<PAGE> 1
As filed with the Securities and Exchange Commission on February 28, 1996
Registration No. 2-98755
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 / /
PRE-EFFECTIVE AMENDMENT NO. / /
POST-EFFECTIVE AMENDMENT NO. 13 /X/
AND/OR
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 14 /X/
MARKET STREET FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
103 BELLEVUE PARKWAY
WILMINGTON, DE 19809
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (215) 636-5000
------------------------
<TABLE>
<S> <C>
LINDA E. SENKER COPY TO:
MARKET STREET FUND, INC. STEPHEN E. ROTH, ESQ.
103 BELLEVUE PARKWAY SUTHERLAND, ASBILL & BRENNAN
WILMINGTON, DE 19809 1275 PENNSYLVANIA AVENUE, N.W.
(NAME AND ADDRESS OF AGENT FOR WASHINGTON, DC 20004
SERVICE)
</TABLE>
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
/ / IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (B) OF RULE 485
/ / ON (DATE) PURSUANT TO PARAGRAPH (B) OF RULE 485
/ / 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A) OF RULE 485
/ / ON (DATE) PURSUANT TO PARAGRAPH (A) OF RULE 485
/X/ 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (A)(2) OF RULE 485
/ / ON (DATE) PURSUANT TO PARAGRAPH (A)(2) OF RULE 485
PURSUANT TO RULE 24F-2 UNDER THE INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT
HAS REGISTERED AN INDEFINITE AMOUNT OF SECURITIES. THE REGISTRANT WILL FILE THE
24F-2 NOTICE FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 BY FEBRUARY 29, 1996.
PAGE 1 OF (EXHIBIT INDEX ON PAGE ).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
CROSS REFERENCE SHEET SHOWING LOCATION OF
INFORMATION IN PROSPECTUS
(PART A AND PART B) REQUIRED BY FORM N-1A
PART A
<TABLE>
<CAPTION>
FORM N-1A ITEM PROSPECTUS CAPTION
----------------------------------------------- --------------------------------------------
<S> <C> <C>
1. Cover Page..................................... Cover Page
2. Synopsis....................................... Not Applicable
3. Condensed Financial Information................ Condensed Financial Information
4. General Description of Registrant.............. General Description of the Fund; Investment
Objectives and Policies
5. Management of the Fund......................... Management of the Fund
6. Capital Stock and Other Securities............. Description of the Fund's Shares
7. Purchase of Securities Being Offered........... Description of the Fund's Shares
8. Redemption or Repurchase....................... Description of the Fund's Shares
9. Legal Proceedings.............................. Not Applicable
PART B
<CAPTION>
FORM N-1A ITEM STATEMENT OF ADDITIONAL INFORMATION
----------------------------------------------- --------------------------------------------
<S> <C> <C>
10. Cover Page..................................... Cover Page
11. Table of Contents.............................. Table of Contents
12. General Information and History................ General Information and History
13. Investment Objectives and Policies............. Investment Policies and Restrictions
14. Management of the Registrant................... Management of the Fund
15. Control Persons and Principal Holders of General Information and History;
Securities................................... Management of the Fund
16. Investment Advisory and Other Services......... Investment Advisory and Other Services
17. Brokerage Allocation and Other Practices....... Portfolio Transactions and Brokerage
Allocation
18. Capital Stock and Other Securities............. Capital Stock
19. Purchase, Redemption and Pricing of Securities
Being Offered................................ Purchase and Redemption of Shares
20. Tax Status..................................... Taxes
21. Underwriters................................... Other Services
22. Calculation of Yield Quotations of Money Market
Funds........................................ Not Applicable
23. Financial Statements........................... Financial Statements
</TABLE>
<PAGE> 3
- --------------------------------------------------------------------------------
MARKET STREET FUND, INC.
103 BELLEVUE PARKWAY
WILMINGTON, DE 19809
Market Street Fund, Inc. (the "Fund") is an open-end diversified management
investment company commonly known as a mutual fund, currently issuing eight
series of common stock representing the Money Market Portfolio, the Growth
Portfolio, the Sentinel Growth Portfolio, the Common Stock Portfolio, the
Aggressive Growth Portfolio, the International Portfolio, the Bond Portfolio,
and the Managed Portfolio (each, a "Portfolio"). Each Portfolio generally
operates as a separate fund issuing its own shares.
The Money Market Portfolio seeks to provide maximum current income
consistent with capital preservation and liquidity by investing in
high-quality money market instruments. THERE CAN BE NO ASSURANCE THAT THE
NET ASSET VALUE OF THE MONEY MARKET PORTFOLIO WILL REMAIN STABLE AT $1.00.
AN INVESTMENT IN THE MONEY MARKET PORTFOLIO IS NOT INSURED OR GUARANTEED BY
THE U.S. GOVERNMENT.
The Growth Portfolio seeks intermediate and long-term growth of
capital by investing in common stocks of companies believed to offer
above-average growth potential over both the intermediate and the
long-term. Current income is a secondary consideration.
The Sentinel Growth Portfolio seeks long-term growth of capital
through equity participation in companies having growth potential believed
by its investment adviser to be more favorable than the U.S. economy as a
whole, with a focus on relatively well-established companies.
The Common Stock Portfolio seeks a combination of long-term growth of
capital and current income with relatively low risk by investing in common
stocks of many well-established companies.
The Aggressive Growth Portfolio seeks to achieve a high level of
long-term capital appreciation by investing in securities of a diverse
group of smaller emerging growth companies.
The International Portfolio seeks long-term growth of capital
principally by investing in a diversified portfolio of marketable equity
securities of established non-United States companies.
The Bond Portfolio seeks to generate a high level of current income
consistent with prudent investment risk by investing in a diversified
portfolio of marketable debt securities.
The Managed Portfolio seeks to realize as high a level of long-term
total rate of return as is consistent with prudent investment risk by
investing in stocks, bonds, money market instruments or a combination
thereof.
THERE CAN BE NO ASSURANCE THAT ANY PORTFOLIO WILL ACHIEVE ITS OBJECTIVE.
This Prospectus describes in detail the investment objectives and policies
of the eight Portfolios, and concisely sets forth the information about the Fund
that a prospective policyowner ought to know before investing in the Fund. A
Statement of Additional Information dated February 28, 1996, which contains
further information about the Fund, has been filed with the Securities and
Exchange Commission. This Statement of Additional Information is incorporated by
reference into this Prospectus and is available at no charge by writing the Fund
at the above address, or calling the Fund at (302) 791-1700.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN SHARES OF THE FUND IS NOT A DEPOSIT OR OBLIGATION OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK, NOR ARE SHARES OF THE FUND INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
This Prospectus should be read carefully and retained for future reference.
Prospectus dated February 28, 1996
- --------------------------------------------------------------------------------
<PAGE> 4
MARKET STREET FUND, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Condensed Financial Information........................................................ 3
General Description of the Fund........................................................ 8
Investment Objectives and Policies..................................................... 8
Fundamental Investment Objectives................................................. 8
Non-Fundamental Investment Policies............................................... 9
The Money Market Portfolio........................................................ 9
The Growth Portfolio.............................................................. 10
The Sentinel Growth Portfolio..................................................... 10
The Common Stock Portfolio........................................................ 11
The Aggressive Growth Portfolio................................................... 11
The International Portfolio....................................................... 11
The Bond Portfolio................................................................ 13
The Managed Portfolio............................................................. 14
Risks of Foreign Securities....................................................... 14
Risks of Lower Quality Debt Instruments........................................... 15
Risks of Repurchase Agreements.................................................... 15
When-Issued and Delayed Delivery Securities....................................... 16
Borrowing......................................................................... 16
Reverse Repurchase Agreements..................................................... 16
Investment in Securities of Other Investment Companies............................ 16
Other Investment Policies......................................................... 17
Additional Information............................................................ 17
Management of the Fund................................................................. 17
Growth Portfolio.................................................................. 17
Money Market Portfolio............................................................ 18
Sentinel Growth, Common Stock, Bond, Managed and Aggressive Growth Portfolios..... 18
International Portfolio........................................................... 19
Other Expenses.................................................................... 20
Brokerage Allocation.............................................................. 20
Description of the Fund's Shares....................................................... 21
Characteristics of the Fund's Common Stock........................................ 21
Dividends, Distributions and Taxes................................................ 21
Valuation of Shares............................................................... 22
Conflicts......................................................................... 22
Redemption of Shares.............................................................. 23
Custodian, Transfer and Dividend Disbursing Agent...................................... 23
</TABLE>
------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUND, THE INVESTMENT ADVISER, OR THE
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE IN
WHICH SUCH OFFER MAY NOT LAWFULLY BE MADE.
------------------------
2
<PAGE> 5
CONDENSED FINANCIAL INFORMATION
The following tables give information regarding income, expenses and
capital changes in the Growth, Money Market, Bond, Managed, Aggressive Growth
and International Portfolios attributable to a Portfolio share outstanding
throughout the periods indicated. The Managed Portfolio commenced operations on
December 12, 1985; the Aggressive Growth Portfolio commenced operations on May
1, 1989; the International Portfolio commenced operations on November 1, 1991.
The information in the tables has been derived from the financial statements
which have been audited by Coopers & Lybrand L.L.P., independent accountants, as
stated in their report on the Financial Statements of the Fund which are
included in the Statement of Additional Information. The information in the
following tables should be read in conjunction with the Financial Statements and
related notes. No information is presented for the Sentinel Growth and Common
Stock Portfolios because these Portfolios commenced operations on March 1, 1996.
Selected data for a share of capital stock outstanding throughout the
periods:
<TABLE>
<CAPTION>
GROWTH PORTFOLIO
-----------------------------------------------------------------------------------------------------------
01/01/95 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89 01/01/88 01/01/87 01/01/86
TO TO TO TO TO TO TO TO TO TO
12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89 12/31/88 12/31/87 12/31/86
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period............ $14.00 $14.09 $13.73 $13.88 $12.08 $13.16 $11.24 $ 9.99 $10.73 $10.18
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income.......... .47 .43 .38 .46 .50 .55 .51 .46 .38 .29
Net realized and
unrealized gain
(loss) on
investments..... 3.41 (.10) .94 .17 1.71 (.25) 2.87 1.36 (.13) .86
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from
investment
operations.... 3.88 .33 1.32 .63 2.21 .30 3.38 1.82 .25 1.15
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends to
shareholders
from net
investment
income.......... (.46) (.41) (.39) (.46) (.41) (.53) (.53) (.43) (.40) (.28)
Dividends to
shareholders
from net capital
gains........... (1.06) (.01) (.35) (.32) (.00) (.85) (.93) (.14) (.59) (.32)
Dividends to
shareholders in
excess of net
investment
income(d)....... -- -- (.22) -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total
distributions... (1.52) (.42) (.96) (.78) (.41) (1.38) (1.46) (.57) (.99) (.60)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end
of period......... $16.36 $14.00 $14.09 $13.73 $13.88 $12.80 $13.16 $11.24 $ 9.99 $10.73
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return.... 30.39% 2.40% 9.43% 4.74% 18.50% 2.39% 30.45% 18.50% 1.64% 11.28%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period $(000)... 161,899 115,191 109,534 82,881 55,357 35,658 25,954 14,287 7,326 2,214
Ratios of expenses
to average net
assets
(annualized)(e)... .61% .63% .76% .79% .76% .75% .72% .65% .65% .65%
Ratios of net
investment
income to
average net
assets
(annualized).... 3.20% 3.10% 2.86% 3.53% 3.91% 4.27% 4.26% 4.52% 3.79% 3.02%
Portfolio turnover
rate(f)......... 61% 63% 51% 35% 28% 47% 60% 32% 78% 41%
</TABLE>
- ---------------
(a) On May 1, 1989, the investment advisor was changed form Providentmutual
Investment Management Company to Newbold's Asset Management, Inc.
(b) On January 1, 1987, the sub-advisor was changed from Shearson Asset
Management to W.H. Newbold's Son & Co., Inc.
(c) Date as of which policyowner funds were first allocated to the Portfolio.
(d) Reinvested in additional share of the Portfolio.
(e) Annualized expense ratios for the Growth Portfolio before reimbursement of
expenses by affiliated insurance company for the years ended December 31,
1995, 1994, 1993, 1992, and 1991 were as follows: 0.61%, 0.67%, 0.76%,
0.82%, and 0.98%, respectively.
(f) Portfolio turnover rate excludes all securities whose maturities at the time
of acquisition were one year or less.
See accompanying notes to financial statements.
3
<PAGE> 6
Selected data for a share of capital stock outstanding throughout the
periods:
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
-----------------------------------------------------------------------------------------------------------
01/01/95 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89 01/01/88 01/01/87 01/01/86
TO TO TO TO TO TO TO TO TO TO
12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89 12/31/88 12/31/87 12/31/86
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period............ $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
INCOME FROM
INVESTMENT
OPERATIONS:
Net Investment
Income.......... .05 .04 .03 .03 .06 .07 .08 .07 .06 .06
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total from
investment
operations.... .05 .04 .03 .03 .06 .07 .08 .07 .06 .06
LESS DISTRIBUTIONS:
Dividends to
shareholders
from net
investment
income(b)....... (.05) (.04) (.03) (.03) (.06) (.07) (.08) (.07) (.06) (.06)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total
Distributions... (.05) (.04) (.03) (.03) (.06) (.07) (.08) (.07) (.06) (.06)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end
of period......... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total return.... 5.61% 3.81% 2.59% 3.18% 5.69% 8.00% 9.02% 7.19% 6.14% 6.25%
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period $(000)... 34,615 21,040 12,506 8,138 7,047 5,411 4,632 4,219 2,914 2,404
Ratios of expenses
to average net
assets
(annualized)(c)... .50% 0.55% 0.65% 0.65% 0.53% 0.50% 0.55% 0.65% 0.65% 0.65%
Ratios of net
investment
income to
average net
assets
(annualized).... 5.47% 3.86% 2.56% 3.12% 5.49% 7.72% 8.66% 7.03% 6.00% 6.05%
</TABLE>
- ---------------
(a) Date as of which policyowner funds were first allocated to the Portfolio.
(b) Reinvested in additional shares of the Portfolio.
(c) Annualized expense ratios for the Money Market Portfolio before
reimbursement of expenses by affiliated insurance company for the years
ended December 31, 1995, 1994, 1993, 1992 and 1991 were as follows: 0.50%,
0.59%, 0.65%, 0.73%, and 0.86%, respectively.
See accompanying notes to financial statements.
4
<PAGE> 7
CONDENSED FINANCIAL INFORMATION -- CONTINUED
Selected data for a share of capital stock outstanding throughout the
periods:
<TABLE>
<CAPTION>
BOND PORTFOLIO
-----------------------------------------------------------------------------------------------------------------
01/01/95 01/01/94(A) 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89(B) 01/01/88 01/01/87 01/01/86
TO TO TO TO TO TO TO TO TO TO
12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89 12/31/88 12/31/87 12/31/86
-------- ----------- -------- -------- -------- -------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset
value,
beginning of
period...... $ 9.73 $ 11.21 $10.73 $10.80 $10.04 $10.09 $ 9.89 $10.02 $10.93 $10.23
-------- ----------- -------- -------- -------- -------- ----------- -------- -------- --------
INCOME FROM
INVESTMENT
OPERATIONS:
Net
investment
income.... .65 .62 .60 .64 .77 .79 .82 .76 .65 .72
Net realized
and
unrealized
gain
(loss) on
investments... 1.27 (1.23) .48 (.03) .57 (.05) .20 (.13) (.91) .86
-------- ----------- -------- -------- -------- -------- ----------- -------- -------- --------
Total
from
investment
operations... 1.92 (.61) 1.08 .61 1.34 .74 1.02 .63 (.26) 1.58
-------- ----------- -------- -------- -------- -------- ----------- -------- -------- --------
LESS
DISTRIBUTIONS:
Dividends to
shareholders
from net
investment
income.... (.65) (.60) (.60) (.68) (.58) (.79) (.82) (.76) (.65) (.72)
Dividends to
shareholders
from net
capital
gains..... (.00) (.27) (.00) (.00) (.00) (.00) (.00) (.00) (.00) (.16)
-------- ----------- -------- -------- -------- -------- ----------- -------- -------- --------
Total
distri-
butions(d). (.65) (.87) (.60) (.68) (.58) (.79) (.82) (.76) (.65) (.88)
-------- ----------- -------- -------- -------- -------- ----------- -------- -------- --------
Net asset
value, end
of period... $11.00 $ 9.73 $11.21 $10.73 $10.80 $10.04 $ 10.09 $ 9.89 $10.02 $10.93
====== ========= ====== ====== ====== ====== ========= ====== ====== ======
Total
return... 20.45% (5.62)% 10.32% 5.95% 13.93% 7.70% 10.57% 6.45% (2.37)% 16.03%
RATIOS/SUPPLEMENTAL
DATA:
Net assets,
end of
period
$(000).... 14,402 10,098 10,160 6,710 4,365 3,711 3,311 2,473 1,869 908
Ratios of
expenses
to average
net assets
(annual-
ized)(e)... .60% .68% .75% .75% .63% .60% .62% .65% .65% .65%
Ratios of
net
investment
income to
average
net assets
(annual-
ized)... 6.36% 6.14% 5.53% 6.34% 7.58% 8.00% 8.28% 7.74% 6.99% 7.01%
Portfolio
turnover
rate(f)... 206% 151% 71% 4% 32% 53% 9% .13% 1.64% 25%
</TABLE>
- ---------------
(a) On March 1, 1993, the investment advisor was changed from ProvidentMutual
Management Company, Inc. to Sentinel Advisors Company.
(b) On May 1, 1989, the investment advisor was changed from Providentmutual
Investment Management Company to Sigma Asset Management, Inc. (renamed
ProvidentMutual Management Company, Inc.)
(c) Date as of which policyowner funds were first allocated to the Portfolio.
(d) Reinvested in additional shares of the Portfolio.
(e) Annualized expense ratios for the Bond Portfolio before reimbursement of
expenses by affiliated insurance company for the years ended December 31,
1995, 1994, 1993, 1992 and 1991 were as follows: 0.60%, 0.70%, 0.75%, 0.81%
and 0.93%, respectively.
(f) Portfolio turnover rate excludes all securities whose maturities at the time
of acquisition were one year or less.
See accompanying notes to financial statements.
5
<PAGE> 8
Selected data for a share of capital stock outstanding throughout the
periods:
<TABLE>
<CAPTION>
MANAGED PORTFOLIO
------------------------------------------------------------------------------------------------------------------
01/01/95 01/01/94(A) 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89(B) 01/01/88 01/01/87 01/01/86
TO TO TO TO TO TO TO TO TO TO
12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89 12/31/88 12/31/87 12/31/86
-------- ----------- -------- -------- -------- -------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset
value,
beginning
of
period..... $11.94 $ 13.27 $12.25 $11.40 $ 9.81 $11.37 $ 10.63 $10.12 $10.68 $10.03
-------- ----------- -------- -------- -------- -------- ----------- -------- -------- --------
INCOME FROM
INVESTMENT
OPERATIONS:
Net
investment
income... .55 .53 .40 .44 .51 .57 .59 .50 .52 .53
Net
realized
and
unrealized
gain
(loss) on
investments. 2.28 (.77) 1.00 .88 1.47 (1.53) .89 .51 (.55) .68
-------- ----------- -------- -------- -------- -------- ----------- -------- -------- --------
Total
from
investment
operations... 2.83 (.24) 1.40 1.32 1.98 (.96) 1.48 1.01 (.03) 1.21
-------- ----------- -------- -------- -------- -------- ----------- -------- -------- --------
LESS
DISTRIBUTIONS:
Dividends
to
shareholders
from net
investment
income... (.57) (.49) (.38) (.47) (.39) (.57) (.61) (.50) (.52) (.56)
Dividends
to
shareholders
from net
capital
gains.... (.01) (.60) (.00) (.00) (.00) (.03) (.13) (.00) (.01) (.00)
-------- ----------- -------- -------- -------- -------- ----------- -------- -------- --------
Total
distri-
butions(d)... (.58) (1.09) (.38) (.47) (.39) (.60) (.74) (.50) (.53) (.56)
-------- ----------- -------- -------- -------- -------- ----------- -------- -------- --------
Net asset
value, end
of
period..... $14.19 $ 11.94 $13.27 $12.25 $11.40 $ 9.81 $ 11.37 $10.63 $10.12 $10.68
====== ========= ====== ====== ====== ====== ========= ====== ====== ======
Total
return... 24.43% (1.82)% 11.62% 11.96% 20.49% (8.61)% 14.65% 10.60% (0.54)% 12.08%
RATIOS/SUPPLEMENTAL
DATA:
Net assets,
end of
period
$(000)... 36,002 29,363 28,984 15,946 12,564 10,197 10,028 8,015 5,991 2,765
Ratios of
expenses
to
average
net
assets
(annual-
ized)(e)... .66% 0.67% 0.80% 0.80% 0.68% 0.65% 0.65% 0.65% 0.65% 0.65%
Ratios of
net
investment
income to
average
net
assets
(annual-
ized)... 4.22% 4.34% 3.36% 3.88% 4.74% 5.48% 5.74% 4.89% 5.45% 5.29%
Portfolio
turnover
rate(f)... 130% 75% 89% 32% 51% 47% 23% 35% 47% 5%
</TABLE>
- ---------------
(a) On March 1, 1993, the investment advisor was changed from ProvidentMutual
Management Company, Inc. to Sentinel Advisors Company.
(b) On May 1, 1989, the investment advisor was changed from Providentmutual
Investment Management Company to Sigma Asset Management, Inc. (renamed
ProvidentMutual Management Company, Inc.)
(c) Commenced operations on December 12, 1985.
(d) Reinvested in additional shares of the Portfolio.
(e) Annualized expense ratios for the Managed Portfolio before reimbursement of
expenses by affiliated insurance company for the years ended December 31,
1995, 1994, 1993, 1992 and 1991 were as follows: 0.66%, 0.73%, 0.80%, 0.84%
and 0.95%, respectively.
(f) Portfolio turnover rate excludes all securities whose maturities at the time
of acquisition were one year or less.
See accompanying notes to financial statements.
6
<PAGE> 9
CONDENSED FINANCIAL INFORMATION -- CONTINUED
Selected data for a share of capital stock outstanding throughout the
periods:
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH PORTFOLIO
--------------------------------------------------------------------------------
01/01/95 01/01/94(A) 01/01/93 01/01/92 01/01/91 01/01/90 05/01/89(B)
TO TO TO TO TO TO TO
12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89
-------- ----------- -------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period...................... $15.45 $ 15.45 $14.72 $16.68 $10.67 $ 9.87 $ 10.00
-------- ----------- -------- -------- -------- -------- -----------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income....... .20 (.01) (.01) .03 .08 .03 .09
Net realized and unrealized
gain (loss) on
investments............... 1.86 .01 .77 .38 5.93 1.04 .25
-------- ----------- -------- -------- -------- -------- -----------
Total from investment
operations.............. 2.06 .00 .76 .41 6.01 1.07 .34
-------- ----------- -------- -------- -------- -------- -----------
LESS DISTRIBUTIONS:
Dividends to shareholders
from net investment
income.................... (.00) .00 (.03) (.07) (.00) (.03) (.09)
Dividends to shareholders
from net capital gains.... (.13) .00 (.00) (2.30) (.00) (.24) (.38)
-------- ----------- -------- -------- -------- -------- -----------
Total distributions(c).... (.13) .00 (.03) (2.37) (.00) (.27) (.47)
-------- ----------- -------- -------- -------- -------- -----------
Net asset value, end of
period...................... $17.38 $ 15.45 $15.45 $14.72 $16.68 $10.67 $ 9.87
====== ========= ====== ====== ====== ====== =========
Total return.............. 13.48% 0% 5.20% 2.58% 56.33% 10.77% 5.58%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
$(000).................... 23,822 15,430 12,223 8,029 2,751 772 568
Ratios of expenses to
average net assets
(annualized)(d)........... .76% .86% .90% .90% .79% .75% .50%
Ratios of net investment
income to average net
assets (annualized)....... 1.32% (.10)% (.07)% .37% .80% .27% 1.00%
Portfolio turnover(e)....... 89% 60% 60% 18% 95% 27% 32%
<CAPTION>
INTERNATIONAL PORTFOLIO
-----------------------------------------------------------
01/01/95 01/01/94 01/01/93 01/01/92 11/01/91(B)
TO TO TO TO TO
12/31/95 12/31/94 12/31/93 12/31/92 12/31/91
-------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period...................... $11.63 $11.87 $ 9.00 $ 9.74 $ 10.00
-------- -------- -------- -------- ---------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income....... .16 .05 .06 .08 .01
Net realized and unrealized
gain (loss) on
investments............... 1.45 (.02) 3.09 (.81) (.27)
-------- -------- -------- -------- ---------
Total from investment
operations.............. 1.61 .03 3.15 (.73) (.26)
-------- -------- -------- -------- ---------
LESS DISTRIBUTIONS:
Dividends to shareholders
from net investment
income.................... (.07) (.03) (.08) (.00) (.00)
Dividends to shareholders
from net capital gains.... (.31) (.24) (.20) (.01) (.00)
-------- -------- -------- -------- ---------
Total distributions(c).... (.38) (.27) (.28) (.01) (.00)
-------- -------- -------- -------- ---------
Net asset value, end of
period...................... $12.86 $11.63 $11.87 $ 9.00 $ 9.74
====== ====== ====== ====== =========
Total return.............. 14.31% .26% 36.11% (7.30)% (2.88)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
$(000).................... 36,642 26,212 13,682 6,727 4,979
Ratios of expenses to
average net assets
(annualized)(d)........... 1.15% 1.32% 1.50% 1.50% 1.48%
Ratios of net investment
income to average net
assets (annualized)....... 1.21% .72% .68% 1.05% .26%
Portfolio turnover(e)....... 45% 32% 37% 35% 1%
</TABLE>
- ---------------
(a) On March 31, 1993, the investment advisor was changed from ProvidentMutual
Management Company, Inc. to Sentinel Advisors Company.
(b) Commencement of operations.
(c) Reinvested in additional shares of the Portfolio.
(d) Annualized expense ratios before reimbursement of expenses by affiliated
insurance company and fee waivers by the administrator were as follows:
Aggressive Growth Portfolio for the years ended December 31, 1995, 1994,
1993, 1992 and 1991, 0.76%, 0.89%, 0.90%, 1.00% and 1.32%, respectively;
International Portfolio for the years ended December 31, 1995, 1994, 1993,
1992 and the period ended December 31, 1991, 1.15%, 1.32%, 1.50%, 2.65% and
3.40%, respectively.
(e) Portfolio turnover rate excludes all securities whose maturities at the time
of acquisition were one year or less.
See accompanying notes to financial statements.
7
<PAGE> 10
GENERAL DESCRIPTION OF THE FUND
The Fund was formed as a Maryland corporation on March 21, 1985. It is an
open-end diversified management investment company as such terms are defined in
the Investment Company Act of 1940 (the "1940 Act").
As a "series" type of mutual fund, the Fund issues separate classes (or
series) of stock currently consisting of the Money Market Portfolio; Growth
Portfolio; Sentinel Growth Portfolio, Common Stock Portfolio, Aggressive Growth
Portfolio, International Portfolio, Bond Portfolio and Managed Portfolio.
Additional Portfolios may be established in the future. An interest in the Fund
is limited to the assets of the particular Portfolio in which shares are held,
and shareholders of each Portfolio are entitled to a pro rata share of all
dividends and distributions arising from the net income and capital gains in the
investment of such Portfolio.
Other than the shares sold to Provident Mutual Life Insurance Company
("Provident Mutual") to seed the Managed, Aggressive Growth and International
Portfolios, and to National Life Insurance Company ("NLIC") of Montpelier,
Vermont to seed the Sentinel Growth and Common Stock Portfolios, the Fund's
shares will be sold only to separate accounts of insurance companies to serve as
the investment medium for variable life insurance policies and variable annuity
contracts. Owners of such contracts ("Policyowners") should consider that the
investment return experience of the particular Portfolio they select will affect
the value of the contract and the amount of benefits received under a contract.
See the attached Prospectus for the contracts and the description of the
relationship between increases and decreases in the net asset value of Fund
shares (and any distributions on such shares) and the benefits provided under a
contract.
Currently, the shares of the Fund are sold to variable life and variable
annuity separate accounts of Provident Mutual and Providentmutual Life and
Annuity Company of America and to variable life insurance separate accounts of
NLIC. In the future, shares may also be sold to separate accounts of other
insurance companies to fund other variable annuity as well as variable life
insurance contracts.
INVESTMENT OBJECTIVES AND POLICIES
FUNDAMENTAL INVESTMENT OBJECTIVES
The following investment objectives are fundamental and may not be changed
without the approval of the holders of a majority of the outstanding voting
shares, as that term is defined under the 1940 Act, of each Portfolio affected.
The fundamental investment objective of the Money Market Portfolio is to
provide maximum current income consistent with capital preservation and
liquidity.
The fundamental investment objective of the Growth Portfolio is to achieve
intermediate and long-term growth of capital. A reasonable level of income is an
important objective, although not the primary objective.
The fundamental investment objective of the Sentinel Growth Portfolio is to
achieve long-term growth of capital.
The fundamental investment objective of the Common Stock Portfolio is to
seek a combination of long-term growth of capital and current income with
relatively low risk.
The fundamental investment objective of the Aggressive Growth Portfolio is
to achieve a high level of long-term capital appreciation.
The fundamental investment objective of the International Portfolio is to
achieve long-term growth of capital principally through investments in a
diversified portfolio of marketable equity securities of established non-United
States companies.
The fundamental investment objective of the Bond Portfolio is to generate a
high level of current income, consistent with prudent investment risk.
8
<PAGE> 11
The fundamental investment objective of the Managed Portfolio is to realize
as high a level of long-term total rate of return as is consistent with prudent
investment risk. Total rate of return consists of current income, including
dividends, interest and discount accruals, and capital appreciation.
There is no assurance that these objectives will be realized.
NON-FUNDAMENTAL INVESTMENT POLICIES
The following investment policies are not fundamental to the Fund and may
be changed without a shareholder vote, except as otherwise stated in this
Prospectus or in the Fund's Statement of Additional Information.
