MORGAN KEEGAN SELECT FUND INC, 485APOS, 2000-06-06

MORGAN KEEGAN SELECT FUND INC
485APOS, 2000-06-06

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As filed with the Securities and Exchange Commission on June 6, 2000.

1933 Act Registration No. 333-66181
1940 Act Registration No. 811-09079

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 2
--

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 3
--

MORGAN KEEGAN SELECT FUND, INC.
-------------------------------
(Exact Name of Registrant as Specified in Charter)

MORGAN KEEGAN TOWER
FIFTY FRONT STREET
MEMPHIS, TENNESSEE 38103
------------------------
(Address of Principal Executive Offices-Zip Code)

Registrant's Telephone Number, including Area Code: (901) 524-4100

ALLEN B. MORGAN, JR.
--------------------
MORGAN KEEGAN TOWER, MEMPHIS, TENNESSEE 38103
---------------------------------------------
(Name and Address of Agent for Service)

Copies to:

ARTHUR J. BROWN, ESQ.
---------------------
Kirkpatrick & Lockhart LLP
1800 Massachusetts Ave., N.W.
Washington, D.C. 20036-1800
Telephone: (202) 778-9000

APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after the
effective date of this Registration Statement.

It is proposed that this filing will become effective (check appropriate
box).

-----
/ / immediately upon filing pursuant to paragraph (b) of Rule 485
-----
/ / on pursuant to paragraph (b) of Rule 485.
-----
/ / 60 days after filing pursuant to paragraph (a)(1).
-----
/ / on pursuant to paragraph (a)(1).
-----
/ XXX / 75 days after filing pursuant to paragraph (a)(2).
-----
/ / on pursuant to paragraph (a)(2) of Rule 485.
-----

If appropriate, check the following box:

-----
/ / This post-effective amendment designates a new effective date
----- for a previously filed post-effective amendment.

The Growth Stock and Utilities Stock Portfolios have also executed this
Registration Statement.

<PAGE>

MORGAN KEEGAN SELECT FUND, INC.

PROSPECTUS CORE EQUITY FUND
__, 2000
UTILITY FUND

[LOGOS]

Morgan Keegan Select Funds are a family of funds that include the Core
Equity Fund and the Utility Fund.

This Prospectus gives you important information about the funds that you
should know before you invest. Please read this Prospectus carefully and keep it
handy for future reference.

The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the adequacy of this Prospectus. Any
representation to the contrary is a criminal offense.

Morgan Keegan & Company, Inc.
Morgan Keegan Tower
Fifty Front Street
Memphis, Tennessee 38103
(901) 524-4100
(800) 366-7426

Internet: WWW.MORGANKEEGAN.COM

<PAGE>

CONTENTS

THE FUNDS

A fund by fund look at Core Equity Fund _____
investment goals, strategies, Utility Fund _____
risks, performance and expenses

Information on who may want to Who May Want to Invest _____
invest and who may not want to invest

More information about the funds More Information about the Funds _____
you should know before investing Who Manages the Funds? _____
How is the Company Organized? _____
How Does Taxation Affect the
Funds and Their Shareholders? _____

SHAREHOLDER MANUAL

Information about account How to Buy Shares _____
transactions and services Distribution Fees _____
How to Make Withdrawals
(Redemptions) _____
Transaction Policies _____
Tax-Deferred Retirement Plans _____
Other Shareholder Services _____

MORE ABOUT RISK

Investment Practices, Securities
and Related Risks _____
Risk and Investment Glossary _____

FOR MORE INFORMATION

Where to learn more about the funds Back Cover

2
<PAGE>

CORE EQUITY FUND
[TICKER SYMBOL]

[ICON] INVESTMENT GOAL

The fund seeks growth of capital. To pursue this goal, the fund
invests in a diversified portfolio of domestic common stocks with
greater than average growth characteristics selected primarily from
the Standard & Poor's 500 Composite Stock Price Index. Current income
is not a primary objective.

[ICON] PRINCIPAL INVESTMENT STRATEGIES

The fund invests all of its assets in the Growth Stock Portfolio, a
master fund having the same investment goal as the fund. See "Each
Fund's Investment in a Portfolio" under "More Information About the
Funds." Normally, at least 80% of the Portfolio's total assets will be
invested in domestic common stocks and at least 65% of the Portfolio's
total assets will be invested in growth stocks. At least 70% of the
Portfolio's assets invested in common stocks will be invested in S&P
500 stocks.

The Portfolio consists of investment portfolios representing each of
the industry sectors comprising the S&P 500: utilities,
transportation, capital goods, consumer durables, consumer
non-durables, energy, materials and services, finance, technology and
health. The Portfolio's assets will be allocated to each of these
industry sectors in approximately the same proportion as these
industry sectors are represented in the S&P 500 on a
market-capitalization weighted basis.

The assets of the Portfolio representing each of these industry
sectors are managed by one or more separate investment advisers.

The Portfolio may invest in "traditional" derivatives, such as
financial futures contracts and related options as a hedge against
changes, resulting from market conditions, in the value of securities
held or intended to be held by the Portfolio.

The fund's investment goal is not fundamental and may be changed
without shareholder approval.

For more information, see "How Does the Fund Pursue Its Investment
Goal?" under "More Information About the Funds."

[ICON] PRINCIPAL RISKS

The value of your investment will fluctuate in response to stock
market movements. To the extent that the fund invests in higher risk
securities, it encounters additional risks that could adversely affect
its performance. The use of several sector advisers or the replacement
of a sector adviser may increase the Portfolio's turnover, gains or
losses, and brokerage commissions. As with any mutual fund, loss of
money is a risk of investing in this fund. Please read "More About
Risk" carefully before investing.

3
<PAGE>

PERFORMANCE

THE CORE EQUITY FUND

The Core Equity Fund was organized in May 2000, and has had no investment
activity prior to the date of this Prospectus.

The Core Equity Fund will invest all of its investable assets in the
Growth Stock Portfolio which, including its predecessor, has an investment
history dating back to 1988. The Gross Annual Return in the table below is based
upon the actual historical gross return of the Growth Stock Portfolio for the
period shown. The net annual returns depicted below should not be considered as
an indication of actual performance for The Core Equity Fund.

The Core Equity Fund and the Growth Stock Portfolio have a common
investment objective which is growth of capital. The Core Equity Fund seeks to
achieve its objective by investing all of its investable assets in the Growth
Stock Portfolio. This table is an illustration of investment results utilizing
the same investment strategy for periods which preceded the existence of The
Core Equity Fund.

YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>

A SHARES 1999 1998 1997 1996 1995
-------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Growth Stock Portfolio
Gross Annual Return* 22.72% 25.36% 31.15% 10.73% 26.25%

Total Annual Operating Expenses
for The Core Equity Fund Class A Shares** -2.00% -2.00% -2.00% -2.00% -2.00%

Net Annual Return 20.72% 23.36% 29.15% 8.73% 24.25%

<FN>
*The Gross Annual Return reported above assumes reinvestment of all dividend
income. The Gross Annual Return represents past performance of the Growth Stock
Portfolio and is no assurance of future performance of The Core Equity Fund
Class A shares.

**The distributor has agreed to absorb expenses to the extent necessary to limit
the fund's total annual operating expenses for Class A shares to 2.00% of
average daily net assets. The distributor may terminate this agreement after
December 31, 2000.
</FN>
</TABLE>

YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>

C SHARES 1999 1998 1997 1996 1995
-------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Growth Stock Portfolio
Gross Annual Return* 22.72% 25.36% 31.15% 10.73% 26.25%

<PAGE>

Total Annual Operating Expenses
for The Core Equity Fund Class C Shares** -2.75% -2.75% -2.75% -2.75% -2.75%

Net Annual Return 19.97% 22.61% 28.40% 7.98% 23.50%

<FN>

*The Gross Annual Return reported above assumes reinvestment of all dividend
income. The Gross Annual Return represents past performance of the Growth Stock
Portfolio and is no assurance of future performance of The Core Equity Fund
Class C shares.

**The distributor has agreed to absorb expenses to the extent necessary to limit
the fund's total annual operating expenses for Class C shares to 2.75% of
average daily net assets. The distributor may terminate this agreement after
December 31, 2000.

</FN>
</TABLE>

YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>

I SHARES 1999 1998 1997 1996 1995
-------- ---- ---- ---- ---- ----

<S> <C> <C> <C> <C> <C>
Growth Stock Portfolio
Gross Annual Return* 22.72% 25.36% 31.15% 10.73% 26.25%

Total Annual Operating Expenses
for The Core Equity Fund Class I Shares** -1.75% -1.75% -1.75% -1.75% -1.75%

Net Annual Return 20.97% 23.61% 29.40% 8.98% 24.50%

<FN>

**The distributor has agreed to absorb expenses to the extent necessary to limit
the fund's total annual operating expenses for Class I shares to 1.75% of
average daily net assets. The distributor may terminate this agreement after
December 31, 2000.

</FN>
</TABLE>

[ICON] FEES AND EXPENSES OF THE FUND

The following table describes the fees and expenses that you may pay if you
buy and hold shares of the fund.

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

CLASS A CLASS C CLASS I

Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price 3.00%1 None None

Maximum Deferred Sales Charge (Load) (as a
percentage of offering price or redemption
proceeds, as applicable) None 1.00%2 None
Exchange fee None None None

5
<PAGE>

1 The sales charge declines as the amount invested increases. See "How to
Buy Shares."

2 A deferred sales charge on Class C shares applies only if redemption
occurs within one year from purchase. See "How to Buy Shares" and "How to
Make Withdrawals (Redemptions)."

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND
ASSETS)3

CLASS A CLASS C CLASS I

Management Fees 1.00% 1.00% 1.00%
Distribution and Service (12b-1) Fees 0.25% 1.00% 0.00%
Other Expenses4 0.75% 0.75% 0.75%
----- ----- -----
Total Annual Fund Operating Expenses 2.00% 2.75% 1.75%

3 This table and the Example below reflect the expenses of the fund and its
proportionate share of expenses from its corresponding Portfolio. See "Each
Fund's Investment in a Portfolio" under "More Information About the Funds."

4 "Other Expenses" are based upon estimated amounts for the current fiscal
year.

EXAMPLE

The example in the table below is intended to help you compare the cost of
investing in the fund with the cost of investing in other mutual funds.

Assuming you

o invest $10,000 in the fund
o redeem your shares at the end of the periods shown below
o earn a 5% return each year and
o incur the same fund operating expenses shown above,

your cost of investing in the fund would be:

1 YEAR 3 YEARS
------ -------

Class A $497 $909
Class C $380 $853
Class I $178 $551

6
<PAGE>

You would pay the following expenses if you did not redeem your shares:

1 YEAR 3 YEARS
------ -------

Class A $497 $909
Class C $278 $853
Class I $178 $551

Of course, your actual costs may be higher or lower.

7
<PAGE>

UTILITY FUND
[TICKER SYMBOL]

[ICON] INVESTMENT GOAL

The fund seeks current income and growth of income by investing
primarily in equity securities of domestic and foreign public utility
companies; however, the fund will not invest in electric utilities
that generate power from nuclear reactors. The fund also seeks capital
appreciation, but only when consistent with its primary investment
objective.

[ICON] PRINCIPAL INVESTMENT STRATEGIES

The fund invests all of its assets in The Utilities Stock Portfolio, a
master fund having the same investment goal as the fund. See "Each
Fund's Investment in a Portfolio" under "More Information About the
Funds." The Portfolio generally invests at least 65% of its total
assets in equity securities of domestic or foreign companies that
provide electricity, natural gas, water, telecommunications or
sanitary services to the public. The remaining 35% of the Portfolio's
total assets may be invested in debt securities of public utility
companies, or debt or equity securities of other issuers who stand to
benefit from developments in the utilities industry.

The subadviser utilizes fundamental analysis to identify those
securities that it believes provide current income and growth of
income. Fundamental analysis involves assessing a company and its
business environment, management, balance sheet, income statement,
anticipated earnings and dividends, and other related measures of
value.

Except for the Portfolio's concentration policy, none of the
Portfolio's investment goals are fundamental and may be changed
without shareholder approval.

For more information, see "How Does the Fund Pursue Its Investment
Goals?" under "More Information About the Funds."

[ICON] PRINCIPAL RISKS

Utility stocks are subject to interest rate risk - i.e., price
fluctuations due to changing interest rates. Rising interest rates can
be expected to reduce the fund's net asset value. Because the fund
concentrates in the utility industry, its performance is largely
dependent on the utility industry's performance, which may differ from
that of the overall stock market. Governmental regulation of public
utility companies can limit their ability to expand their business or
to pass cost increases on to customers. Companies providing power or
energy-related services may also be affected by fuel shortages or cost
increases, environmental protection or energy conservation
regulations, as well as fluctuating demand for their services.
Investments in securities of foreign companies involve additional
risks relating to political and economic developments abroad,
including currency fluctuations. As with any mutual fund, loss of
money is a risk of investing in the fund. Please read "More About
Risk" carefully before investing.

8
<PAGE>

PERFORMANCE

THE UTILITY FUND

The Utility Fund was organized in May 2000, and has had no investment
activity prior to the date of this Prospectus.

The Utility Fund will invest all of its investable assets in the Utilities
Stock Portfolio which, including its predecessor, has an investment history
dating back to 1995. The Gross Annual Return in the table below is based upon
the actual historical gross return of the Utilities Stock Portfolio for the
period shown. The net annual returns depicted below should not be considered as
an indication of actual performance for The Utility Fund.

The Utility Fund and the Utilities Stock Portfolio have a common investment
objective which is current income and growth of income by investing primarily in
equity securities of domestic and foreign public utility companies; however, the
fund will not invest in electric utilities that generate power from nuclear
reactors. The fund also seeks capital appreciation, but only when consistent
with its primary investment objective. The Utility Fund seeks to achieve its
objective by investing all of its investable assets in the Utilities Stock
Portfolio. This table is an illustration of investment results utilizing the
same investment strategy for periods which preceded the existence of The Utility
Fund.

YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>

A SHARES 1999 1998 1997 1996 1995
-------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Utilities Stock Portfolio
Gross Annual Return* 21.81% 10.57% 30.48% 14.58% 16.25%

Total Annual Operating Expenses
for The Utility Fund Class A Shares** -2.00% -2.00% -2.00% -2.00% -2.00%

Net Annual Return 19.81% 8.57% 28.48% 12.58% 14.25%

<FN>

*The Gross Annual Return reported above assumes reinvestment of all dividend
income. The Gross Annual Return represents past performance of the Utilities
Stock Portfolio and is no assurance of future performance of The Utility Fund
Class A shares.

</FN>
</TABLE>

9
<PAGE>

YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>

C SHARES 1999 1998 1997 1996 1995
-------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Utilities Stock Portfolio
Gross Annual Return* 21.81% 10.57% 30.48% 14.58% 16.25%

Total Annual Operating Expenses
for The Utility Fund Class C Shares** -2.75% -2.75% -2.75% -2.75% -2.75%

Net Annual Return 19.06% 7.82% 27.73% 11.83% 13.50%

</FN>
</TABLE>

YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>

I SHARES 1999 1998 1997 1996 1995
-------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>

Utilities Stock Portfolio
Gross Annual Return* 21.81% 10.57% 30.48% 14.58% 16.25%

Total Annual Operating Expenses
for The Utility Fund Class I Shares** -1.75% -1.75% -1.75% -1.75% -1.75%

Net Annual Return 20.06% 8.82% 28.73% 12.83% 14.50%

</FN>
</TABLE>

[ICON] FEES AND EXPENSES OF THE FUND

The following table describes the fees and expenses that you may pay
if you buy and hold shares of the fund.

10
<PAGE>

SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)

CLASS A CLASS C CLASS I

Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price) 3.00%1 None None

Maximum Deferred Sales Charge (Load) (as a
percentage of the lesser of offering price
or redemption proceeds) None 1.00%2 None

Exchange fee None None None

1 The sales charge declines as the amount invested increases. See "How to Buy
Shares."

2 A deferred sales charge on Class C shares applies only if redemption occurs
within one year from purchase. See "How to Buy Shares" and "How to Make
Withdrawals (Redemptions)."

ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)3

CLASS A CLASS C CLASS I

Management Fees 1.00% 1.00% 1.00%
Distribution and Service (12b-1) Fees 0.25% 1.00% 0.00%
Other Expenses4 0.75% 0.75% 0.75%
----- ----- -----
Total Annual Fund Operating Expenses 2.00% 2.75% 1.75%

4 "Other Expenses" are based upon estimated amounts for the current fiscal year.

EXAMPLE

The example in the table below is intended to help you compare the cost of
investing in the fund with the cost of investing in other mutual funds.

Assuming you

o invest $10,000 in the fund

o redeem your shares at the end of the periods shown below

o earn a 5% return each year and

o incur the same fund operating expenses shown above,
your cost of investing in the fund would be:

1 YEAR 3 YEARS
------ -------

Class A $497 $909
Class C $380 $853
Class I $178 $551

<PAGE>

You would pay the following expenses if you did not redeem your shares:

1 YEAR 3 YEARS
------ -------

Class A $497 $909
Class C $278 $853
Class I $178 $551

Of course, your actual costs may be higher or lower.

<PAGE>

WHO MAY WANT TO INVEST

THE UTILITY FUND

The fund may be appropriate if you:

o are seeking long-term growth potential

o are seeking a fund for the growth portion of an asset allocation
portfolio

o are more comfortable with a focus on established, well-known
companies

o are seeking to diversify your portfolio

o are willing to accept the higher short-term risk along with
potentially higher long-term returns

The fund may not be appropriate if you:

o are unwilling to accept an investment that will go up and down in
value

o are investing to meet short-term financial goals

THE CORE EQUITY FUND

The fund may be appropriate if you:

o are seeking a more conservative, income-oriented equity
investment

o are looking to supplement your core equity holdings

o are a socially responsible investor

The fund may not be appropriate if you:

o are seeking a short-term investment vehicle

o desire an investment that is diversified over several market
sectors

<PAGE>

MORE INFORMATION ABOUT THE FUNDS

EACH FUND'S INVESTMENT IN A PORTFOLIO

Each fund seeks to achieve its investment goal by investing all of its
assets in a corresponding portfolio. These funds and their corresponding
portfolios are as follows:

FUND PORTFOLIO

Core Equity Fund --- Growth Stock Portfolio
Utility Fund --- Utilities Stock Portfolio

Each portfolio has the same investment goal as its corresponding fund. Each
of these funds' investment policies are also substantially similar to its
corresponding portfolio's, except the fund may pursue its policies by investing
in an open-end management investment company with the same investment goal and
substantially similar policies and restrictions as the fund. Each of these funds
buys shares of its corresponding portfolio at net asset value. An investment in
a fund is an indirect investment in its corresponding portfolio.

It is possible that a fund may have to withdraw its investment in its
corresponding portfolio and subsequently invest in another open-end management
investment company with the same investment goal and substantially similar
policies. This could happen if a portfolio changes its investment goal or if the
board of directors, at any time, considers it in the fund's best interest.

A fund's structure, where it invests all of its assets in its corresponding
portfolio, is sometimes called a "master/feeder" structure. You will find more
detailed information about this structure and the potential risks associated
with it in the Statement of Additional Information.

CORE EQUITY FUND

HOW DOES THE FUND PURSUE ITS INVESTMENT GOAL?

Under normal conditions, at least 80% of the Portfolio's total assets will
be invested in domestic common stocks and at least 65% of the Portfolio's
total assets will be invested in growth stocks.

The manager selects for the Portfolio common stocks from all domestic
publicly traded common stocks; however, at least 70% of the assets of the
Portfolio invested in common stocks will be invested in common stocks which
are included in the S & P 500.

The Portfolio consists of investment portfolios representing each of the
industry sectors (identified by the Portfolio's subadviser) comprising the
S & P 500. The assets of the Portfolio will be allocated to each of these
industry sectors in approximately the same proportion as these industry
sectors are represented in the S & P 500 on a market
capitalization-weighted basis. The subadviser continuously reviews the
representation of the industry sectors in the S & P 500 and continuously
groups domestic publicly traded common stocks into a specific industry
sector.

The Portfolio subadviser compares the total market value of the common
stocks in each industry sector of the S & P 500 to the total market value
of all common stocks in the S & P 500 to determine each industry sector's
weighting in the S & P 500. If the weighting of any industry sector in the
Portfolio varies from the weighting on a market-capitalization basis of
that industry sector in the S & P 500 at the end of any month, the
Portfolio subadviser will reallocate the amount of assets in the Portfolio
allocated to that industry sector. The subadviser may reallocate more
frequently than monthly if it chooses to do so. These reallocations may
cause additional transaction costs to the extent that securities may be
sold as part of such reallocations.

<PAGE>

The assets of the Portfolio representing each of these industry sectors are
managed on a discretionary basis by one or more separate investment
advisers, called sector advisers, selected by the Portfolio subadviser. The
Portfolio subadviser's selection of sector advisers is reviewed and
approved by the trustees of the Portfolio.

Assets of the Portfolio representing each of the industry sectors are
managed by one or more sector advisers. However, if an advisory agreement
between a sector adviser and the Portfolio is terminated leaving no sector
adviser to manage the assets of the Portfolio representing an industry
sector, the Portfolio's subadviser will, upon termination and until a new
sector adviser is selected, manage and "index" the assets of the Portfolio
representing the applicable industry sector. In this case, the subadviser
will "index" the assets of the Portfolio representing its industry sector
by selling any stocks representing the industry sector that are not
included in the S&P 500 and investing the assets comprising the industry
sector in S&P 500 stocks identified by the Portfolio's subadviser as
belonging to that industry sector in the same proportion as those stocks
are represented in the S&P 500 on a market capitalization-weighted basis.

Each sector adviser is limited to the list of companies identified by the
Portfolio's subadviser which represents the sector adviser's specific
industry sector. Each sector adviser then selects those common stocks
which, in its opinion, best represent the industry sector the sector
adviser has been assigned. In selecting securities for the Portfolio, the
sector advisers evaluate factors believed to be favorable to long term
growth of capital, including specific financial characteristics of the
issuer such as historical earnings growth, sales growth, profitability and
return on equity. The sector advisers also analyze the issuer's position
within its industry sector as well as the quality and experience of the
issuer's management.

Up to 20% of the Portfolio's assets may be invested in temporary defensive
investments such as money market instruments and investment grade bonds.
Money market instruments consist of commercial paper, certificates of
deposit, banker's acceptances and other bank obligations, obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, high grade corporate obligations and repurchase
agreements. Investment grade bonds are those rated A or better by S&P or
Moody's or deemed to be of equivalent quality in the judgment of the
subadviser. The Portfolio may purchase stock index futures contracts and
related options. Up to 5% of the total assets of the Portfolio may be
invested in American Depositary Receipts.

UTILITY FUND

HOW DOES THE FUND PURSUE ITS INVESTMENT GOAL?

The Portfolio seeks to achieve its goal by investing, under normal
conditions, at least 65% of its total assets in a diversified portfolio of
common stocks, preferred stocks, warrants and rights, and securities
convertible into common or preferred stock of public utility companies.
Public utility companies include domestic or foreign companies that provide
electricity, natural gas, water, telecommunications or sanitary services to
the public. The Portfolio will not invest more than 5% of its total assets
in equity securities of issuers whose debt securities are rated below
investment grade, that is, rated below one of the four highest rating
categories by Standard & Poor's Corporation ("S&P") or Moody's Investors
Service, Inc. ("Moody's") or deemed to be of equivalent quality in the
judgment of the subadviser. Debt securities rated below investment grade
are rated below Baa or BBB.

<PAGE>

The remaining 35% of the Portfolio's assets may be invested in debt
securities issued by public utility companies, and/or equity and debt
securities of issuers outside of the public utility industry which in the
opinion of the subadviser stand to benefit from developments in the public
utilities industry. The Portfolio will not invest more than 40% of its
total assets in the telephone industry. The Portfolio may invest up to 25%
of its total assets in securities of foreign issuers. The Portfolio will
not invest more than 10% of its net assets in securities that are deemed to
be illiquid.

Investments are selected on the basis of fundamental analysis to identify
those securities that, in the judgment of the subadviser, provide current
income and growth of income, and secondarily, capital appreciation, but
only when consistent with its primary investment goal.

Fundamental analysis involves assessing a company and its business
environment, management, balance sheet, income statement, anticipated
earnings and dividends and other related measures of value. The subadviser
monitors and evaluates the economic and political climate of the area in
which each company is located. The relative weightings among common stocks,
debt securities and preferred stocks will vary from time to time based upon
the subadviser's judgment of the extent to which investments in each
category will contribute to meeting the Portfolio's investment goal.

The subadviser emphasizes quality in selecting investments for the
Portfolio. In addition to looking for high credit ratings, the subadviser
ordinarily looks for several of the following characteristics: above
average earnings growth; above average growth of book value; an above
average balance sheet; high earnings to debt service coverage; low ratio of
dividends to earnings; high return on equity; low debt to equity ratio; an
above average rating with respect to government regulation; growing rate
base; lack of major construction programs and strong management.

The Portfolio may invest up to 35% of its total assets in debt securities
of issuers in the public utility industries. Debt securities in which the
Portfolio invests are limited to those rated A or better by S&P or Moody's
or deemed to be of equivalent quality in the judgment of the subadviser.

During periods when the subadviser deems it necessary for temporary
defensive purposes, the fund may invest without limit in high quality money
market instruments. These instruments consist of commercial paper,
certificates of deposit, banker's acceptances and other bank obligations,
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, high grade corporate obligations and repurchase
agreements.

The Portfolio, under normal circumstances, will invest 25% or more of its
total assets in securities of public utility companies. This concentration
policy is fundamental and may not be changed without shareholder approval.

WHAT ARE DERIVATIVES?

A derivative is a financial contract whose value is based on or derived
from a traditional security (such as a stock or a bond), an asset (such as a
commodity like gold), or a market index (such as the S&P 500 Index). Futures and
options are derivatives that have been trading on regulated exchanges for over
20 years. These "traditional" derivatives are standardized contracts that can
easily be bought and sold, and whose market values are determined and published
daily. It is these characteristics that differentiate futures and options from
the relatively new types of derivatives. If used for speculation or as leveraged
investments, derivatives can carry considerable risks.

Similar risks exist for warrants (securities that permit their owners to
purchase a specific number of shares of stock at a predetermined price), and
convertible securities (securities that may be exchanged for a different asset).

16
<PAGE>

For this reason, the Portfolios will not use futures, options, warrants or
convertible securities for speculative purposes or as leveraged investments that
magnify the gains or losses of an investment.

The reasons for which a Portfolio will invest in futures and options are:

o To keep cash on hand to meet shareholder redemptions or other needs
while simulating full investment in stocks or bonds;

o To reduce the Portfolio's transaction costs or add value when these
instruments are favorably priced;

o To forego taxes that would otherwise have to be paid on gains from the
sale of the Portfolio's securities; and

o To attempt to protect the value of certain securities owned or
intended to be purchased by the Portfolio while the manager is making
a change in the Portfolio's investment position.

WHO MANAGES THE FUNDS?

THE BOARDS. The board of directors of the funds oversees the management of the
funds and elects their officers. The board of trustees of the portfolios
oversees the management of the portfolios and elects their officers. The
officers of the funds and the portfolios are responsible for the funds and the
portfolios' day-to-day operations, respectively. Information concerning the
directors and officers of the funds and the trustees and officers of the
portfolios appears in the Statement of Additional Information.

MANAGERS. The Portfolios' investment advisers and subadvisers are as follows:

Portfolio and Investment Investment
CORRESPONDING FUND ADVISER SUBADVISER(S)

Growth Stock Portfolio Meeder Asset Sector Capital Management, L.L.C.
Core Equity Fund) Management, Inc. and the Sector Advisers (see
"Sector Advisers - Growth Stock
Portfolio")

Utilities Stock Portfolio Meeder Asset Miller/Howard Investments, Inc.
(Utility Fund) Management, Inc.

INVESTMENT ADVISER. Meeder Asset Management, Inc. ("Meeder"), formerly known as
R. Meeder & Associates, Inc., serves as investment adviser to the portfolios.
Meeder has been an investment adviser to individuals, pension and profit sharing
plans, trusts, charitable organizations, corporations and other institutions
since 1974. As of December 31, 1999, Meeder and its affiliates managed
approximately $2.2 billion in assets. Meeder maintains its principal offices at
6000 Memorial Drive, Dublin, OH 43017.

INVESTMENT SUBADVISER - GROWTH STOCK PORTFOLIO

Sector Capital Management, L.L.C. ("Sector Capital"), the Growth Stock
Portfolio's subadviser, furnishes investment advisory services in connection
with the management of the Growth Stock Portfolio. Sector Capital has been a
registered investment adviser to individuals, pension and profit sharing plans,
trusts, charitable organizations, corporations and other institutions since
January 1995. As of December 31, 1999, Sector Capital managed approximately $877
million in assets. Sector Capital has its principal offices at 5350 Poplar
Avenue, Suite 490, Memphis, Tennessee 38119.

17
<PAGE>

Sector Capital utilizes its "Sector Plus" investment strategy to manage the
assets of the Growth Stock Portfolio. Pursuant to this strategy, Sector Capital
divides the assets of the Growth Stock Portfolio among ten industry sectors of
the S&P 500, each of which is managed by a separate sector adviser. Sector
Capital is responsible for overseeing the sector advisers and recommending their
hiring, termination and replacement. Meeder and Sector Capital are ultimately
responsible for the investment performance of the Growth Stock Portfolio because
of Meeder's responsibility to oversee Sector Capital and Sector Capital's
responsibility to oversee the sector advisers and recommend their hiring,
termination and replacement.

Sector Capital and the Growth Stock Portfolio have entered into a
sub-subadvisory agreement with each Sector Adviser selected for the Portfolio.
Sector Capital is responsible for selecting, subject to the review and approval
of the Growth Stock Portfolio's Board of Trustees, the sector advisers that have
distinguished themselves by able performance in respective areas of expertise in
sector management, and to review their continued performance. In addition,
Sector Capital is responsible for categorizing publicly traded domestic common
stocks into a specific industry sector. Sector Capital may also invest the
Growth Stock Portfolio's financial futures contracts and related options.

During the sector adviser selection process, Sector Capital performs initial due
diligence on all prospective sector advisers. In evaluating prospective sector
advisers, Sector Capital considers, among other factors, each candidate's level
of expertise; relative performance and consistency of performance; level of
adherence to investment discipline or philosophy; personnel, facilities and
financial strength; and quality of service and client communications.

Sector Capital monitors sector adviser performance through quantitative and
qualitative analysis, as well as periodic in-person, telephonic and written
consultations with sector advisers. Sector Capital has responsibility for
communicating performance expectations and evaluations to sector advisers and
ultimately recommending to the Board of Trustees of the Growth Stock Portfolio
whether sector advisers' contracts should be renewed, modified, or terminated.
Sector Capital provides reports to the Growth Stock Portfolio's Board of
Trustees regarding the results of its evaluation and monitoring functions.

The Securities and Exchange Commission has granted the Growth Stock Portfolio an
exemptive order that permits the Growth Stock Portfolio and Sector Capital to
enter into and materially amend sub-subadvisory agreements with sector advisers,
without such agreements being approved by the Growth Stock Portfolio's investors
or the Core Equity Fund's shareholders. The exemptive order does not apply,
however, to sub-subadvisory agreements with affiliated persons of the Growth
Stock Portfolio, the Manager or Sector Capital, other than by reason of such
affiliated person serving as an existing sector adviser to the Growth Stock
Portfolio, which still require shareholder approval. The exemptive order also
permits the Growth Stock Portfolio and the Core Equity Fund to disclose, on an
aggregate basis rather than individually, the fees paid to sector advisers that
are not such affiliated persons. In addition, the exemptive order includes the
condition that within 90 days of the hiring of any new sector advisers, the
Manager and Sector Capital will furnish shareholders of the fund with an
information statement about the new sector adviser and sub-subadvisory
agreement. Any changes to the advisory contract between the Growth Stock
Portfolio and the manager or the subadvisory agreement among the Growth Stock
Portfolio, Manager and Sector Capital will still require shareholder approval. A
majority of the shareholders of the Core Equity Fund approved the operation of
the Company in accordance with the exemption.

SECTOR ADVISERS - GROWTH STOCK PORTFOLIO

Subject to the supervision and direction of Sector Capital and, ultimately, the
Board of Trustees of the Growth Stock Portfolio, each sector adviser's
responsibilities are limited to:

<PAGE>

o managing its portion of the securities held by the Growth Stock Portfolio
in accordance with the Portfolio's stated investment goals and strategies,

o making investment decisions for the Growth Stock Portfolio, and

o placing orders to purchase and sell securities on behalf of the Growth
Stock Portfolio.

The following sets forth certain information about each of the sector advisers:

MILLER/HOWARD INVESTMENTS, INC. serves as sector adviser to the utilities
and transportation sectors of the Growth Stock Portfolio. Miller/Howard is a
registered investment adviser that has been providing investment services to
broker-dealers, investment advisers, employee benefit plans, endowment
portfolios, foundations and other institutions and individuals since 1984. As of
December 31, 1999, Miller/Howard managed approximately $272 million in assets.
Lowell G. Miller, President and CIO of Miller/Howard, is the portfolio manager
primarily responsible for the day-to-day management of those assets of the
Growth Stock Portfolio allocated to Miller/Howard. Mr. Miller has served as
President and portfolio manager of Miller/Howard since 1984. Miller/Howard is
also the subadviser to the Utilities Stock Portfolio, a corresponding portfolio
to The Flex-funds' Total Return Utilities Fund and the Meeder Advisor Funds'
Utility Growth Fund. Miller/Howard's principal executive offices are located at
141 Upper Byrdcliffe Road, Post Office Box 549, Woodstock, New York 12498.

HALLMARK CAPITAL MANAGEMENT, INC. serves as sector adviser to the capital
goods sector of the Growth Stock Portfolio. Hallmark is a registered investment
adviser that has been providing investment services to individuals; banks;
pension, profit sharing, and other retirement plans; trusts; endowments;
foundations; and other charitable organizations since 1986. As of December 31,
1999, Hallmark managed approximately $190 million in assets. Peter S. Hagerman
is the portfolio manager primarily responsible for the day-to-day management of
those assets of the Growth Stock Portfolio allocated to Hallmark. Mr. Hagerman
has been Chairman of the Board, President, and Chief Executive Officer of
Hallmark since 1994 and has been associated with Hallmark since 1986. Hallmark's
principal executive offices are located at One Greenbrook Corporate Center, 100
Passaic Avenue, Fairfield, New Jersey 07004.

BARROW, HANLEY, MEWHINNEY & STRAUSS, INC. serves as sector adviser to the
consumer durable and non-durable sectors of the Growth Stock Portfolio. Barrow
is a registered investment adviser that has been providing investment services
to banks; investment companies; pension and profit sharing plans; charitable
organizations and corporations since 1979. As of December 31, 1999, Barrow
managed approximately $29.1 billion in assets. Jane Gilday, CFA, is the
portfolio manager primarily responsible for the day-to-day management of those
assets of the Growth Stock Portfolio allocated to Barrow. From 1993 to 1998, Ms.
Gilday worked as a securities analyst at Hancock Institutional Equity Services
and Advest Inc. Ms. Gilday has been associated with Barrow since 1998. Barrow's
principal executive offices are located at 3232 McKinney Avenue, 15th Floor,
Dallas, Texas 75204-2429.

THE MITCHELL GROUP, INC. serves as sector adviser to the energy sector
of the Growth Stock Portfolio. The Mitchell Group is a registered investment
adviser that has been providing investment services to individuals, banks,
investment companies, pension and profit sharing plans, charitable
organizations, corporations and other institutions since 1989. As of December
31, 1999, The Mitchell Group managed approximately $311 million in assets.
Rodney Mitchell, who has served as President, Chief Executive Officer, and Chief
Financial Officer of The Mitchell Group since 1989, is the portfolio manager
primarily responsible for the day-to-day management of those assets of the
Growth Stock Portfolio allocated to The Mitchell Group. The Mitchell Group's
principal executive offices are located at 1100 Louisiana, #4810, Houston, Texas
77002.

ASHLAND MANAGEMENT INCORPORATED serves as sector adviser to the
materials and services sector of the Growth Stock Portfolio. Ashland is a

<PAGE>

registered investment adviser that has been providing investment services to
individuals, pension and profit sharing plans, charitable organizations,
corporations and other institutions since 1975. As of December 31, 1999, Ashland
managed approximately $2.1 billion in assets. Terence J. McLaughlin, Managing
Director of Ashland, and Deborah C. Ohl, a Portfolio Manager, are the portfolio
managers primarily responsible for the day-to-day management of those assets of
the Growth Stock Portfolio allocated to Ashland. Mr. McLaughlin has been a
Portfolio Manager for Ashland since 1986. Ms. Ohl has been employed by Ashland
since August 1992 and has served as a Portfolio Manager for Ashland since 1993.
Ashland's principal executive offices are located at 26 Broadway, New York, New
York 10004.

DELTA CAPITAL MANAGEMENT INC. serves as sector adviser to the finance
sector of the Portfolio. Delta Capital is a registered investment adviser that
has been providing investment services to individuals, endowments, corporations
and other institutions since 1992. As of December 31, 1999, Delta Capital
managed approximately $900 million in assets. Delta Capital is controlled by
Francis L. Fraenkel, Chairman of Delta Capital. Jonathan Kay is the portfolio
manager primarily responsible for the day-to-day management of those assets of
the Portfolio allocated to Delta Capital. Mr. Kay has been a portfolio manager
for Delta Capital since April 1998. From 1993 to March 1998, Mr. Kay was a
portfolio manager for Scudder Kemper Investments, Inc., a registered investment
adviser. Delta Capital's principal executive offices are located at 745 Fifth
Avenue, Suite 816, New York, New York 10151.

DRESDNER RCM GLOBAL INVESTORS, L.L.C. (formerly RCM Capital Management,
L.L.C.) serves as sector adviser to the technology sector of the Growth Stock
Portfolio. Dresdner RCM is a registered investment adviser that provides
investment services to institutional and individual clients and registered
investment companies. Dresdner RCM was established in April 1996 as the
successor to the business and operations of RCM Capital Management, a California
Limited Partnership that, with its predecessors, has been in operation since
1970. As of December 31, 1999, Dresdner RCM managed approximately $82.7 billion
under management and advice. This includes approximately $47.0 billion under
management and advice in Sana Francisco and an additional $35.7 billion by
affiliates in London, Hong Kong, and San Diego. Walter C. Price and Huachen
Chen, each Principals of Dresdner RCM, are the portfolio managers primarily
responsible for the day-to-day management of those assets of the Growth Stock
Portfolio allocated to Dresdner RCM. Messrs. Price and Chen have managed equity
portfolios on behalf of Dresdner RCM since 1985. Dresdner RCM's principal
executive offices are located at Four Embarcadero Center, San Francisco, CA
94111.

ALLIANCE CAPITAL MANAGEMENT L.P. serves as sector adviser to the health
sector of the Growth Stock Portfolio. Alliance, a registered investment adviser,
is an international investment manager supervising client accounts with assets
as of December 31, 1999 totaling approximately $368 billion. Alliance provides
investment services primarily to corporate employee benefit funds, public
employee retirement systems, investment companies, foundations, and endowment
funds. Raphael L. Edelman, Vice President of Alliance, is the portfolio manager
primarily responsible for the day-to-day management of those assets of the
Growth Stock Portfolio allocated to Alliance. Mr. Edelman, who has sixteen years
of investment experience, joined Alliance's research department in 1986 as an
analyst after working two years as a manager in Alliance's mutual fund division.
Alliance's principal executive offices are located at 1345 Avenue of the
Americas, New York, NY 10105.

INVESTMENT SUBADVISER - UTILITIES STOCK PORTFOLIO

Miller/Howard Investments, Inc. ("Miller/Howard"), the Utilities Stock
Portfolio's subadviser, makes investment decisions for the Utilities Stock
Portfolio. Meeder continues to have responsibility for all investment advisory
services provided to the Utilities Stock Portfolio and supervises
Miller/Howard's performance of such services. Miller/Howard is a registered
investment adviser that has been providing investment services to
broker-dealers, investment advisers, employee benefit plans, endowment
portfolios, foundations and other institutions and individuals since 1984. As of
December 31, 1999, Miller/Howard managed approximately $272 million in assets.
Miller/Howard has its principal offices at 141 Upper Byrdcliffe Road, P. O. Box
549, Woodstock, New York 12498.

<PAGE>

PORTFOLIO MANAGERS

The individuals primarily responsible for the management of each of the
portfolios and the International Equity fund are listed below:

THE GROWTH STOCK PORTFOLIO. William L. Gurner, President of Sector Capital, is
primarily responsible for the day-to-day management of the Growth Stock
Portfolio through interaction with each of the sector advisers. Mr. Gurner is
also primarily responsible for managing the futures contracts and related
options of the portfolio on behalf of the subadviser. Mr. Gurner has managed the
portfolio since December 1996. Mr. Gurner has been President and portfolio
manager of Sector Capital since January 1995. From September 1987 through
December 1994, Mr. Gurner served as Manager of Pension Funds for Federal
Express. Philip A. Voelker, Senior Vice President and Chief Investment Officer
of Meeder, is primarily responsible for managing the portfolio's liquidity
reserve and managing the futures contracts and related options of the Portfolio
on behalf of Meeder. Mr. Voelker has managed assets on behalf of Meeder since
1975. Please see "Sector Advisers - Growth Stock Portfolio" for more information
about each of the portfolio's sector advisers.

THE UTILITIES STOCK PORTFOLIO. The portfolio manager responsible for the
Utilities Stock Portfolio's investments is Lowell G. Miller, a director and the
President of Miller/Howard, the subadviser to the portfolio. Mr. Miller has
served as President and portfolio manager of Miller/Howard and its predecessor
since 1984 and has managed the portfolio since its inception in 1995.

MANAGEMENT FEES. During the calendar year ended December 31, 1999, the
portfolios paid management fees totaling the following:

Management Fee as Percentage
FUND OF AVERAGE DAILY NET ASSETS

Growth Stock Portfolio 0.96%
Utilities Stock Portfolio 1.00%

For more information about management fees, please see "Investment Adviser" and
"Investment Subadviser" in the Statement of Additional Information.

DISTRIBUTOR. Morgan Keegan & Company, Inc., Fifty Front Street, Memphis,
Tennessee 38103, serves as the distributor of the shares of the funds.

PAST PERFORMANCE OF PRIVATE ACCOUNTS

PURPOSE OF PAST PERFORMANCE. William L. Gurner is the President and
portfolio manager of Sector Capital Management, L.L.C. ("Sector Capital"), the
subadviser to the Growth Stock Portfolio in which all of the assets of the Core
Equity Fund are invested. See "Investment Subadviser - Growth Stock Portfolio"
and "Portfolio Managers" under "Who Manages the Funds?" The performance
information below is provided to show the past performance of Mr. Gurner and
Sector Capital in managing substantially similar accounts to the Growth Stock
Portfolio and to measure the past performance against a market index, the S&P
500 Composite Stock Price Index.

WHAT PAST PERFORMANCE DOES NOT REPRESENT. THE PAST PERFORMANCE SHOWN BELOW
DOES NOT REPRESENT THE PERFORMANCE OF THE GROWTH STOCK PORTFOLIO OR THE CORE
EQUITY FUND. You should not consider the past performance shown below as an
indication of the future performance of the Growth Stock Portfolio or the Core
Equity Fund.

<PAGE>

SIMILAR ACCOUNTS. Mr. Gurner served as Manager - Trust Investments for an
employee benefit plan of a large corporation from September 1987 through
December 1994. The employee benefit plan had investment goals, policies,
strategies and risks substantially similar to those of the Growth Stock
Portfolio and the Core Equity Fund, except during the period from September 1987
through February 1991, when the employee benefit plan was managed in a different
manner than the Growth Stock Portfolio and the Core Equity Fund.

Mr. Gurner left the large corporation in December, 1994 and founded Sector
Capital. Sector Capital subadvises the Growth Stock Portfolio and manages
private accounts that have investment goals, policies, strategies and risks
similar to those of the Growth Stock Portfolio and the Core Equity Fund. Mr.
Gurner and Sector Capital engaged substantially the same Sector Advisers
currently engaged by the Growth Stock Portfolio to manage the employee benefit
plan and such private accounts.

CALCULATION OF PAST PERFORMANCE. All returns presented below were
calculated on a total return basis and include all dividends and interest,
accrued income and realized and unrealized gains and losses. All returns reflect
the deduction of investment advisory fees, brokerage commissions and execution
costs paid by the employee benefit plan and the private accounts without
providing for federal or state income taxes. Custodial fees, if any, were not
used to reduce performance returns. Sector Capital's composite includes all
actual, fee paying, discretionary, private accounts managed by Sector Capital
that have investment objectives, policies, strategies and risks substantially
similar to those of the Growth Stock Portfolio and the Core Equity Fund. Cash
and equivalents are included in performance returns. The yearly returns of
Sector Capital's composite combine the individual accounts' returns by
asset-weighting each individual account's asset value as of the beginning of
each quarter. The yearly returns are computed by linking the returns of each
quarter within the calendar year.

DIFFERENCES IN REGULATION. The employee benefit plan managed by Mr. Gurner
and the private accounts that are included in Sector Capital's composite are not
subject to the same types of expenses to which the Growth Stock Portfolio or the
Core Equity Fund are subject nor to the diversification requirements, specific
tax restrictions and investment limitations imposed on the Growth Stock
Portfolio and the Core Equity Fund by federal securities laws governing mutual
funds and tax laws. Consequently, the performance results for the employee
benefit plan managed by Mr. Gurner and Sector Capital's composite could have
been adversely affected if the employee benefit plan and the private accounts
included in the composite had been regulated as mutual funds under the federal
securities laws.

The investment results of Mr. Gurner and Sector Capital's composite
presented below are unaudited and not intended to predict or suggest the returns
that might be experienced by the Growth Stock Portfolio or that you might
experience by investing in the Core Equity Fund. You should also be aware that
the SEC uses a method different from that used below to calculate mutual fund
performance, which could result in different performance returns.

PAST PERFORMANCE OF PRIVATE ACCOUNTS

SECTOR CAPITAL
MANAGEMENT, L.L.C.
PRIVATE ACCOUNTS
YEAR MR. GURNER COMPOSITE S&P 500(1)
---- ---------- ---------------------- -------

1991(2) 18.79% N.A. 16.66%
1992 8.26% N.A. 7.69%
1993 14.78% N.A. 10.00%
1994 0.97% N.A. 1.30%
1995 N.A. 45.79% 37.53%
1996 N.A. 26.27% 23.08%
1997 N.A. 32.53% 33.35%
1998 N.A. 27.91% 28.58%
1999 N.A. ____% 21.04%

(1) The S&P 500 Index is an unmanaged index containing common stocks of 500
industrial, transportation, utility and financial companies, regarded as
generally representative of the U.S. stock market. The Index reflects the
reinvestment of income dividends and capital gain distributions, if any, but
does not reflect fees, brokerage commissions, or other expenses of investing.

