<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 25, 2000
REGISTRATION NOS. 2-98755
811-4350
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- --------------------------------------------------------------------------------
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. 26 [X]
AND/OR
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 27 [X]
MARKET STREET FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
103 BELLEVUE PARKWAY
WILMINGTON, DE 19809
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (302) 791-1700
------------------------
<TABLE>
<S> <C>
COPY TO:
JAMES G. POTTER, JR., ESQ. STEPHEN E. ROTH, ESQ.
MARKET STREET FUND, INC. SUTHERLAND ASBILL & BRENNAN LLP
1000 CHESTERBROOK BOULEVARD 1275 PENNSYLVANIA AVENUE, N.W.
BERWYN, PA 19312 WASHINGTON, DC 20004
(NAME AND ADDRESS OF AGENT FOR
SERVICE)
</TABLE>
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX)
[ ]IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (b) OF RULE 485
[X]ON MAY 1, 2000 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
[ ] 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a)(2) OF RULE 485
[ ] ON [DATE] PURSUANT TO PARAGRAPH (a)(2) OF RULE 485
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
[ ]THIS POST-EFFECTIVE AMENDMENT DESIGNATES A NEW EFFECTIVE DATE FOR A
PREVIOUSLY FILED POST-EFFECTIVE AMENDMENT.
TITLE OF SECURITIES: SHARES OF COMMON STOCK
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<PAGE> 2
MARKET STREET FUND, INC.
PROSPECTUS
May 1, 2000
[ ] All Pro Large Cap Growth Portfolio
[ ] All Pro Large Cap Value Portfolio
[ ] All Pro Small Cap Growth Portfolio
[ ] All Pro Small Cap Value Portfolio
[ ] The Equity 500 Index Portfolio
[ ] The International Portfolio
[ ] The Growth Portfolio
[ ] The Aggressive Growth Portfolio
[ ] The Managed Portfolio
[ ] The Bond Portfolio
[ ] The Money Market Portfolio
This prospectus provides essential information about these portfolios. For your
benefit and protection, please read it and keep it for future reference.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED SHARES OF
THE FUND OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
OVERVIEW.................................................... 1
INTRODUCTION TO THE ALL PRO PORTFOLIOS...................... 3
All Pro Large Cap Growth Portfolio........................ 5
All Pro Large Cap Value Portfolio......................... 7
All Pro Small Cap Growth Portfolio........................ 9
All Pro Small Cap Value Portfolio......................... 11
ABOUT THE OTHER PORTFOLIOS.................................. 14
The Equity 500 Index Portfolio............................ 14
The International Portfolio............................... 15
The Growth Portfolio...................................... 18
The Aggressive Growth Portfolio........................... 20
The Managed Portfolio..................................... 22
The Bond Portfolio........................................ 24
The Money Market Portfolio................................ 26
RISKS OF INVESTING IN THE PORTFOLIOS........................ 28
INVESTMENT TECHNIQUES....................................... 31
MANAGEMENT.................................................. 38
DESCRIPTION OF THE FUND'S SHARES............................ 44
APPENDIX A -- TERMS USED IN THIS PROSPECTUS................. A-1
APPENDIX B -- FINANCIAL HIGHLIGHTS.......................... B-1
APPENDIX C -- PLAN OF REORGANIZATION........................ C-1
ADDITIONAL INFORMATION ABOUT THE FUND....................... Back Cover
</TABLE>
<PAGE> 4
OVERVIEW
This prospectus describes eleven Portfolios offered by the Fund. Each is a
separate investment portfolio with its own investment objective or objectives,
policies, restrictions and risks. An investor should consider each Portfolio
separately to determine if it is an appropriate investment. There is no
assurance that a Portfolio will achieve its investment objective or objectives,
and investors should not consider any one Portfolio alone to be a complete
investment program. As with all mutual funds, there is a risk that an investor
could lose money by investing in a Portfolio.
The different types of securities, investments, and investment techniques used
by each Portfolio all have attendant risks of varying degrees. For example, with
respect to equity securities, there can be no assurance of capital appreciation.
Moreover, an investment in any stock is subject to the risk that the stock
market as a whole may decline, thereby depressing the stock's price (market
risk), or the risk that the price of a particular issuer's stock may decline due
to its financial results (financial risk). With respect to debt securities,
there exists the risk that the issuer of a security may not be able to meet its
obligations on interest or principal payments at the time required by the
instrument (credit risk, a type of financial risk). In addition, the value of
debt and other income bearing securities generally rises and falls inversely
with prevailing current interest rates (interest rate risk, a type of market
risk). As described below, an investment in certain of the Portfolios entails
special additional risks as a result of their ability to invest a substantial
portion of their assets in foreign investments or securities of issuers in new
or emerging industries. See "Risks of Investing in the Portfolios," below.
The following chart provides a brief outline of the relative principal
characteristics of each Portfolio:
MARKET STREET FUND, INC.
<TABLE>
<CAPTION>
NAME OF GROWTH INCOME SHORT-TERM TYPICAL
PORTFOLIO POTENTIAL POTENTIAL RISK INVESTMENTS
- ---------------------- ------------- --------------- ------------- ----------------------
<S> <C> <C> <C> <C>
All Pro Large Cap Equity securities of
Growth................ High Low High large U.S. companies
All Pro Large Cap Equity securities of
Value................. High Low High large U.S. companies
All Pro Small Cap Equity securities of
Growth................ High Low High small U.S. companies
All Pro Small Cap Equity securities of
Value................. High Low High small U.S. companies
Equity 500 Index...... High Low High Equity securities of
large U.S. companies
International......... High Low High Equity securities of
Foreign Issuers
Growth................ High Moderate Moderate Equity securities of
U.S. companies
Aggressive Growth..... High Low High Equity securities of
U.S. companies
Managed............... Moderate-High Moderate Moderate-High Permissible
investments for other
portfolios
Bond.................. Moderate Moderate Moderate Income bearing debt
securities
Money Market.......... None Low-Moderate Low Money market
instruments
</TABLE>
<PAGE> 5
The investment objective or objectives of each Portfolio are fundamental and may
not be changed unless authorized by the vote of a majority of the outstanding
voting shares of the Portfolio. The investment policies of each Portfolio are
not fundamental and may be changed by the Fund's board of directors without
shareholder approval, unless otherwise stated in this Prospectus or the
statement of additional information.
Notwithstanding their investment objective(s), each Portfolio may, in unusual
market conditions, for temporary defensive purposes, invest all or part of their
assets in cash and/or money market instruments of the type in which the Money
Market Portfolio may invest. To the extent that a Portfolio adopts a temporary
defensive position, it may not achieve its investment objective.
SHARES OF THE FUND AND THE PORTFOLIOS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. THE MONEY
MARKET PORTFOLIO SEEKS TO PRESERVE THE VALUE OF AN INVESTMENT AT $1.00 PER
SHARE, BUT IT IS POSSIBLE, ALTHOUGH UNLIKELY, THAT THE PORTFOLIO MAY NOT BE ABLE
TO DO SO. AN INVESTMENT IN THE FUND AND THE PORTFOLIOS IS SUBJECT TO INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF MONEY INVESTED.
Shares of the Portfolios are only available through the purchase of certain
variable annuity and variable life insurance contracts (the "variable
contracts") issued by various life insurance companies, some of which may be
affiliated persons of the Portfolios. This prospectus should be read in
conjunction with the separate prospectus for each separate account and its
related policy and retained for future reference.
See "Appendix A -- Terms Used in This Prospectus" for more information about
some of the terms we use in this prospectus.
2
<PAGE> 6
INTRODUCTION TO THE ALL PRO PORTFOLIOS
THE ALL PRO ADVANTAGE
The Fund currently offers four All Pro Portfolios, each of which seeks long-term
capital appreciation. The All Pro Portfolios differ from the other Portfolios in
that the investment adviser, Market Street Investment Management Company (at
times, referred to as "MSIM"), has selected a unique team of investment
subadvisers for each All Pro Portfolio, and each subadviser manages a segment of
the relevant All Pro Portfolio's assets. MSIM uses a manager-of-managers
strategy to seek out managers with a niche investment management specialty
rather than those who try to be all things to all clients.
Each All Pro Portfolio represents a specific domestic equity style discipline.
Each Portfolio has a specific style benchmark index developed by Wilshire
Associates, Inc. ("Wilshire"). The four Portfolios include the following:
- All Pro Large Cap Growth Portfolio
- All Pro Large Cap Value Portfolio
- All Pro Small Cap Growth Portfolio
- All Pro Small Cap Value Portfolio
The All Pro Portfolios differ from each other in that two Portfolios invest
principally in securities of companies with relatively large market
capitalizations, while the other two Portfolios invest principally in securities
of companies with relatively small market capitalizations. Within each pair of
Portfolios, one pursues the investment objective through "growth-oriented"
investments, and the other pursues the investment objective through
"value-oriented" investments. GROWTH-ORIENTED INVESTMENTS involve seeking
securities of issuers with above average recent earnings growth rates and a
reasonable likelihood of maintaining such rates in the foreseeable future.
VALUE-ORIENTED INVESTMENTS involve seeking securities that appear attractive on
a dividend discount model or can be acquired for less than what a subadviser
believes is the issuer's intrinsic value.
GROWTH STOCKS:
- Generally exhibit higher than median price-to-earnings and
price-to-book ratios but below-average dividend yields;
- Are securities of well-established issuers with a strong competitive
position within their industry or a competitive position within a very
strong industry;
- Are considered by many to be relatively aggressive given their
valuation by the marketplace; and
- Are, in some cases, high-volatility "momentum" stocks.
VALUE STOCKS:
- Generally exhibit lower than median price-to-earnings and
price-to-book ratios but above-average dividend yields;
- Are considered by many to be relatively conservative given their
valuation by the marketplace; and
- May involve "special situation" companies, such as companies with
management changes, corporate or asset restructuring, or significantly
undervalued assets.
3
<PAGE> 7
Each Portfolio seeks to achieve its objective by combining the talents of
multiple institutional investment management firms. MSIM has retained Wilshire,
an independent and highly regarded investment consulting firm, to assist MSIM in
identifying potential subadvisers and performing the quantitative analysis
necessary to assess these subadvisers' styles and performance.
Wilshire:
- Begins with a universe of over 1,000 independent institutional investment
management firms;
- Through its process, makes available the expertise of investment
management firms that rarely, if ever, are available to the owners of
other registered products; and
- Conducts intensive research and due diligence with MSIM to ensure that
the best available managers are recommended and blended together
according to their asset class styles and management strategies.
MSIM selects investment subadvisers believed to be best suited to a Portfolio
according to its investment objectives and management style. MSIM then assigns
each subadviser a prescribed percentage of each Portfolio's assets to manage.
These combinations are optimized for each Portfolio in order to control the risk
exposure as compared to the Portfolio's target benchmark. Moreover, MSIM
believes that multiple managers can contribute to diversification of investment
risk in a Portfolio. Rebalancings of Portfolio cashflows to the targeted percent
allocations are performed daily if necessary.
On an ongoing basis, MSIM monitors the performance, style and continuity of
management of the current investment subadvisers to ensure optimal performance.
Quantitative models are used to monitor the subadviser's investment management
style over time to ensure the subadviser adheres to its prescribed style
mandate. Both the target allocations and the subadvisers themselves are subject
to change over time. MSIM will replace subadvisers who consistently underperform
the relevant benchmark or fail to meet other established criteria.
4
<PAGE> 8
[ ] ALL PRO LARGE CAP GROWTH PORTFOLIO
INVESTMENT OBJECTIVE
Long-term capital appreciation.
PRIMARY INVESTMENT STRATEGIES
The Portfolio invests primarily in equity securities of larger companies
included in the Wilshire 5000 Equity Universe at the time of purchase, which the
subadvisers believe offer above-average potential for growth in future earnings.
The Wilshire Large Cap Growth Index, the Portfolio's benchmark, is a market cap
weighted index that includes securities from the largest 750 stocks in the
Wilshire 5000 equity universe.
Currently, different segments of the Portfolio's assets are managed as follows:
COHEN,
KLINGENSTEIN
& MARKS Approximately 50% of its assets are managed by an
investment subadviser that uses economic analysis,
quantitative modeling, and securities analysis to identify
securities of companies with potential for future earnings
growth, and uses in-depth fundamental research to narrow
this list and determine which securities to purchase for
the Portfolio. (Segment usually holds approximately 30
stocks.)
GEEWAX
TERKER & CO. Approximately 50% of its assets are managed by an
investment subadviser that uses financial quality,
sustainable growth, and downside volatility screens to
eliminate issuers from consideration and purchases
securities from the remaining issuers. (Segment usually
holds approximately 100-300 stocks.)
PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIO
The All Pro Large Cap Growth Portfolio is subject to MARKET RISK and FINANCIAL
RISK. These risks, and the risks associated with other higher-risk securities
and practices that the Portfolio may utilize, are described in more detail later
in this Prospectus. Investors should carefully read "Risks of Investing in the
Portfolios" and "Investment Techniques" below before investing in this
Portfolio.
5
<PAGE> 9
THE PORTFOLIO PERFORMANCE
The bar chart and table shown below provide an indication of the risks of
investing in the All Pro Large Cap Growth Portfolio by showing the Portfolio's
performance over a 1-year period and by showing how the Portfolio's average
annual returns for one year, and the period since inception, compare to those of
the Wilshire Large Cap Growth Index. How the Portfolio has performed in the past
is not necessarily an indication of how the Portfolio will perform in the
future.
<TABLE>
<CAPTION>
ALL PRO LARGE CAP GROWTH PORTFOLIO
----------------------------------
<S> <C>
One Year 25.52
</TABLE>
During the 1-year period shown on the bar chart, the highest return for a
quarter was 19.50% (quarter ended December 31, 1999) and the lowest return for a
quarter was -6.79% (quarter ended September 30, 1999).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN 1 YEAR FROM INCEPTION(1)
--------------------------- ------ -----------------
<S> <C> <C>
Portfolio's Average Annual Total Return..................... 25.52% 26.45%
Wilshire Large Cap Growth Index............................. 34.73% 33.98%
</TABLE>
- ------------------------
(1) The Portfolio commenced operations on May 4, 1998.
The performance information presented does not include the fees and charges
associated with the variable contracts, and returns would have been lower if
those fees and charges were included.
6
<PAGE> 10
[ ] ALL PRO LARGE CAP VALUE PORTFOLIO
INVESTMENT OBJECTIVE
Long-term capital appreciation.
PRIMARY INVESTMENT STRATEGIES
The Portfolio invests primarily in undervalued equity securities of larger
companies included in the Wilshire 5000 equity universe at the time of purchase
that the subadvisers believe offer potential for long-term growth in future
earnings. The Wilshire Large Cap Value Index, the Portfolio's benchmark, is a
market cap weighted index that includes securities from the largest 750 stocks
in the Wilshire 5000 equity universe.
Currently, different segments of the Portfolio's assets are managed as follows:
MELLON EQUITY
ASSOCIATES, LLP Approximately 40% of this Portfolio's assets are managed
by an investment subadviser that seeks securities of
companies with low risk and solid long-term growth
potential through an investment process that integrates
quantitative analysis and fundamental research.
EQUINOX CAPITAL
MANAGEMENT, INC. Approximately 35% of the Portfolio's assets are managed by
an investment subadviser that seeks securities of
undervalued or overlooked companies regardless of industry
sector through a value oriented process.
SANFORD C.
BERNSTEIN
& CO., INC. Approximately 25% of the Portfolio's assets are managed by
an investment subadviser whose investment approach is
bottom-up and price driven. Companies are ranked based on
expected internal rates of return. Top-ranked companies
are then subjected to intensive field research.
PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIO
The All Pro Large Cap Value Portfolio is subject to MARKET RISK and FINANCIAL
RISK. These risks, and the risks associated with other higher-risk securities
and practices that the Portfolio may utilize, are described in more detail later
in this Prospectus. Investors should carefully read "Risks of Investing in the
Portfolios" and "Investment Techniques" below before investing in this
Portfolio.
7
<PAGE> 11
THE PORTFOLIO PERFORMANCE
The bar chart and table shown below provide an indication of the risks of
investing in the All Pro Large Cap Value Portfolio by showing the Portfolio's
performance over a 1-year period and by showing how the Portfolio's average
annual returns for one year, and the period since inception, compare to those of
the Wilshire Large Cap Value Index. How the Portfolio has performed in the past
is not necessarily an indication of how the Portfolio will perform in the
future.
<TABLE>
<CAPTION>
ALL PRO LARGE CAP VALUE PORTFOLIO
---------------------------------
<S> <C>
One Year 1.49
</TABLE>
During the 1-year period shown on the bar chart, the highest return for a
quarter was 16.75% (quarter ended December 31, 1998) and the lowest return for a
quarter was -14.08% (quarter ended September 30, 1998).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN 1 YEAR FROM INCEPTION(1)
--------------------------- ------ -----------------
<S> <C> <C>
Portfolio's Average Annual Total Return..................... 1.49% 0.29%
Wilshire Large Cap Value Index.............................. 8.27% 5.30%
</TABLE>
- ------------------------
(1) The Portfolio commenced operations on May 4, 1998.
The performance information presented does not include the fees and charges
associated with the variable contracts, and returns would have been lower if
those fees and charges were included.
8
<PAGE> 12
[ ] ALL PRO SMALL CAP GROWTH PORTFOLIO
INVESTMENT OBJECTIVE
Long-term capital appreciation.
PRIMARY INVESTMENT STRATEGIES
The Portfolio invests primarily in equity securities of smaller companies
included in the Wilshire 5000 equity universe at the time of purchase, which the
subadvisers believe offer above-average potential for growth in future earnings.
The Wilshire Small Cap Growth Index, the Portfolio's benchmark, is a market cap
weighted index that includes securities ranked from number 751 to number 2,500
in market capitalization as derived from the Wilshire 5000 equity universe.
Currently, different segments of the Portfolio's assets are managed as follows:
HUSIC CAPITAL
MANAGEMENT Approximately 60% of the Portfolio's assets are
managed by an investment subadviser whose rigorous,
bottom-up research process seeks to identify
fundamental or secular changes in companies or
industries that often signal higher than
anticipated earnings growth. The selection process
focuses on stocks of companies most likely to
benefit from those changes.
STANDISH, AYER
AND WOOD Approximately 40% of the Portfolio's assets are
managed by an investment subadviser that seeks
securities of companies that have established
above-average growth, superior business positions
and strong management. This subadviser emphasizes
high growth sectors such as healthcare, technology
and business services.
PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIO
The All Pro Small Cap Growth Portfolio is subject to MARKET RISK and FINANCIAL
RISK. Investments held by this Portfolio entail a significant degree of SMALL
COMPANY RISK. Smaller companies may have limited product lines, markets or
financial resources and their securities may trade less frequently and in more
limited volume than the securities of larger or more established companies. The
prices of securities of smaller companies may fluctuate to a greater degree than
the prices of securities of other issuers.
These risks, and the risks associated with other higher-risk securities and
practices that the Portfolio may utilize, are described in more detail later in
this Prospectus. Investors should carefully read "Risks of Investing in the
Portfolios" and "Investment Techniques" below before investing in this
Portfolio.
9
<PAGE> 13
THE PORTFOLIO PERFORMANCE
The bar chart and table shown below provide an indication of the risks of
investing in the All Pro Small Cap Growth Portfolio by showing the Portfolio's
performance over a 1-year period and by showing how the Portfolio's average
annual returns for one year, and the period since inception, compare to those of
the Wilshire Small Cap Growth Index. How the Portfolio has performed in the past
is not necessarily an indication of how the Portfolio will perform in the
future.
<TABLE>
<CAPTION>
ALL PRO SMALL CAP GROWTH PORTFOLIO
----------------------------------
<S> <C>
One Year 92.14
</TABLE>
During the 1-year period shown on the bar chart, the highest return for a
quarter was 54.98% (quarter ended December 31, 1999) and the lowest return for a
quarter was -22.78% (quarter ended September 30, 1998).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN 1 YEAR FROM INCEPTION(1)
--------------------------- ------ -----------------
<S> <C> <C>
Portfolio's Average Annual Total Return..................... 92.14% 46.31%
Wilshire Small Cap Growth Index............................. 52.56% 23.53%
</TABLE>
- ------------------------
(1) The Portfolio commenced operations on May 4, 1998.
The performance information presented does not include the fees and charges
associated with the variable contracts, and returns would have been lower if
those fees and charges were included.
10
<PAGE> 14
[ ] ALL PRO SMALL CAP VALUE PORTFOLIO
INVESTMENT OBJECTIVE
Long-term capital appreciation.
PRIMARY INVESTMENT STRATEGIES
The Portfolio invests primarily in undervalued equity securities of smaller
companies included in the Wilshire 5000 equity universe at the time of purchase,
which the subadvisers believe offer potential for long-term growth in future
earnings. The Wilshire Small Cap Value Index, the Portfolio's benchmark, is a
market cap weighted index that includes securities ranked from number 751 to
number 2,500 in market capitalization as derived from the Wilshire 5000 equity
universe.
Currently, different segments of the Portfolio's assets are managed as follows:
REAMS CAPITAL
MANAGEMENT
COMPANY, LLC Approximately 50% of the Portfolio's assets are managed by
an investment subadviser that seeks securities of
companies that have the potential of high returns. This
subadviser uses quantitative research analysis, including
probability-weighted scenario analysis, to supplement its
fundamental research about these companies.
STERLING CAPITAL
MANAGEMENT
COMPANY Approximately 50% of the Portfolio's assets are managed by
an investment subadviser that uses fundamental research to
seek securities of companies and issuers trading at prices
below their intrinsic value. This subadviser analyzes an
issuer's intrinsic value by evaluating the issuer's
normalized free cash flow and return on capital to
supplement its fundamental research.
PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIO
The All Pro Small Cap Value Portfolio is subject to MARKET RISK and FINANCIAL
RISK. Investments held by the Portfolio entail a high degree of SMALL COMPANY
RISK. Smaller companies may have limited product lines, markets or financial
resources and their securities may trade less frequently and in more limited
volume than the securities of larger or more established companies. The prices
of securities of smaller companies may fluctuate to a greater degree than the
prices of securities of other issuers.
These risks, and the risks associated with other higher-risk securities and
practices that the Portfolio may utilize, are described in more detail later in
this Prospectus. Investors should carefully read "Risks of Investing in the
Portfolios" and "Investment Techniques" below before investing in this
Portfolio.
11
<PAGE> 15
THE PORTFOLIO PERFORMANCE
The bar chart and table shown below provide an indication of the risks of
investing in the All Pro Small Cap Value Portfolio by showing the Portfolio's
performance over a 1-year period and by showing how the Portfolio's average
annual returns for one year, and the period since inception, compare to those of
the Wilshire Small Cap Value Index. How the Portfolio has performed in the past
is not necessarily an indication of how the Portfolio will perform in the
future.
<TABLE>
<CAPTION>
ALL PRO SMALL CAP VALUE PORTFOLIO
---------------------------------
<S> <C>
One Year -8.05
</TABLE>
During the 1-year period shown on the bar chart, the highest return for a
quarter was 16.45% (quarter ended June 30, 1999) and the lowest return for a
quarter was -21.90% (quarter ended September 30, 1998).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN 1 YEAR FROM INCEPTION(1)
--------------------------- ------ -----------------
<S> <C> <C>
Portfolio's Average Annual Total Return..................... -8.05% -15.31%
Wilshire Small Cap Value Index.............................. -1.41% -10.96%
</TABLE>
- ------------------------
(1) The Portfolio commenced operations on May 4, 1998.
The performance information presented does not include the fees and charges
associated with the variable contracts, and returns would have been lower if
those fees and charges were included.
12
<PAGE> 16
[This page intentionally left blank]
13
<PAGE> 17
ABOUT THE OTHER PORTFOLIOS
The Fund currently offers seven additional Portfolios, each with different
investment objectives and strategies. The Equity 500 Index and International
Portfolios are managed by subadvisers selected by their investment adviser,
MSIM. All of the other Portfolios are managed directly by their investment
adviser, Sentinel Advisors Company ("SAC").
[ ] THE EQUITY 500 INDEX PORTFOLIO
INVESTMENT OBJECTIVE
Long-term capital appreciation.
PRIMARY INVESTMENT STRATEGIES
The Equity 500 Index Portfolio invests primarily in common stocks included in
the S&P 500 Composite Stock Price Index (the "S&P 500 Index").* The S&P 500
Index consists of approximately 500 selected common stocks, most of which are
listed in the New York Stock Exchange. Standard & Poor's selects the stocks
included in the S&P 500 Index on a market capitalization basis, and the S&P 500
Index is heavily weighted toward stocks with large capitalizations.
The Portfolio employs a passive management strategy designed to track the stock
composition, on a market capitalization basis, of the S&P 500 Index. The
subadviser purchases and sells securities for the Portfolio in an attempt to
produce investment results that substantially duplicate the performance of the
common stocks represented in the S&P 500 Index.
The Portfolio expects to substantially replicate the composition of the S&P 500
Index.
PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIO
The Equity 500 Index Portfolio is subject to MARKET RISK and FINANCIAL RISK. For
equity securities, market risk is the risk that the stock market as a whole may
decline, depressing the price of securities in which the Portfolio invests. For
equity securities, financial risk is the risk that the price of a particular
issuer's stock may decline because of its financial results.
These risks, and the risks associated with other higher-risk securities and
practices that the Portfolio may utilize, are described in more detail later in
this Prospectus. Investors should carefully read "Risks of Investing in the
Portfolios" and "Investment Techniques" below before investing in this
Portfolio.
THE PORTFOLIO PERFORMANCE
The Equity 500 Index Portfolio commenced operations on February 7, 2000.
Accordingly, we did not include a bar chart and average annual return
information for the Portfolio.
- ---------------
* "Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard & Poor's 500", and
"500" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed
for use by Provident Mutual Life Insurance Company and its affiliates and
subsidiaries. The Equity 500 Index Portfolio is not sponsored, endorsed, sold
or promoted by Standard & Poor's and Standard & Poor's makes no representation
regarding the advisability or investing in the Portfolio. Please see the
Statement of Additional Information which sets forth certain additional
disclaimers and limitations of liabilities on behalf of S&P.
14
<PAGE> 18
[ ] THE INTERNATIONAL PORTFOLIO
INVESTMENT OBJECTIVE
Long-term growth of capital primarily through investments in a diversified
portfolio of marketable equity securities of established foreign issuer
companies.
PRIMARY INVESTMENT STRATEGIES
The International Portfolio invests primarily in equity securities of
established foreign issuer companies and of companies organized in the United
States but having their principal activities and interests outside the United
States that the subadviser believes have potential for long-term capital growth.
Many of these securities are non-dollar securities. The Portfolio also may
invest in other foreign issuer securities such as those of foreign governments
or agencies or instrumentalities of foreign governments.
Under normal market conditions, the Portfolio invests at least 75% of its total
assets in the securities of foreign issuers located (or, in the case of the
securities, traded) in at least five different countries other than the United
States. Nonetheless, under certain economic and business conditions the
Portfolio may invest up to 35% of its total assets in the securities of issuers
located (or, in the case of the securities, traded) in any one of the following
countries:
- Australia
- Canada
- France
- Japan
- The United Kingdom
- Germany
The International Portfolio also may invest in securities of foreign issuers in
the form of sponsored and unsponsored ADRs, EDRs, and GDRs (see "Investment
Techniques"). The International Portfolio may invest in restricted securities,
including restricted securities eligible for resale to "qualified institutional
buyers" under Rule 144A of the Securities Act of 1933. The International
Portfolio also may, under normal market conditions, invest up to 35% of its
total assets in investment-grade debt securities of foreign issuers. See "Risks
of Investing in the Portfolios," below. The Portfolio engages in a
VALUE-ORIENTED investing strategy, which is discussed on page 3.
PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIO
The International Portfolio is subject to MARKET RISK and FINANCIAL RISK. The
International Portfolio is subject to a significant degree of FOREIGN ISSUER AND
NON-DOLLAR SECURITIES RISK. Securities of foreign issuers and non-dollar
securities entail risks not associated with domestic securities or U.S.
dollar-denominated securities. For example, foreign issuers often are subject to
securities laws, and accounting and reporting practices, less stringent than
those in the U.S., and they may be adversely impacted by political or economic
instability or changes in currency exchange rates.
The Portfolio's investments in securities of issuers located in countries with
emerging economies or securities markets entail EMERGING MARKETS RISK. The risks
of investing in securities of foreign issuers and non-dollar securities are even
greater in emerging markets than in Japan or most Western European countries.
Emerging market countries are undergoing rapid development and may lack the
social, political and economic stability characteristic of more developed
countries.
These risks, and the risks associated with other higher-risk securities and
practices that the Portfolio may utilize, are described in more detail later in
this Prospectus. Investors should carefully read "Risks of Investing in the
Portfolios" and "Investment Techniques" below before investing in this
Portfolio.
15
<PAGE> 19
THE PORTFOLIO PERFORMANCE
The bar chart and table shown below provide an indication of the risks of
investing in the International Portfolio by showing changes in the Portfolio's
performance from year to year over an 8-year period and by showing how the
Portfolio's average annual returns for one and five years, and the period since
inception, compare to those of the Morgan Stanley Capital International Europe,
Australasia, Far East ("EAFE") Index. How the Portfolio has performed in the
past is not necessarily an indication of how the Portfolio will perform in the
future.
<TABLE>
<S> <C>
International Portfolio
1992 -7.3
1993 36.11
1994 0.26
1995 14.31
1996 10.89
1997 9.66
1998 10.13
1999 29.33
</TABLE>
During the 8-year period shown in the bar chart, the highest return for a
quarter was 15.71% (quarter ended December 31, 1998) and the lowest return for a
quarter was 16.25% (quarter ended September 30, 1998).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDED DECEMBER 31, 1999) PAST ONE YEAR PAST 5 YEARS FROM INCEPTION(1)
----------------------------------------- ------------- ------------ -----------------
<S> <C> <C> <C>
International Portfolio..................... 29.33% 14.64% 11.50%
EAFE Index.................................. 26.97% 12.83% 10.73%
</TABLE>
- -------------------------
(1) The Portfolio commenced operations on November 1, 1991.
The EAFE Index is a widely recognized, unmanaged index of more than 900
companies from Europe, Australia, Asia and the Far East. The EAFE Index reflects
the prices of these common stocks translated into U.S. dollars with dividends
reinvested net of any foreign taxes.
The performance information presented does not include the fees and charges
associated with the variable contracts, and returns would have been lower if
those fees and charges were included.
16
<PAGE> 20
[This page intentionally left blank]
17
<PAGE> 21
[ ] THE GROWTH PORTFOLIO
INVESTMENT OBJECTIVES
Intermediate and long-term growth of capital. A reasonable level of income is an
important secondary objective.
PRIMARY INVESTMENT STRATEGIES
The Growth Portfolio invests primarily in common stocks of companies that the
adviser believes offer above-average intermediate and long-term growth
potential. The Portfolio purchases securities only of companies that have:
- A minimum level of sales/revenue of $50 million per year in at least one
recent year
- Profitable operations (i.e., have some net income before non-recurring
gains or losses)
Generally, the Portfolio holds common stocks listed on national securities
exchanges, but it can hold up to 20% of its total assets in stocks only traded
over-the-counter. The Portfolio also may invest in other equity securities and
nonconvertible debt obligations. Often, the adviser follows a VALUE-ORIENTED
investment strategy, which is discussed on page 3.
PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIO
The Growth Portfolio is subject to MARKET RISK and FINANCIAL RISK. For equity
securities, market risk is the risk that the stock market as a whole may
decline, depressing the price of securities in which the Portfolio invests. For
equity securities, financial risk is the risk that the price of a particular
issuer's stock may decline because of its financial results.
In addition to these general risks, the Growth Portfolio may be subject to
greater volatility over short periods of time because of its intermediate and
long-term focus. The value of certain of its investments may rise or fall based
on investor perception and attitude rather than economic valuations.
These risks, and the risks associated with other higher-risk securities and
practices that the Portfolio may utilize, are described in more detail later in
this Prospectus. Investors should carefully read "Risks of Investing in the
Portfolios" and "Investment Techniques" below before investing in this
Portfolio.
18
<PAGE> 22
THE PORTFOLIO PERFORMANCE
The bar chart and table shown below provide an indication of the risks of
investing in the Growth Portfolio by showing changes in the Portfolio's
performance from year to year over a 10-year period and by showing how the
Portfolio's average annual returns for one, five, and ten years compare to those
of the S&P 500 Index. How the Portfolio has performed in the past is not
necessarily an indication of how the Portfolio will perform in the future.
<TABLE>
<CAPTION>
GROWTH PORTFOLIO
----------------
<S> <C>
1990 2.39
1991 18.50
1992 4.74
1993 10.21
1994 2.40
1995 30.39
1996 19.58
1997 24.32
1998 13.70
1999 2.98
</TABLE>
During the 10-year period shown in the bar chart, the highest return for a
quarter was 18.73% (quarter ended March 31, 1991) and the lowest return for a
quarter was -11.73% (quarter ended September 30, 1998).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDED DECEMBER 31, 1999) PAST ONE YEAR PAST 5 YEARS PAST 10 YEARS
----------------------------------------- ------------- ------------ -------------
<S> <C> <C> <C>
Growth Portfolio............................... 2.98% 17.81% 12.53%
S&P 500 Index.................................. 21.06% 28.58% 18.18%
</TABLE>
The S&P 500 Index is a widely recognized, unmanaged index of 500 U.S. common
stocks.
The performance information presented does not include the fees and charges
associated with the variable contracts, and returns would have been lower if
those fees and charges were included.
19
<PAGE> 23
[ ] THE AGGRESSIVE GROWTH PORTFOLIO
INVESTMENT OBJECTIVE
A high level of long-term capital appreciation.
PRIMARY INVESTMENT STRATEGIES
The Aggressive Growth Portfolio invests primarily in:
- securities of companies in new or emerging industries
- securities of small capitalization companies and/or unseasoned companies
Substantially all of the Portfolio's assets consist of equity securities of
companies that the Adviser believes have better than average appreciation
potential. The adviser selects these securities on the basis of their
appreciation potential without restriction as to their type.
PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIO
The Aggressive Growth Portfolio invests in securities that generally entail
above-average MARKET RISK and FINANCIAL RISK. The Portfolio also is subject to
SMALL COMPANY RISK. Smaller companies may have limited product lines, markets or
financial resources, and their securities may trade less frequently and in more
limited volume than the securities of larger or more established companies. The
prices of securities of smaller companies may fluctuate to a greater degree than
the prices of securities of other issuers. Loss of money is a significant risk
of investing in this Portfolio.
To the extent that it invests in certain securities, the Portfolio assumes
additional risks relating to ADRs, GDRs, and EDRs (i.e., the risks of investing
in the securities of foreign issuers and non-dollar securities). Securities of
foreign issuers and non-dollar securities entail risks not associated with
domestic securities or U.S. dollar-denominated securities. For example, foreign
issuers often are subject to securities laws, and accounting and reporting
practices, less stringent than those in the U.S., and they may be adversely
impacted by political or economic instability or changes in currency exchange
rates.
These risks, and the risks associated with other higher-risk securities and
practices that the Portfolio may utilize, are described in more detail later in
this Prospectus. Investors should carefully read "Risks of Investing in the
Portfolios" and "Investment Techniques" below before investing in this
Portfolio.
20
<PAGE> 24
THE PORTFOLIO PERFORMANCE
The bar chart and table shown below provide an indication of the risks of
investing in the Aggressive Growth Portfolio by showing changes in the
Portfolio's performance from year to year over a 10-year period and by showing
how the Portfolio's average annual returns for one, five and ten years compare
to those of the Russell 2000 Index. How the Portfolio has performed in the past
is not necessarily an indication of how the Portfolio will perform in the
future.
<TABLE>
<S> <C>
Aggressive Growth Portfolio
1990 10.77
1991 56.33
1992 2.58
1993 5.2
1994 0
1995 13.48
1996 21
1997 21.21
1998 7.99
1999 15.96
</TABLE>
During the 10-year period shown in the bar chart, the highest return for a
quarter was 27.72% (quarter ended March 31, 1991) and the lowest return for a
quarter was -24.51% (quarter ended September 30, 1990).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDED DECEMBER 31, 1999) PAST ONE YEAR PAST 5 YEARS PAST 10 YEARS
----------------------------------------- ------------- ------------ -------------
<S> <C> <C> <C>
Aggressive Growth Portfolio.................... 15.96% 15.82% 14.56%
Russell 2000 Index*............................ 21.36% 16.78% 13.44%
</TABLE>
- -------------------------
* Price appreciation only.
The Russell 2000 Index is a widely recognized, unmanaged index of small
capitalization companies.
The performance information presented does not include the fees and charges
associated with the variable contracts, and returns would have been lower if
those fees and charges were included.
21
<PAGE> 25
[ ] THE MANAGED PORTFOLIO
INVESTMENT OBJECTIVE
As high a level of long-term total rate of return as is consistent with prudent
investment risk.
PRIMARY INVESTMENT STRATEGIES
The Managed Portfolio invests in securities that are permissible investments of
the International, Growth, Aggressive Growth, Bond, and Money Market Portfolios.
The adviser may invest the Managed Portfolio's assets solely in common stocks,
solely in debt securities, solely in money market instruments, or in a
combination of these types of investments. At least 75% of the value of the
Managed Portfolio's total investment in corporate debt securities (other than
commercial paper) consists of investment-grade securities, and the remaining 25%
may be invested in such securities rated one category below investment grade.
The Managed Portfolio also may invest in securities of foreign issuers,
including those issuers located in countries with emerging economies and/or
securities markets.
The Managed Portfolio's investment strategies may result in the Portfolio having
a higher than average portfolio turnover rate. Higher portfolio turnover results
in correspondingly increased brokerage expenses and other acquisition costs to
the Portfolio.
PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIO
The Managed Portfolio is subject to MARKET RISK, FINANCIAL RISK, CREDIT RISK and
INTEREST RATE RISK. To the extent that it invests in certain securities, the
Portfolio may assume additional risks relating to LOWER QUALITY DEBT
INSTRUMENTS, SHORT-TERM TRADING, and SECURITIES OF FOREIGN ISSUERS AND
NON-DOLLAR SECURITIES. Lower quality debt instruments are subject to
above-average interest rate risk and credit risk, tend to have a higher default
rate, and are speculative with only an adequate capacity to repay principal and
interest. Short-term trading may result in higher turnover and transaction
expenses for the Portfolio. Securities of foreign issuers and non-dollar
securities entail risks not associated with domestic securities or U.S.
dollar-denominated securities. For example, foreign issuers often are subject to
securities laws, and accounting and reporting practices, less stringent than
those in the U.S., and they may be adversely impacted by political or economic
instability or changes in currency exchange rates. Securities of issuers located
in emerging economies and/or securities markets may be more risky or volatile
than other foreign securities.
In order to meet the Portfolio's investment objective, the adviser must
determine the proper mix of equity, debt and money market securities. The
adviser may not properly ascertain the appropriate mix of securities for any
particular economic cycle. Also, the timing of movements from one type of
security to another could have a negative effect on the Portfolio's overall
objective.
These risks, and the risks associated with other higher-risk securities and
practices that the Portfolio may utilize, are described in more detail later in
this Prospectus. Investors should carefully read "Risks of Investing in the
Portfolios" and "Investment Techniques" below before investing in this
Portfolio.
22
<PAGE> 26
THE PORTFOLIO PERFORMANCE
The bar chart and table shown below provide an indication of the risks of
investing in the Managed Portfolio by showing changes in the Portfolio's
performance from year to year over a 10-year period and by showing how the
Portfolio's average annual returns for one, five, and ten years compare to those
of the S&P 500 Index and the Lehman Aggregate Bond Index. How the Portfolio has
performed in the past is not necessarily an indication of how the Portfolio will
perform in the future.
<TABLE>
<S> <C>
Managed Portfolio
1990 -8.61
1991 20.49
1992 11.96
1993 11.62
1994 -1.82
1995 24.43
1996 11.88
1997 21.23
1998 12.54
1999 0.75
</TABLE>
During the 10-year period shown in the bar chart, the highest return for a
quarter was 13.32% (quarter ended March 31, 1991) and the lowest return for a
quarter was -15.85% (quarter ended September 30, 1990).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDED DECEMBER 31, 1999) PAST ONE YEAR PAST 5 YEARS PAST 10 YEARS
----------------------------------------- ------------- ------------ -------------
<S> <C> <C> <C>
Managed Portfolio.............................. 0.75% 13.86% 9.96%
S&P 500 Index.................................. 21.06% 28.58% 18.18%
Lehman Aggregate Bond Index.................... -0.82% 7.74% 7.86%
</TABLE>
The Portfolio's investments in equity securities are compared to the S&P 500
Index, a widely recognized, unmanaged index of 500 U.S. common stocks.
The Portfolio's investments in debt securities are compared to the Lehman
Aggregate Bond Index, a widely recognized, unmanaged index of bonds reflecting
average prices in the bond market.
The performance information presented does not include the fees and charges
associated with the variable contracts, and returns would have been lower if
those fees and charges were included.
23
<PAGE> 27
[ ] THE BOND PORTFOLIO
INVESTMENT OBJECTIVE
A high level of current income consistent with prudent investment risk.
PRIMARY INVESTMENT STRATEGIES
The Bond Portfolio invests in a diversified portfolio of marketable debt
securities of U.S. and foreign issuers. At least 75% of the value of the Bond
Portfolio's total investment in corporate debt securities (other than commercial
paper) consists of investment-grade securities, and the remaining 25% may be
invested in such securities rated one category below investment grade.
Securities of foreign issuers are purchased only if they are investment grade,
denominated in U.S. dollars, and pay any income in U.S. dollars.
The Bond Portfolio may purchase securities that carry certain equity features
such as conversion or exchange rights or warrants for the acquisition of stock
(of the same or of a different issuer) or participations based on revenues,
sales or profits.
PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIO
The Bond Portfolio is subject to MARKET RISK, CREDIT RISK and INTEREST RATE
RISK. To the extent that it invests in certain securities, the Bond Portfolio
may assume additional risks relating to LOWER QUALITY DEBT INSTRUMENTS,
SHORT-TERM TRADING and SECURITIES OF FOREIGN ISSUERS. Lower quality debt
instruments are subject to above-average interest rate risk and credit risk,
tend to have a higher default rate, and are speculative with only an adequate
capacity to repay principal and interest. Short-term trading may result in
higher turnover and transaction expenses for the Portfolio. Securities of
foreign issuers entail risks not associated with domestic securities. For
example, foreign issuers often are subject to securities laws, and accounting
and reporting practices, less stringent than those in the U.S., and they may be
adversely impacted by political or economic instability or changes in currency
exchange rates.
These risks, and the risks associated with other higher-risk securities and
practices that the Portfolio may utilize, are described in more detail later in
this Prospectus. Investors should carefully read "Risks of Investing in the
Portfolios" and "Investment Techniques" below before investing in this
Portfolio.
24
<PAGE> 28
THE PORTFOLIO PERFORMANCE
The bar chart and table shown below provide an indication of the risks of
investing in the Bond Portfolio by showing changes in the Portfolio's
performance from year to year over a 10-year period and by showing how the
Portfolio's average annual returns for one, five, and ten years compare to those
of the Lehman Aggregate Bond Index. How the Portfolio has performed in the past
is not necessarily an indication of how the Portfolio will perform in the
future.
<TABLE>
<S> <C>
Bond Portfolio
1990 7.70
1991 13.93
1992 5.95
1993 10.32
1994 -5.62
1995 20.45
1996 2.86
1997 9.50
1998 8.22
1999 -3.31
</TABLE>
During the 10-year period shown in the bar chart, the highest return for a
quarter was 7.32% (quarter ended June 30, 1995) and the lowest return for a
quarter was -4.18% (quarter ended March 31, 1994).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDED DECEMBER 31, 1999) PAST ONE YEAR PAST 5 YEARS PAST 10 YEARS
----------------------------------------- ------------- ------------ -------------
<S> <C> <C> <C>
Bond Portfolio................................. -3.31% 7.26% 6.75%
Lehman Aggregate Bond Index.................... -0.82% 7.74% 7.86%
</TABLE>
The Lehman Aggregate Bond Index is a widely recognized, unmanaged index of bonds
reflecting average prices in the bond market.
The performance information presented does not include the fees and charges
associated with the variable contracts, and returns would have been lower if
those fees and charges were included.
25
<PAGE> 29
[ ] THE MONEY MARKET PORTFOLIO
INVESTMENT OBJECTIVE
Maximum current income consistent with capital preservation and liquidity.
PRIMARY INVESTMENT STRATEGIES
The Money Market Portfolio invests exclusively in U.S. dollar-denominated money
market instruments that present minimal credit risks. These include U.S.
government securities, bank obligations, repurchase agreements, commercial
paper, and other corporate debt obligations. See Appendix A to the SAI for a
complete discussion of the money market instruments in which the Portfolio may
invest.
All of the Money Market Portfolio's money market instruments mature in 13 months
or less. The average maturity of these securities, based on their weighted
dollar value, does not exceed 90 days. The Portfolio intends to maintain a
stable value of $1.00 per share. All of the Portfolio's assets are rated in the
two highest short-term categories (or their unrated equivalents) by a
nationally-recognized statistical rating organization ("Rating Agency"), and 95%
of its assets are rated in the highest category (or its unrated equivalent) by a
Rating Agency. A more detailed description of the rating categories is contained
in the SAI.
PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIO
While the Money Market Portfolio only invests in high quality money market
instruments, these investments are not entirely without risk. High quality money
market instruments generally do not yield as high a level of income as
longer-term or lower-grade securities. In addition, the yield of the Portfolio
will vary with changes in interest rates. There is a remote possibility that the
Portfolio's share value could fall below $1.00, which could reduce the value of
an investment in the Portfolio.
To the extent that it invests in certain securities, the Money Market Portfolio
may be affected by additional risks relating to REPURCHASE AGREEMENTS (credit
risk) and WHEN-ISSUED SECURITIES (market, opportunity, and leverage risks).
However, these risks are lessened by the high quality of the securities in which
the Portfolio invests.
These risks are described in more detail later in this Prospectus. SHARES OF THE
PORTFOLIO ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY
FINANCIAL INSTITUTION, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY. Investors should carefully read
"Risks of Investing in the Portfolios" and "Investment Techniques" below before
investing in this Portfolio.
26
<PAGE> 30
THE PORTFOLIO PERFORMANCE
The bar chart and table shown below provide an indication of the risks of
investing in the Money Market Portfolio by showing changes in the Portfolio's
performance from year to year over a 10-year period and by showing the
Portfolio's average annual returns for one, five, and ten years. How the
Portfolio has performed in the past is not necessarily an indication of how the
Portfolio will perform in the future.
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
----------------------
<S> <C>
1990 8.00
1991 5.69
1992 3.18
1993 2.59
1994 3.81
1995 5.61
1996 5.15
1997 5.33
1998 5.29
1999 4.91
</TABLE>
During the 10-year period shown in the bar chart, the highest return for a
quarter was 1.97% (quarter ended June 30, 1990) and the lowest return for a
quarter was 0.62% (quarter ended June 30, 1993). The Portfolio's seven-day yield
was 5.53% for the period ended December 31, 1999.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDED DECEMBER 31, 1999) PAST ONE YEAR PAST 5 YEARS PAST 10 YEARS
----------------------------------------- ------------- ------------ -------------
<S> <C> <C> <C>
Money Market Portfolio......................... 4.91% 5.26% 4.95%
Salomon Smith Barney 3-Month Treasury Index.... 4.74% 5.21% 5.06%
</TABLE>
The performance information presented does not include the fees and charges
associated with the variable contracts, and returns would have been lower if
those fees and charges were included.
27
<PAGE> 31
RISKS OF INVESTING IN THE PORTFOLIOS
Each Portfolio is subject to the risk that the Portfolio may not achieve its
investment objective, and an investor may lose money (including the principal
invested) by investing in the Portfolio. No one Portfolio alone should be
considered a complete investment program, and any Portfolio's performance could
fall below that of other possible investments.
Because each Portfolio invests in a different mix of securities and employs a
different strategy for achieving the Portfolio's goals, the risks associated
with each Portfolio vary. While the actual performance of any mutual fund cannot
be predicted, investors should consider the possible risks associated with a
Portfolio's investments. These risks include:
CORRELATION RISK. A measure of how closely two variables move together through
time. For example, utility stocks tend to have a high degree of correlation
because many of the same economic forces influence their share prices.
Conversely, gold stock prices are not closely correlated with utility stock
prices because they are influenced by very different factors. In building a
diversified portfolio, investors often try to combine investments that aren't
closely correlated with one another.
CREDIT RISK. The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise not honor a financial obligation.
CURRENCY RISK. The risk that fluctuations in the exchange rates between the
U.S. dollar and foreign currencies may adversely affect the value of an
investment. Currency fluctuations may negatively impact a Portfolio's
investments and, therefore, the value of its portfolio even if the foreign stock
has not declined in value in its own currency. For example:
- A decline in the U.S. dollar value of other currencies would reduce the
value of certain portfolio investments denominated in these currencies
- A Portfolio may have to sell portfolio securities to pay dividends to
shareholders if the exchange rate for the currency in which a Portfolio
receives interest payments declines against the U.S. dollar before the
interest is paid to shareholders.
EXTENSION RISK. The risk that an unexpected rise in prevailing interest rates
will extend the life of an outstanding mortgage-backed security by reducing the
expected number of mortgage prepayments, typically reducing the security's
value.
FINANCIAL RISK. For debt securities, credit risk. For equity securities, the
risk that the issuer's earning prospects and overall financial position will
deteriorate, causing a decline in the security's value.
RISKS OF INVESTING IN SECURITIES OF FOREIGN ISSUERS AND NON-DOLLAR
SECURITIES. Investments in the securities of foreign issuers or investments in
non-dollar securities involve significant risks that are not typically
associated with investing in U.S. dollar-denominated securities or securities of
domestic issuers. These investments may be affected by changes in currency
exchange rates, changes in foreign or U.S. laws or restrictions applicable to
these investments and in currency exchange control regulations. Some foreign
stock markets (and other securities markets) may have substantially less volume
than, for example, the New York Stock Exchange (or other domestic markets), and
securities of some foreign issuers may be less liquid than securities of
comparable domestic issuers. Commissions and dealer mark-ups on transactions in
securities of foreign issuers and non-dollar securities may be higher than for
similar transactions in the United States. In addition, clearance and settlement
procedures may be different in foreign countries, and, in certain markets, on
certain occasions, these procedures have been unable to keep pace with the
volume of securities transactions, thus making it difficult to conduct these
transactions. The inability of a Portfolio to make intended investments due to
settlement problems could cause it to miss attractive investment opportunities.
Inability to dispose of portfolio securities or other investments due to
settlement problems could result either in losses to a Portfolio due to
subsequent declines in value of the portfolio investment or, if the Portfolio
has entered into a contract to sell the investment, could result in possible
liability to the purchaser.
28
<PAGE> 32
Foreign issuers are not generally subject to uniform accounting, auditing, and
financial reporting standards comparable to those applicable to domestic
companies, and there may be less publicly available information about a foreign
issuer than about a domestic one. In addition, there is generally less
government regulation of stock exchanges, brokers, and listed and unlisted
issuers in foreign countries than in the United States. Furthermore, with
respect to certain foreign countries, there is a possibility of expropriation or
confiscatory taxation, imposition of withholding taxes on dividend or interest
payments, limitations on the removal of cash or other assets of the Portfolio,
or political or social instability or diplomatic developments which could affect
investments in those countries. Individual foreign economies also may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency, and balance of payments position.
The INTERNATIONAL PORTFOLIO and the MANAGED PORTFOLIO may invest in securities
of issuers located in countries with emerging economies and/or securities
markets. These countries are located in the Asia-Pacific region, Eastern Europe,
Central and South America, and Africa. Political and economic structures and
institutions in many of these countries are undergoing significant evolution and
rapid development, and these countries may lack the social, political and
economic stability characteristic of more developed countries. Certain of these
countries have in the past failed to recognize private property rights and have
at times nationalized or expropriated assets of private companies. In addition,
unanticipated political or social developments may affect the values of
investments in these countries and the ability of a Portfolio to make additional
investments in them. The small size, inexperience, and limited trading volume of
the securities markets in certain of these countries may also make investments
in these countries more volatile and less liquid than investments in securities
traded in markets in Japan and Western European countries. As a result, these
Portfolios may be required to establish special custody or other arrangements
before making certain investments in these countries. There may be little
financial or accounting information available with respect to issuers located in
certain of these countries, and it may be difficult as a result to assess the
value or prospects of an investment in these issuers. The laws of some foreign
countries may limit the ability of these Portfolios to invest in securities of
certain issuers located or doing business in these countries.
HEDGING RISK. When a Portfolio hedges an asset it holds, any gain or loss
generated by the hedge should be substantially offset by losses or gains on the
hedged asset. Hedging is a useful way to reduce or eliminate risk of loss, but
it also reduces or eliminates the potential for investment gains.
INFORMATION RISK. The risk that key information about a security or market is
inaccurate or unavailable.
INTEREST RATE RISK. The risk that the market value of a debt or other
income-bearing security will decline because of changes in prevailing interest
rates. Generally, a rise in interest rates typically causes the market values of
these securities to decline, particularly fixed-rate securities.
RISKS OF INVESTING IN LOWER QUALITY DEBT INSTRUMENTS. Lower quality debt
instruments usually pay a higher interest rate than higher quality debt
instruments, particularly lower quality debt instruments rated below
investment-grade, but with the higher interest rate comes higher risks. Lower
quality debt instruments may have the following characteristics:
- Are speculative with only an adequate capacity to pay principal and
interest;
- Have a higher risk of default, tend to be less liquid, and may be more
difficult to value;
- Are issued by entities whose ability to make principal and interest
payments is more likely than entities issuing higher-rated debt
instruments to be affected by changes in economic conditions or other
circumstances;
- Have limited prospects for reaching investment-grade standing and,
although unlikely, may be in default;
29
<PAGE> 33
- May be more severely affected than some other financial instruments by
economic recession or substantial interest rate increases, by changing
public perceptions of the market, or by legislation that limits their use
in connection with corporate reorganizations or limits their tax or other
advantages; and
- Are more likely to react to developments affecting market risk and
financial risk than are higher quality debt instruments, which react
primarily to movements in the general level of interest rates.
LEVERAGE RISK. The risks associated with securities or investment practices
that enhance return (or loss) without increasing the amount of investment, such
as buying securities on margin or using certain derivative contracts or
derivative securities. A Portfolio's gain or loss on a leveraged position may be
greater than the actual market gain or loss in the underlying security or
instrument. A Portfolio may also incur additional costs in taking a leveraged
position (such as interest on borrowings) that may not be incurred in taking a
non-leveraged position.
LIQUIDITY RISK. The risk that certain securities or other investments may be
difficult or impossible to sell at the time the Portfolio would like to sell
them or at the price the Portfolio values them.
MANAGEMENT RISK. The risk that a strategy used by a Portfolio's adviser or
subadviser does not produce the intended result. For example, the adviser's or
subadviser's judgment about the value or potential appreciation of a particular
stock may prove to be incorrect.
MARKET RISK. The risk that the market value of a security may increase or
decrease, sometimes rapidly and unpredictably, due to factors unrelated to the
issuer. This risk is common to all stocks and bonds and the mutual funds that
invest in them.
NATURAL EVENT RISK. The risk of losses attributable to natural disasters, crop
failures and similar events.
OPPORTUNITY RISK. The risk of missing out on an investment opportunity because
the assets necessary to take advantage of the opportunity are tied up in less
advantageous investments.
POLITICAL RISK. The risk of losses directly attributable to government actions
or political events of any sort. Foreign countries may experience political or
social instability or diplomatic developments that could affect investments in
those countries.
PREPAYMENT RISK. The risk that an unexpected fall in prevailing interest rates
will shorten the life of an outstanding mortgage-backed security by increasing
the expected number of mortgage prepayments.
SMALL COMPANY RISK. The risk of investing in securities of smaller companies.
These smaller companies may have limited product lines, markets, or financial
resources and their securities may trade less frequently and in more limited
volume than the securities of larger or more established companies. These
companies are typically subject to a greater degree of changes in earnings and
business prospects than are larger, more established issuers. As a result, the
prices of securities of smaller companies may fluctuate to a greater degree than
the prices of securities of other issuers. Although investing in securities of
smaller companies offers potential for above-average returns, the risk exists
that the companies will not succeed and the prices of the companies' shares
could significantly decline in value.
SPECULATION RISK. Speculation involves assuming a higher than average risk of
loss in anticipation of gain. If a Portfolio uses a derivative contract or
derivative security to speculate rather than hedge, it is directly exposed to
the risks of that derivative contract or security. Gains or losses from
speculative positions in a derivative contract or security may be substantially
greater than the derivative contract or security's original cost.
VALUATION RISK. The risk that the market value of an investment falls
substantially below the Portfolio's valuation of the investment. The risk may be
exaggerated in volatile markets.
30
<PAGE> 34
INVESTMENT TECHNIQUES
The Portfolios are permitted to use, within limits established by the Fund's
directors, certain other securities and investment practices that have higher
risks and opportunities associated with them. On the following pages are brief
descriptions of these securities and practices, along with certain of their
associated risks.
HIGHER-RISK SECURITIES AND PRACTICES
<TABLE>
<CAPTION>
SECURITY OR PRACTICE DESCRIPTION RELATED RISKS
- -----------------------------------------------------------------------------------------
<S> <C> <C>
American Depositary ADRs are receipts typically Market, currency,
Receipts (ADRs) issued by a U.S. financial information, natural event,
institution which evidence and political risks (i.e.,
ownership of underlying the risks of investing in
securities of foreign foreign issuers and non-
corporate issuers. dollar securities).
Generally, ADRs are in
registered form and are
designed for trading in
U.S. markets.
- -----------------------------------------------------------------------------------------
Borrowing The borrowing of money from Credit risk and interest
banks or through reverse rate risks.
repurchase agreements. No
Portfolio will borrow money
for leveraging purposes.
- -----------------------------------------------------------------------------------------
Writing Covered Call Option A call option is the right Interest rate, market,
Contracts on Securities to purchase a security for hedging, correlation,
an agreed-upon price at any liquidity, credit, and
time prior to an expiration opportunity risks.
date. By writing (selling)
a call option, a Portfolio
gives this right to a buyer
for a fee. A "covered" call
option contract is one
where the Portfolio owns
the securities subject to
the option so long as the
option is outstanding.
