<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY , 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. 12 [X]
AND/OR
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [_]
AMENDMENT NO. 13 [X]
MARKET STREET FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
1600 MARKET STREET
PHILADELPHIA, PA 19103
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (215) 636-5000
----------------
LINDA E. SENKER COPY TO:
MARKET STREET FUND, INC. STEPHEN E. ROTH, ESQ.
1600 MARKET STREET SUTHERLAND, ASBILL & BRENNAN
PHILADELPHIA, PA 19103 1275 PENNSYLVANIA AVENUE, N.W.
(NAME AND ADDRESS OF AGENT FOR SERVICE) WASHINGTON, DC 20004
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 FILED THE
24F-2 NOTICE FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 ON FEBRUARY 27, 1995.
PAGE 1 OF (EXHIBIT INDEX ON PAGE ).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
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>
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
</TABLE>
PART B
<TABLE>
<CAPTION>
FORM N-1A ITEM STATEMENT OF ADDITIONAL INFORMATION
-------------- -----------------------------------
<S> <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 Securities....................... General Information and History;
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>
- --------------------------------------------------------------------------------
MARKET STREET FUND, INC.
1600 MARKET STREET
PHILADELPHIA, PENNSYLVANIA 19103
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 March , 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 (215) 636-5000.
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.
This Prospectus should be read carefully and retained for future reference.
Prospectus dated March , 1996
- --------------------------------------------------------------------------------
Form 15732A 5.95
<PAGE>
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..............................................
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
Investment in Securities of Other Investment Companies.................. 16
Other Investment Policies............................................... 16
Additional Information.................................................. 16
Management of the Fund.................................................... 16
Growth Portfolio........................................................ 16
Money Market Portfolio.................................................. 17
Sentinel Growth, Common Stock, Bond, Managed and Aggressive Growth
Portfolios............................................................. 17
International Portfolio................................................. 19
Other Expenses.......................................................... 19
Brokerage Allocation.................................................... 20
Description of the Fund's Shares.......................................... 20
Characteristics of the Fund's Common Stock.............................. 20
Dividends, Distributions and Taxes...................................... 21
Valuation of Shares..................................................... 21
Redemption of Shares.................................................... 22
Custodian, Transfer and Dividend Disbursing Agent......................... 22
</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>
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
-------------------------------------------------------------------------------------------------------------
01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/89(A) 01/01/88 01/01/87(B) 01/01/86 01/01/85 02/24/84(C)
TO TO TO TO TO TO TO TO TO TO TO
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 12/31/85 12/31/84
-------- -------- -------- -------- -------- ----------- -------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period........... $14.09 $13.73 $13.88 $12.08 $13.16 $11.24 $ 9.99 $10.73 $10.18 $7.54 $7.28
------- ------- ------ ------ ------ ------ ------ ------ ------ ------ -----
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment
income.......... .43 .38 .46 .50 .55 .51 .46 .38 .29 .16 .27
Net realized and
unrealized gain
(loss) on
investments..... (.10) .94 .17 1.71 (.25) 2.87 1.36 (.13) .86 2.48 (.01)
------- ------- ------ ------ ------ ------ ------ ------ ------ ------ -----
Total from
investment
operations..... .33 1.32 .63 2.21 .30 3.38 1.82 .25 1.15 2.64 .26
------- ------- ------ ------ ------ ------ ------ ------ ------ ------ -----
LESS DISTRIBU-
TIONS:
Dividends to
shareholders
from net invest-
ment income..... (.41) (.39) (.46) (.41) (.53) (.53) (.43) (.40) (.28) (.00) (.00)
Dividends to
shareholders
from net capital
gains........... (.01) (.35) (.32) (.00) (.85) (.93) (.14) (.59) (.32) (.00) (.00)
Dividends to
shareholders in
excess of net
investment
income(d)....... -- (.22) -- -- -- -- -- -- -- -- --
------- ------- ------ ------ ------ ------ ------ ------ ------ ------ -----
Total distribu-
tions.......... (.42) (.96) (.78) (.41) (1.38) (1.46) (.57) (.99) (.60) (.00) (.00)
------- ------- ------ ------ ------ ------ ------ ------ ------ ------ -----
Net asset value,
end of period.... $14.00 $14.09 $13.73 $13.88 $12.08 $13.16 $11.24 $9.99 $10.73 $10.18 $7.54
======= ======= ====== ====== ====== ====== ====== ====== ====== ====== =====
Total Return.... 2.40% 9.43% 4.74% 18.50% 2.39% 30.45% 18.50% 1.64% 11.28% 35.01% 3.57%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end
of period
$(000).......... 115,191 109,534 82,881 55,357 35,658 25,954 14,287 7,326 2,214 1,158 581
Ratios of
expenses to
average net
assets
(annualized)(e). .63% .76% .79% .76% .75% .72% .65% .65% .65% .42% .34%
Ratios of net
investment
income to
average net
assets
(annualized).... 3.10% 2.86% 3.53% 3.91% 4.27% 4.26% 4.52% 3.79% 3.02% 4.24% 4.27%
Portfolio turn-
over rate(f).... 63% 51% 35% 28% 47% 60% 32% 78% 41% 102% 63%
</TABLE>
- --------
(a) On May 1, 1989, the investment advisor was changed from 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 shares 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,
1994, 1993, 1992, 1991 and 1990 were as follows: 0.67%, 0.76%, 0.82%, 0.98%
and 1.01%, 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>
Selected data for a share of capital stock outstanding throughout the
periods:
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
-----------------------------------------------------------------------------------------------------
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 01/01/85 02/24/84(A)
TO TO TO TO TO TO TO TO TO TO TO
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 12/31/85 12/31/84
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -----------
<S> <C> <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 $1.00
------ ------ ----- ----- ----- ----- ----- ----- ----- ----- -----
INCOME FROM
INVESTMENT
OPERATIONS:
Net Investment
Income......... .04 .03 .03 .06 .07 .08 .07 .06 .06 .07 .08
------ ------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Total from
investment
operations..... .04 .03 .03 .06 .07 .08 .07 .06 .06 .07 .08
LESS
DISTRIBUTIONS:
Dividends to
shareholders
from net
investment
income(b)...... (.04) (.03) (.03) (.06) (.07) (.08) (.07) (.06) (.06) (.07) (.08)
------ ------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Total
Distributions.. (.04) (.03) (.03) (.06) (.07) (.08) (.07) (.06) (.06) (.07) (.08)
------ ------ ----- ----- ----- ----- ----- ----- ----- ----- -----
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 $1.00
====== ====== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total return.... 3.81% 2.59% 3.18% 5.69% 8.00% 9.02% 7.19% 6.14% 6.25% 7.00% 8.15%
------ ------ ----- ----- ----- ----- ----- ----- ----- ----- -----
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end
of period
$(000)......... 21,040 12,506 8,138 7,047 5,411 4,632 4,219 2,914 2,404 2,128 174
Ratios of
expenses to
average net
assets
(annualized)(c). 0.55% 0.65% 0.65% 0.53% 0.50% 0.55% 0.65% 0.65% 0.65% 0.42% 0.33%
Ratios of net
investment
income to
average net
assets
(annualized)... 3.86% 2.56% 3.12% 5.49% 7.72% 8.66% 7.03% 6.00% 6.05% 7.44% 7.96%
</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, 1994, 1993, 1992, 1991 and 1990 were as follows: 0.59%,
0.65%, 0.73%, 0.86% and 0.86%, respectively.
