As filed with the Securities and Exchange Commission on March 28, 1997
Registration No. 33-48452/811-6696
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ x ]
POST-EFFECTIVE AMENDMENT NO. 5
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ x ]
Amendment No. 8
MARKETWATCH FUNDS
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road
Columbus, Ohio 43219-3035
(Address of Principal Executive Officers)
Registrant's Telephone Number:
(614) 470-8000
W. Bruce McConnel, III, Esq.
DRINKER BIDDLE & REATH
1345 Chestnut Street
Philadelphia, Pennsylvania 19107-3496
(Name and Address of Agent for Service)
Copy to:
J. David Huber
3435 Stelzer Road
Columbus, Ohio 43219-3035
It is proposed that this filing will become effective (check appropriate
box):
[] immediately upon filing pursuant to paragraph (b)
[] 60 days after filing pursuant to paragraph (a)(i)
[] on (date) pursuant to paragraph (a)(i)
[X] on March 31, 1997 pursuant to paragraph (b)(i)
[] 75 days after filing pursuant to paragraph (a)(ii)
[] on (date) pursuant to paragraph (a)(ii) 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.
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Registrant has elected to register an indefinite number of its shares of
beneficial interest, including shares of beneficial interest in its Money
Market, Flexible Income, Intermediate Fixed Income, Virginia Municipal Bond,
and Equity Funds pursuant to Rule 24f-2 under the Investment Company Act of
1940. Registrant's Rule 24f-2 Notice was filed with the Securities and
Exchange Commission on January 27, 1997.
<PAGE>
<TABLE>
<CAPTION>
MARKETWATCH FUNDS
FORM N-1A
CROSS REFERENCE SHEET
Part A Item No. Prospectus Caption
- --------------- ------------------
<S> <C>
1. Cover page.................. Cover Page
2. Synopsis.................... Fee Table
3. Condensed Financial
Information............... Financial Highlights and Performance
Information
4. General Description of
Registrant................ Prospectus Summary; Investment
Objectives, Policies, and Risk
Considerations; Other Investment Policies;
Special Considerations and Risk Factors;
Investment Restrictions; General
Information - Description of MarketWatch
and Its Shares
5. Management of the Fund...... Prospectus Summary; Management of
MarketWatch; Investment Adviser;
Administrator and Distributor; Expenses
General Information - Custodian; General
Information - Transfer Agency and Fund
Accounting Services
5A. Management's Discussion of
Fund Performance.......... Not Applicable
6. Capital Stock and Other
Securities................ How to Purchase and Redeem Shares; Divi-
dends and Taxes; General Information -
Description of MarketWatch and Its Shares;
General Information - Miscellaneous
7. Purchase of Securities
Being Offered............. Valuation of Shares; How to Purchase and
Redeem Shares; Auto Invest Plan;
Systematic Exchange Program; Sales Charges
8. Redemption or Repurchase.... How to Purchase and Redeem Shares and Auto
Withdrawal Plan
9. Pending Legal Proceedings... Inapplicable
</TABLE>
<PAGE>
MARKETWATCH MONEY MARKET FUND
MARKETWATCH EQUITY FUND
MARKETWATCH INTERMEDIATE FIXED INCOME FUND
MARKETWATCH VIRGINIA MUNICIPAL BOND FUND
3435 Stelzer Road For current yield, purchase, and repurchase
Columbus, Ohio 43219 information, call (800) 232-9091.
The MarketWatch Funds ("MarketWatch") is an open-end management
investment company that currently consists of four separate investment
portfolios. This Prospectus relates to the MarketWatch Money Market Fund (the
"Money Market Fund"), the MarketWatch Equity Fund (the "Equity Fund"), the
MarketWatch Intermediate Fixed Income Fund (the "Intermediate Fixed Income
Fund") and the MarketWatch Virginia Municipal Bond Fund (the "Virginia
Municipal Bond Fund"), (each, a "Fund" and collectively, the "Funds"). The
Virginia Municipal Bond Fund is a non-diversified investment portfolio of
MarketWatch. Each of the other Funds is a diversified investment portfolio of
MarketWatch.
The investment objectives of the Funds are as follows:
o The Money Market Fund's investment objective is to seek current
income consistent with maintaining liquidity and stability of
principal.
o The Equity Fund's investment objective is to seek total return
through growth of capital and current income.
o The Intermediate Fixed Income Fund's investment objective is to
seek current income consistent with preservation of capital.
o The Virginia Municipal Bond Fund's investment objective is to seek
as high a level of current income that is exempt from federal
income tax and Virginia income tax as is consistent with the
preservation of capital.
Central Fidelity National Bank ("CFNB"), Richmond, Virginia, acts as
the investment adviser to each of the Funds. BISYS Fund Services, Inc.
("BISYS") acts as the Funds' administrator and distributor.
Shares of the Funds
o are not FDIC insured;
o are not deposits, other obligations of, or guaranteed by CFNB; and
o are subject to investment risks, including the possible loss of
the principal amount invested.
There can be no assurance that the Money Market Fund will be able to
maintain a stable net asset value of $1.00 per share.
Additional information about the Funds, contained in a Statement of
Additional Information, has been filed with the Securities and Exchange
Commission (the "Commission") and is available upon request without charge by
writing to the Funds at their address or by calling the Funds at the
telephone number shown above. The Statement of Additional Information bears
the same date as this Prospectus and is incorporated by reference in its
entirety into this Prospectus.
This Prospectus sets forth concisely the information about the Funds
that a prospective investor ought to know before investing. Investors should
read this Prospectus and retain it for future reference.
----------------
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
----------------
The date of this Prospectus is March 31, 1997.
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<PAGE>
PROSPECTUS SUMMARY
Shares Offered.................. The Funds are four investment portfolios of
MarketWatch (a Massachusetts business
trust), which issues shares of beneficial
interest ("Shares") representing
interests in these investment portfolios.
Offering Price.................. The public offering price for Shares of
the Equity, Intermediate Fixed Income and
Virginia Municipal Bond Funds is equal to
the net asset value per Share plus a
sales charge equal to 4.50% of the public
offering price (4.71% of the net amount
invested), reduced on investments of
$100,000 or more (see "SALES CHARGES");
provided, however that under certain
circumstances, the sales charge may be
reduced or eliminated (see "REDUCED SALES
CHARGES" and "SALES CHARGE WAIVERS"). The
public offering price for Shares of the
Money Market Fund is equal to the net
asset value per Share, which that Fund
will seek to maintain at $1.00.
Minimum Purchase................ The minimum initial investment is generally
$1,000. The minimum amount for subsequent
investments is generally $100.
Type of Company................. The Virginia Municipal Bond Fund is a
non-diversified series of MarketWatch.
Each of the other Funds is a diversified
series of MarketWatch. MarketWatch is an
open-end, management investment company.
Investment Objectives........... The Money Market Fund seeks current income
consistent with maintaining liquidity and
stability of principal. The Equity Fund
seeks total return through growth of
capital and current income. The
Intermediate Fixed Income Fund seeks
current income consistent with
preservation of capital. The Virginia
Municipal Bond Fund seeks as high a level
of current income that is exempt from
federal income tax and Virginia income
tax as is consistent with the
preservation of capital.
Investment Policies............. The Money Market Fund invests exclusively
in short-term U.S. dollar- denominated
obligations issued by the U.S. Treasury
and repurchase agreements with respect
thereto. Under normal market conditions,
the Equity Fund invests substantially
all, but in no event less than 65%, of
its assets in equity securities, which
are defined as common stocks, securities
convertible into common stocks, warrants
and any rights to purchase common stocks.
The remainder of the Equity Fund's assets
may be invested in any combination of
nonconvertible fixed income securities,
repurchase agreements, and options
transactions. Under normal market
conditions, the Intermediate Fixed Income
Fund invests primarily in debt securities
that generally have a stated maturity or
estimated average life of 10 years or
less and expects to maintain a
dollar-weighted average portfolio
maturity of 3 to 10 years. Under normal
market conditions, the Virginia Municipal
Bond Fund invests primarily in debt
obligations issued by the
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<PAGE>
Commonwealth of Virginia, its political
subdivisions, municipalities and public
authorities.
Investment Adviser.............. Central Fidelity National Bank
Dividends and
Capital Gains................. Dividends from net income for the Money
Market Fund are declared daily and paid
monthly. Dividends from net income for
all other Funds (the "Non-Money Funds")
are declared and paid monthly. Net
realized capital gains for all of the
Funds, if any, are distributed at least
annually.
Distributor..................... BISYS Fund Services, Inc.
<TABLE>
<CAPTION>
FEE TABLE
Intermediate Virginia
Money Fixed Municipal
Market Equity Income Bond
Fund Fund Fund Fund
------ ------ ----------- ---------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price)..................... None 4.50% 4.50% 4.50%
Annual Fund Operating Expenses (as a percentage of
offering price)
Advisory Fees After Fee Waivers*................ .-0-% .74% .48% .39%
12b-1 Fees........................................ .-0-% .25% .25% .25%
Other Expenses After Fee Waivers and
Expense Reimbursements*....................... .32 % .36% .36% .40%
Total Fund Operating Expenses After Fee
Waivers and Expense Reimbursements*........... .32 % 1.35% 1.09% 1.04%
==== ==== ==== ====
<FN>
- ---------------
* "Other Expenses After Fee Waivers and Expense Reimbursements" include
administration fees. The Management and Administration Agreement
provides that administration fees will not exceed .20% of each Fund's
average net assets (See "MANAGEMENT OF MARKETWATCH -- Administrator and
Distributor").
As a result of the payment of Sales Loads and 12b-1 Fees, long-term
Shareholders may pay more than the economic equivalent of the maximum
front-end sales charge permitted by the National Association of
Securities Dealers, Inc. (the "NASD"). The NASD has adopted rules which
generally limit the aggregate sales charges and payments under
MarketWatch's Distribution and Services Plan to a certain percent of
total new gross Share sales, plus interest. The Funds would stop
accruing 12b-l Fees if, to the extent, and for as long as, such limit
would otherwise be exceeded.
</TABLE>
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<PAGE>
Example
You would pay the following expenses on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Fund $ 3 $10 $ 18 $ 41
Equity Fund $58 $86 $116 $200
Intermediate Fixed Income Fund $56 $78 $102 $172
Virginia Municipal Bond Fund $55 $77 $100 $166
</TABLE>
The purpose of the above table is to assist a potential purchaser of
a Fund's Shares in understanding the various costs and expenses that an
investor in such Fund will bear directly or indirectly. Such expenses do not
include a fee of $ 12.00, charged by CFNB, as Custodian, for each redemption
paid by electronic transfer or any fees charged by CFNB or any of its
affiliates to its customer accounts which may have invested in Shares of the
Funds. The information set forth in the Fee Table above for each Fund is
based on the advisory fees, administration fees, 12b-1 fees, and other
expenses payable by each Fund after fee waivers and expense reimbursements
for the fiscal year ended November 30, 1996. CFNB and/or BISYS have
undertaken to waive fees and reimburse expenses until at least November 30,
1997 to the extent the Total Fund Operating Expenses for a Fund exceed the
amount shown in the table. CFNB and/or BISYS may change or terminate such fee
waivers and expense reimbursements at any time after November 30, 1997.
Absent fee waivers and expense reimbursements, for the Money Market, Equity,
Intermediate Fixed Income, and Virginia Municipal Bond Funds, Advisory Fees
would have been .50%, 1.00%, .74%, and .74%, respectively, Other Expenses
would have been .62%, .66%, .66%, and .70%, respectively, and Total Fund
Operating Expenses would have been 1.12%, 1.66%, 1.40%, and 1.44%,
respectively, of the Funds' average net assets. (See "MANAGEMENT OF
MARKETWATCH" and "GENERAL INFORMATION" for a more complete discussion of the
transaction expenses and annual operating expenses for shareholders in each
of the Funds (the "Shareholders").)
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES. ACTUAL INVESTMENT RETURN AND OPERATING EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN.
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<PAGE>
FINANCIAL HIGHLIGHTS
The financial information included in the table below has been
derived from the financial statements included in the Statement of Additional
Information and has been audited by KPMG Peat Marwick LLP, MarketWatch's
independent auditors. This financial information should be read in
conjunction with such financial statements. Further information about the
performance of the Funds is available in the annual report to Shareholders.
Both the Statement of Additional Information and the annual report to
Shareholders may be obtained from MarketWatch free of charge by calling the
number on the front cover of this Prospectus.
The table below sets forth selected financial data for a Fund Share
outstanding throughout each period presented.
<TABLE>
<CAPTION>
Year or Period Ended November 30,
---------------------------------
MONEY MARKET FUND EQUITY FUND
-------------------------------------- -----------------------------------------
1996 1995 1994 1993(a) 1996 1995 1994 1993(b)
-------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 12.88 $ 9.80 $ 10.20 $ 10.00
------- ------- ------- ------- -------- -------- -------- --------
Investment Activities:
Net investment income ............ 0.049 0.052 0.034 0.020 0.15 0.17 0.17 0.15
Net realized and unrealized gains
(losses) from investments ...... -- -- -- -- 3.67 3.09 (0.40) 0.19
------- ------- ------- ------- -------- -------- -------- --------
Total from Investment Activities . 0.049 0.052 0.034 0.020 3.82 3.26 (0.23) 0.34
------- ------- ------- ------- -------- -------- -------- --------
Distributions:
From net investment income ....... (0.049) (0.052) (0.034) (0.020) (0.15) (0.17) (0.17) (0.14)
------- ------- ------- ------- -------- -------- -------- --------
In excess of net Investment
Income ......................... -- -- -- -- -- (0.01) -- --
From net realized gains .......... -- -- -- -- (0.14) -- -- --
In excess of net realized gains -- -- -- -- -- -- -- --
------- ------- ------- ------- -------- -------- -------- --------
Total Distributions ................ (0.049) (0.052) (0.034) (0.020) (0.29) (0.18) (0.17) (0.14)
------- ------- ------- ------- -------- -------- -------- --------
Net Asset Value, End of Period ..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 16.41 $ 12.88 $ 9.80 $ 10.20
======= ======= ======= ======= ======== ======== ======== ========
Total Return(c) .................... 4.99% 5.32% 3.49% 2.01%(d) 30.10% 33.59% (2.26%) 3.42%(d)
------- ------- ------- ------- -------- -------- -------- --------
Ratios/Supplementary Data:
Net Assets at end of period (000) $13,721 $13,445 $11,364 $16,041 $186,147 $119,484 $103,140 $107,859
Ratio of expenses to average net
assets ......................... 0.32% 0.32% 0.32% 0.63%(e) 1.35% 1.35% 1.35% 1.33%(e)
Ratio of net investment income to
average net assets ............. 4.89% 5.19% 3.39% 2.37%(e) 1.04% 1.58% 1.75% 1.75%(e)
Ratio of expenses to average net
assets* ........................ 1.12% 1.54% 1.65% 1.59%(e) 1.66% 1.71% 1.75% 1.72%(e)
Ratio of net investment income to
average net assets* ............ 4.09% 3.97% 2.06% 1.40%(e) 0.73% 1.22% 1.34% 1.36%(e)
Portfolio Turnover ............... -- -- -- -- 12.33% 29.98% 30.33% 29.72%
Average Commission Rate paid(f)... N/A N/A N/A N/A 0.063366 -- -- --
<FN>
- -----------------
* During the period, certain fees were voluntarily reduced. In addition,
certain fees were voluntarily reimbursed. If such voluntary fee
reductions and reimbursements had not occurred, the ratios would have
been as indicated.
(a) The Money Market Fund commenced operations on February 1, 1993.
(b) The Equity Fund commenced operations on January 29, 1993.
(c) Excludes sales charge.
(d) Not Annualized.
(e) Annualized.
(f) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased
and sold for which commissions were charged. Calculations not required
for prior periods.
N/A Not applicable.
</TABLE>
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<TABLE>
<CAPTION>
Year or Period Ended November 30,
---------------------------------
INTERMEDIATE FIXED INCOME FUND VIRGINIA MUNICIPAL BOND FUND
-------------------------------------- ---------------------------------------
1996 1995 1994 1993(a) 1996 1995 1994 1993(b)
-------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.07 $ 9.31 $ 10.20 $ 10.00 $ 10.25 $ 9.40 $ 10.31 $ 10.00
------- ------- ------- ------- ------- ------- ------- -------
Investment Activities:
Net investment income ............ 0.55 0.55 0.44 0.33 0.44 0.42 0.38 0.28
Net realized and unrealized gains
(losses) from investments ...... (0.11) 0.76 (0.79) 0.19 (0.10) 0.85 (0.90) 0.30
------- ------- ------- ------- ------- ------- ------- -------
Total from Investment Activities . 0.44 1.31 (0.35) 0.52 0.34 1.27 (0.52) 0.58
------- ------- ------- ------- ------- ------- ------- -------
Distributions:
From net investment income ....... (0.55) (0.54) (0.43) (0.32) (0.44) (0.42) (0.38) (0.27)
------- ------- ------- ------- ------- ------- ------- -------
In excess of net Investment
Income ......................... -- (0.01) (0.01) -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
In excess of net realized gains .. -- -- (0.10) -- -- -- (0.01) --
------- ------- ------- ------- ------- ------- ------- -------
Total Distributions .............. (0.55) (0.55) (0.54) (0.32) (0.44) (0.42) (0.39) (0.27)
------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of Period ..... $ 9.96 $ 10.07 $ 9.31 $ 10.20 $ 10.15 $ 10.25 $ 9.40 $ 10.31
======= ======= ======= ======= ======= ======= ======= =======
Total Return(c) .................... 4.46% 14.44% (3.51%) 5.19%(d) 3.50% 13.79% (5.17%) 5.84%(d)
------- ------- ------- ------- ------- ------- ------- -------
Ratios/Supplementary Data:
Net Assets at end of period (000) $43,277 $35,796 $48,730 $64,674 $70,378 $54,041 $39,978 $33,652
Ratio of expenses to average net
assets ......................... 1.09% 1.10% 1.09% 1.08%(e) 1.04% 1.05% 1.04% 1.02%(e)
Ratio of net investment income to
average net assets ............. 5.62% 5.60% 4.46% 3.92%(e) 4.45% 4.33% 3.90% 3.65%(e)
Ratio of expenses to average net
assets* ........................ 1.40% 1.51% 1.49% 1.47%(e) 1.44% 1.51% 1.56% 1.66%(e)
Ratio of net investment income to
average net assets* ............ 5.31% 5.19% 4.07% 3.53%(e) 4.05% 3.87% 3.38% 3.01%(e)
Portfolio Turnover ............... 83.76% 43.65% 55.36% 57.40% 36.99% 77.50% 87.36% 86.08%
<FN>
- -----------------
* During the period, certain fees were voluntarily reduced. In addition,
certain fees were voluntarily reimbursed. If such voluntary fee
reductions and reimbursements had not occurred, the ratios would have
been as indicated.
(a) The Intermediate Fixed Income Fund commenced operations on January 29, 1993.
(b) The Virginia Municipal Bond Fund commenced operations on
February 1,1993.
(c) Excludes sales charge.
(d) Not Annualized.
(e) Annualized.
</TABLE>
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<PAGE>
INVESTMENT OBJECTIVES, POLICIES, AND RISK CONSIDERATIONS
In General
The investment objectives of the Funds are fundamental policies and,
as such, may not be changed without an affirmative vote of the holders of a
majority of the outstanding Shares of each Fund (as defined in the Statement
of Additional Information). The other policies of the Funds may be changed
without a vote of the holders of a majority of Shares unless (l) the policy
is expressly deemed to be a fundamental policy of a Fund or (2) the policy is
expressly deemed to be changeable only by such majority vote. There can be no
assurance that the investment objective of a Fund will be achieved.
Money Market Fund
The investment objective of the Money Market Fund is to seek current
income consistent with maintaining liquidity and stability of principal. The
Fund seeks to maintain a stable net asset value of $1.00 per Share.
The Money Market Fund invests exclusively in obligations issued by
the U.S. Treasury which have remaining maturities of 397 calendar days
(thirteen months) or less (as determined in accordance with the rules of the
Commission), and in repurchase agreements with respect to such obligations.
The dollar-weighted average maturity of the obligations held by the Fund will
not exceed 90 days.
The Money Market Fund invests in bills, notes and bonds issued by the
U.S. Treasury, as well as "stripped" U.S. Treasury obligations offered under
the STRIPS or CUBES programs representing either future interest or principal
payments. These stripped securities are direct obligations of the U.S.
Government and clear through the Federal Reserve book-entry system. Stripped
securities are issued at a discount to their face value and may exhibit
greater price volatility than ordinary debt securities because of the manner
in which their principal and interest are returned to investors.
Equity Fund
The investment objective of the Equity Fund is to seek total return
through growth of capital and current income. Under normal market conditions,
the Equity Fund invests substantially all, but in no event less than 65%, of
its assets in equity securities, including common stocks, securities
convertible into common stocks, warrants, and any rights to purchase common
stocks. The remainder of the Fund's assets may be invested in any combination
of non-convertible fixed income securities, repurchase agreements, and
options transactions. Non-convertible fixed income securities will consist of
(l) corporate notes, bonds, and debentures that are rated high grade at the
time of purchase (i.e., within the three highest rating categories assigned
by a nationally recognized statistical rating organization ("NRSRO")) or, if
unrated, are deemed by CFNB to be of comparable quality to those securities
that are rated high grade and (2) U.S. Treasury bills, notes and bonds that
are issued or guaranteed by the U.S. Government, its agencies, or
instrumentalities.
CFNB selects securities based on a number of factors, including
return on equity, price to earnings ratio, dividend paying ability, and
liquidity. Stocks purchased for the Equity Fund may be listed on a national
securities exchange or may be unlisted securities with an established
over-the-counter market. A convertible security may be purchased for the Fund
when, in CFNB's opinion, the price and yield of the convertible security is
favorable compared with the price and yield of the common stock. Because the
market value of fixed income securities can be expected to vary inversely to
changes in prevailing interest rates, investing in such fixed income
securities can provide an opportunity for capital appreciation when interest
rates are expected to decline. Subject to the foregoing limitations, the Fund
may indirectly invest in foreign securities through the
-8-
<PAGE>
purchase of American Depository Receipts ("ADRs") and European Depository
Receipts ("EDRs") and may also invest in securities issued by foreign
branches of U.S. banks and foreign banks, in Canadian commercial paper, and
in Europaper (U.S. dollar-denominated commercial paper of a foreign issuer).
The stocks or securities in which the Fund invests may be expected to produce
some income, but income alone is not the primary criterion in their
selection.
The Equity Fund may, for daily cash management purposes, invest in
high quality money market securities and in repurchase agreements. In
addition, the Fund may invest, without limit, in any combination of U.S.
Government securities, money market securities, and repurchase agreements
when, in the opinion of CFNB, it is determined that a temporary defensive
position is warranted based upon current market conditions. To the extent
permitted by the Investment Company Act of 1940, as amended (the "1940 Act")
and the Commission, the Fund may also invest in other investment portfolios
advised by CFNB, as described more fully under "Other Investment Policies."
Special Considerations and Risk Factors. The principal risk factors
associated with an investment in the Equity Fund are price fluctuations of
equity securities, interest rate risk of fixed income securities, and any
foreign risks that may be associated directly or indirectly with foreign
securities. In general, the Fund's stocks and securities will be diversified
over a number of industry groups in an effort to reduce the risks inherent in
such investments. For additional information regarding the special risks
associated with investments in foreign securities, see "INVESTMENT
OBJECTIVES, POLICIES, AND RISK CONSIDERATIONS -- Additional Information on
Portfolio Instruments -- Foreign Investments" in the Statement of Additional
Information.
Intermediate Fixed Income Fund
The investment objective of the Intermediate Fixed Income Fund is to
seek current income consistent with preservation of capital.
Under normal market conditions, the Intermediate Fixed Income Fund
invests substantially all, but in no event less than 65%, of the value of its
total assets in fixed income securities with stated maturities or estimated
average lives of 10 years or less. Such securities may include but are not
limited to, corporate debt securities (including notes, bonds, and
debentures), mortgage-related and other asset-backed securities, and debt
securities issued or guaranteed by the U.S. Government, its agencies, or
instrumentalities. Some of the securities in which the Fund may invest may
have warrants or options attached. The corporate and Government obligations
will generally have a stated or remaining maturity within the maximum
maturity established for the Fund or may have an unconditional redemption
feature that would permit the Fund to require the issuer of the security to
redeem the security within the 10-year period from the date of purchase by
the Fund. The Fund may also acquire corporate and Government obligations with
a stated or remaining maturity in excess of its maximum maturity if it also
acquires an unconditional put to sell the security within the 10-year period.
The remainder of the Fund's assets may be comprised of high quality money
market instruments (commercial paper, certificates of deposit, and bankers'
acceptances), variable amount master demand notes, variable and floating rate
notes, and state, municipal, or industrial revenue bonds. In addition, the
Fund may engage in certain options transactions, loans of portfolio
securities, repurchase agreements, and reverse repurchase agreements. To the
extent permitted by the 1940 Act and the Commission, the Fund may also invest
in other investment portfolios advised by CFNB. The Intermediate Fixed Income
Fund expects to maintain a dollar-weighted average portfolio maturity of 3 to
10 years.
The types of U.S. Government securities in which the Intermediate
Fixed Income Fund may invest include obligations issued or guaranteed as to
payment of principal and interest by the full faith and credit of the U.S.
Treasury, such as Treasury bills, notes, bonds, and certificates of
indebtedness, and obligations issued or guaranteed by the agencies or
instrumentalities of the U.S. Government, but not supported by such full
faith and credit. Obligations of certain agencies and instrumentalities of
the U.S. Government, such as the Government
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<PAGE>
National Mortgage Association and the Export-Import Bank of the United
States, are supported by the full faith and credit of the U.S. Treasury;
others, such as those of the Federal National Mortgage Association, are
supported by the right of the issuer to borrow from the Treasury; others are
supported by the discretionary authority of the U.S. Government to purchase
the agency's obligations: still others, such as those of the Federal Farm
Credit Banks or the Federal Home Loan Mortgage Corporation, are supported
only by the credit of the instrumentality. No assurance can be given that the
U.S. Government would provide financial support to U.S. Government sponsored
agencies or instrumentalities if it is not obligated to do so by law. The
Fund will invest in the obligations of such agencies or instrumentalities
only when CFNB believes that the credit risk with respect thereto is minimal.
The U.S. Government does not guarantee the market value of any security. The
market value of the Fund's portfolio securities and of the Shares of the Fund
can be expected to fluctuate as interest rates change.
The Intermediate Fixed Income Fund expects to invest in bonds, notes,
and debentures of a wide range of U.S. corporate issuers. Such obligations,
in the case of debentures, represent unsecured promises to pay, in the case
of notes and bonds, may be secured by mortgages on real property or security
interests in personal property and in most cases differ in their interest
rates, maturities, and times of issuance. The Fund invests in such corporate
debt securities only if they carry a rating at the time of purchase in one of
the four highest rating categories assigned by an NRSRO or, if not rated,
which CFNB deems to be of comparable quality.
The Intermediate Fixed Income Fund may purchase mortgage-related
securities with stated maturities in excess of 10 years. Mortgage-related
securities include collateralized mortgage obligations and participation
certificates in pools of mortgages. The average life of mortgage-related
securities varies with the maturities of the underlying mortgage instruments,
which have maximum maturities of 40 years. The average life is likely to be
substantially less than the original maturity of the mortgage pools
underlying the securities as the result of mortgage prepayments. The rate of
such prepayments, and hence the average life of the certificates, will be a
function of current market interest rates and current conditions in the
relevant housing markets. Estimated average life will be determined by CFNB,
and will be used in determining the Fund's dollar weighted average maturity.
Various independent mortgage-related securities dealers publish estimated
average life data using proprietary models and, in making such
determinations, CFNB will rely on such data except to the extent such data
are deemed unreliable by CFNB. CFNB might deem data unreliable which appeared
to present a significantly different estimated average life for a security
than data relating to the estimated average life of comparable securities as
provided by other independent mortgage-related securities dealers.
Mortgage-related securities may be issued by governmental and
non-governmental entities, and will be purchased only if they carry a rating
at the time of purchase in one of the four highest rating categories
assigned by a NRSRO or, if unrated, which CFNB deems to present attractive
opportunities and be of comparable quality.
The Intermediate Fixed Income Fund may also invest in other
asset-backed securities, which are interests in pools of receivables, such as
motor vehicle installment purchase obligations (known as Certificates of
Automobile Receivables or CARS) and credit card receivables (known as
Certificates of Amortizing Revolving Debts or CARDS). These securities are
generally issued as pass-through certificates, which represent undivided
fractional ownership interests in the underlying pools of assets. These
securities may also be collateralized debt obligations which are generally
issued as the debt of a special purpose entity organized solely for the
purpose of owning such assets and issuing such debt. These asset-backed
securities are not issued or guaranteed by the U.S. Government , its
agencies, or instrumentalities; however, the payment of principal and
interest on such obligations may be guaranteed up to certain amounts and for
a certain time period by a letter of credit issued by a financial institution
(such as a bank or insurance company) unaffiliated with the issuers of such
securities. These securities will be purchased by the Fund only when rated in
one of the four highest rating categories assigned by a NRSRO at the time of
purchase or, if unrated, when CFNB deems them to present attractive
opportunities and be of comparable quality. They may be purchased by the Fund
if the
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estimated average life is determined not to exceed 10 years. CFNB will limit
purchases of asset-backed securities to securities that are readily
marketable at the time of purchase.
The Intermediate Fixed Income Fund may purchase commercial paper
rated at the time of purchase in the highest rating category assigned by a
NRSRO or, if not rated, which CFNB deems to be of comparable quality.
For temporary defensive purposes, the Fund may invest all or any
portion of its assets in money market instruments and repurchase agreements
when, in the opinion of CFNB, it is in the best interests of the Fund to do
so.
At the time of purchase of a debt security, the Fund may acquire a
put with respect to such debt security. Under a put, the Fund would have the
right to sell the debt security within a specified period of time at a
specified minimum price. The Fund will only acquire puts from banks and
broker-dealers which CFNB has determined are creditworthy. A put will be
sold, transferred, or assigned by the Fund only with the underlying debt
security. The Fund will acquire puts solely to shorten the maturity of the
underlying debt security. The aggregate price of a security subject to a put
may be higher than the price which otherwise would be paid for the security
without such an option, thereby increasing the security's cost and reducing
its yield.
