NEW COVENANT FUNDS, 497, 2000-11-03

NEW COVENANT FUNDS
497, 2000-11-03

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<PAGE> 1
PROSPECTUS

OCTOBER 30, 2000

NEW COVENANT FUNDS

NEW COVENANT GROWTH FUND

NEW COVENANT INCOME FUND

NEW COVENANT BALANCED GROWTH FUND

NEW COVENANT BALANCED INCOME FUND

THE SECURITIES DESCRIBED IN THIS PROSPECTUS HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION. THE SECURITIES AND
EXCHANGE COMMISSION HAS NOT DETERMINED THAT THE INFORMATION IN THIS PROSPECTUS
IS ACCURATE OR COMPLETE NOR HAVE THEY PASSED ON ITS ADEQUACY. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

200 EAST TWELFTH STREET, SUITE C, JEFFERSONVILLE, IN 47130
<PAGE> 2
C O N T E N T S

<TABLE>
<S> <C>
THE FUNDS .................................................. 3
Concise fund-by-fund descriptions are provided on
the following pages. Each description provides the
specific Fund objectives, strategies, risks, suitability
and performance. Before investing, make sure that
the Fund's objectives match your own.

A DESCRIPTION OF EACH FUND
Objectives and Strategies
New Covenant Growth Fund ................................... 4
New Covenant Income Fund ................................... 5
New Covenant Balanced Growth Fund .......................... 6
New Covenant Balanced Income Fund .......................... 7

PRINCIPAL RISKS AND INVESTOR SUITABILITY ................... 8
Description of Risks ....................................... 10

PERFORMANCE
Performance of the Funds ................................... 12
Past Performance ........................................... 12
Bar Chart and Performance Tables ........................... 12

FEES AND EXPENSES OF THE FUNDS
Shareholder Fees ........................................... 17
Annual Fund Operating Expenses ............................. 17
Example .................................................... 18

RISK MANAGEMENT ............................................ 19
OTHER POLICIES AND RISKS ................................... 20

MANAGEMENT OF THE FUNDS
The Adviser ................................................ 22
The Sub-Advisers ........................................... 23

YOUR INVESTMENT
Buying Shares .............................................. 27
How to Sell Shares ......................................... 31
Exchange or Transfer of Shares ............................. 32
Shareholder Services ....................................... 33

DISTRIBUTIONS AND TAXES .................................... 34
FINANCIAL HIGHLIGHTS ....................................... 35
ADDITIONAL INFORMATION ..................................... Outside Back Cover
</TABLE>

2
<PAGE> 3
THE FUNDS

The New Covenant Funds (the "Trust") have been organized with participation from
the Presbyterian Church (U.S.A.) Foundation (the "Foundation") to facilitate
responsible financial management of the investment and endowment assets of the
Presbyterian Church (U.S.A.) and of charitable organizations which are part of
or associated with the Presbyterian Church (U.S.A.). The Foundation is a
charitable, religious organization that supports the mission of the Presbyterian
Church (U.S.A.). The Trust may also serve the investment needs of certain other
charitable or religious organizations, including organizations that are part of
a religious denomination with which the Presbyterian Church (U.S.A.) has a
relationship. The investment needs of other ecumenical and charitable
organizations may also be met. Shares of the Trust's four separate investment
portfolios, or Funds, may also be purchased by investors other than religious or
charitable organizations.

In addition to each Fund's objectives and strategies, each of the Funds has the
common objective of making investments consistent with social-witness principles
adopted by the General Assembly of the Presbyterian Church (U.S.A). These
principles include, among others, certain limitations on investments in military
contractors, distillers of alcoholic beverages, tobacco companies, gambling
companies, manufacturers of gambling equipment and manufacturers of firearms.
The Funds may choose to sell otherwise profitable investments in companies which
have been identified as being in conflict with the established social-witness
principles of the Presbyterian Church (U.S.A.). Beyond these principles, each
Fund pursues different investment objectives and strategies. You should
carefully consider these objectives and strategies before deciding to invest.

3
<PAGE> 4
NEW COVENANT GROWTH FUND

INVESTMENT OBJECTIVE - The GROWTH FUND'S investment objective is long-term
capital appreciation. Dividend income, if any, will be incidental.

PRINCIPAL STRATEGIES - Under normal market conditions, at least 80% of the
Fund's assets are invested in a diversified portfolio of common stocks of
companies that the Fund's portfolio managers believe have long-term growth
potential.

The Fund makes investment decisions consistent with social-witness principles
approved by the General Assembly of the Presbyterian Church (U.S.A.). Therefore,
the Fund may choose not to purchase, sell, or retain investments otherwise
consistent with its investment objective.

The Fund invests in common stocks and other equity securities of companies of
all sizes, domestic and foreign. The Fund generally invests in larger companies,
although it may purchase companies of any size, including small-size companies.
Up to 40% of the Fund's assets may be invested in securities of foreign issuers
in any country, and in developed or emerging markets. Foreign securities are
selected on a stock-by-stock basis without regard to any defined allocation
among countries or geographic regions. The Fund may also use options and futures
contracts.

New Covenant Trust Company, N.A. (the "Adviser") seeks to enhance performance
and reduce market risk by strategically allocating the Fund's assets among
multiple sub-advisers. The allocation is made based on the Adviser's desire for
balance among differing investment styles and philosophies offered by the
sub-advisers.

In selecting stocks, both domestic and foreign, the portfolio managers search
for stocks that are the best values based on fundamental and technical company
research, cash-flow analyses and general company and economic conditions. This
means that the portfolio managers believe that the stocks are reasonably priced
and have above-average appreciation potential. The portfolio managers generally
seek to manage risk by diversifying investments across companies, industries,
countries and investment strategies.

On occasion, up to 20% of the Fund's assets may be invested in bonds which are
rated within the four highest grades assigned by independent rating agencies, or
in unrated equivalents (investment grade), or in commercial paper within the two
highest rating categories of independent rating agencies.

The remainder of the Fund's assets may be invested in cash or cash equivalents.

4
<PAGE> 5
NEW COVENANT INCOME FUND

INVESTMENT OBJECTIVE - The INCOME FUND'S investment objective is a high level of
current income with preservation of capital.

PRINCIPAL STRATEGIES - Under normal market conditions, at least 80% of the
Fund's assets are invested in a diversified portfolio of bonds and other debt
obligations of varying maturities.

The Fund makes investment decisions consistent with social-witness principles
approved by the General Assembly of the Presbyterian Church (U.S.A.). Therefore,
the Fund may choose not to purchase, sell or retain investments otherwise
consistent with its investment objective.

The Fund invests in corporate and government bonds issued or guaranteed by the
U.S. Government or one of its agencies and, to a lesser extent, by foreign
governments. The Fund also invests in mortgage-backed and asset-backed
securities. The corporate bonds in which the Fund invests have been issued by
domestic and international companies that operate in a wide variety of
industries.

At least 65% of the Fund's assets will be invested in bonds which are rated
within the four highest grades assigned by independent rating agencies, and
attempt to maintain an overall quality rating of AA or higher. The Fund may
invest in unrated equivalents which may be considered to be investment grade.
The Fund may invest up to 20% of its assets in bonds that are rated below
investment grade.

Up to 20% of the Fund's assets may be invested in commercial paper within the
two highest rating categories of independent rating agencies. The Fund may also
invest up to 40% of its assets in the fixed-income securities of foreign issuers
in any country and in developed or emerging markets. Foreign securities are
selected on an individual basis without regard to any defined allocation among
countries or geographic regions.

The Fund's average dollar-weighted maturity is expected to be approximately 9
years. The Fund may invest in securities of any maturity, but expects its
average maturity to range from 4 years to 12 years and an average duration
between 3 and 6 years. A bond's duration indicates the time it will take an
investor to recoup his or her investment. Duration weights all potential cash
flows (principal, interest and reinvestment income) on an expected present-value
basis to determine the "effective life" of a fixed-income security. Duration is
sensitive to interest rates. For example, if interest rates rise 1%, a bond with
a duration of 3 years will go down 3%. Maturity takes into account only the
final principal payment to determine the risk of a particular bond.

Investments for the Fund, both foreign and domestic, are selected based on the
following criteria:

- the use of interest-rate and yield-curve analyses. (Yield-curve analyses
examine the level of interest rates at different bond maturities, and the
shape of the curve as determined by Federal Reserve policy, inflation
concerns and supply/demand conditions);

- the use of credit analyses which indicate a security's rating and
potential for appreciation;

- use of the above disciplines to invest in high-yield bonds and
fixed-income securities issued by foreign and domestic governments and
companies.

The remainder of the Fund's assets may be invested in cash or cash equivalents.

5
<PAGE> 6
NEW COVENANT BALANCED GROWTH FUND

INVESTMENT OBJECTIVE - The BALANCED GROWTH FUND'S investment objective is to
produce capital appreciation with less risk than would be present in a portfolio
of only common stocks.

PRINCIPAL STRATEGIES - To pursue its objective, the Fund invests primarily in
shares of the GROWTH FUND and the INCOME FUND, with a majority of its assets
generally invested in shares of the GROWTH FUND.

Between 45% and 75% of the Fund's assets (with a "neutral" position of
approximately 60%) are invested in shares of the GROWTH FUND, with the balance
of its assets invested in shares of the INCOME FUND.

The Fund will periodically rebalance its investments in the GROWTH FUND and the
INCOME FUND, within the limits described above. In implementing this rebalancing
strategy, past and anticipated future performance of both Funds is taken into
account. The allocation of investments made in the GROWTH FUND and INCOME FUND
varies in response to market conditions, investment outlooks, and risk/reward
characteristics of equity and fixed-income securities.

The Fund makes investment decisions consistent with social-witness principles
approved by the General Assembly of the Presbyterian Church (U.S.A.). Therefore,
the Fund may choose not to purchase, sell or retain investments otherwise
consistent with its investment objective.

The remainder of the Fund's assets may be invested in cash or cash equivalents.

6
<PAGE> 7
NEW COVENANT BALANCED INCOME FUND

INVESTMENT OBJECTIVE - The BALANCED INCOME FUND'S investment objective is to
produce current income and long-term growth of capital.

Between 50% and 80% of the Fund's assets (with a "neutral" position of
approximately 65%) are invested in shares of the INCOME FUND, with the balance
of its assets invested in shares of the GROWTH FUND.

The Fund makes investment decisions consistent with social-witness principles
approved by the General Assembly of the Presbyterian Church (U.S.A.). Therefore,
the Fund may choose not to purchase, sell or retain investments otherwise
consistent with its investment objective.

The remainder of the Fund's assets may be invested in cash or cash equivalents.

7
<PAGE> 8
PRINCIPAL RISKS AND INVESTOR SUITABILITY

GROWTH FUND

PRINCIPAL RISKS - The following are principal risks associated with the GROWTH
FUND. A more complete description of these risks follows this section.

- Stock Market Risk
- Small Company Risk
- Foreign Securities Risk
- Emerging Markets Risk
- Interest Rate Risk
- Credit Risk
- Call Risk
- Options and Futures Risks

INVESTOR SUITABILITY - The GROWTH FUND may be appropriate for investors who:

- prefer a fund that uses an appreciation-oriented strategy
- can accept the risks of investing in a portfolio of common stocks
- can tolerate performance which can vary substantially from year to year
- have a long-term investment horizon

The GROWTH FUND probably will not be suitable for you if you have a short-term
investment horizon, are investing emergency reserve money, are seeking ordinary
dividend and interest income, or find it difficult to deal with an investment
that may go up and down in value.

INCOME FUND

PRINCIPAL RISKS - The following are principal risks associated with the INCOME
FUND. A more complete description of these risks follows this section.

- Interest Rate Risk
- Credit Risk
- Prepayment Risk
- Call Risk
- Foreign Securities Risk
- Options and Futures Risks

INVESTOR SUITABILITY - The INCOME FUND may be appropriate for investors who:

- prefer a bond fund that invests in both corporate and U.S. Government
securities
- desire income to complement a portfolio of more aggressive investments
- can tolerate performance which may vary from year to year
- prefer a relatively conservative investment for income

The INCOME FUND probably will not be suitable for you if you have a short-term
investment horizon, are investing emergency reserve money, or are seeking high
growth or maximum investment return.

8
<PAGE> 9
PRINCIPAL RISKS AND INVESTOR SUITABILITY

BALANCED GROWTH FUND

PRINCIPAL RISKS - The following are principal risks associated with the BALANCED
GROWTH FUND. A more complete description of these risks follows this section.

- Stock Market Risk
- Small Company Risk
- Foreign Securities Risk
- Emerging Markets Risk
- Interest Rate Risk
- Credit Risk
- Prepayment Risk
- Call Risk
- Options and Futures Risks
- Rebalancing Risk

INVESTOR SUITABILITY - The BALANCED GROWTH FUND may be appropriate for you if
you:

- prefer a balanced investment program which allocates assets between growth
and income portfolios, with an emphasis on growth
- can tolerate the level of risk represented by the common stock portion of
the portfolio allocation
- can tolerate performance which will vary from year to year
- have a longer-term investment horizon

The BALANCED GROWTH FUND probably will not be suitable for you if you have a
short-term investment horizon, are investing emergency reserve money, desire
only income or prefer to avoid an investment that may go up and down in value.

BALANCED INCOME FUND

PRINCIPAL RISKS - The following are principal risks associated with the BALANCED
INCOME FUND. A more complete description of these risks follows this section.

- Interest Rate Risk
- Credit Risk
- Call Risk
- Prepayment Risk
- Foreign Securities Risk
- Options and Futures Risks
- Stock Market Risk
- Small Company Risk
- Rebalancing Risk

INVESTOR SUITABILITY - The BALANCED INCOME FUND may be appropriate for you if
you:

- prefer a balanced investment program which allocates assets between
growth and income portfolios, with an emphasis on income
- prefer that half or more of the portfolio be fixed-income-producing
securities
- can tolerate performance which will vary from year to year
- have a longer-term investment horizon

The BALANCED INCOME FUND probably will not be suitable for you if you have a
short-term investment horizon, are investing emergency reserve money, require
only growth or prefer to avoid an investment that may go up and down in value.

9
<PAGE> 10
DESCRIPTION OF RISKS

All investments involve some type and level of risk. Risk is the possibility
that you will lose money or not make any additional money by investing in the
Funds. The Funds cannot be certain that they will achieve their investment
objectives. An investment in any of the Funds is not a deposit with the Funds'
investment adviser, New Covenant Trust Company, N.A. (the "Adviser") and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Before you invest, please make sure that you have read and
understand the risk factors that apply to the specific Fund in which you are
investing.

For all Funds, there is the risk that the Funds will underperform other similar
mutual funds that do not consider social-witness principles in their investing.

The following are the risks associated with an investment in the Funds.

STOCK MARKET RISK - Stock market risk is the risk that the prices of securities
held by a Fund will fall due to various conditions or circumstances that may be
unpredictable. Stock prices generally fall or stagnate when interest rates rise.
Stock prices in general rise and fall as a result of investors' perceptions of
the market as a whole.

SMALL COMPANY RISK - Small companies may have limited product lines, markets or
financial resources. Their securities may trade less frequently and in more
limited volume than securities of larger, more established companies. The prices
of small-company stocks tend to rise and fall in value more than other stocks.

FOREIGN SECURITIES RISK - The performance of a Fund's investments in non-U.S.
companies and in companies operating internationally or in foreign countries
will depend principally on economic conditions in their product markets, the
securities markets where their securities are traded, and on currency exchange
rates. These risks are present because of uncertainty in future exchange rates
back into U.S. dollars, and possible political instability which could affect
foreign financial markets and local economies. There are also risks related to
social and economic developments abroad, as well as risks resulting from the
differences between the regulations to which U.S. and foreign issuers and
markets are subject. The conversion in 1999 of various European currencies into
a single "euro" currency also presents a risk on the timing of interest and
principal payments.

EMERGING MARKETS RISK - Emerging-markets securities bear all foreign securities
risks discussed above. In addition, there are greater risks involved in
investing in emerging markets than in developed foreign markets. Emerging-market
countries may have less developed legal structures and political systems, and
the small size of their securities markets and low trading volumes can make
investments illiquid and more volatile than investments in developed countries.

INTEREST RATE RISK - Interest-rate risk is the risk that prices for fixed-income
securities will fall as a result of upward changes in interest rates. The market
value of bonds generally declines when interest rates rise. This risk is greater
for bonds with longer maturities.

10
<PAGE> 11
DESCRIPTION OF RISKS
--------------------------------------------------------------------------------

CREDIT RISK - Credit risk is the risk that an issuer of a fixed-income security
may default on a security by failing to pay interest or principal when due.

CALL RISK - Call risk exists when an issuer may exercise its rights to pay
principal on a bond earlier than scheduled. This typically results when interest
rates have declined, and the Fund will suffer from having to reinvest in
lower-yielding bonds.

PREPAYMENT RISK - Prepayment risk applies when a Fund invests in mortgage-backed
securities. Prepayment risk relates to mortgages being prepaid at a rate
different than projected. The Fund may then be forced to invest the proceeds
from prepaid mortgage-backed securities at lower prevailing rates when interest
rates are falling, or prevented from investing at higher rates if prepayments
are slow when interest rates are rising.

OPTIONS AND FUTURES RISKS - The Funds may use futures and options on futures for
hedging purposes only. The hedging strategy may not be successful if the
portfolio manager is unable to accurately predict movements in the prices of
individual securities held by the Funds or if the strategy does not correlate
well with the Fund's investments. The use of futures and options on futures may
produce a loss for the Fund, even when used only for hedging purposes. The risks
associated with options and futures include possible default by the other party
to the transaction, illiquidity and the risk that the use of options and futures
could result in losses greater than if they had not been used.

PUT AND CALL OPTION RISKS - The value of call options tends to increase or
decrease in the same direction as the price change of the securities underlying
them, and the value of put options tends to increase or decrease in the opposite
direction as the price change of the securities underlying them. However,
because these options can be purchased for a fraction of the cost of the
underlying securities, their price changes can be very large in relation to the
amount invested in them. This means that options are volatile investments. As a
result, options are riskier investments than the securities underlying them.

REBALANCING RISK - The Balanced Growth Fund and the Balanced Income Fund are
subject to rebalancing risk. Rebalancing activities, while undertaken to
maintain the Fund's investment risk-to-reward ratio, may cause the Fund to
underperform other funds with similar investment objectives. For the Balanced
Growth Fund, it is possible after rebalancing from equities into a greater
percentage of fixed-income securities, that equities will outperform
fixed-income investments. For the Balanced Income Fund, it is possible that
after rebalancing from fixed-income securities into a greater percentage of
equity securities, that fixed-income securities will outperform equity
investments. The performance of the Balanced Growth Fund and the Balanced Income
Fund depends on the performance of the underlying funds in which it invests.

11
<PAGE> 12
PERFORMANCE
--------------------------------------------------------------------------------

PERFORMANCE OF THE FUNDS

Although past performance of a Fund is no guarantee of how it will perform in
the future, historical performance may give you some indication of the risks of
investing in a Fund. Performance demonstrates how a Fund's returns have varied
over time.

PAST PERFORMANCE - Set forth on the following pages is certain past performance
information for four privately-managed investment pools that were previously
managed by the Presbyterian Church (U.S.A.) Foundation (the predecessor
investment entity to the Fund's investment Adviser) through June 30, 1999, each
of whose assets were transferred to their corresponding Fund on July 1, 1999
upon the establishment of the Funds. These private pools had investment
objectives and policies in all material respects equivalent to those of the
Funds and were managed subject to the same "manager of managers" investment
style that is utilized by the Funds. These private pools were not subject to the
requirements of the Investment Company Act of 1940 or the Internal Revenue Code
of 1986, the limitations of which might have adversely affected performance
results. The prior performance depicted has been restated to reflect the
imposition of the total expenses of the Funds for their initial fiscal year
rather than the actual expenses of the private pools. Past performance is not
indicative of future results, which may be higher or lower than the performance
shown.

BAR CHART AND PERFORMANCE TABLES

The following bar charts and performance tables provide some indication of the
risks of investing in a Fund by showing changes in the performance of the four
private pools. Annual returns are shown for each calendar year and average
annual returns are compared with those of a broad measure of market performance.
Both tables assume reinvestment of dividends and distributions.

12
<PAGE> 13
PERFORMANCE
--------------------------------------------------------------------------------

GROWTH FUND
Annual Total Returns - Calendar Year

[BAR CHART]

PLOT POINTS
<TABLE>
YEAR PERCENT
<S> <C>
1990 -10.4%
1991 23.6%
1992 3.1%
1993 13.5%
1994 0.8%
1995 27.7%
1996 19.5%
1997 19.1%
1998 11.3%
1999 18.5%(1)
</TABLE>

(1) The 1999 performance number reflects the performance of the Growth Pool
from January 1, 1999 through June 30, 1999 and the performance of the
Growth Fund from July 1, 1999 through December 31, 1999.

During the ten-year period ending December 31, 1999, the highest return for a
quarter was 17.7% for the quarter ended December 31, 1998 and the lowest return
for a quarter was -14.98% for the quarter ended June 30, 1998. The year to date
total return for the Growth Fund as of September 30, 2000 was -0.7%.

PERFORMANCE TABLE FOR THE GROWTH FUND
Average Annual Total Returns as of December 31, 1999

<TABLE>
<CAPTION>
One Year Five Years Ten Years
-------- ---------- ---------
<S> <C> <C> <C>
Growth Fund(1) +18.5% +19.1% +12.1%

Wilshire 5000
Total Market Index(2) +22.1% +26.7% +17.4%
</TABLE>

(1) The Growth Fund is managed in the same manner that the Growth Pool was
managed.

(2) The Wilshire 5000 Total Market Index is an unmanaged index representing
over 5,000 companies that are traded on various U.S. securities exchanges.

13
<PAGE> 14
PERFORMANCE
--------------------------------------------------------------------------------

INCOME FUND
Annual Total Returns - Calendar Year

[BAR GRAPHIC]

PLOT POINTS
<TABLE>
<CAPTION>
YEAR PERCENT
<S> <C>
1990 8.8%
1991 15.8%
1992 6.3%
1993 12.3%
1994 -5.8%
1995 17.2%
1996 4.1%
1997 9.1%
1998 6.7%
1999 -1.2%(1)
</TABLE>

(1) The 1999 performance reflects the performance of the Income Pool from
January 1, 1999 through June 30, 1999 and the performance of the Income
Fund from July 1, 1999 through December 31, 1999.

During the ten-year period ending December 31, 1999, the highest return for a
quarter was 5.53% for the quarter ended December 31, 1991 and the lowest return
for a quarter was -4.48% for the quarter ended March 31, 1994. The year to date
total return for the Income Fund as of September 30, 2000 was 2.8%.