See accompanying notes to financial statements.
4
<PAGE>
CONDENSED FINANCIAL INFORMATION--CONTINUED
Selected data for a share of capital stock outstanding throughout the
periods:
<TABLE>
<CAPTION>
BOND PORTFOLIO
------------------------------------------------------------------------------------------------------------
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 01/01/85 02/24/84(C)
TO TO TO TO TO TO TO TO TO TO TO
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 12/31/85 12/31/84
----------- -------- -------- -------- -------- ----------- -------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period........... $11.21 $10.73 $10.80 $10.04 $10.09 $ 9.89 $10.02 $10.93 $10.23 $ 8.39 $7.68
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -----
INCOME FROM IN-
VESTMENT OPERA-
TIONS:
Net investment
income.......... .62 .60 .64 .77 .79 .82 .76 .65 .72 .56 .66
Net realized and
unrealized gain
(loss) on
investments..... (1.23) .48 (.03) .57 (.05) .20 (.13) (.91) .86 1.28 .05
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Total from
investment
operations..... (.61) 1.08 .61 1.34 .74 1.02 .63 (.26) 1.58 1.84 .71
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -----
LESS DISTRIBU-
TIONS:
Dividends to
shareholders
from net
investment
income.......... (.60) (.60) (.68) (.58) (.79) (.82) (.76) (.65) (.72) (.00) (.00)
Dividends to
shareholders
from net capital
gains........... (.27) (.00) (.00) (.00) (.00) (.00) (.00) (.00) (.16) (.00) (.00)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Total
distributions(d). (.87) (.60) (.68) (.58) (.79) (.82) (.76) (.65) (.88) (.00) (.00)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Net asset value,
end of period.... $ 9.73 $11.21 $10.73 $10.80 $10.04 $10.09 $ 9.89 $10.02 $10.93 $10.23 $8.39
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== =====
Total return.... (5.62)% 10.32% 5.95% 13.93% 7.70% 10.57% 6.45% (2.37)% 16.03% 21.93% 9.24%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end
of period
$(000).......... 10,098 10,160 6,710 4,365 3,711 3,311 2,473 1,869 908 465 302
Ratios of ex-
penses to aver-
age net assets
(annualized)(e). .68% .75% .75% .63% .60% .62% .65% .65% .65% .41% .34%
Ratios of net
investment
income to
average net
assets
(annualized).... 6.14% 5.53% 6.34% 7.58% 8.00% 8.28% 7.74% 6.99% 7.01% 9.46% 8.90%
Portfolio turn-
over rate(f).... 151% 71% 4% 32% 53% 9% .13% 1.64% 25% 95% 73%
</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,
1994, 1993, 1992, 1991 and 1990 were as follows: 0.70%, 0.75%, 0.81%, 0.93%
and 0.96%, 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>
Selected data for a share of capital stock outstanding throughout the
periods:
<TABLE>
<CAPTION>
MANAGED PORTFOLIO
--------------------------------------------------------------------------------------------------------
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 12/12/85(C)
TO TO TO TO TO TO TO TO TO TO
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 12/31/85
----------- -------- -------- -------- -------- ----------- -------- -------- -------- ----------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of pe-
riod............ $13.27 $12.25 $11.40 $ 9.81 $11.37 $10.63 $10.12 $10.68 $10.03 $10.00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ---
INCOME FROM IN-
VESTMENT OPERA-
TIONS:
Net investment
income......... .53 .40 .44 .51 .57 .59 .50 .52 .53 .03
Net realized and
unrealized gain
(loss) on
investments.... (.77) 1.00 .88 1.47 (1.53) .89 .51 (.55) .68 .00
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ---
Total from in-
vestment opera-
tions.......... (.24) 1.40 1.32 1.98 (.96) 1.48 1.01 (.03) 1.21 .03
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ---
LESS DISTRIBU-
TIONS:
Dividends to
shareholders
from net
investment
income......... (.49) (.38) (.47) (.39) (.57) (.61) (.50) (.52) (.56) (.00)
Dividends to
shareholders
from net capi-
tal gains...... (.60) (.00) (.00) (.00) (.03) (.13) (.00) (.01) (.00) (.00)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ---
Total
distributions(d). (1.09) (.38) (.47) (.39) (.60) (.74) (.50) (.53) (.56) (.03)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ---
Net asset value,
end of period... $11.94 $13.27 $12.25 $11.40 $ 9.81 $11.37 $10.63 $10.12 $10.68 $10.03
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ===
Total return.... (1.82)% 11.62% 11.96% 20.49% (8.61)% 14.65% 10.60% (0.54)% 12.08% .30%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end
of period
$(000)......... 29,363 28,984 15,946 12,564 10,197 10,028 8,015 5,991 2,765 1,003
Ratios of
expenses to
average net
assets
(annualized)
(e)............ 0.67% 0.80% 0.80% 0.68% 0.65% 0.65% 0.65% 0.65% 0.65% 0.65%
Ratios of net
investment in-
come to average
net assets
(annualized)... 4.34% 3.36% 3.88% 4.74% 5.48% 5.74% 4.89% 5.45% 5.29% 6.42%
Portfolio turn-
over rate(f)... 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,
1994, 1993, 1992, 1991 and 1990 were as follows: 0.73%, 0.80%, 0.84%, 0.95%
and 0.98%, respectively.
(f) Portfolio turnover rate excludes all securities whose maturities at the
time of acquisition were one year or less.
6
<PAGE>
CONDENSED FINANCIAL INFORMATION--CONTINUED
Selected data for a share of capital stock outstanding throughout the
periods:
<TABLE>
<CAPTION>
AGGRESSIVE
GROWTH INTERNATIONAL
PORTFOLIO PORTFOLIO
------------------------------------------------------------ ---------------------------------------
01/01/94(A) 01/01/93 01/01/92 01/01/91 01/01/90 05/01/89(B) 01/01/94 01/01/93 01/01/92 01/01/91(B)
TO TO TO TO TO TO TO TO TO TO
12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89 12/31/94 12/31/93 12/31/92 12/31/91
----------- -------- -------- -------- -------- ----------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period............ $15.45 $14.72 $16.68 $10.67 $ 9.87 $10.00 $11.87 $ 9.00 $9.74 $10.00
------ ------ ------ ------ ------ ------ ------ ------ ----- ------
INCOME FROM
INVESTMENT
OPERATIONS:
Net investment in-
come............. (.01) (.01) .03 .08 .03 .09 .05 .06 .08 .01
Net realized and
unrealized gain
(loss) on invest-
ments............ .01 .77 .38 5.93 1.04 .25 (.02) 3.09 (.81) (.27)
------ ------ ------ ------ ------ ------ ------ ------ ----- ------
Total from
investment
operations....... .00 .76 .41 6.01 1.07 .34 .03 3.15 (.73) (.26)
------ ------ ------ ------ ------ ------ ------ ------ ----- ------
LESS DISTRIBUTIONS:
Dividends to
shareholders from
net investment
income........... .00 (.03) (.07) (.00) (.03) (.09) (.03) (.08) (.00) (.00)
Dividends to
shareholders from
net capital
gains............ .00 (.00) (2.30) (.00) (.24) (.38) (.24) (.20) (.01) (.00)
------ ------ ------ ------ ------ ------ ------ ------ ----- ------
Total
distributions(c). .00 (.03) (2.37) (.00) (.27) (.47) (.27) (.28) (.01) (.00)
------ ------ ------ ------ ------ ------ ------ ------ ----- ------
Net asset value,
end of period..... $15.45 $15.45 $14.72 $16.68 $10.67 $ 9.87 $11.63 $11.87 $9.00 $ 9.74
====== ====== ====== ====== ====== ====== ====== ====== ===== ======
Total return...... 0% 5.20% 2.58% 56.33% 10.77% 5.58% .26% 36.11% (7.30)% (2.88)%
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period $(000).... 15,430 12,223 8,029 2,751 772 568 26,212 13,682 6,727 4,979
Ratios of expenses
to average net
assets
(annualized)(d).. .86% .90% .90% .79% .75% .50% 1.32% 1.50% 1.50% 1.48%
Ratios of net
investment income
to average net
assets
(annualized)..... (.10)% (.07)% .37% .80% .27% 1.00% .72% .68% 1.05% .26%
Portfolio
turnover(e)...... 60% 60% 18% 95% 27% 32% 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, 1994, 1993,
1992, 1991 and 1990, 0.89%, 0.90%, 1.00%, 1.32% and 2.43%, respectively;
International Portfolio for the years ended December 31, 1994, 1993, 1992
and the period ended December 31, 1991, 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>
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 variable annuity as well as variable life insurance
contracts. The Fund's Board of Directors will monitor events in order to
identify any material irreconcilable conflicts which may possibly arise and to
determine what action, if any, should be taken in response thereto.