Special Considerations and Risk Factors. The value of the
Intermediate Fixed Income Fund's portfolio securities and the Shares of the
Fund will generally vary inversely with changes in prevailing interest rates.
Because the Fund invests in fixed income securities, it is subject to
interest rate risks to the extent that market interest rates increase.
Like other debt securities, mortgage-related securities are subject
to declines in market value during periods of rising interest rates. However,
due to the possibility of prepayment of the underlying mortgages,
mortgage-related securities have less potential for capital appreciation than
other debt securities of comparable maturities during periods of declining
interest rates. As a result, mortgage-related securities may be less
effective than other fixed income securities as a means of locking in
attractive interest rates for the long term. Mortgage-related obligations
purchased at a premium to par may subject the Intermediate Fixed Income Fund
to losses equal to any unamortized premium if such obligations are repaid
prior to their scheduled maturities. In addition, regular payments received
with respect to mortgage-related securities include both interest and
principal. No assurance can be given as to the return the Fund will receive
when these amounts are reinvested.
Virginia Municipal Bond Fund
The investment objective of the Virginia Municipal Bond Fund is to
seek as high a level of current income that is exempt from federal income tax
and from Virginia income tax as is consistent with the preservation of
capital. To achieve this objective, the Fund invests primarily in Municipal
Securities (as defined below). Under normal market conditions, the Fund
invests at least 80% of its net assets in high-grade debt obligations issued
by or on behalf of the Commonwealth of Virginia and territories and
possessions of the United States and their respective authorities, agencies,
instrumentalities, and political subdivisions ("Municipal Securities"), the
interest on which, in the opinion of bond counsel to the issuer, is exempt
from federal income tax and Virginia income tax. The Fund expects that at
least 65% of the Fund's total assets will be invested in Municipal Securities
issued by or on behalf of the Commonwealth of Virginia and its political
subdivisions, municipalities, and public authorities. Since the Fund's
purchases are limited to investments in high-grade obligations, it will not
acquire lower-grade obligations which may carry higher yields and also
greater risk. There are no maturity limits with respect to securities that
the Fund may purchase, but generally securities will have a remaining
maturity of 30 years or less. A portion of the interest from certain
Municipal Securities may be treated as a preference item for purposes of the
federal alternative minimum tax. Thus, depending upon
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their tax status, certain Shareholders may be subject to the alternative
minimum tax on that part of the Fund's distributions that are derived from
such securities.
The Virginia Municipal Bond Fund will invest in Municipal Securities
that at the time of purchase are (1) rated in one of the three highest rating
categories assigned by a NRSRO, in the case of bonds; (2) rated in one of the
two highest rating categories assigned by a NRSRO, in the case of notes and
variable rate demand notes; (3) rated in the highest rating category assigned
by a NRSRO, in the case of tax-exempt commercial paper; or (4) unrated
obligations if, in the opinion of CFNB, they are of comparable quality to
rated obligations that are eligible for purchase by the Fund.
While, under normal market conditions, at least 80% of the net assets
of the Virginia Municipal Bond Fund will be invested in Municipal Securities,
up to 20% of its net assets may be invested in taxable obligations. For
temporary defensive purposes or if suitable tax-exempt obligations are
unavailable, the Fund may invest all or any portion of its assets in taxable
obligations when, in the opinion of CFNB, it is in the best interests of the
Fund to do so. Such taxable obligations will consist of obligations issued or
guaranteed by the U.S. Government, its agencies, or instrumentalities,
certificates of deposit, time deposits and bankers' acceptances of selected
banks, and commercial paper meeting the Fund's quality standards (as
described above) for tax-exempt commercial paper. In addition, such taxable
obligations may be subject to repurchase agreements which are described
below.
The Virginia Municipal Bond Fund may acquire puts with respect to
Municipal Securities held in its portfolio. Under a put, the Fund would have
the right to sell a specified security within a specified period of time at a
specified price to a third party. A put would be sold, transferred, or
assigned only with the underlying security. The Virginia Municipal Bond Fund
will acquire puts solely to facilitate portfolio liquidity, shorten the
maturity of the underlying securities, or permit the investment of the Fund's
assets at a more favorable rate of return. The aggregate price of a security
subject to a put may be higher than the price which otherwise would be paid
for the security without such an option, thereby increasing the security's
cost and reducing its yield.
Municipal Securities. The two principal classifications of Municipal
Securities in which the Virginia Municipal Bond Fund may invest are general
obligation and revenue bonds. General obligation bonds are secured by the
issuer's pledge of its full faith, credit, and taxing power for the payment
of principal and interest. Revenue bonds are payable only from the revenues
derived from a particular facility or class of facilities or, in some cases,
from the proceeds of a special excise or other tax, but not from general tax
revenues.
The Fund may also purchase moral obligation bonds, which are normally
issued by special purpose public authorities. If the issuer of moral
obligation bonds is unable to meet its debt service obligations from current
revenues, it may draw on a reserve fund, the restoration of which is a moral
commitment but not a legal obligation of the state or municipality which
created the issuer.
The Fund may invest in private activity bonds (e.g., bonds issued by
industrial development authorities) that are issued by or on behalf of public
authorities to finance various privately-operated facilities. Private
activity bonds held by the Fund are, in most cases, revenue securities and
are not payable from the unrestricted revenues of the issuer. Consequently,
the credit quality of private activity bonds is usually directly related to
the credit standing of the corporate user of the facility involved.
Special Considerations and Risk Factors. The value of the Virginia
Municipal Bond Fund's portfolio securities and the Shares of the Fund will
generally vary inversely with changes in prevailing interest rates. Because
the Fund invests in fixed income securities, it is subject to interest rate
risks to the extent that market interest rates increase.
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The classification of the Virginia Municipal Bond Fund under the 1940
Act as a "non-diversified" investment company allows it to invest more than
5% of its assets in the securities of any issuer. However, the Fund intends
to diversify its holdings in accordance with Subchapter M of Subtitle A,
Chapter 1, of the Internal Revenue Code of 1986, as amended (the "Code"). In
effect, Subchapter M requires that at the close of each quarter of the
taxable year (i) the Fund's holdings of individual issuers (excluding U.S.
Government securities, securities of other regulated investment companies and
certain cash items as defined therein), which represent more than 5% of the
Fund's total assets, must not, in the aggregate, exceed 50% of the Fund's
total assets, and (ii) the holdings of any individual issuer (excluding U.S.
Government securities) must not exceed 25% of the Fund's total assets. To the
extent that the Fund's holdings in Municipal Securities are concentrated in a
limited number of issuers, the Fund could be exposed to a greater credit risk
than an investment company classified as "diversified" under the 1940 Act. In
addition, because the Virginia Municipal Bond Fund invests primarily in
securities issued by the Commonwealth of Virginia and its political
subdivisions, municipalities and public authorities, the Fund's performance
is closely tied to the general economic conditions within the Commonwealth as
a whole and to the economic conditions within particular industries and
geographic areas represented or located within the Commonwealth.
The rate of economic growth in the Commonwealth of Virginia has
slowed in the 1990's compared to the late 1980's. From 1986 to 1995, the
Commonwealth's 5.0% rate of growth in per capita personal income was
approximately equal to the national rate of growth. In 1995, Virginia's
growth rate was 4.9% compared to 5.0% for the nation. Per capita income in
Virginia has been consistently above national levels over the past decade
and, in 1995, was $23,597 compared with the national average of $22,788.
The services sector in Virginia generates the largest number of jobs,
followed by wholesale and retail trade, government employment, and
manufacturing. Employment in the services sector increased by 19.1 percent
from 1991 to 1995, making it the fastest growing sector in the Commonwealth.
Because of Virginia's proximity to Washington, D.C. and the concentration of
military installations in the Hampton Roads area of the Commonwealth (the
largest such concentration in the United States), the Federal Government has
a greater economic impact on Virginia relative to its size than on any of the
other states except Alaska and Hawaii.
According to statistics published by the U.S. Department of Labor,
the Commonwealth typically has one of the lowest unemployment rates in the
nation. This is generally attributed to the balance among the various sectors
represented in the economy. During 1995, an average of 4.5% of Virginians
were unemployed as compared with the national average of 5.6%. The population
of the state has continued to grow over the last decade at a rate that is
higher than the national average. During the last decade, the rate of
increase in such population growth reached a high of 2.1% annually in 1987
and, in 1995, was approximately 1.4%.
Virginia is one of twenty states with a right-to-work law and is
generally regarded as having a favorable business climate marked by few
strikes or work stoppages. Virginia is also one of the least unionized among
the industrialized states. The percentage of non-agricultural employees who
belong to unions in the Commonwealth has been approximately half the national
average.
Currently, NRSROs assign their highest rating to general obligation
bonds issued by the Commonwealth of Virginia, reflecting in part, its sound
fiscal management, diversified economic base and low debt ratios. There can
be no assurance that the economic conditions on which these ratings are based
will continue or that particular bond issues may not be adversely affected by
changes in economic or political conditions. Furthermore, the Virginia
Municipal Bond Fund also invests in securities issued by the political
subdivisions, municipalities and public authorities of the Commonwealth of
Virginia, all of which are separately rated (if rated at all) by NRSROs. More
detailed information about matters relating to the Virginia Municipal Bond
Fund is contained in the Statement of Additional Information.
Although the Virginia Municipal Bond Fund does not presently intend
to do so on a regular basis, it may invest more than 25% of its total assets
in Municipal Securities, the interest on which is paid solely from
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revenues of similar projects if such investment is deemed necessary or
appropriate by CFNB. To the extent that more than 25% of the Fund's total
assets are invested in Municipal Securities that are payable from the
revenues of similar projects, the Fund will be subject to the peculiar risks
presented by such projects to a greater extent than it would be if its assets
were not so concentrated.
Other Investment Policies of the Funds
Repurchase Agreements. Securities held by each of the Funds may be
subject to repurchase agreements. Under the terms of a repurchase agreement,
a Fund would acquire securities from member banks of the Federal Deposit
Insurance Corporation and from registered broker-dealers which CFNB deems
creditworthy under guidelines approved by MarketWatch's Board of Trustees.
The seller agrees to repurchase such securities at a mutually agreed upon
date and price. The repurchase price generally equals the price paid by a
Fund plus interest negotiated on the basis of current short-term rates, which
may be more or less than the rate on the underlying portfolio securities.
Although the securities subject to a repurchase agreement to which the Money
Market Fund may be a party may bear maturities exceeding thirteen months,
settlement for such repurchase agreement will never be more than one year
after that Fund's acquisition of the securities and normally will be within a
shorter period of time. Securities subject to repurchase agreements must be
of the same type and quality as those in which such Fund may invest directly.
Such securities will be held in a segregated account. The seller under a
repurchase agreement will be required to maintain at all times the value of
collateral held pursuant to the agreement at an amount at least equal to the
repurchase price (including accrued interest). This requirement will be
continually monitored by CFNB. If the seller were to default on its
repurchase obligation or become insolvent, that Fund would suffer a loss if
the proceeds from a sale of the underlying portfolio securities were less
than the repurchase price under the agreement or the disposition of such
securities by such Fund were delayed pending court action. Repurchase
agreements are considered to be loans by an investment company under the 1940
Act. For further information about repurchase agreements, see "INVESTMENT
OBJECTIVES, POLICIES AND RISK CONSIDERATIONS -- Additional Information on
Portfolio Instruments -- Repurchase Agreements" in the Statement of
Additional Information.
Reverse Repurchase Agreements. Each of the Funds may borrow funds for
temporary purposes by entering into reverse repurchase agreements in
accordance with the investment restrictions described below. Pursuant to such
agreements, a Fund would sell certain of its securities to financial
institutions such as banks and broker-dealers, and agree to repurchase them
at a mutually agreed upon date and price. At the time a Fund enters into a
reverse repurchase agreement, it will place in a segregated custodial account
assets such as U.S. Government securities or other liquid high grade debt
securities consistent with its investment restrictions having a value equal
to the repurchase price (including accrued interest), and will subsequently
continually monitor the account to ensure that such equivalent value is
maintained at all times. Reverse repurchase agreements involve the risk that
the market value of securities sold by a Fund may decline below the price at
which it is obligated to repurchase the securities. Reverse repurchase
agreements are considered to be borrowings by an investment company under the
1940 Act. For further information about reverse repurchase agreements, see
"INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS -- Additional
Information on Portfolio Instruments -- Reverse Repurchase Agreements" in the
Statement of Additional Information.
Options. Each Fund (except for the Money Market Fund) may purchase or
sell index options for hedging purposes only. Index options (or options on
securities indices) are similar in many respects to options on securities
except that an index option gives the holder the right to receive, upon
exercise, cash instead of securities, if the closing level of the securities
index upon which the option is based is greater than, in the case of a call,
or less than, in the case of a put, the exercise price of the option.
The Equity Fund may also engage in writing call options from time to
time as CFNB deems appropriate. That Fund will write only covered call
options (options on securities owned by the Fund). When the Fund writes a
covered call option and such option is exercised, the Fund will forego the
appreciation, if
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any, on the underlying security in excess of the exercise price. In order to
close out a call option it has written, the Fund will enter into a "closing
purchase transaction" -- the purchase of a call option on the same security
with the same exercise price and expiration date as the call option which the
Fund previously wrote on any particular securities. When a portfolio security
subject to a call option is sold, the Fund will effect a closing purchase
transaction to close out any existing call option on that security. If the
Fund is unable to effect a closing purchase transaction, it will not be able
to sell the underlying security until the option expires or the Fund delivers
the underlying security upon exercise. Under normal conditions, it is not
expected that the Equity Fund would permit the underlying value of its
portfolio securities subject to such index options or covered call options to
exceed 25% of its net assets.
Securities Lending. In order to generate additional income, each of
the Funds may, from time to time, lend its portfolio securities to
broker-dealers, banks, or institutional borrowers of securities. A Fund must
receive 102% collateral in the form of cash or U.S. Government securities.
This collateral will be valued daily by CFNB. Should the market value of the
loaned securities increase, the borrower must furnish additional collateral
to that Fund. During the time portfolio securities are on loan, the borrower
pays that Fund any dividends or interest received on such securities. Loans
are subject to termination by such Fund or the borrower at any time. While a
Fund does not have the right to vote securities on loan, each Fund intends to
terminate the loan and regain the right to vote if that is considered
important with respect to the investment. While the lending of securities may
subject a Fund to certain risks, such as delays or an inability to regain the
securities in the event the borrower were to default or enter into
bankruptcy, the Fund will retain the collateral described above. A Fund will
enter into loan agreements only with broker-dealers, banks, or other
institutions that CFNB has determined are creditworthy under guidelines
established by MarketWatch's Board of Trustees. Such loans will not be made
if, as a result, the aggregate of all outstanding loans of a Fund exceeds in
the case of the Money Market Fund, 5% of the value of its total assets, and
in the case of each other Fund, 30% of the value of its total assets.
When-issued and Delayed-delivery Securities. Each of the Non-Money
Funds may purchase securities on a when-issued or delayed-delivery basis.
These transactions are arrangements in which a Fund purchases securities with
payment and delivery scheduled for a future time. A Fund will engage in
when-issued and delayed-delivery transactions only for the purpose of
acquiring portfolio securities consistent with its investment objective and
policies, not for investment leverage. When-issued securities are securities
purchased for delivery beyond the normal settlement date at a stated price
and yield and thereby involve a risk that the yield obtained in the
transaction will be less than those available in the market when delivery
takes place. A Fund will generally not pay for such securities or start
earning interest on them until they are received. When a Fund agrees to
purchase such securities, however, its custodian will set aside cash or
liquid securities equal to the amount of the commitment in a separate
account. Securities purchased on a when-issued basis are recorded as an asset
and are subject to changes in the value based upon changes in the general
level of interest rates. In when-issued and delayed-delivery transactions, a
Fund relies on the seller to complete the transaction; the seller's failure
to do so may cause such Fund to miss a price or yield considered to be
advantageous.
Investment Companies. Each of the Funds may also invest up to 10% of
the value of its total assets in the securities of other investment
companies, including Shares of another Fund in the case of the Non-Money
Funds. Although a Fund will not pay any advisory fee to CFNB with respect to
such assets, it will incur additional expenses due to the duplication of
expenses as a result of investing in other investment companies. Additional
restrictions on the Funds' investments in the securities of other investment
companies are contained in the Statement of Additional Information.
Affiliated Transactions. Except to the extent permitted by the 1940
Act and the Commission, MarketWatch will not execute portfolio transactions
through, acquire portfolio securities issued by, make savings deposits in, or
enter into repurchase agreements or reverse repurchase agreements with, CFNB,
BISYS, or their affiliates (as such term is defined in the 1940 Act). In
addition, with respect to such transactions,
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securities, deposits, and agreements, MarketWatch will not give preference to
CFNB's correspondents or Participating Organizations with which a Fund has
entered into agreements concerning the provision of administrative support
services to their customers who own of record or beneficially the Fund's
Shares. (See "MANAGEMENT OF MARKETWATCH -- Distribution Plan.")
Ratings. For a complete description of the ratings assigned to
securities in which the Funds may invest, see the Appendix to the Statement
of Additional Information.
INVESTMENT RESTRICTIONS
Each Fund is subject to a number of fundamental investment
restrictions that may be changed only by the affirmative vote of a majority
of the outstanding Shares of that Fund (as defined in the Statement of
Additional Information). Other fundamental investment restrictions are set
forth under "INVESTMENT OBJECTIVES, POLICIES AND RISK CONSIDERATIONS --
Investment Restrictions" in the Statement of Additional Information.
The Funds will not:
1. Borrow money or issue senior securities, except that each Fund
may borrow from banks or enter into reverse repurchase
agreements for temporary purposes in amounts up to 10% of the
value of its total assets at the time of such borrowing; or
mortgage, pledge, or hypothecate any assets, except in
connection with any such borrowing and in amounts not in
excess of the lesser of the dollar amounts borrowed or 10% of
the value of such Fund's total assets at the time of its
borrowing. A Fund will not purchase securities while its
borrowings (including reverse repurchase agreements) exceed 5%
of its total assets.
2. Make loans, except that each Fund may purchase or hold debt
instruments and lend portfolio securities in accordance with
its investment objective and policies, and may enter into
repurchase agreements.
The Money Market Fund will not:
1. Invest in a security if, as a result of such investment, more
than 5% of its total assets (taken at market value at the time
of such investment) would be invested in the securities of any
one issuer, except that this restriction does not apply to
securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities (or repurchase agreements with
respect thereto).
Neither the Equity Fund nor the Intermediate Fixed Income Fund will:
1. Purchase securities of any one issuer, other than obligations
issued or guaranteed by the U.S. Government, its agencies, or
instrumentalities, if, immediately after such purchase, more
than 5% of the value of the total assets of the Fund would be
invested in such issuer, or hold more than 10% of any class of
securities of the issuer or more than 10% of the outstanding
voting securities of the issuer except that up to 25% of the
value of the total assets of the Fund may be invested without
regard to such restrictions. There is no limit to the
percentage of assets that may be invested in U.S. Treasury
bills, notes, or other obligations issued or guaranteed by the
U.S. Government, its agencies, or instrumentalities.
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2. Purchase any securities which would cause more than 25% of the
value of the Fund's total assets at the time of purchase to be
invested in securities of one or more issuers conducting their
principal business activities in the same industry, provided
that (a) there is no restriction with respect to obligations
issued or guaranteed by the U.S. Government, its agencies, or
instrumentalities and repurchase agreements secured by
obligations of the U.S. Government, its agencies, or
instrumentalities; (b) wholly owned finance companies will be
considered to be in the industries of their parents if their
activities are primarily related to financing the activities
of their parents; and (c) utilities will be divided according
to their services. For example, gas, gas transmission,
electric and gas, electric, and telephone will each be
considered a separate industry.
The Virginia Municipal Bond Fund will not:
1. Purchase securities of any one issuer if, immediately after
such purchase, more than 5% of the value of the Fund's total
assets would be invested in such issuer, except that up to 50%
of the value of the Fund's total assets may be invested
without regard to this 5% restriction, provided, however, that
no more than 25% of the value of the Fund's total assets are
invested in the securities of any one issuer, and further
provided, however, that these restrictions do not apply to
obligations issued or guaranteed by the U.S. Government, the
Commonwealth of Virginia and their agencies, authorities,
instrumentalities, or other political subdivisions.
For purposes of this restriction 1 a security is considered to
be issued by the government entity (or entities) whose assets and
revenues back the security; with respect to a private activity bond
that is backed only by the assets and revenues of a non-governmental
user, a security is considered to be issued by such non-governmental
user. In accordance with regulations promulgated by the Commission,
the guarantor of a guaranteed security may be considered to be an
issuer in connection with such guarantee.
2. Purchase any securities which would cause 25% or more of the
Fund's total assets at the time of purchase to be invested in
the securities of one or more issuers conducting their
principal business activities in the same industry, provided
that this restriction shall not apply to obligations issued or
guaranteed by the U.S. Government, its agencies, or
instrumentalities (and repurchase agreements secured by
obligations of the U.S. Government, its agencies, and
instrumentalities) or to Municipal Securities or governmental
guarantees of Municipal Securities.
VALUATION OF SHARES
The net asset value of the Money Market Fund is determined and its
Shares are priced as of 12:00 noon and as of the close of trading on the New
York Stock Exchange ("NYSE") (generally, 4:00 p.m., Eastern Time) (each, a
"Valuation Time") on each Business Day. The net asset value of the other
Funds is determined and their Shares are priced as of the close of trading on
the NYSE (a "Valuation Time") on each Business Day. As used herein, a
"Business Day" constitutes any day on which the NYSE is open for trading, and
the Federal Reserve Bank of Richmond is open, except days on which there are
not sufficient changes in the value of a Fund's portfolio securities that the
Fund's net asset value might be materially affected, or days during which no
Shares are tendered for redemption and no orders to purchase Shares are
received. Currently, the NYSE or the Federal Reserve Bank of Richmond is
closed on the following holidays: New Year's Day, Martin Luther King, Jr. Day
(observed), Presidents' Day (observed), Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Columbus Day (observed), Veterans' Day,
Thanksgiving Day, and Christmas Day. Net asset value per Share for purposes
of pricing sales and redemptions is calculated by dividing the value of all
securities and
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other assets belonging to a Fund, less the liabilities charged to that Fund,
by the number of that Fund's outstanding Shares.
The Money Market Fund's assets are valued based upon the amortized
cost method. Pursuant to the rules and regulations of the Commission
regarding the use of the amortized cost method, the Fund will maintain a
dollar-weighted average portfolio maturity of 90 days or less. Although
MarketWatch seeks to maintain the net asset value per Share of the Fund at
$1.00, there can be no assurance that the net asset value will not vary.
The net asset value per Share of each Non-Money Fund will fluctuate
as the value of its investment portfolio changes.
Listed and unlisted securities for which market quotations are readily
available are valued at such market values. Other securities, including
restricted securities and other securities for which market quotations are
not readily available, and other assets are valued at fair value by CFNB
under proceduresestablished by, and under the supervision of MarketWatch's
Board of Trustees.Securities may be valued by an independent pricing service
approved by the Trust's Board of Trustees. Investments in debt securities with
remaining maturities of 60 days or less may be valued based upon the amortized
cost method.
For further information about valuation of investments, see "NET
ASSET VALUE" in the Statement of Additional Information.
HOW TO PURCHASE AND REDEEM SHARES
Purchases of Shares
Shares of the Funds are continuously offered and may be purchased
directly either by mail, by telephone, or by electronic transfer, or may be
purchased through a broker-dealer that has established a dealer agreement
with BISYS, as Distributor. There is no sales charge imposed by the Money
Market Fund in connection with the purchase of Shares. The Non-Money Funds,
however, may impose sales charges in connection with the purchase of Shares
as described in this Prospectus. MarketWatch offers an Individual Retirement
Account and Shareholders interested in establishing such an account should
contact MarketWatch for information as to applications and annual fees.
The minimum investment is generally $1,000 for the initial purchase
of Shares of each Fund by an investor and $100 for subsequent purchases. For
employees (and their spouses and children under the age of 21) of (l) CFNB or
(2) any broker-dealer with which BISYS enters into a dealer agreement to sell
Shares of the Funds, the minimum investment is $100 for initial investments
and $50 for subsequent investments. For purchases made in connection with
Individual Retirement Accounts and defined contribution plans, including
simplified employee, 401(k), profit sharing, and money purchase pension
plans, (collectively, the "Retirement Plans"), the minimum investment amount
for initial purchases is $500 and the minimum for subsequent purchases is
$100. In the case of such retirement plan investments, the minimum purchase
amounts are not restricted to the purchase of Shares of a single Fund. Thus,
the $500 and $100 minimum amounts may be spread among any of the Funds within
MarketWatch. (See "HOW TO PURCHASE AND REDEEM SHARES -- Auto Invest Plan and
Systematic Exchange Program" below for minimum investment requirements under
the Auto Invest Plan and Systematic Exchange Program.) Purchasers of Shares
will pay the next calculated net asset value per Share plus any applicable
sales charges after BISYS, as Distributor, receives an order in good form to
purchase Shares. (See "Sales Charges" for information on applicable sales
charges.)
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Purchases By Mail
To purchase Shares of the Funds by mail, complete an account
application and return it along with a check or money order made payable to
the appropriate Fund to:
MarketWatch Funds
P.O. Box 27252
Richmond, VA 23261-7252
Shareholders may obtain an account application form by calling MarketWatch at
(800) 232-9091. For subsequent purchases, Shareholders may mail to the above
address a purchase ticket, the investment portion of their monthly
statements, or a letter stating that Shareholder's name, address, and account
number.
Purchases By Telephone or Electronic Transfer
Shares of the Funds may be purchased by telephone or by electronic
transfer by calling MarketWatch at (800) 232-9091, if your account
application has been previously received by MarketWatch. Payment for Shares
ordered by telephone may be made by check payable in U.S. dollars and must be
received by MarketWatch at the address above within the time period
prescribed by the settlement requirements of the Securities Exchange Act of
1934. (Currently, the settlement requirement is three business days.) If
payment for the Shares is not received within such time period, or if a check
timely received does not clear, the purchase will be canceled and the
investor could be liable for any losses or fees incurred. When purchasing
Shares by electronic transfer, contact MarketWatch for electronic transfer
instructions.
Other Information Regarding Purchases
Shares of the Funds may also be purchased through procedures
established by BISYS, as Distributor, in connection with the requirements of
qualified accounts maintained by or on behalf of certain persons
("Customers") by CFNB, its related companies or their correspondents
("Entities"). Shares of the Funds sold to the Entities acting in a fiduciary,
advisory, custodial, or other similar capacity on behalf of Customers will
normally be held of record by the Entities. With respect to Shares sold, it
is the responsibility of the holder of record to transmit purchase, exchange,
or redemption orders to MarketWatch and to deliver funds for the purchase
thereof on a timely basis.
Depending upon the terms of the particular Customer account, the
Entities may charge a Customer account fees for services provided in
connection with investments in the Funds. Information concerning these
services and any charges will be provided by the Entities. This Prospectus
should be read in conjunction with any such information so received from the
Entities.
Money Market Fund
Shares of the Money Market Fund are purchased at the net asset value
per Share (see "VALUATION OF SHARES") next determined after receipt by
MarketWatch of an order to purchase Shares in good form. Purchases of Shares
of the Fund will be effected only on a Business Day (as defined in "VALUATION
OF SHARES") of the Fund. An order to purchase Shares will be deemed to have
been received by MarketWatch only when federal funds with respect thereto are
available to the Fund's Custodian for investment. Federal funds are monies
credited to a bank's account with a Federal Reserve Bank. Payment for an
order to purchase Shares which is transmitted by federal funds wire will be
available the same day for investment by CFNB, as Custodian, if received
prior to the last Valuation Time (see "VALUATION OF SHARES"). Payments
transmitted by other means (such as by check drawn on a member of the Federal
Reserve System) will normally be converted into federal funds within two
banking days after receipt. The Fund strongly recommends that investors of
substantial amounts use federal funds to purchase Shares.
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Purchases of Shares of the Money Market Fund will be effected only on
a Business Day (as defined in "VALUATION OF SHARES") of the Fund. An order
received prior to a Valuation Time on any Business Day will be executed at
the net asset value determined as of the next Valuation Time on the date of
receipt. An order received after the last Valuation Time on any Business Day
will be executed at the net asset value determined as of the next Valuation
Time on the next Business Day of the Fund. Shares purchased before 12:00
noon, Eastern Time, begin earning dividends on the same Business Day. Shares
purchased after 12:00 noon, Eastern Time, begin earning dividends on the next
Business Day. All Shares continue to earn dividends through the day before
their redemption.
There is no sales charge imposed by the Money Market Fund in
connection with the purchase of its Shares.
Non-Money Funds
Shares of the Non-Money Funds are purchased at the net asset value
per Share (see "VALUATION OF SHARES") next determined after receipt by
MarketWatch of an order to purchase Shares in good form, plus any applicable
sales charge . Purchases of Shares of a Fund will be effected only on a
Business Day (as defined in "VALUATION OF SHARES") of the Fund. An order
received prior to the Valuation Time on any Business Day will be executed at
the net asset value determined as of the Valuation Time on the day of
receipt. An order received after the Valuation Time on any Business Day will
be executed at the net asset value determined as of the Valuation Time on the
next Business Day. In case of orders for the purchase of Shares placed
through a broker-dealer, the applicable public offering price will be the net
asset value as so determined, but only if the broker-dealer receives the
order prior to the Valuation Time for that day and transmits it to BISYS
prior to the Valuation Time for that day. The broker-dealer is responsible
for transmitting such orders promptly. If the broker-dealer fails to do so,
the investor's right to that day's closing price must be settled between the
investor and the broker-dealer. If the broker-dealer receives the order after
the Valuation Time for that day, the price will be based on the net asset
value determined as of the Valuation Time for the next Business Day.
* * * *
MarketWatch reserves the right to reject any order for the purchase
of its Shares in whole or in part, including purchases made with foreign and
third party drafts or checks.
Every Shareholder of record will receive a confirmation of each
transaction, which will also show the total number of Shares of each Fund
owned by the Shareholder. Confirmation of purchases, exchanges, and
redemptions of Shares of the Funds by CFNB or one of its Entities on behalf
of a Customer will be sent to CFNB or the affiliate. Shareholders may rely on
these statements in lieu of certificates. Certificates representing Shares of
the Funds will not be issued.
