<PAGE> 1
- --------------------------------------------------------------------------------
To Our Variable Annuity Contract Owners:
- --------------------------------------------------------------------------------
February 24, 1997
As an owner of a Provident Mutual variable annuity contract, we are pleased
to send you the Annual Report for the Separate Account and its subaccounts for
our variable annuity contracts.
The VIP variable annuity contract has six subaccounts investing in Market
Street Fund, Inc. portfolios and provides you with a flexible annuity savings
and income program which will be able to serve your needs for many years. The
VIP/2 variable annuity contract offers additional subaccounts investing in
portfolios managed by such prestigious fund managers as Fidelity Management &
Research Company, Scudder, Stevens & Clark, Inc., OpCap Advisors, Federated
Investors, and the Dreyfus Corporation.
Thank you for your confidence in Provident Mutual and your variable annuity
contract. Provident Mutual has continued its role as a leader in the variable
insurance products marketplace. We are very pleased with this result and are
glad that you are a part of our success.
Attached to the Separate Account Annual Report is the Annual Report for the
Market Street Fund, Inc. Under separate cover, you will be receiving the Annual
Reports for the other Fund groups underlying the subaccounts to which you have
chosen to allocate your premiums.
We are happy to be of service to you. If you have a question about your
annuity contract, please contact your local agent or call our Service Center
toll free at 1-800-688-5177.
Sincerely,
/s/ Robert W. Kloss
Robert W. Kloss
President
1
<PAGE> 2
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Contractholders and
Board of Directors of
Provident Mutual Life Insurance
Company
We have audited the accompanying statements of assets and liabilities of the
Provident Mutual Variable Annuity Separate Account (comprising twenty-three
subaccounts) as of December 31, 1996, and the related statements of operations
for the year then ended and the statements of changes in net assets for each of
the two years in the period then ended. These financial statements are the
responsibility of the management of the Provident Mutual Variable Annuity
Separate Account. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1996 by correspondence with
the transfer agents. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Provident Mutual Variable
Annuity Separate Account as of December 31, 1996, and the results of its
operations for the year then ended and the changes in its net assets for each of
the two years in the period then ended in conformity with generally accepted
accounting principles.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Supplementary Information is
presented for purposes of additional analysis and is not a required part of the
basic financial statements. Such information has not been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
accordingly, we express no opinion on it.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 10, 1997
2
<PAGE> 3
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in the Market Street
Fund, Inc., at market value:
Growth Portfolio................. $2,342,558
Money Market Portfolio........... $2,530,979
Bond Portfolio................... $468,128
Managed Portfolio................ $832,367
Aggressive Growth Portfolio...... $397,882
International Portfolio.......... $ 1,837,067
Dividends receivable............... 10,367
Receivable from Provident Mutual
Life Insurance Company........... 439,651
---------- ---------- ---------- ---------- ---------- -------------
NET ASSETS......................... $2,342,558 $2,980,997 $468,128 $832,367 $397,882 $ 1,837,067
=========== =========== =========== =========== =========== ============
Held for the benefit of
contractholders.................. $2,303,028 $2,971,822 $439,181 $798,252 $360,882 $ 1,801,543
Attributable to Provident Mutual
Life Insurance Company........... 39,530 9,175 28,947 34,115 37,000 35,524
---------- ---------- ---------- ---------- ---------- -------------
$2,342,558 $2,980,997 $468,128 $832,367 $397,882 $ 1,837,067
=========== =========== =========== =========== =========== ============
</TABLE>
See accompanying notes to financial statements
3
<PAGE> 4
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY
HIGH EQUITY- FIDELITY ASSET FIDELITY FIDELITY
INCOME INCOME GROWTH MANAGER INDEX 500 CONTRAFUND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in the Variable
Insurance Products Fund, at
market value:
High Income Portfolio........... $ 1,730,656
Equity-Income Portfolio......... $ 5,642,615
Growth Portfolio................ $ 4,066,574
Investment in the Variable
Insurance Products Fund II, at
market value:
Asset Manager Portfolio......... $852,189
Index 500 Portfolio............. $2,391,858
Contrafund Portfolio............ $745,086
---------- ---------- ---------- -------- ---------- --------
NET ASSETS........................ $ 1,730,656 $ 5,642,615 $ 4,066,574 $852,189 $2,391,858 $745,086
========== ========== ========== ======== ========== ========
Held for the benefit of
contractholders................. $ 1,696,614 $ 5,604,588 $ 4,026,198 $819,792 $2,349,987 $716,747
Attributable to Provident Mutual
Life Insurance Company.......... 34,042 38,027 40,376 32,397 41,871 28,339
---------- ---------- ---------- -------- ---------- --------
$ 1,730,656 $ 5,642,615 $ 4,066,574 $852,189 $2,391,858 $745,086
========== ========== ========== ======== ========== ========
</TABLE>
See accompanying notes to financial statements
4
<PAGE> 5
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
QUEST FOR QUEST FOR QUEST FOR SCUDDER
VALUE VALUE SMALL VALUE SCUDDER GROWTH AND SCUDDER
EQUITY CAP MANAGED BOND INCOME INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in the OCC Accumulation
Trust, at market value:
Equity Portfolio.................... $ 1,909,234
Small Cap Portfolio................. $ 1,446,450
Managed Portfolio................... $ 3,656,290
Investment in the Scudder Variable
Life Investment Fund, at market
value:
Bond Portfolio...................... $448,841
Growth and Income Portfolio......... $529,446
International Portfolio............. $ 213,679
-------- ----------- ----------- -------- --------
NET ASSETS............................ $ 1,909,234 $ 1,446,450 $ 3,656,290 $448,841 $529,446 $ 213,679
======== =========== =========== ======== ========
Held for the benefit of
contractholders..................... $ 1,867,013 $ 1,412,016 $ 3,613,878 $418,304 $501,038 $ 186,996
Attributable to Provident Mutual Life
Insurance Company................... 42,221 34,434 42,412 30,537 28,408 26,683
-------- ----------- ----------- -------- --------
$ 1,909,234 $ 1,446,450 $ 3,656,290 $448,841 $529,446 $ 213,679
======== =========== =========== ======== ========
</TABLE>
See accompanying notes to financial statements
5
<PAGE> 6
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Assets and Liabilities, December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DREYFUS DREYFUS DREYFUS FEDERATED U.S. FEDERATED
ZERO GROWTH SOCIALLY GOVERNMENT UTILITY
COUPON 2000 AND INCOME RESPONSIBLE BOND FUND FUND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in the Dreyfus Variable
Investment Fund, at market value:
Zero Coupon 2000 Portfolio........... $ 335,068
Growth and Income Portfolio.......... $721,458
Socially Responsible Portfolio....... $ 127,701
Investment in the Insurance Management
Series, at market value:
U.S. Government Bond Fund
Portfolio.......................... $ 74,412
Utility Fund Portfolio............... $101,440
--------- --------- --------- --------- ---------
NET ASSETS............................. $ 335,068 $721,458 $ 127,701 $ 74,412 $101,440
========= ========= ========= ========= =========
Held for the benefit of
contractholders...................... $ 304,820 $691,083 $ 99,643 $ 48,059 $ 73,807
Attributable to Provident Mutual Life
Insurance Company.................... 30,248 30,375 28,058 26,353 27,633
--------- --------- --------- --------- ---------
$ 335,068 $721,458 $ 127,701 $ 74,412 $101,440
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements
6
<PAGE> 7
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................................ $ 41,617 $122,505 $ 19,168 $ 17,276 $ 2,749 $ 10,854
EXPENSES
Mortality and expense risks.............. 22,025 33,647 4,597 7,129 3,801 18,629
-------- -------- -------- -------- -------- --------
Net investment income (loss)............. 19,592 88,858 14,571 10,147 (1,052) (7,775)
-------- -------- -------- -------- -------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Realized gain distributions reinvested... 50,877 11,758 27,708 44,000
Net realized gain from redemption of
investment shares...................... 31,164 2,584 2,297 3,951 21,870
-------- -------- -------- -------- -------- --------
Net realized gain on investments......... 82,041 2,584 14,055 31,659 65,870
-------- -------- -------- -------- -------- --------
Net unrealized appreciation
(depreciation) of investments:
Beginning of year...................... 98,207 18,631 32,534 16,806 56,960
End of year............................ 297,288 12,282 71,129 41,064 126,164
-------- -------- -------- -------- -------- --------
Net unrealized appreciation
(depreciation) during the year......... 199,081 (6,349) 38,595 24,258 69,204
-------- -------- -------- -------- -------- --------
Net realized and unrealized gain (loss)
on investments......................... 281,122 (3,765) 52,650 55,917 135,074
-------- -------- -------- -------- -------- --------
Net increase in net assets resulting from
operations............................. $300,714 $ 88,858 $ 10,806 $ 62,797 $ 54,865 $ 127,299
======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements
7
<PAGE> 8
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY
HIGH EQUITY- FIDELITY ASSET FIDELITY FIDELITY
INCOME INCOME GROWTH MANAGER INDEX 500 CONTRAFUND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................................ $ 67,232 $ 3,245 $ 4,472 $ 13,562 $ 8,150
EXPENSES
Mortality and expense risks.............. 17,506 50,360 38,493 7,419 19,324 $ 2,884
-------- -------- -------- -------- -------- --------
Net investment income (loss)............. 49,726 (47,115) (34,021) 6,143 (11,174) (2,884)
-------- -------- -------- -------- -------- --------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Realized gain distributions reinvested... 13,154 33,026 112,930 11,183 20,958
Net realized gain from redemption of
investment shares...................... 27,267 156,974 86,749 7,855 32,006 925
-------- -------- -------- -------- -------- --------
Net realized gain on investments......... 40,421 190,000 199,679 19,038 52,964 925
-------- -------- -------- -------- -------- --------
Net unrealized appreciation of
investments:
Beginning of year...................... 58,116 196,090 53,656 31,394 30,773
End of year............................ 116,189 545,542 188,126 80,938 270,807 65,818
-------- -------- -------- -------- -------- --------
Net unrealized appreciation during the
year................................... 58,073 349,452 134,470 49,544 240,034 65,818
-------- -------- -------- -------- -------- --------
Net realized and unrealized gain on
investments............................ 98,494 539,452 334,149 68,582 292,998 66,743
-------- -------- -------- -------- -------- --------
Net increase in net assets resulting from
operations............................. $148,220 $492,337 $300,128 $ 74,725 $281,824 $ 63,859
======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements
8
<PAGE> 9
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
QUEST FOR QUEST FOR QUEST FOR SCUDDER
VALUE VALUE VALUE SCUDDER GROWTH AND SCUDDER
EQUITY SMALL CAP MANAGED BOND INCOME INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................................ $ 8,207 $ 7,588 $ 14,611 $ 23,370 $ 3,443
EXPENSES
Mortality and expense risks.............. 18,015 12,490 30,478 4,115 2,036 $ 637
-------- -------- -------- -------- -------- -------
Net investment income (loss)............. (9,808) (4,902) (15,867) 19,255 1,407 (637)
-------- -------- -------- -------- -------- -------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Realized gain distributions reinvested... 16,445 19,507 9,318
Net realized gain from redemption of
investment shares...................... 87,147 92,306 108,093 1,379 668 27
-------- -------- -------- -------- -------- -------
Net realized gain on investments......... 103,592 111,813 117,411 1,379 668 27
-------- -------- -------- -------- -------- -------
Net unrealized appreciation
(depreciation) of investments:
Beginning of year...................... 70,068 44,166 94,978 7,002
End of year............................ 247,016 105,576 454,153 1,252 44,149 12,762
-------- -------- -------- -------- -------- -------
Net unrealized appreciation
(depreciation) during the year......... 176,948 61,410 359,175 (5,750) 44,149 12,762
-------- -------- -------- -------- -------- -------
Net realized and unrealized gain (loss)
on investments......................... 280,540 173,223 476,586 (4,371) 44,817 12,789
-------- -------- -------- -------- -------- -------
Net increase in net assets resulting from
operations............................. $270,732 $168,321 $460,719 $ 14,884 $ 46,224 $12,152
======== ======== ======== ======== ======== =======
</TABLE>
See accompanying notes to financial statements
9
<PAGE> 10
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Operations for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DREYFUS DREYFUS DREYFUS FEDERATED U.S. FEDERATED
ZERO GROWTH SOCIALLY GOVERNMENT UTILITY
COUPON 2000 AND INCOME RESPONSIBLE BOND FUND FUND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends........................................ $15,176 $ 4,810 $ 272 $1,558 $1,672
EXPENSES
Mortality and expense risks...................... 3,346 2,953 202 112 354
------- -------- ------- ------ ------
Net investment income............................ 11,830 1,857 70 1,446 1,318
------- -------- ------- ------ ------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain distributions reinvested........... 1,089 64,333 4,844
Net realized gain from redemption of investment
shares......................................... 1,046 906 41 1 14
------- -------- ------- ------ ------
Net realized gain on investments................. 2,135 65,239 4,885 1 14
------- -------- ------- ------ ------
Net unrealized appreciation (depreciation) of
investments:
Beginning of year.............................. 4,458
End of year.................................... (3,544) (42,177) 1,738 433 6,757
------- -------- ------- ------ ------
Net unrealized appreciation (depreciation) during
the year....................................... (8,002) (42,177) 1,738 433 6,757
------- -------- ------- ------ ------
Net realized and unrealized gain (loss) on
investments.................................... (5,867) 23,062 6,623 434 6,771
------- -------- ------- ------ ------
Net increase in net assets resulting from
operations..................................... $ 5,963 $ 24,919 $ 6,693 $1,880 $8,089
======= ======== ======= ====== ======
</TABLE>
See accompanying notes to financial statements
10
<PAGE> 11
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)..... $ 19,592 $ 88,858 $ 14,571 $ 10,147 $ (1,052) $ (7,775)
Net realized gain on
investments.................... 82,041 2,584 14,055 31,659 65,870
Net unrealized appreciation
(depreciation) of investments
during the year................ 199,081 (6,349) 38,595 24,258 69,204
---------- ------------ -------- -------- -------- ----------
Net increase in net assets from
operations..................... 300,714 88,858 10,806 62,797 54,865 127,299
---------- ------------ -------- -------- -------- ----------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contractholders' net premiums.... 129,062 16,804,454 12,235 39,161 14,105 145,209
Administrative charges........... (755) (677) (128) (314) (263) (541)
Surrenders and forfeitures....... (17,602) (89,015) (30,257) (11,678) (3,305) (44,567)
Transfers between investment
portfolios..................... 866,000 (15,761,942) 211,574 454,616 75,631 710,269
---------- ------------ -------- -------- -------- ----------
Net increase in net assets
derived from contract
transactions................... 976,705 952,820 193,424 481,785 86,168 810,370
---------- ------------ -------- -------- -------- ----------
Total increase in net assets..... 1,277,419 1,041,678 204,230 544,582 141,033 937,669
NET ASSETS
Beginning of year.............. 1,065,139 1,939,319 263,898 287,785 256,849 899,398
---------- ------------ -------- -------- -------- ----------
End of year.................... $2,342,558 $ 2,980,997 $468,128 $832,367 $397,882 $ 1,837,067
========== ============ ======== ======== ======== ==========
</TABLE>
See accompanying notes to financial statements
11
<PAGE> 12
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY
HIGH EQUITY- FIDELITY ASSET FIDELITY FIDELITY
INCOME INCOME GROWTH MANAGER INDEX 500 CONTRAFUND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss).................. $ 49,726 $ (47,115) $ (34,021) $ 6,143 $ (11,174) $ (2,884)
Net realized gain on investments.............. 40,421 190,000 199,679 19,038 52,964 925
Net unrealized appreciation of investments
during the year............................. 58,073 349,452 134,470 49,544 240,034 65,818
-------- ---------- ---------- -------- -------- --------
Net increase in net assets from operations.... 148,220 492,337 300,128 74,725 281,824 63,859
-------- ---------- ---------- -------- -------- --------
FROM VARIABLE ANNUITY CONTRACT TRANSACTIONS
Contractholders' net premiums................. 71,047 509,613 377,186 55,203 162,323 37,596
Administrative charges........................ (553) (1,182) (1,307) (372) (452) (7)
Surrenders and forfeitures.................... (120,197) (80,556) (79,931) (5,689) (35,688) (10,198)
Transfers between investment portfolios....... 760,735 2,822,841 2,025,844 378,238 1,348,209 628,836
-------- ---------- ---------- -------- -------- --------
Net increase in net assets derived from
contract transactions....................... 711,032 3,250,716 2,321,792 427,380 1,474,392 656,227
-------- ---------- ---------- -------- -------- --------
Capital contribution from Provident Mutual
Life Insurance Company...................... 25,000
-------- ---------- ---------- -------- -------- --------
Total increase in net assets.................. 859,252 3,743,053 2,621,920 502,105 1,756,216 745,086
-------- ---------- ---------- -------- -------- --------
NET ASSETS
Beginning of year........................... 871,404 1,899,562 1,444,654 350,084 635,642 --
-------- ---------- ---------- -------- -------- --------
End of year................................. $ 1,730,656 $ 5,642,615 $ 4,066,574 $852,189 $2,391,858 $745,086
======== ========== ========== ======== ======== ========
</TABLE>
See accompanying notes to financial statements
12
<PAGE> 13
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
QUEST FOR QUEST FOR SCUDDER
QUEST FOR VALUE VALUE SCUDDER GROWTH AND SCUDDER
VALUE EQUITY SMALL CAP MANAGED BOND INCOME INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)............. $ (9,808) $ (4,902) $ (15,867) $ 19,255 $ 1,407 $ (637)
Net realized gain on investments......... 103,592 111,813 117,411 1,379 668 27
Net unrealized appreciation
(depreciation) of investments during
the year............................... 176,948 61,410 359,175 (5,750) 44,149 12,762
---------- ---------- ---------- -------- -------- --------
Net increase in net assets from
operations............................. 270,732 168,321 460,719 14,884 46,224 12,152
---------- ---------- ---------- -------- -------- --------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contractholders' net premiums............ 105,006 122,662 368,883 69,708 58,154 7,467
Administrative charges................... (549) (369) (695) (102)
Surrenders and forfeitures............... (71,953) (11,402) (134,004) (5,560) (2,370) (184)
Transfers between investment
portfolios............................. 869,522 718,444 2,092,212 244,557 402,438 169,244
---------- ---------- ---------- -------- -------- --------
Net increase in net assets derived from
contract transactions.................. 902,026 829,335 2,326,396 308,603 458,222 176,527
---------- ---------- ---------- -------- -------- --------
Capital contribution from Provident
Mutual Life Insurance Company.......... 25,000 25,000
---------- ---------- ---------- -------- -------- --------
Total increase in net assets............. 1,172,758 997,656 2,787,115 323,487 529,446 213,679
NET ASSETS
Beginning of year...................... 736,476 448,794 869,175 125,354 -- --
---------- ---------- ---------- -------- -------- --------
End of year............................ $1,909,234 $1,446,450 $3,656,290 $448,841 $529,446 $ 213,679
========== ========== ========== ======== ======== ========
</TABLE>
See accompanying notes to financial statements
13
<PAGE> 14
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DREYFUS DREYFUS DREYFUS FEDERATED U.S. FEDERATED
ZERO GROWTH SOCIALLY GOVERNMENT UTILITY
COUPON 2000 AND INCOME RESPONSIBLE BOND FUND FUND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income............................ $ 11,830 $ 1,857 $ 70 $ 1,446 $ 1,318
Net realized gain on investments................. 2,135 65,239 4,885 1 14
Net unrealized appreciation (depreciation) of
investments during the year.................... (8,002) (42,177) 1,738 433 6,757
-------- -------- -------- -------- --------
Net increase in net assets from operations....... 5,963 24,919 6,693 1,880 8,089
-------- -------- -------- -------- --------
FROM VARIABLE ANNUITY CONTRACT TRANSACTIONS
Contractholders' net premiums.................... 9,992 60,256 10,114 19,222 15,094
Administrative charges........................... (115) (4)
Surrenders and forfeitures....................... (1,363) (3,432) (289)
Transfers between investment portfolios.......... 180,966 614,719 86,183 28,310 53,257
-------- -------- -------- -------- --------
Net increase in net assets derived from contract
transactions................................... 189,480 671,539 96,008 47,532 68,351
-------- -------- -------- -------- --------
Capital contribution from Provident Mutual Life
Insurance Company.............................. 25,000 25,000 25,000 25,000
-------- -------- -------- -------- --------
Total increase in net assets..................... 195,443 721,458 127,701 74,412 101,440
-------- -------- -------- -------- --------
NET ASSETS
Beginning of year.............................. 139,625 -- -- -- --
-------- -------- -------- -------- --------
End of year.................................... $ 335,068 $721,458 $ 127,701 $ 74,412 $101,440
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements
14
<PAGE> 15
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)........ $ 9,571 $ 33,452 $ 7,855 $ 9,911 $ (2,164) $ (5,423)
Net realized gain on investments.... 45,321 160 14,956 11,083 8,264
Net unrealized appreciation of
investments during the year....... 98,680 21,827 35,794 12,443 63,388
---------- ----------- -------- -------- -------- ---------
Net increase in net assets
from operations................... 153,572 33,452 29,842 60,661 21,362 66,229
---------- ----------- -------- -------- -------- ---------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contractholders' net premiums....... 30,285 8,277,788 11,089 2,043 13,061 67,030
Administrative charges.............. (312) (196) (66) (190) (60) (162)
Surrenders and forfeitures.......... (23,011) (4,381) (2,723) (17,408) (5,030) (3,697)
Transfers between investment
portfolios........................ 436,550 (6,659,462) 93,995 (63,542) 114,636 489,394
---------- ----------- -------- -------- -------- ---------
Net increase (decrease) in net
assets derived from contract
transactions...................... 443,512 1,613,749 102,295 (79,097) 122,607 552,565
---------- ----------- -------- -------- -------- ---------
Total increase (decrease) in
net assets........................ 597,084 1,647,201 132,137 (18,436) 143,969 618,794
NET ASSETS
Beginning of year................. 468,055 292,118 131,761 306,221 112,880 280,604
---------- ----------- -------- -------- -------- ---------
End of year....................... $ 1,065,139 $1,939,319 $263,898 $287,785 $256,849 $ 899,398
========== =========== ======== ======== ======== =========
</TABLE>
See accompanying notes to financial statements
15
<PAGE> 16
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY
HIGH EQUITY- FIDELITY ASSET FIDELITY
INCOME INCOME GROWTH MANAGER INDEX 500
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)............................ $ (2,074) $ 9,853 $ (5,657) $ (836) $ (1,040)
Net realized gain on investments........................ 916 23,936 12,032 6,351 6,174
Net unrealized appreciation
of investments during the year........................ 58,315 196,595 51,442 33,307 30,712
-------- ---------- ---------- -------- --------
Net increase in net assets from operations.............. 57,157 230,384 57,817 38,822 35,846
-------- ---------- ---------- -------- --------
FROM VARIABLE ANNUITY CONTRACT TRANSACTIONS
Contractholders' net premiums........................... 31,698 169,149 110,921 61,229 4,360
Administrative charges.................................. (29) (165) (148) (73) (21)
Surrenders and forfeitures.............................. (8,207) (634) (8,909) (2,483) (447)
Transfers between investment portfolios................. 754,221 1,303,751 1,181,641 142,676 564,167
-------- ---------- ---------- -------- --------
Net increase in net assets derived from
contract transactions................................. 777,683 1,472,101 1,283,505 201,349 568,059
-------- ---------- ---------- -------- --------
Total increase in net assets............................ 834,840 1,702,485 1,341,322 240,171 603,905
NET ASSETS
Beginning of year..................................... 36,564 197,077 103,332 109,913 31,737
-------- ---------- ---------- -------- --------
End of year........................................... $871,404 $1,899,562 $1,444,654 $350,084 $635,642
======== ========== ========== ======== ========
</TABLE>
See accompanying notes to financial statements
16
<PAGE> 17
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Statements of Changes in Net Assets for the Year Ended December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
QUEST FOR QUEST FOR DREYFUS
QUEST FOR VALUE VALUE SCUDDER ZERO
VALUE EQUITY SMALL CAP MANAGED BOND COUPON 2000
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)....................... $ (3,084) $ (3,682) $ (4,409) $ 3,535 $ 3,446
Net realized gain on investments................... 3,468 12,778 12,571 28 739
Net unrealized appreciation of investments
during the year.................................. 70,278 41,425 95,716 7,185 4,998
-------- -------- -------- -------- ---------
Net increase in net assets from operations......... 70,662 50,521 103,878 10,748 9,183
-------- -------- -------- -------- ---------
FROM VARIABLE ANNUITY CONTRACT TRANSACTIONS
Contractholders' net premiums...................... 17,047 56,295 44,576 5,284 13,365
Administrative charges............................. (69) (89) (125) (17) (4)
Surrenders and forfeitures......................... (8,381) (9,833)
Transfers between investment portfolios............ 597,919 240,396 651,090 75,949 92,077
-------- -------- -------- -------- ---------
Net increase in net assets derived from
contract transactions............................ 606,516 296,602 685,708 81,216 105,438
-------- -------- -------- -------- ---------
Total increase in net assets....................... 677,178 347,123 789,586 91,964 114,621
NET ASSETS
Beginning of year................................ 59,298 101,671 79,589 33,390 25,004
-------- -------- -------- -------- ---------
End of year...................................... $736,476 $448,794 $869,175 $125,354 $ 139,625
======== ======== ======== ======== =========
</TABLE>
See accompanying notes to financial statements
17
<PAGE> 18
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Notes To Financial Statements
- --------------------------------------------------------------------------------
1. ORGANIZATION
The Provident Mutual Variable Annuity Separate Account (Separate Account)
was established on October 19, 1992 by Provident Mutual Life Insurance Company
(Provident Mutual) under the provisions of Pennsylvania law. The Separate
Account is an investment account to which net proceeds from individual flexible
premium deferred variable annuity contracts (the Contracts) are allocated until
maturity or termination of the Contracts.
