolio securities decrease in value during the
term of an option, the related futures contracts will also decrease in
value and the option will increase in value. In such an event, a Fund will
normally close out its option by selling an identical option. If the hedge
is successful, the proceeds received by a Fund upon the sale of the second
option will be large enough to offset both the premium paid by the Fund for
the original option plus the decrease in value of the hedged securities.
Alternatively, a Fund may exercise its put option to close out the
position. To do so, it would simultaneously enter into a futures contract
of the type underlying the option (for a price less than the strike price
of the option) and exercise the option. The Fund would then deliver the
futures contract in return for payment of the strike price. If a Fund
neither closes out nor exercises an option, the option will expire on the
date provided in the option contract, and only the premium paid for the
contract will be lost.
STOCK INDEX OPTIONS
The Equity Fund and the International Equity Fund may purchase put options
on stock indices listed on national securities exchanges or traded in the
over-the-counter market to protect against decreases in stock prices. A
stock index fluctuates with changes in the market values of the stocks
included in the index.
The effectiveness of purchasing stock index options will depend upon the
extent to which price movements in a Fund's portfolio correlate with price
movements of the stock index selected. Because the value of an index option
depends upon movements in the level of the index rather than the price of a
particular stock, whether a Fund will realize a gain or loss from the
purchase of options on an index depends upon movements in the level of
stock prices in the stock market generally or, in the case of certain
indices, in an industry or market segment, rather than movements in the
price of a particular stock. Accordingly, successful use by a Fund of
options on stock indices will be subject to the ability of the Adviser to
predict correctly movements in the directions of the stock market generally
or of a particular industry. This requires different skills and techniques
than predicting changes in the price of individual stocks.
CALL OPTIONS ON FINANCIAL AND STOCK INDEX FUTURES CONTRACTS
In addition to purchasing put options on futures, the Equity Fund and the
International Equity Fund may write (sell) listed and over-the-counter call
options on financial and stock index futures contracts (including cash-
settled stock index options) to hedge their respective portfolios against
an increase in market interest rates or a decrease in stock prices. When a
Fund writes a call option on a futures contract, it is undertaking the
obligation of assuming a short futures position (selling a futures
contract) at the fixed strike price at any time during the life of the
option if the option is exercised. As stock prices fall or market interest
rates rise, causing the prices of futures to go down, a Fund's obligation
under a call option on a future (to sell a futures contract) costs less to
fulfill, causing the value of the Fund's call option position to increase.
In other words, as the underlying futures price goes down below the strike
price, the buyer of the option has no reason to exercise the call, so that
a Fund keeps the premium received for the option. This premium can offset,
in whole or part, the drop in value of a Fund's portfolio securities.
Prior to the expiration of a call written by a Fund, or exercise of it by
the buyer, a Fund may close out the option by buying an identical option.
If the hedge is successful, the cost of the second option will be less than
the premium received by a Fund for the initial option. The net premium
income of a Fund will then offset, in whole or part, the decrease in value
of the hedged securities.
A Fund will not maintain open positions in futures contracts it has sold or
call options it has written on futures contracts if, in the aggregate, the
value of the open positions (marked to market) exceeds the current market
value of its securities portfolio plus or minus the unrealized gain or loss
on those open positions, adjusted for the correlation of volatility between
the hedged securities and the futures contracts. If this limitation is
exceeded at any time, a Fund will take prompt action to close out a
sufficient number of open contracts to bring its open futures and options
positions within this limitation.
PURCHASING PUT AND CALL OPTIONS ON PORTFOLIO SECURITIES
The Equity Fund and the International Equity Fund may purchase put and call
options on portfolio securities and on stock indices to protect against
price movements in particular securities in their respective portfolios. A
put option gives a Fund, in return for a premium, the right (but not the
obligation) to sell the underlying security to the writer (seller) at a
specified price during the term of the option. A call option gives a Fund,
in return for a premium, the right (but not the obligation) to buy the
underlying securities from the seller at a specified price during the term
of the option.
WRITING COVERED PUT AND CALL OPTIONS ON PORTFOLIO SECURITIES
The Equity Fund and the International Equity Fund may write covered put and
call options on their portfolio securities to generate income and thereby
protect against price movements in particular securities in their
respective portfolios. As the writer of a call option, a Fund has the
obligation upon exercise of the option during the option period to deliver
the underlying security upon payment of the exercise price. When a Fund
writes a put option on a futures contract, it is undertaking to buy a
particular futures contract at a fixed price at any time during a specified
period if the option is exercised.
A Fund may only write call options either on securities held in its
portfolio or on securities which it has the right to obtain without payment
of further consideration (or has segregated cash in the amount of any
additional consideration). In the case of put options, a Fund will
segregate cash, U.S. Treasury obligations or other liquid securities with a
value equal to or greater than the exercise price of the underlying
securities.
OVER-THE-COUNTER OPTIONS
The Equity Fund and the International Equity Fund may purchase and write
over-the-counter options on portfolio securities in negotiated transactions
with the buyers or writers of the options when options on the portfolio
securities held by a Fund are not traded on an exchange. Over-the-counter
options are two-party contracts with price and terms negotiated between
buyer and seller. In contrast, exchange-traded options are third-party
contracts with standardized strike prices and expiration dates and are
purchased from a clearing corporation. Exchange-traded options have a
continuous liquid market while over-the-counter options may not. The Funds
will not buy call options or write put options, other than to close out
open option positions, without further notification to shareholders.
RISKS
When the Equity Fund and the International Equity Fund use futures and
options on futures as hedging devices, there is a risk that the prices of
the securities subject to the futures contracts may not correlate perfectly
with the prices of the securities in their respective portfolios. This may
cause the futures contract and any related options to react differently
than the portfolio securities to market changes. In addition, the Adviser
could be incorrect in its expectations about the direction or extent of
market factors such as stock price movements. In these events, a Fund may
lose money on the futures contract or option.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the Adviser will
consider liquidity before entering into these transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise will
exist for any particular futures contract or option at any particular time.
A Fund's ability to establish and close out futures and options positions
depends on this secondary market.
The Funds will engage in futures contracts and related options in
conformity with the requirements of the Act, which entitles the Funds to an
exclusion from regulation provided that, among other representations, the
Funds use futures contracts and related options contracts solely for `bona
fide hedging purposes''within the meaning and intent of the Act, and with
respect to positions in futures contracts and related option contracts that
are not for bona fide hedging purposes, the Funds limit the aggregate
initial margin and premiums required to establish such positions to no more
than five percent of the liquidation value of their respective net assets,
after taking into account unrealized profits and unrealized losses on any
such contracts they have entered into and excluding the value of any
options that are `in-the-money'' at the time of purchase. When the Funds
purchase futures contracts, an amount of cash and cash equivalents, equal
to the underlying commodity value of the futures contracts (less any
related margin deposits), will be deposited in a segregated account with
the custodian (or the broker, if legally permitted) to collateralize the
position and thereby insure that the use of such futures contracts are
unleveraged. When the Funds sell futures contracts, they will either own or
have the right to receive the underlying future or security, or will make
deposits to collateralize the position as discussed above.
FOREIGN SECURITIES
If the International Equity Fund maintains its assets abroad, the Board
Members must consider at least annually whether maintaining the
International Equity Fund's assets with custodians in foreign countries is
consistent with the best interests of the Fund and its shareholders. The
Board Members also must consider the degree of risk involved through the
holding of portfolio securities in domestic and foreign securities
depositories. However, in the absence of willful misfeasance, bad faith or
gross negligence, any losses resulting from the holding of the Funds'
portfolio securities in foreign countries and/or with foreign custodians or
securities depositories will be at the risk of shareholders, unless the
losses are insured. No assurance can be given that the Board Members'
appraisal of the risks will always be correct or that such exchange control
restrictions or political acts of foreign governments might not occur.
Securities that are acquired by the International Equity Fund outside the
United States and that are publicly traded in the United States on a
foreign securities exchange or in a foreign securities market are not
considered by the Fund to be illiquid assets provided that: (i) the Fund
acquires and holds the securities with the intention of reselling the
securities in the foreign trading market, (ii) the Fund reasonably believes
it can readily dispose of the securities in the foreign trading market or
for cash in the United States, or (iii) foreign market and current market
quotations are readily available. Investments may be in securities of
foreign issuers, whether located in developed or undeveloped countries.
Investments in foreign securities where delivery takes place outside the
United States will have to be made in compliance with any applicable U.S.
and foreign currency restrictions and tax laws (including laws imposing
withholding taxes on any dividend or interest income) and laws limiting the
amount and types of foreign investments. Changes of government
administrations or economic or monetary policies in the United States or
abroad, or changed circumstances regarding convertibility or exchange
rates, could result in investment losses for the Fund.
FOREIGN CURRENCY HEDGING TRANSACTIONS
In order to hedge against foreign currency exchange rate risks, the
International Equity Fund may enter into forward foreign currency exchange
contracts and foreign currency futures contracts, as well as purchase put
or call options on foreign currencies, as described below. The Fund may
also conduct its foreign currency exchange transactions on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign currency exchange
market.
The International Equity Fund may enter into forward foreign currency
exchange contracts (`forward contracts'') to attempt to minimize the risk
to the Fund from adverse changes in the relationship between the U.S.
dollar and foreign currencies. A forward contract is an obligation to
purchase or sell a specific currency for an agreed price at a future date
which is individually negotiated and privately traded by currency traders
and their customers. The Fund may enter into a forward contract, for
example, when it enters into a contract for the purchase or sale of a
security denominated in a foreign currency in order to `lock in'' the U.S.
dollar price of the security. In addition, for example, when the Fund
believes that a foreign currency may suffer a substantial decline against
the U.S. dollar, it may enter into a forward contract to sell an amount of
that foreign currency approximating the value of some or all of the Fund's
portfolio securities denominated in such foreign currency, or when the Fund
believes that the U.S. dollar may suffer a substantial decline against a
foreign currency, it may enter into a forward contract to buy that foreign
currency for a fixed dollar amount. This second investment practice is
generally referred to as `cross-hedging.'' Because in connection with the
Fund's forward foreign currency transactions an amount of the Fund's assets
equal to the amount of the purchase will be held aside or segregated to be
used to pay for the commitment, the Fund will always have cash, cash
equivalents or high quality debt securities available sufficient to cover
any commitments under these contracts or to limit any potential risk. The
segregated account will be marked to market on a daily basis. While these
contracts are not presently regulated by the Commodities Futures Trading
Commission (`CFTC''), the CFTC may in the future assert authority to
regulate forward contracts. In such event, the Fund's ability to utilize
forward contracts in the manner set forth above may be restricted. Forward
contracts may limit potential gain from a positive change in the
relationship between the U.S. dollar and foreign currencies. Unanticipated
changes in currency prices may result in poorer overall performance for the
Fund than if it had not engaged in such contracts.
The International Equity Fund may purchase and write put and call options
on foreign currencies for the purpose of protecting against declines in the
dollar value of foreign portfolio securities and against increases in the
dollar cost of foreign securities to be acquired. As is the case with other
kinds of options, however, the writing of an option on foreign currency
will constitute only a partial hedge, up to the amount of the premium
received, and the Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against fluctuation in exchange rates, although, in the event of rate
movements adverse to the Fund's position, the Fund may forfeit the entire
amount of the premium plus related transaction costs. Options on foreign
currencies to be written or purchased by the Fund will be traded on U.S.
and foreign exchanges or over-the-counter.
The International Equity Fund may enter into exchange-traded contracts for
the purchase or sale for future delivery of foreign currencies (`foreign
currency futures'). This investment technique will be used only to hedge
against anticipated future changes in exchange rates which otherwise might
adversely affect the value of the Fund's portfolio securities or adversely
affect the prices of securities that the Fund intends to purchase at a
later date. The successful use of foreign currency futures will usually
depend on the ability of the adviser to forecast currency exchange rate
movements correctly. Should exchange rates move in an unexpected manner,
the Fund may not achieve the anticipated benefits of foreign currency
futures or may realize losses.
PENNSYLVANIA MUNICIPAL SECURITIES
The Pennsylvania Intermediate Municipal Bond Fund may invest in
Pennsylvania municipal securities which have the characteristics set
forth in the prospectus.