- -----------------------------------------------------------------------------------------
</TABLE>
31
<PAGE> 35
<TABLE>
<CAPTION>
SECURITY OR PRACTICE DESCRIPTION RELATED RISKS
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Emerging Market Securities Any securities primarily Credit, market, currency,
traded on exchanges (or information, liquidity,
other markets) located in, interest rate, valuation,
or issued by companies natural event, and
organized or primarily political risks and the
operating in, countries risks of investing in
with emerging economies securities of foreign
and/or securities markets issuers and non-dollar
(typically located in Asia, securities.
the Asia-Pacific region,
Eastern Europe, Central and
South America and Africa).
- -----------------------------------------------------------------------------------------
European and Global EDRs and GDRs are receipts Market, currency,
Depositary Receipts (EDRs evidencing an arrangement information, natural event,
and GDRs) with a non-U.S. financial and political risks (i.e.,
institution similar to that the risks of investing in
for ADRs and are designed securities of foreign
for use in non-U.S. issuers and non-dollar
securities markets. EDRs securities).
and GDRs are not
necessarily quoted in the
same currency as the
underlying security.
- -----------------------------------------------------------------------------------------
Securities of Foreign Securities of (1) companies Market, currency,
Issuers organized outside the information, interest rate,
United States, (2) natural event, and
companies whose securities political risks.
are principally traded
outside the United States,
and (3) foreign governments
or agencies and
instrumentalities of
foreign governments.
- -----------------------------------------------------------------------------------------
Foreign Money Market Short-term debt obligations Market, currency,
Securities issued by foreign financial information, interest rate,
institutions or by foreign natural event, and
branches of U.S. financial political risks.
institutions or foreign
issuers.
- -----------------------------------------------------------------------------------------
Forward Foreign Currency Contracts involving the Currency, liquidity, credit
Exchange Contracts right or obligation to buy and leverage risks. When
or sell a given amount of used for hedging, also has
foreign currency at a hedging, correlation, and
specified price and future opportunity risks.
date.
- -----------------------------------------------------------------------------------------
Illiquid Assets An investment that is Liquidity, valuation and
difficult or impossible to market risks.
sell at approximately the
time that a Portfolio would
like to sell it for the
price at which the
Portfolio values it.
- -----------------------------------------------------------------------------------------
</TABLE>
32
<PAGE> 36
<TABLE>
<CAPTION>
SECURITY OR PRACTICE DESCRIPTION RELATED RISKS
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Mortgage-Backed Securities Securities backed by pools Credit, extension,
of mortgages, including prepayment, and interest
pass-through certificates rate risks.
and collateralized mortgage
obligations (CMOs).
- -----------------------------------------------------------------------------------------
Mortgage Dollar Rolls A Portfolio sells Interest rate and
securities for delivery in prepayment, risks.
the current month and
simultaneously contracts
with the same counterparty
to repurchase similar
securities on a specified
future date. The Portfolio
may benefit to the extent
of any difference between
the price received for
securities sold and the
lower forward price for the
future purchase or fee
income plus the interest
earned on the cash proceeds
of the securities sold
until the settlement date
of the forward purchase.
- -----------------------------------------------------------------------------------------
Non-Dollar Securities Securities issued, Currency and liquidity
denominated or quoted in risks.
foreign currencies.
- -----------------------------------------------------------------------------------------
Lower Quality Debt Debt securities rated BB+ Credit, market, liquidity,
Instruments and below by S&P or Ba1 and valuation, and information
below by Moody's (or risks, and risks of
comparable unrated investing in lower-quality
securities). debt instruments.
- -----------------------------------------------------------------------------------------
Asset-Backed Securities Securities backed primarily Credit, extension,
by pools of non-mortgage prepayment, and interest
related collateral such as rate risks.
credit cards, auto loans,
equipment lease
receivables, etc.
- -----------------------------------------------------------------------------------------
Equity Interests in Real Pooled investment vehicles Credit, market, financial,
Estate Investment Trusts that invest primarily in prepayment, extension, and
(REITs) income producing real interest rate risks.
estate or real estate
related loans or interests.
REITs may include operating
companies that invest in
and manage income-producing
real estate or real
estate-related businesses.
- -----------------------------------------------------------------------------------------
</TABLE>
33
<PAGE> 37
<TABLE>
<CAPTION>
SECURITY OR PRACTICE DESCRIPTION RELATED RISKS
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Repurchase Agreements The purchase of a security Credit risk.
that the issuer agrees to
buy back later at the same
price plus interest.
- -----------------------------------------------------------------------------------------
Reverse Repurchase The lending of short-term Leverage and credit risks.
Agreements debt securities; often used
to facilitate borrowing.
- -----------------------------------------------------------------------------------------
Securities Lending The lending of securities Credit risk.
to financial institutions,
which provide cash or
government securities as
collateral.
- -----------------------------------------------------------------------------------------
Short-Term Trading Selling a security shortly Market risk.
after purchase or
repurchasing it shortly
after it was sold (a
Portfolio engaging in
short-term trading will
have higher turnover and
transaction expenses).
- -----------------------------------------------------------------------------------------
Small Capitalization Smaller companies included Market and small company
Companies in the Wilshire 5000 equity risk.
universe that rank
typically from number 751
to number 2,500 by market
capitalization.
- -----------------------------------------------------------------------------------------
Standard & Poor's SPDRs are securities that Market, hedging or
Depositary Receipts represent ownership in a speculation, leverage,
("SPDRs") long-term unit investment correlation, liquidity, and
trust that holds a opportunity.
portfolio of common stocks
designed to track the
performance of the S&P 500
Index.
- -----------------------------------------------------------------------------------------
</TABLE>
34
<PAGE> 38
<TABLE>
<CAPTION>
SECURITY OR PRACTICE DESCRIPTION RELATED RISKS
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Stock Index Futures An agreement to buy or sell Market, hedging or
Contracts and Options on a specific amount of a speculation, leverage,
Futures Contracts stock index at a particular correlation, liquidity, and
price on a stipulated opportunity.
future date. Unlike an
option, a futures contract
obligates the buyer to buy
and the seller to sell the
underlying commodity or
financial instrument at the
agreed-upon price and date
or to pay or receive money
in an amount equal to such
price. An option on a
futures contract gives the
portfolio the right, for a
specified price, to sell or
to purchase the underlying
futures contract at any
time during the option
period.
- -----------------------------------------------------------------------------------------
When-Issued Securities and The purchase and sale of Market, opportunity,
Forward Commitments securities for delivery at interest rate, credit, and
a future date; market value leverage risks.
may change before delivery.
- -----------------------------------------------------------------------------------------
</TABLE>
35
<PAGE> 39
HIGHER RISK SECURITIES AND PRACTICES TABLE. The following table shows each
Portfolio's investment limitations with respect to certain higher risk
securities and practices as a percentage of portfolio assets.
<TABLE>
<CAPTION>
ALL ALL ALL ALL
PRO PRO PRO PRO
LARGE LARGE SMALL SMALL AGGRES-
CAP CAP CAP CAP EQUITY 500 INTER- SIVE
GROWTH VALUE GROWTH VALUE INDEX NATIONAL GROWTH GROWTH MANAGED BOND
------ ------- ------- ------- ---------- -------- ------ ------- ------- ----
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT PRACTICES
- ------------------------------------------------------------------------------------------------------------------------------
Borrowing; Reverse
Repurchase Agreements....... 30 30 30 30 30 30 30 30 30 30
- ------------------------------------------------------------------------------------------------------------------------------
Mortgage Dollar Rolls....... x x x x x x x x * *
- ------------------------------------------------------------------------------------------------------------------------------
Repurchase Agreements....... * * * * * * * * * *
- ------------------------------------------------------------------------------------------------------------------------------
REITs....................... @ @ @ @ * @ @ @ @ @
- ------------------------------------------------------------------------------------------------------------------------------
Securities Lending.......... 30 30 30 30 30 30 30 30 30 30
- ------------------------------------------------------------------------------------------------------------------------------
Short-term Trading.......... @ @ @ @ @ @ @ @ * *
- ------------------------------------------------------------------------------------------------------------------------------
Smaller Capitalization
Companies................... @ @ * * * @ @ * @ x
- ------------------------------------------------------------------------------------------------------------------------------
When-Issued Securities;
Forward Commitments......... 10 10 10 10 10 10 10 10 10 10
- ------------------------------------------------------------------------------------------------------------------------------
CONVENTIONAL SECURITIES
- ------------------------------------------------------------------------------------------------------------------------------
ADRs, EDRs and GDRs......... * * * * * @ @ * * *
- ------------------------------------------------------------------------------------------------------------------------------
Lower Quality Debt
Instruments................. x x x x x x x x 25(2) 25(2)
- ------------------------------------------------------------------------------------------------------------------------------
Securities of Foreign
Issuers and Non-Dollar
Securities.................. @25 @25 @25 @25 @25 * @25 @25 25 25
- ------------------------------------------------------------------------------------------------------------------------------
Emerging Market
Securities.................. x x x x * x x x * x
- ------------------------------------------------------------------------------------------------------------------------------
Illiquid Assets(1).......... 15 15 15 15 x 15 15 15 15 15
- ------------------------------------------------------------------------------------------------------------------------------
DERIVATIVE SECURITIES AND
CONTRACTS
- ------------------------------------------------------------------------------------------------------------------------------
Forward Foreign Currency
Exchange Contracts.......... @ @ @ @ x * @ @ * *
- ------------------------------------------------------------------------------------------------------------------------------
Mortgage-Backed
Securities.................. x x x x x x x x * *
- ------------------------------------------------------------------------------------------------------------------------------
Standard & Poor's Depositary
Receipts.................... @ @ @ @ @ x x x x x
- ------------------------------------------------------------------------------------------------------------------------------
Stock Index Futures
Contracts................... x x x x * x x x x x
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
MONEY
MARKET
------
<S> <C>
INVESTMENT PRACTICES
- -------------------------------------------
Borrowing; Reverse
Repurchase Agreements....... 30
- --------------------------------------------------
Mortgage Dollar Rolls....... x
- ---------------------------------------------------------
Repurchase Agreements....... *
- ----------------------------------------------------------------
REITs....................... @
- -----------------------------------------------------------------------
Securities Lending.......... 30
- ------------------------------------------------------------------------------
Short-term Trading.......... @
- -------------------------------------------------------------------------------------
Smaller Capitalization
Companies................... x
- --------------------------------------------------------------------------------------------
When-Issued Securities;
Forward Commitments......... 10
- ---------------------------------------------------------------------------------------------------
CONVENTIONAL SECURITIES
- ----------------------------------------------------------------------------------------------------------
ADRs, EDRs and GDRs......... x
- -----------------------------------------------------------------------------------------------------------------
Lower Quality Debt
Instruments................. x
- ------------------------------------------------------------------------------------------------------------------------
Securities of Foreign
Issuers and Non-Dollar
Securities.................. 25
- ------------------------------------------------------------------------------------------------------------------------------
Emerging Market
Securities.................. x
- ------------------------------------------------------------------------------------------------------------------------------
Illiquid Assets(1).......... 10
- ------------------------------------------------------------------------------------------------------------------------------
DERIVATIVE SECURITIES AND
CONTRACTS
- ------------------------------------------------------------------------------------------------------------------------------
Forward Foreign Currency
Exchange Contracts.......... *
- ------------------------------------------------------------------------------------------------------------------------------
Mortgage-Backed
Securities.................. x
- ------------------------------------------------------------------------------------------------------------------------------
Standard & Poor's Depositary
Receipts.................... x
- ------------------------------------------------------------------------------------------------------------------------------
Stock Index Futures
Contracts................... x
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Numbers in this row refer to net, rather than total, assets.
(2) May only invest up to 25% of the value of its corporate debt securities
(other than commercial paper) in such securities.
36
<PAGE> 40
LEGEND
30 A number indicates the maximum percentage of total assets (but see note 1)
that the Portfolio is permitted to invest in that practice or type of
security. Numbers in this table show allowable usage only; for actual usage,
consult the Portfolio's annual and semi-annual reports.
* A bold check mark means that there is no policy limitation on the Portfolio's
usage of that practice or type of security, and that the Portfolio may be
currently using that practice or investing in that type of security.
@ A thin check mark means that the Portfolio is permitted to use that practice
or invest in that type of security, but is not expected to do so on a regular
basis.
x An "x" mark means that the Portfolio is not permitted to use that practice or
invest in that type of security.
37
<PAGE> 41
MANAGEMENT
ADVISERS
Under the terms of each investment advisory agreement, Market Street Investment
Management Company (MSIM) or Sentinel Advisors Company (SAC) (together, the
"Advisers"), at their own expense and subject to the supervision of the Fund's
board of directors, provide the appropriate Portfolio(s) with investment advice
and manage, or arrange for the management of, the investment and reinvestment of
a Portfolio's assets. The Advisers also perform research services and evaluate
statistical and financial data relevant to a Portfolio's investment policies,
and provide the Fund's directors with regular reports as to a Portfolio's
overall investment plan, schedule of investments and other assets, and recent
purchases and sales by a Portfolio. The compensation (as a percentage of each
Portfolio's average daily net assets) paid monthly by the Fund to MSIM or SAC,
as applicable, is described in the table below.
ALL PRO LARGE CAP GROWTH, ALL PRO LARGE CAP VALUE, ALL PRO SMALL CAP GROWTH, AND
ALL PRO SMALL CAP VALUE PORTFOLIOS. MSIM serves as investment adviser for the
All Pro Portfolios using a "manager-of-managers" approach by which MSIM
allocates each All Pro Portfolio's assets among two or more "specialist"
investment subadvisers. MSIM selects two or more subadvisers for each All Pro
Portfolio based on a continuing quantitative and qualitative evaluation of their
skills and proven abilities in managing assets pursuant to a particular
investment style. Short-term performance is not by itself a significant factor
in selecting or terminating investment subadvisers, and, therefore, MSIM does
not anticipate frequent changes in investment subadvisers. Criteria for
employment of investment subadvisers include, but are not limited to, proven
discipline and thoroughness in pursuit of stated investment objectives, long
term above-average performance, an ability to preserve capital in declining
markets, and the expertise and level of service of the investment subadviser's
staff and organization. Investment subadvisers may have different investment
styles and security selection disciplines.
MSIM selects subadvisers for an All Pro Portfolio that MSIM believes can invest
segments of the Portfolio in a manner such that it overall will have
characteristics and performance dynamics similar to the applicable Wilshire
benchmark index. To this end, MSIM may select subadvisers that specialize in
some but not necessarily all of the securities comprising the benchmark index.
By using several subadvisers, MSIM can acquire the expertise that it believes
will result in optimal performance for the Portfolio.
MSIM monitors the performance of each investment subadviser and of each All Pro
Portfolio and, to the extent MSIM deems it appropriate to achieve a Portfolio's
investment objective, reallocates Portfolio assets among individual subadvisers
or recommends to the Fund that a Portfolio employ or terminate particular
investment subadvisers. The Fund and MSIM may employ or terminate subadvisers
without shareholder approval. In the event that a new subadviser is employed for
a Portfolio, investors in that Portfolio will be sent additional information
about the subadviser.
MSIM has retained Wilshire Associates Incorporated (Wilshire) as an investment
management consultant to assist MSIM in identifying and evaluating the
performance of potential subadvisers for each of the All Pro Portfolios.
Wilshire does not participate in the selection of portfolio securities for any
Portfolio or in any way participate in the day-to-day management of the All Pro
Portfolios or the Fund. Wilshire assists MSIM in gathering data and performing
the quantitative analysis necessary to identify the styles and past performance
of potential subadvisers. Wilshire also assists MSIM in performing similar
ongoing quantitative analysis of the performance of each All Pro Portfolio's
subadvisers and in determining whether changes in a subadviser would be
desirable for a Portfolio. Wilshire is located at 1299 Ocean Avenue, Suite 700,
Santa Monica CA 90401.
On behalf of the All Pro Portfolios, and after consultation with Wilshire, MSIM
has selected each of the subadvisers listed below.
38
<PAGE> 42
SUBADVISERS TO THE ALL PRO LARGE CAP GROWTH PORTFOLIO. The assets of the All
Pro Large Cap Growth Portfolio are managed in part by Cohen, Klingenstein &
Marks, Inc. ("CKM") and in part by Geewax, Terker & Co. ("Geewax").
CKM. CKM is an experienced large-capitalization manager. CKM offers no
other products. CKM, which is located at 2112 Broadway, Suite 417, New
York, New York, currently manages approximately $3.9 billion in assets.
Geewax. Geewax has expertise in large-capitalization growth equity
management. Geewax is located at 99 Starr St., Phoenixville, Pennsylvania
and provides portfolio management for $7.6 billion in assets.
SUBADVISERS TO THE ALL PRO LARGE CAP VALUE PORTFOLIO. The assets of the All Pro
Large Cap Value Portfolio are managed in part by Mellon Equity Associates, LLP
("Mellon Equity"), in part by Equinox Capital Management, Inc. ("Equinox"), and
in part by Sanford C. Bernstein & Co., Inc. ("Bernstein").
Mellon Equity. Mellon Equity, located at 500 Grant Street, Suite 4200,
Pittsburgh, Pennsylvania is a Pennsylvania limited liability partnership.
Mellon Bank, N.A. is the 99% limited partner and MMIP, Inc. is the 1%
general partner of Mellon Equity. MMIP, Inc. is a wholly owned subsidiary
of Mellon Bank, N.A. Mellon Equity manages all of its own research,
portfolio management, marketing and client contact. Mellon Equity manages
approximately $38 billion in assets.
Equinox. Equinox is entirely dedicated to large-capitalization value style
management. Equinox, which is located at 590 Madison Ave., 41st Floor, New
York, New York, manages approximately $13.7 billion on behalf of
institutions and individuals.
Bernstein. Bernstein has over 30 years of experience in managing money for
institutional clients and high net worth individuals. Bernstein, which is
located at 767 Fifth Avenue, New York, New York 10153, currently manages
over $87 billion in assets.
SUBADVISERS TO THE ALL PRO SMALL CAP GROWTH PORTFOLIO. The assets of the All
Pro Small Cap Growth Portfolio are managed in part by Husic Capital Management
("Husic") and in part by Standish, Ayer and Wood ("SAW").
Husic. Husic, located at 555 California Street, Suite 2900, San Francisco,
California, offers products across the market capitalization spectrum and
is dedicated to growth style management. Husic manages more than $4.2
billion on behalf of institutions and individuals.
SAW. SAW is located at One Financial Center, Boston, Massachusetts. It
emphasizes companies that have established a pattern of business success:
above average growth, superior financial characteristics, superior business
positions, and strong management. SAW has over $42 billion in equity assets
under management.
SUBADVISERS TO THE ALL PRO SMALL CAP VALUE PORTFOLIO. The assets of the All Pro
Small Cap Value Portfolio are managed in part by Reams Asset Management Company,
LLC ("Reams"), and in part by Sterling Capital Management Company ("Sterling").
Reams. Reams, located at 227 Washington Street, Columbus, Indiana,
provides investment management services primarily to institutional clients.
Reams offers small-cap and small- to mid-cap value products as well as
fixed income products for its clients and has approximately $6 billion in
assets under management.
Sterling. Sterling, located at 301 South College Street, Charlotte, North
Carolina, offers a small capitalization approach that focuses on the
intrinsic worth of companies based on their normalized free cash flow.
Sterling has total assets under management of approximately $3.5 billion,
including approximately $250 million in small capitalization equity
portfolios, for institutional and individual clients.
39
<PAGE> 43
EQUITY 500 INDEX AND INTERNATIONAL PORTFOLIOS. MSIM serves as investment
adviser for the Equity 500 Index and International Portfolios. MSIM is located
at 1000 Chesterbrook Boulevard, Berwyn, Pennsylvania 19312. MSIM has engaged
State Street Global Advisors ("SSgA") to manage the investment and reinvestment
of the Equity 500 Index Portfolio's assets, subject to monitoring by MSIMC and
supervision by the Fund's board of directors. SSgA has over $550 billion in
assets under management. SSgA is located at One International Place, Boston, MA
02110. MSIM has engaged The Boston Company Asset Management, Inc. ("TBC") to
manage the investment and reinvestment of the International Portfolio's assets,
subject to monitoring by MSIM and supervision by the Fund's board of directors.
TBC is located at One Boston Place, Boston, MA 02108. TBC has assets under
management of $20.3 billion.
GROWTH, AGGRESSIVE GROWTH, MANAGED, BOND, AND MONEY MARKET PORTFOLIOS. SAC
serves as investment adviser for the Growth, Aggressive Growth, Managed, Bond,
and Money Market Portfolios. SAC is located at One National Life Drive,
Montpelier, Vermont 05604. SAC has assets under management of $3.9 billion.
COMPENSATION OF MSIM AND SAC
<TABLE>
<CAPTION>
MAXIMUM
FEE PAID IN 1999 ANNUAL RATE
(AS % OF AVERAGE (AS % OF AVERAGE
PORTFOLIO ADVISER DAILY NET ASSETS)* DAILY NET ASSETS)
--------- ------- ------------------ -----------------
<S> <C> <C> <C>
All Pro Large Cap Growth..................... MSIM 0.70% 0.70%
All Pro Large Cap Value...................... MSIM 0.70% 0.70%
All Pro Small Cap Growth..................... MSIM 0.90% 0.90%
All Pro Small Cap Value...................... MSIM 0.90% 0.90%
Equity 500 Index............................. MSIM N/A** 0.24%
International................................ MSIM 0.75% 0.75%
Growth....................................... SAC 0.32% 0.50%
Aggressive Growth............................ SAC 0.41% 0.50%
Managed...................................... SAC 0.40% 0.40%
Bond......................................... SAC 0.35% 0.35%
Money Market................................. SAC 0.25% 0.25%
</TABLE>
- -------------------------
* With respect to each of the Portfolios (except the All Pro Portfolios and the
Money Market Portfolio) the fee payable by a Portfolio to MSIM or SAC is
graduated so that increases in the respective Portfolio's net assets may
result in a lower fee and decreases in the Portfolio's net assets may result
in a higher fee. The maximum annual rate payable to each Adviser is indicated
by the right-hand column above. See "Management of the Fund" in the SAI for
further information.
** Portfolio commenced operations on February 2, 2000.
PORTFOLIO MANAGERS
ALL PRO PORTFOLIOS. Assets of each of the All Pro Portfolios are managed by two
or more subadvisers that have contracted with MSIM to bring a specific asset
management strategy to the management of that Portfolio. Sarah Lange, CFA,
President of MSIM, is the principal person responsible for evaluating the
performance of subadvisers and recommending their employment or termination. Ms.
Lange also serves as Chief Investment Officer and Senior Vice President of
Provident Mutual Life Insurance Company. Ms. Lange has a B.A. in Economics from
Dickinson College and an M.B.A. from Baruch College of the City University of
New York. Ms. Lange is a Chartered Financial Analyst, and has been with MSIM
since
40
<PAGE> 44
1983. Ms. Lange has over 20 years investment experience and previous employers
include Penn Mutual Life Insurance Company and Mellon Bank.
The table below summarizes the background data with respect to each subadviser's
portfolio managers that provide the day to day management of the All Pro
Portfolio's assets.
<TABLE>
<S> <C> <C>
ALL PRO LARGE CAP CKM: CKM's following investment professionals have
GROWTH PORTFOLIO: served as portfolio managers to the All Pro Large
Cap Growth Portfolio since May 1, 1998: (1)
George M. Cohen: B.S. in Mathematics, Arizona
State University; joined CKM in 1981, began
investment experience in 1974; (2) Thomas D.
Klingenstein: B.A. in History, Williams College;
joined CKM in 1990, began investment experience
in 1974 and (3) Richard C. Marks: B.A. in
Physics, Adelphi University; joined CKM in 1981,
began investment experience in 1972.
Geewax: Geewax's following investment professionals have
served as portfolio managers to the All Pro Large
Cap Growth Portfolio since May 1, 1998: (1) John
J. Geewax: B.S., M.B.A., J.D., Ph.D. (ABD),
University of Pennsylvania; joined Geewax in
1982, began investment experience in 1980; and
(2) Christopher P. Ouimet: B.S., Albright
College; M.B.A., St. Joseph's University; joined
Geewax in 1994.
ALL PRO LARGE CAP VALUE Mellon Equity: Mellon Equity's following investment
PORTFOLIO professionals have served as portfolio managers
to the All Pro Large Cap Value Portfolio since
May 1, 1998: (1) William P. Rydell, CFA: degree
in Economics, Wabash College; M.B.A., University
of Michigan; joined Mellon Equity in 1986, began
investment experience in 1973; (2) Robert A.
Wilk, CFA: B.S. in Management and Electrical
Engineering, M.I.T.; M.S. in Finance, M.I.T.;
joined Mellon Equity in 1990, began investment
experience in 1971; (3) John R. O'Toole, CFA:
B.A. in Economics, University of Pennsylvania;
M.B.A. in Finance, University of Chicago; Joined
Mellon Equity in 1990, began investment
experience in 1979.
Equinox: Equinox's following investment professionals have
served as portfolio managers to the All Pro Large
Cap Value Portfolio since May 1, 1998: (1) Ronald
J. Ulrich: degrees in Engineering and Business
Administration, Lehigh University; M.B.A. in
Corporate Finance, New York University; founded
Equinox in 1989, began investment experience in
1971; and (2) Wendy D. Lee, CFA: Summa Cum Laude
graduate from both Rutgers College and The
University of Chicago Graduate School of Business
with highest distinction in Economics, Finance
and Accounting; joined Equinox in 1992, began
investment experience in 1981.
</TABLE>
41
<PAGE> 45
<TABLE>
<S> <C> <C>
Bernstein: Bernstein's following investment professionals
have served as portfolio managers to the All Pro
Large Cap Value Portfolio since April 13, 2000:
(1) Marilyn G. Fedak, Chief Investment Officer
and Chairman of the U.S. Equity Investment Policy
Group at Bernstein since 1972; has managed
portfolio investments since 1976; joined
Bernstein in 1984; B.A. Smith College; M.B.A.,
Harvard Business School; and (2) Steven
Pisarkiewicz, with Bernstein since 1989; Senior
Portfolio Manager since 1997; B.S., University of
Missouri; M.B.A., University of California at
Berkeley.
ALL PRO SMALL CAP Husic: Husic's following investment professionals have
GROWTH PORTFOLIO: served as portfolio managers to the All Pro Small
Cap Growth Portfolio since May 1, 1998: Frank J.
Husic, CFA: B.S. Mathematics, Youngstown State
University; M.S. in Industrial Administration,
Carnegie Mellon University; M.A. Economics,
University of Pennsylvania; founded Husic in
1986, began investment experience in 1971; and
Ronald J. Leong, CFA: B.S. with High Honors in
Banking and Finance, San Francisco State
University; joined Husic in 1989, began
investment experience in 1989.
SAW: SAW's following investment professionals have
served as portfolio managers to the All Pro Small
Cap Growth Portfolio since May 1, 1998: (1)
Nicholas S. Battelle, CFA: degrees from Duke
University and Columbia University Graduate
School of Business; joined SAW in 1982 and began
investment experience in 1970; and (2) Jonathan
F. Stone: undergraduate degree from Brown
University and M.B.A. Harvard University; joined
SAW in 1997, began investment experience in 1990.
ALL PRO SMALL CAP VALUE Reams: Reams' following investment professionals have
PORTFOLIO: served as portfolio managers to the All Pro Small
Cap Value Portfolio since December 1999: (1)
David R. Milroy: B.B.A. and M.S., University of
Wisconsin; joined Reams in 1990 and began
investment experience in 1986; (2) Fred W. Reams:
B.A. and M.A., Western Michigan University;
joined Reams in 1981, and began investment
experience in 1967.
Sterling: Sterling's following investment professionals
have served as portfolio managers to the All Pro
Small Cap Value Portfolio since February 2000:
(1) David M. Ralston: B.S.B.A., Appalachian State
University; joined Sterling in 1991; (2) Brian R.
Walton, CFA: B.S., Indiana University; M.B.A.,
University of NC-Chapel Hill; joined Sterling in
1995; and (3) Eduardo A. Brea, CFA: B.S.
University of Florida; M.B.A., University of
South Florida; joined Sterling in 1995.
</TABLE>
42
<PAGE> 46
GROWTH, AGGRESSIVE GROWTH, MANAGED, BOND AND MONEY MARKET
PORTFOLIOS. Respecting the Growth, Aggressive Growth, Managed, Bond and Money
Market Portfolios, SAC employs a team approach in managing the Portfolios. The
management teams comprise a lead portfolio manager, other portfolio managers and
research analysts. Each team includes members with one or more areas of
expertise and shares the responsibility for providing ideas, information and
knowledge in managing the Portfolios. Rodney A. Buck, Chief Executive Officer of
SAC, is also Chairman and Chief Executive Officer of National Life Investment
Management Company, Inc., and Senior Vice President and Chief Investment Officer
of NLIC. Mr. Buck has been employed by SAC or its affiliates since 1972. There
are three investment management teams: an Equity Value Team, headed by Van
Harissis, Senior Vice President of SAC; an Equity Growth Team, headed by Robert
L. Lee, Senior Vice President of SAC; and a Fixed Income Team, headed by David
M. Brownlee, Senior Vice President of SAC.
Each of Messrs. Buck, Harissis, Lee and Brownlee is a Chartered Financial
Analyst. Messrs. Lee and Brownlee joined SAC in 1993. Mr. Harissis joined SAC in
June 1999.
INTERNATIONAL PORTFOLIO. Sandor Cseh, Senior Vice President and Director of
International of TBC, and D. Kirk Henry, Senior Vice President of TBC, have been
the co-managers for the International Portfolio since 1991. Mr. Cseh has over 23
years experience in investment management. Mr. Henry has over 17 years
experience in investment management.
EQUITY 500 INDEX PORTFOLIO. The Equity 500 Index Portfolio is managed by Anne
Eisenburg, Portfolio Manager and Principal from State Street Global Advisors
using a computer program.
GROWTH PORTFOLIO. The Growth Portfolio is managed by The Equity Value Team led
by Mr. Harissis. Prior to joining SAC, Mr. Harissis was a managing director and
portfolio manager at Phoenix Investment Partners from 1995 to 1999. Previously,
he was a portfolio manager at Howe & Rusling.
AGGRESSIVE GROWTH PORTFOLIO. The Aggressive Growth Portfolio is managed by
Scott T. Brayman, Vice President of SAC, and Mr. Lee. Mr. Brayman and Mr. Lee
have been the lead portfolio managers of the Portfolio since 1997. Mr. Brayman
is a Chartered Financial Analyst, and has been with SAC since 1995. He has been
involved with the Aggressive Growth Portfolio since he joined SAC. Prior to
joining SAC, he was associated with Argyle Capital Management, Inc.
MANAGED PORTFOLIO. The Managed Portfolio is managed by a team consisting of Mr.
Buck, Mr. Harissis, and Mr. Brownlee. Mr. Buck has been the Portfolio's
portfolio manager since 1993.
BOND PORTFOLIO. The Bond Portfolio is managed by Mr. Brownlee and William C.
Kane, Vice President of SAC. Mr. Kane is a Chartered Financial Analyst, and has
been employed by SAC or its affiliates since 1992.
MONEY MARKET PORTFOLIO. The Money Market Portfolio is managed by Darlene
Coppola, Money Market Trader of SAC. Ms. Coppola has been employed by SAC or its
affiliates since 1974.
43
<PAGE> 47
DESCRIPTION OF THE FUND'S SHARES
GENERAL
The Fund issues a separate class of shares of common stock for each Portfolio.
The Fund may establish additional portfolios in the future and additional
classes of shares for the new portfolios.
Based on current federal securities law requirements, the Fund expects that its
insurance company shareholders will offer owners of their variable life
insurance contracts and variable annuity contracts the opportunity to instruct
the shareholders as to how to vote shares allocable to their contracts regarding
certain matters, such as the election of directors and, absent exemptive relief
from the requirements of section 15 of the Investment Company Act of 1940, the
approval of investment advisory agreements. The Fund currently has such section
15 exemptive relief for the All Pro Portfolios and other Portfolios, subject to
certain conditions. Fund shares not attributable to variable life insurance or
annuity contracts, or for which no timely instructions are received by insurance
company shareholders, are voted by each insurance company in the same proportion
as the voting instructions that are received by that company for all contracts
of the company participating in each Portfolio. The voting instructions received
from contract holders may be disregarded in certain circumstances that are
described in the prospectuses for the variable contracts.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each Portfolio (except the Money Market
Portfolio) is normally determined once daily as of the close of regular trading
on the New York Stock Exchange, currently 4:00 p.m. Eastern time, on each day
when the New York Stock Exchange is open for business. The net asset value of
the Money Market Portfolio is normally determined once daily on each day that
both the New York Stock Exchange and the Federal Reserve Bank are open for
business. The New York Stock Exchange and the Federal Reserve Bank each is
scheduled to be open Monday through Friday throughout the year, except for
certain respective federal and other holidays. The net asset value of each
Portfolio is computed by dividing the sum of the value of the Portfolio's
securities, cash, and other assets, minus all liabilities, by the total number
of outstanding shares of the Portfolio.
The value of each Portfolio's securities and assets, except those of the Money
Market Portfolio and certain short-term debt securities held by any of the other
Portfolios, is determined on the basis of their market values. All of the
securities and assets of the Money Market Portfolio and short-term debt
securities having remaining maturities of sixty days or less held by any of the
other Portfolios are valued by the amortized cost method, which approximates
market value. Investments for which market quotations are not readily available
are valued at their fair value as determined in good faith by, or under
authority delegated by, the Fund's board of directors. A Portfolio may invest in
securities primarily listed on foreign exchanges that trade on days when the
Portfolio does not price its shares. Therefore, the net asset value of the
Portfolio's shares may change on days when shareholders may not be able to
redeem Portfolio shares. See "Determination of Net Asset Value" in the SAI.
OFFER, PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund are not available directly to the public. Currently, shares
of the Fund are sold, without sales charge, at each Portfolio's net asset value
per share, only to variable life insurance and variable annuity separate
accounts of Provident Mutual Life Insurance Company ("Provident Mutual") and
Providentmutual Life and Annuity Company of America ("PLACA"); and to variable
life insurance separate accounts of National Life Insurance Company ("NLIC"). In
the future, the Fund may offer shares of one or more of the Portfolios
(including new portfolios that might be added to the Fund) to other separate
accounts of Provident Mutual, PLACA, or NLIC to support variable life insurance
policies or variable annuity contracts, or shares may also be sold to other
insurance company separate accounts to fund
44
<PAGE> 48
variable life insurance policies and variable annuity contracts. The price per
share is based on the next daily calculation of net asset value after an order
is placed.
Shares of the Portfolios are sold in a continuous offering and are authorized to
be offered to insurance company separate accounts to support variable life
insurance contracts and variable annuity contracts. Net premiums or net purchase
payments under the respective contract or contracts are placed in one or more
subaccounts of a separate account, and the assets of each separate account are
invested in the shares of the Portfolio corresponding to that subaccount. A
separate account purchases and redeems shares of the Portfolios for its
subaccounts at net asset value without sales or redemption charges.
On each day that a Portfolio's net asset value is calculated, a separate account
transmits to the Fund any orders to purchase or redeem shares of the
Portfolio(s) based on the premiums, purchase payments, redemption (surrender)
requests, and transfer requests from contract owners, annuitants, and
beneficiaries that have been processed on that day. A separate account purchases
and redeems shares of each Portfolio at the Portfolio's net asset value per
share calculated as of the same day, although these purchases and redemptions
may be executed the next morning. Money received by the Fund from a separate
account for the purchase of shares of the International Portfolio may not be
invested by that Portfolio until the day following the execution of the
purchases.
Please refer to the separate prospectus for each separate account and its
related contract for a more detailed description of the procedures whereby a
contract owner, annuitant, or beneficiary may allocate his or her interest in a
separate account to a subaccount using the shares of one of the Portfolios as an
underlying investment medium.
DIVIDENDS, DISTRIBUTIONS, AND TAXES
The Fund intends that each of the Portfolios will continue to qualify as a
regulated investment company ("RIC") under the Internal Revenue Code of 1986, as
amended (the "Code"), and will meet certain diversification requirements
applicable to mutual funds underlying variable insurance products. For a
discussion regarding what it means to qualify as a RIC and a general discussion
concerning some of the possible tax consequences associated with the operation
of the Fund, please refer to the section entitled "Taxes" in the SAI.
Shares of the Portfolios are offered only to insurance company separate
accounts. Under the Code, no tax is imposed on an insurance company with respect
to income of a qualifying separate account properly allocable to the value of
eligible variable life insurance or variable annuity contracts. Accordingly, no
gain or loss should be recognized on account of ordinary income or capital gains
distributions to the Fund's insurance company shareholders or upon the sale or
redemption of shares of the Portfolios. Please refer to the appropriate tax
disclosure in the respective prospectuses for a separate account and its related
contract for more information on the taxation of life insurance companies,
separate accounts, as well as the tax treatment of variable life insurance and
variable annuity contracts and the holders thereof.
For more information about the tax status of the Fund, see "Taxes" in the SAI.
45
<PAGE> 49
APPENDIX A -- TERMS USED IN THIS PROSPECTUS
ADVISER: Any of the investment advisers and subadvisers to the Portfolios.
- Market Street Investment Management Company ("MSIM") (formerly,
Providentmutual Investment Management Company) serves as investment
adviser to the All Pro Portfolios, the Equity 500 Index Portfolio, and
the International Portfolio.
- The Boston Company Asset Management, Inc. ("TBC") serves as investment
subadviser to the International Portfolio
- State Street Global Advisors ("SSgA") serves as investment subadviser to
the Equity 500 Index Portfolio.
- Several investment subadvisers serve as portfolio managers for the All
Pro Portfolios
- Sentinel Advisors Company ("SAC") serves as investment adviser to the
Growth, Aggressive Growth, Managed, Bond, and Money Market Portfolios
- A non-discretionary investment management consultant, Wilshire Associates
Incorporated ("Wilshire"), assists MSIM in identifying and evaluating
investment subadvisers to the All Pro Portfolios.
EQUITY SECURITIES: Equity securities include common stock, preferred stock,
securities convertible or exchangeable into common stock, including convertible
debt securities, convertible preferred stock and warrants or rights to acquire
common stock.
FOREIGN ISSUERS: (1) Companies organized outside the United States, (2)
companies whose securities are principally traded outside of the United States,
and (3) foreign governments and agencies or instrumentalities of foreign
governments.
INVESTMENT-GRADE SECURITIES: Securities rated, at the time of purchase,
"investment grade" by a nationally-recognized statistical rating organization
("Rating Agency") (e.g. Baa3 or higher by Moody's Investors Service ("Moody's")
or BBB- or higher by Standard & Poor's ("S&P")) or unrated securities that the
Adviser or a subadviser determines to be of comparable quality. (See Appendix A
to the statement of additional information for an explanation of ratings.)
NON-DOLLAR SECURITIES: Securities denominated or quoted in a foreign currency.
PRIMARILY: Where the description of a Portfolio indicates that it invests
primarily in certain types of securities, this means that, under normal
circumstances, it invests at least 65% of its total assets in such securities.
SAI: The Fund's statement of additional information, or SAI, contains
additional information about the Fund and the Portfolios and has been filed with
the Securities and Exchange Commission. Investors may obtain a free copy of the
SAI by contacting the Fund at the toll-free number or address shown on the back
cover page of this prospectus.
A-1
<PAGE> 50
APPENDIX B -- FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand each
Portfolio's (except the Equity 500 Index and All Pro Portfolios) financial
performance for the past 5 years and for each All Pro Portfolio's financial
performance for the periods presented since commencement of operations in 1998.
Certain information reflects financial results for a single Portfolio share. The
total returns in the table represent the rate that an investor would have earned
on an investment in the Fund (assuming reinvestment of all dividends and
distributions). Information for each fiscal period has been audited by
PricewaterhouseCoopers LLP, independent accountants. The accountants' report,
along with the Fund's financial statements, are attached to the SAI, which is
available upon request.
<TABLE>
<CAPTION>
ALL PRO LARGE CAP
GROWTH PORTFOLIO
(FOR THE PERIOD ENDED)
----------------------------
01/01/99 05/04/98(a)
TO TO
12/31/99 12/31/98
------------- -----------
<S> <C> <C>
Net asset value, beginning of period........................ $ 11.77 $ 10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................................... (.01) .00
Net realized and unrealized gain (loss) on investments.... 3.01 1.77
------- -------
Total from investment operations....................... 3.00 1.77
------- -------
LESS DISTRIBUTIONS:
Dividends to shareholders from net investment income...... (.00) (.00)
Dividends to shareholders from net capital gains.......... (.00) (.00)
------- -------
Total distributions.................................... (.00) (.00)
------- -------
Net asset value, end of period.............................. $ 14.77 $ 11.77
======= =======
Total return(b)........................................ 25.52% 17.70%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $(000).......................... 37,961 14,307
Ratios of expenses to average net assets(c)(annualized)... .89% .90%
Ratios of net investment income to average net assets
(annualized)........................................... (.09)% .04%
Portfolio turnover........................................ 83% 64%
</TABLE>
- -------------------------
(a) Commencement of operations.
(b) Total returns for periods less than one year are not annualized.
(c) Expense ratio before reimbursement of expenses by affiliated insurance
company for the year ended December 31, 1999 and the period ended December
31, 1998 were 0.89% and 0.92% (annualized), respectively.
B-1
<PAGE> 51
FINANCIAL HIGHLIGHTS -- CONTINUED
<TABLE>
<CAPTION>
ALL PRO LARGE CAP
VALUE PORTFOLIO
(FOR THE PERIODS ENDED)
----------------------------
01/01/99 05/04/98(a)
TO TO
12/31/99 12/31/98
------------- -----------
<S> <C> <C>
Net asset value, beginning of period........................ $ 9.90 $ 10.00
------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................................... .09 .07
Net realized and unrealized gain (loss) on investments.... .06 (.17)
------- -------
Total from investment operations....................... .15 (.10)
------- -------
LESS DISTRIBUTIONS:
Dividends to shareholders from net investment income...... (.07) (.00)
Dividends to shareholders from net capital gains.......... (.00) (.00)
------- -------
Total distributions.................................... (.07) (.00)
------- -------
Net asset value, end of period.............................. $ 9.98 $ 9.90
======= =======
Total return(b)........................................ 1.49% (1.00)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $(000).......................... 24,319 15,616
Ratios of expenses to average net assets(c)(annualized)... .91% .95%
Ratios of net investment income to average net assets
(annualized)........................................... 1.07% 1.31%
Portfolio turnover........................................ 64% 39%
</TABLE>
- -------------------------
(a) Commencement of operations.
(b) Total returns for periods less than one year are not annualized.
(c) Expense ratio before reimbursement of expenses by affiliated insurance
company for the year ended December 31, 1999 and the period ended December
31, 1998 were 0.91% and 0.97% (annualized), respectively.
B-2
<PAGE> 52
FINANCIAL HIGHLIGHTS -- CONTINUED
<TABLE>
<CAPTION>
ALL PRO SMALL CAP
GROWTH PORTFOLIO
(FOR THE PERIODS ENDED)
----------------------------
01/01/99 05/04/98(a)
TO TO
12/31/99 12/31/98
------------- -----------
<S> <C> <C>
Net asset value, beginning of period........................ $ 9.80 $10.00
------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................................... (.04) (.01)
Net realized and unrealized gain (loss) on investments.... 9.07 (.19)
------- ------
Total from investment operations....................... 9.03 (.20)
------- ------
LESS DISTRIBUTIONS:
Dividends to shareholders from net investment income...... (.00) (.00)
Dividends to shareholders from net capital gains.......... (.00) (.00)
------- ------
Total distributions.................................... (.00) (.00)
------- ------
Net asset value, end of period.............................. $ 18.83 $ 9.80
======= ======
Total return(b)........................................ 92.14% (2.00)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $(000).......................... 45,200 9,685
Ratios of expenses to average net assets(c)
(annualized)........................................... 1.11% 1.24%
Ratios of net investment income to average net assets
(annualized)........................................... (.57)% (.14)%
Portfolio turnover........................................ 114% 82%
</TABLE>
- -------------------------
(a) Commencement of operations.
(b) Total returns for periods less than one year are not annualized.
(c) Expense ratio before reimbursement of expenses by affiliated insurance
company for the year ended December 31, 1999 and the period ended December
31, 1998 were 1.11% and 1.25% (annualized), respectively.
B-3
<PAGE> 53
FINANCIAL HIGHLIGHTS -- CONTINUED
<TABLE>
<CAPTION>
ALL PRO SMALL CAP
VALUE PORTFOLIO
(FOR THE PERIODS ENDED)
----------------------------
01/01/99 05/04/98(a)
TO TO
12/31/99 12/31/98
------------- -----------
<S> <C> <C>
Net asset value, beginning of period........................ $ 8.25 $10.00
------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income..................................... .02 .02
Net realized and unrealized gain (loss) on investments.... (.68) (1.77)
------- ------
Total from investment operations....................... (.66) (1.75)
------- ------
LESS DISTRIBUTIONS:
Dividends to shareholders from net investment income...... (.02) (.00)
Dividends to shareholders from net capital gains.......... (.00) (.00)
------- ------
Total distributions.................................... (.02) (.00)
------- ------
Net asset value, end of period.............................. $ 7.57 $ 8.25
======= ======
Total return(b)........................................ (8.05)% (17.50)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $(000).......................... 11,300 8,073
Ratios of expenses to average net assets(c)(annualized)... 1.20% 1.28%
Ratios of net investment income to average net assets
(annualized)........................................... .39% .48%
Portfolio turnover........................................ 114% 38%
</TABLE>
- -------------------------
(a) Commencement of operations.
(b) Total returns for periods less than one year are not annualized.
(c) Expense ratio before reimbursement of expenses by affiliated insurance
company for the year ended December 31, 1999 and the period ended December
31, 1998 were 1.21% and 1.36% (annualized), respectively.
B-4
<PAGE> 54
FINANCIAL HIGHLIGHTS -- CONTINUED
<TABLE>
<CAPTION>
INTERNATIONAL PORTFOLIO
(FOR YEAR ENDED)
----------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $13.85 $13.61 $13.41 $12.86 $11.63
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................. .19 .15 .11 .11 .16
Net realized and unrealized gain
(loss) on investments.............. 3.61 1.14 1.08 1.23 1.45
------ ------ ------ ------ ------
Total from investment
operations....................... 3.80 1.29 1.19 1.34 1.61
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends to shareholders from net
investment income.................. (.16) (.10) (.11) (.16) (.07)
Dividends to shareholders from net
capital gains...................... (.81) (.95) (.88) (.63) (.31)
------ ------ ------ ------ ------
Total distributions................ (.97) (1.05) (.99) (.79) (.38)
------ ------ ------ ------ ------
Net asset value, end of period.......... $16.68 $13.85 $13.61 $13.41 $12.86
====== ====== ====== ====== ======
Total return....................... 29.33% 10.13% 9.66% 10.89% 14.31%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $(000)...... 88,796 71,363 62,513 50,955 36,642
Ratios of expenses to average net
assets (annualized)(a)............. .98% 1.00% 1.02% 1.05% 1.15%
Ratios of net investment income to
average net assets (annualized).... 1.32% 1.18% 1.13% 1.08% 1.21%
Portfolio turnover.................... 41% 37% 37% 35% 45%
</TABLE>
- -------------------------
(a) Expense ratios before reimbursement of expenses by affiliated insurance
company and fee waivers by the administrator for the years ended December
31, 1999, 1998, 1997, 1996 and 1995 were as follows: 0.98%, 1.00%, 1.02%,
1.05% and 1.15%, respectively.
B-5
<PAGE> 55
FINANCIAL HIGHLIGHTS -- CONTINUED
<TABLE>
<CAPTION>
GROWTH PORTFOLIO
(FOR YEAR ENDED)
--------------------------------------------------------
1999 1998 1997(a) 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period........................... $ 18.82 $ 19.46 $ 18.10 $ 16.36 $ 14.00
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............ .27 .27 .35 .46 .47
Net realized and unrealized gain
(loss) on investments......... .28 1.97 3.49 2.54 3.41
-------- -------- -------- -------- --------
Total from investment
operations.................. .55 2.24 3.84 3.00 3.88
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends to shareholders from
net investment income......... (.06) (.29) (.38) (.48) (.46)
Dividends to shareholders from
net capital gains............. (.37) (2.59) (2.10) (.78) (1.06)
-------- -------- -------- -------- --------
Total distributions........... (.43) (2.88) (2.48) (1.26) (1.52)
-------- -------- -------- -------- --------
Net asset value, end of period..... $ 18.94 $ 18.82 $ 19.46 $ 18.10 $ 16.36
======== ======== ======== ======== ========
Total Return.................. 2.98% 13.70% 24.32% 19.58% 30.39%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
$(000)........................ 302,262 315,299 267,389 198,948 161,899
Ratios of expenses to average net
assets (annualized)(b)........ .48% .46% .43% .50% .61%
Ratios of net investment income
to average net assets
(annualized).................. 1.35% 1.53% 2.01% 2.80% 3.20%
Portfolio turnover rate.......... 46% 30% 108% 72% 61%
</TABLE>
- -------------------------
(a) On May 1, 1997, the investment adviser was changed from Newbold's Asset
Management, Inc. to Sentinel Advisors Company.
(b) Expense ratios before reimbursement of expenses by affiliated insurance
company for the years ended December 31, 1999, 1998, 1997, 1996 and 1995
were as follows: 0.48%, 0.47%, 0.43%, 0.50% and 0.61%, respectively.
B-6
<PAGE> 56
FINANCIAL HIGHLIGHTS -- CONTINUED
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH PORTFOLIO
(FOR YEAR ENDED)
------------------------------------------------------
1999 1998 1997 1996 1995
------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period.............................. $21.91 $ 22.19 $ 18.52 $ 17.38 $ 15.45
------ ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............... .11 .11 .17 .17 .20
Net realized and unrealized gain
(loss) on investments............ 2.89 1.50 3.72 3.03 1.86
------ ------- ------- ------- -------
Total from investment
operations..................... 3.00 1.61 3.89 3.20 2.06
------ ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends to shareholders from net
investment income................ (.11) (.18) (.18) (.19) (.00)
Dividends to shareholders from net
capital gains.................... (2.83) (1.71) (.04) (1.87) (.13)
------ ------- ------- ------- -------
Total distributions.............. (2.94) (1.89) (.22) (2.06) (.13)
------ ------- ------- ------- -------
Net asset value, end of period........ $21.97 $ 21.91 $ 22.19 $ 18.52 $ 17.38
====== ======= ======= ======= =======
Total return..................... 15.96% 7.99% 21.21% 21.00% 13.48%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $(000).... 62,513 56,495 48,574 34,098 23,822
Ratios of expenses to average net
assets (annualized)(a)........... .57% .61% .63% .68% .76%
Ratios of net investment income to
average net assets
(annualized)..................... .59% .56% .95% 1.14% 1.32%
Portfolio turnover.................. 46% 41% 37% 47% 89%
</TABLE>
- -------------------------
(a) Expense ratios before reimbursement of expenses by affiliated insurance
company and fee waivers by the administrator for the years ended December
31, 1999, 1998, 1997, 1996 and 1995 were as follows: 0.57%, 0.62%, 0.63%,
0.68% and 0.76%, respectively.
B-7
<PAGE> 57
FINANCIAL HIGHLIGHTS -- CONTINUED
<TABLE>
<CAPTION>
MANAGED PORTFOLIO
(FOR YEAR ENDED)
-----------------------------------------------------
1999 1998 1997 1996 1995
------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period........................... $17.68 $ 17.06 $ 14.68 $ 14.19 $ 11.94
------ ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............ .54 .54 .54 .51 .55
Net realized and unrealized gain
(loss) on investments......... (.41) 1.45 2.49 1.07 2.28
------ ------- ------- ------- -------
Total from investment
operations.................. .13 1.99 3.03 1.58 2.83
------ ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends to shareholders from
net investment income......... (.13) (.55) (.53) (.51) (.57)
Dividends to shareholders from
net capital gains............. (.89) (.82) (.12) (.58) (.01)
------ ------- ------- ------- -------
Total distributions........... (1.02) (1.37) (.65) (1.09) (.58)
------ ------- ------- ------- -------
Net asset value, end of period..... $16.79 $ 17.68 $ 17.06 $ 14.68 $ 14.19
====== ======= ======= ======= =======
Total return.................. 0.75% 12.54% 21.23% 11.88% 24.43%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
$(000)........................ 73,986 67,805 56,068 43,431 36,002
Ratios of expenses to average net
assets (annualized)(a)........ .57% .57% .58% .60% .66%
Ratios of net investment income
to average net assets
(annualized).................. 3.25% 3.22% 3.47% 3.68% 4.22%
Portfolio turnover rate.......... 156% 203% 99% 106% 130%
</TABLE>
- -------------------------
(a) Expense ratios before reimbursement of expenses by affiliated insurance
company for the years ended December 31, 1999, 1998, 1997, 1996 and 1995
were as follows: 0.57%, 0.58%, 0.58%, 0.60% and 0.66%, respectively.
B-8
<PAGE> 58
FINANCIAL HIGHLIGHTS -- CONTINUED
<TABLE>
<CAPTION>
BOND PORTFOLIO
(FOR YEAR ENDED)
-------------------------------------------------------
1999 1998 1997 1996 1995
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period........................... $ 11.22 $10.98 $10.67 $11.00 $ 9.73
------- ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............ .62 .63 .64 .63 .65
Net realized and unrealized gain
(loss) on investments......... (.99) .25 .33 (.34) 1.27
------- ------ ------ ------ ------
Total from investment
operations............... (.37) .88 .97 .29 1.92
------- ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends to shareholders from
net investment income......... (.15) (.64) (.66) (.62) (.65)
Dividends to shareholders from
net capital gains............. (.12) (.00) (.00) (.00) (.00)
------- ------ ------ ------ ------
Total distributions......... (.27) (.64) (.66) (.62) (.65)
------- ------ ------ ------ ------
Net asset value, end of period..... $ 10.58 $11.22 $10.98 $10.67 $11.00
======= ====== ====== ====== ======
Total return................ (3.31)% 8.22% 9.50% 2.86% 20.45%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
$(000)........................ 38,182 36,846 23,350 17,087 14,402
Ratios of expenses to average net
assets (annualized)(a)........ .52% .53% .57% 56% .60%
Ratios of net investment income
to average net assets
(annualized).................. 6.19% 6.03% 6.24% 6.08% 6.36%
Portfolio turnover rate.......... 202% 163% 105% 133% 206%
</TABLE>
- -------------------------
(a) Expense ratios before reimbursement of expenses by affiliated insurance
company for the years ended December 31, 1999, 1998, 1997, 1996 and 1995
were as follows 0.52%, 0.55%, 0.57%, 0.56% and 0.60%, respectively.
B-9
<PAGE> 59
FINANCIAL HIGHLIGHTS -- CONTINUED
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
(FOR YEAR ENDED)
---------------------------------------------
1999 1998 1997 1996(a) 1995
-------- ------ ------ ------- ------
<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......................... .05 .05 .05 .05 .05
-------- ------ ------ ------ ------
Total from investment
operations............................... .05 .05 .05 .05 .05
-------- ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends to shareholders from net investment
income..................................... (.05) (.05) (.05) (.05) (.05)
-------- ------ ------ ------ ------
Total Distributions........................ (.05) (.05) (.05) (.05) (.05)
-------- ------ ------ ------ ------
Net asset value, end of period.................. $1.00 $1.00 $1.00 $1.00 $1.00
======== ====== ====== ====== ======
Total return............................... 4.91% 5.29% 5.33% 5.15% 5.61%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $(000).............. 116,887 91,453 64,339 54,197 34,165
Ratios of expenses to average net assets
(annualized)(b)............................ 0.40% .40% .39% .44% .50%
Ratios of net investment income to average net
assets (annualized)........................ 4.81% 5.15% 5.21% 5.03% 5.47%
</TABLE>
- -------------------------
(a) On May 1, 1996 the investment adviser was changed from Providentmutual
Investment Management Company to Sentinel Advisors Company.
(b) Expense ratios before reimbursement of expenses by affiliated insurance
company for the years ended December 31, 1999, 1998, 1997, 1996 and 1995
were as follows: 0.40%, 0.42%, 0.39%, 0.44%, and 0.50% respectively.
B-10
<PAGE> 60
APPENDIX C -- PLAN OF REORGANIZATION
On April 24, 2000, the Fund's Board of Directors approved a Plan of
Reorganization, Redomestication and Pro-Rata Distribution pursuant to which the
Fund, a Maryland corporation, will reorganize into a Delaware business trust.
The Board reviewed materials concerning the proposed reorganization and
concluded that the reorganization would be beneficial to the Fund in that it
would allow the surviving entity to, among other things, take advantage of
provisions of Delaware law that are favorable to mutual funds. There will be no
change in the investment objective, investment policies, fees or investment
advisers of each Portfolio of the Fund as a result of the reorganization. The
successor entity will continue to be an investment company registered under the
Investment Company Act of 1940. The reorganization is subject to approval by
Fund shareholders. Shareholders will receive a proxy statement soliciting their
approval. The proxy statement will describe in greater detail various aspects of
the reorganization and the Board's reasons for recommending its approval. The
reorganization is also dependent on receipt of an exemptive order from the
Securities and Exchange Commission (the "SEC") approving certain transactions
that will occur as part of the reorganization. There is no assurance when or if
the SEC will issue the necessary exemptive order.