PERFORMANCE TABLE FOR THE INCOME FUND
Average Annual Total Returns as of December 31, 1999

<TABLE>
<CAPTION>
One Year Five Years Ten Years
-------- ---------- ---------
<S> <C> <C> <C>
Income Fund(1) -1.2% +7.0% +7.1%

Lehman Brothers
Government/Credit
Bond Index(2) -2.2% +7.1% +7.3%
</TABLE>

(1) The Income Fund is managed in the same manner that the Income Pool was
managed.

(2) The Lehman Brothers Government/Credit Bond Index is an unmanaged index,
generally representative of the fixed-income market.

14
<PAGE> 15
PERFORMANCE
--------------------------------------------------------------------------------

BALANCED GROWTH FUND
Annual Total Returns - Calendar Year

[BAR GRAPHIC]

PLOT POINTS

<TABLE>
<CAPTION>
YEAR PERCENT
<S> <C>
1990 -1.6%
1991 20.3%
1992 3.6%
1993 12%
1994 -1.9%
1995 22.6%
1996 13.9%
1997 15.4%
1998 10.2%
1999 10.5%(1)
</TABLE>

(1) The 1999 performance reflects the performance of the Balanced Growth Pool
from January 1, 1999 through June 30, 1999 and the performance of the
Balanced Growth Fund from July 1, 1999 through December 31, 1999.

During the ten-year period ending December 31, 1999, the highest return for a
quarter was 10.48% for the quarter ended December 31, 1998 and the lowest return
for a quarter was -8.06% for the quarter ended September 30, 1990. The year to
date total return for the Balanced Growth Fund as of September 30, 2000 was
0.6%.

PERFORMANCE TABLE FOR THE BALANCED GROWTH FUND
Average Annual Total Returns as of December 31, 1999

<TABLE>
<CAPTION>
One Year Five Years Ten Years
-------- ---------- ---------
<S> <C> <C> <C>
Balanced Growth Fund(1) +10.5% +14.4% +10.2%

Wilshire 5000
Total Market Index +22.1% +26.7% +17.4%

Lehman Brothers
Government/Credit
Bond Index -2.2% +7.1% +7.3%

Balanced Growth
Composite Index(2) +12.4% +18.9% +13.5%
</TABLE>

(1) The Balanced Growth Fund is managed in the same manner that the Balanced
Growth Pool was managed.

(2) The Balanced Growth Composite Index is a composite weighted 60% Wilshire
5000 Total Market Index and 40% Lehman Brothers Government/Credit Bond
Index.

15
<PAGE> 16
PERFORMANCE
--------------------------------------------------------------------------------

BALANCED INCOME FUND
Annual Total Returns - Calendar Year

[BAR GRAPHIC]

PLOT POINTS
<TABLE>
<CAPTION>
YEAR PERCENT
<S> <C>
1990 2.0%
1991 19.8%
1992 5.1%
1993 12.8%
1994 -3.7%
1995 20.6%
1996 9.8%
1997 12.5%
1998 8.7%
1999 5.5%(1)
</TABLE>

(1) The 1999 performance reflects the performance of the Balanced Income Pool
from January 1, 1999 through June 30, 1999 and the performance of the
Balanced Income Fund from July 1, 1999 through December 31, 1999.

During the ten-year period ending December 31, 1999, the highest return for a
quarter was 7.12% for the quarter ended June 30, 1997 and the lowest return for
a quarter was -4.49% for the quarter ended September 30, 1990. The year to date
total return for the Balanced Income Fund as of September 30, 2000 was 1.5%.

PERFORMANCE TABLE FOR THE BALANCED INCOME FUND
Average Annual Total Returns as of December 31, 1999

<TABLE>
<CAPTION>
One Year Five Years Ten Years
-------- ---------- ---------

<S> <C> <C> <C>
Balanced Income Fund(1) +5.5% +11.3% +9.1%

Lehman Brothers
Government/Credit
Bond Index -2.2% +7.1% +7.3%

Wilshire 5000 Total
Market Index +22.1% +26.7% +17.4%

Balanced Income Composite
Index(2) +6.3% +14.0% +11.0%
</TABLE>

(1) The Balanced Income Fund is managed in the same manner that the Balanced
Income Pool was managed.

(2) The Balanced Income Composite Index is a composite weighted 65% Lehman
Brothers Government/Credit Bond Index and 35% Wilshire 5000 Total Market
Index.

16
<PAGE> 17
FEES AND EXPENSES OF THE FUNDS
--------------------------------------------------------------------------------

This section describes the fees and expenses that you may pay if you buy and
hold shares of the Funds. Shareholder fees are costs that are charged to you
directly. These fees are not charged on dividend reinvestments or exchanges.
Annual fund operating expenses are deducted from the Funds' assets every year,
so they are paid indirectly by all investors. The Funds have no sales charge
(load).

SHAREHOLDER FEES
- All Funds (fees paid directly from your investment)

<TABLE>
<S> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) .............................. None

Maximum Deferred Sales Load
(as a percentage of offering price) .............................. None

Maximum Sales Load on reinvested dividends
(as a percentage of offering price) .............................. None

Redemption Fees (1)............................................... None

Exchange Fee ..................................................... None

Maximum Account Fee .............................................. None
</TABLE>

(1)To redeem shares by wire transfer, the Funds' transfer agent charges a fee of
$9.00 for each wire redemption.

ANNUAL FUND OPERATING EXPENSES
- All Funds (expenses that are deducted from Fund assets)

<TABLE>
<CAPTION>
TOTAL ANNUAL
MANAGEMENT DISTRIBUTION OTHER OPERATING
FUND NAME FEES (12b-1) FEES EXPENSES EXPENSES

<S> <C> <C> <C> <C>
Growth Fund 0.99% None 0.08% 1.07%

Income
Fund 0.75% None 0.08% 0.83%

Balanced
Growth
Fund (1) None None 0.10% 1.09%

Balanced
Income
Fund (1) None None 0.14% 1.07%
</TABLE>

(1) The BALANCED FUNDS invest their assets primarily in the GROWTH FUND and the
INCOME FUND. By investing primarily in shares of these Funds, shareholders of
the BALANCED FUNDS indirectly pay a portion of the operating expenses,
management expenses and brokerage costs of the

17
<PAGE> 18
FEES AND EXPENSES OF THE FUNDS
--------------------------------------------------------------------------------

underlying Funds as well as their own operating expenses. Thus, shareholders of
the BALANCED FUNDS may indirectly pay slightly higher total operating expenses
and other costs than they would pay by directly owning shares of the GROWTH FUND
and INCOME FUND. The fees and expenses included in this table for the two
BALANCED FUNDS include both (a) their own respective fees and expenses, and (b)
their respective pro-rata share of the fees and expenses of the Funds in which
each BALANCED FUND invests while in a "neutral" position. Total fees and
expenses to be borne by investors in either BALANCED FUND will depend on the
portion of the Funds' assets invested in the GROWTH FUND and in the INCOME FUND.
The amounts reported in the table are based on the BALANCED GROWTH FUND'S
targeted asset allocation of 60% invested in the GROWTH FUND and 40% invested in
the INCOME FUND, and on the BALANCED INCOME FUND'S targeted asset allocation of
65% in the INCOME FUND and 35% in the GROWTH FUND. Within limits, these asset
allocations will change. A change in the asset allocation of either BALANCED
FUND could increase or reduce the fees and expenses actually borne by investors
in that Fund.

EXAMPLE

This example is designed so that you may compare the cost of investing in the
Funds with the cost of investing in other mutual funds. The example assumes
that:

- you invest $10,000 for the time periods indicated;

- you redeem all of your shares at the end of the time periods;

- your investment has a hypothetical 5% return each year;

- all distributions are reinvested; and

- each Fund's operating expenses remain the same.

Because actual return and expenses will be different, the example is for
comparison purposes only. Each Fund's actual performance and expenses may be
higher or lower. Based on the above assumptions, your costs for each Fund would
be:

<TABLE>
<CAPTION>
FUND NAME 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
GROWTH FUND $109 $340 $590 $1306

INCOME FUND $ 85 $265 $460 $1025

BALANCED
GROWTH FUND $111 $347 $601 $1329

BALANCED
INCOME FUND $109 $340 $590 $1306
</TABLE>

18
<PAGE> 19
RISK MANAGEMENT
--------------------------------------------------------------------------------

RISK MANAGEMENT - The GROWTH FUND and the INCOME FUND have a number of
non-fundamental policies and procedures intended to reduce the risks borne by
their investors. These policies and procedures should also reduce the risks
borne by investors in the BALANCED FUNDS because they invest exclusively in
shares of the GROWTH FUND and the INCOME FUND.

- Each Fund invests principally in U.S. issuers, but also may invest in
geographically diverse foreign and international companies. This policy
may reduce the effect on the Fund of adverse events affecting particular
nations or regions. If a Fund holds a position in securities priced in
non-U.S. currency, it may engage in hedging transactions to reduce
currency risk.

- When market conditions threatening a Fund's ability to achieve its
investment objectives appear imminent, the Fund may take temporary
defensive positions designed to reduce risk, even though these temporary
positions are inconsistent with the Fund's customary strategies. The
GROWTH FUND may increase its bond and cash-equivalent holdings, and the
INCOME FUND may increase its cash-equivalent holdings.

- Within each Fund, each Sub-Adviser pursues the Fund's objective through
its own investment strategy. Since any investment strategy has its own
strengths and weaknesses, depending on market conditions, the use of
multiple strategies should reduce the effect of changing market
conditions on Fund performance.

19
<PAGE> 20
OTHER POLICIES AND RISKS
--------------------------------------------------------------------------------

Each Fund's investment objective is fundamental, which means that it may not be
changed without a shareholder vote. All investment policies of each Fund which
are not specifically identified as fundamental may be changed by the Board of
Trustees without approval of Fund shareholders.

Each of the Fund's portfolio securities and investment practices offers certain
opportunities and carries various risks. Major investments and risk factors are
outlined in the front of the Prospectus. Below are brief descriptions of other
securities and practices, along with their risks, which apply to the GROWTH FUND
and the INCOME FUND.

SOCIAL-WITNESS PRINCIPLES: Since the Funds have made investing in accordance
with social-witness principles approved by the General Assembly of the
Presbyterian Church (U.S.A.) one of their investment policies, they may choose
not to make, or to divest, investments otherwise consistent with their
individual investment objectives. This means that there is a risk that the Funds
may under-perform other similar mutual funds that do not consider social-witness
principles in their investing.

INVESTMENT TECHNIQUES: To a limited extent, the GROWTH FUND and the INCOME FUND
may engage in securities lending arrangements, repurchase agreements, and may
hold certain derivative securities, principally put and call options, for
hedging purposes. The Funds pursue these activities to reduce volatility, lower
costs, and to seek to marginally increase their investment returns, but these
activities also marginally increase the Funds' risks.

PUT AND CALL OPTIONS: A call or put may be purchased only if, after the
purchase, the value of all call and put options held by a Fund will not exceed
20% of the Fund's total assets.

WHEN-ISSUED SECURITIES: The Funds may invest in securities prior to their date
of issue. These securities could rise or fall in value by the time they are
actually issued, which may be any time from a few days to over a year.

REPURCHASE AGREEMENTS: The Funds may buy securities with the understanding that
the seller will buy them back with interest at a later date. If the seller is
unable to honor its commitment to repurchase the securities, the Funds could
lose money.

MORTGAGE-BACKED SECURITIES: These securities, which represent interests in pools
of mortgages, may offer attractive yields but generally carry additional risks.
The prices and yields of mortgage-related securities typically assume that the
securities will be redeemed at a given time before maturity. When interest rates
fall substantially, these securities usually are redeemed early because the
underlying mortgages are often prepaid. The Fund would then have to reinvest the
money at a lower rate.

ASSET-BACKED SECURITIES: These securities represent interests in pools of debt
such as credit-card accounts. The principal risks of asset-backed securities are
that on the underlying obligations, payments may be made more slowly, and rates
of default may be higher than expected. In addition, because some of these
securities are new or complex, unanticipated problems may affect their value or
liquidity.

20
<PAGE> 21
[NEW COVENANT FUNDS GRAPHIC]

ACCOUNT APPLICATION FORM

TELEPHONE EXCHANGE, REDEMPTION, AND VOICE RESPONSE ACCESS

In order to access any of the three following telephone options, you must
provide a four-digit personal identification number (PIN).

Choose four numbers: __ __ __ __

[_] TELEPHONE EXCHANGE: I hereby authorize the acceptance of telephone exchange
among NEW COVENANT GROWTH FUND, NEW COVENANT BALANCED GROWTH FUND, NEW
COVENANT BALANCE INCOME FUND, NEW COVENANT INCOME FUND, AND NEW COVENANT\
MONEY MARKET FUND.

[_] TELEPHONE REDEMPTION: I hereby authorize the acceptance of telephone
redemption orders for any or all shares from my account. Proceeds are
normally mailed to the name and address in which the account is registered.

[_] TELEPHONE VOICE RESPONSE ACCESS: I do not elect to have 24-hour automated
telephone access to my account.

Please complete the section below if you would like the additional option to
ACH or to wire proceeds to your bank. Proceeds are to be transmitted to the
commercial bank designated below:

BANK ROUTING INFORMATION

ACH [_] Wire [_]
_______________________________________________________________________________
Name of Bank

_______________________________________________________________________________
Bank's ABA (Federal Funds Routing) Number

_______________________________________________________________________________
Address City State Zip

_______________________________________________________________________________
Account Title Account Number

MAILING INSTRUCTIONS

PLEASE MAKE CHECK PAYABLE TO: NEW COVENANT FUNDS AND MAIL TO NEW COVENANT
FUNDS, c/o PFPC INC., 211 S. GULPH ROAD, P.O. BOX 61947, KING OF PRUSSIA, PA
19406-0150.

SIGNATURE AND CERTIFICATION

The Internal Revenue Service does not require your consent to any provision of
this document other than the certification required to avoid backup
withholding. If you are subject to backup withholding check here [_]

I have received, read and agree to the terms of the current Prospectus of the
Funds. I have the authority and legal capacity to purchase shares of the Fund(s)
and I am of legal age in my state. I authorize PFPC Inc., its affiliates, and
the Funds to act on any instructions believed to be genuine for any service
authorized on this form. I agree that they will not be liable for any resulting
loss or expense. Under penalties of perjury, I certify that the social security
or taxpayer identification number entered above is correct and that I have not
been notified by the IRS that I am subject to backup withholding, or that the
IRS has notified me that I am no longer subject to backup withholding.

Please sign here:

_______________________________________________________________________________
Signature of Owner, Trustee, or Custodian Date

_______________________________________________________________________________
Signature of Joint Owner (if any) Date

TRANSFER ON DEATH BENEFICIARY REGISTRATION (OPTIONAL)
Note: Only accounts registered to individuals, joint tenants, or tenants by the
entities may designate Transfer on Death Beneficiary.

If any shares remain in my account at the time of my death, it is my intent to
make a charitable gift of such shares to the charity named below. I request that
the account be registered in the beneficiary form under the Uniform Transfer on
Death Security Registration Act, thereby assigning ownership of the account on
my death to my beneficiary. I direct the Fund to transfer the account to the
beneficiary upon receipt of instructions and certification of my death. I
warrant that I am a resident of the state I have designated above and that the
state allows UTOD registration.
I release the Fund and its agencies and representatives from all claims,
demands, suits, actions, liabilities, and responsibilities whatsoever and agree
to idemnify them from any and all liabilities, cost of expense whatsoever for
acting in good faith in accordance with these instructions.

_______________________________________________________________________________
TOD Beneficiary

_______________________________________________________________________________
Street Address City State Zip

If there is a dispute regarding the right of a TOD beneficiary to receive assets
pursuant to this registration, the Fund cannot assure you that the party or
court hearing that dispute will apply your state law when making its
determination. A TOD registration may not be revoked or changed by will,
codicil, or telephone conversation. You can change or revoke your designation at
any time by 1) submitting a new medallion signature guaranteed Designation of
TOD beneficiary form, or 2) providing the Funds with a medallion signature
guaranteed letter of instruction detailing the same information included in this
form.

QUESTIONS? PLEASE CONTACT CLIENT SERVICES AT 877-835-4531.

<PAGE> 22
REGISTRATION Please complete only one registration type [NEW COVENANT
FUNDS LOGO]
/ / CHURCH OR OTHER CHARITABLE ORGANIZATION

----------------------------------------------------------------------------
Organization Name

----------------------------------------------------------------------------
Account Description Contact Name

----------------------------------------------------------------------------
Name of Presbytery (if applicable) Employee Identification Number

/ / CORPORATION, PARTNERSHIP OR OTHER ENTITY

----------------------------------------------------------------------------
Name of Corporation, Partnership Authorized Signer
or Other Entity

----------------------------------------------------------------------------
Type of Entity Taxpayer Identification Number

/ / INDIVIDUAL OR JOINT ACCOUNT

----------------------------------------------------------------------------
Individual Owner's name Social Security Number

----------------------------------------------------------------------------
Joint Owner's name (if applicable) Social Security Number

/ / TRUST ACCOUNT

----------------------------------------------------------------------------
Trustee(s) Name of Trust

----------------------------------------------------------------------------
Trust Date Trust's Taxpayer Identification Number

/ / GIFT OR TRANSFER TO A MINOR

----------------------------------------------------------------------------
Custodian's Name Minor's Name

----------------------------------------------------------------------------
Minor's Social Security Number State of Residence UGMA or UTMA

ADDRESS

----------------------------------------------------------------------------
Street Address or P.O. Box Telephone Number

Citizen of: / / U.S. / / Other
----------------------------------------------------------------------------
City State Zip Country

FUND SELECTION (Minimum initial investment for each fund is $500)

/ / New Covenant Growth Fund (105) $ / / By check:
------- Please make check
/ / New Covenant Balanced Growth Fund (103) $ payable to
------- NEW COVENANT FUNDS
/ / New Covenant Balanced Income Fund (102) $
------- / / By wire: Wire was
/ / New Covenant Income Fund (104) $ sent on
------- ----------
/ / New Covenant Money Market Fund (101) $ in the amount
------- of $ .
-----------

Note: If you have an existing account open in any of the New Covenant Funds
with the same registration information, please identify the Fund name and
account number below.

Fund Name: Account Number:
----------------------- ---------------------

DISTRIBUTION OPTIONS

All distributions will be reinvested automatically, unless indicated
otherwise:

INCOME DIVIDENDS: CAPITAL GAINS DISTRIBUTIONS:

/ / Reinvest / / Cash / / Reinvest / / Cash

/ / Other New Covenant Fund / / Other New Covenant Fund
---------- ---------
fund/account # fund/account #

ACCOUNT SERVICES

AUTOMATIC INVESTMENT PLAN

/ / I authorize PFPC Inc. to draw pre-authorized drafts in the amount of
$ (minimum $100) from my bank account on the 10th/15th/20th
---------
(circle one) day of each month, through Boston Safe Deposit & Trust until
I provide notice of termination of the plan. (PLEASE ATTACH YOUR VOIDED
CHECK HERE.)

SYSTEMATIC WITHDRAWAL PLAN - To establish this Plan, an account must have a
current market value of $5,000 or more.

/ / Please issue a check in the amount of $ ($100 minimum) to my
---------
/ / bank account (ATTACH VOIDED CHECK) or my / / address each
/ / month or / / quarter

<PAGE> 23
OTHER POLICIES AND RISKS
--------------------------------------------------------------------------------

REITS: Equity REITs invest directly in real property, while mortgage REITs
invest in mortgages on real property. REITs may be subject to certain risks
associated with the direct ownership of real estate, including declines in the
value of real estate, risks related to general and local economic conditions,
overbuilding and increased competition, increases in property taxes, and
variations in rental income. Equity REITs may be affected by changes in the
value of the underlying property owned by the trusts, while mortgage REITs may
be affected by the quality of credit extended. REITs may have limited financial
resources, may trade less frequently and in limited volume and may be subject to
more abrupt or erratic price movements than larger-company securities.

INVESTMENT GRADE SECURITIES: There are four categories that are referred to as
investment grade. These are the four highest ratings or categories as defined by
Moody's Investors Service, Inc. and Standard & Poor's Corporation. Securities in
the fourth investment grade are considered to have speculative characteristics.

NON-INVESTMENT GRADE SECURITIES: The INCOME FUND may invest in securities rated
below investment grade. These securities, while generally offering higher yields
than investment grade securities with similar maturities, involve greater risks,
including the possibility of default or bankruptcy. They are regarded as
speculative with respect to the issuer's capacity to pay interest and to repay
principal. The market values of these securities may be more sensitive to
individual corporate developments and changes in economic conditions than
higher-quality securities. In addition, lower-rated securities tend to be less
marketable than higher-quality securities because the market for them may not be
as broad or active. The lack of a liquid secondary market may have an adverse
effect on market price and the Fund's ability to sell particular securities
rated below investment grade.

ILLIQUID SECURITIES: Each Fund may invest up to 15% of its net assets in
illiquid investments. An illiquid investment is a security or other position
that cannot be disposed of quickly in the normal course of business (generally
within seven days). The Funds' percentage limitation on these investments does
not apply to certain restricted securities that are eligible for resale to
qualified institutional purchasers.

DEFENSIVE INVESTING: The Funds may, from time to time, take temporary defensive
positions that are inconsistent with each Fund's principal investment strategies
in an attempt to respond to adverse market, economic, political or other
conditions. When a Fund takes a temporary defensive position, it may not achieve
its stated investment objective. A principal defensive investment position would
be the purchase of cash equivalents.

INVESTMENTS IN OTHER INVESTMENT COMPANIES: The BALANCED GROWTH FUND and BALANCED
INCOME FUND, by investing primarily in shares of the GROWTH FUND and the INCOME
FUND, indirectly pay a portion of the operating expenses, management expenses
and brokerage costs of such companies as well as their own operating expenses.
Thus, shareholders of the BALANCED GROWTH FUND and BALANCED INCOME FUND may
indirectly pay slightly higher total operating expenses and other costs than
they would pay by owning shares of the underlying funds directly. The GROWTH
FUND and INCOME FUND may invest in shares of other investment companies, subject
to certain provisions of federal securities laws.

21
<PAGE> 24
MANAGEMENT OF THE FUNDS
--------------------------------------------------------------------------------

THE ADVISER - The Funds' adviser, New Covenant Trust Company, N.A., 200 East
Twelfth Street, Suite B, Jeffersonville, Indiana 47130, is a national trust bank
which received its federal charter in 1998. The Adviser is a subsidiary of the
Presbyterian Church (U.S.A.) Foundation, founded in 1799, which for many years
has administered an investment program for institutions. The Adviser provides
certain investment advisory services that were previously offered by the
Foundation. All members of the Adviser's investment committee also serve the
Presbyterian Church (U.S.A.) Foundation's investment committee as trustees or
staff.

The Adviser acts as a "manager of managers" for the Funds and selects and
retains various sub-advisers (the "Sub-Advisers") who manage portions of the
assets of the GROWTH FUND and the INCOME FUND that are allocated to them by the
Adviser. The Sub-Advisers employ portfolio managers to make the day-to-day
investment decisions regarding portfolio holdings of these Funds. The Adviser
oversees the investment activities and performance of the Sub-Advisers and it
maintains an investment committee that assists with this review process.

