THE PROACTIVE
ASSET ALLOCATION FUNDS
THE
OPTI-flex DYNAMIC FUND
ANNUAL REPORT
DECEMBER 31, 1996
This report has been prepared for shareholders
and may be distributed to others only if prededed
or accompanied by a current prospectus.
<PAGE>
THE OPTI-flex DYNAMIC FUND
February 20, 1997
Dear Fellow Shareholders,
Thank you for your purchase into the OPTI-flex(R) Dynamic Fund. We are pleased
to offer the OPTI-flex(R) Money Management Services through a new unique
mutual fund structure. We would like to take this opportunity to highlight
some of the features of your Fund:
- Global Allocation: The Investment Adviser has the flexibility
to invest a portion of the Fund's assets into foreign and domestic
bonds or equities.
- Dynamic Proactive Asset Allocation: The Fund's allocation to
various types of mutual funds which invest in various asset classes
(stocks, bonds, gold stocks, cash, etc.) can be modified according to
the changing market conditions, and in anticipation of changes in
the economic environment.
- Fund-of-funds: Using mutual funds in a dynamic asset allocation
strategy further reduces risk by providing instant diversification
across hundreds of securities within each asset class and allowing
the Fund to move assets overnight between asset classes with
little cost.
We realize that we are not the only mutual fund to have these features, but we
are one of very few to combine them into one single product.
The following pages contain our annual audited financial statements, as
audited by KPMG Peat Marwick LLP (see page 14). Also enclosed is a portfolio
profile and review by C. Martin Unterreiner, portfolio manager for the Fund.
For further information on the Fund, please consult the prospectus, or contact
your financial adviser. If you do not have a prospectus, please call
888-587-3539, and we will be happy to send one to you. We appreciate your
interest and support.
Sincerely,
/s/ Jeffrey Unterreiner
Jeffrey J. Unterreiner, RFC
Chairman/President
<PAGE>
To Fellow Shareholders, February 20, 1997
According to Mutual Funds Magazine, there are now over 9,000 mutual funds and
share classes registered with the U.S. Securities & Exchange Commission. With
that number of mutual funds and share classes from which to choose, it is
somewhat surprising that, according to Morningstar, there are only 67 "Funds
of Funds" that primarily invest in other mutual funds. The OPTI-FLEX(R)
DYNAMIC FUND (the Fund) is the first St. Louis based "Fund of Funds," and the
first PROACTIVE Asset Allocation Fund managing money on a global basis.
We have always taken pride in the fact that our investment advisory firm of
PROACTIVE Money Management, Inc. is "On The Cutting Edge" of the money
management business. It has been stated by Global Business Research that "The
Fund of Funds concept is the latest hot product positioned to explode in the
mutual fund marketplace." You may be interested to know that I will be one of
twelve speakers at their first "Fund of Funds" conference to be held in
Boston, Massachusetts April 14-15, 1997.
The fiscal year of the Fund is the same as the calendar year. Since the Fund
did not commence operation until October 1, 1996, our first fiscal year covers
only three months. During that period of time, the Fund was up 3.22%, with
reinvestment of dividends and capital gains, as compared to a 3.62% gain for
the Dow Jones World Stock Index (DJW-X). Since the Fund is invested globally,
and since the DJW-X is a broad measure of global stock prices, the DJW-X is
our benchmark for comparing the performance of the Fund. As you can see from
the graph below, we got off to a little rocky start in October with a decline
of 1.60% for the Fund while the DJW-X had a slight gain of 0.13%. In the month
of November, we lagged the DJW-X, which had a gain of 5.33%, with a gain of
3.35% for the Fund. However, in December, we substantially outperformed the
DJW-X, which was down 1.75%, with a gain of 1.49% for the Fund. During the
first couple of months, our focus was not on short-term performance, but on
getting the Fund nvested appropriately to benefit from the fact that
capitalism is breaking out on a global basis. We believe the outlook for
worldwide economic growth and cooperation is better than it has ever been. We
think the Fund is now well positioned to produce above average market returns
in 1997, with below average market risk.