Sales Charges - Non-Money Funds
The public offering price of each Non-Money Fund's Shares equals the
sum of the net asset value per Share of the Fund selected plus a sales
charge in accordance with the table below. BISYS, as Distributor, receives
this sales charge as Distributor. BISYS will act only on its own behalf as
principal if it chooses to enter into selling agreements with selected
dealers or others, and, in such event, BISYS may reallow the sales charge as
dealer discounts and brokerage commissions. However, BISYS, at its sole
discretion, may pay certain dealers all or a part of the portion of the sales
charge it receives. A broker or dealer that receives a reallowance in
excess of 90% of the sales charge may be deemed to be an "underwriter" for
purposes of the Securities Act of 1933, as amended.
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<TABLE>
<CAPTION>
Sales Sales
Charge as Charge as Dealer Discounts
% of Net % of and Brokerage
Amount Offering Commissions as % of
Amount of Purchase Invested Price Offering Price
------------------ --------- --------- -------------------
<S> <C> <C> <C>
Less than $100,000........................... 4.71% 4.50% 4.25%
$ 100,000 but less than $ 250,000............ 3.63% 3.50% 3.25%
$ 250,000 but less than $ 500,000............ 2.56% 2.50% 2.25%
$ 500,000 but less than $1,000,000........... 1.52% 1.50% 1.25%
$1,000,000 but less than $1,500,000.......... .76% .75% .75%
$1,500,000 but less than $2,000,000.......... .50% .50% .50%
$2,000,000 or more........................... .25% .25% .25%
</TABLE>
BISYS, as Distributor, will, at its expense, also provide other
compensation to dealers in connection with sales of Shares of the Non-Money
Funds. Such compensation will include financial assistance to dealers in
connection with conferences, sales or training programs for their employees,
seminars for the public, advertising campaigns regarding one or more of these
Funds, and/or other special events sponsored by dealers. In some instances,
this compensation will be made available only to certain dealers whose
representatives have sold a significant amount of Shares. Compensation may
also include payment for travel expenses, including lodging, incurred in
connection with trips taken by invited registered representatives and members
of their families to locations within or outside of the United States for
meetings or seminars of a business nature. Compensation will also include the
following types of non-cash compensation offered through sales contests: (1)
vacation trips, including the provision of travel arrangements and lodging at
luxury resorts at an exotic location, (2) tickets for entertainment events
(such as concerts, cruises, and sporting events) and (3) merchandise (such as
clothing, trophies, clocks, and pens). Dealers may not use sales of Shares to
qualify for this compensation to the extent such may be prohibited by the
laws of any state or any self-regulatory agency, such as the NASD. None of
the aforementioned is paid for by the Funds or their Shareholders.
From time to time, dealers who receive dealer discounts and brokerage
commissions from BISYS, as Distributor, may reallow all or a portion of such
dealer discounts and brokerage commissions to other dealers or brokers.
Sales Charge Waivers - Non-Money Funds
The following classes of investors may purchase Shares of the
Non-Money Funds with no sales charge:
(1) existing Shareholders of the Funds upon the automatic
reinvestment of dividend and capital gains distributions;
(2) Trustees of MarketWatch and officers, directors, employees,
and retired employees of (a) CFNB and its affiliates and (b)
BISYS and its affiliates, as well as spouses and children
under the age of 21 of each of the foregoing;
(3) employees (and their spouses and children under the age of 21)
of any broker-dealer with which BISYS, as Distributor, enters
into a dealer agreement to sell Shares of the Funds;
(4) investors for whom CFNB or one of its affiliates acts in a
fiduciary, advisory, or agency capacity and for whom purchases
are made through CFNB or its affiliates;
(5) individuals who receive Shares in connection with a
distribution paid from a CFNB Financial Services Group trust
or agency account;
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(6) individuals who receive cash in connection with a distribution
paid from a CFNB Financial Services Group trust or agency
account. This waiver applies only to the initial purchase of a
load Fund of MarketWatch with the total amount of cash
received in the distribution;
(7) orders placed on behalf of other investment companies
distributed by The BISYS Group, Inc. or its affiliated
companies;
(8) banks, trust companies and thrift institutions purchasing
Shares in a fiduciary capacity and for which CFNB or any of
its affiliates acts in an advisory capacity;
(9) broker-dealers and their affiliates purchasing Shares in a
fiduciary, advisory, custodial, agency or similar capacity for
managed account programs or with the liquidation proceeds from
such accounts; and
(10) investors who have redeemed Shares within the previous 365 days
may reinvest an amount equal to all or a portion of the
redemption proceeds in Shares of the Funds within such
365 day period.
At the time of purchase, MarketWatch must be notified that the purchase
qualifies for a sales charge waiver in accordance with one of the categories
described above in (1)-(10).
From time to time, BISYS may periodically waive all or a portion of
the sales charge for all investors with respect to the Non-Money Funds. BISYS
may change or eliminate the foregoing waivers at any time. From time to time,
BISYS may also offer special concessions to enable investors to purchase
Shares at net asset value, without payment of a sales charge. To qualify for
this special net asset value purchase, the investor must pay for such
purchase with the proceeds from the redemption of Shares of a non-affiliated
mutual fund or a unit investment trust on which a sales charge was paid. A
qualifying purchase of Shares in a Fund must occur within 60 days of the prior
redemption and must be evidenced by a confirmation of the redemption
transaction. At the time of purchase, MarketWatch must be notified that the
purchase qualifies for a purchase without a sales load. Proceeds from the
redemption of Shares on which no sales charges or commissions were paid would
not qualify for the special net asset value purchase program.
Letters of Intent - Non-Money Funds
An investor may obtain a reduced sales charge by means of a written
Letter of Intent which expresses the investor's intention to purchase Shares
of a Non-Money Fund at a specified total public offering price within a
designated 13-month period. Each purchase of Shares under a Letter of Intent
will be made at the net asset value plus the sales charge applicable at the
time of such purchase, assuming the purchase of the total dollar amount
indicated in the Letter of Intent.
A Letter of Intent is not a binding obligation upon the investor to
purchase the full dollar amount indicated. The minimum initial investment
under a Letter of Intent is 5% of such dollar amount. Shares purchased with
the first 5% of such amount will be held in escrow (although registered in
the name of the investor) to secure payment of the higher sales charge
applicable to the Shares actually purchased if the full dollar amount
indicated is not purchased. Escrowed Shares will be involuntarily redeemed to
pay the additional sales charge, if necessary. Dividends on escrowed Shares,
whether paid in cash or reinvested in additional Fund Shares, are not subject
to escrow. The escrowed Shares may not be redeemed or transferred by the
investor until all purchases pursuant to the Letter of Intent have been made
or the higher sales charge has been paid. When the full amount indicated has
been purchased, the escrow will be released. To the extent that an investor
purchases more than the dollar amount indicated in the Letter of Intent and
qualifies for a further reduced sales charge, the sales charge will be
recalculated based on the entire amount purchased during the 13-month
period. Any reduction in sales charges will be used to purchase additional
Shares of the Fund for the investor's account.
A Letter of Intent may include purchases of Shares made not more than
90 days prior to the date the investor signs a Letter of Intent; however, the
13-month period during which the Letter of Intent is in effect will
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begin on the date of the earliest purchase to be included. Any Share
adjustments will be made at the end of the 13-month period at the then
current applicable public offering price. Investors may combine purchases
that are made in their individual capacity with (1) purchases that are made
by the individual's spouse or children under 21 years of age and (2)
purchases made by businesses that they own as sole proprietorships for
purposes of obtaining reduced sales charges by means of a written Letter of
Intent. In order to accomplish this, however, investors must designate on the
account application the accounts that are to be combined for this purpose.
Investors can only designate accounts that are open at the time the Letter of
Intent is executed.
For further information about Letters of Intent, interested investors
should contact MarketWatch at (800) 232-9091. This program, however, may be
modified or eliminated at any time or from time to time by MarketWatch
without notice.
Concurrent Purchases and Right of Accumulation - Non-Money Funds
For purposes of qualifying for a reduced sales charge, investors have
the privilege of combining concurrent purchases of, and holdings in, Shares
of the Non-Money Funds sold with a sales charge ("Eligible Shares").
Investors are permitted to purchase Eligible Shares at the public offering
price applicable to the total of (a) the dollar amount of the Eligible Shares
then being purchased plus (b) the aggregate dollar amount of previously
acquired Eligible Shares based upon the net asset value of such Shares at the
time of purchase.
To receive the applicable public offering price pursuant to
concurrent purchases and the right of accumulation, Shareholders must, at the
time of purchase, give MarketWatch sufficient information to permit
confirmation of qualification. Investors may combine purchases of Eligible
Shares that are made in their individual capacity with (l) purchases made by
the individual's spouse or children under 21 years of age and (2) purchases
made by businesses that they own as sole proprietorships, for purposes of
obtaining reduced sales charges pursuant to concurrent purchases and the
right of accumulation. In order to accomplish this, however, investors must
designate on the account application the accounts that are to be combined for
this purpose. Investors can only designate accounts that are open at the time
the concurrent purchases and the right of accumulation are exercised.
MarketWatch Funds Individual Retirement Account ("IRA")
A MarketWatch Funds IRA enables individuals, even if they participate
in an employer-sponsored retirement plan, to establish their own retirement
program. MarketWatch Funds IRA contributions may be tax deductible and
earnings are tax-deferred. Federal tax law restricts or eliminates the tax
deductibility of IRA contributions for individuals who participate in certain
employer pension plans and whose annual income exceeds certain limits.
Existing IRAs and future contributions up to the IRA maximums, whether
deductible or not, still earn income on tax-deferred basis.
All MarketWatch Funds IRA distribution requests must be made in
writing to BISYS, as Distributor. Any additional deposits to an IRA must
distinguish the type and year of the contributions.
For more information on the MarketWatch Funds IRAs call MarketWatch
at (800) 232-9091. Investment in Shares of Virginia Municipal Bond Fund would
not be appropriate for a MarketWatch Funds IRA. Shareholders are advised to
consult a tax adviser concerning MarketWatch Funds IRA contribution and
withdrawal requirements and restrictions.
Auto Invest Plan
The Auto Invest Plan enables Shareholders of the Funds to make
regular monthly or quarterly purchases of Shares through automatic deductions
from their bank accounts. With Shareholder authorization, BISYS Fund
Services, Ohio, Inc. ("BISYS OHIO") will deduct the amount specified from the
Shareholder's
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bank account (as long as the Shareholder's bank is a member of the Automated
Clearing House) which will automatically be invested in Shares at the public
offering price on the dates of the deduction. The required minimum initial
investment when opening an account using the Auto Invest Plan is $100; the
minimum amount for subsequent investments in a Fund is $50. To participate in
the Auto Invest Plan, Shareholders should complete the appropriate section of
the account application which can be acquired by calling (800) 232-9091. To
change the Auto Invest instructions, a Shareholder must submit a written
request to MarketWatch. A Shareholder may discontinue the feature by
submitting a written request to or by calling MarketWatch.
Exchange Privilege
Shareholders may exchange Shares of any Fund for Shares of any other
MarketWatch Fund. Under such circumstances, the cost of the acquired Shares
will be the net asset value per Share plus the appropriate sales load, if
any. If the Shareholder exercising the exchange privilege paid a sales charge
on the exchanged Shares that is less than the sales charge applicable to the
Shares sought to be acquired through the exchange, such Shareholder must pay
a sales charge on the exchange equal to the difference between the sales
charge paid for the exchanged Shares and the sales charge applicable to the
Shares sought to be acquired through the exchange. Shareholders must notify
MarketWatch that a sales charge was previously paid.
The Shares exchanged must have a current value at least equal to the
minimum investment required (either the minimum amount required for initial
investments or the minimum amount required for subsequent investments, as the
case may be) for the Fund whose Shares are being acquired. Share exchanges
will only be permitted where the Shares to be acquired may legally be sold in
the investor's state of residence and where the respective Fund accounts have
identical registered owners. An exchange is considered to be a sale of Shares
for federal income tax purposes on which a Shareholder may realize a capital
gain or loss. A Shareholder may make an exchange request by calling
MarketWatch at (800) 232-9091 or by providing written instructions to
MarketWatch. An investor should consult MarketWatch for further information
regarding exchanges. During periods of significant economic or market change,
telephone exchanges may be difficult to complete. If a Shareholder is unable
to contact MarketWatch by telephone, a Shareholder may also mail the exchange
request to MarketWatch at the address listed under "HOW TO PURCHASE AND
REDEEM SHARES -- Redemption By Mail." MarketWatch reserves the right to
modify or terminate the exchange privilege described above upon 60 days prior
written notice to Shareholders and to reject any exchange request. If an
exchange request in good order is received by MarketWatch by the pertinent
Valuation Time (noon, for the Money Market Fund), on any Business Day, the
exchange usually will occur on that day. Any Shareholder who wishes to make
an exchange should review this prospectus before making the exchange.
Shareholders wishing to make use of MarketWatch's exchange program must so
indicate on the Fund application.
MarketWatch's exchange privilege is not intended to afford
Shareholders a way to speculate on short-term movements in the market.
Accordingly, to prevent excessive use of the exchange privilege that may
potentially disrupt the management of MarketWatch and increase transaction
costs, MarketWatch has established a policy of limiting excessive exchange
activity. Exchange activity will not be deemed excessive if limited to six
substantive exchange redemptions from a Fund during any calendar year.
Systematic Exchange Program
MarketWatch offers a Systematic Exchange Program in which a
Shareholder having a minimum initial balance of $5,000 in the Money Market
Fund account may elect to have BISYS OHIO automatically withdraw a specified
amount (subject to the applicable minimums) from such account at regular
intervals, and invest the amount in another existing MarketWatch Fund account
having a minimum balance of $100. The cost of the acquired Shares will be
their net asset value plus any applicable sales charges. Shareholders must
maintain a minimum account balance of $500 in the Fund, at all times, during
the period the Shareholder participates in the Systematic Exchange Program.
By using this program, Shareholders will be able to engage in dollar-cost-
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averaging. Shareholders may obtain an application form and additional
information regarding this service by calling MarketWatch at (800) 232-9091.
Redemption of Shares
Shareholders may redeem their Shares without charge on any day that
net asset value is calculated (see "VALUATION OF SHARES"). Redemptions will
be effected at the net asset value per Share next determined after receipt of
a valid redemption request. Redemptions may be requested by mail or by
telephone.
Redemption by Mail
A written request for redemption must be received by BISYS OHIO in
order to honor the request. Such requests should be sent to: MarketWatch
Funds, P.O. Box 27252, Richmond, Virginia 23261-7252. BISYS OHIO will require
a signature guarantee by an eligible guarantor institution. For purposes of
this policy, the term "eligible guarantor institution" shall include banks,
brokers, dealers, credit unions, securities exchanges and associations,
clearing agencies, and savings associations as those terms are defined in
Rule 17Ad-15 under the Securities Exchange Act of 1934. BISYS OHIO reserves
the right to reject any signature guarantee if (l) it has reason to believe
that the signature is not genuine, (2) it has reason to believe that the
transaction would otherwise be improper, or (3) the guarantor institution is
a broker or dealer that is neither a member of a clearing corporation nor
maintains net capital of at least $100,000. The signature guarantee
requirement will be waived if all of the following conditions apply: (l) the
redemption check is payable to the Shareholder(s) of record; and (2) the
redemption check is mailed to the Shareholder(s) at the address of record or
the proceeds are either mailed or sent electronically to a commercial bank
account previously designated on the account application. There is no charge
for having redemption requests mailed to a designated bank account.
Redemption by Telephone
Shares may be redeemed by telephone if the Shareholder selected that
option on the account application. The Shareholder may have the proceeds
mailed to his or her address of record or mailed or sent electronically to a
commercial bank account previously designated on the account application.
Under most circumstances, payments will be transmitted on the next Business
Day following receipt of a valid request for redemption. Electronic payment
requests may be made by the Shareholder by telephone to MarketWatch at (800)
232-9091. The then-current charge of CFNB, as Custodian, for electronically
transferred redemptions may be deducted from the proceeds of a electronically
transferred redemption. This charge, if applied, is presently $12.00 for each
electronically transferred redemption. It is not necessary for Shareholders
to confirm telephone redemption requests in writing. During periods of
significant economic or market change, telephone redemptions may be difficult
to complete. If a Shareholder is unable to contact MarketWatch by telephone,
a Shareholder may also mail the redemption request to MarketWatch at the
address listed above under "HOW TO PURCHASE AND REDEEM SHARES -- Redemption
by Mail." BISYS, BISYS OHIO, CFNB, and MarketWatch will not be liable for any
losses, damages, expense, or cost arising out of any telephone transaction
(including exchanges and redemptions) effected in accordance with the Funds'
telephone transaction procedures, upon instructions believed to be genuine.
MarketWatch will employ procedures designed to provide reasonable assurance
that instructions by telephone are genuine; if these procedures are not
followed, MarketWatch or its service contractors may be liable for any losses
due to unauthorized or fraudulent instructions. These procedures include
recording all telephone conversations, sending confirmation to Shareholders
within 72 hours of the telephone transaction, verification of account name
and account number or tax identification number, and sending redemption
proceeds only to the address of record or to a previously authorized bank
account.
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Redemption by Check - Money Market Fund
Free check writing is available for the Money Market Fund. With this
service, a Shareholder may write up to six checks a month in the amount of
$100 or more. To establish this service and to obtain checks at the time the
account is opened, a Shareholder must complete the Signature Card that
accompanies the account application. To establish this service and obtain
checks after opening an account in the Fund, the Shareholder must contact
MarketWatch by telephone or mail to obtain an account application form and
complete and return the signature card. A Shareholder will receive the
dividends and distributions declared on the Shares to be redeemed up to the
day that a check is presented for payment. Upon 30 days' prior written notice
to Shareholders, the check writing privilege may be modified or terminated.
An investor may not close a Money Market Fund account by writing a check.
BISYS OHIO may impose a service charge for any "stop payment" request made by
a Shareholder and for any check that cannot be honored due to insufficient
funds.
Auto Withdrawal Plan
The Auto Withdrawal Plan enables Shareholders of the Funds to make
regular monthly or quarterly redemptions of Shares. With Shareholder
authorization, BISYS OHIO will automatically redeem Shares at the net asset
value on the dates of the withdrawal and have a check in the amount specified
mailed to the Shareholder. The Shareholder's account balance must have a
current market value of at least $10,000 to be eligible for the Auto
Withdrawal Plan. The required minimum withdrawal is $100. To participate in
the Auto Withdrawal Plan, Shareholders should call (800) 232-9091 for more
information. Purchases of additional Shares concurrent with withdrawals may
be disadvantageous to certain Shareholders because of tax liabilities and
sales charges. To change the Auto Withdrawal instructions, a Shareholder must
submit a written request to MarketWatch. A Shareholder may discontinue the
feature by submitting a written request to or by calling MarketWatch.
Payments to Shareholders
Redemption orders are effected at the net asset value per Share next
determined after receipt of a valid request for redemption, as described
above. Payment to Shareholders for Shares redeemed will be made within the
time period prescribed by the settlement requirements of the Securities
Exchange Act of 1934, after receipt by MarketWatch of the request for
redemption. However, to the greatest extent possible, MarketWatch will
attempt to honor requests from Shareholders for next Business Day payments
upon redemption of Shares if the request for redemption is received by BISYS
OHIO before the pertinent Valuation Time (12:00 noon, in the case of the
Money Market Fund) on a Business Day or, if the request for redemption is
received after the Valuation Time, to honor requests for payment within one
Business Day, in the case of the Money Market Fund, or two Business Days, in
the case of a Non-Money Fund, unless it would be disadvantageous to
MarketWatch or the Shareholders of the particular Fund to sell or liquidate
portfolio securities in an amount sufficient to satisfy requests for payments
in that manner.
At various times, MarketWatch may be requested to redeem Shares for
which it has not yet received good payment. In such circumstances,
MarketWatch may delay the forwarding of proceeds until payment has been
collected for the purchase of such Shares, which delay may be for up to 15
days or more. MarketWatch intends to pay cash for all Shares redeemed, but if
it appears appropriate to do so in light of MarketWatch's responsibilities
under the 1940 Act, MarketWatch may make payment wholly or partly in
portfolio securities at their then-current market value equal to the
redemption price. In such cases, an investor may incur brokerage costs in
converting such securities to cash.
Due to the relatively high cost of handling small investments, each
Fund reserves the right to redeem, at net asset value, the Shares of that
Fund of any Shareholder if, because of redemptions of Shares by or on behalf
of the Shareholder (but not as a result of a decrease in the market price of
such Shares), the account of such Shareholder has a value of less than
$100. Before a Fund exercises its right to redeem such Shares and to
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send the proceeds to the Shareholder, the Shareholder will be given notice
that the value of the Shares in his or her account is less than the minimum
amount and will be allowed 60 days to make an additional investment in an
amount which will increase the value of the account to at least $100. (See
"ADDITIONAL PURCHASE AND REDEMPTION INFORMATION -- Matters Affecting
Redemption" in the Statement of Additional Information for examples of when
MarketWatch may suspend the right of redemption if it appears appropriate to
do so in light of MarketWatch's responsibilities under the 1940 Act.)
DIVIDENDS AND TAXES
Dividends
The net income of the Money Market Fund is declared daily at the
close of business and is generally paid monthly. The net income of each
Non-Money Fund is declared monthly as a dividend to Shareholders at the close
of business on the day of declaration, and such dividend is generally paid
monthly. Distributable net realized capital gains are distributed at least
annually. A Shareholder of a Fund will automatically receive all income
dividends and any capital gains distributions in additional full and
fractional Shares of that Fund at net asset value as of the date of payment,
unless the Shareholder elects to receive dividends or distributions in cash.
Such election must be made on the account application; any change in such
election must be made in writing to BISYS OHIO at 3435 Stelzer Road,
Columbus, Ohio 43219, and will become effective with respect to dividends and
distributions having record dates after its receipt by BISYS OHIO.
Federal Taxes -- In General
Each Fund is treated as a separate entity for federal tax purposes
and intends to qualify as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended (the "Code"), for so long as such
qualification is in the best interests of the Fund's Shareholders. A
regulated investment company is exempt from federal income tax on amounts
distributed to Shareholders.
Qualification as a regulated investment company under the Code for a
taxable year requires, among other things, that a Fund distribute to its
Shareholders an amount equal to at least the sum of 90% of its investment
company taxable income and 90% of its net exempt-interest income for such
year. In general, each Fund's investment company taxable income will be its
taxable income, including dividends, interest and short-term capital gains
(the excess of net short-term capital gain over net long-term capital loss),
subject to certain adjustments and excluding the excess of any net long-term
capital gain for the taxable year over the net short-term capital loss, if
any, for such year. The policy of the Funds is to distribute as dividends
substantially all of their investment company taxable income and any net
tax-exempt interest income each taxable year. Such dividends paid by all the
Funds, except the Virginia Municipal Bond Fund, will be taxable as ordinary
income to their Shareholders who are not currently exempt from federal income
taxes, whether such income is received in cash or reinvested in additional
Shares. (Federal income taxes for distributions to a Retirement Plan or IRA
are deferred under the Code.) It is not expected that any portion of such
distributions will qualify for the dividends received deduction for
corporations.
Substantially all of the Funds' net realized long-term capital gains,
if any, will be distributed at least annually to their Shareholders. A Fund
will generally have no tax liability with respect to such gains, and the
distributions will be taxable to the Shareholders who are not currently
exempt from federal income taxes as long-term capital gains, regardless of
how long the Shareholders have held the Shares and whether such gains are
received in cash or reinvested in additional Shares.
Dividends declared in October, November, or December of any year
payable to Shareholders of record on a specified date in such months will be
deemed to have been received by Shareholders and paid by the Fund on December
31 of such year in the event such dividends are actually paid during January
of the following year.
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<PAGE>
In the case of the Non-Money Funds, prior to purchasing Shares, the
impact of dividends or capital gains distributions which are expected to be
declared or have been declared, but have not been paid, should be carefully
considered. Any such dividends or distributions declared shortly after a
purchase of Shares prior to the record date will have the effect of reducing
the per Share net asset value of the Shares by the per Share amount of the
dividends or distributions. All or a portion of such dividends or
distributions, although in effect a return of capital, may be subject to tax.
A taxable gain or loss may be realized by a Shareholder upon his
redemption, transfer or exchange of Fund Shares depending upon the tax basis
of such Shares and their price at the time of redemption, transfer or
exchange. Generally, a Shareholder may include sales charges incurred upon
the purchase of Fund Shares in his or her tax basis for such Shares for the
purpose of determining gain or loss on a redemption, transfer or exchange of
such Shares. However, if the Shareholder effects an exchange of such Shares
for Shares of another Fund within 90 days of the purchase and is able to
reduce the sales charges applicable to the new Shares (by virtue of
MarketWatch's exchange privilege), the amount equal to such reduction may not
be included in the tax basis of the Shareholder's exchanged Shares, but may
be included (subject to the limitation) in the tax basis of the new Shares.
Federal Taxes -- Virginia Municipal Bond Fund
Dividends derived from exempt-interest income will generally be
treated by the Virginia Municipal Bond Fund's Shareholders as items of
interest excludable from their gross income for federal income tax purposes.
In determining net exempt-interest income, expenses of the Virginia Municipal
Bond Fund are allocated to gross tax-exempt interest income in the proportion
that the gross amount of such interest income bears to the Fund's total gross
income, excluding net capital gains. (Shareholders are advised to consult a
tax adviser with respect to whether exempt-interest dividends retain the
exclusion if the Shareholder would be treated as a "substantial user" or a
"related person" to such user under the Code.) In addition, dividends
attributable to interest on certain private activity bonds may be included in
income for purposes of calculating the alternative minimum tax.
In order to permit the Virginia Municipal Bond Fund to distribute
exempt-interest dividends which Shareholders may exclude from their gross
income for federal income tax purposes, at least 50% of the Virginia
Municipal Bond Fund's total assets must consist of obligations the interest
on which is exempt from federal income tax as of the close of each taxable
quarter of the Fund.
State Taxes -- Virginia Municipal Bond Fund
Distributions by the Virginia Municipal Bond Fund to a Shareholder
will not be subject to the Virginia income tax to the extent that the
distributions are attributable to income received by the Fund as interest
from Virginia Municipal Securities. Additionally, distributions by the
Virginia Municipal Bond Fund to a Shareholder will not be subject to the
Virginia income tax to the extent that the distributions are attributable to
interest income from United States obligations exempted from state taxation
by the United States Constitution, treaties, and statutes. These Virginia
income tax exemptions will be available only if the Fund complies with the
requirement that at least 50% of the Fund's assets consist of obligations the
interest on which is exempt from federal income tax at the close of each
taxable quarter.
Other distributions from the Fund, including dividends paid from
investments in taxable obligations (commercial paper, repurchase agreements,
etc.) and capital gains, generally will not be exempt from Virginia income
taxation.
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<PAGE>
Miscellaneous
Shareholders will be advised at least annually as to the character of
distributions made to them each year for federal income tax purposes.
Shareholders should consult their tax advisers concerning their specific
situations and the application of state and local taxes which may differ from
the federal tax consequences described above.
MANAGEMENT OF MARKETWATCH
Trustees and Officers of MarketWatch
Overall responsibility for management of MarketWatch rests with its
Board of Trustees, which is elected by the Shareholders of MarketWatch.
MarketWatch is managed by the trustees in accordance with the laws of the
Commonwealth of Massachusetts governing business trusts. The trustees, in
turn, elect the officers of MarketWatch to supervise actively its day-to-day
operations.
The trustees and officers of MarketWatch, their addresses and
principal occupations during the past five years are as follows:
<TABLE>
<CAPTION>
Position(s) Held Principal Occupation(s)
Name and Address with MarketWatch During Past 5 Years
- ---------------- ---------------- -----------------------
<S> <C> <C>
Walter B. Grimm* Chairman, President and Employee, BISYS Fund Services,
3435 Stelzer Road Trustee Inc.
Columbus, Ohio 43219
Alvin J. Schexnider Trustee Chancellor, Winston-Salem State
Winston-Salem State University University, 1996 to Present; Vice
601 Martin Luther King, Jr. Drive Provost for Undergraduate
Winston-Salem, NC 27110 Students, 1991 to 1995, and
Associate Vice President for Academic Affairs 1987 to 1991,
Virginia Commonwealth University.
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<PAGE>
G.E.R. Stiles Trustee Retired; Senior Vice President and
301 Caroline Street Chief Financial Officer, A.H.
Ashland, Virginia 23005 Robins Company, Incorporated,
December 1989 to February 1990.
Stephen G. Mintos Vice President and Employee, BISYS Fund Services,
3435 Stelzer Road Treasurer Inc.
Columbus, Ohio 43219
William J. Tomko Vice President Employee, BISYS Fund Services,
3435 Stelzer Road Inc.
Columbus, Ohio 43219
Brenda J. Bittermann Secretary Employee, BISYS Fund Services,
3435 Stelzer Road Inc., February 1996 to Present;
Columbus, Ohio 43219 Prior thereto, Employee, Banc
One Securities Corp.
Alaina V. Metz Assistant Secretary Employee, BISYS Fund Services,
3435 Stelzer Road Inc., June 1995 to Present;
Columbus, Ohio 43219 Prior thereto, Alliance Capital
Management.
Christina T. Simmons Assistant Secretary Counsel/Attorney, Drinker Biddle
Drinker Biddle & Reath & Reath, 1985 to Present.
1345 Chestnut Street
Philadelphia, Pennsylvania 19107
<FN>
- -------------------
* The President is considered by MarketWatch to be an "interested person" of
MarketWatch as defined in the 1940 Act.
</TABLE>
Messrs. Grimm, Mintos and Tomko and Mmes. Bittermann and Metz are
employees of BISYS; Mr. Mintos is also a limited partner of BISYS; Ms.
Simmons, Assistant Secretary of MarketWatch, is a Counsel of the Law Firm of
Drinker Biddle & Reath, which receives fees as counsel to MarketWatch.
The trustees of MarketWatch receive fees and are reimbursed for their
expenses in connection with each meeting of the Board of Trustees they
attend. However, no officer or employee of BISYS receives any compensation
from MarketWatch for acting as a trustee or officer of MarketWatch.
Additional information on the compensation paid by MarketWatch to its
trustees and officers is included in the Statement of Additional Information.