THE MONEY MARKET PORTFOLIO
The Money Market Portfolio will pursue its investment objective by
investing in money market instruments meeting specified quality standards. This
Portfolio may invest in the following:
U.S. GOVERNMENT SECURITIES: This Portfolio may invest in obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities maturing in thirteen months or less from the date of
purchase. U.S. Government Securities, such as Treasury Bills, Notes and
Bonds, are supported by the full faith and credit of the United States;
however, other government securities are supported by the right of the
issuer to borrow from the Treasury, and others are supported only by the
credit of the instrumentality;
BANK OBLIGATIONS AND INSTRUMENTS SECURED THEREBY: This Portfolio may
invest in negotiable certificates of deposit, including variable rate
certificates of deposit, bankers acceptances, and other obligations if they
are obligations of a domestic bank or a foreign branch of a domestic bank
subject to regulation by the U.S. Government and having total assets of $1
billion or more, or up to 10% of the total assets of the Portfolio in
certificates of deposit issued by banks and savings and loan associations
having assets of less than $1 billion if the principal amount of each such
certificate of deposit is fully insured by the Federal Deposit Insurance
Corporation. For purposes of this section, the term "bank" includes
commercial banks and savings banks;
COMMERCIAL PAPER: This Portfolio may invest in unsecured promissory
notes issued by corporations to finance short-term credit needs.
OTHER CORPORATE DEBT OBLIGATIONS: This Portfolio may invest in
outstanding non-convertible corporate obligations (e.g., bonds and
debentures) which were not issued as short-term obligations but which have
thirteen months or less remaining until maturity and which the Adviser
under the supervision of the Board of Directors determines present minimal
credit risks, provided that such obligations are, at the time of
acquisition, rated AA/Aa or better by Standard & Poor's Corporation
("Standard & Poor's") or Moody's Investors Service, Inc. ("Moody's").
REPURCHASE AGREEMENTS: Investments may be made in repurchase
agreements with Federal Reserve System banks or with dealers in U.S.
Government securities under which this Portfolio acquires the ownership of
a security and the seller agrees to repurchase it at a mutually agreed upon
price and date; and
OTHER OBLIGATIONS: This Portfolio may also purchase obligations other
than those listed above if the obligation is accompanied by a guarantee of
principal and interest, provided that the guarantee is that of a bank or
corporation whose certificates of deposit or commercial paper otherwise
could be purchased by this Portfolio; such obligations and guarantees must
be due within twelve months or less from the date of purchase.
This Portfolio may only invest in U.S. dollar-denominated instruments
maturing in thirteen months or less which Providentmutual Investment Management
Company ("PIMC" or the "Advisor") under the
9
<PAGE> 12
supervision of the Board of Directors determines present minimal credit risks
and which, at the time of acquisition, generally are either:
1. rated in one of the two highest rating categories by at least two
nationally recognized statistical rating organizations ("NRSRO"); or
2. rated in one of the two highest rating categories by only one NRSRO if
that NRSRO is the only NRSRO that has rated the instrument or issuer; or
3. in the case of an unrated instrument, determined by the Adviser under the
supervision of the Board of Directors to be of comparable quality to either of
the above; or
4. issued by an issuer that has received a rating of the type described in 1
or 2 above on other securities that are comparable in priority and security to
the instrument.
The Money Market Portfolio should be subject to relatively little market or
financial risk because it invests in debt obligations that are considered to be
of high quality and that have a short time period until maturity. However, this
Portfolio may be subject to a high level of income volatility. No portfolio
turnover rate can be calculated for this Portfolio due to the short maturities
of the instruments purchased.
THE GROWTH PORTFOLIO
The Growth Portfolio will pursue its investment objective by investing
primarily in common stocks of carefully selected companies believed to offer
above-average growth potential over both the intermediate and long-term. This
Portfolio will purchase securities only in companies that have reached a minimum
level of sales/revenue of $50 million and have profitable operations (as
measured by having net income before nonrecurring gains or losses). Most of the
time, the common stocks purchased by the Growth Portfolio will be listed on
national securities exchanges. Smaller amounts, not exceeding 20% of the total
assets of this Portfolio, may be used to purchase stocks that are traded
over-the-counter.
Investments in common stocks necessarily entail taking greater risks than
are found in other Portfolios. An investment in any stock is subject to the risk
that the stock market as a whole may decline, thus depressing the stock's price
(market risk), or that the price of a particular company's stock may decline due
to the company's financial results (financial risk). Results of the Growth
Portfolio will be affected by management's ability to anticipate changes in
economic conditions and financial markets.
The Growth Portfolio will retain a flexible approach to the investment of
funds and the Portfolio composition will vary with the economic outlook.
Therefore, when current cash needs or market or economic conditions warrant,
this Portfolio may maintain a portion of its assets in short-term U.S.
Government securities, commercial paper and other money market instruments, as
deemed appropriate. At any given time, this Portfolio may also have investments
in convertible preferred stocks or convertible debt instruments, as well as
nonconvertible debt obligations. The annual portfolio turnover rates of this
Portfolio for 1995 and 1994 were 61% and 63%, respectively.
THE SENTINEL GROWTH PORTFOLIO
The Sentinel Growth Portfolio will pursue its investment objective by
investing in equity securities of well-established companies having growth
potential believed by its investment adviser to be more favorable than that of
the U.S. economy as a whole. In the investment adviser's judgment, such
companies generally have favorable growth potential and experienced managements.
Under normal market conditions, this Portfolio will be fully invested in common
stocks and securities convertible into common stocks; however, the Portfolio may
temporarily retain cash or invest in fixed-income securities. The investment
adviser does not use income as a factor in selecting Portfolio investments.
In selecting securities for the Sentinel Growth Portfolio, the investment
adviser favors growth potential over portfolio diversification. If the
investment adviser believes it to be appropriate, up to 25% of the value of the
Portfolio's total assets may be invested in securities of companies within a
single industry.
10
<PAGE> 13
THE COMMON STOCK PORTFOLIO
The Common Stock Portfolio will pursue its investment objective by
investing in the common stocks of a diversified group of well-established
companies. The Portfolio's investment adviser selects securities based on the
quality of the issuer and the adviser's appraisal of a stock's price in relation
to its value. When appropriate, the Portfolio also may invest in preferred
stocks or debentures convertible into common stocks.
THE AGGRESSIVE GROWTH PORTFOLIO
The Aggressive Growth Portfolio will pursue its investment objective by
investing in:
(1) Investments in new securities issues being offered to the public
for the first time; investments to be made through primary or secondary
offerings and in the open market following completion of such offerings;
(2) Investments in new or emerging industries; and
(3) Investments in new or unseasoned companies having earnings and
appreciation potentials which, in the judgment of management, are better
than average.
In following the above policies, emphasis will be placed on new issues,
limited, however, to 5% of the value of the assets of the Portfolio in companies
having less than three years' operations. All securities selections will be made
on the basis of their capital appreciation potential without restriction as to
type of security to be purchased. Substantially all of the assets of the
Portfolio will be invested in common stocks or in securities convertible into
common stock. In addition, interim investments in short-term debt securities may
be made so as to receive a return on otherwise idle cash. However, if the Fund's
management anticipates a general market decline, a portion, or all, of the
assets of the Portfolio may be, for temporary defensive purposes, invested in
cash, fixed income securities, interest bearing short-term debt instruments, or
defensive type of common stocks if, in the opinion of management, economic,
market or other relevant conditions at the time so warrant.
Investments in securities directed toward capital growth, the purchase of
new issues and investments in new or emerging industries may at times entail
above-average risks. The investment goals and policies may also produce a higher
than average portfolio turnover rate; this may result in correspondingly
increased brokerage expense acquisition costs to the Portfolio. The annual
portfolio turnover rates of this Portfolio for 1995 and 1994 were 89% and 60%,
respectively.
It is not the policy of the Portfolio to engage in short-term trading;
however, the management reserves the right to dispose of securities without
regard to the length of time they have been held if in the opinion of management
such action seems advisable where a security's current market price appears
likely to be subject to substantial short-term movement.
THE INTERNATIONAL PORTFOLIO
The International Portfolio will pursue its investment objective by
investing in a diversified portfolio of marketable equity securities of
established non-United States companies. The Portfolio may, however, also invest
in convertible or debt securities. These securities shall be rated as investment
grade securities (Baa or higher by Moody's or BBB or higher by Standard &
Poor's). To the extent that any convertible or debt security is not rated by
such agency, Providentmutual Investment Management Company (the "Adviser"), with
the consultation of The Boston Company Asset Management, Inc. (the
"Sub-Adviser"), will evaluate a non-rated security to determine its comparable
quality.
The Portfolio will invest at least 75% of the value of its investment
portfolio in securities of companies organized outside the United States. The
remaining 25% may be invested in companies organized in the United States having
their principal activities and interests (i.e., at least 50% of assets and/or
revenues) outside the United States.
11
<PAGE> 14
Consistent with the Portfolio's investment goal of long-term growth of
capital, the Portfolio will invest in the equity securities of companies based
in a number of countries other than the United States that the Adviser or
Sub-Adviser believes have potential for long-term capital growth. Under normal
conditions the Portfolio will invest in companies domiciled in at least five
countries other than the United States. However, this maximum is reduced to at
least four different foreign countries when foreign country investments comprise
less than 80% of the Portfolio's net asset value. Generally the Portfolio will
not invest more than 20% of its total assets in any one particular country;
however, under certain economic and business conditions the Portfolio may invest
up to 35% of its total assets in any one of the following countries: Australia,
Canada, France, Japan, the United Kingdom or West Germany.
Although it does not currently intend to do so, the International Portfolio
may borrow up to 20% of the market value of its total assets from banks as a
temporary measure for emergency purposes, such as to enable the Portfolio to
meet redemption requests or to settle transactions on different stock markets
where different settlement dates apply that might otherwise require the sale of
securities at a time when it would not be in the Portfolio's best interests to
do so.
The investment program is expected to produce only modest current income
and such income will not be a basic part of the Portfolio's objective but will
be merely incidental. There can be no assurance that the Portfolio will in fact
achieve its investment goal.
The majority of the Portfolio transactions will be executed on established
stock exchanges or in the over-the-counter market in the country in which the
investment is being made. The Portfolio will also purchase sponsored American
Depository Receipts ("ADRS"), which represent foreign securities traded on
United States exchanges or in the over-the-counter market and European
Depository Receipts ("EDRS"), in bearer form, which are designed for use in
European securities markets. ADRS are certificates issued by a United States
bank or trust company and represent the right to receive securities of a foreign
issuer deposited in a domestic bank or foreign branch of a United States bank
and traded on a United States exchange or in an over-the-counter market.
Generally, ADRS are in registered form. Investment in ADRS has certain
advantages over direct investment in the underlying foreign securities since:
(i) ADRS are generally U.S. dollar-denominated investments that are easily
transferable and for which market quotations are readily available; and (ii)
issuers whose securities are represented by ADRS are subject to the same
auditing, accounting and financial reporting standards as domestic issuers.
In order to expedite settlement of transactions and to minimize currency
value fluctuations, the Portfolio may purchase foreign currencies and/or engage
in forward foreign currency transactions. For greater detail, reference is made
to the material under the caption "Foreign Currency Transactions" in the
Statement of Additional Information.
In analyzing companies for investment, the Adviser or Sub-Adviser will
emphasize, among other things, the selection of common stocks in growing
companies selling at modest price earnings ratios. Important criteria for the
selection of companies are: products or services filling special niches and
basic economic needs; sound financial conditions; and good managements with
effective market and product development programs.
Under abnormal economic or market conditions abroad, the Portfolio, for
temporary defensive purposes, may invest all or a major portion of its assets in
United States government obligations or investment grade fixed income securities
of companies organized in and having their principal activities and interests in
the United States.
The portfolio turnover rates of this Portfolio for 1995 and 1994 were 45%
and 32%, respectively.
It is not the policy of the Fund to engage in short-term trading; however,
management reserves the right to dispose of securities without regard to the
length of time they have been held if in the opinion of management such action
seems advisable where a security's current market price appears likely to be
subject to a substantial short-term upward or downward movement.
12
<PAGE> 15
THE BOND PORTFOLIO
The Bond Portfolio will pursue its investment objective by investing in a
diversified portfolio of marketable debt securities. It generally will not
acquire securities of companies in any one industry if, immediately after giving
effect to any such acquisition, more than 25% of the value of its total assets
would be invested in such industry; provided, however, that this Portfolio may
invest up to 75% of the value of its total assets in any or all of the electric,
gas and telephone utility industries. This Portfolio would invest more than 25%
(but not more than 75%) of its assets in the electric, gas and/or telephone
utility industries only if it is determined that the spread between the yields
on such industry securities and Treasury notes and/or bonds is historically high
and that obligations having comparable maturity, yield and quality of issuers in
other industries are not available. No one aspect of the electric, gas or
telephone utility industries will be emphasized.
This Portfolio will purchase only those corporate debt securities which are
issued by U.S. or Canadian corporations and governmental securities, domestic
and foreign. It is this Portfolio's present intent to purchase principally those
governmental securities which are issued or guaranteed by the U.S. Government
and its agencies or instrumentalities and by the Government of Canada or any
Canadian province, municipality or governmental agency thereof. Canadian and
other foreign governmental securities will be purchased only if they are payable
in U.S. dollars. The purchase of foreign government securities could involve
risks not associated with investing in domestic issuers. Among others, there may
be risks from political and economic instability in the country involved, and
foreign securities may be less liquid than domestic securities. Moreover, there
may be less publicly available information about a foreign government than a
domestic issuer, and in the event of default, it may be difficult for this
Portfolio to obtain or to enforce judgment against the issuer.
The Bond Portfolio may not purchase securities unless the issuer, or any
company upon whose credit the purchase was based, has a record of at least three
years continuous operation, if such purchase would cause this Portfolio's
investments in all such companies taken at cost to exceed 5% of this Portfolio's
total assets taken at market value.
At least 75% of the value of the Bond Portfolio's total investment in
corporate debt securities (other than commercial paper) will be represented by
debt securities which have, at the time of purchase, a rating within the four
highest grades as determined by Moody's (Aaa, Aa, A or Baa) or Standard & Poor's
(AAA, AA, A or BBB) and debt securities of banks and other issuers which,
although not rated as a matter of policy by either Moody's or Standard & Poor's,
are considered to have investment quality comparable to securities receiving
ratings within such four highest grades. Such unrated securities, even with
comparable investment grade quality as rated securities, may carry a price
discount in the market. (See the Statement of Additional Information, Appendix
A, for an explanation of Moody's and Standard and Poor's ratings.) However, the
Bond Portfolio will not invest in or retain instruments with ratings lower than
BB by Standard & Poor's or Ba by Moody's. Such lower quality debt instruments
(i.e. Ba or BB) generally provide higher yields but they involve greater risks.
For a more detailed discussion of these risks, see "Risks of Lower Quality Debt
Instruments", page .
The Bond Portfolio may purchase corporate debt securities bearing fixed
interest as well as those which carry certain equity features, such as
conversion or exchange rights or warrants for the acquisition of stock of the
same or different issuer, or participations based on revenues, sales or profits.
This Portfolio will not exercise any such conversion, exchange or purchase
rights if at the time, the value of all equity interests so owned would exceed
10% of this Portfolio's total assets taken at market value.
When interest rates decline, the market value of portfolio instruments
bearing higher yields can be expected to rise, if such securities are protected
against early call. Similarly, when interest rates increase, the market value of
portfolio instruments bearing lower yields can be expected to decline. This
Portfolio may include debt securities which sell at substantial discounts from
par. These securities are low coupon bonds which during periods of high interest
rates, because of their lower acquisition costs, tend to sell on a yield basis
approximating current interest rates.
13
<PAGE> 16
Assets of this Portfolio will also be invested in short-term investment
such as U.S. Treasury notes and bills and commercial paper and, when current
cash needs or market or economic conditions warrant, this Portfolio may
temporarily maintain a substantial portion of its assets in cash.
The Bond Portfolio intends to use short-term trading of securities, under
the conditions set forth below, as a means of managing its portfolio to achieve
its investment objective. As used herein, "short-term trading" means the
purchase and subsequent sale of a security after it has been held for a
relatively brief period of time, in some instances for less than three months.
This Portfolio will engage in short-term trading if it believes the transactions
net of costs (including commission if any), will benefit its portfolio for the
purposes of:
(a) Avoiding potential depreciation in the value of a security held in the
Portfolio where the Portfolio anticipates that it may decline in market value
as a result of unfavorable earnings trends and/or unfavorable investment
environment; or
(b) Increasing the return by taking advantage of yield disparities between
various fixed-income securities in order to realize capital gains or improved
income on the portfolio.
The Bond Portfolio, in reaching a decision to sell one security and
purchase another security at approximately the same time, will take into account
a number of factors, including the quality ratings, interest rates, yields,
maturity dates, call prices, and refunding and sinking fund provisions of the
securities under consideration, as well as historical yield spreads and current
economic information. The success of short-term trading will depend upon the
ability of this Portfolio to evaluate particular securities, to anticipate
relevant market factors, including trends of interest rates and earnings and
variations from such trends, to obtain relevant information, to evaluate it
promptly, and to take advantage of its evaluations by completing transactions on
a favorable basis It is expected that the expenses involved in short-term
trading, which would not be incurred by the Portfolio if it did not use this
technique, will be significantly less than the benefits that will accrue
therefrom to Policyowners from the use of this technique, but there can be no
assurance that the expected benefits to be derived from use of this technique
will outweigh the additional expenses necessitated by it. The annual portfolio
turnover rates of this Portfolio for 1995 and 1994 were 206% and 151%,
respectively.
THE MANAGED PORTFOLIO
The Managed Portfolio will pursue its investment objective by investing
only in those types of securities that are permissible investments of the other
Portfolios. The Managed Portfolio may be invested solely in common stocks,
solely in bonds, solely in money market instruments, or in a combination of
these types of investments, in accordance with the complete, sole, and total
discretion of the investment adviser and the Fund's Board of Directors. At least
75% of the value of corporate debt securities (other than commercial paper) held
in this Portfolio will be rated within one of the four highest ratings by
Moody's or Standard & Poor's, or, if not rated, will be considered to be of
comparable investment quality. However, in no event will the Managed Portfolio
invest in or retain rated securities having a rating lower than BB by Standard &
Poor's or Ba by Moody's. Such lower quality debt instruments (i.e. BB or Ba)
generally provide higher yields but they involve greater risks. For a more
detailed discussion of these risks see "Risks of Lower Quality Debt
Instruments", page . This Portfolio will be subject to varying levels of market
and financial risk and current income volatility. The annual portfolio turnover
rates of this Portfolio for 1995 and 1994 were 130% and 75%, respectively.
RISKS OF FOREIGN SECURITIES
Investors should note that investing in foreign securities involves certain
special risk considerations, including but not necessarily limited to those
listed below, which are not normally associated with investing in United States
securities. A Portfolio investing in foreign securities may be favorably or
unfavorably affected by changes in currency rates, exchange control regulations
and may incur costs in connection with conversions between various currencies.
Foreign companies generally release less financial information than comparable
United States companies; furthermore, foreign companies are generally not
subject to uniform accounting, auditing and financial reporting requirements. In
general, companies listed on foreign stock exchanges are less
14
<PAGE> 17
liquid and more volatile than securities listed on the New York Stock Exchange,
for example, due to substantially lower trading volume. Such lower volume could
result in the Portfolio obtaining lower sales prices in the event of forced
liquidation of securities in order to meet unanticipated cash requirements.
Fixed commissions on foreign stock exchanges are generally higher than
negotiated commissions on United States exchanges and there is less supervision
and regulation of such exchanges. In addition, with respect to certain foreign
countries, there is the possibility of expropriation of assets, confiscatory
taxation, difficulty with the execution of judgments against foreign issuers,
imposition of withholding of taxes prior to payment of dividends or other
distributions, political or social instability, or diplomatic developments which
could affect United States investments in those countries. A Portfolio is not
intended to provide a complete investment program for an investor. In addition,
transactions in foreign securities may involve greater time from the trade date
until settlement than domestic securities transactions and involve the risk of
possible losses through the holding of securities by custodians and securities
depositories in foreign countries.
RISKS OF LOWER QUALITY DEBT INSTRUMENTS
Up to 25% of the value of either the Bond Portfolio's or the Managed
Portfolio's total investment in corporate debt securities (other than commercial
paper) may be invested in securities having a rating as low as BB by Standard &
Poor's or Ba by Moody's. While there are risks inherent in all investments,
these securities may additionally be subject to the following risks: (1) the
market for lower-rated securities has expanded rapidly in recent years, and this
expanded market has not been tested in a period of extended economic downturn;
(2) reliable and objective information about the value of lower-rated
obligations may be difficult to obtain because the market for such securities
may be thinner and less active than that for investment grade obligations; (3)
adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of lower than investment grade
obligations, and, in turn, adversely affect their market; (4) companies that
issue lower-rated obligations may be in the growth stage of their development,
or may be financially troubled or highly leveraged, so they may not have more
traditional methods of financing available to them: (5) as savings and loan
associations dispose of their portfolios of non-investment grade debt securities
pursuant to the Financial Institutions Reform, Recovery and Enforcement Act of
1989, the general market and the prices for such securities could be adversely
affected; and (6) the market for lower-rated securities could be reduced if
legislative proposals to limit their use in connection with corporate
reorganizations or to limit their tax and other advantages are enacted. (See the
Statement of Additional Information for a more detailed discussion of the risks
associated with lower quality debt instruments.)
RISKS OF REPURCHASE AGREEMENTS
All of the Portfolios may invest in repurchase agreements with Federal
Reserve Banks or with dealers in U.S. Government securities under which the
Portfolios acquire the ownership of a security and the seller agrees to
repurchase it at a mutually agreed upon price and date. The yield of such
investments, therefore, will not fluctuate with market rates. While the
repurchase agreements will provide that the underlying security which
constitutes the collateral for the seller's obligation at all times shall have a
value at least equal to the resale price stated in the agreement plus accrued
interest, the Portfolios bear a risk that the seller may be unable to pay the
repurchase price on delivery date and, in the event of default by the seller
because of bankruptcy or otherwise, the Portfolios may suffer time delays and
incur costs or losses in connection with the disposition of the collateral.
However, the Portfolios have adopted standards for the parties with whom they
will enter into repurchase agreements which they believes are reasonably
designed to assure that the party presents no serious risk of becoming involved
in bankruptcy proceedings within the time frame contemplated by the repurchase
agreement.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
From time to time, in the ordinary course of business, any of the
Portfolios other than the Sentinel Growth and Common Stock Portfolios may
purchase securities, which are defined as permissible portfolio
15
<PAGE> 18
investments, on a when-issued or delayed delivery basis, that is, securities
purchased for delivery beyond the normal settlement date. The purchase price and
the interest rate payable on the securities are fixed on the transaction date
and, thereafter, the securities are subject to market fluctuation, which will be
reflected in the value of the Portfolio from the transaction date forward. At
the time a Portfolio makes the commitment to purchase securities on a
when-issued or delayed delivery basis, it will record the transaction and
thereafter reflect the value, each day, of such securities in determining the
value of its net assets. A Portfolio will make commitments for when-issued
securities only with the intention of actually acquiring the securities and, in
connection with such acquisitions, the Fund's custodian bank will maintain in a
segregated account fully liquid securities of the Portfolio having a market
value, determined daily, equal to or greater than such commitments. If the
Portfolio chooses to dispose of the right to acquire a when-issued security
prior to its acquisition, it could, as with the disposition of any other
obligation, incur a gain or loss due to market fluctuation. No when-issued
commitments will be made if, as a result, more than 10% of a Portfolio's net
assets would be so committed.
BORROWING
Each of the Portfolios may borrow money from banks as a temporary measure
for emergency purposes, or as necessary for clearance of securities
transactions, or to permit the transfer of funds for various purposes without
interfering with the orderly liquidation of securities in the Portfolio. For the
International Portfolio, such borrowing is limited to 20% of the market value of
that Portfolio's total assets at the time such borrowing is made. For the other
Portfolios, such borrowing is limited to 5% of the market value of the
respective Portfolio's total assets at the time such borrowing is made. No
Portfolio will borrow money for leveraging purposes, and no Portfolio will
purchase additional securities while its borrowings exceed the above specified
limits. As required by the 1940 Act, each Portfolio will maintain continuous
asset coverage of at least 300% of the amount borrowed. In the event that a
Portfolio's asset coverage falls below 300%, the Portfolio may be required to
sell securities within three days to reduce the amount of its borrowing and
restore the 300% asset coverage. Such sales of securities may occur at a time
that is disadvantageous for a Portfolio.
REVERSE REPURCHASE AGREEMENTS
The Money Market and Managed Portfolios may enter into reverse repurchase
agreements with banks and broker-dealers. These agreements have the
characteristics of borrowing and involve the sale of securities held by the
Portfolios with an agreement to repurchase the securities at an agreed upon date
and price that reflects a rate of interest paid for the use of funds for the
period. Such transactions are advantageous only if the Portfolios have the
opportunity to earn a greater rate of interest on the cash derived from the
transaction than the interest cost of obtaining that cash. The Portfolios may be
unable to realize a rate of return from the use of the proceeds equal to or
greater than the interest expense of the repurchase agreement. Thus, the
Portfolios intend to enter into such agreements only when it appears
advantageous to do so. The use of reverse repurchase agreements may magnify any
increase or decrease in the value of the Portfolios' investments. The
Portfolios' custodian will maintain in a segregated account, fully liquid
securities of each Portfolio that has a value equal to or greater than the
respective Portfolio's commitments under reverse repurchase agreements. The
value of securities subject to reverse repurchase agreements will not exceed 10%
of the value of the respective Portfolio's total assets. Under no circumstances
will either Portfolio enter into a reverse repurchase agreement with Provident
Mutual, Providentmutual Life and Annuity Company of America, NLIC or Sentinel
Advisors Company.
INVESTMENT IN SECURITIES OF OTHER INVESTMENT COMPANIES
All of the Portfolios may invest in the securities of investment companies
which are registered under the 1940 Act. However, it is a fundamental
restriction that no Portfolio may have more than 5% of its assets invested in
the securities of any one investment company, that a Portfolio may not own more
than 3% of an investment company's outstanding voting securities, and that a
Portfolio's total holdings of investment company securities may not exceed 10%
of the value of the Portfolio's assets.
16
<PAGE> 19
OTHER INVESTMENT POLICIES
To a limited extent, the Growth, Managed and Aggressive Growth Portfolios
may engage in writing covered call option contracts--options on securities owned
by the Portfolios--and may purchase call options only to close out a position
acquired through the writing of such options. The writing of covered call
options may generate income for the Portfolios. To the extent income is
generated, the writing of covered call options generally will help to achieve
the Growth Portfolio's secondary objective of a reasonable level of income, but
does not further that Portfolio's primary objective of achieving intermediate
and long term growth of capital, except to the extent that it "hedges" against
capital losses. The investment program for the Aggressive Growth Portfolio is
expected to produce only modest current income, if any, and such income will not
be a basic part of the Portfolio's objective but will be merely incidental. The
Portfolios may close out a position acquired through writing a call option by
purchasing a call option on the same security with the same exercise price and
expiration date as the call option which they had previously written on the
security. See the Statement of Additional Information for a further description
of the risks and features of these instruments.
ADDITIONAL INFORMATION
Additional information about the investment policies and restrictions of
each Portfolio are described in the Statement of Additional Information.
MANAGEMENT OF THE FUND
The Board of Directors of the Fund is responsible for the overall
administration of the affairs of the Fund.
GROWTH PORTFOLIO
The investment adviser for the Growth Portfolio is Newbold's Asset
Management, Inc. ("NAM"). NAM is a wholly-owned subsidiary of United Asset
Management Corporation ("UAM"). The principal business activity of UAM is
institutional management and the acquisition of investment management firms.
Prior to September 11, 1990, NAM was a wholly-owned subsidiary of PNAM, Inc.
which is an indirect wholly-owned subsidiary of Provident Mutual. NAM was
incorporated on June 28, 1988 and is located at 937 Haverford Road, Bryn Mawr,
Pennsylvania, 19010. The investment advisory agreement between the Fund and NAM
was originally approved by the Board of Directors of the Fund, including a
majority of the "non-interested" directors on June 19, 1990. The agreement was
approved by shareholders of the Growth Portfolio on August 20, 1990 and became
effective on September 11, 1990. On April 26, 1995, the Board of Directors of
the Fund, including a majority of the "non-interested" directors, approved the
continuation of the agreement.
The Growth Portfolio's portfolio manager is Timothy M. Havens, Chairman and
Chief Executive Officer, who has managed the firm since 1982 having joined three
years earlier as a Vice President and then serving as President. Mr. Havens'
investment career began in 1971 with a prominent investment banking firm where
he served in a number of portfolio management assignments including
responsibility for an offshore fund, a special purpose mutual fund and a broad
mix of employee benefit funds.
As compensation for the investment advisory services in connection with the
Growth Portfolio, the Fund pays NAM monthly compensation at an effective annual
rate of 0.50% of the first $20 million of the average daily net assets of the
Portfolio, 0.40% of the next $20 million of the average daily net assets of the
Portfolio and 0.30% of the average daily net assets in excess of $40 million.
During 1994 the Fund paid the adviser at an effective annual rate of 0.35% of
the average daily net assets of the Portfolio.
MONEY MARKET PORTFOLIO
The investment adviser for the Money Market Portfolio is Providentmutual
Investment Management Company. PIMC was incorporated on May 9, 1983 and is
located at 1600 Market Street, Philadelphia, Pennsylvania, 19103. PIMC is an
indirect wholly-owned subsidiary of Provident Mutual. Provident Mutual employs a
full staff of investment personnel to manage its investment assets, and
Provident Mutual's personnel
17
<PAGE> 20
and related facilities are utilized by PIMC in performing its investment
advisory functions with respect to the Money Market Portfolio.
The investment advisory agreement between the Fund and PIMC with respect to
the Money Market Portfolio became effective on May 1, 1989. The investment
advisory agreement was originally approved by the Board of Directors of the
Fund, including a majority of the "non-interested" directors on March 20, 1989.
The agreement was approved by shareholders of the Money Market Portfolio on
April 20, 1989. On April 26, 1995, the Board of Directors of the Fund, including
a majority of the "non-interested" directors, approved the continuation of the
agreement.