[line charts]
Graphic representation of OPTI-flex DYNAMIC Fund vs Dow Jones World Stock Index
October 1, 1996 to December 31, 1996
Graphic representation of OPTI-flex DYNAMIC Fund vs Dow Jones World Stock Index
October 31, 1996 to December 31, 1996
Past performance is not predictive of future performance. A one year 1%
contingent deferred sales charge (CDSC) has not been deducted from the values
shown. Imposition of the 1% CDSC would have reduced the Fund value to $10,219
for the chart to the left and to $10,385 for the chart to the right. As can be
seen from the Portfolio of Investments, the Fund is widely diversified, yet
concentrated in our preferred areas. As of December 31, 1996, approximately
78% of the assets of the Fund was invested in 37 other mutual funds,
approximately 18% was invested in 51 closed-end investment trusts (which were
purchased at an average discount of about 20% below their net asset value) and
about 3.5% was invested in 14 direct investments we consider undervalued. See
the prospectus of the Fund for a further discussion of these types of
investments.
As stated in our prospectus, "The Fund's objective is to seek a high total
return over the long-term consistent with exhibiting less investment risk than
a portfolio consisting solely of common stocks." We thank you for giving us
the opportunity to be of service to you. Our commitment to you is summed up in
the following statement, "We will at all times conduct ourselves with
integrity and distinction, putting first the interests of our clients."
Sincerely yours,
/s/ Martin Unterreiner
C. Martin Unterreiner
OPTI-flex(R) Money Manager
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments as of December 31, 1996
MUTUAL FUNDS - 78.2% SHARES VALUE
<S> <C> <C>
Artisan International Fund 7,734 $103,016
Eaton Vance Traditional Greater China Fund 22,714 $368,641
Eaton Vance Traditional Greater India Fund 41,573 $251,933
G.T. Global Strategic Income Advisor Fund 8,370 $101,534
Guinness Flight China & Hong Kong Fund 9,476 $167,788
Harbor International Growth Fund 6,294 $102,207
Heartland Value & Income Plus Fund 6,460 $88,693
Invesco European Small Company Fund 6,502 $104,226
Invesco Strategic Energy Fund 6,920 $100,069
Invesco Strategic Financial Services Fund 4,504 $100,090
Invesco Strategic Gold Fund 17,897 $99,541
Invesco Value Equity Fund 4,156 $98,634
Invesco Worldwide Capital Goods Fund 10,552 $101,155
Invesco Worldwide Communications Fund 8,185 $103,352
Janus High Yield Fund 7,643 $85,831
Janus Overseas Fund 7,473 $113,736
Lexington Gold Fund 27,201 $162,388
Lexington Small Cap Asia Fund 18,985 $232,379
Lexington Strategic Silver Fund 24,725 $104,586
Longleaf Partners Small Cap Fund 2,843 $50,782
Matthews Pacific Tiger Fund 5,751 $69,708
Montgomery Growth Fund 8,155 $164,326
Montgomery International Growth Fund 14,134 $203,534
Montgomery International Small Cap Fund 17,772 $268,885
Montgomery Small Cap Opportunity Fund 10,413 $171,496
Oakmark Small Cap Fund 7,837 $113,171
Rydex Precious Metals Fund 28,713 $245,786
Scudder Emerging Markets Income Fund 16,111 $197,848
Scudder Gold Fund 5,486 $69,559
Scudder Greater Europe Growth Fund 11,362 $205,434
Strong Asia Pacific Fund 3,577 $34,127
Strong High Yield Bond Fund 16,664 $190,806
Twentieth Century Value Fund 13,948 $91,915
Twentieth International Discovery Fund 12,482 $91,866
Vontobel Eastern European Equity Fund 16,998 $253,102
Warburg Pincus Small Company Value Fund 5,717 $88,276
Wright International Blue Chip Equities Fund 4,223 $70,485
----------
TOTAL MUTUAL FUNDS (Cost $5,172,789) $5,170,905
----------
(Continued)
<PAGE>
<CAPTION>
Portfoilio of Investments as of December 31, 1996 (Continued)
CLOSED END MUTUAL FUNDS - 18.3%
<S> <C> <C>
Alliance Global Environment Fund 2,000 $25,000
Americas Income Trust, Inc. 3,000 $22,125
Austria Fund 2,000 $18,000
Baker Fentress & Company 2,000 $33,750
Black Rock North America Government, Inc. 2,000 $19,750
Central European Equity Fund 2,000 $39,500