(2) For the period from March 1, 1991 through December 31, 1991.

22
<PAGE>

HOW IS THE COMPANY ORGANIZED?

Each fund is an open-end management investment company that is a series of
the Morgan Keegan Select Fund, Inc. (the "Company").

The Company is supervised by a board of directors, an independent body that
has ultimate responsibility for the funds' activities. The board of the Company
retains various companies to carry out the funds' operations, including the
distributor, funds' accounting agent, transfer agent, auditor and others. The
board has the right, and the obligation, to terminate the funds' relationship
with any of these companies and to retain a different company if the board
believes it is in the shareholders' best interests. At a mutual fund's
inception, the initial shareholder appoints the fund's board. Thereafter, the
board and the shareholders determine the board's membership.

The funds do not hold annual shareholder meetings, but may hold special
meetings for such purposes as electing or removing board members, changing
fundamental policies, approving a management contract or approving a 12b-1 plan
(12b-1 fees are explained in "Distribution Fees").

PORTFOLIO TRADES

In placing portfolio trades, each portfolio's advisers may use brokerage
firms that market the Portfolio's corresponding fund's shares, but only when the
advisers believe no other firm offers a better combination of quality execution
(i.e., timeliness and completeness) and favorable price. As long as the advisers
believe a brokerage firm can provide this combination, they may consider
research and related services when choosing a brokerage firm. Brokerage firms
may use a portion of the commissions paid by a portfolio to reduce it, or its
corresponding fund's, expenses.

DIVERSIFICATION

Both funds are diversified, which means each fund may not, with respect to
at least 75% of its assets, invest more than 5% of its assets in the securities
of one company.

HOW DOES TAXATION AFFECT THE FUNDS AND THEIR SHAREHOLDERS?

HOW DO THE PORTFOLIOS EARN INCOME AND GAINS?

The portfolios may earn dividends and interest (the Portfolios' "income")
on their investments. When a portfolio sells a security for a price that is

<PAGE>

higher than it paid, it has a gain. When a portfolio sells a security for a
price that is lower than it paid, it has a loss. If a portfolio has held the
security for more than one year, the gain or loss will be a long-term capital
gain or loss. If a portfolio has held the security for one year or less, the
gain or loss will be a short-term capital gain or loss. The portfolio's gains
and losses are netted together, and, if a portfolio has a net gain (a
portfolio's "gains"), that gain will generally be distributed to you.

TAXATION OF THE PORTFOLIOS' INVESTMENTS

The portfolios invest your money in the securities that are described
in the sections "Principal Investment Strategies" and "How Does the Fund Pursue
Its Investment Goal?" Special tax rules may apply in determining the income and
gains that a portfolio earns on its investments. These rules may, in turn,
affect the amount of distributions that the funds pay to you. These special tax
rules are discussed in the SAI.

TAXATION OF A FUND. As a regulated investment company, a fund generally
pays no federal income tax on the income and gains that it distributes to you.

FOREIGN TAXES. Foreign governments may impose taxes on the income and gains
from a portfolio's investments in foreign securities. These taxes will reduce
the amount of the funds' distributions to you.

TAXATION OF SHAREHOLDERS

WHAT IS A DISTRIBUTION?

As a shareholder, you will receive your share of the funds' income and
gains on their corresponding portfolios' investments in stocks and other
securities. The funds' income and short-term capital gains are paid to you as
ordinary dividends. The funds' long-term capital gains are paid to you as
capital gain distributions. If the fund pays you an amount in excess of its
income and gains, this excess will generally be treated as a non-taxable return
of capital. These amounts, taken together, are what we call the funds'
distributions to you. Each of the funds pay dividends from its net investment
income on a quarterly basis. Each of the funds distribute capital gains, if any,
annually.

DISTRIBUTIONS. Distributions from a fund, whether you receive them in cash
or in additional shares, are generally subject to income tax. A fund will send
you a statement in January of the current year that reflects the amount of
ordinary dividends, capital gain distributions and non-taxable distributions you
received from the funds in the prior year. This statement will include
distributions declared in December and paid to you in January of the current
year, but which are taxable as if paid on December 31 of the prior year. The IRS
requires you to report these amounts on your income tax return for the prior
year.

DISTRIBUTIONS TO RETIREMENT PLANS. Fund distributions received by your
qualified retirement plan, such as a 401(k) plan or IRA, are generally
tax-deferred; this means that you are not required to report fund distributions
on your income tax return when paid to your plan, but, rather, when your plan
makes payments to you. Special rules apply to payouts from Roth and Education
IRAs.

DIVIDENDS-RECEIVED DEDUCTION. Corporate investors may be entitled to a
dividends-received deduction on a portion of the ordinary dividends they receive
from the funds.

BUYING A DIVIDEND. Purchasing fund shares in a taxable account shortly
before a distribution is known as "buying a dividend." In taxable accounts, you
must pay income taxes on the distribution whether you take the distribution in
cash or reinvest it. In addition, you will have to pay taxes on the distribution
whether the value of your investment decreased, increased or remained the same
after you bought the fund shares. The risk in buying a dividend is that the
portfolios may build up taxable gains throughout the period covered by a
distribution, as securities are sold at a profit. We distribute those gains to
you, after subtracting any losses, even if you did not own the shares when the
gains occurred.

<PAGE>

DIVIDEND REINVESTMENTS. Most investors have their dividends reinvested in
additional shares of the same fund. If you choose this option, or if you do not
indicate any choice, your dividends will be reinvested on the dividend payable
date. Alternatively, you can choose to have a check for your dividends mailed to
you. However, if the check is not deliverable, your dividends will be
reinvested.

REDEMPTIONS AND EXCHANGES

WHAT IS A REDEMPTION?

A redemption is a sale by you to a fund of some or all of your shares in
the fund. The price per share you receive when you redeem fund shares may be
more or less than the price at which you purchased those shares. An exchange of
shares in a fund for shares of another Morgan Keegan fund is treated as a
redemption of fund shares and then a purchase of shares of the other Morgan
Keegan fund. When you redeem or exchange your shares, you will generally have a
gain or loss, depending upon whether the amount you receive for your shares is
more or less than your cost or other basis in the shares.

If you redeem your shares or if you exchange your shares in a fund for
shares in another [name of the trust] fund, you will generally have a gain or
loss that the IRS requires you to report on your income tax return. All or a
portion of any loss on the redemption or exchange of your shares will be
disallowed by the IRS if you purchase other shares in the fund within 30 days
before or after your redemption or exchange.

U.S. GOVERNMENT INTEREST. Many states grant tax-free status to dividends
paid from interest earned on direct obligations of the U.S. Government, subject
to certain restrictions. The funds will provide you with information at the end
of each calendar year on the amount of any such dividends that may qualify for
exemption from reporting on your individual income tax returns.

NON-U.S. INVESTORS. Ordinary dividends generally will be subject to U.S.
income tax withholding. Your home country may also tax ordinary dividends,
capital gain distributions and gains arising from redemptions or exchanges of
your fund shares. Fund shares held by the estate of a non-U.S. investor may be
subject to U.S. estate tax. You may wish to contact your tax advisor to
determine the U.S. and non-U.S. tax consequences of your investment in the
funds.

STATE TAXES. Ordinary dividends and capital gain distributions that you
receive from the funds, and gains arising from redemptions or exchanges of your
funds shares will generally by subject to state and local income tax. The
holding of funds shares may also be subject to state and local intangibles
taxes. You may wish to contact your tax advisor to determine the state and local
tax consequences of your investment in the funds.

<PAGE>

SHAREHOLDER MANUAL

HOW TO BUY SHARES

MINIMUM INVESTMENT -- The minimum investment to open an account in each fund is
$500, except for an Individual Retirement Account (IRA), which has a $250
minimum. You may make subsequent investments in any account in amounts of at
least $250.

OPENING AN ACCOUNT -- You may open an account and make an investment by
purchasing shares in person, by telephone or by mail through any Morgan Keegan
broker. You may also purchase shares directly from Morgan Keegan & Company,
Inc., the Funds' distributor, by completing the application included in this
Prospectus and sending it along with a check. Special documents available from
your broker must be completed if you invest in fund shares through an IRA, SEPP,
SIMPLE, Keogh Plan, 401(k) Plan or other qualified retirement plan. Be sure to
specify the name of the fund in which you are investing. A check payable to each
fund you specify must accompany your application if you are purchasing shares
directly from Morgan Keegan & Company, Inc. or if you are purchasing shares on
behalf of an IRA, SEPP, SIMPLE, Keogh Plan, 401(k) Plan or other qualified
retirement plan. Otherwise, payment for fund shares generally must be made to
Morgan Keegan on the third business day after the trade date. You may make
payments by check payable to the particular fund(s) specified on the application
(Core Equity Fund and Utility Fund). Please send your completed application and
payment to the following address: MORGAN KEEGAN & COMPANY, INC., MORGAN KEEGAN
TOWER, FIFTY FRONT STREET, MEMPHIS, TN 38103.

Should an order to purchase shares be canceled because your check does not
clear, you will be responsible for any resulting losses or fees incurred in the
transaction. All orders for the purchase of shares are subject to acceptance or
rejection by each fund or by the Distributor. Purchase orders received in the
Memphis office of Morgan Keegan & Company, Inc., the funds' transfer agent (the
"Transfer Agent"), by 4:00 p.m., Eastern time, are confirmed at that day's
public offering price. Purchase orders received in the Memphis office of the
Transfer Agent after 4:00 p.m. are confirmed at the public offering price on the
following business day.

No stock certificates will be issued. Instead, the Transfer Agent will
establish an account for each investor, and all shares purchased or received,
including those acquired through the reinvestment of dividends and
distributions, are registered on the books of each fund and credited to such
account.

Each fund will not permit redemptions until it receives the new account
application in good order.

Call your Morgan Keegan investment broker or Morgan Keegan at 800-366-7426
or visit our website at www.morgankeegan.com.

SUBSEQUENT INVESTMENTS - You may make subsequent investments in an existing
account in person, by telephone or by mail through a Morgan Keegan broker, or by
mailing a check payable to the fund you specify. Please include your account
number on the check and mail as follows:

<PAGE>

MORGAN KEEGAN COMPANY, INC.
MORGAN KEEGAN TOWER
FIFTY FRONT STREET
MEMPHIS, TN 38103

CHOOSING A SHARE CLASS

You may purchase Class A shares, Class C shares or Class I shares of each
of the funds. Each class has its own sales charge and expense structure,
allowing you to choose the class that best meets your situation.

Your investment plans will determine which class is most suitable for you.
For example, if you are investing a substantial amount OR if you plan to hold
your shares for a long period, Class A shares may make the most sense for you.
If you are investing for less than five years, you may want to consider Class C
shares.

Class I shares are available only to a limited group of investors. If you
are investing through a special program, such as a large employer-sponsored
retirement plan or certain programs available through brokers, you may be
eligible to purchase Class I shares.

Because all future investments in your account ill be made in the share
class you designate when opening the account, you should make your decision
carefully. Your investment representative can help you decide.

--------------------------- -------------------------- ------------------------
CLASS A - FRONT LOAD CLASS C - LEVEL LOAD CLASS I - NO-LOAD
-------------------------- --------------------------- ------------------------
-------------------------- --------------------------- ------------------------
o Initial Sales Charge of o No initial sales charge o No initial sales charge
3.00% or less
------------------------- ---------------------------- ------------------------
------------------------- ---------------------------- ------------------------
o No deferred sales charge o Deferred sales charge of o No deferred sale charge
1.00% or less on shares
sell within 1 year
------------------------- --------------------------- ------------------------
------------------------- --------------------------- ------------------------
o Lower annual expenses o Higher annual expenses o Annual expenses are
than Class C due to than Class A due to lower than Class A or
lower distribution fees higher distribution fees Class C shares because
there are no
distribution or service
fees
------------------------- --------------------------- --------------------------

Due to Class C's higher annual expenses, a long-term shareholder who has
invested in Class C may pay more than the economic equivalent of Class A's
initial sales charge. Maximum sales charges and fees are set forth in the table
above, and quantity discounts for the Class A initial sales charge are set forth
below.

CLASS A SHARES. Class A shares are sold at net asset value plus the
applicable sales charge as shown in the table below. Class A shares also bear a
Rule 12b-1 fee of 0.25% per year (paid to the Distributor, Morgan Keegan &
Company, Inc.) of their average net asset value. The sales charge on Class A
shares is allocated between your brokerage firm and Morgan Keegan & Company,
Inc. as shown below:

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<PAGE>

THE SALES CHARGE WHICH EQUALS YOUR DEALER
WHEN YOU INVEST MAKES UP THIS % OF THIS % OF YOUR RECEIVES THIS % OF
THIS AMOUNT THE OFFERING PRICE INVESTMENT THE OFFERING PRICE
--------------------------------------------------------------------------------
Up to $49,999 3.00% 3.09% 1.65%
$50,000 to $99,999 2.40% 2.46% 1.32%
$100,000 to $249,999 1.80% 1.88% 0.99%
$250,000 to $499,999 1.20% 1.21% 0.66%
$500,000 to $999,999 1.00% 1.01% 0.55%
$1,000,000 or more none none none

QUANTITY DISCOUNTS

CUMULATIVE QUANTITY DISCOUNT - lets you combine all of your Class A shares
in Morgan Keegan Select Fund, Inc. for purposes of calculating the sales charge.
Therefore, the quantity discount specified above will apply if the dollar amount
of your purchase, plus the net asset value of Class A shares (Morgan Keegan
Intermediate Bond or High Income Funds) you already own, is $50,000 or more. The
sales charge on the shares being purchased will then be at the rate applicable
to the aggregate value of such shares then owned, plus the amount of the
purchase.

To receive the cumulative quantity discount, either you or your Morgan
Keegan broker must request the discount at the time of placing your purchase
order. In addition, you or your Morgan Keegan broker must give the Transfer
Agent sufficient information to determine and confirm that your purchase will
qualify for the discount. The cumulative quantity discount may be amended or
terminated at any time as to all purchases occurring thereafter.

LETTER OF INTENTION (LOI) - expresses your intent to buy a stated dollar
amount of shares over a two-year period and lets you receive the same sales
charge as if all shares had been purchased at one time. The LOI applies only to
Class A shares of the funds. To take advantage of this discount, simply sign and
complete the LOI on the New Account Application, indicating the amount you wish
to invest. The LOI may include purchases made within 90 days prior to the
signing of the LOI. The LOI will not be a binding obligation on either you or
the fund.

Purchases made under the LOI receive the sales charge applicable to the
aggregate amount you have indicated in the LOI, as if all shares were purchased
in a single transaction. During the period covered by the LOI, the Transfer
Agent will escrow shares representing 5% of your intended purchase. If you do
not purchase the amount stated in your LOI, your sales charge will be adjusted
to reflect the actual amount you invested during the period covered by your LOI,
and any additional sales charge will be recovered from your escrowed shares.

Your LOI can be amended: (a) during the two-year period, if you file an
amended LOI with the same expiration date as the original, and (b) automatically
after the end of the period, if the total purchases credited to your LOI qualify
for an additional reduction in sales charge.

CLASS C SHARES. You may purchase Class C shares at net asset value without
an initial sales charge. There is a 1.00% contingent deferred sales charge
(CDSC) on any Class C shares you sell within 1 year of purchase. The CDSC for
Class C shares is based on the current value of the shares being sold or their
net asset value when purchased, whichever is less. There is no CDSC on shares
you acquire by reinvesting your dividends.

To keep your CDSC as low as possible, each time you place a request to sell
shares, we will first sell any shares in your account that are not subject to a
CDSC. If there are not enough of these to meet your request, we will sell the
shares in the order they were purchased.

Class C shares bear an asset based service fee of 0.25% and a Rule 12b-1
fee of 0.75%, which is higher than the Rule 12b-1 fee for Class A shares. Class
C shares provide the benefit of putting all of your dollars to work from the
time the investment is made, but will have a higher annual expense ratio and pay
lower dividends than Class A shares due to the higher Rule 12b-1 fee.

All CDSC's imposed on redemptions are paid to the Distributor. The
Distributor intends to pay a commission of 1% of the purchase amount to
participating dealers at the time the investor purchases Class C shares.

CLASS I SHARES. Class I shares are available only to certain retirement
accounts, advisory accounts of Morgan Asset Management, Inc. and broker special
programs, including broker programs with record-keeping and other services.
These programs usually involve special conditions and separate fees (contact
your investment representative for information).

There are no sales charges of any kind on Class I shares. There are no
distribution or service fees charged on Class I shares. Consequently, the annual
expenses for Class I shares are lower than the annual expenses for Class A and
Class C shares.

SALES CHARGE WAIVERS: The sales charge is waived on Class A shares of
the funds purchased (1) as a result of reinvestment of dividends and capital
gain distributions and (2) by officers, directors and full-time employees (and
their immediate families, which includes their spouse, children, mother, father
and siblings) of Morgan Keegan & Company, Inc. (or its direct or indirect
subsidiaries), or by directors or officers (and their immediate families, which
includes their spouse, children, mother, father and siblings) of the funds. The
sales charge also is waived on purchases of Class A shares in an initial amount
of not less than $250,000, and thereafter for subsequent purchases if your fund
account balance is at least $250,000, by (1) common or collective trust funds
maintained by a bank, (2) stock bonus, pension or profit sharing plans qualified
under section 401(a) of the Code (including Keogh Plans and 401(k) Plans), and
(3) organizations exempt from taxation pursuant to section 401(a) of the Code.
Also, Class A shares of the funds may be purchased without a sales charge if the
purchase is made through a Morgan Keegan broker who formerly was employed as a
broker with another firm registered as a broker-dealer with the Securities and
Exchange Commission, if the following conditions are met: (1) if you were a
client of the broker at the other firm for which he previously served as a
broker; (2) within 90 days of the purchase of the fund's Class A shares, you
redeemed shares of one or more mutual funds for which that other firm or its
affiliates served as distributor, provided that either you had paid a sales
charge in connection with your investment in such funds or a contingent deferred
sales charge upon redeeming shares in such funds; and (3) the aggregate amount
of the fund's Class A shares purchased under this sales charge waiver does not
exceed the amount of your redemption proceeds from the shares of the mutual
fund(s) for which the other firm or its affiliates served as distributor. The
sales charge on Class A shares is also waived on purchases through Morgan Keegan
Mutual Fund "Wrap Accounts." If you wish to take advantage of this waiver, you
will be required to provide satisfactory evidence that all the foregoing
conditions are met and you should contact your Morgan Keegan broker for more
information.

<PAGE>

DISTRIBUTION FEES

Rule 12b-1 of the Investment Company Act permits mutual funds that adopt a
written plan to pay out of fund assets certain expenses relating to the sale and
distribution of their shares. Each of the funds has adopted two 12b-1 plans.
Under these plans, each fund pays the distributor an annual distribution fee as
follows:

Distribution Fee as
CLASS % OF NET ASSETS

A 0.25%
C 0.75%

Each of the funds has adopted a service plan for Class C shares. Under this
plan, each of the funds pays the distributor an annual service fee in an amount
equal to 0.25% of average daily net assets attributable to Class C shares.

No distribution or services fees are charged on Class I shares.

Distribution fees are used to pay certain expenses in connection with the
offering of the funds' shares, including expenses of printing and mailing of
prospectuses, statements of additional information and periodic reports used in
connection with the offering to prospective investors. Distribution fees are
also used for supplementary sales literature, and advertising costs and
administrative and overhead expenses related to distribution of the funds'
shares. Furthermore, distribution fees are used to offset initial and ongoing
commissions paid to Morgan Keegan brokers and brokerage firms for selling shares
of the funds. The distributor may use distribution fees that are not allocated
to brokerage firms to reduce its own sales and marketing expenses. Service fees
are used primarily to reimburse brokerage firms for providing personal services
to fund shareholders and maintaining shareholder accounts. Brokerage firms that
have sold Class A shares are eligible for reimbursement at the time of sale.
Brokerage firms that have sold Class C shares are eligible for reimbursement
beginning 12 months after the time of sale. The distributor may use service fees
that are not allocated to brokerage firms to reduce its own expenses for
providing personal services and maintaining shareholder accounts.

Because these fees are paid out of the funds' assets on an on-going basis,
over time these fees will increase the cost of your investment and may cost you
more than paying other types of charges.

30
<PAGE>

HOW TO MAKE WITHDRAWALS (REDEMPTIONS)

You may redeem shares and withdraw funds at net asset value per share less,
in the case of Class C shares, any applicable CDSC. There are no redemption
fees. (See "Valuation of Shares.")

THROUGH YOUR BROKER - You may redeem shares by giving your Morgan Keegan
broker a request for redemption of your shares.

BY MAIL -- You may redeem shares by mailing a written signature guaranteed
request to Morgan Keegan Select Fund, Inc., c/o Morgan Keegan & Company, Inc.,
Morgan Keegan Tower, Fifty Front Street, Memphis, TN 38103. Signature guaranteed
means that you must have signed the request and the signature(s) must be
guaranteed by an eligible guarantor institution (a bank, broker-dealer, credit
union, securities exchange, clearing agency or savings association). We may
require further documentation if you are requesting redemption of shares held of
record in the name of corporations or trustees, and other fiduciaries.

Amounts withdrawn are mailed without charge to the address printed on your
account statement.

WHEN REDEMPTIONS ARE EFFECTIVE -- Shares are redeemed at their net asset
value per share (less, in the case of Class C shares, any applicable CDSC) next
determined after receipt by Morgan Keegan's Memphis office of the redemption
request in the form described above. (See "Valuation of Shares"). Payment is
normally made within three days after the redemption request.

EXCHANGE PRIVILEGE

An exchange represents the sale of shares of one fund and the purchase of
shares of another, which may produce a gain or loss for tax purposes.

Your exchange will be processed at the net asset value (less any CDSC that
applies) next determined after the Transfer Agent receives your exchange
request. You will receive a prospectus along with your confirmation if you
exchange into a fund not offered in this Prospectus. The exchange feature may be
modified or discontinued at any time, upon notice to you in accordance with
federal securities rules.

Your exchange may be processed only if the shares of the fund to be
purchased are eligible for sale in your state and if the amount of your purchase
meets the minimum requirements for that fund. The exchange privilege is only
available in states in which it may be legally offered.

EXCHANGES OF CLASS A SHARES: You may exchange your Class A shares for Class
A shares of any other Morgan Keegan Select Fund or for shares of the Morgan
Keegan Southern Capital Fund.

EXCHANGES OF CLASS C SHARES: You may exchange your Class C shares for Class
C shares of any other Morgan Keegan Select Fund.

EXCHANGES OF CLASS I SHARES: You may exchange your Class I shares for
Class I shares of any other Morgan Keegan Select Fund.

<PAGE>

Each fund may refuse exchange purchases by anyone, if in the manager or
subadviser's judgment, the fund would be unable to invest effectively in
accordance with its investment goals and strategies, or would otherwise be
affected in a negative way.

IF YOU HAVE ANY QUESTIONS ON EXCHANGE OR REDEMPTION PROCEDURES, CALL YOUR MORGAN
KEEGAN BROKER OR THE TRANSFER AGENT.

TRANSACTION POLICIES

VALUATION OF SHARES. The net asset value per share (NAV) for each fund is
determined each business day at the close of regular trading on the New York
Stock Exchange (typically 4:00 p.m. Eastern Time) by dividing the fund's net
assets by the number of its shares outstanding.

The assets of the portfolios are generally valued on the basis of market
quotations or, where market quotations are not readily available, on the basis
of fair value as determined by the adviser under procedures adopted by the
portfolios' Board of Trustees.

EXECUTION OF REQUESTS. Each fund is open on those days when the New York
Stock Exchange is open, typically Monday through Friday. Buy and sell requests
are executed at the next NAV to be calculated after your request is received by
the Transfer Agent.

In unusual circumstances, any fund may temporarily suspend the processing
of sell requests, or may postpone payment of proceeds for up to seven days, as
allowed by federal securities laws.

SALES IN ADVANCE OF PURCHASE PAYMENTS. When you place a request to sell
shares for which the purchase money has not yet been collected, the request will
be executed in a timely fashion, but the fund will not release the proceeds to
you until your purchase payment clears. This may take up to fifteen days after
the purchase.

TAX-DEFERRED RETIREMENT PLANS

An investment in the funds' shares may be appropriate for IRAs
(including "education individual retirement accounts" and "Roth IRAs"), SEPPs,
Keogh Plans, SIMPLES, 401(k) Plans and other qualified retirement plans. If you
are considering establishing such a plan, you may wish to consult your attorneys
or tax advisers with respect to specific tax questions regarding such plans.
Morgan Keegan can make available to you forms of IRAs, SEPPs, SIMPLES, Keogh
Plans, 401(k) Plans and other qualified retirement plans which have been
approved as to form by the Internal Revenue Service. Additional information with
respect to these plans is available upon request from any Morgan Keegan broker.

<PAGE>

OTHER SHAREHOLDER SERVICES

SYSTEMATIC INVESTMENT PROGRAM (SIP): This program offers you a convenient
way for you to invest in a fund by automatically transferring money from your
checking or savings account each month to buy shares. Under the program, regular
investments in a fund of $50 or more will be deducted from your checking or
savings account and invested in shares of the fund or funds selected. Your bank
must be a member of the Automated Clearing House (ACH). To sign up, complete the
Systematic Investment Program section of your new account application. There is
no additional charge for this service.

SYSTEMATIC WITHDRAWAL PROGRAM: This program allows you to automatically
sell your shares and receive regular distributions of $50 or more from your
account. You must either own or purchase shares having a value of at least
$10,000 and advise the Company in writing of the amount to be distributed and
the desired frequency, i.e., monthly, quarterly or annually. To sign up,
complete the appropriate section of your new account application. You should
realize that if withdrawals exceed income dividends, the invested principal may
be depleted.

You may make additional investments and may change or stop the program at any
time. There is no charge for this program.

SHAREHOLDER ACCOUNTS

Each fund maintains an account for each shareholder in full and fractional
shares. Each fund may reject any purchase order and may waive minimum purchase
requirements.

CONFIRMATIONS AND REPORTS -- All purchases and sales, and dividend
reinvestments, are confirmed promptly after they become effective. Reports will
be sent to you at least semiannually showing the securities held by the
portfolios and other information. An annual report containing financial
statements audited by independent certified public accountants will also be sent
to you each year.

ACCOUNTS WITH LOW BALANCES. A fund may redeem shares in your account for
their then current net asset value and pay the proceeds to you if at any time
your account has shares valued at less than $500 as a result of redemptions you
have made. A fund may redeem the shares in your account if you have opened your
account for less than the minimum purchase amount and you do not purchase
additional shares to meet the minimum. Before any shares are redeemed for these
purposes, you will be notified in writing 60 days before any such redemption to
bring the value of shares in your account to $500.

MORE ABOUT RISK

A fund's risk profile is largely defined by the fund's principal securities
and investment practices. You may find the most concise description of each
fund's risk profile in the fund-by-fund information.

The funds are permitted to use - within limits established by the directors
- certain other securities and investment practices that have higher risks and
opportunities associated with them. To the extent that a fund uses these

33
<PAGE>

securities or practices, its overall performance may be affected, either
positively or negatively. On the following pages are brief descriptions of these
securities and investment practices, along with the risks associated with them.
The funds follow certain policies that may reduce these risks.

As with any mutual fund, there is no guarantee that the Core Equity Fund or
the Utility Fund will earn income or show a positive total return over any
period of time - days, months or years.

INVESTMENT PRACTICES, SECURITIES AND RELATED RISKS

This table shows each portfolio's or fund's investment limitations as a
percentage of the portfolio's or fund's assets, if a percentage applies. In each
case the principal types of risk are listed (see following pages for
definitions). Numbers in this table show allowable usage only; for actual usage,
consult the portfolios and funds' annual/semiannual reports.

NL -- No policy limitation on usage; portfolio or fund may be using
currently
P -- Permitted, but has not typically been used
NP -- Not permitted

GROWTH STOCK UTILITIES
PORTFOLIO STOCK
(CORE EQUITY PORTFOLIO
FUND) (UTILITY
FUND)

SMALL AND MID-SIZED COMPANY P P

SECURITIES. Market, liquidity
and information risks.

FOREIGN SECURITIES. Market, NP 25%
currency, transaction, liquidity,
information and political risks.

SECTOR FOCUS. Market and NP NL
liquidity risks.

CONVERTIBLE SECURITIES. Market, P P
interest rate, prepayment and
credit risks.

INVESTMENT GRADE BONDS. Interest P P
rate, prepayment, market and
credit risks.

COMPANIES WITH LIMITED OPERATING P P
HISTORIES. Market, liquidity and
information risks.

<PAGE>

ILLIQUID AND RESTRICTED 10% 10%
SECURITIES. Market, liquidity
and transaction risks.

DEFENSIVE MEASURES. Opportunity 20% 100%
risk.

REPURCHASE AGREEMENTS. Credit 20% 100%
risk.

BORROWING; REVERSE REPURCHASE 5% 33-1/3%

AGREEMENTS. Leverage and credit
risks.

HEDGING STRATEGIES; FINANCIAL 100% 100%
FUTURES AND OPTIONS; SECURITIES
AND INDEX OPTIONS. Hedging,
correlation, opportunity,
leverage, interest rate, market,
and liquidity risks.

CURRENCY CONTRACTS. Currency NP P
leverage, credit, correlation,
liquidity and opportunity risks.

SECURITIES LENDING. Credit risk. NP 30%

SHORT-TERM TRADING. Market risk. NL NL

WHEN-ISSUED SECURITIES AND NP P
FORWARD COMMITMENTS. Market,
opportunity and leverage risks.

RISK AND INVESTMENT GLOSSARY

BORROWING AND REVERSE REPURCHASE AGREEMENTS refer to a loan of money from a
bank or other financial institution undertaken by a portfolio or fund.

COMMON STOCK is a share of ownership (equity) interest in a company.

COMPANIES WITH LIMITED OPERATING HISTORIES are securities issued by
companies that have been in continuous operation for less than three years.
Sometimes called "unseasoned" issuers.

CONVERTIBLE SECURITIES are debt or equity securities which may be converted
on specified terms into stock of the issuer.

35
<PAGE>

CORRELATION RISK occurs when a portfolio "hedges" - uses one investment to
offset the portfolio's position in another. If the two investments do not behave
in relation to one another the way the portfolio managers expect them to, then
unexpected results may occur.

CREDIT RISK means that the issuer of a security or the counterparty to an
investment contract may default or become unable to pay its obligations when
due.

CURRENCY CONTRACTS involve the right or obligation to buy or sell a given
amount of foreign currency at a specified price and future date.

CURRENCY RISK happens when a portfolio buys or sells a security denominated
in foreign currency. Foreign currencies "float" in value against the U.S.
dollar. Adverse changes in foreign currency value can cause investment losses
when a portfolio's investments are converted to U.S. dollars.

DEFENSIVE MEASURES may be taken when a portfolio's adviser believes they
are warranted due to market conditions. When this happens, the portfolio may
increase its investment in government securities and other short-term securities
without regard to the portfolio's investment restrictions, policies or normal
investment emphasis. As a result, the portfolio could be unable to achieve its
investment objective.

DIVERSIFICATION means a diversified fund may not, with respect to at least
75% of its assets, invest more than 5% of its assets in the securities of one
company. A non-diversified fund may be more volatile than a diversified fund
because it invests more of its assets in a smaller number of companies and the
gains or losses on a single stock will therefore have a greater impact on the
fund's share price. Both of the funds are diversified funds.

FINANCIAL FUTURES are exchange-traded contracts on securities, securities
indexes or foreign currencies that obligate the holder to take or make future
delivery of a specified quantity of those underlying securities or currencies on
a predetermined future date.

FOREIGN SECURITIES are issued by companies located outside of the United
States. A portfolio considers a company to be located outside the United States
if the principal securities trading market for its equity securities is located
outside the U.S. or it is organized under the laws of, and has its principal
office in, a country other than the U.S. The risks of investing in foreign
countries include the possibility of the imposition of exchange controls,
currency devaluations, foreign ownership limitations, expropriation,
restrictions on removal of currency or other assets, nationalization of assets,
punitive taxes, and certain custody and settlement risks.

DEVELOPING COUNTRIES: Investments in developing or emerging markets are
subject to all of the risks of foreign investing generally, and have
additional heightened risks due to a lack of established legal,
business and social frameworks to support securities markets. Foreign
securities markets, including emerging markets, may have substantially
lower trading volumes than U.S. markets, resulting in less liquidity
and more volatility than experienced in the U.S.

FORWARD FOREIGN CURRENCY CONTRACTS are privately negotiated contracts
committing the holder to purchase or sell a specified quantity of a foreign
currency on a predetermined future date.

37
<PAGE>

HEDGING RISK comes into play when a portfolio uses a security whose value
is based on an underlying security or index to "offset" the portfolio or fund's
position in another security or currency. The objective of hedging is to offset
potential losses in one security with gains in the hedge. But a hedge can
eliminate or reduce gains as well as offset losses. (Also see "Correlation
Risk.")

ILLIQUID AND RESTRICTED SECURITIES are securities which, by rules of
their issue or by their nature, cannot be sold readily. These include illiquid
Rule 144A securities.

INFORMATION RISK means that information about a security or issuer may
not be available, complete, accurate or comparable.

INTEREST RATE RISK is the risk that changes in interest rates will
adversely affect the value of an investor's securities. When interest rates
rise, the value of fixed-income securities will generally fall. Conversely, a
drop in interest rates will generally cause an increase in the value of
fixed-income securities. Longer-term securities are subject to greater interest
rate risk.

INVESTMENT GRADE BONDS are rated BBB (Standard & Poor's) or Baa (Moody's)
or above. Bonds rated below investment grade are subject to greater credit risk
than investment grade bonds.

LEVERAGE RISK occurs in some securities or techniques that tend to magnify
the effect of small changes in an index or a market. This can result in a loss
that exceeds the account that was invested in the contract.

LIQUIDITY RISK occurs when investments cannot be sold readily. A portfolio
may have to accept a less-than-desirable price to complete the sale of an
illiquid security or may not be able to sell it at all.

MARKET CAPITALIZATION is the total current market value of a company's
outstanding common stock.

MARKET RISK exists in all mutual funds and means the risk that the prices
of securities in a market, a sector, or an industry will fluctuate, and that
such movements might reduce an investment's value.

OPPORTUNITY RISK means missing out on an investment opportunity because the
assets necessary to take advantage of it are committed to less advantageous
investments or strategies.

OPTIONS are contracts giving the holder the right but not the obligation to
purchase or sell a security on or before a predetermined future date for a fixed
price. Options on securities indexes are similar, but settle in cash.

37
<PAGE>

POLITICAL RISK comes into play with investments, particularly foreign
investments, which may be adversely affected by nationalization, taxation, war,
government instability or other economic or political actions or factors.

PREPAYMENT RISK is the risk that, as interest rates fall, borrowers are
more likely to refinance their debts. As a result, the principal on certain
fixed income securities may be paid earlier than expected, which could cause
investment losses and cause prepaid amounts to have to be reinvested at a
relatively lower interest rate.

REPURCHASE AGREEMENTS means the purchase of a security that must later be
sold back to the issuer at the same price plus interest.

SECTOR FOCUS occurs when a significant portion of a portfolio's assets is
invested in a relatively small number of related industries. Only the Utility
Fund will concentrate more than 25% of its total assets in any one industry.

SECURITIES LENDING means the lending of securities to financial
institutions, which provide cash or government securities as collateral.

SHORT-TERM TRADING means selling a security soon after purchase. A
portfolio engaging in short-term trading will have higher turnover and
transaction expenses. Short-term trading may also result in short-term capital
gains. Upon the distribution to you of any net short-term capital gains from a
fund, you will be taxed at ordinary tax rates. Because the adviser or subadviser
may take defensive measures with regard to 100% of the assets in the
corresponding Portfolios of the funds, the risks and expenses of short-term
trading may be high in these Portfolios.

SMALL AND MID-SIZED COMPANY SECURITIES are securities issued by small or
mid-sized companies, as measured by their market capitalization. Historically,
smaller company securities have been more volatile in price than larger company
securities, especially over the short-term. Among the reasons for the greater
price volatility are the less certain growth prospects of smaller companies, the
lower degree of liquidity in the markets for such securities, and the greater
sensitivity of smaller companies to changing economic conditions. In general,
the smaller the company, the greater its risks.

TRANSACTION RISK means that a portfolio may be delayed or unable to settle
a transaction or that commissions and settlement expenses may be higher than
usual.

WHEN ISSUED SECURITIES AND FORWARD COMMITMENTS involve the purchase and
sale of securities for delivery at a future date, market value may change before
delivery.

<PAGE>

FOR MORE INFORMATION:

STATEMENT OF ADDITIONAL INFORMATION (SAI)

The SAI provides more detailed information about the funds. The SAI has
been filed with the Securities and Exchange Commission and is incorporated
by reference in this Prospectus (is legally a part of this Prospectus).

ANNUAL AND SEMIANNUAL REPORTS

These reports include portfolio holdings, financial statements, performance
information, the auditor's report (in the case of the annual report), and a
discussion of the market conditions and investment strategies that
significantly affected the funds' performance during their last fiscal
year.

Information about the funds (including the SAIs) can be reviewed and copied
at the Commission's Public Reference Room in Washington, D.C., and
information on the operation of the Public Reference Room may be obtained
by calling the Commission at 1-202-942-8090. Reports and other information
about the funds are available on the EDGAR Database on the Commission's
Internet site at http://www.sec.gov, and copies of this information may be
obtained, after paying a duplicating fee, by electronic request at the
following E-mail address: [email protected], or by writing the
Commission's Public Reference Section, Washington, D.C. 20549-0102.

To request a free copy of the current annual/semi-annual report or SAI,
request other information about the funds, or make shareholder inquiries,
please write, call or E-mail us at:

Morgan Keegan & Company, Inc.
Morgan Keegan Tower
Fifty Front Street
Memphis, Tennessee 38103
(901) 524-4100
(800) 366-7426
Internet: WWW.MORGANKEEGAN.COM

SEC File No.: 811-09079

39
<PAGE>

THE CORE EQUITY FUND
A SERIES OF THE MORGAN KEEGAN SELECT FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
________________, 2000

The Morgan Keegan Core Equity Fund is a series of the Morgan Keegan Select
Fund, Inc. (the "Company"), a diversified open-end management investment company
incorporated in Maryland on October 27, 1998. The fund invests in a diversified
portfolio of domestic common stocks with greater than average growth
characteristics selected primarily from the Standard and Poor's 500 Composite
Stock Price Index.

This Statement of Additional Information is not a prospectus but should be
read in conjunction with the fund's Prospectus, dated ______________, 2000,
which has been filed with the Securities and Exchange Commission. A copy of the
current Prospectus is available without charge from Morgan Keegan & Company,
Inc., the fund's distributor, by calling (800) 366-7426. Please retain this
document for future reference. Capitalized terms used and not otherwise defined
herein have the same meanings as defined in the Prospectus.

TABLE OF CONTENTS PAGE

Additional Information About Investment Limitations and Policies
Risk Considerations
Additional Tax Information
Additional Purchase and Redemption Information
Valuation of Shares
Purchase of Shares
Performance Information
Tax-Deferred Retirement Plans
The Company's Officers and Directors
The Portfolio's Officers and Trustees
The Portfolio's Investment Adviser
The Portfolio's Investment Subadviser
The Portfolio's Investment Sub-subadvisers
Portfolio Transactions and Brokerage
Valuation of Portfolio Securities
The Fund's Distributor
Description of the Fund's Shares
The Fund's Custodian, Transfer Agent, Dividend Disbursing Agent
and Portfolio Accounting Service Agent
The Fund's Legal Counsel
The Fund's Certified Public Accountants
Financial Statements

INVESTMENT ADVISER TRANSFER AGENT & DISTRIBUTOR
------------------ ----------------------------
Meeder Asset Management, Inc. Morgan Keegan & Company, Inc.

PORTFOLIO ACCOUNTING SERVICE AGENT
INVESTMENT SUBADVISER AND ADMINISTRATOR
--------------------- -----------------
Sector Capital Management, L.L.C. Mutual Funds Service Co.

<PAGE>

ADDITIONAL INFORMATION ABOUT
INVESTMENT POLICIES AND LIMITATIONS

The following policies and limitations supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or limitation
states a maximum percentage of the Portfolio's assets that may be invested in
any security or other asset, or sets forth a policy regarding quality standards,
such standard or percentage limitation will be determined immediately after and
as a result of the Portfolio's acquisition of such security or other asset.
Accordingly, any subsequent change in values, net assets, or other circumstances
will not be considered when determining whether the investment complies with the
fund's investment policies and limitations.

The fund's fundamental investment limitations cannot be changed without
approval by a "majority of the outstanding voting securities" (as defined in the
Investment Company Act of 1940) of the fund. However, except for the fundamental
investment limitations set forth below, the investment policies and limitations
described in this Statement of Additional Information are not fundamental and
may be changed by the Board of Directors without shareholder approval. THE
FOLLOWING ARE THE PORTFOLIO'S FUNDAMENTAL INVESTMENT LIMITATIONS SET FORTH IN
THEIR ENTIRETY; PROVIDED THAT NOTHING IN THE FOLLOWING INVESTMENT RESTRICTIONS
WILL PREVENT THE FUND FROM INVESTING ALL OR PART OF THE FUND'S ASSETS IN AN
OPEN-END MANAGEMENT INVESTMENT COMPANY WITH THE SAME INVESTMENT OBJECTIVE AS THE
FUND. THE FUND OR THE PORTFOLIO MAY NOT:

(1) with respect to 75% of the Portfolio's total assets, purchase the
securities of any issuer (other than obligations issued or guaranteed by the
government of the United States, or any of its agencies or instrumentalities)
if, as a result thereof, (a) more than 5% of the Portfolio's total assets would
be invested in the securities of such issuer, or (b) the Fund would hold more
than 10% of the voting securities of such issuer;

(2) issue senior securities, except as permitted under the Investment
Company Act of 1940;

(3) borrow money, except that the Portfolio may borrow money for temporary
or emergency purposes (not for leveraging or investment) in an amount not
exceeding 5% of its total assets including the amount borrowed less liabilities
(other than borrowings). Any borrowings that come to exceed this amount will be
reduced within three days (not including Sundays and holidays) to the extent
necessary to comply with the 5% limitation;

(4) underwrite securities issued by others (except to the extent that the
Portfolio may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities);

<PAGE>

(6) purchase or sell real estate unless acquired as a result of ownership
of securities or other instruments (but this shall not prevent the Portfolio
from investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business); or

(7) purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments (but this shall not prevent the
Portfolio from purchasing or selling options and futures contracts or from
investing in securities or other instruments backed by physical commodities).

THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL, AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.

(i) The Portfolio does not currently intend to engage in short sales, but
may engage in short sales "against the box" to the extent that the Portfolio
contemporaneously owns or has the right to obtain at no added cost securities
identical to those sold short, and provided that transactions in futures
contracts and options are not deemed to constitute selling securities short.

(ii) The Portfolio does not currently intend to purchase securities on
margin, except that the Fund may obtain such short-term credits as are necessary
for the clearance of transactions, and provided that margin payments in
connection with futures contracts and options on futures contracts shall not
constitute purchasing securities on margin.

(iii) The Portfolio may borrow money only from a bank. The Portfolio will
not purchase any security while borrowings representing more than 5% of its
total assets are outstanding.

(iv) The Portfolio does not currently intend to purchase any security if,
as a result, more than 10% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or contractual
restrictions on resale or because they cannot be sold or disposed of in the
ordinary course of business at approximately the prices at which they are
valued, including repurchase agreements with remaining maturities in excess of
seven days or securities without readily available market quotes.

(v) The Portfolio does not currently intend to invest in securities of real
estate investment trusts that are not readily marketable, or to invest in
securities of real estate limited partnerships that are not listed on the New
York Stock Exchange or the American Stock Exchange or traded on the NASDAQ
National Market System.

<PAGE>

(vi) The Portfolio does not currently intend to purchase securities of
other investment companies. This limitation does not apply to securities
received as dividends, through offers of exchange, or as a result of
reorganization, consolidation, or merger.

(vii) The Portfolio does not currently intend to purchase the securities of
any issuer (other than securities issued or guaranteed by the U.S. Government or
political subdivisions thereof) if, as a result, more than 5% of its total
assets would be invested in the securities of business enterprises that,
including predecessors, have a record of less than three years of continuous
operation.

(viii) The Portfolio does not currently intend to purchase warrants, valued
at the lower of cost or market, in excess of 5% of the Portfolio's net assets.
Included in that amount, but not to exceed 2% of the Portfolio's net assets, may
be warrants that are not listed on the New York Stock Exchange or the American
Stock Exchange. Warrants acquired by the Portfolio in units or attached to
securities are not subject to these restrictions.

(ix) The Portfolio does not currently intend to invest in oil, gas, or
other mineral exploration or development programs or leases.

(x) The Portfolio does not currently intend to purchase the securities of
any issuer if those officers and Trustees of the Portfolio and those officers
and directors of the Company, the Manager, the Subadviser, or the Sector
Advisers who individually own more than 1/2 of 1% of the securities of such
issuer, together own more than 5% of such issuer's securities.

For the Portfolio's limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options Transactions." For the
Portfolio's limitations on short sales, see the section entitled "Short Sales."

MONEY MARKET INSTRUMENTS When investing in money market instruments, the
Portfolio will limit its purchases, denominated in U.S. dollars, to the
following securities.

U.S. Government Securities and Securities of its Agencies and
Instrumentalities - obligations issued or guaranteed as to principal or interest
by the United States or its agencies (such as the Export Import Bank of the
United States, Federal Housing Administration, and Government National Mortgage
Association) or its instrumentalities (such as the Federal Home Loan Bank,
Federal Intermediate Credit Banks and Federal Land Bank), including Treasury
bills, notes and bonds.

Bank Obligations and Instruments Secured Thereby - obligations (including
certificates of deposit, time deposits and bankers' acceptances) of domestic
banks having total assets of $1,000,000,000 or more, instruments secured by such
obligations and obligations of foreign branches of such banks, if the domestic
parent bank is unconditionally liable to make payment on the instrument if the
foreign branch fails to make payment for any reason. The Portfolio may also
invest in obligations (including certificates of deposit and bankers'

<PAGE>

acceptances) of domestic branches of foreign banks having assets of
$1,000,000,000 or more, if the domestic branch is subject to the same regulation
as United States banks. The Portfolio will not invest at time of purchase more
than 25% of its assets in obligations of banks, nor will the Portfolio invest
more than 10% of its assets in time deposits.

High Quality Commercial Paper - The Portfolio may invest in commercial
paper rated no lower than "A-2" by Standard & Poor's Corporation or "Prime-2" by
Moody's Investors Services, Inc., or, if not rated, issued by a company having
an outstanding debt issue rated at least A by Standard & Poor's or Moody's.