As compensation for the investment advisory services in connection with the
Money Market Portfolio, the Fund pays PIMC monthly compensation at an effective
annual rate of 0.25% of the average daily net assets of the Portfolio. During
1995, the Fund paid the adviser at an effective annual rate of 0.25% of the
average daily net assets of the Portfolio.
SENTINEL GROWTH, COMMON STOCK, BOND, MANAGED AND AGGRESSIVE GROWTH PORTFOLIOS
The investment adviser for the Sentinel Growth, Common Stock, Bond, Managed
and Aggressive Growth Portfolios is Sentinel Advisors Company ("SAC"). SAC is a
Vermont general partnership owned and controlled by Sigma American Corporation
("Sigma"), a wholly-owned subsidiary of Provident Mutual, and by National Life
Investment Management Company, Inc. ("NLIMC"), a wholly-owned subsidiary of
NLIC. SAC is located at National Life Drive, Montpelier, Vermont 05604. SAC is
the successor to Sentinel Advisers, Inc. ("SAI") which was the investment
adviser for Sentinel Group Funds, Inc. and Sentinel Cash Management, Inc. SAC
and its predecessors have been in the investment advisory business since 1934.
The Sentinel Growth Portfolio is managed by Robert L. Lee, CFA, a Vice
President of SAC. Prior to joining SAC in 1993, Mr. Lee was a Vice President at
Shawmut National Corporation.
The Common Stock Portfolio and the Aggressive Growth Portfolio are managed
by a team of investment professionals led by Keniston P. Merrill. Mr. Merrill
has been associated with SAC and its predecessor since 1982, serving as Chief
Executive Officer since 1986. He is also Executive Vice President of NLIC. Mr.
Merrill has a total of 37 years experience as an investment professional.
The Bond Portfolio's portfolio manager is Richard D. Temple, Vice President
of SAC. He has been the portfolio manager of the Bond Fund of the Sentinel Group
of Funds since 1985, and has been employed by SAC or its affiliates since 1969.
The Managed Portfolio's portfolio manager is Rodney A. Buck, Senior Vice
President of SAC. Mr. Buck is a Chartered Financial Analyst, and has been the
portfolio manager of the Balanced Fund of the Sentinel Group of Funds since
1982. Mr. Buck has been employed by SAC or its affiliates since 1972.
The investment advisory agreement between the Fund and SAC became effective
on March 1, 1993. It is identical in all material respects to the prior
agreement between the Fund and ProvidentMutual Management Company, Inc. ("PMMC")
except that SAC is the adviser and it has different effective and termination
dates. The agreement was approved by the Board of Directors of the Fund,
including a majority of the "non-interested" directors, on October 26, 1992 and
by shareholders of the Bond, Managed and Aggressive Growth Portfolios on January
29, 1993. Prior to March 1, 1993 the investment adviser for the Bond, Managed
and Aggressive Growth Portfolios was PMMC, a wholly-owned subsidiary of Sigma,
which is an indirect wholly-owned subsidiary of Provident Mutual. On April 26,
1995, the Board of Directors of the Fund, including a majority of the
"non-interested" directors, approved the continuation of the agreement.
On February 26, 1996, the Board of Directors of the Fund, including a
majority of the "non-interested" directors, approved an amendment to the
investment advisory agreement between the Fund and SAC to include SAC providing
investment advisory services to the Sentinel Growth and Common Stock Portfolios.
The amended investment advisory agreement was approved by NLIC, the initial
shareholder of both the
18
<PAGE> 21
Sentinel Growth and Common Stock Portfolios, on , 1996, and became
effective with regard to each of these Portfolios on , 1996.
As compensation for the investment advisory services, the Fund pays SAC
monthly compensation as follows:
Sentinel Growth Portfolio--0.50% of the first $20 million of the
average daily net assets of the Portfolio, 0.40% of the next $20 million of
the average daily net assets of the Portfolio, and 0.30% of the average
daily net assets in excess of $40 million.
Common Stock Portfolio--0.40% of the first $100 million of the average
daily net assets of the Portfolio and 0.35% of the average daily net assets
in excess of $100 million.
Bond Portfolio--0.35% of the first $100 million of the average daily
net assets of the Portfolio and 0.30% of the average daily net assets in
excess of $100 million. During 1995, the Fund paid SAC at an effective
annual rate of 0. % of the average daily net assets of the Portfolio.
Managed Portfolio--0.40% of the first $100 million of the average
daily net assets of the Portfolio and 0.35% of the average daily net assets
in excess of $100 million. During 1995, the Fund paid SAC at an effective
annual rate of 0. % of the average daily net assets of the Portfolio.
Aggressive Growth Portfolio--0.50% of the first $20 million of the
average daily net assets of the Portfolio, 0.40% of the next $20 million of
the average daily net assets of the Portfolio, and 0.30% of the average
daily net assets in excess of $40 million. During 1995, the Fund paid SAC
at an effective annual rate of 0. % of the average daily net assets of the
Portfolio.
INTERNATIONAL PORTFOLIO
PIMC is the investment adviser for the International Portfolio pursuant to
an Investment Advisory Agreement which was originally approved by the Board of
Directors of the Fund, including a majority of the "non-interested" directors,
on July 31, 1991 and which became effective on November 1, 1991. On October 26,
1992, the Board of Directors of the Fund, including a majority of the
"non-interested" directors, approved continuation of the agreement. The
agreement was approved by shareholders of the International Portfolio on January
29, 1993. On April 26, 1995, the Board of Directors of the Fund, including the
majority of the "non-interested" Directors, approved the continuation of the
agreement. Pursuant to the agreement, PIMC at its own expense will furnish the
Fund's International Portfolio with management, investment advisory,
statistical, research and other related services. Decisions as to the
investments of the Portfolio will be made by PIMC under the supervision of the
Board of Directors of the Fund. As compensation for the investment advisory
services in connection with the Portfolio, the Fund pays PIMC monthly
compensation at an effective annual rate of 0.75% of first $500 million of the
average daily net assets of the Portfolio and 0.60% of the average daily net
assets in excess of $500 million. During 1995 the Fund paid PIMC at an effective
annual rate of 0. % of the average daily net assets of the Portfolio.
PIMC has entered into a Sub-Investment Advisory Agreement with The Boston
Company Asset Management, Inc. ("TBC") under which TBC subject to monitoring by
PIMC and supervision by the Fund's Board of Directors, will at its own expense
manage the investment and reinvestment of the assets of the International
Portfolio. The TBC Agreement was approved by the Board of Directors of the Fund,
including a majority of the "non-interested" directors, on July 14, 1994 and
became effective on July 18, 1994. The agreement was approved by shareholders of
the International Portfolio on November 15, 1994. On April 26, 1995, the Board
of Directors of the Fund, including a majority of the "non-interested"
directors, approved the continuation of the agreement. TBC's address is One
Boston Place, Boston, MA 02108.
For its services to the Portfolio, TBC receives from PIMC compensation
equal to the greater of: (i) a monthly fee equal to an effective annual rate of
0.375% of the first $500 million of the average daily net assets of the
Portfolio and 0.30% of the average daily net assets in excess of $500 million;
or (ii) $20,000 per year.
19
<PAGE> 22
During 1995, PIMC paid TBC at an effective annual rate of 0.375% of the average
daily net assets of the Portfolio for that period.
Sandor Cseh, the Portfolio Manager of the Portfolio, is Senior Vice
President and Director of International of TBC and has over 20 years experience
in investment management; D. Kirk Henry, Vice President and Portfolio Manager
has over 10 years experience. TBC, a Massachusetts corporation and wholly-owned
subsidiary of The Boston Company, Inc., is an investment adviser registered
under the Investment Advisers Act of 1940. TBC provides investment advisory and
management services primarily for institutional clients, including certain
pension funds. The Boston Company, Inc. is a wholly-owned subsidiary of the
Mellon Bank Corporation.
OTHER EXPENSES
Certain expenses are borne directly by the Portfolios. Provident Mutual has
agreed to reimburse the Fund for ordinary operating expenses, excluding
investment advisory fees, in excess of an annual rate of 0.40% of the average
daily net asset value of each of the Money Market, Growth, Aggressive Growth,
Bond and Managed Portfolios and 0.75% for the International Portfolio. For the
fiscal year 1995, each Portfolio bore total expenses of the average daily net
assets of the Portfolio, net of the reimbursement by Provident Mutual (and the
fee waiver by the administrator for the International Portfolio), as follows:
Growth Portfolio--0.61%; Money Market Portfolio--0.50%; Bond Portfolio--0.60%;
Managed Portfolio--0.66%; Aggressive Growth Portfolio--0.76%; and International
Portfolio--1.15%.
With respect to the Sentinel Growth and Common Stock Portfolios, NLIC has
agreed to reimburse the Fund for ordinary operating expenses of these
Portfolios, excluding investment advisory fees, in excess of an annual rate of
0.40% of the average daily net assets of each of these Portfolios. For the
fiscal year ending December 31, 1996, the Fund anticipates that the Sentinel
Growth and Common Stock Portfolios will bear total annualized expenses, net of
any reimbursement by NLIC, of approximately 0.90% of the average daily net
assets of the Sentinel Growth Portfolio and approximately 0.80% of the average
daily net assets of the Common Stock Portfolio.
Certain administrative services are provided for the Fund by PFPC Inc.
("PFPC") pursuant to an Administration Agreement, including maintenance of the
Portfolios' books and records, preparation of governmental filings, statements
and returns and stockholder reports, and computation of net asset value and
daily dividends. For such services, PFPC is paid a fee at an annual rate of
0.10% of each Portfolio's net assets, computed daily and paid monthly, with a
minimum aggregate annual fee with respect to all eight Portfolios of $
. PFPC is a wholly-owned subsidiary of PNCBank.
BROKERAGE ALLOCATION
SAC, PIMC, NAM and TBC place all portfolio orders on behalf of each
Portfolio that they advise and attempt, in all cases, to obtain the most
favorable prices and executions. SAC, PIMC, NAM and TBC may place orders with
brokers that are affiliated persons of the Fund pursuant to procedures
established by the Board of Directors. However, in no event will persons
affiliated with the Fund deal with the Fund as principal in the purchase and
sale of the Fund's portfolio securities. During 1995, $398,249 of brokerage
commissions were paid to PML Securities Company ("PML") by the Fund. During 1994
and 1993, no brokerage commissions were paid to PML by the Fund.
20
<PAGE> 23
DESCRIPTION OF THE FUND'S SHARES
CHARACTERISTICS OF THE FUND'S COMMON STOCK
The authorized capital stock of the Fund consists of two hundred million
shares of common stock $.01 par value. The shares of common stock are divided
into eight classes--Sentinel Growth Portfolio, Common Stock Portfolio, Growth
Portfolio, Money Market Portfolio, Bond Portfolio, Managed Portfolio, Aggressive
Growth Portfolio and International Portfolio. The Money Market Portfolio
currently consists of 10 million shares; each of the other classes currently
consists of five million shares. The Fund may establish additional portfolios
and may allocate its shares either to such new classes or to any of the eight
existing classes.
Shares (including fractional shares) of each Portfolio have equal rights
with regard to voting, redemptions, dividends, distributions and liquidations
with respect to that Portfolio. The shares of each Portfolio, when issued, will
be fully paid and nonassessable and will have no preference, preemptive
conversion, exchange or similar rights. Shares do not have cumulative voting
rights.
Because of current federal securities law requirements, the Fund expects
that its insurance company shareholders will offer their Policyowners the
opportunity to instruct them as to how Fund shares allocable to their policies
will be voted with respect to certain matters, such as approval of investment
advisory agreements. Fund shares not attributable to contracts or for which no
timely instructions are received by insurance company shareholders will be voted
in the same proportion as the voting instructions which are received for all
policies participating in each Portfolio. Under certain circumstances, which are
described more fully in the accompanying prospectuses for the separate accounts
which invest in the fund, the voting instructions received from Policyowners may
be disregarded.
Inquiries about the Fund can be made by calling or writing the Fund at the
address and telephone number listed on the cover page.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Portfolio of the Fund intends to qualify and elect to be taxed as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"). Under those provisions, each Portfolio of the
Fund will not be subject to Federal income tax on that part of its ordinary
income and realized net capital gains which it distributes to its
shareholder(s). Accordingly, the Fund intends to distribute substantially all of
such income to its shareholder(s) thereby avoiding any Federal income tax
liability. (See "Foreign Taxes" on page of Statement of Additional
Information.)
Dividends of investment income of the Growth, Common Stock, Bond, and
Managed Portfolios will be declared and paid quarterly; dividends of capital
gains will be declared and paid annually. For the Money Market Portfolio,
dividends of investment income and capital gains will be declared daily and paid
monthly; for the Sentinel Growth, Aggressive Growth and International Portfolios
such dividends will be declared and paid annually. All paid dividends will be
reinvested in full and fractional shares of the Portfolio to which they relate,
unless the shareholder(s) elects to receive such distribution in cash.
For dividend purposes, the net investment income of each Portfolio will
consist of dividends and interest received and accrued by each such Portfolio,
plus or minus any amortized discount or premium, less estimated expenses.
Since the shareholder(s) of the Fund will be insurance company separate
accounts, no discussion is included herein as to the federal income tax
consequences to shareholders. For information concerning the federal tax
consequences to purchasers of the policies, see the attached prospectus for such
policies.
VALUATION OF SHARES
PML Securities Company is the principal underwriter of the Fund. Its
address is 220 Continental Drive, Christiana Executive Campus, Newark, Delaware
19713.
21
<PAGE> 24
Other than the shares sold to Provident Mutual to seed the Managed,
Aggressive Growth and International Portfolios, and to NLIC to seed the Sentinel
Growth and Common Stock Portfolios, the Fund's shares will be offered and sold
only to insurance company separate accounts, without sales charge, at each
Portfolio's per share net asset value. The price per share is based on the next
daily calculation of net asset value after an order is placed.
The net asset value of the shares of each Portfolio of the Fund is
determined as of the close of the New York Stock Exchange on each day when the
New York Stock Exchange is open for business. The net asset value per share of
each Portfolio will be computed by dividing the sum of the investments held by
that Portfolio, plus any cash or other assets, minus all liabilities, by the
total number of outstanding shares of that Portfolio at such time. The Directors
have established procedures designed to stabilize, to the extent reasonably
possible, the Money Market Portfolio's price per share as computed for the
purpose of sales and redemptions at $1.00. All expenses borne by the Fund,
including the investment advisory fees payable to each of the investment
advisers, are accrued daily.
Equity investments (including common stocks, preferred stocks, convertible
securities, and warrants) and call options written on all portfolio investments
listed or traded on a national exchange are valued at their last sale price on
that exchange prior to the time when assets are valued. In the absence of any
exchange sales on that day and for unlisted equity securities, such securities
and call options written on portfolio securities are valued at the last sale
price on the NASDAQ (National Association of Securities Dealers Automated
Quotations) National Market System. In the absence of any National Market System
sales on that day, equity securities are valued at the last reported bid price
and call options written on all portfolio securities for which other
over-the-counter market quotations are readily available are valued at the last
reported asked price. Debt securities with maturities exceeding one year are
valued on the basis of valuations furnished by a pricing service when such
prices are believed to reflect the fair value of such securities. All
instruments held by the Money Market Portfolio and all money market instruments
with remaining maturities of 60 days or less held in other Portfolios are valued
on an amortized cost basis, as described more fully in the Statement of
Additional Information. All other assets are valued at their fair value as
determined in good faith by the Directors.
The value of a foreign security held by the International Portfolio is
determined based upon its sale price on the foreign exchange or market on which
it is traded and in the currency of that market, as of the close of the
appropriate exchange or, if there have been no sales during the day, at the mean
of the closing bid and asked prices. Trading in securities on exchanges and
over-the-counter markets in Europe and the Far East is normally completed at
various times prior to 4:00 p.m. New York City time, the current closing time of
the New York Stock Exchange. Trading on foreign exchanges may not take place on
every day the New York Stock Exchange is open. Conversely, trading in various
foreign markets may take place on days when the New York Stock Exchange is not
open and on other days when the Portfolio's net asset value is not calculated.
Consequently, the calculation of the net asset value for the Portfolio may not
occur contemporaneously with the determination of the most current market prices
of the securities included in such calculation. In addition, the value of the
net assets held by the Portfolio may be significantly affected on days when
shares are not available for purchase or redemption.
Any assets which are denominated in a foreign currency are translated into
U.S. dollar equivalents at the prevailing market rates as quoted by generally
recognized reliable sources.
CONFLICTS
Shares of the Fund currently are sold to variable annuity and variable life
separate accounts of Provident Mutual and Providentmutual Life and Annuity
Company of America, and to variable life insurance separate accounts of NLIC.
Shares of the Fund also are sold to separate accounts of other insurance
companies to fund variable annuity and variable life insurance contracts.
Because shares of the Fund are sold to insurance company separate accounts to
fund variable annuity and variable life insurance contracts, and to separate
accounts of different insurance companies, it is possible that material
conflicts could arise between the
22
<PAGE> 25
interests of variable annuity contract owners and variable life insurance
contract owners, or between the interests of owners of contracts issued by
different insurance companies. Such material conflicts could include, for
example, differences in the federal income tax treatment of variable annuity
contracts versus variable life insurance contracts. The Fund does not currently
foresee any disadvantage to variable annuity or variable life contract owners
arising from the fact that shares of the Fund might support both types of
contracts or contracts of different insurance companies. However, the Fund's
Board of Directors will continually monitor events to identify any material
irreconcilable conflicts that may arise and to determine what action, if any,
should be taken to resolve such conflicts. Such action may include redeeming the
shares of the Fund held by separate accounts involved in any material
irreconcilable conflict.
REDEMPTION OF SHARES
All shares of capital stock of any class of the Fund may be redeemed in
accordance with the Fund's Articles of Incorporation and By-Laws. Shares will be
redeemed at their net asset value and will be restored to authorized but
unissued status. Payment for shares redeemed will generally be made within seven
days after receipt of a proper notice of redemption.
Sales and redemptions of shares of the same class by the same shareholder
on the same day will be netted. Payment of the redemption price will be in cash.
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT
PNCBank, which is located at Broad & Chestnut Streets, Philadelphia,
Pennsylvania 19101, acts as Custodian of the Fund's assets. Citibank, N.A.,
located at 111 Wall Street, New York, New York 10043 serves as Custodian of the
foreign assets of the International Portfolio. PFPC, Inc., which is located at
103 Bellevue Parkway, Wilmington, Delaware 19809, serves as the Fund's Transfer
Agent and Dividend Disbursing Agent.
Foreign securities acquired by the International Portfolio will be
maintained in the sub-custody of either foreign banks and trust companies that
are members of Citibank's Global Custody Network or foreign depositories used by
such members.
23
<PAGE> 26
MARKET STREET FUND, INC.
103 BELLEVUE PARKWAY
WILMINGTON, DE 19809
302-791-1700
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 28, 1996
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with the Market Street Fund, Inc. Prospectus dated February
28, 1996, and retained for future reference.
A copy of the Prospectus to which this Statement of Additional Information
relates is available at no charge by writing to Market Street Fund, Inc. at the
above address or by calling the telephone number listed above.
------------------------
TABLE OF CONTENTS*
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information and History (8).................................................... 2
Investment Restrictions (9 to 14)...................................................... 2
Investment Techniques and Investment Risks (9 to 17)................................... 4
Portfolio Turnover (10 to 14).......................................................... 8
Management of the Fund (17)............................................................ 9
Investment Advisory and Other Services (17 to 20)...................................... 10
Portfolio Transactions and Brokerage Allocation (20)................................... 13
Determination of Net Asset Value (22).................................................. 14
Purchase and Redemption of Shares (22 and 23).......................................... 15
Taxes (21)............................................................................. 15
Capital Stock (21)..................................................................... 16
Code of Ethics......................................................................... 17
Other Services (23).................................................................... 17
Financial Statements................................................................... 19
Appendix A--Description of Money Market Instruments and Commercial Paper and Bond
Ratings.............................................................................. A-1
</TABLE>
- ---------------
* (Numbers in parentheses refer to corresponding pages of the Prospectus.)
Form 15732B 2.96
<PAGE> 27
GENERAL INFORMATION AND HISTORY
THE FUND
The Market Street Fund, Inc. (the "Fund") was formed on March 21, 1985. The
Fund is an open-end diversified management investment company as such terms are
defined in the Investment Company Act of 1940, as amended (the "1940 Act"). As a
"series" type of mutual Fund, the Fund issues separate classes (or series) of
stock, and currently consists of the Money Market Portfolio, Growth Portfolio,
Sentinel Growth Portfolio, Common Stock Portfolio, Bond Portfolio, Managed
Portfolio, Aggressive Growth Portfolio and International Portfolio.
The Fund serves as an investment medium for the modified premium, flexible
premium, scheduled premium and single premium variable life insurance policies
issued by Provident Mutual Life Insurance Company of Philadelphia ("Provident
Mutual") the flexible premium variable life insurance policies issued by
National Life Insurance Company ("NLIC") of Montpelier, Vermont, and the
flexible premium deferred variable annuity contracts and flexible premium
variable life insurance policies issued by Providentmutual Life and Annuity
Company of America ("PLACA"). Other than the shares sold directly to Provident
Mutual to seed the Managed, Aggressive Growth and International Portfolios, and
to NLIC to seed the Sentinel Growth and Common Stock Portfolios, shares of the
Fund currently will be sold only to separate accounts of Provident Mutual and
PLACA and to variable life insurance separate accounts of NLIC. In the future,
shares of the Fund may also be sold to separate accounts of other affiliated or
unaffiliated insurance companies in order to fund variable contracts.
As the primary shareholder of the Fund's shares, Provident Mutual currently
controls the Fund. Provident Mutual will continue to control the Fund until
other insurance companies, selling significant amounts of variable life
insurance and variable annuities have made substantial investments in Fund
shares.
As of December 31, 1995, no policyholder owned a policy or contract which
individually or in the aggregate had a total interest in any Portfolio of more
than 5%. As of December 31, 1995, the officers and directors of the Fund as a
group did not beneficially own as policyholders more than a 1% interest in any
Portfolio.
INVESTMENT RESTRICTIONS
The following specific restrictions supplement the Fund's "Investment
Objectives and Policies" set forth in the Prospectus.
The Fund has adopted the following fundamental restrictions relating to the
investment of assets of the eight Portfolios. These are fundamental policies and
may not be changed without the approval of holders of the majority of
outstanding voting shares of each Portfolio affected. A change in policy
affecting only one Portfolio may be effected with the approval of the majority
of the outstanding voting shares of that Portfolio only. The Fund's fundamental
investment restrictions provide that no Portfolio of the Fund is allowed to:
(1) Purchase real estate or any interest therein, except through the
purchase of corporate or certain government securities (including
securities secured by a mortgage or a leasehold interest or other interest
in real estate). A security issued by a real estate or mortgage investment
trust is not treated as an interest in real estate.
(2) Make loans, other than through the acquisition of obligations in
which the Portfolio may invest consistent with its objective and investment
policies.
(3) Invest in commodities or in commodity contracts, or in call
options, except that the Growth, Managed and Aggressive Growth Portfolios
may write covered call options and enter into closing transactions, as
permitted by their investment policies and the International Portfolio may
enter into forward currency exchange contracts as described herein.
(4) Engage in the underwriting of securities of other issuers, except
to the extent the Portfolio may be deemed an underwriter in selling as part
of an offering registered under the Securities Act of 1933, securities
which it has acquired.
2
<PAGE> 28
(5) Borrow money, except from banks as a temporary measure for
emergency purposes or as necessary for clearance of securities transactions
or to permit the transfer of funds for various purposes without interfering
with the orderly liquidation of securities in its portfolio, where such
borrowings would not exceed 5% of the market value of total assets at the
time each such borrowing is made, except that this restriction does not
apply to: the International Portfolio which may borrow up to 20% of the
market value of its total assets from banks as a temporary measure, such as
to enable it to meet redemption requests or to settle transactions on
different stock markets where different settlement dates apply which might
otherwise require the sale of Portfolio securities at a time when it would
not be in the Portfolio's best interests to do so; and to reverse
repurchase agreements entered into in accordance with the Fund's investment
policies.
(6) Purchase securities which are subject to legal or contractual
delays in or restrictions on resale (except for the International
Portfolio).
(7) Invest for the purpose of exercising control over or management of
any company.
(8) Issue senior securities, except to the extent that a Portfolio may
borrow money as permitted herein and that a Portfolio, in accordance with
its investment objectives and policies, may enter into reverse repurchase
agreements and purchase securities on a when-issued or a delayed delivery
basis.
(9) Unless received as a dividend or as a result of an offer of
exchange approved by the Securities and Exchange Commission or of a plan of
reorganization, purchase or otherwise acquire any security issued by a U.S.
or foreign investment company if the Portfolio would immediately thereafter
own (a) more than 3% of the outstanding voting stock of the investment
company, (b) securities of the investment company having an aggregate value
in excess of 5% of the Portfolio's total assets, (c) securities of
investment companies having an aggregate value in excess of 10% of the
Portfolio's total assets, or (d) together with investment companies having
the same investment adviser as the Portfolio (and companies controlled by
such investment companies), more than 10% of the outstanding voting stock
of any registered closed-end investment company.
(10) Purchase securities of any issuer, if
(a) with respect to 75% of the market value of its total assets,
more than 5% of the account's total assets taken at market value would
at the time be invested in the securities of such issuer, unless such
issuer is the U.S. Government or its agency or instrumentality, or
(b) such purchase would at the time result in more than 10% of the
outstanding voting securities of such issuer being held by the
Portfolio.
The Bond and Managed Portfolios will not purchase the securities of
issuers conducting their principal business activity in the same industry,
other than the electric, gas and telephone utility industries, if
immediately after such purchase the value of its investments in such
industry would exceed 25% of its total assets taken at market value; nor
will it purchase the securities of companies in the electric, gas or
telephone utility industries if, immediately after such purchase, the value
of its investments in all such industries would exceed 75% of its total
assets taken at market value.
The Sentinel Growth, Common Stock, Growth, Money Market, Aggressive
Growth and International Portfolios will not make any investment in an
industry if that investment would make the Portfolio's holding in that
industry exceed 25% of the Portfolio's total assets. The International
Portfolio will not invest more than 5% of the market value of its total
assets in companies with a record of less than three years' operations or
in securities which are not readily marketable.
These restrictions on concentration do not apply to investments by the
Money Market and Managed Portfolios in obligations issued by or guaranteed
by the U.S. Government, its agencies or instrumentalities, or certificates
of deposit or securities issued or guaranteed by domestic banks. Also, for
these purposes, neither all finance companies as a group, nor all utility
companies as a group, will be considered a single industry.
3
<PAGE> 29
INVESTMENT TECHNIQUES AND INVESTMENT RISKS
The following disclosure supplements the Fund's "Investment Objectives and
Policies" set forth in the Prospectus.
REPURCHASE AGREEMENTS
Each of the Portfolios may invest in repurchase agreements. A repurchase
agreement customarily obligates the seller at the time it sells securities to
the Portfolio to repurchase the securities at a mutually agreed upon time and
price. The total amount received on repurchase would be calculated to exceed the
price paid by the Portfolio, reflecting an agreed upon market rate of interest
for the period from the time of the repurchase agreement to the settlement date,
and would not necessarily be related to the interest rate on the underlying
securities. The underlying securities are ordinarily U.S. Government securities,
but may consist of other securities in which the respective Portfolios may
otherwise invest. A Portfolio will not invest more than 10% of its total assets
in repurchase agreements which have maturities of more than seven days and will
not invest in repurchase agreements with maturities of over 30 days. Repurchase
Agreements will be fully collateralized at all times and interest on the
underlying security will not be taken into account for valuation purposes. Under
no circumstances will a Portfolio enter into a repurchase agreement with
Provident Mutual, PLACA, NLIC or SAC.
To the extent that the proceeds from any sale upon a default in the
obligation to repurchase were less than the repurchase price, the Portfolio
would suffer a loss. The Portfolio might also incur disposition costs in
connection with liquidating its collateral and, if bankruptcy proceedings are
commenced with respect to the seller, realization upon the collateral by the
Portfolio may be delayed or limited and a loss may be incurred if the collateral
securing the repurchase agreement declines in value during the bankruptcy
proceedings. To minimize the possibility of losses due to the default or
bankruptcy of the seller, the Fund has adopted standards of credit worthiness
for all parties with which the Fund enters into repurchase agreements and will
review compliance by such parties periodically.
COVERED CALL OPTION CONTRACTS
The Growth, Aggressive Growth and Managed Portfolios may engage in certain
limited options strategies. These options strategies are limited to writing
covered call options which are traded on a domestic securities exchange with
respect to securities in the Portfolio and entering into "closing purchase
transactions" in order to terminate its obligation as a writer of a call option
prior to the expiration of the option. A Portfolio will not write a call option
if the securities covered by such options exceed 25% of the Portfolio's total
assets at that time. Moreover, in order to maintain qualification for treatment
as a regulated investment company for federal tax law purposes, the writing of
covered calls may be further limited.
A covered call option gives the purchaser of the option the right to
purchase the underlying security from the Portfolio at a fixed exercise price at
any time prior to the expiration of the option, regardless of the market price
of the security during the option period. As consideration for the option, the
purchaser pays the Portfolio a premium, which the Portfolio retains whether or
not the option is exercised. A covered call option will benefit a Portfolio if,
over the option period, the underlying security declines in value or does not
appreciate above the aggregate value of the exercise price plus the premium.
However, the Portfolio risks the loss of profits if the underlying security
appreciates above the aggregate value of the exercise price and premium.
So long as the Portfolio remains obligated as a writer of a call, it
forgoes the opportunity to profit from increases in the market price of the
underlying security above the call price. The Portfolio may close out a covered
call option position by purchasing on the same exchange a call option on the
same security, with the same exercise price and the same expiration date.
Although writing only call options which are traded on a national securities
exchange increases the likelihood of being able to make closing purchase
transactions, there is no assurance that the Portfolio will be able to do so at
any particular time or at an acceptable price. Depending upon the premium paid
for the option relative to the premium received on the option written, the
Portfolio may realize a profit or loss on a closing transaction. The writing of
call options could result in increases in the turnover rate of the Portfolio,
especially during periods when market prices of the underlying
4
<PAGE> 30
securities appreciate, which could result in higher brokerage costs. In
addition, brokerage commissions will be paid by the Portfolio on both the
establishment and closing out of an option position.