Clemente Global Growth Fund 4,000 $30,000
Emerging Germany Fund, Inc. 3,000 $24,375
Emerging Markets Infrastructure Fund 2,000 $21,750
Emerging Markets Telecommunications Fund 1,000 $15,250
Emerging Mexico Fund, Inc. 1,000 $7,375
Engex, Inc. 1,000 $11,750
Equus, Inc. 3,000 $48,375
European Warrant Fund, Inc. 3,000 $34,875
First Australia Fund, Inc. 1,000 $8,687
First Commonwealth Fund 2,000 $24,000
First Iberian Fund 4,000 $43,500
First Israel Fund 1,000 $11,875
First Phillipine Fund 3,000 $45,000
France Growth Fund, Inc. 2,000 $20,750
Germany Fund 1,000 $12,625
Global Health Sciences Fund 2,000 $29,000
Global High Income Dollar Fund 1,000 $12,875
Global Small Cap Fund 1,000 $11,625
Greater China Fund 2,000 $31,250
Growth Fund of Spain, Inc. 3,000 $38,250
G.T. Global Developing Markets Fund 3,000 $34,875
G.T. Global Greater Eastern Europe Fund 2,000 $25,750
Hong Kong Country Basket Index Fund 1,000 $33,000
Italy Fund, Inc. 1,000 $8,750
Japan Country Basket Index Fund 1,000 $32,250
Jardine Fleming China Region Fund 1,000 $11,375
Latin America Growth Fund 1,000 $9,750
Latin America Investment Fund 1,000 $15,750
Mexico Equity & Income Fund 1,000 $9,500
Mexico Fund 1,000 $15,000
Morgan GrenFell Small Cap Fund 2,000 $21,000
Morgan Stanley Africa Investment Fund 1,000 $13,625
(Continued)
<PAGE>
<CAPTION>
Portfoilio of Investments as of December 31, 1996 (Continued)
<S> <C> <C>
Morgan Stanley Asia Fund 2,000 $19,500
New Germany Fund 3,000 $40,125
Portugal Fund 3,000 $41,250
Scudder New Asia Fund, Inc. 1,000 $12,500
Scudder New Europe Fund 1,000 $13,875
Southern Africa Fund, Inc. 1,000 $14,625
TCW/DW Emerging Markets Opportunity Fund 1,000 $11,125
Templeton China World Fund 2,000 $26,500
Templeton Dragon Fund, Inc. 1,000 $16,125
Templeton Global Income Fund 3,000 $21,375
Templeton Vietnam Opportunities Fund 2,000 $23,500
The Spain Fund, Inc. 2,000 $22,750
Tri-Continental Corporation 1,000 $24,125
World Equity Benchmark Shares - Japan 1,000 $13,062
Worldwide Dollarvest Fund 1,000 $13,250
Worldwide Value Fund 1,000 $22,000
-------
TOTAL CLOSED END MUTUAL FUNDS (Cost $1,209,008) $1,207,624
----------
COMMON STOCKS - 3.5%
Aetrium, Inc. 1,000 $13,250
Aseco Corporation 1,000 $11,625
Bel Fuse, Inc. 1,000 $14,125
Buffets, Inc. 3,000 $27,375
Cavalier Homes, Inc. 1,000 $11,500
Cohu, Inc. 1,000 $23,250
Devon Group 1,000 $27,500
Electroglas, Inc. 1,000 $16,125
In Focus Systems, Inc. 100 $2,163
Merix, Corporation 1,000 $15,250
Microtest, Inc. 1,000 $9,750
Tencor Instruments 1,000 $26,375
Ultratech Stepper, Inc. 1,000 $23,750
Zoom Telephonics 1,000 $10,125
-------
TOTAL COMMON STOCKS (Cost $231,266) $232,163
--------
TOTAL INVESTMENTS - 100% (Cost $6,613,062) $6,610,692
==========
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<S> <C>
Assets:
Investments at Market Value (Cost of $6,613,062) $6,610,692
Cash 334,371
Receivable for capital stock sold 76,785
Dividends receivable 30,227
Unamortized organizational costs 71,194
Receivable from advisor 8,767
Prepaid expense 7,062
------------
Total Assets $7,139,098
------------
Liabilities:
Payable for securities purchased 226,573
Payable for capital stock redeemed 4,792
Dividends payable 95
Other accrued liabilities 101,568
------------
Total Liabilities $333,028
------------
Net Assets:
Capital 6,808,440
Net unrealized gain (loss) on investments (2,370)
------------
Net Assets $6,806070
============
Capital Stock Outstanding 672,022
------------
Net Asset Value and Offering Price Per Share $10.13
------------
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
For the period October 1, 1996 * Through December 31, 1996
<S> <C>
Investment Income:
Interest $373
Dividends 67,203
----------
Total Investment Income $67,576
----------
Fund Expenses:
Investment advisory fees 2,364
Audit fees 10,000
Custodian fees 1,541
Printing and postage 2,873
Transfer agent and accounting fees 6,110
Registration and filing fees 5,520
Amortization of organization expense 3,778
Trustee fees 6,762
Administrative fees 6,881
Distribution expense 2,364