On April 20, 2000, National Life Insurance Company, on its own and on behalf of
its variable annuity and variable life insurance separate accounts that are the
record owners of shares of certain Fund portfolios, filed a "substitution"
exemptive application with the SEC seeking an exemptive order which would permit
NLIC to redeem the Fund shares currently held by its separate accounts and
reinvest the proceeds in shares of other investment companies. As of March 31,
2000, NLIC separate accounts represented the following percentage of the
affected Portfolios:
<TABLE>
<CAPTION>
APPROXIMATE PERCENT
REPRESENTED BY NLIC TOTAL PORTFOLIO
PORTFOLIOS SEPARATE ACCOUNTS ASSETS
---------- ------------------- ---------------
<S> <C> <C>
International 6.76% $ 85,758,773
Growth 4.43% $287,792,731
Aggressive Growth 5.60% $ 70,334,092
Managed 9.28% $ 70,771,653
Bond 14.08% $ 36,770,055
Money Market 8.00% $105,695,893
</TABLE>
Assuming the SEC exemptive order is issued permitting the substitution,
contemporaneous with the substitution, it is currently anticipated that SAC(1)
will resign as the investment adviser to the Fund's Growth, Aggressive Growth,
Bond, Managed and Money Market Portfolios. The Fund's Board of Directors is
considering what steps it will take to ensure that these portfolios thereafter
receive high quality investment advisory and management services. Among the
options it is considering is relying on an SEC exemptive rule and retaining new
investment advisers for a period of not more than 150 days. During the 150 day
period, the Board will solicit the statutorily required shareholder approval of
new investment advisory agreements with the investment advisers the Board
selects. During this interim period, the investment advisory fees will not
exceed those the Portfolios are currently paying and there will be no change in
the investment objectives and policies of the Portfolios.
It is currently anticipated that MSIM will propose that the Fund's Board approve
MSIM, in place of SAC, as investment adviser to the Fund's Growth, Aggressive
Growth, Bond, Managed and Money Market Portfolios. The result could be that one
or more of these Portfolios would be managed using the "manager-of-managers"
approach, retaining "specialist" investment subadvisers, and involving
compensation levels, in the general manner described for other Portfolios under
"Management."
- ---------------
(1) SAC's officers and investment personnel are all employees of NLIC or its
affiliates. SAC is located at NLIC's premises in Montpelier, Vermont.
C-1
<PAGE> 61
ADDITIONAL INFORMATION ABOUT THE FUND
ANNUAL/SEMI-ANNUAL REPORTS TO SHAREHOLDERS:
Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders. In the Fund's annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION ("SAI"):
The SAI, which contains additional information about the Fund, has been filed
with the SEC and is incorporated herein by reference. Information about the Fund
(including the SAI) can be reviewed and copied at the SEC's Public Reference
Room in Washington, D.C. Information on the operation of the Public Reference
Room may be obtained by calling the SEC at 1-800-SEC-0330. Reports and other
information about the Fund are available on the SEC's Internet site at
http://www.sec.gov, and copies of this information may be obtained, upon payment
of a duplicating fee, by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-6009.
A free copy of the Fund's SAI and annual and semi-annual reports may be obtained
and further inquiries can be made by calling the Fund at 1-800-688-5177 or by
writing to the Fund at 103 Bellevue Parkway, Wilmington, Delaware 19809.
Investment Company Act File No.: 811-4350
<PAGE> 62
MARKET STREET FUND, INC.
PROSPECTUS
May 1, 2000
[ ] The Money Market Portfolio
[ ] The Growth Portfolio
[ ] The Bond Portfolio
[ ] The Managed Portfolio
[ ] The Aggressive Growth Portfolio
[ ] The Sentinel Growth Portfolio
[ ] The International Portfolio
This prospectus provides essential information about these portfolios. For your
benefit and protection, please read it and keep it for future reference.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED SHARES OF
THE FUND OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 63
TABLE OF CONTENTS
<TABLE>
<S> <C>
OVERVIEW.................................................... 2
ABOUT THE PORTFOLIOS........................................ 4
The Money Market Portfolio................................ 4
The Growth Portfolio...................................... 6
The Bond Portfolio........................................ 8
The Managed Portfolio..................................... 10
The Aggressive Growth Portfolio........................... 12
The Sentinel Growth Portfolio............................. 14
The International Portfolio............................... 16
RISKS OF INVESTING IN THE PORTFOLIOS........................ 18
INVESTMENT TECHNIQUES....................................... 21
MANAGEMENT.................................................. 26
DESCRIPTION OF THE FUND'S SHARES............................ 28
ADDITIONAL INFORMATION ABOUT THE FUND....................... back cover
APPENDIX A -- TERMS USED IN THIS PROSPECTUS................. A-1
APPENDIX B -- FINANCIAL HIGHLIGHTS.......................... B-1
</TABLE>
<PAGE> 64
OVERVIEW
This prospectus describes seven Portfolios offered by the Fund. Each is a
separate investment portfolio with its own investment objective or objectives,
policies, restrictions and risks. An investor should consider each Portfolio
separately to determine if it is an appropriate investment. There is no
assurance that a Portfolio will achieve its investment objective or objectives,
and investors should not consider any one Portfolio alone to be a complete
investment program. As with all mutual funds, there is a risk that an investor
could lose money by investing in a Portfolio.
The different types of securities, investments, and investment techniques used
by each Portfolio all have attendant risks of varying degrees. For example, with
respect to equity securities, there can be no assurance of capital appreciation.
Moreover, an investment in any stock is subject to the risk that the stock
market as a whole may decline, thereby depressing the stock's price (market
risk), or the risk that the price of a particular issuer's stock may decline due
to its financial results (financial risk). With respect to debt securities,
there exists the risk that the issuer of a security may not be able to meet its
obligations on interest or principal payments at the time required by the
instrument (credit risk, a type of financial risk). In addition, the value of
debt and other income bearing securities generally rises and falls inversely
with prevailing current interest rates (interest rate risk, a type of market
risk). As described below, an investment in certain of the Portfolios entails
special additional risks as a result of their ability to invest a substantial
portion of their assets in foreign investments or securities of issuers in new
or emerging industries. See "Risks of Investing in the Portfolios," below.
The following chart provides a brief outline of the relative principal
characteristics of each Portfolio:
MARKET STREET FUND, INC.
<TABLE>
<CAPTION>
GROWTH SHORT-TERM
NAME OF PORTFOLIO POTENTIAL INCOME POTENTIAL RISK TYPICAL INVESTMENTS
- --------------------- ------------- ---------------- ------------- -------------------
<S> <C> <C> <C> <C>
Money Market......... None Low-Moderate Low Money Market
Instruments
Growth............... High Moderate Moderate Equity Securities
of U.S. Companies
Bond................. Moderate Moderate Moderate Income Bearing Debt
Securities
Managed.............. Moderate-High Moderate Moderate-High Permissible
Investments for
Other Portfolios
Aggressive Growth.... High Low High Equity Securities
of U.S. Companies
Sentinel Growth...... High Moderate Moderate Equity Securities
of U.S. Companies
International........ High Low High Securities of
Foreign Issuers
</TABLE>
The investment objective or objectives of each Portfolio are fundamental and may
not be changed unless authorized by the vote of a majority of the outstanding
voting shares of the Portfolio. The investment policies of each Portfolio are
not fundamental and may be changed by the Fund's board of directors without
shareholder approval, unless otherwise stated in this Prospectus or the
statement of additional information.
2
<PAGE> 65
Notwithstanding their investment objective(s), each Portfolio may, in unusual
market conditions, for temporary defensive purposes, invest all or part of their
assets in cash and/or money market instruments of the type in which the Money
Market Portfolio may invest. To the extent that a Portfolio adopts a temporary
defensive position, it may not achieve its investment objective.
SHARES OF THE FUND AND THE PORTFOLIOS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION, AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. THE MONEY
MARKET PORTFOLIO SEEKS TO PRESERVE THE VALUE OF AN INVESTMENT AT $1.00 PER
SHARE, BUT IT IS POSSIBLE, ALTHOUGH UNLIKELY, THAT THE PORTFOLIO MAY NOT BE ABLE
TO DO SO. AN INVESTMENT IN THE FUND AND THE PORTFOLIOS IS SUBJECT TO INVESTMENT
RISKS, INCLUDING POSSIBLE LOSS OF MONEY INVESTED.
Shares of the Portfolios are only available through the purchase of certain
variable annuity and variable life insurance contracts (the "variable
contracts") issued by various life insurance companies, some of which may be
affiliated persons of the Portfolios. This prospectus should be read in
conjunction with the separate prospectus for each separate account and its
related policy and retained for future reference.
See "Appendix A -- Terms Used in This Prospectus" for more information about
some of the terms we use in this prospectus.
3
<PAGE> 66
ABOUT THE PORTFOLIOS
[ ] THE MONEY MARKET PORTFOLIO
INVESTMENT OBJECTIVE
Maximum current income consistent with capital preservation and liquidity.
PRIMARY INVESTMENT STRATEGIES
The Money Market Portfolio invests exclusively in U.S. dollar-denominated money
market instruments that present minimal credit risks. These include U.S.
government securities, bank obligations, repurchase agreements, commercial
paper, and other corporate debt obligations. See Appendix A to the SAI for a
complete discussion of the money market instruments in which the Portfolio may
invest.
All of the Money Market Portfolio's money market instruments mature in 13 months
or less. The average maturity of these securities, based on their weighted
dollar value, does not exceed 90 days. The Portfolio intends to maintain a
stable value of $1.00 per share. All of the Portfolio's assets are rated in the
two highest short-term categories (or their unrated equivalents) by an NRSRO,
and 95% of its assets are rated in the highest category (or its unrated
equivalent) by an NRSRO. A more detailed description of the rating categories is
contained in the SAI.
PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIO
While the Money Market Portfolio only invests in high quality money market
instruments, these investments are not entirely without risk. High quality money
market instruments generally do not yield as high a level of income as
longer-term or lower-grade securities. In addition, the yield of the Portfolio
will vary with changes in interest rates. There is a remote possibility that the
Portfolio's share value could fall below $1.00, which could reduce the value of
an investment in the Portfolio.
To the extent that it invests in certain securities, the Money Market Portfolio
may be affected by additional risks relating to REPURCHASE AGREEMENTS (credit
risk) and WHEN-ISSUED SECURITIES (market, opportunity, and leverage risks).
However, these risks are lessened by the high quality of the securities in which
the Portfolio invests.
These risks are described in more detail later in this Prospectus. SHARES OF THE
PORTFOLIO ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY
FINANCIAL INSTITUTION, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY. Investors should carefully read
"Risks of Investing in the Portfolios" and "Investment Techniques" below before
investing in this Portfolio.
4
<PAGE> 67
THE PORTFOLIO PERFORMANCE
The bar chart and table shown below provide an indication of the risks of
investing in the Money Market Portfolio by showing changes in the Portfolio's
performance from year to year over a 10-year period and by showing the
Portfolio's average annual returns for one, five, and ten years. How the
Portfolio has performed in the past is not necessarily an indication of how the
Portfolio will perform in the future.
[MARKET STREET FUND]
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
----------------------
<S> <C>
1990 8.00
1991 5.69
1992 3.18
1993 2.59
1994 3.81
1995 5.61
1996 5.15
1997 5.33
1998 5.29
1999 4.91
</TABLE>
During the 10-year period shown in the bar chart, the highest return for a
quarter was 1.97% (quarter ended June 30, 1990) and the lowest return for a
quarter was 0.62% (quarter ended June 30, 1993). The Portfolio's seven day yield
was 5.53% as of December 31, 1999.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDED DECEMBER 31, 1999) PAST ONE YEAR PAST 5 YEARS PAST 10 YEARS
----------------------------------------- ------------- ------------ -------------
<S> <C> <C> <C>
Money Market Portfolio......................... 4.91% 5.26% 4.95%
Salomon Smith Barney 3-Month Treasury Index.... 4.74% 5.21% 5.06%
</TABLE>
The performance information presented does not include the fees and charges
associated with the variable contracts, and returns would have been lower if
those fees and charges were included.
5
<PAGE> 68
[ ] THE GROWTH PORTFOLIO
INVESTMENT OBJECTIVES
Intermediate and long-term growth of capital. A reasonable level of income is an
important secondary objective.
PRIMARY INVESTMENT STRATEGIES
The Growth Portfolio invests primarily in common stocks of companies that the
Adviser believes offer above-average intermediate and long-term growth
potential. The Portfolio purchases securities only of companies that have:
- A minimum level of sales/revenue of $50 million per year in at least one
recent year
- Profitable operations (i.e., have some net income before non-recurring
gains or losses)
Generally, the Portfolio holds common stocks listed on national securities
exchanges, but it can hold up to 20% of its total assets in stocks only traded
over-the-counter. The Portfolio also may invest in other equity securities and
nonconvertible debt obligations. Often, the Adviser follows a VALUE ORIENTED
investment strategy.
PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIO
The Growth Portfolio is subject to MARKET RISK and FINANCIAL RISK. For equity
securities, market risk is the risk that the stock market as a whole may
decline, depressing the price of securities in which the Portfolio invests. For
equity securities, financial risk is the risk that the price of a particular
issuer's stock may decline because of its financial results.
In addition to these general risks, the Growth Portfolio may be subject to
greater volatility over short periods of time because of its intermediate and
long-term focus. Certain of its investments may rise or fall based on investor
perception and attitude rather than economic valuations.
These risks, and the risks associated with other higher-risk securities and
practices that the Portfolio may utilize, are described in more detail later in
this Prospectus. Investors should carefully read "Risks of Investing in the
Portfolios" and "Investment Techniques" below before investing in this
Portfolio.
6
<PAGE> 69
THE PORTFOLIO PERFORMANCE
The bar chart and table shown below provide an indication of the risks of
investing in the Growth Portfolio by showing changes in the Portfolio's
performance from year to year over a 10-year period and by showing how the
Portfolio's average annual returns for one, five, and ten years compare to those
of the S&P 500 Composite Stock Price Index (the "S&P 500 Index"). How the
Portfolio has performed in the past is not necessarily an indication of how the
Portfolio will perform in the future.
[GROWTH PORTFOLIO]
<TABLE>
<CAPTION>
GROWTH PORTFOLIO
----------------
<S> <C>
1990 2.39
1991 18.50
1992 4.74
1993 10.21
1994 2.40
1995 30.39
1996 19.58
1997 24.32
1998 13.70
1999 2.98
</TABLE>
During the 10-year period shown in the bar chart, the highest return for a
quarter was 18.73% (quarter ended March 31, 1991) and the lowest return for a
quarter was -11.73% (quarter ended September 30, 1998).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDED DECEMBER 31, 1999) PAST ONE YEAR PAST 5 YEARS PAST 10 YEARS
----------------------------------------- ------------- ------------ -------------
<S> <C> <C> <C>
Growth Portfolio............................... 2.98% 17.81% 12.53%
S&P 500 Index.................................. 21.06% 28.58% 18.18%
</TABLE>
The S&P 500 Index is a widely recognized, unmanaged index of 500 U.S. common
stocks.
The performance information presented does not include the fees and charges
associated with the variable contracts, and returns would have been lower if
those fees and charges were included.
7
<PAGE> 70
[ ] THE BOND PORTFOLIO
INVESTMENT OBJECTIVE
A high level of current income consistent with prudent investment risk.
PRIMARY INVESTMENT STRATEGIES
The Bond Portfolio invests in a diversified portfolio of marketable debt
securities of U.S. and foreign issuers. At least 75% of the value of the Bond
Portfolio's total investment in corporate debt securities (other than commercial
paper) consists of investment-grade securities, and the remaining 25% may be
invested in such securities rated one category below investment grade.
Securities of foreign issuers are purchased only if they are investment grade,
denominated in U.S. dollars, and pay any income in U.S. dollars.
The Bond Portfolio may purchase securities that carry certain equity features
such as conversion or exchange rights or warrants for the acquisition of stock
(of the same or of a different issuer) or participations based on revenues,
sales or profits.
PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIO
The Bond Portfolio is subject to MARKET RISK, CREDIT RISK and INTEREST RATE
RISK. To the extent that it invests in certain securities, the Bond Portfolio
may assume additional risks relating to LOWER QUALITY DEBT INSTRUMENTS,
SHORT-TERM TRADING and SECURITIES OF FOREIGN ISSUERS. Lower quality debt
instruments are subject to above-average interest rate risk and credit risk,
tend to have a higher default rate, and are speculative with only an adequate
capacity to repay principal and interest. Short-term trading may result in
higher turnover and transaction expenses for the Portfolio. Securities of
foreign issuers entail risks not associated with domestic securities. For
example, foreign issuers often are subject to securities laws, and accounting
and reporting practices, less stringent than those in the U.S., and they may be
adversely impacted by political or economic instability or changes in currency
exchange rates.
These risks, and the risks associated with other higher-risk securities and
practices that the Portfolio may utilize, are described in more detail later in
this Prospectus. Investors should carefully read "Risks of Investing in the
Portfolios" and "Investment Techniques" below before investing in this
Portfolio.
8
<PAGE> 71
THE PORTFOLIO PERFORMANCE
The bar chart and table shown below provide an indication of the risks of
investing in the Bond Portfolio by showing changes in the Portfolio's
performance from year to year over a 10-year period and by showing how the
Portfolio's average annual returns for one, five, and ten years compare to those
of the Lehman Aggregate Bond Index. How the Portfolio has performed in the past
is not necessarily an indication of how the Portfolio will perform in the
future.
[BOND PORTFOLIO]
<TABLE>
<S> <C>
Bond Portfolio
1990 7.70
1991 13.93
1992 5.95
1993 10.32
1994 -5.62
1995 20.45
1996 2.86
1997 9.50
1998 8.22
1999 -3.31
</TABLE>
During the 10-year period shown in the bar chart, the highest return for a
quarter was 7.32% (quarter ended June 30, 1995) and the lowest return for a
quarter was -4.18% (quarter ended March 31, 1994).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDED DECEMBER 31, 1999) PAST ONE YEAR PAST 5 YEARS PAST 10 YEARS
----------------------------------------- ------------- ------------ -------------
<S> <C> <C> <C>
Bond Portfolio................................. -3.31% 7.26% 6.75%
Lehman Aggregate Bond Index.................... -0.82% 7.74% 7.86%
</TABLE>
The Lehman Aggregate Bond Index is a widely recognized, unmanaged index of bonds
reflecting average prices in the bond market.
The performance information presented does not include the fees and charges
associated with the variable contracts, and returns would have been lower if
those fees and charges were included.
9
<PAGE> 72
[ ] THE MANAGED PORTFOLIO
INVESTMENT OBJECTIVE
As high a level of long-term total rate of return as is consistent with prudent
investment risk.
PRIMARY INVESTMENT STRATEGIES
The Managed Portfolio invests in securities that are permissible investments of
the Money Market, Growth, Bond, Aggressive Growth, Sentinel Growth and
International Portfolios. The Adviser may invest the Managed Portfolio's assets
solely in common stocks, solely in debt securities, solely in money market
instruments, or in a combination of these types of investments. At least 75% of
the value of the Managed Portfolio's total investment in corporate debt
securities (other than commercial paper) consists of investment-grade
securities, and the remaining 25% may be invested in such securities rated one
category below investment grade. The Managed Portfolio also may invest in
securities of foreign issuers, including those issuers located in countries with
emerging economies and/or securities markets.
The Managed Portfolio's investment strategies may result in the Portfolio having
a higher than average portfolio turnover rate. Higher portfolio turnover results
in correspondingly increased brokerage expenses and other acquisition costs to
the Portfolio.
PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIO
The Managed Portfolio is subject to MARKET RISK, FINANCIAL RISK, CREDIT RISK and
INTEREST RATE RISK. To the extent that it invests in certain securities, the
Portfolio may assume additional risks relating to LOWER QUALITY DEBT
INSTRUMENTS, SHORT-TERM TRADING and SECURITIES OF FOREIGN ISSUERS AND NON-DOLLAR
SECURITIES. Lower quality debt instruments are subject to above-average interest
rate risk and credit risk, tend to have a higher default rate, and are
speculative with only an adequate capacity to repay principal and interest.
Short-term trading may result in higher turnover and transaction expenses for
the Portfolio. Securities of foreign issuers and non-dollar securities entail
risks not associated with domestic securities or U.S. dollar-denominated
securities. For example, foreign issuers often are subject to securities laws,
and accounting and reporting practices, less stringent than those in the U.S.,
and they may be adversely impacted by political or economic instability or
changes in currency exchange rates. Securities of issuers located in emerging
economies and/or securities markets may be more risky than other foreign
securities.
In order to meet the Portfolio's investment objective, the Adviser must
determine the proper mix of equity, debt and money market securities. The
Adviser may not properly ascertain the appropriate mix of securities for any
particular economic cycle. Also, the timing of movements from one type of
security to another could have a negative effect on the Portfolio's overall
objective.
These risks, and the risks associated with other higher-risk securities and
practices that the Portfolio may utilize, are described in more detail later in
this Prospectus. Investors should carefully read "Risks of Investing in the
Portfolios" and "Investment Techniques" below before investing in this
Portfolio.
10
<PAGE> 73
THE PORTFOLIO PERFORMANCE
The bar chart and table shown below provide an indication of the risks of
investing in the Managed Portfolio by showing changes in the Portfolio's
performance from year to year over a 10-year period and by showing how the
Portfolio's average annual returns for one, five, and ten years compare to those
of the S&P 500 Index and the Lehman Aggregate Bond Index. How the Portfolio has
performed in the past is not necessarily an indication of how the Portfolio will
perform in the future.
[MANAGED PORTFOLIO]
<TABLE>
<S> <C>
Managed Portfolio
1990 -8.61
1991 20.49
1992 11.96
1993 11.62
1994 -1.82
1995 24.43
1996 11.88
1997 21.23
1998 12.54
1999 0.75
</TABLE>
During the 10-year period shown in the bar chart, the highest return for a
quarter was 13.32% (quarter ended March 31, 1991) and the lowest return for a
quarter was -15.85% (quarter ended September 30, 1990).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDED DECEMBER 31, 1999) PAST ONE YEAR PAST 5 YEARS PAST 10 YEARS
----------------------------------------- ------------- ------------ -------------
<S> <C> <C> <C>
Managed Portfolio............................ 0.75% 13.86% 9.96%
S&P 500 Index................................ 21.06% 28.58% 18.18%
Lehman Aggregate Bond Index.................. -0.82% 7.74% 7.86%
</TABLE>
The Portfolio's investments in equity securities are compared to the S&P 500
Index, a widely recognized, unmanaged index of 500 U.S. common stocks.
The Portfolio's investments in debt securities are compared to the Lehman
Aggregate Bond Index, a widely recognized, unmanaged index of bonds reflecting
average prices in the bond market.
The performance information presented does not include the fees and charges
associated with the variable contracts, and returns would have been lower if
those fees and charges were included.
11
<PAGE> 74
[ ] THE AGGRESSIVE GROWTH PORTFOLIO
INVESTMENT OBJECTIVE
A high level of long-term capital appreciation.
PRIMARY INVESTMENT STRATEGIES
The Aggressive Growth Portfolio invests primarily in:
- securities of companies in new or emerging industries
- securities of small capitalization companies and/or unseasoned companies
Substantially all of the Portfolio's assets consist of equity securities of
companies that the Adviser believes have better than average appreciation
potential. The Adviser selects these securities on the basis of their
appreciation potential without restriction as to their type.
PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIO
The Aggressive Growth Portfolio invests in securities that generally entail
above-average MARKET RISK and FINANCIAL RISK. The Portfolio also is subject to
SMALL COMPANY RISK. Smaller companies may have limited product lines, markets or
financial resources, and their securities may trade less frequently and in more
limited volume than the securities of larger or more established companies. The
prices of securities of smaller companies may fluctuate to a greater degree than
the prices of securities of other issuers. Loss of money is a significant risk
of investing in this Portfolio.
To the extent that it invests in certain securities, the Portfolio may assume
additional risks relating to ADRs, GDRs and EDRs (i.e., the risks of investing
in the securities of foreign issuers and non-dollar securities). Securities of
foreign issuers and non-dollar securities entail risks not associated with
domestic securities or U.S. dollar-denominated securities. For example, foreign
issuers often are subject to securities laws, and accounting and reporting
practices, less stringent than those in the U.S., and they may be adversely
impacted by political or economic instability or changes in currency exchange
rates.
These risks, and the risks associated with other higher-risk securities and
practices that the Portfolio may utilize, are described in more detail later in
this Prospectus. Investors should carefully read "Risks of Investing in the
Portfolios" and "Investment Techniques" below before investing in this
Portfolio.
12
<PAGE> 75
THE PORTFOLIO PERFORMANCE
The bar chart and table shown below provide an indication of the risks of
investing in the Aggressive Growth Portfolio by showing changes in the
Portfolio's performance from year to year over a 10-year period and by showing
how the Portfolio's average annual returns for one, five and ten years compare
to those of the Russell 2000 Index. How the Portfolio has performed in the past
is not necessarily an indication of how the Portfolio will perform in the
future.
[MARKET STREET FUND AGGRESSIVE GROWTH PORTFOLIO BAR CHART]
<TABLE>
<S> <C>
Managed Portfolio
1990 10.77
1991 56.33
1992 2.58
1993 5.20
1994 0.00
1995 13.48
1996 21.00
1997 21.21
1998 7.99
1999 15.96
</TABLE>
During the 10-year period shown in the bar chart, the highest return for a
quarter was 27.72% (quarter ended March 31, 1991) and the lowest return for a
quarter was -24.51% (quarter ended September 30, 1990).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDED DECEMBER 31, 1999) PAST ONE YEAR PAST 5 YEARS PAST 10 YEARS
----------------------------------------- ------------- ------------ -------------
<S> <C> <C> <C>
Aggressive Growth Portfolio.................... 15.96% 15.82% 14.56%
Russell 2000 Index*............................ 21.36% 16.78% 13.44%
</TABLE>
- -------------------------
* Price appreciation only.
The Russell 2000 Index is a widely recognized, unmanaged index of small
capitalization companies.
The performance information presented does not include the fees and charges
associated with the variable contracts, and returns would have been lower if
those fees and charges were included.
13
<PAGE> 76
[ ] THE SENTINEL GROWTH PORTFOLIO
INVESTMENT OBJECTIVE
Long-term growth of capital.
PRIMARY INVESTMENT STRATEGIES
The Sentinel Growth Portfolio invests in equity securities of well-established
companies that the Adviser believes have more favorable growth potential than
that of the U.S. economy as a whole. These companies generally exhibit positive
growth factors and experienced managements. Under normal market conditions, this
Portfolio is fully invested in equity securities, however, the Portfolio may
temporarily invest in income-bearing securities.
The Adviser favors growth potential rather than portfolio diversification in
selecting securities for the Portfolio. The Adviser does not use income as a
factor in selecting the Portfolio's investments. If the Adviser believes it to
be appropriate, it may invest up to 25% of the Portfolio's total assets in
securities of companies within a single industry.
PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIO
The Sentinel Growth Portfolio is subject to MARKET RISK and FINANCIAL RISK. To
the extent the Portfolio emphasizes investment in a single industry, economic
and market factors affecting that industry will have a greater impact on the
Portfolio. These risks, and the risks associated with other higher-risk
securities and practices that the Portfolio may utilize, are described in more
detail later in this Prospectus. Investors should carefully read "Risks of
Investing in the Portfolios" and "Investment Techniques" below before investing
in this Portfolio.
14
<PAGE> 77
THE PORTFOLIO PERFORMANCE
The bar chart and table shown below provide an indication of the risks of
investing in the Sentinel Growth Portfolio by showing changes in the Portfolio's
performance from year to year over a 3-year period and by showing how the
Portfolio's average annual returns for one year, and the period since inception
compare to those of the S&P 500 Index. How the Portfolio has performed in the
past is not necessarily an indication of how the Portfolio will perform in the
future.
[MARKET STREET FUND SENTINEL GROWTH PORTFOLIO BAR CHART]
<TABLE>
<CAPTION>
MANAGED PORTFOLIO
-----------------
<S> <C>
1997 31.58
1998 15.98
1999 38.80
</TABLE>
During the 3-year period shown in the bar chart, the highest return for a
quarter was 29.57% (quarter ended December 31, 1999) and the lowest return for a
quarter was 13.53% (quarter ended September 30, 1998).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDED DECEMBER 31, 1999) PAST ONE YEAR FROM INCEPTION(1)
----------------------------------------- ------------- -----------------
<S> <C> <C>
Sentinel Growth Portfolio................................. 38.80% 25.41%
S&P 500 Index............................................. 21.06% 26.12%
</TABLE>
- -------------------------
(1) The Portfolio commenced operations on March 18, 1996.
The S&P 500 Index is a widely recognized, unmanaged index of 500 U.S. common
stocks.
The performance information presented does not include the fees and charges
associated with the variable contracts, and returns would have been lower if
those fees and charges were included.
15
<PAGE> 78
[ ] THE INTERNATIONAL PORTFOLIO
INVESTMENT OBJECTIVE
Long-term growth of capital primarily through investments in a diversified
portfolio of marketable equity securities of established foreign issuer
companies.
PRIMARY INVESTMENT STRATEGIES
The International Portfolio invests primarily in equity securities of
established foreign issuer companies and of companies organized in the United
States but having their principal activities and interests outside the United
States that the subadviser believes have potential for long-term capital growth.
Many of these securities are non-dollar securities. The Portfolio also may
invest in other foreign issuer securities such as those of foreign governments
or agencies or instrumentalities of foreign governments.
Under normal market conditions, the Portfolio invests at least 75% of its total
assets in the securities of foreign issuers located (or, in the case of the
securities, traded) in at least five different countries other than the United
States. Nonetheless, under certain economic and business conditions the
Portfolio may invest up to 35% of its total assets in the securities of issuers
located (or, in the case of the securities, traded) in any one of the following
countries:
- Australia
- Canada
- France
- Japan
- The United Kingdom
- Germany
The International Portfolio also may invest in securities of foreign issuers in
the form of sponsored and unsponsored ADRs, EDRs and GDRs (see "Investment
Techniques"). The International Portfolio may invest in restricted securities,
including restricted securities eligible for resale to "qualified institutional
buyers" under Rule 144A of the Securities Act of 1933. The International
Portfolio also may, under normal market conditions, invest up to 35% of its
total assets in investment-grade debt securities of foreign issuers. See "Risks
of Investing in the Portfolios," below. The Portfolio engages in a VALUE
ORIENTED investing strategy.
PRINCIPAL RISKS OF INVESTING IN THE PORTFOLIO
The International Portfolio is subject to MARKET RISK and FINANCIAL RISK. The
International Portfolio is subject to a significant degree of FOREIGN ISSUER AND
NON-DOLLAR SECURITIES RISK. Securities of foreign issuers and non-dollar
securities entail risks not associated with domestic securities or U.S.
dollar-denominated securities. For example, foreign issuers often are subject to
securities laws, and accounting and reporting practices, less stringent than
those in the U.S., and they may be adversely impacted by political or economic
instability or changes in currency exchange rates.
The Portfolio's investments in securities of issuers located in countries with
emerging economies or securities markets entail EMERGING MARKETS RISK. The risks
of investing in securities of foreign issuers and non-dollar securities are even
greater in emerging markets than in Japan or most Western European countries.
Emerging market countries are undergoing rapid development and may lack the
social, political and economic stability characteristic of more developed
countries.
These risks, and the risks associated with other higher-risk securities and
practices that the Portfolio may utilize, are described in more detail later in
this Prospectus. Investors should carefully read "Risks of Investing in the
Portfolios" and "Investment Techniques" below before investing in this
Portfolio.
16
<PAGE> 79
THE PORTFOLIO PERFORMANCE
The bar chart and table shown below provide an indication of the risks of
investing in the International Portfolio by showing changes in the Portfolio's
performance from year to year over a 8-year period and by showing how the
Portfolio's average annual returns for one and five years, and the period since
inception, compare to those of the Morgan Stanley Capital International Europe,
Australasia, Far East (EAFE) Index. How the Portfolio has performed in the past
is not necessarily an indication of how the Portfolio will perform in the
future.
[MARKET STREET FUND INTERNATIONAL PORTFOLIO BAR CHART]
<TABLE>
<S> <C>
International Portfolio
1992 -7.30
1993 36.11
1994 0.26
1995 14.31
1996 10.89
1997 9.66
1998 10.13
1999 29.33
</TABLE>
During the 8-year period shown in the bar chart, the highest return for a
quarter was 15.71% (quarter ended December 31, 1998) and the lowest return for a
quarter was -16.25% (quarter ended September 30, 1998).
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDED DECEMBER 31, 1999) PAST ONE YEAR PAST 5 YEARS FROM INCEPTION(1)
----------------------------------------- ------------- ------------ -----------------
<S> <C> <C> <C>
International Portfolio..................... 29.33% 14.64% 11.50%
EAFE Index.................................. 26.97% 12.83% 10.73%
</TABLE>
- -------------------------
(1) The Portfolio commenced operations on November 1, 1991.
The EAFE Index is a widely recognized, unmanaged index of more than 900
companies from Europe, Australia, Asia and the Far East. The EAFE Index reflects
the prices of these common stocks translated into U.S. dollars with dividends
reinvested net of any foreign taxes.
The performance information presented does not include the fees and charges
associated with the variable contracts, and returns would have been lower if
those fees and charges were included.
17
<PAGE> 80
RISKS OF INVESTING IN THE PORTFOLIOS
Each Portfolio is subject to the risk that the Portfolio may not achieve its
investment objective, and an investor may lose money (including the principal
invested) by investing in the Portfolio. No one Portfolio alone should be
considered a complete investment program, and any Portfolio's performance could
fall below that of other possible investments.
Because each Portfolio invests in a different mix of securities and employs a
unique strategy for achieving its goals, the risks associated with each
Portfolio vary. While the actual performance of any mutual fund cannot be
predicted, investors should consider the possible risks associated with a
Portfolio's investments. These risks include:
CORRELATION RISK. A measure of how closely two variables move together through
time. For example, utility stocks tend to have a high degree of correlation
because many of the same economic forces influence their share prices.
Conversely, gold stock prices are not closely correlated with utility stock
prices because they are influenced by very different factors. In building a
diversified portfolio, investors often try to combine investments that aren't
closely correlated with one another.
CREDIT RISK. The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise not honor a financial obligation.
CURRENCY RISK. The risk that fluctuations in the exchange rates between the
U.S. dollar and foreign currencies may adversely affect the value of an
investment. Currency fluctuations may negatively impact a Portfolio's
investments and, therefore, the value of its portfolio even if the foreign stock
has not declined in value in its own currency. For example:
- A decline in the U.S. dollar value of other currencies would reduce the
value of certain portfolio investments denominated in such currencies
- A Portfolio may have to sell portfolio securities to pay dividends to
shareholders if the exchange rate for the currency in which a Portfolio
receives interest payments declines against the U.S. dollar before the
interest is paid to shareholders.
EXTENSION RISK. The risk that an unexpected rise in prevailing interest rates
will extend the life of an outstanding mortgage-backed security by reducing the
expected number of mortgage prepayments, typically reducing the security's
value.
FINANCIAL RISK. For debt securities, credit risk. For equity securities, the
risk that the issuer's earning prospects and overall financial position will
deteriorate, causing a decline in the security's value.
RISKS OF INVESTING IN SECURITIES OF FOREIGN ISSUERS AND NON-DOLLAR
SECURITIES. Investments in the securities of foreign issuers or investments in
non-dollar securities involve significant risks that are not typically
associated with investing in U.S. dollar-denominated securities or securities of
domestic issuers. These investments may be affected by changes in currency
exchange rates, changes in foreign or U.S. laws or restrictions applicable to
these investments and in currency exchange control regulations. Some foreign
stock markets) and other securities markets) may have substantially less volume
than, for example, the New York Stock Exchange (or other domestic markets), and
securities of some foreign issuers may be less liquid than securities of
comparable domestic issuers. Commissions and dealer mark-ups on transactions in
securities of foreign issuers and non-dollar securities may be higher than for
similar transactions in the United States. In addition, clearance and settlement
procedures may be different in foreign countries, and, in certain markets, on
certain occasions, these procedures have been unable to keep pace with the
volume of securities transactions, thus making it difficult to conduct these
transactions. The inability of a Portfolio to make intended investments due to
settlement problems could cause it to miss attractive investment opportunities.
Inability to dispose of portfolio securities or other investments due to
settlement problems could result either in losses to a Portfolio due to
subsequent declines in value of the portfolio investment or,
18
<PAGE> 81
if the Portfolio has entered into a contract to sell the investment, could
result in possible liability to the purchaser.
Foreign issuers are not generally subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
companies, and there may be less publicly available information about a foreign
issuer than about a domestic one. In addition, there is generally less
government regulation of stock exchanges, brokers, and listed and unlisted
issuers in foreign countries than in the United States. Furthermore, with
respect to certain foreign countries, there is a possibility of expropriation or
confiscatory taxation, imposition of withholding taxes on dividend or interest
payments, limitations on the removal of cash or other assets of the Portfolio,
or political or social instability or diplomatic developments which could affect
investments in those countries. Individual foreign economies also may differ
favorably or unfavorably from the U.S. economy in such respects as growth of
gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position.
The INTERNATIONAL PORTFOLIO and the MANAGED PORTFOLIO may invest in securities
of issuers located in countries with emerging economies and/or securities
markets. These countries are located in the Asia-Pacific region, Eastern Europe,
Central and South America and Africa. Political and economic structures and
institutions in many of these countries are undergoing significant evolution and
rapid development, and these countries may lack the social, political and
economic stability characteristic of more developed countries. Certain of these
countries have in the past failed to recognize private property rights and have
at times nationalized or expropriated assets of private companies. In addition,
unanticipated political or social developments may affect the values of
investments in these countries and the ability of a Portfolio to make additional
investments in them. The small size, inexperience and limited trading volume of
the securities markets in certain of these countries may also make investments
in these countries more volatile and less liquid than investments in securities
traded in markets in Japan and Western European countries. As a result, these
Portfolios may be required to establish special custody or other arrangements
before making certain investments in these countries. There may be little
financial or accounting information available with respect to issuers located in
certain of these countries, and it may be difficult as a result to assess the
value or prospects of an investment in such issuers. The laws of some foreign
countries may limit the ability of these Portfolios to invest in securities of
certain issuers located or doing business in these countries.
HEDGING RISK. When a Portfolio hedges an asset it holds, any gain or loss
generated by the hedge should be substantially offset by losses or gains on the
hedged asset. Hedging is a useful way to reduce or eliminate risk of loss, but
it also reduces or eliminates the potential for investment gains.
INFORMATION RISK. The risk that key information about a security or market is
inaccurate or unavailable.
INTEREST RATE RISK. The risk that the market value of a debt or other
income-bearing security will decline because of changes in prevailing interest
rates. Generally, a rise in interest rates typically causes the market values of
these securities to decline, particularly fixed-rate securities.
RISKS OF INVESTING IN LOWER QUALITY DEBT INSTRUMENTS. Lower quality debt
instruments usually pay a higher interest rate than higher quality debt
instruments, particularly lower quality debt instruments rated below
investment-grade, but with the higher interest rate comes higher risks. Lower
quality debt instruments may have the following characteristics:
- Are speculative with only an adequate capacity to pay principal and
interest;
- Have a higher risk of default, tend to be less liquid, and may be more
difficult to value;
- Are issued by entities whose ability to make principal and interest
payments is more likely than entities issuing higher rated debt
instruments to be affected by changes in economic conditions or other
circumstances;
19
<PAGE> 82
- Have limited prospects for reaching investment-grade standing and,
although unlikely, may be in default;
- May be more severely affected than some other financial instruments by
economic recession or substantial interest rate increases, by changing
public perceptions of the market, or by legislation that limits their
use in connection with corporate reorganizations or limits their tax or
other advantages; and
- Are more likely to react to developments affecting market risk and
financial risk than are higher quality debt instruments, which react
primarily to movements in the general level of interest rates.
LEVERAGE RISK. The risks associated with securities or investment practices
that enhance return (or loss) without increasing the amount of investment, such
as buying securities on margin or using certain derivative contracts or
derivative securities. A Portfolio's gain or loss on a leveraged position may be
greater than the actual market gain or loss in the underlying security or
instrument. A Portfolio may also incur additional costs in taking a leveraged
position (such as interest on borrowings) that may not be incurred in taking a
non-leveraged position.
LIQUIDITY RISK. The risk that certain securities or other investments may be
difficult or impossible to sell at the time the Portfolio would like to sell
them or at the price the Portfolio values them.
MANAGEMENT RISK. The risk that a strategy used by a Portfolio's Adviser or
subadviser does not produce the intended result. For example, the Adviser's or
subadviser's judgment about the value or potential appreciation of a particular
stock may prove to be incorrect.
MARKET RISK. The risk that the market value of a security may increase or
decrease, sometimes rapidly and unpredictably, due to factors unrelated to the
issuer. This risk is common to all stocks and bonds and the mutual funds that
invest in them.
NATURAL EVENT RISK. The risk of losses attributable to natural disasters, crop
failures and similar events.
OPPORTUNITY RISK. The risk of missing out on an investment opportunity because
the assets necessary to take advantage of the opportunity are tied up in less
advantageous investments.
POLITICAL RISK. The risk of losses directly attributable to government actions
or political events of any sort. Foreign countries may experience political or
social instability or diplomatic developments that could affect investments in
those countries.
PREPAYMENT RISK. The risk that an unexpected fall in prevailing interest rates
will shorten the life of an outstanding mortgage-backed security by increasing
the expected number of mortgage prepayments, thereby reducing the security's
return.
SMALL COMPANY RISK. The risk of investing in securities of smaller companies.
These smaller companies may have limited product lines, markets or financial
resources and their securities may trade less frequently and in more limited
volume than the securities of larger or more established companies. These
companies are typically subject to a greater degree of changes in earnings and
business prospects than are larger, more established issuers. As a result, the
prices of securities of smaller companies may fluctuate to a greater degree than
the prices of securities of other issuers. Although investing in securities of
smaller companies offers potential for above-average returns, the risk exists
that the companies will not succeed and the prices of the companies' shares
could significantly decline in value.
SPECULATION RISK. Speculation involves assuming a higher than average risk of
loss in anticipation of gain. If a Portfolio uses a derivative contract or
derivative security to speculate rather than hedge, it is directly exposed to
the risks of that derivative contract or security. Gains or losses from
speculative positions in a derivative contract or security may be substantially
greater than the derivative contract or security's original cost.
20
<PAGE> 83
VALUATION RISK. The risk that the market value of an investment falls
substantially below the Portfolio's valuation of the investment. The risk may be
exaggerated in volatile markets.
INVESTMENT TECHNIQUES
The Portfolios are permitted to use, within limits established by the Fund's
directors, certain other securities and investment practices that have higher
risks and opportunities associated with them. On the following pages are brief
descriptions of these securities and practices, along with certain of their
associated risks.
HIGHER-RISK SECURITIES AND PRACTICES
<TABLE>
<CAPTION>
SECURITY OR PRACTICE DESCRIPTION RELATED RISKS
- -----------------------------------------------------------------------------------------
<S> <C> <C>
American Depositary ADRs are receipts typically Market, currency,
Receipts (ADRs) issued by a U.S. financial information, natural event,
institution which evidence and political risks (i.e.,
ownership of underlying the risks of investing in
securities of foreign foreign issuers and non-
corporate issuers. dollar securities).
Generally, ADRs are in
registered form and are
designed for trading in
U.S. markets.
- -----------------------------------------------------------------------------------------
Borrowing The borrowing of money from Credit risk and interest
banks or through reverse rate risk.
repurchase agreements. No
Portfolio will borrow money
for leveraging purposes.
- -----------------------------------------------------------------------------------------
Writing Covered Call Option A call option is the right Interest rate, market,
Contracts on Securities to purchase a security for hedging, correlation,
an agreed-upon price at any liquidity, credit, and
time prior to an expiration opportunity risks.
date. By writing (selling)
a call option, a Portfolio
gives this right to a buyer
for a fee. A "covered" call
option contract is one
where the Portfolio owns
the securities subject to
the option so long as the
option is outstanding.
- -----------------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 84
<TABLE>
<CAPTION>
SECURITY OR PRACTICE DESCRIPTION RELATED RISKS
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Emerging Market Securities Any securities primarily Credit, market, currency,
traded on exchanges (or information, liquidity,
other markets) located in, interest rate, valuation,
or issued by companies natural event, and
organized or primarily political risks and the
operating in, countries risks of investing in
with emerging economies securities of foreign
and/or securities markets issuers and non-dollar
(typically located in Asia, securities.
the Asia-Pacific region,
Eastern Europe, Central and
South America and Africa).
- -----------------------------------------------------------------------------------------
European and Global EDRs and GDRs are receipts Market, currency,
Depositary Receipts (EDRs evidencing an arrangement information, natural event,
and GDRs) with a non-U.S. financial and political risks (i.e.,
institution similar to that the risks of investing in
for ADRs and are designed securities of foreign
for use in non-U.S. issuers and non-dollar
securities markets. EDRs securities).
and GDRs are not
necessarily quoted in the
same currency as the
underlying security.
- -----------------------------------------------------------------------------------------
Securities of Foreign Securities of (1) companies Market, currency,
Issuers organized outside the information, interest rate,
United States, (2) natural event, and
companies whose securities political risks.
are principally traded
outside the United States,
and (3) foreign governments
or agencies and
instrumentalities of
foreign governments.
- -----------------------------------------------------------------------------------------
Foreign Money Market Short-term debt obligations Market, currency,
Securities issued by foreign financial information, interest rate,
institutions or by foreign natural event and political
branches of U.S. financial risks.
institutions or foreign
issuers.
- -----------------------------------------------------------------------------------------
Forward Foreign Currency Contracts involving the Currency, liquidity, credit
Exchange Contracts right or obligation to buy and leverage risks. When
or sell a given amount of used for hedging, also has
foreign currency at a hedging, correlation, and
specified price and future opportunity risks.
date.
- -----------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 85
<TABLE>
<CAPTION>
SECURITY OR PRACTICE DESCRIPTION RELATED RISKS
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Illiquid Assets An investment that is Liquidity, valuation and
difficult or impossible to market risks.
sell at approximately the
time that a Portfolio would
like to sell it for the
price at which the
Portfolio values it.
- -----------------------------------------------------------------------------------------
Non-Dollar Securities Securities issued, Currency and liquidity
denominated or quoted in risks.
foreign currencies.
- -----------------------------------------------------------------------------------------
Lower Quality Debt Debt securities rated BB+ Credit, market, liquidity,
Instruments and below by S&P or Ba1 and valuation, and information
below by Moody's (or risks, and risks of
comparable unrated investing in lower-quality
securities). debt instruments.
- -----------------------------------------------------------------------------------------
Asset-Backed Securities Securities backed primarily Credit, extension,
by pools of non-mortgage prepayment, and interest
related collateral such as rate risks.
credit cards, auto loans,
equipment lease
receivables, etc.
- -----------------------------------------------------------------------------------------
Equity Interests in Real Pooled investment vehicles Credit, market, financial,
Estate Investment Trusts that invest primarily in prepayment, extension and
(REITs) income producing real interest rate risks.
estate or real estate
related loans or interests.
REITs may include operating
companies that invest in
and manage income-producing
real estate or real
estate-related businesses.
- -----------------------------------------------------------------------------------------
Repurchase Agreements The purchase of a security Credit risk.
that the issuer agrees to
buy back later at the same
price plus interest.
- -----------------------------------------------------------------------------------------
Reverse Repurchase The lending of short-term Leverage and credit risks.
Agreements debt securities; often used
to facilitate borrowing.
- -----------------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 86
<TABLE>
<CAPTION>
SECURITY OR PRACTICE DESCRIPTION RELATED RISKS
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Securities Lending The lending of securities Credit risk.
to financial institutions,
which provide cash or
government securities as
collateral.
- -----------------------------------------------------------------------------------------
Short-Term Trading Selling a security soon Market risk.
after purchase or
purchasing it soon after it
was sold (a Portfolio
engaging in short-term
trading will have higher
turnover and transaction
expenses).
- -----------------------------------------------------------------------------------------
Small Capitalization Smaller companies included Market and small company
Companies in the Wilshire 5000 equity risk.
universe that rank
typically from number 751
to number 2,500 by market
capitalization.
- -----------------------------------------------------------------------------------------
When-Issued Securities and The purchase and sale of Market, opportunity,
Forward Commitments securities for delivery at interest rate, credit and
a future date; market value leverage risks.
may change before delivery.
- -----------------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 87
HIGHER RISK SECURITIES AND PRACTICES TABLE. The following table shows each
Portfolio's investment limitations with respect to certain higher risk
securities and practices as a percentage of portfolio assets.
<TABLE>
<CAPTION>
MONEY AGGRESSIVE SENTINEL
GROWTH MARKET BOND MANAGED GROWTH GROWTH INTERNATIONAL
------ ------ ---- ------- ---------- -------- -------------
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT PRACTICES
- -------------------------------------------------------------------------------------------------------
Borrowing; Reverse
Repurchase Agreements..... 30 30 30 30 30 30 30
- -------------------------------------------------------------------------------------------------------
Repurchase Agreements....... * * * * * * *
- -------------------------------------------------------------------------------------------------------
REITs....................... @ @ @ @ @ @ @
- -------------------------------------------------------------------------------------------------------
Securities Lending.......... 30 30 30 30 30 30 30
- -------------------------------------------------------------------------------------------------------
Short-term Trading.......... @ @ * * @ @ @
- -------------------------------------------------------------------------------------------------------
Smaller Capitalization
Companies................. @ x x @ * * x
- -------------------------------------------------------------------------------------------------------
When-Issued Securities;
Forward Commitments....... 10 10 10 10 10 x 10
- -------------------------------------------------------------------------------------------------------
CONVENTIONAL SECURITIES
- -------------------------------------------------------------------------------------------------------
ADRs, EDRs and GDRs......... @ x * * * x *
- -------------------------------------------------------------------------------------------------------
Lower Quality Debt
Instruments............... x x 25(2) 25(2) x x x
- -------------------------------------------------------------------------------------------------------
Securities of Foreign
Issuers and Non-Dollar
Securities................ @25 25 25 25 @25 @25 *
- -------------------------------------------------------------------------------------------------------
Emerging Market
Securities................ x x x * x x *
- -------------------------------------------------------------------------------------------------------
Illiquid Assets(1).......... 15 10 15 15 15 15 15
- -------------------------------------------------------------------------------------------------------
DERIVATIVE SECURITIES AND CONTRACTS
- -------------------------------------------------------------------------------------------------------
Forward Foreign Currency
Exchange Contracts........ @ * * * @ @ *
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) Numbers in this row refer to net, rather than total, assets.
(2) May only invest up to 25% of the value of its corporate debt securities
(other than commercial paper) in such securities.
LEGEND
30 A number indicates the maximum percentage of total assets (but see note 1)
that the Portfolio is permitted to invest in that practice or type of
security. Numbers in this table show allowable usage only; for actual usage,
consult the Portfolio's annual and semi-annual reports.
* A bold check mark means that there is no policy limitation on the Portfolio's
usage of that practice or type of security, and that the Portfolio may be
currently using that practice or investing in that type of security.
@ A thin check mark means that the Portfolio is permitted to use that practice
or invest in that type of security, but is not expected to do so on a regular
basis.
x An "x" mark means that the Portfolio is not permitted to use that practice or
invest in that type of security.
25
<PAGE> 88
MANAGEMENT
ADVISERS
Under the terms of each investment advisory agreement, Market Street Investment
Management Company (MSIM) and Sentinel Advisors Company (SAC) (the "Advisers"),
at their own expense and subject to the supervision of the Fund's board of
directors, provide the appropriate Portfolio(s) with investment advice and
manage the investment and reinvestment of a Portfolio's assets. The Advisers
also perform research services and evaluate statistical and financial data
relevant to a Portfolio's investment policies, and provide the Fund's directors
with regular reports as to a Portfolio's overall investment plan, schedule of
investments and other assets, and recent purchases and sales by a Portfolio. The
compensation (as a percentage of each Portfolio's average daily net assets) paid
monthly by the Fund to MSIM or SAC, as applicable, is described in the table
below.
MONEY MARKET, GROWTH, BOND, MANAGED, AGGRESSIVE GROWTH AND SENTINEL GROWTH
PORTFOLIOS. Sentinel Advisors Company serves as investment adviser for the
Money Market, Growth, Bond, Managed, Aggressive Growth and Sentinel Growth
Portfolios. SAC is located at One National Life Drive, Montpelier, Vermont
05604.
INTERNATIONAL PORTFOLIO. Market Street Investment Management Company serves as
investment adviser for the International Portfolio. MSIM is located at 1050
Westlakes Drive, Berwyn, Pennsylvania 19312. MSIM has engaged The Boston Company
Asset Management, Inc. ("TBC") to manage the investment and reinvestment of the
International Portfolio's assets, subject to monitoring by MSIM and supervision
by the Fund's board of directors. TBC is located at One Boston Place, Boston, MA
02108.
COMPENSATION OF MSIMC AND SAC
<TABLE>
<CAPTION>
MAXIMUM
FEE PAID IN 1999 ANNUAL RATE
(AS % OF AVERAGE (AS % OF AVERAGE
PORTFOLIO ADVISER DAILY NET ASSETS)* DAILY NET ASSETS)
--------- ------- ------------------ -----------------
<S> <C> <C> <C>
Money Market............................... SAC 0.25% 0.25%
Growth..................................... SAC 0.32% 0.50%
Bond....................................... SAC 0.35% 0.35%
Managed.................................... SAC 0.40% 0.40%
Aggressive Growth.......................... SAC 0.41% 0.50%
Sentinel Growth............................ SAC 0.50% 0.50%
International.............................. MSIM 0.75% 0.75%
</TABLE>
- -------------------------
* With respect to each of the Portfolios (except the Money Market Portfolio) the
fee payable by a Portfolio to MSIM or SAC is graduated so that increases in
the respective Portfolio's net assets may result in a lower fee and decreases
in the Portfolio's net assets may result in a higher fee. The maximum annual
rate payable to each Adviser is indicated by the right-hand column above. See
"Management of the Fund" in the SAI for further information.
PORTFOLIO MANAGERS
MONEY MARKET, GROWTH, BOND, MANAGED, AGGRESSIVE GROWTH AND SENTINEL GROWTH
PORTFOLIOS. Respecting the Money Market, Growth, Bond, Managed, Aggressive
Growth and Sentinel Growth Portfolios, SAC employs a team approach in managing
the Portfolios. The management teams are comprised of a lead portfolio manager,
other portfolio managers and research analysts. Each team includes members with
one or
26
<PAGE> 89
more areas of expertise and shares the responsibility for providing ideas,
information and knowledge in managing the Portfolios. Rodney A. Buck, Chief
Executive Officer of SAC, is also Chairman and Chief Executive Officer of
National Life Investment Management Company, Inc., and Senior Vice President and
Chief Investment Officer of NLIC. Mr. Buck has been employed by SAC or its
affiliates since 1972. There are three investment management teams: an Equity
Value Team, headed by Van Harissis, Senior Vice President of SAC; an Equity
Growth Team, headed by Robert L. Lee, Senior Vice President of SAC; and a Fixed
Income Team, headed by David M. Brownlee, Senior Vice President of SAC.
Each of Messrs. Buck, Harissis, Lee and Brownlee is a Chartered Financial
Analyst. Each of Messrs. Lee and Brownlee joined SAC in 1993. Mr. Harissis
joined SAC in June 1999.
GROWTH PORTFOLIO. The Growth Portfolio is managed by The Equity Value Team led
by Mr. Harissis. Prior to joining SAC, Mr. Harissis was a managing director and
portfolio manager at Phoenix Investment Partners from 1995 to 1999. Previously,
he was a portfolio manager at Howe & Rusling.
MANAGED PORTFOLIO. The Managed Portfolio is managed by a team consisting of Mr.
Buck, Mr. Harissis and Mr. Brownlee. Mr. Buck has been the Portfolio's portfolio
manager since 1993.
MONEY MARKET PORTFOLIO. The Money Market Portfolio is managed by Darlene
Coppola, Money Market Trader of SAC. Ms. Coppola has been employed by SAC or its
affiliates since 1974.
BOND PORTFOLIO. The Bond Portfolio is managed by Mr. Brownlee and William C.
Kane, Vice President of SAC. Mr. Kane is a Chartered Financial Analyst, and has
been employed by SAC or its affiliates since 1992.
AGGRESSIVE GROWTH PORTFOLIO. The Aggressive Growth Portfolio is managed by
Scott T. Brayman, Vice President of SAC, and Mr. Lee. Mr. Brayman and Mr. Lee
have been the lead portfolio managers of the Portfolio since 1997. Mr. Brayman
is a Chartered Financial Analyst, and has been with SAC since 1995. He has been
involved with the Aggressive Growth Portfolio since he joined SAC. Prior to
joining SAC, he was associated with Argyle Capital Management, Inc.
SENTINEL GROWTH PORTFOLIO. The Sentinel Growth Portfolio has been managed by
Mr. Lee since its inception in 1996.
INTERNATIONAL PORTFOLIO. Sandor Cseh, Senior Vice President and Director of
International of TBC, and D. Kirk Henry, Senior Vice President of TBC, have been
the co-managers for the International Portfolio since 1991. Mr. Cseh has over 23
years experience in investment management. Mr. Henry has over 17 years
experience in investment management.
27
<PAGE> 90
DESCRIPTION OF THE FUND'S SHARES
GENERAL
The Fund issues a separate class of shares of common stock for each Portfolio.
The Fund may establish additional portfolios in the future and additional
classes of shares for such new portfolios.
Based on current federal securities law requirements, the Fund expects that its
insurance company shareholders will offer owners of their variable life
insurance contracts and variable annuity contracts the opportunity to instruct
such shareholders as to how to vote shares allocable to their contracts
regarding certain matters, such as the election of directors and, absent
exemptive relief from the requirements of section 15 of the Investment Company
Act of 1940, the approval of investment advisory agreements. The Fund currently
has such section 15 relief but not for Portfolios offered by this prospectus.
Fund shares not attributable to variable life insurance or annuity contracts, or
for which no timely instructions are received by insurance company shareholders,
are voted by each insurance company in the same proportion as the voting
instructions that are received by that company for all contracts of the company
participating in each Portfolio. The voting instructions received from contract
holders may be disregarded in certain circumstances that are described in the
prospectuses for the variable contracts.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each Portfolio (except the Money Market
Portfolio) is normally determined once daily as of the close of regular trading
on the New York Stock Exchange, currently 4:00 p.m. Eastern time, on each day
when the New York Stock Exchange is open for business. The net asset value of
the Money Market Portfolio is normally determined once daily on each day that
both the New York Stock Exchange and the Federal Reserve Bank are open for
business. The New York Stock Exchange and the Federal Reserve Bank each is
scheduled to be open Monday through Friday throughout the year, except for
certain respective federal and other holidays. The net asset value of each
Portfolio is computed by dividing the sum of the value of the Portfolio's
securities, cash, and other assets, minus all liabilities, by the total number
of outstanding shares of the Portfolio.