The Portfolio may write covered call options on particular Portfolio
securities when it believes that the market value of those securities will
either decline or will not increase over the period covered by the option. In
this manner, the Portfolio hopes that the option price received (net of
transaction costs) may offset any decline in the market value of the security or
otherwise generate income for the Portfolio. To the extent income is generated,
the writing of covered call options generally will help to achieve the Growth
Portfolio's secondary objective of a reasonable level of income, but does not
further the Portfolio's primary objective of achieving intermediate and
long-term growth of capital, except to the extent that it "hedges" against
capital losses.
In order to maintain its qualification as a regulated investment company
under Subchapter M of the Internal Revenue Code, the Fund intends to limit gains
from the sale of securities held for less than three months to less than 30% of
annual gross income of each Portfolio. Accordingly, the Fund may be restricted
in the writing of options on securities which have been held less than three
months, in the writing of options which expire in less than three months and in
purchasing options to terminate options which it wrote within the preceding
three months. In addition, since the Fund has no control over the timing of the
exercise of an option, compliance with the 30% rule will necessitate the Fund's
limiting its covered option writing program. For additional information about
the tax consequences of the Portfolios' option strategies, see "Taxes."
WARRANTS
The Growth, Sentinel Growth, Common Stock, Managed and Aggressive Growth
Portfolios may invest in warrants. None of these Portfolios intends to invest
more than 2% of its net assets in warrants that are not listed on a national
securities exchange. In no event will a Portfolio's investment in warrants
exceed 5% of its net assets. (A warrant is a right to buy a certain security at
a set price during a certain time period.)
SHORT-TERM TRADING
The Growth, Money Market and Aggressive Growth Portfolios generally will
not engage in short-term trading (purchases and sales within seven days).
ILLIQUID ASSETS
No Portfolio may invest more than 10% of the value of its net assets in
securities that are not readily marketable or which are restricted as to
disposition under the U.S. securities laws or otherwise. This limit shall not
apply for the International Portfolio as to securities purchased or sold
pursuant to Rule 144A under the Securities Act of 1933 which the Board of
Directors has determined are liquid. This restriction will apply to repurchase
agreements maturing in more than seven days. This restriction will also apply to
securities received as a result of a corporate reorganization or similar
transaction affecting readily marketable securities already held in the Fund's
Portfolios. To the extent that securities received under these circumstances,
together with other securities considered illiquid by the staff of the
Securities and Exchange Commission ("SEC") or by the Fund's Board, exceed 10% of
the value of the Portfolio's total net assets, the Fund will attempt to dispose
of them in an orderly fashion in order to reduce its Portfolio's holdings in
such securities to less than the 10% threshold.
LOWER QUALITY DEBT INSTRUMENTS
Up to 25% of the total assets of the Bond and the Managed Portfolios may be
invested in lower quality debt instruments (i.e. BB as rated by Standard & Poors
Corporation ("Standard & Poor's") or Ba as rated by Moody's Investors Service,
Inc. ("Moody's")). Furthermore, debt instruments with higher ratings, and
especially those rated as investment grade but not high quality (i.e., rated BBB
by Standard & Poors or Baa by Moody's) may, after purchase by either Portfolio,
have their ratings lowered due to the deterioration of the issuer's financial
position. In the event that the rating of a bond held by either Portfolio drops
below BBB or Baa, the decision whether to retain or dispose of the bond will be
made on a case by case basis. However, in no event will the amount of assets
held in lower quality debt instruments be greater than that set forth above.
5
<PAGE> 31
Lower quality debt instruments entail certain risks. These lower-rated
fixed-income securities are considered, on balance, as predominantly speculative
with respect to capacity to pay interest and repay principal in accordance with
the terms of the obligation and will generally involve more credit risk than
securities in the higher rating categories. The market values of such securities
tend to reflect individual corporate developments to a greater extent than do
higher-rated securities, which react primarily to fluctuations in the general
level of interest rates. Such lower-rated securities also tend to be more
sensitive to economic conditions than higher-rated securities. Adverse publicity
and investor perceptions, whether or not based on fundamental analysis,
regarding lower-rated bonds may depress prices and liquidity for such
securities. To the extent a Portfolio invests in these securities, factors
adversely affecting the market value of high-yielding securities will adversely
affect a Portfolio's net asset value. Although some risk is inherent in all
securities ownership, holding fixed-income securities generally entails less
risk than an investment in common stock of the same issuer.
High-yielding securities may be issued by corporations in the growth stage
of their development. They may also be issued in connection with a corporate
reorganization or as part of a corporate takeover. Companies that issue such
high-yielding securities are often highly leveraged and may not have available
to them more traditional methods of financing. Therefore, the risk associated
with acquiring the securities of such issuers generally is greater than is the
case with higher-rated securities. For example, during an economic downturn or a
sustained period of rising interest rates, highly leveraged issuers of
high-yielding securities may experience financial stress. During such periods,
such issuers may not have sufficient revenues to meet their interest payment
obligations. The issuer's ability to service its debt obligations may also be
adversely affected by specific corporate developments, the issuer's inability to
meet specific projected business forecasts, or the unavailability of additional
financing. The risk of loss due to default by the issuer is significantly
greater for the holders of high-yielding securities because such securities are
generally unsecured and are often subordinated to other creditors of the
issuers.
A Portfolio may have difficulty disposing of certain high-yielding
securities for which there is a thin trading market. Because not all dealers
maintain markets in all high-yielding securities, there is no established retail
secondary market for many of these securities, and the Fund anticipates that
they could be sold only to a limited number of dealers or institutional
investors. To the extent there is a secondary trading market for high-yielding
securities, it is generally not as liquid as that for higher-rated securities.
The lack of a liquid secondary market for certain securities may make it more
difficult for the Fund and its Board of Directors to obtain accurate market
quotations for purposes of valuing a Portfolio's assets. Market quotations are
generally available on many high-yield issues only from a limited number of
dealers and may not necessarily represent firm bids of such dealers or prices
for actual sales.
The market for high-yielding securities has not weathered a major economic
recession, and it is not known how one might affect that market. It is likely,
however, that any such recession could severely affect the market for and the
values of such securities, as well as the ability of the issuers of such
securities to repay principal and pay interest thereon. Moreover, such a
recession could also increase the incidence of defaults of high-yielding
securities.
A Portfolio may acquire high-yielding securities that are sold without
registration under the federal securities laws and therefore carry restrictions
on resale. A Portfolio may incur special costs in disposing of such securities,
but will generally incur no costs when the issuer is responsible for registering
the securities.
A Portfolio also may acquire high-yielding securities during an initial
underwriting. Such securities involve special risks because they are new issues.
The Fund has no arrangement with any person concerning the acquisition of such
securities, and the Adviser will carefully review the credit and other
characteristics pertinent to such new issues.
From time to time, there have been proposals for legislation designed to
limit the use of certain high-yielding securities in connection with leveraged
buy-outs, mergers and acquisitions, or to limit the deductibility of interest
payments on such securities. Such proposals, if enacted into law, could
generally reduce the market for such securities, could negatively affect the
financial condition of issuers of high-yielding securities by
6
<PAGE> 32
removing or reducing a source of future financing, and could negatively affect
the value of specific high-yield issues. However, the likelihood of any such
legislation or the effect thereof is uncertain.
As savings and loan associations dispose of their portfolios of lower
quality debt instruments pursuant to the Financial Institutions Reform Recovery
and Enforcement Act of 1989, the general market and prices for such securities
should be adversely affected.
FOREIGN CURRENCY TRANSACTIONS
The value of the assets of the International Portfolio as measured in
United States dollars may be affected favorably or unfavorably by changes in
foreign currency exchange rates and exchange control regulations, and the
Portfolio may incur costs in connection with conversions between various
currencies.
The Portfolio will conduct its foreign currency exchange transactions
either on a spot (i.e. cash) basis at the spot rate prevailing in the foreign
currency exchange market, or through the use of forward contracts to purchase or
sell foreign currencies. A forward foreign currency exchange contract will
involve an obligation by the Fund to purchase or sell a specific amount of
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 transferable in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward contract generally has no deposit requirements, and no
commissions are charged at any stage for trades. Neither type of foreign
currency transaction will eliminate fluctuations in the prices of the
Portfolio's securities or prevent loss if the prices of such securities should
decline.
The Portfolio may enter into forward foreign currency exchange contracts
only under two circumstances. First, when the Portfolio enters into a contract
for the purchase or sale of a security denominated in a foreign currency, it may
desire to "lock in" the U.S. dollar price of the security. The Portfolio will
then enter into a forward contract for the purchase or sale, for a fixed amount
of dollars, of the amount of foreign currency involved in the underlying
securities transactions. In this manner the Portfolio will be better able to
protect itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the subject foreign currency during the
period between the date the securities are purchased or sold and the date on
which payment is made or received.
Second, when the Adviser or Sub-Adviser believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, it may enter into a forward contract to sell, for a fixed amount of
dollars, the amount of foreign currency approximating the value of some or all
of the Portfolio's securities denominated in such foreign currency. The precise
matching of the forward contract amounts and the value of the securities
involved will not generally be possible since the future value of such
securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. The projection of short-term currency
market movement is extremely difficult, and the successful execution of a
short-term hedging strategy is highly uncertain. The Portfolio does not intend
to enter into such forward contracts under this second circumstance on a regular
or continuous basis. The Portfolio will also not enter into such forward
contracts or maintain a net exposure to such contracts when the consummation of
the contracts would obligate the Portfolio to deliver an amount of foreign
currency in excess of the value of the Portfolio's securities or other assets
denominated in that currency. The Adviser or Sub-Adviser believes that it is
important to have the flexibility to enter into such forward contracts when it
determines that to do so is in the best interests of the Portfolio. The
Portfolio's custodian bank segregates cash or equity or debt securities in an
amount not less than the value of the Portfolio's total assets committed to
forward foreign currency exchange contracts entered into under this second type
of transaction. If the value of the securities segregated declines, additional
cash or securities are added so that the segregated amount is not less than the
amount of the Portfolio's commitments with respect to such contracts. Under
normal circumstances, the Portfolio expects that any appreciation (depreciation)
on such forward exchange contracts will be approximately offset by the
(depreciation) appreciation in translation of the underlying foreign investment
arising from fluctuations in foreign currency exchange rates.
7
<PAGE> 33
The Portfolio will recognize the unrealized appreciation or depreciation
from the fluctuation in a foreign currency forward contract as an increase or
decrease in the Portfolio's net assets on a daily basis, thereby providing an
appropriate measure of the Portfolio's financial position and changes in
financial position.
Income realized from a foreign currency contract will not for tax purposes
be considered income derived from securities transactions. The Portfolio's
status as a regulated investment company under the Internal Revenue Code of 1954
would be lost for any taxable year in which such foreign currency contract
income exceeds 10% of the Portfolio's gross income. The Board of Directors of
the Fund has adopted a policy to limit the Portfolio's foreign currency contract
income to not in excess of 10% of the Portfolio's gross income in a year, except
in circumstances when it is determined that the Portfolio and its stockholders
would be better served by not maintaining regulated investment company status
for such year.
PORTFOLIO TURNOVER
Each Portfolio has a different expected annual rate of portfolio turnover,
which is calculated by dividing the lesser of purchases or sales of Portfolio
securities during the fiscal year by the monthly average of the value of the
Portfolio's securities (excluding from the computation all securities, including
options, with maturities at the time of acquisition of one year or less).
Turnover rates may vary greatly from year to year as well as within a particular
year and may also be affected by cash requirements for redemptions of each
Portfolio's shares and by requirements which enable the Fund to receive certain
favorable tax treatments. The portfolio turnover rates will, of course, depend
in large part on the level of purchases and redemptions of shares of each
Portfolio. Higher portfolio turnover can result in corresponding increases in
brokerage costs to the Portfolios of the Fund and its shareholders. (See
"Portfolio Transactions and Brokerage Allocation," Page 13.) However, because
rate of portfolio turnover is not a limiting factor, particular holdings may be
sold at any time, if investment judgment or Portfolio operations make a sale
advisable.
No portfolio turnover rate can be calculated for the Money Market Portfolio
due to the short maturities of the instruments purchased. Portfolio turnover
should not affect the income or net asset value of the Money Market Portfolio
because brokerage commissions are not normally charged on the purchase or sale
of money market instruments.
8
<PAGE> 34
MANAGEMENT OF THE FUND
Directors and Officers
The directors and officers of the Fund and their principal occupations for
the last five years are set forth below. Unless otherwise noted, the address of
each director and officer is 103 Bellevue Parkway, Wilmington, DE 19809.
<TABLE>
<CAPTION>
NAME AND ADDRESSES OF AGGREGATE
DIRECTORS AND OFFICERS POSITION HELD PRINCIPAL OCCUPATION COMPENSATION
OF THE FUND WITH THE FUND DURING PAST 5 YEARS FROM THE FUND
- ------------------------ ---------------------- --------------------------------- -------------
<S> <C> <C> <C>
Stanley R. Reber*....... Chairman, President 1985-Present, Executive Vice 0
and Chief Executive President and Chief Investment
Officer Officer of Provident Mutual;
1975-1985, Executive Vice
President of Texas American Bank
Dr. Alan Gart........... Director 1982-Present, President of Alan $ 7,500
978 Warfield Lane Gart, Inc. (a consulting firm);
Huntingdon Valley, 1992-Present; Professor,
PA 19006 Southeastern Massachusetts
University; 1989-1992, Professor,
Nova Southeastern University;
1985-1989, Professor of Finance,
Lehman College of the City
University of New York
Dr. A. Gilbert Director 1987-Present, Distinguished $ 7,500
Heebner............... Professor of Economics, Eastern
2 Etienne, Arbordeau College; 1952- 1987, Executive
Devon, PA 19333 Vice President and Chief
Economist of CoreStates Finan-
cial Corp.
Edward S. Stouch........ Director 1983, Retired; 1969-1983, Vice $ 7,500
216 Grandview Rd. President and Head of Personal
Media, PA 19063 Trust Investment Department,
Trust Division of Provident
National Bank
Rosanne Gatta........... Treasurer and Treasurer and Assistant Vice 0
Comptroller President of Provident Mutual
Linda E. Senker......... Secretary Associate General Counsel of 0
Provident Mutual
</TABLE>
- ---------------
* Directors identified with an asterisk are considered to be interested persons
of the Fund (within the meaning of the 1940 Act, as amended) because of their
affiliation with Provident Mutual or the Advisers.
As of the date of this Statement of Information, officers and directors of
the Fund do not own any of the outstanding shares of the Fund. Directors who are
not officers or employees of Provident Mutual or the Adviser are paid a fee plus
actual out of pocket expenses by the Fund for each meeting of the Board of
Directors attended. Total fees incurred for 1995 were $ . Directors and
officers of the Fund do not receive any benefits from the Fund upon retirement
nor does the Fund accrue any expense for pension or retirement benefits.
9
<PAGE> 35
INVESTMENT ADVISORY AND OTHER SERVICES
GENERAL INFORMATION AND HISTORY
The Fund's investment advisers are: for the Growth Portfolio--Newbold's
Asset Management, Inc. ("NAM"); for the Money Market and International
Portfolios--Providentmutual Investment Management Company ("PIMC"); and for the
Sentinel Growth, Common Stock, Bond, Managed and Aggressive Growth
Portfolios--Sentinel Advisers Company ("SAC") (together, NAM, PIMC, and SAC are
the "Advisers").
On April 20, 1989, Provident Mutual, as the sole shareholder of the Fund,
approved the Fund's investment advisory agreements for the Growth and Money
Market Portfolios. On August 20, 1990, Provident Mutual approved a new
investment advisory agreement with NAM due to a change in control resulting from
Provident Mutual's sale of NAM to United Asset Management Corporation ("UAM").
On January 29, 1993, Provident Mutual and PLACA approved the Fund's investment
advisory agreements for the Bond, Managed, and Aggressive Growth Portfolios and
for the International Portfolio. Provident Mutual and/or PLACA voted their Fund
shares for or against such approvals, or withheld their votes, in the same
proportion as Policyowners having an interest in the respective Portfolios,
voted for, against or withheld their votes with respect to the Agreement for
that Portfolio.
NAM, PIMC and SAC provide investment advice to the Fund, pursuant to the
Fund's investment advisory agreements. Subject at all times to the supervision
and approval of the Fund's Board of Directors, the Advisers render investment
advisory services with respect to the Fund's Portfolios in a manner consistent
with their stated investment policies, objectives and restrictions. In
connection therewith, the Advisers advise the Fund as to what investments should
be purchased and sold and places orders for all such purchases and sales on
behalf of the Fund.
NAM is a registered investment adviser, and is a wholly-owned subsidiary of
UAM. Its address is 937 Haverford Road, Bryn Mawr, Pennsylvania 19010. PIMC is a
registered investment adviser and is also an indirect wholly-owned subsidiary of
Provident Mutual. Its address is 1600 Market Street, Philadelphia, Pennsylvania
19103. SAC is a registered investment adviser and is a Vermont general
partnership owned and controlled by Sigma American Corporation, an indirect
wholly-owned subsidiary of Provident Mutual and by National Life Investment
Management Company, Inc. ("NLIMC") a wholly-owned subsidiary of NLIC. Its
address is National Life Drive, Montpelier, Vermont.
ADVISORY AGREEMENTS
On October 26, 1992, the Fund's Board of Directors, including a majority of
its non-interested directors, voted unanimously to approve the investment
advisory agreement with SAC and to continue the investment advisory agreement
with PIMC for the International Portfolio. On April 26, 1995, the Fund's Board
of Directors, including a majority of its "non-interested" directors,
unanimously voted to approve continuation of all of the investment advisory
agreements with NAM, SAC and PIMC. On February 26, 1996, the Board of Directors
of the Fund, including a majority of the "non-interested" directors approved an
amendment to the investment advisory agreement between the Fund and SAC to
include SAC providing investment advisory services to the Sentinel Growth and
Common Stock Portfolios. The amended investment advisory agreement was approved
by NLIC, the initial shareholder of both the Sentinel Growth and Common Stock
Portfolios, on , 1996, and became effective with regard to each of these
Portfolios on , 1996. Each of the agreements terminates automatically in
the event of its assignment or, with respect to any Portfolio, upon 60 days'
notice given by the Fund's Board of Directors, by the Adviser or by majority
vote (as defined in the Investment Company Act and the rules thereunder) of the
Portfolio's shares. Otherwise, the investment advisory agreements will continue
in force with respect to any Portfolio so long as their continuance is approved
at least annually by a majority of the "non-interest" members of the Fund's
Board of Directors, and by (i) a majority vote (as defined in the Investment
Company Act of 1940 and the rules thereunder) of the Portfolio's shareholders or
(ii) the Fund's Board of Directors.
10
<PAGE> 36
The Advisers manage the investment operations of the Fund and the
composition of each Portfolio, including the purchase, retention and disposition
of the investments, securities and cash contained therein, in accordance with
each Portfolio's investment objectives and policies as stated in the Fund's
Articles of Incorporation, By-Laws, Prospectus and Statement of Additional
Information as from time to time in effect. In connection therewith, the
Advisers provide investment research and supervision of the Fund's investments
and conduct a continuous program of investment evaluation and, if appropriate,
sales and reinvestment of the Fund's assets. The Advisers furnish to the Fund
such statistical information, with respect to the investments which the Fund may
hold or contemplate purchasing, as the Fund may reasonably request. On the
Advisers' own initiatives, the Advisers apprise the Fund of important
developments materially affecting each Portfolio and furnish the Fund from time
to time such information as the Advisers may believe appropriate for this
purpose. The Advisers also implement all purchases and sales of investments for
each Portfolio in a manner consistent with such policies.
Money Market Portfolio. The investment advisory fee paid to PIMC with
respect to the Money Market Portfolio is 0.25% of the average daily net assets
of the Portfolio.
Growth Portfolio. The investment advisory fee paid to NAM with respect to
the Growth Portfolio is 0.50% of the first $20 million of the average daily net
assets of the Portfolio, 0.40% of the next $20 million of the average daily net
assets of the Portfolio and 0.30% of the average daily net assets in excess of
$40 million.
Sentinel Growth Portfolio. The investment advisory fee paid to SAC with
respect to the Sentinel Growth Portfolio is 0.50% of the first $20 million of
the average daily net assets of the Portfolio, 0.40% of the next $20 million of
the average daily net assets of the Portfolio and 0.30% of the average daily net
assets in excess of $40 million.
Common Stock Portfolio. The investment advisory fee paid to SAC with
respect to the Sentinel Common Stock Portfolio is 0.40% of the first $100
million of the average daily net assets of the Portfolio and 0.35% of the
average daily net assets in excess of $100 million.
Aggressive Growth Portfolio. The investment advisory fee paid to SAC with
respect to the Aggressive Growth Portfolio is 0.50% of the first $20 million of
the average daily net assets of the Portfolio, 0.40% of the next $20 million of
the average daily net assets of the Portfolio and 0.30% of the average daily net
assets in excess of $40 million.
International Portfolio. The investment advisory fee paid to PIMC with
respect to the International Portfolio is 0.75% of the first $500 million of the
average daily net assets of the Portfolio and 0.60% of the average daily net
assets in excess of $500 million (See "Sub-Investment Advisory Agreement for
International Portfolio", Page 12).
Bond Portfolio. The investment advisory fee paid to SAC with respect to
the Bond Portfolio is 0.35% of the first $100 million of the average daily net
assets of the Portfolio and 0.30% of the average daily net assets in excess of
$100 million.
Managed Portfolio. The investment advisory fee paid to SAC with respect to
the Managed Portfolio is 0.40% of the first $100 million of the average daily
net assets of the Portfolio and 0.35% of the average daily net assets in excess
of $100 million.
The investment advisory fee incurred for NAM during 1995 with respect to
the Growth Portfolio was $477,525. The total investment advisory fee incurred
for PIMC during 1995 was $305,977, allocated $67,727 and $238,250 to the Money
Market and International Portfolios, respectively. The total investment advisory
fee incurred for SAC during 1995 was $268,637, allocated $42,737, $130,149 and
$95,751 for the Bond, Managed and Aggressive Growth Portfolios, respectively.
The investment advisory fee incurred for NAM during 1994 with respect to
the Growth Portfolio was $391,249. The total investment advisory fee incurred
for PIMC during 1994 was $191,632, allocated $40,010 and $151,622 to the Money
Market and International Portfolios, respectively. The total investment advisory
fee incurred for SAC during 1994 was $212,836, allocated $34,014, $115,614 and
$63,208 to the Bond, Managed and Aggressive Growth Portfolios, respectively.
11
<PAGE> 37
The investment advisory fee incurred for NAM during 1993 with respect to
the Growth Portfolio was $361,639. The total investment advisory fee incurred
for PIMC during 1993 was $95,436, allocated $22,986 and $72,450 to the Money
Market and International Portfolios, respectively. The total investment advisory
fee incurred for SAC during 1993 was $169,472, allocated $29,858, $90,359 and
$49,255 to the Bond, Managed and Aggressive Growth Portfolios, respectively.
Expenses that are borne directly by the Portfolios include redemption
expenses, expenses of the Portfolio transactions, shareholding servicing costs,
expenses of registering the shares under Federal and state securities laws,
interest, certain taxes, charges of the Custodian and Transfer Agent and other
expenses attributable to a particular Portfolio. Expenses which are allocated on
the basis of size of the respective Portfolios include directors' fees, legal
expenses, state franchise taxes, auditing services, costs of printing proxies,
stock certificates, Securities and Exchange Commission fees, accounting costs,
pricing costs including the daily calculation of net asset value), and other
expenses properly payable by the Fund and allocable on the basis of size of the
respective Portfolios. Depending upon the nature of a lawsuit, litigation costs
may be directly applicable to the Portfolios or allocated on the basis of the
size of the respective Portfolios. Prior to November 1, 1991 Provident Mutual
reimbursed the Fund for operating expenses and interest charges, excluding
investment advisory fees, in excess of an annual rate of 0.25% of the average
daily net asset value of each Portfolio then in effect. Effective November 1,
1991 Provident Mutual agreed to reimburse the Fund for such expenses in excess
of 0.40% of the average daily net asset value of each of the Money Market,
Growth, Aggressive Growth, Bond and Managed Portfolios and 0.75% for the
International Portfolio. Effective , 1996, NLIC agreed to reimburse the
Fund for such expenses in excess of 0.40% of the average daily net asset value
of the Sentinel Growth and Sentinel Common Stock Portfolios. During 1992,
Provident Mutual reimbursed the Fund for $81,997 of expenses, allocated $16,455
to the Growth Portfolio; $5,588 to the Money Market Portfolio; $3,173 to the
Bond Portfolio; $4,924 to the Managed Portfolio; $5,151 to the Aggressive Growth
Portfolio and $46,706 to the International Portfolio. Expenses reimbursed by
Provident Mutual for 1991 were $175,500 and for 1990 $150,569. There was no
reimbursement in 1995, 1994 or 1993.
Certain administrative services are provided for the Fund by PFPC, Inc.
("PFPC") pursuant to an Administration Agreement, including maintenance of the
Portfolios' books and records, preparation of governmental filings, statements
and returns and stockholder reports, and computation of net asset value and
daily dividends. PFPC is a wholly owned subsidiary of PNC Bank.
SUB-INVESTMENT ADVISORY AGREEMENT FOR INTERNATIONAL PORTFOLIO
As stated in the Prospectus, PIMC has entered into a Sub-Investment
Advisory Agreement with The Boston Company Asset Management, Inc. ("TBC"), under
which PIMC receives recommendations, research and other investment services upon
which it may base its investment recommendation to the Fund. For its services to
PIMC, TBC received compensation from PIMC equal to the great of: (i) a monthly
fee at an effective annual rate of 0.375% of the first $500 million of the
average daily net assets of the Portfolio and 0.30% of the average daily net
assets in excess of $500 million; or (ii) $20,000 per year.
The Sub-Investment Advisory Agreement was approved by a majority of the
Fund's Board of Directors, including a majority of its "non-interested"
directors, on July 14, 1994 and became effective on July 18, 1994. On April 26,
1995, the Fund's Board of Directors, including a majority of its
"non-interested" directors, unanimously voted to approve continuation of the
Sub-Advisory Agreement with TBC. On November 15, 1994 the Sub-Advisory Agreement
was approved by shareholders of the International Portfolio. The Sub-Advisory
Agreement will continue in effect from year to year as long as such continuance
is approved at least annually by a majority of the "non-interested" members of
the Fund's Board of Directors and by (i) a majority vote of the Portfolio's
shareholders or (ii) the Fund's Board of Directors. The Sub-Advisory Agreement
may be terminated without penalty on 60 days' prior written notice by the Fund's
Board of Directors, by the Adviser or by TBC, as the case may be, and is
terminated automatically in the event of its assignment.
For 1995 PIMC incurred $119,125 for investment advisory services rendered
by TBC in connection with the International Portfolio.
12
<PAGE> 38
INFORMATION ABOUT ADVISERS
The principal officers of NAM are:
<TABLE>
<CAPTION>
POSITION WITH POSITION WITH
NAME NAM THE FUND
---- ------------- -------------
<S> <C> <C>
Timothy M. Havens Chairman and Chief Executive None
Officer
Daniel J. Hopkins President and Chief Operating None
Officer
John W. Richards Executive Vice President and None
Secretary
John H. Marchesi, Jr. Executive Vice President None
Harry K. Hiestand Senior Vice President None
Stephen A. Mozur Senior Vice President None
Samuel W. Parke Senior Vice President None
Samuel R. Roberts Senior Vice President None
John K. Schneider Senior Vice President None
Edward T. Shadek, Jr. Senior Vice President None
Denise B. Taylor Senior Vice President None
Madelyn Y. Wharton Senior Vice President None
F. Jeffrey Van Orden Senior Vice President
</TABLE>
The principal officers of PIMC are:
<TABLE>
<CAPTION>
POSITION WITH POSITION WITH
NAME PIMC THE FUND
---- ------------- -------------
<S> <C> <C>
Stanley R. Reber President Chairman, President and Chief
Executive Officer
Dina M. Welch Vice President None
Rosanne Gatta Treasurer Treasurer and Comptroller
Linda E. Senker Legal Officer--Secretary Secretary
W. Price Loesche Assistant Secretary None
Anthony T. Giampietro Assistant Treasurer None
</TABLE>
The principal officers of SAC are:
<TABLE>
<CAPTION>
POSITION WITH POSITION WITH
NAME SAC THE FUND
---- ------------- -------------
<S> <C> <C>
Keniston P. Merrill Chairman and Chief Executive None
Officer
Rodney A. Buck Senior Vice President & Director
of
Marketable Fixed Income Securities
Robert L. Lee, Jr. Vice President & Director of None
Equity Research
D. Russell Morgan Counsel None
Dean R. Howe Treasurer None
</TABLE>
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
The Advisers to the Fund place all portfolio orders on behalf of each
Portfolio and attempt, in all cases, to obtain the most favorable prices and
executions.
Equity securities are customarily traded on the stock exchange, but may
also be traded over-the-counter. Bonds and debentures are customarily traded
over-the-counter but may be traded on the bond exchange. Money market
instruments are traded primarily in the over-the-counter market. Purchases and
sales on the stock exchanges are effected by brokers and normally involve the
payment of brokerage commissions. Over-the-counter securities are purchased
directly from the issuer or dealers who are usually acting as principals for
their own accounts. These securities are generally traded on a net basis and do
not involve either
13
<PAGE> 39
brokerage commissions or transfer taxes. Consequently, the cost of executing
such transactions consists primarily of mark-ups on the value of the securities
or dealer spreads and underwriting commissions.
The Advisers to the Fund determine the brokers to be used for purchases and
sales of each Portfolio's securities. There are no arrangements whatsoever,
written or oral, relating to the allocation to specific brokers of orders for
Portfolio transactions. Consideration is given to those firms providing
statistical and research services to the investment advisers, but it is
generally not the policy of any Portfolio to pay higher brokerage commissions to
a firm solely because it has provided such services. Statistical and research
services furnished by brokers typically include: analysts' reports on companies
and industries, market forecasts, economic analyses and the like. Such services
may tend to reduce the expenses of the Adviser and this has been considered in
setting the advisory fees paid by the Fund.