A Pennsylvania municipal security will be determined by the Fund's
Adviser to meet the quality standards established by the Board Members
if it is of comparable quality to municipal securities within the
Fund's rating requirements. The Board Members consider the
creditworthiness of the issuer of a municipal security, the issuer of
a participation interest if the Fund has the right to demand payment
from the issuer of the interest, or the guarantor of payment by either
of those issuers. The Fund is not required to sell a municipal
security if the security's rating is reduced below the required
minimum subsequent to its purchase by the Fund. The Adviser considers
this event, however, in its determination of whether the Fund should
continue to hold the security in its portfolio. If Moody's Investors
Service, Inc., Standard & Poor's Ratings Group or Fitch Investors
Service, Inc. ratings change because of changes in those organizations
or in their rating systems, the Fund will try to use comparable
ratings as standards in accordance with the investment policies
described in the Fund's prospectus.
Examples of Pennsylvania municipal securities are:
o municipal notes and municipal commercial paper;
o serial bonds sold with differing maturity dates;
o tax anticipation notes sold to finance working capital needs of
municipalities in anticipation of receiving taxes at a later date;
o bond anticipation notes sold prior to the issuance of longer-term
bonds;
o pre-refunded municipal bonds; and
o general obligation bonds secured by a municipality pledge of
taxation.
PARTICIPATION INTERESTS
The Pennsylvania Intermediate Municipal Bond Fund may invest in
participation interests. The financial institutions from which the Fund
purchases participation interests frequently provide or secure from other
financial institutions irrevocable letters of credit or guarantees and give
the Fund the right to demand payment of the principal amounts of the
participation interests plus accrued interest on short notice (usually
within seven days). The municipal securities subject to the participation
interests are not limited to the Fund's maximum maturity requirements so
long as the participation interests include the right to demand payment
from the issuers of those interests. By purchasing these participation
interests, the Fund is buying a security meeting the maturity and quality
requirements of the Fund and also is receiving the tax-free benefits of the
underlying securities.
VARIABLE RATE MUNICIPAL SECURITIES
The Pennsylvania Intermediate Municipal Bond Fund may invest in variable
rate municipal securities. Variable interest rates generally reduce changes
in the market value of municipal securities from their original purchase
prices. Accordingly, as interest rates decrease or increase, the potential
for capital appreciation or depreciation is less for variable interest rate
municipal securities than for fixed income obligations. The terms of these
variable rate demand instruments require payment of principal and accrued
interest from the issuer of the municipal obligations, the issuer of the
participation interests, or a guarantor of either issuer.
MUNICIPAL LEASES
The Pennsylvania Intermediate Municipal Bond Fund may invest up to 5% of
its net assets in municipal leases. The Fund may purchase municipal
securities in the form of participation interests which represent undivided
proportional interests in lease payments by a governmental or non-profit
entity. The lease payments and other rights under the lease provide for and
secure the payments on the certificates. Lease obligations may be limited
by municipal charter or the nature of the appropriation for the lease. In
particular, lease obligations may be subject to periodic appropriation. If
the entity does not appropriate funds for future lease payments, the entity
cannot be compelled to make such payments. Furthermore, a lease may provide
that the certificate trustee cannot accelerate lease obligations upon
default. The trustee would only be able to enforce lease payments as they
became due. In the event of default or failure of appropriation, it is
unlikely that the trustee would be able to obtain an acceptable substitute
source of payment.
In determining the liquidity of municipal lease securities, the Fund's
Adviser, under the authority delegated by the Board Members, will base its
determination on the following factors: (a) whether the lease can be
terminated by the lessee: (b) the potential recovery, if any, from a sale
of the leased property upon termination of the lease; (c) the lessee's
general credit strength (e.g., its debt, administrative, economic, and
financial characteristics and prospects); (d) the likelihood that the
lessee will discontinue appropriating funding for the leased property
because the property is no longer deemed essential to its operations (e.g.,
the potential for an `event of non-appropriation''); and (e) any credit
enhancement or legal recourse provided upon an event of non-appropriation
or other termination of the lease.
If the Fund purchases unrated municipal leases, the Board Members will be
responsible for determining, on an ongoing basis, the credit quality of
such leases and the likelihood that such leases will not be canceled.
WEIGHTED AVERAGE PORTFOLIO MATURITY
The Pennsylvania Intermediate Municipal Bond Fund, the Short-Term Bond
Fund, and the Intermediate U.S. Government Bond Fund will determine their
dollar-weighted average portfolio maturity by assigning a `weight'' to
each portfolio security based upon the pro rata market value of such
portfolio security in comparison to the market value of the entire
portfolio. The remaining maturity of each portfolio security is then
multiplied by its weight, and the results are added together to determine
the weighted average maturity of the portfolio. For purposes of calculating
its dollar-weighted average portfolio maturity, each Fund will treat
variable and floating rate instruments as having a remaining maturity
commensurate with the period remaining until the next scheduled adjustment
to the instrument's interest rate.
ADJUSTABLE RATE MORTGAGE SECURITIES ("ARMS")
The ARMS in which the Equity Fund, the International Equity Fund, the
Short-Term Bond Fund, and the Intermediate U.S. Government Bond Fund invest
will be issued by Government National Mortgage Association, Federal
National Mortgage Association, and Federal Home Loan Mortgage Corporation.
Unlike conventional bonds, ARMS pay back principal over the life of the
ARMS rather than at maturity. Thus, a holder of the ARMS, such as a Fund,
would receive monthly scheduled payments of principal and interest, and may
receive unscheduled principal payments representing prepayments on the
underlying mortgages. At the time that a holder of the ARMS reinvests the
payments and any unscheduled prepayments of principal that it receives, the
holder may receive a rate of interest which is actually lower than the rate
of interest paid on the existing ARMS. As a consequence, ARMS may be a less
effective means of "locking in" long-term interest rates than other types
of U.S. government securities.
Like other U.S. government securities, the market value of ARMS will
generally vary inversely with changes in market interest rates. Thus, the
market value of ARMS generally declines when interest rates rise and
generally rises when interest rates decline.
While ARMS generally entail less risk of a decline during periods of
rapidly rising rates, ARMS may also have less potential for capital
appreciation than other similar investments (e.g., investments with
comparable maturities) because, as interest rates decline, the likelihood
increases that mortgages will be prepaid. Furthermore, if ARMS are
purchased at a premium, mortgage foreclosures and unscheduled principal
payments may result in some loss of a holder's principal investment to the
extent of the premium paid. Conversely, if ARMS are purchased at a
discount, both a scheduled payment of principal and an unscheduled
prepayment of principal would increase current and total returns and would
accelerate the recognition of income, which would be taxed as ordinary
income when distributed to shareholders.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS")
The following example illustrates how mortgage cash flows are prioritized
in the case of CMOs. Most of the CMOs in which the Equity Fund, the
International Equity Fund, the Short-Term Bond Fund, and the Intermediate
U.S. Government Bond Fund invests use the same basic structure:
(1) several classes of securities are issued against a pool of mortgage
collateral. The most common structure contains four classes of securities.
The first three (A, B, and C bonds) pay interest at their stated rates
beginning with the issue date, and the final class (Z bond) typically
receives any excess income from the underlying investments after payments
are made to the other classes and receives no principal or interest
payments until the shorter maturity classes have been retired, but then
receives all remaining principal and interest payments;
(2) The cash flows from the underlying mortgages are applied first to pay
interest and then to retire securities; and
(3) The classes of securities are retired sequentially. All principal
payments are directed first to the shortest-maturity class (or A bond).
When those securities are completely retired, all principal payments are
then directed to the next shortest-maturity security (or B bond). This
process continues until all of the classes have been paid off.
Because the cash flow is distributed sequentially instead of pro rata, as
with pass-through securities, the cash flows and average lives of CMOs are
more predictable, and there is a period of time during which the investors
in the longer-maturity classes receive no principal paydowns. The interest
portion of these payments is distributed by a Fund as income, and the
capital portion is reinvested.
REAL ESTATE MORTGAGE INVESTMENT CONDUITS ("REMICS")
The Equity Fund, the International Equity Fund, the Short-Term Bond Fund,
and the Intermediate U.S. Government Bond Fund may invest in REMICs. REMICs
are offerings of multiple class mortgage-backed securities which qualify
and elect treatment as such under provisions of the Internal Revenue Code.
Issuers of REMICs may take several forms, such as trusts, partnerships,
corporations, associations, or segregated pools of mortgages. Once REMIC
status is elected and obtained, the entity is not subject to federal income
taxation. Instead, income is passed through the entity and is taxed to the
person or persons who hold interests in the REMIC. A REMIC interest must
consist of one or more classes of "regular interests," some of which may
offer adjustable rates of interest, and a single class of "residual
interests." To qualify as a REMIC, substantially all the assets of the
entity must be in assets directly or indirectly secured principally by real
property.
PRIVATELY ISSUED MORTGAGE-RELATED SECURITIES
The Equity Fund, the International Equity Fund, the Short-Term Bond Fund,
and the Intermediate U.S. Government Bond Fund may invest in privately
issued mortgage-related securities. Privately issued mortgage-related
securities generally represent an ownership interest in federal agency
mortgage pass-through securities such as those issued by Government
National Mortgage Association as well as those issued by nongovernment
related entities. The terms and characteristics of the mortgage instruments
may vary among pass-through mortgage loan pools. The market for such
mortgage-related securities has expanded considerably since its inception.
The size of the primary issuance market and the active participation in the
secondary market by securities dealers and other investors makes
government-related and non-government related pools highly liquid.
RESETS OF INTEREST
The interest rates paid on the ARMS, CMOs, and REMICs in which the Equity
Fund, the International Equity Fund, the Short-Term Bond Fund, and the
Intermediate U.S. Government Bond Fund invests generally are readjusted at
intervals of one year or less to an increment over some predetermined
interest rate index. There are two main categories of indices: those based
on U.S. Treasury securities and those derived from a calculated measure,
such as a cost of funds index or a moving average of mortgage rates.
Commonly utilized indices include the one-year and five-year constant
maturity Treasury Note rates, the three-month Treasury Bill rate, the 180-
day Treasury Bill rate, rates on longer-term Treasury securities, the
National Median Cost of Funds, the one-month or three-month London
Interbank Offered Rate (LIBOR), the prime rate of a specific bank, or
commercial paper rates. Some indices, such as the one-year constant
maturity Treasury Note rate, closely mirror changes in market interest rate
levels.
To the extent that the adjusted interest rate on the mortgage security
reflects current market rates, the market value of an adjustable rate
mortgage security will tend to be less sensitive to interest rate changes
than a fixed rate debt security of the same stated maturity. Hence, ARMS
which use indices that lag changes in market rates should experience
greater price volatility than adjustable rate mortgage securities that
closely mirror the market.
CAPS AND FLOORS
The underlying mortgages which collateralize the ARMS, CMOs, and REMICs in
which the Equity Fund, the International Equity Fund, the Short-Term Bond
Fund, and the Intermediate U.S. Government Bond Fund invests will
frequently have caps and floors which limit the maximum amount by which the
loan rate to the residential borrower may change up or down: (1) per reset
or adjustment interval, and (2) over the life of the loan. Some residential
mortgage loans restrict periodic adjustments by limiting changes in the
borrower's monthly principal and interest payments rather than limiting
interest rate changes. These payment caps may result in negative
amortization.
The value of mortgage securities in which a Fund invests may be affected if
market interest rates rise or fall faster and farther than the allowable
caps or floors on the underlying residential mortgage loans. Additionally,
even though the interest rates on the underlying residential mortgages are
adjustable, amortization and prepayments may occur, thereby causing the
effective maturities of the mortgage securities in which a Fund invests to
be shorter than the maturities stated in the underlying mortgages.