Shareholder service fee 788
Insurance expense 1,112
Other expenses 184
----------
Total Expenses 50,277
Management fees waived by advisor (2,364)
Reimbursement of expenses by advisor (39,693)
----------
Total Expenses - net $8,220
----------
Investment Income - net $59,356
----------
Realized and Unrealized Gain (Loss)
On investment - net:
Net realized gain 65,717
Change in unrealized depreciation of investments (2,370)
----------
Net Gain On Investments $63,347
----------
Net Increase In Net Assets Resulting From Operations $122,703
========
<FN>
* Date of commencement of operations
</FN>
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
For the period October 1, 1996 * Through December 31, 1996
<S> <C>
Increase (Decrease) In Net Assets:
Operations:
Net investment income $59,356
Net realized gain on investments 65,717
Net change in unrealized depreciation of investments (2,370)
----------
Net increase in net assets resulting from operations $122,703
----------
Dividends And Distributions To Shareholders From:
Net investment income (59,356)
Net realized gain from investment transactions (65,717)
----------
Net decrease in net assets resulting from dividends and distributions ($125,073)
----------
Capital Share Transactions:
Net proceeds from sales 6,694,304
Reinvestment of dividends 124,978
Cost of redemptions (10,842)
----------
Net increase in net assets resulting from capital share transactions $6,808,440
----------
Total Increase In Net Assets $6,806,070
Net Assets - Beginning Of Period --
----------
Net Assets - End Of Period $6,806,070
==========
Changes In Shares Outstanding:
Shares sold 660,748
Shares issued in connection with reinvestment of dividends 12,338
Shares redeemed (1,064)
----------
Net increase 672,022
==========
<FN>
* Date of commencement of operations
</FN>
See accompanying notes to financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Selected per share data and ratios for an average share outstanding during the period
FOR THE PERIOD
OCTOBER 1, 1996 (2)
THROUGH DECEMBER 31, 1996
<S> <C>
Net Asset Value, Beginning of Period $10.00
Income from Investment Operations
Net investment income $0.09
Net gains or losses on securities
(both realized and unrealized) $0.23
----------
Total From Investment Operations $0.32
----------
Less Distributions
Dividends (from net investment income) ($0.09)
Distributions in excess of net investment income ($0.10)
----------
Total Distributions ($0.19)
----------
Net Asset Value, End of Period $10.13
==========
Total Return 3.22%
Ratios/Supplemental Data
Net Assets, End of Period $6,806,070
Ratio of Expenses to Average Net Assets (1) 2.39%
Ratio of Net Investment Income to Average Net Assets (1)(3) 17.25%
Portfolio Turnover Rate 18.77%
Ratio of Expenses to Average Net Assets, before waiver of fees 14.61%
Ratio of Net Investment Income to Average Net Assets before
waiver of fees 5.03%
<FN>
(1) Annualized
(2) Date of commencement of operations
(3) This ratio is higher than it would usually be with a fund
of this type because it is an annualized amount using the
Net Investment Income of the Fund earned during the period,
October 1, 1996 through December 31, 1996, which included
year-end dividend and capital gains distributions.
</FN>
See accompanying notes to financial statements
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
1. ORGANIZATION
The PROACTIVE Asset Allocation Funds was organized in 1996 and is registered
under the Investment Company Act of 1940 as a non-diversified, open-end
management investment company. The OPTI-flex(R) Dynamic Fund (the "Fund")
commenced operations on October 1, 1996.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Investments - Securities which are traded on stock exchanges are valued at the
last sales price as of the close of business on the New York Stock Exchange on
the day of valuation, or, lacking any sales, at the closing bid prices. Mutual
funds are valued at the daily redemption value determined by the underlying
fund.