During the period from January 1, 1995 to December 31, 1995, the Fund paid
aggregate brokerage fees of $398,248.95 of which $251,728.40 was paid by the
Growth Portfolio, $15,503.30 was paid by the Managed Portfolio, $29,763.20 was
paid by the Aggressive Growth Portfolio and $101,254.05 was paid by the
International Portfolio. During the period from January 1, 1994 to December 31,
1994, the Fund paid aggregate brokerage fees of $317,402.55 of which $203,912.94
was paid by the Growth Portfolio, $15,232.26 by the Managed Portfolio,
$18,858.00 by the Aggressive Growth Portfolio and $79,399.35 by the
International Portfolio; for the period from January 1, 1993 to December 31,
1993, the Fund paid aggregate brokerage fees of $230,328.59, of which
$163,168.22 was paid by the Growth Portfolio, $16,338.60 by the Managed
Portfolio, $16,982.40 by the Aggressive Growth Portfolio and $33,839.37 by the
International Portfolio; for the period from January 1, 1992 to December 31,
1992, aggregate brokerage fees paid were $136,473.75, of which $76,770 was paid
by the Growth Portfolio, $27,577 by the Managed Portfolio, $10,114.34 by the
Aggressive Growth Portfolio and $22,012.41 by the International Portfolio.
DETERMINATION OF NET ASSET VALUE
As stated in the Prospectus, the Fund will offer and sell its shares at
each Portfolio's per share net asset value. The net asset value of the shares of
each Portfolio of the Fund is determined as of the close of the New York Stock
Exchange on each day when the New York Stock Exchange is open for business for
the day prior to the day on which a transaction is to be effected.
The Fund's Board of Directors has specifically approved the use of a
pricing service for debt securities with maturities generally exceeding one
year. Prices provided by the pricing service may be determined without exclusive
reliance on quoted prices and may take into account appropriate factors such as
institution size, trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data.
Money market instruments with a remaining maturity of 60 days or less held
by any Portfolio, and all instruments held by the Money Market Portfolio
(including master demand notes) will be valued on an amortized cost basis. Under
this method of valuation, the instrument is initially valued at cost (or in the
case of instruments purchased with more than 60 days remaining to maturity, the
market value on the 61st day prior to maturity); thereafter, the Fund assumes a
constant proportionate amortization in value until maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. For purposes of this method of valuation, the maturity
of a variable rate certificate of deposit is deemed to be the next coupon date
on which the interest rate is to be adjusted. While this method provides
certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price that would be
received upon sale of the instrument. During period of declining interest rates,
the daily yield on shares of the Money Market Portfolio may tend to be higher
than a like computation made by a fund with identical investments utilizing a
method of valuation based upon market prices and estimates of market prices for
all of its portfolio instruments. Thus, if the use of amortized cost resulted in
a lower aggregate portfolio value on a particular day, a prospective investor
would be able to obtain a somewhat higher yield than would result from
investment in a fund utilizing solely market values, and existing investors
would receive less investment income. The converse would apply in a period of
rising interest rates.
14
<PAGE> 40
Use of the amortized cost valuation method by the Money Market Portfolio
requires that Portfolio to maintain a dollar-weighted average maturity of 90
days or less and to only purchase obligations having remaining maturities of 13
months or less. In addition, the Portfolio can invest only in obligations
determined by the Directors to present minimal credit risks. When an eligible
security (described on pages 10 and 11 of the Prospectus) goes into default or
has its rating downgraded thereby causing it to no longer be an eligible
security, the Directors must promptly reassess whether such security presents a
minimal credit risk and whether continuing to hold the security is in the
Portfolio's best interest. In addition, as to certain types of investments, the
Portfolio may only invest in obligations meeting the quality requirements
spelled out in the Prospectus. Furthermore, investments in the securities of any
one issuer may not exceed 5% of the Portfolio's total assets at the time of such
purchase, nor may investments in "second-tier securities" (eligible securities
which are not rated in the highest short term rating category by at least two
nationally recognized statistical rating organizations (NRSRO) or one NRSRO if
it is the only NRSRO rating that security or comparable unrated securities),
exceed 5% of the Portfolio's total assets nor may investments in any one issuer
exceed the greater of 1% of the Portfolio's total assets or $1 million. The
Directors have established procedures designed to stabilize, to the extent
reasonably possible, the Money Market Portfolio's price per share as computed
for the purpose of sales and redemptions at $1.00. Such procedures include
review of that Portfolio's investment holdings by the Directors, at such
intervals as they may deem appropriate, to determine whether the net asset value
calculated by using available market quotations or equivalents deviates from
$1.00 per share. If such deviation exceeds 1/2 of 1%, the Directors will
promptly consider what action, if any, will be initiated. In the event the
Directors determine that a deviation exists which may result in material
dilution or other unfair results to new or existing investors, the Directors
will take such corrective action as they regard as necessary and appropriate,
including: the sale of Portfolio instruments prior to maturity; the withholding
of dividends or payment of distributions from capital or capital gains;
redemptions of shares in kind or the establishment of a net asset value per
share based upon available market quotations.
The methods used to value other assets of each Portfolio are described more
fully in the Prospectus.
PURCHASE AND REDEMPTION OF SHARES
Other than the shares sold to seed the Managed, Aggressive Growth and
International Portfolios, and to NLIC to seed the Sentinel Growth and Common
Stock Portfolios, shares of the Fund currently will be sold, without sales
charge, only to separate accounts of Provident Mutual and the Variable Annuity
Separate Account of Providentmutual Life and Annuity Company of America and to
variable life insurance separate accounts of NLIC. In the future, shares of the
Fund may be sold to separate accounts of other insurance companies to fund
variable annuity as well as variable life insurance contracts.
The Fund is required to redeem all full and fractional shares of the Fund
for cash at the net asset value per share. Payment for shares redeemed will
generally be made within seven days after receipt of a proper notice of
redemption. The right to redeem shares or to receive payment with respect to any
redemption may only be suspended for any period during which (a) trading on the
New York Stock Exchange is restricted or such exchange is closed for other than
weekends and holidays; (b) an emergency exists, as determined by the Securities
and Exchange Commission, as a result of which disposal of Portfolio securities
or determination of the net asset value of a Portfolio is not reasonably
practicable; and (c) the Securities and Exchange Commission by order permits
postponement for the protection of shareholders.
TAXES
Each Portfolio of the Fund is treated as a separate entity for federal
income tax purposes. Each Portfolio intends to elect and to qualify as a
"regulated investment company" under the provisions of Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). To qualify for treatment
as a regulated investment company, a Portfolio must, among other things, derive
in each taxable year at least 90% of its gross income from dividends, interest,
payments with respect to securities loans and gains from the sale or other
disposition of stock or securities or foreign currencies (subject to the
authority of the Secretary of the Treasury
15
<PAGE> 41
to exclude foreign currency gains which are ancillary to the Fund's principal
business of investing in stock or securities or options and futures with respect
to such stock or securities), other income (including, but not limited to, gains
from options, futures, or forward contracts) derived with respect to its
investing in such stock, securities or currencies. In addition, to qualify for
treatment as a "regulated investment company", each Portfolio must derive less
than 30% of its gross income in each taxable year from gains (without deduction
for losses) from the sale or other disposition of securities held for less than
three months. If each Portfolio qualifies as a "regulated investment company"
and complies with the relevant provisions of the Code, each Portfolio will be
relieved of federal income tax on the part of its net ordinary income and
realized net capital gain which it distributes to the separate accounts.
In order to meet the 30% restriction described above, each Portfolio of the
Fund may be limited in its ability to engage (consistent with its investment
objectives and policies) in certain types of investments or might be required to
continue holding an investment beyond the time it might otherwise consider
prudent.
The Federal tax laws impose a four percent nondeductible excise tax on each
regulated investment company with respect to an amount, if any, by which such
company does not meet distribution requirements specified in such tax laws. Each
Portfolio of the Fund intends to comply with such distribution requirements and
thus does not expect to incur the four percent nondeductible excise tax.
Foreign Taxes. Investment income received from sources within foreign
countries may be subject to foreign income taxes. In this regard, withholding
tax rates in countries with which the United States does not have a tax treaty
are often as high as 30% or more. The United States has entered into tax
treaties with many foreign countries which entitle certain investors (such as
the International Portfolio) to a reduced rate of tax (generally 10-15%) or to
certain exemptions from tax. The International Portfolio will operate so as to
qualify for such reduced tax rates or tax exemptions whenever possible. While
policyowners will bear the cost of any foreign tax withholding, they will not be
able to claim a foreign tax credit or deduction for taxes paid by the
International Portfolio.
The discussion of "Dividends, Distributions and Taxes" in the Prospectus,
in conjunction with the foregoing, is a general and abbreviated summary of the
applicable provisions of the Code and Treasury Regulations currently in effect
as interpreted by the Courts and the Internal Revenue Services.
CAPITAL STOCK
The Fund was incorporated in Maryland on March 21, 1985. The authorized
capital stock of the Fund consists of two hundred million shares of common stock
$.01 par value. The shares of common stock are divided into eight
classes--Growth Portfolio, Sentinel Growth Portfolio, Common Stock Portfolio,
Money Market Portfolio, Bond Portfolio, Managed Portfolio, Aggressive Growth
Portfolio and International Portfolio common stock. The Money Market Portfolio
currently consists of ten million shares; each of the other classes currently
consists of five million shares. The Fund may establish additional portfolios
and may allocate its shares either to such new classes or to any of the eight
existing classes.
The balance of the shares may be issued to the existing Portfolios or to
new Portfolios having the number of shares and descriptions, powers, and rights,
and the qualifications, limitations, and restrictions as the Board of Directors
may determine. The Board of Directors also may change the designation of any
Portfolio and may increase or decrease the numbers of shares of any Portfolio,
but may not decrease the number of shares of any Portfolio below the number of
shares then outstanding.
Each issued and outstanding share is entitled to participate equally in
dividends and distributions declared by the respective Portfolio and, upon
liquidation or dissolution, in the net assets of such Portfolio remaining after
satisfaction of outstanding liabilities.
16
<PAGE> 42
VOTING RIGHTS
The Fund does not hold routine annual shareholders' meetings. Shareholders'
meetings will be called whenever one or more of the following is required to be
acted on by shareholders pursuant to the Investment Company Act of 1940; (1)
election of directors; (2) approval of an investment advisory agreement; (3)
ratification of selection of independent auditors; or (4) approval of an
underwriting agreement.
All shares of common stock have equal voting rights (regardless of the net
value per share) except that on matters affecting only one Portfolio, only
shares of the respective Portfolio are entitled to vote. The shares do not have
cumulative voting rights. Accordingly, the holders of more than 50% of the
shares of the Fund voting for the election of directors can elect all of the
directors of the Fund if they choose to do so, and in such event the holders of
the remaining shares would not be able to elect any directors.
Matters in which the interests of all the Portfolios are substantially
identical (such as the election of Directors or the approval of independent
public accountants) will be voted on by all shareholders without regard to the
separate Portfolios. Matters that affect all the Portfolios but where the
interests of the Portfolios are not substantially identical (such as approval of
an Investment Advisory Agreement) would be voted on separately by each
Portfolio. Matters affecting only one Portfolio, such as a change in its
fundamental policies, are voted on separately by that Portfolio.
Matters requiring separate shareholder voting by a Portfolio shall have
been effectively acted upon with respect to any Portfolio if a majority of the
outstanding voting securities of that Portfolio votes for approval of the
matter, notwithstanding that: (1) the matter has not been approved by a majority
of the outstanding voting securities of any other Portfolios; or (2) the matter
has not been approved by a majority of the outstanding voting securities of the
Fund.
The phrase "a majority of the outstanding voting securities" of a Portfolio
(or of the Fund) means the vote of the lessor of: (1) 67% of the shares of a
Portfolio (or the Fund) 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 the outstanding shares of a Portfolio (or the Fund).
CODE OF ETHICS
The Board of Directors of the Fund has adopted a Code of Ethics under Rule
17j-I of the Investment Company Act of 1940 (the "Code of Ethics"). The Code of
Ethics covers the conduct (including the personal securities transactions) of
each officer and director of the Fund, as well as of any employees of the Fund
who participate in the selection of the Fund's portfolio securities or who have
access to information regarding the Fund's impending purchases and sales of
portfolio securities. The Code of Ethics also covers the general conduct and
personal securities transactions of (but does not impose securities transaction
reporting requirements on) any officer, director, and employee of either NAM,
PIMC, SAC, TBC, or PML Securities Company ("PML") the principal underwriter of
the Fund, who participates in the selection of the Fund's portfolio securities
or who has access to information regarding the Fund's impending purchases and
sales of portfolio securities.
In general, the Code of Ethics restricts purchases or sales of securities
being purchased or sold or being considered for purchase or sale by the Fund in
which beneficial ownership is held by any of the directors, officers, or
employees of either the Fund, the Advisers, TBC, or PML. Certain Fund employees
and directors, officers, or employees of either the Advisers, TBC, or PML
(collectively referred to as "Advisory Persons") are also prohibited from
purchasing securities in an initial public offering. Advisory Persons are also
restricted in their purchases of private offerings of securities. The Code of
Ethics also describes certain "blackout periods" during which: (1) no Advisory
Person or no director, officer, or employee of the Fund may acquire ownership of
a security on a day during which the Fund has a pending order to purchase or
sell that same security; and (2) no person responsible for day-to-day portfolio
management of any Portfolio shall purchase or sell any security within seven
days before or after the Fund trades in such security. Certain specified
transactions are exempt from the provisions of the Code of Ethics.
17
<PAGE> 43
OTHER SERVICES
CUSTODIAN FOR INTERNATIONAL PORTFOLIO
The custodian for all foreign securities and assets of the International
Portfolio is Citibank, N.A. Securities purchased for the Portfolio outside of
the U.S. are maintained in the custody of foreign banks and trust companies
which are members of Citibank's Global Custody Network and foreign depositories
(foreign sub-custodians). Citibank and each of the foreign custodial
institutions holding securities of the Portfolio has been approved by the Board
in accordance with regulations under the 1940 Act.
The Board reviews, at least annually, whether it is in the best interest of
the Portfolio and its shareholders to maintain Portfolio assets in each
custodial institution. However, with respect to foreign sub-custodians, there
can be no assurance that the Portfolio and the value of its shares, will not be
adversely affected by acts of foreign governments, financial or operational
difficulties of the foreign sub-custodians, difficulties and costs of obtaining
jurisdiction over, or enforcing judgments against, the foreign sub-custodians,
or application of foreign law to the Portfolio's foreign sub-custodian
arrangements. Accordingly, an investor should recognize that the noninvestment
risks involved in holding assets abroad may be greater than those associated
with investing in the U.S.
INDEPENDENT ACCOUNTANTS
The firm of Coopers & Lybrand L.L.P., 2400 Eleven Penn Center,
Philadelphia, PA 19103, has been selected to serve as the Fund's independent
accountants.
The financial statements of the Growth, Money Market, Bond, Managed,
Aggressive Growth and International Portfolios in this Statement of Additional
Information and the Condensed Financial Information and ratios derived from such
financial statements included in the Prospectus have been audited by Coopers &
Lybrand L.L.P., Independent Accountants, and have been included in reliance upon
the report of such firm given on their authority as experts in accounting and
auditing. No financial information related to the Sentinel Growth and Common
Stock Portfolios is presented because these Portfolios commenced operations on
, 1996.
LEGAL MATTERS
The legal validity of the shares described in the Prospectus has been
passed on by Linda E. Senker, Esquire. Sutherland, Asbill & Brennan of
Washington, D.C. has provided advice on certain legal matters pertaining to
federal securities laws applicable to the Fund.
UNDERWRITERS
PML Securities Company ("PML") will serve, without compensation from the
Fund, as the principal underwriter of the Fund, pursuant to an agreement with
the Fund. Under the terms of the agreement, PML will not be obligated to sell
any specific number of shares. PML has authority, pursuant to the agreement to
enter into similar contracts with other insurance companies and with other
entities registered as broker-dealers under the Securities Exchange Act of 1934.
ADDITIONAL INFORMATION
This Statement of Additional Information and the Prospectus do not contain
all the information set forth in the registration statement and exhibits
relating thereto, which the Fund has filed with the Securities and Exchange
Commission, Washington, D.C., under the Securities Act of 1933 and the
Investment Company Act of 1940, to which reference is hereby made.
18
<PAGE> 44
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants.....................................................
Statements of Assets and Liabilities, December 31, 1995............................... 20
Statements of Operations for the Year Ended December 31, 1995......................... 21
Statements of Changes in Net Assets for the Year Ended December 31, 1995.............. 22
Statements of Changes in Net Assets for the Year Ended December 31, 1994.............. 23
Notes to Financial Statements, December 31, 1995...................................... 29
</TABLE>
19
<PAGE> 45
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors
of Market Street Fund, Inc.:
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of Market Street Fund, Inc.,
(comprising, respectively, the Growth, Money Market, Bond, Managed, Aggressive
Growth, and International Portfolios) as of December 31, 1995, and the related
statements of operations for the year then ended, the statements of changes in
net assets for each of the two years in the periods then ended, and financial
highlights for the periods presented. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
December 31, 1995, by correspondence with the custodians and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the respective portfolios constituting the Market Street Fund, Inc. as
of December 31, 1995, the results of their operations for the year then ended,
the changes in their net assets for each of the two years in the periods then
ended, and the financial highlights for the periods presented, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
January 31, 1996
2
<PAGE> 46
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Statements of Assets and Liabilities, December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments, at value (cost
$138,392,715, $34,741,724,
$13,652,435, $31,374,110,
$22,425,313, $32,097,010,
respectively) (see
accompanying schedules)....... $161,073,049 $34,741,724 $14,170,120 $35,649,654 $23,532,018 $34,832,604
Cash............................ 1 1 1 1 1 1,792,690*
Interest receivable............. 42,266 59,788 216,368 241,636 3,009 3,652
Dividends receivable............ 373,206 -- -- 39,667 12,541 81,851
Foreign taxes receivable........ -- -- -- -- -- 6,432
Receivable from affiliated
insurance company............. -- 26 -- -- -- 9
Prepaid expenses................ -- -- -- -- -- 1,659
Receivable for investments
sold.......................... 925,136 -- -- 45,634 658,451 --
Receivable for fund shares
sold.......................... 65,575 -- 32,030 66,271 54,613 67,034
------------ ----------- ----------- ----------- ----------- -----------
Total assets.................. 162,479,233 34,801,539 14,418,519 36,042,863 24,260,633 36,785,931
------------ ----------- ----------- ----------- ----------- -----------
LIABILITIES
Accrued expenses................ 201,189 30,461 15,595 40,497 24,313 37,406
Dividend payable................ -- 155,926 -- -- -- --
Payable for investments
purchased..................... 379,093 -- -- -- 413,664 106,435
Payable for fund shares
redeemed...................... -- -- 569 -- 225 8
------------ ----------- ----------- ----------- ----------- -----------
Total liabilities............. 580,282 186,387 16,164 40,497 438,202 143,849
------------ ----------- ----------- ----------- ----------- -----------
Net assets.................... $161,898,951 $34,615,152 $14,402,355 $36,002,366 $23,822,431 $36,642,082
============ =========== =========== =========== =========== ===========
Number of shares of $.01 par
value common stock, issued and
outstanding................... 9,894,999 34,615,152 1,309,787 2,537,951 1,370,597 2,850,218
============ =========== =========== =========== =========== ===========
Net asset value, offering and
redemption price per share.... $16.36 $1.00 $11.00 $14.19 $17.38 $12.86
============ =========== =========== =========== =========== ===========
</TABLE>
* Includes foreign currency with a cost of $1,797,306 and a value of
$1,792,690.
See accompanying notes to financial statements.
20
<PAGE> 47
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Statements of Operations for the Year Ended December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends...................... $ 4,425,229 $ -- $ -- $ 461,865 $ 122,149 $ 720,153
Interest....................... 933,531 1,616,475 849,828 1,130,233 280,390 113,341
Less: foreign taxes
withheld................... (38,026) -- -- (2,049) -- (83,101)
----------- ---------- ---------- ---------- ---------- ----------
Total Income................. 5,320,734 1,616,475 849,828 1,590,049 402,539 750,393
----------- ---------- ---------- ---------- ---------- ----------
EXPENSES:
Investment advisory fee........ 477,525 67,727 42,737 130,149 95,751 238,250
Administration fee............. 143,377 27,831 12,582 33,660 19,833 62,717
Directors' fee................. 11,952 2,333 1,048 2,782 1,662 2,724
Transfer agent fee............. 6,483 2,467 1,937 2,670 2,189 2,637
Custodian fee.................. 28,031 8,519 3,491 10,343 9,099 20,011
Legal fees..................... 9,553 1,882 840 2,226 1,326 2,175
Audit fees..................... 16,993 3,302 1,491 3,981 2,352 3,880
Printing....................... 52,152 9,690 4,552 12,508 7,130 11,968
Taxes.......................... 87,188 6,920 3,823 14,902 5,878 12,607
Miscellaneous.................. 12,934 4,074 830 2,552 2,295 7,645
----------- ---------- ---------- ---------- ---------- ----------
846,188 134,745 73,331 215,773 147,515 364,614
Less: expenses reimbursed by
affiliated insurance
company...................... (74) (52) -- -- (15) (9)
----------- ---------- ---------- ---------- ---------- ----------
Total expenses............... 846,114 134,693 73,331 215,773 147,500 364,605
----------- ---------- ---------- ---------- ---------- ----------
Net investment income
(loss)..................... 4,474,620 1,481,782 776,497 1,374,276 255,039 385,788
----------- ---------- ---------- ---------- ---------- ----------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS
Net realized gain (loss) from
Investments................ 7,744,759 -- 503,141 1,471,361 2,569,743 1,793,161
Foreign currency related
translations............. (16,477) -- -- -- -- 56,555
----------- ---------- ---------- ---------- ---------- ----------
7,728,282 -- 503,141 1,471,361 2,569,743 1,849,716
----------- ---------- ---------- ---------- ---------- ----------
Net change in unrealized
appreciation (depreciation)
from:
Investments................ 24,145,662 -- 950,760 4,221,556 (406,827) 2,022,420
Foreign currency related
translations............. -- -- -- -- -- 752
----------- ---------- ---------- ---------- ---------- ----------
24,145,662 -- 950,760 4,221,556 (406,827) 2,023,172
----------- ---------- ---------- ---------- ---------- ----------
Net gain (loss) on investments
and foreign currency
transactions................. 31,873,944 -- 1,453,901 5,692,917 2,162,916 3,872,888
----------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in
net assets resulting from
operations................... $36,348,564 $1,481,782 $2,230,398 $7,067,193 $2,417,955 $4,258,676
=========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
21
<PAGE> 48
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Statements of Changes in Net Assets for the Year Ended December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income
(loss)...................... $ 4,474,620 $ 1,481,782 $ 776,497 $ 1,374,276 $ 255,039 $ 385,788
Net realized gain (loss) on
investments and foreign
currency related
transactions................ 7,728,282 -- 503,141 1,471,361 2,569,743 1,849,716
Net change in unrealized
appreciation (depreciation)
on investments and foreign
currency translations....... 24,145,662 -- 950,760 4,221,556 (406,827) 2,023,172
------------ ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net
assets resulting from
operations.................. 36,348,564 1,481,782 2,230,398 7,067,193 2,417,955 4,258,676
Distributions:
From net investment income.... (4,157,531) (1,481,782) (736,126) (1,414,623) -- (148,141)
From net realized gains....... (8,715,516) -- -- (33,117) (131,841) (699,972)
Capital share transactions:
Net contributions from
affiliated life insurance
companies................... 23,232,447 13,575,595 2,810,449 1,019,709 6,106,674 7,019,658
------------ ----------- ----------- ----------- ----------- -----------
Total increase in net
assets.................... 46,707,964 13,575,595 4,304,721 6,639,162 8,392,788 10,430,221
NET ASSETS
Beginning of period............. 115,190,987 21,039,557 10,097,634 29,363,204 15,429,643 26,211,861
------------ ----------- ----------- ----------- ----------- -----------
End of period (including
undistributed net investment
income in the Growth Portfolio
of $1,263,754; Bond Portfolio
$208,370; Managed Portfolio
$329,730; Aggressive Portfolio
$255,039 and International
Portfolio $442,343)........... $161,898,951 $34,615,152 $14,402,355 $36,002,366 $23,822,431 $36,642,082
============ =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
22
<PAGE> 49
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Statements of Changes in Net Assets for the Year Ended December 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income
(loss)...................... $ 3,450,005 $ 618,397 $ 596,527 $ 1,255,185 $ (12,513) $ 153,148
Net realized gain (loss) on
sale of investments......... 8,710,006 -- (552,026) 33,117 200,840 699,972
Net change in unrealized
appreciation (depreciation)
on investments and foreign
currency translations....... (9,654,782) -- (622,045) (1,801,984) (43,061) (1,112,364)
------------ ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net
assets resulting from
operations.................. 2,505,229 618,397 (577,544) (513,682) 145,266 (259,244)
Distributions:
From net investment income.... (3,183,250) (618,397) (561,072) (1,136,418) -- (273,923)
From net realized gains....... (79,165) -- (246,014) (1,318,716) -- (39,209)
Capital share transactions:
Net contributions from
affiliated life insurance
companies................... 6,414,227 8,533,612 1,322,599 3,348,235 3,061,801 13,102,202
------------ ----------- ----------- ----------- ----------- -----------
Total increase in net
assets.................... 5,657,041 8,533,612 (62,031) 379,419 3,207,067 12,529,826
NET ASSETS
Beginning of period............. 109,533,946 12,505,945 10,159,665 28,983,785 12,222,576 13,682,035
------------ ----------- ----------- ----------- ----------- -----------
End of period (including
undistributed net investment
income in the Growth Portfolio
of $963,142; Bond Portfolio
$168,000; Managed Portfolio
$370,077 and International
Portfolio $148,141)........... $115,190,987 $21,039,557 $10,097,634 $29,363,204 $15,429,643 $26,211,861
============ =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
23
<PAGE> 50
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the periods:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH PORTFOLIO
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
01/01/95 01/01/94 01/01/93 01/01/92 01/01/91
TO TO TO TO TO
12/31/95 12/31/94 12/31/93 12/31/92 12/31/91
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period............ $14.00 $14.09 $13.73 $13.88 $12.08
-------- -------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................... .47 .43 .38 .46 .50
Net realized and unrealized gain (loss)
on investments................................ 3.41 (.10) .94 .17 1.71
-------- -------- -------- -------- -------
Total from investment operations............ 3.88 .33 1.32 .63 2.21
-------- -------- -------- -------- -------
LESS DISTRIBUTIONS:
Dividends to shareholders from
net investment income......................... (.46) (.41) (.39) (.46) (.41)
Dividends to shareholders from net capital
gains......................................... (1.06) (.01) (.35) (.32) (.00)
Dividends to shareholders in excess of net
investment income............................. -- -- (.22) -- --
-------- -------- -------- -------- --------
Total distributions......................... (1.52) (.42) (.96) (.78) (.41)
-------- -------- -------- -------- --------
Net asset value, end of period.................. $16.36 $14.00 $14.09 $13.73 $13.88
======== ======== ======== ======== ========
Total return.................................... 30.39% 2.40% 9.43% 4.74% 18.50%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $(000)................ 161,899 115,191 109,534 82,881 55,357
Ratios of expenses to average net assets(1)..... .61% .63% .76% .79% .76%
Ratios of net investment income to average net
assets........................................ 3.20% 3.10% 2.86% 3.53% 3.91%
Portfolio turnover.............................. 61% 63% 51% 35% 28%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Expense ratios for the Growth Portfolio before reimbursement of expenses by
affiliated insurance company for the years ended December 31, 1995, 1994,
1993, 1992 and 1991 were as follows: 0.61%, 0.67%, 0.76%, 0.82% and 0.98%,
respectively.
See accompanying notes to financial statements.
24
<PAGE> 51
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Financial Highlights -- Continued
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the periods:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
01/01/95 01/01/94 01/01/93 01/01/92 01/01/91
TO TO TO TO TO
12/31/95 12/31/94 12/31/93 12/31/92 12/31/91
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period............ $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ----- -----
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................... .05 .04 .03 .03 .06
------ ------ ------ ----- -----
Total from investment operations............ .05 .04 .03 .03 .06
------ ------ ------ ----- -----
LESS DISTRIBUTIONS:
Dividends to shareholders from
net investment income......................... (.05) (.04) (.03) (.03) (.06)
------ ------ ------ ----- -----
Total distributions......................... (.05) (.04) (.03) (.03) (.06)
------ ------ ------ ----- -----
Net asset value, end of period.................. $1.00 $1.00 $1.00 $1.00 $1.00
====== ====== ====== ===== =====
Total return.................................... 5.61% 3.81% 2.59% 3.18% 5.69%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $(000)................ 34,615 21,040 12,506 8,138 7,047
Ratios of expenses to average net assets(1)..... .50% .55% .65% .65% .53%
Ratios of net investment income to average
net assets.................................... 5.47% 3.86% 2.56% 3.12% 5.49%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Expense ratios for the Money Market Portfolio before reimbursement of
expenses by affiliated insurance company for the years ended December 31,
1995, 1994, 1993, 1992 and 1991 were as follows: 0.50%, 0.59%, 0.65%, 0.73%
and 0.86%, respectively.
See accompanying notes to financial statements.
25
<PAGE> 52
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Financial Highlights -- Continued
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the periods:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BOND PORTFOLIO
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
01/01/95 01/01/94 01/01/93 01/01/92 01/01/91
TO TO TO TO TO
12/31/95 12/31/94 12/31/93 12/31/92 12/31/91
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period............ $9.73 $11.21 $10.73 $10.80 $10.04
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................... .65 .62 .60 .64 .77
Net realized and unrealized gain (loss)
on investments................................ 1.27 (1.23) .48 (.03) .57
------- ------- ------- ------- -------
Total from investment operations............ 1.92 (.61) 1.08 .61 1.34
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends to shareholders from
net investment income......................... (.65) (.60) (.60) (.68) (.58)
Dividends to shareholders from net capital
gains......................................... (.00) (.27) (.00) (.00) (.00)
------- ------- ------- ------- -------
Total distributions......................... (.65) (.87) (.60) (.68) (.58)
------- ------- ------- ------- -------
Net asset value, end of period.................. $11.00 $9.73 $11.21 $10.73 $10.80
======= ======= ======= ======= =======
Total return.................................... 20.45% (5.62)% 10.32% 5.95% 13.93%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $(000)................ 14,402 10,098 10,160 6,710 4,365
Ratios of expenses to average net assets(1)..... .60% .68% .75% .75% .63%
Ratios of net investment income to average net
assets........................................ 6.36% 6.14% 5.53% 6.34% 7.58%
Portfolio turnover.............................. 206% 151% 71% 4% 32%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Expense ratios for the Bond Portfolio before reimbursement of expenses by
affiliated insurance company for the years ended December 31, 1995, 1994,
1993, 1992 and 1991 were as follows: 0.60%, 0.70%, 0.75%, 0.81% and 0.93%,
respectively.