BISYS receives fees from MarketWatch for acting as Administrator. BISYS OHIO
also receives fees from the Funds for acting as Transfer Agent and for
providing certain fund accounting services.
Investment Adviser
Central Fidelity National Bank, 1021 East Cary Street, Richmond,
Virginia 23219 ("CFNB"), is the investment adviser for each Fund. CFNB is
controlled by Central Fidelity Banks, Inc., a bank holding company. CFNB is
Virginia's third largest bank, with assets in excess of $10.5 billion as of
December 31, 1996. CFNB operates 244 banking offices throughout Virginia. The
core operating strategies of CFNB are to remain an independent, Virginia-only
bank, concentrating on the fundamental banking principles of maintaining
solid core deposit growth while adhering to sound, conservative credit
policies and providing customers with excellent service.
CFNB has provided investment management services through its
Financial Services Group or one of its predecessor organizations for over 50
years. As of December 31, 1996, its Financial Services Group had
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<PAGE>
approximately $2.2 billion in assets under discretionary management and
provided non-discretionary or custody services for an additional $7.6 billion
in securities. As the investment adviser to MarketWatch, CFNB provides Fund
Shareholders with the same professional money management expertise that it
has provided to its trust clients.
Subject to the general supervision of MarketWatch's Board of Trustees
and in accordance with the Funds' investment objectives and restrictions,
CFNB manages the investments of each Fund, makes decisions with respect to
and places orders for all purchases and sales of each Fund's portfolio
securities, and maintains each Fund's records relating to such purchases and
sales.
Paul P. Baran, CFA manages the Equity and Intermediate Fixed Income
Funds. Mr. Baran has over 20 years of investment experience. He joined CFNB
in 1987 as the chief investment officer of the investment management
department. Prior to joining CFNB, he was with BancOklahoma and National Bank
of Detroit. Mr. Baran is a chartered financial analyst and has an MBA in
finance.
David R. Beyer, CFA and Jennifer H. Luzzatto have co-managed the
Virginia Municipal Bond Fund since its inception. Mr. Beyer has 17 years of
investment experience. His education includes MBA and JD degrees. He joined
CFNB in 1991 as a Vice President with primary responsibility for the
management of balanced portfolios for institutions, foundations, and
individuals. Previously, he was a Vice President and portfolio manager in the
trust department at Sovran Bank. Ms. Luzzatto has been active in the
municipal market for approximately 10 years. She joined CFNB in 1991 as a
Municipal Bond Portfolio Manager. Prior to that time she was a fixed income
trader for a regional brokerage firm.
For the services provided and expenses assumed pursuant to its
Investment Advisory Agreement with MarketWatch, CFNB is entitled to receive
fees from the Funds, computed daily and paid monthly, at the following annual
rates: fifty one-hundredths of one percent (.50%) of the Money Market Fund's
average daily net assets; one percent (1.00%) of the Equity Fund's average
daily net assets; and seventy four one-hundredths of one percent (.74%) of
each of the Intermediate Fixed Income and Virginia Municipal Bond Fund's
average daily net assets. CFNB may periodically waive all or a portion of its
advisory fee and may reimburse the Fund involved for certain expenses to
increase the net income of that Fund available for distribution as dividends.
CFNB may not seek recovery of such waived fees or reimbursed expenses at a
later date. Such waivers and reimbursements would cause the yield or total
return of that Fund to be higher than it would otherwise be in their absence.
Administrator and Distributor
BISYS is the administrator for each Fund and also acts as each Fund's
principal underwriter and distributor ("BISYS, as Administrator" or "BISYS,
as Distributor," as the context indicates). BISYS is a subsidiary of The
BISYS Group, Inc., 150 Clove Road, Little Falls, New Jersey 07424, a publicly
owned company engaged in information processing, loan servicing and 401(k)
administration, and recordkeeping services to and through banking and other
financial organizations.
BISYS, as Administrator, generally assists in all aspects of each
Fund's administration and operation. For expenses assumed and services
provided as administrator pursuant to its Management and Administration
Agreement with MarketWatch, BISYS is entitled to receive a fee from each
Fund, computed daily and paid periodically, calculated at an annual rate of
twenty one-hundredths of one percent (.20%) of the Fund's average daily net
assets. BISYS may periodically waive all or a portion of its administrative
fee and may reimburse a Fund for certain expenses to increase its net income
available for distribution as dividends. The Administrator may not seek
recovery of such waived fees or reimbursed expenses at a later date. Such
waivers and reimbursements would cause the yield of that Fund to be higher
than it would otherwise be in their absence.
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<PAGE>
Distribution Plan
MarketWatch has adopted a Distribution and Services Plan (the "Plan")
pursuant to Rule 12b-1 of the 1940 Act, under which each Fund is authorized
to pay BISYS, as Distributor, a periodic amount calculated at an annual
rate not to exceed .25% of the average daily net assets of each Fund, in
compensation for distribution assistance and administrative support services
provided to Shareholders and expenses assumed in connection with Shares of a
Fund (collectively referred to as, the "Fee"). The Fee may be used to
compensate banks for administrative support services and to pay
broker-dealers and other institutions (each such bank, broker-dealer and
other institution is hereafter referred to as a "Participating Organization")
for similar services, including distribution services, pursuant to an
agreement between the Distributor and the Participating Organization. Under
the Plan, a Participating Organization may include CFNB, BISYS, and their
subsidiaries and affiliates.
BISYS, as Distributor, may use the Fee payable by a Fund to
compensate for payments or expenses incurred in connection with (1)
distribution assistance with respect to the sale of Shares, (2)
administrative support services provided to the holders of Shares and (3)
Participating Organizations' provision of services to customers that own
Shares. (For more information concerning the nature of each Fund's Shares,
see "GENERAL INFORMATION -- Description of MarketWatch and Its Shares.") The
Fee may be more or less than the actual direct or indirect expenses incurred
in a particular year, thereby giving rise to a profit or a loss, in
connection with distribution and/or Shareholder administrative support
services provided under the Plan.
Pursuant to the Plan, BISYS, as Distributor, has entered into a
servicing agreement with CFNB pursuant to which CFNB has agreed to provide
certain administrative support services in connection with Shares of each
Fund purchased and held by CFNB for the accounts of its Customers and Shares
of each Fund purchased and held by Customers of CFNB directly, including, but
not limited to, establishing and maintaining Customer accounts and records,
aggregating and processing purchase, exchange and redemption transactions for
Customers, answering routine Customer questions concerning the Funds and
providing such office space, equipment, telephone facilities and personnel as
is necessary and appropriate to accomplish such matters. In consideration of
such services, CFNB receives a monthly fee from BISYS computed at the annual
rate of up to .25% of the average aggregate net assets of Shares of each Fund
held during the period for which CFNB had provided services under this
Agreement.
Expenses
CFNB and BISYS, as Administrator, each bear all expenses in
connection with the performance of their services as investment adviser and
administrator, respectively, other than the cost of securities (including
brokerage commissions, if any) purchased for the Funds. The Funds bear
expenses relating to their operations, including taxes, interest, fees, and
expenses of trustees and officers, Commission fees, state securities
qualification fees, advisory fees, administration fees, charges of the Funds'
custodian and transfer agent, certain insurance premiums, outside auditing
and legal expenses, costs of preparing and printing Prospectuses for
regulatory purposes and for distribution to existing Shareholders, costs of
Shareholder reports and meetings, expenses relating to the promotion and
distribution of Fund Shares and Shareholder servicing, and any extraordinary
expenses. A Fund also pays for brokerage fees, commissions and other
transaction charges (if any) in connection with the purchase and sale of
portfolio securities.
Banking Laws
CFNB believes that it possesses the legal authority to perform the
services for each Fund contemplated by its Investment Advisory Agreement and
its Custodian Agreement with MarketWatch as described in this Prospectus,
without violation of applicable banking laws and regulations, and has so
represented in its agreements with MarketWatch. Future changes in federal or
state statutes and regulations relating to permissible activities of banks or
bank holding companies and their subsidiaries and affiliates as well as
further judicial or administrative decisions or interpretations of present
and future statutes and regulations could change
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<PAGE>
the manner in which CFNB could continue to perform such services for the
Funds. (See "MANAGEMENT OF MARKETWATCH -- Banking Laws" in the Statement of
Additional Information for further discussion of applicable law and
regulations.)
GENERAL INFORMATION
Description of MarketWatch and its Shares
MarketWatch was organized as a Massachusetts business trust on June
4, 1992. MarketWatch currently consists of four Funds. Each Share represents
an equal proportionate interest in a Fund with other Shares of the same Fund,
and is entitled to such dividends and distributions out of the income earned
on the assets belonging to that Fund as are declared at the discretion of the
trustees (see "Miscellaneous" below). Shares have a par value of $.001 per
Share, and do not have preemptive or conversion rights.
Shareholders are entitled to one vote for each full Share held and a
proportionate fractional vote for any fractional Shares held, and will vote
in the aggregate and not by Fund except as otherwise expressly required by
law. For example, Shareholders of each Fund will vote in the aggregate with
other Shareholders of MarketWatch with respect to the election of trustees
and ratification of the selection of independent accountants. However,
Shareholders of a particular Fund will vote as a Fund, and not in the
aggregate with other Shareholders of MarketWatch, for purposes of approval of
that Fund's Investment Advisory Agreement, on matters submitted to a Fund's
Shareholders pertaining to such Fund's arrangements with Participating
Organizations pursuant to the Plan adopted for such Shares, and any changes
in its fundamental investment limitations.
Overall responsibility for the management of the Funds is vested in
the Board of Trustees of MarketWatch. (See "MANAGEMENT OF MARKETWATCH --
Trustees and Officers of MarketWatch.") Individual trustees are elected by
the Shareholders of MarketWatch and may be removed by the Board of Trustees
or Shareholders in accordance with the provisions of the Agreement and
Declaration of Trust and Code of Regulations of MarketWatch and Massachusetts
law. (See "ADDITIONAL INFORMATION -- Miscellaneous" in the Statement of
Additional Information for further information.)
An annual or special meeting of Shareholders to conduct necessary
business is not required by the Agreement and Declaration of Trust, the 1940
Act or other authority except, under certain circumstances, to elect
trustees, amend the Agreement and Declaration of Trust, approve the
Investment Advisory Agreement and to satisfy certain other requirements. To
the extent that such meeting is not required, MarketWatch may elect not to
have an annual or special meeting.
The trustees will call a special meeting of Shareholders for purposes
of considering the removal of one or more trustees upon written request
therefor from Shareholders holding not less than 10% of the outstanding votes
of MarketWatch. At such a meeting, a quorum of Shareholders (constituting a
majority of votes attributable to all outstanding Shares of MarketWatch), by
majority vote, has the power to remove one or more trustees. MarketWatch will
assist in Shareholder communications in such matters consistent with its
undertaking pursuant to Section 16(c) of the 1940 Act.
As of February 28, 1997, CFNB held of record approximately 91.9% of
the outstanding Shares of the Money Market Fund, 82.2% of the outstanding
Shares of the Equity Fund, 92.9% of the outstanding Shares of the
Intermediate Fixed Income Fund, and 90.7% of the Virginia Municipal Bond
Fund. Beneficial ownership of the Shares is disclaimed by CFNB.
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<PAGE>
Custodian
Central Fidelity National Bank ("CFNB, as Custodian") serves as
custodian for the Funds. Pursuant to the Custodian Agreement with
MarketWatch, CFNB, as Custodian, receives compensation from each Fund for
such services and out-of-pocket expenses.
Transfer Agency and Fund Accounting Services
BISYS Fund Services, Ohio, Inc. ("BISYS OHIO"), 3435 Stelzer Road,
Columbus, Ohio 43219, serves as the Funds' transfer agent pursuant to a
Transfer Agency Agreement with MarketWatch and receives fees for such
services. BISYS OHIO also provides certain accounting services for each Fund
pursuant to a Fund Accounting Agreement and receives fees for such services.
(See "MANAGEMENT OF MARKETWATCH -- Transfer Agency and Fund Accounting
Services" in the Statement of Additional Information for further
information.)
While BISYS OHIO is a distinct legal entity from BISYS (MarketWatch's
administrator and distributor), BISYS OHIO is considered to be an affiliated
person of BISYS under the 1940 Act due to, among other things, the fact that
BISYS OHIO is owned by substantially the same persons that directly or
indirectly own BISYS.
Performance Information
Money Market Fund. From time to time performance information for the
Money Market Fund showing its average annual total return, aggregate total
return, yield and effective yield may be presented in advertisements, sales
literature and Shareholder reports. Such performance figures are based on
historical earnings and are not intended to indicate future performance. The
yield of the Fund refers to the income generated by an investment therein
over a seven-day period (which period will be stated in the advertisement).
This income is then "annualized." That is, the amount of income generated by
the investment during that week is assumed to be generated each week over a
52-week period and is shown as a percentage of the investment. The effective
yield is calculated similarly but, when annualized, the income earned by an
investment in the Fund is assumed to be reinvested. The effective yield is
slightly higher than the yield because of the compounding effect of this
assumed reinvestment.
Average annual total return will be calculated for the period since
the establishment of the Fund. Average annual total return is measured by
comparing the value of an investment in the Fund at the beginning of the
relevant period to the redemption value of the investment at the end of the
period (assuming immediate reinvestment of any dividends or capital gains
distributions) and annualizing the difference. Aggregate total return is
calculated similarly to average annual total return except that the return
figure is aggregated over the relevant period instead of annualized.
Non-Money Funds. From time to time performance information for the
Non-Money Funds showing their average annual total return, aggregate total
return and/or yield may be presented in advertisements, sales literature and
Shareholder reports. Such performance figures are based on historical
earnings and are not intended to indicate future performance. Average annual
total return will be calculated for the period since the establishment of the
Non-Money Funds and will reflect the imposition of the maximum sales charge.
Average annual total return is measured by comparing the value of an
investment in a Fund at the beginning of the relevant period to the
redemption value of the investment at the end of the period (assuming
immediate reinvestment of any dividends or capital gains distributions).
Aggregate total return is calculated similarly to average annual total return
except that the return figure is aggregated over the relevant period instead
of annualized. Yield will be computed by dividing a Fund's net investment
income per Share earned during a
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<PAGE>
recent one-month period by that Fund's per Share maximum offering price
(reduced by any undeclared earned income expected to be paid shortly as a
dividend) on the last day of the period and annualizing the result.
In addition, from time to time a Fund may present its distribution
rates in supplemental sales literature that is accompanied or preceded by a
prospectus and in Shareholder reports. Distribution rates will be computed by
dividing the distribution per Share made by a Fund over a twelve-month period
by the maximum offering price per Share. The distribution rate includes both
income and capital gain dividends and does not reflect unrealized gains or
losses. The distribution rate differs from the yield, because it includes
capital items which are often non-recurring in nature, whereas yield does not
include such items.
Investors may also judge the performance of all Funds by comparing
their performance to the performance of other mutual funds with similar
investment objectives and relevant indices. For example, the performance of
the Money Market Fund may be compared to the average yields reported by the
Bank Rate Monitor of money market deposit accounts offered by the 50 leading
banks and thrift institutions in the top five standard metropolitan
statistical areas. The Non-Money Funds' performance may be compared to
indices prepared by Dow Jones & Co., Inc., Standard & Poor's Corporation, the
Russell 2000 Index and Morningstar, Inc. All Funds may be compared to data
prepared or published by Lipper Analytical Services, Inc. , Money Magazine,
Forbes, Barron's, The Wall Street Journal, The New York Times, Business Week,
Pensions and Investments, Fortune, Ibbotson Associates, Inc., U.S.A. Today,
CDA/Wiesenberger, American Banker, Institutional Investor and local
newspapers. In addition to performance information, general information about
these Funds that appears in a publication such as those mentioned above may
be included in advertisements and in reports to Shareholders. In addition to
yield information, general information about the Funds that appears in
publications such as those mentioned above may also be quoted or reproduced
in advertisements or in reports to Shareholders. Additional performance
information is contained in the Funds' Annual Report, which is available free
of charge by calling the telephone number on the front page of the
Prospectus.
Yield and total return are functions of the type and quality of
instruments held in the portfolio, operating expenses, and market conditions.
Consequently, current yields and total return will fluctuate and are not
necessarily representative of future results. Any fees charged by CFNB or any
of its affiliates with respect to customer accounts for investing in Shares
of MarketWatch's Funds will not be included in performance calculations. Such
fees, if charged, will reduce the actual performance from that quoted. In
addition, if CFNB and BISYS voluntarily reduce all or part of their
respective fees, as further discussed below, the yield and total return of
that Fund will be higher than it would otherwise be in the absence of such
voluntary fee reductions.
Miscellaneous
Shareholders will receive unaudited semi-annual reports and annual
financial statements audited by independent public accountants.
As used in this Prospectus and in the Statement of Additional
Information, "assets belonging to a Fund" means the consideration received by
the Fund upon the issuance or sale of Shares in that Fund, together with all
income, earnings, profits, and proceeds derived from the investment thereof,
including any proceeds from the sale, exchange, or liquidation of such
investments, and any funds or amounts derived from any reinvestment of such
proceeds and any general assets of MarketWatch not readily identified as
belonging to a particular Fund that are allocated to the Fund by
MarketWatch's Board of Trustees. The Board of Trustees may allocate such
general assets in any manner it deems fair and equitable. Determinations by
the Board of Trustees of MarketWatch as to the timing of the allocation of
general liabilities and expenses and as to the timing and allocable portion
of any general assets with respect to the Funds are conclusive.
As used in this Prospectus and in the Statement of Additional
Information, a "vote of a majority of the outstanding Shares" of a Fund means
the affirmative vote, at a meeting of Shareholders duly called, of the
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<PAGE>
lesser of (a) 67% or more of the votes of Shareholders of that Fund present
at a meeting at which the holders of more than 50% of the votes attributable
to Shareholders of record of that Fund are represented in person or by proxy,
or (b) the holders of more than 50% of the outstanding votes of Shareholders
of that Fund.
Inquiries regarding a Fund may be directed in writing to MarketWatch
at 3435 Stelzer Road, Columbus, Ohio 43219, or by calling toll free (800)
232-9091.
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<PAGE>
[ BACK COVER, COL. 1 ]
INVESTMENT ADVISER AND CUSTODIAN
Central Fidelity National Bank
1021 East Cary Street
Richmond, Virginia 23219
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
LEGAL COUNSEL
Drinker Biddle & Reath
1345 Chestnut Street
Philadelphia, Pennsylvania 19107
AUDITORS
KPMG Peat Marwick LLP
Two Nationwide Plaza
Suite 1600
Columbus, Ohio 43215
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY............... 3
FEE TABLE........................ 4
FINANCIAL HIGHLIGHTS............. 6
INVESTMENT OBJECTIVES,
POLICIES, AND RISK
CONSIDERATIONS................. 8
INVESTMENT RESTRICTIONS.......... 16
VALUATION OF SHARES.............. 17
HOW TO PURCHASE AND
REDEEM SHARES.................. 18
DIVIDENDS AND TAXES.............. 27
MANAGEMENT OF MARKET-
WATCH........................ 29
GENERAL INFORMATION.............. 33
No person has been authorized to give any information or to make any
representations not contained in this Prospectus in connection with the
offering made by this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the
Funds or their Distributor. This Prospectus does not constitute an offering
by the Funds or by the Distributor in any jurisdiction in which such offering
may not lawfully be made.
<PAGE>
[ BACK COVER, COL. 2 ]
MARKETWATCH FUNDS
MONEY MARKET FUND
EQUITY FUND
INTERMEDIATE FIXED
INCOME FUND
VIRGINIA MUNICIPAL
BOND FUND
Central Fidelity National Bank
Richmond, Virginia
Investment Adviser
BISYS Fund Services, Inc.
Prospectus dated March 31, 1997
<PAGE>
<TABLE>
<CAPTION>
MARKETWATCH FUNDS
FORM N-1A
CROSS REFERENCE SHEET
Statement of Additional
Part B Item No. Information Caption
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<S> <C>
10. Cover Page............................. Cover Page
11. Table of Contents...................... Table of Contents
12. General Information and
History.............................. MarketWatch Funds; Additional
Information - Description of
Shares
13. Investment Objectives
and Policies......................... Investment Objectives, Policies, and
Risk Considerations
14. Management of MarketWatch.............. Management of MarketWatch
15. Control Persons and Principal
Holders of Securities................ Additional Information - Description
of Shares
16. Investment Advisory and
Other Services....................... Management of MarketWatch
17. Brokerage Allocation................... Management of MarketWatch -Portfolio
Transactions
18. Capital Stock and Other
Securities........................... Net Asset Value - Valuation of the
Funds; Additional Purchase and
Redemption Information - Matters
Affecting Redemption; Additional
Information - Description of Shares
19. Purchase, Redemption and
Pricing of Securities
Being Offered........................ Net Asset Value - Valuation of the
Funds; Additional Purchase and
Redemption Information - Matters
Affecting Redemption; Management of
MarketWatch
20. Tax Status............................. Additional Information - Additional
Tax Information - In General;
Additional Information - Additional
Tax Information - Virginia
Municipal Bond Fund
21. Underwriters........................... Management of MarketWatch -
Distributor
22. Calculation of Performance
Data................................. Calculation of Performance Data
23. Financial Statements................... Financial Statements
</TABLE>
<PAGE>
MarketWatch Funds
Money Market Fund
Equity Fund
Intermediate Fixed Income Fund
Virginia Municipal Bond Fund
Statement of Additional Information
March 31, 1997
This Statement of Additional Information is not a prospectus, and should be
read in conjunction with the current prospectus for the above Funds, dated
March 31, 1997 (the "Prospectus"), as supplemented or revised. Much of the
information contained in this Statement of Additional Information expands
upon subjects discussed in the Prospectus of the Funds. Capitalized terms
not defined herein are defined in the Prospectus. This Statement of
Additional Information is incorporated in its entirety into the Prospectus.
Copies of the Prospectus may be obtained by writing MarketWatch at 3435
Stelzer Road, Columbus, Ohio 43219 or by telephoning toll free at (800)
232-9091.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Page
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<S> <C>
INVESTMENT OBJECTIVES, POLICIES, AND RISK CONSIDERATIONS....................... 1
Additional Information on Portfolio Instruments........................ 1
Investment Restrictions................................................ 12
Portfolio Turnover..................................................... 14
NET ASSET VALUE................................................................ 14
Valuation of the Funds................................................. 14
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION................................. 16
Illustration of Computation of the Public Offering Price............... 16
Matters Affecting Redemption........................................... 16
MANAGEMENT OF MARKETWATCH...................................................... 17
Trustees and Officers.................................................. 17
Investment Adviser..................................................... 18
Portfolio Transactions................................................. 19
Banking Laws........................................................... 20
Administrator.......................................................... 20
Expenses............................................................... 22
Distributor............................................................ 22
Custodian.............................................................. 22
Transfer Agency and Fund Accounting Services........................... 23
Auditors............................................................... 24
Legal Counsel.......................................................... 24
ADDITIONAL INFORMATION......................................................... 24
Description of Shares.................................................. 24
Shareholder and Trustee Liability...................................... 25
Vote of a Majority of the Outstanding Shares........................... 26
Additional Tax Information - In General................................ 26
Additional Tax Information - Virginia Municipal Bond Fund.............. 27
Calculation of Performance Data........................................ 28
Performance Comparisons................................................ 32
Miscellaneous.......................................................... 33
FINANCIAL STATEMENTS........................................................... 33
APPENDIX....................................................................... 35
</TABLE>
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No investment in Shares of the Funds should be made without first reading the
Prospectus for the Funds.
- ------------------------------------------------------------------------------
INVESTMENT OBJECTIVES, POLICIES, AND RISK CONSIDERATIONS
Additional Information on Portfolio Instruments
The following policies supplement the investment objectives,
policies, and risk considerations of the Funds as set forth in the
Prospectus.
Bank Obligations. The Equity, Intermediate Fixed Income, and Virginia
Municipal Bond Funds may invest in bank obligations such as bankers'
acceptances, certificates of deposit, and time deposits.
Bankers' acceptances are negotiable drafts or bills of exchange
typically drawn by an importer or exporter to pay for specific merchandise,
which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Bankers' acceptances invested in by the Funds will be those guaranteed by
domestic and foreign banks having, at the time of investment, capital,
surplus, and undivided profits in excess of $100,000,000 (as of the date of
their most recently published financial statements).
Certificates of deposit are negotiable certificates issued against
funds deposited in a commercial bank or a savings and loan association for a
definite period of time and earning a specified return. Certificates of
deposit and time deposits will be those of domestic and foreign banks and
savings and loan associations, if (a) at the time of investment the
depository institution has capital, surplus, and undivided profits in excess
of $100,000,000 (as of the date of its most recently published financial
statements), or (b) the principal amount of the instrument is insured in full
by the Federal Deposit Insurance Corporation.
Commercial Paper. Commercial paper consists of unsecured promissory
notes issued by corporations. Issues of commercial paper normally have
maturities of less than nine months and fixed rates of return.
The Equity, Intermediate Fixed Income and Virginia Municipal Bond
Funds may purchase commercial paper consisting of issues rated at the time of
purchase in the top rating category by a nationally recognized statistical
rating organization ("NRSRO"). These Funds may also invest in unrated
commercial paper determined by Central Fidelity National Bank ("CFNB") under
guidelines established by MarketWatch's Board of Trustees, to be of
comparable quality.
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<PAGE>
Variable Amount Master Demand Notes. Variable amount master demand
notes, in which the Equity, Intermediate Fixed Income,and Virginia Municipal
Bond Funds may invest, are unsecured demand notes that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate according to the terms of the instrument. Because master demand
notes are direct lending arrangements between a Fund and the issuer, they are
not normally traded. Although there may be no secondary market in the notes,
a Fund may demand payment of principal and accrued interest at any time. CFNB
will consider the earning power, cash flow, and other liquidity ratios of the
issuers of such notes and will continuously monitor their financial status
and ability to meet payment on demand. In determining average weighted
portfolio maturity, a variable amount master demand note will be deemed to
have a maturity equal to the longer of the period of time remaining until the
next interest rate adjustment or the period of time remaining until the
principal amount can be recovered from the issuer through demand.
Variable and Floating Rate Notes. The Equity, Intermediate Fixed
Income, and Virginia Municipal Bond Funds may acquire variable and floating
rate notes subject to their respective investment objectives, policies, and
restrictions. A variable rate note is one whose terms provide for the
adjustment of its interest rate on set dates and which, upon such adjustment,
can reasonably be expected to have a market value that approximates its par
value. A floating rate note is one whose terms provide for the adjustment of
its interest rate whenever a specified interest rate changes and which, at
any time, can reasonably be expected to have a market value that approximates
its par value. Such notes are frequently not rated by credit rating agencies,
however, a Fund may purchase unrated variable and floating rate notes
determined by CFNB, under guidelines approved by MarketWatch's Board of
Trustees, to be of comparable quality at the time of purchase to rated
instruments eligible for purchase under such Fund's investment policies. In
making such determinations, CFNB will consider the earning power, cash flow,
and other liquidity ratios of the issuers of such notes (such issuers include
financial, merchandising, bank holding, and other companies) and will
continuously monitor their financial condition. Although there may be no
active secondary market with respect to a particular variable or floating
rate note purchased by a Fund, the Fund may resell the note at any time to a
third party. The absence of an active secondary market, however, could make
it difficult for a Fund to dispose of a variable or floating rate note in the
event the issuer of the note were to default on its payment obligations, and
the Fund could, as a result or for other reasons, suffer a loss to the extent
of the default. Variable or floating rate notes may be secured by bank
letters of credit.
U.S. Government Obligations. The Money Market Fund will invest
exclusively in bills, notes, and bonds issued by the U.S. Treasury, as well
as "stripped" U.S. Treasury obligations ("Stripped Treasury Securities")
subject to its investment objective and policies. The Equity, Intermediate
Fixed Income,and Virginia Municipal Bond Funds may invest in obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, including U.S. Treasury Obligations and the Stripped
Treasury Securities described below. Obligations of certain agencies and
instrumentalities of the U.S. Government are supported by the full faith and
credit of the U.S. Treasury; others are supported by the right of the
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<PAGE>
issuer to borrow from the Treasury; others are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations; and
still others are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial
support to U.S. Government-sponsored agencies or instrumentalities if it is
not obligated to do so by law.
Stripped Treasury Securities. Stripped Treasury Securities are U.S.
Treasury securities that have been stripped of their unmatured interest
coupons (which typically provide for interest payments semi-annually), such
interest coupons that have been stripped from such U.S. Treasury securities,
and receipts and certificates for such stripped debt obligations and stripped
coupons. Stripped bonds are sold at a deep discount because the buyer of
those securities receives only the right to receive a future fixed payment on
the security and does not receive any rights to periodic interest payments on
the security.
Stripped Treasury Securities may include (1) coupons stripped from
U.S. Treasury bonds, which may be held through the Federal Reserve Bank's
book-entry system called "Separate Trading of Registered Interest and
Principal of Securities" ("STRIPS") or through a program entitled "Coupon
Under Book-Entry Safekeeping" ("CUBES") or (2) U.S. Treasury securities that
are stripped by investment banks and sold under proprietary names. A number
of investment banks have stripped the interest coupons and receipts and then
resold them in custodial receipt programs with a number of different names,
including "Treasury Income Growth Receipts" ("TIGRs") and "Certificate of
Accrual on Treasuries" ("CATS"). Such securities may not be as liquid as
STRIPS and CUBES and are not viewed by the staff of the Securities and
Exchange Commission (the "Commission") as U.S. government securities for
purposes of the Investment Company Act of 1940, as amended (the "1940 Act").
The U.S. Government does not issue Stripped Treasury Securities
directly. The STRIPS program, which is ongoing, is designed to facilitate the
secondary market in the stripping of selected U.S. Treasury notes and bonds
into separate interest and principal components. Under the program, the U.S.
Treasury continues to sell its notes and bonds through its customary auction
process. A purchaser of those specified notes and bonds who has access to a
book-entry account at a Federal Reserve bank, however, may separate the
Treasury notes and bonds into interest and principal components. The selected
Treasury securities thereafter may be maintained in the book-entry system
operated by the Federal Reserve in a manner that permits the separate trading
and ownership of the interest and principal payments.
CUBES, like STRIPS, are direct obligations of the U.S. Government.