Private Placement Commercial Paper - Private placement commercial paper
consists of unregistered securities which are traded in public markets to
qualified institutional investors, such as the Portfolio. The Portfolio's risk
is that the universe of potential buyers for the securities, should the
Portfolio desire to liquidate a position, is limited to qualified dealers and
institutions, and therefore such securities could have the effect of being
illiquid.

High Grade Corporate Obligations - obligations rated at least A by Standard
& Poor's or Moody's. See rating information below.

Repurchase Agreements - See "Repurchase Agreements" below.

The Manager exercises due care in the selection of money market
instruments. However, there is a risk that the issuers of the securities may not
be able to meet their obligations to pay interest or principal when due. There
is also a risk that some of the Portfolio's securities might have to be
liquidated prior to maturity at a price less than original amortized cost or
value, face amount or maturity value to meet larger than expected redemptions.
Any of these risks, if encountered, could cause a reduction in net income or in
the net asset value of the Portfolio.

RATINGS

1. Moody's Investors Services, Inc.'s Corporate Bond Rating:

Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

<PAGE>

elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.

A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.

Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length or time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

2. Standard and Poor's Corporation's Corporate Bond Rating:

AAA - Bonds rated AAA are highest grade obligations. They possess the
ultimate degree of protection as to principal and interest. Marketwise they move
with interest rates, and hence provide the maximum safety on all counts.

AA - Bonds rated AA also qualify as high grade obligations, and in the
majority of instances differ from AAA issues only in small degree. Here, too,
prices move with the long-term money market.

A - Bonds rated A are regarded as upper medium grade. They have
considerable investment strength but are not entirely free from the adverse
effect of changes in economic and trade conditions. Interest and principal are
regarded as safe. They predominantly reflect money rates in their market
behavior but, to some extent, also economic conditions.

BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.

3. Commercial Paper Ratings:

Commercial paper rated A-1 by Standard & Poor's Corporation ("S&P") has the
following characteristics: Liquidity ratios are adequate to meet cash
requirements. Long term senior debt is rated "A" or better. The issuer has
access to at least two additional channels of borrowing. Basic earnings and cash
flow have an upward trend. Typically, the issuer's industry is well established
and the issuer has a strong position within the industry. The reliability and
quality of management are unquestioned. Relative strength or weakness of the

<PAGE>

above factors determines whether the issuer's commercial paper is A-1, A-2, or
A-3.

The rating P-1 is the highest commercial paper rating assigned by Moody's
Investors Service, Inc. ("Moody's"). Among the factors considered by Moody's in
assigning ratings are the following: (1) evaluation of the management of the
issuer; (2) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas; (3)
evaluation of the issuer's products in relation to competition and customer
acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend
of earnings over a period of ten years; (7) financial strength of a parent
company and the relationships which exist with the issuer; and (8) recognition
by the management of obligations which may be present or may arise as a result
of public interest questions and preparations to meet such obligations.

4. Description of Permitted Money Market Investments:

Commercial Paper - refers to promissory notes issued by corporations in
order to finance their short term credit needs.

U.S. Government Obligations - are bills, certificates of indebtedness notes
and bonds issued by the U.S. Treasury and agencies, authorities and
instrumentalities of the U.S. Government established under the authority of an
act of Congress. Some obligations of U.S. Government agencies, authorities and
instrumentalities are supported by the full faith and credit of the U.S.
Treasury, as for example, the Government National Mortgage Association; others
by the right of the issuer to borrow from the Treasury, as in the case of
Federal Farm Credit Banks and Federal National Mortgage Association; and others
only by the credit of the agency, authority or instrumentality; as for example,
Federal Home Loan Mortgage and Federal Home Loan Bank.

Repurchase Agreements - See "Repurchase Agreements" below.

Certificates of Deposit - are certificates issued against funds deposited
in a bank, are for a definite period of time, earn a specified or variable rate
of return and are normally negotiable.

Banker's Acceptances - are short-term credit instruments used to finance
the import, export, transfer or storage of goods. They are termed "accepted"
when a bank guarantees their payment at maturity.

Corporate Obligations - include bonds and notes issued by corporations in
order to finance longer term credit needs.

<PAGE>

Board monitors investments in illiquid instruments. In determining the liquidity
of the Portfolio's investments, the Manager, Subadviser and Sector Advisers may
consider various factors, including (1) the frequency of trades and quotations,
(2) the number of dealers and prospective purchasers in the marketplace, (3)
dealer undertakings to make a market, (4) the nature of the security (including
any demand or tender features), and (5) the nature of the marketplace for trades
(including the ability to assign or offset the Portfolio's rights and
obligations relating to the investment). Investments currently considered by the
Portfolio to be illiquid include repurchase agreements not entitling the holder
to payment of principal and interest within seven days, over-the-counter
options, and non-government stripped fixed-rate mortgage-backed securities.
Also, the Manager, Subadviser and/or Sector Advisers may determine some
restricted securities to be illiquid. However, with respect to over-the-counter
options the Portfolio writes, all or a portion of the value of the underlying
instrument may be illiquid depending on the assets held to cover the option and
the nature and terms of any agreement the Portfolio may have to close out the
option before expiration. In the absence of market quotations, illiquid
investments are priced at fair value as determined in good faith by the Board of
Trustees. If through a change in values, net assets, or other circumstances, the
Portfolio were in a position where more than 10% of its net assets were invested
in illiquid securities, it would seek to take appropriate steps to protect
liquidity.

RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions, pursuant to an exemption from registration under the Securities
Act of 1933, or in a registered public offering. Where registration is required,
the Portfolio may be obligated to pay all or part of the registration expense
and a considerable period may elapse between the time it decides to seek
registration and the time the Portfolio may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, the Portfolio might obtain a less favorable
price than prevailed when it decided to seek registration of the security.

REPURCHASE AGREEMENTS. In a repurchase agreement, the Portfolio purchases a
security and simultaneously commits to resell that security to the seller at an
agreed upon price on an agreed upon date within a number of days from the date
of purchase. The resale price reflects the purchase price plus an agreed upon
incremental amount which is unrelated to the coupon rate or maturity of the
purchased security. A repurchase agreement involves the obligation of the seller
to pay the agreed upon price, which obligation is in effect secured by the value
(at least equal to the amount of the agreed upon resale price and marked to
market daily) of the underlying security. The Portfolio may engage in repurchase
agreements with respect to any security in which it is authorized to invest.

<PAGE>

to limit repurchase agreement transactions to parties whose creditworthiness has
been reviewed and found satisfactory by the Manager.

HEDGING STRATEGIES. The Portfolio may engage in hedging transactions in
carrying out its investment policies. The Manager may conduct a hedging program
on behalf of the Portfolio for the following reasons: (1) to keep cash on hand
to meet shareholder redemptions or other needs while simulating full investment
in stocks; (2) to reduce the fund's transaction costs or add value when these
instruments are favorably priced; (3) to forego taxes that would otherwise have
to be paid on gains from the sale of the fund's securities; and (4) to attempt
to protect the value of certain securities owned or intended to be purchased by
the fund's while the manager is making a change in the fund's investment
position.

A hedging program involves entering into an "option" or "futures"
transaction in lieu of the actual purchase or sale of securities. At present,
many groups of common stocks (stock market indices) may be made the subject of
futures contracts, while government securities such as Treasury Bonds and Notes
are among debt securities currently covered by futures contracts.

Financial futures contracts or related options used by the Portfolio to
implement its hedging strategies are considered derivatives. The value of
derivatives can be affected significantly by even small market movements,
sometimes in unpredictable ways.

LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. The Portfolio will not:
(a) write call options if, as a result, more than 25% of the Portfolio's total
assets would be hedged with options under normal conditions; or (b) purchase
futures contracts if, as a result, the Portfolio's total obligations upon
settlement or exercise of purchased futures contracts would exceed 25% of its
total assets. These limitations do not apply to options attached to or acquired
or traded together with their underlying securities, and do not apply to
securities that incorporate features similar to options.

For certain regulatory purposes, the Commodity Futures Trading Commission
("CFTC") limits the types of futures positions that can be taken in conjunction
with the management of a securities portfolio for mutual funds, such as the
Portfolio. All futures transactions for the Portfolio will consequently be
subject to the restrictions on the use of futures contracts established in CFTC
rules, such as observation of the CFTC's definition of "hedging." In addition,
whenever the Portfolio establishes a long futures position, it will set aside
cash or cash equivalents equal to the underlying commodity value of the long
futures contracts held by the Portfolio. Although all futures contracts involve
leverage by virtue of the margin system applicable to trading on futures
exchanges, the Portfolio will not, on a net basis, have leverage exposure on any
long futures contracts that it establishes because of the cash set aside
requirement. All futures transactions can produce a gain or a loss when they are
closed, regardless of the purpose for which they have been established. Unlike
short futures contracts positions established to protect against the risk of a

<PAGE>

decline in value of existing securities holdings, the long futures positions
established by the Portfolio to protect against reinvestment risk are intended
to protect the Portfolio against the risks of reinvesting portfolio assets that
arise during periods when the assets are not fully invested in securities.

The Portfolio may not purchase or sell financial futures or purchase
related options if immediately thereafter the sum of the amount of margin
deposits on the Portfolio's existing futures positions and premiums paid for
related options would exceed 5% of the market value of the Portfolio's total
assets.

The above limitations on the Portfolio's investments in futures contracts
and options, and the Portfolio's policies regarding futures contracts and
options discussed elsewhere in this Statement of Additional Information, may be
changed as regulatory agencies permit.

FUTURES CONTRACTS. When the Portfolio purchases a futures contract, it
agrees to purchase a specified underlying instrument at a specified future date.
When the Portfolio sells a futures contract, it agrees to sell the underlying
instrument at a specified future date. The price at which the purchase and sale
will take place is fixed when the Portfolio enters into the contract.

Some currently available futures contracts are based on indices of
securities-prices, such as the Standard & Poor's 500 Composite Stock Price Index
(S&P 500). Futures can be held until their delivery dates, or can be closed out
before then if a liquid secondary market is available.

The value of a futures contract tends to increase and decrease in tandem
with the value of its underlying instrument. Therefore, purchasing futures
contracts will tend to increase the Portfolio's exposure to positive and
negative price fluctuations in the underlying instrument, much as if it had
purchased the underlying instrument directly. When the Portfolio sells a futures
contract, by contrast, the value of its futures position will tend to move in a
direction contrary to the market. Selling futures contracts, therefore, will
tend to offset both positive and negative market price changes, much as if the
underlying instrument had been sold.

FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract is
not required to deliver or pay for the underlying instrument unless the contract
is held until the delivery date. However, both the purchaser and seller are
required to deposit "initial margin" with a futures broker, known as a futures
commission merchant (FCM), when the contract is entered into. Initial margin
deposits are typically equal to a percentage of the contract's value.

<PAGE>

constitute purchasing securities on margin for purposes of the Portfolio's
investment limitations. In the event of the bankruptcy of an FCM that holds
margin on behalf of the Portfolio, the Portfolio may be entitled to return of
margin owed to it only in proportion to the amount received by the FCM's other
customers, potentially resulting in losses to the Portfolio.

WRITING CALL OPTIONS. Writing a call option obligates the Portfolio to sell
or deliver the option's underlying instrument, in return for the strike price,
upon exercise of the option. The characteristics of writing call options are
similar to those of writing put options, except that writing calls generally is
a profitable strategy if prices remain the same or fall. Through receipt of the
option premium, a call writer mitigates the effects of a price decline. At the
same time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.

CORRELATION OF PRICE CHANGES. Because there are a limited number of types
of exchange traded options and futures contracts, it is likely that the
standardized contracts available will not match the Portfolio's current or
anticipated investments exactly. The Portfolio may invest in options and futures
contracts based on securities with different issuers, maturities, or other
characteristics from the securities in which it typically invests, which
involves a risk that the options or futures position will not track the
performance of the Portfolio's other investments.

Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match the Portfolio's
investments well. Options and futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the contract,
which may not affect security prices the same way. Imperfect correlation may
also result from differing levels of demand in the options and futures markets
and the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price fluctuation
limits or trading halts.

The Portfolio may purchase or sell options and futures contracts with a
greater or lesser value than the securities it wishes to hedge or intends to
purchase in order to attempt to compensate for differences in volatility between
the contract and the securities, although this may not be successful in all
cases. If price changes in the Portfolio's options or futures positions are
poorly correlated with its other investments, the positions may fail to produce
anticipated gains or result in losses that are not offset by gains in other
investments.

<PAGE>

price moves upward or downward more than the limit in a given day. On volatile
trading days when the price fluctuation limit is reached or a trading halt is
imposed, it may be impossible for the Portfolio to enter into new positions or
close out existing positions. If the secondary market for a contract is not
liquid because of price fluctuation limits or otherwise, it could prevent prompt
liquidation of unfavorable positions, and potentially could require the
Portfolio to continue to hold a position until delivery or expiration regardless
of changes in its value. As a result, the Portfolio's access to other assets
held to cover its options or futures positions could also be impaired.

ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. The Portfolio will comply
with guidelines established by the SEC with respect to coverage of options and
futures strategies by mutual funds, and if the guidelines so require, will set
aside appropriate liquid assets in a segregated custodial account in the amount
prescribed. Securities held in a segregated account cannot be sold while the
futures or option strategy is outstanding, unless they are replaced with other
suitable assets. As a result, there is a possibility that segregation of a large
percentage of the Portfolio's assets could impede portfolio management or the
Fund's ability to meet redemption requests or other current obligations.

SHORT SALES. The Portfolio may enter into short sales "against the box"
with respect to equity securities it holds. For example, if a Sector Adviser
anticipates a decline in the price of a stock the Portfolio holds, it may sell
the stock short "against the box." If the stock price subsequently declines, the
proceeds of the short sale could be expected to offset all or a portion of the
stock's decline. The Portfolio currently intends to hedge no more than 15% of
its total assets with short sales "against the box" on equity securities under
normal circumstances.

When the Portfolio enters into a short sale "against the box", it will be
required to own or have the right to obtain at no added cost securities
identical to those sold short "against the box" and will be required to continue
to hold them while the short sale "against the box" is outstanding. The
Portfolio will incur transaction costs, including interest expense, in
connection with opening, maintaining, and closing short sales.

PORTFOLIO TURNOVER.

Decisions to buy and sell securities are made by the Sector Advisers for
the assets assigned to them, and by the Manager and Sector Capital for assets
not assigned to a Sector Adviser. Currently, each portfolio representing an
industry sector has one Sector Adviser. The Manager invests the Growth Stock
Portfolio's liquidity reserves and the Manager or Sector Capital may invest the
Growth Stock Portfolio's assets in financial futures contracts and related
options. Each Sector Adviser makes decisions to buy or sell securities
independently from other Sector Advisers. In addition, when a Sector Adviser's
services are terminated and another retained, the new Sector Adviser may
significantly restructure the Growth Stock Portfolio's assets assigned to it.

<PAGE>

These practices may increase the Growth Stock Portfolio's portfolio turnover
rates, realization of gains or losses, and brokerage commissions. The portfolio
turnover rates for the Growth Stock Portfolio may vary greatly from year to year
as well as within a year and may be affected by sales of investments necessary
to meet cash requirements for redemptions of shares. A high rate of turnover
involves correspondingly greater expenses, increased brokerage commissions and
other transaction costs, which must be borne by the Growth Stock Portfolio and
its investors. In addition, high portfolio turnover may result in increased
short-term capital gains, which, when distributed to shareholders, are treated
as ordinary income.

The Portfolio's portfolio turnover rate for the fiscal year ended December
31, 1999 was 51% (80% in 1998).

Major changes in the portfolio have resulted in portfolio turnover rates of
as much as 338%, which is greater than that of most other investment companies,
including many which emphasize capital appreciation as a basic policy. The
policies of the Growth Stock Portfolio may be expected to result in
correspondingly heavier brokerage commissions and taxes, which ultimately must
be borne by the Company's shareholders.

ADDITIONAL TAX INFORMATION

The following is a general summary of certain federal income tax
considerations affecting the fund and its shareholders. Investors are urged to
consult their own tax advisers for more detailed information and for information
regarding any state, local or foreign taxes that may be applicable to them.

GENERAL

The fund intends to qualify for treatment as a regulated investment company
("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended
("Code"). In order to qualify for that treatment, the fund must distribute
annually to its shareholders at least 90% of its investment company taxable
income (generally, net investment income plus net short-term capital gain) and
must meet several additional requirements. Among these requirements are the
following: (1) at least 90% of the fund's gross income each taxable year must be
derived from dividends, interest, payments with respect to securities loans and
gains from the sale or other disposition of securities, or other income
(including gains from options) derived with respect to its business of investing
in securities; (2) at the close of each quarter of the fund's taxable year, at
least 50% of the value of its total assets must be represented by cash and cash
items, U.S. government securities, securities of other RICs and other
securities, with such other securities limited, with respect to any one issuer,
to an amount that does not represent more than 10% of the issuer's outstanding
voting securities; and (3) at the close of each quarter of the fund's taxable
year, not more than 25% of the value of its total assets may be invested in
securities (other than U.S. government securities or the securities of other
RICs) of any one issuer.

<PAGE>

The fund will be subject to a nondeductible 4% excise tax to the extent
that it fails to distribute by the end of any calendar year substantially all of
its ordinary income for that year and capital gain net income for the one-year
period ending on October 31 of that year, plus certain other amounts.

DIVIDENDS AND OTHER DISTRIBUTIONS

The fund's dividends, if any, are declared payable on a quarterly basis. In
December, the fund may distribute an additional ordinary income dividend
(consisting of net short-term capital gains and undistributed income) in order
to preserve its status as a registered investment company (mutual fund) under
the Internal Revenue Code. Net long-term capital gains, if any, also are
declared and distributed in December.

A portion of the dividends from the fund's investment company taxable
income (whether paid in cash or reinvested in additional fund shares) is
eligible for the dividends-received deduction allowed to corporations. The
eligible portion may not exceed the aggregate dividends received by the fund
from domestic corporations. However, dividends received by a corporate
shareholder and deducted by it pursuant to the dividends-received deduction are
subject indirectly to the alternative minimum tax. Distributions by the fund of
net capital gain (the excess of net long-term capital gain over net short-term
capital loss) do not qualify for the dividends-received deduction.

Dividends and other distributions declared by the fund in December of any
year and payable to shareholders of record on a date in that month will be
deemed to have been paid by the fund and received by the shareholders on
December 31 if they are paid by the fund during the following January.
Accordingly, such distributions will be taxed to the shareholders for the year
in which that December 31 falls.

A dividend or capital gain distribution paid shortly after shares have been
purchased, although in effect a return of investment, is subject to federal
taxation. Accordingly, an investor should not purchase fund shares immediately
prior to a dividend or capital gain distribution record date solely for the
purpose of receiving the dividend or distribution.

REDEMPTIONS

<PAGE>

charge due to the reinstatement privilege or exchange privilege. In these cases,
any gain on the disposition of the original Class A shares will be increased, or
any loss decreased, by the amount of the sales charge paid when the shareholder
acquired those shares, and that amount will increase the basis of the shares
subsequently acquired. In addition, if a shareholder purchases shares of the
fund (whether pursuant to the reinstatement privilege or otherwise) within 30
days before or after redeeming at a loss other shares of the fund (regardless of
class), all or part of that loss will not be deductible and instead will
increase the basis of the newly purchased shares.

Any loss on a sale or exchange of fund shares held for six months or less
will be treated as a long-term, instead of a short-term, capital loss to the
extent of any capital gain distributions received on those shares.

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

LETTER OF INTENTION

The sales charge applicable to purchases is reduced to 1% pursuant to a
Letter of Intention that states that the purchaser intends to purchase shares
equal to at least $1,000,000 within a 24-month period. Investors may obtain a
form of a Letter of Intention ("Letter") from their Morgan Keegan investment
broker or from the fund's transfer agent, Morgan Keegan & Company, Inc.
("Transfer Agent"). Under a Letter, purchases of shares of the fund which are
sold with a sales charge made within a 24-month period starting with the first
purchase pursuant to a Letter will be aggregated for purposes of calculating the
sales charges applicable to each purchase. To qualify under a Letter, a minimum
initial purchase of $50,000 must be made; purchases must be made for a single
account; and purchases made for related accounts may not be aggregated under a
single Letter. The Letter is not a binding obligation to purchase any amount of
shares, but its execution will result in paying a reduced sales charge for the
anticipated amount of the purchase. If the total amount of shares purchased does
not equal the amount stated in the Letter (minimum of $1,000,000), the investor
will be notified and must pay, within 20 days of the expiration of the Letter,
the difference between the sales charge on the shares purchased at the reduced
rate and the sales charge applicable to the shares actually purchased under the
Letter. Shares equal to 5% of the intended amount will be held in escrow during
the 24-month period (while remaining registered in the name of the purchaser)
for this purpose.

SALES CHARGE WAIVERS

The sales charge is waived on Class A shares of the fund purchased (1) as a
result of reinvestment of dividends and capital gain distributions and (2) by
officers, directors and full-time employees (and their immediate families, which
includes their spouse, children, mother, father and siblings) of Morgan Keegan &
Company, Inc. (or its direct or indirect subsidiaries), or by directors or
officers (and their immediate families, which includes their spouse, children,
mother, father and siblings) of the fund. The sales charge also is waived on

<PAGE>

purchases of Class A shares of the fund in an initial amount of not less than
$250,000, and thereafter for subsequent purchases if the purchaser's fund
account balance is at least $250,000, by (1) common or collective trust funds
maintained by a bank, (2) stock bonus, pension or profit sharing plans qualified
under section 401(a) of the Code (including Keogh Plans and 401(k) Plans), and
(3) organizations exempt from taxation pursuant to section 501(a) of the Code.
Also, Class A shares of the fund may be acquired without a sales charge if the
purchase is made through a Morgan Keegan representative who formerly was
employed as a broker with another firm registered as a broker-dealer with the
Securities and Exchange Commission, if the following conditions are met: (1) the
purchaser was a client of the investment executive at the other firm for which
the investment executive previously served as a broker; (2) within 90 days of
the purchase of the fund's Class A shares, the purchaser redeemed shares of one
or more mutual funds for which that other firm or its affiliates served as
principal underwriter, provided that either the purchaser had paid a sales
charge in connection with investment in such funds or a contingent deferred
sales charge upon redeeming shares in such funds; and (3) the aggregate amount
of the fund's Class A shares purchased pursuant to this sales charge waiver does
not exceed the amount of the purchaser's redemption proceeds from the shares of
the mutual fund(s) for which the other firm or its affiliates served as
principal underwriter. The sales charge on Class A shares is also waived on
purchases through Morgan Keegan Mutual fund "Wrap Accounts." Investors seeking
to avail themselves of this waiver will be required to provide satisfactory
evidence that all the above-noted conditions are met and should contact their
Morgan Keegan representative for more information.

ADDITIONAL INFORMATION ON REDEMPTIONS

Suspension of the right of redemption, or postponement of the date of
payment, may be made (1) for any periods when the Exchange is closed (other than
customary weekend and holiday closings); (2) when trading is restricted in
markets normally utilized by the fund or when an emergency, as defined by the
rules and regulations of the Securities and Exchange Commission ("SEC") exists,
making disposal of the fund's investments or determination of its net asset
value not reasonably practicable; or (3) for such other periods as the SEC by
order may permit for protection of the fund's shareholders. In the case of any
such suspension, you may either withdraw your request for redemption or receive
payment based upon the net asset value next determined after the suspension is
lifted.

The fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption by making payment in whole or
in part by securities valued in the same way as they would be valued for
purposes of computing the fund's per share net asset value. However, the fund
has committed itself to pay in cash all requests for redemption by any
shareholder of record, limited in amount with respect to each shareholder during
any ninety-day period to the lesser of (1) $250,000, or (2) 1% of the net asset
value of the fund at the beginning of such period. If payment is made in
securities, a shareholder will incur brokerage or transactional expenses in

<PAGE>

converting those securities into cash, will be subject to fluctuation in the
market price of those securities until they are sold, and may realize taxable
gain or loss (depending on the value of the securities received and the
shareholder's adjusted basis of the redeemed shares).

VALUATION OF SHARES

Net asset value of a fund share will be determined daily as of the close of
the Exchange, on every day that the Exchange is open for business, by dividing
the value of the total assets of the fund, less liabilities, by the total number
of shares outstanding at such time. Pricing will not be done on days the
Exchange is closed. Currently, the Exchange is closed on weekends and on certain
days relating to the following holidays: New Year's Day, President's Day, Good
Friday, Memorial Day, July 4th, Labor Day, Thanksgiving, and Christmas.
Securities owned by the fund for which market quotations are readily available
will be valued at current market value, or, in their absence, at fair value as
determined under procedures adopted by the fund's Board of Directors. Securities
traded on an exchange or NASD National Market System securities (including debt
securities) will normally be valued at their last sale price. Other
over-the-counter securities (including debt securities), and securities traded
on exchanges for which there is no sale on a particular day (including debt
securities), will be valued by a method which the fund's Board of Directors
believes accurately reflects fair value.

Futures contracts and options are valued on the basis of market quotations,
if available. Premiums received on the sale of call options are included in the
fund's net asset value, and the current market value of options sold by the fund
will be subtracted from net assets.

PURCHASE OF SHARES

CLASS A SHARES

Class A shares are offered on a continuous basis at a price equal to their
net asset value plus the applicable "initial sales charge" described in the
Prospectus. Proceeds from the initial sales charge are paid to Morgan Keegan and
are used by Morgan Keegan to defray expenses related to providing
distribution-related services to the funds in connection with sales of Class A
shares, such as the payment of compensation to Morgan Keegan brokers for selling
Class A shares. No initial sales charge is imposed on Class A shares issued as a
result of the automatic reinvestment of dividends or capital gains
distributions.

CLASS C SHARES

<PAGE>

percentage of the dollar amount subject thereto. In determining whether a Class
C CDSC is applicable to a redemption, the calculation will be determined in the
manner that results in the lowest possible rate being charged. The charge will
be assessed on an amount equal to the lesser of the proceeds of redemption or
the cost of the shares being redeemed. Accordingly, no Class C CDSC will be
imposed on increases in net asset value above the initial purchase price. In
addition, no Class C CDSC will be assessed on shares derived from reinvestment
of dividends or capital gains distributions. The charge will not be applied to
dollar amounts representing an increase in the net asset value since the time of
purchase. Proceeds from the CDSC are paid to Morgan Keegan to defray the
expenses Morgan Keegan incurs in providing distribution-related services to the
Class C shares.

CLASS I SHARES

Class I shares are offered on a continuous basis at a price equal to their
net asset value, without an initial sales charge or CDSC.

PERFORMANCE INFORMATION

The fund's performance information and quoted rankings used in advertising
and other promotional materials ("Performance Advertisements") are indicative
only of past performance and are not intended to and do not represent future
investment results. The fund's share price will fluctuate and your shares, when
redeemed, may be worth more or less than you originally paid for them.

TOTAL RETURN CALCULATIONS

Average annual total return quotes ("Standardized Return") used in the
fund's Performance Advertisements are calculated according to the following
formula:

P(1 + T)n = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of that period

Under the foregoing formula, the time periods used in Performance
Advertisements will be based on rolling calendar quarters, updated at least to
the last day of the most recent quarter prior to submission of the Performance
Advertisements for publication. Total return, or "T" in the formula above, is
computed by finding the average annual change in the value of an initial $1,000
investment over the period. In calculating the ending redeemable value, all
dividends and other distributions by the fund are assumed to have been
reinvested at net asset value.

<PAGE>

The fund may also refer in Performance Advertisements to total return
performance data that are not calculated according to the formula set forth
above ("Non-Standardized Return"). The fund calculates Non-Standardized Return
for specified periods of time by assuming an investment of $1,000 in fund shares
and assuming the reinvestment of all dividends and other distributions. The rate
of return is determined by subtracting the initial value of the investment from
the ending value and by dividing the remainder from the initial value. Initial
sales charges are not taken into account in calculating Non-Standardized Return;
the inclusion of those charges would reduce the return.

Because each class of the fund has its own sales charge and fee structure,
the classes have different performance results. In the case of each class, this
calculation assumes the maximum sales charge is included in the initial
investment or CDSC is applied at the end of the period, respectively. This
calculation assumes that all dividends and other distributions are reinvested at
net asset value on the reinvestment dates during the period. The "distribution
rate" is determined by annualizing the result of dividing the declared
distributions of the fund during the period stated by the maximum offering price
or net asset value at the end of the period. Excluding the fund's sales charge
on Class A shares and the CDSC on Class C shares from the distribution rate
produces a higher rate.

In addition to average annual total returns, the fund may quote unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period. Cumulative total returns may be quoted as a
percentage or as a dollar amount, and may be calculated for a single investment,
a series of investments, and/or a series of redemptions, over any time period.
Total returns may be quoted with or without taking the fund's sales charge on
Class A shares or the CDSC on Class C shares into account. Excluding the fund's
sales charge on Class A shares and the CDSC on Class C shares from a total
return calculation produces a higher total return figure.

OTHER INFORMATION

From time to time the fund may compare its performance in Performance
Advertisements to the performance of other mutual funds or various market
indices. One such market index is the S&P 500, a widely recognized unmanaged
index composed of the capitalization-weighted average of the prices of 500 of
the largest publicly traded stocks in the United States. The S&P 500 includes
reinvestment of all dividends. It takes no account of the costs of investing or
the tax consequences of distributions. The fund may invest in securities that
are not included in the Standard & Poor's Composite Stock Price Index ("S&P
500").

<PAGE>

materials to mutual fund performance rankings, ratings or comparisons with funds
having similar investment objectives, and other mutual funds reported in
independent periodicals, including, but not limited to, THE WALL STREET JOURNAL,
MONEY Magazine, FORBES, BUSINESS WEEK, FINANCIAL WORLD, BARRON'S, FORTUNE, THE
NEW YORK TIMES, THE CHICAGO TRIBUNE, THE WASHINGTON POST and KIPLINGER LETTERS.

The fund may also compare its performance with, or may otherwise discuss,
the performance of bank certificates of deposit ("CDs") and other bank deposits,
and may quote from organizations that track the rates offered on such deposits.
In comparing the fund or its performance to CDs, investors should keep in mind
that bank CDs are insured up to specified limits by an agency of the U.S.
government. Shares of the fund are not insured or guaranteed by the U.S.
government, the value of fund shares will fluctuate, and your shares, when
redeemed, may be worth more or less than you originally paid for them. Unlike
the interest paid on many CDs, which remains as a specified rate for a specified
period of time, the return on the fund's shares will vary.

The fund's Performance Advertisements may reference the history of the
fund's Advisor and its affiliates or biographical information of key investment
and managerial personnel, including the portfolio manager. The fund may
illustrate hypothetical investment plans designed to help investors meet
long-term financial goals, such as saving for a college education or for
retirement. The fund may discuss the advantages of saving through tax-deferred
retirement plans or accounts.

TAX-DEFERRED RETIREMENT PLANS

As noted in the fund's Prospectus, an investment in fund shares may be
appropriate for various types of tax-deferred retirement plans. In general,
income earned through the investment of assets of such a plan is not taxed to
the beneficiaries until the income is distributed to them. Investors who are
considering establishing such a plan may wish to consult their attorneys or
other tax advisers with respect to individual tax questions. Additional
information with respect to these plans is available upon request from any
Morgan Keegan broker.

INDIVIDUAL RETIREMENT ACCOUNTS - IRAS

If you have earned income from employment (including self-employment), you
can contribute each year to an IRA up to the lesser of (1) $2,000 for yourself
or $4,000 for you and your spouse, regardless of whether your spouse is
employed, or (2) 100% of compensation. Some individuals may be able to take an
income tax deduction for the contribution. Regular contributions may not be made
for the year you become 70 1/2 or thereafter. You also may be able to make a
nondeductible contribution to an "Education IRA" or "Roth IRA," distributions
from which are not taxable under certain circumstances.

<PAGE>

An investment in fund shares through IRA contributions may be advantageous,
regardless of whether the contributions are deductible by you for tax purposes,
because all dividends and capital gain distributions on your fund shares are not
immediately taxable to you or the IRA; they become taxable only when distributed
to you except as noted above. To avoid penalties, your interest in an IRA must
be distributed, or start to be distributed, to you not later than April 1
following the calendar year in which you attain age 70 1/2. Distributions made
before age 59 1/2, in addition to being taxable, generally are subject to a
penalty equal to 10% of the distribution, except in the case of death or
disability, where the distribution is rolled over into another qualified plan,
or in certain other situations.

SELF-EMPLOYED INDIVIDUAL RETIREMENT PLANS - KEOGH PLANS

Morgan Keegan will assist self-employed individuals to set up a retirement
plan through which fund shares may be purchased. Morgan Keegan generally
arranges for a bank to serve as trustee for the plan and performs custodian
services for the trustee and the plan by holding and handling securities.
However, you have the right to use a bank of your choice to provide these
services at your cost. There are penalties for distributions from a Keogh Plan
prior to age 59 1/2, except in the case of death or disability.

SIMPLIFIED EMPLOYEE PENSION PLANS - SEPPS AND SAVINGS INCENTIVE MATCH PLANS FOR
EMPLOYEES - SIMPLES

Morgan Keegan also will make available in a similar manner to corporate and
other employers a SEPP or SIMPLE for investment in fund shares.

THE COMPANY'S OFFICERS AND DIRECTORS

The Company's officers are responsible for the operation of the fund under
the direction of the Board of Directors. The officers and directors of the
Company and their principal occupations during the past five years are set forth
below. An asterisk (*) indicates officers and/or directors who are interested
persons of the fund as defined by the 1940 Act. The address of each officer and
director is Morgan Keegan Tower, 50 Front Street, Memphis, Tennessee 38103,
unless otherwise indicated.

<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION HELD PRINCIPAL OCCUPATION

<S> <C> <C>
Allen B. Morgan, Jr. * President and Director Mr. Morgan is Chairman and Chief
Age 57 Executive Officer and Executive
Managing Director of Morgan Keegan &
Company, Inc. He also is a Chairman
of Morgan Keegan, Inc., a Director of
Morgan Asset Management, Inc., and a
Director of Catherine's Stores, Inc.

<PAGE>

James D. Witherington, Jr. Director Mr. Witherington is President of SSM
845 Crossover Lane Corp. (management of venture capital
Suite 140 funds). He also serves as a Director
Memphis, Tennessee 38117 for several private companies.
Age 50

William F. Hughes, Jr.* Director Mr. Hughes is a Managing Director of
Age 56 Morgan Keegan & Company, Inc. He also
is President of Morgan Asset
Management, Inc.

William Jefferies Mann Director Mr. Mann is Chairman and President of
675 Oakleaf Office Lane Mann Investments, Inc. (hotel
Suite 100 investments/ consulting). He also
Memphis, Tennessee 38117 serves as a Director for Heavy
Age 67 Machines, Inc.

James Stillman R. McFadden Director Mr. McFadden is Vice President of
845 Crossover Lane Sterling Equities, Inc. (private
Suite 124 equity financings). He also is
Memphis, Tennessee 38117 President and Director of 1703 Inc.
Age 42 and a Director of Staff Printing Co.

Joseph C. Weller* Vice President, Mr. Weller is Executive Vice President
Age 60 Treasurer & Assistant and Chief Financial Officer and
Secretary Executive Managing Director of Morgan
Keegan & Company, Inc. He also is a
Director of Morgan Asset Management,
Inc.

Charles D. Maxwell* Secretary and Mr. Maxwell is a Managing Director and
Age 45 Assistant Treasurer Assistant Treasurer of Morgan Keegan &
Company, Inc., and Secretary/Treasurer
of Morgan Asset Management, Inc. He
was formerly a senior manager with
Ernst & Young (accountants) (1976-86).
</TABLE>

<PAGE>

TABLE OF COMPENSATION1

Total Compensation
Name and Position Aggregate Compensation In the Morgan Keegan funds
with the Company From the Company Complex Paid to Directors

Allen B. Morgan, Jr. $0 $0
President and Director

James D. Witherington, Jr. $4,000 $8,000
Director

William F. Hughes, Jr. $0 $0
Director

William Jefferies Mann $4,000 $8,000
Director

James Stillman R. McFadden $4,000 $8,000
Director

Officers and Directors of the fund who are interested persons of the fund
receive no salary or fees from the fund. Directors of the fund who are not
interested persons of the fund will receive a fee of $1,000 and reimbursement
for related expenses for each meeting of the Board of Directors attended by
them.

1 These numbers are based on the compensation schedule adopted by the Company
for its operation. The Morgan Keegan funds' Complex consists of one other
investment company with one series.

Each of the Company, the Portfolio, Meeder Asset Management, Inc., formerly
known as R. Meeder & Associates, Inc., the Portfolio's investment adviser, and
Morgan Keegan & Company, Inc., the fund's distributor, has adopted a code of
ethics (each, a "Code") under Rule 17j-1 of the 1940 Act. Each Code permits
personnel subject to the Code to invest in securities, including securities that
may be purchased or held by the fund.

<PAGE>

THE PORTFOLIO'S OFFICERS AND TRUSTEES

The officers and Trustees of the Portfolio and their principal occupations
during the past five years are set forth below. Their titles may have varied
during that period. Asterisks indicate those Trustees who are "interested
persons" (as defined in the 1940 Act) of the Portfolio. Unless otherwise
indicated, the address of each Trustee and officer is P.O. Box 7177, 6000
Memorial Drive, Dublin, Ohio 43017.

NAME, ADDRESS AND AGE POSITION HELD PRINCIPAL OCCUPATION

ROBERT S. MEEDER, SR.*+, 71 Trustee/President Chairman of Meeder Asset
Management, Inc., the
Portfolio's investment
adviser; Chairman and
Director of Mutual Funds
Service Co., the
Portfolio's transfer
agent.

MILTON S. BARTHOLOMEW, 71 Trustee Retired; formerly a
1424 Clubview Boulevard, S. practicing attorney in
Worthington, OH 43235 Columbus, Ohio; member of
the Portfolio's Audit
Committee.

ROGER D. BLACKWELL, 59 Trustee Professor of Marketing
Blackwell Associates, Inc. and Consumer Behavior,
3380 Tremont Road The Ohio State University;
Columbus, OH 43221 President of Blackwell
Associates, Inc., a
strategic consulting firm.

ROBERT S. MEEDER, JR.*, 39 Trustee and President of Meeder Asset
Vice President Management, Inc.

WALTER L. OGLE, 61 Trustee Executive Vice President
400 Interstate North Parkway, of Aon Consulting, an
Suite 1630 employee benefits
Atlanta, GA 30339 consulting group.

CHARLES A. DONABEDIAN, 57 Trustee President, Winston
Winston Financial, Inc. Financial, Inc., which
200 TechneCenter Drive, Suite 200 provides a variety of
Milford, OH 45150 marketing and consulting
services to investment
management companies; CEO,
Winston Advisors, Inc., an
investment adviser.

JAMES W. DIDION, 69 Trustee Retired; formerly
8781 Dunsinane Drive Executive Vice President
Dublin, OH 43017 of Core Source, Inc., an
employee benefit and
Workers' Compensation
administration and
consulting firm
(1991-1997).

<PAGE>

JACK W. NICKLAUS II, 39 Trustee Designer, Nicklaus Design,
11780 U.S. Highway #1 a golf course design firm
North Palm Beach, FL 33408 and division of Golden
Bear International, Inc.

PHILIP A. VOELKER*+, 46 Trustee and Vice Senior Vice President and
President Chief Investment Officer
of Meeder Asset
Management, Inc.

DONALD F. MEEDER*+, 61 Secretary Vice President of Meeder
Asset Management, Inc.;
Secretary of Mutual Funds
Service Co.

WESLEY F. HOAG*+, 43 Vice President Vice President and General
Counsel of Meeder Asset
Management, Inc. and
Mutual Funds Service Co.
(since July 1993);
Attorney, Porter, Wright,
Morris & Arthur, a law
firm (October 1984 to June
1993).

THOMAS E. LINE*+, 32 Treasurer President, Mutual Funds
Service Co., and Chief
Operating Officer, Meeder
Asset Management, Inc.,
(since June 1998); Vice
President and Treasurer,
BISYS Fund Services
(December 1996 to June
1998); Senior Manager
- Financial Services,
KPMG, LLP (Sept. 1989 to
December 1996).

BRUCE E. MCKIBBEN*+, 30 Assistant Treasurer Manager/Fund Accounting
and Financial Reporting,
Mutual Funds Service Co.
(since April 1997);
Assistant Treasurer and
Manager/Fund Accounting,
The Ohio Company, a
broker-dealer (April 1991
to April 1997).

* Interested Person of the Portfolio.

+ P.O. Box 7177, 6000 Memorial Drive, Dublin, Ohio 43017.

Robert S. Meeder, Sr. is Donald F. Meeder's uncle and Robert S. Meeder,
Jr's. father.

Each Trustee and each officer of the Portfolio hold the same positions with
the Utilities Stock Portfolio.

<PAGE>

The following table shows the compensation paid by the Portfolio and all
other mutual funds advised by the Adviser, including The Flex-funds, Meeder
Advisor Funds and the corresponding portfolios of The Flex-funds and Meeder
Advisor Funds (collectively, the "Fund Complex") as a whole to the Trustees of
the Portfolio during the fiscal year ended December 31, 1999.

COMPENSATION TABLE

Pension or Total
Retirement Compensation
Aggregate Benefits Estimated from Registrant
Compensation Accrued as Part Annual and Fund
from the of Portfolio or Benefits Upon Complex Paid
TRUSTEE PORTFOLIO1 FUND EXPENSE RETIREMENT TO TRUSTEE1,2
------- ---------- ------------ ---------- -------------
Robert S. Meeder, Sr. None None None None

Milton S. Bartholomew $2,762 None None $16,734

Robert S. Meeder, Jr. None None None None

Walter L. Ogle $2,617 None None $16,234

Philip A. Voelker None None None None

Roger A. Blackwell $2,450 None None $15,234

Charles A. Donabedian $2,864 None None $17,734

James W. Didion None None None None

Jack W. Nicklaus II $2,665 None None $15,984

1 Compensation figures include cash and amounts deferred at the election of
certain non-interested Trustees accrued deferred compensation from the
Portfolios as follows: Milton S. Bartholomew - $2,762, Roger A. Blackwell -
$2,450, Charles A. Donabedian - $2,864, Jack W. Nicklaus II - $2,665, and Walter
L. Ogle - $1,435.

2 The Fund Complex consists of 19 investment companies.

Each Trustee who is not an "interested person" is paid a meeting fee of
$250 per meeting for the Portfolio. In addition, each such Trustee is paid a fee
of 0.00375% of the amount of the Portfolio's average net assets exceeding $15
million. Members of the Audit and Strategic Planning Committees for the
Portfolio are paid $500 for each Committee meeting. All other officers and
Trustees serve without compensation from the Portfolio. Trustee fees for the
Growth Stock Portfolio totaled $27,375 for the year ended December 31, 1999
($15,022 in 1998).

THE PORTFOLIO'S INVESTMENT ADVISER

Meeder Asset Management, Inc. (the "Manager"), formerly known as R. Meeder
& Associates, Inc. ,is the investment adviser and manager for, and has an
Investment Advisory Contract with, the Portfolio.

<PAGE>

Pursuant to the Investment Advisory Contract, the Manager, subject to the
supervision of the Portfolio's Board of Trustees and in conformity with the
stated objective and policies of the Portfolio, has general oversight
responsibility for the investment operations of the Portfolio. In connection
therewith, the Manager is obligated to keep certain books and records of the
Portfolio. The Manager also administers the Portfolio's corporate affairs, and
in connection therewith, furnishes the Portfolio with office facilities,
together with those ordinary clerical and bookkeeping services which are not
being furnished by Firstar, N.A., the Portfolio's custodian. The management
services of the Manager are not exclusive under the terms of the Investment
Advisory Contract and the Manager is free to, and does, render management
services to others.

The Manager invests the Portfolio's liquidity reserves and may invest the
Portfolio's assets in financial futures contracts and related options.

The Investment Advisory Contract for the Portfolio was separately approved
by a vote of a majority of the Trustees, including a majority of those Trustees
who are not "interested persons" (as defined in the Investment Company Act of
1940), of the Portfolio. The Investment Advisory Contract is to remain in force
so long as renewal thereof is specifically approved at least annually by a
majority of the Trustees or by vote of a majority of the interests in the
Portfolio, and in either case by vote of a majority of the Trustees who are not
"interested persons" (as defined in the Investment Company Act of 1940) at a
meeting called for the purpose of voting on such renewal.

The Investment Advisory Contract provides that the Manager will not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Portfolio in connection with the matters to which the Investment Advisory
Contract relates except for a loss resulting from willful misfeasance, bad
faith, gross negligence or reckless disregard of duty. The Investment Advisory
Contract will terminate automatically if assigned and may be terminated without
penalty at any time upon 60 days prior written notice by Majority Vote of the
Portfolio, by the Trustees of the Portfolio, or by the Manager.

Costs, expenses and liabilities of the Company attributable to a particular
fund are allocated to that fund. Costs, expenses and liabilities which are not
readily attributable to a particular fund are allocated among all of the
Company's funds. Thus, each fund pays its proportionate share of: the fees of
the Company's independent auditors, legal counsel, custodian, transfer agent and
accountants; insurance premiums; the fees and expenses of Directors who do not
receive compensation from Morgan Keegan & Company, Inc., Meeder Asset
Management, Inc., Sector Capital Management, L.L.C or any of the Sector
Advisers; association dues; the cost of printing and mailing confirmations,
prospectuses, proxies, proxy statements, notices and reports to existing
shareholders; state registration fees; distribution expenses within the
percentage limitations of each Class of Shares' distribution and service plan,
including the cost of printing and mailing of prospectuses and other materials
incident to soliciting new accounts; and other miscellaneous expenses.

<PAGE>

The expenses of the Portfolio include the compensation of the Trustees who
are not affiliated with the Distributor, Manager, Subadviser or Sector Advisers;
registration fees; membership dues allocable to the Portfolio; fees and expenses
of independent accountants, of legal counsel and of any transfer agent or
accountant of the Portfolio; insurance premiums and other miscellaneous
expenses.

Expenses of the Portfolio also include all fees under its Accounting and
Administrative Service Agreement; the expenses connected with the execution,
recording and settlement of security transactions, fees and expenses of the
Portfolio's custodian for all services to the Portfolio, including safekeeping
of funds and securities and maintaining required books and accounts; expenses of
preparing and mailing reports to investors and to governmental offices and
commissions; expenses of meetings of investors and Trustees; the advisory fees
payable to the Manager under the Investment Advisory Contract and other
miscellaneous expenses.

The Board of Directors of the Company believes that the aggregate per share
expenses of the fund and the Portfolio will be less than the expenses which the
fund would incur if it retained the services of an investment adviser and the
assets of the fund were invested directly in the type of securities being held
by the Portfolio.

