THE
PROACTIVE
ASSET ALLOCATION FUNDS
THE
OPTI-FLEX(R) DYNAMIC FUND
ANNUAL REPORT
DECEMBER 31, 1997
This report has been prepared for shareholders
and may be distributed to others only if preceded
or accompanied by a current prospectus.
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THE OPTI-FLEX(R) DYNAMIC FUND
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February 24, 1998
Dear Fellow Shareholders,
Since the Fund is normally invested globally, and since the Dow Jones World
Stock Index (DJW-X) is a broad measure of global stock prices, the DJW-X is our
benchmark for comparing the performance of the Fund. December 31, 1997 completed
our first full fiscal year for the Fund. During that period of time, the Fund
had a total return of 5.02%, with reinvestment of dividends and capital gains,
as compared to a 12.92% total return for the Dow Jones World Stock Index. Since
inception of the Fund on October 1, 1996, the Fund had a total return of 8.4%,
with reinvestment of dividends and capital gains, as compared to a 17.0% total
return for the Dow Jones World Stock Index. The average annual total return
since inception for the Fund was 6.7% as compared to 13.6% for the Dow Jones
World Stock Index.
The following information was presented as a line graph:
VALUE OF $10,000:
October 1, 1996* December 31, 1997
---------------- -----------------
The OPTI-flex(R) Dynamic Fund $10,000 $10,840
Dow Jones World Stock Index $10,000 $11,700
* Inception date of the Fund.
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 only reduce the Fund value for amounts
invested in the Fund for less than one year.
Economic conditions were generally favorable during 1997; with low inflation,
moderate economic growth, and good corporate profit growth. However, a 1/4
percent hike in U. S. short-term interest rates on March 25th, sent most markets
lower during March and early April. Following a good rally in the stock markets
during the next few months, currency difficulties developed in Asia that caused
most stock markets around the world to head lower during the last quarter of the
year. One of the factors that restricted our ability to manage the Fund as we
would have liked during 1997 was the 30% short-short rule. That rule has made it
difficult for a mutual fund to receive more than 30% of its gains from the sale
of securities held less than three months. That rule both restricted our
investment flexibility during the year and made it necessary for us to purchase
some funds in the fourth quarter of the year to receive offsetting qualifying
dividends. We are pleased that the 30% short-short rule has now been repealed
and expect that the Fund will not need to be concerned about it in the future.
As you can see from our Portfolio of Investments as of December 31, 1997, we
were rather conservatively invested at that time. We have since become more
aggressively invested. Because of the repeal of the 30% short-short rule, other
mutual funds may now also be more flexible in their management. We do not expect
most mutual funds to become any more flexibly managed in the future than they
have been in the past. However, the change in the rule allows for a whole new
breed of flexibly managed mutual funds that have not been available to the
general public in the past. We are diligently searching for well-managed active
funds of this type and expect to build a significant part of our portfolio
around such funds. Our first investment in such a fund began on February 6,
1998.
We thank you for your patience during the past year. We look forward to being
able to provide you with superior service over the coming years.
Sincerely yours,
C. Martin Unterreiner, Jeffrey J. Unterreiner,
Portfolio Manager Chairman
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THE OPTI-FLEX(R) DYNAMIC FUND
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PORTFOLIO OF INVESTMENTS
December 31, 1997
Shares Value
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MUTUAL FUNDS - 100%
American Century Utilities Fund 92,924 $ 1,323,231
Caldwell & Orkin Market Opportunity Fund 219,948 3,926,066
Franklin Utilities Fund 118,721 1,321,370
Invesco Strategic Utilities Fund 52,855 711,955
Invesco U.S. Government Securities Bond Fund 156,370 1,204,047
Montgomery Short-Duration Government Bond Fund 118,572 1,197,572
Oppenheimer U.S. Government Fund 122,565 1,183,980
Robertson Stephens Partners Fund 95 1,570
Star Treasury Fund 1,897,564 1,897,564
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TOTAL MUTUAL FUNDS
(Cost $12,834,440) 12,767,355
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TOTAL INVESTMENTS - 100%
(Cost $12,834,440) $ 12,767,355
==============
See accompanying notes to financial statements.
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THE OPTI-FLEX(R) DYNAMIC FUND
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STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
Assets:
Investments, at market value (cost $12,834,440) $ 12,767,355
Cash 729,029
Receivable for capital stock sold 306,171
Interest receivable 9,962
Dividends receivable 7,444
Unamortized organization costs 56,207
Prepaid expense and other assets 21,253
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Total Assets 13.897,421
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Liabilities:
Payable for capital stock redeemed 229,681
Dividends payable 29,649
12b-1 fees payable 15,328
Organizational costs due to advisor 56,217
Shareholder services fees payable 15,545
Other accrued liabilities 21,478
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Total Liabilities 367,898
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Net Assets $ 13,529,523
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Components of Net Assets:
Capital $ 14,209,278
Accumulated undistributed net investment income 5,935
Accumulated undistributed net realized losses from
investment transactions (618,605)
Net unrealized depreciation of investments (67,085)
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Total Net Assets $ 13,529,523
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Capital Stock Outstanding 1,387,354
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Net Asset Value - Offering and Redemption Price Per Share $ 9.75
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See accompanying notes to financial statements.