CUBES are coupons previously physically stripped from U.S. Treasury notes and
bonds, but deposited with the Federal Reserve Bank's book-entry system and
currently carried and transferable in book-entry form only. Only stripped
U.S. Treasury coupons maturing on or after January 15, 1988, and stripped
prior to January 5, 1987, were eligible for conversion to book-entry form
under the CUBES program.
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<PAGE>
By agreement, the underlying debt obligations are held separate from
the general assets of the custodian and nominal holder of such securities,
and are not subject to any right, charge, security interest, lien, or claim
of any kind in favor of or against the custodian or any person claiming
through the custodian, and the custodian is responsible for applying all
payments received on those underlying debt obligations to the related
receipts or certificates without making any deductions other than applicable
tax withholding. The custodian is required to maintain insurance for the
protection of holders of receipts or certificates in customary amounts
against losses resulting from the custody arrangement due to dishonest or
fraudulent action by the custodian's employees. The holders of receipts or
certificates, as the real parties in interest, are entitled to the rights and
privileges of the underlying debt obligations, including the right, in the
event of default in payment of principal or interest to proceed individually
against the issuer without acting in concert with other holders of those
receipts or certificates or the custodian.
Foreign Securities. As stated in the Prospectus, the Equity Fund may,
subject to its investment objective and policies, invest indirectly and
directly in such foreign securities as ADRs and EDRs and in securities issued
by foreign branches of U.S. banks and foreign banks, in Canadian commercial
paper, and in Europaper (U.S. dollar-denominated commercial paper of a
foreign issuer). The Equity Fund intends to limit its investment in foreign
securities to less than 5% of its total assets. Investments in foreign
securities may subject the Equity Fund to investment risks that differ in
some respects from those related to investment in obligations of U.S.
domestic issuers. Such risks include future adverse political and economic
developments, possible seizure, nationalization, or expropriation of foreign
investments, less stringent disclosure requirements, the possible
establishment of exchange controls or taxation at the source, and the
adoption of other foreign governmental restrictions. Additional risks include
currency exchange risks, less publicly available information, the risk that
companies may not be subject to the accounting, auditing, and financial
reporting standards and requirements of U.S. companies. Foreign issuers of
securities or obligations are often subject to accounting treatment and
engage in business practices different from those respecting domestic issuers
of similar securities or obligations. Foreign branches of U.S. banks and
foreign banks may be subject to less stringent reserve requirements than
those applicable to domestic branches of U.S. banks.
Call Options. The Equity Fund may write (sell) covered call options
and purchase options to close out options previously written by it. Such
options must be listed on a National Securities Exchange and issued by the
Options Clearing Corporation. The purpose of writing covered call options is
to generate additional premium income for the Equity Fund. This premium
income should serve to enhance the Equity Fund's total return and should
reduce the effect of any price decline of the security involved in the
option. Covered call options will generally be written on securities which,
in CFNB's opinion, are not expected to make any major price moves in the near
future but which, over the long term, are deemed to be attractive investments
for the Equity Fund.
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<PAGE>
A call option gives the holder (buyer) the right to purchase a
security at a specified price (the exercise price) at any time until a
certain date (the expiration date). So long as the obligation of the writer
of a call option continues, it may be assigned an exercise notice by the
broker-dealer through whom such option was sold, requiring the writer of the
call option to deliver the underlying security against payment of the
exercise price. This obligation terminates upon the expiration of the call
option, or such earlier time at which the writer effects a closing purchase
transaction by repurchasing an option identical to that previously sold. To
secure the obligation to deliver the underlying security in the case of a
call option, a writer is required to deposit in escrow the underlying
security or other assets in accordance with the rules of the Options Clearing
Corporation. The Equity Fund will write only covered call options. This means
that the Equity Fund will only write a call option on a security which it
already owns. (In order to comply with the requirements of the securities
laws in several states, the Equity Fund will not write a covered call option
if, as a result, the aggregate market value of all portfolio securities
covering all call options or subject to put options exceeds 25% of the market
value of its net assets.)
Securities on which call options may be written will be purchased
solely on the basis of investment considerations consistent with the Equity
Fund's investment objective. The writing of covered call options is a
conservative investment technique believed to involve relatively little risk
(in contrast to the writing of naked or uncovered options, which the Equity
Fund will not do), but capable of enhancing the Equity Fund's total return.
When writing a covered call option, the Equity Fund, in return for the
premium, gives up the opportunity for profit from a price increase in the
underlying security above the exercise price, but retains the risk of loss
should the price of the security decline. Unlike the case of owning
securities not subject to an option, the Equity Fund has no control over when
it may be required to sell the underlying securities, since it may be
assigned an exercise notice at any time prior to the expiration of its
obligation as a writer. If a call option which the Equity Fund has written
expires, the Equity Fund will realize a gain in the amount of the premium;
however, such gain may be offset by a decline in the market value of the
underlying security during the option period. If the call option is
exercised, the Equity Fund may realize a gain or loss from the sale of the
underlying security. The security covering the call will be maintained in a
segregated account of the Equity Fund's Custodian. The Equity Fund does not
consider a security covered by a call to be pledged as that term is used in
its policy which limits the pledging or mortgaging of its assets.
The premium received is the market value of an option. The premium
the Equity Fund receives from writing a call option reflects, among other
things, the current market price of the underlying security, the relationship
of the exercise price to such market price, the historical price volatility
of the underlying security, and the length of the option period. Once the
decision to write a call option has been made, CFNB, in determining whether a
particular call option should be written on a particular security, will
consider the reasonableness of the anticipated premium and the likelihood
that a liquid secondary market will exist for such option. The premium
received by the Equity Fund for writing covered call options is recorded as a
liability in the Fund's statement of assets and liabilities. This
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liability is adjusted daily to the option's current market value, which is
the latest sale price at the time at which the net asset value per share of
the Equity Fund is computed (the close of regular trading of the New York
Stock Exchange), or, in the absence of such sale, the latest bid price. The
liability is extinguished upon expiration of the option, the purchase of an
identical option in a closing transaction, or delivery of the underlying
security upon the exercise of the option.
Closing transactions will be effected in order to realize a profit on
an outstanding call option, to prevent an underlying security from being
called, or to permit the sale of the underlying security. Furthermore,
effecting a closing transaction will permit the Equity Fund to write another
call option on the underlying security with either a different exercise price
or expiration date or both. If the Equity Fund desires to sell a particular
security from its portfolio on which it has written a call option, it will
seek to effect a closing transaction prior to, or concurrently with, the sale
of the security. There is, of course, no assurance that the Equity Fund will
be able to effect such closing transactions at a favorable price. If the
Equity Fund cannot enter into such a transaction, it may be required to hold
a security that it might otherwise have sold, in which case it would continue
to be at market risk on the security. This could result in higher transaction
costs. The Equity Fund will pay transaction costs in connection with the
closing transactions described above. Such transaction costs are normally
higher than those applicable to purchases and sales of portfolio securities.
Call options written by the Equity Fund normally have expiration
dates of less than nine months from the date written. The exercise price of
the options may be below, equal to, or above the current market values of the
underlying securities at the time the options are written. From time to time,
the Equity Fund may purchase an underlying security for delivery in
accordance with an exercise notice of a call option assigned to it, rather
than delivering such security from its portfolio. In such cases, additional
costs will be incurred.
The Equity Fund will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from the writing of the option. Because increases in the market
price of a call option generally reflect increases in the market price of the
underlying security, any loss resulting from the repurchase of a call option
is likely to be offset in whole or in part by appreciation of the underlying
security owned by the Equity Fund.
Puts. The Intermediate Fixed Income Fund may acquire puts with
respect to debt securities held in its portfolio and the Virginia Municipal
Bond Fund may acquire puts with respect to Municipal Securities held in its
portfolio. A put is a right to sell a specified security (or securities)
within a specified period of time at a specified exercise price. The
Intermediate Fixed Income, and Virginia Municipal Bond Funds may sell,
transfer, or assign a put only in conjunction with the sale, transfer, or
assignment of the underlying security or securities.
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The amount payable to a Fund upon its exercise of a put is normally
the par value of the security subject to the put. A Fund may acquire puts to
facilitate the liquidity of the portfolio assets. Puts may also be used to
facilitate the reinvestment of assets at a rate of return more favorable than
that of the underlying security. Puts may, under certain circumstances, also
be used to shorten the maturity of underlying variable rate or floating rate
securities for purposes of calculating the remaining maturity of those
securities and the dollar-weighted average portfolio maturity of a Fund's
assets.
The Intermediate Fixed Income and Virginia Municipal Bond Funds will
generally acquire puts only where the puts are available without the payment
of any direct or indirect consideration. However, if necessary or advisable,
a Fund may pay for puts either separately in cash or by paying a higher price
for portfolio securities which are acquired subject to the puts (thus
reducing the yield to maturity otherwise available for the same securities).
The Intermediate Fixed Income and Virginia Municipal Bond Funds intend
to enter into puts only with dealers, banks, and broker-dealers which, in
CFNB's opinion, present minimal credit risks.
Index Options. The Intermediate Fixed Income and Virginia Municipal
Bond Funds may also purchase or sell index options for hedging purposes only.
Index options (or options on securities indices) are similar in many respects
to options on securities except that an index option gives the holder the
right to receive, upon exercise, cash instead of securities, if the closing
level of the securities index upon which the option is based is greater than,
in the case of a call, or less than, in the case of a put, the exercise price
of the option.
The use of index options will serve as a hedging strategy, i.e., a
strategy to offset the investment risk associated with holding positions in a
Fund's portfolio securities. The use of index options entails the risk that
trading in such options may be interrupted if trading in certain securities
included in the index is interrupted. Such options will not be purchased
unless CFNB believes the market is sufficiently developed such that the risk
of trading in such options is no greater than the risk of trading in options
on securities.
Price movements in a Fund's portfolio may not correlate precisely
with movements in the level of an index and, therefore, the use of index
options cannot serve as a complete hedge. Because index options require
settlement in cash, CFNB may be forced to liquidate portfolio securities to
meet settlement obligations.
When-Issued Securities. As discussed in the Prospectus, the Equity,
Intermediate Fixed Income, and Virginia Municipal Bond Funds may purchase
securities on a when- issued basis (i.e., for delivery beyond the normal
settlement date at a stated price and yield). When a Fund agrees to purchase
securities on a when-issued basis, the Custodian will set aside cash or
liquid portfolio securities equal to the amount of the commitment in a
separate account. Normally, the Custodian will set aside portfolio securities
to satisfy the purchase
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commitment, and in such a case, a Fund may be required subsequently to place
additional assets in the separate account in order to assure that the value
of the account remains equal to the amount of the Fund's commitment. It may
be expected that a Fund's net assets will fluctuate to a greater degree when
it sets aside portfolio securities to cover such purchase commitments than
when it sets aside cash. In addition, because a Fund will set aside cash or
liquid portfolio securities to satisfy its purchase commitments in the manner
described above, such Fund's liquidity and the ability of CFNB to manage it
might be affected in the event its commitments to purchase when-issued
securities ever exceeded 25% of the value of its assets.
When a Fund engages in when-issued transactions, it relies on the
seller to consummate the trade. Failure of the seller to do so may result in
a Fund incurring a loss or missing the opportunity to obtain a price
considered to be advantageous. The Funds will engage in when-issued delivery
transactions only for the purpose of acquiring portfolio securities
consistent with the Funds' investment objectives and policies and not for
investment leverage.
Mortgage-Related Securities. The Intermediate Fixed Income Fund may,
consistent with its investment objective and policies, invest in
mortgage-related securities issued or guaranteed by the U.S. Government, its
agencies, or instrumentalities. The Fund may, in addition, invest in
mortgage-related securities issued by nongovernmental entities; provided,
however, that to the extent that the Fund purchases mortgage-related
securities from such issuers which may, solely for purposes of Section 12 of
the 1940 Act, be deemed to be investment companies, the Fund's investment in
such securities will be subject to the limitations on investments in
investment company securities set forth below under "Investment
Restrictions." Mortgage-related securities, for purposes of the Prospectus
and this Statement of Additional Information, represent pools of mortgage
loans assembled for sale to investors by various governmental agencies such
as the Government National Mortgage Association and government-related
organizations such as the Federal National Mortgage Association and the
Federal Home Loan Mortgage Corporation, as well as by nongovernmental issuers
such as commercial banks, savings and loan institutions, mortgage bankers and
private mortgage insurance companies. Although certain mortgage-related
securities are guaranteed by a third party or otherwise similarly secured,
the market value of the security, which may fluctuate, is not so secured.
There are a number of important differences among the agencies and
instrumentalities of the U.S. Government that issue mortgage-related
securities and among the securities that they issue. Mortgage-related
securities issued by the Government National Mortgage Association ("GNMA")
include GNMA Mortgage Pass-Through Certificates (also known as "Ginnie Maes")
which are guaranteed as to the timely payment of principal and interest by
GNMA and such guarantee is backed by the full faith and credit of the United
States. GNMA is a wholly-owned U.S. government corporation within the
Department of Housing and Urban Development. GNMA certificates also are
supported by the authority of GNMA to borrow Funds from the U.S. Treasury to
make payments under its guarantee. Mortgage-
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<PAGE>
related securities issued by the Federal National Mortgage Association
("FNMA") include FNMA Guaranteed Mortgage Pass-Through Certificates (also
known as "Fannie Maes") which are solely the obligations of the FNMA and are
not backed by or entitled to the full faith and credit of the United States.
The FNMA is a government-sponsored organization owned entirely by private
stockholders. Fannie Maes are guaranteed as to timely payment of the
principal and interest by FNMA. Mortgage-related securities issued by the
Federal Home Loan Mortgage Corporation ("FHLMC") include FHLMC Mortgage
Participation Certificates (also known as "Freddie Macs" or "PCs"). The FHLMC
is a corporate instrumentality of the United States, created pursuant to an
Act of Congress, which is owned entirely by Federal Home Loan Banks. Freddie
Macs are not guaranteed by the United States or by any Federal Home Loan
Banks and do not constitute a debt or obligation of the United States or of
any Federal Home Loan Bank. Freddie Macs entitle the holder to timely payment
of interest, which is guaranteed by the FHLMC. The FHLMC guarantees either
ultimate collection or timely payment of all principal payments on the
underlying mortgage loans. When the FHLMC does not guarantee timely payment
of principal, FHLMC may remit the amount due on account of its guarantee of
ultimate payment of principal at any time after default on an underlying
mortgage, but in no event later than one year after it becomes payable.
The Intermediate Fixed Income Fund may invest in mortgage-related
securities which are collateralized mortgage obligations ("CMOs") structured
on pools of mortgage pass-through certificates or mortgage loans. The CMOs in
which the Intermediate Fixed Income Fund may invest represent securities
issued by a private corporation or a U.S. Government instrumentality that are
backed by a portfolio of mortgages or mortgage-backed securities held under
an indenture. The issuer's obligations to make interest and principal
payments is secured by the underlying portfolio of mortgages or
mortgage-backed securities. CMOs are issued with a number of classes or
series which have different maturities and which may represent interests in
some or all of the interest or principal on the underlying collateral or a
combination thereof. CMOs of different classes are generally retired in
sequence as the underlying mortgage loans in the mortgage pool are repaid. In
the event of sufficient early prepayments on such mortgages, the class or
series of a CMO first to mature generally will be retired prior to its
maturity. Thus, the early retirement of a particular class or series of a CMO
held by a Fund would have the same effect as the prepayment of mortgages
underlying a mortgage-backed pass-through security.
Securities of Other Investment Companies. To the extent permitted by
the 1940 Act and the Commission, each Fund may invest in securities issued by
other funds, including those advised by CFNB. Each Fund currently intends to
limit its investments so that, as determined immediately after a securities
purchase is made: (a) not more than 5% of the value of its total assets will
be invested in the securities of any one investment company; (b) not more
than 10% of the value of its total assets will be invested in the aggregate
in securities of investment companies as a group; (c) not more than 3% of the
outstanding voting stock of any one investment company will be owned by any
of the Funds; and (d) not more than 10% of the outstanding voting stock of
any one investment company will be
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<PAGE>
owned in the aggregate by the Funds. As a shareholder of another investment
company, a Fund would generally bear, along with other shareholders, its pro
rata portion of that company's expenses, including advisory fees. These
expenses would be in addition to the advisory and other expenses that the
Fund bears directly in connection with its own operations. Investment
companies in which a Fund may invest may also impose distribution or other
charges in connection with the purchase or redemption of their shares and
other types of charges. Such charges will be payable by the Funds and,
therefore, will be borne directly by Shareholders.
Repurchase Agreements. Securities held by each Fund may be subject to
repurchase agreements. Under the terms of a repurchase agreement, a Fund
would acquire securities from member banks of the Federal Deposit Insurance
Corporation and registered broker-dealers which CFNB deems creditworthy under
guidelines approved by MarketWatch's Board of Trustees, subject to the
seller's agreement to repurchase such securities at a mutually agreed-upon
date and price. The repurchase price would generally equal the price paid by
a Fund plus interest negotiated on the basis of current short-term rates,
which may be more or less than the rate on the underlying portfolio
securities. The seller under a repurchase agreement would be required to
maintain continually the value of collateral held pursuant to the agreement
at an amount equal to at least the repurchase price (including accrued
interest). The securities held subject to repurchase agreements may bear
maturities exceeding the maximum maturity specified for a Fund, provided each
repurchase agreement matures in one year or less. If the seller were to
default on its repurchase obligation or become insolvent, a Fund holding such
obligation would suffer a loss to the extent that the proceeds from a sale of
the underlying portfolio securities were less than the repurchase price under
the agreement, or to the extent that the disposition of such securities by
the Fund were delayed pending court action. Additionally, there is no
controlling legal precedent confirming that a Fund would be entitled, as
against a claim by such seller or its receiver or trustee in bankruptcy, to
retain the underlying securities, although the Board of Trustees of
MarketWatch believes that, under the regular procedures normally in effect
for custody of a Fund's securities subject to repurchase agreements and under
federal laws, a court of competent jurisdiction would rule in favor of
MarketWatch if presented with the question. Securities subject to repurchase
agreements will be held by that Fund's Custodian or another qualified
custodian. Repurchase agreements are considered to be loans by a Fund under
the 1940 Act.
Reverse Repurchase Agreements. As discussed in the Prospectus, each
Fund may borrow Funds for temporary purposes by entering into reverse
repurchase agreements in accordance with that Fund's investment restrictions.
Pursuant to such agreements, a Fund would sell portfolio securities to
financial institutions such as banks and broker-dealers, and agree to
repurchase the securities at a mutually agreed-upon date and price. The Money
Market and Equity Funds intend to enter into reverse repurchase agreements
only to avoid otherwise selling securities during unfavorable market
conditions to meet redemptions. At the time a Fund enters into a reverse
repurchase agreement, it will place in a segregated custodial account assets
such as U.S. government securities or other liquid, high grade debt
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<PAGE>
securities consistent with the Fund's investment restrictions having a value
equal to the repurchase price (including accrued interest), and will
subsequently continually monitor the account to ensure that such equivalent
value is maintained at all times. Reverse repurchase agreements involve the
risk that the market value of the securities sold by a Fund may decline below
the price at which a Fund is obligated to repurchase the securities. Reverse
repurchase agreements are considered to be borrowings by a Fund under the
1940 Act.
Securities Lending. In order to generate additional income, each Fund
may, from time to time, subject to its investment objective and policies,
lend its portfolio securities to broker-dealers, banks, or institutional
borrowers of securities pursuant to agreements requiring that the loans be
secured by collateral equal in value to 102% of the value of the securities
loaned. Collateral for loans of portfolio securities must consist of cash or
U.S. government securities. This collateral will be valued daily by CFNB.
Should the market value of the loaned securities increase, the borrower is
required to furnish additional collateral to that Fund. During the time
portfolio securities are on loan, the borrower pays that Fund any dividends
or interest received on such securities. Loans are subject to termination by
such Fund or the borrower at any time. While a Fund does not have the right
to vote securities on loan, each Fund intends to terminate the loan and
regain the right to vote if that is considered important with respect to the
investment. While the lending of securities may subject a Fund to certain
risks, such as delays or an inability to regain the securities in the event
the borrower were to default or enter into bankruptcy, the Fund will have the
contract right to retain the collateral described above. A Fund will enter
into loan agreements only with broker-dealers, banks, or other institutions
that CFNB has determined are creditworthy under guidelines established by
MarketWatch's Board of Trustees.
Municipal Securities. As stated in the Prospectus, the assets of the
Virginia Municipal Bond Fund will be primarily invested in obligations
consisting of bonds, notes, commercial paper, and certificates of
indebtedness, issued by or on behalf of the Commonwealth of Virginia, its
political subdivisions, municipalities, and public authorities, the interest
on which in the opinion of bond counsel to the issuer, is exempt from federal
individual income tax and Virginia income tax and debt obligations issued by
the Government of Puerto Rico or the U.S. territories and possessions of Guam
and the U.S. Virgin Islands and such other governmental entities whose debt
obligations, either by law or treaty, generate interest income that is exempt
from federal and Virginia income taxes ("Municipal Securities"). A portion of
the interest from certain Municipal Securities may be treated as a preference
item for purposes of the federal alternative minimum tax. Under normal market
conditions, at least 80% of the net assets of the Virginia Municipal Bond
Fund will be invested in Municipal Securities and 65% of the net assets of
such Fund will be invested in Municipal Securities issued by or on behalf of
the Commonwealth of Virginia, its political subdivisions, municipalities, and
public authorities.
Municipal Securities include debt obligations issued by governmental
entities to obtain Funds for various public purposes, such as the
construction of a wide range of public facilities, the refunding of
outstanding obligations, the payment of general operating
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<PAGE>
expenses, and the extension of loans to other public institutions and
facilities. Private activity bonds that are issued by or on behalf of public
authorities to finance various privately-operated facilities are included
within the term Municipal Securities if the interest paid thereon is exempt
from both regular federal income tax and Virginia income taxes although such
interest may be treated as a specific tax preference item under the federal
alternative minimum tax.
Other types of Municipal Securities which the Virginia Municipal Bond
Fund may purchase are short-term general obligation notes, tax anticipation
notes, bond anticipation notes, revenue anticipation notes, tax-exempt
commercial paper, and other forms of short-term tax-exempt loans. Such
instruments are issued with a short-term maturity, usually in anticipation of
the receipt of tax funds, the proceeds of bond issues, or other revenues.
As described in the Prospectus, the two principal classifications of
Municipal Securities consist of general obligation and revenue issues. There
are, of course, variations in the quality of Municipal Securities, both
within a particular classification and between classifications, and the
yields on Municipal Securities depend upon a variety of factors, including
general money market conditions, the financial condition of the issuer,
general conditions of the municipal bond market, the size of a particular
offering, the maturity of the obligation, and the rating of the issue. The
ratings of the individual NRSROs represent their opinions as to the quality
of Municipal Securities. It should be emphasized, however, that ratings are
general and are not absolute standards of quality, and securities with the
same maturity, interest rate and rating may have different yields, while
securities of the same maturity and interest rate with different ratings may
have the same yield. Subsequent to purchase, an issue of Municipal Securities
may cease to be rated or its rating may be reduced below the minimum rating
required for purchase. CFNB will consider such an event in determining
whether the Fund should continue to hold the obligation.
An issuer's obligations are subject to the provisions of bankruptcy,
insolvency, and other laws affecting the rights and remedies of creditors,
such as the federal bankruptcy code, and laws, if any, which may be enacted
by Congress or state legislatures extending the time for payment of principal
or interest, or both, or imposing other constraints upon the enforcement of
such obligations or upon the ability of municipalities to levy taxes. The
power or ability of an issuer to meet its obligations for the payment of
interest on and principal of its Municipal Securities may be materially
adversely affected by litigation or other conditions.
Investment Restrictions
In addition to the fundamental investment restrictions set forth in
the Prospectus, each Fund may not:
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<PAGE>
1. Underwrite the securities issued by other persons, except to
the extent that a Fund may be deemed to be an underwriter
under certain securities laws in the disposition of restricted
securities;
2. Purchase or sell commodities or commodities contracts, except
to the extent disclosed in the current Prospectus of the
Funds; and
3. Purchase or sell real estate (although investments by the
Equity and Intermediate Fixed Income Funds in marketable
securities of companies engaged in such activities are not
prohibited by this restriction).
The following additional investment restrictions may be changed with
respect to a particular Fund without the vote of a majority of the
outstanding Shares of that Fund. Each Fund may not:
1. Enter into repurchase agreements with maturities in excess of
seven days if such investments, together with other
instruments in that Fund that are not readily marketable or
are otherwise illiquid, exceed 15% of that Fund's net assets
(10% for the Money Market Fund).
2. Purchase securities on margin, except for use of short-term
credit necessary for clearance of purchases of portfolio
securities;
3. Engage in any short sales;
4. Purchase securities of other investment companies, except in
connection with a merger, consolidation, acquisition,
reorganization, or to the extent permitted by the 1940 Act and
the Commission; and
5. Invest more than 5% of total assets in puts, calls, straddles,
spreads, or any combination thereof.
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<PAGE>
If any percentage restriction described above is satisfied at the
time of investment, a later increase or decrease in such percentage resulting
from a change in asset value will not constitute a violation of such
restriction.
Portfolio Turnover
The portfolio turnover rate for each of the Funds is calculated by
dividing the lesser of a Fund's purchases or sales of portfolio securities
for the year by the monthly average value of the portfolio securities. The
calculation excludes all securities whose remaining maturities at the time of
acquisition were one year or less.
Because the Money Market Fund intends to invest entirely in
short-term securities with maturities of 397 days or less and because such
securities are excluded by the Commission from the calculation of the
portfolio turnover rate, the portfolio turnover with respect to the Money
Market Fund is expected to be zero percent for regulatory purposes.
NET ASSET VALUE
As indicated in the Prospectus, the net asset value of each Fund is
determined and the Shares of each Fund are priced as of the Valuation Times
applicable to such Fund on each Business Day of MarketWatch.
Valuation of the Funds
Valuation of the Money Market Fund. As stated in the Prospectus, in
computing the net asset value of its Shares for purposes of sales and
redemptions, the Money Market Fund uses the amortized cost method of
valuation. Under this method, such Fund values each of its portfolio
securities at cost on the date of purchase and thereafter assumes a constant
proportionate accretion of any discount or amortization of any premium until
maturity of the security. As a result, the value of a portfolio security for
purposes of determining net asset value normally does not change in response
to fluctuating interest rates. While the amortized cost method seems to
provide certainty in portfolio valuation, it may
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<PAGE>
result in valuations for such Fund's securities which are higher or lower
than the market value of such securities.
In connection with its use of amortized cost valuation, such Fund
limits the dollar-weighted average maturity of its portfolio to not more than
90 days and does not purchase any instrument with a remaining maturity of
more than 397 days with certain exceptions. MarketWatch's Board of Trustees
has also established procedures, pursuant to rules promulgated by the
Commission, that are intended to stabilize the net asset value per share of
such Fund for purposes of sales and redemptions at $1.00. Such procedures
include the determination at such intervals as the Board deems appropriate,
of the extent, if any, to which such Fund's net asset value per share
calculated by using available market quotations deviates from $1.00 per
share. In the event such deviation exceeds 1/2 of 1% with respect to the
Fund, the Board will promptly consider what action, if any, should be
initiated. If the Board believes that the amount of any deviation from the
$1.00 amortized cost price per share of the Fund may result in material
dilution or other unfair results to investors or existing Shareholders, it
will take such steps as it considers appropriate to eliminate or reduce to
the extent reasonably practicable any such dilution or unfair results. These
steps may include selling portfolio instruments prior to maturity; shortening
the Fund's average portfolio maturity; withholding or reducing dividends;
redeeming shares in kind; or utilizing a net asset value per share determined
by using available market quotations.
Valuation of the Equity, Intermediate Fixed Income and Virginia Municipal
Bond Funds. The valuation of readily marketable securities is discussed in the
Prospectus. Additional factors that will be considered, if they apply, in
valuing portfolio securities held by the Equity, Intermediate Fixed Income
and Virginia Municipal Bond Funds are the existence of restrictions upon the
sale of the security by the Fund, the absence of a market for the security,
the extent of any discount in acquiring the security, the estimated time
during which the security will not be freely marketable, the expenses of
registering or otherwise qualifying the security for public sale,
underwriting commissions if underwriting would be required to effect a sale,
the current yields on comparable securities for debt obligations traded
independently of any equity equivalent, changes in the financial condition
and prospects of the issuer, and any other factors affecting fair value. In
making valuations, opinions of counsel may be relied upon as to whether or
not securities are restricted securities and as to the legal requirements for
public sale.
CFNB may use a pricing service to value certain portfolio securities
where the prices provided are believed to reflect the fair market value of
such securities. A pricing service would normally consider such factors as
yield, risk, quality, maturity, type of issue, trading characteristics,
special circumstances, and other factors it deems relevant in determining
valuations of normal institutional trading units of debt securities and would
not rely exclusively on quoted prices. The methods used by the pricing
service and the valuations so established will be reviewed by CFNB under the
general supervision of MarketWatch's Board of Trustees. Several pricing
services are available, one or more of which may be used by CFNB from time to
time.
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<PAGE>
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Illustration of Computation of the Public Offering Price
An illustration of the computation of the public offering price per
Share of each of the Funds based on the value of the Funds' total net assets
and total number of Shares outstanding on November 30, 1996 is as follows:
<TABLE>
<CAPTION>
Intermediate Virginia
Money Market Equity Fixed Income Municipal
Fund Fund Fund Bond Fund
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net Assets ..................... $13,721,064 $186,147,269 $43,277,129 $70,378,401
Number of Shares Outstanding ... 13,721,563 11,342,771 4,347,264 6,930,862
Net Asset Value Per Share ...... $ 1.00 $ 16.41 $ 9.96 $ 10.15
Sales Charge, 4.50% of offering
price (4.71% of net asset value
per share) with respect to
Equity, Intermediate Fixed
Income, and Virginia Municipal
Bond Funds .................... $ .00(1) $ .77 $ .47 $ .48
Offering Price to Public ....... $ 1.00 $ 17.18 $ 10.43 $ 10.63
<FN>
1 The Money Market Fund does not have a sales charge.
</TABLE>
Matters Affecting Redemption
Shares in each of MarketWatch's Funds are sold on a continuous basis
by BISYS Fund Services, Inc. ("BISYS"), and BISYS has agreed to use
appropriate efforts to solicit all purchase orders. In addition to purchasing
Shares directly from BISYS, Shares may be purchased through procedures
established by BISYS in connection with the requirements of accounts at CFNB
or CFNB's affiliated entities (collectively, "Entities"). Customers
purchasing Shares of the Funds may include officers, directors, or employees
of CFNB or the Entities.