The value of each Portfolio's securities and assets, except those of the Money
Market Portfolio and certain short-term debt securities held by any of the other
Portfolios, is determined on the basis of their market values. All of the
securities and assets of the Money Market Portfolio and short-term debt
securities having remaining maturities of sixty days or less held by any of the
other Portfolios are valued by the amortized cost method, which approximates
market value. Investments for which market quotations are not readily available
are valued at their fair value as determined in good faith by, or under
authority delegated by, the Fund's board of directors. A Portfolio may invest in
securities primarily listed on foreign exchanges that trade on days when the
Portfolio does not price its shares. Therefore, the net asset value of the
Portfolio's shares may change on days when shareholders may not be able to
redeem Portfolio shares. See "Determination of Net Asset Value" in the SAI.
OFFER, PURCHASE AND REDEMPTION OF SHARES
Shares of the Fund are not available directly to the public. Currently, shares
of the Fund are sold, without sales charge, at each Portfolio's net asset value
per share, only to variable life insurance and variable annuity separate
accounts of Provident Mutual Life Insurance Company ("Provident Mutual") and
Providentmutual Life and Annuity Company of America ("PLACA"); and to variable
life insurance separate accounts of National Life Insurance Company ("NLIC"). In
the future, the Fund may offer shares of one or more of the Portfolios
(including new portfolios that might be added to the Fund) to other separate
accounts of Provident Mutual, PLACA or NLIC to support variable life insurance
policies or variable annuity contracts, or shares may also be sold to other
insurance company separate accounts to fund
28
<PAGE> 91
variable life insurance policies and variable annuity contracts. The price per
share is based on the next daily calculation of net asset value after an order
is placed.
Shares of the Portfolios are sold in a continuous offering and are authorized to
be offered to insurance company separate accounts to support variable life
insurance contracts and variable annuity contracts. Net premiums or net purchase
payments under the respective contracts or contract are placed in one or more
subaccounts of a separate account, and the assets of each such separate account
are invested in the shares of the Portfolio corresponding to that subaccount. A
separate account purchases and redeems shares of the Portfolios for its
subaccounts at net asset value without sales or redemption charges.
On each day that a Portfolio's net asset value is calculated, a separate account
transmits to the Fund any orders to purchase or redeem shares of the
Portfolio(s) based on the premiums, purchase payments, redemption (surrender)
requests, and transfer requests from contract owners, annuitants, and
beneficiaries that have been processed on that day. A separate account purchases
and redeems shares of each Portfolio at the Portfolio's net asset value per
share calculated as of the same day, although such purchases and redemptions may
be executed the next morning. Money received by the Fund from a separate account
for the purchase of shares of the International Portfolio may not be invested by
that Portfolio until the day following the execution of such purchases.
Please refer to the separate prospectus for each separate account and its
related contract for a more detailed description of the procedures whereby a
contract owner, annuitant, or beneficiary may allocate his or her interest in a
separate account to a subaccount using the shares of one of the Portfolios as an
underlying investment medium.
DIVIDENDS, DISTRIBUTIONS, AND TAXES
The Fund intends that each of the Portfolios will continue to qualify as a
regulated investment company ("RIC") under the Internal Revenue Code of 1986, as
amended (the "Code"), and will meet certain diversification requirements
applicable to mutual funds underlying variable insurance products. For a
discussion regarding what it means to qualify as a RIC and a general discussion
concerning some of the possible tax consequences associated with the operation
of the Fund, please refer to the section entitled "Taxes" in the SAI.
Shares of the Portfolios are offered only to insurance company separate
accounts. Under the Code, no tax is imposed on an insurance company with respect
to income of a qualifying separate account properly allocable to the value of
eligible variable life insurance or variable annuity contracts. Accordingly, no
gain or loss should be recognized on account of ordinary income or capital gains
distributions to the Fund's insurance company shareholders or upon the sale or
redemption of shares of the Portfolios. Please refer to the appropriate tax
disclosure in the respective prospectuses for a separate account and its related
contract for more information on the taxation of life insurance companies,
separate accounts, as well as the tax treatment of variable life insurance and
variable annuity contracts and the holders thereof.
For more information about the tax status of the Fund, see "Taxes" in the SAI.
29
<PAGE> 92
APPENDIX A -- TERMS USED IN THIS PROSPECTUS
ADVISER: Any of the investment advisers to the Portfolios.
- Market Street Investment Management Company (MSIM) (formerly,
Providentmutual Investment Management Company) serves as investment
adviser to the International Portfolio
- The Boston Company Asset Management, Inc. (TBC) serves as investment
subadviser to the International Portfolio
- Sentinel Advisors Company (SAC) serves as investment adviser to the Money
Market, Growth, Bond, Managed, Aggressive Growth and Sentinel Growth
Portfolios
EQUITY SECURITIES: Equity securities include common stock, preferred stock,
securities convertible or exchangeable into common stock, including convertible
debt securities, convertible preferred stock and warrants or rights to acquire
common stock.
FOREIGN ISSUERS: (1) Companies organized outside the United States, (2)
companies whose securities are principally traded outside of the United States,
and (3) foreign governments and agencies or instrumentalities of foreign
governments.
INVESTMENT-GRADE SECURITIES: Securities rated, at the time of purchase,
"investment grade" by a nationally-recognized statistical rating organization
(NRSRO) (e.g. Baa or higher by Moody's Investors Service ("Moody's") or BBB or
higher by Standard & Poor's ("S&P")) or unrated securities that the Adviser
determines to be of comparable quality. (See Appendix A to the statement of
additional information for an explanation of ratings.)
NON-DOLLAR SECURITIES: Securities denominated or quoted in a foreign currency.
PRIMARILY: Where the description of a Portfolio indicates that it invests
primarily in certain types of securities, this means that, under normal
circumstances, it invests at least 65% of its total assets in such securities.
SAI: The Fund's statement of additional information, or SAI, contains
additional information about the Fund and the Portfolios and has been filed with
the Securities and Exchange Commission. Investors may obtain a free copy of the
SAI by contacting the Fund at the toll-free number or address shown on the back
cover page of this prospectus.
VALUE ORIENTED INVESTING: An investment strategy that involves seeking
securities that:
- Have low financial ratios (particularly stock price-to-book value, but
also stock price-to-earnings and stock price-to-cash flow);
- Can be acquired for less than what a subadviser believes is the issuer's
intrinsic value; or
- Appear attractive on a dividend discount model.
Value oriented investing entails a strong "sell discipline" in that it generally
requires the sale of securities that have reached their intrinsic value or a
target financial ratio. Value oriented investments may include securities of
companies in cyclical industries during periods when such securities appear to a
subadviser to have strong potential for capital appreciation or securities of
"special situation" companies. A special situation company is one that a
subadviser believes has potential for significant future earnings growth but has
not performed well in the recent past. These situations include companies with
management changes, corporate or asset restructuring or significantly
undervalued assets. For most subadvisers, identifying special situation
companies and establishing an issuer's intrinsic value involves fundamental
research about such companies and issuers.
A-1
<PAGE> 93
APPENDIX B -- FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand each
Portfolio's (except the Sentinel Growth Portfolio) financial performance for the
past 5 years and for the Sentinel Growth Portfolio's financial performance for
its period of operations (which commenced in 1996). Certain information reflects
financial results for a single Portfolio share. The total returns in the table
represent the rate that an investor would have earned on an investment in the
Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, independent
accountants, whose report, along with the Fund's financial statements, are
included in the SAI, which is available upon request.
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
(FOR YEAR ENDED)
-------------------------------------------------
1999 1998 1997 1996(a) 1995
--------- ----- ------- ------- -----
<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................... .05 .05 .05 .05 .05
--------- ----- ----- ----- -----
Total from investment operations..... .05 .05 .05 .05 .05
LESS DISTRIBUTIONS:
Dividends to shareholders from net
investment income.................... (.05) (.05) (.05) (.05) (.05)
--------- ----- ----- ----- -----
Total Distributions.................. (.05) (.05) (.05) (.05) (.05)
--------- ----- ----- ----- -----
Net asset value, end of period............ $1.00 $1.00 $1.00 $1.00 $1.00
========= ===== ===== ===== =====
Total return......................... 4.91% 5.29% 5.33% 5.15% 5.61%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $(000)........ 116,887 91,453 64,339 54,197 34,165
Ratios of expenses to average net
assets(b)............................ 0.40% .40% .39% .44% .50%
Ratios of net investment income to
average net assets................... 4.81% 5.15% 5.21% 5.03% 5.47%
</TABLE>
- -------------------------
(a) On May 1, 1996 the investment adviser was changed from Providentmutual
Investment Management Company to Sentinel Advisors Company.
(b) Expense ratios before reimbursement of expenses by affiliated insurance
company for the years ended December 31, 1999, 1998, 1997, 1996 and 1995
were as follows: 0.40%, 0.42%, 0.39%, 0.44% and 0.50%, respectively.
B-1
<PAGE> 94
FINANCIAL HIGHLIGHTS -- CONTINUED
<TABLE>
<CAPTION>
GROWTH PORTFOLIO
(FOR YEAR ENDED)
------------------------------------------------
1999 1998 1997(a) 1996 1995
------ ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period...... $18.82 $19.46 $18.10 $16.36 $14.00
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................... .27 .27 .35 .46 .47
Net realized and unrealized gain (loss)
on investments....................... .28 1.97 3.49 2.54 3.41
------ ------ ------ ------ ------
Total from investment operations..... .55 2.24 3.84 3.00 3.88
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends to shareholders from net
investment income.................... (.06) (.29) (.38) (.48) (.46)
Dividends to shareholders from net
capital gains........................ (.37) (2.59) (2.10) (.78) (1.06)
------ ------ ------ ------ ------
Total distributions.................. (.43) (2.88) (2.48) (1.26) (1.52)
------ ------ ------ ------ ------
Net asset value, end of period............ $18.94 $18.82 $19.46 $18.10 $16.36
====== ====== ====== ====== ======
Total Return......................... 2.98% 13.70% 24.32% 19.58% 30.39%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $(000)........ 302,262 315,299 267,389 198,948 161,899
Ratios of expenses to average net
assets(b)............................ .48% .46% .43% .50% .61%
Ratios of net investment income to
average net assets................... 1.35% 1.53% 2.01% 2.80% 3.20%
Portfolio turnover rate................. 46% 30% 108% 72% 61%
</TABLE>
- -------------------------
(a) On May 1, 1997, the investment adviser was changed from Newbold's Asset
Management, Inc. to Sentinel Advisors Company.
(b) Expense ratios before reimbursement of expenses by affiliated insurance
company for the years ended December 31, 1999, 1998, 1997, 1996 and 1995
were as follows: 0.48%, 0.47%, 0.43%, 0.50% and 0.61%, respectively.
B-2
<PAGE> 95
FINANCIAL HIGHLIGHTS -- CONTINUED
<TABLE>
<CAPTION>
BOND PORTFOLIO
(FOR YEAR ENDED)
----------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period...... $11.22 $10.98 $10.67 $11.00 $ 9.73
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................... .62 .63 .64 .63 .65
Net realized and unrealized gain (loss)
on investments....................... (.99) .25 .33 (.34) 1.27
------ ------ ------ ------ ------
Total from investment operations... (.37) .88 .97 .29 1.92
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends to shareholders from net
investment income.................... (.15) (.64) (.66) (.62) (.65)
Dividends to shareholders from net
capital gains........................ (.12) (.00) (.00) (.00) (.00)
------ ------ ------ ------ ------
Total distributions................ (.27) (.64) (.66) (.62) (.65)
------ ------ ------ ------ ------
Net asset value, end of period............ $10.58 $11.22 $10.98 $10.67 $11.00
====== ====== ====== ====== ======
Total return....................... (3.31)% 8.22% 9.50% 2.86% 20.45%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $(000)........ 38,182 36,846 23,350 17,087 14,402
Ratios of expenses to average net
assets(a)............................ .52% .53% .57% .56% .60%
Ratios of net investment income to
average net assets................... 6.19% 6.03% 6.24% 6.08% 6.36%
Portfolio turnover rate................. 202% 163% 105% 133% 206%
</TABLE>
- -------------------------
(a) Expense ratios before reimbursement of expenses by affiliated insurance
company for the years ended December 31, 1999, 1998, 1997, 1996 and 1995
were as follows: 0.52%, 0.55%, 0.57%, 0.56% and 0.60%, respectively.
B-3
<PAGE> 96
FINANCIAL HIGHLIGHTS -- CONTINUED
<TABLE>
<CAPTION>
MANAGED PORTFOLIO
(FOR YEAR ENDED)
---------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period............................. $ 17.68 $ 17.06 $ 14.68 $ 14.19 $ 11.94
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.............. .54 .54 .54 .51 .55
Net realized and unrealized gain
(loss) on investments........... (.41) 1.45 2.49 1.07 2.28
------- ------- ------- ------- -------
Total from investment
operations.................... .13 1.99 3.03 1.58 2.83
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends to shareholders from net
investment income............... (.13) (.55) (.53) (.51) (.57)
Dividends to shareholders from net
capital gains................... (.89) (.82) (.12) (.58) (.01)
------- ------- ------- ------- -------
Total distributions............. (1.02) (1.37) (.65) (1.09) (.58)
------- ------- ------- ------- -------
Net asset value, end of period....... $ 16.79 $ 17.68 $ 17.06 $ 14.68 $ 14.19
======= ======= ======= ======= =======
Total return.................... 0.75% 12.54% 21.23% 11.88% 24.43%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $(000)... 73,986 67,805 56,068 43,431 36,002
Ratios of expenses to average net
assets(a)....................... .57% .57% .58% .60% .66%
Ratios of net investment income to
average net assets.............. 3.25% 3.22% 3.47% 3.68% 4.22%
Portfolio turnover rate............ 156% 203% 99% 106% 130%
</TABLE>
- -------------------------
(a) Expense ratios before reimbursement of expenses by affiliated insurance
company for the years ended December 31, 1999, 1998, 1997, 1996 and 1995
were as follows: 0.57%, 0.58%, 0.58%, 0.60% and 0.66%, respectively.
B-4
<PAGE> 97
FINANCIAL HIGHLIGHTS -- CONTINUED
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH PORTFOLIO
(FOR YEAR ENDED)
----------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period...... $21.91 $22.19 $18.52 $17.38 $15.45
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................... .11 .11 .17 .17 .20
Net realized and unrealized gain (loss)
on investments....................... 2.89 1.50 3.72 3.03 1.86
------ ------ ------ ------ ------
Total from investment operations..... 3.00 1.61 3.89 3.20 2.06
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends to shareholders from net
investment income.................... (.11) (.18) (.18) (.19) (.00)
Dividends to shareholders from net
capital gains........................ (2.83) (1.71) (.04) (1.87) (.13)
------ ------ ------ ------ ------
Total distributions.................. (2.94) (1.89) (.22) (2.06) (.13)
------ ------ ------ ------ ------
Net asset value, end of period............ $21.97 $21.91 $22.19 $18.52 $17.38
====== ====== ====== ====== ======
Total return......................... 15.96% 7.99% 21.21% 21.00% 13.48%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $(000)........ 62,513 56,495 48,574 34,098 23,822
Ratios of expenses to average net assets
(annualized)(a)...................... .57% .61% .63% .68% .76%
Ratios of net investment income to
average net assets (annualized)...... .59% .56% .95% 1.14% 1.32%
Portfolio turnover...................... 46% 41% 37% 47% 89%
</TABLE>
- -------------------------
(a) Expense ratios before reimbursement of expenses by affiliated insurance
company and fee waivers by the administrator for the years ended December
31, 1999, 1998, 1997, 1996 and 1995 were as follows: 0.57%, 0.62%, 0.63%,
0.68% and 0.76%, respectively.
B-5
<PAGE> 98
FINANCIAL HIGHLIGHTS -- CONTINUED
<TABLE>
<CAPTION>
SENTINEL GROWTH PORTFOLIO
(FOR YEAR OR PERIOD ENDED)
-----------------------------------------
3/18/96(a)
TO
1999 1998 1997 12/31/96
------ ------ ------ -----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period............. $13.43 $14.59 $11.14 $10.00
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.......................... .01 .03 .04 .05
Net realized and unrealized gain (loss) on
investments................................. 4.97 1.76 3.47 1.09
------ ------ ------ ------
Total from investment operations............ 4.98 1.79 3.51 1.14
------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends to shareholders from net investment
income...................................... (.03) (.04) (.05) (.00)
Dividends to shareholders from net capital
gains....................................... (.59) (2.91) (.01) (.00)
------ ------ ------ ------
Total distributions......................... (.62) (2.95) (.06) (.00)
------ ------ ------ ------
Net asset value, end of period................... $17.79 $13.43 $14.59 $11.14
====== ====== ====== ======
Total return................................ 38.80% 15.98% 31.58% 11.40%(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $(000)............... 21,297 12,167 8,362 5,664
Ratios of expenses to average net
assets(c)(annualized)....................... .71% .82% .90% .90%
Ratios of net investment income to average net
assets
(annualized)................................ .07% .23% .36% .57%
Portfolio turnover............................. 110% 87% 155% 75%
</TABLE>
- -------------------------
(a) Commencement of operations.
(b) Total returns for periods less than one year are not annualized.
(c) Expense ratio for the Sentinel Growth Portfolio before reimbursement of
expenses by affiliated insurance company for the period ended December 31,
1999, 1998, 1997 and 1996 was as follows: 0.71%, 0.83%, 1.35% and 1.51%
(annualized), respectively.
B-6
<PAGE> 99
FINANCIAL HIGHLIGHTS -- CONTINUED
<TABLE>
<CAPTION>
INTERNATIONAL PORTFOLIO
(FOR YEAR ENDED)
------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.............. $13.85 $13.61 $13.41 $12.86 $11.63
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................... .19 .15 .11 .11 .16
Net realized and unrealized gain (loss) on
investments.................................. 3.61 1.14 1.08 1.23 1.45
------ ------ ------ ------ ------
Total from investment operations............. 3.80 1.29 1.19 1.34 1.61
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends to shareholders from net investment
income....................................... (.16) (.10) (.11) (.16) (.07)
Dividends to shareholders from net capital
gains........................................ (.81) (.95) (.88) (.63) (.31)
------ ------ ------ ------ ------
Total distributions.......................... (.97) (1.05) (.99) (.79) (.38)
------ ------ ------ ------ ------
Net asset value, end of period.................... $16.68 $13.85 $13.61 $13.41 $12.86
====== ====== ====== ====== ======
Total return................................. 29.33% 10.13% 9.66% 10.89% 14.31%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $(000)................ 88,796 71,363 62,513 50,955 36,642
Ratios of expenses to average net
assets(a).................................... .98% 1.00% 1.02% 1.05% 1.15%
Ratios of net investment income to average
net assets................................... 1.32% 1.18% 1.13% 1.08% 1.21%
Portfolio turnover.............................. 41% 37% 37% 35% 45%
</TABLE>
- -------------------------
(a) Expense ratios before reimbursement of expenses by affiliated insurance
company and fee waivers by the administrator for the years ended December
31, 1999, 1998, 1997, 1996 and 1995 were as follows: 0.98%, 1.00%, 1.02%,
1.05% and 1.15%, respectively.
B-7
<PAGE> 100
ADDITIONAL INFORMATION ABOUT THE FUND
ANNUAL/SEMI-ANNUAL REPORTS TO SHAREHOLDERS:
Additional information about the Fund's investments is available in the Fund's
annual and semi-annual reports to shareholders. In the Fund's annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION ("SAI"):
The SAI, which contains additional information about the Fund, has been filed
with the SEC and is incorporated herein by reference. Information about the Fund
(including the SAI) can be reviewed and copied at the SEC's Public Reference
Room in Washington, D.C. Information on the operation of the Public Reference
Room may be obtained by calling the SEC at 1-800-SEC-0330. Reports and other
information about the Fund are available on the SEC's Internet site at
http://www.sec.gov, and copies of this information may be obtained, upon payment
of a duplicating fee, by writing the Public Reference Section of the SEC,
Washington, D.C. 20549-6009.
A free copy of the Fund's SAI and annual report may be obtained and further
inquiries can be made by calling the Fund at 1-800-688-5177 or by writing to the
Fund at 103 Bellevue Parkway, Wilmington, Delaware 19809.
Investment Company Act File No.: 811-4350
<PAGE> 101
MARKET STREET FUND, INC.
103 BELLEVUE PARKWAY
WILMINGTON, DE 19809
1-800-688-5177
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 2000
This Statement of Additional Information ("SAI") is not a prospectus. It should
be read in conjunction with the Market Street Fund, Inc. prospectus (a
"Prospectus") dated May 1, 2000 and retained for future reference.
A copy of each 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. Terms not defined
in this SAI shall have the same meaning as given them in the Prospectuses.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information and History............................. 2
Control Persons............................................. 2
Investment Objectives of the Portfolios..................... 2
Investment Restrictions..................................... 3
Investment Techniques and Risks............................. 4
Portfolio Turnover.......................................... 16
Management of the Fund...................................... 18
Investment Advisory and Other Services...................... 19
Portfolio Transactions and Brokerage Allocation............. 26
Determination of Net Asset Value............................ 28
Redemption of Shares........................................ 29
Taxes....................................................... 30
Capital Stock............................................... 31
Code of Ethics.............................................. 32
Other Services.............................................. 33
Financial Statements........................................ F-1
Appendix A -- Description of Money Market Instruments and
Commercial Paper and Bond Ratings......................... A-1
</TABLE>
<PAGE> 102
GENERAL INFORMATION AND HISTORY
The Market Street Fund, Inc. (the "Fund") was incorporated in the state of
Maryland on March 21, 1985. Each Portfolio of 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 common stock for
each portfolio representing fractional undivided interests in that portfolio.
Currently there are twelve separate investment portfolios (each a "Portfolio,"
together, the "Portfolios"). An investor in a Portfolio is entitled to a
pro-rata share of all dividends and distributions arising from the net income
and capital gains on the investments of that Portfolio. An investor also shares
pro-rata in any losses of that Portfolio. The Portfolios do not intend to
concentrate their respective investments in a particular industry or group of
industries.
The Fund serves as an investment medium for variable life insurance contracts
and variable annuity contracts issued by Provident Mutual Life Insurance Company
("PMLIC"), Providentmutual Life and Annuity Company of America ("PLACA") and
National Life Insurance Company ("NLIC") of Montpelier, Vermont. NLIC is located
at One National Life Drive, Montpelier, Vermont 05604. Each of PMLIC and PLACA
is located at 1000 Chesterbrook Boulevard, Berwyn, PA 19312. Other than the
shares sold directly to PMLIC to seed the All Pro Large Cap Growth, All Pro
Large Cap Value, All Pro Small Cap Growth, All Pro Small Cap Value,
International, Aggressive Growth, and Managed Portfolios, and to NLIC to seed
the Sentinel Growth Portfolio, shares of the Fund currently are sold only to
separate accounts of Provident Mutual and PLACA and to variable life insurance
separate accounts of NLIC. In the future, shares of the Fund may also be sold to
separate accounts of other affiliated or unaffiliated insurance companies in
order to fund variable annuity contracts or variable life insurance policies.
CONTROL PERSONS
As of the date of this SAI, NLIC and certain separate accounts supporting
variable contracts issued by PMLIC and PLACA, respectively, are the only
shareholders of the Portfolios. As the primary holders of the Portfolios'
shares, PMLIC, PLACA, and NLIC together currently are deemed to "control" the
Fund under the 1940 Act. PMLIC and PLACA will continue in this position with
respect to the Fund until other insurance companies, selling significant amounts
of variable life insurance and variable annuities, have made substantial
investments in Fund shares. For purposes of voting on matters submitted to
shareholders, any person who holds a "controlling" interest in a fund, or a
series thereof, may be able to significantly influence the outcome of any
shareholder vote. However, each of PMLIC, PLACA, and NLIC generally votes the
relevant shares at the shareholders' meetings in accordance with the timely
instructions received from owners of variable contracts having contract values
allocated to the relevant separate accounts.
As of January 20, 2000, no policy holder owned a policy or contract that
individually or in the aggregate had a total interest in any Portfolio of more
than 5%. As of January 20, 2000, the officers and directors of the Fund as a
group did not beneficially own as policy holders more than a 1% interest in any
Portfolio.
INVESTMENT OBJECTIVES OF THE PORTFOLIOS
The investment objective or objectives of each Portfolio are set forth below.
These investment objectives are fundamental and may not be changed unless
authorized for each Portfolio by the vote of a "1940 Act majority" of the
outstanding voting shares of the affected Portfolio, voting separately. Approval
by a "1940 Act majority" of a Portfolio's outstanding voting securities means
the approval by the lesser of (1) more than 50% of the Portfolio's outstanding
voting securities, or (2) 67% or more of the Portfolio's outstanding voting
securities present at a meeting if the holders of more than 50% of the
outstanding voting securities of the Portfolio are present (in person or by
proxy) (hereinafter referred to as a "1940 Act Vote").
2
<PAGE> 103
<TABLE>
<CAPTION>
NAME OF PORTFOLIO INVESTMENT OBJECTIVE
- ----------------- --------------------
<S> <C>
All Pro Large Cap Growth Portfolio........ Long-term capital appreciation.
All Pro Large Cap Value Portfolio......... Long-term capital appreciation.
All Pro Small Cap Growth Portfolio........ Long-term capital appreciation.
All Pro Small Cap Value Portfolio......... Long-term capital appreciation.
Equity 500 Index Portfolio................ Long-term capital appreciation.
International Portfolio................... Long-term growth of capital primarily through
investments in a diversified portfolio of
marketable equity securities of established foreign
issuer companies.
Growth Portfolio.......................... Intermediate and long-term growth of capital. A
reasonable level of income is an important
secondary objective.
Aggressive Growth Portfolio............... A high level of long-term capital appreciation.
Managed Portfolio......................... As high a level of long-term total rate of return
as is consistent with prudent investment risk.
Bond Portfolio............................ A high level of current income consistent with
prudent investment risk.
Sentinel Growth Portfolio................. Long-term growth of capital.
Money Market Portfolio.................... Maximum current income consistent with capital
preservation and liquidity.
</TABLE>
INVESTMENT RESTRICTIONS
The following specific restrictions supplement the discussion of the Portfolios'
investment objectives and policies set forth in each Prospectus.
The Fund has adopted the following fundamental restrictions relating to the
investment of assets of the twelve Portfolios. These restrictions may not be
changed except by holders of a 1940 Act majority of outstanding voting shares of
each Portfolio affected. The Fund's fundamental investment restrictions provide
that no Portfolio of the Fund may:
(1) with respect to 75% of the Portfolio's total assets, purchase
securities of an issuer (other than the U.S. Government, its agencies or
instrumentalities), if (a) such purchase would cause more than 5% of the
Portfolio's total assets taken at market value to be invested in the
securities of such issuer, 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;
(2) invest 25% or more of its total assets in the securities of one or
more issuers conducting their principal business activities in the same
industry (excluding the U.S. Government or any of its agencies or
instrumentalities);
(3) borrow money, except a Portfolio may (a) borrow from banks (as
defined in the 1940 Act) or through reverse repurchase agreements in
amounts up to 30% of its total assets (including the amount borrowed), (b)
to the extent permitted by applicable law, borrow up to an additional 5% of
its total assets for temporary purposes, (c) obtain such short-term credits
as may be necessary for the clearance of purchases and sales of portfolio
securities, and (d) purchase securities on margin to the extent permitted
by applicable law;
(4) make loans, except through (a) the purchase of debt obligations in
accordance with the Portfolio's investment objective and policies, (b)
repurchase agreements with banks, broker-dealers and other financial
institutions, and (c) loans of securities as permitted by applicable law;
(5) underwrite securities issued by others, except to the extent that
the sale of portfolio securities by the Portfolio may be considered an
underwriting;
3
<PAGE> 104
(6) purchase, hold or deal in real estate, although a Portfolio may
purchase and sell securities that are secured by real estate or interests
therein, securities of real estate investment trusts and mortgage-related
securities and may hold and sell real estate acquired by a Portfolio as a
result of the ownership of securities;
(7) invest in commodities or commodity contracts, except that the
Portfolio may invest in currency and financial instruments and contracts
that are commodities or commodity contracts; or
(8) issue senior securities to the extent such issuance would violate
applicable law.
The following restrictions are not fundamental policies and may be changed
without the approval of the outstanding voting shares of the affected Portfolio.
No Portfolio may:
(1) sell securities short or maintain a short position except for short
sales against the box; or
(2) invest more than 25% of the value of its total assets in the
securities of foreign issuers and non-dollar securities. This policy does
not apply to the International Portfolio; or
(3) acquire any security which is not readily marketable if more than
15% of the net assets of the Portfolio (other than the Money Market
Portfolio), and 10% of the net assets of the Money Market Portfolio, taken
at market value, would be invested in such securities; or
(4) enter into a stock index futures contract (by exercise of any option
or otherwise) or acquire any options thereon, if immediately thereafter,
the total of the initial margin deposits required with respect to all open
futures positions, at the time such positions were established, plus the
sum of the premiums paid for all unexpired options on stock index futures
contracts would exceed 5% of the value of its total assets.
Except for the limitations on borrowing from banks, if the above percentage
restrictions are adhered to at the time of investment, a later increase or
decrease in such percentage resulting from a change in values of securities or
amount of net assets will not be considered a violation of any of the foregoing
restrictions.
INVESTMENT TECHNIQUES AND RISKS
The following disclosure supplements the discussion of the Portfolios'
investment objectives and policies set forth in the Prospectuses.
TEMPORARY DEFENSIVE POSITIONS
Notwithstanding their investment objective(s), each Portfolio may, for temporary
defensive purposes to preserve capital, invest all or part of its assets in cash
and/or money market instruments of the type in which the Money Market Portfolio
may invest. For temporary defensive purposes to preserve capital, the
International Portfolio may hold part or all of its assets in foreign currency
or in non-dollar short-term debt securities.
REPURCHASE AGREEMENTS
Each Portfolio may invest in repurchase agreements with member banks of the
Federal Reserve System or with dealers in U.S. Government securities. 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 price and date (ordinarily a week or less). The total amount received on
repurchase is 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 is not necessarily 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. Each Portfolio (except the
Money Market Portfolio) will not invest more than 15%, and the Money Market
Portfolio will not invest more than 10%, of its net assets in repurchase
agreements that 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
4
<PAGE> 105
valuation purposes. Under no circumstances will a Portfolio enter into a
repurchase agreement with an adviser or an affiliate of an adviser.
The primary risk of investing in repurchase agreements is that, to the extent
that the proceeds from any sale of the underlying securities and other
collateral relating to a repurchase agreement 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 (including loss of interest on or principal of the
security) 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 will conduct
all repurchase agreement transactions with counterparties that meet standards of
credit worthiness approved by the Board of Directors for all parties with which
the Fund enters into repurchase agreements, and the Board of Directors will
review compliance with these credit standards by all parties periodically.
ILLIQUID AND RESTRICTED SECURITIES
A Portfolio will not acquire any security that is not readily marketable
(illiquid) if, as a result of the purchase, the Portfolio would hold more than
15% of its net assets (10% for the Money Market Portfolio) in those securities.
The Portfolios may purchase and sell restricted securities (i.e., those that are
required to be registered under the Securities Act of 1933 before distribution
to the general public), including restricted securities eligible for resale
under Rule 144A. The Board of Directors may adopt guidelines and delegate to the
adviser or a subadviser the daily function of determining and monitoring
liquidity. The Board, however, will retain oversight and monitor the
determinations.
BORROWING
Each Portfolio may borrow from banks or through reverse repurchase agreements in
amounts up to 30% of its total assets (including the amount borrowed). Each
Portfolio also may, to the extent permitted by applicable law, borrow up to an
additional 5% of its total assets, for temporary purposes, and may obtain such
short-term credits as may be necessary for the clearance of purchases and sales
of portfolio securities and purchase securities on margin to the extent
permitted by applicable law. No Portfolio will borrow money for leveraging
purposes, and no Portfolio will purchase additional securities while its
borrowings exceed the above specified limits. As required by the 1940 Act, each
Portfolio will maintain continuous asset coverage of at least 300% of the amount
borrowed. In the event that a Portfolio's asset coverage falls below 300%, the
Portfolio may be required to sell securities within three days to reduce the
amount of its borrowing and restore the 300% asset coverage. These sales of
securities may occur at a time that is disadvantageous for a Portfolio.
REVERSE REPURCHASE AGREEMENTS
Each Portfolio 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 a Portfolio with an agreement to
repurchase the securities at an agreed upon date and price that reflects a rate
of interest paid for the use of funds for the period. Such transactions are
advantageous only if a 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. A 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 Portfolios intend to enter into such agreements
only when it appears advantageous to do so. The use of reverse repurchase
agreements may magnify any increase or decrease in the value of a Portfolio's
investments. The Portfolios' custodian will maintain, in a segregated account,
fully liquid securities of each Portfolio that have a value equal to or greater
than the respective Portfolio's commitments under reverse repurchase agreements.
The value of securities subject to reverse repurchase agreements will not exceed
30% of the value of the respective
5
<PAGE> 106
Portfolio's total assets. Under no circumstances will a Portfolio enter into a
reverse repurchase agreement with an adviser or any affiliate of an adviser.
COVERED CALL OPTION CONTRACTS
The All Pro, Growth, Aggressive Growth, and Managed Portfolios may engage in
certain limited options strategies. These options strategies are limited to
writing (selling) covered call options that are traded on a domestic securities
exchange with respect to securities in which a Portfolio may invest 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 income
tax law purposes, the writing of covered calls may be further limited.
A covered call option gives the purchaser of the option the right to purchase
the underlying security from a 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 a Portfolio remains obligated as a writer of a call, the Portfolio
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 as the
call previously written on that security. 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.
A 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, writing covered
call options generally helps 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. The investment
program for the Aggressive Growth Portfolio is expected to produce only modest
current income, if any, and such income is not a basic part of the Portfolio's
objective but is merely incidental.
SHORT-TERM TRADING
Other than the Managed and the Bond Portfolios, the Portfolios do not expect to
trade in securities for short-term gains. Notwithstanding this, an adviser may,
from time to time, make short-term investments when it believes that such
investments will benefit a Portfolio and may dispose of any investment without
regard to the length of time that the investment has been held. Each of the
Managed and Bond Portfolios intends to
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use short-term trading of securities if it believes the transactions net of
costs (including any commission) will benefit its investment portfolio for the
purposes of:
(a) Avoiding potential depreciation in the value of a security held in
the investment portfolio where the Portfolio anticipates that the security
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 investment portfolio.
ILLIQUID ASSETS
The Equity 500 Index Portfolio will not invest in illiquid assets. However, no
Portfolio (other than the Money Market Portfolio) may invest more than 15%, and
the Money Market Portfolio may not invest more than 10%, of the value of its net
assets in securities that are not readily marketable. This limit does not apply
to a Portfolio's investment in securities purchased or sold pursuant to Rule
144A under the Securities Act of 1933 that the Board of Directors has determined
are liquid. This restriction does apply to repurchase agreements maturing in
more than seven days. This restriction also applies to securities received as a
result of a corporate reorganization or similar transaction affecting readily
marketable securities already held by the Fund's Portfolios.
INVESTMENT-GRADE SECURITIES
Investment-grade securities include securities rated, at the time of purchase,
"investment grade" by a nationally-recognized statistical rating organization (a
"Rating Agency") (e.g., Baa3 or higher by Moody's Investors Service ("Moody's")
or BBB- or higher by Standard & Poor's Corporation ("Standard & Poor's")) or
unrated securities that the adviser determines to be of comparable quality. (See
Appendix A to this SAI for an explanation of ratings.) Unrated securities of a
quality comparable to rated securities may nonetheless trade in the market at a
discount from the price of comparable rated securities.
LOWER QUALITY DEBT INSTRUMENTS
Up to 25% of the total assets of each of the Bond and the Managed Portfolios may
be invested in lower quality debt instruments (rated BB+ and below by Standard &
Poor's or Ba1 and below by Moody's, or comparable unrated securities).
Furthermore, debt instruments with higher ratings, and especially those rated as
investment-grade but not high quality (as described above) 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 Baa3, the decision whether to retain or
dispose of the bond is 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. Lower-rated debt
instruments are subject to market risk, 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 generally involve
more credit risk than securities in the higher rating categories. In some cases,
these securities may be highly speculative, have poor prospects for reaching
investment-grade standing and be in default. The market values of these
securities tend to reflect market risk and credit risk, as well as individual
corporate developments, to a greater extent than do higher-rated securities,
which react primarily to fluctuations in the general level of interest rates.
These 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 lower-quality, high-yielding securities adversely affect a Portfolio's
net asset value.
Lower-rated, high-yielding securities may be issued by corporations in the
growth stage of their development. These securities may also be issued in
connection with a corporate reorganization or as part of
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a corporate takeover. Companies that issue these 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 these periods, these 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 these 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 an adviser or subadviser
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 to obtain accurate market quotations for purposes of
valuing a Portfolio's assets. Market quotations are generally available on many
high-yield issues only from a limited number of dealers and may not necessarily
represent firm bids of such dealers or prices for actual sales.
The market for high-yielding securities has not weathered a major economic
recession, and the impact of such a recession on that market is unknown. 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 an adviser or subadviser carefully reviews 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.
STOCK INDEX FUTURES CONTRACTS
The Equity 500 Index Portfolio may purchase and sell futures contracts only on
the S&P 500 Index. The Portfolio engages in futures transactions only for bona
fide hedging purposes or for purposes of seeking to increase total returns to
the extent permitted by regulations of the Commodity Futures Trading Commission
("CFTC").
FUTURES CONTRACTS. A futures contract may generally be described as an
agreement between two parties to buy and sell particular financial instruments
for an agreed price during a designated month (or to deliver the final cash
settlement price, in the case of a contract relating to an index or otherwise
not calling for
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physical delivery at the end of trading in the contract). When the prices of
securities comprising the S&P 500 Index are falling, the Portfolio can seek
through the sale of futures contracts to offset a decline in the value of its
current portfolio securities. Conversely, when such equity securities' prices
are rising, the Portfolio, through the purchase of futures contracts, can
attempt to secure better prices than might later be available in the market when
it effects anticipated purchases.
Positions taken in the futures markets are not normally held to maturity but
instead are liquidated through offsetting transactions that may result in a
profit or a loss. While contracts on the S&P 500 Index almost always are
liquidated in this manner, the Equity 500 Index Portfolio may instead make or
take delivery of the underlying securities if it appears economically
advantageous for the Portfolio to do so. A clearing corporation associated with
the exchange on which the contracts are traded guarantees that, if still open,
the sale or purchase will be performed on the settlement date.
RISKS. The use of futures contracts as a hedging device involves several risks.
No assurance can be given that a correlation will exist between price movements
in the S&P 500 Index and price movements in the securities that are the subject
of the hedge. Positions in futures contracts may be closed out only on the
exchange or board of trade on which they were entered, and no assurance can be
given that an active market will exist for a particular contract at any
particular time. Losses incurred in hedging transactions and the costs of these
transactions will affect the Equity 500 Index Portfolio's performance.
In connection with the Equity 500 Index Portfolio, Provident Mutual Life
Insurance Company, and its affiliates and subsidiaries have licensed trademarks
for use by the Portfolio. The Product is not sponsored, endorsed, sold or
promoted by Standard & Poor's, a division of the McGraw-Hill Companies, Inc.
("S&P"). S&P makes no representation or warranty, express or implied, to the
owners of the Product or any member of the public regarding the advisability of
investing in securities generally or in the Product particularly or the ability
of the S&P 500 Index to track general stock market performance. S&P's only
relationship to the Licensee is the licensing of certain trademarks and trade
names of S&P and of the S&P 500 Index which is determined composed and
calculated by S&P without regard to the Licensee or the Product. S&P has no
obligation to take the needs of the Licensee or the owners of the Product into
consideration in determining, composing or calculating the S&P 500 Index. S&P is
not responsible for and has not participated in the determination of the prices
and amount of the Product or the timing of the issuance or sale of the Product
or in the determination or calculation of the equation by which the Product is
to be converted into cash. S&P has no obligation or liability in connection with
the administration, marketing or trading of the Product.
S&P does not guarantee the accuracy and/or the completeness of the S&P 500 Index
or any data included therein and S&P shall have no liability for any errors,
omissions, or interruptions therein. S&P makes no warranty, express or implied,
as to results to be obtained by Licensee, owners of the Product, or any other
person or entity from the use of the S&P 500 Index or any data included therein.
S&P makes no express or implied warranties, and expressly disclaims all
warranties of merchantability or fitness for a particular purpose or use with
respect to the S&P 500 Index or any data included therein. Without limiting any
of the foregoing, in no event shall S&P have any liability for any special,
punitive, indirect, or consequential damages (including lost profits), even if
notified of the possibility of such damages.
MORTGAGE-BACKED SECURITIES
The Managed and Bond Portfolios may invest in mortgage-backed securities, which
represent direct or indirect participation in, or are collateralized by and
payable from, mortgage loans secured by real property or instruments derived
from such loans. Mortgage-backed securities include various types of mortgage-
related securities such as government stripped mortgage-related securities,
adjustable rate mortgage-related securities and collateralized mortgage
obligations, which are described below. These assets are securitized through the
use of trusts and special purpose corporations. Payments or distributions of
principal and interest may be guaranteed up to certain amounts and for certain
time periods by letters of credit or pool
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insurance policies issued by a financial institution unaffiliated with the trust
or corporation. Other credit enhancements also may exist.
Mortgage-related securities represent pools of mortgage loans assembled for sale
to investors by various governmental agencies, such as the Government National
Mortgage Association ("GNMA"), by government-related organizations, such as the
Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC"), as well as by private issuers, such as
commercial banks, savings and loan institutions, mortgage bankers and private
mortgage insurance companies.
The average maturity of pass-through pools of mortgage-related securities in
which certain of the Portfolios may invest varies with the maturities of the
underlying mortgage instruments. In addition, a pool's stated maturity may be
shortened by unscheduled payments on the underlying mortgages. Factors affecting
mortgage prepayments include the level of interest rates, general economic and
social conditions, the location of the mortgaged property and age of the
mortgage. Because prepayment rates of individual mortgage pools vary widely, the
average life of a particular pool cannot be predicted accurately.
Mortgage-related securities may be classified as private, governmental or
government-related, depending on the issuer or guarantor. Private
mortgage-related securities represent pass-through pools consisting principally
of conventional residential mortgage loans created by non-governmental issuers,
such as commercial banks, savings and loan associations and private mortgage
insurance companies. Governmental mortgage-related securities are backed by the
full faith and credit of the United States. GNMA, the principal U.S. guarantor
of these securities, is a wholly-owned U.S. government corporation within the
Department of Housing and Urban Development. Government-related mortgage-related
securities are not backed by the full faith and credit of the United States.
Issuers include FNMA and FHLMC. FNMA is a government-sponsored enterprise owned
entirely by private stockholders, which is subject to general regulation by the
Secretary of Housing and Urban Development. Pass-through securities issued by
FNMA are guaranteed as to timely payment of principal and interest by FNMA.
FHLMC is a corporate instrumentality of the United States, the stock of which is
owned by the Federal Home Loan Banks. Participation certificates representing
interests in mortgages from FHLMC's national portfolio are guaranteed as to the
timely payment of interest and ultimate collection of principal by FHLMC.
Private, governmental or government-related entities may create mortgage loan
pools offering pass-through investments in addition to those described above.
The mortgages underlying these securities may be alternative mortgage
instruments, that is, mortgage instruments whose principal or interest payments
may vary or whose terms to maturity may be shorter than previously customary.
The adviser assesses new types of mortgage related securities as they are
developed and offered to determine their appropriateness for investment by the
relevant Portfolio.
Mortgage-backed securities are often subject to more rapid repayment than their
stated maturity date would indicate as a result of the pass-through of
prepayments of principal on the underlying loans. Prepayments of principal by
mortgagors or mortgage foreclosures shorten the term of the mortgage pool
underlying the mortgage security. The occurrence of mortgage prepayments is a
function of several factors including the level of interest rates, general
economic conditions, the location and age of the mortgage and other social and
demographic conditions. A Portfolio's ability to maintain positions in such
securities is affected by the reductions in the principal amount of such
securities resulting from prepayments, and the Portfolio ability to reinvest
prepayments of principal at comparable yield is subject to generally prevailing
interest rates at that time. The values of mortgage-backed securities varies
with changes in market interest rates generally and the differentials in yields
among various kinds of U.S. Government securities and other mortgage-backed
securities. In periods of rising interest rates, the rate of prepayment tends to
decrease, thereby lengthening the average life of a pool of mortgages supporting
a mortgage-backed security. Conversely, in periods of falling interest rates,
the rate of prepayment tends to increase thereby shortening the average life of
such a pool. Because principal prepayments generally occur when interest rates
are declining, an investor, such as a Portfolio, generally has to reinvest the
proceeds of these prepayments at lower interest rates than those at which its
assets were previously invested. Therefore, mortgage-backed
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securities have less potential for capital appreciation in periods of falling
interest rates than other income-bearing securities of comparable maturity,
although such other income-bearing securities may have a comparable risk of
capital depreciation during periods of rising interest rates.
GOVERNMENT STRIPPED MORTGAGE-RELATED SECURITIES. The Managed and Bond
Portfolios may invest in government stripped mortgage-related securities. These
securities represent beneficial ownership interests in either period principal
distributions ("principal-only") or interest distributions ("interest-only") on
mortgage-backed certificates issued by GNMA, FHLMC, or FNMA. The certificates
underlying the government stripped mortgage-related securities represent all or
part of the beneficial interest in pools of mortgage loans.
Investing in government stripped mortgage-related securities involves all of the
risks of investing in mortgage-backed securities and U.S. Government securities
generally. In addition, the yields on these instruments are extremely sensitive
to the prepayment experience of the mortgage loans making up the pool underlying
the certificates. If a decline in the level of prevailing current interest rates
results in a rate of principal prepayments that is higher than anticipated when
the certificate was created, then distributions of principal will accelerate
thereby reducing the yield to maturity of interest-only securities from that
certificate and increasing the yield to maturity of principal-only securities
from that certificate. Sufficiently high prepayment rates could result in a
Portfolio not recovering its investment in interest-only securities. Where a
certificate represents only a part of the beneficial interest in a pool, the
sensitivity of that certificate to interest rate fluctuations may be greater
than of other interest-only securities derived from other certificates supported
by the same underlying pool because of the particular character of the principal
portion of the pool that the certificate represents.
Government stripped mortgage-related securities are currently traded over the
counter in a market maintained by several investment banking firms. There is no
certainty that a Portfolio will be able to purchase or sell a government
stripped mortgage-related security at any time in the future. The Portfolios
only purchase such securities if a secondary market exists for the securities at
the time of purchase. Except for certain government stripped mortgage-related
securities derived from fixed rate FHLMC and FNMA certificates meeting certain
liquidity requirements established by the Company's Board of Directors, the
Portfolios treat government stripped mortgage-related securities as illiquid
investments.
ADJUSTABLE RATE MORTGAGE-RELATED SECURITIES. The Managed and Bond Portfolios
may invest in adjustable rate mortgage-related securities. Adjustable rate
mortgage-related securities ("ARMs") have interest rates that reset at periodic
intervals. Acquiring ARMs permits a Portfolio to participate in increases in
prevailing current interest rates through periodic adjustments in the coupons of
mortgages underlying the pool on which the certificates are based. These
certificates generally have higher current yield and lower price fluctuation
than is the case with more traditional fixed-income debt securities of
comparable rating and maturity. In addition, when prepayments of principal are
made on the underlying mortgages during periods of rising interest rates, a
Portfolio can reinvest the proceeds of such prepayments at rates higher than
that at which they were previously invested. Mortgages underlying most ARMs,
however, have limits on the allowable annual or lifetime increases that can be
made in the interest rate that the mortgagor pays. Therefore, if current
interest rates rise above such limits over the period of the limitation, a
Portfolio holding an ARM does not benefit from further increases in interest
rates. Moreover, when interest rates are in excess of coupon rates (i.e., the
rates being paid by mortgagors) of the mortgages, ARMs behave more like
fixed-income securities and less like adjustable rate securities. In addition,
during periods of rising interest rates, increases in the coupon rate of
adjustable rate mortgages generally lags current market interest rates slightly,
thereby creating the potential for capital depreciation on such securities.
COLLATERALIZED MORTGAGE OBLIGATIONS. The Managed and Bond Portfolios may invest
in collateralized mortgage obligations ("CMOs"). CMOs are obligations fully
collateralized by a portfolio of mortgages or mortgage-backed securities.
Payments of principal and interest on the mortgages are passed through to the
holders of the CMOs on the same schedule as they are received, although certain
classes of CMOs have priority over other classes with respect to the receipt of
prepayments on the mortgages. Therefore,
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depending upon the type of CMO in which a Portfolio invests, the investment is
subject to a greater or lesser risk of prepayment than other types of
mortgage-backed securities.
GNMA CERTIFICATES. GNMA Certificates are securities representing part ownership
of a pool of mortgage loans. These loans, issued by lenders such as mortgage
bankers, commercial banks and savings and loan associations, are insured either
by the Federal Housing Administration or by the Veterans Administration. Each
pool of mortgage loans is assembled and, after being approved by GNMA, is sold
to investors through broker-dealers in the form of certificates representing
participations in the pool. GNMA guarantees the timely payment of principal and
interest of each mortgage in the pool, and its guarantee is backed by the full
faith and credit of the U.S. Government. GNMA Certificates differ from bonds in
that a borrower pays the principal over the term of the loan rather than in a
lump sum at maturity. GNMA Certificates are called "pass-through" certificates
because both principal and interest payments on the mortgages (including
prepayments) are passed through to the holder of the certificate.
The average life of GNMA Certificates varies with the maturities of the
underlying mortgages. Prepayments of any mortgages in the pool usually results
in the return of the greatest part of principal invested well before the
maturity of the mortgages in the pool. The volume of such prepayments of
principal in a given pool of mortgages influences the actual yield of the GNMA
Certificate.
MORTGAGE DOLLAR ROLLS
The Managed and Bond Portfolios may enter into mortgage "dollar rolls" in which
the Portfolio sells securities for delivery in the current month and
simultaneously contracts with the same counterparty to repurchase substantially
similar (same type, coupon and maturity) but not identical securities on a
specified future date. During the roll period, the Portfolio loses the right to
receive principal and interest paid on the securities sold. However, the
Portfolio benefits to the extent of any difference between the price received
for the securities sold and the lower forward price for the future purchase or
fee income plus the interest earned on the cash proceeds of the securities sold
until the settlement date for the forward purchase. Unless such benefits exceed
the income, capital appreciation and gain or loss due to mortgage prepayments
that would have been realized on the securities sold as part of the mortgage
dollar roll, the use of this technique diminishes the investment performance of
the Portfolio. Successful use of mortgage dollar rolls depends upon the
adviser's ability to predict correctly interest rates and mortgage prepayments.
There is no assurance that mortgage dollar rolls can be successfully employed. A
Portfolio will hold and maintain in a segregated account until the settlement
date cash or liquid assets in an amount equal to the forward purchase price. For
financial reporting and tax purposes, a Portfolio treats mortgage dollar rolls
as two separate transactions; one involving the purchase of a security and a
separate transaction involving a sale. Neither Portfolio currently intends to
enter into mortgage dollar rolls that are accounted for as a financing.
SPDRS
The All Pro Small Cap Growth Portfolio may invest in Standard & Poor's
Depositary Receipts, or "SPDRs." SPDRs are securities that represent ownership
in a long-term unit investment trust that holds a portfolio of common stocks
designed to track the performance of the S&P 500 Index. A Portfolio investing in
a SPDR would be entitled to receive proportionate quarterly cash distributions
corresponding to the dividends that accrue to the S&P 500 stocks in the
underlying investment portfolio, less trust expenses.
FOREIGN SECURITIES
FOREIGN SECURITIES GENERALLY. Investments in the securities of foreign issuers
or investments in non-dollar securities may offer potential benefits not
available from investments solely in securities of domestic issuers or U.S.
dollar-denominated securities. Such benefits may include the opportunity to
invest in foreign issuers that appear to offer better opportunity for long-term
capital appreciation or current earnings than investments in domestic issuers,
the opportunity to invest in foreign countries with economic policies or
business cycles different from those of the United States, and the opportunity
to reduce fluctuations in
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portfolio value by taking advantage of foreign securities markets that do not
necessarily move in a manner parallel to U.S. markets.
Investing in non-dollar securities or in the securities of foreign issuers
involves significant risks that are not typically associated with investing in
U.S. dollar-denominated securities or in securities of domestic issuers. Such
investments may be affected by changes in currency rates, changes in foreign or
U.S. laws, or restrictions applicable to such investments and in exchange
control regulations. For example, a decline in the currency exchange rate would
reduce the value of certain portfolio investments. In addition, if the exchange
rate for the currency in which a Portfolio receives interest payments declines
against the U.S. dollar before such interest is paid as dividends to
shareholders, the Portfolio may have to sell portfolio securities to obtain
sufficient cash to pay such dividends. A Portfolio may purchase or sell foreign
currency and forward foreign currency exchange contracts to hedge its foreign
currency exposure; however, these techniques also entail certain risks. Some
foreign stock markets may have substantially less volume than, for example, the
New York Stock Exchange, and securities of some foreign issuers may be less
liquid than securities of comparable domestic issuers. Commissions and dealer
mark-ups on transactions in foreign investments may be higher than for similar
transactions in the United States. In addition, clearance and settlement
procedures may be different in foreign countries, and, in certain markets, on
certain occasions, such procedures have been unable to keep pace with the volume
of securities transactions, thus making it difficult to conduct such
transactions. For example, delays in settlement could result in temporary
periods when a portion of the assets of a Portfolio are uninvested and no return
is earned thereon. The inability of a Portfolio to make intended investments due
to settlement problems could cause it to miss attractive investment
opportunities. Inability to dispose of portfolio securities or other investments
due to settlement problems could result either in losses to a Portfolio due to
subsequent declines in value of the portfolio investment or, if the Portfolio
has entered into a contract to sell the investment, could result in possible
liability to the purchaser.
Foreign issuers are not generally subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to domestic
companies. There may be less publicly available information about a foreign
issuer than about a domestic one. In addition, there is generally less
government regulation of stock exchanges, brokers, and listed and unlisted
issuers in foreign countries than in the United States. Furthermore, with
respect to certain foreign countries, there is a possibility of expropriation or
confiscatory taxation, imposition of withholding taxes on dividend or interest
payments, limitations on the removal of funds or other assets of a Portfolio, or
political or social instability or diplomatic developments that could affect
investments in those countries. Individual foreign economies also may differ
favorably or unfavorably from the United States economy in such respects as
growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position.
INVESTMENTS IN ADRS, EDRS AND GDRS. Many securities of foreign issuers are
represented by ADRs, EDRs and GDRs. The All Pro, International, Equity 500
Index, Managed, Bond, and Aggressive Growth Portfolios may invest in ADRs, EDRs
and GDRs. ADRs represent the right to receive securities of foreign issuers
deposited in a domestic bank or a foreign correspondent bank. Prices of ADRs are
quoted in U.S. dollars, and ADRs are traded in the United States on exchanges or
over-the-counter and are sponsored and issued by domestic banks. ADRs do not
eliminate all the risk inherent in investing in the securities of foreign
issuers. To the extent that a Portfolio acquires ADRs through banks that do not
have a contractual relationship with the foreign issuer of the security
underlying the ADR to issue and service these ADRs, there may be an increased
possibility that the Portfolio would not become aware of and be able to respond
to corporate actions such as stock splits or rights offerings involving the
foreign issuer in a timely manner. In addition, the lack of information may
result in inefficiencies in the valuation of such instruments. However, by
investing in ADRs rather than directly in the stock of foreign issuers, a
Portfolio will avoid currency risks during the settlement period for either
purchases or sales. In general, there is a large, liquid market in the United
States for ADRs quoted on a national securities exchange or the National
Association of Securities Dealers national market system. The information
available for ADRs is subject to the
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accounting, auditing and financial reporting standards of the domestic market or
exchange on which they are traded, which standards are more uniform and more
exacting than those to which many foreign issuers may be subject.
EDRs and GDRs are receipts evidencing an arrangement with a non-U.S. bank
similar to that for ADRs and are designed for use in non-U.S. securities
markets. EDRs and GDRs are not necessarily quoted in the same currency as the
underlying security.
INVESTMENTS IN EMERGING MARKETS. The International and Managed Portfolios may
invest in securities of issuers located in countries with emerging economies and
or securities markets. These countries are located in the Asia-Pacific region,
Eastern Europe, Central and South America and Africa. Political and economic
structures in many of these countries may be undergoing significant evolution
and rapid development, and such countries may lack the social, political and
economic stability characteristic of more developed countries. Certain of these
countries may have in the past failed to recognize private property rights and
have at times nationalized or expropriated the assets of private companies. As a
result, the risks of foreign investment, generally including the risks of
nationalization or expropriation of assets, may be heightened. In addition,
unanticipated political or social developments may affect the values of a
Portfolio's investments in those countries and the availability to the Portfolio
of additional investments in those countries.
The small size and inexperience of the securities markets in certain of these
countries and the limited volume of trading in securities in those countries may
also make a Portfolio's investments in such countries illiquid and more volatile
than investments in Japan or most Western European countries. In that event, the
Portfolio may be required to establish special custody or other arrangements
before making certain investments in those countries. There may be little
financial or accounting information available with respect to issuers located in
certain of such countries, and it may be difficult as a result to assess the
value or prospects of an investment in such issuers. The laws of some foreign
countries may limit the ability of the International or Managed Portfolio to
invest in securities of certain issuers located in those countries.
FOREIGN CURRENCY TRANSACTIONS
The Equity 500 Index Portfolio will not conduct foreign currency exchange
transactions or enter into forward foreign currency exchange contracts.
To the extent that a Portfolio invests in foreign securities, the value of its
assets 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.
A Portfolio will conduct 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 involves an obligation
by a Portfolio 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 a Portfolio's securities or prevent loss
if the prices of such securities should decline.