The Contracts are distributed through career agents, brokers and personal
producing general agents.
Provident Mutual has structured the Separate Account as a unit investment
trust registered with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended. The Separate Account is comprised of
twenty-three Subaccounts: the Growth, Money Market, Bond, Managed, Aggressive
Growth and International Subaccounts invest in the corresponding portfolios of
the Market Street Fund, Inc.; the Fidelity High Income, Fidelity Equity-Income
and Fidelity Growth Subaccounts invest in the corresponding portfolios of the
Variable Insurance Products Fund; the Fidelity Asset Manager, Fidelity Index 500
and Fidelity Contrafund Subaccounts invest in the corresponding portfolios of
the Variable Insurance Products Fund II; the Quest for Value Equity, Quest for
Value Small Cap and Quest for Value Managed Subaccounts invest in the
corresponding portfolios of the OCC Accumulation Trust; the Scudder Bond,
Scudder Growth and Income and Scudder International Subaccounts invest in the
corresponding portfolios of the Scudder Variable Life Investment Fund; the
Dreyfus Zero Coupon 2000, Dreyfus Growth and Income and Dreyfus Socially
Responsible Subaccounts invest in the corresponding portfolios of the Dreyfus
Variable Investment Fund; and the Federated U. S. Government Bond Fund and
Federated Utility Fund Subaccounts invest in the corresponding portfolios of the
Insurance Management Series.
The Growth, Money Market, Bond, Managed, Aggressive Growth and
International Subaccounts are available to owners of a Market Street VIP
contract. All twenty-three Subaccounts are available to owners of a Market
Street VIP/2 contract.
Net premiums from the Contracts are allocated to the Subaccounts in
accordance with contractholder instructions and are recorded as variable annuity
contract transactions in the statements of changes in net assets. Such amounts
are used to provide money to pay contract values under the Contracts (Note 4).
The Separate Account's assets are the property of Provident Mutual.
Transfers between investment portfolios include transfers between the
Subaccounts and the Guaranteed Account (not shown), which is part of Provident
Mutual's General Account.
18
<PAGE> 19
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed
by the Separate Account in the financial statements.
Investment Valuation:
Investment shares are valued at the net asset values of the respective
Portfolios. Transactions are recorded on the trade date. Dividend income is
recorded on the ex-dividend date.
Realized Gains and Losses:
Realized gains and losses on sales of investment shares are determined
using the specific identification basis for financial reporting and income tax
purposes.
Federal Income Taxes:
The operations of the Separate Account are included in the Federal income
tax return of Provident Mutual. Under the provisions of the Contracts, Provident
Mutual has the right to charge the Separate Account for Federal income tax
attributable to the Separate Account. No charge is currently being made against
the Separate Account for such tax.
Estimates:
The preparation of the accompanying financial statements required
management to make estimates and assumptions that affect the reported values of
assets and liabilities and the reported amounts from operations and contract
transactions during the period. Actual results could differ from those
estimates.
19
<PAGE> 20
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS
At December 31, 1996, the investments of the respective Subaccounts are as
follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET
SHARES COST VALUE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Market Street Fund, Inc.:
Growth Portfolio....................................... 129,423 $2,045,270 $2,342,558
Money Market Portfolio................................. 2,530,979 $2,530,979 $2,530,979
Bond Portfolio......................................... 43,873 $455,846 $468,128
Managed Portfolio...................................... 56,701 $761,238 $832,367
Aggressive Growth Portfolio............................ 21,484 $356,818 $397,882
International Portfolio................................ 136,992 $1,710,903 $1,837,067
Variable Insurance Products Fund:
High Income Portfolio.................................. 138,231 $1,614,467 $1,730,656
Equity-Income Portfolio................................ 268,313 $5,097,073 $5,642,615
Growth Portfolio....................................... 130,590 $3,878,448 $4,066,574
Variable Insurance Products Fund II:
Asset Manager Portfolio................................ 50,336 $771,251 $852,189
Index 500 Portfolio.................................... 26,835 $2,121,051 $2,391,858
Contrafund Portfolio................................... 44,993 $679,268 $745,086
OCC Accumulation Trust:
Equity Portfolio....................................... 63,493 $1,662,218 $1,909,234
Small Cap Portfolio.................................... 63,974 $1,340,874 $1,446,450
Managed Portfolio...................................... 100,975 $3,202,137 $3,656,290
Scudder Variable Life Investment Fund:
Bond Portfolio......................................... 66,693 $447,589 $448,841
Growth and Income Portfolio............................ 56,504 $485,297 $529,446
International Portfolio................................ 16,127 $200,917 $213,679
Dreyfus Variable Investment Fund:
Zero Coupon 2000 Portfolio............................. 27,263 $338,612 $335,068
Growth and Income Portfolio............................ 36,903 $763,635 $721,458
Socially Responsible Portfolio......................... 6,356 $125,963 $127,701
Insurance Management Series:
U.S. Government Bond Fund Portfolio.................... 7,375 $73,979 $74,412
Utility Fund Portfolio................................. 8,589 $94,683 $101,440
</TABLE>
20
<PAGE> 21
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
During the years ended December 31, 1996 and 1995, transactions in
investment shares were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
------------------------------------------------------------------------------------------------------------------
GROWTH PORTFOLIO MONEY MARKET BOND PORTFOLIO
PORTFOLIO
------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995 1996 1995
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased............................. 69,249 38,671 9,172,217 6,294,574 21,420 12,319
Shares received from reinvestment of:
Dividends.................................. 2,541 1,202 122,507 44,361 1,823 948
Capital gain distributions................. 3,268 2,735
---------- -------- ----------- ----------- -------- --------
Total shares acquired........................ 75,058 42,608 9,294,724 6,338,935 23,243 13,267
Total shares redeemed........................ (10,741) (10,953) (8,675,470) (4,576,169) (3,361) (2,822)
---------- -------- ----------- ----------- -------- --------
Net increase (decrease) in shares owned...... 64,317 31,655 619,254 1,762,766 19,882 10,445
Shares owned, beginning of year.............. 65,106 33,451 1,911,725 148,959 23,991 13,546
---------- -------- ----------- ----------- -------- --------
Shares owned, end of year.................... 129,423 65,106 2,530,979 1,911,725 43,873 23,991
========== ======== =========== =========== ======== ========
Cost of shares acquired...................... $1,231,085 $648,886 $ 9,294,724 $ 6,338,935 $244,010 $140,018
========== ======== =========== =========== ======== ========
Cost of shares redeemed...................... $ 152,747 $150,738 $ 8,675,470 $ 4,576,169 $ 33,431 $ 29,747
========== ======== =========== =========== ======== ========
</TABLE>
21
<PAGE> 22
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
------------------------------------------------------------------------------------------------------------------
INTERNATIONAL
MANAGED PORTFOLIO AGGRESSIVE PORTFOLIO
GROWTH PORTFOLIO
------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995 1996 1995
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased.................................. 35,733 10,956 7,983 12,699 81,109 55,062
Shares received from reinvestment of:
Dividends....................................... 1,247 1,049 181 878 142
Capital gain distributions...................... 871 29 1,822 64 3,560 672
-------- -------- -------- -------- ---------- --------
Total shares acquired............................. 37,851 12,034 9,986 12,763 85,547 55,876
Total shares redeemed............................. (1,431) (17,402) (3,280) (5,297) (18,493) (10,078)
-------- -------- -------- -------- ---------- --------
Net increase (decrease) in shares owned........... 36,420 (5,368) 6,706 7,466 67,054 45,798
Shares owned, beginning of year................... 20,281 25,649 14,778 7,312 69,938 24,140
-------- -------- -------- -------- ---------- --------
Shares owned, end of year......................... 56,701 20,281 21,484 14,778 136,992 69,938
======== ======== ======== ======== ========== ========
Cost of shares acquired........................... $523,485 $155,989 $167,866 $209,103 $1,086,191 $674,316
======== ======== ======== ======== ========== ========
Cost of shares redeemed........................... $ 17,498 $210,244 $ 51,091 $ 77,665 $ 217,726 $119,053
======== ======== ======== ======== ========== ========
</TABLE>
22
<PAGE> 23
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED:
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND
------------------------------------------------------------------------------------------------------------------
HIGH INCOME EQUITY INCOME GROWTH PORTFOLIO
PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995 1996 1995
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased............................ 77,760 69,781 200,553 86,058 91,860 46,058
Shares received from reinvestment of:
Dividends................................. 5,960 351 173 1,173 161 34
Capital gain distributions................ 1,166 4,932 1,208 4,065
---------- -------- ---------- ---------- ---------- ----------
Total shares acquired....................... 84,886 70,132 205,658 88,439 96,086 46,092
Total shares redeemed....................... (18,971) (1,216) (35,921) (2,713) (14,970) (1,388)
---------- -------- ---------- ---------- ---------- ----------
Net increase in shares owned................ 65,915 68,916 169,737 85,726 81,116 44,704
Shares owned, beginning of year............. 72,316 3,400 98,576 12,850 49,474 4,770
---------- -------- ---------- ---------- ---------- ----------
Shares owned, end of year................... 138,231 72,316 268,313 98,576 130,590 49,474
========== ======== ========== ========== ========== ==========
Cost of shares acquired..................... $1,005,014 $789,745 $3,962,136 $1,547,970 $2,841,783 $1,319,208
========== ======== ========== ========== ========== ==========
Cost of shares redeemed..................... $ 203,835 $ 13,244 $ 568,535 $ 42,255 $ 354,333 $ 29,459
========== ======== ========== ========== ========== ==========
</TABLE>
23
<PAGE> 24
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED:
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND II
--------------------------------------------------------------------------------------------------------------------
ASSET MANAGER INDEX 500 CONTRAFUND
PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995 1996
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares purchased........................................... 31,189 19,640 20,895 8,192 45,949
Shares received from reinvestment of:
Dividends................................................ 899 170 108 9
Capital gain distributions............................... 740 279 1
-------- -------- ---------- -------- --------
Total shares acquired...................................... 32,828 19,810 21,282 8,202 45,949
Total shares redeemed...................................... (4,663) (5,615) (2,843) (371) (956)
-------- -------- ---------- -------- --------
Net increase in shares owned............................... 28,165 14,195 18,439 7,831 44,993
Shares owned, beginning of year............................ 22,171 7,976 8,396 565
-------- -------- ---------- -------- --------
Shares owned, end of year.................................. 50,336 22,171 26,835 8,396 44,993
======== ======== ========== ======== ========
Cost of shares acquired.................................... $516,480 $286,108 $1,707,951 $594,048 $693,349
======== ======== ========== ======== ========
Cost of shares redeemed.................................... $ 63,919 $ 79,324 $ 191,769 $ 20,867 $ 14,081
======== ======== ========== ======== ========
</TABLE>
24
<PAGE> 25
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
<TABLE>
<CAPTION>
OCC ACCUMULATION TRUST
------------------------------------------------------------------------------------------------------------------
EQUITY PORTFOLIO SMALL CAP MANAGED PORTFOLIO
PORTFOLIO
------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995 1996 1995
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased............................... 42,807 26,755 65,607 22,251 80,900 26,602
Shares received from reinvestment of:
Dividends.................................... 319 15 387 19 473 24
Capital gain distributions................... 638 993 17 302
---------- -------- ---------- -------- ---------- --------
Total shares acquired.......................... 43,764 26,770 66,987 22,287 81,675 26,626
Total shares redeemed.......................... (9,671) (645) (25,554) (5,603) (9,538) (1,612)
---------- -------- ---------- -------- ---------- --------
Net increase in shares owned................... 34,093 26,125 41,433 16,684 72,137 25,014
Shares owned, beginning of year................ 29,400 3,275 22,541 5,857 28,838 3,824
---------- -------- ---------- -------- ---------- --------
Shares owned, end of year...................... 63,493 29,400 63,974 22,541 100,975 28,838
========== ======== ========== ======== ========== ========
Cost of shares acquired........................ $1,187,893 $618,621 $1,399,244 $400,418 $2,652,701 $727,971
========== ======== ========== ======== ========== ========
Cost of shares redeemed........................ $ 192,083 $ 11,763 $ 462,998 $ 94,846 $ 224,761 $ 34,167
========== ======== ========== ======== ========== ========
</TABLE>
25
<PAGE> 26
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
<TABLE>
<CAPTION>
SCUDDER VARIABLE LIFE INVESTMENT FUND
------------------------------------------------------------------------------------------------------------------
BOND PORTFOLIO GROWTH AND INTERNATIONAL
INCOME PORTFOLIO
PORTFOLIO
------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1996
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares purchased.................................................. 58,485 11,797 57,128 16,200
Shares received from reinvestment of:
Dividends....................................................... 3,517 606 397
Capital gain distributions......................................
-------- ------- -------- --------
Total shares acquired............................................. 62,002 12,403 57,525 16,200
Total shares redeemed............................................. (12,792) (75) (1,021) (73)
-------- ------- -------- --------
Net increase in shares owned...................................... 49,210 12,328 56,504 16,127
Shares owned, beginning of year................................... 17,483 5,155
-------- ------- -------- --------
Shares owned, end of year......................................... 66,693 17,483 56,504 16,127
======== ======= ======== ========
Cost of shares acquired........................................... $414,413 $85,256 $493,834 $ 201,830
======== ======= ======== ========
Cost of shares redeemed........................................... $ 85,176 $ 490 $ 8,537 $ 913
======== ======= ======== ========
</TABLE>
26
<PAGE> 27
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
<TABLE>
<CAPTION>
DREYFUS VARIABLE INVESTMENT FUND INSURANCE MANAGEMENT
SERIES
------------------------------------------------------------------------------------------------------------------
ZERO COUPON 2000 GROWTH SOCIALLY U.S. UTILITY
PORTFOLIO AND RESPONSIBLE GOVERNMENT FUND
INCOME PORTFOLIO BOND FUND PORTFOLIO
PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1996 1996 1996
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased.................. 23,636 9,272 34,826 6,129 7,227 8,476
Shares received from reinvestment
of:
Dividends....................... 1,234 324 237 14 156 148
Capital gain distributions...... 88 3,285 237
-------- -------- -------- --------- -------- -------
Total shares acquired............. 24,958 9,596 38,348 6,380 7,383 8,624
Total shares redeemed............. (8,689) (797) (1,445) (24) (8) (35)
-------- -------- -------- --------- -------- -------
Net increase in shares owned...... 16,269 8,799 36,903 6,356 7,375 8,589
Shares owned, beginning of year... 10,994 2,195
-------- -------- -------- --------- -------- -------
Shares owned, end of year......... 27,263 10,994 36,903 6,356 7,375 8,589
======== ======== ======== ========= ======== =======
Cost of shares acquired........... $309,524 $118,897 $793,353 $ 126,413 $ 74,062 $95,064
======== ======== ======== ========= ======== =======
Cost of shares redeemed........... $106,079 $ 9,274 $ 29,718 $ 450 $ 83 $ 381
======== ======== ======== ========= ======== =======
</TABLE>
27
<PAGE> 28
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Notes to Financial Statements -- concluded
- --------------------------------------------------------------------------------
4. RELATED PARTY TRANSACTIONS
Certain deductions are made from the Subaccounts and/or the premiums by
Provident Mutual. The deductions may include (1) surrender charges, (2)
administration fees, (3) transfer processing fees, (4) mortality and expense
risk charges and (5) premium taxes. Premiums adjusted for these deductions are
recorded as net premiums in the statement of changes in net assets. See original
policy documents for specific charges assessed.
There are no sales expenses deducted from premiums at the time the premiums
are paid. If a contract has not been in force for six full years, upon surrender
or for certain withdrawals, a surrender charge is deducted from the proceeds.
However, subject to certain restrictions, up to 10% of the contract account
value as of the beginning of a contract year may be surrendered or withdrawn
free of surrender charges.
An annual administrative fee of $30 is deducted from the contract account
value on each contract anniversary date beginning one year from the issue date
of the contract. In addition, to compensate for costs associated with
administration of the Market Street VIP/2 contracts, Provident Mutual deducts a
daily asset-based administration charge from the assets of the Separate Account
equal to an annual rate of .15%. This daily asset-based administration charge is
reported in the mortality and expense risk charges in the statements of
operations.
During any given contract year, the first four transfers by Market Street
VIP contractholders and the first twelve transfers by Market Street VIP/2
contractholders of amounts in the Subaccounts are free of charge. A fee of $25
is assessed for each additional transfer. No transfer fees were incurred during
the years ended December 31, 1996 or 1995.
The Separate Account is charged a daily mortality and expense risk charge
at an annual rate of 1.20% for the Market Street VIP contracts and 1.25% for the
Market Street VIP/2 contracts. Provident Mutual reserves the right to increase
this charge for the Market Street VIP contracts, but in no event will it be
greater than 1.25%.