Under the 1940 Act, a Fund may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the
New York Stock Exchange is closed, other than customary weekend and holiday
closings, or during which trading on said Exchange is restricted, or during
which (as determined by the Commission by rule or regulation) an emergency
exists as a result of which disposal or valuation of portfolio securities is
not reasonably practicable, or for such other periods as the Commission may
permit. (A Fund may also suspend or postpone the recordation of the transfer
of its shares upon the occurrence of any of the foregoing conditions.) Each
Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of
such Fund's net asset value, whichever is less,
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for any one Shareholder within a 90-day period. Any redemption beyond this
amount will also be in cash unless the Board of Trustees determines that
conditions exist which make payment of redemption proceeds wholly in cash
unwise or undesirable. In such a case, a Fund may make payment wholly or
partly in securities or other property, valued in the same way as that Fund
determines net asset value. (See "NET ASSET VALUE - Valuation of the Funds -
Valuation of the Money Market Fund" above for an example of when such
redemption or form of payment might be appropriate.) Redemption in kind is
not as liquid as a cash redemption. Shareholders who receive a redemption in
kind may incur transaction costs, if they sell such securities or property,
and may receive less than the redemption value of such securities or property
upon sale, particularly where such securities are sold prior to maturity.
MANAGEMENT OF MARKETWATCH
Trustees and Officers
The names, addresses and principal occupations during the past five
years of the trustees and officers of MarketWatch are set forth in the
Prospectus.
The following table summarizes the compensation for each of the
trustees and the three highest paid executive officers of MarketWatch for
MarketWatch's fiscal year ended November 30, 1996:
<TABLE>
<CAPTION>
Pension or
Retirement
Benefits Accrued
Aggregate as Part of Estimated Total Compensation
Name of Compensation MarketWatch's Approval Benefits from the
Person, Position from MarketWatch Expenses Upon Retirement Trust
---------------- ---------------- ---------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Walter B. Grimm $ 0 $0 $0 $ 0
President and Trustee
Age: 51
G.E.R. Stiles $4,500.00 $0 $0 $4,500.00
Trustee
Age: 64
Alvin J. Schexnider $4,500.00 $0 $0 $4,500.00
Trustee
Age: 51
Anne Gregory Rhodes* $3,500.00 $0 $0 $3,500.00
Trustee
Age: 54
Stephen G. Mintos $ 0 $0 $0 $ 0
Vice President and
Treasurer
Age: 43
William J. Tomko $ 0 $0 $0 $ 0
Vice President
Age: 37
<FN>
*Ms. Rhodes resigned as a trustee effective March 19, 1997.
</TABLE>
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Investment Adviser
Investment advisory services are provided to the Funds by Central
Fidelity National Bank ("CFNB") pursuant to an Investment Advisory Agreement
dated as of January 27, 1993 (the "Investment Advisory Agreement"). Under the
Investment Advisory Agreement, CFNB has agreed to provide investment advisory
services as described in the Prospectus of the Funds. For the services
provided and expenses assumed pursuant to the Investment Advisory Agreement,
each of the Funds pays CFNB a fee computed daily and paid monthly, at an
annual rate, calculated as a percentage of the average daily net assets of
that Fund, of fifty one-hundredths of one percent (.50%) for the Money Market
Fund, of one percent (1.00%) for the Equity Fund, and of seventy-four
one-hundredths of one percent (.74%) for the Intermediate Fixed Incomeand
Virginia Municipal Bond Funds. CFNB may periodically waive all or a portion
of its advisory fee with respect to any Fund to increase the net income of
the Fund available for distribution as dividends.
For the fiscal year ended November 30, 1994, MarketWatch paid CFNB
advisory fees of $-0-, $799,521, $295,625, and $157,151 with respect to the
Money Market, Equity, Intermediate Fixed Income and Virginia Municipal Bond
Funds, respectively, and CFNB waived advisory fees of $57,218, $298,800,
$150,029, and $141,789 for such respective Funds. For the fiscal year ended
November 30, 1995, MarketWatch paid CFNB advisory fees of $-0-, $797,122,
$195,026, and $172,550 with respect to the Money Market, Equity, Intermediate
Fixed Income, and Virginia Municipal Bond Funds, respectively, and CFNB
waived $61,096, $315,926, $99,607, and $155,972 for such respective Funds.
For the fiscal year ended November 30, 1996, MarketWatch paid CFNB advisory
fees of $-0-, $1,070,702, $188,872, and $250,321 with respect to the Money
Market, Equity, Intermediate Fixed Income, and Virginia Municipal Bond Funds,
respectively, and CFNB waived advisory fees of $69,491, $371,422, $99,835,
and $225,219 for the respective Funds.
Unless sooner terminated, the Investment Advisory Agreement will
continue in effect as to each Fund until March 31, 1998 and from year to year
thereafter, if such continuance is approved at least annually by
MarketWatch's Board of Trustees or by vote of a majority of the outstanding
Shares of the relevant Fund (as defined under "GENERAL INFORMATION -
Miscellaneous" in the Prospectus), and a majority of the trustees who are not
parties to the Investment Advisory Agreement or interested persons (as
defined in the 1940 Act) of any party to the Investment Advisory Agreement by
votes cast in person at a meeting called for such purpose. The Investment
Advisory Agreement is terminable as to a Fund at any time on 60 days' written
notice without penalty by the trustees, by vote of a majority of the
outstanding Shares of that Fund, or by CFNB. The Investment Advisory
Agreement also terminates automatically in the event of any assignment,
pursuant to the 1940 Act.
The Investment Advisory Agreement provides that CFNB shall not be
liable for any error of judgment or mistake of law or for any loss suffered
by a Fund in connection with the performance of the Investment Advisory
Agreement, except a loss resulting from a breach of fiduciary duty with
respect to the receipt of compensation for services or a loss resulting from
willful misfeasance, bad faith, or gross negligence on the part of CFNB in
the performance of its duties, or from reckless disregard by CFNB of its
duties and obligations thereunder.
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<PAGE>
Portfolio Transactions
Pursuant to the Investment Advisory Agreement, CFNB determines,
subject to the general supervision of the Board of Trustees of MarketWatch
and in accordance with each Fund's investment objectives and restrictions,
which securities are to be purchased and sold by a Fund, and which brokers
are to be eligible to execute such Fund's portfolio transactions. Purchases
and sales of portfolio securities with respect to the Funds usually are
principal transactions in which portfolio securities are normally purchased
directly from the issuer or from an underwriter or market maker for the
securities. Purchases from underwriters of portfolio securities generally
include a commission or concession paid by the issuer to the underwriter, and
purchases from dealers serving as market makers may include the spread
between the bid and asked price. Transactions on stock exchanges involve the
payment of negotiated brokerage commissions. Transactions in the
over-the-counter market are generally principal transactions with dealers.
With respect to the over-the-counter market, CFNB, where possible, will deal
directly with dealers who make a market in the securities involved except in
those circumstances where better price and execution are available elsewhere.
Allocation of transactions, including their frequency, to various
brokers and dealers is determined by CFNB in its best judgment and in a
manner deemed fair and reasonable to Shareholders. While CFNB generally seeks
competitive commissions, the Funds may not necessarily pay the lowest
commission available on each brokerage transaction. The primary consideration
in allocating transactions is prompt execution of orders in an effective
manner at the most favorable price. Subject to this consideration, brokers
and dealers who provide supplemental investment research to CFNB may
receive orders for transactions on behalf of the Funds. Information so
received is in addition to and not in lieu of services required to be
performed by CFNB and does not reduce the advisory fees payable to CFNB
by the Funds. Such information may be useful to CFNB in serving both the
Funds and other clients and, conversely, supplemental information
obtained by the placement of business of other clients may be useful to
CFNB in carrying out its obligations to the Funds. For the fiscal years
ended November 30, 1994 , November 30, 1995 and November 30, 1996,
MarketWatch paid brokerage commissions of $112,107, $85,138 and $89,768,
respectively, for the Equity Fund. None of the other Funds paid any
brokerage commissions for such periods. In addition, CFNB, on behalf of the
Equity Fund, may direct brokerage transactions to (1) Interstate Securities
in return for the provision of investment information, including
Business Cycles and Value Line, and (2) Autranet in return for the provision
of investment information, including Bloomberg and First Call. For the
fiscal year ended November 30, 1996, the amount of such transactions and
related commissions on behalf of the Equity Fund were $16,950 and $24,432,
respectively.
Except as permitted by applicable laws, rules and regulations, CFNB
will not, on behalf of the Funds, execute portfolio transactions through,
acquire portfolio securities issued by, make savings deposits in, or enter
into repurchase or reverse repurchase agreements with CFNB, BISYS, or their
affiliates, and will not give preference to CFNB's correspondents with
respect to such transactions, securities, savings deposits, repurchase
agreements, and reverse repurchase agreements.
Investment decisions for each Fund are made independently from those
for the other Funds or any other investment company or account managed by
CFNB. Any such other Fund, investment company or account may also invest in
the same securities as any of the Funds. When a purchase or sale of the same
security is made at substantially the same time on behalf of a Fund and
another Fund of MarketWatch, investment company or account, the transaction
will be averaged as to price and available investments will be allocated as
to amount in a manner which CFNB believes to be equitable to the Fund(s) and
such other investment company or account. In some instances, this investment
procedure may adversely affect the price paid or received by a Fund or the
size of the position obtained by a Fund. To the extent permitted by law, CFNB
may aggregate the securities to be sold or purchased
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<PAGE>
for a Fund with those to be sold or purchased for the other Funds or for
other investment companies or accounts in order to obtain best execution. As
provided by the Investment Advisory Agreement, in making investment
recommendations for the Funds, CFNB will not inquire or take into
consideration whether an issuer of securities proposed for purchase or sale
by MarketWatch is a customer of CFNB, its parent or its subsidiaries or
affiliates and, in dealing with its customers, CFNB, its parent,
subsidiaries, and affiliates will not inquire or take into consideration
whether securities of such customers are held by the Funds.
Banking Laws
Banking laws and regulations currently prohibit a bank holding
company registered under the Bank Holding Company Act of 1956 or any
affiliate thereof from sponsoring, organizing, or controlling a registered,
open-end investment company continuously engaged in the issuance of its
shares, and prohibit banks generally from issuing, underwriting, selling, or
distributing securities such as Shares of the Funds. Such banking laws and
regulations do not prohibit such a holding company or affiliate or banks
generally from acting as investment adviser, transfer agent, or custodian to
such an investment company, or from purchasing shares of such a company as
agent for and upon the order of customers.
CFNB and its affiliates believe that they may perform the services
for the Funds contemplated by the respective investment advisory, custodial
and shareholder servicing agreements, Prospectus and this Statement of
Additional Information without violation of applicable banking laws or
regulations. It should be noted, however, that future changes in legal
requirements relating to the permissible activities of banks and their
affiliates, as well as further interpretations of present requirements, could
require the Bank to alter materially or discontinue performing one or more of
such services for the Funds, including services in connection with Customer
purchases of Shares of the Funds. It is not anticipated, however, that any
change in MarketWatch's method of operations would affect its net asset value
per share or result in financial losses to any Customer. It is expected that
the Board of Trustees would recommend that MarketWatch enter into new
agreements with other qualified firms. Any new advisory agreement would be
subject to Shareholder approval.
Administrator
BISYS serves as administrator ("BISYS, as Administrator") to the
Funds pursuant to a Management and Administration Agreement dated October 1,
1993 (the "Administration Agreement"). BISYS, as Administrator, assists in
supervising all operations of each Fund (other than those performed by CFNB
under the Investment Advisory Agreement and the Custodian Agreement and by
BISYS under the Transfer Agency Agreement and Fund Accounting Agreement).
BISYS is a broker-dealer registered with the Commission, and is a member of
the National Association of Securities Dealers, Inc.
Under the Administration Agreement, BISYS, as Administrator has
agreed to maintain office facilities; furnish statistical and research data,
clerical, certain bookkeeping services and stationery and office supplies;
prepare the periodic reports to the Commission
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<PAGE>
on Form N-SAR or any replacement forms therefor; compile data for, prepare
for execution by the Funds and file all of the Funds' federal and state tax
returns and required tax filings other than those required to be made by the
Funds' Custodian and Transfer Agent; prepare compliance filings pursuant to
state securities laws with the advice of MarketWatch's counsel; assist to the
extent requested by MarketWatch with MarketWatch's preparation of its Annual
and Semi-Annual Reports to Shareholders and its Registration Statement (on
Form N-1A or any replacement therefor); compile data for, prepare and file
timely Notices to the Commission required pursuant to Rule 24f-2 under the
1940 Act; keep and maintain the financial accounts and records of each Fund,
including calculation of daily expense accruals; and generally assists in all
aspects of the Funds' operations other than those performed by CFNB under the
Investment Advisory Agreement and the Custodian Agreement and by BISYS Fund
Services, Ohio Inc. ("BISYS OHIO") under the Transfer Agency Agreement and
Fund Accounting Agreement. Under the Administration Agreement, BISYS may
delegate all or any part of its responsibilities thereunder.
BISYS, as Administrator, receives a fee from each Fund for its
services as Administrator and expenses assumed pursuant to the Administration
Agreement calculated daily and paid periodically, at an annual rate equal to
twenty one-hundredths of one percent (.20%) of that Fund's average daily net
assets. BISYS may periodically waive all or a portion of its fee with respect
to any Fund in order to increase the net income of one or more of the Funds
available for distribution as dividends.
For the fiscal year ended November 30, 1994, MarketWatch paid BISYS,
as Administrator, administration fees of $16,094, $146,255, $85,826, and
$58,087 with respect to the Money Market, Equity, Intermediate Fixed Income,
and Virginia Municipal Bond Funds, respectively, and waived administration
fees of $6,793, $73,409, $34,621, and $22,708 for such respective Funds.
During the same period, BISYS reimbursed expenses totalling $59,445, $70,128,
$53,704, and $45,935 with respect to the Money Market, Equity, Intermediate
Fixed Income, and Virginia Municipal Bond Funds, respectively. For the fiscal
year ended November 30, 1995, MarketWatch paid BISYS, as Administrator,
$18,329, $166,890, $59,777, and $66,535 with respect to the Money Market,
Equity, Intermediate Fixed Income, and Virginia Municipal Bond Funds,
respectively, and waived administration fees of $6,110, $55,720, $19,854, and
$22,255 for such respective Funds. During the same period, BISYS reimbursed
expenses totalling $49,443, $29,780, $44,670, and $24,361 with respect to the
Money Market, Equity, Intermediate Fixed Income, and Virginia Municipal Bond
Funds, respectively. For the fiscal year ended November 30, 1996, MarketWatch
paid BISYS, as Administrator, $20,847, $216,046, $58,491, and $96,326 with
respect to the Money Market, Equity, Intermediate Fixed Income, and Virginia
Municipal Bond Funds, respectively, and waived administration fees of $6,949,
$72,379, $19,538, and $32,198 for such respective Funds. During the same
period, BISYS reimbursed expenses totalling $44,927, $11,801, $32,313, and
$1,569 with respect to the Money Market, Equity, Intermediate Fixed Income,
and Virginia Municipal Bond Funds, respectively.
Unless sooner terminated as provided therein, the Administration
Agreement will continue in effect until March 31, 1998. The Administration
Agreement thereafter shall be renewed automatically for successive one-year
terms, unless written notice not to renew is given by the non-renewing party
to the other party at least 60 days prior to the expiration of the
then-current term. The Administration Agreement is terminable with respect to
a particular Fund through a failure to renew the agreement, upon mutual
agreement of the parties to the Administration Agreement and for cause (as
defined in the Administration
-21-
<PAGE>
Agreement) by the party alleging cause, on not less than 60 days' notice by
MarketWatch's Board of Trustees or by BISYS, as Administrator.
The Administration Agreement provides that BISYS, as Administrator,
shall not be liable for any error of judgment or mistake of law or any loss
suffered by any of the Funds in connection with the matters to which the
Administration Agreement relates, except a loss resulting from willful
misfeasance, bad faith, or gross negligence in the performance of its duties,
or from the reckless disregard by BISYS of its obligations and duties
thereunder.
Expenses
If total expenses borne by any of the Funds in any fiscal year exceed
expense limitations imposed by applicable state securities regulations, CFNB
and BISYS, as Administrator, will reimburse that Fund by the amount of such
excess in proportion to their respective fees. As of the date of this
Statement of Additional Information, the most restrictive expense limitation
applicable to each of the Funds limits a Fund's aggregate annual expenses,
including advisory fees but excluding interest, taxes, brokerage commissions,
and certain other expenses, to 2 1/2% of the first $30 million of that Fund's
average net assets, 2% of the next $70 million of that Fund's average net
assets, and 1 and 1/2% of that Fund's remaining average net assets. Any
expense reimbursements will be estimated daily and reconciled and paid on a
monthly basis. Fees imposed upon customer accounts for cash management and
other customer-related services by CFNB or its affiliated or correspondent
banks are not included within Fund expenses for purposes of any such expense
limitation.
Distributor
BISYS serves as distributor to the Funds pursuant to the Distribution
Agreement dated October 1, 1993, with respect to the Funds (the "Distribution
Agreement"). Unless otherwise terminated, the Distribution Agreement will
continue in effect until March 31, 1998 and thereafter for successive
one-year periods if approved at least annually (i) by MarketWatch's Board of
Trustees or by the vote of a majority of the outstanding Shares of
MarketWatch, and (ii) by the vote of a majority of the trustees of
MarketWatch who are not parties to the Distribution Agreement or interested
persons (as defined in the 1940 Act) of any party to the Distribution
Agreement, cast in person at a meeting called for the purpose of voting on
such approval. The Distribution Agreement terminates automatically in the
event of any assignment pursuant to the 1940 Act.
For the fiscal year ended November 30, 1996, BISYS received $-0-
(after waivers of $34,746), $360,076, $97,485 and $160,544 with respect to
the Money Market, Equity, Intermediate Fixed Income and Virginia Municipal
Bond Funds, respectively. For the same period, BISYS received $518,741 in
sales loads in connection with share purchases, of which BISYS retained
$30,248. The balance was paid to selling dealers.
Custodian
Central Fidelity National Bank, 1021 East Cary Street, Richmond,
Virginia 23219, in addition to serving as the investment adviser to the
Funds, also serves as custodian (the "Custodian") to the Funds pursuant to
the Custodian Agreement dated as of January 27, 1993 between MarketWatch and
the Custodian (the "Custodian Agreement"). The Custodian's
-22-
<PAGE>
responsibilities include safeguarding and controlling each Fund's
cash and securities, handling the receipt and delivery of securities, and
collecting income on each Fund's investments. In consideration of such
services, each of the Funds pays the Custodian an annual fee of $.20 per
$1,000 on the first $100 million of the market value of the Fund's assets,
$.15 per $1,000 on the next $100 million of the market value of the Fund's
assets and $.10 per $1,000 on the balance of the market value of the Fund's
assets, plus fixed fees charged for certain portfolio transactions and
out-of-pocket expenses.
Unless sooner terminated, the Custodian Agreement will continue in
effect until terminated by either party upon 60-days advance written notice
to the other party. In the opinion of the staff of the Commission, since the
Custodian is serving as both the investment adviser and custodian of the
Funds, the Funds and the Custodian are subject to the requirements of Rule
17f-2 under the 1940 Act, and therefore the Funds and the Custodian will
comply with the requirements of such rule.
Transfer Agency and Fund Accounting Services
BISYS OHIO serves as transfer agent and dividend disbursing agent for
all Funds of MarketWatch, pursuant to the Transfer Agency Agreement dated
October 1, 1993. Pursuant to such Agreement, BISYS OHIO, among other things,
performs the following services in connection with each Fund's Shareholders
of record: maintenance of shareholder records for each of MarketWatch's
Shareholders of record; processing Shareholder purchase, exchange and
redemption orders; processing transfers and exchanges of Shares of
MarketWatch on the shareholder files and records; processing dividend
payments and reinvestments; and assistance in the mailing of shareholder
reports and proxy solicitation materials. For such services BISYS OHIO
receives a fee based on the number of Shareholders of record and is
reimbursed for out-of pocket expenses.
In addition, BISYS OHIO provides fund accounting services to the
Funds pursuant to a Fund Accounting Agreement dated October 1, 1993. BISYS
OHIO receives a fee from each Fund for such services based upon the total
assets in that Fund. Under such Agreement, BISYS OHIO maintains the
accounting books and records for each Fund, including journals containing an
itemized daily record of all purchases and sales of portfolio securities, all
receipts and disbursements of cash and all other debits and credits, general
and auxiliary ledgers reflecting all asset, liability, reserve, capital,
income and expense accounts, including interest accrued and interest
received, and other required separate ledger accounts; maintains a monthly
trial balance of all ledger accounts; performs certain accounting services
for the Fund, including calculation of the net asset value per share,
calculation of the dividend and capital gain distributions, if any, and of
yield, reconciliation of cash movements with the Custodian, affirmation to
the Custodian of all portfolio trades and cash settlements, verification and
reconciliation with the Custodian of all daily trade activity; provides
certain reports; obtains dealer quotations, prices from a pricing service or
matrix prices on all portfolio securities in order to mark the portfolio to
the market; and prepares an interim balance sheet, statement of income and
expense, and statement of changes in net assets for each Fund.
-23-
<PAGE>
Auditors
KPMG Peat Marwick LLP, Two Nationwide Plaza, Suite 1600, Columbus,
Ohio 43215, has been selected as the independent auditors for each of the
Funds.
Legal Counsel
Drinker Biddle & Reath (of which Ms. Simmons, Assistant Secretary of
MarketWatch, is a Counsel), 1345 Chestnut Street, Philadelphia, Pennsylvania
19107-3496, is counsel to MarketWatch and will pass upon the legality of the
Shares offered hereby.
ADDITIONAL INFORMATION
Description of Shares
MarketWatch is a Massachusetts business trust. MarketWatch was
organized on June 4, 1992, and MarketWatch's Agreement and Declaration of
Trust was filed with the Secretary of State of Massachusetts on June 4, 1992.
The Agreement and Declaration of Trust authorizes the Board of Trustees to
issue an unlimited number of Shares, which are shares of beneficial interest,
with a par value of $.001 per share. MarketWatch presently has four separate
investment portfolios (or series) of Shares representing interests in the
Money Market, Equity, Intermediate Fixed Income, and Virginia Municipal Bond,
respectively. MarketWatch's Agreement and Declaration of Trust authorizes the
Board of Trustees to divide or redivide any unissued Shares of MarketWatch
into one or more additional investment portfolio (or series) by setting or
changing in any one or more respects their respective preferences, conversion
or other rights, voting power, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption.
Shares have no subscription or preemptive rights and only such
conversion or exchange rights as the Board of Trustees may grant in its
discretion. When issued for payment as described in the Prospectus and this
Statement of Additional Information, the Shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of MarketWatch,
Shareholders of a Fund are entitled to receive the assets available for
distribution belonging to that Fund, and a proportionate distribution, based
upon the relative asset values of the respective Funds, of any general assets
not belonging to any particular Fund which are available for distribution.
Rule 18f-2 under the 1940 Act provides that any matter required to be
submitted to the holders of the outstanding voting securities of an
investment company such as MarketWatch shall not be deemed to have been
effectively acted upon unless approved by the holders of a majority of the
outstanding Shares of each Fund affected by the matter. For purposes of
determining whether the approval of a majority of the outstanding Shares of a
Fund will be required in connection with a matter, a Fund will be deemed to
be affected by a matter unless it is clear that the interests of each Fund in
the matter are identical, or that the matter does not affect any interest of
the Fund. Under Rule 18f-2, the approval of an investment advisory agreement
or any change in investment policy would be effectively acted upon with
respect to a Fund only if approved by a majority of the outstanding Shares of
such Fund. However, Rule 18f-2 also provides that the ratification of
independent public accountants, the approval of principal underwriting
contracts, and the election of trustees
-24-
<PAGE>
may be effectively acted upon by Shareholders of MarketWatch voting without
regard to Fund.
As of February 28, 1997, the following were record owners of five
percent or more of the outstanding shares of the respective Funds:
<TABLE>
<CAPTION>
Name and Address: Percentage of Ownership of:
- ----------------- ---------------------------
<S> <C> <C>
Central Fidelity Bank Equity Fund: 32.41
REINVEST
Larco Attn: Mutual Fund Desk
PO Box 27602 5th Floor James Center
Richmond, VA 23261
Central Fidelity Bank Money Market Fund: 91.92
CASH Equity Fund: 49.84
Larco Attn: Mutual Fund Desk Intermediate Fixed Income Fund: 92.90
PO Box 27602 5th Floor James Center Virginia Municipal Bond Fund: 90.74
Richmond, VA 23261
<FN>
Beneficial ownership of the Shares listed above is disclaimed by CFNB.
</TABLE>
Shareholder and Trustee Liability
Under Massachusetts law, holders of shares of interest in a business
trust may, under certain circumstances, be held personally liable as partners
for the obligations of the trust. However, MarketWatch's Agreement and
Declaration of Trust provides that Shareholders shall not be subject to any
personal liability for the obligations of MarketWatch, and that every written
agreement, obligation, instrument, or undertaking made by MarketWatch shall
contain a provision to the effect that the Shareholders are not personally
liable thereunder. The Agreement and Declaration of Trust provides for
indemnification out of the trust property of any Shareholder held personally
liable solely by reason of being or having been a Shareholder. The Agreement
and Declaration of Trust also provides that MarketWatch shall, upon request,
assume the defense of any claim made against any Shareholder for any act or
obligation of MarketWatch, and shall satisfy any judgement thereon. Thus, the
risk of a Shareholder incurring financial loss on account of Shareholder
liability is limited to circumstances in which MarketWatch itself would be
unable to meet its obligations.
The Agreement and Declaration of Trust states further that no
trustee, officer, or agent of MarketWatch shall be personally liable in
connection with the administration or preservation of the assets of
MarketWatch or the conduct of MarketWatch's business; nor shall any trustee,
officer, or agent be personally liable to any person for any action or
failure to act except for bad faith, willful misfeasance, gross negligence,
or reckless disregard of his or her duties. The Agreement and Declaration of
Trust also provides that all persons having any claim against the trustees or
MarketWatch shall look solely to the assets of MarketWatch for payment.
-25-
<PAGE>
Vote of a Majority of the Outstanding Shares
As used in the Prospectus and this Statement of Additional
Information, a "vote of a majority of the outstanding Shares" of a Fund means
the affirmative vote, at a meeting of Shareholders duly called, of the lesser
of (a) 67% or more of the votes of Shareholders of that Fund present at a
meeting at which the holders of more than 50% of the votes attributable to
Shareholders of record of that Fund are represented in person or by proxy, or
(b) the holders of more than 50% of the outstanding votes of Shareholders of
that Fund.
Additional Tax Information - In General
Each Fund of MarketWatch is treated as a separate corporate entity
under the Internal Revenue Code of 1986, as amended (the "Code") and intends
to qualify as a regulated investment company. In order to so qualify, each
Fund is required, among other things, to derive with respect to a taxable
year less than 30% of its gross income from the sale or other disposition of
securities and certain other investments held for less than three months.
Interest (including original issue discount and accrued market discount)
received by a Fund upon maturity or disposition of a security held for less
than three months will not be treated as gross income derived from the sale
or other disposition of such security within the meaning of this requirement.
However, other income which is attributable to realized market appreciation
will be treated as gross income from the sale or other disposition of
securities for this purpose.
MarketWatch will designate any distribution of long-term capital
gains of a Fund as a capital gain dividend in a written notice mailed to
Shareholders within 60 days after the close of the Fund's taxable year. It is
not expected that the Money Market or Virginia Municipal Bond Funds will have
any long-term capital gains. Shareholders should note that, upon the sale or
exchange of Fund shares, if the Shareholder has not held such shares for at
least six months, any loss on the sale or exchange of those shares will be
treated as long-term capital loss to the extent of the capital gain dividends
received with respect to the shares. In addition, if a Shareholder receives
one or more exempt-interest dividends with respect to any Share of the
Virginia Municipal Bond Fund and such Share is held for six months or less,
any loss on the sale or exchange of such Share will be disallowed to the
extent of such exempt-interest dividend income.
A 4% non-deductible excise tax is imposed on regulated investment
companies that fail to currently distribute an amount equal to specified
percentages of their ordinary taxable income and capital gain net income
(excess of capital gains over capital losses). Each Fund intends to make
sufficient distributions or deemed distributions of its ordinary taxable
income and any capital gain net income each calendar year to avoid liability
for this excise tax.
Each Fund will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of taxable dividends or 31% of gross proceeds realized
upon sale paid to Shareholders who have failed to provide a correct tax
identification number in the manner required, who are subject to withholding
by the Internal Revenue Service for failure to properly include on their
return payments of taxable interest or dividends, or who have failed to
certify to the Portfolio, when required to do so, that they are not subject
to backup withholding or that they are "exempt recipients."
-26-
<PAGE>
Although each Fund expects to qualify as a "regulated investment
company" and to be relieved of all or substantially all federal income taxes,
depending upon the extent of its activities in states and localities in which
its offices are maintained, in which its agents or independent contractors
are located, or in which it is otherwise deemed to be conducting business, a
Fund may be subject to the tax laws of such states or localities. In
addition, if for any taxable year that Fund does not qualify for the special
tax treatment afforded regulated investment companies, all of its taxable
income will be subject to federal income tax at regular corporate rates
(without any deduction for distributions to its Shareholders). In such event,
dividend distributions (including amounts derived from interest on Municipal
Securities in the case of the Virginia Municipal Bond Fund) would be taxable
as ordinary income to Shareholders to the extent of current and accumulated
earnings and profits and would be eligible for the dividends received
deduction for corporations.
Information set forth in the Prospectus and this Statement of
Additional Information which relates to federal taxation is only a summary of
some of the important federal tax considerations generally affecting
purchasers of Shares of a Fund. No attempt has been made to present a
detailed explanation of the federal income tax treatment of a Fund or its
Shareholders, and this discussion is not intended as a substitute for careful
tax planning. Accordingly, potential purchasers of Shares of a Fund should
consult their tax advisors with specific reference to their own tax
situation. In addition, the tax discussion in the Prospectus and this
Statement of Additional Information is based on tax laws and regulations
which are in effect on the date of the Prospectus and this Statement of
Additional Information; such laws and regulations may be changed by
legislative or administrative action.