The Manager earns an annual fee, payable in monthly installments, at the
rate of 1% of the first $50 million, 0.75% of the next $50 million, and 0.60% in
excess of $100 million, of the Portfolio's average net assets. The Manager will
receive 70% and the Subadviser 30% of the fee payable with respect to the net
assets of the Portfolio upon effectiveness of the subadvisory arrangement; then
the Manager will receive 30% and the Subadviser 70% of the fee attributable to
any additional net assets of the Portfolio up to an amount of net assets equal
to the net assets upon effectiveness of the subadvisory arrangement, then the
Manager and the Subadviser will share equally the fee attributable to any
additional net assets of the Portfolio up to $50 million of the net assets. With
respect to net assets of more than $50 million and less than $100 million, the
applicable fees of 0.75% will be shared such that the Manager would receive
0.35% and the Subadviser 0.40%. For net assets of $100 million and more, the
applicable 0.60% fee will be shared such that the Manager will receive 0.25% and
the Subadviser 0.35%.

For the year ending December 31, 1999, the Growth Stock Portfolio paid fees
to the Manager totaling $570,139 ($435,886 in 1998; $317,772 in 1997).

Meeder Asset Management, Inc., formerly known as R. Meeder & Associates,
Inc., was incorporated in Ohio on February 1, 1974 and maintains its principal
offices at 6000 Memorial Drive, Dublin, Ohio 43017. The Manager is a
wholly-owned subsidiary of Meeder Financial, Inc., formerly known as Muirfield
Investors, Inc. ("MFI"), a holding company which is controlled by Robert S.
Meeder, Sr. through ownership of common stock. MFI conducts business only
through its six subsidiaries, which are the Manager; Mutual Funds Service Co.,
the Portfolio's transfer agent; Opportunities Management Co., a venture capital

<PAGE>

investor; Meeder Advisory Services, Inc., a registered investment adviser; OMCO,
Inc., a registered commodity trading adviser and commodity pool operator; and
Adviser Dealer Services, Inc., a broker-dealer.

The Manager's officers and directors are as set forth as follows: Robert S.
Meeder, Sr., Chairman and Sole Director; Philip A. Voelker, Senior Vice
President and Chief Investment Officer; Donald F. Meeder, Secretary; Robert S.
Meeder, Jr., President; Thomas E. Line, Chief Operating Officer; Michael J.
Sullivan, Vice President of Sales and Marketing, and Wesley F. Hoag, Vice
President and General Counsel. Mr. Robert S. Meeder, Sr. is President and a
Trustee of the Portfolio. Mr. Robert S. Meeder, Jr. and Philip A. Voelker each
are a Trustee and officer of the Portfolio. Each of Messrs. Donald F. Meeder,
Wesley F. Hoag and Thomas E. Line is an officer of the Portfolio.

THE PORTFOLIO'S INVESTMENT SUBADVISER

Sector Capital Management L.L.C. serves as the Portfolio's subadviser. The
Subadviser is a Georgia limited liability company. William L. Gurner and John K.
Donaldson control the Subadviser. Messrs. Gurner and Donaldson are Managers and
Members of the Subadviser. The Subadviser's officers are as set forth as
follows: William L. Gurner, President and Administrator; George S. Kirk,
Director, Sales and Marketing; and Kenneth L. Riffle, Director, Client
Relations. The Investment Subadvisory Agreement provides that the Subadviser
shall furnish investment advisory services in connection with the management of
the Portfolio. The Portfolio and the Manager have entered into an Investment
Subadvisory Agreement with the Subadviser which, in turn, has entered into a
investment sub-subadvisory agreement with each of the Sector Advisers selected
for the Portfolio. Under the Investment Subadvisory Agreement, the Subadviser is
required to (i) supervise the general management and investment of the assets
and securities portfolio of the Portfolio; (ii) provide overall investment
programs and strategies for the Portfolio and (iii) select Sector Advisers for
the Portfolio, except as otherwise provided, and allocate the Portfolio's assets
among such Sector Advisers. The Subadviser is obligated to keep certain books
and records of the Portfolio. The Manager continues to have responsibility for
all investment advisory services pursuant to the Investment Advisory Agreement
and supervises the Subadviser's performance of such services. Under the
Investment Subadvisory Agreement, the Manager, not the Portfolio, pays the
Subadviser an investment advisory fee in an amount described above under
"Investment Adviser and Manager."

The Subadviser may invest the Portfolio's assets in financial futures
contracts and related options.

<PAGE>

and that it may be terminated without penalty to the Fund or the Portfolio by
the Manager, the Trustees of the Portfolio or by the vote of a majority of the
outstanding voting securities of the Portfolio upon not less than 30 days
written notice. The Investment Subadvisory Agreement will continue in effect for
a period of more than two years from the date of execution only so long as such
continuance is specifically approved at least annually in conformity with the
1940 Act. The Investment Subadvisory Agreement was approved by the Board of
Trustees of the Portfolio, including all of the Trustees who are not parties to
the contract or "interested persons" of any such party, and by the investors in
the Portfolio.

THE PORTFOLIO'S INVESTMENT SUB-SUBADVISERS

Except as otherwise described above under "The Portfolio's Investment
Adviser" and "The Portfolio's Investment Subadviser", the assets of the
Portfolio are managed by asset managers (each a "Sector Manager" and
collectively, the "Sector Managers") selected by the Subadviser, subject to the
review and approval of the Trustees of the Portfolio. The Subadviser recommends,
to the Trustees of the Portfolio, Sector Advisers for each industry sector based
upon its continuing quantitative and qualitative evaluation of the Sector
Advisers' skills in managing assets pursuant to specific investment styles and
strategies. The Portfolio has received an exemptive order from the SEC
permitting the Subadviser, subject to certain conditions, to enter into
sub-subadvisory agreements with Sector Advisers approved by the Trustees of the
Portfolio but without the requirement of investor approval. At a meeting held on
December 20, 1996, the shareholders of the Portfolio approved the operation of
the Portfolio in this manner. Pursuant to the terms of the exemptive order, the
Subadviser is to be able, subject to the approval of the Trustees of the
Portfolio, but without investor approval, to employ new Sector Advisers for the
Portfolio. Although investor approval will not be required for the termination
of sub-subadvisory agreements, investors of the Portfolio will continue to have
the right to terminate such agreements for the Portfolio at any time by a vote
of a majority of outstanding voting securities of the Portfolio.

Except as otherwise provided above under "The Portfolio's Investment
Adviser" and "The Portfolio's Investment Subadviser," the assets of the
Portfolio are allocated by the Subadviser among the Sector Advisers selected for
the Portfolio. Each Sector Adviser has discretion, subject to oversight by the
Trustees and the Subadviser, to purchase and sell portfolio assets, consistent
with the Portfolio's investment objectives, policies and restrictions. For its
services, the Subadviser receives a management fee from the Manager. A part of
the fee paid to the Subadviser is used by the Subadviser to pay the advisory
fees of the Sector Advisers. Each Sector Adviser is paid a fee for its
investment advisory services that is computed daily and paid monthly based on
the value of the average net assets of the Portfolio assigned by the Subadvisor
to the Sector Adviser at an annual rate equal to .25%.

Investors should be aware that the Subadviser may be subject to a conflict
of interest when making decisions regarding the retention and compensation of

<PAGE>

particular Sector Advisers. However, the Subadviser's decisions regarding the
selection of Sector Advisers and specific amount of the compensation to be paid
to Sector Advisers, are subject to review and approval by a majority of the
Board of Trustees of the Growth Stock Portfolio.

Although the Subadviser and the Sector Advisers' activities are subject to
general oversight by the Board of Trustees and the officers of the Growth Stock
Portfolio, neither the Board nor the officers evaluate the investment merits of
any Sector Adviser's individual security selections. The Board of Trustees will
review regularly the Growth Stock Portfolio's performance compared to the
applicable indices and also will review the Growth Stock Portfolio's compliance
with its investment objectives and policies.

The Investment Sub-subadvisory Agreements provide that the Sector Advisers
will not be liable for any error of judgment or mistake of law or for any loss
arising out of any investment or for any act or omission in the execution of
portfolio transactions for the Portfolio, except a loss resulting from
misfeasance, bad faith, gross negligence or reckless disregard of duty. The
Investment Sub-subadvisory Agreements provide that they will terminate
automatically if assigned, and that they may be terminated without penalty to
the Fund or the Portfolio by the Subadviser, the Trustees of the Portfolio or by
the vote of a majority of the outstanding voting securities of the Portfolio
upon not less than 15 days written notice. The Investment Sub-subadvisory
Agreements will continue in effect for a period of more than two years from the
date of execution only so long as such continuance is specifically approved at
least annually in conformity with the 1940 Act. The Investment Sub-subadvisory
Agreements were approved by the Board of Trustees of the Portfolio, including
all of the Trustees who are not parties to the contract or "interested persons"
of any such party, and by the investors in the Portfolio.

A Sector Adviser may also serve as a discretionary or non-discretionary
investment adviser to management or advisory accounts unrelated in any manner to
the Portfolio or its affiliates. The investment Sub-subadvisory agreements among
the Sector Advisers, the Portfolio and the Subadviser require fair and equitable
treatment to the Portfolio in the selection of the Portfolio investments and the
allocation of investment opportunities, but do not obligate the Sector Advisers
to give the Portfolio exclusive or preferential treatment.

Although the Sector Advisers make investment decisions for the Portfolio
independent of those for their other clients, it is likely that similar
investment decisions will be made from time to time. When the Portfolio and
another client of a Sector Adviser are simultaneously engaged in the purchase or
sale of the same security, the transactions are, to the extent feasible and
practicable, averaged as to price and allocated as to amount between the
Portfolio and the other client(s). In specific cases, this system could have
detrimental effect on the price or volume of the security to be purchased or
sold, as far as the Portfolio is concerned. However, the Trustees of the
Portfolio believe, over time, that coordination and the ability to participate
in volume transactions should be to the benefit of the Portfolio.

<PAGE>

Listed below are the Sector Advisers selected by the Subadviser to invest
certain of the Portfolio's assets:

MILLER/HOWARD INVESTMENTS, INC. serves as sector adviser to the utilities
and transportation sectors of the Growth Stock Portfolio. Miller/Howard is a
registered investment adviser that has been providing investment services to
broker-dealers, investment advisers, employee benefit plans, endowment
portfolios, foundations and other institutions and individuals since 1984. As of
December 31, 1999, Miller/Howard managed approximately $272 million in assets.
Lowell G. Miller, President and CIO of Miller/Howard, controls Miller\Howard
through stock ownership. Mr. Miller is the portfolio manager primarily
responsible for the day-to-day management of those assets of the Growth Stock
Portfolio allocated to Miller/Howard. Mr. Miller has been associated with
Miller/Howard since 1984. Miller/Howard's principal executive offices are
located at 141 Upper Byrdcliffe Road, Post Office Box 549, Woodstock, New York
12498.

HALLMARK CAPITAL MANAGEMENT, INC. serves as sector adviser to the capital
goods sector of the Growth Stock Portfolio. Hallmark is a registered investment
adviser that has been providing investment services to individuals; banks;
pension, profit sharing, and other retirement plans; trusts; endowments;
foundations; and other charitable organizations since 1986. As of December 31,
1999, Hallmark managed approximately $190 million in assets. Peter S. Hagerman,
Chairman of the Board, President, and Chief Executive Officer; Katherine A.
Swieralski, Senior Vice President, Treasurer, Chief Financial and Administrative
Officer; and Jeffrey P. Braff each owns more than 10% of the outstanding voting
securities of Hallmark, as would Thomas S. Moore, Senior Vice President and
Chief Investment Officer, if his options were exercised. Mr. Hagerman is the
portfolio manager primarily responsible for the day-to-day management of those
assets of the Growth Stock Portfolio allocated to Hallmark. Mr. Hagerman has
been associated with Hallmark since 1986. Hallmark's principal executive offices
are located at One Greenbrook Corporate Center, 100 Passaic Avenue, Fairfield,
New Jersey 07004.

BARROW, HANLEY, MEWHINNEY & STRAUSS, INC. serves as sector adviser to the
consumer durable and non-durable sectors of the Growth Stock Portfolio. Barrow
is a registered investment adviser that has been providing investment services
to banks; investment companies; pension and profit sharing plans; charitable
organizations and corporations since 1979. As of December 31, 1999, Barrow
managed approximately $29.1 billion in assets. Jane Gilday, CFA, is the
portfolio manager primarily responsible for the day-to-day management of those
assets of the Growth Stock Portfolio allocated to Barrow. From 1993 to 1998, Ms.
Gilday worked as a securities analyst at Hancock Institutional Equity Services
and Advest, Inc. Ms. Gilday has served as a portfolio manager and Principal for
Barrow since 1998. Barrow's principal executive offices are located at 3232
McKinney Avenue, 15th Floor, Dallas, Texas 75204-2429.

THE MITCHELL GROUP, INC. serves as sector adviser to the energy sector of
the Growth Stock Portfolio. The Mitchell Group is a registered investment

<PAGE>

adviser that has been providing investment services to individuals; banks;
investment companies; pension and profit sharing plans; charitable
organizations, corporations and other institutions since 1989. As of December
31, 1999, The Mitchell Group managed approximately $311 million in assets.
Rodney Mitchell, President, Chief Executive Officer, and Chief Financial Officer
of The Mitchell Group, owns more than 10% of the outstanding voting securities
of The Mitchell Group. Mr. Mitchell is the portfolio manager primarily
responsible for the day-to-day management of those assets of the Growth Stock
Portfolio allocated to The Mitchell Group. Mr. Mitchell has been associated with
The Mitchell Group since 1989. The Mitchell Group's principal executive offices
are located at 1100 Louisiana, #4810, Houston, Texas 77002.

ASHLAND MANAGEMENT INCORPORATED serves as sector adviser to the materials
and services sector of the Growth Stock Portfolio. Ashland is a registered
investment adviser that has been providing investment services to individuals,
pension and profit sharing plans, charitable organizations, corporations and
other institutions since 1975. As of December 31, 1999, Ashland managed
approximately $2.1 billion in assets. Charles C. Hickox, Chairman of the Board
and Chief Executive Officer, and Parry v.S. Jones, President and Chief Operating
Officer, each owns more than 10% of the outstanding voting securities of
Ashland. Terence J. McLaughlin, Managing Director of Ashland, and Deborah C.
Ohl, a Portfolio Manager, are the portfolio managers primarily responsible for
the day-to-day management of those assets of the Growth Stock Portfolio
allocated to Ashland. Mr. McLaughlin has been associated with Ashland since
1984. Ms. Ohl has been employed by Ashland since August 1992 and has served as a
Portfolio Manager for Ashland since 1993. Ashland's principal executive offices
are located at 26 Broadway, New York, New York 10004.

DELTA CAPITAL MANAGEMENT INC. serves as sector adviser to the finance
sector of the Growth Stock Portfolio. Delta Capital is a registered investment
adviser that has been providing investment services to individuals, endowments,
corporations and other institutions since 1992. As of December 31, 1999, Delta
Capital managed approximately $900 million in assets. Delta Capital is
controlled by Francis L. Fraenkel, Chairman of Delta Capital. Jonathan Kay is
the portfolio manager primarily responsible for the day-to-day management of
those assets of the Portfolio allocated to Delta Capital. Mr. Kay has been
associated with Delta Capital since April 1998. From 1993 to March 1998, Mr. Kay
was a portfolio manager for Scudder Kemper Investments, Inc., a registered
investment adviser. Delta Capital's principal executive offices are located at
745 Fifth Avenue, Suite 816, New York, New York 10151.

DRESDNER RCM GLOBAL INVESTORS LLC (formerly RCM Capital Management, L.L.C.)
serves as sector adviser to the technology sector of the Growth Stock Portfolio.
Dresdner RCM is a registered investment adviser that provides investment
services to institutional and individual clients and registered investment
companies. Dresdner RCM was established in April 1996 as the successor to the
business and operations of RCM Capital Management, a California Limited
Partnership that, with its predecessors, has been in operation since 1970. As of
December 31, 1999, Dresdner RCM had approximately $82.7 billion under management

<PAGE>

and advice. This includes approximately $47.0 billion under management and
advice in San Francisco and an additional $35.7 billion by affiliates in London,
Hong Kong, and San Diego. Walter C. Price and Huachen Chen, each Managing
Directors of Dresdner RCM, are the portfolio managers primarily responsible for
the day-to-day management of those assets of the Growth Stock Portfolio
allocated to Dresdner RCM. Messrs. Price and Chen have managed equity portfolios
on behalf of Dresdner RCM since 1985. Dresdner RCM's principal executive offices
are located at Four Embarcadero Center, San Francisco, CA 94111.

ALLIANCE CAPITAL MANAGEMENT L.P. serves as sector adviser to the health
sector of the Growth Stock Portfolio. Alliance, a registered investment adviser,
is an international investment manager supervising client accounts with assets
as of December 31, 1999 totaling approximately $368 billion. Alliance provides
investment services primarily to corporate employee benefit funds, public
employee retirement systems, investment companies, foundations, and endowment
funds. The general partner of Alliance, Alliance Capital Management Corporation,
is an indirect subsidiary of, and is controlled by, AXA, a French insurance
holding company. Alliance Capital conducts no other business. Raphael L.
Edelman, Vice President of Alliance, is the portfolio manager primarily
responsible for the day-to-day management of those assets of the Growth Stock
Portfolio allocated to Alliance. Mr. Edelman, who has sixteen years of
investment experience, joined Alliance's research department in 1986 as an
analyst after working two years as a manager in Alliance's mutual fund division.
Alliance's principal executive offices are located at 1345 Avenue of the
Americas, New York, NY 10105.

PORTFOLIO TRANSACTIONS AND BROKERAGE

All orders for the purchase or sale of portfolio securities are placed on
behalf of the Portfolio by the Manager, Subadviser or Sector Advisers pursuant
to authority contained in the investment advisory agreement, investment
subadvisory agreement and investment sub-subadvisory agreements. The Manager,
Subadviser and Sector Advisers are also responsible for the placement of
transaction orders for accounts for which they or their affiliates act as
investment adviser. In selecting broker-dealers, subject to applicable
limitations of the federal securities laws, the Manager, Subadviser and Sector
Advisers consider various relevant factors, including, but not limited to, the
size and type of the transaction; the nature and character of the markets for
the security to be purchased or sold; the execution efficiency, settlement
capability, and financial condition of the broker-dealer firm; the
broker-dealer's execution services rendered on a continuing basis; the
reasonableness of any commissions, and arrangements for payment of Portfolio
expenses.

The Portfolio may execute portfolio transactions with broker-dealers who
provide research and execution services to the Portfolio or other accounts over
which the Manager, Subadviser or Sector Advisers or their affiliates exercise
investment discretion. Such services may include advice concerning the value of
securities; the advisability of investing in, purchasing or selling securities;
the availability of securities or the purchasers or sellers of securities;

<PAGE>

furnishing analyses and reports concerning issuers industries, securities,
economic factors and trends, portfolio strategy, and performance of accounts;
and effecting securities transactions and performing functions incidental
thereto (such as clearance and settlement). The selection of such broker-dealers
generally is made by the Manager, Subadviser and Sector Advisers (to the extent
possible consistent with execution considerations) in accordance with a ranking
of broker-dealers determined periodically by the Manager, Subadviser and Sector
Advisers' investment staffs based upon the quality of research and execution
services provided.

The receipt of research from broker-dealers that execute transactions on
behalf of the Portfolio may be useful to the Manager, Subadviser and Sector
Advisers in rendering investment management services to the Portfolio or their
other clients, and conversely, such research provided by broker-dealers who have
executed transaction orders on behalf of other Manager, Subadviser and Sector
Advisers' clients may be useful to the Manager, Subadviser and Sector Advisers
in carrying out their obligations to the Portfolio. The receipt of such research
is not expected to reduce the Manager, Subadviser and Sector Advisers' normal
independent research activities; however, it enables the Manager, Subadviser and
Sector Advisers to avoid the additional expenses that could be incurred if the
Manager, Subadviser and Sector Advisers tried to develop comparable information
through their own efforts.

Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that are in
excess of the amount of commissions charged by other broker-dealers in
recognition of their research and execution services. In order to cause the
Portfolio to pay such higher commissions, the Manager, Subadviser and/or Sector
Advisers must determine in good faith that such commissions are reasonable in
relation to the value of the brokerage and research services provided by such
executing broker-dealers viewed in terms of a particular transaction or the
Manager, Subadviser and/or Sector Advisers' overall responsibilities to the
Portfolio and their other clients. In reaching this determination, the Manager,
Subadviser and/or Sector Advisers will not attempt to place a specific dollar
value on the brokerage and research services provided or to determine what
portion of the compensation should be related to those services.

The Manager, Subadviser and Sector Advisers may allocate brokerage
transactions to broker-dealers who have entered into arrangements with the
Manager, Subadviser and Sector Advisers under which the broker-dealer allocates
a portion of the commissions paid by the Portfolio toward payment of the
Portfolio's or the fund's expenses, such as transfer agent fees or custodian
fees. The transaction quality must, however, be comparable to those of other
qualified broker-dealers.

The Trustees of the Portfolio periodically review the Manager, Subadviser
and Sector Advisers' performance of their responsibilities in connection with
the placement of portfolio transactions on behalf of the Portfolio and review
the commissions paid by the Portfolio over representative periods of time to
determine if they are reasonable in relation to the benefits to the Portfolio.

<PAGE>

From time to time, the Trustees of the Portfolio will review whether the
recapture for the benefit of the Portfolio of some portion of the brokerage
commissions or similar fees paid by the Portfolio on portfolio transactions is
legally permissible and advisable.

The Portfolio seeks to recapture soliciting broker-dealer fees on the
tender of portfolio securities, but at present no other recapture arrangements
are in effect. The Trustees of the Portfolio intend to continue to review
whether recapture opportunities are available and are legally permissible and,
if so, to determine in the exercise of their business judgment, whether it would
be advisable for the Portfolio to seek such recapture.

Although the Trustees and officers of the Portfolio are substantially the
same as those of other portfolios managed by the Manager, investment decisions
for the Portfolio are made independently from those of other portfolios managed
by the Manager or accounts managed by affiliates of the Manager. It sometimes
happens that the same security is held in the portfolio of more than one of
these funds or accounts. Simultaneous transactions are inevitable when several
portfolios are managed by the same investment adviser, particularly when the
same security is suitable for the investment objective of more than one
portfolio.

When two or more portfolios are simultaneously engaged in the purchase or
sale of the same security, the prices and amounts are allocated in accordance
with a policy considered by the Portfolio Trustees to be equitable to each
portfolio. In some cases this system could have a detrimental effect on the
price or value of the security as far as the Portfolio is concerned. In other
cases, however, the ability of the Portfolio to participate in volume
transactions will produce better executions and prices for the Portfolio. It is
the current opinion of the Trustees of the Portfolio that the desirability of
retaining the Manager as investment adviser to the Portfolio outweighs any
disadvantages that may be said to exist from exposure to simultaneous
transactions. During the period from January 1, 1999 to December 31, 1999, the
Growth Stock Portfolio paid total commissions of $67,629 ($78,411 in 1998;
$100,888 in 1997) on the purchase and sale of securities, of which $7,520 in
commissions were paid on the purchase and sale of futures and options contracts.

VALUATION OF PORTFOLIO SECURITIES

Portfolio securities are valued by various methods depending on the primary
market or exchange on which they trade. Equity securities for which the primary
market is the U.S. are valued at last sale price or, if no sale has occurred, at
the closing bid price. Short-term securities less than 60 days to maturity are
valued either at amortized cost or at original cost plus accrued interest, both
of which approximate current value. Fixed-income securities are valued primarily
by a pricing service that uses a vendor security valuation matrix which

<PAGE>

incorporates both dealer-supplied valuations and electronic data processing
techniques.

This twofold approach is believed to more accurately reflect fair value
because it takes into account appropriate factors such as institutional trading
in similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data without exclusive reliance
upon quoted, exchange, or over-the-counter prices.

Securities and other assets for which there is no readily available market
are valued in good faith by the Board of Trustees. The procedures set forth
above need not be used to determine the value of the securities owned by the
Portfolio if, in the opinion of the Board of Trustees, some other method (e.g.,
closing over-the-counter bid prices in the case of debt instruments traded on an
exchange) would more accurately reflect the fair market value of such
securities.

Generally, the valuation of equity securities, as well as corporate bonds,
U.S. government securities, money market instruments, and repurchase agreements,
is substantially completed each day at the close of the New York Stock Exchange
(NYSE).

The values of any such securities held by the Portfolio are determined as
of such time for the purpose of computing the Portfolio's net asset value. If an
extraordinary event that is expected to materially affect the value of a
portfolio security occurs after the close of an exchange on which that security
is traded, then the security will be valued as determined in good faith by the
Board of Trustees.

THE FUND'S DISTRIBUTOR

Morgan Keegan acts as distributor of the fund's shares pursuant to an
Underwriting Agreement between the fund and Morgan Keegan dated as of February
26, 1999, as amended ("Underwriting Agreement"). The shares of the fund are
offered continuously. The Underwriting Agreement obligates Morgan Keegan to
provide certain services and to bear certain expenses in connection with the
offering of fund shares, including, but not limited to: printing and
distribution of prospectuses and reports to prospective shareholders;
preparation and distribution of sales literature and advertising; administrative
and overhead cost of distribution, such as the allocable costs of executive
office time expended on developing, managing and operating the distribution
program; operating expenses of branch offices, sales training expenses, and
telephone and other communication expenses. Morgan Keegan compensates investment
brokers of Morgan Keegan and other persons who engage in or support distribution
of shares and shareholder service based on the sales for which they are
responsible and the average daily net asset value of fund shares in accounts of
their clients. Morgan Keegan also pays special additional compensation and
promotional incentives from time to time to investment brokers for sales of fund
shares.

<PAGE>

The fund has adopted a Distribution Plan with respect to the Class A shares
and Class C shares (the "Plan") pursuant to Rule 12b-1 under the 1940 Act. Under
the Plan, distribution fees will be paid at an aggregate annual rate of up to
0.25% for Class A shares of the fund's average daily net assets attributable to
shares of that class. Under the Plan, distribution and service fees will be paid
at an aggregate annual rate of up to 1.00% for Class C shares of the fund's
average daily net assets attributable to shares of that class. Class I shares
are not subject to a distribution and service fee.

Service fees and distribution fees paid by the fund to Morgan Keegan under
the plan may exceed or be less than Morgan Keegan's expenses thereunder. No
interested person of the funds or non-interested director had a direct or
indirect interest in the Plan or related agreements. The fund benefits from the
Plan by virtue of an ongoing broker's involvement with individual customers as
well as the benefit from continued promotion.

The Plan was approved by the Initial Shareholder on __________, 2000, and
as required by Rule 12b-1 under the 1940 Act, by the Board of Directors on May
__, 2000, including a majority of the directors who are not "interested persons"
of the fund, as that term is defined in the 1940 Act and who have no direct or
indirect financial interest in the operation of the Plan or the Underwriting
Agreement (the "Qualified Directors").

In approving the Plan, in accordance with the requirements of Rule 12b-1,
the Board of Directors determined that the service and distribution fees were
reasonable in view of the compensation Morgan Keegan investment brokers can
receive relative to the compensation offered by competing funds. The Board of
Directors also determined that the fees are reasonable in light of the service
and distribution fees paid by other similar funds. Finally, the Directors
determined that there was a reasonable likelihood that the Plan, and the
amendments to the Plan, would benefit the fund and its shareholders. This
determination was based, in part, on the belief that the Plan enables the fund
to have Morgan Keegan investment brokers available to promote and sell the fund,
thereby assisting the fund to attract assets. Growth of assets is expected to
benefit both the fund and the Adviser. The fund is expected to benefit from the
potential for economies of scale in its operations that can arise from growth in
assets, as well as from the increased potential for flexibility in portfolio
management resulting from a net inflow of assets, as opposed to net redemptions.
Shareholders of the fund are expected to benefit from continuing services
provided by investment brokers and other staff members of Morgan Keegan as
distributor. The Adviser and Morgan Keegan are expected to benefit from the fact
that their advisory, service and distribution fees, which are based on a
percentage of assets, increase as fund assets grow and that their brokerage
commissions and transfer fees will also increase as assets grow. The Directors
acknowledged, however, that there is no assurance that benefits to the fund will
be realized as a result to the Plan. In considering whether to continue the
Plan, the Directors, among other things, also reviewed the expenses of the Plan,
alternative methods of distributing fund shares, and the overall expected costs
and benefits to the fund.

<PAGE>

The Plan may be terminated by vote of a majority of the Qualified Directors
or by vote of a majority of the outstanding voting securities of the fund.
Termination of the Plan terminates any obligation of the fund to pay service and
distribution fees to Morgan Keegan, other than service and distribution fees
that may have accrued but that have not been paid as of the date of termination.
Any change in the Plan that would materially increase the service and
distribution costs to the fund requires shareholder approval; otherwise the Plan
may be amended by the Directors, including a majority of the Qualified
Directors, as described above.

The Plan, as currently in effect, will continue for successive one-year
periods, provided that each such continuance specifically is approved by (1) the
vote of a majority of the Qualified Directors and (2) the vote of a majority of
the entire Board of Directors.

Rule 12b-1 requires that any person authorized to direct the disposition of
monies paid or payable by the fund pursuant to the Plan or any related agreement
shall provide to the Company's Board of Directors, and the Directors shall
review, at least quarterly, a written report of the amounts so expended and the
purposes for which expenditures were made. Rule 12b-1 also provides that the
fund may rely on that rule only if the selection and nomination of the fund's
independent directors are committed to the discretion of such independent
directors.

The current Underwriting Agreement was approved initially by vote of the
Board and the Qualified Directors on _______________, 2000. The Underwriting
Agreement is subject to the same provisions for annual renewal as the Plan. In
addition, the Underwriting Agreement will terminate upon assignment or upon 60
days' notice from Morgan Keegan. The fund may terminate the Underwriting
Agreement, without penalty, upon 60 days' notice, by a majority vote of either
its Board of Directors, the Qualified Directors, or the outstanding voting
securities of the fund.

DESCRIPTION OF THE FUND'S SHARES

The Company is a diversified open-end management investment company
incorporated as a Maryland corporation. The Articles of Incorporation permit the
Board of Directors the right to issue one billion shares (1,000,000,000), par
value of one tenth of one cent ($0.001). Under the Articles of Incorporation,
the Directors have the authority to divide or combine the shares into a greater
or lesser number, to classify or reclassify any unissued shares of the Company
into one or more separate series or class of shares, without further action by
the shareholders. As of the date of this Statement of Additional Information,
the Directors have authorized four series of shares (Growth Fund, Utility Fund,
Intermediate Bond Fund, and High Income Fund) and the issuance of three classes
of shares of each fund, designated as Class A, Class C, and Class I. Shares are
freely transferable and have no preemptive, subscription of conversion rights.
When issued, shares are fully paid and non-assessable.

<PAGE>

The Articles of Incorporation provide that all dividends and distributions
on shares of each series or class will be distributed pro rata to the holders of
that series or class in proportion to the number of shares of that series or
class held by such holders. In calculating the amount of any dividends or
distributions, (1) each class will be charged with the transfer agency fee
attributable to that class, (2) each class separately with such other expenses
as may be permitted by the SEC and the Board of Directors, and (3) all other
fees and expenses shall be charged to the classes, in the proportion that the
net assets of that class bears to the net assets of the applicable series.

Each class will vote separately on matters pertaining only to that class,
as the Board of Directors may determine. On all other matters, all classes shall
vote together and every share, regardless of class, shall have an equal vote
with every other share. Except as otherwise provided in the Articles of
Incorporation, the By-laws of the Company or as required by the provisions of
the 1940 Act, all matters will be decided by a vote of a majority of the
outstanding voting securities validly cast at a meeting at which a quorum is
present. One-third of the aggregate number of shares of that series or class
outstanding and entitled to vote shall constitute a quorum for the transaction
of business by that series or class.

Unless otherwise required by the 1940 Act or the Articles of Incorporation,
the fund has no intention of holding annual meetings of shareholders. The fund's
shareholders may remove a Director by the majority of all votes of the Company's
outstanding shares and the Board of Directors shall promptly call a meeting for
such purpose when requested to do so in writing by the record holders of not
less than 25% of the outstanding shares of the fund. At least two-thirds of the
Directors holding office must have been elected by the shareholders.

INVESTMENT STRUCTURE. Unlike other mutual funds which directly acquire and
manage their own portfolio of securities, the fund seeks to achieve its
investment objectives by investing all of its assets in the Growth Stock
Portfolio (the "Portfolio"), a separate registered investment company with the
same investment objectives as the fund. Therefore, an investor's interest in the
Portfolio's securities is indirect. In addition to selling a beneficial interest
to the fund, the Portfolio may sell beneficial interests to other mutual funds
or investors. Such investors will invest in the Portfolio on the same terms and
conditions and will pay a proportionate share of the Portfolio's expenses.
However, the other investors investing in the Portfolio are not required to sell
their shares at the same public offering price as the fund. Investors in the
fund should be aware that these differences may result in differences in returns
experienced by investors in the different funds that invest in the Portfolio.
Such differences in returns are also present in other mutual fund structures.
You may obtain information concerning other holders of interests in the
Portfolio by contacting the fund.

The Growth Stock Portfolio is organized as a trust under the laws of the
State of New York. The Portfolio's Declaration of Trust provides that the fund
and other entities investing in the Portfolio (e.g., other investment companies,
insurance company separate accounts, and common and commingled trust funds) will

<PAGE>

each be liable for all obligations of the Portfolio. However, the risk of the
fund incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance existed and the Portfolio
itself was unable to meet its obligations. Accordingly, the Board of Directors
of the Company believes that neither the fund nor its shareholders will be
adversely affected by reason of the fund's investing in the Portfolio. In
addition, whenever the Company is requested to vote on matters pertaining to the
fundamental policies of the Portfolio, the Company will hold a meeting of the
fund's shareholders and will cast its vote as instructed by the fund's
shareholders.

Smaller funds investing in the Portfolio may be materially affected by the
actions of larger funds investing in the Portfolio. For example, if a large fund
withdraws from the Portfolio, the remaining funds may experience higher pro rata
operating expenses, thereby producing lower returns. Additionally, the Portfolio
may become less diverse, resulting in increased portfolio risk. (However, this
possibility also exists for traditionally structured funds that have large or
institutional investors.) Also, funds with a greater pro rata ownership in the
Portfolio could have effective voting control of the operations of the
Portfolio. Whenever the Company is requested to vote on matters pertaining to
the Portfolio, the Company will hold a meeting of shareholders of the fund and
will cast all of its votes in the same proportion as do the fund's shareholders.
Certain changes in the Portfolio's investment objectives, policies or
restrictions may require the Company to withdraw the fund's interest in the
Portfolio. Any such withdrawal could result in a distribution in kind of
portfolio securities (as opposed to a cash distribution from the Portfolio). If
such securities are distributed, the fund could incur brokerage, tax or other
charges in converting the securities to cash. In addition, the distribution in
kind may result in a less diversified portfolio of investments or adversely
affect the liquidity of the fund.

The fund may withdraw its investment from its corresponding Portfolio at
any time, if the Board of Directors of the Company determines that it is in the
best interests of the fund to do so. Upon any such withdrawal, the Board of
Directors would consider what action might be taken, including the investment of
all the assets of the fund in another pooled investment entity having the same
investment objectives as that fund or the retaining of an investment adviser to
manage the fund's assets in accordance with the investment policies with respect
to that fund's corresponding Portfolio. The inability to find an adequate
investment pool or investment adviser could have a significant impact on
shareholders' investment in the fund.

As stated in "Additional Information about Investment Limitations and
Policies," except as otherwise expressly provided herein, the fund's investment
objectives and policies are not fundamental and may be changed by the Board of
Directors without shareholder approval.

<PAGE>

THE FUND'S CUSTODIAN, TRANSFER AGENT,
DIVIDEND DISBURSING AGENT
AND
PORTFOLIO ACCOUNTING SERVICE AGENT

Morgan Keegan & Company, Inc., Morgan Keegan Tower, Fifty Front Street,
Memphis, Tennessee 38103, serves as the transfer and dividend disbursing agent
of the fund. For these services, Morgan Keegan, the fund's distributor, receives
from the fund a fee of $5,000 per month, or $60,000 per year.

Mutual Funds Service Co., 6000 Memorial Drive, Dublin, Ohio 43017, provides
accounting services to the Portfolio. The minimum annual fee for accounting
services for the Portfolio is $7,500. Subject to the applicable minimum fee, the
Portfolio's annual fee, payable monthly, is computed at the rate of 0.15% of the
first $10 million, 0.10% of the next $20 million, 0.02% of the next $50 million
and 0.01% in excess of $80 million of the Portfolio's average net assets.

Mutual Funds Service Co. also serves as Administrator to the fund pursuant
to an Administration Services Agreement. Services provided to the fund include
coordinating and monitoring any third party services to the fund; providing the
necessary personnel to perform administrative functions for the fund; assisting
in the preparation, filing and distribution of proxy materials, periodic reports
to Directors and shareholders, registration statements and other necessary
documents. The fund incurs an annual fee, payable monthly, of .05% of the fund's
average net assets, subject to a minimun annual fee of $15,000 the first year
and $30,000 each year thereafter. These fees are reviewable annually by the
Directors of the fund and the Trustees of the Portfolio.

Shareholders who request an historical transcript of their account will be
charged a fee based on the number of years researched. The fund reserves the
right, upon 60 days' written notice, to make other charges to investors to cover
administrative costs.

Firstar Bank, N.A., 425 Walnut Street, Cincinnati, OH 45202, is custodian
of the assets of the Portfolio. The custodian is responsible for the safekeeping
of the Portfolio's assets and the appointment of subcustodian banks and clearing
agencies. The custodian takes no part in determining the investment policies of
the Portfolio or in deciding which securities are purchased or sold by the
Portfolio. The Portfolio may, however, invest in obligations of the custodian
and may purchase or sell securities from or to the custodian.

THE FUND'S LEGAL COUNSEL

Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, N.W., Washington,
D.C. 20036-1800, serves as counsel to the fund and has passed upon certain
matters in connection with this offering.

<PAGE>

THE FUND'S CERTIFIED PUBLIC ACCOUNTANTS

KPMG LLP are the fund's independent certified public accountants. KPMG LLP
performs an audit of the fund's financial statements and reviews the fund's
federal and state income tax returns.

FINANCIAL STATEMENTS

Financial Statements for the Portfolio are presented on the following
pages.

<PAGE>

THE UTILITY FUND
A SERIES OF THE MORGAN KEEGAN SELECT FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
________________, 2000

The Morgan Keegan Utility Fund is a series of the Morgan Keegan Select
Fund, Inc. (the "Company"), a diversified open-end management investment company
incorporated in Maryland on October 27, 1998. The fund invests principally in
equity securities of domestic and foreign public utility companies; however, the
fund will not invest in electric utilities that generate power from nuclear
reactors. The fund offers three classes of shares: Class A shares, Class C
shares, and Class I shares.

This Statement of Additional Information is not a prospectus but should be
read in conjunction with the fund's Prospectus, dated ______________, 2000,
which has been filed with the Securities and Exchange Commission. A copy of the
current Prospectus is available without charge from Morgan Keegan & Company,
Inc., the fund's distributor. Please retain this document for future reference.
Capitalized terms used and not otherwise defined herein have the same meanings
as defined in the Prospectus.

TABLE OF CONTENTS PAGE

Additional Information About Investment Limitations and Policies
Risk Considerations
Additional Tax Information
Additional Purchase and Redemption Information
Valuation of Shares
Purchase of Shares
Performance Information
Tax-Deferred Retirement Plans
The Fund's Officers and Directors
The Portfolio's Officers and Trustees
The Portfolio's Investment Adviser
The Portfolio's Investment Subadviser
Portfolio Transactions and Brokerage
Valuation of Portfolio Securities
The Fund's Distributor
Description of the Fund's Shares
The Fund's Custodian, Transfer Agent, Dividend Disbursing Agent
and Portfolio Accounting Service Agent
The Fund's Legal Counsel
The Fund's Certified Public Accountants
Financial Statements

INVESTMENT ADVISER TRANSFER AGENT & DISTRIBUTOR
------------------ ----------------------------
Meeder Asset Management, Inc. Morgan Keegan & Company, Inc.

PORTFOLIO ACCOUNTING SERVICE AGENT
INVESTMENT SUBADVISER AND ADMINISTRATOR
--------------------- -----------------
Miller/Howard Investments, Inc. Mutual Funds Service Co.

<PAGE>

ADDITIONAL INFORMATION ABOUT
INVESTMENT LIMITATIONS AND POLICIES

The following policies and limitations supplement those set forth in the
Prospectus. Unless otherwise noted, whenever an investment policy or limitation
states a maximum percentage of the Portfolio's assets that may be invested in
any security or other asset, or sets forth a policy regarding quality standards,
such standard or percentage limitation will be determined immediately after and
as a result of the Portfolio's acquisition of such security or other asset.
Accordingly, any subsequent change in values, net assets or other circumstances
will not be considered when determining whether the investment complies with the
fund's investment policies and limitations.

The fund's fundamental investment limitations cannot be changed without
approval by a majority of the outstanding voting securities (as defined in the
Investment Company Act of 1940) of the fund. However, except for the fundamental
investment limitations set forth below, the investment policies and limitations
described in this Statement of Additional Information are not fundamental and
may be changed by the Board of Directors without shareholder approval. THE
FOLLOWING ARE THE PORTFOLIO'S FUNDAMENTAL INVESTMENT LIMITATIONS SET FORTH IN
THEIR ENTIRETY; PROVIDED THAT NOTHING IN THE FOLLOWING INVESTMENT RESTRICTIONS
WILL PREVENT THE FUND FROM INVESTING ALL OR PART OF THE FUND'S ASSETS IN AN
OPEN-END MANAGEMENT INVESTMENT COMPANY WITH THE SAME INVESTMENT OBJECTIVE AS THE
FUND. THE FUND OR THE PORTFOLIO MAY NOT

(1) with respect to 75% of the Portfolio's total assets, purchase the
securities of any issuer (other than obligations issued or guaranteed by the
government of the United States or any of its agencies or instrumentalities) if,
as a result thereof, (a) more than 5% of the Portfolio's total assets would be
invested in the securities of such issuer or (b) the Fund would hold more than
10% of the voting securities of such issuer;

(2) issue senior securities except as permitted under the Investment
Company Act of 1940;

(3) borrow money except that the Portfolio may borrow money for temporary
or emergency purposes (not for leveraging or investment) in an amount not
exceeding 33-1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings). Any borrowings that come to exceed this
amount will be reduced within three days (not including Sundays and holidays) to
the extent necessary to comply with the 33-1/3% limitation;

<PAGE>

(5) purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities)
if, as a result, more than 25% of the Portfolio's total assets would be invested
in the securities of companies whose principal business activities are in the
same industry except that the Portfolio, under normal circumstances, will invest
more than 25% of its total assets in securities of public utility companies;

(8) lend any security or make any other loan if, as a result, more than
33-1/3% of its total assets would be lent to other parties (but this limitation
does not apply to purchases of debt securities or to repurchase agreements).

THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.

(i) The Portfolio does not currently intend to sell securities short unless
it owns or has the right to obtain securities equivalent in kind and amount to
the securities sold short and provided that transactions in futures contracts
and options are not deemed to constitute selling securities short.

(ii) The Portfolio does not currently intend to purchase securities on
margin except that the Fund may obtain such short-term credits as are necessary
for the clearance of transactions and provided that margin payments in
connection with futures contracts and options on futures contracts shall not
constitute purchasing securities on margin.

(iii) The Portfolio may borrow money only (a) from a bank, or from a
registered investment company for which the Manager serves as investment adviser
if an applicable exemptive order has been granted or (b) by engaging in reverse
repurchase agreements with any party (reverse repurchase agreements are treated
as borrowings for purposes of fundamental investment limitation (3)). The
Portfolio will not purchase any security while borrowings representing more than
5% of its total assets are outstanding. The Portfolio will not borrow from other
funds advised by the Manager if total outstanding borrowings immediately after
such borrowing would exceed 15% of the Portfolio's total assets.

<PAGE>

(iv) The Portfolio does not currently intend to purchase any security if,
as a result more than 10% of its net assets would be invested in securities that
are deemed to be illiquid because they are subject to legal or contractual
restrictions on resale or because they cannot be sold or disposed of in the
ordinary course of business at approximately the prices at which they are
valued, including repurchase agreements with remaining maturities in excess of
seven days or securities without readily available market quotes.

(v) The Portfolio does not currently intend to invest in securities of real
estate investment trusts that are not readily marketable or to invest in
securities of real estate limited partnerships that are not listed on the New
York Stock Exchange or the American Stock Exchange or traded on the NASDAQ
National Market System.

(vi) The Portfolio does not currently intend to lend assets other than
securities to other parties except by (a) lending money (up to 5% of the
Portfolio's net assets) to a registered investment company for which the Manager
serves as investment adviser or (b) acquiring loans, loan participations, or
other forms of direct debt instruments and in connection therewith assuming any
associated unfunded commitments of the sellers. (This limitation does not apply
to purchases or debt securities or to repurchase agreements.)

(vii) The Portfolio does not currently intend to purchase securities of
other investment companies.

This limitation does not apply to securities received as dividends, through
offers of exchange, or as a result of reorganization, consolidation, or merger.

(viii) The Portfolio does not currently intend to purchase the securities
of any issuer (other than securities issued or guaranteed by domestic or foreign
governments or political subdivisions thereof) if, as a result, more than 5% of
its total assets would be invested in the securities of business enterprises
that, including predecessors, have a record of less than three years of
continuous operation.

(ix) The Portfolio does not currently intend to purchase warrants, valued
at the lower of cost or market, in excess of 5% of the Portfolio's net assets.
Included in that amount, but not to exceed 2% of the Portfolio's net assets, may
be warrants that are not listed on the New York Stock Exchange or the American
Stock Exchange. Warrants acquired by the Portfolio in units or attached to
securities are not subject to these restrictions.

(x) The Portfolio does not currently intend to invest in oil, gas, or other
mineral exploration or development programs or leases.

(xi) The Portfolio does not currently intend to purchase the securities of
any issuer if those officers and Trustees of the Portfolio and those officers

<PAGE>

and directors of the Company, the Manager or the Subadviser who individually own
more than 1/2 of 1% of the securities of such issuer, together own more than 5%
of such issuer's securities.

(xii) The Portfolio does not currently intend to invest in electric
utilities whose generation of power is derived from nuclear reactors.

For the Portfolio's limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options Transactions" beginning
on page 17. For the Portfolio's limitations on short sales, see the section
entitled "Short Sales."

MONEY MARKET INSTRUMENTS. When investing in money market instruments, the
Portfolio will limit its purchases, denominated in U.S. dollars, to the
following securities.