See accompanying notes to financial statements.
26
<PAGE> 53
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Financial Highlights -- Continued
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the periods:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGED PORTFOLIO
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
01/01/95 01/01/94 01/01/93 01/01/92 01/01/91
TO TO TO TO TO
12/31/95 12/31/94 12/31/93 12/31/92 12/31/91
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period............ $11.94 $13.27 $12.25 $11.40 $9.81
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................... .55 .53 .40 .44 .51
Net realized and unrealized gain (loss)
on investments................................ 2.28 (.77) 1.00 .88 1.47
------- ------- ------- ------- -------
Total from investment operations............ 2.83 (.24) 1.40 1.32 1.98
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends to shareholders from
net investment income......................... (.57) (.49) (.38) (.47) (.39)
Dividends to shareholders from net capital
gains......................................... (.01) (.60) (.00) (.00) (.00)
------- ------- ------- ------- -------
Total distributions......................... (.58) (1.09) (.38) (.47) (.39)
------- ------- ------- ------- -------
Net asset value, end of period.................. $14.19 $11.94 $13.27 $12.25 $11.40
======= ======= ======= ======= =======
Total return.................................... 24.43% (1.82)% 11.62% 11.96% 20.49%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $(000)................ 36,002 29,363 28,984 15,946 12,564
Ratios of expenses to average net assets(1)..... .66% .67% .80% .80% .68%
Ratios of net investment income to average
net assets.................................... 4.22% 4.34% 3.36% 3.88% 4.74%
Portfolio turnover.............................. 130% 75% 89% 32% 51%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Expense ratios for the Managed Portfolio before reimbursement of expenses by
affiliated insurance company for the years ended December 31, 1995, 1994,
1993, 1992 and 1991 were as follows: 0.66%, 0.73%, 0.80%, 0.84% and 0.95%,
respectively.
See accompanying notes to financial statements.
27
<PAGE> 54
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Financial Highlights -- Continued
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the periods:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH PORTFOLIO
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
01/01/95 01/01/94 01/01/93 01/01/92 01/01/91
TO TO TO TO TO
12/31/95 12/31/94 12/31/93 12/31/92 12/31/91
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period............ $15.45 $15.45 $14.72 $16.68 $10.67
------- ------- ------- ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................... .20 (.01) (.01) .03 .08
Net realized and unrealized gain (loss)
on investments................................ 1.86 .01 .77 .38 5.93
------- ------- ------- ------ ------
Total from investment operations............ 2.06 .00 .76 .41 6.01
------- ------- ------- ------ ------
LESS DISTRIBUTIONS:
Dividends to shareholders from
net investment income......................... (.00) (.00) (.03) (.07) (.00)
Dividends to shareholders from net capital
gains......................................... (.13) (.00) (.00) (2.30) (.00)
------- ------- ------- ------ ------
Total distributions......................... (.13) (.00) (.03) (2.37) (.00)
------- ------- ------- ------ ------
Net asset value, end of period.................. $17.38 $15.45 $15.45 $14.72 $16.68
======= ======= ======= ====== ======
Total return.................................... 13.48% 0.00% 5.20% 2.58% 56.33%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $(000)................ 23,822 15,430 12,223 8,029 2,751
Ratios of expenses to average net assets(1)..... .76% .86% .90% .90% .79%
Ratios of net investment income to average
net assets.................................... 1.32% (.10)% (.07)% .37% .80%
Portfolio turnover.............................. 89% 60% 60% 18% 95%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Expense ratios for the Aggressive Growth Portfolio before reimbursement of
expenses by affiliated insurance company for the years ended December 31,
1995, 1994, 1993, 1992 and 1991 were as follows: 0.76%, 0.89%, 0.90%, 1.00%
and 1.32%, respectively.
See accompanying notes to financial statements.
28
<PAGE> 55
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Financial Highlights -- Concluded
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the periods:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL PORTFOLIO
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
01/01/95 01/01/94 01/01/93 01/01/92 11/01/91(2)
TO TO TO TO TO
12/31/95 12/31/94 12/31/93 12/31/92 12/31/91
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period........... $11.63 $11.87 $9.00 $ 9.74 $10.00
------- ------- ------- ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.......................... .16 .05 .06 .08 .01
Net realized and unrealized gain (loss)
on investments............................... 1.45 (.02) 3.09 (.81) (.27)
------- ------- ------- ------ ------
Total from investment operations........... 1.61 .03 3.15 (.73) (.26)
------- ------- ------- ------ ------
LESS DISTRIBUTIONS:
Dividends to shareholders from
net investment income........................ (.07) (.03) (.08) (.00) (.00)
Dividends to shareholders from net capital
gains........................................ (.31) (.24) (.20) (.01) (.00)
------- ------- ------- ------ ------
Total distributions........................ (.38) (.27) (.28) (.01) (.00)
------- ------- ------- ------ ------
Net asset value, end of period................. $12.86 $11.63 $11.87 $ 9.00 $9.74
======= ======= ======= ====== ======
Total return................................... 14.31% .26% 36.11% (7.30)% (2.88)%(3)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $(000)............... 36,642 26,212 13,682 6,727 4,979
Ratios of expenses to average net assets(1).... 1.15% 1.32% 1.50% 1.50% 1.48%
Ratios of net investment income to average
net assets................................... 1.21% .72% .68% 1.05% .26%
Portfolio turnover............................. 45% 32% 37% 35% 1%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Expense ratios for the International Portfolio before reimbursement of
expenses by affiliated insurance company for the years ended December 31,
1995, 1994, 1993 and 1992 and the period ended December 31, 1991 were as
follows: 1.15%, 1.32%, 1.50%, 2.65% and 3.40%, respectively.
(2) Commencement of operations.
(3) Total returns for periods less than one year are not annualized.
See accompanying notes to financial statements.
29
<PAGE> 56
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Notes to Financial Statements, December 31, 1995
- --------------------------------------------------------------------------------
1. ORGANIZATION
The Market Street Fund, Inc. (Fund) is registered as an open-end diversified
management company under the Investment Company Act of 1940, as amended. As a
"series" type of mutual fund, the Fund issues separate classes (or series) of
stock currently consisting of the Growth Portfolio, Money Market Portfolio, Bond
Portfolio, Managed Portfolio, Aggressive Growth Portfolio and International
Portfolio. The Fund serves as an investment medium for modified premium and
flexible premium adjustable variable life insurance policies and individual
flexible premium deferred variable annuity contracts (Policies) issued by
Providentmutual Life Insurance Company (PMLIC) and for flexible premium deferred
variable annuity contracts issued by Provident Mutual Life and Annuity Company
of America (PLACA). The Fund also serves as the investment medium for single
premium and scheduled premium variable life insurance policies which are no
longer being issued.
2. ACCOUNTING POLICIES
Valuation of Investments
Bonds are carried at market value based on the last bid price on a national
securities exchange or on quoted prices from a third-party pricing service.
Investments in common and preferred stocks primarily traded on recognized U.S.
or foreign securities exchanges are valued at the last sale price on exchanges
on the last business day of the period, or, if there was no sale, at the last
bid price on that day. Short-term investments with maturities of less than 60
days and Money Market Portfolio investments are valued at amortized cost which
approximates market.
Investments
Security transactions are accounted for on the trade date. The cost of
investment securities sold is determined by use of the specific identification
method for both financial reporting and income tax purposes. Interest income is
recorded on the accrual basis; dividend income is recorded on the ex-dividend
date.
Foreign Currency Translations
Foreign currency amounts are translated into U.S. Dollars on the following
bases:
(i) Market value of investment securities, assets and liabilities, at the
daily rate of exchange;
(ii) Purchases and sales of investment securities, at the rate of exchange
prevailing on the respective dates of such transactions. Exchange gains or
losses are recognized upon settlement;
(iii) Income and expenses, at the rate of exchange prevailing on the
respective dates of such transactions. Exchange gains or losses are
recognized upon ultimate receipt or disbursement.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of U.S. dollar denominated
transactions as a result of, among other factors, the lack of governmental
supervision and regulation of foreign securities markets and the possibility of
political or economic instability.
30
<PAGE> 57
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Notes to Financial Statements, December 31, 1995 -- Continued
- --------------------------------------------------------------------------------
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Dividends to Shareholders
Dividends of investment income of the Money Market Portfolio are declared daily
and paid monthly. The Growth Portfolio, Bond Portfolio and Managed Portfolio
declare and pay dividends of investment income quarterly. The Aggressive Growth
Portfolio and International Portfolio declare and pay dividends of investment
income annually. For all Portfolios, distributions of capital gains are declared
and paid annually.
Federal Income Taxes
No provision is made for Federal taxes as it is the Fund's intention to have
each Portfolio continue to qualify as a regulated investment company and to make
the requisite distributions to its shareholders which will be sufficient to
relieve it from Federal income taxes.
Management Estimates
The preparation of financial statements requires the use of management
estimates.
3. INVESTMENT ADVISORY FEES AND RELATED PARTY TRANSACTIONS
Investment advisory agreements have been approved, whereby Newbold's Asset
Management, Inc. (NAM) is adviser for the Growth Portfolio, Providentmutual
Investment Management Company (PIMC) for the Money Market Portfolio and Sentinel
Advisors Company (SAC), a Vermont General Partnership, for the Bond, Managed,
and Aggressive Growth Portfolios. With respect to the Growth Portfolio, NAM is
compensated monthly at an effective annual rate of 0.50% of the first $20
million of the average daily net assets of the portfolio, 0.40% of the next $20
million and 0.30% of net assets in excess of $40 million. PIMC is compensated
monthly at an effective annual rate of 0.25% of the average daily net assets of
the Money Market Portfolio. With respect to the Bond Portfolio, SAC is
compensated monthly at the effective annual rate of 0.35% of the first $100
million of the average daily net assets of the portfolio and 0.30% of net assets
in excess of $100 million. With respect to the Managed Portfolio, SAC is
compensated monthly at the effective annual rate of 0.40% of the first $100
million of the average daily net assets of the portfolio and 0.35% of net assets
in excess of $100 million. With respect to the Aggressive Growth Portfolio, SAC
is compensated monthly at the effective annual rate of 0.50% of the first $20
million of the average daily net assets of the portfolio, 0.40% of the next $20
million and 0.30% of net assets in excess of $40 million. PIMC is the adviser
for the International Portfolio and is compensated monthly at an effective
annual rate of 0.75% of the first $500 million of the average daily net assets
of the portfolio and 0.60% of assets in excess of $500 million. The Boston
Company Asset Management, Inc. ("TBC") is sub-advisor to the International
Portfolio.
PMLIC agreed to reimburse the Growth, Money Market, Bond, Managed and Aggressive
Growth Portfolios for operating expenses, excluding investment advisory fees,
and costs of litigation
31
<PAGE> 58
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Notes to Financial Statements, December 31, 1995 -- Continued
- --------------------------------------------------------------------------------
and indemnification not covered by insurance, in excess of an annual rate of
0.40% of the average daily net asset values. The International Portfolio is
reimbursed for such expenses in excess of an annual rate of 0.75% of the average
daily net asset value.
4. NET ASSETS
At December 31, 1995, the Portfolio's net assets consisted of:
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net contribution from
shareholders.................... $130,274,015 $34,615,152 $13,725,185 $29,925,731 $19,890,944 $31,674,314
Undistributed net investment
income.......................... 1,263,754 -- 208,370 329,730 255,039 442,343
Undistributed net realized gain... 7,680,848 -- -- 1,471,361 2,569,743 1,793,161
Accumulated loss on investment
transactions.................... -- -- (48,885) -- -- --
Net unrealized appreciation
(depreciation) on investments... 22,680,334 -- 517,685 4,275,544 1,106,705 2,732,264
------------ ----------- ----------- ----------- ----------- -----------
$161,898,951 $34,615,152 $14,402,355 $36,002,366 $23,822,431 $36,642,082
============ =========== =========== =========== =========== ===========
</TABLE>
5. PURCHASES AND SALES OF INVESTMENTS (EXCLUDING SHORT-TERM SECURITIES)
Purchases and proceeds on sales of investments for the portfolios, for the year
ended December 31, 1995, were as follows:
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PURCHASES
U.S. Gov't Obligations............. $ -- $ -- $ 5,091,528 $21,761,900 $ -- $ --
Corporate Bonds.................... -- -- 21,399,106 11,373,955 -- --
Common Stock....................... 80,188,987 -- -- 8,189,887 14,720,880 19,795,880
----------- ----------- ----------- ----------- ----------- -----------
Total Purchases.................... $80,188,987 $ -- $26,490,634 $41,325,742 $14,720,880 $19,795,880
=========== =========== =========== =========== =========== ===========
SALES
U.S. Gov't Obligations............. $ -- $ -- $ 7,063,742 $26,818,351 $ -- $ --
Corporate Bonds.................... -- -- 16,249,607 7,563,343 -- --
Common Stock....................... 75,356,540 -- -- 4,411,699 13,064,205 13,162,970
----------- ----------- ----------- ----------- ----------- -----------
Total Sales........................ $75,356,540 $ -- $23,313,349 $38,793,393 $13,064,205 $13,162,970
=========== =========== =========== =========== =========== ===========
</TABLE>
32
<PAGE> 59
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Notes to Financial Statements, December 31, 1995 -- Continued
- --------------------------------------------------------------------------------
6. TAX BASIS OF INVESTMENTS
Investment information based on the cost of the securities for Federal income
tax purposes held at December 31, 1995 is as follows:
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aggregate gross unrealized
appreciation.................... $ 23,460,993 $ -- $ 518,002 $ 4,368,834 $ 2,486,072 $ 3,758,326
Aggregate gross unrealized
depreciation.................... (832,232) -- (317) (93,290) (1,379,367) (1,022,732)
------------ ----------- ----------- ----------- ----------- -----------
Net unrealized appreciation
(depreciation).................. $ 22,628,761 $ -- $ 517,685 $ 4,275,544 $ 1,106,705 $ 2,735,594
============ =========== =========== =========== =========== ===========
Aggregate cost of securities for
federal income tax purposes..... $138,444,288 $34,741,724 $13,652,435 $31,374,110 $22,425,313 $32,097,010
============ =========== =========== =========== =========== ===========
Capital loss carryover (available
to offset possible future
capital gains.) The carryover
expires as follows: Bond
Portfolio -- $48,885 in 2002.... $ -- $ -- $ (48,885) $ -- $ -- $ --
============ =========== =========== =========== =========== ===========
</TABLE>
7. AUTHORIZED CAPITAL STOCK AND CAPITAL STOCK TRANSACTIONS
On December 31, 1995, there were 200 million shares of $0.01 par value capital
stock authorized for the Fund. The shares of capital stock are divided into six
series: Growth Portfolio, Money Market Portfolio, Bond Portfolio, Managed
Portfolio, Aggressive Growth Portfolio and International Portfolio. The Money
Market Portfolio consists of 10 million shares; each of the other series
consists of 5 million shares.
Transactions in capital stock for the year ended December 31, 1995 were as
follows:
<TABLE>
<CAPTION>
GROWTH PORTFOLIO MONEY MARKET BOND PORTFOLIO
PORTFOLIO
- -------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold.................. 1,376,728 $20,320,117 52,460,129 $52,460,129 305,883 $3,174,938
Shares redeemed.............. (672,833) (9,960,717) (40,303,780) (40,303,780) (106,040) (1,100,615)
Shares reinvested............ 961,190 12,873,047 1,419,246 1,419,246 72,305 736,126
--------- ----------- ----------- ----------- -------- ----------
Net contributions from
affiliated insurance
companies................... 1,665,085 $23,232,447 13,575,595 $13,575,595 272,148 $2,810,449
========= =========== =========== =========== ======== ==========
<CAPTION>
MANAGED AGGRESSIVE INTERNATIONAL
PORTFOLIO GROWTH PORTFOLIO
- -------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold.................. 340,442 $4,456,504 489,394 $8,017,391 861,466 $10,317,408
Shares redeemed.............. (375,720) (4,884,534) (125,984) (2,042,558) (341,090) (4,145,863)
Shares reinvested............ 114,456 1,447,739 8,772 131,841 76,064 848,113
-------- ---------- -------- ---------- -------- -----------
Net contributions from
affiliated insurance
companies................... 79,178 $1,019,709 372,182 $6,106,674 596,440 $ 7,019,658
======= ========== ======= ========== ======== ===========
</TABLE>
33
<PAGE> 60
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Notes to Financial Statements, December 31, 1995 -- Continued
- --------------------------------------------------------------------------------
7. AUTHORIZED CAPITAL STOCK AND CAPITAL STOCK TRANSACTIONS -- (CONTINUED)
Transactions in capital stock for the year ended December 31, 1994 were as
follows:
<TABLE>
<CAPTION>
GROWTH PORTFOLIO MONEY MARKET BOND PORTFOLIO
PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold................. 1,491,546 $20,978,587 48,697,173 $48,697,173 384,884 $3,957,726
Shares redeemed............. (1,272,051) (17,826,775) (40,713,247) (40,713,247) (331,715) (3,442,212)
Shares reinvested........... 236,046 3,262,415 549,686 549,686 78,517 807,085
--------- ------------ ----------- ------------ -------- -----------
Net contributions from
affiliated insurance
companies.................. 455,541 $ 6,414,227 8,533,612 $ 8,533,612 131,686 $1,322,599
========= ============ =========== ============ ======== ===========
<CAPTION>
MANAGED AGGRESSIVE INTERNATIONAL
PORTFOLIO GROWTH PORTFOLIO
- -----------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold................. 719,391 $8,834,655 385,809 $5,787,860 1,457,272 $17,327,844
Shares redeemed............. (643,917) (7,941,554) (178,715) (2,726,059) (382,445) (4,538,774)
Shares reinvested........... 198,986 2,455,134 -- -- 26,855 313,132
------- ----------- ------- ----------- --------- -----------
Net contributions from
affiliated insurance
companies.................. 274,460 $3,348,235 207,094 $3,061,801 1,101,682 $13,102,202
======= =========== ======= ========== ========= ===========
</TABLE>
Shares of the Fund are held by Provident Mutual Life Insurance Company's
Variable Life and Variable Annuity Separate Accounts and by Providentmutual
Variable Life and Variable Annuity Separate Accounts. At December 31, 1995,
shares were owned by:
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Growth Separate
Account......................... 8,701,018 -- -- -- -- --
Money Market Separate
Account......................... -- 16,709,104 -- -- -- --
Bond Separate Account............. -- -- 949,265 -- -- --
Managed Separate
Account......................... -- -- -- 1,902,109 -- --
Aggressive Growth
Separate Account................ -- -- -- -- 1,109,778 --
International Separate
Account......................... -- -- -- -- -- 1,863,636
Providentmutual Variable
Annuity Separate
Account......................... 1,119,627 15,728,500 332,031 612,839 237,352 908,987
Provident Mutual
Variable Annuity
Separate Account................ 65,106 1,911,725 23,991 20,281 14,778 69,938
Providentmutual Variable Life
Separate Account................ 9,248 265,823 4,500 2,722 8,689 7,657
--------- ---------- --------- --------- --------- ---------
Total......................... 9,894,999 34,615,152 1,309,787 2,537,951 1,370,597 2,850,218
========= ========== ========= ========= ========= =========
</TABLE>
34
<PAGE> 61
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Notes to Financial Statements, December 31, 1995 -- Concluded
- --------------------------------------------------------------------------------
8. PRINCIPAL UNDERWRITER
PML Securities Company serves, without compensation, as the principal
underwriter for sale of the Fund shares to the Accounts. PML Securities Company
is an indirect wholly-owned subsidiary of PMLIC.
9. SUBSEQUENT DIVIDEND
On December 27, 1995 the Board of Directors declared the following net
investment income and capital gain dividends to shareholders of record on
December 29, 1995, ex-dividend date January 4, 1996, payable on January 5, 1996
as follows:
<TABLE>
<CAPTION>
TOTAL PER SHARE
------------------------ ---------------------
NET NET
INVESTMENT CAPITAL INVESTMENT CAPITAL
PORTFOLIO INCOME GAIN INCOME GAIN
- ---------------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Growth.......... $1,263,754 $7,732,422 $.1277 $ .7814
Bond............ 208,370 -- .1591 --
Managed......... 329,718 1,471,361 .1299 .5797
Aggressive
Growth......... 255,039 2,569,743 .1861 1.8749
International... 442,343 1,793,161 .1552 .6291
</TABLE>
35
<PAGE> 62
(THIS PAGE INTENTIONALLY LEFT BLANK)
36
<PAGE> 63
(THIS PAGE INTENTIONALLY LEFT BLANK)
37
<PAGE> 64
(THIS PAGE INTENTIONALLY LEFT BLANK)
38
<PAGE> 65
APPENDIX A
DESCRIPTION OF MONEY MARKET INSTRUMENTS AND
COMMERCIAL PAPER AND BOND RATINGS
PERMITTED INVESTMENTS OF THE MONEY MARKET ACCOUNT
U.S. Government Obligations--are bills, certificates of indebtedness, notes
and bonds issued or guaranteed as to principal or interest by the United States
or by agencies or authorities controlled or supervised by and acting as
instrumentalities of the U.S. Government established under the authority granted
by Congress, including, but not limited to, the Government National Mortgage
Association, the Tennessee Valley Authority, the Bank of Cooperatives, the
Farmers Home Administration, Federal Home Loan Banks, Federal Intermediate
Credit Banks, Federal Land Banks, Farm Credit Banks, and the Federal National
Mortgage Association. Some obligations of U.S. Government agencies, authorities
and other instrumentalities are supported by the full faith and credit of the
U.S. Treasury; others by the right of the issuer to borrow from the Treasury;
and others only by the credit of the issuing agency, authority or other
instrumentality.
Repurchase Agreements--are agreements by which the Fund purchases a
security and obtains a simultaneous commitment from the seller (a member bank of
the Federal Reserve System or a recognized securities dealer) to repurchase the
security at an agreed upon price and date. The resale price is in excess of the
purchase price and reflects an agreed upon market rate unrelated to the coupon
rate on the purchased security. Such transactions afford an opportunity for the
Fund to earn a return on temporarily available cash at no market risk except the
risk that the seller will be unable to pay the agreed upon sum upon the delivery
date and, in the event of default by the seller because of bankruptcy or
otherwise, the Fund may suffer time delays and incur costs or losses in
connection with the disposition of the collateral.
Certificates of Deposit--are generally certificates issued against funds
deposited in a bank, are for a definite period of time, earn a specified rate of
return, and are normally negotiable. Variable rate certificates of deposit are
certificates of deposit on which the interest rate is periodically adjusted
prior to their stated maturity, usually at 30, 90 or 180 day intervals ("coupon
dates") based upon a specified market rate. As a result of these adjustments,
the interest rate on these obligations may be increased or decreased
periodically. Typically, dealers selling variable rate certificates of deposit
agree to repurchase such instruments, at the purchaser's option, at par on the
coupon dates. The dealers' obligations to repurchase these instruments are
subject to conditions imposed by the various dealers. Such conditions typically
are the continued credit standing of the issuer and the existence of reasonably
orderly market conditions. Variable rate certificates of deposit may be sold in
the secondary market. Variable rate certificates of deposit normally carry a
higher interest rate at the time of issue than comparable fixed rate
certificates of deposit.
Bankers' Acceptance--are short-term credit instruments issued by
corporations to finance the import, export, transfer or storage of goods. They
are termed "accepted" when a bank guarantees their payment at maturity. These
instruments reflect the obligation of both the bank and drawer to pay the face
amount of the instrument at maturity.
Commercial Paper--refers to promissory notes issued by corporations to
finance their short-term credit needs.
Corporate Obligations--include bonds and notes issued by corporations in
order to finance longer term credit needs.
COMMERCIAL PAPER RATINGS
The rating A-1 is the highest rating assigned by Standard & Poor's
Corporation ("S&P") to commercial paper which is considered by S&P to have the
following characteristics: liquidity ratios of the issuer are adequate to meet
cash requirements; long-term senior debt is rated "A" or better; the issuer has
access to at least two additional channels of borrowing; basic earnings and cash
flow have an upward trend with allowance
A-1
<PAGE> 66
made for unusual circumstances; typically, the issuer's industry is well
established and the issuer has a strong position within the industry; the
reliability and quality of management are unquestioned.
The rating A-2 is the second highest rating assigned by Standard & Poor's
Corporation. Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as overwhelming as for
issues designated "A-1".
The rating P-1 is the highest commercial paper rating assigned by Moody's
Investors Service, Inc. ("Moody's"). Issuers rated P-1 have a superior capacity
for repayment of short-term promissory obligations. P-1 repayment capacity will
normally be evidenced by the following characteristics; leading market positions
in well-established industries; high rates of return on funds employed;
conservative capitalization structures with moderate reliance on debt and ample
asset protection; broad margins in earnings coverage of fixed financial charges
and high internal cash generation; and well established access to a range of
financial markets and assured sources of alternate liquidity.
The rating P-2 is the second highest commercial paper rating assigned by
Moody's. Issuers rated P-2 have a strong capacity for repayment of short-term
promissory obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings trends and coverage
ratios, while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
CORPORATE BOND RATINGS
Moody's Investors Service, Inc. describes its five highest ratings for
corporate bonds as follows:
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
'gilt edge'. Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa--Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well as 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.
Standard & Poor's Corporation describes its ratings for corporate bonds as
follows:
AAA--This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA--Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
A-2
<PAGE> 67
A--Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.
BB, B, CCC, C--Bonds rated BB, B, CCC, C are regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighted by large uncertainties or major risk exposures to adverse
conditions.
A-3
<PAGE> 68
PART C. OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
(a) Financial Statements.
The following financial statements are filed as part of this Registration
Statement:
Included in Part A--Prospectus of the Registration Statement:
Condensed Financial Information
Included in Part B--Statement of Additional Information of the Registration
Statement:
Report of Independent Accountants
Statements of Assets and Liabilities, December 31, 1995
Statements of Operations for the Year Ended December 31, 1995
Statements of Changes in Net Assets for the Year Ended December 31, 1995
Statements of Changes in Net Assets for the Year Ended December 31, 1994
Notes to Financial Statements, December 31, 1995
(b) Exhibits
The following exhibits are filed herewith:
<TABLE>
<S> <C>
1.a. Articles of Incorporation of the Market Street Fund, Inc. (the "Fund")(1)
1.b. Articles Supplementary(2)
1.c. Articles Supplementary(3)
2.a. By-Laws of the Fund(1)
2.b. Amendment to By-Laws(2)
3. Inapplicable
4. Form of Certificate for Shares of Common Stock of the Fund(4)
5.a. Investment Advisory Agreement between the Fund and Newbold's Asset Management,
Inc.(5)
5.b. Investment Advisory Agreement between the Fund and Providentmutual Investment
Management Company(2)
5.c. Investment Advisory Agreement between the Fund and Sentinel Advisors Company(10)
5.d. Investment Advisory Agreement between the Fund and Providentmutual Investment
Management Company (PIMC) with respect to International Portfolio(3)
5.e. Sub-Investment Advisory Agreement between PIMC and The Boston Company Asset
Management, Inc.(10)
5.f. Amendment to Investment Advisory Agreement between the Fund and Sentinel Advisors
Company
6.a. Distribution Agreement between the Fund and PML Securities Company(6)
6.b. Amendments to Distribution Agreement between the Fund and PML Securities Company(2)
6.c. Amendment to Distribution Agreement between the Fund and PML Securities Company(3)
7. Inapplicable
8.a. Custodian Agreement between the Fund and Provident National Bank(7)
8.b. Amendment to Custodian Agreement between the Fund and Provident National Bank(2)
8.c. Amendment to Custodian Agreement between the Fund and Provident National Bank(3)
8.d. Amendment to Custodian Agreement between the Fund and Provident National Bank
9.a. Agreement and Plan of Reorganization among PVLICO, Providentmutual Variable Life
Growth Account, Providentmutual Variable Life Money Market Account, Providentmutual
Variable Life Bond Account and the Fund(1)
9.b. Reimbursement Agreement between Provident Mutual Life Insurance Company of
Philadelphia and the Fund(3)
</TABLE>
C-1
<PAGE> 69
<TABLE>
<S> <C>
9.c. Administration Agreement between the Fund and Provident Institutional Management
Corporation(7)
9.d. Amendment to Administration Agreement between the Fund and Provident Financial
Processing Corporation (PFPC)(2)
9.e. Amendment to Administration Agreement between the Fund and PFPC(2)
9.f. Amendment to Administration Agreement between the Fund and PFPC
9.g. Transfer Agency Agreement between the Fund and PFPC, as amended(2)
9.h. Amendment to Transfer Agency Agreement between the Fund and PFPC
9.i.(1) Participation Agreement among Market Street Fund, Inc. Provident Mutual Life
Insurance Company and PML Securities Company(9)
9.i.(2) Participation Agreement among Market Street Fund, Inc., Providentmutual Life and
Annuity Company of America and PML Securities Company (8)
9.i.(3) Participation Agreement among Market Street Fund, Inc., National Life Insurance
Company and PML Securities Company
10. Opinion of Linda E. Senker, Esquire
11.a. Consent of Messrs. Sutherland, Asbill & Brennan
11.b. Consent of Auditors
12. Inapplicable
13.a. See Number 9.a. above
13.b. Investment Letter from National Life Insurance Company(11)
14. Inapplicable
15. Inapplicable
16. Inapplicable
17. Financial Data Schedule
18. Inapplicable
19. Power of Attorney(1) and (4)
</TABLE>
- ---------------
(1) Incorporated herein by reference to the initial Form N-1A Registration
Statement of the Market Street Fund, Inc., File No. 2-98755, filed on July
1, 1985.
(2) Incorporated herein by reference to Post-Effective Amendment No. 4 filed on
March 2, 1989, File No. 2-98755.
(3) Incorporated herein by reference to Post-Effective Amendment No. 7 filed on
August 30, 1991, File No. 2-98755.