State premium taxes, when applicable, will be deducted depending upon when
such taxes are paid to the taxing authority. The premium taxes are deducted
either from premiums as they are received or from the proceeds upon withdrawal
from or surrender of the contract or upon application of the proceeds to a
payment option.
28
<PAGE> 29
- --------------------------------------------------------------------------------
The Provident Mutual Variable Annuity Separate Account
of Provident Mutual Life Insurance Company
Supplementary Information (unaudited)
- --------------------------------------------------------------------------------
The table below shows the net rates of return for the Subaccounts. The net
rate of return is applicable to net assets for a variable annuity contract whose
contract year commences with the beginning date of the year shown and is not
based on the average net assets in the Subaccounts during the year.
The performance for each Subaccount is shown as the net rate of return which
reflects the Subaccounts' investment income and capital gains and losses,
realized or unrealized, less charges against the Subaccounts' assets for the
year shown.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY
MONEY AGGRESSIVE INTERNA- HIGH EQUITY-
GROWTH MARKET BOND MANAGED GROWTH TIONAL INCOME INCOME
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MARKET STREET VIP
For the year ended:
December 31, 1996........... 17.81% 3.62% 1.41% 10.29% 19.14% 9.25% -- --
December 31, 1995........... 28.84% 4.35% 18.91% 22.87% 12.13% 12.95% -- --
December 31, 1994........... 0.60%(1) 2.45% (2) (6.85)%(1) (2.06)% (3) (2.18)%(1) (3.77)%(1) -- --
MARKET STREET VIP/2
For the year ended:
December 31, 1996........... 17.60% 3.42% 1.21% 10.08% 18.93% 9.04% 12.13% 12.38%
December 31, 1995........... 28.58% 4.14% 18.67% 22.62% 11.91% 12.72% 18.93% 33.22%
December 31, 1994........... (1.40)%(12) 0.69% (13) 0.68%(14) (0.09)% (15) 0.99%(16) (3.74)%(12) 0.01%(12) (1.73)%(12)
<CAPTION>
FIDELITY FIDELITY
FIDELITY ASSET INDEX
GROWTH MANAGER 500
- -----------------------------
<S> <C><C> <C> <C>
MARKET STREET VIP
For the year ended:
December 31, 1996........... -- -- --
December 31, 1995........... -- -- --
December 31, 1994........... -- -- --
MARKET STREET VIP/2
For the year ended:
December 31, 1996........... 12.80% 12.70% 20.80%
December 31, 1995........... 33.49% 15.33% 35.29%
December 31, 1994........... 0.94%(12) (3.06)%(16) 1.00%(17)
</TABLE>
The net rate of return was calculated from the date contractholder funds were
first allocated to the Subaccount referenced above as follows: (1) February 14,
1994, (2) January 28, 1994, (3) March 10, 1994, (4) May 21, 1996, (5) June 10,
1996, (6) May 13, 1996, (7) May 28, 1996, (8) July 26, 1996, (9) August 19,
1996, (10) July 8, 1996, (11) March 1, 1995, (12) October 21, 1994, (13) October
19,1994, (14) November 22, 1994, (15) November 14, 1994, (16) October 26, 1994,
(17) November 29, 1994 and (18) November 15, 1994.
29
<PAGE> 30
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
QUEST FOR QUEST FOR QUEST FOR SCUDDER
FIDELITY VALUE VALUE VALUE SCUDDER GROWTH
CONTRAFUND EQUITY SMALL CAP MANAGED BOND AND INCOME
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MARKET STREET VIP
For the year ended:
December 31, 1996........... -- -- -- -- -- --
December 31, 1995........... -- -- -- -- -- --
December 31, 1994........... -- -- -- -- -- --
MARKET STREET VIP/2
For the year ended:
December 31, 1996........... 9.05%(4) 21.34% 16.76% 20.75% 1.05% 10.76%(5)
December 31, 1995........... -- 36.93% 13.63% 43.54% 16.53% --
December 31, 1994........... -- (2.54)%(18) 2.02%(12) (1.73)%(12) 0.84% (16) --
</TABLE>
<TABLE>
<CAPTION>
DREYFUS DREYFUS FEDERATED U.S. FEDERATED
SCUDDER DREYFUS ZERO GROWTH SOCIALLY GOVERNMENT UTILITY
INTERNATIONAL COUPON 2000 AND INCOME RESPONSIBLE BOND FUND FUND
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MARKET STREET VIP
For the year ended:
December 31, 1996........... -- -- -- -- -- --
December 31, 1995........... -- -- -- -- -- --
December 31, 1994........... -- -- -- -- -- --
MARKET STREET VIP/2
For the year ended:
December 31, 1996........... 6.06%(6) 0.85% 2.45%(7) 16.85%(8) 2.35%(9) 8.16%(10)
December 31, 1995........... -- 11.41%(11) -- -- -- --
December 31, 1994........... -- -- -- -- -- --
</TABLE>
30
<PAGE> 31
- --------------------------------------------------------------------------------
To Our Variable Life Policyowners and Variable Annuity Contractowners:
- --------------------------------------------------------------------------------
We are pleased to send you the 1996 Annual Report for Market Street Fund, Inc.,
its Growth, Money Market, Bond, Managed, Aggressive Growth, International,
Common Stock and Sentinel Growth Portfolios.
Economic Overview and Investment Perspective
Sometimes listening to a broken record is not such a bad experience; especially
if the tune is pleasing.
Writing a year ago in the 1995 Annual Report for the Market Street Fund, I said
in part, "What will 1996 bring? With no hint of renewed inflation on the horizon
and the Federal Reserve Board leaning more towards easing than tightening in
order to avoid pushing an already weakening economy into recession, both bond
and equity markets should enjoy modestly positive rates of return in 1996. While
budget battles and the upcoming elections could produce short term volatility,
long term patient investors should have nothing to fear from maintaining their
market exposure. As to market timers, you are on your own as always."
Writing to you in June of 1996 I summarized the first six months of 1996 as
follows. "First the facts. Through the first six months of 1996, the equity
markets responded strongly to a growing, nearly inflation free economy. Rising
profits were sufficient to offset fears of rising interest rates. Total returns
were slightly above 10% for both the S&P 500 and the Russell 2000. For the fixed
income markets, the results were not as pleasant, with the Lehman Aggregate Bond
Index turning in a -1.2% total return and the 30 year U.S. Treasury Bond rate
averaging 6.06%, 6.60%, and 7.06% for the fourth quarter of 1995 and the first
two quarters of 1996, respectively. While the Federal Reserve did not tighten,
the combination of a growing economy, persistent inflation fears, and the
failure of the new Congress and the President to make any progress on
fundamental budget reform were sufficient to cause the back-up in rates."
The outlook for the rest of 1996 was presented as follows. "The outlook for the
remainder of 1996 is cautiously optimistic for both the equity and fixed income
markets. July has already seen increased volatility in both markets as equities
sold off strongly, particularly technology issues, only to bounce right back, at
least partially; while 30 year Treasuries rallied strongly to the 6.75% level.
Markets will likely stabilize until the November election, so long as inflation
fears do not force the Fed's hand. December should be exciting."
The second half of 1996 turned out just fine for both equity and fixed income
investors. So long as the economy remains on its current course of modest growth
and low inflation and policymakers keep their hands off the economic engine that
is the envy of the world, the outlook for all markets--especially the equity
market--remains positive. But stay cautious, and remember that to be a market
timer is to engage in the least cautious strategy of all.
Review of Fund Portfolio Performance
The Annual Reviews and performance charts* for each Portfolio (other than the
Money Market Portfolio) contained in this Annual Report show the growth of
$10,000 over the period shown, assuming reinvestment of all dividends. The
performance is then compared to a relevant index. As always, it is important to
recall in interpreting these results that the advisers of the equity portfolios
of Market Street Fund do not engage in market timing. That is to say that in all
but times of great market turmoil, they endeavor to keep the vast majority of
portfolio assets invested in common stocks. Thus they attempt to add value by
stock selection utilizing the methods and in the markets specified in the Fund
Prospectus. Their performance should be judged according to how well they do
relative to market indices measuring the same type of activity.
1
<PAGE> 32
We appreciate the opportunity to have served you in the past and look forward to
serving you during the remainder of 1997 and many years into the future.
/s/ Stanley R. Reber
Stanley R. Reber
President
The Market Street Fund, Inc.
*Past performance is not predictive of future results. Moreover, the
relationship between the performance of the Fund Portfolios and the actual
increases or decreases in a policy's cash value is not directly proportional due
to certain charges deducted from premiums and under the policies which are not
reflected in the above figures. Please see the current prospectus for an
explanation of these charges and for illustrations which take such charges into
account in calculating cash values.
2
<PAGE> 33
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors
of Market Street Fund, Inc.:
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of Market Street Fund, Inc.,
(comprising, respectively, the Growth, Money Market, Bond, Managed, Aggressive
Growth, International, Common Stock and Sentinel Growth Portfolios) as of
December 31, 1996, and the related statements of operations for the year or
period then ended, the statements of changes in net assets for each of the two
years or periods then ended, and financial highlights for each of the periods
presented. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
December 31, 1996, by correspondence with the custodians and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the respective portfolios constituting the Market Street Fund, Inc. as
of December 31, 1996, the results of their operations for the year or period
then ended, the changes in their net assets for each of the two years or periods
then ended, and the financial highlights for each of the periods presented, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
January 31, 1997
3
<PAGE> 34
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Growth Portfolio
1996 Annual Review
Newbold's Asset Management, Inc.
- --------------------------------------------------------------------------------
The 1996 return for the Market Street Fund Growth Portfolio was 19.6%,
compared to the Standard and Poor's 500 Stock Index return of 22.9%. Equity
markets extended their winning streak in 1996 by posting strong returns and
their sixth consecutive up year. The Dow Jones Industrials rose 28.7%; and the
NASDAQ was up 22.7%.
The equity markets jumped out of the blocks as 1996 began with a bevy of
weak economic statistics and prospects for a Federal Reserve reduction in short
term interest rates. Both the federal funds and discount rates were reduced by
one quarter percent to 5.25% and 5.0% respectively. Although this was the only
action taken by the Federal Reserve for all of 1996, the market responded and
increased 5.4% in the first quarter.
In the second and third quarters, job creation numbers in April and early
July substantially exceeded expectations resulting in some market turbulence in
the second quarter and the apparent beginning of a correction in July. A
correction seemed in order at this juncture as the market had increased all year
in spite of rising long term interest rates and a strengthening economy.
However, the only correction to materialize was for the technology laden NASDAQ
which at one point was off about 14% from its high earlier in the year. The S&P
500 and Dow Jones Industrials only fell to levels 6-7% below their highs. All
three indices turned around and surged to record levels by the end of September
as the core rate of inflation continued to run at an anemic annual rate of 2.6%,
a thirty year low.
The fourth quarter proved to be the best of the year for the overall market
driven by softening economic news and declining interest rates. Factory orders,
retail sales and job creation were weak, enabling the Federal Reserve to
continue to leave short term interest rates unchanged. The yield on the long
bond declined from 6.9% in early October to near 6.4% at the end of November. To
summarize, in 1996, good news continued to roll -- modest economic growth, good
corporate earnings, benign inflation and relatively low interest rates.
As 1997 begins, the good economic news alluded to earlier appears to be on
track. While not totally devoid of skepticism, we claim no real insight into
what may derail the attractive concensus outlook for modest GDP growth, low
inflation and interest rates and reasonably good prospects for corporate
profits. Our primary focus continues to be individual stock selection from those
issues in our value universe where we believe positive catalysts or corporate
actions will develop in order to ensure participation in rising markets. We
believe that this, along with with continued adherence to our low P/E, higher
yielding process, will produce superior results over the long term.
LOGO
<TABLE>
<CAPTION>
- -------------------------------------------------------------
GROWTH
- -------------------------------------------------------------
DOLLARS
-----------------------------
FUND INDEX
--------- --------
<S> <C> <C>
Start 10,000 10,000
85 10,177 10,077
86 11,325 11,941
87 11,511 12,540
88 13,641 14,580
89 17,794 19,131
90 18,220 18,485
91 21,590 24,115
92 22,614 25,948
93 24,924 28,558
94 25,522 28,933
95 33,279 39,811
96 39,794 48,928
- -------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------
Average Annual Total Return
- ----------------------------------------
<S> <C>
1 Year 19.58%
5 year 13.01%
Since Inception* 13.30%
- ----------------------------------------
</TABLE>
Past performance is not predictive of future performance.
+ The Index is the S&P 500 Index, an unmanaged index of 500 U.S. common
stocks that includes reinvestment of dividends.
* Inception date was December 12, 1985.
4
<PAGE> 35
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Growth Portfolio
Schedule of Investments, December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENTAGE NUMBER
OF PORTFOLIO OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK (96.2%)
Aerospace & Defense................................................... 3.2%
Boeing Co. ......................................................... 31,886 $ 3,391,873
United Technologies Corp. .......................................... 45,000 2,970,000
----------
6,361,873
----------
Automotive & Equipment................................................ 1.4%
Genuine Parts Co. .................................................. 61,800 2,750,100
----------
Building & Building Supplies.......................................... 1.7%
Masco Corp. ........................................................ 91,900 3,308,400
----------
Business Services, Media, etc. ....................................... 2.7%
Cognizant Corp. .................................................... 68,600 2,263,800
Dun & Bradstreet Corp. ............................................. 132,700 3,151,625
----------
5,415,425
----------
Chemicals............................................................. 3.0%
Grace (W.R.) & Co. ................................................. 67,400 3,487,950
Great Lakes Chemical Corp. ......................................... 52,600 2,459,050
----------
5,947,000
----------
Diversified........................................................... 1.4%
Black & Decker Corp................................................. 52,800 1,590,600
Canadian Pacific Ltd. .............................................. 41,500 1,099,750
----------
2,690,350
----------
Drugs and Health Care................................................. 8.0%
Aetna, Inc. ........................................................ 80,800 6,464,000
Bristol-Meyers Squibb Co............................................ 41,100 4,469,625
Mallinckrodt Group, Inc. ........................................... 113,400 5,003,775
----------
15,937,400
----------
Electronics........................................................... 1.9%
Cooper Industries, Inc. ............................................ 90,200 3,799,675
----------
Finance-Banks......................................................... 8.4%
Chase Manhattan Corp. .............................................. 34,000 3,034,500
Corestates Financial Corp. ......................................... 62,000 3,216,250
Fleet Financial Group, Inc. ........................................ 85,000 4,239,375
Mellon Bank Corp. .................................................. 43,400 3,081,400
Nations Bank Corp. ................................................. 31,300 3,059,575
----------
16,631,100
----------
</TABLE>
5
<PAGE> 36
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Growth Portfolio
Schedule of Investments, December 31, 1996 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENTAGE NUMBER
OF PORTFOLIO OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK (CONTINUED)
Finance-Insurance..................................................... 5.1%
General Re Corp. ................................................... 18,400 $ 2,902,600
ITT Hartford Group, Inc. ........................................... 51,000 3,442,500
St. Paul Companies, Inc. ........................................... 64,800 3,798,900
----------
10,144,000
----------
Financial Institutions................................................ 3.0%
First Union Corp. .................................................. 26,400 1,953,600
Travelers Group, Inc. .............................................. 89,633 4,067,097
----------
6,020,697
----------
Foods................................................................. 3.1%
Archer-Daniels Midland Co. ......................................... 278,653 6,130,366
----------
Machinery & Instrumentation........................................... 4.3%
Deere & Co. ........................................................ 96,600 3,924,375
Parker Hannifin Corp. .............................................. 119,300 4,622,875
----------
8,547,250
----------
Natural Gas........................................................... 1.7%
TransCanada Pipelines Ltd. ......................................... 197,900 3,463,250
----------
Non-Ferrous Metals & Mining........................................... 3.9%
Aluminum Co. of America............................................. 76,700 4,889,625
Reynolds Metals Co. ................................................ 49,600 2,796,200
----------
7,685,825
----------
Office Equipment & Supplies........................................... 5.8%
International Business Machines Corp. .............................. 36,300 5,481,300
Pitney Bowes, Inc. ................................................. 18,200 991,900
Xerox Corp. ........................................................ 93,900 4,941,488
----------
11,414,688
----------
Oil................................................................... 4.8%
Exxon Corp. ........................................................ 35,100 3,439,800
Mobil Corp. ........................................................ 33,000 4,034,251
Repsol ADR.......................................................... 53,400 2,035,875
----------
9,509,925
----------
Oil & Other Energy Sources............................................ 4.0%
Amoco Corp. ........................................................ 53,000 4,266,500
USX Marathon Group.................................................. 157,400 3,757,925
----------
8,024,425
----------
</TABLE>
6
<PAGE> 37
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Growth Portfolio
Schedule of Investments, December 31, 1996 -- Concluded
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENTAGE NUMBER
OF PORTFOLIO OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK (CONTINUED)
Paper & Forest Products............................................... 3.9%
James River Corp. .................................................. 142,500 $ 4,720,313
Mead Corp. ......................................................... 50,800 2,952,750
----------
7,673,063
----------
Pollution Control..................................................... 2.4%
WMX Technologies, Inc. ............................................. 143,800 4,691,475
----------
Retail-Department Stores.............................................. 0.9%
Dillard Dept. Stores, Class A....................................... 60,100 1,855,588
----------
Retail-Food Chains.................................................... 1.9%
American Stores Co. ................................................ 90,000 3,678,750
----------
Retail-Stores......................................................... 1.2%
Circuit City Store, Inc. ........................................... 80,500 2,425,062
----------
Telecommunications.................................................... 3.0%
AT&T Corp. ......................................................... 138,000 6,003,000
----------
Tobacco............................................................... 2.3%
RJR Nabisco Holdings Corp. ......................................... 135,140 4,594,760
----------
Transportation........................................................ 1.4%
Burlington Northern Santa Fe Corp. ................................. 32,600 2,815,825
----------
Utilities-Electric.................................................... 6.2%
Entergy Corp. ...................................................... 99,000 2,747,250
FPL Group, Inc. .................................................... 60,500 2,783,000
General Public Utilities Corp. ..................................... 85,400 2,871,575
PECO Energy Co. .................................................... 152,200 3,843,050
----------
12,244,875
----------
Utilities - Telephone................................................. 5.6%
GTE Corp. .......................................................... 87,000 3,958,500
NYNEX Corp. ........................................................ 149,000 7,170,625
----------
11,129,125
----------
TOTAL COMMON STOCK (COST $164,065,025)............................ 190,893,272
----------
SHORT-TERM INVESTMENTS (3.8%)
Temporary Investment Fund, Inc. - TempCash (Cost $7,579,202)........ 7,579,202 7,579,202
----------
TOTAL INVESTMENTS (100.0%) (COST $171,644,227).................... $198,472,474
==========
</TABLE>
See accompanying notes to financial statements.
7
<PAGE> 38
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Money Market Portfolio
Schedule of Investments, December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENTAGE PRINCIPAL
OF PORTFOLIO MATURITY AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BANKERS' ACCEPTANCES (9.3%)
Wachovia Bank of Georgia, 5.38%.......................... 01/09/97 $2,500,000 $ 2,497,011
Mellon Bank, 5.36%....................................... 02/26/97 2,600,000 2,578,322
-----------
TOTAL BANKERS' ACCEPTANCES (COST $5,075,333)........... 5,075,333
-----------
COMMERCIAL PAPER (85.4%)
Agricultural............................................... 1.8%
Cargill, Inc., 5.35%..................................... 01/21/97 975,000 972,102
-----------
Consumer Finance........................................... 1.8%
Transamerica Corp., 5.50%................................ 01/28/97 1,000,000 995,875
-----------
Bank....................................................... 27.6%
Bank of New York, 5.28%.................................. 01/10/97 2,000,000 1,997,360
BankAmerica Corp., 5.34%................................. 01/24/97 2,550,000 2,541,300
Morgan (J.P.) & Co., Inc., 5.37%......................... 01/08/97 2,575,000 2,572,311
National City Credit Corp., 5.50%........................ 01/28/97 2,700,000 2,691,750
Norwest Financial, Inc., 5.42%........................... 02/14/97 2,645,000 2,627,478
Republic New York Corp., 5.37%........................... 01/14/97 2,600,000 2,594,958
-----------
15,025,157
-----------
Finance.................................................... 49.5%
American Express Credit Corp., 5.80%..................... 01/07/97 1,800,000 1,798,260
C.I.T. Group Holdings, Inc., 5.40%....................... 01/30/97 2,500,000 2,489,125
Cargill Financial Services Corp., 5.32%.................. 01/13/97 1,575,000 1,572,207
Chevron Oil Finance Co., 5.62%........................... 01/09/97 1,000,000 998,751
Commercial Credit Corp., 5.30%........................... 01/06/97 2,650,000 2,648,049
Deere (John) Credit Co., 5.31%........................... 01/17/97 1,235,000 1,232,085
Deere (John) Credit Co., 5.29%........................... 01/17/97 1,325,000 1,321,886
Ford Motor Credit Co., 5.38%............................. 01/16/97 2,000,000 1,995,518
General Electric Capital Corp., 5.42%.................... 01/27/97 2,500,000 2,490,214
Household Finance Corp., 5.42%........................... 01/15/97 2,550,000 2,544,625
IBM Credit Corp., 5.49%.................................. 01/31/97 2,670,000 2,657,785
Prudential Funding Corp., 5.32%.......................... 01/09/97 2,550,000 2,546,985
Union Bank, Los Angeles, CA., 5.30%...................... 01/22/97 2,600,000 2,600,000
-----------
26,895,490
-----------
Oil & Gas.................................................. 4.7%
Texaco, Inc., 5.48%...................................... 02/03/97 2,600,000 2,586,939
-----------
TOTAL COMMERCIAL PAPER (COST $46,475,563).............. 46,475,563
-----------
AGENCY OBLIGATIONS (3.5%)
Federal National Mortgage Discount Note, 5.32%
(Cost $1,889,611)...................................... 02/07/97 1,900,000 1,889,611
-----------
</TABLE>
8
<PAGE> 39
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Money Market Portfolio
Schedule of Investments, December 31, 1996 -- Concluded
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
PERCENTAGE NUMBER
OF PORTFOLIO MATURITY OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS (1.80%)
Temporary Investment Fund, Inc.-TempCash
(Cost $1,000,057)...................................... $1,000,057 $ 1,000,057
-----------
TOTAL INVESTMENTS (100.0%) (COST $54,440,564).......... $54,440,564
===========
</TABLE>
See accompanying notes to financial statements.
