THE
PROACTIVE
ASSET ALLOCATION FUNDS
[LOGO] Sailboat
THE
OPTI-FLEX(R) DYNAMIC FUND
ANNUAL REPORT
DECEMBER 31, 1998
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
February 15, 1999
Dear Fellow Shareholders:
We are pleased that our 1998 total return of 7.28% was an improvement over our
1997 total return of 5.02%. Our 7.28% return was only slightly below the median
return 7.4% for over 2,000 mutual funds and indices in the FastTrack database
for 1998. However, we are not yet satisfied with our past performance on either
an absolute or relative performance basis. The first and third quarters of the
year were quite good for us, but we substantially underperformed the market in
the 2nd and 4th quarters of the year. We were happy that our positive
performance of +4.33% during the third quarter of the year, when most mutual
funds were losing money, was good enough to place us on the "Third Quarter Best
Performers" list by the Wall Street Journal, based on statistical data supplied
by Lipper Analytical Services. However our heavy weighting in the Caldwell &
Orkin Market Opportunity Fund, which helped us so much in the 3rd quarter, hurt
us in the 4th quarter by having a slight loss and holding our gain to only
+0.87%, while the stock market averages were rising considerably. See the
following chart for past performance comparison.
Past performance is not indicative 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 reduce the Fund value for amounts
invested in the Fund for less than one year.
[GRAPH] The following information was presented as a line graph:
OPTI-flex(R) DYNAMIC vs. Dow Jones World Stock Index
October 1, 1996 to December 31, 1998
OPTI-flex(R) Dow Jones World
DYNAMIC FUND Stock Index
------------ -----------
9/30/96 $10,000 $10,000
12/31/96 $10,322 $10,362
3/31/97 $10,403 $10,312
6/30/97 $11,014 $11,763
9/30/97 $11,565 $12,160
12/31/97 $10,840 $11,700
3/31/98 $11,685 $13,267
6/30/98 $11,051 $13,505
9/30/98 $11,529 $11,800
12/31/98 $11,629 $14,239
Annualized Since
Returns 1 year Inception
- - - ------- ------ ---------
OPTI-flex(R) 7.28% 6.94%
DJW-X 21.70% 17.01%
As you may know, my wife and I are the largest stockholders in the OPTI-flex(R)
DYNAMIC Fund, owning over 22% of the outstanding shares. Consequently I have a
common interest with you in attempting to manage the Fund according to its
objective, which 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." Although the first part of that objective is yet to be realized
over the life of the Fund, we have had to learn how to deal with some new
restrictions, and 2 1/4 years is not long enough to be considered the
"long-term". The 3rd quarter of last year gave us an opportunity to exhibit less
investment risk than the stock market averages, and we believe we did very well.
During that quarter, while our Fund was rising +4.33%, the Dow Jones World Stock
Index was falling -12.62%. We believe 1999 will give us a major opportunity to
show what we can do during an adverse stock market period. We believe we are
prepared for the challenge.
Thank you for the confidence that you continue to place in us. As of the above
date for 1999, our Fund is performing ahead of the Dow Jones World Stock
Average, the Dow Jones Composite Average, the S&P 500 Index and almost 80% of
the mutual funds and indices in the FastTrack database. Please note that we have
moved our offices to Lake St. Louis. You are most welcome to stop by and visit
with us the next time you are in the area. We are looking forward to providing
you and your family with superior service for many years to come.
Sincerely yours,
/s/ C. Martin Unterreiner
C. Martin Unterreiner,
OPTI-flex(R) Money Manager
2
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THE OPTI-flex(R) Dynamic Fund
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1998
SHARES VALUE
------------ ------------
MUTUAL FUNDS - 100.0%
Caldwell & Orkin Market Opportunity Fund 397,160 $ 8,217,230
Montgomery Global Long Short Fund 147,332 2,089,174
Oppenheimer Gold and Special Minerals Fund 92,789 858,298
Franklin Gold Fund 98,586 775,870
INVESCO Strategic Gold Fund # 383,734 725,257
Montgomery Partners Macro Cap Systematic Fund 10,826 124,930
Montgomery Partners Small Cap Systematic Fund 3,367 38,248
Flex-funds Money Market Fund 3,898 3,898
-----------
TOTAL MUTUAL FUNDS
(Cost $12,534,848) 12,832,905
-----------
TOTAL INVESTMENTS - 100%
(Cost $12,534,848) $ 12,832,905
===========
# Represents non-income producing security.
See accompanying notes to financial statements.