A Portfolio may enter into forward foreign currency exchange contracts only
under two circumstances. First, when a 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. A 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 a Portfolio will be better able to protect
14
<PAGE> 115
itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the subject foreign currency during the
period between the date the securities are purchased or sold and the date on
which payment is made or received.
Second, when the adviser 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 a Portfolio's
securities denominated in such foreign currency. The precise matching of the
forward contract amounts and the value of the securities involved is not
generally possible since the future value of such securities in foreign
currencies changes 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. No Portfolio intends to enter into such forward contracts
under this second circumstance on a regular or continuous basis. No Portfolio
will enter into such forward contracts or maintain a net exposure to such
contracts when the consummation of the contracts would obligate a 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 believes
that it is important to have the flexibility to enter into these forward
contracts when it determines that to do so is in the best interests of the
respective Portfolio. The Fund's custodian bank segregates cash or equity or
debt securities in an amount not less than the value of each 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 respective Portfolio's commitments with
respect to such contracts. Under normal circumstances, the Portfolios expect
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.
A Portfolio recognizes 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.
REAL ESTATE INVESTMENT TRUSTS
The Portfolios may invest in shares of real estate investment trusts ("REITs").
REITs are pooled investment vehicles that invest primarily in income producing
real estate or real estate related loans or interests. REITs generally are
classified as equity REITs, mortgage REITs or a combination of equity and
mortgage REITs. Equity REITs invest the majority of their assets directly in
real property and derive income primarily from the collection of rents. Equity
REITs can also realize capital gains by selling properties that have appreciated
in value. Mortgage REITs invest the majority of their assets in real estate
mortgages and derive income from the collection of interest payments. REITs are
not taxed on income distributed to shareholders provided they comply with
several requirements of the Code. A Portfolio will indirectly bear its
proportionate share of any expenses paid by REITs in which it invests in
addition to the expenses paid by the Portfolio.
Investing in REITs involves certain unique risks. Equity REITs may be affected
by changes in the value of the underlying property owned by such REITs, while
mortgage REITs may be affected by the quality of any credit extended. REITs are
dependent upon management skills, are not diversified (except to the extent the
Code requires), and are subject to the risks of financing projects. REITs are
subject to heavy cash flow dependency, default by borrowers, self-liquidation,
and the possibilities of failing to qualify for the exemption from tax for
distributed income under the Code and failing to maintain their exemptions from
the 1940 Act. REITs (especially mortgage REITs) are also subject to interest
rate risk.
15
<PAGE> 116
WHEN-ISSUED SECURITIES AND DELAYED DELIVERY SECURITIES
Each Portfolio, except the Sentinel Growth Portfolio, may purchase securities on
a when-issued or delayed delivery basis in an amount up to 10% of such
Portfolio's net assets. When-issued securities transactions arise when
securities are purchased by a Portfolio with payment and delivery taking place
on a future date determined at the time of entering into the transaction
(transaction date) in order to secure what is considered to be an advantageous
price and yield to the Portfolio on the transaction date. Once a Portfolio
commits to purchase securities on a when-issued or delayed delivery basis, it
records the transaction and thereafter reflects the daily value of such
securities in determining its net asset value. Although a Portfolio generally
purchases when-issued securities with the intention of acquiring those
securities for its portfolio, the Portfolio may dispose of a when-issued
security prior to settlement if the adviser deems it advantageous to do so. For
all when-issued securities transactions, the Fund's custodian bank will hold and
maintain in a segregated account until the settlement date, cash or fully liquid
securities of the Portfolio with a market value, determined daily, equal to or
greater than such commitments. If a Portfolio elects to dispose of the right to
acquire a when-issued security prior to its acquisition, it could experience a
gain or loss on the security due to market fluctuation.
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. If a Portfolio's portfolio turnover rate exceeds 100%, the result may
be correspondingly increased brokerage expenses and other acquisition costs to
that Portfolio (see "Portfolio Transactions and Brokerage Allocation.").
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 is calculated for the Money Market Portfolio due to
the short maturities of the instruments the Portfolio purchases. 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.
The annual portfolio turnover rates for 1999, 1998, and 1997 (as applicable) for
each of the Portfolios (except the Money Market Portfolio) is set forth below.
There are no portfolio turnover data for 1997 for the All Pro Portfolios because
each such Portfolio commenced operations only in 1998. There are no Portfolio
turnover data for the years 1997 and 1998 for the Equity 500 Index Portfolio
because the Portfolio commenced operations only in 1999.
16
<PAGE> 117
<TABLE>
<CAPTION>
NAME OF PORTFOLIO 1999 1998 1997
- ----------------- ---- ---- ----
<S> <C> <C> <C>
All Pro Large Cap Growth Portfolio.......................... 83% 64% N/A
All Pro Large Cap Value Portfolio........................... 64% 39% N/A
All Pro Small Cap Growth Portfolio.......................... 114% 82% N/A
All Pro Small Cap Value Portfolio........................... 114% 38% N/A
International Portfolio..................................... 41% 37% 37%
Equity 500 Index Portfolio*................................. N/A N/A N/A
Growth Portfolio............................................ 46% 30% 108%
Aggressive Growth Portfolio................................. 46% 41% 37%
Managed Portfolio........................................... 156% 203% 99%
Bond Portfolio.............................................. 202% 163% 105%
Sentinel Growth Portfolio................................... 110% 87% 155%
</TABLE>
- ---------------
* The Equity 500 Index Portfolio commenced operations on February 7, 2000.
17
<PAGE> 118
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The Fund's board of directors is responsible for the overall administration of
the Fund's affairs including deciding matters of general policy and reviewing
the actions of the Advisers, the custodian, and accounting and administrative
services providers.
The directors and officers of the Fund, their principal occupations for the last
five years and compensation each director and officer received from the Fund in
1999 are set forth below. Unless otherwise noted, the address of each director
and officer is 103 Bellevue Parkway, Wilmington, DE 19809.
<TABLE>
<CAPTION>
NAME, AGE, 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>
Mr. Robert W. Kloss*................. Director Director since April 22, $ 0
Age 51 1998; President and Chief
1000 Chesterbrook Boulevard Executive Officer ("CEO") of
Berwyn, Pennsylvania 19312 PMLIC since November 1, 1994;
1984-1994, President and CEO
of Covenant Life Insurance
Company
Dr. Alan Gart........................ Director Director since March 21, $11,000
Age 59 1985; 1982-Present, President
978 Warfield Lane of Alan Gart, Inc. (a
Huntingdon Valley, consulting firm);
PA 19006 1992-Present; Professor, Nova
Southeastern University;
1989-1992, Professor,
Southeastern Massachusetts
University; 1985-1989,
Professor of Finance, Leh-
man College of the City
University of New York
Dr. A. Gilbert Heebner............... Director Director since May 12, 1989; $11,000
Age 73 1987-Present, Distinguished
2 Etienne, Arbordeau Professor of Economics,
Devon, PA 19333 Eastern College; 1952-1987,
Executive Vice President and
Chief Economist of CoreStates
Financial Corp.
Mr. Leo Slack........................ Director Director since February 11, $11,000
Age 65 1998; Retired since 1996;
4700 White Tail Lane 1964-1996 Vice President,
Sarasota, FL 34238 Combustion Engineers
Corporation
Mr. Edward S. Stouch................. Director Director since December 12, $11,000
Age 82 1985; Retired since 1983;
216 Grandview Rd. 1969-1983, Vice President and
Media, PA 19063 Head of Personal Trust
Investment Department, Trust
Division of Provident
National Bank
Ms. Rosanne Gatta.................... President 1993-Present, Vice President $ 0
Age 44 and Treasurer of PMLIC
</TABLE>
18
<PAGE> 119
<TABLE>
<CAPTION>
NAME, AGE, 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>
Ms. Sarah C. Lange................... Vice President March 2000-Present, Chief $ 0
Age 43 Investment Officer and Senior
Vice President of PMLIC;
1983-February 2000, Vice
President Investments of
PMLIC
Mr. James D. Kestner................. Vice President 1994-Present, Vice President $ 0
Age 52 Investments of PMLIC; 1975-
1994, Vice President,
Investments of Covenant Life
Insurance Company
James G. Potter, Jr., Esq............ Vice President 1997-Present, Executive Vice $ 0
Age 42 President, General Counsel
and Secretary of PMLIC;
1989-1997 Chief Legal Officer
Prudential Banks
Mr. Anthony T. Giampietro............ Treasurer 1990-Present, Assistant $ 0
Age 40 Treasurer of PMLIC
James Bernstein, Esq................. Secretary May 1992-1995, Associate, $ 0
Age 34 Jorden Burt; 1996-May 1999,
1000 Chesterbrook Boulevard Partner, Jorden Burt; October
Berwyn, Pennsylvania 19312-1181 1999-Present, Assistant
General Counsel, PMLIC
</TABLE>
- -------------------------
* "interested person" of the Fund for 1940 Act purposes.
As of the date of this SAI, certain officers and directors of the Fund own
either variable annuity contracts or variable life insurance policies that are
supported by separate accounts of Provident Mutual and, in that sense, have an
interest in shares of the Fund. The officers and directors as a group own less
than 1% of the outstanding shares of the Fund and of each Portfolio. Directors
who are not officers or employees of PMLIC 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 1999 were $44,000. 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 All Pro Large Cap Growth, All Pro
Large Cap Value, All Pro Small Cap Growth, All Pro Small Cap Value,
International and Equity 500 Index Portfolios -- Market Street Investment
Management Company ("MSIM"); and for the Growth, Aggressive Growth, Managed,
Bond, Sentinel Growth and Money Market Portfolios -- Sentinel Advisors Company
("SAC"). Prior to May 1, 1997 the investment adviser for the Growth Portfolio
was Newbold's Asset Management, Inc. ("NAM").
19
<PAGE> 120
On behalf of each Portfolio set forth below, MSIM has engaged one or more
respective investment advisers to serve as subadviser to such Portfolio. The
name of each subadviser to a Portfolio is set forth below opposite the relevant
Portfolio.
<TABLE>
<CAPTION>
NAME OF PORTFOLIO NAME OF SUBADVISER
----------------- ------------------
<S> <C>
All Pro Large Cap Growth Portfolio...... Cohen, Klingenstein & Marks, Inc. ("CKM")
Geewax, Terker & Co. ("Geewax")
All Pro Large Cap Value Portfolio....... Equinox Capital Management, Inc. ("Equinox")
Sanford C. Bernstein & Co., Inc. ("Bernstein")
Mellon Equity Associates ("Mellon Equity")
All Pro Small Cap Growth Portfolio...... Standish, Ayer and Wood ("SAW")
Husic Capital Management ("Husic")
All Pro Small Cap Value Portfolio....... Reams Asset Management Company, LLC ("Reams")
Sterling Capital Management Company ("Sterling")
International Portfolio................. The Boston Company Asset Management, Inc. ("TBC")
Equity 500 Index Portfolio.............. State Street Global Advisors ("SSgA")
</TABLE>
Together, MSIM, SAC, SSgA, TBC and the investment subadvisers for the All Pro
Portfolios are the "Advisers."
MSIM has retained Wilshire Associates Incorporated as an investment management
consultant to assist MSIM in identifying and evaluating the performance of
potential subadvisers for each of the All Pro Portfolios.
MSIM and SAC provide investment advice to the Fund's Portfolios, 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 place orders for all such purchases and sales on
behalf of the Fund.
SAC is a general partnership owned and controlled by Sentinel Advisors, Inc., an
indirectly wholly-owned subsidiary of NLIC; Providentmutual Management Co.,
Inc., an indirectly wholly-owned subsidiary of PMLIC; HTK of Delaware, Inc., a
wholly-owned subsidiary of The Penn Mutual Life Insurance Company ("Penn
Mutual"); and Sentinel Management Company, a partnership of wholly-owned
subsidiaries of NLIC, PMLIC and Penn Mutual, which is SAC's Managing General
Partner. SAC is located at National Life Drive, Montpelier, Vermont 05604.
MSIM is a registered investment adviser and is also an indirect wholly-owned
subsidiary of PMLIC. Its address is 1000 Chesterbrook Boulevard, Berwyn,
Pennsylvania 19312. 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 PMLIC and by National Life Investment
Management Company, Inc. ("NLIMC") a wholly-owned subsidiary of NLIC. Its
address is One National Life Drive, Montpelier, Vermont.
SSgA is a wholly-owned subsidiary of State Street Corporation, a publicly held
bank holding company. SSgA is located at One International Place, Boston, MA
02110.
TBC is a Massachusetts corporation and a wholly-owned subsidiary of The Boston
Company, Inc., which is a wholly-owned subsidiary of the Mellon Bank
Corporation. TBC is located at One Boston Place, Boston, MA 02108.
20
<PAGE> 121
ADVISORY AGREEMENTS
On April 29, 1998, the Fund's Board of Directors, including a majority of the
"non-interested" directors approved the investment advisory agreement between
the Fund and MSIM respecting MSIM providing investment advisory services for the
All Pro Large Cap Growth, All Pro Large Cap Value, All Pro Small Cap Growth, and
All Pro Small Cap Value Portfolios, to be effective May 1, 1998. On April 29,
1998, the initial shareholders of each of these Portfolios, PMLIC and PLACA,
approved the Fund's investment advisory agreement for each All Pro Portfolio.
The investment advisory agreement between the Fund and MSIM with respect to the
International Portfolio was originally approved by the Board of Directors of the
Fund, including a majority of the "non-interested" directors on July 31, 1991.
On October 26, 1992, the Fund's Board of Directors, 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 September 23, 1999, the Fund's Board of Directors, including a majority of
the "non-interested" directors approved the investment advisory agreement
between the Fund and MSIM respecting MSIM providing investment advisory services
for the Equity 500 Index Portfolio. On September 23, 1999, the initial
shareholders, PMLIC and PLACA, approved the Fund's investment advisory agreement
for the Equity 500 Index Portfolio.
The investment advisory agreement between the Fund and SAC became effective on
March 1, 1993. The agreement was approved by the Fund's Board of Directors,
including a majority of the "non-interested" directors, on October 26, 1992, and
by the shareholders, PMLIC and PLACA, of the Bond, Managed, and Aggressive
Growth Portfolios on January 29, 1993.
On February 26, 1996, the Fund's Board of Directors, 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 Money Market and Sentinel Growth Portfolios, and unanimously
voted to approve continuation of all the investment advisory agreements with SAC
and MSIM. On March 18, 1996, shareholders, NLIC, approved the Fund's investment
advisory agreement for the Sentinel Growth Portfolio. On April 25, 1996,
shareholders, PMLIC and PLACA, approved the Fund's investment advisory agreement
for the Money Market Portfolio.
On February 27, 1997 the Fund's Board of Directors, including a majority of the
"non-interested" directors approved the investment advisory agreement between
the Fund and SAC respecting SAC providing advisory services for the Growth
Portfolio, to be effective May 1, 1997. On April 24, 1997, shareholders, PMLIC
and PLACA, approved the Fund's investment advisory agreement for the Growth
Portfolio.
In voting to approve each of the foregoing advisory agreements PMLIC, PLACA,
and/or NLIC voted their Fund shares for or against such approvals, or withheld
their votes, in the same proportion as Policyholders having an interest in the
respective Portfolios, voted for, against or withheld their votes with respect
to the agreement for that 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 1940
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 (1) a 1940 Act vote of the Portfolio's shareholders or (2) 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 objective(s) and policies as stated in the Fund's
Articles of Incorporation, By-Laws, Prospectus and SAI, as from time to time in
effect. In connection therewith, the
21
<PAGE> 122
Advisers provide investment research and supervision of the Fund's investments
and conduct a continuous program of investment evaluation and, if appropriate,
sales and reinvestment of the Fund's assets. The Advisers furnish to the Fund
such statistical information, with respect to the investments which the Fund may
hold or contemplate purchasing, as the Fund may reasonably request. On the
Advisers' own initiatives, the Advisers apprise the Fund of important
developments materially affecting each Portfolio and furnish the Fund from time
to time such information as the Advisers may believe appropriate for this
purpose. The Advisers also implement all purchases and sales of investments for
each Portfolio in a manner consistent with such policies.
ALL PRO LARGE CAP GROWTH, ALL PRO LARGE CAP VALUE, ALL PRO SMALL CAP GROWTH, AND
ALL PRO SMALL CAP VALUE PORTFOLIOS. As an investment advisory fee, MSIM
receives 0.70% of the daily net assets of the All Pro Large Cap Growth and All
Pro Large Cap Value Portfolios, and 0.90% of the daily net assets of the All Pro
Small Cap Growth and All Pro Small Cap Value Portfolios.
INTERNATIONAL PORTFOLIO. The investment advisory fee paid to MSIM 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 "Investment Sub-Advisory Agreement for International
Portfolio").
EQUITY 500 INDEX PORTFOLIO. The investment advisory fee paid to MSIM with
respect to the Equity 500 Index Portfolio is 0.24% of the average daily net
assets of the Portfolio.
GROWTH PORTFOLIO. The investment advisory fee paid to SAC 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.
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.
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.
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.
SENTINEL GROWTH PORTFOLIO. The investment advisory fee paid to SAC with respect
to the Sentinel Growth Portfolio is 0.50% of the first $20 million of the
average daily net assets of the Portfolio, 0.40% of the next $20 million of the
average daily net assets of the Portfolio, and 0.30% of the average daily net
assets in excess of $40 million.
MONEY MARKET PORTFOLIO. The investment advisory fee paid to SAC with respect to
the Money Market Portfolio is 0.25% of the average daily net assets of the
Portfolio.
The investment advisory fee incurred for MSIM during 1999 was $174,315,
$145,234, $180,903, $85,907 and $568,324 for the All Pro Large Cap Growth, All
Pro Large Cap Value, All Pro Small Cap Growth, All Pro Small Cap Value, and
International Portfolios, respectively. The investment advisory fee incurred for
SAC during 1999 was $1,003,377, $225,914, $296,660, $126,876, $74,269 and
$261,012 for the Growth, Aggressive Growth, Managed, Bond, Sentinel Growth, and
Money Market Portfolios, respectively.
The investment advisory fee incurred for MSIM during 1998 was $55,054, $56,126,
$33,737, $31,846 and $518,379 for the All Pro Large Cap Growth, All Pro Large
Cap Value, All Pro Small Cap Growth, All Pro Small Cap Value, and International
Portfolios, respectively. The investment advisory fee incurred for SAC
22
<PAGE> 123
during 1998 was $928,340, $216,651, $248,484, $100,348, $50,621 and $197,450 for
the Growth, Aggressive Growth, Managed, Bond, Sentinel Growth, and Money Market
Portfolios, respectively.
The investment advisory fee incurred for NAM during 1997 with respect to the
Growth Portfolio was $223,312. The total investment advisory fee incurred for
MSIM during 1997 with respect to the International Portfolio was $440,914. The
total investment advisory fee incurred for SAC during 1997 was $1,121,203,
allocated $516,971, $185,551, $199,166, $67,663 and $151,852 for the Growth,
Aggressive Growth, Managed, Bond, and Money Market Portfolios, respectively.
EXPENSES
The Portfolios directly assume certain of their expenses, and all expenses borne
by the Fund, including the fees payable to the Advisers are accrued daily.
Expenses that are borne directly by the Portfolios include redemption expenses,
expenses of 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 that 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 proxy statement or a
lawsuit, these costs may be directly applicable to the Portfolios or allocated
on the basis of the size of the respective Portfolios.
For the fiscal year ended December 31, 1999, each Portfolio bore total expenses,
computed as a percentage of the average daily net assets of that Portfolio, as
follows: All Pro Large Cap Growth Portfolio -- .89%; All Pro Large Cap Value
Portfolio -- .91%; All Pro Small Cap Growth Portfolio -- 1.11%; All Pro Small
Cap Value Portfolio -- 1.20%; International Portfolio -- .98%; Growth
Portfolio -- .48%; Aggressive Growth Portfolio -- .57%; Managed
Portfolio -- .57%; Bond Portfolio -- .52%; Sentinel Growth Portfolio -- .71%;
and Money Market Portfolio -- .40%.
Effective November 1, 1991, PMLIC agreed to reimburse the Fund for such expenses
in excess of 0.75% of the average daily net asset value of the International
Portfolio and 0.40% for the Growth, Aggressive Growth, Managed, Bond, and Money
Market Portfolios. Effective March 18, 1996, NLIC agreed to reimburse the Fund
for such expenses in excess of 0.40% of the average daily net asset value of the
Sentinel Growth Portfolio. PMLIC has agreed to reimburse the Fund for such
expenses in excess of 0.40% of the average daily net asset value of each of the
All Pro Portfolios.
During 1999, PMLIC reimbursed the Fund $564 in expenses for the Small Cap Value
Portfolio.
During 1998, PMLIC reimbursed the Fund $2,423 in expenses for the Small Cap
Value Portfolio.
During 1997, there were no reimbursements for the International, Growth,
Aggressive Growth, Managed, Bond, and Money Market Portfolios. For the Sentinel
Growth Portfolio, the reimbursement in 1997 was $30,617.
ADMINISTRATIVE SERVICES
PFPC Inc. ("PFPC") provides certain administrative services to the Fund pursuant
to an administration agreement between PFPC and the Fund. Such services include
maintaining the Portfolios' books and records, preparing governmental filings,
statements, returns, and stockholder reports, and computing net asset value and
daily dividends. For such services, PFPC is paid a fee at an annual rate 0.10%
on the first $175 million, 0.075% on the next $175 million, 0.05% on the next
$175 million, and 0.03% in excess of $525 million, of each Portfolios' net
assets, computed daily and paid monthly, with a minimum aggregate annual fee
with respect to all Market Street Portfolios totaling $580,000. PFPC is a wholly
owned subsidiary of PNC Bank.
23
<PAGE> 124
INVESTMENT SUB-ADVISORY AGREEMENTS
MSIM has retained Wilshire Associates Incorporated ("Wilshire") as an investment
management consultant to assist it in identifying and evaluating the performance
of potential subadvisers for each of the All Pro Portfolios. Wilshire does not
participate in the selection of portfolio securities for any Portfolio or in any
way participate in the day-to-day management of the All Pro Portfolios or the
Fund. Wilshire assists MSIM in gathering data and performing the quantitative
analysis necessary to identify the styles and past performance of potential
subadvisers. Wilshire also assists MSIM in performing similar ongoing
quantitative analysis of the performance of each All Pro Portfolio's subadvisers
and in determining whether changes in a subadviser would be desirable for a
Portfolio. As compensation for such services, MSIM pays Wilshire a subadvisory
fee equal to .05% of the average daily net assets of the All Pro Portfolios.
On behalf of the All Pro Portfolios, and after consultation with Wilshire, MSIM
has selected, and has entered into Investment Sub-Advisory Agreements with, the
subadvisers listed above under "Investment Advisory and Other Services." The
table below indicates the rate of compensation to be paid by MSIM to each
subadviser pursuant to the relevant Investment Sub-Advisory Agreement and the
compensation paid to each such subadviser in 1999.
<TABLE>
<CAPTION>
COMPENSATION
NAME OF PORTFOLIO SUBADVISER RATE OF COMPENSATION(1) PAID IN 1999(1)
----------------- ---------- ----------------------- ---------------
<S> <C> <C> <C>
All Pro Large Cap Growth
Portfolio.................. CKM .35% .35%
Geewax .30% .30%
All Pro Large Cap Value
Portfolio.................. Equinox .25% of the first $50 million .29%(2)
in assets
.23% of assets above $50
million
Bernstein 0.60% of the first N/A(3)
$10,000,000
0.50% of the next $15,000,000
0.40% of the next $25,000,000
0.30% of the next $50,000,000
0.25% of the next $50,000,000
0.225% of the next
$50,000,000
0.20% of the next $50,000,000
0.175% of the next
$50,000,000
0.15% of amounts in excess of
$300,000,000
Mellon Equity .20% .24%(2)
All Pro Small Cap Growth
Portfolio.................. SAW .50% .50%
Husic .50% .50%
All Pro Small Cap Value
Portfolio.................. Reams .50% .50%
Sterling .70% N/A(3)
</TABLE>
- -------------------------
(1) As a percentage of average daily net assets.
(2) Each of Equinox and Mellon Equity reduced its highest rate to .25% and .20%,
respectively, as of March 1, 1999.
(3) Sterling and Bernstein each began managing the relevant segment of the
Portfolio's assets in February 2000 and April, 2000, respectively, and,
accordingly, did not receive compensation in 1999.
24
<PAGE> 125
Each Investment Sub-Advisory Agreement (except the agreement with Bernstein for
the All Pro Large Cap Value Portfolio) entered into on behalf of each All Pro
Portfolio (except the All Pro Small Cap Value Portfolio) was approved by a
majority of the Fund's Board of Directors, including a majority of its "non-
interested" directors, at a meeting of the Board that took place on April 29,
1998. The Board, including a majority of its "non-interested" directors,
approved the Investment Sub-Advisory Agreements with Reams, Sterling and
Bernstein at meetings of the Board that took place on December 9, 1999, January
27, 2000 and March 13, 2000, respectively. Each Agreement (except the Agreements
for the All Pro Small Cap Value Portfolio and with Bernstein for the All Pro
Large Cap Value Portfolio) became effective on May 1, 1998. The Reams Agreement
became effective on December 24, 1999, the Sterling Agreement became effective
on February 7, 2000 and the Bernstein Agreement became effective on or about
April 3, 2000. The initial term of each such Investment Sub-Advisory Agreement
is two years, and it will continue in effect from year to year thereafter as
long as such continuance is approved at least annually by a majority of the
"non-interested" members of the Fund's Board of Directors and by (i) a 1940 Act
vote of the relevant All-Pro Portfolio's shareholders or (ii) the Fund's Board
of Directors. Each Investment Sub-Advisory Agreement may be terminated without
penalty on 60 days' prior written notice by the Fund's Board of Directors, by
MSIM, or by the relevant subadviser, as the case may be, and terminates
automatically in the event of its assignment.
As stated in the Prospectus, MSIM has entered into an Investment Sub-Advisory
Agreement with TBC whereby TBC provides subadvisory services to the
International Portfolio, under which MSIM receives recommendations, research and
other investment services upon which it may base its investment recommendation
to the Fund.
For its services to MSIM, TBC received compensation from MSIM 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 Investment Sub-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 November 15, 1994 the
Investment Sub-Advisory Agreement was approved by shareholders of the
International Portfolio. On February 27, 1997, the Fund's Board of Directors,
including a majority of its "non-interested" directors, unanimously voted to
approve continuation of the Investment Sub-Advisory Agreement with TBC. The
Investment Sub-Advisory Agreement continues in effect from year to year as long
as such continuance is approved at least annually by a majority of the
"non-interested" members of the Fund's Board of Directors and by (1) a 1940 Act
vote of the Portfolio's shareholders or (2) the Fund's Board of Directors. The
Investment Sub-Advisory Agreement may be terminated without penalty on 60 days'
prior written notice by the Fund's Board of Directors, by MSIM or by TBC, as the
case may be, and terminates automatically in the event of its assignment.
For 1999, 1998, and 1997 MSIM paid TBC $284,162, $259,189, and $220,457,
respectively, for investment advisory services in connection with the
International Portfolio.
As stated in the Prospectus, MSIM has entered into an Investment Sub-Advisory
Agreement with SSgA whereby SSgA provides subadvisory services to the Equity 500
Index Portfolio, under which MSIM receives recommendations, research and other
investment services upon which it may base its investment recommendation to the
Fund.
For its services to MSIM, SSgA will receive compensation from MSIM equal to a
monthly fee at an effective annual rate of .25% of the first $200 million of the
average daily net assets of the Portfolio, .20% of the next $500 million of the
average daily net assets, and .15% of the average daily net assets over $700
million.
The Investment Sub-Advisory Agreement was approved by a majority of the Fund's
Board of Directors, including a majority of its "non-interested" directors, on
September 23, 1999 and became effective on
25
<PAGE> 126
February 7, 2000. The initial term of this Investment Sub-Advisory Agreement is
two years, and it continues in effect from year to year thereafter as long as
the continuance is approved at least annually by a majority of the
"non-interested" members of the Fund's Board of Directors and by (1) a 1940 Act
vote of the Portfolio's shareholders or (2) the Fund's Board of Directors. The
Investment Sub-Advisory Agreement may be terminated without penalty on 60 days'
prior written notice by the Fund's Board of Directors, by MSIM or by SSgA, as
the case may be, and terminates automatically in the event of its assignment.
INFORMATION ABOUT ADVISERS
The principal officers of MSIM are:
<TABLE>
<CAPTION>
POSITION WITH POSITION WITH
NAME MSIM THE FUND
---- ------------- -------------
<S> <C> <C>
Sarah Lange President none
James Benson Financial Officer none
Scott V. Carney Vice President none
Rosanne Gatta Vice President President
Timothy Henry Vice President none
James Kestner Vice President none
Dean Miller Vice President none
William Rapp Vice President none
Richard J. Simon Vice President none
Steven Schweitzer Vice President none
Dina M. Welch Vice President none
Anthony T.
Giampietro Treasurer Treasurer and Comptroller
</TABLE>
The principal officers of SAC are:
<TABLE>
<CAPTION>
POSITION WITH POSITION WITH
NAME SAC THE FUND
---- ------------- -------------
<S> <C> <C>
Rodney A. Buck Chief Executive Officer None
Robert L. Lee,
Jr. Senior Vice President None
David M. Brownlee Senior Vice President None
D. Russell Morgan Counsel None
Dean R. Howe Treasurer None
</TABLE>
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
The Advisers, other than Wilshire, place all portfolio orders on behalf of each
Portfolio and attempt, in all cases, to obtain the most favorable prices and
executions. The Advisers 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.
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
26
<PAGE> 127
consists primarily of mark-ups on the value of the securities or dealer spreads
and underwriting commissions.
The Advisers 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 the Fund or any Portfolio, except the All Pro Portfolios, to pay higher
brokerage commissions to a firm solely because it has provided such services.
The subadvisers to the All Pro Portfolios are authorized to consider, in the
selection of brokers and dealers to execute portfolio transactions, not only the
available prices and rates of brokerage commissions but also other relevant
factors which may include, without limitation, the execution capabilities of
such brokers and dealers, research, custody and other services provided by such
brokers and dealers that the subadviser believes will enhance its general
portfolio management capabilities, the size of the transaction, the difficulty
of execution, the operational facilities of such brokers and dealers, the risk
to such a broker or dealer of positioning a block of securities, and the overall
quality of brokerage and research services provided by such brokers and dealers.
In connection with the foregoing, a subadviser to an All Pro Portfolio is
specifically authorized to pay those brokers and dealers who provide brokerage
and research services to it, a higher commission than that charged by other
brokers and dealers if the subadviser determines in good faith that the amount
of such commission is reasonable in relation to the value of such services in
terms of either the particular transaction or in terms of the subadviser's
overall responsibilities with respect to the relevant Portfolio segment and to
any other client accounts or portfolios that the subadviser advises. The
execution of such transactions shall not be considered to represent an unlawful
breach of any duty created by a subadvisory agreement or otherwise. 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, 1999 to December 31, 1999 the Fund paid
aggregate brokerage fees of $509,685 of which $33,225 was paid by the All Pro
Large Cap Growth Portfolio, $35,256 was paid by the All Pro Large Cap Value
Portfolio, $29,265 was paid by the All Pro Small Cap Growth Portfolio, $43,457
was paid by the All Pro Small Cap Value Portfolio, $151,919 was paid by the
International Portfolio, $370,690 was paid by the Growth Portfolio, $61,346 was
paid by the Aggressive Growth Portfolio, $55,610 was paid by the Managed
Portfolio, $0 was paid by the Bond Portfolio, $28,919 was paid by the Sentinel
Growth Portfolio, and $0 was paid by the Money Market Portfolio.
During the period from January 1, 1998 to December 31, 1998 the Fund paid
aggregate brokerage fees of $522,878 of which $11,433 was paid by the All Pro
Large Cap Growth Portfolio, $23,232 was paid by the All Pro Large Cap Value
Portfolio, $11,485 was paid by the All Pro Small Cap Growth Portfolio, $20,411
was paid by the All Pro Small Cap Value Portfolio, $128,845 was paid by the
International Portfolio, $214,842 was paid by the Growth Portfolio, $59,955 was
paid by the Aggressive Growth Portfolio, $19,438 was paid by the Sentinel Growth
Portfolio, and $33,237 was paid by the Managed Portfolio.
During the period from January 1, 1997 to December 31, 1997 the Fund paid
aggregate brokerage fees of $813,965 of which $131,781 was paid by the
International Portfolio, $585,281 was paid by the Growth Portfolio, $54,894 was
paid by the Aggressive Growth Portfolio, $19,172 was paid by the Sentinel Growth
Portfolio and $22,837 was paid by the Managed Portfolio.
The Equity 500 Index Portfolio did not pay any brokerage fees during 1997 or
1998 because the Portfolio did not commence operations until 2000.
27
<PAGE> 128
DETERMINATION OF NET ASSET VALUE
As stated in the Prospectus, the Fund will offer and sell shares at each
Portfolio's per share net asset value. The net asset value of the shares of each
Portfolio (except the Money Market Portfolio) of the Fund is determined as of
the close of the New York Stock Exchange on each day when the New York Stock
Exchange is open for business for the day prior to the day on which a
transaction is to be effected. The net asset value of the Money Market Portfolio
is determined once daily on each day the New York Stock Exchange and the Federal
Reserve Bank both are open for business.
The New York Stock Exchange currently is open each day, Monday through Friday,
except the following holidays: New Year's Day, Dr. Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day, and on the preceding Friday or subsequent
Monday when one of these holidays falls on a Saturday or Sunday, respectively.
The Federal Reserve Bank is open each day, Monday through Friday, except the
following holidays: New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents'
Day, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day,
Thanksgiving Day, and Christmas Day, and the preceding Friday or subsequent
Monday when one of these days follow on a Saturday or Sunday, respectively.
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.
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 such assets are valued. For days having no
exchange sales and for unlisted 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. If no National Market System sales occur 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 such securities' fair value.
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 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. Consequently, the net
asset value calculation 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 that are denominated in a foreign currency are converted into U.S.
dollar equivalents at the prevailing market rates as quoted by generally
recognized reliable sources.
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) are valued on an amortized cost basis. Under this method of
valuation, the instrument is initially valued at cost (or in the case
28
<PAGE> 129
of instruments purchased with more than 60 days remaining to maturity, the
market value on the 61st day prior to maturity); thereafter, the Fund assumes a
constant proportionate amortization in value until maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. For purposes of this method of valuation, the maturity
of a variable rate certificate of deposit is deemed to be the next coupon date
on which the interest rate is to be adjusted. While this method provides
certainty in valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the price that would be
received upon sale of the instrument. During period of declining interest rates,
the daily yield on shares of the Money Market Portfolio may tend to be higher
than a like computation made by a fund with identical investments utilizing a
method of valuation based upon market prices and estimates of market prices for
all of its portfolio instruments. Thus, if the use of amortized cost resulted in
a lower aggregate portfolio value on a particular day, a prospective investor
would be able to obtain a somewhat higher yield than would result from
investment in a fund utilizing solely market values, and existing investors
would receive less investment income. The converse would apply in a period of
rising interest rates.
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 in 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 (Rating Agencies) or one Rating Agency if it is
the only Rating Agency 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.
REDEMPTION OF SHARES
The Fund is required to redeem all full and fractional shares of the Fund for
cash at the net asset value per share next calculated after the redemption order
is received by the Fund. Payment for shares redeemed is generally 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 (1) trading on the New York Stock Exchange
is restricted or such exchange is closed for other than weekends and holidays;
(2) an emergency exists, as determined by the Securities and Exchange
29
<PAGE> 130
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 (3) 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"). As a regulated investment company, each
Portfolio is required to distribute to its shareholders for each taxable year at
least 90% of its investment company taxable income (consisting generally of net
investment income, net short-term capital gain, and net gains from certain
foreign currency transactions). 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. Moreover,
at the close of each quarter of each Portfolio's taxable year, at least 50% of
the value of its total assets must be represented by cash and cash items, U.S.
Government securities, securities of other regulated investment companies, and
other securities that, with respect to any one issuer, do not exceed 5% of the
value of the Portfolio's total assets and that do not represent more than 10% of
the outstanding securities of the issuer. In addition, at the close of each
quarter of each Portfolio's taxable year, not more than 25% of the value of its
total assets may be invested in securities (other than U.S. Government
securities or the securities of other regulated investment companies) of any one
issuer. 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. If a
Portfolio fails to qualify as a regulated investment company, the Portfolio will
be subject to federal, and possibly state, corporate taxes on its taxable income
and gains and distributions to its shareholders will constitute ordinary
dividend income to the extent of such Portfolio's available earnings and
profits, and policyholders could be subject to current tax on distributions
received with respect to Portfolio shares.
Each Portfolio must, and intends to, comply with the diversification
requirements imposed by section 817(h) of the Code and the regulations
thereunder. These requirements, which are in addition to the diversification
requirements mentioned above, place certain limitations on the proportion of
each Portfolio's assets that may be represented by any single investment (which
includes all securities of the same issuer). For these purposes, each U.S.
Government agency or instrumentality is treated as a separate issuer, while a
particular foreign government and its agencies, instrumentalities, and political
subdivisions are all considered the same issuer. For information concerning the
consequences of failure to meet the requirements of section 817(h), see the
respective prospectuses for the policies or the contracts.
Generally, a regulated investment company must distribute substantially all of
its ordinary income and capital gains in accordance with a calender year
distribution requirement in order to avoid a nondeductible 4% federal excise
tax. However, the excise tax does not apply to a Portfolio whose only
shareholders are certain tax exempt trusts or segregated asset accounts of life
insurance companies held in connection with variable contracts. In order to
avoid this excise tax, the Portfolios intend to qualify for this exemption or to
make distributions in accordance with the calender year distribution
requirements.
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
30
<PAGE> 131
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. A Portfolio will operate so as to qualify for such
reduced tax rates or tax exemptions whenever possible. While policyholder will
bear the cost of any foreign tax withholding, they will not be able to claim a
foreign tax credit or deduction for taxes paid by the Portfolio.
The International Portfolio or any other Portfolio that may invest in foreign
securities, may invest in securities of "passive foreign investment companies"
("PFICs"). A PFIC is a foreign corporation that, in general, meets either of the
following tests: (1) at least 75% of its gross income is passive; or (2) an
average of at least 50% of its assets produce, or are held for the production
of, passive income. A Portfolio investing in securities of PFICs may be subject
to U.S. federal income taxes and interest charges, which would reduce the
investment return of a Portfolio making such investments. The owners of variable
annuities and life insurance products investing in such Portfolio would
effectively bear the cost of these taxes and interest charges. In certain cases,
a Portfolio may be eligible to make certain elections with respect to securities
of PFICs that could reduce taxes and interest charges payable by the Portfolio.
However, a Portfolio's intention to qualify annually as a regulated investment
company may limit a Portfolio's elections with respect to PFIC securities, and
no assurance can be given that such elections can or will be made.
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. For further
information, consult the prospectuses and/or statements of additional
information for the respective policies and contracts, as well as your own tax
advisor.
CAPITAL STOCK
The Fund was incorporated in Maryland on March 21, 1985. The authorized capital
stock of the Fund consists of 1.2 billion shares of common stock $.01 par value.
The shares of common stock are divided into twelve series -- All Pro Large Cap
Growth, All Pro Large Cap Value, All Pro Small Cap Growth, All Pro Small Cap
Value, International, Equity 500 Index, Growth, Aggressive Growth, Managed,
Bond, Sentinel Growth and Money Market Portfolios. Each of the All Pro
Portfolios consists of 50 million shares, the Equity 500 Index Portfolio
consists of 5 million shares, the Growth Portfolio consists of 5 million shares,
the Growth Portfolio consists of 75 million shares, the Money Market Portfolio
consists of 150 million shares; each of the remaining series 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 twelve 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
As an investment company incorporated in Maryland, the Fund is not required to
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 1940 Act: (1) election of directors; (2) approval
of an investment advisory agreement in cases where the Fund does not have
exemptive relief from the
31
<PAGE> 132
Securities and Exchange Commission pursuant to section 15 of the Act; (3)
ratification of selection of independent accountants; 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 1940 Act majority of the outstanding voting
securities of the Fund.
CODE OF ETHICS
The Board of Directors of the Fund has adopted a Code of Ethics under Rule 17j-1
of the 1940 Act (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, including those employees who
participate in the selection of a Portfolio securities or who have access to
information regarding the Fund's pending purchases and sales of Portfolio
securities (collectively referred to as "Advisory Persons"). The Code of Ethics
also covers the conduct and personal securities transactions of any officer,
director, and employee of MSIM or 1717 Capital Management Company ("1717"), the
principal underwriter of the Fund, including those employees who participate in
the selection of the Fund's portfolio securities or who have access to
information regarding the Fund's pending purchases and sales of portfolio
securities (also "Advisory Persons").
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 by any
Advisory Persons (except employees who do not participate in the selection of a
Portfolio's securities or have access to information regarding the Fund's
pending purchases and sales of Portfolio securities) of any of the Fund, MSIM,
or 1717. Advisory Persons are also prohibited from purchasing securities in an
initial public offering and 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, 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. Each of SAC and the subadvisers for the Equity 500 Index,
International and All Pro Portfolios has adopted a similar code of ethics under
Rule 17j-1, which codes impose substantially similar restrictions on Advisory
Persons of the Fund.
32
<PAGE> 133
OTHER SERVICES
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Pursuant to a custody agreement with the Fund, PFPC Trust Company, located at
200 Stevens Drive, Lester, Pennsylvania 19113, serves as custodian of the Fund's
assets. Pursuant to a transfer agency agreement with the Fund, PFPC, which is
located at 103 Bellevue Parkway, Wilmington, Delaware 19809, serves as the
Fund's transfer agent and dividend disbursing agent.
CUSTODIAN FOR INTERNATIONAL PORTFOLIO
The custodian for all foreign securities and assets of the International
Portfolio is Citibank, N.A., located at 111 Wall Street, New York, NY 10043.
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 subcustodians).
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 subcustodians, 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 subcustodians, difficulties and costs of obtaining jurisdiction
over, or enforcing judgments against, the foreign subcustodians, or application
of foreign law to the Portfolio's foreign subcustodian arrangements.
Accordingly, an investor should recognize that the noninvestment risks involved
in holding assets abroad may be greater than those associated with investing in
the U.S.
INDEPENDENT ACCOUNTANTS
The firm of PricewaterhouseCoopers LLP, 2400 Eleven Penn Center, Philadelphia,
PA 19103, has been selected to serve as the Fund's independent accountants.
The audited financial statements of the All Pro, International, Growth,
Aggressive Growth, Managed, Bond, Sentinel Growth, and Money Market Portfolios
attached to this SAI and the financial highlights included in the Prospectuses
were audited by PricewaterhouseCoopers LLP, Independent Accountants and are
included in reliance upon the report of such firm given on their authority as
experts in accounting and auditing. The semi-annual financial statements have
not been audited.
LEGAL MATTERS
Sutherland Asbill & Brennan LLP of Washington, D.C. has provided advice on
certain legal matters pertaining to federal securities laws applicable to the
Fund.
UNDERWRITERS
1717 Capital Management Company ("1717") serves, without compensation from the
Fund, as its principal underwriter, pursuant to an agreement with the Fund.
Under the terms of the agreement, 1717 is not obligated to sell any specific
number of shares. 1717 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 Prospectuses 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 1940 Act, to which
reference is hereby made.
33
<PAGE> 134
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants........................... F-2
Statement of Net Assets as of December 31, 1999............. F-3
Statements of Operations for the Year Ended December 31,
1999...................................................... F-48
Statements of Changes in Net Assets for the Year Ended
December 31, 1999......................................... F-50
Notes to Financial Statements, December 31, 1999............ F-52
</TABLE>
F-1
<PAGE> 135
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors of
Market Street Fund, Inc.:
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Market Street Fund, Inc.,
comprising of the Growth, Money Market, Bond, Managed, Aggressive Growth,
International, Sentinel Growth, All Pro Large Cap Growth, All Pro Large Cap
Value, All Pro Small Cap Growth and All Pro Small Cap Value Portfolios (the
"Fund") at December 31, 1999, and the results of each of their operations for
the year then ended, the changes in each of their net assets for each of the two
years in the period then ended and the financial highlights for each of the five
years in the period then ended, in conformity with accounting principles
generally accepted in the United States. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at December
31, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
January 28, 2000
F-2
<PAGE> 136
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Growth Portfolio
Statement of Net Assets, December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- -----------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- 97.7%
Aerospace & Defense -- 0.5%
Boeing Co. ............................................... 35,000 $ 1,454,687
------------
Automobiles -- 2.3%
Ford Motor Co. ........................................... 130,000 6,946,875
------------
Banks -- 5.0%
Bank of America Corp. .................................... 62,238 3,123,570
Bank of New York Co., Inc. ............................... 163,600 6,544,000
Chase Manhattan Corp. .................................... 50,000 3,884,375
Wells Fargo Co. .......................................... 35,000 1,415,312
------------
14,967,257
------------
Beverages -- 3.1%
Pepsico, Inc. ............................................ 264,400 9,320,100
------------
Broadcasting & Publishing -- 2.1%
McGraw-Hill, Inc. ........................................ 105,000 6,470,625
------------
Business & Consumer Services -- 5.4%
Automatic Data Processing, Inc. .......................... 115,000 6,195,625
Electronic Data Systems Corp. ............................ 65,000 4,350,937
Omnicom Group, Inc. ...................................... 57,400 5,740,000
------------
16,286,562
------------
Chemicals & Allied Products -- 3.4%
Du Pont (E.I.) de Nemours & Co. .......................... 37,855 2,493,698
Monsanto Co. ............................................. 215,000 7,659,375
------------
10,153,073
------------
Communications -- 7.3%
AT&T Corp. ............................................... 80,000 4,060,000
Comcast Corp. Special Class A Non-Voting.................. 45,000 2,261,250
*General Instrument Corp. ................................ 40,000 3,400,000
GTE Corp. ................................................ 122,000 8,608,625
Motorola, Inc. ........................................... 8,143 1,199,057
SBC Communications, Inc. ................................. 60,536 2,951,130
------------
22,480,062
------------
Computers -- 3.1%
Compaq Computer Corp. .................................... 36,500 987,781
Hewlett Packard Co. ...................................... 26,000 2,962,375
International Business Machines Corp. .................... 51,000 5,508,000
------------
9,458,156
------------
Consumer Products -- 4.9%
Fortune Brands, Inc. ..................................... 90,400 2,988,850
Kimberly-Clark Corp. ..................................... 180,000 11,745,000
------------
14,733,850
------------
Cosmetics and Toiletries -- 0.8%
Gillette Co. ............................................. 60,000 2,471,250
------------
</TABLE>
F-3
<PAGE> 137
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Growth Portfolio
Statement of Net Assets, December 31, 1999 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- -----------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
Drugs & Health Care -- 9.2%
Aetna, Inc. .............................................. 28,000 $ 1,562,750
American Home Products Corp. ............................. 225,500 8,893,156
Baxter International, Inc. ............................... 40,000 2,512,500
Becton, Dickinson & Co. .................................. 48,300 1,292,025
Bristol-Myers Squibb Co. ................................. 22,000 1,412,125
Johnson & Johnson......................................... 58,000 5,401,250
Pharmacia & Upjohn, Inc. ................................. 100,000 4,500,000
*Tenet Healthcare Corp. .................................. 36,000 846,000
United Healthcare Corp. .................................. 14,000 743,750
*Watson Pharmaceuticals, Inc. ............................ 30,000 1,074,375
------------
28,237,931
------------
Electronics -- 2.0%
Emerson Electric Co. ..................................... 25,000 1,434,375
General Electric Co. ..................................... 29,000 4,487,750
------------
5,922,125
------------
Energy -- 3.8%
Chevron Corp. ............................................ 43,500 3,768,187
FPL Group, Inc. .......................................... 45,000 1,926,562
Royal Dutch Petroleum Co. ................................ 58,500 3,535,594
Williams Cos., Inc. ...................................... 78,000 2,383,875
------------
11,614,218
------------
Entertainment -- 0.8%
Walt Disney Co. .......................................... 86,000 2,515,500
------------
Finance -- 4.0%
American Express Co. ..................................... 30,300 5,037,375
Citigroup, Inc. .......................................... 127,500 7,084,219
------------
12,121,594
------------
Finance - Investment & Other -- 1.2%
Fannie Mae................................................ 56,400 3,521,475
------------
Food & Food Distributors -- 6.1%
Bestfoods, Inc. .......................................... 113,700 5,976,356
Kroger Co. ............................................... 286,000 5,398,250
McCormick & Co., Inc. .................................... 115,400 3,433,150
Sara Lee Corp. ........................................... 160,000 3,530,000
------------
18,337,756
------------
Industrial Diversified -- 1.9%
Parker-Hannifin Corp. .................................... 109,000 5,593,062
------------
Insurance -- 5.9%
Allstate Corp. ........................................... 115,000 2,760,000
American General Corp. ................................... 63,000 4,780,125
American International Group, Inc. ....................... 58,125 6,284,766
Jefferson-Pilot Corp. .................................... 56,700 3,869,775
------------
17,694,666
------------
Lodging -- 1.4%
Marriott International, Inc. Class A...................... 129,500 4,087,344
------------
</TABLE>
F-4
<PAGE> 138
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Growth Portfolio
Statement of Net Assets, December 31, 1999 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- -----------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
Machinery & Heavy Equipment -- 0.5%
Dover Corp................................................ 35,000 $ 1,588,125
------------
Manufacturing -- 2.5%
Alcoa, Inc. .............................................. 70,000 5,810,000
Tyco International Ltd. .................................. 41,500 1,613,313
------------
7,423,313
------------
Medical & Medical Services -- 0.6%
*Manor Care, Inc. ........................................ 106,700 1,707,200
------------
Oil & Gas -- 6.2%
Burlington Resources, Inc. ............................... 80,000 2,645,000
Conoco, Inc. Class B...................................... 168,327 4,187,134
Exxon Mobil Corp. ........................................ 121,989 9,827,739
Santa Fe International Corp. ............................. 67,000 1,733,625
Transocean Sedco Forex, Inc. ............................. 13,552 456,533
------------
18,850,031
------------
Oil Field Equipment & Services -- 2.6%
Halliburton Co. .......................................... 97,500 3,924,375
Schlumberger Ltd. ........................................ 70,000 3,937,500
------------
7,861,875
------------
Paper & Forest Products -- 2.1%
International Paper Co. .................................. 111,000 6,264,563
------------
Railroads -- 1.0%
Union Pacific Corp., Series A............................. 66,000 2,879,250
------------
Real Estate -- 1.5%
Weyerhaeuser Co. ......................................... 62,500 4,488,281
------------
</TABLE>
F-5
<PAGE> 139
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Growth Portfolio
Statement of Net Assets, December 31, 1999 -- Concluded
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATURITY SHARES
DESCRIPTION AND PERCENTAGE OF PORTFOLIO DATE OR PAR VALUE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK (CONTINUED)
Semiconductors -- 0.5%
Intel Corp. ............................................................ 11,000 $ 905,438
*National Semiconductor Corp............................................ 16,100 689,281
------------
1,594,719
------------
Software -- 1.0%
*BMC Software, Inc...................................................... 17,000 1,358,938
Computer Associates International, Inc. ................................ 25,500 1,783,406
------------
3,142,344
------------
Tobacco -- 0.5%
Philip Morris Cos., Inc. ............................................... 68,000 1,576,750
------------
Utilities -- 4.5%
Duke Power Co........................................................... 125,000 6,265,625
Enron Corp.............................................................. 162,000 7,188,750
------------
13,454,375
------------
TOTAL COMMON STOCK (COST $243,579,825)................................ 295,218,994
------------
COMMERCIAL PAPER -- 2.3%
General Motors Acceptance Corp., 6.44%.................... 01/12/2000 $7,000,000 6,986,226
------------
TOTAL COMMERCIAL PAPER (COST $6,986,226)................ 6,986,226
------------
</TABLE>
<TABLE>
<S> <C> <C>
SHORT TERM INVESTMENTS -- 0.0%
Temporary Investment Fund, Inc. -- TempCash............... 100,792 100,792
------------
TOTAL SHORT TERM INVESTMENTS (COST $100,792)............ 100,792
------------
TOTAL INVESTMENTS -- 100.0% (COST $250,666,843)......... 302,306,012
LIABILITIES IN EXCESS OF OTHER ASSETS -- 0.0%............... (44,376)
------------
NET ASSETS -- 100.0%
(Equivalent to $18.94 per share based on 15,959,821 shares
of capital stock outstanding)........................... $302,261,636
============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($302,261,636/15,959,821 shares outstanding).............. $ 18.94
============
</TABLE>
*Non-Income Producing.
See accompanying notes to financial statements.
F-6
<PAGE> 140
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Money Market Portfolio
Statement of Net Assets, December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATURITY
DESCRIPTION AND PERCENTAGE OF PORTFOLIO DATE PAR VALUE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BANKERS ACCEPTANCE -- 2.1%
Finance -- 2.1%
Bank of New York, 5.55%................................... 02/18/2000 $2,500,000 $ 2,481,500
------------
TOTAL BANKERS ACCEPTANCE (COST $2,481,500).............. 2,481,500
------------
COMMERCIAL PAPER -- 92.7%
Agricultural Services -- 8.7%
Deere & Co., 5.86%........................................ 01/25/2000 5,000,000 4,980,467
Monsanto Co., 6.10%....................................... 02/18/2000 5,200,000 5,157,707
------------
10,138,174
------------
Automobiles -- 7.3%
Ford Motor Credit Co., 6.03%.............................. 01/11/2000 5,500,000 5,490,787
General Motors Acceptance Corp., 6.21%.................... 01/07/2000 3,000,000 2,996,895
------------
8,487,682
------------
Banking -- 17.3%
Bank of America, 5.80%.................................... 01/05/2000 4,000,000 3,997,422
Morgan (J.P.) & Co., Inc., 6.00%.......................... 01/18/2000 5,000,000 4,985,833
Northern Trust Co. (Chicago), 6.10%....................... 01/27/2000 5,500,000 5,500,000
Wells Fargo & Co., 6.03%.................................. 01/12/2000 5,750,000 5,739,406
------------
20,222,661
------------
Brokerage -- 4.3%
Merrill Lynch & Co., Inc., 6.00%.......................... 01/19/2000 5,000,000 4,985,000
------------
Communications -- 4.7%
Bell Atlantic Network Funding, 5.85%...................... 01/26/2000 5,500,000 5,477,656
------------
Finance -- 32.7%
American Express Co., 5.80%............................... 01/31/2000 4,500,000 4,478,250
American General Finance Corp., 5.78%..................... 01/28/2000 5,000,000 4,978,325
Caterpillar Financial Services, 6.05%..................... 02/16/2000 2,300,000 2,282,220
C.I.T. Financial Corp., 5.95%............................. 02/25/2000 2,400,000 2,378,183
Citicorp, 5.95%........................................... 01/13/2000 4,000,000 3,992,067
IBM Credit Corp., 6.03%................................... 02/01/2000 5,700,000 5,670,403
Met Life Funding Corp., 5.82%............................. 01/21/2000 5,000,000 4,983,833
Prudential Funding Corp., 5.95%........................... 01/14/2000 4,000,000 3,991,405
Transamerica Financial Corp., 6.00%....................... 01/24/2000 5,500,000 5,478,917
------------
38,233,603
------------
Oil -- 9.7%
Chevron, 6.40%............................................ 01/28/2000 5,800,000 5,772,160
Texaco, Inc., 5.96%....................................... 01/10/2000 5,600,000 5,591,656
------------
11,363,816
------------
Utilities -- 8.0%
GTE Funding, Inc., 6.12%.................................. 02/08/2000 5,500,000 5,464,470
Virginia Electric & Power, 5.85%.......................... 01/20/2000 4,000,000 3,987,650
------------
9,452,120
------------
TOTAL COMMERCIAL PAPER (COST $108,360,712).............. 108,360,712
------------
</TABLE>
F-7
<PAGE> 141
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Money Market Portfolio
Statement of Net Assets, December 31, 1999 -- Concluded
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
- -----------------------------------------------------------------------------------------
<S> <C> <C>
SHORT TERM INVESTMENTS -- 5.7%
Temporary Investment Fund, Inc. -- TempCash............... 6,632,340 6,632,340
------------
TOTAL SHORT TERM INVESTMENTS (COST $6,632,340).......... 6,632,340
------------
TOTAL INVESTMENTS -- 100.5% (COST $117,474,552)......... 117,474,552
LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.5)%............. (587,114)
------------
NET ASSETS -- 100.0%
(Equivalent to $1.00 per share based on 116,887,504 shares
of capital stock outstanding)........................... $116,887,438
============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($116,887,438/116,887,504 shares outstanding)............. $ 1.00
============
</TABLE>
See accompanying notes from financial statements.