9
<PAGE> 40
- --------------------------------------------------------------------------------
THE MARKET STREET FUND, INC.
THE BOND PORTFOLIO
1996 Annual Review
Sentinel Advisors Company
- --------------------------------------------------------------------------------
For the fiscal year ended December 31, 1996, the Market Street Fund Bond
Portfolio produced a total return of 2.9%, compared to the Lehman Aggregate Bond
Index which returned 3.6%. The Lehman Aggregate Index is considered a good proxy
for the overall fixed income market. During the same period, the average Lipper
A-rated Corporate Bond Fund returned 2.5%.
On December 31, 1995, the 10-year U.S. Treasury Index (Index) yielded 5.57%.
The 1995 bull market in bonds finally fizzled in early 1996 when the Index set a
low of 5.52% in January. Market participants realizing that the promised
balanced budget was a long way from reality, that inflationary pressure
continued to cast a long dark shadow, and that the economy was showing amazing
resilience, abandoned the fixed income market, sending interest rates up
sharply. The 10-year U.S. Treasury Index reached the high for the year on June
12, 1996 at 7.06%. The fixed income markets consolidated in a trading range
until September. Investor sentiment once again began to change as the economy
sputtered along without generating enough growth to ignite inflation or cause
the Federal Reserve to tighten credit. The market did an "about-face" and
rallied to the 6.04% level on November 29, 1996. On a price basis, the 10-year
U.S. Treasury Index experienced a 10% price decline from January to June, only
to recapture a 7% price increase from September to November. The Index closed
the year at 6.42%.
While the 10-year U.S. Treasury Index was experiencing this price
volatility, corporate securities were going through the same gyrations, tempered
slightly by their increased yield and the continued narrowing of yield spreads
between corporates and Treasury securities. Mortgage securities also did well as
a result of their shorter average maturities and their monthly income stream.
During the year, the Portfolio shortened average maturity from 10.4 years to
8.4 years. On December 31, 1995, the Portfolio's assets were 75% invested in
corporate securities. During the period, in response to the continued narrowing
of yield spreads between corporates and Treasury, this position was reduced to
56% of assets. Finally, in recognition of the need for income, some of the funds
generated from the sale of corporate securities were redeployed to the mortgage
market where the Portfolio hopes to garner the added income and the reduce price
volatility.
The 1996 market performance was the result of having too long an average
maturity in a bear market for bonds. In recognition of the longevity of the
current economic expansion, we plan to maintain a relatively short average
maturity until stronger signals are sent by the Federal Reserve as to the
direction of interest rates or the likely pace of economic expansion.
Richard D. Temple
BOND
<TABLE>
<CAPTION>
---------------------
Dollars
---------------------
Fund Index
---- -----
<S> <C>
10,000 10,000
10,225 10,187
11,864 11,742
11,583 12,066
12,330 13,018
13,633 14,909
14,683 16,245
16,728 18,844
17,724 20,239
19,553 22,564
18,454 21,892
22,228 25,941
22,863 26,883
</TABLE>
<TABLE>
<CAPTION>
---------------------------
AVERAGE ANNUAL TOTAL RETURN
---------------------------
Since
1 Year 5 Year Inception*
------ ------ ---------
<S> <C> <C>
2.88% 6.45% 7.76%
</TABLE>
LOGO
Past performance is not predictive of future performance.
+ The Index is the Lehman Aggregate Bond Index, an unmanaged index of bonds
reflecting average prices in the bond market.
* Inception date was December 12, 1985.
10
<PAGE> 41
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Bond Portfolio
Schedule of Investments, December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENTAGE PRINCIPAL
OF PORTFOLIO MATURITY AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. TREASURY NOTES (17.4%)
U.S. Treasury Note, 6.00%................................. 12/31/00 $ 600,000 $ 601,758
U.S. Treasury Note, 5.00%................................. 08/31/97 250,000 245,463
U.S. Treasury Note, 6.375%................................ 01/15/00 250,000 252,282
U.S. Treasury Note, 5.50%................................. 01/15/00 250,000 244,230
U.S. Treasury Note, 6.375%................................ 08/15/02 500,000 503,500
U.S. Treasury Note, 7.50%................................. 05/15/05 1,000,000 1,068,730
----------
TOTAL U.S. TREASURY NOTES (COST $2,913,524)............. 2,915,963
----------
AGENCY OBLIGATIONS (22.2%)
Collateralized Mortgage Obligation Trust, 7.95%............. 2.8% 05/01/17 457,959 469,767
----------
Federal Home Loan Bank...................................... 5.9%
Federal Home Loan Bank, 6.65%............................. 11/13/01 1,000,000 993,320
----------
Federal Home Loan Mortgage Corporation...................... 6.9%
Federal Home Loan Mortgage Corp., 6.50%................... 05/01/08 587,994 577,521
Federal Home Loan Mortgage Corp., 8.00%................... 11/01/08 518,992 528,561
Federal Home Loan Mortgage Corp., 9.00%................... 11/01/16 6,718 7,094
Federal Home Loan Mortgage Corp., 8.00%................... 03/01/17 39,090 39,811
----------
1,152,987
----------
Federal Mortgage Corporation................................ 3.6%
Federal Mortgage Corp. Discount Note., 5.51%.............. 01/07/97 600,000 599,449
----------
Federal National Mortgage Association....................... 3.0%
Federal National Mortgage Association, 7.50%.............. 12/01/06 491,793 501,629
----------
TOTAL AGENCY OBLIGATIONS (COST $3,731,458).............. 3,717,152
----------
CORPORATE BONDS (55.5%)
Industrial & Commercial Services............................ 3.0%
News American Holdings, Inc., 8.00%....................... 10/17/16 500,000 499,375
Defense..................................................... 2.9%
Northrop Corp., 7.00%..................................... 03/01/06 500,000 491,875
</TABLE>
11
<PAGE> 42
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Bond Portfolio
Schedule of Investments, December 31, 1996 -- Concluded
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
PERCENTAGE NUMBER
OF PORTFOLIO MATURITY OF SHARES VALUE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE BONDS (CONTINUED)
Financial Institutions..................................... 16.6%
CS First Boston, 7.75%................................... 05/15/06 $600,000 $ 627,000
First Union National Bank, 6.824%........................ 08/01/26 600,000 601,500
Lehman Brothers Holdings, 8.80%.......................... 03/01/15 400,000 451,000
Midland Bank, 7.65%...................................... 05/01/25 500,000 526,250
Salomon Brothers, 6.875%................................. 12/15/03 600,000 587,250
-----------
2,793,000
-----------
Insurance.................................................. 9.5%
Farmers Insurance Exchange, 8.50%........................ 08/01/04 600,000 633,000
Integon Corp., 9.50%..................................... 10/15/01 400,000 428,500
Liberty Mutual Insurance Co., 8.20%...................... 05/04/07 500,000 531,875
-----------
1,593,375
-----------
Telecommunications......................................... 6.4%
Comsat Corp. Medium Term Note, 8.05%..................... 12/13/06 500,000 547,785
Continental Cablevision, 8.30%........................... 05/15/06 500,000 533,750
-----------
1,081,535
-----------
Tobacco.................................................... 2.5%
Dimon, Inc., Senior Notes, 8.875%...................... 06/01/06 400,000 418,500
-----------
Utilities-Electric......................................... 3.0%
Mississippi Power and Light Co., 8.80%................... 04/01/05 500,000 510,625
-----------
Utilities-Gas.............................................. 2.6%
Consolidated Natural Gas Co., 8.625%..................... 12/01/11 422,000 439,407
-----------
Foreign.................................................... 9.0%
Banque Paribas Subordinate Notes, 6.875%................. 03/01/09 500,000 476,875
BCH Cayman Islands Ltd., 7.70%........................... 07/15/06 600,000 516,250
Swedish Export Credit Corp., 9.875%...................... 03/15/38 475,000 514,187
-----------
1,507,312
-----------
TOTAL CORPORATE BONDS (COST $9,138,939)................ 9,335,004
-----------
SHORT-TERM INVESTMENTS (4.9%)
Prudential Funding Corp., 5.23%.......................... 600,000 599,913
Temporary Investment Fund, Inc., - TempCash.............. 212,180 212,180
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $812,093)........... 812,093
-----------
TOTAL INVESTMENTS (100.0%) (COST $16,596,014).......... $16,780,212
===========
</TABLE>
See accompanying notes to financial statements.
12
<PAGE> 43
- --------------------------------------------------------------------------------
MARKET STREET FUND, INC.
THE MANAGED PORTFOLIO
1996 Annual Review
Sentinel Advisors Company
- --------------------------------------------------------------------------------
The Market Street Managed Portfolio recorded a total return of 11.9% for the
year ended December 31, 1996. The Portfolio's results were modestly behind the
return for the median Lipper balanced fund, and fell between the 22.9% return
for the Standard & Poor's 500 and the 3.6% return for the Lehman Aggregate Bond
Index.
The past twelve months was a volatile period for the financial markets. The
stock market rallied strongly early in the year, as economic growth appeared
much stronger than anticipated. Stocks corrected sharply in the summer, as
economic indicators began to show signs of slowing, but rallied to all-time
highs in the fall, as a consensus began to build for moderate economic growth,
restrained inflation and relatively low interest rates. Meanwhile, fixed income
securities also experienced considerable volatility. The bond market as measured
by the 10-year US Treasury Index started the year at 5.57%. The Index declined
to a low of 5.52% on January 18, and then rose almost uninterrupted until a high
was set on June 12 at 7.05%. The Index then slowly declined over the remaining
months and ended the year at 6.42%.
The Managed Portfolio began the year with a mix of 53% stocks, 41% bonds and
6% cash. During the year, we decreased the Portfolio's exposure to the bond
market and increased cash. The Portfolio benefited from its long-standing
positions in the financial services sector, as well as significant holdings in
consumer growth stocks (especially the pharmaceutical companies) and in the
energy sector. As well, the Managed Portfolio has recently been underweighting
the utilities sector, due to concern over the increasing competition in both the
electrical and telephone groups. The Portfolio's de-emphasis of these groups
also impacted performance positively, as these were the worst performance
sectors of the stock market. At the end of the year, the Managed Portfolio's
asset allocation was 54% stocks, 36% bonds and 10% cash.
Looking ahead to 1997, we continue to expect that the economy will grow at a
more moderate rate than has been the case in the last few years, and that
inflation should remain restrained. Corporate earnings are likely to grow at a
much slower rate than in the past several years, and in such an environment, we
believe our commitments to stable financial, energy, consumer products and
healthcare stocks are very appropriate. The recent national elections have again
given us a Democratic Administration and a Republican Congress, which hopefully
will be able to compromise on some of the important economic matters of the day,
namely the budget defect and the future health of entitlement programs such as
Social Security and Medicare. Any progress along these lines would, we believe,
be regarded positively by the financial markets.
Rodney A. Buck, CFA
Richard A. Pender, CFA
David M. Brownlee, CFA
LOGO
<TABLE>
<CAPTION>
- --------------------------------------------------
MANAGED
- --------------------------------------------------
DOLLARS
------------------------------
DOLLARS
FUND LA INDEX S&P INDEX
------------------------------
<S> <C> <C> <C> <C>
START 84 10,000 10,000 10,000
85 10,299 10,167 10,077
86 11,543 11,742 11,941
87 11,481 12,066 12,540
88 12,631 13,018 14,580
89 14,482 14,909 19,131
90 13,235 16,245 18,485
91 15,947 16,844 24,115
92 17,854 20,239 25,948
93 19,928 22,564 28,558
94 19,566 21,692 28,933
95 24,346 25,941 39,811
96 27,238 31,882 41,256
- --------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
- --------------------------------------------------
<S> <C>
1 Year 11.88%
5 Year 11.30%
Since Inception* 9.48%
- -------------------------------------------------
</TABLE>
Past performance is not predictive of future performance.
# The Index is the Lehman Aggregate Bond Index, an unmanaged index of bonds
reflecting average prices in the bond market.
+ The Index is the S&P 500 Index, an unmanaged index of 500 U.S. common
stocks that includes reinvestment of dividends.
* Inception date was December 12, 1985.
13
<PAGE> 44
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Managed Portfolio
Schedule of Investments, December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENTAGE NUMBER
OF PORTFOLIO OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK (53.9%)
Automobiles & Auto Parts............................................... 2.5%
Chrysler Corp. ...................................................... 9,100 $ 300,300
Echlin, Inc. ........................................................ 9,000 284,625
Ford Motor Co. ...................................................... 16,000 510,000
-----------
1,094,925
-----------
Banks.................................................................. 5.1%
BankAmerica.......................................................... 3,000 299,250
Bank of New York Co., Inc............................................ 16,000 540,000
Chase Manhattan Corp. ............................................... 3,640 324,870
Citicorp............................................................. 3,500 360,500
First Union Corp. ................................................... 5,500 407,000
Morgan (J.P.) & Co., Inc. ........................................... 2,500 244,062
-----------
2,175,682
-----------
Beverages.............................................................. 0.6%
Coca-Cola Co......................................................... 5,000 263,125
-----------
Building & Materials................................................... 1.0%
Sherwin Williams Co. ................................................ 8,000 448,000
-----------
Consumer & Business Services........................................... 2.1%
Electronic Data Systems Corp......................................... 10,035 434,014
Omnicom Group, Inc. ................................................. 10,000 457,500
-----------
891,514
-----------
Consumer Products...................................................... 2.4%
American Brands, Inc. ............................................... 6,000 297,750
Coleman Co., Inc. ................................................... 9,700 133,375
Kimberly-Clark Corp. ................................................ 4,000 381,000
Rubbermaid, Inc. .................................................... 10,500 283,875
-----------
1,051,000
-----------
Drugs.................................................................. 2.3%
American Homes Products Corp. ....................................... 8,000 469,000
Pfizer, Inc. ........................................................ 6,000 497,250
-----------
966,250
-----------
Electrical Equipment................................................... 3.4%
Emerson Electric Co. ................................................ 5,000 483,750
General Electric Co. ................................................ 6,000 593,250
Grainger (W.W.), Inc. ............................................... 5,000 401,250
-----------
1,478,250
-----------
</TABLE>
14
<PAGE> 45
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Managed Portfolio
Schedule of Investments, December 31, 1996 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENTAGE NUMBER
OF PORTFOLIO OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK (CONTINUED)
Energy................................................................. 6.0%
Amoco Corp........................................................... 5,700 $ 458,850
Atlantic Richfield Co. .............................................. 3,100 410,750
Chevron Corp. ....................................................... 4,500 292,500
Exxon Corp. ......................................................... 5,000 490,000
Mobil Corp. ......................................................... 3,500 427,875
Royal Dutch Petroleum Co. ........................................... 3,000 512,250
-----------
2,592,225
-----------
Financial.............................................................. 1.2%
American Express Co. ................................................ 9,500 536,750
-----------
Foods.................................................................. 2.7%
CPC International, Inc. ............................................. 6,000 465,000
Hannaford Bros. Co. ................................................. 7,000 238,000
Sara Lee Corp. ...................................................... 12,000 447,000
-----------
1,150,000
-----------
Healthcare Providers................................................... 1.2%
Columbia/HCA Healthcare Corp. ....................................... 12,750 519,562
-----------
Industrial Diversified................................................. 5.2%
Boeing Co. .......................................................... 336 35,742
Crown Cork & Seal Co., Inc. ......................................... 8,000 435,000
Dover Corp. ......................................................... 5,000 251,250
Grace (W.R.) & Co. .................................................. 4,000 207,000
Parker-Hannifin Corp. ............................................... 12,000 465,000
PPG Industries, Inc. ................................................ 6,500 364,812
*Rockwell International Corp. ....................................... 8,000 487,000
-----------
2,245,804
-----------
Insurance.............................................................. 4.7%
Allstate Corp. ...................................................... 10,562 611,276
American General Corp. .............................................. 11,000 449,625
American International Group, Inc. .................................. 4,500 487,125
Equitable of Iowa.................................................... 10,000 458,750
-----------
2,006,776
-----------
Medical - Equipment & Supplies......................................... 1.0%
Johnson & Johnson.................................................... 9,000 447,750
-----------
</TABLE>
15
<PAGE> 46
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Managed Portfolio
Schedule of Investments, December 31, 1996 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENTAGE NUMBER
OF PORTFOLIO OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK (CONTINUED)
Oil Field Equipment & Services......................................... 2.0%
Halliburton Co. ..................................................... 6,000 $ 361,500
Schlumberger Ltd..................................................... 5,000 499,375
-----------
860,875
-----------
Publishing............................................................. 1.7%
Gannett, Inc......................................................... 4,500 336,937
McGraw Hill, Inc..................................................... 8,000 369,000
-----------
705,937
-----------
Railroads.............................................................. 2.2%
Canadian Pacific Ltd. ............................................... 10,400 275,600
Illinois Central Corp. Common, Series A.............................. 11,250 360,000
Union Pacific Corp. ................................................. 5,000 300,625
-----------
936,225
-----------
Retail................................................................. 2.3%
May Department Stores Co. ........................................... 6,700 313,225
Nordstrom, Inc. ..................................................... 6,300 223,256
Sears, Roebuck and Co. .............................................. 10,000 461,250
-----------
997,731
-----------
Telecommunications..................................................... 0.3%
Lucent Technologies, Inc. ........................................... 2,868 132,645
-----------
Tobacco................................................................ 0.6%
Philip Morris Company, Inc. ......................................... 2,300 259,037
-----------
Utilities - Electric................................................... 0.8%
FPL Group, Inc. ..................................................... 7,000 322,000
-----------
Utilities - Gas........................................................ 1.7%
Enron Corp. ......................................................... 8,000 345,000
Sonat, Inc. ......................................................... 7,500 386,250
-----------
731,250
-----------
Utilities - Telephone.................................................. 0.9%
GTE Corp............................................................. 8,500 386,750
-----------
TOTAL COMMON STOCK (COST $16,255,599).............................. 23,200,064
-----------
CONVERTIBLE STOCK (0.4%)
*Microsoft Corp., Preferred Series A Convertible, 2.75%
(COST $167,738).................................................... 2,100 168,262
-----------
</TABLE>
16
<PAGE> 47
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Managed Portfolio
Schedule of Investments, December 31, 1996 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENTAGE PRINCIPAL
OF PORTFOLIO AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS (16.1%)
Banks.................................................................. 1.2%
BCH Cayman Islands, 7.70%, Due 07/15/06.............................. $ 500,000 $ 516,250
-----------
Defense................................................................ 1.1%
Northrop-Grumman, 7.00%, Due 03/01/06................................ 500,000 491,875
-----------
Financial Institutions................................................. 6.1%
CS First Boston, 7.75%, Due 05/15/06................................. 500,000 522,500
First Union Corp., 6.824%, Due 08/01/06.............................. 600,000 601,500
Lehman Brothers Holdings, 8.80%, Due 03/01/15........................ 400,000 451,000
Midland Bank, 7.65%, Due 05/01/25.................................... 550,000 578,875
Salomon Brothers, 6.875%, Due 12/15/03............................... 500,000 489,375
-----------
2,643,250
-----------
Industrial............................................................. 1.1%
News American Holdings, 8.00%, Due 10/17/16.......................... 500,000 499,375
-----------
Insurance.............................................................. 3.0%
Farmers Insurance Exchange, 8.50%, Due 08/01/04...................... 700,000 738,500
Liberty Mutual Insurance Co., 8.20%, Due 05/04/07.................... 500,000 531,875
-----------
1,270,375
-----------
Telecommunications..................................................... 2.5%
Comsat Medium Term Note, 8.05%, Due 12/13/06......................... 500,000 547,785
Continental Cablevision, 8.30%, Due 05/15/06......................... 500,000 533,750
-----------
1,081,535
-----------
Tobacco................................................................ 1.0%
Dimon, Inc., 8.875%, Due 06/01/06.................................... 400,000 418,500
-----------
TOTAL CORPORATE BONDS (COST $6,859,440)............................ 6,921,160
-----------
U.S. TREASURY NOTES (9.3%)
U.S. Treasury Note, 6.00%, Due 08/31/97.............................. 500,000 501,465
U.S. Treasury Note, 6.375%, Due 01/15/00............................. 500,000 504,565
U.S. Treasury Note, 6.125%, Due 07/31/00............................. 1,000,000 1,000,090
U.S. Treasury Note, 6.25%, Due 08/31/00.............................. 2,000,000 2,006,900
-----------
TOTAL U.S. TREASURY NOTES (COST $4,013,117)........................ 4,013,020
-----------
</TABLE>
17
<PAGE> 48
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Managed Portfolio
Schedule of Investments, December 31, 1996 -- Concluded
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
PERCENTAGE NUMBER
OF PORTFOLIO OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AGENCY OBLIGATIONS (10.8%)
Collateralized Mortgage Obligation Trust............................... 1.1%
7.95%, Due 05/01/17.................................................. $ 458,000 $ 469,767
Government National Single Family...................................... 2.3%
7.50%, Due 12/15/26.................................................. 1,000,000 1,000,313
Farmers Mac Discount Note.............................................. 2.8%
5.32%, Due 01/02/97.................................................. 1,200,000 1,199,823
Federal Home Loan Bank Bonds........................................... 1.4%
6.65%, Due 11/13/01.................................................. 600,000 595,992
Federal Home Loan Mortgage Corp. ...................................... 3.2%
8.00%, Due 11/01/08.................................................. 519,000 528,561
6.50%, Due 01/01/11.................................................. 873,000 857,384
-----------
1,385,945
-----------
TOTAL AGENCY OBLIGATIONS (COST $4,688,086)......................... 4,651,840
-----------
SHORT-TERM INVESTMENTS (9.5%)
Norwest Financial, Inc., 5.55%, Due 01/14/97......................... 2,000,000 1,995,992
Prudential Funding Corp., 5.56%, Due 01/01/97........................ 500,000 499,537
Prudential Funding Corp., 5.56%, Due 01/10/97........................ 1,200,000 1,198,332
Temporary Investment Fund, Inc. - TempCash........................... 408,177 408,177
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $4,102,038)..................... 4,102,038
-----------
TOTAL INVESTMENTS (100.0%) (COST $36,086,018)...................... $43,056,384
===========
</TABLE>
* Non-income producing
See accompanying notes to financial statements.