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.
8
<PAGE>
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.
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
9
<PAGE>
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 "Adviser") under the 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 % 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
10
<PAGE>
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.
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 % 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.
11
<PAGE>
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.
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.
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 % 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>
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
13
<PAGE>
which during periods of high interest rates, because of their lower acquisition
costs, tend to sell on a yield basis approximating current interest rates.
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 % 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 and may at times be
subject to high levels of market and financial risk and current income
volatility. The annual portfolio turnover rates of this Portfolio for 1995 and
1994 were % 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
14
<PAGE>
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 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
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.
15
<PAGE>
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 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.
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.
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
16
<PAGE>
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 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.
17
<PAGE>
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 is 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 Aggressive Growth Portfolio's portfolio manager since March 1, 1993 is
Louis E. Conrad II, Assistant Vice President and Portfolio Manager of SAC. Mr.
Conrad is a Chartered Financial Analyst, and has been with SAC since 1992.
Prior to that time he was Investment Research Analyst and Institutional
Portfolio Manager for Shawmut National Corporation.
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 , 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.
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.
18
<PAGE>
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. During 1995, PIMC paid TBC at an effective annual
rate of 0. % 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
19
<PAGE>
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. %; Money Market Portfolio--0. %; Bond Portfolio--0. %;
Managed Portfolio--0. %; Aggressive Growth Portfolio--0. %; and International
Portfolio-- %.
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, 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. During 1992, the Fund paid brokerage
commissions of $660 to PML, all of which was attributable to the Managed
Portfolio. The brokerage commissions paid to PML were .48% of the aggregate
brokerage commissions paid during 1992 and 2% of those paid with respect to the
Managed Portfolio. PML executed .23% of the brokerage transactions during 1992
on which brokerage commissions were paid, which represented 3.5% of the Managed
Portfolio transactions.
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.
20
<PAGE>
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.
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.
21
<PAGE>
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.
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.
22
<PAGE>
MARKET STREET FUND, INC.
1600 MARKET STREET
PHILADELPHIA, PA 19103 215-636-5000
STATEMENT OF ADDITIONAL INFORMATION
MARCH , 1996
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with the Market Street Fund, Inc. Prospectus dated March ,
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 (9)....................................... 2
Investment Restrictions (9 to 15)......................................... 2
Investment Techniques and Investment Risks (9 to 17)...................... 4
Portfolio Turnover (10 to 15)............................................. 8
Management of the Fund (17)............................................... 9
Investment Advisory and Other Services (17 to 19)......................... 9
Portfolio Transactions and Brokerage Allocation (20)...................... 14
Determination of Net Asset Value (21)..................................... 14
Purchase and Redemption of Shares (21 and 22)............................. 16
Taxes (21)................................................................ 16
Capital Stock (20)........................................................ 17
Code of Ethics............................................................ 18
Other Services (22)....................................................... 18
Financial Statements...................................................... 20
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 5.95
<PAGE>
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 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, 1994, 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, 1992, 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>
(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>
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.
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
Portfolio with an agreement to repurchase the securities at an agreed upon date
and price, which reflects a rate of interest paid for the use of funds for the
period. Such transactions are advantageous only if the Portfolio has 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 Portfolio 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
Portfolio intends 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 Portfolio's investments. The
Portfolio's custodian will maintain in a segregated account, fully liquid
securities of the Portfolio that have a value equal to or greater than the
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 Portfolio's total assets. Under no circumstances will a Portfolio
enter into a reverse repurchase agreement with Provident Mutual, PLACA, NLIC or
SAC.
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.
4
<PAGE>
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 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
5
<PAGE>
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.
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
6
<PAGE>
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 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.
7
<PAGE>
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.
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>
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 1600 Market Street, Philadelphia, Pennsylvania.
<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 President 0
and Chief Executive and Chief Investment Officer of Provi-
Officer dent Mutual; 1975-1985, Executive Vice
President of Texas American Bank
Dr. Alan Gart........... Director 1982-Present, President of Alan Gart, $6,000
978 Warfield Lane Inc. (a consulting firm); 1992-Pres-
Huntingdon Valley, PA ent, Professor, Southeastern Massachu-
19006 setts University; 1989-1992, Profes-
sor, Nova Southeastern University;
1985-1989, Professor of Finance, Leh-
man College of the City University of
New York
Dr. A. Gilbert Heebner..
2 Etienne, Arbordeau Director 1987-Present, Distinguished Professor $6,000
Devon, PA 19333 of Economics, Eastern College; 1952-
1987, Executive Vice President and
Chief Economist of CoreStates Finan-
cial Corp.
Edward S. Stouch........ Director 1983, Retired; 1969-1983, Vice Presi- $6,000
216 Grandview Rd. dent and Head of Personal Trust In-
Media, PA 19063 vestment Department, Trust Division of
Provident National Bank
Rosanne Gatta........... Treasurer and Treasurer and Assistant Vice President 0
Comptroller of Provident Mutual
Linda E. Senker......... Secretary Associate General Counsel of Provident 0
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.
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
Advisors Company ("SAC") (together, NAM, PIMC, and SAC are the "Advisers").
9
<PAGE>
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.
On , 1996, an amended investment advisory agreement between the Fund and
SAC was approved by NLIC, the initial shareholder of the Sentinel Growth and
Common Stock Portfolios, to extend SAC's provision of investment advisory
services to each of these Portfolios.
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 , 1996, the Fund's Board of
Directors, including a majority of the "non-interested" directors, voted
unanimously to approve an amendment to the investment advisory agreement
between the Fund and SAC to include SAC providing investment advisory services
to the Sentinel Growth Portfolio and the Common Stock Portfolio. 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-interested" 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.