* U.S. Government Securities and Securities of its Agencies and
Instrumentalities - obligations issued or guaranteed as to principal
or interest by the United States or its agencies (such as the Export
Import Bank of the United States, Federal Housing Administration, and
Government National Mortgage Association) or its instrumentalities
(such as the Federal Home Loan Bank, Federal Intermediate Credit Banks
and Federal Land Bank), including Treasury bills, notes and bonds.

* Bank Obligations and Instruments Secured Thereby - obligations
including certificates of deposit, time deposits and bankers'
acceptances) of domestic banks having total assets of $1,000,000,000
or more, instruments secured by such obligations and obligations of
foreign branches of such banks, if the domestic parent bank is
unconditionally liable to make payment on the instrument if the
foreign branch fails to make payment for any reason. The Portfolio may
also invest in obligations (including certificates of deposit and
bankers acceptances) of domestic branches of foreign banks having
assets of $1,000,000,000 or more if the domestic branch is subject to
the same regulation as United States banks. The Portfolio will not
invest at time of purchase more than 25% of its assets in obligations
of banks nor will the Portfolio invest more than 10% of its assets in
time deposits.

* High quality Commercial Paper - The Portfolio may invest in commercial
paper rated no lower than A-2 by Standard & Poor's Corporation or
Prime-2 by Moody's Investors Services Inc. or, if not rated, issued by
a company having an outstanding debt issue rated at least A by
Standard & Poor's or Moody's.

* Private Placement Commercial Paper - Private placement commercial
paper consists of unregistered securities which are traded in public
markets to qualified institutional investors such as the Portfolio.
The Portfolio's risk is that the universe of potential buyers for the

<PAGE>

securities should the Portfolio desire to liquidate a position is
limited to qualified dealers and institutions and therefore such
securities could have the effect of being illiquid.

* High Grade Corporate Obligations - obligations rated at least A by
Standard & Poor's or Moody's. See rating information below.

* Repurchase Agreements -- See Repurchase Agreements below.

The Subadviser exercises due care in the selection of money market
instruments. However, there is a risk that the issuers of the securities may not
be able to meet their obligations to pay interest or principal when due. There
is also a risk that some of the Portfolio's securities might have to be
liquidated prior to maturity at a price less than original amortized cost or
value face amount or maturity value to meet larger than expected redemptions.
Any of these risks if encountered could cause a reduction in net income or in
the net asset value of the Portfolio.

RATINGS

1. Moody's Investors Services Inc.'s Corporate Bond Rating:

Aa - Bonds which are rated Aa are judged to be high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins or
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.

A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.

<PAGE>

2. Standard and Poor's Corporation's Corporate Bond Rating:

AAA- Bonds rated AAA are highest grade obligations. They possess the
ultimate degree of protection as to principal and interest. Marketwise they move
with interest rates and hence provide the maximum safety on all counts.

AA - Bonds rated AA also qualify as high grade obligations and in the
majority of instances differ from AAA issues only in small degree. Here too
prices move with the long-term money market.

BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay principal and interest for bonds in this category
than for bonds in the A category.

3. A-1 and P-1 Commercial Paper Ratings:

Commercial paper rated A-1 by Standard & Poor's Corporation ("S&P") has the
following characteristics: Liquidity ratios are adequate to meet cash
requirements. Long-term senior debt is rated A or better. The issuer has access
to at least two additional channels of borrowing. Basic earnings and cash flow
have an upward trend. Typically the issuer's industry is well established and
the issuer has a strong position within the industry. The reliability and
quality of management are unquestioned. Relative strength or weakness of the
above factors determines whether the issuer's commercial paper is A-1 A-2 or
A-3.

The rating P-1 is the highest commercial paper rating assigned by Moody's
Investors Service Inc. ("Moody's"). Among the factors considered by Moody's in
assigning ratings are the following: (1) evaluation of the management of the
issuer; (2) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas; (3)
evaluation of the issuer's products in relation to competition and customer
acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend
of earnings over a period of ten years; (7) financial strength of a parent
company and the relationships which exist with the issuer; and (8) recognition
by the management of obligations which may be present or may arise as a result
of public interest questions and preparations to meet such obligations.

<PAGE>

4. Description of Permitted Money Market Investments:

Commercial Paper - refers to promissory notes issued by corporations in
order to finance their short term credit needs.

U.S. Government Obligations - are bills, certificates of indebtedness,
notes and bonds issued by the U.S. Treasury and agencies, authorities and
instrumentalities of the U.S. Government established under the authority of an
act of Congress. Some obligations of U.S. Government agencies, authorities and
instrumentalities are supported by the full faith and credit of the U.S.
Treasury, as for example, the Government National Mortgage Association; others
by the right of the issuer to borrow from the Treasury, as in the case of
Federal Farm Credit Banks and Federal National Mortgage Association; and others
only by the credit of the agency authority or instrumentality; as for example,
Federal Home Loan Mortgage and Federal Home Loan Bank.

Repurchase Agreements - See Repurchase Agreements below.

Certificates of Deposit - are certificates issued against funds deposited
in a bank, are for a definite period of time, earn a specified or variable rate
of return, and are normally negotiable.

Banker's Acceptances - are short-term credit instruments used to finance
the import, export, transfer or storage of goods. They are termed accepted when
a bank guarantees their payment at maturity. Corporate Obligations - include
bonds and notes issued by corporations in order to finance longer term credit
needs.

ILLIQUID INVESTMENTS are investments that cannot be sold or disposed of in
the ordinary course of business at approximately the prices at which they are
valued. Under the supervision of the Board of Trustees, the Subadviser
determines the liquidity of the Portfolio's investments and through reports from
the Subadviser, the Board monitors investments in illiquid instruments. In
determining the liquidity of the Portfolio's investments, the Subadviser may
consider various factors including (1) the frequency of trades and quotations,
(2) the number of dealers and prospective purchasers in the marketplace, (3)
dealer undertakings to make a market, (4) the nature of the security (including
any demand or tender features), and (5) the nature of the marketplace for trades
(including the ability to assign or offset the Portfolio's rights and
obligations relating to the investment). Investments currently considered by the
Portfolio to be illiquid include repurchase agreements not entitling the holder
to payment of principal and interest within seven days, over-the-counter options
and non-government stripped fixed-rate mortgage-backed securities. Also, the
Subadviser may determine some restricted securities, government-stripped
fixed-rate mortgage-backed securities, loans and other direct debt instruments
and swap agreements to be illiquid. However, with respect to over-the-counter
options, the Portfolio writes all or a portion of the value of the underlying
instrument may be illiquid depending on the assets held to cover the option and
the nature and terms of any agreement the Portfolio may have to close out the

<PAGE>

option before expiration. In the absence of market quotations, illiquid
investments are priced at fair value as determined in good faith by the Board of
Trustees. If through a change in values, net assets or other circumstances, the
Portfolio were in a position where more than 10% of its net assets were invested
in illiquid securities, it would seek to take appropriate steps to protect
liquidity.

RESTRICTED SECURITIES generally can be sold in privately negotiated
transactions pursuant to an exemption from registration under the Securities Act
of 1933 or in a registered public offering. Where registration is required, the
Portfolio may be obligated to pay all or part of the registration expense, and a
considerable period may elapse between the time it decides to seek registration
and the time the Portfolio may be permitted to sell a security under an
effective registration statement. If, during such a period, adverse market
conditions were to develop, the Portfolio might obtain a less favorable price
than prevailed when it decided to seek registration of the security.

REPURCHASE AGREEMENTS. In a repurchase agreement, the Portfolio purchases a
security and simultaneously commits to resell that security to the seller at an
agreed upon price on an agreed upon date within a number of days from the date
of purchase. The resale price reflects the purchase price plus an agreed upon
incremental amount which is unrelated to the coupon rate or maturity of the
purchased security. A repurchase agreement involves the obligation of the seller
to pay the agreed upon price which obligation is in effect secured by the value
(at least equal to the amount of the agreed upon resale price and marked to
market daily) of the underlying security. The Portfolio may engage in repurchase
agreements with respect to any security in which it is authorized to invest.

The Portfolio's repurchase agreements will at all times be fully
collateralized in an amount at least equal to the purchase price, including
accrued interest earned on the underlying securities. The instruments held as
collateral are valued daily, and as the value of instruments declines, the
Portfolio will require additional collateral. If the seller defaults or becomes
insolvent and the value of the collateral securing the repurchase agreement
declines, the Portfolio may incur a loss.

While it does not presently appear possible to eliminate all risks from
these transactions (particularly the possibility of a decline in the market
value of the underlying securities, as well as delays and costs to the Portfolio
in connection with bankruptcy proceedings), it is the Portfolio's current policy
to limit repurchase agreement transactions to parties whose creditworthiness has
been reviewed and found satisfactory by the Subadviser.

REVERSE REPURCHASE AGREEMENTS In a reverse repurchase agreement, a
Portfolio sells a portfolio instrument to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase the instrument at a
particular price and time. While a reverse repurchase agreement is outstanding,
the Portfolio will maintain appropriate liquid assets in a segregated custodian
account to cover its obligation under the agreement. The Portfolio will enter

<PAGE>

into reverse repurchase agreements only with parties whose creditworthiness has
been found satisfactory by the Subadviser. Such transactions may increase
fluctuations in the market value of the Portfolio's assets and may be viewed as
a form of leverage.

SECURITIES LENDING. The Portfolio may lend securities to parties such as
broker-dealers or institutional investors.

During the time portfolio securities are on loan, the borrower will pay the
Portfolio an amount equivalent to any dividend or interest paid on such
securities and earn additional income, or the Portfolio may receive an
agreed-upon amount of interest income from the borrower. In accordance with
applicable regulatory requirements, the Portfolio may lend up to 30% of the
value of its total assets. The risks in lending portfolio securities, as well as
with other extensions of secured credit, consist of possible delay in receiving
additional collateral or in recovery of the securities or possible loss of
rights in the collateral should the borrower fail financially.

Securities lending allows the Portfolio to retain ownership of the
securities loaned and, at the same time, to earn additional income. Since there
may be delays in the recovery of loaned securities or even a loss of rights in
collateral supplied should the borrower fail financially, loans will be made
only to parties deemed by the Subadviser to be of good standing. Furthermore,
they will only be made if in the Subadviser s judgment the consideration to be
earned from such loans would justify the risk.

The Subadviser understands that it is the current view of the SEC Staff
that the Portfolio may engage in loan transactions only under the following
conditions: (1) the Portfolio must receive 100% collateral in the form of cash
or cash equivalents (e.g. U.S. Treasury bills or notes) from the borrower; (2)
the borrower must increase the collateral whenever the market value of the
securities loaned (determined on a daily basis) rises above the value of the
collateral; (3) after giving notice, the Portfolio must be able to terminate the
loan at any time; (4) the Portfolio must receive reasonable interest on the loan
or a flat fee from the borrower, as well as amounts equivalent to any dividends,
interest or other distributions on the securities loaned and to any increase in
market value; (5) the Portfolio may pay only reasonable custodian fees in
connection with the loan; and (6) the Board of Trustees must be able to vote
proxies on the securities loaned, either by terminating the loan or by entering
into an alternative arrangement with the borrower.

Cash received through loan transactions may be invested in any security in
which the Portfolio is authorized to invest. Investing this cash subjects that
investment as well as the security loaned to market forces (i.e. capital
appreciation or depreciation).

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase or
sell securities on a when-issued or delayed delivery basis. When-issued or
delayed delivery transactions arise when securities are purchased or sold by the
Portfolio with payment and delivery taking place as much as a month or more in

<PAGE>

the future in order to secure what is considered to be an advantageous price and
yield to the Portfolio at the time of entering into the transaction. The
Portfolio's Custodian will maintain, in a segregated account of the Portfolio,
cash, U.S. Government securities or other liquid high-grade debt obligations
having a value equal to or greater than the Portfolio's purchase commitments;
the Custodian will likewise segregate securities sold on a delayed delivery
basis. The securities so purchased are subject to market fluctuation and no
interest accrues to the purchaser during the period between purchase and
settlement. At the time of delivery of the securities the value may be more or
less than the purchase price and an increase in the percentage of the
Portfolio's assets committed to the purchase of securities on a when-issued or
delayed delivery basis may increase the volatility of the Portfolio's net asset
value.

FOREIGN INVESTMENTS. Foreign investments can involve significant risks in
addition to the risks inherent in U.S. investments. The value of securities
denominated in or indexed to foreign currencies and of dividends and interest
from such securities can change significantly when foreign currencies strengthen
or weaken relative to the U.S. dollar. Foreign securities markets generally have
less trading volume and less liquidity than U.S. markets, and prices on some
foreign markets can be highly volatile.

Many foreign countries lack uniform accounting and disclosure standards
comparable to those applicable to U.S. companies, and it may be more difficult
to obtain reliable information regarding an issuer's financial condition and
operations.

In addition, the costs of foreign investing, including withholding taxes,
brokerage commissions, and custodial costs, are generally higher than for U.S.
investments.

Foreign markets may offer less protection to investors than U.S. markets.
Foreign issuers, brokers, and securities markets may be subject to less
government supervision. Foreign security trading practices, including those
involving the release of assets in advance of payment, may involve increased
risks in the event of a failed trade or the insolvency of a broker-dealer, and
may involve substantial delays. It may also be difficult to enforce legal rights
in foreign countries.

Investing abroad also involves different political and economic risks.
Foreign investments may be affected by actions of foreign governments adverse to
the interests of U.S. investors, including the possibility of expropriation or
nationalization of assets, confiscatory taxation, restrictions on U.S.
investment or on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. There may be a greater possibility of
default by foreign governments or foreign government-sponsored enterprises.
Investments in foreign countries also involve a risk of local political,
economic, or social instability, military action or unrest, or adverse
diplomatic developments. There is no assurance that the Subadviser will be able
to anticipate or counter these potential events.

<PAGE>

The considerations noted above generally are intensified for investments in
developing countries. Developing countries may have relatively unstable
governments, economies based on only a few industries, and securities markets
that trade a small number of securities.

The Portfolio may invest in foreign securities that impose restrictions on
transfer within the U.S. or to U.S. persons. Although securities subject to
transfer restrictions may be marketable abroad, they may be less liquid than
foreign securities of the same class that are not subject to such restrictions.

American Depository Receipts and European Depository Receipts (ADRs and
EDRs) are certificates evidencing ownership of shares of a foreign-based
corporation held in trust by a bank or similar financial institution. Designed
for use in U.S. and European securities markets, respectively, ADRs and EDRs are
alternatives to the purchase of the underlying securities in their national
markets and currencies.

The Portfolio expects that any gain or loss on hedging transactions will be
substantially offset by any gain or loss on the securities underlying the
contracts or being considered for purchase. There can be no guarantee that the
Portfolio will be able to realize this objective, and there are some risks in
utilizing a hedging strategy.

<PAGE>

FOREIGN CURRENCY TRANSACTIONS. The Portfolio may hold foreign currency
deposits from time to time and may convert dollars and foreign currencies in the
foreign exchange markets. Currency conversion involves dealer spreads and other
costs although commissions usually are not charged. Currencies may be exchanged
on a spot (i.e., cash) basis, or by entering into forward contracts to purchase
or sell foreign currencies at a future date and price. Forward contracts
generally are traded in an interbank market conducted directly between currency
traders (usually large commercial banks) and their customers. The parties to a
forward contract may agree to offset or terminate the contract before its
maturity or may hold the contract to maturity and complete the contemplated
currency exchange.

The Portfolio may use currency forward contracts to manage currency risks
and to facilitate transactions in foreign securities. The following discussion
summarizes the principal currency management strategies involving forward
contracts that could be used by the Portfolio.

In connection with purchases and sales of securities denominated in foreign
currencies, the Portfolio may enter into currency forward contracts to fix a
definite price for the purchase or sale in advance of the trade's settlement
date. This technique is sometimes referred to as a settlement hedge or
transaction hedge.

The Subadviser expects to enter into settlement hedges in the normal course
of managing the Portfolio's foreign investments. The Portfolio could also enter
into forward contracts to purchase or sell a foreign currency in anticipation of
future purchases or sales of securities denominated in foreign currency even if
the specific investments have not yet been selected by the Subadviser.

The Portfolio may also use forward contracts to hedge against a decline in
the value of existing investments denominated in foreign currency. For example,
if the Portfolio owned securities denominated in pounds sterling, it could enter
into a forward contract to sell pounds sterling in return for U.S. dollars to
hedge against possible declines in the pound's value. Such a hedge sometimes
referred to as a "position hedge," would tend to offset both positive and
negative currency fluctuations but would not offset changes in security values
caused by other factors. The Portfolio could also hedge the position by selling
another currency expected to perform similarly to the pound sterling - for
example, by entering into a forward contract to sell Deutschemarks or European
Currency Units in return for U.S. dollars. This type of hedge sometimes referred
to as a "proxy hedge," could offer advantages in terms of cost, yield, or
efficiency, but generally would not hedge currency exposure as effectively as a
simple hedge into U.S. dollars. Proxy hedges may result in losses if the
currency used to hedge does not perform similarly to the currency in which the
hedged securities are denominated.

Under certain conditions, SEC guidelines require mutual funds to set aside
cash and appropriate liquid assets in a segregated custodial account to cover

<PAGE>

currency forward contracts. As required by SEC guidelines, the Portfolio will
segregate assets to cover currency forward contracts, if any, whose purpose is
essentially speculative. The Portfolio will not segregate assets to cover
forward contracts entered into for hedging purposes, including settlement hedges
position hedges and proxy hedges.

Successful use of forward currency contracts will depend on the
Subadviser's skill in analyzing and predicting currency values. Forward
contracts may substantially change the Portfolio's investment exposure to
changes in currency exchange rates and could result in losses to the Portfolio
if currencies do not perform as the Subadviser anticipates. For example, if a
currency's value rose at a time when the Subadviser had hedged the Portfolio by
selling that currency in exchange for dollars, the Portfolio would be unable to
participate in the currency's appreciation. If the Subadviser hedges currency
exposure through proxy hedges, the Portfolio could realize currency losses from
the hedge and the security position at the same time if the two currencies do
not move in tandem. Similarly, if the Subadviser increases the Portfolio's
exposure to a foreign currency and that currency's value declines, the Portfolio
will realize a loss. There is no assurance that the Subadviser's use of forward
currency contracts will be advantageous to the Portfolio or that it will hedge
at an appropriate time. The policies described in this section are
non-fundamental policies of the Portfolio.

LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. The Portfolio will not:
(a) sell futures contracts, purchase put options or write call options if, as a
result, more than 50% of the Portfolio's total assets would be hedged with
futures and options under normal conditions; (b) purchase futures contracts or
write put options if, as a result, the Portfolio's total obligations upon
settlement or exercise of purchased futures contracts and written put options
would exceed 25% of its total assets; or (c) purchase call options if, as a
result, the current value of option premiums for call options purchased by the
Portfolio would exceed 5% of the Portfolio's total assets. These limitations do
not apply to options attached to or acquired or traded together with their
underlying securities, and do not apply to securities that incorporate features
similar to options.

<PAGE>

established by the Portfolio to protect against reinvestment risk are intended
to protect the Portfolio against the risks of reinvesting portfolio assets that
arise during periods when the assets are not fully invested in securities.

The above limitations on the Portfolio's investments in futures contracts
and options and the Portfolio's policies regarding futures contracts and options
discussed elsewhere in this Statement of Additional Information may be changed
as regulatory agencies permit.

Some currently available futures contracts are based on specific
securities, such as U.S. Treasury bonds or notes, and some are based on indices
of securities prices, such as the Standard & Poor's 500 Composite Stock Price
Index (S&P 500). Futures can be held until their delivery dates or can be closed
out before then if a liquid secondary market is available.

The value of a futures contract tends to increase and decrease in tandem
with the value of its underlying instrument. Therefore, purchasing futures
contracts will tend to increase the Portfolio's exposure to positive and
negative price fluctuations in the underlying instrument, much as if it had
purchased the underlying instrument directly. When the Portfolio sells a futures
contract, by contrast, the value of its futures position will tend to move in a
direction contrary to the market. Selling futures contracts, therefore, will
tend to offset both positive and negative market price changes much as if the
underlying instrument had been sold.

If the value of either party's position declines, that party will be
required to make additional "variation margin" payments to settle the change in
value on a daily basis. The party that has a gain may be entitled to receive all
or a portion of this amount. Initial and variation margin payments do not
constitute purchasing securities on margin for purposes of the Portfolio's
investment limitations. In the event of the bankruptcy of an FCM that holds
margin on behalf of the Portfolio, the Portfolio may be entitled to return of
margin owed to it only in proportion to the amount received by the FCM's other
customers, potentially resulting in losses to the Portfolio.

<PAGE>

PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the Portfolio
obtains the right (but not the obligation) to sell the option's underlying
instrument at a fixed strike price. In return for this right, the Portfolio pays
the current market price for the option (known as the option premium). Options
have various types of underlying instruments, including specific securities,
indices of securities prices and futures contracts. The Portfolio may terminate
its position in a put option it has purchased by allowing it to expire or by
exercising the option. If the option is allowed to expire, the Fund will lose
the entire premium it paid. If the Portfolio exercises the option, it completes
the sale of the underlying instrument at the strike price. The Portfolio may
also terminate a put option position by closing it out in the secondary market
at its current price, if a liquid secondary market exists.

The buyer of a typical put option can expect to realize a gain if security
prices fall substantially. However, if the underlying instrument's price does
not fall enough to offset the cost of purchasing the option, a put buyer can
expect to suffer a loss (limited to the amount of the premium paid, plus related
transaction costs).

The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the underlying instrument at the option's strike
price.

A call buyer typically attempts to participate in potential price increases
of the underlying instrument with risk limited to the cost of the option if
security prices fall. At the same time, the buyer can expect to suffer a loss if
security prices do not rise sufficiently to offset the cost of the option.

WRITING PUT AND CALL OPTIONS. When the Portfolio writes a put option, it
takes the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium the Portfolio assumes the obligation to pay
the strike price for the option's underlying instrument if the other party to
the option chooses to exercise it. When writing an option on a futures contract
the Portfolio will be required to make margin payments to an FCM as described
above for futures contracts. The Portfolio may seek to terminate its position in
a put option it writes before exercise by closing out the option in the
secondary market at its current price. If the secondary market is not liquid for
a put option the Portfolio has written, however, the Portfolio must continue to
be prepared to pay the strike price while the option is outstanding, regardless
of price changes and must continue to set aside assets to cover its position.

When the Portfolio writes a put option, it takes the opposite side of the
transaction from the option's purchaser. In return for receipt of the premium,
the Portfolio assumes the obligation to pay the strike price for the option's
underlying instrument if the other party to the option chooses to exercise it.
When writing an option on a futures contract the Portfolio will be required to
make margin payments to an FCM as described above for futures contracts. The
Portfolio may seek to terminate its position in a put option it writes before

<PAGE>

exercise by closing out the option in the secondary market at its current price.
If the secondary market is not liquid for a put option the Portfolio has
written, however, the Portfolio must continue to be prepared to pay the strike
price while the option is outstanding, regardless of price changes, and must
continue to set aside assets to cover its position.

If security prices rise, a put writer would generally expect to profit,
although its gain would be limited to the amount of the premium it received. If
security prices remain the same over time, it is likely that the writer will
also profit because it should be able to close out the option at a lower price.
If security prices fall, the put writer would expect to suffer a loss. This loss
should be less than the loss from purchasing the underlying instrument directly,
however, because the premium received for writing the option should mitigate the
effects of the decline.

Writing a call option obligates the Portfolio to sell or deliver the
option's underlying instrument in return for the strike price, upon exercise of
the option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer mitigates the effects of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.

The Portfolio may write only "covered" call options. An option written on a
security or currency is "covered" when, so long as the Portfolio is obligated
under the option, it owns the underlying security or currency. The Portfolio
will "cover" stock index options and options on futures contracts it writes by
maintaining in a segregated account either marketable securities, which in the
Subadviser's judgment correlate to the underlying index or futures contract or
an amount of cash, U.S. government securities or other liquid, high grade debt
securities equal in value to the amount the Portfolio would be required to pay
were the option exercised.

COMBINED POSITIONS. The Portfolio may purchase and write options in
combination with each other or in combination with futures or forward contracts,
to adjust the risk and return characteristics of the overall position. For
example, the Portfolio may purchase a put option and write a call option on the
same underlying instrument, in order to construct a combined position whose risk
and return characteristics are similar to selling a futures contract. Another
possible combined position would involve writing a call option at one strike
price and buying a call option at a lower price, in order to reduce the risk of
the written call option in the event of a substantial price increase. Because
combined options positions involve multiple trades, they result in higher
transaction costs and may be more difficult to open and close out.

CORRELATION OF PRICE CHANGES. Because there are a limited number of types
of exchange-traded options and futures contracts, it is likely that the

<PAGE>

standardized contracts available will not match the Portfolio's current or
anticipated investments exactly. The Portfolio may invest in options and futures
contracts based on securities with different issuers, maturities or other
characteristics from the securities in which it typically invests, which
involves a risk that the options or futures position will not track the
performance of the Portfolio's other investments.

Options and futures prices can also diverge from the prices of their
underlying instruments even if the underlying instruments match the Portfolio's
investments well. Options and futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the contract,
which may not affect security prices the same way. Imperfect correlation may
also result from differing levels of demand in the options and futures markets
and the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price fluctuation
limits or trading halts.

The Fund may purchase or sell options and futures contracts with a greater
or lesser value than the securities it wishes to hedge or intends to purchase in
order to attempt to compensate for differences in volatility between the
contract and the securities, although this may not be successful in all cases.
If price changes in the Portfolio's options or futures positions are poorly
correlated with its other investments, the positions may fail to produce
anticipated gains or result in losses that are not offset by gains in other
investments.

LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a liquid
secondary market will exist for any particular options or futures contract at
any particular time. Options may have relatively low trading volume and
liquidity if their strike prices are not close to the underlying instrument's
current price. In addition, exchanges may establish daily price fluctuation
limits for options and futures contracts, and may halt trading if a contract's
price moves upward or downward more than the limit in a given day. On volatile
trading days when the price fluctuation limit is reached or a trading halt is
imposed, it may be impossible for the Portfolio to enter into new positions or
close out existing positions. If the secondary market for a contract is not
liquid because of price fluctuation limits or otherwise, it could prevent prompt
liquidation of unfavorable positions, and potentially could require the
Portfolio to continue to hold a position until delivery or expiration regardless
of changes in its value. As a result, the Portfolio's access to other assets
held to cover its options or futures positions could also be impaired.

OTC OPTIONS. Unlike exchange-traded options, which are standardized with
respect to the underlying instrument, expiration date, contract size, and strike
price, the terms of over-the-counter options (options not traded on exchanges)
generally are established through negotiation with the other party to the option
contract. While this type of arrangement allows the Portfolio greater
flexibility to tailor an option to its needs, OTC options generally involve
greater credit risk than exchange-traded options, which are guaranteed by the
clearing organization of the exchanges where they are traded.

<PAGE>

OPTIONS AND FUTURES RELATING TO FOREIGN CURRENCIES. Currency futures
contracts are similar to forward currency exchange contracts, except that they
are traded on exchanges (and have margin requirements) and are standardized as
to contract size and delivery date. Most currency futures contracts call for
payment or delivery in U.S. dollars. The underlying instrument of a currency
option may be a foreign currency, which generally is purchased or delivered in
exchange for U.S. dollars, or may be a futures contract. The purchaser of a
currency call obtains the right to purchase the underlying currency, and the
purchaser of a currency put obtains the right to sell the underlying currency.

The uses and risks of currency options and futures are similar to options
and futures relating to securities or indices, as discussed above. The Portfolio
may purchase and sell currency futures and may purchase and write currency
options to increase or decrease its exposure to different foreign currencies.
The Portfolio may also purchase and write currency options in conjunction with
each other or with currency futures or forward contracts. Currency futures and
options values can be expected to correlate with exchange rates, but may not
reflect other factors that affect the value of the Fund's investments. A
currency hedge, for example, should protect a Yen-denominated security from a
decline in the Yen, but will not protect the Portfolio against a price decline
resulting from deterioration in the issuer's creditworthiness. Because the value
of the Portfolio's foreign-denominated investments changes in response to many
factors other than exchange rates, it may not be possible to match the amount of
currency options and futures to the value of the Portfolio's investments exactly
over time.

SHORT SALES. The Portfolio may enter into short sales with respect to
stocks underlying its convertible security holdings. For example, if the
Subadviser anticipates a decline in the price of the stock underlying a
convertible security the Portfolio holds, it may sell the stock short. If the
stock price subsequently declines, the proceeds of the short sale could be
expected to offset all or a portion of the effect of the stock's decline on the
value of the convertible security. The Fund currently intends to hedge no more
than 15% of its total assets with short sales on equity securities underlying
its convertible security holdings under normal circumstances.

<PAGE>

When the Portfolio enters into a short sale, it will be required to set
aside securities equivalent in kind and amount to those sold short (or
securities convertible or exchangeable into such securities) and will be
required to continue to hold them while the short sale is outstanding. The
Portfolio will incur transaction costs, including interest expense, in
connection with opening, maintaining, and closing short sales.

SOCIAL INVESTMENT POLICY. The Fund offers investors the opportunity for
capital appreciation, current income, and growth of income, in environmentally
and socially preferable equity investment strategies. The Fund provides a unique
opportunity to be involved in the equity market without being involved in many
areas of the economy that may be objectionable to an investor. The Portfolio
combines carefully selected and screened portfolios with positive social action
on policy issues through proxy voting and shareholder advocacy.

STOCK SELECTION PROCESS. The Subadviser makes use of third party research
from sources such as Investor Responsibility Resource Center (IRRC), the Council
on Economic Priorities (CEP), Franklin Research and Development Corp., Kinder,
Lyndenberg, and Domini, Value Line, and the internet to develop an overall
social profile and screen companies that meet its financial criteria, paying
particular attention to the following:

EXCLUSIONARY SCREENS

TOBACCO/ALCOHOL/GAMBLING/FIREARMS. The Portfolio is free from companies
with primary or subsidiary businesses involved in the alcohol, tobacco, gambling
and firearms industries.

WEAPONS/MILITARISM. None of the companies in the Portfolio has a primary
involvement in the defense industry, and companies with greater than three
percent dependence on revenues from weapons production will be screened out.

NUCLEAR POWER. The Portfolio will not invest in any company involved in
nuclear power production. If a company merges with, acquires or is acquired by a
company that is involved in nuclear power production, the Portfolio will divest.

ANIMAL TESTING. The Portfolio will not invest in any company involved in
animal testing or animal usury.

EQUAL EMPLOYMENT OPPORTUNITY/LABOR ISSUES. The Portfolio is committed to
promoting workplace diversity (see section on proxy voting/shareholder
activism). If a company has unremediated or egregious problems in the area of
Equal Employment Opportunity (such as discrimination or harassment), Workplace
Safety (such as OSHA safety violations), or Union/Labor Issues (such as WARN act

<PAGE>

violations), the fund will either divest or participate in shareholder action in
an attempt to work with the company to address the issues.

THE ENVIRONMENT. Excluding companies involved in nuclear power generation
is not the only positive environmental feature of the Fund.

The investment portfolio typically invests across all the essential service
areas: telephone, electric, water, and natural gas. Consideration is given to
natural gas not only because it's an environmentally preferable alternative
fuel, but because the industry shows tremendous potential as an area of growth.
In addition, the Portfolio seeks to invest in companies involved in energy
production from renewable and alternative resources, whenever such investments
are in keeping with the financial objectives and liquidity concerns of the
strategy.

The Portfolio seeks to exclude companies that have a history of
environmental negligence or a pattern of violation of environmental regulations.
If a company has unremediated or egregious problems in the area of environmental
performance, the Subadviser will either divest or participate in shareholder
action in an attempt to work with the company to address the issues.

INTERNATIONAL LABOR ISSUES. Sweatshop operations and slave labor are other
potential areas of concern. If these issues exist at companies the Portfolio
invests in, the Subadviser will work to open dialogue in an attempt to encourage
the company to adopt comprehensive supplier standards.

In the case of companies with Maquiladora operations, the Subadviser will
work to encourage the company to address any environmental problems or labor
related issues, such as below subsistence wages or unsafe working conditions.

SHAREHOLDER ADVOCACY/PROXY VOTING GUIDELINES. Socially responsible
investing is a complex process involving education and choice. All companies
have the potential to improve their performance in a number of areas that affect
the environment and quality of life. Investors have an opportunity to engage
corporate management in dialogue about issues that are of concern to them.

Proxy voting is one of the best ways for an investor to communicate support
or disagreement with management policy. The Subadviser votes proxies on a case
by case basis, but will generally vote with management on most standard business
issues such as the appointment of independent auditors and the election of board
directors. In cases where a company's board lacks representation of women and
minorities, the Subadviser will vote against the board and send a letter to
management explaining their position and encourage diversity on the board.

In addition to the "standard" issues placed on the ballot by management,
there may be a number of other important issues put forward by shareholders for

<PAGE>

inclusion on the ballot in the form of shareholder resolutions. Shareholder
resolutions can cover a wide range of issues, such as workplace diversity,
militarism, labor relations, and the environment. The primary goal of the
resolution process is not a vote, but to engage the company in a dialogue on an
issues. These resolutions are filed well in advance of the annual meeting, and
if dialogue with the company is fruitful, the filers may withdraw the resolution
before it even comes to a vote.

The Subadviser is an associate member of the Interfaith Center on Corporate
Responsibility (ICCR), and makes use of information from ICCR as well as
research from Investor Responsibility Resource Center (IRRC) to keep track of
resolutions as they are filed. When a resolution is filed on an issue of concern
for the Portfolio, a letter is sent to the company echoing the concern of the
filers and encouraging the company to enter a dialogue on the subject. In
addition, the Subadviser co-files resolutions on issues such as the
implementation of the Coalition for Environmentally Responsible Economies
(CERES) principles (1997: Enron Corporation, U.S. West, Inc.) and foreign
military sales reporting (1997: GTE Corporation).

The Subadviser will likely support and vote for resolutions such as those
requesting reports on workplace diversity, the implementation of the CERES
principles, reports on foreign military sales, implementation of the MacBride
principles, shareholder approval of golden parachute plans and other social and
environmental issues. When a vote on such a resolution is made, a position
letter is sent to management, in an effort to re-enforce the importance of the
issues, and to urge a greater level of management awareness.

PORTFOLIO TURNOVER. The Portfolio's portfolio turnover rate for 1999 was
69% (51% in 1998). The portfolio turnover rate is calculated by dividing the
lesser of sales or purchases of portfolio securities by the average monthly
value of the Portfolio's securities, excluding securities having a maturity at
the date of purchase of one year or less.

The portfolio turnover rate is calculated by dividing the lesser of sales
or purchases of portfolio securities by the average monthly value of the
Portfolio's securities, excluding securities having a maturity at the date of
purchase of one year or less.

Because the Subadviser may employ flexible defensive investment strategies
when market trends are not considered favorable, the Subadviser may occasionally
change the entire portfolio in the Portfolio. High transaction costs could
result when compared with other funds. Trading may also result in realization of
net short-term capital gains upon which shareholders may be taxed at ordinary
tax rates when distributed from a Fund. This defensive investment strategy can
produce high portfolio turnover ratios when calculated in accordance with SEC
rules. High portfolio turnover may involve correspondingly greater brokerage
commissions and other transaction costs, which will be borne directly by the
Portfolio.

<PAGE>

RISK CONSIDERATIONS

By itself, the Utilities Stock Portfolio does not constitute a balanced
investment plan. Changes in interest rates may affect the value of the Utilities
Stock Portfolio's investments, and rising interest rates can be expected to
reduce the Utilities Stock Portfolio's net asset value. The fund's share price
and total return fluctuate and your investment may be worth more or less than
your original cost when you redeem your shares.

Because the Utilities Stock Portfolio concentrates its investments in
public utility companies, its performance will depend in large part on
conditions in the public utility industries. Utility stocks have traditionally
been popular among more conservative stock market investors because they have
generally paid above average dividends. However, utility stocks can still be
affected by the risks of the stock market, as well as factors specific to public
utility companies.

Governmental regulation of public utility companies can limit their ability
to expand their business or to pass cost increases on to customers. Companies
providing power or energy-related services may also be affected by fuel
shortages or cost increases, environmental protection or energy conservation
regulations, as well as fluctuating demand for their services. Some public
utility companies are facing increased competition, which may reduce their
profits. All of these factors are subject to rapid change, which may affect
utility companies independently from the stock market as a whole.

In seeking its investment objectives, the Utilities Stock Portfolio may
invest in securities of foreign issuers. Foreign securities may involve a higher
degree of risk and may be less liquid or more volatile than domestic
investments. Foreign securities usually are denominated in foreign currencies,
which means their value will be affected by changes in the strength of foreign
currencies relative to the U.S. dollar as well as the other factors that affect
security prices. Foreign companies may not be subject to accounting standards or
governmental supervision comparable to U.S. companies, and there often is less
publicly available information about their operations. Generally, there is less
governmental regulation of foreign securities markets, and security trading
practices abroad may offer less protection to investors such as the Utilities
Stock Portfolio.

The value of such investments may be adversely affected by changes in
political or social conditions, diplomatic relations, confiscatory taxation,
expropriation, nationalization, limitation on the removal of portfolios or
assets, or imposition of (or change in) exchange control or tax regulations in
those foreign countries. Additional risks of foreign securities include
settlement delays and costs, difficulties in obtaining and enforcing judgments,
and taxation of dividends at the source of payment.

<PAGE>

The Subadviser intends to manage the Utilities Stock Portfolio actively in
pursuit of its investment objective. The Utilities Stock Portfolio does not
expect to trade in securities for short-term profits but, when circumstances
warrant, securities may be sold without regard to the length of time held.

ADDITIONAL TAX INFORMATION

GENERAL

DIVIDENDS AND OTHER DISTRIBUTIONS

The fund's dividends, if any, are distributed at the end of the quarter and
declared payable to shareholders on the last business day of the quarter to
shareholders of record as of the previous business day. In December, the fund
may distribute an additional ordinary income dividend (consisting of net
short-term capital gains and undistributed income) in order to preserve its
status as a registered investment company (mutual fund) under the Internal

<PAGE>

Revenue Code. Net long-term capital gains, if any, also are declared and
distributed in December.

REDEMPTIONS

A redemption of the fund's shares will result in a taxable gain or loss to
the redeeming shareholder, depending on whether the redemption proceeds are more
or less than the shareholder's adjusted basis for the redeemed shares (which
normally includes any sales load paid on Class A shares). An exchange of shares
of the fund for shares of another Morgan Keegan fund generally will have similar
tax consequences. Special rules apply when a shareholder disposes of Class A
shares of the fund through a redemption or exchange within 60 days after
purchase thereof and subsequently reacquires Class A shares of the fund or
acquires Class A shares of another Morgan Keegan fund without paying a sales
charge due to the reinstatement privilege or exchange privilege. In these cases,
any gain on the disposition of the original Class A shares will be increased, or
any loss decreased, by the amount of the sales charge paid when the shareholder
acquired those shares, and that amount will increase the basis of the shares
subsequently acquired. In addition, if a shareholder purchases shares of the
fund (whether pursuant to the reinstatement privilege or otherwise) within 30
days before or after redeeming at a loss other shares of the fund (regardless of
class), all or part of that loss will not be deductible and instead will
increase the basis of the newly purchased shares.

<PAGE>

ADDITIONAL PURCHASE AND REDEMPTION INFORMATION

LETTER OF INTENTION

SALES CHARGE WAIVERS

The sales charge is waived on shares of the fund purchased (1) as a result
of reinvestment of dividends and capital gain distributions and (2) by officers,
directors and full-time employees (and their immediate families, which includes
their spouse, children, mother, father and siblings) of Morgan Keegan & Company,
Inc. (or its direct or indirect subsidiaries), or by directors or officers (and
their immediate families, which includes their spouse, children, mother, father
and siblings) of the fund. The sales charge also is waived on purchases of fund
shares in an initial amount of not less than $250,000, and thereafter for
subsequent purchases if the purchaser's fund account balance is at least
$250,000, by (1) common or collective trust funds maintained by a bank, (2)
stock bonus, pension or profit sharing plans qualified under section 401(a) of
the Code (including Keogh Plans and 401(k) Plans), and (3) organizations exempt
from taxation pursuant to section 501(a) of the Code. Also, shares of the fund
may be acquired without a sales charge if the purchase is made through a Morgan
Keegan representative who formerly was employed as a broker with another firm
registered as a broker-dealer with the Securities and Exchange Commission, if
the following conditions are met: (1) the purchaser was a client of the
investment executive at the other firm for which the investment executive
previously served as a broker; (2) within 90 days of the purchase of the fund's
shares, the purchaser redeemed shares of one or more mutual funds for which that
other firm or its affiliates served as principal underwriter, provided that

<PAGE>

either the purchaser had paid a sales charge in connection with investment in
such funds or a contingent deferred sales charge upon redeeming shares in such
funds; and (3) the aggregate amount of the fund's shares purchased pursuant to
this sales charge waiver does not exceed the amount of the purchaser's
redemption proceeds from the shares of the mutual fund(s) for which the other
firm or its affiliates served as principal underwriter. The sales charge is also
waived on purchases through Morgan Keegan Mutual fund "Wrap Accounts." Investors
seeking to avail themselves of this waiver will be required to provide
satisfactory evidence that all the above-noted conditions are met and should
contact their Morgan Keegan representative for more information.

ADDITIONAL INFORMATION ON REDEMPTIONS

VALUATION OF SHARES

<PAGE>

will be valued at current market value, or, in their absence, at fair value as
determined under procedures adopted by the fund's Board of Directors. Securities
traded on an exchange or NASD National Market System securities (including debt
securities) will normally be valued at their last sale price. Other
over-the-counter securities (including debt securities), and securities traded
on exchanges for which there is no sale on a particular day (including debt
securities), will be valued by a method which the fund's Board of Directors
believes accurately reflects fair value.

Foreign securities are valued based on prices furnished by independent
brokers or quotation services which express the value of securities in their
local currency. The Adviser gathers all exchange rates daily at the close of the
NYSE using the last quoted price on the local currency and then translates the
value of foreign currencies from their local currencies into U.S. dollars. Any
changes in the value of forward contracts due to exchange rate fluctuations and
days to maturity are included in the calculation of the net asset value. If an
extraordinary event that is expected to materially affect the value of a
portfolio security occurs after the close of an exchange on which that security
is traded, then that security will be valued as determined in good faith by a
committee appointed by the Board of Directors.

PURCHASE OF SHARES

CLASS A SHARES

CLASS C SHARES

Class C shares are offered on a continuous basis at a price equal to their
net asset value. Class C shares that are redeemed within one year of purchase
are subject to a contingent deferred sales charge ("CDSC") charged as a
percentage of the dollar amount subject thereto. In determining whether a Class
C CDSC is applicable to a redemption, the calculation will be determined in the
manner that results in the lowest possible rate being charged. The charge will
be assessed on an amount equal to the lesser of the proceeds of redemption or

<PAGE>

the cost of the shares being redeemed. Accordingly, no Class C CDSC will be
imposed on increases in net asset value above the initial purchase price. In
addition, no Class C CDSC will be assessed on shares derived from reinvestment
of dividends or capital gains distributions. The charge will not be applied to
dollar amounts representing an increase in the net asset value since the time of
purchase. Proceeds from the CDSC are paid to Morgan Keegan to defray the
expenses Morgan Keegan incurs in providing distribution-related services to the
Class C shares.

CLASS I SHARES

Class I shares are offered on a continuous basis at a price equal to their
net asset value, without an initial sales charge or CDSC.

PERFORMANCE INFORMATION

TOTAL RETURN CALCULATIONS

Average annual total return quotes ("Standardized Return") used in the
fund's Performance Advertisements are calculated according to the following
formula:

<PAGE>

and assuming the reinvestment of all dividends and other distributions. The rate
of return is determined by subtracting the initial value of the investment from
the ending value and by dividing the remainder from the initial value. Initial
sales charges are not taken into account in calculating Non-Standardized Return;
the inclusion of those charges would reduce the return.

OTHER INFORMATION

The fund may also quote rankings and ratings, and compare the return of the
fund with data published by Lipper Analytical Services, Inc., IBC/Donaghue's
Money Market fund Report, CDA Investment Technologies, Inc., Wiesenberger
Investment Companies Service, Investment Company Data Inc., Morningstar Mutual
funds, Value Line and other services or publications that monitor, compare, rank
and/or rate the performance of mutual funds. The fund may refer in such
materials to mutual fund performance rankings, ratings or comparisons with funds
having similar investment objectives, and other mutual funds reported in
independent periodicals, including, but not limited to, THE WALL STREET JOURNAL,
MONEY Magazine, FORBES, BUSINESS WEEK, FINANCIAL WORLD, BARRON'S, FORTUNE, THE

<PAGE>

NEW YORK TIMES, THE CHICAGO TRIBUNE, THE WASHINGTON POST and KIPLINGER LETTERS.

TAX-DEFERRED RETIREMENT PLANS

INDIVIDUAL RETIREMENT ACCOUNTS - IRAS

<PAGE>

to you except as noted above. To avoid penalties, your interest in an IRA must
be distributed, or start to be distributed, to you not later than April 1
following the calendar year in which you attain age 70 1/2. Distributions made
before age 59 1/2, in addition to being taxable, generally are subject to a
penalty equal to 10% of the distribution, except in the case of death or
disability, where the distribution is rolled over into another qualified plan,
or in certain other situations.

SELF-EMPLOYED INDIVIDUAL RETIREMENT PLANS - KEOGH PLANS

SIMPLIFIED EMPLOYEE PENSION PLANS - SEPPS AND SAVINGS INCENTIVE MATCH PLANS FOR
EMPLOYEES - SIMPLES

Morgan Keegan also will make available in a similar manner to corporate and
other employers a SEPP or SIMPLE for investment in fund shares.

THE COMPANY'S DIRECTORS AND OFFICERS

<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION HELD PRINCIPAL OCCUPATION

<PAGE>

William F. Hughes, Jr.* Director Mr. Hughes is a Managing Director of
Age 56 Morgan Keegan & Company, Inc. He also
is President of Morgan Asset
Management, Inc.

<PAGE>

TABLE OF COMPENSATION1

Total Compensation
Name and Position Aggregate Compensation in the Morgan Keegan funds
with the Company From the Company Complex Paid to Directors

Allen B. Morgan, Jr. $0 $0
President and Director

James D. Witherington, Jr. $4,000 $8,000
Director

William F. Hughes, Jr. $0 $0
Director

William Jefferies Mann $4,000 $8,000
Director

James Stillman R. McFadden $4,000 $8,000
Director

Officers and Directors of the Company who are interested persons of the fund
receive no salary or fees from the fund. Directors of the Company who are not
interested persons of the fund will receive a fee of $1,000 and reimbursement
for related expenses for each meeting of the Board of Directors attended by
them.