18
<PAGE> 49
- --------------------------------------------------------------------------------
MARKET STREET FUND, INC.
THE AGGRESSIVE GROWTH PORTFOLIO
1996 Annual Review
Sentinel Advisors Company
- --------------------------------------------------------------------------------
This past year was a relatively good one for the Market Street Aggressive
Growth Portfolio. We are pleased to report that your portfolio outperformed both
the Russell 2000 Index (a proxy for small company stocks) and most small company
mutual funds. For the twelve month period ending December 31, 1996, the Market
Street Aggressive Growth Portfolio returned 21.0% as compared to 16.5% for the
Russell 2000 and 19.1% for the median Lipper small company mutual fund.
Some notable positive events this year with respect to the Portfolio's
holdings included USA Waste's acquisition of Western Waste, Conseco's
acquisition of American Travellers, and Halliburton's acquisition of Landmark
Graphics. The Portfolio's exposure to the energy services industry via Smith
International, test equipment for communication systems via Dynatech, fiber
optic and network connection systems via Methode Electronics, and the growing
demand for security services via ADT, Ltd. also contributed to this year's
favorable results. The Portfolio benefited from its exposure to affluent baby
boomers, and its investment in Ethan Allen Interiors was particularly rewarding.
Looking forward to 1997, we continue to envisage relatively strong prices
for oil and gas. Accordingly, we still favor the energy services industry. We
are also quite optimistic about prospects for various health care sectors, such
as drug delivery systems. We believe that our preference for shares of small
companies that have developed, or are developing, strong brand names and
attractive franchises will prove to be a successful investment strategy.
Keniston P. Merrill
Richard A. Pender, CFA
Scott T. Brayman, CFA
AGGRESSIVE GROWTH
<TABLE>
<CAPTION>
-------------------------
Dollars
-------------------------
Fund Index
- ---------------------------------------------------------------
<S> <C> <C> <C>
Start 10,000 10,000
89 10,558 10,340
90 11,695 8,324
91 18,283 12,161
92 18,755 14,399
93 19,730 17,120
94 19,730 16,808
95 22,389 21,599
96 27,091 25,171
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
---------------------------
Since
1 Year 5 Year Inception*
------ ------ ---------
<S> <C> <C>
21.00% 5.18% 13.87%
</TABLE>
LOGO
Past performance is not predictive of future performance.
+ The Index is the Russell 2000 Index, an unmanaged stock index of small
capitalization companies which includes reinvestment of all income.
* Inception date was May 1, 1989.
19
<PAGE> 50
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Aggressive Growth Portfolio
Schedule of Investments, December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENTAGE NUMBER
OF PORTFOLIO OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK (80.6%)
Auto Parts & Repair.................................................... 1.6%
Pep Boys-Manny, Moe & Jack........................................... 17,800 $ 547,350
-----------
Beverages.............................................................. 1.2%
*Robert Mondavi Corp., Class A....................................... 11,000 401,500
-----------
Communications......................................................... 3.0%
*Dynatech Corp....................................................... 13,500 597,375
*Verifone, Inc....................................................... 14,000 413,000
-----------
1,010,375
-----------
Drugs-Drug Delivery.................................................... 2.7%
*Scherer (R.P.) Corp................................................. 18,500 929,625
-----------
Electronics............................................................ 4.2%
Harman International Industries, Inc................................. 11,860 659,712
Methode Electronics, Inc. Class A.................................... 38,000 769,500
-----------
1,429,212
-----------
Energy................................................................. 6.6%
*Calenergy Co., Inc.................................................. 22,000 739,750
*Smith International, Inc............................................ 34,000 1,525,750
-----------
2,265,500
-----------
Environmental Control.................................................. 3.7%
*USA Waste Services, Inc............................................. 22,650 721,969
*Waste Management International Plc-ADR.............................. 70,000 551,250
-----------
1,273,219
-----------
Finance................................................................ 7.1%
Duff & Phelps Credit Rating Co....................................... 12,500 301,562
First Commerce Corp.................................................. 6,000 233,250
Mercantile Bankshares Corp........................................... 12,000 384,000
ROC Communities...................................................... 27,300 757,575
Wilmington Trust Corp................................................ 18,800 742,600
-----------
2,418,987
-----------
Food & Food Distributors............................................... 6.6%
Goodmark Foods, Inc.................................................. 25,700 424,050
Hannaford Bros. Co................................................... 15,100 513,400
Smart & Final, Inc................................................... 28,000 605,500
Tootsie Roll Industries, Inc......................................... 17,455 691,654
-----------
2,234,604
-----------
</TABLE>
20
<PAGE> 51
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Aggressive Growth Portfolio
Schedule of Investments, December 31, 1996 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENTAGE NUMBER
OF PORTFOLIO OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK (CONTINUED)
Healthcare Providers................................................... 2.5%
*Alpha Beta Technology, Inc........................................... 17,000 $ 179,563
*Genesis Health Ventures.............................................. 21,450 667,631
-----------
847,194
-----------
Insurance.............................................................. 3.4%
Conseco, Inc......................................................... 18,091 1,153,301
-----------
Industrial & Commercial Services....................................... 5.0%
Analysts International Corp.......................................... 16,000 452,000
*Healthcare Services Group............................................ 48,500 485,000
Kelly Services, Inc.................................................. 15,600 421,200
Olsten Corp.......................................................... 22,000 332,750
-----------
1,690,950
-----------
Industrial Diversified................................................. 8.8%
Donaldson, Inc....................................................... 22,000 737,000
Lawter International, Inc............................................ 51,500 650,188
*Material Sciences Corp............................................... 40,800 734,400
*Bush Boake Allen, Inc................................................ 33,500 891,938
-----------
3,013,526
-----------
Manufacturing.......................................................... 2.4%
Calgon Carbon Corp. ................................................. 66,000 808,500
-----------
Medical-Equipment & Supplies........................................... 7.9%
Allergan, Inc........................................................ 20,000 712,500
Ballard Medical Products............................................. 18,000 335,250
Hillenbrand Industries, Inc.......................................... 19,000 688,750
Minntech Corp........................................................ 28,100 323,150
*Research Medical, Inc................................................ 26,800 616,400
-----------
2,676,050
-----------
Oil Equipment & Services............................................... 2.4%
Halliburton Co....................................................... 13,776 830,004
-----------
Restaurants............................................................ 1.8%
Sbarro, Inc.......................................................... 24,700 629,850
-----------
</TABLE>
21
<PAGE> 52
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Aggressive Growth Portfolio
Schedule of Investments, December 31, 1996 -- Concluded
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
PERCENTAGE NUMBER
OF PORTFOLIO OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK (CONTINUED)
Retail-Department Stores............................................... 4.4%
Ethan Allen Industries, Inc.......................................... 22,500 $ 866,250
Talbots, Inc......................................................... 23,000 658,375
-----------
1,524,625
-----------
Security Services...................................................... 2.9%
*ADT Ltd.............................................................. 43,000 983,625
-----------
Software............................................................... 2.4%
*Filenet Corp......................................................... 13,000 416,000
*Sterling Commerce.................................................... 12,000 423,000
-----------
839,000
-----------
TOTAL COMMON STOCK (COST $21,313,188).............................. 27,506,997
-----------
PREFERRED STOCK (0.2%)
Phoenix Duff & Phelps Preferred Convertible Series A, $1.50, (Cost
$71,441)........................................................... 2,500 62,500
-----------
SHORT-TERM INVESTMENTS (19.2%)
Beneficial Corp., 5.52%, Due 01/15/97................................ $1,600,000 1,596,566
Federal Agricultural Mortgage Corp., 5.32%, Due 01/02/97............. 1,500,000 1,499,778
General Electric Capital Corp., 5.35%, Due 01/22/97.................. 950,000 947,035
National City Credit Corp., 5.46%, Due 01/08/97...................... 1,000,000 998,938
Prudential Funding Corp., 5.60%, Due 01/10/97........................ 1,500,000 1,497,900
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $6,540,217)..................... 6,540,217
-----------
TOTAL INVESTMENTS (100.0%) (COST $27,924,846)...................... $34,109,714
===========
</TABLE>
* Non-income producing.
See accompanying notes to financial statements.
22
<PAGE> 53
- --------------------------------------------------------------------------------
MARKET STREET FUND, INC.
THE INTERNATIONAL PORTFOLIO
1996 Annual Review
The Boston Company Asset Management, Inc.
- --------------------------------------------------------------------------------
In 1996 the Market Street Fund International Portfolio outperformed the EAFE
Index. Your portfolio returned 10.9% versus EAFE, net of dividends, which
returned 6.0%. A strong U.S. dollar generally reduced local returns in nearly
all of the major markets. The major exceptions were Australia, New Zealand, the
United Kingdom and Italy.
The most significant factor influencing performance this year was Japan.
Despite a mildly improving economy, low interest rates and a slightly weaker
currency (thereby supporting exports), Japanese investors seemingly shunned the
equity market and invested their money elsewhere. Poor local returns in both the
equity and bond markets in recent years have driven Japanese institutional
investors to seek the higher returns available in the U.S. and elsewhere. As a
result, the Nikkei 225 lost 2.55% in local currency and lost nearly 13% in
dollar terms.
A cursory view of the European markets showed that they, in aggregate,
returned nearly 23% in local currency and 21% in dollar terms. Driving the
strong returns in Europe were two related factors, declining interest rates and
fiscal and political preparation for the European Monetary Union. Those
countries that are viewed as the most likely participants in the new single
currency garnered some of the best returns. Germany, France, and Ireland are all
likely to meet the convergence criteria.
The two countries most likely not to join the single currency at its outset
were coincidentally two of the three weakest performers for the year. They are
Switzerland and the United Kingdom. The Swiss market closed up 19.5%. The Swiss
are reluctant to surrender their neutrality and so are not likely to join the
EMU in 1999.
In the UK, the FTSE 100 closed up only 11.6% in local terms. The two issues
that drove 1996 performance and more importantly, set the tone for 1997, are the
upcoming election and the hotly debated issue of joining the single currency.
The election must be held by May at the latest and while the consensus projects
a Labor party victory, no one expects that basic fiscal and monetary policies
will change under a new administration. The question of Britain's joining the
single currency is not an easy one to judge. Economic and fiscal policies appear
to be working towards meeting the convergence criteria. The underlying theory is
that should the UK decide not to join, it should be for reasons of its own
choosing and not because it failed to meet the convergence criteria. Either way,
fiscal and economic policies of both the Labor and Tory parties are moving
positively towards low inflation, slow growth and a declining fiscal deficit.
As we look into 1997, we are actively examining the market's perception of
value. We believe that a critical review of value will continue to help your
portfolio achieve a positive risk reward profile.
LOGO
<TABLE>
<CAPTION>
- ------------------------------------------------
INTERNATIONAL
- ------------------------------------------------
Dollars
----------------------
Fund Index
----------------------
<S> <C> <C> <C>
Start 10,000 10,000
91 9,712 10,030
92 9,003 6,806
93 12,254 11,677
94 12,286 12,585
95 14,044 13,994
96 15,573 14,634
- ------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------------------
<S> <C>
1 Year 10.59%
5 Year 9.90%
Since Inception* 5.95%
- ------------------------------------------------
</TABLE>
Past performance is not predictive of future performance.
+ The Index is the Morgan Stanley Capital International Europe, Australia,
Far East (EAFE) Index, an unmanaged index of more than 900 companies from
these regions. The EAFE Index reflects the prices of these common stocks
translated into U.S. dollars with dividends reinvested net of any foreign
taxes.
* Inception date was November 1, 1991.
23
<PAGE> 54
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The International Portfolio
Schedule of Investments, December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENTAGE NUMBER
OF PORTFOLIO OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK AND PREFERRED STOCK (96.2%)
Austria.................................................................. 0.3%
Creditanstalt PS....................................................... 1,200 $ 155,024
-----------
Australia................................................................ 3.2%
Amcor Ltd. ............................................................ 45,000 289,330
Australia & New Zealand Bank Group Ltd. ............................... 50,000 315,120
Boral Ltd. ............................................................ 204,724 582,485
Commonwealth Installment Receipt Trustee Ltd. ......................... 43,004 267,611
Goodman Fielder........................................................ 112,993 140,091
-----------
1,594,637
-----------
France................................................................... 4.4%
C.S.F. (Thomson-C.S.F.)................................................ 14,419 469,005
CLF - Dexia France..................................................... 5,000 429,724
Danone................................................................. 3,704 516,341
Societe Generale....................................................... 6,748 724,296
-----------
2,139,366
-----------
Germany.................................................................. 9.5%
Bayer AG............................................................... 13,000 530,130
Bayer Motoren AG....................................................... 800 557,403
Deutsche Bank AG....................................................... 15,000 700,325
GEA AG................................................................. 1,600 489,351
Henkel KGAA............................................................ 1,000 47,727
Henkel KGAA - Vorzug Preferred......................................... 11,000 552,143
Siemens AG............................................................. 11,500 541,396
Tarkett................................................................ 15,000 299,026
Veba AG................................................................ 8,500 491,234
Viag AG................................................................ 1,200 470,649
-----------
4,679,384
-----------
Hong Kong................................................................ 3.2%
Cheung Kong Holdings................................................... 57,000 506,527
Hong Kong Electric..................................................... 145,000 481,678
HSBC Holdings Plc...................................................... 13,418 287,038
Yue Yuen Industrial.................................................... 750,000 285,982
-----------
1,561,225
-----------
Italy.................................................................... 2.3%
Fiat SpA............................................................... 105,000 316,552
STET Di Risp........................................................... 250,000 840,722
-----------
1,157,274
-----------
</TABLE>
24
<PAGE> 55
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The International Portfolio
Schedule of Investments, December 31, 1996 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENTAGE NUMBER
OF PORTFOLIO OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK AND PREFERRED STOCK (CONTINUED)
Japan.................................................................... 27.9%
Canon, Inc. ........................................................... 38,000 $ 840,795
Chudenko Corp. ........................................................ 7,000 202,074
Credit Saison Co. ..................................................... 37,000 828,263
Dai-Tokyo Fire and Marine Insurance.................................... 117,000 621,910
Hitachi Koki Co. ...................................................... 55,000 394,080
Hitachi Ltd. .......................................................... 65,000 606,742
Honda Motor Co. Ltd. .................................................. 17,000 486,344
Ito-Yokado Co. Ltd. ................................................... 13,000 566,292
Kao Corp. ............................................................. 60,000 700,086
Mabuchi Motors......................................................... 11,200 564,356
Mikuni Coca-Cola Bottling Co. Ltd. .................................... 40,000 518,583
Mineba Company Ltd. ................................................... 65,000 543,820
Mitsubishi Heavy Industries Ltd. ...................................... 90,000 715,644
Murata Manufacturing Co. Ltd. ......................................... 22,000 722,558
Nichiei................................................................ 6,500 478,090
Nishimatsu Construction................................................ 55,000 480,121
Ono Pharmaceutical..................................................... 8,000 235,091
Sankyo Co. Ltd. ....................................................... 15,000 439,499
Sekisui Chemical Co.................................................... 27,000 273,034
Sekisui House.......................................................... 48,000 489,542
Sony Corp. ............................................................ 9,000 590,406
Toshiba Corp. ......................................................... 100,000 629,213
Toyota Motor Corp. .................................................... 28,000 805,877
Yamanouchi Pharmaceuticals............................................. 22,000 452,550
Yamato Transportation.................................................. 55,000 570,441
-----------
13,755,411
-----------
Malaysia................................................................. 1.2%
Affin Holdings......................................................... 160,000 440,222
IOI Properties Berhad.................................................. 43,000 139,588
-----------
579,810
-----------
Netherlands.............................................................. 4.4%
ABN Amro Holding....................................................... 8,156 528,778
Hollandsche Beton...................................................... 2,050 423,196
Hunter Douglas N.V..................................................... 7,956 534,621
International Nederlanden Group........................................ 6,666 239,156
Koninklijke K.N.P. .................................................... 20,000 436,062
-----------
2,161,813
-----------
</TABLE>
25
<PAGE> 56
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The International Portfolio
Schedule of Investments, December 31, 1996 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENTAGE NUMBER
OF PORTFOLIO OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK AND PREFERRED STOCK (CONTINUED)
New Zealand.............................................................. 1.2%
Air New Zealand........................................................ 61,091 $ 166,089
Fletcher Energy........................................................ 150,000 435,420
-----------
601,509
-----------
Norway................................................................... 1.3%
Christiana Bank........................................................ 90,000 284,485
Orkla.................................................................. 5,500 348,564
-----------
633,049
-----------
Portugal................................................................. 0.5%
Banco Comercial Portugues.............................................. 20,000 262,938
-----------
Singapore................................................................ 1.4%
Development Bank....................................................... 30,000 405,289
Far East Levingston.................................................... 53,000 276,555
-----------
681,844
-----------
Spain.................................................................... 1.1%
Gas y Electricidad SA Gesa............................................. 8,591 546,550
-----------
Sweden................................................................... 0.7%
Marieberg Tidnings AB.................................................. 14,000 343,910
-----------
Switzerland.............................................................. 4.7%
Magazine Zum Globus.................................................... 100 51,788
Magazine Zum Globus Participating Certificates, Zurich................. 550 253,279
Nestle SA.............................................................. 300 321,237
Schweizerischer Bankverein............................................. 3,350 635,302
Sulzer AG-Registered Shares............................................ 830 478,085
Zurich Versicherungs................................................... 2,000 554,396
-----------
2,294,087
-----------
United Kingdom........................................................... 11.6%
Abbey National Plc..................................................... 50,000 655,796
BTR Ordinary Plc....................................................... 158,823 773,336
Bunzel Plc............................................................. 125,000 499,348
D.S. Smith............................................................. 71,178 380,749
Devro Plc.............................................................. 60,000 276,720
Laird Group Ordinary................................................... 65,000 443,541
</TABLE>
26
<PAGE> 57
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The International Portfolio
Schedule of Investments, December 31, 1996 -- Concluded
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENTAGE NUMBER
OF PORTFOLIO OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK AND PREFERRED STOCK (CONTINUED)
National Westminster Bank.............................................. 75,183 $ 884,266
Powergen Plc........................................................... 84,443 828,123
RTZ Corp............................................................... 41,351 665,007
Scapa Group............................................................ 70,603 297,175
-----------
5,704,061
-----------
United States............................................................ 17.3%
AKZO N.V. Sponsored ADR................................................ 3,500 236,250
Alcatel Alsthom ADR.................................................... 28,516 456,256
Cable and Wireless ADR................................................. 22,000 541,750
Corporacion Bancaria de Espanol ADR.................................... 29,000 652,500
Elf Aquitaine ADR...................................................... 18,751 848,483
Ente Nazionale Idrocarburi SpA-ADR..................................... 10,000 516,250
Hanson Trust Plc ADR................................................... 33,000 222,750
*Imperial Tobacco Group ADR............................................ 8,250 106,450
Istituto Mobiliare Italiano ADR........................................ 19,000 491,625
KPN ADS................................................................ 8,863 335,686
Philips N.V. ADR....................................................... 10,000 400,000
Repsol ADR............................................................. 22,000 838,750
Rhone Poulenc S.A. Sponsored ADR....................................... 14,295 484,243
Scania AB Class A-ADR.................................................. 8,000 193,000
Scania AB Class B-ADR.................................................. 3,000 72,375
Tele Danmark ADR....................................................... 17,500 476,875
Telefonos De Mexico S.A.-ADR........................................... 9,500 313,500
Unilever N.V-ADR....................................................... 3,000 525,750
Volvo AB-ADR........................................................... 15,000 326,250
YPF Sociedad Anonima ADR............................................... 20,000 505,000
-----------
8,543,741
-----------
TOTAL COMMON STOCK AND PREFERRED STOCK (COST $43,890,604)............ 47,395,633
-----------
SHORT-TERM INVESTMENTS (3.8%)
Temporary Investment Fund, Inc.-TempCash
(Cost $1,881,582).................................................... 1,881,582 1,881,582
-----------
TOTAL INVESTMENTS (100.0%) (COST $45,772,186)........................ $49,277,215
===========
</TABLE>
* Non-Income Producing.