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
10
<PAGE>
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. 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.
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 $ . The total investment advisory fee incurred for PIMC
during 1995 was $ , allocated $ and $ to the Money Market and
International Portfolios, respectively. The total investment advisory fee
incurred for SAC during 1995 was $ , allocated $ , $ , and $ to 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>
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. 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 1994 or 1993.
NLIC has agreed to reimburse the Fund for ordinary operating expenses of the
Sentinel Growth and Common Stock 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.
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 PNCBank.
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 receives compensation from PIMC equal to the greater 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
12
<PAGE>
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 1994, PIMC incurred $75,811 for investment advisory services rendered by
TBC and Cseh International Associates, Inc. under the prior Sub-Investment
Advisory Agreement in connection with the International Portfolio. For 1995,
PIMC incurred $ for investment advisory services rendered by TBC.
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 None
Operating Officer
John W. Richards Executive Vice President and None
Secretary
John H. Marchesi, Jr. Executive Vice President None
O. Samuel Folin Senior 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 and None
Treasurer
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
</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
The principal officers of SAC are:
<CAPTION>
POSITION WITH POSITION WITH
NAME SAC THE FUND
---- ------------- -------------
<S> <C> <C>
Keniston P. Merrill Chairman and Chief Executive
Officer None
Rodney A. Buck Senior Vice President &
Director of Marketable Fixed
Income Securities None
D. Russell Morgan Counsel None
William M. Hedberg Vice President & Director of
Equity Research None
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH POSITION WITH
NAME SAC THE FUND
---- ------------- -------------
<S> <C> <C>
Richard D. Temple Vice President & Portfolio
Manager None
William C. Vautin Vice President & Portfolio
Manager None
Louis E. Conrad II Assistant Vice President &
Equity Portfolio
Manager/Analyst None
Kenneth J. Hart Assistant Vice President &
Portfolio Manager/Analyst None
Lisa M. Marcoux Secretary None
Jean K. Landolt Assistant Secretary None
Dean R. Howe Treasurer None
Mark H. Lang Assistant 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 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, 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.
14
<PAGE>
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 periods 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.
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.
15
<PAGE>
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 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
16
<PAGE>
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 Service.
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.
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.
17
<PAGE>
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-1 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.
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 subcustodial
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.
18
<PAGE>
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 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.
19
<PAGE>
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants..........................................
Schedules of Investments as of December 31, 1994...........................
Statements of Assets and Liabilities, December 31, 1994.................... 21
Statements of Operations for the Year Ended December 31, 1994.............. 22
Statements of Changes in Net Assets for the Year Ended December 31, 1994... 23
Statements of Changes in Net Assets for the Year Ended December 31, 1993... 24
Notes to Financial Statements, December 31, 1994........................... 30
</TABLE>
20
<PAGE>
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Statements of Assets and Liabilities, 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>
ASSETS
Investments, at value
(cost $115,374,063,
$21,112,299,
$10,334,942,
$29,052,181,
$13,801,848,
$24,914,949
respectively) (see
accompanying sched-
ules)................. $113,908,735 $21,112,299 $ 9,901,867 $29,106,169 $15,315,381 $25,626,027
Cash................... -- -- -- -- -- 780,360*
Interest receivable.... 26,828 45,094 179,642 200,906 2,866 8,060
Dividends receivable... 307,681 -- -- 32,192 1,936 50,938
Foreign taxes receiv-
able.................. -- -- -- -- -- 29,413
Prepaid expenses....... -- -- -- -- -- 3,641
Receivable for invest-
ments sold............ 2,634,703 -- -- 108,461 137,074 79,497
Receivable for fund
shares sold........... 14,908 -- 29,181 10 130,425 92,786
------------ ----------- ----------- ----------- ----------- -----------
Total assets........... 116,892,855 21,157,393 10,110,690 29,447,738 15,587,682 26,670,722
------------ ----------- ----------- ----------- ----------- -----------
LIABILITIES
Accrued expenses....... 139,720 24,465 13,056 35,972 17,122 46,796
Dividend payable....... -- 93,371 -- -- -- --
Payable for investments
purchased............. 1,560,003 -- -- 35,939 137,600 412,065
Payable for fund shares
redeemed.............. 2,145 -- -- 12,623 3,317 --
------------ ----------- ----------- ----------- ----------- -----------
Total liabilities...... 1,701,868 117,836 13,056 84,534 158,039 458,861
------------ ----------- ----------- ----------- ----------- -----------
Net assets............. $115,190,987 $21,039,557 $10,097,634 $29,363,204 $15,429,643 $26,211,861
============ =========== =========== =========== =========== ===========
Number of shares of
$.01 par value common
stock, issued and
outstanding........... 8,229,913 21,039,557 1,037,640 2,458,773 998,414 2,253,778
============ =========== =========== =========== =========== ===========
Net asset value, offer-
ing and redemption
price per share....... $14.00 $1.00 $9.73 $11.94 $15.45 $11.63
============ =========== =========== =========== =========== ===========
</TABLE>
* Includes foreign currency with a cost of $782,880 and a value of $780,360.
See accompanying notes to financial statements.
21
<PAGE>
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Statements of Operations for the Year Ended December 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGGRESSIVE
GROWTH MONEY MARKET BOND MANAGED GROWTH INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends.............. $3,834,840 $ -- $ -- $ 327,871 $ 41,159 $ 415,965
Interest............... 374,133 706,807 662,343 1,119,591 55,209 73,577
Less: foreign taxes
withheld.............. (59,433) -- -- -- (30) (70,481)
---------- -------- ----------- ----------- -------- -----------
Total income........... 4,149,540 706,807 662,343 1,447,462 96,338 419,061
---------- -------- ----------- ----------- -------- -----------
EXPENSES
Investment advisory
fee................... 391,249 40,010 34,014 115,614 63,208 151,622
Administration fee..... 152,979 21,998 13,494 40,110 17,473 53,947
Directors' fee......... 10,003 1,479 874 2,604 1,148 1,892
Transfer agent fee..... 5,741 2,132 1,869 2,602 1,986 2,309
Custodian fee.......... 27,447 6,774 3,264 10,830 8,423 19,598
Legal fees............. 8,458 1,180 746 2,223 948 1,491
Audit fees............. 16,198 2,335 1,428 4,245 1,851 2,943
Printing............... 105,221 18,510 9,192 27,076 13,285 22,807
Miscellaneous.......... 25,419 (193) 2,698 7,094 4,533 9,304
---------- -------- ----------- ----------- -------- -----------
742,715 94,225 67,579 212,398 112,855 265,913
Less: expenses
reimbursed by
affiliated insurance
company............... (43,180) (5,815) (1,763) (20,121) (4,004) --
---------- -------- ----------- ----------- -------- -----------
Total expenses......... 699,535 88,410 65,816 192,277 108,851 265,913
---------- -------- ----------- ----------- -------- -----------
Net investment income
(loss)................ 3,450,005 618,397 596,527 1,255,185 (12,513) 153,148
---------- -------- ----------- ----------- -------- -----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS AND FOREIGN
CURRENCY TRANSACTIONS
Net realized gain
(loss)................ 8,710,006 -- (552,026) 33,117 200,840 699,972
---------- -------- ----------- ----------- -------- -----------
Change in net
unrealized
appreciation (depreci-
ation) from:
Investments........... (9,626,405) -- (622,045) (1,801,984) (43,061) (1,101,110)
Foreign currency
related translations. (28,377) -- -- -- -- (11,254)
---------- -------- ----------- ----------- -------- -----------
(9,654,782) -- (622,045) (1,801,984) (43,061) (1,112,364)
---------- -------- ----------- ----------- -------- -----------
Net gain (loss) on
investments and
foreign currency
transactions.......... (944,776) -- (1,174,071) (1,768,867) 157,779 (412,392)
---------- -------- ----------- ----------- -------- -----------
Net increase (decrease)
in net assets
resulting from
operations............ $2,505,229 $618,397 $ (577,544) $ (513,682) $145,266 $ (259,244)
========== ======== =========== =========== ======== ===========
</TABLE>
See accompanying notes to financial statements.