SWAP AGREEMENTS
Among the hedging strategies into which the International Equity Fund may
enter are interest rate, currency and index swaps and the purchase or sale
of related caps, floors, and collars. The Fund expects to enter into these
transactions primarily to preserve a return or spread on a particular
investment or portion of its portfolio, to protect against currency
fluctuations, as a duration management technique or to protect against any
increase in the price of securities the Fund anticipates purchasing at a
later date. The Fund intends to use these transactions as hedges and not as
speculative investments and will not sell interest rate caps or floors
where it does not own securities or other instruments providing the income
stream the Fund may be obligated to pay. Interest rate swaps involve the
exchange by the Fund with another party of their respective commitments to
pay or receive interest, e.g., an exchange of floating rate payments for
fixed rate payments with respect to a notional amount of principal. A
currency swap is an agreement to exchange cash flows on a notional amount
of two or more currencies based on the relative value differential among
them and an index swap is an agreement to swap cash flows on a notional
amount based on changes in the values of the reference indices. The
purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling such cap to the extent that a
specified index exceeds a predetermined interest rate or amount. The
purchase of a floor entitles the purchaser to receive payments on a
notional principal amount from the party selling such floor to the extent
that a specified index falls below a predetermined interest rate or
amount. A collar is a combination of a cap and a floor that preserves a
certain return within a predetermined range of interest rates or values.
The International Equity Fund will usually enter into swaps on a net basis,
i.e., the two payment streams are netted out in a cash settlement on the
payment date or dates specified in the instrument, with the Fund receiving
or paying, as the case may be, only the net amount of the two payments.
Inasmuch as these swaps, caps, floors, and collars are entered into for
good faith hedging purposes, the Adviser and the Fund believe such
obligations do not constitute senior securities under the 1940 Act, and,
accordingly, will not treat them as being subject to its borrowing
restrictions. There is no minimal acceptable rating for a swap, cap, floor,
or collar to be purchased or held in the Fund's portfolio. If there is a
default by the counterparty, the Fund may have contractual remedies
pursuant to the agreements related to the transaction. The swap market has
grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
CREDIT FACILITIES
The Funds may purchase demand notes, which are borrowing arrangements
between a corporation and an institutional lender (such as the Funds)
payable upon demand by either party. The notice period for demand typically
ranges from one to seven days, and the party may demand full or partial
payment.
Revolving credit facilities are borrowing arrangements in which the lender
agrees to make loans up to a maximum amount upon demand by the borrower
during a specified term. As the borrower repays the loan, an amount equal
to the repayment may be borrowed again during the term of the facility. A
Fund generally acquires a participation interest in a revolving credit
facility from a bank or other financial institution. The terms of the
participation require the Fund to make a pro rata share of all loans
extended to the borrower and entitles the Fund to a pro rata share of all
payments made by the borrower. Demand notes and revolving credit facilities
usually provide for floating or variable rates of interest.
FOREIGN BANK INSTRUMENTS
The Equity Fund, the International Equity Fund, the Short-Term Bond Fund,
and the Intermediate U.S. Government Bond Fund may invest in foreign bank
instruments. Eurodollar Certificates of Deposit ("ECDs"), Eurodollar Time
Deposits ("ETDs"), Yankee Certificates of Deposit ("Yankee CDs"), and
Europaper are subject to somewhat different risks than domestic obligations
of domestic issuers. Examples of these risks include international,
economic and political developments, foreign governmental restrictions that
may adversely affect the payment of principal or interest, foreign
withholdings or other taxes on interest income, difficulties in obtaining
or enforcing a judgment against the issuing bank, and the possible impact
of interruptions of the flow of international currency transactions.
Different risks may also exist for ECDs, ETDs, and Yankee CDs because the
banks issuing these instruments, or their domestic or foreign branches, are
not necessarily subject to the same regulatory requirements that apply to
domestic banks, such as reserve requirements, loan requirements, loan
limitations, examinations, accounting, auditing, and recordkeeping and the
public availability of information. These factors will be carefully
considered by a Fund's Adviser in selecting investments for a Fund.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Funds may engage in when-issued and delayed delivery transactions.
These transactions are made to secure what is considered to be an
advantageous price or yield for a Fund. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of a
Fund sufficient to make payment for the securities to be purchased are
segregated on a Fund`s records at the trade date. These assets are marked
to market daily and are maintained until the transaction has been settled.
REPURCHASE AGREEMENTS
The Funds require their custodian to take possession of the securities
subject to repurchase agreements, and these securities will be marked to
market daily. To the extent that the original seller does not repurchase
the securities from a Fund, the Fund could receive less than the repurchase
price on any sale of such securities. In the event that such a defaulting
seller filed for bankruptcy or became insolvent, disposition of such
securities by a Fund might be delayed pending court action. The Funds
believe that under the regular procedures normally in effect for custody of
a Fund's portfolio securities subject to repurchase agreements, a court of
competent jurisdiction would rule in favor of a Fund and allow retention or
disposition of such securities. A Fund will only enter into repurchase
agreements with banks and other recognized financial institutions, such as
broker/dealers, which are deemed by a Fund's Adviser to be creditworthy
pursuant to guidelines established by the Board Members.
CREDIT ENHANCEMENT
A Fund typically evaluates the credit quality and ratings of credit
enhanced securities based upon the financial condition and ratings of the
party providing the credit enhancement (the "credit enhancer"), rather than
the issuer. However, credit-enhanced securities will not be treated as
having been issued by the credit enhancer for diversification purposes,
unless a Fund has invested more than 10% of its assets in securities
issued, guaranteed or otherwise credit enhanced by the credit enhancer, in
which case the securities will be treated as having been issued by both the
issuer and the credit enhancer. A Fund may have more than 25% of its total
assets invested in securities credit enhanced by banks. Any bankruptcy,
receivership or default of the party providing the credit enhancement will
adversely affect the quality and marketability of the underlying security.
RESTRICTED AND ILLIQUID SECURITIES
The Funds may invest in commercial paper issued in reliance on the
exemption from registration afforded by Section 4(2) of the Securities Act
of 1933 and treats such commercial paper as liquid. Section 4(2) commercial
paper is restricted as to disposition under federal securities law and is
generally sold to institutional investors, such as a Fund, who agree that
they are purchasing the paper for investment purposes and not with a view
to public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) commercial paper is normally resold to other
institutional investors like the Funds through or with the assistance of
the issuer or investment dealers who make a market in Section 4(2)
commercial paper, thus providing liquidity.
The ability of the Board Members to determine the liquidity of certain
restricted securities is permitted under a Securities and Exchange
Commission (`SEC'') staff position set forth in the adopting release for
Rule 144A under the Securities Act of 1933 (the `Rule''). The Rule is a
non-exclusive safe-harbor for certain secondary market transactions
involving resales of otherwise restricted securities to qualified
institutional buyers without registration of securities under the
Securities Act of 1933. The Rule was expected to further enhance the
liquidity of the secondary market for securities eligible for resale under
the Rule. The Funds believe that the staff of the SEC has left the question
of determining the liquidity of all restricted securities to the Board
Members. The Board Members may consider the following criteria in
determining the liquidity of certain restricted securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
o dealer undertakings to make a market in the security; and
o the nature of the security and the nature of the marketplace trades.
REVERSE REPURCHASE AGREEMENTS
Each Fund may enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement, a Fund
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in
the future the Fund will repurchase the portfolio instrument by remitting
the original consideration plus interest at an agreed upon rate. The use of
reverse repurchase agreements may enable a Fund to avoid selling portfolio
instruments at a time when a sale may be deemed to be disadvantageous, but
the ability to enter into reverse repurchase agreements does not ensure
that the Fund will be able to avoid selling portfolio instruments at a
disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of a Fund in a
dollar amount sufficient to make payment for the obligations to be
purchased are segregated at the trade date. These securities are marked to
market daily and are maintained until the transaction is settled.
LENDING OF PORTFOLIO SECURITIES
The collateral received when a Fund lends portfolio securities must be
valued daily and, should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the Fund.
During the time portfolio securities are on loan, the borrower pays a Fund
any dividends or interest paid on such securities. Loans are subject to
termination at the option of a Fund or the borrower. A Fund may pay
reasonable administrative and custodial fees in connection with a loan and
may pay a negotiated portion of the interest earned on the cash or
equivalent collateral to the borrower or placing broker.
A Fund would not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
PORTFOLIO TURNOVER
The Funds will not attempt to set or meet portfolio turnover rates since
any turnover would be incidental to transactions undertaken in an attempt
to achieve the Funds' investment objectives. It is not anticipated that the
portfolio trading engaged in by the Equity Fund, the International Equity
Fund, the Pennsylvania Intermediate Municipal Bond Fund, the Short-Term
Bond Fund, and the Intermediate U.S. Government Bond Fund will result in
its annual rates of portfolio turnover exceeding 75%, 90%, 50%, 90%, and
90%, respectively. However, the underlying funds purchased by the
International Equity Fund may experience much higher portfolio turnover
rates resulting in higher brokerage commissions, and taxable gains or
losses. For the period from April 1, 1996 (date of initial public
investment) to August 31, 1996, the portfolio turnover rates for the Equity
Fund, the Pennsylvania Intermediate Municipal Bond Fund, the Short-Term
Bond Fund, and the Intermediate U.S. Government Bond Fund were 18%, 40%,
71%, and 54%, respectively.
PENNSYLVANIA INVESTMENT RISKS
The Pennsylvania Intermediate Municipal Bond Fund invests in obligations of
the Commonwealth of Pennsylvania (the `State'') and obligations of its
political subdivisions, agencies, or instrumentalities which results in the
Fund's performance being subject to risks associated with the overall
conditions present within the State. The following information is a general
summary of the State's financial condition and a brief summary of the
prevailing economic conditions. This information is based on official
statements relating to securities issued by the State that are believed to
be reliable but should not be considered as a complete description of all
relevant information.
Fiscal operations improved gradually since the $1.1 billion deficit in
1991. The deficit was nearly eliminated in 1992 with the addition of
increased taxes. During fiscal 1993, Pennsylvania focused on expenditure
reductions while revenues were stabilized and reserves were increased by
$24 million. Fiscal 1994 saw further improvement in revenues and ended with
a surplus of $336 million. Revenues are expected to increase slightly in
fiscal 1995, but the State has budgeted an increase in appropriations which
will decrease the Budget Stabilization Fund to $4.1 million due to the
projected operating deficit of $297 million. Also, it should be noted that
due to the length and severity of the 1991 recession, coupled with the
structural changes in the industrial landscape, several municipalities have
undergone severe financial stress and are still vulnerable to further
economic cycles.
Historically, the State's economy was largely composed of heavy industry
that was concentrated in steel production, coal and railroads. The reliance
on these industries, especially the steel sector, has declined and the
economy has diversified into services and trade sectors. Presently,
services and trade compose over 50% of the economy. Unemployment in the
State over the past two years has surpassed the national average and
population growth, as in many of the industrial states, has been
motionless.
The debt ratings further demonstrate the overall condition of the State.
The State maintains an A1 rating by Moody's that has been in effect since
1986. Standard & Poor's Ratings Group rates the State AA- since 1985.
The Fund's concentration in securities issued by the State and its
political subdivisions provides a greater level of risk than a fund whose
assets are diversified across numerous states and municipal issuers. The
ability of the State or its municipalities to meet their obligations will
depend on the availability of tax and other revenues; economic, political,
and demographic conditions within the State; and the underlying fiscal
condition of the State, its counties, and its municipalities.
INVESTMENT LIMITATIONS
The following is a list of the Funds' investment limitations. The
underlying funds purchased by the International Equity Fund may be subject
to different investment limitations.
SELLING SHORT AND BUYING ON MARGIN
The Funds will not sell any securities short or purchase any
securities on margin, but may obtain such short-term credits as may be
necessary for clearance of purchases and sales of portfolio
securities. With respect to the Equity Fund and the International
Equity Fund, the deposit or payment by the Funds of initial or
variation margin in connection with futures contracts or related
options transactions is not considered the purchase of a security on
margin.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Funds will not issue senior securities, except that each Fund may
borrow money directly or through reverse repurchase agreements in
amounts up to one-third of the value of its total assets, including
the amount borrowed and except to the extent that the Equity Fund and
the International Equity Fund may enter into futures contracts and
options. The Funds will not borrow money or engage in reverse
repurchase agreements for investment leverage, but rather as a
temporary, extraordinary, or emergency measure or to facilitate
management of its portfolio by enabling a Fund to meet redemption
requests when the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous. A Fund will not purchase any
securities while any borrowings in excess of 5% of its total assets
are outstanding.