See accompanying notes to financial statements.
27
<PAGE> 58
- --------------------------------------------------------------------------------
MARKET STREET FUND, INC.
THE COMMON STOCK PORTFOLIO
1996 Annual Review
Sentinel Advisors Company
- --------------------------------------------------------------------------------
The Common Stock Portfolio produced a total return of 14.2% for the period
from inception (March 18) until December 31, 1996. This figure was below the
17.6% return for the Standard & Poor's 500, but modestly ahead of the 14.0%
return for the Lipper Growth & Income Fund Index.
While the stock market appreciated strongly during the year, the ride was
far from smooth. Vigorous economic growth early in the year propelled the market
higher, leading to some speculative excesses, particularly among the small
capitalization issues, in early spring. When economic activity began to show
signs of slowing, the market suffered a minor correction in July. Since that
time, however, with the consensus shifting back to a forecast of moderate
growth, restrained inflation and relatively low interest rates, the market has
again rallied strongly, and ended the year near its all-time high. Also
contributing to the year-end strength were the results of the national election,
which again elected a balanced government, with the Republicans controlling the
United States Congress, and the Democrats the White House.
For the second year in a row, one of the strongest sectors in the stock
market was the financial services group. The Common Stock Portfolio benefited
from this trend, with significant holdings in both banking and insurance
companies. Also very positively impacting performance of the Portfolio were
substantial holdings in consumer growth stocks (particularly pharmaceutical
companies) and our investments in the energy sector (especially our holdings in
oilfield service companies and diversified natural gas companies). The weakest
sector in the stock market has been the electrical and telephone utilities.
Although traditionally a strong source of dividend income for our growth &
income portfolios, we have de-emphasized these groups recently due to concerns
about competitive pressures, retaining holdings in only a very few, better
positioned companies. Our underweighting of the utilities groups has also
contributed very positively to the performance of the Portfolio.
Looking forward, we anticipate that 1997 will bring a continuation of the
trend of modest economic growth and restrained inflation. We believe that, in
such a moderate growth, stable interest rate environment, the market will
continue to favor the stocks of companies with consistent earnings records. The
Common Stock Portfolio continues to maintain sizable commitments to the
financial, energy, consumer products and healthcare areas, all of which should
benefit in the anticipated economic environment.
Keniston P. Merrill
Richard A. Pender, CFA
Daniel J. Manion
<TABLE>
<CAPTION>
- -----------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
- -----------------------------------------------------
<S> <C>
Since Inception* 14.22%
- -----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------
COMMON STOCK
- -----------------------------------------------------
Dollars
---------------------
Fund Index
---------------------
<S> <C> <C> <C>
Start 10,000 10,000
96 11,422 11,760
- -----------------------------------------------------
</TABLE>
LOGO
Past performance is not predictive of future performance.
+ The Index is the S&P 500 Index, an unmanaged index of 500 U.S. common
stocks that include reinvestment of dividends.
* Inception date was March 18, 1996.
28
<PAGE> 59
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Common Stock Portfolio
Schedule of Investments, December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENTAGE NUMBER
OF PORTFOLIO OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK (92.6%)
Automobiles........................................................... 4.5%
Chrysler Corp....................................................... 2,600 $ 85,800
Echlin, Inc......................................................... 2,500 79,062
Ford Motor Co....................................................... 4,000 127,500
-----------
292,362
-----------
Banks................................................................. 11.0%
Bank of New York Co., Inc........................................... 4,500 151,875
BankAmerica Corp.................................................... 1,000 99,750
Chase Manhattan Corp................................................ 1,300 116,025
Citicorp............................................................ 1,300 133,900
First Union Corp.................................................... 1,400 103,600
Morgan (J.P.) & Co., Inc............................................ 1,200 117,150
-----------
722,300
-----------
Beverages............................................................. 1.9%
Coca-Cola Co........................................................ 2,400 126,300
-----------
Building Materials.................................................... 1.6%
Sherwin Williams Co................................................. 1,900 106,400
-----------
Business & Consumer Services.......................................... 3.4%
Electronic Data Systems Corp........................................ 2,800 121,100
Omnicom Group, Inc.................................................. 2,200 100,650
-----------
221,750
-----------
Consumer Products..................................................... 6.3%
American Brands, Inc................................................ 2,000 99,250
Gillette Co......................................................... 1,600 124,400
Kimberly-Clark Corp................................................. 1,300 123,825
Rubbermaid, Inc..................................................... 2,800 63,700
-----------
411,175
-----------
Drugs................................................................. 3.9%
American Home Products Corp......................................... 2,200 128,975
Pfizer, Inc......................................................... 1,500 124,313
-----------
253,288
-----------
Electrical Equipment.................................................. 5.4%
Emerson Electric Co................................................. 1,800 174,150
General Electric Co................................................. 1,800 177,975
-----------
352,125
-----------
</TABLE>
29
<PAGE> 60
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Common Stock Portfolio
Schedule of Investments, December 31, 1996 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENTAGE NUMBER
OF PORTFOLIO OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK (CONTINUED)
Energy................................................................ 10.5%
Amoco Corp.......................................................... 1,300 $ 104,650
Atlantic Richfield Co............................................... 500 66,250
Chevron Corp........................................................ 1,200 78,000
Exxon Corp.......................................................... 1,500 147,000
Mobil Corp.......................................................... 1,000 122,250
Royal Dutch Petroleum Co............................................ 1,000 170,750
-----------
688,900
-----------
Financial............................................................. 2.6%
American Express Co................................................. 3,000 169,500
*Echelon International Corp.......................................... 133 2,083
-----------
171,583
-----------
Foods................................................................. 3.3%
CPC International, Inc.............................................. 1,100 85,250
Sara Lee Corp....................................................... 3,500 130,375
-----------
215,625
-----------
Healthcare Providers.................................................. 2.1%
Columbia Healthcare Corp............................................ 3,300 134,475
-----------
Industrial - Diversified.............................................. 8.3%
Boeing Co........................................................... 96 10,212
Crown Cork & Seal Co., Inc.......................................... 2,000 108,750
Grace (W.R.) & Co................................................... 1,300 67,275
Parker Hannifin Corp................................................ 3,300 127,875
PPG Industries, Inc................................................. 1,600 89,800
*Rockwell International Corp......................................... 2,300 140,013
-----------
543,925
-----------
Insurance............................................................. 6.1%
Allstate Corp....................................................... 2,400 138,900
American General Corp............................................... 3,200 130,800
American International Group, Inc................................... 1,200 129,900
-----------
399,600
-----------
Medical - Equipment & Supplies........................................ 1.8%
Johnson & Johnson................................................... 2,400 119,400
-----------
</TABLE>
30
<PAGE> 61
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Common Stock Portfolio
Schedule of Investments, December 31, 1996 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENTAGE NUMBER
OF PORTFOLIO OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK (CONTINUED)
Oil Field Equipment & Services........................................ 3.3%
Halliburton Co...................................................... 1,600 $ 96,400
Schlumberger Ltd.................................................... 1,200 119,850
-----------
216,250
-----------
Publishing............................................................ 2.4%
Gannett, Inc........................................................ 1,200 89,850
McGraw-Hill, Inc.................................................... 1,500 69,187
-----------
159,037
-----------
Railroads............................................................. 2.5%
Canadian Pacific Ltd................................................ 2,800 74,200
Union Pacific Corp.................................................. 1,500 90,188
-----------
164,388
-----------
Retail................................................................ 3.8%
May Department Stores Co............................................ 1,700 79,475
Nordstrom, Inc...................................................... 1,500 53,156
Sears, Roebuck and Co............................................... 2,500 115,313
-----------
247,944
-----------
Telecommunications.................................................... 0.6%
Lucent Technologies, Inc............................................ 848 39,220
-----------
Tobacco............................................................... 1.0%
Philip Morris, Inc.................................................. 600 67,575
-----------
Utilities - Electric.................................................. 2.2%
Florida Progress Corp............................................... 2,000 64,500
FPL Group, Inc...................................................... 1,700 78,200
-----------
142,700
-----------
Utilities - Gas....................................................... 2.9%
Enron Corp.......................................................... 2,200 94,875
Sonat, Inc.......................................................... 1,800 92,700
-----------
187,575
-----------
</TABLE>
31
<PAGE> 62
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Common Stock Portfolio
Schedule of Investments, December 31, 1996 -- Concluded
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
PERCENTAGE NUMBER
OF PORTFOLIO OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK (CONTINUED)
Utilities - Telephone................................................... 1.2%
GTE Corp.............................................................. 1,700 $ 77,350
-----------
TOTAL COMMON STOCK (COST $5,361,460)................................ 6,061,247
-----------
CONVERTIBLE STOCK (0.7%)
*Microsoft Corp., Preferred Series A Convertible, 2.75%
(Cost $47,925)...................................................... 600 48,075
-----------
AGENCY OBLIGATIONS (4.6%)
Federal National Mortgage Discount Notes, 5.51%, Due 01/03/97
(Cost $299,908)..................................................... $300,000 299,908
-----------
SHORT-TERM INVESTMENTS (2.1%)
Temporary Investment Fund, Inc. - TempCash
(Cost $135,994)..................................................... 135,994 135,994
-----------
TOTAL INVESTMENTS (100.0%) (COST $5,845,287)............................ $6,545,224
===========
*Non-Income Producing
</TABLE>
See accompanying notes to financial statements.
32
<PAGE> 63
- --------------------------------------------------------------------------------
MARKET STREET FUND, INC.
THE SENTINEL GROWTH PORTFOLIO
1996 Annual Review
Sentinel Advisory Company
- --------------------------------------------------------------------------------
The Sentinel Growth Portfolio earned a total return of 11.4% from its
inception on March 18, 1996, through December 31, 1996. This return was below
the 17.6% return earned by the S&P 500, but was in line with the 11.8% return
for the Lipper Growth Fund Index.
Large capitalization stocks, which dominate the return on the S&P 500,
outperformed medium and small cap stocks by a wide margin during the March to
December period. The strong performance of large cap stocks accelerated
following the minor market correction in July. From that point through the end
of November, investors favored large cap stocks as they sought out investments
offering a high degree of liquidity and earnings predictability. The Sentinel
Growth Portfolio, which is comprised mainly of medium size stocks, benefited
from the strong surge in selected large cap holdings such as Intel, Microsoft,
Schlumberger, Pfizer, and First Union Corporation.
Stocks in the financial, retail, energy service, and technology sectors were
the strongest contributors to performance during the March-December time frame.
The Portfolio benefited from good stock selection in all four of these sectors.
Overweighted positions in the consumer and healthcare sectors hindered
performance as a small number of companies in those sectors reported
disappointing earnings growth.
The investment strategy of the Sentinel Growth Portfolio emphasizes taking
major positions in market-leading companies capable of earning high returns on
capital in growth industries such as biotechnology, energy services, pollution
control and semiconductors.
While the overall stock market can no longer be described as inexpensive, an
environment of slow economic growth and low interest rates is generally positive
for growth stocks. Slow growth favors companies that are able to deliver
predictable earnings growth, and low interest rates limit the risk of a decline
in price-earnings ratios. The Portfolio is well-positioned for such an
environment with a significant weighting in market leading companies that we
believe will deliver predictable, above-average growth. Risk is limited by the
Portfolio's broad diversification across all major sectors and an aggregate
price/earnings multiple that is close to that of the overall market.
Robert L. Lee, CFA
LOGO
<TABLE>
<CAPTION>
- ------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
- ------------------------------------------------------
<S> <C>
Since Inception * 11.40%
- ------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------
SENTINEL GROWTH
- ------------------------------------------------------
Dollars
-------------------
Fund Index
-------------------
<S> <C> <C>
Start 10,000 10,000
96 11,140 11,760
- ------------------------------------------------------
</TABLE>
Past performance is not predictive of future performance.
+ The Index is the S&P 500 Index, an unmanaged index of 500 U.S. common
stocks that include reinvestment of dividends.
* Inception date was March 18, 1996.
33
<PAGE> 64
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Sentinel Growth Portfolio
Schedule of Investments, December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENTAGE NUMBER
OF PORTFOLIO OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK (93.3%)
Automobiles & Auto Parts................................................ 1.6%
Pep Boys-Manny Moe & Jack............................................. 3,000 $ 92,250
----------
Banks................................................................... 1.4%
First Union Corp. .................................................... 1,100 81,400
----------
Financial............................................................... 5.7%
American Express Co. ................................................. 2,200 124,300
Student Loan Marketing Association.................................... 2,100 195,562
----------
319,862
----------
Biotechnology........................................................... 8.2%
*Amgen, Inc. ......................................................... 2,100 114,188
Biogen, Inc. ......................................................... 1,200 46,500
*Centocor, Inc. ...................................................... 1,600 57,200
*Chiron Corp. ........................................................ 2,800 52,150
Pfizer, Inc. ......................................................... 1,100 91,163
Schering Plough Corp. ................................................ 1,600 103,600
----------
464,801
----------
Building Materials...................................................... 1.9%
Sherwin Williams Co. ................................................. 1,900 106,400
----------
Business Services....................................................... 6.1%
Electronic Data Systems............................................... 2,400 103,800
First Data Corp. ..................................................... 2,000 73,000
Omnicom Group, Inc. .................................................. 3,700 169,275
----------
346,075
----------
Computers............................................................... 1.7%
Hewlett Packard Co. .................................................. 1,000 50,250
Novellus System, Inc. ................................................ 800 43,350
----------
93,600
----------
Consumer Services....................................................... 0.9%
Hillenbrand Industries, Inc. ......................................... 1,400 50,750
----------
Electronics............................................................. 6.8%
*Applied Materials, Inc. ............................................. 4,100 147,343
*KLA Instruments Corp. ............................................... 1,700 60,350
Methode Electronics, Inc. ............................................ 1,900 38,475
Motorola, Inc. ....................................................... 1,300 79,788
Tencor Instruments.................................................... 2,200 58,025
----------
383,981
----------
</TABLE>
34
<PAGE> 65
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Sentinel Growth Portfolio
Schedule of Investments, December 31, 1996 -- Continued
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENTAGE NUMBER
OF PORTFOLIO OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK (CONTINUED)
Environmental Control................................................... 0.9%
*United States Filter Corp. .......................................... 1,500 $ 47,625
----------
Energy.................................................................. 0.9%
Enron Corp. .......................................................... 1,200 51,750
----------
Health.................................................................. 1.8%
American Home Products................................................ 1,700 99,662
----------
Healthcare Services..................................................... 8.5%
Columbia/HCA Healthcare............................................... 2,550 103,912
Genzyme Corp. ........................................................ 2,200 47,850
Integrated Health Services, Inc. ..................................... 4,000 97,500
Medpartners, Inc. .................................................... 5,847 115,227
Renal Treatment Centers, Inc. ........................................ 1,100 28,050
United Healthcare Corp. .............................................. 1,900 85,500
----------
478,039
----------
Industrial.............................................................. 5.0%
Donaldson Co.......................................................... 4,400 147,400
Crown Cork & Seal Co., Inc. .......................................... 1,100 59,812
Grace (W.R.) & Co..................................................... 1,400 72,450
----------
279,662
----------
Insurance............................................................... 1.1%
Equitable of Iowa..................................................... 1,400 64,225
----------
Medical-Equipment & Supplies............................................ 4.0%
Dentsply International................................................ 2,300 109,250
Johnson & Johnson..................................................... 1,600 79,600
*LAM Research Corp. .................................................. 1,400 39,375
----------
228,225
----------
Office Equipment........................................................ 1.2%
Staples, Inc. ........................................................ 3,800 68,637
----------
Oil Field Equipment..................................................... 7.6%
Halliburton Co. ...................................................... 1,000 60,250
Schlumberger Ltd. .................................................... 1,500 149,813
*Smith International, Inc. .......................................... 3,700 166,038
Union Pacific Resources Group......................................... 1,746 51,071
----------
427,172
----------
Restaurants............................................................. 0.9%
Outback Steakhouse, Inc. ............................................. 2,000 53,500
----------
</TABLE>
35
<PAGE> 66
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
The Sentinel Growth Portfolio
Schedule of Investments, December 31, 1996 -- Concluded
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OR
PERCENTAGE NUMBER
OF PORTFOLIO OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK (CONTINUED)
Retail................................................................. 12.7%
Ethan Allen Interiors, Inc. ......................................... 5,200 $ 200,200
Home Depot, Inc. .................................................... 2,800 140,350
Nordstrom, Inc. ..................................................... 1,400 49,613
Sears, Roebuck & Co. ................................................ 2,000 92,250
TJX Companies........................................................ 5,100 241,613
-----------
724,026
-----------
Semiconductors......................................................... 6.2%
Intel Corp. ......................................................... 1,300 170,218
*Microsoft Corp. .................................................... 2,200 181,775
-----------
351,993
-----------
Technology............................................................. 1.0%
*Sterling Commerce, Inc. ............................................ 1,600 56,400
-----------
Telecommunications..................................................... 3.2%
*Airtouch Communications............................................. 1,900 47,975
*Worldcom, Inc. ..................................................... 5,000 130,313
-----------
178,288
-----------
Tobacco................................................................ 4.0%
Philip Morris Cos., Inc. ............................................ 2,000 225,250
-----------
TOTAL COMMON STOCK (COST $4,722,686)............................... 5,273,573
-----------
SHORT-TERM INVESTMENTS (6.7%)
Prudential Funding Corp., 5.90%, Due 01/02/97........................ $ 280,000 279,954
Temporary Investment Fund, Inc.-TempCash............................. 99,478 99,478
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $379,432)....................... 379,432
-----------
TOTAL INVESTMENTS (100.0%) (COST $5,102,118)....................... $ 5,653,005
===========
</TABLE>
* Non-Income Producing
See accompanying notes to financial statements.
36
<PAGE> 67
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Statements of Assets and Liabilities, December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments, at value (cost $171,644,227,
$54,440,564, $16,596,014, $36,086,018,
$27,924,846, $45,772,186, $5,845,287,
$5,102,118 respectively) (see accompanying
schedules)................................. $198,472,474 $54,440,564 $16,780,212 $43,056,384 $34,109,714 $49,277,215
Foreign currency, at value (Cost
$2,369,564)................................ -- -- -- -- -- 2,378,359
Interest receivable.......................... 33,078 18,919 265,016 248,986 2,496 7,386
Dividends and tax reclaim receivable......... 544,187 -- -- 37,813 29,114 95,513
Receivable from affiliated insurance
company.................................... -- -- -- -- -- --
Receivable for fund shares sold.............. 13,437 -- 53,529 117,153 5,951 48,061
------------ ----------- ----------- ----------- ----------- -----------
Total assets............................... 199,063,176 54,459,483 17,098,757 43,460,336 34,147,275 51,806,534
------------ ----------- ----------- ----------- ----------- -----------
LIABILITIES
Accrued expenses............................. 114,998 32,866 11,877 29,105 28,212 51,241
Dividend payable............................. -- 229,893 -- -- -- --
Payable for investments purchased............ -- -- -- -- -- 800,170
Payable for fund shares redeemed............. 112 -- 2 61 20,781 --
------------ ----------- ----------- ----------- ----------- -----------
Total liabilities.......................... 115,110 262,759 11,879 29,166 48,993 851,411
------------ ----------- ----------- ----------- ----------- -----------
Net assets................................. $198,948,066 $54,196,724 $17,086,878 $43,431,170 $34,098,282 $50,955,123
============ =========== =========== =========== =========== ===========
Number of shares of $.01 par value common
stock, issued and outstanding.............. 10,993,074 54,196,724 1,602,086 2,957,804 1,840,827 3,800,309
============ =========== =========== =========== =========== ===========
Net asset value, offering and redemption
price per share............................ $18.10 $1.00 $10.67 $14.68 $18.52 $13.41
============ =========== =========== =========== =========== ===========
<CAPTION>
COMMON SENTINEL
STOCK GROWTH
PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at value (cost $171,644,227,
$54,440,564, $16,596,014, $36,086,018,
$27,924,846, $45,772,186, $5,845,287,
$5,102,118 respectively) (see accompanying
schedules)................................. $ 6,545,224 $5,653,005
Foreign currency, at value (Cost
$2,369,564)................................ -- --
Interest receivable.......................... 662 858
Dividends and tax reclaim receivable......... 9,430 5,353
Receivable from affiliated insurance
company.................................... 11,085 9,914
Receivable for fund shares sold.............. 4,824 --
----------- ----------
Total assets............................... 6,571,225 5,669,130
----------- ----------
LIABILITIES
Accrued expenses............................. 6,601 5,507
Dividend payable............................. -- --
Payable for investments purchased............ -- --
Payable for fund shares redeemed............. -- 34
----------- ----------
Total liabilities.......................... 6,601 5,541
----------- ----------
Net assets................................. $ 6,564,624 $5,663,589
=========== ==========
Number of shares of $.01 par value common
stock, issued and outstanding.............. 580,267 508,271
=========== ==========
Net asset value, offering and redemption
price per share............................ $11.31 $11.14
=========== ==========
</TABLE>
See accompanying notes to financial statements.