22
<PAGE>
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Statements of Changes in Net Assets for the Year Ended December 31, 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGGRESSIVE
GROWTH MONEY 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 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 realized
gains................. (79,165) -- (246,014) (1,318,716) -- (39,209)
From net investment
income................ (3,183,250) (618,397) (561,072) (1,136,418) -- (273,923)
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>
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Statements of Changes in Net Assets for the Year Ended December 31, 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGGRESSIVE
GROWTH MONEY 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)................ $ 2,876,969 $ 235,150 $ 472,003 $ 757,967 $ (6,855) $ 65,437
Net realized gain
(loss) on sale of
investments........... 175,655 -- 351,592 1,609,029 (46,967) 273,923
Net unrealized
appreciation
(depreciation) on
investments and
foreign currency
translations.......... 6,733,147 -- (45,968) (134,123) 832,547 2,563,837
------------ ----------- ----------- ----------- ----------- -----------
Net increase (decrease)
in net assets
resulting from
operations............ 9,785,771 235,150 777,627 2,232,873 778,725 2,903,197
Distributions:
From net realized
gains................. (2,105,949) -- -- -- -- (151,354)
From net investment
income................ (2,755,094) (235,150) (435,126) (627,372) (18,436) (58,413)
In excess of net
investment income..... (1,385,071) -- -- -- -- --
Capital share
transactions:
Net contributions from
affiliated life
insurance companies... 23,113,443 4,367,621 3,106,717 11,432,413 3,433,520 4,261,811
------------ ----------- ----------- ----------- ----------- -----------
Total increase in net
assets............... 26,653,100 4,367,621 3,449,218 13,037,914 4,193,809 6,955,241
NET ASSETS
Beginning of period.... 82,880,846 8,138,324 6,710,447 15,945,871 8,028,767 6,726,794
------------ ----------- ----------- ----------- ----------- -----------
End of period
(including
undistributed net
investment income in
the Growth Portfolio
of $724,763; Bond
Portfolio $132,543;
Managed Portfolio
$251,310 and
International
Portfolio $66,327..... $109,533,946 $12,505,945 $10,159,665 $28,983,785 $12,222,576 $13,682,035
============ =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
24
<PAGE>
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the periods:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH PORTFOLIO
- -----------------------------------------------------------------------------------
01/01/94 01/01/93 01/01/92 01/01/91 01/01/90
TO TO TO TO TO
12/31/94 12/31/93 12/31/92 12/31/91 12/31/90
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of pe-
riod............................. $ 14.09 $13.73 $13.88 $ 12.08 $13.16
------- ------- ------ ------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............. .43 .38 .46 .50 .55
Net realized and unrealized gain
(loss) on investments............ (.10) .94 .17 1.71 (.25)
------- ------- ------ ------- ------
Total from investment
operations..................... .33 1.32 .63 2.21 .30
------- ------- ------ ------- ------
LESS DISTRIBUTIONS:
Dividends to shareholders from net
investment income................ (.41) (.39) (.46) (.41) (.53)
Dividends to shareholders from net
capital gains.................... (.01) (.35) (.32) (.00) (.85)
Dividends to shareholders in
excess of net investment income.. -- (.22) -- -- --
------- ------- ------ ------- ------
Total distributions............. (0.42) (.96) (.78) (.41) (1.38)
------- ------- ------ ------- ------
Net asset value, end of period.... $14.00 $14.09 $13.73 $13.88 $12.08
======= ======= ====== ======= ======
Total Return..................... 2.40% 9.43% 4.74% 18.50% 2.39%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $(000).. 115,191 109,534 82,881 55,357 35,658
Ratios of expenses to average net
assets (annualized)/1/........... .63% .76% .79% .76% .75%
Ratios of net investment income to
average net assets (annualized).. 3.10% 2.86% 3.53% 3.91% 4.27%
Portfolio turnover ............... 63% 51% 35% 28% 47%
</TABLE>
- --------------------------------------------------------------------------------
/1/Annualized.expense ratios for the Growth Portfolio before reimbursement of
expenses by affiliated insurance company for the years ended December 31,
1994, 1993, 1992, 1991 and 1990 were as follows: 0.67%, 0.76%, 0.82%, 0.98%
and 1.01%, respectively.
See accompanying notes to financial statements.
25
<PAGE>
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Financial Highlights -- Continued
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the periods:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY MARKET
PORTFOLIO
- -------------------------------------------------------------------------------
01/01/94 01/01/93 01/01/92 01/01/91 01/01/90
TO TO TO TO TO
12/31/94 12/31/93 12/31/92 12/31/91 12/31/90
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period.......................... $ 1.00 $ 1.00 $1.00 $1.00 $1.00
------ ------ ----- ----- -----
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income............ .04 .03 .03 .06 .07
------ ------ ----- ----- -----
Total from investment
operations..................... .04 .03 .03 .06 .07
LESS DISTRIBUTIONS:
Dividends to shareholders from
net investment income........... (.04) (.03) (.03) (.06) (.07)
------ ------ ----- ----- -----
Total Distributions............. (.04) (.03) (.03) (.06) (.07)
------ ------ ----- ----- -----
Net asset value, end of period... $ 1.00 $ 1.00 $1.00 $1.00 $1.00
====== ====== ===== ===== =====
Total return.................... 3.81% 2.59% 3.18% 5.69% 8.00%
------ ------ ----- ----- -----
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $(000). 21,040 12,506 8,138 7,047 5,411
Ratios of expenses to average net
assets (annualized)/1/.......... .55% .65% .65% .53% .50%
Ratios of net investment income
to average net assets
(annualized).................... 3.86% 2.56% 3.12% 5.49% 7.72%
- -------------------------------------------------------------------------------
</TABLE>
1. Annualized expense ratios for the Money Market Portfolio before reimburse-
ment of expenses by affiliated insurance company for the years ended Decem-
ber 31, 1994, 1993, 1992, 1991 and 1990 were as follows: 0.59%, 0.65%,
0.73%, 0.86% and 0.86%, respectively.
See accompanying notes to financial statements.
