<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 34
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 34
The Flex-funds
(Exact Name of Registrant as Specified in Charter)
P.O. Box 7177, 6000 Memorial Drive, Dublin, Ohio 43017
(Address of Principal Executive Offices-Zip Code)
Registrant's Telephone Number, including Area Code: (614)766-7000
Commission File No. 2-85378
Commission File No. 811-3462
Donald F. Meeder, Secretary - R. Meeder & Associates, Inc.
P.O. Box 7177, 6000 Memorial Drive, Dublin, Ohio 43017
(Name and Address of Agent for Service)
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
It is proposed that this filing will become effective (check appropriate
box).
/XXX/ 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 (date) pursuant to paragraph (a)(1).
/ / 75 days after filing pursuant to paragraph (a)(2).
/ / on (date) 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.
Indefinite number of shares registered under Rule 24f-2 by filing of a
Pre-Effective Amendment No. 1, effective July 28, 1983. The 24(f)-2 Notice for
the fiscal year ended December 31, 1994, was filed with the Commission on
February 22, 1995.
The Growth Stock, Mutual Fund and Utilities Stock Portfolios have also executed
this Registration Statement.
<PAGE> 2
THE FLEX-FUNDS
CROSS REFERENCE SHEET TO FORM N-1A
FOR THE MUIRFIELD FUND
Part A.
Item No. Prospectus Caption
1 Cover Page
2 Highlights
Synopsis of Financial Information
3 Financial Highlights
4 The Trust and its Management
Investment Objectives and Policies
Additional Investment Policies
5 The Trust and its Management
5(a) Performance Comparison
6(a) Other Information - Shares of Beneficial Interest
6(b) Not applicable
6(c) Other Information - Shares of Beneficial Interest
6(d) Not applicable
6(e) Highlights
6(f)(g) Income Dividends and Taxes
6(h) Cover Page
Other Information - Investment Structure
7(a) Not applicable
7(b) How Net Asset Value is Determined
7(c) Exchange Privilege
Flex-funds Retirement Plans
Other Shareholder Services
7(d) How to Buy Shares
7(e)(f) Distribution Plan
8(a) How to Make Withdrawals (Redemptions)
8(b) Not applicable
8(c) Shareholder Accounts
8(d) How to Make Withdrawals (Redemptions)
9 Not applicable
<PAGE> 3
Prospectus dated November 10, 1995
THE FLEX-FUNDS
THE MUIRFIELD FUND
Investment Adviser/R. Meeder & Associates
[LOGO]
[GRAPHIC]
The Flex-Funds 800-325-FLEX
6000 Memorial Drive 614-766-7000
Dublin, OH 43017
THE FLEX-FUNDS ARE A FAMILY OF MUTUAL FUNDS ORGANIZED AS A BUSINESS TRUST
(THE "TRUST") CONSISTING OF SIX SEPARATE PORTFOLIOS (THE "FUNDS"), EACH OF WHICH
HAS SEPARATE INVESTMENT OBJECTIVES AND POLICIES. THE MUIRFIELD FUND'S OBJECTIVE
IS GROWTH OF CAPITAL THROUGH INVESTMENT IN THE SHARES OF OTHER MUTUAL FUNDS. THE
TRUST SEEKS TO ACHIEVE THE INVESTMENT OBJECTIVE OF THE MUIRFIELD FUND (THE
"FUND") BY INVESTING ALL OF THE INVESTABLE ASSETS OF THE FUND IN THE MUTUAL FUND
PORTFOLIO (THE "PORTFOLIO"), A CORRESPONDING OPEN-END MANAGEMENT INVESTMENT
COMPANY HAVING THE SAME INVESTMENT OBJECTIVE AS THE FUND. ACCORDINGLY, INVESTORS
SHOULD CAREFULLY CONSIDER THIS INVESTMENT APPROACH. FOR ADDITIONAL INFORMATION
REGARDING THIS UNIQUE CONCEPT, SEE "INVESTMENT OBJECTIVES AND POLICIES" ON PAGE
5 AND "OTHER INFORMATION-SHARES OF BENEFICIAL INTEREST AND INVESTMENT STRUCTURE"
ON PAGES 9 AND 10.
The Portfolio places a high degree of importance on maintaining and
protecting portfolio values from adverse market conditions. Consequently, the
Portfolio employs flexible investment strategies.
There are no commissions, fees or charges for the purchase or redemption of
shares, although the Trust has adopted a Rule 12b-1 distribution plan for using
as much as 2/10 of 1% of the Fund's average net assets annually to aid in the
distribution of shares.
FLEXIBLE INVESTMENT STRATEGIES
The Mutual Fund Portfolio may be invested defensively, for temporary
periods, if the Portfolio's investment adviser deems it advisable because of
adverse market conditions. A defensive position will be adopted in a manner
which the investment adviser considers to be most consistent with the
Portfolio's objective, policies and restrictions.
This Prospectus sets forth basic information about the Trust and The
Muirfield Fund that a prospective
THESE SECURITIES HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
investor should know before investing and it should be retained for future
reference. A STATEMENT OF ADDITIONAL INFORMATION, dated November 10, 1995, has
been filed with the Securities and Exchange Commission and is incorporated
herein by reference. The Statement of Additional Information is available upon
request and without charge by contacting the Trust at the address given above or
by calling: 1-800-325-FLEX, or (614) 766-7000.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Highlights 2
Synopsis of Financial Information 3
Financial Highlights 4
Performance Comparison 4
Investment Objectives and Policies 5
Additional Investment Policies 5
The Trust and Its Management 7
Distribution Plan 8
Income Dividends and Taxes 9
How Net Asset Value is Determined 9
Other Information 9
SHAREHOLDER MANUAL
How to Buy Shares 12
How to Make Withdrawals (Redemptions) 13
Exchange Privilege 13
Flex-funds Retirement Plans 14
Other Shareholder Services 14
Shareholder Accounts 15
</TABLE>
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The Muirfield Fund Prospectus
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HIGHLIGHTS
INVESTMENT OBJECTIVE
The Muirfield Fund's investment objective is growth of capital through
investment in the shares of other mutual funds. The Trust seeks to achieve the
Fund's objective by investing all of the investable assets of the Fund in a
corresponding open-end management investment company (the "Portfolio") having
the same investment objective as the Fund. See "Investment Objectives and
Policies" page 5.
LIQUIDITY
The Trust is an open-end investment company. The Muirfield Fund
continuously offers and redeems shares of beneficial interest at the next
determined net asset value per share. See "How to Buy Shares" page 12 and "How
to Make Withdrawals (Redemption)" page 13.
NO SALES OR REDEMPTION CHARGES
There are no commissions, fees or charges for the purchase or redemption of
shares. See "Synopsis of Financial Information" page 3, "How to Buy Shares" page
12 and "How to Make Withdrawals (Redemptions)" page 13.
RETIREMENT PLANS AND OTHER SHAREHOLDER SERVICES
The Trust offers retirement plans, which include a prototype Profit Sharing
Plan, Money Purchase Pension Plan, Salary Savings Plan 401(k), Individual
Retirement Account (IRA), Simplified Employee Pension (SEP), and a number of
other special shareholder services.
MINIMUM INVESTMENT
A minimum investment of $2,500 is required to open an account, except an
IRA account, for which the minimum is $500. Subsequent investments must be at
least $100. The Trust has the right to redeem the shares in an account and pay
the proceeds to the shareholder if the value of the account drops below $1,000
because of shareholder redemptions. The shareholder will be given 30 days'
written notice and an opportunity to restore his account to $1,000 ($500 for an
IRA). See "How to Buy Shares" page 12, "Other Shareholder Services" page 14 and
"Shareholder Accounts" page 15.
INVESTMENT ADVISER AND MANAGER
R. Meeder & Associates, Inc. is the Portfolio's Investment Adviser and
Manager (the "Investment Adviser" or the "Manager"). The Manager has been an
investment adviser to individuals, retirement plans, corporations and
foundations since 1974. See "The Trust and Its Management" page 7.
DISTRIBUTION PLAN
The Muirfield Fund has adopted a Rule 12b-1 distribution plan for using as
much as 2/10 of 1% of the Fund's average net assets annually to aid in the
distribution of shares. See "Distribution Plan" page 8.
HOW TO BUY SHARES
Complete the New Account Application and forward with payment as directed.
Orders accompanied by payment (ordinary check, bank check, bank wire, and money
order) are accepted immediately and priced at the next determined net asset
value per share after receipt of the order. See "How to Buy Shares" page 12 and
"How Net Asset Value is Determined" page 9.
SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to the Fund by writing or
telephoning the Fund at the address or telephone number indicated on the cover
page of this Prospectus. To protect the confidentiality of shareholder accounts,
information relating to a specific account will be disclosed pursuant to a
telephone inquiry if the shareholder identifies the account by account number or
by the taxpayer identification number listed on the account.
FOR MORE INFORMATION ABOUT SPECIFIC SHAREHOLDER ISSUES, PLEASE SEE THE
SHAREHOLDER MANUAL THAT BEGINS ON PAGE 12.
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The Muirfield Fund Prospectus
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SYNOPSIS OF FINANCIAL INFORMATION
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES THE MUIRFIELD FUND
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<S> <C>
Maximum Sale Load Imposed on Purchases none
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Maximum Sales Load Imposed on Reinvested Dividends none
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Deferred Sales Load none
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Redemption Fees none
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Exchange Fee none
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</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
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<S> <C>
Management Fees 0.90%
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Distribution Plan (12b-1 Fees)** 0.11%
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Other Expenses 0.21%
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TOTAL FUND OPERATING EXPENSES* 1.22%
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</TABLE>
EXAMPLE
An investor would pay the following expense on a $1,000 investment,
assuming (1) a 5% annual return and (2) redemption at the end of each time
period.
<TABLE>
<CAPTION>
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
The Muirfield Fund $12 $39 $67 $148
</TABLE>
*Expenses used in these illustrations are based upon expenses actually
incurred for both The Muirfield Fund and its corresponding Portfolio, the Mutual
Fund Portfolio, for the year ended December 31, 1994.
**Distribution Plan Expense: The Fund is party to agreements whereby
consultant companies or individuals (including two Trustees of the Portfolio),
are paid for explaining the Fund, its investment objectives and policies, and
the Trust's retirement plans, to clients. Other distribution plan expense
includes: the expense of printing and mailing prospectuses, periodic reports and
other sales materials to prospective investors; advertising; payment for
marketing programs and the services of public relations consultants; and the
cost of special telephone service to encourage the sale of Trust shares. (See
"Distribution Plan.")
The table on this page is meant to assist an investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. The Trust does not impose a sales charge, exchange fee or redemption
fee with the following exceptions. The custodian of IRA accounts charges a $5.00
annual maintenance fee and the transfer agent charges IRA accounts a $7.00 fee
if the account is totally liquidated. For more complete descriptions of the
various costs and expenses of the Trust see "The Trust and Its Management" and
"Distribution Plan."
The Board of Trustees of the Trust 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. For additional information concerning
expenses incurred by the Fund and the Portfolio, see "The Trust and Its
Management" herein, and "Investment Adviser and Manager" in the Statement of
Additional Information.
The table and hypothetical example above are for illustrative purposes
only. The investment rate of return and expenses should not be considered as
representations of past or future performance as actual rates of return and
expenses may be more or less than the rate and amounts shown.
PERFORMANCE INFORMATION
From time to time the Fund may publish performance information and may
include such information in advertisements, sales literature or shareholder
reports. It will do so in accordance with methods which are described in the
Statement of Additional Information.
"Total return" quotations for The Muirfield Fund will be expressed in terms
of average annual compounded rates of return for the periods quoted, and will
assume that all dividends and distributions were reinvested in additional
shares. When applicable, the periods of time shown will be for a one-year
period; a five-year period and since inception.
Comparative performance information may be used from time to time in
advertising or marketing information relative to the Fund, including data from
Lipper Analytical Services, Inc., Morningstar Mutual Fund Report and other
publications.
The total return figure included in advertisements, sales literature or
shareholder reports will be based on historical performance and is not intended
to indicate future performance.
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The Muirfield Fund Prospectus
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FINANCIAL HIGHLIGHTS
The financial highlights for The Muirfield Fund are listed below. This
information has been audited in conjunction with the annual audit of the
financial statements of The Muirfield Fund and its corresponding Portfolio by
KPMG Peat Marwick LLP, independent certified public accountants, for the periods
ended December 31, 1988 through 1994.
<TABLE>
<CAPTION>
THE MUIRFIELD FUND 1994 1993 1992 1991 1990 1989 1988*
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<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 5.36 $ 6.25 $ 6.43 $ 5.22 $ 5.84 $ 5.31 $ 5.00
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INCOME FROM INVESTMENT OPERATIONS
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Net investment income (loss) 0.14 (0.01) 0.06 0.07 0.22 0.10 0.08
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Net Gains or (Losses) on Securities
(both realized and unrealized) 0.00 0.45 0.34 1.41 (0.10) 0.62 0.23
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Total From Investment Operations 0.14 0.44 0.40 1.48 0.12 0.72 0.31
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LESS DISTRIBUTIONS
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Dividends (from net investment income) (0.14) (0.02) (0.06) (0.27) (0.10) (0.08) --
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Distributions (from capital gains) (0.02) (1.31) (0.52) -- (0.64) (0.11) --
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TOTAL DISTRIBUTIONS (0.16) (1.33) (0.58) (0.27) (0.74) (0.19) --
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NET ASSET VALUE, END OF PERIOD $ 5.34 $ 5.36 $ 6.25 $ 6.43 $ 5.22 $ 5.84 $ 5.31
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TOTAL RETURN 2.70% 8.11% 6.91% 29.83% 2.33% 13.95% 6.20%
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RATIOS/SUPPLEMENTAL DATA
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Net Assets, End of Priod ($000) 83,199 73,063 55,280 43,276 29,482 26,031 24,589
- -------------------------------------------------------------------------------------------------------------------------
Ratio of Expenses to Average Net Assets 1.22% 1.26% 1.40% 1.50% 1.52% 1.53% 1.42%+
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Ratio of Net Investment Income (Loss)
to Average Net Assets 2.55% (0.13%) 1.05% 1.25% 4.46% 1.65% 5.02%+
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Portfolio Turnover Rate N/A N/A 324% 107% 649% 202% 63%
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</TABLE>
*For the period August 10, 1988 to December 31, 1988.
(1) See "Synopsis of Financial Information" for explanation of adviser's waiver
of fees.
+Annualized
Financial Statements and Notes pertaining thereto appear in the Statement of
Additional Information dated November 10, 1995.
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PERFORMANCE COMPARISON
[THE MUIRFIELD FUND VS. THE S&P 500 INDEX CHART]
THE MUIRFIELD FUND
The Muirfield Fund provided more than twice the gains of the stock market
during 1994. As of December 31, 1994, the S&P 500 Index provided a total return
of 1.31% while The Muirfield Fund offered shareholders a total return of 2.70%.
This was due to the fact that The Murifield Fund was Defensively invested from
March 1994 through the end of the year based on the Manager's evaluation that
the level of risk present in the stock market out-weighed the potential rewards.
The graph depicting the growth of $10,000 and the average annual total
returns for The Muirfield Fund are representative of past performance and are
not intended to indicate future performance.
*The returns of the S&P 500 Index are from the beginning or end of the
month nearest the Fund's inception to the end of the calendar year.
Page 4
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The Muirfield Fund Prospectus
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INVESTMENT OBJECTIVES AND POLICIES
The Muirfield Fund and the Mutual Fund Portfolio have their own separate
investment objectives and policies, as set forth below. These investment
objectives and policies, which are identical, are not fundamental and may be
changed by their respective Trustees without approval of the Fund's
shareholders, or approval of the Portfolio's investors. No such change would be
made in the Fund, or Portfolio, without 30 days written notice to shareholders.
The Trust seeks to achieve the Fund's investment objective by investing all of
its investable assets in the Portfolio. For more information concerning the
investment structure of the Fund which invests its assets in a corresponding
Portfolio, see "Other Information--Investment Structure."
Since the investment characteristics of the Fund will correspond directly
to those of the Portfolio, the following is a discussion of the various
investments of and techniques employed by the Portfolio. Additional information
about the investment policies of the Portfolio appears in the Statement of
Additional Information. There can be no assurance that the investment objectives
of the Fund and the Portfolio will be achieved.
The investment objective of the Portfolio is growth of capital. The
Portfolio will seek to attain its investment objective through investment in the
shares of open-end investment companies--commonly called mutual funds. The
underlying mutual funds will consist of diversified mutual funds which invest
primarily in common stock or securities convertible into or exchangeable for
common stock (such as convertible preferred stock, convertible debentures or
warrants) and which seek long-term growth or appreciation, with current income
typically of secondary importance. Underlying funds may include funds which
concentrate investments in a particular industry sector, or which leverage their
investments. The Portfolio will not invest in other Funds of the Flex-funds
family of Funds or the Flex-Partners family of funds, the corresponding
portfolios of which are also managed by the Investment Adviser.
The Portfolio will generally purchase "no-load" mutual funds, which are
sold and purchased without a sales charge. However, the Portfolio may purchase
"load" mutual funds only if the load, or sales commission, is by previous
agreement waived for purchases or sales made by the Portfolio.
The Portfolio may at times desire to gain exposure to the stock market
through the purchase of "Index" funds (funds which purchase stocks represented
in popular stock market averages) with a portion of its assets. "Index" funds
may be purchased with a portion of the Portfolio's assets at times when the
Investment Adviser's selection process identifies the characteristics of a
particular index to be more favorable than those of other mutual funds available
for purchase. If, in the Investment Adviser's opinion, the Portfolio should have
exposure to certain stock indices and the Portfolio can efficiently and
effectively implement such a strategy by directly purchasing the common stocks
of a desired index for the Portfolio itself, it may do so.
An investor in the Portfolio should recognize that he may invest directly
in mutual funds and that by investment in mutual funds indirectly through the
Portfolio, he will bear not only his proportionate share of the expenses of the
Portfolio (including operating costs and investment advisory and administrative
fees) but also indirectly similar expenses of the underlying mutual funds.
See the Trust's Statement of Additional Information for other details.
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ADDITIONAL INVESTMENT POLICIES
MONEY MARKET INSTRUMENTS AND BONDS
When investing in money market instruments or bonds, the Portfolio will
limit its purchases, to the following securities:
- U. S. Government Securities and Securities of its Agencies and
Instrumentalities.
- Bank Obligations and Instruments Secured Thereby.
- High Quality Commercial Paper -- The Mutual Fund 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 out- standing debt issue rated
at least A by Standard & Poor's or Moody's.
- Private Placement Commercial Paper -- unregistered securities which are
traded in public markets to qualified institutional investors, such as
the Portfolio.
- High Grade Corporate Obligations -- obligations rated at least A by
Standard & Poor's or Moody's.
- Repurchase Agreements Pertaining to the Above -- The Portfolio may
invest without limit in any of the above securities subject to
repurchase agreements with any Federal Reserve reporting dealer or
member bank of the Federal Reserve System. Repurchase agreements
usually are for short periods, such as one week or less, but could be
longer. The
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The Muirfield Fund Prospectus
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Portfolio will not invest more than 10% of its assets, at time of
purchase, in repurchase agreements which mature in excess of seven days
or in other illiquid or not readily marketable securities.
Hedging Strategies
The Portfolio may engage in hedging transactions in carrying out its
investment policies. A hedging program may be implemented for the following
reasons: (1) To protect the value of specific securities owned or intended to be
purchased while the Investment Adviser is implementing a change in the
Portfolio's investment position; (2) To protect portfolio values during periods
of extraordinary risk without incurring transaction costs associated with buying
or selling actual securities; and (3) To utilize the "designated hedge"
provisions of Sub-Chapter M of the Internal Revenue Code as a permitted means of
avoiding taxes that would otherwise have to be paid on gains from the sale of
portfolio securities.
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.
Derivatives are financial instruments whose performance is derived, at
least in part, from the performance of an underlying asset, security or index.
Accordingly, these 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. They do not necessarily increase
risk, and may in fact reduce risk.
The Portfolio will not engage in transactions in financial futures
contracts or related options for speculation but only as a hedge against changes
in the market value of securities held in the Portfolio, or which it intends to
purchase, and where the transactions are economically appropriate to the
reduction of risks inherent in the ongoing management of the Portfolio.