3
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THE OPTI-flex(R) Dynamic Fund
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
Assets:
Investments, at market
value (cost $12,534,848) $ 12,832,905
Interest receivable 24
Receivable from advisor 17,910
Unamortized organization costs 41,220
Prepaid expense and other assets 25,658
Total Assets 12,917,717
Liabilities:
Management fees payable 24,073
12b-1 fees payable 24,126
Organizational costs due to advisor 44,997
Shareholder services fees payable 7,333
Other accrued liabilities 25,706
Total Liabilities 126,235
Net Assets $ 12,791,482
Components of Net Assets:
Capital $ 12,537,410
Accumulated net investment (gain) loss (66,085)
Accumulated undistributed net realized gains
from investment transactions 22,100
Net unrealized appreciation of investments 298,057
Total Net Assets $ 12,791,482
Capital Stock Outstanding 1,222,987
Net Asset Value -- Offering and Redemption Price $ 10.46
Per Share
See accompanying notes to financial statements.
4
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THE OPTI-flex(R) Dynamic Fund
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
Investment Income:
Dividends $ 201,450
Interest 27,636
Total Investment Income 229,086
Fund Expenses:
Investment advisory fees 96,164
Distribution expense 96,164
Shareholder service fee 32,054
Transfer agent and accounting fees 31,427
Administrative fees 30,050
Registration and filing fees 29,399
Trustee fees 18,050
Amortization of organization costs 14,987
Audit fees 11,993
Insurance expense 9,770
Custodian fees 8,413
Other expenses 4,380
Total Expenses 382,851
Expenses voluntarily reimbursed by advisor (74,553)
12b-1 expenses reduced (7,192)
Net Expenses 301,106
Net Investment Income (Loss) (72,020)
Realized and Unrealized Gains from Investments
Net realized gains from investment transactions 640,705
Net change in unrealized appreciation
of investments 365,142
Net Realized and Unrealized Gains from
Investments 1,005,847
Net Increase in Net Assets Resulting
from Operations $ 933,827
See accompanying notes to financial statements.
5
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THE OPTI-flex(R) Dynamic Fund
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended Year Ended
December December
31, 1998 31, 1997
Increase (Decrease) In Net Assets:
Operations:
Net investment income (loss) $ (72,020)$ 35,805
Net realized gains from investment
transactions 640,705 476,703
Net change in unrealized appreciation
(depreciation) 365,142 (64,715)
Net Increase in Net Assets Resulting from
Operations 933,827 447,793
Dividends and Distributions to Shareholders:
From net investment income --- (29,870)
From net realized gains --- (476,703)
In excess of net realized gains --- (618,605)
Net Decrease in Net Assets Resulting from Di --- (1,125,178)
Capital Transactions:
Proceeds from shares subscribed 1,949,493 8,429,617
Reinvestment of dividends --- 1,095,529
Cost of shares redeemed (3,621,361) (2,124,308)
Net Increase (Decrease) in Net Assets
Resulting from Capital Transactions (1,671,868) 7,400,838
Total Increase (Decrease) In Net Assets (738,041) 6,723,453
Net Assets - Beginning of Period 13,529,523 6,806,070
Net Assets - End of Period $12,791,482 $13,529,523
Share Transactions:
Subscribed 194,882 802,295
Reinvested --- 112,362
Redeemed (359,249) (199,325)
Net Increase (Decrease) in Shares Outstanding (164,367) 715,332
See accompanying notes to financial statements.