26
<PAGE>
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Financial Highlights -- Continued
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the periods:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BOND PORTFOLIO
- -------------------------------------------------------------------------------
01/01/94 1/01/93 01/01/92 01/01/91 01/01/90
TO TO TO TO TO
12/31/94 12/31/93 12/31/92 12/31/91 12/31/90
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period......................... $11.21 $10.73 $10.80 $10.04 $10.09
------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income........... .62 .60 .64 .77 .79
Net realized and unrealized gain
(loss) on investments.......... (1.23) .48 (.03) .57 (.05)
------ ------ ------ ------ ------
Total from investment
operations.................... (.61) 1.08 .61 1.34 .74
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends to shareholders from
net investment income.......... (.60) (.60) (.68) (.58) (.79)
Dividends to shareholders from
net capital gains.............. (.27) (.00) (.00) (.00) (.00)
------ ------ ------ ------ ------
Total distributions............ (.87) (.60) (.68) (.58) (.79)
------ ------ ------ ------ ------
Net asset value, end of period.. $ 9.73 $11.21 $10.73 $10.80 $10.04
====== ====== ====== ====== ======
Total return.................... (5.62)% 10.32% 5.95% 13.93% 7.70%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
$(000)......................... 10,098 10,160 6,710 4,365 3,711
Ratios of expenses to average
net assets (annualized)/1/..... .68% .75% .75% .63% .60%
Ratios of net investment income
to average net assets
(annualized)................... 6.14% 5.53% 6.34% 7.58% 8.00%
Portfolio turnover.............. 151% 71% 4% 32% 53%
- -------------------------------------------------------------------------------
</TABLE>
1. Annualized expense ratios for the Bond Portfolio before reimbursement of ex-
penses by affiliated insurance company for the years ended December 31,
1994, 1993, 1992, 1991 and 1990 were as follows: 0.70%, 0.75%, 0.81%, 0.93%
and 0.96%, respectively.
See accompanying notes to financial statements.
27
<PAGE>
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Financial Highlights -- Continued
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the periods:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGED
PORTFOLIO
- -------------------------------------------------------------------------------
01/01/94 01/01/93 01/01/92 01/01/91 01/01/90
TO TO TO TO TO
12/31/94 12/31/93 12/31/92 12/31/91 12/31/90
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period........................ $13.27 $12.25 $11.40 $ 9.81 $11.37
------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.......... .53 .40 .44 .51 .57
Net realized and unrealized
gain (loss) on investments.... (.77) 1.00 .88 1.47 (1.53)
------ ------ ------ ------ ------
Total from investment
operations................... (.24) 1.40 1.32 1.98 (.96)
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends to shareholders from
net investment income......... (.49) (.38) (.47) (.39) (.57)
Dividends to shareholders from
net capital gains............. (.60) (.00) (.00) (.00) (.03)
------ ------ ------ ------ ------
Total distributions........... (1.09) (.38) (.47) (.39) (.60)
------ ------ ------ ------ ------
Net asset value, end of period. $11.94 $13.27 $12.25 $11.40 $ 9.81
====== ====== ====== ====== ======
Total return................... (1.82)% 11.62% 11.96% 20.49% (8.61)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
$(000)........................ 29,363 28,984 15,946 12,564 10,197
Ratios of expenses to average
net assets (annualized)/1/.... .67% .80% .80% .68% .65%
Ratios of net investment income
to average net assets
(annualized).................. 4.34% 3.36% 3.88% 4.74% 5.48%
Portfolio turnover............. 75% 89% 32% 51% 47%
</TABLE>
- --------------------------------------------------------------------------------
1 Annualized expense ratios for the Managed Portfolio before reimbursement of
expenses by affiliated insurance company for the years ended December 31,
1994, 1993, 1992, 1991 and 1990 were as follows: 0.73%, 0.80%, 0.84%, 0.95%
and 0.98%, respectively.
See accompanying notes to financial statements.
28
<PAGE>
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Financial Highlights -- Concluded
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the periods:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGGRESSIVE
GROWTH INTERNATIONAL
PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------
01/01/94 01/01/93 01/01/92 01/01/91 01/01/90 01/01/94 01/01/93 01/01/92 11/01/91/2/
TO TO TO TO TO TO TO TO TO
12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/94 12/31/93 12/31/92 12/31/91
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $15.45 $14.72 $16.68 $10.67 $ 9.87 $11.87 $ 9.00 $9.74 $10.00
------ ------ ------ ------ ------ ------ ------ ----- ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income... (.01) (.01) .03 .08 .03 .05 .06 .08 .01
Net realized and
unrealized gain (loss)
on investments......... .01 .77 .38 5.93 1.04 (.02) 3.09 (.81) (.27)
------ ------ ------ ------ ------ ------ ------ ----- ------
Total from investment
operations............ .00 .76 .41 6.01 1.07 .03 3.15 (.73) (.26)
------ ------ ------ ------ ------ ------ ------ ----- ------
LESS DISTRIBUTIONS:
Dividends to
shareholders from net
investment income...... .00 (.03) (.07) (.00) (.03) (.03) (.08) (.00) (.00)
Dividends to
shareholders from net
capital gains.......... .00 (.00) (2.30) (.00) (.24) (.24) (.20) (.01) (.00)
------ ------ ------ ------ ------ ------ ------ ----- ------
Total distributions.... .00 (.03) (2.37) (.00) (.27) (.27) (.28) (.01) (.00)
------ ------ ------ ------ ------ ------ ------ ----- ------
Net asset value, end of
period................. $15.45 $15.45 $14.72 $16.68 $10.67 $11.63 $11.87 $9.00 $ 9.74
====== ====== ====== ====== ====== ====== ====== ===== ======
Total return..... ...... 0% 5.20% 2.58% 56.33% 10.77% .26% 36.11% (7.30)% (2.88)%/3/
RATIOS/SUPPLEMENTAL
DATA:
Net assets, end of
period $(000).......... 15,430 12,223 8,029 2,751 772 26,212 13,682 6,727 4,979
Ratios of expenses to
average net assets
(annualized)/1/........ .86% .90% .90% .79% .75% 1.32% 1.50% 1.50% 1.48%
Ratios of net investment
income to average net
assets (annualized).... (.10)% (.07)% .37% .80% .27% .72% .68% 1.05% .26%
Portfolio turnover...... 60% 60% 18% 95% 27% 32% 37% 35% 1%
</TABLE>
- --------------------------------------------------------------------------------
/1./ Annualized expense ratios before reimbursement of expenses by affiliated
in-surance company and fee waivers by the administrator were as follows:
Ag-gressive Growth Portfolio for the years ended December 31, 1994, 1993,
1992, 1991 and 1990: 0.89%, 0.90%, 1.00%, 1.32%, and 2.43%, respectively;
Interna-tional Portfolio for the years ended December 31, 1994, 1993, 1992
and the period ended December 31, 1991, 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>
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Notes to Financial Statements, December 31, 1994
- --------------------------------------------------------------------------------
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 Interna-
tional 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 Prov-
ident Mutual Life Insurance Company (PMLIC) and for flexible premium deferred
variable annuity contracts issued by Providentmutual 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 in the accompanying financial statements 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 which are primarily traded on recognized U.S. or foreign securities ex-
changes 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, liabilities at the daily
rate of exchange;
(ii) Purchases and sales of investment securities are valued at the rate of
exchange prevailing on the respective dates of such transactions and
subsequently adjusted to the settlement dates using the daily rate of
exchange;
(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.
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 remaining Portfolios declare and pay dividends of
investment income quarterly. For all Portfolios, distributions of capital gains
are declared and paid annually.