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THE OPTI-FLEX(R) DYNAMIC FUND
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STATEMENT OF OPERATIONS
For the Year Ended December 31, 1997
Investment Income:
Interest $ 46,313
Dividends 252,121
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Total Investment Income 298,434
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Fund Expenses:
Investment advisory fees 83,620
Audit fees 12,002
Custodian fees 11,352
Trustee fees 31,706
Legal fees 1,225
Amortization of organization costs 14,987
Registration and filing fees 33,561
Insurance expense 8,380
Administrative fees 30,278
Printing and postage expense 1,760
Distribution expense 83,620
Shareholder service fees 27,873
Transfer agent and accounting fees 28,323
Other expenses 3,082
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Total expenses 371,769
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Expenses voluntarily waived by advisor (107,697)
12b-1 expenses reduced (1,443)
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Net Expenses 262,629
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Net investment income 35,805
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Realized and Unrealized Gains (Losses) from investments:
Net realized gains from investment transactions 476,703
Net change in net unrealized depreciation of investments (64,715)
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Net Realized and Unrealized Gains from Investments 411,988
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Net Increase in Net Assets Resulting from Operations $ 447,793
===============
See accompanying notes to financial statements.
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THE OPTI-FLEX(R) DYNAMIC FUND
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STATEMENT OF CHANGES IN NET ASSETS
Year Ended 10/1/96 (1)
December 31, through
1997 12/31/96
Increase (Decrease) in Net Assets:
Operations:
Net investment income $ 35,805 $ 59,356
Net realized gains from investment
transactions 476,703 65,717
Net change in unrealized depreciation
of investments (64,715) (2,370)
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Net Increase in Net Assets Resulting
from Operations 447,793 122,703
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Dividends and Distributions to Shareholders:
From net investment income (29,870) (59,356)
From net realized gains (476,703) (65,717)
In excess of net realized gains (618,605) --
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Net Decrease in Net Assets Resulting from
Dividends and Distributions to Shareholders (1,125,178) (125,073)
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Capital Transactions:
Proceeds from shares subscribed 8,429,617 6,694,304
Reinvestment of dividends 1,095,529 124,978
Cost of shares redeemed (2,124,308) (10,842)
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Net Increase in Net Assets Resulting from
Capital Transactions 7,400,838 6,808,440
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Total Increase in Net Assets 6,723,453 6,806,070
Net Assets - Beginning of Period 6,806,070 --
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Net Assets - End of Period $ 13,529,523 $ 6,806,070
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Share Transactions:
Subscribed 802,295 660,748
Reinvested 112,362 12,338
Redeemed (199,325) (1,064)
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Net Increase in Shares Outstanding 715,332 672,022
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(1) Date of commencement of operations
See accompanying notes to financial statements.
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THE OPTI-FLEX(R) DYNAMIC FUND
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FINANCIAL HIGHLIGHTS
Year Ended 10/1/96 (1)
December 31, through
1997 12/31/96
Net Asset Value, Beginning of Period $ 10.13 $ 10.00
Investment Operations:
Net investment income 0.03 0.09
Net gains from investments (realized
and unrealized) 0.47 0.23
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Total 0.50 0.32
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Distributions:
From net investment income (0.02) (0.09)
From net realized gains (0.38) (0.10)
In excess of net realized gains (0.48) --
Total (0.88) (0.19)
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Net Asset Value, End of Period $ 9.75 $ 10.13
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Total Return 4.94% 3.22%(2)
Ratios/Supplemental Data:
Net assets, end of period (000) $ 13,530 $ 6,806
Ratio of expenses to average net assets (5) 2.35% 2.39%(3)
Ratio of net investment income to average
net assets (5) 0.32% 17.25%(3)(4)
Ratio of expenses to average net assets,
before voluntary fee reductions (5) 3.33% 14.61%(3)
Ratio of net investment income (loss) to average
net assets before voluntary fee reductions (5) -0.66% 5.03%(3)
Portfolio turnover rate 1,237.35% 18.77%
Average commission rate paid $ 0.0175 $ 0.0281
(1) Date of commencement of operations.
(2) Not annualized.
(3) Annualized.
(4) This ratio is higher than normal for a fund of this type because it is an
annualized ratio based on the net investment income earned during the
period which included annual dividends from its investment holdings.
(5) These ratios exclude the expenses of the mutual funds in which the Fund
invests.
See accompanying notes to financial statements.
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THE OPTI-FLEX(R) DYNAMIC FUND
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NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION
The PROACTIVE Asset Allocation Funds was organized in 1996 and is registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as a
non-diversified, open-end management investment company. The OPTI-FLEX(R)
DYNAMIC Fund (the "Fund") commenced operations on October 1, 1996. The Fund is
authorized to issue an indefinite number of shares of $0.10 par value stock.