F-8
<PAGE> 142
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Bond Portfolio
Statement of Net Assets, December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATURITY
DESCRIPTION AND PERCENTAGE OF PORTFOLIO DATE PAR VALUE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. TREASURY BONDS -- 11.9%
U.S. Treasury Bonds, 7.25%................................ 05/15/2016 $1,000,000 $ 1,045,293
U.S. Treasury Bonds, 6.00%................................ 02/15/2026 2,500,000 2,286,591
U.S. Treasury Bonds, 6.125%............................... 08/15/2029 1,250,000 1,190,981
-----------
TOTAL U.S. TREASURY BONDS (COST $5,037,511)............. 4,522,865
-----------
U.S. TREASURY NOTES -- 11.1%
U.S. Treasury Notes, 5.25%................................ 05/15/2004 2,000,000 1,915,103
U.S. Treasury Notes, 4.75%................................ 11/15/2008 1,000,000 882,149
U.S. Treasury Notes, 5.50%................................ 05/15/2009 1,500,000 1,397,913
-----------
TOTAL U.S. TREASURY NOTES (COST $4,366,191)............. 4,195,165
-----------
AGENCY OBLIGATIONS -- 21.9%
Federal Home Loan Mortgage Corp., 8.500%.................. 06/15/2003 1,000,000 1,029,146
Federal Home Loan Mortgage Corp., 8.00%................... 11/01/2008 227,414 231,820
Federal Home Loan Mortgage Corp., 8.00%................... 03/01/2017 15,764 16,070
Federal National Mortgage Association, 10.50%............. 11/01/2017 485,163 519,882
Federal National Mortgage Association, 8.00%.............. 03/01/2022 428,200 431,411
Federal National Mortgage Association, 7.5%............... 03/01/2026 384,203 379,881
Federal National Mortgage Association, 8.5%............... 09/01/2026 923,299 946,381
Federal National Mortgage Association, 6.00%.............. 04/01/2028 1,020,714 933,954
Federal National Mortgage Association, 8.50%.............. 04/01/2028 920,048 943,049
Federal National Mortgage Association, 7.00%.............. 09/01/2028 904,930 874,672
Federal National Mortgage Association, 7.00%.............. 11/01/2028 305,242 295,035
Government National Mortgage Association, 7.50%........... 09/15/2023 1,304,570 1,289,894
Government National Mortgage Association, 7.50%........... 10/15/2029 486,489 481,016
-----------
TOTAL AGENCY OBLIGATIONS (COST $8,592,085).............. 8,372,211
-----------
CORPORATE BONDS -- 48.1%
Aerospace & Defense -- 2.3%
Lockheed Martin, 8.50%.................................... 12/01/2029 500,000 499,375
Raytheon Co., 7.00%....................................... 11/01/2028 500,000 431,875
-----------
931,250
-----------
Airlines -- 1.8%
Delta Air Lines 144A, 8.30%............................... 12/15/2029 750,000 725,625
-----------
Automobiles -- 2.1%
Ford Motor Co. 6.375%..................................... 02/01/2029 1,000,000 840,000
-----------
Automotive & Equipment -- 0.6%
Lear Corp., 7.96%......................................... 05/15/2005 250,000 239,687
-----------
Banks -- 0.6%
Sanwa Bank Ltd, 8.35%..................................... 07/15/2009 250,000 251,562
-----------
Chemicals & Allied Products -- 0.6%
Rohm and Haas Co., 7.40%.................................. 07/15/2009 250,000 247,187
-----------
Communications -- 5.9%
Comsat Corp. Medium Term Note, 8.55%...................... 12/13/2006 500,000 521,660
Sprint Capital Corp., 6.875%.............................. 11/15/2028 1,000,000 891,250
Worldcom, Inc., 6.40%..................................... 08/15/2005 1,000,000 960,000
-----------
2,372,910
-----------
Computers -- 1.2%
Sun Microsystems, Inc., 7.00%............................. 08/15/2002 500,000 498,125
-----------
</TABLE>
F-9
<PAGE> 143
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Bond Portfolio
Statement of Net Assets, December 31, 1999 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATURITY
DESCRIPTION AND PERCENTAGE OF PORTFOLIO DATE PAR VALUE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
Consumer Services -- 0.5%
Service Corp. International, 6.00%........................ 12/15/2005 $ 250,000 $ 188,750
-----------
Containers -- 1.8%
Crown Cork & Seal Co., Inc., 7.125%....................... 09/01/2002 750,000 737,812
-----------
Finance -- 10.8%
Ahold Finance USA, Inc., 6.25%............................ 05/01/2009 500,000 454,375
Aristar, Inc., 6.30%...................................... 10/01/2002 500,000 488,125
Duke Capital Corp., 7.50%................................. 10/01/2009 500,000 495,000
ERAC USA Finance Co., 6.625%.............................. 05/15/2006 750,000 703,125
Finova Capital Corp., 7.25%............................... 11/08/2004 1,000,000 988,750
Household Finance Corp., 7.20%............................ 07/15/2006 750,000 734,063
Socgen Real Estate L.L.C., 7.64%.......................... 12/29/2049 500,000 458,125
-----------
4,321,563
-----------
Foods -- 1.9%
Safeway, Inc., 7.00%...................................... 09/15/2002 750,000 743,438
-----------
Foreign Financial Institutions -- 1.2%
Banque Nationale de Paris, 7.738%......................... 12/31/2049 500,000 462,500
-----------
Industrial -- 3.6%
CMS Energy, 6.75%......................................... 01/15/2004 250,000 231,875
IMC Global, Inc., 7.40%................................... 11/01/2002 500,000 496,875
Owens Corning, 7.50%...................................... 05/01/2005 750,000 717,188
-----------
1,445,938
-----------
Manufacturing -- 1.2%
Tyco International Group, 6.875%.......................... 09/05/2002 500,000 491,875
-----------
Oil & Gas -- 2.4%
KN Energy, Inc., 6.45%.................................... 03/01/2003 500,000 484,375
Union Pacific Resources Group, 7.30%...................... 04/15/2009 500,000 476,875
-----------
961,250
-----------
Real Estate -- 1.8%
Simon Property Group LP, Inc., 6.625%..................... 06/15/2003 750,000 711,563
-----------
Retail Merchandising -- 1.2%
Penney (J.C.) & Co. Notes, 7.25%.......................... 04/01/2002 500,000 488,750
-----------
Tobacco -- 0.4%
Dimon, Inc. Senior Notes, 8.875%.......................... 06/01/2006 200,000 178,500
-----------
Transportation -- 1.4%
Laidlaw, Inc., 7.65%...................................... 05/15/2006 600,000 558,750
-----------
Utilities -- 4.8%
Calenergy Co., Inc. Senior Notes, 7.52%................... 09/15/2008 750,000 729,375
Cleveland Electric Toledo Edison, 7.67%................... 07/01/2004 250,000 246,250
US West Capital Funding, 6.25%............................ 07/15/2005 1,000,000 940,000
-----------
1,915,625
-----------
TOTAL CORPORATE BONDS (COST $20,144,024)................ 19,312,660
-----------
COMMERCIAL PAPER -- 4.5%
Chevron USA, Inc., 5.78%.................................. 02/14/2000 1,800,000 1,786,778
-----------
TOTAL COMMERCIAL PAPER (COST $1,787,284)................ 1,786,778
-----------
</TABLE>
F-10
<PAGE> 144
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Bond Portfolio
Statement of Net Assets, December 31, 1999 -- Concluded
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C>
SHORT TERM INVESTMENTS -- 3.4%
Temporary Investment Fund, Inc. -- TempCash............... 1,351,514 1,351,514
-----------
TOTAL SHORT TERM INVESTMENTS (COST $1,351,514).......... 1,351,514
-----------
TOTAL INVESTMENTS -- 103.5% (COST $41,278,609).......... 39,541,193
LIABILITIES IN EXCESS OF OTHER ASSETS -- (3.5%)............. (1,358,928)
-----------
NET ASSETS -- 100.0%
(Equivalent to $10.58 per share based on 3,607,685 shares
of capital stock outstanding)........................... $38,182,265
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($38,182,265/3,607,685 shares outstanding)................ $ 10.58
===========
</TABLE>
See accompanying notes to financial statements.
F-11
<PAGE> 145
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Managed Portfolio
Statement of Net Assets, December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- 55.4%
Aerospace & Defense--0.4%
Boeing Co. ............................................... 4,900 $ 203,656
-----------
Automobiles -- 1.2%
Ford Motor Co. ........................................... 16,000 855,000
-----------
Banks -- 2.9%
Bank of America Corp. .................................... 9,052 454,297
Bank of New York Co., Inc. ............................... 20,900 836,000
Chase Manhattan Corp. .................................... 7,500 582,656
Wells Fargo Co. .......................................... 6,500 262,844
-----------
2,135,797
-----------
Beverages -- 1.8%
Pepsico, Inc. ............................................ 38,500 1,357,125
-----------
Broadcasting & Publishing -- 1.2%
McGraw-Hill, Inc. ........................................ 14,200 875,075
-----------
Business & Consumer Services -- 2.9%
Automatic Data Processing, Inc. .......................... 14,200 765,025
Electronic Data Systems Corp. ............................ 9,000 602,437
Omnicom Group, Inc. ...................................... 7,900 790,000
-----------
2,157,462
-----------
Chemicals & Allied Products -- 1.9%
Du Pont (E.I.) de Nemours & Co. .......................... 7,371 485,565
Monsanto Co. ............................................. 26,600 947,625
-----------
1,433,190
-----------
Communications -- 4.5%
AT&T Corp. ............................................... 11,500 583,625
Comcast Corp. Special Class A Non-Voting.................. 9,000 452,250
*General Instrument Corp. ................................ 5,600 476,000
GTE Corp. ................................................ 16,000 1,129,000
Motorola, Inc. ........................................... 1,884 277,419
SBC Communications, Inc. ................................. 8,422 410,572
-----------
3,328,866
-----------
Computers -- 1.8%
Compaq Computer Corp. .................................... 5,100 138,019
Hewlett Packard Co. ...................................... 3,700 421,569
International Business Machines Corp. .................... 7,400 799,200
-----------
1,358,788
-----------
Consumer Products -- 2.2%
Kimberly-Clark Corp. ..................................... 25,000 1,631,250
-----------
Cosmetics and Toiletries -- 0.5%
Gillette Co. ............................................. 9,000 370,687
-----------
</TABLE>
F-12
<PAGE> 146
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Managed Portfolio
Statement of Net Assets, December 31, 1999 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
Drugs & Health Care -- 5.1%
Aetna, Inc. .............................................. 3,600 $ 200,925
American Home Products Corp. ............................. 32,800 1,293,550
Baxter International, Inc. ............................... 4,500 282,656
Becton, Dickinson & Co. .................................. 7,400 197,950
Bristol-Myers Squibb Co. ................................. 2,700 173,306
Johnson & Johnson......................................... 8,000 745,000
Pharmacia & Upjohn, Inc. ................................. 10,400 468,000
*Tenet Healthcare Corp. .................................. 5,000 117,500
United Healthcare Corp. .................................. 1,800 95,625
*Watson Pharmaceuticals, Inc. ............................ 5,500 196,969
-----------
3,771,481
-----------
Electronics -- 1.3%
Emerson Electric Co. ..................................... 6,500 372,937
General Electric Co. ..................................... 3,800 588,050
-----------
960,987
-----------
Energy -- 2.1%
Chevron Corp. ............................................ 5,100 441,787
FPL Group, Inc. .......................................... 5,800 248,312
Royal Dutch Petroleum Co. ................................ 8,000 483,500
Williams Cos., Inc. ...................................... 11,300 345,356
-----------
1,518,955
-----------
Entertainment -- 0.3%
Walt Disney Co. .......................................... 8,000 234,000
-----------
Finance -- 2.0%
American Express Co. ..................................... 4,000 665,000
Citigroup, Inc. .......................................... 15,000 833,437
-----------
1,498,437
-----------
Finance - Investment & Other -- 0.7%
Fannie Mae................................................ 8,200 511,987
-----------
Food & Food Distributors -- 3.7%
Bestfoods, Inc. .......................................... 14,800 777,925
Kroger Co. ............................................... 41,900 790,862
McCormick & Co., Inc. .................................... 27,400 815,150
Sara Lee Corp. ........................................... 17,000 375,063
-----------
2,759,000
-----------
Industrial Diversified -- 1.1%
Parker-Hannifin Corp. .................................... 15,300 785,081
-----------
Insurance -- 3.1%
Allstate Corp. ........................................... 15,000 360,000
American General Corp. ................................... 8,200 622,175
American International Group, Inc. ....................... 7,562 817,641
Jefferson-Pilot Corp. .................................... 7,500 511,875
-----------
2,311,691
-----------
</TABLE>
F-13
<PAGE> 147
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Managed Portfolio
Statement of Net Assets, December 31, 1999 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
Lodging -- 0.8%
Marriott International, Inc. Class A...................... 18,500 $ 583,906
-----------
Machinery & Heavy Equipment -- 0.3%
Dover Corp. .............................................. 4,500 204,188
-----------
Manufacturing -- 1.5%
Alcoa, Inc. .............................................. 9,400 780,200
Tyco International Ltd. .................................. 8,000 311,000
-----------
1,091,200
-----------
Medical & Medical Services -- 0.3%
*Manor Care, Inc. ........................................ 15,700 251,200
-----------
Oil & Gas -- 3.5%
Burlington Resources, Inc. ............................... 11,800 390,138
Conoco, Inc. Class B...................................... 21,595 537,176
Exxon Mobil Corp. ........................................ 16,781 1,351,919
Santa Fe International Corp. ............................. 10,100 261,338
Transocean Sedco Forex, Inc. ............................. 1,549 52,175
-----------
2,592,746
-----------
Oil Field Equipment & Services -- 1.4%
Halliburton Co. .......................................... 15,000 603,750
Schlumberger Ltd. ........................................ 8,000 450,000
-----------
1,053,750
-----------
Paper & Forest Products -- 1.1%
International Paper Co. .................................. 14,900 840,919
-----------
Railroads -- 0.6%
Union Pacific Corp., Series A............................. 10,000 436,250
-----------
Real Estate -- 1.2%
Weyerhaeuser Co. ......................................... 12,500 897,656
-----------
Semiconductors -- 0.5%
Intel Corp. .............................................. 3,000 246,938
*National Semiconductor Corp. ............................ 2,300 98,469
-----------
345,407
-----------
Software -- 0.6%
*BMC Software, Inc. ...................................... 2,300 183,856
Computer Associates International, Inc. .................. 3,600 251,775
-----------
435,631
-----------
Tobacco -- 0.3%
Philip Morris Cos., Inc. ................................. 9,000 208,688
-----------
Utilities -- 2.6%
Duke Power Co. ........................................... 18,500 927,313
Enron Corp. .............................................. 23,000 1,020,625
-----------
1,947,938
-----------
TOTAL COMMON STOCK (COST $31,760,268)................... 40,947,994
-----------
</TABLE>
F-14
<PAGE> 148
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Managed Portfolio
Statement of Net Assets, December 31, 1999 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATURITY
DESCRIPTION AND PERCENTAGE OF PORTFOLIO DATE PAR VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. TREASURY NOTES -- 5.7%
U.S. Treasury Notes, 5.50%................................ 05/15/2009 $3,000,000 $ 2,795,826
U.S. Treasury Notes, 6.00%................................ 08/15/2009 1,500,000 1,453,195
-----------
TOTAL U.S. TREASURY NOTES (COST $4,404,985)............. 4,249,021
-----------
U.S. TREASURY BONDS -- 7.2%
U.S. Treasury Bonds, 7.25%................................ 05/15/2016 1,000,000 1,045,293
U.S. Treasury Bonds, 8.875%............................... 02/15/2019 1,000,000 1,216,948
U.S. Treasury Bonds, 6.125%............................... 08/15/2029 3,250,000 3,096,552
-----------
U.S. TREASURY BONDS (COST $5,617,934)................... 5,358,793
-----------
AGENCY OBLIGATIONS -- 12.8%
Collateralized Mortgage Obligation, 6.70%................. 01/25/2026 1,000,000 939,302
Federal Home Loan Mortgage Corp., 9.00%................... 08/01/2004 563,693 581,661
Federal Home Loan Mortgage Corp., 9.00%................... 12/01/2004 505,097 521,197
Federal Home Loan Mortgage Corp., 9.50%................... 08/01/2005 522,636 548,278
Federal Home Loan Mortgage Corp., 9.50%................... 03/01/2006 94,912 99,094
Federal Home Loan Mortgage Corp., 8.00%................... 11/01/2008 227,414 231,820
Federal National Mortgage Association, 7.00%.............. 03/01/2008 235,879 233,225
Federal National Mortgage Association, 7.75%.............. 03/01/2008 127,916 127,677
Federal National Mortgage Association, 7.75%.............. 05/01/2008 83,539 83,383
Federal National Mortgage Association, 10.50%............. 03/01/2018 365,954 392,143
Federal National Mortgage Association, 8.50%.............. 09/01/2026 923,299 946,381
Federal National Mortgage Association, 8.50%.............. 10/01/2026 917,235 940,166
Federal National Mortgage Association, 8.00%.............. 10/01/2027 632,881 637,627
Federal National Mortgage Association, 8.00%.............. 01/01/2028 661,500 666,461
Federal National Mortgage Association, 7.50%.............. 05/01/2028 468,354 463,085
Federal National Mortgage Association, 8.00%.............. 11/01/2014 500,994 510,857
Federal National Mortgage Association, 8.00%.............. 12/01/2014 449,249 458,094
Government National Mortgage Association, 8.00%........... 03/15/2007 187,563 191,490
Government National Mortgage Association, 7.50%........... 11/15/2007 575,935 569,815
Government National Mortgage Association, 8.00%........... 08/15/2008 304,476 310,851
-----------
TOTAL AGENCY OBLIGATIONS (COST $9,566,842).............. 9,452,607
-----------
CORPORATE BONDS -- 16.2%
Aerospace & Defense -- 1.9%
Lockheed Martin, 8.50%.................................... 12/01/2029 1,000,000 998,750
Raytheon Co., 7.00%....................................... 11/02/2028 500,000 431,875
-----------
1,430,625
-----------
Automobiles -- 0.6%
Ford Motor Co., 6.375%.................................... 02/01/2029 500,000 420,000
-----------
Automotive & Equipment -- 1.0%
Lear Corp., 7.96%......................................... 05/15/2005 250,000 239,688
TRW, Inc., 7.125%......................................... 06/01/2009 500,000 472,500
-----------
712,188
-----------
</TABLE>
F-15
<PAGE> 149
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Managed Portfolio
Statement of Net Assets, December 31, 1999 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATURITY
DESCRIPTION AND PERCENTAGE OF PORTFOLIO DATE PAR VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
Communications -- 2.6%
AT&T Canada, Inc., 7.65%.................................. 09/15/2006 $ 500,000 $ 496,875
Comsat Corp. Medium Term Note, 8.55%...................... 12/13/2006 500,000 521,661
Sprint Capital Corp., 6.875%.............................. 11/15/2028 500,000 445,625
Worldcom, Inc., 6.40%..................................... 08/15/2005 500,000 480,000
-----------
1,944,161
-----------
Computers -- 0.3%
Sun Microsystems, Inc., 7.00%............................. 08/15/2002 250,000 249,063
-----------
Consumer Services -- 0.5%
Service Corp. International, 6.00%........................ 12/15/2005 500,000 377,500
-----------
Containers -- 0.7%
Crown Cork & Seal Co., Inc., 7.125%....................... 09/01/2002 500,000 491,875
-----------
Finance -- 2.1%
Duke Capital Corp., 7.50%................................. 10/01/2009 500,000 495,000
ERAC USA Finance Co., 6.625%.............................. 05/15/2006 500,000 468,750
Finova Capital Corp., 7.25%............................... 11/08/2004 500,000 494,375
-----------
1,458,125
-----------
Food & Food Distributors -- 0.6%
Archer-Daniels-Midland, 6.625%............................ 05/01/2029 500,000 428,750
-----------
Foreign Financial Institutions -- 0.3%
Banque Nationale de Paris, 7.738%......................... 12/31/2049 250,000 231,250
-----------
Industrial -- 2.0%
CMS Energy, 6.75%......................................... 01/15/2004 250,000 231,875
IMC Global, Inc., 7.40%................................... 11/01/2002 500,000 496,875
Nabors Industrial, 6.80%.................................. 04/15/2004 250,000 240,938
Owens Corning, 7.50%...................................... 05/01/2005 500,000 478,125
-----------
1,447,813
-----------
Oil & Gas -- 0.6%
Union Pacific Resources Group, 7.30%...................... 04/15/2009 500,000 476,875
-----------
Real Estate -- 0.6%
Simon Property Group LP, Inc., 6.625%..................... 06/15/2003 500,000 474,375
-----------
Retail Merchandising -- 1.3%
Penney (J.C.) & Co. Notes, 7.25%.......................... 04/01/2002 1,000,000 977,500
-----------
Tobacco -- 0.2%
Dimon, Inc. Senior Notes, 8.875%.......................... 06/01/2006 200,000 178,500
-----------
Transportation -- 0.6%
Laidlaw, Inc., 7.65%...................................... 05/15/2006 500,000 465,625
-----------
Utilities -- 0.3%
Cleveland Electric Toledo Edison, 7.67%................... 07/01/2004 250,000 246,250
-----------
TOTAL CORPORATE BONDS (COST $12,477,855)................ 12,010,475
-----------
COMMERCIAL PAPER -- 8.3%
Household Finance Corp., 5.83%............................ 02/10/2000 3,700,000 3,676,222
Northern Trust Co. (Chicago), 5.88%....................... 01/31/2000 2,500,000 2,487,270
-----------
TOTAL COMMERCIAL PAPER (COST $6,163,782)................ 6,163,492
-----------
</TABLE>
F-16
<PAGE> 150
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Managed Portfolio
Statement of Net Assets, December 31, 1999 -- Concluded
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATURITY SHARES
DESCRIPTION AND PERCENTAGE OF PORTFOLIO DATE OR PAR VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT TERM INVESTMENTS -- 1.9%
Temporary Investment Fund, Inc. -- TempCash............... $1,386,909 $ 1,386,909
-----------
TOTAL SHORT TERM INVESTMENTS (COST $1,386,909).......... 1,386,909
-----------
TOTAL INVESTMENTS -- 107.5% (COST $71,378,575).......... 79,569,291
LIABILITIES IN EXCESS OF OTHER ASSETS -- (7.5%)............. (5,583,459)
-----------
NET ASSETS -- 100.0%
(Equivalent to $16.79 per share based on 4,407,274 shares
of capital stock outstanding)........................... $73,985,832
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($73,985,832/4,407,274 shares outstanding)................ $ 16.79
===========
</TABLE>
*Non-Income Producing.
See accompanying notes to financial statements.
F-17
<PAGE> 151
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Aggressive Growth Portfolio
Statement of Net Assets, December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- 92.5%
Aerospace & Defense -- 2.0%
AAR Corp.................................................. 38,000 $ 681,625
Goodrich (B.F.) Co........................................ 20,000 550,000
-----------
1,231,625
-----------
Banks -- 1.0%
Cullen Frost Bankers, Inc. ............................... 8,000 206,000
Mercantile Bankshares Corp................................ 6,000 191,625
Wilmington Trust Corp..................................... 5,000 241,250
-----------
638,875
-----------
Beverages -- 0.8%
*Robert Mondavi Corp., Class A............................ 15,000 521,250
-----------
Broadcasting & Publishing -- 1.9%
*IDG Books Worldwide, Inc. ............................... 18,000 208,125
Meredith Corp............................................. 24,000 1,000,500
-----------
1,208,625
-----------
Building - Maintenance & Service -- 0.5%
American Building Maintenance Industries.................. 15,000 305,625
-----------
Business & Consumer Services -- 10.5%
*Acxiom Corp.............................................. 48,000 1,152,000
*Administaff, Inc......................................... 15,000 453,750
Affiliated Computer Services, Inc......................... 36,000 1,656,000
Analysts International Corp............................... 46,000 575,000
*Caci International, Inc.................................. 23,000 520,375
*Catalina Marketing Corp.................................. 12,000 1,389,000
Healthcare Services Group................................. 41,700 291,900
Unifirst Corp. ........................................... 48,000 606,000
-----------
6,644,025
-----------
Chemicals & Allied Products -- 5.1%
*Bush Boake Allen, Inc.................................... 42,600 1,046,362
Cambrex Corp.............................................. 62,000 2,135,125
-----------
3,181,487
-----------
Communications -- 2.8%
*Dynatech Corp. .......................................... 7,000 47,250
*Tekelec, Inc............................................. 36,000 810,000
True North Communications................................. 20,000 893,750
-----------
1,751,000
-----------
Computers -- 1.6%
Ciber, Inc................................................ 36,000 990,000
-----------
Consumer Products -- 0.7%
Kimberly-Clark Corp. ..................................... 7,000 456,750
-----------
Containers -- 1.4%
Bemis Co., Inc. .......................................... 25,000 871,875
-----------
Cosmetics and Toiletries -- 1.6%
Alberto-Culver Co. Class A................................ 45,000 978,750
-----------
</TABLE>
F-18
<PAGE> 152
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Aggressive Growth Portfolio
Statement of Net Assets, December 31, 1999 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
Drugs & Health Care -- 5.5%
*Barr Laboratories, Inc. ................................. 18,000 $ 564,750
*Covance, Inc............................................. 68,000 735,250
Jones Pharma, Inc. ....................................... 12,000 521,250
*Medicis Pharmaceutical Corp. Class A..................... 17,000 723,562
*Monarch Dental Corp. .................................... 26,000 44,687
Shire Pharmaceuticals Group............................... 11,469 334,035
*Watson Pharmaceuticals, Inc. ............................ 14,000 501,375
-----------
3,424,909
-----------
Electronics -- 15.6%
Applied Power, Inc. Class A............................... 38,000 1,396,500
*Burr-Brown Corp. ........................................ 19,500 704,437
*C-COR Electronics, Inc. ................................. 5,000 383,125
*C-Cube Microsystems, Inc. ............................... 18,000 1,120,500
*Cable Design Technologies, Inc. ......................... 35,000 805,000
CTS Corp.................................................. 12,000 904,500
Harman International Industries, Inc. .................... 29,000 1,627,625
Methode Electronics, Inc. Class A......................... 58,000 1,863,250
*Sawtek, Inc. ............................................ 14,000 931,875
-----------
9,736,812
-----------
Energy -- 1.0%
MidAmerican Energy Holdings Co. .......................... 18,000 606,375
-----------
Environmental Control -- 2.6%
Donaldson Co., Inc........................................ 46,000 1,106,875
*Tetra Technologies, Inc. ................................ 68,000 493,000
-----------
1,599,875
-----------
Financial -- 4.2%
Duff & Phelps Credit Rating Co. .......................... 16,000 1,423,000
Waddell & Reed Financial, Inc. ........................... 30,000 813,750
Waddell & Reed Financial, Inc. Class B.................... 15,000 376,875
-----------
2,613,625
-----------
Food & Food Distributors -- 3.4%
Smart & Final, Inc. ...................................... 25,000 181,250
*Whole Foods Market, Inc. ................................ 42,000 1,947,750
-----------
2,129,000
-----------
Insurance -- 2.3%
Enhance Financial Services Group, Inc. ................... 33,000 536,250
HCC Insurance Holdings, Inc. ............................. 69,000 909,937
-----------
1,446,187
-----------
Manufacturing -- 4.1%
AptarGroup, Inc. ......................................... 43,000 1,080,375
*Gardner Denver Machinery, Inc. .......................... 16,000 267,000
*Plexus Corp. ............................................ 19,000 836,000
Robbins & Myers, Inc. .................................... 16,000 362,000
-----------
2,545,375
-----------
</TABLE>
F-19
<PAGE> 153
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Aggressive Growth Portfolio
Statement of Net Assets, December 31, 1999 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
Medical Equipment & Supplies -- 3.6%
Diagnostic Products Corp. ................................ 7,000 $ 171,500
Mentor Corp. ............................................. 39,900 1,029,919
Minntech Corp. ........................................... 40,000 385,000
*Orthodontic Centers of America, Inc. .................... 38,000 453,625
*STARR Surgical Co. ...................................... 24,000 234,000
-----------
2,274,044
-----------
Oil & Gas -- 1.0%
*Cal Dive International, Inc. ............................ 10,000 331,250
Santa Fe International Corp. ............................. 12,000 310,500
-----------
641,750
-----------
Oil Equipment & Services -- 1.1%
CARBO Ceramics, Inc. ..................................... 12,000 262,500
*Oceaneering International, Inc. ......................... 29,000 433,188
-----------
695,688
-----------
Personal Services -- 0.3%
Strayer Education, Inc. .................................. 8,300 163,925
-----------
Railroads -- 0.5%
*Railtex, Inc. ........................................... 18,000 321,750
-----------
Real Estate -- 2.5%
Chateau Communities, Inc. ................................ 46,000 1,193,125
Liberty Property Trust.................................... 15,000 363,750
-----------
1,556,875
-----------
Restaurants -- 3.9%
Applebee's International, Inc. ........................... 27,000 796,500
*Jack in the Box, Inc. ................................... 28,000 579,250
Ruby Tuesday, Inc. ....................................... 60,000 1,091,250
-----------
2,467,000
-----------
Retail Merchandising -- 2.9%
Casey General Stores, Inc. ............................... 46,000 480,125
Ethan Allen Interiors, Inc. .............................. 35,000 1,122,188
*Wet Seal (The), Inc., Class A............................ 16,000 196,000
-----------
1,798,313
-----------
Semiconductors -- 2.4%
Dallas Semiconductor Corp. ............................... 22,800 1,469,175
-----------
Software -- 1.8%
*Filenet Corp. ........................................... 44,000 1,122,000
-----------
1,122,000
-----------
Transportation -- 3.9%
Air Express International Corp. .......................... 27,000 872,438
*Eagle USA Airfreight, Inc. .............................. 13,500 582,188
Robinson (C.H.) Worldwide, Inc. .......................... 24,000 954,000
-----------
2,408,626
-----------
TOTAL COMMON STOCK (COST $48,257,470)................... 57,801,191
-----------
</TABLE>
F-20
<PAGE> 154
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Aggressive Growth Portfolio
Statement of Net Assets, December 31, 1999 -- Concluded
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATURITY SHARES
DESCRIPTION AND PERCENTAGE OF PORTFOLIO DATE OR PAR VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS -- 0.1%
Phoenix Investment Partners Ltd., 6.00%................... 11/01/2015 $ 62,500 $ 63,516
-----------
TOTAL CORPORATE BOND (COST $65,394)..................... 63,516
-----------
COMMERCIAL PAPER -- 4.4%
Ford Motor Credit Co., 6.50%.............................. 01/04/2000 1,287,000 1,286,303
General Electric Capital Corp., 5.60%..................... 02/14/2000 1,500,000 1,489,733
-----------
TOTAL COMMERCIAL PAPER (COST $2,776,036)................ 2,776,036
-----------
SHORT TERM INVESTMENTS -- 3.4%
Temporary Investment Fund, Inc. -- TempCash........................... 2,100,072 2,100,072
-----------
TOTAL SHORT TERM INVESTMENTS (COST $2,100,072)...................... 2,100,072
-----------
TOTAL INVESTMENTS -- 100.4% (COST $53,198,972)...................... 62,740,815
LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.4%)......................... (228,468)
-----------
NET ASSETS -- 100.0%
(Equivalent to $21.97 per share based on 2,845,165 shares of capital
stock outstanding).................................................. $62,512,347
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($62,512,347/2,845,165 shares outstanding)............................ $ 21.97
===========
</TABLE>
*Non-Income Producing.
See accompanying notes to financial statements.
F-21
<PAGE> 155
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The International Portfolio
Statement of Net Assets, December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
COMMON AND PREFERRED STOCK -- 95.9%
Australia -- 2.1%
Australia & New Zealand Bank Group Ltd.................... 145,924 $ 1,062,358
Boral Ltd................................................. 1 2
Goodman Fielder Ltd....................................... 385,571 344,515
Pacific Dunlop Ltd. ...................................... 301,642 427,273
-----------
1,834,148
-----------
Austria -- 0.6%
Bank Austria AG........................................... 10,150 572,464
-----------
Brazil -- 0.9%
Petroleo Brasileiro SA ADR................................ 13,500 346,248
Telecomunicacoes Brasileiras SA ADR....................... 3,611 464,013
-----------
810,261
-----------
Denmark -- 0.7%
Jyske Bank................................................ 31,450 633,575
-----------
Finland -- 0.6%
Kesko Oyj................................................. 42,600 540,598
-----------
France -- 9.5%
Alstom SA................................................. 12,315 410,541
Assurances Generales de France............................ 14,580 790,013
Banque Nationale de Paris................................. 12,600 1,162,413
Bongrain.................................................. 1,227 406,940
*Dexia Belgium............................................ 4,510 745,837
*Dexia Strips............................................. 4,510 --
L'Air Liquide............................................. 6,437 1,077,477
Michelin-(CGDE)........................................... 19,153 752,308
PSA Peugeot Citroen....................................... 1,910 433,592
Societe Generale.......................................... 2,018 469,491
Thomson CSF............................................... 24,219 799,820
Total Fina SA ADR......................................... 13,661 946,024
Usinor Sacilor............................................ 21,400 401,964
-----------
8,396,420
-----------
Germany -- 10.1%
*Aventis AG............................................... 4,351 252,414
Bayer AG.................................................. 26,300 1,244,939
Deutsche Bank AG.......................................... 12,777 1,079,012
Deutsche Lufthansa AG..................................... 36,000 837,547
Hugo Boss AG.............................................. 2,530 323,608
Merck KGAA................................................ 31,289 970,592
Metallgesellschaft AG..................................... 14,165 283,899
ProSieben Media AG........................................ 7,700 447,467
Rheinmetall AG............................................ 13,900 146,994
Siemens AG................................................ 7,600 966,744
Veba AG................................................... 21,800 1,059,372
Viag AG................................................... 16,260 298,048
Volkswagen AG............................................. 18,150 1,022,754
-----------
8,933,390
-----------
</TABLE>
F-22
<PAGE> 156
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The International Portfolio
Statement of Net Assets, December 31, 1999 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
COMMON AND PREFERRED STOCK (CONTINUED)
Greece -- 1.3%
Hellenic Telecommunications............................... 93,755 $ 1,119,200
-----------
Hong Kong -- 1.6%
CDL Hotels International Ltd.............................. 322,000 128,411
Henderson Investment Ltd.................................. 353,000 367,827
Hong Kong Electric........................................ 286,896 896,838
-----------
1,393,076
-----------
Italy -- 3.5%
Banca Popolare di Bergamo Credito Varesino SpA............ 21,400 494,857
*Beni Stabili SpA......................................... 23,512 8,288
ENI SpA................................................... 46,400 255,156
Ente Nazionale Idrocarburi SpA............................ 17,000 937,125
Istituto Bancario San Paolo di Torino SpA................. 34,912 474,331
Telecom Italia SpA........................................ 158,300 964,563
-----------
3,134,320
-----------
Japan -- 27.8%
77 Bank Ltd............................................... 70,000 733,777
Aiful Corp................................................ 3,000 367,035
Canon, Inc................................................ 39,000 1,549,770
Credit Saison Co.......................................... 45,500 792,698
Dai-Tokyo Fire and Marine Insurance....................... 143,000 583,645
Fuji Machine.............................................. 21,000 1,693,648
Honda Motor Co. Ltd....................................... 18,000 669,472
Mabuchi Motors............................................ 9,700 1,692,777
Marubeni Corp............................................. 270,000 1,133,699
Matsumotokiyoshi.......................................... 15,600 1,207,752
Mineba Co. Ltd............................................ 87,000 1,492,718
Mitsubishi Heavy Industries Ltd........................... 110,000 367,133
Murata Manufacturing Co. Ltd.............................. 3,000 704,708
Namco Ltd................................................. 21,500 1,393,070
Nichiei................................................... 14,100 306,372
Nippon Express Company Ltd................................ 200,000 1,106,000
Nippon Telegraph & Telephone Corp......................... 250 428,208
Nishimatsu Construction................................... 80,000 321,034
Rinnai Corp............................................... 32,000 595,087
Rohm Co. Ltd.............................................. 5,000 2,094,548
Sankyo Company Ltd. ...................................... 25,000 513,849
Sekisui Chemical Co. ..................................... 75,000 332,534
Shin-Etsu Chemical Company Limited........................ 8,000 344,524
Sony Corp................................................. 7,400 2,194,578
Toyota Motor Corp......................................... 21,000 1,017,422
Yamanouchi Pharmaceuticals................................ 29,000 1,013,311
-----------
24,649,369
-----------
Korea -- 0.8%
Korea Electric Power ADR.................................. 26,400 442,200
Pohang Iron & Steel Co. Ltd. ADR.......................... 8,000 280,000
-----------
722,200
-----------
</TABLE>
F-23
<PAGE> 157
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The International Portfolio
Statement of Net Assets, December 31, 1999 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
COMMON AND PREFERRED STOCK (CONTINUED)
Mexico -- 0.3%
Telefonos de Mexico SA ADR................................ 2,308 $ 259,650
-----------
Netherlands -- 6.9%
ABN Amro Holding.......................................... 43,620 1,089,512
AKZO N.V. ADR............................................. 15,500 771,125
Buhrmann N.V. ............................................ 45,085 678,841
Hollandsche Beton......................................... 37,826 361,917
Hunter Douglas N.V. ...................................... 26,319 715,694
ING Groep N.V. ........................................... 17,087 1,031,519
KPN ADS................................................... 5,383 517,441
Stork N.V. ............................................... 37,053 541,110
Vedior N.V. .............................................. 42,400 435,573
-----------
6,142,732
-----------
New Zealand -- 0.9%
Fletcher Challenge Paper.................................. 427,822 299,540
Telecom Corporation of New Zealand Ltd.................... 114,600 538,907
-----------
838,447
-----------
Norway -- 1.1%
Norsk Hydro............................................... 9,700 406,612
Orkla..................................................... 32,000 550,933
-----------
957,545
-----------
Peru -- 0.4%
Telefonica del Peru S.A. ADR.............................. 27,000 361,125
-----------
Portugal -- 1.3%
Electricidade de Portugal SA.............................. 14,500 253,082
Portugal Telecom SA....................................... 82,870 908,908
-----------
1,161,990
-----------
Singapore -- 1.9%
Creative Technology Ltd. ADR.............................. 30,700 533,413
Overseas Chinese Banking Corp............................. 44,000 404,203
United Overseas Bank Ltd.................................. 87,544 772,679
-----------
1,710,295
-----------
Spain -- 4.1%
Argentaria, Caja Postal y Banco Hipotecario de Espana
SA...................................................... 26,000 610,918
Banco Popular Espanol SA.................................. 12,500 815,163
Endesa SA................................................. 57,086 1,133,211
Repsol ADR................................................ 45,200 1,050,900
-----------
3,610,192
-----------
Sweden -- 0.8%
Autoliv, Inc. SDR......................................... 25,500 746,298
-----------
</TABLE>
F-24
<PAGE> 158
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The International Portfolio
Statement of Net Assets, December 31, 1999 -- Concluded
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
COMMON AND PREFERRED STOCK (CONTINUED)
Switzerland -- 4.0%
Barry Callebaut AG - Registered Shares................... 4,018 $ 584,166
Forbo Holding AG - Registered Shares...................... 1,330 626,452
Sulzer AG - Registered Shares............................. 830 539,503
Swisscom AG - Registered Shares........................... 1,750 707,781
United Bank of Switzerland - Registered Shares............ 4,170 1,126,107
-----------
3,584,009
-----------
United Kingdom -- 14.7%
Barclays Plc.............................................. 24,442 703,554
BOC Group Plc............................................. 31,060 667,277
British Aerospace Plc..................................... 157,830 1,045,265
British Airways Plc....................................... 64,680 422,090
Bunzl Plc................................................. 213,599 1,176,540
Laird Group Ordinary...................................... 100,000 395,749
Medeva Plc................................................ 2,248 6,391
Morgan Crucible Co. Plc................................... 202,215 948,883
Powergen UK Plc........................................... 91,000 654,116
Rexam Plc................................................. 193,300 780,594
Rio Tinto Plc............................................. 46,845 1,131,247
Royal & Sun Alliance Insurance Group...................... 132,768 1,011,180
Royal Bank of Scotland Group Plc.......................... 47,487 842,229
Safeway Plc............................................... 220,244 754,211
Scottish and Southern Energy Plc.......................... 65,500 522,927
Tomkins Plc............................................... 181,728 587,090
Unilever Plc.............................................. 65,000 478,250
Wolseley Plc.............................................. 119,200 914,102
-----------
13,041,695
-----------
TOTAL COMMON AND PREFERRED STOCK (COST $71,298,159)..... 85,152,999
-----------
SHORT TERM INVESTMENTS -- 1.6%
Temporary Investment Fund, Inc. -- TempCash............... 1,409,425 1,409,425
-----------
TOTAL SHORT TERM INVESTMENTS (COST $1,409,425).......... 1,409,425
-----------
TOTAL INVESTMENTS -- 97.5% (COST $72,707,584)........... 86,562,424
OTHER ASSETS IN EXCESS OF LIABILITIES -- 2.5%............... 2,233,140
-----------
NET ASSETS -- 100.0%
(Equivalent to $16.68 per share based on 5,324,220 shares
of capital stock outstanding)........................... $88,795,564
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($88,795,564/5,324,220 shares outstanding)................ $ 16.68
===========
</TABLE>
*Non-Income Producing.
See accompanying notes to financial statements.
F-25
<PAGE> 159
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Sentinel Growth Portfolio
Statement of Net Assets, December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- 94.6%
Aerospace & Defense -- 1.1%
Goodrich (B.F.) Co........................................ 8,400 $ 231,000
-----------
Building & Building Supplies -- 0.5%
Sherwin Williams Co. ..................................... 5,000 105,000
-----------
Business & Consumer Services -- 1.8%
America Online, Inc. ..................................... 4,000 301,750
Expedia, Inc. ............................................ 2,500 87,500
-----------
389,250
-----------
Chemicals & Allied Products -- 0.9%
Cambrex Corp. ............................................ 5,800 199,737
-----------
Communications -- 15.4%
Charter Communications, Inc. ............................. 7,500 164,062
General Instrument Corp. ................................. 9,800 833,000
*Global Crossing, Ltd. ................................... 1,500 75,000
*NEXTLINK Communications, Inc. ........................... 6,300 523,294
*Qualcomm, Inc. .......................................... 800 141,000
Scientific Atlanta, Inc. ................................. 9,400 522,875
*Teligent, Inc. .......................................... 3,000 185,250
True North Communications................................. 11,200 500,500
*WinStar Communications, Inc. ............................ 4,600 344,425
-----------
3,289,406
-----------
Computers -- 2.0%
*Cisco Systems, Inc. ..................................... 2,500 267,812
*Sun Microsystems, Inc. .................................. 2,000 154,875
-----------
422,687
-----------
Consumer Products -- 0.5%
Fortune Brands, Inc. ..................................... 3,500 115,719
-----------
Containers -- 1.2%
Bemis Co., Inc. .......................................... 7,300 254,587
-----------
Drugs & Health Care -- 9.1%
*Biogen, Inc. ............................................ 3,400 287,300
*Chiron Corp. ............................................ 4,000 169,500
*Genzyme Corp. ........................................... 3,000 135,000
*Human Genome Sciences, Inc. ............................. 3,500 534,187
Jones Pharma, Inc. ....................................... 4,000 173,750
*Millennium Pharmaceuticals, Inc. ........................ 2,900 353,800
*Watson Pharmaceuticals, Inc. ............................ 8,000 286,500
-----------
1,940,037
-----------
Electronic Instruments -- 2.0%
*Analog Devices, Inc. .................................... 4,600 427,800
-----------
</TABLE>
F-26
<PAGE> 160
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Sentinel Growth Portfolio
Statement of Net Assets, December 31, 1999 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
Electronics -- 15.1%
Applied Power, Inc. Class A............................... 6,000 $ 220,500
*Broadcom Corp., Class A.................................. 300 81,713
*C-Cube Microsystems, Inc. ............................... 11,100 690,975
*Cable Design Technologies, Inc. ......................... 5,700 131,100
CTS Corp. ................................................ 7,400 557,775
*JDS Uniphase Corp. ...................................... 4,000 645,250
Photronics, Inc........................................... 3,200 91,600
*Sawtek, Inc. ............................................ 12,000 798,750
-----------
3,217,663
-----------
Energy -- 1.2%
MidAmerican Energy Holdings Co. .......................... 7,600 256,025
-----------
Environmental Control -- 1.1%
Donaldson Co., Inc. ...................................... 10,000 240,625
-----------
Food & Food Distributors -- 4.2%
McCormick & Co., Inc. .................................... 12,600 374,850
*Whole Foods Market, Inc. ................................ 11,000 510,125
-----------
884,975
-----------
Insurance -- 0.9%
AFLAC, Inc. .............................................. 4,000 188,750
-----------
Medical Instruments -- 2.0%
Incyte Pharmaceuticals, Inc. ............................. 7,000 420,000
-----------
Oil & Gas -- 1.3%
*Cal Dive International, Inc. ............................ 8,500 281,563
-----------
Restaurants -- 4.4%
Applebee's International, Inc. ........................... 15,700 463,150
Outback Steakhouse, Inc. ................................. 6,700 173,781
Ruby Tuesday, Inc. ....................................... 16,800 305,550
-----------
942,481
-----------
Retail - Clothing and Apparel -- 2.1%
Lands' End, Inc. ......................................... 12,800 444,800
-----------
Retail Merchandising -- 2.2%
Ethan Allen Interiors, Inc. .............................. 14,250 456,891
-----------
Semiconductors -- 8.3%
*Applied Materials, Inc. ................................. 3,300 418,069
Dallas Semiconductor Corp. ............................... 9,300 599,269
*KLA-Tencor Corp. ........................................ 2,000 222,750
*Novellus Systems, Inc. .................................. 4,300 526,884
-----------
1,766,972
-----------
</TABLE>
F-27
<PAGE> 161
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Sentinel Growth Portfolio
Statement of Net Assets, December 31, 1999 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
Software -- 9.9%
*Ariba, Inc. ............................................. 800 $ 141,900
Computer Associates International, Inc. .................. 5,000 349,688
*DoubleClick, Inc. ....................................... 1,000 253,062
*Inktomi Corp. ........................................... 1,200 106,500
*Lycos, Inc. ............................................. 2,000 159,125
Newbridge Networks Corp. ................................. 3,000 67,688
*Novell, Inc. ............................................ 15,500 617,094
*Oracle Corp. ............................................ 900 100,856
*Red Hat, Inc. ........................................... 1,500 316,875
-----------
2,112,788
-----------
Tobacco -- 0.5%
UST, Inc.................................................. 4,100 103,269
-----------
Transportation -- 6.8%
Air Express International Corp. .......................... 11,000 355,438
*Eagle USA Airfreight, Inc. .............................. 15,000 646,875
Robinson (C.H.) Worldwide, Inc. .......................... 11,400 453,150
-----------
1,455,463
-----------
TOTAL COMMON STOCK (COST $14,598,091)................... 20,147,488
-----------
</TABLE>
F-28
<PAGE> 162
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Sentinel Growth Portfolio
Statement of Net Assets, December 31, 1999 -- Concluded
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MATURITY SHARES
DESCRIPTION AND PERCENTAGE OF PORTFOLIO DATE OR PAR VALUE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. AGENCY OBLIGATIONS -- 0.8%
Federal Home Loan Mortgage Corp., 5.25%................... 01/20/2000 $ 180,000 $ 179,501
-----------
TOTAL U.S. AGENCY OBLIGATIONS (COST $179,501)........... 179,501
-----------
SHORT TERM INVESTMENTS -- 4.5%
Temporary Investment Fund.-- TempCash................................... 947,781 947,781
-----------
TOTAL SHORT TERM INVESTMENTS (COST $947,781).......................... 947,781
-----------
TOTAL INVESTMENTS -- 99.9% (COST $15,725,373)......................... 21,274,770
OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.1%............................. 22,607
-----------
NET ASSETS -- 100.0%
(Equivalent to $17.79 per share based on 1,196,980 shares of capital
stock outstanding)...................................................... $21,297,377
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($21,297,377/1,196,980 shares outstanding).............................. $ 17.79
===========
</TABLE>
*Non-Income Producing.
See accompanying notes to financial statements.
F-29
<PAGE> 163
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The All Pro Large Cap Growth Portfolio
Statement of Net Assets, December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- 96.1%
Aerospace & Defense -- 0.2%
Honeywell International, Inc. ............................ 500 $ 28,844
*Howmet International, Inc. .............................. 220 3,974
United Technologies Corp. ................................ 800 52,000
-----------
84,818
-----------
Airlines -- 0.1%
*Midwest Express Holdings, Inc. .......................... 200 6,375
Southwest Airlines Co..................................... 2,675 43,302
-----------
49,677
-----------
Appliances -- 0.0%
Black & Decker Corp....................................... 200 10,450
-----------
Art Dealer & Auction House -- 0.0%
Sotheby's Holdings, Inc. Class A.......................... 300 9,000
-----------
Banks -- 1.5%
Fifth Third Bancorp....................................... 100 7,337
U.S. Bancorp.............................................. 22,900 545,306
Zions Bancorp............................................. 100 5,919
-----------
558,562
-----------
Beverages -- 1.7%
Coca Cola Co.............................................. 9,800 570,850
Pepsico, Inc.............................................. 2,500 88,125
-----------
658,975
-----------
Broadcasting & Publishing -- 0.2%
Central Newspapers, Inc. Class A.......................... 200 7,875
Dow Jones & Co., Inc. .................................... 300 20,400
*Infinity Broadcasting, Inc............................... 875 31,664
McGraw-Hill, Inc. ........................................ 200 12,325
Meredith Corp............................................. 150 6,253
-----------
78,517
-----------
Building & Building Supplies -- 0.2%
Centex Corp. ............................................. 200 4,937
Ecolab, Inc. ............................................. 700 27,387
Lowe's Cos., Inc.......................................... 500 29,875
-----------
62,199
-----------
</TABLE>
F-30
<PAGE> 164
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The All Pro Large Cap Growth Portfolio
Statement of Net Assets, December 31, 1999 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
Business & Consumer Services -- 2.4%
*ACNielsen Corp. ......................................... 200 $ 4,925
*Affiliated Computer Services, Inc. ...................... 200 9,200
*America Online, Inc. .................................... 7,080 534,097
*BISYS Group, Inc. ....................................... 100 6,525
*Convergys Corp. ......................................... 300 9,225
*DST Systems.............................................. 100 7,631
Interpublic Group of Cos., Inc. .......................... 1,100 63,456
*Network Appliance, Inc. ................................. 800 66,450
Omnicom Group, Inc. ...................................... 850 85,000
*Safeguard Scientific, Inc. .............................. 125 20,258
*SEI Investments Co. ..................................... 100 11,902
*TMP Worldwide, Inc. ..................................... 100 14,200
*USWeb Corp. ............................................. 200 8,887
*VeriSign, Inc. .......................................... 325 61,994
*Whittman-Hart, Inc. ..................................... 100 5,362
-----------
909,112
-----------
Business Equipment -- 0.1%
*Lexmark International Group, Inc. Class A................ 300 27,150
-----------
Chemicals & Allied Products -- 0.0%
Valspar Corp.............................................. 100 4,187
-----------
Communications -- 9.4%
*ADC Telecommunications, Inc.............................. 700 50,794
*Adelphia Communications Corp. Class A.................... 300 19,688
*Allegiance Telecom, Inc. ................................ 330 30,442
ALLTEL Corp............................................... 600 49,612
Comcast Corp. Special Class A Non-Voting.................. 700 35,175
Corning Glass, Inc. ...................................... 1,100 141,831
General Instrument Corp. ................................. 200 17,000
*L-3 Communications Corp. ................................ 250 10,406
Lucent Technologies, Inc. ................................ 3,819 285,709
*MCI WorldCom, Inc. ...................................... 17,828 945,972
*McLeodUSA, Inc. ......................................... 600 35,325
Motorola, Inc. ........................................... 600 88,350
*Nextel Communications, Inc. Class A...................... 1,200 123,750
*Qualcomm, Inc. .......................................... 1,600 282,000
SBC Communications, Inc. ................................. 7,979 388,976
Scientific Atlanta, Inc. ................................. 100 5,562
*Sprint Corp. (PCS Group)................................. 8,775 899,437
*Tellabs, Inc. ........................................... 2,000 128,375
*Valassis Communications, Inc. ........................... 300 12,675
*Western Wireless Corp. Class A........................... 100 6,675
*WinStar Communications, Inc. ............................ 300 22,462
-----------
3,580,216
-----------
</TABLE>
F-31
<PAGE> 165
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The All Pro Large Cap Growth Portfolio
Statement of Net Assets, December 31, 1999 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
Computer Peripherals -- 0.8%
*Adaptec, Inc. ........................................... 400 $ 19,950
*Comverse Technology, Inc. ............................... 600 86,850
*Veritas Software Corp. .................................. 1,270 181,769
-----------
288,569
-----------
Computers -- 11.1%
*CDW Computer Centers, Inc. .............................. 100 7,862
*Cisco Systems, Inc. ..................................... 17,080 1,829,694
*Dell Computer Corp. ..................................... 7,350 374,850
*EMC Corp. ............................................... 8,650 945,012
*Gateway, Inc. ........................................... 400 28,825
*Intuit, Inc. ............................................ 300 17,981
*Seagate Technology, Inc. ................................ 15,900 740,344
*Sun Microsystems, Inc. .................................. 3,600 278,775
-----------
4,223,343
-----------
Consumer Products -- 1.2%
Estee Lauder Co. Class A.................................. 400 20,175
Procter & Gamble Co. ..................................... 4,000 438,250
-----------
458,425
-----------
Cosmetics and Toiletries -- 1.3%
Avon Products, Inc. ...................................... 14,300 471,900
-----------
Diversified -- 0.1%
*Berkshire Hathaway, Inc. Class B......................... 20 36,600
-----------
Drugs & Health Care -- 14.3%
Abbott Laboratories....................................... 17,835 647,633
American Home Products Corp. ............................. 10,900 429,869
*Andrx Corp. ............................................. 300 12,694
Allergan, Inc. ........................................... 700 34,825
Bausch & Lomb, Inc. ...................................... 100 6,844
Becton, Dickinson & Co. .................................. 22,300 596,525
*Biogen, Inc. ............................................ 600 50,700
Bristol-Myers Squibb Co. ................................. 15,710 1,008,385
Colgate-Palmolive Co. .................................... 1,300 84,500
CVS Corp. ................................................ 900 35,944
*Express Scripts, Inc., Class A........................... 300 19,200
*IVAX Corp. .............................................. 300 7,725
Johnson & Johnson......................................... 4,650 433,031
Lilly (Eli) & Co. ........................................ 900 59,850
McKesson HBOC, Inc. ...................................... 25,675 579,292
*Medimmune, Inc. ......................................... 350 58,056
Merck & Co., Inc. ........................................ 16,310 1,093,789
Schering Plough Corp. .................................... 6,400 270,000
-----------
5,428,862
-----------
Electronic Instruments -- 0.3%
*Analog Devices, Inc. .................................... 900 83,700
*Conexant Systems, Inc. .................................. 400 26,550
-----------
110,250
-----------
</TABLE>
F-32
<PAGE> 166
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The All Pro Large Cap Growth Portfolio
Statement of Net Assets, December 31, 1999 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
Electronics -- 6.3%
*American Power Conversion Corp. ......................... 350 $ 9,231
*Electronics For Imaging, Inc. ........................... 540 31,387
General Electric Co. ..................................... 9,810 1,518,097
*Gentex Corp. ............................................ 400 11,100
*JDS Uniphase Corp. ...................................... 600 96,787
Linear Technology Corp. .................................. 600 42,937
*Solectron Corp. ......................................... 200 19,025
Tandy Corp................................................ 10,700 526,306
Texas Instruments, Inc. .................................. 400 38,750
*Xilinx, Inc. ............................................ 2,400 109,125
-----------
2,402,745
-----------
Energy -- 0.1%
*AES Corp. ............................................... 100 7,475
*Calpine Corp. ........................................... 200 12,800
-----------
20,275
-----------
Environmental Services -- 0.1%
*Forest Laboratories, Inc. ............................... 400 24,575
-----------
Finance -- 5.5%
American Express Co. ..................................... 250 41,563
Charles Schwab Corp. ..................................... 2,000 76,750
Citigroup, Inc. .......................................... 8,775 487,561
*Concord EFS, Inc. ....................................... 1,200 30,900
Franklin Resources, Inc. ................................. 13,350 428,034
H & R Block, Inc. ........................................ 100 4,375
MBNA Corp. ............................................... 19,900 542,275
Paychex, Inc. ............................................ 725 29,000
Providian Financial Corp. ................................ 5,025 457,589
*Sabre Group Holdings, Inc. .............................. 100 5,125
-----------
2,103,172
-----------
Finance - Investment & Other -- 2.5%
Federated Investors, Inc., Class B........................ 250 5,016
Freddie Mac............................................... 350 16,472
S & P 400 Mid-Cap Depositary Receipts..................... 1,000 81,125
Standard & Poor's Depositary Receipts..................... 5,650 829,844
-----------
932,457
-----------
Food & Food Distributors -- 0.4%
General Mills, Inc. ...................................... 1,200 42,900
*Keebler Foods Co. ....................................... 500 14,063
Quaker Oats Co. .......................................... 400 26,250
Sysco Corp. .............................................. 1,300 51,431
-----------
134,644
-----------
Home Furnishings/Housewares -- 0.0%
*Mohawk Industries, Inc. ................................. 200 5,275
-----------
Hotel/Restaurants -- 0.0%
*MGM Grand, Inc. ......................................... 100 5,031
-----------
</TABLE>
F-33
<PAGE> 167
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The All Pro Large Cap Growth Portfolio
Statement of Net Assets, December 31, 1999 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
Industrial -- 0.1%
Danaher Corp. ............................................ 500 $ 24,125
-----------
Insurance -- 1.5%
Conseco, Inc. ............................................ 32,000 572,000
-----------
Leasing -- 0.0%
Hertz Corp. (The), Class A................................ 100 5,013
-----------
Leisure & Amusements -- 0.1%
Harley-Davidson, Inc. .................................... 600 38,438
Mattel, Inc. ............................................. 200 2,625
*Pixar, Inc. ............................................. 200 7,075
-----------
48,138
-----------
Machinery & Heavy Equipment -- 0.0%
*SPX Corp. ............................................... 100 8,081
-----------
Manufacturing -- 0.1%
Millipore Corp. .......................................... 550 21,244
Symbol Technologies, Inc. ................................ 200 12,713
Textron, Inc. ............................................ 100 7,669
*Waters Corp. ............................................ 200 10,600
-----------
52,226
-----------
Medical & Medical Services -- 2.6%
*Amgen Corp. ............................................. 16,700 1,003,043
-----------
Medical Instruments -- 1.9%
Beckman Coulter, Inc ..................................... 200 10,175
Biomet, Inc. ............................................. 200 8,000
*Boston Scientific Corp. ................................. 27,300 597,187
*Guidant Corp. ........................................... 900 42,300
Stryker Corp. ............................................ 550 38,294
*Sybron International Corp. .............................. 300 7,406
-----------
703,362
-----------
Office Equipment & Supplies -- 1.7%
Avery-Dennison Corp. ..................................... 100 7,288
Pitney Bowes, Inc. ....................................... 600 28,988
*Staples, Inc. ........................................... 3,800 78,850
Xerox Corp. .............................................. 23,100 524,081
-----------
639,207
-----------
Oil Equipment & Services -- 0.0%
*BJ Services Co. ......................................... 100 4,181
-----------
Oil & Gas -- 0.1%
Apache Corp. ............................................. 100 3,694
Devon Energy Corp. ....................................... 100 3,288
Dynegy, Inc. ............................................. 200 4,863
*Noble Drilling Corp. .................................... 300 9,825
USX-Marathon Group, Inc. ................................. 200 4,938
-----------
26,608
-----------
</TABLE>
F-34
<PAGE> 168
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The All Pro Large Cap Growth Portfolio
Statement of Net Assets, December 31, 1999 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
Real Estate -- 0.0%
*Catellus Development Corp. .............................. 400 $ 5,125
St. Joe (The) Co. ........................................ 200 4,863
-----------
9,988
-----------
Restaurants -- 1.1%
McDonald's Corp. ......................................... 10,000 403,125
-----------
Retail - Clothing and Apparel -- 1.5%
*American Eagle Outfitters, Inc. ......................... 500 22,500
Gap, Inc. ................................................ 10,950 503,700
*Jones Apparel Group, Inc. ............................... 200 5,425
Limited, Inc. ............................................ 200 8,663
*Linens 'N Things, Inc. .................................. 200 5,925
Ross Stores, Inc.......................................... 400 7,175
*Too, Inc. ............................................... 28 483
-----------
553,871
-----------
Retail Merchandising -- 7.5%
*Barnes & Noble, Inc. .................................... 200 4,125
*Bed, Bath & Beyond, Inc. ................................ 18,200 632,450
*BJ's Wholesale Club, Inc. ............................... 200 7,300
Circuit City Stores, Inc. ................................ 200 9,013
*Costco Wholesale Corp. .................................. 375 34,219
Dollar General Corp. ..................................... 20,750 472,063
*Dollar Tree Stores, Inc. ................................ 500 24,219
Home Depot, Inc. ......................................... 9,450 647,916
*Kohls Corp. ............................................. 600 43,313
*Ticketmaster Online-CitySearch, Inc. .................... 400 15,375
Wal-Mart Stores, Inc. .................................... 13,600 940,100
*Williams-Sonoma, Inc. ................................... 200 9,200
-----------
2,839,293
-----------
Semiconductors -- 4.7%
*Altera Corp. ............................................ 500 24,781
*Applied Materials, Inc. ................................. 2,060 260,976
*Applied Micro Circuits Corp. ............................ 200 25,450
*Atmel Corp. ............................................. 200 5,913
Intel Corp. .............................................. 16,150 1,329,347
*KLA-Tencor Corp. ........................................ 100 11,138
*LSI Logic Corp. ......................................... 150 10,125
*Microchip Technology, Inc. .............................. 100 6,844
*Novellus Systems, Inc. .................................. 100 12,253
*PMC-Sierra, Inc. ........................................ 100 16,031
*QLogic Corp. ............................................ 250 39,969
*Sanmina Corp. ........................................... 200 19,975
*SDL, Inc. ............................................... 100 21,800
*Vitesse Semiconductors Corp. ............................ 100 5,244
-----------
1,789,846
-----------
</TABLE>
F-35
<PAGE> 169
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The All Pro Large Cap Growth Portfolio
Statement of Net Assets, December 31, 1999 -- Concluded
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
Software -- 13.4%
Adobe Systems, Inc. ...................................... 400 $ 26,900
*BEA Systems, Inc. ....................................... 400 27,975
*BMC Software, Inc. ...................................... 600 47,963
*Citrix Systems, Inc. .................................... 300 36,900
Computer Associates International, Inc. .................. 7,700 538,519
*Compuware Corp. ......................................... 16,500 614,625
*Electronic Arts.......................................... 100 8,400
*Inktomi Corp. ........................................... 600 53,250
*Legato Systems, Inc. .................................... 600 41,287
*Lycos, Inc. ............................................. 500 39,781
*Macromedia, Inc. ........................................ 100 7,312
*Microsoft Corp. ......................................... 11,600 1,354,300
*Oracle Corp. ............................................ 9,600 1,075,801
*Parametric Technology Corp. ............................. 28,600 773,988
PE Corp. ................................................. 800 96,250
*Rational Software Corp. ................................. 700 34,388
*Scient Corp. ............................................ 100 8,644
*Symantec Corp. .......................................... 150 8,794
*Yahoo!, Inc. ............................................ 700 302,881
-----------
5,097,958
-----------
Transportation -- 0.0%
Expeditors International of Washington, Inc. ............. 100 4,381
-----------
Utilities -- 0.0%
Enron Corp. .............................................. 200 8,875
-----------
TOTAL COMMON STOCK (COST $29,221,996)................... 36,472,307
-----------
SHORT TERM INVESTMENTS -- 4.6%
Temporary Investment Fund, Inc. -- TempCash............... 1,760,874 1,760,874
-----------
TOTAL SHORT TERM INVESTMENTS (COST $1,760,874).......... 1,760,874
-----------
TOTAL INVESTMENTS -- 100.7% (COST $30,982,870).......... 38,233,181
LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.7)%............. (272,162)
-----------
NET ASSETS -- 100.0%
(Equivalent to $14.77 per share based on 2,569,924 shares
of capital stock outstanding)........................... $37,961,019
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($37,961,019/2,569,924 shares outstanding)................ $ 14.77
===========
</TABLE>
*Non-Income Producing.