(4) Incorporated herein by reference to Pre-Effective Amendment No. 2 filed on
December 16, 1985, File No. 2-98755.
(5) Incorporated herein by reference to Post-Effective Amendment No. 6 filed on
May 1, 1991, File No. 2-98755.
(6) Incorporated herein by reference to Pre-Effective Amendment No. 1 filed on
November 19, 1985, File No. 2-98755.
(7) Incorporated herein by reference to Post-Effective Amendment No. 1 filed on
May 1, 1986, File No. 2-98755.
(8) Incorporated herein by reference to Post-Effective Amendment No. 8 filed on
May 1, 1992, File No. 2-98755.
(9) Incorporated herein by reference to Post-Effective Amendment No. 8 to Form
S-6 Registration Statement filed on May 1, 1992, File No. 33-2625.
(10) Incorporated herein by reference to Post-Effective Amendment No. 11 filed
on April 28, 1995, File No. 2-98755.
(11) To be filed by amendment.
C-2
<PAGE> 70
ITEM 25. Persons Controlled by or Under Common Control with Registrant
Currently, shares of the Fund are sold to separate accounts of Provident
Mutual Life Insurance Company ("Provident Mutual"), Providentmutual Life and
Annuity Company of America ("PLACA") and National Life Insurance Company
("NLIC") to fund the benefits under certain variable life insurance policies and
variable annuity contracts issued or assumed by Provident Mutual or PLACA and
variable life insurance policies issued by NLIC.
No person has the direct or indirect power to control Provident Mutual or
NLIC except insofar as he or she may have such power by virtue of his or her
capacity as a director or executive officer thereof. As mutual life insurance
companies, Provident Mutual and NLIC have no stockholders. Their Boards of
Directors are elected by the Policyholders. PLACA is a wholly-owned subsidiary
of Provident Mutual.
Set forth below is a diagram of persons controlled by or under common
control with the Registrant.*
ITEM 26. Number of Holders of Securities
<TABLE>
<CAPTION>
NUMBER OF RECORD
TITLE OF CLASS HOLDERS AS OF DECEMBER 31, 1995
------------------------------ -------------------------------
<S> <C>
Growth Portfolio............................................ 4
Money Market Portfolio...................................... 4
Bond Portfolio.............................................. 4
Managed Portfolio........................................... 4
Aggressive Growth Portfolio................................. 4
International Portfolio..................................... 4
Sentinel Growth Portfolio................................... 0
Common Stock Portfolio...................................... 0
</TABLE>
ITEM 27. Indemnification
Under Section 2-418 of the Maryland General Corporation Law, with respect
to any proceedings against a present or former director, officer, agent or
employee ("corporate representative") of the registrant, except a proceeding
brought by or on behalf of the registrant, the registrant may indemnify the
corporate representative against expenses, including attorneys' fees and
judgments, fines, and amounts paid in settlement actually and reasonably
incurred by the corporate representative in connection with the proceeding, if:
(i) he acted in good faith and in a manner he reasonably believed to be in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the registrant; and (ii) with respect to any criminal proceeding,
he had no reasonable cause to believe his conduct was unlawful. The registrant
is also authorized under section 2-418 of the Maryland General Corporation Law
to indemnify a corporate representative under certain circumstances against
expenses incurred in connection with the defense of a suit or action by or in
the right of the registrant.
The By-laws of the Fund (Exhibit (2) of this Registration Statement)
provide that the Fund may indemnify its corporate representatives in a manner
that is consistent with the laws of the State of Maryland. The By-laws preclude
indemnification for "disabling conduct" (willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of
office) and sets forth reasonable and fair means for determining whether
indemnification shall be made.
See item 32(c) for information regarding indemnification for liabilities
arising under the Securities Act of 1933.
ITEM 28. Business and Other Connections of Investment Adviser
The directors and officers of Providentmutual Investment Management Company
(PIMC) also serve as officers of Provident Mutual.
C-3
<PAGE> 71
ITEM 29. Principal Underwriters
a. PML Securities Company (PML Securities) is principal underwriter for the
Fund.
b. Set forth below is certain information regarding the directors and
officers of PML Securities, the principal underwriter to the Fund. Unless
otherwise stated, the business address of the persons whose names appear below
is Christiana Executive Campus, P.O. Box 15626, Wilmington, Delaware 19850.
<TABLE>
<CAPTION>
(2) (3)
(1) POSITIONS AND OFFICES WITH POSITIONS AND OFFICES
NAME PRINCIPAL UNDERWRITER WITH REGISTRANT
- ------------------------------ -------------------------- ---------------------------------
<S> <C> <C>
Stanley R. Reber*............. Director Chairman, President and Chief
Executive Officer
John R. McClelland*........... Director None
Gerald B. Beam*............... Director None
L. J. Rowell, Jr.*............ Director None
Robert W. Kloss*.............. Director None
Charlene Parsons*............. Director None
Lance A. Reihl**.............. President None
Anthony G. Mastrangelo*....... Financial Officer None
Linda E. Senker*.............. Legal Officer & Secretary Secretary
Rosanne Gatta*................ Treasurer Treasurer and Comptroller
W. Price Loesche*............. Assistant Secretary None
</TABLE>
- ---------------
* 103 Bellevue Parkway, Wilmington, DE 19809.
** 220 Continental Drive, Newark, DE 19713.
ITEM 30. Location of Accounts and Records
The records required to be maintained by Section 31(a) of the Investment
Company Act of 1940 and Rules 31a-1 to 31a-3 promulgated thereunder, are
maintained by the Fund and Providentmutual Investment Management Company at 103
Bellevue Parkway, Wilmington, DE 19809, by Newbold's Asset Management, Inc. at
937 Haverford Road, Bryn Mawr, Pennsylvania 19010, by Sentinel Advisors Company
at National Life Drive, Montpelier, Vermont 05604, by Provident National Bank at
Broad & Chestnut Streets, Philadelphia, Pennsylvania 19101, or by PFPC at 103
Bellevue Parkway, Wilmington, Delaware 19809, or for the International Portfolio
by Citibank, N.A. 111 Wall Street, New York, New York 10043.
ITEM 31. Management Services
Inapplicable.
ITEM 32. Undertakings
a. Inapplicable.
b. Inapplicable.
c. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any such action, suit or proceeding) is asserted by
such director, officer, or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
d. Insofar as any information required to be provided is contained in the
Fund's latest annual report, the Fund hereby undertakes to furnish each person
to whom a prospectus is delivered with a copy of such annual report, upon
request and without charge.
C-4
<PAGE> 72
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF PHILADELPHIA, COMMONWEALTH OF PENNSYLVANIA ON THIS
28TH DAY OF FEBRUARY 1996.
MARKET STREET FUND, INC.
BY: /S/ STANLEY R. REBER
-----------------------------
STANLEY R. REBER
PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ STANLEY R. REBER Chairman and President February 28, 1996
----------------------------------------- (Principal Executive
STANLEY R. REBER Officer)
/s/ ROSANNE GATTA Treasurer and Comptroller February 28, 1996
----------------------------------------- (Principal Financial and
ROSANNE GATTA Accounting Officer)
Director February 28, 1996
-----------------------------------------
DR. ALAN GART*
Director February 28, 1996
-----------------------------------------
DR. A. GILBERT HEEBNER*
Director February 28, 1996
-----------------------------------------
EDWARD S. STOUCH*
*By /s/ LINDA E. SENKER
-----------------------------------------
ATTORNEY-IN-FACT, PURSUANT
TO POWER OF ATTORNEY
</TABLE>
C-5
<PAGE> 1
EXHIBIT 5.f
AMENDMENT NO. 1 TO INVESTMENT ADVISORY AGREEMENT
This is Amendment No. 1, dated as of March 11, 1996, to the Investment
Advisory Agreement (the "Agreement") dated March 1, 1993, between Market
Street Fund, Inc. (the "Fund"), a corporation organized under the laws of
the State of Maryland, and Sentinel Advisors Company (the "Adviser"), a
Vermont general partnership.
WHEREAS, the Fund is a registered investment company under the Investment
Company Act of 1940 ("Investment Company Act") and maintains several
investment portfolios for the use of the Fund's shareholders which are separate
accounts established and maintained by insurance companies; and
WHEREAS, the Adviser currently provides investment advisory services in
accordance with the Agreement for the Fund's Bond, Managed and Aggressive
Growth Portfolios; and
WHEREAS, the Fund has created two new portfolios, the Common Stock
Portfolio and the Sentinel Growth Portfolio, for which the Fund desires that
the Adviser act as investment adviser; and
WHEREAS, the Common Stock Portfolio of the Fund has the current investment
objective of seeking a combination of long-term growth of capital and current
income with relatively low risk by investing in common stocks of many
well-established companies; and
WHEREAS, the Sentinel Growth Portfolio has the current investment
objective of seeking long-term growth of capital through equity participation
in companies having growth potential believed by the Adviser to be more
favorable than the U.S. economy as a whole, with a focus on relatively
well-established companies; and
WHEREAS, the Adviser desires to act as investment adviser to the Common
Stock and Sentinel Growth Portfolios under the terms hereof; and
WHEREAS, the Adviser is registered as an investment adviser under the
Investment advisers Act of 1940, as amended (the "Advisers Act"); and
WHEREAS, the Investment Company Act prohibits any person from acting as an
adviser to an investment company except pursuant to a written agreement;
NOW, THEREFORE, the Fund and the Adviser hereby agree as follows:
1. The Agreement shall continue in full force and effect as to the Fund's
Bond, Managed and Aggressive Growth Portfolios, without change.
2. At its own expense and subject to supervision of the Board of Directors
of the Fund (the "Directors"), the Adviser will provide investment advisory
services
<PAGE> 2
with respect to the Fund's Common Stock and Sentinel Growth Portfolios
(the "Portfolios"), in accordance with the Portfolios' investment objectives,
policies and restrictions as stated in the Fund's prospectus, as from time to
time in effect, the Articles of Incorporation and Bylaws of the Fund, the
Investment Company Act, and appropriate state insurance laws, each as amended
from time to time. The Adviser agrees to furnish the services described below
for the compensation provided in this Amendment No. 1. The Adviser shall for
all purposes herein be deemed to be an independent contractor and shall,
unless otherwise expressly provided or authorized, have no authority to act for
or represent the Fund in any way, or otherwise be deemed an agent of the Fund.
3. In connection with its obligations hereunder, the Adviser shall,
subject to supervision by the Directors, manage the investment and reinvestment
of the assets of the Portfolios, and in so doing, shall provide the same
services as set forth in paragraphs 2, 3, 4 and 5 of the Agreement with
respect to the Bond, Managed and Aggressive Growth Portfolios.
4. (a) For the services provided to the Portfolios, the Adviser will be
compensated monthly at the effective annual rates set forth below:
Common Stock Portfolio -- 0.40% of the first $100 million of the average
daily net assets of the Common Stock Portfolio and 0.35% of the average daily
net assets of the Common Stock Portfolio in excess of $100 million.
Sentinel Growth Portfolio -- 0.50% of the first $20 million of the average
daily net assets of the Sentinel Growth Portfolio, 0.40% of the next $20
million of the average daily net assets of the Sentinel Growth Portfolio, and
0.30% of the average daily net assets of the Sentinel Growth Portfolio in
excess of $40 million.
(b) If this Amendment No. 1 is terminated at any time, any compensation
owed the Adviser pursuant to subparagraph (a) above shall be payable upon the
date of termination of this Agreement.
5. The provisions of paragraphs 7, 8, 9, 10, 13, 14, 15, 16, 17, 19 and
20 of the Agreement shall apply to the provision of investment advisory
services to the Common Stock and Sentinel Growth Portfolios under this Amendment
No. 1 in the same way that such provisions apply to the provision of investment
advisory services to the Bond, Managed and Aggressive Growth Portfolios
pursuant to the Agreement.
6. This Amendment No. 1 shall not be effective unless and until it is
approved by the Directors, including a majority of the Directors who are not
"interested persons" (as defined in the Investment Company Act), by vote cast
in person at a meeting called for the purpose of voting such approval and by
the parties to this Amendment No. 1. This Amendment No. 1 shall come into full
force and effect on March 11, 1996, or upon effectiveness of the amendment to
the Fund's registration statement reflecting this Amendment No. 1 filed with
the Securities and Exchange Commission under the Securities Act of 1933,
whichever is later, provided this Amendment No. 1 shall have been approved by a
vote of the "majority" (as defined in the Investment Company Act) of the
outstanding shares of the applicable Portfolio.
7. This Amendment No. 1 shall continue until December 31, 1997 and
thereafter for successive annual periods ending December 31, of each year,
provided such continuance is specifically approved at least annually by (i) the
Directors or (ii) by the vote of a "majority" of the shareholders of the
applicable Portfolio as set forth in
<PAGE> 3
paragraph 6 above, provided that in either event the continuance is also
approved by a majority of the Directors who are not "interested persons" (as
defined in the Investment Company Act) of any party to this Amendment No. 1, by
vote cast in person at a meeting called for the purpose of voting such
approval. The Fund agrees that it will notify the Adviser in writing each
year of such annual approval.
8. The Adviser shall submit to all regulatory and administrative bodies
having jurisdiction over the operations of any insurance company whose separate
accounts have any interest in the Portfolios, or in any of the other portfolios
of the Fund, present or future, any materials reasonably related to the
investment advisory services provided hereunder or in the Agreement, as may be
reasonably requested in the writing by the Directors or as may be required by
any governmental agency having jurisdiction.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to
be executed by their duly authorized officers on the date and year first above
written.
MARKET STREET FUND, INC.
by______________________
Stanley R. Reber
President
SENTINEL ADVISORS COMPANY
by______________________
Keniston P. Merrill
Chairman and Chief Executive
Officer
<PAGE> 1
Exhibit 8.d
AMENDMENT NO. 3 TO CUSTODIAN AGREEMENT
This Amendment, dated the 26th day of February, 1996, is entered into
between MARKET STREET FUND, INC. (the "Fund"), a Maryland corporation, and
PROVIDENT NATIONAL BANK ("Provident"), a national banking association.
WHEREAS, the Fund and PFPC have entered into a Custodian Agreement dated
as of December 12, 1985, and amended on September 9, 1988 and July 31, 1991 (the
"Transfer Agency Agreement"), pursuant to which the Fund appointed Provident to
act as custodian for its investment portfolios; and
WHEREAS, the Fund's Board of Directors has approved this Amendment; and
WHEREAS, the Fund has established additional classes of Fund shares,
Sentinel Growth Portfolio shares and Sentinel Common Stock Portfolio shares,
with respect to which it wants to appoint Provident to act as custodian under
the Custodian Agreement; and
WHEREAS, PFPC has notified the Fund that it wants to serve as custodian
for the Sentinel Growth and Sentinel Common Stock Portfolios;
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Appointment. The Fund hereby appoints Provident to act as
custodian to the Fund for the Sentinel Growth and Sentinel Common Stock
Portfolios for the period and on the terms set forth in the Custodian Agreement.
Provident hereby accepts such appointment and agrees to render the services set
forth in the Custodian Agreement, for the compensation as agreed to between the
Fund and PFPC from time to time.
2. Capitalized Terms. From and after the date hereof, the following
terms as used in the Custodian Agreement shall be deemed to include also the
meaning specified herein: "Shares" shall be deemed to include the class of
Sentinel Growth Portfolio shares and the class of Sentinel Common Stock
Portfolio shares; and "Portfolios" shall be deemed to include the Sentinel
Growth Portfolio shares and the Sentinel Common Stock Portfolio shares.
<PAGE> 2
3. Miscellaneous. Except to the extent amended and supplemented
hereby, the Custodian Agreement shall remain unchanged and in full force and
effect and is hereby ratified and confirmed in all respects as amended and
supplemented hereby.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the date and year first above written.
MARKET STREET FUND, INC.
(SEAL) By: ------------------------------------
Title:
PROVIDENT NATIONAL BANK
(SEAL) By: ------------------------------------
Title:
<PAGE> 1
EXHIBIT 9.f.
AMENDMENT NO. 3 TO ADMINISTRATION AGREEMENT
This Amendment, dated the 26th day of February, 1996, is entered into
between MARKET STREET FUND, INC. (the "Fund"), a Maryland corporation, and
PROVIDENT FINANCIAL PROCESSING CORPORATION ("PFPC"), a Delaware corporation
which is an indirect wholly-owned subsidiary of PNC Financial Corp.
WHEREAS, the Fund and PFPC have entered into an Administration
Agreement dated as of December 12, 1985, and amended on September 9, 1988 and
July 31, 1991 (the "Administration Agreement"), pursuant to which the Fund
appointed PFPC to act as administrator for its investment portfolios; and
WHEREAS, the Fund's Board of Directors has approved this Amendment; and
WHEREAS, the Fund has established additional Portfolios, Sentinel
Growth and Sentinel Common Stock, with respect to which it wants to appoint
PFPC to act as administrator under the Administration Agreement; and
WHEREAS, PFPC has notified the Fund that it wants to serve as
administrator for the Sentinel Growth and Sentinel Common Stock Portfolios;
NOW THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Appointment. The Fund hereby appoints PFPC to act as
administrator to the Fund for the Sentinel Growth and Sentinel Common Stock
Portfolios for the period and on the terms set forth in the Administration
Agreement. PFPC hereby accepts such appointment and agrees to render the
services set forth in the Administration Agreement, for the compensation as
agreed to between the Fund and PFPC from time to time.
2. Capitalized Terms. From and after the date hereof, the following
terms as used in the Administration Agreement shall be deemed to include also
the meaning specified herein: "Portfolios" shall be deemed to include the
Sentinel Growth Portfolio and the Sentinel Common Stock Portfolio shares.
<PAGE> 2
3. Miscellaneous. Except to the extent amended and supplemented
hereby, the Administration Agreement shall remain unchanged and in full force
and effect and is hereby ratified and confirmed in all respects as amended and
supplemented hereby.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the date and year first above written.
MARKET STREET FUND, INC.
(SEAL) By:
------------------------------
Title:
PROVIDENT FINANCIAL
PROCESSING CORPORATION
(SEAL) By:
------------------------------
Title:
<PAGE> 1
EXHIBIT 9.h.
AMENDMENT NO. 3 TO TRANSFER AGENCY AGREEMENT
This Amendment, dated the 26th day of February, 1996, is entered into
between MARKET STREET FUND, INC. (the "Fund"), a Maryland corporation, and
PROVIDENT FINANCIAL PROCESSING CORPORATION ("PFPC"), a Delaware corporation
which is an indirect wholly-owned subsidiary of PNC Financial Corp.
WHEREAS, the Fund and PFPC have entered into a Transfer Agency
Agreement dated as of December 12, 1985, and amended on September 9, 1988 and
July 31, 1991 (the "Transfer Agency Agreement"), pursuant to which the Fund
appointed PFPC to act as transfer agent for its investment portfolios; and
WHEREAS, the Fund's Board of Directors has approved this Amendment; and
WHEREAS, the Fund has established additional Portfolios, Sentinel
Growth and Sentinel Common Stock, with respect to which it wants to appoint
PFPC to act as transfer agent under the Transfer Agency Agreement; and
WHEREAS, PFPC has notified the Fund that it wants to serve as transfer
agent for the Sentinel Growth and Sentinel Common Stock Portfolios;
NOW THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Appointment. The Fund hereby appoints PFPC to act as transfer
agent, registrar and dividend disbursing agent to the Fund for the Sentinel
Growth and Sentinel Common Stock Portfolios for the period and on the terms set
forth in the Transfer Agency Agreement. PFPC hereby accepts such appointment
and agrees to render the services set forth in the Transfer Agency
Agreement, for the compensation as agreed to between the Fund and PFPC from time
to time.
2. Capitalized Terms. From and after the date hereof, the following
terms as used in the Transfer Agency Agreement shall be deemed to include also
the meaning specified herein: "Shares" shall be deemed to include the class of
Sentinel Growth Portfolio shares and the class of Sentinel Common Stock
Portfolio shares; and "Portfolios" shall be deemed to include the Sentinel
Growth Portfolio shares and the Sentinel Common Stock Portfolio shares.
<PAGE> 2
3. Miscellaneous. Except to the extent amended and supplemented
hereby, the Transfer Agency Agreement shall remain unchanged and in full force
and effect and is hereby ratified and confirmed in all respects as amended and
supplemented hereby.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the date and year first above written.
MARKET STREET FUND, INC.
(SEAL) By:
---------------------------------
Title:
PROVIDENT FINANCIAL
PROCESSING CORPORATION
(SEAL) By:
---------------------------------
Title:
<PAGE> 1
EXHIBIT 9.i.(3)
PARTICIPATION AGREEMENT
BY AND AMONG
MARKET STREET FUND, INC.
AND
NATIONAL LIFE INSURANCE COMPANY
AND
PML SECURITIES COMPANY
THIS AGREEMENT, made and entered into this 30th day of January 1996 by
and among NATIONAL LIFE INSURANCE COMPANY, a Vermont insurance company
(hereinafter the "Company"), on its own behalf and on behalf of NATIONAL
VARIABLE LIFE INSURANCE ACCOUNT (hereinafter, the "Account"), a segregated asset
account of the Company, the MARKET STREET FUND, INC., an open-end diversified
management investment company organized under the laws of the State of Maryland
(hereinafter the "Fund") and PML SECURITIES COMPANY, a Delaware corporation
(hereinafter the "Underwriter").
WHEREAS, the Fund engages in business as an open-end diversified,
management investment company and is available to act as the investment vehicle
for separate accounts established for variable life insurance contracts and
variable annuity contracts to be offered by insurance companies which have
entered into participation agreements substantially identical to this Agreement
(hereinafter "Participating Insurance Companies"); and
WHEREAS, beneficial interests in the Fund are divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets (the "Portfolios"); and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission (the "SEC"), dated October 3, 1985 (File No. 812-6143),
granting Participating Insurance Companies and variable life insurance separate
accounts exemptions from the provisions of sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940,
-1-
<PAGE> 2
as amended, (hereinafter the "1940 Act") and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Fund
to be sold to and held by variable annuity and variable life insurance separate
accounts of both affiliated and unaffiliated life insurance companies
(hereinafter the "Mixed and Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Company has registered or will register certain flexible
premium adjustable benefit variable life insurance policies (the "Policies")
under the 1933 Act; and
WHEREAS, the Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company under the insurance laws of Vermont, to set aside and invest assets
attributable to the Policies; and
WHEREAS, the Company has registered the Account as a unit investment
trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a brokerdealer with the SEC
under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of the Account to fund the Policies and the Underwriter is authorized to sell
such shares to unit investment trusts such as the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
-2-
<PAGE> 3
1.1. The Underwriter agrees to sell to the Company those shares of the
Fund which the Company orders on behalf of the Account, executing such orders
on a daily basis at the net asset value next computed after receipt and
acceptance by the Fund or its agent of the order for the shares of the Fund.
1.2. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by Participating Insurance
Companies and their separate accounts on those days on which the Fund
calculates its net asset value pursuant to rules of the SEC; provided, however,
that the Board of Directors of the Fund (hereinafter the "Directors") may
refuse to sell shares of any Portfolio to any person, or suspend or terminate
the offering of shares of any Portfolio if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion of the
Directors, acting in good faith and in light of their fiduciary duties under
federal and any applicable state laws, necessary in the best interests of the
shareholders of any Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts. No
shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, and VII of this Agreement is in
effect to govern such sales.
1.5. The Fund agrees to redeem for cash, upon the Company's request,
any full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt
and acceptance by the Fund or its agent of the request for redemption.
1.6. The Company agrees to purchase and redeem the shares of each
Portfolio offered by the then current prospectus of the Fund in accordance with
the provisions of such prospectus. The Company agrees that all net amounts
available under the Policies shall be invested in the Fund, or in the Company's
general account; provided that such amounts may also be invested in an
investment company other than the Fund if (a) such other investment
-3-
<PAGE> 4
company, or series thereof, has investment objectives or policies that are
substantially different from the investment objectives and policies of all the
Portfolios of the Fund; or (b) the Company gives the Fund and the Underwriter
45 days written notice of its intention to make such other investment company
available as a funding vehicle for the Policies; or (c) such other investment
company was available as a funding vehicle for the Policies prior to the date
of this Agreement and the Company so informs the Fund and Underwriter prior to
their signing this Agreement; or (d) the Fund or Underwriter consents to the
use of such other investment company.
1.7. The Company shall pay for Fund shares on the same day that it
places an order to purchase Fund shares. Payment shall be in federal funds
transmitted by wire.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or the Account.
Shares ordered from the Fund will be recorded in an appropriate title for the
Account or the appropriate subaccount of the Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such dividends and distributions as are payable on the
Portfolio shares in additional shares of that Portfolio. The Company reserves
the right to revoke this election and to receive all such dividends and
distributions in cash. The Fund shall notify the Company of the number of
shares so issued as payment of such dividends and distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Policies are
or will be registered under the 1933 Act and that the Policies will be issued
and sold in compliance with
-4-
<PAGE> 5
all applicable federal and state laws. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established the
Account as a segregated asset account under Section 3855 of the Vermont
Insurance Law and has registered the Account as a unit investment trust in
accordance with the provisions of the 1940 Act to serve as segregated
investment accounts for the Policies, and that it will maintain such
registration for so long as any Policies are outstanding. The Company shall
amend the registration statement under the 1933 Act for the Policies and the
registration statement under the 1940 Act for the Account from time to time as
required in order to effect the continuous offering of the Policies or as may
otherwise be required by applicable law. The Company shall register and qualify
the Policies for sale in accordance with the securities laws of the various
states only if and to the extent deemed necessary by the Company.
2.2 The Company represents that it believes, in good faith, that the
Policies are currently and at the time of issuance will be treated as life
insurance policies under applicable provisions of the Internal Revenue Code of
1986, and that it will make every effort to maintain such treatment and that it
will notify the Fund and the Underwriter immediately upon having a reasonable
basis for believing that the Policies have ceased to be so treated or that they
might not be so treated in the future.
2.3. The Fund represents and warrants that Fund shares sold pursuant
to this Agreement shall be registered under the 1933 Act and duly authorized
for issuance in accordance with applicable law and that the Fund is and shall
remain registered under the 1940 Act for as long as the Fund shares are sold.
The Fund shall amend the registration statement for its shares under the 1933
Act and the 1940 Act from time to time as required in order to effect the
continuous offering of its shares. The Fund shall register and qualify the
shares for sale in accordance with the laws of the various states only if and
to the extent deemed advisable by the Fund or the Underwriter.
2.4. The Fund represents that it believes, in good faith, that it is
currently qualified as a Regulated Investment Company under Subchapter M of the
Internal Revenue
-5-
<PAGE> 6
Code of 1986, and that it will make every effort to maintain such qualification
(under Subchapter M or any successor or similar provision) and that it will
notify the Company immediately upon having a reasonable basis for believing
that it has ceased to so qualify or that it might not so qualify in the future.
2.5. The Fund represents that its investment objectives, policies and
restrictions comply with the Vermont Insurance Law as it applies to the Fund.
To the extent feasible and consistent with market conditions, the Fund will
adjust its investments to comply with requirements of the Company's domiciliary
state upon written notice from the Company of such requirements and proposed
adjustments, it being agreed and understood that in any such case the Fund
shall be allowed a reasonable period of time under the circumstances after
receipt of such notice to make any such adjustment.
2.6. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it may make such payments in the future. To the extent that it decides
to finance distribution expenses pursuant to Rule 12b-1, the Fund undertakes to
have a board of directors, a majority of whom are not interested persons of the
Fund, formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
2.7. The Underwriter represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC.
The Underwriter further represents that it will sell and distribute the Fund
shares in accordance with the 1933 Act, the 1934 Act, and the 1940 Act.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Underwriter shall provide the Company, at the Company's
expense, with as many copies of the Fund's current prospectus as the Company
may reasonably request for use with prospective Policy owners and applicants.
The Underwriter shall print and distribute, at the Fund's expense, as many
copies as necessary for distribution to existing Policy owners or participants.
If requested by the Company in lieu thereof, the Fund shall
-6-
<PAGE> 7
provide such documentation and other assistance as is reasonably necessary in
order for the Company to have the new prospectus for the Policies and the
Fund's new prospectus printed together in one document, in such case the Fund
shall bear its share of expenses as described above.
3.2. The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Underwriter (or, in the Fund's
discretion, the Prospectus shall state that such Statement is available from
the Fund), and the Underwriter (or the Fund) shall provide such Statement, at
its expense, to the Company and to any owner of or participant under a Policy
who requests such Statement or, at the Company's expense, to any prospective
Policy owner and applicant who requests such statement.
3.3. The Fund, at its expense, shall provide the Company with copies of
its proxy material, reports to shareholders and other communications to
shareholders in such quantity as the Company shall reasonably require and shall
bear the costs of distributing them to existing Policy owners or participants.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Policy owners or
participants;
(ii) vote the Fund shares held in the Account in accordance
with instructions received from Policy owners or
participants; and
(iii) vote Fund shares held in the Account for which no timely
instructions have been received, and any Fund shares
held in the Company's general account, in the same
proportion as Fund shares of such Portfolio for which
instructions have been received;
so long as and to the extent that the SEC continues to interpret the 1940 Act
to require passthrough voting privileges for variable policy owners. The Company
reserves the right to vote Fund shares held in any segregated asset account or
in its general account in its own right, to the extent permitted by law.
Participating Insurance Companies shall be responsible for assuring that each
of their separate accounts participating in the Fund calculates voting
privileges in a manner consistent with other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply
-7-
<PAGE> 8
with Section 16(c) of the 1940 Act (although the Fund is not one of the trusts
described in Section 16(c) of that Act) as well as with Sections 16(a) and, if
and when applicable, 16(b). Further, the Fund will act in accordance with the
SEC interpretation of the requirements of Section 16(a) with respect to
periodic elections of directors and with whatever rules the Commission may
promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or the Underwriter, each piece of sales literature or other promotional
material in which the Fund or the Underwriter is named, at least fifteen
business days prior to its use. No such material shall be used if the Fund or
the Underwriter objects to such use within fifteen business days after receipt
of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Policies other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or by
the Underwriter, except with the permission of the Fund or the Underwriter. The
Fund and the Underwriter agree to respond to any request for approval on a
prompt and timely basis.