PLEDGING ASSETS
The Funds will not mortgage, pledge, or hypothecate any assets except
to secure permitted borrowings. For purposes of this limitation, the
following will not be deemed to be pledges (where applicable): margin
deposits for the purchase and sale of financial futures contracts and
related options and segregation or collateral arrangements made in
connection with options activities or the purchase of securities on a
when-issued basis.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total
assets, each Fund (with the exception of the International Equity Fund
and Pennsylvania Intermediate Municipal Bond Fund) will not purchase
securities issued by any one issuer (other than cash, cash items, or
securities issued or guaranteed by the U.S. government, its agencies
or instrumentalities, and repurchase agreements collateralized by such
securities) if, as a result, more than 5% of the value of its total
assets would be invested in the securities of that issuer, and will
not acquire more than 10% of the outstanding voting securities of any
one issuer.
With respect to securities comprising 75% of the value of its total
assets, the International Equity Fund will not invest more than 5% in
securities of any one issuer (other than cash, cash items, securities
of investment companies or securities issued or guaranteed by the
government of the United States or its agencies or instrumentalities
and repurchase agreements collateralized by such securities) if, as a
result, more than 5% of the value of its total assets would be
invested in the securities of that issuer, and will not acquire more
than 10% of the outstanding voting securities of any one issuer.
UNDERWRITING
The Funds will not underwrite any issue of securities, except as a
Fund may be deemed to be an underwriter under the Securities Act of
1933 in connection with the sale of securities in accordance with its
investment objective, policies, and limitations.
INVESTING IN REAL ESTATE
The Funds will not purchase or sell real estate, including (with
respect to all Funds except the International Equity Fund) limited
partnership interests, although the Funds may invest in the securities
of issuers whose business involves the purchase or sale of real estate
or in securities which are secured by real estate or interests in real
estate.
INVESTING IN COMMODITIES
The Funds will not purchase or sell commodities, commodity contracts,
or commodity futures contracts except to the extent that the Equity
Fund and the International Equity Fund may engage in transactions
involving financial and stock index futures contracts or options on
such futures contracts, and the International Equity Fund may engage
in foreign currency transactions, invest in options and futures on
foreign currencies, and purchase or sell forward contracts with
respect to foreign currencies and related options.
LENDING CASH OR SECURITIES
The Funds will not lend any of their assets, except portfolio
securities up to one-third of the value of their total assets. This
shall not prevent a Fund from purchasing or holding U.S. government
obligations, money market instruments, variable rate demand notes,
bonds, debentures, notes, certificates of indebtedness, or other debt
securities, entering into repurchase agreements, or engaging in other
transactions where permitted by a Fund's investment objective,
policies, and limitations or Declaration of Trust or Articles of
Incorporation, as applicable.
The Pennsylvania Intermediate Municipal Bond Fund may, however,
acquire publicly or non-publicly issued municipal securities or
temporary investments or enter into repurchase agreements in
accordance with its investment objective, policies, and limitations or
its Declaration of Trust.
CONCENTRATION OF INVESTMENTS
The Equity Fund, the International Equity Fund, the Short-Term Bond
Fund, and the Intermediate U.S. Government Bond Fund will not invest
25% or more of the value of their respective total assets in any one
industry (other than securities issued by the U.S. government, its
agencies or instrumentalities). The International Equity Fund may,
however, invest in investment companies that concentrate their assets
within one industry.
The Pennsylvania Intermediate Municipal Bond Fund will not purchase
securities if, as a result of such purchase, 25% or more of the value
of its total assets would be invested in any one industry or in
industrial development bonds or other securities, the interest upon
which is paid from revenues of similar types of projects. However, the
Fund may invest as temporary investments more than 25% of the value of
its assets in cash or cash items.
The above investment limitations cannot be changed with respect to a Fund
without shareholder approval of a majority of that Fund's shares. The
following investment limitations may be changed by the Board Members
without shareholder approval. Shareholders will be notified before any
material change in these limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Funds will not invest more than 15% of the value of their net
assets in illiquid securities, including, (where applicable),
repurchase agreements providing for settlement in more than seven days
after notice, over-the-counter options, non-negotiable fixed time
deposits with maturities over seven days, and certain restricted
securities not determined by the Board Members to be liquid.
Except with respect to the Funds' policy of borrowing money, if a
percentage limitation is adhered to at the time of investment, a later
increase or decrease in percentage resulting from any change in value or
net assets will not result in a violation of such restriction.
The Funds do not expect to borrow money or pledge securities in excess of
5% of the value of its total assets in the coming fiscal year.
For purposes of its policies and limitations, the Funds consider
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings associations having capital, surplus,
and undivided profits in excess of $100,000,000 at the time of investment
to be `cash items.''
MARKETVEST FUNDS, INC. MANAGEMENT
MARKETVEST FUNDS MANAGEMENT
OFFICERS AND BOARD MEMBERS
Officers and Directors/Trustees are listed with their addresses,
birthdates, present positions with Marketvest Funds, Inc. and Marketvest
Funds and principal occupations.
Edward C. Gonzales *
Federated Investors Tower
Pittsburgh, Pennsylvania
Birthdate: October 22, 1930
Chairman, President, Treasurer, and Director of Marketvest Funds, Inc.
Chairman, President, Treasurer, and Trustee of Marketvest Funds
Vice President, Treasurer, and Trustee, Federated Investors; Vice
President, Federated Advisers, Federated Management, Federated Research,
Federated Research Corp., Federated Global Research Corp. and Passport
Research, Ltd.; Executive Vice President and Director, Federated
Securities Corp.; Trustee, Federated Services Company; Chairman, Treasurer,
and Trustee, Federated Administrative Services; Trustee or Director of
certain investment companies distributed, organized, or advised by
Federated Investors and its affiliates (Federated Funds); Executive Vice
President, President, or Trustee of the Federated Funds.
Martin B. Ebbert, Jr.
2301 Hollywood Parkway
York, PA 17403
Age: 57
Director of Marketvest Funds, Inc.
Trustee of Marketvest Funds
Retired since December 1995; prior thereto, Senior Vice President,
CoreStates Bank Trust Division; Director of Client Services, CoreStates
Hamilton Bank Trust Division (1990-1995); currently, Director of the York
Country Academy.
Clyde M. McGeary*
248 Willow Avenue
Camp Hill, PA 17011
Birthdate: October 31, 1930
Director of Marketvest Funds, Inc.
Trustee of Marketvest Funds
Retired from service to Commonwealth of Pennsylvania; formerly, Chief,
Division of Arts and Sciences, Pennsylvania Department of Education;
Partner, MCG, McGeary Consulting Group (1987-1992).
George A. Ominski
453 Haverhill Road
Lancaster, PA 17601
Age: 58
Director of Marketvest Funds, Inc.
Trustee of Marketvest Funds
President and Managing Director, Capital Advisors, Inc. (investment
advisory firm) (1982-Present).
Richard Seidel
770 Hedges Lane
Strafford, Pennsylvania
Birthdate: April 20, 1941
Director of Marketvest Funds, Inc.
Trustee of Marketvest Funds
President and Director of Girard Partners, Ltd. (1994 to present);
President and Director of The Fairfield Group, Inc. (1983-1993).
Jeffrey W. Sterling
Federated Investors Tower
Pittsburgh, Pennsylvania
Birthdate: February 5, 1947
Vice President and Assistant Treasurer of Marketvest Funds, Inc. and
Marketvest Funds
Vice President, Federated Administrative Services; Vice President and
Assistant Treasurer of some of the Federated Funds.
Victor R. Siclari
Federated Investors Tower
Pittsburgh, Pennsylvania
Birthdate: November 17, 1961
Secretary of Marketvest Funds, Inc. and Marketvest Funds
Corporate Counsel and Vice President, Federated Administrative Services;
Associate of Morrison & Foerster, a law firm, from 1990 to 1992.
* This Director/Trustee is deemed to be an "interested person" as defined
in the Investment Company Act of 1940, as amended.
FUND OWNERSHIP
Officers and Board Members own less than 1% of the outstanding shares of
each Fund.
As of December 16, 1996, the following shareholders of record owned 5% or
more of the outstanding shares of the Equity Fund: Donald & Co., nominee
account for Dauphin Deposit Bank & Trust Company, Harrisburg, Pennsylvania,
owned approximately 22,740,263.95 shares (49.79%); Greenco, nominee account
for Dauphin Deposit Bank & Trust Company, Harrisburg, Pennsylvania, owned
approximately 22,678,441.54 shares (49.66%).
As of December 16, 1996, the following shareholder of record owned 5% or
more of the outstanding shares of the Pennsylvania Intermediate Municipal
Bond Fund: Donald & Company, nominee account for Dauphin Bank & Trust
Company, Harrisburg, Pennsylvania, owned approximately 22,068,798.66 shares
(99.84%).
As of December 16, 1996, the following shareholders of record owned 5% or
more of the outstanding shares of the Short-Term Bond Fund: Donald & Co.,
nominee account for Dauphin Bank & Trust Company, Harrisburg, Pennsylvania,
owned approximately 6,860,392.55 shares (46.68%); Greenco, nominee account
for Dauphin Deposit Bank & Trust Company, Harrisburg, Pennsylvania, owned
approximately 7,792,606.82 shares (53.02%).
As of December 16, 1996, the following shareholders of record owned
approximately 5% or more of the outstanding shares of the Intermediate U.S.
Government Bond Fund: Donald & Co., nominee account for Dauphin Deposit
Bank & Trust Company, Harrisburg, Pennsylvania, owned approximately
18,148,683.34 shares (71.22%); Greenco, nominee account for Dauphin Deposit
Bank & Trust Company, Harrisburg, Pennsylvania, owned approximately
7,298,078.58 shares (28.64%).
DIRECTORS' COMPENSATION TABLE--MARKETVEST FUNDS, INC. (THE `CORPORATION'')
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
THE CORPORATION THE CORPORATION*# FROM FUND COMPLEX *
Edward C. Gonzales
Chairman, President,
Treasurer, and Director $ 0 $ 0 for the Corporation and
1 other investment company in the Fund
Complex
Martin B. Ebbert, Jr.+ $375 $500 for the Corporation and
1 other investment company in the Fund
Complex
George D. McKeon+
Director $5,250 $7,000 for the Corporation and
1 other investment company in the Fund
Complex
Gary Mozenter
Director (Resigned)+ $2,625 $3,500 for the Corporation and
1 other investment company in the Fund
Complex
George A. Ominski+ $375 $500 for the Corporation and
Director 1 other investment company in the Fund
Complex
Richard Seidel
Director $5,250 $7,000 for the Corporation and
1 other investment company in the Fund
Complex
Clyde M. McGeary+ $5,250 $7,000 for the Corporation and
Director 1 other investment company in the Fund
Complex
*Information is estimated for the fiscal year ending February 28, 1997.
#The aggregate compensation is provided for the Corporation which is
comprised of three portfolios.
the date of the organizational meeting of the Board of Directors of the
Corporation, until his death on October 29, 1996. Mr. Mozenter received the
compensation for the period from October 27, 1995, the date of the
organizational meeting of the Board of Directors of the Corporation, until
his resignation on February 21, 1996. Mr. McGeary was elected as a Director
effective March 19, 1996. Messrs. Ebbert and Ominski became Directors on
December 16, 1996.
TRUSTEES' COMPENSATION TABLE--MARKETVEST FUNDS (THE `TRUST'')
AGGREGATE
NAME , COMPENSATION
POSITION WITH FROM TOTAL COMPENSATION PAID
THE TRUST THE TRUST*# FROM FUND COMPLEX *
Edward C. Gonzales
Chairman, President,
Treasurer, and Trustee $ 0 $ 0 for the Trust and
1 other investment company in the Fund
Complex
Martin B. Ebbert, Jr.+ $125 $500 for the Trust and
Trustee 1 other investment company in the Fund
Complex
George D. McKeon+
Trustee $1,750 $7,000 for the Trust and
1 other investment company in the Fund
Complex
Gary Mozenter
Trustee (Resigned)+ $875 $3,500 for the Trust and
1 other investment company in the Fund
Complex
George A. Ominski+ $125 $500 for the Trust and
Trustee 1 other investment company in the Fund
Complex
Richard Seidel
Trustee $1,750 $7,000 for the Trust and
1 other investment company in the Fund
Complex
Clyde M. McGeary+ $1,750 $7,000 for the Trust and
Trustee 1 other investment company in the Fund
Complex
*Information is estimated for the fiscal year ending February 28, 1997.