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
Flex-funds. 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
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 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 guaranty that the
Portfolio will be able to realize this objective and, as noted below under "Risk
Factors", there are some risks in utilizing a hedging strategy.
RISK FACTORS
The Mutual Fund Portfolio will be invested in securities which fluctuate in
market value, so net asset value per share will fluctuate as well. The Mutual
Fund Portfolio is by definition a non-diversified fund. It may have more than
five percent of its assets invested in one fund. If the underlying fund performs
poorly, this could negatively impact the value of the Portfolio. Thus, there is
no guarantee that a shareholder will receive the full amount of his investment
upon the redemption of shares. The Portfolio does, however, seek to minimize the
risk of loss through a selection of diversified funds and, at times, the use of
hedging techniques and defensive investment strategies. Hedging involves risks
which are not present in some other mutual funds with similar objectives (See
"Hedging Strategies.")
Put and call option contracts involve some risk. For example, the total
premium paid for an option contract could be lost if the Portfolio does not sell
the contract or exercise the contract prior to its expiration date.
Futures contracts likewise involve some risk. It is possible that the
contract(s) selected by the Investment Adviser will not follow exactly the price
movement of the securities covered by the contract. If this occurs, the
objective of the hedging strategy may not be successful.
Although the Portfolio will invest in a number of underlying mutual funds,
this practice will not elimi-
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The Muirfield Fund Prospectus
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nate investment risk. To the extent that the Mutual Fund Portfolio invests in
underlying funds which leverage investments or concentrate investments in one
industry, an investment in the Portfolio will indirectly entail the additional
risks associated with these practices. Leveraged mutual funds may have higher
volatility than the over-all market or other mutual funds. This may result in
greater gains or losses than the over-all market or other non-leveraged mutual
funds. Mutual funds which concentrate investments in a single industry lack
normal diversification and are exposed to losses stemming from negative
industry-wide developments.
The Portfolio may invest in private placement commercial paper and
repurchase agreements with banks and securities brokers.
All repurchase agreements entered into by the Portfolio will be fully
collateralized. The Portfolio's risk is that the seller may fail to repurchase
the security on the delivery date. If the seller defaults, the underlying
security constitutes collateral for the seller's obligation to pay. It is a
policy of the Portfolio to make settlement on repurchase agreements only upon
proper delivery of the underlying collateral. In the event of a bankruptcy or
other default of a seller of a repurchase agreement to the Portfolio, the
Portfolio could encounter delays and expenses in enforcing its rights and could
experience losses, including a decline in the value of the underlying securities
and loss of income.
Private placement commercial paper ("Rule 144A securities") 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.
PORTFOLIO TURNOVER
Because the Manager intends to employ flexible defensive investment
strategies when market trends are not considered favorable, the Manager 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. However, viewed in terms of
"round trips," The Mutual Fund Portfolio completed three-quarters of a "round
trip" in the stock market during the year ended Decemer 31, 1994.
The Portfolio's annual portfolio turnover rate is not expected to exceed
300%.
The Portfolio intends to comply with the short-term trading restrictions of
Subchapter M of the Internal Revenue Code of 1986, as amended, although these
restrictions could inhibit a rapid change in the Portfolio's investments. The
Portfolio will strive for a positive investment return each calendar year.
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THE TRUST AND ITS MANAGEMENT
The Trust is an open-end management investment company organized as a
Massachusetts Business Trust on December 31, 1991 as the successor to a
Pennsylvania Business Trust organized on April 30, 1982. Five of the Trust's six
constituent funds are diversified open-end management companies. The Fund is a
non-diversified open-end management company. The Trust's offices are at 6000
Memorial Drive, Dublin, OH 43017. The business and affairs of the Trust are
under the direction of its Board of Trustees.
Neither the Trust nor the Fund has an investment adviser because the Trust
seeks to achieve the investment objective of the Fund by investing its assets in
the Portfolio. The Portfolio has retained the services of R. Meeder &
Associates, Inc. as investment adviser.
R. Meeder & Associates, Inc. (the "Manager"), has been an investment
adviser to individuals and retirement plans since 1974. The Manager served as
the Fund's investment adviser from its inception in 1988 until January of 1993,
at which time the investment by the Fund in the Portfolio was implemented. The
Manager serves the Portfolio pursuant to an Investment Advisory Contract under
the terms of which it has agreed to provide an investment program within the
limitations of the Portfolio's investment policies and restrictions, and to
furnish all executive, administrative, and clerical services required for the
transaction of Portfolio business, other than accounting services and services
which are provided by the Portfolio's custodian, transfer agent, independent
accountants and legal counsel.
The Manager was incorporated in Ohio in 1974 and maintains its principal
offices at 6000 Memorial Drive, Dublin, OH 43017. The Manager is a wholly-owned
subsidiary of Muirfield Investors, Inc. ("MII"). MII is controlled by Robert S.
Meeder, Sr. through ownership of voting common stock. MII conducts business only
through its five subsidiaries which are the Manager; Mutual Funds Service Co.,
the Trust's transfer agent; Opportunities Management Co., a venture capital
investor; Meeder Advisory Services, Inc., a registered investment adviser and
OMCO, Inc., a registered commodity trading adviser and commodity pool operator.
The Manager's officers and directors, their principal offices are as
follows: Robert S. Meeder, Sr., Chairman and Sole Director; Robert S. Meeder,
Jr., President; G. Robert Kincheloe, Senior Vice President; Philip A. Voelker,
Senior Vice President; Donald F. Meeder, Vice President and Secretary; Sherrie
L.
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Acock, Vice President; Robert D. Baker, Vice President, Wesley F. Hoag, General
Counsel and Chief Operating Officer; and Steven T. McCabe, Vice President.
Robert S. Meeder, Jr. is the portfolio manager primarily responsible for
the day-to-day management of the Mutual Fund Portfolio. Mr. Meeder is a Trustee
and Vice President of The Flex-funds, Vice President of the Mutual Fund
Portfolio and President of R. Meeder & Associates, Inc. Mr. Meeder has been
associated with the Manager since 1983 and has managed the Portfolio since 1988.
The Manager earns an annual fee, payable in monthly installments, for the
Portfolio 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. These fees are higher than the fees charged to most other investment
companies.
Accounting, stock transfer, dividend disbursing, and shareholder services
are provided to the Portfolio and the Fund by Mutual Funds Service Co., 6000
Memorial Drive, Dublin, Ohio 43017, a wholly-owned subsidiary of MII. The
minimum annual fee, payable monthly, for accounting services in the Portfolio is
$7,500. Subject to the applicable minimum fee, the fee 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. In addition, the Fund incurs (subject to a $4,000 annual minimum
fee) an annual fee of the greater of $15 per shareholder account or 0.10% of the
Fund's average net assets, payable monthly, for stock transfer, dividend
disbursing and shareholder support services. Mutual Funds Service Co. also
serves as Administrator to the Fund pursuant to an Administration Services
Agreement which was effective February 1, 1995. 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 Trustees and shareholders, registration statements and other
necessary documents. The Fund incurs an annual fee, payable monthly, of .03% of
the Fund's average net assets. These fees are reviewable annually by the
respective Trustees of the Trust and the Portfolio. For the year ended December
31, 1994, total payments to Mutual Funds Service Co. amounted to $78,085 for the
Fund and Portfolio collectively.
Pursuant to a Subadministrative Services Agreement with Mutual Funds
Service Co., Signature Broker-Dealer Services, Inc. ("Signature"), as
Subadministrator, is responsible for conducting certain day-to-day
administration of the Funds subject to the supervision and direction of Mutual
Funds Service Co.
Information concerning the Trustees and officers of both the Trust and the
Portfolio appears in the Statement of Additional Information dated November 10,
1995.
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DISTRIBUTION PLAN
The Trust has adopted a distribution expense plan (the "Plan") which
authorizes The Muirfield Fund to bear a portion of the expense of any activity
which is primarily intended to result in the sale of Fund shares. This Plan
permits, among other things, payment for distribution in the form of commissions
and fees, advertising, the services of public relations consultants, and direct
solicitation. Possible recipients include securities brokers, attorneys,
accountants, investment advisers, investment performance consultants, pension
actuaries, banks, and service organizations, all of them being hereafter
referred to as "Consultants."
The Trust may expend in the Fund as much as, but not more than, 2/10 of 1%
of its average net assets annually pursuant to the Plan. The Fund does not make
Plan payments with respect to any of the other Funds of the Trust, nor are any
of its Plan payments made by any of the other Funds.
The Plan was approved by the Board of Trustees, who made a determination
that there is a reasonable likelihood that the Plan will benefit the Trust.
The Trust has entered into agreements whereby Consultants (including two
Trustees of the Portfolios) are paid for their assistance in explaining and
interpreting the Trust, its investment objectives and policies, and its
retirement plans to their clients. Under these agreements, Consultants are paid
quarterly compensation by the Trust on the average value of Muirfield Fund
shares held by their clients. Although the compensation is thus seen to be
continuing, the Trust retains the right to terminate any Consultant's agreement
on 60 days' notice, without further obligation beyond the date of termination.
Although the objective of the Trust is to pay Consultants for a portion of
the expenses they incur and to provide them with some incentive to be of
assistance to the Trust and its shareholders, no effort has been made to
determine the actual expenses incurred by Consultants. If any Consultant's
expenses are in excess of what the Trust pays, such excess will not be paid by
the Trust. Conversely, if the Consultant's expenses are less than what the Trust
pays, the Consultant is not obligated to refund the excess, and this excess
could represent a profit for the Consultant. The Securities and Exchange
Commission is presently reviewing the legality of certain arrangements by
investment companies, such as the Trust, which compensate Consultants with a
fixed percentage of assets.
Total payments made in The Muirfield Fund under the Distribution Plan for
the period ended December 31, 1994, as a percentage of average net assets,
amounted to 0.11%. (See "Synopsis of Financial Information.")
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INCOME DIVIDENDS AND TAXES
It is the policy of the Trust to distribute substantially all of its net
income. The Fund's net income consists of the income it earns from its
investment in the Mutual Fund Portfolio, less expenses. The Fund also intends to
distribute its net capital gains, if any, to its shareholders annually.
The Muirfield Fund declares and pays dividends from net investment income,
if any, on a quarterly basis. All such dividends of net income are automatically
reinvested in additional shares at the net asset value on the last business day
of each month. A shareholder may elect to receive such dividends in cash either
by checking the appropriate box on the New Account Application, or by notifying
the Trust in writing.
The Internal Revenue Code of 1986 imposes on the Fund a nondeductible
excise tax unless the Fund distributes annually at least 98% of its net
investment income earned during the calendar year, at least 98% of capital gain
net income realized in the 12 months preceding November 10, and any
undistributed balances from the previous year. In addition, the Tax Reform Act
of 1986 (the "Tax Act") provides that any dividend declared by a Fund in
October, November, or December and paid in January will be deemed to have been
paid by the Fund and to have been received by each shareholder in December.
Distribution dates and the amounts paid, if any, are subject to determination by
the Board of Trustees.
Dividends and capital gains distributions are ordinarily taxable to
shareholders in the year distributed. However, under the Tax Act, the Fund is
permitted to make distributions up to February 1 and have them apply to the
previous tax year. The Muirfield Fund expects to make such a distribution in
future years.
A shareholder is taxed on capital gains and income realized by the Fund,
regardless of the length of time he has been a shareholder. Thus a shareholder
may receive capital gains distributions shortly after purchasing shares, and
this will reduce the market value of the shares by the amount of the
distribution. The shareholder will not be able to recognize the resultant loss
in value for tax purposes until the shares are sold at a later date. In the case
of some mutual funds this effect can be substantial. In the case of The
Muirfield Fund, which frequently liquidates its portfolio for defensive
purposes and therefore tends not to realize large capital gains accumulated over
a long period of time, the effect is not expected to be substantial.
Dividends and capital gains distributions are taxable to the shareholder
whether received in cash or reinvested in additional shares. Shareholders not
otherwise subject to tax on their income will not be required to pay tax on
amounts distributed to them. Each shareholder will receive a statement annually
informing him of the amount of the income and capital gains which have been
distributed during the calendar year.
The Trust files federal income tax returns for each of its Funds. Each Fund
is treated as a separate entity for federal income tax purposes. The Fund also
intends to comply with Subchapter M of the Internal Revenue Code, which imposes
such restrictions as (1) appropriate diversification of its portfolio of
investments; (2) realization of 90% of its annual gross income from dividends,
interest, and gains from the sale of securities and (3) realization of less than
30% of gross income from gains on the sale of securities held less than three
months. The Fund might deviate from this policy, and incur a tax liability, if
this were necessary to fully protect shareholder values. The Trust qualified as
a "regulated investment company" for each of the last twelve fiscal years.
The foregoing discussion of taxes is limited to federal income taxes.
Distributions, whether in cash or in kind may be subject to state and local
taxes. Shareholders are urged to consult their tax advisers regarding specific
questions relating to federal, state, and local taxes.
The Fund is required to withhold and remit to the federal government 31% of
any reportable payments (which may include dividends, capital gains
distributions, if any, and redemptions) paid to certain shareholders. In order
to avoid this withholding requirement, each shareholder must certify on the New
Account Application that the social security or taxpayer identification number
is correct and that the shareholder is not currently subject to backup
withholding or is exempt from backup withholding.
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HOW NET ASSET VALUE IS DETERMINED
Net asset value per share is determined at each closing of the New York
Stock Exchange each day the Exchange is open for business and each other day
during which there is a sufficient degree of trading that the current net asset
value of a Fund's shares might be materially affected by changes in the value of
the securities held by the Portfolio. Net asset value is obtained by dividing
the value of the Fund's assets (i.e., the value of its investment in the
Portfolio and other assets), less its liabilities, by the total number of its
shares of beneficial interest outstanding at the time.
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OTHER INFORMATION
SHARES OF BENEFICIAL INTEREST
The Trust's Declaration of Trust permits the Trust to offer and sell an
unlimited number of full and fractional shares of beneficial interest with a par
value of $.10 per share. Shares are fully paid, nonassessable and fully
transferable when issued. All shares are issued as full or fractional shares.
A fraction of a share has the same rights and privileges as a full share.
Each Fund of the Trust will issue
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its own series of shares of beneficial interest. The shares of each Fund
represent an interest only in that Fund's assets (and profits or losses) and in
the event of liquidation, each share of a particular Fund would have the same
rights to dividends and assets as every other share of that Fund.
Each full or fractional share has a proportionate vote. On some issues,
such as the election of Trustees, all shares of the Trust vote together as one
series. On an issue affecting a particular Fund, only its shares vote as a
separate series. An example of such an issue would be a fundamental investment
restriction pertaining to only one Fund. In voting on a Distribution Plan,
approval of the Plan by the shareholders of a particular Fund would make the
Plan effective as to that Fund, whether or not it had been approved by the
shareholders of the other Funds.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
When matters are submitted for shareholder vote, shareholders of each Fund
will have one vote for each full share held and proportionate, fractional votes
for fractional shares held. A separate vote of a Fund is required on any matter
affecting the Fund on which shareholders are entitled to vote. Shareholders of
one Fund are not entitled to vote on a matter that does not affect that Fund but
that does require a separate vote of any other Fund. There normally will be no
meetings of shareholders for the purpose of electing Trustees unless and until
such time as less than a majority of Trustees holding office have been elected
by shareholders, at which time the Trustees then in office will call a
shareholders' meeting for the election of Trustees. Any Trustee may be removed
from office upon the vote of shareholders holding at least two-thirds of the
Trust's outstanding shares at a meeting called for that purpose. The Trustees
are required to call such a meeting upon the written request of shareholders
holding at least 10% of the Trust's outstanding shares. Shareholders have under
certain circumstances (e.g., upon application and submission of certain
specified documents to the Trustees of the Trust by a specified number of
shareholders) the right to communicate with other shareholders in connection
with requesting a meeting of shareholders for the purpose of removing one or
more Trustees.
The Portfolio, in which all the assets of a corresponding Fund will be
invested, 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 that 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 that the Portfolio itself was unable to
meet its obligations. Accordingly, the Trustees of the Trust believe 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 Trust is
requested to vote on matters pertaining to the fundamental policies of the
Portfolio, the Trust will hold a meeting of the corresponding Fund's
shareholders and will cast its vote as instructed by the Fund's 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 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 institutional 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. Information concerning other
holders of interests in the Portfolio is available by contacting the Trust by
calling: 1-800-325-FLEX, or (614) 766-7000.
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 which 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 Trust is requested to vote on matters pertaining to the
Portfolio, the Trust 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 Trust 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 distri-
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bution 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 of any Fund from the Portfolio at any
time, if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trustees
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 the Fund or the retaining of an investment adviser to
manage the Fund's assets in accordance with the investment policies with respect
to the Fund's 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 "Investment Objectives and Policies", the Fund's investment
objectives and policies are not fundamental and may be changed by Trustees
without shareholder approval. (No such change would be made, however, without 30
days' written notice to shareholders.)
For descriptions of the investment objectives and policies of the
Portfolio, see "Investment Objectives and Policies" and "Additional Investment
Policies." For descriptions of the management and expenses of the Portfolio, see
"The Trust and Its Management" herein, and "Investment Adviser and Manager" and
"Officers and Trustees" in the Statement of Additional Information.
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SHAREHOLDER MANUAL
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HOW TO BUY SHARES
Shares are offered continuously and sold without a direct sales charge,
although the Trust does pay some consultants for services in explaining the
Funds, their investment policies and restrictions, and retirement plans to their
clients. (See "Distribution Plan" and "Synopsis of Financial Information.")
Shares of The Muirfield Fund are sold at the net asset value per share next
determined after receipt of both a purchase order and payment. (See "How Net
Asset Value is Determined.") Net asset value generally changes each day.
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MINIMUM INVESTMENT
The minimum investment to open an account is $2,500 except an Individual
Retirement Account (IRA) which has a $500 minimum. Subsequent investments in any
account may be made in amounts of at least $100.
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OPENING AN ACCOUNT
You may open an account by mail or bank wire as follows:
BY MAIL
To purchase shares, fill out the New Account Application accompanying this
Prospectus. A check payable to The Muirfield Fund must accompany the New Account
Application and should be mailed to the following address:
THE FLEX-FUNDS
C/O R. MEEDER & ASSOCIATES, INC.
P.O. BOX 7177
DUBLIN, OHIO 43017
BY BANK WIRE
If the wire order is for a new account in the Trust, you must telephone the
Fund prior to making your initial investment. Call 1-800-325-FLEX, or (614)
766-7000. Advise the Fund of the amount you wish to invest and obtain an account
number and instructions. Have your bank wire federal funds to:
STAR BANK, N.A. CINTI/TRUST
(ABA #: 042-00001-3)
ATTENTION: THE FLEX-FUNDS MUIRFIELD FUND
Credit Account Number 930-5731
ACCOUNT NAME (your name)
YOUR MUIRFIELD FUND ACCOUNT NUMBER
On new accounts, a completed application must be sent to The Flex-funds c/o
R. Meeder & Associates, Inc., P.O. Box 7177, Dublin, OH 43017 on the same day
your wire is sent. The Trust will not permit redemptions until it receives the
New Account Application in good order.
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SUBSEQUENT INVESTMENTS
Subsequent investments in an existing account in the Fund may be made by
mailing a check payable to The Muirfield Fund (please include your account
number on the check) and mail as follows:
THE FLEX-FUNDS
LOCATION NUMBER: 00215
CINCINNATI, OH 45264-0215
Subsequent investments may also be made by bank wire as described above. It
is necessary to notify the Fund prior to each wire purchase. Wires sent without
notifying the Fund will result in a delay of the effective date of your
purchase.
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AUTOMATIC ACCOUNT BUILDER
Periodic investments in an existing account can be made by selecting this
option. (See "Other Shareholder Services.")
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When Purchases Are Effective
Shares of The Muirfield Fund are sold at net asset value per share next
determined after receipt of both a purchase order and payment.
If a shareholder's check is dishonored, the purchase and any dividends paid
thereon, if any, will be reversed. If shares are purchased with federal funds,
they may be redeemed at any time thereafter and the shareholder may secure his
funds as explained below. (See "How to Make Withdrawals (Redemptions).")