6
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THE OPTI-flex(R) Dynamic Fund
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Year Ended Year Ended October 1, 1996 (1)
December 31, December 31, through December 31,
1998 1997 1996
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 9.75 $ 10.13 $ 10.00
Investment Operations:
Net investment income (loss) (0.06) 0.03 0.09
Net gains from investments (realized and unrealized) 0.77 0.47 0.23
Total 0.71 0.50 0.32
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)
Net Asset Value, End of Period $ 10.46 $ 9.75 $ 10.13
Total Return 7.28% 5.02% 3.22%(2)
Ratios/Supplemental Data:
Net assets, end of period (000) $ 12,791 $ 13,530 $ 6,806
Ratio of expenses to average net assets (5) 2.35% 2.35% 2.39%(3)
Ratio of net investment income (loss) to average net assets -0.56% 0.32% 17.25%(3)(4)
Ratio of expenses to average net assets, before voluntary 2.99% 3.33% 14.61%(3)
fee reductions (5)
Ratio of net investment income (loss) to average net assets -1.20% -0.66% 5.03%(3)
before voluntary fee reductions (5)
Portfolio turnover rate 1574.17% 1237.35% 18.77%
<FN>
(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.
</FN>
</TABLE>
See accompanying notes to financial statements.
7
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THE OPTI-flex(R) Dynamic Fund
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. ORGANIZATION
The PROACTIVE Asset Allocation Funds Trust 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"), a series of the PROACTIVE Asset
Allocation Fund, commenced operations on October 1, 1996. The Fund is authorized
to issue an indefinite number of shares of $0.10 par value stock. 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.
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.
Security Transactions - The Fund records purchases and sales of investments on
the trade date. The Fund calculates realized gains and losses from sales of
investments on the first-in first-out basis. Dividend income is recognized on
the ex-dividend date and interest income is recognized as earned.
Dividends and Distributions -- Dividends to shareholders are recorded on the
ex-dividend date. The Fund declares dividends from net investment income
annually. The Fund distributes net capital gains, if any, on an annual basis.
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
8
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THE OPTI-flex(R) Dynamic Fund
NOTES TO FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1998
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.
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. The amount paid by the Fund on any redemption by the stockholders of any
of the initial 10,000 shares will be reduced by a portion of any unamortized
organization expenses, determined by the proportion of the amount of the initial
shares redeemed to the aggregate amount of the initial shares then outstanding
after taking into account any prior redemptions of any of the initial shares.
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, 1998, PROACTIVE 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, 1998 fee waivers and reimbursements of
$81,745 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 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
For the year ended December 31, 1998, the cost of purchases and proceeds from
sales, excluding short-term investments and U.S. Government and agency
obligations were $201,228,809 and $199,854,902, respectively.
As of December 31, 1998, 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 Appreciation
Opti-flex
Dynamic Fund $12,534,848 $404,228 ($106,171) $298,057
5. FEDERAL TAX INFORMATION (UNAUDITED)
At December 31, 1998, the OPTI-flex(R) Dynamic Fund had unused capital loss
carryforwards of $1,175,074 available to offset future gains, if any, for
Federal income tax purposes. The capital loss carryforward expires 2006.
9
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THE OPTI-flex(R) Dynamic Fund
Independent Auditors' Report
The Shareholders and Board of Trustees of
The Proactive Asset Allocation Funds-The OPTI-flex(R) Dynamic Fund:
We have audited the accompanying statement of assets and liabilities of the
OPTI-flex(R) Dynamic Fund (the Fund), including the portfolio of investments, as
of December 31, 1998, and the related statement of operations, statements of
changes in net assets and the financial highlights for each of 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
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, 1998, 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 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 respects, the financial position of the
OPTI-flex(R) Dynamic Fund at December 31, 1998, the results of its operations,
the changes in its net assets and the financial highlights for each of the
periods indicated herein, in conformity with generally accepted accounting
principles.
KPMG LLP
Columbus, Ohio
February 19, 1999
10
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- - - --------------------------------------------------------------------------------
THE OPTI-FLEX(R) DYNAMIC FUND
- - - --------------------------------------------------------------------------------
INVESTMENT ADVISOR
PROACTIVE Money Management, Inc.
DISTRIBUTOR
PROACTIVE Financial Services, Inc.
ADDRESS OF FUND, ADVISOR, & DISTRIBUTOR
21 Hawk Ridge Circle
Lake St. Louis, MO 63366
800-873-3371
314-561-0100
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 LLP
Two Nationwide Plaza
Columbus, OH 43215
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[LOGO] Sailboat PROACTIVE Asset Allocation Funds
21 Hawk Ridge Circle
Lake St. Louis, MO 63366