Under terms of the investment advisory agreements between the Adviser and each
Fund, the Adviser is responsible for formulating each Fund's investment
programs, subject to each Fund's fundamental policies. The GROWTH FUND and the
INCOME FUND pay the Adviser an annual advisory fee, payable monthly, based on
each Fund's average daily net assets. The fee is equal to 0.99% of the average
daily net assets in the GROWTH FUND and 0.75% of the average daily net assets in
the INCOME FUND. The advisory fees paid to the Adviser by these Funds is used to
pay the fees of the Sub-Advisers. The Adviser is not paid a management fee for
the BALANCED FUNDS.

The Adviser is responsible for allocating the assets of the GROWTH FUND and the
INCOME FUND among the Sub-Advisers, and for monitoring and evaluating the
investment programs and performance of the Sub-Advisers. The Adviser is also
responsible for periodically rebalancing the investments of the BALANCED FUNDS
between the GROWTH FUND and the INCOME FUND. The Adviser also furnishes
corporate offices, provides office space, services and equipment, and supervises
all matters relating to the Funds' investment activities. The fees paid to the
Sub-Advisers are paid directly by the Adviser and are not a further expense of
the Funds.

The Securities and Exchange Commission has granted the Trust an exemptive order
that permits the Adviser, subject to approval of the Board of Trustees, to
engage and terminate Sub-Advisers without Shareholder approval. In the event
that there is a change in any of the

22
<PAGE> 25
MANAGEMENT OF THE FUNDS
--------------------------------------------------------------------------------

Sub-Advisers to the Funds, shareholders will receive information about the
change and about any new Sub-Advisers selected. While shareholders are not
permitted to vote on the selection of new Sub-Advisers, they retain the right to
vote on the continuation of the Adviser.

THE SUB-ADVISERS - Each Sub-Adviser is responsible for the selection and
management of portfolio investments for its segment of a particular Fund on a
day-to-day basis, in accordance with that Fund's investment objectives and
policies and under supervision of the Adviser. Allocation of assets to each
Sub-Adviser is at the discretion of the Adviser. The Sub-Advisers place purchase
and sell orders for portfolio transactions in the Funds, subject to the general
oversight of the Adviser.

The following organizations act as Sub-Advisers to the noted Funds:

SUB-ADVISERS FOR THE GROWTH FUND

CAPITAL GUARDIAN TRUST COMPANY
Capital Guardian Trust Company, 333 South Hope Street, Los Angeles, California
90071, is a state chartered bank which was founded in 1968. The parent company
is Capital Group International, Inc., which itself is wholly-owned by The
Capital Group Companies, Inc., an employee-owned organization. Capital
Guardian's approach to international investing follows a value-oriented,
research-driven process relying on extensive field research and direct company
contact. This basic fundamental approach is combined with the firm's
macroeconomic and political judgements on the outlook for economies, industries,
currencies and markets. Capital Guardian provides investment management services
to large institutional, corporate and individual clients.

The portion of the Fund's assets allocated to this Sub-Adviser is managed by a
team of portfolio managers, each of which has investment responsibility for a
portion of such assets.

LAZARD ASSET MANAGEMENT
Lazard Asset Management, 30 Rockefeller Plaza, New York, New York 10112, is a
registered investment adviser organized in 1970 and a division of Lazard Freres
& Co., LLC. Lazard Freres & Co., LLC originated in 1848 as a business that
became one of the first global investment banks. The firm provides financial
advisory services in asset management, investment banking, corporate finance and
real estate finance. Investment-management services are also provided by Lazard
Asset Management Limited, based in London, Lazard Japan Asset Management KK,
based in Tokyo, Lazard Asset Management Egypt, based in Cairo and Lazard Asset
Management Pacific Co., based in Sydney, Australia, all of which are controlled
by Lazard Asset Management in New York. Lazard also works closely with Lazard
Freres Gestion based in Paris. Investment research is undertaken on a global
basis utilizing global investment team members worldwide. Other Lazard entities
are located in Milan, Frankfurt, Singapore, Mumbai and Beijing. Lazard began
managing separate-account international equity portfolios in 1985 and global
equity portfolios in 1986.

Herbert W. Gullquist is a co-portfolio manager for the Fund. Mr. Gullquist is
Managing Director and Chief Investment Officer of Lazard Asset Management and a
Vice-Chairman of Lazard Freres & Co. LLC. He has 37 years of

23
<PAGE> 26
MANAGEMENT OF THE FUNDS
--------------------------------------------------------------------------------

investment experience. Prior to joining Lazard in 1982, Mr. Gullquist served as
a General Partner of Oppenheimer & Company, Inc. and as a Managing Director and
the Chief Investment Officer of Oppenheimer Capital Corp. from 1971 to 1982. He
had previously been Founder, Director and Senior Investment Officer of
Stuyvesant Asset Management from 1969 to 1971. Prior to that, he was with First
National Bank of Chicago as Vice President in charge of the discretionary
pension fund group. He has a B.A. from Northwestern University.

Michael S. Rome is a co-portfolio manager for the Fund. Mr. Rome has been
Managing Director from 1991 to the present. Mr. Rome is responsible for
U.S./global equity management and overseeing the day-to-day operations of the
U.S. core equity investment team. He has fifteen years of investment experience.
Prior to joining Lazard in 1991, Mr. Rome served as Senior Vice President with
Mark Partners from 1989 to 1990. Previously, Mr. Rome was Vice President of
Goldman, Sachs & Co. from 1982 to 1989. He has an M.B.A. from Cornell University
and a B.A. from the University of Rochester.

SENECA CAPITAL MANAGEMENT
Seneca Capital Management, 909 Montgomery Street, Suite 500, San Francisco,
California 94133, is a registered investment adviser which was founded in 1989.
The firm conducts intensive fundamental analysis to select companies with strong
and sustainable earnings prospects. Disciplined portfolio construction limits
risk and reduces volatility. Seneca provides investment management services to
foundations, endowments, corporations, public funds and private clients.

Gail P. Seneca, Ph.D., Chief Investment Officer and Managing Partner, is
portfolio manager for the Fund. Ms. Seneca has over seventeen years of
investment experience. Prior to founding Seneca Capital Management in 1989, Ms.
Seneca served as Senior Vice President of the Asset Management Division of Wells
Fargo Bank from 1987 to 1989, where she managed assets in excess of $10 billion.
Prior to that, Ms. Seneca was Vice President and chief investment strategist for
Chase Lincoln Bank from 1983 to 1987. Ms. Seneca earned a B.A., an M.A. and a
Ph.D. from New York University.

WELLINGTON MANAGEMENT COMPANY, LLP
Wellington Management Company, LLP is a private Massachusetts limited liability
partnership which is owned by its partners and has its headquarters at 75 State
Street, Boston, Massachusetts 02109. The firm is one of America's oldest and
largest independent investment firms, tracing its origins to 1928. Wellington
currently has over $248 billion in discretionary assets under management for a
variety of clients consisting of mutual funds, variable annuities, corporate and
public retirement plans, endowments and investment partnerships.

For its equity investment management, Wellington conducts extensive research and
analysis and utilizes its own teams of research analysts located in Wellington
offices in the United States and around the world. Investment decisions are
generally made on a bottom-up basis upon Wellington's own proprietary research.

Mammen Chally, CFA and James A. Rullo, CFA serve as co-managers for the Fund.
Mr. Chally is a Vice President of Wellington Management and an equity portfolio
manager with 9 years of industry experience. In addition to managing equity
portfolios, Mr. Chally also serves as a member of the firm's Quantitative

24
<PAGE> 27
MANAGEMENT OF THE FUNDS
--------------------------------------------------------------------------------

Group contributing to portfolio risk management, development of derivatives
strategies and performance analysis for clients of the firm. Mr. Chally jointed
the firm in 1994 after receiving his MBA from Northeastern University; Mr.
Chally also received a Bachelor of Science from the Indian Institute of
Technology in 1989.

Mr. Rullo, a senior Vice President and Partner of the firm, brings more than 14
years of investment experience to the team. He manages equity portfolios in a
range of styles including global, sector-specific, and small-, medium- and
large-cap US equity and is responsible for structures and quantitative portfolio
management at Wellington Management. Mr. Rullo also has significant experience
in the use of derivatives and quantitative strategies to the portfolios they
manage. Having joined the firm in 1994, Mr. Rullo is a magna cum laude graduate
of Boston University where he received his BS in Finance in 1981. He earned an
MBA from Babson College in 1985 with a specialty in Management Information
Systems.

SUB-ADVISERS FOR THE INCOME FUND

STANDISH, AYER & WOOD, INC.
Standish, Ayer & Wood, Inc., One Financial Center, Boston, Massachusetts 02111,
is a registered investment adviser founded in 1933. The firm provides investment
management services for institutions and high net worth individuals. Standish,
Ayer & Wood offers both domestic and global investment management services in
both separate accounts and mutual funds. The firm's approach to fixed-income
management is built on the belief that discovering pockets of inefficiency is
the key to adding value to fixed-income investments. Both fundamental and
quantitative analysis are employed to identify fixed-income opportunities.
Extensive research capabilities have been developed in less widely followed
segments of the fixed-income markets in the belief that there is more to be
gained by identifying securities with initial yield advantage and appreciation
potential than by predicting the direction of interest rates.

Austin C. Smith is Vice President, Treasurer and Director from 1981 to present.
Mr. Smith is portfolio manager for the portion of the Fund's assets invested in
investment-grade bonds. Mr. Smith has twenty-eight years of investment
management experience, with seventeen of those years at Standish. He is a
graduate of Denison University and Indiana University (M.A.) and is also a
Chartered Financial Analyst.

Dolores S. Driscoll is Managing Director and Co-Director of Taxable Bond
Research, from 1974 to the present. Ms. Driscoll is portfolio manager for the
portion of the Fund's assets invested in high-yield bonds. She has twenty-four
years of investment management experience, all at Standish. She is a graduate of
Indiana University and Boston University (M.B.A.) and is also a Chartered
Financial Analyst.

TATTERSALL ADVISORY GROUP, INC.
Tattersall Advisory Group, Inc., a wholly-owned subsidiary of First Union Bank,
Charlotte, North Carolina, is located at 6802 Paragon Place, Suite 200,
Richmond, Virginia 23230. Tattersall Advisory Group is a registered investment
adviser founded in 1997. Tattersall Advisory Group was formerly the fixed-income
division of Lowe, Brockenbrough & Tattersall, Inc. The firm employs a
traditional bond management style, using in-house interest-rate analysis,
yield-curve analysis, and extensive sector valuation to identify attractive risk
versus reward opportunities.

25
<PAGE> 28
MANAGEMENT OF THE FUNDS
--------------------------------------------------------------------------------

The firm manages assets for corporate pension plans, corporate cash and
insurance reserves, foundations, endowments, Taft-Hartley plans and public
entities located throughout the country. Tattersall Advisory Group incorporates
a team management approach where the Fund benefits from the expertise of each
investment specialist.

Kevin D. Girts is lead portfolio manager for the Fund. Mr. Girts is Managing
Director of Tattersall Advisory Group (and predecessor corporation) since 1997.

He was Director, Portfolio Management with Lowe, Brockenbrough & Tattersall,
Inc. (and predecessor corporation) from 1987 to 1997. Previously, Mr. Girts was
Vice President-Investments of Union National Bank from 1981 through 1987. Mr.
Girts holds a B.S. in business and an M.B.A. from West Virginia University.

26
<PAGE> 29
YOUR INVESTMENT
--------------------------------------------------------------------------------

BUYING SHARES

FOR ASSISTANCE

Most development staff of the Presbyterian Church (U.S.A.) Foundation are
representatives of the Funds' distributor and can assist you in opening an
account. They can be reached (by telephone or by mail) at numerous development
offices throughout the country. For information about the nearest development
office to you, and to speak to a local registered representative of the Funds,
contact the offices of the Foundation at:

Presbyterian Church (U.S.A.) Foundation
200 East Twelfth Street
Jeffersonville, IN 47130
Tel. (800) 858-6127

You may also call or write the distributor for the Funds at:

3200 Horizon Drive
P.O. Box 61503
King of Prussia, PA 19406-0903
Tel. (877) 835-4531

PURCHASE AMOUNTS:

<TABLE>
<S> <C>
MINIMUM INITIAL INVESTMENT FOR EACH FUND: $500

MINIMUM ADDITIONAL INVESTMENTS FOR EACH FUND: $100
</TABLE>

TO OPEN AN ACCOUNT

BY MAIL

- Complete the account application form.

- Mail the application and your check to:

New Covenant Funds
c/o PFPC Inc.
211 South Gulph Road
P.O. Box 61947
King of Prussia, PA 19406-0150

- Please make your check payable to the name of the Fund in which you wish
to invest.

- Please make sure your check is for at least $500.

BY WIRE

- To make a same-day wire investment, call (877) 835-4531 by 4:00 p.m.
Eastern time. An account number will be assigned to you.

- Call your bank with instructions to transmit funds to:

Boston Safe Deposit & Trust (BSDT)
ABA#: 011001234
Account#: 020907
Credit: Name of Fund
FBO: (Insert Shareholder name and account number)

- Your bank may charge a wire fee.

- Please make sure your wire is for at least $500.

- Mail your completed application to PFPC Inc. at the address under TO OPEN
AN ACCOUNT - By Mail.

27
<PAGE> 30
YOUR INVESTMENT
--------------------------------------------------------------------------------

BY AUTOMATIC INVESTMENT

- With an initial investment, indicate on your application that you would
like to participate in the Automatic Investment Plan and complete the
appropriate section on the application.

- Subsequent investments will be drawn from your bank account and invested
into the Fund(s) automatically.

BY EXCHANGE

- Call (877) 835-4531 to request an exchange of shares into another New
Covenant Fund. Your may also exchange your shares into New Covenant Money
Market Fund account, the Cash Account Trust Money Market Portfolio, which
is an unaffiliated, separately managed, money market mutual fund. This
exchange privilege is offered as a convenience to shareholders of New
Covenant Funds. For an exchange into the Cash Account Trust Money Market
Portfolio you must first receive a prospectus. The exchange privilege
must also be selected on your account application form. Shares of the
Cash Account Trust Money Market Portfolio may not be available in all
states.

- No fee or charge will apply for exchanges, but there may be a capital
gain or loss. The exchange privilege is subject to amendment or
termination at any time upon sixty days prior notice.

TO ADD TO AN ACCOUNT

BY MAIL

- Fill out an investment slip from a previous confirmation and write your
account number on your check.

- Mail the slip and your check to:

New Covenant Funds
c/o PFPC Inc.
211 South Gulph Road
P.O. Box 61947
King of Prussia, PA 19406-0150

- Please make your check payable to the name of the Fund in which you wish
to invest.

- Please make sure your check is for at least $100.

BY WIRE

- Call (877) 835-4531. The wire must be received by 4:00 p.m. Eastern time
for same day processing.

- Call your bank with instructions under TO OPEN AN ACCOUNT - By Wire.

- Your bank may charge a wire fee.

- Please make sure your wire is for at least $100.

BY AUTOMATIC INVESTMENT

- If you wish to add the Automatic Investment Plan after your account has
been opened, call (877) 835-4531 to request the form.

28
<PAGE> 31
YOUR INVESTMENT
--------------------------------------------------------------------------------

- Complete and return the form along with any other required materials.

- Subsequent investments will be drawn from your bank account and invested
into the Fund(s) automatically.

BY EXCHANGE

- No fee or charge will apply for exchanges, but there may be a capital
gain or loss. The exchange privilege is subject to amendment or
termination at any time upon sixty days prior notice.

PURCHASE PRICE:
You pay no sales charge to invest in any of the Funds. Shares of the Funds are
sold at the net asset value per share (NAV) next determined after receipt of the
order by PFPC Inc. ("PFPC"). The NAV multiplied by the number of Fund shares you
own equals the value of your investment.

DETERMINATION OF NAV:
The NAV for each Fund is calculated at the close of regular trading hours of the
New York Stock Exchange, which is normally 4:00 p.m. Eastern time. Each Fund
calculates NAV by adding up the total value of the Fund's investments and other
assets, subtracting liabilities, and then dividing that figure by the number of
the Fund's outstanding shares. Each Fund's investments are valued based on
market value, or where market quotations are not readily available on fair value
as determined in good faith by the Funds' Board of Trustees.

TIMING OF PURCHASE REQUESTS:
All requests received by PFPC before the close of the New York Stock Exchange
will be executed the same day, at that day's closing share price. Orders
received after the close of the New York Stock Exchange will be executed the

29
<PAGE> 32
YOUR INVESTMENT
--------------------------------------------------------------------------------

following day, at that day's closing share price. All investments must be in
U.S. dollars. Shares will not be priced and are not available for purchase or
sale on days when the New York Stock Exchange is closed. If the New York Stock
Exchange closes early, the deadlines for purchase orders will be accelerated to
the earlier closing time.

STOCK EXCHANGE CLOSINGS:
The New York Stock Exchange is typically closed for trading on New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.

RIGHTS RESERVED BY THE FUNDS:
The Funds reserve the right to:

- reject any purchase order
- suspend the offering of shares
- reject any exchange request
- vary the initial and subsequent investment minimums
- waive the minimum investment requirement for any investor
- redeem shares in any account and return the proceeds to the shareholder

The Funds will automatically redeem shares if a purchase check is returned for
insufficient funds. The Funds reserve the right to reject any third party check.
However, third party checks issued by the Foundation will be accepted. The Funds
may change or discontinue the exchange privilege, or temporarily suspend this
privilege during unusual market conditions. The Funds reserve the right, in
their sole discretion, to redeem shares in any account and return the proceeds
to the shareholder. The Funds also reserve the right to make a "redemption in
kind" payment in portfolio securities rather than cash if the amount you are
redeeming is large enough to affect fund operations. Large redemptions with
respect to each shareholder are considered the greater of $250,000 or 1% of the
Fund's assets.

THIRD PARTY INVESTMENTS:
If you invest through a third party (rather than directly), the policies and
fees may be different than those described here. Banks, brokers and financial
advisers may charge transaction fees and set different minimum investments or
limitations on buying or selling shares. You will not be charged fees if you
purchase shares of the Funds through development staff of the Presbyterian
Church (U.S.A) Foundation or the Funds' distributor.

30
<PAGE> 33
YOUR INVESTMENT
--------------------------------------------------------------------------------

HOW TO SELL SHARES

BY MAIL
Write a letter of instruction that includes:

- The fund name, your account number, the name(s) in which the account is
registered and the dollar value or number of shares you wish to sell.

- Include all signatures and any additional documents that may be required.
(See Signature Guarantees)

- Mail your request to:
New Covenant Funds
c/o PFPC Inc.
211 South Gulph Road
P.O. Box 61947
King of Prussia, PA 19406-0150

- A check will be mailed to the name(s) and address in which the account is
registered.

BY TELEPHONE
Call (877) 835-4531 if you have previously selected the telephone redemption
option. The Funds have established a dollar limit of $100,000 for telephone
redemptions. The proceeds will be paid to the registered owner: (1) by mail at
the address on the account, or (2) by wire to the bank account designated on the
form.

BY WIRE
In the case of redemption proceeds that are wired to a bank, the Funds will
transmit the payment only on days that commercial banks are open for business
and only to the bank and account previously authorized on your application. The
Funds and PFPC will not be responsible for any delays in wired redemption
proceeds due to heavy wire traffic over the Federal Reserve System. The Funds
reserve the right to refuse a wire redemption if it is believed advisable to do
so. To redeem shares by wire transfer, there is a fee of $9.00 for each wire
redemption.

BY EXCHANGE
Call (877) 835-4531 to request an exchange of shares into another New Covenant
Fund. You may also exchange your shares into New Covenant Money Market Fund
account, the Cash Account Trust Money Market Portfolio, which is an
unaffiliated, separately managed, money market mutual fund. This exchange
privilege is offered as a convenience to shareholders of New Covenant Funds.

TIMING OF SALE REQUESTS:
All requests received in good order by PFPC before the close of the New York
Stock Exchange, typically 4:00 p.m. Eastern time, will be executed the same day,
at that day's NAV. Requests received after the close of the New York Stock
Exchange, typically 4:00 p.m. Eastern time, will be executed the following
business day, at that day's NAV. Redemption orders are executed only on days
when the New York Stock Exchange is open for trading. If the New York Stock
Exchange closes early, the deadline for redemption orders will be accelerated to
the earlier closing time.

SELLING RECENTLY PURCHASED SHARES:
Redemption of recently purchased Fund shares that have been paid for by check
may be delayed until there is a reasonable belief that your check has cleared.
This may take up to fifteen calendar days after we receive your check. If you
think you may wish to redeem your newly purchased shares within fifteen calendar
days, you should pay for your shares by federal funds wire transfer.

SIGNATURE GUARANTEES:
The Funds require a medallion signature guarantee on any redemption over
$100,000 (but may

31
<PAGE> 34
YOUR INVESTMENT
--------------------------------------------------------------------------------

require additional documentation or a medallion signature guarantee on any
redemption request to help protect against fraud), the redemption of corporate,
partnership or fiduciary accounts, or for certain types of transfer requests or
account registration changes. A medallion signature guarantee may be obtained
from a domestic bank or trust company, broker, dealer, clearing agency, savings
association, or other financial institution which is participating in a
medallion program recognized by the Securities Transfer Association. The three
recognized medallion programs are Securities Transfer Agents Medallion Program
(STAMP), Stock Exchanges Medallion Program (SEMP) and New York Stock Exchange,
Inc. Medallion Signature Program (NYSE MSP). Please call (877) 835-4531 for
information on obtaining a signature guarantee.

REDEMPTION POLICIES
Payment for redemptions of Fund shares is usually made within one business day,
but not later than seven calendar days after receipt of your redemption request,
unless the check used to purchase the shares has not yet cleared. The Funds may
suspend the right of redemption or postpone the date of payment for more than
seven days during any period when (1) trading on the New York Stock Exchange is
restricted or the New York Stock Exchange is closed for other than customary
weekends and holidays, (2) the SEC has by order permitted such suspension for
the protection of the Funds' shareholders, or (3) an emergency exists making
disposal of portfolio securities or valuation of net assets not reasonably
practicable.

OTHER DOCUMENTS
Additional documents may be required when shares are registered in the name a
corporation, partnership, association, agent, fiduciary, trust, estate or other
organization. For further information, call PFPC toll-free at (877) 835-4531.

EXCHANGE OR TRANSFER OF SHARES

EXCHANGE PRIVILEGE
You may exchange shares of one of the Funds for shares in another Fund at net
asset value without payment of any fee or charge. You can do this by contacting
PFPC in writing or by telephone. Shareholders who are not tax-exempt
organizations should know that an exchange is considered a sale of shares of one
Fund and the purchase of another Fund. The exchange may result in gain or loss
for Federal income tax purposes. If you wish to use this exchange privilege, you
may elect the service on your account application or by a signature-guaranteed
letter of instruction.