#The aggregate compensation is provided for the Trust which is comprised of
two portfolios.
the date of the organizational meeting of the Board of Trustees of the
Trust, until his death on October 29, 1996. Mr. Mozenter received the
compensation for the period from October 27, 1995, the date of the
organizational meeting of the Board of Trustees of the Trust, until his
resignation on February 21, 1996. Mr. McGeary was elected as a Trustee
effective March 19, 1996. Messrs. Ebbert and Ominski became Trustees on
December 16, 1996.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Board Members will only
be liable for their own willful defaults. If reasonable care has been
exercised in the selection of officers, agents, employees, or investment
advisers, a Trustee shall not be liable for any neglect or wrongdoing of
any such person. However, they are not protected against any liability to
which they would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in
the conduct of their office.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUNDS
The Funds' investment adviser is Dauphin Deposit Bank and Trust Company
(`Dauphin Deposit'' or the ``Adviser''). It is a wholly-owned subsidiary
of Dauphin Deposit Corporation.
The Adviser shall not be liable to Marketvest Funds, Inc., Marketvest
Funds, a Fund, or any shareholder of any of the Funds for any losses that
may be sustained in the purchase, holding, or sale of any security, or for
anything done or omitted by it, except acts or omissions involving willful
misfeasance, bad faith, gross negligence, or reckless disregard of the
duties imposed upon it by its contract with the Funds.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment
advisory fee as described in the prospectus.
For the period from April 1, 1996 (date of initial public investment) to
August 31, 1996, the Fund's Adviser earned fees from the Equity Fund, the
Pennsylvania Intermediate Municipal Bond Fund, the Short-Term Bond Fund,
and the Intermediate U.S. Government Bond Fund in the amounts of
$1,490,546, $711,883, $349,666, and $638,837, respectively, of which
$298,109, $142,376, $69,933, and $127,767, respectively, were voluntarily
waived.
OTHER SERVICES
ADMINISTRATION OF THE FUNDS
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Funds for a fee as
described in the prospectus.
For the period from April 1, 1996 (date of initial public investment) to
August 31, 1996, Federated Administrative Services received fees from the
Equity Fund, the Pennsylvania Intermediate Municipal Bond Fund, the Short-
Term Bond Fund, and the Intermediate U.S. Government Bond Fund in the
amounts of $170,141, $109,280, $50,827, and $96,643, respectively.
CUSTODIAN
Under the custodian agreement, Dauphin Deposit Bank and Trust Company holds
each Fund's portfolio securities and keeps all necessary records and
documents relating to its duties. Dauphin Deposit's fees for custody
services are based upon the market value of Fund securities held in custody
plus certain securities transaction charges.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND PORTFOLIO ACCOUNTING
SERVICES
Federated Services Company, Pittsburgh, Pennsylvania, through its
registered transfer agent, Federated Shareholder Services Company, is
transfer agent for shares of the Funds and dividend disbursing agent for
the Funds. Federated Services Company also provides certain accounting and
recordkeeping services with respect to each Fund's portfolio investments.
INDEPENDENT AUDITORS
The independent auditors for the Funds are Ernst & Young LLP, Pittsburgh,
Pennsylvania.
BROKERAGE TRANSACTIONS
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Funds or to the
Adviser and may include: advice as to the advisability of investing in
securities; security analysis and reports; economic studies; industry
studies; receipt of quotations for portfolio evaluations; and similar
services. Research services provided by brokers and dealers may be used by
the Adviser in advising the Funds and other accounts. To the extent that
receipt of these services may supplant services for which the Adviser might
otherwise have paid, it would tend to reduce its expenses. The Adviser
exercises reasonable business judgment in selecting brokers who offer
brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research
services provided. Although investment decisions for a Fund are made
independently from those of the other accounts managed by the Adviser,
investments of the type a Fund may make may also be made by those other
accounts. When a Fund and one or more other accounts managed by the Adviser
are prepared to invest in, or desire to dispose of, the same security,
available investments or opportunities for sales will be allocated in a
manner believed by the Adviser to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by a Fund or the
size of the position obtained or disposed of by the Fund. In other cases,
however, it is believed that coordination and the ability to participate in
volume transactions will be to the benefit of the Funds.
The Board Members have determined that portfolio transactions for the Funds
may be executed through Hopper Soliday and other affiliated broker/dealers
if, in the judgment of Dauphin Deposit, the use of Hopper Soliday or an
affiliated broker is likely to result in prices and execution at least as
favorable as those of other qualified broker/dealers and if, in such
transactions, the affiliated broker/dealer charges the Funds a rate
consistent with that charged to comparable unaffiliated customers in
similar transactions. Hopper Soliday will not participate in commissions
from brokerage given by the Equity Fund or the International Equity Fund to
other brokers or dealers. In addition, pursuant to an exemption granted by
the SEC, the Funds may engage in transactions involving certain money
market instruments with Hopper Soliday or particular affiliates acting as
principal. Over-the-counter purchases and sales are transacted directly
with principal market makers except in those cases in which better prices
and executions may be obtained elsewhere.
Under rules adopted by the SEC, Hopper Soliday may not execute transactions
for the Equity Fund or the International Equity Fund on the floor of any
national securities exchange, but may effect transactions for the Equity
Fund or the International Equity Fund by transmitting orders for execution,
providing for clearance and settlement, and arranging for the performance
of those functions by members of the exchange not associated with Hopper
Soliday. Hopper Soliday will be required to pay fees charged by those
persons performing the floor brokerage elements out of the brokerage
compensation it receives from the Equity Fund and the International Equity
Fund. The Equity Fund and the International Equity Fund have been advised
by Hopper Soliday that on most transactions, the floor brokerage generally
constitutes from between three-quarters of a cent and one cent per share,
which may be as high as 20% of the total commissions paid.
INTERNATIONAL EQUITY FUND ONLY
The distributor may assist in the execution of the International Equity
Fund's portfolio transactions to purchase underlying fund shares for which
it may receive distribution payments from the underlying funds or their
underwriters in accordance with the distribution plans of those funds. In
providing execution assistance, the distributor receives orders from the
Adviser; places them with the underlying fund's distributor, transfer agent
or other person, as appropriate; confirms the trade, price and number of
shares purchased; and assures prompt payment by the Fund and proper
completion of the order.
With respect to purchases of load fund shares, the Adviser may direct
substantially all of the International Equity Fund's orders to the
distributor, which may, in its discretion, direct the order to other
broker-dealers in consideration of sales of the Fund's shares.
The distributor may retain brokerage commissions on portfolio transactions
of mutual funds held in the Fund's portfolio, including funds which have a
policy of considering sales of their shares in selecting broker-dealers for
the execution of their portfolio transactions. Payment of brokerage
commissions to the distributor is not a factor considered by the Adviser in
selecting an underlying fund for investment.
Under certain circumstances, a sales charge incurred by the International
Equity Fund in acquiring shares of an underlying fund may not be taken into
account in determining the gain or loss on the disposition of the shares
acquired. If shares are disposed of within 90 days from the date they were
purchased and if shares of a new underlying fund are subsequently acquired
without imposition of a sales charge or imposition of a reduced sales
charge pursuant to a right granted to the Fund to acquire shares without
payment of a sales charge or with the payment of a reduced charge, then the
sales charge paid upon the purchase of the initial shares will be treated
as paid in connection with the acquisition of the new underlying fund's
shares rather than the initial shares.
For the period from April 1, 1996 (date of initial public investment) to
August 31, 1996, the Equity Fund, the Pennsylvania Intermediate Municipal
Bond Fund, the Short-Term Bond Fund, and the Intermediate U.S. Government
Bond Fund paid total brokerage commissions of $156,049, $0, $0, and $0,
respectively.
For the period from April 1, 1996 (date of initial public investment) to
August 31, 1996, the Equity Fund paid $3,590 in brokerage commissions to
Hopper Soliday. These brokerage commissions represent 2.3% of the aggregate
brokerage commissions paid by the Equity Fund, and 3.2% of the aggregate
dollar amount of transactions involving the payment of brokerage
commissions.
PURCHASING SHARES
Except under certain circumstances described in the prospectus, shares of
the Funds are sold at their net asset value plus a sales charge, if any, on
days the New York Stock Exchange and the Federal Reserve Wire System are
open for business. The procedure for purchasing shares of the Funds is
explained in the prospectus under "Investing in the Funds."
DISTRIBUTION PLAN
With respect to the Funds, Marketvest Funds, Inc. and Marketvest Funds have
each adopted a Plan pursuant to Rule 12b-1 which was promulgated by the
Securities and Exchange Commission pursuant to the Investment Company Act
of 1940, as amended (the "Plan"). Each Plan provides for payment of fees to
the distributor to finance any activity which is principally intended to
result in the sale of a Fund's shares subject to the Plan. Such activities
may include the advertising and marketing of shares of a Fund; preparing,
printing, and distributing prospectuses and sales literature to prospective
shareholders, brokers, or administrators; and implementing and operating
each Plan. Pursuant to each Plan, the distributor may pay fees to brokers
and others for such services.
The Board Members expect that the adoption of a Plan will assist a Fund in
selling a sufficient number of shares so as to allow a Fund to achieve
economic viability. It is also anticipated that an increase in the size of
a Fund will facilitate more efficient portfolio management and thereby
assist a Fund in seeking to achieve its investment objective.
For the period from April 1, 1996 (date of initial public investment) to
August 31, 1996, the Equity Fund, the Pennsylvania Intermediate Municipal
Bond Fund, the Short-Term Bond Fund, and the Intermediate U.S. Government
Bond Fund paid no fees pursuant to the Distribution Plan.
ADMINISTRATIVE ARRANGEMENTS
The administrative services include, but are not limited to, providing
office space, equipment, telephone facilities, and various personnel,
including clerical, supervisory, and computer, as is necessary or
beneficial to establish and maintain shareholders' accounts and records,
process purchase and redemption transactions, process automatic investments
of client account cash balances, answer routine client inquiries regarding
a Fund, assist clients in changing dividend options, account designations,
and addresses, and providing such other services as a Fund may reasonably
request.
CONVERSION TO FEDERAL FUNDS
It is the Funds' policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be
in federal funds or be converted into federal funds. Federated Services
Company acts as the shareholder's agent in depositing checks and converting
them to federal funds.
EXCHANGING SECURITIES FOR FUND SHARES
The Funds may accept securities in exchange for Fund shares. A Fund will
allow such exchanges only upon prior approval of a Fund and a determination
by a Fund and the Adviser that the securities to be exchanged are
acceptable.
Any securities exchanged must meet the investment objective and policies of
a Fund, must have a readily ascertainable market value, and must not be
subject to restrictions on resale. The market value of any securities
exchanged in an initial investment, plus any cash, must be at least
$25,000.
Securities accepted by a Fund will be valued in the same manner as a Fund
values its assets. The basis of the exchange will depend upon the net asset
value of Fund shares on the day the securities are valued. One share of a
Fund will be issued for each equivalent amount of securities accepted.
Any interest earned on the securities prior to the exchange will be
considered in valuing the securities. All interest, dividends, subscription
or other rights attached to the securities become the property of a Fund,
along with the securities.
DETERMINING NET ASSET VALUE
The net asset value generally changes each day. The days on which the net
asset value is calculated by the Funds are described in the prospectus.
With respect to International Equity Fund, dividend income is recorded on
the ex-dividend date, except certain dividends from foreign securities
where the ex-dividend date may have passed, are recorded as soon as the
Fund is informed of the ex-dividend date.