See accompanying notes to financial statements.
F-36
<PAGE> 170
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The All Pro Large Cap Value Portfolio
Statement of Net Assets, December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- 92.8%
Aerospace & Defense -- 2.5%
Boeing Co. ............................................... 2,400 $ 99,750
Honeywell International, Inc. ............................ 2,900 167,294
Lockheed Martin Corp. .................................... 2,900 63,437
Raytheon Co., Class B..................................... 5,500 146,094
United Technologies Corp. ................................ 2,023 131,495
-----------
608,070
-----------
Airlines -- 0.5%
*Alaska Air Group, Inc. .................................. 900 31,612
Delta Air Lines, Inc. .................................... 3,800 189,287
-----------
220,899
-----------
Apparel -- 0.3%
Nike, Inc. Class B........................................ 1,600 79,300
-----------
Appliances -- 0.4%
Black & Decker Corp. ..................................... 1,700 88,825
-----------
Automobiles -- 2.5%
Ford Motor Co. ........................................... 8,200 438,187
General Motors Corp. ..................................... 2,300 167,181
-----------
605,368
-----------
Banks -- 8.1%
Banc One Corp. ........................................... 8,230 263,875
Bank of America Corp. .................................... 9,723 487,973
Chase Manhattan Corp. .................................... 6,900 536,044
Firstar Corp. ............................................ 2,700 57,037
Morgan (J.P.) & Co., Inc. ................................ 2,000 253,250
PNC Bank Corp. ........................................... 5,700 253,650
Southtrust Corp. ......................................... 2,800 105,875
-----------
1,957,704
-----------
Beverages -- 0.5%
Pepsico, Inc. ............................................ 2,900 102,225
-----------
Broadcasting & Publishing -- 4.2%
*Fox Entertainment Group, Inc. ........................... 4,800 119,700
Gannett, Inc. ............................................ 1,400 114,187
*Infinity Broadcasting, Inc. ............................. 1,300 47,044
Knight-Ridder, Inc. ...................................... 1,400 83,300
McGraw-Hill, Inc. ........................................ 2,300 141,737
*MediaOne Group, Inc. .................................... 2,600 199,712
Tribune Co. .............................................. 5,200 286,324
-----------
992,004
-----------
Building & Building Supplies -- 0.7%
Lafarge Corp. ............................................ 1,400 38,675
Lowe's Cos., Inc. ........................................ 800 47,800
Masco Corp. .............................................. 3,200 81,200
-----------
167,675
-----------
</TABLE>
F-37
<PAGE> 171
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The All Pro Large Cap Value Portfolio
Statement of Net Assets, December 31, 1999 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
Business & Consumer Services -- 2.1%
Dun & Bradstreet Corp. ................................... 3,300 $ 97,350
Electronic Data Systems................................... 4,700 314,606
XL Capital Ltd. .......................................... 1,900 98,562
-----------
510,518
-----------
Business Data Processing -- 0.2%
Reynolds & Reynolds Co. Class A........................... 2,100 47,250
-----------
Business Equipment -- 0.4%
*Lexmark International Group, Inc. Class A................ 1,000 90,500
-----------
Chemicals & Allied Products -- 2.8%
Dow Chemical Co. ......................................... 3,000 400,875
Du Pont (E.I.) de Nemours & Co. .......................... 3,751 247,097
Union Carbide Corp. ...................................... 500 33,375
-----------
681,347
-----------
Communications -- 11.6%
ALLTEL Corp. ............................................. 2,500 206,719
AT&T Corp. ............................................... 13,650 692,737
Bell Atlantic Corp. ...................................... 6,200 381,688
BellSouth Corp. .......................................... 4,700 220,019
GTE Corp. ................................................ 2,300 162,294
Lucent Technologies, Inc. ................................ 1,100 82,294
*MCI WorldCom, Inc. ...................................... 11,250 596,953
Motorola, Inc. ........................................... 1,000 147,250
SBC Communications, Inc. ................................. 5,566 271,343
Telephone and Data Systems, Inc. ......................... 500 63,000
-----------
2,824,297
-----------
Computers -- 2.3%
International Business Machines Corp. .................... 2,800 302,400
*Unisys Corp. ............................................ 8,000 255,500
-----------
557,900
-----------
Consumer Products -- 0.5%
Fortune Brands, Inc. ..................................... 3,400 112,412
-----------
Drugs & Health Care -- 3.1%
Abbott Laboratories....................................... 1,200 43,575
Allergan, Inc. ........................................... 600 29,850
Bausch & Lomb, Inc. ...................................... 1,800 123,187
Baxter International, Inc. ............................... 3,100 194,719
Bristol-Myers Squibb Co. ................................. 2,800 179,725
Schering Plough Corp. .................................... 2,500 105,469
United Healthcare Corp. .................................. 1,300 69,063
-----------
745,588
-----------
</TABLE>
F-38
<PAGE> 172
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The All Pro Large Cap Value Portfolio
Statement of Net Assets, December 31, 1999 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
Energy -- 2.3%
Chevron Corp. ............................................ 1,900 $ 164,587
Consolidated Edison, Inc. ................................ 1,500 51,750
FPL Group, Inc. .......................................... 1,600 68,500
Royal Dutch Petroleum Co. ................................ 3,000 181,313
Southern Co. ............................................. 4,400 103,400
-----------
569,550
-----------
Finance -- 8.5%
Citigroup, Inc. .......................................... 12,800 711,200
Comerica, Inc. ........................................... 2,800 130,725
Financial Security Assurance Holdings Ltd. ............... 900 46,912
First Data Corp. ......................................... 1,800 88,762
Fleet Boston Financial Corp. ............................. 9,300 323,756
GreenPoint Financial Corp. ............................... 2,000 47,625
Hartford Financial Services, Inc. ........................ 5,000 236,875
Household International, Inc. ............................ 1,500 55,875
H & R Block, Inc. ........................................ 1,900 83,125
MBNA Corp. ............................................... 3,900 106,275
Providian Financial Corp. ................................ 800 72,850
SLM Holding Corp. ........................................ 1,700 71,825
Washington Mutual, Inc. .................................. 3,850 100,100
-----------
2,075,905
-----------
Finance - Investment & Other -- 4.2%
Edwards (A.G.), Inc. ..................................... 2,900 92,981
Fannie Mae................................................ 5,600 349,650
Morgan Stanley Dean Witter & Co. ......................... 4,100 585,275
-----------
1,027,906
-----------
Food & Food Distributors -- 2.4%
General Mills, Inc. ...................................... 1,500 53,625
Heinz (H.J.) Co. ......................................... 1,800 71,663
IBP, Inc. ................................................ 900 16,200
Nabisco Holdings Corp., Class A........................... 2,300 72,738
Quaker Oats Co. .......................................... 800 52,500
Ralston Purina Group...................................... 4,300 119,863
*Safeway, Inc. ........................................... 4,400 156,475
Sara Lee Corp. ........................................... 1,800 39,712
-----------
582,776
-----------
Healthcare Services -- 1.5%
Columbia/HCA Healthcare Corp. ............................ 12,800 375,200
-----------
Hotel/Restaurants -- 0.3%
Host Marriott Corp. ...................................... 8,187 67,543
-----------
</TABLE>
F-39
<PAGE> 173
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The All Pro Large Cap Value Portfolio
Statement of Net Assets, December 31, 1999 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
Insurance -- 5.5%
Allstate Corp. ........................................... 7,700 $ 184,800
Ambac Financial Group, Inc. .............................. 1,400 73,062
American General Corp. ................................... 2,900 220,038
American International Group, Inc. ....................... 2,400 259,500
Cigna Corp. .............................................. 1,400 112,787
ConAgra, Inc. ............................................ 2,000 45,125
Conseco, Inc. ............................................ 12,400 221,650
Marsh & McLennan Cos., Inc. .............................. 600 57,412
Old Republic International Corp. ......................... 2,300 31,337
Partner Re Ltd. .......................................... 2,400 77,850
St. Paul Companies, Inc. ................................. 1,500 50,531
-----------
1,334,092
-----------
Leisure & Amusements -- 0.4%
Mattel, Inc. ............................................. 7,400 97,125
-----------
Machinery & Heavy Equipment -- 1.7%
Caterpillar, Inc. ........................................ 2,200 103,538
Deere & Co. .............................................. 5,800 251,575
Dover Corp. .............................................. 1,500 68,062
-----------
423,175
-----------
Manufacturing -- 2.9%
Alcoa, Inc. .............................................. 2,400 199,200
Cummins Engine Co., Inc. ................................. 1,100 53,144
Eaton Corp. .............................................. 700 50,838
PPG Industries, Inc. ..................................... 2,400 150,150
Textron, Inc. ............................................ 2,300 176,381
Tyco International Ltd. .................................. 1,100 42,762
U.S. Industries, Inc. .................................... 2,100 29,400
-----------
701,875
-----------
Manufacturing Equipment -- 1.0%
Illinois Tool Works, Inc. ................................ 1,188 80,264
Ingersoll Rand Co. ....................................... 2,900 159,681
-----------
239,945
-----------
Medical Equipment & Supplies -- 0.2%
Cooper Industries, Inc. .................................. 1,200 48,525
-----------
Metals - Iron & Steel -- 0.2%
AK Steel Holding Corp. ................................... 2,100 39,638
-----------
Natural Gas -- 0.3%
Phillips Petroleum Co. ................................... 1,600 75,200
-----------
</TABLE>
F-40
<PAGE> 174
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The All Pro Large Cap Value Portfolio
Statement of Net Assets, December 31, 1999 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
Oil & Gas -- 7.3%
Amerada Hess Corp. ....................................... 3,400 $ 192,950
BP Amoco Plc ADR.......................................... 1,600 94,900
Coastal Corp. ............................................ 5,400 191,362
Ensco International, Inc. ................................ 1,300 29,738
Exxon Mobil Corp. ........................................ 10,828 872,331
Texaco, Inc. ............................................. 2,000 108,625
Unocal Corp. ............................................. 5,700 191,306
USX-Marathon Group, Inc. ................................. 3,700 91,344
-----------
1,772,556
-----------
Oil Equipment & Services -- 0.7%
Diamond Offshore Drilling, Inc. .......................... 1,500 45,844
Kerr-McGee Corp. ......................................... 600 37,200
National Fuel Gas Co. .................................... 900 41,850
Tidewater, Inc. .......................................... 1,000 36,000
-----------
160,894
-----------
Paper & Forest Products -- 2.5%
Champion International Corp. ............................. 1,300 80,519
Fort James Corp. ......................................... 3,000 82,125
International Paper Co. .................................. 6,400 361,201
Temple Inland, Inc. ...................................... 1,200 79,125
-----------
602,970
-----------
Photography Equipment & Supplies -- 0.7%
Eastman Kodak Co. ........................................ 2,600 172,250
-----------
Railroads -- 0.9%
Union Pacific Corp., Series A............................. 5,200 226,850
-----------
Real Estate -- 0.3%
*Catellus Development Corp. .............................. 5,700 73,031
-----------
Restaurants -- 0.1%
Darden Restaurants, Inc. ................................. 1,200 21,750
-----------
Retail - Clothing and Apparel -- 0.4%
Limited, Inc. ............................................ 2,300 99,619
-----------
Retail Merchandising -- 0.8%
May Department Stores Co. ................................ 1,300 41,925
Sears, Roebuck & Co. ..................................... 2,900 88,269
TJX Companies, Inc. ...................................... 3,000 61,313
-----------
191,507
-----------
Semiconductors -- 1.8%
Cypress Semiconductor Corp. .............................. 1,300 42,088
Intel Corp. .............................................. 3,164 260,437
*KLA-Tencor Corp. ........................................ 600 66,825
*Micron Technology, Inc. ................................. 800 62,200
-----------
431,550
-----------
</TABLE>
F-41
<PAGE> 175
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The All Pro Large Cap Value Portfolio
Statement of Net Assets, December 31, 1999 -- Concluded
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
Software -- 1.2%
*BMC Software, Inc. ...................................... 2,900 $ 231,819
*Compuware Corp. ......................................... 1,400 52,150
-----------
283,969
-----------
Tobacco -- 0.3%
Philip Morris Cos., Inc. ................................. 3,000 69,563
-----------
Utilities -- 1.7%
Baltimore Gas & Electric Co. ............................. 2,900 84,100
DTE Energy Co. ........................................... 2,400 75,300
El Paso Energy Corp. ..................................... 1,000 38,813
Pinnacle West Capital Corp. .............................. 1,400 42,788
Public Service Enterprise Group, Inc. .................... 2,200 76,588
Texas Utilities Co. ...................................... 2,900 103,131
-----------
420,720
-----------
TOTAL COMMON STOCK (COST $22,482,529)................... 22,577,566
-----------
SHORT TERM INVESTMENTS -- 3.8%
Temporary Investment Fund, Inc. -- TempCash............... 916,007 916,007
-----------
TOTAL SHORT TERM INVESTMENTS (COST $916,007)............ 916,007
-----------
TOTAL INVESTMENTS -- 96.6% (COST $23,398,536)........... 23,493,573
OTHER ASSETS IN EXCESS OF LIABILITIES -- 3.4%............... 825,038
-----------
NET ASSETS -- 100.0%
(Equivalent to $9.98 per share based on 2,435,689 shares
of capital stock outstanding)........................... $24,318,611
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($24,318,611/2,435,689 shares outstanding)................ $ 9.98
===========
</TABLE>
*Non-Income Producing.
See accompanying notes to financial statements.
F-42
<PAGE> 176
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The All Pro Small Cap Growth Portfolio
Statement of Net Assets, December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- 99.2%
Airlines -- 1.4%
*Atlantic Coast Airlines, Inc............................. 7,700 $ 182,875
*Mesa Airlines, Inc....................................... 4,700 22,324
*Ryanair Holdings Plc..................................... 6,400 352,800
SkyWest, Inc.............................................. 3,200 89,600
-----------
647,599
-----------
Automotive & Equipment -- 0.5%
Exide Corp................................................ 25,100 208,644
-----------
Banks -- 0.8%
*First Republic Bank, Inc................................. 10,600 249,100
Westamerica Bancorporation................................ 3,800 106,162
-----------
355,262
-----------
Broadcasting & Publishing -- 3.0%
*Ascent Entertainment Group............................... 19,400 246,137
*Citadel Communications Corp.............................. 5,100 330,862
*Emmis Broadcasting Corp. Class A......................... 3,300 411,314
*Scandinavian Broadcasting S.A............................ 7,800 379,762
-----------
1,368,075
-----------
Building & Building Supplies -- 0.4%
*Dycom Industries, Inc.................................... 4,400 193,875
-----------
Business & Consumer Services -- 7.7%
*CBT Group Plc ADR........................................ 7,900 264,650
*Corporate Executive Board Co............................. 2,300 128,512
*Ebenx, Inc............................................... 13,400 606,350
*Getty Images, Inc........................................ 4,000 195,500
*IT Group, Inc............................................ 34,500 316,969
*Liberty Digital, Inc. Class A............................ 15,200 1,128,600
*Sportsline USA, Inc...................................... 3,900 195,487
*TMP Worldwide, Inc....................................... 4,600 653,200
-----------
3,489,268
-----------
Chemicals & Allied Products -- 0.7%
Geon Co................................................... 10,200 331,500
-----------
</TABLE>
F-43
<PAGE> 177
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The All Pro Small Cap Growth Portfolio
Statement of Net Assets, December 31, 1999 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
Communications -- 15.9%
*Acme Communications, Inc................................. 13,800 $ 458,850
*Adaptive Broadband Corp.................................. 5,400 398,587
*Adelphia Communications Corp. Class A.................... 8,600 564,375
*Harmonic Lightwaves, Inc................................. 3,100 294,306
*ICG Communications, Inc.................................. 25,100 470,625
*Insight Communications Co., Inc.......................... 9,400 278,475
*Leap Wireless International, Inc......................... 8,900 698,650
*Netoptix Corp............................................ 1,900 126,825
*Ortel Corp............................................... 3,000 360,000
*Osicom Technologies, Inc................................. 13,400 608,025
*Pinnacle Holdings, Inc................................... 7,000 296,625
*Voicestream Wireless Corp................................ 8,000 1,138,500
*Western Wireless Corp. Class A........................... 7,200 480,600
*Westwood One, Inc........................................ 3,300 250,800
*Wink Communications, Inc................................. 12,700 762,794
-----------
7,188,037
-----------
Computers -- 10.7%
*Applied Micro Circuits Corp.............................. 2,400 305,400
*Bottomline Technologies, Inc............................. 3,800 136,800
*Clarus Corp.............................................. 3,500 231,000
*Cybex Computer Products Corp............................. 4,300 174,150
*Data Return Corp......................................... 6,300 337,050
*Emulex Corp.............................................. 2,800 315,000
*Gadzoox Networks, Inc.................................... 2,900 126,331
*GetThere.Com, Inc........................................ 4,500 181,125
*Infospace.Com, Inc....................................... 1,000 214,000
*Media Metrix, Inc........................................ 7,100 253,825
*NBC Internet, Inc........................................ 8,300 641,175
*NetScout Systems, Inc.................................... 7,500 232,500
*SciQuest.Com, Inc........................................ 1,900 151,050
*Siebel Systems, Inc...................................... 5,400 453,600
*SmartDisk Corp........................................... 5,300 173,575
*VerticalNet, Inc......................................... 4,100 672,400
*Visual Networks, Inc..................................... 3,000 237,750
-----------
4,836,731
-----------
Drugs & Health Care -- 5.6%
*Alkermes, Inc............................................ 3,700 181,763
Bindley Western Industries, Inc........................... 13,200 198,825
*Cephalon, Inc............................................ 8,700 300,694
*COR Therapeutics, Inc.................................... 7,300 196,187
*Inhale Therapeutic Systems............................... 4,600 195,788
*Novoste Corp............................................. 6,000 99,000
*Pharmacyclics, Inc....................................... 3,100 127,875
*Priority Healthcare Corp. Class B........................ 16,774 485,398
*Progenics Pharmaceuticals, Inc........................... 3,500 171,062
*Protein Design Labs, Inc................................. 4,700 329,000
*Vical, Inc............................................... 8,800 263,450
-----------
2,549,042
-----------
</TABLE>
F-44
<PAGE> 178
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The All Pro Small Cap Growth Portfolio
Statement of Net Assets, December 31, 1999 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
Electrical Equipment -- 1.0%
*Micrel, Inc.............................................. 6,700 $ 381,481
*Quanta Services, Inc..................................... 1,700 48,025
-----------
429,506
-----------
Electronic Instruments -- 1.1%
*ATMI, Inc................................................ 7,700 254,581
*Veeco Instruments, Inc................................... 5,300 248,106
-----------
502,687
-----------
Electronics -- 18.9%
*Burr-Brown Corp.......................................... 9,300 335,963
*Credence Systems Corp.................................... 4,400 380,600
*Cree Research, Inc....................................... 12,700 1,084,263
*Intertan, Inc............................................ 17,400 454,575
*LAM Research Corp........................................ 6,800 758,625
*Netsilicon, Inc.......................................... 31,000 621,937
*PLX Technology, Inc...................................... 15,300 289,744
*Photronics, Inc.......................................... 5,800 166,025
*Quicklogic Corp.......................................... 9,400 155,100
*SDL, Inc................................................. 4,500 981,000
*Semtech Corp............................................. 8,800 458,700
*Triquint Semiconductor, Inc.............................. 8,200 912,250
*Varian Semiconductor Equipment Associates, Inc........... 36,600 1,244,400
*Zoran Corp............................................... 12,200 680,150
-----------
8,523,332
-----------
Finance -- 0.9%
*Golden State Bancorp, Inc................................ 7,600 131,100
Jefferies Group, Inc...................................... 3,400 74,800
*Nextcard, Inc............................................ 7,300 210,787
-----------
416,687
-----------
Finance - Investment & Other -- 0.2%
*NCO Group, Inc........................................... 3,000 90,375
-----------
Hotel/Restaurants -- 1.0%
*Mandalay Resort Group.................................... 21,500 432,688
-----------
Leisure & Amusements -- 1.8%
*Bally Total Fitness Holding Corp......................... 14,200 378,963
*Cinar Films, Inc......................................... 12,500 306,250
*Tweeter Home Entertainment Group, Inc.................... 3,400 120,700
-----------
805,913
-----------
Manufacturing -- 1.1%
Kennametal, Inc........................................... 15,200 511,100
-----------
Metals - Iron & Steel -- 0.1%
*Mueller Industries, Inc.................................. 1,300 47,125
-----------
Oil & Gas -- 0.6%
*Cal Dive International, Inc.............................. 2,300 76,188
*Core Laboratories N.V.................................... 8,700 174,544
-----------
250,732
-----------
</TABLE>
F-45
<PAGE> 179
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The All Pro Small Cap Growth Portfolio
Statement of Net Assets, December 31, 1999 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
Oil Equipment & Services -- 5.6%
*BJ Services Co........................................... 14,100 $ 589,556
*Marine Drilling.......................................... 30,800 691,075
*Oceaneering International, Inc........................... 9,900 147,881
*Rowan Cos., Inc.......................................... 28,200 611,588
*Smith International, Inc................................. 9,500 472,031
-----------
2,512,131
-----------
Real Estate -- 1.0%
*Costar Group............................................. 12,300 441,263
-----------
Retail Merchandising -- 0.7%
*1-800-Flowers.Com, Inc................................... 13,100 140,006
*RoweCom, Inc............................................. 4,300 195,113
-----------
335,119
-----------
Semiconductors -- 3.3%
*Exar Corp................................................ 3,000 176,625
*Globespan, Inc........................................... 2,200 143,275
*Integrated Device Technology, Inc........................ 25,000 725,000
*QLogic Corp.............................................. 2,800 447,650
-----------
1,492,550
-----------
Software -- 13.7%
*Bluestone Software, Inc.................................. 1,800 207,000
*Broadbase Software, Inc.................................. 13,100 1,473,750
*C-Bridge Internet Solutions.............................. 1,400 68,075
*Diamond Technology Partners, Inc......................... 1,450 124,609
*Digex, Inc............................................... 5,100 350,625
*Digimarc Corp............................................ 3,400 170,000
*Digital Island, Inc...................................... 8,600 818,075
*Digital River, Inc....................................... 3,500 116,594
*HNC Software, Inc........................................ 2,300 243,225
*Interwoven, Inc.......................................... 5,400 656,775
*InterVU, Inc............................................. 2,500 262,500
*Manugistics Group, Inc................................... 6,300 203,569
*Mercury Interactive Corp................................. 1,700 183,494
*Ondisplay, Inc........................................... 3,800 345,325
*Preview Systems, Inc..................................... 2,900 188,138
*TSI International Software Ltd........................... 5,200 294,450
*Viador, Inc.............................................. 3,000 127,125
*WorldGate Communications, Inc............................ 6,100 290,131
*Xcelera.Com, Inc......................................... 400 55,800
-----------
6,179,260
-----------
Transportation -- 1.3%
*Atlas Air, Inc........................................... 4,200 115,238
*Eagle USA Airfreight, Inc................................ 7,000 301,875
*Forward Air Corp......................................... 4,300 186,513
-----------
603,626
-----------
</TABLE>
F-46
<PAGE> 180
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The All Pro Small Cap Growth Portfolio
Statement of Net Assets, December 31, 1999 -- Concluded
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
Waste Management -- 0.2%
*Waste Connections, Inc................................... 6,800 $ 98,175
-----------
TOTAL COMMON STOCK (COST $27,953,339)................... 44,840,302
-----------
SHORT TERM INVESTMENTS -- 6.8%
Temporary Investment Fund, Inc. -- TempCash............... 3,075,488 3,075,488
-----------
TOTAL SHORT TERM INVESTMENTS (COST $3,075,488).......... 3,075,488
-----------
TOTAL INVESTMENTS -- 106.0% (COST $31,028,827).......... 47,915,790
LIABILITIES IN EXCESS OF OTHER ASSETS -- (6.0%)............. (2,715,308)
-----------
NET ASSETS -- 0.0%
(Equivalent to $18.83 per share based on 2,400,329 shares
of capital stock outstanding)........................... $45,200,482
===========
NET ASSET VALUE, OFFERING, AND REDEMPTION PRICE PER SHARE
(45,200,482/2,400,329 shares outstanding.................. $ 18.83
===========
</TABLE>
*Non-Income Producing.
See accompanying notes to financial statements.
F-47
<PAGE> 181
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The All Pro Small Cap Value Portfolio
Statement of Net Assets, December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- 92.7%
Aerospace & Defense -- 1.7%
AAR Corp. ................................................ 7,900 $ 141,706
*Kellstrom Industries, Inc. .............................. 3,100 28,287
Primex Technologies, Inc. ................................ 1,000 20,750
-----------
190,743
-----------
Airlines -- 0.3%
*America West Airlines, Inc. ............................. 1,600 33,200
-----------
Apparel -- 0.5%
*Unifi, Inc. ............................................. 4,700 57,869
-----------
Automobiles -- 0.5%
Winnebago Industries, Inc. ............................... 2,800 56,175
-----------
Automotive Equipment -- 1.6%
Arvin Industries, Inc. ................................... 1,000 28,375
*Dura Automotive Systems, Inc. ........................... 1,600 27,900
*Tower Automotive, Inc. .................................. 3,600 55,575
*Transportation Technologies Industries................... 2,200 39,737
*Wabash National Corp. ................................... 2,300 34,500
-----------
186,087
-----------
Banks -- 5.5%
Amcore Financial.......................................... 2,900 69,600
Andover Bancorp, Inc. .................................... 700 19,600
Bank United Corp., Class A................................ 1,300 35,425
Chittenden Corp. ......................................... 1,207 35,757
Colonial BancGroup, Inc. ................................. 4,600 47,725
Commercial Federal Corp. ................................. 6,000 106,875
Dime Community Bancorp, Inc. ............................. 550 10,175
East West Bancorp, Inc. .................................. 2,900 33,169
First Bell Bancorp, Inc. ................................. 3,800 57,950
Hudson United Bancorp..................................... 2,884 73,722
*Local Financial Corp. ................................... 3,500 36,312
Seacoast Financial Services Corp. ........................ 6,400 65,200
Sovereign Bancorp, Inc. .................................. 3,900 29,067
-----------
620,577
-----------
Beverages -- 0.9%
*Canandaigua Brands, Inc., Class A........................ 1,200 61,200
Coors Adolph Co. Class B.................................. 700 36,750
-----------
97,950
-----------
Building & Building Supplies -- 3.4%
BMC West Corp. ........................................... 2,720 27,880
Florida Rock Industries, Inc. ............................ 500 17,219
*Jacobs Engineering Group, Inc. .......................... 3,100 100,750
Lafarge Corp. ............................................ 1,900 52,487
M.D.C. Holdings, Inc. .................................... 2,300 36,081
*Morrison Knudsen Corp. .................................. 6,100 47,656
Texas Industries, Inc. ................................... 1,400 59,587
*Toll Brothers, Inc. ..................................... 2,350 43,769
-----------
385,429
-----------
</TABLE>
F-48
<PAGE> 182
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The All Pro Small Cap Value Portfolio
Statement of Net Assets, December 31, 1999 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
Business & Consumer Services -- 4.7%
*Interep National Radio Sales, Inc. ...................... 3,800 $ 50,825
*Interim Services, Inc. .................................. 6,200 153,450
*Personnel Group of America, Inc. ........................ 5,800 58,725
*Seitel, Inc. ............................................ 3,700 24,975
*Sterling Software, Inc. ................................. 6,400 201,600
*Zomax Optical Media, Inc. ............................... 900 40,725
-----------
530,300
-----------
Chemicals & Allied Products -- 0.8%
*Ferro Corp. ............................................. 3,800 83,600
*International Speciality................................. 1,100 10,106
-----------
93,706
-----------
Communications -- 0.8%
*CommScope, Inc. ......................................... 1,400 56,437
Teltrend, Inc. ........................................... 1,000 30,250
-----------
86,687
-----------
Computers -- 2.0%
*In Focus Systems, Inc. .................................. 2,600 60,287
*InterVoice-Brite, Inc. .................................. 4,300 101,722
*Metamor Worldwide, Inc. ................................. 1,200 34,950
*Pomeroy Computer Resources, Inc. ........................ 2,200 29,150
-----------
226,109
-----------
Consumer Staples -- 0.5%
Church and Dwight, Inc. .................................. 2,100 56,044
-----------
Containers -- 0.3%
Ivex Packaging Corp. ..................................... 2,540 25,400
*US Can Corp. ............................................ 350 6,956
-----------
32,356
-----------
Drugs & Health Care -- 0.9%
Bindley Western Industries, Inc. ......................... 4,533 68,278
*Medicis Pharmaceutical Corp. Class A..................... 800 34,050
-----------
102,328
-----------
Electrical Equipment -- 1.0%
*UCAR International, Inc. ................................ 6,640 118,275
-----------
Electronics -- 7.3%
Applied Power, Inc. Class A............................... 1,300 47,775
*Ardent Software, Inc. ................................... 3,400 132,600
*Arrow Electronics, Inc. ................................. 4,700 119,262
*Benchmark Electronics, Inc. ............................. 2,100 48,169
Burr-Brown Corp. ......................................... 1,740 62,857
*Cable Design Technologies, Inc. ......................... 2,200 50,600
Harman International Industries, Inc. .................... 2,400 134,700
*International Rectifier Corp. ........................... 5,500 143,000
*Stoneridge, Inc. ........................................ 1,200 18,525
*Telcom Semiconductor, Inc. .............................. 3,300 69,300
-----------
826,788
-----------
</TABLE>
F-49
<PAGE> 183
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The All Pro Small Cap Value Portfolio
Statement of Net Assets, December 31, 1999 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
Energy -- 1.0%
*NSTAR.................................................... 1,450 $ 58,725
RGS Energy Corp. ......................................... 2,400 49,350
-----------
108,075
-----------
Engineering -- 0.3%
*URS Corp. ............................................... 1,600 34,700
-----------
Finance -- 3.0%
Astoria Financial Corp. .................................. 2,200 66,962
Dain Rauscher Corp. ...................................... 1,100 51,150
Downey Financial Corp. ................................... 3,100 62,581
Golden State Bancorp, Inc. ............................... 4,500 77,625
Heller Financial, Inc. ................................... 3,300 66,206
MAF Bancorp, Inc. ........................................ 800 16,750
-----------
341,274
-----------
Finance - Investment & Other -- 0.2%
Advest Group, Inc. ....................................... 1,100 20,212
-----------
Foods -- 2.3%
*International Home Foods, Inc. .......................... 6,900 119,887
*Suiza Foods Corp. ....................................... 3,600 142,650
-----------
262,537
-----------
Food & Food Distributors -- 1.2%
*Ben & Jerry's Homemade, Inc. Class A..................... 1,100 27,362
Earthgrains Co. .......................................... 3,900 62,887
*Smithfield Foods, Inc. .................................. 1,800 43,200
-----------
133,449
-----------
Healthcare Services -- 1.4%
*Trigon Healthcare, Inc. ................................. 5,270 155,465
-----------
Home Furnishings -- 0.4%
*LADD Furniture, Inc. .................................... 2,100 41,475
-----------
Home Furnishings/Housewares -- 1.8%
Bush Industries, Inc. Class A............................. 3,600 61,875
*Furniture Brands International, Inc. .................... 4,430 97,460
*Mohawk Industries, Inc. ................................. 2,000 52,750
-----------
212,085
-----------
Hotel/Restaurants -- 0.7%
Mandalay Resort Group..................................... 3,800 76,475
-----------
</TABLE>
F-50
<PAGE> 184
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The All Pro Small Cap Value Portfolio
Statement of Net Assets, December 31, 1999 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
Insurance -- 3.3%
Chicago Title Corp. ...................................... 1,100 $ 50,875
*Delphi Financial Group, Inc. Class A..................... 1,364 40,920
Enhance Financial Services Group, Inc. ................... 1,500 24,375
FBL Financial Group, Inc. ................................ 1,900 38,000
MONY Group Inc. .......................................... 1,000 29,187
PMI Group, Inc. .......................................... 1,300 63,456
Radian Group, Inc. ....................................... 1,000 47,750
Reinsurance Group, Inc. .................................. 2,900 80,475
-----------
375,038
-----------
Leasing -- 2.3%
Avis Rent A Car, Inc. .................................... 5,000 127,813
*Dollar Thrifty Automotive Group, Inc. ................... 2,200 52,663
*Rent Way, Inc. .......................................... 3,100 57,931
Rollins Truck Leasing..................................... 2,850 34,022
-----------
272,429
-----------
Machinery & Heavy Equipment -- 1.2%
Manitowoc Co., Inc. ...................................... 1,400 47,600
Oshkosh Truck Corp. ...................................... 1,300 38,106
*Terex Corp. ............................................. 1,900 52,725
-----------
138,431
-----------
Machinery & Instrumentation -- 0.6%
Regal-Beloit Corp. ....................................... 3,200 66,000
-----------
Manufacturing -- 6.6%
Belden, Inc. ............................................. 6,700 140,700
*Clarcor, Inc. ........................................... 2,300 41,400
*Griffon Corp. ........................................... 12,600 98,437
Hon Industries, Inc. ..................................... 5,300 116,269
Monaco Coach Corp. ....................................... 3,225 82,439
*Moog, Inc. Class A....................................... 700 18,900
*Northwest Pipe Co. ...................................... 4,000 56,000
Quanex Corp. ............................................. 4,050 103,275
Smith (A.O.) Corp. ....................................... 1,200 26,250
Standex International Corp. .............................. 2,600 54,437
Velcro Industries N.V. ................................... 1,010 12,183
-----------
750,290
-----------
Manufacturing Equipment -- 0.3%
*Lawson Products, Inc. ................................... 1,400 32,375
-----------
Medical Equipment & Supplies -- 1.3%
*Haemonetics Corp. ....................................... 4,400 104,775
Varian Medical Systems, Inc. ............................. 1,700 50,681
-----------
155,456
-----------
Medical Instruments -- 0.7%
Dentsply International, Inc. ............................. 3,300 77,963
-----------
</TABLE>
F-51
<PAGE> 185
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The All Pro Small Cap Value Portfolio
Statement of Net Assets, December 31, 1999 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
Medical & Medical Services -- 1.9%
*Bard (C.R.), Inc. ....................................... 800 $ 42,400
*CONMED Corp. ............................................ 1,600 41,400
*Dura Pharmaceuticals, Inc. .............................. 5,000 69,688
*Medco Research, Inc. .................................... 1,000 30,063
*Polymedica Corp. ........................................ 1,600 37,000
-----------
220,551
-----------
Metals - Iron & Steel -- 0.6%
AK Steel Holding Corp. ................................... 1,000 18,875
*Ryerson Tull, Inc. ...................................... 2,400 46,650
-----------
65,525
-----------
Office Equipment & Supplies -- 0.5%
*United Stationers, Inc. ................................. 1,850 52,841
-----------
Oil -- 2.1%
Noble Affiliates, Inc. ................................... 3,400 72,888
*Ocean Energy, Inc. ...................................... 5,100 39,525
*Santa Fe Snyder Corp. ................................... 15,700 125,600
-----------
238,013
-----------
Oil & Gas -- 1.3%
*Louis Dreyfus Natural Gas Co. ........................... 3,000 54,375
Pennzoil-Quaker State Co. ................................ 2,600 26,488
*Tesoro Petroleum Corp. .................................. 5,400 62,438
-----------
143,301
-----------
Oil Equipment & Services -- 0.4%
SEACOR SMIT, Inc. ........................................ 600 31,050
-----------
Paper & Forest Products -- 0.9%
Boise Cascade Corp. ...................................... 2,500 101,250
-----------
Printing & Publishing -- 1.6%
*Banta Corp. ............................................. 3,600 81,225
*Mail-Well, Inc. ......................................... 7,000 94,500
-----------
175,725
-----------
</TABLE>
F-52
<PAGE> 186
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The All Pro Small Cap Value Portfolio
Statement of Net Assets, December 31, 1999 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
Real Estate -- 6.1%
Amli Residential.......................................... 1,700 $ 34,319
Annaly Mortgage Management, Inc. ......................... 1,800 15,750
Bradley Real Estate, Inc. ................................ 1,200 20,925
Brandywine Realty Trust................................... 4,260 69,758
Chelsea GCA Realty, Inc. ................................. 1,370 40,758
Eastgroup Properties...................................... 3,200 59,200
Essex Property Trust, Inc. ............................... 1,600 54,400
Federal Realty Investment Trust........................... 1,400 26,338
First Industrial Realty Trust, Inc. ...................... 1,100 30,181
Great Lakes REIT, Inc. ................................... 2,800 40,250
Liberty Property Trust.................................... 3,000 72,750
Mack-Cali Realty Corp. ................................... 1,500 39,094
Mills Corp. .............................................. 1,500 26,813
Parkway Properties, Inc. ................................. 1,500 43,219
Prentiss Properties Trust................................. 4,600 96,600
Storage USA, Inc. ........................................ 1,000 30,250
-----------
700,605
-----------
Restaurants -- 0.7%
O'Charleys, Inc. ......................................... 1,280 16,800
*RARE Hospitality International, Inc. .................... 2,700 58,430
-----------
75,230
-----------
Retail - Clothing and Apparel -- 0.7%
Cato Corp. Class A........................................ 6,700 84,588
-----------
Retail Merchandising -- 4.5%
Haverty Furniture Companies, Inc. ........................ 2,700 34,088
Regis Corp. .............................................. 4,200 79,275
*Rex Stores Corp. ........................................ 2,500 87,500
*ShopKo Stores, Inc. ..................................... 4,100 94,300
*Zale Corp. .............................................. 4,300 208,013
-----------
503,176
-----------
Semiconductors -- 2.4%
Dallas Semiconductor Corp. ............................... 1,300 83,769
*Exar Corp. .............................................. 1,100 64,763
*Integrated Device Technology, Inc. ...................... 3,400 98,600
Pioneer-Standard Electronics, Inc. ....................... 1,800 25,988
-----------
273,120
-----------
Software -- 3.2%
*Best Software, Inc. ..................................... 3,400 100,300
*Midway Games, Inc. ...................................... 2,800 67,025
*Progress Software Corp. ................................. 1,400 79,450
*Symantec Corp. .......................................... 1,900 111,387
-----------
358,162
-----------
</TABLE>
F-53
<PAGE> 187
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The All Pro Small Cap Value Portfolio
Statement of Net Assets, December 31, 1999 -- Concluded
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION AND PERCENTAGE OF PORTFOLIO SHARES VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK (CONTINUED)
Transportation -- 2.5%
*American Freightways Corp. .............................. 400 $ 6,475
*Arkansas Best Corp. ..................................... 3,900 46,800
Arnold Industries, Inc. .................................. 8,300 116,719
Roadway Express, Inc. .................................... 1,800 38,925
Stolt-Nielsen............................................. 2,600 37,050
USFreightways Corp. ...................................... 1,000 47,875
-----------
293,844
-----------
Utilities -- 1.4%
CH Energy Group, Inc. .................................... 1,200 39,600
Cleco Corp. .............................................. 2,300 73,744
United Illuminating Co. .................................. 800 41,100
-----------
154,444
-----------
Waste Management -- 0.6%
Safety-Kleen Corp......................................... 4,675 52,886
-----------
TOTAL COMMON STOCK (COST $10,276,986)................... 10,478,663
-----------
SHORT TERM INVESTMENTS -- 8.1%
Temporary Investment Fund, Inc. -- TempCash............... 920,392 920,392
-----------
TOTAL SHORT TERM INVESTMENTS (COST $920,392)............ 920,392
-----------
TOTAL INVESTMENTS -- 100.8% (COST $11,197,378).......... 11,399,055
LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.8)%............. (98,749)
-----------
NET ASSETS -- 100.0%
(Equivalent to $7.57 per share based on 1,492,104 shares
of capital stock outstanding)........................... $11,300,306
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
($11,300,306/1,492,104 shares outstanding)................ $ 7.57
===========
</TABLE>
*Non-Income Producing.
See accompanying notes to financial statements.
F-54
<PAGE> 188
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Statement of Operations for the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY
GROWTH MARKET BOND
PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends................................................. $ 5,051,008 $ -- $ --
Interest.................................................. 716,096 5,447,990 2,432,364
Less: foreign taxes withheld............................ (13,960) -- --
------------ ---------- -----------
Total Investment Income................................. 5,753,144 5,447,990 2,432,364
------------ ---------- -----------
EXPENSES:
Investment advisory fee................................... 1,003,377 261,012 126,876
Administration fee........................................ 236,297 79,064 27,385
Directors' fee............................................ 25,266 7,953 2,803
Transfer agent fee........................................ 8,560 4,022 2,463
Custodian fee............................................. 34,295 13,018 6,203
Legal fees................................................ 66,322 20,534 7,533
Audit fees................................................ 38,475 11,253 3,913
Printing.................................................. 83,213 21,599 7,514
Insurance................................................. 9,660 2,718 1,054
Miscellaneous............................................. 5,267 1,557 1,214
------------ ---------- -----------
1,510,732 422,730 186,958
Less: expenses waived by Administrator and/or reimbursed
by affiliated insurance company......................... -- -- --
------------ ---------- -----------
Total expenses.......................................... 1,510,732 422,730 186,958
------------ ---------- -----------
Net investment income (loss)............................ 4,242,412 5,025,260 2,245,406
------------ ---------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY TRANSACTIONS
Net realized gain (loss) from:
Investments............................................. 18,946,927 (8) (916,673)
Foreign Currency related transactions................... -- -- --
------------ ---------- -----------
18,946,927 (8) (916,673)
------------ ---------- -----------
Net change in unrealized appreciation (depreciation) from:
Investments............................................. (13,385,176) -- (2,503,249)
Foreign currency related transactions................... -- -- --
------------ ---------- -----------
(13,385,176) -- (2,503,249)
------------ ---------- -----------
Net gain (loss) on investments and foreign currency
transactions.......................................... 5,561,751 (8) (3,419,922)
------------ ---------- -----------
Net increase (decrease) in net assets resulting from
operations............................................ $ 9,804,163 $5,025,252 $(1,174,516)
============ ========== ===========
</TABLE>
See accompanying notes to financial statements.
F-48
<PAGE> 189
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Statement of Operations for the Year Ended December 31, 1999 -- (Concluded)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGGRESSIVE SENTINEL ALL PRO ALL PRO ALL PRO ALL PRO
MANAGED GROWTH INTERNATIONAL GROWTH LARGE CAP LARGE CAP SMALL CAP SMALL CAP
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO GROWTH VALUE GROWTH VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 703,795 $ 421,805 $ 1,830,290 $ 81,385 $ 154,426 $ 366,112 $ 16,839 $ 117,780
2,075,832 218,321 69,258 34,289 44,223 46,676 93,332 34,157
(1,708) -- (128,268) -- -- (340) -- --
----------- ---------- ----------- ---------- ---------- --------- ----------- -----------
2,777,919 640,126 1,771,280 115,674 198,649 412,448 110,171 151,937
----------- ---------- ----------- ---------- ---------- --------- ----------- -----------
296,660 225,914 568,324 74,269 174,315 145,234 180,903 85,907
54,798 41,725 74,538 11,300 19,074 15,686 15,662 7,219
5,767 3,595 5,989 1,092 1,539 1,274 1,281 592
3,274 2,886 3,368 1,993 2,246 2,126 2,155 1,870
10,034 9,434 46,974 4,871 9,881 13,387 12,809 13,692
15,086 11,704 15,818 3,136 4,202 3,353 3,699 1,577
8,608 5,146 9,275 1,607 2,577 2,199 1,953 1,002
15,050 11,449 15,673 5,364 5,103 4,274 4,095 1,968
2,065 1,792 2,253 378 688 697 311 301
1,437 976 2,120 825 1,226 1,210 1,210 1,169
----------- ---------- ----------- ---------- ---------- --------- ----------- -----------
412,779 314,621 744,332 104,835 220,851 189,440 224,078 115,297
-- -- -- -- -- -- -- (564)
----------- ---------- ----------- ---------- ---------- --------- ----------- -----------
412,779 314,621 744,332 104,835 220,851 189,440 224,078 114,733
----------- ---------- ----------- ---------- ---------- --------- ----------- -----------
2,365,140 325,505 1,026,948 10,839 (22,202) 223,008 (113,907) 37,204
----------- ---------- ----------- ---------- ---------- --------- ----------- -----------
3,592,195 5,142,814 10,153,870 1,716,433 1,617,492 349,009 2,250,696 (1,022,439)
-- -- (25,013) -- -- -- -- --
----------- ---------- ----------- ---------- ---------- --------- ----------- -----------
3,592,195 5,142,814 10,128,857 1,716,433 1,617,492 349,009 2,250,696 (1,022,439)
----------- ---------- ----------- ---------- ---------- --------- ----------- -----------
(5,655,271) 3,132,350 8,880,224 3,864,968 4,532,937 (614,959) 15,609,185 316,627
-- -- (10,680) -- -- -- -- --
----------- ---------- ----------- ---------- ---------- --------- ----------- -----------
(5,655,271) 3,132,350 8,869,544 3,864,968 4,532,937 (614,959) 15,609,185 316,627
----------- ---------- ----------- ---------- ---------- --------- ----------- -----------
(2,063,076) 8,275,164 18,998,401 5,581,401 6,150,429 (265,950) 17,859,881 (705,812)
----------- ---------- ----------- ---------- ---------- --------- ----------- -----------
$ 302,064 $8,600,669 $20,025,349 $5,592,240 $6,128,227 $ (42,942) $17,745,974 $ (668,608)
=========== ========== =========== ========== ========== ========= =========== ===========
</TABLE>
F-49
<PAGE> 190
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss)........... $ 4,242,412 $ 5,025,260 $ 2,245,406 $ 2,365,140 $ 325,505 $ 1,026,948
Net realized gain (loss) on investments
and foreign currency related
transactions.......................... 18,946,927 (8) (916,673) 3,592,195 5,142,814 10,128,857
Net change in unrealized appreciation
(depreciation) on investments and
foreign currency translations......... (13,385,176) -- (2,503,249) (5,655,271) 3,132,350 8,869,544
------------ ------------ ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations............. 9,804,163 5,025,252 (1,174,516) 302,064 8,600,669 20,025,349
Distributions:
From net investment income............. (1,058,688) (5,025,260) (506,981) (499,598) (293,724) (813,330)
From net realized gains................ (6,184,504) -- (398,338) (3,406,936) (7,283,996) (4,172,939)
Capital share transactions:
Net contributions from affiliated life
insurance companies................... (15,597,856) 25,434,525 3,416,178 9,784,991 4,994,083 2,393,275
------------ ------------ ----------- ----------- ----------- -----------
Total increase in net assets.......... (13,036,885) 25,434,517 1,336,343 6,180,521 6,017,032 17,432,355
NET ASSETS
Beginning of period...................... 315,298,521 91,452,921 36,845,922 67,805,311 56,495,315 71,363,209
------------ ------------ ----------- ----------- ----------- -----------
End of Period............................ $302,261,636 $116,887,438 $38,182,265 $73,985,832 $62,512,347 $88,795,564
============ ============ =========== =========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss)............ $ 4,452,995 $ 4,067,363 $ 1,728,246 $ 1,980,933 $ 293,724 $ 1,035,342
Net realized gain (loss) on investments
and foreign currency related
transactions........................... 6,148,289 -- 398,338 3,402,294 7,283,996 4,178,860
Net change in unrealized appreciation
(depreciation) on investments and
foreign currency translations.......... 26,998,570 -- 132,450 1,925,076 (3,566,325) 1,085,410
------------ ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations.............. 37,599,854 4,067,363 2,259,034 7,308,303 4,011,395 6,299,612
Distributions:
From net investment income.............. (4,464,024) (4,067,363) (1,551,787) (1,940,488) (391,790) (478,318)
From net realized gains................. (35,634,593) -- (3,599) (2,699,617) (3,740,193) (4,341,196)
Capital share transactions:
Net contributions from affiliated life
insurance companies.................... 50,407,953 27,114,010 12,791,904 9,069,604 8,041,798 7,369,655
------------ ----------- ----------- ----------- ----------- -----------
Total increase in net assets........... 47,909,190 27,114,010 13,495,552 11,737,802 7,921,210 8,849,753
NET ASSETS
Beginning of period....................... 267,389,331 64,338,911 23,350,370 56,067,509 48,574,105 62,513,456
------------ ----------- ----------- ----------- ----------- -----------
End of Period............................. $315,298,521 $91,452,921 $36,845,922 $67,805,311 $56,495,315 $71,363,209
============ =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-50
<PAGE> 191
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Statements of Changes in Net Assets -- (Concluded)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
SENTINEL ALL PRO ALL PRO ALL PRO ALL PRO
GROWTH LARGE CAP LARGE CAP SMALL CAP SMALL CAP
PORTFOLIO GROWTH VALUE GROWTH VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss)............................. $ 10,839 $ (22,202) $ 223,008 $ (113,907) $ 37,204
Net realized gain (loss) on investments and foreign
currency related transactions........................... 1,716,433 1,617,492 349,009 2,250,696 (1,022,439)
Net change in unrealized appreciation (depreciation) on
investments and foreign currency translations........... 3,864,968 4,532,937 (614,959) 15,609,185 316,627
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets resulting from
operations.............................................. 5,592,240 6,128,227 (42,942) 17,745,974 (668,608)
Distributions:
From net investment income............................... (23,574) (3,102) (105,080) -- (17,055)
From net realized gains.................................. (537,394) -- -- -- --
Capital share transactions:
Net contributions from affiliated life insurance
companies............................................... 4,099,126 17,529,239 8,850,732 17,769,243 3,912,710
----------- ----------- ----------- ----------- -----------
Total increase in net assets............................ 9,130,398 23,654,364 8,702,710 35,515,217 3,227,047
NET ASSETS
Beginning of period........................................ 12,166,979 14,306,655 15,615,901 9,685,265 8,073,259
----------- ----------- ----------- ----------- -----------
End of Period.............................................. $21,297,377 $37,961,019 $24,318,611 $45,200,482 $11,300,306
=========== =========== =========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR OR PERIOD ENDED DECEMBER 31, 1998
SENTINEL ALL PRO ALL PRO ALL PRO ALL PRO
GROWTH LARGE CAP LARGE CAP SMALL CAP SMALL CAP
PORTFOLIO GROWTH* VALUE* GROWTH* VALUE*
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss)............................. $ 23,575 $ 3,102 $ 105,080 $ (5,142) $ 17,080
Net realized gain (loss) on investments and foreign
currency related transactions........................... 537,394 (331,257) (614,547) (783,976) (649,795)
Net change in unrealized appreciation (depreciation) on
investments and foreign currency translations........... 1,001,393 2,717,374 709,996 1,277,778 (114,950)
----------- ----------- ----------- ---------- ----------
Net increase (decrease) in net assets resulting from
operations.............................................. 1,562,362 2,389,219 200,529 488,660 (747,665)
Distributions:
From net investment income............................... (25,069) -- -- -- --
From net realized gains.................................. (1,668,898) -- -- -- --
Capital share transactions:
Net contributions from affiliated life insurance
companies............................................... 3,936,595 11,917,436 15,415,372 9,196,605 8,820,924
----------- ----------- ----------- ---------- ----------
Total increase in net assets............................ 3,804,990 14,306,655 15,615,901 9,685,265 8,073,259
NET ASSETS
Beginning of period........................................ 8,361,989 -- -- -- --
----------- ----------- ----------- ---------- ----------
End of Period.............................................. $12,166,979 $14,306,655 $15,615,901 $9,685,265 $8,073,259
=========== =========== =========== ========== ==========
</TABLE>
*Commencement of operations was May 4, 1998
See accompanying notes to financial statements.
F-51
<PAGE> 192
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Notes to Financial Statements, December 31, 1999
- --------------------------------------------------------------------------------
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, International
Portfolio, Sentinel Growth Portfolio, All Pro Large Cap Growth Portfolio, All
Pro Large Cap Value Portfolio, All Pro Small Cap Growth Portfolio, and All Pro
Small Cap Value 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 Provident Mutual Life Insurance Company (PMLIC) and for flexible
premium deferred variable annuity contracts issued by Providentmutual Life and
Annuity Company of America (PLACA) and policies issued by National Life
Insurance Company of Vermont (NLICV). 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
The following is a summary of significant accounting policies followed by each
Fund in preparation of its financial statements. The preparation of financial
statements in accordance with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates.
Valuation of Investments
Bonds are carried at market value based on the last bid price on a national
securities exchange or on quoted prices from a third-party pricing service.
Investments in common and preferred stocks primarily traded on recognized U.S.
or foreign securities exchanges are valued at the close of regular trading on
the New York Stock Exchange, currently 4:00 p.m. New York time 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 90 days and Money
Market Portfolio investments are valued at amortized cost which approximates
market value.
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.
Dollar Rolls
The Bond and Managed Portfolios may enter into dollar rolls in which the
Portfolio sells securities for delivery and simultaneously contracts to
repurchase the same security at a fixed price on a specified future date. During
the roll period the Portfolio forgoes accrued interest paid on the securities.
The Portfolio will be compensated by the interest earned on the cash proceeds of
the initial sale (which are invested in short-term investments) and by the lower
repurchase price at the future date (the "drop"). The drop, which is recorded as
deferred income, is amortized over the period between the trade date and the
settlement date. All realized gains are recorded at the beginning of each roll.