Additional Tax Information - Virginia Municipal Bond Fund
As indicated in the Prospectus, the Virginia Municipal Bond Fund is
designed to provide Shareholders with current interest income free from
federal individual income tax and from Virginia income tax. The Virginia
Municipal Bond Fund is not intended to constitute a balanced investment
program and is not designed for investors seeking capital appreciation.
Shares of the Virginia Municipal Bond Fund would not be suitable for
tax-exempt institutions and may not be suitable for retirement plans
qualified under Section 401 of the Code, so-called Keogh or H.R. 10 plans,
and individual retirement accounts (IRAs). Such plans and accounts are
generally tax-exempt and, therefore, would not gain any additional benefit
from the Virginia Municipal Bond Fund's dividends being tax-exempt, and such
dividends would be ultimately taxable to the beneficiaries when distributed
to them. In addition, Shareholders who under Code section 147(a) are
"substantial users" or "related persons" to substantial users with respect to
facilities financed through any of the Municipal Securities held by the
Virginia Municipal Bond Fund should consult a tax advisor with respect to
whether exempt-interest dividends would remain excludable from gross income
for federal income tax purposes under Section 103 of the Code.
The Virginia Municipal Bond Fund's policy is to pay to its
Shareholders each year as exempt-interest dividends substantially all the
Fund's Municipal Securities interest income net of certain deductions. In
order for the Virginia Municipal Bond Fund to pay exempt-interest dividends
for any taxable year, at the close of each quarter of its taxable year at
least 50% of the aggregate value of the Virginia Municipal Bond Fund's assets
must consist of obligations the interest on which is exempt from federal
income tax. Exempt-interest dividends may be treated by the Shareholders as
items of interest excludable from their gross income under Section 103(a) of
the Code. An exempt-interest dividend is any dividend or part thereof
-27-
<PAGE>
(other than a capital gain dividend) paid by the Virginia Municipal Bond
Fund and designated as an exempt-interest dividend in a written notice mailed
to Shareholders not later than sixty days after the close of the Virginia
Municipal Bond Fund's taxable year. However, the aggregate amount of
dividends so designated by the Virginia Municipal Bond Fund cannot exceed the
excess of the amount of interest exempt from tax under Section 103 of the
Code received by the Virginia Municipal Bond Fund during the taxable year
over any amounts disallowed as deductions under Sections 265 and 171(a)(2) of
the Code. The percentage of the total dividends paid for any taxable year
which qualifies as exempt-interest dividends will be the same for all
Shareholders receiving dividends from the Virginia Municipal Bond Fund during
such year, regardless of the period for which the shares were held.
While the Virginia Municipal Bond Fund does not expect to earn a
significant amount of taxable investment income or short-term gains, taxable
investment income or short-term gains earned by the Fund will be distributed
to Shareholders. Any such income or gains will be taxable to Shareholders as
ordinary income (whether paid in cash or additional Shares).
As indicated in the Prospectus, the Virginia Municipal Bond Fund may
acquire puts with respect to Municipal Securities held in its portfolio. (See
"INVESTMENT OBJECTIVES, POLICIES, AND RISK CONSIDERATIONS -- Additional
Information on Portfolio Instruments--Put Options" in this Statement of
Additional Information.) The policy of the Virginia Municipal Bond Fund is to
limit its acquisition of puts to those under which the Virginia Municipal
Bond Fund will be treated for federal income tax purposes as the owner of the
Municipal Securities acquired subject to the put, so that the interest on the
Municipal Securities will be tax-exempt to the Virginia Municipal Bond Fund.
Although the Internal Revenue Service has issued a published ruling that
provides some guidance regarding the tax consequences of the purchase of
puts, there is currently no guidance available from the Internal Revenue
Service that definitely establishes the tax consequences of many of the types
of puts that the Virginia Municipal Bond Fund could acquire under the 1940
Act. Therefore, although the Virginia Municipal Bond Fund will only acquire a
put after concluding that it will have the tax consequences described above,
the Internal Revenue Service could reach a different conclusion. If it is not
treated as the owner of the Municipal Securities, income from such securities
would probably not be tax-exempt.
Income that is exempt from federal income taxation on the Virginia
Municipal Bond Fund's Shares may be included with taxable income when
determining whether Social Security payments received by an individual
Shareholder are subject to federal income taxation. For corporate
Shareholders, distributions attributable to Municipal Securities will be
included in "adjusted current earnings" for purposes of the federal
alternative minimum tax applicable to corporations (to the extent not already
included in alternative minimum taxable income as income attributable to
private activity bonds). Interest on indebtedness incurred by a Shareholder
to carry the Virginia Municipal Bond Fund Shares is not deductible for
federal income tax purposes if the Virginia Municipal Bond Fund distributes
exempt-interest dividends during the Shareholder's taxable year.
Calculation of Performance Data
Yields and Total Returns of the Money Market Fund. As summarized in
the Prospectus under "PERFORMANCE INFORMATION," the yield of the Money Market
Fund for a seven-day period (the "base period") will be computed by
determining the net change in value (calculated as set forth below) of a
hypothetical account having a balance of
-28-
<PAGE>
one share at the beginning of the period, dividing the net change in account
value by the value of the account at the beginning of the base period to
obtain the base period return, and multiplying the base period return by
365/7 with the resulting yield figure carried to the nearest hundredth of one
percent. Net changes in value of a hypothetical account will include the
value of additional Shares purchased with dividends from the original share
and dividends declared on both the original share and any such additional
Shares, but will not include realized gains or losses or unrealized
appreciation or depreciation on portfolio investments. Yield may also be
calculated on a compound basis (the "effective yield") which assumes that net
income is reinvested in Fund Shares at the same rate as net income is earned
for the base period.
The yield and effective yield of the Money Market Fund will vary in
response to fluctuations in interest rates and in the expenses of the Fund.
For comparative purposes the current and effective yields should be compared
to current and effective yields offered by competing financial institutions
for the same base period and calculated by the methods described below.
The Money Market Fund may wish to publish total return figures in its
sales literature and other advertising materials. For a discussion of the
manner in which such total return figures are calculated, see "Yields and
Total Returns of the Intermediate Fixed Income Fund, the Virginia Municipal
Bond Fund, and the Equity Fund--Total Return Calculations" below.
For the seven-day period ended November 30, 1996, the yield and
effective yield of the Money Market Fund, calculated as described above, were
4.93% and 5.06%, respectively. For the fiscal year ended November 30, 1996
and for the period from commencement of operations through November 30, 1996,
the average annual total return of the Money Market Fund was 4.99% and 4.12%,
respectively.
Yield Calculations of the Intermediate Fixed Income Fund and the
Virginia Municipal Bond Fund. As summarized in the Prospectus under the
heading "PERFORMANCE INFORMATION," yields of each of the Funds will be
computed by dividing the net investment income per share (as described below)
earned by the Fund during a 30-day (or one month) period by the maximum
offering price per share on the last day of the period and annualizing the
result on a semi-annual basis by adding one to the quotient, raising the sum
to the power of six, subtracting one from the result and then doubling the
difference. A Fund's net investment income per share earned during the period
is based on the average daily number of Shares outstanding during the period
entitled to receive dividends and includes dividends and interest earned
during the period minus expenses accrued for the period, net of
reimbursements. This calculation can be expressed as follows:
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<PAGE>
a - b
6
Yield = 2 [(------ + 1) - 1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of Shares outstanding
during the period that were entitled to receive
dividends.
d = maximum offering price per share on the last day of
the period.
For the purpose of determining net investment income earned
during the period (variable "a" in the formula), dividend income on equity
securities held by a Fund is recognized by accruing 1/360 of the stated
dividend rate of the security each day that the security is in that Fund.
Interest earned on any debt obligations held by a Fund is calculated by
computing the yield to maturity of each obligation held by that Fund based on
the market value of the obligation (including actual accrued interest) at the
close of business on the last Business Day of each month, or, with respect to
obligations purchased during the month, the purchase price (plus actual
accrued interest) and dividing the result by 360 and multiplying the quotient
by the market value of the obligation (including actual accrued interest) in
order to determine the interest income on the obligation for each day of the
subsequent month that the obligation is held by that Fund. For purposes of
this calculation, it is assumed that each month contains 30 days. The
maturity of an obligation with a call provision is the next call date on
which the obligation reasonably may be expected to be called or, if none, the
maturity date. With respect to debt obligations purchased at a discount or
premium, the formula generally calls for amortization of the discount or
premium. The amortization schedule will be adjusted monthly to reflect
changes in the market values of such debt obligations.
Undeclared earned income will be subtracted from the net asset value
per share (variable "d" in the formula). Undeclared earned income is the net
investment income which, at the end of the base period, has not been declared
as a dividend, but is reasonably expected to be and is declared as a dividend
shortly thereafter.
During any given 30-day period, CFNB or BISYS, as Administrator, may
voluntarily waive all or a portion of their fees with respect to a Fund. Such
waiver would cause the yield of that Fund to be higher than it would
otherwise be in the absence of such a waiver.
From time to time, the tax equivalent 30-day yield of the Virginia
Municipal Bond Fund may be presented in advertising and sales literature. The
tax equivalent 30-day yield will be computed by dividing that portion of the
Virginia Municipal Bond Fund's yield which is tax-exempt by one minus a
stated tax rate and adding the product to that portion, if any, of the yield
of the Virginia Municipal Bond Fund that is not tax-exempt.
For the 30-day period ended November 30, 1996, the yields of the
Intermediate Fixed Income Fund and Virginia Municipal Bond Fund, calculated as
described above, were 4.90% and 4.03% (taking into account the imposition of
the maximum applicable sales load), respectively , and 5.13% and 4.22%
(without taking the maximum sales load into account),
-30-
<PAGE>
respectively. For the same period, the tax-equivalent yields of the Virginia
Municipal Bond Fund were 6.67% (taking into account the imposition of the
maximum applicable sales load) and 6.99% (without taking the maximum sales
load into account).
Total Return Calculations of the Intermediate Fixed Income Fund, the
Virginia Municipal Bond Fund and the Equity Fund. As summarized in the
Prospectus of the Funds under the heading "PERFORMANCE INFORMATION," average
annual total return is a measure of the change in value of an investment in a
Fund over the period covered, which assumes any dividends or capital gains
distributions are reinvested in the Fund immediately rather than paid to the
investor in cash. The Funds compute their average annual total returns by
determining the average annual compounded rates of return during specified
periods that equate the initial amount invested to the ending redeemable
value of such investment. This is done by dividing the ending redeemable
value of a hypothetical $1,000 initial payment by $1,000 and raising the
quotient to a power equal to one divided by the number of years (or
fractional portion thereof) covered by the computation and subtracting one
from the result. This calculation can be expressed as follows:
Average Annual
ERV
1/n
Total Return = [(--------) - 1]
P
Where: ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical
$1,000 payment made at the beginning of the
period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in
terms of years.
The Funds compute their aggregate total returns by determining the
aggregate compounded rates of return during specified periods that likewise
equate the initial amount invested to the ending redeemable value of such
investment. The formula for calculating aggregate total return is as follows:
Aggregate Total ERV
Return = [(------) - 1]
P
ERV = ending redeemable value at the end of the
period covered by the computation of a
hypothetical $1,000 payment made at the
beginning of the period.
P = hypothetical initial payment of $1,000.
The calculations of average annual total return and aggregate total
return assume the reinvestment of all dividends and capital gain
distributions on the reinvestment dates during the period. The ending
redeemable value (variable "ERV" in each formula) is determined by assuming
complete redemption of the hypothetical investment and the deduction of all
nonrecurring charges at the end of the period covered by the computations.
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<PAGE>
The average annual total returns for the Equity Fund, Intermediate
Fixed Income Fund, and Virginia Municipal Bond Fund for certain periods are
shown below:
<TABLE>
<CAPTION>
Average Annual Total Return
---------------------------
Inception
Date 12/01/94 12/01/95
Inception to to to
Date 11/30/96 11/30/96 11/30/96
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Equity Fund 1/29/93
No Load (Without deduction for
4.5% Sales Charge) 15.80% 31.83% 30.10%
Load (With deduction for 4.5%
Sales Charge) 14.42% 28.84% 24.21%
Intermediate Fixed Income Fund 1/29/93
(Without deduction for
4.5% Sales Charge) 5.16% 9.33% 4.46%
(With deduction for 4.5%
Sales Charge) 3.91% 6.84% (0.20%)
Virginia Municipal Bond Fund 2/1/93
(Without deduction for
4.5% Sales Charge) 4.46% 8.52% 3.50%
(With deduction for 4.5%
Sales Charge) 3.21% 6.07% (1.13%)
</TABLE>
Since performance will fluctuate, performance data for the Funds
should not be used to compare an investment in the Funds' Shares with bank
deposits, savings accounts and similar investment alternatives which often
provide an agreed or guaranteed fixed yield for a stated period of time.
Shareholders should remember that performance is generally a function of the
kind and quality of the instruments held in a portfolio, portfolio maturity,
operating expenses and market conditions.
Performance Comparisons
Investors may judge the performance of the Funds by comparing them to
the performance of other mutual funds or mutual fund portfolios with
comparable investment objectives and policies. Such comparisons may be made
by referring to market indices such as those prepared by Dow Jones & Co.,
Inc. and Standard & Poor's Corporation. Such comparisons may also be made by
referring to data prepared by Lipper Analytical Services, Inc., (a widely
recognized independent service which monitors the performance of mutual
funds) and the Bank Rate Monitor (which reports average yields for money
market accounts offered by the 50 leading banks and thrift institutions in
the top five standard metropolitan statistical areas). Comparisons may also
be made to indices or data published in the following national financial
publications: Ibbotson Associates of Chicago, MorningStar, CDA/Wiesenberger,
Money Magazine, Forbes, Barron's, The Wall Street Journal, The New York
Times, Business Week, American Banker, Fortune, Institutional Investor,
U.S.A. Today, and local newspapers. In addition to performance information,
general information about the Funds that appears in a publication such as
those mentioned above may be included in advertisements and in reports to
Shareholders.
-32-
<PAGE>
From time to time, the Funds may include general comparative
information, such as statistical data regarding inflation, securities indices
or the features or performance of alternative investments, in advertisements,
sales literature and reports to shareholders. The Funds may also include
calculations, such as hypothetical compounding examples or tax-free
compounding examples, which describe hypothetical investment results in such
communications. Such performance examples will be based on an express set of
assumptions and are not indicative of the performance of any Fund. In
addition, the Virginia Municipal Bond Fund may include charts comparing
various tax-free yields versus taxable yield equivalents at different income
levels.
Current yields or performance will fluctuate from time to time and
are not necessarily representative of future results. Accordingly, a Fund's
yield or performance may not provide for comparison with bank deposits or
other investments that pay a fixed return for a stated period of time. Yield
and performance are functions of a Fund's quality, composition and maturity,
as well as expenses allocated to the Fund.
Miscellaneous
Individual trustees are elected by the Shareholders and, subject to
removal by the vote of two-thirds of the Board of Trustees, serve for a term
lasting until the next meeting of Shareholders at which trustees are elected.
Such meetings are not required to be held at any specific intervals.
Generally, Shareholders owning not less than 20% of the outstanding Shares of
MarketWatch entitled to vote may cause the trustees to call a special
meeting. However, the trustees will call a special meeting for the purpose of
considering the removal of one or more trustees upon written request therefor
from Shareholders owning not less than 10% of the outstanding votes of
MarketWatch entitled to vote. At such a meeting, a quorum of Shareholders
(constituting a majority of votes attributable to all outstanding Shares of
MarketWatch), by majority vote, has the power to remove one or more trustees.
MarketWatch is registered with the Commission as an open-end,
management investment company. Such registration does not involve supervision
by the Commission of the management or policies of MarketWatch.
The Prospectus and this Statement of Additional Information omit
certain of the information contained in the Registration Statement filed with
the Commission. Copies of such information may be obtained from the
Commission upon payment of the prescribed fee.
The Prospectus and this Statement of Additional Information are not
an offering of the securities herein described in any state in which such
offering may not lawfully be made. No salesman, dealer, or other person is
authorized to give any information or make any representation other than
those contained in the Prospectus and this Statement of Additional
Information.
Financial Statements
The audited financial statements for the Money Market, Equity, Intermediate
Fixed Income, and Virginia Municipal Bond Funds and notes thereto in
MarketWatch's Annual Report to Shareholders for the fiscal year ended
November 30, 1996 (the "1996 Annual Report") are incorporated in this
Statement of Additional Information by reference. No other parts of the 1996
Annual Report are incorporated by reference herein. The financial statements
included
-33-
<PAGE>
in the 1996 Annual Report have been audited by the Fund's independent
accountants, KPMG Peat Marwick LLP, whose report thereon is incorporated
herein by reference. Such financial statements have been incorporated herein
in reliance upon such report given upon their authority as experts in
accounting and auditing. Additional copies of the 1996 Annual Report may be
obtained at no charge by telephoning the Fund at the telephone number
appearing on the front page of this Statement of Additional Information.
-34-
<PAGE>
APPENDIX
The nationally recognized statistical rating organizations
(individually, an "NRSRO") that may be utilized by CFNB with regard to
portfolio investments and a description of the relevant ratings of each such
NRSRO are set forth below. The NRSROs that may be utilized by CFNB and the
description of each NRSRO's ratings is as of the date of this Statement of
Additional Information, and may subsequently change.
Commercial Paper Ratings
A Standard & Poor's commercial paper rating is a current
assessment of the likelihood of timely payment of debt considered short-term
in the relevant market. The following summarizes the four highest rating
categories used by Standard and Poor's for commercial paper:
"A-1" - Issue's degree of safety regarding timely payment is
strong. Those issues determined to possess extremely strong safety
characteristics are denoted "A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory.
However, the relative degree of safety is not as high as for issues
designated "A-1."
"A-3" - Issue has an adequate capacity for timely payment. It
is, however, somewhat more vulnerable to the adverse effects of changes in
circumstances than an obligation carrying a higher designation.
"B" - Issue is regarded as having only a speculative capacity
for timely payment.
"C" - This rating is assigned to short-term debt obligations
with a doubtful capacity for payment.
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually promissory obligations not having an original
maturity in excess of 9 months. The following summarizes the four highest
rating categories used by Moody's for commercial paper:
"Prime-1" - Issuer or related supporting institutions are
considered to have a superior capacity for repayment of short-term promissory
obligations. Prime-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 earning 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.
"Prime-2" - Issuer or related supporting institutions are
considered to 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 alternative liquidity is maintained.
-35-
<PAGE>
"Prime-3" - Issuer or related supporting institutions have an
acceptable capacity for repayment of short-term promissory obligations. The
effects of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes
in the level of debt protection measurements and the requirement for
relatively high financial leverage. Adequate alternate liquidity is
maintained.
"Not Prime" - Issuers do not fall within any of the Prime
rating categories.
The four rating categories of Duff & Phelps for investment
grade commercial paper are "D-1," "D-2", "D-3" and "D-4." Duff & Phelps
employs three designations, "D-1+," "D-1" and "D-1-," within the
highest rating category. The following summarizes the rating categories used
by Duff & Phelps for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment.
Short-term liquidity, including internal operating factors and/or access to
alternative sources of funds, is outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment.
Liquidity factors are excellent and supported by good fundamental protection
factors. Risk factors are minor.
"D-1-" - Debt possesses very high certainty of timely
payment. Liquidity factors are strong and supported by good fundamental
protection factors. Risk factors are very small.
"D-2" - Debt possesses good certainty of timely payment.
Liquidity factors and company fundamentals are sound. Although ongoing
funding needs may enlarge total financing requirements, access to capital
markets is good. Risk factors are small.
"D-3" - Debt possesses satisfactory liquidity, and other
protection factors qualify issue as investment grade. Risk factors are larger
and subject to more variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics.
Liquidity is not sufficient to ensure against disruption in debt service.
Operating factors and market access may be subject to a high degree of
variation.
Fitch short-term ratings apply to debt obligations that are
payable on demand or have original maturities of generally up to three years.
The following summarizes the four highest rating categories used by Fitch
for short-term obligations:
"F-1+" - Securities possess exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest
degree of assurance for timely payment.
"F-1" - Securities possess very strong credit quality. Issues
assigned this rating reflect an assurance of timely payment only slightly
less in degree than issues rated "F-1+."
-36-
<PAGE>
"F-2" - Securities possess good credit quality. Issues
assigned this rating have a satisfactory degree of assurance for timely
payment, but the margin of safety is not as great as the "F-1+" and "F-1"
ratings.
"F-3" - Securities possess fair credit quality. Issues
assigned this rating have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
Fitch may also use the symbol "LOC" with its short-term
ratings to indicate that the rating is based upon a letter of credit issued
by a commercial bank.
Thomson BankWatch commercial paper ratings assess the
likelihood of an untimely payment of principal or interest of debt having a
maturity of one year or less which is issued by United States commercial
banks, thrifts and non-bank banks; non-United States banks; and
broker-dealers. The following summarizes the three highest ratings used by
Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's
highest rating category and indicates a very high degree of likelihood that
principal and interest will be paid on a timely basis.
"TBW-2" - This designation indicates that while the degree of
safety regarding timely payment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated "TBW-1."
"TBW-3" - This designation represents the lowest investment
grade category and indicates that while the debt is more susceptible to
adverse developments (both internal and external) than obligations with
higher ratings, capacity to service principal and interest in a timely
fashion is considered adequate.
IBCA assesses the investment quality of unsecured debt with an
original maturity of less than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
rating categories used by IBCA for short-term debt ratings:
"A1+" - Obligations which possess a particularly strong credit
feature are supported by the highest capacity for timely repayment.
"A1" - Obligations are supported by the highest capacity for
timely repayment.
"A2" - Obligations are supported by a good capacity
for timely repayment.
-37-
<PAGE>
"A3" - Obligations are supported by a satisfactory capacity
for timely repayment.
"B" - Obligations for which there is an uncertainty as to
the capacity to ensure timely repayment.
"C" - Obligations for which there is a high risk of default
or which are currently in default.
Corporate and Municipal Long-Term Debt Ratings
The following summarizes the four highest ratings used by
Standard & Poor's for corporate and municipal debt:
"AAA" - This designation represents the highest rating
assigned by Standard & Poor's to a debt obligation and indicates an extremely
strong capacity to pay interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to
pay interest and repay principal and differs from "AAA" issues only in small
degree.
"A" - Debt is considered to have a strong capacity to pay
interest and repay principal although such issues are somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay
interest and repay principal. Whereas such issues normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for debt in this category than in higher- rated categories.
PLUS (+) OR MINUS (-) - The ratings may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
"r" - This rating is attached to highlight derivative, hybrid,
and certain other obligations that S & P believes may experience high
volatility or high variability in expected returns due to non-credit risks.
Examples of such obligations are: securities whose principal or interest
return is indexed to equities, commodities, or currencies; certain swaps and
options; and interest only and principal only mortgage securities. The
absence of an "r" symbol should not be taken as an indication that an
obligation will exhibit no volatility or variability in total return.
The following summarizes the four highest ratings used by
Moody's for corporate and municipal long-term debt:
"Aaa" - Bonds are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
"Aa" - Bonds 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 possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
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<PAGE>
"Baa" - Bonds considered 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.
Con. (---) - Bonds for which the security depends upon the
completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under
construction, (b) earnings of projects unseasoned in operation experience,
(c) rentals which begin when facilities are completed, or (d) payments to
which some other limiting condition attaches. Parenthetical rating denotes
probable credit stature upon completion of construction or elimination of
basis of condition.
(P)... - When applied to forward delivery bonds, indicates
that the rating is provisional pending delivery of the bonds. The rating may
be revised prior to delivery if changes occur in the legal documents or the
underlying credit quality of the bonds.
Note: Those bonds in the Aa, A, and Baa groups which Moody's
believes possess the strongest investment attributes are designated by the
symbols, Aa1, A1, and Baa1.
The following summarizes the four highest ratings used by
Duff & Phelps for corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit
quality. The risk factors are negligible, being only slightly more than for
risk-free U.S. Treasury debt.
"AA" - Debt is considered of high credit quality. Protection
factors are strong. Risk is modest but may vary slightly from time to time
because of economic conditions.
"A" - Debt possesses protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
"BBB" - Debt possesses below average protection factors but
such protection factors are still considered sufficient for prudent
investment. Considerable variability in risk is present during economic
cycles.
To provide more detailed indications of credit quality, the
ratings may be modified by the addition of a plus (+) or minus (-) sign to
show relative standing within these major categories.
The following summarizes the four highest ratings used by
Fitch for corporate and municipal bonds:
"AAA" - Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected by
reasonably foreseeable events.
"AA" - Bonds considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds rated "AAA."
Because bonds rated in the "AAA" and "AA" categories are not significantly
vulnerable to foreseeable future developments, short-term debt of these
issuers is generally rated "F-1+."
"A" - Bonds considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
-39-
<PAGE>
"BBB" - Bonds considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have an adverse
impact on these bonds, and therefore, impair timely payment. The likelihood
that the ratings of these bonds will fall below investment grade is higher
than for bonds with higher ratings.
To provide more detailed indications of credit quality, the
Fitch ratings may be modified by the addition of a plus (+) or minus (-) sign
to show relative standing within these major rating categories.
IBCA assesses the investment quality of unsecured debt with an
original maturity of more than one year which is issued by bank holding
companies and their principal bank subsidiaries. The following summarizes the
highest four rating categories used by IBCA for long-term debt ratings:
"AAA" - Obligations for which there is the lowest expectation
of investment risk. Capacity for timely repayment of principal and interest
is substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially.
"AA" - Obligations for which there is a very low expectation
of investment risk. Capacity for timely repayment of principal and interest
is substantial, such that adverse changes in business, economic or financial
conditions may increase investment risk, albeit not very significantly.
"A" - Obligations for which there is a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial
conditions may lead to increased investment risk.
"BBB" - Obligations for which there is currently a low
expectation of investment risk. Capacity for timely repayment of principal
and interest is adequate, although adverse changes in business, economic or
financial conditions are more likely to lead to increased investment risk
than for obligations in other categories.
IBCA may append a rating of plus (+) or minus (-) to a rating
below "AAA" to denote relative status within major rating categories.
Thomson BankWatch assesses the likelihood of an untimely
repayment of principal or interest over the term to maturity of long term
debt and preferred stock which are issued by United States commercial banks,
thrifts and non-bank banks; non-United States banks; and broker-dealers. The
following summarizes the three highest rating categories used by Thomson
BankWatch for long-term debt ratings.
"AAA" - This designation represents the highest category
assigned by Thomson BankWatch to long-term debt and indicates that the
ability to repay principal and interest on a timely basis is very high.
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<PAGE>
"AA" - This designation indicates a superior ability to repay
principal and interest on a timely basis with limited incremental risk versus
issues rated in the highest category.
"A" - This designation indicates that the ability to repay
principal and interest is strong. Issues rated "A" could be more vulnerable
to adverse developments (both internal and external) than obligations with
higher ratings.
PLUS (+) OR MINUS (-) - The ratings may include a plus or
minus sign designation which indicates where within the respective category
the issue is placed.
Municipal Note Ratings
A Standard and Poor's rating reflects the liquidity concerns
and market access risks unique to notes due in three years or less. The
following summarizes the ratings used by Standard & Poor's Ratings Group
for municipal notes:
"SP-1" - The issuers of these municipal notes exhibit very
strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are given a plus
(+) designation.
"SP-2" - The issuers of these municipal notes exhibit
satisfactory capacity to pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit
speculative capacity to pay principal and interest.
Moody's ratings for state and municipal notes and other
short-term loans are designated Moody's Investment Grade ("MIG") and variable
rate demand obligations are designated Variable Moody's Investment Grade
("VMIG"). Such ratings recognize the differences between short-term credit
risk and long-term risk. The following summarizes the four highest ratings by
Moody's Investors Service, Inc. for short-term notes:
"MIG-1"/"VMIG-1" - Loans bearing this designation are of the
best quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
"MIG-2"/"VMIG-2" - Loans bearing this designation are of high
quality, with margins of protection ample although not so large as in the
preceding group.
"MIG-3"/"VMIG-3" - Loans bearing this designation are of
favorable quality, with all security elements accounted for but lacking the
undeniable strength of the preceding grades. Liquidity and cash flow
protection may be narrow and market access for refinancing is likely to be
less well established.
"MIG-4/"VMIG-4" - Loans bearing this designation are of
adequate quality, carrying specific risk but having protection commonly
regarded as required of an investment security and not distinctly or
predominantly speculative.
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<PAGE>
Fitch, Duff & Phelps and IBCA use the short-term ratings
described under Commercial Paper Ratings for municipal notes.
Definitions of Certain Money Market Instruments
Commercial Paper
Commercial paper consists of unsecured promissory notes issued by
corporations. Issues of commercial paper normally have maturities of less
than nine months and fixed rates of return.
Certificates of Deposit
Certificates of Deposit are negotiable certificates issued against
funds deposited in a commercial bank or a savings and loan association for a
definite period of time and earning a specified return.
Bankers' Acceptances
Bankers' acceptances are negotiable drafts or bills of exchange,
normally drawn by an importer or exporter to pay for specific merchandise,
which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
U.S. Treasury Obligations
U.S. Treasury Obligations are obligations issued or guaranteed as to
payment of principal and interest by the full faith and credit of the U.S.
Government. These obligations may include Treasury bills, notes and bonds,
and issues of agencies and instrumentalities of the U.S. Government, provided
such obligations are guaranteed as to payment of principal and interest by
the full faith and credit of the U.S. Government.
U.S. Government, Agency, and Instrumentality Obligations
Obligations of the U.S. Government include certificates of
indebtedness, notes and bonds, and issues of agencies and instrumentalities
of the U.S. Government, such as the Government National Mortgage Association,
the Export-Import Bank of the United States, the Tennessee Valley Authority,
the Farmers Home Administration, the Federal Home Loan Banks, the Federal
Intermediate Credit Banks, the Federal Farm Credit Banks, the Federal Land
Banks, the Federal Housing Administration, the Federal National Mortgage
Association, the Federal Home Loan Mortgage Corporation, and the Student Loan
Marketing Association. Some of these obligations, such as those of the
Government National Mortgage Association and the Export-Import Bank of the
United States, are supported by the full faith and credit of the U.S.