However, if shares are purchased by check(s) or the Automatic Account Builder,
Mutual Funds Service Co. will delay payment of redemption proceeds until the
check used to purchase shares, or Automatic Account Builder order, has cleared
which could be fifteen (15) calendar days or more subsequent to the purchase of
the shares. The Fund will forward the proceeds promptly once the check has
cleared.
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FINANCIAL INSTITUTIONS
You may buy shares or sell shares of the Fund through a broker or financial
institution who may
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charge you a fee for this service. If you are purchasing shares of the Fund
through a program of services offered or administered by a securities dealer or
financial institution, you should read the program materials in conjunction with
this Prospectus.
Certain financial institutions that have entered into sales agreements with
the Trust may enter confirmed purchase orders on behalf of customers by
telephone to purchase shares of the Fund. Payment is due no later than the
Fund's pricing on the following business day. If payment for the purchase of
shares is not received in a timely manner, the financial institution could be
held liable for any loss incurred by the Fund.
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HOW TO MAKE WITHDRAWALS (REDEMPTIONS)
Shares are redeemed and funds withdrawn at net asset value per share, and
there are no redemption fees. (See "How Net Asset Value Is Determined.")
BY MAIL
A shareholder may redeem shares by mailing a written request in good order
to The Flex-funds, c/o R. Meeder & Associates, Inc., P.O. Box 7177, Dublin, OH
43017. Good order means that the request must be signed by the shareholder(s)
and the signature(s) must be guaranteed by an eligible guarantor institution (a
bank, broker-dealer, credit union, securities exchange and association, clearing
agency and savings association). The Trust does not accept signatures guaranteed
by a notary public. Further documentation may be required as to the authority of
the person requesting redemption of shares held of record in the name of
corporations, executors, administrators, trustees, guardians or other
fiduciaries. The Trust may waive these requirements in certain instances.
Amounts withdrawn are mailed without charge to the address printed on your
account statement.
BY TELEPHONE
A shareholder may redeem by telephone: 1-800-325-FLEX, or call (614)
766-7000. Shareholders who wish to use this procedure must so elect on the New
Account Application. Amounts withdrawn from an account by telephone are mailed
without charge to the address printed on your account statement.
As a special service, a shareholder may arrange to have amounts in excess
of $1,000 wired in federal funds to a designated commercial bank account. To use
this procedure please designate on the New Account Application a bank and bank
account number to receive the proceeds of wire withdrawals. There is no charge
for this service.
A shareholder may change the bank account designated to receive
redemptions. This may be done at any time upon written request to the Trust. The
shareholder's signature must be guaranteed. Further documentation may be
required from corporations, executors, administrators, trustees, guardians, or
other fiduciaries.
Neither the Trust nor Mutual Funds Service Co. ("MFSCo") will be
responsible for any loss, expense, or cost arising from any telephone redemption
request made according to the authorization set forth in the New Account
Application if they reasonably believe such request to be genuine and follow
reasonable procedures designed to verify the identity of the person requesting
the redemption. If MFSCo fails to follow reasonable procedures MFSCo or the
Trust may be liable for losses due to unauthorized or fraudulent transactions.
MFSCo will provide each investor seeking telephone redemption privileges with a
personalized security code which, along with other information, will be required
of the caller upon request of a telephone redemption. Other information may also
be required and calls may be recorded.
WHEN REDEMPTIONS ARE EFFECTIVE
Redemptions are made at the net asset value per share next determined after
receipt of a redemption request in good order. (See "How Net Asset Value Is
Determined.")
WHEN PAYMENTS ARE MADE
Amounts withdrawn by telephone are normally mailed or wired on the next
Columbus, Ohio business day following the effective date of the order for
withdrawal. Amounts withdrawn by mail are normally sent by mail within one
business day after request is received, and must be mailed within seven days
with the following exception: If shares are purchased by check, Mutual Funds
Service Co. will not pay a redemption until reasonably satisfied the check used
to purchase shares has been collected which could be fifteen (15) calendar days
or more after shares are first paid for, unless payment was made with federal
funds. The Fund will forward proceeds promptly once the check has cleared. (See
"How to Buy Shares.")
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EXCHANGE PRIVILEGE
A shareholder may exchange shares of the Fund for shares of any other
Flex-funds' fund that are available for sale in your state at their respective
net asset values. Exchanges are subject to applicable minimum initial and
subsequent investment requirements.
It will be necessary to complete a separate New Account Application if:
1. a shareholder wishes to register a new account in a different name;
2. a shareholder wishes to add telephone redemption to an account; or
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3. a shareholder wishes to have check-writing redemption privileges in a
Money Market Fund account.
Exchange requests may be directed to the Fund by telephone or written
request. If a shareholder request is in valid form, and is accepted before the
close of the Fund's business day, shares will be exchanged that day.
BY MAIL
Exchange requests may also be made in writing and should be sent to The
Flex-funds, c/o R. Meeder & Associates, Inc., P. O. Box 7177, Dublin, Ohio
43017. The letter must be signed exactly as the shareholder's name appears on
the Fund's account records.
BY TELEPHONE
Exchange requests may be made by telephone: call 1-800-325-FLEX, or call
(614) 766-7000. You may make exchanges by telephone if you have telephone
redemption privileges for your current investment account and the registration
of additional accounts will be identical. Neither the Fund nor Mutual Funds
Service Co. ("MFSCo") will be responsible for any loss, expense, or cost arising
from any telephone exchange request made according to the authorization set
forth in the New Account Application if they reasonably believe such request to
be genuine and follow reasonable procedures designed to verify the identity of
the person requesting the exchange. If MFSCo fails to follow reasonable
procedures MFSCo or the Fund may be liable for losses due to unauthorized or
fraudulent transactions. MFSCo will provide each investor seeking telephone
exchange privileges with a personalized security code which, along with other
information, will be required of the caller upon request of a telephone
exchange. Other information may also be required and calls may be recorded.
Any exchange involves a redemption of all or a portion of the shares in the
Fund and an investment of the redemption proceeds in shares of one of the other
Flex-funds' funds. The exchange will be based on the respective net asset values
of the shares involved, ordinarily at the value next determined after the
request is received. An exchange may be delayed briefly if redemption proceeds
will not be available immediately for purchase of newly acquired shares. The
exchange privilege may be modified or terminated at any time. The exchange
privilege is designed to accommodate changes in shareholder investment
objectives. In addition, The Muirfield Fund reserves the right to reject any
exchange request and to limit a shareholder's use of the exchange privilege.
The exchange of shares of the Fund for shares of another Flex-funds' fund
is treated for federal income tax purposes as a sale of the shares given in
exchange. A shareholder may realize a taxable gain or loss on an exchange, and
he should consult his tax adviser for further information concerning the tax
consequences of an exchange.
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FLEX-FUNDS RETIREMENT PLANS
The Trust offers retirement plans which include a prototype Profit Sharing
Plan, a Money Purchase Pension Plan, a Salary Savings Plan - 401(k), an
Individual Retirement Account (IRA), and a Simplified Employee Pension (SEP)
Plan. Plan Adoption Agreements and other information required to establish a
Flex-funds Retirement Plan are available from The Flex-funds, c/o R. Meeder &
Associates, Inc., P.O. Box 7177, Dublin, Ohio 43017; or call 1-800-325-FLEX, or
call (614) 766-7000.
Minimum purchase requirements for retirement plan accounts are subject to
the same requirements as regular accounts, except for an IRA, which has a
reduced minimum purchase requirement. (See "How to Buy Shares.")
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OTHER SHAREHOLDER SERVICES
AUTOMATIC ACCOUNT BUILDER
Regular investments in the Fund of $100 or more will be deducted from a
shareholder's checking or savings account and invested in shares of the Fund(s)
selected. A shareholder's bank must be a member of the Automated Clearing House
(ACH). Shareholders wishing to add to their investment account must complete the
Automatic Account Builder section of the New Account Application. There is no
charge for this service.
SYSTEMATIC WITHDRAWAL PROGRAM
A Systematic Withdrawal Program is offered for any investor who wishes to
receive regular distributions from his account. The investor must either own or
purchase shares having a value of at least $10,000 and advise the Trust in
writing of the amount to be distributed and the desired frequency, i.e.,
monthly, quarterly or annually. This option may be exercised by completing the
appropriate section of the New Account Application. The investor should realize
that if withdrawals exceed income dividends, the invested principal may be
depleted. The investor may make additional investments and may change or stop
the program at any time. There is no charge for this program.
SUB-ACCOUNTING FOR INSTITUTIONAL INVESTORS
The Trust's optional sub-accounting system offers a separate shareholder
account for each participant and a master account record for the institution.
Share
Page 14
<PAGE> 17
-----------------------------
The Muirfield Fund Prospectus
- --------------------------------------------------------------------------------
activity is thus recorded and statements prepared for both individual
sub-accounts and for the master account. For more complete information
concerning this program contact the Trust.
DISTRIBUTOR
Shares of the Fund are sold by the Trust itself in those states where its
shares have been registered for sale or a valid exemption exists. States where
registration or an exemption exists can be obtained by calling 1-800-325-FLEX or
(614) 766-7000.
- --------------------------------------------------------------------------------
SHAREHOLDER ACCOUNTS
The Trust maintains an account for each shareholder in full and fractional
shares. The Trust reserves the right to reject any purchase order, and to waive
minimum purchase requirements.
CONFIRMATION STATEMENTS
All purchase and sale transactions, and dividend reinvestments, are
confirmed promptly after they become effective.
ACCOUNTS BELOW MINIMUMS
The Trust reserves the right to redeem shares in any account for their then
current net asset value and pay the proceeds to the shareholder if at any time
the account has shares valued at less than $1,000 ($500 for an IRA) as a result
of redemptions by the shareholder. The Trust also reserves the right to redeem
the shares in any account which may have been opened under a waiver of minimum
purchase requirements if sufficient additional shares were not subsequently
purchased to meet these requirements. Before a redemption is processed, the
shareholder will be allowed 30 days after written notice from the Trust to make
an additional investment sufficient to bring the value of shares in the account
to $1,000 ($500 for an IRA).
Page 15
<PAGE> 18
-----------------------------------------
INVESTMENT ADVISER
R. Meeder & Associates, Inc.
-----------------------------------------
ADDRESS OF FUND & ADVISER
6000 Memorial Drive
Dublin, OH 43017
800-325-FLEX
614-766-7000 (in Central Ohio)
-----------------------------------------
CUSTODIAN
Star Bank, N.A.
Star Bank Center
425 Walnut Street
Cincinnati, OH 45202
-----------------------------------------
TRANSFER AGENT & DIVIDEND
DISBURSING AGENT
Mutual Funds Service Co.
6000 Memorial Drive
Dublin, OH 43017
800-325-FLEX
614-766-7000 (in Central Ohio)
-----------------------------------------
AUDITORS
KPMG Peat Marwick LLP
Two Nationwide Plaza
Columbus, OH 43215
Page 16
<PAGE> 19
THE FLEX-FUNDS
CROSS REFERENCE SHEET TO FORM N-1A
FOR THE GROWTH FUND AND MUIRFIELD FUND
Part B.
Item No. Statement of Additional Information
10 Cover Page
11 Table of Contents
12 Not applicable
13(a)(b)(c) Investment Policies and Related Matters
13(d) Not applicable
14(a)(b) Officers and Trustees
14(c) Not applicable
15(a) Not applicable
15(b)(c) Principal Holders of Outstanding Shares
16(a)(b) Investment Adviser and Manager
16(c) Not applicable
16(d) Other Services
16(e) Not applicable
16(f) Distribution Plans
16(g) Not applicable
16(h) Other Services
16(i) Other Services
17 Purchase and Sale of Portfolio Securities
18 Not applicable
19(a) Not applicable
19(b) Valuation of Portfolio Securities
20 Not applicable
21 Not applicable
22(a) Not applicable
22(b) Calculation of Total Return
23 Not Applicable
<PAGE> 20
THE FLEX-FUNDS
6000 Memorial Drive
Dublin, Ohio 43017
Statement of Additional Information Dated November 10, 1995
This Statement of Additional Information pertains to the following Funds of The
Flex-funds: The Growth Fund, The Muirfield Fund, The Bond Fund, The Short-Term
Global Income Fund and The Money Market Fund. This Statement of Additional
Information is not a prospectus. It should be read in conjunction with the
Prospectus of The Flex-funds dated April 28, 1995. A copy of the Prospectus may
be obtained from The Flex-funds, at the above address, or by calling:
1-800-325-FLEX, or (614) 766-7000. Capitalized terms used and not otherwise
defined herein have the same meanings as defined in the Prospectus.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Policies and Related Matters 2
General 2
Defensive Investing 2
The Growth Stock Portfolio 4
The Mutual Fund Portfolio 5
The Short-term Global Portfolio 6
The Money Market Portfolio 8
Money Market Instruments and Bonds 8
Ratings 10
Hedging Strategies 12
Investment Restrictions 15
Portfolio Turnover 16
Purchase and Sale of Portfolio Securities 18
Valuation of Portfolio Securities 19
Calculation of Yield - The Money Market Fund 20
Calculation of Total Return 21
Calculation of Yield - The Bond and Short-
Term Global Income Funds 22
Investment Adviser and Manager 23
Officers and Trustees 25
Distribution Plans 28
Flex-funds Retirement Plans 31
Other Services 31
Principal Holders of Outstanding Shares 32
Additional Information 32
</TABLE>
<PAGE> 21
INVESTMENT POLICIES AND RELATED MATTERS
GENERAL
As described in the Prospectus, the Trust seeks to achieve the investment
objective of each Fund by investing all of its investable assets in a
corresponding Portfolio having the same investment objective, policies and
restrictions as that Fund. Since the investment characteristics of the Funds
correspond directly to those of each Fund's respective Portfolio, the following
is a discussion of the various investments of and techniques employed by the
Portfolios.
The investment policies set forth below in this section represent the
Portfolios' policies as of the date of this Statement of Additional Information.
The investment policies are not fundamental and they may be changed by the
Trustees of the Portfolios without shareholder approval. (No such change would
be made, however, without 30 days' written notice to shareholders.)
The Manager of the Portfolios places a high degree of importance on
protecting portfolio values from severe market declines. Consequently, a
Portfolio's assets may at times be invested for defensive purposes in bonds and
money market instruments. (See "Defensive Investment Strategy" and "Money Market
Instruments and Bonds," below.)
Because the Manager intends to employ flexible defensive investment
strategies when market trends are not considered favorable, the Manager may
occasionally change the entire portfolio in any, or several, of the Portfolios.
High transaction costs could result when compared with other funds.
All Portfolios intend to comply with the short-term trading restrictions of
Subchapter M of the Internal Revenue Code of 1986, as amended, although these
restrictions could inhibit a rapid change in a Portfolio's investments. All
Portfolios will strive for a positive investment return each calendar year.
DEFENSIVE INVESTMENT STRATEGY
The Flex-funds are asset allocation mutual funds. The Manager has been
involved in the application of tactical asset allocation with over 20 years
experience managing market risk in all stock and bond market conditions.
Studies have reviewed the importance of the asset allocation decision. The
Manager believes the choice of the correct asset class has often contributed
more to investment performance than the selection of a sector or individual
security. Yet the typical investor and mutual fund manager often focus instead
on an individual security or sector.
Since 1974, the Manager's tactical asset allocation discipline, called
"Defensive Investing", has addressed the asset allocation decision by making
shifts in the mix of
2
<PAGE> 22
stocks, bonds and cash in a portfolio. "Defensive Investing" is based on
mathematical principles and historical precedent.
The Manager's tactical asset allocation discipline is based upon daily
monitoring of over 50 technical and fundamental market indicators. Among the
factors that the Manager monitors in an attempt to assess the current market
environment are the following:
o INDEX EVALUATION. The trend of stock market indexes and comparative
analysis of the various indexes to evaluate the markets relative
strengths and weaknesses.
o DIVERGENT MARKET ACTIVITY. Comparison of internal measurements of the
market to the trend of prices.
o MONETARY AND INTEREST RATE TRENDS. The trends of interest rates and
monetary conditions.
o INVESTOR SENTIMENT. The effect of current opinion on the market
environment.
o VOLUME RELATIONSHIP TO PRICE. Comparison of volume measurements to
price trends.
o EXTREME MARKET ACTIVITY. Short-term overbought or oversold conditions.
The Manager maintains the flexibility to be fully invested in the stock or
bond markets during favorable market conditions.
The stock market has historically offered returns that have exceeded those
available from bonds or money market instruments. Through the Manager's asset
allocation process, it strives to protect shareholders during unfavorable, high
risk markets and participate in rising low risk markets.
Investors seeking a higher level of income than Treasury bills or money
market instruments have often invested in intermediate to long-term bonds. Bond
investors have historically been most vulnerable not to defaults on individual
bonds, but to changes in interest rates that drive bond prices up or down.
The Manager believes the appropriate way to defend assets against shifts in
interest rates is to be invested in long-term bonds only when the trend of
interest rates is stable or declining. To determine the bond market environment,
the Manager monitors the following technical indicators:
o MOMENTUM. The trend of bond prices versus various moving averages.
o REAL RATES. The 10-year treasury bond yield as compared to the
inflation rate.
o YIELD SPREAD. The 10-year treasury bond yield as compared to the T-bill
yield.
"Defensive Investing" examines and incorporates past market history in order
to learn something about the markets of the future.
For example, the gains offered by the U.S. stock market during the 1980s
were surpassed only by the returns available during the 1950s. Therefore, the
Manager believes
3
<PAGE> 23
that the stock market of the 1990s will look less like the 1980s and more like
the historical average in terms of returns and volatility.
Further, there has never been a time when investors in U.S. bonds have been
rewarded as well as they were during the 1980s. The Manager believes absolute
returns for bond investors in the 1990s will decrease from the 1980s. In order
for the 1990s returns to approach those of the 1980s, long-term interest rates
would have to fall below 3%.
<TABLE>
<CAPTION>
DECADES OF THE PAST
STOCKS BONDS
---------------------------------------
DOWN DOWN
DECADE RETURN YEARS RETURN YEARS
--------------------------------------------------
<S> <C> <C> <C> <C>
1980s 405.5% 1 220.8% 1
1970s 77.4% 3 70.8% 3
1960s 111.9% 3 14.9% 3
1950s 488.0% 2 - 1.0% 2
1940s 141.1% 3 37.0% 3
1930s - 1.0% 6 61.3% 6
--------------------------------------------------
Source: DeMarche Associates
</TABLE>
The Flex-funds will strive to reduce or eliminate downside risk during
adverse stock, bond and foreign currency markets and to participate in positive
risk-reward market conditions, without excessive risk to principal.
THE GROWTH STOCK PORTFOLIO
The Growth Stock Portfolio will invest in two representative groups of
common stocks; one comprised of large capitalization stocks, the other of small
capitalization stocks. At times, the Portfolio may invest more heavily in one
group than in the other. For the purposes of this policy, "large capitalization"
stocks are defined as stocks of companies that rank in the top one-third of
the common stocks listed on the New York Stock Exchange ("N.Y.S.E."), based
upon their equity capitalization. The "small capitalization" group are defined
as stocks of companies that rank in the middle one-third of the common stocks
listed on the N.Y.S.E., based upon their equity capitalization. This group of
stocks would generally rank near or slightly below the average equity
capitalization of all common stocks listed on the N.Y.S.E.
Stocks may be deleted from either group in order to meet diversification
requirements or due to mergers, takeovers, or bankruptcies.
In seeking to attain the objective of the Growth Stock Portfolio, the
Manager will change its investments from common stocks to a defensive position
and back again to meet changing conditions in the stock market. Although earning
current income will not be an objective, some income may be realized from
stocks, from convertible securities, or, when the Portfolio takes a defensive
position, from debt instruments. The Portfolio will
4
<PAGE> 24
strive for a positive investment return (a net gain of net asset value per
share, including reinvestment of distributions) each fiscal year.
The Growth Stock Portfolio's assets will be invested in stocks, except when
they are invested in bonds or money market instruments for defensive purposes.
The Portfolio will invest in common stocks when the Manager believes the stock
market environment is favorable. Assets will be invested in money market
instruments or bonds when the Manager believes a weak or declining trend in the
stock market is occurring. The Portfolio will not invest in bonds or money
market instruments except for defensive purposes, nor will it invest in bonds
for capital appreciation.
THE MUTUAL FUND PORTFOLIO
The Manager will select mutual funds for inclusion in the Mutual Fund
Portfolio on the basis of the industry classifications represented in their
portfolios, their specific portfolio holdings, their performance records, their
expense ratios, and the compatibility of their investment policies and
objectives with those of the Mutual Fund Portfolio.