1 These numbers are based on the compensation schedule adopted by the Company
for its operation. The Morgan Keegan funds' Complex consists of one other
investment company with one series.

Each of the Company, the Portfolio, Meeder Asset Management, Inc. formerly
known as R. Meeder & Associates, Inc., the Portfolio's investment adviser, and
Morgan Keegan & Company, Inc., the fund's distributor, has adopted a code of
ethics (each, a "Code") under Rule 17j-1 of the 1940 Act. Each Code permits
personnel subject to the Code to invest in securities, including securities that
may be purchased or held by the fund.

<PAGE>

THE PORTFOLIO'S OFFICERS AND TRUSTEES

NAME, ADDRESS AND AGE POSITION HELD PRINCIPAL OCCUPATION

MILTON S. BARTHOLOMEW, 71 Trustee Retired; formerly a
1424 Clubview Boulevard, S. practicing attorney in
Worthington, OH 43235 Columbus, Ohio; member of
the Portfolio's Audit
Committee.

ROBERT S. MEEDER, JR.*, 39 Trustee and President of Meeder Asset
Vice President Management, Inc.

WALTER L. OGLE, 61 Trustee Executive Vice President
400 Interstate North Parkway, of Aon Consulting, an
Suite 1630 employee benefits
Atlanta, GA 30339 consulting group.

<PAGE>

JACK W. NICKLAUS II, 39 Trustee Designer, Nicklaus Design,
11780 U.S. Highway #1 a golf course design firm
North Palm Beach, FL 33408 and division of Golden
Bear International, Inc.

PHILIP A. VOELKER*+, 46 Trustee and Vice Senior Vice President and
President Chief Investment Officer
of Meeder Asset
Management, Inc.

DONALD F. MEEDER*+, 61 Secretary Vice President of Meeder
Asset Management, Inc.;
Secretary of Mutual Funds
Service Co.

* Interested Person of the Portfolio.

+ P.O. Box 7177, 6000 Memorial Drive, Dublin, Ohio 43017.

Robert S. Meeder, Sr. is Donald F. Meeder's uncle and Robert S. Meeder,
Jr's. father.

Each Trustee and each officer of the Portfolio hold the same positions with
the Growth Stock Portfolio.

<PAGE>

The following table shows the compensation paid by the Portfolio and all
other mutual funds advised by the Adviser, including The Flex-funds, Meeder
Advisor Funds, and the corresponding portfolios of and The Flex-funds and Meeder
Advisor Funds (collectively, the "Fund Complex") as a whole to the Trustees of
the Portfolio during the fiscal year ended December 31, 1999.

Robert S. Meeder, Sr. None None None None

Milton S. Bartholomew $1,200 None None $16,734

Robert S. Meeder, Jr. None None None None

Walter L. Ogle $1,088 None None $16,234

Philip A. Voelker None None None None

Roger A. Blackwell $ 869 None None $15,234

Charles A. Donabedian $1,235 None None $17,734

James Didion $1,114 None None $16,234

Jack W. Nicklaus II $1,150 None None $15,984

1 Compensation figures include cash and amounts deferred at the election of
certain non-interested Trustees. For the calendar year ended December 31, 1999,
participating non-interested Trustees accrued deferred compensation from the
funds as follows: Milton S. Bartholomew - $1,200, Roger A. Blackwell - $869,
Charles A. Donabedian - $1,235, Jack W. Nicklaus II - $1,150, and Walter L. Ogle
- $583.

2 The Fund Complex consists of 19 investment companies.

Each Trustee who is not an "interested person" is paid a meeting fee of
$250 per meeting for the Portfolio. In addition, each such Trustee is paid a fee
of 0.00375% of the amount of the Portfolio's average net assets exceeding $15
million. Members of the Audit and Strategic Planning Committees for the
Portfolio are paid $500 for each Committee meeting. Trustee fees for the
Utilities Stock Portfolio totaled $8,682 for the year ended December 31, 1999.
All other officers and Trustees serve without compensation from the Portfolios
or the Trust.

THE PORTFOLIO'S INVESTMENT ADVISER

Meeder Asset Management, Inc. (the "Manager"), formerly known as R. Meeder
& Associates, Inc., is the investment adviser and manager for, and has an
Investment Advisory Contract with, the Portfolio.

Pursuant to the Investment Advisory Contract with the Portfolio, the
Manager, subject to the supervision of the Portfolio's Board of Trustees and in

<PAGE>

conformity with the stated objective and policies of the fund, manages both the
investment operations of the fund and the composition of the Portfolio's
portfolio, including the purchase, retention, disposition and loan of
securities. In connection therewith, the Manager is obligated to keep certain
books and records of the Portfolio. The Manager also administers the fund's
corporate affairs, and in connection therewith, furnishes the fund with office
facilities, together with those ordinary clerical and bookkeeping services which
are not being furnished by Firstar, N.A., the Portfolio's custodian, and Morgan
Keegan & Company, Inc., the Fund's transfer and disbursing agent. The management
services of the Manager are not exclusive under the terms of the Investment
Advisory Agreement, and the Manager is free to, and does, render management
services to others.

The Investment Advisory Contract for the Portfolio was separately approved
by a vote of a majority of the Trustees, including a majority of those Trustees
who are not "interested persons" (as defined in the Investment Company Act of
1940) of the Portfolio. The Investment Advisory Contract is to remain in force
so long as renewal thereof is specifically approved at least annually by a
majority of the Trustees or by vote of a majority of the interests in the
Portfolio, and in either case by vote of a majority of the Trustees who are not
"interested persons" (as defined in the Investment Company Act of 1940) at a
meeting called for the purpose of voting on such renewal.

The Investment Advisory Contract provides that the Manager will not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Portfolio in connection with the matters to which the Investment Advisory
Contract relates except for a loss resulting from willful misfeasance, bad
faith, gross negligence or reckless disregard of duty. The Investment Advisory
Contract will terminate automatically if assigned and may be terminated without
penalty at any time upon 60 days' prior written notice by Majority Vote of the
Portfolio, by the Trustees of the Portfolio, or by the Manager.

Costs, expenses and liabilities of the Company attributable to a particular
fund are allocated to that fund. Costs, expenses and liabilities which are not
readily attributable to a particular fund are allocated among all of the
Company's funds. Thus, each fund pays its proportionate share of: the fees of
the Company's independent auditors, legal counsel, custodian, transfer agent and
accountants; insurance premiums; the fees and expenses of Directors who do not
receive compensation from Morgan Keegan & Company, Inc., Meeder Asset
Management, Inc. or Miller/Howard Investments, Inc.; association dues; the cost
of printing and mailing confirmations, prospectuses, proxies, proxy statements,
notices and reports to existing shareholders; state registration fees;
distribution expenses within the percentage limitations of each class of shares'
distribution and service plan, including the cost of printing and mailing of
prospectuses and other materials incident to soliciting new accounts; and other
miscellaneous expenses.

The expenses of the Portfolio include the compensation of the Trustees who
are not affiliated with the Adviser or Subadviser; registration fees; membership
dues allocable to the Portfolio; fees and expenses of independent accountants,
of legal counsel and of any transfer agent or accountant of the Portfolio;
insurance premiums and other miscellaneous expenses.

<PAGE>

Expenses of the Portfolio also include all fees under its Accounting and
Administrative Service Agreement; the expenses connected with the execution,
recording and settlement of security transactions; fees and expenses of the
Portfolio's custodian for all services to the Portfolio, including safekeeping
of funds and securities and maintaining required books and accounts; expenses of
preparing and mailing reports to investors and to governmental offices and
commissions; expenses of meetings of investors and Trustees; the advisory fees
payable to the Manager under the Investment Advisory Contract and other
miscellaneous expenses.

The Board of Directors of the Company believes that the aggregate per share
expenses of the fund and the Portfolio will be less than or approximately equal
to the expenses which the fund would incur if it retained the services of an
investment adviser and the assets of the fund were invested directly in the type
of securities being held by the Portfolio.

The Manager earns an annual fee, payable in monthly installments as
follows. The fee for the Portfolio is based upon the average net assets of the
Portfolio and is at the rate of 1% of the first $50 million, 0.75% of the next
$50 million and 0.60% in excess of $100 million of average net assets.

For the year ended December 31, 1999, the Utilities Stock Portfolio paid
total fees to the Manager of $149,369 ($126,301 in 1998; $88,486 in 1997).

Meeder Asset Management, Inc., formerly known as R. Meeder & Associates,
Inc., was incorporated in Ohio on February 1, 1974 and maintains its principal
offices at 6000 Memorial Drive, Dublin, Ohio 43017. The Manager is a
wholly-owned subsidiary of Meeder Financial, Inc.. ("MFI"), a holding company
which is controlled by Robert S. Meeder, Sr. through ownership of common stock.
MFI conducts business only through its six subsidiaries, which are the Manager;
Mutual Funds Service Co., the Portfolio's transfer agent; Opportunities
Management Co., a venture capital investor; Meeder Advisory Services, Inc., a
registered investment adviser; OMCO, Inc., a registered commodity trading
adviser and commodity pool operator; and Adviser Dealer Services, Inc., a
broker-dealer.

<PAGE>

THE PORTFOLIO'S INVESTMENT SUBADVISER

Miller/Howard Investments, Inc., 141 Upper Byrdcliffe, Woodstock, New York
12498, serves as the Portfolio's Subadviser. Lowell G. Miller controls the
Subadviser through the ownership of voting common stock. The Investment
Subadvisory Agreement provides that the Subadviser shall furnish investment
advisory services in connection with the management of the Portfolio. In
connection therewith, the Subadviser is obligated to keep certain books and
records of the Portfolio. The Manager continues to have responsibility for all
investment advisory services pursuant to the Investment Advisory Agreement and
supervises the Subadviser's performance of such services. Under the Investment
Subadvisory Agreement, the Manager, not the Portfolio, pays the Subadviser a
fee, computed daily and payable monthly, computed at the rate of .00% of the
first $10 million; .40% of the next $50 million; .30% of the next $40 million
and .25% in excess of $100 million of the Portfolio's average net assets.

The Investment Subadvisory Agreement provides that the Subadviser will not
be liable for any error of judgment or mistake of law or for any loss arising
out of any investment or for any act or omission in the execution of portfolio
transactions for the Portfolio, except a loss resulting from misfeasance, bad
faith, gross negligence or reckless disregard of duty. The Investment
Subadvisory Agreement provides that it will terminate automatically if assigned,
and that it may be terminated by the Manager without penalty to the Fund or the
Portfolio by the Manager, the Trustees of the Portfolio or by the vote of a
majority of the outstanding voting securities of the Portfolio upon not less
than 30 days' written notice. The Investment Subadvisory Agreement will continue
in effect for a period of more than two years from the date of execution only so
long as such continuance is specifically approved at least annually in
conformity with the 1940 Act. The Investment Subadvisory Agreement was approved
by the Board of Trustees of the Portfolio, including all of the Trustees who are
not parties to the contract or "interested persons" of any such party, and by
the shareholders of the fund.

PORTFOLIO TRANSACTIONS AND BROKERAGE

All orders for the purchase or sale of portfolio securities are placed on
behalf of the Portfolio by the Subadviser pursuant to authority contained in the
investment advisory agreement and investment subadvisory agreement. The
Subadviser is also responsible for the placement of transaction orders for
accounts for which it or its affiliates act as investment adviser. In selecting
broker-dealers, subject to applicable limitations of the federal securities
laws, the Subadviser considers various relevant factors, including, but not
limited to, the size and type of the transaction; the nature and character of
the markets for the security to be purchased or sold; the execution efficiency,
settlement capability, and financial condition of the broker-dealer firm- the
broker-dealer's execution services rendered on a continuing basis; the
reasonableness of any commissions, and arrangements for payment of Portfolio
expenses.

The fund's brokerage transactions involving securities of companies
headquartered in countries other than the United States will be conducted

<PAGE>

primarily on the markets and principal exchanges of such countries. Foreign
markets are generally not as developed as those located in the United States,
which may result in higher transaction costs, delayed settlement and less
liquidity for trades effected in foreign markets. Transactions on foreign
exchanges are usually subject to fixed commissions that generally are higher
than negotiated commissions on U.S. transactions. There is generally less
government supervision and regulation of exchanges and brokers in foreign
countries than in the United States.

The Portfolio may execute portfolio transactions with broker-dealers who
provide research and execution services to the Portfolio or other accounts over
which the Subadviser or its affiliates exercise investment discretion. Such
services may include advice concerning the value of securities; the advisability
of investing in purchasing or selling securities; the availability of securities
or the purchasers or sellers of securities; furnishing analyses and reports
concerning issuers, industries, securities, economic factors and trends,
portfolio strategy, and performance of accounts; and effecting securities
transactions and performing functions incidental thereto (such as clearance and
settlement). The selection of such broker-dealers generally is made by the
Subadviser (to the extent possible consistent with execution considerations) in
accordance with a ranking of broker-dealers determined periodically by the
Subadviser's investment staff based upon the quality of research and execution
services provided.

The receipt of research from broker-dealers that execute transactions on
behalf of the Portfolio may be useful to the Subadviser in rendering investment
management services to the Portfolio or its other clients, and conversely, such
research provided by broker-dealers who have executed transaction orders on
behalf of other Subadviser clients may be useful to the Subadviser in carrying
out its obligations to the Portfolio. The receipt of such research is not
expected to reduce the Subadviser's normal independent research activities;
however, it enables the Subadviser to avoid the additional expenses that could
be incurred if the Subadviser tried to develop comparable information through
its own efforts.

Subject to applicable limitations of the federal securities laws,
broker-dealers may receive commissions for agency transactions that are in
excess of the amount of commissions charged by other broker-dealers in
recognition of their research and execution services. In order to cause the
Portfolio to pay such higher commissions, the Subadviser must determine in good
faith that such commissions are reasonable in relation to the value of the
brokerage and research services provided by such executing broker-dealers,
viewed in terms of a particular transaction or the Subadviser`s overall
responsibilities to the Portfolio and its other clients. In reaching this
determination, the Subadviser will not attempt to place a specific dollar value
on the brokerage and research services provided or to determine what portion of
the compensation should be related to those services.

The Subadviser may allocate brokerage transactions to broker-dealers who
have entered into arrangements with the Subadviser under which the broker-dealer
allocates a portion of the commissions paid by the Portfolio toward payment of
the Portfolio's or the fund's expenses, such as transfer agent fees or custodian
fees. The transaction quality must, however, be comparable to those of other
qualified broker-dealers. For the year ended December 31, 1999, directed

<PAGE>

brokerage payments of $0 were made to reduce expenses of the Portfolio ($2,246
in 1998; $3,934 in 1997).

The Trustees of the Portfolio periodically review the Subadviser's
performance of its responsibilities in connection with the placement of
portfolio transactions on behalf of the Portfolio and review the commissions
paid by the Portfolio over representative periods of time to determine if they
are reasonable in relation to the benefits to the Portfolio.

When two or more portfolios are simultaneously engaged in the purchase or
sale of the same security, the prices and amounts are allocated in accordance
with a formula considered by the officers of the portfolios involved to be
equitable to each portfolio. In some cases this system could have a detrimental
effect on the price or value of the security as far as the Portfolio is
concerned. In other cases, however, the ability of the Portfolio to participate
in volume transactions will produce better executions and prices for the
Portfolio. It is the current opinion of the Trustees of the Portfolio that the
desirability of retaining the Manager as investment adviser to the Portfolio
outweighs any disadvantages that may be said to exist from exposure to
simultaneous transactions.

During the year ended December 31, 1999, the Utilities Stock Portfolio paid
total commissions of $42,417 ($31,922 in 1998; $15,202 in 1997) on the purchase
and sale of portfolio securities.

VALUATION OF PORTFOLIO SECURITIES

<PAGE>

the U.S. are valued using the official closing price or the last sale price in
the principal market where they are traded. If the last sale price (on the local
exchange) is unavailable, the last evaluated quote or last bid price is normally
used. Short-term securities are valued either at amortized cost or at original
cost plus accrued interest, both of which approximate current value. Fixed
income securities are valued primarily by a pricing service that uses direct
exchange quotes and a vendor security valuation matrix which incorporates both
dealer-supplied valuations and electronic data processing techniques.

This twofold approach is believed to more accurately reflect fair value
because it takes into account appropriate factors such as institutional trading
in similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data, without exclusive
reliance upon quoted, exchange, or over-the-counter prices.

Generally, the valuation of foreign and domestic equity securities, as well
as corporate bonds, U.S. government securities, money market instruments, and
repurchase agreements, is substantially completed each day at the close of the
New York Stock Exchange (NYSE).

The values of any such securities held by the Portfolio are determined as
of such time for the purpose of computing the Portfolio's net asset value.
Foreign security prices are furnished by independent brokers or quotation
services which express the value of securities in their local currency. The
Manager gathers all exchange rates daily at the close of the NYSE using the last
quoted price on the local currency and then translates the value of foreign
securities from their local currency into U.S. dollars. Any changes in the value
of forward contracts due to exchange rate fluctuations and days to maturity are
included in the calculation of net asset value. If an extraordinary event that
is expected to materially affect the value of a portfolio security occurs after
the close of an exchange on which that security is traded, the security will be
valued as determined in good faith by the Board of Trustees.

THE FUND'S DISTRIBUTOR

Morgan Keegan acts as distributor of the fund's shares pursuant to an
Underwriting Agreement between the fund and Morgan Keegan dated as of February
26, 1999 ("Underwriting Agreement"). The shares of the fund are offered
continuously. The Underwriting Agreement obligates Morgan Keegan to provide
certain services and to bear certain expenses in connection with the offering of
fund shares, including, but not limited to: printing and distribution of

<PAGE>

prospectuses and reports to prospective shareholders; preparation and
distribution of sales literature and advertising; administrative and overhead
cost of distribution, such as the allocable costs of executive office time
expended on developing, managing and operating the distribution program;
operating expenses of branch offices, sales training expenses, and telephone and
other communication expenses. Morgan Keegan compensates investment brokers of
Morgan Keegan and other persons who engage in or support distribution of shares
and shareholder service based on the sales for which they are responsible and
the average daily net asset value of fund shares in accounts of their clients.
Morgan Keegan also pays special additional compensation and promotional
incentives from time to time to investment brokers for sales of fund shares.

The Plan was approved by the Initial Shareholder on ___________, 2000, and
as required by Rule 12b-1 under the 1940 Act, by the Board of Directors on May
__, 2000, including a majority of the directors who are not "interested persons"
of the fund, as that term is defined in the 1940 Act and who have no direct or
indirect financial interest in the operation of the Plan or the Underwriting
Agreement (the "Qualified Directors").

<PAGE>

percentage of assets, increase as fund assets grow and that their brokerage
commissions and transfer fees will also increase as assets grow. The Directors
acknowledged, however, that there is no assurance that benefits to the fund will
be realized as a result to the Plan. In considering whether to continue the
Plan, the Directors, among other things, also reviewed the expenses of the Plan,
alternative methods of distributing fund shares, and the overall expected costs
and benefits to the fund.

The current Underwriting Agreement was approved initially by vote of the
Board and the Qualified Directors on ______________, 2000. The Underwriting
Agreement is subject to the same provisions for annual renewal as the Plan. In
addition, the Underwriting Agreement will terminate upon assignment or upon 60
days' notice from Morgan Keegan. The fund may terminate the Underwriting
Agreement, without penalty, upon 60 days' notice, by a majority vote of either
its Board of Directors, the Qualified Directors, or the outstanding voting
securities of the fund.

DESCRIPTION OF THE FUND'S SHARES

<PAGE>

Intermediate Bond Fund, and High Income Fund) and the issuance of three classes
of shares of each fund, designated as Class A, Class C, and Class I. Shares are
freely transferable and have no preemptive, subscription of conversion rights.
When issued, shares are fully paid and non-assessable.

INVESTMENT STRUCTURE. Unlike other mutual funds which directly acquire and
manage their own portfolio of securities, the fund seeks to achieve its
investment objectives by investing all of its assets in the Utilities Stock
Portfolio (the "Portfolio"), a separate registered investment company with the
same investment objectives as the fund. Therefore, an investor's interest in the
Portfolio's securities is indirect. In addition to selling a beneficial interest
to the fund, the Portfolio may sell beneficial interests to other mutual funds
or investors. Such investors will invest in the Portfolio on the same terms and
conditions and will pay a proportionate share of the Portfolio's expenses.
However, the other investors investing in the Portfolio are not required to sell
their shares at the same public offering price as the fund. Investors in the
fund should be aware that these differences may result in differences in returns
experienced by investors in the different funds that invest in the Portfolio.
Such differences in returns are also present in other mutual fund structures.
You may obtain information concerning other holders of interests in the
Portfolio by contacting the fund.

<PAGE>

The Utilities Stock Portfolio is organized as a trust under the laws of the
State of New York. The Portfolio's Declaration of Trust provides that the fund
and other entities investing in the Portfolio (e.g., other investment companies,
insurance company separate accounts, and common and commingled trust funds) will
each be liable for all obligations of the Portfolio. However, the risk of the
fund incurring financial loss on account of such liability is limited to
circumstances in which both inadequate insurance existed and the Portfolio
itself was unable to meet its obligations. Accordingly, the Board of Directors
of the Company believes that neither the fund nor its shareholders will be
adversely affected by reason of the fund's investing in the Portfolio. In
addition, whenever the Company is requested to vote on matters pertaining to the
fundamental policies of the Portfolio, the Company will hold a meeting of the
fund's shareholders and will cast its vote as instructed by the fund's
shareholders.

<PAGE>

THE FUND'S CUSTODIAN, TRANSFER AGENT,
DIVIDEND DISBURSING AGENT
AND
PORTFOLIO ACCOUNTING SERVICE AGENT

THE FUND'S LEGAL COUNSEL

Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, N.W., Washington,
D.C. 20036-1800, serves as counsel to the fund and has passed upon certain
matters in connection with this offering.

<PAGE>

THE FUND'S CERTIFIED PUBLIC ACCOUNTANTS

KPMG LLP are the fund's independent certified public accountants. KPMG LLP
performs an audit of the fund's financial statements and reviews the fund's
federal and state income tax returns.

FINANCIAL STATEMENTS

Financial Statements for the Portfolio are presented on the following
pages.

<PAGE>

MUTUAL FUND PORTFOLIO
Portfolio of Investments as of December 31, 1999

<TABLE>
<CAPTION>
SHARES OR
INDUSTRIES/CLASSIFICATIONS FACE AMOUNT VALUE
-------------------------- ----------- -----

<S> <C> <C>
MUTUAL FUNDS - 52.1%
Federated S&P 500 Maxcap Fund 584,857 $ 17,528,154
Invesco Strategic Financial Services Fund 582,951 15,518,157
Janus Mercury Fund 1,365,662 59,829,654
Mutual Shares Fund 387 7,901

TOTAL MUTUAL FUNDS
(Cost $75,578,885 ) 92,883,866

MONEY MARKET MUTUAL FUNDS - 42.9%
Charles Schwab Money Market Fund 923,528 923,528
Fidelity Cash Reserve Money Market Fund 35,695,344 35,695,344
Fidelity Core Money Market Fund 40,000,000 40,000,000

TOTAL MONEY MARKET MUTUAL FUNDS
(Cost $76,618,872 ) 76,618,872

U.S.TREASURY BILLS - 0.0%
* 4.30%, due 01/06/00 30,100 30,083

TOTAL U.S. TREASURY BILLS
(Cost $30,083 ) 30,083

REPURCHASE AGREEMENT - 5.0%
Bank of America Securities LLC, 4.60%, 01/03/00,
(Collateralized by $9,262,172 various commercial
papers, 5.50%, 03/14/00 - 03/24/00,
market value - $9,155,608) 8,976,000 8,976,000

TOTAL REPURCHASE AGREEMENT
(Cost $8,976,000 ) 8,976,000

TOTAL INVESTMENTS - 100.0%
(Cost $161,203,840) $178,508,821

TRUSTEE DEFERRED COMPENSATION**

Flex-funds Highlands Growth Fund 1,305 29,087
Flex-funds Muirfield Fund 2,048 12,962
Flex-funds Total Return Utilities Fund 421 8,516
Flex-Partners International Equity Fund 959 16,451

TOTAL TRUSTEE DEFERRED COMPENSATION
(Cost $62,776 ) $67,016

<FN>
* Pledged as collateral on Letter of Credit.

** Assets of affiliates to the Mutual Fund Portfolio held for the benefit
of the Portfolio's Trustees in connection with the Trustee Deferred
Compensation Plan.
</FN>
</TABLE>

See accompanying notes to financial statements.

The Flex-Partners Funds Annual Report * December 31, 1999 Page 15

<PAGE>

UTILITIES STOCK PORTFOLIO
Portfolio of Investments as of December 31, 1999

<TABLE>
<CAPTION>
INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
-------------------------- --------------------- -----

<S> <C> <C>
COMMON STOCKS - 100.0%

ELECTRIC/GAS UTILITY - 7.2%
AGL Resources, Inc. 21,955 $ 373,235
MDU Resources Group, Inc. 14,220 284,400
NiSource Inc. 16,355 292,346
UtiliCorp United, Inc. 19,998 388,701
1,338,682

ELECTRIC UTILITY - 11.9%
Cinergy Corp. 11,420 273,366
Keyspan Corp. 25,190 584,093
LG&E Energy Corp. 27,864 485,879
Scottish Power PLC - ADR 10,469 293,121
TECO Energy, Inc. 31,115 577,572
2,214,031

NATURAL GAS (DISTRIBUTOR) - 18.3%
Columbia Energy Group 8,905 563,241
Eastern Enterprises 7,975 458,064
MCN Energy Group Inc. 40655 965,556
Nicor Inc. 4,975 161,687
WICOR, Inc. 14075 410,814
Williams Cos., Inc. 27550 841,997
3,401,359

OIL/GAS (DOMESTIC) - 20.2%
Enron Corp. 10,445 463,497
El Paso Natural Gas Co. 28,420 1,103,051
Kinder Morgan Energy Partners, L.P. # 19,724 817,313
Kinder Morgan Inc. 25,680 518,415
Peoples Energy Corp. 10,585 354,598
Questar Corp. 33,345 500,175
3,757,049

TELECOMMUNICATION EQUIPMENT - 0.9%
P-Com, Inc. # 20,000 176,875
176,875

TELECOMMUNICATION SERVICES - 34.2%
Alltel Corp. 7,420 613,541
AT&T Corp. 10,635 535,073
BCE, Inc. 9,395 847,312
CenturyTel, Inc. 17,035 807,033
Global Crossings Ltd. # 21,585 1,079,237
GTE Corp. 9,585 676,342
MCI Worldcom Inc. # 10,613 563,126
SBC Communications, Inc. 9,650 470,438
U.S. West Communications Group 10,950 788,400
6,380,502

WATER UTILITY - 7.3%
American Water Works Co., Inc. 33,600 714,000
Azurix Corp. # 73,000 652,437
1,366,437

TOTAL COMMON STOCKS
(Cost $16,563,595 ) 18,634,935

The Flex-Partners Funds Annual Report * December 31, 1999 Page 16

<PAGE>

INDUSTRIES/CLASSIFICATIONS SHARES OR FACE AMOUNT VALUE
-------------------------- --------------------- -----
U.S. TREASURY BILLS - 0.0%

* 4.30%, due 01/06/00 1,000 1,000

TOTAL U.S. TREASURY BILLS
(Cost $1,000 ) 1,000

TOTAL INVESTMENTS - 100.0%
(Cost $16,564,595 ) $18,635,935

TRUSTEE DEFERRED COMPENSATION**
Flex-funds Highlands Growth Fund 234 5,206
Flex-funds Muirfield Fund 349 2,210
Flex-funds Total Return Utilities Fund 66 1,333
Flex-Partners International Equity Fund 183 3,133

TOTAL TRUSTEE DEFERRED COMPENSATION
(Cost $11,090 ) $11,882

<FN>
ADR:American Depositary Receipts

L.P.Limited Partnership

# Represents non-income producing securities.

* Pledged as collateral on Letter of Credit.

** Assets of affiliates to the Utility Stock Portfolio held for the
benefit of the Portfolio's Trustees in connection with the Trustees
Deferred Compensation Plan.
</FN>
</TABLE>

See accompanying notes to financial statements.

The Flex-Partners Funds Annual Report * December 31, 1999 Page 17

<PAGE>

GROWTH STOCK PORTFOLIO
Portfolio of Investments as of December 31, 1999

SHARES OR FACE
INDUSTRIES/CLASSIFICATIONS AMOUNT VALUE
-------------------------- ------ -----

COMMON STOCKS - 92.9%

AEROSPACE/DEFENSE - 0.7%
Boeing Co. 3,900 $ 161,606
General Dynamics Corp. 600 31,650
Lockheed Martin Corp. 1,870 40,906
Northrup Grumman Corp. 200 10,813
Raytheon Co. - Class B 1,000 26,563
Textron, Inc. 740 56,749
United Technologies Corp. 2,000 130,000
458,287

AIR TRANSPORTATION - 0.3%
AMR Corp. # 725 48,575
Delta Air Lines, Inc. 685 34,122
Frontier Airlines # 1,990 22,636
Southwest Airlines 2,437 39,297
USAir Group # 1,000 32,063
176,693

ALUMINUM - 0.3%
Aluminum Company of America 2,460 204,180

AUTO & TRUCK - 1.2%
Ford Motor Co. 4,900 261,231
General Motors Corp. 5,000 363,438
Genuine Parts Co. 5,400 133,988
TRW, Inc. 620 32,201
790,858

BANKING - 1.1%
Washington Mutual Savings Bank 2,303 59,590
Wells Fargo Co. 15,900 642,956
702,546

BEVERAGE -- ALCOHOLIC - 0.3%
Anheuser-Busch Cos., Inc. 2,900 205,538

BEVERAGE -- SOFT DRINK - 1.2%
Coca-Cola Co. 9,000 524,250
Pepsico, Inc. 7,600 267,900
792,150

BROADCASTING - 0.3%
SFX Entertainment Inc. # 3,900 141,131
World Wrestling Federation Entertainment Co. # 1,000 17,250
158,381

BUILDING MATERIALS - 0.1%
Masco Corp. 1,860 47,198
Vulcan Materials Co. 590 23,563
70,761

CAPITAL GOODS - 0.1%
Eaton Corp. 367 26,653
Ingersoll-Rand 839 46,197
72,850

The Flex-Partners Funds Annual Report * December 31, 1999 Page 18

<PAGE>

SHARES OR FACE
INDUSTRIES/CLASSIFICATIONS AMOUNT VALUE
-------------------------- ------ -----

CHEMICAL -- DIVERSIFIED - 1.0%
Air Products & Chemicals, Inc. 570 19,131
Dow Chemical Co. 1,210 161,686
E.I. du Pont de Nemours & Co. 3,650 240,444
Imperial Chemical Industries 680 28,943
Monsanto Corp. 2,900 103,313
Praxair, Inc. 840 42,263
Rohm & Haas Co. 1,185 48,215
643,995

CHEMICAL -- SPECIALTY - 0.1%
Eastman Chemical Co. 500 23,844
MacDermid Inc. 800 32,850
Sigma Aldrich 610 18,338
75,032

COMMERCIAL SERVICES - 0.3%
Cendant Corp. # 4,600 122,188
Dun & Bradstreet 1,470 43,365
165,553

COMPUTERS & PERIPHERALS - 4.8%
Apple Computer # 720 74,025
Compaq Computer Corp. 6,710 182,428
Dell Computer Corp. # 10,210 520,710
EMC Corp./Mass # 5,460 596,505
Gateway 2000, Inc. # 1,500 108,094
IBM Corp. 7,830 845,640
Micron Technology, Inc. # 820 63,755
QRS Corporation Delaware # 320 33,380
Sanmina Corp # 850 84,894
Seagate Technology Inc. # 950 44,234
Sun Microsystems # 7,460 577,684
3,131,349

COMPUTER SOFTWARE & SERVICES - 8.0%
America Online, Inc. # 10,710 806,597
BMC Software, Inc. # 1,460 116,709
Ceridian Co. # 840 18,113
Computer Associates International Inc. 2,380 166,451
Computer Sciences Corp. # 790 74,754
Compuware Corp. # 820 30,545
Electronic Data System Corp. 2,450 163,997
Microsoft Corp. # 25,100 2,930,425
Novell, Inc. # 1,490 59,507
Oracle Corp. # 7,400 829,263
Unisys Corp. # 1,270 40,561
5,236,922

CONSUMER NON-DURABLE - 2.3%
Corning Inc. 1,240 159,883
Fortune Brands, Inc. 7,800 257,888
Gillette Co. 5,800 238,888
Haggar Corp. 11,500 130,813
Procter & Gamble Co. 6,500 712,156
1,499,628

COSMETICS - 0.5%
Avon Products Inc. 3,300 108,900
Kimberly Clark 3,300 215,325
324,225

Growth Stock Portfolio, continued on next page

The Flex-Partners Funds Annual Report * December 31, 1999 Page 19

<PAGE>

SHARES OR FACE
INDUSTRIES/CLASSIFICATIONS AMOUNT VALUE
-------------------------- ------ -----

Growth Stock Portfolio, continued

DATA PROCESSING - 0.5%
Automatic Data Processing, Inc. 3,300 177,788
First Data Corp. 2,170 107,008
Fiserv, Inc. # 910 34,864
319,660

DIVERSIFIED - 1.2%
Honeywell International Inc. 3,402 196,253
Minnesota Mining & Manufacturing Co. 1,570 153,664
Norfolk Southern Corp. 1,830 37,515
PPG Industries, Inc. 830 51,927
Tyco International 7,860 306,540
745,899

DRUG - 5.5%
Abbott Labs 6,830 248,014
Bristol Myers Squibb 10,870 697,718
Eli Lilly & Co. 4,550 302,575
Merck & Co., Inc. 10,830 726,287
Pfizer, Inc. 20,210 655,562
Pharmacia & Upjohn 1,470 66,150
Schering Plough Corp. 9,550 404,681
Warner Lambert Co. 4,800 393,300
3,494,287

DRUGSTORE - 0.2%
Rite Aid Corp. 11,400 127,538

ELECTRIC -- INTEGRATED - 0.2%
Edison International 1,800 47,138
FPL Group, Inc. 960 41,100
Teco Energy Inc. 2,930 54,388
142,626

ELECTRIC UTILITY - 0.5%
AES Corp. # 2,460 183,885
Duke Power Co. 2,940 147,368
331,253

ELECTRICAL EQUIPMENT - 4.3%
General Electric Corp. 17,552 2,712,858

ELECTRONIC COMPONENT SEMICONDUCTORS - 4.6%
Advanced Micro Devices Inc. # 1,520 43,985
Applied Materials, Inc. # 1,880 238,173
Caliper Technology # 580 38,715
Epcos AG - Sponsored ADR # 1,650 122,925
Intel 14,750 1,214,109
KLA -Tencor Corp. # 600 66,825
LSI Logic Corp. # 810 54,675
Maxim Integrated Products Inc. # 1,100 51,906
Motorola, Inc. 3,600 530,100
STMicroelectronics NV 860 130,236
Texas Instruments Inc. 3,620 349,783
Xilinx Inc. # 2,360 107,306
2,948,738

The Flex-Partners Funds Annual Report * December 31, 1999 Page 20

<PAGE>

SHARES OR FACE
INDUSTRIES/CLASSIFICATIONS AMOUNT VALUE
-------------------------- ------ -----

ELECTRONIC COMPONENTS - 0.3%
Emerson Electric 3,674 210,796

ELECTRONICS - 0.1%
Rockwell International Corp. 840 40,215
Scientific Atlanta 680 37,995
78,210
FINANCE - 6.3%
Bank One Corp. 4,326 138,432
BankAmerica Corp. 10,214 512,615
Chase Manhattan Corp. 3,900 302,981
Equifax, Inc. 710 16,729
Fannie Mae 6,600 412,088
First Union Corp. 4,968 163,634
FleetBoston Financial Corp. 7,008 243,966
Freddie Mac 9,300 437,681
Lehman Brothers Holdings, Inc. 1,500 127,031
Mellon Bank Corp. 7,200 245,250
Merrill Lynch & Co. 800 66,650
Metris Cos., Inc. 10,000 356,875
Morgan Stanley Dean Witter & Co. 1,800 256,950
PNC Bank Corp. 3,100 137,950
Providian Financial Corp. 5,650 514,503
Ryder Systems, Inc. 310 7,576
SLM Holding Corp. 4,000 169,000
4,109,911

FINANCIAL SERVICES - 3.6%
American Express Co. 1,700 282,625
Associates First Capital 10,400 285,350
Avery Dennison Corp. 920 67,045
Capital One Financial Corp. 20,600 992,663
Citigroup Inc. 11,995 667,972
Concord EFS Inc. # 690 17,768
H&R Block, Inc. 1,370 59,938
2,373,361

FOOD -- DIVERSIFIED - 1.3%
General Mills 4,800 171,600
Hershey Food Corp. 2,700 128,081
Safeway Inc. # 3,300 117,975
Sara Lee Corp. 10,200 225,038
Sysco Corp. 5,700 225,506
868,200

FOREST PRODUCTS - 0.2%
Georgia Pacific Corp. 860 43,645
Weyerhauser Co. 1,120 80,430
Willamette Industries, Inc. 640 29,720
153,795

GOLD/SILVER MINING - 0.1%
Barrick Gold Corp. 2,090 36,967

HEALTH - 1.3%
American Home Products 5,820 228,435
Johnson & Johnson 6,910 644,358
872,793

Growth Stock Portfolio, continued on next page

The Flex-Partners Funds Annual Report * December 31, 1999 Page 21

<PAGE>

SHARES OR FACE
INDUSTRIES/CLASSIFICATIONS AMOUNT VALUE
-------------------------- ------ -----

Growth Stock Portfolio, continued

INSTRUMENTS -- CONTROLS - 0.0%
Johnson Controls Inc. 432 24,570
24,570

INSTRUMENTS -- SCIENTIFIC - 0.1%
PE Biosystems Group 380 45,719

INTERNET SERVICE - 0.5%
Yahoo, Inc. # 740 320,189

INSURANCE -- MULTILINE - 2.2%
Allstate 6,700 160,800
American International Group 10,543 1,139,962
PMI Group 3,300 161,081
1,461,843

MACHINERY - 0.3%
Caterpillar, Inc. 1,813 85,324
Deere & Co. 1,197 51,920
Dover Corp. 1,071 48,597
185,841

MANUFACTURING - 0.1%
Mueller Industries, Inc. # 1,150 41,688
Owens Illinois # 780 19,549
61,237

MARKETING SERVICES - 0.2%
Omnicom Group, Inc. 1,205 120,500

MATERIALS & SERVICES - 0.4%
Champion International Corp. 425 26,323
Dana Corp. 970 29,039
Ecolab, Inc. 1,970 77,076
Illinois Tool Works, Inc. 1,730 116,883
Sherwin-Williams Co. 1,070 22,470
271,791

MEDICAL PRODUCTS - 1.3%
Amgen, Inc. # 4,600 276,288
Biogen Inc.# 400 33,800
Guidant Corp. # 810 38,070
Human Genome # 890 135,836
IDEC Pharmaceuticals Corp. # 980 96,285
MedImmune, Inc. # 1,260 209,003
Millennium Pharmaceutical # 400 48,800
838,082

MEDICAL HMO - 0.0%
Wellpoint Health Networks # 390 25,716

MEDICAL SERVICES - 0.4%
Columbia/HCA Healthcare Corp. 2,410 70,643
Health Management # 5,120 68,480
IMS Health, Inc. 1,080 29,363
Shared Medical Systems 310 15,791
Tenet Healthcare Corp. # 2,230 52,405
236,682

MEDICAL SUPPLIES - 0.5%
Boston Scientific Co. # 1,200 26,250
Cardinal Health Inc 1,220 58,408

The Flex-Partners Funds Annual Report * December 31, 1999 Page 22

<PAGE>

SHARES OR FACE
INDUSTRIES/CLASSIFICATIONS AMOUNT VALUE
-------------------------- ------ -----

Medtronic, Inc. 6,970 253,969
338,627

MULTIMEDIA - 1.0%
Time Warner Inc. 6,300 456,356
Viacom Inc Class B # 3,000 181,313
637,669

NATURAL GAS DISTRIBUTOR - 0.3%
MCN Corp. 4,770 113,288
Williams Cos., Inc. 2,600 79,463
192,751

NETWORKING PRODUCTS - 2.9%
3COM Corp. # 980 46,060
Cisco Systems, Inc. # 16,860 1,806,128
Network Appliance # 840 69,773
1,921,961
OFFICE AUTOMATION & EQUIPMENT - 1.2%
Hewlett Packard 5,620 639,275
Pitney Bowes, Inc. 1,325 64,014
Xerox Corp. 2,180 49,595
752,884

OIL/GAS -- DOMESTIC - 0.8%
Atlantic Richfield 1,700 147,050
Baker Hughes 1,540 32,436
Burlington Resources 1,000 33,063
Devon Energy 1,200 39,450
Enron Corp. 3,000 133,125
Noble Affiliates Inc. 2,100 45,019
Noble Drilling Co. # 1,300 42,575
USX Marathon Group 2,800 69,125
541,843

OIL/GAS -- INTERNATIONAL - 2.7%
Chevron Corp. 3,200 277,200
Exxon Corp. 18,362 1,479,289
Transocean Sedco 621 20,913
1,777,402

OILFIELD SERVICES/EQUIPMENT - 0.6%
Coastal Corp. 1,900 67,331
Kerr-McGee Corp. 1,000 62,000
Schlumberger Ltd. 3,200 179,600
Smith International Inc. # 1,500 74,531
383,462

OIL & NATURAL GAS - 0.1%
Apache Corp. 1,200 44,325
Amerada Hess 500 28,375
Ocean Energy, Inc. # 10,160 78,740
151,440

PAPER & FOREST PRODUCTS - 0.2%
International Paper 2,185 123,316
Mead Corp. 840 36,488
159,804

Growth Stock Portfolio, continued on next page

The Flex-Partners Funds Annual Report * December 31, 1999 Page 23

<PAGE>

SHARES OR FACE
INDUSTRIES/CLASSIFICATIONS AMOUNT VALUE
-------------------------- ------ -----

Growth Stock Portfolio, continued

PETROLEUM -- INTEGRATED - 1.4%
Conoco, Inc. - Class B 4,500 111,938
Occidental Petroleum Corp. 3,600 77,850
Royal Dutch Petroleum 9,700 587,456
Texaco 3,100 168,369
945,613

PUBLISHING - 0.4%
The Reader's Digest Association, Inc. 9,500 277,875

RAILROAD TRANSPORTATION - 0.2%
Burlington Northern Santa Fe 2,005 48,621
Kansas City Southern Industries, Inc. 540 40,298
Union Pacific Corp. 765 33,421
122,340

RENTAL -- AUTO/EQUIPMENT - 0.4%
The Hertz Corp. 5,600 280,700
280,700

RESTAURANT - 0.7%
McDonalds Corp. 6,500 262,031
Wendy's International, Inc. 10,400 216,450
478,481

RETAIL GROCERY - 0.2%
Albertson's, Inc. 3,700 119,325

RETAIL STORE - 2.2%
Action Performance # 23,400 269,100
Amazon.Com # 500 38,063
Kmart # 40,000 402,500
PETsMART, Inc. # 30,000 172,500
WalMart Stores, Inc. 8,000 553,000
1,435,163

RUBBER/PLASTICS - 0.5%
Newell Rubbermaid Co. 10,700 310,300

S&L / THRIFTS -- SOUTHERN U.S. - 0.1%
Greater Atlantic Financial Corp. # 10,000 44,375

SERVICES - 0.1%
Paychex Inc. 1,675 67,000

STEEL - 0.0%
Nucor Corp. 410 22,473

TELECOMMUNICATION EQUIPMENT - 3.6%
General Instrument Corp. # 890 75,650
JDS Uniphase Corp. # 1,960 316,173
Loral Space & Communications Ltd. # 10,110 245,799
Metromedia Fiber Network Inc. - Class A # 3,880 185,998
Nokia Corp. - ADR - Class A 150 28,659
Nortel Networks 6,300 636,300
P-Com, Inc. # 8,760 77,471
QUALCOMM, Inc. # 3,280 577,690
Sprint Corp. PCS Group # 2,285 234,213
2,377,953

TELECOMMUNICATION SERVICES - 11.6%
AT&T Corp. 17,095 860,092
Bell Atlantic Corp. 8,590 528,822
BellSouth Corp. 10,980 514,001

The Flex-Partners Funds Annual Report * December 31, 1999 Page 24

<PAGE>

SHARES OR FACE
INDUSTRIES/CLASSIFICATIONS AMOUNT VALUE
-------------------------- ------ -----

CenturyTel, Inc. 1,730 81,959
Global Crossing LTD # 24,429 1,221,450
GTE Corp. 5,320 375,393
Lucent Technologies Inc. 14,700 1,102,500
MCI Worldcom, Inc. # 19,167 1,017,049
Nextel Communications # 2,630 271,219
Qwest Communications # 4,090 175,870
SBC Communications 17,674 861,608
Sprint Corp. FON Group 2,370 159,531
Teleglobe Inc. 5,720 129,773
Tellabs, Inc. # 1,590 102,058
U.S. West, Inc. 2,665 191,880
7,593,205

TOBACCO - 0.7%
Gallaher Group, PLC - ADR 11,400 175,275
Philip Morris Cos. 12,500 287,500
462,775

TOYS - 1.9%
Hasbro Bradley Inc. 9,450 179,550
JAKKS Pacific Co. # 7,600 142,025
Toys "R" Us Inc. # 64,000 916,000
1,237,575

TRANSPORTATION - 0.1%
FDX Corp. # 1,000 40,938

TRUCKING/TRANSPORTATION LEASING - 0.0%
CSX, Corp. 1,017 31,908

WATER UTILITY - 0.2%
Azurix Corp. # 16,095 143,849

TOTAL COMMON STOCKS
(Cost $43,996,840 ) 60,677,701

U.S. TREASURY OBLIGATIONS - 0.9%

U.S. Treasury Bills
** 4.30% 01/06/00 6,000 5,997
* 5.04% 03/09/00 600,000 594,112

TOTAL U.S. TREASURY OBLIGATIONS
(Cost $600,285 ) 600,109

REPURCHASE AGREEMENT - 6.2%

Bank of America Securities LLC, 4.60%,
01/03/00, (Collateralized by $4,165,707
various commercial papers, 5.50%,
03/14/00 - 03/24 4,037,000 4,037,000

TOTAL REPURCHASE AGREEMENT
(Cost $4,037,000 ) 4,037,000

TOTAL INVESTMENTS - 100.0%
(Cost $48,634,125 ) $65,314,810

Growth Stock Portfolio, continued on next page

The Flex-Partners Funds Annual Report * December 31, 1999 Page 25

<PAGE>

Growth Stock Portfolio, continued

CONTRACTS VALUE
--------- -----

FUTURES CONTRACTS

Long, S&P 500 Futures, face amount 10 3,710,500
$3,610,500 expiring March 2000

$3,710,500

TRUSTEE DEFERRED COMPENSATION***

Flex-funds Highlands Growth Fund 483 10,771
Flex-funds Muirfield Fund 775 4,908
Flex-funds Total Return Utilities Fund 171 3,462
Flex-Partners International Equity Fund 377 6,458

TOTAL TRUSTEE DEFERRED COMPENSATION
(Cost $24,138 ) $25,599

ADR: American Depositary Receipt

# Represents non-income producing securities.

* Pledged as collateral on futures contracts.