A portfolio engages in dollar rolls for the purpose of enhancing its yield.
Dollar Rolls involve a risk of loss if the value of the security to be
repurchased declines prior to settlement date, which risk is in addition to the
risk of decline in the value of a Portfolio's other assets. The balance of
dollar rolls outstanding during the period ended December 31, 1999 was
$2,466,633 in the Bond Portfolio and $6,207,211 in the Managed Portfolio.
F-52
<PAGE> 193
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Notes to Financial Statements, December 31, 1999 -- Continued
- --------------------------------------------------------------------------------
Foreign Currency Translations
Foreign currency amounts are translated into U.S. Dollars on the following
bases:
(i) Market value of investment securities, assets and liabilities, at the
daily rate of exchange;
(ii) Purchases and sales of investment securities, at the rate of exchange
prevailing on the respective dates of such transactions. Exchange gains or
losses are recognized upon settlement;
(iii) Income and expenses, at the rate of exchange prevailing on the
respective dates of such transactions. Exchange gains or losses are
recognized upon ultimate receipt or disbursement.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of U.S. dollar denominated
transactions as a result of, among other factors, the lack of governmental
supervision and regulation of foreign securities markets and the possibility of
political or economic instability.
The Fund does not isolate that portion of the results of operations derived from
changes in foreign exchange rates on investments from the fluctuations arising
from changes in market prices of securities held. Such fluctuations are included
with the net realized and unrealized gain or loss from investments.
Dividends to Shareholders
Dividends of investment income of the Money Market Portfolio are declared daily
and paid monthly. The Growth Portfolio, Bond Portfolio, Managed Portfolio,
Aggressive Growth Portfolio, International Portfolio, Sentinel Growth Portfolio,
All Pro Large Cap Growth Portfolio, All Pro Large Cap Value Portfolio, All Pro
Small Cap Growth Portfolio, and All Pro Small Cap Value Portfolio declare and
pay dividends of investment income annually. For all Portfolios, distributions
of capital gains are declared and paid annually.
Federal Income Taxes
No provision is made for Federal taxes as it is the Fund's intention to have
each Portfolio continue to qualify as a regulated investment company and to make
the requisite distributions to its shareholders which will be sufficient to
relieve it from Federal income taxes.
3. INVESTMENT ADVISORY FEES AND RELATED PARTY TRANSACTIONS
Investment advisory agreements have been approved, whereby Sentinel Advisors
Company (SAC), a Vermont General Partnership, is adviser for the Growth, Money
Market, Bond, Managed, Aggressive Growth and Sentinel Growth Portfolios. With
respect to the Growth Portfolio, SAC is compensated monthly at an effective
annual rate of 0.50% of the first $20 million of the average daily net assets of
the portfolio, 0.40% of the next $20 million and 0.30% of net assets in excess
of $40 million. SAC is compensated monthly at an effective annual rate of 0.25%
of the average daily net assets of the Money Market Portfolio. With respect to
the Bond Portfolio, SAC is compensated monthly at the effective annual rate of
0.35% of the first $100 million of the average daily net assets of the portfolio
and 0.30% of net assets in excess of $100 million. With respect to the Managed
Portfolio, SAC is compensated monthly at the effective annual rate of 0.40% of
the first $100 million of the average daily net assets of the portfolio and
0.35% of net assets in excess of $100 million. With respect to the Aggressive
Growth Portfolio, SAC is compensated monthly at the effective annual rate of
0.50% of the first $20 million of the average daily net assets of the portfolio,
0.40% of the next $20 million and 0.30% of net assets in excess of $40 million.
With respect to the Sentinel Growth Portfolio, SAC 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
F-53
<PAGE> 194
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Notes to Financial Statements, December 31, 1999 -- Continued
- --------------------------------------------------------------------------------
million and 0.30% of the net assets in excess of $40 million. Provident Mutual
Investment Management Co. (PIMC) is the adviser for the International, All Pro
Large Cap Growth, All Pro Large Cap Value, All Pro Small Cap Growth, and All Pro
Small Cap Value Portfolios. With respect to the All Pro Large Cap Growth
Portfolio and the All Pro Large Cap Value Portfolio, PIMC is compensated monthly
at an effective annual rate of 0.70% of the average daily net assets. With
respect to the All Pro Small Cap Growth Portfolio and the All Pro Small Cap
Value Portfolio, PIMC is compensated monthly at an effective annual rate of
0.90% of the average daily net assets. With respect to the International
Portfolio, PIMC 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.
PMLIC agrees to reimburse the Growth, Money Market, Bond, Managed, Aggressive
Growth, All Pro Large Cap Growth, All Pro Large Cap Value, All Pro Small Cap
Growth, and All Pro Small Cap Value Portfolios for operating expenses, excluding
investment advisory fees, and costs of litigation and indemnification not
covered by insurance, in excess of an annual rate of 0.40% of the average daily
net asset values. The International Portfolio is reimbursed for such expenses in
excess of an annual rate of 0.75% of the average daily net asset value. NLICV
agrees to reimburse Sentinel Growth Portfolio for operating expenses, excluding
investment advisory fees and costs of litigation and indemnification not covered
by insurance, in excess of an annual rate of .40% of the average net asset
values.
F-54
<PAGE> 195
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Notes to Financial Statements, December 31, 1999 -- Continued
- --------------------------------------------------------------------------------
4. NET ASSETS
At December 31, 1999, the Portfolios' net assets consisted of:
<TABLE>
<CAPTION>
MONEY
GROWTH MARKET BOND MANAGED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net contribution from shareholders.......................... $299,605,298 $116,887,504 $38,590,948 $59,837,780
Undistributed net investment income......................... 4,242,412 -- 2,245,406 2,365,140
Undistributed net realized gain............................. 18,946,927 -- -- 3,592,195
Accumulated loss on investment transactions................. -- (66) (916,673) --
Net unrealized appreciation (depreciation) on investments
and foreign currency....................................... 49,466,999 -- (1,737,416) 8,190,717
------------ ------------ ----------- -----------
$302,261,636 $116,887,438 $38,182,265 $73,985,832
============ ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
AGGRESSIVE SENTINEL
GROWTH INTERNATIONAL GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net contribution from shareholders.......................... $47,502,186 $63,852,808 $14,020,708
Undistributed net investment income......................... 325,505 1,001,935 10,839
Undistributed net realized gain............................. 5,142,814 10,082,880 1,716,433
Accumulated loss on investment transactions................. -- -- --
Net unrealized appreciation (depreciation) on investments
and foreign currency....................................... 9,541,842 13,857,942 5,549,397
----------- ----------- -----------
$62,512,347 $88,795,565 $21,297,377
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
ALL PRO ALL PRO ALL PRO ALL PRO
LARGE CAP LARGE CAP SMALL CAP SMALL CAP
GROWTH VALUE GROWTH VALUE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net contribution from shareholders.......................... $29,424,473 $24,266,104 $26,846,798 $12,733,634
Undistributed net investment Income (loss).................. -- 223,008 -- 37,204
Undistributed net realized gain............................. 1,286,235 -- 1,466,720 --
Accumulated loss on investment transactions................. -- (265,538) -- (1,672,209)
Net unrealized appreciation (depreciation) on investments
and foreign currency....................................... 7,250,311 95,037 16,886,964 201,677
----------- ----------- ----------- -----------
$37,961,019 $24,318,611 $45,200,482 $11,300,306
=========== =========== =========== ===========
</TABLE>
F-55
<PAGE> 196
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Notes to Financial Statements, December 31, 1999 -- Continued
- --------------------------------------------------------------------------------
5. PURCHASES AND SALES OF INVESTMENTS (EXCLUDING SHORT-TERM SECURITIES)
Purchases and proceeds on sales of investments for the portfolios, for the
period ended December 31, 1999, 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.................... $ -- $ -- $49,329,499 $ 84,109,351 $ -- $ --
Corporate Bonds........................... -- -- 27,501,167 14,596,760 -- --
Common and Preferred Stock................ 136,505,295 -- -- 21,292,779 23,373,119 30,409,286
------------ ----------- ----------- ------------ ----------- -----------
Total Purchases........................... $136,505,295 -- $76,830,666 $119,998,890 $23,373,119 $30,409,286
============ =========== =========== ============ =========== ===========
SALES
U.S. Gov't Obligations.................... $ -- $ -- $47,032,265 $ 77,359,553 $ -- $ --
Corporate Bonds........................... -- -- 22,199,250 9,646,767 -- --
Common and Preferred Stock................ 147,378,141 -- -- 22,301,421 23,787,060 32,582,338
------------ ----------- ----------- ------------ ----------- -----------
Total Sales............................... $147,378,141 -- $69,231,515 $109,307,741 $23,787,060 $32,582,338
============ =========== =========== ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
ALL PRO ALL PRO ALL PRO ALL PRO
SENTINEL LARGE CAP LARGE CAP SMALL CAP SMALL CAP
GROWTH GROWTH VALUE GROWTH VALUE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PURCHASES
U.S. Gov't Obligations...................................... $ -- $ -- $ -- $ -- $ --
Corporate Bonds............................................. -- -- -- -- --
Common and Preferred Stock.................................. 18,687,142 35,842,297 20,630,400 39,576,345 13,968,264
----------- ----------- ----------- ----------- -----------
Total Purchases............................................. $18,687,142 $35,842,297 $20,630,400 $39,576,345 $13,968,264
=========== =========== =========== =========== ===========
SALES
U.S. Gov't Obligations...................................... $ -- $ -- $ -- $ -- $ --
Corporate Bonds............................................. -- -- -- -- --
Common and Preferred Stock.................................. 15,678,708 19,895,483 12,731,386 21,825,763 10,237,676
----------- ----------- ----------- ----------- -----------
Total Sales................................................. $15,678,708 $19,895,483 $12,731,386 $21,825,763 $10,237,676
=========== =========== =========== =========== ===========
</TABLE>
F-56
<PAGE> 197
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Notes to Financial Statements, December 31, 1999 -- Continued
- --------------------------------------------------------------------------------
6. TAX BASIS OF INVESTMENTS
Investment information based on the cost of the securities for Federal income
tax purposes held at December 31, 1999 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... $ 63,039,699 $ -- $ 9,850 $10,467,676 $14,975,545 $20,859,383
Aggregate gross unrealized depreciation... (11,401,069) -- (1,747,266) (2,276,960) (5,433,702) (7,075,533)
------------ ------------ ----------- ----------- ----------- -----------
Net unrealized appreciation
(depreciation)........................... $ 51,638,630 $ -- $(1,737,416) $ 8,190,716 $ 9,541,843 $13,783,850
============ ============ =========== =========== =========== ===========
Aggregate cost of securities for federal
income tax purposes...................... $250,666,843 $117,474,552 $41,278,609 $71,378,575 $53,198,972 $72,778,574
============ ============ =========== =========== =========== ===========
Capital loss carryover (available to
offset possible future gains.) The
carryover expires as follows Money Market
Portfolio -- $57 in 2005, $9 in 2007;
Bond Portfolio -- $916,674 in 2007....... $ -- $ 66 $ 916,674 $ -- $ -- $ --
============ ============ =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
ALL PRO ALL PRO ALL PRO ALL PRO
SENTINEL LARGE CAP LARGE CAP SMALL CAP SMALL CAP
GROWTH GROWTH VALUE GROWTH VALUE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aggregate gross unrealized appreciation...... $ 5,881,600 $ 9,004,635 $ 1,934,244 $17,819,715 $ 962,428
Aggregate gross unrealized depreciation...... (332,203) (1,946,348) (1,889,442) (974,333) (807,751)
----------- ----------- ----------- ----------- -----------
Net unrealized appreciation (depreciation)... $ 5,549,397 $ 7,250,287 $ 44,802 $16,845,382 $ 154,677
=========== =========== =========== =========== ===========
Aggregate cost of securities for federal
income tax purposes......................... $15,725,373 $31,174,894 $23,448,771 $31,070,408 $11,244,378
=========== =========== =========== =========== ===========
Capital loss carryover (available to offset
possible future gains.) The carryover
expires as follows: Large Cap
Value -- $215,505 in 2006; Small Cap Value--
$630,374 in 2006, $994,835 in 2007.......... $ -- $ -- $ 215,505 $ -- $ 1,625,209
=========== =========== =========== =========== ===========
</TABLE>
7. AUTHORIZED CAPITAL STOCK AND CAPITAL STOCK TRANSACTIONS
On December 31, 1999, there were 1.2 billion shares of $0.01 par value capital
stock authorized for the Fund. The shares of capital stock are divided into
eleven series: Growth Portfolio, Money Market Portfolio, Bond Portfolio, Managed
Portfolio, Aggressive Growth Portfolio, International Portfolio, Sentinel Growth
Portfolio, Large Cap Growth Portfolio, Large Cap Value Portfolio, Small Cap
Growth Portfolio and Small Cap Value Portfolio. The Growth Portfolio consists of
75 million shares, the Money Market Portfolio consists of 150 million shares;
for the All Pro Large Cap Growth, All Pro Large Cap Value, All Pro Small Cap
Growth and All Pro Small Cap Value Portfolios consist of 50 million shares and
each of the other series consists of 5 million shares.
On December 31, 1999, Provident Mutual Life Insurance Company owned 976,130
shares of All Pro Large Cap Value, 244,088 shares of All Pro Small Cap Growth
and 400,853 shares of All Pro Small Cap Value.
F-57
<PAGE> 198
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Notes to Financial Statements, December 31, 1999 -- Continued
- --------------------------------------------------------------------------------
Transactions in capital stock for the period ended December 31, 1999 were as
follows:
<TABLE>
<CAPTION>
MONEY MARKET
GROWTH PORTFOLIO PORTFOLIO BOND PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold......................... 1,329,197 $ 25,247,128 212,282,834 $ 212,282,834 1,037,876 $11,071,232
Shares redeemed..................... (2,509,410) (48,088,176) (191,715,270) (191,715,270) (798,215) (8,560,373)
Shares reinvested................... 390,679 7,243,192 4,866,961 4,866,961 83,209 905,319
---------- ------------ ------------ ------------- --------- -----------
Net contributions from affiliated
insurance companies................ (789,534) $(15,597,856) 25,434,525 $ 25,434,525 322,870 $ 3,416,178
========== ============ ============ ============= ========= ===========
<CAPTION>
MANAGED PORTFOLIO
- ------------------------------------ ------------------------
SHARES AMOUNT
- ------------------------------------ ------------------------
<S> <C> <C>
Shares sold......................... 1,048,895 $ 17,883,810
Shares redeemed..................... (709,970) (12,005,353)
Shares reinvested................... 233,644 3,906,534
--------- ------------
Net contributions from affiliated
insurance companies................ 572,569 $ 9,784,991
========= ============
</TABLE>
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH INTERNATIONAL SENTINEL GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold.......................................... 623,914 $ 12,068,240 656,302 $ 9,459,577 269,528 $3,849,774
Shares redeemed...................................... (760,128) (14,651,877) (864,123) (12,052,571) (21,904) (311,615)
Shares reinvested.................................... 403,285 7,577,720 380,631 4,986,269 43,352 560,968
---------- ------------ -------- ------------ ------- ----------
Net contributions from affiliated insurance
companies........................................... 267,071 $ 4,994,083 172,810 $ 2,393,275 290,976 $4,099,127
========== ============ ======== ============ ======= ==========
</TABLE>
<TABLE>
<CAPTION>
ALL PRO LARGE CAP ALL PRO LARGE CAP ALL PRO SMALL CAP
GROWTH PORTFOLIO VALUE PORTFOLIO GROWTH PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold............................... 2,444,764 $ 31,491,954 1,197,996 $12,240,796 1,770,700 $22,608,975
Shares redeemed........................... (1,090,487) (13,965,817) (349,648) (3,495,144) (358,525) (4,839,732)
Shares reinvested......................... 258 3,102 10,603 105,080 0 0
---------- ------------ --------- ----------- --------- -----------
Net contributions from affiliated
insurance companies...................... 1,354,535 $ 17,529,239 858,951 $ 8,850,732 1,412,175 $17,769,243
========== ============ ========= =========== ========= ===========
<CAPTION>
ALL PRO SMALL CAP
VALUE PORTFOLIO
- ------------------------------------------ -----------------------
SHARES AMOUNT
- ------------------------------------------ -----------------------
<S> <C> <C>
Shares sold............................... 1,054,394 $ 7,986,704
Shares redeemed........................... (543,349) (4,091,049)
Shares reinvested......................... 2,087 17,055
--------- -----------
Net contributions from affiliated
insurance companies...................... 513,132 $ 3,912,710
========= ===========
</TABLE>
Transactions in capital stock for the year ended December 31, 1998 were as
follows:
<TABLE>
<CAPTION>
MONEY MARKET
GROWTH PORTFOLIO PORTFOLIO BOND PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold............................ 1,837,947 $ 32,406,592 165,155,447 $ 165,155,447 1,435,423 $15,864,807
Shares redeemed........................ (1,249,358) (22,097,256) (142,035,980) (142,035,980) (417,928) (4,628,289)
Shares reinvested...................... 2,418,983 40,098,617 3,994,543 3,994,543 140,681 1,555,386
---------- ------------ ------------ ------------- --------- -----------
Net contributions from affiliated
insurance companies................... 3,007,572 $ 50,407,953 27,114,010 $ 27,114,010 1,158,176 $12,791,904
========== ============ ============ ============= ========= ===========
<CAPTION>
MANAGED PORTFOLIO
- --------------------------------------- ----------------------
SHARES AMOUNT
- --------------------------------------- ----------------------
<S> <C> <C>
Shares sold............................ 623,703 $10,481,421
Shares redeemed........................ (360,939) (6,051,923)
Shares reinvested...................... 285,692 4,640,106
-------- -----------
Net contributions from affiliated
insurance companies................... 548,456 $ 9,069,604
======== ===========
</TABLE>
F-58
<PAGE> 199
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Notes to Financial Statements, December 31, 1999 -- Concluded
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH INTERNATIONAL SENTINEL GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold.............................................. 493,256 $10,260,111 796,247 $10,834,572 240,467 $2,911,418
Shares redeemed.......................................... (309,019) (6,350,296) (615,500) (8,284,431) (56,545) (668,790)
Shares reinvested........................................ 205,061 4,181,983 378,012 4,819,514 148,986 1,693,967
-------- ----------- -------- ----------- ------- ----------
Net contributions from affiliated insurance companies.... 389,298 $ 8,041,798 558,760 $ 7,369,655 332,909 $3,936,595
======== =========== ======== =========== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
ALL PRO LARGE CAP ALL PRO LARGE CAP ALL PRO SMALL CAP ALL PRO SMALL CAP
GROWTH PORTFOLIO VALUE PORTFOLIO GROWTH PORTFOLIO VALUE PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold................ 1,711,101 $17,230,972 1,685,241 $16,459,223 1,153,905 $10,747,921 1,084,795 $9,720,129
Shares redeemed............ (495,712) (5,313,536) (108,503) (1,043,850) (165,750) (1,551,316) (105,824) (899,205)
Shares reinvested.......... 0 0 0 0 0 0 0 0
--------- ----------- --------- ----------- --------- ----------- --------- ----------
Net contributions from
affiliated insurance
companies................. 1,215,389 $11,917,436 1,576,738 $15,415,372 988,155 $ 9,196,605 978,971 $8,820,924
========= =========== ========= =========== ========= =========== ========= ==========
</TABLE>
8. PRINCIPAL UNDERWRITER
1717 Capital Management Company serves, without compensation, as the principal
underwriter for sale of the Fund shares to the Accounts. 1717 Capital Management
Company is an indirect wholly-owned subsidiary of PMLIC.
9. SUBSEQUENT DIVIDEND
On December 29, 1999, the Board of Directors declared the following net
investment income and capital gain dividends to shareholders of record on
December 31, 1999, ex-dividend date January 10, 2000, payable on January 11,
2000 as follows:
<TABLE>
<CAPTION>
TOTAL PER SHARE
------------------------ --------------------
NET NET
INVESTMENT CAPITAL INVESTMENT CAPITAL
PORTFOLIO INCOME GAIN INCOME GAIN
- --------- ---------- ----------- ---------- -------
<S> <C> <C> <C> <C>
Growth.................... $4,242,412 $18,946,927 $ .2658 $1.1872
Bond...................... 2,245,406 -- .6224 --
Managed................... 2,365,140 3,592,195 .5366 .8151
Aggressive Growth......... 1,768,905 3,699,413 .6217 1.3002
International............. 2,245,981 8,909,824 .4218 1.6735
Sentinel Growth........... 1,235,191 492,082 1.0319 .4111
All Pro Large Cap
Growth................... 819,069 636,988 .3187 .2479
All Pro Large Cap Value... 223,008 -- .0916 --
All Pro Small Cap
Growth................... 1,190,602 203,793 .4960 .0849
All Pro Small Cap Value... 37,204 -- .0249 --
</TABLE>
F-59
<PAGE> 200
APPENDIX A
DESCRIPTION OF MONEY MARKET INSTRUMENTS AND
COMMERCIAL PAPER AND BOND RATINGS
PERMITTED INVESTMENTS OF THE MONEY MARKET PORTFOLIO
U.S. GOVERNMENT SECURITIES: These are obligations issued by or guaranteed as to
interest and principal by the government of the United States or any agency or
instrumentality thereof. They may include instruments that are supported by the
full faith and credit of the United States, such as Treasury Bills, Notes and
Bonds; instruments that are supported by the right of the issuer to borrow from
the Treasury, such as Home Loan Bank securities; and securities that are
supported only by the credit of the instrumentality, such as Federal National
Mortgage Association bonds.
BANK OBLIGATIONS: These are obligations (including certificates of deposit, time
deposits, and bankers' acceptances) of: (1) domestic banks (including savings
banks) and foreign branches of domestic banks that are members of the Federal
Reserve System or the Federal Deposit Insurance Corporation ("FDIC") and have
total assets of at least $1 billion; (2) domestic banks and foreign branches
thereof and savings and loan associations that have less than $1 billion of
total assets where the principal amount of the obligation is insured in full by
the FDIC. No more than 10% of the Portfolio's assets may be invested in
obligations of institutions in category (2).
Certificates of Deposit generally are 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' Acceptances 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.
REPURCHASE AGREEMENTS: Repurchase agreements with (1) banks or (2) government
securities dealers recognized as primary dealers by the Federal Reserve System,
provided that:
(a) at the time the repurchase agreement is entered into, and throughout
the duration of the repurchase agreement, the collateral has a market value
at least equal to the value of the repurchase agreement;
(b) the collateral consists of government securities or instruments
rated in the highest rating category by at least two nationally recognized
statistical rating organizations; and
(c) the maturity of the repurchase agreement does not exceed 30 days.
COMMERCIAL PAPER: Commercial paper consists of unsecured promissory notes issued
by corporations to finance short-term credit needs.
A-1
<PAGE> 201
OTHER CORPORATE DEBT OBLIGATIONS: These are outstanding nonconvertible corporate
debt obligations that were not issued as short-term obligations but have
thirteen months or less remaining until maturity and which, at the date of
investment, are rated AA or better by S&P or Aa or better by Moody's.
The Money Market Portfolio will only invest in instruments denominated in U.S.
dollars that the Adviser, under the supervision of the board of directors of the
Fund, determines present minimal credit risks and are, at the time of
acquisition, either:
(1) rated in the two highest rating categories by at least two Rating
Agencies, or by only one Rating Agency if only one Rating Agency has issued
a rating with respect to the instrument; or
(2) 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 the above; or
(3) issued by an issuer that has received a rating of the type described
in (1) above on other securities that are comparable in priority and
security to the instrument.
All of the Money Market Portfolio's money market instruments mature in 13 months
or less. The average maturity of the Portfolio's portfolio securities based on
their dollar value will not exceed 90 days at the time of each investment. If
the disposition of a portfolio security results in a dollar-weighted average
portfolio maturity in excess of 90 days, the Portfolio will invest its available
cash in such a manner as to reduce its dollar-weighted average portfolio
maturity to 90 days or less as soon as reasonably practicable.
COMMERCIAL PAPER RATINGS
The rating A-1 is the highest rating assigned by Standard & Poor's Corporation
("S&P") to commercial paper which is considered by S&P to have the following
characteristics: liquidity ratios of the issuer are adequate to meet cash
requirements; long-term senior debt is rated "A" or better; the issuer has
access to at least two additional channels of borrowing; basic earnings and cash
flow have an upward trend with allowance 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 S&P. 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 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
A-2
<PAGE> 202
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.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from AA through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a midrange ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic rating category.
S&P describes its ratings for corporate bonds as follows:
AAA--This is the highest rating assigned by S&P 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 outweighted by large uncertainties or major risk exposures to adverse
conditions.
S&P applies plus (+) or minus (-) modifiers to provide more detailed indications
of credit quality. Ratings from AA to A may be modified by the addition of a
plus or minus sign to show relative standing within the major rating categories.
A-3
<PAGE> 203
ITEM 22. Financial Statements.
The following financial statements are filed as part of this Registration
Statement:
Included in Part A--Prospectus of the Registration Statement:
Financial Highlights
Included in Part B--Statement of Additional Information of the Registration
Statement:
Report of Independent Accountants
Statement of Net Assets as of December 31, 1999
Statements of Operations for the Year Ended December 31, 1999
Statements of Changes in Net Assets for the Year Ended December 31,
1999
Statements of Changes in Net Assets for the Year Ended December 31,
1998
Financial Highlights
Notes to Financial Statements, December 31, 1999
A-4
<PAGE> 204
PART C. OTHER INFORMATION
ITEM 23. Exhibits
The following exhibits are filed herewith:
<TABLE>
<S> <C>
(a)(1) Articles of Incorporation of the Market Street Fund, Inc.
(the "Fund")(1)
(a)(2) Articles Supplementary(1)
(a)(3) Articles Supplementary(1)
(a)(4) Articles Supplementary(1)
(b)(1) By-Laws of the Fund(1)
(b)(2) Amendment to By-Laws(1)
(c) Form of Certificate for Shares of Common Stock of the
Fund(1)
(d)(1) Investment Advisory Agreement between the Fund and
Providentmutual Investment Management Company (PIMC, now
MSIM)(1)
(d)(2) Investment Advisory Agreement between the Fund and Sentinel
Advisors Company(1)
(d)(3) Amendment to Investment Advisory Agreement between the Fund
and Sentinel Advisors Company(2)
(d)(4) Amendment to Investment Advisory Agreement Between the Fund
and Sentinel Advisors Company(3)
(d)(5) Investment Advisory Agreement between the Fund and Sentinel
Advisors Company with respect to the Growth Portfolio(4)
(d)(6) Investment Advisory Agreement between the Fund and PIMC (now
MSIM) with respect to the International Portfolio(1)
(d)(7) Investment Sub-Advisory Agreement between PIMC (now MSIM)
and The Boston Company Asset Management, Inc.(1)
(d)(8) Investment Advisory Agreement between the Fund and PIMC (now
MSIM) respecting All Pro Portfolios(1)
(d)(9) Form of Agreement between PIMC (now MSIM) and its
subadvisers respecting All Pro Portfolios(1)
(d)(10) Investment Management Consulting Agreement between PIMC (now
MSIM) and Wilshire Associates Incorporated respecting All
Pro Portfolios(1)
(d)(11) Form of Investment Sub-Advisory Agreement between PIMC (now
MSIM) and State Street Global Advisors(5)
(d)(12) Form of Agreement between PIMC (now MSIM) and its
subadvisers with respect to the All Pro Large Cap Growth
Portfolio, the All Pro Large Cap Value Portfolio, the All
Pro Small Cap Growth Portfolio, and the All Pro Small Cap
Value Portfolio
(e)(1) Underwriting Agreement between the Fund and PML Securities,
Inc.(1)
(e)(2) Amendment to Underwriting Agreement between the Fund and PML
Securities, Inc.(1)
(e)(3) Amendment to Underwriting Agreement between the Fund and PML
Securities, Inc.(1)
(e)(4) Amendment to Underwriting Agreement between the Fund and PML
Securities, Inc.(1)
(e)(5) Amendment to Underwriting Agreement between the Fund and PML
Securities, Inc.(1)
(f) Inapplicable
(g)(1) Custody Agreement between the Fund and Provident National
Bank(1)
(g)(2) Amendment to Custody Agreement between the Fund and
Provident National Bank(1)
(g)(3) Amendment to Custody Agreement between the Fund and
Provident National Bank(1)
(g)(4) Amendment to Custody Agreement between the Fund and
Provident National Bank(1)
(g)(5) Custodial Services Agreement between the Fund and Citibank,
N.A.(1)
(h)(1) Agreement and Plan of Reorganization among Providentmutual
Variable Life Growth Account, Providentmutual Variable Life
Money Market Account, Providentmutual Variable Life Bond
Account and the Fund(1)
</TABLE>
C-1
<PAGE> 205
<TABLE>
<S> <C>
(h)(2) Reimbursement Agreement between Provident Mutual Life
Insurance Company of Philadelphia and the Fund(1)
(h)(3) Administration Agreement between the Fund and Provident
Institutional Management Corporation(1)
(h)(4) Amendment to Administration Agreement between the Fund and
Provident Financial Processing Corporation (PFPC)(1)
(h)(5) Amendment to Administration Agreement between the Fund and
PFPC(1)
(h)(6) Amendment to Administration Agreement between the Fund and
PFPC(1)
(h)(7) Transfer Agency Agreement between the Fund and PFPC, as
amended(1)
(h)(8) Amendment to Transfer Agency Agreement between the Fund and
PFPC(1)
(h)(9) Amendment to Transfer Agency Agreement between the Fund and
PFPC(1)
(h)(10) Participation Agreement among the Fund, Provident Mutual
Life Insurance Company, and PML Securities, Inc.(1)
(h)(11) Participation Agreement among the Fund, Providentmutual Life
and Annuity Company of America and PML Securities, Inc.(1)
(h)(12) Participation Agreement among the Fund, National Life
Insurance Company and PML Securities, Inc.(3)
(h)(13) Amendment to Participation Agreement among the Fund,
National Life Insurance Company and PML Securities, Inc.(1)
(i)(1) Opinion and Consent of Adam Scaramella, Esq.(1)
(i)(2) Opinion of James G. Potter, Jr., Esq.(5)
(j)(1) Consent of Sutherland Asbill & Brennan LLP is filed
herewith.
(j)(2) Consent of PricewaterhouseCoopers LLP is filed herewith.
(k) Inapplicable
(l)(1) See Number (h)(1) above(1)
(l)(2) Investment Letter from National Life Insurance Company(3)
(m) Inapplicable
(n) Inapplicable
(o) Powers of Attorney(6)
</TABLE>
- -------------------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 19 filed
with the Securities and Exchange Commission on April 24, 1998, File No.
2-98755.
(2) Incorporated herein by reference to Post-Effective Amendment No. 13 filed
with Securities and Exchange Commission on February 28, 1996, File No.
2-98755.
(3) Incorporated herein by reference to Post-Effective Amendment No. 14 filed
with Securities and Exchange Commission on March 19, 1996, File No. 2-98755.
(4) Incorporated herein by reference to Post-Effective Amendment No. 16, filed
with Securities and Exchange Commission on February 21, 1997, File No.
2-98755.
(5) Incorporated herein by reference to Post-Effective Amendment No. 22 filed
with Securities and Exchange Commission on August 3, 1999, File No. 2-98755.
(6) Incorporated herein by reference to Post-Effective Amendment No. 21 filed
with Securities and Exchange Commission on April 22, 1999, File No. 2-98755.
ITEM 24. Persons Controlled by or Under Common Control with Registrant
Currently, shares of the Fund are sold to separate accounts of Provident Mutual
Life Insurance Company ("Provident Mutual"), Providentmutual Life and Annuity
Company of America ("PLACA") and National Life Insurance Company ("NLIC") to
fund the benefits under certain variable life insurance policies and variable
annuity contracts issued or assumed by Provident Mutual or PLACA and variable
life insurance policies issued by NLIC.
C-2
<PAGE> 206
No person has the direct or indirect power to control Provident Mutual or NLIC
except insofar as he or she may have such power by virtue of his or her capacity
as a director or executive officer thereof. As mutual life insurance companies,
Provident Mutual and NLIC have no stockholders. Their Boards of Directors are
elected by the Policyholders. PLACA is a wholly-owned subsidiary of Provident
Mutual.
Persons controlled by or under common control with the registrant follow:
<TABLE>
<CAPTION>
PERCENT OF VOTING
NAME JURISDICTION SECURITIES OWNED PRINCIPAL BUSINESS
---- ------------ ----------------- ------------------
<S> <C> <C> <C>
Provident Mutual Pennsylvania Mutual Company Life & Health Insurance
Life Insurance Company*
(Provident Mutual)
Providentmutual Life and Delaware Ownership of all Life & Health Insurance
Annuity Company voting securities
of America* by Provident Mutual
Provident Mutual Delaware Ownership of all voting Life & Health Insurance
International securities by
Life Insurance Company Provident Mutual
Providentmutual Pennsylvania Ownership of all Holding Company
Holding Company (PHC)* voting securities
by Provident Mutual
1717 Capital Management Pennsylvania Ownership of all voting Broker/Dealer
Company* securities by PHC
1717 Brokerage Services Pennsylvania Ownership of all voting Insurance Agency
Inc. securities by PHC
Market Street** Pennsylvania Ownership of all voting Investment Adviser
Investment securities by PHC
Management Company*
Washington Square Pennsylvania Ownership of all voting Administrative Services
Administrative securities by PHC
Services, Inc.*
Institutional Concepts, New York Ownership of all voting Insurance Agency
Inc.* securities by PHC
Provestco, Inc.* Delaware Ownership of all voting Real Estate Investment
securities by PHC
PNAM, Inc.* Delaware Ownership of all voting Holding Company
securities by PHC
Sigma American Delaware Ownership of 80.2% Investment Management
Corporation* voting securities by and Advisory Services
PHC and 19.8% by
Provident Mutual
</TABLE>
C-3
<PAGE> 207
<TABLE>
<CAPTION>
PERCENT OF VOTING
NAME JURISDICTION SECURITIES OWNED PRINCIPAL BUSINESS
---- ------------ ----------------- ------------------
<S> <C> <C> <C>
Provident Mutual Delaware Ownership of all voting Investment Management
Management Co., Inc.* securities by Sigma and Advisory Services
American Corporation
Software Development Pennsylvania Ownership of all Development and
Corporation* voting securities Marketing of Computer
by PHC Software
</TABLE>
- -------------------------
* File Consolidated Financial Statements.
** Formerly Providentmutual Investment Management Company.
ITEM 25. Indemnification
Under Section 2-418 of the Maryland General Corporation Law, with respect to any
proceedings against a present or former director, officer, agent or employee
("corporate representative") of the registrant, except a proceeding brought by
or on behalf of the registrant, the registrant may indemnify the corporate
representative against expenses, including attorneys' fees and judgments, fines,
and amounts paid in settlement actually and reasonably incurred by the corporate
representative in connection with the proceeding, if: (i) he acted in good faith
and in a manner he reasonably believed to be in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
registrant; and (ii) with respect to any criminal proceeding, he had no
reasonable cause to believe his conduct was unlawful. The registrant is also
authorized under section 2-418 of the Maryland General Corporation Law to
indemnify a corporate representative under certain circumstances against
expenses incurred in connection with the defense of a suit or action by or in
the right of the registrant.
The By-laws of the Fund (Exhibit (b) 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.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any such action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
ITEM 26. Business and Other Connections of Investment Adviser
The directors and officers of Providentmutual Investment Management Company
(PIMC) also serve as officers of Provident Mutual.
C-4
<PAGE> 208
ITEM 27. Principal Underwriters
a. 1717 Capital Management Company is principal underwriter for the Fund.
b. Set forth below is certain information regarding the directors and officers
of 1717, the principal underwriter to the Fund. Unless otherwise stated, the
business address of the persons whose names appear below is 300 Continental
Drive, Newark, Delaware 19713.
<TABLE>
<CAPTION>
(2) (3)
(1) POSITIONS AND OFFICES WITH POSITIONS AND OFFICES
NAME PRINCIPAL UNDERWRITER WITH REGISTRANT
---- -------------------------- ---------------------
<S> <C> <C>
Mary Lynn Finelli*................... Director None
Alan F. Hinkle*...................... Director None
Robert W. Kloss*..................... Director None
James G. Potter, Jr.*................ Director Vice President
Joan C. Tucker....................... Director None
Lance A. Reihl....................... President None
Rosanne Gatta*....................... Treasurer President
Linda M. Springer*................... Financial Reporting None
Officer
</TABLE>
- -------------------------
* 1000 Chesterbrook Boulevard, Berwyn, PA 19312
ITEM 28. 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 Market Street Investment Management Company at 103 Bellevue
Parkway, Wilmington, DE 19809 and 1000 Chesterbrook Boulevard, Berwyn, PA 19312,
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 PFPC Trust Company, 200 Stevens Drive, Lester,
Pennsylvania 19113, 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 29. Management Services
Inapplicable.
ITEM 30. Undertakings
Inapplicable.
C-5
<PAGE> 209
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE INVESTMENT
COMPANY ACT OF 1940, THE REGISTRANT CERTIFIES THAT IT MEETS ALL OF THE
REQUIREMENTS FOR EFFECTIVENESS OF THIS REGISTRATION STATEMENT PURSUANT TO RULE
485(b) UNDER THE SECURITIES ACT OF 1933 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF BERWYN, COMMONWEALTH OF PENNSYLVANIA ON THIS 25TH DAY
OF APRIL, 2000.
MARKET STREET FUND, INC.
By: /s/ ROSANNE GATTA
------------------------------------
ROSANNE GATTA
PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ROSANNE GATTA President (Principal Executive April 25, 2000
- --------------------------------------------------- Officer)
ROSANNE GATTA
/s/ ANTHONEY T. GIAMPIETRO Treasurer (Principal Financial and April 25, 2000
- --------------------------------------------------- Accounting Officer)
ANTHONEY T. GIAMPIETRO
/s/ ROBERT W. KLOSS Director April 25, 2000
- ---------------------------------------------------
ROBERT W. KLOSS
* Director April 25, 2000
- ---------------------------------------------------
ALAN GART
* Director April 25, 2000
- ---------------------------------------------------
A. GILBERT HEEBNER
* Director April 25, 2000
- ---------------------------------------------------
LEO SLACK
* Director April 25, 2000
- ---------------------------------------------------
EDWARD S. STOUCH
By: /s/ JAMES G. POTTER, JR.
----------------------------------------------
JAMES G. POTTER, JR.
Attorney-in-Fact,
Pursuant to Power of Attorney
</TABLE>
C-6
<PAGE> 210
EXHIBIT INDEX
<TABLE>
<S> <C>
EX-99.(d)(12) Form of Agreement between PIMC (now MSIM) and its
subadvisers with respect to the All Pro Large Cap Growth
Portfolio, the All Pro Large Cap Value Portfolio, the All
Pro Small Cap Growth Portfolio, and the All Pro Small Cap
Value Portfolio
EX-99.(j)(1) Consent of Sutherland Asbill & Brennan LLP
EX-99.(j)(2) Consent of PricewaterhouseCoopers LLP
</TABLE>
C-7
<PAGE> 1
EXHIBIT 99(d)(12)
FORM OF
INVESTMENT SUB-ADVISORY AGREEMENT
THIS INVESTMENT SUB-ADVISORY AGREEMENT ("Agreement"), made this 28th
day of March, 2000 by and between PROVIDENTMUTUAL INVESTMENT MANAGEMENT COMPANY,
a Pennsylvania corporation (the "Adviser"), and SANFORD C. BERNSTEIN & COMPANY.,
INC., a New York corporation (the "Sub-Adviser").
Adviser and Sub-Adviser agree as follows:
1. Adviser hereby engages the services of Sub-Adviser in connection with
Adviser's management of the All Pro Large Cap Value Portfolio (the "Portfolio")
of Market Street Fund, Inc. (the "Fund"). Pursuant to this Agreement and subject
to the oversight and supervision by Adviser and the officers and the board of
directors of the Fund, Sub-Adviser shall manage the investment and reinvestment
of that portion of the assets of the Portfolio (hereinafter, the "Portfolio
Segment") that the Adviser shall, from time to time, direct and which shall be
acceptable to Sub-Adviser.
2. Sub-Adviser hereby accepts appointment by Adviser in the foregoing
capacity and agrees, at its own expense, to render the services set forth herein
and to provide the office space, furnishings, equipment and personnel required
by it to perform such services on the terms and for the compensation provided in
this Agreement.
3. In particular, Sub-Adviser shall furnish continuously an investment
program for the Portfolio Segment and shall determine from time to time in its
discretion the securities and other investments to be purchased or sold or
exchanged and what portions of the Portfolio Segment shall be held in various
securities, cash or other investments. In this connection, Sub-Adviser shall
provide Adviser and the officers and directors of the Fund with such reports and
documentation as the latter shall reasonably request regarding Sub-Adviser's
management of the Portfolio Segment assets.
4. Sub-Adviser shall carry out its responsibilities under this Agreement
in compliance with: (a) the Portfolio's investment objective, policies and
restrictions as set forth in the Fund's current registration statement, (b) such
policies or directives as the Fund's directors may from time to time establish
or issue and communicate to the Sub-Adviser in writing, and (c) applicable law
and related regulations. Adviser shall promptly notify Sub-Adviser in writing of
changes to (a) or (b) above and shall notify Sub-Adviser in writing of changes
to (c) above promptly after it becomes aware of such changes.
5. Sub-Adviser shall take all actions which it considers necessary to
implement the investment policies of the Portfolio as these relate to the
Portfolio Segment, and in particular, to place all orders for the purchase or
sale of securities or other investments for the Portfolio
<PAGE> 2
Segment with brokers or dealers selected by it, and to that end, Sub-Adviser is
authorized as the agent of the Fund to give instructions to the Fund's custodian
as to deliveries of securities or other investments and payments of cash for the
account of the Portfolio. In connection with the selection of brokers or dealers
and the placing of purchase and sale orders with respect to investments of the
Portfolio, Sub-Adviser is directed at all times to seek to obtain best execution
and price within the policy guidelines determined by the Fund's board of
directors and set forth in the Fund's current registration statement.
To the extent permitted by the policy guidelines set forth in the
Fund's current registration statement, Sub-Adviser is authorized to consider, in
the selection of brokers and dealers to execute portfolio transactions, not only
the available prices and rates of brokerage commissions but also other relevant
factors which may include, without limitation, the execution capabilities of
such brokers and dealers, research, custody and other services provided by such
brokers and dealers which the Sub-Adviser believes will enhance its general
portfolio management capabilities, the size of the transaction, the difficulty
of execution, the operational facilities of such brokers and dealers, the risk
to such a broker or dealer of positioning a block of securities, and the overall
quality of brokerage and research services provided by such brokers and dealers.
In connection with the foregoing, Sub-Adviser is specifically authorized to pay
those brokers and dealers who provide brokerage and research services to it, a
higher commission than that charged by other brokers and dealers if the
Sub-Adviser determines in good faith that the amount of such commission is
reasonable in relation to the value of such services in terms of either the
particular transaction or in terms of Sub-Adviser's overall responsibilities
with respect to the Portfolio Segment and to any other client accounts or
portfolios which Sub-Adviser advises. The execution of such transactions shall
not be considered to represent an unlawful breach of any duty created by this
Agreement or otherwise.
On an ongoing basis, but not less often than annually, the Sub-Adviser
shall identify and provide a written description to the Adviser of all "soft
dollar" arrangements that the Sub-Adviser maintains with respect to the
Portfolio Segment or with brokers or dealers which execute transactions for the
Portfolio Segment. Prior to the commencement of the active management of the
Portfolio Segment, and periodically thereafter, but not less often than
annually, the Sub-Adviser shall provide the Adviser with a written description
of all arrangements with third parties and other individuals, entities, brokers,
or money management firms that have or may receive or share in the payment of
fees for services in connection with securing or continuing this Agreement.
Sub-Adviser also is authorized to aggregate purchase and sale orders
for securities held (or to be held) in the Portfolio Segment with similar orders
being made on the same day for other eligible client accounts or portfolios
managed by Sub-Adviser. When an order is so aggregated: (a) the actual prices
applicable to the aggregated transaction will be averaged and the Portfolio
Segment and each other account or portfolio participating in the aggregated
transaction shall be treated as having purchased or sold its portion of the
securities at such average price, and (b) all transaction costs incurred in
effecting the aggregated transaction shall be shared on a pro-rata basis among
the accounts or portfolios (including the Portfolio Segment) participating in
the
2
<PAGE> 3
transaction. Adviser recognizes that in some cases this procedure may adversely
affect the size of the position obtainable for the Portfolio Segment.
When recommending or effecting a transaction in a particular security
or investment for more than one client account or portfolio (including the
Portfolio Segment), Sub-Adviser may allocate such recommendations or
transactions among all accounts and portfolios for whom the recommendation is
made or transaction is effected on a basis that Sub-Adviser considers equitable.
6. Sub-Adviser's services under this Agreement are not exclusive.
Sub-Adviser may provide the same or similar services to other clients. Adviser
acknowledges that, except when transactions for multiple clients are aggregated,
transactions in a specific security or other investment may not be recommended
or executed at the same time or price for all client accounts or portfolios
(including the Portfolio Segment) for which that security or investment is
recommended or executed. This Agreement does not require Sub-Adviser to give
priority to the Portfolio Segment over other client accounts or portfolios.
Sub-Adviser shall for all purposes herein be deemed to be an independent
contractor and shall, unless otherwise expressly provided or authorized, have no
authority to act for or represent the Adviser, the Fund or the Portfolio or
otherwise be deemed agents of the Adviser, the Fund or the Portfolio.
7. The Adviser delegates the Adviser's discretionary authority to exercise
voting rights with respect to the securities and other investments in the
Portfolio Segment to the Sub-Adviser. The Sub-Adviser shall exercise these
voting rights unless and until the Adviser revokes this delegation. The Adviser
may revoke this delegation at any time without cause. The Sub-Adviser shall
maintain and preserve a record, in an easily-accessible place for a period of
not less than three years, of the Sub-Adviser's voting procedures, and of the
Sub-Adviser's actual votes, and shall supply this record to the Adviser, or any
authorized representative of the Adviser, upon the written request of the
Adviser or the Adviser's authorized representative, as appropriate.
8. Sub-Adviser or an affiliated person of Sub-Adviser may act as broker
for the Portfolio in connection with the purchase or sale of securities or other
investments for the Portfolio, subject to: (a) the requirement that Sub-Adviser
seek to obtain best execution and price within the policy guidelines determined
by the Fund's board of directors and set forth in the Fund's current
registration statement; (b) the provisions of the Advisers Act; (c) the
provisions of the Securities Exchange Act of 1934, as amended; and (d) other
applicable provisions of law. Such brokerage services are not within the scope
of the duties of Sub-Adviser under this Agreement. Subject to the requirements
of applicable law and any procedures adopted by Fund's board of directors,
Sub-Adviser or its affiliated persons may receive brokerage commissions, fees or
other remuneration from the Portfolio or the Fund for such services in addition
to Sub-Adviser's fees for services under this Agreement.
9. Nothing in this Agreement shall require Sub-Adviser to take or receive
physical possession of cash, securities or other investments of the Portfolio
Segment.
3
<PAGE> 4
10. Sub-Adviser is registered with the U.S. Securities and Exchange
Commission under the Investment Advisers Act of 1940, as amended (the "Advisers
Act"). Sub-Adviser shall remain so registered throughout the term of this
Agreement and shall notify Adviser immediately if Sub-Adviser ceases to be so
registered as an investment adviser.
11. Sub-Adviser: (a) is duly organized and validly existing under the laws
of the State of New York with the power to own and possess its assets and carry
on its business as it is now being conducted, (b) has the authority to enter
into and perform the services contemplated by this Agreement, (c) is not
prohibited by the Investment Company Act of 1940 (the "1940 Act") or the
Advisers Act from performing the services contemplated by this Agreement, (d)
has met, and will continue to seek to meet for the duration of this Agreement,
any other applicable federal or state requirements, or the applicable
requirements of any regulatory or industry self-regulatory agency, necessary to
be met in order to perform the services this Agreement, and (e) will promptly
notify Adviser of the occurrence of any event that would disqualify it from
serving as an investment adviser to an investment company pursuant to Section
9(a) of the 1940 Act.
12. Adviser: (a) is duly organized and validly existing under the laws of the
Commonwealth of Pennsylvania with the power to own and possess its assets and
carry on its business as it is now being conducted, (b) has the authority to
enter into and perform the services contemplated by this Agreement, (c) is not
prohibited by the 1940 Act or the Advisers Act from performing the services
contemplated by this Agreement, (d) has met, and will continue to seek to meet
for the duration of this Agreement, any other applicable federal or state
requirements, or the applicable requirements of any regulatory or industry
self-regulatory agency, necessary to be met by Sub-Adviser in order to perform
its services under this Agreement, and (e) will promptly notify Sub-Adviser of
the occurrence of any event that would disqualify it from serving as an
investment adviser to an investment company pursuant to Section 9(a) of the 1940
Act. Adviser represents that the Fund is (and during the term of this Agreement,
will remain) registered as an open-end management investment company under the
1940 Act and that the shares of the Fund's stock representing an interest in the
Portfolio are (and during the term of this Agreement will remain) registered
under the Securities Act of 1933 and under any applicable state securities laws.
13. Sub-Adviser has adopted a written code of ethics complying with the
requirements of Rule 17j-1 under the 1940 Act and will provide Adviser
and the Fund with a copy of the Policy. Within 20 days of the end of
each calendar quarter during which this Agreement remains in effect,
the president or a vice president of Sub-Adviser shall certify to
Adviser or the Fund that Sub-Adviser has complied with the requirements
of Rule 17j-1 during the previous quarter and that there have been no
violations of Policy or, if such a violation has occurred, that
appropriate action has been taken in response to such violation.
14. For the services rendered, the facilities furnished and the expenses
assumed by Sub-Adviser, Adviser shall pay Sub-Adviser at the end of each month a
fee based on the average daily net assets of the Portfolio Segment at the
following annual rates:
0.60% of the first $10,000,000
0.50% of the next $15,000,000
4
<PAGE> 5
0.40% of the next $25,000,000
0.30% of the next $50,000,000
0.25% of the next $50,000,000
0.225% of the next $50,000,000
0.20% of the next $50,000,000
0.175% of the next $50,000,000
and
0.15% of amounts in excess of $300,000,000
Sub-Adviser's fee shall be accrued daily at 1/365th of the applicable annual
rate set forth above. For the purpose of accruing compensation, the net assets
of the Portfolio Segment shall be determined in the manner and on the dates set
forth in the current prospectus of the Fund, and, on days on which the net
assets are not so determined, the net asset value computation to be used shall
be as determined on the immediately preceding day on which the net assets were
determined. In the event of termination of this Agreement, all compensation due
through the date of termination will be calculated on a pro-rated basis through
the date of termination and paid within thirty business days of the date of
termination.
During any period when the determination of net asset value is
suspended, the net asset value of the Portfolio as of the last business day
prior to such suspension shall for this purpose be deemed to be the net asset
value at the close of each succeeding business day until it is again determined.
15. Sub-Adviser hereby undertakes and agrees to maintain, in the form and
for the period required by Rule 31a-2 under the Investment Company Act of 1940,
as amended, all records relating to the Portfolio Segment's investments that are
required to be maintained by the Fund pursuant to the requirements of paragraphs
(b)(5), (b)(6), (b)(7), (b)(9), (b)(10) and (f) of Rule 31a-1 under the 1940
Act.
Sub-Adviser agrees that all books and records which it maintains for
the Portfolio or the Fund are the property of the Fund and further agrees to
surrender promptly to the Adviser or the Fund any such books, records or
information upon the Adviser's or the Fund's request (provided, however, that
Sub-Adviser may retain copies of such records). All such books and records shall
be made available, within five business days of a written request, to the Fund's
accountants or auditors during regular business hours at Sub-Adviser's offices.
Adviser and the Fund or either of their authorized representative shall have the
right to copy any records in the possession of Sub-Adviser which pertain to the
Portfolio or the Fund. Such books, records, information or reports shall be made
available to properly authorized government representatives consistent with
state and federal law and/or regulations. In the event of the termination of
this Agreement, all such books, records or other information shall be returned
to Adviser or the Fund. The Sub-Adviser agrees that the policies and procedures
established by the Sub-Adviser for managing the Portfolio Segment, including,
but not limited to, all policies and procedures designed to ensure compliance
with federal and state regulations governing management and operation of the
Portfolio, shall be made available for inspection by the Adviser and the Fund or
either of their authorized representatives not less frequently than annually.
5
<PAGE> 6
16. Sub-Adviser agrees that it will not disclose or use any records or
confidential information obtained pursuant to this Agreement in any manner
whatsoever except as authorized in this Agreement or specifically by Adviser or
the Fund, or if such disclosure is required by federal or state regulatory
authorities.
Sub-Adviser may disclose the investment performance of the Portfolio
and the Portfolio Segment, provided that such disclosure does not reveal the
identity of the Adviser, the Portfolio or the Fund. Sub-Adviser may, however,
disclose that Adviser, the Fund and the Portfolio are its clients, provided that
such disclosure does not reveal the investment performance or the composition of
the Portfolio Segment.
17. In the absence of willful misfeasance, bad faith or gross negligence on
the part of Sub-Adviser or its officers, directors or employees, or reckless
disregard by Sub-Adviser of its duties under this Agreement (together,
"disabling conduct"), Sub-Adviser shall not be liable to Adviser, the Portfolio,
the Fund or to any shareholder of the Portfolio for any act or omission in the
course of, or connected with, rendering services hereunder or for any losses
that may be sustained in the purchase, holding or sale of any security.
18. Sub-Adviser agrees to indemnify and defend Adviser, its officers,
directors, partners, employees and any person who controls Adviser for any
actual loss or expense (including reasonable attorney's fees) arising out of any
claim, demand, action, suit or proceeding arising out of any actual material
misstatement or omission in the Fund's registration statement, any proxy
statement, or communication to current or prospective investors in the Portfolio
relating to written disclosure or oral disclosure confirmed in writing by
Sub-Adviser about Sub-Adviser provided to Adviser or the Fund by Sub-Adviser. In
no event shall Sub-Adviser be responsible for any indirect, consequential or
special damages.
19. Adviser agrees to indemnify and defend Sub-Adviser, its officers,
directors, partners, employees and any person who controls Adviser for any
actual loss or expense (including reasonable attorney's fees) arising out of any
claim, demand, action, suit or proceeding arising out of any actual material
misstatement or omission in the Fund's registration statement, any proxy
statement, or other communication to current or prospective investors in the
Portfolio (other than a misstatement or omission relating to disclosure about
Sub-Adviser provided to Adviser or the Fund by Sub-Adviser). In no event shall
Adviser be responsible for any indirect, consequential or special damages.
20. This Agreement shall not become effective unless and until it is
approved by the board of directors of the Fund, including a majority of
directors who are not parties to this Agreement or interested persons of any
such party to this Agreement, and, to the extent required by law, a majority of
the outstanding shares of the class of the Fund's stock representing an interest
in the Portfolio. This Agreement shall come into full force and effect on the
date which it is so approved. This Agreement shall continue in effect for two
years and shall thereafter continue in effect from year to year so long as such
continuance is specifically approved at least annually by (a) the board of
directors of the Fund, or by the vote of a majority of the outstanding shares of
the
6
<PAGE> 7
class of stock representing an interest in the Portfolio, and (b) a majority of
those directors who are not parties to this Agreement or interested persons of
any such party cast in person at a meeting called for the purpose of voting on
such approval.
21. This Agreement may be terminated at any time without the payment of any
penalty, by the Fund's board of directors, or by vote of a majority of the
outstanding shares of the class of stock representing an interest in the
Portfolio on sixty days written notice to the Adviser and Sub-Adviser, or by the
Adviser, or by the Sub-Adviser, on sixty days written notice to the other. This
Agreement shall automatically terminate in the event of its assignment or in the
event of the termination of the investment advisory agreement between the
Adviser and the Fund regarding the Adviser's management of the Portfolio.
22. This Agreement may be amended by the parties only if such amendment is
specifically approved by (a) a majority of those directors who are not parties
to this Agreement or interested persons of any such party cast in person at a
meeting called for the purpose of voting on such approval, and, if required by
applicable law, (b) the vote of a majority of outstanding shares of the class of
the Fund's stock representing an interest in the Portfolio.
23. The terms "assignment", "affiliated person" and "interested person",
when used in this Agreement, shall have the respective meanings specified in the
1940 Act. The term "majority of the outstanding shares of the class" means the
lesser of (a) 67% or more of the shares of such class present at a meeting if
more than 50% of such shares are present or represented by proxy or (b) more
than 50% of the shares of such class.
24. This Agreement shall be construed in accordance with laws of the
Commonwealth of Pennsylvania, and applicable provisions of the Advisers Act and
1940 Act.
25. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
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<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
Providentmutual Investment Management Company
By:
Title: President
ATTEST:
- ---------------------
Sanford C. Bernstein & Company., Inc.
By:
----------------------------------
Title:
--------------------------------
ATTEST:
- ----------------------
8
<PAGE> 1
EXHIBIT 99(j)(1)
[SUTHERLAND ASBILL & BRENNAN LLP LETTERHEAD]
April , 2000
---
Board of Directors
Market Street Fund, Inc.
103 Bellevue Parkway
Wilmington, DE 19809
RE: MARKET STREET FUND, INC.
FILE NO. 2-98755
------------------------
Directors:
We hereby consent to the reference to our name under the caption "Other
Services -- Legal Matters" in the Statement of Additional Information filed as
part of the Post-Effective Amendment no. 26 to the Form N-1A for Market Street
Fund, Inc. (File No. 2-98755). In giving this consent, we do not admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933.
Sincerely,
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/ Stephen E. Roth
------------------------------------
Stephen E. Roth
<PAGE> 1
EXHIBIT 99(j)(2)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Post-Effective Amendment No. 26 to the
Registration Statement on Form N-1A ("Registration Statement") of our report
dated January 28, 2000, relating to the financial statements and financial
highlights of the Market Street Fund, Inc., which appear in such Registration
Statement. We also consent to the references to us under the headings "Financial
Highlights" and "Independent Accountants" in such Registration Statement.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
April 21, 2000