DETERMINING MARKET VALUE OF SECURITIES
Market or fair values of the Equity Fund, the International Equity Fund,
the Short-Term Bond Fund, and the Intermediate U.S. Government Bond Fund's
portfolio securities, other than options, are determined as follows:
o for equity securities, according to the last sale price on a national
securities exchange, if applicable;
o in the absence of recorded sales for listed equity securities,
according to the mean between the last closing bid and asked prices;
o for unlisted equity securities, latest bid prices;
o for bonds and other fixed income securities, as determined by an
independent pricing service;
o for short-term obligations, according to the mean between bid and
asked prices as furnished by an independent pricing service, or for
short-term obligations with remaining maturities of 60 days or less at
the time of purchase, at amortized cost; or
o for all other securities, at fair value as determined in good faith by
the Board Members.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect: institutional
trading in similar groups of securities, yield, quality, coupon rate,
maturity, type of issue, trading characteristics, and other market data.
The Equity Fund and the International Equity Fund will value futures
contracts, options and put options on financial futures at their market
values established by the exchanges at the close of options trading on such
exchanges unless the Board Members determine in good faith that another
method of valuing option positions is necessary.
The underlying funds in which the International Equity Fund may invest
value securities in their portfolios for which market quotations are
readily available at their current market value (generally the last
reported sale price) and all other securities and assets at fair value
pursuant to methods established in good faith by the board of
directors/trustees of the underlying fund.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange. In computing the net asset value,
the International Equity Fund values foreign securities at the latest
closing price on the exchange on which they are traded immediately prior to
the closing of the New York Stock Exchange. Certain foreign currency
exchange rates may also be determined at the latest rate prior to the
closing of the New York Stock Exchange. Foreign securities quoted in
foreign currencies are translated into U.S. dollars at current rates.
Occasionally, events that affect these values and exchanges rates may occur
between the times at which they are determined and the closing of the New
York Stock Exchange. If such events materially affect the value of
portfolio securities, these securities may be valued at their fair value as
determined in good faith by the Board Members, although the actual
calculation may be done by others.
VALUING MUNICIPAL BONDS
With respect to the Pennsylvania Intermediate Municipal Bond Fund, the
Board Members use an independent pricing service to value municipal bonds.
The independent pricing service takes into consideration yield, stability,
risk, quality, coupon rate, maturity, type of issue, trading
characteristics, special circumstances of a security or trading market, and
any other factors or market data it considers relevant in determining
valuations for normal institutional size trading units of debt securities,
and does not rely exclusively on quoted prices. In addition, the
Pennsylvania Intermediate Municipal Bond Fund values short-term obligations
according to the mean between the bid and asked prices as furnished by an
independent pricing service, or for short-term obligations with remaining
maturities of 60 days or less at the time of purchase, at amortized cost.
EXCHANGE PRIVILEGE
Shareholders of a Fund may exchange shares of that Fund for shares of other
Funds advised by Dauphin Deposit subject to certain conditions. Exchange
procedures are explained in the prospectus under "Exchange Privilege."
REDEEMING SHARES
Each Fund redeems shares at the next computed net asset value after a Fund
receives the redemption request. Redemption procedures are explained in the
prospectus under "Redeeming Shares." Redemption requests cannot be
executed on days on which the New York Stock Exchange is closed or on
federal holidays when wire transfers are restricted.
REDEMPTION IN KIND
Although the Funds intend to redeem shares in cash, they reserve the right
under certain circumstances to pay the redemption price in whole or in part
by a distribution of securities from a Fund's portfolio. To the extent
available, such securities will be readily marketable.
Marketvest Funds, Inc. and Marketvest Funds have elected to be governed by
Rule 18f-1 of the Investment Company Act of 1940, under which the Funds are
obligated to redeem Shares for any one shareholder in cash only up to the
lesser of $250,000 or 1% of a Fund's net asset value during any 90-day
period.
Any redemption beyond this amount will also be in cash unless the Board
Members determine that payments should be in kind. In such a case, a Fund
will pay all or a portion of the remainder of the redemption in portfolio
instruments, valued in the same way as a Fund determines net asset value.
The portfolio instruments will be selected in a manner that the Board
Members deem fair and equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving their securities and selling them
before their maturity could receive less than the redemption value of their
securities and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders of Marketvest Funds may be held
personally liable as partners under Massachusetts law for acts or
obligations of the Marketvest Funds. To protect shareholders, Marketvest
Funds has filed legal documents with Massachusetts that expressly disclaim
the liability of shareholders of a Fund for such acts or obligations of
Marketvest Funds. These documents require notice of this disclaimer to be
given in each agreement, obligation, or instrument Marketvest Funds or its
Board Members enter into or sign on behalf of a Fund.
In the unlikely event a shareholder of a Fund is held personally liable for
Marketvest Funds' obligations, Marketvest Funds is required by the
Declaration of Trust to use its property to indemnify, protect or
compensate the shareholder. On request, Marketvest Funds will defend any
claim made and pay any judgment against a shareholder of a Fund for any act
or obligation of Marketvest Funds. Therefore, financial loss resulting from
liability as a shareholder of a Fund will occur only if Marketvest Funds
cannot meet its obligations to indemnify shareholders and pay judgments
against them from the assets of a Fund.
TAX STATUS
THE FUNDS' TAX STATUS
The Funds will pay no federal income tax because each Fund expects to meet
the requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, each Fund must,
among other requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o derive less than 30% of its gross income from the sale of securities
held less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income
earned during the year.
These requirements may restrict the degree to which a Fund may engage in
short-term trading and certain hedging transactions and may limit the range
of a Fund's investments.
If permitted by its investment policies, a Fund's transactions in futures
contracts, forward contracts, foreign currency transactions, options and
certain other investment and hedging activities are subject to special tax
rules. In a given case, these rules may accelerate income to the Fund,
defer its losses, cause adjustments in the holding periods of the Fund's
assets, convert short-term capital losses into long-term capital losses or
otherwise affect the character of the Fund's income. These rules could
therefore affect the amount, timing and character of distributions to
shareholders. A Fund will endeavor to make any available elections
pertaining to these transactions in a manner believed to be in the best
interest of the Fund and its shareholders.
Any dividends declared by the Fund in October, November or December to
shareholders of record during those months and paid during the following
January are treated, for tax purposes, as if they were received by each
shareholder on December 31 of the year in which they were declared.
INTERNATIONAL EQUITY FUND
Income the International Equity Fund receives from sources within various
foreign countries may be subject to foreign income taxes withheld at the
source. If the Fund has at least 50% of its assets invested in foreign
securities at the end of its taxable year, it may elect to pass through the
foreign tax credit to its shareholders. It is expected that the
International Equity Fund will not have more than 50% of the value of its
total assets at the close of its taxable year invested in foreign
securities, and therefore will not be permitted to make this election and
`pass through'' to its shareholders. Each shareholder's respective pro
rata share of foreign taxes the Fund pays will, therefore, be netted
against their share of the Fund's gross income.
The International Equity Fund may invest in any non-U.S. corporations
which could be treated as passive foreign investment companies ("PFICs").
This could result in adverse tax consequences upon the disposition of, or
the receipt of "excess distributions" with respect to, such equity
investments. To the extent the International Equity Fund does invest in
PFICs, it may adopt certain tax strategies to reduce or eliminate the
adverse effects of certain federal tax provisions governing PFIC
investments. Many non-U.S. banks and insurance companies may not be treated
as PFICs if they satisfy certain technical requirements under the Code. To
the extent that the International Equity Fund does invest in foreign
securities which are determined to be PFIC securities and is required to
pay a tax on such investments, a credit for this tax would not be allowed
to be passed through to its shareholders. Therefore, the payment of this
tax would reduce the International Equity Fund's economic return from its
PFIC shares, and excess distributions received with respect to such shares
are treated as ordinary income rather than capital gains.
An underlying fund may inadvertently invest in non-U.S. corporations which
would be treated as Passive Foreign Investment Companies ("PFICs") or
become a PFIC under the Code. This could result in adverse tax consequences
upon the disposition of, or the receipt of "excess distributions" with
respect to, such equity investments. To the extent an underlying fund does
invest in PFICs, it may elect to treat the PFIC as a "qualified electing
fund" or mark-to-market its investments in PFICs annually. In either case,
the underlying fund may be required to distribute amounts in excess of its
realized income and gains. To the extent that the underlying fund itself is
required to pay a tax on income or gain from investment in PFICs, the
payment of this tax would reduce the International Equity Fund's economic
return.
SHAREHOLDERS' TAX STATUS
The dividends received deduction for corporations will apply to ordinary
income distributions to the extent the distribution represents amounts that
would qualify for the dividends received deduction to the Equity Fund or
the International Equity Fund, if either Fund were a regular corporation,
and to the extent designated by the Fund as so qualifying. Otherwise, these
dividends and any short-term capital gains are taxable as ordinary income.
No portion of any income dividends paid by the other Funds is eligible for
the dividends received deduction available to corporations. These
dividends, and any short-term capital gains, are taxable as ordinary
income.
CAPITAL GAINS
With respect to the Equity Fund, the Short-Term Bond Fund, the
International Equity Fund, and the Intermediate U.S. Government Bond
Fund, long-term capital gains distributed to shareholders will be
treated as long-term capital gains regardless of how long shareholders
have held shares.
With respect to the Pennsylvania Intermediate Municipal Bond Fund,
capital gains or losses may be realized by the Fund on the sale of
portfolio securities and as a result of discounts from par value on
securities held to maturity. Sales would generally be made because of:
othe availability of higher relative yields;
odifferentials in market values;
onew investment opportunities;
ochanges in creditworthiness of an issuer; or
oan attempt to preserve gains or limit losses.
Distributions of long-term capital gains are taxed as such, whether
they are taken in cash or reinvested, and regardless of the length of
time the shareholder has owned the shares.
TOTAL RETURN
For the period from April 1, 1996 (date of initial public investment) to
August 31, 1996, the cumulative total returns for the Equity Fund, the
Pennsylvania Intermediate Municipal Bond Fund, the Short-Term Bond Fund,
and the Intermediate U.S. Government Bond Fund were (3.09%), (1.93%),
(2.26%), and (2.96%), respectively.
Cumulative total return reflects a Fund's total performance over a specific
period of time. This total return assumes and is reduced by the payment of
the maximum sales charge. Each Fund's total return is representative of
only five months of investment activity since the Funds' date of initial
public investment.
The average annual total return for a Fund is the average compounded rate
of return for a given period that would equate a $1,000 initial investment
to the ending redeemable value of that investment. The ending redeemable
value is computed by multiplying the number of shares owned at the end of
the period by the net asset value per share at the end of the period. The
number of shares owned at the end of the period is based on the number of
shares purchased at the beginning of the period with $1,000, less any
applicable sales load, adjusted over the period by any additional shares,
assuming the monthly reinvestment of all dividends and distributions.
YIELD
The yields for the Equity Fund, the Pennsylvania Intermediate Municipal
Bond Fund, the Short-Term Bond Fund, and the Intermediate U.S. Government
Bond Fund for the 30-day period ended August 31, 1996 were 1.50%, 3.80%,
5.49%, and 5.82%, respectively.
The yield for a Fund is determined by dividing the net investment income
per share (as defined by the SEC) earned by each Fund over a thirty-day
period by the maximum offering price per share of each Fund on the last day
of the period. This value is then annualized using semi-annual compounding.
This means that the amount of income generated during the thirty-day period
is assumed to be generated each month over a twelve-month period and is
reinvested every six months. The yield does not necessarily reflect income
actually earned by a Fund because of certain adjustments required by the
SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in a
Fund, the performance will be reduced for those shareholders paying those
fees.
TAX-EQUIVALENT YIELD
The Pennsylvania Intermediate Municipal Bond Fund's tax-equivalent yield
for the thirty-day period ended
August 31, 1996 was 6.60%.
The tax-equivalent yield for the Pennsylvania Intermediate Municipal Bond
Fund is calculated similarly to the yield, but is adjusted to reflect the
taxable yield that the Fund would have had to earn to equal its actual
yield, assuming the maximum 42.4% combined federal and state tax rate for
individuals, and also assuming that income is 100% tax-exempt. The Fund
will use the `actual earned'' method for determining the percentage of
dividend distributions that is tax-exempt. This information will be
provided in connection with year-end shareholder tax reporting.
TAX-EQUIVALENCY TABLE
The Pennsylvania Intermediate Municipal Bond Fund may also use a tax-
equivalency table in advertising and sales literature. The interest earned
by the municipal bonds in the Fund's portfolio generally remains free from
federal regular income tax,* and is often free from state and local taxes
as well. As the table on the next page indicates, a `tax-free'' investment
is an attractive choice for investors, particularly in times of narrow
spreads between `tax-free'' and taxable yields.