If PFPC receives your exchange instructions in good order in writing or by
telephone (call (877) 835-4531) by the valuation time on any business day, we
will make your exchange on that day.

For an exchange request to be in good order, it must include:

- your name exactly as it appears on your account
- your account number
- the amount to be exchanged
- the names of the Funds from which and to which the exchange is to be made

TRANSFER OF OWNERSHIP
You may transfer Fund shares or change the name or form in which your shares are
registered by writing to PFPC. Your letter of instruction must clearly identify
the account number, name(s) and number of shares to be transferred, and provide
a certified tax identification number by way of a completed new account
application or W-9 form, and include the signature(s) of all registered owners.
The signature(s) on the transfer instructions must be guaranteed.

32
<PAGE> 35
YOUR INVESTMENT
--------------------------------------------------------------------------------

SHAREHOLDER SERVICES

TELEPHONE INFORMATION

- Your Account: If you have questions about your account, including
purchases, redemptions and distributions, call PFPC Inc. from Monday
through Friday, 9:00 a.m. to 5:00 p.m., Eastern time. Call toll-free
(877) 835-4531.

- The Funds: If you have questions about the Funds, call the Funds'
telephone representatives, Monday through Friday, 9:00 a.m. to 5:00 p.m.,
Eastern time. Call toll-free (877) 835-4531.

ACCOUNT STATEMENTS
We provide you with these helpful services and information about your account:

- a statement after every transaction;
- an annual account statement reflecting all transactions for the year;
- tax information which will be mailed by January 31 of each year, a copy
of which will also be filed with the Internal Revenue Service for taxable
investors; and
- financial statements with a summary of portfolio composition and
performance will be mailed at least twice a year.

INTEGRATED VOICE RESPONSE SYSTEM
You may obtain access to account information by calling (877) 835-4531. The
System provides share price and price change information for all the Funds and
gives account balances and information on the most recent transactions and
allows sales or exchanges of shares.

ACCOUNT MINIMUM
You must keep at least $500 worth of shares in your account to keep the account
open. If, after giving you thirty days prior written notice, your account value
is still below $500 we may redeem your shares and send you a check for the
redemption proceeds.

TELEPHONE TRANSACTIONS
To use telephone purchase, redemption and exchange privileges, you must have
selected these services on your original account application or submitted a
subsequent request in writing to add these services to your account. The Funds
and PFPC reserve the right to refuse any telephone transaction when they are
unable to confirm to their satisfaction that a caller is the account owner or a
person preauthorized by the account owner. PFPC has established security
procedures to prevent unauthorized account access. The telephone transaction
privilege may be suspended, limited, modified or terminated at any time without
prior notice by the Funds or PFPC. Neither the Funds nor any of its service
contractors will be liable for any loss or expense in acting upon telephone
instructions that are reasonably believed to be genuine.

AUTOMATIC INVESTMENT PLAN
Once an account has been opened with a minimum investment of $500, you can make
additional purchases of shares of the Funds with the automatic withdrawal of
monies from your bank account. Amounts may be withdrawn from your bank account
on a monthly or quarterly basis in minimum amounts of $50.

SYSTEMATIC WITHDRAWAL PLAN
Once you have established an account with $5,000 or more, you may automatically
receive funds from your account on a monthly, quarterly or semi-annual basis
(minimum of $50). Call (877) 835-4531 to request a form to start the Systematic
Withdrawal Plan.

33
<PAGE> 36
DISTRIBUTIONS AND TAXES
--------------------------------------------------------------------------------

DISTRIBUTIONS
The Funds pass along to your account your share of investment earnings in the
form of dividends and distributions. Fund dividends are the net interest and
dividends earned on investments after Fund expenses. The Funds will at least
annually declare and pay dividends from their net investment income and
distribute any net capital gains obtained through Fund investment transactions.
Interest and dividend payments will normally be distributed as income dividends
on a quarterly basis for each of the Funds.

Unless you elect otherwise on your application, all dividends and distributions
paid by a Fund will be reinvested in additional shares of that Fund. They will
be credited to your account in that Fund at the same NAV per share as would
apply to cash purchases on the applicable dividend payment date. Unless you are
a tax-exempt organization, all distributions a Fund pays to you will be taxable
when paid, regardless of whether they are taken in cash or reinvested in shares
of the Fund. To change your dividend election, you must notify PFPC in writing
at least fifteen days prior to the applicable dividend record date.

TAXES
Each Fund intends to qualify as a regulated investment company. This status
exempts the Funds from paying federal income tax on the income or capital gains
it distributes to its shareholders.

Unless you are a tax-exempt organization, your investment in the Funds will be
subject to the following tax consequences:

- Dividends from net investment income and distributions from short-term
capital gains are taxable as ordinary income.

- Distributions from capital gains are taxable as capital gain, which may
be taxed at different rates depending on the length of time the Fund held
those assets.

- Dividends and distributions may also be subject to state and local taxes.

- Certain dividends paid to you in January will be taxable as if they had
been paid the previous December.

- A redemption of your Fund shares, including exchanging out of a Fund, is
a taxable event and any gain on the transaction may be subject to federal
income tax.

If you are subject to tax, after the end of each calendar year you will receive
a statement (Form 1099) of the federal income tax status of each Fund's
dividends and other distributions paid to you during the year. You should keep
all of your Fund statements for accurate tax-accounting purposes.

If you are subject to tax (are not a tax-exempt organization), and you purchase
shares shortly before a record date for a dividend or distribution, a portion of
your investment will be returned as a taxable distribution.

You must provide the Funds with your correct taxpayer identification number and
certify that you are not subject to backup withholding. If you do not, the Funds
by law are required to withhold 31% of your taxable distributions and
redemptions.

You should consult your tax adviser concerning state or local taxation of such
dividends, and the federal, state and local taxation of capital gains
distributions.

34
<PAGE> 37
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

The financial highlights table is meant to help you understand each Fund's
financial performance for the period of the Funds' operations. Certain
information reflects financial results for a single share of a Fund. The total
returns shown in the table represent the rate that an investor would have earned
or lost on an investment in each Fund assuming reinvestment of all dividends and
distributions. This information has been audited by Ernst & Young, LLP whose
report, along with the Funds' financial statements, are included in the Annual
Report, which is available upon request at no charge.

For a Share outstanding throughout the period.

<TABLE>
<CAPTION>
NEW COVENANT NEW COVENANT
GROWTH FUND* INCOME FUND*
------------ ------------
<S> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of year** $ 40.81 $ 24.52
----------- -----------

Net investment income 0.15 1.47
Net realized and unrealized gain/(loss) on
investments and foreign currency transactions 2.49 (0.63)
----------- -----------
Total from investment operations 2.64 0.84
=========== ===========

DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income (0.30) (1.47)
Distributions from net realized gains (1.08) 0.00
----------- -----------
Total distributions (1.38) (1.47)
----------- -----------

NET ASSET VALUE, END OF YEAR $ 42.07 $ 23.89
=========== ===========
Total return 6.38% 3.55%
=========== ===========

RATIOS TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 905,086 $ 571,669
Ratio of net investment income to
average net assets 0.37% 6.12%
Ratio of operating expenses to
average net assets 1.07% 0.83%
Portfolio turnover rate 152% 182%
</TABLE>

* The Fund commenced operations on July 1, 1999.
** Represents net asset value of predecessor Common Trust Fund.

35
<PAGE> 38
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------

For a Share outstanding throughout each period.

<TABLE>
<CAPTION>
NEW COVENANT NEW COVENANT
BALANCED BALANCED
GROWTH FUND* INCOME FUND*
------------ ------------

<S> <C> <C>
OPERATING PERFORMANCE:
Net asset value, beginning of year** $ 90.96 $ 20.16
----------- -----------

Net investment income 3.18 0.89
Net realized and unrealized gain/(loss)
on investments 1.48 (0.02)
----------- -----------
Total from investment operations 4.66 0.87
=========== ===========

DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income (3.19) (0.89)
Distributions from net realized gains (0.59) (0.13)
----------- -----------
Total distributions (3.78) (1.02)
----------- -----------

NET ASSET VALUE, END OF YEAR $ 91.84 $ 20.01
=========== ===========

Total return 5.13% 4.40%
=========== ===========

RATIOS TO AVERAGE NET ASSETS
AND SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) $ 343,231 $ 124,809
Ratio of net investment income to
average net assets 3.50% 4.46%
Ratio of operating expenses to
average net assets 0.10% 0.14%
Portfolio turnover rate 8% 12%
</TABLE>

* The Fund commenced operations on July 1, 1999.
** Represents net asset value of predecessor Common Trust Fund.

36
<PAGE> 39
This page intentionally left blank.
<PAGE> 40
This page intentionally left blank.
<PAGE> 41
Additional Information

Annual/Semi-Annual Report to Shareholders: These reports include financial
statements and a complete listing of the portfolio of investments for each Fund.
The Funds' Annual Report includes a discussion of the market conditions and
investment strategies that significantly affected the Funds' Performance during
their last fiscal year.

Statement of Additional Information (SAI): The SAI contains more detailed
information on all aspects of the Funds. It has been filed with the Securities
and Exchange Commission and is legally considered to be a part of this
prospectus.

To request a free copy of the current annual/semi-annual Report, SAI, or to
request other information about the Funds, please write or call:

Presbyterian Church (U.S.A.) Foundation
200 East Twelfth Street
Jeffersonville, IN 47130
(800) 858-6127

Text-only versions of Fund documents can be viewed online or downloaded from the
SEC at http://www.sec.gov

You can also obtain copies by visiting the SEC's Public [NEW
Reference Room in Washington, D.C. (1-202-942-8090) or by COVENANT
sending your request and a duplicating fee to the SEC's Public FUND
Reference Section, Washington, D.C. 20549-0102 or by e-mail to LOGO]
[email protected]

SEC file #811-09025

--------------------------------------------------------------------------------

New Covenant Funds -------------------
200 East Twelfth Street, Suite C PRSRT STD.
Jeffersonville, IN 47130 U.S. POSTAGE
PAID
NORTH READING, MA
PERMIT NO. 105
-------------------

--------------------------------------------------------------------------------

135-P10/00 12-00-2
<PAGE> 42
STATEMENT OF ADDITIONAL INFORMATION

October 30, 2000

NEW COVENANT FUNDS

New Covenant Growth Fund

New Covenant Income Fund

New Covenant Balanced Growth Fund

New Covenant Balanced Income Fund

200 East Twelfth Street
Jeffersonville, Indiana 47130
(800) 858-6127

This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Funds' Prospectus dated October 30, 2000, and is
incorporated by reference in its entirety into the Prospectus. You may obtain a
Prospectus or a copy of the SAI without charge by calling (800) 858-6127.

Also incorporated by reference herein are the financial statements of the Funds
contained in the Trust's Annual Report to Shareholders for the fiscal year ended
June 30, 2000, including the Auditors Report. Copies of the Trust's Annual and
Semi-Annual Reports are available free of charge by calling (800) 858-6127.

<PAGE> 43

CONTENTS

PAGE

History of the Funds.................................................... 3

Description of Investments and Risks.................................... 3

Investment Restrictions................................................. 17

Portfolio Turnover...................................................... 18

Management of the Funds................................................. 18

Other Service Providers................................................. 22

Brokerage............................................................... 23

General Information..................................................... 24

Purchases, Redemptions and Pricing of Shares............................ 24

Taxation of the Funds................................................... 26

Calculation of Performance Data......................................... 29

Financial Statements.................................................... 32

Appendix A - Description of Securities Ratings.......................... A-1

2
<PAGE> 44

HISTORY OF THE FUNDS

New Covenant Funds (the "Trust") is a Delaware business trust organized pursuant
to a Trust Instrument dated September 30, 1998. The Trust is organized to offer
separate series of shares and currently offers four separate series: New
Covenant Growth Fund ("Growth Fund"), New Covenant Income Fund ("Income Fund"),
New Covenant Balanced Growth Fund ("Balanced Growth Fund") and New Covenant
Balanced Income Fund ("Balanced Income Fund"). Currently, there is one class of
shares issued by the Trust. The Board of Trustees may issue additional classes
of shares or series at any time without prior approval of the shareholders. The
Balanced Growth Fund and Balanced Income Fund may also be referred to as the
"Balanced Funds."

The Funds are classified as open-end, management investment companies. The Funds
are diversified, which means that, with respect to 75% of its total assets, a
Fund will not invest more than 5% of its assets in the securities of any single
issuer. The Balanced Funds are diversified by virtue of the fact that the
underlying funds in which they invest (Growth Fund and Income Fund) are
diversified.

DESCRIPTION OF INVESTMENTS AND RISKS

Shareholders should understand that all investments involve risk and there can
be no guarantee against loss resulting from an investment in the Funds. Unless
otherwise indicated, all percentage limitations governing the investments of the
Funds apply only at the time of transaction.

The following supplements and should be read in conjunction with sections of the
Funds' Prospectus entitled "Investment Objective", "Principal Strategies",
"Principal Risks and Investor Suitability", and "Other Policies and Risks." The
investment practices described below, which apply to the Growth Fund and the
Income Fund, are not fundamental and may be changed by the Board of Trustees
without approval of the shareholders.

New Covenant Trust Company, N.A. (the "Adviser") acts as a manager of managers
for the Funds and selects and retains various sub-advisers. The sub-advisers
employ portfolio managers to make the day-to-day investment decisions regarding
portfolio holdings of the Funds.

FORWARD COMMITMENTS, WHEN-ISSUED SECURITIES AND DELAYED DELIVERY TRANSACTIONS

The Growth Fund and the Income Fund may purchase or sell securities on a
when-issued or delayed-delivery basis and make contracts to purchase or sell
securities for a fixed price at a future date beyond customary settlement time.
Debt securities are often issued on this basis. No income will accrue on
securities purchased on a when-issued or delayed-delivery basis until the
securities are delivered. The Funds will establish a segregated account in which
it will maintain cash and U.S. Government securities or other high-grade debt
obligations at least equal in value to commitments for when-issued securities.
Securities purchased or sold on a when-issued, delayed-delivery or
forward-commitment basis involve a risk of loss if the value of the security to
be purchased declines prior to settlement date. Although the Funds would
generally purchase securities on a when-issued, delayed-delivery or a
forward-commitment basis with the intention of acquiring the securities, the
Funds may dispose of such securities prior to settlement if the Adviser deems it
appropriate to do so.

The Funds may dispose of or renegotiate a when-issued or forward commitment. The
Funds will normally realize a capital gain or loss in connection with these
transactions. For purposes of determining the Income Fund's average
dollar-weighted maturity, the maturity of when-issued or forward-commitment
securities will be calculated from the commitment date.

When the Funds purchase securities on a when-issued, delayed-delivery or
forward-commitment basis, the Funds' custodian will maintain in a segregated
account cash, U.S. Government securities or other high-grade liquid debt
obligations having a value (determined daily) at least equal to the amount of
the Funds' purchase commitments. In the case of a forward-commitment to sell
portfolio securities, the custodian will hold the portfolio securities in a
segregated account while the commitment is outstanding. These procedures are
designed to ensure that the Funds will maintain sufficient assets at all times
to cover their obligations under when-issued purchases, forward-commitments and
delayed-delivery transactions.

3
<PAGE> 45

HIGH YIELD/HIGH RISK SECURITIES

The Income Fund may invest a limited amount of assets in debt securities which
are rated below investment grade (hereinafter referred to as "lower-rated
securities") or which are unrated but deemed equivalent to those rated below
investment grade by the portfolio managers. The lower the ratings of such debt
securities, the greater their risks. These debt instruments generally offer a
higher current yield than that available from higher-grade issues, and typically
involve greater risk. The yields on high-yield/high-risk bonds will fluctuate
over time. In general, prices of all bonds rise when interest rates fall and
fall when interest rates rise. While less sensitive to changing interest rates
than investment-grade debt, lower-rated securities are especially subject to
adverse changes in general economic conditions and to changes in the financial
condition of their issuers. During periods of economic downturn or rising
interest rates, issuers of these instruments may experience financial stress
that could adversely affect their ability to make payments of principal and
interest, and increase the possibility of default.

Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may also decrease the values and liquidity of these securities,
especially in a market characterized by only a small amount of trading and with
relatively few participants. These factors can also limit the Fund's ability to
obtain accurate market quotations for these securities, making it more difficult
to determine the Fund's net asset value.

In cases where market quotations are not available, lower-rated securities are
valued using guidelines established by the Fund's Board of Trustees. Perceived
credit quality in this market can change suddenly and unexpectedly, and may not
fully reflect the actual risk posed by a particular lower-rated or unrated
security.

VARIABLE AND FLOATING RATE INSTRUMENTS

With respect to variable and floating-rate instruments that may be acquired by
the Income Fund, the portfolio managers will consider the earning power, cash
flows and other liquidity ratios of the issuers and guarantors of such
instruments and, if the instruments are subject to demand features, will monitor
their financial status to meet payment on demand. Where necessary to ensure that
a variable or floating-rate instrument meets the Fund's quality requirements,
the issuer's obligation to pay the principal of the instrument will be backed by
an unconditional bank letter or line of credit, guarantee or commitment to lend.

FUTURES CONTRACTS

The Funds may each enter into financial futures contracts. Such contracts may
either be based on indexes of particular groups or varieties of securities
("Index Futures Contracts"), or be for the purchase or sale of debt obligations
("Debt Futures Contracts"). Such futures contracts are traded on exchanges
licensed and regulated by the Commodity Futures Trading Commission. The Funds
enter into futures contracts to gain a degree of protection against anticipated
changes in interest rates that would otherwise have an adverse effect upon the
economic interests of the Funds. However, the costs of and possible losses from
futures transactions will reduce a Fund's yield from interest on its holdings of
debt securities. Income from futures transactions constitutes taxable gain.

For the Funds, the custodian places cash, U.S. government securities and other
high-grade debt obligations into a segregated account in an amount equal to the
value of the total assets committed to the consummation of futures positions. If
the value of the securities placed in the segregated account declines,
additional cash or securities are required to be placed in the account on a
daily basis so that the value of the account equals the amount of the Funds'
commitments with respect to such contracts. Alternatively, the Funds may cover
such positions by purchasing offsetting positions, or covering such positions
partly with cash, U.S. government securities and other high-grade debt
obligations, and partly with offsetting positions.

A Debt Futures Contract is a binding contractual commitment that, if held to
maturity, requires the Fund to make or accept delivery, during a particular
month, of obligations having a standardized face value and rate of return. By
purchasing a Debt Futures Contract, the Fund legally obligates itself to accept
delivery of the underlying security and to pay the agreed price; by selling a
Debt Futures Contract it legally obligates itself to make delivery of the
security against payment of the agreed price. However, positions taken in the
futures markets are normally not held to maturity. Instead they are liquidated
through offsetting transactions which may result in a profit or loss. While Debt
Futures Contract positions taken by the Fund are usually liquidated in this
manner, the Fund may instead make or take delivery of the underlying securities
whenever it appears economically advantageous.

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<PAGE> 46

A clearing corporation, associated with the exchange on which futures contracts
are traded, assumes responsibility for close-outs of such contracts and
guarantees that the sale or purchase, if still open, is performed on settlement
date.

By entering into futures contracts, the Funds seek to establish more certainly
than would otherwise be possible the effective rate of return on its portfolio
securities. The Funds may, for example, take a "short" position in the futures
market by selling a Debt Futures Contract for future delivery of securities held
by the Fund in order to hedge against an anticipated rise in interest rates that
would adversely affect the value of such securities. Or it might sell an Index
Futures Contract based on a group of securities whose price trends show a
significant correlation with those of securities held by a Fund. When hedging of
this character is successful, any depreciation in the value of portfolio
securities is substantially offset by appreciation in the value of the futures
position. On other occasions the Fund may take a "long" position by purchasing
futures contracts. This is done when a Fund is not fully invested or expects to
receive substantial proceeds from the sale of portfolio securities or of Fund
shares, and anticipates the future purchase of particular securities but expects
the rate of return then available in the securities markets to be less favorable
than rates that are currently available in the futures markets. The Funds expect
that, in the normal course, securities will be purchased upon termination of a
long futures position, but under unusual market conditions, a long futures
position may be terminated without a corresponding purchase of securities.

Debt Futures Contracts currently involve only taxable obligations and do not
encompass municipal securities. The value of Debt Futures Contracts on taxable
securities, as well as Index Futures Contracts, may not vary in direct
proportion with the value of the Fund's securities, limiting the ability of the
Fund to hedge effectively against interest-rate risk.

The investment restriction concerning futures contracts does not specify the
types of index-based futures contracts into which the Fund may enter because it
is impossible to foresee what particular indexes may be developed and traded or
may prove useful to the Fund in implementing their overall risk-management
strategies. For example, price trends for a particular index-based futures
contract may show a significant correlation with price trends in the securities
held by the Fund, even though the securities comprising the index are not
necessarily identical to those held by the Fund. In any event, the Fund would
not enter into a particular index-based futures contract unless the portfolio
managers determined that such a correlation existed.

Index Futures Contracts and Debt Futures Contracts currently are traded actively
on the Chicago Board of Trade and the International Monetary Market at the
Chicago Mercantile Exchange.

SEGREGATED ACCOUNTS

The Funds may be required to segregate assets (such as cash, U.S. Government
securities and other high-grade debt obligations or other highly liquid equity
securities) or otherwise provide coverage consistent with applicable regulatory
policies. This would be in respect to each Fund's permissible obligations under
the call and put options it writes, the forward foreign currency exchange
contracts it enters into and the futures contracts it enters into.

OPTIONS ON FUTURES CONTRACTS

To attempt to gain additional protection against the effects of interest-rate
fluctuations, the Funds may purchase and write (sell) put and call options on
futures contracts that are traded on a U.S. exchange or board of trade and enter
into related closing transactions. There can be no assurance that such closing
transactions will be available at all times. In return for the premium paid,
such an option gives the purchaser the right to assume a position in a futures
contract at any time during the option period for a specified exercise price.

The Fund may purchase put options on futures contracts in lieu of, and for the
same purpose as, sale of a futures contract. It also may purchase such put
options in order to hedge a long position in the underlying futures contract.

The purchase of call options on futures contracts is intended to serve the same
purpose as actual purchase of the futures contracts. The Fund may purchase call
options on futures contracts in anticipation of a market advance when it is not
fully invested.

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<PAGE> 47

The Fund may write (sell) a call option an a futures contract in order to hedge
against a decline in the price of the index or debt securities underlying the
futures contract. If the price of the futures contract at expiration is below
the exercise price, the Fund would retain the option premium, which would
offset, in part, any decline in the value of its portfolio securities.

The writing (selling) of put options on futures contracts is similar to purchase
of the futures contracts, except that, if market price declines, the Fund would
pay more than the current market price for the underlying securities or index
units. The net cost to the Fund would be reduced, however, by the premium
received on sale of the puts, less any transaction costs.