The Manager utilizes an asset allocation system for deciding when to invest
in mutual funds or alternatively in temporary investments such as are described
below. The use of this system entails recurring changes from a fully invested
position to a fully defensive position and vice-versa. (See "Additional
Investment Policies" in the Trust's Prospectus.)
In purchasing shares of other mutual funds the Mutual Fund Portfolio will
agree to vote the shares in the same proportion as the vote of all other holders
of such shares.
The Mutual Fund Portfolio has adopted certain investment restrictions which
cannot be changed except with the vote of a majority of the Mutual Fund
Portfolio's outstanding shares. These restrictions are applicable to the Mutual
Fund Portfolio and are described elsewhere in this Statement of Additional
Information. Investment restrictions for the Mutual Fund Portfolio differ from
the restrictions applicable to the other Portfolios, in that the Mutual Fund
Portfolio is permitted to invest more than 5% of its assets in the securities of
any one issuer; is permitted to purchase the shares of other investment
companies (mutual funds); and may invest more than 25% of its assets in any one
industry.
The Mutual Fund Portfolio may only purchase up to 3% of the total
outstanding securities of any underlying mutual fund. The holdings of any
"affiliated persons" of the Trust and the Portfolios, as defined in the
Investment Company Act, must be included in the computation of the 3%
limitation. Accordingly, when "affiliated persons" hold shares of an underlying
mutual fund, the Mutual Fund Portfolio will be limited in its ability to fully
invest in that mutual fund. The Manager may then, in some instances, select
alternative investments.
The Investment Company Act also provides that an underlying mutual fund
whose shares are purchased by the Mutual Fund Portfolio may be allowed to delay
redemption of
5
<PAGE> 25
its shares in an amount which exceeds 1% of its total outstanding securities
during any period of less than 30 days. Shares held by the Mutual Fund Portfolio
in excess of 1% of a mutual fund's outstanding securities therefore may not be
considered readily disposable securities.
Under certain circumstances, an underlying mutual fund may determine to make
payment of a redemption by the Mutual Fund Portfolio wholly or partly by a
distribution in kind of securities from its portfolio, in lieu of cash, in
conformity with rules of the Securities and Exchange Commission. In such cases,
the Mutual Fund Portfolio may hold securities distributed by an underlying
mutual fund until the Manager determines that it is appropriate to dispose of
such securities.
Portfolio investment decisions by an underlying mutual fund will be made
independent of investment decisions by other underlying mutual funds. Therefore,
an underlying mutual fund may be purchasing shares of a company whose shares are
simultaneously being sold by some other underlying mutual fund. The result of
this would be an indirect transaction expense (principally commissions) for the
Mutual Fund Portfolio, without its having changed its investment position.
The Mutual Fund Portfolio may invest in common stocks based upon the
criteria described in its investment objectives. Because the Mutual Fund
Portfolio will only invest directly in common stocks to replicate the
performance of popular stock market indices the selection of stocks would be
limited to those stocks found in a particular index. Generally, investments in
common stocks will not exceed 25% of the Portfolio's net assets.
For temporary defensive purposes, the Mutual Fund Portfolio may invest in
(or enter into repurchase agreements with banks and broker-dealers with respect
to) corporate bonds, U.S. Government securities, commercial paper, certificates
of deposit or other money market instruments. The Mutual Fund Portfolio may
engage in hedging transactions to the extent and for the purposes set forth in
the Trust's Prospectus.
THE SHORT-TERM GLOBAL PORTFOLIO
The Portfolio seeks high current yields by investing in a portfolio of debt
securities denominated in the U.S. Dollar and in other foreign currencies.
Accordingly, the Portfolio will seek investment opportunities in foreign, as
well as domestic, securities markets. While the Portfolio normally will maintain
a portion of its assets in debt securities denominated in foreign currencies,
the Portfolio will invest at least 50% of its net assets in U.S. Dollar
denominated securities. Up to 100% of the assets may be invested in U.S. Dollar
denominated assets. The Portfolio may allocate 100% of its assets in high
quality cash equivalent securities and/or U.S. Treasury Bills, Notes or Bonds
with a maximum dollar-weighted average duration of three years or less. The
Portfolio is designed for the investor who seeks a higher yield than a money
market fund and less volatility in net asset value than a long-term bond fund.
6
<PAGE> 26
In seeking to attain its investment objective, the Portfolio seeks to
minimize credit risk by investing in government-issued debt securities (both
U.S. and foreign); certificates of deposit, bankers acceptances, and short-term
debt of foreign banks with AAA long-term debt ratings; and foreign currency
denominated short-term debt issued by U.S. banks and corporations; or (for
defensive purposes), high quality U.S. dollar-denominated cash equivalent
securities - see definition under "MONEY MARKET INSTRUMENTS AND BONDS". The
Portfolio's Investment Adviser will allocate approximately 50% of the assets in
intermediate or long-term U.S. Treasury Bills, Notes or Bonds when, in its
opinion, U.S. interest rates are stable or falling. When this is not the case
and for defensive purposes, this portion of the Portfolio will be invested in
high-quality cash equivalent securities. The other 50% of the Portfolio will be
allocated to investments in short-term (less than one year to maturity) foreign
securities. No more than 25% of the Portfolio's net assets will be exposed to
securities denominated in any one foreign currency. Securities will be selected
only from countries which have established domestic security markets and which
conduct significant foreign trade with the United States. Securities will be
selected based upon assessment of their relative yield. Foreign debt obligations
will be sold or hedged if, in the Investment Adviser's opinion, the trend of the
value of a country's currency relative to the U.S. Dollar is negative or
represents excessive risk. Assets designated for foreign securities but not
invested because of negative currency trends will be invested in high quality
U.S. Dollar-denominated cash equivalent securities.
Investment in foreign debt securities entails three risk factors. First is
credit risk. The Portfolio expects to minimize this risk by investing only in
securities issued or guaranteed by a foreign government or in obligations issued
by AAA rated foreign institutions. Second is market risk. The Portfolio expects
to minimize this risk by investing only in debt securities with a remaining
maturity of one year or less. Third is currency risk. The Portfolio will attempt
to reduce the risk of currency exchange rate trends by eliminating exposure to a
currency which, in the Investment Adviser's opinion, is in a negative trend.
This may be accomplished through a hedging transaction or through the sale of
securities denominated in the particular currency. A hedging transaction may
include the use of regulated futures contracts, forward contracts, or options
contracts.
The net asset value of the Portfolio will change in response to interest
rate fluctuations and foreign currency exchange rate fluctuations. If interest
rates rise, the net asset value will be negatively impacted. Conversely, if
interest rates decline, the net asset value will be positively impacted. The
impact of rising or falling interest rates will vary relative to the exposure of
the Portfolio to longer maturity securities. Up to 50% of the Portfolio may be
exposed to U.S. Treasury obligations (with a maximum dollar-weighted average
duration of three years or less) and up to 50% of the Portfolio may be exposed
to one-year maturities of foreign securities. The portion of the portfolio which
is invested in foreign securities will be subject to exchange rate fluctuations.
Favorable exchange rate fluctuations will positively impact net asset value.
Unfavorable fluctuations will negatively impact net asset value. Negative
fluctuations could reduce or eliminate the yield advantage of investing in
foreign securities. However, the Investment Adviser believes that its philosophy
of selectively eliminating the exchange rate risk based upon its
7
<PAGE> 27
discipline of measuring the trend of foreign currencies will reduce the negative
impact on net asset values.
THE MONEY MARKET PORTFOLIO
The Money Market Portfolio seeks to maintain a constant net asset value of
$1.00 per share, although there is no assurance it will be able to do so. To do
so, the Portfolio utilizes the amortized cost method of valuing its portfolio
securities pursuant to a rule adopted by the Securities and Exchange Commission.
The rule also prescribes portfolio quality and maturity standards. The Portfolio
will be managed in accordance with the requirements of this rule.
MONEY MARKET INSTRUMENTS AND BONDS
When investing in money market instruments or bonds, the Portfolios will
limit their purchases, denominated in U.S. dollars, to the following securities.
The Short-Term Global Portfolio may purchase these securities denominated in
U.S. dollars or foreign currencies.
* 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. A 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. A Portfolio will not invest at time
of purchase more than 25% of its assets in obligations of banks, nor
will a Portfolio invest more than 10% of its assets in time deposits.
* High Quality Commercial Paper - The Growth Stock, Mutual Fund and
Bond Portfolios 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.
8
<PAGE> 28
* High Quality Commercial Paper - The Money Market Portfolio, which is
subject to specific quality criteria and diversification requirements,
may invest in commercial paper rated in either one of the two highest
categories by at least two nationally recognized rating services, or,
if not rated, guaranteed by a company having commercial paper rated in
either one of the two highest categories by at least two nationally
recognized rating services. See The Money Market Portfolio above.
* Private Placement Commercial Paper - Private placement commercial
paper ("Rule 144A securities") consist of unregistered securities which
are traded in public markets to qualified institutional investors, such
as the Portfolios. A 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 Pertaining to the Above - A Portfolio may
invest without limit in any of the above securities subject to
repurchase agreements with any Federal Reserve reporting dealer or
member bank of the Federal Reserve System. A repurchase agreement is an
instrument under which the purchaser (i.e., a Portfolio) acquires
ownership of a debt security and the seller agrees, at the time of the
sale, to repurchase the obligation at a mutually agreed upon time and
price, thereby determining the yield during the purchaser's holding
period. This results in a fixed rate of return insulated from market
fluctuations during such period. The underlying securities could be any
of those described above, some of which might bear maturities exceeding
one year. A Portfolio's risk is that the seller may fail to repurchase
the security on the delivery date. If the seller defaults, the
underlying security constitutes collateral for the seller's obligation
to pay. It is a policy of each Portfolio to make settlement on
repurchase agreements only upon proper delivery of the underlying
collateral. Repurchase agreements usually are for short periods, such
as one week or less, but could be longer. A Portfolio may enter into
repurchase agreements with its custodian (Star Bank, N.A., Cincinnati)
when it is advantageous to do so. No Portfolio will invest more than
10% of its assets, at time of purchase, in repurchase agreements which
mature in excess of seven days.
The Manager exercises due care in the selection of money market instruments
and bonds. 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 a 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
9
<PAGE> 29
expected redemptions. Any of these risks, if encountered, could cause a
reduction in net income or in the net asset value of a particular 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.
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.
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 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.
10
<PAGE> 30
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.
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 - A repurchase transaction occurs when an investor
buys a security and simultaneously agrees to resell it at a later date to the
person from whom it was bought, at a higher price. The price differential
represents interest for the period the security is held. Repurchase transactions
will normally be entered into with banks and
11
<PAGE> 31
securities brokers. A Portfolio could suffer a loss if the bank or securities
broker with which the Portfolio had a repurchase agreement were to default.
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.
HEDGING STRATEGIES
The Investment Adviser may conduct a hedging program on behalf of a
Portfolio for any of the reasons described in the Prospectus. Such a program
would involve entering into options, futures or forward contracts (hedge
transactions).
Derivatives are financial instruments whose performance is derived, at least
in part, from the performance of an underlying asset, security or index.
Financial futures contracts or related options used by a 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. They do not necessarily increase risk, and may in fact
reduce risk.
The objective of an option, futures or forward contract transaction could be
to protect a profit or offset a loss in a Portfolio from future price erosion.
Or, the objective could be to acquire the right to purchase a fixed amount of
securities or currency at a future date for a definite price. In either case, it
would not be necessary for a Portfolio to actually buy or sell the securities or
currency currently. Instead, the hedge transaction would give the Portfolio the
right at a future date to sell, or in other instances buy, the particular
securities or currency under consideration or similar securities. The value of
shares of common stock, the face amount of currency or the face amount of
government bonds or notes covered by the hedge transaction would be the same, or
approximately the same, as the quantity held by the Portfolio or the quantity
under consideration for purchase.
In lieu of the sale of a security or currency, an option transaction could
involve the purchase of a put option contract, which would give a Portfolio the
right to sell a common stock, government bond, currency or futures contract on
an index (see below), at a specified price until the expiration date of the
option. A Portfolio will only purchase a put option contract on a stock,
currency or bond when the number of shares of the issuer's stock, face amount of
currency or the face amount of government bonds involved in the option
transaction are equal to those owned by the Portfolio. Limitations on the use of
put option contracts on an index are described below.
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<PAGE> 32
Also, in lieu of the sale of securities or currency, a futures transaction
could involve the sale of a futures contract which would require a Portfolio
either (a) to deliver to the other party to the contract the securities
specified and receive payment at the price contracted for, prior to the
expiration date of the contract, or (b) to make or entitle it to receive
payments representing (respectively) the loss or gain on the currency, security
or securities involved in the futures contract.
Also, in lieu of the sale of a currency, a forward contract could involve
the sale of a currency for future delivery. A forward contract will specify a
specific price and a specific date for the transaction to occur. A forward
contract will only be entered into for specific amounts of currency which match
the amount of foreign currency which the Portfolio will possess on the delivery
date. Entering into a forward contract will reduce the affect on net asset
values of currency exchange rates on the portion of the currency which is sold.
The securities involved in an option or futures contract may be currency,
stocks or government bonds, or a group of stocks represented by a popular stock
market index, and they need not be exactly the same as those owned by a
Portfolio. The Investment Adviser will select the futures contract which
involves a security, group of securities, or index which it feels is closest to
a mirror image of the investments held by the Portfolio. However, the securities
involved in the contract need not be exactly the same as those owned by a
Portfolio, and this may entail additional risk, as described below.
To the extent that a Portfolio enters into futures contracts which sell an
index or group of securities short and which therefore could require the
Portfolio to pay the other party to the contract a sum of money measured by any
increase in a market index, the Portfolio will be exposing itself to an
indeterminate liability. On the other hand, a Portfolio should increase or
decrease in value to approximately the same extent as the market index or group
of securities, so any loss incurred on the contract should be approximately
offset by unrealized gains in Portfolio positions. Such an outcome is not
guaranteed, and it would be possible for the value of the index and the
Portfolio to move in opposite directions, in which case the Portfolio would
realize an unexpected gain or loss.
A Portfolio will only sell an index short when the Investment Adviser has
decided to reduce a Portfolio's risk for defensive purposes, and will close out
the open liability as soon as the Investment Adviser decides that a defensive
posture is no longer appropriate or the open liability represents an
inappropriate risk in the circumstances. In shorting an index, a Portfolio will
segregate assets to the full value of the contract and maintain and supplement
such segregation to the extent necessary until the short position is eliminated.
In lieu of the purchase of a security or currency, an option transaction
could involve the purchase of a call option which would give the Portfolio the
right to buy a specified security (common stock or government bonds) or currency
or index aggregate at a specified price until the expiration date of the option
contract. Sufficient cash or money market instruments will be segregated and
maintained in reserve to complete the purchase.
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<PAGE> 33
The Portfolio will only purchase call options when the shares of stock or face
amount of currency or face amount of bonds or value of the index aggregate
included in the option are equal to those planned to be purchased by the
Portfolio.
In lieu of the purchase of securities or currency, a futures transaction
could involve the purchase of a futures contract which would either (a) require
the Portfolio to receive and pay for the securities or currency specified in the
futures contract at the price contracted for prior to the expiration date of the
contract or (b) require the Portfolio to make payment or receive payment
representing (respectively) the loss or gain on the currency, security or
securities involved in the contract. The securities may be government bonds,
stocks, or a group of stocks such as a popular stock market index, and need not
be exactly the same as those intended to be purchased by the Portfolio. The
Investment Adviser will select the contract (therefore the group of securities)
which it believes is most similar to those desired to be purchased by the
Portfolio.
Also, in lieu of the purchase of a currency, a forward contract could
involve the purchase of a currency for future delivery. A forward contract will
specify a specific price and a specific date for the transaction to occur. A
forward contract will only be entered into for specific amounts of currency
which match the amount of foreign currency which the Portfolio will need to
possess on the delivery date. Entering into a forward contract for the purchase
of a foreign currency will cause the fluctuations of currency exchange rates to
affect the net asset value for the portion of the currency which is purchased.
A Portfolio may sell any put or call option contracts it enters into. Such a
transaction would normally be used to eliminate or close out a hedged position.
A Portfolio may also buy or sell futures contracts to eliminate or close out a
hedged position.
Option contracts will be purchased through organized exchanges and will be
limited to those contracts which are cleared through the Options Clearing
Corporation. Organized exchanges which presently trade option contracts are the
Chicago Board Options Exchange, the American Stock Exchange, the Philadelphia
Stock Exchange, the Pacific Stock Exchange, and the New York Stock Exchange.
Futures contracts will only be entered into through an organized exchange.
The exchanges which presently trade financial futures contracts are the New York
Futures Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade,
the Kansas City Board of Trade, and the International Monetary Market (at the
Chicago Mercantile Exchange).
Forward contracts for foreign currency will only be entered into with
security brokers which are also primary dealers for U.S. Government securities
as recognized by the U.S. Federal Reserve Banks or U.S. banks which are members
of the Federal Reserve System.
Put and call options and financial futures contracts are valued on the basis
of the daily settlement price or last sale on the exchanges where they trade. If
an exchange is not
14
<PAGE> 34
open, or if there is no sale, the contract is valued at its last bid quotation
unless the Trustees determine that such is not a fair value. Forward contracts
are valued based upon currency dealer quotations for reversing the position. In
the case of a futures contract which entails a potential liability for a gain in
a market index, the liability is valued at the last sale of an offsetting
contract or if there was no sale, at the last asked quotation unless the
Trustees determine that such does not fully reflect the liability.
In conducting a hedging program for the Portfolios, the Investment Adviser
may occasionally buy a call on an index or futures contract and simultaneously
sell a put on the same index or futures contract. Or, in other circumstances, it
may sell a call and simultaneously buy a put on the same index or futures
contract.
When conducting a hedging program on behalf of a Portfolio, the Portfolio
will establish and maintain with the Custodian segregated accounts for the
deposit and maintenance of margin requirements. Such deposits will be in the
form of cash or U.S. Government securities in amounts as shall be required from
time to time by the broker or the exchange on which the transactions are
effected for the Portfolio.
INVESTMENT RESTRICTIONS
The investment restrictions below have been adopted by the Trust with
respect to each of the Funds and by the Portfolios as fundamental policies.
Under the Investment Company Act of 1940 (the "Act"), a "fundamental" policy may
not be changed without the vote of a majority of the outstanding voting
securities of the Fund or Portfolio, respectively, to which it relates, which is
defined in the Act as the lesser of (a) 67 percent or more of the shares present
at a shareholder meeting if the holders of more than 50 percent of the
outstanding shares are present or represented by proxy, or (b) more than 50
percent of the outstanding shares ("Majority Vote"). The percentage limitations
contained in the restrictions listed below apply at the time of the purchase of
the securities. Whenever a Fund is requested to vote on a change in the
investment restrictions of a Portfolio, the Trust will hold a meeting of Fund
shareholders and will cast its votes as instructed by the shareholders.
Provided that nothing in the following investment restrictions shall prevent
the Trust from investing all or part of a Fund's assets in an open-end
management investment company with the same investment objective or objectives
as such Fund, no Fund or Portfolio may: (a) Issue senior securities; (b) Borrow
money except as a temporary measure, and then only in an amount not to exceed 5%
of the value of its net assets (whichever is less) taken at the time the loan is
made, or pledge its assets taken at value to any extent greater than 15% of its
gross assets taken at cost; (c) Act as underwriter of securities of other
issuers; (d) Invest in real estate except for office purposes; (e) Purchase or
sell commodities or commodity contracts, except that it may purchase or sell
financial futures contracts involving U.S. Treasury Securities, corporate
securities, or financial indexes; (f) Lend its funds or other assets to any
other person; however, the purchase of a portion of publicly distributed bonds,
debentures or other debt instruments, the purchase of certificates of deposit,
U.S. Treasury Debt Securities, and the making of repurchase agreements are
permitted, provided repurchase agreements with fixed maturities in
15
<PAGE> 35
excess of 7 days do not exceed 10% of its total assets; (g) Purchase more than
10% of any class of securities, including voting securities of any issuer,
except that the purchase of U.S. Treasury debt instruments shall not be subject
to this limitation; (h) Invest more than 5% of its total assets (taken at value)
in the securities of any one issuer, other than obligations of the U.S.