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 of 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 sixty 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 sixty days or less to maturity, the difference
between the valuation existing on the sixty-first day before maturity and
maturity value is amortized on a straight-line basis to maturity. Securities
maturing within sixty days from their date of acquisition are valued at
amortized cost.
Repurchase Agreements -- The Fund may engage in repurchase agreement
transactions whereby the Fund takes possession of an underlying debt instrument
subject to an obligation of the seller to repurchase the instrument from the
Fund and an obligation of the Fund to resell the instrument at an agreed upon
price and term. At all times, the Fund maintains the value of collateral,
including accrued interest, at least 100% of the amount of the repurchase
agreement, plus accrued interest. If the seller defaults or the fair value of
the collateral declines, realization of the collateral by the Fund may be
delayed or limited.
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.
Dividends and Distributions - The amounts of dividends from net investment
income and of distributions from net realized gains are determined in accordance
with federal income tax regulations which may differ from generally accepted
accounting principles. These "book/tax" differences are either considered
temporary or permanent in nature. To the extent these differences are permanent
in nature, such amounts are reclassified within the composition of net assets
based on their federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions to shareholders which exceed net
investment income and net realized capital gains for financial reporting
purposes but not for tax purposes are reported as dividends in excess of net
investment income or distributions in excess of net realized gains.
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THE OPTI-FLEX(R) DYNAMIC FUND
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
To the extent they exceed net investment income and net realized gains for tax
purposes, they are reported as distributions of capital. Under current tax law,
capital losses realized after October 31, 1997 may be deferred and treated as
occurring on the first day of the year ended December 31, 1998 (Post-October
Losses"). The Fund had losses of $1,815,779 which have been deferred. These
Post-October Losses are the primary reason for the $618,605 of dividends in
excess of net realized capital gains.
Organizational Costs -- Costs related to the organization of the Fund have been
deferred and are being amortized on a straight-line basis over a five-year
period.
3. AGREEMENTS AND TRANSACTIONS WITH AFFILIATES
PROACTIVE Money Management, Inc. (the "Advisor") 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
year ended December 31, 1997, the Advisor voluntarily reimbursed expenses of the
Fund so that total expenses of the Fund would not exceed 2.40% of average daily
net assets.
During the year ended December 31, 1997 fee waivers and reimbursements of
$109,140 were required to achieve the recorded expense ratios. To the extent the
Fund does not increase net assets, the Fund is reliant upon the ability of the
investment advisor to continue to provide fee waivers and reimbursements. The
investment advisor is dependent upon achieving its own financial goals,
including targeted increases in the Fund's net assets through net sales of fund
shares, in order to provide such support to the Fund.
Pursuant to Rule 12b-1 of the Act, the Fund has adopted a Distribution Plan (the
"Plan") with PROACTIVE Financial Services, Inc. (the "Distributor"). Under the
provisions of the Plan, the Fund pays the Distributor an annual fee, at a
maximum rate of 0.75% of average daily net assets of the Fund, to aid in the
distribution of Fund shares. Additionally, the Fund has adopted a Service Plan
with the Distributor. Under the provisions of the Service Plan, the Fund pays
the Distributor an annual fee, at a maximum rate of 0.25% of average daily net
assets of the Fund, to reimburse securities dealers for personal services or
maintenance of shareholder accounts.
Certain officers and trustees of the Fund are also officers or directors of the
Advisor and the Distributor.
4. 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, 1997 were as
follows:
PURCHASES SALES
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OPTI-FLEX(R)DYNAMIC FUND $137,841,435 $130,606,836
As of December 31, 1997, the aggregate cost of investments and net unrealized
appreciation (depreciation) for Federal income tax purposes was comprised of the
following:
INVESTMENTS UNREALIZED UNREALIZED NET UNREALIZED
AT COST APPRECIATION DEPRECIATION DEPRECIATION
OPTI-FLEX(R)
DYNAMIC FUND $12,886,731 $5,198 ($124,574) ($119,376)
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THE OPTI-FLEX(R) DYNAMIC FUND
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INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Trustees
The PROACTIVE Asset Allocation Funds --
The OPTI-FLEX(R) DYNAMIC Fund:
We have audited the accompanying statement of assets and liabilities of The
PROACTIVE Asset Allocation Funds - The OPTI-FLEX(R) DYNAMIC Fund (Fund)
including the portfolio of investments as of December 31, 1997, and the related
statement of operations, statements of changes in net assets and the financial
highlights for the periods 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 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 verification of securities owned as of
December 31, 1997, by confirmation 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 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 The
PROACTIVE Asset Allocation Funds - The OPTI-FLEX(R) DYNAMIC Fund at December 31,
1997, the results of its operations, the changes in its net assets and the
financial highlights for the periods indicated herein, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Columbus, Ohio
February 12, 1998
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THE OPTI-FLEX(R) DYNAMIC FUND
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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