Treasury; others, such as those of the Federal National Mortgage Association
are supported by the right of the issuer to borrow from the Treasury; others,
such as those of the Student Loan Marketing Association, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Federal Farm Credit Banks,
are supported only by the credit of the instrumentality. No assurance can be
given that the U.S. Government would provide
-42-
<PAGE>
financial support to U.S. Government-sponsored instrumentalities if it is not
obligated to do so by law.
-43-
<PAGE>
Part C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.
<PAGE>
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements (audited)
Included in Part A of the Registration Statement are the
following audited financial statements with respect to the
MarketWatch Money Market, MarketWatch Equity, MarketWatch
Intermediate Fixed Income, and MarketWatch Virginia Municipal Bond
Funds:
Financial Highlights for the fiscal periods or years ended November
30, 1996, November 30, 1995, November 30, 1994 and November 30, 1993.
Incorporated by reference in Part B of the Registration Statement are
the following audited financial statements contained in the Annual
Report of Registrant for the fiscal year ended November 30, 1996:
Independent Auditors' Report on the Financial Statements as of
November 30, 1996 and for each of the periods indicated below;
Statements of Assets and Liabilities -- November 30, 1996;
Statements of Operations for the fiscal year ended November 30, 1996;
Statements of Changes in Net Assets for the fiscal years ended
November 30, 1996 and November 30, 1995;
Schedules of Portfolio Investments -- November 30, 1996;
Notes to Financial Statements -- November 30, 1996; and
Financial Highlights for the fiscal periods or years ended November
30, 1996, November 30, 1995 , November 30, 1994 and November 30,
1993.
(b) Exhibits
(1)(a) Agreement and Declaration of Trust of the Registrant
dated June 4, 1992 is incorporated herein by reference
to Exhibit 1(a) of Post-Effective Amendment No. 4 to
the Registrant's Registration Statement filed with the
Securities and Exchange Commission on March 27, 1996
("Post-Effective Amendment No.
4").
(b) Amendment No. 1 to Agreement and Declaration of Trust
of the Registrant, dated February 14, 1994 is
incorporated herein by reference to Exhibit 1(b) of
Post-Effective Amendment No. 4.
C-1
<PAGE>
(2) Registrant's Code of Regulations is incorporated herein
by reference to Exhibit 2 of Post-Effective Amendment
No. 4.
(3) None.
(4) None.
(5) Investment Advisory Agreement dated January 27, 1993
between Registrant and Central Fidelity Bank with
respect to the CFB MarketWatch Treasury Money Market
Fund, CFB MarketWatch Flexible Income Fund, CFB
MarketWatch Intermediate Fixed Income Fund, CFB
MarketWatch Virginia Municipal Bond Fund and CFB
MarketWatch Equity Fund is incorporated hereinby
reference to Exhibit 5 of Post-Effective Amendment
No. 4.
(6) Distribution Agreement dated October 1, 1993 between
Registrant and The Winsbury Company with respect to the
MarketWatch Money Market Fund, MarketWatch Flexible
Income Fund, MarketWatch Intermediate Fixed Income
Fund, MarketWatch Virginia Municipal Bond Fund, and
MarketWatch Equity Fund is incorporated herein by
reference to Exhibit 6(b) of Post-Effective Amendment
No. 4.
(7) None.
(8)(a) Custodian Agreement dated February 17, 1993 between
Registrant and Central Fidelity Bank with respect to
the CFB MarketWatch Treasury Money Market Fund, CFB
MarketWatch Flexible Income Fund, CFB MarketWatch
Intermediate Fixed Income Fund, CFB MarketWatch
Virginia Municipal Bond Fund, and CFB MarketWatch
Equity Fund is incorporated hereinby reference to
Exhibit 8(a) of Post-Effective Amendment No. 4.
(b) Transfer Agency Agreement dated October 1, 1993 between
Registrant and The Winsbury Service Corporation with
respect to the MarketWatch Money Market Fund,
MarketWatch Flexible Income Fund, MarketWatch
Intermediate Fixed Income Fund, MarketWatch Virginia
Municipal Bond Fund, and MarketWatch Equity Fund is
incorporated herein by reference to Exhibit 8(c) of
Post-Effective Amendment No. 4.
(9)(a) Management and Administration Agreement dated October
1, 1993 between Registrant and The Winsbury Company
with respect to the MarketWatch Money Market Fund,
MarketWatch Flexible Income Fund, MarketWatch
Intermediate Fixed Income Fund, MarketWatch Virginia
Municipal Bond Fund, and MarketWatch Equity Fund is
incorporated herein by reference to Exhibit 9(b) of
Post-Effective Amendment No. 4.
(b) Fund Accounting Agreement dated October 1, 1993 between
Registrant and The Winsbury Service Corporation with
respect to the MarketWatch Money Market Fund,
MarketWatch Flexible Income Fund, MarketWatch
Intermediate
C-2
<PAGE>
Fixed Income Fund, MarketWatch Virginia Municipal Bond
Fund, and MarketWatch Equity Fund is incorporated
herein by reference to Exhibit 9(d) of Post-Effective
Amendment No. 4.
* (10) Opinion of Drinker Biddle & Reath, counsel for the
Registrant.
(11)(a)Consent of KPMG Peat Marwick LLP.
(b)Consent of Drinker Biddle & Reath.
(12) The financial statements in the MarketWatch Annual
Report to Shareholders for the fiscal year ended
November 30, 1996 as filed with the Commission on
February 7, 1997 are incorporated by reference.
(13)(a)Purchase Agreement dated January 27, 1993 between
Registrant and Bryan Chegwidden is incorporated herein
by reference to Exhibit 13 of Post-Effective Amendment
No. 4.
(b)Purchase Agreement dated January 15, 1993 between
Registrant and The Winsbury Company.
(14) None.
(15) Distribution and Services Plan dated October 1, 1993
between Registrant and The Winsbury Company is
incorporated herein by reference to Exhibit 15(b) of
Post-Effective Amendment No. 4.
(16) Schedules of Performance Computations for the Money
Market, Flexible Income, Intermediate Fixed Income,
Virginia Municipal Bond, and Equity Funds are
incorporated herein by reference to Exhibit (16) of
Registrant's Registration Statement on Form N1-A filed
on February 14, 1994.
(17) Financial Data Schedule for the Money Market Fund for
the period ended November 30, 1996 .
Financial Data Schedule for the Equity Fund for the
period ended November 30, 1996.
Financial Data Schedule for the Intermediate Fixed
Income Fund for the period ended November 30, 1996.
- --------
* Registrant's 24f-2 Notice and related Opinion of Counsel relating to
its election to register an indefinite number of Shares of beneficial
interest in its Money Market Fund, Equity, Flexible Income Fund,
Intermediate Fixed Income Fund, and Virginia Municipal Bond Fund was
filed on January 27, 1997.
C-3
<PAGE>
Financial Data Schedule for the Virginia Municipal Bond
Fund for the period ended November 30, 1996 .
Item 25. Persons Controlled By or Under Common Control with Registrant
None.
Item 26. Number of Holders of Securities
The following information is as of February 28, 1997:
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
-------------- ------------------------
<S> <C>
Money Market Fund 113
Equity Fund 3522
Intermediate Fixed Income Fund 226
Virginia Municipal Bond Fund 403
</TABLE>
Item 27. Indemnification
Indemnification of Registrant's principal underwriter against certain
losses is provided for in Section 1.11 and 1.12 of the Distribution
Agreement which is filed as Exhibit (6)(b). Indemnification of
Registrant's Custodian and Transfer Agent is provided for,
respectively, in Section 16 of the Custodian Agreement which is
incorporated herein by reference to Exhibit (8)(a) and Section 7 of
the Transfer Agency Agreement which is filed as Exhibit (8)(c).
Indemnification of Registrant's fund accountant is provided for in
Section 6 of the Fund Accounting Agreement filed which is as Exhibit
(9)(d). Registrant has obtained from a major insurance carrier a
trustees' and officers' liability policy covering certain types of
errors and omissions. In addition, Section 9.3 of the Registrant's
Agreement and Declaration of Trust incorporated herein by reference
to Exhibit 1 in Registrant's Registration Statement as initially
filed, provides as follows:
9.3 Indemnification of Trustees, Representatives and Employees. The
Trust shall indemnify each of its trustees against all liabilities
and expenses (including amounts paid in satisfaction of judgments, in
compromise, as fines and penalties, and as counsel fees) reasonably
incurred by him in connection with the defense or disposition of any
action, suit or other proceeding, whether civil or criminal, in which
he may be involved or with which he may be threatened, while as a
trustee or thereafter, by reason of his being or having been such a
trustee except with respect to any matter as to which he shall have
been adjudicated to have acted in bad faith, willful misfeasance,
gross negligence or reckless disregard of his duties, provided that
as to any matter disposed of by a compromise payment by such person,
pursuant to a consent decree or otherwise, no indemnification either
for said payment or for any other expenses shall be provided unless
the Trust shall have received a written opinion from independent
legal counsel approved by the trustees to the effect that if either
the matter of willful misfeasance, gross negligence or reckless
disregard of duty, or the matter of bad faith had been adjudicated,
it would in the opinion of such counsel have been adjudicated in
favor of such person. The rights accruing to any person under these
provisions shall not exclude any
C-4
<PAGE>
other right to which he may be lawfully entitled, provided that no
person may satisfy any right of indemnity or reimbursement hereunder
except out of the property of the Trust. The trustees may make
advance payments in connection with the indemnification under this
Section 9.3, provided that the indemnified person shall have given a
written undertaking to reimburse the Trust in the event it is
subsequently determined that he is not entitled to such
indemnification.
The trustees shall have the power to indemnify representatives and
employees of the Trust to the same extent that Trustees are entitled
to indemnification pursuant to this Section 9.3.
Insofar as indemnification for liability arising under the Securities
Act of 1933 as amended may be permitted to trustees, officers and
controlling persons of Registrant pursuant to the foregoing
provisions, or otherwise, 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
Registrant of expenses incurred or paid by a trustee, officer or
controlling person of Registrant in the successful defense of any
action, suit or proceeding) is asserted by such trustee, officer or
controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
Section 9.6 of the Registrant's Agreement and Declaration of Trust,
incorporated herein by reference to Exhibit 1 in Registrant's
Registration Statement as initially filed, also provides for the
indemnification of shareholders of the Registrant. Section 9.6 states
as follows:
9.6 Indemnification of Shareholders. In case any Shareholder or
former Shareholder shall be held to be personally liable solely by
reason of his being or having been a Shareholder and not because of
his acts or omissions or for some other reason, the Shareholder or
former Shareholder (or his heirs, executors, administrators or other
legal representatives or, in the case of a corporation or other
entity, its corporate or other general successor) shall be entitled
out of the assets belonging to the classes of Shares with the same
alphabetical designation as that of the Shares owned by such
Shareholder to be held harmless from and indemnified against all loss
and expense arising from such liability. The Trust shall, upon
request by the Shareholder, assume the defense of any claim made
against any Shareholder for any act or obligations of the Trust and
satisfy and judgment thereon from such assets.
Item 28. Business and Other Connections of Investment Adviser
(a) Central Fidelity National Bank, with principal offices in
Richmond, Virginia, offers banking services in the Commonwealth of
Virginia. Central Fidelity National Bank is controlled by Central
Fidelity Banks, Inc., a registered bank holding company.
To Registrant's knowledge, none of the directors or senior executive
officers of Central Fidelity National Bank, except those set forth
below, is, or has been at any time during Registrant's past two
fiscal years, engaged in any other business, profession, vocation or
C-5
<PAGE>
employment of a substantial nature, except that certain directors and
officers of Central Fidelity National Bank also hold various
positions with, and engage in business for, affiliates of Central
Fidelity National Bank. Set forth below are the names and principal
business of the directors and certain of the senior executive
officers of Central Fidelity National Bank who are or have been
engaged in any other business, profession, vocation or employment of
a substantial nature.
<TABLE>
<CAPTION>
Position
with Central Other Type
Fidelity Business of
Name National Bank Connections Business
- ---- ------------- ----------- --------
<S> <C> <C> <C>
Bernard C. Baldwin, III Director Attorney, Edmunds & Law
Williams, P.C.
800 Main Street,
Suite 400
P.O. Box 958,
Lynchburg, VA 24505
Billy H. Branch Director Billy H. Branch Investments Investments
3812 Bunker Hill Drive
Roanoke, VA 24018
Richard A. Director President, Shoe
Carrington, III Consolidated Shoe Co. Manufacturing
P.O. Box 10549,
Lynchburg, VA 24506
Edward T. Caton, III Director Attorney, Law
Edward T. Caton, P.C.
2508 Pacific Ave.
P.O. Box 6,
Virginia Beach, VA 23458
Ashton W. Clarke Director Retired, former Chairman Banking
of The First National
Bank of Yorktown,
122 Barclay Road,
Newport News, VA 23606
Manuel Deese Director Retired, Former Executive Insurance
Vice President
Trigon, Blue Cross &
Blue Shield of Virginia;
2015 Staples Mill Road
P.O. Box 27401
Richmond, VA 23279
Donald F. DeLaney Director Retired; February 1989 Consulting
to February 1991,
Consultant to Central
Fidelity National Bank
Ronald V. Dolan Director President, First Insurance
Colony Life Insurance Co.,
P.O. Box 1280
Lynchburg, VA 24505
C-6
<PAGE>
<CAPTION>
Position
with Central Other Type
Fidelity Business of
Name National Bank Connections Business
- ---- ------------- ----------- --------
<S> <C> <C> <C>
George H. Gilliam Director Of Counsel, Law
Paxson, Smith, Gilliam &
Scott, P.C.
P.O. Box 2737
Charlottesville, VA 22902
C. Linwood Holt Director President, Norcarva Construction
Constructors, Inc.,
P.O. Box 698,
Clarksville, VA 23927
Fred H. Lawson Director President, Manufacturing
Courtland Manufacturing Co.
Route 3, Box 3,
Appomattox, VA 24522
William R. Lewis, Jr. Director President, Farming
Associated Farms,
P.O. Box 20,
Accomac, VA 23301
Lewis N. Miller, Jr. Director Chairman of the Board and Banking
Chief Executive Officer
Central Fidelity Banks, Inc.
and Central Fidelity National
Bank
Hubel Robins, Jr. Director Chairman of the Board, Insurance
Robins Insurance Agency, Inc.
P.O. Box 29676,
Richmond, VA 23229
Gustav H. Stalling, III Director President, Manufacturing
Stalling, Inc.
P.O. Box 568,
Lynchburg, VA 24505
</TABLE>
Item 29. Principal Underwriter
(a) BISYS Fund Services, Inc. acts as distributor and administrator
for Registrant. BISYS Fund Services, Inc. also distributes the
securities of The American Performance Funds, The Highmark Group, The
Parkstone Group of Funds, The Victory Portfolios, The Sessions Group,
The AmSouth Mutual Funds Group, The Coventry Group, The BB&T Mutual
Funds Group, The ARCH Fund, Inc., The Pacific Capital Funds, The MMA
Praxis Funds, The Riverfront Funds, Inc., Mariner Mutual Funds Trust,
Mariner Funds Trust, The Qualivest Funds, Fountain Square Funds, and
The MSD&T Funds, Inc. each of which is an open-end management
investment company. BISYS Fund Services Inc. is an Ohio limited
partnership, the sole general partner of which is BISYS Fund
Services, Inc., an Ohio corporation.
(b) To the best of Registrant's knowledge, the partners of The BISYS
Fund Services, Inc. are as follows:
C-7
<PAGE>
<TABLE>
<CAPTION>
Name and
Principal Positions and Positions and
Business Offices with Offices with
Address BISYS Fund Services, Inc. Registrant
- --------- ------------------------- -------------
<S> <C> <C>
BISYS Fund Services, Inc. Sole General Partner None
150 Clove Road
Little Falls, NJ 07424
WC Subsidiary Corporation Sole Limited Partner None
150 Clove Road
Little Falls, NJ 07424
</TABLE>
(c) None.
Item 30. Location of Accounts and Records
(1) Central Fidelity National Bank, 1021 East Cary Street, P.O.
Box 27602, Richmond, Virginia 23261 (records relating to its
functions as investment adviser and custodian - all
portfolios).
(2) BISYS Fund Services, Inc., 3435 Stelzer Road, Columbus, Ohio
43219 (records relating to its functions as administrator and
distributor).
(3) MarketWatch Funds, 3435 Stelzer Road, Columbus, Ohio 43219
(records relating to its functions as transfer agent and Fund
accountant).
(4) Drinker Biddle & Reath, 1345 Chestnut Street, Philadelphia,
Pennsylvania 19107-3496 (Registrant's Agreement and
Declaration of Trust, Code of Regulations, and Minute Books).
Item 31. Management Services
None.
Item 32. Undertakings
Registrant undertakes to comply with the provisions of Section 16(c)
of the Investment Company Act of 1940 as though they were applicable
to it.
Registrant undertakes to furnish each person to whom a prospectus is
delivered a copy of the Registrant's latest annual report to
Shareholders upon request and without charge.
C-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended and the Investment Company Act of 1940, as amended, 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, as amended, and has duly caused this Post-Effective Amendment to its
Registration Statement to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Columbus and the State of Ohio, on the 28th
day of March, 1997.
MARKETWATCH FUNDS
/s/ Walter B. Grimm
--------------------------
Walter B. Grimm, President
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Post-Effective Amendment to Registrant's Registration Statement
has been signed below by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Walter B. Grimm Chairman, President March 28, 1997
- ------------------------ and Trustee (Principal
Walter B. Grimm Executive Officer)
*Stephen G. Mintos Treasurer, March 28, 1997
- ------------------------ Vice President and
Stephen G. Mintos (Principal Financial
and Accounting
Officer)
*Alvin J. Schexnider Trustee March 28, 1997
- ------------------------
Alvin J. Schexnider
*G.E.R. Stiles Trustee March 28, 1997
- ------------------------
G.E.R. Stiles
*By: /s/ Walter B. Grimm
-------------------
Walter B. Grimm
Attorney-in-Fact
<PAGE>
MARKETWATCH FUNDS
(the "Trust")
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned
hereby appoints Walter B. Grimm and Christina T. Simmons, and either of them
his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him and in his name, place and stead, in
his capacity as trustee or officer, or both, to execute the Trust's
Registration Statement on Form N-1A pursuant to the Investment Company Act of
1940, as amended, and the Securities Act of 1933, as amended (the "Acts"),
and any and all amendments to said Registration Statement, and all
instruments necessary or incidental in connection therewith pursuant to said
Acts and any rules, regulations, or requirements of the Securities and
Exchange Commission in respect thereof, and to file the same with the
Securities and Exchange Commission, and either of said attorneys shall have
full power and authority, to do and perform in the name and on behalf of the
undersigned in any and all capacities, every act whatsoever requisite or
necessary to be done, as fully and to all intents and purposes as he might or
could do in person hereby ratifying and confirming all that said attorneys,
or either of them, may lawfully do or cause to be done by virtue hereof.
Dated: 1/16/96 /s/G.E.R. Stiles
----------------
G.E.R. Stiles
<PAGE>
MARKETWATCH FUNDS
(the "Trust")
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned
hereby appoints Walter B. Grimm and Christina T. Simmons, and either of them
his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him and in his name, place and stead, in
his capacity as trustee or officer, or both, to execute the Trust's
Registration Statement on Form N-1A pursuant to the Investment Company Act of
1940, as amended, and the Securities Act of 1933, as amended (the "Acts"),
and any and all amendments to said Registration Statement, and all
instruments necessary or incidental in connection therewith pursuant to said
Acts and any rules, regulations, or requirements of the Securities and
Exchange Commission in respect thereof, and to file the same with the
Securities and Exchange Commission, and said attorney shall have full power
and authority, to do and perform in the name and on behalf of the undersigned
in any and all capacities, every act whatsoever requisite or necessary to be
done, as fully and to all intents and purposes as he might or could do in
person hereby ratifying and confirming all that said attorney, may lawfully
do or cause to be done by virtue hereof.
Dated: 1/16/96 /s/Stephen G. Mintos
--------------------
Stephen G. Mintos
<PAGE>
MARKETWATCH FUNDS
(the "Trust")
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned
hereby appoints Walter B. Grimm and Christina T. Simmons, and either of them
his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him and in his name, place and stead, in
his capacity as trustee or officer, or both, to execute the Trust's
Registration Statement on Form N-1A pursuant to the Investment Company Act of
1940, as amended, and the Securities Act of 1933, as amended (the "Acts"),
and any and all amendments to said Registration Statement, and all
instruments necessary or incidental in connection therewith pursuant to said
Acts and any rules, regulations, or requirements of the Securities and
Exchange Commission in respect thereof, and to file the same with the
Securities and Exchange Commission, and either of said attorneys shall have
full power and authority, to do and perform in the name and on behalf of the
undersigned in any and all capacities, every act whatsoever requisite or
necessary to be done, as fully and to all intents and purposes as he might or
could do in person hereby ratifying and confirming all that said attorneys,
or either of them, may lawfully do or cause to be done by virtue hereof.
Dated: 1/16/96 /s/Alvin J. Schexnider
----------------------
Alvin J. Schexnider
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page No.
- ----------- ----------- --------
27 Financial Data Schedules.
99.B11(a) Consent of KPMG Peat Marwick LLP.
99.B11(b) Consent of Drinker Biddle & Reath.
99.B13(b) Purchase Agreement dated January 15,
1993 between Registrant and The
Winsbury Company.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000888503
<NAME> MARKETWATCH FUNDS
<SERIES>
<NUMBER> 1
<NAME> MARKETWATCH MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 13753337
<INVESTMENTS-AT-VALUE> 13753337
<RECEIVABLES> 24454
<ASSETS-OTHER> 7186
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 13784977
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 63913
<TOTAL-LIABILITIES> 63913
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 13721563
<SHARES-COMMON-STOCK> 13721563
<SHARES-COMMON-PRIOR> 13445341
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 499
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 13721064
<DIVIDEND-INCOME> 17945
<INTEREST-INCOME> 705898
<OTHER-INCOME> 0
<EXPENSES-NET> 44475
<NET-INVESTMENT-INCOME> 679368
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 679368
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 679368
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5480663
<NUMBER-OF-SHARES-REDEEMED> 5256611
<SHARES-REINVESTED> 52170
<NET-CHANGE-IN-ASSETS> 276222
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 499
<GROSS-ADVISORY-FEES> 69491
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 203368
<AVERAGE-NET-ASSETS> 13898232
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.05
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.32
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000888503
<NAME> MARKETWATCH FUNDS
<SERIES>
<NUMBER> 2
<NAME> MARKETWATCH EQUITY FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 125794305
<INVESTMENTS-AT-VALUE> 186636971
<RECEIVABLES> 630365
<ASSETS-OTHER> 17898
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 187285234
<PAYABLE-FOR-SECURITIES> 918700
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 219265
<TOTAL-LIABILITIES> 1137965
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 122326944
<SHARES-COMMON-STOCK> 11342771
<SHARES-COMMON-PRIOR> 9279318
<ACCUMULATED-NII-CURRENT> 59126
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2918533
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 60842666
<NET-ASSETS> 186147269
<DIVIDEND-INCOME> 3462279
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 1965795
<NET-INVESTMENT-INCOME> 1496484
<REALIZED-GAINS-CURRENT> 2918533
<APPREC-INCREASE-CURRENT> 35081554
<NET-CHANGE-FROM-OPS> 39496571
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1477216
<DISTRIBUTIONS-OF-GAINS> 1296123
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3015102
<NUMBER-OF-SHARES-REDEEMED> 1090354
<SHARES-REINVESTED> 138705
<NET-CHANGE-IN-ASSETS> 66662893
<ACCUMULATED-NII-PRIOR> 33959
<ACCUMULATED-GAINS-PRIOR> 1296136
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1442124
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2421397
<AVERAGE-NET-ASSETS> 144212355
<PER-SHARE-NAV-BEGIN> 12.88
<PER-SHARE-NII> 0.15
<PER-SHARE-GAIN-APPREC> 3.67
<PER-SHARE-DIVIDEND> 0.15
<PER-SHARE-DISTRIBUTIONS> 0.14
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.41
<EXPENSE-RATIO> 1.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000888503
<NAME> MARKETWATCH FUNDS
<SERIES>
<NUMBER> 3
<NAME> MARKETWATCH INTERMEDIATE FIXED INCOME FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 41345272
<INVESTMENTS-AT-VALUE> 42770964
<RECEIVABLES> 546914
<ASSETS-OTHER> 5360
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 43323238
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 46109
<TOTAL-LIABILITIES> 46109
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 44969757
<SHARES-COMMON-STOCK> 4347264
<SHARES-COMMON-PRIOR> 3555612
<ACCUMULATED-NII-CURRENT> 69906
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 3188226
<ACCUM-APPREC-OR-DEPREC> 1425692
<NET-ASSETS> 43277129
<DIVIDEND-INCOME> 63883
<INTEREST-INCOME> 2554825
<OTHER-INCOME> 0
<EXPENSES-NET> 426736
<NET-INVESTMENT-INCOME> 2191972
<REALIZED-GAINS-CURRENT> (186030)
<APPREC-INCREASE-CURRENT> (171875)
<NET-CHANGE-FROM-OPS> 1834067
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2177940
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1897219
<NUMBER-OF-SHARES-REDEEMED> 1153262
<SHARES-REINVESTED> 47695
<NET-CHANGE-IN-ASSETS> 7481199
<ACCUMULATED-NII-PRIOR> 55552
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 3001872
<GROSS-ADVISORY-FEES> 288707
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 578422
<AVERAGE-NET-ASSETS> 39014465
<PER-SHARE-NAV-BEGIN> 10.07
<PER-SHARE-NII> 0.55
<PER-SHARE-GAIN-APPREC> (0.11)
<PER-SHARE-DIVIDEND> 0.55
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.96
<EXPENSE-RATIO> 1.09
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000888503
<NAME> MARKETWATCH FUNDS
<SERIES>
<NUMBER> 5
<NAME> MARKETWATCH VIRGINIA MUNICIPAL BOND FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 68100107
<INVESTMENTS-AT-VALUE> 70338808
<RECEIVABLES> 1096256
<ASSETS-OTHER> 8768
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 71443832
<PAYABLE-FOR-SECURITIES> 1000000
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</TABLE>
EXHIBIT 99.B11(a)
Auditors' Consent
The Board of Trustees of the MarketWatch Funds:
We consent to the use of our report included herein dated January 10, 1997 for
the MarketWatch Funds - Money Market Fund, Equity Fund, Intermediate Fixed
Income Fund, Flexible Income Fund, and the Virginia Municipal Bond Fund as of
November 30, 1996 and for the periods indicated therein, and to the references
to our firm under the headings "Financial Highlights" in the Prospectus
and "Auditors" and "Financial Statements" in the Statement of Additional
Information.
/s/KPMG Peat Marwick LLP
------------------------
KPMG Peat Marwick LLP
Columbus, Ohio
March 28, 1997
EXHIBIT 99.B11(b)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the reference to our
firm as "Legal Counsel" in the Prospectus and Statement of Additional
Information that are included in Post-Effective Amendment No. 5 to the
Registration Statement (No. 33-48452) on Form N-1A under the Securities Act
of 1933, as amended, of MarketWatch Funds.
This consent does not constitute a consent under Section 7 of the
Securities Act of 1933, as amended, and in consenting to the use of our name
and the references to our firm under such caption we have not certified any
part of the Registration Statement and do not otherwise come within the
categories of persons whose consent is required under Section 7 or the rules
and regulations of the Securities and Exchange Commission thereunder.
/s/Drinker Biddle & Reath
-------------------------
Drinker Biddle & Reath
Philadelphia, Pennsylvania
March 28, 1997
Exhibit 99.B13(b)
PURCHASE AGREEMENT
CFB MarketWatch Funds (the "Company"), a Massachusetts trust with
transferable shares, and Winsbury Associates, an Ohio partnership ("Winsbury
Associates"), hereby agree with each other as follows:
1. The Company hereby offers Winsbury Associates and Winsbury
Associates hereby purchases 12,000 Class A-1 shares of beneficial interest in
the Company at a price of $1.00 per share, and 3,700 Class B-1 shares, 1,000
Class C-1 shares, 3,700 Class D-1 shares and 400 Class E-1 shares at a price
of $10.00 per share (collectively, the "Shares"). Winsbury Associates hereby
acknowledges purchase of the Shares and the Company hereby acknowledges
receipt from Winsbury Associates of funds in the amount of $100,000 in full
payment for the Shares.
2. Winsbury Associates represents and warrants to the Company that
the Shares are being acquired for investment purposes and not with a view to
the distribution thereof.
3. Costs incurred by the Company in connection with its organization,
registration and the initial public offering of Shares have been deferred and
will be amortized over a period of twenty-four months from commencement of
operations. In the event that any of the Shares purchased by Winsbury
Associates hereunder are redeemed by any holder thereof during the period
that the costs incurred by the Company in connection with its organization,
registration and initial public offering are being amortized by the Company,
the Company is authorized to reduce the redemption proceeds to cover any
unamortized organizational expenses in the same proportion as the number of
initial Shares of the class being redeemed bears to the number of initial
Shares of such class outstanding at the time of redemption. If, for any
reason, said reduction of redemption proceeds is not in fact made by the
Company in the event of such a redemption, Winsbury Associates agrees to
reimburse the Company immediately for any unamortized organizational expenses
in the proportion stated above.
4. The names "CFB MarketWatch Funds" and "Trustees of CFB MarketWatch
Funds" refer respectively to the trust created and the Trustees, as trustees
but not individually or personally, acting from time to time under a
Declaration of Trust dated June 4, 1992 which is hereby referred to and a
copy of which is on file at the office of the State Secretary of the
Commonwealth of Massachusetts and at the principal office of the Company. The
obligations of "CFB MarketWatch Funds" entered into in the name or on behalf
thereof by any of the trustees, representatives or
<PAGE>
agents are made not individually, but in such capacities, and are not binding
upon any of the trustees, shareholders or representatives of the Company
personally, but bind only the assets of the trust, and all persons dealing
with any class of shares of the Company must look solely to the assets of the
trust belonging to such class for the enforcement of any claims against the
Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the 15th day of January, 1993.
CFB MARKETWATCH FUNDS
By: /s/ Lora A. Oberlander
----------------------
Title: President
-------------------
WINSBURY ASSOCIATES
By: /s/ Kenneth B. Quintinz
-----------------------
Title: Partner
--------------------