Treasury; provided, however, that this restriction shall not be applicable to
any separate investment series of the Trust or a Portfolio which is created
specifically to invest in the shares of other investment companies; (i) Purchase
any securities on margin, or participate in any joint or joint and several
trading account, provided, however, that it may open a margin account to the
extent necessary to engage in hedging transactions which are not precluded by
other particular restrictions; (j) Make any so-called "short" sales of
securities, except against an identical portfolio position (i.e., a "short sale
against the box"), but this restriction shall not preclude a futures contract
which sells short an index or group of securities; (k) Invest more than 25% of
its net assets at time of purchase (taken at value) in the securities of
companies in any one industry; provided, however, that this restriction shall
not be applicable to any separate investment series of the Trust or a Portfolio
which is created specifically to invest in the shares of other investment
companies; (l) Purchase the securities of another investment company except
where such purchase is part of a plan of merger or consolidation; provided,
however, that this restriction shall not be applicable to any separate
investment series of the Trust or a Portfolio which is created specifically to
invest in the shares of other investment companies; (m) Purchase or retain any
securities of an issuer, any of whose officers, directors or security holders is
an officer or director of the Trust or a Portfolio, if such officer or director
owns beneficially more than 1/2 of 1% of the issuer's securities or together
they own beneficially more than 5% of such securities; (n) Invest in securities
of companies which have a record of less than three years' continuous operation
if, at the time of such purchase, more than 5% of its assets (taken at value)
would be so invested; (o) Purchase participations or other direct interests in
oil, gas or other mineral exploration or development programs; (p) Invest in
warrants; and (q) Invest more than 10% of its assets in restricted securities
and securities for which market quotations are not readily available and
repurchase agreements which mature in excess of seven days; however, this shall
not prohibit the purchase of money market instruments or other securities which
are not precluded by other particular restrictions.
In order to comply with certain state investment restrictions, each of the
Trust's and the Portfolios' operating policy is not to: (a) Notwithstanding (b)
above, pledge assets having a value in excess of 10% of its gross assets; (b)
Invest in oil, gas or mineral leases or programs; and (c) Purchase real estate
limited partnerships.
PORTFOLIO TURNOVER
The portfolio turnover rate for the fiscal year ended December 31, 1994, in
the Growth Stock Portfolio was 103% (1993 - 100%); in the Mutual Fund Portfolio
was 168% (1993 - 280%); in the Bond Portfolio was 708% (1993 - 236%) and in the
Short-Term Global Portfolio was 0.00% (1993 - 781%). Resultant turnover rates
are primarily a function of the Manager's response to market conditions. In the
Manager's opinion, it was in the best interest of Growth Stock, Mutual Fund,
Bond and Short-Term Global Portfolios to change their portfolios to a fully or
partially defensive position at various times during
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<PAGE> 36
the year. This defensive investment strategy can produce high portfolio turnover
ratios when calculated in accordance with SEC rules.
THE MUTUAL FUND AND GROWTH STOCK PORTFOLIOS. The Portfolios began the year
with 50% of each portfolio invested in the stock market and became fully
invested in early January. The Portfolios remained fully invested in the stock
market through 1994's first quarter rally. Each Portfolio was invested
defensively from March through the end of the year. The assets of the Portfolios
were defensive via the implementation in short-term bonds or money market
instruments due to the Adviser's evaluation that the level of risk in the stock
and bond markets was high and it was not prudent to have exposure to those
markets.
THE SHORT-TERM GLOBAL PORTFOLIO. The Short-Term Global Portfolio, which
invests in short-term debt instruments denominated in foreign currencies, will
generally have a relatively higher turnover rate when compared to equity and
bond portfolios. However, this was not the case in 1994. The lack of portfolio
turnover was a result of the portfolio investing only in short-term securities.
During 1994 the portion of the Portfolio's assets designated for investment in
U.S. Treasuries remained invested in short-term money market instruments. This
defensive posture was dictated due to continued declines in the short and
intermediate term bond market which was prompted by increases in U.S. interest
rates.
THE BOND PORTFOLIO. The Federal Reserve Board raised the Federal Funds rate
six times during 1994. While rising interest rates mean higher yields on bonds,
they also lead to declining bond prices. In response to sharp increases in rates
and lower bond prices, the Bond Portfolio remained in a defensive position for
much of the year through investments in money market instruments. The Portfolio
began the year in a totally defensive position. In an attempt to increase the
net yield of the Portfolio, the portfolio became fully invested in 10-year U.S.
Treasury Bonds in early February as well as hedging the portfolio's exposure to
the bond market with ten-year treasury bond futures. In May the portfolio
adopted a fully defensive position and remained defensive throughout the year
based on the Adviser's continued concern over the trend of rising interest
rates.
Two of the Portfolios have an investment objective of long term growth of
capital. Major changes in their portfolios have resulted in portfolio turnover
rates of as much as 280%, 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 Portfolio may be expected to result in
correspondingly heavier brokerage commissions and taxes, which ultimately must
be borne by the Trust's shareholders.
Management is presently unable to predict the portfolio turnover rate for
the current year in any of the Portfolios, as any major change in investment
posture to a defensive position, or vice versa, will result in a portfolio
turnover of 100% or more. It is conceivable that the turnover rate for one or
more of the Portfolios will exceed 200% in the current year.
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<PAGE> 37
PURCHASE AND SALE OF PORTFOLIO SECURITIES
Each Portfolio seeks to obtain the best available prices on, and firm
execution of, all purchases and sales of portfolio securities. In order to do
so, it may buy securities from or sell securities to broker/dealers acting as
principals and may use primary markets in the purchase or sale of
over-the-counter securities, unless best price and execution can be obtained in
some other way.
Satisfied that it is obtaining the best available price and favorable
execution, a Portfolio may, from time to time, place orders for the purchase or
sale of portfolio securities with broker/dealers who provide research,
statistical or other financial information or services ("research") to it or to
R. Meeder & Associates, Inc. ("RMA"), or to any other client for which RMA acts
as investment adviser. The reasonableness of brokerage commissions paid by a
Portfolio in relation to transaction and research services received is evaluated
by the staff of RMA on an ongoing basis. The general level of brokerage charges
and other aspects of each Portfolio's portfolio transactions are reviewed
periodically by its Board of Trustees.
RMA is the principal source of information and advice to each Portfolio and
is responsible for making and initiating the execution of investment decisions
for each Portfolio. However, it is recognized by the Trustees that it is
important for RMA, in performing its responsibilities to each Portfolio, to
continue to receive and evaluate the broad spectrum of economic and financial
information which many securities brokers have customarily furnished in
connection with brokerage transactions and that, in compensating brokers for
their services, it is in the interest of each Portfolio to take into account the
value of the information received for use in advising each Portfolio. The
extent, if any, to which the obtaining of such information may reduce the
expenses of RMA in providing management services to each Portfolio is not
determinable. In addition, it is understood by the Trustees that other clients
of RMA might also benefit from the information obtained for a Portfolio, in the
same manner that a Portfolio might also benefit from information obtained by RMA
in performing services to others.
RMA utilizes brokers who have demonstrated an ability to execute orders on a
favorable basis, or who are able to provide research or other services. RMA does
not knowingly authorize a higher rate of commission to one broker than to any
other. In order to assure itself that a Portfolio is paying reasonable
commissions, RMA will periodically attempt to determine the rates being paid by
other institutional investors of similar size.
Currently, RMA negotiates for commissions equal to no more than 20 basis
points (1/5 of 1%) and is generally able to hold commissions at or below that
level. For the fiscal year ended December 31, 1994, this approach resulted in an
average commission of 5.8 cents per share on portfolio purchases and sales. Debt
securities are purchased on a net basis.
RMA and the Trust have previously purchased various research and other
services with brokerage commissions paid to or for the benefit of certain
entities, whose service,
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<PAGE> 38
annual fees and charges for the year ended December 31, 1994 were as follows:
(1) Standard & Poors Securities, Inc., fixed income research, $7,762 per year,
$6,385 paid in 1994. (2) The Clifton Group, equity and fixed income research and
trading $40,516 per year, $40,516 paid in 1994. (3) Yanni Bilkey, fixed income
research, $7,500 per year, $7,500 paid in 1994. (4) Wellington & Co.,
miscellaneous research services and reports, $7,343 per year, $7,343 paid in
1994. (5) Merrill Lynch Capital Markets, miscellaneous research services and
reports, $6,451 per year, $6,451 paid in 1994. (6) Bloomberg Financial, equity
and fixed income research, $20,298 per year, $20,298 paid in 1994. (7) Moody's
Investor Services, fixed income research, $11,736 per year, $11,736 paid in
1994. (8) Commodity Quote Graphics, equity and fixed income research, $13,200
per year, $13,220 paid in 1994. These entities receive payments through
Wellington and Company and The Citation Group which received $1.75 and $1.70
respectively for each $1 paid. The fees listed above include those paid by both
RMA and the Trust. Total commissions paid by the Trust to Wellington and Company
and The Citation Group amounted to $13,625 and $4,035, respectively.
The Boards of Trustees of the Growth Stock Portfolio and the Trust have
approved an arrangement between RMA and Miller/Howard Investments, Inc. under
which Miller/Howard Investments, Inc. will provide RMA with research services
regarding securities under consideration for purchase and sale by the Growth
Stock Portfolio and the timing of the purchase and sale of such securities.
Miller/Howard Investments, Inc. will be paid for such research services by one
or more broker/dealers executing securities transactions on behalf of the Growth
Stock Portfolio. Lowell Miller, the President and a director of Miller/Howard
Investments, Inc., is a Vice President of The Flex-funds. Miller/Howard
Investments, Inc. serves as the subadviser to the Utilities Stock Portfolio. All
of the assets of the Total Return Utilities Fund, a series of The Flex-funds,
and the BTB Fund, a series of The Flex-Partners, are invested in the Utilities
Stock Portfolio.
It is the opinion of the Trust, the Portfolios and RMA that the receipt of
research from brokers will not materially reduce RMA's own research activities
or the overall cost of fulfilling its contracts with the Trust or the
Portfolios. Neither the Trust nor the Portfolios have any broker/dealer
affiliate.
During the year ended December 31, 1994, the Growth Stock Portfolio paid
total commissions of $135,422 ($99,419 in 1993; $248,993 in 1992). The Mutual
Fund Portfolio paid no commissions in 1994 ($0 in 1993; $28,928 in 1992) on the
purchase and sale of portfolio securities.
VALUATION OF PORTFOLIO SECURITIES
Except for securities owned by The Money Market Portfolio, securities owned
by a Portfolio and listed or traded on any national securities exchange are
valued at each closing of the New York Stock Exchange on the basis of the last
sale on such exchange each day that the exchange is open for business. If there
is no sale on that day, or if the security is not listed, it is valued at its
last bid quotation on the exchange or, in the case of unlisted securities, as
obtained from an established market maker. Futures contracts are
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<PAGE> 39
valued on the basis of the cost of closing out the liability; i.e., at the
settlement price of a closing contract or at the asked quotation for such a
contract if there is no sale. The Money Market Portfolio will value its
securities by the amortized cost method as it maintains a dollar weighted
average portfolio maturity of 90 days or less. Money market instruments
(certificates of deposit, commercial paper, etc.) in the other Portfolios,
having maturities of 60 days or less, are valued at amortized cost if not
materially different from market value. Portfolio securities for which market
quotations are not readily available are to be valued by the Manager in good
faith at its own expense under the direction of the Trustees. In The Bond and
Short-Term Global Portfolios, securities are valued each day at 3:00 p.m.
Other assets, which include cash, prepaid and accrued items and amounts
receivable as income on investments and from the sale of portfolio securities,
are carried at book value, as are all liabilities. Liabilities include accrued
expenses, sums owed for securities purchased, and dividends payable.
CALCULATION OF YIELD - THE MONEY MARKET FUND
The Money Market Fund calculates its yield quotations based on the net
change, exclusive of realized and unrealized gains or losses, in the value of a
hypothetical account over a seven calendar day base period. The following is an
example of the yield calculations for the seven days ended December 31, 1994.
<TABLE>
<S> <C>
Simple yield:
Value of hypothetical account at end of period $1.00107441
Value of hypothetical account at beginning of
period 1.00000000
-----------
Base period return $ .00107441
===========
Current seven day yield (.00107441 x (365/7) 5.60%
Effective yield:
Effective yield [(.00107441 + 1)365/7 ] - 1 5.76%
</TABLE>
These yields reflect the Manager's decision to voluntarily waive a portion
of its management fee. Therefore, the Fund realized a higher yield as a result
of reduced expenses. Investors should recognize that yields are not necessarily
representative of future results, but will vary as a function of market
conditions and expenses incurred.
The Manager presently intends to waive a portion of its management fee in
the Money Market Portfolio to the extent necessary to achieve for The Money
Market Fund a compound annualized yield that will rank within the top 10% of
yields for all general purpose money market funds in 1995. There is no guarantee
that waiver of fees alone will
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<PAGE> 40
accomplish this objective. The Manager may change this policy at any time
without notice to shareholders. This would, in some circumstances, have an
adverse effect on the net income of the Fund, and the yields earned by
shareholders. For planning purposes prospective investors and shareholders
should assume that expenses will be based on the maximum fee. (See "Synopsis of
Financial Information" in the Trust's Prospectus.)
CALCULATION OF TOTAL RETURN
From time to time The Growth, Muirfield, Bond and Short-Term Global Income
Funds may advertise their average annual total returns for various periods of
time. When applicable, depending on the Fund, the periods of time shown will be
for a one-year period; a five-year period (or relevant portion thereof) and
since inception. The calculation assumes the reinvestment of all dividends and
distributions. Below is an example of the total return calculation for The
Muirfield Fund assuming a hypothetical investment of $1,000 at the beginning of
each period.
It is computed by finding the average annual compounded rates of return over
the length of the base periods that would equate the initial amount invested to
the ending redeemable value, according to the following formula:
n
P (1+T) = ERV
P = initial investment of $1,000
T = average annual total return
n = Number of years
ERV = ending redeemable value at the
end of the base period
THE MUIRFIELD FUND:
<TABLE>
<CAPTION>
Total Return
--------------------------------------------------------------
1 Year 5 Years 6.4 Years
Period Ended Period Ended Period Ended
December 31, 1994 December 31, 1994 December 31, 1994
----------------- ----------------- -----------------
<S> <C> <C> <C>
Value of Account
At end of Period $1,027.00 $1,576.40 $1,908.92
Value of Account
At beginning of Period 1,000.00 1,000.00 1,000.00
--------- --------- ---------
Base Period Return $ 27.00 $ 576.40 $ 908.92
Average Total Return 2.70% 9.53% 10.63%
</TABLE>
Values were computed according to the following formulas:
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<TABLE>
<S> <C> <C>
1 Year: $1,000 (1 + .0270) = $1,027.00
5 Years: $1,000 (1 + .0953)(5) = $1,576.40
6.4 Years: $1,000 (1 + .1063)(6.4) = $1,908.92
</TABLE>
The Total Return performance data in this hypothetical example represents past
performance and the investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost.
Total Return quotations, when advertised for The Growth, Bond and Short-Term
Global Income Funds, are calculated in the same manner as described above.
CALCULATION OF YIELD - THE BOND FUND AND SHORT-TERM GLOBAL INCOME FUNDS
From time to time each of The Bond and Short-Term Global Income Funds may
advertise its thirty-day yield quotation. It is computed by dividing the net
investment income per accumulation unit earned during the period by the maximum
offering price per unit on the last day of the period, according to the
following formula:
YIELD = 2 [(a - b + 1)(6) - 1]
-----
cd
a = income earned during the period
b = expense accrued for the period
c = average number of shares outstanding during the period
d = offering price per share on the last day of the period
Below is an example of calculation of The Bond Fund's yield for the thirty days
ended December 31, 1994:
4.51% = 2 [($ 58,283 - $10,530 +1)(6) - 1]
------------------
666,607 x 19.25
Quotations of yield for each of The Bond and Short-Term Global Income Funds
will be accompanied by total return calculations current to the most recent
calendar quarter. Total return will be calculated in the manner described above
(See "Calculation of Total Return"). Below is an example of the total return
calculation for The Bond Fund assuming a hypothetical investment of $1,000 at
the beginning of each period.
22
<PAGE> 42
THE BOND FUND:
<TABLE>
<CAPTION>
Total Return
-----------------------------------------------
1 Year 5 Years 9.65 Years
Period Ended Period Ended Period Ended
Dec. 31, 1994 Dec. 31, 1994 Dec. 31, 1994
------------- ------------- -------------
<S> <C> <C> <C>
Value of Account
At end of Period $ 990.10 $1,382.35 $1,891.96
Value of Account
At beginning of Period 1,000.00 1,000.00 1,000.00
--------- --------- ---------
Base Period Return $ -9.90 $ 382.35 $ 891.96
Average Total Return -.99% 6.69% 6.83%
</TABLE>
The Total Return performance data in this hypothetical example, represents
past performance and the investment return and principal value of an investment
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
INVESTMENT ADVISER AND MANAGER
R. Meeder & Associates, Inc. (the "Manager") is the investment adviser and
manager for, and has a separate Investment Advisory Contract with, each
Portfolio. Previously, the Manager managed the assets of the Funds pursuant to
separate investment advisory contracts until May of 1992, at which time the
investment by the Funds in the Portfolios was implemented.
The Investment Advisory Contract for each 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. Each of these contracts 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 outstanding shares of each 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 renewals.
Each 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 Trust 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 Trust's
Funds. Thus, each Fund pays
23
<PAGE> 43
its proportionate share of: the fees of the Trust's independent auditors, legal
counsel, custodian, transfer agent and accountants; insurance premiums; the fees
and expenses of Trustees who do not receive compensation from R. Meeder &
Associates; 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 2/10 of
1% limitation of each Fund's Distribution Plan, including the cost of printing
and mailing of prospectuses and other materials incident to soliciting new
accounts; and other miscellaneous expenses.
The respective expenses of each Portfolio include the compensation of their
respective Trustees who are not affiliated with the Adviser; registration fees;
membership dues allocable to the Portfolio; fees and expenses of independent
accountants, of legal counsel and of any transfer agent, accountant, custodian
of the Portfolio; insurance premiums and other miscellaneous expenses.
Expenses of each Portfolio also include all fees under its 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
Adviser under the Advisory Contract and other miscellaneous expense.
The Board of Trustees of the Trust believe that the aggregate per share
expenses of any Fund and its corresponding Portfolio will be less than or
approximately equal to the expenses which a 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 Growth Stock and Mutual Fund Portfolios is based upon the
average net assets of each 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. Annual fees for the Bond and Short-Term Global Portfolios
are at the rate of 0.40% of the first $100 million of average net assets and
0.20% in excess of $100 million. The annual fee for the Money Market Portfolio
is at the rate of 0.40% of the first $100 million and 0.25% in excess of $100
million, of average net assets.
For the year ended December 31, 1994, the Growth Stock Portfolio paid fees
to the Manager totaling $240,045 ($259,462 in 1993; $317,929 in 1992); in The
Mutual Fund Portfolio $743,058 ($658,238 in 1993; $515,994 in 1992); in the Bond
Portfolio $33,422 ($35,998 in 1993; $22,526 in 1992); in the Short-Term Global
Portfolio $12,667 ($107,296 in 1993; $67,445 in 1992); in the Money Market
Portfolio $243,359 ($232,839 in 1993; $282,926 in 1992).
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
24
<PAGE> 44
Manager is a wholly-owned subsidiary of Muirfield Investors, Inc. ("MII"), which
is controlled by Robert S. Meeder, Sr. The Manager's officers and directors, and
the principal offices held by each in MII are as set forth in the Prospectus
under the caption "The Trust and its Management." Mr. Robert S. Meeder, Sr. is
President and a Trustee of the Trust and each Portfolio. Mr. Robert S. Meeder,
Jr., is a Trustee and officer of the Trust and an officer of each Portfolio. Mr.
Philip A. Voelker is a Trustee and officer of each Portfolio and an officer of
the Trust. Each of Messrs. Donald F. Meeder, Wesley F. Hoag and Steven T. McCabe
is an officer of the Trust and each Portfolio.