** Pledged as collateral on Letter of Credit.

*** Assets of affiliates to the Growth Stock Portfolio held for the
benefit of the Portfolio's Trustees in connection with the Trustee
Deferred Compensation Plan.

See accompanying notes to financial statements.

The Flex-Partners Funds Annual Report * December 31, 1999 Page 26

<PAGE>

INTERNATIONAL EQUITY FUND
PORTFOLIO OF INVESTMENTS AS OF DECEMBER 31, 1999

<TABLE>
<CAPTION>
SHARES OR FACE
INDUSTRIES/CLASSIFICATIONS AMOUNT VALUE
-------------------------- ------ -----

<S> <C> <C>
COMMON STOCKS - 100.0%

ADVERTISING - 0.8%
Telefonica Publicidad e Informacion, SA# 2,800 $ 135,620
WPP Group PLC 2,620 41,525
177,145

AEROSPACE/DEFENSE - 0.6%
British Aerospace PLC 12,118 80,269
Finmeccanica Spa # 60,000 68,663
148,932

AIR TRANSPORT - 0.3%
Cathay Pacific Airways 6,000 10,690
Japan Airlines Co. 10,000 29,639
Singapore Airlines Ltd. 2,500 28,361
68,690

APPAREL - 0.2%
Alexon Group PLC # 3,181 5,910
Espirit Holdings Ltd. 12,000 12,967
Onward Kashiyama Co., Ltd. 2,000 27,389
46,266

AUTO & TRUCK - 3.2%
Autobacs Seven 300 9,831
Daimler Chrysler AG 1,700 131,575
GKN Ord. 2,934 46,217
Honda Motor Co., Ltd. 2,000 74,342
Nissan Motor Co., Ltd. 7,000 27,526
Toyota Motor Corp. 9,000 435,782
725,273

AUTOPARTS - 0.3%
Denso Corp. 3,000 71,603

BANKING - 12.6%
Abbey National PLC # 2,519 40,290
Allied Irish Banks PLC 7,632 86,727
Argentaria, Caja Postal y Banco 4,000 93,679
Hipotecario de Espana, SA
Asahi Bank Ltd. 5,000 30,813
Banca Nazionale del Lavoro # 31,440 104,467
Bank of Fukuoka Ltd. 4,000 27,741
Bank of Tokyo-Mitsubishi Ltd. 7,000 97,506
Bank of Yokohama Ltd. 5,000 23,036
Banque Nationale de Paris 750 68,965
Barclays PLC 3,548 102,147
Chiba Bank Ltd. 6,000 33,219
Christiania Bank Og Kreditkasse 19,100 93,931
Commonwealth Bank of Australia 2,050 35,325
Credit Lyonnais # 1,600 72,920
Credit Suisse Group 500 99,497
Dai-Ichi Kangyo Bank Ltd. 6,000 56,050
Daiwa Bank Ltd. 6,000 17,607
DBS Group Holdings Ltd. 2,395 39,246
Deutsche Bank AG 1,720 145,468
Entrium Direct Bankers AG # 4,700 71,715
Halifax PLC 3,230 35,824
Hang Seng Bank Ltd. 3,600 41,101

The Flex-Partners Funds Annual Report * December 31, 1999 Page 27

<PAGE>

SHARES OR FACE
INDUSTRIES/CLASSIFICATIONS AMOUNT VALUE
-------------------------- ------ -----

HSBC Holdings PLC 20,157 281,194
HypoVereinsbank AG 1,400 95,988
Industrial Bank of Japan Ltd. 6,000 57,811
ING Groep NV 2,796 168,238
Malayan Banking Bhd 2,000 7,106
Mitsubishi Trust 2,000 17,607
National Australia Bank Ltd. 3,190 48,829
National Bank of Greece SA 780 57,593
Overseas-Chinese Banking Corp., Ltd. 3,150 28,929
Royal Bank of Scotland Group PLC 2,063 36,596
San Paolo - IMI SpA 5,600 75,835
Sanwa Bank Ltd. 4,000 48,636
Schroders PLC 975 19,627
Softbank Corp. 200 191,333
Sumitomo Bank Ltd. 9,000 123,164
Sumitomo Trust 4,000 26,998
Tokai Bank Ltd. 5,000 31,498
Unicredito Italiano Spa 25,000 122,470
United Overseas Bank Ltd. 2,112 18,635
2,875,361

BEVERAGE -- ALCOHOLIC - 0.5%
Bass PLC 2,244 27,934
Diageo PLC 7,240 58,251
Foster's Brewing Group Ltd. 8,300 23,828
Fraser & Neave Ltd. 1,000 3,692
113,705

BROADCASTING -- CABLE TV - 0.7%
British Sky Broadcasting Group PLC 3,910 62,949
Reuters Holdings PLC 4,268 58,576
Television Broadcasts Ltd. 1,000 6,818
Tokyo Broadcasting System, Inc. 1,000 33,845
162,188

BROADCASTING & PUBLISHING - 0.4%
Austar United Communications Ltd. # 3,900 15,629
News Corporation Ltd. 8,660 84,143
99,772

BUILDING & CONSTRUCTION - 1.8%
Acciona SA 1,500 84,324
AMEC plc 3,000 11,972
Compagnie de Saint Gobain 400 74,968
CRH PLC 5,040 108,271
Obayashi Corp. 14,000 66,145
RMC Group PLC 1,684 23,126
Sekisui House 3,000 26,558
Tostem Corp. 1,000 17,950
413,314

BUILDING MATERIALS - 0.1%
Meyer International PLC 2,150 13,356

CHEMICALS - 1.6%
Clariant 215 102,600
Denki Kagaku Kogyu 7,000 20,884
Imperial Chemical Industries 2,150 22,769
Laporte 1,130 9,858
Nippon Sanso Corp. 4,000 11,738
SGL Carbon AG 1,000 66,254
Shin-Etsu Chemical Co., Ltd. # 3,000 129,121
363,224

The Flex-Partners Funds Annual Report * December 31, 1999 Page 28

<PAGE>

SHARES OR FACE
INDUSTRIES/CLASSIFICATIONS AMOUNT VALUE
-------------------------- ------ -----

CHEMICALS -- DIVERSIFIED - 1.5%
Aventis SA 4,550 262,281
BOC Group PLC 530 11,388
Dainippon Ink & Chemicals 3,000 8,892
Henkel KGaA 1,150 75,615
358,176

COMPUTERS & PERIPHERALS - 2.9%
Atos SA # 425 70,224
Fujitsu Ltd. 5,000 227,918
Itochu Techno-Science Corp. 100 62,310
Logica PLC 1,630 42,056
Misys PLC 2,982 46,491
NEC Corp. 3,000 71,457
Netcom AB # 1,150 81,060
The Sage Group PLC # 4,790 58,466
659,982

CONTAINERS -- PAPER & PLASTIC - 0.1%
Bunzl PLC 6,100 33,606

CONSUMER DURABLES - 0.2%
Unilever PLC 6,582 48,437

COSMETICS - 0.4%
Kao Corp. 3,000 85,542

DATA PROCESSING - 0.0%
Industri-Matematik International Corp. - 2,000 12,250
ADR #

DISTRIBUTION WHOLESALER - 0.3%
Marubeni Corp. 10,000 41,964
Mitsui & Co. 5,000 34,970
76,934

DIVERSIFIED - 2.8%
Arriva PLC 146 571
Bodycote International PLC 1,407 6,797
Brambles Industries Ltd. 1,050 29,056
Broken Hill Proprietary Co., Ltd. 3,850 50,588
Granada Group PLC 2,954 29,947
Hays PLC 900 14,337
Hutchison Whampoa Ltd. 8,000 116,293
Invensys PLC 8,738 47,575
Lagardere SCA 2,000 108,416
Mitsubishi Corp. 5,000 38,589
Swire Pacific Ltd. 3,000 17,714
Vivendi 2,000 179,990
639,873

DRUG - 2.1%
Pharmacia & Upjohn, Inc. 1,700 77,347
Rhodia SA 4,050 91,232
Roche Holdings AG 7 83,181
Sankyo Co., Ltd. 2,000 41,084
Smithkline Beecham PLC 13,842 176,669
469,513

ELECTRIC PRODUCTION -- MISCELLANEOUS - 1.5%
Chubu Electric Power Co., Inc. 1,800 29,316
CLP Holdings Ltd. 7,500 34,540

The Flex-Partners Funds Annual Report * December 31, 1999 Page 29

<PAGE>

SHARES OR FACE
INDUSTRIES/CLASSIFICATIONS AMOUNT VALUE
-------------------------- ------ -----

Hitachi Ltd. 11,000 176,465
Sanyo Electric Co., Ltd. 9,000 36,535
Scottish Power PLC 4,963 37,605
Tenaga Nasional Bhd 1,000 2,579
Tokyo Electric Power Co. 1,400 37,523
354,563

ELECTRONIC COMPONENT -- MISCELLANEOUS - 7.4%
Arm Holdings PLC # 220 14,846
Electrocomponents PLC 2,150 23,811
Epcos AG # 970 72,543
Hirose Electric Co., Ltd. 500 112,051
Idec Izumi Corp. 2,000 22,890
Johnson Electric Holdings Ltd. 2,000 12,838
Kyocera Corp. 700 181,454
Mabuchi Motor Co., Ltd. 900 156,970
Matsushita Electric Industrial Co., Ltd. 4,000 110,731
Minebea Co., Ltd. 2,000 34,295
Murata Manufacturing Co., Ltd. 1,000 234,765
Perlos Oyj # 4,000 140,539
Sony Corp. 1,000 296,390
STMicroelectronics NV 1,100 168,727
Sumitomo Electric Industries 4,000 46,210
Yakult Honsha Co., Ltd. 6,000 52,235
1,681,295

ENGINEERING RESEARCH & DEVELOPMENT - 0.1%
Sembcorp Industries Ltd. 3,000 4,088
Singapore Technologies Engineering Ltd. 6,000 9,292
13,380

ENTERTAINMENT/MEDIA - 0.3%
Pearson PLC 2,146 69,480

FINANCE - 1.8%
Acom Co., Ltd. 500 48,958
Lend Lease Corp., Ltd. 1,300 18,225
Lloyds TSB Group PLC 12,052 150,805
Nomura Securities Co., Ltd. 5,000 90,238
Orix Corp. 100 22,518
Takefuji Corp. 400 50,044
380,788

FINANCIAL SERVICES - 0.8%
Daiwa Securities Group, Inc. 4,000 62,565
Legal & General Group PLC 16,724 45,528
Unidanmark A/S 1,150 81,105
189,198

FOOD -- DIVERSIFIED - 2.7%
Cadbury Schweppes PLC 5,920 35,771
Carrefour SA 750 137,854
Danone 300 70,470
Nestle SA 100 183,401
Nippon Meat Packers, Inc. 2,000 25,922
Nissin Food Products 1,000 23,525
Royal Canin SA 1,300 91,285
Tesco PLC 16,517 50,234
618,462

HOTEL/GAMING - 0.7%
Accor SA 2,800 134,833

The Flex-Partners Funds Annual Report * December 31, 1999 Page 30

<PAGE>

SHARES OR FACE
INDUSTRIES/CLASSIFICATIONS AMOUNT VALUE
-------------------------- ------ -----

Genting Bhd 1,000 3,553
Hilton Group PLC 6,073 19,451
157,837

HOUSEHOLD PRODUCTS - 1.3%
Asahi Glass Co., Ltd. 5,000 38,687
Electrolux AB 4000 100,897
Hunter Douglas NV 2,714 73,560
Societe Europeenne des Satellites 500 72,779
285,923

INSURANCE -- MULTILINE - 0.6%
Allied Zurich AG # 3,516 41,439
Prudential Corp., PLC 3,625 71,450
Royal & Sun Alliance Insurance Group PLC 3,477 26,486
139,375

INSURANCE - 2.3%
Axa 1,050 145,879
Fortis AG 2,500 89,895
Muenchener Rueckversicherungs - 430 108,561
Gesellschaft AG
Skandia Forsakrings AB 4,500 136,317
Tokio Marine & Fire Insurance Co. 4,000 46,757
527,409

INTERNET -- SOFTWARE - 0.8%
Brokat Infosystems AG # 520 104,922
Freenet.de AG # 750 82,065
186,987

INVESTMENT COMPANIES - 0.5%
Amvescap PLC 1,100 12,796
NH Hoteles SA # 7,000 78,561
Parques Reunidos SA # 3,000 16,262
Sime Darby Bhd 1,000 1,269
108,888

MACHINERY - 3.0%
Amada Co., Ltd. 6,000 32,808
Kubota Corp. 11,000 42,072
Mannesmann AG 1,200 290,313
Schneider Electric SA 1,500 117,375
Sidel SA 750 77,171
Toshiba Machine Co., Ltd. 15,000 24,210
Usinor SA 5,000 93,609
677,558

MANUFACTURING - 2.0%
ABB Ltd. # 891 109,099
FKI PLC 4,770 18,495
Mitsubishi Heavy Industries Ltd. 9,000 30,021
NTN Corp. 8,000 23,633
Siemens AG 1,200 152,686
Veba AG 2,500 120,889
454,823

MEDICAL PRODUCTS - 3.6%
AstraZeneca Group PLC 4,068 168,776
Glaxo Wellcome PLC 7,537 213,094
Novartis AG 215 316,045
Takeda Chemical Industries 2,000 98,797
Terumo Corp. 1,000 26,704
823,416

The Flex-Partners Funds Annual Report * December 31, 1999 Page 31

<PAGE>

SHARES OR FACE
INDUSTRIES/CLASSIFICATIONS AMOUNT VALUE
-------------------------- ------ -----

MINING - 0.5%
Mitsui Mining & Smelting Co., Ltd. 5,000 23,623
Rio Tinto Ltd. 1,590 34,179
Rio Tinto PLC 2,260 54,586
112,388

NETWORKING PRODUCT - 0.5%
Equant NV # 1,000 113,134

OFFICE AUTOMATION & EQUIPMENT - 0.3%
Canon, Inc. 2,000 79,429

OIL & NATURAL GAS - 7.1%
Amp Ltd. 2,140 23,661
BG PLC 7,196 46,501
British Petroleum Co., PLC 44,658 449,130
Centrica PLC # 12,070 34,223
ENI SpA 16,650 91,259
Hong Kong & China Gas Co., Ltd. 8,800 12,056
LASMO PLC 6,900 13,126
Nippon Oil Co. 4,000 17,607
PowerGen PLC 1,900 13,660
Repsol - YPF, SA 6,500 150,206
Royal Dutch Petroleum Co. 5,250 320,692
Shell Transport & Trading Co. 1,618 13,449
Tokyo Gas Co. 23,000 56,021
Total Fina SA 2,748 365,512
1,607,103

OPTICAL SUPPLIES - 0.1%
Paris Miki, Inc. 400 28,720

PAPER & FOREST PRODUCTS - 1.5%
Nippon Paper Industries Co., Ltd. 2,000 11,014
Stora Kopparbergs Bergslags Aktiebolag 14,877 256,019
UPM - Kymmene Oyj 1,600 64,246
331,279

PRINTING -- COMMERCIAL - 0.2%
Dai Nippon Printing Co., Ltd. 3,000 47,833

PROTECTION -- SAFETY EQUIPMENT - 0.5%
Secom Co., Ltd. 1,000 110,046

PUBLISHING - 1.0%
Johnston Press PLC 2,046 12,065
Singapore Press Holdings Ltd. 946 20,499
South China Morning Post Holdings Ltd. 9,000 7,757
Verenigde Nederlandse Uitgeversbedrijven 3,400 178,095
Verenigd Bezit
218,416

REAL ESTATE MANAGEMENT & INVESTMENT - 1.5%
British Land Co., PLC 3,668 24,297
Chelsfield PLC 1,620 8,218
Cheung Kong Holdings Ltd. 6,000 76,221
City Developments Ltd. 4,000 23,409
DBS Land Ltd. 1,000 1,969
HKR International Ltd. 12,080 8,469
Land Securities PLC 2,094 23,478
Mitsubishi Estate Co., Ltd. 9,000 87,773
New World Development Co., Ltd. 4,000 9,005
Sun Hung Kai Properties Ltd. 5,000 52,100
Westfield Holdings Ltd. 4,200 26,157
341,096

The Flex-Partners Funds Annual Report * December 31, 1999 Page 32

<PAGE>

SHARES OR FACE
INDUSTRIES/CLASSIFICATIONS AMOUNT VALUE
-------------------------- ------ -----

RECREATION - 0.2%
TAB Ltd. 9,590 17,514
TABCORP Holdings Ltd. 2,800 18,972
36,486

RETAIL - 0.8%
Coles Myer Ltd. 3,200 16,540
Cycle & Carriage Ltd. 1,000 3,091
Isetan Co., Ltd. 7,000 51,355
Matalan PLC 600 16,503
Next PLC 2,200 21,113
Otsuka Kagu Ltd. 200 53,800
Ryohin Keikaku Co. Ltd. 100 20,063
182,465

RETAIL GROCERY - 0.7%
Ito-Yokado Co., Ltd. 1,000 108,579
Superdiplo SA # 3,000 57,219
165,798

RETAIL STORE - 0.2%
Debenhams PLC 1,627 5,099
Kingfisher PLC 3,277 36,372
41,471

SHIP BUILDING - 0.0%
Keppel Corp., Ltd. 2,000 5,234

STEEL -- INTEGRATED - 0.6%
Corus Group PLC 9,900 25,751
Kawasaki Steel Corp. 23,000 41,172
Nippon Steel Corp. 28,000 65,460
132,383

TELECOMMUNICATIONS - 5.9%
Cable & Wireless PLC 26,062 75,268
DDI Corp. 1 13,695
Deutsche Telekom AG 3,500 251,213
Europolitan Holdings AB 3,500 61,882
Fujikura 7,000 27,800
Nippon Telegraph & Telephone Corp. 27 462,193
Portugal Telecom SA 12,800 139,929
PT Multimedia # 1,250 70,859
Singapore Telecommunications Ltd. 12,000 24,778
Swisscom AG 170 68,834
Telecom Corporation of New Zealand Ltd. 7,300 34,249
Telestra Corp., Ltd. # 1,100 3,881
Versatel Telecom International NV # 3,000 105,404
1,339,985

TELECOMMUNICATION EQUIPMENT - 8.6%
Alcatel Alsthom 950 217,434
France Telecom SA 2,700 355,875
Marconi PLC 5,158 91,291
Nokia Oyj 2,850 514,975
Telefonaktiebolaget LM Ericsson 4,900 315,928
Teleste Corp. 6,325 102,859
Vodafone AirTouch PLC 72,805 360,811
1,959,173

TELECOMMUNICATION SERVICES - 4.1%
British Telecommunications PLC 14,574 356,247

The Flex-Partners Funds Annual Report * December 31, 1999 Page 33

<PAGE>

SHARES OR FACE
INDUSTRIES/CLASSIFICATIONS AMOUNT VALUE
-------------------------- ------ -----

China Telecom Ltd. # 2,000 12,504
KPNQwest NV # 2,500 165,886
Rank Group PLC 2,537 8,034
Sonera Group Oyj 2,500 170,780
Telekom Malaysia Bhd 1,000 3,869
Telestra Corp., Ltd. 11,300 61,467
Thus PLC # 2,000 12,537
United Pan-Europe Communications NV # 1,100 140,238
931,562

TEXTILE PRODUCTS - 0.1%
Toray Industries, Inc. 3,000 11,621

TOBACCO - 0.2%
British American Tobacco Bhd 200 1,527
British American Tobacco PLC 6,120 34,779
36,306

TRANSPORTATION - 1.6%
East Japan Railway Co. 9 48,508
Malaysia International Shipping Bhd 1,000 1,645
National Express Group PLC 989 11,664
Neptune Orient LNS # 2,000 2,677
Nippon Yusen KK 6,000 24,533
Peninsular and Oriental Steam Navigation Co. 2,449 40,872
Railtrack Group PLC 1,999 33,588
Stagecoach Holdings PLC 2,700 6,958
TNT Post Group NV 2,220 63,402
Tokyu Corp. 6,000 14,614
Yamato Transport Co., Ltd. 3,000 116,209
364,670

TRAVEL SERVICES - 0.8%
Airtours PLC 1,880 11,542
Amadeus Global Travel Distribution SA # 10,750 169,964
181,506

WATER UTILITY - 0.2%
Kurita Water Industries Ltd. 2,000 31,772
Severn Trent PLC 568 5,644
37,416

TOTAL COMMON STOCKS
(Cost $17,080,297 ) 22,748,044

TOTAL INVESTMENTS - 100.0%
(Cost $17,080,297 ) 22,748,044

TRUSTEE DEFERRED COMPENSATION*

Flex-funds Highlands Growth Fund 223 4,977
Flex-funds Muirfield Fund 348 2,200
Flex-funds Total Return Utilities Fund 74 1,497
Flex-Partners International Equity Fund 173 2,973

TOTAL TRUSTEE DEFERRED COMPENSATION
(Cost $10,980 ) $11,647
</TABLE>

The Flex-Partners Funds Annual Report * December 31, 1999 Page 34

<PAGE>

ADR: American Depositary Receipt

# Represents non-income producing securities.

* Assets of affiliates to the International Equity Fund held for the benefit
of the Portfolio's Trustees in connection with the Trustee Deferred
Compensation Plan.

Portfolio Composition by Country of Domicile as of 12/31/99.

Australia - 2.23% Malaysia - 0.09%
Belgium - 0.71% Netherlands - 5.35%
Denmark - 0.36% New Zealand - 0.15%
Finland - 4.36% Norway - 0.41%
France - 13.18% Portugal - 0.93%
Germany - 8.50% Singapore - 0.94%
Greece - 0.25% Spain - 2.79%
Hong Kong - 2.30% Sweden - 4.52%
Ireland - 0.86% Switzerland - 4.23%
Italy - 2.03% United Kingdom -
Japan - 27.01% United States - 0.13%

See accompanying notes to financial statements.

The Flex-Partners Funds Annual Report * December 31, 1999 Page 35

<PAGE>

STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1999

<TABLE>
<CAPTION>
TACTICAL ASSET UTILITY CORE
ALLOCATION GROWTH EQUITY
FUND FUND FUND

<S> <C> <C> <C>
Assets:
Investment in corresponding
portfolio, at value $22,727,739 $4,246,417 $12,347,322
Receivable for capital stock issued 29,582 --- 339,702
Receivable from investment adviser 583 14,890 6,048
Unamortized organization costs 3,631 2,657 5,166
Other assets 5,649 5,201 4,792
Total Assets 22,767,184 4,269,165 12,703,030

Liabilities:
Payable for capital stock redeemed 2,496 1,675 1,102
Dividends payable 336 396 ---
Accrued transfer agent and
administrative fees 3,165 822 1,456
Accrued 12b-1 and shareholder
service fees -- Class A 755 2,525 8,763
Accrued 12b-1 and shareholder
service fees -- Class C 58,438 8,463 13,582
Organizational costs due to adviser 4,524 3,472 2,108
Other accrued liabilities 5,191 13,667 56,874
Total Liabilities 74,905 31,020 83,885

Net Assets 22,692,279 4,238,145 12,619,145

Components of Net Assets:
Capital 21,858,833 3,385,401 10,175,946
Accumulated undistributed (distributions
in excess of) net investment income 358,444 (1,159) (1,853)
Accumulated undistributed net realized gains
(losses) from investment transaction (427,817) 434,295 11,673
Net unrealized appreciation of investments
of investments 902,819 419,608 2,433,379
Total Net Assets $22,692,279 $4,238,145 $12,619,145

Net Assets:
Class A Shares $624,722 $2,081,748 $7,113,091
Class C Shares 22,067,557 2,156,397 5,506,054
22,692,279 4,238,145 12,619,145

Outstanding units of beneficial interest
(shares): (indefinite number of shares
authorized, $0.10 par value)
Class A Shares 49,968 105,517 389,176
Class C Shares 1,559,910 110,727 301,859
1,609,878 216,244 691,035

Net asset value -- redemption price per share:
Class A Shares $12.50 $19.73 $18.28
Class C Shares * $14.15 $19.47 $18.24

Sales charge -- Class A Shares 5.75% 5.75% 5.75%

Maximum offering price per share --
Class A Shares (100%/(100% - sales
charge) of net asset value
adjusted to nearest cent) $13.26 $20.93 $19.40

<FN>
* Redemption price varies based upon holding period.
</FN>
</TABLE>

See accompanying notes to financial statements.

The Flex-Partners Funds Annual Report * December 31, 1999 Page 36

<PAGE>

STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>
TACTICAL ASSET UTILITY CORE
ALLOCATION GROWTH EQUITY
FUND FUND FUND

<S> <C> <C> <C>
Net Investment Income from
Corresponding Portfolio:
Interest $447,830 $8,790 $53,200
Dividends 23,091 111,123 115,735
Expenses (156,877) (49,687) (126,019)
Total Net Investment Income from
Corresponding Portfolio 314,044 70,226 42,916

Fund Expenses:
Administrative fee 9,089 1,838 5,481
Transfer agent fees 21,997 8,211 11,613
Shareholder service -- Class A Shares 488 4,415 18,594
Shareholder service -- Class C Shares 44,957 4,777 8,810
Audit fees 1,995 1,997 1,944
Legal fees 1,542 1,082 919
Printing 7,273 1,622 2,023
Amortization of organizational costs 8,308 5,851 2,000
Postage 560 646 734
12b-1 fees -- Class A Shares 488 4,415 18,594
12b-1 fees -- Class C Shares 134,872 14,332 26,431
Registration and filing fees 16,310 12,859 13,969
Insurance 333 1,555 42
Other expenses 5,907 2,504 3,499
Total Expenses 254,119 66,104 114,653

Expenses reimbursed
by investment adviser (23,443) (40,486) (38,740)

Net Expenses 230,676 25,618 75,913

NET INVESTMENT INCOME (LOSS) 83,368 44,608 (32,997)

NET REALIZED AND UNREALIZED GAIN (LOSS)
FROM INVESTMENTS:

Net realized gains (losses) from
futures contracts (709,204) --- 45,611
Net realized gains (losses) from
investment transactions 3,933,976 1,032,830 10,561
Net change in unrealized appreciation
of investments (909,565) (459,097) 1,925,520
NET GAIN FROM INVESTMENTS 2,315,207 573,733 1,981,692

NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $2,398,575 $618,341 $1,948,695
</TABLE>

See accompanying notes to financial statements.

The Flex-Partners Funds Annual Report * December 31, 1999 Page 37

<PAGE>

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999

INTERNATIONAL
EQUITY
FUND

Assets:
Investments, at value (cost $17,080,297) $22,748,044
Cash 717,323
Receivable for capital stock issued 8,493
Dividends, interest and tax reclaims
receivable, at value 49,180
Receivable from investment adviser 10,190
Unamortized organization costs 15,553
Trustee Deferred Compensation Plan asset, 11,647
at value ($10,980)
Other assets 7,220
Total Assets 23,567,650

Liabilites:
Accrued management fees 18,652
Accrued fund accounting fees 2,361
Accrued transfer agent fees 1,787
Accrued administrative fees 1,359
Accrued 12b-1 distribution and shareholder service fees 27,506
Trustee Deferred Compensation Plan, at value 11,647
Other accrued liabilities 30,212
Total Liabilities 93,524

Net Assets $23,474,126

Components of Net Assets:
Capital $17,359,464
Accumulated undistributed net realized gains
from investment and foreign currency transactions 446,914
Net unrealized appreciation of
investments and foreign currency 5,667,748
Total Net Assets $23,474,126

Outstanding units of beneficial interest (shares): 1,351,211

Net asset value -- redemption price per share: $17.37

Maximum sales charge 5.75%

Maximum offering price per share
(100%/(100% - sales charge) of net asset value
adjusted to nearest cent) $18.43

See accompanying notes to financial statements.

STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999

INTERNATIONAL
EQUITY
FUND

Investment Income:
Interest $2,759
Dividends 364,500
Foreign taxes withheld (38,471)
Total Investment Income 328,788

Expenses:
Investment management fees 191,375
Administration fees 9,569
Distribution (12b-1) fees 45,690
Fund accounting fees 29,999
Transfer agent fees 19,138
Audit fees 16,870
Legal fees 1,109
Custody fees 106,725
Trustees fees and expenses 9,570
Postage expense 1,233
Registration expense 8,731
Printing expense 3,248
Amortization of organizational costs 5,825
Other expenses 4,650
Total Expenses 453,732

Expenses reimbursed by investment adviser (70,780)

Net Expenses 382,952

NET INVESTMENT LOSS (54,164)

NET REALIZED AND UNREALIZED GAINS
FROM INVESTMENTS:

Net realized gains from investments
and foreign currency transactions 2,041,862
Net change in unrealized appreciation
of investments 3,448,137
NET GAIN FROM INVESTMENTS 5,489,999

NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $5,435,835

See accompanying notes to financial statements.

The Flex-Partners Funds Annual Report * December 31, 1999 Page 38

<PAGE>

STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>
TACTICAL ASSET ALLOCATION FUND UTILITY GROWTH FUND
TOTAL CLASS A CLASS C TOTAL CLASS A CLASS C

<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:

OPERATIONS:
Net investment income (loss) $83,368 $1,993 $81,375 $44,608 $25,965 $18,643
Net realized gains from investment and
futures contract transactions 3,224,772 16,691 3,208,081 1,032,830 476,568 556,262
Net change in unrealized appreciation
of investments (909,565) 29,830 (939,395) (459,097) (184,055) (275,042)

Net increase in net assets
resulting from operations 2,398,575 48,514 2,350,061 618,341 318,478 299,863

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (83,332) (1,970) (81,362) (44,608) (25,965) (18,643)
In excess of net investment income --- --- --- (966) (966) ---
From net realized gains (3,224,772) (16,691) (3,208,081) (593,913) (213,464) (380,449)
In excess of net realized gains (347,380) (44,469) (302,911) --- --- ---

Net decrease in net assets resulting
from dividends and distributions (3,655,484) (63,130) (3,592,354) (639,487) (240,395) (399,092)

CAPITAL TRANSACTIONS:
Issued 12,993,531 621,513 12,372,018 4,161,745 727,872 3,433,873
Reinvested 3,646,140 63,034 3,583,106 625,059 226,485 398,574
Redeemed (7,730,764) (103,955) (7,626,809) (3,376,965) (500,964) (2,876,001)

Net increase (decrease) in net assets
resulting from capital share
transactions 8,908,907 580,592 8,328,315 1,409,839 453,393 956,446

TOTAL INCREASE IN NET ASSETS 7,651,998 565,976 7,086,022 1,388,693 531,476 857,217

NET ASSETS - Beginning of period 15,040,281 58,746 14,981,535 2,849,452 1,550,272 1,299,180

NET ASSETS - End of period $22,692,279 $624,722 $22,067,557 $4,238,145 $2,081,748 $2,156,397

SHARE TRANSACTIONS:
Issued 870,788 49,320 821,468 196,019 35,483 160,536
Reinvested 278,268 5,411 272,857 32,155 11,528 20,627
Redeemed (520,515) (8,998) (511,517) (166,022) (24,885) (141,137)

Change in shares 628,541 45,733 582,808 62,152 22,126 40,026
</TABLE>

<TABLE>
<CAPTION>
CORE EQUITY FUND INTERNATIONAL
TOTAL CLASS A CLASS C EQUITY FUND

<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:

OPERATIONS:
Net investment income (loss) ($32,997) ($16,936) ($16,061) ($54,164)
Net realized gains from investment and
futures contract transactions 56,172 173,049 (116,877) 2,041,862
Net change in unrealized appreciation
of investments 1,925,520 1,119,695 805,825 3,448,137

Net increase in net assets
resulting from operations 1,948,695 1,275,808 672,887 5,435,835

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
From net investment income --- --- --- ---
In excess of net investment income --- --- --- ---
From net realized gains (100,611) (100,611) --- (1,691,362)
In excess of net realized gains (87,247) --- (87,247) ---

Net decrease in net assets resulting
from dividends and distributions (187,858) (100,611) (87,247) (1,691,362)

CAPITAL TRANSACTIONS:
Issued 13,859,799 5,554,357 8,305,442 1,527,830
Reinvested 185,510 99,657 85,853 1,622,117
Redeemed (11,027,500)(5,090,750)(5,936,750) (1,693,662)

Net increase (decrease) in net assets
resulting from capital share
transactions 3,017,809 563,264 2,454,545 1,456,285

TOTAL INCREASE IN NET ASSETS 4,778,646 1,738,461 3,040,185 5,200,758

NET ASSETS - Beginning of period 7,840,499 5,374,630 2,465,869 18,273,368

NET ASSETS - End of period $12,619,145 $7,113,091 $5,506,054 $23,474,126

SHARE TRANSACTIONS:
Issued 822,113 333,876 488,237 99,602
Reinvested 10,559 5,668 4,891 99,846
Redeemed (653,451) (301,269) (352,182) (111,391)

Change in shares 179,221 38,275 140,946 88,057
</TABLE>

See accompanying notes to financial statements.

The Flex-Partners Funds Annual Report * December 31, 1999 Page 39

<PAGE>

STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998

<TABLE>
<CAPTION>
TACTICAL ASSET ALLOCATION FUND UTILITY GROWTH FUND
TOTAL CLASS A CLASS C TOTAL CLASS A CLASS C

<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:

OPERATIONS:
Net investment income $53,931 $216 $53,715 $29,239 $17,208 $12,031
Net realized gains (losses) from
investment and futures contract
transactions 902,170 3,583 898,587 (5,391) (22,770) 17,379
Net change in unrealized
appreciation of investments 2,504,806 9,221 2,495,585 288,302 206,323 81,979

Net increase in net assets
resulting from operations 3,460,907 13,020 3,447,887 312,150 200,761 111,389

DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment income (53,931) (216) (53,715) (28,275) (16,244) (12,031)
In excess of net investment income --- --- --- (388) --- (388)
From net realized gains (288,528) (1,127) (287,401) --- --- ---

Net decrease in net assets resulting
from dividends and distributions (342,459) (1,343) (341,116) (28,663) (16,244) (12,419)

CAPITAL TRANSACTIONS:
Issued 1,537,614 9,651 1,527,963 1,234,768 899,057 335,711
Reinvested 343,504 1,343 342,161 27,166 15,269 11,897
Redeemed (4,496,048) (5) (4,496,043) (1,264,535) (833,891) (430,644)

Net increase (decrease) in net assets
resulting from capital share
transactions (2,614,930) 10,989 (2,625,919) (2,601) 80,435 (83,036)

TOTAL INCREASE (DECREASE)
IN NET ASSETS 503,518 22,666 480,852 280,886 264,952 15,934

NET ASSETS - Beginning of period 14,536,763 36,080 14,500,683 2,568,566 1,285,320 1,283,246

NET ASSETS - End of period $15,040,281 $58,746 $14,981,535 $2,849,452 $1,550,272 $1,299,180

SHARE TRANSACTIONS:
Issued 124,826 875 123,951 76,704 57,353 19,351
Reinvested 23,573 101 23,472 1,567 876 691
Redeemed (354,387) --- (354,387) (72,921) (48,837) (24,084)

Change in shares (205,988) 976 (206,964) 5,350 9,392 (4,042)
</TABLE>

See accompanying notes to financial statements.

<TABLE>
<CAPTION>
CORE EQUITY FUND INTERNATIONAL
TOTAL CLASS A CLASS C EQUITY FUND

<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:

OPERATIONS:
Net investment income (77) $983 ($1,060) ($29,201)
Net realized gains (losses) from
investment and futures contract
transactions 291,655 189,663 101,992 381,420
Net change in unrealized
appreciation of investments 502,895 390,385 112,510 2,333,615

Net increase in net assets
resulting from operations 794,473 581,031 213,442 2,685,834

DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment income (983) (983) --- ---
In excess of net investment income (175) (175) --- (50,938)
From net realized gains (115,378) (76,889) (38,489) (98,118)

Net decrease in net assets resulting
from dividends and distributions (116,536) (78,047) (38,489) (149,056)

CAPITAL TRANSACTIONS:
Issued 9,795,113 4,836,253 4,958,860 5,048,139
Reinvested 113,551 76,538 37,013 149,026
Redeemed (3,071,047) (286,572) (2,784,475) (1,650,643)

Net increase (decrease) in net assets
resulting from capital share
transactions 6,837,617 4,626,219 2,211,398 3,546,522

TOTAL INCREASE (DECREASE)
IN NET ASSETS 7,515,554 5,129,203 2,386,351 6,083,300

NET ASSETS - Beginning of period 324,945 245,427 79,518 12,190,068

NET ASSETS - End of period $7,840,499 $5,374,630 $2,465,869 $18,273,368

SHARE TRANSACTIONS:
Issued 702,814 347,932 354,882 376,007
Reinvested 7,470 5,036 2,434 10,299
Redeemed (224,121) (21,437) (202,684) (123,624)

Change in shares 486,163 331,531 154,632 262,682
</TABLE>

See accompanying notes to financial statements.

The Flex-Partners Funds Annual Report * December 31, 1999 Page 40

<PAGE>

<TABLE>
FINANCIAL HIGHLIGHTS
TACTICAL ASSET ALLOCATION FUND

<CAPTION>
Year ended Year ended Year ended Year ended 6/1/95* to
December 31, 1999 December 31, 1998 December 31, 1997 December 31, 1996 12/31/95
CLASS A CLASS C CLASS A CLASS C CLASS A CLASS C CLASS A** CLASS C CLASS C

<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $13.87 $15.33 $11.07 $12.25 $12.56 $13.52 $12.50 $13.26 $12.50

Income from Investment Operations:
Net investment income 0.06 0.06 0.05 0.05 0.40 0.14 0.14 0.10 (0.02)
Net gains (losses) from investments 1.80 1.99 3.07 3.38 1.78 2.26 0.55 0.57 1.84
Total from investment operations 1.86 2.05 3.12 3.43 2.18 2.40 0.69 0.67 1.82

Less Dividends and Distributions:
From net investment income (0.06) (0.06) (0.05) (0.05) (0.40) (0.14) (0.14) (0.10) ---
From net realized gains (0.87) (2.90) (0.27) (0.30) (2.93) (3.17) (0.49) (0.31) (1.06)
In excess of net realized gains (2.30) (0.27) --- --- (0.34) (0.36) --- --- ---

Total distributions (3.23) (3.23) (0.32) (0.35) (3.67) (3.67) (0.63) (0.41) (1.06)

Net Asset Value, End of Period $12.50 $14.15 $13.87 $15.33 $11.07 $12.25 $12.56 $13.52 $13.26

Total Return 15.62% 15.33% 28.38% 28.13% 17.29% 17.71% 5.51%(1) 5.07% 14.57%(1)

Ratios/Supplementary Data
Net assets, end of period ($000) $625 $22,068 $59 $14,982 $36 $14,501 $137 $13,943 $11,524
Ratio of expenses to
average net assets 1.77% 2.13% 2.00% 2.10% 2.00% 2.10% 1.73%(2) 2.00% 1.97%(2)
Ratio of net investment income to
average net assets 1.02% 0.45% 0.45% 0.39% 0.99% 0.86% 2.60%(2) 0.75% (0.29%)(2)
Ratio of expenses to average net
assets before waiver of fees(3) 3.66% 2.24% 10.38% 2.48% 6.16% 2.50% 5.23%(2) 2.40% 2.80%(2)
Ratio of net investment income to
average net assets before waiver
of fees(3) -0.87% 0.34% -7.93% 0.01% (3.17%) 0.46% (0.90%)(2) 0.35% (1.12%)(2)
Portfolio turnover(4) 787.66% 787.66% 128.31% 128.31% 395.42% 395.42% 297.41% 297.41% 186.13%

<FN>
* Date of commencement of operations
** August 1, 1996 (date of commencement of operations) to December 31, 1996
(1) Not Annualized
(2) Annualized
(3) Ratio includes fees waived in corresponding portfolio.
(4) Represents turnover rate of corresponding portfolio.
</FN>
</TABLE>

See accompanying notes to financial statements.

The Flex-Partners Funds Annual Report * December 31, 1999 Page 41

<PAGE>

<TABLE>
FINANCIAL HIGHLIGHTS
UTILITY GROWTH FUND

FOR THE YEAR ENDED DECEMBER 31, 1999
UTILITY GROWTH FUND
CLASS A CLASS C

Net Asset Value, Beginning of Period $18.59 $18.38

Income from Investment Operations:
Net investment income (loss) 0.29 0.20
Net gains from investments 3.44 3.38
Total from investment operations 3.73 3.58

Less Dividends and Distributions:
From net investment income (0.29) (0.20)
In excess of net investment income (0.01) ---
From net realized gains (2.29) (2.29)
In excess of net realized gains --- ---

Total distributions (2.59) (2.49)

Net Asset Value, End of Period $19.73 $19.47

Total Return 20.34% 19.72%

Ratios/Supplementary Data
Net assets, end of period ($000) $2,082 $2,156
Ratio of expenses to
average net assets 1.82% 2.25%
Ratio of net investment income to
average net assets 1.47% 0.97%
Ratio of expenses to average net assets
before waiver of fees (1) 2.89% 3.37%
Ratio of net investment income to average
net assets before waiver of fees (1) 0.40% -0.15%
Portfolio turnover 69.20%(2) 69.20%(2)

(1) Annualized ratio includes fees waived and directed brokerage payments in
corresponding portfolio.
(2) Represents turnover rate of corresponding portfolio.

<CAPTION>
Year ended Year ended Year ended July 11, 1995*
December 31, 1998 December 31, 1997 December 31, 1996 to Dec. 31, 1995
CLASS A CLASS C CLASS A CLASS C CLASS A CLASS C CLASS A CLASS C

<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $17.37 $17.17 $15.09 $14.91 $14.26 $14.27 $12.50 $12.50

Income from Investment Operations:
Net investment income 0.23 0.16 0.22 0.19 0.29 0.26 0.12 0.10
Net gains (losses) from investments 1.20 1.21 4.03 3.99 1.48 1.49 1.76 1.77
Total from investment operations 1.43 1.37 4.25 4.18 1.77 1.75 1.88 1.87

Less Dividends and Distributions:
From net investment income (0.21) (0.16) (0.22) (0.19) (0.29) (0.26) (0.12) (0.10)
From net realized gains --- --- (1.75) (1.73) (0.65) (0.85) --- ---

Total distributions (0.21) (0.16) (1.97) (1.92) (0.94) (1.11) (0.12) (0.10)

Net Asset Value, End of Period $18.59 $18.38 $17.37 $17.17 $15.09 $14.91 $14.26 $14.27

Total Return 8.34% 8.08% 28.41% 28.25% 12.61% 12.45% 15.11%(2) 15.07%(2)

Ratios/Supplementary Data
Net assets, end of period ($000) $1,550 $1,299 $1,285 $1,283 $1,377 $1,515 $641 $782
Ratio of expenses to
average net assets 2.00% 2.25% 2.00% 2.25% 1.75% 2.00% 1.75%(3) 2.00%(3)
Ratio of net investment income to
average net assets 1.20% 0.93% 1.36% 1.21% 2.03% 1.85% 2.17%(3) 1.72%(3)
Ratio of expenses to average net assets
before waiver of fees 3.80% 4.31% 4.03% 4.51% 4.37% 4.65% 22.70%(3) 13.37%(3)
Ratio of net investment income to average
net assets before waiver of fees -0.60% -1.13% (0.67%) (1.05%) (0.59%) (0.80%) (18.78%)(3) (9.55%)(3)
Portfolio turnover(1) 51.36% 51.36% 41.22% 41.22% 50.79% 50.79% 5.06% 5.06%

<FN>
* Date of commencement of operations
(1) Represents turnover rate of corresponding portfolio
(2) Not Annualized
(3) Annualized
</FN>
</TABLE>

See accompanying notes to financial statements.

The Flex-Partners Funds Annual Report * December 31, 1999 Page 42

<PAGE>

<TABLE>
FINANCIAL HIGHLIGHTS
CORE EQUITY FUND

<CAPTION>
Year ended Year ended August 1, 1997* to
December 31, 1999 December 31, 1998 December 31, 1997
CLASS A CLASS C CLASS A CLASS C CLASS A CLASS C

<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $15.32 $15.32 $12.67 $12.66 $12.50 $12.50

Income from Investment Operations:
Net investment income (0.04) (0.05) --- (0.01) 0.01 (0.01)
Net gains (losses) from investments 3.27 3.24 2.88 2.90 0.24 0.24
Total from investment operations 3.23 3.19 2.88 2.89 0.25 0.23

Less Dividends and Distributions:
From net investment income --- --- --- --- (0.01) ---
From net realized gains (0.27) (0.27) (0.23) (0.23) (0.05) (0.05)
In excess of net realized gains --- --- --- --- (0.02) (0.02)

Total distributions (0.27) (0.27) (0.23) (0.23) (0.08) (0.07)

Net Asset Value, End of Period $18.28 $18.24 $15.32 $15.32 $12.67 $12.66

Total Return 21.16% 20.90% 22.78% 22.85% 2.00%(1) 1.88%(1)

Ratios/Supplementary Data
Net assets, end of period ($000) $7,113 $5,506 $5,375 $2,466 $245 $80
Ratio of expenses to
average net assets 1.77% 1.99% 1.80% 1.97% 2.00%(2) 2.25%(2)
Ratio of net investment income to
average net assets -0.23% -0.46% 0.09% -0.11% 0.10%(2) (0.13%)(2)
Ratio of expenses to average net assets
before waiver of fees(3) 2.02% 2.55% 3.13% 3.85% 9.50%(2) 16.67%(2)
Ratio of net investment income to average
net assets before waiver of fees(#) -0.48% -1.02% -1.24% -1.99% (7.40%)(2) (14.55%)(2)
Portfolio turnover(4) 51.22% 51.22% 79.98% 79.98% 129.79% 129.79%

<FN>
* Date of commencement of operations
(1) Not Annualized
(2) Annualized
(3) Ratio includes fees waived and/or directed brokerage payments received in
corresponding portfolio
(4) Represents turnover rate of corresponding portfolio
</FN>
</TABLE>

See accompanying notes to financial statements.