COVERED CALL OPTIONS

The Funds may write (sell) covered call options on their portfolio securities in
an attempt to enhance investment performance. No more than 20% of a Fund's net
assets may be subject to covered options.

When the Fund writes (sells) a covered call option, it gives the purchaser of
the option the right to buy the underlying security at the price specified in
the option (the "exercise price") at any time during the option period,
generally ranging up to nine months. If the option expires unexercised, the Fund
will realize gain to the extent of the amount received for the option (the
"premium") less any commission paid. If the option is exercised, a decision over
which the Fund has no control, the Fund must sell the underlying security to the
option holder at the exercise price. By writing a covered option, the Fund
forgoes, in exchange for the premium less the commission ("net premium"), the
opportunity to profit during the option period from an increase in the market
value of the underlying security above the exercise price.

When the Fund sells an option, an amount equal to the net premium received by
the Fund is included in the liability section of the Fund's Statement of Assets
and Liabilities as a deferred credit. The amount of the deferred credit will be
subsequently marked-to-market to reflect the current market value of the option
written. The current market value of a traded option is the last sale price or,
in the absence of a sale, the mean between the closing bid and asked price. If
an option expires on its stipulated expiration date or if the Fund enters into a
closing purchase transaction (i.e., the Fund terminates its obligation as the
writer of the option by purchasing a call option on the same security with the
same exercise price and expiration date as the option previously written), the
Fund will realize a gain (or loss if the cost of a closing purchase transaction
exceeds the net premium received when the option was sold) and the deferred
credit related to such option will be eliminated. If an option is exercised, the
Fund will realize a long-term or short-term gain or loss from sale of the
underlying security, and proceeds of the sale will be increased by the net
premium originally received. The writing of covered options may be deemed to
involve pledge of the securities against which the option is being written.
Securities against which options are written will be segregated on the books of
the Fund's custodian.

RISKS OF FUTURES AND OPTIONS INVESTMENTS

A Fund will incur brokerage fees in connection with its futures and options
transactions, and it will be required to segregate Funds for the benefit of
brokers as margin to guarantee performance of its futures and options contracts.
In addition, while such contracts will be entered into to reduce certain risks,
trading in these contracts entails certain other risks. Thus, while a Fund may
benefit from the use of futures contracts and related options, unanticipated
changes in interest rates may result in a poorer overall performance for that
Fund than if it had not entered into any such contracts. Additionally, the
skills required to invest successfully in futures and options may differ from
skills required for managing other assets in a Fund's portfolio.

The Funds may engage in over-the-counter options transactions with
broker-dealers who make markets in these options. The portfolio managers will
consider risk factors such as their creditworthiness when determining a
broker-dealer with which to engage in options transactions. The ability to
terminate over-the-counter option positions is more limited than with
exchange-traded option positions because the predominant market is the issuing
broker rather than an exchange, and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. Certain
over-the-counter options may be deemed to be illiquid securities and may not be
readily marketable. The portfolio managers will monitor the creditworthiness of
dealers with which the Funds enter into such options transactions under the
general supervision of the Funds' Trustees.

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PURCHASING CALL OPTIONS

The Funds may purchase call options to the extent that premiums paid by the Fund
do not aggregate more than 20% of the Fund's total assets. When a Fund purchases
a call option, in return for a premium paid by a Fund to the writer of the
option, the Fund obtains the right to buy the security underlying the option at
a specified exercise price at any time during the term of the option. The writer
of the call option, who receives the premium upon writing the option, has the
obligation, upon exercise of the option, to deliver the underlying security
against payment of the exercise price. The advantage of purchasing call options
is that the Funds may alter portfolio characteristics and modify portfolio
maturities without incurring the cost associated with those transactions. The
Funds may, following purchase of a call option, liquidate its position by
effecting a closing sale transaction. This is accomplished by selling an option
of the same series as the option previously purchased. The Funds will realize a
profit from a closing sale transaction if the price received on the transaction
is more than the premium paid (less any commissions) to purchase the original
call option; the Funds will realize a loss from a closing sale transaction if
the price received on the transaction is less than the premium paid (less any
commissions) to purchase the original call option.

Although the Funds will generally purchase only those call options for which
there appears to be an active secondary market, there is no assurance that a
liquid secondary market on an exchange will exist for any particular option, or
at any particular time, and for some options no secondary market on an exchange
may exist. In such event, it may not be possible to effect closing transactions
in particular options, with the result that the Fund would have to exercise its
options in order to realize any profit and would incur brokerage commissions
upon the exercise of such options and upon the subsequent disposition of the
underlying securities acquired through exercise of such options. Further, unless
the price of the underlying security changes sufficiently, a call option
purchased by the Funds may expire without any value to the Funds, in which event
the Funds would realize a capital loss that would be characterized as short-term
unless the option was held for more than one year.

PURCHASING PUT OPTIONS

The Funds may invest up to 20% of their total assets in the purchase of put
options. The Funds will, at all times during which it holds a put option, own
the security covered by such option. The purchase of the put on substantially
identical securities held will constitute a short sale for tax purposes, the
effect of which is to create short-term capital gain on sale of the security and
to suspend running of its holding period (and treat it as commencing on the date
of the closing of the short sale) or that of a security acquired to cover the
same if, at the time the put was acquired, the security had not been held for
more than one year.

A put option purchased by the Funds gives it the right to sell one of its
securities for an agreed-upon price up to an agreed date. The Funds may purchase
put options in order to protect against a decline in the market value of the
underlying security below the exercise price less the premium paid for the
option ("protective puts"). The ability to purchase put options will allow the
Funds to protect unrealized gains in an appreciated security in their portfolios
without actually selling the security. If the security does not drop in value,
the Funds will lose the value of the premium paid. The Funds may sell a put
option which it has previously purchased prior to sale of the securities
underlying such option. Such sale will result in a net gain or loss depending
upon whether the amount received on the sale is more or less than the premium
and other transaction costs paid on the put option which is sold.

The Funds may sell a put option purchased on individual portfolio securities.
Additionally, the Funds may enter into closing sale transactions. A closing sale
transaction is one in which the Funds, when it is the holder of an outstanding
option, liquidates its position by selling an option of the same series as the
option previously purchased.

WRITING PUT OPTIONS

The Funds may also write put options on a secured basis, which means that the
Funds will maintain, in a segregated account with its custodian, cash or U.S.
Government securities in an amount not less than the exercise price of the
option at all times during the option period. The amount of cash or U.S.
Government securities held in the segregated account will be adjusted on a daily
basis to reflect changes in the market value of the securities covered by the
put options written by the Funds. Secured put options will generally be written
in circumstances where the portfolio managers wish to purchase the underlying
security for the Fund's portfolio at a price lower than the current market price
of the security. In such event, the Funds would write a secured put option at an
exercise price which, reduced by the premium received on the option, reflects
the lower price it is willing to pay. With regard to the writing of put options,
the Funds will limit the aggregate value of the obligations underlying such put
options to 20% of their total net assets.

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<PAGE> 49

Following the writing of a put option, the Funds may wish to terminate the
obligation to buy the security underlying the option by effecting a closing
purchase transaction. This is accomplished by buying an option of the same
series as the option previously written. The Funds may not, however, effect such
a closing transaction after it has been notified of the exercise of the option.

LIMITATIONS ON FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS

The Funds will not engage in transactions in futures contracts or related
options for speculation but only as a hedge against changes resulting from
market conditions in the values of debt securities held in its portfolio or
which it intends to purchase and where the transactions are appropriate to the
reduction of the Funds' risks. The Trustees have adopted policies (which are not
fundamental and may be modified by the Trustees without a shareholder vote)
that, immediately after the purchase for a Fund of a futures contract or a
related option, the value of the aggregate initial margin deposits with respect
to all futures contracts (both for receipt and delivery), and premiums paid on
related options entered into on behalf of the Fund, will not exceed 5% of the
fair market value of the Fund's total assets. Additionally, the value of the
aggregate premiums paid for all put and call options held by a Fund will not
exceed 20% of its net assets. Futures contracts and put options written (sold)
by a Fund will be offset by assets of the Fund held in a segregated account in
an amount sufficient to satisfy obligations under such contracts and options.

FOREIGN SECURITIES

The Funds may invest up to 40% of their total assets in foreign securities. The
Funds may invest without limit in U.S. dollar denominated foreign securities.
The Income Fund may invest up to 40% of its assets in foreign bonds denominated
in foreign currencies. No more than 20% of a Fund's total assets will be
represented by a given foreign currency.

Investors should recognize that investing in foreign securities involves certain
special considerations, including those set forth below, which are not typically
associated with investing in U.S. securities and which may favorably or
unfavorably affect the Funds' performance. As foreign companies are not
generally subject to uniform accounting, auditing and financial reporting
standards, practices and requirements comparable to those applicable to domestic
companies, there may be less publicly available information about a foreign
company than about a domestic company. Many foreign securities markets, while
growing in volume of trading activity, have substantially less volume than the
U.S. market, and securities of some foreign issuers are less liquid and more
volatile than securities of domestic issuers. Similarly, volume and liquidity in
most foreign bond markets is less than in the U.S. and, at times, volatility of
price can be greater than in the U.S. Fixed commissions on some foreign
securities exchanges and bid-to-asked spreads in foreign bond markets are
generally higher than commissions and bid-to-asked spreads in U.S. markets,
although the Funds will endeavor to achieve the most favorable net results on
their portfolio transactions. There is generally less government supervision and
regulation of securities exchanges, brokers and listed companies than in the
U.S. It may be more difficult for the Funds' agents to keep currently informed
about corporate actions that may affect the prices of portfolio securities.
Communications between the U.S. and foreign countries may be less reliable than
within the U.S., thus increasing the risk of delayed settlements of portfolio
transactions or loss of certificates for portfolio securities. Payment for
securities without delivery may be required in certain foreign markets. In
addition, with respect to certain foreign countries, there is the possibility of
expropriation or confiscatory taxation, political or social instability, or
diplomatic developments that could affect U.S. investments in those countries.
Investments in foreign securities may also entail certain risks such as possible
currency blockages or transfer restrictions, and the difficulty of enforcing
rights in other countries. Moreover, individual foreign economies may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position. Further, to the extent
investments in foreign securities involve currencies of foreign countries, the
Funds may be affected favorably or unfavorably by changes in currency rates and
in exchange-control regulations, and may incur costs in connection with
conversion between currencies.

Investments in companies domiciled in developing countries may be subject to
potentially greater risks than investments in developed countries. The
possibility of revolution and the dependence on foreign economic assistance may
be greater in these countries than in developed countries. Each Fund seeks to
mitigate the risks associated with these considerations through diversification
and active professional management.

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FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

The Funds may enter into forward foreign-currency exchange contracts in
connection with its investments in foreign securities. A forward
foreign-currency exchange contract ("forward contract") involves an obligation
to purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a
price set at the time of the contract. These contracts are traded in the
interbank market conducted directly between currency traders (usually large
commercial banks) and their customers. A forward contract generally has no
deposit requirement, and no commissions are charged at any stage for trades.

The maturity date of a forward contract may be any fixed number of days from the
date of the contract agreed upon by the parties, rather than a predetermined
date in a given month, and forward contracts may be in any amount agreed upon by
the parties rather than predetermined amounts. Also, forward contracts are
traded directly between banks or currency dealers so that no intermediary is
required. A forward contract generally requires no margin or other deposit.
Closing transactions with respect to forward contracts are effected with the
currency trader who is a party to the original forward contract.

The Funds may enter into foreign-currency futures contracts in several
circumstances. First, when a Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, or when a Fund anticipates
the receipt in a foreign currency of interest and dividend payments on such a
security which it holds, the Fund may desire to "lock in" the U.S. dollar price
of the security or the U.S. dollar equivalent of such interest and dividend
payments, as the case may be. By entering into a forward contract for the
purchase or sale, for a fixed amount of U.S. dollars, of the amount of foreign
currency involved in the underlying transaction, the Fund will attempt to
protect itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the applicable foreign currency during
the period between the date on which the security is purchased or sold, or on
which the dividend payment is declared, and the date on which such payments are
made or received.

The Funds' activities involving forward contracts may be limited by the
requirements of Subchapter M of the Internal Revenue Code for qualification as a
regulated investment company.

REPURCHASE AGREEMENTS

The Funds may enter into repurchase agreements with any member bank of the
Federal Reserve System and any broker-dealer which is recognized as a reporting
government securities dealer, whose creditworthiness has been determined by the
Adviser. A repurchase agreement, which provides a means for the Funds to earn
income on monies for periods as short as overnight, is an arrangement under
which the purchaser (i.e., the Fund) acquires a security ("Obligation") and the
seller agrees, at the time of sale, to repurchase the Obligation at a specified
time and price. The repurchase price may be higher than the purchase price, the
difference being income to the Funds, or the purchase and repurchase prices may
be the same, with interest at a stated rate due to the Funds at the time of
repurchase. In either case, the income to the Funds is unrelated to the
interest-rate on the Obligation itself. For purposes of the Investment Company
Act of 1940, as amended, a repurchase agreement is deemed to be a loan to the
seller of the Obligation and is therefore covered by the Funds' investment
restrictions applicable to loans. Each repurchase agreement entered into by the
Funds requires that if the market value of the Obligation becomes less than the
repurchase price (including interest), the Funds will direct the seller of the
Obligation, on a daily basis, to deliver additional securities so that the
market value of all securities subject to the repurchase agreement will equal or
exceed the repurchase price. In the event that the Funds are unsuccessful in
seeking to enforce the contractual obligation to deliver additional securities,
and the seller defaults on its obligation to repurchase, the Funds bear the risk
of any drop in market value of the Obligation(s). In the event that bankruptcy
or insolvency proceedings were commenced with respect to a bank or broker-dealer
before its repurchase of the Obligation, the Funds might encounter delay and
incur costs before being able to sell the security. Delays may involve loss of
interest or decline in price of the Obligation. In the case of repurchase
agreements, it is not clear whether a court would consider a repurchase
agreement as being owned by the particular Funds or as being collateral for a
loan by the Funds. If a court were to characterize the transaction as a loan and
the Funds had not perfected a security interest in the Obligation, the Funds
could be required to return the Obligation to the bank's estate and be treated
as an unsecured creditor. As an unsecured creditor, the Funds would be at risk
of losing some or all of the principal and income involved in that transaction.
The portfolio managers seek to minimize the risk of loss through repurchase
agreements by analyzing the creditworthiness of the obligor, in this case the
seller of the Obligations.

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<PAGE> 51

Securities subject to a repurchase agreement are held in a segregated account
and the amount of such securities is adjusted on a daily basis so as to provide
a market value at least equal to the repurchase price. The Funds may not invest
more than 15% of their net assets in repurchase agreements maturing in more than
seven days.

REVERSE REPURCHASE AGREEMENTS

Each Fund may obtain funds for temporary defensive purposes by entering into
reverse repurchase agreements with banks and broker-dealers. Reverse repurchase
agreements involve sales by a Fund of portfolio assets concurrently with an
agreement by that Fund to repurchase the same assets at a later date at a fixed
price. During the reverse repurchase agreement period, the Fund continues to
receive principal and interest payments on these securities. During the time a
reverse repurchase agreement is outstanding, the Fund will maintain a segregated
custodial account consisting of cash, U.S. Government securities or other
high-grade liquid debt obligations having a value at least equal to the
repurchase price, plus accrued interest, subject to the agreement. Reverse
repurchase agreements involve the risk that the market value of the securities
sold by the Fund may decline below the price of the securities the Fund is
obligated to repurchase. Reverse repurchase agreements are considered borrowings
by the Fund, and as such are subject to the investment limitations discussed in
the section entitled "Borrowing."

SECURITIES LENDING

To increase return on portfolio securities, the Growth Fund and the Income Fund
may lend their portfolio securities on a short-term basis to banks,
broker-dealers and other institutional investors pursuant to agreements
requiring that the loans be continuously secured by collateral equal at all
times in value to at least the market value of the securities loaned. Collateral
will consist of U.S. Government securities, cash equivalents or irrevocable
letters of credit. The Funds will not lend portfolio securities in excess of
one-third of the value of their respective total assets, including collateral
received from such loans. There may be risks of delay in receiving additional
collateral or in recovering the securities loaned or even a loss of rights in
the collateral should the borrower of the securities fail financially. In
determining whether to lend securities, the Funds consider all relevant factors
and circumstances, including creditworthiness of the borrower.

SECURITIES OF OTHER INVESTMENT COMPANIES

The Balanced Funds invest primarily in shares of the Growth Fund and the Income
Fund. The Growth Fund and the Income Fund have adopted a policy by which they
may invest in securities issued by other investment companies within the
limitations of the Investment Company Act of 1940, as amended, which permits
them to acquire securities of registered open-end investment companies except
pursuant to Section 12(d)(1)(F) and Section 12(d)(1)(G). As a shareholder of
another investment company, the Balanced Funds would bear along with other
shareholders its pro rata portion of the investment company's expenses,
including advisory fees.

As described in the Prospectus, the Balanced Funds invest primarily in the
shares of the Growth Fund and the Income Fund. The Balanced Funds believe that
this diversification offers the opportunity to benefit from a variety of
investment approaches and strategies employed by experienced investment
professionals.

MORTGAGE-BACKED SECURITIES AND MORTGAGE PASS-THROUGH SECURITIES

The Income Fund may invest in mortgage-backed securities, which are interests in
pools of mortgage loans, including mortgage loans made by savings and loan
institutions, mortgage bankers, commercial banks and others. The Fund also
invests in mortgage-backed securities guaranteed primarily by the Government
National Mortgage Association. Pools of mortgage loans are assembled as
securities for sale to investors by various governmental, government-related and
private organizations as further described below. The Fund may also invest in
debt securities that are secured with collateral consisting of mortgage-backed
securities (see "Collateralized Mortgage Obligations"), and in other types of
mortgage-related securities.

A decline in interest rates may lead to a faster rate of repayment of the
underlying mortgages, and expose the Fund to a lower rate of return upon
reinvestment. To the extent that such mortgage-backed securities are held by the
Fund, the prepayment right will tend to limit to some degree the increase in net
asset value of the Fund because the value of the mortgage-backed securities held
by the Fund may not appreciate as rapidly as the price of non-callable debt
securities.

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When interest rates rise, mortgage prepayment rates decline, thus lengthening
the life of a mortgage-related security and increasing the price volatility of
that security, affecting the price volatility of the Fund's shares.

Interests in pools of mortgage-backed securities differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts, with principal payments at maturity or specified call dates. Instead,
these securities provide a monthly payment that consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
monthly payments made by the individual borrowers on their mortgage loans, net
of any fees paid to the issuer or guarantor of such securities. Additional
payments are caused by repayments of principal resulting from sale of the
underlying property, refinancing or foreclosure, net of fees or costs which may
be incurred. Some mortgage-related securities (such as securities issued by the
Government National Mortgage Association) are described as "modified
pass-through." These securities entitle the holder to receive all interest and
principal payments owed on the mortgage pool, net of certain fees, at scheduled
payment dates regardless of whether or not the mortgagor actually makes the
payment.

The principal governmental guarantor of mortgage-related securities is the
Government National Mortgage Association ("GNMA"). GNMA is a wholly-owned U.S.
Government corporation within the Department of Housing and Urban Development.
GNMA is authorized to guarantee, with the full faith and credit of the U.S.
Government, timely payment of principal and interest on securities issued by
institutions approved by GNMA (such as savings and loan institutions, commercial
banks and mortgage bankers) and backed by pools of FHA-insured or VA-guaranteed
mortgages. These guarantees, however, do not apply to the market value or yield
of mortgage-backed securities or to the value of the Fund's shares. Also, GNMA
securities often are purchased at a premium over the maturity value of the
underlying mortgages. This premium is not guaranteed and will be lost if
prepayment occurs.

Government-related guarantors (i.e., not backed by the full faith and credit of
the U.S. Government) include the Federal National Mortgage Association ("FNMA")
and the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA is a
government-sponsored corporation owned entirely by private stockholders. It is
subject to general regulation by the Secretary of Housing and Urban Development.
FNMA purchases conventional (i.e., not insured or guaranteed by any government
agency) mortgages from a list of approved seller/servicers which include state
and federally-chartered savings and loan associations, mutual savings banks,
commercial banks and credit unions and mortgage bankers. Pass-through securities
issued by FNMA are guaranteed as to timely payment of principal and interest by
FNMA but are not backed by the full faith and credit of the U.S. Government.

FHLMC is a corporate instrumentality of the U.S. Government and was created by
Congress in 1970 for the purpose of increasing the availability of mortgage
credit for residential housing. FHLMC stock is owned by twelve Federal Home Loan
Banks. FHLMC issues Participation Certificates ("PCs") which represent interests
in conventional mortgages from FHLMC's national portfolio. FHLMC guarantees the
timely payment of interest and ultimate collection of principal, but PCs are not
backed by the full faith and credit of the U.S. Government.

Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional mortgage loans. Such issuers may, in
addition, be the originators and/or servicers of the underlying mortgage loans
as well as the guarantors of the mortgage-related securities. Pools created by
such non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government or agency guarantees of payments. However, timely payment of interest
and principal of these pools may be supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance and
letters of credit. The insurance and guarantees are issued by governmental
entities, private insurers and the mortgage poolers. Such insurance and
guarantees and the creditworthiness of the issuers thereof will be considered in
determining whether a mortgage-related security meets the Fund's investment
quality standards. There can be no assurance that the private insurers or
guarantors can meet their obligations under the insurance policies or guarantee
arrangements. The Fund may buy mortgage-related securities without insurance or
guarantees, if through an examination of the loan experience and practices of
the originators/servicers and poolers, the portfolio managers determine that
they meet the Fund's quality standards. Although the market for such securities
is becoming increasingly liquid, securities issued by certain private
organizations may not be readily marketable.

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COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS")

The Income Fund may invest in CMOs which are hybrids between mortgage-backed
bonds and mortgage pass-through securities. Similar to a bond, interest and
prepaid principal are paid, in most cases, semiannually. CMOs may be
collateralized by whole mortgage loans, but are more typically collateralized by
portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or
FNMA, and their income streams.

CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner-than-desired return
of principal because of the sequential payments.

In a typical CMO transaction, a corporation issues multiple series, (e.g., A, B,
C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering are used to purchase
mortgages or mortgage pass-through certificates ("Collateral"). The Collateral
is pledged to a third party trustee as security for the Bonds. Principal and
interest payments from the Collateral are used to pay principal on the Bonds in
the order A, B, C, Z. The Series A, B, and C Bonds all bear current interest.
Interest on the Series Z Bond is accrued and added to principal and a like
amount is paid as principal on the Series A, B, or C Bonds currently being paid
off. When the Series A, B, and C Bonds are paid in full, interest and principal
on the Series Z Bond begins to be paid currently. With some CMOs, the issuer
serves as a conduit to allow loan originators (primarily builders or savings and
loan associations) to borrow against their loan portfolios.