OFFICERS AND TRUSTEES
The Trust and each Portfolio are managed by its Trustees and officers. Their
names, positions and principal occupations during the past five years are listed
below:
<TABLE>
<CAPTION>
Position Principal
Name & Address Held Occupation
- -------------- -------- ----------
<S> <C> <C>
ROBERT S. MEEDER, SR.*+ Trustee/ Chairman of R.
President (1)(2) Meeder & Associates,
Inc., an Investment
Adviser.
MILTON S. BARTHOLOMEW, ESQ. Trustee (2) 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 Trustee (1) Professor of Marketing
Blackwell Associates, Inc. and Consumer
2929 Kenny Road, Suite 190 Behavior, The Ohio
Columbus, OH 43221 State University, and
President of Blackwell
Associates, Inc., a
strategic consulting
firm.
JOHN M. EMERY Trustee (1) Retired, formerly Vice
2390 McCoy Road President & Treasurer
Columbus, OH 43220 of Columbus &
Southern Ohio
Electric Co. Member
of the Trust's Audit
Committee.
</TABLE>
25
<PAGE> 45
<TABLE>
<S> <C> <C>
RICHARD A. FARR Trustee (1) President of R&R
3250 W. Henderson Road Supply Co. and
Columbus, OH 43220 General Manager of
RAFCo., Inc., two
companies involved
in engineering, consul-
ting & sales of heating
& air conditioning
equipment.
RUSSEL G. MEANS Trustee (2) Chairman of
4789 Rings Road Employee Benefit
Dublin, OH 43017 Management Corpo-
ration, consultants and
administrators of self-
funded health and
retirement plans.
ROBERT S. MEEDER, JR. *+ Trustee (1)/ President/Portfolio
Vice Manager of
President (1)(2) R. Meeder &
Associates, Inc.
WALTER L. OGLE Trustee (2) Executive Vice
One Corporate Drive President of Godwins,
Clearwater, FL 34622 Booke & Dickenson
employee benefit,
compensation and
human resource
consultants.
NEIL P. RAMSEY Trustee (2) President, Ramsey
Suite 215 Financial, a private
1230 Hurstbourne Parkway investment manage-
Louisville, KY 40222 ment company.
PHILIP A. VOELKER *+ Trustee (2)/ Senior Vice President
Vice President(1)(2) of R. Meeder &
Associates, Inc.
JAMES B. CRAVER * Assistant Senior Vice President
6 St. James Avenue Secretary (1)(2) of Signature Financial
Boston, MA 02116 Group, Inc. (since
January 1991);
Partner, Baker &
</TABLE>
26
<PAGE> 46
<TABLE>
<S> <C> <C>
Hostetler (August
1984 to December
1990).
WESLEY F. HOAG*+ Vice President (1)(2) General Counsel and
Chief Operating
Officer of R. Meeder
& Associates, Inc.
(since July 1993);
Attorney, Porter,
Wright, Morris &
Arthur, a law firm
(October 1984 to June
1993).
STEVEN T. MCCABE *+ Assistant Controller, R. Meeder
Treasurer (1)(2) & Associates (since
April 1991); Assistant
Treasurer, Cardinal
Group of Funds
(October 1986 to
April 1990)
DONALD F. MEEDER *+ Secretary/ Vice President of R.
Treasurer (1)(2) Meeder & Associates,
Inc., and President of
Mutual Funds Service
Company.
</TABLE>
(1) Trustee and/or officer of The Flex-funds
(2) Trustee and/or officer of each Portfolio
* "Interested Person" of the Trust (as defined in the Investment Company Act of
1940).
+ P.O. Box 7177, 6000 Memorial Drive, Dublin, Ohio 43017.
Trustees and officers of the Trust and the Portfolios own in aggregate less
than 1% of the Trust's outstanding shares. Robert S. Meeder, Sr. is Robert S.
Meeder, Jr.'s father and Donald F. Meeder's uncle.
Several Trustees and each officer of the Trust hold the same positions with
The Flex-Partners, a Massachusetts business trust consisting of three separate
series. Each Trustee and officer of the Portfolio hold the same positions with
each corresponding Portfolio of The Flex-funds and Flex-Partners Trusts. The
Manager serves as the investment adviser to each Portfolio of The Flex-funds and
Flex-Partners Trusts.
27
<PAGE> 47
The Trust pays each Trustee who is not an "interested person" an annual fee
of $3,000, plus $750 for each meeting of the Board of Trustees attended
regardless of the number of Boards of Trustees on which each Trustee serves. Mr.
Emery comprises the Audit Committee for each of The Flex-funds and The
Flex-Partners Trusts. Mr. Emery is paid $400 for each meeting of the Audit
Committees attended regardless of the number of Audit Committees on which he
serves. Trustee fees for The Flex-funds totaled $13,625 for the year ended
December 31, 1994 ($16,500 in 1993). Mr. Emery comprises the Trust's Audit
Committee. Audit Committee meeting fees totaled $800 for the year ended December
31, 1994 ($800 in 1993). All other officers and Trustees serve without
compensation from the Trust.
The Portfolios pay each Trustee who is not an "interested person" an annual
fee of $3,000, plus $750 for each meeting of the Board of Trustees attended
regardless of the number of Boards of Trustees on which each Trustee serves. Mr.
Bartholomew comprises the Audit Committee for each of the corresponding
Portfolios of The Flex-funds and The Flex-Partners Trusts. Mr. Bartholomew is
paid $400 for each meeting of the Audit Committee attended regardless of the
number of Audit Committees on which he serves. All other officers and Trustees
serve without compensation from the Portfolios. Trustee fees for all Portfolios
combined totaled $18,750 for the year ended December 31, 1994 ($18,000 in 1993).
Mr. Bartholomew comprises each Portfolio's Audit Committee. Audit Committee
meeting fees for all Portfolios totaled $800 for the year ended December 31,
1994 ($400 in 1993). All other officers and Trustees of the Portfolios serve
without compensation from any Portfolio.
DISTRIBUTION PLANS
Rule 12b-1 (the "Rule") under the Investment Company Act of 1940 (the "Act")
describes the circumstances under which an investment company such as the Trust
may, directly or indirectly, bear the expenses of distributing its shares. The
Rule defines such distribution expenses to include the cost of any activity
which is primarily intended to result in the sale of Trust shares.
The Trust has adopted a Distribution Plan for each of the five Funds
described herein. These Plans permit, among other things, payment for
distribution in the form of commissions and fees, advertising, the services of
public relations consultants, and direct solicitation. Possible recipients
include securities brokers, attorneys, accountants, investment advisers,
investment performance consultants, pension actuaries, and service
organizations. Another class of recipients is banks. Currently, The Glass -
Steagall Act and other applicable laws, among other things, prohibit banks from
engaging in the business of underwriting, selling or distributing securities.
Since the only function of banks who may be engaged as participating
organizations, is to perform administrative and shareholder servicing functions,
the Trust believes that such laws should not preclude banks from acting as
participating organizations; however, future changes in either federal or state
statutes or regulations relating to the permissible activities of banks and
their subsidiaries or affiliates, as well as judicial or administrative
decisions or interpretations of statutes or regulations, could prevent a bank
from continuing to perform all or a part of its shareholder service activities.
If a bank were prohibited from so acting, its shareholder
28
<PAGE> 48
customers would be permitted to remain Trust shareholders and alternative means
for continuing the servicing of such shareholders would be sought. In such
event, changes in the operation of the Trust might occur and a shareholder being
serviced by such bank might no longer be able to avail himself, or itself, of
any automatic investment or other services then being provided by the bank. It
is not expected that shareholders would suffer any adverse financial
consequences as a result of any of these occurrences. In addition, state
securities laws on this issue may differ from the interpretations of federal law
expressed herein and banks and financial institutions may be required to
register as dealers pursuant to state law.
The Trust may expend in each of the five Funds as described herein as much
as, but not more than 2/10 of 1% of the Fund's average net assets annually
pursuant to the Plan. A report of the amounts so expended in each such Fund and
the purpose of the expenditures must be made to and reviewed by the Board of
Trustees at least quarterly. In addition, the Plan for each such Fund provides
that it may not be amended to increase materially the costs which the Fund may
bear for distribution pursuant to the Plan without shareholder approval of the
Plan, and that other material amendments of the Plan must be approved by the
Board of Trustees, and by the Trustees who are not "interested persons" of the
Trust (as defined in the Act) and who have no direct or indirect financial
interest in the operation of the Plan or in the related service agreements, by
vote cast in person at a meeting called for the purpose of voting on the Plan.
The Plan for each of the Trust's Funds is terminable at any time by vote of
a majority of the Trustees who are not "interested persons" and who have no
direct or indirect financial interest in the operation of the Plan or in any of
the related service agreements or by vote of a majority of the Trust's shares.
Any service agreement terminates upon assignment and is terminable without
penalty at any time by a vote of a majority of the Trustees who are not
"interested persons" and who have no direct or indirect financial interest in
the operation of any of the Plans or in any of the related service agreements,
upon not more than 60 days' written notice to the service organization, or by
the vote of the holders of a majority of the Trust's shares, or, upon 15 days'
notice, by a party to a service agreement.
Each Plan was approved by the Trust's Board of Trustees, who made a
determination that there is a reasonable likelihood that the Plans will benefit
the Funds. The Plans were approved by shareholders and they will continue in
effect only if approved at least annually by the Board of Trustees. The Trust
has entered into agreements whereby a Trustee and a company with which one of
the Trustees is affiliated will be paid for their assistance in explaining and
interpreting the Funds, their investment objectives and policies, and the
Trust's retirement plans, to clients. These include: Russel G. Means, a Trustee
of the Portfolios; and the firm of Ogle and Waters, Inc. with which Walter L.
Ogle, a Trustee of the Portfolios, is affiliated. Total payments made by the
Trust to parties with service agreements for the year ended December 31, 1994
amounted to $117,477 ($167,979 in 1993; $182,888 in 1992). In addition,
expenditures were approved by the Board of Trustees for the printing and mailing
of prospectuses, periodic reports and other sales materials to prospective
investors; advertising; the services of public relations and marketing
consultants; and the cost of special telephone service to encourage the sale
29
<PAGE> 49
of Fund shares. These expenditures amounted to $174,876 for the year ended
December 31, 1994 ($146,316 in 1993; $145,987 in 1992).
The table below states the amounts paid under each current Fund's
distribution plan for the year ended December 31, 1994.
DISTRIBUTION PLAN EXPENSES PAID BY THE FUNDS*
<TABLE>
<CAPTION>
Short-Term
Money Global
Type of Expense Growth Muirfield Bond Market Income
- --------------- ------ --------- ---- ------ ----------
<S> <C> <C> <C> <C> <C>
Payments to
Consultants $13,671 $40,752 $ 7,041 $ 52,325 $ 3,688
Public Relations $12,657 $16,986 $ 7,185 $ 10,401 $ 4,958
Marketing/
Advertising $12,027 $16,042 $10,985 $ 13,806 $10,272
Wats Telephone
Service $ 1,269 $ 2,440 $ 523 $ 4,803 $ 164
Printing and Mailing $ 5,698 $14,987 $ 2,458 $ 25,296 $ 1,919
------- ------- ------- -------- -------
Total $45,322 $91,207 $28,192 $106,631 $21,001
</TABLE>
*Distribution expenses of the Trust attributable to a particular Fund are
borne by that Fund. Distribution expenses which are not readily identifiable as
attributable to a particular Fund are allocated among each of the five Funds
descibed above based on the relative size of their average net assets.
In order to comply with certain state requirements, each Fund of the Trust
and its corresponding Portfolio in the aggregate (i) will not pay or charge
sales fees, which may not be used for sales expenses or in lieu of an additional
sales charge or redemption fee; and (ii) the total charges against net assets
for sales distribution activities and/or the servicing of shareholder accounts
will not be in excess of .25% of average net assets per annum.
In addition, any Agent or Consultant that contemplates entering into an
agreement with the Trust for payment in connection with the distribution of Fund
shares, under any Fund's distribution plan, shall be responsible for complying
with any applicable securities or other laws which may be applicable to the
rendering of any such services. It would appear that any Agent or Consultant
would need to be registered as broker/dealer in the state of Texas if Texas
residents are their clients.
30
<PAGE> 50
FLEX-FUNDS RETIREMENT PLANS
The Trust offers retirement plans which are described in the Prospectus.
Minimum purchase requirements for retirement plan accounts are subject to the
same requirements as regular accounts, except for an IRA, which has a $500
minimum purchase requirement. Information concerning contribution limitations
for IRA accounts are described below.
Individual Retirement Accounts (IRA):
Limitation on Deductible Contributions - Under prior law an individual with
earned income, not yet 70 1/2 years of age, was allowed a deductible IRA
contribution, limited to the lesser of earned income or $2,000. Effective for
years beginning after December 31, 1986, applicable law limits the deductibility
of IRA contributions where the taxpayer is a participant in an
employer-sponsored retirement plan and has adjusted gross income (AGI) in excess
of $40,000 (joint) and $25,000 (single). For every dollar that AGI exceeds these
limits, the maximum deduction is reduced by twenty cents. Thus, a joint filer
with AGI greater than $50,000 who is covered by an employer sponsored plan will
not be able to make a deductible IRA contribution. The deductible limits for
individuals not covered by an employer-sponsored plan were not changed.
Nondeductible Contributions - Individuals who may not make a deductible
contribution due to the limits noted above, may continue to make nondeductible
contributions subject to the prior $2,000 limitation. The earnings on such
contributions will still accumulate on a tax deferred basis. Individuals will be
required to report such contributions on their tax returns.
Rollover Contributions - Individuals who receive certain lump-sum
distributions from employer-sponsored retirement plans may make roll-over
contributions to an IRA and by doing so defer taxes on the distribution and
shelter any investment earnings.
A Spousal IRA is also available.
OTHER SERVICES
Custodian - Star Bank, N.A., Star Bank Center, 425 Walnut Street,
Cincinnati, Ohio 45202, is custodian of all of the Trust's assets.
Auditors - KPMG Peat Marwick LLP, Two Nationwide Plaza, Columbus, Ohio,
43215, has been retained as independent auditors for the Trust.
Stock Transfer Agent - Mutual Funds Service Co., 6000 Memorial Drive,
Dublin, Ohio 43017, a wholly owned subsidiary of Muirfield Investors, Inc., is
the Trust's stock transfer and dividend disbursing agent.
31
<PAGE> 51
Subadministrator - Signature Financial Group, Inc., 6 St. James Avenue,
Suite 900, Boston, Massachusetts 02116, has been retained as Subadministrator to
provide certain day-to-day administrative services to the Trust.
Reports to Shareholders - The Trust provides shareholders with quarterly
reports of investments and other information, semi-annual financial statements,
and annual reports.
PRINCIPAL HOLDERS OF OUTSTANDING SHARES
As of December 31, 1994 the following persons owned 5% or more of a class of
the Trust's outstanding shares of beneficial interest:
<TABLE>
<CAPTION>
Name Name & Address Amount of Record Percent
of Fund of Beneficial Owner and Beneficially of Class
- ------- ------------------- ----------------- --------
<S> <C> <C> <C>
Bond Fund Union Fidelity Life Insurance Co. 47,664.442 shares 7.3%
123 N. Wacker Drive
Chicago, IL 60606
Short-Term COBA Select Sires, Inc. 36,853.043 shares 8.7%
Global Fund 1224 Alton Darby Road
Columbus, OH 43228
</TABLE>
The shareholders listed above owns shares for investment purposes and have
no known intention of exercising any control of the Trust.
ADDITIONAL INFORMATION
Registration Statement: This Statement of Additional Information omits
certain of the information contained in the Registration Statement filed with
the Securities and Exchange Commission by the Trust. Items of information which
are thus omitted may be obtained from the Commission upon payment of the fee
prescribed by its Rules and Regulations, or may be examined at the offices of
the Commission without charge.
FINANCIAL STATEMENTS
Not Applicable
32
<PAGE> 52
THE FLEX-FUNDS CROSS REFERENCE SHEET TO FORM N-1A
FOR TOTAL RETURN UTILITIES FUND
Part B.
Item No. Statement of Additional Information
10 Cover Page
11 Table of Contents
12 Not Applicable
13 Investment Policies and Limitations
14(a)(b) Trustees and Officers
14(c) Not Applicable
15(a)(b) Not Applicable
15(c) Trustees and Officers
16(a)(b) Investment Adviser and Manager
Investment Subadviser
16(c) Not Applicable
16(d) Not Applicable
16(e) Not Applicable
16(f) Distribution Plan
16(g) Not Applicable
16(h) Description of the Trust
16(i) Contracts with Companies Affiliated With Manager
17 Portfolio Transactions
18(a) Description of the Trust
18(b) Not Applicable
19(a) Additional Purchase and Redemption Information
19(b) Valuation of Portfolio Securities
Additional Purchase and Redemption Information
20 Distributions and Taxes
21 Not Applicable
22(a) Not Applicable
22(b) Performance
23 Financial Statements
<PAGE> 53
TOTAL RETURN UTILITIES FUND
A FUND OF THE FLEX-FUNDS TRUST
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER 6, 1995
This Statement is not a prospectus but should be read in conjunction with
the Fund's current Prospectus (dated March 6, 1995). Please retain this document
for future reference. To obtain an additional copy of the Prospectus, please
call Mutual Funds Service Co. at 1-800-325-3539. Capitalized terms used and not
otherwise defined herein have the same meanings as defined in the Prospectus.
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
<S> <C>
Investment Policies and Limitations 2
Portfolio Transactions 15
Valuation of Portfolio Securities 17
Performance 17
Additional Purchase and Redemption Information 19
Distributions and Taxes 21
Investment Adviser and Manager 22
Investment Subadviser 23
Distribution Plan 24
Trustees and Officers 25
Flex-funds Retirement Plans 28
Contracts With Companies Affiliated With Manager 28
Description of the Trust 29
Financial Statements 30
</TABLE>
INVESTMENT ADVISER TRANSFER AGENT
R. Meeder & Associates, Inc. Mutual Funds Service Co.
INVESTMENT SUBADVISER
Miller/Howard Investments, Inc.
<PAGE> 54
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 Trustees 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;
(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);
(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 may invest more than 25% of its total
assets in securities of public utility companies;
(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);
2
<PAGE> 55
(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); or
(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 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 (a) from a bank or from a registered
investment company for which the Manager serves as investment adviser 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.
(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.
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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 Trust and those officers and
directors of 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 11. For the Portfolio's limitations on short sales, see the section
entitled "Short Sales" on page 14.
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
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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 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:
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.
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.
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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. 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.
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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 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.
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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.
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 custodial
account to cover its obligation under the agreement. The Portfolio will enter
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.
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
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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).
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.
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,
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ADRs and EDRs are alternatives to the purchase of the underlying securities in
their national markets and currencies.
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
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
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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. 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 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.
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.
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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.
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.
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.
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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.
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
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
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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.
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.
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 the Subadviser
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 Fund 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
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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. The Subadviser expects the annual portfolio turnover
rate will be 50% 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. High portfolio turnover may involve
correspondingly greater brokerage commissions and other transaction costs which
will be borne directly by the Portfolio.
PORTFOLIO TRANSACTIONS
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
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
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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 is authorized to use research services provided by and to
place portfolio transactions with brokerage firms that have provided assistance
in the distribution of shares of the Fund or shares of other Flex-funds' funds
or Flex-Partners' funds to the extent permitted by law.
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 expenses, such as transfer agent fees of Mutual Funds Service
Co. 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 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.
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 formula considered by the officers of the portfolios involved to be
equitable to each portfolio. In some cases this system could have a
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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.
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. Equity securities for which the primary market is outside
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 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 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 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, then the security will be valued as
determined in good faith by the Board of Trustees.
PERFORMANCE
The Fund may quote its performance in various ways. All performance
information supplied by the Fund in advertising is historical and is not
intended to indicate future returns. The Fund's share price
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and total returns fluctuate in response to market conditions and other factors,
and the value of Fund shares when redeemed may be more or less than their
original cost.