TAXABLE YIELD EQUIVALENT FOR 1996
STATE OF PENNSYLVANIA
COMBINED FEDERAL AND STATE INCOME TAX BRACKET:
17.80% 30.80% 33.80% 38.80% 42.40%
JOINT $1- $40,101- $96,901- $147,701- OVER
RETURN 40,100 96,900 147,700 263,750 $263,750
SINGLE $1- $24,001- $58,151- $121,301- OVER
RETURN 24,000 58,150 121,300 263,750 $263,750
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
1.50% 1.82% 2.17% 2.27% 2.45% 2.60%
2.00% 2.43% 2.89% 3.02% 3.27% 3.47%
2.50% 3.04% 3.61% 3.78% 4.08% 4.34%
3.00% 3.65% 4.34% 4.53% 4.90% 5.21%
3.50% 4.26% 5.06% 5.29% 5.72% 6.08%
4.00% 4.87% 5.78% 6.04% 6.54% 6.94%
4.50% 5.47% 6.50% 6.80% 7.35% 7.81%
5.00% 6.08% 7.23% 7.55% 8.17% 8.68%
5.50% 6.69% 7.95% 8.31% 8.99% 9.55%
6.00% 7.30% 8.67% 9.06% 9.80% 10.42%
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional state and
local taxes paid on comparable taxable investments were not used to
increase federal deductions.
The chart above is for illustrative purposes only. It is not an indicator
of past or future performance of Fund shares.
*Some portion of the Fund's income may be subject to the federal
alternative minimum tax and state and local income taxes.
PERFORMANCE COMPARISONS
Each Fund's performance depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in each Fund's expenses; and
o various other factors.
Each Fund's performance fluctuates on a daily basis largely because net
earnings and the maximum offering price per share fluctuate daily. Both net
earnings and offering price per share are factors in the computation of
yield and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of a Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of
any index used, prevailing market conditions, portfolio compositions of
other funds, and methods used to value portfolio securities and compute
offering price. The financial publications and/or indices which a Fund uses
in advertising may include:
o LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund
categories by making comparative calculations using total return.
Total return assumes the reinvestment of all income dividends and
capital gains distributions, if any. From time to time, the Fund will
quote its Lipper ranking in the applicable funds category in
advertising and sales literature.
o STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS, a
composite index of common stocks in industry, transportation, and
financial and public utility companies, can be used to compare to the
total returns of funds whose portfolios are invested primarily in
common stocks. In addition, the Standard & Poor's index assumes
reinvestments of all dividends paid by stocks listed on its index.
Taxes due on any of these distributions are not included, nor are
brokerage or other fees calculated in Standard & Poor's figures.
o THE NEW YORK STOCK EXCHANGE COMPOSITE OR COMPONENT INDICES are
unmanaged indices of all industrial, utilities, transportation, and
finance stocks listed on the New York Stock Exchange.
o DOW JONES INDUSTRIAL AVERAGE ("DJIA") represents share prices of
selected large capitalization, well-established blue-chip industrial
corporations as well as public utility and transportation companies.
The DJIA indicates daily changes in the average price of stocks in any
of its categories. It also reports total sales for each group of
industries.
o MORNINGSTAR, INC., an independent rating service, is the publisher of
the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than
1,000 NASDAQ-listed mutual funds of all types, according to their
risk-adjusted returns. The maximum rating is five stars, and ratings
are effective for two weeks.
o MERRILL LYNCH 1-3 YEAR TREASURY INDEX is an unmanaged index tracking
short-term U.S. government securities between 1 and 2.99 years. The
index is produced by Merrill Lynch, Pierce, Fenner & Smith, Inc.
o LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX is
comprised of issues which include non-convertible bonds publicly
issued by the U.S. government or its agencies; corporate bonds
guaranteed by the U.S. government and quasi-federal corporations; and
publicly issued, fixed rate, non-convertible domestic bonds of
companies in industry, public utilities, and finance. The average
maturity of these bonds is between 1 and 9.9 years.
o LEHMAN BROTHERS INTERMEDIATE GOVERNMENT BOND INDEX is comprised of all
publicly issued, non-convertible domestic debt of the U.S. government,
or any agency thereof, or any quasi-federal corporation. The index
also includes corporate debt guaranteed by the U.S. government. Only
notes and bonds with a minimum outstanding principal of $1 million and
a minimum maturity of one year and maximum maturity of 9.9 years are
included.
o LEHMAN BROTHERS GENERAL OBLIGATION MUNICIPAL BOND INDEX is comprised
of state general obligation debt issues. These bonds are rated A or
better and represent a variety of coupon ranges. Index figures are
total return calculated for one, three, and twelve month periods as
well as year-to-date.
o LEHMAN BROTHERS FIVE-YEAR STATE GENERAL OBLIGATION BONDS is an index
comprised of all state general obligation debt issues with maturities
between four and six years. These bonds are rated A or better and
represent a variety of coupon ranges. Index figures are total returns
calculated for one, three, and twelve month periods as well as year-
to-date. Total returns are also calculated as of the index inception,
December 31, 1979.
o LEHMAN BROTHERS TEN-YEAR STATE GENERAL OBLIGATION BONDS is an index
comprised on the same issues noted above except that the maturities
range between nine and eleven years. Index figures are total returns
calculated as of the index inception, December 31, 1979.
O LEHMAN BROTHERS 1-3 YEAR GOVERNMENT INDEX is comprised of all publicly
issued, non-convertible domestic debt of the U.S. government, or any
agency thereof, or any quasi-federal corporation. The index also
includes corporate debt guaranteed by the U.S. government. Only notes
and bonds with a minimum maturity of one year and maximum maturity of
2.9 years are included.
O MORGAN STANLEY EUROPE, AUSTRALIA, AND FAR EAST (EAFE) Index is a
market capitalization weighted foreign securities index, which is
widely used to measure the performance of European, Australian, New
Zealand and Far Eastern stock markets. The index covers approximately
1,020 companies drawn from 18 countries in the above regions. The
index values its securities daily in both U.S. dollars and local
currency and calculates total returns monthly. EAFE U.S. dollar total
return is a net dividend figure less Luxembourg withholding tax. The
EAFE is monitored by Capital International, S.A., Geneva, Switzerland.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Funds' returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Funds can
compare their performance, or performance for the types of securities in
which they invest, to a variety of other investments, such as bank savings
accounts, certificates of deposit, and Treasury bills.
Advertisements may quote performance information which does not reflect the
effect of the sales load.
ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the Funds may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on
these developments by Funds' portfolio managers and their views and
analysis on how such developments could affect the Funds. In addition,
advertising and sales literature may quote statistics and give general
information about the mutual fund industry, including the growth of the
industry, from sources such as the Investment Company Institute (`ICI'').
For example, according to the ICI, twenty-seven percent of American
households are pursuing their financial goals through mutual funds. These
investors, as well as businesses and institutions, have entrusted over $3
trillion to the more than 5,500 funds available.
FINANCIAL STATEMENTS
The Financial Statements for Marketvest Equity Fund, Marketvest
Pennsylvania Intermediate Municipal Bond Fund, Marketvest Short-Term Bond
Fund, and Marketvest Intermediate U.S. Government Bond Fund are contained
in their Combined Semi-Annual Report for the period ended August 31, 1996
and are incorporated herein by reference. (File No. 811-7383).
APPENDIX
STANDARD AND POOR'S RATINGS GROUP MUNICIPAL/CORPORATE BOND RATING
DEFINITIONS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's
Ratings Group. Capacity to pay interest and repay principal is extremely
strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
NR--Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that Standard &
Poor's Ratings Group does not rate a particular type of obligation as a
matter of policy.
PLUS (+) OR MINUS (-):--The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
MOODY'S INVESTORS SERVICE, INC., MUNICIPAL/CORPORATE BOND RATING
DEFINITIONS
AAA--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
AA--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
BAA--Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and, in fact, have speculative characteristics as well.
NR--Not rated by Moody's Investors Service, Inc.
FITCH INVESTORS SERVICE, INC., LONG-TERM DEBT RATING DEFINITIONS
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA--Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.
NR--NR indicates that Fitch Investors Service, Inc. does not rate the
specific issue.
STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATING DEFINITIONS
A-1--This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus (+) sign designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
MOODY'S INVESTORS SERVICE, INC., COMMERCIAL PAPER RATING DEFINITIONS
P-1--Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics:
o Leading market positions in well established industries.
o High rates of return on funds employed.
o Conservative capitalization structures with moderate reliance on debt
and ample asset protection.
o Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
o Well-established access to a range of financial markets and assured
sources of alternate liquidity.
P-2--Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This
will normally be evidenced by many of the characteristics cited above, but
to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
FITCH INVESTORS SERVICE, INC., SHORT-TERM DEBT RATING DEFINITIONS
F-1+--(Exceptionally Strong Credit Quality). Issues assigned this rating
are regarded as having the strongest degree of assurance for timely
payment.
F-1--(Very Strong Credit Quality). Issues assigned this rating reflect an
assurance for timely payment only slightly less in degree than issues rated
F-1+.
F-2--(Good Credit Quality). Issues carrying this rating have a
satisfactory degree of assurance for timely payment, but the margin of
safety is not as great as for issues assigned F-1+ and F-1 ratings.
Cusip 57061D107
Cusip 57061E105
Cusip 57061E204
Cusip 57061E303
Cusip
---------
G01560-02 (1/97)
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements (1) The Financial Statements for
Marketvest Pennsylvania Intermediate Municipal Bond Fund for
the period ended August 31, 1996 are incorporated herein by
reference to the Combined Semi-Annual Report dated August
31, 1996; (2) to be filed by Amendment.
(b) Exhibits:
(1) Conformed Copy of Declaration of Trust of the
Registrant (1.);
(i) ..........Conformed copy of Amendment No. 1 to
Declaration of Trust (1.);
(ii)Conformed copy of Amendment No. 2 to Declaration
of Trust (2.);
(iii)Form of Amendment No. 3 to Declaration of Trust;+
(2) Copy of By-Laws of the Registrant (2.);
(3) Not applicable;
(4) Not applicable;
(5) (i) Form of Investment Advisory Contract of the
Registrant (2.);
(ii) Form of Exhibit B to the Investment Advisory
Contract of the Registrant; +
(6) (i)Form of Distributor's Contract of the Registrant
(2.);
(ii) Form of Exhibit B to the Distributor's Contract of
the Registrant;+
(7) Not applicable;
(8) Form of Custodian Agreement of the Registrant (2.);
(9) (i)Form of Agreement for Fund Accounting,
Shareholder Recordkeeping, and Custody Services
Procurement of the Registrant (2.);
(ii)Form of Electronic Communications and
Recordkeeping Agreement (2.);
(iii)Form of Administrative Services Agreement (2.);
(10) Conformed Copy of Opinion and Consent of Counsel as to
legality of shares being registered (2.);
(11) Not applicable;
(12) Not applicable;
(13) Conformed Copy of Initial Capital
Understanding (2.);
(14) Not applicable;
(15) (i)Conformed Copy of Distribution Plan (2.);
(ii)Copy of Rule 12b-1 Agreement (2.);
(iii) Form of Exhibit B to Distribution Plan; +
(16) Copy of Schedule for Computation of Fund Performance
Data, Marketvest Pennsylvania Intermediate Municipal
Bond Fund (3.);
(17) Copy of Financial Data Schedule (3.);
(18) Not applicable;
(19) Conformed Copy of Power of Attorney (3.);
+ All exhibits have been filed electronically.
(1.) Response is incorporated by reference to Registrant's Initial
Registration Statement on Form N-1A filed October 27, 1995 (File Nos.
33-63743 and 811-7383).
(2.) Response is incorporated by reference to Registrant's Pre-Effective
Registration Amendment No. 1 on Form N-1A filed January 4, 1996 (File
Nos. 33-63743 and 811-7383).
(3.) Response is incorporated by reference to Registrant's Post-Effective
Registration Amendment No. 1 on Form N-1A filed September 30, 1996
(File Nos. 33-63743 and 811-7383).