Money market securities maturing more than 60 days after the valuation date
are valued at the last sales price as of the close of business on the day of
valuation, or, lacking any sales, at the most recent bid price or yield
equivalent as obtained from dealers that make markets in such securities. When
such securities are valued within 60 days or less to maturity, the difference
between the valuation existing on the 61st day before maturity and maturity
value is amortized on a straight-line basis to maturity. Securities maturing
within 60 days from their date of acquisition are valued at amortized cost.
Repurchase Agreements - It is the Fund's policy to take possession of the
collateral for repurchase agreements before payment is made to the seller.
Market value of the collateral must be at least 100% of the amount of the
repurchase agreement.
Income Taxes -- It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to its shareholders. Therefore, no
Federal income tax provision is required.
Organizational Costs -- The cost related to the organization of the Fund has
been deferred and is being amortized on a straight-line basis over a five year
period.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1996
3. INVESTMENT ADVISORY AGREEMENT
PROACTIVE Money Management, Inc. (PROACTIVE) provides the Fund with investment
management research, statistical, and advisory services. For such services,
the Fund pays monthly a fee based upon the average daily value of the Fund's
net assets at the following annual rates: 0.75% of average net assets up to
$500 million, 0.65% of average net assets exceeding $500 million. During the
period ended December 31, 1996, PROACTIVE voluntarily waived all of its
investment advisory fees in the Fund.
The Fund has adopted a distribution expense plan pursuant to Rule 12b-1 under
the Investment Company Act of 1940 (the "Plan"). Pursuant to the Plan, the
Fund may use as much as 75/100 of 1% of net assets annually to aid in the
distribution of shares. The Fund has adopted a service plan for using as much
as 25/100 of 1% of net assets annually to aid in the distribution of shares.
Certain officers and/or trustees of the Fund are officers and/or directors of
PROACTIVE.
4. CAPITAL SHARE TRANSACTIONS
At December 31, 1996, an indefinite number of shares of $0.10 par value stock
were authorized in the Fund and capital amounted to $6,808,440 in the Fund.
Transactions on capital stock are included elsewhere in this report.
5. PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of investments, excluding short-term investments and U.S.
Government and agency obligations for the year ended December 31, 1996 were as
follows:
Purchases Sales
--------- -----
OPTI-flex(R) $6,970,087 $335,043
As of December 31, 1996, the aggregate cost if investments and net unrealized
appreciation (depreciation) for Federal income tax purposes was comprised of
the following:
<TABLE>
<CAPTION>
Unrealized Unrealized Net Unrealized
Investment Appreciation Depreciation Depreciation
Cost of Investments of Investments of Investments
---- -------------- -------------- --------------
<S> <C> <C> <C> <C>
OPTI-flex(R) $6,613,062 $101,550 ($103,920) ($2,370)
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Trustees
The OPTI-flex(R) Dynamic Fund:
We have audited the accompanying statement of assets and liabilities
of the OPTI-flex(R) Dynamic Fund (Fund) including the portfolios of
investments as of December 31, 1996, and the related statement of operations,
statement of changes in net assets and the financial highlights for the period
indicated herein. These financial statements and the 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
audit.
We conducted our audit 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 verification of securities
owned as of December 31, 1996, by correspondence with the custodian and other
appropriate audit procedures. 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
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material aspects, the financial
position of the OPTI-flex(R) Dynamic Fund at December 31, 1996, the results of
its operations, the changes in its net assets and the financial highlights for
the period indicated herein, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Columbus, Ohio
January 31, 1997
<PAGE>
INVESTMENT ADVISOR
PROACTIVE Money Management, Inc.
DISTRIBUTOR
PROACTIVE Financial Services, Inc.
ADDRESS OF FUND, ADVISOR, & DISTRIBUTOR
500 Chesterfield Center, Suite 250
Chesterfield, MO 63017
800-873-3371
314-530-7575
CUSTODIAN
Star Bank, N.A.
Star Bank Center
425 Walnut Street
Cincinnati, OH 45202
TRANSFER AGENT & DIVIDEND
DISBURSING AGENT
Mutual Funds Service Company
6000 Memorial Drive
Dublin, OH 43017
888-587-3539
614-798-3149 (in Central Ohio)
LEGAL COUNSEL
Armstrong, Teasdale, Schlafly, & Davis
One Metropolitan Square
St. Louis, MO 63102-2740
AUDITORS
KPMG Peat Marwick LLP
Two Nationwide Plaza
Columbus, OH 43215