TOTAL RETURN CALCULATIONS. Total returns quoted in advertising reflect all
aspects of the Fund's return, including the effect of reinvesting dividends and
capital gain distributions, and any change in the Fund's net asset value over
the period. Average annual returns will be calculated by determining the growth
or decline in value of a hypothetical historical investment in the Fund over a
stated period, and then calculating the annually compounded percentage rate that
would have produced the same result if the rate of growth or decline in value
had been constant over the period. For example, a cumulative return of 100% over
ten years would produce an average annual return of 7.18%, which is the steady
annual rate of return that would equal 100% growth on a compounded basis in ten
years. While average annual returns are a convenient means of comparing
investment alternatives, investors should realize that the Fund's performance is
not constant over time, but changes from year to year, and that average annual
returns represent averaged figures as opposed to the actual year-to-year
performance of the Fund.
In addition to average annual returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Average annual and 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, or series of redemptions over any time
period. Total returns may be broken down into their components of income and
capital (including capital gains and changes in share price) in order to
illustrate the relationship of these factors and their contributions to total
return. Total returns may be quoted on a before-tax or after-tax basis. Total
returns, yields, and other performance information may be quoted numerically, or
in a table, graph, or similar illustration.
NET ASSET VALUE. Charts and graphs using the Fund's net asset values,
adjusted net asset values, and benchmark indices may be used to exhibit
performance. An adjusted net asset value includes any distributions paid by the
Fund and reflects all elements of its return. Unless otherwise indicated, the
Fund's adjusted net asset values are not adjusted for sales charges, if any.
MOVING AVERAGES. The Fund may illustrate performance using moving averages.
A long-term moving average is the average of each week's adjusted closing net
asset value for a specified period. A short-term moving average is the average
of each day's adjusted closing net asset value for a specified period. Moving
Average Activity Indicators combine adjusted closing net asset values from the
last business day of each week with moving averages for a specified period to
produce indicators showing when a net asset value has crossed, stayed above, or
stayed below its moving average.
HISTORICAL FUND RESULTS. The Fund's performance may be compared to the
performance of other mutual funds in general, or to the performance of
particular types of mutual funds. These comparisons may be expressed as mutual
fund rankings prepared by Lipper Analytical Services, Inc. (Lipper), an
independent service located in Summit, New Jersey that monitors the performance
of mutual funds. Lipper generally ranks funds on the basis of total return,
assuming reinvestment of distributions, but does not take sales charges or
redemption fees into consideration, and total return is prepared without regard
to tax consequences. In addition to the mutual fund rankings, the Fund's
performance may be compared to mutual fund performance indices prepared by
Lipper.
From time to time, the Fund's performance may also be compared to other
mutual funds tracked by financial or business publications and periodicals. For
example, the Fund may quote Morningstar, Inc. in its advertising materials.
Morningstar, Inc. is a mutual fund rating service that rates mutual funds on the
basis of risk-adjusted performance. Rankings that compare the performance of
Flex-Partners or
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Flex-funds funds to one another in appropriate categories over specific periods
of time may also be quoted in advertising.
In advertising materials, the Trust may reference or discuss its products
and services, which may include: other Flex-Partners or Flex-funds funds;
retirement investing; the effects of periodic investment plans and dollar cost
averaging; saving for college; and charitable giving. In addition, the Fund may
quote financial or business publications and periodicals, including model
portfolios or allocations, as they relate to Fund management, investment
philosophy, and investment techniques. The Fund may also reprint, and use as
advertising and sales literature, articles from Reflexions, a quarterly magazine
provided free of charge to Flex-Partners and Flex-funds shareholders.
VOLATILITY. The Fund may quote various measures of volatility and benchmark
correlation in advertising. In addition, the Fund may compare these measures to
those of other funds. Measures of volatility seek to compare the Fund's
historical share price fluctuations or total returns to those of a benchmark.
Measures of benchmark correlation indicate how valid a comparative benchmark may
be. All measures of volatility and correlation are calculated using averages of
historical data.
MOMENTUM INDICATORS indicate the Fund's price movements over specific
periods of time. Each point on the momentum indicator represents the Fund's
percentage change in price movements over that period.
The Fund may advertise examples of the effects of periodic investment plans,
including the principle of dollar cost averaging. In such a program, an investor
invests a fixed dollar amount in a Fund at periodic intervals, thereby
purchasing fewer shares when prices are high and more shares when prices are
low. While such a strategy does not assure a profit or guard against loss in a
declining market, the investor's average cost per share can be lower than if
fixed numbers of shares are purchased at the same intervals. In evaluating such
a plan, investors should consider their ability to continue purchasing shares
during periods of low price levels.
The Fund may be available for purchase through retirement plans or other
programs offering deferral of, or exemption from, income taxes, which may
produce superior after-tax returns over time. For example, a $1,000 investment
earning a taxable return of 10% annually would have an after-tax value of $1,949
after ten years, assuming tax was deducted from the return each year at a 31%
rate. An equivalent tax-deferred investment would have an after-tax value of
$2,100 after ten years, assuming tax was deducted at a 31% rate from the
tax-deferred earnings at the end of the ten-year period.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
The Fund is open for business and its net asset value per share (NAV) is
calculated each day the NYSE is open for trading. The NYSE has designated the
following holiday closings for 1995: Washington's Birthday (observed), Good
Friday, Memorial Day (observed), Independence Day (observed), Labor Day,
Thanksgiving Day, and Christmas Day (observed). Although the Subadviser expects
the same holiday schedule, with the addition of New Year's Day, to be observed
in the future, the NYSE may modify its holiday schedule at any time.
The Fund's net asset value is determined as of the close of the NYSE
(normally 4:00 p.m. Eastern time). However, NAV may be calculated earlier if
trading on the NYSE is restricted or as permitted by the SEC. To the extent that
portfolio securities are traded in other markets on days when the NYSE is
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closed, the Fund's NAV may be affected on days when investors do not have access
to the Fund to purchase or redeem shares.
Shareholders of the Fund will be able to exchange their shares for shares of
any mutual fund that is a series of The Flex-funds (each a "Flex-funds' Fund").
No fee or sales load will be imposed upon the exchange.
Additional details about the exchange privilege and prospectuses for each of
the Flex-funds Funds are available from the Fund's Transfer Agent. The exchange
privilege may be modified, terminated or suspended on 60 days' notice, and the
Fund has the right to reject any exchange application relating to such fund's
shares. The 60 day notification requirement may be waived if (i) the only effect
of a modification would be to reduce or eliminate an administrative fee,
redemption fee, or deferred sales charge ordinarily payable at the time of an
exchange, or (ii) the Fund suspends the redemption of the shares to be exchanged
as permitted under the 1940 Act or the rules and regulations thereunder, or the
fund to be acquired suspends the sale of its shares because it is unable to
invest amounts effectively in accordance with its investment objective and
policies.
In the Prospectus, the Fund has notified shareholders that it reserves the
right at any time, without prior notice, to refuse exchange purchases by any
person or group if, in the Subadviser's judgment, the Fund would be unable to
invest effectively in accordance with its investment objective and policies, or
would otherwise potentially be adversely affected.
AUTOMATIC ACCOUNT BUILDER. An investor may arrange to have a fixed amount of
$100 or more automatically invested in shares of the Fund monthly by authorizing
his or her bank account to be debited to invest specified dollar amounts in
shares of the Fund. The investor's bank must be a member of the Automatic
Clearing House System. Stock certificates are not issued to Automatic Account
Builder participants.
Further information about these programs and an application form can be
obtained from the Fund's Transfer Agent.
SYSTEMATIC WITHDRAWAL PROGRAM. A systematic withdrawal plan is available for
shareholders having shares of the Fund with a minimum value of $10,000, based
upon the offering price. The plan provides for monthly, quarterly or annual
checks in any amount, but not less than $100 (which amount is not necessarily
recommended).
Dividends and/or distributions on shares held under this plan are invested
in additional full and fractional shares at net asset value. The Transfer Agent
acts as agent for the shareholder in redeeming sufficient full and fractional
shares to provide the amount of the periodic withdrawal payment. The plan may be
terminated at any time.
Withdrawal payments should not be considered as dividends, yield or income.
If periodic withdrawals continuously exceed reinvested dividends and
distributions, the shareholder's original investment will be correspondingly
reduced and ultimately exhausted.
Furthermore, each withdrawal constitutes a redemption of shares, and any
gain or loss realized must be recognized for federal income tax purposes. Each
shareholder should consult his or her own tax adviser with regard to the tax
consequences of the plan, particularly if used in connection with a retirement
plan.
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DISTRIBUTIONS AND TAXES
DISTRIBUTIONS. If you request to have distributions mailed to you and the
U.S. Postal Service cannot deliver your checks, or if your checks remain
uncashed for six months, the Subadviser may reinvest your distributions at the
then-current NAV. All subsequent distributions will then be reinvested until you
provide the Subadviser with alternate instructions.
DIVIDENDS. A portion of the Fund's income may qualify for the
dividends-received deduction available to corporate shareholders to the extent
that the Fund's income is derived from qualifying dividends. Because the Fund
may earn other types of income, such as interest income from securities loans,
non-qualifying dividends, and short-term capital gains, the percentage of
dividends from the Fund that qualifies for the deduction generally will be less
than 100%. The Fund will notify corporate shareholders annually of the
percentage of Fund dividends that qualifies for the dividends-received
deduction. A portion of the Fund's dividends derived from certain U.S.
government obligations may be exempt from state and local taxation. Gains
(losses) attributable to foreign currency fluctuations are generally taxable as
ordinary income and therefore will increase (decrease) dividend distributions.
The Fund will send each shareholder a notice in January describing the tax
status of dividends and capital gain distributions for the prior year.
CAPITAL GAIN DISTRIBUTIONS. Long-term capital gains earned by the Fund on
the sale of securities by the Portfolio and distributed to shareholders of the
Fund are federally taxable as long-term capital gains regardless of the length
of time shareholders have held their shares. If a shareholder receives a
long-term capital gain distribution on shares of the Fund and such shares are
held six months or less and are sold at a loss, the portion of the loss equal to
the amount of the long-term capital gain distribution will be considered a
long-term loss for tax purposes.
Short-term capital gains distributed by the Fund are taxable to shareholders
as dividends, not as capital gains. Distributions from short-term capital gains
do not qualify for the dividends-received deduction.
FOREIGN TAXES. Foreign governments may withhold taxes on dividends and
interest paid with respect to foreign securities. Because the Fund does not
currently anticipate that securities of foreign issuers will constitute more
than 25% of the Portfolio's total assets at the end of its fiscal year,
shareholders should not expect to claim a foreign tax credit or deduction on
their federal income tax returns with respect to foreign taxes withheld.
TAX STATUS OF THE FUND. The Fund intends to qualify each year as a
"regulated investment company" for tax purposes so that it will not be liable
for federal tax on income and capital gains distributed to shareholders. In
order to qualify as a regulated investment company and avoid being subject to
federal income or excise taxes at the Fund level, the Fund intends to distribute
substantially all of its net investment income (consisting of the income it
earns from its investment in the Portfolio, less expenses) and net realized
capital gains within each calendar year as well as on a fiscal year basis. The
Fund intends to comply with other tax rules applicable to regulated investment
companies, including a requirement that capital gains from the sale of
securities held less than three months constitute less than 30% of the Fund's
gross income for each fiscal year. Gains from some forward currency contracts,
futures contracts, and options are included in this 30% calculation, which may
limit the Fund's investments in such instruments.
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If the Portfolio purchases shares in certain foreign investment entities,
defined as passive foreign investment companies (PFICs) in the Internal Revenue
Code, it may be subject to U.S. federal income tax on a portion of any excess
distribution or gain from the disposition of such shares. Interest charges may
also be imposed on the Portfolio with respect to deferred taxes arising from
such distributions or gains.
The Fund is treated as a separate entity from the other funds of The
Flex-funds Trust for tax purposes.
OTHER TAX INFORMATION. The information above is only a summary of some of
the tax consequences generally affecting the Fund and its shareholders, and no
attempt has been made to discuss individual tax consequences. In addition to
federal income taxes, shareholders may be subject to state and local taxes on
Fund distributions. Investors should consult their tax advisers to determine
whether the Fund is suitable to their particular tax situation.
INVESTMENT ADVISER AND MANAGER
R. Meeder & Associates, Inc. (the "Manager") 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
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 Star Bank, N.A., the Portfolio's custodian and Mutual
Funds Service Co., 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 for 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 Trust 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
22
<PAGE> 75
among all of the Trust's funds. Thus, each fund pays its proportionate share of:
the fees of the Trust's independent auditors, legal counsel, custodian, transfer
agent and accountants; insurance premiums; the fees and expenses of Trustees who
do not receive compensation from R. Meeder & Associates 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,
legal counsel and 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 Trustees of the Trust believe 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.
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 Muirfield Investors, Inc. ("MII"),
which is controlled by Robert S. Meeder, Sr. through the ownership of voting
common stock. The Manager's officers and directors, and the principal offices
are as set forth as follows: Robert S. Meeder, Sr., Chairman and Sole Director;
G. Robert Kincheloe, Senior Vice President; Philip A. Voelker, Senior Vice
President; Donald F. Meeder, Vice President and Secretary; Sherrie L. Acock,
Vice President; Robert D. Baker, Vice President; Robert S. Meeder, Jr.,
President; Richard W. Arndt, Vice President; Wesley F. Hoag, General Counsel and
Chief Operating Officer; and Steven T. McCabe, Controller. Mr. Robert S. Meeder,
Sr. is President and a Trustee of the Trust and the Portfolio. Each of Mr.
Robert S. Meeder, Jr., Donald F. Meeder, Wesley F. Hoag and Steven T. McCabe is
an officer of the Trust and the Portfolio. Mr. Philip A. Voelker is a Trustee
and officer of the Portfolio and an officer of the Trust.
INVESTMENT SUBADVISER
Miller/Howard Investments, Inc., 69 Glasco Turnpike, Woodstock, New York
12498, serves as the Portfolio's Subadviser. Lowell G. Miller controls the
Subadviser through the ownership of voting
23
<PAGE> 76
common stock. Lowell G. Miller is a Trustee of the Flex-Partners, mutual funds
whose corresponding portfolios are also advised by the Manager. 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, in an amount equal to 90% of the
investment advisory fees received by the Manager under its Investment Advisory
Contract with the Portfolio, provided that if a shareholder purchasing shares in
the Fund is solicited by the Manager, the Subadviser is compensated by the
Manager in an amount equal to 60% of such investment advisory fees received by
the Manager.
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.
DISTRIBUTION PLAN
Rule 12b-1 (the "Rule") under the Investment Company Act of 1940 (the "Act")
describes the circumstances under which an investment company such as the Fund
may, directly or indirectly, bear the expenses of distributing its shares. The
Rule defines such distribution expenses to include the cost of any activity
which is primarily intended to result in the sale of Fund shares.
The Distribution Plan permits, among other things, payment for distribution
in the form of commissions and fees, advertising, the services of public
relations consultants, and direct solicitation. Possible recipients include
securities brokers, attorneys, accountants, investment advisers, investment
performance consultants, pension actuaries, and service organizations. Another
class of recipients is banks. Currently, The Glass - Steagall Act and other
applicable laws, among other things, prohibit banks from engaging in the
business of underwriting, selling or distributing securities. Since the only
function of banks who may be engaged as participating organizations, is to
perform administrative and shareholder servicing functions, the Fund believes
that such laws should not preclude banks from acting as participating
organizations; however, future changes in either federal or state statutes or
regulations relating to the permissible activities of banks and their
subsidiaries or affiliates, as well as judicial or administrative decisions or
interpretations of statutes or regulations, could prevent a bank from continuing
to perform all or a part of its shareholder service activities. If a bank were
prohibited from so acting, its shareholder customers would be permitted to
remain Fund shareholders and alternative means for continuing the servicing of
such shareholders would be sought. In such event, changes in the operation of
the Fund might occur and a shareholder being serviced by such bank might no
longer be able to avail himself, or itself, of any automatic investment or other
services then being provided by the bank.
24
<PAGE> 77
It is not expected that shareholders would suffer any adverse financial
consequences as a result of any of these occurrences. In addition, state
securities laws on this issue may differ from the interpretations of federal law
expressed herein and banks and financial institutions may be required to
register as dealers pursuant to state law.
The Fund may expend as much as, but not more than .25% of its average net
assets annually pursuant to the Plan. A report of the amounts so expended by the
Fund and the purpose of the expenditures must be made to and reviewed by the
Board of Trustees at least quarterly. In addition, the Plan provides that it may
not be amended to increase materially the costs which the Fund may bear for
distribution pursuant to the Plan without shareholder approval of the Plan, and
that other material amendments of the Plan must be approved by the Board of
Trustees, and by the Trustees who are not "interested persons" of the Trust (as
defined in the Act) and who have no direct or indirect financial interest in the
operation of the Plan or in the related service agreements, by vote cast in
person at a meeting called for the purpose of voting on the Plan.
The Plan is terminable at any time by vote of a majority of the Trustees who
are not "interested persons" and who have no direct or indirect financial
interest in the operation of the Plan or in any of the related service
agreements or by vote of a majority of the Fund's shares. Any service agreement
terminates upon assignment and is terminable without penalty at any time by a
vote of a majority of the Trustees who are not "interested persons" and who have
no direct or indirect financial interest in the operation of the Plan or in the
related service agreements, upon not more than 60 days written notice to the
service organization, or by the vote of the holders of a majority of the Fund's
shares, or, upon 15 days notice, by a party to a service agreement.
The Plan was approved by the Trust's Board of Trustees, who made a
determination that there is a reasonable likelihood that the Plan will benefit
the Fund. The Plan was approved by shareholders and it will continue in effect
only if approved at least annually by the Board of Trustees.
TRUSTEES AND OFFICERS
The Trustees and executive officers of the Trust are listed below. Except as
indicated, each individual has held the office shown or other offices in the
same company for the last five years. Except as otherwise shown, all persons
named as Trustees also serve in similar capacities for other funds advised by
the Manager. Unless otherwise noted, the business address of each Trustee and
officer is 6000 Memorial Drive, Dublin, Ohio 43017, which is also the address of
the Manager. Those Trustees who are "interested persons" (as defined in the
Investment Company Act of 1940) by virtue of their affiliation with either the
Portfolio, the Trust, the Manager or the Subadviser are indicated by an asterisk
(*).
The Trust and the Portfolio are managed by its Trustees and officers. Their
names, positions and principal occupations during the past five years are listed
below:
<TABLE>
<CAPTION>
Position Principal
Name & Address Held Occupation
- -------------- -------- ----------
<S> <C> <C>
ROBERT S. MEEDER, SR.*+ Trustee/ Chairman, R. Meeder &
President (1)(2) Associates, Inc. an
Investment Adviser
</TABLE>
25
<PAGE> 78
<TABLE>
<S> <C> <C>
MILTON S. BARTHOLOMEW Trustee (2) Retired, formerly a practicing
1424 Clubview Boulevard, S. attorney in Columbus, Ohio
Worthington, OH 43235 Member of the Portfolio's Audit
Committee.
JOHN M. EMERY Trustee (1) Retired, formerly Vice President
2390 McCoy Road & Treasurer of Columbus &
Columbus, OH 43220 Southern Ohio Electric Co.
Member of the Trust's Audit
Committee.
RICHARD A. FARR Trustee (1) President of R&R Supply Co.
3250 W. Henderson Rd. and General Manager of RAFCo.,
Columbus, OH 43220 Inc., two companies involved in
engineering, consulting & sales of
heating & air conditioning
equipment.
RUSSELL G. MEANS Trustee (2) Chairman of Employee Benefit
4789 Rings Road Management Corporation,
Dublin, OH 43017 consultants and administrators of
self-funded health and retirement
plans.
ROBERT S. MEEDER, JR.*+ Trustee (1)/ President of R. Meeder &
Vice President (1)(2) Associates, Inc.
WALTER L. OGLE Trustee (2) Executive Vice President of
One Corporate Drive Godwins, Booke & Dickenson,
Suite 600 Inc. employee benefit, compensation
Clearwater, Fl 43622 and human resource consultants.
PHILIP A. VOELKER*+ Trustee (2)/ Senior Vice President of R. Meeder
Vice President (1)(2) & Associates, Inc.