4.3. The Fund or the Underwriter shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company or its separate account(s) is
named, at least fifteen business days prior to its use. No such material shall
be used if the Company objects to such use within fifteen business days after
receipt of such material.
4.4. The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
the Account, or the Policies other than the information or representations
contained in a registration statement or
-8-
<PAGE> 9
prospectus for the Policies, as such registration statement and prospectus may
be amended or supplemented from time to time, or in published reports for the
Account which are in the public domain or approved by the Company for
distribution to Policy owners or participants, or in sales literature or other
promotional material approved by the Company, except with the permission of
the Company. The Company agrees to respond to any request for approval on a
prompt and timely basis.
4.5. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e. any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational
or training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under NASD rules, the 1940 Act or the 1933 Act.
ARTICLE V. Fees and Expenses
5.1. The Fund and Underwriter shall pay no fee or other compensation to
the Company under this Agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then, subject to obtaining any required exemptive orders or other
regulatory approvals, the Underwriter may make payments to the Company or to
the Underwriter for the Policies if and in amounts agreed to by the
Underwriter in writing. Currently, no such payments are contemplated.
5.2. All expenses incident to performance by the Fund of this Agreement
shall be paid by the Fund to the extent permitted by law. The Fund shall bear
the expenses for the
-9-
<PAGE> 10
cost of registration and qualification of the Fund's shares under federal law,
and, if applicable, under any state securities law, preparation and filing of
the Fund's prospectus and registration statement, proxy materials and reports,
setting in type, printing and distributing the prospectuses, the proxy
materials and reports to existing shareholders and Policy owners, the
preparation of all statements and notices required by any federal or state law,
all taxes on the issuance or transfer of the Fund's shares, and any expenses
permitted to be paid or assumed by the Fund pursuant to a plan, if any, under
Rule 12b-1 under the 1940 Act.
ARTICLE VI. Diversification
6.1. The Fund will comply with Section 817(h) of the Internal Revenue
Code of 1986, and all regulations issued thereunder, relating to the
diversification requirements for variable annuity, endowment, and life
insurance policies.
-10-
<PAGE> 11
ARTICLE VII. Potential Conflicts
7.1. The Board of Directors of the Fund (the "Board") will monitor the
Fund for the existence of any material irreconcilable conflict between the
interests of the policy owners of all separate accounts investing in the Fund.
An irreconcilable material conflict may arise for a variety of reasons,
including: (a) an action by any state insurance regulatory authority; (b) a
change in applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any Portfolio
are being managed; (e) a difference in voting instructions given by
Participating Insurance Companies or by variable annuity contract and variable
life insurance policy owners; or (f) a decision by an insurer to disregard the
voting instructions of policy owners. The Board shall promptly inform the
Company if it determines that an irreconcilable material conflict exists and the
implications thereof. A majority of the Board shall consist of persons who are
not "interested" persons of the Fund.
7.2. The Company has reviewed a copy of the Mixed and Shared Funding
Exemptive Order, and in particular, has reviewed the conditions to the requested
relief set forth therein. As set forth in the Mixed and Shared Funding Exemptive
Order, the Company will report any potential or existing conflicts of which it
is aware to the Board. The Company agrees to assist the Board in carrying out
its responsibilities under the Mixed and Shared Funding Exemptive Order, by
providing the Board with all information reasonably necessary for the Board to
consider any issues raised. This includes, but is not limited to, an obligation
by the Company to inform the Board whenever Policy owner voting instructions are
disregarded. The Board shall record in its minutes or other appropriate records,
all reports received by it and all action with regard to a conflict.
7.3. If it is determined by a majority of the Board, or a majority of
its disinterested Directors, that an irreconcilable material conflict exists,
the Company and other Participating Insurance Companies shall, at their expense
and to the extent reasonably
-11-
<PAGE> 12
practicable (as determined by a majority of the disinterested Directors), take
whatever steps are necessary to remedy or eliminate the irreconcilable material
conflict, up to and including: (1) withdrawing the assets allocable to some or
all of the separate accounts from the Fund or any Portfolio and reinvesting
such assets in a different investment medium, including (but not limited to)
another Portfolio of the Fund, or submitting the question whether such
segregation should be implemented to a vote of all affected policy owners and,
as appropriate, segregating the assets of any appropriate group (i.e., variable
annuity contract owners or variable life insurance contract owners, of one or
more Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected policy owners the option of making
such a change; and (2) establishing a new registered management investment
company or managed separate account.
7.4. If the Company's disregard of voting instructions could conflict
with the majority of Policy owner voting instructions, and the Company's
judgment represents a minority position or would preclude a majority vote, the
Company is permitted to withdraw the Account's investment in the Fund. The
Underwriter and Fund shall continue to accept and implement orders by the
Company for the purchase (and redemption) of shares of the Fund until the
Company notifies the Underwriter and the Fund that it is withdrawing the
Account's investment in the Fund pursuant to this Section 7.4.
7.5. If a particular state insurance regulator's decision applicable to
the Company conflicts with the majority of other state insurance regulators,
then the Company is permitted to withdraw the Account's investment in the Fund.
The Underwriter and Fund shall continue to accept and implement orders by the
Company for the purchase (and redemption) of shares of the Fund until the
Company notifies the Underwriter and the Fund that it is withdrawing the
Account's investment in the Fund pursuant to this Section 7.5.
7.6. For purposes of Section 7.3 of this Agreement, the Board shall
determine whether any proposed action adequately remedies any irreconcilable
material conflict, but in no event will the Fund be required to establish a new
funding medium for the Policies. The Company shall not be required by Section
7.3 to establish a new funding medium for the
-12-
<PAGE> 13
Policies if an offer to do so has been declined by vote of a majority of Policy
owners materially adversely affected by the irreconcilable material conflict.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Mixed and Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Mixed and Shared
Funding Exemptive Order, then (a) the Fund and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the
extent such rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3,
7.4, and 7.5 of this Agreement shall continue in effect only to the extent that
terms and conditions substantially identical to such Sections are contained in
such Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
8.1(a). The Company agrees to indemnify and hold harmless the Fund,
the Underwriter, and each of the Fund's or the Underwriter's directors,
officers, employees or agents and each person, if any, who controls or is
associated with the Fund or the Underwriter within the meaning of such terms
under the federal securities laws (collectively, the "indemnified parties" for
purposes of this Section 8.1) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Company) or litigation (including legal and other expenses), to which the
indemnified parties may become subject under any statute, regulation, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to the sale
or acquisition of the Fund's shares and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained
in the registration statement or prospectus for the
Policies or contained in the Policies or sales
literature for the Policies (or any amendment or
supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to
state therein a material fact required to be stated
therein or necessary
-13-
<PAGE> 14
to make the statements therein not misleading in light of the
circumstances in which they were made; provided that this
agreement to indemnify shall not apply as to any indemnified
party if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with
information furnished to the Company by or on behalf of the Fund
for use in the registration statement or prospectus for the
Policies or in the Policies or sales literature (or any
amendment or supplement) or otherwise for use in connection with
the sale of the Policies or Fund shares; or
(ii) arise out of or as a result of statements or representations by
or on behalf of the Company (other than statements or
representations contained in the Policy or Fund registration
statement, the Policy or Fund prospectus or sales literature for
the Policies or the Fund not supplied by the Company or persons
under its control) or wrongful conduct of the Company or persons
under its control, with respect to the sale or distribution of
the Policies or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a registration statement,
prospectus, or sales literature of the Fund or any amendment
thereof or supplement thereto or the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were
made, if such a statement or omission was made in reliance upon
and in conformity with information furnished to the Fund by or
on behalf of the Company; or
(iv) arise as a result of any failure by the Company to provide the
services and furnish the materials or to make any payments under
the terms of this Agreement; or
(v) arise out of any material breach by the Company of this
Agreement;
except to the extent provided in Sections 8.1(b) and 8.4 hereof. This
indemnification shall be in addition to any liability which the Company may
otherwise have.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation to which an indemnified party would otherwise be subject by reason
of willful misfeasance, bad faith, or gross negligence in the performance of
his or her duties or by reason of his or her reckless disregard of obligations
or duties under this Agreement or to the Fund.
-14-
<PAGE> 15
8.1(c). The indemnified parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund shares or the Policies or the operation of the
Fund.
8.2 Indemnification By the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of its directors, officers, employees or agents and each
person, if any, who controls or is associated with the Company within the
meaning of such terms under the federal securities laws (collectively, the
"indemnified parties" for purposes of this Section 8.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Underwriter) or litigation (including legal and other
expenses) to which the indemnified parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements are
related to the sale or acquisition of the Fund's shares and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of the
Fund (or any amendment or supplement to any of the foregoing),
or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were
made; provided that this agreement to indemnify shall not apply
as to any indemnified party if such statement or omission or
such alleged statement or omission was made in reliance upon and
in conformity with information furnished to the Underwriter or
Fund by or on behalf of the Company for use in the registration
statement or prospectus for the Fund or in sales literature for
the Fund (or any amendment or supplement thereto) or otherwise
for use in connection with the sale of the Policies or Fund
shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Policies or in the Policy or Fund registration statement, the
Policy or Fund prospectus or sales literature for the Policies
or the Fund not supplied by the Underwriter or persons under its
control) or wrongful conduct of the Underwriter or persons under
its control, with respect to the sale or distribution of the
Policies or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a registration statement,
prospectus, or sales literature covering the Policies (or any
amendment thereof or supplement thereto), or the omission or
alleged omission to state therein a material fact required to be
stated therein or
-15-
<PAGE> 16
necessary to make the statement or statements therein not
misleading in light of the circumstances in which they were
made, if such statement or omission was made in reliance upon
and in conformity with information furnished to the Company by
or on behalf of the Underwriter; or
(iv) arise out of any material breach by the Underwriter of this
Agreement;
except to the extent provided in Sections 8.2(b) and 8.4 hereof. This
indemnification shall be in addition to any liability which the Underwriter may
otherwise have.
8.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation to which an indemnified party would otherwise be subject by reason
of willful misfeasance, bad faith, or gross negligence in the performance of
his or her duties or by reason of his or her reckless disregard of obligations
and duties under this Agreement or to the Company or the Account.
8.2(c). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Policies or the
operation of the Account.
8.3. Indemnification by the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the Company and
each of its directors, officers, employees or agents and each person, if any,
who controls or is associated with the Company within the meaning of such terms
under the federal securities laws (collectively, the "indemnified parties" for
the purpose of this Section 8.3) against any and all losses, claims, damages or
liabilities (including amounts paid in settlement with the written consent of
the Fund) or litigation (including legal and other expenses) to which they or
any of them may become subject under any statute or regulation, at common law
or otherwise, insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
registration statement or prospectus for the Fund or sales
literature of the Fund (or any amendment or supplement thereto),
or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were
made; provided that this
-16-
<PAGE> 17
agreement to indemnify shall not apply if such statement or
omission or alleged statement or alleged omission was made in
reliance upon and in conformity with information furnished to
the Fund by or on behalf of the Company for use in the
registration statement or prospectus for the Fund or sales
literature for the Fund (or any amendment or supplement thereto)
or otherwise for use in connection with the sale or distribution
of the Policies or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Policies or the Policy or Fund registration statement or the
Policy or Fund prospectus or sales literature for the Policy or
the Fund not supplied by the Fund or persons under its control)
or wrongful conduct of the Fund or the Fund's investment adviser
or persons under their control, with respect to the sale or
distribution of the Policies or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in the registration statement or
prospectus or sales literature covering the Policies (or any
amendment or supplement thereto), or the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were
made, if such statement or omission was made in reliance upon
and in conformity with information furnished by or on behalf of
the Fund to the Company; or
(iv) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the diversification
requirements specified in Article VI of this Agreement); or
(v) arise out of any material breach by the Fund of this Agreement;
except to the extent provided in Section 8.3(b) and 8.4 hereof. This
indemnification shall be in addition to any liability which the Fund may
otherwise have.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation to which an indemnified party would otherwise be subject by reason
of willful misfeasance, bad faith, or gross negligence in the performance of
his or her duties or by reason of his or her reckless disregard of obligations
or duties under this Agreement or to the Company or the Account.
8.3(c). The indemnified parties will promptly notify the Fund of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund Shares or the Policies or the operation of the
Fund.
-17-
<PAGE> 18
8.4. Indemnification Procedure
Any person obligated to provide indemnification under this Article VIII
("indemnifying party" for the purpose of this Section 8.4) shall not be liable
under the indemnification provisions of this Article VIII with respect to any
claim made against a party entitled to indemnification under this Article VIII
("indemnified party" for the purpose of this Section 8.4) unless such
indemnified party shall have notified the indemnifying party in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
indemnified party (or after such party shall have received notice of such
service on any designated agent), but failure to notify the indemnifying party
of any such claim shall not relieve the indemnifying party from any liability
which it may have to the indemnified party against whom such action is brought
under the indemnification provision of this Article VIII, except to the extent
that the failure to notify results in the failure of actual notice to the
indemnifying party and such indemnifying party is damaged solely as a result of
failure to give such notice. In case any such action is brought against the
indemnified party, the indemnifying party will be entitled to participate, at
its own expense, in the defense thereof. The indemnifying party also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the indemnifying party to the indemnified
party of the indemnifying party's election to assume the defense thereof, the
indemnified party shall bear the fees and expenses of any additional counsel
retained by it, and the indemnifying party will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation, unless (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such counsel or
(ii) the named parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and representation
of both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written consent
but if settled with
-18-
<PAGE> 19
such consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled
to the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. Applicable Law.
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Vermont.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the SEC
grant (including, but not limited to, the Mixed and Shared Funding Exemptive
Order) and the terms hereof shall be interpreted and construed in accordance
therewith.
ARTICLE X. Termination
10.1. This Agreement shall terminate:
(a) at the option of any party upon one-year advance written
notice to the other parties; or
(b) at the option of the Company if shares of all Portfolios are
not reasonably available to meet the requirements of the Policies as determined
by the Company. Prompt notice of the election to terminate for such cause shall
be furnished by the Company; or
(c) at the option of the Fund upon institution of formal
proceedings against the Company by the NASD, the SEC, the Vermont Insurance
Commissioner or any other regulatory body regarding the Company's duties under
this Agreement or related to the sale of the Policies, the operation of the
Account, or the purchase of the Fund shares; or
-19-
<PAGE> 20
(d) at the option of the Company upon institution of formal
proceedings against the Fund by the NASD, the SEC, or any state securities or
insurance department or any other regulatory body; or
(e) at the option of the Company or the Fund upon receipt of any
necessary regulatory approvals and/or the vote of the Policy owners having an
interest in the Account (or any subaccount) to substitute the shares of another
investment company for the corresponding Portfolio shares of the Fund in
accordance with the terms of the Policies for which those Portfolio shares had
been selected to serve as the underlying investment media. The Company will give
30 day's prior written notice to the Fund of the date of any proposed vote or
other action taken to replace the Fund's shares; or
(f) at the option of the Company or the Fund upon a
determination by a majority of the Directors of the Fund, or a majority of its
disinterested Directors, that an irreconcilable material conflict exists among
the interests of (i) all contract owners of variable insurance products of all
separate accounts or (ii) the interests of the Participating Insurance
Companies investing in the Fund; or
(g) at the option of the Company if the Company has withdrawn
the Account's investment in the Fund because the Company's disregard of voting
instructions could conflict with the majority of policy owner voting
instructions and if the Company's judgment represents a minority position or
would preclude a majority vote; or
(h) at the option of the Company if the Company has withdrawn
the Account's investment in the Fund because a particular state insurance
regulator's decision applicable to the Company conflicts with the majority of
other state insurance regulators;
(i) at the option of the Company if the Fund ceases to qualify
as a Regulated Investment Company under Subchapter M of the Internal Revenue
Code of 1986, or under any successor or similar provision, or if the Company
reasonably believes that the Fund may fail to so qualify; or
(j) at the option of the Company if the Fund fails to meet the
diversification requirements specified in Article VI hereof; or
-20-
<PAGE> 21
(k) at the option of any party to this Agreement, upon another
party's material breach of any provision of this Agreement.
10.2. It is understood and agreed that the right to terminate this
Agreement pursuant to Section 10.1(a) may be exercised for any reason or for no
reason.
10.3. Except as necessary to implement Policy owner initiated
transactions, or as required by state insurance laws or regulations, the Company
shall not redeem Fund shares attributable to the Policies (as opposed to Fund
shares attributable to the Company's assets held in the Account), and the
Company shall not prevent Policy owners from allocating payments to a Portfolio
that was otherwise available under the Policies, until 90 days after the Company
shall have notified the Fund or Underwriter of its intention to do so.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
IF TO THE FUND:
Mr. Stanley R. Reber
President
Market Street Fund, Inc.
1600 Market Street
Philadelphia, PA 19103
IF TO THE COMPANY:
D. Russell Morgan, Esq.
National Life Insurance Company
One National Life Drive
Montpelier, VT 05604
IF TO THE UNDERWRITER:
Linda Senker, Esq.
PML Securities Company
220 Continetal Drive
Christiana Executive Campus
Newark, DE 19713
ARTICLE XII. Miscellaneous
12.1. All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Directors, officers,
-21-
<PAGE> 22
agents or shareholders assume any personal liability for obligations entered
into on behalf of the Fund.
12.2. Subject to law and regulatory authority, each party hereto shall
treat as confidential all information reasonably identified as such in writing
by any other party hereto (including without limitation the names and addresses
of the owners of the Policies) and, except as contemplated by this Agreement,
shall not disclose, disseminate or utilize such confidential information until
such time as it may come into the public domain without the express prior
written consent of the affected party.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof
or otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6. This Agreement shall not be assigned by any party hereto without
the prior written consent of all the parties.
12.7. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
12.8. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have
been duly authorized by all necessary corporate action, as applicable, by such
party and when so executed and delivered this Agreement will be the valid and
binding obligation of such party enforceable in accordance with its terms.
-22-
<PAGE> 23
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
COMPANY:
NATIONAL LIFE INSURANCE COMPANY
(SEAL) By: /s/ Craig A. Smith
---------------------------
Craig A. Smith
Date: 1/30/96
FUND:
MARKET STREET FUND, INC.
(SEAL) By: /s/ Linda E. Senker
---------------------------
Linda E. Senker
Date: 1/29/96
UNDERWRITER:
PML SECURITIES COMPANY
(SEAL) By: /s/ Linda E. Senker
---------------------------
Linda E. Senker
Date: 1/29/96
[/R]
-23-
<PAGE> 1
EXHIBIT 10.
[PROVIDENT MUTUAL LETTERHEAD]
February 26, 1996
Market Street Fund, Inc.
1600 Market Street
Philadelphia, PA 19103
Re: Market Street Fund, Inc., Post-Effective
Amendment No. 13, File No. 2-98755
----------------------------------------
Gentlemen:
This opinion is furnished in connection with the filing of Post-Effective
Amendment No. 13 to the Registration Statement on Form N-1A ("Registration
Statement"), File No. 2-98755, under the Securities Act of 1933, as amended.
I have served as counsel to the Market Street Fund, Inc., a Maryland
corporation, (the "Company") in connection with the Registration Statement with
respect to the registration of an indefinite number of its shares of capital
stock, par value $0.01 per share (the "Shares"), to be offered as set forth in
the Prospectus contained therein. In such connection I have reviewed originals
or copies, certified or otherwise identified to my satisfaction, of the
appropriate minutes of the meetings of the Board of Directors of the Company,
the Articles of Incorporation and By-Laws and any amendments thereto, and
pertinent agreements of the Company and such the documents and records as I
deem appropriate or necessary.
In my opinion, the Company is a corporation duly and validly organized under
the laws of Maryland, and the Shares will, when issued pursuant to the
Prospectus, be legally issued, fully paid and non-assessable.
I consent to the reference to my name under the caption "Legal Matters" in the
Statement of Additional Information filed as part of the Post-Effective
Amendment and to the filing of this opinion as an exhibit thereto.
Sincerely,
Linda E. Senker
LES:cf
SECURITY THROUGH FINANCIAL SERVICES
<PAGE> 1
EXHIBIT 11.a.
[SUTHERLAND, ASBILL & BRENNAN LETTERHEAD]
February 26, 1996
Market Street Fund, Inc.
1600 Market Street
Philadelphia, PA 19103
Gentlemen:
We hereby consent to the reference to our name under the caption
"Legal Matters" in the Statement of Additional Information filed as part of
the Post-Effective Amendment No. 13 to Form N-1A for Market Street Fund, Inc.
(File No. 2-98755). In giving this consent, we do not admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933.
Sincerely,
SUTHERLAND, ASBILL & BRENNAN
By: /s/ Kimberly J. Smith
_________________________
Kimberly J. Smith, Esq.
LFB/pn
<PAGE> 1
EXHIBIT 11.b.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the following with respect to Post-Effective Amendment No.
13 to the Registration Statement (No. 2-98755) on Form N-1A under the
Securities Act of 1933, as amended and Amendment No. 14 under the Investment
Company Act of 1940, as amended, respectively, of Market Street Fund, Inc.:
- The inclusion of our report dated January 31, 1996, accompanying the
financial statements and financial highlights of Market Street Funds,
Inc. in the Statement of Additional Information.
- The incorporation by reference of our report dated January 31, 1996
into the Prospectus.
- The reference to our Firm under the headings "Financial Highlights"
in the Prospectus and under the heading "Independent Accountants"
in the Statement of Additional Information.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 26, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The Money Market Portfolio
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 34,741,724
<INVESTMENTS-AT-VALUE> 34,741,724
<RECEIVABLES> 59,814
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 34,801,539
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 186,387
<TOTAL-LIABILITIES> 186,387
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 34,615,152
<SHARES-COMMON-STOCK> 34,615,152
<SHARES-COMMON-PRIOR> 27,363,479
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 34,615,152
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,616,475
<OTHER-INCOME> 0
<EXPENSES-NET> 134,693
<NET-INVESTMENT-INCOME> 1,481,782
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,481,782
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 52,460,129
<NUMBER-OF-SHARES-REDEEMED> 40,303,780
<SHARES-REINVESTED> 1,419,246
<NET-CHANGE-IN-ASSETS> 13,575,595
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 67,727
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 134,693
<AVERAGE-NET-ASSETS> 27,090,960
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.5)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The Growth Portfolio
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 138,392,715
<INVESTMENTS-AT-VALUE> 161,073,049
<RECEIVABLES> 1,406,183
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 162,479,233
<PAYABLE-FOR-SECURITIES> 379,093
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 201,189
<TOTAL-LIABILITIES> 580,282
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 130,274,015
<SHARES-COMMON-STOCK> 9,894,999
<SHARES-COMMON-PRIOR> 8,229,913
<ACCUMULATED-NII-CURRENT> 1,263,754
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 7,680,848
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 22,680,334
<NET-ASSETS> 161,898,951
<DIVIDEND-INCOME> 4,387,203
<INTEREST-INCOME> 933,531
<OTHER-INCOME> 0
<EXPENSES-NET> 846,114
<NET-INVESTMENT-INCOME> 4,474,620
<REALIZED-GAINS-CURRENT> 7,728,282
<APPREC-INCREASE-CURRENT> 24,145,662
<NET-CHANGE-FROM-OPS> 36,348,564
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,157,531
<DISTRIBUTIONS-OF-GAINS> 8,715,516
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,376,728
<NUMBER-OF-SHARES-REDEEMED> 672,833
<SHARES-REINVESTED> 961,190
<NET-CHANGE-IN-ASSETS> 46,707,964
<ACCUMULATED-NII-PRIOR> 963,142
<ACCUMULATED-GAINS-PRIOR> 8,651,606
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 447,525
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 846,114
<AVERAGE-NET-ASSETS> 139,175,200
<PER-SHARE-NAV-BEGIN> 14.00
<PER-SHARE-NII> .47
<PER-SHARE-GAIN-APPREC> 3.41
<PER-SHARE-DIVIDEND> (.46)
<PER-SHARE-DISTRIBUTIONS> (1.06)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.36
<EXPENSE-RATIO> .61
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The Aggressive Growth Portfolio
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 22,425,313
<INVESTMENTS-AT-VALUE> 23,532,018
<RECEIVABLES> 728,614
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 24,260,633
<PAYABLE-FOR-SECURITIES> 413,664
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 24,538
<TOTAL-LIABILITIES> 438,202
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 19,890,944
<SHARES-COMMON-STOCK> 1,370,597
<SHARES-COMMON-PRIOR> 998,414
<ACCUMULATED-NII-CURRENT> 255,039
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,569,743
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,106,705
<NET-ASSETS> 23,822,431
<DIVIDEND-INCOME> 122,149
<INTEREST-INCOME> 230,390
<OTHER-INCOME> 0
<EXPENSES-NET> 147,500
<NET-INVESTMENT-INCOME> 255,039
<REALIZED-GAINS-CURRENT> 2,569,743
<APPREC-INCREASE-CURRENT> (406,827)
<NET-CHANGE-FROM-OPS> 2,417,955
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 131,841
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 489,394
<NUMBER-OF-SHARES-REDEEMED> 125,984
<SHARES-REINVESTED> 8,772
<NET-CHANGE-IN-ASSETS> 8,392,788
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 131,841
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 95,751
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 147,515
<AVERAGE-NET-ASSETS> 19,289,308
<PER-SHARE-NAV-BEGIN> 15.45
<PER-SHARE-NII> .20
<PER-SHARE-GAIN-APPREC> 1.86
<PER-SHARE-DIVIDEND> (.00)
<PER-SHARE-DISTRIBUTIONS> (.13)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.38
<EXPENSE-RATIO> .76
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The International Portfolio
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 32,097,010
<INVESTMENTS-AT-VALUE> 34,832,604
<RECEIVABLES> 160,637
<ASSETS-OTHER> 1,792,690
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 36,785,931
<PAYABLE-FOR-SECURITIES> 106,435
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 37,414
<TOTAL-LIABILITIES> 143,849
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 31,674,314
<SHARES-COMMON-STOCK> 2,850,218
<SHARES-COMMON-PRIOR> 2,672,126
<ACCUMULATED-NII-CURRENT> 442,343
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,793,161
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,732,264
<NET-ASSETS> 36,642,082
<DIVIDEND-INCOME> 637,052
<INTEREST-INCOME> 113,341
<OTHER-INCOME> 0
<EXPENSES-NET> 364,605
<NET-INVESTMENT-INCOME> 385,788
<REALIZED-GAINS-CURRENT> 1,849,716
<APPREC-INCREASE-CURRENT> 2,023,172
<NET-CHANGE-FROM-OPS> 4,258,676
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 148,141
<DISTRIBUTIONS-OF-GAINS> 699,972
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 861,466
<NUMBER-OF-SHARES-REDEEMED> (341,090)
<SHARES-REINVESTED> 76,064
<NET-CHANGE-IN-ASSETS> 10,430,221
<ACCUMULATED-NII-PRIOR> 181,141
<ACCUMULATED-GAINS-PRIOR> 699,972
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 238,250
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 364,614
<AVERAGE-NET-ASSETS> 31,766,708
<PER-SHARE-NAV-BEGIN> 11.63
<PER-SHARE-NII> .16
<PER-SHARE-GAIN-APPREC> 1.45
<PER-SHARE-DIVIDEND> (.07)
<PER-SHARE-DISTRIBUTIONS> (.31)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.86
<EXPENSE-RATIO> 1.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The Bond Portfolio
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 13,652,435
<INVESTMENTS-AT-VALUE> 14,170,120
<RECEIVABLES> 248,398
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 14,418,519
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 16,164
<TOTAL-LIABILITIES> 16,164
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 13,725,185
<SHARES-COMMON-STOCK> 1,309,787
<SHARES-COMMON-PRIOR> 1,037,640
<ACCUMULATED-NII-CURRENT> 208,370
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (48,885)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 517,685
<NET-ASSETS> 14,402,355
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 849,828
<OTHER-INCOME> 0
<EXPENSES-NET> 73,331
<NET-INVESTMENT-INCOME> 776,497
<REALIZED-GAINS-CURRENT> 503,141
<APPREC-INCREASE-CURRENT> 950,760
<NET-CHANGE-FROM-OPS> 2,230,398
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 736,126
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 305,883
<NUMBER-OF-SHARES-REDEEMED> 106,040
<SHARES-REINVESTED> 72,305
<NET-CHANGE-IN-ASSETS> 4,304,721
<ACCUMULATED-NII-PRIOR> 168,000
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 42,737
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 73,331
<AVERAGE-NET-ASSETS> 12,210,558
<PER-SHARE-NAV-BEGIN> 9.73
<PER-SHARE-NII> .65
<PER-SHARE-GAIN-APPREC> 1.27
<PER-SHARE-DIVIDEND> (.65)
<PER-SHARE-DISTRIBUTIONS> .00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.00
<EXPENSE-RATIO> .60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The Managed Portfolio
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 31,374,110
<INVESTMENTS-AT-VALUE> 35,649,654
<RECEIVABLES> 397,208
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 36,042,863
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 40,497
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 29,925,731
<SHARES-COMMON-STOCK> 2,537,951
<SHARES-COMMON-PRIOR> 2,458,773
<ACCUMULATED-NII-CURRENT> 329,730
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,471,361
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,275,544
<NET-ASSETS> 36,002,366
<DIVIDEND-INCOME> 459,816
<INTEREST-INCOME> 1,130,233
<OTHER-INCOME> 0
<EXPENSES-NET> 215,773
<NET-INVESTMENT-INCOME> 1,374,276
<REALIZED-GAINS-CURRENT> 1,471,361
<APPREC-INCREASE-CURRENT> 4,221,556
<NET-CHANGE-FROM-OPS> 7,067,193
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,414,623
<DISTRIBUTIONS-OF-GAINS> 33,117
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 390,442
<NUMBER-OF-SHARES-REDEEMED> (357,720)
<SHARES-REINVESTED> 114,456
<NET-CHANGE-IN-ASSETS> 6,639,162
<ACCUMULATED-NII-PRIOR> 370,077
<ACCUMULATED-GAINS-PRIOR> 33,117
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 130,149
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 215,773
<AVERAGE-NET-ASSETS> 32,537,263
<PER-SHARE-NAV-BEGIN> 11.94
<PER-SHARE-NII> .55
<PER-SHARE-GAIN-APPREC> 2.28
<PER-SHARE-DIVIDEND> (.57)
<PER-SHARE-DISTRIBUTIONS> (.01)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.19
<EXPENSE-RATIO> .66
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