37
<PAGE> 68
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Statements of Operations for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............................................. $ 5,324,989 $ -- $ -- $ 510,234 $ 229,723
Interest............................................... 490,581 2,467,400 1,012,370 1,147,909 284,384
Other income........................................... 117,880 11,129 7,814 24,548 8,639
Less: foreign taxes withheld......................... (24,858) -- -- (2,730) --
----------- ---------- ---------- ---------- ----------
Total Income......................................... 5,908,592 2,478,529 1,020,184 1,679,961 522,746
----------- ---------- ---------- ---------- ----------
EXPENSES:
Investment advisory fee................................ 592,350 113,183 53,767 157,156 134,923
Administration fee..................................... 137,181 34,820 11,880 30,374 22,147
Directors' fee......................................... 11,174 2,834 968 2,474 1,803
Transfer agent fee..................................... 6,177 2,689 1,748 3,439 1,825
Custodian fee.......................................... 33,140 10,945 3,889 10,400 11,034
Legal fees............................................. 16,261 3,149 1,075 2,749 2,664
Audit fees............................................. 20,696 4,880 1,756 4,558 3,391
Printing............................................... 50,789 20,321 6,773 17,614 13,092
Miscellaneous.......................................... 22,362 7,730 4,104 5,360 5,345
----------- ---------- ---------- ---------- ----------
890,130 200,551 85,960 234,124 196,224
Less: expenses reimbursed by affiliated insurance
company.............................................. -- -- -- -- --
----------- ---------- ---------- ---------- ----------
Total expenses....................................... 890,130 200,551 85,960 234,124 196,224
----------- ---------- ---------- ---------- ----------
Net investment income (loss)......................... 5,018,462 2,277,978 934,224 1,445,837 326,522
----------- ---------- ---------- ---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY
Net realized gain (loss) from:
Investments......................................... 23,119,178 -- (125,017) 344,584 64,760
Foreign currency related transactions............... (55,751) -- -- (293) --
----------- ---------- ---------- ---------- ----------
23,063,427 -- (125,017) 344,291 64,760
----------- ---------- ---------- ---------- ----------
Net change in unrealized appreciation (depreciation)
from:
Investments......................................... 4,147,912 -- (333,487) 2,694,823 5,078,163
Foreign currency related translations............... -- -- -- -- --
----------- ---------- ---------- ---------- ----------
4,147,912 -- (333,487) 2,694,823 5,078,163
----------- ---------- ---------- ---------- ----------
Net gain (loss) on investments and foreign currency.... 27,211,339 -- (458,504) 3,039,114 5,142,923
----------- ---------- ---------- ---------- ----------
Net increase (decrease) in net assets resulting from
operations.......................................... $32,229,801 $2,277,978 $ 475,720 $4,484,951 $5,469,445
=========== ========== ========== ========== ==========
<CAPTION>
COMMON SENTINEL
INTERNATIONAL STOCK GROWTH
PORTFOLIO PORTFOLIO* PORTFOLIO*
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Dividends.............................................. $ 948,132 $ 97,348 $ 48,959
Interest............................................... 129,585 17,277 11,218
Other income........................................... 18,197 -- --
Less: foreign taxes withheld......................... (165,850) -- --
---------- -------- --------
Total Income......................................... 930,064 114,625 60,177
---------- -------- --------
EXPENSES:
Investment advisory fee................................ 326,164 17,385 20,371
Administration fee..................................... 63,701 36,498 34,321
Directors' fee......................................... 2,736 264 248
Transfer agent fee..................................... 1,988 1,294 1,288
Custodian fee.......................................... 37,887 3,911 2,836
Legal fees............................................. 3,940 294 276
Audit fees............................................. 5,085 376 353
Printing............................................... 11,743 690 649
Miscellaneous.......................................... 4,414 1,477 1,477
---------- -------- --------
457,658 62,189 61,819
Less: expenses reimbursed by affiliated insurance
company.............................................. -- (27,324) (25,050)
---------- -------- --------
Total expenses....................................... 457,658 34,865 36,769
---------- -------- --------
Net investment income (loss)......................... 472,406 79,759 23,408
---------- -------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCY
Net realized gain (loss) from:
Investments......................................... 3,347,494 (22,148) 3,259
Foreign currency related transactions............... (44,827) -- --
---------- -------- --------
3,302,667 (22,148) 3,259
---------- -------- --------
Net change in unrealized appreciation (depreciation)
from:
Investments......................................... 782,845 699,937 550,887
Foreign currency related translations............... (1,275) -- --
---------- -------- --------
781,570 699,937 550,887
---------- -------- --------
Net gain (loss) on investments and foreign currency.... 4,084,237 677,789 554,146
---------- -------- --------
Net increase (decrease) in net assets resulting from
operations.......................................... $ 4,556,643 $757,548 $577,554
========== ======== ========
</TABLE>
* The Common Stock and Sentinel Growth Portfolios commenced operations on
03/18/96.
See accompanying notes to financial statements.
38
<PAGE> 69
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Statements of Changes in Net Assets for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss)................... $ 5,018,462 $ 2,277,978 $ 934,224 $ 1,445,837 $ 326,522
Net realized gain (loss) on investments and
foreign currency related transactions......... 23,063,427 -- (125,017) 344,291 64,760
Net change in unrealized appreciation
(depreciation) on investments and foreign
currency translations......................... 4,147,912 -- (333,487) 2,694,823 5,078,163
------------ ----------- ----------- ----------- -----------
Net increase (decrease) in net assets resulting
from operations............................... 32,229,801 2,277,978 475,720 4,484,951 5,469,445
Distributions:
From net investment income..................... (4,995,312) (2,277,978) (874,882) (1,390,871) (255,039)
From net realized gains........................ (7,732,422) -- -- (1,471,361) (2,569,743)
Capital share transactions:
Net contributions from affiliated life
insurance companies........................... 17,547,048 19,581,572 3,083,685 5,806,085 7,631,188
------------ ----------- ----------- ----------- -----------
Total increase in net assets.................. 37,049,115 19,581,572 2,684,523 7,428,804 10,275,851
NET ASSETS
Beginning of period.............................. 161,898,951 34,615,152 14,402,355 36,002,366 23,822,431
------------ ----------- ----------- ----------- -----------
End of period (including undistributed net
investment income in the Growth Portfolio
$1,231,153; Bond Portfolio $267,713; Managed
Portfolio $384,437; Aggressive Growth Portfolio
$326,522; International Portfolio $427,579;
Common Stock Portfolio $26,043 and Sentinel
Growth Portfolio $23,408)...................... $198,948,066 $54,196,724 $17,086,878 $43,431,170 $34,098,282
============ =========== =========== =========== ===========
<CAPTION>
COMMON SENTINEL
INTERNATIONAL STOCK GROWTH
PORTFOLIO PORTFOLIO* PORTFOLIO*
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income (loss)................... $ 472,406 $ 79,759 $ 23,408
Net realized gain (loss) on investments and
foreign currency related transactions......... 3,302,667 (22,148) 3,259
Net change in unrealized appreciation
(depreciation) on investments and foreign
currency translations......................... 781,570 699,937 550,887
----------- ---------- ----------
Net increase (decrease) in net assets resulting
from operations............................... 4,556,643 757,548 577,554
Distributions:
From net investment income..................... (442,343) (53,716) --
From net realized gains........................ (1,793,161) -- --
Capital share transactions:
Net contributions from affiliated life
insurance companies........................... 11,991,902 5,860,792 5,086,035
----------- ---------- ----------
Total increase in net assets.................. 14,313,041 6,564,624 5,663,589
NET ASSETS
Beginning of period.............................. 36,642,082 -- --
----------- ---------- ----------
End of period (including undistributed net
investment income in the Growth Portfolio
$1,231,153; Bond Portfolio $267,713; Managed
Portfolio $384,437; Aggressive Growth Portfolio
$326,522; International Portfolio $427,579;
Common Stock Portfolio $26,043 and Sentinel
Growth Portfolio $23,408)...................... $50,955,123 $6,564,624 $5,663,589
=========== ========== ==========
</TABLE>
* The Common Stock and Sentinel Growth Portfolios commenced operations on
03/18/96.
See accompanying notes to financial statements.
39
<PAGE> 70
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Statements of Changes in Net Assets for the Year Ended December 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS
Operations:
Net investment income
(loss)...................... $4,474,620... $ 1,481,782 $ 776,497 $ 1,374,276 $ 255,039 $ 385,788
Net realized gain (loss) on
sale of investments......... 7,728,282 -- 503,141 1,471,361 2,569,743 1,849,716
Net change in unrealized
appreciation (depreciation)
on investments and foreign
currency translations....... 24,145,662 -- 950,760 4,221,556 (406,827) 2,023,172
------------ ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net
assets resulting from
operations.................. 36,348,564 1,481,782 2,230,398 7,067,193 2,417,955 4,258,676
Distributions:
From net investment income.... (4,157,531) (1,481,782) (736,126) (1,414,623) -- (148,141)
From net realized gains....... (8,715,516) -- -- (33,117) (131,841) (699,972)
Capital share transactions:
Net contributions from
affiliated life insurance
companies................... 23,232,447 13,575,595 2,810,449 1,019,709 6,106,674 7,019,658
------------ ----------- ----------- ----------- ----------- -----------
Total increase in net
assets.................... 46,707,964.. 13,575,595 4,304,721 6,639,162 8,392,788 10,430,221
NET ASSETS
Beginning of period............. 115,190,987 21,039,557 10,097,634 29,363,204 15,429,643 26,211,861
------------ ----------- ----------- ----------- ----------- -----------
End of period (including
undistributed net investment
income in the Growth Portfolio
$1,263,754; Bond Portfolio
$208,370; Managed Portfolio
$329,730; Aggressive Growth
Portfolio $255,039; and
International Portfolio
$442,343)..................... $161,898,951 $34,615,152 $14,402,355 $36,002,366 $23,822,431 $36,642,082
============ =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
40
<PAGE> 71
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the periods:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
TO TO TO TO TO
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period............ $16.36 $14.00 $14.09 $13.73 $13.88
-------- -------- -------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................... .46 .47 .43 .38 .46
Net realized and unrealized gain (loss)
on investments................................ 2.54 3.41 (.10) .94 .17
-------- -------- -------- ------- -------
Total from investment operations............ 3.00 3.88 .33 1.32 .63
-------- -------- -------- ------- -------
LESS DISTRIBUTIONS:
Dividends to shareholders from
net investment income......................... (.48) (.46) (.41) (.39) (.46)
Dividends to shareholders from net capital
gains......................................... (.78) (1.06) (.01) (.35) (.32)
Dividends to shareholders in excess of net
investment income............................. -- -- -- (.22) --
-------- -------- -------- ------- -------
Total distributions......................... (1.26) (1.52) (.42) (.96) (.78)
-------- -------- -------- ------- -------
Net asset value, end of period.................. $18.10 $16.36 $14.00 $14.09 $13.73
======== ======== ======== ======= =======
Total return.................................... 19.58% 30.39% 2.40% 9.43% 4.74%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $(000)................ 198,948 161,899 115,191 109,534 82,881
Ratios of expenses to average net assets
(annualized)(1)............................... .50% .61% .63% .76% .79%
Ratios of net investment income to average net
assets (annualized)........................... 2.80% 3.20% 3.10% 2.86% 3.53%
Portfolio turnover.............................. 72% 61% 63% 51% 35%
Average commission rate(2)...................... $0.0600 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1.) Expense ratios for the Growth Portfolio before reimbursement of expenses by
affiliated insurance company for the years ended December 31, 1996, 1995,
1994, 1993 and 1992 were as follows: 0.50%, 0.61%, 0.67%, 0.76% and 0.82%,
respectively.
(2.) Computed by dividing the total amount of commission paid by the total
number of shares purchased and sold during the period for which there was a
commission. This disclosure is required by the S.E.C. for all financial
statements with fiscal years beginning after September 1, 1995.
See accompanying notes to financial statements.
41
<PAGE> 72
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Financial Highlights -- Continued
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the periods:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
TO TO TO TO TO
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period............ $1.00 $1.00 $1.00 $1.00 $1.00
------ ------ ------ ------ -----
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................... .05 .05 .04 .03 .03
------ ------ ------ ------ -----
Total from investment operations............ .05 .05 .04 .03 .03
------ ------ ------ ------ -----
LESS DISTRIBUTIONS:
Dividends to shareholders from net investment
income........................................ (.05) (.05) (.04) (.03) (.03)
------ ------ ------ ------ -----
Total distributions............................. (.05) (.05) (.04) (.03) (.03)
------ ------ ------ ------ -----
Net asset value, end of period.................. $1.00 $1.00 $1.00 $1.00 $1.00
====== ====== ====== ====== =====
Total return.................................... 5.15% 5.61% 3.81% 2.59% 3.18%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $(000)................ 54,197 34,615 21,040 12,506 8,138
Ratios of expenses to average net assets
(annualized)(1)............................... .44% .50% .55% .65% .65%
Ratios of net investment income to average net
assets (annualized)........................... 5.03% 5.47% 3.86% 2.56% 3.12%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1). Expense ratios for the Money Market Portfolio before reimbursement of
expenses by affiliated insurance company for the years ended December 31,
1996, 1995, 1994, 1993 and 1992 were as follows: 0.44%, 0.50%, 0.59%, 0.65%
and 0.73%, respectively.
See accompanying notes to financial statements.
42
<PAGE> 73
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Financial Highlights -- Continued
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the periods:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BOND PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
TO TO TO TO TO
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period............ $ 11.00 $9.73 $11.21 $10.73 $10.80
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................... .63 .65 .62 .60 .64
Net realized and unrealized gain (loss)
on investments................................ (.34) 1.27 (1.23) .48 (.03)
------- ------- ------- ------- -------
Total from investment operations............ .29 1.92 (.61) 1.08 .61
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends to shareholders from
net investment income......................... (.62) (.65) (.60) (.60) (.68)
Dividends to shareholders from net capital
gains......................................... (.00) (.00) (.27) (.00) (.00)
------- ------- ------- ------- -------
Total distributions......................... (.62) (.65) (.87) (.60) (.68)
------- ------- ------- ------- -------
Net asset value, end of period.................. $10.67 $11.00 $9.73 $11.21 $10.73
======= ======= ======= ======= =======
Total return.................................... 2.86% 20.45% (5.62)% 10.32% 5.95%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $(000)................ 17,087 14,402 10,098 10,160 6,710
Ratios of expenses to average net assets
(annualized)(1)............................... .56% .60% .68% .75% .75%
Ratios of net investment income to average net
assets (annualized)........................... 6.08% 6.36% 6.14% 5.53% 6.34%
Portfolio turnover.............................. 133% 206% 151% 71% 4%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1). Expense ratios for the Bond Portfolio before reimbursement of expenses by
affiliated insurance company for the years ended December 31, 1996, 1995,
1994, 1993 and 1992 were as follows: 0.56%, 0.60%, 0.70%, 0.75% and 0.81%,
respectively.
See accompanying notes to financial statements.
43
<PAGE> 74
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Financial Highlights -- Continued
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the periods:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANAGED PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
TO TO TO TO TO
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period............ $ 14.19 $11.94 $13.27 $12.25 $11.40
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................... .51 .55 .53 .40 .44
Net realized and unrealized gain (loss) on
investments................................... 1.07 2.28 (.77) 1.00 .88
------- ------- ------- ------- -------
Total from investment operations............ 1.58 2.83 (.24) 1.40 1.32
------- ------- ------- ------- -------
LESS DISTRIBUTIONS:
Dividends to shareholders from net investment
income........................................ (.51) (.57) (.49) (.38) (.47)
Dividends to shareholders from net capital
gains......................................... (.58) (.01) (.60) (.00) (.00)
------- ------- ------- ------- -------
Total distributions......................... (1.09) (.58) (1.09) (.38) (.47)
------- ------- ------- ------- -------
Net asset value, end of period.................. $ 14.68 $14.19 $11.94 $13.27 $12.25
======= ======= ======= ======= =======
Total return................................ 11.88% 24.43% (1.82)% 11.62% 11.96%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $(000)................ 43,431 36,002 29,363 28,984 15,946
Ratios of expenses to average net assets
(annualized)(1)............................... .60% .66% .67% .80% .80%
Ratios of net investment income to average
net assets (annualized)....................... 3.68% 4.22% 4.34% 3.36% 3.88%
Portfolio turnover.............................. 106% 130% 75% 89% 32%
Average commission rate(2)...................... $0.0600 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1). Expense ratios for the Managed Portfolio before reimbursement of expenses
by affiliated insurance company for the years ended December 31, 1996,
1995, 1994, 1993 and 1992 were as follows: 0.60%, 0.66%, 0.73%, 0.80% and
0.84%, respectively.
(2). Computed by dividing the total amount of commission paid by the total
number of shares purchased and sold during the period for which there was a
commission. This disclosure is required by the S.E.C. for all financial
statements with fiscal years beginning after September 1, 1995.
See accompanying notes to financial statements.
44
<PAGE> 75
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Financial Highlights -- Continued
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the periods:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGGRESSIVE GROWTH PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
TO TO TO TO TO
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period............ $17.38 $15.45 $15.45 $14.72 $16.68
----- ----- ----- ----- -----
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................... .17 .20 (.01) (.01) .03
Net realized and unrealized gain (loss) on
investments................................... 3.03 1.86 .01 .77 .38
----- ----- ----- ----- -----
Total from investment operations............ 3.20 2.06 .00 .76 .41
----- ----- ----- ----- -----
LESS DISTRIBUTIONS:
Dividends to shareholders from net investment
income........................................ (.19) (.00) (.00) (.03) (.07)
Dividends to shareholders from net capital
gains......................................... (1.87) (.13) (.00) (.00) (2.30)
----- ----- ----- ----- -----
Total distributions......................... (2.06) (.13) (.00) (.03) (2.37)
----- ----- ----- ----- -----
Net asset value, end of period.................. $18.52 $17.38 $15.45 $15.45 $14.72
===== ===== ===== ===== =====
Total return.................................... 21.00% 13.48% 0.00% 5.20% 2.58%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $(000)................ 34,098 23,822 15,430 12,223 8,029
Ratios of expenses to average net assets
(annualized)(1)............................... .68% .76% .86% .90% .90%
Ratios of net investment income to average net
assets (annualized)........................... 1.14% 1.32% (.10)% (.07)% .37%
Portfolio turnover.............................. 47% 89% 60% 60% 18%
Average commission rate(2)...................... $0.0600 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1). Expense ratios for the Aggressive Growth Portfolio before reimbursement of
expenses by affiliated insurance company for the years ended December 31,
1996, 1995, 1994, 1993 and 1992 were as follows: 0.68%, 0.76%, 0.89%, 0.90%
and 1.00%, respectively.
(2). Computed by dividing the total amount of commission paid by the total
number of shares purchased and sold during the period for which there was a
commission. This disclosure is required by the S.E.C. for all financial
statements with fiscal years beginning after September 1, 1995.
See accompanying notes to financial statements.
45
<PAGE> 76
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Financial Highlights -- Continued
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the periods:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
TO TO TO TO TO
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period............ $ 12.86 $11.63 $11.87 $ 9.00 $ 9.74
------- ------- ------- ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........................... .11 .16 .05 .06 .08
Net realized and unrealized gain (loss) on
investments................................... 1.23 1.45 (.02) 3.09 (.81)
------- ------- ------- ------ ------
Total from investment operations............ 1.34 1.61 .03 3.15 (.73)
------- ------- ------- ------ ------
LESS DISTRIBUTIONS:
Dividends to shareholders from net investment
income........................................ (.16) (.07) (.03) (.08) (.00)
Dividends to shareholders from net capital
gains......................................... (.63) (.31) (.24) (.20) (.01)
------- ------- ------- ------ ------
Total distributions......................... (.79) (.38) (.27) (.28) (.01)
------- ------- ------- ------ ------
Net asset value, end of period.................. $ 13.41 $12.86 $11.63 $11.87 $ 9.00
======= ======= ======= ====== ======
Total return.................................... 10.89% 14.31% .26% 36.11% (7.30)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $(000)................ 50,955 36,642 26,212 13,682 6,727
Ratios of expenses to average net assets
(annualized)(1)............................... 1.05% 1.15% 1.32% 1.50% 1.50%
Ratios of net investment income to average net
assets (annualized)........................... .98% 1.21% .72% .68% 1.05%
Portfolio turnover.............................. 35% 45% 32% 37% 35%
Average commission rate(2)...................... $0.0376 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1). Expense ratios for the International Portfolio before reimbursement of
expenses by affiliated insurance company for the years ended December 31,
1996, 1995, 1994, 1993 and 1992 were as follows: 1.05%, 1.15%, 1.32%, 1.50%
and 2.65%, respectively.