JAMES B CRAVER* Assistant Senior Vice President of Signature
6 St. James Avenue Secretary (1)(2) Financial Group, Inc. (since
Boston, MA 02116 January 1991); Partner, Baker &
Hostetler, a law firm (August 1984
to December 1990)
STEVEN T. McCABE*+ Assistant Controller, R. Meeder &
Treasurer (1)(2) Associates (since April 1991);
Assistant Treasurer, Cardinal
Group of Funds (October 1986 to
April 1990)
</TABLE>
26
<PAGE> 79
<TABLE>
<S> <C> <C>
DONALD F. MEEDER*+ Secretary/ Vice President of R. Meeder &
Treasurer (1)(2) Associates, Inc., and President of
Mutual Funds Service Company
WESLEY F. HOAG*+ Vice President (1)(2) General Counsel and Chief
Operating Officer of R. Meeder &
Associates, Inc. (since July 1993);
Attorney, Porter, Wright, Morris &
Arthur, a law firm (October 1984 to
June 1993)
ROGER D. BLACKWELL Trustee (1) Professor of Marketing and
Blackwell Associates, Inc. Consumer Behavior, The Ohio State
2929 Kenny Road, Suite 190 University, and President of
Columbus, OH 43221 Blackwell Associates, Inc., a
strategic consulting firm
NEIL P. RAMSEY Trustee (2) President, Ramsey Financial, a
Suite 215 private investment management
1230 Hurstbourne Parkway company
Louisville, KY 40222
</TABLE>
(1) Trustee and/or officer of The Flex-funds
(2) Trustee and/or officer of the Portfolio
* "Interested Person" of the Trust (as defined in the Investment Company Act of
1940) and Portfolio.
+ P.O. Box 7177, 6000 Memorial Drive, Dublin, Ohio 43017.
Robert S. Meeder, Sr. is Robert S. Meeder, Jr.'s father and Donald F.
Meeder's uncle.
Several Trustees and each officer of the Trust hold the same positions with
The Flex-Partners, a Massachusetts business trust consisting of three separate
series. Each Trustee and officer of the Portfolio hold the same positions with
each corresponding Portfolio of The Flex-funds. The Manager serves as the
investment adviser to each Portfolio of The Flex-Partners.
The Trust pays each Trustee who is not an "interested person" an annual fee
of $3,000, plus $750 for each meeting of the Board of Trustees attended
regardless of the number of Boards of Trustees on which each Trustee serves. Mr.
Emery comprises the Audit Committee for each of The Flex-Partners and The
Flex-funds Trusts. Mr. Emery is paid $400 for each meeting of the Audit
Committees attended regardless of the number of Audit Committees on which he
serves. All other officers and Trustees serve without compensation from the
Trust.
The Trustees and officers of the Fund and the Portfolio own, in the
aggregate, less than 1% of the Fund's total outstanding shares.
27
<PAGE> 80
FLEX-FUNDS RETIREMENT PLANS
The Trust offers retirement plans which are described in the Prospectus.
Minimum purchase requirements for retirement plan accounts are subject to the
same requirements as regular accounts, except for an IRA, which has a $500
minimum purchase requirement. Information concerning contribution limitations
for IRA accounts are described below.
Individual Retirement Accounts (IRA):
Limitation on Deductible Contributions - Under prior law an individual with
earned income, not yet 70 1/2 years of age, was allowed a deductible IRA
contribution, limited to the lesser of earned income or $2,000. Effective for
years beginning after December 31, 1986, applicable law limits the deductibility
of IRA contributions where the taxpayer is a participant in an
employer-sponsored retirement plan and had adjusted gross income (AGI) in excess
of $40,000 (joint) and $25,000 (single). For every dollar that AGI exceeds these
limits, the maximum deduction is reduced by twenty cents. Thus, a joint filer
with AGI greater than $50,000 who is covered by an employer-sponsored plan will
not be able to make a deductible IRA contribution. The deductible limits for
individuals not covered by an employer-sponsored plan were not changed.
Nondeductible Contributions - Individuals who may not make a deductible
contribution due to the limits noted above, may continue to make nondeductible
contributions subject to the prior $2,000 limitation. The earnings on such
contributions will still accumulate on a tax deferred basis. Individuals will be
required to report such contributions on their tax returns.
Rollover Contributions - Individuals who receive certain lump-sum
distributions from employer-sponsored retirement plans may make roll-over
contributions to an IRA and by doing so defer taxes on the distribution and
shelter any investment earnings.
A Spousal IRA is also available.
CONTRACTS WITH COMPANIES AFFILIATED WITH THE MANAGER
Mutual Funds Service Co. provides accounting, stock transfer, dividend
disbursing, and shareholder services to the Fund and 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. Subject to a $4,000 annual minimum fee, each
class of shares of the Fund will incur an annual fee, payable monthly, which
will be the greater of $15 per shareholder account or 0.10% of the Fund's
average net assets, payable monthly, for stock transfer and dividend disbursing
services. Mutual Funds Service Co. also serves as Administrator to the Fund
pursuant to an Administration Services Agreement which was effective February 1,
1995. 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 Trustees and shareholders,
registration statements and other necessary documents. The Fund incurs an annual
fee, payable monthly, of .03% of the Fund's average net assets. These fees are
reviewable annually by the respective Trustees of the Trust and the Portfolio.
28
<PAGE> 81
The general counsel for the Manager was primarily responsible for preparing
and filing with the Securities and Exchange Commission (i) a post-effective
amendment to the registration statement for the Trust to add the Fund as an
additional series of the Trust and (ii) the registration statement for the
Portfolio. Charges in the amounts of $12,000 and $5,000 for such legal services
rendered by the Manager on behalf of the Fund and the Portfolio, respectively,
will be paid and amortized by the Portfolio and the Fund as organization
expenses over a period not exceeding 60 months.
DESCRIPTION OF THE TRUST
TRUST ORGANIZATION. The assets of the Trust received for the issue or sale
of the shares of the Fund and all income, earnings, profits, and proceeds
thereof, subject only to the rights of creditors, are especially allocated to
the Fund and constitute the underlying assets of the Fund. The underlying assets
of the Fund are segregated on the books of account, and are to be charged with
the liabilities with respect to the Fund and with a share of the general
expenses of the Trust. Expenses with respect to the Trust are to be allocated in
proportion to the asset value of the respective funds except where allocations
of direct expense can otherwise be fairly made. The officers of the Trust,
subject to the general supervision of the Board of Trustees, have the power to
determine which expenses are allocable to a given fund, or which are general or
allocable to all of the funds. In the event of the dissolution or liquidation of
the Trust, shareholders of each fund are entitled to receive as a class the
underlying assets of such fund available for distribution.
SHAREHOLDER AND TRUSTEE LIABILITY. The Trust is an entity of the type
commonly known as a "Massachusetts business trust." Under Massachusetts law,
shareholders of such a trust may, under certain circumstances, be held
personally liable for the obligations of the trust. The Declaration of Trust
provides that the Trust shall not have any claim against shareholders except for
the payment of the purchase price of shares and requires that each agreement,
obligation, or instrument entered into or executed by the Trust or the Trustees
include a provision limiting the obligations created thereby to the Trust and
its assets.
The Declaration of Trust provides for indemnification out of each fund's
property of any shareholder held personally liable for the obligations of the
Fund. The Declaration of Trust also provides that each Fund shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of the Fund and satisfy any judgment thereon. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which a Fund itself would be unable to meet its
obligations. The Manager believes that, in view of the above, the risk of
personal liability to shareholders is remote.
The Declaration of Trust further provides that the Trustees, if they have
exercised reasonable care, will not be liable for any neglect or wrongdoing, but
nothing in the Declaration of Trust protects Trustees against any liability to
which they would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in the
conduct of their office.
VOTING RIGHTS. The Fund's capital consists of shares of beneficial interest.
As a shareholder, you receive one vote for each share you own. The shares have
no preemptive or conversion rights; the voting and dividend rights, the right of
redemption, and the privilege of exchange are described in the Prospectus.
Shares are fully paid and nonassessable, except as set forth under the heading
"Shareholder and Trustee Liability" above. Shareholders representing 10% or more
of the Trust or the Fund may, as set forth in the Declaration of Trust, call
meetings of the Trust or the Fund for any purpose related to the
29
<PAGE> 82
Trust or Fund, as the case may be, including, in the case of a meeting of the
entire Trust, the purpose of voting on removal of one or more Trustees. The
Trust or any Fund may be terminated upon the sale of its assets to another
open-end management investment company, or upon liquidation and distribution of
its assets, if approved by vote of the holders of a majority of the Trust or the
Fund, as determined by the current value of each shareholder's investment in the
Fund or Trust. If not so terminated, the Trust and the Fund will continue
indefinitely.
CUSTODIAN. Star 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.
AUDITOR. KPMG Peat Marwick LLP, Two Nationwide Plaza, Columbus, Ohio 43215,
serves as the trust's independent accountant. The auditor audits financial
statements for the Fund and provides other audit, tax, and related services.
FINANCIAL STATEMENTS
Financial statements for the Fund and the Portfolio are presented on the
following pages.
30
<PAGE> 83
STATEMENTS OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
TOTAL RETURN
UTILITIES
FUND
<S> <C>
Assets:
Investment in corresponding portfolio $2,434,191
Unamortized organizational costs 23,435
Other assets 16,194
-------------
Total Assets 2,473,820
-------------
Liabilities:
Dividends payable 870
Other accrued liabilities 28,963
-------------
Total Liabilities 29,833
-------------
Net Assets:
Capital 2,356,010
Accumulated net investment income (loss) (1)
Accumulated net realized gain (loss)
on investments 510
Net unrealized gain (loss) on investments 87,468
-------------
Net Assets $2,443,987
=============
Capital Stock Outstanding 189,345
-------------
Net Asset Value, Offering and
Redemption Price Per Share $12.91
-------------
</TABLE>
<PAGE> 84
STATEMENTS OF OPERATION
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
TOTAL RETURN
UTILITIES
FUND *
<S> <C>
Net investment income (loss) from corresponding portfolio:
Interest $ 4,816
Dividends 22,792
Expenses (14,947)
-------------
Total Net Investment Income (Loss) From
Corresponding Portfolio 12,661
-------------
Fund Expenses:
Legal fees 379
Audit fees 587
Printing 1,464
Postage 206
Transfer agent fees 796
Administrative fee 46
Trustees fees and expenses 1,339
Registration and filing fees 4,340
Distribution plan 694
Amortization of organizational costs 1,381
Other expenses 201
-------------
Total expenses 11,433
Expenses reimbursed by adviser (19,201)
-------------
Total Expenses - net (7,768)
-------------
INVESTMENT INCOME (LOSS) - NET 20,429
-------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS - NET:
Net realized gain (loss) - other 510
Unrealized appreciation (depreciation) of
investments 87,468
-------------
NET GAIN (LOSS) ON INVESTMENTS 87,978
-------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $108,407
=============
</TABLE>
* For the period June 21, 1995 to September 30, 1995
<PAGE> 85
STATEMENTS OF CHANGES IN NET ASSETS
NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
TOTAL RETURN
UTILITIES
FUND *
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Investment income (loss) - net $ 20,429
Net realized gain (loss) on investments 510
Net change in unrealized appreciation
(depreciation) of investments 87,468
-------------
Net increase (decrease) in net assets
resulting from operations 108,407
-------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Investment income - net (20,430)
-------------
Net decrease in net assets resulting
from dividends and distributions (20,430)
-------------
CAPITAL TRANSACTIONS:
Net proceeds from sales 2,340,168
Reinvestment of dividends 18,057
Cost of redemptions (2,215)
-------------
Net increase (decrease) in net assets
resulting from capital share transactions 2,356,010
-------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 2,443,987
NET ASSETS - Beginning of year 0
-------------
NET ASSETS - End of period $ 2,443,987
=============
SHARE TRANSACTIONS:
Issued 188,074
Reinvested 1,450
Redeemed (179)
-------------
Change in shares $ 189,345
=============
</TABLE>
* For the period June 21, 1995 to September 30, 1995
<PAGE> 86
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
UTILITY STOCK
PORTFOLIO
<S> <C>
ASSETS:
Investments at market value* $2,657,451
Repurchase Agreements* 54,000
Cash 424
Interest receivable 502
Dividends receivable 7,395
Prepaid/Other assets
Organization cost 42,383
----------
Total Assets 2,762,155
----------
LIABILITIES:
Payable for futures contracts settlement
Payable to investment advisor 2,115
Other accrued liabilities 46,271
----------
Total Liabilities 48,386
----------
NET ASSETS:
Capital 2,606,514
Accumulated net investment income (loss) 13,046
Accumulated net realized gain (loss)
on investments 523
Net unrealized gain (loss) on investments 93,686
----------
Net Assets $2,713,769
==========
*Securities at cost 2,617,764
</TABLE>
<PAGE> 87
STATEMENT OF OPERATION
FOR THE PERIOD JUNE 21, 1995 TO SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
UTILITY STOCK
PORTFOLIO*
<S> <C>
INVESTMENT INCOME - NET:
Interest $ 4,907
Dividends 23,575
--------
Total Income 28,482
--------
Expenses:
Investment advisory fees 5,892
Legal fees 356
Audit fees 1,845
Custodian fees 963
Accounting fees 2,245
Trustees fees and expenses 1,436
Insurance
Amortization of organization cost 2,507
Other expenses 193
--------
Total Expenses
Investment advisory fees waived 15,437
--------
Total Expenses - net 15,437
--------
INVESTMENT INCOME (LOSS) - NET 13,045
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on futures contracts
Net realized gain (loss) - other 523
Net change in unrealized appreciation (depreciation)
of investments 93,687
--------
NET GAIN (LOSS) ON INVESTMENTS 94,210
--------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $107,255
========
</TABLE>
<PAGE> 88
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD JUNE 21, 1995 TO SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
UTILITY STOCK
PORTFOLIO*
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Investment income (loss) - net $ 13,045
Net realized gain (loss) on investments 523
Net change in unrealized appreciation (depreciation)
of investments 93,687
----------
Net increase (decrease) in net assets resulting from
operations 107,255
----------
TRANSACTIONS OF INVESTORS' BENEFICIAL INTERESTS:
Contributions 2,622,373
Withdrawals (15,859)
----------
Net increase (decrease) in net assets resulting from
transactions of investors' beneficial interests 2,606,514
----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 2,713,769
NET ASSETS - Beginning of year 0
----------
NET ASSETS - End of period $2,713,769
==========
</TABLE>
<PAGE> 89
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
Financial Statements included in Part A
Financial Highlights
Financial Statements included in Part B
REGISTRANT - THE FLEX-FUNDS' TOTAL RETURN UTILITIES
FUND
Unaudited Statements of Assets and Liabilities - September 30, 1995
Unaudited Statements of Operations - For the period ended
September 30, 1995
Unaudited Statements of Changes in Net Assets - For the period ended
September 30, 1995
PORTFOLIOS - UTILITIES STOCK PORTFOLIO
Unaudited Statement of Assets and Liabilities - September 30, 1995
Unaudited Statement of Operations - For the period ended
September 30, 1995
Unaudited Statement of Changes in Net Assets - For the period ended
September 30, 1995
Statements and schedules other than those listed above are omitted because they
are not required, or because the information required is included in the
financial statements or notes thereto.
(b) Exhibits:
Not Applicable.
<PAGE> 90
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that this Amendment to
its Registration Statement meets all of the requirements for effectiveness of
this Amendment to its Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Dublin, and the State of Ohio on the 6th day of
December , 1995. -----
- ------------------
THE FLEX-FUNDS
BY: /s/ Donald F. Meeder
------------------------
Donald F. Meeder,
Secretary/Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Date Signed December 6, 1995 /s/ Donald F. Meeder
--------------- -------------------------------------
Donald F. Meeder, Secretary/Treasurer
As Attorney-in-Fact pursuant to
Special Powers of Attorney,
copies of which are enclosed herewith
as Exhibits, for Roger D. Blackwell, Richard A. Farr,
John M. Emery, Robert Meeder, Jr., and Robert Meeder, Sr.,
Trustees of The Flex-funds
Date Signed December 6, 1995 /s/ Donald F. Meeder
--------------- -------------------------------------
Donald F. Meeder, Attorney-in-Fact
<PAGE> 91
SIGNATURES
Mutual Fund Portfolio (the "Portfolio") has duly caused this Post-Effective
Amendment to the Registration on Form N-1A of The Flex-funds (File No. 2-85378)
to be signed on its behalf by the undersigned, thereunto duly authorized in the
City of Dublin and State of Ohio on the 6th day of
December , 1995. --------
- ---------------
MUTUAL FUND PORTFOLIO
By: /s/ Donald F. Meeder
----------------------------
Donald F. Meeder
This Post-Effective Amendment to the Registration Statement on Form N-1A of
The Flex-funds (File No. 2-85378) has been signed below by the following persons
in the capacities with respect to the Portfolio indicated on
December 6, 1995.
- ---------------
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
Robert S. Meeder, Sr.* President and Trustee
- ------------------------------
Robert S. Meeder, Sr.
Milton S. Bartholomew* Trustee
- ------------------------------
Milton S. Bartholomew
Russel G. Means* Trustee
- ------------------------------
Russel G. Means
Secretary/Treasurer, Principal Financial
/s/ Donald F. Meeder Officer and Principal Accounting Officer
- ------------------------------
Donald F. Meeder
Walter L. Ogle* Trustee
- ------------------------------
Walter L. Ogle
Philip A. Voelker* Vice President and Trustee
- ------------------------------
Philip A. Voelker
Neil P. Ramsey* Trustee
- ------------------------------
Neil P. Ramsey
</TABLE>
*By: /s/ Donald F. Meeder
-------------------------
Donald F. Meeder
Executed by Donald F. Meeder on behalf
of those indicated pursuant to Powers of Attorney
<PAGE> 92
SIGNATURES
Growth Stock Portfolio (the "Portfolio") has duly caused this Post-Effective
Amendment to the Registration on Form N-1A of The Flex-funds (File No. 2-85378)
to be signed on its behalf by the undersigned, thereunto duly authorized in the
City of Dublin and State of Ohio on the 6th day of
December , 1995. ---------
- ---------------
GROWTH STOCK PORTFOLIO
By: /s/ Donald F. Meeder
----------------------------
Donald F. Meeder
This Post-Effective Amendment to the Registration Statement on Form N-1A of
The Flex-funds (File No. 2-85378) has been signed below by the following persons
in the capacities with respect to the Portfolio indicated on
December 6 , 1995.
- ---------------------
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
Robert S. Meeder, Sr.* President and Trustee
- ------------------------------
Robert S. Meeder, Sr.
Milton S. Bartholomew* Trustee
- ------------------------------
Milton S. Bartholomew
Russel G. Means* Trustee
- ------------------------------
Russel G. Means
/s/ Donald F. Meeder Secretary/Treasurer, Principal Financial
- ------------------------------ Officer and Principal Accounting Officer
Donald F. Meeder
Walter L. Ogle* Trustee
- ------------------------------
Walter L. Ogle
Philip A. Voelker* Vice President and Trustee
- ------------------------------
Philip A. Voelker
Neil P. Ramsey* Trustee
- ------------------------------
Neil P. Ramsey
</TABLE>
*By: /s/ Donald F. Meeder
-------------------------
Donald F. Meeder
Executed by Donald F. Meeder on behalf
of those indicated pursuant to Powers of Attorney
<PAGE> 93
SIGNATURES
Utilities Stock Portfolio (the "Portfolio") has duly caused this
Post-Effective Amendment to the Registration on Form N-1A of The Flex-funds
(File No. 2-85378) to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Dublin and State of Ohio on the _________ day of
_________________________, 1995.
UTILITIES STOCK PORTFOLIO
By: ____________________________
Donald F. Meeder
This Post-Effective Amendment to the Registration Statement on Form N-1A of
The Flex-funds (File No. 2-85378) has been signed below by the following persons
in the capacities with respect to the Portfolio indicated on
_____________________, 1995.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
Robert S. Meeder, Sr.* President and Trustee
- ------------------------------
Robert S. Meeder, Sr.
Milton S. Bartholomew* Trustee
- ------------------------------
Milton S. Bartholomew
Russel G. Means* Trustee
- ------------------------------
Russel G. Means
Secretary/Treasurer, Principal Financial
- ------------------------------ Officer and Principal Accounting Officer
Donald F. Meeder
Walter L. Ogle* Trustee
- ------------------------------
Walter L. Ogle
Philip A. Voelker* Vice President and Trustee
- ------------------------------
Philip A. Voelker
Neil P. Ramsey* Trustee
- ------------------------------
Neil P. Ramsey
</TABLE>
*By:
-------------------------
Donald F. Meeder
Executed by Donald F. Meeder on behalf
of those indicated pursuant to Powers of Attorney