OTHER ASSET-BACKED SECURITIES

The Income Fund may also invest in other asset-backed securities. The
securitization techniques used to develop mortgage-backed securities are now
being applied to a broad range of assets. Through the use of trusts and
special-purpose corporations, various types of assets, including automobile
loans, computer leases and credit-card receivables, are being securitized in
pass-through structures similar to the mortgage pass-through structures
described above or in a structure similar to the CMO structure. The Income Fund
may invest in these and other types of asset-backed securities that may be
developed in the future. In general, the collateral supporting these securities
is of shorter maturity than mortgage loans and is less likely to experience
substantial prepayments with interest-rate fluctuations.

Several types of asset-backed securities have already been offered to investors,
including Certificates of Automobile Receivables(SM) ("CARS(SM)"). CARS(SM)
represent undivided fractional interests in a trust ("Trust") whose assets
consist of a pool of motor vehicle retail installment-sales contracts and
security interests in the vehicles securing the contracts. Payments of principal
and interest on CARSSM are passed through monthly to certificate holders, and
are guaranteed up to certain amounts and for a certain time period by a letter
of credit issued by a financial institution unaffiliated with the trustee or
originator of the Trust. An investor's return on CARSSM may be affected by early
prepayment of principal on the underlying vehicle sales contracts. If the letter
of credit is exhausted, the Trust may be prevented from realizing the full
amount due on a sales contract because of state law requirements and
restrictions relating to foreclosure sales of vehicles and the obtaining of
deficiency judgments following such sales or because of depreciation, damage or
loss of a vehicle, the application of federal and state bankruptcy and
insolvency laws, or other factors. As a result, certificate holders may
experience delays in payments or losses if the letter of credit is exhausted.

Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities may not have the benefit
of any security interest in the related assets. 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. There is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on these securities.

Asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties. To lessen the effect of failures
by obligors on underlying assets to make payments, the securities may

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contain elements of credit support which fall into two categories: (i) liquidity
protection, and (ii) protection against losses resulting from ultimate default
by an obligor on the underlying assets. Liquidity protection refers to the
provision of advances, generally by the entity administering the pool of assets,
to ensure that the receipt of payments on the underlying pool occurs in a timely
fashion. Protection against losses results from payment of the insurance
obligations on at least a portion of the assets in the pool. This protection may
be provided through guarantees, policies or letters of credit obtained by the
issuer or sponsor from third parties, through various means of structuring the
transaction or through a combination of such approaches. The Fund will not pay
any additional or separate fees for credit support. The degree of credit support
provided for each issue is generally based on historical information reflecting
the level of credit risk associated with the underlying assets. Delinquency or
loss in excess of that anticipated or failure of the credit support could
adversely affect the return on an investment in such a security.

The Fund may also invest in residual interests in asset-backed securities. In
the case of asset-backed securities issued in a pass-through structure, the cash
flow generated by the underlying assets is applied to make required payments on
the securities and to pay related administrative expenses. The residual in an
asset-backed security pass-through structure represents the interest in any
excess cash flow remaining after making the foregoing payments. The amount of
residual cash flow resulting from a particular issue of asset-backed securities
will depend on, among other things, characteristics of the underlying assets,
coupon rates on the securities, prevailing interest rates, administrative
expenses and actual prepayment experience on the underlying assets. Asset-backed
security residuals not registered under the Securities Act of 1933 may be
subject to certain restrictions on transferability. In addition, there may be no
liquid market for such securities.

The availability of asset-backed securities may be affected by legislative or
regulatory developments. It is possible that such developments may require the
Fund to dispose of any existing holdings of such securities.

ZERO COUPON SECURITIES

The Income Fund may invest in zero coupon securities, which pay no cash income
and are sold at substantial discounts from their value at maturity. When held to
maturity, their entire income, which consists of accretion of discount, comes
from the difference between the issue price and their value at maturity. Zero
coupon securities are subject to greater market-value fluctuations from changing
interest rates than debt obligations of comparable maturities which make current
distributions of interest (cash). Zero coupon securities which are convertible
into common stock offer the opportunity for capital appreciation as increases
(or decreases) in market value of such securities closely follow movements in
the market value of the underlying common stock. Zero coupon convertible
securities generally are expected to be less volatile than the underlying common
stocks, as they usually are issued with maturities of 15 years or less and are
issued with options and/or redemption features, exercisable by the holder of the
obligation, entitling the holder to redeem the obligation and receive a defined
cash payment.

Zero coupon securities include securities issued directly by the U.S. Treasury,
and U.S. Treasury bonds or notes and their unmatured interest coupons and
receipts for their underlying principal ("coupons") which have been separated by
their holder, typically a custodian bank or investment brokerage firm. A holder
will separate the interest coupons from the underlying principal (the "corpus")
of the U.S. Treasury security. A number of securities firms and banks have
stripped the interest coupons and receipts and then resold them in custodial
receipt programs with a number of different names, including "Treasury Income
Growth Receipts" (TIGRS(TM)) and Certificate of Accrual on Treasuries
(CATS(TM)). The underlying U.S. Treasury bonds and notes themselves are held in
book-entry form at the Federal Reserve Bank or, in the case of bearer securities
(i.e., unregistered securities which are owned ostensibly by the bearer or
holder thereof), in trust on behalf of the owners thereof. Counsel to the
underwriters of these certificates or other evidences of ownership of the U.S.
Treasury securities have stated that, for federal tax and securities purposes,
in their opinion purchasers of such certificates, such as the Fund, most likely
will be deemed the beneficial holder of the underlying U.S. Government
securities. The Fund understands that the staff of the SEC no longer considers
such privately stripped obligations to be U.S. Government securities, as defined
in the Investment Company Act of 1940; therefore, the Fund intends to adhere to
this staff position and will not treat such privately stripped obligations to be
U.S. Government securities for the purpose of determining if the Fund is
"diversified" under the 1940 Act.

The U.S. Treasury has facilitated transfers of ownership of zero coupon
securities by accounting separately for the beneficial ownership of particular
interest coupon and corpus payments on Treasury securities through the Federal
Reserve book-entry record-keeping system. The Federal Reserve program as
established by the Treasury

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Department is known as "STRIPS" or "Separate Trading of Registered Interest and
Principal of Securities." Under the STRIPS program, the Fund will be able to
have its beneficial ownership of zero coupon securities recorded directly in the
book-entry record-keeping system in lieu of having to hold certificates or other
evidences of ownership of the underlying U.S. Treasury securities.

When U.S. Treasury obligations have been stripped of their unmatured interest
coupons by the holder, the principal or principal is sold at a deep discount
because the buyer receives only the right to receive a future fixed payment on
the security and does not receive any rights to periodic interest (cash)
payments. Once stripped or separated, the principal and coupons may be sold
separately. Typically, the coupons are sold separately or grouped with other
coupons with like maturity dates and sold bundled in such form. Purchasers of
stripped obligations acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury sells
itself.

RESETS

The interest rates paid on the Adjustable Rate Mortgages (ARMs) and CMOs in
which the Income Fund may invest generally are readjusted at intervals of one
year or less to an increment over some predetermined interest-rate index. There
are three main categories of indexes: those based on U.S. Treasury securities;
those derived from a calculated measure such as a cost-of-funds index; or a
moving average of mortgage rates.

CAPS AND FLOORS

The underlying mortgages which collateralize the ARMS and CMOs in which the
Income Fund invests will frequently have caps and floors that 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 by limiting
interest-rate changes. These payment caps may result in negative amortization.

STRIPPED MORTGAGE-BACKED SECURITIES

The Income Fund may also invest in stripped mortgage-backed securities, which
are derivative multi-class mortgage securities. The stripped mortgage-backed
securities in which the Fund may invest will only be issued or guaranteed by the
U.S. Government, its agencies or instrumentalities. Stripped mortgage-backed
securities have greater market volatility than other types of mortgage
securities in which the Fund may invest.

Stripped mortgage-backed securities are usually structured with two classes that
receive different proportions of the interest and principal distributions on a
pool of mortgage assets. A common type of stripped mortgage-backed security will
have one class receiving some of the interest and most of the principal from the
mortgage assets, while the other class will receive most of the interest and the
remainder of the principal. In the most extreme case, one class will receive all
of the interest (the interest-only or "IO" class), while the other class will
receive all of the principal (the principal-only or "PO" class). The yield to
maturity on an IO class is extremely sensitive not only to changes in prevailing
interest rates but also to the rate of principal payments (including
prepayments) on the related underlying mortgage assets. A rapid rate of
principal payments may have a material adverse effect on the yield to maturity
of any such IOs held by the Fund. If the underlying mortgage assets experience
greater than anticipated prepayments of principal, the Fund may fail to recoup
fully its initial investment in these IO securities even if the securities are
rated in the highest rating categories, AAA or Aaa, by S&P or Moody's,
respectively.

Stripped mortgage-backed securities are purchased and sold by institutional
investors through several investment banking firms acting as brokers or dealers.
The staff of the U.S. Securities and Exchange Commission has indicated that it
views such securities as illiquid. The Fund's investment in stripped mortgage
securities will be treated as illiquid and will, together with any other
illiquid investments, not exceed 15% of the Fund's net assets.

RISKS OF MORTGAGE-BACKED SECURITIES

Mortgage-backed securities differ from conventional bonds in that principal is
paid back over the life of the mortgage security rather than at maturity. As a
result, the holder of mortgage-backed securities (i.e., the Income Fund)
receives monthly scheduled payments of principal and interest, and may receive
unscheduled principal payments representing prepayments on the underlying
mortgages. When the holder reinvests the payments and any unscheduled
prepayments of principal it receives, it may receive a rate of interest that is
lower than the rate on the existing mortgage securities. For this reason,
mortgage-backed securities may be less effective than other types of U.S.
Government securities as a means of "locking in" long-term interest rates.

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A decline in interest rates may lead to a faster rate of repayment of the
underlying mortgages and expose the Fund to a lower rate of return upon
reinvestment. To the extent that such mortgage-backed securities are held by the
Fund, the prepayment right of mortgagors may decrease or limit the increase in
net asset value of the Fund because the value of the mortgage-backed securities
held by the Fund may decline more than, or may not appreciate as much as, the
price of noncallable debt securities. To the extent market interest rates
increase beyond the applicable cap or maximum rate on a mortgage security, the
market value of the mortgage-backed security would likely decline to the same
extent as a conventional fixed-rate security.

In addition, to the extent mortgage-backed securities are purchased at a
premium, mortgage foreclosures and unscheduled principal prepayments may result
in some loss of the holder's principal investment to the extent of the premium
paid. On the other hand, if mortgage-backed securities are purchased at a
discount, both a scheduled payment of principal and an unscheduled prepayment of
principal will increase current and total returns and will accelerate the
recognition of income which, when distributed to taxable shareholders, will be
taxable as ordinary income.

The Fund may also invest in pass-through certificates issued by non-governmental
issuers. Pools of conventional residential mortgage loans created by such
issuers generally offer a higher rate of interest than government and
government-related pools because there are no direct or indirect government
guarantees of payment. Timely payment of interest and principal of these pools
is, however, generally supported by various forms of insurance or guarantees,
including individual loan, title, pool and hazard insurance. The insurance and
guarantees are issued by government entities, private insurance and the mortgage
poolers. Such insurance and guarantees and the creditworthiness of the issuers
thereof will be considered in determining whether a mortgage-related security
meets the Fund's quality standards. The Fund may buy mortgage-related securities
without insurance or guarantees if through an examination of the loan experience
and practices of the poolers, the portfolio managers determine that the
securities meet the Fund's quality standards.

With respect to pass-through mortgage pools issued by non-governmental issuers,
there can be no assurance that the private insurers associated with such
securities can meet their obligations under the policies. Although the market
for such non-governmental issued or guaranteed mortgage securities is becoming
increasingly liquid, securities issued by certain private organizations may not
be readily marketable. The purchase of such securities is subject to the Fund's
limit with respect to investment in illiquid securities.

OTHER MORTGAGE-BACKED SECURITIES

The portfolio managers expect that governmental, government-related or private
entities may create mortgage loan pools and other mortgage-related securities
offering mortgage pass-through and mortgage-collateralized investments in
addition to those described above. The mortgages underlying these securities may
include alternative mortgage instruments, that is, mortgage instruments the
principal or interest payments of which may vary or the terms to maturity of
which may differ from customary long-term fixed-rate mortgages. As new types of
mortgage-related securities are developed and offered to investors, the
portfolio managers will, consistent with the Income Fund's investment
objectives, policies and quality standards, consider making investments in such
new types of mortgage-related securities. The Fund will not invest in any new
types of mortgage-related securities without prior disclosure to shareholders of
the Fund.

RULE 144A SECURITIES

The Funds may purchase securities which are not registered under the Securities
Act but which can be sold to "qualified institutional buyers" in accordance with
Rule 144A under the Securities Act. In some cases, such securities are
classified as "illiquid securities", however, any such security will not be
considered illiquid so long as it is determined by the Adviser, under guidelines
approved by the Board of Trustees, that an adequate trading market exists for
that security. This investment practice could have the effect of increasing the
level of illiquidity in Fund during any period that qualified institutional
buyers become uninterested in purchasing these restricted securities.

ILLIQUID SECURITIES

The Funds will not invest more than 15% of the value of their net assets in
securities that are illiquid because of restrictions on transferability or other
reasons. Repurchase agreements with deemed maturities in excess of seven

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days and securities that are not registered under the Securities Act of 1933, as
amended, but that may be purchased by institutional buyers pursuant to Rule 144A
are subject to this 15% limit (unless such securities are variable-amount
master-demand notes with maturities of nine months or less or unless the Board
determines that a liquid trading market exists).

CONVERTIBLE SECURITIES

Common stock occupies the most junior position in a company's capital structure.
Convertible securities entitle the holder to exchange those securities for a
specified number of shares of common stock, usually of the same company, at
specified prices within a certain period of time and to receive interest or
dividends until the holder elects to convert. The provisions of any convertible
security determine its ranking in a company's capital structure. In the case of
subordinated convertible debentures, the holder's claims on assets and earnings
are subordinated to the claims of other creditors, but are senior to the claims
of preferred and common shareholders. In the case of preferred stock and
convertible preferred stock, the holder's claims on assets and earnings are
subordinated to the claims of all creditors but are senior to the claims of
common shareholders.

SWAPS

To help enhance the value of its portfolio or manage its exposure to different
types of investments, the Income Fund may enter into interest-rate, currency and
mortgage-swap agreements and may purchase and sell interest-rate "caps",
"floors" and "collars". The potential loss from investing in swap agreements is
much greater than the amount initially invested. This would protect the Fund
from a decline in the value of the underlying security due to rising rates, but
would also limit its ability to benefit from falling interest rates. The Fund
will enter into interest-rate swaps only on a net basis (i.e. the two payment
streams will be netted out, with the Fund receiving or paying as the case may
be, only the net amount of the two payments). The net amount of the excess, if
any, of the Fund's obligations over its entitlements with respect to each
interest-rate swap will be accrued on a daily basis and an amount of cash or
liquid high-grade debt securities having an aggregate value at least equal to
the accrued excess will be maintained in a segregated account by the Fund's
custodian bank. Interest-rate swaps do not involve the delivery of securities or
other underlying assets or principal. Thus, if the other party to an
interest-rate swap defaults, the Fund's risk of loss consists of the net amount
of interest payments that the Fund is contractually entitled to receive.

In a cap or floor, one party agrees, usually in return for a fee, to make
payments under particular circumstances. For example, the purchaser of an
interest-rate cap has the right to receive payments to the extent a specified
interest-rate exceeds an agreed-upon level; the purchaser of an interest-rate
floor has the right to receive payments to the extent a specified interest-rate
falls below an agreed-upon level. A collar entitles the purchaser to receive
payments to the extent a specified interest rate falls outside an agreed-upon
range.

Swap agreements may involve leverage and may be highly volatile; depending on
how they are used, they may have a considerable impact on a Fund's performance.
Swap agreements involve risks depending upon the other party's creditworthiness
and ability to perform, as judged by the portfolio managers, as well as the
Fund's ability to terminate its swap agreements or reduce its exposure through
offsetting transactions.

REITS

Each Fund may invest up to 10% of its net assets in real estate investment
trusts ("REITs"). Equity REITs invest directly in real property while mortgage
REITs invest in mortgages on real property. REITs may be subject to certain
risks associated with the direct ownership of real estate, including declines in
the value of real estate, risks related to general and local economic
conditions, overbuilding and increased competition, increases in property taxes
and operating expenses, and variations in rental income. Generally, increases in
interest rates will decrease the value of high-yielding securities and increase
the costs of obtaining financing, which could decrease the value of a REIT's
investments. In addition, equity REITs may be affected by changes in the value
of the underlying property owned by the REITs, while mortgage REITs may be
affected by the quality of credit extended. Equity and mortgage REITs are
dependent upon management skill, and are subject to the risks of financing
projects. REITs are also subject to heavy cash flow dependency, defaults by
borrowers and self-liquidation.

BORROWING

Each Fund has a fundamental policy that it may not borrow money, except that it
may (1) borrow money from banks for temporary or emergency purposes and not for
leveraging or investment and (2) enter into reverse repurchase agreements for
any purpose, so long as the aggregate amount of borrowings and reverse
repurchase agreements does

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not exceed one-third of the Fund's total assets less liabilities (other than
borrowings). No Fund will purchase securities while borrowings in excess of 5%
of its total assets are outstanding.

OTHER INVESTMENTS

Subject to prior disclosure to shareholders, the Board of Trustees may, in the
future, authorize the Income Fund to invest in securities other than those
listed here and in the prospectus, provided that such investment would be
consistent with the Fund's investment objective and that it would not violate
any fundamental investment policies or restrictions applicable to the Fund.

TEMPORARY DEFENSIVE PURPOSES

For temporary defensive purposes, the Funds may invest without limit in
high-quality money-market securities. The Funds may also, for temporary
defensive purposes, invest in shares of no-load, open-end money-market funds.

INVESTMENT RESTRICTIONS

FUNDAMENTAL INVESTMENT RESTRICTIONS

The following investment restrictions are considered fundamental which means
that they may only be changed by the vote of a majority of a Fund's outstanding
shares, which as used herein and in the Prospectus, means the lesser of: (1) 67%
of such Fund's outstanding shares present at a meeting, if the holders of more
than 50% of the outstanding shares are present in person or by proxy, or (2)
more than 50% of such Fund's outstanding shares. The percentage restrictions
described below are applicable only at the time of investment and require no
action by the Funds as a result of subsequent changes in value of the
investments or the size of the Fund.

RESTRICTIONS APPLICABLE TO ALL FUNDS:

The Funds may not:

1. Purchase securities which would cause more than 25% of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in
the same industry. For purposes of this limitation, U.S. government
securities are not considered members of any industry.

2. Borrow money or issue senior securities as defined in the 1940 Act except
that (a) the Funds may borrow money in an amount not exceeding one-third of
the Fund's total assets at the time of such borrowings, and (b) the Fund
may issue multiple classes of shares. The purchase or sale of futures
contracts and related options shall not be considered to involve the
borrowing of money or the issuance of shares of senior securities.

3. With respect to 75% of the Fund's total assets, purchase securities of any
one issuer (other than securities issued or guaranteed by the U.S.
government and its instrumentalities) if, as a result, (a) more than 5% of
the Fund's total assets would be invested in the securities of that issuer,
or (b) the Fund would hold more than 10% of the outstanding voting
securities of that issuer. This restriction shall not apply to shares of
the Balanced Funds.

4. Make loans or lend securities, if as a result thereof, more than 50% of the
Fund's total assets would be subject to all such loans. For purposes of
this limitation debt instruments and repurchase agreements shall not be
treated as loans.

5. Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent the Funds from
investing in REITS, securities or other instruments backed by real estate,
including mortgage loans, or securities of companies that engage in real
estate business or invest or deal in real estate or interests therein).

6. Underwrite securities issued by any other person, except to the extent that
the purchase of securities and later disposition of such securities in
accordance with the Funds' investment program may be deemed an
underwriting.

7. Purchase or sell commodities except that the Fund may enter into futures
contracts and related options, forward investing contracts and other
similar instruments.

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The Funds have adopted the following non-fundamental restrictions. These
non-fundamental restrictions may be changed without shareholder approval, in
compliance with applicable law and regulatory policy.

1. The Funds shall not invest in companies for purposes of exercising control
or management.

2. The Funds shall not purchase securities on margin, except that the Funds
may obtain such short-term credits as are necessary for the clearance of
transactions and provided that margin payments in connection with futures
contracts and options shall not constitute purchasing securities on margin.

3. The Funds shall not sell securities short, unless it owns or has the right
to obtain securities equivalent in kind and amount to the securities sold
short, and provided that transactions in futures contracts and options are
not deemed to constitute selling short.

4. The Funds shall not purchase any security while borrowings representing
more than 5% of the Fund's total assets are outstanding (investment in
repurchase agreements will not be considered to be loans for purposes of
this restriction).

5. The Funds will invest no more than 15% of the value of their net assets in
illiquid securities, including repurchase agreements with remaining
maturities in excess of seven days, time deposits with maturities in excess
of seven days and other securities which are not readily marketable.

PORTFOLIO TURNOVER

The higher the portfolio turnover, the higher the overall brokerage commissions,
dealer mark-ups and mark-downs, and other direct transaction costs incurred. The
Funds' portfolio managers do take these costs into account, since they affect
overall investment performance.

For the fiscal year ended June 30, 2000 the portfolio turnover rate for the
Growth Fund and for the Income Fund was 152% and 182%, respectively. The higher
then expected turnover rates for the Growth Fund and the Income Fund can be
attributed to the fact that many of the securities held in these Funds were sold
upon the change in sub-adviser. High rates of portfolio turnover (100% or more)
entail certain costs, including increased taxable income for the Funds'
shareholders. Also, the higher the turnover, the greater the overall brokerage
commissions, dealer mark-ups and mark-downs, and other transaction costs
incurred. The Adviser takes these costs into account, since they affect the
Fund's overall investment performance and reduce shareholders' return.

MANAGEMENT OF THE FUNDS

THE BOARD OF TRUSTEES

The operations of each Fund are under the direction of a Board of Trustees. The
Board establishes each Fund's policies and oversees and reviews the management
of each Fund. The Board meets regularly to review the activities of the
officers, who are responsible for day-to-day operations of the Funds. The Board
reviews the various services provided by the Adviser to ensure that each Fund's
general investment policies and programs are being carried out and
administrative services are being provided to the Funds in a satisfactory
manner.

The Trustees and executive officers of the Funds and their principal occupations
during the past five years are set forth below. An asterisk indicates a Trustee
who may be deemed to be an "interested person" of the Trust (as that term is
defined in the 1940 Act).