Item 25. Persons Controlled by or Under Common Control with Registrant:
Not applicable.
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of December 16, 1996
Shares of beneficial interest
(no par value)
Marketvest Pennsylvania
Intermediate Municipal Bond Fund 23
Item 27. Indemnification: (1.)
Item 28. Business and Other Connections of Investment Adviser:
For a description of the other business of the investment
adviser, see the section entitled `Management of the Marketvest
Funds''in Part A.
The principal executive officers and directors of the Trust's
Investment Adviser are set forth in the following tables. Unless
otherwise noted, the position listed under other Substantial
Business, Profession, Vocation, or Employment is with Dauphin
Deposit Bank and Trust Company.
(1) (2) (3)
Other Substantial
Position with Business, Profession,
Name the Adviser Vocation or Employment
Christopher R. JenningsChairman of the Chairman of the Board
Board, CEO, and and CEO, Dauphin
Director Deposit Corporation
Paul B. Shannon President, Chief Credit
Policy Officer, and
Director
Dennis L. Dinger Senior Executive Vice
President, Chief Fiscal
and Administrative Officer
and Assistant Treasurer
Richard B. Brokenshire Executive Vice President
and COO
(1.) Response is incorporated by reference to Registrant's Initial
Registration Statement on Form N-1A filed October 27, 1995 (File Nos.
33-63743 and 811-7383).
Rick A. Gold Executive Vice President,
Manager-Trust and Financial
Services
Lawrence J. LaMaina, Jr. President-Southern Vice
Chairman, Dauphin
Division, Executive Deposit Corporation
Vice President-DDB,
and Director
Stewart P. McEntee Executive Vice President
and Chief Marketing
Officer
Leon S. Myers Executive Vice President
Donald. H. Ross Executive Vice President
and Deputy Director of
Community Banking
Robert A. Rupel President-Eastern Division
and Executive Vice
President-DDB
Kenneth H. Sallade Executive Vice President and
Chief Investment Officer
Michael D. Zarcone President-Central Division
and Executive Vice
President-DDB
Claire D. Flemming Senior Vice President and
Corporate Secretary
Joseph T. Lysczek, Jr. Senior Vice President and
Treasurer
James J. Trupp, Jr. Senior Vice President and
General Auditor
Jackie Rothchild Senior Vice President and
Deputy Director of Comunity
Banking
George W. King Executive Vice President,
Corporate Counsel, and
Secretary
J. Edward Beck, Jr. Director President, Bitreck
Corp.
John R. Buchart Director Retired Chairman of the
Board, H.G. Rotz
Associates, Inc.
James O. Green Director Retired Chairman of the
Board, Green's Dairy, Inc.
Alfred G. Hemmerich Director Retired President,
Green Hills Management Company
Lee H. Javitch Director Private Investor,
Former Chairman of the Board, Giant
Food Stores, Inc.
Richard E. Jordan, II Director Chairman of the Board,
L.B. Smith, Inc.
William T. Kirchhoff Director Executive Vice
President, Cleveland Brothers
Equipment Company, Inc.
Andrew Maier, II Director President, Maier's
Bakery
Robert F. Nation Director President, Penn Harris
Company
Elmer E. Naugle Director Retired Fiscal Officer,
Shippensburg University
Walter F. Raab Director Chairman of the
Executive Committee of the Board of
Directors, AMP Incorporated
Paul C. Raub Director Chairman of the Board,
York Corrugating Co.
Henry W. Rhoads, Esq. Director Rhoads & Sinon,
Attorneys
Jean D. Seibert Director Partner, Wion, Zulli &
Seibert, Attorneys
L. Andrew Zausner, Esq.Director Partner, Dickstein,
Shapiro & Morin
Item 29. Principal Underwriters:
(a)Edgewood Services, Inc. the Distributor for shares of the
Registrant, also acts as principal underwriter for the
following open-end investment companies: Excelsior
Institutional Trust (formerly, UST Master Funds, Inc.),
Excelsior Tax-Exempt Funds, Inc. (formerly, UST Master Tax-
Exempt Funds, Inc.), Excelsior Institutional Trust, FTI
Funds, and Marketvest Funds, Inc.
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Douglas L. Hein Trustee, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Newton Heston, III Vice President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Ernest L. Linane Assistant Vice President, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
S. Elliott Cohan Secretary, Assistant Secretary
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Thomas J. Ward Assistant Secretary, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
Kenneth W. Pegher, Jr. Treasurer, --
Federated Investors Tower Edgewood Services, Inc.
Pittsburgh, PA 15222-3779
(c) Not applicable
Item 30. Location of Accounts and Records:
All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and Rules 31a-1 through 31a-3 promulgated
thereunder are maintained at one of the following locations:
Registrant Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Shareholder Services Company Federated Investors Tower
("Transfer Agent and Dividend Pittsburgh, PA 15222-3779
Disbursing Agent")
Federated Services Company Federated Investors Tower
(`Portfolio Accounting Services'') Pittsburgh, PA 15222-3779
Federated Administrative Services Federated Investors Tower
("Administrator") Pittsburgh, PA 15222-3779
Dauphin Deposit Bank and Trust Company 213 Market Street
("Adviser" and `Custodian'') Harrisburg, PA 17101
Item 31. Management Services: Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Trustees and the calling of special shareholder meetings by
shareholders.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest
annual report to shareholders, upon request and without charge.
Registrant hereby undertakes to file a post-effective amendment,
using financial statements which need not be certified, within
four to six months from the effective date of this Post-Effective
Amendment No. 1.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, MARKETVEST FUNDS (formerly,
COURT STREET FUNDS) has duly caused this Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Pittsburgh and Commonwealth of Pennsylvania, on
the 31st day of December, 1996.
MARKETVEST FUNDS
(formerly, COURT STREET FUNDS)
BY: /s/ Victor R. Siclari
Victor R. Siclari, Secretary
Attorney in Fact for Edward C. Gonzales
December 31, 1996
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the
following person in the capacity and on the date indicated:
NAME TITLE DATE
By:/s/ Victor R. Siclari
Victor R. Siclari Attorney In Fact December 31, 1996
SECRETARY For the Persons
Listed Below
NAME TITLE
Edward C. Gonzales* Chairman, and Treasurer
(Chief Executive Officer
and Principal Financial and
Accounting Officer) and
Trustee and President
Richard Seidel* Trustee
Clyde M. McGeary* Trustee
* By Power of Attorney
Exhibit No. 15(iii) on Form N-1A
Exhibit No. 1 Under Item 601/Reg SK
EXHIBIT B
to the
Rule 12b-1
Distribution Plan
MARKETVEST FUNDS
MARKETVEST INTERNATIONAL EQUITY FUND
The following provisions are incorporated and made part of the
Distribution Plan dated January 1, 1996, of Marketvest Funds with
respect to the Class of Shares set forth above.
This Distribution Plan is adopted by Marketvest Funds with respect
to the Class of Shares of the portfolio of the Trust set forth above.
In compensation for the services provided pursuant to this Plan,
ESI will be paid a monthly fee computed at the annual rate of .25 of
1% of the average aggregate net asset value of the Shares of
Marketvest International Equity Fund held during the month.
Witness the due execution hereof this 1st day of January, 1997.
MARKETVEST FUNDS
By:
Jeffrey W. Sterling
Vice President
Exhibit No. 5(ii) on Form N-1A
Exhibit No. 10 Under Item 601/Reg SK
EXHIBIT B
to the
Investment Advisory Contract
MARKETVEST INTERNATIONAL EQUITY FUND
The following provisions are hereby incorporated and made part of the
Investment Advisory Contract dated January 1, 1996 between Marketvest Funds
and Dauphin Deposit Bank and Trust Company.
For all services rendered by Adviser hereunder, the above-named Fund
of the Trust shall pay to Adviser and Adviser agrees to accept as full
compensation for all services rendered hereunder, an annual investment
advisory fee equal to .65 of 1% of the average daily net assets of the
Fund.
The portion of the fee based upon the average daily net assets of the
Fund shall be accrued daily at the rate of 1/365th of .65 of 1% applied to
the daily net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser monthly.
In consideration of the mutual covenants set forth in the Investment
Advisory Contract dated January 1, 1996 between Marketvest Funds and
Dauphin Deposit Bank and Trust Company, Marketvest Funds executes and
delivers this Exhibit on behalf of the Fund, and with respect to the shares
thereof, set forth above.
Witness the due execution hereof this 1st day of January, 1997.
Attest: DAUPHIN DEPOSIT BANK AND TRUST COMPANY
By:
Secretary Executive Vice President
Rick A. Gold
Attest: MARKETVEST FUNDS
By:
Secretary Vice President
Victor R. Siclari Jeffrey W. Sterling
Exhibit No. 1(iii) on Form N-1A
Exhibit No. 3(a) Under Item 601/Reg SK
MARKETVEST FUNDS
Amendment No. 3
DECLARATION OF TRUST
dated September 1, 1995
THIS Declaration of Trust is amended as follows:
DELETE the first paragraph of Section 5 of Article III from the
Declaration of Trust and REPLACE it with the following:
``Section 5. Establishment and Designation of Series
or Class. Without limiting the authority of the Trustees set
forth in Article XII, Section 8, inter alia, to establish and
designate any additional Series or Class or to modify the
rights and preferences of any existing Series or Class, the
Series of the Trust shall be, and are established and
designated as:
Marketvest International Equity Fund
Marketvest Pennsylvania Intermediate Municipal Bond Fund''
The undersigned Secretary of Marketvest Funds hereby certifies that the
above-stated Amendment is a true and correct Amendment to the Declaration
of Trust, as adopted by the Board of Trustees on the 17th day of December,
1996.
WITNESS the due execution hereof this 17th day of December, 1996.
Victor R. Siclari
Secretary
Exhibit No. 6(ii) on Form N-1A
Exhibit No. 1 Under Item 601/Reg SK
Exhibit B
to the
Distributor's Contract
MARKETVEST FUNDS
MARKETVEST INTERNATIONAL EQUITY FUND
The following provisions are hereby incorporated and made part of
the Distributor's Contract dated January 1, 1996, between Marketvest
Funds and Edgewood Services, Inc. (`ESI'') with respect to the Class
of shares set forth above.
1. The Trust hereby appoints ESI to engage in activities principally
intended to result in the sale of shares of the above-listed Class
(``Shares'). Pursuant to this appointment, ESI is authorized to
select a group of financial institutions (``Financial Institutions')
to sell Shares at the current offering price thereof as described
and set forth in the respective prospectuses of the Trust.
2. During the term of this Agreement, the Trust will pay ESI for
services pursuant to this Agreement, a monthly fee computed at the
annual rate of .25 of 1% of the average aggregate net asset value of
the Shares held during the month. For the month in which this
Agreement becomes effective or terminates, there shall be an
appropriate proration of any fee payable on the basis of the number
of days that the Agreement is in effect during the month.
3. ESI may from time-to-time and for such periods as it deems
appropriate reduce its compensation to the extent any Class'
expenses exceed such lower expense limitation as ESI may, by notice
to the Trust, voluntarily declare to be effective.
4. ESI will enter into separate written agreements with various firms
to provide certain of the services set forth in Paragraph 1 herein.
ESI, in its sole discretion, may pay Financial Institutions a
periodic fee in respect of Shares owned from time to time by their
clients or customers. The schedules of such fees and the basis upon
which such fees will be paid shall be determined from time to time
by ESI in its sole discretion.
5. ESI will prepare reports to the Board of Trustees of the Trust on a
quarterly basis showing amounts expended hereunder including amounts
paid to Financial Institutions and the purpose for such
expenditures.
In consideration of the mutual covenants set forth in the
Distributor's Contract dated January 1, 1996 between Marketvest Funds
and ESI, Marketvest Funds executes and delivers this Exhibit on behalf
of the Marketvest International Equity Fund, and with respect to the
Shares thereof, first set forth in this Exhibit.
Witness the due execution hereof this 1st day of January, 1997.
ATTEST: MARKETVEST FUNDS
By:
Secretary Vice President
Victor R. Siclari Jeffrey W. Sterling
(SEAL)
ATTEST: EDGEWOOD SERVICES, INC.
By:
Secretary Vice President
S. Elliott Cohan Newton Heston, III
(SEAL)