Federal Income Taxes
Each Portfolio of the Fund intends to continue to qualify as a "regulated
investment company" under
30
<PAGE>
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Notes to Financial Statements, December 31, 1994 -- Continued
- --------------------------------------------------------------------------------
certain provisions of the Internal Revenue Code. Accordingly, each Portfolio is
not subject to Federal income tax on ordinary income and realized capital gains
which it distributes to its shareholders. Each Portfolio intends to distribute
all such income.
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 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 the
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 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 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. Effective July 18,
1994, The Boston Company Asset Management, Inc. ("TBC") became sub-advisor to
the International Portfolio. PIMC's prior sub-investment advisory agreement had
been with Cseh International & Associates, Inc. ("Cseh"). Sandor Cseh, the
portfolio manager of the International Portfolio under the Cseh Agreement
joined TBC and will continue to provide portfolio management services to the
International Portfolio under the TBC Agreement.
PMLIC has agreed to reimburse the Fund for operating expenses and interest
charges, excluding investment advisory fees. PMLIC agreed to reimburse the
Growth, Money Market, Bond, Managed and Aggressive Growth Portfolios for ex-
penses in excess of an annual rate of 0.40% of the average daily net asset val-
ue. 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, 1994, the Portfolios' 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........... $107,041,567 $21,039,557 $10,914,735 $28,906,022 $13,784,269 $24,654,655
Undistributed net in-
vestment income ....... 963,142 -- 168,000 370,077 -- 148,141
Undistributed net real-
ized gain.............. 8,651,606 -- -- 33,117 131,841 699,972
Accumulated loss on in-
vestment transactions.. -- -- (552,026) -- -- --
Net unrealized
appreciation
(depreciation) on
investments............ (1,465,328) -- (433,075) 53,988 1,513,533 709,093
------------ ----------- ----------- ----------- ----------- -----------
$115,190,987 $21,039,557 $10,097,634 $29,363,204 $15,429,643 $26,211,861
============ =========== =========== =========== =========== ===========
</TABLE>
31
<PAGE>
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Notes to Financial Statements, December 31, 1994 -- Continued
- --------------------------------------------------------------------------------
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, 1994, 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.. $ -- $ -- $6,527,328 $14,714,937 $ -- $ --
Corporate Bonds......... -- -- 8,247,037 2,083,565 -- --
Common Stock............ 66,164,065 -- -- 5,607,472 9,426,432 17,307,134
----------- ------- ----------- ----------- ---------- -----------
Total Purchases......... $66,164,065 $ -- $14,774,365 $22,405,974 $9,426,432 $17,307,134
=========== ======= =========== =========== ========== ===========
SALES
U.S. Gov't Obligations.. $ -- $ -- $8,274,144 $13,248,119 $ -- $ --
Corporate Bonds......... -- -- 5,359,047 718,410 -- --
Common Stock............ 64,758,697 -- -- 4,164,225 6,912,170 5,796,898
----------- ------- ----------- ----------- ---------- -----------
Total Sales............. $64,758,697 $ -- $13,633,191 $18,130,754 $6,912,170 $ 5,796,898
=========== ======= =========== =========== ========== ===========
</TABLE>
6. TAX BASIS OF INVESTMENTS
Investment information based on the cost of securities for Federal income tax
purposes held at December 31, 1994 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.......... $ 4,460,498 $ -- $ 11,628 $ 1,046,156 $ 2,354,285 $ 1,535,559
Aggregate gross
unrealized
depreciation.......... (5,989,737) -- (444,703) (992,168) (840,752) (827,001)
------------ ----------- ----------- ----------- ----------- -----------
Net unrealized
appreciation
(depreciation)........ $ (1,529,239) $ -- $ (433,075) $ 53,988 $ 1,513,533 $ 708,558
============ =========== =========== =========== =========== ===========
Aggregate cost of
securities for federal
income tax purposes... $115,437,974 $21,112,299 $10,334,942 $29,052,181 $13,801,848 $24,914,949
============ =========== =========== =========== =========== ===========
Capital loss carryover
(available to offset
possible future
capital gains.) The
carryover expires as
follows: Bond
Portfolio--$552,026 in
2002.................. $ -- $ -- $ (552,026) $ -- $ -- $ --
============ =========== =========== =========== =========== ===========
</TABLE>
7. AUTHORIZED CAPITAL STOCK
On December 31, 1994, 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 Port-
folio, Aggressive Growth Portfolio and International Portfolio. The Money Mar-
ket Portfolio consists of 10 million shares; each of the other series consists
of 5 million shares.
Transactions in capital stock of Market Street Fund, Inc. for the year ended
December 31, 1994 were as follows:
<TABLE>
<CAPTION>
MONEY MARKET
GROWTH PORTFOLIO PORTFOLIO BOND PORTFOLIO MANAGED PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 1,491,546 $20,978,587 48,697,173 $48,697,173 384,884 $3,957,726 719,391 $8,834,655
Shares redeemed. (1,272,051) (17,826,775) (40,713,247) (40,713,247) (331,715) (3,442,212) (643,917) (7,941,554)
Shares reinvest-
ed............. 236,046 3,262,415 549,686 549,686 78,517 807,085 198,986 2,455,134
---------- ----------- ----------- ----------- -------- ---------- -------- ----------
Net contribu-
tions from af-
filiated insur-
ance companies. 455,541 $ 6,414,227 8,533,612 $ 8,533,612 131,686 $1,322,599 274,460 $3,348,235
========== =========== =========== =========== ======== ========== ======== ==========
<CAPTION>
AGGRESSIVE
GROWTH INTERNATIONAL
PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold..... 385,809 $5,787,860 1,457,272 $17,327,844
Shares redeemed. (178,715) (2,726,059) (382,445) (4,538,774)
Shares reinvest-
ed............. -- -- 26,855 313,132
--------- ----------- ---------- ------------
Net contribu-
tions from af-
filiated insur-
ance companies. 207,094 $3,061,801 1,101,682 $13,102,202
========= =========== ========== ============
</TABLE>
32
<PAGE>
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Notes to Financial Statements, December 31, 1994 -- Continued
- --------------------------------------------------------------------------------
7. AUTHORIZED CAPITAL STOCK (CONTINUED)
Transactions in capital stock of Market Street Fund, Inc. for the year ended
December 31, 1993 were as follows:
<TABLE>
<CAPTION>
MONEY MARKET
GROWTH PORTFOLIO PORTFOLIO BOND PORTFOLIO MANAGED PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold..... 2,208,885 29,961,103 24,341,156 24,341,156 471,590 5,247,312 1,039,415 13,517,169
Shares redeemed. (943,171) (13,093,774) (20,203,404) (20,203,404) (230,410) (2,575,721) (205,458) (2,712,128)
Shares
reinvested..... 470,402 6,246,114 229,869 229,869 39,497 435,126 49,015 627,372
--------- ----------- ----------- ----------- -------- ---------- --------- -----------
Net
contributions
from affiliated
insurance
companies...... 1,736,116 $23,113,443 4,367,621 $ 4,367,621 280,677 $3,106,717 882,972 $11,432,413
========= =========== =========== =========== ======== ========== ========= ===========
<CAPTION>
AGGRESSIVE
GROWTH INTERNATIONAL
PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold..... 364,887 5,138,902 707,140 7,730,659
Shares redeemed. (120,321) (1,723,818) (326,690) (3,678,615)
Shares
reinvested..... 1,272 18,436 23,946 209,767
--------- ----------- --------- -----------
Net
contributions
from affiliated
insurance
companies...... 245,838 $3,433,520 404,396 $4,461,811
========= =========== ========= ===========
</TABLE>
Shares of the Fund are held by Provident Mutual Life Insurance Company, its
Variable Life and Variable Annuity Separate Accounts and by the Providentmutual
Variable Annuity Separate Account. At December 31, 1994, 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. 7,349,353 -- -- -- -- --
Money Market Separate
Account................ -- 12,718,703 -- -- -- --
Bond Separate Account... -- -- 777,600 -- -- --
Managed Separate
Account................ -- -- -- 1,812,306 -- --
Aggressive Growth
Separate Account....... -- -- -- -- 827,643 --
International Separate
Account................ -- -- -- -- -- 1,432,101
Providentmutual Variable
Annuity Separate
Account................ 847,109 8,171,895 246,494 620,818 163,459 797,537
Provident Mutual Life
Variable Annuity
Separate Account....... 33,451 148,959 13,546 25,649 7,312 24,140
--------- ---------- --------- --------- ------- ---------
Total................. 8,229,913 21,039,557 1,037,640 2,458,773 998,414 2,253,778
========= ========== ========= ========= ======= =========
</TABLE>
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. ADMINISTRATION FEES
PFPC, Inc. (PFPC) a wholly-owned subsidiary of PNC Bank maintains the Fund's
financial accounts. PNC Bank is the Fund's custodian and PFPC acts as the
Fund's transfer agent. The Companies are not related parties to the Fund.