18
<PAGE> 60

<TABLE>
<CAPTION>
POSITIONS HELD PRINCIPAL OCCUPATION
NAME, ADDRESS AND AGE WITH THE FUNDS DURING PAST FIVE YEARS
--------------------- -------------- -----------------------
<S> <C> <C>
*Cynthia S. Gooch Trustee Retired; Trustee, Presbyterian
2667 Eastwood Drive Church (U.S.A.) Foundation (1997 to
Wooster, Ohio 44691-2592 present)
DOB: 8/15/32

Gail C. Duree Trustee Investment Consultant, Montview
6015 E. 17th Avenue Parkway Boulevard Presbyterian Church (1994
Denver, Colorado 80220-1522 to present); Logan School (1996 to
DOB: 7/28/46 present); Women's Foundation of
Colorado (1995 to present); Trustee,
Presbyterian Church (U.S.A.)
Foundation (1991 to 1997)

Michael F. Ryan Trustee Vice President, Irwin Financial
2502 Washington Street Corp. (1996 to present); President,
Columbus, IN 47201 Irwin Union Bank (1981 to 1995)
DOB: 1/2/46

Rev. Donald B. Register Trustee Pastor, Sixth-Grace Presbyterian
312 S. Ridgeland Avenue Church, Chicago, IL (1988 to present)
Oak Park, IL 60302
DOB: 3/29/37

*Frank K. Bateman Chairman of the Board, Attorney, Gerber & Bateman, P.A. and
P.O. Box 10106 President and Trustee Potter, Mills & Bateman, P.A.;
Santa Fe, NM 87504 Trustee, Presbyterian Church
DOB: 1/21/40 (U.S.A.) Foundation (1995 to present)

Lynne M. Cannon Treasurer Vice President, Client Services,
PFPC Inc. PFPC Inc. (1998 to present); Senior
3200 Horizon Drive Vice President, FPS Services (1995
King of Prussia, PA 19406 to 1998 when FPS was acquired by
DOB: 10/14/55 First Data)

Mary Jane Maloney Secretary Vice President, Regulatory
PFPC Inc. Administration, PFPC Inc. (1997 to
400 Bellevue Parkway present); Compliance Officer, SEI
Wilmington, DE 19809 Investments Company (1992 to 1997).
DOB: 6/21/58
</TABLE>

No officer or employee of the Adviser receives any compensation from the Funds
for serving as an officer or Trustee of the Funds. The Funds do not compensate
the officers or Trustees of the Trust for the services they provide to the
Funds. The Funds do reimburse officers and Trustees of the Trust for expenses
incurred in providing their services to the Trust.

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<PAGE> 61

THE INVESTMENT ADVISER

To assist the Trustees and officers in carrying out their duties and
responsibilities, the Funds have employed New Covenant Trust Company, N.A. as
their investment adviser. The Adviser is a subsidiary of the Presbyterian Church
(U.S.A.) Foundation, which for many years has administered an investment program
for institutions.

The Funds and the Adviser have entered into an Investment Advisory Agreement
with respect to each Fund which is renewable annually by the Board of Trustees
or by votes of a majority of each Fund's outstanding voting securities. The
Agreement is for an initial term of one year. The Agreement will continue in
effect from year to year thereafter only if such continuance is approved
annually by either the Board of Trustees or by a vote of a majority of the
outstanding voting securities of the respective Fund, and in either case by the
vote of a majority of the Trustees who are not parties to the Agreements or
"interested persons" of any party to the Agreements, voting in person at a
meeting called for the purpose of voting on such approvals. The Agreement may be
terminated at any time without penalty by the Board of Trustees of a Fund, by
votes of the shareholders or by the Adviser, upon sixty days written notice. The
Agreement terminates automatically if assigned.

For providing investment advisory services and assuming certain Fund expenses,
the Growth Fund pays the Adviser a monthly fee at the annual rate of 0.99% of
the value of the Growth Fund's average daily net assets and the Income Fund pays
the Adviser a monthly fee at the annual rate of 0.75% of the value of the Income
Fund's average daily net assets. The advisory fees received by the Adviser are
used to pay the fees of the Sub-Advisers. The Adviser does not receive advisory
fees for the Balanced Funds. For the fiscal year ended June 30, 2000 the Adviser
received the following fees from the Funds for its services:

FEES RECEIVED
-------------
New Covenant Growth Fund $8,566,696.00
New Covenant Income Fund $4,333,190.00
New Covenant Balanced Growth Fund $0
New Covenant Balanced Income Fund $0

In addition to managing the investments, the Adviser also makes recommendations
with respect to other aspects and affairs of the Funds. The Adviser also
furnishes the Funds with certain administrative services, office space and
equipment. All other expenses incurred in the operation of the Funds are borne
by the respective Funds.

THE SUB-ADVISERS

The Adviser has entered into Sub-Advisory Agreements with various Sub-Advisers
to assist in the selection and management of each Fund's investment securities.
It is the responsibility of the Sub-Advisers, under the direction of the
Adviser, to make day-to-day investment decisions for the Funds. The Sub-Advisers
also place purchase and sell orders for portfolio transactions of the Funds
consistent with social-witness principles adopted by the General Assembly of the
Presbyterian Church (U.S.A.) and in accordance with each Fund's investment
objectives and policies.

The Adviser pays each Sub-Adviser a quarterly fee for their services in managing
assets of the Funds. Such fees are based on the annual rates noted below. The
Adviser pays the Sub-Advisers' fees directly from its own advisory fees. The
Sub-Advisory fees are based on the assets of a Fund to which a Sub-Adviser is
responsible for making investment decisions. The Adviser allocates the portion
of each Fund's assets for which a Sub-Adviser will make investment decisions.
Reallocations may be made at any time at the Adviser's discretion.

20
<PAGE> 62

<TABLE>
<CAPTION>
ANNUAL SUB-ADVISORY FEE
AS A PERCENTAGE OF
NAME OF SUB-ADVISER FUND NAME ASSETS MANAGED
------------------- --------- --------------

<S> <C> <C>
1. Capital Guardian Trust Company Growth Fund 0.75% of the first $25 million;
0.60% of the next $25 million and
0.425% on assets over $50 million
(less 10% eleemosynary discount)

2. Lazard Asset Management Growth Fund 0.50% of the first $35 million and
0.25% on assets over $35 million
(less 20% eleemosynary discount)
International Portion: 0.75% of
assets (less 20% eleemosynary
discount)

3. Seneca Capital Management Growth Fund 1.00% of the first $5 million; 0.80%
of the next $10 million; 0.50% of
the next $35 million (less 10%
eleemosynary discount); and 0.35%
over $50 million (flat fee over $50
million)

4. Standish, Ayer & Wood, Inc. Income Fund Domestic Portion:
0.40% of the first $10 million;
0.25% of the next $90 million; 0.20%
of the next $100 million; 0.18% of
the next $100 million; 0.15% of the
next $200 million; and 0.12% of
assets over $500 million.

Global High-Yield Portion:
0.50% of assets managed.

5. Tattersall Advisory Group, Inc. Income Fund 0.25% of the first $50 million;
0.125% of the next $50 million and
0.10% of assets over $100 million.

6. Wellington Management Company, LLP Growth Fund 0.25% of the first $100 million;
0.20% thereafter
</TABLE>

For the fiscal year ended June 30, 2000, the sub-advisers received the following
as compensation for their services:

<TABLE>
<S> <C>
Capital Guardian Trust Company $445,293
Lazard Asset Management $716,892
Seneca Capital Management $535,084
Standish, Ayer & Wood, Inc. $766,319
Tattersall Advisory Group, Inc $350,968
Wellington Management Company, LLP $106,991* (from May 1, 2000 to June 30, 2000)
John W. Bristol & Co., Inc. $365,046
</TABLE>

William Blair & Company, LLC served as a sub-adviser for the Growth Fund from
July 1, 1999 until March 28, 2000 and was paid $610,349; Carl Domino &
Associates, L.P. served as sub-adviser for the Growth Fund from July 1, 1999
until March 29, 2000 and was paid $365,921. John W. Bristol & Co., Inc. was
terminated as sub-adviser to the Growth Fund on September 6, 2000.

21
<PAGE> 63

Continuance of the Sub-Advisory Agreements, after the first year, must be
specifically approved at least annually (i) by vote of the Trustees or by vote
of the shareholders of the Funds, and (ii) by vote of a majority of the Trustees
who are not parties to the Sub-Advisory Agreements or "interested persons" of
any part thereto, cast in person at a meeting called for the purpose of voting
on such approval. The Sub-Advisory Agreements will terminate if assigned, and
are terminable at any time without penalty by the Sub-Adviser or by the Trustees
of the Funds, or by a majority of the outstanding shares of the Funds, on 60
days' written notice to the Adviser and the Sub-Advisers.

The Funds have received from the SEC an exemptive order that permits the Adviser
to engage and terminate Sub-Advisers without shareholder approval.

EXPENSES

Each Fund pays all expenses not assumed by the Adviser, including, but not
limited to: Trustees' expenses, audit fees, legal fees, interest expenses,
brokerage commissions, registration and notification of shares for sale with the
SEC and with various state securities commissions, taxes, cost of insurance,
fees of the Funds' administrator, custodian, transfer agent or other service
providers, costs of obtaining quotations of portfolio securities and the pricing
of Fund shares.

CODE OF ETHICS

The Trust, the Adviser and each Sub-Adviser have each adopted a Code of Ethics
designed to prevent affiliated persons of the Trust, the adviser and each
Sub-Adviser from engaging in deceptive, manipulative or fraudulent activities in
connection with securities held or to be acquired by the Funds.

OTHER SERVICE PROVIDERS

DISTRIBUTOR

Provident Distributors, Inc., ("PDI") serves as principal underwriter to the
Trust pursuant to a Distribution Agreement, for the limited purpose of acting as
statutory underwriter to facilitate the registration of shares of each Fund.
PDI's business address is 3200 Horizon Drive, King of Prussia, PA 19406. The
Agreement is for an initial two year term and is renewable annually thereafter.
The Agreement is terminable without penalty on sixty days written notice, by the
Board of Trustees, by vote of a majority of the outstanding voting securities of
the Fund, or by the Distributor. The Agreement will also terminate automatically
in the event of its assignment. The Funds do not pay any fees to PDI in its
capacity as distributor. PDI may enter into agreements with affiliates of the
Adviser in connection with distribution.

Upon the acquisition of PDI by PFPC Distributors, Inc., a subsidiary of PFPC
Inc. ("PFPC Distributors"), distribution services will be offered by PFPC
Distributors. PFPC Distributors is located at 3200 Horizon Drive, King of
Prussia, PA 19406 and will provide substantially similar services as PDI. It is
expected that PFPC Distributors will acquire PDI on December 31, 2000 or shortly
thereafter.

TRANSFER AGENT

PFPC Inc. ("PFPC") provides transfer agency and dividend disbursing agent
services for the Funds. PFPC's business address is 3200 Horizon Drive, King of
Prussia, PA 19406. As part of these services, PFPC will maintain records
pertaining to the sale, redemption, and transfer of Fund shares and will
distribute each Fund's cash dividends to shareholders.

ADMINISTRATIVE SERVICES

PFPC also serves as the Administrator for the Funds. The services include the
day-to-day administration of matters necessary to each Fund's operations,
maintenance of records and the books of the Trust, preparation of reports, and
assistance with compliance monitoring of its activities.

22
<PAGE> 64

For its administrative services, PFPC and its predecessor, First Data Investor
Services Group, received the following fees for the fiscal year ended June 30,
2000:

New Covenant Growth Fund $95,071
New Covenant Income Fund $77,301
New Covenant Balanced Growth Fund $39,911
New Covenant Balanced Income Fund $16,786

ACCOUNTING & CUSTODIAN SERVICES

State Street Bank & Trust Co., 1776 Heritage Drive, North Quincy, MA 02171
provides fund accounting services including the calculation of each Fund's net
asset value in accordance with the provisions of the Funds' current prospectus.

State Street Bank & Trust Co. also serves as custodian for the Funds pursuant to
a Custodian Agreement. As custodian, State Street holds or arranges for the
holding of all portfolio securities and other assets of the Funds.

For its accounting and custody services, State Street Bank & Trust Co. received
the following fees for the fiscal year ended June 30, 2000:

New Covenant Growth Fund $364,065
New Covenant Income Fund $151,925
New Covenant Balanced Growth Fund $ 8,353
New Covenant Balanced Income Fund $ 9,217

INDEPENDENT AUDITORS

The accounting firm of Ernst & Young, LLP, Two Commerce Square, 2001 Market
Street, Suite 4000, Philadelphia, PA 19103, has been designated as independent
auditors for each Fund. Ernst & Young, LLP performs annual audits of each Fund
and is periodically called upon to provide accounting and tax advice.

LEGAL COUNSEL

Dechert, 1775 Eye Street, N.W., Washington, DC 20006 serves as legal counsel for
the Trust.

BROKERAGE

The Adviser and Sub-Advisers, in effecting the purchases and sales of portfolio
securities for the account of the Funds, will seek execution of trades either,
(1) at the most favorable and competitive rate of commission charged by any
broker, dealer or member of an exchange, or (2) at a higher rate of commission
charged, if reasonable in relation to brokerage and research services provided
to the Trust or the Adviser or Sub-Adviser by such member, broker or dealer.
Such services may include, but are not limited to, information as to the
availability of securities for purchase or sale and statistical or factual
information or opinions pertaining to investments. The Adviser or Sub-Advisers
may use research and services provided to it by brokers and dealers in servicing
all its clients. Fund orders may be placed with an affiliated broker-dealer.
Portfolio orders will be placed with an affiliated broker-dealer only where the
price being charged and the services being provided compare favorably with those
charged to the Funds by non-affiliated broker-dealers. Over-the-counter
transactions are usually placed with a principal market-maker unless a better
net security price is obtainable elsewhere.

DIRECTED BROKERAGE

Pursuant to the obligation of the duty to care, the Trust has a responsibility
to assure that a Fund's brokerage is used to maximize benefits to the Funds.
Thus, the Funds may use directed brokerage if: (i) the allocation of the Funds'
directed brokerage is consistent with best execution; (ii) it is used to
maximize the benefit to the Funds; (iii) if neither the Adviser nor anyone
affiliated with the Funds benefits from the directed brokerage arrangement; and
(iv) if the Funds could not obtain greater benefits through alternative uses of
its brokerage; and (v) no more than 50% of a Fund's transactions would be
effected through directed brokerage.

23
<PAGE> 65

For the period ended June 30, 2000, the aggregate dollar amount of brokerage
commission paid by the Funds was as follows:

COMMISSIONS PAID
----------------
Growth Fund $1,481,050.35
Income Fund $ 36,779.42
Balanced Growth Fund $ 0
Balanced Income Fund $ 0

GENERAL INFORMATION

SHARES OF BENEFICIAL INTEREST

The Trust Instrument authorizes the issuance of an unlimited number of shares
for each of the Funds, and each share has a par value of $0.001 per share. There
are no conversion or preemptive rights in connection with any shares of the
Funds, nor are there cumulative voting rights with respect to the shares of any
of the Funds. Each of a Fund's shares has equal voting rights. Each issued and
outstanding share of each Fund is entitled to participate equally in dividends
and distributions declared by such Fund and in the net assets of such Fund upon
liquidation or dissolution remaining after satisfaction of outstanding
liabilities.

All issued and outstanding shares of each Fund will be fully paid and
non-assessable and will be redeemable at net asset value per share. The
interests of shareholders in the Funds will not be evidenced by a certificate or
certificates representing shares of a Fund.

The Board of Trustees has authority, without necessity of a shareholder vote, to
create any number of new series or classes. The Trustees have authorized one
class of shares to be issued currently.

PURCHASES, REDEMPTIONS, AND PRICING OF SHARES

NET ASSET VALUE

Shares of each Fund are purchased at net asset value. The net asset value per
share of each Fund is calculated by adding the value of securities and other
assets of that Fund, subtracting liabilities and dividing by the number of its
outstanding shares. Each Fund's share price will be determined at the close of
regular trading hours of the New York Stock Exchange, normally 4:00 p.m. Eastern
Time. Orders received by the transfer agent after 4:00 p.m. will be confirmed at
the next business day's price.

VALUATION

Each Fund's securities are valued based on market value or, where market
quotations are not readily available, based on fair value as determined in good
faith by the Trust's Board of Trustees. Certain securities may be valued by an
independent pricing service approved by the Board of Trustees.

Equity securities which are traded in the over-the-counter market only, but
which are not included in the NASDAQ National Market System, will be valued at
the mean between the last preceding bid and asked prices. Valuations may also be
obtained from pricing services when such prices are believed to reflect fair
market value. Securities with a remaining maturity of sixty days or less are
valued at amortized cost, which approximates market value. Short-term notes are
valued at cost. Corporate bonds, municipal bonds, receivables and portfolio
securities not currently quoted as indicated above, and other assets will be
valued at fair value as determined in good faith by the Board of Trustees.

The Funds translate prices for investments quoted in foreign currencies into
U.S. dollars at current exchange rates. As a result, changes in the value of
those currencies in relation to the U.S. dollar may affect the Funds' NAV.
Because foreign markets may be open at different times than the New York Stock
Exchange, the value of the Funds' shares may change on days when shareholders
are not able to buy or sell them. If events materially affecting the values of
the Funds' foreign investments occur between the close of foreign markets and
the close of regular trading on the New York Stock Exchange, these investments
will be valued at their fair value.

24
<PAGE> 66

REDEMPTIONS IN KIND

The Funds reserve the right to pay redemptions in kind with portfolio securities
in lieu of cash. In accordance with its election pursuant to Rule 18f-1 under
the 1940 Act, the Funds may limit the amount of redemption proceeds paid in
cash. The Funds may, under unusual circumstances, limit redemptions in cash with
respect to each shareholder during any ninety-day period to the lesser of (i)
$250,000 or (ii) 1% of the net asset value of the Fund at the beginning of such
period. In the case of requests for redemptions in excess of such amount, the
Board of Trustees reserves the right to make payments in whole or in part in
securities or other assets in case of an emergency, or any time a cash
distribution would impair the liquidity of the Funds to the detriment of the
existing shareholders. If the recipient sold such securities, a brokerage charge
might be incurred.

SUSPENSION OF REDEMPTIONS

The right of redemption may be suspended or the date of payment postponed during
(a) any period when the New York Stock Exchange is closed (other than customary
weekend and holiday closings) or trading on the New York Stock Exchange is
restricted, (b) any period in which an emergency exists as determined by the SEC
so that disposal of the Funds' investments or determination of its net asset
values is not reasonably practicable, or (c) such other periods as the SEC by
order may permit to protect the Funds' shareholders.

EXCHANGE OF SHARES

An exchange is effected by redemption of shares of one Fund and the issuance of
shares of another Fund, and only with delivery of the current Prospectus. With
respect to an exchange among the Funds, a capital gain or loss for Federal
income tax purposes will be realized upon the exchange, depending upon the cost,
other basis of the shares redeemed, and the tax status of the shareholder. The
exchange privilege is not designed for use in connection with short-term trading
or market-timing strategies. The exchange privilege may be terminated or
suspended or its terms changed at any time, subject to 60 days' prior notice.

TELEPHONE INSTRUCTIONS

Neither the Funds nor any of their service providers will be liable for any loss
or expense in acting upon telephone instructions that are reasonably believed to
be genuine. In attempting to confirm that telephone instructions are genuine,
the Funds will use procedures that are considered reasonable. Shareholders
assume the risk to the full extent of their accounts that telephone requests may
be unauthorized. To the extent that a Fund fails to use reasonable procedures to
verify the genuineness of telephone instructions, it and/or its service
contractors may be liable for any such instructions that prove to be fraudulent
or unauthorized. All telephone conversations with PFPC will be recorded.

AUTOMATIC INVESTING

A shareholder may authorize automatic investing through automatic withdrawals
from his/her bank account on a regular basis. Minimum investments must be for at
least $50.

SYSTEMATIC WITHDRAWAL PLAN

Shareholders who purchase or already own $5,000 or more of any Fund's shares,
valued at the net asset value, and who wish to receive periodic payments from
their account(s) may establish a Systematic Withdrawal Plan by completing an
application provided for this purpose. If you participate in this plan, you will
receive monthly, quarterly or annual checks in the amount designated. The
minimum withdrawal is $50. The amount of withdrawal may be changed at any time.
Dividends and capital gains distributions on a Fund's shares in the Plan are
automatically reinvested in additional shares at net asset value. Payments are
made from proceeds derived from the redemption of Fund shares owned by the
planholder. With respect to the Funds, the redemption of shares may result in a
gain or loss that is reportable by the investor on their income tax return, if
the investor is a taxable entity.

Redemptions required for payments may reduce or use up the planholder's
investment, depending upon the size and frequency of withdrawal payments and
market fluctuations. Accordingly, Plan payments cannot be considered as yield or
income on the investment.

PFPC, as agent for the shareholder, may charge for services rendered beyond
those normally assumed by the Funds. No such charge is currently assessed, but
such a charge may be instituted by PFPC upon notice in writing to shareholders.
This Plan may be terminated at any time without penalty upon written notice by
the shareholder, by the Funds, or by PFPC.

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<PAGE> 67

INTEGRATED VOICE RESPONSE (IVR) SYSTEM

Shareholders in the Funds can obtain toll-free access to account information, as
well as certain transactions, by calling (877) 835-4531. IVR provides share
price, price change, account balances and history (i.e., last transaction,
latest dividend distribution, redemptions by check during the last three
months); and allows sales or exchanges of shares.

TAXATION OF THE FUNDS

Set forth below is a discussion of certain U.S. federal income tax issues
concerning the Funds and the purchase, ownership, and disposition of Fund
shares. This discussion does not purport to be complete or to deal with all
aspects of federal income taxation that may be relevant to shareholders in light
of their particular circumstances. This discussion is based upon present
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the
regulations promulgated thereunder, and judicial and administrative ruling
authorities, all of which are subject to change, which change may be
retroactive. Prospective investors should consult their own tax Advisers with
regard to the federal tax consequences of the purchase, ownership, or
disposition of Fund shares, as well as the tax consequences arising under the
laws of any state, foreign country, or other taxing jurisdiction. Unless
otherwise noted, references to "the Fund" apply to each of the four Funds
discussed herein.

TAX STATUS OF THE FUNDS

Each Fund intends to be taxed as a regulated investment company under Subchapter
M of the Code. Accordingly, each Fund must, among other things, (a) derive in
each taxable year at least 90% of its gross income from dividends, interest,
payments with respect to certain securities loans, and gains from the sale or
other disposition of stock, securities or foreign currencies, or other income
derived with respect to its business of investing in such stock, securities or
currencies; and (b) diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the value of each Fund's total assets is
represented by cash and cash items, U.S. Government securities, the securities
of other regulated investment companies and other securities, with such other
securities limited, in respect of any one issuer, to an amount not greater than
5% of the value of the Fund's total assets and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities of any one issuer (other than U.S.
Government securities and the securities of other regulated investment
companies).