(2). Computed by dividing the total amount of commission paid by the total
number of shares purchased and sold during the period for which there was a
commission. This disclosure is required by the S.E.C. for all financial
statements with fiscal years beginning after September 1, 1995.
See accompanying notes to financial statements.
46
<PAGE> 77
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Financial Highlights -- Continued
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the periods:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
03/18/96(2)
TO
12/31/96
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period............................................................... $10.00
--------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.............................................................................. .15
Net realized and unrealized gain (loss) on investments............................................. 1.26
--------
Total from investment operations............................................................... 1.41
--------
LESS DISTRIBUTIONS:
Dividends to shareholders from net investment income............................................... (.10)
Dividends to shareholders from net capital gains................................................... (.00)
--------
Total distributions............................................................................ (.10)
--------
Net asset value, end of period..................................................................... $11.31
========
Total return....................................................................................... 14.22%(3)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $(000)................................................................... 6,565
Ratios of expenses to average net assets (annualized)(1)........................................... .80%
Ratios of net investment income to average net assets (annualized)................................. 1.82%
Portfolio turnover................................................................................. 13%
Average commission rate(4)......................................................................... $0.0600
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1). Expense ratio for the Common Stock Portfolio before reimbursement of
expenses by affiliated insurance company for the period ended December 31,
1996 was as follows: 1.43% (annualized).
(2). Commencement of operations.
(3). Total returns for periods less than one year are not annualized.
(4). Computed by dividing the total amount of commission paid by the total
number of shares purchased and sold during the period for which there was a
commission. This disclosure is required by the S.E.C. for all financial
statements with fiscal years beginning after September 1, 1995.
See accompanying notes to financial statements.
47
<PAGE> 78
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Financial Highlights -- Concluded
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the periods:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SENTINEL
GROWTH
PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
03/18/96(2)
TO
12/31/96
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value, beginning of period.............................................................. $10.00
------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income............................................................................. .05
Net realized and unrealized gain (loss) on investments............................................ 1.09
------
Total from investment operations.............................................................. 1.14
------
LESS DISTRIBUTIONS:
Dividends to shareholders from net investment income.............................................. (.00)
Dividends to shareholders from net capital gains.................................................. (.00)
------
Total distributions........................................................................... (.00)
------
Net asset value, end of period.................................................................... $ 11.14
======
Total return...................................................................................... 11.40%(3)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $(000).................................................................. 5,664
Ratios of expenses to average net assets (annualized)(1).......................................... .90%
Ratios of net investment income to average net assets (annualized)................................ .57%
Portfolio turnover................................................................................ 75%
Average commission rate(4)........................................................................ $0.0594
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1). Expense ratio for the Sentinel Growth Portfolio before reimbursement of
expenses by affiliated insurance company for the period ended December 31,
1996 was as follows: 1.51% (annualized).
(2). Commencement of operations.
(3). Total returns for periods less than one year are not annualized.
(4). Computed by dividing the total amount of commission paid by the total
number of shares purchased and sold during the period for which there was a
commission. This disclosure is required by the S.E.C. for all financial
statements with fiscal years beginning after September 1, 1995.
See accompanying notes to financial statements.
48
<PAGE> 79
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Notes to Financial Statements, December 31, 1996
- --------------------------------------------------------------------------------
1. ORGANIZATION
The Market Street Fund, Inc. (Fund) is registered as an open-end diversified
management company under the Investment Company Act of 1940, as amended. As a
"series" type of mutual fund, the Fund issues separate classes (or series) of
stock currently consisting of the Growth Portfolio, Money Market Portfolio, Bond
Portfolio, Managed Portfolio, Aggressive Growth Portfolio, International
Portfolio, Common Stock Portfolio and Sentinel Growth Portfolio. The Fund serves
as an investment medium for modified premium and flexible premium adjustable
variable life insurance policies and individual flexible premium deferred
variable annuity contracts (Policies) issued by Provident Mutual Life Insurance
Company (PMLIC) and for flexible premium deferred variable annuity contracts
issued by Providentmutual Life and Annuity Company of America (PLACA) and
flexible premium adjustable variable life insurance policies issued by National
Life Insurance Company of Vermont (NLIC). The Fund also serves as the investment
medium for single premium and scheduled premium variable life insurance policies
which are no longer being issued.
All shares of the series are held by the separate accounts of the previously
listed insurance companies.
2. ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by each
Fund in preparation of its financial statements. The preparation of financial
statements in accordance with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Actual results could differ from
those estimates.
Valuation of Investments
Bonds are carried at market value based on the last bid price on a national
securities exchange or on quoted prices from a third-party pricing service.
Investments in common and preferred stocks primarily traded on recognized U.S.
or foreign securities exchanges are valued at the last sale price on exchanges
on the last business day of the period, or, if there was no sale, at the last
bid price on that day. Short-term investments with maturities of less than 60
days and Money Market Portfolio investments are valued at amortized cost which
approximates market value.
Investments
Security transactions are accounted for on the trade date. The cost of
investment securities sold is determined by use of the specific identification
method for both financial reporting and income tax purposes. Interest income is
recorded on the accrual basis; dividend income is recorded on the ex-dividend
date.
Foreign Currency Translations
Foreign currency amounts are translated into U.S. Dollars on the following
bases:
(i) Market value of investment securities, assets and liabilities, at the
daily rate of exchange;
(ii) Purchases and sales of investment securities, at the rate of exchange
prevailing on the respective dates of such transactions. Exchange gains or
losses are recognized upon settlement;
49
<PAGE> 80
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Notes to Financial Statements, December 31, 1996 -- Continued
- --------------------------------------------------------------------------------
(iii) Income and expenses, at the rate of exchange prevailing on the
respective dates of such transactions. Exchange gains or losses are
recognized upon ultimate receipt or disbursement.
Foreign security and currency transactions may involve certain considerations
and risks not typically associated with those of U.S. dollar denominated
transactions as a result of, among other factors, the lack of governmental
supervision and regulation of foreign securities markets and the possibility of
political or economic instability.
The Fund does not isolate that portion of the results of operations derived from
changes in foreign exchange rates on investments from the fluctuations arising
from changes in market prices of securities held. Such fluctuations are included
with the net realized and unrealized gain or loss from investments.
Dividends to Shareholders
Dividends of investment income of the Money Market Portfolio are declared daily
and paid monthly. The Growth Portfolio, Bond Portfolio, Managed Portfolio, and
Common Stock Portfolio declare and pay dividends of investment income quarterly.
The Aggressive Growth Portfolio, International Portfolio, and Sentinel Growth
Portfolio declare and pay dividends of investment income annually. For all
Portfolios, distributions of capital gains are declared and paid annually.
Federal Income Taxes
No provision is made for Federal taxes as it is the Fund's intention to have
each Portfolio continue to qualify as a regulated investment company and to make
the requisite distributions to its shareholders which will be sufficient to
relieve it from Federal income taxes.
3. INVESTMENT ADVISORY FEES AND RELATED PARTY TRANSACTIONS
Investment advisory agreements have been approved, whereby Newbold's Asset
Management, Inc. (NAM) is adviser for the Growth Portfolio, Sentinel Advisors
Company (SAC), a Vermont General Partnership, for the Money Market, Bond,
Managed, Aggressive Growth, Common Stock and Sentinel Growth Portfolios. With
respect to the Growth Portfolio, NAM is compensated monthly at an effective
annual rate of 0.50% of the first $20 million of the average daily net assets of
the portfolio, 0.40% of the next $20 million and 0.30% of net assets in excess
of $40 million. SAC is compensated monthly at an effective annual rate of 0.25%
of the average daily net assets of the Money Market Portfolio. With respect to
the Bond Portfolio, SAC is compensated monthly at the effective annual rate of
0.35% of the first $100 million of the average daily net assets of the portfolio
and 0.30% of net assets in excess of $100 million. With respect to the Managed
Portfolio, SAC is compensated monthly at the effective annual rate of 0.40% of
the first $100 million of the average daily net assets of the portfolio and
0.35% of net assets in excess of $100 million. With respect to the Aggressive
Growth Portfolio, SAC is compensated monthly at the effective annual rate of
0.50% of the first $20 million of the average daily net assets of the portfolio,
0.40% of the next $20 million and 0.30% of net assets in excess of $40 million.
With respect to the Common Stock Portfolio, SAC is compensated monthly at the
effective annual rate of 0.40% of the first $100 million of the average
50
<PAGE> 81
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Notes to Financial Statements, December 31, 1996 -- Continued
- --------------------------------------------------------------------------------
daily net assets of the portfolio and 0.35% of net assets in excess of $100
million. With respect to the Sentinel Growth Portfolio, SAC is compensated
monthly at an effective annual rate of 0.50% of the first $20 million of the
average daily net assets of the portfolio, 0.40% of the next $20 million and
0.30% of the net assets in excess of $40 million. Provident Mutual Investment
Management Co. (PIMC) is the adviser for the International Portfolio and is
compensated monthly at an effective annual rate of 0.75% of the first $500
million of the average daily net assets of the portfolio and 0.60% of assets in
excess of $500 million. The Boston Company Asset Management, Inc. ("TBC") is
sub-advisor to the International Portfolio.
PMLIC agrees to reimburse the Growth Portfolio and PMLIC and NLIC agree to
reimburse the Money Market, Bond, Managed, and Aggressive Growth Portfolios for
operating expenses, excluding investment advisory fees, and costs of litigation
and indemnification not covered by insurance, in excess of an annual rate of
0.40% of the average daily net asset values. The International Portfolio is
reimbursed by PMLIC and NLIC for such expenses in excess of an annual rate of
0.75% of the average daily net asset value. NLIC agrees to reimburse the Common
Stock and Sentinel Growth Portfolio for operating expenses, excluding investment
advisory fees and costs of litigation and indemnification not covered by
insurance, in excess of an annual rate of .40% of the average net asset values.
4. NET ASSETS
At December 31, 1996, the Portfolios' net assets consisted of:
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net contribution from shareholders............. $147,821,063 $54,196,724 $16,808,869 $35,731,816 $27,522,132 $43,666,216
Undistributed net investment income............ 1,231,153 -- 267,713 384,437 326,522 427,579
Undistributed net realized gain................ 23,067,603 -- -- 344,551 64,760 3,347,494
Accumulated loss on investment transactions.... -- -- (173,902) -- -- --
Net unrealized appreciation (depreciation) on
investments and foreign currencies............ 26,828,247 -- 184,198 6,970,366 6,184,868 3,513,834
------------ ----------- ----------- ----------- ----------- -----------
$198,948,066 $54,196,724 $17,086,878 $43,431,170 $34,098,282 $50,955,123
============ =========== =========== =========== =========== ===========
<CAPTION>
COMMON SENTINEL
STOCK GROWTH
PORTFOLIO PORTFOLIO
----------------------------------------------------------------
<S> <C> <C>
Net contribution from shareholders............. $5,860,792 $5,086,035
Undistributed net investment income............ 26,043 23,408
Undistributed net realized gain................ -- 3,259
Accumulated loss on investment transactions.... (22,148) --
Net unrealized appreciation (depreciation) on
investments and foreign currencies............ 699,937 550,887
---------- ----------
$6,564,624 $5,663,589
========== ==========
</TABLE>
51
<PAGE> 82
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Notes to Financial Statements, December 31, 1996 -- Continued
- --------------------------------------------------------------------------------
5. PURCHASES AND SALES OF INVESTMENTS (EXCLUDING SHORT-TERM SECURITIES)
Purchases and proceeds on sales of investments for the portfolios, for the year
ended December 31, 1996, were as follows:
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PURCHASES
U.S. Gov't Obligations.......................... $ -- $ -- $ 9,780,303 $21,429,591 $ -- $ --
Corporate Bonds................................. -- -- 12,202,946 12,716,773 -- --
Common Stock.................................... 145,646,451 -- -- 4,716,407 15,535,506 23,195,109
------------ ----------- ----------- ----------- ----------- -----------
Total Purchases................................. $145,646,451 $ -- $21,983,249 $38,862,771 $15,535,506 $23,195,109
============ =========== =========== =========== =========== ===========
SALES
U.S. Gov't Obligations.......................... $ -- $ -- $ 6,002,543 $22,513,655 $ -- $ --
Corporate Bonds................................. -- -- 13,102,207 11,189,673 -- --
Common Stock.................................... 121,462,900 -- -- 3,965,454 11,011,877 14,179,229
------------ ----------- ----------- ----------- ----------- -----------
Total Sales..................................... $121,462,900 $ -- $19,104,750 $37,668,782 $11,011,877 $14,179,229
============ =========== =========== =========== =========== ===========
<CAPTION>
COMMON SENTINEL
STOCK GROWTH
PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------
<S> <C> <C>
PURCHASES
U.S. Gov't Obligations.......................... $ -- $ --
Corporate Bonds................................. --
Common Stock.................................... 6,057,409 8,111,802
---------- ----------
Total Purchases................................. $6,057,409 $8,111,802
========== ==========
SALES
U.S. Gov't Obligations.......................... $ -- $ --
Corporate Bonds................................. -- --
Common Stock.................................... 625,876 3,392,375
---------- ----------
Total Sales..................................... $ 625,876 $3,392,375
========== ==========
</TABLE>
6. TAX BASIS OF INVESTMENTS
Investment information based on the cost of the securities for Federal income
tax purposes held at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Aggregate gross unrealized appreciation........ $ 28,595,431 $ -- $ 229,836 $ 7,236,888 $ 6,801,232
Aggregate gross unrealized depreciation........ (1,767,184) -- (45,638) (266,522) (616,364)
------------ ----------- ----------- ----------- -----------
Net unrealized appreciation (depreciation)..... $ 26,828,247 $ -- $ 184,198 $ 6,970,366 $ 6,184,868
============ =========== =========== =========== ===========
Aggregate cost of securities for federal income
tax purposes.................................. $171,644,227.. $54,440,564 $16,596,014 $36,086,018 $27,924,846
============ =========== =========== =========== ===========
Capital loss carryover (available to offset
possible future capital gains.) The carryover
expires as follows: Bond Portfolio--$48,885 in
2002; $125,017 in 2004; Common Stock Portfolio
$22,148 in 2004............................... $ -- $ -- $ (173,902) $ -- $ --
============ =========== =========== =========== ===========
<CAPTION>
COMMON SENTINEL
INTERNATIONAL STOCK GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggregate gross unrealized appreciation........ $ 5,977,111 $ 781,212 $ 711,518
Aggregate gross unrealized depreciation........ (2,463,287) (81,275) (160,631)
----------- ---------- ----------
Net unrealized appreciation (depreciation)..... $ 3,513,824 $ 699,937 $ 550,887
=========== ========== ==========
Aggregate cost of securities for federal income
tax purposes.................................. $45,772,186 $5,845,287 $5,102,118
=========== ========== ==========
Capital loss carryover (available to offset
possible future capital gains.) The carryover
expires as follows: Bond Portfolio--$48,885 in
2002; $125,017 in 2004; Common Stock Portfolio
$22,148 in 2004............................... $ -- $ (22,148) $ --
=========== ========== ==========
</TABLE>
52
<PAGE> 83
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Notes to Financial Statements, December 31, 1996 -- Continued
- --------------------------------------------------------------------------------
7. AUTHORIZED CAPITAL STOCK AND CAPITAL STOCK TRANSACTIONS
On December 31, 1996, there were 200 million shares of $0.01 par value capital
stock authorized for the Fund. The shares of capital stock are divided into
eight series: Growth Portfolio, Money Market Portfolio, Bond Portfolio, Managed
Portfolio, Aggressive Growth Portfolio, International Portfolio, Common Stock
Portfolio and Sentinel Growth Portfolio. The Growth Portfolio consists of 15
million shares, the Money Market Portfolio consists of 75 million shares; each
of the other series consists of 5 million shares.
Transactions in capital stock for the year ended December 31, 1996 were as
follows:(1)
<TABLE>
<CAPTION>
GROWTH PORTFOLIO MONEY MARKET BOND PORTFOLIO
PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold......................................... 1,276,805 $ 20,944,472 82,625,391 $ 82,625,391 382,375 $ 4,040,320
Shares redeemed..................................... (981,738) (16,125,158) (65,247,831) (65,247,831) (173,162) (1,831,517)
Shares reinvested................................... 803,008 12,727,734 2,204,012 2,204,012 83,086 874,882
--------- ----------- ----------- ----------- -------- -----------
Net contributions from affiliated insurance
companies.......................................... 1,098,075 $ 17,547,048 19,581,572 $ 19,581,572 292,299 $ 3,083,685
========= =========== =========== =========== ======== ===========
<CAPTION>
MANAGED PORTFOLIO
- ---------------------------------------------------------------------------
SHARES AMOUNT
- ---------------------------------------------------------------------------
<S> <C> <C>
Shares sold......................................... 506,385 $ 7,070,251
Shares redeemed..................................... (296,312) (4,126,398)
Shares reinvested................................... 209,781 2,862,232
-------- ----------
Net contributions from affiliated insurance
companies.......................................... 419,854 $ 5,806,085
======== ==========
</TABLE>
<TABLE>
<CAPTION>
AGGRESSIVE INTERNATIONAL COMMON
GROWTH PORTFOLIO STOCK
PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares sold.................................................. 441,008 $ 7,446,728 987,809 $12,532,647 577,728
Shares redeemed.............................................. (156,497) (2,640,322) (218,584) (2,776,249) (2,588)
Shares reinvested............................................ 185,719 2,824,782 180,866 2,235,504 5,127
--------- ----------- ---------- ----------- --------
Net contributions from affiliated insurance companies........ 470,230 $ 7,631,188 950,091 $11,991,902 580,267
========= =========== =========== =========== ========
<CAPTION>
SENTINEL GROWTH
PORTFOLIO
- ------------------------------------------------------------------------------------------------
AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares sold.................................................. $ 5,835,026 508,648 $5,090,047
Shares redeemed.............................................. (27,950) (377) (4,012)
Shares reinvested............................................ 53,716 -- --
----------- -------- ----------
Net contributions from affiliated insurance companies........ $ 5,860,792 508,271 $5,086,035
=========== ======== ==========
</TABLE>
Transactions in capital stock for the year ended December 31, 1995 were as
follows:
<TABLE>
<CAPTION>
GROWTH PORTFOLIO MONEY MARKET BOND PORTFOLIO MANAGED
PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares sold............. 1,376,728 $20,320,117 52,460,129 $52,460,129 305,883 $3,174,938 340,442
Shares redeemed......... (672,833) (9,960,717) (40,303,780) (40,303,780) (106,040) (1,100,615) (375,720)
Shares reinvested....... 961,190 12,873,047 1,419,246 1,419,246 72,305 736,126 114,456
--------- ------------ ----------- ------------ -------- ----------- -------
Net contributions from
affiliated insurance
companies.............. 1,665,085 $23,232,447 13,575,595 $13,575,595 272,148 $2,810,449 79,178
========= ============ =========== ============ ======== =========== =======
<CAPTION>
AGGRESSIVE INTERNATIONAL
GROWTH PORTFOLIO
- -----------------------------------------------------------------------------------------
AMOUNT SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares sold............. $4,456,504 489,394 $8,017,391 861,466 $10,317,408
Shares redeemed......... (4,884,534) (125,984) (2,042,558) (341,090) (4,145,863)
Shares reinvested....... 1,447,739 8,772 131,841 76,064 848,113
----------- ------- ----------- -------- -----------
Net contributions from
affiliated insurance
companies.............. $1,019,709 372,182 $6,106,674 596,440 $ 7,019,658
=========== ======= =========== ======== ===========
</TABLE>
(1) The Common Stock and Sentinel Growth Portfolios commenced operations on
03/18/96.
53
<PAGE> 84
- --------------------------------------------------------------------------------
Market Street Fund, Inc.
Notes to Financial Statements, December 31, 1996 -- Concluded
- --------------------------------------------------------------------------------
8. PRINCIPAL UNDERWRITER
1717 Capital Management Company serves, without compensation, as the principal
underwriter for sale of the Fund shares to the Accounts. 1717 Capital Management
Company is an indirect wholly-owned subsidiary of PMLIC.
9. SUBSEQUENT DIVIDEND
On December 30, 1996 the Board of Directors declared the following net
investment income and capital gain dividends to shareholders of record on
December 31, 1996, ex-dividend date January 3, 1997, payable on January 6, 1997
as follows:
<TABLE>
<CAPTION>
TOTAL PER SHARE
------------------------- ---------------------
NET NET
INVESTMENT CAPITAL INVESTMENT CAPITAL
PORTFOLIO INCOME GAIN INCOME GAIN
- -------------- ---------- ----------- ---------- -------
<S> <C> <C> <C> <C>
Growth........ $1,231,153 $23,067,603 $.1120 $2.0984
Bond.......... 267,713 -- .1671 --
Managed....... 384,437 344,551 .1300 .1165
Aggressive
Growth....... 326,522 64,760 .1774 .0352
International... 427,579 3,347,494 .1125 .8808
Common Stock.. 26,043 -- .0449 --
Sentinel
Growth....... 23,408 3,259 .0461 .0064
</TABLE>
54
<PAGE> 85
ANNUAL REPORT
December 31, 1996
- -------------------------------------------------------
PROVIDENT MUTUAL LIFE
INSURANCE COMPANY
PROVIDENT MUTUAL VARIABLE
ANNUITY SEPARATE ACCOUNT
MARKET STREET FUND, INC.
- -------------------------------------------------------