The Flex-Partners Funds Annual Report * December 31, 1999 Page 43

<PAGE>

FINANCIAL HIGHLIGHTS
INTERNATIONAL EQUITY FUND

Year ended Year ended 9/2/97* to
12/31/99 12/31/98 12/31/97

Net Asset Value, Beginning of Period $14.47 $12.18 $12.50

Income from Investment Operations:
Net investment income (0.04) (0.02) (0.02)
Net gains (losses) from investments 4.31 2.43 (0.30)
Total from investment operations 4.27 2.41 (0.32)

Less Dividends and Distributions:
In excess of net investment income --- (0.04) ---
From net realized gains (1.37) (0.08) ---

Total distributions (1.37) (0.12) ---

Net Asset Value, End of Period $17.37 $14.47 $12.18

Total Return 30.07% 19.78% (2.56%)(1)

Ratios/Supplementary Data
Net assets, end of period ($000) $23,474 $18,273 $12,190
Ratio of expenses to
average net assets 2.00% 2.00% 2.00%(2)
Ratio of net investment income to
average net assets -0.28% -0.18% (0.43%)(2)
Ratio of expenses to average net assets
before waiver of fees 2.37% 2.17% 2.68%(2)
Ratio of net investment income to average
net assets before waiver of fees -0.65% -0.35% (1.11%)(2)
Portfolio turnover 72.52% 86.13% 12.71%

* Date of commencement of operations
(1) Not Annualized
(2) Annualized

See accompanying notes to financial statements.

The Flex-Partners Funds Annual Report * December 31, 1999 Page 44

<PAGE>

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1999

1. ORGANIZATION

The Flex-Partners Trust (the "Trust") was organized in 1992 and is registered
under the Investment Company Act of 1940, as amended (the "Act"), as a
diversified, open-end management investment company. The Trust offers five
series, and it is presently comprised of five separate funds as follows:
Tactical Asset Allocation Fund (formerly TAA Fund), Utility Growth Fund
(formerly BTB Fund), Core Equity Fund, International Equity Fund (each a "Fund"
and collectively the "Funds") and Institutional Fund. The financial statements
of the Institutional Fund are not in this report. Each Fund, except
International Equity Fund, invests all of its investable assets in a
corresponding open-end management investment company (each a "Portfolio" and
collectively the "Portfolios") having the same investment objective as the Fund.
Each Fund, each Portfolio into which the Fund invests and the percentage of each
Portfolio owned by the respective Fund is as follows:

Percentage of Portfolio
Owned by Fund as of

Fund Portfolio December 31, 1999

---- --------- -----------------
Tactical Asset Allocation Fund Mutual Fund Portfolio 13%
Utility Growth Fund Utilities Stock Portfolio 24%
Core Equity Fund Growth Stock Portfolio 19%

The investment objective of the International Equity Fund is to seek long-term
growth from investing primarily in equity securities of foreign issuers.

The financial statements of the Portfolios, including the Portfolios of
Investments, are included elsewhere in this report and should be read in
conjunction with the financial statements of each respective Fund. The financial
statements of the Institutional Fund are separately reported.

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.

VALUATION OF INVESTMENTS

Each Fund, except International Equity Fund, values its investment in the
corresponding Portfolio at fair value. Valuation of securities held by each
Portfolio is further described at Note 2 of the Portfolios' Notes to Financial
Statements.

Securities owned by the International Equity Fund are valued at 3:00 pm Eastern
Time based on the last sales price, or, lacking any sales, at the closing bid
prices. These prices are obtained from independent pricing services which use
valuation techniques approved by the Board of Trustees. If prices cannot be
obtained through independent pricing services, methods of valuation are used
that have been approved by the Board of Trustees.

DEFERRED TRUSTEE COMPENSATION

Under a Deferred Compensation Plan (the "Plan") non-interested Trustees may
elect to defer receipt of a portion of their annual compensation. Under the
Plan, deferred amounts are invested in the shares of the Flex-funds and
Flex-Partners Funds. Deferred amounts remain in the Funds until distributed in
accordance with the Plan.

FOREIGN CURRENCY TRANSLATION

Accounting records of the Funds are maintained in U.S. dollars. The value of
securities, other assets and liabilities of the International Equity Fund
denominated in foreign currency are translated into U.S. dollars at the current
exchange rate. Purchases and sales of securities, income receipts and expense
payments are translated into U.S. dollars at the exchange rate on the dates of
such transactions. The Funds do not isolate that portion of the results of
operations resulting from changes in foreign exchange rates from those resulting
from changes in market prices of securities held.

FORWARD CURRENCY CONTRACTS

The International Equity Fund may enter into forward foreign currency exchange
contracts ("forwards") for purposes of hedging against either specific
transactions or portfolio positions. Forwards are agreements between two parties
to exchange currencies at a set price on a future date. The market value of
forwards fluctuates with changes in currency exchange rates. The forward is

The Flex-Partners Funds Annual Report * December 31, 1999 Page 45

<PAGE>

marked-to-market daily, and the change in market value is recorded by the Fund
as unrealized appreciation or depreciation. When the forward is offset by entry
into a closing transaction or extinguished by delivery of the currency, the Fund
records a realized gain or loss equal to the fluctuation in value during the
period the forward was open. Risks may arise upon entering forwards from the
potential inability of counterparties to meet the terms of the forwards or from
unanticipated fluctuations in the value of the foreign currency relative to the
U.S. dollar.

INCOME TAXES

It is each Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute
substantially all of its investment company taxable income and net capital gains
to its shareholders. Therefore, no Federal income tax provision is required.

DISTRIBUTIONS TO SHAREHOLDERS

Dividends to shareholders are recorded on the ex-dividend date. Tactical Asset
Allocation Fund and Core Equity Fund declare dividends from net investment
income on a quarterly basis. Utility Growth Fund declares dividends from net
investment income on a monthly basis. International Equity Fund declares
dividends from net investment income on an annual basis. Each Fund distributes
net capital gains, if any, on an annual basis.

Distributions from net investment income and from net capital gains are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily due to
deferrals of certain losses, expiring capital loss carryforwards, differing
treatment of unrealized gains and losses of futures contracts held by the Fund's
corresponding Portfolio, and differing treatment of gains and losses realized in
transactions denominated in foreign currency. Accordingly, timing differences
relating to shareholder distributions are reflected in the components of net
assets and permanent book and tax differences relating to shareholder
distributions have been reclassified to capital.

ORGANIZATIONAL COSTS

The costs related to the organization of each of the four Funds have been
deferred and are being amortized by each Fund on a straight-line basis over a
five-year period.

INVESTMENT INCOME & EXPENSES

The funds record daily their proportionate share of the Portfolios' income,
expenses, and realized and unrealized gains and losses. In addition, the Funds
accrue their own expenses. Expenses incurred by the Trust that do not
specifically relate to an individual Fund of the Trust are allocated to the
Funds based on each Fund's relative net assets or other appropriate basis.
Expenses of each Fund, other than expenses incurred pursuant to the Class A and
Class C distribution and shareholder services plans, are allocated to the
separate classes based on their relative net assets or other appropriate basis.

3. AGREEMENTS AND TRANSACTIONS WITH AFFILIATES

R. Meeder & Associates (RMA), a wholly-owned subsidiary of Muirfield Investors,
Inc. (MII), provides each Portfolio with investment management, research,
statistical and advisory services. Under separate Investment Subadvisory
Agreements with RMA, Miller/Howard Investments, Inc., Sector Capital Management,
Inc., and Commercial Union Investment Management, Ltd. serve as subadviser of
the Utilities Stock Portfolio, the Growth Stock Portfolio and the International
Equity Fund, respectively. Sub-subadvisers, selected by Sector Capital
Management, Inc., subject to the review and approval of the Trustees of the
Growth Stock Portfolio, are responsible for the selection of individual
portfolio securities for the assets of the Portfolio assigned to them by Sector
Capital Management, Inc. For such services, the International Equity Fund pays
RMA monthly fees at the annual rate of 1.00% of the average daily net asset
value of the Fund.

Mutual Funds Service Co. ("MFSCo"), a wholly-owned subsidiary of MII, serves as
stock transfer, dividend disbursing and shareholder services agent for each
Fund. In compensation for such services, each Fund pays MFSCo an annual fee
equal to the greater of $15 per active shareholder account or 0.10% of the
Fund's average daily net assets. MFSCo is entitled to receive an annual minimum
fee of $4,000 for each Fund.

MFSCo provides the Trust with certain administrative services. In compensation
for such services, each Fund pays MFSCo an annual fee equal to 0.05% of each
Fund's average daily net assets.

RMA has voluntarily agreed to reimburse the Funds for the amount by which annual
expenses of each Fund including expenses allocated from its respective Portfolio
(excluding interest, taxes, brokerage fees, and extraordinary expenses) exceed
certain limitations. Such reimbursement is limited to the total of fees charged
to the Fund by RMA and MFSCo. The limitations currently in place are as follows:

The Flex-Partners Funds Annual Report * December 31, 1999 Page 46

<PAGE>

ANNUAL EXPENSE LIMITATION
AS A PERCENTAGE OF
FUND AVERAGE DAILY NET ASSETS
---- ------------------------
Tactical Asset Allocation Fund - Class A 1.75%*
Tactical Asset Allocation Fund - Class C 2.15%*
Utility Growth Fund - Class A 1.75%*
Utility Growth Fund - Class C 2.25%
Core Equity Fund - Class A 1.75%*
Core Equity Fund - Class C 2.00%*
International Equity Fund 2.00%

* Prior to May 1, 1999, the annual expense limitation had * been 2.00%, 2.10%,
2.00%, 1.80% and 1.95% of average daily * net assets of the Tactical Asset
Allocation Fund Class A and * Class C, Utility Growth Fund Class A and Core
Equity Fund * Class A and Class C, respectively.

Certain officers of the Funds and trustees of the Trust and the Portfolios are
also officers or directors of MII, RMA and MFSCo.

Pursuant to Rule 12b-1 of the Act, each Fund has adopted two Distribution Plans
(the "Plans") with Adviser Dealer Services (the "Distributor"). Under the
provisions of the Plans, each Fund pays the Distributor an annual fee, at a
maximum rate of 0.25% and 0.75% of average daily net assets of Class A shares
and Class C shares, respectively, to aid in the distribution of Fund shares.
Additionally, each Fund has adopted two Service Plans with the Distributor.
Under the provisions of the Service Plans, each Fund pays the Distributor an
annual fee, at a maximum rate of 0.25% of average daily net assets of Class A
shares and Class C shares, to reimburse securities dealers for personal services
or maintenance of shareholder accounts.

4. SECURITIES TRANSACTIONS

For the year ended December 31, 1999, the cost of purchases and proceeds from
sales or maturities of long-term investments for the International Equity Fund
were $13,730,741 and $14,232,933, respectively. The cost of investments for
federal income tax purposes and for financial reporting purposes is
substantially the same.

5. FEDERAL TAX INFORMATION (Unaudited)

During the year ended December 31, 1999, the Funds declared long-term capital
gain distributions in the following amounts:

AMOUNT
------
Tactical Asset Allocation Fund $222,706
Utility Growth Fund 462,179
Core Equity Fund 70,637
International Equity Fund 982,477

The Flex-Partners Funds Annual Report * December 31, 1999 Page 47

<PAGE>

INDEPENDENT AUDITORS' REPORT

The Shareholders and Board of Trustees
The Flex-Partners Trust

We have audited the accompanying statements of assets and liabilities of The
Flex-Partners Trust (including, respectively, the Tactical Asset Allocation
Fund, the Core Equity Fund, and Utility Growth Fund and International Equity
Fund), including the portfolio of investments for the International Equity Fund,
as of December 31, 1999, and the related statements 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 Flex-Partners Trust 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. With respect to the International Equity Fund, our procedures
included verification of securities owned as of December 31, 1999, 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 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 aforementioned funds comprising The Flex-Partners Trust at December 31,
1999, and the results of their operations, the changes in their 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 11, 2000

The Flex-Partners Funds Annual Report * December 31, 1999 Page 48

<PAGE>

STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1999

<TABLE>
<CAPTION>
MUTUAL UTILITIES GROWTH
FUND STOCK STOCK
PORTFOLIO PORTFOLIO PORTFOLIO

<S> <C> <C> <C>
Assets:
Investments, at market value* $169,532,821 $18,635,935 $61,277,810
Repurchase agreements, at cost* 8,976,000 --- 4,037,000
Trustee deferred compensation investments, 67,016 11,882 25,599
at market value
Cash 699 --- 556
Receivable for securities sold --- 695,684 ---
Receivable for net variation margin on futures --- --- 8,500
contracts
Receivable from corresponding Fund --- --- ---
Interest and dividend receivable 168,932 45,025 43,604
Prepaid/Other assets 667 1,954 630

Total Assets 178,746,135 19,390,480 65,393,699

Liabilities:
Payable for securities purchased --- --- 64,139
Payable for Trustee Deferred Compensation Plan 67,016 11,882 25,599
Payable to custodian for cash overdraft --- 1,292,032 ---
Payable to investment adviser 110,669 17,541 51,743
Accrued audit fees 12,952 13,984 14,813
Accrued custodian fees 2,531 958 8,237
Accrued trustee fees 4,988 --- 6,307
Accrued fund accounting fees 4,737 2,198 3,690
Other accrued liabilities 2,148 792 1,699

Total Liabilities 205,041 1,339,387 176,227

Net Assets $178,541,094 $18,051,093 $65,217,472

Net Assets:
Capital 161,236,113 15,979,753 48,528,287
Net unrealized appreciation (depreciation) of 17,304,981 2,071,340 16,689,185
investments

Net Assets $178,541,094 $18,051,093 $65,217,472

*Securities at cost $161,203,840 $16,564,595 $48,634,125
</TABLE>

See accompanying notes to financial statements

The Flex-Partners Funds Annual Report * December 31, 1999 Page 49

<PAGE>

STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999

MUTUAL UTILITIES GROWTH
FUND STOCK STOCK
PORTFOLIO PORTFOLIO PORTFOLIO

NET INVESTMENT INCOME
Interest $3,795,724 $32,181 $285,463
Dividends 197,740 459,721 627,091

Total Investment Income 3,993,464 491,902 912,554

Expenses:
Investment advisory fees 1,214,387 149,369 570,139
Accounting fees 52,656 19,937 40,870
Trustees fees and expenses 47,730 8,682 27,375
Audit fees 12,967 13,999 14,827
Custodian fees 12,095 3,310 27,806
Other expenses 8,715 6,292 6,868
Legal fees 448 372 971
Insurance 193 85 109

Total Expenses 1,349,191 202,046 688,965

Investment advisory fees waived --- --- ---
Directed brokerage payments received --- --- (6,058)

Total Net Expenses 1,349,191 202,046 682,907

NET INVESTMENT INCOME 2,644,273 289,856 229,647

REALIZED AND UNREALIZED GAIN (LOSS)
FROM INVESTMENTS:
Net realized gain (loss) from futures (5,791,888) --- 245,618
contracts
Net realized gain (loss) from investments 33,288,636 3,637,703 5,094,690
Net change in unrealized appreciation
(depreciation) of investments (5,909,917) (1,322,044) 6,025,737

NET GAIN (LOSS) ON INVESTMENTS 21,586,831 2,315,659 11,366,045

NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $24,231,104 $2,605,515 $11,595,692

See accompanying notes to financial statements

The Flex-Partners Funds Annual Report * December 31, 1999 Page 50

<PAGE>

STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
MUTUAL UTILITIES GROWTH
FUND STOCK STOCK
PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:

OPERATIONS:
Net investment income $2,644,273 $289,856 $229,647
Net realized gain (loss) from investments
and futures contracts 27,496,748 3,637,703 5,340,308
Net change in unrealized appreciation
(depreciation) of investments (5,909,917) (1,322,044) 6,025,737
Net increase in net assets
resulting from operations 24,231,104 2,605,515 11,595,692

TRANSACTIONS OF INVESTORS' BENEFICIAL INTERESTS:
Contributions 67,402,736 11,399,891 105,405,498
Withdrawals (53,900,433) (9,173,858) (102,951,461)
Net increase in net assets resulting from
transactions of investors' beneficial interests 13,502,303 2,226,033 2,454,037

TOTAL INCREASE IN NET ASSETS 37,733,407 4,831,548 14,049,729

NET ASSETS - Beginning of period 140,807,687 13,219,545 51,167,743

NET ASSETS - End of period $178,541,094 $18,051,093 $65,217,472
</TABLE>

STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
MUTUAL UTILITIES GROWTH
FUND STOCK STOCK
PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:

OPERATIONS:
Net investment income $2,040,969 $218,745 $335,278
Net realized gain (loss) from investments
and futures contracts 8,222,183 (364,390) 4,583,800
Net change in unrealized appreciation
(depreciation) of investments 23,909,375 1,126,399 4,790,713
Net increase in net assets
resulting from operations 34,172,527 980,754 9,709,791

TRANSACTIONS OF INVESTORS' BENEFICIAL INTERESTS:
Contributions 21,876,913 6,977,776 74,136,798
Withdrawals (59,774,446) (5,408,703) (66,072,809)
Net increase (decrease) in net assets
resulting from transactions of investors'
beneficial interests (37,897,533) 1,569,073 8,063,989

TOTAL INCREASE (DECREASE) IN NET ASSETS (3,725,006) 2,549,827 17,773,780

NET ASSETS - Beginning of period 144,532,693 10,669,718 33,393,963

NET ASSETS - End of period $140,807,687 $13,219,545 $51,167,743
</TABLE>

See accompanying notes to financial statements

The Flex-Partners Funds Annual Report * December 31, 1999 Page 51

<PAGE>

FINANCIAL HIGHLIGHTS

<TABLE>
MUTUAL FUND PORTFOLIO

<CAPTION>
Year Ended December 31,
1999 1998 1997 1996 1995

<S> <C> <C> <C> <C> <C>
Net Assets, End of Period ($000) $178,541 $140,808 $144,533 $135,540 $122,109
Ratio of Expenses to Average Net Assets 0.86% 0.91% 0.89% 0.87% 0.95%
Ratio of Net Investment Income to
Average Net Assets 1.69% 1.56% 2.08% 1.86% 1.26%
Portfolio Turnover Rate 787.66% 128.31% 395.42% 297.41% 186.13%
</TABLE>

<TABLE>
UTILITIES STOCK PORTFOLIO

<CAPTION>
Period from
Year Ended December 31, June 21, 1995* to
1999 1998 1997 1996 December 31, 1995

<S> <C> <C> <C> <C> <C>
Net Assets, End of Period ($000) $18,051 $13,220 $10,670 $7,964 $4,291
Ratio of Expenses to Average Net Assets 1.35% 1.44% 1.60% 1.61% 2.32%(1)
Ratio of Net Investment Income to
Average Net Assets 1.94% 1.73% 1.79% 2.24% 2.09%(1)
Ratio of Expenses to Average Net Assets
before directed brokerage payments 1.35% 1.46% 1.65% 1.66% 2.40%(1)
Ratio of Net Investment Income to Average Net
Assets before directed brokerage payments 1.94% 1.71% 1.74% 2.19% 2.01%(1)
Portfolio Turnover Rate 69.20% 51.36% 41.22% 50.79% 5.06%

<FN>
(1) Annualized
* Date of commencement of operations
</FN>
</TABLE>

<TABLE>
GROWTH STOCK PORTFOLIO

<CAPTION>
Year Ended December 31,
1999 1998 1997 1996 1995

<S> <C> <C> <C> <C> <C>
Net Assets, End of Period ($000) $65,217 $51,168 $33,394 $24,414 $24,537
Ratio of Expenses to Average Net Assets 1.15% 1.25% 1.34% 1.24% 1.25%
Ratio of Net Investment Income to
Average Net Assets 0.39% 0.77% 0.83% 2.33% 3.78%
Ratio of Expenses to Average Net Assets
before waiver of fees 1.16% 1.26% 1.34% 1.24% 1.25%
Ratio of Net Investment Income to Average
Net Assets before waiver of fees 0.38% 0.76% 0.83% 2.33% 3.78%
Portfolio Turnover Rate 51.22% 79.98% 129.79% 81.66% 337.57%
</TABLE>

See accompanying notes to financial statements

The Flex-Partners Funds Annual Report * December 31, 1999 Page 52

<PAGE>

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999

1. ORGANIZATION

Each Fund of The Flex-Partners Trust (the "Trust") invests all of its investable
assets in a corresponding open-end management investment company (each a
"Portfolio" and collectively the "Portfolios") having the same investment
objective as the Fund. Each Portfolio is registered under the Investment Company
Act of 1940, as amended (the "Act"), as a no-load, open-end management
investment company which was organized as a trust under the laws of the State of
New York. Each Declaration of Trust permits the Trustees, who are the same for
each Portfolio, to issue beneficial interests in each Portfolio.

The investment objective of each Portfolio is as follows:

The Mutual Fund Portfolio seeks growth of capital through investment in the
shares of other mutual funds.

The Utilities Stock Portfolio seeks a high level of current income and
growth of income by investing primarily in equity securities of domestic
and foreign public utility companies; however, it will not invest in
electric utilities whose generation of power is derived from nuclear
reactors. The Portfolio also seeks capital appreciation, but only when
consistent with its primary investment objective.

The Growth Stock Portfolio seeks capital growth by investing in a
diversified portfolio of domestic common stocks with greater than average
growth characteristics selected primarily from the Standard & Poor's 500
Composite Stock Price Index (the "S&P 500").

The financial statements of the Funds are included elsewhere in this report.

2. SIGNIFICANT ACCOUNTING POLICIES

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. Securities traded
over-the-counter are valued at the most recent bid price or yield equivalent as
obtained from one or more dealers that make markets in such securities. Mutual
funds are valued at the daily redemption value as reported by the underlying
fund. The Portfolios obtain prices from independent pricing services which use
valuation techniques approved by the Board of Trustees.

Money market securities held in the Portfolios 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 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

Each Portfolio may engage in repurchase agreement transactions whereby the
Portfolio takes possession of an underlying debt instrument subject to an
obligation of the seller to repurchase the instrument from the Portfolio and an
obligation of the Portfolio to resell the instrument at an agreed upon price and
term. At all times, the Portfolio 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 Portfolios may be delayed or
limited.

DEFERRED TRUSTEE COMPENSATION

Under a Deferred Compensation Plan (the "Plan") non-interested Trustees may
elect to defer receipt of a portion of their annual compensation. Under the
Plan, deferred amounts are invested in the shares of the Flex-funds and
Flex-Partners Funds. Deferred amounts remain in the Portfolios until distributed
in accordance with the Plan.

The Flex-Partners Funds Annual Report * December 31, 1999 Page 53

<PAGE>

FUTURES & OPTIONS

Each Portfolio may engage in transactions in financial futures contracts and
options contracts in order to manage the risk of unanticipated changes in market
values of securities held in the portfolio, or which it intends to purchase. The
expectation is that any gain or loss on such transactions will be substantially
offset by any gain or loss on the securities in the underlying portfolio or on
those which are being considered for purchase.

To the extent that the Portfolio enters into futures contracts on an index or
group of securities the Portfolio exposes itself to an indeterminate liability
and will be required to pay or receive a sum of money measured by the change in
the market value of the index. Upon entering into a futures contract the
Portfolio is required to deposit an initial margin, which is either cash or
securities in an amount equal to a certain percentage of the contract value.
Subsequently, the variation margin, which is equal to changes in the daily
settlement price or last sale price on the exchanges where they trade, is
received or paid. The Portfolios record realized gains or losses for the daily
variation margin when they are recorded as gains or losses from futures
contracts.

Call and put option contracts involve the payment of a premium for the right to
purchase or sell an individual security or index aggregate at a specified price
until the expiration of the contract. Such transactions expose the Portfolio to
the loss of the premium paid if the Portfolio does not sell or exercise the
contract prior to the expiration date. In the case of a call option, sufficient
cash or money market instruments will be segregated to complete the purchase.
Options are valued on the basis of the daily settlement price or last sale on
the exchanges where they trade and the changes in value are recorded as an
unrealized appreciation or depreciation until closed, exercised or expired.

The Portfolios may write covered call or put options for which premiums received
are recorded as liabilities and are subsequently adjusted to current market
value of the options written. When written options are closed or exercised,
premiums received are offset against the proceeds paid, and the Portfolio
records realized gains or losses for the difference. When written options
expire, the liability is eliminated, and the Portfolio records realized gains
for the entire amount of premiums received.

During the year ended December 31, 1999, the Portfolios had the following
activity in futures contracts:

LONG CONTRACTS

Number of contracts Notional amount
MUTUAL FUND PORTFOLIO:
Outstanding, beginning of year 20 $6,274,000
Contracts opened 1,052 23,319,887
Contracts closed (1,072) (29,593,887)
Outstanding, end of year --- $---

GROWTH STOCK PORTFOLIO:
Outstanding, beginning of year 7 $2,055,875
Contracts opened 324 107,321,562
Contracts closed (321) (105,766,937)
Outstanding, end of year 10 $3,610,500

LETTER OF CREDIT

Each Portfolio has pledged as collateral a U.S. Government security, cash or
other high-grade debt security solely for the benefit of ICI Mutual Insurance
Co. for the Portfolios' fidelity bond coverage.

INCOME TAXES

The Portfolios will be treated as a partnership for Federal income tax purposes.
As such, each investor in the Portfolios will be subject to taxation on its
share of the Portfolios' ordinary income and capital gains. It is each
Portfolio's policy to comply with the requirements of the Internal Revenue Code
applicable to it. Therefore, no Federal income tax provision is required.

SECURITIES TRANSACTIONS

The Portfolios record security transactions on the trade date. Gains and losses
realized from the sale of securities are determined on the specific
identification basis. Dividend income is recognized on the ex-dividend date, and
interest income (including amortization of premium and accretion of discount) is
recognized as earned.

The Flex-Partners Funds Annual Report * December 31, 1999 Page 54

<PAGE>

3. AGREEMENTS AND TRANSACTIONS WITH AFFILIATES

R. Meeder & Associates (RMA), a wholly-owned subsidiary of Muirfield Investors,
Inc. (MII), provides each Portfolio with investment management, research,
statistical and advisory services. Under separate Investment Subadvisory
Agreements with RMA, Miller/Howard Investments, Inc. and Sector Capital
Management, Inc. serve as subadvisor of the Utilities Stock Portfolio and Growth
Stock Portfolio, respectively. Sub-subadvisers, selected by Sector Capital
Management, Inc., subject to the review and approval of the Trustees of the
Growth Stock Portfolio, are responsible for the selection of individual
portfolio securities for the assets of the Portfolio assigned to them by Sector
Capital Management, Inc.

For such services the Portfolios pay monthly fees based upon the average daily
value of each Portfolio's net assets at the following annual rate: 1.00% of
average daily net assets up to $50 million, 0.75% of average daily net assets
exceeding $50 million up to $100 million and 0.60% of average daily net assets
exceeding $100 million. As subadviser to the Utilities Stock Portfolio,
Miller/Howard Investments, Inc. is paid 0.00% of the 1.00% of average daily net
assets up to $10 million, 0.40% of the 1.00% of average daily net assets
exceeding $10 million up to $50 million, 0.40% of the 0.75% of average daily net
assets net assets exceeding $50 million up to $60 million, 0.30% of the 0.75% of
average daily net assets exceeding $60 million up to $100 million and 0.25% of
the 0.60% of average daily net assets exceeding $100 million. As subadviser to
the Growth Stock Portfolio, Sector Capital Management, Inc. is paid 0.30% of the
1.00% of average daily net assets up to $25 million, 0.70% of the 1.00% of
average daily net assets exceeding $25 million up to $50 million, 0.40% of the
0.75% of average daily net assets exceeding $50 million up to $100 million and
0.35% of the 0.60% of average daily net assets exceeding $100 million. Sector
Capital Management, Inc. pays all sub-subadvisers 0.25% on all average net
assets.

Mutual Funds Service Co. ("MFSCo"), a wholly-owned subsidiary of MII, serves as
accounting services agent for each Portfolio. In compensation for such services,
each Portfolio pays MFSCo an annual fee equal to the greater of:

a. 0.15% of the first $10 million of average daily net assets, 0.10% of the
next $20 million of average daily net assets, 0.02% of the next $50 million
of average daily net assets, and 0.01% in excess of $80 million of average
daily net assets,

b. $7,500.

Certain officers and trustees of the Portfolios are also officers or directors
of MII, RMA and MFSCo.

4. SECURITIES TRANSACTIONS

For the year ended December 31, 1999, the cost of purchases and proceeds from
sales or maturities of long-term investments for the Portfolios were as follows:

PORTFOLIO PURCHASES SALES
--------- --------- -----
Mutual Fund Portfolio $673,341,588 $671,730,867
Utilities Stock Portfolio 12,829,792 9,928,610
Growth Stock Portfolio 28,470,710 27,440,601

As of December 31, 1999, the aggregate cost basis of investments and unrealized
appreciation (depreciation) for Federal income tax purposes was as follows:

COST BASIS UNREALIZED UNREALIZED NET UNREALIZED
PORTFOLIO OF INVESTMENTS APPRECIATION DEPRECIATION APPRECIATION
--------- -------------- ------------ ------------ -------------
Mutual Fund Portfolio $161,988,907 $17,305,018 ($785,104) $16,519,914
Utilities Stock Portfolio 16,742,303 3,217,376 (1,323,744) 1,893,632
Growth Stock Portfolio 48,859,539 19,887,220 (3,423,449) 16,463,771

The Flex-Partners Funds Annual Report * December 31, 1999 Page 55

<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Shareholders and Board of Trustees of the Mutual Fund Portfolio,
Utilities Stock Portfolio and Growth Stock Portfolio

We have audited the accompanying statements of assets and liabilities of the
Mutual Fund Portfolio, Utilities Stock Portfolio and Growth Stock Portfolio
(Portfolios), including the portfolios of investments, as of December 31, 1999,
and the related statements 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
Portfolios' 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, 1999, by confirmation with the custodian and brokers 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 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
Mutual Fund Portfolio, Utilities Stock Portfolio and Growth Stock Portfolio at
December 31, 1999, and the results of their operations, the changes in their 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 11, 2000

<PAGE>

PART C: OTHER INFORMATION

Item 23. EXHIBITS:

(a) Articles of Incorporation 1/
(1) Amendment to Articles of Incorporation dated January 12, 1999 2/
(b) By-laws 2/
(c) Instruments Defining Rights of Security Holders
(1) Articles of Incorporation 1/
(2) Bylaws 2/
(d) Advisory Agreement (filed herewith)
(1) Growth Stock Portfolio
(2) Utilities Stock Portfolio
(e) Underwriting Agreement (to be filed by amendment)
(f) Bonus or Profit Sharing Contracts - none
(g) Custodian Agreement (filed herewith)
(1) Growth Stock Portfolio
(2) Utilities Stock Portfolio
(h) Other Material Contracts
(1) Fund Accounting Services Agreement (to be filed by amendment)
(2) Transfer Agency and Service Agreement (to be filed by amendment)
(3) Administration Agreement (to be filed by amendment)
(i) Legal Opinion (to be filed by amendment)
(j) Other Opinions
(1) Accountants' Consent - (to be filed by amendment)
(k) Omitted Financial Statements - none
(l) Initial Capital Agreement 2/
(m) 12b-1 Plans for Class A Shares and 12b-1 and Service Plans for Class C
Shares of the Core Equity Fund and Utility Fund (to be filed by
amendment)
(n) Multiple Class Plans Pursuant to Rule 18f-3 for the Core Equity Fund
and Utility Fund (to be filed by amendment)
(p) Code of Ethics
(1) Growth Stock Portfolio and Utilities Stock Portfolio (filed
herewith)
(2) Meeder Financial, Inc. (filed herewith)
(3) Morgan Keegan & Company, Inc. (to be filed by amendment)

1/ Incorporated by reference to the Registration Statement on Form N-1A,
SEC File No. 333-66181, filed on October 27, 1998.

2/ Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A filed on January 21, 1999.

Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

None.

Item 25. INDEMNIFICATION

Section Eleventh of the Articles of Incorporation of the Corporation
states:

Section 11.1. To the maximum extent permitted by applicable law
(including Maryland law and the 1940 Act) as currently in effect or as

<PAGE>

it may hereafter be amended, no director or officer of the Corporation
shall be liable to the Corporation or its stockholders for money
damages.

Section 11.3. Repeal or Modifications. No repeal or modification of
this Article ELEVENTH by the stockholders of the Corporation, or
adoption or modification of any other provision of the Articles of
Incorporation or By-Laws inconsistent with this Article ELEVENTH,
shall repeal or narrow any limitation on (1) the liability of any
director, officer or employee of the Corporation or (2) right of
indemnification available to any person covered by these provisions
with respect to any act or omission which occurred prior to such
repeal, modification or adoption.

Section 10.01 of the Bylaws of the Corporation states:

The Corporation shall indemnify each person who was or is a party or
is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (the "Proceeding"), by reason of the
fact that he or she is or was a director, officer or employee of the
Corporation, or is or was serving at the request of the Corporation as
a director, officer, employee, partner, trustee or agent of another
corporation, partnership, joint venture, trust, or other enterprise,
against all reasonable expenses (including attorneys' fees) actually
incurred, and judgments, fines, penalties and amounts paid in
settlement in connection with such Proceeding to the maximum extent
permitted by law, now existing or hereafter adopted.

Paragraph 4 of the Advisory Agreement between the Portfolios and R.
Meeder & Associates, Inc. states:

(4) The Adviser shall not be liable for any error of judgment or
mistake of law or for any loss suffered by the Fund in connection with
the matters to which this Agreement relates (including, but not
limited to, loss sustained by reason of the adoption or implementation
of any investment policy or the purchase, sale or retention of any
security), except for loss resulting from willful misfeasance, bad
faith or gross negligence of the Adviser in the performance of its
duties or from reckless disregard by the Adviser of its obligations
and duties under this Agreement.

Paragraphs 7 and 8 of the Underwriting Agreement between the
Corporation and Morgan Keegan & Company, Inc. state:

7. The Fund agrees to indemnify, defend and hold the Distributor, its
several officers and directors, and any person who controls the
Distributor within the meaning of Section 15 of the 1933 Act, free and
harmless from and against any and all claims, demands, liabilities and
expenses (including the cost of investigating or defending such
claims, demands or liabilities and any counsel fees incurred in

<PAGE>

connection therewith) which the Distributor, its officers or
directors, or any such controlling person may incur, under the 1933
Act or under common law or otherwise, arising out of or based upon any
alleged untrue statement of a material fact contained in the
Registration Statement or arising out of or based upon any alleged
omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided,
however, that the Fund shall not indemnify or defend such persons or
hold them harmless with respect to any claims, demands, or liabilities
based on information provided to the Fund by the Distributor; and
provided further that this indemnification provision shall not inure
to the benefit of any person who is an officer or director of the Fund
or who controls the Fund within the meaning of Section 15 of the 1933
Act, as amended, unless a court of competent jurisdiction shall
determine, or it shall have been determined by controlling precedent,
that such result would not be against public policy as expressed in
the 1933 Act, as amended, and further provided that in no event shall
anything contained in this Agreement be construed so as to protect the
Distributor against any liability to the Fund or its shareholders to
which the Distributor would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of its
duties, or by reason of its reckless disregard of its obligations and
duties under this Agreement.

8. The Distributor agrees to indemnify, defend and hold the Fund, its
several officers and directors, and any person who controls the Fund
within the meaning of Section 15 of the 1933 Act, free and harmless
from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands
or liabilities and any counsel fees incurred in connection therewith)
which the Fund, its officers or directors, or any such controlling
person may incur, under the 1933 Act or under common law or otherwise,
arising out of or based upon any alleged untrue statement of a
material fact contained in information furnished in writing by the
Distributor to the Fund for use in the Registration Statement or
arising out of or based upon any alleged omission by the Distributor
to state a material fact in connection with such information required
to be stated in the Registration Statement or necessary to make such
information not misleading.

Item 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER

Not applicable.

Item 27. PRINCIPAL UNDERWRITER

(a) Bedford Money Market Fund
Morgan Keegan Southern Capital Fund, Inc.

(b) Morgan Keegan & Company, Inc.

<PAGE>

Name and Positions and Positions and
Principal Business Offices With Offices With
ADDRESS UNDERWRITER REGISTRANT
--------- ------------------ ----------
(Principal Business Address,
unless otherwise noted, is:
Morgan Keegan Tower
Fifty Front Street
Memphis, Tennessee 38103)

Allen B. Morgan, Jr. Chairman and Director,
Chief Executive President
Officer, Executive
Managing Director

Joseph C. Weller Chief Financial Vice President,
Officer, Executive Treasurer and
Managing Director, Asst. Secretary
Executive Vice President,
Secretary and Treasurer

John W. Stokes, Jr. Vice Chairman, None
Executive Managing
Director

Robert A. Baird Executive None
Managing Director

Douglas Edwards Executive Managing None
Director

James H. Ganier Executive Managing None
Director

Stephen P. Laffey Executive Managing None
Director

Thomas V. Orr Executive Managing None
Director

James A. Parish, Jr. Executive Managing None
Director

Allen B. Adler Managing Director None

Franklin P. Allen, III Managing Director None

<PAGE>

George E. Arras, Jr. Managing Director None

James M. Augustine Managing Director None

Joseph K. Ayers Managing Director None

Rodney D. Baber, Jr. Managing Director None

George E. Bagwell Managing Director None

Woodley H. Bagwell Managing Director None

Charles E. Bailey Managing Director None

Milton A. Barber Managing Director None

Joseph C. Barkley Managing Director None

Reginald E. Barnes Managing Director None

Glen E. Bascom Managing Director None

W. Preston Battle Managing Director None

Robert C. Berry Managing Director None

Cristan K. Blackman Managing Director None

John D. Brewer Managing Director None

Paul S. Burd Managing Director None

John B. Carr, Jr. Managing Director None

John C. Carson, Jr. Managing Director None

Ted H. Cashion Managing Director None

Marshall A. Clark Managing Director None

William F. Clay Managing Director None

Robert E. Cope Managing Director None

Mark W. Crowl Managing Director None

<PAGE>

Harold L. Deaton Managing Director None

William W. Deupree, Jr. Managing Director None

Robert H. Dudley, Jr. Managing Director None

Richard H. Eckels Managing Director None

Richard S. Ferguson Managing Director None

Robert M. Fockler Managing Director None

Wilmer J. Freiberg Managing Director None

Graham D.S. Fulton Managing Director None

John H. Geary Managing Director None

Robert D. Gooch, Jr. Managing Director None

James F. Gould Managing Director None

Terry C. Graves Managing Director None

John H. Grayson, Jr. Managing Director None

Gary W. Guinn Managing Director None

David M. Guthrie Managing Director None

Jan L. Gwin Managing Director None

Thomas M. Hahn Managing Director None

Thomas V. Harkins Managing Director None

Michael J. Harris Managing Director None

Haywood Henderson Managing Director None

Roderick E. Hennek Managing Director None

Edwin L. Hoopes, III Managing Director None

William F. Hughes, Jr. Managing Director Director

<PAGE>

Joe R. Jennings Managing Director None

Robert Jetmundsen Managing Director None

Ram P. Kasargod Managing Director None

Peter R. Klyce Managing Director None

Peter Stephen Knoop Managing Director None

W. Lawrence M. Knox, Jr. Managing Director None

E. Carl Krausnick, Jr. Managing Director None

James R. Ladyman Managing Director None

A. Welling LaGrone, Jr. Managing Director None

Benton G. Landers Managing Director None

William M. Lellyett, Jr. Managing Director None

W. G. Logan, Jr. Managing Director None

Wiley H. Malden Managing Director None

John Henry Martin Managing Director None

William D. Mathis, III Managing Director None

John Fox Matthews Managing Director None

Francis J. Maus Managing Director None

Charles D. Maxwell Managing Director Secretary and
Asst. Treasurer

John Welsh Mayer Managing Director None

W. Neal McAtee Managing Director None

Harris L. McCraw III Managing Director None

Edward S. Michelson Managing Director None

G. Rolfe Miller Managing Director None

<PAGE>

Gary C. Mills Managing Director None

David Montague Managing Director None

Robert M. Montague Managing Director None

K. Brooks Monypeny Managing Director None

John G. Moss Managing Director None

Lewis A. Moyse Managing Director None

William G. Mueller Managing Director None

Mortimer S. Neblett Managing Director None

Philip G. Nichols Managing Director None

Michael O'Keefe Managing Director None

Jack A. Paratore Managing Director None

William T. Patterson Managing Director None

J. Christopher Perkins Managing Director None

Minor Perkins Managing Director None

Logan B. Phillips, Jr. Managing Director None

L. Jack Powell Managing Director None

S. Mark Powell Managing Director None

Richard L. Preis Managing Director None

C. David Ramsey Managing Director None

Hedi H. Reynolds Managing Director None

Donna L. Richardson Managing Director None

R. Michael Ricketts Managing Director None

Thomas E. Robinson, Sr. Managing Director None

<PAGE>

Darien M. Roche Managing Director None

Kenneth L. Rowland Managing Director None

W. Wendell Sanders Managing Director None

E. Elkan Scheidt Managing Director None

Ronald J. Schuberth Managing Director None

Lynn T. Shaw Managing Director None

Fred B. Smith Managing Director None

Richard J. Smith Managing Director None

Robert L. Snider Managing Director None

John B. Snowden, IV Managing Director None

Thomas A. Snyder Managing Director None

Rick A. Spell Managing Director None

John W. Stokes, III Managing Director None

John Burke Strange Managing Director None

James M. Tait, III Managing Director None

J. Crosby Taylor, Jr. Managing Director None

Phillip C. Taylor Managing Director None

John D. Threadgill Managing Director None

P. Gibbs Vestal Managing Director None

Edmund J. Wall Managing Director None

W. Charles Warner Managing Director None

Richard E. Watson Managing Director None

Craig T. Weichmann Managing Director None

<PAGE>

John S. Wilson Managing Director None

J. William Wyker III Managing Director None

John J. Zollinger, III Managing Director None

Item 28. LOCATION OF ACCOUNTS AND RECORDS

The books and other documents required by paragraphs (b)(4), (c) and
(d) of Rule 31a-1 under the Investment Company Act of 1940 are
maintained in the physical possession of the Portfolios' adviser,
Meeder Asset Management, Inc., formerly known as R. Meeder &
Associates, Inc., at 6000 Memorial Drive, Dublin, OH 43017. All other
accounts, books and other documents required by Rule 31a-1 are
maintained in the physical possession of Registrant's transfer agent,
Morgan Keegan & Co., Morgan Keegan Tower, Fifty Front Street, Memphis,
Tennessee 38103. Certain custodial records are in the custody of
Firstar Bank, N.A., the Funds' custodian, at 425 Walnut Street,
Cincinnati, Ohio 45202. All other records are kept in the custody of
Mutual Funds Service Co., 6000 Memorial Drive, Dublin, OH 43017.

Item 29. MANAGEMENT SERVICES

Not applicable

Item 30. UNDERTAKINGS

Registrant undertakes to call a meeting of shareholders for the
purpose of voting upon the question of removal of one or more
directors, if requested to do so by the holders of at least 10% of the
Registrant's outstanding shares, and will assist communications among
shareholders as set forth within Section 16(c) of the 1940 Act.

Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, Morgan Keegan Select Fund, Inc.,
has duly caused this Post-Effective Amendment No. 2 to its Registration
Statement on Form N-1A to be signed on its behalf by the undersigned, duly
authorized, in the City of Memphis, and the State of Tennessee, on the 25th day
of May, 2000.

MORGAN KEEGAN SELECT FUND, INC.

By:/S/ WILLIAM F. HUGHES, JR.
--------------------------
William F. Hughes, Jr., Director

Pursuant to the requirements of the Securities Act, this Post-Effective
Amendment No. 2 to the Registration Statement on Form N-1A has been signed below
by the following persons in the capacities and on the dates indicated.

SIGNATURE TITLE DATE
--------- ----- ----

/S/ ALLEN B. MORGAN, JR. Director and President May 25, 2000
------------------------------- (Chief Executive Officer)
Allen B. Morgan, Jr.

/S/ JOSEPH C. WELLER Vice President and May 25, 2000
------------------------------- Treasurer (Chief
Joseph C. Weller Financial Officer)

Director
-------------------------------
James D. Witherington, Jr.

/S/ WILLIAM F. HUGHES, JR. Director May 25, 2000
-------------------------------
William F. Hughes, Jr.

/S/ WILLIAM JEFFERIES MANN Director May 25, 2000
-------------------------------
William Jefferies Mann

Director
-------------------------------
James Stillman R. McFadden

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Utilities Stock Portfolio, has duly caused
this Post-Effective Amendment No. 2 to Morgan Keegan Select Fund, Inc.'s
Registration Statement to be signed on its behalf by the undersigned, duly
authorized, in the City of Dublin, and the State of Ohio, on the 31st day of
May, 2000.

UTILITIES STOCK PORTFOLIO

By: /S/ WESLEY F. HOAG
------------------------------
Wesley F. Hoag

Pursuant to requirements of the Securities Act, this Post-Effective
Amendment No. 2 to the Registration Statement on Form N-1A has been signed below
by the following persons in the capacities and on the dates indicated.

SIGNATURE TITLE DATE
--------- ----- ----

ROBERT S. MEEDER, SR.* President and Trustee May 31, 2000
-----------------------------
Robert S. Meeder, Sr.

MILTON S. BARTHOLOMEW* Trustee May 31, 2000
-----------------------------
Milton S. Bartholomew

ROGER D. BLACKWELL* Trustee May 31, 2000
-----------------------------
Roger D. Blackwell

JAMES W. DIDION* Trustee May 31, 2000
-----------------------------
James W. Didion

CHARLES A. DONABEDIAN* Trustee May 31, 2000
-----------------------------
Charles A. Donabedian

THOMAS E. LINE* Principal Financial Officer,
----------------------------- Principal Accounting
Thomas E. Line Officer and Treasurer May 31, 2000

ROBERT S. MEEDER, JR.* Vice President and Trustee May 31, 2000
-----------------------------
Robert S. Meeder, Jr.

JACK W. NICKLAUS II* Trustee May 31, 2000
-----------------------------
Jack W. Nicklaus II

WALTER L. OGLE* Trustee May 31, 2000
-----------------------------
Walter L. Ogle

PHILIP A. VOELKER* Vice President and Trustee May 31, 2000
-----------------------------
Philip A. Voelker

*By: /S/ WESLEY F. HOAG
----------------------------------
Wesley F. Hoag
Executed by Wesley F. Hoag on behalf
of those indicated pursuant to Powers of Attorney

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Growth Stock Portfolio, has duly caused this
Post-Effective Amendment No. 2 to Morgan Keegan Select Fund, Inc.'s Registration
Statement to be signed on its behalf by the undersigned, duly authorized, in the
City of Dublin, and the State of Ohio, on the 31st day of May, 2000.

GROWTH STOCK PORTFOLIO

By: /S/ WESLEY F. HOAG
-------------------------------
Wesley F. Hoag