As a regulated investment company, the Fund generally is not subject to U.S.
federal income tax on income and gains that it distributes to shareholders, if
at least 90% of the Fund's investment company taxable income (which includes,
among other items, dividends, interest and the excess of any net short-term
capital gains over net long-term capital losses) for the taxable year is
distributed. Each Fund intends to distribute substantially all of such income.

Amounts not distributed on a timely basis in accordance with a calendar year
distribution requirement are subject to a nondeductible 4% excise tax at the
Fund level. To avoid the tax, each Fund must distribute during each calendar
year an amount equal to the sum of (1) at least 98% of its ordinary income (not
taking into account any capital gains or losses) for the calendar year, (2) at
least 98% of its capital gains in excess of its capital losses (adjusted for
certain ordinary losses) for a one-year period generally ending on October 31 of
the calendar year, and (3) all ordinary income and capital gains for previous
years that were not distributed during such years. To avoid application of the
excise tax, each Fund intends to make distributions in accordance with the
calendar year distribution requirement.

A distribution will be treated as paid on December 31 of a calendar year if it
is declared by the Fund in October, November or December of that year with a
record date in such a month and paid by the Fund during January of the following
year. Such distributions will be taxable to shareholders in the calendar year in
which the distributions are declared, rather than the calendar year in which the
distributions are received.

FUND INVESTMENTS

MARKET DISCOUNT. If the Fund purchases a debt security at a price lower than the
stated redemption price of such debt security, the excess of the stated
redemption price over the purchase price is "market discount". If the amount of
market discount is more than a de minimis amount, a portion of such market
discount must be included as ordinary income (not capital gain) by the Fund in
each taxable year in which the Fund owns an interest in such debt security and
receives a principal payment on it. In particular, the Fund will be required to
allocate that principal

26
<PAGE> 68

payment first to the portion of the market discount on the debt security that
has accrued but has not previously been included in income. In general, the
amount of market discount that must be included for each period is equal to the
lesser of (i) the amount of market discount accruing during such period (plus
any accrued market discount for prior periods not previously taken into account)
or (ii) the amount of the principal payment with respect to such period.
Generally, market discount accrues on a daily basis for each day the debt
security is held by the Fund at a constant rate over the time remaining to the
debt security's maturity or, at the election of the Fund, at a constant yield to
maturity which takes into account the semi-annual compounding of interest. Gain
realized on the disposition of a market discount obligation must be recognized
as ordinary interest income (not capital gain) to the extent of the "accrued
market discount."

ORIGINAL ISSUE DISCOUNT. Certain debt securities acquired by the Fund may be
treated as debt securities that were originally issued at a discount. Very
generally, original issue discount is defined as the difference between the
price at which a security was issued and its stated redemption price at
maturity. Although no cash income on account of such discount is actually
received by the Fund, original issue discount that accrues on a debt security in
a given year generally is treated for federal income tax purposes as interest
and, therefore, such income would be subject to the distribution requirements
applicable to regulated investment companies. Some debt securities may be
purchased by the Fund at a discount that exceeds the original issue discount on
such debt securities, if any. This additional discount represents market
discount for federal income tax purposes (see above).

OPTIONS, FUTURES AND FORWARD CONTRACTS. Any regulated futures contracts and
certain options (namely, non-equity options and dealer equity options) in which
the Fund may invest may be "section 1256 contracts." Gains (or losses) on these
contracts generally are considered to be 60% long-term and 40% short-term
capital gains or losses. Also section 1256 contracts held by the Fund at the end
of each taxable year (and on certain other dates prescribed in the Code) are
"marked to market", with the result that unrealized gains or losses are treated
as though they were realized.

Transactions in options, futures and forward contracts undertaken by the Fund
may result in "straddles" for federal income tax purposes. The straddle rules
may affect the character of gains (or losses) realized by the Fund, and losses
realized by the Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized. In
addition, certain carrying charges (including interest expense) associated with
positions in a straddle may be required to be capitalized rather than deducted
currently. Certain elections that the Fund may make with respect to its straddle
positions may also affect the amount, character and timing of the recognition of
gains or losses from the affected positions.

Because only a few regulations implementing the straddle rules have been
promulgated, the consequences of such transactions to the Fund are not entirely
clear. The straddle rules may increase the amount of short-term capital gain
realized by the Fund, which is taxed as ordinary income when distributed to
taxable shareholders. Because application of the straddle rules may affect the
character of gains or losses, defer losses and/or accelerate the recognition of
gains or losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to a fund that did not engage
in such transactions.

CONSTRUCTIVE SALES. Under certain circumstances, the Fund may recognize gain
from a constructive sale of an "appreciated financial position" it holds if it
enters into a short sale, forward contract or other transaction that
substantially reduces the risk of loss with respect to the appreciated position.
In that event, the Fund would be treated as if it had sold and immediately
repurchased the property and would be taxed on any gain (but not loss) from the
constructive sale. The character of gain from a constructive sale would depend
upon the Fund's holding period in the property. Loss from a constructive sale
would be recognized when the property was subsequently disposed of, and its
character would depend on the Fund's holding period and the application of
various loss deferral provisions of the Code. Constructive sale treatment does
not apply to transactions closed in the 90-day period ending with the 30th day
after the close of the taxable year, if certain conditions are met.

SECTION 988 GAINS OR LOSSES. Gains or losses attributable to fluctuations in
exchange rates which occur between the time the Fund accrues income or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects such receivables or pays such
liabilities generally are

27
<PAGE> 69

treated as ordinary income or ordinary loss. Similarly, on disposition of some
investments, including debt securities and certain forward contracts denominated
in a foreign currency, gains or losses attributable to fluctuations in the value
of the foreign currency between the acquisition and disposition of the position
also are treated as ordinary gain or loss. These gains and losses, referred to
under the Code as "section 988" gains or losses, increase or decrease the amount
of the Fund's investment company taxable income available to be distributed to
its shareholders as ordinary income. If section 988 losses exceed other
investment company taxable income during a taxable year, the Fund would not be
able to make any ordinary dividend distributions, or distributions made before
the losses were realized would be re-characterized as a return of capital to
shareholders, rather than as an ordinary dividend, reducing each shareholder's
basis in his or her Fund shares.

PASSIVE FOREIGN INVESTMENT COMPANIES. The Fund may invest in shares of foreign
corporations that may be classified under the Code as passive foreign investment
companies ("PFICs"). In general, a foreign corporation is classified as a PFIC
if at least one-half of its assets constitute investment-type assets, or 75% or
more of its gross income is investment-type income. If the Fund receives a
so-called "excess distribution" with respect to PFIC stock, the Fund itself may
be subject to a tax on a portion of the excess distribution, whether or not the
corresponding income is distributed by the Fund to shareholders. In general,
under the PFIC rules, an excess distribution is treated as having been realized
ratably over the period during which the Fund held the PFIC shares. The Fund
will itself be subject to tax on the portion, if any, of an excess distribution
that is so allocated to prior Fund taxable years and an interest factor will be
added to the tax, as if the tax had been payable in such prior taxable years.
Certain distributions from a PFIC as well as gain from the sale of PFIC shares
are treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.

The Fund may be eligible to elect alternative tax treatment with respect to PFIC
shares. Under an election that currently is available in some circumstances, the
Fund would be required to include in its gross income its share of the earnings
of a PFIC on a current basis, regardless of whether distributions were received
from the PFIC in a given year. If this election were made, the special rules,
discussed above, relating to the taxation of excess distributions would not
apply. In addition, another election would involve marking to market the Fund's
PFIC shares at the end of each taxable year, with the result that unrealized
gains would be treated as though they were realized and reported as ordinary
income. Any mark-to-market losses and any loss from an actual disposition of
PFIC shares would be deductible as ordinary losses to the extent of any net
mark-to-market gains included in income in prior years.

DISTRIBUTIONS

Distributions of investment company taxable income are taxable to a U.S.
shareholder as ordinary income, whether paid in cash or shares. Dividends paid
by the Fund to a corporate shareholder, to the extent such dividends are
attributable to dividends received by the Fund from U.S. corporations, may,
subject to limitation, be eligible for the dividends received deduction.
However, the alternative minimum tax applicable to corporations may reduce the
value of the dividends received deduction.

The excess of net long-term capital gains over the short-term capital losses
realized and distributed by the Fund, whether paid in cash or reinvested in Fund
shares, will generally be taxable to shareholders as long-term gain, regardless
of how long a shareholder has held Fund shares. Net capital gains from assets
held for one year or less will be taxed as ordinary income.

Shareholders will be notified annually as to the U.S. federal tax status of
distributions, and shareholders receiving distributions in the form of newly
issued shares will receive a report as to the net asset value of the shares
received.

If the net asset value of shares is reduced below a shareholder's cost as a
result of a distribution by the Fund, such distribution generally will be
taxable even though it represents a return of invested capital. Investors should
be careful to consider the tax implications of buying shares of the Fund just
prior to a distribution. The price of shares purchased at this time will include
the amount of the forthcoming distribution, but the distribution will generally
be taxable to the shareholder.

DISPOSITIONS

Upon a redemption, sale or exchange of shares of the Fund, a shareholder will
realize a taxable gain or loss depending upon his or her basis in the shares. A
gain or loss will be treated as capital gain or loss if the shares are

28
<PAGE> 70

capital assets in the shareholder's hands, and the rate of tax will depend upon
the shareholder's holding period for the shares. Any loss realized on a
redemption, sale or exchange will be disallowed to the extent the shares
disposed of are replaced (including through reinvestment of dividends) within a
period of 61 days, beginning 30 days before and ending 30 days after the shares
are disposed of. In such a case the basis of the shares acquired will be
adjusted to reflect the disallowed loss. If a shareholder holds Fund shares for
six months or less and during that period receives a distribution taxable to the
shareholder as long-term capital gain, any loss realized on the sale of such
shares during such six-month period would be a long-term loss to the extent of
such distribution.

BACKUP WITHHOLDING

The Fund generally will be required to withhold federal income tax at a rate of
31% ("backup withholding") from dividends paid, capital gain distributions, and
redemption proceeds to shareholders if (1) the shareholder fails to furnish the
Fund with the shareholder's correct taxpayer identification number or social
security number, (2) the IRS notifies the shareholder or the Fund that the
shareholder has failed to report properly certain interest and dividend income
to the IRS and to respond to notices to that effect, or (3) when required to do
so, the shareholder fails to certify that he or she is not subject to backup
withholding. Any amounts withheld may be credited against the shareholder's
federal income tax liability.

OTHER TAXATION

Distributions may be subject to additional state, local and foreign taxes,
depending on each shareholder's particular situation. Non-U.S. shareholders may
be subject to U.S. tax rules that differ significantly from those summarized
above, including the likelihood that ordinary income dividends to them would be
subject to withholding of U.S. tax at a rate of 30% (or a lower treaty rate, if
applicable).

CALCULATION OF PERFORMANCE DATA

Current yield and total return may be quoted in advertisements, shareholder
reports or other communications to shareholders. Yield is the ratio of income
per share derived from a Fund's investments to a current maximum offering price
expressed in terms of percent. The yield is quoted on the basis of earnings
after expenses have been deducted. Total return is the total of all income and
capital gains paid to shareholders, assuming reinvestment of all distributions,
plus (or minus) the change in the value of the original investment, expressed
as a percentage of the purchase price. Occasionally, a Fund may include its
distribution rate in advertisements. The distribution rate is the amount of
distributions per share made by a Fund over a 12-month period divided by the
current maximum offering price.

The SEC rules require the use of standardized performance quotations or,
alternatively, that every non-standardized performance quotation furnished by a
Fund be accompanied by certain standardized performance information computed as
required by the SEC. Current yield and total return quotations used by a Fund
are based on the standardized methods of computing performance mandated by the
SEC. An explanation of those and other methods used by a Fund to compute or
express performance follows.

TOTAL RETURN

As the following formula indicates, the average annual total return is
determined by multiplying a hypothetical initial purchase order of $1,000 by
the average annual compound rate of return (including capital
appreciation/depreciation and dividends and distributions paid and reinvested)
for the stated period less any fees charged to all shareholder accounts and
analyzing the result. The calculation assumes the maximum sales load is
deducted from the initial $1,000 purchase order and that all dividends and
distributions are reinvested at the public offering price on the reinvestment
dates during the period. The quotation assumes the account was completely
redeemed at the end of each one, five and ten-year period and assumes the
deduction of all applicable charges and fees. According to the SEC formula:

P(1+T)(n) = ERV

where:

P = a hypothetical initial payment of $1,000.

T = average annual total return.

n = number of years.

ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 or
10-year periods, determined at the end of the 1, 5
or 10-year periods (or fractional portion thereof).

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<PAGE> 71

Regardless of the method used, past performance is not necessarily indicative
of future results, but is an indication of the return to shareholders only for
the limited historical period used.

AVERAGE ANNUAL TOTAL RETURN FOR PERIODS ENDED JUNE 30, 2000

1 year 5 yrs 10 yrs
------ ------ ------
Growth Fund 6.38% 15.91% 11.84%

Income Fund 3.55% 5.63% 7.11%

Balanced Growth Fund 5.13% 12.03% 10.00%

Balanced Income Fund 4.40% 9.31% 9.01%

Set forth above is certain past performance information for four
privately-managed investment pools that were previously managed by the
Presbyterian Church (U.S.A.) Foundation (the predecessor investment entity to
the Fund's investment Adviser) through June 30, 1999, each of whose assets were
transferred to their corresponding Fund on July 1, 1999 upon the establishment
of the Funds. These private pools had investment objectives and policies in all
material respects equivalent to those of the Funds and were managed subject to
the same "manager of managers" investment style that is utilized by the
Funds. These private pools were not subject to the requirements of the
Investment Company Act of 1940 or the Internal Revenue Code of 1986, the
limitations of which might have adversely affected performance results. The
prior performance depicted has been restated to reflect the imposition of the
total expenses of the Funds for their initial fiscal year rather than the
actual expenses of the private pools. Past performance is not indicative of
future results, which may be higher or lower than the performance shown above.

30-DAY YIELD CALCULATIONS

The Income Fund may calculate a 30-day yield by dividing the net investment
income per share (as described below) earned by the Fund during a 30-day (or one
month) period by the maximum offering price per share on the last day of the
period. The result is then annualized on a semi-annual basis by adding one to
the quotient, raising the sum to the power of six, subtracting one from the
result and then doubling the difference. The Fund's net investment income per
share earned during the period is based on the average daily number of shares
outstanding during the period entitled to receive dividends and includes
dividends and interest earned during the period minus expenses accrued for the
period, net of reimbursements. This calculation can be expressed as follows:

YIELD = 2 [( a - b + 1)6 - 1]
-------
cd

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<PAGE> 72

Where: a = dividends and interest earned during the period.

b = expenses accrued for the period (net of
reimbursements).

c = the average daily number of shares outstanding during
the period that were entitled to receive dividends.

d = maximum offering price per share on the last day of
the period.

For the purpose of determining net investment income earned during the period
(variable "a" in the formula), dividend income on equity securities held by a
fund is recognized by accruing 1/360 of the stated dividend rate of the security
each day that the security is in the fund. Except as noted below, interest
earned on any debt obligations held by a fund is calculated by computing the
yield to maturity of each obligation held by that fund based on the market value
of the obligation (including actual accrued interest) at the close of business
on the last business day of the month, the purchase price (plus actual accrued
interest) and dividing the result by 360 and multiplying the quotient by the
market value of the obligation (including actual accrued interest) in order to
determine the interest income on the obligation for each day of the subsequent
month that the obligation is held by that fund. For purposes of this
calculation, it is assumed that each month contains thirty days. The date on
which the obligation reasonably may be expected to be called for, or if none,
the maturity date. With respect to debt obligations purchased at a discount or
premium, the formula generally calls for amortization of the discount premium.
The amortization schedule will be adjusted monthly to reflect changes in the
market values of such debt obligations.

Expenses accrued for the period (variable "b" in the formula) include all
recurring fees charged by a fund to all shareholder accounts in proportion to
the length of the base period and the Fund's mean (or median) account size.
Undeclared earned income will be subtracted from the offering price per capital
share (variable "d" in the formula).

With regard to mortgage or other receivables-backed obligations which are
expected to be subject to monthly payments of principal and interest
("pay-downs"): (i) gain or loss attributable to actual monthly pay-downs are
accounted for as an increase or decrease to interest income during the period;
and (ii) the Fund may elect either (a) to amortize the discount and premium on
the remaining security, based on the cost of the security, to the weighted
average maturity date, if such information is available, or to the remaining
term of the security, if any, if the weighted average date is not available or
(b) not to amortize discount or premium on the remaining security.

The Income Fund's yield for the 30 day period ended June 30, 2000 was 6.33%.

COMPARING PERFORMANCE

Performance information for the Funds may be compared, in reports and
promotional literature, to indexes including, but not limited to: (i) the
Standard & Poor's 500 Composite Stock Price Index, the Dow Jones Industrial
Average, or other appropriate unmanaged domestic or foreign indexes of
performance of various types of investments so that investors may compare a
Fund's results with those of indexes widely regarded by investors as
representative of the securities markets in general; (ii) other groups of mutual
funds tracked by Lipper Analytical Services, Inc., a widely-used independent
research firm which ranks mutual funds by overall performance, investment
objectives and assets, or tracked by other services, companies, publications, or
persons who rank mutual funds on overall performance or other criteria; (iii)
the Consumer Price Index (a measure of inflation) to assess the real rate of
return from an investment in a Fund; and (iv) products managed by a universe of
money managers with similar performance objectives. Unmanaged indexes may assume
the reinvestment of dividends but generally do not reflect deductions or
administrative and management costs and expenses.

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<PAGE> 73
FINANCIAL STATEMENTS

The audited financial statements and financial highlights of New Covenant Funds
- New Covenant Growth Fund, New Covenant Income Fund, New Covenant Balanced
Growth Fund and New Covenant Balanced Income Fund for the fiscal year ended June
30, 2000, as set forth in New Covenant Fund's annual report to shareholders,
including the notes thereto and the reports of Ernst & Young LLP thereon, are
incorporated herein by reference.

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<PAGE> 74

APPENDIX A -- DESCRIPTIONS OF SECURITIES RATINGS

COMMERCIAL PAPER RATINGS

MOODY'S INVESTORS SERVICE, INC. ("MOODY'S"): "PRIME-1" and "PRIME-2" are Moody's
two highest commercial paper rating categories. Moody's evaluates the salient
features that affect a commercial paper issuer's financial and competitive
position. The appraisal includes, but is not limited to the review of such
factors as:

1. Quality of management.
2. Industry strengths and risks.
3. Vulnerability to business cycles.
4. Competitive position.
5. Liquidity measurements.
6. Debt structures.
7. Operating trends and access to capital markets.

Differing degrees of weight are applied to the above factors as deemed
appropriate for individual situations.

STANDARD & POOR'S RATINGS GROUP, A DIVISION OF MCGRAW-HILL COMPANIES, INC.
("S&P"): "A-1" and "A-2" are S&P's two highest commercial paper rating
categories and issuers rated in these categories have the following
characteristics:

1. Liquidity ratios are adequate to meet cash requirements.
2. Long-term senior debt is rated "A" or better.
3. The issuer has access to at least two additional channels of
borrowing.
4. Basic earnings and cash flow have an upward trend with allowance
made for unusual circumstances.
5. Typically, the issuer is in a strong position in a well-established
industry or industries.
6. The reliability and quality of management is unquestioned.

Relative strength or weakness of the above characteristics determine whether an
issuer's paper is rated "A-1" or "A-2". Additionally, within the "A-1"
designation, those issues determined to possess overwhelming safety
characteristics are denoted with a plus (+) rating category.

BOND RATINGS

S&P: An S&P bond rating is a current assessment of the creditworthiness of an
obligor with respect to a specific debt obligation. This assessment may take
into consideration obligors such as guarantors, insurers or lessees.

The bond ratings are not a recommendation to purchase, sell or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.

The ratings are based on current information furnished by the issuer or obtained
by S&P from other sources it considers reliable. S&P does not perform any audit
in connection with any ratings and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended or withdrawn as a result of
changes in, or unavailability of, such information, or for other circumstances.

The ratings are based, in varying degrees, on the following considerations:

I. Likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with
the terms of the obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws
of bankruptcy and other laws affecting creditor's rights.

A-1
<PAGE> 75

The bond ratings of S&P and their meanings are:

"AAA" Bonds rated "AAA" have the highest rating assigned by S&P to a debt
obligation. Capacity to pay interest and repay principal is extremely
strong.

"AA" Bonds rated "AA" have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small
degree.

"A" Bonds rated "A" have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds
in higher rated categories.

"BBB" Bonds rated "BBB" are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for bonds
in higher rated categories.

"BB" Bonds rated "BB" are regarded as less vulnerable in the near term than
lower rated obligors. However, they face major ongoing uncertainties
and exposure to adverse business, financial, or economic conditions
that could lead to the obligor's inadequate capacity to meet its
financial commitments.

"B" Bonds rated "B" are regarded to have a greater vulnerability to
default but currently have the capacity to meet its financial
commitments. Adverse business, financial, or economic conditions will
impair the obligor's capacity or willingness to meet its financial
commitments.

"CCC" An obligor rated "CCC" is currently vulnerable, and is dependent upon
favorable business, financial, or economic conditions to meet its
financial commitments.

"CC" An obligor rated "CC" is currently highly vulnerable.

Plus (+) or Minus (-): The ratings from "AA" to "CC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.

PROVISIONAL RATINGS The letter "P" indicates a provisional rating which assumes
successful completion of a project financed by the bonds being rated and
indicates that payment of debt service requirements is largely or entirely
dependent upon the successful and timely completion of the project. This rating,
while addressing credit quality subsequent to completion of the project, makes
no comment on the likelihood of, or the risk of default upon failure of, such
completion. The investor should exercise his own judgement with respect to such
likelihood and risk.

Under present commercial bank regulations issued by the Comptroller of the
Currency, bonds rated in the top four categories ("AAA", "AA", "A", "BBB",
commonly known as "investment-grade" ratings) are generally regarded as eligible
for bank investment.

MOODY'S.: The ratings of Moody's and their meanings are:

"Aaa" Bonds 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 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 then 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-2

<PAGE> 76

"A" Bonds 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 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 rated "Ba" are judged to have speculative elements; their future
cannot be considered as 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 rated "B" generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or
maintenance of other terms of the contract over any long period of
time may be small.

"Caa" Bonds 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 rated "Ca" represent obligations that are speculative in a high
degree. Such issues are often in default or have other marked
shortcomings.

"C" Bonds 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.

"Con." Bonds rated "Con." are bonds rated conditionally because the security
depends on the completion of some act or the fulfillment of some
condition. These are bonds secured by: (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operating
experience, (c) rentals that begin when facilities are completed, or
(d) payments to which some other limiting condition attaches.
Parenthetical rating denotes probable credit stature upon completion
of construction or elimination of basis of condition.

A-3