The Fund pays PFPC, as administrator, an annual fee of 0.10% of net assets of
the portfolios subject to a minimum of $300,000 for all portfolios.
The Growth, Money Market, Bond, Managed and Aggressive Growth Portfolios pay
PNC Bank a custodian fee based on the average daily net assets per portfolio as
follows: 0.025% of the first $10 million,
33
<PAGE>
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Notes to Financial Statements, December 31, 1994 -- Concluded
- --------------------------------------------------------------------------------
0.020% on the next $30 million, 0.015% on the next $60 million and 0.012%
thereafter, subject to a minimum of $2,500. The Fund, including the Interna-
tional Portfolio, is also subject to a $10 transaction fee per each settlement
through PNC Bank. The Fund pays PFPC a transfer agent fee equal to $1,500 a
year per portfolio and $1 per transaction.
Citibank, N.A. (Citibank) maintains the International Portfolio's Foreign
Custodian Account. The International Portfolio pays Citibank a custodian fee
equal to $20,000 per year.
10. SUBSEQUENT DIVIDEND
On December 28, 1994 the Board of Directors declared the following net
investment income and capital gain dividends to shareholders of record on
December 30, 1994, ex-dividend date January 4, 1995, payable on January 5, 1995
as follows:
<TABLE>
<CAPTION>
TOTAL PER SHARE
------------------------- ----------------------
NET INVESTMENT CAPITAL NET INVESTMENT CAPITAL
PORTFOLIO INCOME GAIN INCOME GAIN
- ------------------------------- -------------- ---------- -------------- -------
<S> <C> <C> <C> <C>
Growth......................... $963,142 $8,715,516 $.1170 $1.0590
Bond........................... 168,000 -- .1619 --
Managed........................ 370,077 33,117 .1505 .0135
Aggressive Growth.............. -- 131,841 -- .1321
International.................. 148,141 699,972 .0657 .3106
</TABLE>
34
<PAGE>
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
A-1
<PAGE>
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 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.
A-2
<PAGE>
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 -- 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 outweighed by large uncertainties or major risk exposures to adverse
conditions.
A-3
<PAGE>
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
Schedules of Investments as of December 31, 1994
Statements of Assets and Liabilities, December 31, 1994
Statements of Operations for the Year Ended December 31, 1994
Statements of Changes in Net Assets for the Year Ended December 31,
1994
Statements of Changes in Net Assets for the Year Ended December 31,
1993
Notes to Financial Statements, December 31, 1994
(b) Exhibits
The following exhibits are filed herewith:
<TABLE>
<C> <S>
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.(1) Investment Advisory Agreement between the Fund and Sentinel Advisors
Company(10)
5.c.(2) Amendment to Investment Advisory Agreement between the Fund and
Sentinel Advisors Company
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)
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. Amendments 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)
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.(1) Reimbursement Agreement between Provident Mutual Life Insurance
Company of Philadelphia and the Fund(3)
9.b.(2) Reimbursement Agreement between National Life Insurance Company and
the Fund
9.c. Administration Agreement between the Fund and Provident Institutional
Management Corporation(7)
9.d. Amendments to Administration Agreement between the Fund and Provident
Financial Processing Corporation (PFPC)(2)
</TABLE>
C-1
<PAGE>
<TABLE>
<S> <C>
9.e. Amendment to Administration Agreement between the Fund and Provident Financial Processing
Corporation (2)
9.f. Transfer Agency Agreement between the Fund and PFPC, as amended (2)
9.g.(1) Participation Agreement among Market Street Fund, Inc., Provident Mutual Life Insurance
Company and PML Securities Company (9)
9.g.(2) Participation Agreement among Market Street Fund, Inc., Providentmutual Life and Annuity
Company of America and PML Securities Company (8)
9.g.(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
14. Inapplicable
15. Inapplicable
16. Inapplicable
17. Financial Data Schedule (11)
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.
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") and Providentmutual Life and
Annuity Company of America ("PLACA") to fund the benefits under certain
variable life insurance policies and variable annuity contracts issued or
assumed by Provident Mutual or PLACA.
No person has the direct or indirect power to control Provident Mutual 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 a mutual life
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<PAGE>
insurance company, Provident Mutual has no stockholders. Its Board of Directors
is elected by the Policyholders. PLACA is a wholly-owned subsidiary of
Provident Mutual.
Currently, shares of the Fund are sold to separate accounts of National Life
Insurance Company ("NLIC") to fund the benefits under certain variable life
insurance policies issued by NLIC.
[PROVIDE INFORMATION ON NATIONAL LIFE INSURANCE COMPANY]
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 the 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.
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.
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<PAGE>
<TABLE>
<CAPTION>
(2) (3)
POSITIONS AND POSITIONS AND
(1) OFFICES WITH OFFICES WITH
NAME PRINCIPAL UNDERWRITER 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>
- --------
* 1600 Market Street, Philadelphia, PA 19103.
** 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
1600 Market Street, Philadelphia, Pennsylvania 19103, 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 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.
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<PAGE>
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 DAY OF
JANUARY 1996.
Market Street Fund, Inc.
By:__________________________________
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.
SIGNATURES TITLE DATE
Chairman and January , 1996
- ------------------------------------- President
STANLEY R. REBER (Principal
Executive Officer)
Treasurer and January , 1996
- ------------------------------------- Comptroller
ROSANNE GATTA (Principal
Financial and
Accounting Officer)
Director January , 1996
- -------------------------------------
DR. ALAN GART
Director January , 1996
- -------------------------------------
DR. A. GILBERT HEEBNER
Director January , 1996
- -------------------------------------
EDWARD S. STOUCH
*By__________________________________
ATTORNEY-IN-FACT, PURSUANT TO POWER
OF ATTORNEY
C-5
